Opinion ID: 2603734
Heading Depth: 1
Heading Rank: 8

Heading: Legitimate Business Interest

Text: While emphasizing personal characteristics in finding arbitrary discrimination, the California appellate cases have also recognized that legitimate business interests may justify limitations on consumer access to public accommodations. (See, e.g., Cox, supra, 3 Cal.3d at p. 217 [A business establishment may, of course, promulgate reasonable deportment regulations that are rationally related to the services performed and the facilities provided.]; Frantz v. Blackwell (1987) 189 Cal. App.3d 91, 95-96 [234 Cal. Rptr. 178] [refusal to sell house to speculator in potential competition with defendant did not violate the Act]; Reilly v. Stroh (1984) 161 Cal. App.3d 47, 53 [207 Cal. Rptr. 250] [segregation of persons under 21 in restaurant not arbitrary in view of legal requirements imposed on proprietor relating to consumption of alcoholic beverages by minors]; Ross v. Forest Lawn Memorial Park (1984) 153 Cal. App.3d 988, 992-993 [203 Cal. Rptr. 468, 42 A.L.R.4th 1049] [cemetery's policy of private funerals that excluded punk rockers did not violate the Act]; Wynn v. Monterey Club (1980) 111 Cal. App.3d 789, 798 [168 Cal. Rptr. 878] [agreement to bar from gambling establishment a pathological gambler who had written bad checks was good business and social practice that did not violate the Act].) In each case, the particular business interests of the purveyor in maintaining order, complying with legal requirements, and protecting a business reputation or investment were recognized as sufficient to justify distinctions among its customers. Business establishments have an obvious and important interest in obtaining full and timely payment for the goods and services they provide. Indeed, in the absence of a subsidy, prompt receipt of payment is generally vital to the continuation of a business enterprise and the public accommodation it provides. There is no serious question that a business may, without violating the Unruh Act, charge a stated price for goods or services and demand payment in advance. Thus, in Orloff v. Hollywood Turf Club, supra, 110 Cal. App.3d 340, the Court of Appeal stated: It is at once apparent that under the provisions of section 51 and 52 of the Civil Code if a charge is made for admission to a race track, equally applicable to all citizens, [such] a failure or refusal by a citizen to pay such charge does not create a liability under the statute. It is the privilege of an inn, a railroad or a race track to demand, in advance, pay for the accommodation, facility or the privilege to be rendered. Hence, a failure of a person to comply therewith is not a refusal of any equal accommodation, facility or privilege accorded to those who comply. The statute expressly provides that the equality called for by the statute is subject `to the conditions and limitations established by law, and applicable alike to all citizens.' Among such conditions and limitations applicable to all citizens is that they shall pay the charges imposed, equally and without discrimination, upon all citizens. (110 Cal. App.2d at pp. 342-343.) Because the plaintiff in Orloff had not paid the stated charge and obtained a ticket allowing his admission to the racetrack, he had no cause of action under the predecessor to the Act. Similarly, in Koire v. Metro Car Wash (1985) 40 Cal.3d 24 [219 Cal. Rptr. 133, 707 P.2d 195], we recognized that the Unruh Act did not prohibit businesses from making economic distinctions among customers so long as the criteria used were not based on personal characteristics and could conceivably be met by any customer. Holding that a discount based on sex violated the Act, we observed that other kinds of discounts based on quantity, advance reservations, time of purchase or other conditions which any patron could satisfy were clearly permissible. ( Id. at p. 36.) The minimum income policy is no different in its purpose or effect from stated price or payment terms. Like those terms, it seeks to obtain for a business establishment the benefit of its bargain with the consumer: full payment of the price. In pursuit of the objective of securing payment, a landlord has a legitimate and direct economic interest in the income level of prospective tenants, as opposed to their sex, race, religion, or other personal beliefs or characteristics. For nearly all tenants, current income is the source of the monthly rental payment. When a tenant ceases paying rent during the term of the tenancy, the landlord must resort to legal process to obtain possession of the premises and to collect any back rent that may be due. (§ 1952.3; Code Civ. Proc., § 1159 et seq.) Even with the use of summary unlawful detainer proceedings, an eviction may take several months, during which the tenant remains in possession, enjoying the benefits of the leasehold without paying rent. (See Cal. Residential Landlord-Tenant Practice (Cont.Ed.Bar 1986) § 4.50, p. 258 [noting that delays may postpone an eviction for weeks or months].) Thus, the landlord bears the economic burdens (what an economist might call the transaction costs of default) resulting from: (1) loss of income from default to eviction; (2) administrative time and the legal and other expenses incurred in the eviction process; and (3) the delays and expense of collection of back rent from the tenant, as well as the risk of noncollection. In order to minimize the transaction costs of default, the economically rational landlord might adopt one or more of several approaches. First, a landlord might simply charge higher rents to all tenants to absorb the additional expense. Such a policy, of course, contains its own element of arbitrariness because it penalizes the majority of tenants who pay their rent on a regular basis. Moreover, the charging of higher rents as a means of subsidizing defaults necessarily excludes even more low income persons from tenancy. Second, a landlord might require larger amounts from all tenants as advance rent or security deposits. This policy, too, imposes additional burdens on the paying tenants. In apparent recognition of this fact, it is also subject to statutory limitations on the amount of advance payment a landlord may demand. (§ 1950.5.) Third, a landlord might adopt one or more policies or practices designed to screen out prospective tenants who are likely to default. The minimum income policy adopted by defendants is, of course, an example of the third approach. It assumes that, at some ratio of rent to income, the burden of paying rent, along with other living expenses, will impose a hardship on a tenant, resulting in default. Although there may be myriad of individual factors operating in cases of particular prospective tenants that might affect the predictive value of the ratio, it does not thereby become arbitrary in the same way that race and sex discrimination are arbitrary. On the contrary, it is based on the rational economic interest of the landlord to minimize defaults and maintain the solvency of its business establishment, while extending the opportunity for rental housing to all persons regardless of race, sex, religion, etc. [11] Seizing again on the general concepts of arbitrary discrimination and reasonable regulations referred to in the language of Cox and other cases (e.g., 3 Cal.3d at p. 217), plaintiffs argue those concepts inevitably involve fact-bound determinations requiring trial as opposed to legal issues cognizable on demurrer. Plaintiffs' argument is not supported by the case law decided under the Act. Unruh Act issues have often been decided as questions of law on demurrer or summary judgment when the policy or practice of a business establishment is valid on its face because it bears a reasonable relation to commercial objectives appropriate to an enterprise serving the public. (See, e.g., Frantz v. Blackwell, supra, 189 Cal. App.3d at pp. 95-96 [refusal to deal with real estate speculator upheld on demurrer]; Ross v. Forest Lawn Memorial Park, supra, 153 Cal. App.3d at pp. 992-993 [private funeral policy evaluated as question of law on demurrer]; Wynn v. Monterey Club, supra, 111 Cal. App.3d at pp. 796-797 [legality of agreement to bar compulsive gambler from gambling house treated as question of law on motion for summary judgment]; Newby v. Alto Riviera Apts. (1976) 60 Cal. App.3d 288, 301-302 [131 Cal. Rptr. 547] [eviction of tenant attempting to organize a rent strike upheld as a matter of law on motion for nonsuit].) For the reasons expressed, the minimum income policy deserves legal issue treatment.