Koontz and San Francisco Rent ControlPosted: October 26, 2014
The mischief threatened by the Supreme Court’s strikingly incoherent decision in Koontz v. St John’s Water Management District continues to reverberate in the lower courts. The latest for instance is the October 21, 2014, decision by the federal District Court for the Northern District of California in Levin v. City & County of San Francisco. The Court (Breyer, Charles, J.) ruled that a recently enacted San Francisco ordinance requiring landlords who withdraw from the rent-controlled rental market to make a lump sum payment to displaced tenants constitutes a taking under the Nollan/Dolan/Koontz trifecta.
San Francisco suffers from a famously high-cost housing market which imposes particular burdens on the elderly and the less than well-heeled. To address this problem, San Francisco has long maintained comprehensive rent control regulations on residential housing. In July, 2014, in order to provide additional protection to tenants threatened with displacement, the City and County of San Francisco adopted a new ordinance effectively requiring landlords to pay evicted tenants two years’ worth of the difference between their current rent and the market rent for a comparable unit. Several landlords, represented by the Pacific Legal Foundation, sued based on the Takings Clause.
The District Court awarded the plaintiffs a sweeping victory (so sweeping in fact that the decision appears to offer a potpourri of issues for appeal). The Court quickly rejected San Francisco’s ripeness defense, as well as the plaintiffs’ argument that the ordinance was an illegitimate taking for “private use,” But the Court then went on to rule in favor of the plaintiffs on their claim that the new ordinance, on its face, violated the Nollan/Dolan standards. Relying on Koontz , the Court said that the Nollan/Dolan tests apply to a monetary payment requirement in the same fashion that they apply to an actual physical taking or appropriation. Then, applying a seemingly overly expansive version of the Nollan/Dolan tests, the Court ruled that the ordinance flunked both the Nolan “essential nexus” test and the Dolan “rough proportionality” test. Accordingly, the Court said, the ordinance resulted in an “impermissible” taking.
A fundamental question is how Nollan/Dolan standards can even be relevant to a requirement to pay out money, given that the Nollan and Dolan decisions rest on the premise that they can only apply when the condition considered independently would constitute a per se taking, and a majority of the Court has said (most notably in the well-known Eastern Enterprises case), and apparently still maintains (as evidenced by Koontz itself), that a bare government demand for money is never a taking. much less a per se taking. The answer is because the Koontz majority has said so, and it is apparently not for them to reason why in light of prior precedent. At least that is the regrettable situation we are stuck with for the time being.
But the District Court decision presents a host of other problems. The District Court breezed past binding Ninth Circuit precedent and a host of other decisions from other jurisdictions holding that exactions implemented through general legislation, as in this case, are not governed by Nollan and Dolan. And even if Nollan applies, how can it be plausible to contend that an ordinance that serves to deter conversions of rental apartments, or at least provide funds to soften the economic burden of getting new housing, does not serve the regulatory purpose of making housing more affordable? And how can the ordinance, on its face, fail the Dolan test, given the District Court’s admission that in some cases the required payment from the landlord would be only “minimal?” Among other questions.
On to the appeal.