Alpha Epsilon Phi Tau Chapter Housing Ass'n v. City of Berkeley, 96-15078

• Decision Date: 27 May 1997
• Docket Number: No. 96-15078,96-15078
• Parties: 118 Ed. Law Rep. 603, 97 Cal. Daily Op. Serv. 3931, 97 Daily Journal D.A.R. 6801 ALPHA EPSILON PHI TAU CHAPTER HOUSING ASSOCIATION, a California corporation, Plaintiff-Appellant, v. CITY OF BERKELEY, a municipal corporation, and City of Berkeley Rent Stabilization Board, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 840

114 F.3d 840

118 Ed. Law Rep. 603, 97 Cal. Daily Op. Serv. 3931,

97 Daily Journal D.A.R. 6801

ALPHA EPSILON PHI TAU CHAPTER HOUSING ASSOCIATION, a California corporation, Plaintiff-Appellant, v. CITY OF BERKELEY, a municipal corporation, and City of Berkeley Rent Stabilization Board, Defendants-Appellees.

No. 96-15078.

United States Court of Appeals Ninth Circuit.

Argued and Submitted March 10, 1997.

Decided May 27, 1997.

Lawrence A. Gibbs, Grossman & Gibbs, Berkeley, CA, and Michael Ciraolo, Ciraolo & Ciraolo, Oakland, CA, for plaintiff-appellant.

Marjorie Gelb, Brian Kelly, Donald Tine, Manuela Albuquerque, Christine S. Daniel, Deputy City Attorneys, Berkeley, CA, for defendants-appellees.

Appeal from the United States District Court for the Northern District of California Susan Illston, District Judge, Presiding.

Before: WHITE, ^* Associate Justice, Retired, and CANBY, and RYMER, Circuit Judges.

WHITE, Associate Justice, Retired:

The Berkeley Rent Stabilization Board wears two hats. In addition to performing executive functions such as setting rents and managing its budget, the Board serves in a quasi-judicial capacity. In this latter role, the Board adjudicates matters including whether landlords are covered by the local rent control ordinance and, hence, must pay registration fees (and possible penalties) into its coffers. The appellant, Alpha Epsilon Phi (AEP), contends that this dual responsibility violates due process. We hold that it does not.

I. FACTS and PROCEDURAL HISTORY

The Berkeley Rent Stabilization Board is the creature and administrator of Berkeley's rent control ordinance. See The Rent Stabilization Act and Eviction for Good Cause Ordinance, B.M.C. § 13.76. Composed of nine members, the Board performs two primary categories of duties. In its executive capacity, the Board controls the rents that landlords may charge for properties subject to the ordinance, which covers all residential rental properties that do not fall under one of ten categorical exceptions, see B.M.C. § 13.76.050. This jurisdiction extends to approximately 18,500 units, varying slightly since 1988 from a low of approximately 18,300 to a high of about 18,850. The Board also administers its own budget, spending funds and hiring personnel to meet its mission. Importantly for this litigation, the Board is responsible for its own funding: it is directed to "finance its reasonable and necessary expenses by charging landlords annual registration fees in amounts deemed reasonable by the board." B.M.C. § 13.76.060N. In addition, "when and if necessary" the Board is empowered to request funding from external sources such as the City of Berkeley. See id.

The practical result of this charter is that the entities that the Board regulates directly fund its operations. Consistent with the ordinance, the Board levies a per-unit registration fee to fund its annual expenses of approximately $2.4 million. In order to set the fee, the Board establishes its budget for the coming year, estimates how many units will be covered, and then sets the per-unit fee so that it will yield the budgeted amount. See App. at 129. The Board reviews this fee annually. In fiscal year 1994-95, the registration fee was $115 per unit; that amount increased to $125 in fiscal year 1995-96. In setting the fee in 1995-96, the Board weighed proposed amounts from $120 to $130 that, correspondingly, would have required different personnel decisions to stay on budget.

Because disputes arise over the Board's determinations, including coverage matters, the Board also serves an adjudicative function. Disputes are heard in the first instance by a hearing examiner, who finds facts and makes conclusions of law. Parties are then entitled to an appeal to the Board. If the Board determines that a rental unit is subject to rent control, the landlord must pay an annual registration fee as well as possible penalties for late payment. See B.M.C. § 13.76.080F. Disputes before the Board potentially implicating coverage determinations number about 35 per year. ¹ Total budgeted penalty revenues with respect to registration in recent years have ranged from about $50,000 to $120,000 annually. ² The Board also waives substantial amounts of penalties. For instance, in 1993-94 the Board waived $113,000 in penalties.

AEP operates a rooming house at the University of California, Berkeley. In 1984, when AEP was part of the national sorority, it, along with a number of other organizations, sued Berkeley for a determination that the rent control ordinance was unconstitutional as applied to those groups. The City and the parties stipulated to a dismissal whereby the City agreed not to subject the sororities to the ordinance in exchange for a promise that the sororities would comply with certain occupancy and rent conditions. In 1992, AEP severed its ties to the national organization.

In 1994, a resident of AEP filed a petition with the Board, alleging that the house was charging him excessive rents. Because AEP was no longer affiliated with the national sorority, the petitioner argued, it no longer satisfied the stipulated requirements and, therefore, was no longer eligible for the exemption from the rent control ordinance. The hearing examiner ruled in the tenant's favor. The Board affirmed, assessing a $125 registration fee and back fees and penalties for a total of $1,145. The Board also ordered AEP to refund rent overcharges to the petitioner and other tenants back to the date it severed its affiliation with the national sorority. AEP then filed suit in both federal and state court alleging a variety of violations, including the one relevant to this appeal: that under these circumstances the Board's determination violated due process because it was not an impartial adjudicator. AEP sought a declaration that the ordinance was unconstitutional, a permanent injunction barring the Board from applying the ordinance to it, and damages.

After dismissing most of the federal court claims on abstention grounds, ³ the district court granted summary judgment for the Board on the due process issue. The district court explained that "[t]wo types of bias have been recognized by the courts as violations of procedural due process: 1) where decision-makers gain personal financial benefits from their decisions (Tumey v. Ohio, 273 U.S. 510, 47 S.Ct. 437, 71 L.Ed. 749 (1927)); and 2) where decision-makers have an institutional financial interest that may lead them to make biased decisions (Ward v. Village of Monroeville, 409 U.S. 57, 93 S.Ct. 80, 34 L.Ed.2d 267 (1972))." Alpha Epsilon Phi v. City of Berkeley, No. C-95-0562 SI, slip op. at 6, 1995 WL 761257 (N.D.Cal. Dec.13, 1995). The situation in this case does not constitute the first type of bias, the district court explained, because "the facts are undisputed that no official at the Rent Board has any direct financial interest in the outcome of a particular hearing." Id. at 6-7. Turning to the institutional analysis, the district court held that the Board had no interest that could have violated due process because

the Board's budget is not tied to the results of disputes as to whether a landlord must pay a registration fee. The Board sets its budget and then simply divides this amount by the number of landlords subject to the Rent Ordinance. Thus, if the number of landlords decreases, the registration fee for each land owner increases [and vice versa]. The important fact is that the Board's budget is set at a specific dollar amount and then the per-landlord fee is established by simple arithmetic. Thus, no Board official has competing interests between judicial and administrative concerns.

Id. at 7-8.

II. STANDARD OF REVIEW

We review a grant of summary judgment de novo, granting all reasonable inferences to the nonmoving party, in this case AEP. See Bagdadi v. Nazar, 84 F.3d 1194, 1197 (9th Cir.1994).

III. DISCUSSION

A.

AEP argues that the Board's dual responsibilities violate due process. In AEP's view, the case is open and shut. This Court need only take account of two undisputed facts: "(1) Virtually the entire Rent Board budget is derived from registration fees it imposes on landlords[; and] (2)[t]he Rent Board itself adjudicates whether a landlord must pay these fees." AEP Br. at 10. This situation gives the Board a "pecuniary stake in the outcome of the litigation," AEP contends, which vitiates its status as "a disinterested and impartial adjudicator." Id. The Board also thinks this case is easy. Not surprisingly, the Board endorses the district court's rationale. The Board has no financial interest in the outcome of coverage disputes, it claims, because, if the number of covered units drops, it simply raises the registration fee to generate the necessary funds. See Board Br. at 8, 15-18.

We think this case somewhat more involved. A recent decision of this court--handed down after the briefs in this case were filed--provides an overview of the Supreme Court's numerous cases in this area. See Commonwealth of N. Mariana Islands v. Kaipat, 94 F.3d 574 (9th Cir.1996). Tumey v. Ohio, 273 U.S. 510, 47 S.Ct. 437, 71 L.Ed. 749 (1927), and its progeny establish two main categories of due process challenges based on structural bias. First, due process is violated if a decisionmaker has a "direct, personal, substantial pecuniary interest" in the proceedings. Id. at 523, 47 S.Ct. at 441. Second, even if the decisionmaker does not stand to gain personally, due process may also be offended where the decisionmaker, because of his institutional responsibilities, would have "so strong a motive" to rule in a way that would aid the institution. Id. at 532, 47 S.Ct. at 444.

We first note our disagreement with the district court's rationale for ruling in the Board's favor. In granting summary judgment, the district court relied on an assumption that adjudications added nothing to the Board's budget. See Alpha Epsilon Phi, slip op. at 6. The...