The U.S. Supreme Court has outlined a three-step inquiry to determine whether or not a law violates the contract clause: (1) whether the Ordinance in fact operates as a substantial impairment of existing contractual relationships; (2) whether the city has a significant and legitimate public purpose justifying the Ordinance; and (3) whether the effect of the Ordinance on contracts is reasonable and appropriate given the public purpose behind the Ordinance.
Plaintiffs, property owners and managers, commenced action against defendants, city and its mayor, seeking a preliminary injunction to prevent enforcement of the newly enacted Residential Landlord and Tenant Ordinance, Chicago Mun. Code § 193.1.The ordinance contained provisions which prohibited late payment fees of more than $ 10.00 per month, required security deposits to be held in interest-bearing accounts, required acceptance of subleases, and shifted duties of repair from tenant to landlord. Plaintiffs alleged the statute violated various state and federal constitutional provisions. Plaintiffs' motion was denied. On appeal, the court affirmed the order denying the preliminary injunction.
Did the district court err in denying the preliminary injunction?
The court affirmed the denial because plaintiffs failed to show they would likely prevail on any of their constitutional claims. The court reasoned that the statute did not violate substantive or procedural due process since the legislature had authority to regulate the landlord-tenant relationship and did not do so in an arbitrary way.