Southern Management Corporation ("SMC") appeals the judgment entered against it for compensatory and punitive damages civil penalties and injunctive relief. We vacate the award of monetary damages and penalties but affirm the injunction.

I.

The Fairfax-Falls Church Community Services Board ("Board") operates the Crossroads drug and alcohol abuse program in Alexandria Virginia. During the first phase of the program the Board's clients live at the Crossroads facility receive Counseling and therapy and are tested for drug use on a regular basis. After a drug-free year each client is evaluated for suitability for the second or "reentry " phase of the program. In this reentry phase clients live in apartments rented by the Board while continuing to be supervised and monitored by Crossroads employees. This supervision includes twice-monthly drug tests. Clients in phase two who test positive for drugs or violate other program rules are discharged from the program and evicted from the Board-rented apartment.

SMC manages a number of apartment complexes in the District of Columbia metropolitan area including the Kings Gardens complex in northern Virginia. In July 1989 SMC employees at Kings Gardens were approached by Crossroads officials about leasing apartments for use in phase two of the treatment program. Although the specifics of these contacts were disputed the bottom line is that the Board was unable to lease any units. The United States then brought this action under the Fair Housing Act 42 U.S.C. SEC. 3601 et seq. (1990) ("Act") claiming that SMC's refusal to rent to the Board constituted illegal discrimination against handicapped individuals. In a pivotal ruling on cross-motions for summary judgment Court ruled that the Board's clients were handicapped and were covered by the Act. A jury returned a verdict in which it found no pattern or practice of discrimination. However the jury did find that SMC violated the rights of the Board's clients and awarded the Board compensatory damages of $10 000. The jury further assessed punitive damages against SMC in the amount of $26 280 and judgment was entered against SMC for these amounts on September 26 1990.

In addition the district court assessed a $50 000 penalty against 3388 102 1 SMC pursuant to the authority conferred by 42 U.S.C. SEC. 3614(d)(1)(C) (1990). Court also enjoined SMC from future discrimination against handicapped persons; specifically SMC was ordered to rent to the Board for occupancy by Board clients in the reentry phase of the Crossroads program. The injunction order sets forth a detailed procedure governing Board rentals. Each prospective tenant from Crossroads may be interviewed by SMC and subjected to the same suitability criteria as other prospective tenants and continued occupancy is dependent on adherence to apartment rules to the same extent as other tenants. The Board is required to closely supervise its client-tenants and SMC must be provided with a telephone number at which the Board can be contacted 24 hours a day should problems arise concerning any client-tenant.

SMC appeals both the judgment entered on the jury verdict and the judgment imposing the penalty. Although the specific elements of the injunction are not challenged on appeal the legal underpinning for the injunction i.e. that the Act prohibits discrimination against the Board's clients is the threshold issue which if decided in SMC's favor would topple the injunction along with the damage awards and the penalty. We turn first to this threshold issue.

II.

The first obstacle to the government's case was whether the phase two clients allegedly "recovering addicts" and other former drug users who had completed at least one drug-free year in phase one came within the Fair Housing Act's definition of "handicap." In 1988 the Fair Housing Act of 1968 was overhauled. Fair Housing Amendments Act of 1988 Pub. L. No. 100-430 102 Stat. 1619 (1988). Prior to the amendments the Fair Housing Act prohibited various forms of housing-related discrimination based on "race color religion or national origin." Pub. L. No. 90-284 Title VIII SEC. 804 82 Stat. 83 (1968). In 1974 discrimination based on sex was added. Pub. L. No. 93-383 Title VIII SEC. 808(b)(1) 88 Stat. 729 (1974). In 1988 prohibitions against housing discrimination based on "familial status" or "handicap" were added to the Act. Pub. L. No. 100-430 SEC. 6 102 Stat. 1619 1620-21 (1988). The terms "familial status" and "handicap " having meanings less concrete than "race color religion sex or national origin " required further definition. Congress' attempt to deal with drug use/addiction under the "handicap" rubric sowed the seeds of this litigation.

The source of the dispute lies in the following definition added by SEC. 5(b) of the 1988 amendments (codified at 42 U.S.C. SEC. 3602(h) (1990)):

(h) "Handicap" means with respect to a person--

(1) a physical or mental impairment which substantially limits one or more of such person's major life activities

(2) a record of having such an impairment or

(3) being regarded as having such an impairment but such term does not include current illegal use of or addiction to a controlled substance as defined in section 802 of Title 21.

Basically SMC's argument is that (1) the Board's clients do not meet the general definition of "handicap" in subsections (h)(1)-(3) and (2) even if they do they are excluded by the proviso at the end of the section. Before addressing the drug user/addict exclusion we must first determine whether the clients even fall within the general definition of "handicap" under SEC. 3602(h)(1)-(3).

III.

This issue of statutory interpretation first arose during the discovery phase of the litigation. SMC propounded a request for the production of extensive records of the Board's clientele including records concerning intake treatment and prior criminal history. The government objected arguing that such information was confidential under 42 U.S.C. SEC. 290dd-3 and SEC. 290ee-3. These statutes safeguard the confidentiality of the records of patients at substance abuse centers. An exception to nondisclosure is that a court order may be issued for good cause after Court has weighed the various interests involved.

SMC countered that production was warranted because it was entitled to know whether any prospective tenants were still using drugs whether any would pose a threat to other tenants at Kings Gardens whether any were still "addicted" after completion of phase one and whether the dependency problem of any prospective tenant was such that it did not impair any "major life activities" of that client. In short SMC was attempting to prove that its refusal to lease to the Board was justified because all or some of the clients were not covered by the Fair Housing Act. The district court resolved the discovery issue by entering a protective order that required production of records of only the eight clients for whom the apartments were initially sought. The only records required to be produced were those pertaining to current use of drugs past convictions for the manufacture or distribution of illegal drugs and a physician's diagnosis of drug abuse. Further the names of the individual clients were redacted foreclosing any independent background investigations by SMC.

SMC posits as error the government's failure to demonstrate how each client initially slated for an apartment at Kings Gardens had a substantial limitation of "one or more . . . major life activities." The government responds in a conclusory fashion to the effect that if the clients were in rehabilitation they must ipso facto be impaired to a significant degree. *fn1 See Burka v. New York City Transit Authority 680 F. Supp. 590 600 n.18 (S.D.N.Y. 1988) (suggesting that one who seeks treatment for a drug-dependency problem is handicapped within the meaning of the Rehabilitation Act). Although this facet of the argument receives only cursory treatment in the briefs we feel that extended discussion is helpful to an understanding of our later discussion of the drug use/addiction exclusion.

Whether or not a particular person is handicapped is usually an individualized inquiry. Forrisi v. Bowen 794 F.2d 931 933 (4th Cir. 1986) (decided under the Rehabilitation Act of 1973). This individualized approach was short-circuited in the instant case when the district court granted summary judgment to the government on the issue of whether the Board's clients fell within the definition of handicap at 42 U.S.C. SEC. 3602(h). Court did so at this early stage in the litigation despite the limited information about the particular clients slated for initial tenancy. Notwithstanding Court's refusal to allow SMC to conduct a more in-depth client-by-client inquiry we do not find Court's ruling in this regard to have been premature or otherwise erroneous.

In our view whether any individual client is now or was ever substantially limited in one or more "major life activities" is immaterial. Months prior to SMC's refusal to lease to the Board the Department of Housing and Urban Development ("HUD") issued its final rule implementing inter alia the handicap discrimination sections of the 1988 amendments to the Act. *fn2 See 54 Fed. Reg. 3283 Jan. 23 1989 [now designated as 24 C.F.R. Part 100 Subpart D (1990)]. These regulations much of the language of which is borrowed directly from regulations under the Rehabilitation Act of 1973 provide that the second and third alternatives under the statutory definition of handicap "(2) has a record of such an impairment or (3) is regarded as having such an impairment " are intended to mean the following:

(c) "Has a record of such an impairment" means has a history of or has been misclassify as having a mental or physical impairment that substantially limits one or more major life activities.

(d) "Is regarded as having an impairment" means:

(1) Has a physical or mental impairment that does not substantially limit one or more major life activities but that is treated by another person as constituting such a limitation;

(2) Has a physical or mental impairment that substantially limits one or more major life activities only as a result of the attitudes of others toward such impairment; or

(3) Has none of the impairments defined in paragraph (a) of this definition but is treated by another person as having such an impairment.

24 C.F.R. SEC. 100.201(c) (d). In the context of this case we believe that subsection (d)(2) provides a complete answer to our initial inquiry.

In School Bd. of Nassau County v. Arline 480 U.S. 273 94 L.Ed.2d 307 107 S.Ct. 1123 (1987) the Supreme Court rejected the argument that only an impairment that results in diminished physical or mental capabilities could be considered a handicap under SEC. 504 of the Rehabilitation Act. Court reasoned that the "negative reactions of others to the impairment" could limit a person's ability to work regardless of the absence of an actual limitation on that person's mental or physical capabilities. Id. at 283.

For our purposes Arline can be seen as having effectively expanded the scope of the term "limitation on major life activities" to include limitations on one's capability to maintain or obtain a job as well as the ability to perform a job.

The inability to obtain an apartment is we feel on a par with the inability to obtain a job. Once the focus of "limitation of major life activities" is expanded to include restraints imposed not only on a person's ability to perform but also on the opportunity to obtain benefits integral to a person's ability to function generally in society the Board's clients clearly satisfy the first portion of the definition of handicap. Can we then disregard the entire question of the existence and extent of the prospective tenants' functional limitations and look instead at this "external limitation" imposed by SMC? We believe so.

With the benefit of hindsight we can see that there is no question that SMC denied housing to the Board on the basis of the substance abuser status of the prospective tenants and the perception that they would be undesirable tenants; the jury verdict puts this issue beyond dispute. In the jury charge the district court instructed the jury as follows: "If you find a decision by [SMC] not to lease apartments to the Crossroads program was based on reasons other than the handicaps of the individuals in the Crossroads program then you may find your verdict in favor of SMC. That is that the defendant did not discriminate against Crossroads on the basis of the handicap of the residents of Crossroads." In response to an interrogatory the jury answered "yes" to the question "do you find by the preponderance of the evidence that the defendant has denied rights to a group of persons in violation of the Fair Housing Act?"

We believe that apart from the more legalistic question of whether or not the clients are handicapped the only fair-minded interpretation of this jury determination is that as a matter of fact SMC refused to rent to the Board because the prospective tenants were former substance abusers. If the word "handicap" were replaced by "substance abuse problem" in the instruction the jury's answer would have been the same.

The clients are clearly impaired *fn3 and their ability to obtain housing (a major life activity) was limited by the attitudes of the SMC officials. Thus we conclude that the clients qualify as having a handicap under the general definition at 42 U.S.C. SEC. 3602(h)(1)-(3). We turn next to the exclusion.

IV.

Congressional intent was to treat drug abuse and addiction as significant impairments that would constitute handicaps unless otherwise excluded. The 1988 amendments contain three exclusions:

(1) "current illegal use of or addiction to a controlled substance . . ." 42 U.S.C. SEC. 3602(h);

(2) "direct threat to health or safety of other individuals or [individuals] whose tenancy would result in substantial physical damage to the property of others." 42 U.S.C. SEC. 3604(f)(9); and

(3) "[conviction] by any court of competent jurisdiction of the illegal manufacture or distribution of a controlled substance . . . ." 42 U.S.C. SEC. 3607(b)(4).

The first exclusion "current use of or addiction to a controlled substance " was the focus of the summary judgment proceedings and it continues to predominate on appeal.

In deciding the cross-motions for summary judgment the district court found that the Board's clients for whom the apartments were sought "are handicapped persons within the meaning of 42 U.S.C. SEC. 3602(h) and that such persons being in the Re-entry Phase of their rehabilitation program are not current illegal users of or addicted to controlled substances." In explaining this ruling from the bench the court expressed the opinion that the statute was "a little ambiguous" with regard to whether the re-entry level clients fell outside the "addiction" exclusion. However the district court pointed to the legislative history HUD regulations and the remedial nature of the statute in concluding that re-entry level clients were among the intended beneficiaries of the Act. The second part of the threshold issue is the breadth of the statutory exclusion of "addiction" from the definition of handicap.

Statutory interpretation always begins (and often ends) with the words of the statute itself. Chevron U.S.A. Inc. v. Natural Resources Defense Council Inc. 467 U.S. 837 842-43 81 L.Ed.2d 694 104 S.Ct. 2778 (1983). If the words convey a clear meaning courts may not sift through secondary indices of intent to discover alternative meanings. The language of the exclusion proviso in the definition of "handicap " however demands recourse to some other source of legislative intent.

The "term [handicap] does not include current illegal use of or addiction to a controlled substance . . . ." 42 U.S.C. SEC. 3602(h) (1990). The grammar of this sentence erects a formidable stumbling block. SMC contends that the word "current" modifies only "use" and not "addiction " so that "addiction" is not divisible into two categories: (1) "current" addiction (which would be excluded) and (2) "former" addiction (which would not be excluded). If the term "current . . . addiction to" includes only those persons who are addicted to and currently using illegal drugs then the word "addiction" is superfluous because "current use" subsumes both addicts and non-addicts. To avoid such superfluity SMC argues that "addiction" must include persons addicted to but no longer using controlled substances. In short SMC contends that once an addict always an addict and addicts may not seek the Act's protection.

The government on the other hand contends that the term "addiction" has both a common and a medical definition. As a medical matter addiction is a chronic illness that is never cured but from which one may nonetheless recover. In a non-medical sense however an addict is one who because of a physiological or psychological compulsion is currently using drugs. The government argues that the district court properly made recourse to other sources of legislative intent when confronted with this ambiguity.

While much of the expert testimony below supports SMC's argument that the status of addiction once attained may never be cast off other founts of intent indicate that "addiction" was not used in a strict medical sense. One dictionary defines "addiction" as "the quality or state of being addicted; specifically: the compulsive uncontrolled use of habit-forming drugs beyond the period of medical need or under conditions harmful to society " and "addict" is defined as "one who is addicted to a habit; specifically: one who habitually uses and has an uncontrollable craving for an addicting drug." Webster's Third International Dictionary (1976). *fn4 We agree that the language is ambiguous. In our view the question is whether a person who was previously using and is addicted to illegal drugs may after a period of abstinence and rehabilitative efforts be said to no longer have an "addiction " as that term is used in the statutory exclusion.

The House report submitted with the proposed amendments to the Fair Housing Act which report remained unchanged in the Senate substitute makes reference to "current addicts" and unequivocally expresses the intent not to exclude "recovering addicts:"

The Committee intends that the definition [of "handicap"] be interpreted consistent with regulations clarifying the meaning of the similar provision found in Section 504 of the Rehabilitation Act.

The definition adopted by the Committee makes it clear that current illegal users of or addicts to controlled substances as defined by the Controlled Substances Act are not considered to be handicapped persons under the Fair Housing Act. This amendment is intended to exclude current abusers and current addicts of illegal drugs from protection under this Act. The definition of handicap is not intended to be used to condone or protect illegal activity.

Similarly individuals who have a record of drug use or addiction but who do not currently use illegal drugs would continue to be protected if they fell under the definition of handicap. The Committee does not intend to exclude individuals who have recovered from an addition [sic] or are participating in a treatment program or a self-help group such as Narcotics Anonymous. Just like any other person with a disability such as cancer or tuberculosis former drug-dependent persons do not pose a threat to a dwelling or its inhabitants simply on the basis of status. Depriving such individuals of housing or evicting them would constitute irrational discrimination that may seriously jeopardize their continued recovery.

Individuals who have been perceived as being a drug user or an addict are covered under the definition of handicap if they can demonstrate that they are being regarded as having an impairment and that they are not currently using an illegal drug.

The exception for current illegal drug users does not affect their coverage in the Rehabilitation Act or other statutes. The World Health Organization and the American Psychiatric Association both classify substance abuse and drug dependence as a mental disorder and most medical authorities agree that drug dependence is a disease. Indeed Congress has defined the term "handicap" in the Rehabilitation Act to include drug addiction [*fn5] and to require that federal employers as well as recipients of federal financial assistance recognize drug addiction as a handicap.

H.R. Rep. No. 711 100th Cong. 2d Sess. (reprinted in 1988 U.S.C.C.A.N. 2173 2183).

Rather than recognizing a continuum of addiction extending from current use through "recovery " the committee report seems to recognize only two categories: current addicts and recovered or former addicts. This latter category includes "former drug dependent persons " "individuals who have recovered from an addiction " "[individuals who] are participating in a treatment program " and persons with "a record of drug use or addiction but who do not currently use illegal drugs." Nowhere does the report attempt to differentiate these concepts. For instance is a participant in a treatment program deemed to have "recovered from an addiction?" If so does the addict immediately enjoy the protection of the Fair Housing Act upon embarking on a treatment program or is some period of abstinence necessary as well? The limitations placed on SMC's discovery of individual client information foreclosed any attempt at trial to demonstrate for instance that prospective tenant A had participated in but failed other treatment programs despite abstinence of a year or so. *fn6 The report seems to open the door to at least some addicts but how far is unclear.

While the committee report appears to refute SMC's argument that all addicts are per se excluded we are not willing to say that SMC's statutory-construction argument is without any merit. In expanding the scope of the Fair Housing Act to protect handicapped individuals Congress was not addressing the question of addiction-as-handicap for the first time. A possibly new distinction between current and former addicts was being drawn but with little assistance to help distinguish the two. Moreover the housing arena is qualitatively different from those in which the issue had been addressed previously. The "former " "recovered " or "recovering" addict was to be given equal access to housing; in other words someone who as a medical matter will always have a craving for narcotics but who has been able to control that craving for some (undefined) period of time must not be denied access to housing on the basis of that craving and its attendant dangers. The thrust of the statute is laudable but SMC's position in late 1989 was a tenable one.

In any event we believe that legal developments occurring subsequent to the events at Kings Gardens place the matter beyond dispute. The Americans with Disabilities Act of 1990 ("ADA") Pub. L. No. 101-336 104 Stat. 327 (1990) was enacted by Congress and made effective July 26 1990 more than six months after the complaint against SMC was filed by the government. The ADA was aimed at discrimination against the handicapped in four broad areas: transportation public accommodations telecommunications and employment. The ADA amended the Rehabilitation Act to clarify that current users of illegal drugs would not be covered but that the following individuals would not be excluded:

(C)(i) For purposes of subchapter V of this chapter the term "individual with handicaps" does not include an individual who is currently engaging in the illegal use of drugs when a covered entity acts on the basis of such use.

(ii) Nothing in clause (i) shall be construed to exclude as an individual with handicaps an individual who--

(I) has successfully completed a supervised drug rehabilitation program and is no longer engaging in the illegal use of drugs or has otherwise been rehabilitated successfully and is no longer engaging in such use;

(II) is participating in a supervised rehabilitation program and is no longer engaging in such use; or

(III) is erroneously regarded as engaging in such use but is not engaging in such use;

Id. at SEC. 512(a) (codified at 29 U.S.C. SEC. 706(8)(C) (1991)). For the first time then Congress had specifically referred to mere participation in a drug rehabilitation program (coupled with non-use) as an adequate basis for inclusion in the definition of "handicap" in the Rehabilitation Act. The explicit focus on successful rehabilitation and supervised programs assures us that Congress accepts the concept of a rehabilitated addict. Given the congruity of purpose behind the various anti discrimination statutory schemes this later expression of intent in a related statute should inform our inquiry. Therefore we hold that the exclusion from the definition of "handicap" of "current illegal use of or addiction to a controlled substance" shall be construed consistently with 29 U.S.C. SEC. 706(8)(C)(ii)(I)-(II). Cf. Burka v. New York City Transit Authority 680 F. Supp. 590 600 n. 18 (S.D.N.Y. 1988) (suggesting that Congress viewed the terms "drug addict" and "drug abuser" as interchangeable in the Rehabilitation Act).

V.

We decide the threshold issue then in the government's favor: the Board's clients are not excluded from the definition of "handicap." The jury's answer to the interrogatory satisfies us that SMC's liability has been established. The remaining general issue then is what relief is warranted. For the reasons that follow we believe that the facts of this case are unusual enough for us to fashion a somewhat irregular disposition of the case. We feel that this disposition achieves substantial justice and serves the ends of judicial economy.

This is clearly a test case designed to establish the rights of drug abusers/addicts under the Fair Housing Act and the Department of Justice has devoted no small amount of effort to this end. SMC will henceforth be required to follow the requirements of the injunction and it does not now question the specific elements of this portion of the lower court's judgment. The conduct of SMC was as we have determined violative of the Board's clients' rights but we feel that SMC's actions do not warrant monetary relief in light of the ambiguity in Congress' statutory exclusion of those "addicted."

In determining the appropriate relief in this case we are motivated by equitable considerations. Cf. United States v. Estate of Donnelly 397 U.S. 286 296-97 25 L.Ed.2d 312 90 S.Ct. 1033 (1970) (Harlan J. concurring) (espousing retroactive application of new rules tempered by a flexible approach to fashioning remedies in cases affected by new rules); James B. Beam Distilling Co. v. Georgia 115 L.Ed.2d 481 111 S.Ct. 2439 2448 (1991) (noting that the rejection of "modified prospectivity" did not "preclude[] consideration of individual equities when deciding remedial issues in particular cases.") (Souter J. announcing judgment of Court); Six (6) Mexican Workers v. Arizona Citrus Growers 904 F.2d 1301 1310 (9th Cir. 1990) (exercising appellate court's "authority to reduce the award prior to remand in the interest of justice and to preserve judicial resources.").

Our ruling is fair notice regarding the ambit of the Act's coverage of drug addicts/abusers. The Rehabilitation Act's current definition 29 U.S.C. SEC. 706(8)(C)(ii) (I-III) (1991) should serve as a definitive guidepost for all future controversies under the Fair Housing Act. We emphasize that our ruling is fairly narrow in its scope. We hold that 42 U.S.C. SEC. 3906 does not per se exclude from its embrace every person who could be considered a drug addict. Instead we believe that Congress intended to recognize that addiction is a disease from which through rehabilitation efforts a person may recover and that an individual who makes the effort to recover should not be subject to housing discrimination based on society's "accumulated fears and prejudices" associated with drug addiction. *fn7

AFFIRMED IN PART AND REVERSED IN PART