Court Opinion

ID: 9757134
Source: CourtListenerOpinion
Date Created: 2023-08-28 22:19:51.624277+00
Date Added: 2024-06-11T07:28:34.917271
License: Public Domain

HARRIS, Associate Judge,
dissenting:
I respectfully dissent. In my view, the Rental Accommodations Act is confiscatory both as enacted and as effectuated, and hence it should be ruled to be unconstitutional.
The significance of rent control upon the social and economic vitality of this city is enormous.1 The majority opinion deals with this complex problem in a cursory fashion. Were time not a critical factor in this case, I would treat the subject in considerably more detail. However, because an extension of rent control currently is under active legislative consideration, and since the majority opinion was released yesterday, it would not be feasible to prepare a more detailed dissent.2 Nonetheless, I do offer a few observations.
*594It is settled that rent control is not per se unconstitutional. The Supreme Court so ruled by a vote of five to four in Block v. Hirsh, 256 U.S. 135, 41 S.Ct. 458, 65 L.Ed. 865 (1921) (sustaining rent control intended to prevent profiteering due to the influx of people coming to the District of Columbia in World War I). Mr. Justice Holmes’ majority opinion in that case stated in part:
The only matter that seems to us open to debate is whether the statute goes too far. For just as there comes a point at which the police power ceases and leaves only that of eminent domain, it may be conceded that regulations of the present sort pressed to a certain height might amount to a taking without due process of law. Martin v. District of Columbia, 205 U.S. 135, 136, 27 S.Ct. 440, 51 L.Ed. 743. [Id, at 156, 41 S.Ct. at 460.]
I readily agree with the majority’s recognition that it is not for the courts to determine the wisdom of rent control; that function lies with the legislature.3 That fact, however, does not negate the protections afforded by the Constitution to all citizens — including those who are landlords. As the Supreme Court noted in Block v. Hirsh, supra, at 158, 41 S.Ct. at 460: “While the [rent control] act is in force there is little to decide except whether the rent allowed is reasonable, and upon that question the courts are given the last word.”4 See also Apartment and Office Building Association v. Washington, D.C.App., 343 A.2d 323, 333 (1975) (AOBA I).
The principal basis for my disagreement with the majority may be stated rather succinctly. Unfortunately, the Supreme Court has not dealt with a non-federal rent control plan since the early 1920’s.5 However, less than a year after the Supreme Court’s decision in Block v. Hirsh, supra, the Court of Appeals of the District of Columbia decided Karrick v. Cantrill, 51 App.D.C. 176, 277 F. 578 (1922). The opinion in that case remains binding in this jurisdiction. See M.A.P. v. Ryan, D.C.App., 285 A.2d 310 (1971). In my judgment, Kar-rick v. Cantrill necessitates our concluding that the Rental Accommodations Act is unconstitutional.
In Karrick v. Cantrill, the Court of Appeals delineated the proper role of an appellate court in reviewing fixed rental rates:
[I]f it is suggested that the rental rates fixed are such that they will result in confiscation, it then becomes the duty of the court, for the proper determination of that issue, to review the proceedings had before the [rental] commission, both as to law and fact. On this point, [the land*595lord] cannot be deprived of a judicial investigation; otherwise, he would not be accorded due process of law. [51 App. D.C. at 178, 277 F. at 580.]
The court went on to consider whether the return permitted in that case was confiscatory. In reaching that question, it noted:
But in Lincoln Gas Co. v. Lincoln, 250 U.S. 256, 267 [39 S.Ct. 454, 63 L.Ed. 968], the court refused to approve a finding that a return of 6 per cent, could not be regarded as confiscatory, since 7 per cent, was the legal rate of interest, and “8 per cent, was the lowest rate sought and generally obtained as a return upon capital invested in banking, merchandising, and other business” in the state of Nebraska.
Considering, therefore, the hazards of the business, the value of money at the present time, and the prevailing rates of interest in the District of Columbia, we think that, if the net income from the rental falls below 6 per cent, of the value of the leased property, it should be treated as confiscatory. This rate, however, must be clear of the [landlord’s] ordinary expenses. [51 App.D.C. at 180, 277 F. at 582.]
The court then determined that at best the return permitted to the landlord on the fair market value of his rental property was only 3.5 per cent. It concluded:
It is apparent that this result is so unfair and unreasonable that it amounts to deprivation of property without due process of law, within the inhibition of the Fifth Amendment to the Constitution. The rates fixed are confiscatory, and therefore void. [51 App.D.C. at 182-83, 277 F. at 584-85.]
I reiterate that Karrick v. Cantrill is binding upon us. In this case, the trial judge who was asked to enjoin the enforcement of the Rental Accommodations Act made a finding of fact “that the prevailing rates on first mortgages in the District of Columbia are in the range of 10% to 12%.” That finding is supported by substantial evidence and is unchallenged on appeal. The trial court acknowledged that: “To be sure, the 8% rate of return may be close to the ‘line of confiscation’ . . . .” However, it was unwilling to conclude “that a lower rate of return provided in the statute as to automatic rent increases is clearly confiscatory.” I believe the trial court erred in so ruling.
Karrick v. Cantrill held that a return to a landlord which was two and one-half percentage points below the prevailing interest rate (then six percent) was confiscatory and void. Here, the trial court was confronted with a legislative mandated return which at the very best is from two to four percentage points below the prevailing rates for first mortgage loans. Such loans, of course, are fully secured and hence considerably less risky than the equity interests of those who purchase or construct and maintain rental properties. Applying the principles enunciated in Karrick v. Cantrill, I conclude that the eight percent return ceiling is confiscatory and void.6
I now point out briefly certain other infirmities which are present in the Rental Accommodations Act. Initially, the term “rate of return” is basically inappropriate in such a statutory scheme. It more aptly fits the regulation of public utilities, which to greater or lesser degrees operate in monopoly situations and have allowable rates of return determined entirely differently. *596See Troy Hills Village v. Township Council, 68 N.J. 604, 350 A.2d 34, 50-51 (1975) (Conford, P.J.A.D., concurring). (These public utilities virtually always now are afforded overall rates of return in excess of nine percent.) Be that as it may, I find the Rental Accommodations Act to be confiscatory in its practical effect as well as in its specific return limitation.
When Congress enacted a form of federal rent control in World War II, it directed the Office of Price Administration to “make adjustments for such relevant factors as . increases or decreases in property taxes and other costs.” See Bowles v. Willingham, 321 U.S. 503, 514, 64 S.Ct. 641, 88 L.Ed. 892 (1944). In that case, the Supreme Court noted:
It has been pointed out that any attempt to fix rents, landlord by landlord, as in the fashion of utility rates, would have been quite impossible. * * * Such considerations of feasibility and practicality are certainly germane to the constitutional issue. [Id., at 517, 64 S.Ct. at 648, citations omitted.]
Landlords, like virtually every other component of the nation’s economy, have been and are continuing to be subjected to relentless cost increases. I agree with the majority that there is no constitutional right for a landlord to pass all of his cost increases immediately through to his tenants. However, equally compelling is the corollary proposition that it is confiscatory to have a rent control system which is so unworkable as effectively to preclude the proper passing through of certain cost increases. Apartment and Office Building Association v. Moore, D.C.App., 359 A.2d 140 (1976) (AOBA II).
The Supreme Court of California recently affirmed the enjoining of a city’s rent control enactment. Birkenfeld v. City of Berkeley, 17 Cal.3d 129, 130 Cal.Rptr. 465, 550 P.2d 1001 (1976) (en banc). I commend its careful treatment of the entire subject to the attention of an interested reader, and I invite particular consideration of its analysis of the unworkable mechanism by which the charter there at issue supposedly would have permitted landlords to seek rent increases. See 130 Cal.Rptr. at 492-97, 550 P.2d at 1028-33. That court concluded in part:
But under the charter amendment as it now stands the combination of the rollback to base rents and the inexcusably cumbersome rent adjustment procedure is not reasonably related to the amendment’s stated purpose of preventing excessive rents and so would deprive the plaintiff landlords of due process of law if permitted to take effect. [130 Cal.Rptr. at 497, 550 P.2d at 1033.]
I would reach the same conclusion here. In the article by Senator Eagleton to which I referred in footnote 3, supra, he stated (at 110):
Often “hardship increases” do not approach the actual rise in owners’ costs. In court actions, apartment owners have argued that they should be allowed to pass-through unavoidable increases in operating costs. But the city contends: “Unlimited pass-throughs would mean no control of rents at all.”
As I analyze the record before us, the unworkability of the statutory rent increase mechanisms has been amply demonstrated. Senator Eagleton also alluded to this problem in his article, stating:
Along with contributing to urban blight, the city’s rent-control procedures also create demoralizing and costly red tape — “an administrative nightmare,” says the Washington Post. It took one apartment-building owner six months— and a good lawyer — to win a hardship rent increase despite the fact that not a single tenant opposed his application. Another modest apartment investor waited more than two years before winning an emergency increase on a building that clearly was losing money throughout the period. * * *
Beyond the unworkable procedures for seeking rent increases, the Act further is skewed against landlords. For one thing, the so-called rate of return is measured against a rental property’s appraised value, rather than its normally higher fair market *597value.7 This is confiscatory in and of itself. In Karrick v. Cantrill, supra, the Court of Appeals flatly stated:
It is important to determine the elements to be considered by the commission in fixing rental rates. The first thing, of course, is to ascertain the fair market value of the property at the time of fixing the rates. [51 App.D.C. at 178, 277 F. at 580.]
Additionally, in seeking rent increases, a landlord is bound by his actual operating expenses for a prior 12-month period.8 Continuing inflation thus makes even the theoretically allowable eight percent return illusory and unachievable, absent unanticipated cost reductions.9
I comment finally on the “emergency” aspects of the case. Unquestionably, bona fide housing emergencies existed in World War I and World War II which led to the rent controls which were sustained by the Supreme Court in Block v. Hirsh, supra, and Bowles v. Willingham, supra. In Block v. Hirsh, the Court stated:
The regulation is put and justified only as a temporary measure. A limit in time, to tide over a passing trouble, well may justify a law that could not be upheld as a permanent change. [256 U.S. at 157, 41 S.Ct. at 460; citations omitted.]
In Birkenfeld v. City of Berkeley, supra, the Supreme Court of California stressed:
[T]he constitutionality of residential rent controls under the police power depends upon the actual existence of a housing shortage and its concomitant ill effects of sufficient seriousness to make rent control a rational curative measure. [130 Cal.Rptr. at 488, 550 P.2d at 1024.]
In this case, the Council asserted the existence of an emergency which it saw as giving rise to the “need to stabilize rents over an extended period of time. . . . ” The majority opinion quotes and accepts that declaration. Then, however, the majority opinion states as one basis for its finding the Act not to be confiscatory: “[T]he Rental Accommodations Act is temporary since it is by its own terms applicable for a two-year period . . . .” That two-year period now has expired, and the majority opinion was released yesterday, to be available for the Council to consider today as it decides whether to enact new rent control legislation covering the next three years. It appears that both the “emergency” and rent control are likely to be with the District of Columbia for a considerable period of time.
I now conclude, so that this regrettably truncated dissent will not become unduly separated in time from the majority opinion. I share the concerns felt by many people for the undoubted hardships which rent increases effect on many tenants. However, the protections afforded by the Constitution do not stop at the tenant’s door, and any permissible solution to the problems of contemporary economic facts of life must not be confiscatory in its effect upon landlords. I am unable to share my Brothers’ belief that the Rental Accommodations Act passes constitutional muster, and I therefore respectfully dissent.

. In an editorial entitled “Guaranteeing New York’s Bonds” which was published on August 19, 1975, The Wall Street Journal stated in part:
What is killing New York on the income side is the deterioration of its tax base, a process that will not be reversed as long as rent controls are continued.
An article in the November 19, 1977, issue of The Washington Star (p. E-4) included these observations:
The recent extension of rent control in the District . has killed all hopes for straightening out the mess in the rental market.
* * * With the exception of some government units, no new rentals have been built here in the last five years.
Rent control, by itself, halts the building of new apartments. It also accelerates conversions into condominiums. It contributes to blight, abandonment, and, finally, to the devastation of whole neighborhoods — such as we have so vividly seen in New York City.

. For thorough analyses of various rent control measures, see, e. g., Birkenfeld v. City of Berkeley, 17 Cal.3d 129, 130 Cal.Rptr. 465, 550 P.2d 1001 (1976); City of Miami Beach v. Fleetwood Hotel, Inc., 261 So.2d 801 (Fla.1972); Westchester West No. 2 Limited Partnership v. *594Montgomery County, 276 Md. 448, 348 A.2d 856 (1975); Marshal House, Inc. v. Rent Control Board, 358 Mass. 686, 266 N.E.2d 876 (1971); Hutton Park Gardens v. Town Council, 68 N.J. 543, 350 A.2d 1 (1975).

.The District of Columbia Committee of the United States Senate recently held hearings on the District’s rent control laws. Its distinguished Chairman, The Honorable Thomas F. Eagleton, thereafter wrote an article entitled “Why Rent Controls Don’t Work” which was published in the August 1977 issue of Reader’s Digest. Senator Eagleton wrote in part (p. 109):
[T]he sad truth is that rent controls — enacted for the best of motives to protect middle- and low-income tenants — actually work against the very people they were designed to aid.
Washington’s rent-control program has driven apartment owners, large and small, out of business. For example, more than 60 renters lost their apartments when their building was converted into a more profitable home for the aged. * * *
studies estimate that Washington will need more than 1,200 new rental units each year to keep up with demand. Since the implementation of rent controls, however, the city has experienced a net loss in available units. Worse still, the construction of private apartments has virtually ceased. * * * Even city officials who once championed rent control now concede that the program should be phased out.

. The District of Columbia appellees acknowledge in their brief that “the constitutional measure for rent control legislation generally is whether it will permit landlords to earn a reasonable return on their investments.”

. The Court sustained a form of federal rent control enacted by Congress in World War II which authorized “stabilization or reduction of rents for any defense-area housing accommodations within a particular defense-rental area.” Bowles v. Willingham, 321 U.S. 503, 506, 64 S.Ct. 641, 643, 88 L.Ed. 892 (1944).

. The majority opinion takes “note that the rate of return, while not equalling the interest rates owners must pay on their purchase money loans, nevertheless exceeds the rate of interest payable on savings accounts and certificates of deposit as well as judgments obtained in court.” I find this comparison to alternative investments of a far less risky nature to be of no practical or constitutional significance. Far more on point is the following conclusion expressed by the Urban Law Institute on p. 9 of its study entitled “New Housing Production in the District of Columbia: Toward Possible Solutions to a Public Policy Dilemma”:
Since an investor can invest his money elsewhere and earn a higher return without the extraordinary risks of operating in the District, why would he invest in new rental housing in the District. The answer, of course, is that he will not. [H.R. Serial No. 94-10, 94th Cong., 1st Sess. 145 (1975).]

. Here the landlords face a dilemma, for the fair market value of rental property is to a major degree a function of its ability to earn income on the investment it requires. Uneconomic rents inevitably decrease the sale value of rental property, if indeed a willing buyer can be found for a willing seller. The vicious cycle becomes complete when controlled uneconomic rents produce losses, for then rental properties will lie fallow awaiting hopefully better times for existing or prospective investors.

. “Operating expenses” are defined in the Act as “the expenses for the upkeep of the accommodation for any consecutive 12 month period in the 15 months immediately preceding the filing of the [required] registration statement . . . .” D.C.Code 1977 Supp., § 45-1641(u).

.In their brief, the government appellees treat this problem with regrettably unwarranted optimism as follows:
But, the landlords complain, it is impossible to sustain even the 8% rate because costs will almost inevitably continue to rise. This totally self-serving allegation is too speculative a basis upon which to conclude that the return provided by the Act is unconstitutionally confiscatory as a matter of law.