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

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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A May 14 decision by the Ninth Circuit Court of Appeals clarifies the rules regarding when a plaintiff may sue for inverse condemnation in federal court.  In Adams Bros. Farming v. County of Santa Barbara No. 09-55315 (May 14, 2010), the Court rejected an inverse condemnation claim brought against the County, where the County allegedly effected a taking by improperly designating part of the owner's property as wetlands. 

The case involves a long, fairly tortured history that dates back to the late 1990's, when the County (apparently erroneously) designated about 95 acres of "Rancho Meadows" as a wetland.  In 2000, the owner sued the County in state court, claiming that the designation (1) constituted a taking, (2) violated the owner's due process rights, and (3) violated the Equal Protection Clause.  The court dismissed as unripe the takings claims, and after a trip up to the Court of Appeal, the case went to trial in 2004 on the due process and equal protection claims. 

The jury awarded the property owner $5.4 million, but the Court of Appeal reversed, holding that the owner lacked standing to pursue the due process and equal projection claims because it did not own the property at the time the wetlands designation occurred. 

Having lost on appeal in state court, the owner sued in federal court, claiming, again, that the designation qualified as a taking.  The Ninth Circuit rejected the trial court's conclusion that the takings claim was not ripe, but went on to conclude that the claim was barred under principles of res judicata, notwithstanding the fact that the state court never reached the merits of the takings claim. 

The holding arose from the fact that res judicata applies whenever the issue litigated in the prior action involves the same "primary right."  In other words, it did not matter that the state court found the takings claim unripe; what mattered was that the due process and equal projection claims (which were fully litigated) arose from the same fundamental claim as the County's designation of the property as a wetland:

The damages that Adam Bros. now seeks to obtain in federal court are identical to those it sought in state court.  For purposes of res judicata, it is irrelevant that Adam Bros. attempts to recover under different legal theories.

The silver lining for the owner:  though the state court reversed the $5.4 million damages award, it upheld injunctive and declaratory relief, invalidating the County's wetlands determination.  

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