Pennell v. City of San Jose - Oral Argument - November 10, 1987

Pennell v. City of San Jose

Media for Pennell v. City of San Jose

Audio Transcription for Opinion Announcement - February 24, 1988 in Pennell v. City of San Jose

Audio Transcription for Oral Argument - November 10, 1987 in Pennell v. City of San Jose

William H. Rehnquist:

We will hear argument.

First this morning No. 86-753, Richard Pennell v. City of San Jose.

Mr. Miller, you may proceed whenever you are ready.

Harry D. Miller:

Mr. Chief Justice, may it please the Court:

The City of San Jose has enacted a unique provision that it has added to an otherwise valid rent control ordinance.

That provision raises the question whether or not a supplier of goods and services can be required to provide financial assistance to a consumer solely because of the consumer's ability to pay.

This case arises on appeal from the California supreme court that reversed a decision of the trial court and a decision of the district court of appeals that had held that this provision violated the "just compensation" clause, the "equal protection" clause, and the "due process" clause.

The California supreme court rejected those arguments and found that the provision was valid under all three clauses.

The Opinion of the California supreme court found in effect that,

"as long as a rent control ordinance provides a fair and reasonable return to the landlord, that the city has to power to use the excess funds for any other public purpose. "

Our challenge in this case is based primarily on the "just compensation" clause in reliance on the Rule announced by this Court in both Agins and in the Nollan case.

We do not challenge the one aspect of the Nollan rule; we do not challenge that we have been denied the economic viability of the use of our land.

We do challenge its provision under the other part of the Nollan test, and that is that this provision fails to substantially advance a legitimate state interest under the reasoning of the Nollan Decision, that is to say, that there is no cause and effect, no nexus between any conduct by the landlord and the hardship of the tenant or the necessity to provide financial assistance to a tenant.

William H. Rehnquist:

Is there not some problem with the "just compensation" clause applying at all to this case?

There really has been no taking, certainly in any physical sense, of your property.

Harry D. Miller:

There had been a taking of money, Your Honor.

The way the ordinance works, if a landlord wants more than the rent that is otherwise provided by the mathematical formulas, he then establishes in his own mind what he believes is a reasonable rent, and he can then either petition the city to approve that additional rent as being reasonable, or in the alternative, the landlord can give a 30-day notice to the tenant, establishing this higher rent, and then the tenant has the opportunity to file a petition with the city.

In either event, the hearing is held and the hearing officer looks at various factors... the factors he looks at are primarily the economic factors from the point of view of the landlord; his rent, his expenses, et cetera... how well he is maintaining the property, et cetera.

Based upon those factors, the hearing officer establishes what rent would be reasonable under the circumstances.

Now let me use an example: assume after examining all those factors, the hearing officer determines that a reasonable rent for this unit would be $400 a month.

If the tenant... if the unit is not occupied by a hardship tenant, then that would be the rent that the landlord could charge... the $400.

However, if this unit is occupied by a hardship tenant, then he can reduce the rent to let us say, $375.

It is our position from that reduction of the rent from a reasonable figure of $400 down to another figure of $375 is a taking of the rent from the landlord.

William H. Rehnquist:

But that is a very hypothetical situation.

You are just attacking the ordinance on its face, are you not?

You do not have any particular fact situation?

Harry D. Miller:

That is correct, Your Honor.

William H. Rehnquist:

Is there any guarantee that that is how a hearing officer would handle that sort of an inquiry?

Harry D. Miller:

It is our position, Your Honor, that the lack of validity of this provision appears on the face of the ordinance and an application would not do anything to assist this Court in resolving this dispute.

The ordinance provides on its face expressly that the hearing officer must consider the financial ability of a tenant to pay.