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Fair Housing Act Discrimination Claims Reinstated Against Apartment Rental Service � Offensive Statements About Handicapped and Minorities � Punitive Damages The U.S. government appealed from the dismissal of Fair Housing Act (FHA) claims and the striking of a claim for punitive damages by a trial court. The defendants cross appealed from denial of their motion for summary judgment. The government had alleged that the defendants had discriminated based on race and disability, in the New York City apartment rental market. The FHA prohibits discrimination in the housing market predicated upon, inter alia, “race, color, religion, sex, national origin, or disability.” The U.S. Court of Appeals for the Second Circuit held that the trial court erred in limiting the application of FHA �804(c) to owners and their agents, erred in treating the exemption found in FHA �803(b)(2) as a jurisdictional limitation, should have allowed the jury to consider punitive damages and correctly denied the defendants’ motion for summary judgment. The individual defendant (“A”), from the late 1980′s until April 1996, operated a rental housing information company where he “admittedly steered prospective tenants to rooms on the basis of race.” In June 1996, “A” and New York State settled an action through a consent judgment which permanently enjoined “A” from violating the FHA. In February 1996, the state commenced a separate proceeding, seeking to revoke “A”‘s real estate broker’s license. A hearing examiner found that “A” had continued his practice of racial steering and revoked “A”‘s broker’s license in 1997. “A” thereafter started defendant corporation (“B”). “B” charged prospective tenants a fee for its services and allegedly did not advertise apartments or rooms at locations where the owner did not reside or where more than four families live. The government alleged that a deaf person telephoned “B” through the services of a relay service operator. “A”, as an employee of “B” stated that “B” did not service the disabled. When the caller persisted, “A” stated “[e]at shit” and hung up. The caller then filed a claim with the U.S. Department of Housing and Urban Development (HUD), alleging that “B” discriminated on the basis of disability. A HUD investigator found that “A” refused to speak to the tester through the relay operator, and had made a similar derogatory statement. A second tester was told by “A” that “B” was “[n]ot interested, take a hike,” and hung up. The testers heard “A” “repeatedly make derogatory remarks about [African Americans] and used racial epithets” when they sent several testers to “A”‘s office. “A” allegedly stated that he “gets a lot of lowlife, scumbag [minorities] that come in” and “B” did not provide the same range of services to black testers as were provided to “white” testers. On the defendants’ motion to dismiss, the trial court dismissed certain claims based on the exemption in FHA �803(b)(2) which provides that most of the provisions of FHA �804 were inapplicable to housing that is occupied by four or less families and in which the owner lives. The trial court found that “B” only listed rooms in owner occupied buildings where less than four families live independently of each other. The trial court assumed therefore, that it lacked jurisdiction over claims to which the exemption applied. With respect to other claims, the trial court dismissed certain other claims on the grounds that FHA �804(c) applies only to the dwelling owners and their agents and that “B” is neither an owner nor an agent. The trial court also denied the defendants’ motion to dismiss a claim based on FHA �806, based on defendants’ argument that such section only applies to “multiple listing services.” The trial court thereafter conducted a jury trial on the claim that the defendants denied individual access to rental services in violation of FHA �806. “A” testified that “B” does not take calls from the relay service operator because such calls take “too much time and the guy can’t come in and sign up anyway because he is not able to come to my business and do business with me . . . and I am not going to deal with somebody and use sign language.” “A” testified that there would have to be “‘cases where you can say to a relay service operator go rub salt up your ass.’” “A” admitted that he had uttered the words “eat shit, asshole” and claimed that he had erased tapes of telephone calls that “B” normally records. Following the government’s witnesses, all of whom testified as to the defendant’s misconduct, the defendants did not call any witnesses. In dismissing the punitive damage claim, the trial court stated that the record was devoid of any “evil intent on behalf of the defendant or callus disregard for [complainant's] legal rights.” The jury returned a verdict in favor of the government and awarded the complainant $1,500 in compensatory damages. The trial court also granted the government’s motion for a permanent injunction, enjoining defendants from violating the FHA and requiring various record keeping and monetary obligations for a period of three years. On appeal, the court held that FHA �804(c) does not apply only to dwelling owners and their agents. The court characterized the defendants’ theory as a “crabbed” reading of the statute. “[t]o make, print, or publish, or cause to be made, printed or published any notice, statement, or advertisement, with respect to the sale or rental of a dwelling that indicates any preference, limitation, or discrimination based on race, color, religion, sex, handicap, familial status, or national origin, or an intention to make any such preference, limitation, or discrimination.” The court reasoned that FHA �804(c) applies broadly to “any notice, statement or advertisement, with respect to the sale or rental or a dwelling that indicates” a discriminatory preference on prohibited grounds. Nothing in the statutory language limited the statute’s scope to owners or agents or to statements that directly effect a housing transaction. The court opined that the trial court’s view that FHA �804(c)’s purpose is to prevent “expressions that result in the denial of housing” was too narrow.” Rather, the statute also protects against “the psychic injury” caused by discriminatory statements made in connection with the housing market. The defendants asserted that the government position violated the defendants’ First Amendment rights. The court explained that while there may be some cases in which the breadth of �804(c) may encroach upon the First Amendment, “this is not one of those cases.” The subject case “unmistakably involves commercial speech, a subset of speech for which the First Amendment ‘accords a lesser protection . . . than to other constitutionally guaranteed expression.’” “Courts have consistently found that commercial speech that violates section 804(c) is not protected by the First Amendment.” Accordingly, the Court held that the trial court should not have dismissed the �804(c) claims. FHA �803(b)(2) is commonly referred to as the “Mrs. Murphy” exemption on the theory that the statute did not reach the “metaphorical ‘Mrs. Murphy’s boardinghouse.’” The section provides: “[n]othing in section [804] . . . (other than subsection (c) shall apply to . . . rooms or units in dwellings containing living quarters occupied or intended to be occupied by no more than four families living independently of each other, if the owner actually maintains and occupies one of such living quarters as his residence.” The court explained that although the trial court viewed this exemption as a limitation on subject matter jurisdiction, it is an “affirmative defense having no bearing on jurisdiction.” The panel believed that the trial court had considered evidence outside the complaint and it prematurely resolved a disputed factual issue as to whether the defendants only list rooms in owner occupied buildings where less than four families live independently of each other. Since the “Mrs. Murphy” exemption is an affirmative defense, it had no bearing on subject matter jurisdiction, i.e., the trial court erred in granting the defendants’ motions to dismiss. The panel then held that the trial court erred in striking the claim for punitive damages. The FHA provides for recovery of punitive damages by plaintiffs who have suffered discriminatory housing practices. Punitive damages are limited, however, to cases where the defendant has “engaged in intentional discrimination and has done so with malice or with reckless indifference to the federally protected rights of an aggrieved individual.” The plaintiff may establish the requisite state of mind for an award of punitive damages with evidence that a defendant “discriminated in the face of a perceived risk that its actions . . . violated federal law . . . or of ‘egregious or outrageous acts’ that ‘may serve as evidence supporting an inference of the requisite ‘evil motive.’” The appellate court believed that the trial court “overlooked ample evidence that defendants acted with malice and reckless indifference” to federally protected rights. The court emphasized that “A” was aware of the FHA based on the prior consent judgment, and the fact that the state had revoked his real estate license, in part because of FHA violations. “A” had also written letters to HUD which indicated an awareness of the FHA. Further, the jury could have concluded that “A” knew he was acting improperly because he had erased recordings of relevant telephone conversations. The court then opined that the record was “awash with evidence of ‘egregious’ and ‘outrageous’ acts by the defendants that could support an inference of the requisite ‘evil motive.’” The court stated that given “A”‘s history, the subject case is “particularly appropriate for consideration of punitive damages” and “A” is a “FHA recidivist.” The court said that the jury should consider the history and determine whether at this time, punitive damages were necessary as a deterrent. The defendants had argued that the government lacked evidence that the defendants treated disabled people differently from non-disabled people, e.g., “A” refused to engage in lengthy telephone calls with anyone. The government contended that evidence of disparate treatment is not necessary. The court stated that the jury had heard a “virtual tsunami of evidence that defendants did treat disabled people generally � and [complainant] specifically � differently from non-disabled people.” “A” had admitted that when non-hearing impaired people called, he provided services and “A” had stated that “B” does not deal with disabled people. The court viewed as frivolous, “A”‘s argument that the complainant had failed to go to “B”‘s place of business. Since “B” admittedly did not service disabled people, there was no obligation for the complainant to confirm what he was told verbally. Accordingly, the panel vacated the trial court’s dismissal of the subject claims and vacated the trial court’s refusal to charge the jury on punitive damages. The panel denied the defendants’ motion for summary judgment and remanded the matter for further proceedings. Comment: Essentially, the defendants argued that while their conduct may be highly offensive to many, it was protected by the First Amendment and did not violate statutory law. The Court of Appeals found the conduct to be highly offensive and a sufficient basis upon which a jury could award compensatory and punitive damages. United States v. Space Hunters Inc. , New York Law Journal, Nov. 16, 2005, p. 21, col. 1, U.S.D.C., 2d Cir., by Circuit Judges McLaughlin and Cabranes and District Court Judge Mukasey. Opinion by McLaughlin, Circuit Judge. Affirmed in part, vacated and remanded in part. Commercial Landlord-Tenant � Improper Service of Notice of Termination-General Business Law �13 � Attempted Service on an Observant Jew on Friday Afternoon and on the Second Day of Passover This case involved the issue of whether service was properly made on a commercial tenant pursuant to RPAPL �735 “when attempts at personal delivery at the premises were made late on a Friday afternoon, a Saturday, and the second day of Passover, with affixation on the final attempt, while the business was closed in observance of the Jewish Sabbath and a holy day?” The court explained that “[i]f the landlord had reason to know that the business was likely to be closed at those times, service was not proper.” The affidavit of service stated that attempts were made to personally deliver a notice of termination (notice) on Apr. 22, 2005 at 3:50 p.m., on Apr. 23, 2005 at 11:30 a.m. and on Apr. 25, 2005 at 9:10 a.m. When no one was found at the premises, the notice was affixed to the entrance door and on the following day, the notice was mailed to the tenant at the premises by certified and regular first class mail. April 22 was a Friday and April 23 was a Saturday. April 25 was the second day of Passover. The tenant asserted various affirmative defenses, including challenges to service of the petition and notice and moved to dismiss. He argued that the landlord knew that the tenant was an observant Jew and that the premises would be closed at the subject times. The tenant had the burden of demonstrating that the owner had reason to know that the business was likely to be closed when service was attempted. However, the owner had the burden of demonstrating that the notices had been served properly. The court found that the owner had made a prima facie showing of proper service pursuant to RPAPL �735. Both parties referred to Gen. Bus. Law (GBL) �13 which provides that a person is guilty of a misdemeanor if they “maliciously” procure any process in a civil action to be served on Saturday, upon any person who keeps Saturday as holy time and does not labor on that day. The court opined that since it was the legislators’ intent to punish only people who intentionally, i.e., maliciously “annoy and vex any class of citizens who religiously observe any part of the week as ‘holy time,’ . . . the statute’s application to nail-and-mail service upon a corporation is far from clear.” The court stated that GBL �13 is concerned with the “consequences of making personal delivery, not the failure to make personal delivery.” The court then explained that it need not determine whether the tenant’s shareholders or managers are observant Jews and that it would seem to be “constitutionally prohibited from making that determination.” Rather, the issue is whether the owner, through its agent, had notice of facts that would “lead a reasonable person to infer that no one would likely be present to accept delivery on the business premises at particular times or on particular days.” The court then observed that service by affixation and mailing is permitted only after “‘reasonable application’ is made for admittance and personal delivery.” Although “reasonable application” does not require the same degree of effort as “due diligence,” there must be at least a “reasonable expectation of success” in finding a person on the premises to whom delivery may be made.” A “[r]easonable expectation of success” may be based on a businesses’ “posted office hours,” or from “common experience.” An owner may have reason to know that the particular tenant will be present when other tenants generally would not be present or know that a particular tenant will not be present when other tenants generally would be present. The court found that there was no dispute that a business owned and operated by Jews “might be closed on the Sabbath and the second day of Passover.” The tenant testified that he would not work on such days. The court found it interesting that the landlord’s counsel requested an extension of the deadline for post-hearing submissions, because the original deadline was the last day of the Jewish holiday Succoth. The landlord’s attorney wrote that as an observant Jew, the landlord does not permit his counsel to serve papers or otherwise work on its behalf during the Jewish holidays. The landlord argued that the first attempt at personal service at 3:50 p.m. on Friday should be effective since sunset did not occur until 7:42 p.m. that day and the religious practice of candle lighting would not have been observed until 7:42 p.m. However, the landlord admitted that he himself tries to end his business dealings by mid-day on Friday. The landlord had also argued that Passover lasts for seven days and the first and seventh days are observed as full holidays when all work is prohibited. However, the landlord admitted that he observes the second day of Passover as well. The tenant testified that for the entire time that it operated its business at the premises, it has closed at 3:00 to 3:15 p.m. on Friday afternoon and usually would not reopen until Monday morning. Occasionally, he would work on Sunday. The tenant further testified that the business was closed for every Jewish holiday, including the first two and last two days of Passover. The tenant also testified that based on conversations with the landlord’s agent, the agent knew that the tenant’s business was closed for the Sabbath and Jewish holidays. The tenant testified that he had told the agent that the tenant had almost lost a large order because the business closed for the Sabbath and that he once suggested to the agent that the landlord could save on costs by lowering the heat over the Sabbath when the business was closed. The agent denied those conversations. The agent testified that he did not know if the tenant was observant, although he believed that they were not. The agent acknowledged that he believed the tenant was closed on Saturday. The agent testified that he did not think the tenant closed at 3 p.m. on Friday. However, the agent acknowledged that he did not know when the tenant closed. The court believed that the agent’s testimony “suggests a flirting with deliberate ignorance.” The court concluded that the agent and therefore, the landlord, had reason to know that the tenant’s business was likely to be closed when affixation and attempted personal delivery were made. Accordingly, the court held that the notices were not served in conformance with RPAPL �735 and dismissed the proceeding. FPTK LLC v. Paradise Pillows Inc. , New York Law Journal, Nov. 16, 2005, p. 20, col. 1, Civ. Ct., Kings Co., Battaglia, J. Scott E. Mollen is a partner at Herrick, Feinstein and an adjunct professor at St. John’s University School of Law.

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