6. In other cases, despite the burdens, property-owners may be perfectly willing to participate in the rental market generally, but they nevertheless have individual units that remain vacant for an extended period for a variety of reasons. For some, despite diligent marketing of available units by the property-owner, recent changes in the real estate market (the COVID-19 pandemic’s effect on jobs in San Francisco, inflation, etc.) have made it considerably more difficult to rent out units in some parts of the City, and drastically slashing the rents in an attempt to fill such units often would mean—given San Francisco’s strict rent control laws—accepting submarket rents indefinitely. They have no obligation to do so—the Constitution and the Ellis Act protect their right not to rent the units until they are ready to do so.2
7. In other cases, the difficulty in renting is due to circumstances beyond the owners’ control, for example, deteriorating circumstances in the surrounding neighborhood due to crime, homelessness, and trash; or long delays in making needed 2 Constitutionally, there is no distinction to be made between property-owners who wish to keep their units vacant indefinitely, such as those who don’t want to be landlords at all, and those who may wish to (or have to) keep their units vacant in the short term with the intention of eventually renting them out again when circumstances permit. The Supreme Court has held that a government-compelled invasion of the right to exclude strangers from one’s property is a compensable physical takings even if is only compelled for a limited time, see Cedar Point Nursery v. Hassid, 141 S. Ct. 2063, 2075 (2021), and it has further held that a property-owner cannot be forced to give up the right to rent his or her property in the future as a condition of avoiding a government-compelled occupation of the property now. Yee, 503 U.S. at 531 (“a landlord’s ability to rent his property may not be conditioned on his forfeiting the right to compensation for a physical occupation” (quoting Loretto, 458 U.S. at 439 n.17)).
Attachment 10
Council Regular Meeting, 4/18/2023, Item No. 9., Item Page 117, Packet Page 291 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ COMPLAINT – REVERSE VALIDATION PROCEEDING CASE NO. ___________________ [CODE OF CIVIL PROCEDURE 860, ET SEQ.] Page 5
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repairs or renovations to the units they own due to municipal bureaucracy,3 supply chain issues, labor shortages, etc.
8. Despite property-owners’ constitutional and statutory rights to keep their units vacant if they so choose, and despite the legal, administrative, practical and economic impediments to renting that many property-owners face, beginning January 1, 2024, Proposition M would seek to achieve indirectly the very result that the Constitution and state law prohibit the City from doing directly. The measure seeks to coerce owners to rent their units by severely penalizing those who exercise their rights to keep units vacant (or even those who are trying but are unable to rent a unit for any reason). It does so by imposing a substantial charge—purportedly a “tax,” but really a regulatory penalty—on residential units that are “vacant” for more than 182 days, whether consecutive or nonconsecutive, in a given year. This, the City may not lawfully do. “[I]f the Constitution forbids the prohibition of [particular activities, like keeping a property vacant], then that result cannot be achieved indirectly by imposing a destructive tax upon them.” Fox Bakersfield Theatre Corp. v. Bakersfield, 36 Cal. 2d 136, 139-40 (1950).
9. Proposition M violates the Takings Clause of the Fifth Amendment, and it violates the state Ellis Act, by taxing owners for exercising their rights under those provisions.
10. Proposition M also violates landlords’ fundamental liberty interests and equal protection, insofar as it exempts units that are leased to strangers, but not units that are leased to the property-owners’ family members, from taxation. And it violates 3 For example, Proposition M exempts units from the vacancy tax for time spent waiting for a building permit, but it limits that exemption to a single year. Yet getting building permits often takes far longer than a year in San Francisco. According to a recent article in the San Francisco Chronicle, “San Francisco has the slowest permit approval time of any large city in the state, according to a database compiled by the state Department of Housing and Community Development.” Gardiner & Neilson, “627 Days, Just for a Permit—Why S.F. Building Is Sluggish,” S.F. CHRON. (Dec. 15, 2022), p. A1 (available on Lexis-Nexis).
Attachment 10
Council Regular Meeting, 4/18/2023, Item No. 9., Item Page 118, Packet Page 292 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ COMPLAINT – REVERSE VALIDATION PROCEEDING CASE NO. ___________________ [CODE OF CIVIL PROCEDURE 860, ET SEQ.] Page 6
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the constitutional right to privacy as applied to property-owners who reside on the property subject to taxation and do not wish to share their property with others.
11. For all these reasons, Proposition M is void and unenforceable.
JURISDICTION AND VENUE
12. This Court has jurisdiction over this action pursuant to Government Code § 50077.5 and Code of Civil Procedure § 860.
13. Venue for this action properly lies within this Court pursuant to Code of Civil Procedure §§ 393, subd. (b), 394, 860 and 863.
PARTIES
14. Plaintiffs Eric Debbane and Andrew Debbane are brothers who coown several small residential buildings in various parts of the City, which they rent out. To the extent that the market and other conditions enable them to keep those units rented, they will not be subject to the tax. However, one of the buildings that the Debbanes co-own is a five-unit building in Russian Hill that they live in, along with Andrew’s wife and Eric’s girlfriend. They have co-owned this building since 1984, and they removed it from the market pursuant to the Ellis Act in 1998 so that they could move their aging mother into the building with them. (The could not avail themselves of an “owner move-in” eviction.) Their mother has since passed away, and the Debbanes have kept the building vacant for their own personal use. They have no desire to share the property that they own with persons other than those already living on the property with them. However, under Proposition M they will be taxed a minimum of $7,500 in 2024; $15,000 in 2025; and $30,000 per year thereafter. (The three smallest units on the property are 700, 750, and 800 square feet, respectively.)
15. Plaintiff Robert Friedland is the owner of a four-unit apartment building in the Western Addition/NOPA area. Each unit is approximately 850 square feet. He has owned the building since the early 1980s and has lived in one of the units himself during that time. For much of that time Mr. Friedland rented out the other three units, but he is 70 years old and has significant health issues. Thus, when he Attachment 10
Council Regular Meeting, 4/18/2023, Item No. 9., Item Page 119, Packet Page 293 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ COMPLAINT – REVERSE VALIDATION PROCEEDING CASE NO. ___________________ [CODE OF CIVIL PROCEDURE 860, ET SEQ.] Page 7
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recently retired he determined that he no longer wishes to bear the physical and mental burdens of being a landlord for the rest of his life. Accordingly, as each unit has come vacant over the last 2-3 years, he has declined to re-rent them. He has no wish to leave his decades-old home, but he would be forced to sell his building and move if the tax were to be applied to him, because his sole remaining sources of income—Social Security and some modest savings—would not be sufficient to cover the taxes plus his other living expenses. He would effectively be evicted from his home. If Proposition M were enforced against him, he would be forced to pay $7,500 for 2024 ($2,500 x three vacant units of less than 1,000 square feet); $15,000 for 2025; and $30,000 annually thereafter.
16. Prior to her retirement three years ago, Plaintiff Natasa Zec worked for approximately 20 years as a “locum tenens” anesthesiologist, i.e., one working on temporary contracts at various sites across the nation, including in San Francisco. In connection with the itinerant nature of her career, since 2008 Ms. Zec has owned a “micro-condominium” of exactly 300 square feet in a multi-unit building on Divisadero, where, however, she has never claimed the homeowner's exemption. She has also owned a comparably-sized micro-condominium (350 square feet) in Boston since 2000, where she has been claiming the homeowner's exemption. Neither of those units have ever been rented out, and Ms. Zec has never intended to rent them out. She maintains them for her personal use. Following her retirement, Ms. Zec has continued to maintain both abodes, splitting time between the two, and she wishes to continue to do so, as she has for decades. In 2022, she spent 126 days in San Francisco, and more than 183 days in Boston, an approximate number of days per year that she wishes to spend, respectively, in each place in the future. Going forward, if she continues to divide her time between the two small abodes as she historically has, she would be subject to a tax of $2,500 in 2024; $5,000 in 2025; and $10,000 annually thereafter. The latter figure is approximately double what she pays in ad valorem property taxes on the Divisadero micro-condo each year. If Proposition M were enforced against her, she could not afford Attachment 10
Council Regular Meeting, 4/18/2023, Item No. 9., Item Page 120, Packet Page 294 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ COMPLAINT – REVERSE VALIDATION PROCEEDING CASE NO. ___________________ [CODE OF CIVIL PROCEDURE 860, ET SEQ.] Page 8
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to pay the taxes and would have little choice but to sell her long-time home. In light of the burdensome restrictions that San Francisco places on landlords, and based on her negative experiences as a landlord in the past, e.g., in the Bronx (where tenants severely damaged a studio apartment that she owned to the point that it became essentially impossible to either rent or sell), Ms. Zec has no interest in renting out her micro-condominium on Divisadero Street and becoming a landlord in San Francisco.
17. Plaintiff San Francisco Apartment Association (“SFAA”), founded in 1917, is a full-service, non-profit trade association of persons and entities who own residential rental properties in San Francisco. SFAA currently has more than 2,800 active members who own more than 65,000 residential units in San Francisco; members include hundreds of “mom and pop” owners who own buildings with as few as three residential units, which are subject to Proposition M. SFAA is dedicated to educating, advocating for and supporting the rental housing community and preserving the property rights of all residential property providers in San Francisco. SFAA fields hundreds of calls each month from property owners with questions about their rights and duties under state law and San Francisco’s very complicated and lengthy laws and regulations governing residential property and owners. Proposition M applies to SFAA members who own, but choose—for a variety of reasons—not to rent out residential units in San Francisco, and subjects them to severe taxation. Proposition M also applies to SFAA members who are attempting to rent out residential units but are unable to do so for an extended period of time due to adverse market conditions or for other reasons, as discussed above. The ability of residential property owners to exercise their rights free from the constraints of Proposition M is germane to SFAA’s organizational purpose, and this challenge does not require the participation of individual members of SFAA. SFAA and its members are adversely and directly affected by Proposition M.
The measure harms SFAA and its members by adversely affecting their ability to manage and otherwise control real property, and to exercise their statutory rights with respect to residential property they own in San Francisco. SFAA has standing because Attachment 10
Council Regular Meeting, 4/18/2023, Item No. 9., Item Page 121, Packet Page 295 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ COMPLAINT – REVERSE VALIDATION PROCEEDING CASE NO. ___________________ [CODE OF CIVIL PROCEDURE 860, ET SEQ.] Page 9
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(i) individual members of SFAA by virtue of their property ownership are subject to Proposition M and could have challenged it in their own right; (ii) the ability of residential property owners to exercise their constitutional and statutory rights free from punitive consequences is germane to SFAA’s organizational purpose; and (iii) this challenge to Proposition M does not require participation of individual members of SFAA.
18. Plaintiff Small Property Owners of San Francisco Institute (“SPOSFI”) is a California nonprofit corporation and organization of small property owners that advocates for home ownership and the rights of property owners in San Francisco. SPOSFI’s members range from young families to the elderly on fixed incomes, and its membership cuts across all racial, ethnic, and socio-economic strata.
SPOSFI’s members own residential real property subject to Proposition M and are subject to the tax imposed thereby. SPOSFI is also involved in education, outreach and research. Through education, it helps owners better understand their rights and learn how to deal with local government; through outreach to community groups and to the public, it demonstrates how restrictive San Francisco regulations harm both tenants and landlords, and through research projects, it aims to separate hyperbole from fact on the effect of rent control on housing stock. Through legal advocacy, SPOSFI seeks to protect the rights of small property owners against unfair and burdensome regulations and taxation. The ability of residential property owners to exercise their rights free from Proposition M’s severe penalties is germane to SPOSFI’s organizational purpose, and this challenge does not require the participation of individual members of SPOSFI.
The Ordinance harms SPOSFI and its members by adversely affecting their ability to manage and otherwise control their real property and to exercise their constitutional and statutory rights, and subjecting them to significant financial penalties for exercising those rights. SPOSFI has standing because (i) individual members of SPOSFI by virtue of their property ownership are subject to Proposition M and could have challenged it in their own right; (ii) the ability of residential property owners to Attachment 10
Council Regular Meeting, 4/18/2023, Item No. 9., Item Page 122, Packet Page 296 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ COMPLAINT – REVERSE VALIDATION PROCEEDING CASE NO. ___________________ [CODE OF CIVIL PROCEDURE 860, ET SEQ.] Page 10
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exercise their constitutional and statutory rights free from punitive consequences is germane to SPOSFI’s organizational purpose; and (iii) this challenge to Proposition M does not require participation of individual members of SPOSFI.
19. Plaintiff San Francisco Association of Realtors (“SFAR”) is the official association of licensed real estate brokers and real estate agents in San Francisco. SFAR has over 4,300 members who are dependent for their livelihood upon the sale and management of real property in San Francisco. The great majority of SFAR member brokers and agents are involved in purchases, sales and/or management of San Francisco residential properties, including ones that are subject to Proposition M. The objective and mission of SFAR is to provide programs, products and services to its member brokers and agents that will assist them in increasing productivity and realizing success. Through legal advocacy, SFAR seeks to protect the rights of small property owners against unfair and burdensome regulations. The ability of residential property owners to exercise their rights, free from the constraints of Proposition M, is germane to SFAR’s organizational purpose, as the Proposition adversely affects the ability of SFAR’s members to market, sell and manage real property. It discourages the purchase and sale of residential property because existing and prospective owners who would otherwise exercise their constitutional and statutory rights are discouraged from doing so. SFAR has standing because (i) individual members of SFAR by virtue of their property management and/or sales are affected by Proposition M and could have challenged it in their own right; (ii) the ability of SFAR members to make a living unfettered by excessive and illegal regulation and punitive consequences is germane to SFAR’s organizational purpose; and (iii) this challenge to Proposition M does not require participation of individual members of SFAR.
20. Defendant City & County of San Francisco is a charter city. As such, it and its officers, employees and agents, are responsible for the anticipated implementation of Proposition M. The City may sue and be sued under Government Code § 34501 and is named as a defendant pursuant to Code of Civil Procedure § 863.
Attachment 10
Council Regular Meeting, 4/18/2023, Item No. 9., Item Page 123, Packet Page 297 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ COMPLAINT – REVERSE VALIDATION PROCEEDING CASE NO. ___________________ [CODE OF CIVIL PROCEDURE 860, ET SEQ.] Page 11
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21. Defendant Jose Cisneros is the Tax Collector for the City and, as such, is the person primarily tasked with administering the collection of the charges imposed by Proposition M on behalf of the City. See Prop. M (Ex. 1), Proposed Bus. & Tax. Reg. §§ 2954, 2958(a). Mr. Cisneros is sued in his official capacity only.
22. Defendants ALL PERSONS INTERESTED in the matter of
Proposition M on the November 8, 2022 ballot, imposing a “vacancy tax” on residential properties and other matters related thereto, are named pursuant to Code of Civil Procedure § 863.
23. The true identities and capacities of Defendant Does 1-100 are unknown to Plaintiffs at this time. Plaintiffs are informed and believe, and based upon such information and belief allege, that each of the fictitiously named Defendants are in some manner responsible for the actions described in this Complaint. When the true identities and capacities of these Defendants have been determined, Plaintiffs will seek leave to amend this Complaint to insert such identities and capacities.
GENERAL FACTUAL ALLEGATIONS
24. Proposition M was submitted to the City’s voters at the November 2022 general election, pursuant to the initiative process. It received 54.51% of the vote. The Board of Supervisors declared the results of the election on December 13, 2022, and Proposition M became effective ten days later. See Cal. Elec. Code § 9217; S.F. Muni.
Elec. Code § 380; Proposition M (Ex. 1) § 6.
A. Summary of Proposition M’s Main Provisions.
25. Beginning in tax year 2024, Proposition M charges property owners an escalating amount for each “Residential Unit” that is “vacant” during a given tax year.
A “Residential Unit” is broadly defined to include a “house, an apartment, a mobile home, a group of homes, or a single room that is designed as separate living quarters [i.e., quarters in which the occupants live and eat separately from any other persons in the building and which have a kitchen and direct access from the outside of the building or through a common hall], other than units occupied or intended for occupancy Attachment 10
Council Regular Meeting, 4/18/2023, Item No. 9., Item Page 124, Packet Page 298 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ COMPLAINT – REVERSE VALIDATION PROCEEDING CASE NO. ___________________ [CODE OF CIVIL PROCEDURE 860, ET SEQ.] Page 12
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primarily by travelers, vacationers, or other transient occupants” but excluding certain nursing homes and care facilities. Prop. M (Ex. 1), Proposed Bus. & Tax. Reg. § 2952 (“Definitions”).4 An “owner is deemed to have kept the Residential Unit” “vacant”—and therefore subject to the Proposition M penalty—if it is “unoccupied, uninhabited, or unused, for more than 182 days, whether consecutive or nonconsecutive, in a tax year,” with certain narrow exceptions. Id.
26. The charge for a unit that is “vacant” in 2024 is between $2,500 for a Residential Unit of less than 1,000 square feet;5 $3,500 for a Residential Unit from 1,000 to 2,000 square feet; and $5,000 for a Residential Unit over 2,000 square feet. The amount escalates each subsequent year that the unit remains vacant, reaching $10,000 for the smallest units in 2026 and $20,000 for units exceeding 2,000 square feet. In subsequent years, the charge is adjusted upwards in accordance with the Consumer Price Index. The owner of a multi-unit structure is charged the foregoing amounts for each unit in the building that is “vacant” during the year in question, without limitation.
27. Proposition M provides for certain exemptions from the definition of “vacancy”—specified periods during which the unit is not treated as “vacant,” despite being unoccupied, such as, for example, during the period (not to exceed a year) while an application for a building permit is pending to allow repair, rehabilitation, or construction with respect to the Unit;6 the period (not to exceed a year) where such repair, rehabilitation, or construction is underway; the first year after the Unit is built; periods during which the owner is in a medical care facility or immediately following 4 A Residential Unit located in a building with two or fewer Units is exempt from the tax. Prop. M (Ex. 1), Proposed Bus. & Tax. Reg. § 2955(d). 5 According to the rental website ApartmentList.com, the median rent for a onebedroom apartment in San Francisco for February 2023 is $2,241, so, essentially, San Francisco is demanding that the owner of a such a unit pay a month’s rent to the City initially, and up to four months’ rent eventually, for the “privilege”—which is actually a right, protected by the Constitution—of keeping the unit vacant. 6 See note 3 above.
Attachment 10
Council Regular Meeting, 4/18/2023, Item No. 9., Item Page 125, Packet Page 299 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ COMPLAINT – REVERSE VALIDATION PROCEEDING CASE NO. ___________________ [CODE OF CIVIL PROCEDURE 860, ET SEQ.] Page 13
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the owner’s death; or during the two years after a “catastrophic” disaster damages the Unit to the point of uninhabitability. Also excluded is any period during which the Unit is leased to a bona fide tenant, but a lease to a co-owner, spouse, domestic partner, child, parent, or sibling does not exempt the Unit from the charge. Prop. M (Ex. 1), Proposed Bus. & Tax. Reg. § 2952 (“Definitions”). Nor, apparently, does it exempt a Unit whose owner is actively marketing it but is unable to rent it out, despite the fact that the measure purports to tax those who “kept” the Unit vacant for half a year.
28. Any proceeds derived from the Proposition M charge—that are left over after paying the costs of administering the tax and paying refunds and related penalties and interest—are to be spent on (1) rent subsidies for individuals 60 and older or lowincome households or (2) acquiring, rehabilitating, and operating multi-unit buildings for affordable housing.
B. By Its Proponents’ Own Admission, the Primary Purpose of Proposition M is to Compel Property-Owners to Rent Their Units.
29. However, the proponents of the measure have made clear that any such revenues are not the main objective of the Proposition. The real goal of the measure is to force property-owners to rent their vacant units by imposing charges that are so burdensome that there is no other choice. The measure’s proponents expressly told the voters, in their rebuttal argument in support of the Proposition, sent to all the City’s voters in advance of the election: “We hope no one pays this tax. We want every vacant unit filled with people who need homes.” Exhibit 1, p. 5 (emphasis added). Further reinforcing this point, the proponents’ main argument is headed (in all-bold type), “Prop M will help fix San Francisco’s Hidden Housing Crisis: 40,000 Vacant Homes.” Id. at 4.
The rest of the proponents’ main argument and rebuttal likewise stress the fact that the goal of the measure is to “reduce vacancies [so that] we will have more housing”; that “[i]n the first year alone, it is expected that 4,500 new units will return on [sic] the market—more than our annual goals”; and that voters should support Proposition M to “fix our hidden housing vacancy crisis.” Id. The “Yes” campaign’s website, printed at Attachment 10
Council Regular Meeting, 4/18/2023, Item No. 9., Item Page 126, Packet Page 300 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ COMPLAINT – REVERSE VALIDATION PROCEEDING CASE NO. ___________________ [CODE OF CIVIL PROCEDURE 860, ET SEQ.] Page 14
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the end of the main argument in favor, is “fillemptyhomes.com.” Id. The collection of revenue under the measure is essentially an afterthought—a single bullet point in the main argument in favor, and not even mentioned in the proponents’ rebuttal. Id. at 4-
5. 30. Also consistent with this understanding of the purpose of the measure, the official Controller’s Statement on Proposition M, likewise contained in the ballot pamphlet sent to all voters, advised that the measure could raise as much as $20 million in the first year, but that “if the tax achieves its stated purpose of reducing the number of residential vacancies, it will result in lower revenue.” Exhibit 1, p. 2 (emphasis added).
31. Even the Proposition’s own “Findings,” codified in Business & Taxation Regulations § 2951, stress the perceived evils of vacant units and stress that the measure “is intended to disincentivize prolonged vacancies, thereby increasing the number of housing units available for occupancy…” Exhibit 1, p. 12. Again, the revenue raising function of the tax is mentioned largely as an afterthought.
32. While the charge imposed by Proposition M is denominated a tax, that label is not conclusive; in determining whether a charge imposed by an ordinance is revenue-raising or regulatory—is a tax or a penalty—“the court will look to the substantive provisions of the ordinance and not merely its title and form.” United Bus.
Comm’n v. City of San Diego, 91 Cal. App. 3d 156, 165-66 (1979). Proposition M is, in fact, a penalty with a predominantly regulatory purpose, and that regulatory purpose— compelling property-owners to rent out their real property—runs afoul of the Takings Clause and the Ellis Act.
C. Even If Viewed as a Tax, Proposition M Is Still Illegal.
33. Nor could the measure be sustained even if the Court were to conclude that Proposition M does, in fact, impose a “tax.” That would not save it. For one thing, a property-owners’ right to keep their property vacant—to exclude others—is an essential element of the property rights protected by the Takings Clause of the Fifth Attachment 10
Council Regular Meeting, 4/18/2023, Item No. 9., Item Page 127, Packet Page 301 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ COMPLAINT – REVERSE VALIDATION PROCEEDING CASE NO. ___________________ [CODE OF CIVIL PROCEDURE 860, ET SEQ.] Page 15
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Amendment, and the government may not “impose a charge for the enjoyment of a right granted by the federal constitution,” Murdock v. Comm’n of Penn., 319 U.S. 105, 113 (1943). In other words, the government may not single out a constitutional right for special taxation or condition the exercise of that right on a payment to the government.
Levin v. City & Cty. of S.F., 71 F. Supp. 3d 1072 (N.D. Cal. 2014) (enjoining charge imposed by San Francisco as condition of evicting tenants to remove rented units from the market as an unconstitutional taking of private property).
34. Likewise, the City may not penalize property-owners, financially or otherwise, for exercising their right under the Ellis Act to refuse to offer units for rent.
See Coyne v. City & Cty. of S.F., 9 Cal. App. 5th 1215 (2017); S.F. Apartment Ass’n v.
City & Cty. of S.F., 3 Cal. App. 5th 463 (2016). But Proposition M does just that.
D. Proposition M Also Unlawfully Burdens Constitutionally Protected Liberty and Privacy Interests.
35. Proposition M threatens property-owners’ fundamental liberty interests in close familial relationships, protected by the due process clause, and equal protection by taxing (actually penalizing) units that are rented to close family members of the owner while exempting units that are leased to strangers from taxation. This illegal differential treatment is further exemplified by the fact that rent received by an owner from renting a unit to a family member is still deemed taxable income for state and federal income tax purposes, but Proposition M nevertheless deems the unit “vacant” and penalizes it heavily.
36. And finally, Proposition M violates the constitutional right to privacy, Cal.
Const. art. I, § 1, as applied to property-owners who reside on the property in question and who do not wish to share the property with others.
37. Unless this Court grants relief to prohibit Defendants from enforcing Proposition M, Plaintiffs will suffer irreparable injury and damage in that they will be subjected to an illegal charge on their real property that violates their constitutional and statutory rights.
Attachment 10
Council Regular Meeting, 4/18/2023, Item No. 9., Item Page 128, Packet Page 302 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ COMPLAINT – REVERSE VALIDATION PROCEEDING CASE NO. ___________________ [CODE OF CIVIL PROCEDURE 860, ET SEQ.] Page 16
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38. Plaintiffs have no speedy or adequate remedy at law if a writ of mandate and/or injunction does not issue preventing the enforcement of Proposition M.
39. An actual controversy has arisen and now exists between Plaintiffs and Defendants as to the validity and enforceability of Proposition M. Plaintiffs contend that the Proposition is void and unenforceable. Some or all of Defendants contend that it is valid and enforceable.
40. Plaintiffs desire a judicial determination of the invalidity of Proposition M, and a determination as to whether the Proposition is enforceable.
41. A judicial declaration is necessary and appropriate at this time in order for Plaintiffs to ascertain their rights and duties under the Proposition.
FIRST CAUSE OF ACTION
Violation of the 5th Amendment to the U.S. Constitution (Takings Clause) (Against All Defendants)
42. Plaintiffs incorporate by reference each and every allegation made in Paragraphs 1 through 41 of this Complaint as though fully set forth herein.
43. Property-owners in San Francisco, including the individual plaintiffs herein and the members of the associational plaintiffs, have a constitutional right under the Takings Clause of the Fifth Amendment to not be coerced by the government into renting out their property, whether they desire to keep it unoccupied temporarily or indefinitely. See Yee, 503 U.S. at 528; Loretto, 458 U.S. at 435-40; Cwynar, 90 Cal.
App. 4th at 658; Seawall Associates, 74 N.Y.2d at 104, 542 N.E.2d 1059; note 2 above.
44. Through Proposition M, San Francisco nevertheless seeks to compel property-owners to rent the residential units that they own by imposing a significant monetary penalty on vacant units. That it does so by imposing substantial monetary penalties, rather than by direct fiat makes no difference, whether that charge is treated as a tax or a penalty. See Levin, 71 F. Supp. 3d at 1072 (enjoining charge imposed by San Francisco as condition of evicting tenants to remove rented units from the market as an unconstitutional taking of private property). Again, “if the Constitution forbids Attachment 10
Council Regular Meeting, 4/18/2023, Item No. 9., Item Page 129, Packet Page 303 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ COMPLAINT – REVERSE VALIDATION PROCEEDING CASE NO. ___________________ [CODE OF CIVIL PROCEDURE 860, ET SEQ.] Page 17
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the prohibition of [given activities], then that result cannot be achieved indirectly by imposing a destructive tax upon them,” Fox Bakersfield Theatre Corp., 36 Cal. 2d at 139-40, and “[a] state may not impose a charge for the enjoyment of a right granted by the federal constitution.” Murdock, 319 U.S. at 113. In other words, while governments may impose generally-applicable taxes that incidentally affect constitutional rights, those governments may not single out a constitutionally guaranteed right for differential taxation, as Proposition M seeks to do. See also Minneapolis Star & Tribune v. Minn. Comm’r of Revenue, 460 U.S. 575, 591-93 (1983). And it does not matter whether the owner’s desire (or need) is to keep the unit vacant on a temporary basis or an indefinite one. See note 2 above.
45. Proposition M seeks to compel property-owners to forfeit their constitutional “power to exclude,” Loretto, 458 U.S. at 435, by imposing substantial charges on the exercise of that right. As such, the Proposition M constitutes a taking without just compensation, and thus violates Plaintiffs’ rights protected by the United States Constitution.
46. An actual controversy has arisen and now exists between the parties relating to these legal rights and duties for which Plaintiffs desire a declaration of rights, therefore making a declaratory judgment necessary. Cal. Code Civ. Proc. § 1060.
47. Moreover, unless this Court enjoins the enforcement of Proposition M by defendants, Plaintiffs and other citizens similarly-situated will suffer irreparable injury and damage. 42 U.S.C. § 1983; Cal. Code Civ. Proc. § 526.
SECOND CAUSE OF ACTION
Violation of Article XI, § 7, of the California Constitution (State Law Preemption by the Ellis Act, Cal. Govt. Code § 7060(a)) (Against All Defendants)
48. Plaintiffs incorporate by reference each and every allegation made in Paragraphs 1 through 47 of this Complaint as though fully set forth herein.
49. Under Article XI, § 7, of the California Constitution, a city or county can Attachment 10
Council Regular Meeting, 4/18/2023, Item No. 9., Item Page 130, Packet Page 304 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ COMPLAINT – REVERSE VALIDATION PROCEEDING CASE NO. ___________________ [CODE OF CIVIL PROCEDURE 860, ET SEQ.] Page 18
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only “make and enforce within its limits all local, police, sanitary, and other ordinances and regulations not in conflict with general laws.” (Emphasis added.) In other words, local governments—including charter cities like San Francisco—remain subject to superior state law. That includes the Ellis Act. See, e.g., S.F. Apartment Ass’n, 3 Cal.
App. 5th at 463 (enjoining San Francisco’s condominium “merger ban” as preempted by the Ellis Act).
50. Section 7060(a) of the Ellis Act (Govt. Code § 7060(a)) provides that, “No public entity … shall, by statute, ordinance, or regulation, or by administrative action implementing any statute, ordinance or regulation, compel the owner of any residential real property to offer, or to continue to offer, accommodations in the property for rent or lease, except for guestrooms or efficiency units within a residential hotel” if said hotel guest rooms meet certain criteria.
51. Here again, it makes no difference that the compulsion imposed by Proposition M comes in the form of a financial penalty rather than a direct order to make a property-owners’ unit available for rent. See, e.g., Coyne, 9 Cal. App. 5th at 1215. “The Ellis Act does not permit the City to condition plaintiff’s departure [from the rental market] upon the payment of ransom.” Bullock v. City & Cty. of S.F., 221 Cal.
App. 3d 1072, 1101 (1990).
52. An actual controversy has arisen and now exists between the parties relating to these legal rights and duties for which Plaintiffs desire a declaration of rights, therefore making a declaratory judgment necessary. Cal. Code Civ. Proc. § 1060.
53. Moreover, unless this Court enjoins the enforcement of Proposition M by defendants, Plaintiffs and other citizens similarly-situated will suffer irreparable injury and damage. Cal. Code Civ. Proc. § 526.
Attachment 10
Council Regular Meeting, 4/18/2023, Item No. 9., Item Page 131, Packet Page 305 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ COMPLAINT – REVERSE VALIDATION PROCEEDING CASE NO. ___________________ [CODE OF CIVIL PROCEDURE 860, ET SEQ.] Page 19
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THIRD CAUSE OF ACTION
Violation of Fourteenth Amendment of the U.S. Constitution & Cal. Const. art. I, § 7 (Substantive Due Process)
(Against All Defendants)
54. Plaintiffs incorporate by reference each and every allegation made in Paragraphs 1 through 53 of this Complaint as though fully set forth herein.
55. As discussed above, Proposition M provides that a Residential Unit is not deemed to be “vacant” at any time during which the Unit is subject to a bona fide lease to a tenant—during the so-called “Lease Period.” Prop. M (Ex. 1), Proposed Bus. & Tax.
Regs. § 2952 (“Definitions”). However, the “‘Lease Period’ means the period during which any owner of a Residential Unit or any person in the Owner’s Group of that owner leases that Residential Unit to one or more tenants under a bona fide lease intended for occupancy, but not including any lease or rental of that Residential Unit to anyone in the Owner’s Group or to travelers, vacationers, or other transient occupants.” Id. (emphasis added). “‘Owner’s Group’ means for each owner of a Residential Unit, with respect to each Residential Unit, the owner, any current or former co-owner, and any Related Person or Affiliate of the owner or any current or former co-owner.” Id. (emphasis added). And a “‘Related Person’ means a spouse, domestic partner, child, parent, or sibling.” Id.
56. In other words, a lease to these close family members is not treated as an exemption from the definition of “vacancy.” As the opponents of Proposition M noted in their main argument against the measure, the consequence of this exception to the exemption is that “The measure is even written so that intergenerational households and relatives living under one roof would be fined in a building that isn’t vacant at all.” Exhibit 1, p. 5. Tellingly, in their rebuttal, the Proposition’s proponents did not deny that fact. Id.
57. The Supreme Court has held that the protection of close familial relationships is a fundamental liberty interest protected by the due process clause. See, Attachment 10
Council Regular Meeting, 4/18/2023, Item No. 9., Item Page 132, Packet Page 306 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ COMPLAINT – REVERSE VALIDATION PROCEEDING CASE NO. ___________________ [CODE OF CIVIL PROCEDURE 860, ET SEQ.] Page 20
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e.g., Moore v. E. Cleveland, 431 U.S. 494, 495 (1977) (striking down local ordinance that limited the right of extended family members to reside in a single home); Cwynar, 90 Cal. App. 4th at 643-44 (upholding claim that ordinance barring landlords from evicting tenants to use the unit for a close family member violated the Constitution). Proposition M unlawfully burdens this fundamental liberty interest in violation of due process.
58. An actual controversy has arisen and now exists between the parties relating to these legal rights and duties for which Plaintiffs desire a declaration of rights, therefore making a declaratory judgment necessary. Cal. Code Civ. Proc. § 1060.
59. Moreover, unless this Court enjoins the enforcement of Proposition M by defendants, Plaintiffs and other citizens similarly-situated will suffer irreparable injury and damage. 42 U.S.C. § 1983; Cal. Code Civ. Proc. § 526.
FOURTH CAUSE OF ACTION
Violation of Fourteenth Amendment of the U.S. Constitution & Cal. Const. art. I, § 7 (Equal Protection)
(Against All Defendants)
60. Plaintiffs incorporate by reference each and every allegation made in Paragraphs 1 through 59 of this Complaint as though fully set forth herein.
61. By exempting residential units that are leased to strangers from taxation but subjecting residential units leased to close family members to taxation, Proposition M violates equal protection. Because, as discussed above, the familial interests implicated are a fundamental liberty interests, strict scrutiny applies to laws that impose thereon. See In re Santos Y., 92 Cal. App. 4th 1274, 1314-17 (2001).
62. An actual controversy has arisen and now exists between the parties relating to these legal rights and duties for which Plaintiffs desire a declaration of rights, therefore making a declaratory judgment necessary. Cal. Code Civ. Proc. § 1060.
63. Moreover, unless this Court enjoins the enforcement of Proposition M by defendants, Plaintiffs and other citizens similarly-situated will suffer irreparable injury and damage. 42 U.S.C. § 1983; Cal. Code Civ. Proc. § 526.
Attachment 10
Council Regular Meeting, 4/18/2023, Item No. 9., Item Page 133, Packet Page 307 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ COMPLAINT – REVERSE VALIDATION PROCEEDING CASE NO. ___________________ [CODE OF CIVIL PROCEDURE 860, ET SEQ.] Page 21
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FIFTH CAUSE OF ACTION
Violation of Cal. Const. art. I, § 1 (Right of Privacy) (Against All Defendants)
64. Plaintiffs incorporate by reference each and every allegation made in Paragraphs 1 through 63 of this Complaint as though fully set forth herein.
65. Proposition M’s efforts to compel property-owners to allow units they own to be occupied are unconstitutional as applied to owners who reside on the property to be taxed, such as Plaintiffs Debbane and Friedland, who do not wish to share their homes with others. This application of the Proposition violates the fundamental constitutional right of privacy, protected by Article I, § 1, of the California Constitution.
Cf. Tom v. City & County of San Francisco, 120 Cal. App. 4th 674 (2004) (City’s ordinance prohibiting tenants-in-common from entering exclusive occupancy agreements violated right of privacy).
66. An actual controversy has arisen and now exists between the parties relating to these legal rights and duties for which Plaintiffs desire a declaration of rights, therefore making a declaratory judgment necessary. Cal. Code Civ. Proc. § 1060.
67. Moreover, unless this Court enjoins the enforcement of Proposition M by defendants, Plaintiffs and other citizens similarly-situated will suffer irreparable injury and damage. Cal. Code Civ. Proc. § 526.
PRAYER
WHEREFORE, Plaintiffs pray for Judgment as follows:
1. For a declaration that Proposition M is unenforceable.
2. For issuance of a writ of mandate or other appropriate relief directing and commanding that Defendants and others acting pursuant to their authority or control refrain from enforcing the Proposition;
3. For an injunction, both temporary and permanent, prohibiting Defendants and others acting pursuant to their authority or control from enforcing the Proposition;
4. For the refund to appropriate taxpayers of any amounts collected Attachment 10
Council Regular Meeting, 4/18/2023, Item No. 9., Item Page 134, Packet Page 308 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ COMPLAINT – REVERSE VALIDATION PROCEEDING CASE NO. ___________________ [CODE OF CIVIL PROCEDURE 860, ET SEQ.] Page 22
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pursuant to Proposition M;
5. For an award to Plaintiffs of their costs of this action;
6. For an award to Plaintiffs of their attorneys’ fees pursuant to Code of Civil Procedure § 1021.5 or any other appropriate provision of the law; and
7. For such other relief as this Court deems just and proper.
Respectfully submitted,
Dated: February 9, 2023 NIELSEN MERKSAMER
PARRINELLO GROSS & LEONI LLP
By:
Christopher E. Skinnell
Attorneys for Plaintiffs
ERIC DEBBANE; ANDREW
DEBBANE; ROBERT FRIEDLAND;
NATASA ZEC; SAN FRANCISCO
APARTMENT ASSOCIATION;
SMALL PROPERTY OWNERS OF
SAN FRANCISCO INSTITUTE; SAN
FRANCISCO ASSOCIATION OF
REALTORS
Attachment 10
Council Regular Meeting, 4/18/2023, Item No. 9., Item Page 135, Packet Page 309 Attachment 10
Council Regular Meeting, 4/18/2023, Item No. 9., Item Page 136, Packet Page 310 Attachment 10
Council Regular Meeting, 4/18/2023, Item No. 9., Item Page 137, Packet Page 311 Attachment 10
Council Regular Meeting, 4/18/2023, Item No. 9., Item Page 138, Packet Page 312 __________________________________________________________________________________________________________ COMPLAINT – REVERSE VALIDATION PROCEEDING CASE NO. ___________________ [CODE OF CIVIL PROCEDURE 860, ET SEQ.] VERIFICATION
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VERIFICATION
I am a plaintiff in the above-titled matter. I have read the foregoing VERIFIED COMPLAINT TO INVALIDATE ILLEGAL SPECIAL TAX (CODE CIV. PROC. § 863; GOVT. CODE § 50077.5). I know the contents thereof, and the same is true of my own knowledge, except as to matters therein stated on information and belief, and as to those matters, I believe them to be true.
I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct.
Executed on February __, 2023, at San Francisco, California. ____________________________
NATASA ZEC
7 Attachment 10
Council Regular Meeting, 4/18/2023, Item No. 9., Item Page 139, Packet Page 313 Attachment 10
Council Regular Meeting, 4/18/2023, Item No. 9., Item Page 140, Packet Page 314 Attachment 10
Council Regular Meeting, 4/18/2023, Item No. 9., Item Page 141, Packet Page 315