Murray Tillman v. Wheaton-Haven Recreation Association, Inc. , 517 F.2d 1141 ( 1975 )

BUTZNER, Circuit Judge:

In Tillman v. Wheaton-Haven Recreation Association, Inc., 410 U.S. 431, 93 S.Ct. 1080, 35 L.Ed.2d 412 (1973), the Supreme Court held that a community swimming pool association, organized as a non-profit corporation, had unlawfully discriminated against black applicants for membership. It remanded the case for further proceedings, including consideration of the association’s exclusion of black guests. Subsequently, the district court enjoined Wheaton-Haven from continuing its discriminatory membership and guest policies. It awarded the individual complainants compensatory damages and costs but dismissed their claim for punitive damages. The parties have not appealed any of these provisions of the decree.

Also on remand, the district court absolved the directors from all liability and allowed attorneys’ fees only in the amount of $200 for the services of American Civil Liberties Union staff attorneys. The complainants appeal these provisions of the order, seeking to impose liability on the directors and to obtain fees for the services of volunteer lawyers who are not members of the ACLU staff. We reverse and remand the case for further proceedings.

I

The appellants brought this action for injunctive relief and damages against both the corporation and its directors, alleging that jointly and severally the appellees had violated the Civil Rights Acts of 1866 and 1964 [42 U.S.C. §§ 1981, 1982 and 2000a].¹ The evidence sustained the appellants’ allegations by disclosing that the directors, with the possible exception of E. Richard McIntyre, had adopted and enforced the discriminatory corporate policies that harmed the appellants. The district court awarded a total of $5,356 compensatory damages against the corporation. However, it1 held that proof of the directors’ knowledge of the wrongfulness of the corporation’s act was necessary to establish their personal liability. Accordingly, it dismissed the directors, finding that they did not know, nor in the exercise of due diligence could they have known, that the exclusionary policy of the corporation was illegal. The primary issue, therefore, is whether the directors are absolved from liability because they failed to realize the illegality of their acts.

An action brought under statutes forbidding racial discrimination is! fundamentally for the redress of a tort. Curtis v. Loether, 415 U.S. 189, 195, 94 S.Ct. 1005, 39 L.Ed.2d 260 (1974). There can be no doubt that the directors acted voluntarily and intentionally. This is ordinarily sufficient to support liability for tort when the act invades an interest which the law protects. See Prosser,' Law of Torts § 8 (4th ed. 1971). Generally, a tortfeasor who acted intentionally cannot defend on the ground that he mistook the law. See Prosser, Law of Torts §§ 8 and 17 (4th ed. 1971). Sections 1981 and 1982 create no exceptions to these principles. In dealing with racial discrimination, the Supreme Court has pointed out that good intent and good faith are not defenses. The law is directed at the consequences, not the motivation, of discrimination. Griggs v. Duke Power Co., 401 U.S. 424, 432, 91 S.Ct. 849, 28 L.Ed.2d 158 (1971); Cooper v. Aaron, 358 U.S. 1, 15, 78 S.Ct. 1401, 3 L.Ed.2d 5 (1958). The Civil Rights Act of 1866 governs those who are insensitive to the racial discrimination that the Act abolished as well as those who are aware of its scope. Jones v. Mayer Co., 392 U.S. 409, 88 S.Ct. 2186, 20 L.Ed.2d 1189 (1968). We hold, therefore, that a complainant relying on § 1981 or § 1982 need not prove that the defendant knew the duties these statutes impose. Stated conversely, ignorance of the rights secured by these statutes is not a defense to an action brought to enforce them.

We now turn to the contention that the peculiar nature of the office of a private corporation’s director shields him from liability under §§ 1981 and 1982. Our starting point is the construction placed on 42 U.S.C. § 1983, which is derived from the Act of 1871, to enforce the fourteenth amendment.² Drawing on English and American precedents, the Supreme Court held that § 1983, though cast in absolute terms, did not abolish the common law immunities granted some public officials in the performance of their duties. Scheuer v. Rhodes, 416 U.S. 232, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974); Pierson v. Ray, 386 U.S. 547 (1967); Tenney v. Brandhove, 341 U.S. 367, 71 S.Ct. 783, 95 L.Ed. 1019 (1951). In short, the Court interpreted § 1983 as neither enlarging nor diminishing traditional immunities of , public officials. Comparably, §§ 1981 and 1982 should be interpreted as neither enlarging nor diminishing the liability of directors under general corporation law for tortious acts performed nominally by the corporation.

If a director does not personally participate in the corporation’s tort, general corporation law does not subject him-to liability simply by virtue of his office. Fletcher v. Havre de Grace Fireworks Co., 229 Md. 196, 177 A.2d 908, 910 (1962). This rule may be applicable to one of the' directors, E. Richard McIntyre, who claims that he did not participate in the adoption and enforcement of the corporation’s racial policy. On re- ^ mand, therefore, the district court should conduct an evidentiary hearing to assess McIntyre’s defense.³

In contrast, a director who actually votes for the commission of a tort is personally liable, even though the wrongful act is performed in the name of the corporation. Tedrow v. Deskin, 265 Md. 546, 290 A.2d 799, 802 (1972); see 3 Fletcher, Cyclopedia of the Law of Private Corporations, §§ 1135, 1137 (Rev. ed. 1965). Proof that the director voluntarily and intentionally caüsed-the-corporation to act is sufficient to make him personally accountable. Aeroglide Corp. v. Zeh, 301 F.2d 420 (2d Cir. 1962). For example, in Peck v. Cooper, 112 Ill. 192 (1884), the court held the president of an omnibus company, who apparently also served as a director, individually liable for instructing the company’s drivers “not to permit colored persons to ride in their omnibuses.” The court ruled that the president’s status as an officer of the corporation afforded him no protection, nor was he exonerated from liability because the corporation was also liable. Qnly^ when wrongful intent is an ele-1 ment of a tort can a director who acted/ innocently escape liability. Even in such •instances, the defense does not arise from the peculiar nature of a director’s office, but rather from the elements of the tort. See, e. g., Mitchell v. Deeds, 49 Ill. 416 (1867) (fraud).

The directors, pointing out that counsel had assured them that their exclusion of blacks was legal and emphasizing that the district court and a majority of this court had ruled in their favor, claim exoneration on the basis of the affirmative defense of due diligence. The district court agreed and, relying on that doctrine, absolved the directors from all liability for their tort.

The flaw in the directors’ argument is their failure to place the defense of due diligence in its proper context. Due diligence is a defense for corporate directors who are charged with failing to exercise reasonable care. Its genesis is the law of negligence. None of the cases on which the directors rely applies the doctrine to an intentionally tortious act against a third person. An analysis of the cases cited as supporting the directors exposes the fallacy of their position.

Escott v. BarChris Construction Corp., 283 F.Supp. 643 (S.D.N.Y.1968), dealt with a claim that a registration statement violated the Securities Act of 1933 because it contained false statements and material omissions. The court, at 283 F.Supp. 682, pointed out that § 11(b) of the Act created a due diligence defense. It therefore examined the transaction to determine whether the directors had made a reasonable investigation of the facts. The case does not support the directors’ claim that due diligence is a defense to ignorance of the law.

Similarly, Securities and Exchange Commission v. Texas Gulf Sulphur Co., 401 F.2d 833, 854-856 (2d Cir. 1968), does not support the contention that a director may violate the law with impunity if he relies on counsel. The pertinent aspect of the case involved an insider’s good faith defense under § 10b of the Securities Exchange Act of 1934. The court, after examining the facts, found that the insiders could not have reasonably believed that certain news was public at the time of their purchase orders. Accordingly, it denied the good faith defense. Again, the case turned on the directors’ knowledge of the facts, not their knowledge of the law.

Spirt v. Bechtel, 232 F.2d 241 (2d Cir. 1956), and Gilbert v. Burnside, 13 A.D.2d 982, 216 N.Y.S.2d 430 (1961), aff’d 11 N.Y.2d 960, 229 N.Y.S.2d 10, 183 N.E.2d 325 (1962), come closer to supporting the Wheaton-Haven directors. Both cases were derivative actions in which the directors successfully asserted the defense that they had relied on counsel’s interpretation of the law. The decisions are based on the premise that a director owes the corporation he serves the duty of due care. He therefore is liable to the corporation for negligence in the performance of his official duties. Henn, Corporations § 234 at 453 (2d ed. 1970). The directors’ precaution in seeking the advice of counsel established that they acted with due care, and hénce the defense of due diligence was available to them against the charge that they had negligently breached their duty to the corporation. The cases do not suggest that due diligence in seeking to ascertain the law would be a defense to a suit brought by a third person for an intentional tort.

Finally, Lobato v. Pay Less Drug Stores, 261 F.2d 406, 409 (10th Cir. 1958), is cited in support of the WheatonHaven directors’ position. This case involves a products liability claim. It does not turn on the defense of due diligence. It is simply one of the many cases in which corporate officials were absolved from liability for. the corporation’s tort when they did not personally participate in the tort. Indeed, instead of supporting the Wheaton-Haven directors, it fully supports the black applicants for membership, and for that reason, its lesson about the responsibility of a director for a corporation’s tort to a third person is worth quoting:

“It is the general rule that if an officer or agent of a corporation directs or participates actively in the commission of a tortious act or an act from which a tort necessarily follows or may reasonably be expected to fol-. low, he is personally liable to a third person for injuries proximately resulting therefrom. But merely being an officer or agent of a corporation does not render one personally liable for a tortious act of the corporation. Specific direction or sanction of, or active participation or cooperation in, a positively wrongful act of commission or omission which operates to the injury or prejudice of the complaining party is necessary to generate individual liability in damages of an officer or agent of a corporation for the tort of the corporation.

“The complaint failed to charge in specific terms any specific acts on the part of the [corporate officers] which constituted affirmative direction, sanction, participation, or cooperation in the alleged tortious act of the corporate defendant in selling to plaintiff a defective [product] which caused his injury. Moreover, it affirmatively appeared from affidavits’ . that such defendants did not personally have anything to do with the assembly and sale of the [defective product].” 261 F.2d at 408.

The erroneous decisions made by the district court and by a majority of this court when the black applicants initially pressed their claims for membership in Wheaton-Haven afford the directors no support. The directors acted before these decisions were made, not in reliance on them. Furthermore, litigants who obtain a reversal in the Supreme Court, as the Wheaton-Haven plaintiffs did, should not be deprived of the fruits of their victory because lower courts decided the case incorrectly. CThe claim that a corporate official may violate §§ 1981 and 1982 with impunity because he exercised due diligence by relying on advice of counsel about the meaning of the law is designed to severely restrict the application of these statutes. Judicial approval of this claim is warranted by neither precedent nor policy. Due diligence is not a defense in this case because the black applicants’ cause of action is based on an intentional tort, not on negligence*) The Wheaton-Haven directors knew all the relevant facts, and they fully intended to exclude all persons who could not qualify under their white-only policy. Their ignorance of the law, ..though engendered by lawyers’ advice and corroborated by lower federal courts, is no defense. The nature and consequences of their tort is fully explained in Sullivan v. Little Hunting Park, 396 U.S. 229, 239, 90 S.Ct. 400, 405, 24 L.Ed.2d 386 (1969), where the Court established that black persons who have been excluded from a swimming pool association because of their race in violation of § 1982 are entitled to recover damages against a corporation and its directors. Quoting from one of its earlier cases, the Court said:

“A disregard of the command of the statute is a wrongful act, and where it results in damage to one of the class for whose especial benefit the statute was enacted, the right to recover the damages from the party in default is implied . . . .”

Here, as previously cited cases show, proof of bad intent and evil motive is not essential to an action brought under the Civil Rights Act of 1866; nor is a lack of knowledge about the scope of the law a defense. We hold, therefore, that directors become personally liable when they intentionally cause a corporation to infringe the rights secured by §§ 1981 and 1982.

II

Throughout this protracted controversy, the appellants were represented by eight lawyers. Two of the lawyers are employees of the American Civil Liberties Union Foundation, a subsidiary of the ACLU; one is an employee of the American Civil Liberties Union Fund of the National Capitol Area, a subsidiary of the ACLU affiliate for the Washington, D. C. area; and the remaining five were ACLU volunteers. The ACLU Foundation and Fund are nonstock companies, which the district court aptly described as charitable organizations. They participate in extensive litigation dealing with civil liberties, utilizing primarily volunteer lawyers who serve without charge. The appellants and the volunteer lawyers expressly agreed that any fees awarded by the court would be donated to the ACLU Foundation and Fund, and they informed the district court of their intention.

Initially, the district court declined to allow the appellants any attorneys’ fees for several reasons: the defense was not frivolous; the appellees asserted their defense in good faith; and the appellants recovered compensatory damages. The court also ruled that fees would be equivalent to punitive damages because the agreement to donate them to charity established that neither the appellants nor their counsel would suffer pecuniary loss by denial of the award. See Tillman v. Wheaton-Haven Recreation Association, Inc., 367 F.Supp. 860, 866-68 (D.Md.1973). Later, in an unpublished order, the district court modified its judgment and allowed fees in the amount of $200 for the five hours that ACLU staff attorneys worked. However, it affirmed its denial of fees for the volunteer lawyers.

Title II of the Civil Rights Act of 1964, 42 U.S.C. § 2000a — 3(b), furnishes a statutory warrant for the allowance of attorneys’ fees to the appellants: “In any action commenced pursuant to this subchapter, the court, in its discretion, may allow the prevailing party . a reasonable attorney’s fee . . . ” The appellants brought their action under 42 U.S.C. §§ 1981, 1982, and 2000a. The Supreme Court sustained their position under §§ 1981 and 1982 without reaching the claim based on § 2000a. Tillman v. Wheaton-Haven Recreation Assoc., Inc., 410 U.S. 431, 437, 439, 93 S.Ct. 1080, 35 L.Ed.2d 412 (1973). Wheaton-Haven also relied on the 1964 Act. In the district court and the court of appeals, it successfully pressed its claim of exemption as a private establishment within the meaning of § 2000a(e).⁴ See Tillman v. Wheaton-Haven Recreation Assoc., Inc., 451 F.2d 1211 (4th Cir. 1971). Not until the case reached the Supreme Court did the appellants prevail on this issue. Tillman v. WheatonHaven Recreation Assoc., Inc., 410 U.S. 431, 438, 93 S.Ct. 1080, 35 L.Ed.2d 412 (1973).

In Newman v. Piggie Park Enterprises, 390 U.S. 400, 88 S.Ct. 964, 19 L.Ed.2d 1263 (1968), the Court held that § 2000a — 3(b) should be construed to allow attorneys’ fees unless the award would be unjust. A litigant who successfully prosecutes a suit under the Act was described by the Court as a private attorney general who has vindicated congressional policy by enjoining discrimination that harmed many people in addition to himself. There can be no doubt that in this case the appellants acted as private attorneys general. They sued to enforce the congressional policy against racial discrimination, as embodied in §§ 1981, 1982, and 2000a, in transactions involving contracts and property by an association masquerading as a private club under the Civil Rights Act of 1964, 42 U.S.C. § 2000a(e). The injunction that they ultimately obtained prohibited Wheaton-Haven from applying its racially restrictive policies against anyone in the geographical area served by the association. Their successful attack on Wheaton-Haven’s claim to an exemption as a private club under § 2000a(e) was essential to the decision of the case, and it entitles the appellants to a fee under § 2000a — 3(b).

The receipt of compensatory damages does not preclude the award of attorneys’ fees. This court has long recognized that allowance of fees under the private attorney general doctrine of Piggie Park is compatible with the award of back pay under Title VII of the Civil Rights Act of 1964. Robinson v. Lorillard Corp., 444 F.2d 791 (4th Cir. 1971); Lea v. Cone Mills Corp., 438 F.2d 86 (4th Cir. 1971). Moreover, the allowance of fees to those who serve as private attorneys general is not dependent on proof of bad faith. Newman v. Piggie Park Enterprises, 390 U.S. 400, 88 S.Ct. 964, 19 L.Ed.2d 1263 (1968). Nor should the award be disallowed because the case presents a novel factual situation. Lea v. Cone Mills Corp., 438 F.2d 86, 88 (4th Cir. 1971); Miller v. Amusement Enterprises, Inc., 426 F.2d 534, 536 (5th Cir. 1970).

We conclude, therefore, that the district court correctly ruled on reconsideration that this case presented a proper occasion for the allowance of attorneys’ fees. We next deal with the question of the adequacy of the award in light of the appellants’ agreement with the volunteer attorneys to donate any allowed fees to the ACLU Foundation and Fund.

In NAACP v. Button, 371 U.S. 415, 83 S.Ct. 328, 9 L.Ed.2d 405 (1963), and NAACP v. Alabama, 377 U.S. 288, 84 S.Ct. 1302, 12 L.Ed.2d 325 (1964), the Supreme Court recognized the legitimate role of civil rights organizations in the enforcement of laws against racial segregation. Further, we have ruled that litigants who are under no obligation to pay attorneys associated with a civil rights organization are nevertheless entitled to recover attorneys’ fees where allowances would otherwise be proper. See, e. g., Brewer v. School Board of City of Norfolk, 456 F.2d 943 (4th Cir. 1972) (by implication); Lea v. Cone Mills Corp., 438 F.2d 86 (4th Cir. 1971) (by implication).⁵ Reaching the same conclusion, the Court of Appeals of the Fifth Circuit said, “What is required is not an obligation to pay attorney fees. Rather what — and all — that is required is the existence of a relationship of attorney and client . . . ” Miller v. Amusement Enterprises, Inc., 426 F.2d 534, 538 (5th Cir. 1970). Accord, Thompson v. Madison County Board of Education, 496 F.2d 682, 689 (5th Cir. 1974). Obviously, in these cases it was apparent that the litigants who had incurred no obligation for fees should not retain the awards.

Not until recently has the contention been made that fees should be denied because they would be donated to the civil rights organization that assisted the litigants in presenting their grievances, instead of being paid to the lawyers. In each instance this argument against allowing fees has been rejected. See, e. g., Wilderness Society v. Morton, 161 U.S.App.D.C. 446, 495 F.2d 1026, 1037 (1974); Brandenburger v. Thompson, 494 F.2d 885, 889 (9th Cir. 1974); Fairley v. Patterson, 493 F.2d 598 (5th Cir. 1974); cf. Hoitt v. Vitek, 495 F.2d 219, 221 (1st Cir. 1974); see generally Awards of Attorneys’ Fees to Legal Aid Offices, 87 Harv.L.Rev. 411 (1973); Nussbaum, Attorney’s Fees in Public Interest Litigation, 48 N.Y.U.L.Rev. 301 (1973). The rationale of Newman v. Piggie Park Enterprises, 390 U.S. 400 (1968), supports the award of fees even though the successful litigants and their lawyers have agreed to donate whatever they receive to a civil rights organization. In Piggie Park, the Court did not consider allowed fees to be a form of punitive damages, or, strictly speaking, to be simply compensatory. The purpose of the award, the Court emphasized, was to encourage people to seek judicial redress of unlawful discrimination. An award that ultimately is donated to a civil rights organization that opposes such discrimination can do much to further this goal. Litigation to secure the full measure of the law’s protection has frequently depended on the exertions of organizations dedicated to the enforcement of the Civil Rights Acts. Consequently, when an allowance of attorneys’ fees is justified, it should be measured by the reasonable value of the lawyer’s services. It should not be diminished because the attorney has agreed to contribute the money, in whole or in part, to a civil rights organization whose aims have stimulated him to work voluntarily.

The judgment of the district court is reversed, and the case is remanded for further proceedings consistent with this opinion. Of course, the directors are not liable for damages and costs already paid by the corporation. They are, however, jointly and severally liable with the corporation for additional attorneys’ fees.

1 . The statutes provide in pertinent part:

42 U.S.C. § 1981.

All persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts, to sue, be parties, give evidence, and to the full and equal benefit of all laws and proceedings for the security of persons and property as is enjoyed by white citizens, and shall be subject to like punishment, pains, penalties, taxes, licenses, and exactions of every kind, and to no other. 42 U.S.C. § 1982.

All citizens of the United States shall have the same right, in every State and Territory, as is enjoyed by white citizens thereof to inherit, purchase, lease, sell, hold, and convey real and personal property.

42 U.S.C. § 2000a.

(a) All persons shall be entitled to the full and equal enjoyment of the goods, services, facilities, privileges, advantages, and accommodations of any place of public accommodation, as defined in this section, without discrimination or segregation on the ground of race, color, religion, or national origin!

2 . 42 U.S.C. § 1983 provides:

Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory, subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress.

3 . See Tillman v. Wheaton-Haven Recreation Association, Inc., 410 U.S. 431, 440 n. 12, 93 S.Ct. 1080, 35 L.Ed.2d 412 (1973).

4 . 42 U.S.C. § 2000a(e) provides in relevant part:

The provisions of this subchapter shall not apply to a private club or other establishment not in fact open to the public .

5 . The implications of our decision are disclosed by dissenting and concurring opinions. Lea v. Cone Mills Corp., 438 F.2d 86, 89 (4th Cir. 1971) (Boreman, J., concurring in part, dissenting in part); Brewer v. School Board of City of Norfolk, 456 F.2d 943, 954 (4th Cir. 1972) (Winter, J., concurring specially).