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Nebraska Supreme Court: Municipalities May Require Landlord Guaranty for Utility Services

on Monday, 24 August 2020 in Dirt Alert: David C. Levy, Editor

REO Enterprises, LLC v. Village of Dorchester, 306 Neb. 683 (2020).

REO Enterprises, LLC (“REO”) owns residential real property in the Village of Dorchester, Nebraska (“Dorchester”).  On May 1, 2017, Dorchester’s village board passed Ordinance No. 684 (the “Ordinance”).  The Ordinance stated, in part, “[b]efore a tenant’s utility application will be accepted, the landlord shall be required to sign an owner’s consent form and agree to pay all unpaid utility charges for his or her property.”

In July 2017, Dorchester refused to provide utility services to one of REO’s tenants based on her failure to obtain a guaranty for unpaid utility charges (a “Guaranty”) from REO.  REO refused to sign the Guaranty and sued Dorchester alleging that the Ordinance violated the Equal Protection Clauses of the U.S. and Nebraska Constitutions (the “Equal Protection Clauses”) and was therefore invalid. 

The issue was whether the Ordinance violated the Equal Protection Clauses based on its creation of two separate classes, which it treated differently under the law: 1) residential tenants, who had to obtain a Guaranty; and 2) residential owners, who did not.  The District Court of Saline County held that the Ordinance violated the Equal Protection Clauses and granted summary judgment in favor of REO.  Dorchester appealed.  The parties presented the same issue to the Nebraska Supreme Court.

The Court applied the “Rational Basis Test.”  Under the Rational Basis Test, the party challenging a law has the burden to eliminate any reasonably conceivable set of facts that could provide a rational basis for the classification it creates.  The Rational Basis Test is a three-part test which upholds a legal classification as long as: 1) there is a plausible policy reason for the classification; 2) the governmental decision maker may rationally consider the legislative facts supporting the classification to be true; and 3) the relationship of the classification to its goal is not so attenuated that it renders the distinction arbitrary and irrational.

The Court held that the Ordinance satisfied the Rational Basis Test and was therefore valid.  First, the Court determined that ensuring payment for utility services from tenants, who are transient and less easily pursued than owners are, was a plausible policy reason for the classification.

Second, Dorchester asserted that it had expended substantial resources trying to locate and obtain utilities payments from former tenants and that it had increased difficulty in doing so in comparison to owners.  The Court held that it was reasonable for Dorchester to rely on its experience.

Finally, the Court concluded that the classification related sufficiently to the goal of ensuring payment for utilities through cost-effective means and was not arbitrary or irrational.  Accordingly, the Court reversed the prior judgment and remanded the case to the District Court of Saline County for further proceedings.

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