Equity Lifestyle Prop. v. County of San Luis Obispo

• Decision Date: 17 September 2007
• Docket Number: No. 05-55406.,05-55406.
• Parties: EQUITY LIFESTYLE PROPERTIES, INC., f/k/a Manufactured Home Communities, Inc., d/b/a Sea Oaks Manufactured Home Community, Plaintiff-Appellant, v. COUNTY OF SAN LUIS OBISPO; County of San Luis Obispo Rent Review Board; San Luis Obispo Board of Supervisors, Defendants-Appellees, and Elizabeth Cisneros; Mary Jane Tate; Frank Greco; Ida Greco; Robert Meyer; Margaret Meyer; Anne Meyer; Louise Mcmanus; Laverne Jones; William Spurrier; June Spurrier, Real Parties in Interest.
• Court: U.S. Court of Appeals — Ninth Circuit

505 F.3d 860

EQUITY LIFESTYLE PROPERTIES, INC., f/k/a Manufactured Home Communities, Inc., d/b/a Sea Oaks Manufactured Home Community, Plaintiff-Appellant, v. COUNTY OF SAN LUIS OBISPO; County of San Luis Obispo Rent Review Board; San Luis Obispo Board of Supervisors, Defendants-Appellees, and Elizabeth Cisneros; Mary Jane Tate; Frank Greco; Ida Greco; Robert Meyer; Margaret Meyer; Anne Meyer; Louise Mcmanus; Laverne Jones; William Spurrier; June Spurrier, Real Parties in Interest.

No. 05-55406.

United States Court of Appeals, Ninth Circuit.

Argued February 7, 2007.

Submission Deferred February 12, 2007.

Submitted August 17, 2007.

Filed September 17, 2007.

David J. Bradford, Jenner & Block LLP, Chicago, IL, argued the cause for the petitioner/plaintiff-appellants; Edith R. Matthai, Steven S. Fleishman, Robie & Matthai APC, Los Angeles, CA, and Elliot L. Bien, Bien & Summers LLP, Novato, CA, were on the briefs.

Henry E. Heater, Endeman, Lincoln, Turek & Heater LLP, argued the cause for the respondents-appellees; Timothy McNulty, San Luis Obispo County Counsel, San Luis Obispo, CA, and Donald R. Lincoln and Linda B. Reich, Endeman, Lincoln, Turek & Heater LLP, San Diego, CA, were on the briefs.

Appeal from the United States District Court for the Central District of California; Terry J. Hatter, Chief District Judge, Presiding. D.C. No. CV-03-00037-TJH.

Before: CYNTHIA HOLCOMB HALL, DIARMUID F. O'SCANNLAIN, and CONSUELO M. CALLAHAN, Circuit Judges.

O'SCANNLAIN, Circuit Judge:

We must determine whether a municipal rent control ordinance survives a due process and equal protection challenge or requires payment of compensation as a government taking.

I

A

On June 5, 1984, the County of San Luis Obispo adopted a Mobilehome Rent Stabilization Ordinance ("Ordinance") pursuant to a voter initiative.

[The Ordinance sought] to protect the owners and occupiers of mobilehomes from unreasonable rent increases, while at the same time recognizing the need of park owners to receive a suitable profit on their property with rental income sufficient to cover increases in the costs of repair, insurance, maintenance, utilities, employee services, additional amenities and other costs of operation, and to receive a fair return on their property.

County of San Luis Obispo, Cal., Code § 25.01.010(c). The Ordinance exempted "[t]enancies covered by leases or contracts which provide for more than a month-to-month tenancy, but only for the duration of such lease or contract." Id. § 25.03.010. The Ordinance established a Mobilehome Rent Review Board ("Board") consisting of members "not connected with the mobilehome rental housing industry for their personal gain." Id. § 25.04.010. The Board's powers and duties included the right "[t]o increase or decrease maximum rents upon completion of its hearings and investigations." Id. § 25.05.010. The Ordinance prescribed a base rent at "the monthly space rent as of December 31, 1982," allowed a "maximum monthly space rent [to] be increased no more than once a year by an increase over the then existing space rent equal to sixty percent of the cost of living increase," and forbade owners to "demand, accept or retain a rent . . . in excess of the maximum permitted by this chapter." Id. §§ 25.06.010(a)(1), (b), (d). Upon a transfer of mobilehome ownership, the Ordinance allowed a rent increase of up to 10% of the prior monthly rent. Id. § 25.06.011. In addition, the Ordinance included a "hardship exception" so that the Board could approve rent increases above the normal maximum in the case of extraordinary expenditures and costs that would preclude "a just and reasonable return on[the] property." Id. § 25.07.010.

B

Manufactured Home Communities, Inc. ("MHC"), now known as Equity Lifestyle Properties, Inc., is a public company. MHC created an Operating Limited Partnership ("OLP"), which has acquired several mobilehome communities and resorts from original owners in exchange for limited partnership assets. The partners of OLP, including MHC and its limited partners, receive revenue from these assets.¹

In 1997, acting on behalf of OLP, MHC purchased the Sea Oaks Manufactured Home Community in Los Osos, California ("the Park"). OLP maintains title ownership. MHC subsequently sought to impose rent increases on nine of the 126 mobilehome lots in the Park.²

On March 26, 2002, MHC (holding itself out as the park-owner) gave notice to the Park tenants that rent in the nine lots would increase by an average 185% The tenants protested that the Ordinance barred such rent increases, but MHC noted that they had signed standard-form 12-month rental agreements and stated that the Ordinance did not apply to such leases. See County of San Luis Obispo, Cal., Code § 25.03.010 (exempting "[t]enancies covered by leases or contracts which provide for more than a month-to-month tenancy . . . for the duration of such lease or contract").

To settle the dispute over the 185% rent increases, MHC wrote the Board on March 29, 2002, asking for verification that the Ordinance did not apply to the nine lots at issue. On May 22, 2002, the tenants in turn requested a hearing as to whether the increases violated the Ordinance. They explained that the previous Park owner had informed them that the leases would be subject to the Ordinance and they relied on that information in renewing their leases.

The Board accepted MHC's representation that it was the Park owner and gave notice of hearings, which it conducted on June 3, July 15, and August 23, 2002. At the hearings, the Board allowed both sides to present witnesses and to submit limitless materials, but barred any cross-examination. The Board concluded that MHC's "twelve-month" agreements were in fact month-to-month agreements covered by the rent control Ordinance, for they included an undefined rent term and permitted rent increases anytime upon a 90-day notice.³ MHC appealed to the San Luis Obispo County Board of Supervisors on September 5, 2002, which affirmed the Board's decision on October 8, 2002.

C

On January 3, 2003, MHC filed a Petition for Writ of Administrative Mandamus in the Central District of California, based on federal question and diversity jurisdiction. See 28 U.S.C. §§ 1331, 1332, 1343(a)(3). The petition asserted federal claims under 42 U.S.C. § 1983 as well as California law claims "within the pendent and/or supplemental jurisdiction of th[e] court." See 28 U.S.C. § 1367. The petition challenged the administrative ruling, and the Respondents' failure "to declare their own ordinance unconstitutional under the Fifth and Fourteenth Amendments."

MHC subsequently filed a First Amended Complaint for:

(1) Petition for Writ of Administrative Mandamus⁴

(2) Violation of the Fifth Amendment of the United States Constitution (Takings Claim)⁵

(3) Violation of the Fourteenth Amendment of the United States Constitution (Substantive Due Process)⁶

(4) Violation of the Fourteenth Amendment to the United States Constitution (Equal Protection)⁷

(5) Declaratory Relief⁸

MHC sought damages and equitable relief from application of the Ordinance.

On November 9, 2004, the County moved to dismiss the MHC's First Amended Complaint under Fed.R.Civ.P. 12(b)(1) (lack of subject matter jurisdiction) and 12(b)(6) (failure to state a claim upon which relief can be granted). The motion contended that MHC lacked standing, that its as-applied takings claims and due process claims were unripe, that its facial claims were barred by the statute of limitations, and that its other constitutional claims offered no basis for relief. In the alternative, the motion urged the court to "exercise Younger or Pullman abstention." The district court responded with the following order: "The Court has considered Defendant's motion to dismiss the first amended complaint, together with the moving and opposition papers. It is ordered that the motion be, and hereby is, granted. Date: February 22, 2005." MHC now timely appeals this order.

D

Because abstention has been raised as an issue in this case, we recount related developments in state court. Three days after filing its petition in the federal district court, MHC filed a Petition for Writ of Administrative Mandamus in the California Superior Court, asserting nearly identical claims as in federal court. On November 5, 2004, the County—which had not been served with the petition until October 7—filed a demurrer arguing that MHC lacked standing. On January 4, 2005, MHC filed a First Amended Petition, containing the same allegations as before, but explaining that MHC "controls the actions" of OLP and "has a direct, pecuniary interest in the amount of rent that can be charged at the property it has an interest in, including the Sea Oaks park." On October 19, 2005, the court overruled the demurrer.

On December 7, 2005, MHC filed a Second Amended and Supplemental Complaint in the state trial court, which mirrored the claims in its First Amended Complaint previously filed in the federal district court. The state trial court held that MHC had standing and bifurcated the action as to the writ and non-writ claims. The court denied the writ on July 26, 2006, granted judgment on the pleadings for the County on the non-writ claims on November 8, 2006, and entered judgment for the County on December 8, 2006. MHC filed a state court notice of appeal on January 23, 2007. The state trial court judgment and appeal thus occurred after MHC had appealed the district court's order granting the County's motion to dismiss.

II

The dismissal of a federal complaint requires de novo review.⁹ We begin with the jurisdictional issue. MHC claims standing based on its financial interest as a partner of OLP. In considering this claim, we must accept as true its assertion that MHC lost revenue when the Board forbade OLP from increasing rents by an average 185%. See Pennell v. City of San Jose, 485 U.S. 1, 7, 108 S.Ct. 849, 99 L.Ed.2d 1 (1988) ("[W]hen standing is...