Voter-Approved Initiative Addressing Landlord/Tenant Relations Infringes Upon Judicial And Legislative Powers

In Larson v. City and County of San Francisco, (— Cal.Rptr.3d —-, Cal.App. 1 Dist., February 23, 2011), a court of appeal considered the validity of certain provisions of a San Francisco voter-approved initiative which expanded the circumstances under which a tenant can obtain a reduction in rent by broadening the definition of a “decrease in housing services” to include circumstances where a landlord engages in bad faith conduct. The court of appeal held that some of the provisions of the initiative violate the Judicial Powers Clause because the provisions invest power in a rent board to adjudicate tortuous conduct and award general damages for conduct which the initiative classifies as bad faith. Another provision infringes upon the function of the Legislature by providing for attorney fees in unlawful detainer actions where they are not provided for under state law.

Facts

Proposition M is a voter-approved initiative which amended San Francisco’s Residential Rent Stabilization and Arbitration Ordinance (“Rent Ordinance”). San Francisco voters approved Proposition M in November 2008. The materials distributed to voters claimed “the amendments were necessary to ensure property owners do not abuse their statutory rights under the Costa-Hawkins Rental Housing Act . . . which was enacted in 1995, to raise rent to market rates on vacated units.”

Prior to the passage of Proposition M, the Rent Ordinance provided that “housing services” were the “‘services provided by the landlord connected with the use or occupancy of a rental unit including, but not limited to: repairs, replacement, maintenance; painting; light; heat; water; elevator service; laundry facilities and privileges; janitor service; refuse removal; furnishings; telephone; parking; rights permitted the tenant by agreement, including the right to have a specific number of occupants . . . and any other benefits, privileges or facilities.'” Proposition M added to this definition “the quiet enjoyment of the premises without harassment by the landlord as provided in Section 10B.” Proposition M added 15 types of prohibited harassment in Section 37.10B.

Section 37.10B prohibits a landlord or an agent, employee, or contactor of a landlord from doing any of the following things in “bad faith or with ulterior motive or without honest intent;” (1) failing to provide, interrupting, or terminating “housing services required by contract or . . . housing health or safety laws;” (2) failing “to perform repairs and maintenance required by contract or . . . health or safety laws;” (3) failing “to exercise due diligence in completing repairs and maintenance once undertaken or fail[ing] to follow appropriate industry repair containment or remediation protocols designed to minimize exposure to noise, dust, lead paint, mold, asbestos, or other building materials with potentially harmful health impacts;” (4) abusing “the landlord’s right of access into a rental housing unit as that right is provided by law;” (5) attempting to influence or influencing “a tenant to vacate a rental housing unit through fraud, intimidation or coercion;” (6) making attempts to coerce the tenant to vacate the premises by offering “payments to vacate which are accompanied with threats or intimidation;” (7) continuing “to offer payments to vacate after tenant has notified the landlord in writing that they no longer wish to receive further offers of payments to vacate;” (8) threatening “the tenant, by word or gesture, with physical harm;” (9) violating “any law which prohibits discrimination based on actual or perceived race, gender, sexual preference, sexual orientation, ethnic background, nationality, place of birth, immigration or citizenship status, religion, age, parenthood, marriage, pregnancy, disability, AIDS or occupancy by a minor child;” (10) interfering “with a tenants right to quiet use and enjoyment of a rental housing unit;” (11) refusing “to accept or acknowledge receipt of a tenant’s lawful rent payment;” (12) refusing “to cash a rent check for over 30 days;” (13) interfering “with a tenant’s right to privacy;” (14) requesting “information that violates a tenant’s right to privacy, including but not limited to residence or citizenship status or social security number;” or (15) performing “[o]ther repeated acts or omissions of such significance as to substantially interfere with or disturb the comfort, repose, peace or quiet of any person lawfully entitled to occupancy of such dwelling unit and that cause, are likely to cause, or are intended to cause any person lawfully entitled to occupancy of a dwelling unit to vacate such dwelling unit or to surrender or waive any rights in relation to such occupancy.”

Pursuant to Proposition M, any conduct that violates section 37.10B, “constitutes a ‘substantial and significant decrease in services . . . and tenants may file a petition with the [San Francisco Rent Board (“Board”)] for a reduction in rent.'” The materials in support of Proposition M claimed that it would provide tenants with “a simple mechanism to stop harassment at the Rent Board, without lawyers and lawsuits.” However, Proposition M also provides for a civil remedy because a lawsuit may be maintained by any person or the City against a person who violates section 37.10B. A person who is found to have violated section 37.10B “is liable for each and every offense for money damages of not less than three times actual damages suffered . . . (including damages for mental or emotional distress).” Also, Proposition M provides that violation of its provisions is a misdemeanor punishable by fine and time in the county jail. Proposition M also provides that attorney fees are recoverable by the tenant in any action to recover possession of a rental unit.

Norman Larson and several organizations brought a lawsuit to challenge several provisions of Proposition M. A trial court upheld most of the Proposition’s provisions except for the attorney fees provision.

Decision

The court held “Proposition M violates the judicial powers clause [of the California Constitution] to the extent it empowers the Board to order rent reductions for the conduct prohibited” in the categories enumerated as 4 through 15 above. While other jurisdictions have prohibited landlords from taking certain actions to try and get rid of tenants so the landlords can raise rents to market rates, the other jurisdictions do not deem such conduct by a landlord as a decrease in housing services for which a reduction in rent can be ordered by a rent board. Instead, in other jurisdictions, “any such harassment is actionable in a court action, instituted by an aggrieved tenant or the rent control jurisdiction, wherein the court can award both general and special damages (and often treble damages).”

The California Constitution, at Article VI, section 1, mandates the following: “The judicial power of this State is vested in the Supreme Court, courts of appeal, and superior courts . . . .” Agencies that are not “vested by the Constitution with judicial powers may not exercise such powers.” Although an agency may hold hearings and determine facts, apply the law to those facts, and then order relief, including monetary relief, “the ‘essential’ judicial power (i.e., the power to make enforceable, binding judgments) remains ultimately in the courts, through review of agency determinations.”

Proposition M impermissibly allows the Board to award tenants “non-restitutive damages.” The conditions numbered one through three above prohibit a landlord’s bad faith interruption or termination of housing services, failure to perform repairs and maintenance, failure to complete repairs once undertaken, or failure to properly repair. The court found these three categories “are matters which ordinarily would produce a quantifiable, pecuniary loss, and thus, a rent reduction that is ‘restitutive.’” The court, however, found that the conditions described in numbers 4 through 15 are “of an entirely different character” because “[v]irtually any tenant loss compensated through a ‘rent reduction’ under this subdivision will be nonquantifiable and nonrestitutive in character.” For example, “[t]here is no readily measured, quantifiable or pecuniary loss, . . . for ‘[a]buse [of] the landlord’s right of access,’ influencing or attempting ‘to influence a tenant to vacate . . . through fraud, intimidation or coercion,’” threatening physical harm or violating antidiscrimination laws. Any loss associated with the conditions outlined in categories number 4 through 15 “is emotional peace and psychic well being—in other words general damages, the award of which is ‘a judicial function.’” Proposition M provides no criteria for assessing a tenant’s loss under these provision or how the losses may be translated into an amount of “reduced rent.”

“That Proposition M impermissibly invested the Board with judicial power is underscored by the fact the measure also provides a tenant or the City can file a superior court action for any of the enumerated acts of ‘harassment’ in new section 37.10B and recover damages therefore.” Other jurisdictions that have anti-harassment provisions similar to the ones found in numbers 4 through 15 make “such conduct actionable in court and compensable through judicially awarded damages.” Civil Code section1940.2 already makes such conduct actionable through a civil action. The court concluded that the addition of the anti-harassment provisions in numbers 4 through 15 to the Rent Ordinance is “an attempt to bypass the judicial system and impermissibly endow the Board with judicial power constitutionally reserved to the judiciary.”

Larson claimed that a judicial action would be foreclosed as to categories numbered 5, 6, and 7 because they impermissibly restrict constitutionally protected speech. The court found that there was no impermissible restriction of speech in regard to number 5, which prohibits a landlord from influencing or attempting to influence a tenant to vacate a rental unit through intimidation, fraud, or coercion, or in regard to number 6, which prohibits a landlord from attempting to coerce a tenant to vacate by an offer of payment accompanied with threats or intimidation.

The court found that the restriction found in number 7 does impermissibly restrict speech. Number 7 prohibits a landlord from continuing “to offer payments to vacate after tenant has notified the landlord in writing that they no longer wish to receive further offers of payment to vacate.” The court found that because number 7 contains a complete prohibition of offers from a landlord, it must be viewed with “special care.” The court concluded that “the restriction is ‘more extensive than necessary to further the’ City’s interest in preventing the subversion of its rent control ordinance and in protecting any reasonable notion of the right to peaceful occupancy.”

Finally, the court concluded the City had no authority to add, through a local ordinance, a provision for attorney fees to the state’s unlawful detainer statutes. State statutes authorize and govern unlawful detainer actions and only allow for attorney fees under two circumstances—when a claim of habitability is raised and when a claim of retaliatory eviction is raised. The court found that “when the Legislature has determined an award of attorney fees is appropriate in an unlawful detainer case, it has provided for such,” but has done so in only two circumstances. The court concluded that “[l]ocally imposed procedural constraints on the state statutory scheme are . . . in excess of a municipality’s police power.” The court held “City has no authority to mandate that attorney fees be awarded in unlawful detainer cases brought under state law.”

This case serves as a reminder that a local ordinance or regulation cannot infringe upon the power of the state judiciary or otherwise conflict with state statutory provisions. If such a conflict exists, the local jurisdiction runs the risk of having a court invalidate the ordinance or regulation.

Questions

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Jeffrey L. Massey or William T. Chisum | 916.321.4500

Jon E. Goetz | 805.786.4302