From the Ninth Circuit, a published opinion in a case challenging a Napa Valley city's mobilehome rent control ordinance, Rancho de Calistoga v. City of Calistoga, No. 12-17749 (Sep. 3, 2015). Here's a complete summary of the issues in the case, along with the Ninth Circuit merits and amici briefs. We've been following it because we filed an amicus brief in support of the property owner's argument that it pleaded enough to get by a motion to dismiss for failure to state a claim.
The Ninth Circuit didn't agree, and affirmed the District Court's dismissal. The panel concluded the case was ripe under Williamson County (an issue that seemed to occupy a lot of the judges' time at oral arguments), but that the owner's theory that "even if the taking is for a public purpose, the rent subsidy should be paid by the government if the rent is neither excessive nor the result of monopoly power" didn't pass Penn Central because the City's failure to raise the rent to the level requested by the owner only resulted in a "mere diminution in the value of the property" (in this case, the owner alleged it lost a "mere" $4.73 million), and because the owner had no investment-backed expectation to be "free of government regulation," even though it purchased the property before the imposition of rent control:
Rancho argues that because, unlike in Guggenheim, 638 F.3d at 1120-21, and MHC, 714 F.3d at 1128, it has owned the Park since before the City imposed a rent control ordinance, it had an investment-backed expectation to be free from rent control. This temporal difference does not give Rancho a valid investment-backed expectation of owning a mobile home park unencumbered by government regulation. Simply put, when buying a piece of property, one cannot reasonably expect that property to be free of government regulation such as zoning, tax assessments, or, as here, rent control. Rancho’s argument is tantamount to saying that a homeowner can reasonably expect that the tax assessment or rate of taxation on her home will not increase from the time of purchase.Slip op. at 13.
Wait, what?
First, we thought the ruling in Guggenheim was based on the idea that in that case, the owners purchased their mobilehome park after the City adopted its rent control ordinance. The court concluded that was "fatal" to their takings claim. The Rancho panel has now concluded that it is similarly "fatal" to buy a mobilehome park even before an ordinance is adopted. When you buy it doesn't matter, because, you know, it's all subject to regulation, even if the specific regulation you challenge isn't adopted until later. Which is just bizarre to us, given that the Penn Central test focuses on an owner's expectations. But to the Ninth Circuit, it just isn't reasonable to expect that everything won't eventually be regulated, because it already is regulated. To which we respond: if that is the case, then why bother with this prong of Penn Central at all?
Second, any prediction of which Supreme Court decision is notably missing from the Rancho opinion? You guessed it, Palazzolo v. Rhode Island, 533 U.S. 606, 626 (2001). In that case, the Court rejected the proposition that "postenactment purchasers cannot challenge a regulation under the Takings Clause[.]" Our read of Palazzolo is that a property owner's right to make reasonable use of her land does not evaporate simply because restrictive regulations predate her acquisition. Purchasers of property subject to restrictive regulations maintain all of the rights protected by the Fifth Amendment and may assert a takings claim, and regulations do not become part of a parcel’s "background principles." As the Court put it, the government cannot “put an expiration date on the Takings Clause." Id. at 627.
Our read is that the Ninth Circuit panel thought it could avoid Palazzolo because the Calistoga property had been used as a mobilehome park before Rancho bought it. And as a consequence, Rancho should have darn well known that "those who buy into a regulated field such as the mobilehome park industry cannot object when regulation is later imposed." Slip op. at 13. In other words, even though the park was free of rent control when Rancho bought it, the determinative fact was that it was a highly-regulated park when Rancho bought it. Just what those regulations were (they were not rent control, obviously) the opinion doesn't tell us. And remember, to the regulators everything is highly regulated, not just mobilehome parks -- it's their world, we just live in it. We suppose if the property was not a mobilehome park when Rancho bought it, and Rancho then developed it into a park before imposition of rent control, that might be the only situation where the panel would say that the owner had reasonable investment-backed expectations (as long as the prior use wasn't also some "highly regulated" use). Good luck with that one.
Finally, the panel rejected the owner's "private regulatory takings" claim, which asserted "that the application of Ordinance 644 to rent increases constitutes an unconstitutional private taking because any purported 'public use' is pretextual." Slip op. at 16. In the MHC case, the Ninth Circuit "assumed without deciding" that such a claim was possible and held against the owner on the merits. The Rancho panel closed that door, holding that no such claim is possible. You either have a challenge to public use in eminent domain, or a regulatory takings case. This seems about right in our view, and the only thing missing from the panel opinion is that a challenge to the purpose of a regulation (even if it results in a regulatory taking) is a due process claim, something which we've suggested before.
By the way, the California Court of Appeal recently issued a similar -- but unpublished -- opinion in a companion state law challenge (our summary here). Pretty much the same result as the Ninth Circuit.
Finally, we have this to add. The Ninth Circuit opinion started off with a bit of judicial snark ("Quoting Yogi Berra, we have previously characterized these claims as 'deja vu all over again.'") (we generally appreciate judicial snark, even when directed our way), and then took the property owner to task for continuing to challenge rent control:
Each time a court closes one legal avenue to mobile home park owners seeking to escape rent control regimes, the owners, undaunted, attempt to forge a new path via another novel legal theory.
Slip op. at 2. To which we reply "what's wrong with that?" Yes, rent control is here, and it's been here for a while, and mostly survived legal challenges. If you want a flavor of why that is so, you need look no further than Judge Kleinfield for the en banc majority in Guggenheim, where he wrote:
The people who really do 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. 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 70’s and 80’s. Tenants come and go, and even though rent control transfers wealth to "the tenants," after a while, it is likely to affect different tenants from those who benefitted from the transfer.So there you have it: the cement has hardened on rent control, and it's just too established to do anything about it. And that may be true, even though it is not legal reasoning, just a policy choice. But it is one of the reasons why we always say that the results in certain classes of cases are not really too difficult to predict.But although some things may be just "too big to fail," that doesn't mean they do not rest on shaky legal footing. Which means that courts shouldn't criticize people for continuing to object. After all, 200+ years of constitutional common law experience has shown that the law today isn't necessarily what the law will be tomorrow or a decade from now, and continual challenges are the means by which the law evolves.
Rancho de Calistoga v. City of Calistoga, No. 12-17749 (9th Cir. Sep. 3, 2015)
