MHC Fin. Ltd. P'ship v. City of San Rafael

• Decision Date: 17 April 2013
• Docket Number: 09–16612,Nos. 07–15982,09–16451,09–16613.,09–16447,s. 07–15982
• Parties: MHC FINANCING LIMITED PARTNERSHIP, an Illinois limited partnership; Grapeland Vistas, Inc., a California corporation, Plaintiffs–Appellants, v. CITY OF SAN RAFAEL, a municipal corporation; Contempo Marin Homeowners Association, a California corporation, Defendants–Appellees. MHC Financing Limited Partnership, an Illinois limited partnership; Grapeland Vista, Inc., an Illinois corporation, Plaintiffs–Appellees, v. City of San Rafael, Defendant–Appellant, and Contempo Marin Homeowners Association, Defendant–Intervenor. MHC Financing Limited Partnership, an Illinois limited partnership; Grapeland Vista, Inc., an Illinois corporation, Plaintiffs–Appellees, v. City of San Rafael, Defendant–Appellant, Contempo Marin Homeowners Association, Defendant–Intervenor–Appellee. MHC Financing Limited Partnership, an Illinois limited partnership; Grapeland Vista, Inc., an Illinois corporation, Plaintiffs–Appellees, v. City of San Rafael, Defendant, and Contempo Marin Homeowners Association, Defendant–Intervenor–Appellant. MHC Financing Limited Partnership, an Illinois limited partnership; Grapeland Vista, Inc., an Illinois corporation, Plaintiffs–Appellees Cross–Appellants, v. City of San Rafael, Defendant–Appellant Cross–Appellee, Contempo Marin Homeowners Association, Defendant–Intervenor–Appellant Cross–Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

714 F.3d 1118

MHC FINANCING LIMITED PARTNERSHIP, an Illinois limited partnership; Grapeland Vistas, Inc., a California corporation, Plaintiffs–Appellants,

v.CITY OF SAN RAFAEL, a municipal corporation; Contempo Marin Homeowners Association, a California corporation, Defendants–Appellees.

MHC Financing Limited Partnership, an Illinois limited partnership; Grapeland Vista, Inc., an Illinois corporation, Plaintiffs–Appellees,

v.City of San Rafael, Defendant–Appellant,andContempo Marin Homeowners Association, Defendant–Intervenor.

MHC Financing Limited Partnership, an Illinois limited partnership; Grapeland Vista, Inc., an Illinois corporation, Plaintiffs–Appellees,

v.City of San Rafael, Defendant–Appellant,Contempo Marin Homeowners Association, Defendant–Intervenor–Appellee.

MHC Financing Limited Partnership, an Illinois limited partnership; Grapeland Vista, Inc., an Illinois corporation, Plaintiffs–Appellees,

v.City of San Rafael, Defendant,andContempo Marin Homeowners Association, Defendant–Intervenor–Appellant.

MHC Financing Limited Partnership, an Illinois limited partnership; Grapeland Vista, Inc., an Illinois corporation, Plaintiffs–Appellees Cross–Appellants,

v.City of San Rafael, Defendant–Appellant Cross–Appellee,Contempo Marin Homeowners Association, Defendant–Intervenor–Appellant Cross–Appellee.

Nos. 07–15982, 09–16447, 09–16451, 09–16612, 09–16613.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Feb. 13, 2013.

Filed April 17, 2013.

David J. Bradford (argued), Barry Levenstam, Lisa T. Scruggs, and Bradley M. Yusim, Jenner & Block LLP, Chicago, IL, for Plaintiffs–Appellees–Cross–Appellants–Appellants.

Michael von Loewenfeldt (argued) and James M. Wagstaffe, Kerr & Wagstaffe LLP, San Francisco, CA; Robert F. Epstein, Ragghianti Freitas LLP, San Rafael, CA, for Defendant–Appellant–Cross–Appellee–Appellee City of San Rafael.

Gordon C. Atkinson (argued), Cooley Godward Kronish LLP, San Francisco, CA, for Defendant –Intervenor–Appellant–Cross–Appellee–Appellee Contempo Marin Homeowners Association.

R.S. Radford, Pacific Legal Foundation, Sacramento, CA, for Amicus Curiae Pacific Legal Foundation.

Elliot L. Bien and Amy E. Margolin, Bien & Summers, Novato, CA, for Amicus Curiae Western Manufactured Housing Association.

Andrew W. Schwartz, Fran M. Layton, Matthew D. Zinn, and Amanda R. Garcia, Shute, Mihaly & Weinberger LLP, San Francisco, CA, for Amicus Curiae League of California Cities and California State Association of Counties.

Bruce E. Stanton, Law Offices of Bruce E. Stanton, San Jose, CA, for Amicus Curiae Golden State Manufactured–Home Owners' League, Inc.

Appeal from the United States District Court for the Northern District of California, Vaughn R. Walker, District Judge, Presiding. D.C. Nos. CV–04–03325–VRW, 3:00–cv–03785–VRW.

Before: JEROME FARRIS, SIDNEY R. THOMAS, and N. RANDY SMITH, Circuit Judges.

OPINION

THOMAS, Circuit Judge:

As Yogi Berra observed, “it's deja vu all over again” as we are being “called upon to consider, yet again, a takings challenge to mobile home rent control laws.” Levald, Inc. v. City of Palm Desert, 998 F.2d 680, 683 (9th Cir.1993). In this appeal, we consider whether San Rafael's mobilehome rent regulation violates the park owners' substantive due process rights, constitutes a regulatory taking under Penn Central Transportation Co. v. New York City, 438 U.S. 104, 98 S.Ct. 2646, 57 L.Ed.2d 631 (1978), or runs afoul of the ‘public use’ requirement of the Fifth Amendment under the standards articulated in Kelo v. City of New London, 545 U.S. 469, 125 S.Ct. 2655, 162 L.Ed.2d 439 (2005). We conclude that the regulation passes muster against all of these challenges.

I.

Contempo Marin is one of two mobilehome parks in San Rafael, California and is owned by MHC Financing Limited Partnership (now Equity LifeStyle Properties, Inc.) and Grapeland Vistas, Inc. (collectively, “MHC”). MHC owns the pads upon which the mobilehomes sit and pad lessees pay monthly rent to MHC for use of their respective pads and the facilities and services that MHC provides. Despite their name, mobilehomes located in mobile home parks are actually not very mobile: pad lessees at Contempo Marin, as elsewhere, who wish to relocate usually sell their mobilehomes in place to the new resident, and the purchaser—in addition to acquiring the mobilehome—takes over the pad leasehold. See Yee v. City of Escondido, 503 U.S. 519, 523, 112 S.Ct. 1522, 118 L.Ed.2d 153 (1992). Mobilehome owners sell their mobilehome and pad lease rights for one lump sum, so value of the rent controls is figured into the total purchase price and “capitalized” into the value of the mobilehome; MHC receives less revenue because the rent it can charge for the pad is limited, and it claims that this is an unconstitutional taking without just compensation under the Fifth Amendment and violates its substantive due process rights.

A. The Rent Control Regime

In 1989, San Rafael enacted the Mobilehome Rent Stabilization Ordinance. That Ordinance imposed rent controls tied to the consumer price index (“CPI”): if the change in CPI was less than 5%, the park owner could increase pad rents by a percentage equal to the change; between 5–10%, pad rents could be increased at 75% of the CPI, and above 10%, pad rents could be increased at 66% of the CPI change. Under the 1989 Ordinance, park owners could seek a greater increase through a defined process.

In 1993, the City amended the Ordinance to add “vacancy control,” which gave any new resident taking over a mobilehome pad lease the right to rent the pad at the same rate as the previous tenant. The then-owner of Contempo Marin sued in state court, alleging that the combination of pad rent control and vacancy control in the amended Ordinance was an unconstitutionaltaking. The superior court upheld the Ordinance. See De Anza Assets, Inc. v. City of San Rafael, Case No. A063017 (Cal.Dist.Ct.App. Oct. 6, 1994). While on appeal, MHC purchased Contempo Marin. The court of appeal concluded that the vacancy control amendments do not constitute a regulatory taking, but reversed and remanded on other grounds. Id.

In 1999, the City amended the Ordinance to remove the sliding scale for pad rent increases and instead limited increases to a flat 75% of the change in CPI. The Amendments also altered rent increases related to capital improvements. As before, the 1999 Amendments to San Rafael's mobilehome rent regulation provide an administrative procedure by which park owners such as MHC may seek rent increases beyond that which the regulation's formula provides in order to obtain a “just and reasonable return.”

B. Procedural History

On October 13, 2000, MHC commenced this suit challenging the constitutionality of the City's regulations on the ground that they violate the Takings Clause of the Fifth Amendment as made applicable to the states by the Fourteenth Amendment.

In 2001, the parties reached a settlement agreement whereby the City agreed to “initiate” amendments that would repeal vacancy control.¹ The City Council held public hearings, but elected not to repeal vacancy control. MHC moved to enforce the settlement agreement, claiming that the City had committed itself to actually repealing vacancy control. The district court granted MHC's motion, holding that the City was contractually obligated to repeal vacancy control, but in 2002, the court granted the City's motion for reconsideration of the court's earlier holding that the settlement agreement was a valid contract. In October and November 2002, the district court held a jury trial on the contract claims, resulting in a jury verdict in favor of the City, and conducted a bench trial on MHC's constitutional claims. MHC filed motions for judgment as a matter of law notwithstanding the verdict and motions for a new trial, which the district court denied.

After the bench trial, the district court stayed its ruling on the takings causes of action pending the Ninth Circuit's decision in Chevron USA, Inc. v. Bronster, 363 F.3d 846, 849 (9th Cir.2004), rev'd sub nom. Lingle v. Chevron U.S.A. Inc., 544 U.S. 528, 125 S.Ct. 2074, 161 L.Ed.2d 876 (2005) and extended the stay after the Supreme Court granted certiorari in that case. See Lingle v. Chevron U.S.A. Inc., 543 U.S. 924, 125 S.Ct. 314, 160 L.Ed.2d 221 (2004) (granting certiorari).

In August 2004, while the case was stayed, MHC filed a second lawsuit, “ MHC II,” (3:04–CV–03325) seeking monetary damages for takings and equal protection violations, arguing that it was challenging acts subsequent to the filing of its first complaint. The district court determined that MHC had already waived its monetary damages as part of the first lawsuit, so it dismissed with prejudice that complaint in December 2006.

On May 23, 2005, the Supreme Court issued its decision in Lingle, and rejected the “substantially advances” theory of regulatory takings that had been the theory of MHC's claims.²Lingle v. Chevron U.S.A. Inc., 544 U.S. 528, 125 S.Ct. 2074, 161 L.Ed.2d 876 (2005). MHC then requested leave to amend its complaint and file new constitutional claims, which the court granted in January 2006. Id.

MHC filed its Second Amended Complaint in February 2006, claiming that the Ordinance constitutes a regulatory taking under Penn Central, a private taking under Kelo, and that the Ordinance denied substantive due process under Lingle. The district court conducted a second bench trial in April and May 2007, issued preliminary findings of fact and conclusions of law on July 26, 2007, and issued a final order on January 28, 2008.

The district court held that “[p]urchasers of mobilehomes in Contempo Marin after the 1999 Amendments have paid a premium reflecting the present value of expected rent savings due to San Rafael rent regulation. This premium averages $67,000 for the right the enjoy the below market regulated rent.” Because the premium is being paid to the Contempo Marin mobilehome owners, “the amendmen...