A unanimous Supreme Court held that the courts must hear a challenge to a San Francisco ordinance forcing landowners to provide lifetime leases to tenants, overturning a ruling by the often-reversed U.S. Court of Appeals for the 9th Circuit.
A businessman had been suing San Francisco over a local rule his lawyers say punishes him for trying to convert his residential rental property into a condominium. The man and his wife had purchased the property in 2009 as an investment, intending to move in when they retired. The ordinance required him, in order to move forward with the conversion, to allow his tenant to remain in the property for life, in what is probably the tightest real estate market in the country.
Along the way, the landlord offered to buy out the tenant’s lease. The tenant didn’t accept the offer and countered with an offer to purchase the property for several hundred thousand dollars below market value. The landlord rejected the counteroffer.
The city approved the conversion. But a few months later, the couple asked the city to either excuse them from executing the lifetime lease or compensate them for the lease. The city denied both requests, informing the couple that “failure to execute the lifetime lease ... could result in an enforcement action,” the opinion stated.
In what’s known as an inverse condemnation action, asserting that their property had been unconstitutionally taken without compensation, the couple argued that the lifetime-lease requirement was a regulatory taking.
The takings clause of the Fifth Amendment, which has been applied to the states through the 14th Amendment by way of what lawyers call the doctrine of incorporation, provides: “Nor shall private property be taken for public use, without just compensation.”
Plaintiff Peyman Pakdel’s lawsuit was rejected in 2017 by U.S. District Judge Richard Seeborg, an Obama appointee. Seeborg sided with San Francisco, finding, consistent with the Supreme Court’s 1985 ruling in Williamson County Regional Planning Commission v. Hamilton Bank of Johnson City that Pakdel should have brought the suit in state courts first before filing in federal court.
“Williamson County was not just wrong,” Chief Justice John Roberts wrote at that time for the majority. “Its reasoning was exceptionally ill-founded and conflicted with much of our takings jurisprudence.”
The problem with the overturned precedent is that adjudicating a takings claim at the state level generally prevents action at the federal level, he wrote.
“The takings plaintiff thus finds himself in a Catch-22: He cannot go to federal court without going to state court first; but if he goes to state court and loses, his claim will be barred in federal court. The federal claim dies aborning.”
In the Pakdel ruling, the Supreme Court cited the Knick precedent, stating, “Given that the Fifth Amendment enjoys ‘full-fledged constitutional status,’ the Ninth Circuit had no basis to relegate petitioners’ claim ‘to the status of a poor relation’ among the provisions of the Bill of Rights.”
The high court remanded the Pakdel case to the 9th Circuit, directing it to “give further consideration to these claims in light of our recent decision in Cedar Point Nursery v. Hassid.”
The Pacific Legal Foundation, a Sacramento-based public interest law firm that represents the family, was pleased with the decision.
“As the Supreme Court previously admonished in Knick, property owners should not have to jump through nonsensical hoops to get their day in court.”
Kristen Jensen, counsel of record for San Francisco, couldn’t be reached for comment.
