Margola Associates v. City of Seattle, No. 57920-2

• Court: United States State Supreme Court of Washington
• Writing for the Court: JOHNSON; ANDERSEN; UTTER
• Citation: 121 Wn.2d 625,854 P.2d 23
• Docket Number: No. 57920-2
• Decision Date: 10 June 1993
• Parties: MARGOLA ASSOCIATES; 514 E. Roy Associates; Franco Villa Associates; John and Judy Downing, husband and wife; Peranzi Property & Investment Company; John Mario Peranzi; PAL Company; Park Manor Associates; Stanford Arms Associates; John Daryl Peranzi; Trinity Partnership, James B. Rose; Richard and Robin Kettlewell, husband and wife; Louis J. Novak; Ruth O. Poole; Paul and Ann Miccolupi, husband and wife; Gladys MacKenzie; Cecil Kelly; Douglas J. Neyhart; S.K. Taniguchi; Alexander Baird; Peggy Ganson; Vincent Mullally; Bart Flora; Gerald Phillips; Bill Leyrer, Appellants, v. CITY OF SEATTLE, a municipal corporation, Respondent. En Banc

Page 625

121 Wn.2d 625 854 P.2d 23 MARGOLA ASSOCIATES; 514 E. Roy Associates; Franco Villa
Associates; John and Judy Downing, husband and wife;
Peranzi Property & Investment Company; John Mario Peranzi;
PAL Company; Park Manor Associates; Stanford Arms
Associates; John Daryl Peranzi; Trinity Partnership, James
B. Rose; Richard and Robin Kettlewell, husband and wife;
Louis J. Novak; Ruth O. Poole; Paul and Ann Miccolupi,
husband and wife; Gladys MacKenzie; Cecil Kelly; Douglas
J. Neyhart; S.K. Taniguchi; Alexander Baird; Peggy
Ganson; Vincent Mullally; Bart Flora; Gerald Phillips;
Bill Leyrer, Appellants,
v.
CITY OF SEATTLE, a municipal corporation, Respondent. No. 57920-2. Supreme Court of Washington, En Banc. June 10, 1993.

[854 P.2d 26]

Page 630

Richard B. Sanders, Bellevue, for appellants.

Mark H. Sidran, Seattle City Atty., Sandra M. Watson, Miriam Reed, Asst. Seattle City Attys., Law Dept., Seattle, for respondent.

Richard M. Stephens, John M. Groen, Bellevue, Ronald A. Zumbrun, Robin L. Rivett, Sacramento, CA, amicus curiae for appellants on behalf of Pacific Legal Foundation.

JOHNSON, Justice.

Apartment building owners in Seattle brought a class action challenging municipal ordinances that require the owners of buildings with more than one dwelling unit to register their buildings and to pay registration fees. They contend the ordinances create an unauthorized tax, are preempted by state law, and violate constitutional provisions regarding equal protection, impairment of contracts, takings, and substantive due process. The trial court upheld the ordinances on summary judgment.

We conclude factual issues exist precluding the issuance of judgment as a matter of law. In particular, material issues of fact preclude this court from deciding as a matter of law whether the registration fee created by the ordinance is a tax that Seattle lacks authority to impose. Accordingly, we reverse the summary judgment and remand for further factfinding on the issue whether the registration fee is a tax or a regulatory fee. We reject certain other challenges to the ordinances.

[854 P.2d 27]

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I. BACKGROUND

The registration program challenged here represents Seattle's response to problems it was experiencing in properly enforcing the provisions of its housing code in the mid-1980's.

Historically, Seattle had inspected buildings for housing code violations only if it first received a complaint about a particular building. Seattle became concerned this complaint inspection process might be inadequate in identifying major housing code violations, and in 1987 it began a demonstration project of randomly inspecting apartment buildings in addition to its complaint inspection process. Approximately 10 percent of the buildings randomly inspected contained serious code violations, even though 80 percent of those buildings with violations had never before been assessed a violation under the complaint program.

Seattle concluded from this project that its complaint inspection procedures were not sufficiently identifying the buildings containing serious code violations. Accordingly, on September 18, 1989, just 2 months prior to the adoption of the registration ordinances, the City Council adopted a limited proactive inspection program, under which the Department of Construction and Land Use (DCLU) would identify and inspect the apartment buildings most likely to have code violations. Seattle City Resolution 28046. In the adopting resolution, the City Council acknowledged proactive inspection would involve added costs, and provided for funding with the following language:

The Council requests the Executive to design and propose a fee-based funding mechanism to support the above-described proactive enforcement program and administrative costs of the fee structure, based on an estimated cost of $846,000 per year.

The Executive has recommended that this fee structure also support costs associated with the complaint response code enforcement program; therefore, the precise amount of the fee should be determined during the 1990 Council Budget process.

Seattle City Resolution 28046; Clerk's Papers, at 289-90.

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Pursuant to this resolution, the fee structure was to be set during the 1990 budget process in order to cover not only the costs of the proactive inspection program, but also at least some of the costs of the complaint inspection program.

In late November, as part of the 1990 budget process, Seattle first adopted the registration program here at issue. On November 27, 1989, Seattle adopted an ordinance we will refer to as the "registration ordinance". Seattle Municipal Code (SMC) 22.202.060. The registration ordinance applies to each "building containing two (2) or more housing units, where at least one (1) of such housing units is not occupied by the owner thereof". The owner of each building must annually obtain and post on the premises a certificate establishing the building has been registered with the City.

The registration ordinance authorizes the DCLU to charge an annual registration fee based on the number of housing units in the building, but the ordinance itself did not set the amount of the fee. Publicly assisted low income housing is exempt from the fee requirement. An owner who fails to register a building under this ordinance becomes subject to civil penalties and is precluded from evicting a tenant, even for just cause.

Four days later, Seattle passed a separate ordinance establishing the amount of the registration fee for the 1990 year. SMC 22.900.150(C). We will refer to this ordinance as the "fee ordinance". The fee ordinance set the fees according to the number of housing units in each building. Generally speaking, the greater the number of housing units, the lower the per-unit registration fee. The annual fees ranged from $30.80 per unit for buildings with two housing units to $23.10 per unit for buildings with 50 or more housing units. Under this scheme, the average monthly fee would be approximately $2 to $2.50 per unit. Because the average rent for Seattle [854 P.2d 28] apartments was approximately $500 per month in 1990, the registration fee amounts to no more than one-half of 1 percent of the average apartment monthly rental rate.

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Margola Associates and a number of other owners of Seattle apartment buildings sued the City. In their complaint, these plaintiffs (hereinafter referred to as Margola) challenged the municipal ordinances on a number of grounds: authority to tax; due process; equal protection; taking property without just compensation; impairment of contractual obligations; inverse condemnation; intentional interference with a business expectancy; and preemption by the Residential Landlord-Tenant Act of 1973. Margola's complaint requested a judgment declaring the ordinances invalid, an injunction against continued collection of the fee, damages, and attorney fees.

King County Superior Court certified the suit as a class action under CR 23(b)(2), ¹ and established the plaintiff class as "all persons owning buildings in the City of Seattle which must be registered pursuant to the requirements of SMC 22.202.060." The court denied Margola's preliminary injunction motion.

Margola filed a motion for a partial summary judgment pursuing declaratory and injunctive relief; damages issues were withheld for a later decision. Seattle filed a cross motion for summary judgment, seeking dismissal of Margola's complaint. The Superior Court granted summary judgment to Seattle, denied Margola's motion for partial summary judgment, and dismissed the action with prejudice.

Margola obtained direct review of the summary judgment decisions in this court. Margola's appeal raises the following issues.

II. ISSUES

A. Is the registration fee a regulatory fee, which would be authorized under Seattle's police powers, or is it instead an unauthorized tax?

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B. Alternatively, is the registration fee validly imposed pursuant to Seattle's licensing powers?

C. Does the registration ordinance unconstitutionally take private property without paying just compensation?

D. Do the registration and fee ordinances violate substantive due process?

E. Do the registration and fee ordinances violate equal protection?

F. Is the registration ordinance preempted by the Residential Landlord-Tenant Act of 1973?

G. Does the registration ordinance unconstitutionally impair contracts?

H. Is Margola entitled to attorney fees on appeal?

III. ANALYSIS

In reviewing a summary judgment, an appellate court engages in the same analysis as the trial court. The appellate court determines whether genuine issues of material fact exist and whether the moving party is entitled to judgment as a matter of law. The appellate court considers the facts in the light most favorable to the nonmoving party. Swanson v. Liquid Air Corp., 118 Wash.2d 512, 518, 826 P.2d 664 (1992); CR 56(c).

A. Tax Versus Regulatory Fee.

Margola argues the registration fee is a tax that Seattle lacks authority to impose. Seattle maintains its ordinances create a regulatory fee, not a tax, and that this type of fee is authorized under the City's general police powers.

The parties have properly framed this issue. If the registration fee is indeed regulatory, then Seattle has authority to impose that fee under its general police powers to regulate matters relating to health, safety, and welfare. Const. art. 11, § 11. Seattle also has direct legislative [854 P.2d 29] authority to regulate in order to maintain safe housing. RCW 35.22.280(23). On the other hand, local governments may tax only pursuant to specific legislative or constitutional authority. Hillis

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Homes, Inc. v. Snohomish Cy., 97 Wash.2d 804, 805, 650 P.2d 193 (1982) (Hillis I); San Telmo Assocs. v. Seattle, 108 Wash.2d 20, 23, 735 P.2d 673 (1987). The authority to tax cannot be implied from a local government's general powers. Hillis I, 97 Wash.2d at 809,...