U.S. v. Space Hunters, Inc.

• Decision Date: 09 November 2005
• Docket Number: Docket No. 05-0481-CV(CON).,Docket No. 02-6313-CV(L).,Docket No. 04-6681-CV(XAP).
• Citation: 429 F.3d 416
• Parties: UNITED STATES of America, Plaintiff-Appellant-Cross-Appellee, v. SPACE HUNTERS, INC., John McDermott, Defendants-Appellees-Cross-Appellants.
• Court: U.S. Court of Appeals — Second Circuit

429 F.3d 416

UNITED STATES of America, Plaintiff-Appellant-Cross-Appellee, v. SPACE HUNTERS, INC., John McDermott, Defendants-Appellees-Cross-Appellants.

Docket No. 02-6313-CV(L).

Docket No. 04-6681-CV(XAP).

Docket No. 05-0481-CV(CON).

United States Court of Appeals, Second Circuit.

Argued: September 16, 2005.

Decided: November 9, 2005.

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Andrew W. Schilling, Assistant United States Attorney, for David N. Kelley, United States Attorney for the Southern District of New York, New York, N.Y. (Sara L. Shudofsky, on the brief), for Plaintiff-Appellant-Cross-Appellee.

E. Christopher Murray, Reisman, Peirez & Reisman, L.L.P., Garden City, N.Y. (Megan F. Carroll, on the brief), for Defendants-Appellees-Cross-Appellants.

Before: McLAUGHLIN and CABRANES, Circuit Judges, and MUKASEY, District Judge.^*

McLAUGHLIN, Circuit Judge.

This appeal arises from defendants Space Hunters, Inc. and John McDermott's (together, "defendants") alleged discrimination based on both race and disability, in the New York City room rental market. The Government brought seven claims for relief against the defendants under the Fair Housing Act (the "FHA"), which prohibits discrimination in the housing market based on, inter alia, race, color, religion, sex, national origin, or disability. The United States District Court for the Southern District of New York (Casey, J.) dismissed all but one of those claims.

At trial on the remaining claim, the district court struck the Government's claim for punitive damages. The jury returned a verdict in favor of the Government, and the district court denied defendants' motion for judgment as a matter of law. The Government now appeals the district court's dismissal of six of their seven FHA claims and the district court's decision to strike its claim for punitive damages. Defendants cross-appeal the district court's denial of their motion for judgment as a matter of law.

We hold that the district court (1) erred in limiting the application of section 804(c) of the FHA to owners and their agents; (2) erred in treating the exemption found in section 803(b)(2) as a jurisdictional limitation; (3) should have allowed the jury to consider punitive damages; and (4) correctly denied defendants' motion for judgment as a matter of law. Thus, we affirm in part, vacate in part, and remand for further proceedings consistent with this opinion.

BACKGROUND

John McDermott has been involved in the rental housing market in New York City and surrounding areas since 1976. In that time, he has operated or worked for several different corporations that supply housing information to prospective renters.

From the late 1980s until April 1996, McDermott operated a corporation entitled Places to Live, Inc., where he admittedly steered prospective tenants to rooms on the basis of race. Because of this practice, the State of New York and others sued Places to Live and McDermott in February 1994, alleging violations of the FHA and other federal and state statutes. In June 1996, that action was settled through a consent judgment, which permanently enjoined McDermott from, inter alia, violating the FHA.

In February 1996, the State of New York commenced a separate proceeding against McDermott seeking to revoke his real estate broker's license. A hearing examiner found, inter alia, that McDermott had continued his practice of racial steering despite the 1996 consent judgment and another consent order that had been entered in 1993, and revoked McDermott's broker's license in October 1997.

Three days before the revocation of his broker's license, McDermott started a corporation entitled Space Hunters. Space Hunters, in its capacity as a housing information vender, compiles information from classified advertisements about rooms for rent in New York City, advertises the availability of rooms for rent, communicates with owners or landlords of rooms for rent, and refers prospective tenants according to their preferred neighborhood and price range. Space Hunters charges prospective tenants a fee for its services, usually $100 for an individual and $125 for a couple. According to defendants (but disputed by the Government), Space Hunters does not advertise apartments or rooms at locations where the owner does not reside or where more than four families live.

In March 2000, the Government sued defendants in the Southern District of New York, alleging several violations of the FHA. The complaint alleges the following.

In January 1999, Keith Toto, who is deaf, telephoned Space Hunters through the services of a relay service operator after seeing a Space Hunters newspaper advertisement.¹ The person who answered the call told Toto that Space Hunters does not service the disabled. When Toto persisted, the Space Hunters employee said, "[e]at shit," and hung up.

In February 1999, Toto filed a claim with the United States Department of Housing and Urban Development ("HUD") alleging that Space Hunters discriminated on the basis of disability. In March 1999, a HUD investigator requested the Fair Housing Council of Northern New Jersey (the "FHC"), a non-profit group used by HUD to assist with investigations into alleged FHA violations, to conduct a test to determine if Space Hunters discriminates against disabled individuals. That same month, an FHC tester called Space Hunters through a relay service operator. The person who answered the call at Space Hunters refused to speak with the tester through the operator, stating only, "[g]ive me shit about Jesus Christ Almighty," and ended the call.

A few days later, a second tester called Space Hunters through a relay service operator. The person who answered the phone at Space Hunters said, "[n]ot interested, take a hike," and hung up the telephone.

Thereafter, a HUD investigator telephoned Space Hunters and informed the person with whom she spoke that she was investigating a complaint alleging discrimination against persons with disabilities. The individual at Space Hunters became abrasive and loud, arguing that he was not required to deal with hearing-impaired people. When the HUD investigator, who is black, described the complaint's allegations, the individual at Space Hunters responded with an expletive and a racial epithet.²

In light of the use of a racial epithet by a Space Hunters employee, HUD asked the FHC to conduct tests to determine whether Space Hunters also discriminates on the basis of race. In April 1999, the FHC sent several testers to Space Hunters.

The FHC testers heard McDermott repeatedly make derogatory remarks about blacks and use racial epithets. For example, a white tester observed McDermott treat a black couple in a rude and condescending manner. After they left his office, McDermott made crude remarks about the couple. McDermott called the white tester the "Donald Trump" of people who usually come to his office, saying that he "get[s] a lot of lowlife, scumbag [minorities] that come in." Additionally, Space Hunters treated black and white testers differently under similar circumstances and did not provide the same range of services to the black testers as it provided to the white testers.

After its tests were complete, the FHC filed a complaint with HUD alleging that defendants discriminated in the housing market in violation of the FHA. In January 2000, HUD issued a charge of discrimination, pursuant to 42 U.S.C. § 3610(g)(2)(A), based on both Toto's and the FHC's complaints. Defendants elected, pursuant to 42 U.S.C. § 3612(a), to have the charges heard in a civil action instead of a hearing before a HUD administrative law judge. Thereafter, pursuant to 42 U.S.C. § 3612(o)(1), the Secretary of HUD authorized the Attorney General to commence this action in the district court on behalf of Toto and the FHC.

The complaint alleges seven claims for relief under the FHA. The first four claims are brought on behalf of Toto. Claim One alleges that defendants discriminated against Toto in the rental market because of Toto's disability, in violation of section 804(f)(1)(A) of the FHA, 42 U.S.C. § 3604(f)(1)(A). Claim Two alleges that defendants refused to accommodate Toto's disability in violation of section 804(f)(3)(B) of the FHA, 42 U.S.C. § 3604(f)(3)(B). Claim Three alleges that defendants made discriminatory statements to Toto in violation of section 804(c) of the FHA, 42 U.S.C. § 3604(c). Claim Four alleges that defendants denied Toto access to rental services in violation of section 806 of the FHA, 42 U.S.C. § 3606.

The remaining three claims are brought on behalf of the FHC testers. Claim Five alleges that defendants made housing unavailable to the testers because or race or color in violation of section 804(a) of the FHA, 42 U.S.C. § 3604(a). Claim Six alleges that defendants discriminated against the testers in violation of section 804(b) of the FHA, 42 U.S.C. § 3604(b). Claim Seven alleges that defendants made discriminatory statements to the testers in violation of section 804(c) of the FHA, 42 U.S.C. § 3604(c).

The complaint seeks declaratory and injunctive relief. It also asks for compensatory and punitive damages.

In December 2000, defendants moved to dismiss the complaint. In August 2001, the district court granted the motion as to all the claims except Claim Four. United States v. Space Hunters, Inc., No. 00 Civ. 1781(RCC), 2001 WL 968993 (S.D.N.Y. Aug.24, 2001). The district court dismissed Claims One, Two, Five, and Six based on the exemption in section 803(b)(2) of the FHA, 42 U.S.C. § 3603(b)(2), which states that most of the provisions of section 804 of the FHA, 42 U.S.C. § 3604, do not apply to housing that is occupied by four or less families and in which the owner lives. The district court found that Space Hunters "only lists rooms in owner-occupied buildings where less than four families live independently of each other." Based on that finding, the court assumed that it lacked jurisdiction over claims to which the...