Chicago Board of Realtors v. City of Chicago
819 F.2d 732 (1987)
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Rule of Law:
A municipal ordinance regulating the landlord-tenant relationship does not violate the Contract Clause or Substantive Due Process Clause if the legislation is rationally related to a legitimate public purpose, even if it impairs existing contractual obligations in a heavily regulated field.
Facts:
- On September 8, 1986, the Chicago City Council enacted the Chicago Residential Landlord and Tenant Ordinance.
- The ordinance's stated purpose was to protect and promote public health, safety, and welfare, and to improve the quality of housing in the city.
- The ordinance imposed new requirements on landlords, including a $10 per month cap on late rent fees and a requirement to hold security deposits in interest-bearing accounts located in Illinois.
- It also granted new remedies to tenants, such as the right to withhold rent for a landlord's material noncompliance with the lease and the right to make minor repairs and deduct the cost from rent.
- The ordinance applied to most rental units in Chicago and governed leases entered into or to be performed after October 15, 1986, thereby affecting pre-existing contracts.
- The ordinance exempted several categories of dwellings, including owner-occupied buildings with six or fewer units.
- A group of Chicago property owners, managers, and their representative organizations were subject to these new regulations.
Procedural Posture:
- Plaintiffs, a group of Chicago property owners and their organizations, sued the City of Chicago in the U.S. District Court.
- Plaintiffs challenged the constitutionality of the Chicago Residential Landlord and Tenant Ordinance and sought a temporary restraining order (TRO) and a preliminary injunction to prevent its enforcement.
- The district court issued a TRO on October 14, 1986.
- On November 3, 1986, after a hearing, the district court denied the plaintiffs' motion for a preliminary injunction and dissolved the TRO.
- Plaintiffs, as appellants, filed an immediate interlocutory appeal to the U.S. Court of Appeals for the Seventh Circuit, challenging the district court's denial of the preliminary injunction.
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Issue:
Does a municipal ordinance that imposes new obligations on landlords and grants new rights to tenants, thereby altering existing lease agreements, violate the U.S. Constitution's Contract Clause or Due Process Clause when the ordinance is enacted to protect public health, safety, and welfare?
Opinions:
Majority - Cudahy, J.
No. A municipal ordinance that adjusts the burdens and benefits of an economic relationship does not violate the Contract Clause or Due Process Clause where it serves a significant and legitimate public purpose through reasonable and appropriate means. The court applied a three-part test for the Contract Clause claim, finding that while the ordinance may impose a substantial impairment, the landlord-tenant field is already heavily regulated, justifying a lower level of scrutiny. The city's stated purpose of improving housing quality and public welfare is a legitimate public purpose. Given the deference afforded to legislative judgments on economic and social regulation, the Ordinance represents a rational allocation of rights and responsibilities to achieve that purpose. The ordinance also survives challenges based on procedural due process (adequate post-deprivation remedies exist), vagueness (the terms are sufficiently clear for an economic regulation), substantive due process (it is not arbitrary or irrational), and equal protection (the exemptions have a rational basis).
Concurring - Posner, J.
No. Although the ordinance is an economically unsound and unreasonable piece of special-interest legislation likely to harm the very tenants it purports to help, it does not violate the Constitution under modern, deferential judicial standards. The Contract Clause has been effectively weakened by Supreme Court precedent, which now applies a forgiving standard of reasonableness, particularly in heavily regulated fields. The doctrine of substantive due process, once used to protect freedom of contract, no longer applies to economic regulation; courts will not invalidate such legislation merely because it is unwise. The plaintiffs have brought their case in the wrong era, as current constitutional interpretation does not provide robust protection for economic liberties against legislative interference. Therefore, while the ordinance is poor public policy, it is not unconstitutional.
Analysis:
This case exemplifies the modern judiciary's high degree of deference to legislative bodies in matters of economic and social regulation. It affirms that the Contract Clause and Substantive Due Process Clause provide minimal protection against laws that alter economic relationships, so long as the legislature can articulate a rational basis related to public welfare. The influential concurring opinion by Judge Posner provides a powerful law-and-economics critique, arguing that the ordinance is counterproductive but nonetheless constitutional, highlighting the deep-seated tension between judicial review of economic policy and established legal precedent. The decision solidifies the principle that courts will not act as 'super-legislatures' to second-guess the wisdom of economic regulations, effectively closing the door on the type of challenges that were successful in the Lochner era.
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