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Coyne v. City and County of San Francisco

California Court of Appeals, First District, Fifth Division

March 21, 2017

MARTIN J. COYNE et al., Plaintiffs and Respondents,
CITY AND COUNTY OF SAN FRANCISCO, Defendant and Appellant.

         San Francisco County Superior Court County Nos. CGC-14-540709, CPF-15-514382 Trial Judge: Hon. Ronald E. Quidachay


          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.

          Jones, P. J.

         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.


         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 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 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 “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 54-14.[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, ...

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