Surviving bill to head off eviction tsunami faces litigation wave if it passes

Only one of two bills designed to head off a potential wave of evictions survived in the California Legislature last week. If the remaining bill becomes law, Attorney General Xavier Becerra will quickly find himself having to defend its constitutionality in court.

The policy AB 1436 seeks to replace -- the Judicial Council's moratorium on most eviction cases, passed in April -- has also been the subject of numerous pending court cases. The Council's Emergency Rule 1 closed the courthouse doors to evictions over non-payment of rent, though some cases over allegations of tenants committing crimes on the property were technically allowed to continue. Chief Justice Tani Cantil-Sakauye has been pushing the Legislature to act for months, repeatedly stating that the policy her branch put in place was temporary.

These challenges may end up being moot, since the council recently voted to rescind the policy and allow unlawful detainer cases to begin again in California courts on Sept. 2.

That is exactly what Santa Clara landlords' attorney Todd B. Rothbard expects with a writ he filed last month. He argued in part that the policies put in place under the leadership of Cantil-Sakauye and Gov. Gavin Newsom exceeded their authority. Pacific Square Holdings LLC v. Superior Court of the State of California, H048286 (Cal. App. 6th, filed July 20, 2020).

"The problem was she was basically legislating," Rothbard said. "Everybody knows they can't do what they did, but it just takes too much time to undo it."

The litigation over AB 1436 will be different, Rothbard said, and will most likely play out in federal rather than state court.

"The questions aren't really so much of California law but due process and takings under the U.S. Constitution," Rothbard said.

The two bills that have been moving through the legislative process in Sacramento lay out complex plans involving tax credits and long-term repayment of rent through deals between tenants and landlords. One of these bills, SB 1410, was held in the Assembly Appropriations Committee without a vote on Thursday, effectively killing it.

That same day, AB 1436 made it out of the Senate Appropriations Committee on a 5-2 party-line vote. In contrast to the explicitly temporary judicial rule, it would stay in effect until next April or 90 days after the end of Gov. Gavin Newsom's pandemic emergency order, whichever comes first. Repayment agreements could be in place for another decade.

The appropriations committees in each house evaluate bills for costs, something Senate Appropriations Chairman Anthony Portantino, D-La Canada-Flintridge, reminded people of the last week when he said his committee would not re-litigate policy matters. But late in the day, he brought AB 1436 back up, referring it to the Senate Rules Committee, which is sometimes a forum for last-minute policy negotiations involving legislative leaders.

As currently drafted, though, AB 1436 suffers from a timing problem. It was not written as an urgency measure, which would require a two-thirds vote and allow it to go into effect immediately after the governor signs it.

"AB 1436, if chaptered into law, would take effect on Jan. 1, 2021," noted a Senate Appropriations Committee analysis. "The practical impact of the timing for residential tenants ... is that there will be a four-month period during which they could face eviction."

Dubbed the COVID-19 Tenant Relief Act of 2020, AB 1436 has a long list of supporters, largely housing groups and unions. Many of these groups have been pressing hard for passage. An Aug. 20 support letter from the California Democratic Renters Counsel argued the bill "is based on successful local ordinances in San Francisco" and several other cities.

Those ordinances have also been in court, however. San Francisco Superior Court Judge Charles F. Haines ruled on Aug. 3 the city can regulate the permissible reasons to evict a tenant.

The stakes would be far higher on a statewide ordinance, with business groups unlikely to relent while they still have legal options. AB 1436 has a long list of opponents, including the California Chamber of Commerce, which put the bill on it's annual list of "job killers."

Last week, the Chamber released a letter arguing AB 1436 is preempted by federal law due to its "requirement that financial institutions carry homeowner loans for a year or more without payment."

"The U.S. Supreme Court and appellate courts have consistently held that federal law under the National Bank Act preempts state laws which interfere with the business of banking," reads the letter signed by Chamber policy advocate Adam J. Regele.

"Only the state has the power and resources to function as a safety net," not landlords and banks, added Regele, an attorney.

But the state is cash-strapped due to orders from the governor that shut down much of the economy to counteract the coronavirus. This was a point repeatedly raised by SB 1410's author, Sen. Anna Caballero, D-Salinas, in bill hearings.

A June letter from the California Apartment Association echoed many of the Chamber's arguments, claiming the law would have the state reaching deep into areas of contract law occupied by the federal government.

The constitutional concerns are serious enough that a Senate Judiciary Committee analysis of the bill devoted 10 pages to them. It also evaluated potential violations of the contracts clause and takings clause in the U.S. Constitution.

A court case over AB 1436 would be likely to reference a recent U.S. Supreme Court decision, Sveen v. Melin, 2018 DJDAR 5588. This case laid out a two-part test for whether a state contracts law substantially interferes with federal contract law. The analysis found the law would substantially impair contractual relationships, but would likely survive the second part of the test.

"Staving off the serious threat of housing loss due to a global pandemic is an eminently significant and legitimate public purpose," it stated.