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Chicago Board of Realtors Inc. v. City of Chicago

decided: May 14, 1987.


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 86 C 7763-James B. Parsons, Judge.

Cudahy, Posner and Easterbrook, Circuit Judges. Posner, Circuit Judge, concurs, with whom Easterbrook, Circuit Judge, joins.

Author: Cudahy

CUDAHY, Circuit Judge.

On September 8, 1986, the Chicago City Council enacted the Chicago Residential Landlord and Tenant Ordinance (the "Ordinance"), Municipal Code of Chicago, ch. 193.1 (repealing § 193.11), recasting the relative rights and obligations of most residential landlords and tenants in Chicago. On October 14, 1986, the day before the Ordinance was to become effective, this lawsuit began. Plaintiffs-appellants are Chicago property owners or managers and organizations representing their interests. Defendants-appellees are the City of Chicago and its Mayor. Also before the court are three individual tenants and nine organizations representing Chicago tenants.*fn1 Plaintiffs challenged the constitutionality of the Ordinance and sought a temporary restraining order and a preliminary injunction to prevent its enforcement. A TRO was issued on October 14. On November 3, the district court denied the preliminary injunction and dissolved the TRO, pending plaintiffs' immediate interlocutory appeal. We granted an expedited appeal schedule but denied plaintiffs' emergency motion for a stay and an injunction pending appeal. We now affirm the district court's denial of plaintiffs' motion for a preliminary injunction.

I. The Ordinance

The Ordinance, by its own terms, was passed by the Chicago City Council:

in order to protect and promote the public health, safety and welfare of its citizens, to establish the rights and obligations of the landlord and the tenant in the rental of dwelling units, and to encourage the landlord and the tenant to maintain and improve the quality of housing.

Ordinance, § 193.1-1. By its terms the Ordinance applies to all rental agreements for dwelling units located in Chicago, with exceptions for owner-occupied buildings of six or fewer units; dwelling units in hotels, motels, boarding houses and the like; accommodations in hospitals, not-for-profit shelters and school dormitories; and units in cooperatives occupied by holders of proprietary leases. Id. § 193.1-2. The Ordinance governs leases either entered into or to be performed after October 15, 1986.

Landlords are required to maintain dwelling units in compliance with all applicable municipal code provisions and with certain other specified standards. Id. § 193.1-7,-11. Landlords have the authority, after notice to the tenant, to terminate a lease if the tenant fails to pay rent or otherwise comply with lease requirements. If the landlord accepts the full rent due under a lease knowing that payments are in default, the landlord thereby waives the right to terminate the lease for that default. Id. § 193.1-13. Except in case of emergency, the landlord must provide notice two days before entering a unit for maintenance, repairs or inspections. Id. § 193.1-5.

After notice to the landlord, tenants are granted authority to withhold rent in an amount reflecting the reasonable value of any material noncompliance with the lease by the landlord. Alternatively, tenants can, again after notice, opt to repair certain minor defects or deficiencies and deduct their reasonable cost from the rent. Id. § 103.1-11. Tenants are required to keep their units clean and safe, to use appliances and utilities in a reasonable manner and to avoid disturbing neighbors' "peaceful enjoyment of the premises." Id. § 193.1-4.

The Ordinance prohibits a charge greater than ten dollars per month for late payment of rent. Id. § 193.1-14(h). In addition, all security deposits received after January 1, 1987 must be maintained in a federally insured account in a financial institution located in Illinois.

II. Preliminary Injunction Standards

In their ten-count complaint the plaintiffs allege that the Ordinance is unconstitutional; they seek a preliminary injunction against its enforcement. In the district court, Judge Parsons denied the motion for a preliminary injunction, concluding that the plaintiffs did not have a reasonable likelihood of prevailing on the merits of their complaint. In reviewing the denial of a preliminary injunction the question before us is whether the district court abused its discretion. See Lawson Prod., Inc. v. Avnet, Inc., 782 F.2d 1429, 1436-39 (7th Cir. 1986). A claim that a statute is unconstitutional on its face, of course, presents many issues that become pure questions of law. We independently review these questions of law in determining whether or not the district court abused its discretion in denying the preliminary injunction.

A plaintiff seeking a preliminary injunction must demonstrate: (1) a threat of irreparable harm without an adequate remedy at law; (2) some likelihood of success on the merits of the claim; (3) a balance of relative harm weighing in favor of granting the injunction; and (4) compatability of the injunction and the public interest. See A.J. Canfield Co. v. Vess Beverages, Inc., 796 F.2d 903, 906 (7th Cir. 1986)(citing Roland Mach. Corp. v. Dresser Indus., 749 F.2d 380, 386-88 (7th Cir. 1984)). This circuit has determined that a plaintiff must demonstrate at least "some probability" of success on the merits before a preliminary injunction can issue, see Brunswick Corp. v. Jones, 784 F.2d 271, 275 (7th Cir. 1986); accord Centurion Reinsurance Co. v. Singer, 810 F.2d 140, slip op. at at 7 (7th Cir. 1987) (if there is "only a very slight chance of prevailing," no injunction should issue); A.J. Canfield Co. v. Vess Beverages, Inc., 796 F.2d at 906 (if chance of prevailing is "less than negligible," no injunction should issue); Omega Satellite Prods. Co. v. City of Indianapolis, 694 F.2d 119, 123 (7th Cir. 1982) (if chance of prevailing is "better than negligible," then an injunction could issue). Reducing the standard of success-on-the-merits to a precise verbal formulation is difficult, a state of affairs which seems to emphasize the equitable nature of the entire preliminary injunction inquiry. See Lawson Prods. v. Avnet, 782 F.2d at 1441 (affirming the "traditional equitable factors governing injunctions"). Judge Parsons, after expedited hearings in the district court and a detailed consideration of the plaintiffs' several claims, concluded that the plaintiffs had not shown the requisite reasonable likelihood of prevailing on the merits. As indicated below, we agree.

III. Likelihood of Prevailing on the Merits

In the district court the plaintiffs argued that the Ordinance on its face violated the following constitutional doctrines or provisions: the contract clause, procedural due process, the void-for-vagueness doctrine, substantive due process, equal protection, the takings clause and the commerce clause. The plaintiffs also argued that the Ordinance was preempted by the Illinois Real Estate License Act of 1983, Ill. Rev. Stat. ch. 111, paras. 5801 et seq. (1985), and that enforcement of the Ordinance was or would be violative of the plaintiffs' civil rights protected under 42 U.S.C. § 1983 (1982). The district court concluded that the plaintiffs had not shown a reasonable likelihood of prevailing on any of these claims. The plaintiffs on appeal do not contest this ruling with respect to the takings clause and the commerce clause. We consider the remaining issues in turn.

A. The Contract Clause

The Constitution prohibits a state from passing "any . . . law impairing the Obligation of Contract," U.S. Const. art. I, § 10, cl. 1. The plaintiffs contend that the Ordinance violates this provision by destroying pre-existing contractual rights and bargained-for expectations contained in leases entered into before October 15, 1986. Despite the mandatory language of the contract clause, however, the Supreme Court has repeatedly affirmed that the clause does not abrogate a state's inherent power to protect the interests of its citizens. See Keystone Bituminous Coal Ass'n v. DeBenedictis, 480 U.S. 470, 107 S. Ct. 1232, 1251-53, 94 L. Ed. 2d 472 (1987); Energy Reserves Group v. Kansas Power & Light Co., 459 U.S. 400, 410, 74 L. Ed. 2d 569, 103 S. Ct. 697 (1983); Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 241, 57 L. Ed. 2d 727, 98 S. Ct. 2716 (1978); United States Trust Co. v. New Jersey, 431 U.S. 1, 16, 52 L. Ed. 2d 92, 97 S. Ct. 1505 (1977); Home Bldg. & Loan Ass'n v. Blaisdell, 290 U.S. 398, 434, 78 L. Ed. 413, 54 S. Ct. 231 (1934); Manigault v. Springs, 199 U.S. 473, 480, 50 L. Ed. 274, 26 S. Ct. 127 (1905). The Court has outlined a three-step inquiry to determine whether or not a law violates the contract clause. First, we must ask whether the Ordinance in fact operates as a substantial impairment of existing contractual relationships; second, we must inquire whether the city has a significant and legitimate public purpose justifying the Ordinance; and third, we must ask whether the effect of the Ordinance on contracts is reasonable and appropriate given the public purpose behind the Ordinance. See Energy Reserves Group, 459 U.S. at 411-12.

The aspects of the Ordinance that most affect existing contracts are, according to the plaintiffs, provisions that prohibit late payment charges larger than ten dollars per month, that require that security deposits be held in interest-bearing accounts, that require acceptance of subleases and that shift duties of repair from tenant to landlord. See Appellants' Brief at 37. The plaintiffs build their argument on Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 98 S. Ct. 2716, 57 L. Ed. 2d 727, which struck down as contrary to the contract clause a Minnesota statute imposing specific pension obligations on employers who either terminated an existing pension plan or closed an office in Minnesota. In Spannaus the Court found the Minnesota law unconstitutional by concluding that the law had a "severe" effect on contractual obligations, id. at 246, that the law was enacted to protect a narrow class rather than a broad societal interest, id. at 248-49, and that the law imposed a "sudden, totally unanticipated" change in contractual obligations, id. at 249. The plaintiffs urge that the Ordinance similarly operates as a severe, sudden and narrowly targeted alteration of contractual obligations.

We are not certain that the Ordinance causes only insubstantial changes in contractual relationships. The $10 cap on late payment fees alone may cost plaintiffs some $4 million in revenues. See Appellants' Brief at 46. Interest on security deposits is required from some landlords who previously were exempt. See Ill. Rev. Stat. ch. 80, para. 121 (1985) (requiring 5% annual interest only from landlords of property with 25 or more units). These cost burdens are difficult to characterize as insubstantial. But, in any event, the Supreme Court has suggested that a sort of sliding scale is appropriate. That is, the level of scrutiny given the law varies directly in accordance with the severity of the impairment of existing contracts, see Energy Reserves Group, 459 U.S. at 411; Spannaus, 438 U.S. at 245, and varies inversely in accordance with the degree of prior regulation in a particular field of activity, see Energy Reserves Group, 459 U.S. at 411; Spannaus, 438 U.S. at 242 n.13; Veix v. ...

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