Today’s State Supreme Court rulings on tenant-protection laws: a deep dive

As I wrote earlier today, this morning the Washington State Supreme Court handed down two rulings related to two of Seattle’s tenant-protection ordinances: the “First in Time” ordinance, and the “Fair Chance Housing” ordinance. Here’s a deeper dive on the cases and the rulings.

First, the “First in Time” (FIT) ordinance, which mandates that landlords offer tenancy to the first qualified candidate who applies, rather than sorting through the candidates and picking the one they like the most. It is intended to prevent landlords’ bias, explicit or implicit, from having a disparate impact on access to rental housing.

A King County Superior Court judge threw out the ordinance, but the city appealed the ruling directly to the state Supreme Court, which accepted the case. Four questions were put in front of the Court:

1. Does the FIT ordinance effect a “regulatory taking”?
2. If so, is it for private use?
3. Does the FIT ordinance violate the plaintiffs’ right to substantive due process?
4. Does the FIT ordinance violate the plaintiffs’ right to free speech?

Let’s begin by looking at the “taking” questions.  Article I, Section 16 of the Washington State Constitution reads (emphasis mine):

Private property shall not be taken for private use, except for private ways of necessity, and for drains, flumes, or ditches on or across the lands of others for agricultural, domestic, or sanitary purposes.  No private property shall be taken or damaged for public or private use without just compensation having been first made, or paid into court for the owner, and no right-of way shall be appropriated to the use of any corporation other than municipal until full compensation therefor be first made in money, or ascertained and paid into court for the owner, irrespective of any benefit from any improvement proposed by such corporation, which compensation shall be ascertained by a jury, unless a jury be waived, as in other civil cases in courts of record, in the manner prescribed by law. Whenever an attempt is made to take private property for a use alleged to be public, the question whether the contemplated use be really public shall be a judicial question, and determined as such, without regard to any legislative assertion that the use is public:  Provided, That the taking of private property by the state for land reclamation and settlement purposes is hereby declared to be for public use.  

The Fifth Amendment to the United States Constitution contains similar language, though not as detailed:

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offence to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself; nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use without just compensation.

And the Fourteenth Amendment applies the same principles to the States (and thereby to cities, which are “municipal corporations” of the State):

No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law;

It might seem at the very least redundant, if not outright problematic, for both Constitutions to provide prohibitions on government takings. In practice, it’s just fine, so long as the state Constitution’s protections are no weaker than the U.S. Constitution’s. In fact, the state can offer stronger protections — and it does, such as the outright prohibition on government takings for private use.

So what constitutes a “taking” of property? There are some easy examples, the most obvious one is when the government seizes ownership of a piece of land. But the courts also recognize a “regulatory taking,” where the regulations placed upon a person’s property become so burdensome that they infringe upon an owner’s fundamental property rights and become a de facto exercise of eminent domain. The U.S. and state constitutions don’t prohibit government takings (regulatory or otherwise), but they require due process of law and just compensation when they happen. But over the last few decades, the courts have been inconsistent in defining the threshold at which a regulatory action becomes a “taking” — and that inconsistency is at the heart of today’s ruling. This is important, because if a regulatory action isn’t a “taking” then the government does not need to meet either the due process or just compensation requirements.

The state Supreme Court is bound to follow precedents set by the U.S. Supreme Court, the only court in the land that sits above it.  It is also bound to follow its earlier precedents by a principle called stare decisis, which guarantees that the courts are consistent in their rulings. However, the court has an out-card: it can overturn its previous rulings if it finds it to be clearly erroneous, or if the “legal underpinnings of [its] precedent have changed or disappeared altogether.” In other words, if the law changes, or if the U.S. Supreme Court sets new precedents, the state Supreme Court can overturn its previous rulings and issue new ones.

The Court’s case law on determining regulatory takings, developed over decades, is truly a mess. Like the federal courts, it first establishes some categorical (or “per se”) types of regulatory takings, including regulations that “require an owner to suffer a permanent physical invasion of her property” and regulations that “completely deprive an owner of all economically beneficial use of her property.” Cases that don’t fall into one of the categorical takings are then judged as to whether they represent a “partial taking,” through a one-off, fact-based analysis following a set of criteria specified in the U.S. Supreme Court case Penn Central vs. New York City.

But the plaintiffs in the FIT ordinance case argued that the state court has identified another categorical type of taking, which includes any regulation that “destroys one or more of the fundamental attributes of ownership.” They cite multiple cases for this assertion, the main one being Manufactured Housing Assn. vs. State of Washington. The state is allowed to have additional categories, because it increases the protections above what the U.S. Constitution offers. The City of Seattle, however, argues that the courts never did that — at least not intentionally — but even if it did, since the Manufactured Housing ruling the U.S. Supreme Court has issued a new ruling, Lingle vs. Chevron U.S.A.,  clarifying that there are only two categorical types of takings, the ones listed above (permanent physical invasion, and depriving all economically beneficial use). The Court should simply declare that it’s following the U.S. Supreme Court and abandon all attempts to do its own thing, the city argues.

And in a surprising and landmark decision today, the state Supreme Court unanimously agreed with the city: through some eyebrow-raising retelling of its own history, it declared that it had always been its intention to follow the federal case law rather than write its own, and it only appeared to have created an independent path for determining takings because the federal case law it was trying to follow was also messy, complicated, confusing, and a moving target. But now, it says, everything is much clearer since the U.S. Supreme Court ruled in Lingle vs. Chevron USA, and it can clean up its own house. It declared, for the purposes of determining regulatory takings in Washington State, that the federal precedents rule the day, and disavowed seven separate cases, including Manufactured Housing, as precedents that can be cited in cases in Washington.

The practical effect of that decision is to erase the third categorical type of regulatory taking that the plaintiffs depended upon for their case: “destroying a fundamental attribute of ownership.” The FIT rule doesn’t meet either of the two remaining acceptable categories, and the plaintiffs didn’t bother to argue whether it met the test for a “partial taking” under the Penn Central rules, so the Court ultimately concluded that the FIT rule is not a regulatory “taking.”

That makes question #2 moot: if it’s not a taking, it doesn’t matter whether it’s for private or public use.

On to question #3: whether the FIT rule violates the plaintiffs’ right to substantive due process. A regulation violates substantive due process if it’s “arbitrary and capricious”: the government needs to articulate a legitimate purpose for the regulation. But then the courts review that stated purpose against a different standard depending upon a number of factors, including the specific rights that the regulation infringes. The more fundamental and important the rights, the higher standard imposed. The lowest level is known as “rational basis,” under which the regulation is allowed if it “serve[s] any legitimate governmental objective.” One of the higher standards  of review is known as “heightened scrutiny,” in which the regulation must have a “substantial relation” to a legitimate government purpose. The plaintiffs argued that the state case law established a standard of review similar to heightened scrutiny for due process cases involving property rights, while the city argued that the standard is rational basis, based upon the federal case law. Again, the Court agreed with the city, stated its intent to follow federal case law rather than write its own, and chose rational basis, the most deferential standard. And then it ruled that the stated intent of the FIT ordinance, to “mitigate the impact of implicit bias in tenancy decisions,” is sufficient to pass rational basis review, and that the ordinance’s requirements are rationally related to that purpose — in fact, they are based on best practices recommended by landlord trade associations. Therefore, it held, the FIT ordinance does not violate the plaintiffs’ substantive due process rights.

That leaves question #4: whether the FIT ordinance violates the plaintiffs’ right to free speech. The specific issue here is that the rule forces landlords to include specific information in advertisements for vacant tenancies, something that is clearly “commercial speech.” Again, the parties disagree about the standard of review that must be applied to a governmental regulation of commercial speech. In deciding that issue, the Court noted, “the level of scrutiny applied to laws governing commercial speech depends on whether the law at issue actually restricts commercial speech or merely requires commercial speakers to include factual disclosures.” It found that in this case it’s the latter, and that the lowest standard applies, known as “deferential scrutiny,” under which a person’s “constitutionally protected interest in not providing any factual information in his advertising is minimal.” The city needed to show that its disclosure requirements are “neither unjustified nor unduly burdensome,” and that it addresses a harm that is “potentially real not purely hypothetical,” The Court found that it had done so, and so found that the FIT ordinance does not violate the plaintiffs’ rights to free speech.

While finding the FIT ordinance to be constitutional, the Court did throw a bit of shade on it at the end of its opinion:

The FIT rule is unquestionably an experiment. This is clear from the rule itself, which requires “the City Auditor to conduct an evaluation of the impact of the program described in subsections 14.08.050.A-C to determine if the program should be maintained, amended, or repealed.” SMC 14.08.050(D). There is room for substantial debate about whether such an experiment is likely to succeed. However, the plaintiffs’ facial challenges ask only whether the FIT rule is an experiment that Seattle is constitutionally prohibited from  conducting. It is not.

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Now on to the Fair Chance Housing (FCH) ordinance, which declares that it’s an unfair practice for landlords and tenant screening services to “require disclosure, inquire about, or take an adverse action against a prospective occupant, a tenant, or a member of their household, based on any arrest record, conviction record, or criminal history.”

This case has had its own strange path through the court system. It was originally filed in King County Superior Court, where the plaintiffs (several of whom are also plaintiffs in the FIT ordinance case above) alleged that the FCH ordinance violates their state due process rights, and their federal due process and free speech rights. The City of Seattle successfully had the case moved to the U.S. District Court, and both sides filed motions for summary judgment. However, they disagreed on one legal issue, the same one as #3 in the FIT case: the standard of review for a substantive due process allegation under Washington law. Recognizing that the case law is messy and that the FIT ordinance was under review, the judge asked the state Supreme Court to answer three questions to inform his ruling:

1. What is the proper standard to analyze a substantive due process claim under the Washington Constitution?
2. Is the same standard applied to substantive due process claims involving land use regulations?
3. What standard should be applied to the FCH ordinance?

In answering the first question, the Court took a deeper dive into the existing case law (both federal and its own) than it did in the FIT case. The plaintiffs argued a long list of reasons (and case law) why the standard should be some form of “heightened scrutiny,” but the Court batted them all away, often by noting that the state cases that seemed to require heightened scrutiny did so by referencing federal case law, and once again the “legal underpinnings of our precedent have changed or disappeared altogether.” And in the end, the Court agreed with the City of Seattle, noted that it has no intention of maintaining an independent basis for determining the standard of review separate from the federal precedent, and declared that Washington state follows the federal standard: “rational basis.” But to show how massive and confusing the case law is on this issue, the Court attached an appendix that lists two full pages of cases that it has disavowed and may no longer be cited as support for heightened scrutiny in due process cases regulating the use of property.

The Court then made quick work of the second and third questions, declaring that the answer to both is also “rational basis.” Three of the nine justices, however, pointed out that the answer to question #3 is not a question of state or local law, and thus is not appropriate for the state Supreme Court to answer for a federal court.

The district court judge now has his answers, and will proceed to rule on the parties’ cross-motions for summary judgment. It’s worth noting that there are some very different factual and  legal issues at play in this case versus the FIT case — especially the free speech issues — so while the Court’s ruling today certainly lowers the bar for the city in the state due process allegation, the city may not prevail on it or the federal due process and free speech allegations.

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Here are a few thoughts on the impact and implications of today’s rulings.

• This was a big win for the city on a couple of long-drawn-out cases. It was also a surprise win; the justices seemed very skeptical during oral argument that they could or should overturn so much of the Court’s case law.
• It was equally a devastating loss for property-rights advocates, as it opens the door for significant regulations by setting the bar so low for the city. One of the cases overturned today, Manufactured Housing, was a landmark case that found that the state government couldn’t give a “right of first refusal” to mobile-home residents to purchase their mobile-home park if the owner tried to sell it. But now that the Court has held that a right of first refusal is no longer a “taking,” it’s fair game, including for a city like Seattle to impose on apartment building owners wanting to sell to developers; the city could force the owner to let the tenants (or the city itself) purchase the property first.
• Today’s ruling on the FIT ordinance is the death-knell for Rentberry’s rent-bidding service in Washington. As I wrote earlier this week, the City Council passed a moratorium in early 2018 banning rent-bidding platforms, and has been waiting to see how relevant litigation played out. But it is crystal-clear that conducting a competitive auction to rent a property violates the First in Time ordinance, making Rentberry’s service illegal.
• Many people today are using this case as a portend of what might happen when the city’s income-tax ordinance reaches the state Supreme Court, as it will shortly. There is some similarity in that the income tax has been ruled invalid by lower courts because of several state Supreme Court precedents holding that income is property and thus must be taxed uniformly. Advocates for the income tax are hoping that this Court will overturn that stream of cases as well, and pave the way for a progressive income tax. However, there are different issues at stake, and given that the applicable definition of “property” is written into the state Constitution, the court will have a much more difficult time applying the exceptions to stare decisis to overturn itself in that case. But certainly today’s rulings show that the Court is willing to overturn itself, and to do surprsing things.
• In a press release this afternoon, City Attorney Pete Holmes said:
  “My office’s mantra has been to correct mistaken case law and give our elected policy makers the tools they need to govern a modern American city. This ruling has been years in the making, and we prevailed thanks to smart lawyering and an eye toward addressing antiquated decisions of the past.”
  
  Council member Lisa Herbold, the sponsor of the First in Time and Fair Chance Housing ordinances, said:
  ” I’m heartened that, three years after passage of the legislation, the (upper) courts agree: landlords must accept the first qualified applicant to live in a rental property. Our judicial system understands that implicit bias has no place in our rental markets. Office for Civil Rights conducted housing discrimination testing using pairs of equally qualified applicants—one in a protected class, the other in no protected class— showed evidence of differential treatment in over 60% of the tests. Today’s ruling gives renters and the city the tools they need to set things right for renters, and is another accomplishment on a long list of legislation Seattle can use to encourage other municipalities to protect renters from the scourge of discrimination everywhere.” 

  Meanwhile, Sean Martin, Executive Director of the Rental Housing Association of Washington  (a trade association for landlords) released a statement too:
  ““A recent survey completed by the University of Washington indicated that 40% of small landlords have or will leave the market due to onerous city regulations. Small landlords provide the most affordable housing in the city and fewer units available just makes the housing crunch worse. This decision will speed up that exodus and make affordable housing even harder to find in Seattle.”
  

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