Colony Cove Props., LLC v. City of Carson

• Decision Date: 23 April 2018
• Docket Number: No. 16-56255,16-56255
• Citation: 888 F.3d 445
• Parties: COLONY COVE PROPERTIES, LLC, a Delaware limited liability company, Plaintiff-Appellee, v. CITY OF CARSON, a municipal corporation; City of Carson Mobilehome Park Rental Review Board, a public administrative body, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

888 F.3d 445

COLONY COVE PROPERTIES, LLC, a Delaware limited liability company, Plaintiff-Appellee,

v.CITY OF CARSON, a municipal corporation; City of Carson Mobilehome Park Rental Review Board, a public administrative body, Defendants-Appellants.

No. 16-56255

United States Court of Appeals, Ninth Circuit.

Argued and Submitted February 9, 2018 Pasadena, California

Filed April 23, 2018

Matthew Dwight Zinn (argued) and Andrew W. Schwartz, Shute Mihaly & Weinberger LLP, San Francisco, California; Jeff M. Malawy, Stephen R. Onstot, June S. Ailin, William W. Wynder, and Sunny K. Soltani, Aleshire & Wynder LLP, Irvine, California; for Defendants-Appellants.

Anton Matlitsky (argued), O'Melveny & Myers LLP, New York, New York; Adam P. Wiley, Thomas W. Casparian, and Richard H. Close, Gilchrist & Ruiter PC, Santa Monica, California; Daniel J. Tully, Dimitri Portnoi, and Matthew W. Close, O'Melveny & Myers LLP, Los Angeles, California; for Plaintiff-Appellee.

Christine Van Aken, Chief of Appellate Litigation; Dennis J. Herrera, City Attorney; City Attorney's Office, San Francisco, California; for Amici Curiae League of California Cities and California Chapter of the American Planning Association.

Navneet Grewal and Sue Himmelrich, Western Center on Law and Poverty, Los Angeles, California; Shirley Gibson, Legal Aid Society of San Mateo County, Redwood City, California; for Amici Curiae California Rural Legal Assistance Inc., California Coalition for Rural Housing, Community Legal Services of East Palo Alto, The Golden State Manufactured-Home Owners League Inc., Housing California, Legal Aid Foundation of Los Angeles, Legal Aid Society of San Mateo County, National Housing Law Project, Public Advocates, Public Counsel Law Center, The Public Interest Law Project, Tenants Together, Western Center on Law and Poverty, and Theresa L. Forsythe.

Before: Susan P. Graber and Andrew D. Hurwitz, Circuit Judges, and Edward R. Korman,^** District Judge.

HURWITZ, Circuit Judge:

The Takings Clause of the Fifth Amendment, made applicable to the States by the Due Process Clause of the Fourteenth Amendment, provides that "private property" may not "be taken for public use, without just compensation." The issue in this case is whether a California city engaged in an unconstitutional taking when it approved a lower rent increase for a mobile home park than the park had requested.

After a jury trial, the district court entered a judgment finding an unconstitutional taking and awarding the park more than $3 million in damages. We reverse and instruct that the district court enter judgment in favor of the City.

I. Background

A. The Rent Control Ordinance

In 1979, the City of Carson adopted a "Mobile Home Space Rent Control Ordinance," establishing a seven-member Rent Review Board to "hear and determine applications of property owners for rent adjustments." The ordinance directs the Board to grant property owners a "fair, just and reasonable" rent increase, one that both "protects Homeowners from excessive rent increases and allows a fair return on investment to the Park Owner."

To balance these competing concerns, the ordinance lists several factors to be considered when evaluating a proposed rent increase, including changes in the Consumer Price Index ("CPI"), rent at comparable parks, capital improvements conducted since the last increase, and changes in operating and maintenance expenses. The listed factors, however, are neither exclusive nor dispositive.

To assist the Board, the City Council adopted Implementation Guidelines in 1998. The original Guidelines permitted, but did not require, the Board to conduct a "Gross Profits Maintenance Analysis" ("GPM Analysis") in evaluating a rent increase application. A GPM Analysis "compares the gross profit level expected from the last rent increase granted to the park prior to the current application ... to the gross profit shown by the current application." The Analysis "provide[s] an estimate of whether a park is earning the profit estimated to provide a fair return, as established by the immediately prior rent increase, with some adjustment to reflect any increase in the CPI." Acquisition debt service can be a relevant expense under the GPM Analysis "if the purchase price paid was reasonable in light of the rents allowed under the Ordinance and involved prudent and customary financing practices." But the Guidelines expressly state that a GPM Analysis "is not intended to create any entitlement to any particular rent increase."

In October 2006, the City amended the Implementation Guidelines to permit the Board also to conduct a "Maintenance of Net Operating Income Analysis" ("MNOI Analysis") when considering applications for rent increases. The MNOI Analysis "compares the net operating income (NOI) level expected from the last rent increase granted to a park owner and prior to any pending rent increase application ... to the NOI demonstrated in any pending rent increase application." "[C]hanges in debt service expenses are not to be considered in the" MNOI Analysis.

B. Colony's Purchase of the Mobile Home Park and Requested Rent Increases

On April 4, 2006, Colony Cove Properties, LLC ("Colony") purchased Colony Cove Mobile Estates ("the Property"), a mobile home park in Carson, for $23,050,000; $18,000,000 of the purchase price was obtained through a loan. The annual debt service on that loan—$1,224,681—far exceeded the prior owner's annual profit of $718,240.

At the time of purchase, the Implementation Guidelines provided only for the GPM Analysis. Colony first filed an application for a rent increase in 2007, after the Guidelines were revised to also allow an MNOI Analysis. That application sought a rent increase of $618.05 per space; it was later amended to seek only $200 per space. The Board's GPM Analysis suggested a rent increase of $200.93 per space, driven largely by the post-acquisition debt service. The Board's MNOI Analysis, which did not account for the debt service, suggested a rent increase of only $36.74. The Board adopted the MNOI Analysis and approved the $36.74 increase. In 2008, Colony requested a $342.46 rent increase. The Board again conducted both a GPM and an MNOI Analysis, adopted the latter, and granted an increase of $25.02.

C. Colony's Previous Litigation

In 2008, Colony sued the City, asserting facial and as-applied takings and due process claims with respect to the Board's 2007 decision. See Colony Cove Props., LLC v. City Of Carson , 640 F.3d 948, 953–54 (9th Cir. 2011). The district court dismissed the facial attack as time-barred and the as-applied takings claim as unripe; we affirmed. Id . at 956–57, 959.

The same day it appealed the first district court order, Colony also "filed a petition for writ of administrative mandate seeking review of the Board's 2008 determination of its September 2007 rent increase applications" in state court; Colony later filed a similar second petition concerning the 2008 application. See Colony Cove Props., LLC v. City of Carson , 220 Cal.App.4th 840, 163 Cal.Rptr.3d 499, 515 (2013). The state trial court denied Colony's petitions, and the California Court of Appeal affirmed, holding that state law allowed use of MNOI Analysis and that the Board's failure to take debt service into account did not deprive Colony of a fair rate of return. Id. at 521–24, 530. The California Supreme Court denied review.¹

D. The Current Litigation

Having exhausted its state-law claims,² Colony returned to federal court, alleging that the 2007 and 2008 Board decisions were an unconstitutional taking and violated Colony's substantive due process rights. The district court dismissed all of Colony's claims except for an as-applied regulatory takings claim premised on Penn Central Transportation Co. v. City of New York , 438 U.S. 104, 98 S.Ct. 2646, 57 L.Ed.2d 631 (1978).

Over the City's objection, the district court allowed a jury trial. At trial, Colony presented expert testimony that the Board's use of the MNOI Analysis and the consequent failure to take debt service into account in setting the 2007 and 2008 rents would cause Colony to lose rental income of approximately $5.7 million. Colony's owner, James Goldstein, also testified that, when he bought the Property, he expected the Board to consider debt service in future rent increase determinations, and he would not have paid $23 million for the park absent that expectation.

The City moved for judgment as a matter of law after both the close of Colony's case and the close of evidence. After the district court denied the motions, the jury found that the Board's 2007 and 2008 decisions were regulatory takings and awarded Colony $3,336,056 in damages. The City then filed a renewed Federal Rule of Civil Procedure 50(b) motion for judgment. The court denied the motion and awarded Colony prejudgment interest, attorneys' fees, and costs, entering a final judgment of $7,464,718.41.³

The City timely appealed. We have jurisdiction under 28 U.S.C. § 1291, and we review de novo the district court's denial of a motion for judgment as a matter of law. United States ex rel. Hopper v. Anton , 91 F.3d 1261, 1268 (9th Cir. 1996). In doing so, "[w]e must view the evidence in the light most favorable to the nonmoving party ... and draw all reasonable inferences in that party's favor." Ostad v. Or. Health Scis. Univ. , 327 F.3d 876, 881 (9th Cir. 2003). "Judgment as a matter of law is proper when the evidence permits only one reasonable conclusion and the conclusion is contrary to that reached by the jury." Id .

II. Discussion

"The Takings Clause of the Fifth Amendment provides that private property shall not ‘be taken for public use, without just compensation.’ " Murr v. Wisconsin , ––– U.S. ––––, 137 S.Ct. 1933, 1942, 198 L.Ed.2d 497 (2017). Although the paradigm of an unconstitutional taking is the direct appropriation of property, the Supreme Court has long acknowledged that "if regulation goes too far it will be recognized as a taking." Penn....