The Supreme Court heard arguments this week in a case from California that pits landlords seeking to stamp out rent controls against local government officials anxious to preserve their right to set rent levels.
In the case, Fisher et al. v. the City of Berkeley, the property owners allege that Berkeley's rent control ordinance requires landlords to engage in "naked price-fixing," and is therefore a violation of the Sherman Antitrust Act.
The city and the California Supreme Court, which ruled in favor of Berkeley last year, have said that the city is immune from antitrust laws in this case because the state authorized Berkeley to provide for low-income housing as part of its general planning mandate.
There has been a general assumption in the past that localities had the same broad antitrust immunity that state governments were given in the Sherman Act.
However, in a 1982 case in which the City of Boulder 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.
After that decision, courts increasingly cited local governments for overstepping their price-setting authority on issues ranging from zoning to regulating business.
Since the Boulder decision, opponents of rent control have been watching for a strong test case to challenge rent controls from the platform provided by the Boulder case. The Berkeley case appeared to be a good test, said supporters in the real estate industry, because the landlords felt they could show that the state legislature in California never had granted localities the authority to enact rent controls.
Just two months after the California property owners decided to appeal to the Supreme Court, however, the justices handed down another decision concerning local governments and antitrust that substantially diluted the standard set in the Boulder case.
In Town of Hallie v. City of Eau Claire, the Supreme Court ruled that local governments are immune from lawsuits charging antitrust violations if their states had "expressed a state policy" to allow the anticompetitive activities.
When the California Supreme Court ruled on Fisher v. Berkeley last year, it devised its own legal test for California courts to use in cases where local governments are charged with violating federal antitrust laws. The court said that antitrust rules, which have grown out of business-related antitrust issues, should be adapted "in order to accommodate municipal governments' legitimate interest in enacting economic and social regulations concerning the local health, safety and welfare."
The property owners in the Berkeley case, supported by the California Housing Council and other real estate groups nationwide, said they appealed to the Supreme Court because they did not think the highest court wanted state courts interpreting federal laws, such as the Sherman Act.
Jon D. Smock, a lawyer for the National Apartment Association who argued for the landlords in the Berkeley case this week, told the Supreme Court that the Berkeley rent control law should be struck down as unconstitutional because it preempts federal law by ordering landlords to engage in illegal price-fixing.
Smock also argued that the general planning authority California had given its local governments "has nothing to do with rent control," and that, therefore, Berkeley did not have any state authorization.
The city, however, claimed that the general planning ordinance met the legal tests for "authorization" established in the Supreme Court's decision in Town of Hallie. It also said that the court made it clear in Hallie that municipal action was qualitatively different from antitrust issues stemming from business activities.
"The Sherman Act condemns only 'unreasonable' restraints of trade," said Laurence H. Tribe, arguing the case for Berkeley. "The ordinance at issue here must be upheld because it would pass muster under any rule of reason that takes account of the municipal obligation to promote public welfare, whether the rule fashioned by the California Supreme Court or any other that this court might announce."
The U.S. Conference of Mayors, the National Association of Counties, the National League of Cities, the International City Management Association, the National Conference of State Legislatures and the American Planning Association filed a friends-of-the-court brief supporting Berkeley. The brief said that while the case concerned the issue of whether a city may regulate rents without violating antitrust laws, a ruling could affect the ability of local governments to regulate other businesses in the public interest.
" We believe that traditional antitrust analysis is misapplied in the context of local public rate regulation," said the groups representing local governments. "Rate regulation that is neutral among competitors and that is enacted in the public interest by a city with no competitive stake in the regulated market should not be appealed lightly."
A Supreme Court ruling that rent controls violate antitrust laws is the ultimate prize sought by the landlords and the real estate groups backing them, but Smock said the group would be happy to win the case on the basis that the Berkeley rent control ordinance is unconstitutional because the state did not specifically authorize the city to regulate rents.
Such a ruling would reduce the national impact of the case because most other states allowing rent control have specifically authorized localities to regulate rents.
In California, however, a ruling in favor of the landlords would take the rent control issue away from the cities and towns and force it back to the state legislature, a place where property owners believe they have more political clout. Cities with stringent rent control ordinances, such as Berkeley, could be forced to scale back or dismantle rent controls if the state legislature voted on a weaker statewide rent control law.
A decision from the Supreme Court is expected this winter.