California District Court Dismisses Constitutional Challenge to Los Angeles' Eviction Moratorium

I'm very excited to be able to write about a case arising under the Federal Constitution's Contracts Clause, U.S. Const. art. I, § 10, cl. 1.. Unfortunately, the resolution of the case turns on facts. 

In Iten v. County of Los Angeles, plaintiff landlord had been having problems with his tenant, including failure to pay rent and unauthorized changes to the property which resulted in building code violations, going back to 2015.  In March, 2020, Los Angeles imposed a moratorium on commercial real estate evictions that protected any tenant that claimed that it was adversely affected by the COVID-19 pandemic.  Plaintiff's tenant gave notice in April 2020 that it was "very adversely affected" by the epidemic and would not be able to pay rent.  The lease ended in August 2020.

Plaintiff then entered into a new, five-year lease with his tenant.  Tenant was obligated to pay base rent, plus $3200/month in past-due rent. A year later, tenant was still unable to pay rent and was $30,000 in arrears.  Plaintiff sued alleging that the moratorium on commercial evictions violated the Contracts Clause.

The U.S. Supreme Court has noted that, while the language of the Contracts Clause facially prohibits states from any impairment of contractual obligations, courts in fact weigh the private contracts against the states' inherent police powers.  Courts first determine whether state action effects a substantial impairment of contractual obligation.  If so, they look to whether the state has adopted a reasonable means of advancing a significant and legitimate public purpose.

In the context of a challenge to Los Angeles moratorium on residential evictions, the same court had found that the moratorium did constitute a substantial impairment for Contracts Clause purposes in Apartment Ass'n of Los Angeles Cnty., Inc. v. City of Los Angeles, 500 F. Supp. 3d 1088, 1094 (C.D. Cal. 2020), aff'd, 10 F.4th 905 (9th Cir. 2021). However, the court found this case distinguishable. The moratorium on residential leases was unforeseeable in its dramatic scope at the time the parties entered into their else agreement in Apartment Ass'n.  But here, plaintiff was on notice that such moratoria might apply, and in fact, one did apply at the time they entered into the contract.  The moratorium was extended on the very day the parties entered into their new lease.  The issue was whether plaintiff had a reasonable expectation that no moratorium would apply to the new lease, and the court held that plaintiff had no such reasonable expectation.  Finding that plaintiff could not have been surprised by the extension of the moratorium, the court ruled that there had been no impairment of a contractual obligation and dismissed the suit with prejudice.