The United States Court of Appeals for the Ninth Circuit held that the district court erred in dismissing a lawsuit challenging a city ordinance that effectively banned group homes for alcoholics and drug users with an insurmountable regulatory scheme. The court of appeals found that the district court had disregarded evidence that the city’s sole objective in enacting and enforcing the ordinance was to discriminate against persons recovering from addiction, who are protected from housing discrimination under federal and state laws. (Pacific Shores Properties, LLC v. City of Newport Beach (--- F.3d ----, C.A.9 (Cal.), September 20, 2013).
In April 2007, the City of Newport Beach (“City”) contained 73 group homes including 48 licensed treatment facilities and 25 sober houses. Group homes for recovering alcoholics and drug users were generally permitted in residential zones within the City. At that time, there were also 801 outstanding short-term lodging permits, which the City had issued to owners of properties that were offered as vacation home rentals. After hostility among some residents began to arise over the number of group homes, the City formed a committee to identify ways it could regulate group homes. One proposed ordinance would impose a moratorium on establishing or operating “transitory uses” in residential districts, including short term lodging and group homes. Some citizens protested this proposal because it would apply to vacation homes. The City enacted the moratorium in April 2007 despite the protest. In May 2007, the City passed a revised moratorium that lifted the freeze on permits for short term lodging but continued to prohibit group homes.
Later, the City Council approved an ordinance that (1) “prohibits new group homes in most residential areas,” (2) “requires existing group homes in those areas to submit to a burdensome permit process,” and (3) subjects those seeking to establish group homes in the limited areas in which they are still permitted to operate to the same onerous permit process.” In response to advice from outside counsel that the City must regulate both short term lodging and group homes in order to avoid a constitutional challenge to the ordinance, the City included restrictions on other group living arrangements. However, the Council rejected a proposal to include those restrictions on vacation home rentals.
Three days after the deadline passed for pre-existing group homes to file a use permit application under the new ordinance, the City served abatement notices on every group home that had not applied. However, “[n]o abatement notices were sent to any other non-conforming business or individual although the City was aware of certain non-conforming commercial entities located in residential areas.” The permit application was costly and time-consuming. By February 2009, approximately one-third of the group homes were either closed or about to be closed. Only four group homes were granted use permits by March 2010 and two others obtained reasonable accommodations. Three group homes (“Group Homes”) reported a decline in revenues of between 40% and 50% after the enactment of the ordinance. The Group Homes brought lawsuits against the City alleging discrimination under the Americans with Disabilities Act, the federal Fair Housing Act (“FHA”), California Fair Employment and Housing Act, the Equal Protection Clause, and other state and federal laws. The trial court granted summary judgment in favor of the City.
The court of appeals reversed the decision of the trial court and held that the Group Homes could proceed with their lawsuit. The FHA makes it unlawful to discriminate in the sale or rental of a dwelling to a buyer or renter because of a handicap. Persons who are recovering from addiction are disabled within the meaning of the FHA and are protected from housing discrimination. Zoning practices that discriminate against disabled individuals can violate the FHA. Also, the FHA prohibits discriminatory actions that adversely affect the availability of group homes.
The ordinance did not on its face single out group homes for disparate treatment because it also imposed restrictions on other group living arrangements. The ordinance, however, did not impose regulations on vacation homes that are rented to tourists. The Group Homes presented evidence that the ordinance was enacted “to exclude group homes from most residential districts and to bring about the closure of existing group homes in those areas.” They also presented evidence that other types of group residential arrangements were included in the ordinance so that the City could maintain “a veneer of neutrality.”
The court found that where there is either direct or circumstantial evidence that a defendant acted with a discriminatory purpose and harmed “members of a protected class, such evidence is sufficient to permit the protected individuals to proceed to trial under a disparate treatment theory.” The court concluded that “[t]his is no less true where, as here, the defendant is willing to harm certain similarly-situated individuals who are not members of the disfavored group in order to accomplish a discriminatory objective, while preserving the appearance of neutrality.”
“The principle that overdiscrimination is prohibited undergirds all of constitutional and statutory antidiscrimination law, although it often goes unsaid precisely because it is so foundational.” Although discriminatory laws, policies, or actions can have a negative impact on persons who are not part of the disfavored group, this does not “change the fact that such laws, policies, or actions are discriminatory when they are undertaken for the purpose of harming protected individuals.” Here, the legislative history of the ordinance shows it was enacted to reduce or eliminate the number of group homes in the City. The court concluded that a jury could find that the ordinance’s primary purpose “was to shut down group homes and prevent new ones from opening in Newport Beach, but to do so in facially neutral terms to avoid invalidation by a court.” Although other group residential facilities were adversely affected by the ordinance, “all group homes were ultimately affected by the ordinance and few other facilities were.”
The court found that the Group Homes raised a triable issue of fact regarding whether the City enacted the ordinance “with a discriminatory purpose of harming group homes and, therefore limiting the housing options available to disabled individuals recovering from addiction.” The court further held that the Group Homes raised a triable issue of fact as to whether the damages suffered by their businesses were caused by the enactment and enforcement of the ordinance. The Group Homes provided evidence that they incurred costs complying with the ordinance, they lost income due to the business climate after the ordinance was enacted, and they incurred costs associated with counteracting the impression that group homes were being shut down by the City.