                     FOR PUBLICATION

    UNITED STATES COURT OF APPEALS
         FOR THE NINTH CIRCUIT


 SYLVIA LANDFIELD TRUST; MARIA                     No. 11-55904
 A. LANE; JEFF KERN; RAM GILL;
 KHUSHWANT GILL,                                     D.C. No.
                Plaintiffs-Appellants,            2:09-cv-01798-
                                                     JST-RZ
                     v.

 CITY OF LOS ANGELES; ANTONIO                        OPINION
 VILLARAIGOSA, Mayor; ROCKARD J.
 DELGADILLO, City Attorney,
              Defendants-Appellees.


        Appeal from the United States District Court
           for the Central District of California
     Josephine Staton Tucker, District Judge, Presiding

                  Submitted February 7, 2013*
                     Pasadena, California

                    Filed September 9, 2013

       Before: Harry Pregerson, William A. Fletcher,
        and Jacqueline H. Nguyen, Circuit Judges.

                  Opinion by Judge Pregerson

  *
    The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
2   SYLVIA LANDFIELD TRUST V. CITY OF LOS ANGELES

                           SUMMARY**


                            Civil Rights

   The panel affirmed the district court’s Fed. R. Civ. P.
12(b)(6) dismissal of plaintiffs’ complaint challenging the
constitutionality of the City of Los Angeles’s Rent Escrow
Account Program.

    The Los Angeles Rent Escrow Account Program (REAP)
is an administrative program codified in the Los Angeles
Municipal Code which authorizes the Los Angeles Housing
Department to place property into REAP when a landlord
fails to repair habitability violations. Plaintiffs, four
landlords whose separate apartment buildings were placed
into REAP by the City, alleged that REAP, as applied to
them, violated their substantive due process rights.

    The panel held that: (1) REAP was rationally related to
the legitimate governmental interests of repairing and
preventing substandard housing; (2) REAP did not violate
plaintiffs’ substantive due process rights; and (3) plaintiffs’
procedural challenges failed to support an as-applied
substantive due process claim because none of the allegations
plausibly suggested that REAP was arbitrarily and
unreasonably applied to any of the plaintiffs, or that the
placement of plaintiffs’ properties into REAP rose to a level
that shocked the conscience.




  **
     This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
   SYLVIA LANDFIELD TRUST V. CITY OF LOS ANGELES           3

                        COUNSEL

Lee Grant, Law Office of Lee Grant, Encino, California, for
Plaintiffs-Appellants.

Carmen A. Trutanich, City Attorney, and Claudia McGee
Henry, Senior Assistant City Attorney, Los Angeles,
California, for Defendants-Appellees.


                        OPINION

PREGERSON, Circuit Judge:

    This case involves a constitutional challenge to the
defendant City of Los Angeles’s (“City”) Rent Escrow
Account Program (“REAP”). REAP is an administrative
program codified in the Los Angeles Municipal Code
(“LAMC”).        The Los Angeles Housing Department
(“Housing Department”) places property into REAP when a
landlord fails to repair habitability violations. See Housing
Department Rent Adjustment Commission Regulations
(“RACR”) § 1200.04. When a property is placed into REAP,
tenants pay a reduced rent. RACR §§ 1200.05–.06. The
Housing Department determines the amount of the reduced
rent based on the severity of the habitability violations.
RACR §§ 1200.05–.06. Tenants may choose to pay their
reduced rent to either their landlord or an escrow account
maintained by the Housing Department. LAMC § 162.07;
RACR §§ 1200.05, 1200.13A. If tenants pay into the escrow
account, the tenant, landlord, or Housing Department may
apply to the escrow account’s manager for funds to repair the
habitability violations in the tenant’s housing. LAMC
§ 162.07; RACR § 1200.13(B).
4   SYLVIA LANDFIELD TRUST V. CITY OF LOS ANGELES

    Plaintiffs are four landlords whose separate apartment
buildings were placed into REAP by the City. Plaintiffs in
their complaint allege that REAP, as applied to them, violated
their substantive due process rights. The district court
dismissed plaintiffs’ complaint under Federal Rule of Civil
Procedure 12(b)(6) and denied their motion to amend their
second amended complaint. We affirm.

                    Standard of Review

    We review de novo the district court’s dismissal under
Rule 12(b)(6) and review for abuse of discretion the denial of
leave to amend. Manzarek v. St. Paul Fire & Marine Ins.
Co., 519 F.3d 1025, 1030–31 (9th Cir. 2008). “To survive a
motion to dismiss, a complaint must contain sufficient factual
matter, accepted as true, to state a claim to relief that is
plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (internal quotation marks omitted). “A claim has
facial plausibility when the plaintiff pleads factual content
that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Id.

                         Discussion

I. Placing Plaintiffs’ Property into REAP Did Not
   Violate Plaintiffs’ Substantive Due Process Rights

   To determine whether REAP violates plaintiffs’
substantive due process rights, we ask whether REAP, as
applied to plaintiffs, is “rationally related to a legitimate
governmental purpose.” Richardson v. City and Cnty. of
Honolulu, 124 F.3d 1150, 1162 (9th Cir. 1997) (internal
quotation marks omitted). We apply rational basis review
because landlords are not a protected class, and they have no
    SYLVIA LANDFIELD TRUST V. CITY OF LOS ANGELES                   5

fundamental right to rent uninhabitable housing. See id. We
affirm the district court’s dismissal because plaintiffs failed
to state a claim that their constitutional rights were violated.

    A. Legitimate Goal

    Plaintiffs claim that while REAP was originally
implemented for legitimate reasons related to public health
and safety, its current purpose is illegitimate. To survive
plaintiffs’ challenge, REAP must have a “reasonable
justification in the service of a legitimate governmental
objective.” Cnty. of Sacramento v. Lewis, 523 U.S. 833, 846
(1998).

    The Los Angeles City Counsel enacted REAP out of
concern that “large numbers of owners of rental housing are
not meeting the City’s minimum code requirements.” Zev
Yaroslavsky, Los Angeles City Council File 87-1084-s2, Oct.
13, 1987 [hereinafter “Yaroslavsky, 1987”].1

    “[O]ne of the most important and fundamental duties a
city can perform is to protect its residents from unsafe
housing conditions.” City and Cnty. of San Francisco v. Jen,
37 Cal. Rptr. 3d 454, 456 (Ct. App. 2005). It is not an easy
task for California cities to fulfill this fundamental duty. In
2001, the California legislature found that “one in every eight
dwelling units in the state is substandard and that unless
health and safety problems are corrected, habitability
conditions generally deteriorate until the units become life
threatening and uninhabitable and must be removed from the



       1
          Available at http://cityclerk.lacity.org/lacityclerkconnect/
index.cfm?fa=ccfi.viewrecord&cfnumber=87-1084-s2.
6   SYLVIA LANDFIELD TRUST V. CITY OF LOS ANGELES

housing stock through closure or demolition.” Cal. Health &
Safety Code § 17998(a).

    The crisis of substandard housing is especially severe in
Los Angeles. In 2011, the United States Census Bureau
surveyed 1,708,600 renter-occupied units in Los Angeles and
Long Beach and found: 449,100 of those units were infested
with cockroaches; 35,500 were infested with rats; 46,400 had
severe problems with their plumbing, heating, electricity, or
upkeep; and 62,300 lacked consistently working toilets. U.S.
Census Bureau, American Housing Survey for the Los
Angeles-Long Beach Metropolitan Area, 2011.2 Indeed,
plaintiffs’ own buildings had electrical, plumbing, fire safety,
and cockroach problems.

    California Civil Code § 1941 requires landlords who rent
residential property to maintain the property in habitable
condition. Cal. Civ. Code § 1941 et seq. California state law
provides limited remedies to tenants who live in
uninhabitable housing. But as explained below, these
remedies are insufficient to ensure that the habitability
requirements of § 1941 are met.

    California Civil Code § 1942 permits a tenant who lives
in substandard housing to make “repairs” needed to render
the housing tenantable, and then “deduct the expenses of such
repairs from the rent.” Cal. Civ. Code § 1942(a). The
repairs, however, cannot exceed the cost of one month’s rent.
Id. Furthermore, tenants may only employ this remedy twice
in any twelve-month period. Id. “These limitations
demonstrate that the [California] Legislature framed [§ 1942]

   2
      Available at http://factfinder2.census.gov/faces/tableservices/jsf/
pages/productview.xhtml?pid=AHS_2011_C05ROM&prodType=table.
    SYLVIA LANDFIELD TRUST V. CITY OF LOS ANGELES                   7

only to encompass relatively minor dilapidations in leased
premises.” Green v. Superior Court, 517 P.2d 1168, 1177–78
(Cal. 1974).

    In addition, California courts developed the doctrine of
constructive eviction. Id. at 1177. That doctrine allows a
tenant to abandon rental housing when the premises become
uninhabitable. Id. But constructive eviction “gives little help
to the typical low income tenant today because to avail
himself of the doctrine a tenant must vacate the premises. In
the present housing market many tenants cannot find any
alternative housing which they can afford, and thus
[constructive eviction] has in reality provided little comfort
to most needy tenants.” Id. at 1174, n.10 (internal citations
omitted).

    In response to a growing crisis of substandard housing, in
1988 the City of Los Angeles enacted REAP. Los Angeles
City Council Ordinance 164205, amending LAMC chapter
15.3 REAP was introduced as part of the City’s “more
vigorous stand against landlords of rental housing who allow
their buildings to deteriorate to the point where tenants are
living in substandard conditions.” Yaroslavsky, 1987.
Between 1989 and 1993, REAP proved “extremely effective
in forcing owners of slum dwellings to bring their buildings
up to at least minimum standards of habitability.” Zev
Yaroslavsky, Los Angeles City Council File 93-1850, Sept.
10, 1993.4


       3
          Available at http://clkrep.lacity.org/onlinedocs/1987/
87-1084-s2_ord_164205.pdf.
       4
          Available at http://cityclerk.lacity.org/lacityclerkconnect/
index.cfm?fa=ccfi.viewrecord&cfnumber=93-1850.
8   SYLVIA LANDFIELD TRUST V. CITY OF LOS ANGELES

    In 1993, an apartment fire in the Pico Union
neighborhood of Los Angeles killed ten people. Id. The
building that burned “was in violation of numerous city fire
codes [and] although citations had been issued, the building
was never brought up to code.” Id. In response to the
prevalence of “life-threatening fire safety violations,” the
City Council amended REAP to strengthen the program’s
enforcement powers. Id. (citations and internal quotation
marks omitted). REAP continues to enforce fire safety
regulations. In 2004, City inspectors cited one of the
plaintiff-landlords in this case for “inoperable or missing
smoke detectors.”

     Currently, the City places property into REAP when the
landlord fails to correct health, safety, or habitability
violations on the rented property. LAMC § 162.03–.04;
RACR §§ 1200.01(N), 1200.03–.04. Landlords may
challenge the placement of their property into REAP through
a hearing and appeals process. LAMC § 162.06; RACR
§§ 1200.07–1200.11. Property is released from REAP once
it is repaired and passes inspection. LAMC § 162.08; RACR
§ 1200.14.

    By allowing tenants to pay a reduced rent into an escrow
account to be used to repair their landlord’s uninhabitable
property, REAP addresses the health and safety problems
created by substandard housing and encourages landlords to
prevent those problems. See LAMC § 162.07; RACR
§ 1200.13. These are legitimate goals.

    REAP is one of numerous tools that the City employs to
enforce its housing code. Other tools include criminal
prosecutions and referrals to the State Franchise Tax Board.
In the past, the City criminally prosecuted one of the plaintiff-
    SYLVIA LANDFIELD TRUST V. CITY OF LOS ANGELES               9

landlords in this case for owning unpermitted and uninspected
units. That prosecution resulted in a fine, probation, and
house arrest. Nonetheless, the housing code violations
persisted, and the City referred the plaintiff’s case to the State
Franchise Tax Board. The Tax Board prohibits income tax
deductions for interest, taxes, amortization, or depreciation on
property that does not comply with the local or state housing
code. See California Revenue and Taxation Code §§ 17274,
24436.5. Simultaneously, the City placed the plaintiffs’
property in REAP. This history demonstrates that REAP
works in conjunction with other enforcement programs to
combat substandard housing in Los Angeles and to encourage
landlords to comply with the housing code. We thus
conclude that since its enactment REAP has served, and
continues to serve, legitimate governmental goals.

    B. Rationally Related to a Legitimate Governmental
       Purpose

    Governmental action is rationally related to a legitimate
goal unless the action is “‘clearly arbitrary and unreasonable,
having no substantial relation to the public health, safety,
morals, or general welfare.’” Lebbos v. Judges of Superior
Court, Santa Clara Cnty., 883 F.2d 810, 818 (9th Cir. 1989)
(quoting Village of Euclid v. Ambler Realty Co., 272 U.S.
365, 395 (1926)). Plaintiffs contend that the application of
REAP to their property bore no rational relationship to a
legitimate governmental purpose because (1) their property
was improperly designated as substandard, and (2) the City
uses REAP to enrich itself and its nonprofit partners. First,
plaintiffs’ complaint challenges the designation of their
property as substandard. REAP established criteria to
identify substandard housing. REAP deems a residential unit
“untenantable” if it lacks sufficient waterproofing, weather
10 SYLVIA LANDFIELD TRUST V. CITY OF LOS ANGELES

protection, plumbing, gas facilities, water supply, heating
facilities, or electrical lighting. RACR § 1200.01(N). REAP
also mandates that the building and grounds be free of
“debris, filth, rubbish, garbage, rodents and vermin . . . .” Id.
Buildings must have garbage receptacles, and landlords must
maintain floors, stairways, and railings in good repair. Id.
The City places housing in REAP if landlords do not repair
tenantability violations, as determined by the Housing
Department. LAMC § 162.03–.04; RACR § 1200.04.

    Plaintiffs allege that the City improperly placed property
into REAP because of damage that their tenants caused.
Plaintiffs, however, do not dispute that their property was in
violation of housing codes. Moreover, the landlord may
appeal a decision placing a unit into REAP. At the hearing,
“[t]he landlord may present proof that a rent reduction is not
appropriate because the violations were caused by the
tenants.” LAMC § 162.06(c)(3). Thus, REAP protects
against landlords being arbitrarily held responsible for tenant-
caused damage.

     Plaintiffs allege that lack of weatherproofing on the roof
of one property did not justify placing the property in REAP.
But improper roof weatherproofing is a tenantability violation
that REAP seeks to prevent and correct. Cal. Civ. Code
§ 1941.1(a)(1) (“A dwelling shall be deemed untenantable . . .
if it substantially lacks . . . [e]ffective waterproofing and
weather protection of roof and exterior walls . . . .”); LAMC
§ 162.03.

    Plaintiffs allege that the Housing Department improperly
retained property in REAP because of construction, including
a garage conversion, that was built without required permits.
Plaintiffs argue that unapproved housing units are not a
    SYLVIA LANDFIELD TRUST V. CITY OF LOS ANGELES 11

habitability concern. But rental housing constructed without
permits may be a danger to public health and safety because
the construction was not checked for code compliance. Thus,
placing property into REAP because of unapproved
construction is also rationally related to REAP’s goals.

    Second, plaintiffs’ complaint alleges that the City used
REAP to improperly take plaintiffs’ property to enrich “the
government” and its third-party contractors. According to the
complaint, “the reason for REAP is ultimately to transfer
private property from individuals to other private entities . . .
not to benefit the public . . . but to financially enrich the
government-corporate ‘partnership’ that supports REAP,
while depriving individuals of due process under color of
law.” Plaintiffs’ complaint, however, contains no facts to
plausibly establish this claim and their bare allegation of
wrongdoing is insufficient to withstand a motion to dismiss.
See Iqbal, 556 U.S. at 678–79.

    Further, the City’s use of third-party contractors rationally
advances REAP’s goals. To better administer REAP, the
City partners with four nonprofit organizations: Coalition for
Economic Survival, Inner City Law Center, Inquilinos
Unidos and Los Angeles Center for Law and Justice. REAP
Outreach, lahd.lacity.org.5 These organizations assist the
City Housing Department to “disseminate program
information intended to increase voluntary participation of
tenants residing in REAP . . . properties.” Los Angeles City




     5
       Available at http://lahd.lacity.org/lahdinternet/REAPOutreach/
tabid/303/language/en-US/Default.aspx.
12 SYLVIA LANDFIELD TRUST V. CITY OF LOS ANGELES

Council File 06-2432, Nov. 16, 2006;6 see also LAMC
§ 155.08. Further, these nonprofit organizations interview
tenants to ensure that property has been repaired before it is
released from REAP. Los Angeles City Council File 06-
2432, Nov. 16, 2006. The Housing Department also contracts
with a property management company that assists landlords
to comply with REAP’s requirements. Los Angeles City
Council File 09-0404-S2, Jan. 14, 2011.7

    The City’s stated purpose for partnering with nonprofit
organizations is to increase tenant participation in REAP
because “withheld rents create additional disincentives for
non-compliant landlords.” Los Angeles City Council File 06-
2432, Nov. 16, 2006. Given the size of REAP and the
existence of outside agencies with the necessary expertise in
working with tenants, the City’s decision to partner with
third-party nonprofit organizations is rational.

   In conclusion, the City’s actions are rationally related to
REAP’s goals of repairing and preventing substandard
housing and thus the district court’s dismissal of plaintiffs’
complaint was proper.

II. Plaintiffs’ Procedural Challenge Cannot Support an
    As-Applied Substantive Due Process Claim

    Plaintiffs’ complaint also alleges that the City violated
plaintiffs’ substantive due process rights by placing their


       6
         Available at     http://clkrep.lacity.org/onlinedocs/2006/06-
2432_ca_11-1-06.pdf.
    7
      Available at http://clkrep.lacity.org/onlinedocs/2009/09-0404-
S2_ca_01-14-11.pdf.
    SYLVIA LANDFIELD TRUST V. CITY OF LOS ANGELES 13

properties into REAP without providing adequate notice of
property inspections and/or adequate opportunity to object at
a hearing. The district court correctly found that plaintiffs’
allegations regarding purportedly deficient REAP procedures
cannot support an as-applied substantive due process claim.

    “Substantive due process protects individuals from
arbitrary deprivation of their liberty by government.” Brittain
v. Hansen, 451 F.3d 982, 991 (9th Cir. 2006) (citing Cnty. of
Sacramento v. Lewis, 523 U.S. 833, 845–49 (1998)); see also
Action Apartment Ass’n, Inc. v. Santa Monica Rent Control
Bd., 509 F.3d 1020, 1026 (9th Cir. 2007) (“An arbitrary
deprivation of [rights in real property] may give rise to a
viable substantive due process claim in any case in which the
Takings Clause does not provide a preclusive cause of
action.”). To constitute a violation of substantive due
process, the alleged deprivation must “shock the conscience
and offend the community’s sense of fair play and decency.”
Marsh v. Cnty. of San Diego, 680 F.3d 1148, 1154 (9th Cir.
2012) (citation and internal quotation marks omitted); see
also Nunez v. City of Los Angeles, 147 F.3d 867, 871 (9th Cir.
1998). Where, as here, circumstances afford reasonable time
for deliberation before acting, we consider conduct to be
conscience-shocking if it was taken with deliberate
indifference toward a plaintiff’s constitutional rights. Lewis,
523 U.S. 833 at 846.

     Plaintiffs’ complaint falls short of this standard. The bulk
of its factual allegations pertain to various alleged procedural
deficiencies.        Specifically, it recounts numerous
communications between the City and plaintiffs, claiming
that the City failed to afford plaintiffs timely notice of
property inspections and hearings before placing their
properties into REAP. However, as the district court
14 SYLVIA LANDFIELD TRUST V. CITY OF LOS ANGELES

correctly noted, these allegations do not amount to an
adequately-pled claim for violation of plaintiffs’ substantive
due process rights. None of the allegations plausibly suggest
that REAP was arbitrarily and unreasonably applied to any of
the plaintiffs, or that the placement of plaintiffs’ properties
into REAP rose to the level of “that shocks the conscience.”
Lewis, 523 U.S. 833 at 846–49. Accordingly, plaintiffs’
complaint fails as a matter of law on this basis as well.

III.    Denial of Leave to Amend the Complaint Was Not
        an Abuse of Discretion

    Plaintiffs also challenge the district court’s denial of leave
to amend their second amended complaint. “Denial of leave
to amend is not an abuse of discretion where the district court
could reasonably conclude that further amendment would be
futile.” Allwaste, Inc. v. Hecht, 65 F.3d 1523, 1530 (9th Cir.
1995). Here, the district court twice permitted plaintiffs to
amend their complaint. The district court reviewed plaintiffs’
proposed third amended complaint and found that it did not
“allege sufficient facts that amount to more than a ‘sheer
possibility that [Defendants have] acted unlawfully.’”
(quoting Iqbal, 556 U.S. at 678) (alteration in original).
Because it is clear that the complaint could not be saved by
any amendment, the district court did not err in denying
plaintiffs leave to amend.

                          Conclusion

    For the foregoing reasons, REAP is rationally related to
a legitimate governmental interest, REAP does not violate
   SYLVIA LANDFIELD TRUST V. CITY OF LOS ANGELES 15

plaintiffs’ substantive due process rights, and plaintiffs’
procedural challenges fail to support an as-applied
substantive due process claim.

   AFFIRMED.
