HARRIS v. CAPITAL GROWTH INVESTORS XIV (1989)

Plaintiffs Tamela Harris and Muriel Jordan ¹ appeal from the trial court's judgment in favor of defendants Capital Growth Investors XIV and others ² on the second cause of action of plaintiffs' first amended complaint.³  In their second cause of action, plaintiffs had attempted to state a claim under the Unruh Civil Rights Act.⁴  They challenged defendants' requirement that prospective tenants have gross monthly incomes of at least three times an apartment's monthly rent.   On defendants' demurrer, however, the trial court found that this “three-times-rent” was a reasonable minimum income requirement as a matter of law.

Because we find that the reasonableness of defendants' policy presents factual matters, however, we cannot uphold the “three-times-rent” requirement as a matter of law.   Consequently, we shall reverse the trial court's judgment entered after sustaining defendant's demurrer to the second cause of action.   We shall also determine that plaintiffs have no claim for sexual discrimination under the Unruh Civil Rights Act for the alleged disparate impact upon women of the “three-times-rent” standard.

FACTUAL AND PROCEDURAL BACKGROUND

 In reviewing a ruling sustaining a demurrer without leave to amend, we take as true all well pleaded facts in the complaint.  (See, e.g., Leach v. Drummond Medical Group, Inc. (1983) 144 Cal.App.3d 362, 366, 192 Cal.Rptr. 650, quoting Porten v. University of San Francisco (1976) 64 Cal.App.3d 825, 827–828, 134 Cal.Rptr. 839;  Owens v. Foundation for Ocean Research (1980) 107 Cal.App.3d 179, 182, 165 Cal.Rptr. 571.)   On appeal, the parties here dispute only the propriety of the “three-times-rent” standard and the allegations of that standard's disparate impact upon women.   Accordingly, we shall assume that the remaining allegations of plaintiffs' first amended complaint present “well pleaded facts.”

In their initial complaint, plaintiffs alleged that they are female heads of low income families.   Their income “consists solely of public assistance benefits.”   The defendants “own and operate apartment complexes which require prospective tenants to demonstrate proof of monthly income equal to or greater than three times the amount of monthly rent charged.” ⁵  Defendants also required prospective tenants to demonstrate that they were employed.⁶

Plaintiffs claimed that defendants denied them “apartments in [defendants'] complexes or denied applications for vacant apartments.   This denial was based on plaintiffs' inability to satisfy defendants' arbitrary income and employment requirements.” ⁷  Plaintiffs challenged the two requirements under both the Unruh Civil Rights Act (“Unruh Act”) ⁸ and section 17200 of the Business and Professional Code.⁹

The first three causes of action arose under the Unruh Act.   The first cause of action challenged the “earned income” requirement.   The second challenged the “three-times-rent” requirement.   In essence, in these two causes of action plaintiffs claimed that defendants arbitrarily discriminated against prospective tenants who either received public assistance or had low incomes.   The third cause of action alleged that the two requirements arbitrarily discriminated against women.   The sexual discrimination allegedly arises from the requirements' “disparate impact” upon women.   This disparate impact, plaintiffs alleged, results because families headed by women are more likely than families headed by men to receive public assistance or to have low incomes.

To these three Unruh Act causes of action, plaintiffs appended two additional claims.   Their fourth cause of action alleged that defendants' two requirements were “an unfair business practice.” ¹⁰  Their fifth cause of action asked for a judicial declaration that the two requirements violated the Unruh Act.

Defendants demurred to plaintiffs' initial complaint.   They claimed that their policies regarding the source and amount of income were facially gender neutral and not arbitrary as a matter of law.

The trial court overruled defendants' demurrer to the extent that plaintiffs challenged the “earned income” requirement.   The court ruled “[t]he requirement of a job is not simply an objective economic test.   It would exclude tenants enjoying substantial incomes from investments, annuities, retirement pay—and of course, it would exclude all persons living on any form of public support, regardless of the amount thereof.   This would in effect [[[[[[¹¹ ] although not in terms violate the Unruh Act.”   Thus, the trial court upheld in its entirety plaintiffs' first cause of action.   In so doing, the court also upheld those portions of the third, fourth, and fifth causes of action that were based upon the allegedly illegal “earned income” requirement.

The court then sustained defendants' demurrer to the causes of action challenging the “three-times-rent” requirement.   The court ruled “the owner may require that all tenants have ‘sufficient income (3 times the rent per month).’   This is a reasonable, nondiscriminatory and legitimate economic standard, not in violation of the Unruh Act.”   Accordingly, the court sustained defendants' demurrer to those portions of the third, fourth and fifth causes of action that were based upon the “three-times-rent” requirement.

The trial court granted plaintiffs 30 days to file an amended complaint.   Within that period, the plaintiffs filed their first amended complaint.   With minor changes not material to our discussion, this first amended complaint mirrored their original complaint.

Defendants demurred to plaintiffs' first amended complaint.   In this demurrer, defendants did not challenge those portions of the complaint attacking the “earned income” requirement.   Rather, they only reargued the reasonableness of their “three-times-rent” requirement.   They claimed plaintiffs had failed to allege sufficient additional facts to overcome the previous order sustaining their demurrer to similar portions of plaintiffs' original complaint.¹²

In response, plaintiffs argued they had indeed added additional facts sufficient to challenge the “three-times-rent” requirement.¹³  Plaintiffs also claimed that the reasonableness and nonarbitrariness of defendants' requirement presented “evidentiary matters that must be settled at latter [sic] proceedings—not upon demurrer.”

With a different judge presiding, the trial court again sustained defendants' demurrer to the causes of action challenging the “three-times-rent” requirement.   The court found that plaintiffs' additional allegations added nothing to the prior complaint.   The court stated “this [inability to even file an application] is a distinction without a difference.   The ultimate fact is that defendants would not rent to plaintiff unless she had income at least equal to three times the rent.”   The court rejected plaintiffs' argument that a landlord should contemplate a prospective tenant's prior “ ‘history as a tenant.’ ”   The court stated “[t]o require this consideration could place an uncertain and great burden on the landlord as to whether verification of such history is even available and then whether such available information is reliable.”   The court concluded:  “the minimum amount of income which should reasonably be required before a landlord must admit a prospective tenant to the rental premises is arguable.   It seems to this Court that one could find twice the rental to be reasonable minimum income or as much as four times the monthly rental.   It is very difficult to quarrel with the opinion of Judge Tuttle [on the demurrer to the original complaint] that three times the rental is a reasonable minimum income and that therefore no cause of action is stated.”   Since the court believed that plaintiffs “have given it their best shot,” it sustained defendants' demurrer without leave to amend.

The trial court's order thus eliminated all portions of plaintiffs' first amended complaint that challenged the defendants' “three-times-rent” requirement.”   It left intact, however, those portions of plaintiffs' complaint that challenged defendants' “earned income” requirement.¹⁴

In their stipulation for judgment, plaintiffs agreed to dismiss without prejudice those portions of their complaint that challenged the “earned income” requirement.   Without any admission of liability, defendants agreed to abandon the “practice of specifying or requiring employment as a condition of tenancy.”   The parties then agreed that the trial court could enter judgment conforming to both the stipulation and the ruling sustaining the demurrer without leave to amend on the “three-times-rent” challenges.   The stipulation, however, expressly contemplated plaintiffs' appeal from the dismissal of these “three-times-rent” classification.

The trial court entered judgment in accordance with the stipulation.   From that portion of the judgment dismissing the “three-times-rent” causes of action, plaintiffs timely appeal.

DISCUSSION

This appeal presents two principal issues.   First, plaintiffs argue the reasonableness of the “three-times-rent” requirement requires a factual determination.   Second, defendants argue that plaintiffs' sexual discrimination claim fails since the “three-times-rent” requirement is gender neutral.   We need reach the latter argument only if we must remand on the initial issue.

(1) The “three-times-rent” requirement requires a factual determination inappropriate for a demurrer.

 Our Supreme Court has repeatedly given a broad and far-reaching construction to the Unruh Civil Rights Act as to its application.   In 1970 the court held that section 51's identification of particular bases of discrimination—color, race, religion, ancestry, and national origin—were illustrative rather than restrictive (In re Cox (1970) 3 Cal.3d 205, 216, 90 Cal.Rptr. 24, 474 P.2d 992), and further held that the section prohibited all arbitrary discrimination by business establishments.   This broad statutory construction has been restated several times over the years by the Supreme Court.  (Schmidt v. Superior Court (1989) 48 Cal.3d 370, 377, 256 Cal.Rptr. 750, 769 P.2d 932;  O'Connor v. Village Green Owners Ass'n. (1983) 33 Cal.3d 790, 796, 191 Cal.Rptr. 320, 662 P.2d 427;  Marina Point Ltd. v. Wolfson (1982) 30 Cal.3d 721, 732, 180 Cal.Rptr. 496, 640 P.2d 115.)   But no case has been found allowing a claim under the Unruh Civil Rights Act founded on an allegation of economic discrimination, i.e., discrimination based on the ability to pay.

Plaintiffs contend the “three-times-rent” requirement excludes a class of individuals, i.e., those whose income falls below the minimum, from renting based on the assumption that members of the class as a whole will be unlikely to be able to pay the rent, and this exclusion, being arbitrary, runs afoul of section 51.   The further contention is, of course, that a pleading of such facts states a cause of action and survives a general demurrer.

It may be argued that the statement of the court that section 51 applies to all arbitrary discrimination is broader than necessary for the decision, hence is dictum, and the doctrine of stare decisis does not compel this court to follow the dictum.   A precedent is binding only as to its ratio decidendi, the principle or rule which constitutes the ground of the decision.   As pointed out by Mr. Witkin, “It is therefore necessary to read the language of an opinion in the light of its facts and the issues raised, to determine (a) which statements of law were necessary to the decision and therefore binding precedent, and (b) which were arguments and general observations, unnecessary to the decision, i.e., dicta, with no force as precedent.  [Citations omitted.]”  (9 Witkin, Cal. Procedure (3d ed. 1985) Appeal, § 783, p. 753.)

We recognize, however that what is “dictum” and what is “holding” is by no means clear in the law.  (See 4 Stan.Law.Rev. 509.)   In any event, the circumstances here persuade us the rule, dictum or not, is binding on this court.   The rule that section 51 applies to all arbitrary discrimination has been consistently repeated by the Supreme Court for 19 years, and no case has been found that limits its application to any factual setting in the absence of a finding the discrimination was reasonable.   Further, on two occasions since Cox, the Legislature has amended the section, once in 1974, and again in 1987 (Stats.1974, c. 1193;  Stats.1987, c. 159).  “It is a well-established principle of statutory construction that when the Legislature amends a statute without altering portions of the provisions that have been judicially construed, the Legislature is presumed to have been aware of and to have acquiesced in the previous judicial construction.   Accordingly, reenacted portions of the statute are given the same construction they received before the amendment.  [Citations omitted.]”  (Marina Point Ltd. v. Wolfson, supra, 30 Cal.3d at p. 734, 180 Cal.Rptr. 496, 640 P.2d 115.)   We also note the addition in 1984 of section 51.2 ¹⁵ specifically referring to the Marina Point and O'Connor cases.

Thus, the broad construction of the Cox case has been restated by the Supreme Court in three cases and ratified twice by the Legislature.   It matters not whether in each case the statement that section 51 applies to all arbitrary discrimination may technically be considered as unnecessary to the specific facts of the case.   Under the circumstances here the statutory construction by our high court is settled (Burt v. Scarborough (1961) 56 Cal.2d 817, 822, 17 Cal.Rptr. 146, 366 P.2d 498;  People v. Hallner (1954) 43 Cal.2d 715, 277 P.2d 393), and this construction is binding on this court.   (In re La Opinion (1970) 10 Cal.App.3d 1012, 1017, 89 Cal.Rptr. 404;  see Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 20 Cal.Rptr. 321, 369 P.2d 937.)

Our conclusion is further reinforced by the policy of section 51.  “[T]he Unruh Act does not permit a business enterprise to exclude an entire class of individuals on the basis of a generalized prediction that the class ‘as a whole’ is more likely to commit misconduct than some other class of the public.”  (Marina Point, supra, 30 Cal.3d at p. 739, 180 Cal.Rptr. 496, 640 P.2d 115.)  “[T]he exclusion of individuals from places of public accommodation or other business enterprises covered by the Unruh Act on the basis of class or group affiliation basically conflicts with the individual nature of the right afforded by the act of access to such enterprises.”   (Id., at p. 740, 180 Cal.Rptr. 496, 640 P.2d 115.)

 We find that a cause of action alleging arbitrary discrimination under section 51 has been pleaded.

 Unlike the two trial court judges, we cannot conclude as a matter of law that the “three-times-rent” requirement is reasonable and non-arbitrary under the Unruh Act.   In ruling on a demurrer, a court may only consider the complaint's four corners and facts noticeable judicially.  (See, e.g., 5 Witkin, Cal. Procedure (3d ed. 1985) Pleading, §§ 895, 896, pp. 334–337.)   In the case before us, defendants have presented no request that we take judicial notice of any facts supporting the reasonableness of their “three-times-rent” requirement.   Moreover, we know of no such noticeable facts.   Accordingly, we could only uphold the judgment if this requirement were patently and undisputably reasonable.

 Under the Unruh Act, a given policy's arbitrariness or reasonableness requires a factual showing.  (See Hales v. Ojai Valley Inn and Country Club (1977) 73 Cal.App.3d 25, 28, 140 Cal.Rptr. 555 [reasonableness of dress code for males in light of local community standards].)

Defendants' own brief indicates how “factbound” is their “reasonableness” defense.   They baldly assert, “The three-times-rent standard is basic and straight-forward, requiring no further factual elucidation.”   Yet they buttress this conclusion by asserting that, “This type of criterion has proven over time to be an accurate predictor of the tenant's ability to meet his or her financial obligations.  [¶] The three-times-rent standard is widely used in the rental housing business, as well as by banks and other lenders when determining whether to extend credit.   It has been accepted as a reasonable, non-arbitrary benchmark and an appropriate balance between the landlord's justified concern in selecting persons able to meet their financial obligations and the tenant's rights.”  (Emphasis added.)

 These statements are strictly factual allegations devoid of evidentiary effect.   Nowhere do defendants provide us with a single fact noticeable judicially that shows that their standard has been “proven over time” to “predict accurately” a tenant's ability to pay.   Moreover, defendants' allegations of financial industry custom are equally unavailing.   Again, defendants have not provided us with any noticeable information regarding the extent of this “three-times-rent” standard in either the financial industry in general or the rental housing business in particular.   Moreover, while evidence of custom may be relevant to a determination of reasonableness (see, e.g., Hales, supra, 73 Cal.App.3d at p. 29, 140 Cal.Rptr. 555), by itself custom need not be dispositive.   Custom may itself unreasonably accommodate private interests and public policy.  (Compare Prosser and Keeton on Torts (5th ed. 1984) §§ 193–196 [custom merely evidence of standard of care in negligence actions].)

 Additional factual questions abound.¹⁶  This court can take judicial notice that both citizens' income levels and regional housing costs vary within this vast state.¹⁷  We fail to see how, as a matter of law, defendants' blanket standard could apply to all tenants at all income levels in all parts of California.

We agree with defendants that landlords may use reasonable criteria for determining a prospective tenant's ability to meet rental obligations.¹⁸  Nevertheless, for the above reasons, the propriety of defendants' “three-times-rent” standard cannot be determined as a matter of law.¹⁹

We note here that the class of persons allegedly discriminated against were those not having income equal to “three-times-rent,” not low income people in general.   We do not hold nor imply that all pricing decisions may be tested by section 51.   There will always be goods and services beyond the economic reach of some segment of the population.   The difference here is that all members of a class were disqualified because of a presumption that many members of the class would be unsatisfactory rent payers.   They were judged collectively, not individually.

We are not unmindful of the potential impact of this case on all businesses which use credit and lending guidelines.   Each case must be judged on its own facts, and we do not intend our holding to go beyond the facts of this case.   We note, however, that there appears to be no end to the types of business decisions that may result in alleged arbitrary discrimination so long as the Unruh Act is construed to prohibit all arbitrary discrimination by business establishments.   But it is the province of a higher court than this one, or of the Legislature, to determine the scope and breadth of the requirement that businesses legally justify their day to day decisions as to whether they are reasonable if people are treated differently.

The judgment resulting from the order sustaining the general demurrer as to the causes of action alleging the “three-times-rent” discrimination must be reversed.

(2) Plaintiffs' complaint does not state a cause of action for sexual discrimination.

 By finding the “three-times-rent” requirement reasonable, the trial court's judgment eliminated those portions of plaintiffs' complaint that challenged the requirement's specific impact on women.   Thus, the court below never decided whether a plaintiff could state a claim for sexual discrimination under the Unruh Act merely by alleging a policy's disproportionate impact upon women.²⁰  The matter appears as an issue of first impression.   We must uphold the judgment on a demurrer if, under any legal theory, a cause of action is not stated.  (See, e.g., Hogen v. Valley Hospital (1983) 147 Cal.App.3d 119, 127, 195 Cal.Rptr. 5.)   Accordingly, we must determine whether the “disparate impact” theory applies under the Unruh Act.

Again, on a demurrer, we take as true all well pleaded facts alleged in the complaint.   Plaintiffs' first amended complaint alleges that “a statistically significant greater number of families headed by women are adversely impacted by defendants' policies than families headed by men.”   The complaint further alleges that “[a] disportionate number of families receiving public assistance such as [Aid to Families with Dependent Children] are headed by females.   Women generally have lower average income than males.”   Since defendants do not challenge the niceties of plaintiffs' allegations, we shall again assume that plaintiffs' complaint contains only well pleaded facts.   Our inquiry extends only to whether such “facts” state a cause of action under the Unruh Act for sexual discrimination.   We shall conclude that they do not.

We begin by outlining the disparate impact theory's elements.   A product of federal case law, the theory traces its origins to a 1971 labor discrimination case, Griggs v. Duke Power Co. (1971) 401 U.S. 424, 91 S.Ct. 849, 28 L.Ed.2d 158.  Griggs arose under Title VII of the Federal Civil Rights Act of 1964.²¹  (Codified as amended in 42 U.S.C.S. § 2000e et seq. (hereinafter cited as “Title VII”).)   Under the theory adopted by the court, a plaintiff may prove that a facially neutral employment practice actually discriminates because of its disproportionate or disparate negative impact upon the protected class to which plaintiff belongs.  (See, e.g., Griggs v. Duke Power Co., supra, 401 U.S. at pp. 431–432, 91 S.Ct. at pp. 853–854, 28 L.Ed.2d at p. 164.)   The court concluded, “Congress directed the thrust of [Title VII] to the consequences of employment practices, not simply the motivation.”  (Id., at p. 432, 91 S.Ct. at p. 854, 28 L.Ed.2d at p. 165, emphasis in original.)

The disparate impact theory still applies in Title VII cases.  (See, e.g., Watson v. Fort Worth Bank and Trust (1988) 487 U.S. 977, 108 S.Ct. 2777, 101 L.Ed.2d 827 (theory extended to encompass effects of both objective and subjective criteria used in promotion decisions).)   The proof sequence involves three elements.   First, plaintiffs bear the initial burden of establishing “by some form of numerical showing, that a facially neutral hiring practice ‘select [s] applicants ․ in a significantly discriminatory pattern.’ ”  (Watson, supra, 487 U.S. at p. ––––, 108 S.Ct. at p. 2792, 101 L.Ed.2d at p. 849 (conc. opn. of Blackmun, J.), quoting Dothard v. Rawlinson (1977) 433 U.S. 321, 329, 97 S.Ct. 2720, 2726, 53 L.Ed.2d 786.)   After this prima facie showing, defendant must introduce evidence “that the employment practice in question is a business necessity.”  (Ibid.) ²²  Once defendants have made their business necessity case, plaintiffs must prove that:  “other selection processes that have a lesser discriminatory effect could also suitably serve the employer's business needs.”  (––– U.S. at p. ––––, 108 S.Ct. at p. 2795, 101 L.Ed.2d at p. 852 (conc. opn. of Blackmun, J.).)

Several federal appellate courts have extended the disparate impact theory from Title VII's employment discrimination to Title VIII's housing discrimination.²³  (See, e.g., Betsey v. Turtle Creek Associates (4th Cir.1984) 736 F.2d 983.   See also Schwartz, “The Fair Housing Act and ‘Discriminatory Effect’:  A New Perspective,” 11 Nova L.Rev. 71 (1986);  Note, “Business Necessity in Title VIII:  Importing an Employment Discrimination Doctrine into the Fair Housing Act,” 54 Fordham L.Rev. 563 (1986);  Note, “Justifying A Discriminatory Effect Under the Fair Housing Act:  A Search for the Proper Standard,” 27 U.C.L.A.L.Rev. 398 (1979);  Hsia, “The Effects Test:  New Directions,” 17 Santa Clara L.Rev. 777 (1977).)   Where the Title VIII defendants are private individuals, the test's essential elements remain the same as in Title VII cases.  (See, e.g., Betsey v. Turtle Creek Associates, supra, 736 F.2d at pp. 988–989 and fns. 3, 4.)

 Although the test remains well-entrenched in federal law, no California court has applied it to discrimination under the Unruh Act.   Defendants argue that adoption of the disparate impact theory will play havoc with any threshold income standard by any landlord.   They claim that “[a]ll income standards impact some groups negatively.”   We agree.

Indeed, the adoption of the disparate impact theory to proof of discrimination under the Unruh Act would affect far more businesses than just “landlords.”   Moreover, as described above, the Unruh Act protects all groups, not just women.   Adoption of the theory would expose all businesses to claims for unintentional, “disparate” impacts upon any group.   We can scarcely imagine how we could open the floodgates of new litigation more broadly than by adopting such a theory.²⁴

Throughout the many years the Unruh Act and its predecessors have been on the books, no California court has ever construed it to reach facially neutral practices that apply equally to all members of the public.   Plaintiffs direct our attention to no Unruh Act case involving anything but facially apparent, intentional discrimination.²⁵  We have found none ourselves.   Similarly, we have found no evidence in the Act's legislative history that suggests that the Legislature intended to extend the Act's protection to facially neutral unintentional effects of business practices.²⁶  As a matter of judicial restraint, we believe that the Legislature should be the body that first determines how best to accommodate the various interests impacted by the Unruh Act's anti-discrimination policies.

We note that several other Courts of Appeal have borrowed federal discrimination case law to interpret other California statutes with identical federal counterparts.   For example, in Ibarbia v. Regents of University of California (1987) 191 Cal.App.3d 1318, 237 Cal.Rptr. 92, the Court of Appeal for the First District adopted Title VII's disparate impact theory to analyze an employment claim brought under California's “Fair Employment and Housing Act” (“FEHA”) (Gov.Code, §§ 12900 et seq).   A different division of that court also adopted the disparate impact test for an FEHA employment action in City and County of San Francisco v. Fair Employment & Housing Commission (1987) 191 Cal.App.3d 976, 985–986, 236 Cal.Rptr. 716.   That division noted the appropriateness of adopting federal law where the “ ‘anti-discriminatory objectives' and ‘overriding public policy purposes' of [state and federal law] are identical.”  (Id., at p. 985, 236 Cal.Rptr. 716.)

We express no opinion on the propriety of the First District's adoption of the disparate impact theory for FEHA cases.   There is no need for us to do so.   We note that the general anti-discriminatory objectives of the Unruh Act are much broader than the specific anti-discriminatory principles lying behind Titles VII and VIII.   Those two federal laws, with their state FEHA counterparts, aim to eliminate discrimination solely in employment and housing as to enumerated classes of persons.   They represent areas of special concern to Congress and the Legislature.   It might well be more appropriate to single out those two areas for special attention.   The Unruh Act, however, aims to eliminate arbitrary discrimination in the provision of all business services to all persons.   Adoption of the disparate impact theory to cases under the Unruh Act would expose businesses to new liability and potential court regulation of their day-to-day practices in a manner never intended by the Legislature.   This we decline to do.

Accordingly we hold that plaintiffs may not state a cause of action by alleging that defendants' gender neutral “three-times-rent” requirement discriminates against women because of its disparate impact and thus is in contravention of the Unruh Act.

DISPOSITION

The judgment for defendants on plaintiffs' second cause of action is reversed and the trial court is directed to overrule the general demurrer to that cause of action.   On remand the trial court shall enter judgment for defendants on plaintiffs' third cause of action alleging sexual discrimination.   Each side shall bear its own costs on appeal.

Although I fully concur in part 2 of the majority opinion, I write separately on part 1 to emphasize that the critical allegation here is that plaintiffs can afford the rent at defendants' apartments.   In my view, the mere charging of rates which low-income groups or individuals cannot afford does not, by itself, constitute an arbitrary discrimination in violation of the Unruh Civil Rights Act (Act).  (Civ.Code, § 51.)   But when, as here, the business establishments seek to exclude from public accommodations those who can afford to pay by the use of special requirements, the Act is violated unless those requirements are reasonable.   Because the question of whether the special-income requirements in this case were reasonable or arbitrary cannot be resolved on demurrer, I agree that the judgment must be reversed.

The defendants own and operate apartment complexes in Woodland.   The claim here is that the defendants' income requirement of “three-times-rent” arbitrarily discriminates against low-income groups in violation of the Unruh Act.   Plaintiffs alleged that they are female heads of low-income families whose incomes derive solely from benefits received from the Aid to Families with Dependent Children (AFDC).   Nevertheless, it is alleged that plaintiffs can afford to live at defendants' apartment complexes.   Defendants' demurrer, of course, admitted this factual allegation.  (Cole v. Fair Oaks Fire Protection Dist. (1987) 43 Cal.3d 148, 151, fn. 1, 233 Cal.Rptr. 308, 729 P.2d 743.)   One of the individual plaintiffs alleged that she was not permitted to submit a rental application because her AFDC income did not met the three-times-rent requirement.   She “was not asked whether she could afford to pay the rent.   She was not asked for references as to her history as a tenant.   Solely because she could not meet the arbitrary income requirement, her application was not even considered.”   Plaintiffs alleged that they and similarly situated members of the public have been denied full and equal accommodations, advantages, facilities, privileges or services in business establishments by defendants' “practice and policy of arbitrarily discriminating against them and refusing to rent to them because their monthly income is not equal to three times the monthly rent.”   This policy, plaintiffs further alleged, “is based upon an arbitrary and unsubstantiated assumption that persons with income more than three times the monthly rent will pay rent and that all persons having less than three times the monthly income would never have the ability to pay rent.”  (Emphasis in original.)   As a result of this policy, “[p]laintiffs were denied the opportunity to apply for apartments in [defendants'] complexes.   This denial was based on plaintiffs' inability to satisfy defendants' arbitrary income ․ requirements.”

The trial court sustained defendants' demurrer to this cause of action without leave to amend.   It noted that a different judge of the court had sustained an earlier demurrer to a similar cause of action on the ground that the challenged policy “is a reasonable, nondiscriminatory and legitimate economic standard, not in violation of the Unruh Act.”   The court went on to state that “one could find twice the rental to be reasonable minimum income or as much as four times the monthly rental.   It is very difficult to quarrel with the opinion of Judge Tuttle that three times the rental is a reasonable minimum income and that therefore no cause of action is stated.”   The court rejected plaintiffs' contention that the income policy was improper because it failed to take into account the rental history of the tenant.  “To require this consideration,” the court ruled, “could place an uncertain and great burden on a landlord as to whether verification of such history is even available and then whether such available information is reliable.”

Plaintiffs appeal contending that whether a given policy is arbitrary or reasonable requires a factual showing.   Thus, as the majority notes, it has been held that facts showing whether a challenged policy is arbitrary or reasonable under the Unruh Act “can only be determined on trial and not on demurrer.”  (Hales v. Ojai Valley Inn & Country Club (1977) 73 Cal.App.3d 25, 29, 140 Cal.Rptr. 555.)   Plaintiffs further contend that they have alleged sufficient facts to establish a prima facie case of arbitrary discrimination under the Unruh Act.   They note that as construed by the high court in Marina Point, Ltd. v. Wolfson (1982) 30 Cal.3d 721, 180 Cal.Rptr. 496, 640 P.2d 115, “[t]he rights afforded by the Unruh Act similarly are enjoyed by all persons, as individuals.”  (Id., at p. 738, 180 Cal.Rptr. 496, 640 P.2d 115.)   Consequently, “the Unruh Act does not permit a business enterprise to exclude an entire class of individuals on the basis of a generalized prediction that the class ‘as a whole’ is more likely to commit misconduct than some other class of the public.”  (Id., at p. 739, 180 Cal.Rptr. 496, 640 P.2d 115, emphasis in original.)   As plaintiffs see it, this is the fatal flaw in defendants' income requirement.  “In denying plaintiffs the opportunity to apply, there was no consideration given to whether as individuals, they had the financial ability to pay the rent.   Because they belonged to the class of persons whose income was less than three times the rent, they were presumed to be less able to meet the rental obligation than the class of persons with a higher income.”  (Emphasis in original.)

I agree that the alleged refusal, without any economic justification, to consider rental applications from AFDC recipients who can afford to pay the usual rent states a cause of action for arbitrary discrimination under the Unruh Act.   As the high court recently recounted, “[t]he Legislature first adopted the broad antidiscrimination provisions of the Unruh Act in 1959.   As originally enacted, section 51 [of the Civil Code] expressly declared that all persons are entitled to full and equal accommodations and privileges in all business establishments ‘no matter what their race, color, religion, ancestry, or national origin․’  (Stats.1959, ch. 1866, § 1, p. 4424.)   Section 51 was early interpreted to apply to improper discrimination in the housing field․”  (Schmidt v. Superior Court 48 Cal.3d 370, 376–377, 256 Cal.Rptr. 750, 769 P.2d 932.)   The high court had concluded as early as 1970 that “[t]he nature of the 1959 amendments, the past judicial interpretation of the act, and the history of legislative action that extended the statutes' scope, indicate that identification of particular origin—added by the 1959 amendment, is illustrative rather than restrictive.”  (In re Cox (1970) 3 Cal.3d 205, 216, 90 Cal.Rptr. 24, 474 P.2d 992.)   This history, when coupled with the statutory language, compels “the conclusion that the Legislature intended to prohibit all arbitrary discrimination by business establishments.”  (Ibid.)  Thus, it is now settled that the Unruh Act proscribes “any form of arbitrary discrimination” by business establishments.   (O'Connor v. Village Green Owners Assn. (1983) 33 Cal.3d 790, 794, 191 Cal.Rptr. 320, 662 P.2d 427.) ¹

It is true that “certain types of discrimination have been denominated ‘reasonable’ and, therefore, not arbitrary.”  (Koire v. Metro Car Wash (1985) 40 Cal.3d 24, 30, 219 Cal.Rptr. 133, 707 P.2d 195.)   Thus, “it has been said that the Act is inapplicable to discrimination between patrons based on the ‘nature of the business enterprise and the facilities provided.’ ”   (Ibid.)  But “[m]ost often, the nature of the business enterprise or the facilities provided has been asserted as a basis for upholding a discriminatory practice only when there is a strong public policy in favor of such treatment.”  (Id., at p. 31, 219 Cal.Rptr. 133, 707 P.2d 195, emphasis in original.)   In the absence of some reasonable economic justification, I perceive no such public policy in favor of refusing to consider applications from potential renters on AFDC who can afford the rent.

But it does not follow from this that all forms of pricing by business establishments constitute an arbitrary discrimination under the Unruh Act.   It is a fact of economic reality that there is always some group of persons who cannot afford the costs of some facility or service of a business establishment.   Thus, there will inevitably be some segment of the population which cannot afford the cost of a ticket to the opera or to the ball game or of a meal at an elegant restaurant.   Similarly, there will always be, by the nature of things economic, some individuals or groups that will not qualify for loans to purchase houses or cars or other expensive items.   But these intransigent facts of economic life should not expose the business establishment to litigation under the Unruh Act shackled with the burden of establishing that their price or other economic practices are reasonable.

Just as “persons with low incomes do not constitute a cognizable class” for purposes of determining a representative jury (People v. Johnson (1989) 47 Cal.3d 1194, 1214, 255 Cal.Rptr. 569, 767 P.2d 1047), so too they should not be treated as a discriminated group under the Act.   Something more than mere inability to pay ought to be required before a cause of action is stated under the Act.   In my view, mere discrimination in the sense of distinguishing between those who can afford to pay and those who cannot is not enough under the Act.   But that is not the case here.   Plaintiffs have alleged their ability to pay the going rent.   Thus, the question comes down to whether the three-times-rent requirement is a reasonable or arbitrary one and that question cannot be resolved on demurrer from the face of the pleadings.

FOOTNOTES

1.   The two named plaintiffs sued both individually and on behalf of their children and other similarly situated persons.

2.   In addition to Capital Growth Investors XIV, the defendants are Capital Growth Investors XVI, Independent Planning Realty Corporation, Doug Myer, Charlene Myer, Mike Stillwell, Connie Stillwell, Sandy Moore, Acacia Garden Apartments, and Guardian Oaks Apartments.

3.   Plaintiffs' first amended complaint attempted to state five causes of action.   After the court sustained defendants' demurrer to the second cause of action without leave to amend, plaintiffs dismissed without prejudice their first cause of action, and those portions of the third, fourth, and fifth causes of action that “relate[d] to or relie[d] upon the First Cause of Action.”   The trial court's ruling on the second cause of action effectively denied plaintiffs relief on the remaining portions of the third, fourth, and fifth causes of action since they depended upon the allegations in that second cause of action.   In its judgment, the trial court incorporated both plaintiffs' voluntary dismissal and its own ruling on defendants' demurrer.   As such, the judgment resolved all the issues between the parties and constituted a final judgment for purposes of appeal.

4.   Civil Code § 51.  Section 51 stated in part when the suit was filed:  “All persons within the jurisdiction of the state are free and equal, and no matter what their sex, race, color, religion, ancestry or national origin are entitled to the full and equal accommodations, advantages, facilities, privileges, or services in all business establishments of every kind whatsoever.  [¶ ] This section shall not be construed to confer any right or privilege on a person which is conditioned or limited by law or which is applicable alike to persons of every sex, race, color, religion, ancestry or national origin.”   In 1987 the section was amended to include blindness or other physical disability.   (Stats.1987, ch. 159.)All further references to section 51 or the Unruh Act refer to Civil Code section 51.

5.   For convenience, we refer to this as the “three-times-rent” requirement.

6.   For convenience, we refer to this as the “earned income” requirement.

7.   The two individually named plaintiffs applied for apartments at defendants' Acacia Apartments and Guardian Oaks Apartments.   At the time of their attempted applications, defendants rented an unfurnished one bedroom apartment for $275 per month and a two bedroom unit for $295.   Similarly, defendants rented an unfurnished two bedroom apartment at Guardian Oaks for between $325 and $360 per month, and an unfurnished townhouse for $360 per month.   At the time of her attempted application at Acacia Apartments, plaintiff Muriel Jordan's monthly income was $698.   The complaint does not allege plaintiff Tamela Harris's income.

8.   See ante, fn. 4.

9.   That section defines “unfair competition” to include, inter alia, “unlawful, unfair or fraudulent business or practice[s].”  Business and Professions Code § 17204 authorizes private persons to sue for injunctive relief against unfair competition.

10.   See ante, fn. 9.

11.   The trial court's distinction between a violation “in effect” and “in terms” suggests that it followed a “disparate impact” standard.   (See post, pp. 593–596.) The “earned income” requirement, however, discriminates on its face against the entire class of unemployed people.   The trial court needed not resort to a “disparate impact” theory to uphold the complaint insofar as it challenged the “earned income” requirement.   Similarly, the “three-times-rent” requirement discriminates on its face against the class of prospective tenants who have less income than defendants require.

12.   Defendants claimed that the trial court's previous order upholding the reasonableness of the “three-times-rent” requirement prevented plaintiffs from repleading those causes of action as a matter of law.   They claimed the court's grant of leave to amend only authorized plaintiffs to “clean up their complaint [by] exclud[ing] each and every reference to the three-times-rent requirement.”   Accordingly, defendants moved to strike all references to the “three-times-rent” requirement in plaintiffs' first amended complaint.

13.   Plaintiffs claimed that “[f]acts added to the complaint demonstrate that defendants' policy prohibits home seekers from even completing an application and establishing the adequacy of their income.   Additional facts now show that plaintiffs could in fact afford to rent the units in question, but were nonetheless excluded by defendants' policies.”   In particular, plaintiffs emphasized their new allegations that they “were denied the opportunity to apply for apartments in [defendants'] complexes.”  (Emphasis in original.)   Thus, plaintiffs claimed, “in denying [them] the opportunity to apply, there was no consideration given as to whether as individuals, they had the financial ability to pay the rent.”  (Emphasis in original.)

14.   As described above, the trial court had overruled defendants' demurrer to those portions of the original complaint that challenged the “earned income” requirement.  (See ante, text accompanying fn. 12.)   The demurrer to the first amended complaint challenged only the repleaded causes of action involving the “three-times-rent” requirement.

15.   Section 51.2 reads as follows:“(a) Section 51 shall be construed to prohibit a business establishment from discriminating in the sale or rental of housing based upon age.   Where accommodations are designed to meet the physical and social needs of senior citizens, a business establishment may establish and preserve such housing for senior citizens, pursuant to Section 51.3 of the Civil Code.“(b) This section is intended to clarify the holdings in Marina Point, Ltd. v. Wolfson (1982), 30 Cal.3d 721, 180 Cal.Rptr. 496, 640 P.2d 115, and O'Connor v. Village Green Owners Association (1983), 33 Cal.3d 790, 191 Cal.Rptr. 320, 662 P.2d 427.”  (Stats.1984, c. 787.)

16.   We do not intend our discussion to exhaust the possible factual issues.   We merely illustrate some of the range of potential matters for further resolution.

17.   Such notice is proper as a fact of such common knowledge within this court's territorial jurisdiction that is not reasonably disputable.   (Evid.Code, § 452, subdivision (g).)

18.   (See, e.g., 59 Ops. Cal. Atty. Gen. 223, 225–226 (1976).)   Defendants' “reasonableness” argument stems from suggestions that “certain types of discrimination have been denominated ‘reasonable’ and therefore, not arbitrary.”  (Koire v. Metro Car Wash (1985) 40 Cal.3d 24, 30, 219 Cal.Rptr. 133, 707 P.2d 195 [invalidating “Ladies Day” discounts given to female car wash and nightclub patrons].)   As the Koire court noted, however, these exceptions are quite narrow.  (Id., at p. 31, fn. 7, 219 Cal.Rptr. 133, 707 P.2d 195.)Two classes appear.   First, the courts have upheld reasonable deportment regulations.  (Id., at pp. 30–31 and fn. 7, 219 Cal.Rtpr. 133, 707 P.2d 195.)   Second, the courts have upheld discrimination “based solely on the special nature of the business establishment.”  (Id., at p. 30, 219 Cal.Rptr. 133, 707 P.2d 195.)   For example, courts have implicitly allowed housing complexes especially designed for the elderly to bar tenants who do not meet the age requirements.  (See, e.g., Marina Point, Ltd. v. Wolfson, supra, 30 Cal.3d at pp. 742–743, 180 Cal.Rptr. 496, 640 P.2d 115.)Defendants' policy does not fit neatly under either of these categories.   At best, defendants could argue that the “special nature” of the rental housing business requires income-based criteria to assure a prospective tenant's credit-worthiness.   On the record before us, however, we cannot determine whether such a claim has any merit.

19.   Defendants also argue that their “three-times-rent” requirement is three and one-third times more generous than the federal low income housing requirement.   This argument puts the cart before the horse.   The federal rule limits the rent chargeable in federally subsidized projects to, in some cases, ten percent of a tenant's income.  (See 42 U.S.C. § 1437a, subdivision (a)(1)(B).)   This standard merely represents the federal government's generous desire to free up a subsidized tenants income for other purposes.   It is not designed to exclude prospective tenants who might be able to pay a larger proportion of their income on rent.

20.   The parties briefed this matter both here and in the court below.

21.   As currently codified, Title VII reads in pertinent part:  “It shall be an unlawful employment practice for an employer—(1) to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual's race, color, religion, sex, or national origin;  or(2) to limit, segregate, or classify his employees or applicants for employment in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee, because of such individual's race, color, religion, sex, or national origin.”  (42 U.S.C.S. § 2000e—2.)

22.   Watson reveals some tension between the three justices who joined in the concurring opinion and the four justices joining the plurality opinion.   Justice Blackmun's threesome argues that the burden of proof shifts to defendant employer after plaintiff proves a prima facie case.  (Watson, supra, 487 U.S. at p. ––––, 108 S.Ct. at p. 2792, 101 L.Ed.2d at p. 849 (conc. opn. of Blackmun, J.).)   Justice O'Connor's foursome, however, argue that defendant bears only the burden of “producing evidence that its employment practices are based on legitimate business reasons․” (487 U.S. at p. ––––, 108 S.Ct. at p. 2790, 101 L.Ed.2d at p. 897 (O'Connor, J., plur. opn.).)  (Emphasis added.)

23.   Title VIII of the Civil Rights Act of 1968, codified as amended at 42 U.S.C.S., §§ 3601–3619.

24.   The availability of the “business necessity” defense does not compel a different result.   Even if defendants are successful in presenting valid reasons for their practice, they are still forced to defend themselves in court against the myriad of unforeseen effects of their otherwise facially neutral policies.

25.   Defendants direct us to McClain v. City of South Pasadena (1957) 155 Cal.App.2d 423, 434, 318 P.2d 199.   In that case, a city ordinance excluded non-residents from a municipal pool.   Plaintiff, a nonresident Black woman, claimed that the ordinance excluded her because of her race.  (Id., at p. 427, 318 P.2d 199.)   The Unruh Act portion of the case, however, turned on the specific wording of a predecessor to the current statute.  (See id., at pp. 431–433, 318 P.2d 199.)   The statutory language reviewed there no longer exists within the Act's current version.   Thus, McClain does not apply here.

26.   In the 1974 legislation that added “sex” to the express provisions of the Unruh Act, the Legislature merely added to the illustrative list of “arbitrary” bases for discrimination.  (Stats.1974, ch. 1193, p. 2568, § 1;  Marina Point, supra, 30 Cal.3d at p. 734, 180 Cal.Rptr. 496, 640 P.2d 115.)   The Legislature, however, apparently did not consider the manner of proof of arbitrary sexual discrimination.   In Marina Point, the Supreme Court reviewed a portion of the legislative history of the 1974 amendment.  (30 Cal.3d at pp. 734–735, 180 Cal.Rptr. 496, 640 P.2d 115.)   Our independent review of those bill files in the state archives reveals no evidence of an intent to adopt the disparate impact theory.

1.   Given this broad reading of the statute, I cannot agree with the suggestion in the majority opinion that the high court's construction might somehow be dictum.   The fact that the high court might have originally read the statute more narrowly does not convert its holding into dictum.   In each of the cited cases, the scope and meaning of the statute were directly in issue and the court's construction of it was necessary to each decision.   Consequently, its construction of the statute constitutes binding precedent.  (See 9 Witkin, Cal. Procedure (3rd ed. 1985) Ratio Decidendi and Dicta, § 783, p. 753.)

MARLER, Associate Justice.

SIMS, J., concurs.