Fisher v. City of Berkeley

475 U.S. 260, 106 S. Ct. 1045, 89 L. Ed. 2d 206, 1986 U.S. LEXIS 12

• Court: Supreme Court of the United States
• Decided: April 28, 1986
• Docket: 84-1538
• Status: Published

Opinions

Justice Marshall

delivered the opinion of the Court.

The question presented here is whether a rent control ordinance enacted by a municipality pursuant to popular initiative is unconstitutional because pre-empted by the Sherman Act.

I

In June 1980, the electorate of the city of Berkeley, California, enacted an initiative entitled “Ordinance 5261-N. S., Rent Stabilization and Eviction for Good Cause Ordinance” (hereafter Ordinance). Section 3 of the Ordinance stated the measure’s purposes:¹

“The purposes of this Ordinance are to regulate residential rent increases in the City of Berkeley and to protect tenants from unwarranted rent increases and arbitrary, discriminatory, or retaliatory evictions, in order to help maintain the diversity of the Berkeley community and to ensure compliance with legal obligations relating to the rental of housing. This legislation is designed to address the City of Berkeley’s housing crisis, preserve the public peace, health and safety, and advance the housing policies of the City with regard to low and fixed income persons, minorities, students, handicapped, and the aged.” App. to Juris. Statement A-111.

To accomplish these goals, the Ordinance places strict rent controls on all real property that “is being rented or is available for rent for residential use in whole or in part,” §5, id., at A-113. Excepted are government-owned units, transient units, cooperatives, hospitals, certain small owner-occupied buildings, and all newly constructed buildings. For the remaining units, numbering approximately 23,000, 37 Cal. 3d 644, 678, 693 P. 2d 261, 288 (1984), the Ordinance establishes a base rent ceiling reflecting the rents in effect at the end of May 1980. A landlord may raise his rents from these levels only pursuant to an annual general adjustment of rent ceilings by a Rent Stabilization Board of appointed commissioners or after he is successful in petitioning the Board for an individual adjustment. A landlord who fails to register with the Board units covered by the Ordinance or who fails to adhere to the maximum allowable rent set under the Ordinance may be fined by the Board, sued by his tenants, or have rent legally withheld from him. If his violations are willful, he may face criminal penalties.

Shortly after the passage of the initiative, appellants, a group of landlords owning rental property in Berkeley, brought this suit in California Superior Court, claiming, inter alia, that the Ordinance violates their rights under the Due Process and Equal Protection Clauses of the Fourteenth Amendment, and seeking declaratory and injunctive relief. The Superior Court upheld the Ordinance on its face, but was reversed by the Court of Appeal. While that appeal was pending, however, this Court’s decision in Community Communications Co. v. Boulder, 455 U. S. 40 (1982), led certain amici to raise the question whether the Ordinance was unconstitutional because pre-empted by the federal antitrust laws. When the California Supreme Court heard the appeal from the Court of Appeal’s decision, it therefore chose to consider plaintiffs’ pre-emption claim along with their Fourteenth Amendment challenge.

Although fully briefed on the question whether the Berkeley Ordinance constitutes state action exempt from antitrust scrutiny under the standard established in Boulder, supra, the California Supreme Court noted that consideration of this issue would become necessary only were there to be “ Truly a conflict between the Sherman Act and the challenged regulatory scheme,”’ 37 Cal. 3d, at 660, 693 P. 2d, at 275 (quoting First American Title Co. v. South Dakota Land Title Assn., 714 F. 2d 1439, 1452 (CA8 1983), cert. denied, 464 U. S. 1042 (1984)). Such a conflict would exist, the Supreme Court concluded, only if the Ordinance on its face mandated conduct prohibited by either § 1 or § 2 of the Sherman Act. See Rice v. Norman Williams Co., 458 U. S. 654, 661 (1982). After reviewing the two “traditional standards” that have consistently been used to determine whether conduct violates § 1 of the Sherman Act — the per se rules and the rule of reason, see National Society of Professional Engineers v. United States, 435 U. S. 679, 692 (1978)—the court concluded that both standards, with their exclusive focus on competition and concern for the selfish motives of private actors, failed to give due deference to a municipality’s legitimate interest in promoting public health, safety, and welfare. 37 Cal. 3d, at 667-673, 693 P. 2d, at 280-285. The Supreme Court therefore found both standards inappropriate and proceeded to apply a standard of its own devising, based upon this Court’s Commerce Clause cases. Applying this test, the court found no conflict between the Ordinance and either § 1 or § 2 of the Sherman Act.

We noted probable jurisdiction limited to the antitrust pre-emption question, 471 U. S. 1124 (1985), and now affirm, although on grounds different from those relied on by the California Supreme Court. While that court was correct in noting that consideration of state action is not necessary unless an actual conflict with the antitrust laws is established, we find traditional antitrust analysis adequate to resolve the issue presented here.

II

We begin by noting that appellants make no claim under either § 4 or § 16 of the Clayton Act, 15 U. S. C. §§ 15 and 15/26" style="color:var(--green);border-bottom:1px solid var(--green-border)">26, that the process by which the Rent Stabilization Ordinance was passed renders the Ordinance the product of an illegal “contract, combination ... , or conspiracy.” Appellants instead claim that, regardless of the manner of its enactment, the regulatory scheme established by the Ordinance, on its face, conflicts with the Sherman Act and therefore is preempted.

Recognizing that the function of government may often be to tamper with free markets, correcting their failures and aiding their victims, this Court noted in Rice v. Norman Williams Co., supra, that a “state statute is not pre-empted by the federal antitrust laws simply because the state scheme may have an anticompetitive effect,” id., at 659. See Exxon Corp. v. Governor of Maryland, 437 U. S. 117, 133 (1978). We have therefore held that a state statute should be struck down on pre-emption grounds “only if it mandates or authorizes conduct that necessarily constitutes a violation of the antitrust laws in all cases, or if it places irresistible pressure on a private party to violate the antitrust laws in order to comply with the statute.” 458 U. S., at 661.

While Rice involved a state statute rather than a municipal ordinance, the rule it established does not distinguish between the two. As in other pre-emption cases, the analysis is the same for the acts of both levels of government. See, e. g., White v. Massachusetts Council of Construction Employers, Inc., 460 U. S. 204 (1983). Only where legislation is found to conflict “irreconcilably” with the antitrust laws, Rice, supra, at 659, does the level of government responsible for its enactment become important. Legislation that would otherwise be pre-empted under Rice may nonetheless survive if it is found to be state action immune from antitrust scrutiny under Parker v. Brown, 317 U. S. 341 (1943). The ultimate source of that immunity can be only the State, not its subdivisions. See Community Communications Co. v. Boulder, supra, at 50-51; Lafayette v. Louisiana Power & Light Co., 435 U. S. 389, 412-413 (1978) (opinion of Brennan, J.).

A

Appellants argue that Berkeley’s Ordinance is pre-empted under Rice because it imposes rent ceilings across the entire rental market for residential units. Such a regime, they contend, clearly falls within the per se rule against price fixing, a rule that has been one of the settled points of antitrust enforcement since the earliest days of the Sherman Act, see Arizona v. Maricopa County Medical Society, 457 U. S. 332, 344-348 (1982); United States v. Socony-Vacuum Oil Co., 310 U. S. 150, 218 (1940). That the prices set here are ceilings rather than floors and that the public interest has been invoked to justify this stabilization should not, appellants argue, save Berkeley’s regulatory scheme from condemnation under the per se rule.

Certainly there is this much truth to appellants’ argument: Had the owners of residential rental property in Berkeley voluntarily banded together to stabilize rents in the city, their activities would not be saved from antitrust attack by claims that they had set reasonable prices out of solicitude for the welfare of their tenants. See National Society of Professional Engineers v. United States, supra, at 695; United States v. Trans-Missouri Freight Assn., 166 U. S. 290 (1897). Moreover, it cannot be denied that Berkeley’s Ordinance will affect the residential housing rental market in much the same way as would the philanthropic activities of this hypothetical trade association. What distinguishes the operation of Berkeley’s Ordinance from the activities of a benevolent landlords’ cartel is not that the Ordinance will necessarily have a different economic effect, but that the rent ceilings imposed by the Ordinance and maintained by the Rent Stabilization Board have been unilaterally imposed by government upon landlords to the exclusion of private control.

The distinction between unilateral and concerted action is critical here. Adhering to the language of § 1, this Court has always limited the reach of that provision to “unreasonable restraints of trade effected by a 'contract, combination . . . , or conspiracy’ between separate entities.” Copperweld Corp. v. Independence Tube Corp., 467 U. S. 752, 768 (1984) (emphasis in original). We have therefore deemed it “of considerable importance” that independent activity by a single entity be distinguished from a concerted effort by more than one entity to fix prices or otherwise restrain trade, Monsanto Co. v. Spray-Rite Service Corp., 465 U. S. 752, 763 (1984). Even where a single firm’s restraints directly affect prices and have the same economic effect as concerted action might have, there can be no liability under § 1 in the absence of agreement. Id., at 760-761; United States v. Parke, Davis & Co., 362 U. S. 29, 44 (1960). Thus, if the Berkeley Ordinance stabilizes rents without this element of concerted action, the program it establishes cannot run afoul of § 1.

Recognizing this concerted-action requirement, appellants argue that the Ordinance “forms a combination between [the city of Berkeley and its officials], on the one hand, and the property owners on the other. It also creates a horizontal combination among the landlords.” Reply Brief for Appellants 10, n. 7. In so arguing, appellants misconstrue the concerted-action requirement of §1. A restraint imposed unilaterally by government does not become concerted action within the meaning of the statute simply because it has a coercive effect upon parties who must obey the law. The ordinary relationship between the government and those who must obey its regulatory commands whether they wish to or not is not enough to establish a conspiracy. Similarly, the mere fact that all competing property owners must comply with the same provisions of the Ordinance is not enough to establish a conspiracy among landlords. Under Berkeley’s Ordinance, control over the maximum rent levels of every affected residential unit has been unilaterally removed from the owners of those properties and given to the Rent Stabilization Board. While the Board may choose to respond to an individual landlord’s petition for a special adjustment of a particular rent ceiling, it may decide not to. There is no meeting of the minds here. See American Tobacco Co. v. United States, 328 U. S. 781, 810 (1946), quoted in Monsanto, supra, at 764. The owners of residential property in Berkeley have no more freedom to resist the city’s rent controls than they do to violate any other local ordinance enforced by substantial sanctions.

B

Not all restraints imposed upon private actors by government units necessarily constitute unilateral action outside the purview of § 1. Certain restraints may be characterized as “hybrid,” in that nonmarket mechanisms merely enforce private marketing decisions. See Rice v. Norman Williams Co., 458 U. S., at 665 (Stevens, J., concurring in judgment). Where private actors are thus granted “a degree of private regulatory power,” id., at 666, n. 1, the regulatory scheme may be attacked under § 1. Indeed, this Court has twice found such hybrid restraints to violate the Sherman Act. See Schwegmann Bros. v. Calvert Distillers Corp., 341 U. S. 384 (1951); California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445 U. S. 97 (1980).

In Schwegmann, a Louisiana statute authorized a distributor to enforce agreements fixing minimum retail prices not only against parties to such contracts, but also against retailers who sold the distributor’s products without having agreed to the price restrictions. After finding that the statute went far beyond the now-repealed Miller-Tydings Act, which offered a limited antitrust exemption to certain “ ‘contracts or agreements prescribing minimum prices for the resale’” of specified commodities, the Court held that two liquor distributors had violated § 1 when they attempted to hold a retailer to the price-fixing terms of a contract it had refused to sign. In so holding, the Court noted that “when a state compels retailers to follow a parallel price policy, it demands private conduct which the Sherman Act forbids.” 341 U.S, at 389. However, under the Louisiana statute, both the selection of minimum price levels and the exclusive power to enforce those levels were left to the discretion of distributors. While the petitioner-retailer in that case may have been legally required to adhere to the levels so selected, the involvement of his suppliers in setting those prices made it impossible to characterize the regulation as unilateral action by the State of Louisiana.

The trade restraint condemned in Midcal entailed a similar degree of free participation by private economic actors. That case presented an antitrust challenge to California’s requirement that all wine producers, wholesalers, and rectifiers file fair trade contracts or price schedules with the State. If a wine producer did not set prices, wholesalers had to post a resale price schedule for that producer’s brands. No state-licensed wine merchant could sell wine to a retailer at other than those prices. 445 U. S., at 99. The Court found: “California’s system for wine pricing plainly constitutes resale price maintainance in violation of the Sherman Act.... The wine producer holds the power to prevent price competition by dictating the prices charged by wholesalers.” Id., at 103. Here again, the mere existence of legal compulsion did not turn California’s scheme into unilateral action by the State. The Court noted: “The State has no direct control over wine prices, and it does not review the reasonableness of the prices set by wine dealers.” Id., at 100.

The hybrid restraints condemned in Schwegmann and Midcal were thus quite different from the pure regulatory scheme imposed by Berkeley’s Ordinance. While the Ordinance does give tenants — certainly a group of interested private parties — some power to trigger the enforcement of its provisions, it places complete control over maximum rent levels exclusively in the hands of the Rent Stabilization Board. Not just the controls themselves but also the rent ceilings they mandate have been unilaterally imposed on the landlords by the city.

C

There may be cases in which what appears to be a state- or municipality-administered price stabilization scheme is really a private price-fixing conspiracy, concealed under a “gauzy cloak of state involvement,” Midcal, supra, at 106. This might occur even where prices are ostensibly under the absolute control of government officials. However, we have been given no indication that such corruption has tainted the rent controls imposed by Berkeley’s Ordinance. Adopted by popular initiative, the Ordinance can hardly be viewed as a cloak for any conspiracy among landlords or between the landlords and the municipality. Berkeley’s landlords have simply been deprived of the power freely to raise their rents. That is why they are here. And that is why their role in the stabilization program does not alter the restraint’s unilateral nature.²

Ill

Because under settled principles of antitrust law, the rent controls established by Berkeley’s Ordinance lack the element of concerted action needed before they can be characterized as a per se violation of § 1 of the Sherman Act, we cannot say that the Ordinance is facially inconsistent with the federal antitrust laws. See Rice v. Norman Williams Co., supra, at 661. We therefore need not address whether, even if the controls were to mandate § 1 violations, they would be exempt under the state-action doctrine from antitrust scrutiny. See Hallie v. Eau Claire, 471 U. S. 34 (1985).

The judgment of the California Supreme Court is

Affirmed.

1 In 1982, while this case was pending in the California Court of Appeal, the Berkeley electorate enacted the “Tenants’ Rights Amendments Act of 1982,” revising certain sections of the 1980 Ordinance. Like the California Supreme Court, we review the Ordinance as amended, see 37 Cal. 3d 644, 654, n. 2, 693 P. 2d 261, 270, n. 2 (1984); all reference herein will therefore be to the 1982 version of the Ordinance.

2 Though they have not pressed the point with any vigor in this Court, appellants have suggested that Berkeley’s rent controls constitute attempted monopolization because the city “is clearly engaged in the provision of housing in the public sector” and using the controls to depress the prices of residential properties as a prelude to taking them over. Tr. of Oral Arg. 14-15. As to this claim, we note only that the inquiry demanded by appellants’ allegations goes beyond the scope of the facial challenge presented here. See Rice v. Norman Williams Co., 458 U. S., at 661.