Pennell v. San Jose
Decided on Feb. 24, 1988; 485 US 1


I. ISSUES II. CASE SUMMARY III. AMICI CURIAE IV. DECISION V. WIN OR LOSS?
I. ISSUES:

A. Issues Discussed: Taking Clause

B. Legal Question Presented:

Does a rent control ordinance that allows a hearing officer to consider, among other factors, the "hardship to a tenant" when determining whether to approve a rent increase proposed by a landlord violate the Takings Clause of the Fifth Amendment?

II. CASE SUMMARY:

A. Background:

"This case involves a challenge to a rent control ordinance enacted by the city of San Jose, California, that allows a hearing officer to consider, among other factors, the 'hardship to a tenant' when determining whether to approve a rent increase proposed by a landlord. Appellants Richard Pennell and the Tri-County Apartment House Owners Association sued in the Superior Court of Santa Clara County seeking a declaration that the ordinance, in particular the 'tenant hardship' provisions, are 'facially unconstitutional and therefore... illegal and void.' The Superior Court entered judgment on the pleadings in favor of appellants, sustaining their claim that the tenant hardship provisions violated the Takings Clause of the Fifth Amendment, as made applicable to the States by the Fourteenth Amendment. The California Court of Appeal affirmed this judgment but the Supreme Court of California reversed..."

On appeal the US Supreme Court affirmed the judgment of the Supreme Court of California.

B. Counsel of Record:
ACLU Side
(Respondent/Appellee)
Opposing Side
(Petitioner/Appellant)
Unavailable Unavailable
C. The Arguments:
ACLU Side
(Respondent/Appellee)
Opposing Side
(Petitioner/Appellant)
Unavailable Unavailable
III. AMICI CURIAE:
ACLU Side
(Respondent/Appellee)
Opposing Side
(Petitioner/Appellant)
Briefs of amici curiae urging affirmance were filed for the American Civil Liberties Union et al. by John A. Powell, Steven R. Shapiro, Helen Hershkoff, Paul L. Hoffman, and Mark Rosenbaum; for the American Federation of Labor and Congress of Industrial Organizations by Robert M. Weinberg and Laurence Gold; for the Asian Law Alliance et al. by Brenton Rogozen; for the Center for Constitutional Rights by Frank E. Deale; for the National Housing Law Project by David B. Bryson; for the National Institute of Municipal Law Officers by William I. Thornton, Jr., Roger F. Cutler, Roy D. Bates, and William H. Taube; and for the U.S. Conference of Mayors et al. by Benna Ruth Solomon and H. Bartow Farr III.

Joan R. Gallo argued the cause for appellees. With her on the brief was George Rios.

Briefs of amici curiae urging reversal were filed for the California Association of Realtors by William M. Pfeiffer; for the National Apartment Association et al. by Jon D. Smock, Wilbur H. Haines III, and Jeffrey J. Gale; for the National Association of Realtors by William D. North; for the National Multi Housing Council by Lawrence B. Simons and Michael E. Fine; for the Rent Stabilization Association of New York City, Inc., et al. by Erwin N. Griswold; and for the Washington Legal Foundation by Daniel J. Popeo, Paul D. Kamenar, and Todd Natkin.

Harry D. Miller argued the cause for appellants. With him on the briefs were Burch Fitzpatrick and Gary E. Rosenberg.

IV. THE SUPREME COURT'S DECISION:

"...[A]ppellants contend, the additional reduction of rent on grounds of hardship accomplishes a transfer of the landlord's property to individual hardship tenants; the Ordinance forces private individuals to shoulder the 'public' burden of subsidizing their poor tenants' housing. As appellants point out, '[i]t is axiomatic that the Fifth Amendment's just compensation provision is `designed to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.''

We think it would be premature to consider this contention on the present record. As things stand, there simply is no evidence that the 'tenant hardship clause' has in fact ever been relied upon by a hearing officer to reduce a rent below the figure it would have been set at on the basis of the other factors set forth in the Ordinance. In addition, there is nothing in the Ordinance requiring that a hearing officer in fact reduce a proposed rent increase on grounds of tenant hardship...

Appellants also urge that the mere provision in the Ordinance that a hearing officer may consider the hardship of the tenant in finally fixing a reasonable rent renders the Ordinance 'facially invalid' under the Due Process and Equal Protection Clauses, even though no landlord ever has its rent diminished by as much as one dollar because of the application of this provision. The standard for determining whether a state price-control regulation is constitutional under the Due Process Clause is well established: 'Price control is `unconstitutional... if arbitrary, discriminatory, or demonstrably irrelevant to the policy the legislature is free to adopt...'' In other contexts we have recognized that the government may intervene in the marketplace to regulate rates or prices that are artificially inflated as a result of the existence of a monopoly or near monopoly or a discrepancy between supply and demand in the market for a certain product. Accordingly, appellants do not dispute that the Ordinance's asserted purpose of 'prevent[ing] excessive and unreasonable rent increases' caused by the 'growing shortage of and increasing demand for housing in the City of San Jose,' is a legitimate exercise of appellees' police powers. They do argue, however, that it is 'arbitrary, discriminatory, or demonstrably irrelevant,' for appellees to attempt to accomplish the additional goal of reducing the burden of housing costs on low-income tenants by requiring that 'hardship to a tenant' be considered in determining the amount of excess rent increase that is 'reasonable under the circumstances'... As appellants put it, '[t]he objective of alleviating individual tenant hardship is... not a `policy the legislature is free to adopt' in a rent control ordinance.'

We reject this contention, however, because we have long recognized that a legitimate and rational goal of price or rate regulation is the protection of consumer welfare. Indeed, a primary purpose of rent control is the protection of tenants. Here, the Ordinance establishes a scheme in which a hearing officer considers a number of factors in determining the reasonableness of a proposed rent increase which exceeds eight percent and which exceeds the amount deemed reasonable... We accordingly find that the Ordinance, which so carefully considers both the individual circumstances of the landlord and the tenant before determining whether to allow an additional increase in rent over and above certain amounts that are deemed reasonable, does not on its face violate the Fourteenth Amendment's Due Process Clause.

We also find that the Ordinance does not violate the Amendment's Equal Protection Clause. Here again, the standard is deferential; appellees need only show that the classification scheme embodied in the Ordinance is 'rationally related to a legitimate state interest.' As we stated in Vance v. Bradley, '"we will not overturn [a statute that does not burden a suspect class or a fundamental interest] unless the varying treatment of different groups or persons is so unrelated to the achievement of any combination of legitimate purposes that we can only conclude that the legislature's actions were irrational.' In light of our conclusion above that the Ordinance's tenant hardship provisions are designed to serve the legitimate purpose of protecting tenants, we can hardly conclude that it is irrational for the Ordinance to treat certain landlords differently on the basis of whether or not they have hardship tenants..."

The US Supreme Court affirmed the judgment of the Supreme Court of California.

Justice Vote: 8 Pro vs. 0 Con

  • Rehnquist, W. Pro (Wrote majority opinion)
  • Brennan, W. Pro (Join majority opinion)
  • White, B. Pro (Join majority opinion)
  • Marshall, T. Pro (Join majority opinion)
  • Blackmun, H. Pro (Join majority opinion)
  • Stevens, J.P. Pro (Join majority opinion)
  • Scalia, A. Pro (Wrote concurring/dissenting opinion)
  • O'Connor, S.D. Pro (Wrote concurring/dissenting opinion)
  • Kennedy, A. None (No part in decision)
V. A WIN OR LOSS FOR THE ACLU?

The ACLU, as amicus, urged affirmance of the Supreme Court of California's judgment; the Supreme Court affirmed in a 8-0 vote, giving the ACLU an apparent win.