The case is City of Hammond v. Herman & Kittle Properties, Inc., a grueling 56-page Opinion of the COA delivered February 20, 2018 and declaring unconstitutional certain legislation that would limit the annual rental unit registration fee chargeable by any municipality other than Bloomington and Lafayette, both known for their major colleges within relatively small cities. To the City of Hammond its victory means that it can charge a fee of $80.00 per year per rental unit registration (plus future increases) rather than the $5.00 annual fee allowable under the challenged statute. The CLB expects that there will be a Transfer Petition and that the SCOTSI will grant Transfer.
Article 4 Sec. 22 of the Indiana Constitution prohibits the General Assembly from passing “local or special laws” relating to 16 enumerated topics, including “fees or salaries.” Sec. 23 is redundant of Sec. 22 and adds that “…in all other cases where a general law can be made applicable, all laws shall be general, and of uniform operation throughout the State.” These Sections are the source of Indiana’s semi-familiar ban on “special legislation.” According to precedent, special legislation relating to one of the 16 topics of Sec. 22 is per se unconstitutional. In “all other cases” under Sec. 23 there may be “special” legislation that is made constitutionally permissible by the unique traits of the place, person, or thing of its targeted applicability.
In this summary of the case I will not dwell on side issues (like Hammond’s standing to challenge a statute). Here is the gist of the case.
In 2011 the General Assembly (prompted by lobbyists, no doubt) began to legislate in the area of rental registration and inspection. The legislative aim was to cap (at a low figure) what municipalities could charge for rental registration. The General Assembly intended to exempt from the cap only college towns Bloomington and Lafayette. Due to bad information, the General Assembly inadvertently awarded a “fee exemption” to Hammond when it declared a fee exemption for municipalities having a rental registration program pre-dating July 1, 1984.¹
While Hammond was suing landlord Herman & Kittle Properties, Inc. (HKP) for thousands of dollars in unpaid registration fees and tens of thousands of dollars in penalties, the General Assembly must have been advised of its error in unintentionally granting a windfall to Hammond and thereby diminishing the uniqueness of the cities favored by a rental registration fee exemption.
In 2015 the General Assembly tweaked the definition of “rental registration or inspection program” in a fashion that excluded the Hammond program, thus depriving Hammond (prospectively) of its fee exemption for the registration of rental properties while maintaining the favored status of Bloomington and Lafayette. Hammond responded by amending its Complaint against HKP to challenge the constitutionality of the rental registration fee cap of IC 36-1-20-5 on the collateral theory that the exemption of Bloomington and Lafayette rendered the statute unconstitutional as “special legislation.” The AG joined the suit to defend the challenged statute.
The trial court held that the legislation was “special” but nonetheless constitutional given the unique circumstance of rental properties in Bloomington and Lafayette. The COA wrongly held that the “salaries and fees” topic of Article 4 Sec. 22 included user fees of the type involved. The COA was wrong in that holding because the Sec. 22 term “fees” draws meaning from its partner term “salaries” and applies to the 19th century “fee system” (now abrogated) of using fees collected by county officers for their direct compensation. Accordingly, the “fee” clause of Sec. 22 has no modern applicability. The COA also decided wrongly on the alternate basis that the unique circumstances of Bloomington and Lafayette were insufficient to justify disparate treatment under the standard of Article 4 Sec. 23 of the Indiana Constitution.²
Since the exemptions to Bloomington and Lafayette (which are not mentioned in the legislation) were held unconstitutional as “special legislation,” the next question was whether that unconstitutional circumstance (ensconced in the date of a grandfather clause and an amended definition) was severable from the remainder of the law. Without severability there would be no legislative cap on the fees that any municipality (state-wide) could charge for registration of rental property. Having decided everything else wrongly, the COA continued its streak by declaring all of IC 36-1-20-5 invalid. The COA’s holding against severability allows the tail to wag the dog, scrapping the fee cap for the entire state because the exemptions for two municipalities were held invalid. As mentioned above, the CLB predicts Transfer and a different outcome in the SCOTSI. When the SCOTSI finds the statute constitutional, the severability issue will become moot.
Here is brief mention of legislative outrages gone unnoticed in the COA Opinion. Two of these outrages were committed by the legislative body (the Common Council) of the City of Hammond while one was committed by the General Assembly. The Hammond Ordinance that (initially, at least) grandfathered Hammond into the registration fee exemption status was the 1961 Ordinance 3337 or City Code §96.135(B). The Ordinance purported to establish a dwelling unit inspection program for both rentals and owner-occupied dwellings. The outrage of the Ordinance is its grant (to certain City agents) of authority “to enter, examine and survey at all dwellings…” Any homeowner in Hammond who answers the knock of a City Inspector demanding to conduct an inspection should advise that agent to leave forthwith and to return, if at all, only with a warrant. This is the arrogance that we have learned to expect of municipal government to assume that it can obviate the Fourth Amendment warrant requirement by the majesty of an ordinance.
The second legislative outrage gone unnoticed by the COA pertains to the shifting of registration/inspection costs from a landlord to the tenant. Here is the text of IC 36-1-20-2(a):
Sec. 2. (a) Except as provided in subsection (b), the owner of a rental unit assessed any inspection, registration, or other fee by a political subdivision pertaining to the rental unit may:
(1) notify the tenants of the rental unit of the assessment of the fee; and
(2) require the tenants of the rental unit to reimburse the owner for the payment of the fee.
It would seem that the General Assembly is “altogether uninformed” of Article I Sec. 10 of the United States Constitution and Article 1 Sec. 24 of the Indiana Constitution forbidding laws impairing contracts. The General Assembly is incompetent to legislate an addition to the financial obligations of a tenant that are expressly defined by a lease.
The third and final legislative outrage unnoticed by the COA arises from the absurdly punitive “late fees” assessed against HKP when it resisted paying high registration fees. Hammond sued for a total of $85,840.00. Of that amount, $74,000.00 was for late fees. Particularly when, as here, the sum of lawful registration fees was reasonably in dispute, such an assessment of late fees is draconian. The CLB calls for the General Assembly to amend the Home Rule restrictions of IC 36-1-3-8 to limit a municipality’s imposition of unconscionable, punitive late fees. Here is a more specific suggestion. The General Assembly could legislatively withhold from municipalities the power to charge a late fee exceeding 1% of the delinquent fee charged daily for 25 days, after which the municipality would be limited to charging a late fee equal to the rate allowed for prejudgment interest, currently 8% per annum without compounding. Interest-based late fees imposed by a municipality after the 25th day of delinquency should reduce dollar-for dollar any prejudgment interest otherwise available to the municipality in the case of judicial action, to establish or collect upon its claim. This would be fair to municipalities while also being fair to parties that lack the funds to pay and/or who wish to challenge the validity of a fee in court.
¹Hammond established a rental registration program by ordinance in 1961.
²A good example of how the SCOTSI deals with Sec. 23 challenges is found in State v. Buncich, 51 N.E.3d 136 (Ind. 2016). The SCOTSI affirmed therein the constitutionality of state legislation requiring a consolidation of small voting precincts only in Lake County.