Real Estate & Property Law

En Banc 9th Circuit Decides Guggenheim: Mobile Home Rent Control Ordinance Is Not A Regulatory Taking

By Robert Thomas

This just in: the en banc Ninth Circuit, in an opinion by Judge Kleinfeld (the dissenter from the panel opinion) has concluded that the City of Goleta's mobile home rent control ordinance is not a regulatory taking. In Guggenheim v. City of Goleta, No. 06-56306 (Dec. 22, 2010), the majority "assumed without deciding" that the case was ripe under Williamson County, but that the property owners did not establish a regulatory taking under Penn Central. We covered the en banc oral arguments here, and our resource page on the case is here.

There's a lot of opinion to churn through, but the core of the majority opinion is based on the notion that the Guggenheims did not have "investment-backed expectations." Imposing what can only be called a bizarre economic and appraisal theory, the majority concluded:

Whatever unfairness to the mobile home park owner might have been imposed by rent control, it was imposed long ago, on someone earlier in the Guggenheims' chain of title. The Guggenheims doubtless paid a lot less for the stream of income mostly blocked by the rent control law than they would have for an unblocked stream. The 2002 City of Goleta adoption by reference of the Santa Barbara County ordinance did not transfer wealth from them to their tenants. That transfer occurred in 1979 and 1987, from other landlords, and probably benefitting other tenants.

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. The present tenants lost nothing on account of the City's reinstitution of the County ordinance. But they would lose, on average, over $100,000 each if the rent control ordinance were repealed. The tenants who purchased during the rent control regime have invested an average of over $100,000 each in reliance on the stability of government policy. Leaving the ordinance in place impairs no investment-backed expectations of the Guggenheims, but nullifying it would destroy the value these tenants thought they were buying.

Slip op. at 20437-38 (footnote omitted).

Judge Bea, joined by Chief Judge Kozinski and Judge Ikuta dissented, concluding that:

First, because the majority misapplies the Supreme Court's analysis of regulatory takings claims. It ignores two essential elements of that analysis, and fails to follow the Court's instructions on the one element it uses to disqualify the claim. The majority impermissibly picks out only one of the three factors the Court has told us to consider in determining whether a regulation effects a taking under the Penn Central test-whether the claimant had "distinct investment-backed expectations"-and inexplicably disdains the other two. This converts a three-factor balancing test into a "one-strike-you're-out" checklist. Not content to rewrite one binding precedent, the majority ignores the Court's recent holding in Palazzolo that an investor can validly expect that a land control measure, in place when he invests, is not necessarily eternal and therefore does not disqualify his claim of regulatory taking. Palazzolo v. Rhode Island, 533 U.S. 606, 627 (2001).

Slip op. at 20440. More to follow after a chance to digest the opinions in detail.

Full post as published by inversecondemnation on January 27, 2011 (boomark / email).