Christopher Regan v. City of Hammond, Indiana , 934 F.3d 700 ( 2019 )


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  •                               In the
    United States Court of Appeals
    For the Seventh Circuit
    No. 18-3051
    CHRISTOPHER REGAN and
    NORTHWEST INDIANA CREATIVE
    INVESTORS ASSOCIATION, INC.,
    Plaintiffs-Appellants,
    v.
    CITY OF HAMMOND, INDIANA,
    Defendant-Appellee.
    Appeal from the United States District Court for the
    Northern District of Indiana, Hammond Division.
    No. 2:16-cv-00098-JTM — James T. Moody, Judge.
    ARGUED APRIL 3, 2019 — DECIDED AUGUST 19, 2019
    Before WOOD, Chief Judge, and BAUER and ROVNER, Circuit
    Judges.
    ROVNER, Circuit Judge. The plaintiffs in this case press a
    dormant commerce clause challenge to a local ordinance that
    requires a residential property owner who wishes to make
    2                                                    No. 18-3051
    repairs to the residence either to obtain a license or to hire a
    licensed contractor; but a homeowner making repairs to the
    single-family residence he or she occupies is exempted from
    this requirement. The plaintiffs argue that this scheme discrim-
    inates against interstate commerce and to that extent is
    contrary to the dormant commerce clause. But the ordinance
    draws no distinction between in-state or out-of-state property
    owners and imposes no burden on interstate commerce. We
    therefore affirm the district court’s entry of summary judgment
    against the plaintiffs.
    I.
    Plaintiff Christopher Regan lives in Cook County, Illinois,
    but owns real property in the City of Hammond, Indiana, that
    he leases or rents to others. The Northwest Indiana Creative
    Investors Association, Inc. (“NICIA”) is a trade association for
    real estate investors who likewise own and lease real property
    in Hammond. As landlords, Regan and NICIA members
    naturally have the need to make periodic repairs and improve-
    ments to their Hammond properties. In order to repair or
    remodel their properties, the Hammond municipal code
    requires that they either obtain a license from the city or hire a
    Hammond-licensed general contractor. Hammond, Ind.
    Municipal Code §§ 150.15, 150.17. In order to obtain a license,
    a general contractor or landlord must, among other things,
    submit an application, pass a test and criminal background
    check, and pay a fee. (General contractors are subject to
    additional requirements and obtain a broader license.) The
    code makes an exception for an individual making repairs or
    improvements to a private, single-family residence in which he
    resides. Any work he performs will be subject to review and
    No. 18-3051                                                     3
    inspection by the city building commissioner (as would
    licensed work), but he need not obtain a license in order to do
    the work. §§ 150.15, 150.17.
    Regan and NICIA contend that the license requirement,
    coupled with the exemption, impermissibly burdens interstate
    commerce by imposing costs on property owners who, like
    Regan, do not reside in Hammond which locally-domiciled
    homeowners do not have to pay. That burden, they argue, is
    inconsistent with the dormant commerce clause. The district
    court disagreed and entered summary judgment for
    Hammond. Regan v. City of Hammond, Ind., 
    331 F. Supp. 3d 798
    (N.D. Ind. 2018). Judge Moody reasoned that the city’s license
    requirement does not facially discriminate against property
    owners who do not live in Hammond, does not have a dispa-
    rate impact on those owners, and is rationally related to the
    city’s interest in public safety. 
    Id. II. The
    commerce clause gives Congress the power to regulate
    commerce among the states. U.S. Const. Article I, § 8, cl. 3. This
    provision “presumes a national market free from local legisla-
    tion that discriminates in favor of local interests.” C & A
    Carbone, Inc. v. Town of Clarkstown, N.Y., 
    511 U.S. 383
    , 393, 
    114 S. Ct. 1677
    , 1683 (1994). The clause therefore comprises not
    only an affirmative authorization for Congress to regulate
    interstate commerce, but a corresponding restraint on the
    power of state and local governments to regulate that com-
    merce. Dep’t of Revenue of Ky. v. Davis, 
    553 U.S. 328
    , 337–38, 
    128 S. Ct. 1801
    , 1808 (2008); Am. Trucking Ass’ns, Inc. v. Mich. Pub.
    Serv. Comm’n, 
    545 U.S. 429
    , 433, 
    125 S. Ct. 2419
    , 2422–23 (2005).
    4                                                     No. 18-3051
    That restraint is referred to as the dormant commerce clause,
    and it precludes states and municipalities from erecting
    obstacles to interstate commerce even where Congress has not
    regulated. Tenn. Wine & Spirits Retailers Ass’n v. Thomas, 
    139 S. Ct. 2449
    , 2459–61 (2019); Comptroller of Treasury of Md. v.
    Wynne, 
    135 S. Ct. 1787
    , 1794 (2015); Endsley v. City of Chicago,
    
    230 F.3d 276
    , 284 (7th Cir. 2000). The fact that a state or
    municipal law affects interstate commerce in some way is by
    itself insufficient to render the law suspect under the com-
    merce clause, as almost any local regulation is bound to touch
    upon interstate commerce. Nat’l Paint & Coatings Ass’n v. City
    of Chicago, 
    45 F.3d 1124
    , 1130–31 (7th Cir. 1995). “Dormant
    Commerce Clause doctrine applies only to laws that discrimi-
    nate against interstate commerce, either expressly or in fact.”
    Park Pet Shop, Inc. v. City of Chicago, 
    872 F.3d 495
    , 501 (7th Cir.
    2017) (emphasis in original) (citing Nat’l 
    Paint, 45 F.3d at 1130
    –31).
    Our precedents place state and local laws into one of three
    categories for purposes of commerce clause analysis, depend-
    ing on the degree to which they affect interstate commerce:
    (1) laws that expressly discriminate against interstate com-
    merce; (2) laws that, although neutral on their face, bear more
    heavily on interstate than local commerce; and (3) laws that
    may have a mild effect on interstate commerce but in practice
    do not give local firms any competitive advantage over firms
    located elsewhere. Park Pet 
    Shop, 872 F.3d at 501
    –02 (citing Nat’l
    
    Paint, 45 F.3d at 1131
    ). A law falling into the first category is
    presumed to be almost per se unconstitutional and is subject to
    rigorous scrutiny that will allow the law to stand only if it
    serves a legitimate governmental interest and there is no
    No. 18-3051                                                        5
    reasonable non-discriminatory means of furthering that
    interest. Park Pet 
    Shop, 872 F.3d at 501
    (citing Nat’l 
    Paint, 45 F.3d at 1131
    ); see 
    Davis, 553 U.S. at 338
    , 128 S. Ct. at 1808; United
    Haulers Ass’n, Inc. v. Oneida-Herkimer Solid Waste Mgmt. Auth.,
    
    550 U.S. 330
    , 338–39, 
    127 S. Ct. 1786
    , 1793 (2007); Or. Waste Sys.,
    Inc. v. Dep’t of Environ. Quality of State of Or., 
    511 U.S. 93
    ,
    100–01, 
    114 S. Ct. 1345
    , 1351 (1994). A law falling into the
    second category is analyzed according to its effect. If the
    impact is so strong that the law effectively operates as an
    embargo on interstate commerce, it is treated as the equivalent
    of a facially discriminatory law and is subject to the same
    demanding scrutiny given to such a law. 
    Id. (citing Nat’l
    Paint,
    45 F.3d at 1131
    ). But if the law regulates even-handedly and
    only incidentally burdens interstate commerce, then it is
    examined under the balancing test set forth in Pike v. Bruce
    Church, Inc., 
    397 U.S. 137
    , 142, 
    90 S. Ct. 844
    , 847 (1970), to
    determine whether it is animated by a legitimate public
    purpose and, if so, whether the burden the law imposes on
    interstate commerce is excessive in relation to that interest.
    Park Pet 
    Shop, 872 F.3d at 501
    –02; see 
    Davis, 563 U.S. at 338
    –39,
    128 S. Ct. at 1808–09; Brown-Forman Distillers Corp. v. N.Y. State
    Liquor Auth., 
    476 U.S. 573
    , 579, 
    106 S. Ct. 2080
    , 2084 (1986). A
    law falling into the third category is examined solely to
    determine whether it has a rational basis. Park Pet 
    Shop, 872 F.3d at 502
    (citing Nat’l 
    Paint, 45 F.3d at 1131
    –32). The district
    court concluded that the Hammond ordinance falls into the
    third category and indeed is justified by a rational basis. We
    review its conclusion de novo. Legato Vapors, LLC v. Cook, 
    847 F.3d 825
    , 828–29 (7th Cir. 2017).
    6                                                    No. 18-3051
    The plaintiffs are landlords, and as the ordinance concerns
    landlords, it draws no distinction between those who are
    domiciled in Hammond (or elsewhere in Indiana) and those
    who are not; all landlords are subject to the license require-
    ment. So the landlord who lives in Chicago and owns a rental
    property in Hammond must obtain a license or hire a licensed
    contractor, but so must the landlord who lives next door to his
    Hammond rental. The ordinance imposes no impediment or
    burden for the non-Hammond landlord that it does not also
    impose on the Hammond landlord. There is no disparity in
    classification of local versus non-local landlords nor is there a
    disparity in how the two are impacted by the ordinance. See
    Park Pet 
    Shop, 872 F.3d at 502
    (municipal “puppy mill” ordi-
    nance that prohibits all large commercial breeders from selling
    domestic pets to local pet stores regardless of where breeder is
    located neither expressly discriminates against interstate
    commerce nor has disparate impact on out-of-state breeders).
    It is only the exception the ordinance makes for occupant
    homeowners that causes the plaintiffs to complain that the
    ordinance is inconsistent with the dormant commerce clause,
    because by definition only a property owner who lives in
    Hammond can be an occupant of a Hammond residence. The
    occupant can, if he chooses, save himself the expense of
    obtaining a license or hiring a licensed contractor to make
    improvements to his property; and he is the only property
    owner who is given that option. But the exception is tied to
    occupancy of the property rather than the owner’s domicile; a
    Hammond-based landlord will not qualify for the exception
    even if his tenant lives next door to him in the adjoining unit of
    a side-by-side duplex.
    No. 18-3051                                                   7
    The premise of the plaintiffs’ commerce clause challenge is
    that all owners of residential property in Hammond are
    participants and competitors in the national housing market,
    so that to give an occupant homeowner an exemption from the
    license requirement is to discriminate in favor of the occupant
    against the non-occupant homeowner, including in particular
    the landlord who is not domiciled in Hammond. But occupant
    homeowners are not similarly situated with landlords, as the
    district court recognized. The owner-occupant of a single-
    family home typically is not deriving rental income from his
    property, which means that he or she is not in meaningful
    competition with landlords. Yes, both own property, and both
    may ultimately sell that property in the national market, but
    during the term of their ownership, they are using the property
    for different purposes. Moreover, the occupant also bears the
    consequences of repairs or improvements made to his home in
    a way that a landlord does not. Of course, all repairs and
    improvements are reviewed by the Hammond building
    commissioner for compliance with municipal codes, so one
    may presume the alterations by the occupant owner are good
    enough to pass inspection; but compliance with local regula-
    tions does not ensure that the craftsmanship is sound, effective
    in resolving any problems that necessitated repairs, or suffi-
    cient to prevent future problems. And as between the occupant
    and the landlord, it is the former who will be without heat,
    water, a working kitchen, a watertight roof, or a sound
    staircase if the repairs or improvements are not made properly.
    The occupant and the landlord alike ultimately may suffer the
    economic consequences of bad work (a tenant might withhold
    rent or abandon the lease), but only the occupant actually
    8                                                    No. 18-3051
    experiences the deterioration in living conditions with its
    attendant hardships and dangers. In the district court’s words,
    “While resident homeowners will bear the risk of their own
    poor craftsmanship, building contractors and landlords impose
    the risk of faulty construction upon current or future 
    tenants.” 331 F. Supp. 3d at 805
    .
    Given the material distinctions between occupant owners
    and landlords, the exception for occupant owners does not
    make the ordinance one that discriminates against non-
    Hammond property owners, so as to trigger a presumption of
    invalidity. “[L]aws that draw distinctions between entities that
    are not competitors do not ‘discriminate’ for purposes of the
    dormant commerce clause.” Selevan v. N.Y. Thruway Auth., 
    584 F.3d 82
    , 95 (2d Cir. 2009) (quoting Town of Southold v. Town of
    E. Hampton, 
    477 F.3d 38
    , 49 (2d Cir. 2007)); see Gen. Motors Corp.
    v. Tracy, 
    519 U.S. 278
    , 298–300, 
    117 S. Ct. 811
    , 824–25 (1997).
    Hammond’s ordinance does not impede interstate commerce
    in the sense that it poses an obstacle to non-residents who wish
    to invest in Hammond rental properties or imposes a sur-
    charge on such non-residents that is not imposed on local,
    similarly-situated investors. Nor does it otherwise impose a
    disparate burden on non-Hammond landlords so as to trigger
    the Pike analysis. As we have said, the ordinance treats all
    landlords the same, regardless of whether they are domiciled
    in Hammond. Consequently, the law falls into the third
    category, and is subject only to rational basis review.
    And for the same reasons that occupant homeowners are
    not similarly situated to landlords, the license requirement and
    exemption easily survive deferential review. Hammond has an
    obvious interest in the safety and habitability of the homes in
    No. 18-3051                                                  9
    which its residents live, and the ordinance is a legitimate
    exercise of its authority to promote that interest. The license
    requirement serves to ensure not only that whoever performs
    the work, be it the property owner or a contractor, is familiar
    with the local code requirements and is therefore capable of
    completing work in a sound manner that complies with those
    requirements, but that he lacks a criminal background that
    may place the property’s owner or occupant in jeopardy of
    fraud. Insofar as the exemption for occupant homeowners is
    concerned, it is reasonable for the city to think that such
    homeowners, who have a keen interest in the adequacy of
    repairs and improvements made to their own homes, will also
    endeavor to comply with all local requirements.
    III.
    Hammond’s licensing ordinance does not discriminate
    based on the domicile of a homeowner in name or effect and
    has the support of a rational basis; it therefore poses no
    problem under the dormant commerce clause. The district
    court property granted summary judgment to Hammond.
    AFFIRMED