Amicus Curiae Brief — H. N. v. City of Escondido

em Court, U.S

FIEED

| MAR 24 1999

No. 98-1346 OFEICE Ds 1 os

In the Supreme Cont

OF THE

United States

OCTOBER TERM, 1998

H.N. AND FRANCES C. BERGER FOUNDATION

Petitioner,

VS.

CiTy OF ESCONDIDO, et al.,

Respondents.

Petition for Writ of Certiorari

to the

California Court of Appeal

4th Appellate District

BRIEF OF WESTERN MOBILEHOME

PARKOWNERS’ ASSOCIATION AS

AMICUS CURIAE IN SUPPORT OF THE

PETITIONER

KIMBALL & WEINER LLP

GEORGE KIMBALL

555 So. Flower Street

Suite 4540

Los Angeles, CA 90071

(213) 538-3800

Attorneys for Western

Mobilehome Parkowners’

Association

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

i

TABLE OF CONTENTS

INTEREST OF AMICUS CURIAE ............ Se

SIATEMENT OF THE CASE :... 0... ce

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

PURO NS RUE LG rh ca oiae ooh hs eo kc ake

I. ESCONDIDO’S ORDINANCE DOES NOT

SUBSTANTIALLY ADVANCE A

LEGITIMATE GOVERNMENTAL

INTEREST, AND, THUS, CONSTITUTES

Pe Ran Oh ba ar iw oe dk oceiec cere ce. 6

Il. TO DETERMINE WHETHER

REGULATIONS SUBSTANTIALLY

ADVANCE LEGITIMATE INTERESTS.

COURTS MAY NOT SIMPLY ASSUME

SOME RATIONAL BASIS, BUT MUST

Noa EVIDENCE ........,......... 8

GA ATYMMMERIIN 6c igs cay oe Sos Sie. feuds, Coteus oe 10

B

ON fh NYO — F

li

TABLE OF AUTHORITIES

Cases

Page

Armstrong v. United States, 364 U.S. 40 (1960) ... 5

Dolan v. City of Tigard, 512 U.S. 374 (1994) . .4, 5, 6, 9, 10

First English Evangelical Lutheran Church of

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

CLDGT) evo ic cea eee eee ee 5

Lucas v. South Carolina Coastal Council, 505 U.S.

S003 C1992) ike ye ee 1,4, 9

Nollan v. California Coastal Commission, 483 U.S.

Oo CIDR ate ao ta ee ee 1, 4, 6, 9, 10

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

(9922) oo. eaib a a ee ee eee ee 4

Yee v. Escondido, 503 U.S. 519 (1992) ........... 2

Statutes

California Civil Code

SWESS os a a ee

6 MT boi a

CRE ie Sa ee

a eee ee ee,

Constitution

Pin Ase ok Sc oss eee eee 2, & 3: Be 10

l

INTEREST OF AMICUS CURIAE

Amicus curiae Western Mobilehome Parkowners’ Associ-

ation (“amicus” or “WMA”) is the leading trade associa-

tion for California’s mobilehome and manufactured housing

industry. WMA is a nonprofit, tax-exempt organization

organized under the laws of California.’

WMaA’s members include owners and operators of more

than 1800 mobilehome and manufactured housing commu-

nities throughout California. For many young families and

older citizens, affordable housing means manufactured

housing. Rent controls, regulations of land use and constitu-

tional protection of property rights are matters of great

interest to WMA members.

Yee v. Escondido, 503 U.S. 519 (1992) (“Yee”) acknowl-

edged that local controls of mobilehome space rents might

take property by regulation without compensation, in viola-

tion of the Fifth Amendment. The Court declined to decide

issues Outside the scope of Mr. Yee’s petition for certiorari,

while “awaiting a case in which the [regulatory taking]

issue was fully litigated. . . .” 503 U.S. at 521. Berger Foun-

dation is that case.

The decision below effectively disregards this Court’s

decisions in Yee, Nollan v. California Coastal Commission,

483 U.S. 825 (1987) (“Nollan”) and Lucas v. South

Carolina Coastal Council, 505 U.S. 1003 (1992) (“Lu-

cas’’), by limiting those precedents to their facts. Rather

than permit Berger Foundation to prove that Escondido’s

ordinance operates unconstitutionally —as Yee contem-

plated — the lower court reasoned that no taking occurs, so

long as the court could imagine (without receiving any

evidence) some benefit.

‘This brief is submitted with the written consent of all parties, filed

with the Clerk of the Court. It was prepared exclusively by amicus’

counsel at amicus’ exclusive expense.

2

The Fifth Amendment requires more. Berger Foundation

is entitled to prove that Escondido’s ordinance serves no

legitimate purpose, but merely enriches a fortunate few at

the expense of a handful of property owners.

Berger Foundation’s petition for certiorari presents impor-

tant issues left undecided in Yee:

Do regulations that enrich a small group, by granting

them marketable rights to occupy another citizen’s

property, take property in violation of the Fifth and

Fourteenth Amendments?

What scrutiny should the courts give to claims that

regulations take property? May lower courts presume

that regulations advance some presumed legitimate

purpose, or, under this Court’s precedents, must they

examine evidence to decide these factual issues?

Finally, the decision below illustrates the California

courts’ tendency to interpret this Court’s precedents nar-

rowly and restrictively. These are matters whose importance

extends beyond Escondido, or manufactured housing.

STATEMENT OF THE CASE

Modern mobilehomes are not trailers. They are manufac-

tured homes, built in sections, towed into place on a pre-

pared space or “pad”, assembled, connected te utilities and

then fitted with awnings, porches and the like. Their size

and comforts compare favorably with postwar tract homes.

Mobilehome communities have long appealed to senior

citizens, and as prices for conventional homes have risen,

mobilehomes have become increasingly popular “starter”

homes for young families. Typically, mobilehome residents

own their homes, and rent the space from the owner of the

mobilehome park, who provides private streets, recreational

facilities, common areas and amenities.

Eo

3

California regulates mobilehome tenancies through a

Mobilehome Residency Law (codified as § 798 et seq. of the

California Civil Code). Owners may not terminate tenancies

without cause (Cal. Civ. Code § 798.55), require removal of

mobilehomes when tenancies end (Cal. Civ. Code

§ 798.73), or disapprove incoming residents, if they are

creditworthy, and likely to abide by park rules (Cal. Civ.

Code § 798.74). As a consequence, mobilehomes are usu-

ally sold in place when a resident wants to move. Residents

sell their homes to new residents, subject only to the owner’s

approval of credit and references.

Escondido’s ordinance (the “Escondido Ordinance”), en-

acted by the voters in 1988, reduced mobilehome space

rents to 1986 levels. Property owners may apply to the City

Council, sitting as a Mobilehome Park Rental Review

Board, for rent increases in order to pay for capital improve-

ments and certain cost increases. All other increases are

misdemeanors. There is no provision for adjustment of rents

when mobilehomes are sold in place.

The Escondido Ordinance, operating in conjunction with

the Mobilehome Residency Law, assures residents perma-

nent tenure and bargain rent, so long as they pay the rent

and observe park rules. Incoming residents enjoy the same

rights, so mobilehomes change hands at huge premiums —

often, tens of thousands of dollars more than comparable

homes in dealer inventories or unregulated mobilehome

parks. Amicus believes that these premiums represent the

value of a statutory leasehold — a permanent, transferable,

possessory interest in the owner’s property — created by

operation of law and given to the tenants without just

compensation, in violation of the Fifth Amendment.

Berger Foundation alleged, in a complaint modeled upon

Yee, that interests in its property had been taken by regula-

tion, in violation of the Fifth Amendment. The California

Court of Appeal acknowledged that since Mr. Justice

4

Holmes’ seminal opinion in Pennsylvania Coal Co. v.

Mahon, 260 U.S. 393, 415 (1922), the courts have recog-

nized that regulations which go too far may effect a taking.

“The inquiry as to when a regulation has gone too far is

necessarily one of fact.” (Appendix A-7). Nonetheless, the

lower court upheld a nonsuit, denying Berger Foundation

any opportunity to prove that Escondido’s Ordinance oper-

ates as alleged and appropriates property without compensa-

tion, in violation of the Fifth Amendment.

The lower court reached this conclusion by relying upon

California precedents to limit the “heightened scrutiny”

contemplated by Nollan and Dolan v. City of Tigard, 512

U.S. 374 (1994) (“Dolan”) to “out-and-out [plans] of

extortion” (such as Nollan) or deprivations of “all economi-

cally viable use” (such as Lucas). Under California’s re-

strictive interpretation of those precedents, all other

situations, such as this challenge to Escondido’s Ordinance,

“need not be subject to a heightened Dolan-style level of

scrutiny.” (Appendix A-15). In essence, California has

limited Nollan and Dolan to their facts.

In this way, judicial conjecture about the presumed bene-

fits of lower rents makes unnecessary any evidence of the

law’s actual effect. Berger Foundation offered evidence that

no one in Escondido actually pays the controlled rents.

Those in residence at the time of enactment pay far less, as

resale premiums offset rent. Their successors pay far more,

since they must pay both monthly rent and the large resale

premiums. Thus, the ordinance does not achieve its ostensi-

ble purpose of controlling rents, but enriches a favored group

of voters at the expense of a few property owners. This is the

very evil the Takings Clause was meant to prevent. “One of

the principal purposes of the Takings Clause is ‘to bar

government from forcing some people alone to bear public

burdens which, in all fairness and justice, should be borne by

5

the public as a whole.’” Dolan, 512 U.S. at 384, quoting,

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

The lower court reasoned that even if Berger Foundation

could prove a one-time wealth transfer, without any public

benefit, there would be no taking so long as the owner

received a return “sufficient to ameliorate the effects of

[the] premium.” (Appendix A-19). Fair return was not an

issue below, because of pretrial stipulations, and no prece-

dent exists for the astonishing principle — implicit in the

lower court’s reasoning — that owners of income property

are entitled to no compensation if interests in their property

are taken, so long as their properties earn adequate returns.

In fact, whenever property is taken, compensation must

be paid. This Court has “frequently repeated the view that,

in the event of a taking, the compensation remedy is

required by the Constitution.” First English Evangelical

Lutheran Church of Glendale v. County of Los Angeles, 482

U.S. 304, 316 (1987).

SUMMARY OF ARGUMENT

Berger Foundation alleges, and offered evidence to prove,

that Escondido’s Ordinance appropriates interests in its

property, and transfers those interests to residents. When

mobilehomes are sold in place, residents receive the value of

the interests taken as large resale premiums — nominally

paid for the mobilehome coach, but representing the value

of the right to occupy the owner’s land at bargain rates. The

Escondido Ordinance thus enriches fortunate residents in

place at the time of enactment, at the owner’s expense,

without any benefit to future residents who must pay the

resale premiums.

These facts, if proved, constitute violations of the Takings

Clause of the Fifth Amendment, since interests in property

are taken from owners and given to residents, without

6

compensation, and without benefitting anyone but those

fortunate residents who were in place when Escondido’s

initiative passed. Amicus respectfully suggests that there

could be no clearer example of a regulation that — far from

substantially advancing a legitimate purpose — merely re-

wards one group of voters at the expense of a few property

owners.

This Court has twice ruled, in Nollan and Dolan, that

regulatory taking claims like Berger Foundation’s deserve

greater scrutiny than a cursory determination that they have

some rational basis. The Takings Clause is not a mere

pleading requirement, but “as much a part of the Bill of

Rights as the First Amendment or Fourth Amendment” and

cannot be “relegated to the status of a poor relation... .”

Dolan, 512 U.S. at 392. Here, lower courts following restric- |

tive California interpretations of Nollan and Dolan surmised

some benefit to residents, and based on that surmise, de-

clined even to consider Berger Foundation’s evidence. Judi-

cial scrutiny requires more than conjecture and surmise.

ARGUMENT

I.

ESCONDIDO’S ORDINANCE DOES NOT

SUBSTANTIALLY ADVANCE A LEGITIMATE

GOVERNMENTAL INTEREST, AND, THUS,

CONSTITUTES A TAKING.

Statutes take property if they do not substantially advance

legitimate state interests. Nollan, 483 U.S. at 835, fn. 3.

Nollan held that California’s imposition of an easement

upon the Nollans’ property had little connection with the

justifications advanced for the exaction. Without an ade-

quate nexus between ends and means, the Court reasoned,

the purpose became “quite simply, the obtaining of an

easement... but without payment of compensation.” 483

ail Rita

7

U.S. at 838. This Court also stressed that the nexus require-

ment is more stringent than its counterpart under the Equal

Protection Clause. Jd. at 834-35 fn. 3. More is required, the

Court held, than a plausible reason:

We view the Fifth Amendment’s Property Clause to be

more than a pleading requirement, and compliance

with it to be more than an exercise in cleverness and

imagination. ... [O]Jur cases describe the condition for

abridgment of property rights through the police power

as a “substantial advanc[ing]” of a legitimate state

interest.

Id. at 841 (emphasis in original). Measured by these

standards, Escondido’s Ordinance cannot pass constitutional

muster.

The Escondido Ordinance contains no recitals or findings,

so its purposes are obscure. The lower courts presumed that

the ordinance was intended to benefit Berger Foundation’s

residents, “especially those living on fixed incomes” (Ap-

pendix A-19) but the Escondido Ordinance does not, and

cannot, achieve these purposes.

Controlling rents is the supposed purpose. But no one

actually pays the controlled rent. Some pay far more; a

lucky few pay far less. Tenants in residence when the

ordinance was enacted pay far less. Later residents pay far

more. Tenants in place in June 1988 pay controlled rent

until departure, when they receive the value of future rent

savings in the form of resale premiums on their mobilehome

coaches. The premiums offset rent payments during occu-

pancy, so overall, original residents pay far less than the

controlled rents.

By contrast, incoming tenants do not pay controlled rents,

and receive no beuefit from controlled rents, since they must

pay large premiums, equal to the capitalized value of the

difference between controlled rents and market rents. New

8

residents pay the equivalent of market rent, but pay the

difference between market rent and controlled rent to the

former tenant, in advance, rather than to the owner of the

property. No legitimate purpose is served by such an irra-

tional scheme. The only goal accomplished is a one-time

wealth transfer from property owners to tenants in residence

at the time of the election in June 1988.

The fortunate citizens in residence when the initiative

passed may collect windfalls when they move away and sell

the bargain leaseholds created by the Ordinance, as well as

their mobilehome coaches. Other residents will pay (or, at

still greater cost, finance) resale premiums that are likely to

wipe out any saving. If, as Berger Foundation alleges,

Escondido’s Ordinance merely enriches a favored few, at the

property owner’s expense, it advances no legitimate purpose

and violates the Takings Clause of the Fifth Amendment.

Il.

TO DETERMINE WHETHER REGULATIONS

SUBSTANTIALLY ADVANCE LEGITIMATE

INTERESTS, COURTS MAY NOT SIMPLY

ASSUME SOME RATIONAL BASIS, BUT MUST

CONSIDER EVIDENCE.

Berger Foundation’s claims are matters of fact, capable of

proof, through evidence of market activity, records from

operation of their property, and expert testimony from

appraisers, economists and other experts. The Court of

Appeal recognized as much, acknowledging that “[t]he

inquiry as to when a regulation has gone too far is necessa-

rily one of fact.” (Appendix A-7).

The lower court nonetheless decided these facts based on

conjecture, without evidence, by presuming benefits in

much the same way that courts now reject substantive due

process arguments if some rational basis may be assumed.

9

This reasoning is contrary to Nollan, which held the Takings

Clause “to be more than a pleading requirement, and

compliance with it [requires] more than an exercise in

cleverness and imagination.” 483 U.S. 841. Nollan distin-

guished takings claims — where regulations must “substan-

tially advance” the “legitimate state purpose” — from lesser

standards of scrutiny that apply to many due process and

equal protection claims.

We have required that the regulation “substantially

advance” the “legitimate state interest” sought to be

achieved... not that “the State ‘could rationally have

decided’ that the measure adopted might achieve the

State’s objective.”

483 U.S. 835 n. 3. Judicial conjecture about possible ra-

tional bases for disputed regulations cannot end the analysis.

Erudite speculation is no substitute for evidence.

The lower court acknowledged that No/llan and Lucas

““may require a reviewing court to subject such governmen-

tal action to higher than mere ‘rational basis’ scrutiny”, but

relied upon California precedent limiting Nollan and Dolan

to “a relatively narrow class of land use cases”. (Appendix

A-13-14). For the rest, California courts attempt to identify

some legitimate purpose, and then hypothesize possible

benefits, without considering evidence of the regulation’s

actual effect.

In practice, this standard is indistinguishable from the

“rational basis” test rejected by Nollan and Dolan. Since

rent controls may be legitimate, and Berger Foundation did

not contend that it had been denied a fair return, the court

disposed of Berger Foundation’s claim with an almost off-

hand observation that low rents presumably benefitted Ber-

ger Foundation’s residents. (Appendix A-19).

Conjecture is no substitute for evidence that Escondido’s

Ordinance merely provides a windfall to those who were

10

residents when voters adopted rent control, at the owners’

expense, while raising housing costs for future residents.

Berger Foundation claims that Escondido’s Ordinance oper-

ates perversely, to defeat its ostensible purposes, without

advancing any substantial or legitimate interest.

Berger Foundation is entitled to an opportunity to prove

its claims. The result below, and underlying California

precedents, undermine Nollan and Dolan by permitting

courts to assume or presume legitimacy, without looking

past bare recitals or ostensible purposes to the real effects of

stringent regulations that impose substantial costs upon a

handful of property c-wners.

CONCLUSION

For these reasons, amicus respectfully requests that this

Court grant Berger Foundation’s petition for a writ of

certiorari to review and overturn the decision below, which:

¢ Contravenes authoritative decisions of this Court,

¢ Denies property owners any opportunity to prove regula-

tory taking claims recognized by this Court.

Dated: March 23, 1999.

Respectfully submitted,

GEORGE KIMBALL

KIMBALL & WEINER LLP

Attorney for Amicus Curiae

Western Mobilehome

Parkowners’ Association