Pennell v. City of San Jose

Justice Scalia,

with whom

Justice O’Connor joins, concurring in part and dissenting in part.

I agree that the tenant hardship provision of the Ordinance does not, on its face, violate either the Due Process Clause or the Equal Protection Clause of the Fourteenth Amendment. I disagree, however, with the Court’s conclusion that appellants’ takings claim is premature. I would decide that claim on the merits, and would hold that the tenant hardship provision of the Ordinance effects a taking of private property without just compensation in violation of the Fifth and Fourteenth Amendments.

I

Appellants contend that any application of the tenant hardship provision of the San Jose Ordinance would effect an uncompensated taking of private property because that provision does not substantially advance legitimate state interests and because it improperly imposes a public burden on individ*16ual landlords. I can understand how such a claim — that a law applicable to the plaintiffs is, root and branch, invalid— can be readily rejected on the merits, by merely noting that at least some of its applications may be lawful. But I do not understand how such a claim can possibly be avoided by considering it “premature.” Suppose, for example, that the feature of the rental ordinance under attack was a provision allowing a hearing officer to consider the race of the apartment owner in deciding whether to allow a rent increase. It is inconceivable that we would say judicial challenge must await demonstration that this provision has actually been applied to the detriment of one of the plaintiffs. There is no difference, it seems to me, when the facial, root-and-branch challenge rests upon the Takings Clause rather than the Equal Protection Clause.

The Court confuses the issue by relying on cases, and portions of cases, in which the Takings Clause challenge was not (as here) that the law in all its applications took property without just compensation, but was rather that the law’s application in regulating the use of particular property so severely reduced the value of that property as to constitute a taking. It is in that context, and not (as the Court suggests) generally, that takings analysis involves an “essentially ad hoc, factual inquir[y],” Kaiser Aetna v. United States, 444 U. S. 164, 175 (1979). We said as much less than a year ago, and it is surprising that we have so soon forgotten:

“In addressing petitioners’ claim we must not disregard the posture in which this case comes before us. The District Court granted summary judgment to respondents only on the facial challenge to the Subsidence Act. The court explained that ‘the only question before this court is whether the mere enactment of the statutes and regulations constitutes a taking. ’. . .
“The posture of the case is critical because we have recognized an important distinction between a claim that the mere enactment of a statute constitutes a taking and *17a claim that the particular impact of government action on a specific piece of property requires the payment of just compensation. This point is illustrated by our decision in Hodel v. Virginia Surface Mining & Reclamation Assn., Inc., 452 U. S. 264 (1981), in which we rejected a preenforcement challenge to the constitutionality of the Surface Mining Control and Reclamation Act of 1977. . . . The Court [there] explained:
“ ‘ “Because appellees” taking claim arose in the context of a facial challenge, it presented no concrete controversy concerning either application of the Act to particular surface mining operations or its effect on specific parcels of land. Thus, the only issue properly before the District Court and, in turn, this Court, is whether the “mere enactment” of the Surface Mining Act constitutes a taking. . . . The test to be applied in considering this facial challenge is straightforward. A statute regulating the uses that can be made of property effects a taking if it “denies an owner economically viable use of his land.”
“Petitioners thus face an uphill battle in making a facial attack on the Act as a taking.” Keystone Bituminous Coal Assn. v. DeBenedictis, 480 U. S. 470, 493-495 (1987).

While the battle was “uphill” in Keystone, we allowed it to be fought, and did not declare it “premature.”

The same was true of the facial takings challenge in Hodel v. Virginia Surface Mining & Reclamation Assn., Inc., supra. It is remarkable that the Court should point to that case in support of its position, describing the holding as follows:

“In Virginia Surface Mining, for example, we found that a challenge to the Surface Mining Control and Reclamation Act. . . was ‘premature,’. . . and ‘not ripe for judi*18cial resolution/ . . . because the property owners in that case had not identified any property that had allegedly been taken by the Act, nor had they sought administrative relief from the Act’s restrictions on surface mining.” Ante, at 10.

But this holding in Virginia Surface Mining applied only to “the taking issue decided by the District Court,” 452 U. S., at 297, which was the issue of the statute’s validity as applied. Having rejected that challenge as premature, the Court then continued (in the language we quoted in Keystone):

“Thus, the only issue properly before the District Court and, in turn, this Court, is whether the ‘mere enactment’ of the Surface Mining Act constitutes a taking.” 452 U. S., at 295.

That issue was not rejected as premature, but was decided on its merits, id., at 295-297, just as it was in Keystone, and as it was before that in Agins v. Tiburon, 447 U. S. 255, 260-263 (1980).

In sum, it is entirely clear from our cases that a facial takings challenge is not premature even if it rests upon the ground that the ordinance deprives property owners of all economically viable use of their land — a ground that is, as we have said, easier to establish in an “as-applied” attack. It is, if possible, even more clear that the present facial challenge is not premature, because it does not rest upon a ground that would even profit from consideration in the context of particular application. As we said in Agins, a zoning law “effects a taking if the ordinance does not substantially advance legitimate state interests, ... or denies an owner economically viable use of his land.” Id., at 260. The present challenge is of the former sort. Appellants contend that providing financial assistance to impecunious renters is not a state interest that can legitimately be furthered by regulating the use of property. Knowing the nature and character of the *19particular property in question, or the degree of its economic impairment, will in no way assist this inquiry. Such factors are as irrelevent to the present claim as we have said they are to the claim that a law effects a taking by authorizing a permanent physical invasion of property. See Loretto v. Teleprompter Manhattan CATV Corp., 458 U. S. 419 (1982). So even if we were explicitly to overrule cases such as Agins, Virginia Surface Mining, and Keystone, and to hold that a facial challenge will not lie where the issue can be more forcefully presented in an “as-applied” attack, there would still be no reason why the present challenge should not proceed.

Today’s holding has no more basis in equity than it does in precedent. Since the San Jose Ordinance does not require any specification of how much reduction in rent is attributable to each of the various factors that the hearing officer is allowed to take into account, it is quite possible that none of the many landlords affected by the Ordinance will ever be able to meet the Court’s requirement of a “showing in a particular case as to the consequences of [the hardship factor] in the ultimate determination of the rent.” Ante, at 10. There is no reason thus to shield alleged constitutional injustice from judicial scrutiny. I would therefore consider appellants’ takings claim on the merits.

II

The Fifth Amendment of the United States Constitution, made applicable to the States through the Fourteenth Amendment, Chicago, B. & Q. R. Co. v. Chicago, 166 U. S. 226, 239 (1897), provides that “private property [shall not] be taken for public use, without just compensation. ” We have repeatedly observed that the purpose of this provision is “to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.” Armstrong v. United States, 364 U. S. 40, 49 (1960); see also First English Evangelical Lutheran Church of Glendale v. Los Angeles County, 482 U. S. *20304, 318-319 (1987); Webb’s Fabulous Pharmacies, Inc. v. Beckwith, 449 U. S. 155, 163 (1980); Agins v. Tiburon, supra, at 260; Penn Central Transportation Co. v. New York City, 438 U. S. 104, 123 (1978); Monongahela Navigation Co. v. United States, 148 U. S. 312, 325 (1893).

Traditional land-use regulation (short of that which totally destroys the economic value of property) does not violate this principle because there is a cause-and-effect relationship between the property use restricted by the regulation and the social evil that the regulation seeks to remedy. Since the owner’s use of the property is (or, but for the regulation, would be) the source of the social problem, it cannot be said that he has been singled out unfairly. Thus, .the common zoning regulations requiring subdividers to observe lot-size and set-back restrictions, and to dedicate certain areas to public streets, are in accord with our constitutional traditions because the proposed property use would otherwise be the cause of excessive congestion. The same cause-and-effect relationship is popularly thought to justify emergency price regulation: When commodities have been priced at a level that produces exorbitant returns, the owners of those commodities can be viewed as responsible for the economic hardship that occurs. Whether or not that is an accurate perception of the way a free-market economy operates, it is at least true that the owners reap unique benefits from the situation that produces the economic hardship, and in that respect singling them out to relieve it may not be regarded as “unfair.” That justification might apply to the rent regulation in the present case, apart from the single feature under attack here.

Appellants do not contest the validity of rent regulation in general. They acknowledge that the city may constitutionally set a “reasonable rent” according to the statutory minimum and the six other factors that must be considered by the hearing officer (cost of debt servicing, rental history of the unit, physical condition of the unit, changes in housing serv*21ices, other financial information provided by the landlord, and market value rents for similar units). San Jose Municipal Ordinance 19696, § 5703.28(c) (1979). Appellants’ only claim is that a reduction of a rent increase below what would otherwise be a “reasonable rent” under this scheme may not, consistently with the Constitution, be based on consideration of the seventh factor — the hardship to the tenant as defined in § 5703.29. I think they are right.

Once the other six factors of the Ordinance have been applied to a landlord’s property, so that he is receiving only a reasonable return, he can no longer be regarded as a “cause” of exorbitantly priced housing; nor is he any longer reaping distinctively high profits from the housing shortage. The seventh factor, the “hardship” provision, is invoked to meet a quite different social problem: the existence of some renters who are too poor to afford even reasonably priced housing. But that problem is no more caused or exploited by landlords than it is by the grocers who sell needy renters their food, or the department stores that sell them their clothes, or the employers who pay them their wages, or the citizens of San Jose holding the higher paying jobs from which they are excluded. And even if the neediness of renters could be regarded as a problem distinctively attributable to landlords in general, it is not remotely attributable to the particular landlords that the Ordinance singles out — namely, those who happen to have a “hardship” tenant at the present time, or who may happen to rent to a “hardship” tenant in the future, or whose current or future affluent tenants may happen to decline into the “hardship” category.

The traditional manner in which American government has met the problem of those who cannot pay reasonable prices for privately sold necessities — a problem caused by the society at large — has been the distribution to such persons of funds raised from the public at large through taxes, either in cash (welfare payments) or in goods (public housing, publicly subsidized housing, and food stamps). Unless we are to *22abandon the guiding principle of the Takings Clause that “public burdens . . . should be borne by the public as a whole,” Armstrong, 364 U. S., at 49, this is the only manner that our Constitution permits. The fact that government acts through the landlord-tenant relationship does not magically transform general public welfare, which must be supported by all the public, into mere “economic regulation,” which can disproportionately burden particular individuals. Here the city is not “regulating” rents in the relevant sense of preventing rents that are excessive; rather, it is using the occasion of rent regulation (accomplished by the rest of the Ordinance) to establish a welfare program privately funded by those landlords who happen to have “hardship” tenants.

Of course all economic regulation effects wealth transfer. When excessive rents are forbidden, for example, landlords as a class become poorer and tenants as a class (or at least incumbent tenants as a class) become richer. Singling out landlords to be the transferors may be within our traditional constitutional notions of fairness, because they can plausibly be regarded as the source or the beneficiary of the high-rent problem. Once such a connection is no longer required, however, there is no end to the social transformations that can be accomplished by so-called “regulation,” at great expense to the democratic process.

The politically attractive feature of regulation is not that it permits wealth transfers to be achieved that could not be achieved otherwise; but rather that it permits them to be achieved “off budget,” with relative invisibility and thus relative immunity from normal democratic processes. San Jose might, for example, have accomplished something like the result here by simply raising the real estate tax upon rental properties and using the additional revenues thus acquired to pay part of the rents of “hardship” tenants. It seems to me doubtful, however, whether the citizens of San Jose would allow funds in the municipal treasury, from wherever derived, to be distributed to a family of four with income as *23high as $32,400 a year — the generous maximum necessary to qualify automatically as a “hardship” tenant under the rental Ordinance.* The voters might well see other, more pressing, social priorities. And of course what $32,400-a-year renters can acquire through spurious “regulation,” other groups can acquire as well. Once the door is opened it is not unreasonable to expect price regulations requiring private businesses to give special discounts to senior citizens (no matter how affluent), or to students, the handicapped, or war veterans. Subsidies for these groups may well be a good idea, but because of the operation of the Takings Clause our governmental system has required them to be applied, in general, through the process of taxing and spending, where both economic effects and competing priorities are more evident.

That fostering of an intelligent democratic process is one of the happy effects of the constitutional prescription — perhaps accidental, perhaps not. Its essence, however, is simply the unfairness of making one citizen pay, in some fashion other than taxes, to remedy a social problem that is none of his creation. As the Supreme Court of New Jersey said in finding unconstitutional a scheme displaying, among other defects, the same vice I find dispositive here:

“A legislative category of economically needy senior citizens is sound, proper and sustainable as a rational classification. But compelled subsidization by landlords *24or by tenants who happen to live in an apartment building with senior citizens is an improper and unconstitutional method of solving the problem.” Property Owners Assn. v. North Bergen, 74 N. J. 327, 339, 378 A. 2d 25, 31 (1977).

I would hold that the seventh factor in § 5703.28(c) of the San Jose Ordinance effects a taking of property without just compensation.

Under the San Jose Ordinance, “hardship” tenants include (though are not limited to) those whose “household income and monthly housing expense meets [sic] the criteria” for assistance under the existing housing provisions of § 8 of the Housing and Community Development Act of 1974, 42 U. S. C. § 1437f (1982 ed. and Supp. III). The United States Department of Housing and Urban Development currently limits assistance under these provisions for families of four in the San Jose area to those who earn $32,400 or less per year. Memorandum from U. S. Dept, of Housing and Urban Development, Assistant Secretary for Housing-Federal Housing Comm’r, Income Limits for Lower Income and Very Low-Income Families Under the Housing Act of 1937 (Jan. 15, 1988).