In order to avoid having your takings claim dismissed, your timing must be just right. Unfortunately for Colony Cove Properties, LLC, the timing was off, and its multifaceted takings claim was rejected by the Ninth U.S. Circuit Court of Appeal for being both too late to challenge a rent control ordinance and too early to challenge how a city applied its ordinance.
The decision by the unanimous three-judge appeals court panel came in one of the many lawsuits filed by real estate investor James Goldstein against the City of Carson. Goldstein, who owns Colony Cove Mobile Estates and Carson Harbor Village mobile home parks, has sued the city at least eight times over mobile home rent control and the city's procedure for considering mobile home park conversions into residential subdivisions (see CP&DR Legal Digest, September 15, 2010, February 2004).
The City of Carson passed the Mobilehome Space Rent Control Ordinance in 1979. The ordinance established a Rental Review Board that makes determinations regarding rent increases. The city also adopted guidelines for implementing the ordinance. Although the ordinance has not been amended recently, the guidelines were amended as recently as 2006. Prior to the city amending the guidelines in 2006, Goldstein, acting as Colony Cove Properties, LLC, purchased the Colony Cove mobile home park.
In 2007, Colony Cove filed an application for a 136-179% increase in rent. About a year later, the Rental Review Board granted an increase of only 8-10%. Colony Cove subsequently filed suit in U.S. District Court claiming a regulatory, physical and private taking as well as violations of substantive due process. The District Court dismissed Colony Cove's claims and Colony Cove appealed.
The Ninth Circuit began by addressing the takings claims, which the court separated into two categories: facial challenges of the ordinance itself, and as-applied challenges, which concern how the city applied the ordinance to Colony Cove. Regarding the facial challenges, the court found that the statute of limitations had long since expired. Colony Cove argued that the statute of limitations started anew when the guidelines were amended in 2006, but the court disagreed. Unlike the ordinance, the guidelines do not have the force and effect of law, and therefore, the facial challenge to the ordinance was filed years too late, the Ninth Circuit ruled.
Addressing the as-applied challenge, the court found that Colony Cove's claim was untimely for the opposite reason – it was too early. Pursuant to federal takings law, a claimant must first attempt to obtain relief through state inverse condemnation proceedings, which Colony Cove did not do. Therefore, the Ninth Circuit held that the claim was not ready for federal court review. (Goldstein did sue the city in state court for $78 million in damages while his appeal was pending at the Ninth Circuit. A Los Angeles County Superior Court judge ruled against him in March.)
Lastly, the Ninth Circuit evaluated whether the city's decision on the application for rent increase was "arbitrary, irrational, or lacking any reasonable justification in the service of a legitimate government interest." Using this low threshold, the court found that the city acted reasonably in deciding to increase the rent by only 8-10%, instead of up 179%, and there was no violation of substantive due process.
This case reminds plaintiffs that timing is crucial, especially with a takings claim. You must jump through all the hoops at the proper time in order to have a cognizable claim.
Colony Cove Properties, LLC v. City of Carson, No. 09-57039, 2011 U.S. App. LEXIS 6240, 2011 DJDAR 4487. Filed March 28, 2011.
For Colony Cove: Matthew W. Close, O'Melveny & Myers, (213) 430-6000.
For the city: William Wynder, Aleshire & Wynder, (949) 223-1170.