Coyne v. City and County of San Francisco , 9 Cal. App. 5th 1215 ( 2017 )

Filed 3/21/17
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION FIVE
MARTIN J. COYNE et al.,
Plaintiffs and Respondents,
A145044,
v. A146569
CITY AND COUNTY OF SAN
FRANCISCO, (San Francisco County
Super. Ct. Nos. CGC-14-540709,
Defendant and Appellant. CPF-15-514382)
In this consolidated appeal, we consider limits on mitigation measures a
municipality may impose on landlords under the Ellis Act, when a landlord seeks to
remove residential property from the rental market. The City and County of San
Francisco (the City) appeals two superior court judgments invalidating City-enacted
ordinances increasing the relocation assistance payments property owners owe their
tenants under the Ellis Act. (Gov. Code, § 7060 et seq.) The superior court found both
ordinances facially preempted by the Act. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
The Ellis Act
The Ellis Act prohibits a city or county from “compel[ling] the owner of any
residential real property to offer, or to continue to offer, accommodations in the property
for rent or lease . . . .” (Gov. Code, § 7060, subd. (a).)
Enacted in 1985, the statute was a legislative response to the California Supreme
Court decision in Nash v. City of Santa Monica (1984) 37 Cal. 3d 97 (Nash). In Nash, a
landlord “disenchanted . . . with operating rental housing” wanted to evict his tenants
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from the rent-controlled apartment building he owned in order to demolish the building
and keep the land as an investment. (Id. at p. 101.) However, a city ordinance prohibited
the landlord from evicting his tenants and removing his rental units from the housing
market without the proper city-issued removal permit. (Id. at p. 99.) To secure the
permit, the landlord had to show he could no longer earn a reasonable return on his
investment. (Id. at p. 101.) Knowing he could not make the required showing for the
permit, the landlord petitioned for a writ of mandate. (Ibid.) The California Supreme
Court denied the writ, concluding the ordinance was reasonably related to the city’s
legitimate goal of maintaining adequate rental housing. (Id. at p. 109.)
The Ellis Act’s expressed purpose was to supersede Nash, to the extent Nash
conflicts with the Act, in order to permit a residential landlord “to go out of business.”
(Gov. Code, §§ 7060.7, 7060, subd. (a).) However, while establishing an owner’s right to
exit the residential rental business, the Act did nothing to “[d]iminish[] or enhance[] any
power in any public entity to mitigate any adverse impact on persons displaced by reason
of the withdrawal from rent or lease of any accommodations.” (Gov. Code, § 7060.1,
subd. (c).)
San Francisco Ordinances
Since the Ellis Act’s adoption, the City has passed various ordinances setting forth
requirements rental property owners must satisfy to withdraw units from the rental
market.
Most relevant for our purposes are the City-enacted ordinances requiring property
owners to make relocation payments to their tenants evicted under the Ellis Act. In 1994,
the City enacted ordinance No. 320-94 requiring landlords to provide relocation
payments ranging from $1,500 to $2,500 (depending on the size of the unit) to displaced
low-income tenants, and $3,000 to displaced elderly and disabled tenants. (S.F. Admin.
Code, ch. 37, § 37.9A former subd. (e).) In 2000, the City enacted ordinance No. 5-00,
which increased the relocation payment to a standard $4,500 for low-income tenants
displaced by Ellis Act withdrawals. (S.F. Admin. Code, ch. 37, § 37.9A, former subd.,
(f)(1).) In 2005, the City enacted ordinance No. 21-05 (“Ordinance 21-05”), which lifted
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the restrictions limiting the relocation assistance payments to low-income tenants and
extended them to all displaced tenants. (S.F. Admin. Code, ch. 37, § 37.9A, subd. (e)(3).)
For units with more than three tenants, Ordinance 21-05 set $13,500 as the maximum
relocation payment a landlord was required to pay per unit, in addition to the $3,000 add-
on for evicted elderly and disabled tenants. (Id., subds. (e)(3)(A), (e)(3)(B), (e)(3)(C).)
The ordinance also indexed these payments to annual inflation rates. (Id., subd.
(e)(3)(D).) For evictions noticed between March 2015 and February 2016, the time
period when two of the individual plaintiffs here invoked the Ellis Act, the inflation-
adjusted base relocation payout due per tenant was $5,555.21, up to $16,665.59 per unit,
with an additional payment of $3,703.46 to each elderly or disabled evicted tenant.
Ordinance No. 54-14
On April 15, 2014, the City enacted ordinance No. 54-14 (“Ordinance 54-14”) to
“mitigate adverse impacts of tenant evictions” under the Ellis Act. Ordinance 54-14
entitles a tenant evicted under the Ellis Act to an increased relocation payment set as the
greater of the existing relocation payment (under the 2005 Ordinance as described above)
or the new, enhanced amount: “the difference between the tenant’s current rent and the
prevailing rent for a comparable apartment in San Francisco over a two year period.”
(S.F. Admin. Code, ch. 37, § 37.9A, subd. (e)(3)(E).) The ordinance refers to this
enhanced payout as the “Rental Payment Differential.” (Id., subd. (e)(3)(E)(ii).) The
current market rental rate is to be determined by the City’s Controller’s Office based on
market data reasonably reflecting a representative sample of San Francisco rental
apartments. (Ibid.) The 2014 Ordinance places no caps on the size of the payout under
the Rental Payment Differential and no constraints on the tenant’s use of the payout.
Ordinance 54-14 also contains provisions for property owners to seek relief from
the San Francisco Residential Rent Stabilization and Arbitration Board (“Rent Board”) if
the relocation payments would cause them financial hardship. (S.F. Admin. Code, ch. 37,
§ 37.9A, subd. (e)(3)(G)(i).) As we shall discuss, the remedies include a Rent Board
ordered “hardship adjustment” in the form of a “reduction, payment plan, or any other
relief [the Rent Board] determine[s] is justified following a hearing” after considering
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“all relevant factors” including the landlord’s income and other assets excluding
retirement accounts and non-liquid personal property. (Id., subd. (e)(3)(G)(i–iii).) And
landlords can also seek administrative relief from the Rent Board if they believe the
Controller’s determination of fair market rents does not reasonably reflect the market
rents of comparable units in San Francisco. (Id., subd. (e)(3)(H).)
The new law took effect on June 1, 2014. (San Francisco Ordinance No. 54-14,
section 2.)
The Levin and Jacoby Lawsuits Against Ordinance 54-14
Ordinance 54-14 was challenged in federal court by Levin v. City and County of
San Francisco (N.D.Cal. 2014, No. 3:14-cv-03352-CRB) (Levin) and in state court by
Jacoby v. City and County of San Francisco (Super. Ct. S.F. City and County, 2014, No.
CGC-14-540709) (Jacoby), which is part of this consolidated appeal.
In Levin, multiple landlords and landlord groups filed suit against the City alleging
Ordinance 54-14 on its face was an unconstitutional taking in violation of the Fifth
Amendment. (Levin, supra, 71 F. Supp. 3d 1072, 1074.) The federal district court held
Ordinance 54-14 worked an uncompensated taking of the plaintiffs’ property. (Id. at
p. 1089.) It described Ordinance 54-14 as a “laudable” attempt to ameliorate San
Francisco’s housing shortage and high market rates but a “policy shortcut” in which the
City sought to “ ‘forc[e] some people alone to bear public burdens which, in all fairness
and justice, should be borne by the public as a whole.’ [Citation.]” (Ibid.) The court
enjoined the City from enforcing the 2014 Ordinance and stayed its decision to allow the
City to appeal. (Id. at pp. 1089–1090.)
In Jacoby, property owners Jerrold Jacoby, Martin J. Coyne, Golden Properties
LLC, and Howard Weston, and an association of property owners, Small Property
Owners of San Francisco Institute (collectively Jacoby), filed a complaint and writ
petition and a first amended petition for writ of mandate also challenging Ordinance 54-
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14.1 They argued Ordinance 54-14’s payment requirement was facially invalid and
preempted by the Ellis Act. The superior court granted the first amended writ petition.
Taking judicial notice of Levin, the court stated it concurred with the decision in the
district court case. Citing the First District’s decision in Pieri v. City and County of San
Francisco (2006) 137 Cal. App. 4th 886 (Pieri), the superior court concluded the standard
for determining the propriety of the amount of a relocation payment is “whether
relocation compensation is ‘reasonable,’ not whether it is ‘prohibitive.’ ” The court held
the payments under Ordinance 54-14 were “not ‘reasonable’ as they are
disproportionately higher than compensation contemplated by the Legislature in enacting
and amending Govt. Code 7060” and found the ordinance preempted by the Ellis Act.
The Jacoby court also enjoined the City from enforcing the ordinance. The City appealed
the judgment granting the writ petition.
Ordinance No. 68-15
Following the Levin and Jacoby trial court decisions, the City enacted ordinance
No. 68-15 (“Ordinance 68-15”) to revise the invalidated relocation assistance measure.
This amended ordinance preserves parts of its predecessor but modifies several of its
elements. It makes no change to the requirement that withdrawing landlords pay Ellis-
Act-evicted tenants two years’ worth of increased housing costs following eviction—the
Rental Payment Differential—if that amount is greater than the relocation payment
allowed under Ordinance 68-15. (S.F. Admin. Code, ch. 37, § 37.9A, subd. (e)(3)(E).)
However, in contrast to Ordinance 54-14, which placed no limit on the Rental Payment
Differential, Ordinance 68-15 caps a landlord’s payout of any Rental Payment
Differential at $50,000. (Id., subd. (e)(3)(E)(ii).)
Also, whereas Ordinance 54-14 placed no constraints on how an evicted tenant
used a relocation assistance payout, Ordinance 68-15 adds a requirement for tenants to
submit to their landlords a statement signed under penalty of perjury certifying that the
1
Shortly after plaintiffs filed their first amended petition, plaintiffs Jerrold Jacoby
and Golden Properties LLC dismissed their claims with prejudice.
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relocation payment will be used solely for “Relocation Costs.” (S.F. Admin. Code, ch.
37, § 37.9A, subd. (e)(3)(E)(iv).)2 The amended ordinance conditions a tenant’s receipt
of any relocation payment on submission of this declaration, a sample of which landlords
must provide to tenants. (Ibid.) In addition, Ordinance 68-15 adds the requirement that
displaced tenants document their relocation expenses by keeping receipts and providing
them to their former landlords upon request; tenants who fail to do so must reimburse
landlords for any payments tenants cannot demonstrate were used for allowable costs.
(S.F. Admin. Code, ch. 37, § 37.9A, subd. (e)(3)(E)(v).)
The amended ordinance leaves largely undisturbed provisions of Ordinance 54-14
authorizing landlords to seek hardship adjustments from the Rent Board. (S.F. Admin.
Code, ch. 37, § 37.9A, subd. (e)(3)(G).) Nor did it change the ability of landlords to seek
administrative relief from the Rent Board if they believe the City’s average-rents report
does not reflect the market rent for a comparable unit. (Id., subd. (e)(3)(H).)
Ordinance 68-15 took effect on June 14, 2015. (San Francisco Ordinance No. 54-
14, section 3.) Although enacted, the ordinance has not been enforced by the City, which
has taken the position that the “amendment [set forth in Ordinance 68-15] is covered by
the previous injunction issued by the Court in Levin . . . and therefore the City is not
enforcing the amended ordinance until permitted to do so by the Court.”
The Coyne Lawsuit Against Ordinance 68-15
In response to Ordinance 68-15, property owners Martin J. Coyne, Howard
Weston, Edmund A. Chute, and a non-profit corporation, the Small Property Owners of
San Francisco Institute (collectively Coyne), filed a petition for writ of mandate and
complaint for declaratory relief on the ground that Ordinance 68-15 deprives them of
their Ellis Act right to go out of the residential rental business. Through their writ, they
2
A newly defined term in the amended ordinance, “Relocation Costs” are “any of
the following costs incurred by an evicted tenant: rent payments for a replacement
dwelling, the purchase price of a replacement dwelling, any costs incurred in moving to a
replacement dwelling, or any costs that the tenant can demonstrate were incurred to
mitigate the adverse impacts on the tenant of the eviction.” (S.F. Admin. Code, ch. 37,
§ 37.9A, subd. (e)(3)(E)(vi)(b).)
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sought to stay, rescind, and preclude the City from enforcing Ordinance 68-15. Their
declaratory relief complaint sought a range of declarations, including that Ordinance 68-
15 is facially invalid and unreasonable, improperly compels property owners to waive
their constitutional right of privacy, violates due process, and amounts to a “monetary
exaction” or unconstitutional taking.
The superior court in Coyne found plaintiffs’ facial challenge to be “successfully
alleged” and granted the writ. The court held the enhanced relocation assistance amount
in the ordinance was not “reasonable” because it “is not directed at the adverse impacts
caused by a landlord’s decision (i.e. the need to pay first/last months’ rent and a security
deposit and to incur moving expenses), but is instead explicitly implemented to subsidize
the payment of rent that a displaced tenant will face on the open market, regardless of
income, and it requires this subsidy for two years.” Further, the court found the increased
amount to “have no relationship to the adverse impact caused by a landlord’s decision to
exit the rental market, and because they call for a more than 300% increase over the prior
lawful relocation assistance scheme.” The court also held the Ellis Act preempted
procedural elements of Ordinance 68-15 because the ordinance “places several
impermissible and unauthorized obstacles before a landlord who seeks to invoke the Ellis
Act to exit the rental market.” The court enjoined the City from enforcing Ordinance 68-
15. The City again appealed the judgment granting the writ petition.
We consolidated the Jacoby and Coyne appeals pursuant to a joint motion made
by the parties.3 We shall refer to Jacoby and Coyne collectively as “the Coyne
plaintiffs.”
3
While this consolidated appeal was being briefed, both parties filed requests for
judicial notice. We deferred ruling on the requests until a decision on the merits of the
case. We now rule as follows:
The City’s request for judicial notice filed on February 3, 2016 is granted as to the
following documents: Document 1 (S.F. Ordinance 54-14); Document 4 (S.F. Ordinance
68-15); and Document 12 (Notice of Appeal of Order in Levin v. City and County of San
Francisco, U.S. District Court Case No. 3:14-cv-03352 CRB). With respect to
Document 11 (Memorandum of Findings of Fact and Conclusions of Law in Levin v. City
and County of San Francisco, U.S. District Court Case No. 3:14-cv-03352 CRB), we take
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DISCUSSION
“ ‘The issue of preemption of a municipal ordinance by state law presents a
question of law, subject to de novo review.’ ” (Apartment Assn. of Los Angeles. County,
Inc. v. City of Los Angeles (2009) 173 Cal. App. 4th 13, 21.) And because the present case
involves the interpretation of a statute, we engage in de novo review of the trial court’s
determination to issue the writ of mandate. (Pomona Police Officers’ Assn. v. City of
Pomona (1997) 58 Cal. App. 4th 578, 584.)
I.
The Ellis Act Preempts the City’s Enhanced Relocation Assistance Ordinances
A. General Principles of Preemption
“ ‘Under article XI, section 7 of the California Constitution, “[a] county or city
may make and enforce within its limits all local, police, sanitary, and other ordinances
judicial notice of the fact that Ordinance 54-14 was challenged and enjoined. (See Arce
v. Kaiser Foundation Health Plan, Inc. (2010) 181 Cal. App. 4th 471, 482 (Arce) [“While
we may take judicial notice of court records and official acts of state agencies [citation],
the truth of matters asserted in such documents is not subject to judicial notice.”].) The
City’s request for judicial notice is denied as to the remaining documents; we conclude
they are not relevant to our analysis. (See id. [“We also may decline to take judicial
notice of matters that are not relevant to dispositive issues on appeal.”]; Mangini v. R.J.
Reynolds Tobacco Co. (1994) 7 Cal. 4th 1057, 1063, overruled on other grounds in In re
Tobacco Cases II (2007) 41 Cal. 4th 1257, 1276 (Mangini).)
The Coyne plaintiffs’ request for judicial notice filed on May 20, 2016 is granted
as to the following documents: Document A (S.F. Rent Board—Current Relocation
Payments for Ellis Act Evictions Under 2005 Ordinance); Document B (San Francisco
Admin. Code, ch. 37, §§ 37.9A, subd. (a)(1)(A), 37.9A, subd. (f)); and Document C (San
Francisco Ordinance No. 5-00). It is denied as to the remaining documents because these
documents do not bear on our analysis. (Arce, supra, 181 Cal.App.4th at p. 482;
Mangini, supra, 7 Cal.4th at p. 1063.)
The Coyne plaintiffs’ request for judicial notice filed on August 11, 2016 for
Exhibit A (Agreement between the San Francisco Department of Human Services and the
Tenderloin Housing Clinic); Exhibit B (online article entitled “S.F. Boosts Spending to
Stop Ellis Evictions”); and Exhibit C (Order from PI Coleridge, LLC v. Leticia Morales-
Gaitan, Case No. CUD-15-651146) is denied in total. None of these documents are
relevant to the issues before us. (Arce, supra, 181 Cal.App.4th at p. 482; Mangini, supra,
7 Cal.4th at p. 1063.)
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and regulations not in conflict with general [state] laws.” [¶] “If otherwise valid local
legislation conflicts with state law, it is preempted by such law and is void.”
[Citations.]’ ” (O’Connell v. City of Stockton (2007) 41 Cal. 4th 1061, 1067.)
“ ‘ “The first step in a preemption analysis is to determine whether the local
regulation explicitly conflicts with any provision of state law. [Citation.]” ’ ” (Calguns
Foundation, Inc. v. County of San Mateo (2013) 218 Cal. App. 4th 661, 666.) “ ‘A
conflict exists if the local legislation “ ‘duplicates, contradicts, or enters an area fully
occupied by general law, either expressly or by legislative implication.’ ” ’[Citations.]”
(Sherwin-Williams Co. v. City of Los Angeles (1993) 4 Cal. 4th 893, 897.)
“Local legislation is ‘duplicative’ of general law when it is coextensive therewith.
[Citation.] [¶] [L]ocal legislation is ‘contradictory’ to general law when it is inimical
thereto. [Citation.] [¶] [L]ocal legislation enters an area that is ‘fully occupied’ by
general law when the Legislature has expressly manifested its intent to ‘fully occupy’ the
area [citation], or when it has impliedly done so in light of one of the following indicia of
intent: ‘(1) the subject matter has been so fully and completely covered by general law as
to clearly indicate that it has become exclusively a matter of state concern; (2) the subject
matter has been partially covered by general law couched in such terms as to indicate
clearly that a paramount state concern will not tolerate further or additional local action;
or (3) the subject matter has been partially covered by general law, and the subject is of
such a nature that the adverse effect of a local ordinance on the transient citizens of the
state outweighs the possible benefit to the’ locality. [Citations.]” (Id. at pp. 897–898.)
“[W]hen local government regulates in an area over which it traditionally has
exercised control . . . California courts will presume, absent a clear indication of
preemptive intent from the Legislature, that such regulation is not preempted by state
statute. [Citation.] The presumption against preemption accords with our more general
understanding that ‘it is not to be presumed that the legislature in the enactment of
statutes intends to overthrow long-established principles of law unless such intention is
made clearly to appear either by express declaration or by necessary implication.’
[Citations.]” (Big Creek Lumber Co. v. County of Santa Cruz (2006) 38 Cal. 4th 1139,
9
1149–1150.) “The party claiming that general state law preempts a local ordinance has
the burden of demonstrating preemption.” (Id. at p. 1149.)
In its briefing, the City questions “which of the three kinds of preemption—
contradiction preemption, field preemption, or duplication preemption—[the Coyne
plaintiffs] claim.” The Coyne plaintiffs do not appear to argue that Ordinance 68-15
duplicates the Ellis Act, and the City does not address duplication preemption, finding no
such claim plausible. Rather, the Coyne plaintiffs assert that preemption takes place
when local laws “conflict,” “contradict[],” or are “inimical” to state law, suggesting
contradiction preemption is their core preemption claim. The City rejects this analysis,
arguing neither contradiction preemption nor field preemption invalidates its amended
ordinance. First applying contradiction preemption (or conflict preemption), we consider
whether the enhanced relocation assistance payments provisions of the City’s ordinances
are valid.
B. Local Ordinances Cannot Impose a “Prohibitive Price” on a Landlord’s Ability to
Exit the Residential Rental Business
As a threshold matter, the parties’ briefs to this Court debate the appropriate
analytical standard for evaluating the validity of the enhanced payment requirements
under a contradiction or conflict preemption analysis. The Coyne plaintiffs insist the
standard to use to determine whether the enhanced mitigation payment provisions
conflict with the Ellis Act is a reasonableness standard: They posit, “[W]hen the
mitigation payment is ‘so disproportionately higher . . . that it is necessarily beyond that
contemplated in the Ellis Act,’ ” it is unreasonable and preempted. The superior court in
both underlying cases adopted the reasonableness standard. Meanwhile, the City rejects
reasonableness as the proper standard for our review, asserting that “[u]nder the
contradiction-preemption test, the City is prohibited by the Ellis Act only from enacting a
local law that directly or impliedly ‘compel[s]’ landlords ‘to continue to offer[]’ units for
rent or lease.” Under the City’s compulsion formulation of the contradiction-preemption
test, the proper preemption inquiry is whether the payment obligation impermissibly
compels landlords to remain in the residential rental business.
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Prior to oral argument, we asked the parties to address whether the appropriate
analytical standard for evaluating the plaintiffs’ preemption claim is “whether they
impose a prohibitive price on the landlords exercising their rights under the Ellis Act to
withdraw from the residential rental business.” At oral argument, the City initially
argued there should be no doubt that . . . prohibitive price is the standard. The City
further explained that “prohibitive price is compulsion,” noting that “the City is not
allowed to directly compel landlords to remain in the residential rental business. It is not
allowed to do the same thing indirectly by exacting a price that is so high that landlords
can’t in practice pay it or even that will materially deter them from evicting under the
Ellis Act.” The Coyne plaintiffs ultimately agreed, urging this court to adopt the
prohibitive price framework applied by our colleagues in San Francisco Apartment
Association.
We conclude the prohibitive price standard is the appropriate standard to
determine conflict preemption under the Ellis Act. It is the measure appellate courts
consistently adopt to determine if a challenged ordinance contradicts the state law. (See
Javidzad v. City of Santa Monica (1988) 204 Cal. App. 3d 524, 531 (Javidzad) [ordinance
requiring landlords to obtain permit to remove units from rental market preempted
because criteria for permit “impose[d] a prohibitive price on the exercise of the right
under the [Ellis] Act” (italics added)]; Bullock v. City and County of San Francisco
(1990) 221 Cal. App. 3d 1072, 1101 (Bullock) [city ordinance requiring owner to replace
housing stock or pay in lieu fee in order to convert residential units into hotel units
“impose[d] a prohibitive price on the exercise of [the right to go out of business] under
the [Ellis] Act” (italics added)]; Channing Properties v. City of Berkeley (1992) 11
Cal. App. 4th 88, 99–100 [city ordinance requiring landlords to pay relocation assistance
to all evicted tenants invalid because such payments “might well ‘impose[] a prohibitive
price on the exercise of the right under the [Ellis] Act’ ” (italics added)]; Los Angeles
Lincoln Place Investors, Ltd. v. City of Los Angeles (1997) 54 Cal. App. 4th 53, 64
(Lincoln Place) [city ordinance prohibiting landlords from demolishing withdrawn rental
units absent removal permit that would impose 10-year restriction on property use was an
11
invalid attempt to impose a “prohibitive price on the exercise of the right under the [Ellis]
Act” (italics added)]; Johnson v. City and County of San Francisco (2006) 137
Cal. App. 4th 7, 18 (Johnson) [ordinance requiring landlords to notify their tenants upon
eviction about the relocation payment amount the landlord believes to be due to tenant
invalid for placing “prohibitive price on a landlord’s right to exit the rental market”
(italics added)]; see Pieri, supra, 137 Cal.App.4th at pp. 893–894 [observing “[s]everal
cases have established that a public entity may not impose a prohibitive price on a
landlord’s exercise of the right under the Ellis Act to go out of business” (italics added)];
San Francisco Apartment Assn. v. City and County of San Francisco (2016) 3
Cal.App.5th 463, 482 (San Francisco Apartment Assn.) [“[A] public entity may not
impose an inevitable and undue burden (to wit, a ‘prohibitive price’) on a landlord’s
exercise of its right under the Ellis Act to exit the residential rental business.” (italics
added)].) Accordingly, we will apply the “prohibitive price” standard as broadly
interpreted by the case law to evaluate whether the enhanced payment requirements in the
City’s ordinances are conflict preempted.
C. Payouts Based on the Rental Payment Differential Impose a Prohibitive Price on
Landlords Exiting the Residential Rental Business
Having concluded a local law must survive a “prohibitive price” test to overcome
a conflict preemption challenge under the Ellis Act, our analysis focuses on whether the
City’s newly enacted relocation payment provisions survive that test. We conclude they
do not.
The Coyne plaintiffs assert, “There is no case that supports an extension of the
City’s authority to require prospective rental subsidies under the guise of relocation
assistance.” They contend that “in both character and amount” the recently enacted
relocation assistance payments are “inconsistent with the primary intent of the Act
(insuring a landlord’s right to go out of business).” The City, in its arguments against
field preemption, contends section 7060.1 subdivision (c) of the Government Code gives
it authority to mandate enhanced relocation payments. Section 7060.1(c)’s “safe harbor”
provision authorizes cities to mitigate “any adverse impact” from displacement. (Gov.
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Code, § 7060.1, subd. (c).) Rent hikes are indisputably an adverse impact caused by
eviction, contends the City. The trial court, however, found Ordinance 68-15 to be “not
directed at the adverse impacts caused by a landlord’s decision (i.e., the need to pay
first/last months’ rent and a security deposit and to incur moving expenses)” but
“explicitly implemented to subsidize the payment of rent that a displaced tenant will face
on the open market, regardless of income, and it requires this subsidy for two years.”
Pieri, on which the trial court relied, added reasonableness to its formulation of
the prohibitive price standard. There the court found relocation assistance through some
form of monetary payments to be a proper form of Ellis-Act mitigation under section
7060.1(c). In considering the validity of relocation expenses, Pieri expressly held
“reasonable relocation assistance compensation” to be valid and appropriate exercises of
a public entity’s power to mitigate adverse impacts on displaced tenants under section
7060.1(c). (Pieri, supra, 137 Cal.App.4th at p. 893.)
However, Pieri did not expressly consider the validity of the specific type of
monetary payment required by either Ordinance 54-14 or Ordinance 68-15, namely, the
payouts based on Rental Payment Differentials—the difference between the tenant’s
current rent and the prevailing market-rate rent.4 (S.F. Admin. Code, ch. 37, § 37.9A,
4
People v. H&H Properties (1984) 154 Cal. App. 3d 894, one of the cases
referenced in Pieri, concerned an ordinance with a relocation assistance payment
provision, but we deem it inapplicable. At issue in H&H was a 1980 county ordinance
requiring developers of condominium conversion projects to pay displaced tenants a $500
moving allowance plus relocation assistance in the amount of “$1,000 or at the tenant’s
election, a sum equal to the current monthly rental times the number of years . . . a tenant
has occupied the unit . . . .” (Id. at p. 898, fn. 1.) The H&H court viewed the “formula
compensation for future rent increases” to be a reasonable measure. (Id. at p. 901.)
However, the type of relocation assistance in H&H is distinct from the City’s Rental-
Payment-Differential provisions which are based on higher market rents not attributable
to a property owner’s decision to leave the rental business. Further, since the 1980
ordinance in H&H predated the Ellis Act (enacted in 1985), H&H cannot stand for the
proposition that relocation assistance requirements aimed at addressing future rent
increases are allowed under the Act. H&H did not address a preemption challenge, rather
it only considered whether the ordinance was a reasonable exercise of the county’s police
power. (Ibid.)
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subd. (e)(3)(E).) Indeed, the City acknowledges Pieri had “no occasion to consider any
other kind of mitigation payment” beyond relocation expenses. Other than the federal
district court’s takings analysis in Levin, we have found no case which has reviewed an
Ellis Act mitigation measure like the rental payment differential before us. Levin
described the payment required by Ordinance 54-14 to be “unprecedented in requiring a
massive lump-sum payout from one private party to another in exchange for regaining
possession of property,” further noting “[t]he Court and the parties [were] unable to find
any ordinance, anywhere, that does what San Francisco has attempted to do [with
Ordinance 54-14].” (Levin, supra, 71 F.Supp.3d at pp. 1080, 1089, fn. 8.)
In addressing this new form of mitigation posed by Ordinance 54-14 and
Ordinance 68-15, cases interpreting the Ellis Act are instructive. Ordinances which
condition a landlord’s right to go out of business on compliance with requirements not
found in the Ellis Act have been invalidated because they impose a prohibitive price on a
landlord’s right to go out of business. (See Javidzad, supra, 204 Cal.App.3d at pp. 530,
531 [ordinance preempted “because it impermissibly condition[ed] the landlord’s right to
go out of business on compliance with requirements not found in the [Ellis] Act”];
Lincoln Place, supra, 54 Cal.App.4th at p. 64 [ordinance violated the Ellis Act “because
it impermissibly infringed on the owner’s right to simply go out of the rental business . . .
by refusing to issue a demolition permit based on conditions which are not a part of the
Ellis Act”]; Reidy v. City and County of San Francisco (2004) 123 Cal.App.4th, 580, 593
[ordinance requiring hotel owners to provide replacement units or pay in lieu fee before
being able to remove rental units from market preempted because it “effectively
conditioned the right of a [San Francisco] hotel owner to go out of the rental business” on
compliance with requirements not found in the Ellis Act].)
In Bullock, this District rejected an ordinance requiring residential hotel owners to
agree to replace their residential hotel units or to contribute to an “in lieu” fee to a city
fund before they could secure a permit necessary to convert their units into hotel units for
14
tourists. (Bullock, supra, 221 Cal.App.3d at pp. 1080–1081, 1099–1100.)5 The court
stated, “The Ellis Act does not permit the City to condition plaintiff's departure upon the
payment of ransom. [¶] To allow the City to so enlarge the concept of mitigation that it
prevents plaintiff from exercising his right to go out of business would make the Ellis Act
a dead letter except for those owners fortunate enough to have no tenants to displace.”
(Id. at p. 1101.)
Most recently, in San Francisco Apartment Association, this District concluded
the Ellis Act preempted a San Francisco ordinance requiring a landlord to wait 10 years
to merge a withdrawn rental unit into one or more other units. (San Francisco Apartment
Assn., supra, 3 Cal.App.5th at p. 469.) In the court’s view, the 10-year waiting period
“impose[d] a penalty on the very class entitled to protection under the Ellis Act . . .
landowners seeking to exit the residential rental business.” (Id. at p. 480.) The court
found the ordinance “in effect, barred landowners from using their property if their
proposed [subsequent] use involves merging a withdrawn unit with another” and
“construct[ed] an inevitable substantive barrier to the statutorily protected right of a
landlord to leave the residential rental business.” (Id. at pp. 482–484.)
Like provisions in past City-enacted ordinances which have been invalidated, the
City’s Rental Payment Differential obligation places conditions on a landlord’s right to
go out of business that are not found in the Ellis Act. The Ellis Act contains no
requirement that obliges a landlord to pay their former tenants future rental subsidies so
that they can leave the residential rental business. In considering the substantial in lieu
payment to a City fund that was part of the challenged ordinance in Bullock, we stated,
“[t]he Ellis Act does not permit the City to condition plaintiff’s departure upon the
payment of a ransom.” (Bullock, supra, 221 Cal.App.3d at p. 1101.) We see the
5
Bullock also refers to “relocation assistance” provisions to hotel residents in the
conversion ordinance, amounting to “a displacement allowance of $1,000 per displaced
person” and “actual moving expenses not to exceed $300.” (Id. at p. 1101, fn. 19.)
However, these relocation assistances costs were not placed in issue since the “plaintiff
advised the trial court of his willingness to comply with this requirement.” (Id. at
p. 1101.)
15
increased rent payment the City’s ordinances obligate landlords to pay their former
tenants as a form of ransom which interferes with and places an undue burden on
landlords who seek simply to go out of business. We also view the payouts of two years
of ongoing rental subsidies—whether or not they reach the $50,000 ceiling set by
Ordinance 68-15—as a penalty akin to the 10-year pre-merger wait period invalidated in
San Francisco Apartment Association. The Rental Payment Differential obligation
imposes a prohibitive price on the ability of landlords to exercise their rights under the
Ellis Act.
To preserve its ordinances, the City relies on the safe harbor clause in Government
Code section 7060.1, subdivision (c), a savings clause in the Ellis Act which preserves
local authority to mitigate “any adverse impact on persons displaced by reason of the
withdrawal from rent or lease of any accommodations.” (Gov. Code, § 7060.1,
subd. (c).) The City argues the rent hike a tenant experiences upon losing a rent-
controlled tenancy “is an adverse impact caused by eviction,” noting “any argument to
the contrary flies in the face of common sense” and that it “defies language to claim that
a rent increase is not an ‘adverse impact’ of eviction.” The superior court declined to
endorse the City’s logic; it found spiraling rents had no relationship to the adverse
impacts caused by a landlord’s decision to exit the rental market.
Like the City, we recognize that tenants who have benefitted from the price
controls of rent control will likely face dramatically higher market-rate rents for
comparable units. But we disagree with the City’s analysis that attributes a tenant’s
future increased rent in new housing to his landlord’s decision to exercise Ellis Act
rights. This analysis ignores the impact of the City’s policy decision to impose
residential rent control, creating a rent differential. That policy purposefully causes a
tenant’s rent to be artificially below market rate, a gap that could be expected to increase
with the length of the tenancy. For rent-controlled units, a property owner cannot raise
rents beyond the allowable annual rent increases set forth in San Francisco
Administrative Code, chapter 37, section 37.3 et seq., and California Civil Code section
1954.53, subdivision (a)(1). As the City recognizes, “the high price of market-rate
16
housing” a tenant faces upon eviction as permitted by the Ellis Act is “the most
immediate consequence,” a common sense impact, of the artificially low rents a tenant
pays as a provided by City-enacted rent control. In our view, the City’s presumption that
spiraling rents and high housing prices in San Francisco are an adverse impact of
individual evictions statutorily permitted under the Ellis Act is a faulty one. Absent this
connection, ongoing rental subsidy payments indisputably enlarge the concept of
mitigation in a manner not authorized by the savings clause.
Moreover, savings clauses like the one the City relies upon for its authority “are
usually strictly construed. [¶] . . . [¶] [C]ourts have refused to interpret savings clauses
in a manner that would authorize activity that directly conflicts with the statutory scheme
containing the savings clause.” (City of Dana Point v. California Coastal Com. (2013)
217 Cal. App. 4th 170, 195, 203.) A local government’s powers to mitigate are not
without limits and cannot be enlarged in such a way to prevent a property owner from
exercising her Ellis Act rights. (See Bullock, supra, 221 Cal.App.3d at p. 1101
[circumscribing concept of mitigation by rejecting ordinance provisions that would
“require [an] owner to make expenditures that benefit society at large”].) Section 7060.1,
subdivision (c) of the Government Code does not allow the City to disregard landlord
rights set forth in the Ellis Act in the name of mitigation.
The City also points to California and federal law allowing tenants who are
displaced by eminent domain to receive payments based on their higher housing costs
following displacement to justify both the type and duration of its newly added payouts.
California law, for example, requires that tenants displaced due to eminent domain
receive 42 months of rent subsidies not to exceed $5,250 total. (Gov. Code, § 7264,
subd. (b).) We view these eminent domain laws as inapposite. In eminent domain,
governments draw on public funds to pay just compensation for property they take to
ensure that particular private parties do not have to shoulder what should be public
burdens. (Armstrong v. United States (1960) 364 U.S. 40, 49.) Unlike eminent domain,
the City’s ordinances place the burden of paying rent subsidies to displaced tenants, to
advance the City’s public policy objective, on the shoulders of certain private parties who
17
do not draw on public funds to pay the subsidies. Our prohibitive price analysis reflects
this distinction. A property owner’s lawful decision to withdraw from the rental market
may not be frustrated by burdensome monetary exactions from the owners to fund the
City’s policy goals.
The City also argues that a decision which results in some mitigation payments
being approved (e.g., the relocation assistance in Pieri) but not others (e.g., the rental
subsidies at issue here) effectively writes into the Ellis Act a new restriction in violation
of the “cardinal rule of statutory construction that courts must not add provisions to
statutes.” The principle of statutory construction cited by the City is codified in section
1858 of the Code of Civil Procedure, which provides that a court must not “insert what
has been omitted” from a statute. (Code Civ. Proc., § 1858.) That same provision
begins, “In the construction of a statute . . . , the office of the Judge is simply to ascertain
and declare what is in terms or in substance contained therein.” (Ibid.) “[I]t is the duty
of the courts within the framework of the statutes, to interpret them so as to make them
workable and reasonable.” (Golden v. City of Oakland (1975) 49 Cal. App. 3d 284, 288.)
We disagree with the City’s contention that our analysis will add new restrictions to the
Ellis Act; our decision does not go beyond interpreting the savings clause the Legislature
included in the statute.
Finally, we need not address the City’s concern that its ordinance cannot be
preempted on a facial challenge given the range of potential mitigation payments
possible. The City complains that the Coyne plaintiffs “have never attempted to show
that all or most landlords will be unable to exercise their Ellis Act rights if the [a]mended
[o]rdinance is upheld.” Citing Tobe v. City of Santa Ana (1995) 9 Cal. 4th 1069, the City
recognizes that “[a] facial challenge to the constitutional validity of a statute or ordinance
considers only the text of the measure itself, not its application to the particular
circumstances of an individual.” (Id. at p. 1084.) Our decision invalidating the City’s
enhanced relocation payment requirements of these ordinances does not apply the City’s
ordinances to any plaintiff or other individual and depends not at all on whether a
landlord owes an evicted tenant one dollar over the $4,500 per-person-maximum-
18
relocation payment currently due an evictee under Ordinance 21-05 (before adjusting for
inflation). It does not consider whether a landlord must pay the $50,000 maximum
Ordinance 68-15 allows. Rather, we conclude the City’s enhanced relocation payment
regulations are on their face preempted as categorical infringements which impose a
prohibitive price on a landlord’s right to exercise his rights to go out of the residential
rental business. Because there is no set of circumstances under which we view this type
of payout obligation as valid, we make no conclusions about their application or what
particular relocation payment threshold imposes a prohibitive price.
D. The City’s Additional Procedural Requirements May Also Impose a Prohibitive Price
on Landlords Withdrawing from the Residential Rental Business
The Coyne plaintiffs also challenge new procedural requirements in the City’s
ordinances. They contend the declaration process, the fee calculation process, the
hardship adjustment petition procedure, and the three-year monitoring period in the
ordinances are themselves facially preempted. And the Coyne plaintiffs dispute the
City’s contention that by creating procedures to mitigate the potential financial hardship
of the challenged ordinances, the City avoids preemption.
In light of our decision invalidating the Rental-Payment-Differential provisions as
preempted, we recognize that we need not address these challenged procedural
requirements of the ordinances, all of which stem from and are triggered by the enhanced
relocation payment provisions. Nevertheless, we express our concern about the validity
of such procedures, should the parties consider the enactment of similar remedies in
future efforts to mitigate the adverse effects of Ellis Act evictions.
We observe ordinances which have inserted additional notification requirements
and other procedural elements into the Ellis Act eviction process have previously failed.
For instance, in Johnson, this District considered an ordinance requiring landlords to
inform evicted tenants whether they believed those tenants were owed increased
relocation payment based on their age or disability. (Johnson, supra, 137 Cal.App.4th at
p. 16.) The court ruled it was preempted because “it create[d] a substantive defense in
eviction proceedings not contemplated by the Act.” (Id. at p. 18, fn. omitted.) In
19
reaching this decision, Johnson reviewed the Ellis Act’s provisions regarding notice
requirements to tenants6 and observed, “By carefully spelling out certain types of notice
which public entities may require, the Act clearly indicates that only these types are
authorized and other, additional notice requirements are not permissible.” (Id. at p. 16.)
The court also considered several ways a landlord’s statements under the “belief
requirement” could complicate unlawful detainer proceedings by resulting in tenant
challenges to the accuracy of the landlord’s belief or tenant claims against the landlord if
the landlord mistakenly suggests the tenant has a disability. (Id. at p. 17.) The court
deemed the “belief requirement” placed a “prohibitive price on a landlord’s right to exit
the rental market.” (Id. at p. 18.)
Similarly, the mandatory declaration process and fee calculation requirements in
Ordinance 68-15 also may impose a prohibitive price on landlords seeking to leave the
residential rental business.
The tenant declaration requirement added by Ordinance 68-15 obligates a
withdrawing property owner to provide a tenant with a declaration form and notify the
tenant that the landlord does not have an obligation to make any portion of the relocation
payment prior to the landlord’s receipt of the declaration. (S.F. Admin. Code, ch. 37,
§ 37.9A, subd. (e)(3)(E)(iv).) Presuming the tenant will return the signed declaration to
the landlord, the ordinance gives the tenant control over the timing and return of the
declaration and thereby invites added delay to the process. In our view, the tenant
declaration and accompanying notice requirement resemble the requirement struck down
in Johnson that landlords give notice of the payment amount they believed they owed
their tenants. (Johnson, supra, 137 Cal.App.4th at p. 11.)
The fee calculation process also may present an unauthorized procedural
prerequisite to the exercise of the Ellis Act right to withdraw. Under Ordinance 68-15,
6
Section 7060.4, subdivision (c) of the Government Code sets forth the subject
matters about which landlords must notify evicted tenants. These include notice to the
tenant of certain rights under the Ellis Act and notice that the tenant, if disabled or
elderly, is entitled to extend her tenancy by a year in certain circumstances. (See Gov.
Code, § 7060.4, subd. (c).)
20
landlords who are subject to a Rental-Payment-Differential payout for their withdrawn
rentals, are required to determine the correct amount due their tenants. (S.F. Admin.
Code, ch. 37, § 37.9A, subd. (e)(3)(E)(i).) To determine the correct amount, landlords
must first perform certain calculations; to do so landlords must know the number of
bedrooms in a unit, which turns on whether a “space is used primarily as a quarters for
sleeping.” (S.F. Admin. Code, ch. 37, § 37.9A, subds. (e)(3)(E)(ii) & (e)(3)(E)(vi)(a).)
Like the “belief requirement” in Johnson, this fee calculation requirement amounts to
guesswork for landlords which can lead to an underpayment to tenants if calculated
incorrectly and a substantive defense to an Ellis Act eviction based on such procedural
noncompliance. (See Johnson, supra, 137 Cal.App.4th at p. 18.) In short, each of these
new processes appears to place requirements on landlords inconsistent with their
unfettered right to go out of business.
We note similar concerns for the non-mandatory procedures set forth in the
amended ordinances—the hardship adjustment petition process enacted in the Ordinance
54-14, and left undisturbed by Ordinance 68-15 and the three-year monitoring period
Ordinance 68-15 makes available to landlords to monitor the relocation expenses of their
former tenants. These, too, appear to delay the ability of landowners availing themselves
of these procedures to leave the rental business and cloud their exits with uncertainty.
The hardship petition process sets up the manner in which property owners seek
relief from the Rent Board if the relocation payments cause financial hardship. (S.F.
Admin. Code, ch. 37, § 37.9A, subd. (e)(3)(G)(i).) Landlords can submit a range of
evidence—their income, assets, expenses, debts, health, and health care costs—to the
Rent Board, which may reduce the payout or order other relief. (Ibid.) The ordinance
contains no information about the standard, if any, the Rent Board would use to evaluate
such a petition, or the duration of such a proceeding. Inasmuch as the showing landlords
must make to successfully establish entitlement to hardship relief is ambiguous and ripe
to be challenged, this process adds further delay to the Ellis Act process. Forcing an
owner to endure an uncertain administrative procedure of unknown duration requiring the
21
disclosure of sensitive personal information simply to find out whether relocation
payments are financially prohibitive may impose a prohibitive price on Ellis Act rights.
The three-year monitoring period requires evicted tenants to document their
relocation expenses by keeping receipts and providing them to their former landlords
upon request or else reimburse landlords for any payments the tenant cannot demonstrate
were used for allowable Relocation Costs. (S.F. Admin. Code, ch. 37, § 37.9A, subd.
(e)(3)(E)(v).) This monitoring option may also impose a prohibitive price on landlords
seeking to leave the residential rental business. Landlords wanting to avail themselves of
this process, to ensure the thousands of dollars they are obligated to pay their displaced
tenants are properly spent, must undertake this burdensome procedure which binds
landlords to their tenants for a lengthy three-year audit period—a process antithetical to
going out of the landlord business completely. While a landlord may cease being a
landlord in the technical sense, this provision means the business would remain on a long
leash for several years.
We understand that the hardship petition process and the three-year monitoring
period are non-mandatory and that landlords maintain the discretion to exercise these
rights. Nonetheless, “a locality may not impose additional burdensome requirements
upon the exercise of state statutory remedies that undermine the very purpose of the state
statute.” American Financial Services Assn. v. City of Oakland (2005) 34 Cal. 4th 1239,
1273.) Agreeing with the Coyne plaintiffs, the City itself acknowledges, “[I]f the
administrative relief provisions were so time-consuming in practice that they prohibited
landlords from carrying out evictions within the time frames specified by the Ellis Act
(§ 7060.5), then the Amended Ordinance would be unlawful as applied to landlords who
qualified for administrative relief.” The discretion afforded to landlords in deciding
whether to utilize such remedies may not render such procedures exempt from a
preemption challenge.
Based on our decision invalidating the challenged relocation payment provisions,
we do not address the several remaining arguments raised by the parties with respect to
field preemption and preemption by state unlawful detainer statutes; “irreconcilable
22
conflict” with state law; or the retroactive application of the ordinances. Our decision
makes further analysis unnecessary. Also, because “[c]onstitutional issues will be
resolved only if absolutely necessary and not if the case can be decided on any other
ground,” we refrain from considering the parties’ due process, privacy, and takings
arguments. (Community Redevelopment Agency v. Force Electronics (1997) 55
Cal. App. 4th 622, 630.)
DISPOSITION
The superior court judgments are affirmed.
23
_________________________
Jones, P. J.
We concur:
_________________________
Simons, J.
_________________________
Needham, J.
A145044, A146569
24
Martin J. Coyne et al., v. City and County of San Francisco (A145044 & A146569)
Trial Court: San Francisco County Superior Court
Trial Judge: Hon. Ronald E. Quidachay
Counsel:
Dennis Jose Herrera, City Attorney, Wayne Kessler Snodgrass and Christine Van Aken,
Deputy City Attorneys, for Defendant and Appellant.
Zacks, Freedman & Patterson, Emily H. Lowther and Andrew Mayer Zacks for Plaintiffs
and Respondents.
J. David Breemer and Caleb R. Trotter for Pacific Legal Foundation as Amicus Curiae on
behalf of Respondents.
Nielsen, Merksamer, Parrinello Gross & Leoni, James Richard Parrinello, Christopher
Elliott Skinnell and James W. Carson for San Francisco Apartment Association, The
Coalition For Better Housing and The San Francisco Association of Realtors as Amici
Curiae on behalf of Respondents.
25