Real Estate & Property Law

9th Circuit Takes Belt and Suspenders Approach to Takings and Due Process Challenge to Cal. Rent Control Ordinance

By Robert Thomas (inversecondemnation.com)

Revisiting a decision from September 2007, the Ninth Circuit revised the opinion in Equities Lifestyle Prop., Inc., v. County of San Luis Obispo (No. 05-55406), a decision we originally analyzed here.  In the original decision, the Ninth Circuit affirmed the dismissal of a challenge to a voter-approved mobilehome "rent stabilization" (rent control) ordinance. The landowners sought rehearing or en banc review of the original opinion, and although the court denied both, it withdrew the earlier opinion and issued a new one.

No change in result -- the landowner still lost -- but the court revised the opinion, deleting one section, and adding another. In the original opinion, the panel affirmed the dismissal of a challenge to a voter-approved mobilehome "rent stabilization" (rent control) ordinance.  The court ruled:

• Standing: the county challenged the ability of the plaintiff to bring suit because it did not have "title ownership" of the mobilehome park.  The court held that pecuniary injury, not title ownership is the key to standing, and allowed the suit to proceed.

• Takings: the court rejected the "as applied" takings challenge on Williamson County grounds because the plaintiff had not availed itself of available state procedures to obtain compensation (Kavanau adjustment).  In other words, the claim was filed too early.

• Takings: however, the court rejected the "facial" takings challenge because it was filed too late.  The ordinance was approved in 1984, and the plaintiff acquired the property in 1997.  The court held, citing Palazzolo, that the plaintiff had one year from date of acquisition to file its claim. 

• Substantive due process: the court held that it had already determined that rent control ordinances are "rationally related to a legitimate public purpose," citing Carson Harbor Village Ltd. v. City of Carson, 37 F.3d 468, 472 (9th Cir. 1994), overruled on other grounds, WMX Tech. v. Miller, 104 F.3d 1133, 1136 (9th Cir. 1997).

• Equal protection: the court held that mobilehome owners are not a "suspect class" and the ordinance is therefore reviewed only under the "rational basis" standard.  The court upheld the classification.

The revised opinion reflects two changes.  First, it added the following text at pages 15746-47 (page 12448 of the first opinion), dealing with Palazzolo and the "notice" defense:

Indeed, the Court expressly stated that a regulatory takings claim ?is not barred by the mere fact that title was acquired after the effective date of the state-imposed restriction." Id. at 630. However, our decision in Carson Harbor Village, Ltd. v. City of Carson, counsels otherwise. 37 F.3d 468, 476 (9th Cir. 1991) ("The price paid for the property presumably reflected the market value of the property minus the interests taken. Carson Harbor has no standing to assert facial claims based on the loss of the premium and the loss of the right to dispose of property.")

In other words, even though a claim is not barred by the mere fact that the regulations predate the acquisition of the property by the plaintiff, the Ninth Circuit's view is that the acquisition price accounted for the existence of the restrictive regulation. Note the court's admission that its presumption that the sales price reflected a lower cost to account for the restrictive regulation is really an assumption, not necessarily a truth reflected by actual practice.

Second, it deleted the text starting at page 12453 of the first opinion, dealing with the statute of limitations applicable to facial challenges (bullet point 3 above), and replaced it with the text starting at page 15752 of the revised opinion:

Following our precedent in this area, Carson Harbor Village, Ltd. v. City of Carson, 37 F.3d 468 (9th Cir. 1991), we measure the actionable taking as having occurred in 1984, the time the Ordinance was enacted. At that time, California had no damages remedy for regulatory takings. See Schnuck v. City of Santa Monica, 935 F.2d 171, 173 (9th Cir. 1991) (?Prior to the Supreme Court?s decision in First English Evangelical Lutheran Church [482 U.S. 304 (1987)] we . . . excused such failures in California because California provided no remedy in damages for a taking by a regulatory ordinance, but gave only injunctive or declaratory relief.?). It was not until 1987, when the Supreme Court "held California?s denial of a damages remedy unconstitutional," that California courts began to provide damages remedies for regulatory takings. Id. Because no adequate state remedy was available in 1984, when the ordinance was enacted, MHC need not fulfill the second prong of Williamson in order for its facial challenge to be ripe.

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[9] However, under Carson Harbor, MHC?s facial takings claim fails for lack of standing because the injury is treated as having occurred to the previous landowner. See Carson Harbor, 37 F.3d at 476 (a subsequent landowner "has no standing to assert facial claims based on the loss of the premium and the loss of the right to dispose of property").

The revised opinion thus withdrew the holding about the statute of limitations applicable to the facial claim, since in 1984 no such claim existed under California law, but reached the same result by holding that only the landowner at the time of the imposition of restrictive regulations has the ability to bring a facial claim. Query: hasn't the panel ever heard of a chose-in-action (the right of subsequent property owners to bring all claims that a prior owner possessed), or am I totally off the mark here?

Full post as published by inversecondemnation on November 28, 2008 (boomark / email).