Seattle’s landlord regs at the Supreme Court

Landlords in Seattle must rent to the first person to walk in the door, so long as they check out on paper. This “first-in-time” rule has slogged through several years of litigation over whether the rule violates landlords’ constitutional rights (full disclosure–I represent the plaintiffs). That case, called Yim v. City of Seattle, has now crescendoed with a petition to the United States Supreme Court. The Court should seize the chance to decide two pressing questions about the Constitution’s role in protecting property rights: (1) if regulation destroys a fundamental attribute of property ownership–like the right to exclude, or the right to sell–does the regulation result in a taking that requires compensation? and (2) if a regulation is “unduly oppressive” of individual rights, does it violate due process?

The first-in-time rule is something of a novelty. The rationale behind the rule is to prevent implicit bias; a landlord can’t unconsciously discriminate if she doesn’t have any discretion to decide whom to rent to. Hence, the rule allows landlords to set pre-established criteria, though all criteria must have minimum thresholds (i.e., minimum credit score). The landlord cannot thereafter deviate from that criteria and must simply rent to the first person who qualifies, even if ten or fifteen applicants check all the boxes. After the landlord rents to the first comer, the lucky winner has 48 hours to sit on the offer, after which time the offer moves on to the next person in line.

The bottom line is that landlords can no longer make common-sense judgment calls about who will live on their property. The practical challenges that result are daunting, for small landlords in particular. A landlord cannot, for instance, deny an applicant because they feel threatened or unsafe when an applicant tours a unit. That’s a big deal for plaintiff Kelly Lyles, a single woman and sexual assault survivor. Or for MariLyn Yim, who owns a triplex and lives in one of the units with her husband and kids. They share a yard and common spaces with their tenants–compatibility and safety are key. And some of the Yims’ units have roommates, where the ability to select people that will get along and feel comfortable with each other is essential. But basic discretion is out the window with first-in-time. If Lois Lane advertises the fortress of solitude for rent and Lex Luthor shows up with his spotless credit score and seven-digit income, she’s out of luck.

And renting property often involves a give-and-take negotiation that’s no longer possible under the rule. Tom Riddle’s credit score is shabby, but he offers a two-year lease instead of one to make his application more appealing. Not under first-in-time. Pam Isley offers to do landscaping if the landlord drops rent by $50 a month. Nope. Nor can landlords offer leniency by deviating from their criteria because they want to give a second chance to someone down-and-out.

MariLyn Yim and Kelly Lyles sued on the theory that removing everyday discretion in this manner constitutes an unconstitutional taking and a violation of due process. They won at trial and lost before the Washington Supreme Court. Now, the questions they bring to the Supreme Court’s attention raise some fundamental questions about the Fifth Amendment’s takings clause and the Fourteenth Amendment due process guarantee.

The plaintiffs argue that a taking occurs when regulation destroys a fundamental attribute of property ownership. They invoke a well-known metaphor in property law: the “bundle of sticks.” Property is not really a single right–it’s a bundle of various rights that a person has with respect to a physical thing, such as the right to exclude others, the right to use the property, to occupy it, to sell it, and so on. Plaintiff’s theory is that each of these “sticks” in the bundle is entitled to independent constitutional protection; when one of those sticks is destroyed by regulation, that constitutes a taking of property as surely as a seizure of land. In this case, plaintiffs argue that denying them the right to decide who will occupy their property destroys their right to sell property to the person of their choosing and their right to exclude people not of their choosing.

This is an important and uncertain question under the Fifth Amendment. The Supreme Court has held in the past that a taking occurred where various attributes of property ownership were destroyed. For instance, when the United States required a marina to open a private lagoon to the public, the Supreme Court held a taking occurred because the government had destroyed the right to exclude, “one of the most essential sticks in the bundle of rights that are commonly characterized as property.” Likewise, the Supreme Court held that a taking occurred when Congress prohibited owners of tribal lands to pass on the property to their heirs, which was a “total abrogation” of a right that “has been part of the Anglo-American legal system since feudal times.”

The trouble is, though, that some other decisions of the Supreme Court can be read to refute this approach to takings. Hence, the city of Seattle argues that these takings precedents don’t represent the current state of takings law. This question thus presents an important opportunity for the Court to clarify the scope and meaning of the Fifth Amendment.

The second issue is no less compelling: does the oppressive impact of a law bear on whether it satisfies due process? The federal courts tend to answer yes, while a large number of state courts answer no. The Fourteenth Amendment’s due process clause imposes, at minimum, a floor of rationality–a law must be rationally related to a legitimate government interest. The question raised in the Yim petition asks the Court to address whether an unduly oppressive means (obliterating discretion) of achieving a legitimate government purpose (preventing discrimination) satisfies this threshold of rationality. The Supreme Court has repeatedly held that a law’s oppressive nature bears on whether the law is arbitrary or irrational. That is, a government has no legitimate interest in imposing oppressive laws on its people, and the use of oppression to achieve an otherwise legitimate government interest is arbitrary and irrational, in violation of due process.

The Washington Supreme Court, however, held that the U.S. Supreme Court had implicitly overruled this “unduly oppressive” analysis. It also overruled a whopping 61 of its own cases recognizing and applying this “unduly oppressive” test–so many that it provided a separate index of cases fed through the shredder. By joining a growing number of states that refuse to recognize that an unduly oppressive law violates the rational basis test required by due process, the Washington Supreme Court has teed up an important issue that warrants the U.S. Supreme Court’s attention.

These questions will grow in significance as government control of the rental market expands. Since enacting first-in-time, for instance, Seattle has imposed a ban on criminal background checks, a ban on winter evictions, a requirement that landlords rent to a tenant’s choice of roommate, and more. Other cities are enacting similar restrictions on landlord control over their own property. The U.S. Supreme Court should address the pressing constitutional questions that such regulations raise.

The problem of value in regulatory takings

Regulatory takings law is a mess. The Fifth Amendment promises: “nor shall private property be taken for public use, without just compensation.” This constitutional mandate encompasses direct acquisition of property, government action that damages or restricts property, and regulation of property that effectively results in a taking. Defining what constitutes a regulatory taking has vexed the courts for decades.

I believe much of the trouble comes from the Supreme Court’s fixation on loss of value. The primary test for a regulatory taking looks to reasonable investment-backed expectations dashed by the regulation (i.e., I’d amassed resources and did a lot of footwork to build a house, but a new shoreline buffer prohibits construction), the resulting economic loss, and the character of the government action.

Examining value creates intractable line-drawing problems and fails to establish a predictable rule. How much loss of value is too much? As one might expect, courts come out with wildly different answers, though all of them tend to lean toward not requiring compensation. A Massachusetts court, for example, recently held that a regulation that forbade any development on a parcel of land and resulted in a 91.5% loss of property value was not a taking that requires the government to compensate the property owner.

Hence, no one going into court with a takings claim really has any way to predict what a court might do, though it’s safe to guess that the result will be bad. Courts are reluctant to draw a line in the sand, so they just hand wins to the government. This is not to say that loss of value is wholly irrelevant, of course, but it’s more relevant to the question of how much compensation is due, not whether a taking has occurred in the first place.

Takings law doesn’t have to be this way. In fact, nineteenth-century takings law took a totally different approach. Early courts looked to the burden on the property interest, not the loss of economic value. Most fledgling regulatory takings law developed in the state courts, for two reasons: the Fifth Amendment wasn’t applied against the states until the Fourteenth Amendment was ratified in 1868, and the federal government in the nineteenth century wasn’t much in the business of regulating land.

The early state cases didn’t even consider economic loss in their approach to what constitutes a taking. For instance, in Woodruff v. Neal, an 1859 Connecticut case, a government granted ranchers licenses to graze their cattle on public rights of way that crossed over private land. The private landowners sued for a taking and won because their property rights included rights over the “herbage” that the cows ate. The economic loss had to have been puny, but the court didn’t even bother addressing this, probably because they saw economic loss as pertinent only to the question of compensation due.

Most of the other regulatory takings cases of that time period involved riparian rights–wharfage rights and so on. So it was with one of the United States Supreme Court’s early forays into regulatory takings–a case where, like the state cases that preceded it, did not even bother to mention loss of value. The case was Yates v. Milwaukee (1870). Yates owned land adjacent to a river and had built a wharf that extended out into the water. The city didn’t like his wharf, so they declared it a nuisance and sought to tear it down. Yates argued this was a regulatory taking, and the Supreme Court agreed. They didn’t bother to mention how much the loss of the wharf would cost Yates. They just held that access to a river was among the rights held by owners of a riverbank. The city had destroyed that right, so a taking occurred and compensation was due.

Strangely, seven years later, the Supreme Court started to retreat from regulatory takings altogether and didn’t really return to the doctrine until the early twentieth century. Much later, when the Supreme Court thought up its value-based regulatory takings test in a 1978 case called Penn Central v. City of New York, the Court completely ignored Yates and all the many non-value-based takings cases in the state courts of the nineteenth century. In fact, the Court seemed to believe that regulatory takings law was a twentieth-century creation that began with a 1920 case called Pennsylvania Coal Co. v. Mahon. This bizarre blindness to the real history of regulatory takings law has resulted in an incomprehensible labyrinth of takings jurisprudence. The Supreme Court could learn a few lessons from the state courts of two centuries ago.