California Court of Appeals, First District, Fifth Division
MARTIN J. COYNE et al., Plaintiffs and Respondents,
CITY AND COUNTY OF SAN FRANCISCO, Defendant and Appellant.
Francisco County Superior Court County Nos. CGC-14-540709,
CPF-15-514382 Trial Judge: Hon. Ronald E. Quidachay
Jose Herrera, City Attorney, Wayne Kessler Snodgrass and
Christine Van Aken, Deputy City Attorneys, for Defendant and
Freedman & Patterson, Emily H. Lowther and Andrew Mayer
Zacks for Plaintiffs and Respondents.
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.
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.
AND PROCEDURAL BACKGROUND
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).)
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
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.
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.
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.
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 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.
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.
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 “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.,
law took effect on June 1, 2014. (San Francisco Ordinance No.
54-14, section 2.)
Levin and Jacoby Lawsuits Against Ordinance 54-14
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.
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.)
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 54-14. 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.
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, ...