Keeping Tabs on the Ninth Circuit
March 24, 2023 - This Week at the Ninth

This Week At The Ninth: Housing Discrimination and Group Boycotts

fashion show

This week, the Court addresses the constitutionality of a law protecting housing access for people with criminal histories, and the elements of a per se unlawful group boycott under the Sherman Antitrust Act.

The Court holds that an ordinance prohibiting landlords from inquiring about potential tenants’ criminal history or acting adversely to a tenant based on that history violates landlords’ free speech rights—but does not violate landlords’ substantive due process rights.

The panel: Judges Wardlaw, Gould, and Bennett, with Judge Wardlaw writing the opinion, Judge Wardlaw concurring, Judge Bennett concurring in part, and Judge Gould concurring in part and dissenting in part.

Key highlight: “[A] complete ban on any discussion of criminal history between the landlords and prospective tenants . . . is not in proportion to the interest served by the Ordinance in reducing racial injustice and reducing barriers to housing. Other cities have enacted similar ordinances to achieve the same goals of reducing barriers to housing and racial discrimination as Seattle. While we do not address the constitutionality of any of these ordinances, none of them forecloses all inquiry into criminal history by landlords, as does Seattle’s blanket ban on any criminal history inquiry. . . . Because a number of other jurisdictions have adopted legislation that would appear to meet Seattle’s housing goals, but is significantly less burdensome on speech, we conclude that the inquiry provision at issue here is not narrowly tailored, and thus fails intermediate scrutiny.”

Background: Approximately 90% of private landlords conduct criminal background checks on prospective tenants, and nearly half of private landlords in the City of Seattle say they would reject an applicant with a criminal history. Formerly incarcerated individuals are thus nearly ten times as likely to experience homelessness or housing insecurity. And those individuals are more likely to recidivate if they do not have access to housing. These consequences disproportionately impact people of color, who are more likely to have a criminal history in light of discriminatory law enforcement practices. “The correlation between race and criminal history can result in both unintentional and intentional discrimination on the part of landlords who take account of criminal history.”

In an effort to combat this problem, Seattle enacted the Fair Chance Housing Ordinance. It stated that the Ordinance served two purposes: “(1) “address[ing] barriers to housing faced by people with prior records; and (2) lessening the use of criminal history as a proxy to discriminate against people of color who are disproportionately represented in the criminal justice system.” The Ordinance prohibits landlords from inquiring about current and potential tenants’ criminal history and from taking adverse action against them (such as denying tenancy) based on that information. A group of landlords and a landlord trade association alleged the Ordinance violates landlords’ free speech and substantive due process rights under the federal and state constitutions. The district court upheld the Ordinance’s constitutionality in full.

Result: The Ninth Circuit reversed in part, affirmed in part, and remanded.

The Court held that the Ordinance’s total ban on inquiring about criminal history violated the landlords’ First Amendment free speech rights. The Court found it unnecessary to decide whether the Ordinance regulates only commercial speech such that it is subject to intermediate scrutiny, or whether it regulates non-commercial speech such that it is subject to strict scrutiny, because it failed even intermediate scrutiny. Under the intermediate scrutiny text, courts must assess (1) whether the “commercial speech” at issue “concern[s] lawful activity” and is not “misleading”; (2) “whether the asserted government interest is substantial” in regulating the speech; (3) “whether the regulation directly advances the governmental interest asserted”; and (4) “whether it is not more extensive than is necessary to serve that interest.” Cent. Hudson Gas & Electric Corp. v. Pub. Serv. Comm’n, 447 U.S. 557, 566 (1980). The City’s interests in enacting the Ordinance were substantial, and the regulation directly advanced those interests. But, the Court concluded, the “blanket ban on any criminal history inquiry” was more extensive than necessary to achieve those interests. The Court explained that other types of ordinances, including ordinances that had been passed in other jurisdictions, would impose a lesser burden on speech by “permit[ting] the landlords to ask a potential tenant about their most recent, serious offenses, which is the information a landlord would be most interested in.” These less burdensome ordinances “would appear to meet Seattle’s housing goals.”

By contrast, the Court held that the Ordinance did not violate substantive due process by prohibiting adverse action based on a tenant’s criminal history. Because the right to exclude is not a fundamental due process right, the adverse-action prohibition was subject only to rational basis review. Under rational basis review, courts “look to whether the governmental body could have had no legitimate reason for its decision.” Kawaoka v. City of Arroyo Grande, 17 F.3d 1227, 1234 (9th Cir. 1994). The adverse-action prohibition easily survived that review because the City had legitimate rationales of reducing barriers to housing faced by those with criminal records and lessening the use of criminal history as a proxy for racial discrimination.

Judge Wardlaw separately concurred. She explained that she would have held the Ordinance restricts only commercial speech. To determine if speech is commercial speech, Judge Wardlaw stated, courts consider whether: (1) “the speech is an advertisement,” (2) “the speech refers to a particular product,” and (3) “the speaker has an economic motivation.” Hunt v. City of L.A., 638 F.3d 703, 715 (9th Cir. 2011). She opined that under this test, a rental application proposes a commercial transaction; it relates to a specific product; and inquiries about criminal history are primarily economically motivated. The fact that “some landlords may have safety in mind” when asking about criminal history does not change the fact that “all of the information they glean about applicants is used to decide whether to enter into a commercial transaction with them.” 

Judge Bennett concurred in the opinion with exceptions and concurred in the result. He would have held that the Ordinance restricts non-commercial speech and was thus subject to (and failed) strict scrutiny. Relying on Sorrell v. IMS Health Inc., 564 U.S. 552 (2011), he opined that the inquiry prohibition restricts speech based on content and speaker because it “bars a group’s access to information that is available to another group (landlords’ access to criminal history, which is available to the public) and bans a group’s use of such information for a certain purpose (landlords evaluating prospective tenants).” And, he opined, there were several instances where the Ordinance regulated non-commercial speech, including inquiries related to safety.

Judge Gould concurred in part and dissented in part. Although he agreed with Judge Wardlaw that the inquiry prohibition regulates commercial speech and is thus subject to intermediate scrutiny, he would have held the prohibition is sufficiently tailored to survive intermediate scrutiny. Specifically, he opined that there was “nothing in the record” supporting the conclusion that alternative, less burdensome laws would “meet Seattle’s housing goals.”

The Court holds that, to establish a per se unlawful hub-and-spoke group boycott under the Sherman Antitrust Act, a plaintiff must prove a horizontal agreement between the spokes. Applying that rule, the Court held that the plaintiff failed to prove such a horizontal agreement in this case. 

The panel: Judges Kelly (10th Cir.), M. Smith, and Collins, with Judge Smith writing the opinion.

Key highlight: “In such a [hub-and-spoke group] boycott, the initiating firm acts as a hub to which all the pressured firms, or spokes, are connected. Given the horizontal-agreement requirement, plaintiffs can successfully invoke the per se rule in a hub-and-spoke conspiracy only if they prove horizontal agreements between the spokes. Without an agreement among the spokes, there is simply a collection of purely vertical agreements subject to Rule of Reason scrutiny.” (Internal quotation marks and citations omitted.)

Background: Plaintiff Honey Bum, LLC, is a relatively new company in the fast-fashion industry, where Defendant Fashion Nova, Inc. is a major retailer. Fashion Nova allegedly organized a group boycott of Honey Bum by informing vendors that Fashion Nova would stop purchasing from them unless they stopped selling to Honey Bum. Over 30 vendors agreed and stopped doing business with Honey Bum. Honey Bum sued Fashion Nova for violation of the Sherman Antitrust Act, tortious interference with prospective economic relations, and tortious interference with contract. The district court granted summary judgment to Fashion Nova on all three claims.

Result: The Ninth Circuit affirmed. First, it held that the district court had correctly rejected Honey Bum’s Sherman Antitrust Act claim. The Act prohibits unreasonable restraints on trade. 15 U.S.C. § 1. Some restraints are unreasonable per se because they “always or almost always tend to restrict competition and decrease output”; others require a fact-specific assessment of the restraint’s “actual effect” on competition to determine whether the restraint is unreasonable under the “Rule of Reason.” Ohio v. Am. Express Co., 138 S. Ct. 2274, 2283-84 (2018). Here, Honey Bum alleged a per se unreasonable hub-and-spoke group boycott. This type of boycott occurs when a dominant firm (the hub) pressures other firms at a different level of the supply chain (the spokes) to agree not to deal with another firm (the target). The Ninth Circuit held that a boycott of this type is per se unreasonable only if there was a horizontal agreement among the spokes. 

Applying that rule to the facts in this case, the Ninth Circuit held that Honey Bum had failed to introduce evidence of a horizontal agreement. It held that mere parallel conduct—even conscious parallel conduct—was not enough to establish evidence of an agreement between the spokes (here, the vendors). Honey Bum presented some evidence about employees who had gone from one vendor to another and some communications between vendors, but the Ninth Circuit held that this evidence demonstrated at most conscious parallelism. Therefore, it held, Honey Bum failed to satisfy its burden to create a genuine dispute about a horizontal agreement. 

Second, the Ninth Circuit affirmed the district court’s rejection of Honey Bum’s tortious interference with prospective economic relations claim. That tort requires as an element that the defendant’s conduct be independently wrongful “by some legal measure other than the fact of interference itself.” Ixchel Pharma, LLC v. Biogen, Inc., 9 Cal. 5th 1130, 1142 (2020). The Ninth Circuit held that, because Honey Bum had failed to prove its Sherman Antitrust Act claim, that law could not be the basis for independent wrongfulness. The Ninth Circuit concluded that Honey Bum had not successfully identified any other source of wrongfulness, so it held that the district court had properly rejected Honey Bum’s claim.

Finally, the Ninth Circuit also affirmed the district court’s rejection of Honey Bum’s tortious interference with contract claim. Although Honey Bum had introduced evidence that Fashion Nova had interfered with its purchase orders, the Ninth Circuit held that a purchase order is an offer, not a contract. Therefore, Honey Bum had failed to produce evidence demonstrating that Fashion Nova had interfered with an actual contractual relationship.