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San Rafael Rent Controls|’Pass Muster,’ Court Says

(CN) - A rent-control ordinance for mobile homes in San Rafael, Calif., is not an unconstitutional taking of private property, the 9th Circuit ruled Wednesday.

The federal appeals court in San Francisco overturned a ruling for trailer park owner MHC Financing Limited Partnership - now Equity LifeStyle Properties - on its claim that the ordinance and subsequent amendments were unconstitutional.

Saying the ordinance "passes muster against all these challenges," the 9th Circuit invoked baseball icon Yogi Berra's observation, "It's deja vu all over again."

"[W]e are being 'called upon to consider, yet again, a takings challenge to mobile home rent control laws,'" Judge Sidney Thomas wrote, quoting a 1993 decision by the same court.

And in December 2010, the full 9th Circuit ruled that the city of Goleta does not have to pay trailer park owners for limiting how much rent they could charge tenants.

Wednesday's ruling involves similar rent controls in San Rafael that were first enacted in 1989 and were tied to the consumer price index (CPI) on a sliding scale. In 1993, the city added a "vacancy control," which allowed a new resident taking over an existing pad lease to pay the same rate as the previous tenant.

Seven years later, the city removed the sliding scale for pad rent increases and instead limited rent hikes to a flat 75 percent of the change in CPI.

MHC, which owns and leases the pads on which mobile homes in the Contempo Marin park sit, sued the city in 2000, and the parties reached a settlement the following year.

As part of the settlement, the city agreed to "initiate" amendments that would repeal vacancy control, but it ultimately decided against repealing the control. MHC challenged the city's inaction in court and lost in a jury trial.

The owner's takings claim fared better in a 2007 bench trial. A federal judge found the ordinance unconstitutional and invalid, saying the amendments "reduced MHC's revenue streams from Contempo Marin and the value of its property by $10,609,136."

The ordinance also reduced the owner's net operating income by 75 percent, and decreased the park's value from $120 million to $23 million, according to the federal judge.

But the 9th Circuit said the lower court's analysis "assumes that MHC purchased the property prior to the enactment of the original ordinance, when it did not."

But even if the district court's comparison were correct, the panel added, the 81 percent reduction in value (from $120 million to $23 million) "would not have been sufficient economic loss or interference with MHC's reasonable investment-backed expectations to constitute a taking."

"The economic impact, investment-backed expectations, and character of the Ordinance all lead us to conclude that the 1999 Ordinance does not constitute a Penn Central taking," Judge Sidney Thomas wrote, citing the Supreme Court's decision in Penn Central Transportation Co. v. City of New York.

In that ruling, the high court held that a taking can occur when regulatory actions are "functionally equivalent" to a classic government taking.

The panel reversed the lower court's ruling for MHC on the regulatory and private takings claims, but upheld the rest of the decision, including the finding that the ordinance doesn't violate due process.

The 9th Circuit also upheld a $1.2 million award of attorney's fees to the city for its victory on the settlement claims.

MHC was awarded more than $3.3 million in attorney's fees for winning its takings claim, but the park owner waived its claim for damages in order to have a bench trial on the constitutional claims, Thomas said.

Finally, the appeals court affirmed the dismissal of a second lawsuit that MHC filed against the city while the first was pending.

"[A] litigant has no right to maintain two separate actions involving the same subject matter at the same time in the same court against the same defendant," Thomas wrote.

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