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Norman T. Larson et al v. City and County of San Francisco

February 23, 2011

NORMAN T. LARSON ET AL., PLAINTIFFS AND APPELLANTS,
v.
CITY AND COUNTY OF SAN FRANCISCO, DEFENDANT AND APPELLANT.



City & County of San Francisco Super. Ct. No. 08-509083

The opinion of the court was delivered by: Banke, J.

CERTIFIED FOR PUBLICATION

I. INTRODUCTION

Appellants Norman T. Larson, San Francisco Apartment Association, San Francisco Association of Realtors, Coalition for Better Housing, Round Hill Pacific, and John Zanghi (appellants) challenge provisions of Proposition M, a voter-approved initiative amending San Francisco's Residential Rent Stabilization and Arbitration Oridinance (hereafter, the Rent Ordinance). Proposition M augmented the antiharassment provisions of the ordinance by expanding the definition of "decrease in [housing] services" to include a list of "bad faith" acts by landlords and their agents--ranging from violating any state or local antidiscrimination law, to failing to cash a rent check within 30 days, to interfering with a tenant's right to privacy. Upon finding any such harassment and thereby a "decrease in [housing] services," the San Francisco Rent Board (Board) can order a reduction in rent. By how much and for how long is not specified in the proposition, nor are any criteria provided for making such determinations. Proposition M also added an attorney fees provision to the Rent Ordinance, mandating an award of fees to a prevailing tenant in an unlawful detainer case brought under state law.

The trial court upheld the decrease in housing services provisions of Proposition M, except for one phrase which is no longer at issue, but invalidated the attorney fees provision. Appellants appeal as to the decrease in housing services provisions of the proposition. The City and County of San Francisco (City) cross-appeals as to the attorney fees provision. We reverse, in part, and affirm, in part.

II. FACTUAL AND PROCEDURAL BACKGROUND

In November 2008, San Francisco voters approved Proposition M, an initiative measure that amended the City's Rent Ordinance (S.F. Admin. Code, § 37.1 et. seq.).*fn1 The voter materials stated the amendments were necessary to ensure property owners do not abuse their statutory rights under the Costa-Hawkins Rental Housing Act (hereafter Costa-Hawkins Act; Civ. Code, § 1954.50 et seq.), which was enacted in 1995, to raise rent to market rates on vacated units. The voter materials described several reports of harassing conduct aimed at getting tenants to move.

Prior to the passage of Proposition M, the City's Rent Ordinance defined "housing services" as follows: "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."*fn2 (Former § 37, subd. (g).)

Proposition M added to this definition of "Housing Services," the "quiet enjoyment of the premises, without harassment by the landlord as provided in Section 10B." (§ 37.2, subd. (g).)

New section 37.10B lists more than a dozen prohibited acts of "harassment." It provides: "No landlord, and no agent, contractor, subcontractor or employee of the landlord shall do any of the following, bad faith or with ulterior motive or without honest intent. [¶] (1) Interrupt, terminate or fail to provide housing services required by contract or by State, County or local housing health or safety laws; [¶] (2) Fail to perform repairs and maintenance required by contract or by State, County or local housing, health or safety laws. [¶] (3) Fail to exercise due diligence in completing repairs and maintenance once undertaken or fail 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) Abuse the landlord's right of access into a rental housing unit as that right is provided by law; [¶] (5) Influence or attempt to influence a tenant to vacate a rental housing unit through fraud, intimidation or coercion; [¶] (6) Attempts to coerce the tenant to vacate with offer(s) of payments to vacate which are accompanied with threats or intimidation; [¶] (7) Continue 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) Threaten the tenant, by word or gesture, with physical harm; [¶] (9) Violate 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) Interfere with a tenants right to quiet use and enjoyment of a rental housing unit as that right is defined by California law; [¶] (11) Refuse to accept or acknowledge receipt of a tenant's lawful rent payment; [¶] (12) Refuse to cash a rent check for over 30 days; [¶] (13) Interfere with a tenant's right to privacy. [¶] (14) Request information that violates a tenant's right to privacy, including but not limited to residence or citizenship status or social security number. [¶] (15) Other 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." (§ 37.10B, subd. (a).)

The proposition further specified any conduct violating new section 37.10B constitutes a "substantial and significant decrease in services as defined in Section 37.2[, subdivision] (g) and tenants may file a petition with the Rent Board for a reduction in rent." (§ 37.10B, subd. (c)(1).) According to the voter materials, Proposition M thus provided tenants "a simple mechanism to stop harassment at the Rent Board, without lawyers or lawsuits."

Proposition M also provided for a civil remedy. A lawsuit can be initiated by "any person, including the City" against "[a]ny person who violates or aids or incites another person to violate" the provisions of section 37.10B. (§ 37.10B, subd. (c)(5).) In such action, "[a]ny person who violates or aids or incites another person to violate the provisions of this Section 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) . . . ." (Ibid.) In addition, the proposition provided any violation of section 37.10B is a misdemeanor, punishable by a fine of up to $1,000 and six months in the county jail. (Id., subd. (c)(2).)

Proposition M also added a mandatory cost and attorney fees provision to the Rent Ordinance, which states: "In any action to recover possession of a rental unit subject to the Chapter, unless the sole basis of the notice to quit is Section 37.9[, subdivision] (b),[*fn3 ] the court shall award the tenant reasonable attorney fees and costs incurred in defending the action upon a finding that the tenant is the prevailing party under Code of Civil Procedure section 1032[, subdivision] (a)(4)." (§ 37.10B, subd. (c)(6).)

Appellants filed a combined petition for writ of ordinary mandamus and complaint for declaratory relief challenging Proposition M on a number of grounds, including that the expanded decrease in housing services provisions violate the judicial powers clause of the California Constitution (Cal. Const., art. VI, § 1) and infringe on constitutionally protected speech rights, and the mandatory, tenant-only cost and attorney fees provision violates equal protection rights.

The trial court granted the petition and complaint in part. The court struck from new section 37.10B the prefatory phrase "with ulterior motive or without honest intent" on the ground it was undefined and failed to give adequate notice as to the nature of the conduct prohibited. In all other respects, the court upheld the decrease in housing services provisions. The court invalidated the cost and attorney fees provision on the ground it violated the equal protection clause. Appellants filed a timely notice of appeal as to all adverse portions of the judgment. The City filed a cross-appeal as to that portion of the judgment invalidating the cost and attorney fees provision.

III. DISCUSSION

A. The Judicial Powers Clause

Appellants contend Proposition M unlawfully invested the Board with judicial power in violation of the judicial powers clause of the California Constitution (Cal. Const., art. VI, § 1.) Specifically, they assert the expanded definition of "decrease in [housing] services" embracing the list of prohibited acts set forth in new section 37.10B, combined with the authority of the Board to order a reduction in rent of an unspecified amount and for an unspecified duration, effectively invests the Board with the power reserved to the judiciary to adjudicate tortious conduct and award general damages. We agree in part.*fn4 As to section 37.10B, subdivision (a)(1), (2) and (3), we conclude a facial challenge fails. As to section 37.10B, subdivision (a)(4) through (15), we conclude Proposition M violates the judicial powers clause to the extent it empowers the Board to order rent reductions for the conduct prohibited by this subdivision.

San Francisco is not the only rent control jurisdiction to enact tenant antiharassment provisions in the wake of the Costa-Hawkins Act (Civ. Code, § 1954.50 et seq.), which allows owners to raise rent to market rates on vacated units. (See, e.g., Action Apartment Assn., Inc. v. City of Santa Monica (2007) 41 Cal.4th 1232, 1237-1238 [61 Cal.Rptr.3d 398, 163 P.3d 89] [invalidating certain provisions of Santa Monica's tenant antiharassment ordinance enacted after reports of increased tenant harassment following passage of the Costa-Hawkins Act].) However, the approach taken by San Francisco in Proposition M stands in marked contrast to the approach taken by other municipalities.

While other rent control jurisdictions have prohibited certain actions by landlords aimed at dislodging tenants in order to increase rents to market rates, no other municipality deems such conduct to constitute a "decrease in [housing] services" for which a rent board can order a reduction in rent. Rather, other municipalities define a decrease in housing services as a type of harassment--not vice versa. (E.g., West Hollywood Mun. Code, § 17.52.090, Santa Monica Mun. Code, pts. 4.56.010, 4.56.020 [harassment includes an interruption, termination, or failure to provide housing services if done with malice]; Berkeley Rent Stabilization Board Regs., Charter 10, 1013(G)(2)(c)(iii) [harassment includes a "[r]eduction in housing services under circumstances evidencing the landlord's purpose to cause the tenant to vacate a controlled rental unit"].) Moreover, 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). (E.g., Santa Monica Mun. Code, pt. 4.56.040; West Hollywood Mun. Code, § 17.68.010; see also Berkeley Mun. Code, § 13.76.150.)*fn5

We now turn to the governing law. Article VI, section 1, of the California Constitution provides: "The judicial power of this State is vested in the Supreme Court, courts of appeal, and superior courts . . . ." (Cal. Const., art. VI, § 1.) "[A]gencies not vested by the Constitution with judicial powers may not exercise such powers." (McHugh v. Santa Monica Rent Control Bd. (1989) 49 Cal.3d 348, 356 [261 Cal.Rptr. 318, 777 P.2d 91] (McHugh).)

In McHugh, the Supreme Court considered whether the power of Santa Monica's rent board to adjudicate excess rent claims and award treble damages violated the judicial powers clause. (McHugh, supra, 49 Cal.3d at p. 359.) In canvassing the applicable legal principles, the court articulated the following standard for evaluating judicial powers challenges to adjudicatory administrative action: "An administrative agency may constitutionally hold hearings, determine facts, apply the law to those facts, and order relief--including certain types of monetary relief--so long as (i) such activities are authorized by statute or legislation and are reasonably necessary to effectuate the administrative agency's primary, legitimate regulatory purposes, and (ii) the 'essential' judicial power (i.e., the power to make enforceable, binding judgments) remains ultimately in the courts, through review of agency determinations." (Id. at p. 372, italics omitted.)

The court held the rent board could adjudicate excess rent claims and order restitution of any excess rent since such actions were authorized by the city ordinance and reasonably necessary to accomplish the board's legitimate regulatory purposes--the setting and regulating of maximum rents in the local housing market. (McHugh, supra, 49 Cal.3d at p. 375.) The board could not, however, order the immediate withholding of excess rent because such action effectively foreclosed judicial review and thus represented "an unwarranted intrusion into the power of the courts to 'check' administrative adjudications." (Id. at pp. 376-377.) Nor could the board impose treble damages, in contrast to awarding " 'restitutive' excess rent amounts." (Id. at pp. 378-379.) There was "no reason to believe" other regulatory remedies, such as fines and penalties, or costs and attorney fees, would be "insufficient" to secure compliance with the ordinance. (Id. at p. 379.) "Most significantly," the power to award treble damages posed "a risk of producing arbitrary, disproportionate results that magnify, beyond acceptable risks, the possibility of arbitrariness inherent in any scheme of administrative adjudication." (Ibid.)

The Supreme Court elaborated further on the judicial powers clause in Walnut Creek Manor v. Fair Employment and Housing Commission (1991) 54 Cal.3d 245 [284 Cal.Rptr. 718, 814 P.2d 704] (Walnut Creek Manor). In Walnut Creek Manor, the court considered whether the Fair Employment and Housing Commission could, under the then-operative statutory scheme, award general compensatory damages, including for emotional distress. (Id. at pp. 251, 255.) The court first observed it was "apparent from McHugh that [a] judicial powers analysis contemplates a somewhat higher level of scrutiny than rational basis." (Id. at p. 257.) A court must " 'closely scrutinize the agency's asserted regulatory purposes in order to ascertain whether the challenged remedial power is merely incidental to a proper, primary regulatory purpose, or whether it is in reality an attempt to transfer determination of traditional common law claims from the courts to a specialized agency whose primary purpose is the processing of such claims.' " (Id. at p. 256, quoting McHugh, supra, 49 Cal.3d at p. 374.)

The court recognized compensatory damages serve to deter discrimination. However, the issue, explained the court, was whether a substantial award of compensatory damages was " 'reasonably necessary' " to accomplish the commission's regulatory purpose and " 'merely incidental' " to its "primary regulatory purposes," or whether "in reality" the commission was exercising the judicial function to determine traditional common law claims. (Walnut Creek Manor, supra, 54 Cal.3d at pp. 258-259.) The court concluded only "minimal and limited" damages awards were incidental to the commission's primary role. (Id. at p. 261.) And "what once was an alternative or incidental adjunct to the primary relief of securing the same or comparable housing, ha[d] assumed an independent importance that potentially threaten[ed] to dominate the administrative hearing." (Id. at pp. 261-262.) The award of "unlimited general compensatory damages" was neither "necessary to . . . [the commission's] purpose nor merely incidental thereto; its effect, rather, is to shift the remedial focus of the administrative hearing . . . to compensating the injured party not just for the tangible detriment to his or her housing situation, but for the intangible and nonquantifiable injury to his or her psyche suffered as a result of the respondent's unlawful acts, in the manner of a traditional private tort action in a court of law." (Id. at p. 264.) However, " 'the power to award compensatory and punitive tort damages to an injured party is a judicial function.' " (Id. at p. 262, quoting Youst v. Longo (1987) 43 Cal.3d 64, 80 [233 Cal.Rptr. 294, 729 P.2d 728].)

The court explained that, although in McHugh it "rejected a rigid rule that would hold administrative agencies incompetent under the doctrine of judicial powers to award 'damages' of any kind [citation], in upholding the administrative award of damages we repeatedly distinguished incidental, 'restitutive' damages--permissible under the judicial powers clause--from the award of unlimited, nonquantifiable compensatory damages." (Walnut Creek Manor, supra, 54 Cal.3d at p. 262, quoting McHugh, supra, 49 Cal.3d at pp. 358-360, 374-375 & fn. 38.) The court further explained "restitutive damages" are "akin to special damages, i.e., they are quantifiable amounts of money due to an injured private party from another party to compensate for the pecuniary loss directly resulting from the second party's violation of the law." (Walnut Creek Manor, at p. 263.) "General compensatory damages for emotional distress, by contrast, are not pecuniarily measureable, defy a fixed rule of quantification, and are awarded without proof of pecuniary loss. [Citation.] As the commission itself . . . recognized, in seeking to place a dollar value on a complainant's mental and emotional injuries there is little in legal authority to guide it, for the reason that, '[i]t has traditionally been left to the trier of fact to assess the degree of harm suffered and to fix a monetary amount as just compensation therefor. [Citation.]' [Citations.]" (Ibid., quoting Dept. Fair Empl. & Housing v. Ambylou Enterprises (1982) No. 82-06, FEHC Precedential Decs. 1982-1983, CEB 3, p. 11.)

The court also pointed out taking on the adjudication of general damages was inconsistent with the commission's purpose to "provide a streamlined and economic procedure for preventing and redressing discrimination in housing as an alternative to the more cumbersome and costly procedure of a civil suit. The availability of alternate civil remedies underscores that the primary regulatory purpose of the act is to prevent discrimination in housing before it happens and, when it does occur, to provide a streamlined and economical administrative procedure to make its victim whole in the context of housing." (Walnut Creek Manor, supra, 54 Cal.3d at p. 264, italics omitted.)

The court accordingly concluded that under the statutory scheme, the commission's award of general compensatory damages for emotional distress violated the judicial powers clause. (Walnut Creek Manor, supra, 54 Cal.3d at p. 265.) The court noted it was expressing "no opinion" concerning legislation that authorized the commission to "award nominal or minor general compensatory damages not to exceed a specified maximum amount." (Ibid., fn. 12.)

The Legislature subsequently amended the Fair Employment and Housing Act to make it substantively equivalent to the federal Fair Housing Act, which allows administrative law judges to make emotional distress awards. The amendments to the state law also allowed either party to remove the administrative matter to superior court. Accordingly, in Konig v. Fair Employment & Housing Com. (2002) 28 Cal.4th 743, 751-758 [123 Cal.Rptr.2d 1, 50 P.3d 718], the court held the new statutory scheme was analogous to mutually agreed-to arbitration, alleviating the judicial powers problem it had identified in Walnut Creek Manor.

In Ocean Park Associates v. Santa Monica Rent Control Bd. (2004) 114 Cal.App.4th 1050 [8 Cal.Rptr.3d 421] (Ocean Park Associates), the Court of Appeal considered a judicial powers challenge to regulations allowing rent reductions for construction activity that significantly impacted habitability, interfered with occupancy, and reduced or removed housing services for more than 24 hours. (Id. at pp. 1055-1056.) The regulations enumerated the factors to be considered by the board in acting on "construction [rent reduction] petitions," and also gave a range of percentage rent decreases allowable for some problems (such as noise, odor, dust) and specific dollar reductions for other problems (such as loss of parking space, laundry facilities, or security services). (Id. at pp. 1056-1057.) Thus, as the court explained, the regulations permitted "rent decreases based on 'reduced base amenities of a unit,' including loss of parking; laundry facilities; security gates, doors and fencing; recreational facilities; yards; and landscaping, and on lack of maintenance including '[a]ccumulation of garbage, debris or other inappropriate materials in the common areas.' [Citation.]" (Id. at p. 1069.) Since these services and facilities were used in the first instance "to justify the rent charged," their removal for an extended period of time warranted a commensurate reduction in rent--an action within the permissible purview of the rent board. (Id. at pp. 1069-1070.)

We now consider the decrease in housing services provisions of Proposition M. There is no question the Board has a legitimate regulatory purpose of "ensuring enforcement of rent levels." (McHugh, supra, 49 Cal.3d at p. 374.) "The Rent Ordinance was adopted in June 1979 in order to address problems created by a shortage of decent, safe and sanitary housing in the City and County of San Francisco." (Baba, supra, 124 Cal.App.4th at p. 509.) The stated purpose of the Board is therefore to "safeguard tenants from excessive rent increases and, at the same time, to assure landlords fair and adequate rents . . . ." (§ 37.1, subd. (b)(6).)

Prior to the enactment of Proposition M, the Rent Ordinance provided a tenant could petition the Board for a reduction in rent when "a landlord has substantially decreased services without a corresponding reduction in rent and/or has failed to perform ordinary repair or maintenance under State or local law and/or has failed to provide the tenant with a clear explanation of current charges for gas and electricity or bond measure costs passed through to the tenant and/or imposed a nonconforming rent increase which is null and void. . . ." (§ 37.8, subd. (b)(2)(A).) As we have discussed, Proposition M expanded the definition of "decreased services" by enumerating 15 prohibited acts of "Tenant Harassment" (set forth in new § 37.10B, subd. (a)), and stating the commission of any of these acts constitutes "a substantial and significant decrease in services as defined in Section 37.2[, subdivision] (g)" for which "tenants may file a petition with the Rent Board for a reduction in rent" (as specified in new § 37.10B, subd. (c)(1)). (§ 37.10B, subds. (a),(c)(1).)

The City does not dispute Proposition M authorizes the Board to award "non-restitutive damages." Instead, it asserts a "facial challenge must fail if courts can conceive of a single situation in which the legislative enactment can be constitutionally applied," quoting Personal Watercraft Coalition v. Marin County Bd. of Supervisors (2002) 100 Cal.App.4th 129, 138 [122 Cal.Rptr.2d 425] (Personal Watercraft Coalition). The City maintains it is possible the Board might award "remedial damages for quantifiable harms" in connection ...


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