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9th Circuit Could Strike Down Mobile Home Rent Control

What appeared last fall to be a major win for property rights advocates may have been a fleeting victory. Earlier this month, an en banc panel of the Ninth U.S. Circuit Court of Appeals decided to rehear a rent control case from the City of Goleta, meaning the earlier ruling in favor of the property owner is wiped out.

Last September, property rights advocates appeared to achieve a breakthrough in Guggenheim v. City of Goleta when a Ninth Circuit panel, in a 2-1 ruling, determined that the city's mobile home rent control ordinance amounted to an unconstitutional taking of private property. The ruling was important for two reasons: First, the Ninth Circuit agreed to consider the mobile home park owners' claims, which normally would have been fully litigated in state court and would not have reached federal court. Second, the Ninth Circuit panel struck down the ordinance on its face. There was no instance in which the regulation could be constitutional, the court ruled.

It was exactly the sort of ruling that mobile home park owners across the state and property rights advocates in general have sought for years. However, the majority ruling came with a dissent that suggested the ruling may not survive. In that dissent, Judge Andrew Kleinfeld wrote that the property owners had suffered no compensable taking because they bought Ranch Mobile Estates long after rent control was already in place.

The archives of the CP&DR Legal Digest are packed with mobile home rent control cases. Although the details vary from case to case, the gist of the mobile home park owners' argument is that mobile homes in rent-controlled parks sell for a premium because of the rent regulation. Thus, the park owners argue, the regulation is an unconstitutional transfer of wealth from the park owner to the mobile home owner. For years, park owners did not make much headway with this argument until 2004, when a Ninth Circuit panel invalidated a City of Cotati mobile home ordinance. However, the precedent in the Cotati case did not last long, as the U.S. Supreme Court ruled the following year in Lingle that the basis for the Cotati ruling that the rent control regulation did not "substantially advance" a legitimate government purpose was not proper for a takings case.

In the Goleta case, the property owners made the same transfer-of-wealth argument, but this time they passed the Penn Central test which provides a higher bar than the now-vacated "substantially advances" test to prove that a taking had occurred. The Penn Central test involves three main planks: 1) the regulation's economic impact on the property owner; 2)  the extent to which the regulation interferes with investment-backed expectations; and 3) the character of the government action. In Guggenheim, the court determined that 1) the regulation was a "naked transfer" of wealth; 2) the property owners could argue the law interfered with their investment-backed expectations; and 3) it was improper for the city to single-out mobile home park owners.

In his dissent, Judge Kleinfeld agreed the regulation did transfer wealth, but he said the property owners suffered no compensable loss because the basics of the regulation have been in place since 1979.

Exactly why the Ninth Circuit agreed to reconsider the 2009 Guggenheim decision is unknown, but I suspect that the two-judge majority's rather expansive interpretation of Palazzolo may be a factor. The general rule is that regulations must be challenged shortly upon their enactment. But in the 2001 Palazzolo decision, the U.S. Supreme Court permitted a landowner to contest a pre-existing wetlands regulation as a taking. However, it is important to remember that in Palazzolo, the same person (but a different legal entity), owned the property both before and after the regulation was established. In the Goleta case, the park owners bought the property 18 years after Santa Barbara County enacted rent control. It was no secret that the government held rents at Ranch Mobile Estates below market rates. 

If the property owners can't get past a narrower interpretation of Palazzolo, they may find an opening in the City of Goleta's incorporation and its perfunctory readoption of the entire county code in 2002. Technically, a new regulation went into effect after the property owners bought the park.

I shall make no prediction except for this one: If the 11-judge en banc panel ends up blessing the original Guggenheim decision, mobile home rent control in more than 100 California cities and counties will be in deep trouble.

Paul Shigley

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