Yee v. City of Escondido, No. D010307

• Court: California Court of Appeals
• Writing for the Court: WIENER; WORK; HUFFMAN
• Citation: 274 Cal.Rptr. 551,224 Cal.App.3d 1349
• Parties: John K. YEE, et al., Plaintiffs and Appellants, v. CITY OF ESCONDIDO, A Municipal Corporation, Defendant and Respondent. *
• Decision Date: 31 October 1990
• Docket Number: No. D010307

Page 551

274 Cal.Rptr. 551 224 Cal.App.3d 1349 John K. YEE, et al., Plaintiffs and Appellants,
v.
CITY OF ESCONDIDO, A Municipal Corporation, Defendant and Respondent.
[And eleven other cases.] ^* No. D010307. Court of Appeal, Fourth District, Division 1, California. Oct. 31, 1990.
Review Denied Jan. 24, 1991.

[224 Cal.App.3d 1350] Robert J. Jagiello, Debra K. Butler and Jagiello & Pech, Lake Arrowhead, for plaintiffs and appellants.

David R. Chapman and Jeffrey R. Epp, City Attys., Escondido, Donald R. Lincoln, Linda B. Reich and Endeman, Lincoln, Turek & Heater, San Diego, for defendant and respondent.

Page 552

[224 Cal.App.3d 1351] WIENER, Acting Presiding Justice.

Plaintiffs in these consolidated cases are all owners of mobilehome parks in Escondido. They ask us to revisit an issue of federal constitutional law we first considered several years ago in Oceanside Mobilehome Park Owners' Assn. v. City of Oceanside (1984) 157 Cal.App.3d 887, 204 Cal.Rptr. 239. In that case we rejected an argument made by an association of park owners that a rent control ordinance constituted a compensable "taking" because tenants were able to realize a premium on the sale of their mobilehomes in a rent controlled park compared with the price similar homes sold for in a non-rent control setting. Plaintiffs urge we reconsider our views relying on a more recent opinion from the Ninth Circuit Court of Appeals which, based on an admittedly lengthier analysis, accepted such an argument. (See Hall v. City of Santa Barbara (9th Cir.1986) 833 F.2d 1270.)

While federal circuit court precedent on issues of federal law is certainly entitled to substantial deference, it is not binding. (Rohr Aircraft Corp. v. County of San Diego (1959) 51 Cal.2d 759, 764, 336 P.2d 521; see 9 Witkin, Cal.Procedure (3d ed. 1985) Appeal, § 780, p. 751.) We have reviewed the issue anew in light of Hall. Putting aside the practical effect of our decision ¹, we find Hall 's reasoning unpersuasive and reaffirm the conclusion we reached in Oceanside.

FACTUAL AND PROCEDURAL BACKGROUND

In June 1988, voters in the City of Escondido passed an initiative measure which enacted a mobilehome rent control ordinance. Generally, the ordinance provided for a rollback of rents for mobilehome spaces to those existing on January 1, 1986. Park owners can seek adjustments in this base rent by filing an application with the City's Mobilehome Park Rental Review Board. ²

Escondido's rent control ordinance does not exist in a vacuum. The relationship between landlords and tenants in mobilehome parks is extensively regulated by the California Mobilehome Residency Law. (Civ.Code, [224 Cal.App.3d 1352] § 798 et seq.) Under its terms, a tenancy may not be terminated except for several specified reasons constituting good cause. (§ 798.56.) In addition, a park owner is compelled to accept as a new tenant a person who purchases a mobilehome from an existing tenant unless the new tenant does not have the financial ability to pay rent or, based on past tenancies, has demonstrated he or she will not comply with the park rules and regulations. (§ 798.74.)

It is the combined effect of the Escondido rent control ordinance and the California Mobilehome Residence Law which plaintiffs contend amounts to a compensable "taking" within the meaning of the Fifth Amendment to the United States Constitution and article I, section 19 of the California Constitution. They note that state law compels the park owner--except in limited circumstances--to accept the purchaser of an existing tenant's mobilehome as a new tenant. As a result, plaintiffs argue, the price of used mobilehomes in Escondido has increased dramatically since passage of the rent control ordinance due entirely to the fact that existing tenants are able to monetize the value to mobilehome owners living in a rent controlled jurisdiction. According to plaintiffs, Escondido's rent control ordinance constitutes a "taking" because it transfers this monetary interest from park owners--who would normally

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capture the value through increased rents--to tenants.

Plaintiffs never sought an adjustment in the base rent to be charged in the mobilehome parks they own under the terms of the Escondido ordinance. Instead, they filed this lawsuit challenging the constitutionality of the ordinance on its face and seeking compensation for the interest which they allege has been "taken". In each case, the court sustained the City's demurrer to the complaint without leave to amend and dismissed the action.

DISCUSSION A

Mobilehomes and mobilehome park spaces are what economists refer to as complementary goods. Because they are used together, there is a direct and necessarily inverse relationship between the prices for complementary goods. For example, a decrease in the price of popcorn will cause an increase in the demand for popcorn poppers. Assuming a constant supply, this in turn will result in an increase in the price of popcorn poppers. The "complementary good" effect is basic to a free market economy. (See, e.g., Reynolds, Microeconomics: Analysis and Policy (5th ed. 1985) p. 41; McConnell, Economics: Principles, Problems, and Policies (10th ed. 1987) p. 55.)

It is thus inevitable that where government acts to reduce (or at least limit increases in) the rental prices charged for mobilehome spaces, the [224 Cal.App.3d 1353] price of mobilehomes will increase. This is particularly true where, as in California, other statutes generally compel a park owner to accept the purchaser of an existing tenant's mobilehome as a new tenant. This assures that the complementary good effect will be substantially limited to those mobilehomes currently occupying rent-controlled spaces.

Recognizing that "the function of government may often be to tamper with free markets, correcting their failures and aiding their victims" (Fisher v. Berkeley (1986) 475 U.S. 260, 264, 106 S.Ct. 1045, 1048, 89 L.Ed.2d 206), decisions of the United States and California Supreme Courts have established that local governments may, consistent with the police power, adopt rent control ordinances where imperfections in the unregulated market for rental housing allow landlords to charge excessive rents. (See, e.g., Pennell v. San Jose (1988) 485 U.S. 1, 11-12, 108 S.Ct. 849, 857, 99 L.Ed.2d 1.) The U.S. Supreme Court has repeatedly reaffirmed that rent control ordinances are not per se takings for the purposes of the Fifth Amendment's requirement of due compensation. ( Id. at p. 12, fn. 6, 108 S.Ct. at p. 857, fn. 6; FCC v. Florida Power Corp. (1987) 480 U.S. 245, 252, 107 S.Ct. 1107, 1112, 94 L.Ed.2d 282; Loretto v. Teleprompter Manhattan CATV Corp. (1982) 458 U.S. 419, 440, 102 S.Ct. 3164, 3178, 73 L.Ed.2d 868.) The California Supreme Court has explained that rent control ordinances "are within the police power if they are reasonably calculated to eliminate excessive rents and at the same time provide landlords with a just and reasonable return on their property. However, if it is apparent from the face of the provisions that their effect will necessarily be to lower rents more than could reasonably be considered to be required for the measure's stated purpose, they are unconstitutionally confiscatory." (Birkenfeld v. City of Berkeley (1976) 17 Cal.3d 129, 165, 130 Cal.Rptr. 465, 550 P.2d 1001; accord Permian Basin Area Rate Cases (1968) 390 U.S. 747, 769-770, 88 S.Ct. 1344, 1361-1362, 20 L.Ed.2d 312.)

Where the price charged for a good or service is excessively high due to monopoly or other unfair conditions, it necessarily follows that the price for complementary goods and services will be artificially low. Where a government regulation purports to reduce the excessive and unfair price to a reasonable level, the mere fact that the price for complementary goods and services rises as a result does not transmute an otherwise reasonable price regulation into a compensable "taking". ³

Page 554

This was the rationale underlying our succinct conclusions in the Oceanside case. In describing the plaintiffs' contention, we quoted from an amicus [224 Cal.App.3d 1354] brief:

" '[W]here rents are reduced more than required for the purposes of the police power, an artificially reduced rent ceiling results, which constitutes a valuable interest to the existing tenant which may be sold to a buyer of the mobilehome under the requirements of State law. The combined effect of the Mobilehome Residency Law (Civ.Code, § 798 et seq.) and the Ordinance assures this result.' Thus, amicus argues, a park owner is bound to accept a selling tenant's assignment of an existing lease [citation], and a selling tenant with a favorable rent-controlled lease may be able to sell the onsite mobilehome for a higher price than can be obtained for the identical mobilehome situated in an unregulated park of identical quality where higher rents are being charged." (157 Cal.App.3d at pp. 906-907, 204 Cal.Rptr. 239.)

We then answered the contention:

"The amicus' initial premise is flawed. The ordinance is structured to establish a fair base rent which reflects general market conditions and incorporates relevant pricing factors. Rents will not be 'reduced more than required for the purposes of the police power.' " (Id. at p. 907, 204 Cal.Rptr. 239.)

No one can dispute that Escondido's rent control ordinance, like the ordinance in Oceanside, effects a transfer of value from landlords to tenants. The critical question is whether such a transfer can be justified by a rational governmental purpose, i.e., are the controlled rents fair and reasonable. In Oceanside we were forced to deal with this important question and concluded the ordinance there was rationally based. Here, plaintiffs' complaints never allege the Escondido ordinance is irrational because it denies them fair and reasonable rents. Indeed, the owners have never attempted to obtain Escondido's approval for what they consider to be a "fair" rent. In...