U.S. v. Southern Management Corp., 90-2496

• Decision Date: 03 February 1992
• Docket Number: No. 90-2496,90-2496
• Citation: 955 F.2d 914
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. SOUTHERN MANAGEMENT CORPORATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 914

955 F.2d 914

60 USLW 2521

UNITED STATES of America, Plaintiff-Appellee, v. SOUTHERN MANAGEMENT CORPORATION, Defendant-Appellant.

No. 90-2496.

United States Court of Appeals, Fourth Circuit.

Argued July 31, 1991.

Decided Feb. 3, 1992.

Stephen Anthony Horvath, Lewis, Trichilo & Bancroft, P.C., Fairfax, Va., argued (Howard R. Porter, Lewis, Trichilo & Bancroft, P.C., Fairfax, Va. and Michael Winer, Silver Spring, Md., on brief), for defendant-appellant.

Miriam Rachel Eisenstein, U.S. Dept. of Justice, Washington, D.C., argued (John R. Dunne, Asst. Atty. Gen., Jessica Dunsay Silver, U.S. Dept. of Justice, Washington, D.C., Henry E. Hudson, U.S. Atty., Dennis Edward Szybala, Asst. U.S. Atty., Alexandria, Va., and John Adam Martin, III, Asst. County Atty., County Attorney's Office of County of Fairfax, Fairfax, Va., on brief), for plaintiff-appellee.

Michael R. McAdoo and Francis H. Young, Falls Church, Va., on brief, for amicus curiae.

Before RUSSELL, WIDENER and HALL, Circuit Judges.

OPINION

K.K. HALL, Circuit Judge:

Southern Management Corporation ("SMC") appeals the judgment entered against it for compensatory and punitive damages, civil penalties, and injunctive relief. We vacate the award of monetary damages and penalties, but affirm the injunction.

I.

The Fairfax-Falls Church Community Services Board ("Board") operates the Crossroads drug and alcohol abuse program in Alexandria, Virginia. During the first phase of the program, the Board's clients live at the Crossroads facility, receive counseling and therapy, and are tested for drug use on a regular basis. After a drug-free year, each client is evaluated for suitability for the second, or "reentry," phase of the program. In this reentry phase, clients live in apartments rented by the Board, while continuing to be supervised and monitored by Crossroads employees. This supervision includes twice-monthly drug tests. Clients in phase two who test positive for drugs or violate other program rules are discharged from the program and evicted from the Board-rented apartment.

SMC manages a number of apartment complexes in the District of Columbia metropolitan area, including the Kings Gardens complex in northern Virginia. In July 1989, SMC employees at Kings Gardens were approached by Crossroads officials about leasing apartments for use in phase two of the treatment program. Although the specifics of these contacts were disputed, the bottom line is that the Board was unable to lease any units. The United States then brought this action under the Fair Housing Act, 42 U.S.C. § 3601 et seq. (1990) ("Act"), claiming that SMC's refusal to rent to the Board constituted illegal discrimination against handicapped individuals. In a pivotal ruling on cross-motions for summary judgment, the court ruled that the Board's clients were handicapped and were covered by the Act. A jury returned a verdict in which it found no pattern or practice of discrimination. However, the jury did find that SMC violated the rights of the Board's clients and awarded the Board compensatory damages of $10,000. The jury further assessed punitive damages against SMC in the amount of $26,280, and judgment was entered against SMC for these amounts on September 26, 1990.

In addition, the district court assessed a $50,000 penalty against 3388 102 1 SMC, pursuant to the authority conferred by 42 U.S.C. § 3614(d)(1)(C) (1990). The court also enjoined SMC from future discrimination against handicapped persons; specifically, SMC was ordered to rent to the Board for occupancy by Board clients in the reentry phase of the Crossroads program. The injunction order sets forth a detailed procedure governing Board rentals. Each prospective tenant from Crossroads may be interviewed by SMC and subjected to the same suitability criteria as other prospective tenants, and continued occupancy is dependent on adherence to apartment rules to the same extent as other tenants. The Board is required to closely supervise its client-tenants, and SMC must be provided with a telephone number at which the Board can be contacted 24 hours a day should problems arise concerning any client-tenant.

SMC appeals both the judgment entered on the jury verdict and the judgment imposing the penalty. Although the specific elements of the injunction are not challenged on appeal, the legal underpinning for the injunction, i.e., that the Act prohibits discrimination against the Board's clients, is the threshold issue, which, if decided in SMC's favor, would topple the injunction along with the damage awards and the penalty. We turn first to this threshold issue.

II.

The first obstacle to the government's case was whether the phase two clients, allegedly "recovering addicts" and other former drug users who had completed at least one drug-free year in phase one, came within the Fair Housing Act's definition of "handicap." In 1988, the Fair Housing Act of 1968 was overhauled. Fair Housing Amendments Act of 1988, Pub.L. No. 100-430, 102 Stat. 1619 (1988). Prior to the amendments, the Fair Housing Act prohibited various forms of housing-related discrimination based on "race, color, religion, or national origin." Pub.L. No. 90-284, Title VIII, § 804, 82 Stat. 83 (1968). In 1974, discrimination based on sex was added. Pub.L. No. 93-383, Title VIII, § 808(b)(1), 88 Stat. 729 (1974). In 1988, prohibitions against housing discrimination based on "familial status" or "handicap" were added to the Act. Pub.L. No. 100-430, § 6, 102 Stat. 1619, 1620-21 (1988). The terms "familial status" and "handicap," having meanings less concrete than "race, color, religion, sex, or national origin," required further definition. Congress' attempt to deal with drug use/addiction under the "handicap" rubric sowed the seeds of this litigation.

The source of the dispute lies in the following definition added by § 5(b) of the 1988 amendments (codified at 42 U.S.C. § 3602(h) (1990)):

(h) "Handicap" means, with respect to a person--

(1) a physical or mental impairment which substantially limits one or more of such person's major life activities,

(2) a record of having such an impairment, or

(3) being regarded as having such an impairment,

but such term does not include current, illegal use of or addiction to a controlled substance as defined in section 802 of Title 21.

Basically, SMC's argument is that (1) the Board's clients do not meet the general definition of "handicap" in subsections (h)(1)-(3), and (2) even if they do, they are excluded by the proviso at the end of the section. Before addressing the drug user/addict exclusion, we must first determine whether the clients even fall within the general definition of "handicap" under § 3602(h)(1)-(3).

III.

This issue of statutory interpretation first arose during the discovery phase of the litigation. SMC propounded a request for the production of extensive records of the Board's clientele, including records concerning intake, treatment, and prior criminal history. The government objected, arguing that such information was confidential under 42 U.S.C. § 290dd-3 and § 290ee-3. These statutes safeguard the confidentiality of the records of patients at substance abuse centers. An exception to nondisclosure is that a court order may be issued for good cause after the court has weighed the various interests involved.

SMC countered that production was warranted because it was entitled to know whether any prospective tenants were still using drugs, whether any would pose a threat to other tenants at Kings Gardens, whether any were still "addicted" after completion of phase one, and whether the dependency problem of any prospective tenant was such that it did not impair any "major life activities" of that client. In short, SMC was attempting to prove that its refusal to lease to the Board was justified because all or some of the clients were not covered by the Fair Housing Act. The district court resolved the discovery issue by entering a protective order that required production of records of only the eight clients for whom the apartments were initially sought. The only records required to be produced were those pertaining to current use of drugs, past convictions for the manufacture or distribution of illegal drugs, and a physician's diagnosis of drug abuse. Further, the names of the individual clients were redacted, foreclosing any independent background investigations by SMC.

SMC posits as error the government's failure to demonstrate how each client initially slated for an apartment at Kings Gardens had a substantial limitation of "one or more ... major life activities." The government responds in a conclusory fashion to the effect that if the clients were in rehabilitation, they must ipso facto be impaired to a significant degree. ¹ See Burka v. New York City Transit Authority, 680 F.Supp. 590, 600, n. 18 (S.D.N.Y.1988) (suggesting that one who seeks treatment for a drug-dependency problem is handicapped within the meaning of the Rehabilitation Act). Although this facet of the argument receives only cursory treatment in the briefs, we feel that extended discussion is helpful to an understanding of our later discussion of the drug use/addiction exclusion.

Whether or not a particular person is handicapped is usually an individualized inquiry. Forrisi v. Bowen, 794 F.2d 931, 933 (4th Cir.1986) (decided under the Rehabilitation Act of 1973). This individualized approach was short-circuited in the instant case when the district court granted summary judgment to the government on the issue of whether the Board's clients fell within the definition of handicap at 42 U.S.C. § 3602(h). The court did so at this early stage in the litigation despite the limited information about the particular clients slated for initial tenancy. Notwithstanding the court's refusal to allow SMC to conduct a more in-depth client-by-client inquiry, we do not find the court's ruling in this regard to have been premature or...