Kargman v. Sullivan, 77-1559
Decision Date | 22 August 1978 |
Docket Number | No. 77-1559,77-1559 |
Citation | 582 F.2d 131 |
Parties | Max R. KARGMAN et al., Plaintiffs, Appellants, v. Thomas A. SULLIVAN et al., Defendants, Appellees. |
Court | U.S. Court of Appeals — First Circuit |
Richard F. McCarthy, Boston, Mass., with whom Willcox, Pirozzolo & McCarthy, Boston, Mass., was on brief, for appellants.
Thomas H. Martin, Boston, Mass., with whom Mason & Dangel, Boston, Mass., was on brief, for appellees City of Boston and Boston Rent Board.
Mark D. Stern and Brian Michael Olmstead, Boston, Mass., with whom Stern & Zack, Boston, Mass., was on brief for intervenors, appellees.
Before COFFIN, Chief Judge, CAMPBELL and BOWNES, Circuit Judges.
Id. at 13. 1 Since the district court had not reached the plaintiffs' claims under the Contract Clause and the Equal Protection Clause, we remanded for consideration of these issues. Further proceedings then took place, and this appeal is from the district court's denial of plaintiffs' Contract Clause claim. 2
As a consequence of Boston rent control, plaintiffs say they received significantly less than the FHA-approved rents, resulting in diminution of their rights under the contract with the FHA. Not only did the local Board on occasion insist upon lower rents than the FHA, but the additional proceedings allegedly delayed the securing of rent increases forcing plaintiffs to accept lower rents for a longer period. Plaintiffs acknowledge that the Contract Clause does not absolutely forbid any impairment of obligations if the public interest so requires, but argue that where the owners were limited, as here, by HUD regulation 3 to a 6% Return on invested equity and hence precluded from taking unconscionable advantage of market conditions, local rent control cannot be justified as serving any valid public purpose. In making this argument they lay particular stress upon the recent case of United States Trust Co. v. New Jersey, 431 U.S. 1, 97 S.Ct. 1505, 52 L.Ed.2d 92 (1976), which, in their view, lays down a stricter standard than has heretofore prevailed for determining the validity of legislation affecting contract rights.
The district court rejected these arguments. It doubted that plaintiffs' contract with the FHA could be read to guarantee a "right" to receive the maximum rent allowed by HUD rent schedules, Citing Stoneridge Apts., Co. v. Lindsay, 303 F.Supp. 677, 679 (S.D.N.Y.1969). 4 But even assuming such a right existed and that local rent control impaired it, the district court concluded that Boston's rent control fell within the ambit of a state or locality's reserved power to protect the general welfare of the people. El Paso v. Simmons, 379 U.S. 497, 508, 85 S.Ct. 577, 13 L.Ed.2d 446 (1965), Quoting East New York Savings Bank v. Hahn, 326 U.S. 230, 232, 66 S.Ct. 69, 90 L.Ed. 34 (1945). The court pointed to two Supreme Court cases decided in the 1920's upholding rent control as a reasonable exercise of the police power. Block v. Hirsh, 256 U.S. 135, 41 S.Ct. 458, 65 L.Ed. 865 (1921); Marcus Brown Co. v. Feldman, 256 U.S. 170, 41 S.Ct. 465, 65 L.Ed. 877 (1921). It also cited a recent decision of the Massachusetts Supreme Judicial Court, Huard v. Forest Street Housing, Inc., 366 Mass. 203, 316 N.E.2d 505 (1974), sustaining Boston's rent control against a Contract Clause challenge.
Finally the district court discussed plaintiffs' argument that United States Trust Co. v. New Jersey, supra, supports a finding of a Contract Clause violation here. The Court indicated in that case that legislation impairing contract rights is unconstitutional unless it is reasonable and necessary to serve an important public purpose. 431 U.S. at 25, 97 S.Ct. 1505. Focusing on the concept of necessity, plaintiffs contend that the two prior Supreme Court cases, Block v. Hirsh and Marcus Brown, are "entirely inapplicable" here as they involved private housing where there was "no built-in mechanism by which tenants would be protected from unconscionable profit taking in an emergency housing shortage situation." Rent control was thus necessary under those conditions. Under § 221(d)(3), on the other hand, owners are prohibited from receiving excess profits, being limited to a return of not more than six percent of their equity investment. 24 C.F.R. § 221.532(a). Plaintiffs say, "there is no way in which the City of Boston can justify that rent control is 'necessary' for Section 221(d)(3) BMIR housing."
The district court read United States Trust to state that when by later legislation a state subverts its own financial obligations, courts will not readily defer to the legislative determination of reasonableness and necessity, "because the State's self-interest is at stake." 431 U.S. at 26, 97 S.Ct. at 1520. The district court held that when private contracts are at issue, however, courts will exercise such deference.
On appeal, we confront essentially the same arguments as were made below. We find Block v. Hirsh, 5 Marcus Brown, and the line of earlier Contract Clause cases referred to in the district court's decision to be dispositive, unless United States Trust requires us to reach a different result.
431 U.S. at 22-23, 97 S.Ct. at 1517-1518. We think the district court properly interpreted this language as indicating that, with respect to the reasonableness and necessity of laws affecting private obligations, a very substantial if not total deference to legislative judgments is in order. By contrast, when ...
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