Opinion ID: 2851003
Heading Depth: 3
Heading Rank: 1

Heading: Regulatory Takings Analysis

Text: At the outset, we consider whether Rancho’s claims are ripe. The Supreme Court has articulated “two independent prudential hurdles” that apply to federal regulatory takings claims. Suitum v. Tahoe Regional Planning Agency, 520 U.S. 725, 733-34 (1997). First, there is a finality requirement—a claim “is not ripe until 1 The Supreme Court laid to rest any argument that a mobile home rent control ordinance constitutes a physical taking in Yee v. City of Escondido, Cal., 503 U.S. 519, 532 (1992) (holding that such a rent control ordinance “is a regulation of petitioners’ use of their property” and not “an unwanted physical occupation of [the] property”) (emphasis omitted). 8 the government entity charged with implementing the regulations has reached a final decision regarding the application of the regulations to the property at issue.” Williamson Cnty. Reg’l Planning Comm’n v. Hamilton Bank of Johnson City, 473 U.S. 172, 186 (1985). The hearing examiner’s decision satisfies the requisite finality. Exhaustion is the second requirement—“the owner [must have] unsuccessfully attempted to obtain just compensation through the procedures provided by the State for obtaining such compensation.” Id. at 195. Rancho appropriately proceeded in state court to obtain just compensation, but lost at both the trial and intermediate appellate stages.2 The California Court of Appeal’s opinion includes extensive analysis, including a rejection of the takings claim under the Penn Central factors: “We reject Rancho’s claim under the takings clause, which, like the due process clause, protects a property owner’s right to earn a fair return on its investment.” Rancho de Calistoga, 2015 WL 4099027, at . Rancho’s petition to the California Supreme Court remains pending. 2 We note that this court has determined that California’s compensation procedures are constitutionally adequate. Equity Lifestyle Props., Inc. v. Cnty. of San Luis Obispo, 548 F.3d 1184, 1192 (9th Cir. 2008). 9 Echoing the Court’s decision in Suitum, we previously determined that the Williamson ripeness requirements are prudential rather than jurisdictional, meaning that they are formulated by the court rather than stemming from Article III. See Guggenheim v. City of Goleta, 638 F.3d 1111, 1117 (9th Cir. 2010) (en banc). Here, Rancho sufficiently “utilized” the available judicial procedures laid out in Williamson. 473 U.S. at 197. As a consequence, “it would be a waste of the parties’ and the courts’ resources to bounce the case through more rounds of litigation.” Guggenheim, 638 F.3d at 1117. We now turn to the merits of the as-applied regulatory takings claim. In essence, Rancho claims that even if the taking is for a public purpose, the rent subsidy should be paid by the government if the rent is neither excessive nor the result of monopoly power. This characterization of the claim—taken directly from Rancho’s brief—is just another formulation of a facial attack on the ordinance. In other words, Rancho is saying that the rent adjustment scheme is invalid on its face if it does not accommodate these principles. Of course, the district court foreclosed a facial challenge as time barred. Even if the claim were cognizable through an as-applied attack, it fails. The Supreme Court “has consistently affirmed that States have broad power to regulate 10 housing conditions in general and the landlord-tenant relationship in particular without paying compensation for all economic injuries that such regulation entails.” Yee v. City of Escondido, 503 U.S. 519, 528-29 (1992) (internal quotation mark omitted). “However, under Penn Central . . . a regulatory taking may occur—and just compensation is required—when ‘regulatory actions [occur] that are functionally equivalent to the classic taking in which government directly appropriates private property or ousts the owner’ with the inquiry ‘focus[ing] directly upon the severity of the burden that government imposes upon private property rights.’” MHC, 714 F.3d at 1127 (quoting Lingle, 544 U.S. at 539) (alteration in original). Penn Central “identif[ies] several factors, not a set formula,” to determine whether this functional equivalence exists. Guggenheim, 638 F.3d at 1120. Chief among the factors to be considered are “[t]he economic impact of the regulation on the claimant and, particularly, the extent to which the regulation has interfered with distinct investment-backed expectations” and “the character of the governmental action—for instance whether it amounts to a physical invasion or instead merely affects property interests through some public program adjusting the benefits and burdens of economic life to promote the common good.” Lingle, 544 U.S. at 11 538-39 (citing Penn Cent., 438 U.S. at 124) (internal quotation marks omitted) (alteration in original). Applied here, these factors counsel in favor of the City. The economic impact factor favors the City because Supreme Court cases “have long established that mere diminution in the value of property, however serious, is insufficient to demonstrate a taking.” Concrete Pipe & Products of California, Inc. v. Constr. Laborers Pension Trust for S. California, 508 U.S. 602, 645 (1993) (citing Village of Euclid v. Ambler Realty Co., 272 U.S. 365, 384 (1926) (approximately 75% diminution in value); Hadacheck v. Sebastian, 239 U.S. 394, 405 (1915) (92.5% diminution)); see also MHC, 714 F.3d at 1127-28 (81% diminution). Rancho claims diminution in market value (from $16,580,000 to $11,850,000 under rent control, or 28.53%), as well as lost income. This economic impact is an inevitable consequence of the rent-control scheme but not an unconstitutional one. We pay particular attention to Rancho’s distinct investment-backed expectations. This principle “implies reasonable probability, like expecting rent to be paid, not starry eyed hope of winning the jackpot.” Guggenheim, 638 F.3d at 1120. Because Rancho cannot reasonably expect that its property will be 12 continually unencumbered by government regulation, this factor also favors the City. Rancho argues that because, unlike in Guggenheim, 638 F.3d at 1120-21, and MHC, 714 F.3d at 1128, it has owned the Park since before the City imposed a rent control ordinance, it had an investment-backed expectation to be free from rent control. This temporal difference does not give Rancho a valid investmentbacked expectation of owning a mobile home park unencumbered by government regulation. Simply put, when buying a piece of property, one cannot reasonably expect that property to be free of government regulation such as zoning, tax assessments, or, as here, rent control. Rancho’s argument is tantamount to saying that a homeowner can reasonably expect that the tax assessment or rate of taxation on her home will not increase from the time of purchase. Just as “[t]hose who do business in [a] regulated field cannot object if the legislative scheme is buttressed by subsequent amendments to achieve the legislative end,” those who buy into a regulated field such as the mobile home park industry cannot object when regulation is later imposed. Concrete Pipe, 508 U.S. at 645 (alteration in original). Like the California Court of Appeal, “[w]e decline to hold that a landlord whose building or park existed before the enactment of rent control necessarily suffers a 13 taking when rent control is implemented.” Rancho de Calistoga, 2015 WL 4099027, at . Rancho’s argument that it has an investment-backed expectation to earn a “fair return” fares no better. In fact, this argument proves the City’s point. Ordinance 644 authorizes a specified yearly rent increase and establishes an administrative mechanism for park owners to seek to increase rent above this amount. Ordinance 644 §§ 2.22.070.A, 2.22.080. Under the ordinance, “[a] park owner may seek an adjustment to the initial base rent” so that the owner is assured of “receiving a fair and reasonable return.” Id. § 2.22.040.B. Rancho did just that and obtained a $50 upward adjustment in 1995. Rancho de Calistoga, 2015 WL 4099027, at . Then, the Ordinance provides for automatic annual increases that Rancho in fact received. Id. § 2.22.070. And, finally, the ordinance permits the owner to propose an additional rent increase, as Rancho did here. Id. § 2.22.080. We assume for purposes of Rancho’s argument that its proposed rent increase is neither excessive (in some undefined sense) nor monopolistic. Significantly, as the California Court of Appeal observed, “Rancho’s true quarrel appears to be with the whole idea of rent control, not with how [the] City 14 administered its duly enacted rent control ordinance in this case.” Rancho de Calistoga, 2015 WL 4099027, at . The City has designed a system aimed at giving park owners a fair return while still furthering the goals of rent control. Rancho may disagree with the specific rent prices authorized by the ordinance, but this disagreement does not give rise to a constitutional taking nor is a mobile home park owner entitled to unilaterally impose its own formulation of “excessive” or “monopolistic” as the standard necessary for a taking. We last address the character of the governmental action. We have consistently given our imprimatur to the underlying public purpose of mobile home rent control ordinances and have characterized them as “much more an ‘adjust[ment of] the benefits and burdens of economic life to promote the common good’ than . . . a physical invasion of property.” MHC, 714 F.3d at 1128 (quoting Penn Cent., 438 U.S. at 124) (alteration in original). The same holds true of Ordinance 644 and its application to Rancho. Accordingly, there has been no regulatory taking.