Property Law Developments—Joseph William Singer

On June 26, 2015, the Supreme Court held in Obergefell v. Hodges, — U.S. — (2015), that the Constitution’s due process clause protects liberty interests that include personal choices central to individual dignity and autonomy and that those include the right to marry, including someone of the same sex. The Court also held that it violates equal protection of the laws to allow male-female couples to marry but to deny that right to same-sex couples. For the same reasons, states must recognize same-sex marriages validly celebrated in other states.

The Supreme Court held in Horne v. Dep’t of Agric., 133 S.Ct. 2053, — U.S. — (2015), that the takings clause applies to physical takings of personal property (like cars) as well as to real property. Thus a government program designed to shore up the price of raisins by requiring farmers to hand over a certain percentage of the raisin crop to the government effected a categorical physical taking of personal property.

The limit on supply of raisins for sale was intended to increase the price farmers receive for the raisins they sell, thus promoting the profitability of their businesses. The expropriated raisins are given away or sold by the government and if any profits remain they are returned to the farmers. The Court held any economic benefits farmers received from increased raisin prices or moneys from sales of the raisins turned over to the government do not affect the question of whether a taking has occurred. When physical property is seized by the government, a taking has occurred even if it is is personal property and just compensation is due.

The Court also held that the government cannot condition participation in a price-support program on the condition that the farmer turn over a portion of the crop to the government.

At the same time, the Court made a sharp distinction between physical taking of personal property and regulation of its use. The takings clause does not prohibit regulation of personal property; nor does it prevent the state from prohibiting creation or possession of certain dangerous forms of property such as drugs like heroin. Thus it would not be a per se or categorical taking to limit the production of raisins (although it might be a regulatory taking). But it is a per se or categorical taking for the government to force the owner to hand the raisins over to the government. Justice Sotomayor dissented on the ground that this is a distinction without a difference.

Justice Thomas concurred on the ground that the taking was not for “public use.”

Justice Breyer concurred along with Justices Ginsburg and Kagan on the ground that a remand should have been ordered to determine if any compensation would have been due had the owner complied with the regulation. Breyer noted that the takings clause does not prohibit takings; it just requires just compensation when property is taken for public use. There was therefore a question of whether compliance with the government’s mandate would have resulted in just compensation being paid and if so it is not clear why a constitutional violation occurred since the obligation is to compensate not to refrain from taking. Part of the complication is that the requirement of handing over some raisins to the government effectively raises the price of those that are kept by the farmer. If that amount is sufficient to compensate for the value of the raisins handed over to the government then no more compensation should be due.

The Sixth Circuit has ruled that nonjudicial foreclosure satisfies constitutional due process requirements because the homeowner/borrower was given notice of the foreclosure and notice of who to cure the default or seek a loan modification and how to redeem the property (get it back) after the foreclosure sale during a six-month redemption period. Garcia v. Fed. Nat’l Mortg. Ass’n,  782 F.3d 736 (6th Cir. 2015). These statutory procedures satisfied the constitutional right to notice and an opportunity to be heard before being deprived of a property right.

The California Supreme Court has struck down a voter initiative that barred all sex offenders from living within 2000 feet of schools and parks. In re Taylor, 83 U.S.L.W. 1299, 2015 BL 54822 (Cal. 2015). The court held that the ban deprived sex offenders of liberty without due process of law because it rendered many sex offenders homeless and was not reasonably related to government interests in protecting children. Because 97 percent of the county was off limits to sex offenders, many had no place where they could live or receive medical treatment and services, depriving them of constitutionally protected liberty interests. The law also  made it difficult or impossible for the sex offenders to be monitored by parole officers, thereby defeating the purpose of the regulation and depriving it of any rational relationship to the legitimate government objective of protecting the public.

The Michigan Supreme Court overturned a lower court ruling that had held it to be unconstitutional for a city to demolish a structure that the city believes is financially unreasonable to repair even if the owner claims to want to make the repairs. The court held that it does not constitute a deprivation of due process of law to require the demolition given the fact that the owner allowed the property to become dilapidated and the city could rationally believe that demolition was the best remedy to remove the public nuisance. Bonner v. City of Brighton, 848 N.W.2d 380 (Mich. 2014).

A number of recent cases has revealed the persistence of racial discrimination affecting municipal decisions about housing. The Sixth Circuit found, for example, in Hidden Village, LLC v. City of Lakewood, Ohio, 734 F.3d 519 (6th Cir. 2013), that town officials may have engaged in a campaign of harassment designed to induce African American residents to move out of town. The case involved a Lutheran religious organization that helped young people released from foster care or juvenile detention to enter society. The organization found a helpful landlord willing to rent apartments to the organization’s clients. At first the town officials argued that this amounted to an institutional use in violation of the zoning law but the town planning commission found otherwise. At that point, the complaint alleges that town officials began a campaign of police harassment that involved citations for minor offenses and unreasonable searches of apartments.

The Sixth Circuit concluded that the landlord had standing to sue to claim violations of the Civil Rights Act of 1866, 42 U.S.C. §§1981-1982 and the Fair Housing Act, 42 U.S.C. §3601 et seq. The court also held that plaintiffs had presented a viable substantive due process claim. The court noted that the due process clause “protects landlords against irrational restrictions on how they use their property. Rationality may be a low bar. But the government flunks even that test when it tries to prevent a landlord of any race from renting to tenants based on their race.

The court also found a potential violation of §3617 of the Fair Housing Act, 42 U.S.C. §3617 which makes it illegal “to coerce, intimidate, threaten, or interfere with any person in the exercise or enjoyment of, or on account of his having exercised or enjoyed, or on account of his having aided or encouraged any other person in the exercise or enjoyment of any right granted or protected [by the Fair Housing Act].” Although federal courts have been confused on the issue, the Sixth Circuit held that a §3617 violation could be shown even if there was no underlying violation of another section of the Fair Housing Act. In this case, for example, no one denied the youths housing or granted them discriminatory terms. Nonetheless, the facts sufficiently alleged that the town sought to interfere with their enjoyment of the right to obtain housing without regard to race.

In a second case, the Eastern District of New York held that a city violated the Fair Housing Act when it rezoned several parcels to prevent the building of low- and middle-income housing. The court found that the facts supported a finding of liability under both a discriminatory treatment and disparate impact theory. MHANY Mgmt Inc. v. Incorporated Village of Garden City, 2013 WL 6334107 (E.D.N.Y. 2013). read article The court found a discriminatory treatment claim (intentional racial discrimination) because there was sufficient evidence  to conclude that animus because of race was a significant factor in the denial of the housing opportunity. Evidence to that effect was shown by the fact that exclusion of low-income housing would impose a greater impact on African Americans than on whites, there was a history of racial bias in the city, and the sequence of events leading up to the denial of the housing opportunity that suggested a racially discriminatory motive. Although the city gave legitimate nondiscriminatory reasons for the change in the zoning law, the plaintiffs undermined those justifications by showing that the proposed development would not significantly affect traffic and that other reasons given by the city were not supported by the available evidence. The court thus found that the proffered justifications were pretextual.

The court also found a disparate impact claim. Although the city gave legitimate nondiscriminatory reasons for its decision (reducing traffic and providing for townhouse construction), it did not show that these goals could not be achieved in a less discriminatory manner or in a manner that did not perpetuate racial segregation.

The Ninth Circuit has upheld a city administrative program that regulated landlords whose buildings violated the housing code by allowing tenants to pay a reduced rent into a publicly administered escrow fund which is paid to the landlord once the violations are corrected.    Sylvia Landfield Trust v. City of Los Angeles, 2013 WL 4779664 (9th Cir. 2013). Four landlords challenged the program as a violation of their substantive rights under the due process clause. The court upheld the program because it was rationally related to the legitimate government goal of enforcing the housing code to protect tenants from unsafe conditions.The landlords had claimed that the tenants caused the problems, that their properties were not sufficiently substandard to warrant application of the law, and that the program was intended to enrich the government. The court rejected all these claims, noting that the law allowed landlords to prove that tenants were responsible for the conditions and that the program was designed to promote compliance with safety regulations, not to generate income for the government. The program therefore did not arbitrarily deprive the landlords of their liberty or property; nor was it taken ‘with deliberate indifference toward…constitutional rights.”

Kentucky had a law declaring unused traveler’s checks to be abandoned property if they are not used after a period of fifteen years; such property escheated to the state. When the legislature reduced the period from fifteen to seven, the change was challenged as a violation of due process of law. The Sixth Circuit held that the legislation was consistent with the due process clause on the ground that substantive due process requires only that the legislation be rationally related to a legitimate government interest. In this case, the legislation shortening the period from fifteen years to seven was a legitimate revenue-raising measure. American Express Travel Related Services Co. v. Kentucky, 641 F.3d 685 (6th Cir. 2013). The court refused, however, to rule on the question of whether the law effected an unconstitutional taking of property without just compensation, unconstitutionally impaired American Express’s contractual obligations, or was unconstitutionally retroactive in application.

In Eaton v. Fed. Nat’l Mortgage Ass’n (Fannie Mae), 2012 Mass. LEXIS 488 (Mass. June 22, 2012), the Supreme Judicial Court of Massachusetts held that a foreclosing party must be in physical possession of both the note and the mortgage (or be acting on behalf of someone who does) when bringing a foreclosure proceeding. However, the ruling applies only prospectively to foreclosures that occur in the future, with the exception that the plaintiff in Eaton that convinced the Court to clarify this rule can take the benefit of it. The refusal to apply the rule retroactively was based on the belief that the law may have been unclear beforehand and that it was the case that many people acted without regard for this principle in the past.

In Quigley v. Winter, 598 F.3d 938 (8th Cir. 2010),the Eighth Circuit upheld a trial court ruling that landlord sexually harassed tenant in violation of the Fair Housing Act (FHA), but it affirmed the  trial court’s reduction of the jury’s punitive damages award. The jury awarded $13,685 in compensatory damages and $250,000 in punitive damages. The trial court reduced the punitive damages award to $20,527.50.

The landlord engaged in a variety of inappropriate behavior, rubbing tenant’s arm, standing close to her and rubbing his genital area, following tenant and her sister into the bedroom while conducting an inspection and they were in their pajamas and then refusing to leave until asked to do so three times, calling tenant while drunk at 2:30 or 3:00 am.  The Eighth Circuit held that a claim for hostile housing environment created by sexual harassment is actionable under the FHA, that there was sufficient evidence to find that landlord’s conduct in tenant’s home rose to that level, and that landlord had engaged in quid pro quo harassment by suggesting tenant undress for him to get her security deposit back. The court also found a violation of 42 U.S.C. §3617 when landlord engaged in coercion, intimidation, and interference with tenant’s enjoyment of her housing rights.

However, the court approved the trial judge’s reduction of the punitive damages award from $250,000 to $$20,527.50 on the basis of Supreme Court precedents holding it violates due process to award punitive damages claims that are out of proportion to actual damages. See, e.g., State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003);  BMW of N. Am., Inc. v. Gore, 517 U.S. 559 (1996). While the court found landlord’s conduct “reprehensible,” it did not find the degree of reprehensibility to justify a punitive damages award eighteen times the compensatory damages. The Eighth Circuit agreed with the trial judge that an award one and a half times the compensatory damages sufficiently reflected the reprehensibility of landlord’s conduct.