Judge reduces penalties against sober-house owner who expected sex from women tenants from $3.8 million to $1.4 million; feds have 10 days to appeal

A federal magistrate judge agreed last month that Peter McCarthy of Dorchester acted completely reprehensibly in demanding sex and nude photos from women who moved into one of his "sober houses" to try to get clean, but not to the extent of the $3.8 million in penalties a jury had awarded earlier in the year to several of the women, and one man, as damages for violating the federal Fair Housing Act.

In his ruling, US District Court Magistrate Judge Donald Cabell reduced the total amount McCarthy would have to pay the women in compensatory and punitive damages to $1.42 million.

In the case of one woman, who fled one of McCarthy's Steps to Solutions houses after just one day, Cabell acknowledged that the way McCarthy "demanded oral sex as payment and threatened to call her probation officer if she refused" was "was undoubtedly egregious and impactful, particularly where it contributed to [her] relapse," but said that just one day in one of his houses was "in context remarkably brief and involved no physical contact" and so he reduced the jury's total award to her from $1.2 million to $150,000.

In a followup ruling today, Cabell gave the US Attorney's office in Boston - which sued McCarthy in 2021 on behalf of seven of Cabell's former tenants - ten days to decide whether to accept his reduction or to seek a new trial to try to uphold the original jury amounts.

Cabell also rejected the government's request that he order McCarthy to hire an independent company to run his sober houses going forward, but did agree to grant an injunction under which McCarthy has to swear he will stop "discriminating against others based on sex, which includes coercing, intimidating, threatening, or interfering with housing rights" in violation of the Fair Housing Act.

The government had sued on behalf of six women residents of McCarthy's sober houses - and one male tenant who testified his girlfriend would have sex with McCarthy to keep the man from turning in the tenant whenever he relapsed - charging that federal housing law makes it illegal to discriminate against tenants on the basis of gender, or to demand sexual favors in return for housing.

Unlike halfway houses for people attempting to recover from substance abuse, sober homes have little government regulation. McCarthy ran sober homes in Dorchester, Roxbury and Lynn.

A jury found in favor of the tenants in May and awarded them varying amounts of compensation based on their testimony.

McCarthy appealed the verdict and the amounts - and said he should not be asked to pay more than $450,000 in damages.

In his ruling reducing the amounts, Cabell detailed his reasoning for each of the seven former tenants.

One of the women testified she stayed at one of McCarthy's houses for three days in 2009 and then two months in 2013:

She testified that McCarthy in 2019 [sic] required her to perform oral sex in exchange for the brief time she was there, and in 2013 negotiated an arrangement involving at least one encounter of sexual intercourse each month in lieu of paying rent. [The woman] testified that they had sex according to this arrangement multiple times, which caused her emotional distress. She also stated that she relapsed after she left in 2013, although she was abusing substances before she entered the home. The jury awarded [the woman] $300,000 in compensatory damages and $875,000 in punitive damages.

The court leaves the compensatory damages award as it is but will reduce the punitive damages award. Viewing the statutory damages scheme as instructive (but not controlling), and viewing the conduct here as evincing repeated violations of the FHA, McCarthy reasonably was on notice that his conduct could result in penalties of up to $150,000. Given the reprehensibility of his conduct - extorting sex on multiple occasions - an award double that amount, and equal to the amount of compensatory damages, is justified. In sum, the court declines to modify the $300,000 award of compensatory damages but reduces the punitive damages award to $300,000 as well, for a total of $600,000.

The "statutory damages scheme" the judge referenced refers to the $50,000 maximum penalty courts can levy as compensatory damage for a first violation of the housing law, and up to $100,000 for subsequent violations.

Another woman lived in one of McCarthy's houses between May and September, 2021:

She testified that McCarthy frequently made comments about her body and made her uncomfortable. He placed his hand on her thigh and her buttocks on two different occasions and solicited sexually explicit pictures (which she never sent).

[She] left the home in response to this conduct and never retrieved or was returned her personal belongings. The jury awarded her $115,000 in compensatory damages and $125,000 in punitive damages.

The court leaves the compensatory damages untouched. The award arguably is high but does not "exceed any rational appraisal or estimate of the damages that could be based upon the evidence before it." Gardner, 963 F.Supp.2d at 87. Along with testimony evincing emotional distress, the jury could have considered the economic loss [she] suffered on account of her unreturned belongings.

The punitive damages award of $125,000, however, will be reduced to $60,000. McCarthy's conduct was, to be sure, reprehensible where the evidence showed he subjected [the woman] to unwelcome physical contact and solicited sexually explicit pictures. That said, there was no evidence that [the woman] was financially vulnerable, or that McCarthy demanded these favors in exchange for [her] continued tenancy, or that his conduct evinced "intentional malice, trickery, or deceit." Further, an award of $60,000 is more in line with the amount of damages that would be imposed for a violation of the statute. For these reasons, the court leaves untouched the compensatory damages award of $115,000 but reduces the punitive damages award to $60,000, for a total of $175,000.