NASH v. CITY OF SANTA MONICA

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Court of Appeal, Second District, Division 3, California.

Jerome J. NASH, Petitioner and Respondent, v. CITY OF SANTA MONICA, a Municipal Corporation;  Santa Monica Rent Control Board, an agency of the City of Santa Monica, Appellants.

Civ. 60079, Civ. 61923.

Decided: May 25, 1983

Robert M. Myers, City Atty., Stephen S. Stark, Asst. City Atty., Susan L. Carroll and Karl M. Manheim, Deputy City Attys., for appellant City of Santa Monica. Michael Heumann, Senior Atty., Santa Monica, David Pettit, Los Angeles, and Stephen P. Wiman, Staff Attys., Santa Monica, for appellant Santa Monica Rent Control Board. Rich & Ezer and Mitchel J. Ezer, Los Angeles, for petitioner and respondent. Bonelli, Heib, Fuchs & O'Neal and Stanley Sapiro, Encino, Latham & Watkins and Stephen L. Jones and George Kimball, Los Angeles, as amicus curiae on behalf of Petitioner and Respondent.

The City of Santa Monica and the Santa Monica Rent Control Board (collectively Santa Monica) appeal the issuance of a writ of mandate ordering them to give Jerome J. Nash (Nash) a demolition permit.   The writ was granted on the grounds that section 1803 subdivision (t) of the Santa Monica Rent Control Charter Amendment which rendered Nash ineligible for a demolition permit was unconstitutional.

Because the demolition permit requirement of section 1803 subdivision (t) in its application to the fact situation before us violates article I section 7(a) of the California Constitution, we affirm.

FACTS AND PROCEDURAL HISTORY

In 1978, Nash purchased a six unit apartment building which is the subject of this controversy.   After operating the apartment for a time, Nash decided that he did not like being a landlord.

In 1979, the citizens of Santa Monica by initiative added Article XVIII to the city's charter.   This new article provided for a rent control board with the authority to set and adjust maximum rents and to control the removal of rental units from the housing market.  (§ 1803.) 1  The Rent Control Law also regulates tenant evictions.  (§ 1806.)   Section 1803 subdivision (t) 2 of the Rent Control Law requires a landlord to obtain a permit before demolishing a building.   Where the landlord both owns habitable property and does not wish to rebuild, a demolition permit will be granted only upon a finding that (1) the building is not occupied by persons of low or moderate income, (2) cannot be afforded by person of low or moderate income, (3) removal will not adversely affect the housing supply and (4) owner cannot make a reasonable return on investment.

On or about December 3, 1979, Nash petitioned the Rent Control Board for a demolition permit.   Although required to do so by regulation, Nash did not concurrently file a petition for rent increase.   He justified this omission on the grounds that he did not want to change the rents;  he wanted to destroy the structure.   The Rent Control Board returned his petition for a demolition permit as incomplete.

Rather than complete the petition, Nash filed a petition for a writ of mandate with the trial court.   After a hearing, the trial court determined that Nash had no adequate administrative avenue for obtaining the demolition permit as he could not comply with section 1803 subdivision (t).   The trial court found that Nash was capable of making a fair return on his investment and that the building was affordable to and currently rented by persons of moderate or lower incomes.

Based on those findings, the trial court concluded as a matter of law that the Rent Control Board's refusal to issue the demolition permit amounted to a deprivation of property without due process of law, and a taking for public use without just compensation.   A peremptory writ of mandate was issued commanding the Rent Control Board to issue Nash a removal permit.   An appeal was timely filed on September 1, 1980.

CONTENTIONS

On appeal, Santa Monica claims that the demolition restrictions are squarely within the ambit of the police power.   Nash contends that the restrictions exceed the bounds of the police power by impermissibly impinging on his right to go out of the landlord business.

The issue 3 before this court is therefore whether section 1803 subdivision (t), insofar as it restricts the right of a landowner to go out of business by tearing down his building, violates the due process clause of the California Constitution.  (Cal. Const., art. 1, § 7(a).)

DISCUSSION

1. Standard of review is strict scrutiny.

 Generally, an exercise of the police power will withstand a substantive due process challenge so long as it is “reasonably related to a proper legislative goal.”  (Perez v. City of San Bruno (1980) 27 Cal.3d 875, 889, 168 Cal.Rptr. 114, 616 P.2d 1287;  Hale v. Morgan (1978) 22 Cal.3d 388, 398, 149 Cal.Rptr. 375, 584 P.2d 512.)   In reviewing police power regulations, the court's role is usually very limited.  “The wisdom of the legislation is not at issue [and] the availability of less drastic remedial alternatives [will not] invalidate a statute.”  (Ibid.;  see also Weaver v. Jordan (1966) 64 Cal.2d 235, 258–259, 49 Cal.Rptr. 537, 411 P.2d 289 (J. Mosk dissenting).)

 However, where the rights affected by legislation are “so fundamental or ‘implicit in the concept of ordered liberty’ (Palko v. Connecticut (1937) 302 U.S. 319, 325, 58 S.Ct. 149, 152, 82 L.Ed. 288 ․) as to require equivalent protection”, a more searching level of scrutiny is applied.   (Perez v. City of San Bruno, supra, 27 Cal.3d at pp. 889–890, 168 Cal.Rptr. 114, 616 P.2d 1287.)   Our task therefore is to determine the nature of the rights involved here and the appropriate standard of review.

Under section 1803 subdivision (t) as long as the structure is habitable and low or moderate income people can afford the apartments, the owner cannot get a permit to withdraw the rental units from the market.   A landlord cannot terminate his business 4 by evicting all the tenants and letting the building stand empty, since evictions are carefully regulated.  (See § 1806.)   Additionally, because conversion permits are available only under the same conditions as demolition permits, an owner cannot cease being a landlord by selling the units as condominiums.5  The only possible way out is to sell to someone who is willing to be a landlord.   To do so, however, may cause substantial financial hardship if the value of the property has dropped as a result of rent control.   A landowner who wishes to keep the land is therefore compelled to stay in the residential rental housing business.   Thus, the Rent Control Law impinges upon the individual's right to go out of business.

 Having demonstrated that the right involved is the right to go out of business, we must now determine whether infringements of that right are subject to strict scrutiny.   The resolution of this issue turns on the nature of the right.

 The right to cease operating a business has not been widely discussed, hence its contours and boundaries are not clear.   We do not purport here to define fully the extent of the right to go out of business, since its very core is infringed upon by the statute before us.   Generally speaking, it is the right of the individual to stop working in a given occupation or the operation of a given business.6  Although the right does not restrict the state's power to regulate the conduct of a business voluntarily engaged in, it restricts the government's ability to force the individual to participate in a particular enterprise.   Because it touches the individual's ability to make a choice which greatly affects his or her life style, the right to go out of business is a personal freedom.   Its title, which makes it sound like an economic right is therefore deceptive.

 The group of rights protected by strict judicial scrutiny is not limited to rights expressly set forth in the Constitution, but “extends to basic values ‘implicit in the concept of ordered liberty.’   [Citation.]”  (City of Carmel-by-the-Sea v. Young (1970) 2 Cal.3d 259, 266, 85 Cal.Rptr. 1, 466 P.2d 225;  Serrano v. Priest (1976) 18 Cal.3d 728, 767, 135 Cal.Rptr. 345, 557 P.2d 929.)   Therefore, that the right to go out of business is neither an express nor a widely acknowledged right does not bar the application of strict scrutiny.

 There exists an undefined yet real notion of freedom which is violated by the idea of compelling an individual to work in a given business.   This freedom is protected from the most egregious infringements by the Thirteenth Amendment of the United States Constitution.   Yet the degree to which the individual is restricted need not rise to the level of involuntary servitude before it offends this notion of personal liberty.   For example, employment contracts for personal services are not specifically enforceable against either the employee or the employer.  (Civ.Code, § 3390;  see also Civ.Code § 3423, subd. (Fifth).)

Indeed, California courts have even been reluctant to force landowners to use property in a specified manner.   In Dept. of Public Works v. San Diego (1932) 122 Cal.App. 159, 166–167, 10 P.2d 102, the court stated:  “While the police power may limit and restrict the uses to which an owner may put his property, it may not compel him to use such property for a particular purpose if he prefers to abandon such a use thereof.”   The right to cease to operate a business, impacting as it does on the work efforts of the proprietor, is one aspect of this more general freedom.

 The right of an individual not to work in a certain occupation is closely analogous to the “right to work for a living in the common occupations of the community.”  (Sail'er Inn, Inc. v. Kirby (1971) 5 Cal.3d 1, 17, 95 Cal.Rptr. 329, 485 P.2d 529;  Purdy and Fitzpatrick v. State of California (1969) 71 Cal.2d 566, 576, 79 Cal.Rptr. 77, 456 P.2d 645.)   Deemed “essential to the pursuit of life, liberty and happiness,” the right to work in a common occupation is protected from unjustified interference by strict scrutiny review.  (Sail'er Inn, Inc. v. Kirby, supra, 5 Cal.3d at p. 17, 95 Cal.Rptr. 329, 485 P.2d 529;  but cf. D'Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 18, 112 Cal.Rptr. 786, 520 P.2d 10 (right to work in technical or complex field not protected by strict scrutiny).)

Like the right to enter an occupation, the right to terminate a business involves a personal decision concerning the individual's role in the economy.   Both protect the individual's ability to use his or her talents and resources in the manner best suited to bring life satisfaction and economic security.

Given the close relationship between the right to go out of business and other rights which are fundamental, the rational basis standard of review seems improper.   Accordingly, we shall use heightened scrutiny in evaluating laws which infringe upon the right to go out of business.

In their supplemental brief Santa Monica contends that even if the right to go out of business is fundamental, section 1803, subdivision (t) should not be analyzed under strict scrutiny.   They argue section 1803, subdivision (t) is just a land use regulation subject to rational basis scrutiny and that any infringement on the right is merely incidental.   In support of this argument, Santa Monica cites Associated Home Builders Etc., Inc. v. City of Livermore (1976) 18 Cal.3d 582, 135 Cal.Rptr. 41, 557 P.2d 473.   That case however is clearly distinguishable.   In Associated Home Builders the court refused to apply strict scrutiny to an exclusionary zoning ordinance despite appellants' claim that the right to travel was involved.   In reaching this conclusion the court noted that the ordinance did not penalize the right to travel, but rather only made its exercise more difficult.  (Id., at p. 603, 135 Cal.Rptr. 41, 557 P.2d 473.)

Here section 1803, subdivision (t) does not just make it hard for a property owner simultaneously to keep his land yet cease being a landlord, it makes it impossible.   Therefore, although it appears on the surface that section 1803, subdivision (t) is a purely economic regulation, it fundamentally effects a personal right and strict scrutiny must be applied.

2. Section 1803 subdivision (t) fails to meet the strict scrutiny test.

 “When rights of such fundamental nature are involved, ‘regulation limiting these rights may be justified only by a “compelling state interest,” [citations] and ․ legislative enactments must be narrowly drawn to express only the legitimate state interests at stake.’ ”  (Perez v. City of San Bruno, supra, 27 Cal.3d 875 at p. 890, fn. 11, 168 Cal.Rptr. 114, 616 P.2d 1287.)   Assuming arguendo that Santa Monica's interest in preserving the stock of rental housing is compelling, we must decide whether the statute is drawn closely enough to pass constitutional muster.

A nonexhaustive survey of other rent control acts reveals that the Santa Monica act imposes the greatest limits on a landowner's ability to go out of the rental business.   Most liberal was the federal rent control act enacted during World War II, and even this wartime measure provided that “[n]othing in this Act shall be construed to require any person to sell any commodity or to offer any accommodations for rent.”  (Emergency Price Control Act of 1942, as quoted in Bowles v. Willingham (1943) 321 U.S. 503, 517, 64 S.Ct. 641, 648, 88 L.Ed. 892, 905.)

Several jurisdictions expressly permit tenant evictions to facilitate demolitions.  (1970 Mass. Acts 1970, ch. 842, § 9(a) 9;  1969 Mass. Acts 1969, ch. 797 (Rent and Eviction Controls for Boston, Mass.);   Berkeley, Cal. city ordinance, Stats.1972 (Reg.Sess.) res. ch. 96, p. 3372, declared unconstitutional on other grounds, Birkenfeld v. City of Berkeley (1976) 17 Cal.3d 129, 130 Cal.Rptr. 465, 550 P.2d 1001.)

Only the New York Emergency Housing Rent Control Act ((N.Y.) Unconsol.Law § 8581 et seq.) comes close to the Santa Monica law.   It requires rental commission approval before a unit can be withdrawn from the market where such withdrawal involves the eviction of a tenant.  ((N.Y.) Unconsol.Laws § 8590(4).)   However, under the New York law, a landlord could demolish a building if it is to be replaced with a nonresidential structure, which is not true in Santa Monica.  ((N.Y.) Unconsol.Laws § 8585, subd. 2(d)(ii);  cf. Housing Element, Santa Monica Master Plan, Program 10.)

These other laws demonstrate that it is possible to pursue the goals of avoiding the depletion of the housing stock and preventing upward pressure on rents without forcing a landowner to be in the residential housing business against his/her will.

The Santa Monica law may be marginally more effective from those of other jurisdictions.   Realistically, however, few landowners will prefer to see their land lying fallow instead of producing income;  thus, the practical effect of such strong removal restrictions on the housing stock is probably minimal.

Additionally, we note that the vacancy rate in surrounding communities is higher than in Santa Monica.7  Therefore, a fractional decrease in Santa Monica's housing stock should not have a strong adverse effect on the public as alternative accommodations are available.   While Santa Monica has the right to preserve housing regardless of what occurs in neighboring jurisdictions, greater housing opportunities in the surrounding areas make the Santa Monica controls less “compelling.”   On the other hand, the incursion on the right to go out of business is strong.  (See Discussion, supra, at p. 720.)

 The state has the burden of demonstrating the necessity of regulations that infringe on fundamental interests.  (Subriar v. City of Bakersfield (1976) 59 Cal.App.3d 175, 199–200, 130 Cal.Rptr. 853.)   Here there has been an insufficient showing of such a necessity that the benefits received outweigh the strong burden on a personal freedom.

Santa Monica may be concerned that less stringent regulation of removals would permit the circumvention of the Rent Control Law by allowing landlords to demolish their buildings and then replace them with newly constructed units which are not subject to rent control.   While this concern is legitimate, (see discussion in Flynn v. City of Cambridge (Mass.1981) 383 Mass. 152, 418 N.E.2d 335, 339), less intrusive means may be found for achieving it.   Santa Monica could make new construction on lots formerly containing rent controlled property subject to rent control.

Because the demolition permit requirement section 1803 subdivision (t) infringes more than is necessary in this limited fact situation for the effectuation of its goals, it violates the due process clause of article I section 7(a).   We do not hold that all demolition controls are constitutionally infirm.   We find only that the current Santa Monica ordinance is too restrictive to pass constitutional muster.

3. The invalidity of other sections of the Rent Control Law raised by amicus curiae.

 In its brief, amicus curiae challenges the validity of sections of the Rent Control Law other than section 1803 subdivision (t).   It urges that the unconstitutionality of other sections taints section 1803 subdivision (t) and mandates our affirmance of the trial judge.   Such objections were not raised before either this court or the trial court.  “Amicus curiae must accept the issues made and propositions urged by the appealing parties and any additional questions presented in a brief filed by amicus curiae will not be considered.”  (Pratt v. Coast Trucking, Inc. (1964) 228 Cal.App.2d 139, 143, 39 Cal.Rptr. 332;  see also E.L. White Inc. v. City of Huntington Beach (1978) 21 Cal.3d 497, 510–511, 146 Cal.Rptr. 614, 579 P.2d 505.)   We therefore decline to address those arguments.

4. Attorneys' fees.

 One amicus curiae asks for an award of attorneys' fees both for itself and for Nash.   Nash asked for attorneys' fees in his complaint, but the trial court did not grant them.   Nash has not appealed that determination.   We therefore deem his right to fees waived.  (See Salter v. Ulrich (1943) 22 Cal.2d 263, 268, 138 P.2d 7 (no review of issues effecting nonappealing party);  see also Henderson v. Security National Bank (1977) 72 Cal.App.3d 764, 769, 140 Cal.Rptr. 388 (point not discussed in brief deemed waived).)

 Amici curiae are not entitled to fees under Code of Civil Procedure section 1021.5 as they are not parties.   We also decline to award them fees under a substantial benefit theory.

DISPOSITION

The judgment is affirmed.

FOOTNOTES

1.   Unless otherwise indicated all section references are to Santa Monica City Charter, Article XVIII.

2.   Section 1803 subdivision (t) provides as follows:  “(t) REMOVAL OF CONTROLLED RENTAL UNIT FROM RENTAL HOUSING MARKET:  Any landlord who desires to remove a controlled rental unit from the rental housing market by demolition, conversion or other means is required to obtain a permit from the Board prior to such removal from the rental housing market in accordance with rules and regulations promulgated by the Board.   In order to approve such a permit, the Board is required to make each of the following findings;  [¶] (1) That the controlled rental unit is not occupied by a person or family of very low income, low income or moderate income.  [¶] (2) That the rent of the controlled rental unit is not at a level affordable by a person or family of very low income, low income, or moderate income.  [¶] (3) That the removal of the controlled rental unit will not adversely affect the supply of housing in the City of Santa Monica.  [¶] (4) That the landlord cannot make a fair return on investment by retaining the controlled rental unit.  [¶] Notwithstanding the foregoing provisions of this subsection, the Board may approve such a permit:  [¶] (1) If the Board finds that the controlled rental unit is uninhabitable and is incapable of being made habitable in an economically feasible manner, or [¶] (2) If the permit is being sought so that the property may be developed with multifamily dwelling units and the permit applicant agrees as a condition of approval that the units will not be exempt from the provisions of this Article pursuant to Section 1801(c) and that at least fifteen (15) per cent of the controlled rental units to be built on the site will be at rents affordable by persons of low income.

3.   Nash did not seek to defend the trial court's conclusion that section 1803 subdivision (t) constituted a compensable taking.   Because of our resolution of the due process issue, we need not consider whether the resolution of the taking issue was correct.

4.   Neither party disputes that renting housing is a business.   (See Marina Point, Ltd. v. Wolfson (1982) 30 Cal.3d 721, 731, 180 Cal.Rptr. 496, 640 P.2d 115.)

5.   In addition to the regular permitting requirement, Santa Monica has recently instituted a temporary moratorium on condominium conversion, thereby completely eliminating conversion as a method of going out of business.  (See Housing Element, Santa Monica Master Plan, Program 25.)

6.   We note that the right to go out of business does not apply to public utilities, which hold a special place both in relation to the public welfare and in the law.  (See Cal. Const., art. XII § 3.)

7.   The vacancy rate in early 1981 in West Los Angeles was 2.12 percent.  (City of Los Angeles Housing Statistics, Dept. of City Planning.)   The vacancy rate in Santa Monica using 1980 census data was 1.7 percent.  (Technical Report to Housing Element p. 165.)We take judicial notice of statistics from the Department of City Planning pursuant to Evidence Code section 452, subdivision (h).

KLEIN, Presiding Justice.

LUI and DANIELSON, JJ., concur.

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