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Ninth Circuit Orders Rehearing En Banc, Vacating Controversial Regulatory Takings Decision in Guggenheim v. City of Goleta

In September 2009, the Ninth Circuit, in a split decision authored by Judge Bybee, departed from established takings jurisprudence to find that the vacancy control provision of a rent control ordinance for mobile home parks in the City of Goleta caused a taking for which just compensation must be paid, despite the fact that the ordinance clearly did not interfere with the property owner’s reasonable investment-backed expectations for the property.(See Guggenheim v. City of Goleta, 582 F.3d 996 (9th Cir. 2009).)

Plaintiffs had 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 mobile home park area was incorporated into the City of Goleta and the City adopted and then readopted by reference most of the County’s code, including the existing rent control ordinance. A month later, plaintiffs 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.

Judge Bybee overcame various procedural hurdles (i.e., statute of limitations issues and ripeness requirements set forth in Williamson County Regional Planning Commission v. Hamilton Bank of Johnson City, 473 U.S. 172 (1985)) to address the claims on the merits and find a taking had occurred. The Court examined the impact of the ordinance under the three factors of the regulatory takings test set forth in Penn Central Transportation Co. v. New York City, 438 U.S. 104 (1978) – the economic impact on the claimant, the extent to which the regulation interfered with distinct investment-backed expectations and the character of the government action. The Court found that the first and third factors were clearly met, explaining that the mere enactment of the ordinance caused a significant economic loss for the park owners, even though the ordinance had been in effect when the plaintiffs purchased the property, and the government action singled out mobile home park owners to bear the burden of affordable housing for the City. Judge Bybee conceded that the second Penn Central factor was not met because “the Park Owners got exactly what they bargained for when they purchased the mobile-home park subject to a detailed rent control ordinance,” but reasoned that this fact should not prevent plaintiffs from bringing a successful takings claim based on the United States Supreme Court’s decision in Palazzo v. Rhode Island, 533 U.S. 606 (2001).

Judge Kleinfeld wrote a strong dissent, disagreeing with Judge Bybee’s characterization and application of the holding in Palazzo, 533 U.S. 606 and of traditional takings doctrine. Judge Kleinfeld took the position that plaintiffs did not have a viable regulatory taking claim under the classic Penn Central regulatory takings test because 1) plaintiff suffered no economic loss, 2) there was no interference with plaintiff’s investment-backed expectations and 3) the government action, readoption of a long-standing ordinance, did not reapportion public burdens. Judge Kleinfeld also noted that any takings claim arising from the adoption of the rent control ordinances should be rejected on procedural grounds as well because the statute of limitations had long since run. The case was remanded to the District Court to determine the amount of damages owed. The City of Goleta filed a petition seeking rehearing en banc.

On March 12, 2010, the Ninth Circuit ordered the case to be reheard en banc. The order also vacated the three-judge panel opinion, declaring that it shall not be cited as precedent by or to any court of the Ninth Circuit. Such orders are rare for the Ninth Circuit. This development is of great interest to municipalities with rent control ordinances (and those considering adopting such ordinances) across the state. Oral argument is tentatively scheduled for the week of June 21 in Pasadena.

For more information, please contact or Julia Bond.