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DTCI: Indemnity under the Fair Housing Amendments Act

May 2, 2018
schurter-thaddeus-mug By Thaddeus J. Schurter

Indiana has recently witnessed an increase in the number of accessibility claims asserted under the Fair Housing Amendments Act (FHAA), an amendment to the Fair Housing Act aimed at ending discrimination against disabled individuals. Many of these claims are filed by “testers” who pose as potential residents to determine the extent of any accessibility violations, but claims can also be brought by the U.S. Department of Justice, private individuals, and disability rights advocacy groups. Although the construction industry has long sought to allocate the risk of liability for such claims to the parties best suited to minimize that risk, recent court decisions construing the FHAA call into question the enforceability of such provisions.

The Fair Housing Amendments Act

Congress enacted the FHAA in 1988 to prohibit discrimination based on disability or familial status and to require that certain multifamily dwelling units include accessibility enhancing features for persons with disabilities. 42 U.S.C. §§ 3601-3619, 3631. The FHAA makes it unlawful “[t]o discriminate in the sale or rental, or to otherwise make unavailable or deny, a dwelling to any buyer or renter because of a handicap” and “[t]o discriminate against any person in the terms, conditions, or privileges of sale or rental of a dwelling, or in the provision of services or facilities in connection with such dwelling, because of a handicap.” 42 U.S.C. §§ 3604(f)(1) & (2). It also requires that certain accessibility-enhancing features be included in the design and construction of all covered multifamily dwellings. 42 U.S.C § 3604(f)(3)(C).

Design and construction requirements

Multifamily dwellings that are subject to § 3604(f)(3)(C) include buildings consisting of four or more units if such buildings have one or more elevators; and (b) ground floor units in other buildings consisting of four or more units. 42 U.S.C. § 3604(f)(7); see also 24 C.F.R. § 100.205(d). To comply with the FHAA, such buildings must be designed and constructed with certain accessibility enhancing features including:

• public and common use areas (mailroom kiosks, laundry rooms, exercise facilities, etc.) readily accessible to and usable by handicapped persons;

• doors wide enough to allow passage into and throughout the premises by individuals in wheelchairs;

• an accessible route into and through the dwelling;

• light switches, electrical outlets, thermostats, and other types of environmental controls located in accessible locations;

• bathroom walls constructed with sufficient reinforcements to allow for the subsequent installation of grab bars; and

• kitchens and bathrooms with enough space to permit an individual in a wheelchair to maneuver about the space.

42 U.S.C. § 3604(f)(3)(C).

Although § 3604(f)(3)(C) technically imposes six requirements, it has been interpreted by the U.S. Department of Housing and Urban Development (HUD) to include a seventh, that any building subject to the FHAA must have an accessible building entrance on an accessible route. See, e.g., 56 Fed. Reg. 9472, 9503 (Mar. 6, 1991).

Enforcement and implementation of accessibility requirements

FHAA enforcement actions typically focus on ensuring that new construction meets the accessibility requirements, particularly for those in wheelchairs. “Accessible,” for purposes of the FHAA, means that public or common use areas can be approached, entered, and used by individuals with physical disabilities. 24 C.F.R. § 100.201. Similarly, an “accessible entrance” means an entrance to a building that is connected by an accessible route to public transportation stops, to accessible parking and passenger loading zones, or to public streets or sidewalks, if available. Id. An “accessible route” is a continuous unobstructed path connecting accessible elements and spaces in a building or within a site that can be negotiated by a person with a severe disability using a wheelchair and that is also safe for and usable by people with other disabilities. Id.

While there are no statutory exceptions to the accessibility requirements, HUD has recognized that strict compliance can be excused if it is impractical to provide an accessible route to a building entrance due to unusual site characteristics or terrain. 24 C.F.R. § 100.205(a). However, a site impracticality analysis must be completed during the project’s initial design phase before the existing terrain is disturbed to qualify for this exception. See, e.g., Guidelines, 56 Fed. Reg. at 9503-04 (site impracticality calculations must be “based on the topography of the existing natural terrain”). Courts have rejected site impracticality as a defense where the analysis was completed after construction had been completed. See Memphis Center for Indep. Living & United States v. Richard & Milton Grant Co., No. 01-2069, slip op. at 7 2004 WL 6340158, at *7 (W.D. Tenn. June 29, 2004).

The FHAA authorized HUD to provide technical assistance to implement the Act’s accessibility requirements and in response, HUD published the Fair Housing Accessibility Guidelines (the “Guidelines”) “to provide builders and developers with technical guidance on how best to comply with the specific accessibility requirements.” 56 FR 9472-01 (Mar. 6, 1991). A second and more detailed guide, the Fair Housing Act Design Manual, A Manual to Assist Designers and Builders in Meeting the Accessibility Requirements of the Fair Housing Act (the “Design Manual”) was published in 1996 to provide “a clear statement of HUD’s interpretation of the accessibility requirements of the Act, so that readers may know what actions on their part will provide them with a ‘safe harbor,’ and second, [to] provide guidance in the form of recommendations which meet the Department’s obligation to provide technical assistance on alternative accessibility approaches.”

Responsibility for FHAA compliance

The number of parties subject to the FHAA’s accessibility standards is intentionally broad. The Design Manual provides that “responsibility for complying with the law rests with any and all persons involved in the design and construction of covered multifamily dwellings. This means . . . the complaint could be filed against all persons involved in the design and construction of the building, including architects, builders, building contractors, the owner, etc.” Design Manual, at p. 22. This expansive sweep of liability has a significant impact on the number of construction industry participants that may be subject to liability.

Construction projects, and particularly those subject to the FHAA, are complex undertakings involving numerous stakeholders with overlapping layers of responsibility. When projects devolve into claims or litigation, resolving liability issues typically involves finger-pointing between the owner and the design and construction teams. However, because construction industry participants have long allocated certain risks to the party best suited to mitigate or guard against that risk, claim resolution is often a function of enforcing contractual responsibilities.

For example, project owners commonly delegate responsibility for ensuring that the project complies with or is informed by applicable laws and regulations to their design professional. See, e.g., AIA Document B201, Standard Form of Architect’s Services: Design and Construction Contract Administration §2.4.2 (2007) (“The Architect shall incorporate into the Construction Documents the design requirements of governmental authorities having jurisdiction over the Project.”); see also ConsensusDOCS 240 Standard Agreement Between Owner and Design Professional, § 3.2.5 (Architect/Engineer shall prepare … Construction Documents … consisting of drawings and specifications that comply with applicable codes, laws and regulations enacted at the time of their preparation at the location of the Project … .”)

Similarly, many owner-contractor agreements impose similar obligations. The 2017 AIA General Conditions provide that: “[t]he Contractor shall comply with … applicable laws, statutes, ordinances, codes, rules and regulations … applicable to performance of the Work.” See AIA Document A201-2017, General Conditions of the Contract for Construction. Moreover, “[i]f the Contractor performs Work knowing it to be contrary to applicable laws, statutes, ordinances, codes, rules and regulations, or lawful orders of public authorities, the Contractor shall assume appropriate responsibility for such Work and shall bear the costs attributable to correction.” Id. at § 3.7.3.

Enforceability of contractual risk shifting provisions under the FHAA

Risk-shifting provisions that obligate the parties to discharge their duties in accordance with existing codes and laws are consistent with Indiana law, which recognizes that the laws and codes that exist at the time and place of the making of the contract are considered implied terms of the contract documents. See Ethyl Corp. v. Forcum-Lannom Assocs., Inc., 433 N.E.2d 1214 (Ind. Ct. App. 1982) (parties presumed to have had the law in mind when the contract was signed); see also Johnson v. Sprague, 614 N.E.2d 585 (Ind. Ct. App. 1993) (In general, all laws in force on the date of the agreement form a part of the agreement without any express statement to that effect.) However, notwithstanding the parties’ intent to allocate risk in this regard, such provisions, and specifically indemnification provisions, may be inadequate protection from FHAA claims.

In Equal Rights Center v. Niles Bolton Assocs., 602 F.3d 597 (4th Cir. 2010), disability rights advocacy groups asserted accessibility claims against the owner of multifamily housing projects throughout the United States. Id. at 598-99. After settling with the plaintiffs and agreeing to remediate the violations, the owner asserted a cross-claim against Niles Bolton, the architect on 15 of the buildings, for express and implied indemnity, breach of contract, and professional negligence. Id. Citing the parties’ contractual indemnity provision, the owner sought to allocate the full cost of repairs for the 15 buildings Niles Bolton designed. Id.

Rejecting the owner’s indemnity claim, the court held that:

“[a]llowing an owner to completely insulate itself from liability for an ADA or FHA violation through contract diminishes its incentive to insure compliance with discrimination laws. 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 purpose of the FHA and ADA. Accordingly, we find [the owner’s] indemnification clams are preempted.”

Id. at 602.

The court found owner’s other claims were also preempted because they operated as de facto indemnification claims. Id. (citing Baker, Watts & Co. v. Miles & Stockbridge, 876 F.2d 1101, 1108 (4th Cir. 1989) (plaintiff’s pendent common-law actions are preempted to the extent that they are de facto claims for indemnification)). Other courts have reached similar conclusions. See Rolf Jensen & Assocs. v. District Ct., 282 P.3d 743 (Nev. 2012) (“[P]ermitting indemnification claims would weaken owners’ incentive to prevent violations of the ADA and therefore would conflict with the ADA’s purpose and intended effects.”); see also U.S. v. Bryan Co., 2012 WL 2051861, at *5 (S.D. Miss. 2012) (Indemnification claims for violations of the ADA or FHA “frustrate, disturb, interfere with or seriously compromise the purposes of the FHA and ADA.”)

Other courts have concluded, however, that allowing indemnity and contribution claims impose no obstacle to the objectives of federal disability laws. In City of Los Angeles v. AECOM Servs., Inc., 854 F.3d 1149 (9th Cir. 2017), amended, 2017 WL 1844077 (9th Cir. May 9, 2017), the City of Los Angeles (“City”) asserted third-party claims for indemnity and contribution against AECOM Services, Inc. (AECOM) and Tutor Perini Corporation (“Tutor”) for the negligent design and construction of a public transportation facility. The City’s contract with AECOM required it to “defend, indemnify, and hold harmless the City against all suits, claims, losses, demands, and expenses to the extent that any such claim results from the negligent and/or intentional wrongful acts or omissions of [Contractor], its subcontractors, officers, agents, servants, [or] employees.” Id., at 1152. The Tutor contract contained a similar provision. Id. at 1152-53. Tutor and AECOM moved to dismiss the City’s claims for indemnity and contribution, asserting that the claims were preempted by the ADA. The district court agreed, finding the claims were barred both by field preemption and conflict preemption.

Reversing, the Ninth Circuit Court of Appeals concluded the City’s third-party claims did not operate to immunize the City from its compliance obligations but, rather, to shift liability for their respective amounts of liability. The court noted that: “[p]ermitting enforcement of contract claims seeking to hold a contractor liable for duties necessarily delegated to it does not raise the specter of entirely insulating public entities from [liability] … .” Id. at 1158. It also noted that, as with most project owners, “[c]ities usually have no choice but to contract out design and construction of public facilities because they do not have the expertise, personnel, or equipment necessary to construct public projects. They delegate that task by necessity.” Id. Thus, to the extent that the City was not seeking to immunize itself from liability or to shift the entirety of its compliance obligations onto its construction and design teams, its claims for indemnity and contribution were not barred.

Conclusion

Due to the FHAA’s strict liability scheme, owners, developers, architects, engineers, and contractors can all be held liable for violations and should therefore carefully review the applicable FHAA requirements and guidance manuals when designing and/or constructing projects subject to the FHAA. If not, an unwitting construction or design participant may find itself paying for the cost of correcting noncompliant design or construction elements in addition to the claimant’s attorneys’ fees, expert fees and other costs.•

Mr. Schurter is a partner with Drewry Simmons Vornehm LLP and chairs the DTCI Construction Law Section. He regularly represents owners, design professionals, contractors, subcontractors, and suppliers in all aspects of construction law. Opinions expressed are those of the author.

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