High Court examines whether agency owner is liable for employee's discrimination.

If a real-estate agent discriminates against a potential client, can the broker or the owner of the business be held liable?

That is the question before the U.S. Supreme Court in Meyer v. Holley, a case that examines the strength of the federal Fair Housing Act (FHA) and the always thorny issue of agency liability. (No. 01-1120 (U.S. oral arguments Dec. 3, 2002).)

In 1996, Emma and David Holley, an interracial couple seeking a new house, visited the Triad Realty office in Twenty-Nine Palms, California. Triad agent George Crank showed them four houses, each above their price range of $100,000 to $150,000.

Later that year, they found a house on their own and made an offer through another Triad agent--an offer, according to court records, that Crank helped cancel. He allegedly called the Holleys a "salt-and-pepper team" and used a racial epithet.

The couple allege that their offer was never passed on to the builder, who eventually sold the house for $20,000 less than their offer. They brought suit in federal court against Crank, Triad, and the company's owner and president, David Meyer.

The record establishes that Crank and Triad had no significant assets and hence were essentially judgment-proof. The district court threw out the claim against Meyer as well, holding that the real-estate license was issued to Triad as a business rather than to him as an individual.

The Ninth Circuit Court of Appeals reversed, finding that under the, FHA, Meyer could be held responsible as "(1) an officer of Triad Realty at the time of the alleged discriminatory acts; (2) the designated broker of the corporation who enabled it to engage in the business of selling real estate; and (3) the sole shareholder of the corporation at the time of the alleged discrimination."

Attorney Robert Schwemm of Lexington, Kentucky, who represents the Holleys, told the Supreme Court in December's oral arguments that Meyer showed an "utter failure to supervise, direct, and control" his employees to ensure that they complied with fair housing laws.

Civil rights groups hope the Court's ruling, expected this spring, will affect other housing discrimination cases under review in the federal courts. Meanwhile, the National Association of Home Builders warned in an amicus brief for Meyer that the "imposition of personal liability on innocent officers and owners" would curb the availability of affordable housing.

Justice Antonin Scalia appeared sympathetic to Meyer's argument that owners and brokers should not be held accountable for unpreventable human error or misjudgment by agents. If the Court ruled otherwise, Scalia said, "What's the use of having a corporation, then?"

The oral arguments were dominated by Schwemm's attempt to introduce an argument that the Holleys claimed they were prevented from making when the trial court dismissed the case. Because of Triad's persistent underfunding and Meyer's failure to observe basic business formalities such as holding board meetings, Schwemm argued that Meyer should not be given the liability protection typically offered to corporate partners. Piercing the corporate veil would allow the couple to hold Meyer personally liable. "We would have been happy to go forward with evidence of underfunding, and there was ample evidence," Schwemm said.

But Meyer's attorney, Douglas Benedon of Woodland Hills, California, said veil piercing would not apply. "They brought it up for the first time here," he told the Supreme Court justices.

One reason the Holleys raised the veil-piercing argument is their belief that Meyer was the sole owner of the company at the time of the transaction. Justice Ruth Bader Ginsburg asked Benedon, "Do you deny" Meyer's sole ownership?

"There was no denial in the trial record because it was never raised," he responded. "I'm denying it now."

At least two justices, Ginsburg and Stephen Breyer, appeared uncomfortable with ruling on a point the lower courts had largely failed to address.

"District court judges are not mind readers," Breyer said. "I'm debating with myself whether we should send it back to the Ninth Circuit and let them work it out."