Iten v. Cnty. of L.A.

81 F.4th 979

Howard ITEN, Plaintiff-Appellant, v. County of LOS ANGELES, Defendant-Appellee.

No. 22-55480

United States Court of Appeals, Ninth Circuit

Argued and Submitted April 10, 2023 Seattle, Washington

Filed August 30, 2023

Appeal from the United States District Court for the Central District of California Dean D. Pregerson, District Judge, Presiding, D.C. No. 2:21-cv-00486-DDP-JEM

Kathryn D. Valois (argued), Pacific Legal Foundation, Palm Beach Gardens, Florida; Lawrence G. Salzman and Damien M. Schiff, Pacific Legal Foundation, Sacramento, California; for Plaintiff-Appellant.

Edward L. Xanders (argued) and Timothy T. Coates, Greines Martin Stein & Richland LLP, Los Angeles, California; Andrew Baum and Jesse B. Levin, Glaser Weil Fink Howard Jordan & Shapiro LLP, Los Angeles, California; Sayuj Panicker, Senior Deputy County Counsel, Transportation Division; Dawn R. Harrison, Interim County Counsel; Los Angeles County Counsel's Office, Los Angeles, California; for Defendant-Appellee.

Before: Jay S. Bybee and Danielle J. Forrest, Circuit Judges, and Andrew P. Gordon,^* District Judge.

Opinion by Judge Bybee;

Partial Concurrence by Judge Gordon

OPINION

BYBEE, Circuit Judge:

In early 2020, following the outbreak of COVID-19, Los Angeles County passed the "Resolution of the Board of Supervisors of the County of Los Angeles Further Amending and Restating the Executive Order for an Eviction Moratorium During Existence of a Local Health Emergency Regarding Novel Coronavirus (COVID-19)" (the "Moratorium"). The Moratorium imposed temporary restrictions on certain residential and commercial tenant evictions. Moratorium § IV (July 14, 2021). It provided tenants with new affirmative defenses to eviction based on nonpayment of rent, prohibited landlords from charging late fees and interest, and imposed civil and criminal penalties to landlords who violate the Moratorium. Id. § V (July 14, 2021). Howard Iten, a commercial landlord, sued the County, arguing that the Moratorium impaired his lease, in violation of the Contracts Clause of the U.S. Constitution. U.S. Const. art. I, § 10, cl. 1. The district court found that Iten had not alleged an injury in fact and dismissed his complaint for lack of standing. We reverse and remand.

I

In March 2020, Los Angeles County declared a state of emergency due to the COVID-19 pandemic and issued an Executive Order that imposed a temporary moratorium on evictions for nonpayment of rent by tenants impacted by COVID-19. In April 2020, the Board expanded the Executive Order to include all incorporated cities within the County. Moratorium § IV(B). The County extended the Moratorium's end date several times and made other alterations that are immaterial to the case before us.

The Moratorium did not prohibit property owners from filing evictions in accordance with State law, but it provided tenants with an affirmative defense against eviction. Id. § X(C). The Moratorium provided that "[a] Tenant shall not be evicted for nonpayment of rent, late charges, interest, or any other fees accrued if the Tenant demonstrates an inability to pay rent . . . due to Financial Impacts Related to COVID-19." Id. § V(A)(1). To demonstrate such inability, the Tenant must have provided "notice to the Landlord within seven (7) days after the date that rent and/or such related charges were due, unless extenuating circumstances exist, that the Tenant is unable to pay." Id. For commercial tenants with nine employees or fewer, the tenants "may provide, and Landlords must accept, a self-certification of inability to pay rent." Id. § V(B)(2). The Moratorium also provided tenants with a year-long forbearance period after the Moratorium ends to pay overdue rent. Id. § V(C)(2). Additionally, the Moratorium prohibited the collection of late fees and interest for overdue moratorium-period rent. Id. § VII. It also prohibited landlords from harassing tenants, which was defined, in part, as attempting to evict tenants who are protected by the Moratorium "based upon facts which the Landlord has no reasonable cause to believe to be true or upon a legal theory which is untenable under the facts known to the Landlord." Id. § VIII(I). Landlords who failed to comply with the Moratorium are subject to criminal and civil penalties, including fines of up to $5,000 per day. Id. § X(A)-(C).

According to the complaint, Iten is a mechanic and retired auto repair shop owner. He is part-owner of a 2,600-square-foot commercial property located in Los Angeles County. In August 2015, Iten executed a five-year lease agreement, renting the property to a commercial tenant, who then subleased the space to an auto repair franchisee (the Tenant), who has fewer than ten employees. In April 2020, the Tenant notified Iten that he was "very adversely [a]ffected by Covid 19" and stopped paying rent. The Tenant paid no rent between April and August of 2020. With the five-year lease set to expire in August 2020, Iten negotiated a new five-year lease with the Tenant that included a promise to pay the back rent as well as future rent. The new lease commenced on September 1, 2020. The Tenant continued not paying rent.

In January 2021, Iten brought suit for declaratory relief under 28 U.S.C. §§ 2201-22 and for damages under 42 U.S.C. § 1983 on the grounds that the Moratorium violated his rights under the Contracts Clause. U.S. Const. art. I, § 10, cl. 1 ("No State shall . . . pass any . . . Law impairing the Obligation of Contracts."). Iten alleged that the Moratorium unreasonably impairs the obligations of his lease agreement with the Tenant. Specifically, Iten claimed that because of the Moratorium, he was prohibited from evicting his Tenant and attempting to recover past rent, late fees, or interest. He also claimed that at the end of the lease, he "would have preferred to end his business relationship with the Tenant," but that he "concluded [because of the Moratorium] that he had no prudent course of action open to him other than to negotiate a new lease with the Tenant so as to increase the chances of someday recovering the past-due rent."

The County moved to dismiss Iten's complaint, arguing that the Moratorium did not actually prohibit Iten from evicting his Tenant. The County argued that because the Tenant failed to provide monthly notices of his inability to pay rent or, alternatively, failed to articulate extenuating circumstances excusing him from providing those notices, the Tenant would not have qualified for the affirmative defense provided by the Moratorium. Iten was therefore free to evict the Tenant, and the Moratorium therefore did not injure Iten. The district court agreed and dismissed Iten's complaint for lack of standing but granted leave to amend.

Iten inquired from his Tenant whether there were extenuating circumstances to excuse the Tenant from making the monthly notices. The Tenant responded that, "yes" there were extenuating circumstances, and that the Tenant did not believe the Moratorium required him to provide monthly notices. With this new information, Iten amended his complaint.

The County again moved to dismiss, this time on the merits. The district court, sua sponte, raised the standing issue once more. The court reasoned that "if the Moratorium does not prevent [Iten] from evicting his tenant, then . . . the Moratorium cannot have caused [Iten] any injury, and he lacks standing to bring suit." Because Iten failed to allege that the "[T]enant gave timely notice of his inability to pay rent" or that the Tenant "specifically identified extenuating circumstances excus[ing] the [T]enant's failure to give notice . . . [,] the Moratorium's protections did not apply to [the Tenant]" and Iten "could not allege that the Moratorium caused him any injury." The district court concluded that Iten lacked standing to bring his suit. "Having dismissed for lack of jurisdiction," the district court declined to reach Iten's claims under the Contracts Clause.

II

The district court's dismissal without leave to amend is a final, appealable order. Gerritsen v. de la Madrid Hurtado, 819 F.2d 1511, 1514-15 (9th Cir. 1987). We review de novo an order granting a motion to dismiss for lack of standing. Southcentral Found. v. Alaska Native Tribal Health Consortium, 983 F.3d 411, 416-17 (9th Cir. 2020). We assume all Iten's allegations to be true and draw all reasonable inferences in his favor. Wolfe v. Strankman, 392 F.3d 358, 362 (9th Cir. 2004).

III

We will begin with a discussion of standing and then consider how to apply those rules in the context of a claim brought under the Contracts Clause.

A

Article III of the Constitution limits the "judicial Power" of the federal courts to "Cases, in Law and Equity, arising under this Constitution[ and] the Laws of the United States." U.S. Const. art. III, § 2, cl. 1. This provision, commonly referred to as the "case-or-controversy" requirement of Article III, is an independent constraint on the jurisdiction of federal courts. The "case-or-controversy" requirement states "fundamental limits on federal judicial power in our system of government. The Art. III doctrine that requires a litigant to have 'standing' to invoke the power of a federal court is perhaps the most important of these doctrines." Allen v. Wright, 468 U.S. 737, 750, 104 S.Ct. 3315, 82 L.Ed.2d 556 (1984); see also Raines v. Byrd, 521 U.S. 811, 818, 117 S.Ct. 2312, 138 L.Ed.2d 849 (1997). Accordingly, as the district court recognized, federal courts have a duty to raise, sua sponte, questions of standing before addressing the merits. Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998). To establish standing, a plaintiff must show (1) an "injury in fact," (2) a "causal connection between his injury and the conduct complained of," and (3) that his injury will " 'likely' . . . be 'redressed by a favorable decision.' " Lujan v. Defs. of Wildlife, 504 U.S. 555, 560, 561, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992) (q...