Fletcher Props. v. City of Minneapolis

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Fletcher Properties, Inc., et al., Appellants, v. City of Minneapolis, Respondent, Poverty & Race Research Action Council, et al., Respondents, HOME Line, Respondent.

No. A23-0191

Court of Appeals of Minnesota

January 16, 2024

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

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

Kristyn Anderson, Minneapolis City Attorney, Kristin R Sarff, Tracey N. Fussy, Assistant City Attorney, Minneapolis Minnesota (for respondent City of Minneapolis)

John D. Cann, Housing Justice Center, St. Paul, Minnesota (for respondents Poverty & Race Research Action Council and Housing Justice Center)

Lawrence McDonough, Samuel Spaid, Daniel P. Suitor, HOME Line, Bloomington, Minnesota (for respondent HOME Line) Considered and decided by Johnson, Presiding Judge; Frisch, Judge; and Kirk, Judge. ^[*]

SYLLABUS

1. On its face, the Minneapolis city ordinance addressing housing discrimination based on public assistance does not appropriate private property or a landlord's right to exclude others from private property, and therefore does not constitute a per se physical taking in all applications.

2. The Minneapolis city ordinance addressing housing discrimination based on public assistance is not preempted by the state's anti-discrimination statute because the ordinance does not conflict with the statute, and the statute does not occupy the field of housing discrimination based on public assistance.

OPINION

FRISCH, Judge

Appellant-landlords challenge the summary-judgment dismissal of their facial challenge to a city ordinance aimed at preventing housing discrimination based on public assistance. They argue that the district court erred as a matter of law in concluding that the ordinance did not amount to a taking and was not preempted by state law. They also argue that the district court abused its discretion in allowing amici participation at summary judgment. We affirm because appellants' challenge to the ordinance on its face fails as a matter of law, the ordinance is not preempted by state law, and the district court did not abuse its discretion in allowing amici participation.

FACTS

This is the second appeal in this matter. Appellants Fletcher Properties, Inc., et al. (collectively Fletcher^[1]) commenced this action against respondent City of Minneapolis to challenge a Minneapolis civil-rights ordinance that makes it an unlawful discriminatory practice for a landlord to refuse to let to a tenant based on a public-assistance program or otherwise use a tenant's participation in the Section 8 Housing Choice Voucher (HCV or voucher) program as a motivating factor for refusing that tenant. Minneapolis, Minn., Code of Ordinances (MCO) § 139.40(e)(1) (2017) (the ordinance). Specifically, Fletcher argues the ordinance amounts to a taking under the Minnesota Constitution and is preempted by state law.

Public Housing in Minneapolis

The HCV program is a form of federally funded housing assistance that provides rent subsidies to eligible families. 42 U.S.C. § 1437f(o) (2018); 24 C.F.R. § 982.1(a) (2023). In Minneapolis, the Minneapolis Public Housing Authority (MPHA) administers the HCV program on behalf of the United States Department of Housing and Urban Development (HUD). As of 2018, the MPHA managed approximately 4,870 vouchers per year, and those vouchers benefited approximately 17,000 people. Most of the vouchers were tenant-based, meaning the HCV holder selects a unit, but about 700-800 of the vouchers were project-based, meaning they were attached to a particular rental unit or building. 42 U.S.C. § 1437f(f)(6)-(7) (2018); 24 C.F.R. § 982.1(b) (2023) (defining "tenant-based" and "project-based" assistance).

In 2018, the then-director of HCV programs at the MPHA testified that the rate of vacant apartments for low-income households in Minneapolis was about 2-3%. The director also testified that the placement rate for HCV holders was high-almost 95%.

An HCV holder pays a portion of fair-market rent for a unit, usually about 30% of their income, and the remainder is subsidized and in turn paid directly to the landlord by HUD through the MPHA. The payment from the MPHA to the landlord is governed by a housing-assistance payment (HAP) contract that the landlord enters into with the MPHA. The HAP contract provides that the MPHA may change the amount it pays to a landlord during the contract term upon notice. The HAP contract also provides that a lease must include a tenancy addendum and establishes a default initial one-year lease term. Under the HAP contract, the MPHA must consent to the sale of the property and a new owner must agree to take the property subject to the HAP contract.

Prior to an HCV holder renting a unit, the MPHA conducts an inspection to determine if the unit meets HCV housing quality standards. An inspection must also be conducted for each renewal of the lease and failing a housing-quality-standards inspection can result in rent abatement.

Minneapolis rental property is also subject to city and state regulations that may require property inspections, including the Minneapolis housing code, the state fire code, and the state building code. And Minneapolis rental property is subject to other federal, state, and local regulation.

The Ordinance

The ordinance provides that it is an "unlawful discriminatory practice" for a landlord or any agent of a landlord to use "status with regard to a public assistance program, or 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." MCO § 139.40(e)(1).

The ordinance provides that 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). Whether a landlord qualifies for an "undue hardship" defense is determined after a 270-day process, and the result applies to a single case. A finding of discrimination results in a civil penalty paid to the city and may result in compensatory and punitive damages paid to the aggrieved party and/or an order to rent the unit to the aggrieved party. MCO § 141.50(r) (2017).

Landlords may screen applicants as permitted by the applicable public-assistance housing program or other nondiscriminatory criteria. MCO § 139.30(c) (2017). Landlords participating in the HCV program also have access to a landlord incentive fund, which permits landlords to request a $500-2,500 reimbursement for damage to property in excess of a security deposit.

This Action

In June 2017, Fletcher filed a complaint against the city seeking declaratory and injunctive relief and alleging five counts (1) the ordinance is preempted by state law; (2) the ordinance violates due process in violation of the Minnesota Constitution (due-process claim); (3) the ordinance constitutes a taking under the Minnesota Constitution (takings claim); (4) the ordinance is an unlawful interference with freedom of contract (freedom-of-contract claim); and (5) the ordinance violates equal-protection rights under the Minnesota Constitution (equal-protection claim).

Upon cross-motions for summary judgment, the district court granted Fletcher's motion and denied the city's motion on the basis that the ordinance violates due-process and equal-protection rights under the Minnesota Constitution. The district court enjoined the city from enforcing portions of the ordinance and found the remainder of Fletcher's claims moot.

The city appealed the decision, and Fletcher cross-appealed. We reversed the district court's ruling on Fletcher's due-process and equal-protection claims, and the supreme court affirmed. Fletcher Props., Inc. v. City of Minneapolis, 947 N.W.2d 1 (Minn. 2020); Fletcher Props., Inc. v. City of Minneapolis, 931 N.W.2d 410 (Minn.App. 2019). On remand, the district court dissolved the permanent injunction and issued a temporary injunction.

In August 2022, the city renewed its motion for summary judgment on the remaining claims: the takings claim, the preemption claim, and the freedom-of-contract claim. Fletcher opposed the city's motion and cross-moved for summary judgment on its takings and preemption claims. It asked the district court to dismiss its freedom-of-contract claim.

Housing Justice Center (HJC), Poverty &Race Research Action Council (PRRAC), and HOME Line (collectively, amici) each moved the district court for leave to file amicus briefs. Following a hearing on the motions for summary judgment and motions for leave, the district court granted the motions for leave and considered the amici submissions. The district court thereafter granted the city's motion for summary judgment...