Tillman v. Wheaton-Haven Recreation Ass'n, Inc., WHEATON-HAVEN

Citation517 F.2d 1141
Decision Date13 June 1975
Docket NumberNo. 14957,WHEATON-HAVEN,14957
PartiesMurray TILLMAN et al., Appellants, v.RECREATION ASSOCIATION, INC., et al., Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (4th Circuit)

Allison W. Brown, Jr., Washington, D. C. (Edward L. Genn, Washington, D. C., Melvin L. Wulf, New York City, and Ralph J. Temple, Washington, D. C., on brief), for appellants.

Henry J. Noyes, Rockville, Md., for appellees.

Carl E. Eastwick, Baltimore, Md. (John H. Mudd and H. Thomas Howell, Baltimore, Md., on brief), for E. Richard McIntyre, appellee.

Before BOREMAN, Senior Circuit Judge, BUTZNER, Circuit Judge, and MERHIGE, District Judge.

BUTZNER, Circuit Judge:

In Tillman v. Wheaton-Haven Recreation Association, Inc., 410 U.S. 431, 93 S.Ct. 1080, 35 L.Ed.2d 412 (1973), the Supreme Court held that a community swimming pool association, organized as a non-profit corporation, had unlawfully discriminated against black applicants for membership. It remanded the case for further proceedings, including consideration of the association's exclusion of black guests. Subsequently, the district court enjoined Wheaton-Haven from continuing its discriminatory membership and guest policies. It awarded the individual complainants compensatory damages and costs but dismissed their claim for punitive damages. The parties have not appealed any of these provisions of the decree.

Also on remand, the district court absolved the directors from all liability and allowed attorneys' fees only in the amount of $200 for the services of American Civil Liberties Union staff attorneys. The complainants appeal these provisions of the order, seeking to impose liability on the directors and to obtain fees for the services of volunteer lawyers who are not members of the ACLU staff. We reverse and remand the case for further proceedings.

I

The appellants brought this action for injunctive relief and damages against both the corporation and its directors, alleging that jointly and severally the appellees had violated the Civil Rights Acts of 1866 and 1964 (42 U.S.C. §§ 1981, 1982 and 2000a). 1 The evidence sustained the appellants' allegations by disclosing that the directors, with the possible exception of E. Richard McIntyre, had adopted and enforced the discriminatory corporate policies that harmed the appellants. The district court awarded a total of $5,356 compensatory damages against the corporation. However, it held that proof of the directors' knowledge of the wrongfulness of the corporation's act was necessary to establish their personal liability. Accordingly, it dismissed the directors, finding that they did not know, nor in the exercise of due diligence could they have known, that the exclusionary policy of the corporation was illegal. The primary issue, therefore, is whether the directors are absolved from liability because they failed to realize the illegality of their acts.

An action brought under statutes forbidding racial discrimination is fundamentally for the redress of a tort. Curtis v. Loether,415 U.S. 189, 195, 94 S.Ct. 1005, 39 L.Ed.2d 260 (1974). There can be no doubt that the directors acted voluntarily and intentionally. This is ordinarily sufficient to support liability for tort when the act invades an interest which the law protects. See Prosser, Law of Torts § 8 (4th ed. 1971). Generally, a tortfeasor who acted intentionally cannot defend on the ground that he mistook the law. See Prosser, Law of Torts §§ 8 and 17 (4th ed. 1971). Sections 1981 and 1982 create no exceptions to these principles. In dealing with racial discrimination, the Supreme Court has pointed out that good intent and good faith are not defenses. The law is directed at the consequences, not the motivation, of discrimination. Griggs v. Duke Power Co., 401 U.S. 424, 432, 91 S.Ct. 849, 28 L.Ed.2d 158 (1971); Cooper v. Aaron, 358 U.S. 1, 15, 78 S.Ct. 1401, 3 L.Ed.2d 5 (1958). The Civil Rights Act of 1866 governs those who are insensitive to the racial discrimination that the Act abolished as well as those who are aware of its scope. Jones v. Mayer Co., 392 U.S. 409, 88 S.Ct. 2186, 20 L.Ed.2d 1189 (1968). We hold, therefore, that a complainant relying on § 1981 or § 1982 need not prove that the defendant knew the duties these statutes impose. Stated conversely, ignorance of the rights secured by these statutes is not a defense to an action brought to enforce them.

We now turn to the contention that the peculiar nature of the office of a private corporation's director shields him from liability under §§ 1981 and 1982. Our starting point is the construction placed on 42 U.S.C. § 1983, which is derived from the Act of 1871, to enforce the fourteenth amendment. 2 Drawing on English and American precedents, the Supreme Court held that § 1983, though cast in absolute terms, did not abolish the common law immunities granted some public officials in the performance of their duties. Scheuer v. Rhodes, 416 U.S. 232, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974); Pierson v. Ray, 386 U.S. 547 (1967); Tenney v. Brandhove, 341 U.S. 367, 71 S.Ct. 783, 95 L.Ed. 1019 (1951). In short, the Court interpreted § 1983 as neither enlarging nor diminishing traditional immunities of public officials. Comparably, §§ 1981 and 1982 should be interpreted as neither enlarging nor diminishing the liability of directors under general corporation law for tortious acts performed nominally by the corporation.

If a director does not personally participate in the corporation's tort, general corporation law does not subject him to liability simply by virtue of his office. Fletcher v. Havre de Grace Fireworks Co., 229 Md. 196, 177 A.2d 908, 910 (1962). This rule may be applicable to one of the directors, E. Richard McIntyre, who claims that he did not participate in the adoption and enforcement of the corporation's racial policy. On remand, therefore, the district court should conduct an evidentiary hearing to assess McIntyre's defense. 3

In contrast, a director who actually votes for the commission of a tort is personally liable, even though the wrongful act is performed in the name of the corporation. Tedrow v. Deskin, 265 Md. 546, 290 A.2d 799, 802 (1972); see 3 Fletcher, Cyclopedia of the Law of Private Corporations, §§ 1135, 1137 (Rev. ed. 1965). Proof that the director voluntarily and intentionally caused the corporation to act is sufficient to make him personally accountable. Aeroglide Corp. v. Zeh, 301 F.2d 420 (2d Cir. 1962). For example, in Peck v. Cooper, 112 Ill. 192 (1884), the court held the president of an omnibus company, who apparently also served as a director, individually liable for instructing the company's drivers "not to permit colored persons to ride in their omnibuses." The court ruled that the president's status as an officer of the corporation afforded him no protection, nor was he exonerated from liability because the corporation was also liable. Only when wrongful intent is an element of a tort can a director who acted innocently escape liability. Even in such instances, the defense does not arise from the peculiar nature of a director's office, but rather from the elements of the tort. See, e. g., Mitchell v. Deeds, 49 Ill. 416 (1867) (fraud).

The directors, pointing out that counsel had assured them that their exclusion of blacks was legal and emphasizing that the district court and a majority of this court had ruled in their favor, claim exoneration on the basis of the affirmative defense of due diligence. The district court agreed and, relying on that doctrine, absolved the directors from all liability for their tort.

The flaw in the directors' argument is their failure to place the defense of due diligence in its proper context. Due diligence is a defense for corporate directors who are charged with failing to exercise reasonable care. Its genesis is the law of negligence. None of the cases on which the directors rely applies the doctrine to an intentionally tortious act against a third person. An analysis of the cases cited as supporting the directors exposes the fallacy of their position.

Escott v. BarChris Construction Corp., 283 F.Supp. 643 (S.D.N.Y.1968), dealt with a claim that a registration statement violated the Securities Act of 1933 because it contained false statements and material omissions. The court, at 283 F.Supp. 682, pointed out that § 11(b) of the Act created a due diligence defense. It therefore examined the transaction to determine whether the directors had made a reasonable investigation of the facts. The case does not support the directors' claim that due diligence is a defense to ignorance of the law.

Similarly, Securities and Exchange Commission v. Texas Gulf Sulphur Co., 401 F.2d 833, 854-856 (2d Cir. 1968), does not support the contention that a director may violate the law with impunity if he relies on counsel. The pertinent aspect of the case involved an insider's good faith defense under § 10b of the Securities Exchange Act of 1934. The court, after examining the facts, found that the insiders could not have reasonably believed that certain news was public at the time of their purchase orders. Accordingly, it denied the good faith defense. Again, the case turned on the directors' knowledge of the facts, not their knowledge of the law.

Spirt v. Bechtel, 232 F.2d 241 (2d Cir. 1956), and Gilbert v. Burnside, 13 A.D.2d 982, 216 N.Y.S.2d 430 (1961), aff'd 11 N.Y.2d 960, 229 N.Y.S.2d 10, 183 N.E.2d 325 (1962), come closer to supporting the Wheaton-Haven directors. Both cases were derivative actions in which the directors successfully asserted the defense that they had relied on counsel's interpretation of the law. The decisions are based on the premise that a director owes the corporation he serves the duty of due care. He therefore is liable to the corporation for negligence in the performance of his official duties. Henn, Corporations §...

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