Court Opinion

ID: 3030710
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:44:46.374767+00
Date Added: 2024-06-11T12:05:38.977440
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

EMMA MARY ELLEN HOLLEY; DAVID             
HOLLEY; MICHAEL HOLLEY, a
minor; BROOKS BAUER, individually
and on behalf of the general
public,
               Plaintiffs-Appellants,             No. 99-56611
                 v.                                 D.C. No.
                                                  CV-97-08368-
GROVE S. CRANK, SR., individually
dba Triad Realtors; TRIAD INC.,                   WMB-SHX
                                                  CV-98-07965-
individually dba Triad Realtors,
                                                   WMB-SHX
                         Defendants,
                                                   AMENDED
                and
                                                    OPINION
DAVID MEYER, individually and in
his capacity as President and
designated officer/broker of Triad,
Inc., dba Triad Realtors,
                Defendant-Appellee.
                                          
     On Remand from the United States Supreme Court

                    Filed October 26, 2004
                    Amended March 7, 2005

 Before: Procter Hug, Jr., Betty B. Fletcher, Circuit Judges,
           and Susan Y. Illston,* District Judge.

                      Opinion by Judge Hug

  *The Honorable Susan Y. Illston, United States District Judge for the
Northern District of California, sitting by designation.

                                2821
2824                   HOLLEY v. MEYER

                         COUNSEL

Elizabeth N. Brancart, Brancart & Brancart, Pescadero, Cali-
fornia, for the plaintiffs-appellants.

Douglas G. Benedon, Benedon & Serlin, Woodland Hills,
California, for the defendant-appellee.

                          OPINION

HUG, Circuit Judge:

  In Meyer v. Holley, 537 U.S. 280 (2003), the Supreme
Court vacated this Court’s opinion in Holley v. Meyer, 258
F.3d 1127 (9th Cir. 2001) and remanded for further proceed-
ings. In revisiting this case, we address two distinct questions
which the Supreme Court has left for us to decide. First,
whether as the designated officer/broker of Triad, Inc., David
Meyer can be held personally liable for the actions of Triad’s
employee Grove Crank. Second, whether David Meyer can be
held liable through the piercing of Triad’s corporate veil. We
remand to the district court for further proceedings.

I.   Background

   Emma Mary Ellen Holley is African American, her hus-
band, David Holley, is Caucasian and their son, Michael Hol-
ley, is African American. The Holleys allege that in October
1996, they visited Triad Realty’s office in Twenty-Nine
Palms, California where they met with Triad agent Grove
Crank and inquired about listings for new houses in the range
                       HOLLEY v. MEYER                     2825
of $100,000 to $150,000. The Holleys allege that Crank
showed them four houses in the area, all priced above
$150,000. In mid-November 1996, the Holleys located a
home on their own that happened to be listed by Triad. In
response to the Holleys’ inquiry about the home, Triad agent
Terry Stump informed them that the asking price for the
house was $145,000. The Holleys expressed interest in pur-
chasing the home and offered to pay the asking price and to
put $5,000 in escrow for the builder to hold the house until
April or May 1997 when they closed escrow on the sale of
their existing home.

   Stump told the Holleys that their offer seemed fair, as did
the builder, Brooks Bauer, when Mrs. Holley called him with
the same offer. Bauer did express, however, that the offer
would have to go through Triad. Later, Stump called Mrs.
Holley to tell her that more experienced agents in the office,
one of whom was later identified as Grove Crank, felt that
$5,000 was insufficient to get the builder to hold the house for
six months. The Holleys decided not to raise their offer, and
Triad never presented the original offer to Bauer. One week
later, Bauer inquired at Triad about the status of the Holleys’
offer. Crank then allegedly used racial invectives in referring
to the Holleys, telling Bauer that he did not want to deal with
those “n ——” and calling them a “salt and pepper team.”
The Holleys eventually hired a builder to construct a house
for them, and Bauer later sold his house for approximately
$20,000 less than the Holleys had offered.

   Bauer and the Holleys filed a complaint on November 14,
1997, alleging that Crank and Triad violated federal and state
fair housing laws. They later filed a separate action against
David Meyer as officer/broker, president and owner of Triad,
making the same allegations and adding several new claims.
The district court consolidated the two cases. The district
judge, ruling on a Federal Rule of Civil Procedure 12(b)(6)
motion, dismissed all of the claims except the Fair Housing
Act (FHA) claim, on the grounds that they were barred by the
2826                    HOLLEY v. MEYER
applicable statutes of limitation. Plaintiffs have not appealed
this ruling. With regard to the FHA claim, the district court
granted the motion to dismiss Meyer in his capacity as an
officer of Triad. The district court thereafter granted summary
judgment in favor of Meyer on the claim that Meyer was
vicariously liable as the designated officer/broker of Triad. It
then entered a final order that “judgment be granted for David
Meyer on all remaining claims in this action.” Plaintiffs
appealed from the final judgment.

   We reversed the judgment of the district court, applying a
vicarious liability analysis provided in HUD regulation 24
C.F.R. § 103.20(b) (1999) (since repealed). Further, we fol-
lowed our own prior precedent and that of three other circuits
holding that the duty to obey the laws relating to racial dis-
crimination under the FHA is non-delegable. See Phiffer v.
Proud Parrot Motor Hotel, Inc., 648 F.2d 548, 552 (9th Cir.
1980), Walker v. Crigler, 976 F.2d 900, 904 (4th Cir. 1992),
City of Chicago v. Matchmaker Real Estate Sales Ctr., Inc.,
982 F.2d 1086, 1096-98 (7th Cir. 1992), Marr v. Rife, 503
F.2d 735, 741 (6th Cir. 1974).

   The Supreme Court disagreed, holding that the FHA is gov-
erned by traditional vicarious liability rules and tort principles
and that the FHA did not create a non-delegable duty not to
discriminate based on race. Thus, the Supreme Court held that
we erred in holding that Meyer could be held liable as the sole
owner and president of Triad based upon an FHA-derived
non-delegable duty. The Supreme Court also held that we
erred in holding that Meyer could be held liable as the desig-
nated officer/broker of Triad based solely upon his right to
control Crank.

   Although the Supreme Court found the “right to control”
by the designated officer/broker insufficient by itself under
traditional agency principles to establish a principal/agent
relationship, it left the application of traditional vicarious lia-
bility rules to this court, stating:
                        HOLLEY v. MEYER                       2827
      The Ninth Circuit did not decide whether other
      aspects of the California broker relationship, when
      added to the “right to control,” would, under tradi-
      tional legal principles and consistent with “the gen-
      eral common law of agency,” establish the necessary
      relationship. But in the absence of consideration of
      that matter by the Court of Appeals, we shall not
      consider it.

Meyer, 537 U.S. at 291 (citation omitted) (emphasis in origi-
nal). The Supreme Court also declined to consider whether
traditional corporate-veil piercing principles should apply in
this case, stating:

      [W]hen traditional vicarious liability principles
      impose liability upon a corporation, the corpora-
      tion’s liability may be imputed to the corporation’s
      owner in an appropriate case through a “piercing of
      the corporate veil.” The Court of Appeals, however,
      did not decide the application of “veil piercing” in
      this matter either. It falls outside the scope of the
      question presented on certiorari. And we shall not
      here consider it.

Id. at 292 (citations omitted). The Court vacated our judgment
and remanded for further proceedings consistent with its opin-
ion.

II.    Vicarious Liability

  A.     Preservation of the Vicarious Liability Claims

   Defendants argue that the Holleys failed to preserve their
claim that Meyer may be liable under traditional principles of
vicarious liability. However, we find that the Holleys raised
the issue in their opening brief when they argued that Meyer’s
liability turned on HUD regulation 24 C.F.R. § 103.20(b). At
the outset, we note that we read opening briefs liberally. See
2828                    HOLLEY v. MEYER
People of Guam v. Reyes, 879 F.2d 646, 648 (9th Cir. 1989)
(citing Fed. Sav. and Loan Ins. Co. v. Haralson, 813 F.2d
370, 373-74 n.3 (11th Cir. 1987)). Because the Supreme
Court held that the HUD regulations mean that traditional
rules of vicarious liability apply, see Meyer, 537 U.S. at 286-
87, we construe the opening brief’s discussion of the HUD
regulations as adequately raising, and thereby preserving, the
traditional vicarious liability claims.

       B.   Designated Officer/Broker

   [1] Under general principles of corporate liability, a corpo-
rate employee acts on behalf of the corporation, not its owner
or officer; as a result, liability in the typical employment rela-
tionship runs between the corporation and the salesperson and
between the corporation and the supervisor, but not between
the salesperson and the supervisor. See Meyer, 537 U.S. at
286. Here, however, the real estate corporation and employ-
ment relationship at issue are atypical because California law
makes the designated real estate broker of a real estate corpo-
ration personally responsible for the supervision of the corpo-
ration’s salespersons. Because Meyer remained Triad’s
designated real estate broker, he remained personally respon-
sible for the supervision of the corporations’s salespersons.
When Meyer delegated this responsibility to Crank, he cre-
ated an agency relationship between himself and Crank,
which made Meyer vicariously liable as the principal for the
discriminatory actions of Crank as his agent.

   [2] Meyer has been the sole owner and officer/broker of
Triad, a small real estate agency since 1978. In California, as
in most states, the real estate profession is highly regulated.

    It is unlawful for any person to engage in the busi-
    ness, act in the capacity of, advertise or assume to
    act as a real estate broker or a real estate salesman
    within this state without first obtaining a real estate
    license from the department.
                       HOLLEY v. MEYER                       2829
Cal. Bus. & Prof. Code § 10130. In California, a corporation
may hold a real estate broker’s license, but only if it desig-
nates an officer who is qualified to hold a broker’s license to
serve as officer/broker of the corporation. Cal. Bus. & Prof.
Code §§ 10158 and 10211. A California corporate real estate
broker operates “only through and because of” the license of
its designated officer. Amvest Mortgage Corp. v. Antt, 58 Cal.
App. 4th 1239, 1243 (1997). “No acts for which a real estate
license is required may be performed for, or in the name of,
a corporation when there is no designated” corporate officer/
broker. Cal. Code Regs. Title X, § 2740; see also Amvest
Mortgage Corp., 58 Cal. App. 4th at 1243. In this case Triad
held a corporate real estate broker’s license and Meyer was
licensed as its designated officer/broker. Meyer was the only
such broker affiliated with Triad. Crank and the other Triad
agents were salesmen not brokers.

  The statute provides that the officer/broker designated by a
corporate broker licensee

    shall be responsible for the supervision and control
    of the activities conducted on behalf of the corpora-
    tion by its officers and employees as necessary to
    secure full compliance with the provisions of this
    division, including the supervision of salespersons
    licensed to the corporation in the performance of acts
    for which a real estate license is required.

Cal. Bus. & Prof. Code § 10159.2(a). Among the officer/
broker’s obligations for supervision is “the establishment of
policies, rules, procedures and systems to review, oversee,
inspect and manage . . . [f]amiliarizing salespersons with the
requirements of federal and state laws relating to the prohibi-
tion of discrimination.” Cal. Code Regs. Title X, § 2725. For
a corporate real estate broker to operate lawfully, it must
“conduct[ ] its brokerage business if at all under the active
aegis of its designated broker.” Milner v. Fox, 102 Cal. App.
3d 567, 575 (1980). The designated officer/broker, not the
2830                   HOLLEY v. MEYER
corporate entity itself, is charged with the responsibility to
assure corporate compliance with the real estate law. Norman
v. Dep’t. of Real Estate, 93 Cal. App. 3d 768, 776-77 (1979)
(“Such a real estate broker must reasonably be charged with
responsibility for the corporate compliance with the Real
Estate Law, for otherwise with no such fixed responsibility,
the statutory purpose would be frustrated.” (internal citation
omitted)).

   The conclusion that the designated officer/broker is person-
ally responsible for supervising the salesperson’s compliance
with the law is supported by the legislative history of the
Business and Professions Code § 10159.2. The staff analysis
for the Senate Committee on Business and Professions, which
related the background and purpose of the proposed enact-
ment of that section in 1979 stated:

    BACKGROUND: The Business and Professions
    Code stipulates that a person or persons applying for
    a corporate license to practice real estate must desig-
    nate in the application an officer of the proposed cor-
    poration who holds a valid real estate broker’s
    license. That person becomes the “designated offi-
    cer” of the corporation. The purpose of this provi-
    sion is to provide the public, in its dealings with real
    estate corporations, the same licensing protections
    afforded it in dealing with non-corporate real estate
    concerns.

    As currently worded, however, there is no stipulation
    in the law as to the designated officer’s control or
    supervisory responsibilities over the corporation. . . .

    PROPOSED LEGISLATION: AB 985 stipulates that
    the designated officer named on the corporate
    license application assumes responsibility for the
    officer’s, employee’s and salesperson’s compliance
    with the provisions of the Real Estate Law. . . .
                       HOLLEY v. MEYER                          2831
    COMMENTS: AB 985 attempts to insure licensed
    supervision of real estate corporation activity by
    holding designated officers personally responsible
    for that supervision.

Cal. Bus. & Prof. Code § 10159.2: Hearings on AB 985
before the Senate Committee on Business and Professions
(July 11, 1979).

   The Assembly Committee on Labor, Employment and Con-
sumer Affairs related similar objectives of the proposed legis-
lation:

    The only way that the active participation of the
    licensed individual may be ensured is by “piercing
    the corporate veil” and making the individual
    licensee vulnerable to action on account of corporate
    misdeeds, or on account of failure to fulfill corporate
    responsibilities. . . . The granting of the corporate
    license is predicated upon the qualifications of the
    designated officer in the first place. It is no injustice
    to demand that the person standing for the corpora-
    tion at licensing continue to stand for the corpora-
    tion. That is an implicit assumption of the law
    anyway.

Cal. Bus. & Prof. Code § 10159.2: Hearings on AB 985
before the Assembly Committee on Labor, Employment and
Consumer Affairs (April 24, 1979).

   The supporting analysis of the Department of Real Estate
stated succinctly the reasons for the proposal:

    REASONS FOR PROPOSAL

    1.   The real estate law places the responsibility for
         supervision of salespersons and employees upon
         a real estate broker. Even though a corporate
2832                    HOLLEY v. MEYER
          real estate licensee is itself a broker, the corpo-
          rate entity is not as qualified as a natural person
          to exercise the supervision necessary to insure
          public protection.

    2.    Lack of active supervision by a designated offi-
          cer has resulted in abuses and injury.

    3.    Since a corporate license is issued based upon
          the qualifications, experience and good charac-
          ter of the designated officer, that officer should
          continue to take an active role in the conduct of
          corporate real estate acts.

Cal. Bus. & Prof. Code § 10159.2: Hearings on AB 985
before the Department of Real Estate R-15.

   [3] The statutory provisions regulating the real estate pro-
fession, particularly after the 1979 amendment with its legis-
lative history, places a direct, personal responsibility on the
designated officer/broker of a real estate corporation to super-
vise the salespersons to assure compliance with the state and
federal laws. This personal obligation is independent from
that of the normal responsibilities of a corporate officer or of
the corporation itself. This is a direct personal responsibility
on the part of the officer/broker that is subject to disciplinary
action affecting that officer/broker’s personal broker’s
license.

  C.     Crank as an Agent of Meyer in Fulfilling his
         Officer/Broker Obligation Under California Law

   [4] Generally, for an agency relationship to exist, a princi-
pal must consent to the agent acting on his behalf and subject
to his control, and the agent must consent to act for the princi-
pal. See Restatement (2d) of Agency § 1. Principals are liable
for the torts of their agents committed within the scope of
their agency. Here, there is sufficient evidence that Meyer and
                       HOLLEY v. MEYER                      2833
Crank consented to an agency relationship when Meyer dele-
gated his personal duty as an officer/broker to Crank to over-
come the summary judgment.

   We review a grant of summary judgment de novo. Oliver
v. Keller, 289 F.3d 623, 626 (9th Cir. 2002). On a motion for
summary judgment, the court must view the evidence in the
light most favorable to the nonmoving party and determine
whether there are any genuine issues of material fact and
whether the district court has correctly applied the relevant
substantive law. Id. “[I]f a rational trier of fact might resolve
the issues in favor of the nonmoving party, summary judg-
ment must be denied.” T.W. Elec. Serv., Inc. v. Pacific Elec.
Contractors Ass’n, 809 F.2d 626, 631 (9th Cir. 1987).

   In this case, viewing the evidence in the light most favor-
able to the plaintiffs, we conclude that Meyer intended to turn
the real estate business over to Crank so that Meyer could
pursue another career. Crank was not a licensed real estate
broker, and thus would have been unable to continue with the
corporation without a licensed real estate broker as the desig-
nated officer/broker. Therefore, it was agreed that Meyer
would remain Triad’s designated officer/broker until Crank
got his own broker’s license. Meyer understood that by
remaining Triad’s designated officer/broker he continued to
have personal responsibilities under California law. He under-
stood that he had the personal duty to make sure “that our
agents were acting lawfully, that the standards of the Depart-
ment of Real Estate are upheld, that the contracts were
reviewed (and) that people were treated fairly.” (ER 199.)
Meyer agreed to delegate those responsibilities to Crank so
that Crank could continue to run Triad as a real estate broker-
age. There is evidence that both Meyer and Crank understood
Meyer’s personal responsibility as the designated officer/
broker and that Crank agreed to carry out this duty on behalf
of Meyer subject to Meyer’s ultimate control. This is the only
manner in which the Triad Corporation could have continued
to operate as a real estate business. There is therefore evi-
2834                     HOLLEY v. MEYER
dence of an agreement to delegate this personal duty as an
officer/broker, to be filled on a day to day basis by Crank, to
assure that state and federal laws were being observed in the
operation of Triad’s real estate business.

   [5] The Holleys also contend that Crank acted within the
scope of his agency when he committed the act of discrimina-
tion. They are correct. The alleged discrimination occurred
when Crank was supervising another Triad agent, Terry
Stump. Such supervision was Meyer’s duty under California
law and therefore was within the scope of the duty he dele-
gated to Crank. There was thus evidence under the general
common law of agency that Meyer had a personal duty as
officer/broker to supervise the salesmen so as to assure com-
pliance with federal and state law, that this duty was dele-
gated to Crank to carry out, and that Crank’s actions with
regard to the alleged discrimination against the Holleys were
within the scope of his agency and sufficient to impose liabil-
ity on Meyer as the principal for the failure of his agent Crank
to fulfill the duties of officer/broker.

III.    Meyer’s Liability as Owner of Triad

   In addition to imposing liability on the basis of the tradi-
tional vicarious liability principles discussed above, we must
consider whether this is an appropriate case in which to
impose liability on Meyer by piercing the corporate veil.
Although the Supreme Court did not reach this issue, the
Court specifically stated that we are free to consider whether
liability may be imputed to the sole owner of Triad on that
basis. Meyer, 537 U.S. at 292. The district court resolved the
issue of whether Meyer could be held liable under an agency
theory as the officer/broker of Triad by means of a summary
judgment. All of the remaining claims were dismissed under
Fed. R. Civ. P. 12(b)(6).

       We review de novo a district court’s dismissal of an
       action for failure to state a claim under Fed.R.Civ.P.
                       HOLLEY v. MEYER                        2835
    12(b)(6). A Rule 12(b)(6) dismissal motion “can be
    granted only if it appears beyond doubt that the
    plaintiff can prove no set of facts in support of his
    or her claim.” We liberally construe civil rights com-
    plaints.

Gobel v. Maricopa County, 867 F.2d 1201, 1203 (9th Cir.
1989) (citations omitted). We stated in Gilligan v. Jamcor
Dev. Corp., 108 F.3d 246, 249 (9th Cir. 1997) that “the Court
has stated that the FHA must be given a ‘generous construc-
tion’ to carry out a ‘policy that Congress considered to be of
the highest priority.’ ” (quoting Trafficante v. Metro. Life Ins.
Co., 409 U.S. 205, 209, 211-12 (1972)).

  Defendants contend that this issue was waived because it
was not properly advanced in the district court or in this court.
In the district court, plaintiffs alleged that Meyer was liable
based upon his wide ranging control of Triad as its sole owner
in addition to being its president and designated officer/
broker. Plaintiffs also alleged that Triad paid its taxes under
Meyer’s tax identification number not the corporation’s.

    When substantial ownership of all the stock of a cor-
    poration in a single individual is combined with
    other factors clearly supporting disregard of the cor-
    porate fiction on the grounds of equity and fairness,
    courts have been willing to apply the “alter ego” or
    instrumentality theory in order to cast aside the cor-
    porate shield and to fasten liability on the individual
    shareholder.

1 William Meade Fletcher, Fletcher Cyclopedia of the Law of
Private Corps., § 41.35 at 666-668 (perm. ed., rev. vol. 2004).
The allegation that Meyer was Triad’s sole shareholder at the
time of the alleged violation under FHA, his status as Triad’s
president and designated officer/broker, and the failure to
treat the corporation as a distinct entity in his tax return sup-
port an inference that he exercised pervasive control over the
2836                   HOLLEY v. MEYER
corporation’s affairs. The district court had evidence that the
corporation was very thinly capitalized, which is a relevant
factor in applying an alter ego theory. See Anderson v. Abbott,
321 U.S. 349, 362 (1944). There was also evidence that in the
alleged transfer of Triad to Crank no corporate formalities
were followed, giving further evidence that Meyer did not
view the corporation as an entity distinct from himself. With
regard to the equity and fairness of the corporate shield to lia-
bility, the evidence before the district court revealed that
Triad did not have assets to pay a judgment and that Triad’s
insurance policy excluded liability for discrimination in the
provision of service.

   The dismissal of plaintiffs’ claims under Fed. R. Civ. P.
12(b)(6) were with prejudice without any opportunity to
amend the complaint. At the very least the allegations in the
complaint and the additional material produced in the court
proceedings justified allowing the plaintiffs to amend their
complaint to specifically allege the piercing of the corporate
veil theory. See Eminence Capital, LLC v. Aspeon, Inc., 316
F.3d 1048, 1052 (9th Cir. 2003) (“Dismissal with prejudice
and without leave to amend is not appropriate unless it is clear
on de novo review that the complaint could not be saved by
amendment.”); Vess v. Ciba-Geigy Corp., 317 F.3d 1097,
1108 (9th Cir. 2003) (stating that dismissals under Rule
12(b)(6) and Rule 9(b) “should ordinarily be without preju-
dice”).

   Before this court the plaintiffs raised the issue, although
briefly, in arguing that Meyer was potentially liable under the
FHA in his capacity as sole shareholder of Triad. The plain-
tiffs asserted that their evidence would show that Meyer is the
sole shareholder of Triad, and thus an argument to pierce the
corporate veil would be meritorious. We conclude that the
plaintiffs have not waived this argument either in the district
court or in the court of appeals, especially in light of the fact
                           HOLLEY v. MEYER                            2837
that the plaintiffs were not given an opportunity to amend
their complaint before the dismissal.1

   [6] We remand this issue to the district court to permit an
amendment of the complaint to specifically advance the the-
ory that Meyer, as the sole shareholder of Triad, is liable
under the piercing of the corporate veil theory for the alleged
violation of plaintiffs’ rights under FHA. One of the issues in
contention is whether Meyer was in fact the sole owner at the
time of the alleged events. Resolving this issue would involve
determining whether the proposed transfer of Triad to Crank
had been accomplished at that time.

IV.    Conclusion

   We reverse and remand this case to the district court for
further proceedings consistent with this opinion on the issues
of Meyer’s liability as principal for the actions of his agent,
Crank; and Meyer’s liability based upon piercing the corpo-
rate veil.

   REVERSED AND REMANDED.

   1
     Before the Supreme Court, the United States, as amicus curiae, argued
that plaintiffs had not waived the issue of piercing the corporate veil. The
brief made the point that although sole ownership of a corporation does
not in itself warrant piercing the corporate veil, it does weaken the eco-
nomic reasons for limited liability for sole corporate shareholder, and
when combined with other factors, justifies piercing the corporate veil.