Montgomery County v. Glenmont Hills Associates Privacy World

WILNER, Judge. The Montgomery County Commission on Human Rights, in a contested case proceeding, found that appellee Glenmont Hills Associates, a landlord in Montgomery County, was in violation of a county housing discrimination ordinance by refusing to rent apartments to persons receiving rental assistance under the Federal Housing Choice Vouchers Program (HCVP), 42 U.S.C. § 1437f. In a judicial review action filed by Glenmont, the Circuit Court for Montgomery County overturned the administrative decision, and the county appealed. Because of the public importance of the case, we granted certiorari prior to proceedings in the Court of Special Appeals.

Three principal issues are presented: (1) Whether the ordinance, § 27-12 of the Montgomery County Code (MCC), may properly be construed as prohibiting landlords in the county from refusing to rent apartments to persons presenting rental assistance vouchers under HCVP, thereby requiring landlords to participate in that program; (2) If so, whether the ordinance, to that extent, is preempted by the Federal law, under which participation in HCVP by landlords is not compulsory; and (3) If the ordinance is valid, whether appellee violated it. We shall hold that MCC § 27-12 does preclude landlords subject to that section from refusing to rent apartments to otherwise qualified applicants solely because they propose to use the Federal HCVP vouchers in part payment of the rent. We shall hold further that the county ordinance is not preempted by the Federal law, either under a general supremacy analysis or pursuant to the “spending clause” of the U.S. ²⁵⁵ Constitution (Art. I, § 8, Clause 1), and we shall sustain administrative findings that appellee violated the ordinance. BACKGROUND The Federal HCVP In 1937, Congress inaugurated a major Federal effort to provide decent and affordable housing for low-income people by enacting the United States Housing Act (P.L. 75-412).

The thrust of that Depression-era statute, aimed not only at the development of additional housing stock but also job creation and slum clearance, was to provide Federal funding to enable State or local public housing agencies (PHAs) to construct and manage public housing projects. For about thirty years, public housing facilities constructed with Federal funds and owned and operated by PHAs were the dominant source of governmental housing assistance for low-income families. Not everyone was enamored with that approach, of concentrating on the development of often large publicly-owned structures to provide low-cost housing. From the beginning, the alternative of using public funds to subsidize the rental of apartments in private structures had been urged, ie., to use and expand the stock of privately owned housing rather than depend upon publicly owned and operated facilities.

Congress moved in that direction in 1965 when, as part of the Housing and Urban Development Act of 1965 (P.L. 89-117), it authorized a new program under which PHAs, through contracts with private owners, could lease apartment units in existing private apartment buildings and then sublease those units to current public housing tenants. Although other mechanisms were permitted, it was anticipated that the PHA would pay the negotiated market rent to the landlord, the low-income tenant would pay a minimum rent based on an income formula to the PHA, and the Government would make up the difference. Known as the Section 23 program because it took life from a new § 23 added to the 1937 United States Housing Act, this was an attempt to permit greater utilization of the ²⁵⁶ private housing stock and give PHAs more flexibility in providing housing for different kinds of families. See House Report No. 365 to accompany H.R. 7984, May 21, 1965, 1965 U.S.Code Cong. & Admin.News. 2614, 2625.

This was obviously a voluntary program. Congress made clear that the housing “must freely be made available, since eminent domain will not be used.” Id. In 1970, Congress expanded the § 23 program by allowing PHAs to lease units in newly constructed buildings, not just already-existing ones. See Housing and Urban Development Act of 1970 (P.L. 91-609).

A voucher-type program came into full play, as the new centerpiece of Federal low-income housing policy, with the Housing and Community Development Act of 1974 (P.L. 93-383). Although that Act is often viewed as the progenitor of the Section 8 voucher program, it was more in the nature of, and was referred to as, a rental certificate program. 1 In contrast to the lease and sublease approach under the § 23 program, the new program called for a direct lease, in compliance with requirements of the Act, between the landlord and the low-income family. The tenant would pay directly to the landlord an amount of rent equal to 25% of his/her adjusted income. The PHA would enter into a separate contract with the landlord to pay the difference between that amount and the agreed rent, in the form of housing assistance payments.

As noted in the HCVP Guidebook published by HUD, that program grew rapidly and became popular with Congress, local governments, owners, and low income families because it provided assistance quickly, allowed families both a better choice of housing and anonymity, dispersed low-income families throughout the community, did not create community objection to public projects, and was relatively inexpensive per family assisted. See HUD, Housing Choice Voucher Program Guidebook, 1-3. ²⁵⁷ Congress tinkered with the certificate/voucher program frequently during the 1980s and 1990s in an attempt to provide greater flexibility in it, and, until 1998, HUD had at least two alternative programs operating at the same time—the certificate program emanating from the 1974 Act and the voucher program emanating from the Housing and Community Development Act of 1987. The difference between the two programs was largely that there was no fair market rent limitation in the voucher program, nor was there a cap on the percentage of their own income that tenants could pay toward rent. In 1994 and 1995, HUD attempted by regulation to combine aspects of the two programs that did not have different statutory requirements.

In 1998, through the Quality Housing and Work Responsibility Act of 1998 (P.L. 105-276), Congress merged the certificate and voucher programs, and eventually, the certifícate program was phased out. What survives is the HCVP that is now before us. The statutory basis for the program, found in 42 U.S.C. § 1437f., is supplemented by HUD regulations found in 24 CFR Part 982. HCVP remains part of a multifaceted Federal housing program authorized under 42 U.S.C. §§ 1437 through 1440.

In creating the various Federal housing assistance programs, Congress declared, in pertinent part, that it was the policy of the United States to promote the general welfare by using Federal funds and credit to assist the States and their political subdivisions to “address the shortage of housing affordable to low-income families.” See § 1437(a)(1). Congress recognized that the Federal Government could not provide housing for all, or even most, American citizens through its direct action alone and that the goal of providing decent and affordable housing required the efforts of “Federal, State, and local governments, and by the independent and collective actions of private citizens, organizations, and the private sector.” Id. at § 1437(a)(4). The essence of HCVP is that HUD provides the funding to local PHAs, which administer the program in accordance with an Administrative Plan that the PHA must adopt and which must conform to HUD regulations. As set forth in the HUD ²⁵⁸ regulations and the testimony in this case of William Murphy, on behalf of the Montgomery County Housing Opportunities Commission—the county PHA—HCVP works this way.

HUD establishes fair market rents for each market area in the U.S. The local PHAs then must adopt a schedule that establishes voucher payment standard amounts for each fair market rent area within its jurisdiction. Subject to discretionary waiver by HUD, the payment standard must be between 90% and 110% of the relevant fair market rent. A family may lease an apartment for more or less than the payment standard, but that standard governs the amount of PHA housing assistance. The base amount of rent that must be paid by the family is the greater of 30% of its adjusted income or 10% of gross income, but, if the total rent exceeds the PHA payment standard, the family must pay that difference as well.

See 24 CFR § 982.503 , 505, 515; HUD, Housing Choice Voucher Program 1-6. In conformance with criteria set forth in HUD regulations, the PHA, pursuant to its Administrative Plan, selects and qualifies prospective low-income tenants. In Montgomery County, the PHA was assisting fewer than 5,400 families and had a waiting list of about 10,000 eligible families. When a family is actually selected from the waiting list, they complete an application to assure eligibility based on income and lack of criminal background. 2 If the family is approved, the PHA provides information about the program,- including information on Federal, State, and local equal opportunity laws, how to select a unit, and “a list of landlords or other parties known to the PHA who may be willing to lease a unit to the family, or help the family find a unit.” 24 CFR § 982.301 (b).

The family receives a HUD voucher from the PHA, which is good for at least 60 days and may be renewed, and a form that the family uses to request PHA approval of an assisted tenancy. ²⁵⁹ The family then attempts to find an apartment and negotiate the rent and other terms of a lease. There is no direct requirement in the Federal law or HUD regulations that a landlord participate in HCVP or accept Section 8 vouchers; nor, subject to certain Federal, State, or local anti-discrimination provisions, must a participating landlord accept a particular tenant. 3 Indeed, under HUD regulations, the landlord is responsible for screening prospective Section 8 tenants and may consider a family’s background and tenancy history with respect to payment of rent and utility bills, caring for the apartment, respecting the rights of other residents, drug-related or other criminal activity, and compliance with other essential conditions of tenancy. See 24 CFR § 982.307 (a). If the landlord and tenant reach agreement, the tenant presents to the PHA a request for tenancy approval.

In order to approve the tenancy, the PHA must determine (1) after an inspection of the apartment, that it meets the housing quality standards established by HUD in 24 CFR § 982.401 , (2) that the rent is reasonable, i.e., that it falls within certain HUD-established guidelines set forth in 24 CFR § 982.507 , and (3) that the lease conforms to HUD requirements. In that last regard, the lease must be either the standard lease used by the landlord for non-assisted tenancies or a model lease prepared by HUD and must include, in either case, a HUD-prepared addendum that sets forth certain rights of the tenant and landlord. If the tenancy is approved, the PHA enters into a standard housing assistance payment agreement with the landlord under which the PHA will pay the appropriate housing assistance supplement to the landlord. The County Housing Discrimination Ordinance Montgomery County has had a local fair housing law since 1968.

Initially, the law prohibited discrimination in the sale or rental of housing in the county based on color, religious creed, ²⁶⁰ ancestry, or national origin. See Mont. Citizens League v. Greenhalgh, 253 Md. 151 , 252 A.2d 242 (1969). Over the years, that law has become incorporated into a much broader anti-discrimination ordinance, and several additional bases of discrimination have been prohibited.

See MCC, Ch. 27, §§ 27-1 through 27-63. In 1991, the County Council added to § 27-12, which prohibits discriminatory housing practices, provisions that make it unlawful for certain landlords in the county to refuse to lease or rent housing to any person based on “source of income.” 4 That term is defined in § 27-6 as including “any lawful source of money, paid directly or indirectly to a renter or buyer of housing, including income from ... any government or private assistance, grant, or loan program.” The county construes “source of income” as including Section 8 vouchers. Procedural History Of This Case Glenmont owns a multi-unit residential apartment complex in Montgomery County. The complex is subject to MCC § 27-12, and Glenmont is therefore prohibited under that section, as the county construes it, from refusing to lease apartments to otherwise acceptable tenants solely because they intend to use Section 8 vouchers in payment of the rent.

Glenmont participates in other housing assistance programs for low-income persons, but, as a matter of business policy, it has chosen not to participate in HCVP, which, as noted, it is not required by the Federal law to do. It therefore has refused to lease apartments to persons intending to use Section 8 vouchers, even if those persons would otherwise be acceptable tenants. When, pursuant to that policy, Glenmont turned away an applicant presenting a Section 8 voucher and later confirmed ²⁶¹ to a “tester” dispatched by the County Human Rights Commission that it does not participate in HCVP, the Commission, pursuant to MCC § 27-7, filed a complaint against Glenmont with the Director of the County Office of Human Rights, alleging a violation of § 27-12. A separate complaint was filed by the rejected prospective tenant, Ms. Walker.

The procedure for dealing with such complaints, as set out in MCC § 27-7, is for the Director to conduct an investigation into the complaint and determine whether there are reasonable grounds to believe that a violation has occurred. If the Director finds that to be the case and the matter is not successfully conciliated, the Director certifies the complaint to the Commission, which then must appoint a “case review board” to consider the complaint. The case review board may refer the matter to a hearing examiner to conduct a hearing and make recommendations. If that course is chosen, the case review board must consider and may adopt, reverse, or modify the hearing examiner’s recommended decision, or remand the matter to the hearing examiner for some further consideration.

If it adopts the hearing examiner’s recommendation, it issues a “final decision.” That decision may include an award of damages and any other relief the law allows. The final decision of the case review board is then subject to judicial review. Those were the procedures followed in this case. On December 7, 2002, the Director, acting on the Commission’s complaint, determined that reasonable grounds existed to believe that Glenmont had engaged, and was continuing to engage, in discrimination in residential real estate on the basis of source of income, in violation of MCC § 27-12.

She rejected Glenmont’s defense that it was willing to accept Section 8 vouchers provided that it did not have to comply with the Federal requirements for that program—that it did not have to enter into a contract with the PHA, that it did not have to incorporate the lease provisions required by the Federal program, and that the subsidy checks would be payable jointly to it and the tenant. By seeking to impose those conditions, she concluded, Glenmont deprived prospec ²⁶² tive Section 8 tenants from obtaining housing based on their source of income. On February 6, 2003, the Director issued a similar determination with respect to Ms. Walker’s complaint. When conciliation proved unsuccessful, the Director certified the complaint to the Commission, which appointed a case review board to consider it.

The case review board delegated the matter to a hearing examiner, who consolidated the two complaints. After conducting a nearly-six hour hearing, the hearing examiner, on October 28, 2004, filed a 93-page report and recommendation, in which he concluded that (1) MCC § 27-12 applies to Section 8 vouchers, which constitute a “source of income,” and it therefore prohibits landlords subject to the section from refusing to rent apartments to persons intending to use Section 8 vouchers toward the payment of rent, (2) that prohibition is not preempted by the Federal law, under which participation by landlords in HCVP is not compulsory, (3) the prohibition is also not precluded by the “spending clause” of the U.S. Constitution (Art. I, § 8, Clause 1), and (4) Glenmont’s policy and conduct do amount to discrimination based on source of income and therefore constitute a violation of § 27-12. In finding that violation, the hearing examiner rejected the legitimacy of Glenmont’s argument that its non-participation in HCVP rested solely on its desire not to become entangled with what it regarded as the administrative burdens inherent in the Federal program. The additional requirements, the hearing examiner found, had not been shown to be unduly burdensome.

In furtherance of those conclusions, the hearing examiner recommended an award of $5,000 in damages to Ms. Walker, $2 in civil penalties, $9,000 in attorneys’ fees to the county, and certain mandatory equitable relief. The case review board, after considering argument by both sides, adopted the hearing examiner’s recommendations, with two exceptions. In rejecting Glenmont’s administrative burden argument, the hearing examiner essentially concluded that Glenmont had not established the existence of such a burden. The case review board went further and held that ²⁶³ administrative burden was legally irrelevant and that, in any event, there was direct evidence of wilful discriminatory intent.

In light of that belief, the case review board rejected the nominal civil penalties recommended by the hearing examiner and instead imposed civil penalties of $7,500 for each of the two violations—a total of $15,000. Aggrieved, Glenmont sought judicial review. The Circuit Court seemed to agree with the administrative decision that the prohibition in § 27-12 against discrimination based on source of income was not preempted by Federal law. The court observed that there was no articulation in the Federal statute of any express intent by Congress to preempt State or local law, that the Federal legislation was not so comprehensive that an inference could be drawn of a Congressional intent to fully regulate the area, that there was no direct conflict between the Federal and local law, and that, as the voluntary nature of the Federal program did not lie at the heart of the Federal law, the local provision would not hinder the accomplishment of the objectives of the Federal law.

Notwithstanding those conclusions and the further determinations that the County Council clearly intended “source of income” to include a Section 8 voucher and that such a voucher “is obviously a form of government assistance, and it provides the landlord with money just as if the tenant had paid the landlord directly,” the court declared that Section 8 vouchers could not be regarded as a “source of income” for purposes of MCC § 27-12 because “the County cannot force a landlord to enter into a contract with the federal government, when the landlord has no desire to enter into such a relationship and the landlord is unable to negotiate the terms of the contract.” Such a result, the court declared, “is patently unjust and beyond the scope of the County’s power.” As alternative bases for reversing the administrative decision, the court further found that (1) Glenmont’s refusal to rent to Section 8 tenants was not based on their status as Section 8 voucher holders, but rather on a legitimate, nondiscriminatory desire “to avoid the administrative hassle of the ²⁶⁴ program,” and (2) the Commission on Human Rights had failed to establish “the necessary discriminatory animus” on the part of Glenmont. Despite its seemingly clear holding that, for undefined reasons other than preemption, the county was precluded from including Section 8 vouchers as -a source of income, the court, in its concluding statement, stated that “[t]his Court does not reach the question of whether a Section 8 voucher is a ‘source of income’ under § 27-12.” DISCUSSION Whether “Source of Income” Includes Section 8 Vouchers Although this issue, of whether the “source of income” provision in MCC § 27-12 applies to Section 8 vouchers, was certainly raised in both the administrative proceeding and the Circuit Court, and the Circuit Court’s ruling was based almost entirely on the court’s view that Section 8 vouchers do not constitute a source of income for purposes of MCC § 27-12, Glenmont does not press the ordinance-construction argument in this appeal. The thrust of its argument before us is that the application of § 27-12 to Section 8 vouchers is preempted by the Federal law and that Glenmont had legitimate reasons not to rent to Section 8 voucher holders. Nonetheless, because the Circuit Court’s decision was so centrally premised on the ordinance-construction issue, we need to address it.

The “source of income” provision, as noted, was added in 1991. It applies only to the housing discrimination part of the law, § 27-12. The term is defined in MCC § 27-6 to mean “any lawful source of money, paid directly or indirectly to a renter or buyer of housing,” including income from any lawful occupation, any gift, alimony, child support, other lawful compensation or benefit, or “any government or private assistance, grant, or loan program.” Unquestionably, HCVP is a government assistance program, and, although the housing assistance payment under that program is made by the PHA to the landlord, rather than to the tenant, that payment is in partial satisfaction of the rent due by the tenant under the lease. The housing assistance payment to the landlord is thus ²⁶⁵ clearly and identifiably on behalf of the tenant and, in this context, is the functional equivalent of the money being paid to the tenant and then paid by the tenant to the landlord. 5 It therefore constitutes money paid indirectly to the tenant, the same as if the tenant arranged for income from employment to be paid directly by the employer to the landlord.

That construction is not just supported, but mandated by the legislative history of that part of the ordinance. The provision was added in 1991 by Bill No. 70-90, introduced by Councilmen Leggett and Potter. The Legislative Request Report states as the problem intended to be addressed by the Bill “[rjeported cases of discrimination in the rental of housing against recipients of Section 8 housing assistance.” Most of the people who testified at the public hearing on the Bill assumed that “source of income” would include Section 8 vouchers. 6 From that testimony and from the comments of ²⁶⁶ the Council members, it is clear beyond cavil that everyone understood not only that “source of income,” as defined in the Bill, included Section 8 vouchers, but that such inclusion was the major thrust and purpose of the Bill. The press release from the County Government issued upon enactment of the Bill stated that the definition of “source of income” includes “participation in a housing subsidy program such as Section 8 Rental Assistance” and that, under the new amendment “a housing provider may not refuse to rent a unit to a person with a Section 8 certificate or voucher merely because the person is participating in the program.” Reading the language of the ordinance, in light of this clear legislative history, we hold that “source of income” does include vouchers issued under HCVP.

Federal Preemption Glenmont’s preemption argument, under both a supremacy and “spending clause” analysis, is based entirely on the fact that nothing in the Federal law requires landlords to participate in HCVP. The county concedes that to be so, and it is so. Glenmont argues that, with the 1991 amendment precluding discrimination based on source of income, MCC § 27-12 makes participation in HCVP mandatory in the county and thus conflicts with the Federal approach of voluntary participation. 7 The Federal preemption doctrine arises, as a matter of Federal law, from the Supremacy Clause in the U.S. Constitution, Art. VI, clause 2, and, as a matter of Maryland law, from ²⁶⁷ Art. 2 of the Maryland Declaration of Rights. In Wells v. Chevy Chase Bank, 377 Md. 197 , 832 A.2d 812 (2003), we recounted the rules governing the application of that doctrine, noting that preemption may occur in one or more of three circumstances: (1) Express preemption: where Congress has expressly stated its intent to preempt State law; (2) Preemption by occupation of the field: even in the absence of such express intent, where there is evidence of Congress’s intent to exclusively occupy a given field and the State law falls within that field; and (3) Preemption by direct conflict: where there is a direct conflict between the Federal and State law, to the extent that “compliance with both federal and state law is a physical impossibility.” Id. at 209-210 , 832 A.2d at 819-20 , quoting in part from Law v. International Union, 373 Md. 459, 466-67 , 818 A.2d 1136, 1141 (2003).

In Maryland v. Louisiana, 451 U.S. 725, 746 , 101 S.Ct. 2114, 2129 , 68 L.Ed.2d 576, 595 (1981), the Supreme Court observed that “[c]onsideration under the Supremacy Clause starts with the basic assumption that Congress did not intend to displace state law.” (Emphasis added). That principle was confirmed in Medtronic v. Lohr, 518 U.S. 470 , 116 S.Ct. 2240 , 135 L.Ed.2d 700 (1996), where the Court noted that “[i]n all preemption cases, and particularly in those in which Congress has ‘legislated ... in a field which the States have traditionally occupied’ ... we ‘start with the assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress.’ ” Id. at 485 , 116 S.Ct. at 2250 , 135 L.Ed.2d at 715 , quoting in part from Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 , 67 S.Ct. 1146, 1152 , 91 L.Ed. 1447, 1459 (1947). In Law, supra, we construed that to mean that, when Congress does not expressly state its intent, “there is a presumption against preemption.” 373 Md. at 467 , 818 A.2d at 1141 . The Maryland v. Louisiana Court explained the circumstances under which, absent express preemption or a direct conflict between the Federal and State law, an implied pre ²⁶⁸ emption may be found: if the scheme of federal regulation is “so pervasive as to make reasonable the inference that Congress left no room for the States to supplement it,” if the Federal law “touch[es] a field in which the federal interest is so dominant that the federal system will be assumed to preclude enforcement of state laws on the same subject,” if the “object sought to be obtained by the federal law and the character of obligations imposed by it ... reveal the same purpose,” or if “the state policy may produce a result inconsistent with the objective of the federal statute.” Id. at 746-47, 101 S.Ct. at 2129 , 68 L.Ed.2d at 595-96 .

Glenmont does not assert an express preemption in the relevant Federal statutes, and, indeed, there is no basis for any such assertion. Nor does it argue that those statutes constitute such a pervasive regulation of public housing assistance for low-income families as to evidence an intent to exclusively occupy the field and exclude the States from participation in it. There, too, no basis exists for any such assertion. As noted, Congress made abundantly clear, both in § 1437(a) and in the Committee reports attached to the various statutes authorizing the certificate and voucher programs, that the programs to provide affordable housing for low-income families was a collaborative effort between the Federal Government and the States and that the purpose of the Federal programs was “to assist States and political subdivisions of States to address the shortage of housing affordable to low-income families.” HCVP is