Local governments may face new lawsuits for interfering with a commercial landlord’s contractual rights during the COVID-19 pandemic. While COVID-19 eviction restrictions frustrated many commercial landlords, the Ninth Circuit recently held that a commercial landlord had standing under the Contracts Clause of the federal Constitution to sue Los Angeles County for interfering with his rights under a commercial lease. (Iten v. County of Los Angeles (9th Cir., Aug. 30, 2023, No. 22-55480) __ F.4th __, 2023 WL 5600292.)

Like many local jurisdictions, Los Angeles County enacted a commercial eviction moratorium (“Moratorium”) in March 2020 that restricted landlords from exercising certain rights to evict non-paying tenants during the pandemic. The Moratorium barred commercial evictions for nonpayment of rent, late charges, interest, or other fees if tenants demonstrated an inability to pay due rent and charges due to financial impacts related to COVID-19. The Moratorium also provided a one-year forbearance period for tenants to pay overdue rent, and prohibited landlords from charging late fees and interest for overdue rent during the Moratorium period. (Iten, p. 2.)

Landlord Howard Iten (“Iten”) was nearing the end of a five-year commercial lease with his tenant when the Moratorium took effect. The tenant stopped paying rent in April 2020 and told Iten that he was “very adversely [a]ffected by Covid 19.” The lease expired in August 2020, but Iten renewed the lease, because he felt that under the Moratorium, he had to enter a new lease that included a promise to pay the overdue rent. (Id.) Iten did not file an unlawful detainer to evict his tenant, but in January of 2021, he sued the County in federal court, asserting that the Moratorium violated his rights under the Contracts Clause of the U.S. Constitution. The County moved to dismiss, arguing that the Moratorium did not prevent Iten from proceeding with an unlawful detainer, since his tenant did not demonstrate an inability to pay rent due to COVID-19 as required under the Moratorium. (Iten, p. 3.) In response, on its own motion, the District Court raised the issue of standing, and dismissed the case with prejudice, holding that because Iten could have successfully evicted his tenant under the terms of the Moratorium, he did not suffer an injury, and therefore lacked standing to bring his claim. (Id., p. 7.)

The Ninth Circuit reversed. The Court explained that the Contracts Clause of the U.S. Constitution protects the integrity of the contract as of the time that it was negotiated, and that the existence of a “traceable injury” depends on whether Iten had alleged that a change in law has substantially impaired an agreement between the parties. (Iten, p. 6.) Hence, the Court held that Iten had standing to bring his claim because he had sufficiently alleged that he was a commercial landlord, that the Moratorium applied to his lease, and the Moratorium altered the terms of the lease and limited the legal procedures available to him to evict a non-paying tenant. (Iten, p. 10.) The Court considered the issue of whether Iten’s ability to evict his tenant was actually impaired by the Moratorium to go to the merits of the claim, not standing. (Iten, p. 8.) One member of the panel concurred in part, by joining the decision to remand, but expressed concern that the Court’s decision conceivably provided every commercial landlord with a Contracts Clause claim. He would have remanded for the District Court to consider the standing issue after further briefing. (Iten, p. 10-11.)

Iten could spawn substantial new litigation, by suggesting that any commercial landlord whose contractual rights were impaired by a local eviction moratorium has standing to sue under the Contracts Clause. On the other hand, the impact of this decision may be limited by its facts. Indeed, now that the threshold issue of standing has been overcome, it will be interesting to see how Iten’s suit fares after remand, before the same judge who determined that Iten had suffered no actual injury.