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9th Circuit Rejects All Challenges To San Luis Obispo County Law

The Ninth U.S. Circuit Court of Appeals has dismissed a mobile home park owner's attempt to invalidate San Luis Obispo County's mobile home rent control ordinance.

The court ruled that Manufactured Home Communities' facial challenge of the ordinance was filed too late, the company's arguments over how the county applied the ordinance were not ready for judicial review, and the company's due process and equal protection claims were without merit. The court also declined to review the county's administrative process for considering the property owners' rent increase, because a state court has upheld the process.

Manufactured Home Communities (MHC) has fought mobile home rent control ordinances in a number of cities. Now known as Equity Lifestyle Properties, the Chicago-based company owns more than 300 mobile home parks and recreational vehicle resorts in 30 states. It acquired Sea Oaks Manufactured Home Community in Los Osos in 1997 13 years after county voters approved a mobile home rent control initiative. The initiative capped annual rent increases at 60% of CPI and established the county Mobilehome Rent Review Board.

In March 2002, MHC notified tenants in 9 of the 126 spaces that their rents would increase by an average of 185%. MHC said that the tenants had signed a standard-form 12-month rental agreement, and any lease or contract other than month-to-month was exempt from the rent control ordinance. The rent review board conducted three hearings and ultimately concluded that the agreements were month-to-month contracts no different than previous contracts that prior and current park managers had considered subject to the ordinance. On appeal, the Board of Supervisors upheld the rent review board's decision.

In January 2003, MHC sued the county in federal court, arguing that its property had been taken without compensation and that the county had violated its constitutional rights to due process and equal protection. In a two-sentence order, District Court Judge Terry Hatter dismissed all of MHC's claims. MHC filed a similar suit in state court, and a San Luis Obispo County Superior Court judge also ruled against the company. An appeal of that decision is pending.

The Ninth Circuit opinion written by Judge Diarmuid O'Scannlain methodically makes its way through MHC's claims. The property owner's takings claims took two forms: a facial challenge of the ordinance itself, and an "as applied" challenge.

The court declined to consider the facial challenge because it was filed after the statute of limitations ended. MHC, which acquired Sea Oaks 13 years after the rent control ordinance was approved, argued Palazzolo v. Rhode Island, 533 U.S. 606 (see CP&DR Legal Digest, August 2001), eliminated the statute of limitations for facial challenges. The unanimous three-judge Ninth Circuit panel disagreed.

"We read Palazzolo to require equitable tolling to protect subsequent landowners who do not receive notice of a regulatory taking or who lack standing to object to such taking prior to expiration of the limitations period," O'Scannlain wrote. "For such subsequent landowners, the limitations period must begin at the time of their acquisition of property, not at the time the original taking occurred. Thus, under Palazzolo, MHC had one year to file its facial takings claim after it acquired the property in 1997. Because MHC filed its claim in 2003, it exceeded the statute of limitations by five years."

On the as-applied challenge, the court determined MHC's claim was not ripe for judicial review. To pursue such a claim, a landowner must attempt to obtain compensation through the state's procedure. In California, a landlord may seek a "Kavanau adjustment," under which future rents increase to compensate for previous confiscatory rents (see CP&DR Legal Digest, February 2004). MHC never sought a Kavanau adjustment.

"Unless a complainant has sought relief through a Kavanau adjustment, he cannot file a federal complaint objecting to an uncompensated taking by the state," O'Scannlain wrote. The court dismissed MHC's arguments about why the Kavanau process would be futile and could not provide adequate compensation.

MHC argued that its due process rights were violated because the county's application of the rent control ordinance violated substantive due process. MHC contended the ordinance transferred the value of MHC's property to a select group of tenants, and this transfer of value is not a legitimate state purpose. This argument was a nonstarter with the Ninth Circuit. "The Supreme Court and this court have upheld rent control laws as rationally related to a legitimate public purpose," O'Scannlain wrote.

MHC also got nowhere with its argument that the rent control ordinance unlawfully discriminated against mobile home park owners, thereby violating their right to equal protection. The court ruled the county could legitimately single out mobile home park owners because of the shortage of spaces and the impracticality of moving a mobile home.

As for the county's administrative process, the court declined to consider the matter because the Superior Court had already issued a decision.

The Case:
Equity Lifestyle Properties, Inc. v. County of San Luis Obispo, No. 05-55406, 07 C.D.O.S. 11119. Filed September 17, 2007.
The Lawyers;
For Equity Lifestyle Properties (MHC): David J. Bradford, Jenner & Block, (312) 923-2975.
For the county: Henry Heater, Endeman, Lincoln, Turek & Heater, (619) 544-0123.

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