Connect with CP&DR

facebook twitter

Follow us on Facebook and Twitter

Lengthy Capitola Litigation Returned To District Court

The Ninth U.S. Circuit Court of Appeals continues to crack open the door to property owners seeking compensation for what they claim is a government taking.

In its most recent decision, the court ruled that the owner of a rent-controlled mobile home park in Capitola should have its day in federal District Court. This despite the fact that the U.S. District Court and two state courts ruled that a state court decision against the property owner should have settled the matter.

The Ninth Circuit did not rule on the merits of the claims, which allege that the city's rent-control ordinance constitutes an illegal taking of private property. The appellate panel instead decided that the District Court must weigh the claims rather than rely on state court rulings against the mobile home park owner.

The ruling follows a Ninth Circuit panel decision in September that held the City of Goleta's mobile home rent-control ordinance was a taking on its face and the mobile home park owner is due compensation (see CP&DR Legal Digest, October 15, 2009). The same judge who wrote the majority opinion in the Goleta case, Jay Bybee best known as the author of a memorandum while he was a member of the Bush administration that narrowly construed the definition of "torture" also penned the decision in the Capitola case.

The Capitola litigation is eight years old. In 2000, the owners of the 108-space Castle Mobile Estates, who had been pressuring tenants either to sign long-term leases that would override rent-control protections or buy the park outright for upward of $10 million, requested that the city approve a monthly rental increase of 150% or $300 for each space. The city's 1979 rent-control ordinance limits increases to a percentage of the increase in the consumer price index and the park owners' capital and operating expenses. The city ultimately approved an increase of about $15 a month.

Los Altos El Granada Investors, as the park owners are called, filed multiple suits in federal court over the course of three years, as well as a suit in Santa Cruz County Superior Court. Essentially, all the suits contended that Capitola's ordinance on its face and in its application to Castle Mobile Estates constituted an illegal taking, for which the property owners demanded payment. The owners took the state court route largely because the U.S. Supreme Court's Williamson County decision requires property owners to seek compensation for alleged takings in state court before moving to the federal level. But they also asserted an "England reservation" a legal construct in which a plaintiff reserves the right to try questions of federal law in federal court. Specifically, Los Altos El Granada wanted to present its takings, due process and equal protection claims under the Fifth and Fourteenth Amendments to a federal court.

The park owners lost twice in Superior Court before winning a minor reversal in state appellate court (see CP&DR Legal Digest, July 2006). The state court litigation concluded in December 2006 with a Superior Court rejecting all owner's claims. Importantly for the federal case at hand, both the Superior Court and the state's Sixth District Court of Appeal denied the property owners' England reservation.

While the state court litigation was pending, federal District Court Judge Jeremy Fogel took no action on the federal lawsuit. When the state litigation played out, Fogel reviewed the case and concluded that the state court's "adjudication of California takings claims is equivalent to the adjudication of their federal counterparts, and the doctrine of issue preclusion also bars the re-litigation of those claims as federal claims." As such, Fogel declined to consider the merits of the claims. He also gave "preclusive" effect to the Superior Court's rejection of the England reservation because the property owners did not appeal.

Los Altos El Grenada Investors then appealed to the Ninth Circuit, which overturned Fogel. The Ninth Circuit explained that the point of the England reservation is to ensure that plaintiffs who are compelled by law to litigate in state court should still get a hearing in federal court. Besides, it is not up to state courts to decide who may exercise an England reservation, the Ninth Circuit said. "[T]he Superior Court's action in striking the explicit England reservation by itself preserves to us the jurisdiction to hear Los Altos's federal claims," Bybee added.

"The state courts were aware from the outset that Los Altos intended to return to federal court," Bybee wrote. The notice provided by the property owner, whether provided in a complaint or given orally to the court, "is all England requires."

The court sent the case back to District Court to reconsider its ruling that the state court decisions precluded the federal court from considering the merits of the property owners' arguments.

The Case:
Los Altos El Granada Investors v. City of Capitola, No. 07-16888, 2009 DJDAR 14584. Filed October 7, 2009.
The Lawyers:
For Los Altos: Mark Alpert, Hart, King & Coldren, (714) 432-8700.
For the city: Henry Heater, Endeman, Lincoln, Turek & Heater, (619) 544-0123.