Galland v. City of Clovis: California's Highest Court Sets Rules for Challenging Rent Regulations

The Supreme Court of California has established the process that a landlord in California must undertake in order to challenge an unconstitutional rent control law as well as the standards a successful subsequent judicial challenge must meet. The California Association of REALTORS® and NAR have filed a joint brief in support of the landlord's petition seeking review of this decision by the Supreme Court of the United States.

In 1978, Roger and Virginia Galland ("Owners") purchased the Woods Mobile Country Club Park ("Property") in Clovis, California ("City"). Many communities in California with mobile home parks feel rent control laws are necessary to protect mobile home owners because a mobile home is basically immovable and so its owner is forced to pay whatever rental fee is imposed by the landlord for the space on which the mobile home sits. The City enacted a rent control ordinance which required City approval of a rent increase if more than 50 percent of the park's residents signed a petition requesting review. In 1983, the Owners lost a legal challenge over the constitutionality of the Ordinance. In 1985, the Owners filed a lawsuit challenging the City's denial of a full rental increase, and again their legal challenge failed.

In 1988, 1989, and 1990, the City denied the Owners the full amount of rental increase requested by them. The Owners filed another lawsuit, challenging all three of the denials. The lawsuit alleged damages from an inverse condemnation for violations of the Takings Clause of the United States Constitution; damages for denials of the substantive and procedural due process clauses found in both the California and United States Constitutions; and for civil rights violations under section 1983 of a federal statute. The trial court ruled in favor of the Owners, awarding them $245,885 for damages incurred by the "arbitrary and unreasonable" administrative hearings conducted by the City; $236,806 for lost rental income; interest on all of the above; and $378,955 incurred in attorney fees, as well as awards for costs incurred by the Owners in pursuing a statutory civil remedy and postjudgment interest. The appellate court affirmed the award, and the City appealed to the state's highest court.

The Supreme Court of California reversed and remanded the case to trial court for further proceedings. The court first considered whether the Owners could bring a section 1983 action against the City because of an earlier decision by the court, Kavanau v. Santa Monica Rent Control Board, 16 Cal. 4th 761 (1997). In Kavanau, the court had rejected a landlord's takings argument, ruling that a municipality could remedy an unconstitutionally low rent in one year by allowing the landlord to recover his losses in the following years. In this case, the court remanded the case to the trial court for a determination whether the City's denials of rental increases did in fact result in "confiscatory" rents. A confiscatory rent denies the landlord a fair rate of return, with a constitutional fair rate of return defined as the minimal amount necessary to allow the landlord to receive a reasonable investment income. The court stated that if the rents were determined to be confiscatory, then, under Kavanau, the trial court would remand the case back to the City to try to allow it to remedy the Owners' losses. At this point, if the Owners still believed that they were victims of unconstitutional confiscatory rents, then they could bring a section 1983 action against the City.

The court next considered the award to the Owners for excessive procedural costs imposed by the City. The court found this claim to be a substantive due process claim and ruled that when claiming a substantive due process violation, the Owners must show that the City engaged in "a deliberate flouting of the law that trammel[ed] significant personal or property rights," adopting the standard formulated by the District of Columbia's federal appeals court in Silverman v. Barry, 845 F.2d 1072 (D.C. Cir. 1988). This standard requires the municipality to be guilty of more than simple "bureaucratic bungling," and instead requires a showing of extreme abuse of power by municipal officials. The court stated that a successful substantive due process lawsuit will require a landlord to immediately object to any information request that it considers burdensome, in order to preserve the landlord's right to later claim in a lawsuit that a substantive due process violation occurred. In this case, the court stated that on remand the trial court must specifically find each substantive due process violation and the exact financial burden imposed upon the Owner in order to justify the award amount. Finally, the court stated that all of the alleged due process violations resulted in unfairness in the rent making process and so could be remedied by a 1983 claim, if necessary. Therefore, the court reversed the lower courts and remanded this case back to the trial court.

Two of the California Supreme Court Justices dissented. Justices Jones and Brown stated that the process for bringing a section 1983 action created by the court violated precedent of the Supreme Court of the United States, and therefore was unconstitutional.

Galland v. City of Clovis, 103 Cal. Rptr. 2d 711, 16 P.3d 130 (Cal. 2001).

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