Colony Cove Properties v. City of Carson

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

COLONY COVE PROPERTIES, LLC, a No. 16-56255

Delaware limited liability company,

Plaintiff-Appellee, D.C. No.

2:14-cv-03242-

v. PSG-PJW

CITY OF CARSON, a municipal

corporation; CITY OF CARSON OPINION

MOBILEHOME PARK RENTAL REVIEW

BOARD, a public administrative

body,

Defendants-Appellants.

Appeal from the United States District Court

for the Central District of California

Philip S. Gutierrez, District Judge, Presiding

Argued and Submitted February 9, 2018

Pasadena, California

Filed April 23, 2018

Before: Susan P. Graber and Andrew D. Hurwitz, Circuit

Judges, and Edward R. Korman, * District Judge.

Opinion by Judge Hurwitz

*

The Honorable Edward R. Korman, United States District Judge

for the Eastern District of New York, sitting by designation.

2 COLONY COVE PROPERTIES V. CITY OF CARSON

SUMMARY **

Civil Rights

The panel reversed the district court’s judgment and

remanded with instructions to enter judgment in favor of

defendant in an action brought by the owner of a mobile

home park who alleged that defendant, the City of Carson,

engaged in an unconstitutional taking in violation of the

Fifth Amendment when it approved a lower rent increase

than plaintiff had requested.

Applying the factors set forth in Penn Central

Transportation Co. v. City of New York, 438 U.S. 104 (1978)

the panel first held that plaintiff did not present sufficient

evidence to create a triable question of fact as to the

economic impact caused by the City’s denial of larger rent

increases. The panel then held that plaintiff failed to present

sufficient evidence supporting its investment-backed

expectations claim. Finally, the panel held that the character

of the City’s action could not be characterized as a physical

invasion by the government. The panel concluded that based

on the evidence, no reasonable finder of fact could conclude

that the denials of plaintiff’s requested rent increases were

the functional equivalent of a direct appropriation of the

property. Accordingly, the panel held that the district court

should have granted the City’s motion for judgment as a

matter of law.

**

This summary constitutes no part of the opinion of the court. It

has been prepared by court staff for the convenience of the reader.

COLONY COVE PROPERTIES V. CITY OF CARSON 3

COUNSEL

Matthew Dwight Zinn (argued) and Andrew W. Schwartz,

Shute Mihaly & Weinberger LLP, San Francisco, California;

Jeff M. Malawy, Stephen R. Onstot, June S. Ailin, William

W. Wynder, and Sunny K. Soltani, Aleshire & Synder LLP,

Irvine, California; for Defendants-Appellants.

Anton Matlitsky (argued), O’Melveny & Myers LLP, New

York, New York; Adam P. Wiley, Thomas W. Casparian,

and Richard H. Close, Gilchrist & Ruiter PC, Santa Monica,

California; Daniel J. Tully, Dimitri Portnoi, and Matthew W.

Close, O’Melveny & Myers LLP, Los Angeles, California;

for Plaintiff-Appellee.

Christine Van Aken, Chief of Appellate Litigation; Dennis

J. Herrera, City Attorney; City Attorney’s Office, San

Francisco, California; for Amici Curiae League of California

Cities and California Chapter of the American Planning

Association.

Navneet Grewal and Sue Himmelrich, Western Center on

Law and Poverty, Los Angeles, California; Shirley Gibson,

Legal Aid Society of San Mateo County, Redwood City,

California; for Amici Curiae California Rural Legal

Assistance Inc., California Coalition for Rural Housing,

Community Legal Services of East Palo Alto, The Golden

State Manufactured-Home Owners League Inc., Housing

California, Legal Aid Foundation of Los Angeles, Legal Aid

Society of San Mateo County, National Housing Law

Project, Public Advocates, Public Counsel Law Center, The

Public Interest Law Project, Tenants Together, Western

Center on Law and Poverty, and Theresa L. Forsythe.

4 COLONY COVE PROPERTIES V. CITY OF CARSON

OPINION

HURWITZ, Circuit Judge:

The Takings Clause of the Fifth Amendment, made

applicable to the States by the Due Process Clause of the

Fourteenth Amendment, provides that “private property”

may not “be taken for public use, without just

compensation.” The issue in this case is whether a

California city engaged in an unconstitutional taking when it

approved a lower rent increase for a mobile home park than

the park had requested.

After a jury trial, the district court entered a judgment

finding an unconstitutional taking and awarding the park

more than $3 million in damages. We reverse and instruct

that the district court enter judgment in favor of the City.

I. Background

A. The Rent Control Ordinance

In 1979, the City of Carson adopted a “Mobile Home

Space Rent Control Ordinance,” establishing a seven-

member Rent Review Board to “hear and determine

applications of property owners for rent adjustments.” The

ordinance directs the Board to grant property owners a “fair,

just and reasonable” rent increase, one that both “protects

Homeowners from excessive rent increases and allows a fair

return on investment to the Park Owner.”

To balance these competing concerns, the ordinance lists

several factors to be considered when evaluating a proposed

rent increase, including changes in the Consumer Price

Index (“CPI”), rent at comparable parks, capital

improvements conducted since the last increase, and changes

COLONY COVE PROPERTIES V. CITY OF CARSON 5

in operating and maintenance expenses. The listed factors,

however, are neither exclusive nor dispositive.

To assist the Board, the City Council adopted

Implementation Guidelines in 1998. The original

Guidelines permitted, but did not require, the Board to

conduct a “Gross Profits Maintenance Analysis” (“GPM

Analysis”) in evaluating a rent increase application. A GPM

Analysis “compares the gross profit level expected from the

last rent increase granted to the park prior to the current

application . . . to the gross profit shown by the current

application.” The Analysis “provide[s] an estimate of

whether a park is earning the profit estimated to provide a

fair return, as established by the immediately prior rent

increase, with some adjustment to reflect any increase in the

CPI.” Acquisition debt service can be a relevant expense

under the GPM Analysis “if the purchase price paid was

reasonable in light of the rents allowed under the Ordinance

and involved prudent and customary financing practices.”

But the Guidelines expressly state that a GPM Analysis “is

not intended to create any entitlement to any particular rent

increase.”

In October 2006, the City amended the Implementation

Guidelines to permit the Board also to conduct a

“Maintenance of Net Operating Income Analysis” (“MNOI

Analysis”) when considering applications for rent increases.

The MNOI Analysis “compares the net operating income

(NOI) level expected from the last rent increase granted to a

park owner and prior to any pending rent increase

application . . . to the NOI demonstrated in any pending rent

increase application.” “[C]hanges in debt service expenses

are not to be considered in the” MNOI Analysis.

6 COLONY COVE PROPERTIES V. CITY OF CARSON

B. Colony’s Purchase of the Mobile Home Park and

Requested Rent Increases

On April 4, 2006, Colony Cove Properties, LLC

(“Colony”) purchased Colony Cove Mobile Estates (“the

Property”), a mobile home park in Carson, for $23,050,000;

$18,000,000 of the purchase price was obtained through a

loan. The annual debt service on that loan—$1,224,681—

far exceeded the prior owner’s annual profit of $718,240.

At the time of purchase, the Implementation Guidelines

provided only for the GPM Analysis. Colony first filed an

application for a rent increase in 2007, after the Guidelines

were revised to also allow an MNOI Analysis. That

application sought a rent increase of $618.05 per space; it

was later amended to seek only $200 per space. The Board’s

GPM Analysis suggested a rent increase of $200.93 per

space, driven largely by the post-acquisition debt service.

The Board’s MNOI Analysis, which did not account for the

debt service, suggested a rent increase of only $36.74. The

Board adopted the MNOI Analysis and approved the $36.74

increase. In 2008, Colony requested a $342.46 rent increase.

The Board again conducted both a GPM and an MNOI

Analysis, adopted the latter, and granted an increase of

$25.02.

C. Colony’s Previous Litigation

In 2008, Colony sued the City, asserting facial and as-

applied takings and due process claims with respect to the

Board’s 2007 decision. See Colony Cove Props., LLC v. City

of Carson, 640 F.3d 948, 953–54 (9th Cir. 2011). The

district court dismissed the facial attack as time-barred and

the as-applied takings claim as unripe; we affirmed. Id. at

956–57, 959.

COLONY COVE PROPERTIES V. CITY OF CARSON 7

The same day it appealed the first district court order,

Colony also “filed a petition for writ of administrative

mandate seeking review of the Board’s 2008 determination

of its September 2007 rent increase applications” in state

court; Colony later filed a similar second petition concerning

the 2008 application. See Colony Cove Props., LLC v. City

of Carson, 163 Cal. Rptr. 3d 499, 515 (Ct. App. 2013). The

state trial court denied Colony’s petitions, and the California

Court of Appeal affirmed, holding that state law allowed use

of MNOI Analysis and that the Board’s failure to take debt

service into account did not deprive Colony of a fair rate of

return. Id. at 521–24, 530. The California Supreme Court

denied review. 1

D. The Current Litigation

Having exhausted its state-law claims, 2 Colony returned

to federal court, alleging that the 2007 and 2008 Board

decisions were an unconstitutional taking and violated

Colony’s substantive due process rights. The district court

dismissed all of Colony’s claims except for an as-applied

1

The state trial court struck Colony’s England reservation of its

federal takings claims, but the Court of Appeal reinstated the reservation.

Colony Cove Props., 163 Cal. Rptr. 3d at 529–30; see England v. La.

State Bd. Of Exam’rs, 375 U.S. 411, 421 (1964).

2

A “writ of administrative mandate” is a judicial avenue for relief

from rent control decisions created by the California Supreme Court. See

Kavanau v. Santa Monica Rent Control Bd., 941 P.2d 851 (Cal. 1997).

If the writ is granted, the property owner may seek a future rent

adjustment “that takes into consideration past confiscatory rents.” Id. at

866. “[T]he Kavanau adjustment process” satisfies the exhaustion

requirements of Williamson County Regional Planning Commission v.

Hamilton Bank of Johnson City, 473 U.S. 172, 195 (1985). See Equity

Lifestyle Props., Inc. v. Cty. of San Luis Obispo, 548 F.3d 1184, 1192

(9th Cir. 2008).

8 COLONY COVE PROPERTIES V. CITY OF CARSON

regulatory takings claim premised on Penn Central

Transportation Co. v. City of New York, 438 U.S. 104

(1978).

Over the City’s objection, the district court allowed a

jury trial. At trial, Colony presented expert testimony that

the Board’s use of the MNOI Analysis and the consequent

failure to take debt service into account in setting the 2007

and 2008 rents would cause Colony to lose rental income of

approximately $5.7 million. Colony’s owner, James

Goldstein, also testified that, when he bought the Property,

he expected the Board to consider debt service in future rent

increase determinations, and he would not have paid $23

million for the park absent that expectation.

The City moved for judgment as a matter of law after

both the close of Colony’s case and the close of evidence.

After the district court denied the motions, the jury found

that the Board’s 2007 and 2008 decisions were regulatory

takings and awarded Colony $3,336,056 in damages. The

City then filed a renewed Federal Rule of Civil Procedure

50(b) motion for judgment. The court denied the motion and

awarded Colony prejudgment interest, attorneys’ fees, and

costs, entering a final judgment of $7,464,718.41. 3

The City timely appealed. We have jurisdiction under

28 U.S.C. § 1291, and we review de novo the district court’s

denial of a motion for judgment as a matter of law. United

States ex rel. Hopper v. Anton, 91 F.3d 1261, 1268 (9th Cir.

1996). In doing so, “[w]e must view the evidence in the light

3

In the final judgment, the district court noted its agreement with

the jury’s verdict: “Having independently weighed and considered the

evidence, the Court agrees with the jury’s finding that a taking occurred,

as well as the amount of damages that the jury awarded . . . .”

COLONY COVE PROPERTIES V. CITY OF CARSON 9

most favorable to the nonmoving party . . . and draw all

reasonable inferences in that party’s favor.” Ostad v. Or.

Health Scis. Univ., 327 F.3d 876, 881 (9th Cir. 2003).

“Judgment as a matter of law is proper when the evidence

permits only one reasonable conclusion and the conclusion

is contrary to that reached by the jury.” Id.

II. Discussion

“The Takings Clause of the Fifth Amendment provides

that private property shall not ‘be taken for public use,

without just compensation.’” Murr v. Wisconsin, 137 S. Ct.

1933, 1942 (2017). Although the paradigm of an

unconstitutional taking is the direct appropriation of

property, the Supreme Court has long acknowledged that “if

regulation goes too far it will be recognized as a taking.”

Penn. Coal Co. v. Mahon, 260 U.S. 393, 415 (1922).

“[T]he Court for the most part has refrained from

elaborating . . . definitive rules” about when regulation goes

so far as to become a taking. Murr, 137 S. Ct. at 1942.

Judicial decisions considering regulatory takings claims are

typically “characterized by essentially ad hoc, factual

inquiries, designed to allow careful examination and

weighing of all the relevant circumstances.” Tahoe-Sierra

Pres. Council, Inc. v. Tahoe Reg’l Planning Agency,

535 U.S. 302, 322 (2002) (internal quotation marks and

citations omitted). The goal is to determine whether

regulatory actions “are functionally equivalent to the classic

taking in which government directly appropriates private

property.” MHC Fin. Ltd. P’ship v. City of San Rafael,

714 sF.3d 1118, 1127 (9th Cir. 2013) (quoting Lingle v.

Chevron U.S.A. Inc., 544 U.S. 528, 539 (2005)).

The Penn Central factors ground our regulatory takings

analysis. Penn Central instructs us to consider “[1] the

10 COLONY COVE PROPERTIES V. CITY OF CARSON

regulation’s economic impact on the claimant, [2] the extent

to which the regulation interferes with distinct investment-

backed expectations, and [3] the character of the government

action.” MHC Fin., 714 F.3d at 1127. The question is

whether Colony presented sufficient evidence on these

factors to allow a reasonable finder of fact to conclude that

the Board’s denials of Colony’s requested rate increases

were the functional equivalent of the direct appropriation of

the Property. We address each factor in turn.

A. Economic Impact

In considering the economic impact of an alleged taking,

we “compare the value that has been taken from the property

with the value that remains in the property.” Keystone

Bituminous Coal Ass’n v. DeBenedictis, 480 U.S. 470, 497

(1987). Penn Central stresses that, “[i]n deciding whether a

particular governmental action has effected a taking, this

Court focuses rather both on the character of the action and

on the nature and extent of the interference with rights in the

parcel as a whole.” 438 U.S. at 130–31. If “an owner

possesses a full ‘bundle’ of property rights, the destruction

of one ‘strand’ of the bundle is not a taking, because the

aggregate must be viewed in its entirety.” Andrus v. Allard,

444 U.S. 51, 65–66 (1979).

The jury concluded that Colony would have received

approximately $3.3 million in additional income over an 8-

year period if the Board had adopted the alternative GPM

Analysis and factored debt service into the 2007 and 2008

rent increases. But the mere loss of some income because of

regulation does not itself establish a taking. Rather,

economic impact is determined by comparing the total value

of the affected property before and after the government

action. See MHC Fin., 714 F.3d at 1127. Projected income

streams can contribute to a method for determining the post-

COLONY COVE PROPERTIES V. CITY OF CARSON 11

deprivation value of property, but the severity of the loss can

be determined only by comparing the post-deprivation value

to pre-deprivation value. Id.

Not every diminution in property value caused by a

government regulation rises to the level of an

unconstitutional taking. “Government hardly could go on if

to some extent values incident to property could not be

diminished without paying for every such change in the

general law.” Penn. Coal Co., 260 U.S. at 413. Although

no litmus test determines whether a taking occurred, we start

from the premise that the Penn Central factors seek “to

identify regulatory actions that are functionally equivalent to

the classic taking in which government directly appropriates

private property or ousts the owner from his domain.” See

Lingle, 544 U.S. at 539. Thus, we have observed that

diminution in property value because of governmental

regulation ranging from 75% to 92.5% does not constitute a

taking. MHC Fin., 714 F.3d at 1127–28. The Federal

Circuit has noted that it is “aware of no case in which a court

has found a taking where diminution in value was less than

50 percent.” CCA Assocs. v. United States, 667 F.3d 1239,

1246 (Fed. Cir. 2011). Nor are we.

There was no evidence before the district court allowing

a comparison of the pre-deprivation and post-deprivation

values of the Property. Colony purchased the Property for

approximately $23 million, and we assume that this number

establishes the pre-deprivation value. But Colony presented

no evidence, expert or otherwise, about the Property’s post-

deprivation value. Rather, the only evidence concerned the

amount of rent claimed to be lost over an 8-year period

because of the Board’s refusals to approve higher increases.

Even assuming that the lost rental income asserted by

Colony—$5.7 million—equates to diminution in property

12 COLONY COVE PROPERTIES V. CITY OF CARSON

value, that reduction would only be 24.8% of the assumed

$23 million pre-deprivation value of the Property, far too

small to establish a regulatory taking. 4

Colony argues that post-deprivation “sale value is not the

only permissible basis to consider economic loss.” We

agree—for example, the discounted future cash flows

produced by an income-producing property can provide an

appropriate valuation methodology. See, e.g., Cienega

Gardens v. United States, 503 F.3d 1266, 1282 (Fed. Cir.

2007) (determining economic impact by “compar[ing] the

lost net income due to the restriction (discounted to present

value at the date the restriction was imposed) with the total

net income without the restriction over the entire useful life

of the property (again discounted to present value)”). But

Colony presented no evidence, by virtue of analyzing

diminished income streams or otherwise, of the post-

deprivation value of the Property.

Colony also asserts that the Board took its property

because it suffered annual operating losses in 2007 and 2008.

But those losses resulted directly from Colony’s decision to

incur a large debt when purchasing the property and cannot

alone establish a taking. Even if Colony’s decision to

borrow was commercially reasonable, it serves only to

establish that the purchase price of $23 million is the pre-

deprivation value. The post-deprivation value of the

Property cannot be dictated by debt service; otherwise, two

identical mobile home properties would have different

values, depending on how their owners chose to finance the

acquisitions. See Colony Cove Props., 163 Cal. Rptr. 3d at

4

The jury, whose award Colony does not challenge on appeal, found

that the lost rental income was only $3.3 million, which would equate to

a 14.3% reduction in the Property’s value.

COLONY COVE PROPERTIES V. CITY OF CARSON 13

521 (praising the MNOI Analysis “for its fairness and ease

of administration” in contrast to the GPM Analysis, which

can be “problematic to administer, because an owner’s

equity can be greatly affected by individual differences in

methods and costs of financing” (internal quotation marks

omitted)).

Thus, on the first Penn Central prong, Colony did not

present sufficient evidence to create a triable question of fact

as to the economic impact caused by the City’s denial of

larger rent increases. We therefore turn to the second prong.

B. Distinct Investment-Backed Expectations

Colony argues that, when it acquired the Property, it had

a distinct investment-backed expectation that the Board

would use the GPM Analysis and account for debt service in

determining future rent increases. It is this expectation,

Colony argues, with which the City interfered, and the jury

therefore properly awarded Colony the rent increases it

expected. Even accepting Colony’s argument that we should

focus only on the lost rental income, rather than the post-

deprivation value of the Property as a whole, 5 the argument

fails.

To form the basis for a taking claim, a purported distinct

investment-backed expectation must be objectively

reasonable. See CCA Assocs., 667 F.3d at 1247; see also

Lucas v. S.C. Coastal Council, 505 U.S. 1003, 1035 (1992)

(Kennedy, J., concurring in the judgment) (noting that

investment-backed “expectations protected by the

5

Cf. Penn Cent., 438 U.S. at 130 n.27 (stating that in determining

whether a regulatory taking occurred, the government’s action is

measured against “the parcel as a whole”).

14 COLONY COVE PROPERTIES V. CITY OF CARSON

Constitution are based on objective rules and customs that

can be understood as reasonable by all parties involved”);

Chancellor Manor v. United States, 331 F.3d 891, 907 (Fed.

Cir. 2003) (holding that courts must use “an objective

analysis to determine the reasonable investment-backed

expectations of the Owners”). Colony claims that, when it

purchased the Property, it reasonably expected that debt

service would be recognized in future rent increases because

(1) the existing Implementation Guidelines then provided

only for a GPM Analysis; (2) the Board had always

recognized debt service as a factor when granting rent

increases on another mobile home park owned by Goldstein;

and (3) two California Court of Appeal opinions—Palacio

de Anza v. Palm Springs Rent Review Commission, 257 Cal.

Rptr. 121 (Ct. App. 1989), and Carson Gardens, L.L.C. v.

City of Carson Mobilehome Park Rental Review Board,

37 Cal. Rptr. 3d 768 (Ct. App. 2006)—required

consideration of debt service. We address each argument in

turn.

1. The Implementation Guidelines—even before the

2006 Amendment allowing MNOI Analysis—clearly could

not have formed the basis for an objectively reasonable

expectation that the Board would always account for debt

service in considering future rent increases. The Guidelines

plainly stated that “[n]o one factor in the Ordinance is

determinative and the facts must be considered together and

balanced in light of the purposes of the Ordinance and all the

relevant evidence.” More importantly, the Guidelines

stressed that the GPM Analysis “is not intended to create any

entitlement to any particular rent increase.” Indeed, Colony

concedes that “Carson does not permit an automatic rent

increase based on a set formula.”

COLONY COVE PROPERTIES V. CITY OF CARSON 15

2. Goldstein’s experience as an owner of another

mobile home park in Carson in the two decades before his

purchase of the Property did not establish a reasonable

expectation that the Board would consider debt service in all

rent increase applications. As a general matter, an investor

must account for “the burden of rent control” in its

expectations about future increased rental income.

Guggenheim v. City of Goleta, 638 F.3d 1111, 1120–21 (9th

Cir. 2010) (en banc). And, the Implementation Guidelines,

adopted in 1998—long before the purchase of the

Property—made plain that use of a GPM Analysis created

no expectation to a particular rent increase. Moreover, the

Board did not consider acquisition interest expenses in

Goldstein’s first application for a rent increase at his other

park. Goldstein initially applied for a $57.85 rent increase

for that park, $41.38 of which related to increased debt

service. The Board, however, granted only a $12 rent

increase, which did not account for the debt service. Thus,

an objectively reasonable person could not have expected

that all future rent increase applications seeking increases

because of debt service would be granted. 6

3. Colony’s contention that the two California Court of

Appeal decisions require “the City to take debt service into

account in considering rent-increase applications, and . . .

preclude[d] the City from . . . using MNOI,” misreads both

opinions. Neither mandates that a rent control board account

for debt service in determining rent increases. Rather, both

merely hold that a Board must conduct the analyses it

6

Colony’s purported expectation of a $200 increase in 2007 would

have resulted in a 49.5% per-space rent increase for Colony Gardens.

Such an increase would have been twice as large as the largest increase

ever previously granted by the Board and significantly larger than the

largest increase Goldstein’s other properties ever received—$58.70.

16 COLONY COVE PROPERTIES V. CITY OF CARSON

represented it would conduct, without requiring the adoption

of a particular method of analysis.

Palacio de Anza simply required a rent control board to

apply its guidelines when considering a rent increase

application. 257 Cal. Rptr. at 124. There is no contest that

the Board did so here. And, in Carson Gardens, the Court

of Appeal expressly held:

[N]othing in the [City of Carson’s] ordinance

requires the Board to apply any particular

formula or methodology without deviation.

Indeed, the city’s Guidelines specifically

state that the [GPM] analysis ‘is an aid to

assist the Board in applying the factors in the

Ordinance and is to be considered together

with the factors in [the ordinance], other

relevant evidence presented and the purposes

of the Ordinance,’ and is not intended to

create any entitlement to any particular rent

increase.

37 Cal. Rptr. 3d at 777 (fourth alteration in original). At

most, Carson Gardens compels the Board only to consider

a GPM Analysis, see id. at 776–77, and in affirming the trial

court’s dismissal of Colony’s petition, the Court of Appeal

here expressly acknowledged that the Board did precisely

that in evaluating both the 2007 and 2008 Colony

applications, see Colony Cove Props., 163 Cal. Rptr. 3d at

504–11. 7

7

The Court of Appeal also noted that “the MNOI approach has been

upheld by every court to have considered it.” Colony Cove Props.,

163 Cal. Rptr. 3d at 522.

COLONY COVE PROPERTIES V. CITY OF CARSON 17

In Carson Gardens the plaintiff sued the Board, claiming

in part that the Board did not conduct a GPM Analysis.

37 Cal. Rptr. 3d at 770–76. A trial court ordered the Board

to conduct the analysis and remanded the case, but the Board

failed to conduct the GPM Analysis on remand. Id. at 772–

73. On the second challenge, the trial court granted the

plaintiff’s proposed rent increase based on its GPM

Analysis, but the Court of Appeal reversed. Id. at 774–75,

777. Although the initial trial court’s order required

consideration of debt service costs, the Court of Appeal

remanded the case “so that the Board c[ould] exercise its

discretion on the question of whether passing through the

entire amount of debt service costs was necessary to provide

a fair return.” Id. at 776.

No objectively reasonable person confronted with this

evidence in 2006 could have expected that the Board would

always account for debt service when determining rent

increases. 8 Colony failed to present sufficient evidence

supporting its investment-backed expectations claim under

Penn Central’s second prong.

C. Character of the Government Action

Penn Central instructs that “[a] ‘taking’ may more

readily be found when the interference with property can be

8

Colony also claims that its expectations were reasonable because

a former City employee testified that the Implementation Guidelines

were “more important, at least for day-to-day operation[s]” than the

ordinance. But the Guidelines, even before their amendment, made clear

that a property owner had no right to a rent increase based on the GPM

Analysis. And Colony does not contend that it relied on this statement,

which was made in a deposition in this litigation, in determining whether

to purchase the Property.

18 COLONY COVE PROPERTIES V. CITY OF CARSON

characterized as a physical invasion by government than

when interference arises from some public program

adjusting the benefits and burdens of economic life to

promote the common good.” 438 U.S. at 124 (citation

omitted). 9 The City’s rent control ordinance is precisely

such a program, striving to “protect[ ] Homeowners from

excessive rent increases and allow[ ] a fair return on

investment to the Park Owner.” This central purpose of rent

control programs “counsels against finding a Penn Central

taking.” MHC Fin., 714 F.3d at 1128.

Citing Lingle, 544 U.S. at 539, and David Hill

Development, LLC v. City of Forest Grove, No. 3:08-CV-

266-AC, 2012 WL 5381555 (D. Or. Oct. 30, 2012), Colony

argues that the 2006 amendment to the Guidelines should be

characterized as a taking because it targeted Colony’s

acquisition of the Property and the consequent large debt

service. But these cases are inapposite. Lingle simply held

that a plaintiff could not claim that a regulation constituted a

taking merely because it did not substantially advance a

legitimate state interest. 544 U.S. at 547–48. And David

Hill dealt with an express exaction. 2012 WL 5381555, at

*9–12. More importantly, government action is legitimately

prompted by changes in regulated areas. Even assuming that

the 2006 Amendment to the Guidelines was prompted by the

large amount of debt service involved in Colony’s

acquisition and the City’s realization that a more

sophisticated analysis than the GPM might be needed to

9

The Supreme Court also stressed that the first two Penn Central

factors are the most important. See Lingle, 544 U.S. at 538–39 (“Primary

among those factors are the economic impact of the regulation on the

claimant and, particularly, the extent to which the regulation has

interfered with distinct investment-backed expectations.” (internal

quotation marks and brackets omitted)).

COLONY COVE PROPERTIES V. CITY OF CARSON 19

address requests for rent increases, the character of the

government regulation remains the same. The third Penn

Central prong therefore is not satisfied.

III. Conclusion

On the evidence in this case, no reasonable finder of fact

could conclude that the Board’s denials of Colony’s

requested rent increases were the functional equivalent of a

direct appropriation of the Property. Accordingly, the

district court should have granted the City’s motion for

judgment as a matter of law. We therefore REVERSE the

judgment of the district court and REMAND with

instructions to enter judgment in favor of the City. 10

10

We therefore need not consider the City’s alternative argument

that a district court, not a jury, is the appropriate finder of fact in

regulatory takings cases.