Pasadena, California (June 23, 2010) – Even in the rarefied, academic atmosphere of an appellate court, an advocate must sometimes have a thick skin. Today’s Ninth Circuit en banc oral arguments in the rent control takings case, Guggenheim v. City of Goleta, was one where the two lawyers who argued the case certainly came away with a few callouses.
Guggenheim is the appeal from an unsuccessful challenge to the City of Goleta’s mobile home rent control ordinance. The district court ruled against the mobile home park owners who asserted the ordinance worked a regulatory taking of their property.
In Guggenheim v. City of Goleta, 582 F.3d 996 (9th Cir., Sep. 28, 2009), a three-judge Ninth Circuit panel reversed, however, and held 2-1 that the challenge was ripe under Williamson County, and ruled the ordinance was a facial taking by applying the three-part Penn Central test. The court remanded the case to the district court for a calculation of compensation owed to the property owners. On March 12, 2010, the court ordered en banc review.
Today’s argument was an en banc panel comprising eleven active Ninth Circuit judges (the circuit is so large that “en banc” in the Ninth Circuit doesn’t truly mean en banc, but means a panel of eleven active judges). Chief Judge Kozinski was seated front-and-center, and the other ten judges were seated by seniority, alternating between right and left on the bench. Also on the panel were Judges Godwin, Reinhardt, Rymer, Kleinfeld (who dissented from the panel opinion), Gould, Clifton, Callahan, Bea, Ikuta, and N.R. Smith.
Robert S. Coldron argued for the property owners, and Andrew W. Schwartz for the City.
Appellant’s Argument (Property Owners)
The judges wasted no time in their aggressive questioning of Coldron. He was barely a sentence into his argument when Judge Clifton drew first blood. He asked whether the mobile home park owners acquired the property subject to the regulations claimed to be a taking. The answer to that question, as we shall see, turned into a contentious issue that stretched the length of both parties’ arguments. Coldron answered that in 1997, the park owners could not have sued the County of Santa Barbara (the government which imposed a similar rent control ordinance on mobile home parks prior to the incorporation of the City) since more than two years had passed since the County ordinance had been adopted, and the two year statute of limitations for a facial challenge to that ordinance had lapsed. Judge Clifton seemed somewhat irritated with the answers. Judge Clifton did not expressly articulate the source of his question, but appeared to be focusing on whether the plaintiffs had “property,” or whether, by having purchased their property already subject to the regulatory regime (allegedly), they were on notice, so to speak, of the restrictions and should not be heard to complain now.
Judge Rymer wanted the answer to a more basic question: she asked whether “there is any such animal” as a facial taking under Penn Central, and if so “precisely, what is it?” Coldron answered by giving examples. In Hodel v. Irving, he asserted, the Supreme Court found a facial taking (this is one of the cases involving Congress’ taking of fractionalized Indian interests in land). He also cited the Cienega Gardens case from the Federal Circuit as another example.
Judge Reinhardt challenged Coldron, and asked whether it was correct when he asserted that no one would buy a mobile home park. “Were the regulations in effect when your client bought the property?” “Most,” Coldron responded, and started a back-and-forth where Judges Reinhardt and Kozinski tried to pin him down regarding exactly what was different about the regulations in place when the plaintiffs purchased their parks, and the regulations being challenged. Coldron gave several examples, but aroused the sarcasm of Judge Kozinski when he asserted that when he started practicing 30 years ago, the rent control laws were only two pages, but today they are 30 pages. “So it’s a matter of pages?” Kozinski remarked, causing the courtroom to laugh, “can you be specific?”
Judge Rymer went back to her earlier question about whether there is “such an animal” as a facial Penn Central takings claim. “What is your precise challenge?” she asked. “What in the ordinance makes it invalid on its face?” Coldron seized on the question to explain. First, he responded, it froze the rent in 2002 at a fraction of 1979 values, with no adjustment. Second, it was a “negative wealth transfer” from the park owners to the mobile home owners, without any social benefit.
Coldron seemed to sense that the court was in danger of veering off track and buying into the argument in the amicus brief filed by the League of California Cities and California State Association of Counties in support of the city about the claim being time-barred. Judge Clifton returned to his initial barrage of questions and asked whether the ordinance was the same after the City incorporated, and whether the park owners were seeking a “windfall” from that event. Recall that Goleta was originally not an incorporated city, so these parks were subject to the County’s mobile home rent control ordinance. When the City incorporated, the County ordinances continued in effect for a time, and after a gap (another issue in contention), the new City of Goleta adopted its own mobile home rent control ordinance.
Coldron responded to Judge Clifton’s question by noting that “there is no expiration on Constitutional rights,” a quote from the U.S. Supreme Court’s Palazzolo case. Judge Clifton was not pleased, and snapped “that’s not an answer.” “You must acknowledge facts,” he stated, “answer the question: is there anything different between the County and the City rent control regulations.” Coldron answered “no.” Judge Rymer jumped back in and asked whether there was any different in economic effect on the face of the ordinance. Coldron responded that there was no difference.
Judge Kleinfeld, who dissented from the panel opinion, posed a hypothetical that went to what was being referred to as the “statute of limitations” issue (more correctly, it is a question of “property” and “notice” and whether a purchaser of property who buys after a regulatory scheme is in place may bring a claim that the regulation is a taking). Let’s say the state builds a road in the 1970’s that encroaches on my property, he asked. I do nothing since my property is not worth too much, and I don’t want to pay my lawyer to bring an inverse condemnation claim. Time passes and I sell it to you, but in the meantime, the property has become quite valuable, and it is worth your time to pay your lawyer to bring an inverse condemnation claim against the state. “It seems quite clear,” Judge Kleinfeld stated, “that the seller could have sued for a taking many years ago, but didn’t. I don’t see where this case is any different.” The unstated part of his hypothetical was that having let the time pass without suing, the seller did not transfer that right to the buyer.
Coldron agreed with the first part (that the buyer could not sue), but took issue with the second, arguing that the hypothetical was different than the case before the court. [Barista’s note: this is somewhat dangerous territory for an appellate advocate – usually when judges ask hypotheticals, they want them answered and can get testy if you respond “well, judge, that’s not our case.” I’ve heard judges snap back “of course it’s not this case, it’s a hypothetical!”] However, Coldron avoided that, and his answer was quite effective; he stated that for Judge Kleinfeld’s hypothetical to truly be like the present case, the state would have to remove the encroachment for a time, and then attempt to put it back after the buyer purchased the land (see paragraph 1 above).
Next, Judge Kleinfeld and Coldron got into an exchange about the length of the gap. Judge Kleinfeld asked whether it was “a couple of hours” between the County’s rent control ordinance expiring, and the new City’s rent control ordinance becoming effective. Coldron asserted that was not true, that it was not, as argued by the City, a “moment in time,” and that the gap was actually “significant” since it was minimum two months, and up to four. Kleinfeld asked whether the County’s ordinances were readopted “as a matter of law,” to which Coldron responded that they were, but that there was still a gap where the mobile home parks were not subject to any rent control ordinances at all. Besides, he argued, the City could have not adopted a mobile home rent control ordinance at all (as his clients had urged the City), so there was nothing in the gap period that would suggest their property continued to be the subject of these regulations.
Judges Smith and Clifton sought clarification. Judge Smith asked whether there was any point in time where the mobile home parks were not subject to some kind of rent control ordinance. Coldron answered that in this case, the City stipulated that there was a gap, and that the stipulation controls. Judge Clifton asked whether during that time, the mobile home park owners went up on the rent (since there was no rent control ordinance in effect). Coldron replied that no, there was no increase because state law prohibited it.
Judge Kleinfeld reentered the fray. “I don’t see how Palazzolo helps,” he stated, and he attempted to distinguish the facts of that case. Palazzolo involved a property owner who didn’t keep up on the corporate formalities, he argued. Thus, the Supreme Court held that he was entitled to bring the claim, even though it was technically a different entity that owned the property when the cause of action accrued. That is a different case than here, where the mobile home park was purchased by an entirely different owner. When Coldron again raised the “no expiration date on Constitutional rights” quote, Kleinfeld responded that the court “enjoys rhetorical flourishes,” but that facts would be more helpful.
In the last exchange before the City’s argument, Judges Kleinfeld and Smith asked Coldron about the record. And in one of those moments that all appellate advocates dread, they asked not just generally about the record, but for specific page citations. Judge Smith asked whether there was anything in the record to support the idea that the property was worth more before the City ordinance. Coldron responded that Dr. Quigley had testified that it was, and that his testimony went unchallenged.
Judge Smith: What part of Quigley’s testimony?
Coldron: Where he testified to a 90% drop in value.
Judge Smith: That’s general.
Coldron: Quigley’s testimony was not rebutted, so it must be accepted.
Judge Kleinfeld: What page of his testimony? I have it here in front of me. Where?
Coldron: In the September 6 order of the court, the court found this testimony was not rebutted. But I can’t tell the page number.
Chief Judge Kozinski: It must not be important if you can’t tell where it is.
[Barista’s note: It is an old adage of appellate lawyers that they must “know the record, inside and out.” Yet, it’s hard to fault Coldron (asking for a page number in a trial record is awfully nitpicky) and it seemed a bit unfair of the court to harp on him about this. This case has not been a straightforward motion, trial, and appeal. Because of the maze of procedural hurdles erected in front of takings claims by the U.S. Supreme Court and the California courts, this litigation has stretched over years and has involved several jurisdictions. Trying to intuit what one judge out of eleven may consider important during your thirty minute argument could be asking for the advocate to go from well-prepared to superhuman.]
Appellee’s Argument (City of Goleta)
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 Final 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.