Source: https://caselaw.findlaw.com/ca-court-of-appeal/1389933.html
Timestamp: 2019-04-25 05:04:02+00:00

Document:
152 VALPARAISO ASSOCIATES et al., Plaintiff/Appellant, v. CITY OF COTATI et al., Defendant/Respondent.
James S. Burling,R.S. Radford, Pacific Legal Foundation, Sacramento, for Plaintiff/Appellant. Jeffrey A. Walter, Veronica A.F. Nebb, Walter & Pistole, Sonoma, for Defendant/Respondent.
Appellants 152 Valparaiso Associates, 402 Grand Avenue Associates, and 378 Belmont Associates contend the trial court wrongly sustained a demurrer and dismissed this lawsuit, which alleges that the rent control system of respondents the City of Cotati and the Cotati Rent Appeals Board has accomplished a taking of appellants' property without just compensation, in violation of the Fifth and Fourteenth Amendments to the United States Constitution and article I, section 19 of the California Constitution. We agree and, therefore, vacate the judgment of dismissal.
Appellants are the owners of residential rental property in Cotati. Their property is subject to respondents' rent control ordinance and regulations.
The stated purpose of respondents' rent control laws includes the preservation of an affordable stock of residential rental units in the city for low income renters, renters who are aged or on fixed incomes, and students.
However, according to the allegations of the first amended complaint and the United States Census Bureau figures referred to therein, respondents' rent control laws have not advanced those goals. The complaint supported by the census data referenced and incorporated therein alleges: (1) The city has suffered a loss of its housing stock of rental apartments, even though every comparable city in Northern California without rent control has experienced an increase in its rental housing supply; (2) the number of low income renters has “dropped dramatically” in the city, even though in cities without rent control, the number of such low income renters has increased; (3) the “reduced availability of affordable housing caused by the Rent Ordinance” has caused the number of college students living in the city to decline. Appellants contend that respondents' rent control laws, to which appellants' property is subject, have, thus, “failed to substantially advance” the stated objectives of the rent control laws, since the results those laws have produced are simply the “gentrification” of Cotati.
Appellants, who are subject to those rent control laws, made certain capital improvements to their rental property. They sought a rent increase sufficient to give them a fair return on their investment in those capital improvements. The rent board refused to grant any such increase. As a result, appellants allege the rate of return on their investments will be zero, resulting in an unconstitutional taking of their investment property.
In sum, appellants allege that respondents' rent control ordinances effected an unconstitutional taking of appellants' property, because respondents failed to substantially advance their stated public goals and denied appellants a fair return on their investment.
The trial court sustained without leave to amend a demurrer to appellants' first amended complaint encompassing such allegations. Appellants filed a timely appeal from a resulting judgment dismissing that complaint.
The trial court erred in sustaining the demurrer to the first amended complaint. Appellants have alleged facts which, if true, would tend to establish that respondents' rent control laws have effected a taking of appellants' property, in violation of the federal and California Constitutions. We vacate the dismissal and remand with instructions to overrule the demurrer.
This court (Division Five of the First Appellate District) has had many occasions to review the tortured history of rent control in California, most recently in City of Berkeley v. City of Berkeley Rent Stabilization Bd. (1994) 27 Cal.App.4th 951, 958-961, 33 Cal.Rptr.2d 317 (Berkeley Rent ). We summarize that history very briefly here, in order to provide necessary legal background.
We are, therefore, required to assume, for purposes of ruling on this appeal, that the results produced by rent control in Cotati were as follows. Contrary to the stated purposes of respondents' rent control program, the results it produced were that poor people, the aged, students, and those on fixed incomes were gradually driven out of Cotati; and the stock of affordable rental apartments was not preserved, but instead was significantly depleted. In addition, appellants allege and we are required to assume that the rent board, contrary to the requirements of providing a fair rate of return, has decided appellants' rate of return on their capital improvements to their property should be zero. Under those posited factual circumstances, we are asked to determine whether it is an unconstitutional taking for the rent board to deny any rate of return on such investment to property owners, resulting in poor people and others who need rental housing being driven from the city. We conclude appellants have stated a claim for an unconstitutional taking of their property under the posited facts.
As the federal and California Supreme Courts have repeatedly observed, “The application of a general ․ law to particular property effects a taking if the ordinance does not substantially advance legitimate state interests, [citation], or denies an owner economically viable use of his land, [citation].” (Agins v. Tiburon (1980) 447 U.S. 255, 260, 100 S.Ct. 2138, 2141, 65 L.Ed.2d 106 (Agins ), italics added; accord, Ehrlich v. City of Culver City (1996) 12 Cal.4th 854, 870, 50 Cal.Rptr.2d 242, 911 P.2d 429.) In the present case, appellants have alleged a state of facts which satisfies both prongs of this Agins test, by contending and offering to prove that respondents' rent control laws have not substantially advanced legitimate state interests and have denied appellants any rate of return on their investments in capital improvements to their property. Under the more recent federal Supreme Court cases, general land use regulations will be held to have effected a regulatory taking if the results produced by the regulatory scheme do not advance a legitimate state interest. (See Nollan v. California Coastal Comm'n (1987) 483 U.S. 825, 834, 107 S.Ct. 3141, 3147, 97 L.Ed.2d 677 (Nollan ); Dolan v. City of Tigard (1994) 512 U.S. 374, 385, 114 S.Ct. 2309, 2316, 129 L.Ed.2d 304, fn. 6 (Dolan ).) Under the so-called Nollan/Dolan test, which also stems from the language of Agins, a property owner may challenge a regulatory taking if it does not advance a legitimate state interest, even if the taking does not deprive the property owner of all economically viable use of the property.
No published decision of a California appellate court has extended the Del Oro Hills dicta, dealing with the need to exhaust administrative remedies before mounting a facial challenge to the constitutionality of a land use law, to apply instead to an ordinance which, as applied following exhaustion of administrative remedies, as here, allegedly deprives property of its value for no legitimate state interest. Similarly, no published decision of a California appellate court has interpreted the Del Oro Hills dicta as a holding that even after the Four Horsemen of Agins, Lucas, Nollan, and Dolan, a land use ordinance cannot constitute a taking unless it totally deprives the property of all possible economic value. We do not so interpret this dicta, either. Such an interpretation would be inconsistent with Agins, Lucas, Nollan, and Dolan, which taken together established and applied an “either/or” test by stating that “The application of a general ․ law to particular property effects a taking if the ordinance does not substantially advance legitimate state interests, [citation], or denies an owner economically viable use of his land, [citation].” (Agins, supra, 447 U.S. at p. 260, 100 S.Ct. at 2141, italics added.) To the extent respondents argue the Del Oro Hills dicta, if shorn from the particular factual context of that case, might be inconsistent with the holdings of the federal Supreme Court, we must respectfully decline to follow Del Oro Hills.
We further observe that respondents are free if they wish, in later trial court proceedings, to attempt to introduce contrary evidence of subsequent census data, if it exists, allegedly showing, inter alia, that despite the documented exodus from Cotati by the poor and other groups reflected in the most recent federal decennial census, poor people have in fact more recently flocked to Cotati to live in an increasing inventory of rental apartments; that respondents' rent control laws are applied so as to lure private investors and builders; or that the latter will receive a reasonable rate of return on their investment.
Finally, respondents contend appellants' challenge to the actions of the rent board, in not granting them any return on their investment, was somehow barred by the applicable statute of limitations because the federal census data was almost three years old when they first became available. The trial court rejected this illogical argument as “without legal merit.” We agree with the trial court on this point. The most restrictive statute of limitations which might arguably apply here is Code of Civil Procedure section 1094.6, subdivision (d), which requires the filing of a petition for administrative mandate within 30 days of the agency's delivery of the administrative record. Appellants met that deadline. The fact that the federal census data was more than 30 days old is irrelevant to the statute of limitations.
The time has arrived to litigate the truth or falsity of appellants' contentions that Cotati's application of its rent control program has unconstitutionally confiscated landlords' property. Confiscation may or may not have occurred in this case; and respondents' rent control ordinance may or may not have substantially advanced some legitimate state interest, while avoiding the unlawful taking of landlords' property. Those issues remain to be determined under the allegations of appellants' pleading, combining a first amended complaint for inverse condemnation and a petition for writ of administrative mandate; and we remand this matter to the trial court for that purpose.
The judgment of dismissal is vacated. The matter is remanded to the trial court with instructions to overrule the demurrer.
HANING and JONES, JJ., concur.

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