Supremes Spare Rent Regs

Steven Wishnia Jun 15, 2005

On May 23, the Supreme Court reversed a lower-court decision that could have established a legal precedent to invalidate rent controls and a host of other economic regulations, from minimum-wage laws to environmental ordinances.

The Court unanimously ruled that a 1997 Hawaii law limiting how much rent oil companies could charge gas station owners was constitutional. Chevron had challenged the measure, contending that it violated the Constitution’s “takings” clause, which prohibits the government from taking private property without fair compensation.

“It is a major victory for rent regulation,” says veteran tenant lawyer Timothy L. Collins, former executive director of the city Rent Guidelines Board. “The Court explicitly disavowed the exercise of second-guessing the purposes of state legislatures adopting rent regulations.”

The key legal issue in the case, Chevron v. Lingle, was what standard should be used to judge whether laws constituted an unfair “taking.” Since the 1920s, courts have noted that government regulations could be considered a taking if they placed an unfair burden on property owners. Chevron argued that the Hawaii rent-control law should be considered a taking, because it did not “substantially advance” a legitimate state interest. The federal Ninth Circuit Court of Appeals agreed.

The Supreme Court rejected that contention, saying it would force the courts to review “virtually any regulation of private property” and then decide whether such rules were effective, in order to judge if they were constitutional. That would “require courts to scrutinize the efficacy of a vast array of state and federal regulations – a task for which courts are not well suited,” Justice Sandra Day O’Connor wrote. “Moreover, it would empower – and might often require – courts to substitute their predictive judgments for those of elected legislatures and expert agencies.”

Instead, the Court held, a regulation can only be judged a taking if it puts an unfair burden on property owners, if “its effect is tantamount to a direct appropriation” of property, or if its burden is not equitably shared among property owners.

Hawaii enacted the law in 1997 because the state, with only 300 gas stations, six gasoline wholesalers and two refineries, had some of the highest gas prices in the nation. About one-fifth of the state’s gas stations are leased from Chevron by individual owners, and among the law’s main supporters were former owners priced out by rent increases. “The reason why the state passed the rent cap was because we had argued all along in the Legislature that the oil companies were using economic eviction,” Frank Young told the Honolulu Star-Bulletin. “They would raise the rates so high that all the dealers would go out of business because the dealers could not afford to pay the rent and would have to leave. Then the companies would take control of the market through company-operated stations.”

Chevron did not claim that the rent-control law prevented it from making a profit. Instead, it argued that the law had failed to advance the state’s interest in keeping gas prices down, because the company had raised its wholesale prices to make up for the lost rental income.

‘Extreme’ Property Rights

The case was also closely watched by the judicial far right. Groups such as the Federalist Society and the Pacific Legal Foundation (which filed an amicus brief supporting Chevron) have been working to expand the legal reach of property rights radically, in order to eliminate government regulations on rents, occupational safety and the environment. Since 1937, courts have generally held such regulations constitutional, but pre-New Deal courts used the takings clause to strike down laws against child labor and union-busting. One key case was the Supreme Court’s 1905 decision in Lochner v. New York, in which it held that a New York State law setting a 10-hour maximum workday for bakers interfered with workers’ and employers’ freedom to agree on contracts.

“The real significance is that regulatory-takings jurisprudence was starting to slide back to Lochner-era philosophy,” says Collins. “The Court put the brakes on that.” In a 1994 case, Manocherian v. Lenox Hill Hospital, he notes, New York State’s highest court used the “substantially advances” test to strike down a state law that kept apartments under rent regulation if a hospital rented them from private landlords and then sublet them to employees.

What Collins calls an “extremist” definition of property rights is a main component of President Bush’s efforts to pack the courts with far-right ideologues, such as California Supreme Court Justice Janice Rogers Brown, who in 2000 told the Federalist Society that Justice Oliver Wendell Holmes’ dissent in Lochner was “annoying.”

Judge Brown was recently approved for the DC Circuit Court of Appeals as a result of the Senate Democrats’ filibuster compromise. In a 2002 California case, Brown was the sole dissenter against upholding a San Francisco law levying a fee on owners who convert their hotels from residential to transient, with the money being used to fund affordable housing. She wrote that it was “turning democracy into a kleptocracy.” In another case where she was the sole dissenter, Brown declared that rent control was a taking, and said it was as offensive as racial discrimination.

Collins believes the Chevron ruling will hold up, even if Bush appointees fill the courts. “The fact that this is a 9-0 decision seems to be a fatal blow to the property-rights extremists,” he says. “I think this decision is going to stand for a very long time.”

Reprinted with permission from Tenant, the Metropolitan Council on Housing’s monthly.