Amicus Curiae Brief — Yee v. Escondido

No. 90-1947 | JAN 3 499

In the Supreme Court... _..

of the United States——-- - ~

October Term, 1991

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 AMICUS CURIAE

OF THE CITY OF SANTA MONICA,

COUNTY OF SANTA BARBARA AND THE

SANTA MONICA RENT CONTROL BOARD

IN SUPPORT OF RESPONDENT

KARL M. MANHEIM ROBERT M. MYERS’

Loyola Law School City Attorney of Santa Monica

1441 West Olympic Boulevard JOSEPH LAWRENCE

Los Angeles, California 90015 Assistant City Attorney

Telephone: (213) 736-1106 MARTIN TACHIKI

BARRY ROSENBAUM

DAVID NAWI Deputy City Attorneys

County Counsel of 1685 Main Street

Santa Barbara Santa Monica, California 90401

SHANE STARK Telephone: (310) 458-8336

Chief Deputy County Counsel

105 E. Anapamu DAVID PETTIT

Santa Barbara, California 93101 Hedges & Caldwell

Telephone: (805) 568-2950 A Professional Corporation

606 South Olive St., Ste. 500

ANTHONY A. TRENDACOSTA Los Angeles, California 90014

General Counsel Telephone: (213) 629-9040 S

Santa Monica Rent Contro! Board

1685 Main Street

Santa Monica, California 9040] ‘Counsel of Record for Amici Curiae

Telephone: (310) 458-8781

TABLE OF CONTENTS

Page

I gk ho e's 0. bd 0 Oe es Wee l

SUMMARY OF ARGUMENT ................ 2

EE no os 6 beh ose 5-662 sees ees 4

EE o's 6-0 eas 656 oc sa bee nebo owe 8

OCCUPANCY OF RENTAL PROPERTY AT REGU-

LATED RENTS DOES NOT CONSTITUTE A

oo a: eee ere 8

A. Rent And Eviction Controls Do Not Result

In A Permanent Physical Occupation Of

FS oun eae oar eek area 9

1. This Is Not A Case Of Ouster Nor The

Imposition Of An Unwanted Use .... 9

2. A Possessory Taking Will Be Found

Only Where Occupation Extinguishes

Value In The Property Possessed .... 12

B. Mobilehome Rent and Eviction Controls Do

Not Extinguish Possessory Interests ...... 14

1. A Mobilehome Owner’s Right To Sell

His Coach On Site Does Not Deny The

Park Owner Reversionary Rights .... . 15

2. Monetized Rent Savings Do Not Con-

stitute A Possessory Interest ........ 17

3. Permanent Physical Occupation, If Any,

Is Caused By The MRL; It Is Not At-

tributabie To E* ~.dido ........... 18

THE INTEREST PETITIONERS CLAIM TO HAVE

BEEN TAKEN AND TRANSFERRED TO TEN-

ANTS IS NOT COMPENSABLE ........... 19

A. Appreciated Site Value Does Not Con-

stitute Fifth Amendment Property........ 19

1. Appreciation Is The Result Of Govern-

mental Land Use Decisions; Appreciat-

ed Value Is Created By The State .... 21

2. The Owner’s Loss, Rather Than An-

other's Gain, Determines Whether A

Taking Has Occurred ............. 25

B. Appreciated Site Value Is Not A Discrete

And Severable Property Interest; It Cannot

Be Analyzed In Isolation.............. 26

1. Intangible Property Interests Are Not

Fractionated In Takings Cases ...... 26

2. Monetized Future Rent Savings

Are Not A Discrete And Market-

abte Pooperty RAE . ww ccc ccrcces 28

C. Any Taking That May Have Occurred Has

Been Fully Compensated.............. 29

eee) 6 eee ee 30

TABLE OF AUTHORITIES

Aldnutt v. Inglis,

I os soe hw ence ccc ees 10

Andrus v. Allard,

Co 24, 27, 28

Azul Pacifico v. City of Los Angeles,

_ F.2d _, 60 U.S.L.W. 2321

re 6, 7, 18, 19, 25, 29

Azul Pacifico v. City of Los Angeles,

740 F. Supp. 772

ee ee cc ce a os aa, 23, 25

Block v. Hirsch,

a 4,5, 10

Boston Chamber of Commerce v. Boston,

EE 18

Bowles v. Willingham,

sg ee et ee ee 5

Casella v. City of Morgan Hill,

230 Cal. App. 3d 43,

er 11, 21

Cider Barrell Mobile Home Court v. Eader,

287 Md. 574, 414 A.2d 1246 (1980) ......... 22

IV

De Anza Properties v. County of Santa Cruz,

936 F.2d 1084 (9th Cir. 1990) ........... 6, 29

Duquesne Light Co. v. Barasch,

Sg Ree 27, 28

Eamiello v. Liberty Mobile Home Sales,

208 Conn. 620, 546 A.2d 805 (1988),

appeal dismissed,

459 US. TOGR (ISSP) 0... See cess li, 16, 19, 23

Egar A. Levy Leasing Co. v. Siegel,

Se EE bb bd need ees waewes 5, 10

FCC v. Florida Power Corp.,

CP a OPED hbk ce haanues 9-10, 12, 13

Fidelity Federal Savings and Loan Association

v. de la Cueasta,

ok OO ree ree l,

First English Evangelical Lutheran Church v.

County of Los Angeles,

482 U.S. 304 (1987) ......... ereere 14, 19

Fisher v. City of Berkeley,

Coe We PND nov tai cess oe eauupenss 5

Fresh Pond Shopping Center v. Callahan,

ee Sa OE a eee Cara webs eek 645 %

Gateway Apartments v. Nutley,

605 F.Supp. 1161 (D.N.J. 1985) ............ 24

Vv

Hall v. City of Santa Barbara,

833 F.2d 1270 (9th Cir. 1987), cert. denied,

485 U.S. 940 (1988) .... 2, 16, 17, 24, 25, 29, 30

Hawaii Housing Authority v. Midkiff,

de Re re 23

Help Hoboken Housing v. City of Hoboken,

650 F.Supp. 793 (D.N.J. 1986) ............. 10

Hodel v. Irving,

ee an ea 28

In re Permian Basin Area Rate Cases,

Te es ar Vg oe 17

International Paper v. Town of Jay, Me.,

Ge Se See CO, HOD poss 0 ks oS ees 7

Javins v. First National Realty Corp.,

138 U.S. App. D.C. 369, 428 F.2d 1071 (1970) . 11

Jomirca v. California Mobile Home Dealers’ Ass‘n,

12 Cal. App. 3d 396, 90 Cal. Rptr. 696 (1970) .. 22

Joseph E. Seagram & Sons, Inc. v. Hostetter,

FE es a or ae ee se ere 17

Kaiser Aetna v. United States,

ie eee ee Cerne oo een i das 8&8. 9, 12, 14

Kendall v. Pestana,

40 Cal. 3d 488, 709 P.2d &37,

pe fe ef ee re 15, 16

vi

Keystone Bituminous Coal Assoc. v. DeBenedictis,

480 U.S. 470 (1987) ............ 12, 26, 27, 28

Kimball Laundry v. United States,

ee as © REED & 6 hoo wis Wis 6.8 00.5 60 0:6 ethos 25

Kirby Forest Ind. v. United States,

Se One: CED by vas Ga be.e 0560 ee s44- 28

Lindsey v. Normet,

Co ke ee ee ee 11

Loretto v. Teleprompter Manhattan CATV Corp.,

ee kt Cee eeece eas passim

Loretto v. Teleprompter,

53 N.Y.2d 124, 440 N.Y.S.2d 843 (1981) ...... 6

Marcus Brown Holding Co. v. Feldman,

i re ae 5

Merrill v. Town of Addison,

Pee eee ee Ge Ge. FD nc ew eee en cence. 7

Munn v. Illinois,

Rp le Fs ee re 4, 10, 13

Nollan v. California Coastal Commission,

483 U.S. 825 (1987) ......... 10, 12, 14, 15, 25

Northern Transportation Co. v. Chicago,

4) § | POTTER RPC TEE EET eT 9

vil

Oceanside Mobilehome Park Owners’ Ass'n.

v. City of Oceanside,

157 Cal. App. 3d 887,

Po ee 20

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

Pe Wh MP ROUTED ck ccc ce ens'es 7, 24, 27, 28

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

42 N.Y.2d 324, 366 N.E.2d 1271 (1977) ...... 23

Pennell v. City of San Jose,

oO ee ae 5, 13, 22

Pennsylvania Coal Co. v. Mahon,

SP EA DO EOUEED cc ci enecvececsenees 5, 6

People v. Mobile Magic,

46 Cal. App. 3d 1, 157.Cal. Rptr. 749 (1979)... 22

Prestin v. Mobil Oil Corp.,

van Paw aoe Cre Cer. T9RG) wo wc ce ccs 16

Pruneyard Shopping Center v. Robbins,

OF Ga PR GUUED cc eae ccesees 10, 13, 14, 16

Pumpelly v. Green Bay Co.,

13 Wall. (80 U.S.) 166 (1872) ........... 9,12

Rivera v. R. Cobian Chinea,

CBr be Fir Le ee 30

Rucklehaus v. Monsanto Co.,

Gr eee OE 5 cu vc ce eeeacececv Bae

Vill

Seawall Associates v. City of New York,

74 N.Y.2d 92, 542 N.E.2d 1059,

— of > Fd | PE eee

Schweiso v. Williams,

150 Cal. App. 3d 883,

198 Cal. Rptr. 238 (1984) ..............

Sherman v. Mertz,

42 Cal. App. 3d 769,

ira® S 3 fi. Sere

Stewart v. Green,

SUD So.26 GSP, (Pia. 1972)... ee eee

Suburban Mobile Homes, Inc. v. Amfac

Communities, Inc.,

101 Cal. App. 3d 532,

ook ee ee re

Thompson v. Merlino,

208 Conn. 620, 545 A.2d 1094,

appeal dismissed, 488 U.S. 1024 (1989) ....

Tirolerland v. Lake Placid 1980 Olympic Games,

592 F. Supp. 304 (N.D.N.Y. 1984) ........

Troy v. Renna,

727 F.2d 287 (3d Cir. 1984) .............

Unite. States v. Causby,

Fe Ue PEON bk he hekecewewceses

iX

United States v. General Motors Corp.,

Fae SA BED UTED ccc ce nsees 14, 24, 25, 27

United States v. Grand River Dam Authority,

EE ou kin & 6 wee enw se ce eee 21

United States ex rel T.V.A. v. Powelson,

Sg a so ab oe bo hee en 6% 24

Village of Euclid v. Ambler Realty Co.,

og ee ee 5

Ware v. Trailer Mart, Inc.,

623 F.2d 1150 (6th Cir. 1980) ....-......... 22

Wellenkamp v. Bank of America,

21 Cal.3d 943, 148 Cal. Rptr. 379,

ee Lf. 6 Pere eee eee ee 17, 18

Woods v. Clyod W. Miller Co.,

Se Ce PE CU Gh uw sha neeedeouss's 5

Statutes

rE I ieee eee be eee Oe 7

Fair Housing Act,

ge ode OR rer 16

California Civil Code

ES ON k's 5 6 a 3% 6-9 4 6 oe ode oo we OS 5

UE ae ies eed O00 hid RRO We DRE 15

if aes Sewers rere ae ee,” 12, 15

= a ee ee ee ee ee 15

2, | ere re Pare ee ee ene ee

NOD ack earns S 454-3 46 Kine aoe ao we

Escondido Ordinance

Haw. Rev. St. Ch. 516 (1967 Haw.

a ad ecw owe

OTHER AUTHORITIES

Annot., 21 A.L.R. 4th 188 (1983) ..............

Baar, Guidelines for Drafting Rent Control Laws:

Lessons of a Decade,

Dm Cee, ©. GROG. Fare CUUED oe vc see cecsns

Baar, The Right to Sell the ‘Im’ mobile Manufactured

Home in its Rent Controlled Space in the

‘Im’ mobile Park: Valid Regulation or Uncon-

Stitutional Taking?, 24 Urban Lawyer No.2

I Ne Oe

D. Hagman, Windfallsfor Wipeouts, 18 (1978) .....

Hale, DePortibus Maris, | F. Hargrave Law Tracts

re rt ee ee a ee

Hirsch & Hirsch, Legal-Economic Analysis of Rent

Controls in a Mebilehome Context: Placement

Values and Vacancy Decontrol, 35 U.C.L.A.

Se eer eee

xl

Manheim, Tenant Eviction Protection and

the Takings Clause, 1989 Wis. L. Rev.

DS ga as a a oa a ee 10, 23

Michelman, Property, Utility and Fairness:

Comments on the Ethical Foundations

of "Just Compensation" Law,

80 Harv. L. Rev. 1165 (1967) ............. 26

Note, Mobile Home Parks and Connecticut's

Regulatory Scheme: A Takings Analysis,

17 Conn. L. Rev. 811 (1985) ........ 19, 22, 23

Note, Mobilehomes: Present Regulation and

Needed Reforms, 27 Stan. L. Rev. 159

EE Rite an keke ee bb eae ee 23

R. Powell & P. Rohan, On Real Property,

ln et ars a aaa sald ea aig 16

Sackman, Nichols’ The Law of Eminent

ne TA 20, 24, 25, 29, 30

Shulman, Real Estate Valuation Under

Rent Control, 9 Am. Real Est. Urb. Econ.

i RE eich ne re Oe BOS | a. Da 21

No. 90-1947

In the Supreme Court

of the United States

October Term, 1991

JOHN K. YEE, et ai.,

Petitioners,

THE CITY OF ESCONDIDO,

Respondent.

BRIEF AMICUS CURIAE

OF THE CITY OF SANTA MONICA,

COUNTY OF SANTA BARBARA AND THE

SANTA MONICA RENT CONTROL BOARD

IN SUPPORT OF RESPONDENT

Pursuant to Supreme Court Rule No. 37.5, and with

the permission of the parties, the City of Santa Monica, the

County of Santa Barbara, and the Santa Monica Rent

Control Board, respectfully submit this brief amicus curiae

in support of the City of Escondido.

INTEREST OF AMICI

Amici support the City of Escondido in urging affir-

mance of the California Court of Appeal, and join in the

policy concerns expressed in the City of San Jose and Local

Government Association briefs. Amici write separately to

stress vital aspects of the law of possessory takings,

particularly as they apply to the unique factual setting of

this case.

Amici have enacted rent control and other land use

laws as a result of rapidly rising rents, a severe housing

shortage, and a desire to protect elderly and low and

moderate income tenants from homelessness. These mea-

2

sures are particularly necessary in southern California which

suffers from a crisis in the affordable housing market.

Amici’s efforts are consistent with the long recognized duty

of governments to provide for the housing needs of all

segments of their communities.

Amici must also respond to a wide variety of difficult

and often hotly contested land use issues. Long observed

standards of takings jurisprudence, which petitioners would

jettison, have provided the necessary flexibility for local

governments to balance these competing interests. Accord-

ingly, amici urge the continued vitality of these principles

in a ever more complicated society.

SUMMARY OF ARGUMENT

The Escondido mobilehome rent control ordinance

(“Ordinance’’) is an unexceptional form of price control.

While it may affect the value of regulated property, it

neither denies economically viable use nor imposes an

unwanted use on property. Therefore, it is neither a “regula-

tory’ nor “possessory” taking. That tenants occupy land and

pay fair rent—precisely the owner’s intended use—does not

transform their tenancies into physical invasions. The

property rights theory conceived in Hall v. City of Santa

Barbara, 833 F.2d 1270 (9th Cir. 1987), cert. denied, 485

U.S. 940 (1988), which is the basis for petitioners’ cause of

action, 1s contrary to well-established takings doctrine.

Escondido has imposed rent control on mobilehome

spaces. It has neither compelled a particular use, nor

secured any form of possessory rights to tenants. Tenure

flows from the state Mobilehome Residency Law (“MRL”),

whose validity is only indirectly before the Court, insofar

as petitioners neither sought relief from the MRL, nor sued

the state. Nonetheless, amici agree with petitioners that the

Ordinance must be considered against the backdrop of the

MRL, which predated the Ordinance’s adoption and defined

the contours of petitioners’ property rights. Viewed in

context, the incremental effect of the Ordinance is de

minimus on these rights or petitioners’ expectations.

Moreover, it is a regulatory effect. In an attempt to over-

come regulatory takings law, petitioners struggle to portray

the Ordinance as an interference with possessory rights.

Yet, it neither transfers, abrogates, nor affects any posses-

sory interest.

The Ordinance regulates rent increases. Thus, it

tempers the effects of inflation, monopoly, and other market

shortcomings on housing costs, which distort appreciation

in land values. As described by petitioners, the combined

effect of the Ordinance and MRL is to permit tenants to

“monetize” some of the appreciated value. Regardless of the

truth of petitioners’ claim, the constitution does not mandate

that fee owners receive maximum appreciation. The state,

which defines property in the first instance, has reposed

ancillary value in tenants, rather than landlords. The Fifth

Amendment ts indifferent to this distribution of economic

benefit, particularly where the state, through other recipro-

cal land use regulations, has created substantial appreciated

value in the first place.

Even if future appreciation constitutes Fifth Amend-

ment property, it is neither discrete nor severable. Cases

holding that extinction of discrete property interests is a

taking are inapposite. Rather, the denial of appreciated

value must be considered in relation to the remainder of

petitioners’ property rights. Moreover, even if the Ordi-

nance caused a taking, it occurred at the inception of the

law, prior to the appreciation. At that time, it was fully

compensated through the provision of fair rents. Value

occurring and realized by tenants subsequent to the taking

Is Not compensable.

INTRODUCTION

Seventy years ago, this Court sustained stringent rent

and eviction controls against Fifth and Fourteenth Amend-

ment claims. In Block v. Hirsch, 254 U.S. 135 (1921),

Justice Holmes assumed the District of Columbia Rents Act

would “deprive [the landlord] of the power of profiting”

from scarce housing resources, “a right usually incident to

fortunately situated property.” /d. at 157. Nonetheless, the

Court held that the controls went “little if at all farther”

than other forms of economic regulation. /d.

The fact that tangible property is also visible

tends to give a rigidity to our conception of our

rights in it that we do not attach to others less

concretely clothed. But the notion that the former

are exempt from the legislative modification

required from time to time in civilized life is

contradicted not only by the doctrine of eminent

domain, under which what is taken is paid for,

but by that of the police power in its proper

sense, under which property rights may be cut

down, and to that extent taken, without pay. /d. at

155.

To Justice Holmes, protecting tenants from landlord

profiteering was not only a proper public purpose, it was

one pursued “by most of the civilized nations of the world.”

Id. at 155.' Indeed, “(t]he preference given to the tenant in

' The Court of that esa drew a sharp distinction between matters affecting the

public interest and those only of private concer. The distinction is traced to

Lord Chief Justice Hale of Eneland, whose eighteenth century treatise stated

that “when private property is al/ected with a public interest” it “ceases to be

juris privati only.” De Portibus Maris, | F. Hargrave Law Tracts 78 (1787).

This Court adopted this principle in Munn v. Illinois, 94 U.S. 113 (1877),

declaring that “when private property is devoted to a public use, it 1s subject to

(continued...)

5

possession is an almost necessary incident of the policy,

and is traditional in English law.” /d. at 157.

Block is noteworthy, not only for its strong endorse-

ment of tenant protection laws, but because it came at a

time when the Court was strictly scrutinizing other forms of

land use regulation. See Pennsylvania Coal Co. v. Mahon,

260 U.S. 393 (1922). Indeed, Block preceded the Court’s

acceptance of zoning as a permissible form of land use

control. Village of Euclid v. Ambler Realty Co., 272 U.S.

365 (1926). Nor was Block an anomaly. Since 1921, this

Court has upheld rent and eviction controls on at least six

other occasions.’

Understandably then, petitioners do not challenge the

validity of rent control per se.’ Indeed, given this Court’s

recent pronouncements, any such effort would appear to be

futile. Nor do they directly challenge mobilehome owners’

Statutory right to sell their homes in situ, or the owners’

protection from arbitrary eviction. For, if this had been the

gravamen of their injury, petitioners would have sued the

state to enjoin the MRL.* They did not,° and could not

‘(...continued)

public regulation.” /d. at 130. The decision in Block reaffirms this, and notes

that with rental housing, “[a}ll the elements of a public interest justifying some

degree of public control are present.” 254 U.S. at 156.

* Pennell v. City of San Jose, 485 U.S. 1 (1988); Fisher v. City of Berkeley, 475

U.S. 260 (1986); Woods v. Cloyd W. M. + Co., 333 U.S. 138 (1948); Bowles

v. Willingham, 321 U.S. 503 (1944); Edgar A. Levy Leasing Co. v. Siegel, 258

U.S. 242 (1922); and Marcus Brown Holding Co. v. Feldman, 256 U.S. 170

(1921).

* See Petitioners’ Brief (Pet. Br.”) at 7.

* Cal. Civ. Code § 798, et seq. (Stats 1978, chapts.1031-1035)

* Petitioners attempt to fudge the issue of whether their attack is aimed at the

Escondido Ordinance, the MRL, or both, by claiming that the Ordinance “either

standing alone or in combination with the [MRL]” effectuates the taking. Pet

(continued...)

6

because such an action was time barred.° Thus, to the

extent petitioners are aggrieved by the transfer of possesso-

ry interests occasioned by the MRL, the instant case is the

wrong vehicle in which to pursue the issue.’

‘(...continued)

Br. at 9, 14. But once they begin to define the actual property interest

involved, it is apparent that they have sued the wrong party. Indeed, each of the

five “valuable possessory interest|s]" claimed in this case are attributable to the

MRL. See id. at 6, 9-10 (“the rights to: (1) occupy a mobilehome space in

perpetuity, (2) pay below market rent in perpetuity, (3) select the next tenant

to occupy the space, (4) fix the successor tenant's effective rent by charging a

premium on the sale of the mobilehome coach, and (5) sell, bequeath or pass

by intestacy all of these rights”). The only element of this list attributable to

Escondido is the below market rents. Notably, however, petitioners do not

separately challenge this, but complain that state law makes the feature

2“perpetual.” As the court below noted,

park tenants’ . . . rights to ‘permanently occupy’ the landlord's property

. .. derive not from a rent control ordinance but from the state Mobile-

home Residency Law which limits the circumstances under which a

landlord may terminate a tenancy, imposing a ‘good cause’ standard.

Cert. Pet. at A-18-19.

* Petitioners’ complaint was filed more than a decade after the MRL was

enacted, and thus is beyond the statute of limitations. See Azul Pacifico v. City

of Los Angeles, __ F.2d__, 60 U.S.L.W. 2321, (9th Cir. 1991) (slip op. at 21);

De Anza Properties v. County of Santa Cruz, 936 F.2d 1084 (9th Cir. 1990).

” It may be possible for two or more laws to combine to effectuate a taking,

where neither standing alone would be objectionable. But that case is not before

the Court. Since the MRL has not been challenged, it is the incremental effect

of the Ordinance that must be analyzed. Any other approach would be

tantamount to passing judgment on the MRL, something the Court should not

do because petitioners have chosen not to sue the State of California nor seek

relief against the state Act.

It is highly unusual for this Court to consider a takings clause challenge to a

state law where the state is not present to defend it. See Mahon, nominally a

suit between private parties, but “treated as one in which the general validity

of the [Kohler Act] should be discussed.” 260 U.S. at 393. In order to do this,

however, “[t}he Attorney General of the State | was] allowed to take part in the

argument below and [has] submitted [its] contentions here.” /d. See also Loretto

v. Teleprompter, 53 N.Y .2d 124, 132, 440 N.Y.S.2d 843, 846 (1981).

(continued...)

7

Petitioners strain to contest Escondido’s regulatory law

and its effect on their property. Their challenge is to a

particular aspect of the Ordinance—the prohibition on

unlimited rent increases to subsequent tenants.* According

to petitioners, this causes a “transfer of premium value to

departing mobile home tenant, representing value of right

to occupy at reduced rate under local mobile home rent

control ordinances [sic]."” The appropriate analysis for

such a claim is the well-established standard for regulatory

takings. Penn Central Transp. Co. v. City of New York, 438

U.S. 104 (1978).

Petitioners also contend the transfer is incident to a

permanent physical occupation of land. As such, petitioners

hope to subject it to the more rigorous analysis of “posses-

sory takings” as developed in Loretto v. Teleprompter

Manhattan CATV Corp., 458 U.S. 419 (1982). Thus, critical

to petitioners’ takings claim is the nature of the challenged

governmental action. The “possessory takings” doctrine is

a recognition that some interferences with property are

qualitatively more serious than others, and cannot usually

be justified by countervailing public needs short of compen-

(...continued)

This rule, whether it be jurisdictional or simply a matter of comity, was codified

in 28 U.S.C. § 2403 (SO Stat. 751 (1937)). This requires the court clerk to

certify to the state and allow participation where “the constitutionality of any

statute of that State affecting the public interest is drawn in question,” unless

the state is already a party. See Merrill v. Town of Addison, 763 F.2d 80, 82 (2d

Cir. 1985). The presence of the City of Escondido does not satisfy § 2403 as

far as the MRL ts concemed. /nternational Paper v. Town of Jay, Me., 887 F.2d

338, 340-41 (Ist Cur. 1989).

* Landlords may seek rent increases necessary te assure a “fair retum.” Ord.

§ 4(g). But, they may not impose unilateral rent increases; a feature commonly

referred to as “vacancy control.” It is this feature that petitioners claim works

the taking. See alse Azul Pacifico, slip op. at 3, 10-11.

* Cert. Pet. at i, Questions Presented (No. 1).

8

sation. However, petitioners’ resort to the possessory

takings doctrine is based on a simplistic and flawed

application of Loretto. Not every economic regulation

accompanied by occupancy results in a possessory taking.

This is particularly true where occupancy does not result

from the challenged governmental action.

Also critical to petitioners’ case is the identity of the

property interest affected by the law. Not all interests in

property are protected by the Fifth and Fourteenth Amend-

ments. The answer depends on whether the interest asserted

is a “reasonable, investment backed expectation” in light of

existing state law. Kaiser Aetna v. United States, 444 U.S.

164, 175 (1979).

Accordingly, two threshold issues emerge in this case:

(1) whether the Escondido Ordinance results in or authoriz-

es permanent physical occupation of land; and (2) whether

a recognized and discrete property interest is taken from the

park owner. Petitioners must establish both of these points

in order to prevail on their takings theory. The court below

properly rejected the complaint because petitioners cannot

establish either of them.

ARGUMENT

I. OCCUPANCY OF RENTAL PROPERTY AT

REGULATED RENTS DOES NOT CONSTI-

TUTE A POSSESSORY TAKING

The first suggestion that rent and eviction controls

might be analyzed under the possessory taking strand

appeared in Chief Justice Rehnquist’s dissent from dismiss-

al of appeal in Fresh Pond Shopping Center v. Callahan,

464 U.S. 875 (1983). Other than that, no case in this Court

has used that analysis. Nor does the instant case necessarily

turn on the correctness of Fresh Pond, because the cases

are sufficiently distinct in key areas. However, the notion

9

that regulations extending tenancy rights effect a permanent

physical invasion would work an unwarranted expansion of

existing law.

A. Rent And Eviction Controls Do Not Result In

A Permanent Physical Occupation Of Land.

l. This Is Not A Case Of Ouster Nor The

Imposition Of An Unwanted Use.

The possessory takings doctrine originated in this

Court in early cases where property was seized and owners

were “ousted” from possession of their land. Ouster occurs

where property is forcibly invaded “so as to effectually

destroy or impair its usefulness.” Pumpelly v. Green Bay

Co., 13 Wall. (80 U.S.) 166, 181 (1872).'° Later cases

extended inverse condemnation theory to governmentally

imposed new and unwanted uses on property, accompanied

by the physical presence of uninvited users. Kaiser Aeina;

United States v. Causby, 328 U.S. 256, 262-263 (1946).

Both variants presuppose impediment to the owner’s use

and destruction of value in that portion of property occu-

pied. Neither has occurred here.

Third party possession and unwanted use have been

essential elements in this Court's possessory takings Cases.

For instance, not only was the occupying cable company in

Loretto a “stranger,” 458 U.S. at 420, so too was its use of

the property. The use was new, unintended, and uninvited.

Indeed, had the New York law required the landlord to

accept a tenant, rather than a cable attachment, the case

'"° Pumpelly represented the “extremist qualification” placed on the state's

police power by the Constitution. Northern Transportation Co. vo Chicago, 99

U.S. 635, 642 (1878).

10

would have been decided differently.'' FCC v. Florida

Power Corp., 480 U.S. 245 (1988) demonstrates the

importance of this element. Since the challenged act did not

“require a power company to dedicate a portion of its pole

plant to communications use,” 480 U.S. at 251 n.6, Loretto

did not apply. “It is the invitation, not the rent, that makes

the difference.” Jd. at 252. "

Eviction laws which extend tenants’ right of occupancy

beyond the contract term are not “possessions” as that term

has been understood in takings jurisprudence. This is true

even where continued occupancy may be indefinite.’*? Nor

" The Court in Loretto specifically distinguished Block and Edgar A. Levy

Leasing, reading those cases as not involving government action which “author-

izjed] the permanent occupation of the landlord's property by a third party.”

458 U.S. at 440.

" See also Nollan v. California Coastal Commission, 483 U.S. 825, 831 (1987)

(right to exclude applies to “property reserved by its owner for private use”);

id. at 832 n. 1 (describing Pruneyard Shopping Center v. Robbins, 447 U.S. 74

(1980) as not involving possession “since there the owner had already opened

his property to the general public”). Similarly, in Munn, Chief Justice Waite

cited numerous examples in English common !aw where a property owner

permitted public use of his property and therefore became subject to price

regulation. 94 U.S. at 127-28. For instance, he quoted Judge LeBlanc in

Aldnutt v. Inglis, 12 East 527, 541 (1810):

Then, admitting these warehouses to be private property, and that the

company might discontinue this application of them, or that they might

have made what terms they pleased in the first instance, yet having, as

they now have, this monopoly, the question 1s, whether the warehouses

be not private property clothed with a public nght, and, if so, the pnnci-

ple of iaw attaches to them.”

The “principle of law” was that the crown might set “reasonable compensation”

for the use of the property. /d. at 537.

' See Manheim, Tenant Eviction Protection and the Takings Clause, 1989 Wis.

L. Rev. 925, 1000-1004 (1989) (“Tenant Eviction Protection”). See also Troy

v. Renna, 727 F.2d 287 (3d Cir. 1984) (upholding eviction law extending

tenancies for senior citizens and disabled tenants for as long as forty-eight

years); Help Hoboken Housing v. City of Hoboken, 650 F.Supp. 793 (D.N.J..,

(continued...)

11

does the conclusion change merely because occupancy

rights may survive the tenant in possession, and can be

transferred to another. The user might not have been hand-

picked by the landlord, but the use surely was.'* By

entering into the rental housing business, the landlord has

voluntarily yielded certain rights to regulation, notably those

associated with possession. Occupation of rented property

by tenants is hardly a “strange” use. Rather, it is the very

heart of the landlord’s “investment-backed expectation.”

(continued)

1986) (state may require landlords to place units back onto the market after they

have been withdrawn).

’* The importance of the distinction between new users and new use is

illustrated by comparing Eamiello v. Liberty Mobile Home Sales, 208 Conn.

620, 546 A.2d 805 (1988), appeal dismissed, 489 U.S. 1002 (1989), with

Seawall Associates v. City of New York, 74 N.Y .2d 92, 542 N.E.2d 1059, 544

N.Y.S.2d 542 (1989). In the former, the court held that statutory extension of

a voluntarily assumed use was “not equivalent to a governmentally sponsored

physical invasion.” 208 Conn. at 645-46, 546 A.2d at 818. While in the latter,

the court ruled that a mandatory rent-up provision was a possessory taking

because it “subject[ed landlords’] properties to a use which they neither planned

nor desired.” 74 N.Y.2d at 105, 542 N.E.2d at 1065, 544 N.Y.S.2d at 548. The

court added: “it is the forced occupation by strangers . . . not the identities of

the new tenants or the terms of the leases, which deprives the owners of their

possessory interests.” Jd. See also Casella v. City of Morgan Hill, 230 Cal.

App. 3d 43, 280 Cal. Rpt. 876 (1991)

'S In Lindsey v. Normet, 405 U.S. 56, 72 (1972), this Court noted .he “unique

factual and legal characteristics of the landlord-tenant relationship that justify

special statutory treatment.” This supplies another reason for exempting

landlord-tenant regulations from strict application of possessory takings

doctrine--the evolution of landlord-tenant relationships from one rooted in

property law to one that is contractual in nature. See id. at 86-87 (the “feudal

notion of landlord-tenant law--rooted in the special needs of an agrarian

society--has not been a realistic approach to landlord-tenant law for many years,

and has been replaced by what eminent authorities have described as ‘a

predominantly contractual’ analysis of leasehold interests”) (Douglas, J.,

concurring and dissenting). See also Javins v. First National Realty Corp., 138

U.S. App. D.C. 369, 373, 428 F.2d 1071, 1075 (1970) (“leases of urban

dwelling units should be interpreted and construed like any other contract”).

12

In short, statutory extension of an existing intended use

is not tantamount to possession.'° Instead, what matters is

whether the physical occupation is equivalent to ouster---

dispossessing the owner of essentially all rights in the

occupied property. Here, where petitioners have selected the

use and still derive substantial value, their claim of ouster

is illusory.

2. A Possessory Taking Will Be Found Only

Where Occupation Extinguishes Value In

The Property Possessed.

In order to find a possessory taking, possession must

result in the extinction of value in that portion of property

possessed. See Keystone Bituminous Coal Assoc. v. De-

Benedictis, 480 U.S. 470, 517 (1987) (Rehnquist, C.J.,

dissenting). For instance, in Loretto, the cable attachment

usurped the entire value of the space it occupied.'’ In both

Nollan and Kaiser Aetna, the imposition of easements

relegated the owner to the same rights in that property as

enjoyed by the public for free. In Pumpelly, by occupying

'* In Florida Power, the Court suggested that this was an open question. “We

do not decide today what the application of Loretto . . . would be if the FCC

in a future case required utilities, over objection, to enter into, renew, or refrain

from terminating pole attachment agreements.” 480 U.S. at 289 n.6. However,

this referred to the property owner's right to change use, not merely to continue

it with a different occupant. See supra, n.14. Statutory lease extension has no

effect on the landlord's use of the property, nor does it deprive the owner of

“control over the timing, extent, or nature of the invasion.” Loretto, 458 U.S.

at 436. The Escondido Ordinance does not mandate any particular use of the

property, or even restrict its use. Indeed, both the Ordinance and the MRL

specifically authorize termination of tenancies pursuant to a change in use. Ord.

§$6(a)(6); Cal. Civil Code § 798.56.

" The property occupied by the cable company was rendered valueless to the

owner. The owner could not occupy that part herself, she could not exclude,

and she could not derive benefit either from the user or through sale of the

property. Indeed, the regulation “chop[ped] through the bundle [of mghts],

taking a slice of every sand.” 478 U.S. at 435.

13

the entire parcel’s surface, the state took all use and value

of the land.

This explains why not all regulation of property

incident to physical occupation is analyzed under the

possessory takings doctrine. See Pennell (apartment rent

control not viewed as a possessory taking despite physical

occupation by tenants);'* Florida Power (rate regulation of

pole attachments analyzed under regulatory takings strand);

Munn (fixing grain storage rates was permissible).

Petitioners attempt to mold the instant case into a

possessory taking by claiming both possession and complete

extinction (through transfer) of value. But, even if tenant

occupancy constitutes “possession,” the possession and the

lost value are of different things. The possession is of a

physical space—the mobilehome pad. On the other hand,

the transfer is of a noncorporeal interest—the right to

inflated profits through higher rent. Even accepting that this

interest has been completely transferred, it is neither

physically discrete nor coterminous with the possession."”

The landlords’ rights in the physical space, the proper

inquiry in possessory cases, are hardly extinguished. Not

only does the pad retain substantial value, its continued

rental meets the landlords’ expectations.

Were the rule otherwise, physical presence alone

would become talismanic under the takings clause. Yet,

other cases in this field have focused on the extent of

regulation, and required substantial deprivation to find a

taking. The point is illustrated by comparing Pruneyard

* Justice Scalia, who reached the takings issue in Pennell, rested his separate

opmmion on regulatory takings theory, and did not suggest that indefinite

occupation by tenants required a possessory takings analysis. 485 U.S. at 15

"* Nor is it fractionable for Fifth Amendment purposes. See infra, p. 26.

14

with Kaiser Aetna. Both cases involved the unwanted

physical presence of strangers. Also in both, the property

owner was deprived of the right to exclude, one of the

“essential sticks in the bundle of property rights.” Kaiser

Aetna, 444 U.S. at 179-180. Yet, in the former, the interest

taken had no appreciable value, nor did it affect the

property's use (Pruneyard, 447 U.S. at 83), while in the

latter, “petitioners had invested millions of dollars” (Kaiser

Aetna, 444 U.S. at 169), whose recapture through rents was

cut off by the presence of non-paying users.”

Since petitioners are not deprived of either use or

value in the physical property occupied by tenants, they

Cannot state a claim for a possessory taking.

B. Mobilehome Rent and Eviction Controls Do

Not Extinguish Possessory Interests

This Court has identified three essential rights in

property: to possess, use, and dispose. United States vy.

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

petitioners’ right to possess is constrained, it is by their own

voluntary action in devoting the property to rental use in

* Any suggestion that Pruneyard stands apart from other possessory takings

cases solely because the use was temporary rather than permanent (see Loretto,

458 U.S. at 434), is undercut by later cases that have rejected a distinction

between temporary and permanent takings. See Nollan, 483 U.S. at 832, (“a

‘permanent physical occupation’ has occurred, for purposes of that rule, where

individuals are given a permanent and continuous mght to pass to and from, so

that the real property may continuously be waversed, even though no particular

individual is permitted to station himself permanently upon the premises”); First

English Evangelical Lutheran Church v. County of Los Angeles, 482 U.S. 4

(1987) (temporary taking was compensable). Rather, Pruneyard found against

a possessory taking because “appellants have failed to demonstrate that the

‘night to exclude others’ is so essential to the use or economic value of their

property that the state-authonzed limitation of it amounted to a ‘taking. 447

U.S. at 84. The present case 1s directly apposite

15

the first instance, not through invasion by the state. More-

over, petitioners retain essential reversionary interests.

1. A Mobilehome Owner’s Right To Sell His

Coach On Site Does Not Deny The Park

Owner Reversionary Rights

A mobilehome owner’s bare right to sell his coach on

site abrogates little if any possessory rights the landlord has

in the property. It constitutes neither permanent nor indef-

inite occupation because the landlord’s reversionary rights

remain intact. He may evict for customary business rea-

sons,”' change the park’s use (subject to generally applica-

ble use restrictions), or terminate the use.” The only

reversionary right arguably taken from the landlord is the

ability to select the next tenant. However, the landlord still

retains essential rights of prior approval.”

In this regard, the MRL is no more intrusive than the

developing common law rule regarding lease assignment.”

” See, e.g., Cal. Civil Code §798.56 (violation of lease, park rules, non-payment

of rent); Cal. Civil Code §798.61 (abandonment); Cal. Civil Code §798.73 (old

or rundown coaches).

™ Cal. Civil Code §§ 798.10, 798.56.

® Loretto rejected the defense that invasion by cable was acceptable because the

landlord retained the right to withdraw the building from rental service. 458

U.S. at 439 n.17. That was seen as an unconstitutional condition because there

was no substantial nexus between the condition (cable presence) and use (rental

business). See Nollan, 483 U.S. at 838, 841. Here, however, the condition

(rental use by tenants) is not only related to, but is, the use. Accordingly, the

conferred statutory right of tenancy in a mobilehome park 1s precisely the use

which the landlord has made of his property. He may terminate the use, and

the user, without having to sacrifice any property nghts.

* See Cal. Civil Code §798.74.

* In California, restrictions on commercial lease assignment may be void as

contrary to public policy. This flows from the rule prohibiting restraints on

alienation. Kendall v. Pestana, 40 Cal. 3d 488, 709 P.2d 837, 220 Cal. Rpw.

818 (1985) (consent to lease assignment may not be unreasonably withheld)

(continued...)

16

Restrictions on the ability to exclude, which have figured

prominently in other contexts, do not implicate important

property rights where possession by others is the very

essence of the use made by the owner. Cf. Loretto, 458

U.S. at 434 (“the owner [in Pruneyard] had not exhibited

an interest in excluding all persons from his property”).

State intervention, including limitations on owners’ ability

to select or arbitrarily exclude tenants, is as unremarkable

in the heavily regulated rental housing business as it is with

innkeepers. Anti-discrimination statutes and common law

rules already circumscribe landlords’ ability to reject tenants

for non-business reasons.”°

*(__.continued)

See also Prestin v. Mobil Oil Corp., 741 F.2d 268 (9th Cir. 1984). For other

jurisdictions adopting this rule, see Kendall, 709 P.2d at 841, 220 Cal. Rptr. at

822; Annot., 21 A.L.R.4th 188 n.9 (1983). See also R. Powell & P. Rohan, On

Real Property, 246{1] (1988) (“{wJith the shortage of housing and, in many

places, of commercial space as well, the allowance of lease clauses forbidding

assignments and subleases is beginning to be curtailed by statutes”). At least

one court has equated the developing rule on lease assignment with the

transferability of mobilehome occupancy rights. See Eamiello, 208 Conn. at

646, 546 A.2d at 818.

* In Hail, the court declared that the landlord's right to select tenants was “an

important attribute of ownership.” 833 F.2d at 1279 n.23. Yet, in the heavily

regulated area of landlord-tenant relationships, a plethora of statutory and

judicial developments have constrained the landlord's ability to reject tenants.

See, e.g., Fair Housing Act, 42 U.S.C. §3601-3631 (1982); Eamiello; Tiroler-

land v. Lake Placid 1980 Olympic Games, 592 F.Supp. 304, 316 (N.D.N.Y.

1984) (rejecting taking challenge to ordinance limiting room rates and tenant

eligibility; “the Court has serious doubts whether an interference with the right

to select one’s tenants can amount to an unconstitutional taking”). See also

Schweiso v. Williams, 150 Cal.App.3d 883, 198 Cal.Rptr. 238 (1984) (in lease

assignment cases, “denying consent solely on the basis of personal taste,

convenience or sensibility or in order that the landlord may charge a higher rent

than onginally contracted for have been held arbitrary reasons failing the tests

of good faith and reasonableness”’).

17

2. Monetized Rent Savings Do Not Consti-

tute A Possessory Interest

The court in Hall distinguished the Santa Barbara

ordinance from apartment rent control on the ground it

enabled an outgoing tenant to “liquidate” his rent savings

“and take [it] with him when he leaves the property.” 833

F.2d at 1279. Petitioners similarly argue that the Ordinance

transfers a possessory interest which the tenant reduces to

money when selling his home. Pet. Br. at 14. Yet, the

economic benefit conferred by Escondido is below market

rents, not possession.

The benefit of rent control is no more a possessory

interest than any other situation where cost savings accom-

pany possession. If price control is not itself unconstitution-

al, the fact that a consumer realizes a monetary benefit after

his use and possession of a commodity terminates should

not compel a different conclusion. Otherwise, any mecha-

nism which controlled wholesale but not retail prices would

be unconstitutional, because the retailer could pocket the

“monetized” value of the wholesale price reduction when

reselling the item at an unregulated price.”’ Indeed, the

mobilehome owner’s ability to “liquidate’’ below market

rents when he leaves the property is remarkably similar to

a homeowner’s ability to capitalize below market interest

rates into the sales price of his house, which he could do by

transferring the mortgage to the purchaser. See Wellenkamp

” Although the precise issue has not been addressed by the Court, many of the

price control schemes upheld against due process and takings challenge appear

to have had this feature and effect. E.g., In re Permian Basin Area Rate Cases,

390 U.S. 747 (1968) (fixing maximum wholesale price of natural gas); Joseph

E. Seagram & Sons, inc. v. Hostetter, 384 U.S. 35 (1966) (upholding a New

York law imposing maximum wholesale prices while decontrolling retail

prices). In each case, the regulatory beneficiary acquired possession of goods

at reduced prices. He was also able to transfer possession at an unregulated

price, thereby reaping the difference.

1%

v. Bank of America, 21 Cal. 3d 943, 148 Cal. Rptr. 379,

582 P.2d 970 (1978).* In short, if it is not a taking to

authorize a tenant to remain on the property at reduced

rents indefinitely, it is hard to understand how it becomes

a taking when the tenant leaves.

3. Permanent Physical Occupation, If Any, Is

Caused By The MRL; It Is Not Attribut-

able To Escondido

Petitioners contend that a taking results from the

combined effect of the Escondido Ordinance and the MRL.

No serious contention can be advanced that the Ordinance,

by itself, authorizes physical occupation, creation or

alienation of leasehold, or any other possessory rights.

Rather, any such restriction on petitioners’ right or ttle

existed at the time the Ordinance was enacted.”

This Court has been clear that government action

alleged to cause a taking must be measured against the

backdrop of existing law and title. In Boston Chamber of

Commerce v. Boston, 217 U.S. 189 (1910), the Court

refused to order compensation to a fee owner when a

pre-existing easement had already affected the value of the

fee. “The Constitution . . . does not require a parcel of land

to be valued as an unencumbered whole when it is not held

as an unencumbered whole.” /d. at 195.

* The homeowner's mght was judicially recogmzed when the Califorma

Supreme Court ruled that a mortgage due-on-sale clause was an impermissible

“resuaint on alienation,” and therefore unenforceable. In Fidelity Federal

Savings And Loan Association v. de la Cuesta, 498 U.S. 141 (1982), thes Court

held the Wellenkamp rule was preempted by federal law

»” ; .

Indeed, according to the Court in Azul Pacifico, tis not necessary for the

vacancy control provisions of the Ordinance to be ever unplemented. “| T}here

would be a taking even if, for some reason, me Coaches were sold followmy

passage of the ordinance” F.2d at (slip op. at 18; Conpinal emphasis)

19

Whether a law extinguishes ownership rights or

otherwise goes “too far’ depends upon the uses available

without the challenged restriction. Here, absent the Ordi-

nance, petitioners might be able to collect higher rents, but

they would exercise no more control over possession than

they do now.” See Eamiello; Thompson v. Merlino, 208

Conn. 620, 545 A.2d 1094, appeal dismissed, 488 U.S.

1024 (1989).*' The most that can be said about the Ordi-

nance is that it marginally effects value; hardly an unusual

or unconstitutional feature of land use regulation.

Il. THE INTEREST PETITIONERS CLAIM TO

HAVE BEEN TAKEN AND TRANSFERRED

TO TENANTS IS NOT COMPENSABLE.

A. Appreciated Site Value Does Not Constitute

Fifth Amendment Property.

Petitioners’ theory relies heavily on the mobilehome

owners’ ability to capitalize future rent savings. Such

savings reflect the difference between market and controlled

rents. Azul Pacifico, _ F.2d at __ (slip op. at 11). Rent

control in Escondido, as elsewhere, does not actually set

* It has been suggested by some that the Escondido Ordinance 1s invalid, not

because it causes a taking, but because it prevents park owners from obtaining

just compensation for the taking caused by the MRL. If this be the case, suing

Escondido for damages makes no more sense than holding the California

Supreme Court liable after First English, for that court's refusal to allow

damages in inverse condemnation.

" The Court in Azul Pacifico distinguished these Connecticut cases on the

ground they involved protected tenancy, but not rent control. __ F.2d at _

(slip op. at 9n.3). Actually, Connecticut does limit rent increases in a manner

that may be operationally similar to the Escondido Ordinance. See Note,

Mobile Home Parks and Connecticut's Regulatory Scheme: A Takings Analysis,

17 Conn. L. Rev. 811, 830 n.101 (1985) (’Mobile Home Parks”) (‘[bJecause

|Connecticut’s] statute is designed to prevent the park owner from depriving the

home owner of his home's increase in value secured by its location in a mobile

home park, increased rents intended to recover that value would be prohibited”).

20

rents, but imposes ceilings on rent increases. Thus, at the

inception of controls, market and regulated rents are

roughly equivalent.” Any site value resulting from a

mobilehome’s placement in the park is presumably incorpo-

rated into market rents and captured by the landlord.*’ As

market rents escalate with appreciation in property value, or

in response to increasing space scarcity,” and permitted

rent increases fail to keep pace, “rent savings” are created.

Petitioners claim the Ordinance capitalizes the savings over

the anticipated life of the use, generating a “windfall” for

the departing mobilehome owner. The question in this case

is whether the state may lawfully repose this additional

appreciated value in the mobilehome owner, or whether it

is naturally and constitutionally the exclusive property of

the landlord.”

* The Ordinance contains a rent roll-back provision which sets “base rent.”

Ord. § 3. This is typical in newly enacted rent control laws. Its purpose is to

restore rents to hypothetical equilibrium conditions; i.e., to approximate market

rents. The theory is that contract rents can exceed market rates if landlords

raise rents in anticipation of rent control, or if vacancy rates are so low as to

give rise to monopoly conditions. See Oceanside Mobilehome Park Owner's

Ass'n. v. City of Oceanside, 157 Cal. App. 3d 887, 906, 204 Cal. Rptr. 239, 251

(1984); Baar, Guidelines for Drafting Rent Control Laws: Lessons of a Decade,

35 Rutg. L. Rev. 721, 766-67 (1983).

*® See Hirsch & Hirsch, Legal-Economic Analysis of Rent Controls in a

Mobilehome Context: Placement Values and Vacancy Decontrol, 35 U.C.L.A.

L. Rev. 399, 426-28 (1988).

™ Amici agree with respondent that the rents which would obtain absent rent

control are not “market rents” at all, but artificially high rents due to virtual

landlord monopoly. The principal purpose of rent control is “to restore free

market conditions by limiting rent increases to the level which would occur

under general market conditions—a competitive market as opposed to a

monopolistic or oligopolistic one.” Oceanside, 157 Cal. App. 3d at 905, 204

Cal. Rptr. at 251. See also 4 Sackman, Nichols’ The Law of Eminent Domain

(1990), p.12B.71 (“Law of Eminent Domain”).

** As noted above, rents the parkowner could charge absent rent control might

reflect exploitive conditions as well as appreciated value. There can be little

(continued...)

21

Property rights, as a general rule, are neither created

nor defined by the constitution. “They are created and their

dimensions are defined by existing rules or understandings

that stem from an independent source such as state law.”

Ruckleshaus v. Monsanto Co., 467 U.S. 986, 1001 (1984).

Of course, once having created a property interest, the state

is not at liberty to expunge it in derogation of reasonable

investment backed expectations. But, unless preexisting

State law guarantees property owners a right to profit from

future appreciation, that anticipated gain does not constitute

Fifth Amendment property. “Frustration and appropriation

are essentially different things.” United States v. Grand

River Dam Authority, 363 U.S. 229, 236 (1960).

1. Appreciation Is The Result Of Govern-

mental Land Use Decisions; Appreciated

Value Is Created By The State.

The bottom line of petitioners’ complaint is that the

Ordinance prevents them from obtaining compensation for

the full appreciation of the sites in their parks, as measured

by increased rents. That very appreciation, however, is

driven by a scarcity of mobilehome sites which itself is a

consequence of local land use regulation. Restrictive zoning

policies can and do lead to monopoly or near-monopoly

powers among owners of mobilehome parks.” “The

(continued)

Fifth Amendment claim to such rent levels. Casella, 230 Cal.App.3d at 54, 280

Cal. Rptr at 882-83. Moreover, even under petitioners’ theory, the Ordinance

does not transfer all appreciated value. Rather, the bulk of the appreciation is

due to alternative potential uses of the land, and is unaffected by limitations on

rent. If and when the land is converted to a higher use, which may lawfully

occur, the property owner is likely to realize this inchoate appreciation. See

Shulman, Real Estate Valuation Under Rent Control, 9 Am. Real Est. & Urb.

Econ. Ass'n J. 38 (1981).

* See Cider Barrell Mobile Home Court v. Eader, 287 Md. §71, 574, 414 A.2d

(continued...)

22

mobile home market is an example of a monopoly, which

is a market failure, rather than a market, and is a prime

candidate for government regulation.” Azul Pacifico v. City

of Los Angeles, 740 F. Supp. 772, 781 (C.D. Cal. 1990).

In another rent control case, this Court noted that

“Government may intervene in the marketplace to regulate

rates or prices that are artificially inflated as a result of the

existence of a monopoly or near monopoly .. . .”” Pennell,

485 U.S. at 11. Here, local land use policies have created

conditions that enable the park owners, absent rent control,

to capture the attendant monopoly profits and deplete the

tenants’ equity. There can be no question that the govern-

ment can intervene to ameliorate this situation.”’

The state having created the possibility for appreciation

through legislated scarcity, can permit the landlords, the

tenants, both, or neither to capture any appreciation that

*(...continued)

1246 (1980); Baar, The Right to Sell the ‘Im’ mobile Manufactured Home in its

Rent Controlled Space in the 'Im'mobile Home Park. Valid Regulation or

Unconstitutional Taking? 24 Urban Lawyer No. 2 (forthcoming, 1992); Mobile

Home Parks, supra, n.31, at 812.

” Prior to enactment of the MRL, it was widespread practice in California for

park owners to “tie” space rental to mobile home purchases in an effort to

exploit space scarcity. See, e.g., Suburban Mobile Homes, Inc., v. Amfac

Communities, Inc., 101 Cal. App. 3d 532, 161 Cal. Rptr. 811 (1980) (tying

arrangement by park owner and mobile home dealers violated state antitrust

law); People v. Mobile Magic, 96 Cal. App. 3d 1, 157 Cal. Rptr. 749 (1979)

(conditioning the rental of sites on the purchase or lease of mobile homes from

certain retail dealers was illegal); Sherman v. Mertz, 42 Cal. App. 3d 769, 117

Cal. Rptr. 188 (1974) (agreement between park owner and mobile home dealers

providing kick back of profits from tied mobile home sale and space lease were

in restraint of trade); Jomicra v. California Mobile Home Dealers’ Ass'n, 12

Cal. App. 3d 396, 90 Cal. Rptr. 696 (1970) (describing growing practice of

“closed parks” where entry is conditioned on purchase of home from approved

dealers, raising “a serious issue of illegal conduct to restrain trade and

competition”). See also Ware v. Trailer Mart, Inc., 623 F.2d 1150 (6th Cir.

1980) (reversing summary judgment for park owner on allegation that defendant

violated Clayton Act by illegal “tie-in” arrangement).

23

)

\

may exist. Thus, the state could impose resale price controls

on on-site sales of mobilehomes; then, no one would

receive the “premium.” The state could require that the

landlord and tenant split any appreciation upon sale of a

mobilehome. The state could enact vacancy decontrol,

allowing the landlords to capture the entire “premium.”

Or, the Escondido system could prevail.

Any of these choices would be constitutional, and all

for the same reason: potential site appreciation is not

anyone’s constitutional entitlement.

In choosing the tenant rather than the mobile

home park operator as the recipient of this eco-

nomic advantage arising from the near-monopoly

status of the industry, the legislature, by allocat-

ing its benefit to those who generally are more in

need, has not violated any constitutional principle.

Eamiello, 546 A.2d at 820.”

™ Indeed, the parkowner could capture more than the site value of the pad.

Because the mobilehome is captive, the landlord's superiority of right enables

him to enhance his own profit through depletion of the homeowner's equity.

Azul Pacifico, 740 F. Supp. at 744. This has led to exploitive conditions. See

Stewart v. Green, 300 So.2d 889, 892 (Fla. 1972) (‘a form of economic

servitude ensues rendering tenants subject to oppressive treatment in their

relations with park owners”); Mobile Home Parks, supra, n.31, at 815

(describing how some evicted owners have lost the full value of their homes);

Note, Mobilehomes: Present Regulation and Needed Reforms, 27 Stan. L. Rev.

159, 166-67 (1974) (landlord abuses can “destroy the homeowner's equity in

his unit’); Tenant Eviction Protection, supra, n.13, at 965 n.223. Hawa

responded to a similar situation with its Land Reform Act, Haw. Rev. St.

Ch.516 (1967 Haw. Sess. Laws 488), upheld in Hawaii Housing Authority v.

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

* In Penn Central Transp. Co. v. New York, 42 N.Y .2d 324, 328, 366 N.E.2d

1271, 1273 (1977), the New York Court of Appeals excluded “the publicly

created components” of property value in its takings analysis. This Court noted,

but did not rest its decision on, this approach. Penn Central, 438 U.S. at 121

n.23. See also Gateway Apartments v. Nutley, 605 F.Supp. 1161, 1163 (D.NJ.

(continued...)

24

To say that this appreciation is a property right that

may not be taken without compensation is to make govern-

ment the guarantor of anticipated gains. This is not the law.

Andrus v. Allard, 444 U.S. 51, 66 (1979) (“perhaps because

of its very uncertainty, the interest in anticipated gains has

traditionally been viewed as less compelling than other

property-related interests”); Penn Central, 438 U.S. at 130

(holding “untenable” the proposition that landowners may

establish a taking “simply by showing that they have been

denied the ability to exploit a property interest that they

heretofore had believed was available for development’);

United States ex rel T.V.A. v. Poweison, 319 U.S. 266, 282

(1943) (“in the absence of a statutory mandate .. . the

sovereign must pay only for what it takes, not for opportu-

nities which the owner may lose’’).“’ Reposing the gain

elsewhere, as would occur with substantial capital gains

taxes or resale price controls, does not take from the

property owner any constitutional entitlement he had.*'

(continued)

1985) (state could require landlords to pass 75% of any property tax rebates

through to tenants, since the monies were not pre-existing !andlord property.

Otherwise, it “would result in a windfall to landlords and deny to tenants the

right to participate in a refund which they in large measure created”).

“ Anticipated future gain is generally excluded for valuation purposes in

condemnation proceedings because it 1s too speculative. General Motors, 323

U.S. at 379 (“compensation . . . does not include future loss of profits .. . or

other like consequential losses”). See generally Law of Eminent Domain, supra,

n.34, at Vol. 5, pp.19-7, 19-31.

“ In essence, petitioners seek to socialize their losses, while privatizing thei

gains. Fortunately, the Fifth Amendment is not so uni-directional. See

generally D. Hagman, Windfalls for Wipeouts, 18 (1978) (in “recapturing

windfalls . . . [t}he community 1s asking only for a return of wealth it creates”).

25

2. The Owner’s Loss, Rather Than Ano-

ther’s Gain, Determines Whether A Tak-

ing Has Occurred.

Petitioners’ theory of a windfall transfer to homeown-

ers focuses on the wrong end of the equation--what the

government has gained, rather than what the owner has lost.

Indeed, in Azul Pacifico, the court found and measured a

taking by reference to the homeowner’s increased equity in

- his mobilehome.” There are two reasons why this is error.

First, from the parkowner’s perspective, mobilehome

rent control, even in conjunction with the MRL, is opera-

tionally the same as apartment rent control. With both, the

landlord operates his property at regulated rents and with

reduced control over tenant tenure.** Although the MRL

gives tenants a qualified right to select successors, this has

little if any impact on landlord’s use or expectations.

Second, the fact that departing tenants realize transient

rent savings after their tenancy does not equal loss to the

parkowner. General Motors, 323 U.S. at 378 (“deprivation

of the former owner rather than accretion of a mght or

interest to the sovereign constitutes the taking’’). Indeed,

absent the MRL, the only way the landlord could capture

“ The approach in Hall and Azul Pacifico, of measuring damages by the

tenant's gain, rather than the landlord's loss, is contrary to law. Kimball

Laundry v. United States, 338 U.S. 1, 5 (1948) (“|bJecause gain to the taker . . .

may be wholly unrelated to the depnvation imposed upon the owner, it must

also be rejected as a measure of public obligation to requite for that depriva-

tion”). See also Law of Eminent Domain, supra, n.34, at §12.03. Indeed, the

tral court in Azul Pacifico noted that “Hall break{s| from the traditional ‘loss’

measure of damages for takings cases,” but was nevertheless constrained by the

Ninth Circuit rule. 740 F.Supp. at 778.

© Nollan illustrates this equivalence. There, transient and fungible beachgoers

constituted “permanent” occupiers because, from the owner's perspective, thei

changing identity was irrelevant to his loss. 483 U.S. at 831-32. By a similar

token, the fact that a succession of users enjoy eviction protection under the

MRL, rather than just the tenant in possession, does not alter the analysis

26

site premium is by engaging in illegal or exploitive prac-

tices. See supra, n.37, 38.

In essence, petitioners complain that mobilehome

Owners get too high a price for their homes upon sale; that

some of the purchase price results from restrictions on the

park owners’ property. Of course, a similar complaint can

be heard from any property owner where restrictions on his

use enhance the value of neighboring property.“

B. Appreciated Site Value Is Not A Discrete And

Severable Property Interest; It Cannot Be

Analyzed In Isolation.

1. Intangible Property Interests Are Not

Fractionated In Takings Cases.

In an effort to paint this as a possessory takings case,

petitioners contend that the Ordinance transfers a discrete,

severable, and marketable interest to tenants, to wit:

appreciated site value. Such an attempt to segregate this

intangible component of value from the remainder of their

property interest must fail.

“ In this regard, property rights are often complementary. Enhancement of one

parcel means devaluation of another. This has not been sufficient to make out

a takings claim at least since the advent of zoning. Nonetheless, petitioners

Suggest that regulation is permitted under the takings clause only where

reciprocity of advantage occurs. Theirs is an unwieldy principle, requiring that

each legislative act provide equal benefit. Professor Michelman has the better

view, that due process requires only “an acceptable level of assurance that over

the life of a society (and within the expectable lives of any of its members)

burdens and benefits will cancel out leaving something over for everyone.”

Michelman, Property, Usility, and Fairness: Comments on the Ethical Founda-

tions of “Just Compensation” Law. 80 Harv. L. Rev. 1165, 1179 (1967). See

also Keystone, 480 U.S. at 491 n.21. Land owners in general, and mobilehome

park owners in particular, receive substantial economic benefit from tax, land

use, and other legislative choices.

27

“Taking’ jurisprudence does not divide a single

parcel into discrete segments and attempt to

determine whether rights in a particular segment

have been entirely abrogated. In deciding whether

a particular governmental action has effected a

taking, this Court focuses rather both on the

character of the action and on the nature and

extent of the interference with rights in the parcel

as a whole... . Penn Central, 438 U.S. at 130

The ramifications of fractionating property interests

when undertaking a takings analysis are severe. If a

conceptual interest in property can be viewed in isolation

from the property as a whole, then any regulation which

exi.nguishes or severely restricts that interest will constitute

a taking. See Keystone, 480 U.S. at 498.

The rule is different in the case of discrete physical

property because each segment, no matter how small,

embodies the full bundle of rights we commonly call

property. General Motors, 323 U.S. at 377-78. Cf. Loretto.

Thus, each case in this Court-where fractionating was

allowed involved tangible property. However, particular

interests in property, such as the rights to alienate (Andrus)

or earn higher returns (Duquesne Light Co. v. Barasch, 488

U.S. 299 (1989)), are never fractionated.” Keystone, 480

U.S. at 497-98 (taking analysis does not divide property

into discrete segments; rather it examines interference with

* Penn Central goes even further than necessary for this case. While the

Court recognized that appellants’ au mghts constituted an established property

interest that could be separably transferred (id. at 130, 137), and was trans-

ferred, this factor was not relevant in assessing appellants’ takings claim.

“ This distinction also reinforces the special character of physical invasion of

tangible property, because all mghts in the property so occupied are lost. See

supra p. 12. Yet, non-possessory interferences still leave viable economic use.

28

property rights in the parcel as a whole); Andrus, 444 U.S.

at 65-66 (the property subject to regulation must be viewed

in the aggregate; denial of one property right does not

constitute a taking).*’ Petitioners ask this Court to treat the

instant case as if it were a routine possessory takings Case

where discrete physical property is invaded by a stranger.

However, the property petitioners claim has been expunged

by the Ordinance is not the pad space at all, but the

intangible right to collect higher rents. This right cannot be

severed from the remainder of petitioners’ property for

takings analysis. It is neither an identifiable segment of

physical property nor a distinct estate in land recognized by

law. Petitioners’ attempt to mix possessory and regulatory

takings concepts is pernicious and should be rejected.

2. Monetized Future Rent Savings Are Not A

Discrete And Marketable Property Right

A second reason augurs against treating the so-called

transferred site value as a discrete property interest. It

simply is not. While homeowners may be able to incorpo-

rate the capitalized value of future rent savings into the on-

site price of their homes, the interest is not discrete,

” The Court has split in cases such as Penn Central and Keystone where

discrete physical property was rendered valueless by regulation. The outcome

of that debate 1s not relevant here since the property interest petitioners claim

is intangible. It is only one stick in a full bundle of mghts retained by

petitioners. Andrus, 444 US. at 65-66. Of course, intangible property can be

destroyed by possession if governmental action takes all value. See Ruckels

haus, Hodel v. Irving, 481 U.S. 704 (1987). While /odel involved only one

stick —the night to devise—in the context of that case, that nght represented all

value. Indeed, its taking resulted in complete loss of the property through

escheat. See Kirby Forest Ind. vo United States, 467 U.S. 1, 1S (1984).

* Por instance, in Duquesne, the Court refused to segregate a utility's

mvestment im an uncompleted power plant. Rather, ut looked to the effect of

rate regulation on the business as a whole. 488 US. at $13 14

29

severable, or marketable by itself. Notwithstanding state-

ments in Hall and Azul Pacifico, it is the coach that is sold,

not the “interest."“’ Petitioners also do not allege that at

any time before or after the Ordinance they treated this

monetized value as a discrete property interest, or that they

could have marketed it.

C. Any Taking That May Have Occurred Has Been

Fully Compensated

According to the Ninth Circuit in Azul Pacifico, “the

taking occurred when the ordinance was passed.” __ F.2d

at __ (slip op. at 17) n.7.%° Consequently, compensation

must be measured as of that date. /d. at __ (slip op. at 20);

De Anza, 936 F.2d at 1085. While the court was conceptu-

ally correct in these matters (see Law of Eminent Domain,

supra, n.34, chapt. 12A), it failed to recognize that there

was no “vacancy-control premium” when the rent control

law was enacted and “the taking occurred.”

As argued above,”' controlled and market rents are

equivalent at the inception of rent control. At that time,

there are no rent savings; hence, no value in vacancy

decontrol.” In other words, rents collected on the base

“ Proof of this point is found in petitioners’ anecdotal citation to an incoming

tenant purchasing a mobilehome and unmediately selling it for a substantial

loss. “The use of the land was what | paid for more than the |coach].” Pet. 3r. ~

at 10. The new tenant was unable to buy the right of occupancy by itself

because it is not a discrete or separately marketable property nght.

* The court explained: “|t}he ordinance assigned to all of the tenants then on

the property the right to capture the full discounted value of occupying

indefinitely . . . property at below-market rent. . . . [S}ubsequent coach sales by

tenants are urelevant to the question of how much was taken from the

landlord.” Id. at _ (slip op at 18).

*' See supra, p. 19.

* The option to raise rents in the future may be one of the many components

(continued...)

30

date (set by the landlord himself), and the right to a “fair

return” thereafter, provide the landlord with a full measure

of compensation for any rights he has lost.*°

The right of occupancy acquires value with time as

land appreciation outpaces permitted rent increases. But, by

then, according to the Hall theory, the right belongs to the

tenant. Appreciation which occurs subsequent to the taking

is not compensable.

CONCLUSION

For the foregoing reasons, amici urge this Court to

uphold the decision of the California Court of Appeal.

Respectfully submitted,

ROBERT M. MYERS

(Counsel of Record)

KARL MANHEIM JOSEPH LAWRENCE

DAVID PETTIT MARTIN TACHIKI

DAVID NAWI BARRY ROSENBAUM

SHANE STARK ANTHONY A. TRENDACOSTA

ATTORNEYS FOR AMICI

(continued)

of overall value in income producing property. However, it is difficult if not

impossible to quantify this “option value.” Hence, it is excluded from

condemnation awards, lest such “speculation and conjecture . . . convert an

eminent domain proceeding into a guessing contest.” Law of Eminent Domain,

supra, n.34, at p.12A-2. See also id., at p.12B.11 (“[rjental value based on the

increased value of the property that is occasioned by the prospective condemna-

tion has been excluded, as have future estimated rentals”). Moreover, the

option hasn't been entirely lost; only the ability to raise rents above allowed

increases (i.e., a “fair return”). This seems even less capable of prediction or

quantification. See id., at 12B-66 (“capitalization of hypothetical income . . .

has generally been rejected”).

* See Law of Eminent Domain, supra, 0.34, at p.12B.10 (“actual rent reserved

.. . forms one of the best tests of value”); Rivera v. R. Cobian Chinea, 181

F.2d 974, 979 (1st Cir. 1950) (Magruder. C.J., dissenting) (“the ‘just compensa

tion’ called for would be the equivalent of” the rent paid by the tenant).

PROOF OF SERVICE BY MAIL

State of California

SS.

County of Los Angeles

I, the undersigned, say: I am and was at all times herein

mentioned, a citizen of the United States and a resident of

the County of Los Angeles, over the age of eighteen (18)

years and not a party to the within action or proceeding;

That my business address is 11852 Santa Monica Boul-

veard, Suite 3, Los Angeles, California 90025; that on

January 3, 1992, I served the within Brief Amicus Curiae in

said action or proceedings by depositing true copies thereof,

enclosed in a sealed envelope with postage thereon fully

prepaid, in the United States mail at Los Angeles, Califor-

nia, addressed as follows:

Clerk, United States Robert J. Jagiello, Esq.

Supreme Court P.O. Box 879

One First Street, N.E. Lake Arrowhead, CA 92352

Washington, D.C. 20543

(By Express Mail: original Donald R. Lincoln, Esq.

and forty copies) Endeman, Lincoln, Turek

& Heater

Clerk, California Court 600 “B” Street

of Appeals Suite 2100

Fourth Appellate District San Diego, CA 92101

Division One

750 B Street, #500

San Diego, CA 92101

(619) 237-6558

I declare under penalty of perjury that the foregoing is

true and correct. Executed on January 3, 1992 at Los

Angeles, California.

Peter Sandanavicius

(Original Signed)