Pennell v. City of San Jose, 485 U.S. 1 (1988)
Pennell v. City of San Jose
No. 86-753
Argued November 10, 1987
Decided February 24, 1988
485 U.S. 1
APPEAL FROM THE SUPREME COURT OF CALIFORNIA
Syllabus
Under a San Jose, Cal., rent control ordinance (Ordinance), a landlord may automatically raise the annual rent of a tenant in possession by as much as eight percent, but if a tenant objects to a higher increase, a hearing is required to determine whether the landlord’s proposed increase is "reasonable under the circumstances," and the hearing officer is directed to consider specified factors, including "the hardship to a tenant." Appellants, an individual landlord and Tri-County Apartment House Owners Association (Association), which represents owners and lessors of real property located in San Jose, filed a state court action seeking a declaration that the Ordinance, particularly the "tenant hardship" provision, is facially invalid under the Federal Constitution. The court entered judgment on the pleadings in appellants’ favor, and the California Court of Appeal affirmed. However, the California Supreme Court reversed, rejecting appellants’ arguments under the Takings Clause of the Fifth Amendment and the Equal Protection and Due Process Clauses of the Fourteenth Amendment.
Held:
1. Appellants have standing to challenge the Ordinance’s constitutionality, even though they did not allege that either the individual appellant or appellant Association’s members have "hardship tenants" who might trigger the Ordinance’s hearing process, or that they have been or will be aggrieved by a hearing officer’s determination that a certain proposed rent increase is unreasonable on the ground of tenant hardship. When standing is challenged on the basis of the pleadings, all material allegations of the complaint must be taken as true, and the complaint must be construed in favor of the complaining party. Appellants alleged that their properties are subject to the Ordinance, and stated at oral argument that the Association represents "most of the residential unit owners in the city and [has] many hardship tenants." Thus, the likelihood of enforcement of the Ordinance, with the concomitant probability that a rent will be reduced below what the landlord would otherwise be able to obtain, is a sufficient threat of actual injury to satisfy Art. III’s requirement that a plaintiff who challenges a law must demonstrate a realistic danger of sustaining a direct injury as a result of the law’s operation or enforcement. Pp. 6-8.
2. Appellants’ contention that application of the Ordinance’s tenant hardship provision violates the Takings Clause -- since reducing, because of tenant hardship, what would otherwise be a "reasonable" rent under the other, objective factors specified in the Ordinance relating to the landlord’s costs or the rental market’s condition, accomplishes a taking and transfer of the landlord’s property to individual hardship tenants -- is premature. There is no evidence that the tenant hardship provision has in fact ever been relied upon by a hearing officer to reduce a rent below the figure it would have been set at on the basis of the other specified factors. In addition, the Ordinance does not require that a hearing officer in fact reduce a proposed rent increase on grounds of tenant hardship, but only makes it mandatory that tenant hardship be considered. In takings cases, the constitutionality of laws should not be decided except in an actual factual setting that makes such a decision necessary. Pp. 8-11.
3. The mere provision in the Ordinance that a hearing officer may consider the tenant’s hardship in finally fixing a reasonable rent does not render the Ordinance facially invalid under the Due Process Clause. The Ordinance’s purpose of preventing unreasonable rent increases caused by the city’s housing shortage is a legitimate exercise of appellees’ police powers. Moreover, there is no merit to appellants’ argument that it is arbitrary, discriminatory, or demonstrably irrelevant for appellees to attempt to accomplish the additional goal of reducing the burden of housing costs on low-income tenants by requiring that "hardship to a tenant" be considered in determining the amount of excess rent increase that is "reasonable under the circumstances." The protection of consumer welfare is a legitimate and rational goal of price or rate regulation. The Ordinance’s scheme represents a rational attempt to accommodate the conflicting interests of protecting tenants from burdensome rent increases while at the same time ensuring that landlords are guaranteed a fair return on their investment. Pp. 11-14.
4. The Ordinance, on its face, does not violate the Equal Protection Clause. Its classification scheme is rationally related to the legitimate purpose of protecting tenants. It is not irrational for the Ordinance to treat landlords differently on the basis of whether or not they have hardship tenants. Pp. 14-15.
42 Cal.3d 365, 721 P.2d 1111, affirmed.
REHNQUIST, C.J., delivered the opinion of the Court, in which BRENNAN, WHITE, MARSHALL, BLACKMUN, and STEVENS, JJ., joined. SCALIA, J., filed an opinion concurring in part and dissenting in part, in which O’CONNOR, J., joined, post, p. 15. KENNEDY, J., took no part in the consideration or decision of the case.