Litigation Update: Yim v. City of Seattle

Operator:  Welcome to The Federalist Society's Practice Group Podcast. The following podcast, hosted by The Federalist Society's Environmental Law & Property Rights Practice Group, was recorded on Monday, June 24, 2019, during a live teleforum conference call held exclusively for Federalist Society members.     

 

Micah Wallen:  Welcome to The Federalist Society's teleforum conference call. This afternoon's topic is a "Litigation Update on the Yim v. City of Seattle." My name is Micah Wallen, and I am the Assistant Director of Practice Groups at The Federalist Society.

 

      As always, please note that all expressions of opinion are those of the experts on today's call.

 

      Today we are fortunate to have with us Ethan Blevins, who is an attorney at the Pacific Legal Foundation, and Brian Hodges, who is a senior attorney at the Pacific Legal Foundation. After our speakers give their opening remarks, we will then go to audience Q&A. Thank you all for sharing with us today. Ethan, the floor is yours.

 

Ethan Blevins:  Thanks so much, The Federalist Society, for having us.

 

      So today we're going to talk about two cases, both named Yim v. City of Seattle, both regarding similar issues which are constitutional challenges to two Seattle housing regulations. The first is a regulation on landlords. It requires landlords to accept and offer a unit to the first qualified applicant to apply. So as long as they receive an adequate application from someone, they have to offer the unit to that individual. And secondly, a ban on criminal background checks or denying tenancy based on criminal background.

 

      So while it is a local dispute, I think there are several reasons why this has national importance. One being that other jurisdictions are following these cases carefully. They're interested in passing similar laws, and there are also big questions about federal takings in due process law underlying these disputes, and the City is pushing hard to transform the nature of both state and federal takings in due process law. So this is an important case to watch, I think, both for the spread of these kinds of housing regulations and the fundamental meaning of takings in due process law under the Federal and State Constitutions.

 

      So the First in Time rule that I'll be talking about first, and then Brian will talk about criminal background checks, requires that landlords offer a rental unit to the very first qualified applicant who walks in the door and hands in an application, although, that can also be by email as well. So whoever's first in the race is going to get the offer. The landlord can't gather a pool of qualified applicants and then choose who they think would be the best fit. They have to take the first. And in accomplishing that design, the First in Time rule requires landlords to list all criteria by which they're going to judge an applicant, and then they can't deviate from that criteria. They're stuck with that. They have to provide minimum thresholds for all their criteria so they can't just say credit score required. They have to say credit score with minimum of 650, or whatever it might be, required.

 

So landlords do have some discretion setting their criteria. The issue is, however, they just don't have any leeway on collecting among a variety of applicants that might meet those criteria. And they can't deviate from the criteria, if they decide they want to give somebody a break, or they decide somebody has some mitigating circumstance that would justify renting to them even though they don't meet all of the landlord's typical criteria.

 

The First in Time rule's purpose is to address implicit bias. So it is, at least, sold to the public as an anti-discrimination measure, but it's important to recognize how extraordinary an anti-discrimination measure it is. It's not just disparate impact. It's certainly not a ban on intentional discrimination. It essentially presumes bias and requires, therefore, that all landlords rent to whoever shows up first to try to mitigate any subjective bias that might enter into a landlord's decision.

 

I think the impact that has on landlords becomes clear when you consider the circumstances of the clients that we represent. So we represent Chong and Marilyn Yim. These are small mom-and-pop landlords who basically supplement their income via these housing units, and they couldn't afford to live in Seattle otherwise. They aren't -- these aren't big corporate figures, so Chong and Marilyn Yim rent out a couple duplexes and a triplex in Seattle. They live in one of the units of the triplex, and they rent out the other two units. So they share a yard with their tenants. They obviously are in close quarters with their tenants. They have children at home. The children play in the yard. The children are out and about, so they interact frequently with their tenants and live, essentially, in the same house with them. And they also have, in their duplex units', roommates.

 

So the First in Time rule apply even if there are units in which people are going to be living together in a roommate situation. And Chong and Marilyn Yim have been in the circumstance in the past where they have had to find a new roommate with whom the other tenants are unfamiliar. And they feel like it's important for them to be able to vet those individuals so that their roommates get along; they're safe and comfortable with each other.

 

Another client that we represent is Kelly Lyles, and Kelly is a low-income artist who inherited the single-family home from an uncle. And she rents that out, currently to two tenants. And she almost -- most of her income comes from that rental unit. So she relies almost entirely on it. She's a single woman. She's concerned about her safety. She enters the building with her tenant there sometimes if she has to deal with an issue or visit, and she wants to feel safe. So for her, it's largely a safety issue. And she feels like she can't exercise her judgement in deciding who she feels comfortable renting to under this First in Time regime.

 

So in challenging the First in Time rule, we raised in King County Superior Courts and state court, essentially, four constitutional claims. The first is a regulatory takings claim. Then a private use claim which essentially is similar to the Fifth Amendment prohibition on takings for private use. The Washington State Constitution forbids takings for private use as well but has a slightly more robust ban on takings for private use. So the other two challenges are due process and freedom of speech because of how the First in Time rule impacts the landlord's ability to advertise. It essentially compels speech and requires them to change the content of their speech in violation of the free speech guarantee.

 

So we brought state constitutional challenges, but it's important to recognize that many of the state constitutional requirements either parallel or require following federal takings of federal constitutional law. The trial court held in favor of the plaintiffs on all four constitutional claims. The trial court held that this was a regulatory taking, that it was a taking for private use, that it was a due process violation, and that it violated the landlord's free speech rights. So it forced independent holdings granting our motion for summary judgment.

 

The City immediately sought direct review from the Washington Supreme Court, and the Washington Supreme Court granted direct review, and we had oral argument earlier this month on June 11th. The takings theory that we raised is a little bit different than the Penn Central analysis that you typically see in a regulatory takings case. So, usually, when you're looking at Penn Central claims, you'd be looking to investment backed expectations, you'd be looking for the nature of the government action and economic impact. But Washington State takings law and, we think, federal takings law also provides for different kind of takings claim which is that when government has removed one of the sticks of the bundle of property rights, has essentially destroyed a fundamental attribute of property ownership, that also is a regulatory takings that gives ride to a just compensation requirement. And federal law seems to recognize that in a number of cases.

 

Kaiser Aetna, for example, a case where the federal government required that a marina provide public access after the marina opened a channel to the open ocean. And the Court, in that circumstance, said that that was a complete taking of the marina's right to exclude. And because of that, the Court didn't look to investment backed expectations and the other factors that we see in Penn Central. They said that's a categorical taking because they've taken one of those sticks in your bundle of property rights which include things like you have the right to exclude, the right to alienate your property, right to possess, and so forth. And they've taken that, and they've destroyed it, the right to exclude.

 

Other cases follow a similar path, so Loretto held that physical invasion is a categorical taking, similar to Kaiser Aetna. Lucas v. South Carolina Coastal Council held that destroying your economically viable use of your property, that that's a categorical taking. And then Hodel v. Irving, United States Supreme Court held that if you are not allowed to pass on your property via devise or decent upon your passing, that that also is a categorical taking. In that situation, the Indian Land Consolidation Act had required that owners of formerly reservation land, when they die that had to pass on to the tribe. They had lost their right to pass their property to their heirs and that was a categorical taking because, again, it takes one of the fundamental attributes of your property ownership. So you don't have to look to this sort of ad hoc Penn Central factors to determine whether there's a taking.

 

We brought a similar claim here based on both state and takings -- the state and federal takings law, particularly a case called Manufactured Housing Communities v. Washington. And in that case, the Supreme Court of Washington held that a right of first refusal is a fundamental attribute of property ownership. And when government essentially requires you to offer a right of first refusal to a particular party, then the government has taken that stick in your bundle of property rights, and, therefore, that's a taking that requires compensation.

 

So here, we argued that this is a taking of a right of first refusal because the landlords must offer a unit to the first qualified applicant. So they have to offer right of first refusal to the first person who shows up. They can't offer it to a subsequent person. They can't decide to withhold the right of first refusal. That right is just entirely abrogated by the First in Time rule.

 

The City's response, essentially, was to argue that this fundamental attribute test that we relied on is an aberration in takings law, that the only kind of regulatory taking that the courts recognize is Penn Central which we think is slightly false under federal takings law. The City recognized that a physical invasion is a categorical taking and that a taking of economically viable use or destruction of economically viable use is a taking, but they argued that those are the only two exceptions.

 

So according to the City, we had to rely on Penn Central, and the state law that we relied on should be overturned. The City also argued that, essentially, landlords lose their right to exclude entirely when they open their properties to rent, which I think is a profound misreading of federal takings law. There's no case that says if you rent your property, you've essentially become a shopping mall and are required to allow anyone onto your property, and you don't have a right to exclude anymore.

 

So that the private use issue was, I think, probably the most straight forward here because the Washington Supreme Court held that under state law, we have a, pretty much, categorical ban upon takings for private use, even if there is a public benefit. If the property is transferred from a private person to another private person regardless of benefit that accrues to the public, that's going to be a violation of Washington State's private use prohibition. So that was, I think, probably the most straight forward of the claims that we brought.

 

Again, with regard to due process, the City argued that the due process test that the plaintiffs relied on should be overturned. In Washington State, if you bring a substantive due process claim when you've been deprived of a property interest, you can rely on this unduly oppressive test that essentially asks whether or not the government regulation is so burdensome that it's unduly oppressive. And the Washington test on federal takings or federal due process law that recognizes this as an active due process test which has not been overturned. And so, similar to the takings situation, the City argued that that test should be overturned. There was extensive debate by the parties whether or not this unduly oppressive test has any role in the due process analysis or not. I'll leave Brian to talk more about that.

 

On the speech issue, our essential argument was that when the City requires landlords not only to lift all the criteria but to post minimum thresholds and not deviate from that criteria, that's more than just a simple disclosure requirement that might be upheld in a variety of situations where you're required to disclose nutrition content or required to disclose various facts about a product. This First in Time rule really requires them to adjust the content of their speech, to require things that they wouldn't otherwise require, and, therefore, violates the Commercial Speech Doctrine.

 

So those are the basics behind the claims that went forward. When we had oral argument on June 11th, the Court seemed pretty skeptical of the City's argument that both state and due process and takings law should just be entirely overturned in order to save the City's regulation. But, of course, it's always hard to read the tea leaves. So I'll turn the time over to Brian to talk a little bit about the criminal background check case.

 

Brian Hodges:  Good morning. Thanks for having me as well.

 

      Shortly after the City of Seattle adopted its First in Time ordinance, it adopted what it called the Fair Chance Housing ordinance. This is another regulation that restricts landlord's ability to select tenants. This one does so by declaring it an unfair practice to either inquire into an applicant's criminal history or to make a rental decision based on information pertaining to an applicant's criminal history. The ordinance does not exclude any serious crimes such as -- that could pertain to a reasonable rental decision such as a history of repeat violent offenses, or arson, or financial crimes. Instead, it just prohibits landlords from inquiring about or making a decision based on any of that information.

 

      The City justified the Fair Chance Housing ordinance because it noted that the criminal justice system disparately impacts minorities, and so they believed that taking away -- taking this factor out of the rental decision would have a beneficial effect on minorities in the city. The studies that the City relied on in adopting this ordinance did not suggest that private rental housing is a good place for newly released criminals. As a matter of fact, the studies that the City relied on concluded that for many crimes -- newly released persons should go into supportive housing which provides job training, drug counseling, mental health counseling, etc. to help somebody reintroduce themselves into society before it's too late and they reoffend.

 

      Shortly after we filed the Yim I lawsuit, we filed Yim II which challenges the Fair Chance Housing ordinance on two grounds: a substantive due process ground and a First Amendment violation. The City removed, after it got the adverse decision in Yim I, the City removed Yim II to federal court. Both parties filed cross motions for summary judgment. Shortly thereafter, the City filed a motion to certify a question arguing that a nearly 20-year-old Washington case called Amunrud v. Board of Appeals had impliedly overruled the state's Substantive Due Process Law. Notably, this is after the parties filed their briefing arguing substantive due process.

 

Long-standing case law from the Washington Supreme Court holds that a property owner -- that a property regulation must be reasonably -- use reasonably necessary means to advance a legitimate government purpose and not be unduly oppressive on individual rights in order to satisfy due process. That's an elevated standard of review. In the case Amunrud, the Supreme Court, in reviewing a very different right -- in that case it had to do with a statute that allowed the Department of Labor and Industries to suspend somebody's commercial driver's license when the person is significantly in arrears on child support payments. In that case, the property owner alleged no -- or, I'm sorry, the license holder alleged no property interest in the commercial driver's license but argued that the statute interfered with a right to pursue a particular profession, in that case being a taxi driver. The Court found that that was not among the fundamental rights that are subject to heightened scrutiny and, therefore, applied only rational base of scrutiny.

 

In reaching that decision, however, in dicta the Court responded to the dissent's argument that the right to a particular profession should be subject to heightened scrutiny, including the unduly oppressive standard that had been applied in property law. The majority rejected that argument in dicta saying that that had been rejected and saying that applying heightened scrutiny to economic rights would go back to the Lochner era.

 

So the City seized upon that and in its motion to certify the question for the Supreme Court, the City argued that Amunrud should be interpreted to have impliedly rejected the unduly oppressive prong of Washington's substantive due process test as a throwback to Lochner. Now, the Supreme Court took that question, but when the parties briefed the issue, the City changed tack, acknowledging that Amunrud did not do what it had claimed. The City changed its argument and focused on the U.S. Supreme Court's decision in Lingle because there's a long line of U.S. Supreme Court case law that Washington had relied on when it developed its substantive due process test that establishes an unduly oppressive or a fairness inquiry in due process cases, particularly where a regulation affects a fundamental right. The City argued that Lingle had impliedly overruled that line of past Supreme Court case law, and because Washington State follows Supreme Court case law on substantive due process, our test should yield as well.

 

Now, if you recall, Lingle v. Chevron was a regulatory takings test. For several years, the U.S. Supreme Court had improperly included the question whether a regulation substantially advances a legitimate government interest as part of its takings test. In Lingle, the Court was asked whether that was properly included in the takings lexicon and answered no. But in doing so, it said that the substantially advances test properly belongs as part of a due process inquiry. The City argued to the Washington Supreme Court that that statement should be read to have impliedly overruled any elevated scrutiny for a regulation that deprives somebody of a fundamental property interest and therefore leaves property owners with only minimal rational basis scrutiny when they challenge a regulatory deprivation.

 

We had arguments in Yim II on the same day as Yim I, and the Court immediately jumped on the City's switch-change of argument asking what the federal question was because this -- Yim II is up just on a certified question. There's no decision for the Court to consider, so the Court was very concerned that the City was trying to use the federal question process in order to affect the change to state constitutional law via federal constitutional law stating repeatedly that they cannot rule on those federal questions. The ultimate question, likely, that the Court indicated that they could probably resolve the certified question very quickly, although leaving a question mark by saying, "We follow federal law," and then sending it back to the federal district court to rule on the motions for summary judgment.

 

So we expect a decision from the Washington Supreme Court on the certified question in Yim II to issue more quickly than the questions presented in Yim I. With that, I think we can open up the floor to questions.

 

Micah Wallen:  Wonderful, thank you both for those opening remarks. We'll now go to our first question.

 

Joshua Stein:  Hi, this is Joshua Stein in New York. Our legislature just passed permanent rent control -- rent regulation, and I'm wondering how some of the constitutional cases you discussed affect the constitutionality of permanent rent regulation.

 

Ethan Blevins:  Well, this is Ethan. I think there definitely is parallels here, at least with regard to takings law. The City, for example, relied a lot on Yee v. City of Escondido which was a rent control case, specifically rent control in the mobile home park context. And the City relied on that for the principle that landlords don't have a right to exclude. I think in that case the landlords had said look, this rent control regime makes it a lot harder for us to get rid of tenants, which often rent controllers need to do, and I think the New York State—and I could be wrong—regime also makes it a little bit harder to get rid of tenants. And so, there's definitely some parallels with regard to arguments related to the right to exclude.

 

      I think, also, the right to negotiate lease terms is definitely at issue here because part of what we argued extensively, and the trial court agreed with, was that the First in Time rule prevents landlords from having any power to negotiate lease terms anymore because, typically, if you can choose your own tenants, if a tenant comes up and offers you a better offer, maybe a longer lease term or offers to pay more rent or offers to do their own repairs, whatever it might be, you can't take that second offer even if it's a better offer. So we argued that, essentially, landlords don't have any ability to negotiate their lease terms anymore and trial court was very favorable about that particular argument and incorporated it into her decision on summary judgment. I think that rent control has a very similar impact, obviously. It affects your ability to negotiate lease terms in a variety of ways. So yeah, I think that there is some implication for rent control here.

 

Brian Hodges:  Yeah, there's one other common issue that I'd like to address and that is how we characterize the property right at issue which is the right to alienate property. In our case, it has to do more with choosing the person to whom you will lease or sell your property. Courts have variably characterized this, and the characterization is key to whether the protections will kick in, but older courts characterize the right of alienation as the right to sell your property to the person of your choice at the price of your choice. Several California Supreme Court precedents stated the right of alienation that way, and there are some Supreme Court decisions -- U.S. Supreme Court decisions that also characterize the right that way.

 

One important case that came up in our research was the 1970 -- 1917 case Buchanan v. Warley where—it's actually an interesting case because it's the end of NAACP’s first victory to the U.S. Supreme Court—there, a real estate agent sold a residential property to a black man, who happened to be an attorney for the NAACP, in a Kansas neighborhood where there was an ordinance in place that said that neighborhoods that are predominantly white, that black owners cannot reside in properties in a neighborhood that's predominantly white.

 

So this was a situation that they created in order to get a case up to the Court. Mr. Warley, the attorney, purchased the property with a covenant in the sale that said that I'm purchasing it for the purpose of occupancy. So after the ordinance was applied, Mr. Warley tried to back out of the sale. Mr. Buchanan sold, and they took this up to the Supreme Court challenging the ordinance, asking whether it violated substantive due process. And, importantly, they asked whether it violated the owner -- the seller's substantive due process rights. And there, the Court said that the right to alienate property is the right to sell to the person of your choice for lawful purposes and that the Kansas ordinance was not a lawful restriction on that right and violated their substantive due process right.

 

So to link that to rent control, you would have to have the court characterize the property right as including the right to choose the price at which you will alienate your property.

 

Micah Wallen:  I wanted to ask both of you whether -- it seems like there's been some blurring of the lines on whether these cases are raising state or federal constitution claims. Is it both or is it more -- one more than the other? And how does that work?

 

Ethan Blevins:  I'll speak to the First in Time rule, and I'll let Brian speak on the criminal background check case. But with First in Time, we brought only state constitutional claims, but it quickly rose to the level of argument over what the meaning of federal due process and takings law is because regulatory taking -- under regulatory takings law and due process law, the state constitution follows federal law. So we did have extensive debate, in the briefing and in oral argument, what exactly, especially, and I'll let Brian speak to the due process part, but what regulatory takings law means.

 

The big ambiguity on the federal level is to what extent you can bring a categorical takings claim. So the City says that's limited to economically viable use, situations like with Lucas where your property is so heavily regulated that you just can't get any value out of it anymore. There's nothing you can use it for that will have any -- that's economically viable in any way. And then physical invasion is the other one that the City says is categorical takings is limited to in the federal context which is essentially where your right to exclude is abrogated because you're, in the context of Loretto, you're required to allow the installation of a cable on your property or in Kaiser Aetna, you're required to allow public access on your property.

 

And so the big debate about federal law that the parties had was whether or not that categorical takings analysis is open to more categories or whether it's just limited solely to this economically viable use category in Lucas and the physical invasion category from Loretto and Kaiser Aetna. And that's where the state constitutional law has extended a little bit farther because the state law has, as I mentioned, extended this to a taking of your right to give or withhold a right of first refusal. And state law has said hey, we recognize that there is such a thing as a categorical taking. It includes physical invasion, economically viable use, this right of first refusal, and other destruction of fundamental attributes of property ownership. And that's where it's unclear whether federal law extends beyond that.

 

      And one thing that the City simply couldn't explain is Hodel v. Irving where the Supreme Court very obviously extended the categorical takings analysis to complete abrogation of your ability to pass on your property to your heirs. That obviously extends this range of categorical takings into new territory the City simply couldn't recognize.

 

Brian Hodges:  In Yim II, we also filed a fake substantive due process claim specifically because Washington courts had defined the test very specifically and had set forth very clear factors for courts to apply when considering a due process claim unlike the U.S. Supreme Court which has provided some guidance such as saying substantially advances a legitimate government interest or not unduly oppressive but has not really explained how those tests are to work.

 

      The case, however, immediately shifted when the City raised this Lingle argument. The case shifted into more of a consideration of what has occurred in the federal courts in the U.S. Supreme Court rather than Washington law. As a matter of fact, most of the City's briefing relies on Ninth Circuit case law that has interpreted the U.S. Supreme Court to apply a minimal level of scrutiny to regulations that deprive a person of a fundamental property interest. So although these claims were filed as state constitutional claims, the decision will likely embrace federal constitutional issues.

 

Micah Wallen:  All right, not seeing any other questions lined up in the queue, did either of you want a few minutes for some closing remarks?

 

Ethan Blevins:  Sure, I'll take a minute and then allow Brian some time. I had mentioned before, I think that this case, both these cases, but I'll speak to First in Time in particular, is important on the national level not only because other municipalities are definitely watching Seattle's housing regulation and whether it survives constitutional scrutiny, but also this case raises really fundamental questions about the scope of federal takings law and touches on what I think is a really fundamental and continuing ambiguity in federal takings law which is the extent to which parties can bring categorical takings claims, separate from this ad hoc and very challenging Penn Central inquiry.

 

And I think that the court -- the Supreme Court needs to address this eventually and let us know if, really, the categorical takings categories are limited solely to economically viable use in Lucas or physical invasion in Loretto or whether Hodel v. Irving implies, which I think it necessarily does, that any taking of a fundamental attribute of property ownership should receive categorical per se treatment under the Takings Clause. So I think this is a big federal takings issue that needs to be addressed eventually by the Supreme Court itself, and we're seeing that debate take place at a state supreme court level where I don't think it's really been addressed at all.

 

Brian Hodges:  Yeah, I think that this case also touches on a more fundamental debate regarding the proper role of the Takings Clause. We just saw this debate take shape in the arguments back and forth between the majority and dissenting opinions in Knick v. Township of Scott, which was issued last Friday by the U.S. Supreme Court, in which the dissent took the position that it particularly the administrative agencies -- the function of administrative agencies is going to be so impaired if the Takings Clause is given chief, is given some real substantive effect on laws that impair, restrict, and diminish rights in property.

 

      Seattle enacted both of these laws knowing that it would -- that they would be challenged and knowing that the laws violated settled precedence, settled Washington State precedence but with the idea that they might be able to convince a court to further limit the Takings Clause. Seattle's goal is to get manufactured housing overturned and to get rid of Washington's stronger protections for property so that they can enjoy more regulatory freedom.

 

It's the same goal in regard to substantive due process. Seattle wants limitations on property rights or fundamental rights to be given only rational basis scrutiny so that it further broadens the City's authority to enact these laws, and it's following a pattern. In the law few years, Seattle has adopted numerous ordinances knowing that they violate settled constitutional law as an attempt to force change through city hall rather than through the state government. They enacted an income tax, a targeted income tax, on wealthy residents despite seven Washington Supreme Court decisions saying that our Constitution forbids an unequal income tax.

 

And they went on to also adopt a law that deputized garbage collectors to search the contents of people's trash cans in order to issue fines or notices of violation despite our Supreme Court holding that our right to privacy is robust and does not allow unwarranted searches of garbage cans. So this is just part of a pattern of trying to expand the reach of the government by limiting the impact -- limiting the importance of the Takings Clause. That approach was rejected in Knick, which we hope will reinvigorate the proper view of the Taking Clause, and we are hopeful that Washington Supreme Court will see that and take a stance against this expansive view of government power in these cases.

 

Micah Wallen:  And on behalf of The Federalist Society, I'd like to thank both of our experts for the benefit of their valuable time and expertise today. We welcome listener feedback by email at [email protected]. Thank you all for joining us. We are adjourned.

 

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