Amicus Curiae Brief — Colony Cove Properties, LLC, Petitioner v. City of Carson, California, et al.

No. 18-573

In the

Supreme Court of the United States

COLONY COVE PROPERTIES, LLC,

v.

Petitioner,

CITY OF CARSON, et al.,

Respondents.

On Petition for Writ of Certiorari

to the Ninth Circuit Court of Appeals

BRIEF AMICUS CURIAE

OF PACIFIC LEGAL FOUNDATION IN

SUPPORT OF PETITIONER

BRIAN T. HODGES

Pacific Legal Foundation

10940 NE 33rd Place, Suite 210

Bellevue, Washington 98004

Telephone: (425) 576-0484

Email: Bhodges@pacificlegal.org

Counsel for Amicus Curiae Pacific Legal Foundation

i

QUESTIONS PRESENTED

This Court held in Penn Central Transportation

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

determining whether regulatory action constitutes a

taking requires balancing the character and extent of

economic impact of the regulatory action on a party,

the extent of interference of the regulatory action with

a party’s distinct investment-backed expectations,

and the character of the regulatory action. And the

Court held in City of Monterey v. Del Monte Dunes at

Monterey, Ltd., 526 U.S. 687 (1999), that the Seventh

Amendment right to a jury applies to regulatory

takings claims against municipalities.

The questions presented are:

1. Whether a regulation that causes a property

temporary but substantial cash losses is immune as a

matter of law from regulatory takings scrutiny if these

substantial cash losses do not cause a dramatic

decrease in the total value of the property.

2. Whether an appellate court reviewing a jury

verdict in a takings case is required to view the

evidence in the light most favorable to that verdict.

ii

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED ........................................ i

TABLE OF AUTHORITIES ...................................... iii

INTEREST OF AMICUS CURIAE ............................ 1

INTRODUCTION AND SUMMARY OF REASONS

TO GRANT THE PETITION ..................................... 2

REASONS TO GRANT THE PETITION................... 7

I.

CERTIORARI SHOULD BE GRANTED TO

CLARIFY THE DENOMINATOR QUESTION

IN TEMPORARY TAKINGS CASES .............. 7

A.

The Ninth Circuit’s Decision Conflicts With

Decisions of This Court............................... 7

B.

The Ninth Circuit’s Decision Undermines

This Court’s Temporary Takings

Jurisprudence ........................................... 10

C.

The Ninth Circuit Rule Deprives Owners of

Meaningful Consideration of Takings

Claims on Their Individual Merits .......... 12

II. CERTIORARI SHOULD BE GRANTED TO

CLARIFY THE PROPER APPLICATION OF

THE REMAINING PENN CENTRAL

FACTORS ....................................................... 14

A.

Reasonable Investment-Backed

Expectations.............................................. 15

B.

Character of the Government Action ....... 18

CONCLUSION.......................................................... 22

iii

TABLE OF AUTHORITIES

Page

Cases

Arkansas Game & Fish Comm’n v. United States,

568 U.S. 23 (2012) ............................................... 1, 7

Armstrong v. United States, 364 U.S. 40 (1960) ...... 14

Besaro Mobile Home Park, LLC v. City of Fremont,

204 Cal. App. 4th 345 (2012) .................................. 8

California Bldg. Indus. Ass’n v. City of San Jose,

61 Cal. 4th 435 (2015) ........................................... 21

CCA Assocs. v. United States,

667 F.3d 1239 (Fed. Cir. 2011) ................. 10, 12, 13

CCA Assocs. v. United States, 75 Fed. Cl. 170 (2007),

aff’d in part, vacated in part, remanded,

284 F. App’x 810 (Fed. Cir. 2008) ......................... 20

Cienega Gardens v. United States, 331 F.3d 1319

(Fed. Cir. 2003) ........................................................ 8

Cienega Gardens v. United States, 503 F.3d 1266

(Fed. Cir. 2007) ...................................................... 10

District Intown Props. Ltd. P’ship v. District of

Columbia, 198 F.3d 874 (D.C. Cir. 1999) ............... 9

Federal Power Commission v. Hope Natural Gas,

320 U.S. 591 (1944) ................................................. 8

First English Evangelical Lutheran Church of

Glendale v. County of Los Angeles, Cal.,

482 U.S. 304 (1987) ................................................. 7

Galland v. City of Clovis,

24 Cal. 4th 1003 (2001) ..................................... 8, 21

Guggenheim v. City of Goleta,

638 F.3d 1111 (9th Cir. 2010) ......................... 16, 17

Hodel v. Irving, 481 U.S. 704 (1987) ........................ 15

iv

Horne v. Department of Agriculture,

135 S. Ct. 2419 (2015) ............................................. 1

International Paper Co. v. United States,

282 U.S. 399 (1931) ............................................... 11

Kelo v. City of New London, Conn.,

545 U.S. 469 (2005) ................................................. 1

Keystone Bituminous Coal Association v.

DeBenedictus, 480 U.S. 470 (1987) ............... 3, 9, 14

Kimball Laundry Co. v. United States,

338 U.S. 1 (1949) ............................................... 8, 11

Koontz v. St. Johns River Water Management

District, 570 U.S. 595 (2013) ................................... 1

Lingle v. Chevron U.S.A.,

544 U.S. 528 (2005) ................................ 3, 15, 19-20

Loretto v. Teleprompter Manhattan CATV Corp.,

458 U.S. 419 (1982) ........................................... 2, 11

Lost Tree Village Corp. v. United States,

707 F.3d 1286 (2013) ............................................... 9

Lucas v. S.C. Coastal Council,

505 U.S. 1003 (1992) ................................... 2, 10, 13

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

714 F.3d 1118 (9th Cir. 2013) ............................... 12

Monongahela Navigation Co. v. United States,

148 U.S. 312 (1893) ................................................. 8

Murr v. Wisconsin,

137 S. Ct. 1933 (2017) .............................. 2, 9, 14-17

Nollan v. California Coastal Comm’n,

483 U.S. 825 (1987) ................................................. 1

Palazzolo v. Rhode Island,

533 U.S. 606 (2001) .................. 1-3, 6-7, 9, 13, 16-17

Penn Central Transp. Co. v. City of New York,

438 U.S. 104 (1978) ............... 2, 5, 7-8, 10, 15, 19-20

v

Pennsylvania Coal Co. v. Mahon,

260 U.S. 393 (1922) ..................................... 6, 19, 21

Petty Motor Co., 327 U.S. 372 (1946) ....................... 11

Pumpelly v. Green Bay & Miss. Canal Co.,

80 U.S. (13 Wall.) 166 (1871) ................................ 12

Sheffield Development Corp. v. City of Glenn Heights,

140 S.W.3d 660 (Tex. 2004) .................................. 18

Suitum v. Tahoe Reg’l Planning Agency,

520 U.S. 725 (1997) ................................................. 1

Tahoe-Sierra Pres. Council v. Tahoe Reg’l Planning

Agency, 535 U.S. 302 (2002)............... 2, 7, 10-11, 13

United States v. General Motors Corp.,

323 U.S. 373 (1945) ............................................... 11

United States v. Pewee Coal Co.,

341 U.S. 114 (1951) ............................................... 11

Yee v. City of Escondido, 503 U.S. 519 (1992) ......... 15

Other Authorities

Breemer, J. David, Playing the Expectations Game:

When Are Investment-Backed Land Use

Expectations (Un)Reasonable in State Courts?,

38 Urb. Law. 81 (2006) .......................................... 16

Claeys, Eric R., Takings, Regulations, and Natural

Property Rights,

88 Cornell L. Rev. 1549 (2003) ............................. 16

Claeys, Eric R., The Penn Central Test and Tensions

in Liberal Property Theory,

30 Harv. Envtl. L. Rev. 339 (2006) ....................... 16

Echeverria, John D., Is the Penn Central ThreeFactor-Test Ready for History’s Dustbin?,

52 Land Use L. & Zoning Dig. 3 (2000) .................. 3

Fenster, Mark, The Stubborn Incoherence of

Regulatory Takings,

28 Stan. Envtl. L.J. 525 (2009) ............................. 16

vi

Gordley, James R., Takings: What Does Matter? A

Response to Professor Peñalver,

31 Ecology L.Q. 291 (2004) ................................... 16

Lawson, Gary, et al., “Oh Lord, Please Don’t Let Me

Be Misunderstood!”: Rediscovering the Mathews v.

Eldridge and Penn Central Frameworks,

81 Notre Dame L. Rev. 1 (2005) ........................... 16

Michelman, Frank I., Property, Utility and Fairness:

Comments on the Ethical Foundations of “Just

Compensation” Law,

80 Harv. L. Rev. 1165 (1967) .................................. 9

Odabashian, Kraig, Comment, Investment-Backed

Expectations and the Politics of Judicial

Articulation: The Reintegration of History and the

Lockean Mind in Contemporary American

Jurisprudence, 50 UCLA L. Rev. 641 (2002)........ 16

Radford, R.S. & Wake, Luke A., Deciphering and

Extrapolating: Searching for Sense in Penn

Central, 38 Ecology L.Q. 731 (2011) ..................... 18

Wade, William W., Federal Circuit’s Economic

Failings Undo the Penn Central Test, 40 Envtl. L.

Rep. News & Analysis 10914 (2010) ..................... 14

1

INTEREST OF AMICUS CURIAE

Pursuant to Supreme Court Rule 37.2(a),

Pacific Legal Foundation (PLF) submits this brief

amicus curiae in support of Petitioner Colony Cove

Properties, LLC. 1

PLF was founded over 45 years ago and is

widely recognized as the most experienced nonprofit

legal foundation of its kind. PLF attorneys have

participated as lead counsel or amicus curiae in

several landmark United States Supreme Court cases

in defense of the right of individuals to make

reasonable use of their property, and the corollary

right to obtain just compensation when that right is

infringed. See, e.g., Knick v. Township of Scott, No. 17647; Horne v. Department of Agriculture, 135 S. Ct.

2419 (2015); Koontz v. St. Johns River Water

Management District, 570 U.S. 595 (2013); Arkansas

Game & Fish Comm’n v. United States, 568 U.S. 23

(2012); Kelo v. City of New London, Conn., 545 U.S.

469 (2005); Palazzolo v. Rhode Island, 533 U.S. 606

(2001); Suitum v. Tahoe Reg’l Planning Agency, 520

U.S. 725 (1997); Nollan v. California Coastal Comm’n,

483 U.S. 825 (1987). PLF has offices in Florida,

California, Washington, and the District of Columbia,

and regularly litigates matters affecting property

1 Pursuant to this Court’s Rule 37.2(a), all parties have consented

to the filing of this brief. Counsel of record for all parties received

notice at least 10 days prior to the due date of the Amicus

Curiae’s intention to file this brief.

Pursuant to Rule 37.6, Amicus Curiae affirms that no

counsel for any party authored this brief in whole or in part, and

no counsel or party made a monetary contribution intended to

fund the preparation or submission of this brief. No person other

than Amicus Curiae, its members, or its counsel made a

monetary contribution to its preparation or submission.

2

rights in state courts across the country. PLF believes

its perspective and experience with property rights

litigation will aid this Court in the consideration of the

issues presented in this case.

INTRODUCTION AND SUMMARY OF

REASONS TO GRANT THE PETITION

Forty years ago, this Court explained that

regulatory takings cases are “essentially ad hoc,

factual inquiries” wherein courts are instructed to

consider “the economic impact of the regulation on the

claimant;” “the extent to which the regulation has

interfered

with

distinct

investment-backed

expectations;” and “the character of the government

action” among other case-specific factors. 2 Penn

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

124 (1978). Despite being considered the “polestar” of

regulatory takings jurisprudence, 3 this Court, has

largely refrained from elaborating on those “ad hoc”

factors or explaining how the test is to be applied.

Murr v. Wisconsin, 137 S. Ct. 1933, 1942-43 (2017); see

also Palazzolo, 533 U.S. at 617 (The Court has “given

some, but not too specific, guidance to courts

confronted with deciding whether a particular

government action goes too far and effects a

2 This Court has recognized two exceptions to this ad hoc test.

The government is categorically liable for a taking where a

regulation forces a property owner to suffer a permanent

physical invasion of his property, Loretto v. Teleprompter

Manhattan CATV Corp., 458 U.S. 419, 433 (1982), or when it

deprives the owner of all economically beneficial use of his

property, Lucas v. S.C. Coastal Council, 505 U.S. 1003, 1015

(1992).

3 Tahoe-Sierra Pres. Council v. Tahoe Reg’l Planning Agency, 535

U.S. 302, 336 (2002); Palazzolo, 533 U.S. at 633 (O’Connor, J.,

concurring).

3

regulatory taking.”). This reluctance, although

intended to preserve the flexibility necessary to

respond to each case on its individual merits, has in

turn “given rise to vexing subsidiary questions”

regarding Penn Central’s application (Lingle v.

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

particular, “the difficult, persisting question of what

is the proper denominator in the takings fraction.”

Palazzolo, 533 U.S. at 631; see also Keystone

Bituminous Coal Association v. DeBenedictus, 480

U.S. 470, 496 (1987) (The question “how to define the

unit of property ‘whose value is to furnish the

denominator of the fraction’” is a critical threshold

question that often determines a regulatory takings

case.).

This Court’s past preference for flexibility over

clarity has, in practice, resulted in standards that are

vague, impossible to apply in a consistent manner,

and an invitation to judicial subjectivity. 4 This case

provides an example of the confusion that has arisen

from Penn Central’s multifactor test. Colony Cove

Properties purchased a rent-controlled mobilehome

park in Carson, California, for just over $23 million,

of which $18 million was debt-financed. In making

this investment, Colony Cove relied on Carson’s

longstanding policy of taking debt servicing into

4 John D. Echeverria, Is the Penn Central Three-Factor-Test

Ready for History’s Dustbin?, 52 Land Use L. & Zoning Dig. 3, 11

(2000) (declaring that the Penn Central framework “is not

supported by current Supreme Court precedent, invites

unprincipled judicial decision making, conflicts with the

language and original understanding of the takings clause,

would confer unjust windfalls in many cases, and creates

seemingly insurmountable problems in terms of defining an

appropriate remedy”).

4

account when considering an application for a rent

increase. But after Colony Cove acquired the property,

Carson changed its policy toward debt servicing costs

and denied Colony Cove the increases it had expected

and needed to continue operating the park. As a

result, the City’s regulations forced Colony Cove to

operate the rental property at a loss and pushed the

owner to the brink of foreclosure. Colony Cove brought

a temporary regulatory takings claim against the City

on the theory that its changed policy toward debt

servicing effected a temporary taking because it

compelled Colony Cove to provide subsidized housing

to the public with no return on its investment for the

period of time that the new policy was in effect. Colony

Cove prevailed on that theory before a jury, which

awarded Colony Cove more than $7 million in

compensation and fees.

The Ninth Circuit, however, adopted a

markedly different view of the Penn Central factors

and reversed. Most notably, the Ninth Circuit held

that the economic impact of a regulation under Penn

Central can only be “determined by comparing the

total value of the affected property before and after

the government action.” Petitioner’s Appendix (App.)

11a. Thus, the court concluded that a loss of income

that would have been generated by the property is

irrelevant except to the extent it might impact the

property’s overall value. Id. at 11a-13a. Because the

lifetime value of the property had declined by only

24.8% (under a sale-value methodology), the court

found the economic impact was “far too small to

establish a regulatory taking.” Id. at 12a. Further, the

Ninth Circuit held that Colony Cove had no legitimate

investment-backed expectations because Carson was

not required to adhere to its established policy of

5

accounting for debt servicing in rent increase

applications—the City was free to change its mind at

any time. Id. at 17a-18a. And finally, the court found

that the character of the government action also

weighed in favor of Carson, concluding that the rentcontrol program was more aptly characterized as an

example of government “adjusting the benefits and

burdens of economic life to promote the common good,”

than an act that shifts a public burden onto private

owners. Id. at 19a (quoting Penn Central, 438 U.S. at

124).

The striking inconsistencies between the lower

courts’ understanding of what the Penn Central

factors ask and how they are applied show the urgent

need for this Court to clarify Penn Central. Review by

this Court is additionally warranted because the

Ninth Circuit’s decision adds to an existing split of

authority by refusing to consider projected rental

income in the economic impact analysis in support of

a temporary regulatory takings claim (which split of

authority is set out in the Petition). The court’s

singular focus on the diminution of the property’s total

value as a result of the regulation places it in direct

conflict with other courts, which consider a

regulation’s impact on an investment property.

Compounding its mistake, the Ninth Circuit’s decision

threatens to erase this Court’s temporary takings

jurisprudence by adopting an inflexible rule that

requires courts to set a lifetime-value denominator

that does not take into account the temporary

duration of the offending regulation. This too is

contrary to the conclusions of other courts. The

Petition warrants this Court’s attention for these

reasons alone. But there is more.

6

The Ninth Circuit’s decision also illustrates the

extent to which courts have misconstrued the final

two Penn Central factors to ask questions that are

inherently loaded against property owners. For

example, the Ninth Circuit continued the disturbing

trend among the lower courts of holding that notice of

a regulation (or, more broadly, the government’s

authority to change its mind) will automatically

defeat an owner’s reasonable investment-backed

expectations and defeat a Penn Central claim in direct

contravention of Palazzolo, 533 U.S. at 626-28. If this

trend continues, property owners will not even be able

to rely on existing zoning and land-use laws when

investing in property, which is antithetical to the most

basic notions of property law. And finally, the Ninth

Circuit’s conclusion that the nature of rent control

regulations do not warrant meaningful, case-specific

scrutiny under Penn Central’s “character of the

government action” inquiry conflicts with the very

purpose of this Court’s regulatory takings

jurisprudence, which is to determine whether a lawful

exercise of regulatory authority “go[es] too far” and

effects a taking. Pennsylvania Coal Co. v. Mahon, 260

U.S. 393, 415 (1922) (“while property may be

regulated to a certain extent, if regulation goes too far

it will be recognized as a taking”). These widespread

and common misunderstandings of Penn Central add

force to the Petition.

For reasons set forth more fully below, this

Court should grant Colony Cove’s Petition for Writ of

Certiorari.

7

REASONS TO GRANT THE PETITION

I

CERTIORARI SHOULD BE GRANTED TO

CLARIFY THE DENOMINATOR QUESTION IN

TEMPORARY TAKINGS CASES

A. The Ninth Circuit’s Decision Conflicts

With Decisions of This Court

In the decision below, the Ninth Circuit

concluded that courts may only determine the

economic impact of a regulation by measuring the predeprivation value of the real property against its postdeprivation value (i.e., the property’s “sale value”).

App. 10a-14a. That conclusion conflicts with this

Court’s regulatory takings jurisprudence. First, this

Court has repeatedly admonished that there is no “set

formula” for determining whether a regulatory taking

has occurred. Penn Central, 438 U.S. at 124; TahoeSierra, 535 U.S. at 321 (Courts must resist “[t]he

temptation to adopt what amount to per se rules in

either direction.”) (citing Palazzolo, 533 U.S. at 636

(O’Connor, J., concurring)). Instead, the Penn Central

factors are intended to provide the flexibility

necessary to respond to “the nearly infinite variety of

ways in which government actions or regulations can

affect property interests.” Arkansas Game & Fish

Comm’n, 568 U.S. at 31.

Second, the Ninth Circuit rule conflicts with

this Court’s conclusion that the “Just Compensation

Clause of the Fifth Amendment requires that the

government pay the landowner for the value of the use

of the land during this period.” First English

Evangelical Lutheran Church of Glendale v. County of

Los Angeles, Cal., 482 U.S. 304, 318-19 (1987)

8

(emphasis added); cf. Kimball Laundry Co. v. United

States, 338 U.S. 1, 8 (1949) (finding that proper

measure of compensation for government’s temporary

use of laundry facility was rental profits likely to have

been earned, rather than difference between

property’s market value on date of taking and date of

return); Monongahela Navigation Co. v. United

States, 148 U.S. 312, 328 (1893) (holding that when

taking of tangible property deprives owner of ability

to earn profit from collecting tolls on railroad

franchise, just compensation requires payment to

cover loss in profits). Indeed, the rate of return

methodology is also appropriate in cases alleging a

taking of commercial property. See Penn Central, 438

U.S. at 129, 136 (absolving the local government of

takings liability in part because of its evaluation that

the plaintiffs’ railroad terminal could “be regarded as

capable of earning a reasonable return” on the owners’

investment); Federal Power Commission v. Hope

Natural Gas, 320 U.S. 591 (1944) (recognizing a lost

rent or return on equity approach to economic impact

analysis); see also Cienega Gardens v. United States,

331 F.3d 1319, 1343 (Fed. Cir. 2003) (initially finding

that plaintiffs suffered a taking when they sustained

a 96 percent diminution in their expected return

during the period of time the offending regulation was

in force). Clearly, there are circumstances that

warrant a return on investment analysis when

evaluating takings claims. See Galland v. City of

Clovis, 24 Cal. 4th 1003, 1021-22 (2001) (recognizing

that landlords are entitled to a fair return on their

investment); Besaro Mobile Home Park, LLC v. City of

Fremont, 204 Cal. App. 4th 345, 357 (2012)

(recognizing a “constitutionally protected right” to

“receive a fair return on one’s property”). The Ninth

9

Circuit’s adoption of an invariable rule barring courts

from considering this methodology was wrong and

warrants review.

The Ninth Circuit decision also warrants

review because its inflexible approach to the economic

impact inquiry attempts to force one answer to “the

difficult, persisting question of what is the proper

denominator in the takings fraction” in every

potential circumstance. Palazzolo, 533 U.S. at 631.

This Court, however, has admonished that “no single

consideration can supply the exclusive test for

determining [an owner’s reasonable investmentbacked expectations].” Murr, 137 S. Ct. at 1945. This

Court’s commitment to a case-specific “expectations”

inquiry is important because the question “how to

define the unit of property ‘whose value is to furnish

the denominator of the fraction’” is a critical threshold

question that often determines a regulatory takings

case. Keystone Bituminous Coal Association, 480 U.S.

at 496 (quoting Frank I. Michelman, Property, Utility

and Fairness: Comments on the Ethical Foundations

of “Just Compensation” Law, 80 Harv. L. Rev. 1165,

1192 (1967)); see also Lost Tree Village Corp. v. United

States, 707 F.3d 1286, 1292 (2013); see also District

Intown Props. Ltd. P’ship v. District of Columbia, 198

F.3d 874, 880 (D.C. Cir. 1999) (The “definition of the

relevant parcel profoundly influences the outcome of

the takings analysis.”). Such a critical determination

cannot be made subject to an inflexible rule that does

not take into account the applicable takings theory

and circumstances of each case.

10

B. The Ninth Circuit’s Decision Undermines

This Court’s Temporary Takings

Jurisprudence

Review by this Court is especially warranted

because, if the Ninth Circuit’s decision is allowed to

stand, its rigid answer to the denominator question

will effectively erase this Court’s small but important

body of temporary regulatory takings jurisprudence.

Since recognizing the viability of temporary

regulatory takings claims in First English, this Court

has not taken the opportunity to explain how such a

claim is to be proven under Penn Central. 482 U.S. at

318-19. Thus, without guidance, the lower federal

courts and state courts of last resort frequently make

the mistake of relying on the inapposite decision in

Tahoe-Sierra to fill this Court’s silence on the topic. 5

See App. 13a (citing Cienega Gardens v. United States,

503 F.3d 1266, 1282 (Fed. Cir. 2007) (Cienega X)).

Tahoe-Sierra, however, concerned the very different

question of whether a development moratorium

effected a per se taking under the deprivation of “all

economically viable use” test established by Lucas,

505 U.S. at 1015. Answering that narrow question,

the Court held that a temporary restriction could not

effect a total taking under Lucas because “a fee simple

estate cannot be rendered valueless by a temporary

prohibition on economic use, because the property will

recover value as soon as the prohibition is lifted.”

Tahoe-Sierra, 535 U.S. at 332. Although that

5 In Cienega Gardens, the Federal Circuit misconstrued TahoeSierra to “explicitly confirm[]” that courts must consider “the

overall value of the property” when determining the economic

impact of a temporary regulation. This obvious mistake is now a

per se rule in the Federal Circuit. Id. at 1281; see also CCA

Assocs. v. United States, 667 F.3d 1239, 1244 (Fed. Cir. 2011).

11

explanation is responsive only to the Lucas test, many

courts, like the Ninth Circuit below, have mistakenly

extended Tahoe-Sierra to effectively bar temporary

takings claims asserted under Penn Central by

requiring that owners show that a temporary

restriction resulted in such a substantial deprivation

of the property’s lifetime value before the government

will be required to pay just compensation. App. 10a14a.

That conclusion, however, conflicts with First

English, which measures liability for a temporary

taking based on the period of time that the

government restricts the use of property. 6 It also finds

no support in Tahoe-Sierra, which concluded that

“claims that a regulation has effected a temporary

taking ‘require[] careful examination and weighing of

all the relevant circumstances’” under the Penn

Central test. Tahoe-Sierra, 535 U.S. at 334-35; see also

Loretto, 458 U.S. at 436 n.12 (“[T]emporary

limitations are subject to a more complex balancing

process to determine whether they are a taking.”).

Importantly, this Court noted that the temporary

nature of a regulation, itself, cannot preclude a finding

that it effected a regulatory taking asserted under a

Penn Central theory. Tahoe-Sierra, 535 U.S. at 33637. Thus, there is nothing in Tahoe-Sierra that limits

6 Like First English, this Court’s physical invasion cases confirm

that the government can be liable for a temporary taking despite

the fact that the government restored the property in full to its

owners after a period of time. See, e.g., United States v. Pewee

Coal Co., 341 U.S. 114, 115 (1951); Kimball Laundry Co., 338

U.S. at 1-3, 7, 16; Petty Motor Co., 327 U.S. 372, 380-81 (1946);

United States v. General Motors Corp., 323 U.S. 373, 375 (1945);

International Paper Co. v. United States, 282 U.S. 399, 407-08

(1931).

12

the methodologies a court may consider when

evaluating economic impact in a temporary taking

claim under Penn Central. And rule requiring courts

to consider the effect of a temporary restriction

against the lifetime value of the property is contrary

to the principle that the government is obligated to

pay just compensation to the extent its actions

actually interfere with an owner’s rights in his or her

property. See Pumpelly v. Green Bay & Miss. Canal

Co., 80 U.S. (13 Wall.) 166, 177-78 (1871).

C. The Ninth Circuit Rule Deprives Owners

of Meaningful Consideration of Takings

Claims on Their Individual Merits

Without guidance from this Court, the lower

courts frequently look to other lower court decisions to

find some talismanic threshold for finding a taking,

without engaging in a meaningful analysis of the Penn

Central factors. Thus, in the decision below, the Ninth

Circuit rejected Colony Cove’s temporary takings

claim upon the observation that the court had

previously rejected takings claims where the

“diminution in property value because of

governmental regulation rang[ed] from 75% to

92.5%.” App. 12a (citing MHC Fin. Ltd. P’ship v. City

of San Rafael, 714 F.3d 1118, 1127 (9th Cir. 2013)).

The Ninth Circuit further observed that “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.’” App. 12a (quoting CCA

Assocs., 667 F.3d at 1246). Based on those figures, and

without considering the actual effect that the City’s

debt servicing policy had on Colony Cove’s

investment, the Ninth Circuit simply held that the

13

percentage of depreciation could not support a takings

claim. App. 12a.

This superficial conclusion, however, short

circuits the substantive analysis required by Penn

Central. Tahoe-Sierra, 535 U.S. at 326 n.23 (“The

Takings Clause requires careful examination and

weighing of all the relevant circumstances.”) (quoting

Palazzolo, 533 U.S. at 636 (O’Connor, J., concurring)).

Indeed, Penn Central forbids this type of analysis,

instructing courts to “examine ‘a number of factors’

rather than a simple ‘mathematically precise’

formula” when determining whether regulation gave

rise to a taking. Tahoe-Sierra, 535 U.S. at 326.

The Ninth Circuit’s focus on the percentage

ranges reported in other decisions furthermore masks

that the degree of economic impact can be grossly

under- or over-stated simply by changing the

denominator. Lucas, 505 U.S. at 1066 (observing that

it would be all too easy for courts to avoid or distort

the Court’s takings jurisprudence by “alter[ing] the

definition of the ‘denominator’ in the takings

‘fraction’”) (Stevens, J., dissenting). For example, in

CCA Assocs., the court applied the two methodologies

at issue here to find that the same regulation

diminished the owner’s investment by 81.25% (rate of

return while regulation in effect) and 18% (lifetime

sale value). 667 F.3d at 1244. The court, however,

concluded that a Circuit rule bound it to consider only

the sale value figure, which resulted in a vastly

distorted view of how a temporary restriction actually

impacted the owner’s investment in property. 7 Id. (“In

7 CCA Assocs., 667 F.3d at 1247 (“If the net income over the entire

remaining life of the mortgage is the denominator there is no way

that even a nearly complete deprivation (say 99%) for 8 years

14

Cienega X, however, we held that any economic

impact must be evaluated with respect to the value of

the property as a whole, and not limited to the discrete

time period that the taking was in force.”); see also

William W. Wade, Federal Circuit’s Economic

Failings Undo the Penn Central Test, 40 Envtl. L.

Rep. News & Analysis 10914, 10920 (2010). Thus, the

rule adopted by the Federal and Ninth Circuits turns

what was supposed to be a flexible, case-specific

inquiry into a categorical barrier for property owners

seeking compensation for a temporary taking.

II

CERTIORARI SHOULD BE GRANTED TO

CLARIFY THE PROPER APPLICATION OF

THE REMAINING PENN CENTRAL FACTORS

Review is additionally warranted to provide

much needed guidance on how to apply the remaining

Penn Central factors in a manner that ensures

“consistency with the central purpose of the Takings

Clause: to ‘bar Government from forcing some people

alone to bear public burdens which, in all fairness and

justice, should be borne by the public as a whole.’”

Murr v. Wisconsin, 137 S. Ct. at 1950 (quoting

Armstrong v. United States, 364 U.S. 40, 49 (1960));

see also Keystone Bituminous Coal Ass’n, 480 U.S. at

512 (Rehnquist, C.J., dissenting) (The Penn Central

factors assist courts in determining whether the

regulation in reality is an attempt to load “upon one

individual more than his just share of the burdens of

government.”). Put simply, Penn Central cannot be

transformed into a gauntlet of inflexible rules or

would amount to a severe economic deprivation when compared

to our prior regulatory takings jurisprudence.”).

15

presumptions in favor of the government (as the Ninth

Circuit decision below suggests)—instead, each factor

must be evaluated on its individual merits to

determine “the severity of the burden that

government imposes upon private property rights.” 8

Lingle, 544 U.S. at 539-40 (“[T]he Penn Central

inquiry turns in large part, albeit not exclusively,

upon the magnitude of a regulation’s economic impact

and the degree to which it interferes with legitimate

property interests.”).

A. Reasonable Investment-Backed

Expectations

While the Petition focuses the Court’s attention

on the economic impact prong of Penn Central, the

decision below also demonstrates the need for

clarification of the “distinct investment-backed

expectations” factor. 9 Penn Central, 438 U.S. at 124.

8 Indeed, this Court’s case law demonstrates that takings can

occur even where evidence in support of one or more Penn

Central factors weigh against the property owner. See, e.g., Hodel

v. Irving, 481 U.S. 704, 715 (1987) (finding a taking even though

the evidence of reasonable investment-backed expectations is

“dubious” because the other factors weigh heavily in favor of the

owner’s claim); see also Murr, 137 S. Ct. at 1945 (measuring the

value of the property by the terms of the challenged regulation,

for example, unfairly distorts the takings equation in favor of the

government); Yee v. City of Escondido, 503 U.S. 519, 522 (1992)

(even where an owner’s expectations are questionable,

compensation may be required if the challenged regulation is

determined to have unfairly targeted the property owner to bear

a burden that should be borne by the public).

9 Legal scholars have noted that “different members of the Court

use the term ‘investment-backed expectations’ to refer to

different standards in regulatory takings.” Kraig Odabashian,

Comment, Investment-Backed Expectations and the Politics of

Judicial Articulation: The Reintegration of History and the

Lockean Mind in Contemporary American Jurisprudence, 50

16

Although this Court has repeatedly held that the

existence of a restrictive regulation, alone, cannot

determine an owner’s reasonable expectations in

property, 10 the lower federal courts and state courts of

last resort continue to adopt rules shielding

regulations from meaningful scrutiny. 11 For example,

in the decision below, the Ninth Circuit held that

Colony Cove could not, as a matter of law, form a

reasonable investment-backed expectation based on

the City’s past practices in regard to debt servicing

UCLA L. Rev. 641, 647 (2002); see also, e.g., J. David Breemer,

Playing the Expectations Game: When Are Investment-Backed

Land Use Expectations (Un)Reasonable in State Courts?, 38 Urb.

Law. 81, 83-84 (2006) (Penn Central’s ad hoc balancing test

focuses on investment-backed expectations); Eric R. Claeys,

Takings, Regulations, and Natural Property Rights, 88 Cornell

L. Rev. 1549, 1670 (2003) (suggesting modification of the

balancing test); Eric R. Claeys, The Penn Central Test and

Tensions in Liberal Property Theory, 30 Harv. Envtl. L. Rev. 339,

369 (2006); Mark Fenster, The Stubborn Incoherence of

Regulatory Takings, 28 Stan. Envtl. L.J. 525, 528 (2009) (noting

the “indeterminacy” of the “ad hoc, multi-factor balancing test”);

James R. Gordley, Takings: What Does Matter? A Response to

Professor Peñalver, 31 Ecology L.Q. 291, 291 (2004) (Penn

Central is an ad hoc balancing test); Gary Lawson, et al., “Oh

Lord, Please Don’t Let Me Be Misunderstood!”: Rediscovering the

Mathews v. Eldridge and Penn Central Frameworks, 81 Notre

Dame L. Rev. 1, 30 (2005) (“[T]he validity of the regulation will

depend on an examination and balancing of three elements. . . .”

(quoting Appellees’ Brief, Penn Cent. Transp. Co. v. City of New

York, 438 U.S. 104 (1978) (No. 77-444), 1978 WL 206883, at *16)).

10 Palazzolo, 533 U.S. at 626-28; Murr, 137 S. Ct. at 1945 (“[N]o

single consideration can supply the exclusive test for

determining [an owner’s reasonable investment-backed

expectations].”).

11 See, e.g., Guggenheim v. City of Goleta, 638 F.3d 1111, 1121-22

(9th Cir. 2010) (en banc) (no investment-backed expectations as

a matter of law for landlord purchasing mobilehome park already

subject to rent-control regulations).

17

where it was on notice that the City may change its

policy. App. 14a-16a. According to the lower court, the

City’s authority to change its mind will defeat any

expectation based on the status quo. App. 14a-18a.

That conclusion renders the takings inquiry circular

and meaningless. Murr, 137 S. Ct. at 1944 (citing

Tahoe-Sierra, 535 U.S. at 331).

Moreover, the Ninth Circuit’s deference to the

government’s regulatory authority is nothing more

than an outgrowth of the repudiated “notice rule,”

which asserted that “[a] purchaser or a successive tile

holder . . . is deemed to have notice of an earlierenacted restriction and is barred from claiming that it

effects a taking.” Palazzolo, 533 U.S. at 626. This

Court rejected that rule as “quixotic” and “capricious

in effect,” holding that the mere fact that a restrictive

land-use regulation is in effect at the time of

acquisition cannot determine a regulatory takings

case as matter of law. Id. at 628; see also id. at 635-36

(O’Connor, J., concurring). For takings jurisprudence

to have any integrity, the same rule must apply to

future regulations. See Guggenheim, 638 F.3d at 112324 (Bea, J., dissenting) (criticizing the majority for

“ignor[ing] [the Supreme Court’s] recent holding in

Palazzolo that an investor can validly expect that a

land control measure, in place when he invests, is not

necessarily eternal and therefore does not disqualify

his claim of regulatory taking”).

Given the nearly plenary power of local

government to regulate land use, the rule adopted by

the Ninth Circuit threatens to eviscerate Penn

Central altogether by shielding restrictive land-use

regulations from constitutional scrutiny. But see

Palazzolo, 533 U.S. at 627 (“The Takings Clause . . .

18

allows a landowner to assert that a particular exercise

of the State’s regulatory power is so unreasonable or

onerous as to compel compensation.”). It also turns the

very concept of “reasonable investment-backed

expectations” on its head. Investors, at the very least,

must be able to base their decisions on the past

practices of a government entity, especially when

those

practices

are

published

or

directly

communicated to the property owner. See Sheffield

Development Corp. v. City of Glenn Heights, 140

S.W.3d 660, 677-78 (Tex. 2004) (investment-backed

expectations were reasonable when “zoning had been

in place for ten years before [the developer] acquired

the property” and re-zoning was contrary to

representations made by City officials to the developer

and thus “blindsided” the developer). Such reasonable

reliance on past practices is the very definition of a

“reasonable” expectation. The Ninth Circuit’s rule to

the contrary threatens to significantly reduce the

scope of Penn Central and embolden local

governments to place more demanding regulations on

property owners. It also deepens the existing

confusion over the application of Penn Central as a

whole. Only this Court’s intervention can change the

course of the law in this area.

B. Character of the Government Action

Finally, any consideration of Penn Central

must include the “character of government action”

inquiry. Commentators have called this final Penn

Central prong “the most confused and confusing

feature of regulatory takings doctrine.” R.S. Radford

& Luke A. Wake, Deciphering and Extrapolating:

Searching for Sense in Penn Central, 38 Ecology L.Q.

731, 736 (2011) (quoting John D. Echeverria, The

19

“Character” Factor in Regulatory Takings Analysis,

SK081 A.L.I.-A.B.A. 143, 145 (June 9-10, 2005)). This

Court has explained this inquiry in seemingly

divergent terms over the years. In Penn Central, for

example, the Court stated that “[a] ‘taking’ may more

readily be found when the interference with property

can be 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. But later, in Lingle v. Chevron U.S.A. Inc., this

Court explained that the takings inquiry does not turn

on questions regarding purpose of the government

action, but rather on its effect. 544 U.S. at 540. Such

questions “reveal[] nothing about the magnitude or

character of the burden a particular regulation

imposes upon private property rights.” Id. at 542

(emphasis in original). Nor does that inquiry “provide

any information about how any regulatory burden is

distributed among property owners.” Id. (emphasis in

original). This type of inquiry “does not help to identify

those regulations whose effects are functionally

comparable to government appropriation or invasion

of private property.” Id.; see also Pennsylvania Coal

Co., 260 U.S. at 416 (“[A] strong public desire to

improve the public condition is not enough to warrant

achieving that desire by a shorter cut than the

constitutional way of paying for the change.”).

Over the years, the lower courts have split on

whether the character of the government action

inquiry focuses on the purpose of the regulation, or the

whether the regulation places a public burden on

property owner. In the decision below, for example,

the Ninth Circuit concluded that the character of

governmental action weighed in favor of the City

20

based solely on the observation that low-income

housing regulations aim to “adjust[] the benefits and

burdens of economic life to promote the common good.”

App. 19a (quoting Penn Central, 438 U.S. at 124). The

Court of Federal Claims, by contrast, holds that the

character prong “focuses not only on the intended

benefits of the governmental action, but also on

whether the burdens the action imposed were borne

disproportionately by relatively few property owners.”

CCA Assocs. v. United States, 75 Fed. Cl. 170, 188

(2007), aff’d in part, vacated in part, remanded, 284 F.

App’x 810 (Fed. Cir. 2008) (citing Armstrong, 364 U.S.

at 49). The different approaches adopted by the Ninth

Circuit and the Court of Federal Claims,

unsurprisingly, compel very different results. In the

decision below, the Ninth Circuit concluded that the

character of a regulation forcing Colony Cove to

operate its rental property at a loss in order to provide

the public with low-cost housing weighed in favor of

the government simply because it “promoted the

common good.” App. 19a. The Court of Federal Claims,

however, reached the opposite conclusion when asked

to review a statute requiring owners to preserve lowincome housing for a period of time. CCA Assocs., 75

Fed. Cl. at 188-91. The reason for the different

outcomes is because the Court of Federal Claims did

not focus solely on the purpose for the regulation; it

also asked whether the affordable housing law placed

a severe public burden on the individual owner—

which is the touchstone of takings law. Lingle, 544

U.S. at 539.

Clarification of the character of the government

action factor is a matter of utmost importance in those

areas of the nation, like California, that are

experimenting with regulatory solutions to the

21

affordable housing crisis. See, e.g., California Bldg.

Indus. Ass’n v. City of San Jose, 61 Cal. 4th 435, 441

(2015). A regulation that denies a landlord a fair

return as part of a regulatory program designed to

provide the public with low-cost housing is clearly

confiscatory of the owner’s rights in his or her

property. Galland, 24 Cal. 4th at 1021. But without a

clear indication how courts are to apply the character

of government action factor, both property owners and

regulators are left to guess whether and in what

circumstances such a demand will “go[] too far.”

Pennsylvania Coal Co., 260 U.S. at 415 (“while

property may be regulated to a certain extent, if

regulation goes too far it will be recognized as a

taking”). This case, which involves a plainly

confiscatory rent-control regulation, provides the

Court with an appropriate vehicle to further explain

the character of governmental action prong of Penn

Central. Such clarity would benefit property owners,

government, and courts nationwide.

22

CONCLUSION

The Petition for Writ of Certiorari should be

granted.

DATED: November, 2018.

Respectfully submitted,

BRIAN T. HODGES

Pacific Legal Foundation

10940 NE 33rd Place, Suite 210

Bellevue, Washington 98004

Telephone: (425) 576-0484

Email: Bhodges@pacificlegal.org

Counsel for Amicus Curiae

Pacific Legal Foundation