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Developers Lose Indemnification Rights
A recent Fourth Circuit opinion has restricted a developer’s ability to seek indemnification from its architects based on violations of the Americans with Disabilities Act or the federal Fair Housing Act’s design and construction requirements. The decision is troubling for owners and developers of real estate projects.
Owners and developers typically rely upon architects to design commercial and residential projects to provide access to persons with disabilities. When accessibility claims occur, developers generally will seek indemnification from their architects pursuant to common law and contractual indemnification clauses. But, in Equal Rights Center v. Niles Bolton, Case No. 09-1453 (4th Cir. April 19, 2010), the Fourth Circuit held that developers cannot contractually allocate all of their potential liability relating to accessibility compliance to their consultants.
The ruling was made in a fair housing case filed by the Equal Rights Center against Archstone Smith Trust, a national developer and owner of multifamily housing projects. Following a settlement between Archstone and the ERC, Archstone filed a claim for indemnification against Niles Bolton, the architectural firm that designed fifteen of the Archstone properties involved in the ERC suit that were alleged to have been designed in violation of the FHA. The claims filed by Archstone were based on common law indemnity and breach of contract with respect to the architect agreements which required Niles Bolton to design the projects to comply with all laws. The trial court determined that Archstone's claims were preempted by the FHA and entered summary judgment on all counts in favor of Niles Bolton. The decision was affirmed by the Fourth Circuit.
The Fourth Circuit reasoned as follows:
Here, Archstone sought to allocate the full risk of loss to Niles Bolton for the apartment buildings at issue. Allowing an owner to completely insulate itself from liability for an ADA or FHA violation through contract diminishes its incentive to ensure 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 purposes of the FHA and ADA. Importantly, the opinion does not preclude an owner or developer from pursuing an architect for partial indemnification, otherwise known as a claim for contribution. Indeed, the Fourth Circuit specifically indicated that its decision did not address whether a state law claim for contribution is preempted by the federal accessibility laws. Thus, this decision leaves open the possibility that owners and developers of real estate projects may attempt to allocate fault and damages related to accessibility non-compliance as between it and its architect and then seek contribution from the architect only for the architect’s allocated share of the costs incurred.
Gallagher's Litigation Group represents defendants in fair housing cases brought by individual claimants, advocacy groups, and federal, state and local governmental agencies. We regularly represent owners, developers and contractors in these cases in claims in many parts of the country. If you have questions about Equal Rights Center v. Niles Bolton or fair housing compliance in general, please contact Kevin Sullivan at 410-951-1406 or ksullivan@gejlaw.com.
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