Levald, Inc. v. City of Palm Desert

Decision Date08 July 1993
Docket NumberNo. 91-56315,91-56315
Citation998 F.2d 680
PartiesLEVALD, INC., Plaintiff-Appellant, v. CITY OF PALM DESERT, Defendant-Appellee.
CourtU.S. Court of Appeals — Ninth Circuit

Jerrold A. Fadem and Andrew H. Kopkin, Fadem & Douglas, Los Angeles, CA, for plaintiff-appellant.

Michael J. Andelson and Kandy Lee Allen, Best, Best & Krieger, Rancho Mirage, CA, for defendant-appellee.

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

Before: HUG, and O'SCANNLAIN, Circuit Judges, and SEDWICK, * District Judge.

O'SCANNLAIN, Circuit Judge:

We are called upon to consider, yet again, a takings challenge to mobile home rent control laws.

I

Levald, Inc. owns a mobile home park in the city of Palm Desert, California. Residents of the park own their mobile homes but rent pads from Levald. Levald provides private streets and common areas, along with other lesser amenities. The vast majority of mobile homes are never moved once they are placed in the park.

The park is subject to California's Mobilehome Residency Law, California Civil Code § 798 et seq. ("the residency law"). The impetus for the residency law was the legislature's finding that "because of the high cost of moving mobilehomes, the potential for damage resulting therefrom, the requirements relating to the installation of mobilehomes, and the cost of landscaping or lot preparation, it is necessary that the owners of mobilehomes occupied within mobilehome parks be provided with the unique protection from actual or constructive eviction afforded by provisions of this chapter." Cal.Civ.Code § 798.55(a). The residency law severely limits the ability of the mobile home park owner to terminate the tenancy of the mobile home owner, and provides that the park owner may not require the removal of a mobile home when it is sold. Moreover, the residency law prohibits the park owner from charging a transfer fee for the sale, and the park owner may not disapprove a purchaser as long as the purchaser has the ability to pay rent.

In 1985, Palm Desert passed a vacancy control ordinance to supplement an already-existing rent control ordinance. The vacancy control ordinance prohibited mobile home park owners from increasing the rent for a mobile home space when that space became vacant or the ownership of a mobile home was transferred. In 1986, Palm Desert repealed the rent control and vacancy control ordinances and reenacted their provisions in Palm Desert Ordinance No. 456. Under the ordinance, a park owner may apply for a hardship rental increase through various procedures outlined in the city's Rent Review Board Guidelines.

According to Levald, the combined effect of the residency laws and the ordinance ("the statutory scheme") is that a property interest is transferred from the landlord to its tenants: the right perpetually to occupy park spaces at below-market rents. Levald asserts the right has a market value that park tenants are able to capture when they sell their mobile homes to third parties. The premium that the new buyer must pay is equal to the difference between the rent controlled price and the fair market price over the expected life of the statutory scheme, discounted to present value. Thus, the argument goes, incoming tenants do not get the benefit of the lower rents since the lower rents are offset by the premium.

In 1989, Levald filed suit against Palm Desert. The complaint alleges violations of the Takings and Due Process Clauses of the United States Constitution, along with the California Constitution. On September 9, 1991, the district court dismissed the complaint, concluding that the takings claims were barred by the statute of limitations and that Levald had failed to state a claim for a violation of the substantive due process clause. The district court declined to exercise supplemental jurisdiction over the pendent state law claims. Levald appeals. 1

II

The Takings Clause of the Fifth Amendment provides: "[N]or shall property be taken for public use, without just compensation." Takings claims are divided into two classes: permanent physical occupation claims and regulatory takings. Compare, e.g., Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 426, 102 S.Ct. 3164, 3171, 73 L.Ed.2d 868 (1982) (physical occupation) with Penn Central Transp. Co. v. New York City, 438 U.S. 104, 123-25, 98 S.Ct. 2646, 2658-59, 57 L.Ed.2d 631 (1978) (regulatory taking). A physical occupation occurs when the government physically intrudes upon private property either directly or by authorizing others to do so. Loretto, 458 U.S. at 426, 102 S.Ct. at 3171. A regulatory taking occurs when the value or usefulness of private property is diminished by a regulatory action that does not involve a physical occupation of the property. "Where the government authorizes a physical occupation of property (or actually takes title), the Takings Clause generally requires compensation." Yee v. City of Escondido, --- U.S. ----, ----, 112 S.Ct. 1522, 1526, 118 L.Ed.2d 153 (1992); see Loretto, 458 U.S. at 426, 102 S.Ct. at 3171 (installation of television cables, although only occupying one and one half cubic feet, represented a physical occupation and thus a per se taking). "But where the government merely regulates the use of property, compensation is required only if considerations such as the purpose of the regulation or the extent to which it deprives the owner of the economic use of the property suggest that the regulation has unfairly singled out the property owner to bear a burden that should be borne by the public as a whole." Yee, --- U.S. at ----, 112 S.Ct. at 1526; see Penn Central, 438 U.S. at 123-25, 98 S.Ct. at 2658-59 (regulation that prohibited Penn Central from building a fifty-five story office tower over its Grand Central Terminal drastically diminished the value of Penn Central's property, but did not amount to a taking). Because determining whether a regulatory action effects a taking requires "complex factual assessments of the purposes and economic effects of government actions," Yee, --- U.S. at ----, 112 S.Ct. at 1526, while any physical occupation by the government is a taking per se, much turns on the classification of the government's action.

A

In Hall v. City of Santa Barbara, 833 F.2d 1270 (9th Cir.1987), cert. denied, 485 U.S. 940, 108 S.Ct. 1120, 99 L.Ed.2d 281 (1988), overruled by Yee v. City of Escondido, --- U.S. ----, 112 S.Ct. 1522, 118 L.Ed.2d 153 (1992), the Ninth Circuit considered whether a statutory scheme almost identical to the one challenged here could amount to a permanent physical occupation and thus a per se taking. The Hall court concluded that the appellants' claim that the mobile home rent control ordinance transferred from the landlords to the tenants a possessory interest in the land, consisting of the right to occupy the property in perpetuity while paying only a fraction of what it is worth in rent, was indeed a physical occupation claim. Id. at 1276-77.

Levald relied on Hall before the district court, arguing that the government had taken its property through a permanent physical occupation. After the district court reached its decision, however, the Supreme Court overruled Hall in Yee v. City of Escondido, --- U.S. ----, 112 S.Ct. 1522, 118 L.Ed.2d 153 (1992). The Court held that the rent control ordinance, even when considered in conjunction with the California Mobilehome Residency Law, in no way authorized a compelled physical invasion of the property because the landlords "voluntarily rented their land to mobile home owners." Id. --- U.S. at ----, 112 S.Ct. at 1528. The Court noted that "neither the City nor the State compels petitioners, once they have rented their property to tenants, to continue doing so. To the contrary, the Mobilehome Residency Law provides that a park owner who wishes to change the use of his land may evict his tenants, albeit with six or twelve months notice." Id. (emphasis added). The Court reserved, however, the question whether the combined effects of the mobilehome residency law and the rent control ordinance could amount to a regulatory taking. Id. --- U.S. at ---- - ----, 112 S.Ct. at 1530-31.

Because the Supreme Court extinguished any chance that Levald could prevail on a physical occupation theory, Levald seeks to argue for the first time on appeal that the statutory scheme effects a regulatory taking. Palm Desert argues that since Levald did not raise this argument to the district court, it is barred from raising it on appeal.

We are persuaded that Levald may make its regulatory takings argument on appeal. The Supreme Court's opinion in Yee is instructive. Although the Yee Court did not consider the merits of the regulatory takings claim because it was outside the scope of the grant of certiorari, the Court "reject[ed] the respondent's contention that the regulatory taking argument is not properly before [the Court] because it was not made below." Id. --- U.S. at ----, 112 S.Ct. at 1532. The Court noted: "Petitioners unquestionably raised a taking claim in the state courts. The question whether the rent control ordinance took their property without compensation ... is thus properly before us." Id. The Court continued:

Once a federal claim is properly presented, a party can make any argument in support of that claim; parties are not limited to the precise arguments they made below. Petitioners' arguments that the ordinance constitutes a taking in two different ways, by physical occupation and by regulation, are not separate claims. They are rather separate arguments in support of a single claim--that the ordinance effects an unconstitutional taking. Having raised a taking claim [below], therefore, petitioners could have formulated any argument they liked in support of that claim here.

Id. (emphasis in original) (citations omitted). Following that reasoning, we conclude that Levald's regulatory...

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