Supreme Court Upholds Rent Control Law in Berkeley

The Supreme Court on Wednesday upheld a controversial rent control ordinance enacted by the City of Berkeley, easing the way for communities across the nation to impose limits on rents without risk of violating federal antitrust laws.

In an 8-to-1 decision, the justices rejected claims by landlords that the ordinance violated Sherman Antitrust Act prohibitions against price-fixing conspiracies. The ordinance, imposed unilaterally by the city, was not the kind of “concerted action” by landlords and the city that the federal law bars, they said.

The court also said that a city is protected against antitrust actions even when its ordinance is not authorized by the state. Unless there is official corruption, rent control is free from antitrust attack, it said.

“We have been given no indication that such corruption has tainted the rent control imposed by Berkeley’s ordinance,” Justice Thurgood Marshall wrote for the court. “Adopted by popular initiative, the ordinance can hardly be viewed as a cloak for any conspiracy. . . .”

The decision represented a substantial victory for backers of Berkeley and other cities that have adopted local ordinances. At present, about 20 cities in California, including Los Angeles, impose some form of rent limitation, as do municipalities in New York, Connecticut, Massachusetts, New Jersey and the District of Columbia.

The ruling gives considerable legal encouragement to cities that may want to enact rent control without waiting for specific state approval. Most existing ordinances in the nation are authorized by state law and thus, in carrying out state policy, have been protected under court rulings against antitrust challenges. Wednesday’s decision frees cities from the necessity of state approval--but states can still bar or restrict rent control.

The decision appears also to give new protection to other local governmental action that may have anti-competitive effects, such as parking, taxi and trash collection rate regulation. A coalition of state and local officials, backing the City of Berkeley in the case, had warned that if rent control were held vulnerable to antitrust challenges, so would a wide range of other municipal rate-regulation activity.

Attorneys who supported the city expressed elation over the decision.

“This decision was a broad affirmation of the proposition that controls imposed by cities, in merely regulating the private economy, cannot be transmuted into an antitrust conspiracy,” said Laurence H. Tribe, a Harvard law professor who represented Berkeley before the court.

Stephen Chapple, counsel to the U.S. Conference of Mayors, said: “The court is saying that cities, when doing what cities are supposed to do, are not antitrust conspirators. Unless there is some taint--such as corruption--there is not a conspiracy.”

Support From Other Cities

Seven California cities that have rent control laws--Los Angeles, West Hollywood, Santa Monica, West Covina, Oxnard, Cathedral City, Camarillo and Palm Springs--filed a brief with the high court supporting the Berkeley ordinance.

“We were very pleased that the question has been laid to rest,” said Claudia McGee Henry, a Los Angeles assistant city attorney, after the ruling was announced. “It would have been revolutionary” if the decision had gone the other way, she said. “A whole variety of (local) regulatory measures could have fallen.”

Barbara Zeidman, chief of Los Angeles’ Rent Stabilization Division, said that if Berkeley landlords had won, “we would have had to shut down shop” and dismantle the city’s rent control machinery. “The decision tells us to go work out rent control problems at the local level,” she said.

Critics Disappointed

Rent control critics were disappointed with the decision but said they would continue to attack what they believe is the unconstitutionality of control laws.

“We were disappointed,” said Trevor Grimm, general counsel for the Apartment Owners Assn. of Greater Los Angeles, which supported the efforts of Berkeley landlords.

“It was a shot by people (landlords in Berkeley) who are really suffering,” Grimm said of the challenge to the Berkeley law.

The Supreme Court decision, Grimm said, “does not validate rent control in terms of its constitutionality,” but only says controls do not clash with the nation’s antitrust laws. He said rent control opponents would continue to push for legislation in Sacramento designed to diminish or terminate controls.

Many Apartments Covered

About half the apartments in California are covered by some sort of rent control laws, most of which are being constantly challenged in the courts. Nearly 300 lawsuits have been filed against the Santa Monica law, and the Berkeley ordinance has been challenged about a dozen times.

The Berkeley ordinance, enacted in 1980 after a voter initiative, was regarded as one of the toughest in the nation. The measure effectively froze rents at the 1980 level, allowing increases only for higher tax and utility costs. Owners of the 23,000 rental units in the city were required to apply individually for any other rent increases to cover operating costs or to secure a “fair return” on their investments.

The ordinance generated considerable controversy, with several business and real estate groups contending that such measures would discourage rental investments and limit housing supplies. A group of landlords in Berkeley challenged the ordinance in court, but the California Supreme Court upheld the measure in a 6-to-1 decision in December, 1984.

Different for Landlords

Marshall, in the high court’s opinion (Fisher vs. Berkeley, 84-1538), acknowledged that if landlords themselves had banded together to set rents, they would be open to antitrust attack. What distinguishes the ordinance from such concerted action is the city’s unilateral assertion of control, he said.

The fact that all landlords must comply with the law does not establish an antitrust “conspiracy” under the law, Marshall said.

In dissenting, Justice William J. Brennan Jr. said that in protecting rent control ordinances from antitrust challenge even when they are not authorized by the state, the court “discards over 40 years of carefully considered precedent.

“Ultimately, the court is holding that a municipality’s authority to protect the public welfare should not be constrained by the Sherman Act. That holding excludes a broad range of local government anti-competitive activities from the reach of the antitrust laws.”

In other action, the court:

- Invalidated a Wisconsin law that barred the state from purchasing goods from businesses found to have repeatedly violated federal labor law. The court held unanimously that Congress gave the National Labor Relations Board exclusive authority to enforce the federal law (Wisconsin vs. Gould, 84-1484).

- In a defeat for the Reagan Administration, held that the NLRB exceeded its authority in 1982 when it ordered unions to allow non-members to participate in an election to change union affiliation (NLRB vs. Financial Institution Employees of America, Local 1182, 84-1493).

Times staff writers Ronald L. Soble and Alan Citron contributed to this article.