Court Opinion

ID: 9461853
Source: CourtListenerOpinion
Date Created: 2023-08-04 22:26:05.335274+00
Date Added: 2024-06-11T17:37:17.619525
License: Public Domain

BOREMAN, Senior Circuit Judge
(dissenting):
I note certain fundamental differences between my view of the matters here involved and the view of the majority. I feel compelled to call attention to my brothers’ efforts to treat the defense of due diligence as one of mere ignorance of the law and their refusal to accept the considered findings of the district court. Respectfully, I dissent.
I
In response to an informal inquiry concerning a possible membership by one of the appellants, a black doctor, the board of directors of the Wheaton-Haven Recreation Association promulgated a white-only membership policy in the summer of 1968. This policy had been adopted only after obtaining independent and separate opinions of two attorneys that it would be legal. The policy was later extended to restrict the admission of guests to those who were relatives of members and was ratified by a vote of the stockholders in the fall of the same year, 1968. It was at that time that this litigation was initiated.1
*1149Approximately one and one-half years after the directors adopted this policy the Supreme Court handed down its decision in Sullivan v. Little Hunting Park, 396 U.S. 229, 90 S.Ct. 400, 24 L.Ed.2d 386 (1969). This was the first hint that private associations such as Wheaton-Haven might be within the purview of the civil rights statutes barring racial discrimination.2 According to the testimony of one of the directors, the board reconsidered its policy at that time and concluded that their membership rules remained legal. That conclusion was subsequently confirmed in this litigation by the decision of the district court, granting summary judgment to Wheaton-Haven in an unreported opinion, and the decision of this court affirming, 451 F.2d 1211 (4 Cir. 1971). Only when the Supreme Court reversed the lower courts, 410 U.S. 431, 93 S.Ct. 1080, 35 L.Ed.2d 412 (1973), was it determined that the directors of Wheaton-Haven had acted illegally.
After holding that the Association was prohibited by law from discriminating on the basis of race the Supreme Court remanded for further proceedings to determine the appropriate relief. Obediently, on remand, the district court enjoined Wheaton-Haven from continuing to practice its racially exclusionary policies and then held a hearing to decide whether further relief was mandated. The court issued a decision and order, 367 F.Supp. 860 (D.Md.1973), followed by a supplemental order and judgment which provided compensatory damages, out-of-pocket expenses, court costs, and two hundred dollars attorneys’ fees for the efforts of the A.C.L.U. staff attorneys, all to be assessed against the corporation. The court declined to award punitive damages and refused to award attorneys’ fees for the value of the services of the volunteer attorneys; it also absolved the directors of individual liability. On appeal, the appellants seék the award of additional attorneys’ fees for the value of the volunteer services and a finding of individual, liability of the directors. The majority finds in favor of the appellants on both of these issues but I cannot agreé.
II
In holding the directors individually liable, it appears that the majority has sought to distinguish the defense asserted by the directors against the claim of personal liability by treating it as mere ignorance of the law. The directors maintain that, in enacting the racially discriminatory policy, they exercised due diligence in determining the legality of that policy and thus should not be liable for a legitimate decision that subsequently was found to be wrong. The majority opinion imposes liability because good faith or lack of bad intent are not defenses provided by the controlling statutes. It also finds that ignorance of the law does not constitute a defense to a claim of individual director liability. However, that is ’ not the defense asserted by the directors.
I agree with my brothers that ignorance of the law is not inherently a defense to an action brought under §§ 1981 and 1982, and that bad intent is not a necessary element of the tort. I also agree that §§ 1981 and 1982 neither expand nor diminish the liabilities of directors under general corporation law. Thus, we all agree that all defenses derived from general corporation law remain available to defendants in actions brought under §§ 1981 and 1982. Therefore, the defense asserted here, due diligence, is a valid defense to this action, if it is available from general corporation law, regardless of whether the statutes recognize ignorance, good faith, or lack of bad intent. Due diligence implies affirmative action in an effort to ascertain the law and is not the same as ignorance thereof; it means that after diligent ef*1150fort it was impossible for these directors to know they were violating the law.
That due diligence is a defense to individual director liability for illegal acts is beyond question. For example, it is available as a defense for violations of the Securities Acts. Escott v. BarChris Construction Corp., 283 F.Supp. 643, 682-683 (S.D.N.Y.1968); Securities and Exchange Commission v. Texas Gulf Sulphur Co.; 401 F.2d 833, 854-856 (2 Cir. 1968). More specifically, due diligence, as manifested by reliance on the advice of counsel, has been successfully asserted as a defense to charges of mismanagement of the corporation in stockholders’ derivative suits even though the defendant directors in those cases bore a fiduciary relationship to the shareholders. Spirt v. Bechtel, 232 F.2d 241, 247 (2 Cir. 1956); Gilbert v. Burnside, 13 A.D.2d 982, 216 N.Y.S.2d 430 (1961) aff’d 11 N.Y.2d 960, 229 N.Y.S.2d 10, 183 N.E.2d 325 (1962). In fact due diligence is implicitly a defense in the federal cases concerning individual director liability for torts of the corporation.
Specific direction or sanction of, or active participation or cooperation in, a positively wrongful act of commission or omission which operates to the injury or prejudice of the complaining party is necessary to generate individual liability. . . . Lobato v. Pay Less Drug Stores, Inc., 261 F.2d 406, 409 (10 Cir. 1958). (Emphasis added.)
A positively wrongful act is required to impose individual liability. An act which, after diligent examination and consideration, appeared legal in every respect cannot be considered “positively wrongful.”
My brothers attempt to distinguish these cases on two grounds. They point out that the cited decisions involve acts of negligence rather than the commission of an intentional tort and that they deal with mistakes of fact rather than of law. However, the principle with respect to culpability upon which I rely remains the same; that is, when one has done all that he possibly could to assure himself that he is acting properly and lawfully he lacks the personal guilt which is necessary to impose liability. This is true whether his conduct be classified as negligent or intentional; whether it be based on an inability to ascertain the facts or the law. Some element of-fault or culpability is present in every tort. Taylor v. Cincinnati, 143 Ohio St. 426, 55 N.E.2d 724, 155 A.L.R. 44 (1944). Even where the law imposes traditional absolute liability culpability is still a requisite element. Taylor v. Cincinnati, supra. The exercise of due diligence in the instant case goes beyond the question whether a particular degree of care was exercised by the directors; the question is whether they were at fault. The cases I have cited support the proposition. One who has diligently sought to act properly is without fault or culpability and, therefore, is without guilt. Due diligence may prove not only that a certain standard of care has not been violated but also that, where an injury has resulted, liability does not follow because there is no guilt.
The majority takes the position and states that Escott v. BarChris, supra, “does not support the directors’ claim that due diligence is a defense to ignorance of the law.” However, I repeat, the directors here are not defending on the basis of ignorance of the law. They are defending on the ground that, despite their diligent efforts, it was impossible for them to ascertain the law. Bar-Chris does support the claim that when the directors have made a reasonable investigation they should not be found personally liable for unwitting illegal acts which resulted from that investigation. The same rule is asserted in the Texas Gulf Sulphur case and the only distinction the majority seeks the draw as to that case is that it turned on the directors’ knowledge of the facts, not their knowledge of the law. This, to me, is a distinction without a difference. The principle remains valid that one should *1151not be found liable when he has done all that he reasonably could have done to ascertain either the facts or the law upon which he based his decision.
As to Spirt v. Bechtel, supra, and Gilbert v. Burnside, supra, my brothers merely argue that the cases do not suggest that due diligence in seeking to ascertain the law would be a defense to an action brought by a third person for an intentional tort. But, once again, those cases do support the concept that where one is without personal fault he is without liability. The cases, Texas Gulf Sulphur, Bar Chris, and Lobato, did involve injuries to third parties and proof of personal guilt was required before liability to the third party could be imposed upon those directors. That principle is stated by the Bechtel and Burnside opinions as well. Differences in factual context do not detract from or destroy the concept of what is fair and just.
My brothers also contend that the Lobato case was decided for reasons different from those contained in the passage quoted herein, supra. This fact does nothing to weaken the validity of the rule therein stated and upon which I rely. To create liability the act must be positively wrongful. Thus, the case sustains my view as well. In short, the majority’s efforts to distinguish these cases fail to reach the heart of the matter. All five decisions approve the principle that guilt does not follow when one has done all he reasonably can to comply with the law.
By way of emphasis, it is quite clear that corporate law recognizes due diligence as a defense to imposition of individual liability upon directors for their torts and illegal acts. Since the majority concedes that §§ 1981 and 1982 recognize the defenses provided by general corporation law, the fact that those statutes do not recognize ignorance, good faith, or lack of bad intent as defenses does not preclude the assertion of due diligence as a defense. With all due deference, it appears that the majority either confuses the defenses or the sources thereof. They equate the inability of the defendants to ascertain the law with ignorance of the law. But it is not with mere ignorance that we are concerned. Here, it was utterly impossible for the directors to ascertain and know the law; that is what absolves them of guilt.
Having found that the defense is available, the actual exercise of due diligence by these directors is also beyond question. The operative facts giving rise to the charge of discrimination occurred fully one and one-half years prior to the first authoritative judicial indication that the policy might be unlawful. Two separate and independent opinions of counsel were relied upon by the directors. When Sullivan was decided, the directors again evaluated their policy in an effort to assure compliance with the law. Pri- or to the Sullivan decision it would have been impossible for them to have known they were acting illegally. Subsequent to that ruling, their conduct, consistent with the advice of counsel on which they relied, was still validated by two federal courts. To hold the directors to a standard of legal acumen greater than that possessed by the federal judiciary would be unconscionable.
The majority asserts that litigants should not be deprived of the fruits of their victory because lower courts decided the case incorrectly, admonishing that to allow corporate officials to violate §§ 1981 and 1982 with impunity is designed to severely restrict the application of these statutes. The decision of the lower court, which I would sustain, refutes both assertions. The plaintiffs recovered an ample judgment as the fruits of their victory. No one seeks to deprive them of that.. The majority’s imposition of additional awards will not inure to the benefit of the litigants. On the other hand, adoption of my views would deprive the litigants of nothing. Likewise, the district court in no way indicates that directors may act with impunity. The circumstances found pertinent *1152here, e. g., multiple advice of counsel, no guidance from prior court decisions, and one hundred years of custom which was contrary to the eventual Supreme Court decree, confirm the diligence of the directors. Such circumstances, when present, are not likely to lead to violations with impunity or erode the application of the statutes nor will they cause plaintiffs to be deprived of the fruits of their victory. To assume or predict such results in the face of the district court’s opinion is less than reasonable.
Again, I emphasize that due diligence is a defense available to these directors from general corporate law, and that due diligence was exercised in this instance. My conclusion is consonant with that of the district court which absolved the directors of individual liability because of their diligent efforts to comply with applicable law. The factual findings of the district court are entitled to great weight and should not be set aside unless clearly erroneous. Rule 52(a) Fed. R.Civ.P. I cannot concur with the majority in failing to recognize this defense or to accord due deference to the findings of the district court. I would decline to hold the directors individually liable.
Ill
The majority’s decision also overrides the limitations of the award of attorneys’ fees granted by the district court and remands the case for the award of additional fees consistent with my brothers’ view that compensation should be awarded for the value of the services of the volunteer attorneys. While I do not disagree with the proposition that awards of fees for proffered voluntary assistance may properly be ordered in some instances, I cannot overlook the majority’s failure to respond to the special circumstances found and relied upon by the district court in limiting its award. I find these special circumstances persuasively compelling here.
The Congressional policy on which an award of fees is predicated confers upon the district court, in the exercise of its discretion, the determination of such awards. 42 U.S.C. § 2000a-3(b). That discretion has been limited by the judicial policy set forth in Newman v. Piggie Park Enterprises, 390 U.S. 400, 88 S.Ct. 964, 19 L.Ed.2d 1263 (1968), which holds that the court’s discretion should be exercised in favor of awards unless special circumstances would render the award unjust. I concede that Newman has been interpreted to hold that circumstances such as the award of compensatory damages, lack of bad faith on the part of defendants, the donation by recipients of the fees awarded to civil rights organizations, lack of obligation on the part of plaintiffs to pay counsel fees, or the meritorious nature of the defendant’s case are not, per se, special circumstances that would render the award of fees unjust. Nevertheless, none of those holdings absolutely precludes consideration of such factors in the discretionary determinations of the district court. While the presence of elements such as good faith or the grant of compensatory damages are no longer absolute bars to the award of counsel fees, such factors may still give rise to unique circumstances that would make the award of such fees unjust in a specific instance. To hold otherwise would compel a mechanistic application of fee awards which would preclude entirely the exercise of discretion by the district court.
In the instant case the court found the unique circumstances which distinguished this litigation from the general principles recited by my brothers. It indicated its cognizance of those general rules, granting them to be true in every respect, but found two differentiating factors to which the majority has made no attempt to respond. First, the district court found the highly meritorious nature of the legal posture of the directors to be extremely compelling in this matter. They had relied upon the *1153advice of counsel and had in all respects sought to be in full compliance with the law. Only three years ago, and four years after the decision in Newman v. Piggie Park Enterprises, supra, this court, sitting en banc, rejected the position now being urged by my brothers that attorneys’ fees be mechanistically awarded without regard to the meritorious nature of the defendant’s case.
We cannot fault the school board because it did not demonstrate greater powers of clairvoyance than either the District Court or this Court in anticipating the extrapolations of Brown by the Supreme Court. Brewer v. School Board of Norfolk, Virginia, 456 F.2d 943, 951 (4 Cir. 1972).
See also, Felder v. Harnett County Board of Education, 409 F.2d 1070, 1075 (4 Cir. 1969). Similarly, I cannot fault these directors for failing to predict the path the law would take concerning private associations. In both of these post-Newman cases this circuit, in the face of arguments to the contrary in concurring opinions, recognized that the meritorious legal posture of the defendants was a factor mitigating against the award of fees. This distinction has also been relied upon in Kelly v. Guinn, 456 F.2d 100, 111 (9 Cir. 1972), to deny attorneys’ fees to plaintiffs in a school desegregation case when the legal duty of the school board was uncertain and the board evinced an intent to discharge its responsibilities under the law when those responsibilities were determined. The defendants here also sought to clearly ascertain the law and comply with it. Yet the majority reiterates the general principle that good faith does not bar the award of fees and ignores the specific findings of the district court, which, like the Ninth Circuit in Kelly and this circuit in Brewer, found a valid distinction from those facts.
Second, the court found that, on the facts of this case, an additional award of attorneys’ fees would not promote the Congressional policy of encouraging private attorneys general to bring suits in civil rights matters because the fund awarded might be applied to totally unrelated charitable works and the Congressional purpose was satisfied by compensating the A.C.L.U. staff. Similarly, in Hoitt v. Vitek, 495 F.2d 219, 221 (1 Cir. 1974), the court declined to award additional fees when the purposes of the Congressional policy would not be advanced. Nevertheless, the majority ignores this distinction, merely reiterating the general principle that awards are not precluded because they inure to the benefit of a civil rights organization. Thus, two valid distinctions have been found; either of them standing alone would make the award of additional fees unjust.
In light of the thoroughly competent review by the trial court of the principles involved in the exercise of its discretion that court’s determination should not be brushed aside without even the slightest consideration; yet that is what the majority opinion does. Primary discretion as to attorneys’ fees rests with the trial court and its exercise should not be overturned unless clearly abused. Lea v. Cone Mills Corp., 467 F.2d 277, 279 (4 Cir. 1972). Two distinct elements set this case apart from the general principles recited by the majority. I would deny the award to the appellants of additional attorneys’ fees.
IV
In sum, the majority decision on this appeal is to impose individual liability upon directors of a corporation who have diligently sought to ascertain the law applicable to their policies and, at all times, to comply with the law; it also would mechanistically award attorneys’ fees despite the finding of special circumstances which would render the award unjust. I cannot subscribe to either result on the undisputed facts involved in this litigation.
ORDER
The appellees’ petition for rehearing and suggestion for rehearing en banc has been submitted to the court. A poll of the court was requested, and a majority *1154of the judges eligible to vote have voted to deny rehearing and rehearing en banc.
It is, therefore, ordered that rehearing and rehearing en banc be and they are hereby denied.
Judge Russell, Judge Field, and Judge Widener dissent from the denial of rehearing en banc for the reasons stated in Judge Boreman’s dissenting opinion.

. Suit was brought against the Association and its directors individually, as a class action under 42 U.S.C. §§ 1981 and 1982 and Title II of the Civil Rights Act of 1964, to require the defendants to cease discriminating with respect to membership and guests on the basis of race. The cause was prosecuted with the assistance of A.C.L.U. staff and volunteer attorneys.

. Sullivan v. Little Hunting Park, supra, was on appeal from the dismissal of the complaint by a Virginia trial court. The Supreme Court of Appeals of Virginia refused to hear the appeal on procedural grounds.