Court Opinion

ID: 9547453
Source: CourtListenerOpinion
Date Created: 2023-08-07 17:47:37.071883+00
Date Added: 2024-06-11T15:17:46.510521
License: Public Domain

LUCAS, J.
I respectfully dissent.
In my view, and without considering any of the other substantial objections raised by plaintiff landlords, the Berkeley rent control ordinance is *714invalid because it calls for the fixing of maximum rents in violation of federal antitrust law (Sherman Antitrust Act, 15 U.S.C. § 1). Indeed, the ordinance would appear to constitute a per se illegal price-fixing scheme routinely condemned by the federal courts. Accordingly, we should declare the ordinance a nullity, as mandated by the supremacy clause of the United States Constitution. (Art. VI, cl. 2.)
As I will demonstrate, a municipality’s participation in, or approval of, a price-fixing scheme should not shield it from antitrust scrutiny. If such a scheme indeed constitutes a per se violation of the Sherman Antitrust Act, then an irreconcilable conflict exists between the municipal ordinance and federal antitrust policy which voids the ordinance under supremacy principles. (See Rice v. Norman Williams Co. (1982) 458 U.S. 654, 659-661 [73 L.Ed.2d 1042, 1049-1050, 102 S.Ct. 3294].) Such a conflict is presented here.
I. Antitrust Scrutiny of Municipal Activity: the Background
Not every state or local governmental activity having anticompetitive effects is invalid under the Sherman Antitrust Act. Thus, in Parker v. Brown (1943) 317 U.S. 341 [87 L.Ed. 315, 63 S.Ct. 307], the United States Supreme Court held that the federal antitrust laws do not preclude anticompetitive programs adopted and enforced by the states as a matter of state policy. (Id., at pp. 351-352 [87 L.Ed. at p. 326].) This “state action” exemption does not extend, however, to a state’s local political subdivisions (such as Berkeley) unless the state has “clearly articulated and affirmatively expressed” the anticompetitive policy being implemented by the local entity. (Community Communications Co. v. Boulder (1982) 455 U.S. 40, 54 [70 L.Ed.2d 810, 820, 102 S.Ct. 835] [hereafter Boulder]; see also Lafayette v. Louisiana Power & Light Co. (1978) 435 U.S. 389, 410 [55 L.Ed.2d 364, 381, 98 S.Ct. 1123] [plurality opn.].) In short, as Boulder established, cities, like private entities, “ ‘must obey the antitrust laws.’ ” (455 U.S. at p. 57 [70 L.Ed.2d at p. 822], quoting the Lafayette plurality.)
It is uncontradicted that the California Legislature has not directly spoken on the subject of rent control, much less “clearly articulated and affirmatively expressed” any policy favoring local ordinances such as Berkeley’s. Defendants assert that the requisite “state policy” is evidenced by legislation calling upon local governments to assist in providing a “decent home and suitable living environment for every California family.” (Health & Saf. Code, §§ 50003, 50005.) The Legislature has expressly qualified that state policy, however, by declaring that nothing in the division which contains the foregoing provisions “shall authorize the imposition of rent regulations or controls” (with exceptions not applicable here). (Id., § 50202.) *715Similarly, the “local planning” policy of the state (Gov. Code, §§ 65100-65761) provides that “[n]othing in this article shall be construed to be a grant of or a repeal of any authority which may exist of a local government to impose rent controls . . . .” (Id., § 65589, subd. (b).) Such neutrality on the part of the state is plainly insufficient to insulate Berkeley’s ordinance from antitrust scrutiny. (Boulder, supra, 455 U.S. at p. 55 [70 L.Ed.2d at p. 821].)
II. Antitrust Scrutiny of Berkeley’s Ordinance
The Berkeley rent control ordinance is unquestionably an anticompetitive price-fixing scheme—it imposes maximum ceilings on rents charged by private landlords. And had Berkeley’s landlords privately agreed to fix maximum rents, their scheme would have been severely and speedily punished, for maximum pricing by private entities has been consistently condemned as per se illegal under the so-called “per se” price-fixing rule. (Arizona v. Maricopa County Medical Society (1982) 457 U.S. 332 [73 L.Ed.2d 48, 102 S.Ct. 2466] [hereafter Maricopa]; Albrecht v. Herald Co. (1968) 390 U.S. 145 [19 L.Ed.2d 998, 88 S.Ct. 869]; Kiefer-Stewart Co. v. Seagram & Sons (1951) 340 U.S. 211 [95 L.Ed. 219, 71 S.Ct. 487].) Does it make a difference that the price-fixing scheme attacked here is municipally sponsored?
Some cases indicate that, in determining whether to apply the “per se illegal” label to a particular restraint or scheme, we should undertake a limited inquiry into the “pernicious effects” and “redeeming virtues,” if any, inherent in the challenged program. (Continental T. V, Inc. v. GTE Sylvania Inc. (1977) 433 U.S. 36, 50 [53 L.Ed.2d 568, 580, 97 S.Ct. 2549]; Northern Pac. R. Co. v. United States (1958) 356 U.S. 1, 5 [2 L.Ed.2d 545, 549, 78 S.Ct. 514]; see also Broadcast Music Inc. v. CBS (1979) 441 U.S. 1, 19-20 [60 L.Ed.2d 1, 16, 99 S.Ct. 1551].) Other cases seem to support the idea that such an inquiry is unnecessary where a maximum price-fixing scheme is involved. (See generally Maricopa, supra, [per se rule applied to invalidate maximum pricing arrangement in health care plan].) In any event, as I explain, Berkeley’s rent control ordinance clearly has “pernicious” anticompetitive effects without any overriding “redeeming virtues.”
A. Anticompetitive effects
Economists are virtually unanimous in their condemnation of rent control laws. (E.g., Baird, Rent Control: The Perennial Folly (1980) pp. 54-78; Rent Control, A Popular Paradox (The Fraser Institute edit. 1975) [essays by nine economists]; Muth, Redistribution of Income Through Regulation *716in Housing (1983) 32 Emory L.J. 691, 698; see also Rabin, The Revolution in Residential Landlord-Tenant Law (1984) 69 Cornell L.Rev. 517, 555 [quoting Ludwig von Mises’ conclusion that governmental attempts to fix the price of a commodity make conditions worse].) In the view of most of these economists, rent control schemes cause what a Supreme Court plurality has called “serious economic dislocation.” (See Lafayette, supra, 435 U.S. at pp. 412-413 [55 L.Ed.2d at pp. 382-383].)
For example, Professor Milton Friedman, writing in collaboration with Professor George Stigler, observed that “Rent ceilings, therefore, cause haphazard and arbitrary allocation of space, inefficient use of space, retardation of new construction and indefinite continuance of rent ceilings, or subsidisation of new construction and a future depression in residential building. Formal rationing by public authority would probably make matters worse.” (Friedman & Stigler, Roofs or Ceilings? The Current Housing Problem, in Rent Control, A Popular Paradox, supra, p. 100.)
In addition, rent control measures bring about the very evils that have prompted the United States Supreme Court’s condemnation of private maximum-price arrangements. Rent control laws cripple the economic freedom of landlords and thereby restrain their ability to sell housing in accordance with their own best judgment exercised in light of market conditions. (See Kiefer-Stewart, supra, 340 U.S. at p. 212 [95 L.Ed. at p. 223].) Moreover, maximum rents may be fixed too low to encourage, or even permit, landlords to furnish services or facilities deemed necessary or desirable by their tenants. (See Albrecht, supra, 390 U.S. at pp. 152-153 [19 L.Ed.2d at pp. 1003, 1004].) Where is the competitive incentive under a rent control scheme?
As previously indicated, just as maximum pricing of goods and services generally discourages entry into the market (see Maricopa, supra, 457 U.S. at p. 348 [73 L.Ed.2d at p. 61]), maximum rents have a negative impact on the production of new housing (Hirsch, From “Food for Thought” to “Empirical Evidence” About Consequences of Landlord-Tenant Laws (1984) 69 Cornell L.Rev. 604, 609-610; Siegan, Commentary on Redistribution of Income Through Regulation in Housing, supra, 32 Emory L.J. 721, 723), thereby inevitably putting an upward pressure on price as demand increases. In sum, the pernicious effects on the competitive market are many, apparent, and long-standing.
B. Redeeming Virtues
Does rent control have any “redeeming virtues” which would override its anticompetitive effects? Berkeley points to alleged public welfare features *717which supposedly justify rent control. As I indicated above, if landlords privately agreed to fix maximum rents, their scheme unquestionably would be struck down as per se illegal despite asserted socially “redeeming” features, such as, for example, the financial boon to their tenants. In the private sphere, “redemption” is limited to a showing of offsetting procompetitive gains—effects on competition are the sole and governing consideration in such cases. (National Soc. of Professional Engineers v. U. S. (1978) 435 U.S. 679, 690-696 [55 L.Ed.2d 637, 649-653, 98 S.Ct. 1355]; see also Continental T. V., supra, 433 U.S. at pp. 57-58 [53 L.Ed.2d at pp. 584-585].) Does it make a difference that a city, rather than a landlord, is claiming redeeming features unrelated to competition? I certainly can see no logic in such a proposition.
To allow a local governmental entity to excuse a price-fixing scheme on the basis of asserted public health, safety or welfare considerations would enmesh the courts in an impossible task of weighing the “apples” of social welfare with the “oranges” of antitrust policy. (See Boulder, supra, 455 U.S. at p. 67 [70 L.Ed.2d at p. 829] [dis. opn. of Rehnquist, J.].)
Municipalities very well may be able to justify their anticompetitive programs under certain limited circumstances not involved here. Perhaps a city can point to a factor such as the existence of a “natural monopoly” (e.g., a unique resource such as a natural harbor) which requires price regulation. (See 3 Areeda & Turner, Antitrust Law (1978) H 621b, at pp. 50-51; see also Omega Satellite Products v. City of Indianapolis (7th Cir. 1982) 694 F.2d 119, 127 [natural monopoly in cable television].) Other justifications doubtless exist. But dissatisfaction with the price level attained through lawful and open competition, i.e., through the normal operation of the free enterprise system, cannot justify anticompetitive price restraints of the kind imposed here. Otherwise, there would exist no practical limits whatever on the authority of a municipality to tamper with the price structure established by the open market.
Price competition is the “central nervous system of the [free market] economy.” (U. S. v. Socony-Vacuum Oil Co. (1940) 310 U.S. 150, 226, fn. 59 [84 L.Ed. 1129, 1169, 60 S.Ct. 811].) Price fixing, whether privately or publicly inspired, thus endangers the free economic system to which Congress has entrusted the prosperity of the entire nation. If our 38,500 county, municipal and township governments (Bureau of the Census, Statistical Abstract of the United States (1984) at p. 294) with their broad authority for general governance “were free to make economic choices . . . without regard to their anticompetitive effects, a serious chink in the armour of antitrust protection would be introduced at odds with the comprehensive *718national policy Congress established.” (Lafayette, supra, 435 U.S. at p. 408 [55 L.Ed.2d at pp. 379-380] [plurality opn., fn. omitted].)
In my view, then, the City of Berkeley’s belief that, in essence, rents were too “high” in relation to the city’s tenants’ ability to pay would not constitute an excuse for tampering with the free market mechanism, nor would the resultant decreased rents amount to a “redeeming virtue” overriding the anticompetitive effects of rent control. Accordingly, the ordinance was per se illegal under the Sherman Antitrust Act and should be declared invalid on that basis.
III. The Majority’s Four-part Test
Although the challenged ordinance contemplates a per se illegal price-fixing scheme under the foregoing analysis, I observe that its invalidity would be apparent even under the majority’s own novel test, an approach involving a “more accommodating standard” than the per se rule would require. (Ante, p. 667.)
The majority acknowledges that Berkeley’s ordinance would be unacceptable if “equally effective” and “less intrusive” alternative means were available to accomplish the same result. (Ante, p. 678.) Yet isn’t it evident that such alternative means indeed exist? If the city fathers (and mothers) believe that rents are too high in Berkeley, several solutions come to mind which would be more consistent with the operation of the free market system. Rent subsidies may be provided to needy tenants. Public housing projects may afford additional rental units. Property may be municipally acquired through negotiated purchase or condemnation. (See, e.g., Gov. Code, §§ 37350 [city may purchase and hold real property for common benefit]; 37350.5 [eminent domain]; Health & Saf. Code, §§ 50735-50743 [programs for low-income rental housing].)
In short, given the foregoing alternatives, why should competition between Berkeley’s landlords be stifled in order to provide for the social welfare of Berkeley’s tenants? Surely the “less intrusive,” and “equally effective” method of accomplishing this end would be to spread the financial burden among all city taxpayers.
IV. Conclusion
The federal antitrust laws have been called the Magna Carta of the free market system. (United States v. Topco Associates (1972) 405 U.S. 596, 610 [31 L.Ed.2d 515, 527, 92 S.Ct. 1126].) These laws are as important to the preservation of market freedom as the Bill of Rights is to the protec*719tion of individual liberties. {Ibid.) Consistent with the overriding principle of supremacy of federal law (U. S. Const., art. VI, cl. 2), we should declare null and void the Berkeley rent control law at issue here.1
I would reverse the judgment and remand the case for further proceedings addressed to the antitrust issue.2

Plaintiffs herein seek a declaratory judgment and injunctive relief to enjoin operation of the ordinance. Although the issue of available remedies in a federal court action was left open in Boulder, supra, 457 U.S. at page 56, footnote 20 [70 L.Ed.2d at p. 822], I assume that relief in state court cases such as this is limited to declaratory and injunctive relief and would preclude recovery of damages. (See Rice v. Norman Williams Co., supra, 458 U.S. at p. 658, fn. 4 [73 L.Ed.2d at p. 1049].)

Application of the antitrust laws requires factual and legal determinations regarding the existence of “concerted activity” and a substantial effect upon interstate commerce. Although my view of the record suggests that both elements exist here, I would not object to a remand limited to these issues.