BILL ANALYSIS Ó AB 2312 Page 1 Date of Hearing: May 3, 2016 ASSEMBLY COMMITTEE ON JUDICIARY Mark Stone, Chair AB 2312 (Gatto) - As Amended March 18, 2016 SUBJECT: UNLAWFUL DETAINER: PAYMENT OF RENT FUNDS KEY ISSUES: 1)by requiring a tenant to deposit disputed rent payments in a separate account before completion of the trial in which his or her liability for that rent may be at issue, does this bill effectively compel an unconstitutional deprivation of the tenant's property without due process of law? 2)should a tenant's right to retain an attorney and defend an unlawful detainer lawsuit be conditioned on his or her ability to pay disputed rent payments into a separate account before completion of the trial? 3)how would such payments procedurally be made and verified by the court or plaintiff's attorney without creating aN irreconciliable professional conflict of interest for the tenant's attorney? SYNOPSIS AB 2312 Page 2 This bill seeks to establish a controversial pre-trial rent deposit program that would single out defendants in unlawful detainer cases for extra procedural requirements not placed on defendants in any other civil proceedings. Specifically, this bill would require a defendant in an eviction case based on nonpayment of rent to deposit with his or her attorney an amount of money equal to the contracted monthly rent amount when it would have become due, until the court enters judgment in the defendant's favor or the plaintiff regains possession of the premises. According to the author, these extraordinary requirements are needed to address an epidemic of eviction delay tactics by unscrupulous tenant attorneys. Supporters of the bill, led by apartment associations, contend that unscrupulous tenant attorneys encourage clients to file frivolous motions and make every available defense, whether or not meritorious, thereby causing unnecessary delays to what is supposed to be a summary process. They believe that requiring the defendant to pay future rent when due, into an account maintained by their own counsel, will help assure that actions taken by the defense will be legitimate and not solely as a tactic to delay litigation. Supporters point to recent media reports and their own compelling anecdotal examples of "horror stories" of unscrupulous defendants in unlawful detainer cases who manipulate the legal system to stay in rental properties as long as possible, without any intention of paying rent during the eviction proceedings. Opponents of the bill are rightfully concerned, however, that the required payment scheme outlined by the bill amounts to a deprivation of the tenant's property without due process, in violation of the 14th Amendment. They note that despite the author's characterization of the payments obligated by this bill as "future contract rent," existing law makes clear that such payments constitute part of the damages claimed by the plaintiff in his or her cause of action which must be proven by the plaintiff by a preponderance of the evidence. Yet under this AB 2312 Page 3 bill, these payments must be made without allowing the defendant any opportunity to be heard to contest why the defendant should not have to pay that money to a fund to be held in trust for the plaintiff at a later date. Opponents correctly point out that in an unlawful detainer action, the tenant may negate the landlord's claim, in whole or in part, by disputing the amount of rent owed, and demonstrating, for example, that the landlord may have unlawfully increased the rent or failed to maintain the habitability of the premises. Therefore, to require pre-deposit of the rent claimed, opponents argue, would essentially concede the damages element to the landlord and deprive the tenant of property without due process of law. Opponents express additional concerns that this bill treats defendants differently based on whether they are represented by counsel or not, effectively penalizing the very small minority of defendants who are fortunate enough to have secured legal representation. They are also appropriately concerned that the bill would create a professional conflict of interest for tenant attorneys by requiring them to either disobey the requirements of this bill or violate client confidentiality by disclosing to a third party (i.e. opposing counsel) whether or not their client has complied with the payment obligations arising under this bill. The Committee notes a number of unresolved legal and procedural questions about how this proposal would be implemented without creating irreconcilable due process problems and professional conflicts of interest. Finally, the Committee notes that California tried a version of this bill when the Legislature enacted SB 690 (Kopp), aka the "Pretrial Rent Deposit Pilot Project," as a pilot project in which tenants had to deposit unpaid rent as a condition of jury trial. The pilot ran for four years in several courts, including Los Angeles County. The pilot was deemed a failure and was neither renewed nor expanded. SUMMARY: Requires a defendant in an eviction case based on nonpayment of rent to deposit with his attorney an amount of money equal to the contracted monthly rent amount when it would have become due, until the court enters judgment in his favor or AB 2312 Page 4 the plaintiff regains possession of the premises. Specifically, this bill: 1)Provides that if a defendant is represented by an attorney in an action for unlawful detainer brought for nonpayment of rent in which the plaintiff is seeking past due rent from a defendant who is in possession, then the defendant shall deliver an amount equal to the monthly rent to his or her attorney each month after the filing of the summons and complaint as the rent would otherwise become due and payable under the lease or rental agreement until one of the following conditions is satisfied: a) The plaintiff regains possession of the property. b) The court enters judgment in favor of the defendant in the unlawful detainer action. 2)Requires an attorney who receives rent pursuant to the above provision to do all of the following: a) Deposit all rent received from the defendant pursuant to Item 1) into a trust account separate from the attorney's own funds. b) Within four days of receipt of the rent, send a letter to the plaintiff, or his or her counsel, confirming receipt of the rent. c) Release the rent as directed by the court or pursuant to a written agreement between the parties. AB 2312 Page 5 EXISTING LAW: 1)Provides that a tenant is guilty of unlawful detainer when he or she continues in possession of rental property after three days' written notice to quit for non-payment of rent, as specified. (Code of Civil Procedure Section 1161, paragraph 2. All further references are to this code unless otherwise stated.) 2)Provides that the jury or the court, if the proceedings be tried without a jury, shall assess the damages occasioned to the plaintiff by any forcible entry, or by any forcible or unlawful detainer, alleged in the complaint and proved on the trial, and find the amount of any rent due, if the alleged unlawful detainer be after default in the payment of rent. (Section 1174 (b).) 3)Allows the plaintiff to be awarded statutory damages of up to six hundred dollars ($600), in addition to actual damages, including rent found due, if the defendant is found guilty of forcible entry, or forcible or unlawful detainer, and malice is shown. Further requires the trier of fact to determine whether actual damages, statutory damages, or both, shall be awarded, and to have judgment be entered accordingly. (Section 1174 (b).) 4)Provides that the breach of any warranty of habitability (implied or express) is a defense to an unlawful detainer action filed to recover possession of residential premises based on nonpayment of rent. (Green v. Superior Court (1974) 10 Cal. 3d 616.) 5)Provides that in an unlawful detainer proceeding in which the tenant has raised as an affirmative defense a breach of the landlord's obligations under Civil Code Section 1941 or of any AB 2312 Page 6 warranty of habitability, the court shall determine whether a substantial breach of these obligations has occurred. (Section 1174.2.) 6)Provides that, if the defendant has filed an answer to the complaint, trial of the proceeding shall be held not later than the 20th day following the date that the request to set the time of the trial is made. (Section 1170.5 (a).) 7)If trial is not held within the 20th day, as specified, requires the court, upon finding that there is a reasonable probability that the plaintiff will prevail in the action, to determine the amount of damages, if any, to be suffered by the plaintiff by reason of the extension, and then issue an order requiring the defendant to pay that amount into court as the rent would have otherwise become due and payable or into an escrow designated by the court for so long as the defendant remains in possession pending the termination of the action. (Section 1170.5 (c).) 8)Provides the determination of the amount of the payment shall be based on the plaintiff's verified statement of the contract rent for rental payment, any verified objection thereto filed by the defendant, and the oral or demonstrative evidence presented at the hearing. Requires the court's determination of the amount of damages to include consideration of any evidence, presented by the parties, embracing the issue of diminution of value or any set off permitted by law. (Section 1170.5 (c).) 9)Requires the court, after trial of the action, to determine the distribution of the payment made into court or the escrow designated by the court. (Section 1170.5 (f).) AB 2312 Page 7 FISCAL EFFECT: As currently in print this bill is keyed non-fiscal. COMMENTS: This bill seeks to establish a controversial program for pre-trial rent deposit that would single out defendants in unlawful detainer cases for extra procedural requirements not placed on defendants in any other civil proceedings. According to the author, these extraordinary requirements are justified in order to address a growing epidemic of eviction delay tactics by unscrupulous tenant attorneys. According to the author: California has seen an emergence of eviction defense mills, which market themselves to tenants as a means of staying on their rental property rent-free for months using a variety of defense tactics. One of the most popular tactics to lengthen the unlawful detainer (UD) process is by requesting a jury trial. Knowing the high cost, time delay and lost rent to a property owner that a jury trial brings, eviction mills, on behalf of the tenants (defendants), often offer to waive the request for a jury trial if the owner agrees to forgive back rent, allow the tenant to stay additional months rent-free, pay the defendant's attorney's fees, and seal the future court record so that future landlords are unable to access faulty rent histories. Other defense tactics include filing claims that the tenant wasn't given sufficient notice of the UD lawsuit, which requires the landlord to re-serve the complaint (thus restarting the 5-day response clocks and 20-day court hearing clocks), requesting a period of time for discovery of additional information, claiming habitability issues, and filing demurrers challenging the premises of the unlawful detainer. The bill seeks to fix delays and abuses in the unlawful detainer process, whereby some tenants are frivolously using a jury trial to delay proceedings. The measure AB 2312 Page 8 requires defendants who request a jury trial and retain counsel to pay to their attorneys the rent as would otherwise be due during the duration of the trial to the landlord. The attorneys would hold the rent in their trust accounts, and upon a ruling by the court as to how the rent is to be disbursed, would pay the funds in the manner prescribed by the court. Opponents of the bill, including tenant advocates and legal aid organizations, are concerned that the bill is aimed not at fixing delays in the system, but at stifling legal representation of tenants. Among these opponents is Eviction Defense Network, who writes: The purpose of this bill is to fix a perceived 'imbalance' that has arisen in unlawful detainer litigation through the emergence of what the author terms 'eviction defense mills.' This terminology is coded language for eviction defense attorneys, and the imbalance that is suggested refers to the aforementioned expansion of legal representation for tenants facing eviction. The many ills listed in the bill correlate to the basics of legal representation for tenants: that is, the tenant's assertion of a constitutional right to a jury trial; discovery requests or the tenant's right to know the evidence against them, and the tenant raising basic defenses to the action such as habitability. The unavoidable inference is that the implicit aim of AB 2312 is to stifle legal representation of tenants. To the extent that tenant attorneys file motions or plead affirmative defenses solely to delay UD proceedings, it should be noted the law already provides strong potential remedies against unscrupulous attorneys. First, California lawyers are bound by the California Rules of Professional Conduct and relevant portions of the Business & Professions Code. These AB 2312 Page 9 rules generally prohibit an attorney from filing actions that the attorney knows to be without merit solely to delay the proceedings. (See e.g. California Rules of Professional Conduct Rule 3-200 and Business & Professions Code Section 6068 (c).) Existing rules of civil procedure permit the court to impose sanctions against any attorney who uses actions or tactics that "are frivolous or solely intended to cause unnecessary delay." (Sections 128.5 (a) and 128.6 (a).) Requiring deposit of rent as specified by this bill may amount to an unconstitutional deprivation of property without due process of law. Under this bill, if a landlord files an eviction against a tenant for nonpayment of rent, the tenant would be obligated, if represented by an attorney, to begin paying an amount of money equal to the monthly rent into a trust account maintained by the attorney. The bill requires this sum of money to be paid into the account on each date or occasion when the rent would have otherwise become due under the rental agreement, and the tenant's obligation lasts as long as the UD proceeding is pending, more specifically until either the landlord regains possession of the property, or the court enters judgment in favor of the tenant. For example, if T rents an apartment from L for $1000 per month, due on the 1st of each month and T fails to pay rent for two months, triggering L's right to file an eviction against T on the 24th of the month, under this bill, T would not be required to pay the past unpaid rent total of $2000. Instead, in order to make the payment obligation resemble the normal rent-paying obligation as much as possible, T would be required to pay $1000 into the special trust account seven days later, on the first of the month (assuming the UD proceedings are still pending and assuming that T were represented by an attorney). Should the case remain unresolved another 30 days later (and T were still represented by an attorney), T would again be obligated to pay $1000 into the account. According to the author, the tenant's attorney will hold and AB 2312 Page 10 protect the payments in the trust account until termination of the UD proceedings at which time the court will direct distribution of the trust funds. The duties of the tenant's attorney are to retain control of the acceptance of the future payments when they become due; account for the rental payments to the court; and use and maintain the trust fund account as he or she would customarily do for other legal matters. The author further states: In many cases, there is no legitimate defense, and the tactics are being used solely to delay the inevitable eviction. These procedures are costly to landlords, and it leads to an abuse of the already overburdened court system. By requiring tenants to pay the rent as would otherwise be due to the landlord to their attorneys, tenants would be discouraged from using the system solely to delay the UD proceeding, while allowing those cases in which tenants have legitimate claims against their landlords to move continue to move forward. If the court rules in favor of a tenant, wholly or partially, the tenant will receive that amount of money back as prescribed by the court. Opponents of the bill are concerned, however, that the required payment scheme outlined by the bill deprives the tenant of his property without due process, in violation of the 14th Amendment. They note that despite the author's characterization of the payments as "future contract rent," agreed at the time the lease was made, existing law makes clear that those payments constitute part of the damages claimed by the plaintiff in his cause of action. (See Code of Civil Procedure Section 1174 (b), allowing the court to award only those damages caused by the unlawful detainer itself, i.e. the reasonable rental value, calculated daily from the date of expiration of the termination notice and until the date of the judgment. (See, e.g. Roberts v. Redlich (1952) 111 CA.2d. 566.).) As part of the damages, the amount of rent owed must be proven by the plaintiff by a preponderance of the evidence; yet under this bill, these AB 2312 Page 11 payments must be made without allowing the defendant any opportunity to contest why he should not have to pay that amount into the trust fund established by this bill, to be held in trust for the plaintiff at a later date. According to the National Housing Law Project: AB 2312 raises significant constitutional concerns. In no other form of civil action in California is a defendant's right to retain an attorney and defend a lawsuit conditioned on his or her ability to pay claimed damages. Damages are an element of the plaintiff's cause of action, to be proven by a preponderance of the evidence by the plaintiff. In an unlawful detainer action, the tenant may negate the landlord's claim, in whole or in part, by disputing the amount of rent owed. For example, the landlord may have lost or disregarded a payment, unlawfully increased the rent, or failed to maintain the habitability of the premises. To require pre-deposit of the rent claimed would essentially concede the damages element to the landlord and deprive the tenant of property without due process of law. The due process concerns are even more compelling for low-income tenants with rental subsidies, who lack the financial means to post the entire unsubsidized rent in order to assert a meritorious defense. The question of whether the defendant owes all, some, or none of the claimed rent amount is a matter for the court to consider at trial based on evidence other than the amount of rent specified in the lease agreement. As the Legal Aid Foundation of Los Angeles (LAFLA) explains: AB 2312 incorrectly presumes that tenants who are accused of non-payment of rent always owe the amount of monthly rent that the landlord is demanding. In an unlawful detainer action, the tenant may negate the landlord's claim, in whole or in part, by disputing the amount of rent AB 2312 Page 12 owed. For example, the landlord may have lost or disregarded a payment, unlawfully increased the rent, or failed to maintain the habitability of the premises. In a recent non-payment case that was tried to a jury in Los Angeles, LAFLA's staff attorneys obtained a jury verdict for the defendant and the jury found that, due to the extreme slum conditions of the apartment, zero rent was owed. Certainly, requiring that tenant to pre-deposit the rent in the amount claimed by that landlord would have been unfair and inappropriate. Central California Legal Services (CCLS) succinctly articulates the objection raised by multiple opponents of the bill, as follows: "The bill violates tenants' right to due process by eliminating a plaintiff's duty to first prove alleged rental damages before a defendant becomes obligated to set aside such monies for plaintiff's benefit." Existing law that allows deposit of rent before entry of judgment, by contrast, provides due process protections not in this bill. Opponents contend that this bill may not be needed because existing law already allows a procedure that protects against unnecessary delay and extension of the trial. They point to this statute, CCP Section 1170.5, as an example of the type of due process protections that are needed if the tenant is to be made to pay an element of rent damages in advance of any entry of judgment in the case. Section 1170.5 pertains to situations where the defendant in a UD seeks extension of the trial, and guards against abuse of the statute by defendants seeking an extension to merely delay the proceedings. Section 1170.5 (c) provides that if the trial is not held within 20 days, the court, upon finding that there is a reasonable probability that the plaintiff will prevail in the action, shall determine the amount of damages, if any, to be suffered by the plaintiff by reason of the extension, and then issue an order requiring the defendant to pay the amount of the rent that would have otherwise become due and payable or into an escrow AB 2312 Page 13 designated by the court pending the termination of the action. Importantly, the statute provides due process to the parties. It allows the court to hold a hearing on the matter to ensure that if the plaintiff is to be entitled to damages because of the extension, then at least the defendant has an opportunity to be heard on the matter. At such a hearing, the plaintiff must show a reasonable probability that he will prevail and thus suffer damages. Opponents note that these elements are lacking from the rent deposit program described in this bill. Proponents contend that Section 1170.5 is insufficient to address delay tactics other than motions for trial extension, and that the Section 1170.5 process itself is too time consuming because an additional hearing is required. The Committee notes that a hearing is necessary to ensure due process. The deposit of rent program described by this bill raises (and leaves unanswered) many important legal and procedural questions. A quick reading of the bill leads to one basic question: what rules apply when the tenant has no attorney? According to the author, the bill simply does not apply when the tenant is unrepresented. In addition, there remain a number of basic, unanswered questions about procedural aspects of the bill, including the following: 1)What happens when the tenant is represented by counsel, but at some point in time becomes unwilling or unable to pay for the attorney, or pay the required funds into the trust account? What would become of deposits into the trust account at the end of the attorney's representation of the tenants? What sanctions or defenses, if any, are there for nonpayment by the tenant? 2)How does the bill apply to Section 8 tenants in default, AB 2312 Page 14 where for example the monthly rent is $1000 per month and the tenant is responsible for paying $400 per month in rent, while the government pays the remaining $600 in the form of a rental voucher? 3)How does the bill address what happens when there are four tenants being evicted, each jointly and severally liable for the rent, but only two tenants are represented by attorneys? What amount of rent would each tenant be obligated to pay into the trust account? 4)What happens if the tenant's attorney decides his duty of confidentiality to his client prevents him from disclosing to the plaintiff's attorney whether or not his client has complied with the requirements of this bill? 5)What duties does the tenant attorney have should their client, the defendant, stop making payments as required by this bill? 6)What consequence face an attorney should he or she continue to represent a tenant who stops making payments as required by this bill and the attorney either notifies the court of that fact, or fails to make such notification? Potential disincentive to seek representation; Professional conflict of interest for tenant's attorney. Opponents of the bill express additional concerns that this bill treats defendants differently based on whether or not they are represented by counsel. Because the author states that the bill simply does not apply to unrepresented clients, it appears that the bill effectively penalizes the very small minority of defendants who are fortunate enough to have legal representation AB 2312 Page 15 in unlawful detainer proceedings. This disparate treatment of tenants depending on whether or not they have attorneys raises equal protection concerns by enacting a penalty that only applies to one class of tenants (those with attorneys), even though all tenants in UD proceedings are similarly situated. At the very least, the bill creates a disincentive for tenants to secure legal representation to which they are constitutionally entitled, possibly interfering with their 6th Amendment right to counsel. Even though it is not the stated intent of the bill's author to discourage tenants from obtaining legal representation in UD proceedings, the bill's disparate treatment of tenants with attorneys and those without attorneys would certainly have that effect. The financial penalty on tenants with attorneys may also force tenants to choose between the benefit of having an attorney (which necessitates paying damages into the attorney trust account) and holding on to their limited funds for immediate everyday needs because they can't afford to pay for both the attorney penalty and those necessities. The bill also creates a professional conflict of interest for tenant attorneys. Attorneys are obligated to advocate for the interests of their clients and also to keep client communication confidential. This bill interferes with both obligations by requiring attorneys to disclose to a third party whether or not their clients have complied with the obligations arising under this bill, possibly jeopardizing the client's legal interest and breaching the duty of confidentiality. If an attorney had confidential information that a tenant client had not paid rent damages into the holding account, the attorney would be faced with the ethically untenable choice of complying with the requirements of this bill and betraying client confidence and best interests. The only alternative could be for the attorney to withdraw from the case, leaving the client without AB 2312 Page 16 representation. Central California Legal Services, Inc. (CCLS) contends that: This bill will reduce the total number of defendants able to secure representation by counsel in UD cases. . . . AB 2312 places a new obligation on tenant attorneys to collect and hold additional client monies in trust for the opposition, creating additional administrative burdens for UD defense attorneys. By requiring defense counsel to report to the other side whether or not they have received moneys from their clients, this bill also creates the likelihood that defense counsel would be turned into fact witnesses adverse to their clients. We anticipate that should this bill become law, many attorneys will avoid unlawful detainer defense so as to avoid the problematic burdens created by this bill. This bill appears to resurrect a failed pilot program from 1994. According to Western Center: California tried a version of this before and it failed. In 1994, the Legislature enacted SB 690 (Kopp), aka the "Pretrial Rent Deposit Pilot Project," as a pilot project in which tenants had to deposit unpaid rent as a condition of jury trial. The pilot ran for four years in several courts, including Los Angeles County. Notably, SB 690 provided far greater procedural protections for tenants than AB 2312, including affirmance by the landlord that the rental unit at issue did not have any health, safety, fire, rent control, or other local agency citations outstanding, and a pretrial hearing in which the court, before requiring deposit of unpaid rent as a condition of trial, had to determine whether the landlord had made out a prima facie case. The pilot was deemed a failure and was neither AB 2312 Page 17 renewed nor expanded. Yet AB 2312 would essentially re-enact statewide the worst aspects of a failed pilot. In response, proponents of the bill, including the Apartment Association, California Southern Cities, states: That measure was heavily burdened with unnecessary requirements and resulted in significant court costs. AB 2312 avoids those administrative costs, fees, oversight, structure and design. It also mitigates abusive litigation tactics from both sides. It is balanced: additional judicial involvement is minimal, if any. Tenants will pay future rent when due to their own counsel. Defendant's counsel must keep the money in his or her trust account, thereby assuring money will be accounted for and distributed as directed by the court. Property owners will be assured that the reasons proffered by the defense are not to be construed as a delaying litigation tactic. In response, WCLP contends that the "unnecessary requirements" and court costs that are bemoaned by the proponents of this bill are in fact part of the necessary due process protections that lawmakers insisted on back in 1994 in order to give SB 690 initial trial approval. Opponents accurately point out that the Legislature declined to extend authority for the SB 690 pilot program, despite the additional systemic protections adopted for that program, because there were still many outstanding concerns about due process that were experienced during the four-year trial period. REGISTERED SUPPORT / OPPOSITION: AB 2312 Page 18 Support California Apartment Association (CAA) California Association of Realtors Apartment Association, California Southern Cities Apartment Association of Greater Los Angeles Apartment Association of Orange County East Bay Rental Housing Association North Valley Property Owners Association San Diego County Apartment Association Santa Barbara Rental Property Association Western Manufactured Housing Communities Association Opposition AIDS Legal Referral Panel (ALRP) AB 2312 Page 19 California Rural Legal Assistance Foundation Central California Legal Services, Inc. (CCLS) Centro Legal de la Raza City of Santa Monica Clergy and Laity United for Economic Justice (CLUE) Community Legal Services in East Palo Alto Disability Rights California East Bay Community Law Center Eviction Defense Network Impact Fund Law Foundation of Silicon Valley Legal Aid Foundation of Los Angeles (LAFLA) Legal Aid Society of San Diego AB 2312 Page 20 Legal Services of Northern California National Housing Law Project Tenants Together Western Center on Law & Poverty (WCLP) Women Organizing Resources, Knowledge, and Services (WORKS) Analysis Prepared by:Anthony Lew / JUD. / (916) 319-2334