Ninth Circuit En Banc Panel Finds Goleta’s Mobile Home Rent Control Ordinance

An en banc panel of the Ninth Circuit, in a much anticipated decision, has found that the City of Goleta’s mobile home rent control ordinance did not cause a taking of the Guggenheim’s property because they received exactly what they bargained for. The court rejected the reasoning of the three judge panel of the Ninth Circuit that previously found a taking had occurred and affirmed the trial court’s decision granting summary judgment in favor of the City.

Plaintiffs Daniel and Susan Guggenheim and Maureen Pierce purchased a mobile home park in an unincorporated area of Santa Barbara County in 1997, many years after the County’s adoption of an ordinance that controlled rents at mobile home parks. Several years later, the area where the park is located was incorporated into the City of Goleta. Upon incorporation, the City adopted by reference the County’s code in its entirety, including the rent control ordinance. Several months later, the City readopted by reference most provisions of the County’s code, including the rent control ordinance, as permanent City ordinances. A month after the City incorporated, the owners of the park brought suit against the City in federal court alleging violations of the Takings Clause, the Due Process Clause and the Equal Protection Clause, along with various state law claims. The case was stayed in federal court and proceeded in state court, then went two rounds in federal district court, finally resulting in a decision in favor of the City on all federal Constitutional claims. The plaintiffs appealed. A three judge panel opinion of the Ninth Circuit (authored by Judge Bybee) reversed, finding the ordinance had taken plaintiffs’ property despite the fact that they had gotten exactly what they bargained for when they purchased the property. The City filed a petition for rehearing en banc, which was granted and the panel opinion vacated.

In an opinion written by Judge Kleinfeld for eight of the eleven judges on the panel, the court found that the plaintiffs did not have a regulatory takings claim because none of the three factors for establishing a regulatory taking, set forth Penn Central Transportation Co. v. New York City, 438 U.S. 104 (1978), were satisfied. As to the first factor, the park owners suffered no economic loss because the park was subject to rent control, and already devalued, when they purchased it. As to the second factor, the ordinance did not interfere with the owners’ investment-backed expectations because they purchased the property subject to an identical rent control ordinance to that adopted by the City when it incorporated. The court explained that the property owners’ hopes, desires and/or speculations as to what the property might be worth if the rent control restrictions were lifted one day do not constitute “distinct investment-backed expectations.” The third factor also weighed in favor of the City because the government action was simply a continuation of the old ordinance that existed when the plaintiffs purchased the park. As such, the readoption of the ordinance did not reapportion public burdens; that event occurred many years prior when the ordinance was first adopted and then amended (1979 and 1987), and the statute of limitations had long since expired on takings claims arising from these earlier ordinances.

The court rejected Judge Bybee’s broad interpretation of Palazzolo v. Rhode Island, 533 U.S. 606 (2001) (in the now vacated three judge panel opinion) which held that post-enactment transfers of title should not bar a takings claim, limiting that opinion to its facts. The court also affirmed the district court’s rejection of plaintiffs’ Due Process and Equal Protection claims. Continuing a recent trend in the Ninth Circuit, the court found the ripeness requirements in Williamson County Regional Planning Commission v. Hamilton Bank of Johnson City, 473 U.S. 172 (1985) to be prudential rather than jurisdictional in order to address, and reject, the Guggenheim’s facial takings claims on the merits.

This decision reaffirms established Supreme Court standards for determining when a taking has occurred as a result of a government regulation, particularly rent control ordinances with vacancy control provisions. For more information, please contact Julia Bond at 800.464.3559.