Amicus Curiae Brief — Yee v. Escondido

Supreme Court, U.S

FJ) LED

NOV 2 7 1991

No. 90-1947 OFFICE OF THE cure |

In The

Supreme Court of the United States

October Term, 1991

+

JOHN K. YEE, et al.,

Petitioners,

V.

THE CITY OF ESCONDIDO,

Respondent.

e

On Writ of Certiorari to the

Fourth Appellate District, Division One,

Court of Appeal for the State of California

¢

BRIEF AMICUS CURIAE OF

PACIFIC LEGAL FOUNDATION IN SUPPORT

OF PETITIONERS JOHN K. YEE, ET AL.

¢

RONALD A. ZUMBRUN

EpwarD J. CONNOR, JR.

*TimotHy A. BITTLe

*Counsel of Record

R. S. Raprorp

Of Counsel

Pacific Legal Foundation

2700 Gateway Oaks Drive,

Suite 200

Sacramento, California 95833

Telephone: (916) 641-8888

Attorneys for Amicus Curiae,

Pacific Legal Foundation

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

TABLE OF CONTENTS

Page

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

EE 6 ch obibaseseaccesessvasuucs 1

PUMP meE GOW BPE CABG, 2... c cc sccccssscecess 2

SUMMARY OF ARGUMENT....................... 4

Pe ee oer 6

I. THE PROPERTY INTEREST AT ISSUE IN THIS

CASE IS A MARKETABLE SERVITUDE CON-

VEYED TO SPECIFIC THIRD PARTIES BY THE

Fe Oe EINE sos ccceredecsvcessouess 6

Il. THE CALIFORNIA COURT OF APPEAL ERRED

IN NOT FINDING A TAKING UNDER

THIS COURT’S REGULATORY TAKINGS

ES eS Goda en avde hk ke scewen eawens 8

A. Heightened Judicial Scrutiny Is Triggered

when Property Regulations Are Challenged

SS WORUISbOty TORUS... 2. 2c ccc cccccees 9

B. The Escondido Ordinance Does Not Sub-

stantially Advance a Legitimate Purpose

Because New Park Residents Must Still Pay

the Equivalent of Market Rent and Less

Intrusive Alternatives Are Available....... 10

C. The California Court’s Spurious “Economic

Analysis” Cannot Substitute for the Height-

ened Scrutiny Required by This Court in

DI Ce Ria sh Cun ecu trersd i cesacacces eee ss 13

D. The Escondido Regulation Deprives Peti-

tioners of Economically Viable Use of Their

PRE CSS Ce CESE KS se Ric eb eabbeecedcevere 15

ii

TABLE OF CONTENTS - Continued

Page

E. The Escondido Ordinance Unfairly Requires

a Small Group of Property Owners to Bear

What Should Rightfully Be a General Public

oo Pere t—<“i‘“‘SOCSCSCS

Ill. THE COURT BELOW ERRED IN NOT FINDING

A PER SE TAKING IN THE UNCOMPENSATED

TRANSFER OF AN INTEREST IN TITLE FROM

ONE GROUP OF PRIVATE PARTIES TO

ANOTHER .....ccccccsssctescesa sume nae

A. An Uncompensated Transfer of an Interest

in Title Is a Per Se Violation of the Takings

Clause .... 2000000000808 ueeene

B. The Mere Fact That Petitioners Are in the

Rental Business Does Not Legitimize an

Uncompensated Seizure of Their Property ...

CONCLUSION .....cccccccvcecesso0e enue ane

19

21

22

25

28

iii

TABLE OF AUTHORITIES CITED

Page

Cases

Agins v. City of Tiburon, 447 U.S. 255 (1980)........ 10

Armstrong v. United States, 346 U.S. 40 (1960)...... 19

Azul Pacifico, Inc. v. City of Los Angeles,

No. 90-55853, 90-56066 (9th Cir. Nov. 1, 1991)

(1991 WESTLAW 224528 CTA9 Database) ....3, 5, 13

Calahan v. Martin, 3 Cal. 2d 110 (1935).............. 7

Federal Communications Commission v. Florida

Power Corp., 480 U.S. 245 (1987) ................. 26

First English Evangelical Lutheran Church of

Glendale v. County of Los Angeles, 482 U.S.

EE Tee 2

Hall v. City of Santa Barbara, 797 F.2d 1493

REE EE a A

Hawaii Housing Authority v. Midkiff, 467 U.S.

IE OTT TEES 20

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

Hodel v. Virginia Surface Mining and

Reclamation Association, Inc., 452 U.S. 264

Sara sce sere sccvscssccscces 16

Kaiser Aetna v. United States, 444 U.S. 164

es eve scesccccesscccces passim

Keystone Bituminous Coal Association v.

DeBenedictis, 480 U.S. 470 (1987) .................. 2

Kirby Forest Industries, Inc. v. United States,

Neve cece secs ceesesscess 16

Loretto v. Teleprompter Manhattan CATV Corp.,

ES 3, 4, 22

iv

TABLE OF AUTHORITIES CITED—Continued

Page

Louisville Joint Stock Land Bank v. Radford,

Se SAK ee sek 0k cs Kacddewccuacesess 24, 25, 27

Nollan v. California Coastal Commission,

ee Se errr sy rete rere ee passim

Penn Central Transportation Co. v. City of New

ee Pre 13, 22

Pennell v. City of San Jose, 458 U.S. 1 (1988)........ 20

Pennsylvania Coal Co. v. Mahon, 260 U.S. 393

oS eT eee ee ere 9, 21, 28

Pinewood Estates v. Barnegat Township

Leveling Board, 898 F.2d 347 (3d Cir. 1990)...... » >

Seawall Associates v. City of New York,

Pe CR Se Te 5 506k 28 Sees ceackwnoeawses 9, 20

Surfside Colony, Ltd. v. California Coastal

Commission, 226 Cal. App. 3d 1260 (1991)...... 9, 10

United States v. Causby, 328 U.S. 256 (1946)......... 16

United States v. General Motors Corp., 323 US.

OP GRP Sa rok na tks (a wanennehisxissiicelsiesa 16

United States v. Virginia Electric and Power

Gas Se Ce A Es cack cr cpdwekduentecesauas 16

Webb’s Fabulous Pharmacies, Inc. v. Beckwith,

ee errr eer Pe

STATUTES

California Civil Code

Pe WU 60 8h65 cen da ee 2

| PRP ee Sac ay oe ee 7

Vv

TABLE OF AUTHORITIES CITED—Continued

Page

RULE

Supreme Court Rules, Rule 37..................0005. 1

UNiteD States CONSTITUTION

eS rer aa ed a sh eae ward 2, 3, 9, 16

a TT TEE RETO ee ,

MiIscELLANEQUS

Hirsch & Hirsch, Legal-Economic Analysis of

Rent Controls in a Mobile Home Context:

Placement Values and Vacancy Decontrol,

35 UCLA L. Rev. 399 (1988) ............ 8, 12, 14, 15

Peterson, Land Use Regulatory “Takings”

Revisited: The New Supreme Court

Approaches, 39 Hastings L.J. 335 (1988)........... 16

No. 90-1947

¢

In The

Supreme Court of the United States

October Term, 1991

r

JOHN K. YEE, et al.,

Petitioners,

V.

THE CITY OF ESCONDIDO,

Respondent.

¢

On Writ of Certiorari to the

Fourth Appellate District, Division One,

Court of Appeal for the State of California

e

BRIEF AMICUS CURIAE OF

PACIFIC LEGAL FOUNDATION IN SUPPORT

OF PETITIONERS JOHN K. YEE, ET AL.

¢

Pursuant to Supreme Court Rule 37, Pacific Legal

Foundation (PLF) respectfully submits this brief amicus

curiae in support of petitioners John K. Yee, et al. Written

consent to the filing of this brief has been granted by

counsel for all parties. Copies of the letters of consent

have been lodged with the Clerk of this Court.

¢

INTEREST OF AMICUS

Pacific Legal Foundation is a nonprofit corporation

organized under the laws of the State of California for the

purpose of engaging in litigation in matters affecting the

public interest. Policy is set by a Board of Trustees com-

posed of concerned citizens, the majority of whom are

attorneys.

PLF has participated in numerous cases involving the

Takings and Due Process Clauses of the Fifth and Four-

teenth Amendments to the United States Constitution. Its

attorneys were counsel of record in Nollan v. California

Coastal Commission, 483 U.S. 825 (1987), and PLF partici-

pated as amicus curiae in Keystone Bituminous Coal Asso-

ciation v. DeBenedictis, 480 U.S. 470 (1987); Hodel v. Irving,

481 U.S. 704 (1987); and First English Evangelical Lutheran

Church of Glendale v. County of Los Angeles, 482 U.S. 304

(1987). PLF’s public policy perspective and litigation

experience in support of private property rights will pro-

vide a helpful additional viewpoint on the constitutional

issues presented in the case at bar.

e

STATEMENT OF THE CASE

Petitioners, owners of mobile home parks in the City

of Escondido, brought an action in state court challeng-

ing, as a taking without compensation, the city’s mobile

home rent control ordinance. The ordinance, in concert

with the state Mobilehome Residency Law (Cal. Civ. Code

§ 798, et seq.), grants the owners of coaches situated in

petitioners’ parks a perpetual right to occupy petitioners’

property at below market rents. Anyone who purchases a

mobile home coach from an existing occupant of an

Escondido park acquires that same right.

Petitioners allege that the in-site price of coaches in

Escondido mobile home parks has increased dramatically

since passage of the rent control ordinance. They allege

that this increase is due entirely to the fact that existing

park occupants are able to monetize the value of perpet-

ual occupancy of the park owners’ property at controlled

rents. Yee v. City of Escondido, 224 Cal. App. 3d 1349, 1352

(1990).

Rather than let petitioners prove these allegations at

trial, the trial court sustained the city’s demurrer, without

leave to amend, and dismissed the action. The California

Court of Appeal affirmed, ruling that the complaint did

not state a cause of action for an uncompensated taking

under the Fifth Amendment to the United States Consti-

tution. The California Supreme Court declined to review

the decision.

Three federal appellate court decisions have held that

regulations virtually identical to Escondido’s violate the Tak-

ings Clause under the “permanent physical invasion” stan-

dard laid down by this Court in Loretto v. Teleprompter

Mankattan CATV Corp., 458 U.S. 419 (1982). These three

decisions, Hall v. City of Santa Barbara, 797 F.2d 1493 (9th Cir.

1986); Pinewood Estates v. Barnegat Township Leveling Board,

898 F.2d 347 (3d Cir. 1990); and Azul Pacifico, Inc. v. City of Los

Angeles, No. 90-55853, 90-56066 (9th Cir. Nov. 1, 1991) (1991

WESTLAW 224528 CTA9 Database) are soundly based on the

Fifth Amendment and are unassailably correct expressions of

federal constitutional law.

Petitioners’ counsel argues capably that this line of

authority is dispositive in establishing that the facts

alleged in this case would comprise a violation of the

Takings Clause. While not disputing that conclusion, this

amicus will go farther and argue that such a finding

employs a seedlessly stringent constitutional standard. It is

in fact irrelevant whether the Escondido ordinance vio-

lates Loretto’s physical invasion test, since the measure in

question is blatantly unconstitutional under this Court’s

more general regulatory takings doctrine. Indeed, it can

be further argued that an outright uncompensated trans-

fer of a property interest from one private party to

another is a per se violation of the Takings Clause, subject

neither to the general regulatory takings analysis nor to

the Loretto standard. Under either line of reasoning the

Escondido ordinance must be found to violate the Tak-

ings Clause irrespective of whether this Court believes a

Loretto-style permanent physical invasion has occurred.

¢

SUMMARY OF ARGUMENT

Petitioners have alleged facts showing that the City

of Escondido’s regulations have confiscated a valuable

property interest from petitioners and transferred it to

certain third parties without compensating petitioners for

their loss. The property interest at issue—a marketable

servitude in land—is recognized by state law and pro-

tected by the United States Constitution. These allega-

tions, if proven at trial, are sufficient to establish a

violation of the Takings Clause under three separate legal

theories.

Two United States Circuit Courts of Appeals have

determined that virtually identical facts establish a con-

Stitutional violation under the “permanent physical

invasion” theory. Hall v. City of Santa Barbara, 797 F.2d

1493; Pinewood Estates v. Barnegat Township Leveling Board,

898 F.2d 347; and Azul Pacifico, Inc. v. City of Los Angeles,

1991 WL 224528.

Petitioners’ allegations would also establish a regula-

tory taking under this Court’s guidelines in Nollan v.

California Coastal Commission. The city’s uncompensated

seizure of petitioners’ property advances no legitimate

governmental interest. By transferring a marketable ser-

vitude from petitioners to other private parties, the City

of Escondido has deprived petitioners of economically

viable use of this valuable property interest. Finally, the

city’s regulations unfairly force a small group of property

owners to bear the full costs of what should be a general

public burden.

A third line of this Court’s decisions, including Kaiser

Aetna v. United States, 444 U.S. 164 (1979), and Hodel v.

Irving, 481 U.S. 704, demonstrates that the outright

uncompensated transfer of an interest in title constitutes

a per se taking. Under this line of precedent, the regula-

tions at issue in this case violate the Takings Clause

irrespective of the outcome of the regulatory takings

analysis and regardless of whether a physical invasion

has occurred.

Because petitioners have stated a cause of action

under any of these three theories, they are entitled to a

trial to establish the truth of their allegations.

°

ARGUMENT

I

THE PROPERTY INTEREST AT ISSUE IN

THIS CASE IS A MARKETABLE SERVITUDE

CONVEYED TO SPECIFIC THIRD PARTIES

BY THE CITY’S REGULATIONS

To determine whether an unconstitutional taking of

property has occurred, the first step is to identify the

property interest in question. The inquiry then turns to

whether this specific property interest has been taken,

applying the tests laid down by this Court for either

regulatory or per se takings.

In the present case, the relevant property interest is a

marketable servitude to occupy petitioners’ land at

below-market rents—a property interest recognized by

state law and protected by the United States Constitution.

According to the complaint reviewed by the court

below, Escondido’s mobile home rent control limits the

rents petitioners may charge for space in their parks to

less than the amount that would be charged in an unregu-

lated market. The city has also imposed vacancy control

which means that petitioners may not adjust their rents to

market levels even when a preexisting resident of their

parks terminates a tenancy, sells his mobile home coach

to a new resident, and moves out. Related state regula-

tions prevent park owners from exercising any meaning-

ful role in determining who may purchase a used coach

in their parks from a preexisting resident. Thus, prospec-

tive coach buyers negotiate with preexisting residents to

determine the price for a used coach and a statutory right

to occupy petitioners’ parks at less-than-market rent.

Under California law, one of the interests inhering in

the ownership of property is the right to receive the rents

and profits therefrom. Calahan v. Martin, 3 Cal. 2d 110,

119, 123 (1935). See also Webb's Fabulous Pharmacies, Inc. v.

Beckwith, 449 U.S. 155, 164 (1980). The owner of a mobile

home park may sell the right to collect rents from the

park, or any part of those rents, thereby transferring a

property interest which is called, by statute, a “servi-

tude.” Cal. Civ. Code § 802(4); see Calahan, 3 Cal. 2d

at 120-21.

It is this marketable servitude that the Escondido

regulations transfer from petitioners to the individuals

who occupied their parks when the controls were

adopted. Prior to enactment of the challenged regula-

tions, Escondido’s mobile home coach owners could have

purchased a servitude from park owners guaranteeing

ther perpetual coach sites at below-market rents. The

price of this servitude would have been determined

through negotiations between park owners and coach

owners, and the park owner would have received the

agreed-upon amount in exchange for the property inter-

est. Escondido’s regulations preempt this market process

by simply transferring the servitude to coach owners,

who may then sell it to third parties without compensat-

ing park owners.

Escondido’s regulatory scheme is far more than a

mere restriction of petitioners’ right to use their property.

Rather, it grants a right to a specific group of individuals

—those who occupied petitioners’ parks when the con-

trols were enacted—to use and dispose of a valuable

property interest without petitioners’ consent and with-

out compensation. As stated by the Ninth Circuit in Hall

8

v. City of Santa Barbara, such an enactment “changes the

fundamental relationship between the parties, giving

landlord and tenant complementary estates in the same

land.” Hall, 833 F.2d at 1279.

The servitude that is granted to preexisting coach

owners by the Escondido ordinance is a valuable com-

modity of a sort that can be freely bought and sold in the

open market. The fair market value of the servitude can

be estimated by the resale premium commanded by

coaches located in petitioners’ parks compared with iden-

tical coaches located on unregulated sites. See Hirsch &

Hirsch, Legal-Economic Analysis of Rent Controls in a Mobile

Home Context: Placement Values and Vacancy Decontrol,

35 UCLA L. Rev. 399 (1988).

This Court has set forth a number of tests to deter-

mine whether the City of Escondido, in depriving peti-

tioners of the use and control of this valuable property

interest, has violated the Takings Clause. The next section

of this brief argues that petitioners have stated a claim for

an unconstitutional taking of their property under this

Court’s standards for regulatory takings. In the alterna-

tive, it is then argued that the facts alleged by petitioners

are sufficient to constitute a per se taking, irrespective of

whether the city has authorized a “permanent physical

invasion” of petitioners’ land.

THE CALIFORNIA COURT OF APPEAL

ERRED IN NOT FINDING A

TAKING UNDER THIS COURT'S

REGULATORY TAKINGS DOCTRINE

For nearly 70 years this Court has recognized that

government regulation can so attenuate the rights of

property owners as to effect a taking under the Fifth

Amendment. The criterion first laid down by Justice

Holmes in 1922 applies with equal force today: “[W]hile

property may be regulated to a certain extent, if regula-

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

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

The process of determining when a regulation “goes too

far” has been revealed gradually by a line of decisions

extending from Pennsylvania Coal down through what is

currently this Court’s leading decision in the field of

regulatory takings law, Nollan v. California Coastal Com-

mission, 483 U.S. 825.

A. Heightened Judicial Scrutiny Is

Triggered when Property Regulations

Are Challenged as Regulatory Takings

In Nollan, it was unequivocally proclaimed that prop-

erty regulations challenged under the Takings Clause

must receive heightened judicial scrutiny. Nollan, 483 U.S.

at 835 n.3. Such enactments may no longer be upheld by

reference to a “rational relationship” to their asserted

objectives.

Nollan’s heightened scrutiny requirement has been

correctly noted and applied by state courts faced with

federal takings claims brought under the Fourteenth

Amendment. See, e.g., Seawall Associates v. City of New

York, 542 N.E.2d 1059, 1068 (1989) (challenges of this sort

require “ ‘semi-strict or heightened judicial scrutiny of

regulatory means-ends relationships’ as articulated in

10

Nollan”); Surfside Colony, Ltd. v. California Coastal Commis-

sion, 226 Cal. App. 3d 1260, 1270 (1991) (“Nollan, how-

ever, changed the standard of constitutional review in

takings cases. Whether the new standard be described as

‘substantial relationship,’ or ‘heightened scrutiny,’ it is

clear the rational basis test ... no longer controls.” (Foot-

notes omitted)).

Notwithstanding this clear constitutional mandate,

however, the California Court of Appeal in the proceed-

ings below failed to apply the requisite level of scrutiny

to the Escondido ordinance.

B. The Escondido Ordinance Does Not

Substantially Advance a Legitimate

Purpose Because New Park Residents

Must Still Pay the Equivalent of

Market Rent and Less Intrusive

Alternatives Are Available

This Court has frequently stated that land use regula-

tions will effect a taking if they fail to “substantially

advance legitimate state interests,” or if they “denly] an

owner economically viable use” of property. Agins v. City

of Tiburon, 447 U.S. 255, 260 (1980). These two elements,

which establish a threshold test of constitutional legit-

imacy, are stated in the disjunctive; either is sufficient to

establish a regulatory taking without further analysis.

In Nollan v. California Coastal Commission, this Court

reiterated the two-part threshold test. Nollan, 483 US.

at 834. Nollan clearly illustrated that, when a regulation

fails to substantially advance a legitimate government

11

interest, a taking occurs regardless of the economic

impact on the property owner.

In the case at bar, the Escondido ordinance has been

alleged to effect an uncompensated transfer of property

from one group of private owners to another. The court

below acknowledged that the city’s regulations effected

the alleged “transfer of value,” yet found such forced

transfers to be supported by a rational governmental

interest and therefore not in conflict with the Takings

Clause. Yee v. City of Escondido, 224 Cal. App. 3d at 1354.

In arriving at this conclusion, the California Court of

Appeal fundamentally misconstrued the legai question

that was before it. By framing the issue as whether the

forced transfer of petitioners’ property “can be justified

by a rational governmental purpose,” id., the court below

expressly applied the deferential “rational basis” stan-

dard of review repudiated by this Court in Nollan:

“We have required that the regulation ‘substan-

tially advance’ the ‘legitimate state interest’

sought to be achieved, not that ‘the State “could

rationally have decided” that the measure adopted

might achieve the State’s objective.’ ” Nollan,

483 US. at 835 n.3 (citations omitted; emphasis

added).

This Court’s regulatory takings doctrine does not

permit abject judicial deference to legislative enactments

merely because the measure at issue can be imagined to

have some rational purpose. Rather, the courts have a

duty to inquire whether property regulations challenged

12

under the Takings Clause substantially advance a legiti-

mate interest. Jd. The court below made no inquiry what-

ever into this question, which this Court has set forth as a

mandatory threshold inquiry in regulatory takings cases.

The City of Escondido asserts that the legitimate

interest advanced by its regulation is “protecting

mobilehome owners” from paying competitive market

rentals for space in mobile home parks. Respondent's

Brief in Opposition to the Petition for Certiorari at 27. But

that goal is accomplished for current park residents by

rent control alone without imposing the additional bur-

dens of vacancy controls (which prevent park owners

from setting rents at market levels when current residents

leave their parks).

It is sometimes claimed that vacancy controls are

intended to secure the benefits of reduced rents for future

park residents, yet this is a logical absurdity. Elementary

economics demonstrates that the difference between con-

trolled and market rents is capitalized into the in-site

price of mobile home coaches. Hirsch & Hirsch, 35 UCLA

L. Rev. at 443-44. Thus, the initial occupants of peti-

tioners’ property will convert the regulatory “protection”

to cash as soon as they sell their coaches. No subsequent

residents will benefit, for they must pay the full cap-

italized value of lower rents at the time they “buy into”

the city’s regulatory scheme. Under the heightened scru-

tiny required by Nollan, it is inconceivable that any court

could find this one-time wealth transfer to substantially

advance the welfare of mobile home owners in general.

Finally, the Ninth Circuit has speculated that regula-

tions of this kind may serve a legitimate purpose in

13

protecting current residents from unscrupulous park owners

who might otherwise raise rents at the end of a tenancy to

force the sale of coaches to park owners at distressed prices.

Azul Pacifico, 1991 WL 224528 at 12-16. Once again, however,

the court has simply identified a possible legitimate objective

with no meaningful inquiry into whether the ordinance in

fact substantially advances this objective.

In an earlier formulation of the substantial advance-

ment test this Court stated, “a use restriction on real

property may constitute a ‘taking’ if not reasonably neces-

sary to the effectuation of [its] purpose.” Penn Central Trans-

portation Co. v. City of New York, 438 U.S. 104, 127 (1978)

(emphasis added). Clearly, seizing an uncompensated

property interest from all park owners cannot remotely be

described as “reasonably necessary” to prevent unscru-

pulous business practices by a few.

The City of Escondido could simply prohibit park

owners from buying their residents’ coaches. Or it could

require such transactions to occur at fair market value as

established by Blue Book prices or independent

appraisal. By choosing to bypass these straightforward

alternatives in favor of adopting a blatantly confiscatory

regulation, Escondido has forfeited any claim that its

ordinance is reasonably necessary to prevent the unfair

dealings hypothesized in Azul Pacifico.

C. The California Court’s Spurious

“Economic Analysis” Cannot

Substitute for the Heightened Scrutiny

Required by this Court in Nollan

Petitioners alleged facts demonstrating that occu-

pants of petitioners’ mobile home parks had capitalized

14

the value of a marketable servitude into the in-site price

of their coaches. Applying the heightened scrutiny

required by this Court in Nollan, it would be impossible

to avoid the implication that the City of Escondido’s

regulations had confiscated this servitude from peti-

tioners and transferred it to those occupants without

compensation.

As previously noted, however, the court below per-

sistently declined to subject the challenged ordinance to

heightened scrutiny. Instead, the California Court of

Appeal indulged in a burlesque of pseudo-economic

“analysis” in an effort to insulate the regulation from

attack.

Rejecting the expert analysis of economic profes-

sionals (cf. Hirsch & Hirsch, supra), the court concocted

its own fanciful lay theory analogizing the confiscation of

petitioners’ property to an adjustment in the prices of

complementary goods. Yee, 224 Cal. App. 3d at 1352-53.

The fallacy in the court’s reasoning is embarrassingly

obvious. The relationship between true complementary

goods does not vary radically from place to place within

a market area—certainly not within a market the size of

Escondido. If market forces (say, an increase in supply)

had caused the value of mobile home parks to fall, the

price of coaches would increase throughout the area. This

would be a genuine adjustment in complementary prices

—but this was emphatically not consistent with the alle-

gations before the California court.

Mobile home rent regulations like Escondido’s do not

Cause an increase in the price of all mobile home coaches,

15

as would occur through an adjustment in prices of com-

plementary goods. Instead, only certain coaches are

affected—specifically, those situated in existing parks.

The prices of coaches occupying pads in parks such as

petitioners’ increase while the prices of coaches on unre-

gulated sites and in dealer showrooms are unaffected. See

Hirsch & Hirsch, 35 UCLA L. Rev. at 425, 430, 433-34.

This is completely at odds with a “complementary

goods” rationale but fully consistent with petitioners’

claim that a valuable property interest had been seized

and transferred to the owners of those specific coaches.

The crucial error, however, does not lie in the

obvious shortcomings of the California court’s purported

“economic analysis.” Rather, this remarkable exercise

merely underscores the fact that the court was extending

the greatest possible deference to the city’s enactment.

Rather than applying any semblance of heightened scru-

tiny, the court below attempted to concoct some arguably

rational basis for the challenged ordinance. This directly

contravenes the clear guidance of this Court as expressed

in Nollan and resulted in a clearly erroneous finding of

constitutionality.

D. The Escondido Regulation Deprives

Petitioners of Economically Viable

Use of Their Property

Turning to the second prong of the threshold test for

regulatory takings, this Court has made it clear that regu-

lations which deprive owners of economically viable use

of their property will violate the Takings Clause, regard-

less of the merits of the state interests that may be

16

advanced. Hodel v. Virginia Surface Mining and Reclamation

Association, Inc., 452 U.S. 264, 295-96 (1981); Kirby Forest

Industries, Inc. v. United States, 467 U.S. 1, 14 (1984). The

California Court of Appeal committed yet another funda-

mental error in the proceedings below by failing to sub-

ject the Escondido ordinance to this constitutionally

maridated, independently sufficient test for a regulatory

taking.

There can be no doubt that the servitude transferred

by the City of Escondido to the owners of mobile home

coaches is a protected property interest under the Fifth

Amendment. This Court has defined the interests subject

to constitutional protection as all those rights inhering in

an individual's relation to the thing owned, including the

rights of possession, use, and disposal. United States v.

General Motors Corp., 323 U.S. 373, 378 (1945). Constitu-

tionally protected property interests include not just fee

interests and leaseholds, but “every sort of interest the

citizen may possess.” Id. at 378.

Especially in recent years, this Court has demon-

strated a commitment “to what might be termed an

‘unbundling’ of property interests for purposes of apply-

ing the legal criteria in takings cases.” Peterson, Land Use

Regulatory “Takings” Revisited: The New Supreme Court

Approaches, 39 Hastings L.J. 335, 357 (1988). Specific prop-

erty interests that have been recognized by this Court

under the Takings Clause have included the use of air-

space, United States v. Causby, 328 U.S. 256 (1946); flowage

easements, United States v. Virginia Electric and Power Co.,

365 U.S. 624 (1961); the right to devise property to one’s

heirs, Hodel v. Irving, 481 U.S. at 716; the right to exclude

others, Kaiser Aetna v. United States, 444 U.S. 164; and

17

most pertinent to this case, the right to the profits fr_m

one’s property, Webb’s Fabulous Pharmacies v. Beckwith,

449 US. at 164.

In the case at bar, the property interest in question is

a marketable servitude granting perpetual occupancy in

petitioners’ mobile home park at below-market rents. By

confiscating this servitude and transferring it to others,

the Escondido ordinance completely deprives petitioners

of any economically viabie use (or indeed, any use at all)

of this valuable property.

In describing the challenged measure as a “transfer

of value,” the court below implicitly acknowledges that

the subject property interest has been seized from peti-

tioners and transferred to the-private beneficiaries of the

ordinance. Yee, 224 Cal. App. 3d. at 1354. However, the

court goes on to assert that such uncompensated transfers

do not offend the Takings Clause if they are “justified by

a rational governmental purpose.” Id. The court then

inquires into the level of rents authorized by the ordi-

nance asserting that if petitioners are receiving a “fair”

return on their mobile home parks, there has been no taking

of the servitude.

By this assertion, the court below would simply elim-

inate the second prong of this Court's threshold test for

regulatory takings. By the Court of Appeal’s reasoning,

unless a regulation deprives an individual of all property,

it does not deprive him of any property. Such a contention

is not only absurd on its face, it is directly contrary to the

teachings of this Court.

This Court did not hesitate to find a regulatory tak-

ing in Nollan, although the affected property interest was

18

only a narrow unbuildable strip of the owners’ land.

Nollan, 483 U.S. at 828. This Court made the proper

standard even more explicit in Hodel v. Irving, 481 U:S.

at 704. That case involved a challenge to a federal statute

providing that certain fractional property interests in

Sioux Indian land must revert to the tribe upon the

owner’s death and could not be passed on to his sur-

vivors. In finding that this statute violated the Takings

Clause, the Court fully considered the extent of the prop-

erty right that was at issue: “Of course, the whole of

appellees’ decedents’ property interests were not taken.

... There is no question, however, that the right to pass on

valuable property to one’s heirs is itself a valuable right.”

Hodel v. Irving, 481 U.S. at 714 (emphasis added). The

law’s complete deprivation of this single element of the

owner's bundle of rights was sufficient for a uranimous

Court to find that a compensable taking had occurred.

Id. at 716-17.

In the case at bar, the Escondido ordinance com-

pletely deprives petitioners of a valuable servitude and

transfers its ownership to third parties. No greater depri-

vation of economically viable use is imaginable. Under

the clear standards laid down by this Court, the city’s

total deprivation of petitioners’ use of this marketable

property interest violates the Takings Clause in and of

itself, without regard to the legitimacy of the govern-

mental purposes being advanced.

19

E. The Escondido Ordinance Unfairly

Requires a Small Group of Property

Owners to Bear What Should Rightfully

Be a General Public Burden

The two-part “substantial advancement/deprivation

of use” test serves as a threshold that land use regula-

tions must clear as the first step in determining whether

they violate the Takings Clause. Measures that fail to

substantially advance legitimate interests or deny eco-

nomically viable use of property must be struck down

without further ado unless just compensation is paid.

However, even regulations that meet these threshold

requirements may still be held to violate the Takings

Clause under a number of specific criteria that have been

developed by this Court.

In the case at bar, even if it were possible to hold that

the Escondido ordinance survives the two-part threshold

test, it violates the Takings Clause by requiring plaintiffs

alone to bear what should rightfully be a general public

burden. As this Court has repeatedly emphasized, “[o]ne

of the principal purposes of the Takings Clause is ‘to bar

Government from forcing some people alone to bear pub-

lic burdens which, in all fairness and justice, should be

borne by the public as a whole.’ ” Nollan, 483 U.S. at 835

n.4 (quoting Armstrong v. United States, 346 U.S. 40, 49

(1960)).

The benefit sought by Escondido’s ordinance is the

provision of subsidies for a small, favored class of prop-

erty owners—-those specific individuals who owned

mobile homes located in existing parks at the time the

ordinance was adopted. This benefit can be construed in

20

only two possible ways. It may accrue primarily to the

favored few individuals, in which case the benefit is

clearly private in nature; or transferring property to these

few persons may be held, in some metaphysical sense, to

enhance the general welfare of the city.

If the benefits of Escondido’s regulations are limited

to the coach owners who happened to occupy park sites

at the time of enactment, then the city has done nothing

more than to force the uncompensated transfer of a valu-

able property interest from one small group of owners to

another. Such a private-interest transfer would violate the

Takings Clause on its face. “A purely private taking could

not withstand the scrutiny of the public use requirement;

it would serve no legitimate purpose of government and —

would thus be void.” Hawaii Housing Authority v. Midkiff,

467 U.S. 229, 245 (1984).

In the alternative, if it is claimed that the regulations

provide some diffuse public benefit in the nature of a

general welfare program, then the city is constitutionally

prohibited from singling out a small group of owners to

bear the costs of the regulation. Any claim of general,

citywide benefit from the transfer of the subject property

interest would demonstrate “that the obligations placed

on a few property owners are just the kind which could,

and should, be borne by the taxpayers as a whole.”

Seawall Associates, 542 N.E.2d at 1069. See also Pennell v.

City of San Jose, 458 U.S. 1, 21-22 (1988) (Scalia, J., dissent-

ing).

The City of Escondido has the authority under its

police powers to allocate its general revenues to subsidize

any favored groups it pleases. However, forcing one

21

small group of property owners to bear the full costs of

such a program is an affront to basic concepts of equity.

The issue is not whether the benefits of subsidies to coach

owners are worth the costs but rather who should pay.

“[T]he question at bottom is upon whom the loss ...

should fall.” Pennsylvania Coal Co. v. Mahon,

260 U.S. at 416. As this Court concluded regarding the

governmental objective in Nollan, “[t}he Commission may

well be right that it is a good idea, but that does not

establish that the Nollans (and other coastal residents)

alone can be compelled to contribute to its realization.

... [If California] wants an easement across the Nollans’

property, it must pay for it.” Nollan, 483 U.S. at 841. This

conclusion is directly applicable to the case at bar. If the

City of Escondido wants to transfer wealth to those indi-

viduals who occupy petitioners’ land at a certain point in

time, it is constitutionally required to pay for the sub-

sidies out of general city revenues.

THE COURT BELOW ERRED IN NOT

FINDING A PER SE TAKING IN THE

UNCOMPENSATED TRANSFER OF AN

INTEREST IN TITLE FROM ONE GROUP

OF PRIVATE PARTIES TO ANOTHER

As established in the preceding section, the ordi-

nance at issue in this case blatantly violates this Court's

regulatory takings guidelines, regardless of whether it

authorizes a permanent physical invasion of petitioners’

property. Alternatively, it can be argued that it is unnec-

essary tc subject measures such as this one to the regula-

tory takings tests since outright uncompensated transfers

22

of valuable property interests have been treated by this

Court as per se violations of the Takings Clause.

A. An Uncompensated Transfer of an

Interest in Title Is a Per Se

Violation of the Takings Clause

One of the most consistent guideposts of this Court’s

takings jurisprudence has been a careful examination of

the “character of the government action” challenged as a

taking. Penn Central Transportation Co. v. City of New York,

438 U.S. at 124. It is well known that, when the character

of the challenged action can be likened to a permanent

physical invasion of property, the measure will be charac-

terized as a per se violation of the Takings Clause. Loretto,

458 US. at 426. In a less widely recognized line of cases,

this Court has dealt similarly with enactments purporting

to transfer an interest in title without compensating the

wee ers.

ihe transfer of an interest in title (such as a servi-

tude) has often been held to constitute a taking by this

Court. For example, the City of Escondido’s seizure of

petitioners’ servitude is remarkably similar to the govern-

mental action in Kaiser Aetna, 444 U.S. 164. There, the

federal government claimed that, because a property

owner had connected a private pond to the navigable

waters of the United States, the public had acquired a

servitude granting common access to the owner’s private

property. This Court held that the attempt to seize such a

servitude “goes so far beyond ordinary regulation . . . as

to amount to a taking.” Id. at 178.

23

Because the character of the government action in

Kaiser Aetna is distinguished from ordinary regulation,

commentators tend to refer to it as a physical invasion

case. But in fact the pond owner did not object to the

physical presence of boats on its pond. The whole pur-

pose behind constructing the channel, after all, was to

increase the ability of boats to use the pond. It was the

government's attempt to seize a servitude entitling the

public to use the pond without paying the owner's yacht

club fees that was found to constitute a taking.

This closely parallels the situation in the case at bar

where the City of Escondido has granted coach owners a

marketable right to use petitioners’ property without

paying the owners’ full price for that use. The only rele-

vant distinction between Kaiser Aetna and the case at bar

is that the City of Escondido has not seized a servitude for

the benefit of the public. Rather, ownership of petitioners’

servitude was transferred—by legislative fiat—to the pri-

vate parties who happened to occupy mobile home pads

at the time the ordinance was adopted.

Another case in which this Court struck down an

uncompensated transfer of an interest in title is Hodel v.

Irving, 481 U.S. 704. There, Congress attempted to trans-

fer small common tenancy interests in land from the

Indians who owned them to the tribe. Jd. at 708-09. After

going through the analysis for regulatory takings, this

Court stated: “If we were to stop our analysis at this

point, we might very well find § 207 constitutional. But

the character of the Government regulation here is

extraordinary.” Id. at 716. Then, likening the case to Kaiser

Aetna, the Court ruled that the uncompensated transfer of

even these small residual interests (valued at as little as

24

five cents per annum) amounted to an unconstitutional

taking. Thus, while not a physical invasion case, Hodel

cannot properly be considered a regulatory taking case

either. Instead, it falls into a third category of cases in

which this Court has found a violation of the Takings

Clause in the legislative transfer of an interest in title

from one private party to another.

In Louisville Joint Stock Land Bank v. Radford, 295 U.S.

555 (1935), Congress adopted an amendment to the Bank-

ruptcy Act intended to restrict the foreclosure of mort-

gages on farms during the Great Depression. Due to

prevailing economic conditions, this measure had the

effect of granting bankrupt farmers the right to redeem

foreclosed-upon properties at less than the outstanding

mortgage obligation or else to remain in possession of the

property for five years at a reduced rate. Id. at 575-76.

This Court invalidated the amendment as a taking

because it transferred to the farmer an interest in

property that belonged to the holder of the mortgage.

Id. at 594-95, 601-02.

In Louisville Bank, as in Kaiser Aetna, the petitioner

did not object to the physical presence of third parties on

the property. After all, if Radford left Louisville Bank

would have rented the farm to someone else. What com-

prised a taking was the creation of a servitude entitling

Radford to remain on the property without paying the

bank its full price.

A more recent case involving the transfer of an inter-

est in title is Nollan v. California Coastal Commission,

483 U.S. 825. There a state agency required a property

owner to convey an easement (a type of servitude) to the

25

state as a condition of issuing a building permit. Prior to

deciding whether the conveyance could be required as a

permit condition, this Court considered whether such a

transfer could be accomplished by simple legislative fiat-

-as the City of Escondido has done in the case at bar. On

that question, this Court held:

“Had California simply required the Nollans to

make an easement across their beachfront avail-

able to the public . . . rather than conditioning

their permit .. . we have no doubt there would

have been a taking.” Id. at 831.

Like the plaintiffs in Kaiser Aetna and Louisville Bank, the

Nollans were not complaining about the physical pres-

ence of people on their beach. The Nollans already freely

permitted people to traverse their beach. Id. at 858 (Bren-

nan, J., dissenting). it was the transfer to the public of a

formal right to be there, as owners of an interest in the

Nollans’ title, that would have comprised a taking had a

transfer by legislative fiat occurred.

B. The Mere Fact That Petitioners Are in

the Rental Business Does Not Legitimize

an Uncompensated Seizure of Their Property

The court below attached great significance to the

fact that petitioners are not forced involuntarily to accept

the occupation of their property, since they were already

in the business of renting their property to others. Yee,

224 Cal. App. 3d at 1358. However, this fact in no way

distinguishes the present case from the foregoing line of

Supreme Court precedent regarding the seizure of an

interest in title.

26

The California Court of Appeal sought to portray

petitioners’ taking claim as inconsistent with Federal Com-

munications Commission v. Florida Power Corp., 480 U.S. 245

(1987), wherein this Court rejected a challenge to the Pole

Attachments Act on a physical invasion theory.

It should first be noted that Florida Power did not

discuss the rule that an outright transfer of an interest in

title constitutes a taking. Nor can Florida Power be inter-

preted as a retreat from that rule since both Hodel v. Irving

and Nollan were decided after Florida Power.

Furthermore, the facts of Florida Power have virtually

no similarity to the case at bar. This Court declined to

find a taking in Florida Power because “nothing in the Pole

Attachments Act ... gives cable companies any right to

occupy space on utility poles, or prohibits utility com-

panies from refusing to enter into attachment agree-

ments.” Florida Power, 480 U.S. at 251. In other words,

there was no transfer to cable companies of a right to occupy

the power company’s poles at reduced rent. If a cable com-

pany decided to remove its cables from the poles, it had

no rights in the poles to sell to another cable company.

This contrasts sharply with the instant case where outgo-

ing coach owners have been granted precisely this right.

They say who will occupy the park owner’s property next

and can sell to the next tenant their right to pay below-

market rent.

The Escondido ordinance has an impact on peti-

tioners wholly unrelated to the normally foreseeable con-

sequences of operating rental property. The city’s

regulations effectively reduce petitioners from the owners

27

of a fee interest in private rental property to mere care-

takers of public housing. Eviction controls, rent controls,

and vacancy controls have the combined effect of extin-

guishing the park owner’s right to determine whether his

property will be occupied, who may occupy it, and what

price he will accept for a stranger to occupy it. As a final

evidence of expropriation, the park owner is even

deprived of the proceeds when a part of his property (the

legislatively-created servitude) is sold. What the owners

retain is, in essence, a modest salary from the government

for their caretaking services in the form of the govern-

ment-set rent. (They also retain, of course, full liability for

any injuries on their property and the privilege of paying

taxes.)

Clearly, the effect on property owners of an uncom-

pensated transfer of an interest in title can be just as

devastating as the authorization of a permanent physical

invasion. This may be the reason why transfer of title

cases are often equated with physical invasion cases by

commentators. However, this Court’s decisions in Kaiser

Aetna, Hodel, Louisville Bank, and Nollan demonstrate that

the Escondido ordinance violates the Takings Clause

because of its uncompensated transfer of an interest in

title, regardless of whether a physical invasion has in fact

occurred. This conclusion is wholly unaffected by peti-

tioners’ prior decision to engage in the business of rent-

ing spaces in mobile home parks.

e

28

CONCLUSION

Petitioners have alleged that Escondido’s ordinance

transfers an interest in their property to occupants of

their mobile home parks and that outgoing occupants are

selling to others the right to occupy petitioners’ property

at a reduced rent. According to the complaint, the pre-

mium that incoming park residents are paying (in excess

of the showroom value of the mobile home coach) repre-

sents the present value of the rents park owners are

prohibited from charging. Reasonably enough, petitioners

sought the opportunity to prove these allegations in

court.

The California Court of Appeal, notwithstanding that

the case came to it on demurrer so that all facts pled in

the complaint must be presumed true, opined that new

park residents are not really paying a premium for the

right to pay less rent. The Court of Appeal asserted that

this premium is somehow paid for the coach itself, even

though identical coaches not situated on petitioners’

property sell for substantially less. Yee v. City of Escondido,

224 Cal. App. 3d 1349, 1352-53. As pointed out in the

dissent, this reasoning illustrates the danger of judges

relying on their own lay opinions rather than allowing

factual questions to go to trial.

Petitioners have adequately pled the transfer of an

interest in their property. According to the decisions of

this Court discussed above, the legislative transfer of

such an interest without compensation is a per se taking.

The facts alleged by petitioners also establish a regulatory

taking under an overwhelming line of authority stretch-

ing from Pennsylvania Coal to Nollan.

29

For the reasons stated above, it is respectfully sub-

mitted that this case should be remanded for trial so that,

if petitioners’ allegations are proved, the regulatory

scheme at issue can be declared a taking.

DATED: November, 1991.

RONALD A. ZUMBRUN

EpwarpD J. CONNOR, JR.

*TimoTHy A. BITTLE

*Counsel of Record

R. S. RADFORD

Of Counsel

Pacific Legal Foundation

2700 Gateway Oaks Drive,

Suite 200

Sacramento, California 95833

Telephone: (916) 641-8888

Attorneys for Amicus Curiae,

Pacific Legal Foundation