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Developer’s Claim for Indemnity Against Architect for ADA and FHA Violations Rejected
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February 28, 2011
By Brienne Wesolek
Niles Bolton Associates, Inc. was hired by Archstone, a developer and owner, to design multi-family apartment buildings in the 1990s. In 2004, several disability advocacy groups filed a lawsuit against Archstone, Niles Bolton, contractors and other architects alleging that Archstone apartment buildings were not designed and constructed so that they would be accessible to persons with disabilities in compliance with the Fair Housing Act (FHA), 42 USC §§3601, et seq., and the Americans with Disabilities Act (ADA), 42 USC §§12101, et seq.
Archstone and the disability advocacy groups entered into a settlement agreement covering 71 of the apartment communities, 15 of which were designed by Niles Bolton. Niles Bolton was not a party to the settlement. The settlement agreement required Archstone to retrofit the 71 properties to make them FHA- and ADA-compliant and to pay $1.4 million to cover damages, attorney fees and costs. Archstone alleged that the costs of the retrofits at the sites designed by Niles Bolton exceeded $2.5 million.
Following the settlement, Archstone filed a cross-claim against Niles Bolton asserting state-law causes of action for: 1) express indemnity, 2) implied indemnity, 3) breach of contract and 4) professional negligence. Archstone sought to recover all damages, attorney fees and costs paid to the plaintiffs and all costs of making compliant the apartment communities designed by Niles Bolton.
The parties conducted discovery for approximately three years. Archway successfully resisted some discovery sought by Niles Bolton. Then, three weeks after the close of discovery, Archstone filed a motion for leave to amend its cross-claim to include a claim for contribution. In denying Archstone’s motion, the U.S. District Court for Maryland held that the delay in seeking leave to amend would prejudice Niles Bolton because Archway had successfully resisted discovery relevant to a contribution claim. Further, the District Court held that even if there were no prejudice, a state-law claim for contribution would be futile because it would be preempted under federal law.
The District Court granted summary judgment in favor of Niles Bolton on grounds that Archstone’s causes of action were for indemnity and de facto indemnity for violations of the FHA and ADA while no right to indemnification exists under those laws. The District Court also held that allowing indemnification on the basis of state law would be antithetical to the purposes of the FHA and ADA. It held that the state law claims were preempted by federal law under the doctrine of conflict, or obstacle, preemption.
The U.S. Court of Appeals for the 4th Circuit affirmed. Equal Rights Center v. Niles Bolton Associates, 602 F.3d 597 (4th Cir. 2010), cert. den. 131 S.Ct. 504 (2010).
Archstone argued that its claims did not conflict with the federal laws and were not based on rights derived from the federal laws.
With regard to Archstone’s indemnity claims, the appeals court noted that the goals of the FHA and ADA are “regulatory rather than compensatory” and that compliance with the ADA and FHA is “nondelegable” in that a building owner cannot “insulate himself from liability for… discrimination in regard to living premises owned by him and managed for his benefit merely by relinquishing the responsibility for preventing such discrimination to another party.”
With regard to Archstone’s state-law breach of contract and negligence claims, the appeals court held that the District Court correctly found those claims to be de facto indemnification claims and preempted by federal law. That was because Archstone sought to recover 100 percent of its losses at the 15 sites where Niles Bolton provided architectural services. The appeals court rejected Archstone’s argument that its claims for breach of contract and negligence were not derivative of the federal claims because the state law claims sought only to enforce duties owed by Niles Bolton to Archstone. It did so “because Archstone really seeks to have Niles Bolton pay all damages that arise under the FHA and ADA at these sites.”
Finally, the Fourth Circuit held that the district court did not abuse its discretion in denying Archstone’s motion for leave to amend its complaint as unduly prejudicial to Niles Bolton on the basis of its timing.
The appeals court expressly declined to determine whether a state-law claim for contribution was preempted under federal law. The appeals court differentiated indemnity from contribution. It noted that indemnity involved shifting the entire loss from one wrongdoer to another while contribution requires each wrongdoer to pay its proportionate or pro rata share of an adverse judgment.
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