Fisher v. City of Berkeley

Decision Date27 December 1984
Docket NumberS.F. 24675
Citation693 P.2d 261,209 Cal.Rptr. 682,37 Cal.3d 644
CourtCalifornia Supreme Court
Parties, 693 P.2d 261, 1985-1 Trade Cases P 66,473 Alexandra FISHER et al., Plaintiffs and Appellants, v. CITY OF BERKELEY et al., Defendants and Respondents.

James R. Parrinello, John E. Mueller, Christiane T. Riess, Dobbs & Nielsen, Nielsen, Hodgson, Parrinello & Mueller and Peter J. Donnici, San Francisco, for plaintiffs and appellants.

Jon D. Smock, Wilbur H. Haines III, Sacramento, Stephen L. Jones, Stacey & Jones, Santa Monica, Tuttle & Taylor, Joseph R. Austin, David B. Babbe, Biddle & Hamilton, W. Craig Biddle, Sacramento, Ira Reiner, City Atty. Los Angeles, Claudia McGee Henry, Asst. City Atty., Michael S Woodward, Deputy City Atty., Latham & Watkins, Stephen L. Jones and George Kimball, Los Angeles, as amici curiae on behalf of plaintiffs and appellants.

Myron Moskovitz, Berkeley, Ann Juergens, Oakland, Jeffrey A. Walter, Natalie E. West, City Atty., and Frederick W. Bray, Senior City Atty., for defendants and respondents.

James R. Grow, Berkeley, Michael Heumann, Stephen P. Wiman, Marsha Jones Moutrie, Robert M. Myers, City Atty., Santa Monica, Stephen S. Stark, Asst. City Atty., Karl M. Manheim, Deputy City Atty., Robert J. Logan, San Jose, John W. Witt, San Diego, George Agnost, City Attys., San Francisco, as amici curiae on behalf of defendants and respondents.

MOSK, Justice.

Plaintiffs, a group of landlords who own property in the City of Berkeley, appeal from a judgment of the Alameda County Superior Court holding defendants' rent control ordinance constitutional on its face. We substantially affirm the judgment.

Plaintiffs claim that defendants' ordinance conflicts with, and hence is preempted by, federal antitrust law because it is a combination that unreasonably restrains interstate commerce in violation of section 1 of the Sherman Antitrust Act (Act or Sherman Act). (15 U.S.C.) They also claim that it constitutes monopolization, or attempted monopolization, in violation of section 2 of the Act. (Ibid.) Although price fixing by private business enterprises is clearly illegal per se, we hold that the per se rule of illegality does not apply to the municipal defendants' price-fixing ordinance in this case. Nor can such a municipal regulation be reviewed pursuant to the traditional rule of reason, under which validity would be judged solely by the regulation's effect on competition. Instead, we have determined that when the validity of an ordinance is challenged under the federal antitrust laws, courts must adapt traditional antitrust rules in order to accommodate municipal governments' legitimate interest in enacting economic and social regulations concerning local health, safety and welfare. We conclude that if a municipal regulation has a proper local purpose, is rationally related to the municipality's legitimate exercise of its police power, and operates in an evenhanded manner, it must be upheld against a claim that it conflicts with section 1 or 2 of the Sherman Act 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. No such means have been proposed. Under the foregoing test the ordinance in question has not been shown to conflict with federal antitrust laws.

We also conclude that defendants' ordinance is facially constitutional under both the federal and state due process clauses: a rent control ordinance is valid if it guarantees each landlord a fair return on his investment; it need not guarantee a fair return on the value of property. Furthermore, the ordinance on its face provides for reasonably prompt access to adjustment procedures for those landlords seeking to increase rents. Additionally, we conclude that the rent withholding provisions of the ordinance do not violate landlords' due process rights, nor are such provisions preempted by general state law. Finally, however, we have determined that the ordinance is invalid to the extent it purports to create an evidentiary presumption affecting the burden of proof in regard to retaliatory evictions, but that such a provision is severable, and does not affect the validity of the remainder of the ordinance.

Background and Procedure

In June 1980 the Berkeley electorate enacted initiative "Measure D," the "Rent Stabilization and Eviction for Good Cause Ordinance," (hereafter ordinance). The ordinance affects approximately 23,000 rental units.

Section 3 sets out the purpose of the ordinance: It is intended "to regulate residential rent increases in the City of Berkeley and to protect tenants from unwarranted rent increases and arbitrary, discriminatory, or retaliatory evictions, in order to help maintain the diversity of the Berkeley community and to ensure compliance with legal obligations relating to the rental of housing. This legislation is designed to address the City of Berkeley's housing crisis, preserve the public peace, health and safety, and advance the housing policies of this City with regard to low and fixed income persons, minorities, students, handicapped, and the aged."

Section 5 exempts from the ordinance government-owned units, transient units, cooperatives, hospitals, certain small owner-occupied buildings, and all newly constructed buildings. Section 6 establishes a rent stabilization board (Board) of nine commissioners, and sets out its powers, duties, rules and procedures, as well as a means of ending rent control if the city's vacancy rate surpasses 5 percent. Section 8 requires landlords to register with the Board, furnish specified information, and pay a registration fee for each unit.

Section 10 establishes base rent ceilings 1 that landlords may not exceed except as permitted by the Board under sections 11 and 12. Section 11 provides for annual general adjustment of rent ceilings to cover increases or decreases relating to utilities and taxes. In making such general adjustment, the Board is given authority to adopt a general formula based on available data relating to such expenses. If a landlord is not satisfied with this general increase, he may petition the Board for an individual adjustment under section 12. In ruling on this petition the Board must consider many nonexclusive factors, including a landlord's individual costs, but in no event may it deny a rent increase needed to allow a landlord a "fair return on investment."

Section 13 prohibits evictions except for enumerated factors constituting "good cause." Section 14 prohibits retaliatory evictions, and states that any eviction action taken against a tenant within six months of the tenant's assertion of rights under the ordinance shall be "presumed" to be retaliatory.

Section 15 sets out remedies, including rent withholding, both for a landlord's violation of rent ceilings and failure to register. Section 16 is a severability clause. Section 17 declares that the provisions of the ordinance may not be waived. Section 18 provides for judicial review of any act of the Board.

Plaintiffs filed suit in August 1980 seeking injunctive and declaratory relief against enforcement of the ordinance. They alleged the ordinance is unconstitutional on its face and as applied. The trial court granted defendants' motion for judgment on the pleadings, declaring the ordinance constitutional on its face. The court granted plaintiffs leave to amend to allege facts showing that the ordinance is unconstitutional as applied, but plaintiffs subsequently dismissed this aspect of the complaint. Plaintiffs appeal from the trial court's order granting defendants judgment on the pleadings. The sole question before us, therefore, is whether the ordinance is invalid on its face. 2

After the case was fully briefed on the merits in the Court of Appeal, but before that court rendered its decision, the United States Supreme Court decided Community Communications Co. v. City of Boulder (1982) 455 U.S. 40, 102 S.Ct. 835, 70 L.Ed.2d 810, holding a home rule municipality subject to federal antitrust scrutiny. We granted hearing, and soon thereafter the issue of the effect of Boulder, and antitrust law generally, was raised for the first time by amicus curiae. Both parties and additional amici curiae for both parties were granted leave to file, and have filed, supplemental briefs addressing inter alia antitrust issues generally, and the Boulder issue specifically.

Therefore, although plaintiffs claim the ordinance is facially invalid in whole or in part on due process and statutory grounds, they also assert that an alleged conflict between the ordinance and federal antitrust law presents a threshold issue dispositive of this appeal. Defendants likewise request that we address and resolve plaintiffs' antitrust contentions. 3 Because of the extreme importance of the issues presented, we proceed to analyze plaintiffs' antitrust claims.

I. Antitrust Issues

In Birkenfeld v. City of Berkeley (1976) 17 Cal.3d 129, 130 Cal.Rptr. 465, 550 P.2d 1001, we held Berkeley's former rent control ordinance facially unconstitutional because its procedures for rent adjustment were "inexcusably cumbersome" and would have deprived landlords of due process if permitted to take effect. (Id. at p. 173, 130 Cal.Rptr. 465, 550 P.2d 1001.) Before reaching that conclusion, however, we addressed the threshold question of the city's power to provide for rent control. We observed that our Constitution confers on all cities and counties the power to "make and enforce within [their] limits all local, police, sanitary, and other ordinances and regulations not in conflict with general laws" (Cal. Const., art. XI, § 7) and noted that "[a] city's police power under this provision can be applied only within its own territory and is subject to displacement by general state law but otherwise is as broad as the police power exercisable by the Legislature itself." (17 Cal.3d at p. 140...

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