A jury's award of $3 million to a Desert Hot Springs developer who sued the city for violating the Fair Housing Act has been reinstated by the U.S. Ninth Circuit Court of Appeals.
District Court Judge Consuelo Marshall had ruled that the $3 million award was excessive, so she ordered a new trial on damages. However, the Ninth Circuit ruled that Marshall abused her discretion and ordered her to reinstate the original jury verdict.
The Ninth Circuit also overturned Judge Marshall's decision to deny the developer's request for an injunction ordering the City of Desert Hot Springs not to violate the Fair Housing Act in the future.
In 1990, Silver Sage Partnership signed an agreement to purchase the Silver Sage Mobile Home Park in Desert Hot Springs for low-income housing. The partnership initially sought to use county bonds to finance the project, but the city would not consent. The partnership then went to the state and received approval for $8.2 million in tax credits and a $4.2 million, 55-year mortgage from the Department of Housing and Community Development. However, the loan triggered Article 34 of the state constitution, which requires voter approval of low-rent housing projects that are developed or acquired by a public body.
In December 1990, the City Council voted to deny Article 34 approval. The developer then sued in both state and federal court. Eventually, a state appellate court ruled in an unpublished opinion that a city council cannot block an Article 34 election, as the Desert Hot Springs council had. But the partnership did not pursue a ballot measure because the mortgage was no longer available.
In federal court, the partnership alleged that the city's actions to block the project violated the Fair Housing Act. A jury agreed and awarded the partnership $3 million in damages. After the city filed a motion for a new trial, Judge Marshall ruled the jury's verdict was "grossly excessive." Using various calculations, Marshall concluded the partnership was entitled to only $388,000. When the partnership refused to accept the lesser amount, Marshall ordered a new trial on damages. The second jury awarded the partnership nominal damages.
The partnership then appealed the district court's granting of a new trial on damages, the court's denial of an injunction against the city, and the amount of attorneys' fees the court allowed.
Judge Marshall had ruled out most of the original $3 million award for multiple reasons: it was based on "speculative" lost profits; it failed to account for anticipated costs and returns; it included losses to individuals who were only marginally involved; it included losses from a potential tax increase; it double-counted the partnership's losses; and the partnership did not attempt to mitigate its losses. The Ninth Circuit ruled that Marshall was wrong.
The appeals court held that Marshall improperly determined that the partnership would realize profits only after the entire mortgage was repaid. No evidence supported that conclusion, the Ninth Circuit ruled. "[T]he partnership would receive some profits in any year that operating income exceeds payment on the loan, including payment for any accrued interest balance," Judge Betty Fletcher wrote for the three-judge panel.
As for anticipated costs, Judge Marshall deducted $383,000 from the jury award because she found that the partnership would have had to pay for child-care facilities and temporary classrooms. The Ninth Circuit acknowledged that the developers planned to create a child care facility; however, there was no binding obligation for child care facilities or classrooms.
As for marginally affected individuals, Judge Marshall deducted a real estate broker's fee and a syndication fee from the jury's award. The Ninth Circuit said this, too, was improper. The Supreme Court has adopted a "very liberal standing requirement" in Fair Housing Act cases, Fletcher wrote. Thus, the people who lost commissions because the city violated the Fair Housing Act had a right to recover damages for their injuries, the court ruled.
The Ninth Circuit also ruled that Judge Marshall misread the partnership's obligation to mitigate its losses. Marshall cited a feasibility study conducted by one of the partners that concluded the mobile home park could be sold for $1.4 million after it was fully rented. So she deducted $1.4 million from the damages.
"The court provided no legal authority to support the proposition that a party harmed by another's violation of the Fair Housing Act has a duty to mitigate its damages," Fletcher wrote. Moreover, it was unreasonable to assume the partnership could even purchase the property without the mortgage from HCD, which was no longer available, the court ruled.
The appellate court did not even consider the double-counting issues because it concluded the evidence supported damages of $3.1 million — even more than the jury awarded.
As for the injunction, the Ninth Circuit ordered Judge Marshall to reconsider her denial. Marshall ruled that the partnership must prove "a reasonable likelihood of future violations of the Fair Housing Act." But the partnership argued that Marshall improperly reversed the burden of persuasion. The Ninth Circuit appeared to agree. Noted Fletcher, "We have held that where a defendant has violated a civil rights statute, we will presume that the plaintiff has suffered irreparable injury from the fact of the defendant's violation."
The Ninth Circuit also directed the district court to reconsider attorneys' fees — which had been awarded to the partnership in the amount of $57,000 — in light of the reinstated jury verdict.
Silver Sage Partners, Ltd., v. City of Desert Hot Springs, Nos. 99-56917, 99-56919, 99-56920, 01 C.D.O.S. 4446. Filed June 1, 2001.
For Silver Sage: William J. Davis, Davis & Company, (213) 253-5939.
For the city: Kevin Patrick McVerry, Graves, Roberson & Bourassa, (805) 498-7119.