# Amicus Curiae Brief — Yee v. Escondido

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385013_0113%3A24

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1992
- **Citation:** 503 U.S. 519

## Text

Suprene Court, U.S
re FILED
No. 90-1947 | NOV29 iggy
| OFtice OF THE CicRK

IN THE

Supreme Court of the United States

October Term 1991

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

BRIEF OF THE WASHINGTON LEGAL
FOUNDATION AND ALLIED EDUCATIONAL
FOUNDATION AS AMICI CURIAE IN SUPPORT
OF PETITIONERS

Prof. Jonathan K. Van Patten Daniel J. Popeo
University of South Dakota Paul D. Kamenar

School of Law (Counsel of Record)
Vermillion, SD 57069 WASHINGTON LEGAL
(605) 677-5361 FOUNDATION

1705 N Street, N.W.

Washington, D.C. 20036

(202) 857-0240
November 29, 1991

CASILLAS PRESS, INC., 1717 K STREET, N.W., WASHINGTON, D.C. 20036

TABLE OF CONTENTS

Page
TABLE OF AUTHORITIES ...............0e8- iii
INTEREST OF THE AMICI CURIAE ............. |
STATEMENT OF THE CASE ...............4.-. 2
SUMMARY OF ARGUMENT .................:. 5
DT tcivecneaveverseneeeeaereeeees 8
I. | The Escondido Ordinance Constitutes a
Permanent Physical Taking of Petitioners’
PN cso eeredeUsereereeKhieoenecces 8
A. The Escondido Ordinance Combines
With the State Mobilehome Residency
Law to Permanently Transfer an Interest
in Property from the Owner to a Person
Occupying the Property in Perpetuity.......... 9
B. The Circuit Courts of Appeal Have
Found a Taking Under the Same
Circumstances as Exist in This Case........ 13
C. The Rejection of the Hall and Barnegat
Analysis by the Court of Appeal in this
Case Was Erroneous as a Matter of Law... .. 17

Il. The Escondido Ordinance Does Not
"Substantially Advance Legitimate State
Interests” and it "Denies an Owner
Economically Viable Use of His Land.” ........ 21

CONCLUSION

eeaeeueeweeeeaeCcpe eae eg 2 82 2 2 ee ee

TABLE OF AUTHORITIES
Cases

Agins v. City of Tiburon,

CI ccc cet ccces 5, 7, 8, 21
Armstrong v. United States,

EEE 8
Azul Pacifico, Inc. v. City of Los Angeles,

740 F.Supp. 772 (C.D. Cal. 1990) .......... 15, 16

Azul Pacifico, Inc. v. City of Los Angeles,
___ F.2d ___, 1991 WL 224528 (9th Cir. 1991)

ee eee e ea wees cecces 6, 13, 16
Chicago, B. & Q. R. Co. v. Chicago,

Ne kt ee cca e cece: 8
Conley v. Gibson,

cc ccc cc ce ccc cece 10
Eaton v. B.C. & M.RR.,

EEE 13
F.C.C. v. Florida Power Corp.,

Ee 18, 19

Hall v. City of Santa Barbara,

833 F.2d 1270 (9th Cir. 1986),

cert. denied, 485 U.S. 940 (1988)... 6, 10, 14, 15, 18
Kaiser Aetna v. United States,

SI ITED. wo coc cece 13
Loretto v. Teleprompter Manhattan CATV Corp.,

458 U.S. 419 (1982) ......... 5, 6, 7, 9, 11, 13, 20
Mississippi University for Women v. Hogan,

I oo ccc ccc cece es ceees 23
Moore v. City of East Cleveland,

EEE eee 23
Nollan v. California Coastal Commission,

483 U.S. 825 (1987) ............. 5, 7, 8, 21, 23

Penn Central Transportation Co. v. City of New York,
EEE 8

iV

Pennell v. City of San Jose,

IR Mn 6 ara kg Va reg ar 19, 20, 22
Pinewood Estates of Michigan v. Barnegat Township
Leveling Board,

898 F.2d 347 (3d Cir. 1990)

eect ead chee 6, 13, 16, 17, 18, 21, 23
Seawall Associates v. City of New York,

74 N.Y.2d 92, 542 N.E.2d 1059 (1989),

cert. denied, 493 U.S. 976 (1989) ............. 24
Supreme Court of New Hampshire v. Piper,

Ne oe ae ee ere 23
United States v. Sperry, )

Rn cream eeeaees asian 20

Yee v. City of Escondido,
224 Cal.App.3d 1349, 274 Cal.Rptr. 551 (1990)... 18

Statutes

California Mobilehome Residency Law

Cals. Civ. Camis $8 70 G8 O00... cece 3
oe Re Be ff errr rrr ee 3, 5,9
pe ae Me |}, 8 eee 3, 5, 10
Ss Ses UE URE oss ce ccwc ev ccccuses 3
Ss es I EE 6 956 sce a caencens 5
6 ae Re Lk | ee 5, 1]

Escondido Municipal Code, Article V, § 29-103... 3, 12

Secondary Authorities

Epstein, Takings: Descent and Resurrection,

¢ 3 & 6 RAR Ree ere ree 21
Hirsch & Hirsch, Legal-Economic Analysis of

Rent Controls in a Mobile Home Context:

Placement Values and Vacancy Decontrol,

35 U.C.L.A. L. Rev. 399, 412, 448-49 (1988) . . .3, 12
Karlen, Back to the Future: From Nollan to Lochner,

17 Southwestern L. Rev. 627 (1988)........... 21

Michelman, Property, Utility, and Fairness:

Comments on the Ethical Foundations of "

Just Compensation” Law,

80 Harv. L. Rev. 1165, 1184 (1967)...........
Recent Developments, Making Room at the Inn:

Rent Control as a Regulatory Taking,

38 Wash. U. J. of Urb. and Contemp. Law

a ti oe Sa a

SA C. Wright & A. Miller, Federal Practice &
Procedure § 1357 (2d Ed. 1990)..............

In the Supreme Court of the United States
October Term, 1991

No. 90-1947

JOHN K. YEE, et al., Petitioners,
Vv

THE CITY OF ESCONDIDO, Respondent.

ON WRIT OF CERTIORARI TO THE
FOURTH APPELLATE DISTRICT,
DIVISION ONE, COURT OF APPEAL
FOR THE STATE OF CALIFORNIA

BRIEF FOR THE
WASHINGTON LEGAL FOUNDATION AND
ALLIED EDUCATIONAL FOUNDATION
AS AMICI CURIAE IN SUPPORT OF THE
PETITIONERS

INTEREST OF THE
WASHINGTON LEGAL FOUNDATION AND
ALLIED EDUCATIONAL FOUNDATION

The Washington Legal Foundation (WLF) is a
national non-profit public interest law and policy center with

over 120,000 members and supporters nationwide. While
WLF engages in litigation and administrative process in a
variety of substantive areas of the law, WLF devotes
considerable resources to cases dealing with property nghts
in general and the Takings Clause of the Fifth Amendment in
particular. WLF has filed briefs on these issues in this Court
and lower courts, including cases on rent control. See, é.g.,
Pennell v. City of San Jose, 485 U.S. 1 (1988); Fisher v.
City of Berkeley, 475 U.S. 260 (1986).

The Allied Educational Foundation (AEF) is a non-
profit charitable and education foundation based in
Englewood, New Jersey. Founded in 1964, AEF is
dedicated to promoting education in diverse areas of study,
including and law and economics, and has appeared before
this Court as amicus on a number of occasions.

Both WLF and AEF believe that they can provide a
broader perspective to this case and the issues presented
which will assist the Court in adjudicating the merits of this
case. By letters filed with the Clerk of the Court, Petitioners
and Respondent have consented to the filing of this Brief.

STATEMENT OF THE CASE

On July 7, 1988, a mobilehome rent control ordinance
became effective within the City of Escondido for all
mobilehome parks. The Ordinance provides, inter alia:

Except as hereinafter provided, an owner shall
not demand, accept, or retain rent for a mobilehome
space exceeding the rent in effect for said space on
January 1, 1986. ... No owner shall send a notice
containing the specific amount of a proposed rental
increase prior to receiving approval of a rent increase

from the Board [the Mobilehome Park Rental Review
Board of the City of Escondido].

Escondido Municipal Code, Article V, § 29-103. There is
no provision in the Ordinance fer adjustment of the rental to
fair market value when a tenant vacates the leased property.
(See Respondent's Brief in Opposition to Certiorari,
Appendix A-1 - A-3). The absence of "vacancy decontrol"
means that the existing rental obligation carries over to the
new tenant.!

The operation of the Escondido Ordinance must be
viewed in connection with the California Mobilehome
Residency Law (Calif. Civ. Code §§ 798 et seq.). The state
law severely limits the grounds upon which a mobilehome
tenancy may be terminated or not renewed. Calif. Civ.
Code §§ 798.55 & 798.56. As a consequence, tenancies on
a month to month basis or for a specified term are, in effect,
abolished for mobilehome parks. Of course, the tenancy
may be terminated by the voluntary decision of the tenant.
Calif. Civ. Code § 798.59.

The Escondido Ordinance operates in combination with
the California Mobilehome Residency Law to guarantee
tenants a continuing lease at a controlled rent for the duration
of the tenancy. Because there is no provision for any rental
adjustment when a tenancy is terminated, a selling tenant
may charge a premium on the sale of a mobilehome coach in
relation to the extent that the controlled rent is lower than the
fair market rental value of the mobilehome park space.

1 See Hirsch & Hirsch, Legal-Economic Analysis of Rent Controls
in a Mobile Home Context: Placement Values and Vacancy Decontrol,
35 U.C.LL.A. L. Rev. 399, 412, 448-49 (1988).

4

Petitioners John K. Yee and Irene S. Yee, owners of
two mobilehome parks in the City of Escondido, filed an
action under 42 U.S.C. §§ 1983 et seq., alleging that the
mobilehome rent control ordinance enacted by the
Respondent City of Escondido constituted a taking in
violation of the Fifth and Fourteenth Amendments to the
United States Constitution, as well as under the California
Constitution, Article 1, Section 19. They sought declaratory
and injunctive relief against further enforcement of the
ordinance, and attorneys’ fees under 42 U.S.C. § 1988 and
Cal. Civ. Proc. § 1036.

The Respondent filed a demurrer and a motion to strike.
The demurrer was sustained by the Superior Court for the
County of San Diego without leave to amend and action was
dismissed by the Court. The Yees appealed this decision to
the California Court of Appeal, Fourth Appellate District.
Pursuant to stipulation of the parties, the Yees' appeal was
consolidated on appeal with other cases challenging the
Escondido Ordinance. (See Respondent's Brief in
Opposition to Certiorari, pp. 7-8, n. 6). The Court of
Appeal affirmed the Superior Court decision. The California
Supreme Court denied a Petition for Review.

On October 15, 1991, this Court granted certiorari with
respect to Questions | and 2 raised in Petitioner's Petition
for Certiorari. __ U.S. __, 112 S.Ct. 294 (1991).

This Amici Curiae Brief will address the following two
questions:

1. Does the Escondido Ordinance constitute a taking
under the Fifth and Fourteenth Amendments by permanently
authorizing the occupation of property and thereby causing
the transfer of an interest in property from the owner to a
third party, without payment of just compensation?

2. Does the Escondido Ordinance “substantially
advance legitimate state interests" or does it “den[y] an
owner economically viable use of his land"??

SUMMARY OF ARGUMENT

When government authorizes the permanent physical
occupation of property, this Court has readily found a
taking, "without regard to whether the action achieves an
important public benefit or has only a minimal economic
impact on the owner." Loretto v. Teleprompter Manhattan
CATV Corp., 458 U.S. 419, 434-35 (1982). The
Escondido Ordinance, operating in combination with the
California Mobilehome Residency Law (Calif. Civ. Code §§
798 et seq.), authorizes the taking of economic benefits from
the park owner by a tenant who is entitled to occupy the

property in perpetuity.

Under the California Mobilehome Residency Law, the
park owner may not terminate a lease or refuse to renew
same so long as the tenant pays the rent and reasonable
expenses and avoids bad behavior. Calif. Civ. Code §§
798.55 & 798.56. When the tenant decides to sell the
mobilehome coach, the park owner may not require the
removal of the coach from the park except under very limited
circumstances. Calif. Civ. Code § 798.73. The park owner
may not ordinarily refuse approval of the new purchaser as a
ienant. Calif. Civ. Code § 798.74. The practical effect of
these provisions is to allow the present tenant to transfer the
possessory interest in the mobilehome space to a third party
without renegotiation of the terms and conditions of the
lease.

2 Nollan v. California Coastal Commission, 483 U.S. 825, 834
(1987); Agins v. Tiburon, 447 U.S. 255, 260 (1980). Amici have
made the assumption that this is the proper formulation of the second
question certified for consideration in this case.

6

Against this background of state law, the control of rents
by Respondent constitutes a permanent transfer of economic
interests from the park owner to the current tenant. Where
the benefit of renting the mobilehome space at a less than fair
market rate is coupled with the perpetual occupation of the
property by the tenant, there is a physical taking.

The lack of vacancy decontrol exacerbates the effect of
the Escondido Ordinance. Because the rent for the
mobilehome space is not decontrolled upon a termination of
the tenancy, a windfall inevitably accrues to the vacating
tenant. The sale price of the coach will reflect the benefit of
a rent controlled space. An unregulated sale of the coach
will undermine the reason for rent control because the new
tenant will pay a higher price for the mobilehome coach and
thereby capitalize a portion of the rent.

The actions of the Respondent are therefore well within
the holding of this Court in Loretto v. Teleprompter
Manhattan CATV Corp., 458 U.S. 419 (1982). This
conclusion is supported by the decisions of the Ninth Circuit
in Azul Pacifico, Inc. v. City of Los Angeles, __ F.2d ___,
1991 WL 224528 (9th Cir. 1991) and Hall v. City of Santa
Barbara, 833 F.2d 1270 (9th Cir. 1986), ce: ¢. denied, 485
U.S. 940 (1988) and the decision of the Third Circuit in
Pinewood Estates of Michigan v. Barnegat Township
Leveling Board, 898 F.2d 347 (3d Cir. 1990).

The rejection of the Hall and Barnegat analysis by the
California Court of Appeal in this case was erroneous
because the Court made factual assumptions not supported
by the evidence. This was particularly inappropriate for a
decision on the pleadings. The lower court also erred in
concluding that subsequent decisions of this Court had
undermined the rationale of Loretto, heavily relied upon by
both Hall and Barnegat. A careful reading of the subsequent

_— nd

decisions discloses, however, that this Court had not
repudiated Loretto. It has simply refused to extend the
Loretto holding to non-physical takings.

As a second ground for decision in this case, Amici
contend that the Escondido Ordinance does not "substantially
advance legitimate state interests" and it "denies an owner
economically viable use of his land." Nollan v. California
Coastal Commission, 483 U.S. 825, 834 (1987) (quoting
Agins v. Tiburon, 447 U.S. 255, 260 (1980)).

The principal justifications for rent control are to protect
mobilehome owners from unreasonable space rental
increases and to protect the owner's investment in the
mobilehome coach. Although the protection of consumer
welfare if a legitimate end, the means used in this case do not
"substantially advance" the governmental interest.
Regulation of rents without regulation of the resale of
mobilehome coaches allows the current tenant to reap the
economic benefit of future rent control. In fact, the means
used by Respondent are counterproductive to its own
asserted end.

The Ordinance is underinclusive because it does not
regulate the resale of mobilehome coaches in order to protect
consumers from "unreasonable" increases in the cost of
mobilehome housing. Protection of the tenant's investment
in the mobilehome coach cannot justify the lack of vacancy
decontrol because it gives the seller more than just protection
for investment. It gives the seller a windfall. If the
justification is articulated as protecting tenants in
mobilehome parks with limited incomes, the failure to
decontrol the rent when such tenants terminate their tenancy
indicates that the Ordinance is overinclusive as well. The
means used by the Ordinance therefore do not "substantially
advance” the interest asserted by Respondent.

ARGUMENT

I. The Escondido Ordinance Constitutes a
Permanent Physical Taking of Petitioners’
Property.

The Fifth Amendment guarantees that private property
shall not “be taken for public use, without just
compensation." This provision is applicable to the States
through the Fourteenth Amendment. Chicago, B. & Q. R.
Co. v. Chicago, 166 U.S. 226, 239 (1897). The purpose of
this guarantee is "to bar Government from forcing some
people alone to bear public burdens which, in all fairness
and justice, should be borne by the public as a whole."
Armstrong v. United States, 364 U.S. 40, 49 (1960). See
also Nollan v. California Coastal Commission, 483 U.S.
825, 835 n. 4 (1987); Agins v. City of Tiburon, 447 U.S.
255, 260 (1980).

Althoug® this Court has acknowledged that "[t]he
question of wat constitutes a ‘taking’ for purposes of the
Fifth Amendment has proved to be a problem of
considerable difficulty" (Penn Central Transportation Co. v.
City of New York, 438 U.S. 104, 123 (1978)), several
factors have been identified. These include the economic
impact of the regulation on the claimant, the extent to which
the regulation has interfered with distinct investment-backed
expectations, and the character of the governmental action.
Id. at 124.

When the character of the action involves a physical
intrusion by government, this Court has stated that a
“taking” may be more readily found. /d. Indeed, if the
intrusion amounts to a permanent physical occupation of
property, the "cases uniformly have found a taking to the
extent of the occupation, without regard to whether the

9

action achieves an important public benefit or has only
minimal economic impact on the owner." Loretto v.
Teleprompter Manhattan CATV Corp., 458 U.S. 419, 434-
35 (1982). Thus, a permanent physical intrusion by the
government is not simply one factor in resolving whether the
action constitutes a taking, it is determinative. /d. at 426.

A. The Escondido Ordinance Combines With
the State Mobilehome Residency Law to
Permanently Transfer an Interest in
Property from the Owner to a Person
Occupying the Property in Perpetuity.

The first question therefore is whether operation of the
Escondido Ordinance amounts to a permanent physical
occupation of the Petitioners’ property. It must be conceded
at the outset that the Ordinance does not, in and of itself,
authorize a »hysical taking. However, when viewed in
connection with state law regarding mobilehome tenancies,
its effect is to authorize the taking of economic benefits from
the owner by a tenant who is entitled to occupy the property

in perpetuity.

The California Mobilehome Residency Law severely
limits the grounds upon which a landlord may terminate or
refuse to renew a lease. Calif. Civ. Code § 798.55. The
park owner may terminate a tenancy only in the event of (1)
failure to comply with a local ordinance or state law or
regulation relating to mobilehomes within a reasonable time
after receiving a notice of noncompliance from the
appropriate governmental agency; (2) conduct by the
mobilehomeowner or resident, upon the park premises,
which constitutes a substantial annoyance to other
mobilehomeowners or residents; (3) conviction of the
homeowner or resident for prostitution or a felony controlled
substance offense on account of an act within the

10

mobilehome park, except that the tenancy may not be
terminated if the person convicted permanently vacates and
does not subsequently reoccupy the mobilehome; (4) failure
of the homeowner or resident to comply with a reasonable
rule or regulation which is part of the rental agreement; (5)
nonpayment of rent, utility charges, or reasonable service
charges, except that a tenant may cure nonpayment within
three days after receiving written notice; (6) condemnation of
the park; or (7) change in the use of the park. Calif. Civ.
Code § 798.56. The practical effect of these limitations is to
make the mobilehome tenancy perpetual so long as the rent is
paid and the tenant behaves.?

When the tenant decides to sell the mobilehome coach,
the park owner may not require the removal of the coach
from the park except under very limited circumstances.
Calif. Civ. Code § 798.73. The park owner may require
prior approval of the purchaser, but such approval cannot be
withheld if the prospective tenant has the financial ability to
pay the rent and charges of the park, unless there is reason to
believe, on the basis of the purchaser's prior tenancies, that

3 See Hall v. City of Santa Barbara, 833 F.2d 1270, 1277 (9th Cir.
1986), cert. denied, 485 U.S. 940 (1988).

Because the Superior Court below determined that Petitioners’
complaints failed to state a cause of action as a matter of law, the
complaints must be viewed in the light most favorable to the
Petitioners and their allegations are to be taken as true. 5A C. Wright
& A. Miller, Federal Practice & Procedure § 1357, at 304 (2d Ed.
1990). As this Court has stated in Conley v. Gibson, 355 U.S. 41,
45-46 (1957):

In appraising the sufficiency of the complaint, we follow, of
course, the accepted rule that a complaint should not be
dismissed for failure to state a claim unless it appears beyond
doubt that the plainuff can prove no set of facts in support of
his claim which would entitle him to relief.

11

"he or she will not comply with the rules and regulations of
the park." Calif. Civ. Code § 798.74(a). The practical
effect of these provisions is to allow the present tenant to
transfer the possessory interest in the mobilehome space to a
third party without renegotiation of the terms and conditions

~ of the lease.

With these provisions of state law serving as the legal
landscape against which the Escondido Ordinance operates,
the control of rents constitutes a permanent transfer of
economic interests from the park owner to the current tenant.
This occurs in two ways. The first is the benefit of renting
property at a rate less than the fair market rental rate. A
general power to convey this benefit to tenants is within the
recognized police power "to regulate housing conditions in
general and the landlord-tenant relationship in particular
without paying compensation for all economic injuries that
such regulation entails." Loretto v. Teleprompter Manhattan
CATV Corp., 458 U.S. 419, 440 (1982). But where this
benefit is coupled with the perpetual occupation of the
property by the tenant, it amounts to a physical taking. The
Loretto Court was careful to distinguish its holding from the
general rent control cases:

In none of these cases, however, did the government
authorize the permanent occupation of the landlord's
property by a third party... . So long as [the rent
control regulations} do not require the landlord to
suffer the physical occupation of a portion of his
building by a third party, they will be analyzed under
the multifactor inquiry generally applicable to
nonpossessory governmental activity.

Loretto, 458 U.S. at 440. The Escondido Ordinance acts in
concert with the state mobilehome residency law to achieve
precisely this prohibited result.

12

The second transfer of property resulting from
Escondido Ordinance is the ability of the current tenant to
realize the future value of the less than fair market rental rates
when such tenant vacates the leased premises. Although not
inherent in rent control generally, this second benefit is the
inevitable result of the Escondido Ordinance. Because the
rent is not decontrolled* upon the vacation of the premises on
account of a sale of the mobilehome coach, a windfall will
accrue to the first tenant. The sale price of the coach will
inevitably reflect an amount capitalizing the difference
between future fair market rent and future controlled rent.°
To regulate rents in mobilehome parks, but not the resale of
mobilehome coaches, inevitably allows the current tenant to
reap the economic benefit of future rent control. The
consequence of allowing the current tenant to realize the
benefit of reduced future rents is that the chief reason for rent
control (less than fair market rental rates) is thereafter lost to
subsequent tenants because they will have to pay the
difference in the form of a higher sales price for the
mobilehome coach.

The Escondido Ordinance, when operating against the
background of the state mobilehome residency law, therefore
constitutes a taking because there is a permanent transfer of
interests in property from the owner to another party who is
entitled to occupy the property in perpetuity.

4 There is no provision in the Escondido Ordinance for an adjustment
of rent on account of the termination of a mobilehome tenancy and
vacation of the leased premises. See Escondido Municipal Code,
Article V, § 29-103(g). (Respondent's Brief in Opposition to
Certiorari, Appendix A-1 - A-3).

5 See, e.g., Hirsch & Hirsch, Legal-Economic Analysis of Rent
Controls in a Mobile Home Context: Placement Values and Vacancy
Decontrol, 35 U.C.L.A. L. Rev. 399, 425, 430-32, 447-48 (1988).

13

The Ordinance is well within the prohibition articulated
by this Court in Loretto v. Teleprompter Manhattan CATV
Corp., 458 U.S. 419 (1982). If there is a permanent
physical occupation of property, authorized by the
government, then there has been a taking. /d. at 441. The
fact that the occupant is a third party and not the government
is of no significance. Jd. at 432 n. 9. The inability of the
landlord, however, to terminate, refuse to renew, or reject a
new tenant, when combined with the lack of vacancy
decontrol, are very significant. This underscores the fact
that the physical intrusion in this case is not temporary, but

effectively permanent.

The right to choose who might occupy the property has
been transferred to the current tenant. As underscored by
this Court in Kaiser Aetna v. United States, 444 U.S. 164,
176 (1979), the right to exclude others is "one of the most
essential sticks in the bundle of right that are commonly
characterized as property." ‘vhis is a fundamental attribute of
ownership of property, long recognized in the common law.
See, e.g., Eaton v. B.C. & M.R.R., 51 N.H. 504 (1872).
Recognition of a taking in this case would be well within
established precedent based upon a clear textual commitment
in the Fifth Amendment.

B. The Circuit Courts of Appeal Have
Found a Taking Under the Same
Circumstances as Exist in This Case.

The only two Circuits to address this precise issue have
both held that rent control without provision for adjustment
when a vacancy occurs constitutes a permanent physical
occupation by the tenant. See Azul Pacifico, Inc. v. City of
Los Angeles, __ F.2d ___, 1991 WL 224528 at 4 (9th Cir.
1991); Pinewood Estates of Michigan v. Barnegat Township
Leveling Board, 898 F.2d 347, 353 (3d Cir. 1990); Hall v.

14

City of Santa Barbara, 833 F.2d 1270, 1276 (9th Cir.
1986), cert. denied, 485 U.S. 940 (1988).

The leading case is Hall v. City of Santa Barbara, 833
F.2d 1270, 1276 (9th Cir. 1986), cert. denied, 485 U.S.
940 (1988). In Hall, the Ninth Circuit held that the plaintiff
had stated a cause of action for an uncompensated taking on
the basis of the combined operation of a local mobilehome
rent control ordinance and the California Mobilehome
Residency law:

Reduced to its essentials, appellants’ claim is that the
Santa Barbara ordinance has transferred a possessory
interest in their land to each of their 71 tenants; that
this interest consists of the right to occupy the
property in perpetuity while paying only a faction of
what it is worth in rent; and that this interest is
transferable, has an established market and market
value. If proven, appellants’ claims would amount
to the type of interference with the property owner's
rights the Court described so eloquently in Loretto.

Id. at 1276. The Hall Court observed that the effect of the
law is to give tenants a lease for an indefinite period. The
right to occupy property in perpetuity is a right normally
ownership with ownership. It is also the type of property
interest protected by the Takings Clause. See Michelman,
Property, Utility, and Fairness: Comments on the Ethical
Foundations of "Just Compensation” Law, 80 Harv. L.
Rev. 1165, 1184 (1967). Not only is the right to occupy
indefinitely transferred, but so is the right to decide who will
live on the property in the future. Hall, 833 F.2d at 1276.

Hall also recognized the second type of taking discussed
above. The absence of vacancy decontrol allows the current
tenant to realize the profit from future control of rent. This

15

type of taking is even more extreme because it is divorced
from any valid purpose that rent control could possibly
serve. The Hall Court concluded:

[B]ecause of the way the ordinance is alleged to
operate, the tenant is able to derive an economic
benefit from the statutory leasehold by capturing a
rent control premium when he sells his mobile home.
In effect, the tenant is given an economic interest in
the land that he can use, sell or give away at his
pleasure; this interest (or its monetary equivalent) is
the tenant's to keep or use, whether or not he
continues to be a tenant. If the Halls’ allegations are
proven true, it would be difficult to say that the
ordinance does not transfer an interest in their land to
others.

Id. at 1276-77. The Court rejected the argument that the
transfer was not permanent because the ordinance might
someday be repealed. "A government taking can always be
undone if the government so chooses. That has never
defeated a taking claim." /d. at 1277. It also discounted the
fact that a tenancy could be terminated for cause. The
tenant's continuing right to possession is essentially at the
will of the tenant, not the landlord. /d.

Hall's recognition, at the pleading stage, of a cause of
action for a compensable taking was supported by the
subsequent factual findings of the United States District
Court in Azul Pacifico, Inc. v. City of Los Angeles, 740
F.Supp. 772 (C.D. Cal. 1990). In Azul Pacifico, the
District Court found that mobilehome park owners
effectively cannot evict tenants, and they cannot charge
market rent. /d. at 775-76. It should be noted that the Los
Angeles ordinance was not as violative of the property
owner's rights because it at least allowed for a maximum

16

increase of ten percent upon the termination of a tenancy.
This still was not enough to avoid a taking. /d. at 776. The
District Court also found that the vacancy controls operated
to transfer a property right from the park owner to the
tenants. There was expert testimony which established that
coaches in rent-controlled parks sold for considerably more
than in parks where market rents prevailed, even after
accounting for other variables such as location and
amenities. The plaintiff's expert calculated the premium at
$20,880; the city's expert calculated it at $5,000. /d.

On appeal, these findings were affirmed by the Ninth
Circuit. Azul Pacifico, Inc. v. City of Los Angeles, ___
F.2d, __, 1991 WL 224528 at 5 (9th Cir. 1991). "The
premium itself, the existence of which the district court
found as a matter of fact, establishes that selling tenants can
monetize the property right assigned to them by the [rent
stabilization ordinance]." /d.

Similarly, the Third Circuit in Pinewood Estates of
Michigan v. Barnegat Township Leveling Board, 898 F.2d
347 (3d Cir. 1990) held that the combined impact of the state
law and the local ordinance permanently deprived the owners
of a possessory interest in their property. /d. at 353. The
Third Circuit found the physical invasion of the mobilehome
properties and the uncompensated creation of interests in
them to be more pronounced than that in Loretto. Id. The
Court emphasized that the payment to the vacating tenant
was in part a payment of future rent:

[T]he purchaser of a mobile home who pays a
premium for the right to keep the home in a mobile
home park pays for the cost of the tenancy rather
than for the mobile home. Thus, the premium is
nothing more than rent for the pad which, depending
upon whether the purchase is financed or paid for in

17

cash, the new tenant pays during his tenancy or in
advance. But this rent is paid not to the appellants
who own the parks but to the prior tenant who, by
virtue of the Barnegat Ordinance and state law has
been granted a valuable alienable possessory interest

in the park.

Id. In comparing the case with other rent control cases, the
Court noted the uniqueness of the mobilehome legislation
which has brought about the taking. With rent control of
apartment dwellings, the landlord selects and rents to the
new tenants.® The vacating tenant is not empowered to sell
the right to occupy the premises. Furthermore, the tenant
cannot occupy the premises in perpetuity. The tenant does
not acquire an inheritable right. /d. at 355. The Third
Circuit reversed the District Court's dismissal of the action
and remanded the case for further proceedings on the merits
of the plaintiffs’ claim.

C. The Rejection of the Hall and Barnegat
Analysis by the Court of Appeal in this
Case Was Erroneous as a Matter of Law.

The Court of Appeal in this case rejected the Petitioners’
contention that the combined effect of the state and local laws
constituted a taking of property. Remarkably, in light of the
procedural posture of the case, the Court opposed
Petitioners’ theory of taking with its own counter theory. It
stated that "[w]here a governmental regulation: purports to
reduce the excessive and unfair price to a reasonable level,
the mere fact that the price for complementary goods and
services rises as a result does not transmute an otherwise

6 Within the term of the lease, however, the tenant may be able to
capture the premium afforded by rent control through the mechanism of
a sublease, if permitted under applicable law.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385013_0113%3A24. Public record. Not legal advice.