Opposition Brief — Palomar Mobilehome Park Ass'n v. City of San Marcos

Suprane Court, US. |

FILED

eB,

Y JUN 2.1 1991

No. 90-1824

Orrice or HE CLERK }

In the Supreme Court

OF THE

United States

OCTOBER TERM, 1990

PALOMAR MOBILEHOME PARK ASSOCIATION,

A Limited Partnership,

Petitioner,

VS.

THE CITY OF SAN MARCOs,

Respondent.

On Petition for a Writ of Certiorari

Te The Fourth Appellate District,

Division One, Court of Appeal

For The State of California

RESPONDENT'S BRIEF IN OPPOSITION

DONALD R. LINCOLN

(Counsel of Reeord)

LINDA B. REICH

ENDEMAN, LINCOLN, TUREK & HEATER

600 B Street, Suite 2400

San Diego, California 92101

(619) 544-0123

DANIEL S. HENTSCHKE

BROWN, HARPER, BURNS & HENTSCHKE

12770 High Bluff Drive, Suite 240

San Diego, California 92130

(619) 456-1915

Attorneys for Respondent

City of San Marcos

Bowne of Los Angeles, Inc., Law Pmnters (213) 627-2200

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QUESTIONS PRESENTED

Whether the state court was correct in ruling that the

City of San Marcos’ Mobilehome Rent Review Ordi-

nance did not constitute a federal taking even though

it restricts a park owner's ability to increase space

rent whenever a mobilehome is transferred from one

homeowner to another.

Whether the state court was correct in ruling that the

City of San Marcos’ Mobilehome Rent Review Ordi-

nanee is not a violation of federal substantive due

process even though it restricts a park owner's ability

to inerease space rent whenever a mobilehome is

transferred from one homeowner to another.

ll

LIST OF PARTIES

The parties to the proceeding below were the Peti-

tioner, Palomar Mobilehome Park Association, a limited

partnership and Respondent, City of San Marcos.

i

TABLE OF CONTENTS

ge FE gg 8 oh

ek bcc h eee ese ee suvecnes

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RE gy yg 5).

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a aust tose eee ee te sees

CONSTITUTIONAL PROVISIONS AND

8

ey) Oy.)

Et

EE

]

2

3

. The State Superior Court Ruling.......

2. The State Court of Appeal Ruling......

. The California Supreme Court’s Denial Of

ee ae aeons ae bene nes

WHY THIS WRIT SHOULD BE DENIED OR IF

GRANTED WHY THE JUDGMENT BELOW

| ay ho |:

I. THE COURT BELOW FULLY CONSIDERED

AND CORRECTLY DECIDED PALOMAR’S

EE eee

A. The Hall Rationale Has Been Undermined By

ee ae a ne eee os bbs

1.

The Hall Ninth Cireuit Panel Decision...

2. The Dissent From Denial Of Rehearing ..

3.

FCC Undermined The Hall Rationale By

Finding No Taking Where A Property

Owner Had Voluntarily Entered Into A

Lease Subject To Rent Regulation ......

ID DD & & CW

9

iv

TABLE OF CONTENTS

4. Pennell Rejected Hall’s Rationale And Up-

held The Rationality Of A Rent Control

Ordinance Which Considered Tenant

| ey te ere are om ee

5. Eamiello And Thompson Rejected The

Hall Rationale And Upheld The Rational-

ity Of A Statute Designed To Protect The

Economie Interest of Mobilehome Owners

In Selling Their Homes On Site.........

6. Sperry Indicates That A Mere Loss Of

Money Is Not A Physical Taking........

The Third Cireuit’s Decision In Pinewood

Is Also Flawed Because It Failed To Con-

sider Binding And Relevant Authorities. .

B. Every California Court Which Has Consid-

ered The Issue Has Rejected The Hall

CN wacak os wae wae raw heads oa ks

1. Yee Fully Considered Hall And Dismissed

ea keith hese

2. Casella Rejected Virtually Identical

CREE EC aa aOR Ret ea ear ek eae

C. In Any Event, The San Marcos Ordinance Is

Distinguishable From That Considered In

~)

.

il. THE COURT BELOW FULLY CONSIDERED

AND CORRECTLY DECIDED THAT THE

ORDINANCE ADVANCES A LEGITIMATE

GOVERNMENTAL PURPOSE AND DOES

NOT VIOLATE SUBSTANTIVE DUE PRO-

Cf ERIS a ee Men NPIS Pn Gat Ree LatAm Teri earl

PEN <x (AK 4 eee Vi sth coe bes eaedauy es

Page

13

14

17

18

23

Vv

TABLE OF AUTHORITIES

Cases

Page

Azul Pacifico v. City of Los Angeles, 740 F.Supp. 772

(C.D. Cal 1990), on appeal, 9th Cir. No.

a ee rere ere ey ee ree Te re ee 26, 29

Cardinale v. Louisiana, 394 U.S. 437, 89 S.Ct. 1161,

em FF Se. Peverrre rere re re erste 28

Casella v. City of Morgan Hill, Cal.App.3d —___.,

280 Cal.Rptr. 876, 1991 Cal.App. LEXIS 473,

(Cal. App., 6th Dist. No. H006972, May 10,

| ree Cre tr re ere 22, 29

District Court of Columbia Court of Appeals v. Feld-

man, 460 U.S. 462, 103 S.Ct. 1303, 75 L.Ed.2d 206

A BP ee rr eet rere a ee 10

Eamiello v. Liberty Mobile Home Sales, 208 Conn. 620,

546 A.2d 805 (1988), app. dism., 489 U.S. 1002,

109 S.Ct. 1104, 103 L.Ed.2d 169 (1989) ............

FCC v. Florida Power Corp., 480 U.S. 245, 107 S.Ct.

1107, 94 L.Ed.2d 282 (1987) ............... ®, 13,19

First English Evangelical Lutheran Church v. County

of Los Angeles, 482 U.S. 304, 107 S.Ct. 2378, 96

wef Sf Rt ff eer ere Terre ree ee 18

Fisher v. City of Berkeley, 471 U.S. 1124, 105 S.Ct.

ee, CD Sate BVO CEOS) 6k ok wanes dcasncnes 12

Fresh Pond Shopping Center v. Callahan, 464 U.S.

875, 104 S.Ct. 218, 78 L.Ed.2d 215 (1983) ..... 12, 15

Hall v. City of Santa Barbara, 833 F.2d 1270 (9th Cir.

1986), cert. denied, 485 U.S. 940, 108 S.Ct. 1120, 99

Li ee. COED k's Kae cece nae ekoe saree

eee 6, 10, 11, 12, 13, 14, 17, 18, 19, 21, 22, 23, 24, 25, 26

Loretto v. Teleprompter Manhattan CATV Corp., 458

U.S. 419, 102 S.Ct. 3164, 73 L.Ed.2d 868 (1982)

eee ere ay ee 8, 11, 13, 15, 17, 19, 22, 24, 25

Nash v. City of Santa Monica, 470 U.S. 1046, 105 S.Ct.

SFGG, OG TaD Ge BOE CIO) 6k ks he cine Sana e 12

Vl

TABLE OF AUTHORITIES

CASES

Page

Oceanside Mobilehome Park Ass'n. v. City of Ocean-

side, 157 Cal.App.3d 887, 204 Cai. Rptr. 239 (1984)

on A ere ee 7, 11, 19, 20, 21, 26

Palomar Mobilehome Park Ass'n. v. City of San

Marcos, S.D. Cal., No. 91-0157 B (IEC) ........ 7,9

Palomar Estates East v. City of San Marcos, San

Diego Superior Court, No. N48882, April 9, 1990 = 20

Penn Central Transportation Co. v. New York City, 438

U.S. 104, 98 S.Ct. 2646, 57 L.Ed.2d 631 (1978) reh.

den., 439 U.S. 883, 99 S.Ct. 226, 58 L.Ed.2d 198

Ss. oe ea lee Cha eae ake boa ae eee 10, 11

Pennell v. City of San Jose, 485 U.S. 1, 108 S.Ct. 849,

nn 2 COS. iv cs drove ead abn bea’ 13, 19, 35

Peppard v. City of Carpinteria, 226 Cal.App.3d 812,

278 Cal.Rptr. 100 (1991), h’g den., and opinion

ordered depublished 1991 Cal. LEXIS 12938

ES arr ann rire ed gre ena are 7, 29

Pinewood Estates of Michigan v. Barnegat Township

Leveling Bd., 898 F.2d 347 (3rd Cir. 1990) ...8, 18, 19

Rooker v. Feldman, 263 U.S. 413, 44 S.Ct. 149, 68

at | errr rrr rT Terre ee 9,10

San Marcos Mobilehome Park Owners Ass'n. v. City of

San Marcos, 192 Cal.App.3d 1492, 238 Cal.Rptr.

NT As eke CRG SCRE AKER SRE ON CEC EA SS

Schnuck v. City of Santa Monica, __— F.2d —_.,

1991 9th Cir. Shp. Op. 6877, 1991 U.S. App.

LEXIS 11113 (9th Cir. No. 89-55283, June 4,

ES ea ae a UUM pms emery Home Cn 25, 26

Sinaloa Lake Owner’s Ass'n. v. City of Simi Valley,

882 F.2d 1398 (9th Cir. 1989), cert. denied, __—

U.S. , 110 S.Ct. 1317, 108 L.Ed.2d 493 (1990) 18

os

Thompson v. Merlino Enterprises, 208 Conn. 656, 545

A.2d 1094 (1988), app. dism., 488 U.S. 1024, 109

S.Ct. 829, 102 L.Ed.2d 962 (1989) ............ 16, 19

Vil

TABLE OF AUTHORITIES

CASES

Page

United States v. Sperry Corp., 493 U.S. 52, 110 S.Ct.

387, 107 L.Ed.2d 290 (1989) ............. .. 17, 18, 19

Williamson County Regional Planning Comm'n. v.

Hamilton Bank, 473 U.S. 172, 105 S.Ct. 3108, 87

mee: 8 | ee errr err Tey oe 18

Yee v. City of Escondido, 224 Cal.App.3d 1349, 274

Cal.Rptr. 551 (1990), h’g. den., 1991 Cal. LEXIS

ee 66 iN o x cre iva A eeeeee eens t, 21, Sm wo. 2

Constitutional Provisions, Statutes and Rules

California Constitution, Article I, Section 19 ...... 3

California Mobilehome Residency Law, Civil Code,

ey Fee OE I Sa cake aesbawena nae 3, 15, 24

Connecticut General Statute, Section 21-79 ....... 15

Fea. Gees Reet a) Me OB). 44c in os Pin sd ens i)

ee ns I SE So aad nee kh orce ee ee 2

42 U.S.C. Seetions 1963 and 1965 ................ i)

United States Constitution, Fifth and Fourteenth

PC Eee ee et iin py 9

Texts and Miscellaneous Materials

“County Wide Mobilehome Task Force’ Final

Report,” (San Diego County, March 27, 1990)... = 4

Manheim, “Tenant Eviction and the Taking Clause”

me ree 15, 18

Note, “The Constitutionality of Rent Control

Restrictions on Property Owner's Dominion

Interests” 100 Harv. L. Rev. 1067 (1987) ....... 17

SS gare ene

J £ “ ¥ « = 7 > - ane —

Ot Dg ey OT” ee a ee ee ee. oe rear . bar 2 Orting a

No. 90-1824

In the Supreme Court

OF THE

United States

October Term, 1990

PALOMAR MOBILEHOME PARK ASSOCIATION,

A LIMITED PARTNERSHIP,

Petitioner,

VS.

THE CITY OF SAN MARCOS,

Respondent.

On Petition for a Writ of Certiorari

To The Fourth Appellate District,

Division One, Court of Appeal

For The State of California

RESPONDENT'S BRIEF IN OPPOSITION

Respondent City of San Mareos (“City”) respectfully

requests that this Court deny Palomar Mobilehome Park

Association’s (““Palomar’’) Petition for Writ of Certiorari

(‘‘Petition”) seeking review of the California Court of

Appeal opinion in this ease. In the alternative, because

the state court was so clearly correct in ruling that the

San Marcos Rent Review Ordinance does not effect a

federal taking nor violate federal substantive due process,

the City respectfully suggests that the Supreme Court

grant certiorari to clarify the taking issue and summarily

affirm the judgment below; thereby resolving a matter of

significant legal interest.

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OPINIONS BELOW

On December 7, 1989, the California state trial court

(San Diego Superior Court, Case No. N45074) issued its

Order granting the City’s Demurrer and Dismissing Palo-

mar’s Action. A copy of that Order appears in Appendix C

to Palomar’s Petition at C25-C27.

On February 6, 1991, the California Court of Appeal

(Fourth Appellate District, Division One, Case

No. D011484) issued its opinion affirming the Judgment

of Dismissal. The opinion was not certified for publica-

tion, but appears in Appendix A to Palomar’s Petition at

Al-A23.

On April 17, 1991, the California Supreme Court (Case

No. S019940) issued its one page ruling denying Palo-

mar’s Petition for Review and denying a request for an

order directing that the Court of Appeal decision be

published. The California Supreme Court ruling appears

in Appendix B to Palomar’s Petition at B24.

JURISDICTION

The Opinion of the California Court of Appeal, Fourth

Appellate District, Division One, was entered February 6,

1991. On April 17, 1991 the California Supreme Court

denied Palomar’s Petition for Review. Palomar’s Petition

for Certiorari was docketed with the United States Su-

preme Court on or about May 28, 1991. The jurisdiction of

the United States Supreme Court was invoked under

28 U.S.C. Seetion 1257.’

‘Although Palomar purported to invoke the Supreme Court's juris-

diction under 28 U.S.C. Section 1257 (federal question jurisdiction)

(Petition at 4) at other places in its Petition Palomar seems to be

trying to cast doubt on whether the federal questions had really been

properly presented to the state courts. See, e.g., Petition at 26-39. As

explained infra, page 9 at note 10, it is likely that Palomar is making

this latter argument to avoid the res judicata/collateral estoppel

- effect of the state court's decision on its federal claims.

CONSTITUTIONAL PROVISIONS AND STATUTES

INVOLVED

The Fifth Amendment to the United States Constitu-

tion provides in pertinent part:

No person shall...be deprived of... property,

without due process of law; nor shall private property

be taken for public use, without just compensation.

The California Constitution, Article I, See. 19, provides

in pertinent part:

Private property may be taken or damaged for

publie use only when just compensation, ... has first

been paid to, or into court for, the owner.

The California Mobilehome Resideney Law (Cal. Civ.

Code, Section 798 et seq.) governs many aspects of the

relationship between a mobilehome park owner and a

mobilehome owner residing on a rented space in a

mobilehome park. Civil Code Section 798.55(a) contains

legislative justification for the unique protections pro-

vided mobilehome owners. Protections include restric-

tions on terminating a space tenancy (e.g., Civil Code,

Sections, 798.55(b), 798.56) and restrictions preventing a

park owner, from interfering with or preventing a home-

owner from selling his home to a new purchaser as long as

the prospective homeowner has the financial ability to pay

the space rent and does not have a prior history indicat-

ing that he or she will not comply with the rules and

regulations of the park. (E.g., Civil Code,

Section 798.74).

{California Civil Code, Sections 798.55, 798.56,

798.56(a), and 798.74 are set forth in Appendix D to

Palomar’s Petition at D28-D47. |

The San Mareos Municipal Code (“SMC”), Chap-

ter 16.16. of Title 16 provides for review of space rental

inereases for mobilehome parks located within its juris-

diction. SMC, Section 16.16.010 sets forth the legislative

4

findings which justified enactment of the Ordinance.

SMC, Section 16.16.055 provides that prior to increasing

space rent, a park owner must notify both the City and

homeowners. Rent review is initiated by the homeowners

filing a petition signed by at least one homeowner from

each of the more than 50% of the spaces in the park, SMC,

Section 16.16.060(a). The filing of an adequate petition

automatically stays the rent increase until the

Mobilehome Rent Review Commission makes its decision,

SMC, Section 16.16.060(d). At the rent review hearing,

the park owner has the burden of proving by a preponder-

ance of the evidence that the increase is reasonable and

necessary to enable the park owner to receive a just and

fair return on the owner’s investment. SMC, Sece-

tion 16.16.070(g). Pursuant to SMC, Section 16.16.0880,

all space rents are to be adjusted at the same time and

not more than once a year.

{Pertinent portions of SMC sections 16.16.010,

16.16.055, 16.16.060, 16.16.070 and 16.16.080 are set forth

in the Appendix to this Opposition at Al-A3.]

STATEMENT OF THE CASE

A. Background

The City of San Marcos is located in Northern San Di-

ego County in the State of California. It has a substantial

number of mobilehome parks and mobilehome owners

located within its boundaries.”

In April 1978, the City Council of the City of

San Mareos enacted Ordinance 78-462 establishing a

“The October 19, 1990 report by the California Department of

Housing and Community Development listed 14 mobilehome parks

and 2,723 mobilehome spaces in San Marcos. The March 27, 1990

County of San Diego “County Wide Mobilehome Task Force Final

Report” found that 80% of the mobilehome spaces in the County were

oceupied by “senior households” who are “generally small elderly

families with fixed incomes.” 7d. at 5.

Bites

Mobilehome Rent Review Commission to review proposed

mobilehome space rent increases.” Although over the

years there have been several amendments,’ the Rent

Review Ordinance (‘‘Ordinance’’) has continued in force

to the present date.

In November 1986, San Marcos annexed the Palomar

Mobilehome Parks into the City of San Marcos.” As a

result they became subject to the provisions of the

Ordinance.

Until early 1989, the Ordinance and particularly SMC

section 16.16.080 (see Appendix to this Opposition at A3)

had been interpreted as not prohibiting a park owner from

increasing the space rent when a mobilehome was trans-

ferred to a new homeowner. However, in February 1989,

the City formally clarified its interpretation of that provi-

sion to strictly apply the park-wide one time per year

adjustment restriction, thus, mandating continuation of

existing space rent to a new resident subject, of course, to

the park owner’s ability to seek an annual increase pursu-

ant to the provisions of the Ordinance.°

*The Ordinance found that the shortage of mobilehome spaces, the

low vacancy rates in mobilehome parks, and the cost and difficulty of

relocating mobilehomes had created a great imbalance in the bargain-

ing position of park owners and homeowners in favor of the park

owners. See, SMC Section 16.16.010, Appendix to this Opposition

at A-l.

‘The application of an earlier version of this Ordinance was

reviewed and upheld by the state Court of Appeal in San Marcos

Mobilehome Park Owners Ass'n. v. City of San Marcos, 192 Cal.App.3d

1492, 238 Cal.Rptr. 290 (1987).

*Petitioner Palomar owns and operates two adjacent mobilehome

parks, Palomar Estates East, a 371 space park, and Palomar Estates

West, a 472 space park.

*In September 1990, after Palomar’s suit had been dismissed at the

state trial court level, the City enacted Ordinance 90-862 which added

SMC section 16.16.085(c) providing that on a sale, a park owner may

increase space rents based on the lower of the percentage change in

B. Procedural History

1. The State Superior Court Ruling.

On September 14, 1989, Palomar filed a Complaint in

the San Diego Superior Court seeking injunctive and

declaratory relief alleging that the Ordinance was uncon-

stitutional because it did not permit a park owner to

automatically increase rents when a mobilehome was sold

or transferred. In addition, the Complaint sought

$45,000,000 in money damages for the alleged taking of

the park owner’s property. Relying on Hall v. City of

Santa Barbara, 833 F.2d 1270 (9th Cir. 1986), cert denied,

485 U.S. 940, 108 S.Ct. 1120, 99 L.Ed.2d 281 (1988),

Palomar alleged that the Ordinance constituted a “tak-

ing’ under state and federal law because allegedly it

permitted residents to obtain a higher price (premium)

on the sale of their mobilehome in a rent controlled park

as compared with the price similar homes sold in a non-

rent controlled park. Palomar further contended that the

Ordinance was “irrational” because it allegedly allowed

the residents to sell their mobilehomes for a “premium”

thereby increasing the sales prices to the detriment of low

cost and affordable housing.

City responded by demurring both generally and spe-

cially and moving to strike portions of the Complaint. On

December 7, 1989, the Honorable Robert J. O'Neill,

Judge of the San Diego Superior Court issued an Order

sustaining the City’s Demurrer to the Complaint, without

the CPI since the last rent increase or the median rent levels for

comparable spaces in the park, all subject to a maximum rental

increase of 10%. The Ordinance further provided that if the park

owner is dissatisfied with the increase, the owner may request that

the fair market rent for the space be established by arbitration. See,

Appendix to this Opposition at A4-A7.

in light of the enactment of Ordinance 90-862, it is arguabie that

Palomar’s claims for injunctive and declaratory relief are moot and

Palomar’s claims for alleged damages, if not also mooted, have been

severely limited.

~

leave to amend, finding that Hall was neither binding nor

persuasive to establish a “per se” taking’ and that Palo-

mar did not and could not allege deprivation of all use of

its property to establish a regulatory taking. On its own

motion, the Court dismissed the entire action with

prejudice.” See, Order, Appendix C to Palomar’s Petition

at C25-C27.

2. The State Court of Appeal Ruling.

On January 8, 1990, Palomar timely filed its Notice of

Appeal with the State Court of Appeal. Following brief-

ing, oral argument was waived and the matter was taken

under submission.

On February 6, 1991, in an unpublished decision (Palo-

mar Mobilehome Park Ass’n. v. City of San Marcos, 4th

Dist. Div. One, No. DO11484 (see, Palomar Slip. Op.,

Appendix A to Palomar’s Petition at Al-A23); the Court

of Appeal noting that the same “taking” arguments had

recently been rejected in Yee v. City of Escondido, 224

Cal.App.3d 1349, 274 Cal.Rptr. 551 (1990) [pet. for re-

view denied, 1991 Cal. LEXIS 353, January 24, 1991],

and Peppard v. City of Carpinteria, [temporarily reported

at 226 Cal.App.3d 812, 278 Cal.Rptr. 100 (1991) ]* (Palo-

mar Slip. Op., Palomar’s Petition at A-8) once again

reaffirmed the conclusions it had reached in Oceanside

Mobilehome Park Ass'n. v. City of Oceanside, 157

Cal.App.3d 887, 906-907, 204 Cal.Rptr. 239 (1984), that

an increase in the value of mobilehomes where rent

‘Palomar had not alleged that it had requested a rent increase and

had been denied a just and reasonable return on its investment.

“The Court also ruled that under the circumstances, the City’s

special demurrers and motion to strike were moot.

“On March 21, 1991, the California Supreme Court denied a

Petition for Review in Peppard and ordered the Court of Appeal

opinion depublished. See, Peppard v. City of Carpinterra, 1991 Cal.

LEXIS 1293 (1991).

control has been imposed does not constitute a “taking”

of property from the park owner. Palomar Slip. Op.,

Palomar’s Petition at Al0-A11.

The Court pointed out that “[a]bsent a contention it is

precluded from charging sufficient rent to obtain a rea-

sonable return from its investment, Palomar’s claim that

the vacancy control allows the tenant to extract a ‘pre-

mium’ from the sale of his mobilehome is irrelevant to the

taking issue presented here.” Jd. at Al0-A11.

The Court then examined Hall, supra, and Pinewood

Estates v. Barnegat Township Leveling Bd. 898 F.2d 347

(3rd Cir. 1990), found them unpersuasive and their reli-

ance on Loretto v. Teleprompter Manhatten CATV Corp.,

458 U.S. 419, 102 S.Ct. 3164, 73 L.Ed.2d 868 (1982),

misplaced and superseded by a subsequent United States

Supreme Court decision, FCC v. Florida Power Corp., 480

U.S. 245, 107 S.Ct. 1107, 94 L.Ed.2d 282 (1987). Palomar

Shp. Op., Palomar’s Petition at Al1-A20.

The Court also examined Palomar’s substantive due

process claims and concluded:

Palomar’s allegations do not dispute that the va-

caney control protects the purchasing tenant from

excessive rent, which is a legitimate state interest,

and which interest is not defeated by the alleged fact

of an inerease in the cost of the coach. Since there is

no contention the vacancy control does not reasona-

bly relate to the legitimate interest of preventing

excessive rents, any challenge to the wisdom of the

measure based on the cost of the coaches is a policy

question for the Legislature, not the courts.

Id. at A-22.

9

3. The California Supreme Court's Denial of

Review.

On March 11, 1991, Palomar filed a Petition for Review

with the California Supreme Court. On April 17, 1991. the

California Supreme Court denied Palomar’s request for

Review.'” See Ruling, Appendix B to Palomar’s Petition

at B24.

WHY THIS WRIT SHOULD BE DENIED

OR IF GRANTED WHY THE JUDGMENT

BELOW SHOULD BE AFFIRMED

i. THE COURT BELOW FULLY CONSIDERED

AND CORRECTLY DECIDED PALOMAR’S TAK-

ING CLAIM

Palomar apparently bases its argument for granting

this Writ of Certiorari on United States Supreme Court

On February 2, 1991, Palomar filed a Complaint in the United

States District Court for the Southern District of California. Palomar

Mobilehome Park Ass’n. v. City of San Marcos, S.D. Cal., No. 91-0157

B (IEG). In its federal suit, Palomar raised essentially the same

claims it had raised in the state suit contending that the City’s

Ordinance was both a public and private “taking” and violative of

substantive due process under the Fifth and Fourteenth Amend-

ments and 42 U.S.C. Section 1983 and Section 1985. The City

responded with a motion to dismiss under F.R.C.P. Rules 12(b) (1)

and (6) for lack of jurisdiction and for failure to state a claim

primarily arguing that the federal suit was barred by res judi-

cata/collateral estoppel based on the state court rulings on the same

claims.

On June 6, 1991, the Honorable Rudi Brewster, United States

District Judge, issued a Judgment of Dismissal. Judge Brewster

found that Palomar’s federal constitutional issues had been fully

litigated and that the state court ruling was a valid final judgment on

the merits. After noting that federal district courts are courts of

original not appellate jurisdiction, the Court concluded that the

proper forum for review of the state court judgment was the United

States Supreme Court not the United States District Court, citing

Rooker v. Feldman 263 U.S. 413, 415-416, 44 S.Ct. 149, 68 L.Ed.2d 362

10

Rule 10(b) contending that the Palomar state court

decision conflicts with two federal appellate court deci-

siens, Hall, supra, and Pinewood, supra. In fact, the Court

below fully considered both decisions and found them

distinguishable and against the weight of authority as set

forth in subsequent federal and state court rulings.

A. The Hall Rationale Has Been Undermined By Sub-

sequent Cases.

1. The Hall Ninth Circuit Panel Decision.

In August 1984, the City of Santa Barbara enacted a

mobilehome rent control ordinance. One of the key provi-

sions required “mobile park operators to offer their ten-

ants leases of unlimited duration.” 833 F.2d at 1273. The

Halls filed suit in federal district court claiming that by

giving the tenants such a “perpetual lease” at a below

market rental rate, the ordinance transferred to the ten-

ants a possessory interest in the Halls’ land. They alleged

the prices of the mobilehomes increased after enactment

of the ordinance and that this inerease reflected a “‘tak-

ing’ from the park owner. 833 F.2d at 1274. After review-

ing those allegations, the District Court granted the

City s Motion to Dismiss. Jbid.

On appeal, a Ninth Circuit panel reversed. After dis-

cussing both “regulatory taking cases” (e.g., Penn Central

Transportation Co. v. New York City, 438 U.S. 104, 98 S.Ct.

(1923) and District Court of Columbia Court of Appeals v. Feldman,

460 U.S. 462, 484-485, 103 S.Ct. 1303, 75 L.Ed.2d 206 (1983).

Much of Palomar’s effort on this Petition (e.g., “Questions

Presented,” Nos. 3 and 4 (Petition ii); “Argument”, “The federal

claim did not even exist at the time the state court purported to

dispose of it” (Petition 26-39); and “Conclusion”, “to remand to the

owner court with instructions to limit its decision to state constitu-

tional issues,” (Petition 44)) is apparently designed to circumvent

such a federal district court res judicata ruling. Before receiving

what it now considers an adverse ruling from the state courts,

Palomar made no attempt to reserve its federal claims from state

court adjudication.

1]

2646, 57 L.Ed.2d 631 (1978), reh. den., 439 U.S. 883, 99

S.Ct. 226, 58 L.Ed.2d 198 (1978), and “physical oecupa-

tion eases” (e.g., Loretto v. Teleprompter Manhattan CATV

Corp., supra, the panel concluded “when viewed in the

light most favorable to the Halls” the allegations seemed

to present a claim for taking by physical occupation. 833

F.2d at 1276. Pointing out that the ordinance directed the

landlord to give the tenant an indefinite lease, the panel

eoncluded “[t]he right to occupy property in perpetuity

is surely the type of property that is protected by the

taking clause.” Ibid.

After pointing out that the Santa Barbara Ordinance

had apparently been enacted solely to alleviate ‘a critical

shortage of low and moderate housing,” the panel also

indicated that it had significant doubts that the Ordi-

nanan was rationally related to that end. 833 F.2d at 1280-

81.

[It is unfortunate that at the time the Hall panel made

iis decision it was apparently unaware of the discussion

of similar claims in Oceanside, supra, 157 Cal.App.3d at

906-907. There, the Court in upholding the Oceanside

Mobilehome Rent Review Ordinance specifically dis- ~

missed an argument that the combined effect of

Mobilehome Residency Law and the local ordinance con-

stituted a taking merely because “a selling tenant with a

favorable rent controlled lease may be able to sell the

onsite mobilehome for a higher price than can be obtained

for the identical mobilehome situated in an unregulated

park.” Jbid. Had the Ninth Cireuit been aware that

Oceanside had previously considered and decided the

same claim, it may have ruled quite differently.]’*

"The panel also indicated their feelings toward rent control in

genera! by questioning its overall rationality. See, 833 F.2d at

1281n.26.

“For example, the Hall panel described the Halls’ claim as being

“novel.” 833 F.2d at 1273. Later after examining several rent control

—"

to

2. The Dissent From Denial Of Rehearing.

The Hall panel denied a petition for rehearing. 833

F.2d at 1281. A suggestion for rehearing en bane was also

rejected, with three Circuit Judges dissenting. Jbid. The

three dissenters correctly treated the rent contro! ordi-

nance as an economic regulation and pointed out that the

ordinance was similar to three rent control cases that the

Supreme Court had dismissed as lacking a substantial

federal question’® and concluded “The panel decision is

thus contrary to controlling authority.” 833 F.2d at 1282

femphasis added].

The three dissenters pointed out that the panel's ra-

tionality argument was flawed and that, because a Court

does not have the power to sit as a “superlegislature,”’

legislation passes constitutional muster if the legislature

could have coneluded that its action would promote a

legitimate state interest. 833 F.2d at 1204."

The City of Santa Barbara’s Petition for a Writ of

Certiorari was denied. See, 485 U.S. 940, 108 S.Ct. 1120,

99 L.Ed.2d 281 (1988).

cases, the panel stated: “In none of the cited cases has the landlord

claimed that the tenant's right to possess the property at reduced

rental rates was transferrable to others, that it had a market value,

that it was in fact traded on the open market and that tenants were

reaping a monetary windfall by selling this right to others.” 833 F.2d

at 1278.

"See, Fisher v. City of Berkeley. 471 U.S. 1124, 105 S.Ct. 2653, &6

L.Ed.2d 270 (1985); Nash v. City of Santa Monica, 470 U.S. 1046, 105

S.Ct. 1740, 84 L.Ed.2d 807 (1985); Fresh Pond Shopping Center v.

Callahan, 464 U.S. 875, 104 S.Ct. 218, 78 L.Ed.2d 215 (1983).

"The Dissenters also correctly predicted that the Hall panel

decision “...is an authorization for broad, wholescale attacks upon

rent control regulation. It casts a shadow upon all economic regula-

tion. Our court must now sit idly by and watch taxpaver’s money and

court time being expended in litigation over the effects of this

decision.” 833 F.2d at 1284.

13

3. FCC Undermined The Hall Rationale By Find-

ing No Taking Where A Property Owner Had

Voluntarily Entered Into A Lease Subject To

Rent Regulation.

Subsequent to the Hall panel’s decision, the Supreme

Court decided FCC v. Florida Power Corp., 480 U.S. 245,

107 S.Ct. 1107, 94 L.Ed.2d 282 (1987). There, this Court

dismissed a utility’s argument that a federal statute

which authorized the FCC to determine the rates which it

could charge a cable TV system for the use of its poles

constituted a “taking.” The Court pointed out that the

statute did not require the utility to rent its poles but

merely regulated the rents charged once it had decided to

rent. 480 U.S. at 251. The Court noted that unlike Loretto,

supra, the publie utility landlords had voluntarily entered

into the leases with cable company tenants stating:

[I]t is the invitation, not the rent which makes the

difference. The line which separates these cases from

Loretto is the unambiguous distinction between a

commercial lessee and an interloper with a govern-

ment lease.

Id. at 252-253.

The Court after also reiterating that, ‘statutes regulat-

ing the economic relations of landlord and tenants are not

per se takings,” dismissed the contention that the rent

regulation was a taking. Jbid.

4. Pennell Rejected Hall’s Rationale And Upheld

The Rationality Of A Rent Control Ordinance

Which Considered Tenant Hardship.

In Pennell v. City of San Jose, 485 U.S. 1, 108 S.Ct. 849,

99 L.Ed.2d 1 (1988), this Court in upholding San Jose’s

rent control ordinance, not only refused to declare rent

l4

control a “per se” taking’ (see (see, 485 U.S. at 12n.6),

but also rejected the landlord's due process argument

that the only legitimate purpose of the statute was to

prevent rent increases caused by housing shortages and

that the objective of alleviating individual tenant hard-

ship was not a policy that the legislature was free to adopt

in a rent control ordinance. 485 U.S. at 12.

The Court pointed out that “a legitimate and rational

goal of rate regulation is the protection of consumer

welfare’, and the consideration of tenant hardship as a

factor to be considered in determining rent increases

“represents a rational attempt to accommodate the con-

flicting interests of adjudicating tenants from burden-

some rent increases while at the same time ensuring that

landlords are guaranteed a fair return on their invest-

ment.” 485 U.S. at 13.

5. Eamiello And Thompson Rejected The Hall

Rationale And Upheld The Rationality Of A

Statute Designed To Protect The Economic

Interest Of Mobilehome Owners In Selling

Their Homes On Site.

Eamiello v. Liberty Mobile Home Sales, 208 Conn. 620,

546 A.2d 805 (1988), app. dism., 489 U.S. 1002, 109 S.Ct.

1104, 1038 L.Ed.2d 169 (1989), also examined the Hal/

rationale and rejected its reasoning. There, the park

owner, relying upon Hall, argued that a state statute

which permitted a homeowner to sell his mobilehome on

site was unconstitutional and constituted a “taking.” 546

A.2d 815. The Connecticut Court after reviewing Hall

declined to apply its rationale. 546 A.2d 816. It coneluded

that the statutory restrictions on the mght of the park

owner to control the term of the lease and the identity of

The Amici Briefs (available on LEXIS) urging such action relied

in great part on the Hal/ panel dicta (see, e.g., 833 F.2d at 1281n.26)

that rent control should be considered a “per se” taking.

15

the lessee was not sufficiently analogous to a physical

occupation of the property to violate the federal “takings”

clause. Second, it determined that there were significant

differences between the Connecticut mobilehome statute’®

and the Santa Barbara Ordinance. /bia. The Court after

reviewing Loretto, FCC, and Fresh Pond, distinguished

Loretto, pointing out that a mobilehome owner's right to

oecupy a mobilehome space was originally obtained ‘“con-

sensually” indicating that in entering into such a lease

the park owner has transferred his “‘possessory interest”

in the land to the homeowner in return for rents.’’ Jd. at

818.

After noting that often, due to restrictive zoning, park

owners have a “monopoly” (Jd. at 819), the Court contin-

ued and pointed out mobilehome owners had a substantial

investment in their homes’ and allowing an on-site sale

“serves a substantial public purpose in protecting the

‘While Connecticut General Statute Section 21-79 is not a rent

control statute, it does provide a form of “vacancy control.” It

concludes with the following words: “No owner shall exact a commis-

sion or fee with respect to the price realized by the seller, unless he

has acted as agent for the seller on a sale pursuant to a written

contract, or charge a rent for the mobile manufactured home space or

lot upon which the purchased mobile manufactured home is located

greater than the prevailing rate for any other space or lot located in the

park.” [emphasis added]

The first clause is similar to Cal. Civil Code Section 798.72 (Park

owner cannot charge a fee to either a homeowner or prospective

homeowner on change of ownership unless he performed a service).

The second clause is similar to the San Marcos Ordinance in that it

puts limits on the right of park owners to raise rents upon vacancy.

The Court concluded that the restrictions put on the park owner's

right to reject a transferee were quite similar to the common provi-

sion that a landlord may not unreasonably withhold his consent to the

assignment of a lease by a tenant. See, 546 A.2d at 818.

“Manheim, “Tenant Eviction and the Taking Clause,” 1989

Wisc.L. Rev. 925, 956n.179, notes that modern mobilehomes often cost

between $30,000 and $75,000.

|

economic interests of mobilehome tenants in selling their

homes on site.” Jd. at 819. After noting that there, the

homeowner's home had been purchased for $12,500, and

was worth $17,000 if sold on site but only $3,500 if it had

to be moved, the Court concluded that the statute “pro-

tects tenants at mobilehome parks from being forced to

sell to park owners at a substantial loss and as a conse-

quence benefits many low income people who cannot

otherwise afford to purchase a more expensive home.”

Ibid.

The Court recognized that the state statute which

restricted rent increases on transfer might result in the

homeowner receiving a greater price for his home because

of the statutory right of the purchaser to continue occu-

pancy of the site, but, nevertheless, upheld the statute

concluding that because the state had created the site

value through regulatory searcity (e.g., zoning) it could

constitutionally repose any sales premium in the home-

owner rather than the park owner. 7d. at 820.

The Court concluded:

In choosing the tenant rather than the mobile

home park operator as the recipient of this economic

advantage arising form the near-monopoly status of

the industry, the legislature, by allocating its benefit

to those who generally are more in need, has not

violated any constitutional principle. In our view,

Section 21-79 strikes a reasonably fair balance be-

tween the economic interests of mobile home tenants

and those of mobile home park operators.

Ibid.

In Thompson v. Merlino Enterprises, 208 Conn. 656, 545

A.2d 1094 (1988), app. dism., 488 U.S. 1024, 109 S.Ct.

829, 102 L.Ed.2d 962 (1989), the Connecticut Court

relying on Eamiello, supra, upheld the right of an admin-

istrator of an estate to sell a mobilehome on site recogniz-

17

ing that the home had a value of $11,000 if sold on site

and almost no value if sold off site. See, 545 A.2d at 1097.

6. Sperry Indicates That A Mere Loss Of Money Is

Not A Physical Taking.

More recently, in United States v. Sperry Corp., 493 U.S.

52,110 S.Ct. 387, 107 L.Ed.2d 290 (1989), this Court held

that a statute which required American claimants to pay

the United States a percentage of the monetary rewards

made by the Iran-United States Claims Tribunal was

neither a “taking” nor a violation of the due process

clause. In so doing, this Court, reversed the Court of

Appeals which held that the payment was a “permanent

physical occupation” of property and therefore a “per se

taking” under Loretto, supra, stating:

It is artificial to view deductions of a percentage of

a monetary award as physical appropriations of prop-

erty. Unlike real or personal property, money is

fungible. No special constitutional importance at-

taches to the fact that the Government deducted its

charge directly from the award rather than requiring

Sperry to pay it separately. If the deduction in this

case was a physical occupation requiring just com-

pensation, so would be any fee for services, including

a filing fee that must be paid in advance. Such a rule

would be an extravagant extension of Loretto.

110 S.Ct. at 395n.9.

Here, as in Sperry, and unlike Loretto, there is no new

physical property that is being occupied due to the ordi-

nance. As in Sperry, the only difference is that without

the ordinance, the park owner might have been able to

obtain more money or profit.”

See, Note, “The Constitutionality of Rent Control Restrictions on

Property Owner's Dominion Interests”, 100 Harv. L. Rev. 1067,

1084n.106 (1987) (Note concludes there was no indication that the

ordinance in Hall frustrated any interest of the plaintiffs other than

18

Because Sperry holds that mere economic loss is not

sufficient to constitute a “physical taking’, one of the last

underpinnings of the Hall panel's rationale has been

undermined.

7. The Third Circuit’s Decision In Pinewood Is

Also Flawed Because It Failed To Consider

Binding And Relevant Authorities.

In Pinewood Estates of Michigan v. Barnegat Township

Leveling Board, supra, the park owner sued in federal

court” alleging that the rent leveling ordinance of the

Township of Barnegat, New Jersey took their property by

prohibiting them from increasing rents to a new

mobilehome owner who bought the mobilehome, in place,

from an existing resident. The District Court granted a

Motion to Dismiss holding that the ordinance was a

constitutional regulatory ordinance. 898 F.2d at 350.

On appeal, a Third Circuit panel reversed, holding that

to the extent that the ordinance granted the homeowners

a transferable possessory interest in the park owners

the desire for greater profits). See also, Manheim, supra, 1989 Wisc

L. Rev. at 964-969 (Questioning the Hall panel's conclusion that a

right to raise rents on transfer is a discrete property interest).

“It is unclear whether or not the federal court had proper jurisdic-

tion over the case. The Complaint apparently alleged a “taking”,

therefore, it should have been brought in state court, assuming that

New Jersey has adequate procedures for such inverse condemnation

cases. See generally, Williamson County Regional Planning Comm'n.

v. Hamilton Bank, 473 U.S. 172, 196-197, 105 S.Ct. 3108, 87 L.Ed.2d

126 (1985).

See also, Sinaloa Lake Owner’s Ass'n. v. City of Simi Valley, 882

F.2d 1898, 1402 (9th Cir. 1989), cert. denied, US. , 110

S.Ct. 1317, 108 L.Ed.2d 493 (1990), explaining that it was proper for

Hall to be brought in the federal courts because it was originally filed

at a time, prior to First English [First English Evangelical Lutheran

Church v. County of Los Angeles, 482 U.S. 304, 107 S.Ct. 2378, 96 ~

L.Ed.2d 250 (1987)], when California state courts would not award

damages for ordinances which constituted a taking.

19

land, it constituted a “physical taking” under Loretto,

supra. Id. at 353-354."' After opining that “vacancy decon-

trol” might solve the problem by permitting the park

owner to raise rents to eliminate any “premium” (Jd. at

353), the Court dismissed the argument that the park

owners were being adequately compensated for their loss

because the ordinance provided them with a “constitu-

tionally adequate rent for the occupancy of the tenants as

such.” Ibid.

A careful analysis of Pinewood indicates that the Court

apparently never considered a number of relevant deci-

sions, e.g., FCC, Pennell, Eamiello, Thompson, Sperry, and

Oceanside, supra.

Therefore, the Pinewood Court apparently never consid-

ered that, unlike Loretto, a mobilehome owner's right to

occupy a mobilehome space is originally obtained “‘con-

sensually” (FCC, supra, 480 U.S. at 252); that a park

owner transfers his “possessory interest” in his land to

the mobilehome owner in return for rents (Eamiello,

supra, 546 A.2d at 818), and that since the state has

created the site value through regulatory scarcity (e.g.,

zoning) it could constitutionally repose any sales pre-

mium in the homeowner rather than the park owner.

Eamiello, Id. at 820.

They failed to consider that the only park owner's

“property interest” frustrated by the ordinance was his

desire for greater profits and that such an interest does

not qualify for a physical taking. See, »erry, supra, 110

S.Ct. at 395n.9.

The Pinewood panel’s comments about the desirability

of ‘“‘vacaney decontrol” clearly indicated that they were

unaware that ‘“‘mobilehome owners are enclosed within a

captive market” (Oceanside, supra, 157 Cal.App.3d at

*'The Court also noted that Hall, supra, had reached a similar

conclusion. 898 F.2d at 353-354.

20

910); that “park owners have a monopoly,” (Eamiello,

supra, 546 A.2d at 819) and that “taken collectively the

[mobile] homeowners have a greater investment than

does the [mobile] home park owner’, Oceanside, supra,

157 Cal.App.3d at 911n.9. The Court, therefore apparently

never considered the public interest in protecting the

mobilehome owner's investment. See, Eamiello, supra, 546

A.2d at 819; see also, Palomar Slip Op., Palomar’s Peti-

tion at Al9-A20n.6 (Vacaney control prevents a park

owner from charging excessively high rents and thereby

artificially deflating the price of the mobilehome).~

“By requiring that space rent not be arbitrarily increased upon the

sale of a home or occurrence of a space vacancy, the San Marcos

Ordinance adds certainty to the mobilehome market, prevents abu-

sive rents which result in a destruction of the equity that a home-

owner has in his or her home, stabilizes rents among spaces in a park,

and assures continuation of mobilehome living as a legitimate hous-

ing option.

The grim reality of what happens when arbitrary increases are

made on transfer is only recently becoming public. On remand from

the Ninth Circuit decision, the Halls were able to convince the trial

court that there was a rent control sales premium and received a

substantial damage award. Prior to appeal to the Ninth Circuit, the

case settled when the City of Santa Barbara agreed to lift all

restrictions on rent increases at the time of transfer. Almost immedi-

ately, Mrs. Hall informed certain park residents that she was going to

raise rent on any transfer by $250 to $300 per month. As a result,

homes which a few months before had been purchased for $80,000

became virtually unsalable.

For example, Mrs. Hall’s attorney, Mr. Jagiello, has publicly

stated: ‘*...in the Hall park over the last two years, not one coach

has sold, although many are for sale, but for the exception of a coach

that sold two weeks ago for one dollar. There were attempts to give

coaches away to charities and they wouldn't take them. There is no

market for coaches in Santa Barbara.” See, Administrative Record to

Palomar Estates East v. City of San Marcos, San Diego Superior Court

No. N48882, April 9, 1990 Hearing Transcript at 7.

It is clear that in the absence of vacancy control certain unserupu-

lous park owners will take much more than the so called “rent contro!

y S|

B. Every California Court Which Has Considered

The Issue Has Rejected The Hall Rationale.

1. Yee Fully Considered Hall And Dismissed Simi-

lar Claims.

In Yee v. City of Escendido, supra, the Court considered

an attack on the City of Eseondido’s Mobilehome Rent

Protection Ordinance alleging that the Ordinance consti-

tuted a taking and a denial of substantive due process

because it did not permit a park owner to automatically

raise rents when a mobilehome was sold or transferred.

In affirming the trial court’s order dismissing the

action, the Court began by indicating that it was “re-

visit{ing] an issue of federal constitutional law we first

considered several vears ago in Oceanside....” Yee, 224

Cal.App.3d at 1351. The Court then pointed out that:

‘“{p]laintiffs’ complaints never allege the Escondido

ordinance is irrational because it denies them fair

and reasonable rents. Indeed, the owners have never

attempted to obtain Escondido’s approval for what

they consider to be a “fair” rent. In the absence of

such a contention, we assume the rents provided for

by the ordinance are fair. If they are, there is no

‘“taking.”’ The fact that used mobilehomes in Escon-

dido are selling for more than they have in the past is

irrelevant.”

224 Cal.App.3d at 1354.

premium” they will take “all the market can bear,” that is all the

homeowner's equity. Thus, a homeowner who in good faith invested in

a home, recognizing the reality that the home could not be moved,

under the Hall theory is faced with the prospect of losing the value of

his or her investment or remaining a captive in the mobilehome park.

Unless homeowners and their lenders are assured that the value of

a home will remain relatively stable, the mobilehome market will

evaporate, investments will be lost, and a legitimate affordable

housing option will be lost.

———————

The Court then examined Hall and its legal underpin-

nings and concluded that Hall was “an interpretative

misstep” (224 Cal.App.3d at 1351n.1),~ had misapplied

Loretto, supra, and was inconsistent with subsequent deci-

sions of the United States Supreme Court including FCC,

supra. Yee, 224 Cal.App.3d at 1354-1358.

The California Supreme Court denied hearing in Yee on

January 24, 1991. See, 1991 Cal. LEXIS 353 (1991). The

time for Yee to file its Petition for a Writ of Certiorari has

been extended (per. J. O'Connor) to June 23, 1991.

2. Casella Rejected Virtually Identical Claims.

In Casella v. City of Morgan Hill, Cal.App.3d —___.,

280 Cal.Rptr. 876, 1991 Cal.App. LEXIS 473 (Cal.App.,

6th Dist. No. H006972, Mav 10, 1991, certified for publi-

cation), the Court rejected a challenge to the City of

Morgan Hill's mobilehome rent control ordinance claim-

ing that its lack of a “vaeaney decontrol” provision which

ailows rents to be increased when a mobilehome is trans-

ferred was a “taking.”’ After carefully analyzing the Hall

decision (Casella, Slip. Op. at 8-13), the Court concluded:

We find Hall distinguishable in a way we think the

Supreme Court would find material. (833 F.2d at

p. 278) Like the California appellate district which

has considered the issue before us (see Yee v. City of

Escondido (1990) 224 Cal.App.3d 1349), we repudi-

ate Hall’s attempt to bootstrap a mobile home rent

eontrol ordinance — an economic regulation — to

the Supreme Court’s “very narrow” holding in

Loretto.

Id. at 13.

“*Yee also concluded that Pinewood “suffers from a similar defect.”

224 Cal.App.3d at 1356n.6.

23

The Court continued its analysis stating:

As Yee and others have pointed out, the increase in

the sales prices of mobile homes resulting from rent

eontrol may simply reflect the artificially low price

caused by excessive rents charged prior to its enact-

ment. The mere fact that increased coach prices are a

corollary to rent control does not establish that a

taking has occurred....

Id. at 17.

Finally, the Court rejected Hall's analysis of substan-

tive due process by concluding:

The stated purpose of the city’s ordinance is to

control excessive rental prices for the largely fixed-

income residents of mobile home parks. This is un-

questionably a legitimate state interest. The City of

Morgan Hill could reasonably have concluded that

the mobile home rent control ordinance would pro-

mote this goal. Whether as a means to achieve its

stated purpose rent control is a good idea is a

political decision — one which properly rests with

the legislative branch of government. We agree with

Yee that this is ‘not a question of constitutional law

for the courts.”

(Casella, Slip Op. at 22-23).

C. In Any Event, The San Marcos Ordinance Is

Distinguishable From That Considered In Hall.

The Santa Barbara Ordinance discussed in Hall put

various restrictions on a park owner's right to terminate a

mobilehome owner's space lease and required mobilehome

park owners to offer leases of unlimited duration. See

Hall, supra, 833 F.2d at 1273.

There are no similar restrictions in the San Marcos

Ordinance. To the extent that the homeowner “tenants”

are given the right to occupy and use the park that nght

24

is granted not by the San Marcos Ordinance, but instead

by state law. See, Mobilehome Residency Law, Cal. Civil

Code, Sections 798.56, 798.74. This fact by itself is suffi-

cient to distinguish Hall.

The Court of Appeal recognized this distinction and

pointed out that on appeal Palomar was relying on the

“combined effect of the rent control ordinance and the

California Mobilehome Residency Law’”’.... “*[but] is not

challenging the constitutionality of the state law, assert-

ing that even absent the state law, the local rent control

ordinance would achieve a taking.” Palomar Ship. Op.,

Palomar’s Petition at A6-A7.

Later the Court explained:

As we noted earlier, Palomar is not challenging the

State law requirement that it accept the new purchas-

ing tenant chosen by the selling tenant — thus this

component of the regulatory scheme does not bring

this case into the “permanent physical oceupation”’

parameters of Loretto. As explained by Palomar, even

if the landlord had exclusive power to chose [sic] the

new tenant, under the local ordinance it still would

be subject to the rent increase restrictions. Thus, it is

not the physical occupation of the new tenant which

is being challenged, but rather the challenge is to the

limits on the rent increases and corresponding effect

on the price of the selling tenant’s coach. And,

contrary to the analysis used in Hall, this is not a

case wnich challenges the transfer of a possessory

interest from landlord to tenant, since even if the

landlord retained the right to choose the purchasing

tenant, Palomar would still be complaining about the

restriction on rent increases at vacancy and the

corresponding increase in the value of the

mobilehome sold by the departing tenant.

Id. at Al16-A18.

Under the circumstances, the Court of Appeal correctly

eoncluded that the Ordinance granted no “permanent

physical oceupation” within the meaning of Loretto (Palo-

mar Slip. Op., Petition at Al8-A19) and therefore Hall

was also distinguishable on its facts.

Il. THE COURT BELOW FULLY CONSIDERED

AND CORRECTLY DECIDED THAT THE ORDI-

NANCE ADVANCES A LEGITIMATE GOVERN-

MENTAL PURPOSE AND DOES NOT VIOLATE

SUBSTANTIVE DUE PROCESS

Palomar also contended that the Ordinance violates

substantive due process because its vacancy control provi-

sion does not advance a legitimate governmental

purpose.

The San Marcos rent control legislation expressly seeks

to remedy an inequitable market situation caused by the

scarcity of mobilehome spaces by protecting mobilehome

owners from unreasonable space rental increases there-

fore protecting the homeowner's investments, while also

providing park owners with a just and reasonable return

on the park owner’s investment. See, SMC, Section

16.16.010.

The Courts have found rent control legislation to be a

reasonable and legitimate means of addressing problems

related to scarcity in rental property and the high rents

resulting from inequities in bargaining power. See, e.g.,

Pennell, supra, 485 U.S. at 13-14 (Court upheld rent

control ordinance which required consideration of hard-

ship to low income tenants of rent increase); see also,

Schnuck vu. City of Santa Monica, F.2d —_., 1991 Sth

“Throughout its Petition Palomar often refers to the restrictions

on its right to raise rents on transfer as a “vacancy control”

provision. Although some courts have also used this terminology, it is

a misnomer because since mobilehomes are almost always sold “in

place’, there is rarely a space “vacancy.”

a

26

Cir. Shp. Op. 6877, 6885, 1991 U.S. App. LEXIS 11113

(9th Cir. No. 89-55283, June 4, 1991) (Court held City

had a legitimate interest in imposing eviction controls as

part of rent control ordinance to “protect tenants from

the high cost of dislocation in the tight housing market,

and prevent landlords from arbitrarily evicting tenants

simply to obtain higher rents from new tenants.’’).

In Oceanside, supra, the homeowner's equity interest

was interrelated with mobilehome rent control. There, the

Court noted that “the ordinance recognizes not only the

realities of a captive market, but also the proprietary

interests mobilehome owners have individually and cumu-

latively in their homes and appurtenances.” Jd. at 910-

911.°

In Azul Pacifico v. City of Los Angeles, 740 F.Supp. 772

(C.D. Cal. 1990), on appeal, 9th Cir. No. 90-55853, the

District Court reached a similar conclusion. Although the

Court considered itself bound by Hall to find a “taking”’

(/d. at 781), it nevertheless set forth its conclusion that a

legitimate state interest justified the City’s enactment of

the Rent Stabilization Ordinance (““RSO”’) including the

‘“vaeancy control” provisions. Jd. at 780. The Court noted:

Based on testimony from mobile home tenants, the

City found that, without vacancy control, it would be

virtually impossible for tenants to sell their homes on

the pad because landlords could raise the rents to a

level that prospective buyers could not afford.

Ibid.

Pointing out that “the Supreme Court has long held

that protection of consumer welfare is a legitimate and

rational goal of price control” (Jbid.), and that rent

“In an accompanying footnote, the Court noted that “the continu-

ing possibility of unreasonable space rental increases in manufac-

tured home parks threatens to diminish the value of the investment of

the manufactured home owners.” 157 Cal.App.3d at 911n.9.

control has long been held constitutional as “a legitimate

exercise of the state’s police power’ (Jd. at 781), the

Court determined that “the mobile home market is an

example of a monopoly, which is a market failure, rather

than a market, and is a prime candidate for governmental

regulation.” [bid.

The Court below properly ruled that the Ordinance

advances a legitimate purpose and is not a violation of

substantive due process.

28

CONCLUSION

To the extent that Palomar’s Petition seeks to raise

issues never presented below, i.e., whether the federal

claim did not exist at the time the state court ruled (see,

Palomar’s Petition at 26-39), it should be summarily

denied. See, e.g., Cardinale v. Louisiana, 394 U.S. 437,

438, 89 S.Ct. 1161, 22 L.Ed.2d 398 (1969) (Traditionally

the Court refuses to “decide federal constitutiona! issues

raised here for the first time on review of state court

decisions’ ).

Respondent City also respectfully submits that the

Court should deny Palomar’s Petition seeking review of

the taking and due process decisions of the state court

because it is clear that these decisions were properly

made.

However, Respondent recognizes that this case raises

an important issue of “taking jurisprudence”, i.e.,

whether a “taking” exists in the context of the regulation

of space rent to new residents in a mobilehome park.”

Therefore in the alternative, Respondent City respectfully

suggests that if this Court decides that the petition

presents an important issue justifying a grant of certio-

rari, review should be limited to consideration of the

taking issue. Further, Respondent respectfully suggests

that a grant of certiorari and a decision summarily af-

firming the state court decision would remove the

“Counsel for Respondent are aware that the issue of whether a

mobilehome rent review ordinance which prevents or restricts rent

inereases on the sale of a mobilehome in place in a park is a “taking”

is of major concern to many cities and other local governments,

mobilehome park owners and mobilehome residents throughout Calli-

fornia and perhaps the nation. For example, at its June 14, 1991

meeting the Legal Advocacy Committee of the League of California

Cities voted to support the request by the City of San Marcos for a

limited grant of certiorari to decide the taking issue, and further to

support the City by means of an Amicus Brief if certiorari is granted.

29

‘shadow’ cast by Hall on mobilehome living as a legiti-

mate affordable housing option and prevent further

wasteful litigation on this issue.”

Dated: June, 1991

Respectfully submitted,

DONALD R. LINCOLN

LINDA B. REICH

ENDEMAN, LINCOLN, TUREK

& HEATER

DONALD R. LINCOLN,

Counsel! of Reeord

DANIEL 8S. HENTSCHKE

BROWN, HARPER, BURNS &

HENTSCHKE

DANIEL 8S. HENTSCHKE

Attorneys for Respondent

City of San Marcos

“Palomar is but the first of a series of possible petitions based on

the same fact pattern. Several other cases in which Hall type

challenges have been raised to local mobilehome rent review ordi-

nances are currently at some stage of the state (e.g., Yee, Peppard,

Casella, supra) or federal (e.g., Azul, supra) appellate process and

may ultimately reach this Court.

A-1

APPENDIX

Pertinent portions of San Marcos Municipal Code, Chap-

ter 16.16:

Section 16.16.010. Findings.

Since the mid 1970's there has existed within the City

of San Marcos and surrounding communities, a shortage

of rental space for the location of mobilehomes. Due to

the continuing shortage of available mobilehoime rental

spaces, there continues to be very low vacancy rates

within mobilehome parks creating an inequitable market

situation between mobilehome park owners and the ten-

ants thereof. Prior to the enactment of regulations con-

trolling space rent increase, space rents had been rising

for several years and were being increased in amounts

and at frequencies that caused serious concern, anguish,

and stress among a substantial number of San Marcos

residents living in mobilehome parks. .

Finding alternative rental sites for the relocation of

mobilehomes have been and continue to be difficult due to

the shortage of vacant rental spaces, the restrictions on

the age, size, or style of mobilehomes permitted in many

mobilehome parks, and the requirements relating to the

installation of mobilehomes, including permits, landscap-

ing and site preparation. Additionally, the cost for mov-

ing a mobilehome is substantial and the risk of damage in

moving is significant. The result of these conditions has

been and continues to be the creation of the great imbal-

ance in the bargaining position of the mobilehome park

owners and mobilehome owners in favor of the

mobilehome park owners pertaining to the establishment

of space rents.

This Council finds and declares it necessary to facili-

tate and encourage fair bargaining between mobilehome

owners and mobilehome park owners in order to achieve

mutually satisfactory agreements regarding space rental

A-2

rates in mobilehome parks. Absent such agreements, this

Council further finds and declares it necessary to protect

the mobilehome owner and resident from unreasonable

space rental increases while at the same time recognizing

the need of mobilehome park owners to receive a just and

reasonable return on their investments.

Section 16.16.055. Notice of Rent Increase.

A mobilehome park owner shall give written notice to

the City of a proposed rent increase. The notice shall be

given at the same time that the notice of rent increase is

given to the tenants. The notice shall be filed with the City

Clerk and shall contain the following information: the

amount of the current space rents and the amount of

separately billed fees or charges, if any; the amount of the

proposed increase; the spaces to which the increase ap-

plies and the names of the tenants of those spaces; and

the date of the last rent increase for the park.

Section 16.16.060. Initiation of Proceedings.

(a) Filing of petition. Tenants of a mobilehome park

may initiate Commission review of a proposed space rent

increase by filing with the City Clerk a written petition

which complies with the requirements set forth in this

subsection. The petition shall:

(3) Be signed by at least one (1) tenant from each of

more than fifty percent (50%) of the mobilehome

spaces within the park which would be subject to

the space rent increase specified in the notice.

(d)-Stay of Space Rent Increase. Unless the City

Clerk rejects a petition... the filing of a petition pursu-

ant to subsection (a) shall automatically stay the space

rent increase subject to the petition until...

ae

A-3

(2) The Commission makes a final decision regarding

the space rent increase pursuant to Sec. 16.16.070.

Section 16.16.070. Commission Review.

(a) Upon receipt from the City Clerk of the petition,

the Commission shall schedule a hearing thereon to be

conducted no sooner than twenty (20) days and no later

than forty (40) days from the date of the Commission's

receipt of the petition at a place and time to be set by the

Commission. The purpose of the hearing shall be to

determine whether or not the rental increase is

reasonable.

(g) The mobilehome park owner shall bear the burden

of proving by a preponderance of the evidence that a -

proposed space rent increase is reasonable and is neces-

sary to enable the mobilehome park owner to receive a

just and reasonable return on his investment....

Section 16.16.080. Annual Adjustments.

(a) Exeept for rental adjustments exempt from this

Chapter... all space rents in a park shall be adjusted at

the same time. A mobilehome park owner shall not in-

crease or adjust space rents more than one time in any

twelve consecutive month period.

A-+4

ORDINANCE NO. 90-862

AN ORDINANCE OF THE CITY COUNCIL OF THE

CITY OF SAN MARCOS, CALIFORNIA AMENDING

TITLE 16, CHAPTER 16.16 OF THE SAN MARCOS

MUNICIPAL CODE BY THE ADDITION OF

SECTION 16.16.085(C) RELATING TO

PERMISSIBLE RENTAL ADJUSTMENTS UPON

THE OCCURRENCE OF A SPACE VACANCY

The City Council of the City of San Marcos, California

does ordain as follows:

SECTION 1. The Title 16, Chapter 16.16 of the

San Marcos Municipal Code is amended by the addition

of Section 16.16.085(¢c) to read as follows:

(ec) Establishment of space rent by a rental agreement

other than a long term lease which establishes a

tenancy exempt from the provisions of this chapter

for a new tenant following a vacancy resulting

from the sale of a mobilehome on a space subject to

the following provisions:

(1) The amount of the space rent established for

the new tenant shall not exceed the higher of

either: (1) the amount of the preexisting space

rent increased by the percentage change of the

consumer price index applicable to San Diego

County from the time period of the last space

rent increase to the date of establishment of

the new rent or 10% whichever is less; or

(ii) the median rent level for comparable

spaces within the park subject to this chapter

increased by the percent of change of the

consumer price index applicable to San Diego

County from a date one vear prior to the date

of establishment of the new rent or 10% which-

ever is less.

sont

(2)

(3)

A-5

For the purposes of this subsection compara-

ble spaces within each park shall be deter-

mined on an annual basis by the City Council

taking into consideration such factors as:

space location, size, shape and amenities;

proximity of the space to a clubhouse or other

recreational facility within the park; preexist-

ing rent levels; and other relevant factors.

Comparable spaces and the rent levels for

those spaces shall be designated on a map

approved by City Council resolution. The map

of comparable spaces and showing comparable

rents shall be posted in the office of the park

manager and shall be available for inspection

by residents and prospective residents of the

park. The map designating comparable spaces

and establishing comparable rent levels shall

be updated on an annual basis.

If a mobilehome park owner believes that the

amount of the new rent established pursuant

to the provisions of subparagraph (1) is less

than the fair market reni for the mobilehome

space, the mobilehome park owner may re-

quest that the fair market rent for the space

be established by arbitration. A request for

arbitration shall be filed with the City Clerk

prior to the commencement of the new ten-

aney. The request for arbitration shall desig-

nate the space within the mobilehome park for

which arbitration is requested and shall in-

clude the names, addresses, and telephone

numbers of the existing tenant and of the

prospective tenant. The City Clerk shall notify

the existing and the prospective tenants of the

request for arbitration by first class mail sent

within three days of the date of the filing of

the request. The arbitrator shall be selected by

(4)

A-6

the prospective tenant with the consent of the

mobilehome park owner from a list of impar-

tial arbitrators approved by the City Council

and kept on file in the office of the City Clerk.

The decision of the arbitrator shall be limited

to the establishment of the fair market rent

applicable to the space. Fair market rent is

that rent which would be paid for the

mobilehome space in the City assuming nor-

mal market equilibrium between the supply of

mobilehome spaces in the City and the de-

mand therefor, and without the exercise by the

park owner of an unfair bargaining position

resulting from the factors which the council

found necessitated the adoption of this Chap-

ter. The park owner shall have the burden of

going forward with the evidence, but neither

side shall have the burden of proof on the

issue of fair market rent. The matter shall be

heard by the arbitrator and a written decision

on the matter rendered within 60 days from

the date the request for arbitration is filed.

The decision of the arbitrator shall be final

subject to review by writ of administrative

mandamus. The petition for writ of adminis-

trative mandamus may be filed by the park

owner, the existing tenant, the prospective

tenant, or by the City upon order of the City

Council. The cost of the arbitrator shall be

borne by the park owner. Each participant in

the arbitration shall bear their own costs and

expenses of the arbitration.

A mobilehome park owner shall be entitled to

only one rent inerease per space per year

under the provisions of this subsection.

A-7

EFFECTIVE DATE: This Ordinance shall be effective

thirty (30) days after its adoption. Within fifteen (15)

days after its adoption, the City Clerk shall cause this

; Ordinance to be published in a newspaper of general

circulation in the City pursuant to the provisions of

: Government Code Section 36933.

i INTRODUCED AND FIRST READ at a regular meet-

j ing of the City Couneil of the City of San Marcos,

California held on the llth of September, 1990, and

thereafter;

PASSED, APPROVED AND ADOPTED at a regular

meeting of the City Council of the City of San Marcos,

California, held on the 25th day of September, 1990, by

the following vote:

AYES: LOSCHER,PRESTON,SMITH,THIBADEAU

NOES: NONE .

ABSTAIN: NONE

ABSENT: HARRIS

Dinka Oe 2 lat Sh*t ape ARAN

/s/ LEE B. THIBADEAU

Lee B. Thibadeau, Mavor

ATTEST: APPROVED AS TO

FORM:

/s/ SHEILA KENNEDY /s/ DANIEL 8S. HENTSCHKE

Sheila Kennedy, Daniel S. Hentschke,

City Clerk City Attorney

a