Written By: Shaw M. Blatt, Esq.

Freund, Freeze & Arnold

Dayton/Cincinnati, Ohio

In recent years, we have seen an increase in Fair Housing Act suits against developers and general contractors involved in the construction of apartments/condominiums and other multi-family housing.  These claims are brought by public interest groups, on behalf of disabled persons, who inspect newly-constructed multiple family housing looking for violations of the Americans With Disabilities Act (“ADA”).  These suits target any ADA violations that can be found in a thorough inspection, including proper slope of wheelchair ramps, heights of countertops and electric outlets, restroom accessibility, and other ADA requirements.  The suits, of course, seek not only repair and correction of the physical structures, as well as damages, but also attorney fees and costs incurred in litigating the claim.  These claims can quickly become expensive for the client.

Typically, suits asserting FHA/ADA claims will target the developer/owner and general contractor of the project.  Under the FHA, all entities involved in the construction of the project can potentially be held liable for the FHA/ADA violation, right down to the sub-subcontractor, who is responsible for installing a wheelchair ramp.  To those filing the FHA lawsuit, the burden of pleading in so many parties and the lack of knowledge of which entities actually did the work usually results in only the developer/owner and general contractor being named as defendants.  It is then left to the developer and general contractor to respond to the claims and to investigate the lower tier subcontractors to determine which entities were involved in the actual work.

What inevitably results is a third-party complaint against all subcontractors who did the work that resulted in the FHA/ADA violation.  The general contractor likely hired design experts as well as construction consultants to ensure compliance with all applicable federal laws and regulations, including the Americans with Disabilities Act.  The claims against those third party subcontractors will include indemnity and contribution claims, professional negligence/ construction defect claims, as well as contract and warranty claims.  The developer/general contractor will claim that, if it is found liable for violations of the ADA and FHA, then all those subcontractors that did the actual work, or oversaw compliance, will be liable to him for the total amount awarded to the plaintiff.

Commercial developers/general contractors will invariably include indemnification language in their contracts to ensure that the subcontractor holds it harmless for any violations of law or damages that arise out of the sub’s work, including the agreement that the sub will reimburse the developer for all attorney fees and costs involved in enforcing the agreement.

Claims for Indemnification of Damages for FHA Violations are Barred
by Doctrine of Federal Obstacle Preemption

The developer reasonably believes, pursuant to his contract, that he has insulated himself from any potential liability.  That belief is false security when it comes to claims arising under the Fair Housing Act.  Federal courts interpreting the Fair Housing Act hold that claims for indemnification, whether contractual or at common law, are preempted by the FHA and cannot be used to transfer FHA liability to third parties, including the subcontractors that actually did the work.  United States v. Quality Built Construction, Inc., 309 F. Supp.2d 767 (E.D. N.C. 2003).  Accord, United States v. Gambone Bros. Dev. Co., 2008 WL 4410093 (E.D. Pa. Sept. 25, 2008); United States v. Shanrie Co., Inc., 610 F Supp.2d 958 (S.D. Ill., Feb. 23, 2009); Access 4 All, Inc. v. Trump Int’l Hotel & Tower Co., 2007 WL 633951 (S.D. N.Y., Feb. 26, 2007); Sentell v. RPM Mgtmt. Co., U.S. Dist. Lexis 75126 (E.D. Ark 2009); Mathis v. United Homes, LLC., 607 F. Supp.2d 411, 421-23 (E.D. N.Y. 2009); Miami Valley Fair Housing Center v. Steiner & Assoc., 2010 U.S. Dist. Lexis 63915 (S.D. Ohio 2010).

At least one appellate court has ruled on the issue and held that no third-party claim for indemnity can be made to transfer liability for FHA and ADA violations.  See, Equal Rights Center v. Archstone-Smith Trust, 602 F.3d 597, cert denied, 131 S. Ct. 504 (4^th Cir. 2010).

The prohibition against such claims is based on the concept of federal obstacle preemption, i.e., the notion that enforcing a right of indemnification and contribution would conflict with, or act as an obstacle to, the achievement and execution of the purpose and objective of the Fair Housing Act.  Id. at 601.  A state law claim will be preempted where it interferes with the methods the federal statute was intended to use to accomplish its purpose.  Id.  The courts that have considered the issue have looked to the language of the Fair Housing Act and the ADA and have examined the purposes behind those Acts.  These courts have noted that Congress did not create any right of contribution or indemnity under the FHA and that the absence of such a remedy presumes that Congress intended that defendants in such cases are to have a non-indemnifiable, non-delegable duty to comply with the Act.  United States v. Gambone Brothers Dev. Co., 37 NDLR 254 (E.D. Pa. 2008).

The ADA was drafted to benefit a specific class (disabled persons), and because the ADA did not create any special provision to benefit violators, those found liable should not be able to avoid sanctions by transferring their liability to third parties.  The nature of the ADA and FHA is regulatory, designed to prevent discrimination against those with a disability and to ensure fair housing throughout the United States.  Archstone-Smith Trust, 602 F.3d at 602.  Those federal statutes do not set forth any provision allowing for indemnification of one found in violation of the regulations.  Because they are not members of the special class for which the ADA was created, general contractors and developers cannot do what federal law prohibits by seeking to transfer their liability to the subcontractors that performed the actual work.  United States v. Quality Built Construction, 309 F. Supp. 2d 767 (E.D.N.C. 2003).

Allowing an entity to transfer its liability under the FHA to third parties interferes with and stands as an obstacle to the purpose of the FHA and ADA by disincentivizing developers from ensuring compliance.  Archstone, 602 F.3d at 602.  As stated by the court in Archstone:

If a developer of apartment housing, who concededly has a non-delegable duty to comply with the ADA and FHA, can be indemnified under state law for its ADA and FHA violations, then the developer will not be accountable for discriminatory practices in building apartment housing.  Such a result is antithetical to the purposes of the FHA and ADA.

Archstone, 602 F.3d at 602.

It should be noted that indemnification and contribution claims are only barred because one entity is seeking to transfer its liability for the FHA to another.  All parties who perform work on a particular project could potentially be directly liable to the plaintiff if violations occurred and their conduct and work was the cause of those violations

Preemption Applies to “De Facto” Indemnity Claims

The prohibition against indemnity claims applies regardless of how the claim is pled.  If the claim is pled as one for negligence or breach of contract, but is actually seeking to transfer liability for FHA violations, it is barred as well.  A contractor cannot attempt to do through state law claims what Congress has prohibited under federal law.  Thus, all claims of “breach of contract,” “negligence,” “architect/engineer malpractice,” or “unworkmanlike performance” that amount to “de facto” claims for indemnity are barred.  Anytime a party is attempting to transfer liability it may have under the FHA or ADA to a third party, that claim will be barred.

Generally, claims against the lower tier subcontractors will be asserted for the first time as a third party complaint under Fed. R. Civ. P. 14.  Third party claims, by their nature, are strictly claims for indemnification, either partial or full.  Under Federal Civil Rule 14, the only claim that can be asserted is a derivative claim, i.e., seeking to transfer liability to a third party.  No independent claims unrelated to transferring liability for the claims in the original complaint can exist in a third-party complaint.  American Zurich Ins. Co. v. Cooper Tire & Rubber Co., 512 F.3d 800 (6^th Cir. 2007).  Thus, where the original complaint solely sets forth ADA/FHA violations, third party claims should be preempted as a matter of law.

These decisions create obvious problems for general contractors and developers.  Almost all construction projects involve vertical indemnity claims where the lower subcontractor, who is actually performing the work, will agree to indemnify the upper contractor for that sub’s work.  The general contractor will contract for the construction of the entire project but will not have the expertise or knowledge to ensure compliance with specific provisions of the ADA.  By virtue of his sub-contracts, he will require compliance with those regulations and will insure his risk of violations through indemnity agreements.  What these decisions emphasize is that the contractual risk transfer does not transfer the developer’s duty to comply with the ADA or FHA, and any liability for FHA violations cannot be transferred to the sub.

If a plaintiff chooses not to file suit against all of the contractors that worked on the project (and generally the plaintiff won’t), the general contractor will be left to answer for all of the violations, without having the ability to implead those subs who actually did the work.  The general may be able to seek joinder of the other contractors as first party defendants under Rule 19, but that joinder will likely be of the permissive variety and up to the court’s discretion.

Developers and contractors should be aware of the reality involving compliance with FHA and ADA requirements during construction.  These decisions may increase the cost of construction to ensure ADA compliance, from design through implementation.  The impact will also be felt pre-suit involving attempts to resolve the claims and forcing developers to work closely with claimants to identify all entities that may be involved in a violation.

The Sixth Circuit Court of Appeals will be considering the issue in the case of Miami Valley Fair Housing Center v. Steiner & Assoc., 2010 U.S. Dist. Lexis 63915 (S. D. Ohio 2010).

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