An 11-judge panel of the Ninth U.S. Circuit Court of Appeals has thrown out the court's 2009 decision that invalidated the City of Goleta's mobile home rent control ordinance. This time, the court ruled the ordinance was not an unconstitutional taking of property because the mobile home park owners who brought the challenge acquired the property long after ordinance was in effect.
In 2009, a three-judge panel for the Ninth Circuit made a controversial determination that a mobile home rent control ordinance constituted a regulatory taking (Guggenheim v. City of Goleta, (9th Cir. 2009) 582 F.3d 996; see CP&DR Legal Digest, October 15, 2009). The ruling appeared to threaten the viability of mobile home rent control schemes in more than 100 California cities and counties.
The city sought and received an en banc hearing before a larger panel of judges. Because of the precedent-setting nature of the 2009 ruling, numerous interest groups – property rights organizations, the California Association of Realtors, affordable housing advocates, the League of California cities and others – filed amicus briefs. In an 8-3 decision, the en banc panel vacated the court's previous decision, holding that the mobile home park owners were not deprived of distinct investment-backed expectations. Therefore, the rent control ordinance did not constitute a taking of their property, the court ruled.
When the plaintiffs, Daniel and Susan Guggenheim and Maureen Pierce, originally purchased Ranch Mobile Estates in 1997, five years prior to filing the lawsuit, the property was located in the unincorporated area of the county. The county code, originally adopted in 1979 and amended in 1987, imposed the identical rent control ordinance that was subsequently adopted by the city. This fact became crucial to the appellate court's en banc decision.
The city adopted the rent control ordinance on the day in 2002 when Goleta incorporated. The measure imposed a cap on the amount mobile home park landowners could charge for rent and provided procedures for increasing the rental amount. The result of this law, according to the plaintiffs, was to transfer wealth from the landowner to the tenant because the artificially low rents made the individually owned coaches more valuable.
Under the Penn Central test, a court must look at three primary factors when determining whether a regulatory taking has occurred: (1) the economic impact of the regulation on the claimant, (2) the character of the government's action, and (3) the extent to which the regulation has interfered with distinct investment-backed expectations. In this case, the court found that the third primary factor weighed greatly in favor of the city. The plaintiffs purchased property that was already burdened by the rent control ordinance, and plaintiffs had no expectation that the rent control ordinance would be lifted at some future date. Even when the city incorporated, the city never gave any indication of eliminating the ordinance, the court determined.
"Since the ordinance was a matter of public record, the price they [the Guggenheims and Pierce] paid for the mobile home park doubtless reflected the burden of rent control they would have to suffer," Judge Andrew Kleinfeld wrote for the court. "They could have no ‘distinct investment-backed expectations' that they would obtain illegal amounts of rent."
"The people who really have investment-backed expectations that might be upset by changes in the rent control system are tenants who bought their mobile homes after rent control went into effect," continued Kleinfeld, who was a dissenter in the original 2009 ruling. "Ending rent control would be a windfall to the Guggenheims, and a disaster for tenants who bought their mobile homes after rent control was imposed in the '70s and '80s."
In a dissenting opinion far longer than the court's ruling, Judge Carlos Bea wrote that the majority had erroneously converted Penn Central's "three-factor balancing test into a ‘one-strike-you're-out' checklist." He also said the majority wrongly ignored the Supreme Court ruling in Palazzolo v. Rhode Island, 533 U.S. 606 (2001) (see CP&DR Legal Digest, August 2001), in which the court permitted a property owner to challenge a pre-existing regulation. The majority held that Palazzolo "is of no help to the Guggenheims" because the cases differ.
Although the city won this round, the battle may not be over. The court indicated that this lawsuit was only a facial challenge of the ordinance itself, and, if the city applied the ordinance in an unconstitutional manner, the property owners could bring an "as-applied" challenge at a later date.
Guggenheim v. City of Goleta, No. 06-56306, 2010 DJDAR 19204. Filed December 22, 2010.
For Guggenheim: Robert S. Coldren, Hart, King & Coldren, (714) 432-8700.
For the city: Andrew W. Schwartz, Shute, Mihaly & Weinberger, (415) 552-7272.