Opinion ID: 3065171
Heading Depth: 3
Heading Rank: 1

Heading: Federal Preemption of LARSO

Text: The district court held that LARSO actually conflicts with HUD’s “good cause” regulation because “it takes away a right specifically granted by the HUD regulation.” It granted summary judgment to Tenants, however, because it concluded that HUD’s definition of “good cause”—insofar as it includes the desire to raise the rent—was “unreasonable” and “manifestly contrary” to the statute, and therefore exceeded HUD’s authority. We do not agree that LARSO and the HUD regulation actually conflict. The HUD regulation does not create a “right” to evict tenants to raise the rent that LARSO takes away. The HUD regulation merely creates a floor of protection, which local laws may enhance. Thus, although we disagree with the district court’s preemption analysis, we do agree that LARSO controls Morton’s ability to evict Tenants when Morton desires to raise the rent. [1] The preemption doctrine is rooted in the Supremacy Clause of the U.S. Constitution. U.S. Const., art. VI, cl. 2. “[T]he purpose of Congress is the ultimate touchstone in every preemption case.” Medtronic, Inc. v. Lohr, 518 U.S. 470, 485 (1996) (alteration and internal quotation marks omitted). Morton does not suggest that Congress expressly preempted state law or intended federal law exclusively to occupy the field of lease terminations. See English v. Gen. Elec. Co., 496 U.S. 72, 78-79 (1990). State law, however, is also “nullified to the extent that it actually conflicts with federal law.” Fid. Fed. Sav. & Loan Ass’n v. de la Cuesta, 458 U.S. 141, 153 (1982). “Such a conflict arises when compliance with both federal and state regulations is a physical impossibility or when state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.” Id. (citation and internal quotation marks omitted); see also Wyeth v. Levine, 129 S. Ct. 1187, 1193-94 (2009). Along with Congress, “a federal agency acting within the scope of its congressionally delegated authority may pre-empt BARRIENTOS v. 1801-1825 MORTON LLC 14439 state regulation.” City of N.Y. v. FCC, 486 U.S. 57, 63-64 (1988) (internal quotation marks omitted). Thus, when “Congress has entrusted an agency with the task of promulgating regulations to carry out the purposes of a statute, . . . as part of the pre-emption analysis we must consider whether the regulations evidence a desire to occupy a field completely.” R.J. Reynolds Tobacco Co. v. Durham County, N.C., 479 U.S. 130, 149 (1986) (citation omitted). However, a reviewing court does not “focus on Congress’ intent to supersede state law” because “[a] pre-emptive regulation’s force does not depend on express congressional authorization to displace state law.” de la Cuesta, 458 U.S. at 154. Instead, the court asks “whether the [federal agency] meant to pre-empt [the state law], and, if so, whether that action is within the scope of the [federal agency’s] delegated authority.” Id. When one “of the responsibilities conferred on federal agencies involve[s] a broad grant of authority to reconcile conflicting policies,” the court must uphold the federal regulation “if the agency’s choice to pre-empt represents a reasonable accommodation of conflicting policies that were committed to the agency’s care by the statute.” City of N.Y., 486 U.S. at 64 (internal quotation marks omitted). The regulation is invalid if “it appears from the statute or its legislative history that the accommodation is not one that Congress would have sanctioned.” Id. (internal quotation marks omitted). “Pre-emption should not be inferred . . . simply because the agency’s regulations are comprehensive.” R.J. Reynolds Tobacco Co., 479 U.S. at 149. Federal regulations have “to be sufficiently comprehensive to authorize and govern programs in States which [have] no requirements of their own as well as cooperatively in States with such requirements.” Hillsborough County, Fla. v. Automated Med. Labs., Inc., 471 U.S. 707, 717 (1985) (alteration and internal quotation marks omitted). As the Supreme Court stated, “merely because the federal provisions were sufficiently comprehensive to meet the need identified by Congress did not mean that States and 14440 BARRIENTOS v. 1801-1825 MORTON LLC localities were barred from identifying additional needs or imposing further requirements in the field.” Id. [2] The presumption against preemption applies here. When “Congress has legislated in a field which the States have traditionally occupied, we start with the assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress.” Wyeth, 129 S. Ct. at 1194-95 (alterations and internal quotation marks omitted). The City of Los Angeles has “ ‘traditionally strong interests in local rent control.’ ” Topa Equities, Ltd. v. City of L.A., 342 F.3d 1065, 1071 (9th Cir. 2003) (quoting Kargman v. Sullivan, 552 F.2d 2, 6 (1st Cir. 1977)). Morton is required to demonstrate “a conflict between a particular local provision and the federal scheme, that is strong enough to overcome the presumption that state and local regulation of [local rent control] matters can constitutionally coexist with federal regulation.” Hillsborough County, 471 U.S. at 716; see also Geier v. Am. Honda Motor Co., Inc., 529 U.S. 861, 885 (2000) (“[A] court should not find pre-emption too readily in the absence of clear evidence of a conflict.”). Applying de la Cuesta, we consider whether the agency intended to preempt the local law and whether LARSO stands as an obstacle to the accomplishment of Congressional purposes.
Controls [3] In reaching its conclusion that “HUD never explicitly intended to preempt state and local eviction restrictions,” the district court found that the “central purpose” of the “ ‘good cause’ regulation” was “to mirror the private rental market so as to encourage owner participation.” That conclusion is supported by both the language and the legislative history of the “good cause” regulation. When HUD prompted Congress to BARRIENTOS v. 1801-1825 MORTON LLC 14441 eliminate the requirement of PHA approval for eviction in 1978 and 1981, it sought to make assisted tenancies as similar to unassisted tenancies as possible. Similarly, when Congress instituted the “other good cause” requirement in 1981, HUD initially declined to define “good cause,” instead providing that “[a]pplication of the statutory standards to particular cases should be determined by the courts, normally in the course of the eviction proceeding brought by the owner.” 47 Fed. Reg. at 33,499. [4] When HUD did create the “good cause” definition, it again reassured owners that it was trying to make assisted tenancies “as simple as possible, with minimal demands on the owner beyond the normal requirements of an unsubsidized tenancy,” or as similar to the private market as possible. 49 Fed. Reg. at 12,233. It explained that “a comp[re]hensive regulatory definition of good cause . . . is neither possible nor desirable.” Id. Thus, it emphasized that its definition constituted only “examples” of “cases that may be good cause” and reiterated its position that “[t]he good cause category should remain open to case by case determination by the courts.” 60 Fed. Reg. at 34,673 (emphasis added) (internal quotation marks omitted). Nothing in this language indicates that HUD intended to prevent certain state laws from operating in such case-by-case determinations in state courts. [5] It is true that no regulation expressly allows the operation of local eviction controls on assisted tenancies, while a HUD regulation expressly subjects section 8 rent reasonableness determinations to local rent control. See 24 C.F.R. § 982.509. That regulation, however, is a specific directive to local PHAs in setting reasonable rent. The lack of a similar express directive to state courts to apply local eviction controls in determining whether good cause exists to evict assisted tenants, aside from the questionable permissibility of such a directive, does not itself suggest that state courts should reject local eviction controls. In fact, the preemption of LARSO would nullify 24 C.F.R. § 982.509, because an 14442 BARRIENTOS v. 1801-1825 MORTON LLC owner would be able to escape rent control by evicting tenants in order to raise their rent. In other words, as Tenants persuasively argue, the preemption of local eviction controls by HUD’s “good cause” regulation would lead to absurd results in a vacancy decontrol jurisdiction like California, because it would make assisted tenants special victims of eviction by landlords desiring to take advantage of vacancy decontrol to raise rents. We refuse to construe “[l]egislative enactments . . . as establishing statutory schemes that are illogical, unjust, or capricious.” Bechtel Constr., Inc. v. United Bhd. of Carpenters, 812 F.2d 1220, 1225 (9th Cir. 1987). Thus, the district court correctly held that HUD did not specifically intend to preempt local eviction laws with its “good cause” regulation.
Conflict We disagree with the district court’s conclusion that the HUD regulation and LARSO actually conflict. The HUD regulation does not grant a right to terminate a tenancy based on a desire to increase rents. Nor does LARSO otherwise present an obstacle to the accomplishment of federal objectives.5 [6] The goals of the HUD regulation and LARSO, as expressed in the purposes of each governing statute, are the same—to increase the availability and affordability of housing. Compare 42 U.S.C. § 1437f(a), with L.A. Mun. Code § 151.01. Morton argues that HUD’s goal in defining “good cause” was to encourage owner participation in the section 8 program, an objective not found in LARSO.6 This argument 5 Morton does not argue on appeal that it is physically impossible to comply with both the HUD regulation and LARSO. 6 The district court agreed with Morton that “when enacting LARSO, the City had no concern for encouraging owner participation in the section 8 program.” Though we need not resolve this question because we hold that the primary goals of the HUD regulation and LARSO are compatible, we note that nothing in the record suggests that the City of Los Angeles was unaware of concerns regarding the availability of section 8 housing. BARRIENTOS v. 1801-1825 MORTON LLC 14443 is illogical, however, as HUD and Congress have deemed owner participation an important means to the ultimate end of providing housing, but not a goal in itself. Thus, while HUD may have listed examples of “good cause” in order “to provide explicit regulatory assurance to prospective section 8 owners that legitimate owner concerns will be recognized as grounds for termination of tenancy,” 49 Fed. Reg. at 12,233, the fact remains that the same regulation specified that “good cause is determined in local landlord tenant courts,” id. at 12,234. Any agency assurance that it considers the desire to raise the rent as “good cause” to terminate a lease is, by the very terms of the regulation, necessarily subject to case-bycase evaluation by state courts, which are also required to apply local law. [7] As evidenced by a variety of legislative enactments, such as the now-repealed provision for PHA approval of evictions and the “good cause” requirement at issue here, Congress and HUD intended to provide assisted tenants with more protections than unassisted tenants, not less. Congress only rejected the application of substantive state and local law to section 8 lease terminations when asked to eliminate federal controls over such terminations altogether. Compare S. Rep. 97-139 (1981), reprinted in 1981 U.S.C.C.A.N. 396, 552, with H.R. Rep. 97-208, at 694-95 (1981) (Conf. Rep.), reprinted in 1981 U.S.C.C.A.N. 1010, 1053-54. Thus, it refused to allow substantive state and local law to supplant wholly federal termination standards. By enacting the federal good cause requirement, it desired to maintain a uniform federal floor below which protections for tenants could not drop, not a ceiling above which they could not rise. Importantly, Congress and HUD never explicitly rejected the application of more protective local standards to assisted tenants, and, in certain cases, expressly allowed for it. See, e.g., 42 U.S.C. § 1437f(o)(7)(D)(vi) (“[N]othing in this section shall be construed to supersede any provision of any Federal, State, or local law that provides greater protection than this section for victims of domestic violence . . . .”); 24 C.F.R. § 982.53(d) 14444 BARRIENTOS v. 1801-1825 MORTON LLC (“Nothing in part 982 is intended to pre-empt operation of State and local laws that prohibit discrimination against a Section 8 voucher-holder because of status as a Section 8 voucher-holder.”). In determining whether a state law presents an “obstacle” to the full implementation of a federal law, however, “it is not enough to say that the ultimate goal of both federal and state law” is the same. Int’l Paper Co. v. Ouellette, 479 U.S. 481, 494 (1987). “A state law also is pre-empted if it interferes with the methods by which the federal statute was designed to reach this goal.” Id. For example, in de la Cuesta, a federal regulation permitted the inclusion of due-on-sale clauses in mortgages (allowing lenders to make the entire loan immediately payable upon transfer of property), and expressly stated that it preempted state laws to the contrary. 458 U.S. at 146-47. California courts had created a state law doctrine to the contrary. Id. at 149. In addition to concluding that the federal regulation expressly preempted the state doctrine, the Supreme Court found that the two actually conflicted. Id. at 155. It held that while compliance with both was not physically impossible because the federal regulation only permitted, and did not require, the conduct that the state doctrine forbade, the state doctrine presented an obstacle to the federal objective because the state courts “have deprived the [regulated party] of the ‘flexibility’ given it by the” federal regulations. Id. By contrast, in Chevron U.S.A., Inc. v. Hammond, 726 F.2d 483 (9th Cir. 1984), owners of oil tankers challenged a state regulation forbidding the discharge of any ballast water— clean or dirty—near the state’s shores, claiming that it was preempted by federal agency regulations that expressly permitted the discharge of clean ballast water close to shore. Id. at 485-86. We found no actual conflict because the goals of the two regulations were the same, id. at 496, and because it was not physically impossible to comply with both, id. at 499. BARRIENTOS v. 1801-1825 MORTON LLC 14445 We recognized that “the state law prohibits acts that the federal regulations allow but do not require.” Id. at 498. We further noted that “[a] finding of preemption is particularly inappropriate when the state is regulating conduct permitted by federal regulation, but only as an exception to a broad federal prohibition.” Id. (citing Exxon Corp. v. Governor of Md., 437 U.S. 117, 132 (1978)). We then distinguished de la Cuesta, on the ground that in Hammond, “the state is merely eliminating one exception to a general federal prohibition, rather than asserting authority over an area in direct conflict with overriding federal policy.” Id. at 498 n.19. The district court reasoned “that this case presents a question more like the one in de la Cuesta than in Hammond,” because, as in de la Cuesta, where the state deprived owners of the flexibility in choosing whether to utilize the due-onsale clauses, LARSO deprived owners of the flexibility in choosing whether to terminate tenants in order to increase the rent. de la Cuesta and Hammond, however, suggest the opposite reading. The federal agency in Hammond set forth an exception (clean discharge permissible) to a federal prohibition (no discharge), that the state law took away. Similarly, HUD set forth an exception (termination to increase the rent permissible) to a federal prohibition (no termination without good cause), that LARSO took away. On this reading, this case is more like Hammond and less like de la Cuesta, in which the federal agency permitted an action (inclusion of due-on-sale clauses) that the state forbade. In addition, the de la Cuesta Court relied heavily on the “unambiguous” intent of the federal agency to preempt contrary state law. 458 U.S. at 154-59; see also id. at 158 (“The preamble unequivocally expresses the Board’s determination to displace state law.”). That sort of unambiguous intent, as explained above, is not present here. Further, the district court’s finding of conflict was based on its conclusion that “LARSO takes away a right specifically granted by the HUD eviction regulations.” However, as in Hammond, where it was “difficult to argue convincingly that the Congress or the Coast Guard intended to 14446 BARRIENTOS v. 1801-1825 MORTON LLC create a federal right to discharge ballast containing oil into a state’s coastal waters,” 726 F.2d at 499, it is similarly difficult to argue, given the statutory context and legislative and administrative history, that Congress or HUD intended to create a “federal right” to terminate assisted tenants in order to raise the rent on their units. [8] Moreover, LARSO conflict preemption arguments have failed in two previous federal cases. In Topa Equities, owners challenged the 1990 Amendments to LARSO, which set the maximum rent subsequent to an owner’s exit from the federal program at the amount last charged under the federal program, thereby preventing vacancy decontrol and prohibiting owners from raising the rent to market level. 342 F.3d at 1068-69. As here, owners argued that LARSO is conflictpreempted by federal law because it impedes federal objectives by disincentivizing private owner participation in section 8 housing. We found that LARSO was not actually preempted because “[n]othing in the HUD regulations purports to limit states from enacting their own rent control laws of general applicability.” Id. at 1072. In concluding that “ ‘federal legislation creating the network of subsidized housing laws is superimposed upon and consciously interdependent with the substructure of local law relating to housing,’ ” we placed special emphasis on the fact that “Congress never indicated— in either the text or legislative history of the [National Housing Act of 1934, ch. 847, 48 Stat. 1246 (codified as amended at 12 U.S.C. §§ 1701-49)] or in any ancillary statute—that it intended to abrogate state rent control laws.” Topa Equities, 342 F.3d at 1072 (quoting Kargman, 552 F.2d at 11). Thus, we held that “LARSO is a generally applicable rent control ordinance that does not unduly interfere with federal housing programs. It is not expressly preempted by federal law, nor is it preempted on conflict grounds.”7 Id. at 1067. 7 In a case factually distinguishable from ours (it did not concern a generally applicable state or local law), the Eighth Circuit held that “[a]ny BARRIENTOS v. 1801-1825 MORTON LLC 14447 In Independence Park Apartments v. United States, 449 F.3d 1235 (Fed. Cir. 2006), owners successfully argued that the government’s temporary withdrawal of their right to prepay section 236 loans constituted a regulatory taking and were awarded damages. Id. at 1238. The government argued that the damages award should be reduced because after exiting the federal program, owners would not be able to raise the rent due to LARSO, and landlords responded that LARSO was inapplicable because it was conflict-preempted by Congress’s desire to incentivize private development of lowincome housing. Id. at 1243. The Federal Circuit rejected the owners’ preemption argument. Applying the presumption against preemption of traditionally local laws, it held that the government made no guarantees about the effect of local laws on profitability and so did not intend to preempt the operation of more protective local laws. Id. at 1243-44. “The National Housing Act provided certain benefits and imposed certain burdens on owners of subsidized low-income housing. It did not, however, provide them with any protection against the state statute that forces owners to remain in a federally subsidized program from which Congress has authorized withdrawal would eviscerate the method Congress chose to implement the federal low-income housing scheme.” Forest Park II v. Hadley, 336 F.3d 724, 733-34 (8th Cir. 2003). In Forest Park II, owners who wished to prepay their section 236 mortgage as expressly permitted by the 1999 Veteran Affairs & HUD Appropriations Act, Pub. L. No. 105-276, § 219(b)(3), 112 Stat. 2461, 2488 (1998), challenged additional procedural requirements embodied in state statutes applicable to landlords of federally subsidized rental housing. The Eighth Circuit held that the state statutes were expressly and impliedly preempted by federal law permitting repayment, reasoning that the “further requirement imposed by a state statute would directly interfere with Congress’s original intent of offering prepayment as an incentive.” Forest Park II, 336 F.3d at 733. Here, however, LARSO does not directly interfere with a federal agency regulation, because HUD explicitly left the “good cause” determination up to state courts for case-by-case analysis, and LARSO simply provides the relevant local law that the courts apply in eviction proceedings. Furthermore, while the state laws at issue in Forest Park II were aimed specifically at participants in federal housing programs, LARSO is a background law of general applicability. 14448 BARRIENTOS v. 1801-1825 MORTON LLC application of a variety of state and local laws that could affect the profitability of their investments.” Id. at 1244. [9] Although Topa Equities and Independence Park Apartments concerned a different federal housing statute, it follows from the reasoning in those decisions that the operation of LARSO in conjunction with federal housing laws does not impede federal objectives.
Regulations Support a Finding of Nonpreemption [10] Responding to our invitation to HUD to express its view on whether LARSO’s eviction controls actually conflict with 24 C.F.R. § 982.310(d)(1)(iv), the United States informs us that “LARSO’s eviction controls do not pose an obstacle to the accomplishment and execution of the full purposes and objectives of HUD’s regulation providing that ‘other good cause’ for terminating a Section 8 tenancy ‘may’—but does not necessarily—include a landlord’s desire to raise the rent.” In support of its position, the United States first notes that the statutory language and its own regulations expressly contemplate the interdependence of federal assisted housing law and state and local housing law: 42 U.S.C. § 1437f(o)(7)(B)(ii)(I) provides that the lease must contain terms that are “consistent with State and local law”; § 1437f(o)(7)(E) mandates that the HAP contract “shall provide” that “any relief [from termination] shall be consistent with applicable State and local law”; 24 C.F.R. § 982.308(c) allows PHA the right to “decline to approve the tenancy if the PHA determines that the lease does not comply with State or local law”; and § 982.310(e)(2)(i) requires section 8 owners to use the eviction notice “used under State or local law.” Second, the United States highlights the use of “may” in 24 C.F.R. § 982.310(d)(1), which provides that “ ‘[o]ther good cause’ for termination of tenancy by the owner may include, but is not limited to, any of the following examples.” It notes that “ ‘[m]ay’ is permissive and connotes discretion, absent clear indication to the contrary.” BARRIENTOS v. 1801-1825 MORTON LLC 14449 Brief for the United States as Amicus Curiae supporting affirmance of the district court (citing Fernandez v. Brock, 840 F.2d 622, 632 (9th Cir. 1988)). Third, the United States argues that “[n]either the wording nor the intent of [24 C.F.R. § 982.310] gives a landlord an unqualified ‘right’ to terminate a Section 8 tenancy because he wants to raise the rent,” as the regulation utilizes “general terms” and intentionally leaves the determination of “good cause” to the courts “on a case-bycase basis.” Finally, the United States assures us that “HUD has never interpreted 24 C.F.R. § 982.310 as prohibiting state and local governments from providing additional protection from eviction to tenants.” Moreover, a recently published HUD guidance document, Notice PIH 2009-18 (HA), State and Local Law Applicability to Lease Terminations in the Housing Choice Voucher (HCV) Program, § 3 (June 22, 2009), mirrors the litigation position expressed in the amicus brief of the United States. It states that “while good cause ‘may include’ a business or economic reason (e.g., [when] there is no State or local law prohibiting termination of tenancy for such cause), in other circumstances it may not include a business or economic reason.” Id. “If a State or local law prohibits the termination o[f] tenancy for a business or economic reason such as a desire to lease the unit at a higher rental, the[n] that specific ground[ ] for termination of the tenancy does not constitute ‘other good cause’ under 24 CFR [§ ] 982.310(d) in that particular instance.” Id. In conclusion, HUD dictates that “nothing in 24 CFR [§ ] 982.310(d)(1) pre-empts any applicable State or local laws that restrict or prohibit the termination of tenancy. This applies to all HCV vouchers.” Id. [11] The position of the United States is entitled to deference, as is HUD’s most recent guidance document. “[W]hen an agency invokes its authority to issue regulations, which then interpret ambiguous statutory terms, the courts defer to its reasonable interpretations.” Fed. Express Corp. v. Holowecki, 128 S. Ct. 1147, 1154 (2008). “[T]he agency is entitled 14450 BARRIENTOS v. 1801-1825 MORTON LLC to further deference when it adopts a reasonable interpretation of regulations it has put in force.” Id. at 1155 (citing Auer v. Robbins, 519 U.S. 452, 461 (1997) (deferring to the agency’s position unless it is “plainly erroneous or inconsistent with the regulation” (internal quotation marks omitted))). Further, an agency’s litigation position in an amicus brief is entitled to deference if there is “no reason to suspect that the interpretation does not reflect the agency’s fair and considered judgment on the matter.” Auer, 519 U.S. at 462. And, as explained above, the interpretive policy statements are at least “entitled to a measure of respect under the less deferential Skidmore standard.” Fed. Express Corp., 128 S. Ct. at 1156 (internal quotation marks omitted). Of course, we do not defer “to an agency’s conclusion that state law is pre-empted. Rather, we have attended to an agency’s explanation of how state law affects the regulatory scheme.” Wyeth, 129 S. Ct. at 1201. Agencies “have a unique understanding of the statutes they administer and an attendant ability to make informed determinations about how state requirements may pose an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.” Id. (internal quotation marks omitted); see also Sprietsma v. Mercury Marine, 537 U.S. 51, 68 (2002); Geier, 529 U.S. at 883. Moreover, while “[t]he weight we accord the agency’s explanation of state law’s impact on the federal scheme depends on its thoroughness, consistency, and persuasiveness,” Wyeth, 129 S. Ct. at 1201, HUD has amply demonstrated its thoughtful consideration of, and its commitment to, the principle that local eviction control laws that are more protective of tenants are not preempted by its own “good cause” regulation. [12] Our independent analysis of the statutory language and legislative history, the persuasive reasoning of prior LARSO decisions by us and the Federal Circuit, the litigation position of the United States, and HUD’s most recent publication lead us to conclude that the HUD regulation and LARSO do not actually conflict. LARSO does not impede the federal objective of providing affordable housing to low-income families. BARRIENTOS v. 1801-1825 MORTON LLC 14451 LARSO, therefore, is not preempted by 24 C.F.R. § 982.310(d)(1)(iv) to the extent the HUD regulation permits eviction in order to obtain a higher rental, in the absence of contrary state or local law.8