Opinion ID: 181572
Heading Depth: 3
Heading Rank: 2

Heading: Investment-Backed Expectations of All the Park Owners

Text: The majority opinion holds that the determinative Penn Central factor must be the extent to which the regulation has interfered with the claimant's distinct investment-backed expectations; and that factor is fatal to the Guggenheims' claim. Maj. Op. at 1120. In addition to avoiding the question of how a single factor in a three-factor test could be fatal without consideration or balancing of the other factors, [6] this holding is incorrect for three reasons. First, the majority opinion holds, as a matter of law, that the Guggenheims cannot have investment-backed expectations of freeing their land from the rent control ordinance because they knew the regulation was in effect when they purchased the mobile home park. This could be a logical conclusion to reachbut only were one to ignore (1) the instructions of the Supreme Court, (2) decades of political, legal, and economic developments, and (3) the actions of the Guggenheims. First, the Supreme Court has specifically held that the fact claimants knew of a land-use regulation at the time they took title to their land does not bar them from challenging that regulation, nor from contending that the ordinance lessened the value of their land by interference with their investment-backed expectations. Were we to accept the State's rule [that appellants had no investment-backed expectations because the ordinance was enacted before they purchased the land], the postenactment transfer of title would absolve the State of its obligation to defend any action restricting land use, no matter how extreme or unreasonable. A State would be allowed, in effect, to put an expiration date on the Takings Clause. This ought not to be the rule. Future generations, too, have a right to challenge unreasonable limitations on the use and value of land. Palazzolo, 533 U.S. at 627, 121 S.Ct. 2448 (emphasis added). In his concurrence, Justice Scalia was even more explicit in criticizing the methodology employed by the majority here: In my view, the fact that a restriction existed at the time the purchaser took title . . . should have no bearing upon the determination of whether the restriction is so substantial as to constitute a taking. The `investment-backed expectations' that the law will take into account do not include the assumed validity of a restriction that in fact deprives property of so much of its value as to be unconstitutional. Id. at 637, 121 S.Ct. 2448 (Scalia, J., concurring) (emphasis added) (internal citation omitted). The majority's dismissal of the Guggenheim's investment-backed expectations, on the basis that they knew what they were getting into, directly contravenes Supreme Court precedent and assumes the eternal validity, without reform, of the so-called rent control ordinance. [7] It does not come as a surprise the majority's stance on this subject comes without legal authority. The majority opinion asserts that Palazzolo is of no help to the Guggenheims, Maj. Op. at 1118, but one is puzzled by its attempts to distinguish Palazzolo. The majority notes that the claimant in Palazzolo challenged the land-use regulation as it was applied to him, whereas here, the Guggenheims bring a facial challenge to the Ordinance. Id. at 1118. So? Penn Central involved an as-applied challenge; but it gave us rules of general application as to what constitutes a regulatory taking. [8] Next, the majority points out the transfer in Palazzolo was by operation of law (the claimant, as controlling shareholder of the corporation which owned the land, acquired the property when the corporation dissolved), whereas the Guggenheims purchased the mobile home park on the open market. So? The plaintiff in Palazzolo acquired title after the challenged land-use restriction was enacted and nonetheless prevailed without claiming that he should be considered to have become the owner when his corporation bought the land before the restriction's enactment, on some theory of advantageous piercing of the corporate veil cum relation back. These distinctions are mere differences, no more significant than that the Palazzolo land was in Rhode Island [9] and the Guggenheim land was in California. Tellingly, the majority opinion provides no justification or legal support for why these proposed distinctions matter. Why should the investment-backed expectations of a land owner bringing a facial challenge be analyzed differently from those of an as-applied claimant? If the expectations are valid and are expropriated, what does it matter as to their existence that they will be injured in all cases (facial challenge) or just in some (as-applied challenge)? Either they are valid expectations, or they aren't. Likewise, the majority opinion provides no justification, legal or otherwise, for limiting the broad language of Palazzolo to the type of transaction that vests title. But this misprism of Supreme Court precedent is made worse by the majority opinion's failure to recognize specific evidence of the Guggenheims' investment-backed (after all, the Guggenheims invested money to buy the property) expectations. As the Court noted in Palazzolo, a court should analyze the claimant's investment-backed expectations as if the regulation at issue could be repealed at any time. Id. at 637, 121 S.Ct. 2448. Here, the Guggenheims purchased the mobile home park with the apparent belief they could free the land from the Ordinance, either through administrative action, political lobbying, or court action. After buying the property in 1997, they applied for a variance from the zoning commission, which variance could exempt their land from the Ordinance. [10] The application was denied. They subsequently instituted this court action to have the Ordinance declared facially unconstitutional under the Fifth Amendment. [11] The majority opinion even acknowledges the possibility of rent control repeal or reform by conceding that [t]he Guggenheims might conceivably have paid a speculative premium over the value that the legal stream of rent income would yield, on the theory that rent control might someday end, either because of a change of mind by the municipality or court action. Maj. Op. at 1120. But, the majority dismisses this contention as a speculative possibility, not an `expectation,' id. at 1120, without any citation of authority as to why a speculative possibility is not an expectation, nor why a judge, not a jury, should determine whether there was such an expectation. The majority opinion flatly states (without a citation to any case, statute, or even a law review article) that speculative possibilities of windfalls do not amount to `distinct investment-backed expectations,' unless they are shown to be probable enough materially to affect the price. Id. at 1120-21. However, this self-supporting, self-defining language ignores the actual dictionary definition of speculate. As defined by Webster's New 20th Century Unabridged Dictionary (1979), one meaning of speculate is precisely to buy or sell land hoping to take advantage of an expected rise or fall in price. (emphasis added). Having determined that they might be able to free their mobile home park from the Ordinance, the Guggenheims bought the land based on these investment-backed expectationsexpectations which influenced the price they were willing to pay for the property as well as their expected rate of return on the investment. The Guggenheims' beliefs regarding the possibility of freeing their land from the Ordinance were not self-indulgent delusions, or starry eyed hope of winning the jackpot if the law changes, as the majority terms it. Maj. Op. at 1120. Their beliefs were at least plausible in light of contemporary legal, political, and academic thought. In the modern economic marketplace, the spectre of legal uncertainty haunts every commercial transaction and influences each party's valuation of the assets involved. For example, the validity of a pharmaceutical company's patent will affect that company's value as a potential acquisition target. Legal uncertainty over rent control has been particularly marked in California. In 1989 the state amended its Mobilehome Residency Law to exempt all new construction from local control. Cal. Civ.Code § 798.45. Less than two years before the Guggenheims purchased their property, California had abolished vacancy control for rental apartments statewide. Costa-Hawkins Rental Housing Act, § 1, 1995 Cal. Legis. Serv. 331 (A.B. 1164) (West) (codified at Cal. Civ. Code § 1954.50-.53). In January 1999, Santa Monica reformed its strict rent control ordinance, repealing its operation as to any new tenants. Tierra Properties, Santa Monica: A Case Study in Growth and Rent Control (1999). The Guggenheims and the prior owners of their mobile home park may have reasonably thought that the state would abolish rent controlor at least vacancy control for mobile home parks. And the Guggenheims could reasonably retain those expectations today, as recent efforts to repeal rent control in California have garnered significant support. For example, a 2008 ballot proposition to phase out rent control won almost 40% of the votes cast. Patrick McGreevy, Prop. 98 Backers Seek Eminent Domain Limits, L.A. Times, June 5, 2008, at 1. Moreover, mobile home rent control ordinances have been heavily criticized in academia as an inefficient method for providing affordable housing to low and middle-income households. See, e.g., Mason & Quigley, 16 J. Housing Econ. at 192, 205 (concluding that housing is no more affordable [to subsequent tenants] afterwards than it was before the ordinance was adopted, and that virtually all of the economic benefits from lower regulated rents are paid out annually to finance the higher sales prices commanded by those dwellings). Given the instances of actual or attempted repeal and reform of rent control ordinances across the country, the particular scrutiny paid to the issue in California, and the criticism of mobile home rent control in the academic literature, the Guggenheims had a reasonable expectationor at least, a trier of fact could reasonably find they had such an expectationthat they could free their land from the Ordinance either through the grant of a zoning variance, political action targeted toward repealing the regulation in its entirety, or court action to invalidate the law. This inference is supported by evidence presented to the district court that the Guggenheims pursued relief from the Ordinance through at least two of these avenues in the years following their purchase of the mobile home park. The majority readily admits that this investment-backed expectation could have materially affected the price the Guggenheims were willing to pay for the mobile home park. The Guggenheims might conceivably have paid a slight speculative premium over the value that the legal stream of rent income would yield, on the theory that rent control might someday end, either because of a change of mind by the municipality or court action. Maj. Op. at 1120. At most, this concession establishes that the Guggenheims did in fact have investment-backed expectations of freeing the land from the Ordinance; at the very least, it raises a question of fact for the jury to decide. Finally, the majority, perhaps sensing its vulnerability on the issue of investment-backed expectations, attempts to distract the reader by introducing an entirely irrelevant consideration into the analysis: the alleged investment-backed expectations of the mobile home tenants. Maj. Op. at 1121-22. The majority opinion paints a sympathetic portrait of subsequent tenants who purchased mobile homes at market rates, in reliance on the continued validity of the Ordinance. But, the Penn Central regulatory taking analysis does not apply to them for the simple reason that no government action took economic value from them or would take such value from them were the Goleta ordinance held invalid. The Takings Clause prohibits only takings, without compensation, by government action, not losses from the workings of the free market. See Madera Irrigation Dist. v. Hancock, 985 F.2d 1397, 1403 (9th Cir.1993) (Reasonable expectations arising out of past policy but without a basis in cognizable property rights. . . . cannot give rise to a [taking].). Moreover, Penn Central does not contemplate any consideration of the expectations of other market players, or any balancing of the interests of various market players in determining whether the government has taken property. Its analysis is focused solely on the investment-backed expectations of the claimants, here, the Guggenheims. In sum, the majority opinion ignores Supreme Court precedent by holding that a claimant cannot have investment-backed expectations if he purchases property with notice of an existing regulation, by assuming the eternal regnancy of a land-use regulation, and by introducing irrelevant considerations which tend only to confuse the regulatory taking analysis. Furthermore, the majority adopts a static and somewhat simplistic view of law, politics, and economics by failing to recognize that the Guggenheims had a reasonable expectation of freeing their land from the Ordinance through political or legal means, and by failing to acknowledge that this belief could influence the price they were willing to pay for the land. The Guggenheims presented sufficient evidence to raise a triable issue of fact regarding their investment-backed expectations to survive a motion for summary judgment. The case should have gone to trial.