Hous. & Redevelopment Auth. of Duluth v. Lee

• Decision Date: 27 August 2014
• Docket Number: No. A12–2078.,A12–2078.
• Citation: 852 N.W.2d 683
• Parties: HOUSING AND REDEVELOPMENT AUTHORITY OF DULUTH, Appellant, v. Brian LEE, Respondent.
• Court: Minnesota Supreme Court

852 N.W.2d 683

HOUSING AND REDEVELOPMENT AUTHORITY OF DULUTH, Appellant,

v.Brian LEE, Respondent.

No. A12–2078.

Supreme Court of Minnesota.

Aug. 27, 2014.

Syllabus by the Court

1. The eight percent limitation on late fees that landlords of residential buildings may charge under Minn.Stat. § 504B.177 (2010) is not preempted by federal law regarding public housing authorities, as set forth in 42 U.S.C. § 1437d( 1 )(2) (2012) and 24 C.F.R. § 966.4(b)(3) (2013).

2. Because the public housing authority failed to establish that the eight percent limitation on late fees set forth in Minn.Stat. § 504B.177(a) conflicts with a federal statute, regulation, or handbook within the meaning of Minn.Stat. § 504B.177(b), the public housing authority was subject to the eight percent limitation.

Joseph J. Mihalek, Eric S. Johnson, Fryberger, Buchanan, Smith & Frederick, P.A., Duluth, Minnesota, for appellant.

Gwen Updegraff, Legal Aid Service of Northeastern Minnesota, Duluth, Minnesota, for respondent.

Mary G. Dobbins, Landrum Dobbins, LLC, Edina, Minnesota, and Shannon Guernsey, Minnesota NAHRO, Saint Paul, Minnesota, for amicus curiae Minnesota Chapter of the National Association for Housing and Redevelopment Officials.

OPINION

DIETZEN, Justice.

This appeal involves an eviction action brought by appellant Housing and Redevelopment Authority of Duluth (HRA) against respondent Brian Lee, a tenant living in federally subsidized housing, after he failed to pay late fees assessed by the HRA under his lease. Lee argued that the late fees were invalid and unenforceable under Minn.Stat. § 504B.177 (2010), which generally places a limitation, or cap, on late fees for residential housing tenants at eight percent of the overdue rent payment. The HRA argued that the late fees were permitted under federal law governing public housing authorities, which allows late fees, provided that the fees are not unreasonable. The district court concluded that the HRA was entitled to evict Lee because federal law preempts the state limitation on late fees with respect to public housing authorities. The court of appeals reversed, concluding that there is no conflict between federal law and the eight percent limitation on late fees. We conclude that the eight percent limitation on late fees in Minn.Stat. § 504B.177(a) is not preempted by federal law, and does not conflict with a federal statute, regulation, or handbook within the meaning of Minn.Stat. § 504B.177(b). Because the HRA failed to establish that the eight percent limitation conflicts with federal law, the HRA was subject to the eight percent limitation. Therefore, we affirm the court of appeals' decision to reverse the eviction.

Lee is a tenant residing in a multi-unit apartment building known as “Tri–Towers” in Duluth.¹ The apartment building is conventional public housing, owned and operated by the HRA, and authorized by the United States Housing Act of 1937. See42 U.S.C. § 1437f (2012). The contractual rights of the parties were set forth in a written lease executed on August 29, 2011. The lease provided that Lee was to pay monthly rent in the amount of $50, due on or before the fifth day of each month. The lease also provided for a $25 late fee if Lee did not pay his rent in full by the fifth day of the month. Lee's rent was based on his income of $203 per month, all of which came from General Assistance.

Lee's account became delinquent in July 2012 after he failed to pay in full a $95 charge assessed for repair and maintenance services. As a result, Lee's rent payments were late in July, August, and September 2012. The HRA charged a $25 late fee each month, for a total of $75.

When the HRA filed this eviction action on September 26, 2012, for nonpayment of rent, the total amount in arrears was $50. The sole issue presented to the district court was whether the monthly $25 late fee provided in the parties' lease violates Minn.Stat. § 504B.177.

The district court entered judgment for the HRA on its eviction action. The court concluded that even though the late fees exceeded eight percent of Lee's overdue rent payments, federal law preempts the eight percent limitation in Minn.Stat. § 504B.177(a). The court determined that a conflict exists between the state statute and federal law because the state statute places an eight percent limitation on late fees, while federal law pertaining to public housing places no limitation on late fees, other than to require that lease provisions not be unreasonable. See, e.g.,42 U.S.C. § 1437d( l ) (2) (2012). In addition, although the parties did not present any evidence or stipulate as to the reasonableness of the late fees, the district court found that the late fees were reasonable and therefore valid under federal law.

Lee appealed, and the court of appeals reversed the eviction. Hous. & Redev. Auth. of Duluth v. Lee, 832 N.W.2d 868, 879 (Minn.App.2013). The court of appeals concluded that there is no conflict between Minn.Stat. § 504B.177(a) and federal law; consequently, the HRA was required to comply with the eight percent limitation on late fees in the state statute. 832 N.W.2d at 878. The court of appeals further concluded that the late fees were unreasonable and “therefore not in compliance with the federal standard.” Id. at 879. We granted the petition of the HRA for further review.

The HRA raises three issues for our review: (1) whether the eight percent limitation on late fees for overdue rent in Minn.Stat. § 504B.177(a) is preempted by federal law; (2) whether the late fees imposed by the HRA were permitted under Minn.Stat. § 504B.177(b); and (3) whether the court of appeals erred in deciding that the late fees were unreasonable under federal law. We address each issue in turn.

I.

The question of whether the state statute is preempted by federal law with respect to public housing authorities is primarily an issue of statutory interpretation, which we review de novo. In re Estate of Barg, 752 N.W.2d 52, 63 (Minn.2008). The goal of all statutory interpretation is to ascertain and effectuate the intent of the Legislature. Minn.Stat. § 645.16 (2012). Similarly, we review de novo the application of law to stipulated facts. Barg, 752 N.W.2d at 63.

Minnesota Statutes § 504B.177(a) requires that a late fee for overdue rent for residential rental property be specified in writing. The statute also provides that “[i]n no case may the late fee exceed eight percent of the overdue rent payment.” Id. It is undisputed that the late fees charged by the HRA violate the eight percent limitation. The first question we must answer is whether federal law preempts the eight percent limitation on late fees in section 504B.177(a) for a federally subsidized residence such as Lee's apartment.

Under the Supremacy Clause of the United States Constitution, U.S. Const. art. VI, cl. 2, federal law, including federal regulations that have the force of law, preempts state law if Congress intends that it do so. Fid. Fed. Sav. & Loan Ass'n v. de la Cuesta, 458 U.S. 141, 152–54, 102 S.Ct. 3014, 73 L.Ed.2d 664 (1982). Federal law can preempt state law in three ways: through (1) field preemption, (2) express preemption, and (3) conflict preemption (sometimes called “implied conflict preemption”). Id.; see also Freightliner Corp. v. Myrick, 514 U.S. 280, 287, 115 S.Ct. 1483, 131 L.Ed.2d 385 (1995); Barg, 752 N.W.2d at 63–64 (discussing the three types of preemption). It is undisputed that only the third type of preemption, conflict preemption, is at issue here.²

Conflict preemption may arise in two different ways. First, a state law is preempted by means of conflict preemption if a party cannot simultaneously comply with both state and federal law. Barg, 752 N.W.2d at 64 (citing Fla. Lime Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142–43, 83 S.Ct. 1210, 10 L.Ed.2d 248 (1963)). Second, a state law is preempted by means of conflict preemption if the state law is an obstacle to achieving the purpose of a federal law. Angell v. Angell, 791 N.W.2d 530, 535 (Minn.2010) (citing Freightliner, 514 U.S. at 287, 115 S.Ct. 1483).

The HRA argues that when a public housing authority (PHA) has determined that a reasonable late fee is greater than eight percent of an overdue payment, it is impossible to comply with both the federal reasonableness standard and Minn.Stat. § 504B.177(a). According to the HRA, this possibility gives rise to conflict preemption. We disagree.

The “federal reasonableness standard” to which the HRA refers derives from the combination of a federal statute and a federal regulation. The relevant federal statute is 42 U.S.C. § 1437d( l )(2), which requires every PHA to “utilize leases which ... do not contain unreasonable terms and conditions.” Notably, the statute does not mandate the inclusion of reasonable terms and conditions in a PHA's lease; it simply forbids the inclusion of any unreasonable terms and conditions. The relevant federal regulation is 24 C.F.R. § 966.4(b)(3) (2013), which provides that “[a]t the option of the PHA,” a lease “ may provide for payment of penalties for late payment.” (Emphasis added.) The language of the regulation is permissive, not mandatory.

Taken together, the statute and the regulation permit a PHA to include in a lease a provision specifying a reasonable late fee for overdue rent, but they do not require the inclusion of such a provision. Accordingly, a PHA can easily comply both with the applicable federal laws and regulations and with Minn.Stat. § 504B.177(a), either by specifying no late fee at all in a lease, or by specifying a late fee of eight percent or less that is not unreasonable.

The HRA next argues that the state law stands as an obstacle to achieving the purposes of federal law. The HRA argues, in essence, that the eight percent limitation on late fees in Minn.Stat. § 504B.177(a) interferes with congressional intent to give maximum flexibility to PHAs and to increase the supply of public housing.

It is...