In a ground breaking decision, the Ninth U.S. Circuit Court of Appeals held that the City of Goleta’s mobilehome rent control ordinance caused a compensable taking in Guggenheim v. City of Goleta. The decision was announced on Monday, September 28, 2009.

The decision not only breaks new ground in finding the adoption of rent control by the City of Goleta was a “taking,” but also addresses many of the procedural hurdles that have often denied manufactured home community owners access to federal courts.

The three-judge panel ruled that Goleta’s mobilehome rent control ordinance improperly imposes the burden of an affordable housing program on a single property owner, which is in violation of the U.S. Constitution’s Takings Clause. The Court cited evidence showing that the park’s rents had been frozen at 20 percent of fair market levels and that as a result of the rent control ordinance, residents could “sell” homes for many times their true worth as mobilehomes. These “transfer premiums” on sales made up 90 percent of the sale price of homes. Judge Jay S. Bybee, who authored the decision, described it as a “wealth transfer from the park owners to their tenants accomplished by the adoption of rent control.” The Court recognized that the purpose of providing affordable housing was a legitimate governmental purpose, but that the Fifth Amendment did not allow the local government to impose that burden solely on mobile home park owners. This is the first appellate decision in recent history, in which a court has found that the confiscatory application of rent control has resulted in a taking. Based on Hart, King & Coldren’s extensive experience working in rent control, rent control is being applied in a similar fashion throughout California.

Much of the 75-page decision addressed the procedural barriers faced by property owners seeking their day in federal court. The Court outlined how a Supreme Court decision (Williamson County) has had the effect of denying property owners access to federal courts for federal takings claims. Under Williamson County, taking claims are not “ripe” in federal court (i.e. ready to be heard) until property owners first have sought and been denied “state compensation” in the form of an inverse condemnation lawsuit in state court. Many state courts are notoriously unfriendly to takings claims. (Indeed, California state courts have a well earned reputation for antagonism to property rights.) Those property owners with the will and resources to continue fighting in federal court after an adverse state court decision have found that such lawsuits are barred under judicial doctrines of “issue” and “claim” preclusion.

The decision is also notable because the plaintiffs in the lawsuit had purchased the property while it was under rent control. Relying on a rarely applied Supreme Court decision Palozollo, the Court held that a park owner who bought a property already subject to rent control could prevail on a takings challenge. The dissenting Judge disagreed with this conclusion.

Judge Bybee concluded the opinion with a strong affirmation that “we will not, therefore, throw these property owners back out and slam the courthouse door shut behind them. Today, our eyes are open. We have weighed the Penn Central factors, and we find that the RCO has affected a regulatory taking. Just compensation is due.”

The ruling may have far reaching effects, as local governments will have to consider potential liability for takings when they adopt rent control. The decision may even cause some local governments to reconsider the decision to adopt or retain rent control ordinances. Even more importantly, the decision may also affect the way rent control is applied in those jurisdictions which already have rent control. Local rent boards should be more inclined to grant warranted rent increases to avoid the real potential of liability for a takings. The park owners were represented by Rob Coldren, Mark Alpert and Bill Dahlin of Hart, King & Coldren.

Rob Coldren is a founding partner of the law firm Hart, King & Coldren, a in Santa Ana, California. For over a quarter or a century, Mr. Coldren’s practice has emphasized representation of mobilehome parks and recreational vehicle parks, as well as park owners, throughout the State of California. He can be reached at (714) 432-8700 or e-mail at rcoldren@hkclaw.com.

Mark D. Alpert is a Partner with Hart, King & Coldren. Mr. Alpert’s practice focuses on rent control, land use and property rights. He edits a property rights blog for the firm - www.capropertyrights.com.
Mr. Alpert may be reached at 714-432-8700 x. 355 or via email at malpert@hkclaw.com.

Bill Dahlin is a partner with HK&C and has practiced law for over two decades. Mr. Dahlin’s practice focuses on property rights. He may be reached at bdahlin@hkclaw.com or (714) 432-8700, ext. 306.