Szwast v. Carlton Apartments: Judge Reduces Large Verdict for Fair Housing Violations

A federal court considered an apartment building owner's challenge to a jury's punitive damages award for violations of the federal Fair Housing Act ("Act").

Carol Szwast, mother of two minor children ("Plaintiffs"), sued the Carlton Apartments and its owners ("Owners") for violating the Act's prohibition on familial status discrimination in rental housing. The Act is intended to eliminate from the housing marketplace discrimination against protected classes. One type of discrimination the Act prohibits is discrimination against individuals based on their "familial status," which is defined in the Act as "one or more individuals (who have not attained the age of 18 years) being domiciled with...a parent."

The United States District Court for the Eastern District of Michigan ruled that the "uncontroverted evidence" showed that the Owner told the Plaintiffs that it did not rent upper-level apartments to families with children. Therefore, the Owners' behavior violated the Act. Following that ruling, a jury was empanelled by the court to determine what type of damages should be assessed against the Owners. The jury awarded the Plaintiffs $3,000 in compensatory damages and $400,000 in punitive damages. The Owners filed a motion with the court challenging the jury verdict, seeking either a new trial or a reduction in the amounts awarded.

First, the court considered the Owners' challenge to the jury instructions given by the court. The Owners argued that the instructions contained erroneous statements about the Act. The court rejected this argument, finding that not only had the Owners failed to object to these instructions prior to their being read to the jury, but also that the instructions accurately stated the standard for awarding punitive damages, which is that a defendant shows a "reckless or callous disregard for plaintiff's rights, as well as intentional violations of federal law." The court also rejected a challenge to the jury instruction that the Owners could be assessed punitive damages for the actions of their employee. To find a principal liable for punitive damages for the conduct of its agent, the principal must ratify the conduct of the agent. The court ruled that it adequately instructed the jury about ratification, and so this challenge also failed.

Next, the Owners argued that the court improperly foreclosed witness testimony. The Owners argued that the court did not allow their representative to testify that they did not have any intent to violate the Act. The court rejected this argument, stating that it did not let the representative speculate as to whether they did violate the Act, since the court had already ruled that they had violated the Act.

Finally, the court considered whether it should reduce the jury's punitive damage award of $400,000. The court stated that in this case, punitive damages were appropriate, since the Owners continued to willfully violate the Act after being accused of familial status discrimination at an earlier time. Looking to a 1996 United States Supreme Court opinion (BMW of North America v. Gore, 517 U.S. 559, 116 S. Ct. 1589 (1996)), the court found that there are three factors that need to be considered in assessing the size of a punitive damages award: the degree of reprehensibility of a defendant's conduct; the disparity between the harm suffered and the size of the punitive damage award; and the difference between civil penalties authorized and the amount of punitive damages.

Considering the reprehensibility factor, the court stated that even though the Owners willfully violated the Act, the court found that the $400,000 award was extreme punishment. It next considered the ratio of punitive damages to compensatory damages (here, $400,000: $3,000). In BMW, the Supreme Court didn't establish a specific ratio, but stated that a ratio of 500:1 was impermissible. Here, the jury awarded damages in 133:1. The court found that a more appropriate ratio would be 10:1, or a punitive damages award of $30,000.

The court then looked at the final factor, the civil damages available for a violation of the Act. The court found that $50,000 is the maximum fine for a first violation if the Attorney General brings the lawsuit, and all subsequent fines must not exceed $100,000. Since the Owners knew that a $50,000 fine existed for Act violations, a $30,000 punitive damage award was appropriate punishment. Thus, the court entered an award of $3,000 in compensatory damages for the Plaintiffs and a punitive damage award of $30,000.

Szwast v. Carlton Apartments, 102 F. Supp. 2d 777 (E.D. Mich. 2000).

Editor's Note: While the case was on appeal to United State Court of Appeals, Sixth Circuit, the parties reached a settlement, wherein Carlton Arms would pay Szwast $42,500.