California Eminent Domain Report

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.