Category Archives: lawsuit

Landlord for Medical Marijuana Dispensary Done in by Its Lease

A case from the Alameda County Superior court in California gives us a fascinating lesson on a very basic issue: Rely on a “standard lease” at your peril. I bet the plaintiffs in that case, landlords who leased commercial property to a medical marijuana dispensary, are ruing the day they used a canned lease. They lost their case.

Here’s the background. Possession, use, and sale of marijuana is a federal offense; but in California, the Compassionate Use Act gives patients and their suppliers immunity from state prosecution if they adhere to the provisions of the Act. In the California case, the landlord signed a lease with the Harborside collective many years before, allowing it to operate a dispensary. In recent years, the United States Attorneys in California began targeting cooperatives, on the grounds that they were in fact selling marijuana to just about anyone (no one can seriously dispute the ease of obtaining a medical marijuana card). The prosecutors cleverly used the cooperatives’ landlords as their hammer: The feds sent letters to the property owners, threatening civil forfeiture of their property if they continued to allow it to be used to further a federal crime. Many landlords sent eviction notices to their tenants, as did the Harborside landlord, but Harborside refused to move and the landlord was forced to file an eviction lawsuit.

The landlord lost—the case was dismissed. The eviction was based on a section of California law that provides for terminating a lease when the tenant has used the property for an “unlawful purpose.” (California Code of Civil Procedure §1161(4).) The court concluded that “unlawful purpose” must be understood solely with respect to state law, not federal law. Because the collective had complied with the provisions of the Compassionate Use Act, its activity was not “unlawful” under state law and the eviction could not be upheld under that section of the law.

The Harborside decision emphasized that the landlord was not basing its eviction on a breach of a private right of the landlord under the lease—namely, a clause prohibiting the tenant from disobeying all applicable laws. Of course, the landlord could hardly advance such a claim, because its own lease detailed the tenant’s anticipated use of the premises (as a dispensary).

Good residential leases specify grounds for termination, and explain that tenants must obey all applicable laws. Failure to obey all applicable laws is a ground for termination that is separate than using the property “for an illegal purpose.” The Harborside court wisely didn’t venture an opinion as to whether the case would have turned out differently had the basis for the suit been “failure to obey all applicable laws,” beyond pointing out the possibly fatal hurdle for the landlord of trying to argue this theory when the landlord knew full well at the outset what the tenant was about to do.

I’m sure you’re wondering—even if the landlord had no advance knowledge of his tenant’s use of the property, is there really any difference between “using the property for an illegal purpose” and “failing to obey all applicable laws?” Isn’t the issue the same—whose laws? We won’t know until a court decides this question.

But in the meantime—isn’t there a better way for a landlord to protect itself? Yes, and this gets us back to the drawbacks of that canned lease. The parties could have simply omitted the use clause, or simply described a “retail use” instead of giving specifics. That would have avoided the problem of having the landlord seek to evict based on behavior that he specifically approved of in the lease. The landlord could have insisted on the right to evict based on a violation of any law, federal included, and that would have been that. Not the best position to be in, as far as the tenants are concerned, but tenants in weak bargaining positions often agree to harsh terms and hold their breath. Conversely, landlords desperate to rent out their space might cut corners by using a canned lease form and renting to tenants whose activities are counter to federal law. Perhaps that’s what happened here.

No Harm, No Foul: Challenge to San Francisco’s Rent Control Ordinance Gets Tossed

In November of 2008, San Francisco voters passed Proposition M, which amended the City’s rent control ordinance by, among other things, making it illegal for landlords to try to get tenants to move out by offering them money, accompanied by threats or intimidation. A landlord’s association, joined by one landlord, sued the city in federal court, seeking to stop enforcement of the law by arguing in part that the measure restricted their free speech rights and failed to adequately describe the conduct that would be illegal. The trial court ruled in favor of the City; the association and landlord appealed to the Ninth Circuit Court of Appeals. The result: Victory for the City. The court dismissed the suit and even refused to give the association a second chance to get their complaint right. (Carrico et al v. City and County of San Francisco, 2011 DJDAR 13612.)

What’s the Problem?

Like many other rent control ordinances, the San Francisco law prohibits tenancy terminations unless they are based on one of the law’s enumerated “just causes,” or allowable reasons. These reasons include failure to pay rent, excessive damage, the owner’s need to move in, and so on. Just cause eviction protections are necessary in order to prevent landlords from terminating a tenancy in order to create a vacancy—and bumping the rent to market rates for the next tenant. Without just cause rules, the purpose of rent control could be easily avoided by landlord-initiated, constant tenant turnover.

Predictably, landlords saddled with long-term tenants or problematic tenants have looked for ways to oust these residents when none of the just cause reasons apply. Some landlords approach the problem in a business-like manner, offering buyouts that often amount to many thousands of dollars. Others use additional tactics, by threatening service cutbacks and lawsuits, or simply making life miserable, if the tenant won’t take the deal. Proposition M was intended to make such bad faith conduct a violation of the city’s ordinance.

The Landlords’ Complaint

The landlords’ association and the single landlord attacked Prop M on several fronts, most notably by arguing that it attempted to regulate their freedom of speech, and was unconstitutionally vague. The freedom of speech argument was tough—the ordinance regulated commercial speech, which enjoys less protection than speech that’s not connected with business. To pass muster, the City needed only show that it has a substantial interest in regulating the behavior at hand, and that the ordinance “materially advances” that interest in the narrowest manner possible. In short, the issue has to be really important, and scalpels, not sledge-hammers, are what’s needed. The trial judge sided with the City.

The second question of vagueness was also a loser for the landlords. The judge ruled that “bad faith” is a concept that’s generally understood and applied (many laws proscribe bad faith conduct, and they’re not overturned for that reason). Similarly, “threats,” “intimidation,” and “offers of payment” are understandable to a person of ordinary intelligence. The case was dismissed.

Adding Insult to Injury: This Case Should Never Have Been Allowed to Proceed

Appellate courts usually review the lower court’s decision, apply the law, and decide whether it was correct. They usually don’t bring up new arguments. But there’s one area of law that’s always fair game for discussion: Did the plaintiffs—the people bringing the lawsuit, in this case, the association and the single landlord—have the right to bring the lawsuit in the first place? This issue is known as “standing,” and it simply means that only those who have suffered actual or imminent harm as a result of the law can bring a lawsuit challenging it. Merely being subject to a law, and even feeling “chilled” by it, are not enough to confer standing.

Importantly, you don’t have to violate the law in order to have “suffered injury.” But if you haven’t violated the law yet, you do have to convince the judge that you’re about to, and that you’ll be harmed as a result. Here is where the landlords’ case fell apart—to show that they were about to be harmed by Prop M would have required the landlords to state that they intended to engage in rather unsavory behavior, and just needed to know “how much is too much.” They didn’t go there—but that was a fatal mistake.

The appellate court concluded that this failure to show actual or imminent harm should have doomed the case from the start. They vacated the lower court’s decision, and sent it back with instructions to dismiss it for lack of standing.

The Court Shouts

When cases fall apart, courts often give the parties a second chance to get it right. Complaints can be amended; cases can be dismissed “without prejudice,” which makes it possible to try again. Not here: The court’s decision ends with a remarkable, all-caps instruction: “VACATE AND REMAND WITH INSTRUCTIONS TO DISMISS FOR LACK OF JURISDICTION.” Ouch.

Who Has Benefited from Challenges to  Prop M?

Other challenges to Prop M have resulted in landlord victories. The proposition attempted to prohibit landlords from making repeated buy-out offers after the tenant has notified the landlord in writing that the tenant is no longer interested. A California state appellate court earlier invalidated that portion. Another section would have given San Francisco’s rent board the power to reduce rental payments to landlords who harass their tenants or coerce them to leave—that too was tossed, another win for landlords. (Larson v. City and County of San Francisco, 192 Cal.App.4th 1263 (2011).)

Standing Gets Its Day in Court

The question of standing—having the right to complain about a law—is also at the heart of the current legal tangle over Proposition 8, California’s anti-gay marriage law. In the same week that the rent control ordinance was issued, the California Supreme Court heard arguments on whether the backers of the proposition had standing to defend it in court (the state would normally defend a successful initiative, but both the governor and the attorney general refused to do so). Stay tuned for the results on that one.

Unluckiest Landlord: When Police Destroy Rental Property

It’s not every day that a federal appellate court addresses a state landlord-tenant matter, let alone writes an opinion that begins like this: “A landlord is lucky when he rents a dwelling he owns to a tenant who turns out to be pretty good. When he rents to a tenant who turns out to be fairly bad, he’s unlucky. And then there’s a landlord like Roland Johnson, who goes far beyond being merely unlucky. Johnson picked a doozy of a tenant—he rented to a fellow named Steven Avery.”

Who was Steven Avery? A convicted rapist who spent 18 years in a Wisconsin prison, but released after proving his innocence using DNA testing. His release prompted legal reforms, and he even sued the county for wrongful conviction. And for a while, he was Johnson’s tenant, living in a trailer at a salvage yard. It was there that he raped and murdered a young woman. Ironically, the case against him was proved using DNA evidence.

The police investigation that literally unearthed the evidence that would nail Avery was not conducted with kidd gloves. Searchers ripped up carpet, tore up walls, and jackhammered a concrete floor. Mr. Johnson, the hapless landlord, was left with more than the usual amount of damage after a typical tenancy. Mr. Johnson needed a responsible, deep pocket, and he set his sights on one, with lofty arguments—he sued the county for violations of his Fourth, Fifth, and Fourteenth Amendments rights.

But the federal court didn’t buy it. He lost on the Fourth Amendment claim when the court decided that the officers acted reasonably, even though they might have used less destructive means (such as a diamond- or carbon-bladed saw in place of the jackhammer). And his Fifth Amendment claim—that the government had deprived him of his property without just compensation—was a “non starter,” because the government had acted legally when serving its warrant. Sadly for Mr. Johnson, the state’s police power trumps the usual duty to compensate when taking or damaging private property.

Mr. Johnson was consoled with the suggestion that he look to state law for compensation. That might prove to be a cruel hint. Wisconsin does provide for suing government officials for property damage they cause, but such suits need to be filed within 120 days of the event. (Wisc. Stat. Ann. § 893.82.) It’s a bit late.

But maybe the federal judge was alluding to another state law remedy. Landlords can sue for damage when the security deposit is inadequate; all they need prove is that the tenants, or others on the property with their consent, caused damage beyond normal wear and tear. Although the cops were hardly there with Avery’s consent, an argument might be made that Avery, by committing a crime on the property, was setting in motion a foreseeable series of events that he should be held accountable for. In legalese, this is known as “proximate cause.” If the search and the damage it caused can be said to be a foreseeable consequence of the on-site crime, Johnson might have a case.

Of course, even a good legal theory is no guarantee of actually collecting what you win. Avery is off to prison and will surely remain there. But remember that unlawful conviction lawsuit filed over the first conviction, the one he was exonerated for? Apparently, it hasn’t settled, and it’s unlikely any judge or jury would give him a cent. But if Avery had collected, his landlord might have had a source for payment.

Last but not least—what about the landlord’s insurance policy? His property policy is subject to named exclusions, and a big one is damage caused by the seizure or destruction of property by government authorities. No help here, either.