Azul Pacifico, Inc. v. City of Los Angeles

• Decision Date: 01 November 1991
• Docket Number: 90-56066,Nos. 90-55853,s. 90-55853
• Citation: 948 F.2d 575
• Parties: AZUL PACIFICO, INCORPORATED, a California corporation, Plaintiff-Appellee, v. CITY OF LOS ANGELES, a municipal corporation, Defendant-Appellant. AZUL PACIFICO, INCORPORATED, a California corporation, Plaintiff-Appellant, v. CITY OF LOS ANGELES, a municipal corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 575

948 F.2d 575

60 USLW 2321

AZUL PACIFICO, INCORPORATED, a California corporation, Plaintiff-Appellee, v. CITY OF LOS ANGELES, a municipal corporation, Defendant-Appellant.

AZUL PACIFICO, INCORPORATED, a California corporation, Plaintiff-Appellant, v. CITY OF LOS ANGELES, a municipal corporation, Defendant-Appellee.

Nos. 90-55853, 90-56066.

United States Court of Appeals Ninth Circuit.

Argued and Submitted July 11, 1991.

Submission Vacated Aug. 29, 1991.

Resubmitted Oct. 1, 1991.

Decided Nov. 1, 1991.

Gwendolyn Ryder Poindexter, Deputy City Attorney, Los Angeles, Cal., for defendant-appellant.

Sherman L. Stacey, Santa Monica, Cal., for plaintiff-appellee.

David Pettit, Hedges, Powe & Caldwell, Los Angeles, Cal., for amici curiae, counties of Santa Barbara and Santa Cruz and cities Arroyo Grande, Carson, Cathedral City, Fremont, Lompoc, Morro Bay, Oceanside, San Jose, San Marcos and Santa Paula, Cal.

Bruce E. Stanton, Crosby & Stanton, San Jose, Cal., for amicus curiae, Golden State Mobilehome Owners League, Inc.

Timothy A. Bittle, Pacific Legal Foundation, Sacramento, Cal., for amicus curiae, Pacific Legal Foundation.

Appeal from the United States District Court for the Central District of California.

Before POOLE, KOZINSKI and LEAVY, Circuit Judges.

KOZINSKI, Circuit Judge.

In Hall v. City of Santa Barbara, 833 F.2d 1270 (9th Cir.1986), cert. denied, 485 U.S. 940, 108 S.Ct. 1120, 99 L.Ed.2d 281 (1988), we held that a mobile home rent control ordinance could operate to give the tenants a possessory interest in the park owners' land, and thus effect a physical taking of the park owners' property. Hall was an appeal from the dismissal of the park owners' action; we held merely that a cause of action could be stated. Accord Pinewood Estates of Michigan v. Barnegat Township Leveling Bd., 898 F.2d 347, 353 (3d Cir.1990); see also Werner Z. Hirsch and Joel G. Hirsch, Legal-Economic Analysis of Rent Controls in a Mobile Home Context: Placement Values and Vacancy Decontrol, 35 UCLA L.Rev. 399, 456-63 (1988).

This is the first appeal to reach this court after a trial on the merits of the takings claim; what was only a theory in Hall was found as fact by the district court. We consider the city of Los Angeles's appeal from the district court's determination that a provision of its rent control ordinance violates the Fifth and Fourteenth Amendments' prohibition against taking of private property for public use without just compensation. Azul Pacifico, Inc. v. City of Los Angeles, 740 F.Supp. 772 (C.D.Cal.1990).

Facts

Denizens of mobile home parks own their dwelling units, or "coaches," but rent the spaces, or "pads," on which the coaches are installed. The mobile homes themselves really aren't: Moving a coach is a substantial and expensive undertaking. Consequently, vacating tenants generally sell their units to the incoming residents. In California, a landlord may not terminate or refuse to renew a tenant's lease except for cause (Cal.Civ.Code §§ 798.55, 798.56); generally cannot require removal of a mobile home from the park upon vacancy (id at § 798.73); and must approve a purchaser if he has the ability to pay the rent and will not create a disturbance (id at § 798.74). Moreover, Azul Pacifico's mobile home park and others in Los Angeles are subject to the city's Rent Stabilization Ordinance (RSO), which regulates the rent they can charge. Los Angeles Municipal Code (LAMC) Ch. XV, Art. I. In 1982 the city added a provision prohibiting landlords from raising the rent on mobile home pads when the coaches were vacated. LA Ordinance 156,597. This provision was repealed in 1984, and a substitute provision was adopted allowing landlords to raise the rent to the highest rent charged for a comparable site in the same park or 10 percent, whichever is less. LA Ordinance 158,891, codified at LAMC § 151.06F. It is this "vacancy control" provision which Azul Pacifico claims worked a taking of its property without compensation by transferring an interest in its property to the tenants.

In Hall, we held that the park owners would be entitled to compensation under the takings clause if the tenants could transfer this property interest to others, the interest had a market value and it was in fact traded on a market. 833 F.2d at 1276. The district court, in a well-reasoned opinion, found each factor was met in this case. The value of the possessory interest transferred by operation of law from landlord to tenant is reflected in the "premium" the tenant receives upon sale of the coach--the amount by which the sale prices of coaches in rent-controlled parks exceed those in uncontrolled areas. One Mrs. Morrison, for example, testified that she bought a coach in Azul Pacifico's park for $77,000 and immediately sold it for $5000 and had it removed from the pad. When asked why, she responded: "The use of the land was what I paid for more than the place." Trial Exhibit 432 at 7. In fact, both the plaintiff's and the defendant's experts agreed that there was a substantial premium paid on coaches in rent-controlled parks--they just calculated the amount differently.

Discussion

I

The Supreme Court has established a two-pronged ripeness test for takings claims. First, the property owner must obtain a final administrative decision regarding the application of the ordinance to its property. Williamson County Regional Planning Comm. v. Hamilton Bank, 473 U.S. 172, 186-94, 105 S.Ct. 3108, 3116-20, 87 L.Ed.2d 126 (1985). Second, the property owner must avail itself of state judicial remedies in an effort to obtain "just compensation." Id at 194-97, 105 S.Ct. at 3120-22.

When the alleged taking occurs as a result of a physical occupation of the property, the landowner need not exhaust administrative remedies before suing in federal court: "Where there has been a physical invasion, the taking occurs at once, and nothing the city can do or say after that point will change that fact." Hall, 833 F.2d at 1282 n. 28. Because a physical invasion is itself a final governmental action, the first Williamson ripeness requirement is always satisfied in such cases. See Sinaloa Lake Owners Assoc. v. City of Simi Valley, 882 F.2d 1398, 1402 (9th Cir 1989), cert. denied, --- U.S. ----, 110 S.Ct. 1317, 108 L.Ed.2d 493 (1990).

Furthermore, the California state courts have repeatedly held Hall-type takings claims to be non-compensable. See, for example, Casella v. City of Morgan Hill, 230 Cal.App.3d 43, 280 Cal.Rptr. 876 (1991), review denied, 1991 WL 73987, 1991 Cal.Lexis 3294 (July 17, 1991); Yee v. City of Escondido, 224 Cal.App.3d 1349, 274 Cal.Rptr. 551 (1990), review denied, 1990 WL 165782, 1991 Cal.Lexis 353 (Jan. 24, 1991), cert granted, --- U.S. ----, 112 S.Ct. 294, 116 L.Ed.2d 239 (1991). We have held that the futility of a state court action satisfies the second Williamson ripeness requirement: Property owners in this type of case can file immediately in federal court. Sierra Lake Reserve v. City of Rocklin, 938 F.2d 951, 954-55 (9th Cir.1991). ¹ Azul Pacifico's claim was ripe, and the district court did not err in asserting jurisdiction over the case.

II

Hall recognized a three-part test for takings claims based on mobile home rent controls: First, does the governmental action constitute a taking? Second, does the action advance a legitimate governmental interest? And third, has just compensation been paid? Compensation must be provided when the first question is answered in the affirmative and either of the next two in the negative. 833 F.2d at 1274-75. We address each in turn.

A. There is a fundamental distinction in takings jurisprudence between regulatory takings and takings effected by physical occupation. Compare Penn Central Transp. Co. v. New York City, 438 U.S. 104, 98 S.Ct. 2646, 57 L.Ed.2d 631 (1978) (regulatory), with Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 102 S.Ct. 3164, 73 L.Ed.2d 868 (1982) (physical occupation). The regulatory analysis requires courts to engage in "essentially ad hoc, factual inquiries." Kaiser Aetna v. United States, 444 U.S. 164, 175, 100 S.Ct. 383, 390, 62 L.Ed.2d 332 (1979). Governmental regulation will not be held to take private property unless, in Justice Holmes's words, it "goes too far." Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 415, 43 S.Ct. 158, 160, 67 L.Ed. 322 (1922). In contrast, Justice Marshall reminded us, "[w]hen faced with a constitutional challenge to a permanent physical occupation of real property, [the Supreme] Court has invariably found a taking." Loretto, 458 U.S. at 427, 102 S.Ct. at 3171 (emphasis added). In Hall we held that the challenged ordinance could be found to transfer a possessory interest in land to the mobile home tenants, and thus constituted a physical occupation analyzed under the per se approach. 833 F.2d at 1275-80; see also Pinewood Estates, 898 F.2d at 353.

Since Hall, the Supreme Court has decided Pennell v. City of San Jose, 485 U.S. 1, 108 S.Ct. 849, 99 L.Ed.2d 1 (1988), and FCC v. Florida Power Corp., 480 U.S. 245, 107 S.Ct. 1107, 94 L.Ed.2d 282 (1987). The city and some amici argue that these decisions undermine the rationale of Hall, but they are mistaken. In both cases the Court employed regulatory takings analysis, holding that the challenged regulations were legitimate exercises of the police power. And in both cases the Court was careful to distinguish the physical occupation cases.

In Pennell, apartment building owners challenged a rent control ordinance which allowed rents to rise up to 8 percent every year, with a provision for administrative review of requests for greater increases. The hearing officer was charged with taking into account several factors, including "hardship to a tenant"; the owners alleged that this provision "accomplishes a transfer of the landlord's property to individual hardship tenants." 485 U.S. at 9, 108 S.Ct. at 856. The Court, however, refused to address the issue: Because the...