Ninth Circuit Rent Control Taking Case (Guggenheim) En Banc Oral Argument Report pt. III

Continued from Part II

The court was not much easier on the City's attorney, even though one might think that the hard time they gave the property owners' counsel indicated they were more sympathetic to the City's arguments.

Right off the bat, Judge Callahan asked Schwartz whether he "conceded" [appellate advocate alarm bells going off] that there can be a facial Penn Central taking. This seemed to be a response to Judge Rymer's questions to the property owners' lawyers of whether "there is such an animal." If Schwartz were to concede it, issue gone. He did concede it, but only barely. "Yes," he answered, there can be such a thing, but it is difficult to imagine it, since the Penn Central test is "an ad hoc, factual inquiry." Judge Callahan asked whether the Penn Central factors "bleed over to the merits" of a facial challenge, and whether the court looks at them different when it is a facial challenge.

Schwartz -- as he would do many times during his 30 minutes -- referred to the Supreme Court's 2005 Lingle case, and argued that in that case, the Court held that a court's role is to determine whether a regulation is so onerous that it is the "functional equivalent" of an exercise of the eminent domain power. That elicited a question from Judge Bea about whether there can be a partial taking, and whether Schwartz was arguing that a regulation must take 100% of the use of property, or nearly that amount. When Schwartz answered affirmatively, Judge Kleinfeld asked whether that meant that the government could just take an easement without paying for it.

Schwartz responded that a taking of an easement would be a physical takings, covered by other rules, but Kleinfeld questioned that response. What about an easement for energy transmission lines -- that would not be (just) a physical take since it would also impact the property owner's use of its land? It sounds like, he remarked, that you are arguing that Lingle overruled Penn Central.

Then, in one of those memorable appellate argument moments, Judge Kleinfeld stated to Schwartz that "I would have thought that you'd be more interested in the limitations issue." Rather than responding directly, Schwartz again returned to Lingle, arguing that for a regulation to work a taking under Penn Central, it must be the "functional equivalent" of eminent domain. The economic impact must be "extreme," he argued, to which Judge Kleinfeld responded "this is extreme," and noted that mobile homes that should sell for tens of thousands of dollars instead are sold for hundreds of thousands, because of the rent control ordinance. "No," Schwartz responded, "the ordinance has no impact."

Judge Clifton circled back to Judge Kleinfeld's comment about the statute of limitations issue. "Why are you taking on the harder task" of defending the ordinance on the merits when you have the limitations issue, he asked. Judge Bea jumped in: your test is that in order to be a facial taking, an ordinance must expressly say "this is a facial taking." Judge Clifton also asked about the "no impact" statement, asking whether an 80% diminution of value would be "extreme enough."

Judge Reinhardt threw the first of his several softball "questions" to Schwartz, stating that he "gathered you are making this argument [the merits, and not the statute of limitations argument] because Judge Kleinfeld asked you." Judge Ikuta followed up, noting that the statue of limitations issue was the "most troubling." The property owners are claiming a taking at the time of enactment of the rent control ordinance in 2002; what is the "best case," she asked, for whether a different government (City, as opposed to County) adopting a new ordinance. In other words, "when did the cause of action accrue?" Schwartz answered that the plaintiffs assert it was in 2002. Judge Ikuta asked "so why not accrue at that point?" to which Schwartz responded that the City was not asserting the statute of limitations, but was arguing no taking on the merits. Judge Kleinfeld could not resist interjecting "so you don't want to win on the statue of limitations theory," which elicited the biggest audience laugh of the day. 

Judge Rymer focused on the same issue she started off the day with. She asked whether the "distinct" investment-backed expectations referred to in Penn Central meant that the takings inquiry always focused on the plaintiff's property interest. Judge Callahan interjected to remind the panel that Schwartz had already conceded that there was such a claim. Chief Judge Kozinski then turned it on, asking Schwartz to "stretch your imagination" and articulate a situation in which there would be such a claim. Start with the extreme and work your way back: would it be if a government regulation required a building owner to leave her property vacant? Schwartz answered that the court would still apply the Penn Central factors, and if it turns out the regulations prohibited "profitable" use, it "could very well be" a facial Penn Central taking. "'Could very well be' is as close as you're going to get," Kozinski replied, and even Judge Kleinfeld posing a hypothetical about a regulation prohibiting all development within one mile of a river could not get Schwartz to concede more. "What would it take to make you say 'yes?'" Chief Judge Kozinski asked, to which Judge Callahan remarked "that's a little like 'we're here from the government, and we're here to help!'"

This exchange seemed to trigger Judge Kozinski's focus on whom the transfer of value benefitted. He noted that in Penn Central, the prohibition on building benefited the public, and not (as in this case) identifiable others. Here, he argued, the regulation took the value from the park owners and transferred it to the mobile home tenants. [Barista's note: this sounds like the prohibited "A to B" private taking which even after Kelo survives as a Fifth Amendment claim.] Schwartz didn't seem quite to know how to answer this, and Judge Reinhard quickly came to his rescue, asking whether the plaintiffs must concede the public nature of the the alleged taking, and whether there were any cases in which a private party stood to benefit. Don't all rent control ordinances benefit private parties, he asked. Indeed, don't minimum wage laws transfer value from employer to employee?

Schwartz referred to Pennell (a non-mobile home rent control case). Chief Judge Kozinski wasn't quite satisfied. This isn't like non-mobile home rent control; can't a tenant sell his "piece of tin" for much more than it's truly worth? When Schwartz responded that a California statute left intact vacancy control, Kozinski cut him off with "the real answer is 'no,' Pennell is not applicable." Judge Kleinfeld also noted that the economic impact of the regulations here were "cataclysmic," and disputed Schwartz's statement that the ordinance had "no" economic impact, not an extreme one. In his final answer before his time expired, Schwartz admitted that at the imposition of the County rent control ordinance in 1985, park owners lost value.

The property owners' counsel returned for a short rebuttal, and elicited a huge laugh in the courtroom when he responded to Chief Judge Kozinski's comment that although he had approximately two minutes, he could get "into infinite trouble" in that time. Coldron quipped that his time was not "infinite," but was "substantial" (referring back to the "substantial gap" in time between the expiration of the County's rent control ordinance, and the imposition of the City's). He concluded by pointing out that the "economic impact" factor is but one of three Penn Central factors, and that none of them is dispositive.

The case was submitted, and the court adjourned for the day.

Some stray thoughts:

First, even though the judges were at times pretty brutal on the advocates, I appreciated the fact that before the hearing commenced, Judge Smith (sans robe) walked in the courtroom and introduced himself to arguing counsel. "In Idaho, we do that," he said, "but they don't do that here." A nice touch.

Second, it seems that the tests for regulatory takings are confusing, even to federal appellate judges; at times, they made statements reflecting a misunderstanding of the current state of the law. Not surprising, given that the Supreme Court has not been able to settle on hard core doctrine, and even now -- some 80+ years since the modern recognition of the doctrine in Pennsylvania Coal v. Mahon -- we're still arguing about whether a property owner has a cause of action.

Finally, its impressive to see quality advocates in action. Thirty minutes per side in a toe-to-toe with eleven federal judges is something that can shake even the most experienced advocate. Both counsel handled themselves with aplomb and professionalism.

Comments

[George Drysdale]

You would think that the court system would be finally able to graduate from high school because the evils of price controls (rent controls) are usually discussed in one of the first chapters of a beginning economics textbooks. But, the judiciary is very much a following indicator.

George Drysdale