Case Name: Redwood Villa, Inc. v. City of Mountain View, et al.
Case No.: 18-CV-322991

I. Background

This is an action for declaratory and injunctive relief brought by plaintiff Redwood Villa, Inc. (“Plaintiff”) against defendants City of Mountain View and Mountain View Rental Housing Committee (collectively, “Defendants”).

“Plaintiff owns and operates the Redwood Villa retirement community” in Mountain View, California. (Compl., ¶ 9.) The retirement community consists of 81 housing units, which are primarily single-occupancy units. (Compl., ¶¶ 10-11.) Because the units are only 400 square feet and do not contain kitchens, Plaintiff provides residents with meals in a central dining area. (Compl., ¶ 13.) Plaintiff also provides residents with housekeeping, recreation, and transportation services. (Compl., ¶¶ 12-13.)

Plaintiff challenges the applicability and validity of Mountain View’s Community Stabilization and Fair Rent Act, which took effect on December 23, 2016, as a result of the passage of Measure V in the November 2016 election. (Compl., ¶ 5.) It is codified in Article XVII of Mountain View’s City Charter, and its constituent sections numbered 1700 to 1720 are hereinafter referred to as the Act.

Generally speaking, the Act is a rent ordinance that imposes some restrictions on rent increases and requires just cause for evictions. More specifically, and as relevant here, the Act states “no Landlord shall charge Rent in any amount that exceeds the sum of the Base Rent plus any lawful Rent increase actually implemented pursuant to this [Act].” (Act, § 1706, subd. (a).) The Act further states: “No Landlord shall increase Rent for a Covered Rental Unit except as authorized by this [Act].” (Act, § 1706, subd. (b).)

This rent stabilization provision applies to “Covered Rental Units,” which units are defined as “[a]ll Rental Units not specifically exempted [ ].” (Act, § 1702, subd. (d).) Exempt units include those in: (1) hotels, motels, inns, tourist homes, and rooming and boarding houses leased for 30 days or less; (2) hospitals, convents, monasteries, extended medical care facilities, asylums, non-profit homes for the aged, and college dormitories; (3) facilities operated by not-for-profit organizations pursuant to a tax credit program; (4) government-subsidized housing; (5) buildings with first certificates of occupancy after the effective date of the Act; (6) single-family homes and condominiums; (7) companion units; (8) duplexes; (9) buildings with initial certificates of occupancy dated between February 1, 1995, and the effective date of the Act; and (10) buildings governed by Mountain View’s Affordable Housing Program. (Act, §§ 1703-1704.)

To stabilize rent for these Covered Rental Units, the Act establishes a Base Rent as a “reference point from which the lawful Rent shall be determined and adjusted in accordance with the [Act].” (Act, § 1702, subd. (b).) For tenancies commencing on or before October 19, 2015, the Base Rent is the rent in effect on that date. (Act, § 1702, subd. (b)(1).) For tenancies commencing after October 19, 2015, the Base Rent is the “amount of Rent actually paid by the Tenant for the initial term of the tenancy.” (Act, § 1702, subd. (b)(2).)

A landlord may thereafter charge rent in the amount of the Base Rent plus the Annual General Adjustment, which “shall be equal to one hundred percent (100%) of the percentage increase in the Consumer Price Index. . . rounded to the nearest one-tenth of a percent.” (Act, § 1707, subd. (a)(1).) “[I]n no event shall the Annual General Adjustment be less than two percent (2%) or more than five percent (5%).” (Act, § 1707, subd. (a)(2).) “No more than one Rent increase per twelve-month period may be imposed on a Tenant.” (Act, § 1707, subd. (b).)

The Act provides that either a landlord or tenant may petition for an individual rent adjustment. (Act, § 1710.) A landlord may petition to charge more rent than the allowable Base Rent plus Annual General Adjustments “to ensure a fair and reasonable rate of return.” (Act, § 1710, subd. (a).) The factors that may be considered for purposes of determining if more rent may be charged include, among other things, changes in property taxes and changes in maintenance and operating expenses. (Act, § 1710, subd. (a)(2).) Similarly, a tenant may petition to pay less rent than the allowable Base Rent plus Annual General Adjustments in the event of reductions in housing services or maintenance as well as deterioration of the condition of the unit. (Act, § 1710, subd. (c).)

With this context in mind, Plaintiff takes the position that the Act should not apply to it for three reasons. First, Plaintiff alleges the Act simply does not apply to it as a general matter because it “should be recognized as a service use.” (Compl., ¶ 26.) Second, Plaintiff alleges the Act violates the due process clause and the equal protection clause of the Fourteenth Amendment to the United States Constitution and the corresponding safeguards in article I, section 7 of the California Constitution. Finally, Plaintiff alleges the Act violates the contracts clause of article I, section 10 of the United States Constitution and the corresponding provision in article I, section 9 of the California Constitution. On these bases, Plaintiff seeks a declaration as to the Act’s validity and applicability. (Compl., ¶¶ 29-31.)

Currently before the Court is Defendants’ demurrer to the complaint, which is accompanied by a request for judicial notice. Plaintiff also filed a request for judicial notice in support of its opposition to the demurrer.

II. Requests for Judicial Notice

“Judicial notice may not be taken of any matter unless authorized or required by law.” (Evid. Code, § 450.) The matters of law and fact that are proper subjects of judicial notice are set forth in Evidence Code sections 451 and 452. Even if authorized to do so, a court need not take judicial notice of a matter if it is not “necessary, helpful, or relevant.” (Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison (1998) 18 Cal.4th 739, 748, fn. 6.)

A. Defendants’ Request for Judicial Notice

Defendants first request judicial notice of the full text of the Act, regulations promulgated in accordance therewith, and the resolution establishing the Act’s effective date. A court may take judicial notice of regulations and legislative acts and enactments. (Evid. Code, § 452, subds. (b)-(c).) Thus, the Court may take judicial notice of these matters.

Next, Defendants request judicial notice of the complaint in this action. A court may take judicial notice of a pleading because it is a court record. (Evid. Code, § 452, subd. (d).) With that said, it is unnecessary to take judicial notice of the complaint because it is the pleading under review and, as such, must necessarily be considered by the Court. (See Paul v. Patton (2015) 235 Cal.App.4th 1088, 1091, fn. 1.)

Defendants also request judicial notice of a Statement of Information Plaintiff filed with the California Secretary of State. Contrary to Defendants’ assertion, this document is not a record of an official act within the meaning of Evidence Code section 452, subdivision (c) because it was not prepared by the California Secretary of State. (See Field v. Bowen (2011) 199 Cal.App.4th 346, 370, fn. 5.) A document prepared by private parties is not subject to judicial notice simply because it is on file with a government agency. (See Hughes v. Blue Cross of N. Cal. (1989) 215 Cal.App.3d 832, 856, fn. 2.) Thus, the Statement of Information is not a proper subject of judicial notice under that provision. Even if it was, this document is not material to the demurrer, and so the Court need not take judicial notice of it. (See Jordache Enterprises, supra, 18 Cal.4th at p. 748, fn. 6.)

Additionally, Defendants request judicial notice of letters exchanged between Plaintiff’s counsel and their counsel pursuant to Evidence Code section 452, subdivision (c). It is true that a formal opinion issued by a city attorney or an official position expressed by a city attorney in a letter constitutes an official act under Evidence Code section 452, subdivision (c). (See Linda Vista Village San Diego H.O.A., Inc. v. Tecolote Investors, LLC (2015) 234 Cal.App.4th 166, 186; see also Evans v. City of Berkeley (2006) 38 Cal.4th 1, 8-9, fn. 4-5.) But the letter sent by Plaintiff’s counsel to the City Attorney of Mountain View obviously does not meet this definition, and the letter he received in response was not prepared by the City Attorney. The response was prepared by special counsel for the Rental Housing Committee of Mountain View. Consequently, these letters do not clearly qualify as official acts. (See Hsu v. Puma Biotechnology, Inc. (C.D.Cal. 2016) 213 F.Supp.3d 1275, 1277 [correspondence between counsel not a proper subject of judicial notice].) In any event, it is not necessary or helpful to take judicial notice of these letters to evaluate the sufficiency of the complaint. Thus, the Court will not take judicial notice of the correspondence between these attorneys.

Next, Defendants request judicial notice of the City of Mountain View’s official record of petitions for individual rent adjustments filed to date, which record shows Plaintiff has never filed such a petition. Because this record is an official record prepared and maintained by the City of Mountain View, it is a proper subject of judicial notice. (See Watson v. Los Altos School Dist. (1957) 149 Cal.App.2d 768, 772-73, citing Evid. Code, § 452, subd. (c).) Even so, it is not necessary or helpful to take judicial notice of this public record to evaluate the sufficiency of the allegations in the pleading. Notably, Plaintiff does not allege or argue it has, in fact, filed a petition. Consequently, the Court will not take judicial notice of this public record.

Finally, Defendants request judicial notice of the register of actions from an unrelated lawsuit challenging the Act, which lawsuit was settled in December 2017 and dismissed in April 2018. The Court may take judicial notice of the register of actions because it is a court record. (See Evid. Code, § 452, subd. (d).) With that said, it is not particularly clear why Defendants request judicial notice of it. Although Defendants represent this unrelated lawsuit delayed the effective date of the Act, the effective date of the Act is not material to the demurrer and cannot, in any event, be determined by reference to the register of actions. The register of actions is wholly irrelevant, and so the Court will not take judicial notice of it.

Based on the foregoing, Defendants’ request for judicial notice of the Act and the related resolution and regulations is GRANTED and the balance of their request is DENIED.

B. Plaintiff’s Request for Judicial Notice

In support of its opposition, Plaintiff requests judicial notice of Mountain View’s minimum wage ordinance, a printout from a website showing an argument in support of Measure V (the measure to enact the Act), and a printout from a website showing the Consumer Price Index. Plaintiff does not identify any statutory basis for its request and it is not obvious all of these documents are proper subjects of judicial notice. Although the ordinance clearly constitutes a proper subject of judicial notice, (see Evid. Code, § 452, subd. (b)), the same cannot be said of the website printouts (see Huitt v. Southern Cal. Gas Co. (2010) 188 Cal.App.4th 1586, 1604, fn. 10). In any event, irrespective of whether these documents are proper subjects of judicial notice, the Court need not take judicial notice of them because they are not necessary, relevant, or helpful to the evaluation of the demurrer. (See Jordache Enterprises, supra, 18 Cal.4th at p. 748, fn. 6.) Plaintiff’s request for judicial notice is therefore DENIED.

III. Demurrer

Defendants demur to the complaint on the grounds of a lack of jurisdiction over the subject of the action (see Code Civ. Proc., § 430.10, subd. (a)) and failure to state facts sufficient to constitute a cause of action (see Code Civ. Proc., § 430.10, subd. (e)).

A. Lack of Subject Matter Jurisdiction

“Subject matter jurisdiction is conferred by constitutional or statutory law.” (Cummings v. Stanley (2009) 177 Cal.App.4th 493, 503 [internal quotation marks and citations omitted].) It is defined as “the power of the court over a cause of action or to act in a particular way.” (Ibid.) Thus, “[t]he principle of ‘subject matter jurisdiction’ relates to the inherent authority of the court involved to deal with the case or matter before it.” (Harnedy v. Whitty (2003) 110 Cal.App.4th 1333, 1343-44.)

“By contrast, the lack of subject matter jurisdiction means the entire absence of power to hear or determine a case.” (Cummings, supra, 177 Cal.App.4th at p. 503.) For example, California courts lack subject matter jurisdiction over causes of action subject to the exclusive jurisdiction of the federal courts, such as those involving patents. (See, e.g., Lockwood v. Sheppard, Mullin, Richter & Hampton (2009) 173 Cal.App.4th 675, 683-84 [state court lacked subject matter jurisdiction over patent claims]; see also Ross v. Universal Studios Credit Union (2002) 95 Cal.App.4th 537, 542 [state court lacked subject matter jurisdiction over bankruptcy-related claims].)

Defendants argue the Court lacks subject matter jurisdiction because Plaintiff did not exhaust its administrative remedies and does not present a ripe claim. Although exhaustion of administrative remedies is sometimes described as a jurisdictional requirement, it “does not implicate subject matter jurisdiction.” (Cummings, supra, 177 Cal.App.4th at p. 503.) Additionally, the principle of ripeness does not implicate subject matter jurisdiction. (See Wilson & Wilson v. City Council of Redwood City (2011) 191 Cal.App.4th 1559, 1573-76.) Thus, it appears perhaps Defendants misunderstand the nature of this particular statutory ground for demurrer.

Defendants do not actually advance any arguments pertaining to subject matter jurisdiction, and there is not any obvious basis for concluding there is a lack of subject matter jurisdiction here. (See Serrano v. Stefan Merli Plastering Co. (2008) 162 Cal.App.4th 1014, 1029-30.) Consequently, Defendants’ demurrer on the ground the Court lacks jurisdiction over the subject of the action is OVERRULED.

Because Defendants also demur on the ground of failure to state facts sufficient to constitute a cause of action, the Court considers their exhaustion and ripeness arguments relative to the demurrer on that particular statutory ground.

B. Failure to State Sufficient Facts

Defendants assert Plaintiff does not adequately plead a claim for declaratory relief.

Code of Civil Procedure section 1060 authorizes an action for declaratory relief “in cases of actual controversy relating to the legal rights and duties of the respective parties. . . .” Thus, to state a legally sufficient claim for declaratory relief, a plaintiff must allege “facts showing the existence of an actual controversy.” (Zeitlin v. Arnebergh (1963) 59 Cal.2d 901, 907-08.) If the plaintiff alleges such facts, he or she “is entitled to a declaration of his [or her] rights, whether the declaration be favorable or adverse. . . .” (Id. at p. 908.)

With this pleading standard in mind, the Court addresses each of the alleged controversies in turn, particularly whether the Act: (1) applies to Plaintiff as a general matter; (2) violates Plaintiff’s due process and equal protection rights; and (3) unconstitutionally impairs Plaintiff’s contractual obligations. Thereafter, the Court addresses Defendants’ auxiliary assertion that “Plaintiff’s ‘vested rights’ argument fails, as its conditional use permit is unaffected by application of the [Act].” (Mem. of Pts. & Auth. at p. 18:5-6.)

1. General Applicability

Plaintiff seeks a declaration as to whether it is subject to or exempt from the Act.

The Act applies to “[a]ll Rental Units not specifically exempted [ ].” (Act, § 1702, subd. (d).) Plaintiff explicitly alleges it “does not fall within the specific language of the [ ] exemptions, and therefore is not specifically called out by exemptions of the Act.” (Compl., ¶ 22.) Indeed, Plaintiff does not allege or dispute that as a for-profit retirement community it does not qualify for an exemption as a “hospital, convent, monastery, extended medical care facility, asylum, non-profit home for the aged, or dormitory owned and operated by an accredited institution of higher education.” (Act, § 1703, subd. (a)(2), italics added.) Plaintiff clearly is not exempt. Accordingly, Plaintiff fails to allege facts showing the existence of any controversy with respect to whether it is subject to or exempt from the Act.

Plaintiff’s allegation that it “should be recognized as a service use” does not support a contrary conclusion. (Compl., ¶ 26.) The Act does not contain an exemption for “service uses.” (See Act, §§ 1703-04.) Plaintiff apparently concocted this term. And so Plaintiff’s position appears to be — not that it should come within an exemption — but that an exemption should be created for landlords who own facilities similar to those specifically exempted. (See Compl., ¶ 19.) Put differently, Plaintiff acknowledges it is not exempt but believes the Court should craft an exemption for it. But “policymaking is the legislative function.” (Schabarum v. California Legislature (1998) 60 Cal.App.4th 1205, 1219.)

“[U]nder the doctrine of separation of powers neither the trial nor appellate courts are authorized to ‘review’ legislative determinations.” (Santa Monica Beach, Ltd. v. Super. Ct. (1999) 19 Cal.4th 952, 962.) In other words, the Court cannot review a legislative determination as to who, as a matter of public policy, should and should not be exempt from the Act or substitute its own policy judgment by creating an additional exemption. A court’s function is to interpret and evaluate the constitutionality of a law as written. (Ibid.; see also National Shooting Sports Foundation, Inc. v. State of California (2016) 6 Cal.App.5th 298, 306.) Here, Plaintiff does not dispute it is subject to the Act as written. Plaintiff simply alleges it disagrees with the legislative determination that for-profit retirement homes are subject to the Act. This “does not constitute a justiciable controversy.” (Zetterberg v. State Dept. of Public Health (1974) 43 Cal.App.3d 657, 662.)

In conclusion, Plaintiff does not allege facts sufficient to state a claim for declaratory relief regarding the general applicability of the Act.

2. Due Process and Equal Protection

Plaintiff alleges the Act violates the equal protection and due process rights protected by the Fourteenth Amendment to the United States Constitution (“Fourteenth Amendment”) and article I, section 7 of the California Constitution (“Section 7”).

The Fourteenth Amendment contains a due process clause and an equal protection clause that provide no state shall: “deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.” Similarly, Section 7 states: “A person may not be deprived of life, liberty, or property without due process of law or denied equal protection of the laws.”

Plaintiff alleges the Act violates these constitutional provisions both on its face and as applied.

i. Facial Challenge

“A facial challenge to the constitutional validity of a statute or ordinance considers only the text of the measure itself, not its application to the particular circumstances of an individual.” (Tobe v. City of Santa Ana (1995) 9 Cal.4th 1069, 1084.) “‘To support a determination of facial unconstitutionality, voiding the statute as a whole, [a plaintiff] cannot prevail by suggesting that in some future hypothetical situation constitutional problems may possibly arise as to the particular application of the statute. . . .’ [Citation.]” (Ibid., original italics.) “‘Rather, [a plaintiff] must demonstrate that the act’s provisions inevitably pose a present total and fatal conflict with applicable constitutional prohibitions.’ [Citation.]” (Ibid.)

Defendants argue Plaintiff’s allegations of facial invalidity are “vague and unspecific” and are otherwise insufficient because the United States Supreme Court held a similar ordinance was constitutional, both as to due process and equal protection, in Pennell v. City of San Jose (1988) 485 U.S. 1. (See Mem. of Pts. & Auth. at pp. 10:20-11:14.)

Although Defendants’ first argument might support a demurrer on the ground of uncertainty, they do not demur on that statutory ground. (See Code Civ. Proc., § 430.10, subd. (f).) Otherwise, Defendants’ second argument is essentially that the Act is, indeed, constitutional on its face. In other words, Defendants’ argument is that Plaintiff is wrong and will receive an unfavorable declaration. A plaintiff does not have to allege facts showing it is entitled to a favorable declaration to survive a demurrer. (See Zeitlin, supra, 59 Cal.2d at pp. 907-08.) Furthermore, it is difficult to ascertain whether Pennell is actually analogous and supports the conclusion that the Act is constitutional because, as Defendants acknowledge, Plaintiff does not clearly articulate the nature of its due process and equal protection challenges. Consequently, Defendants’ arguments are not persuasive.

In actuality, the issue here is simply whether Plaintiff alleges facts sufficient to show there is a present controversy relative to whether the Act is unconstitutional on its face because it violates state and federal guaranties of due process and equal protection.

a. Due Process

“The due process provisions [of the United States and California Constitutions] guarantee appropriate procedural protections [citation] and also place some substantive limitations on legislative measures [citation].” (Kavanau v. Santa Monica Rent Control Bd. (1997) 16 Cal.4th 761, 771.) “Procedural due process focuses upon the essential elements of fairness of a procedure that would deprive an individual of important rights.” (In re Joshua M. (1998) 66 Cal.App.4th 458, 471.) For example, “an adjudicative governmental action that implicates a significant or substantial property deprivation generally requires the procedural due process standards of reasonable notice and an opportunity to be heard.” (Calvert v. County of Yuba (2006) 145 Cal.App.4th 613, 622.) In contrast, “[t]he latter guaranty — sometimes described as substantive due process — prevents government from enacting legislation that is ‘arbitrary’ or ‘discriminatory’ or lacks ‘a reasonable relation to a proper legislative purpose.’” (Kavanau, supra, 16 Cal.4th at p. 771, quoting Nebbia v. New York (1934) 291 U.S. 502, 537.)

Plaintiff does not clearly identify in the pleading how the Act, on its face, violates state or federal due process provisions. And so the Court considers whether Plaintiff states either a procedural or a substantive due process claim.

Although California courts employ a slightly different sequential analysis for procedural due process claims brought under the California Constitution as compared to those brought under the United States Constitution, the basic elements of a procedural due process claim are the same. (See Ryan v. Cal. Interscholastic Federation-San Diego Section (2001) 94 Cal.App.4th 1048, 1059-69.) “A procedural due process claim possesses two components: first, that an individual has been deprived of a constitutionally protected liberty or property interest; and second, that this deprivation, while not necessarily unconstitutional in and of itself, was rendered unconstitutional because it was undertaken without according the individual the appropriate hearing.” (Galland v. City of Clovis (2001) 24 Cal.4th 1003, 1030.)

Here, Plaintiff does not allege the Act deprives it of some right or interest without affording it procedural due process. For example, Plaintiff does not challenge the individual rent adjustment procedure set forth in the Act on the basis there is a “lack of procedural protections.” (See Galland, supra, 24 Cal.4th at p. 1030.) Thus, Plaintiff does not allege there is a controversy relating to whether the Act, on its face, violates its right to procedural due process.

Plaintiff does allege “the Act is invalid as an unjust discrimination” because it exempts some businesses, such as non-profit homes for the aged, but not other businesses, like for-profit homes for the aged, even though these businesses provide “identical” services. (Compl., ¶ 19.) In other words, Plaintiff’s theory appears to be that the Act discriminates or arbitrarily distinguishes between the types of businesses that are exempt. Thus, Plaintiff does allege there is a dispute as to whether the Act, on its face, violates its right to substantive due process.
In conclusion, while Plaintiff generically uses the term “due process” in the complaint, its claim is “best understood as a claimed violation of substantive due process.” (Galland, supra, 24 Cal.4th at p. 1030.) Because Plaintiff does allege there is an actual controversy relating to whether the Act, on its face, abridges the right to substantive due process under the California and Federal Constitutions, it adequately states a claim for declaratory relief on that basis.

b. Equal Protection

Both the California Constitution and the United States Constitution guarantee equal protection of the law. (Cal. Const., art. I, § 7; U.S. Const., 14th Amend.) “The concept of equal protection recognizes that persons who are similarly situated with respect to a law’s legitimate purposes must be treated equally.” (People v. Brown (2012) 54 Cal.4th 314, 328.) And so a plaintiff challenging the facial validity of a law on equal protection grounds must allege it “discriminate[s] explicitly between groups of people” or “though evenhanded on [its] face, in operation [has] a disproportionate impact on certain groups.” (Vergara v. State (2016) 246 Cal.App.4th 619, 644 [internal quotation marks and citations omitted].) “Although a group need not be specifically identified in a statute to claim an equal protection violation [citations], group members must have some pertinent common characteristic other than the fact that they are assertedly harmed by a statute.” (Id. at p. 646.)

Plaintiff does not clearly identify the nature of its equal protection challenge. It appears Plaintiff’s theory is that the Act explicitly discriminates because it specifically exempts some landlords from compliance with its rent stabilization provisions. Plaintiff alleges it uses its land to provide services and appears to believe the Act treats some service providers, like itself, different from other similarly situated service providers, such as non-profit homes for the aged, who are exempt. Accordingly, Plaintiff adequately alleges the Act explicitly discriminates between similarly situated landowners.

Defendants do not advance any arguments to support a contrary conclusion. Defendants assert in passing that Plaintiff does not allege it is a member of a suspect class or that the Act burdens one of its fundamental interests. It appears Defendants may be conflating the requirements for applying the strict scrutiny standard of review for purposes of an equal protection claim with the requirements for alleging a claim for declaratory relief based on a purported equal protection violation. (See Vergara, supra, 246 Cal.App.4th at p. 645.)

Strict scrutiny is the standard of review “employed when the ‘distinction drawn by a statute rests upon a so-called “suspect classification” or impinges upon a fundamental right.’ [Citation.]” (Vergara, supra, 246 Cal.App.4th at p. 645.) But statutes that discriminate based on suspect classifications, such as race, or that burden a fundamental right are not the only statutes vulnerable to an equal protection challenge. (Ibid.) A plaintiff may challenge “economic and social welfare legislation in which there is a discrimination or differentiation of treatment between classes or individuals.” (Ibid. [internal quotation marks and citation omitted].) Such challenges are simply subject to a different standard of review known as the “rational relationship” or “rational basis” standard that tests whether the classification in the statute bears some rational relationship to a legitimate state interest. (Ibid.) Thus, Plaintiff need not allege facts showing the Court should apply strict scrutiny to state a claim for declaratory relief based on a violation of its right to equal protection.

For these reasons, Defendants do not demonstrate Plaintiff’s allegations are insufficient to state a claim for declaratory relief challenging the facial validity of the Act under the equal protection clauses of the California and United States Constitutions.

ii. As Applied

In the complaint, Plaintiff also states it is challenging the Act as applied.

“An as applied challenge may seek (1) relief from a specific application of a facially valid statute or ordinance to an individual or class of individuals who are under allegedly impermissible present restraint or disability as a result of the manner or circumstances in which the statute or ordinance has been applied, or (2) an injunction against future application of the statute or ordinance in the allegedly impermissible manner it is shown to have been applied in the past.” (Tobe, supra, 9 Cal.4th at p. 1084.) “It contemplates analysis of the facts of a particular case or cases to determine the circumstances in which the statute or ordinance has been applied and to consider whether in those particular circumstances the application deprived the individual to whom it was applied of a protected right.” (Ibid.)

Defendants argue Plaintiff cannot challenge the Act as applied because there is no ripe dispute, it did not exhaust its administrative remedies, and the Act is constitutional. This last argument is not a basis for sustaining the demurrer because, as explained above, a plaintiff need not allege facts showing his or her theory is meritorious and will result in a favorable declaration. (See Zeitlin, supra, 59 Cal.2d at pp. 907-08.) Defendants’ ripeness and exhaustion arguments are also problematic.

Significantly, Defendants’ ripeness and exhaustion arguments are not clearly directed to the theories of unconstitutionality alleged in the pleading. Defendants do not address Plaintiff’s basic due process and equal protection theories upon which it purports to base its facial and as applied challenges, which theories are discussed above. Instead, Defendants treat the allegations as a takings claim without adequately justifying their approach. As a consequence, there is a fundamental lack of clarity and precision in their presentation of the ripeness and exhaustion arguments.

For context, the takings clauses in the California and Federal Constitutions “guarantee property owners ‘just compensation’ when their property is ‘taken for public use.’” (Kavanau, supra, 16 Cal.4th at pp. 770-71; Cal. Const., art. I, § 19; U.S. Const., 5th and 14th Amends.) The protection from takings and right to due process are “distinct constitutional protections [that] limit the legislative power of government in different but related ways.” (Kavanau, supra, 16 Cal.4th at p. 771.) “The due process protection focuses on the government’s means and purpose: whether the government’s method rationally furthers legitimate ends.” (Ibid.) “The takings protection focuses on the impact of the government’s action: whether the government has in effect appropriated private property for its own use, rather than merely regulating a private use of the property.” (Ibid.) In evaluating the constitutionality of rent control ordinances, courts have sometimes used “overlapping terminology and standards” that blur the distinction between the due process and takings clauses and suggest “the two clauses [operate] as a single constitutional protection of private property rights.” (Ibid.) Although this may have contributed to Defendants’ approach here, the constitutional protections are actually distinct. (See Pennell, supra, 485 U.S. at pp. 8-14.)

In the complaint, Plaintiff does not allege the Act effectuates a taking of its property or otherwise seek a declaration that the Act violates either takings clause. For example, Plaintiff does not allege it petitioned for an individual rent adjustment and that Defendants unlawfully denied its petition. (See, e.g., Pennell, supra, 485 U.S. at p. 10.) Although Plaintiff’s opposition is not a model of clarity and largely consists of a recitation of the text of the Act and factual allegations, some of which appear in the pleading, nothing therein suggests it intended to assert a takings claim. Accordingly, Defendants’ characterization of the pleading is not justified by the allegations.

To be sure, Plaintiff does appear to take issue with whether the rent it is allowed to charge under the Act is sufficient to cover the increased labor costs it has incurred as a result of Mountain View’s minimum wage requirements. (Compl., ¶¶ 12-13, 18-22.) With that said, these allegations appear to provide the basis for Plaintiff’s claim that the particular exemptions in the Act are generally unfair, arbitrary, and/or discriminatory for purposes of its substantive due process theory. (See Compl., ¶¶ 19, 22.) Plaintiff does not state, and these allegations do not independently suggest, it seeks relief based on a takings theory.

The Court observes these allegations about increased labor costs and decreased rental income suggest Plaintiff may believe, although never explicitly stated, it is not getting a fair return. The concept of a “fair return” or “fair and reasonable return” has been discussed by many courts in evaluating the constitutionality of rent ordinances. (See generally Fisher v. City of Berkeley (1984) 37 Cal.3d 644, 679-80.) This concept, as understood in the particular context of rent control jurisprudence, can be traced at least to the California Supreme Court’s decision in Birkenfeld v. City of Berkeley (1976) 17 Cal.3d 129. In that case, the court considered, among other things, whether a particular rent ordinance comported with the right of a landlord to be free from the arbitrary or discriminatory exercise of governmental authority under the due process clause of the Fourteenth Amendment. (Id. at p. 165.) The court reasoned that a rent ordinance was constitutional if it struck a balance between protecting tenants and “at the same time provid[ing] landlords with a just and reasonable return on their property.” (Ibid.) It concluded, in comparison, an ordinance that was “confiscatory” was unconstitutional. (Ibid.) In Birkenfeld, the court established a new vocabulary for California courts to discuss substantive due process as applied to rent ordinances. (Ibid., citing Nebbia, supra, 291 U.S. at p. 539.)

The Court makes this observation because the concept of a fair return may sound similar to a factor courts consider when applying the Penn Central test for determining whether there has been a regulatory taking. (See Kavanau, supra, 16 Cal.4th at p. 775, citing Penn Central Transportation Authority of N.Y. v. City of New York (1978) 438 U.S. 104, 124.) More specifically, under Penn Central, courts consider “the extent to which the regulation has interfered with distinct investment-backed expectations.” (Ibid.) But the Penn Central test, inclusive of this one particular factor, is distinct from the standard for evaluating substantive due process challenges to rent ordinances. (See Kavanau, supra, 16 Cal.4th at pp. 770-72.) Thus, even assuming Plaintiff intended to allege the Act prevents it from earning a fair and reasonable return, this is not a basis for construing and treating the allegations as a takings claim.

Ultimately, because Plaintiff does not appear to seek declaratory relief based on a takings theory, Defendants’ arguments about whether there is a ripe takings claim and whether administrative remedies have been exhausted for purposes of asserting such a claim are misdirected.

Turning to a different point, Defendants’ ripeness and exhaustion arguments presuppose the allegations in the pleading should properly be treated as a challenge to the Act as applied. (See Del Oro Hills v. City of Oceanside (1995) 31 Cal.App.4th 1060, 1077.) While Plaintiff uses the phrase “as applied” in the pleading, it is not especially clear it is actually relying on such a theory of unconstitutionality. The distinction between facial challenges and as applied challenges is ambiguous at best. (See Citizens United v. Federal Election Com. (2010) 558 U.S. 310, 331 [“[T]he distinction between facial and as-applied challenges is not so well defined that it has some automatic effect or that it must always control the pleadings and disposition in every case involving a constitutional challenge.”]; see also Kreit, Making Sense of Facial and As-Applied Challenges (2010) 18 Wm. & Mary Bill Rts. L.J. 657.) Given this ambiguity in the law, and because the pleading is not especially clear, it is not obvious the prerequisites for as applied challenges, namely ripeness and exhaustion, are implicated here.

In any event, because Plaintiff does allege the Act is invalid on its face, the demurrer is not sustainable irrespective of whether Plaintiff can state a claim for declaratory relief with respect to the Act as applied. (See Warren v. Atchison, R. & S.F. Ry. Co. (1971) 19 Cal.App.3d 24, 29; see also PH II, Inc. v. Super. Ct. (1995) 33 Cal.App.4th 1680, 1682.) For this reason, and in light of the problems discussed above, the Court does not address the merits of these arguments.
iii. Conclusion

For the reasons set forth above, Defendants do not demonstrate Plaintiff fails to allege facts sufficient to state a claim for declaratory relief based on the due process and equal protection guaranties of the Federal and California Constitutions. Although Defendants may be correct that the great weight of authority is against Plaintiff, that is not a basis for sustaining the demurrer.

3. Impairment of Contracts

Plaintiff alleges the Act violates the federal and state constitutional prohibitions on the impairment of contracts because it “reach[es] back to rents preceding the most recent increases, in January of 2017, [such that it] is invalid retroactive legislation.” (Compl., ¶ 24.)

The Act reflects there was a concern that when, on October 19, 2015, the City Council of Mountain View announced it would study and consider enacting rent control, “landlords would increase rents to levels they otherwise would not have in anticipation of imminent regulation.” (Act, § 1701, subd. (n).) Thus, the Act set Base Rent as either the amount paid on October 19, 2015, or the amount paid for the initial term of the tenancy, depending on when the tenancy commenced. (See Act, § 1702, subd. (b).) It appears Plaintiff may be alleging the Act’s establishment of Base Rent impairs its contractual obligations.

Defendants argue Plaintiff’s impairment of contracts theory is flawed because there is “case law upholding rent rollbacks.” (Mem. of Pts. & Auth. at p. 18:2-4.) In other words, Defendants take the position that the Act is constitutional because courts have held other ordinances did not violate the constitutional prohibitions on the impairment of contracts. This argument goes to the merits of Plaintiff’s constitutional theory, not the sufficiency of the pleading. “[A] demurrer is not the appropriate weapon with which to attack the merits of a claim for declaratory relief.” (Greenberg v. Hollywood Turf Club (1970) 7 Cal.App.3d 968, 979.) Thus, Defendants’ argument is inapt.

In any event, Defendants do not substantiate their argument. The contract clauses of the Federal and California Constitutions “prohibit a state from passing laws impairing the obligation of contracts.” (Teachers’ Retirement Bd. v. Genest (2007) 154 Cal.App.4th 1012, 1026, citing U.S. Const., art. I, § 10 & Cal. Const., art. I, § 9.) “Pursuant to these clauses, the state’s ability to modify its own contracts with other parties, or contracts between other parties, is limited.” (Genest, supra, 154 Cal.App.4th at p. 1026.)

For purposes of evaluating a claim based on these clauses, “a threshold inquiry is whether the legislative enactment has in fact operated as a substantial impairment of a contractual relationship.” (Berman v. Downing 184 Cal.App.3d Supp. 1, 5-6, citing Allied Structural Steel Co. v. Spannaus (1978) 438 U.S. 234, 244-45.) Although not articulated by Defendants, they essentially argue Plaintiff cannot satisfy this threshold requirement. More specifically, Defendants appear to take the position that, because courts have upheld rent ordinances that apply retroactively and “rollback” rents for anywhere from 54 months to 4 months, the 15 month rollback set by the Act is not a substantial impairment of Plaintiff’s contractual obligations. (See Mem. of Pts. & Auth. at p. 17:1-27.) They do not provide adequate support for their position.

Defendants imply courts have held various rent ordinances with rent rollback provisions did not substantially impair contracts because of or based on the duration of the rollback. The cases cited by Defendants do not support such a conclusion. In actuality, courts consider a number of other factors, including the extent to which an industry has been regulated in the past. (See Berman, supra, 184 Cal.App.3d Supp. at p. 6.) Thus, Defendants’ argument does not appear to be based on the correct legal standard and is not persuasive.

In conclusion, Defendants do not demonstrate Plaintiff fails to plead a claim for declaratory relief based on the contracts clauses of the Federal and California Constitutions.

4. Vested Right

In the complaint, Plaintiff alleges it has a conditional use permit through which it has acquired a “vested right” to continue its business and cites Malibu Mountains Recreation, Inc. v. County of Los Angeles (“Malibu Mountains”) (1998) 67 Cal.App.4th 359 and Goat Hill Tavern v. City of Costa Mesa (1992) 6 Cal.App.4th 1519. (Compl., ¶ 23.) Defendants challenge the sufficiency of this particular allegation, arguing: “Plaintiff’s ‘vested rights’ argument fails, as its conditional use permit is unaffected by application of the [Act].” (Mem. of Pts. & Auth. at p. 18:5-6.)

In presenting their argument, Defendants do not clearly articulate whether this allegation should be treated as the basis for a separate legal theory or simply a stand-alone allegation. It appears perhaps they believe it is a stand-alone allegation because they characterize it as an “argument” and attempt to challenge whether, as a matter of fact, the Act impacts Plaintiff’s permit instead of addressing whether a claim has been stated based on some recognized legal theory. But a demurrer “is not the appropriate weapon with which to attack the merits of a claim for declaratory relief.” (Greenberg, supra, 7 Cal.App.3d at p. 979.) Thus, Defendants attempt to address the truth or merit of this allegation is misguided.

With that said, the Court acknowledges Plaintiff’s allegation is perplexing. Plaintiff appears to have taken the term “vested right” from the two cases cited in its pleading. These cases are so distinguishable that they do not illuminate Plaintiff’s legal theory. Instead, the cases suggest Plaintiff is either conflating this term with some other constitutional concept or lacking a fundamental understanding of the nature of the declaratory relief it seeks. (See Compl. at p. 7.)
Both cases cited by Plaintiff involved petitions for writ of administrative mandate filed pursuant to Code of Civil Procedure section 1094.5. (See Goat Hill Tavern, supra, 6 Cal.App.4th at p. 1525; Malibu Mountains, supra, 67 Cal.App.4th at p. 366.) Here, Plaintiff filed a complaint for declaratory relief, not a petition for writ of administrative mandate. Additionally, as is obvious from the very nature of the writs sought, the petitioners in these cases challenged decisions by local administrative agencies who refused to renew and/or revoked their conditional use permits. (See Goat Hill Tavern, supra, 6 Cal.App.4th at p. 1522; Malibu Mountains, supra, 67 Cal.App.4th at p. 362.) Plaintiff does not allege there has been any administrative proceeding or decision about its permit. Finally and most significantly, the courts of appeal considered whether the petitioners had “vested rights” to determine whether the trial courts who presided over the mandamus proceedings applied the appropriate standard of review. (See Goat Hill Tavern, supra, 6 Cal.App.4th at p. 1525; Malibu Mountains, supra, 67 Cal.App.4th at p. 368.) These cases do not hold there is such a thing as a “vested right” as a general matter or for purposes of some particular right of action. (See Goat Hill Tavern, supra, 6 Cal.App.4th at p. 1525; Malibu Mountains, supra, 67 Cal.App.4th at p. 368.)

For these reasons, it appears Plaintiff’s use of the term “vested right” is erroneous and its reliance on these cases is misplaced. Merely uttering this term along with a citation to these cases does not demonstrate there is some other legal basis for Plaintiff’s claim for declaratory relief. Accordingly, this allegation does not change the outcome of the demurrer.

5. Conclusion

Defendants do not demonstrate that no viable claim for declaratory relief has been stated. At minimum, Plaintiff states a claim for declaratory relief on the basis the Act, on its face, violates its rights to substantive due process and equal protection. Accordingly, the demurrer on the ground of failure to state facts sufficient to constitute a cause of action is OVERRULED. (See Warren, supra, 19 Cal.App.3d at p. 29; see also PH II, Inc., supra, 33 Cal.App.4th at p. 1682.)