California Eminent Domain Report : a blog following condemnation, inverse condemnation, and regulatory takings written by attorneys with Nossaman LLP.

When analyzing potential liability for a regulatory takings claim, most land use and eminent domain attorneys immediately look to the three-prong test set forth by the U.S. Supreme Court in Penn Central Transportation Co. v. New York City (1978) 438 U.S. 104.  Those three factors include:

• the economic impact of the regulation;
• the extent to which the regulation has interfered with distinct investment-backed expectations; and
• the character of the government's regulation.

Unfortunately, it's much easier said than done.  Practitioners and courts alike have struggled over the years in (1) deciding how to measure a regulation's economic impact and (2) determining whether the regulation has interfered with an owner's "distinct investment-backed expectations."  This is especially true given the Supreme Court's direction that each case deserves an independent, "ad hoc" factual inquiry.

William Wade, an expert in financial economics, has prepared an excellent article addressing what has resulted from this perplexity:  unpredictability in evaluating the merits of regulatory takings claims.  Mr. Wade's article, "A few thoughts about origins of confusion subsequent to Penn Central," suggests this stems from "too much talk and not enough math," as the calculations are straight-forward for financial experts, yet the waters are muddied through the courts' reluctance to apply economics and analyze income losses as opposed to property value depreciation.

For example, Mr. Wade suggests that while an appraisal may accurately measure a change in a property's value, it does not accurately measure economic losses to the owner of an income-producing property.  For purposes of analyzing a temporary regulatory taking, Mr. Wade urges us not to consider the property's percentage decline in value, but instead the property owner's change in income.  This is how damages are calculated in tort cases, and Mr. Wade advocates that damages in regulatory takings cases should be no different.

Mr. Wade sums up his article with the conclusion that "[u]ntil the Supreme Court puts an end to faulty understanding of economics within the Penn Central test, . . . widespread confusion of takings jurisprudence will persist."  

The recent Guggenheim Ninth Circuit en banc decision (pet. denied May 16, 2011) turns out be be consistent with standard economics expressed by the Court in Loveladies Harbor, Inc. v. U.S. (Fed. Cir. 1994) 28 F.3d 1171, 1177: 

[T]he owner who bought with knowledge of [a particular] restraint could be said . . . to have assumed the risk of any economic loss.  In economic terms, . . . the market had already discounted for the restraint, so that a purchaser could not show a loss in his investment attribu[table] to [the regulatory action]." 

While more recent Federal Circuit cases have confounded basic economics, Loveladies made sense at the time and rings true in Guggenheim.  Take a look at Mr. Wade's article for yourself.

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We've been following the Ninth Circuit Guggenheim case for more than a year.  That Court's change in its holding between the initial decision by a three-judge panel and the subsequent en banc decision, coupled with the considerable attention the decision received, led many to think the case was ripe for Supreme Court review. 

Today, we learned that the Supreme Court denied the owner's Petition for Writ of Certiorari, meaning the en banc Court's decision will stand.  (As a reminder, that opinion held that the City of Goleta's rent control ordinance did not constitute a taking, despite the fact that the ordinance transferred the vast majority of the mobile home park's value from the park owners to the tenants.)

For those looking for more insights into the Court's reasoning in denying the cert petition, you'll have to try to read the tea leaves of a summary order, "Certiorari Denied," that lists about 200 cases, of which Guggenheim is the 18th.  Most, including Guggenheim, contain no further information.

For those who think this is a shocking result, remember that the sheer number of people seeking Supreme Court review makes the odds of success quite low, even for significant cases.  As I forecast back in February, even if one viewed this case as having a "great" chance at being reviewed, the odds were still likely only around 10%.  In the end, the Guggenheims will have to suffer with the other 200-odd parties whose hopes of a victory in the Supreme Court were dashed in summary fashion. 

In other Supreme Court news, I'm happy to report that today's order also contained information concerning rulings on various attorney disciplinary proceedings, and of the 11 attorneys ordered disbarred from the Supreme Court, I didn't recognize a single name. 

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We've been following the Guggenheim case for more than a year now, and in the last week or so, there have been a number of developments.  As a quick recap, this decision by the Ninth Circuit Court of Appeals held that the City of Goleta's rent control ordinance - which had the effect of transferring the vast majority of a mobile home park's value from the park owner to the tenants - did not constitute a taking.  The decision followed an earlier decision by a different panel of the same court, in which the court held that the ordinance did qualify as a taking. 

Not surprisingly, the owner then sought review by the U.S. Supreme Court.  The Cert Petition is now pending, and the stack of amicus briefs on the case has been growing rapidly.  I could take the time to summarize them, but fortunately for me, someone else has already done it.  Here are some links to Robert Thomas'  inversecondemnation.com blog from the last week:

• Takings Claims Run With The Land, a post summarizing a brief by the National Association of Home Builders in support of the Guggenheims' Petition;
   
• No "Expiration Date" On The Takings Clause, a post summarizing a brief filed by the Cato Institute in in support of the Guggenheims' Petition;
   
• Ninth Circuit "Did Violence" To Penn Central Test, a post summarizing the brief Mr. Thomas filed and another brief filed by Equity Lifestyle Partners, both in support of the Petition;
   
• Ninth Circuit Applied All Penn Central Factors, a post summarizing the brief filed by the City in opposition to the Guggenheims' Petition.  
   

Aside from these posts, the blog contains a detailed resource page about the Guggenheim case, with links (at least as of the date of this post) to nine amicus briefs in support of the Guggenheims and three amicus briefs in support of the City. 

Nice work, Robert (and thanks for saving me the trouble of trying to keep track of all of this myself).

We'll let you know when the Supreme Court makes its decision. 

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We've covered the Guggenheim v. City of Goleta regulatory takings case pretty exhaustively, most recently noting there is a pending petition for Supreme Court review.  While we wait for the fateful decision as to whether the Supreme Court will take up the Guggenheim case, the 9th Circuit Court of Appeals recently issued another mobilehome rent control regulatory takings decision in Colony Cove Properties v. City of Carson.  Like the 9th Circuit's en banc decision in Guggenheim, the park owner's regulatory takings claim was unsuccessful.

The owner in Colony Cove purchased the mobilehome park for $23 million in 2006, well after the implementation of the City of Carson's 1979 rent control ordinance.  However, the City amended the ordinance's "Guidelines" in 2006 subsequent to the owner's purchase.  The owner applied for a general rent increase of about $600 per space per month, and the City only approved an increase of $35.  To put the park owner's detriment into context, the owner claimed the ordinance resulted in a $30 million decrease in the property's value, and allowed the mobilehome owners to receive on average $118,000 for their $33,000 mobilehomes.

The owner filed suit in federal court, alleging that the City's rent control ordinance deprived the owner of the value of its property while allowing park residents to sell their mobilehomes at a premium (an argument similar to that put forth Guggenheims).  The owner made a facial and as applied challenge to the ordinance, claiming it violated the Fifth Amendment's Taking Clause.

As is the case with many regulatory takings challenges, the district court dismissed the facial takings claim as time-barred, and the as-applied takings claim as unripe.  The 9th Circuit agreed that the district court properly dismissed the case.

In particular, the owner's facial claim was time barred because the 2006 amendment to the ordinance's "Guidelines" was not a substantive amendment to the actual 1979 rent control ordinance, and therefore the owners were nearly 30 years late in challenging the ordinance enacted in 1979.  As to the as-applied claim, the owner failed to first file an inverse condemnation action in state court, which was a prerequisite to bringing the claim in federal court.

Colony Cove involves a slightly different set of circumstances than Guggenheim, but the end result (at least so far) is the same.  The owners' best option now may be to seek their own Supreme Court review and hope that this case, combined with Guggenheim, gets the Court's attention.  .

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We thought it was over in 2009 when the Ninth Circuit held that the City of Goleta's rent control ordinance constituted a taking.

We thought it was over in late 2010 when an en banc Ninth Circuit panel ruled the other way, holding that the property owner failed to establish the "investment-backed expectations" necessary to establish a takings claim under Penn Central.

Now, we're not sure if it's ever going to be over.  Apparently, Dan Guggenheim has decided to seek review by the U.S. Supreme Court, so there may yet be more drama for the long-playing battle between the Guggenheims and the city over a mobile home rent control ordinance that the parties seem to agree has the effect of transferring the vast majority of the mobile home park's value to the tenants. 

So what happens now?  First, the Guggenheims must actually file their Petition for Writ of Certiorari, asking the Supreme Court to review the case.  Then, the Court decides whether it wants to review the case, and it's a serious uphill battle.  The Court receives thousands of petitions each year and it typically selects only about 100 of them for review.  In other words, based on the math alone, the Guggenheims aren't likely to see the inside of those hallowed halls. 

But some cases are more likely than others to pique the Justices' interest (four must agree that review is warranted), and controversial land use cases that have garnered media and practitioners' interests - and that have generated multiple, conflicting decisions by separate panels of a federal Circuit Court - probably have a greater likelihood of being chosen then most cases. 

Add to this that the decision comes out of the Ninth Circuit - which has a well-documented reputation for receiving far more than its share of decisions selected for review - and the Guggenheims probably have a decent shot (of course, even if these factors make the case five times more likely to be selected than a typical case, that still probably means only about a 10% chance of being reviewed).

And if the Supreme Court grants review?  Obviously each case is reviewed on its own merits, but according to an analysis of ten years' worth of Supreme Court review, the Ninth Circuit was reversed (or had its decision vacated) 80% of the time and affirmed 20% of time.  In other words, the Guggenheims' odds once they get there are a whole lot better than the odds of getting there in the first place.

We'll let you know what happens.

UPDATE:  February 4, 2011, 4:00 p.m.  Since publishing this post earlier today, I've gotten feedback from several sources, some from people involved in the case and some from other interested observers.  The one consistent comment is a belief that the chances of Supreme Court review are quite a bit higher than I forecast above.   While nobody is telling me they thinks it's a slam dunk, there is some optimism that this really does meet a lot of the criteria the Court looks for when selecting cases.  Stay tuned.

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We've reported on a number of rent control regulatory takings claims making their way through the court system, most notably the Guggenheim v. City of Goleta case.  Apparently, some cities and counties are fed up with the onslaught of challenges to their rent control ordinances, and they're looking for a way to recoup the attorneys' fees they expend in preserving the ordinances. 

According to an article in the Santa Cruz Sentinel, "Monning researching bill to address rent control lawsuits," Assemblyman Bill Monning looks to address this concern by considering a bill that would "allow city and county governments, when successful in defending rent control ordinances, to charge the party who brought the challenge for the government's legal expenses."  While the bill is still in the research phase, all new bills must be proposed to the legislature by February 18.

While such a bill would likely be supported by any city or county with a rent control ordinance, property owners, property rights advocates, and mobile home park owners in particular would likely be vociferously opposed to any such bill and the chilling effect it would have on legal challenges to rent control ordinances.  If this type of bill is proposed to the California legislature, you can expect a major battle.  We'll follow this closely and keep you updated.

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One of the cases we've been following the entire year is Guggenheim v. City of Goleta.  The case involves a challenge to the City of Goleta's rent control ordinance for mobile homes.  The owner claimed that the ordinance had the effect of transferring the vast majority (as much as 90 percent) of the property's value to the tenants, constituting a taking. 

Last September, the Ninth Circuit Court of Appeals reversed an earlier District Court decision, holding that Goleta's ordinance constituted a taking, and it remanded the case for a trial on the amount of compensation the owner should be awarded.  But in March, the Ninth Circuit spoke again, ordering an en banc hearing of the Guggenheim case.  In June, the en banc Court held arguments on the case, and practitioners have been waiting for a decision ever since. 

Yesterday, the Ninth Circuit issued its new Guggenheim opinion, reversing its earlier decision, and holding that Goleta's ordinance does not constitute a taking (the new decision actually replaces the earlier one, so the Court technically affirmed the original decision by the trial court). 

The case's significance lies not just in its outcome.  Merely by reaching the merits of the takings claim, the Ninth Circuit broke new ground.  Indeed, this was the first time the Ninth Circuit had ever reached the merits of a regulatory takings claim arising under the Penn Central Transportation
Co. v. New York City 438 U.S. 104 (1977) test.   How can the Court have avoided the merits of a seminal takings test for more than 30 years?

Penn Central claims have a huge procedural hurdle to overcome.  In order to meet ripeness requirements, the owner typically must exhaust all state court remedies.  But in doing so, the owner winds up with a state-court decision which bars the subsequent federal claim under principles of res judicata.   In other words, if the owner litigates to a final decision on the merits in state court, the federal claim is barred, and if the owner fails to litigate to a final decision on the merits in state court, the federal claim is not ripe.  (Sound like something out of a Joseph Heller novel?)

So the mere fact that the Ninth Circuit reached the merits is hugely significant.  And the en banc decision does not change that part of the earlier opinion, meaning the decision is still a "victory," at least of sorts, for property owners. 

But not for the Guggenheims themselves.  The Court concluded that the Guggenheims failed to establish the "investment-backed expectations" required to state a takings claim under Penn Central because the rent control ordinance preexisted the Guggenheims' purchase of the property.  As the Court explained:

Whatever unfairness to the mobile home park owner might have been imposed by rent control, it was imposed long ago, on someone earlier in the Guggenheims’ chain of title. The Guggenheims doubtless paid a lot less for the stream of income mostly blocked by the rent control law than they would have for an unblocked stream.

There is plenty more to the case that may be of interest, but those details go beyond the scope of a blog post.  The opinion and the dissent by Justices Bea, Kozinski, and Ikuta will undoubtedly provide considerable fodder for practitioners and commentators alike over the coming months.

For more on the case, see our article, 9th Circuit Reverses Course on Rent Control, published in the Los Angeles Daily Journal.   

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For anyone looking to spend more time on eminent domain issues, there are two upcoming events you may want to consider. 

• For those looking for a one-day commitment, I recommend the IRWA, Chapter 1 2010 Fall Education Seminar, which is taking place on October 26 at the Quiet Cannon in Montebello.  I don't have the full list of speakers yet, but it's always a good event, and my partner, David Graeler, is Chair again this year. I'll be talking about the interrelationship between goodwill and the Relocation Act, using the recent Casasola opinion as a jumping off point (look for a post about that later today). 
• For those looking for two full days of eminent domain excitement, CLE International is holding its 12th Annual Eminent Domain Conference October 28 and 29 at the Hotel Nikko in San Francisco.  I'll be speaking the morning of October 28 on a panel discussion of the Guggenheim regulatory takings case, and the entire schedule looks great. 

And don't forget, summer's drawing to a close, so your local IRWA chapter is likely about to start its regular meetings again.  I know that Chapter 67 (Orange County) has its meeting on September 14 and Chapter 57 (Inland Empire) has its meeting on September 1. 

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Last fall, we told you about a key rent control / takings decision, Guggenheim v. City of Goleta, in which the Ninth Circuit held that a rent control ordinance consituted a taking.  In March, we reported that the Ninth Circuit had ordered an en banc hearing of the Guggenheim case. 

Yesterday, the Court held the en banc hearing, and while it may be some time before the Court issues its opinion, the hearing itself may provide some good insights about what may happen (and what it may mean in the larger context of regulatory takings claims).  

Very generally speaking, the Court was critical of both sides' positions, attacking the property owner's attorney with respect to how long the ordinances had been in place and whether his clients knew about them when they purchased the mobile home park, only to then attack the City's attorney about the magnitude of the transfer of value the ordinance effected.  

Ultimately, based on what I understand to have been the tone of the arguments, the Court may avoid the merits and rule on a statute of limitations argument, but time will tell.  In the meantime, eminent domain attorney Robert Thomas followed the arguments closely and wrote a comprehensive, three-part summary on his inverse condemnation blog.  It makes for great reading:

• Guggenheim argument summary, part 1
• Guggenheim argument summary, part 2
• Guggenheim argument summary, part 3

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Last week, my colleague Rick Rayl blogged about the Ninth Circuit's issuing an order granting an en banc hearing of the Guggenheim case involving the City of Goleta's mobile home park rent control ordinance.  If anyone is interested in a more in-depth analysis of the issues of that case, how the en banc process works, how politics come into play, and how the Ninth Circuit may ultimately come out on the regulatory takings issue, Rick and I prepared a more in-depth article that addresses those issues.  The article, "9th Circuit Revisits 2009 Trailer Park Opinion," was published in the Daily Journal on March 23, 2010.

Feel free to let us know your thoughts or any additional questions you may have. 

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Last fall, we reported on the Ninth Circuit's decision in Guggenheim v. City of Goleta, a regulatory takings case that generated considerable interest.  The Ninth Circuit Court of Appeals held that the City of Goleta's rent control ordinance constituted a taking and ordered the City to pay just compensation to the owner of a mobile home park. 

The Court concluded that the ordinance crossed the line because it had the effect of transferring as much as 90 percent of the property's value from the owner to the mobile home park's tenants.  The holding was significant not only because the Court found that the ordinance qualified as a compensable taking, but also because the Court actually reached the merits of the issue.  Many (perhaps most) regulatory takings cases fail for procedural reasons, with the Court never even reaching the merits. 

For example, courts often hold that regulatory takings cases are not "ripe"; in other words, the owner has not demonstrated that all reasonable avenues for generating an economically viable use of the property have been exhausted before filing the lawsuit.  In other cases, courts find the regulatory takings claim to be "stale"; in other words, the owner did not file the lawsuit within the applicable statute of limitations. 

And, finally, in an ironic twist, some factual scenarios apparently warrant the conclusion that the case is both "not ripe" and "stale"; in other words, the owner has not yet exhausted all options, despite the fact that the conduct that might give rise to a claim happened years earlier, creating a statute of limitations problem -- meaning there never was a viable time to file the lawsuit.

Thus, when the Ninth Circuit Court of Appeals navigated its way through all of the procedural obstacles, reached the merits, and found that a taking had occurred, the Guggenheim opinion understandably generated some buzz. 

On March 12, the case took a new turn.  The Ninth Circuit issued an order granting an en banc hearing of the Guggenheim case.  This means that a large portion of the Ninth Circuit panel (11 judges) will hear the case.  Whether the larger panel will reach a different conclusion than the three judges who initially heard the case remains to be seen. 

In the meantime, the September 2009 Guggenheim opinion is no longer citable as legal precedent.  This could have a significant impact on currently pending regulatory takings cases.   And, depending on whether the Court orders additional briefing and a new oral argument, the new opinion may not be issued for a year or more.  We'll let you know what happens. 

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Typically, regulatory takings litigation generates a lot of noise and gnashing of teeth but, at the end of the day, rarely are government agencies bitten with an order that they pay compensation. However, a new opinion from the federal 9th Circuit Court of Appeals, Guggenheim v. City of Goleta (Sept. 28, 2009, Case No. 06-56306), demonstrates that regulatory takings litigation can have teeth. In Guggenheim, the 9th Circuit holds that the city of Goleta's rent control ordinance on mobile home parks went too far and that the city will have to pay the park's owners just compensation. This case, particularly coupled with two other recent regulatory takings cases, Monks v. City of Rancho Palos Verdes and Casitas Municipal Water District v. United States, suggests that agencies may now need to pay close attention to their regulations if they hope to avoid a regulatory takings bite.

Whether these cases reflect a new trend remains to be seen, but it sure looks like the tide may be turning. And, if the “trend” continues, agencies in California should pay particular attention, since successful inverse condemnation plaintiffs stand to recover their attorneys’ fees, in addition to whatever damages they can prove. For more information about Guggenheim and regulatory takings generally, take a look at an October 15, 2009, article in the Los Angeles Daily Journal, "Adding Some Bite to the Bark."  
 

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