United States v. Nolen

1 2 3 4 5 UNITED STATES DISTRICT COURT 6 EASTERN DISTRICT OF CALIFORNIA 7 8 UNITED STATES OF AMERICA, No. 2:23-cv-00320-JAM-CKD 9 Plaintiff, 10 v. ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF UNITED 11 JOEL LYNN NOLEN; SHIRLEE STATES OF AMERICA’S MOTION FOR NOLEN; NOLEN PROPERTIES, LLC; PARTIAL SUMMARY JUDGMENT 12 NANCY CANALE, as trustee of the Bernard Canale and Nancy 13 Canale 1998 Revocable Trust; and BERNARD CANALE, by and 14 through his successor in interest NANCY CANALE, 15 Defendants. 16 17 Before the Court is the United States’ (“the Government”) 18 motion for partial summary judgment. See Gov’t Mot., ECF No. 85. 19 Defendants Joel and Shirlee Nolen and Defendant Nolen Properties, 20 LLC (collectively, the “Defendants”) filed oppositions to the 21 Government’s motion and the Government subsequently replied. See 22 Nolen Opp’n, ECF No. 93; Nolen Properties Opp’n, ECF No. 95; 23 Gov’t Reply, ECF No. 96. For the following reasons, the Court 24 GRANTS in part and DENIES in part the Government’s motion for 25 partial summary judgment. 26 I. FACTUAL BACKGROUND 27 This case arises from alleged civil rights violations under 28 the Fair Housing Act, 42 U.S.C. Section 3601 et seq. (“FHA”). 1 The Government asserts in its Amended Complaint that Defendant 2 Joel Nolen engaged in a pattern or practice of discrimination on 3 the basis of sex committed through various acts of retaliation 4 and sexual harassment of tenants in violation of the FHA. See 5 Amended Compl., ECF No. 14. The Amended Complaint further 6 alleges that Defendant Shirlee Nolen, Joel Nolen’s wife and a co- 7 owner of the rental properties is vicariously liable. Id. 8 The Government also maintains that in 2009, the Nolens 9 established Nolen Properties, LLC (“the LLC”) as a holding 10 company for their properties. See Gov’t Mot. at 1, ECF No. 85. 11 Nolen Properties held title to 38 of the Nolens’ rental 12 properties from 2009 to 2013. Id. In 2013, the Nolens 13 transferred their properties back into their own names and in 14 2015, Nolen Properties, LLC was dissolved. Id. On these facts, 15 the Government has moved for partial summary judgment seeking to 16 establish that Shirlee Nolen is vicariously liable for Joel 17 Nolen’s not yet proven violations of the FHA, that Shirlee Nolen 18 is liable for punitive damages, and that the Court should pierce 19 the corporate veil of Nolen Properties, LLC to hold Joel and 20 Shirlee Nolen personally liable for the alleged misconduct. 21 II. OPINION 22 A. Legal Standard 23 The purpose of summary judgment is to identify and dispose 24 of factually unsupported claims and defenses. See Celotex Corp. 25 v. Catrett, 477 U.S. 317, 323 (1986). Summary judgment is 26 therefore appropriate when the “pleadings, depositions, answers 27 to interrogatories, and admissions on file, together with the 28 affidavits, if any, show that there is no genuine issue of 1 material fact and that the moving party is entitled to judgment 2 as a matter of law.” Fed. R. Civ. P. 56(c). 3 “[C]ourts are required to view the facts and draw reasonable 4 inferences ‘in the light most favorable to the party opposing the 5 [summary judgment] motion.’” Scott v. Harris, 550 U.S. 372, 378 6 (2007) (quoting United States v. Diebold, Inc., 369 U.S. 654, 655 7 (1962) (per curiam)). An issue of fact is genuine if “the 8 evidence is such that a reasonable jury could return a verdict 9 for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 10 U.S. 242, 248 (1986)). 11 B. Analysis 12 1. Shirlee Nolen’s Vicarious Liability 13 The Government seeks partial summary judgment as to Shirlee 14 Nolen’s vicarious liability, arguing that Joel Nolen operated as 15 her agent at all relevant times of the purported unlawful 16 conduct. See Gov’t Mot. at 3-5, ECF No. 85. Defendants argue 17 that there are insufficient facts to support a finding on 18 Shirlee Nolen’s vicarious liability because Shirlee Nolen did 19 not have notice of Mr. Nolen’s misconduct. See Nolen Opp’n at 20 5. The Court agrees with the Government. 21 While the Government has not moved for summary judgment on 22 its substantive underlying civil rights claims pertaining to 23 Joel Nolen’s own liability, the Court finds that there are 24 sufficient undisputed facts to support a finding of vicarious 25 liability against Mrs. Nolen under current law. To determine 26 whether a principal-agent relationship exists, courts consider: 27 1) “the manifestation of consent” by the principal that the 28 agent shall act on her behalf, 2) “consent by the [agent] so to 1 act,” and 3) whether the principal had “control (or the right to 2 direct or control).” Meyer v. Holley, 537 U.S. 280, 286 (2003). 3 The undisputed facts show that Shirlee Nolen gave actual or 4 implied consent for Joel Nolen to act on her behalf in the 5 operations of their rental properties by allowing Mr. Nolen to 6 oversee and manage the properties. See Statement of Undisputed 7 Material Facts (“SUMF”) ¶¶ 30, 40–54. Specifically, she is 8 aware that he sets prices for the rentals, makes the final 9 decision in who becomes a tenant, communicates with maintenance 10 workers, communicates with tenants, and takes actions to evict 11 tenants. SUMF ¶¶ 9-13, 42, 51, 52. The undisputed facts also 12 demonstrate that Mrs. Nolen had legal control of the properties 13 by virtue of being a co-owner. See Gov’t Mot. at 4. 14 While Defendants argue that Mrs. Nolen had a minimal role 15 in the operations of the rental properties and that she was not 16 on notice of Mr. Nolen’s alleged misconduct, SUMF ¶¶ 31-39; 17 Nolen Opp’n at 5, this minimal role is sufficient to establish 18 her vicarious liability as a co-owner because the FHA does not 19 require notice of misconduct to be liable under a principal- 20 agent theory. 21 Under the FHA, a person may be held vicariously liable for 22 a discriminatory housing practice by the person’s agent 23 “regardless of whether the person knew or should have known” of 24 the of the misconduct. 24 C.F.R. § 100.7(b). This regulation 25 codifies Meyer v. Holley, 537 U.S. 280 (2003), where the Supreme 26 Court held that the FHA “provides for vicarious liability” and 27 that “traditional vicarious liability rules ordinarily make 28 principals . . . vicariously liable for the acts of their agents 1 . . . in the scope of their authority,” regardless of whether 2 the principal authorized or knew of the acts at issue. Id. at 3 285–86. 4 As the Government points out, property owners, including 5 spouses who co-own property, have been held vicariously liable 6 for the discriminatory actions of their rental agents. See, 7 e.g., Bischoff v. Brittain, 183 F. Supp. 3d 1080, 1092 (E.D. 8 Cal. 2016). Moreover, the Defendants have offered to stipulate 9 to Mrs. Nolen’s vicarious liability should there be a finding 10 against Mr. Nolen. See Nolen Opp’n at 5. Thus, the Court finds 11 that viewing the facts in the light most favorable to the 12 Defendants, the Government has met its burden and grants partial 13 summary judgment as to Shirlee Nolen’s vicarious liability for 14 Joel Nolen’s purported misconduct. 15 2. Shirlee Nolen’s Liability for Potential Punitive 16 Damages 17 While there are sufficient undisputed facts to support a 18 determination of Shirlee Nolen’s vicarious liability, the Court 19 does not find that there are enough undisputed facts to 20 demonstrate Mrs. Nolen’s potential liability for punitive 21 damages. As Defendants point out, punitive damages are a fact- 22 driven determination and Joel Nolen’s own liability for punitive 23 damages remains unproven at this stage of the litigation. See 24 Nolen Opp’n at 7. 25 To obtain punitive damages under the FHA, a plaintiff must 26 show that a defendant’s conduct was motivated by evil motive or 27 intent, or that the conduct involved reckless or callous 28 indifference to the federally protected rights of others. See 1 Fair Housing of Matin v. Combs, 285 F.3d 899, 906 (9th Cir. 2 2002). However, punitive damages determinations in the 3 principal-agent and vicarious liability contexts have not been 4 fully explicated in this circuit. The Government does not cite 5 to any authority within the Ninth Circuit where a defendant has 6 been held vicariously liable for punitive damages in the FHA 7 context. Instead, both parties acknowledge that the Ninth 8 Circuit has yet to address vicarious liability for punitive 9 damages under the FHA. See Gov’t Mot. at 7; Nolen Opp’n at 6 10 (citing United States v. Salazar, No. 1:23-cv-01282-JLT-CDB, 11 2024 WL 3858714, at *12 (E.D. Cal. 2024)). 12 Here, the undisputed facts show that Mrs. Nolen had a 13 minimal role in the rental business and Defendants contend that 14 Mrs. Nolen had no reason to be aware of any alleged misconduct 15 by Mr. Nolen. See Nolen Opp’n at 7. These facts do not give 16 rise to a determination as a matter of law that Mrs. Nolen was 17 recklessly indifferent, and a reasonable jury could find that 18 punitive damages are not sufficiently proven. 19 Given the lack of controlling authority in the Ninth 20 Circuit and the fact that Mr. Nolen’s liability is not yet 21 determined, the Court declines to grant summary judgment on the 22 issue of Shirlee Nolen’s liability for punitive damages and 23 leaves this determination for the jury or until the substantive 24 merits of the underlying FHA violations by Mr. Nolen are 25 adjudicated. 26 /// 27 /// 28 /// 1 3. Joel and Shirlee Nolen’s Potential Personal 2 Liability for Misconduct Related to Nolen 3 Properties, LLC Under Alter Ego Theory 4 The Government further moves for partial summary judgment 5 on its claim that Nolen Properties, LLC is the alter ego of Joel 6 and Shirlee Nolen and requests that the Court pierce the 7 corporate veil to hold the Nolens personally liable for Joel 8 Nolen’s purported misconduct related to the LLC. See Mot. at 9 10-15. Defendants argue that this determination is premature 10 and dispute the Government’s contentions that Nolen Properties, 11 LLC was an illegitimate company. See Nolen Opp’n at 8. 12 Specifically, Defendants maintain that the LLC’s liability has 13 not yet been decided, that the LLC was adequately capitalized, 14 that LLC funds were not co-mingled, and that substantial 15 injustice and fraud have not yet been shown. Id.; Nolen 16 Properties Opp’n 7-22. 17 The Court agrees with Defendants that the request to pierce 18 the corporate veil is premature at this juncture. In its reply 19 brief, the Government cites four cases for its contention that a 20 corporate veil piercing analysis is appropriate. See Gov’t 21 Reply at 5-6 (citing Harwood v. Int’l Est. Planners, 33 App’x 22 903 (9th Cir. 2002); Trinidad v. Pangelinan, 32 F. App’x 357 23 (9th Cir. 2002); In re Brugnara Properties VI, 606 B.R. 371 24 (Bankr. N.D. Cal. 2019); Laborers’ Pension Fund v. Lay-com, 25 Inc., 580 F.3d 602 (7th Cir. 2009)). 26 However, these cases are neither procedurally nor 27 substantively analogous to the case before this court. In 28 Harwood, the district court below ruled against the named 1 individuals on the underlying substantive contract breach and 2 civil RICO claims in conjunction with its veil-piercing 3 analysis. 33 Fed. App’x 903, 904 (9th Cir. 2002). In Trinidad, 4 the district court below ruled on the underlying fraud and civil 5 RICO charges against the named individuals before reaching the 6 veil-piercing analysis. 32 Fed. Appx. 357, 358 (9th Cir 2002). 7 In re Brugnara dealt with a bankruptcy proceeding where the 8 underlying tax debts and nominee liens had already been attached 9 to property owned by debtors before the corporate veil was 10 pierced. 606 B.R. 371, 375 (Bankr. N.D. Cal. 2019). Finally, 11 in Laborers’ Pension Fund v. Lay-Com, plaintiffs had already won 12 a default judgment establishing defendant’s liability before the 13 corporate veil was pierced. 580 F.3d 602, 606 (7th Cir. 2009). 14 Unlike this case, in each of the cases cited by the 15 Government, the substantive misconduct forming the basis of the 16 complaint had already been adjudicated prior to or concomitantly 17 with a veil-piercing analysis. Thus, given the lack of 18 persuasive or controlling authority in a similar procedural 19 posture, the Court declines to pre-emptively pierce the 20 corporate veil prior to determination of liability for the LLC 21 or before the adjudication of the underlying civil rights 22 violations. Given this procedural barrier, the Court need not 23 reach the merits of the corporate veil piercing analysis and 24 reserves this issue for determination at trial. Accordingly, 25 the Court declines to grant partial summary judgment on the 26 Nolens’ personal liability based on an alter ego theory. 27 III. ORDER 28 For the reasons set forth above, the Court GRANTS the ne ne IRE IE IE IONE IED OE 1 Government’s motion for partial summary judgment on Shirlee 2 Nolen’s vicarious liability and DENIES the Government’s motion 3 for partial summary judgment on Shirlee Nolen’s prospective 4 punitive damages and Joel and Shirlee Nolen’s personal liability 5 for purported misconduct related to Nolen Properties, LLC under 6 alter ego theory. 7 IT IS SO ORDERED. 8 Dated: March 11, 2025 . SM fey JOHN A. MENDEZ 11 SENIOR UNITED*STATES DISTRICT JUDGE 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28