The Chicago Board of Realtors, Inc. v. The City of Chicago, a Municipal Corporation of the State of Illinois, and the Mayor of the City of Chicago

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. 1 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 3,1986, 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.

*735 IL 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 Prods., 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, 145 (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, ¶11 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, - U.S. -, 107 *736 S.Ct. 1232, 1251-53, 94 L.Ed.2d 472 (1987); Energy Reserves Group v. Kansas Power & Light Co., 459 U.S. 400, 410, 103 S.Ct. 697, 703, 74 L.Ed.2d 569 (1983); Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 241, 98 S.Ct. 2716, 2720, 57 L.Ed.2d 727 (1978); United States Trust Co. v. New Jersey, 431 U.S. 1, 16, 97 S.Ct. 1505, 1514, 52 L.Ed.2d 92 (1977); Home Bldg. & Loan Ass’n v. Blaisdell, 290 U.S. 398, 434, 54 S.Ct. 231, 238, 78 L.Ed. 413 (1934); Manigault v. Springs, 199 U.S. 473, 480, 26 S.Ct. 127, 130, 50 L.Ed. 274 (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, 103 S.Ct. at 704-05.

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, 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, 98 S.Ct. at 2723, that the law was enacted to protect a narrow class rather than a broad societal interest, id. at 248-29, 98 S.Ct. at 2724-25, and that the law imposed a “sudden, totally unanticipated” change in contractual obligations, id. at 249, 98 S.Ct. at 2725. 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, U 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. 411, 103 S.Ct. at 704; Spannaus, 438 U.S. at 245, 98 S.Ct. at 2723, 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, 103 S.Ct. at 704; Spannaus, 438 U.S. at 242 n. 13, 98 S.Ct. at 2721 n. 13; Veix v. Sixth Ward Bldg. & Loan Ass’n, 310 U.S. 32, 38, 60 S.Ct. 792, 794, 84 L.Ed. 1061 (1940) (“When he purchased into an enterprise already regulated in the particular to which he now objects, he purchased subject to further legislation upon the same topic.”).

We are certain that the landlord-tenant relationship is, if nothing else, heavily regulated. The plaintiffs suggest that the only Illinois regulation “affecting the landlord-tenant relationship” is the Forcible Entry and Detainer Act, governing recovery of rent or possession. Ill.Rev.Stat. ch. 110, ¶ 9-201 et seq. (1985). This suggestion is insupportable. Scores of state laws and common law tenets define relative rights and obligations of landlord and tenants. See, e.g., Jack Spring, Inc. v. Little, 50 Ill.2d 351, 280 N.E.2d 208 (1972); South Austin Realty Ass’n v. Sombright, 47 Ill. App.3d 89, 5 Ill.Dec. 472, 361 N.E.2d 795 *737 (1st Dist.1977); Ill.Rev.Stat. ch. 24, ¶¶ 11-13-15; ch. 30, ¶¶ 301 et seq.-, ch. 68, n 1-101 et seq-, ch. 80, ¶¶ 62-63, ¶71; ¶¶1121-123; ch. 110, ¶1¶ 9-101 et seq.; ch. 110, ¶¶ 2-1301(c), ¶ 9-108; cf. Intervenor-Defendants’ Brief at 12 n. *, 31-32. The state has previously defined obligations in the same areas as those in which the plaintiffs have entered challenges. See, e.g., Ill.Rev.Stat. ch. 80, ¶121 (requiring interest on certain security deposits); Jack Spring, 50 I11.2d 351, 280 N.E.2d 208 (creating right to withhold rent for landlord’s failure to maintain premises). The extent of this pri- or regulation suggests that the Ordinance in fact might not substantially impair any contract obligations. Cf. Troy Ltd. v. Renna, 727 F.2d 287, 297 (3d Cir.1984) (suggesting no impairment of contract in tenancy law that merely “enlarged ... a preexisting statutory” right to continued tenancy); Rue-Ell Enters. v. City of Berkeley, 147 Cal.App.3d 81, 194 Cal.Rptr. 919 (1st Dist.1981). At the least, prior regulation dictates a lowered level of scrutiny.

With a relaxed level of scrutiny, then, we ask whether legitimate and significant purposes support the Ordinance and the contractual impairments that it works. The plaintiffs suggest that the actual purpose behind the Ordinance is simply to “provide[ ] one group with an economic advantage over another group,” Appellants’ Reply Brief at 17, rather than to protect the public health or welfare. Of course, regulatory legislation may frequently tip the economic scales but at the same time serve entirely legitimate purposes. The expressed purpose of the Ordinance is to promote public health and welfare by improving the quality of housing in the city. The city apparently concluded that this purpose could be furthered by enacting the Ordinance and redefining some rights and obligations for landlords and tenants. On the record before us, we cannot say that the Ordinance is without a legitimate and significant public purpose.

With respect to the third step of the inquiry, we note at the outset that, when the state or its agent is not a party to the contract impaired by the challenged law, the court’s scrutiny is relaxed. See Keystone Bituminous Coal Ass’n, 107 S.Ct. at 1253; Energy Reserves Group, 459 U.S. at 412 n. 14, 103 S.Ct. at 705 n. 14. The question whether the Ordinance is reasonable and appropriate in light of its intended public purpose brings to mind an earlier era when courts aggressively reviewed the appropriateness of economic regulations under the rubric of substantive due process. See Lochner v. New York, 198 U.S. 45, 25 S.Ct. 539, 49 L.Ed. 937 (1905). The Supreme Court has recently cautioned that, unless the state itself is a contracting party» “Ms is customary in reviewing economic and social regulation ... courts properly defer to legislative judgment as to the necessity and reasonableness of a particular measure.” United States Trust Co. v. New Jersey, 431 U.S. at 22-23, 97 S.Ct. at 1517-18; accord Keystone Bituminous Coal Ass’n, 107 S.Ct. at 1253; Energy Reserves Group, 459 U.S. at 412-13, 103 S.Ct. at 705. In any event, and certainly without passing judgment on its advisability, we believe that the Ordinance may represent a rational allocation of rights and responsibilities between landlords and tenants. This is an allocation that the city rationally could have believed would lead to improved public health and welfare.

Accordingly, we agree with the district court that the plaintiffs did not show a reasonable probability of prevailing on their contract clause claim. We have found no case, and none has been cited to us, in which a similar landlord-tenant law has been found unconstitutional under the contract clause. The plaintiffs have failed to present persuasive reasons why the present Ordinance should not similarly pass muster. 2

*738 B. Procedural Due Process

The plaintiffs assert that the Ordinance deprives them of protected property rights without procedural due process as guaranteed by the fourteenth amendment. The essence of this argument seems to be that the Ordinance is unconstitutional because it delegates to tenants — inherently biased de-cisionmakers — a broad discretion to withhold rent while retaining possession of a landlord’s property. See Appellants’ Brief at 13 (“It is the City’s failure to provide such [clear] standards and procedural protections in the Ordinance which deprives Plaintiffs of their right to procedural due process....”)

The first step in this inquiry, of course, is to determine what, if any, state action exists. We are not convinced that actions taken by tenants, pursuant to the Ordinance, comprise state action. A law that defines rights, obligations or remedies among private parties does not thereby transform every private enforcement of that law into state action. See Blum v. Yaretsky, 457 U.S. 991, 1003, 102 S.Ct. 2777, 2785, 73 L.Ed.2d 534 (1982). The Supreme Court considered the issue of what action by a private citizen constitutes state action in Flagg Brothers, Inc. v. Brooks, 436 U.S. 149, 98 S.Ct. 1729, 56 L.Ed.2d 185 (1978), where the Court held that a warehouseman’s forced sale of a debtor’s goods, pursuant to New York law, was not state action, because by merely delegating a power to resolve disputes, New York had not delegated any “exclusive public function.” Id. at 161, 98 S.Ct. at 1739. To the extent that the Ordinance shifts from the landlord to the tenant the power initially to determine whether the premises are in accordance with the lease terms (and with municipal standards embodied in the terms), the Ordinance has readjusted property rights. But this is not a delegation of an exclusive public function; it does not import state action into every action a tenant or landlord might take. We believe that neither a landlord’s unlawful lock-out of a tenant nor a tenant’s unlawful withholding of rent from a landlord would of itself involve state action. See Hinman v. Lincoln Towing Serv., Inc., 771 F.2d 189, 192-93 (7th Cir.1985) (regulation by state does not render towing company a state actor); Bernstein v. Lind-Waldock & Co., 738 F.2d 179, 186 (7th Cir.1984) (act of commodity exchange is not state action despite heavy regulation of the exchange and its undertaking some policy functions). This analysis does not end the matter, however, because the plaintiffs charge that the Ordinance itself, enacted by the City, works a deprivation of protected property rights.

The enactment of the Ordinance itself undoubtedly represents state action. The Ordinance, however, does not deprive the plaintiffs of rights in property without due process. The plaintiffs’ strongest argument is that the Ordinance provides inadequate post-deprivation remedies by which a landlord can challenge rent with-holdings and regain possession. But the Ordinance does not significantly alter the preexisting post-deprivation remedy, the Illinois Forcible Entry and Detainer Act, Ill. Rev.Stat. ch. 110, ¶19-101 et seq. Plaintiffs have not shown that the Forcible Entry and Detainer Act is an unconstitutionally slow or onerous procedure. Cf. Pleasure Driveway & Park Dist. v. Kurek, 27 Ill.App.3d 60, 325 N.E.2d 650 (3d Dist.1975) (Forcible Entry and Detainer Act comports with procedural due process). If the Ordinance had established a new post-deprivation procedure by which, for instance, a landlord could not recover possession for five years after a rent default, the plaintiffs would have a much stronger case.

The Ordinance prohibits a late payment penalty exceeding $10 per month. This undoubtedly will cost some landlords some money. But a law that imposes heavier economic burdens on some group of citizens is not thereby rendered unconstitutional. The procedure the landlords were due in this respect was accorded them — in the legislature. See Minnesota State Bd. for Community Colleges v. Knight, 465 U.S. 271, 104 S.Ct. 1058, 79 *739 L.Ed.2d 299 (1984); Bi-Metallic Investment Co. v. State Bd. of Equalization, 239 U.S. 441, 36 S.Ct. 141, 60 L.Ed. 372 (1915).

In addition, the Ordinance requires that landlords attach a copy of the Ordinance to each lease. It is inconceivable that this violates procedural due process.

We conclude that the Ordinance simply readjusts the balance in the longstanding landlord-tenant relationship. Nothing suggests that the Ordinance itself works a deprivation of property without procedural due process. Rather, the Ordinance appears merely to shift some bargaining power to the tenant. This in itself does not violate procedural due process. Cf. Fisher v. City of Berkeley, 37 Cal.3d 644, 693 P.2d 261, 209 Cal.Rptr. 682 (1984) (en banc) (upholding rent withholding procedures).

C. Void-for-Vagueness

The Ordinance establishes certain standards with which the leasing of residential property must comply. The plaintiffs argue that the standards provided are so vague as to violate due process. We disagree. When challenged on vagueness grounds, economic regulatory laws are subject to less stringent standards than are laws applicable, for example, to speech. Laws imposing only civil penalties and not threatening, for instance, rights of expression are not scrutinized with unusual vigor. See Village of Hoffman Estates v. The Flipside, Hoffman Estates, Inc., 455 U.S. 489, 498-99, 102 S.Ct. 1186, 1193-94, 71 L.Ed.2d 362 (1982). A facial challenge to the vagueness of a law that does not restrict constitutionally protected conduct can prevail “only if the enactment is imper-missibly vague in all of its applications.” Id. at 495, 102 S.Ct. at 1191.

In defining what constitutes a landlord’s “material noncompliance” with a lease, the Ordinance incorporates municipal laws and regulations and provides twenty-seven examples of what the term means. Ordinance, ch. 193.1-11. This is clear and detailed treatment; the provisions are not vague. In addition, the Ordinance prohibits an otherwise lawful entry into leased premises if the entry is accomplished in an “unreasonable manner,” id. ch. 193.1-6, and the Ordinance establishes an evidentia-ry presumption of retaliatory eviction in certain circumstances. Neither of these provisions fails to provide adequate warning of what violates the Ordinance, and both provisions sufficiently guide enforcement. The Ordinance is not unconstitutionally vague. It describes with adequate specificity the mutual rights and obligations of landlord and tenant.

D. Substantive Due Process

The heart of the plaintiffs’ attack on the Ordinance, if gauged by rhetorical passion, seems to involve substantive due process: “[Sjtripped of the platitudes, the Ordinance ... places the unprotected liberties of tenants above the protected property rights of landlords.... [The] Ordinance goes too far.” Appellants’ Reply Brief at 9-10. Likening the Ordinance to the felling of a forest of property rights, the plaintiffs warn: “As courts allow more trees to be felled for the sake of labels, who can predict which will be the last tree, leaving but a forest of stumps and decaying logs ... forever changing the fabric of our country.” Id. at 10.

Passionate concern is not, however, enough to demonstrate a violation of substantive due process. Legislative acts “adjusting the burdens and benefits of economic life” are presumed constitutional, and “the burden is on one complaining of a due process violation to establish that the legislature has acted in an arbitrary and irrational way.” Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 15, 96 S.Ct. 2882, 2892, 49 L.Ed.2d 752 (1976); see National R.R. Passenger Corp. v. Atchison, Topeka & Santa Fe Ry., 470 U.S. 451, 476-77, 105 S.Ct. 1441, 1457-58, 84 L.Ed.2d 432 (1985); Duke Power Co. v. Carolina Environmental Study Group, Inc., 438 U.S. 59, 82-84, 98 S.Ct. 2620, 2635-36, 57 L.Ed.2d 595 (1978); Miller v. City of Chicago, 774 F.2d 188, 195-96 (7th Cir.1985). We are quite sure that the city has the authority to legislate in order to regulate the landlord- *740 tenant relationship and promote better housing. See Ill. Const, art. VII, § 6(a); City of Evanston v. Create, Inc., 85 Ill.2d 101, 113, 51 Ill.Dec. 688, 421 N.E.2d 196 (1981). In its detailed assignment of relative rights and obligations, we believe, without appraising its wisdom, that the Ordinance is rationally related to, and directly purports to further, these legitimate purposes. We cannot say that substantive due process is violated.

E. Equal Protection

The Ordinance exempts several categories of dwellings from its coverage, such as owner-occupied buildings containing six or fewer dwelling units. Ordinance, ch. 193.1-2(a). The plaintiffs argue that this provision of the Ordinance violates the equal protection clause of the fourteenth amendment. We do not agree.

No one suggests that a suspect class is created (or a fundamental right affected) by the Ordinance, and no one disputes that a legitimate purpose underlies the Ordinance. Hence the legislation is presumed to be consistent with equal protection. City of New Orleans v. Dukes, 427 U.S. 297, 303, 96 S.Ct. 2513, 2516, 49 L.Ed.2d 511 (1976). The plaintiffs urge that the classification is so arbitrary and irrational as to violate equal protection. Doubtless, the classification carries considerable consequences — a landlord not subject to the Ordinance faces a significantly different regulatory framework from one who is covered. But plaintiffs must show that no set of facts reasonably could be conceived to establish a rational basis for the classification. United States R.R. Retirement Bd. v. Fritz, 449 U.S. 166, 179, 101 S.Ct. 453, 461,