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Fletcher Properties, Inc. v. City of Minneapolis

Court of Appeals of Minnesota

June 10, 2019

Fletcher Properties, Inc., et al., Respondents,
v.
City of Minneapolis, Appellant.

          Hennepin County District Court File No. 27-CV-17-9410

          Inga K. Schuchard, Tamara O'Neill Moreland, Larkin Hoffman Daly & Lindgren Ltd., Minneapolis, Minnesota (for respondents)

          Susan L. Segal, Minneapolis City Attorney, Kristin R. Sarff, Tracey N. Fussy, Assistant City Attorneys, Minneapolis, Minnesota (for appellant)

          John Cann, Housing Justice Center, St. Paul, Minnesota; and Eric Dunn (pro hac vice), National Housing Law Project, Richmond, Virginia; and Philip Tegeler (pro hac vice), Poverty & Race Research Action Council, Washington, D.C. (for amici curiae Housing Justice Center, National Housing Law Project, and Poverty & Race Research Action Council)

          Considered and decided by Cochran, Presiding Judge; Hooten, Judge; and Reyes, Judge.

         SYLLABUS

         A city ordinance prohibiting landlords from refusing to rent to tenants with federal housing choice vouchers does not implicate a fundamental right.

          OPINION

          Cochran, Judge.

         Appellant City of Minneapolis (the city) challenges the district court's order granting summary judgment to respondents/cross-appellants Fletcher Properties, Inc., et al.[1] (collectively, Fletcher). The city argues that the district court erred in concluding that the city's 2017 amendments to Title 7 of the Minneapolis Code of Ordinances (the amendments) violate Fletcher's substantive-due-process and equal-protection rights under the Minnesota Constitution. By notice of related appeal, Fletcher argues that the district court erred in concluding that the amendments do not implicate a fundamental right and in applying the rational-basis test to Fletcher's constitutional claims. Because we conclude that the amendments do not implicate a fundamental right and Fletcher's constitutional claims are subject to rational-basis analysis, and because the amended ordinance meets the rational-basis test, we reverse and remand for the district court to conduct further proceedings.

         FACTS

         Section 8 of the United States Housing Act of 1937 (Section 8) provides, among other programs, tenant-based housing assistance through housing choice vouchers (vouchers). 42 U.S.C. §§ 1437f(b)(1)-(2), f(o) (2012 & Supp. V 2017). The Minneapolis Public Housing Authority (MPHA) administers the Section 8 program in Minneapolis. Under the Section 8 program, the MPHA determines the fair market rent for a rental unit and establishes payment standards that determine how much a voucher holder will pay toward the established fair market rent and how much the MPHA will subsidize.

         A 2016 survey of Minneapolis rental listings conducted by HOME Line, a nonprofit organization that provides legal advice to renters, revealed that only 57% of the particular listings surveyed were within rent limits that are affordable to voucher holders and, of those affordable listings, only 23% would accept vouchers.[2] The HOME Line survey also revealed that, of the limited properties accepting vouchers, the vast majority were concentrated in high-poverty zip codes in north Minneapolis.

         Each year the MPHA administers about 4, 870 vouchers, serving approximately 17, 000 people. Of those 17, 000 people, 53% are children, 84% are people of color, 78% are families headed by women, and 41% include households where someone has a disability. The average income for voucher holders is just over $15, 000. The inability to find housing is a daily occurrence for voucher holders. At any given time, about 250 voucher families are searching for housing in Minneapolis. Minneapolis has a tight rental market in general, with a vacancy rate of about 4%. There is even less availability for low-income households, with a vacancy rate of only about 2%. Some landlords explicitly state in their property advertisements that they will not accept vouchers.

         When a voucher holder identifies a qualifying rental unit, the MPHA conducts an inspection of the unit to determine whether it satisfies certain livability standards. If the unit passes the inspection, the MPHA enters into a payment agreement with the landlord by using a form known as a Housing Assistance Payment (HAP) contract. The MPHA must use the HAP contract or request approval from the U.S. Department of Housing and Urban Development to adapt the contract. The HAP contract has standardized language, is used nationally, and has been in effect for years. Hundreds of thousands of landlords have signed the agreement, and over 1, 000 landlords participating in the Section 8 program in Minneapolis have used the HAP contract.

         In June 2015, the city council published a notice of its intent to introduce amendments to its civil rights ordinance, prohibiting discrimination based on any requirement of public assistance programs, including the Section 8 program. Following the notice, the city council engaged in nearly two years of discussion, study, research, and listening sessions with those who might be affected by the amendment, including landlords, voucher holders, and the MPHA. The city's request for committee action identified increasing affordable housing opportunities for voucher holders as a goal of the amendments. The request for committee action noted that voucher holders experience "a denial of housing opportunities in high opportunity areas based on their use of rental subsid[ies]" and that "the [c]ity would like to broaden the opportunities for access to housing that is otherwise not affordable to families and individuals without a Housing Choice Voucher."

         In March 2017, the Minneapolis city council enacted amendments to its civil rights ordinance, Title 7 of the Minneapolis Code of Ordinances (the amended ordinance), with an effective date of May 1, 2018. Minneapolis, Minn., Ordinance No. 2017-010 (Apr. 1, 2017). In December 2017, the Minneapolis city council adopted Ordinance No. 2017-078, further amending the amended ordinance. Minneapolis, Minn., Ordinance No. 2017-078 (Dec. 16, 2017).[3]

         The final amendments make it an "unlawful discriminatory practice" for a landlord or any agent to use "any requirement of a public assistance program [as] a motivating factor" to "refuse to sell, rent or lease, or refuse to offer for sale, rental or lease; or to refuse to negotiate for the sale, rental, or lease of any real property." Minneapolis, Minn., Code of Ordinances (MCO) § 139.40(e)(1) (2017). Under the amended ordinance, a landlord's decision to refuse to rent a property for reasons related to the requirements of the Section 8 program constitutes an "unlawful discriminatory practice." Id. Thus, the amended ordinance prohibits landlords from declining to rent to voucher holders who meet the landlords' other requirements, even if the landlords have legitimate business reasons not to participate in the Section 8 program.

         Under the amended ordinance, a landlord has an affirmative defense to a claim that the landlord's refusal to rent property constitutes an unlawful discriminatory practice if "the refusal, denial, or withholding is due to a requirement of a public assistance program and that requirement would impose an undue hardship" on the landlord. Id. "Undue hardship" is defined as:

[A] situation requiring significant difficulty or expense when considered in light of a number of factors to be determined on a case-by-case basis. These factors include, but are not limited to:
(1) The nature and net cost of complying with any requirement of a public assistance program, taking into consideration existing property management processes;
(2) The overall financial resources of the landlord, taking into consideration the overall size of the business with respect to the number of its employees, and the number, type, and location of its housing stock; and
(3) The impact of complying with any requirement of a public assistance program upon the business and dwelling.

MCO § 139.20 (2017). In addition, the amended ordinance exempts four classes of rental properties from its anti-discrimination provisions related to public assistance programs: (1) a room in an owner-occupied single-family dwelling; (2) a single-family dwelling or single dwelling unit being rented for no more than 36 months by an owner who homesteaded the unit at the start of the rental period; (3) a unit of an owner-occupied duplex; and (4) a previously homesteaded property of an owner on active military duty. MCO § 139.30(b)(1)-(4) (2017).

         When the city council passed the amendments, it also directed staff to report on the development of a landlord incentive fund to offset property-damage claims by landlords. The fund went into effect on January 1, 2018, and allows a landlord renting to a voucher holder to request reimbursement for damage in excess of the security deposit.

         In June 2017, Fletcher filed a complaint seeking a declaration that the amended ordinance is unlawful and violates the Minnesota Constitution. Fletcher moved for summary judgment, arguing that (1) the amended ordinance is preempted by Minnesota law, (2) the amended ordinance deprives Fletcher of its right to substantive due process, (3) the amended ordinance deprives Fletcher of its right to equal protection under the law, (4) the amended ordinance constitutes an unlawful regulatory taking, and (5) the amended ordinance deprives Fletcher of its right to freedom of contract. The city filed a cross-motion for summary judgment. The district court granted Fletcher's summary-judgment motion and denied the city's summary-judgment motion, concluding that the amended ordinance deprives Fletcher of its rights to substantive due process and equal protection under the Minnesota Constitution. The district court did not address Fletcher's other claims. In a subsequent order, the district court enjoined the city from enforcing the provisions of the amended ordinance that it found to be unconstitutional and held that Fletcher's other three claims are moot. This appeal follows.

         ISSUES

I. Do the amendments implicate a fundamental right?
II. Did the district court err in concluding that the amended ordinance violates Fletcher's substantive-due-process rights under the Minnesota Constitution?
III. Did the district court err in concluding that the amended ordinance violates Fletcher's equal-protection rights under the Minnesota Constitution?
IV. Did the district court err in concluding that Fletcher's other ...

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