9th Circuit Strikes Down Rent-Control Ordinance

     (CN) – A mobile home rent-control ordinance in Goleta, Calif., amounts to an unconstitutional taking of property, the 9th Circuit ruled in a 2-1 decision.

     The Pasadena-based panel ruled that the city should compensate trailer park owners Daniel and Susan Guggenheim and Maureen Pierce for capping the amount of rent they could charge their tenants.
     Goleta imposed the ordinance in 2002, when it became a part of Santa Barbara County. The county first enacted its rent-control ordinance in 1979 to increase the availability of low-income housing and to prevent trailer park owners from exploiting local housing shortages by charging exorbitant rents.
     The Guggenheims and Pierce, who bought the Ranch Mobile Estates in 1997, claimed the city adopted the county’s rent-control ordinance without any hearings, studies or probes into whether it was “needed or appropriate” for the city.
     After viewing the evidence, the district court determined that city housing costs easily outpaced the rents charged by the trailer park owners. The resulting below-market rents allowed mobile home owners to sell their trailers at a premium – about 80 percent of the sale price.
     “In other words,” the district court wrote, “an average mobile home worth $12,000 would sell for approximately $100,000.”
     The lower court ruled for the park owners on the takings claim, but while an appeal was pending, the Supreme Court decided a case that unraveled the park owners’ victory. Judgment for the plaintiffs was vacated, and the district court later ruled for the city on all constitutional claims.
     The split panel reversed in part, saying the ordinance violated the Fifth Amendment.
     “Singling out mobile home park owners … and forcing them to rent their property at a discount of 80 percent below its market value ‘is the kind of expense-shifting to a few persons that amounts to a takings,'” Judge Bybee wrote, quoting Federal Circuit precedent.
     The court pointed out that the city has other options for supporting low-income housing, including tax incentives, low-cost loans, rent supports and vouchers.
     Bybee said the standing requirements established in Williamson County Regional Planning Commission v. Hamilton Bank of Johnson City “forced us to close the courthouse door to aggrieved property owners like the Park Owners, and to close our eyes to the extreme effects of laws like the City’s (rent-control ordinance).”
     In Williamson, the Supreme Court held that a takings claim is not ripe until the property owner has jumped through the state’s procedural hoops and has been denied compensation for the property loss.
     But the Guggenheims and Pierce “have managed to pry these doors open a bit” by developing their case through several rounds of litigation, Bybee said. “We will not, therefore, throw these property owners back out and slam the courthouse door shut behind them. Today, our eyes are open.”
     Bybee reversed the district court’s dismissal of the takings claim and remanded for a determination of “just compensation.”
     The court affirmed dismissal of the park owners’ due process and equal protection claims.
     In a dissenting opinion, Judge Kleinfeld argued that the park owners aren’t entitled to any compensation, because the trailer park was already under the county’s rent-control ordinance when they bought it.
     In other words, Kleinfeld explained, the owners bought the park “after the regulatory takings that mattered.”

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