Landlords Lose Again as Court Sets New Due Process Standard
The California Supreme Court has dealt a setback to property rights advocates and outlined a new standard for proving that a government agency violated a property owner's federal due process rights. On a 5-2 decision, the court held that a landlord who is subject to a mobilehome rent control ordinance can receive compensation under the federal Civil Rights Act (42 U.S.C. Section 1983) only if the government deliberately flouts the law.
"[N]ot every government action that fails to measure up to the ideal of a fair and efficient rent control proceeding inflicts a constitutional injury. Only those government actions that amount to a deliberate flouting of the law qualify for relief under Section 1983," Justice Stanley Mosk wrote.
In a sharp dissent, Justice Janice Rogers Brown wrote, "In the latest of a series of decisions rejecting the claims of property owners, the court now refuses to enforce federal civil rights remedies when it comes to confiscatory regulations."
The case stems from a long-running feud between the owner of a 260-space mobilehome park, and the City of Clovis. The source of the friction is the city's mobilehome rent control ordinance that was in effect from 1978 to 1993. During the 1980s, owner Roger Galland challenged the constitutionality of the ordinance and twice sued over the amount of rent increases approved by the city. He lost every round at the appellate level and, in an unpublished opinion, was sanctioned by the court for a frivolous appeal.
Galland filed for new rent increases in April 1988, June 1989 and January 1990. During proceedings that lasted several years, the city rejected the 1988 request, and granted portions of the 1989 and 1990 rent hikes – but not until 1992.
In May 1990, Galland sued the city for damages for inverse condemnation, for denial of substantive and procedural due process under the state and federal constitutions, and for Section 1983 violations. He argued that Clovis's application of its rent control ordinance amounted to a regulatory taking and that the City Council and the Mobile Home Rent Review Commission denied him a fair hearing.
In 1994, Fresno County Superior Court Judge Gary Ray Kerkorian found that the manner in which the city administered its ordinance violated Galland's due process rights, although Kerkorian held that the violation did not support an inverse condemnation claim. But, after hearings on liability and damages, Kerkorian did conclude that Galland was entitled to Section 1983 damages because the city did not grant the landlord a fair rate of return. The judge awarded Galland $236,000 in lost rents from 1989 through March 1995, and more than $700,000 in legal and administrative costs.
The Fifth District Court of Appeal upheld the lower court. However, the state Supreme Court overturned the decision and remanded the case back to the trial court.
According to Justice Mosk's analysis, Galland brought two distinct due process claims under Section 1983. The first stemmed from the city's failure to grant rent increases, resulting in confiscatorily low rents. The second claim related to the excessive procedural costs Galland said he had to pay in order to obtain a rent increase.
Mosk based his opinion in part on the court's decision in Kavanau v. Santa Monica Rent Control Bd., (1997) 16 Cal.4th 761. In Kavanau, a takings case, the court held that a landlord challenging a rent ceiling as confiscatory must first ask the regulatory agency for a future rent adjustment to compensate for previous losses – a "Kavanau" adjustment. Mosk extended the same theory to Galland's due process claims.
"When landlords seek Section 1983 damages from allegedly confiscatory rent regulation, we hold that they must show (1) that a confiscatory rent ceiling or other rent regulation was imposed and (2) that relief via a writ of mandate and a Kavanau adjustment is inadequate," Mosk wrote.
The state Supreme Court remanded those issues to the trial court, directing the court to determine whether the rent ceilings "were within the constitutionally permitted broad zone of reasonableness." If Galland can prove the rent ceiling was confiscatory, "it is for Clovis to attempt on remand to adjust rent ceilings to compensate for lost rents, and for the trial court to review whether such adjustments are adequate to meet the constitutional standard for a fair return," Mosk wrote. If the Kavanau adjustment proves inadequate, Galland can file a Section 1983 action. Plus, Mosk wrote, the city and court must consider the administrative expenses the city imposed on Galland when considering the Kavanau adjustment.
As to Galland's claim of excessive procedural costs, Mosk said the claim was really more substantive that procedural because Galland's alleged injury stemmed from the city's demands for extensive financial records and analyses, which Galland contended were arbitrary and irrational.
"The question, then, is whether Clovis's actions during the rent adjustment hearings of 1988 to 1990, independent of the outcome of those hearings … violated the Gallands' substantive due process rights," Mosk wrote.
That question was remanded to the trial court, but this is where the State Supreme Court set its new standard, based partly on County of Sacramento v. Lewis, (1998) 523 U.S 833, and partly on Silverman v. Barry, (D.C. Circuit 1988) 845 F.2d 1072.
"In cases such as the present," Mosk wrote, "a deliberate flouting of the law may be said to have occurred if the city's demands for information and other procedural demands were so excessive and irrelevant to the regulatory task at hand as to lead a court to conclude that such demands were imposed not in order to obtain more information or increase the reliability of the eventual decision, but rather to obstruct or discourage landlords from either requesting or obtaining reasonable rent increases to which they are constitutionally entitled. We emphasize, however, that something more than mere ‘bureaucratic bungling' is required."
Joining Mosk's opinion were Chief Justice Ronald George, and Associate Justices Ming Chin, Joyce Kennard, and Kathryn Werdegar. First District Court of Appeal Justice Barbara Jones, sitting pro tem for a recused Justice Marvin Baxter, filed a concurring and dissenting opinion.
In her dissent, Brown suggested the court was picking on property owners. It might look more favorably on the victim in a classic civil rights case, such as a black firefighter who has been denied promotions or raises in a city with a history of discrimination, she wrote.
"Would this court reverse and tell the firefighter: You have no remedy under Section 1983; instead, you have to go back to the city and petition for extra promotions and raises that will diffuse the incipient constitutional violation?" Brown wrote.
Roger Galland v. City of Clovis, No. S080670, 01 C.D.O.S. 1034, 2001 Daily Journal, D.A.R. 1313, filed February 5, 2001.
For Galland: Jaquelynn Pope, (310) 379-3410.
For the city: David J Wolfe, Lozano Smith, (559) 431-5600.