CITY ATTORNEYS OFFICE CITY HALL, 435 RYMAN MISSOULA, MT Phone: (406) Fax: (406) LEGAL OPINION

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1 CITY ATTORNEYS OFFICE CITY HALL, 435 RYMAN MISSOULA, MT Phone: (406) Fax: (406) LEGAL OPINION TO: FROM : Mike Kadas, Mayor City Council Janet Stevens, Chief Administrative Officer Cindy Klette, OPG Director Mary McCrea, OPG Jennie Dixon, OPG Denise Alexander, OPG David Loomis, OPG Steve Hutchings, Building Superintendent Steve Meismer, Building Plans Examiner Bruce Bender, Public Works Director Steve King, City Engineer Marty Rehbein, City Clerk Jim Nugent, City Attorney DATE July 22, 2002 RE: Governmental immunity for exemplary and punitive damages does not apply to or protect individual government employees named as defendants in a civil complaint FACTS: Some citizens have proposed a citizen initiated proposed City of Missoula ordinance pertaining to occupancy standards by limiting the number of unrelated individuals who may reside at a residence no matter how many bedrooms the residence may have. See attached exhibit #1. Pursuant to a March 26, 2002, letter, Kevin Braun, Chief Legal Counsel for the Montana Department of Labor and Industry expressed concerns that individuals may be able to present scenarios asserting that the ordinance may violate the Montana Human Rights Act with regard to the marital status and familial status. Further, the City of Missoula should be aware that the ordinance limitation of eight people in a group home might need to be waived if a request for a reasonable accommodation is made. Chief Legal Counsel Kevin Braun then went on to identify four areas of potential Montana Human Rights Act violations that the Montana Department

2 of Labor and Industry had identified, which were marital status, familial status, disability, and age. With respect to potential age discrimination, Chief Legal Counsel Kevin Braun explained in part that: Generally, the disparate impact theory uses what is known as the 80% rule to determine if a facially neutral policy adversely affects a particular group of people. In this case the question to ask is, Will 80 percent of the people rejected for housing in zone A and R1 under this new ordinance fall within an age group that is significantly younger than those who are accepted for tenancy? The Ninth Circuit United States Court of Appeals in Johnson v. Hale, 940 F.2d 1192 (1991), a housing rental discrimination complaint arising out of Billings, Montana stated at 1193: Both compensatory and punitive damages are available under section Compensatory damages may be awarded for humiliation and emotional distress established by testimony or inferred from the circumstances. Phiffer v. Proud Parrot Motel Hotel, Inc., 648 F.2d 548, (9 th Cir. 1980). No evidence of economic loss or medical evidence of mental or physical symptoms stemming from the humiliation needed be submitted. Seaton v. Sky Realty Co., 491 F.2d 634, 636 (7 th Cir. 1974). [emphasis added] Thus, it is possible for punitive damages to be awarded in a housing rental discrimination case. Previously, the Montana Human Rights Commission staff concluded in the mid-1990 s pursuant to the City of Missoula s prior family zoning definition that letters written by either the Office of Planning and Grants or City Attorney Office staffs merely informing individuals of the language of the then existing family zoning definition constituted an unlawful discriminatory act to the extent that it caused any individual to alter their housing accommodations or to alter their housing accommodation plans. ISSUE: Is it possible that an individual local government staff member could have punitive damages assessed against them personally with respect to work related actions or conduct? CONCLUSION: It is legally possible pursuant to Montana Human Rights laws that the owner, lessee, manager or any other person who commits an unlawful housing discriminatory practice could have punitive damages assessed against them - 2 -

3 pursuant to subsection (6) MCA pertaining to remedies for enforcement of housing discrimination laws. Section MCA only provides statutory immunity from punitive damages to a governmental entity. The Montana Supreme Court in Dvorak v. Huntley Project Irrigation District, 639 P.2d 62 (1981) stated that the statutory immunity provision of Section MCA immunizing governmental entities from punitive damages does not apply to individual defendants but to the state and governmental entities. Generally, insurance companies do not provide civil tort liability insurance for the award of punitive or exemplary damages against a governmental employee. The City of Missoula does not provide civil tort liability insurance coverage to its employees for punitive or exemplary damages if they are awarded with respect to work related actions of the government employee. LEGAL DISCUSSION: Title 2, Chapter 9 MCA, pertains to liability exposure and insurance coverage for governmental entities in Montana. Part 1 of Title 2, Chapter 9 MCA, is entitled Liability Exposure. Section MCA of this part provides: State or other governmental entity immune from exemplary and punitive damages. The state and other governmental entities are immune from exemplary and punitive damages. Note that this statutory immunity from exemplary and punitive damages as a remedy for enforcement of housing discrimination laws only applies to governmental entities and does ;not provide protection for governmental employees. The Montana Supreme Court in Dvorak v. Huntley Project Irrigation District, 639 P.2d 62, 65 (1981), stated that the statutory provisions of Section MCA do not apply to individual defendants but to the state and governmental entities. [emphasis added] Montana s Human Rights statutes provide for award of punitive damages if the party against whom a complaint was filed has previously been adjudicated in a civil or formal administrative proceeding to have engaged in similar discriminatory practices in violation of Montana Human Rights laws. Subsection (6) MCA provides: (6) If the court finds that a party against whom a complaint was filed under this section has been adjudicated in a civil or - 3 -

4 formal administrative proceeding to have engaged in a similar discriminatory practice in violation of a subsection of , the court may, consistent with the provisions of subsection (2), award punitive damages. The court may also award attorney fees to the substantively prevailing party. [emphasis added] Montana state statutes pertaining to availability of remedies for civil tort liability provides in Sections and in pertinent part as follows: Punitive damages -- when allowed. (1) Except as otherwise expressly provided by statute, a judge or jury may award, in addition to compensatory damages, punitive damages for the sake of example and for the purpose of punishing a defendant. [emphasis added] Punitive damages -- liability -- proof -- award. (1) Subject to the provisions of and this section, reasonable punitive damages may be awarded when the defendant has been found guilty of actual fraud or actual malice. (2) A defendant is guilty of actual malice if the defendant has knowledge of facts or intentionally disregards facts that create a high probability of injury to the plaintiff and: (a) deliberately proceeds to act in conscious or intentional disregard of the high probability of injury to the plaintiff; or (b) deliberately proceeds to act with indifference to the high probability of injury to the plaintiff. Section MCA pertaining to insurance coverage of punitive damages provides: Insurance coverage of punitive damages. (1) Insurance coverage does not extend to punitive or exemplary damages unless expressly included by the contract of insurance. (2) Prior to renewal of any policy in effect on October 1, 1987, the insurer shall provide the insured with notice of nonrenewal of coverage of punitive or exemplary damages in the same manner as required by the commissioner of insurance for the renewal of policies with altered terms. [emphasis added] Generally, liability insurance coverage policies do not provide coverage for punitive damages. The City of Missoula does not provide punitive damage insurance coverage for its employees. Section MCA, pertaining to immunization, defense and indemnification of government employees does not provide any statutory immunity from punitive or exemplary damages for government employees for - 4 -

5 employment related actions or conduct. Also it should be noted that this section MCA statutory immunization, defense, and indemnification of government employees also is limited to non criminal actions of the government employee. It should also be noted that it is a misdemeanor criminal offense, pursuant to Montana Human Rights violation laws for any person, governmental entity or agency to willfully engage in an unlawful discriminatory practice prohibited by Title 49, Chapter 2 MCA. Section provides: Criminal penalty. A person, educational institution, or financial institution, either public or private, or a governmental entity or agency who or which willfully engages in an unlawful discriminatory practice prohibited by this chapter or willfully resists, prevents, impedes, or interferes with the commission, the department, or any of its authorized representatives in the performance of a duty under this chapter or who or which willfully violates an order of the commission or willfully violates this chapter in any other manner is guilty of a misdemeanor and is punishable by a fine of not more than $500 or by imprisonment for not more than 6 months, or both. [emphasis added] Courts are indicating that housing discrimination in rental properties is as serious as discrimination in sales. Both have substantial societal costs. Johnson v. Hale, 13 F.3d 1351, 1354 (1994), a case from Billings, Montana. Both compensatory as well as punitive damages are available to be awarded for housing discrimination. Further, compensatory damages may be awarded for humiliation and emotional distress established by claimant testimony without evidence of economic loss or medical evidence of mental or physical symptoms. The Montana Code Annotated Annotations for section MCA pertaining to housing discrimination identifies a United States Court of Appeals case for the Ninth Circuit arising out of Billings, Montana pursuant to which two African-American men were not allowed to rent a dwelling unit. They sued pursuant to Federal Law 42 U.S.C alleging housing discrimination. The United States Court of Appeals held that they were entitled to compensatory damages for emotional distress for the discrimination against them by the rental dwelling unit owners. The United States Court of Appeals for the Ninth Circuit stated in Johnson v. Hale, 940 F.2d 1192 (9 th Circuit 1991) at page 1193 that: Both compensatory and punitive damages are available under section Compensatory damages may be awarded for - 5 -

6 humiliation and emotional distress established by testimony or inferred from the circumstances. Phiffer v. Proud Parrot Motor Hotel, Inc., 648 F.2d 548, (9 th Cir. 1980). No evidence of economic loss or medical evidence of mental or physical symptoms stemming from the humiliation need be submitted. Seaton v. Sky Realty Co., 491 F.2d 634, 636 (7 th Cir. 1974). (emphasis added) The District Court found that the Hales had overtly discriminated against Johnson and Walker by refusing to allow them to rent or inspect the advertised rental units because they were African-American. Both plaintiffs provided detailed and substantial testimony to support their claims that they suffered emotional distress as a result of the Hale s discriminatory acts. Each testified that he was acutely upset by the incident and that it adversely affected his relationships with white people. Johnson and his white girlfriend testified that the incident made Johnson suspect that both his girlfriend and her parents were racist and made him self-conscious around other white people. Walker, too, testified that he began to suspect his white friends of racism. The Hales offered no evidence to rebut this testimony. The 9 th Circuit remanded the case to the United States District Court for the award of compensatory damages. The case returned to the United States Court of Appeals 9 th Circuit in 13 F.3d 1351 (9 th Cir. 1994) on appeal the second time because insufficient compensatory damages had been awarded by the United States District Court. The United States Court of Appeals for the Ninth Circuit stated the second time in Johnson v. Hale at in pertinent part as follows: On appeal, we held that the failure to award compensatory damages was clear error and remanded for a compensatory damage award in an amount which will fairly compensate them for their injuries 940 F.2d at In the remand order, we noted that compensatory damages may be awarded for humiliation and emotional distress established by testimony or inferred from the circumstances, whether or not plaintiffs submit evidence of economic loss or mental or physical symptoms. Id. at 1193 (citing Phiffer v. Proud Parrot Motor Hotel, 648 F.2d 548, (9 th Cir. 1980); Seaton v. Sky Realty Co., 491 F.2d 634, 636 (7 th Cir. 1974). We also emphasized that both plaintiffs provided detailed and substantial testimony to support their claims that they suffered emotional distress as a result of the Hales discriminatory acts and that the Hales offered no evidence to rebut this testimony. Id... We are disappointed that this case is again before us. We hoped our previous opinion would lead to an appropriate award of - 6 -

7 compensatory damages or a settlement by the parties. Unfortunately, in light of the de minimis damage award, we must again reverse for clear error and remand for an award consistent with the purpose of 1982 and the discrimination case cited in plaintiff s brief to the Court. None of the district court s stated reasons support a token award. As we stated during our last look at this case, a polite manner in no way negates the effects of overt racial discrimination. Johnson, 940 F.2d at Politeness does not erase the exhibition of racial discrimination. Those cases in which federal courts have considered the defendant s demeanor in no way justify the de minimis award given in this case. Contrary to the district court s assertion that discrimination in rental property merits a lower damage award than discrimination in the sale of property, more recent cases have recognized that housing discrimination in rental properties is as serious as discrimination in sales. Both have substantial societal costs. We have been cited no reason to assume that racial discrimination in rented housing is any less emotionally upsetting that in the home sale market. With reference to the district court s finding that the plaintiff s have not shown a pattern of discrimination, Ms. Hale s statement itself confesses a pattern of discrimination. In any case, the finding does not justify a de minimis award. A 1982 plaintiff need not prove a pattern of discrimination in order to prove damages. Finally, that plaintiffs were alone with Ms. Hale when she made the statement does not suggest that its effect was minimal. Plaintiffs testified in detail about the impact of the statement on their lives, and amicus persuasively chronicles the larger societal consequences of such discrimination. Although we decline to set a damage award ourselves, the two appeals in this relatively simple case indicate that some direction is necessary. The disregard of recent relevant precedent has caused an unseemly delay of some five years and has wasted judicial resources. On remand, therefore, the district court must award each plaintiff damages of not less than $ 3,500 plus costs and attorney s fees. That sum would appear to be the minimum that finds support in recent cases and takes into account inflation, the purpose of 1982, and other factors. The district court may, of course, award more after reviewing the authorities cited above. (emphasis added)

8 CONCLUSION: It is legally possible pursuant to Montana Human Rights laws that the owner, lessee, manager or any other person who commits an unlawful housing discriminatory practice could have punitive damages assessed against them pursuant to subsection (6) MCA pertaining to remedies for enforcement of housing discrimination laws. Section MCA only provides statutory immunity from punitive damages to a governmental entity. The Montana Supreme Court in Dvorak v. Huntley Project Irrigation District, 639 P.2d 62 (1981) stated that the statutory immunity provision of Section MCA immunizing governmental entities from punitive damages does not apply to individual defendants but to the state and governmental entities. Generally, insurance companies do not provide civil tort liability insurance for the award of punitive or exemplary damages against a governmental employee. The City of Missoula does not provide civil tort liability insurance coverage to its employees for punitive or exemplary damages if they are awarded with respect to work related actions of the government employee. OFFICE OF THE CITY ATTORNEY Jim Nugent, City Attorney JN:lkp pc: Legal Staff; Occupancy Standard File - 8 -