Rewriting the Terms: The Contract Clause and Special-Interest Legislation in RUI One Corp. V. City of Berkeley

By Mitchell, Thomas E. | Harvard Journal of Law & Public Policy, Spring 2005 | Go to article overview

Rewriting the Terms: The Contract Clause and Special-Interest Legislation in RUI One Corp. V. City of Berkeley


Mitchell, Thomas E., Harvard Journal of Law & Public Policy


The City Council of Berkeley, California is well known for its energetic adherence to the left wing of American policy and politics. A ready example is its March 2004 determination that Congress should formally censure President Bush and Vice President Cheney; impeachment was the favored recommendation but was deemed impractical. (1) Such quixotic endeavors aside, the City Council has also engaged in an intermittent campaign against property and economic rights. In June 2004, for example, it passed a resolution in support of amendments to the United States and California Constitutions "to declare that corporations are not granted the protections or rights of persons." (2) And in July 2004, the Council amended the City's rent ordinance by adopting a measure that bars landlords from evicting tenants who illegally sublet their apartments. (3)

The subject of this comment is yet another manifestation of the Council's proletarian regulatory impulse. In September 2000, at the behest of a labor union, the Council enacted an amendment to the City's "living wage" ordinance applicable to a very narrow class of businesses operating on publicly leased real estate at the Berkeley Marina. This ordinance infringed important constitutional rights, and its validation by a Ninth Circuit panel majority in RUI One Corp. v. City of Berkeley (4) constitutes a troubling precedent likely to be used by states and municipalities nationwide to justify the singling out and burdening of individual business enterprises. The Contract Clause, despite several narrowing interpretations by the U.S. Supreme Court, ought to shield private citizens from precisely this sort of narrow, opportunistic legislation.

I. FACTUAL BACKGROUND

Restaurants Unlimited, Inc. ("Restaurants Unlimited") is a Washington corporation and the owner of some thirty restaurants, (5) including the one at issue here, Skates on the Bay ("Skates"). (6) Since November of 1984, Skates has been operated on property at the Berkeley Marina, a facility consisting of fifty-two acres of water with nearby shopping, dining and recreational facilities. (7) The City of Berkeley holds the real estate adjacent to the marina is held in public trust under a 1913 grant from the State of California. (8) In 1967, the City leased the lot on which Skates now does business to the predecessor in interest of Restaurants Unlimited; in 1996, Restaurants Unlimited subleased the property to its subsidiary, RUI One Corporation. ("RUI"). (9) The lease requires RUI to "maintain and operate thereon a major first-class restaurant and cocktail lounge for the convenience and promotion of commerce, navigation and fishery in the Berkeley Marina and for no other purpose." (10) The lease runs for a term of fifty years--until the end of 2017--and requires an annual rental payment of the greater of $11,400 or three percent of Skates' gross receipts. (11) The last renegotiation of the lease took place in 1996 upon the sublease to RUI, at which time RUI agreed to, among other things, an increase in rent reflecting the market value of the public trust land. (12)

The Berkeley City Council enacted its "living wage" ordinance ("LWO") on June 27, 2000. (13) "Living wage" ordinances such as Berkeley's require the payment of wages considerably higher than the federally imposed minimum; their aim is "to allow covered full-time wage earners to support a family residing in the locality at a subsistence level." (14) The Berkeley LWO requires the payment of a wage of $9.75 per hour if the employer also provides specified medical benefits, or $11.37 per hour without such benefits. (15) The ordinance applies only to "employers that received some form of financial benefit from the City," such as a municipal contract or a lease on public property. (16) It exempts any employer who enters into a collective bargaining agreement expressly providing for the applicable labor union's waiver of the "living wage" requirement. …

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