A group of California apartment owners has decided to appeal to the U.S. Supreme Court a recent California court decision that upheld the constitutionality of the rent-control ordinance of the City of Berkeley. The owners group is being supported by national real estate groups eager to stamp out rent controls.
The California Supreme Court ruled late last month in Fisher et al. v. the City of Berkeley that Berkeley's rent control ordinance was not price-fixing as alleged by the apartment owners who brought the suit; in the process, the court established a broad legal test for California courts to use in cases where local governments are charged with violating federal antitrust laws.
There has been a general assumption that localities had the same broad antitrust immunity that state governments were expressly given in the Sherman Antitrust Act. However, in a 1982 case in which the City of Boulder, Colo., was attempting to regulate cable television, the Supreme Court ruled that localities could be sued for antitrust violations if the state had not delegated to them the authority to set prices for a specific purpose.
Since that decision, courts increasingly have cited local governments for overstepping their price-setting authority on issues ranging from zoning to regulating business, and opponents of rent control have been watching for a strong test case to challenge rent controls from the platform provided by the Boulder case.
"Rent control is, on its face, price-fixing, and because the state legislature in California has never granted localities there the authority to enact rent controls, it appeared to us to be a good opportunity to make the test," said Stephen Driesler, executive vice president of the National Multi Housing Council, which offered financial and legal support to Fisher and the California Housing Council, a lobbying organization for apartment building owners.
Although the landlords were "disappointed" that they lost in the California Supreme Court, they believe that the California court's decision contradicted the Boulder case enough to provide solid ground for an appeal, Driesler said.
Saying that it did not believe the Supreme Court "wants to see state courts diddling around with federal laws this way," the California Housing Council said this week it will begin to raise funds for the appeal from the national membership of the National Association of Home Builders, the Mortgage Bankers Association of America, the U.S. League of Savings and Loans and the National Multi Housing Council.
"The new test created by the California court is much broader than the test the Supreme Court seemed to apply in the Boulder case," Driesler said. Whether that test contradicts the Boulder decision "is what we would ask the Supreme Court to ultimately decide."
The California court ruled that, although the Sherman Act expressly says it is illegal per se for a private business enterprise to fix prices, this should not apply to the City of Berkeley's rent control ordinance.
Instead, the court said that, when a local ordinance is challenged on the grounds of violating federal antitrust laws, courts should "adapt" the antitrust rules that have grown out of business-related antitrust issues "in order to accommodate municipal governments' legitimate interest in enacting economic and social regulations concerning the local health, safety and welfare."
The court went on to conclude that, if a local ordinance had a "proper local purpose" stemming from the municipality's responsibilities and "even-handed in manner," the ordinance cannot be said to conflict with the Sherman Act unless the plaintiff can show that the "city's purposes could be achieved as effectively by means that would have a less intrusive impact on federal antitrust policies."
The California Supreme Court admitted that the case "forces us to wander off the map and travel cross-country without the benefit of trail or compass" in creating the test for judging local regulations on antitrust issues. It supported its decision to create a new test, however, by saying the Boulder case "suggested" that anticompetitive conduct by a municipality in exercise of its legitimate police power was of a "different complexion" than similar conduct engaged in by private business enterprises, and that therefore "the courts must adapt or modify the application of traditional antitrust rules when reviewing the acts of municipal defendants."
Myron Moskovitz, one of the lawyers defending the City of Berkeley before the California court, said the new test "leaves the door open for cities to come under attack" because of the clause, "unless the plaintiff demonstrates that the city's purposes could be achieved as effectively by means that would have a less intrusive impact on federal antitrust policies."
"In a rent control case, that could mean that perhaps the city should have looked for some other way to reach the desired public good, such as providing subsidies to tenants instead of controlling rents," Moskovitz said. "Under this new test, all kinds of local regulations -- from zoning to cable franchises to regulating traffic and land use to restrictions on condominium conversions -- could be challenged. We really don't know what it will mean."
Moskovitz said he does not believe, however, that the U.S. Supreme Court would be likely to agree to hear the Fisher case, because the antitrust issues had been argued only at the appellate level.
Driesler of the National Multi Housing Council said that, while the California case was not an "ideal test case for the antitrust issues," his association would support the appeal with funds because it is the only test case available.
"It took them five years to get to this point," Driesler said. "It could be years before we would get another case this far." He said the California Housing Council had estimated that a Supreme Court appeal would cost between $100,000 and $200,000, but because the Supreme Court had not taken up the issue of rent control since 1948, his group feels "it is worth it."
Concerned over the growing number of lawsuits against localities based on the antitrust platform provided by the Boulder case, local governments have been working to get Congress to pass federal legislation making localities immune from the Sherman Act.
Business interests, however, have protested such a broad exemption, saying they need the antitrust laws to protect them from capricious decisions by local governments.
Last year a compromise bill was introduced in both the Senate and the House that would have made localities immune from the triple damages awarded in antitrust suits but would not have prevented businesses from seeking injunctive relief if they believed localities had violated antitrust laws.