Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_03-cv-00891/USCOURTS-cand-3_03-cv-00891-1/pdf.json

Nature of Suit Code: 440
Nature of Suit: Other Civil Rights
Cause of Action: 42:1983 Civil Rights Act

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

S G BORELLO & SONS, INC

Plaintiffs,

v

CITY OF HAYWARD, et al,

Defendants. /

No C 03-0891 VRW

ORDER

Plaintiff S G Borello & Sons, Inc owns the Eden Roc

mobilehome park, located in Hayward, California. Borello initiated

this suit on February 28, 2003, seeking a writ of mandamus

declaring Hayward’s mobilehome rent control ordinance

unconstitutional. Doc #1. 

In its opposition to Borello’s motion for a writ of

mandamus, the City moved to dismiss the case under FRCP 12(c). 

The City’s motion asserts two grounds: (1) the claims are unripe

because Borello has not sought redress in state court and (2) the

claims fail because the ordinance does not deprive Borello of a

fair return on its investment. For the following reasons, the

court GRANTS the City’s motion to dismiss, but does so without

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United States District Court

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prejudice to Borello serving an amended complaint that spells out

possibly justiciable claims that it may have regarding the Hayward

ordinance and its interplay with state law. 

I

On a FRCP 12(c) motion to dismiss, all well-pleaded

allegations of material fact are taken as true and construed in a

light most favorable to the non-moving party. General Conference

Corp of Seventh-Day Adventists v Seventh-Day Adventist

Congregational Church, 887 F2d 228, 230 (9th Cir 1989). 

Accordingly, what follows is drawn from Borello’s complaint (Doc

#1), taking its allegations as true.

Borello owns Eden Roc mobilhome park in Hayward,

California. This park is submetered, meaning that the electrical

utility Pacific Gas and Electric Company (PG&E) delivers

electricity to a master meter and bills its master-meter customer,

Borello, for all electricity delivered to the park. The park’s 200

tenants receive electricity via a submeter system that is owned,

serviced and administered by Borello. 

PG&E charges Borello for total park electricity service

in a bill that does not separate tenant usage from common area

usage (e g, pool, clubhouse, overhead street lighting). In

accordance with California Public Utilities Code (CPUC) section

739.5(a), Borello’s master-meter bill from PG&E contains a perspace, per-day submeter discount that represents the costs PG&E

avoids by not providing the submeter service directly to the

tenants. Borello provides its tenants with an itemized monthly

bill for gas and electricity based on each tenant’s submetered

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usage. 

As limited by § 739.5(a), Borello charges its tenants at

the same rate PG&E would charge for residential service if it were

providing the services directly. Because of the submeter discount,

Borello’s monthly receipts from tenants for their utility usage

exceed the total amount Borello pays each month to PG&E for total

park usage. The difference between those two rates is known as the

“differential,” which is intended to compensate Borello for the

cost of maintaining and repairing the electrical system, as well as

reading the individual meters at the tenants’ spaces. 

Over time, park residents have replaced many of the

original mobilehomes with larger and updated mobilehomes having

appliances and facilities that consume a greater volume of

electricity. This increased consumption of electricity occasioned

brown-outs in the park. In response, Borello upgraded the

electrical system, replacing old power lines with higher capacity

power lines. Borello completed the first of five phases in the

upgrade, incurring approximately $152,800 in costs. The projected

cost of the entire upgrade project is approximately $650,000. 

Borello sought to pass on a portion of these costs to its

tenants. Hayward’s mobilehome rent control ordinance limits

parkowners’ rent increases to 3% per year. Although the ordinance

allows parkowners to apply for rent increases in excess of the 3%,

such additional increases may be challenged by the tenants. 

On May 30, 2002, Borello gave tenants notice of a $24.78

rent increase based in part on the $152,800 upgrade to the park’s

electrical system. This increase sought to recover only costs

resulting from improvements to the common area electrical

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facilities, not the individual tenant spaces. 

One hundred five tenants opposed the increase and filed a

petition for mediation. At the conclusion of this mediation, the

hearing officer found that the Public Utilities Commission had

exclusive jurisdiction over the electrical system so that Hayward

could not award a rent increase related to Borello’s upgraded

system. The hearing officer rejected Borello’s attempt to allocate

between the electrical system for the common area and the 200

individual spaces. The officer also rebuffed the City’s attempt to

allocate between expenses related to the electrical system and

unrelated expenses. 

Borello contends that the combined effect of the

ordinance, the Public Utilities Commission and the hearing

officer’s decision preclude it from obtaining a fair return on

investment under the City’s mobilehome rent control ordinance in

violation of its constitutional rights. Accordingly, Borello urges

the court to declare the City’s ordinance unconstitutional, as

applied to parkowners with submetered parks. 

II

The standard applied on a FRCP 12(c) motion is the same

as that applied on FRCP 12(b)(6) motions: i e, judgment on the

pleadings is appropriate when, even if all material facts in the

pleading under attack are true, the moving party is entitled to

judgment as a matter of law. Hal Roach Studies, Inc v Richard

Feiner & Co, Inc, 896 F2d 1542, 1550 (9th Cir 1989). FRCP 8(a),

which states that a plaintiff’s pleadings must contain “a short and

plain statement of the claim showing that the pleader is entitled

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to relief,” provides the standard for judging whether such a

cognizable claim exists. Lee v City of Los Angeles, 250 F3d 668,

679 (9th Cir 2001). This standard is a liberal one that does not

require a plaintiff to set forth all the factual details of the

claim; rather, all that the standard requires is that a plaintiff

give the defendant fair notice of the claim and the grounds for

making that claim. Leatherman v Tarrant County Narcotics Intell &

Coord Unit, 507 US 163, 168 (1993) (citing Conley v Gibson, 355 US

41, 47 (1957)). To this end, a plaintiff’s complaint should set

forth “either direct or inferential allegations with respect to all

the material elements of the claim”. Wittstock v Van Sile, Inc,

330 F3d 899, 902 (6th Cir 2003). 

Under Rule 12(c), judgment should not be granted “unless

it appears beyond doubt that the [non-moving] party cannot prove

any facts that would support his claim for relief.” RJ Corman

Derailment Services, LLC v Int’l Union of Operating Engineers, 335

F3d 643, 647 (7th Cir 2003). As with Rule 12(b)(6) motions, the

court must assume the truthfulness of the material facts alleged in

the complaint. Moreover, all inferences reasonably drawn from

these facts must be construed in favor of the responding party. 

General Conference Corp of Seventh-Day Adventists v Seventh-Day

Adventist Congregational Church, 887 F2d 228, 230 (9th Cir 1989). 

III

The City’s ripeness challenge relies on Williamson County

v Hamilton Bank, 473 US 172, 194-95 (1982), which set forth a

heightened ripeness test for constitutional takings claims. Under

Williamson County, there are two parts to establishing ripeness for

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a takings claim brought in federal court against a state or

subdivision thereof. The first step requires that “the government

entity charged with implementing the regulations has reached a

final decision regarding the application of the regulations to the

property at issue.” Id at 186. The second step requires the

plaintiff to “seek compensation through the procedures the state

has provided for doing so.” Id at 194. 

Borello does not dispute that its claims fall short of

Williamson County. Instead, it argues the test does not apply

because its claims arise out of the due process clause rather than

the takings clause of the Fifth Amendment. This argument poses two

distinct issues for the court: whether the due process clause

supports Borello’s claim for a fair return on investment and, if

so, whether reliance on the due process clause enables it to avoid

the Williamson County test.

A

To proceed under the due process clause, Borello’s

preliminary hurdle is long-standing Ninth Circuit precedent barring

due process challenges to the deprivation of property. In

Armendariz v Penman, 75 F3d 1311 (9th Cir 1996), the Ninth Circuit

blocked a substantive due process challenge to a rent control

ordinance, reasoning that “where a particular amendment provides an

explicit textual source of constitutional protection against a

particular sort of government behavior, that Amendment, not the

more generalized notion of ‘substantive due process,’ must be the

guide for analyzing these claims.” Id at 1319 (internal quotations

omitted). Hence, the court barred plaintiffs from resorting to the

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due process clause because their claims concerned conduct that was

“the type of government action the * * * Fifth Amendment[]

regulates.” Id at 1324. 

Borello contends the Supreme Court’s recent ruling in

Lingle v Chevron USA, Inc, 125 S Ct 2074 (2005), undermines the

Ninth Circuit’s restriction on using substantive due process in the

case of an alleged government taking. The court agrees in part: 

Lingle revitalizes the due process clause in the takings context. 

Lingle eviscerated the “substantially advances” theory of

takings jurisprudence that the Ninth Circuit had developed in a

series of cases. See, e g, Richardson v City and County of

Honolulu, 124 F3d 1150 (9th Cir 1997); Chevron USA, Inc v Cayetano,

224 F3d 1030 (9th Cir 2000). In doing so the Court suggested the

availability of a substantive due process challenge to a regulatory

taking. See Lingle, 125 S Ct at 2083 (“We conclude that [the

substantially advances] formula prescribes an inquiry in the nature

of a due process, not a takings test”). See also id (noting that

“probing the regulation’s underlying validity” is “logically prior

to and distinct from the question whether a regulation effects a

taking, for the Takings Clause presupposes that the government has

acted in pursuit of a valid public purpose”). Justice Kennedy’s

concurrence further encouraged resort to the due process clause: 

“[t]his separate writing is to note that today’s decision does not

foreclose the possibility that a regulation might be so arbitrary

or irrational as to violate due process.” Lingle, 125 S Ct at 2087

(Kennedy, J, concurring). 

More compelling, Lingle undercuts the Ninth Circuit’s

basis for barring substantive due process challenges to

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deprivations of property. As discussed above, the Ninth Circuit

imposed this bar on the notion that claims should rely on the

explicit textual sources of constitutional protection, if

available, such as the takings clause, rather than “the more

generalized notion of substantive due process.” Armendariz, 75 F3d

at 1324. But Lingle held that challenges concerning the means-ends

relationship of a statute do not implicate the takings clause. 125

S Ct at 2083. Hence, after Lingle, there is no explicit text for

assessing whether a regulation is effective in achieving a

legitimate public purpose; only the due process clause remains. 

See also Blaesser & Weinstein, Federal Land Use Law & Litigation §

2:11 (noting that, after Lingle, “[i]f a land use regulation

furthers no public purpose whatsoever then, although just

compensation is no longer available under the Fifth Amendment, the

failure of the regulation to substantially advance any legitimate

public purpose in violation of due process * * * would give rise to

a cause of action for damages under 42 USC § 1983"). Accordingly,

the court concludes that after Lingle, Armendariz and its progeny

no longer preclude a substantive due process challenge to

deprivations of property. 

Although Lingle marked a path for substantive due process

challenges, Borello’s suit seems to stray from that path. The

court is at a loss to find a substantive due process “right” to a

fair return on investment. The lone Supreme Court case Borello

cites in support of this alleged right is Pennell v City of San

Jose, 485 US 1 (1988). Doc #34 at 6. In Pennell, the Court

concluded that a rent control ordinance satisfied the due process

clause because it constituted “a rational attempt to accommodate

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the conflicting interests of protecting tenants from burdensome

rent increases while at the same time ensuring that landlords are

guaranteed a fair return on their investment.” Id at 13-13. But

far from fashioning a right to a fair return on investment, Pennell

merely mentions such a return as a factor in evaluating the

rationality of a rent control ordinance.

Borello’s Ninth Circuit authority for a substantive due

process right to a fair return lies in Sierra Lake Reserve v City

of Rocklin, 938 F2d 951 (9th Cir 1991). The appeals court in

Sierra Lake opined that a mobilehome parkowner “may also have a

substantive due process claim to the extent it complains that [the

ordinance] deprived it of a ‘fair and reasonable’ return on

investment.” Id at 958. In support of this dictum, the Sierra

Lake court cited Guaranty Nat’l Ins Co v Gates, 916 F2d 508 (9th

Cir 1990), a case in which the court pulled the “fair and

reasonable return” standard from early Supreme Court doctrine that

had long since shifted to takings law. Compare Federal Power Com v

Natural Gas Pipeline Co, 315 US 575 (1942), with Duquesne Light Co

v Barasch, 488 US 299 (1989) (“If the rate does not afford

sufficient compensation, the State has taken the use of utility

property without paying just compensation and so violated the Fifth

and Fourteenth Amendments”). The Ninth Circuit has dealt with this

apparent stray dictum by ignoring it: in the numerous subsequent

mobilehome rent control cases, the substantive due process analysis

makes no mention of a right to a fair return, even though Sierra

Lake is cited for unrelated propositions. See, e g, Halverson v

Skagit County, 42 F3d 1257 (1994). 

The infringement of a substantive due process right

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requires more than an unfair return. To establish a violation of

its right to substantive due process, Borello must demonstrate that

the City’s ordinance is “clearly arbitrary and unreasonable, having

no substantial relation to the public health, safety, morals, or

general welfare.” Dodd v Hood River County, 59 F3d 852, 864 (9th

Cir 1995) (citing Euclid v Ambler Realty Co, 272 US 365, 395

(1926)). Hence, federal judicial interference with a local

government land-use decision may be proper if the government body

could have no legitimate reason for its decision. Minnesota v

Clover Leaf Creamery Co, 449 US 456, 464 (1981). 

The difference is this: Under due process, unlike in the

takings context formulated by the Ninth Circuit, there is no

requirement that the statute actually advance its stated purpose;

rather, the due process inquiry focuses on whether “the

governmental body could have had no legitimate reason for its

decision.” Shelton v City of College Station, 780 F2d 475, 483

(5th Cir 1986) (en banc) (citing Minnesota v Clover Leaf Creamery

Co, 449 US 456, 464 (1981)). “The law need not be in every respect

logically consistent with its aims to be constitutional. It is

enough that there is an evil at hand for correction, and that it

might be thought that the particular legislative measure was a

rational way to correct it.” Williamson v Lee Optical of Oklahoma,

Inc, 348 US 483, 487-88 (1955).

Accordingly, the court concludes the due process clause

does not provide a right to a fair return on investment. 

//

//

//

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B

Even if Borello establishes a challenge under the due

process clause, the heightened ripeness standard under Williamson

County may still apply. In the Ninth Circuit, due process claims

must still satisfy Williamson County if they relate to, or arise

from, a takings claim. See Norco Construction, Inc v King County,

801 F2d 1143 (9th Cir 1986). Hence, Borello cannot avoid

Williamson County merely by labeling its claims “due process

violations.” See Carpinteria Valley Farms, Ltd v County of Santa

Barbara, 344 F3d 822, 831 (9th Cir 2003) (“Thus * * * claims under

42 USC § 1983 concerning land use may proceed even when related

Fifth Amendment ‘as applied’ taking claims are not yet ripe for

adjudication.”). See also Harris v County of Riverside, 904 F2d

497, 500-01 (1990). 

As presently alleged, Borello’s substantive due process

theory arises from a taking claim. The writ of mandamus asks the

court to declare the City’s ordinance unconstitutional for the

reason that it does not permit Borello to obtain a fair return on

its investment. This claim implicates Williamson County because,

like a takings case, it tests whether the ordinance goes too far. 

“A court cannot determine whether a regulation goes ‘too far’

unless it knows how far the regulation goes.” Palazzolo, 533 US at

620. See also Sierra Lake Reserve v Rocklin, 938 F2d 951 (“The

principle of ‘fair and reasonable return on investment’ may support

a takings claim as well as a substantive due process claim”)

By contrast, the substantive due process theory discussed

above — i e, whether the ordinance is so arbitrary or irrational

that it runs afoul of the due process clause — does not require a

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heightened ripeness standard because it assesses the ordinance’s

underlying validity rather than the extent of its burden. Lingle

makes this very distinction: it concluded that a substantive due

process claim evaluates the effectiveness of a regulation, whereas

the takings clause concerns itself with “the magnitude or character

of the burden a particular regulation imposes upon private property

rights.” 125 S Ct at 2084. The latter inquiry triggers Williamson

County; the former does not. Accordingly, to avoid Williamson

County, Borello must proceed under the traditional substantive due

process analysis discussed above, not under its alleged right to a

fair return on its investment.

The problem Borello confronts — as the court understands

it — is this: Borello buys electricity from PG&E at a bulk rate,

then submeters that electricity to its tenants but cannot charge

more than PG&E’s price for providing that submetered service. 

Borello presumably must as a condition of operating a mobilehome

park provide electricity to both tenants and to the common areas of

the park. The cost to Borello of providing individually submetered

service is greater than the costs of PG&E providing that service,

PG&E having economies of scale unavailable to Borello (or any other

PG&E customer for that matter). Forcing Borello to bear that

additional cost without recourse to recovery is — according to

whichever theory Borello pursues — either arbitrary and irrational

and hence a denial of substantive due process or a taking. Because

it is not clear which theory Borello can elect and because the

ripeness inquiry may be different depending on which theory Borello

pursues, Borello should be permitted to spell out its claim with

greater clarity. 

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IV

Im sum, the court GRANTS the City’s motion to dismiss

both because the due process clause does not support Borello’s

claim for a right to a fair return on investment and because

Borello’s present claim fails to satisfy the Williamson County

ripeness test. Borello is given leave to file an amended complaint

by January 15, 2007.

IT IS SO ORDERED.

 

VAUGHN R WALKER

United States District Chief Judge

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