Yee v. City of Escondido

224 Cal. App. 3d 1349, 274 Cal. Rptr. 551

• Court: California Court of Appeal
• Decided: October 31, 1990
• Docket: D010307
• Status: Published

Opinions

Opinion

WIENER, Acting P. J.

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 nonrent 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 decision¹, 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, § 798 et seq.) Under its terms, a tenancy may not be terminated except for several specified reasons constituting good cause. (Civ. Code, § 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. (Civ. Code, § 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 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 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 [89 L.Ed.2d 206, 211, 106 S.Ct. 1045]), 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 [99 L.Ed.2d 1, 13-15, 108 S.Ct. 849].) 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; FCC v. Florida Power Corp. (1987) 480 U.S. 245, 252 [94 L.Ed.2d 282, 290, 107 S.Ct. 1107]; Loretto v. Teleprompter Manhattan CATV Corp. (1982) 458 U.S. 419, 440 [73 L.Ed.2d 868, 885, 102 S.Ct. 3164].) 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 [20 L.Ed.2d 312, 337-338, 88 S.Ct. 1344].)

Where the price charged for goods or services 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

This was the rationale underlying our succinct conclusions in the Oceanside case. In describing the plaintiffs’ contention, we quoted from an amicus curiae 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.) 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.’” (157 Cal.App.3d at p. 907.)

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 the absence of such a contention, we assume the rents provided for by the ordinance are fair. If they are, there is no “taking.” The fact that used mobilehomes in Escondido are selling for more than they have in the past is irrelevant.

B

Instead of addressing the fundamental question, plaintiffs place principal emphasis on the Ninth Circuit’s Hall opinion. (Hall, supra, 833 F.2d 1270.) Hall relies extensively on the United States Supreme Court’s decision in Loretto v. Teleprompter Manhattan CATV Corp., supra, 458 U.S. 419. Loretto dealt with a New York law which required residential landlords to permit cable television companies to attach cables to their buildings. The court created an exception to the traditional multifactor balancing approach applicable to most governmental regulations which are alleged to constitute takings. The court explained that where the governmental action “is a permanent physical occupation of property, our cases uniformly have found a taking to the extent of the occupation, without regard to whether the action achieves an important public benefit or has only minimal economic impact on the owner.” (Id. at pp. 434-435 [73 L.Ed.2d at p. 882], italics added.) Characterizing this holding as “very narrow” (id. at p. 441 [73 L.Ed.2d at p. 886]), the court emphasized that “[s]o long as [government] regulations do not require the landlord to suffer the physical occupation of a portion of his building by a third party, they will be analyzed under the multifactor inquiry generally applicable to nonpossessory governmental activity.” (Id. at p. 440 [73 L.Ed.2d at p. 885].)

Implicitly conceding that the Santa Barbara mobilehome rent control ordinance would not constitute a taking under a traditional multifactor inquiry, Hall attempts to argue that the effect of the ordinance is to grant tenants the right to permanently occupy the landlord’s property at a reduced rent. The opinion thus suggests that the allegations of plaintiffs’ complaint fit within the narrow Loretto exception and constitute a per se taking.⁴ Hall, however, does not discuss or even cite our prior decision in Oceanside. It dismisses the contrary implications of other substantial precedent by noting that “[i]n none of the cited cases has the landlord claimed that the tenant’s right to possess the property at reduced rental rates was transferable to others, that it had a market value, that it was in fact traded on the open market and that tenants were reaping a monetary windfall by selling this right to others.” (833 F.2d at p. 1278.)

Hall is an unfortunate corollary to the danger Justice Blackmun foresaw when, dissenting in Loretto, he lamented “the prospect of distinguishing the inevitable flow of certiorari petitions attempting to shoehorn insubstantial takings claims into [Loretto’s] ‘set formula.’ ” (458 U.S. at p. 451 [73 L.Ed.2d at p. 892].)⁵ If mobilehome park tenants in Santa Barbara or Escondido possess any rights to “permanently occupy” the landlord’s property, those rights derive not from a rent control ordinance but from the state Mobilehome Residency Law which limits the circumstances under which a landlord may terminate a tenancy, imposing a “good cause” standard. No case we are aware of has remotely suggested that such a regulation of the landlord-tenant relationship constitutes a compensable taking within the meaning of Loretto.

Moreover, Hall fails to explain why the existing tenant’s ability to “monetize” the future rent control savings and recapture it from later tenants when the mobilehome is sold is somehow critical to the takings analysis.⁶ (See Manheim, Tenant Eviction Protection and the Takings Clause 1989 Wis. L.Rev. 925, 969, fn. 237.)⁷ If an owner’s property has been taken by the government, it should be of no constitutional consequence to whom the property has been given. Compare, for instance, a residential rent control ordinance which does not allow rent increases simply because the tenant vacates the rental unit. Similar ordinances have repeatedly withstood challenges alleging facial unconstitutionality. (See, e.g., Fisher v. City of Berkeley (1984) 37 Cal.3d 644 [209 Cal.Rptr. 682, 693 P.2d 261], app. dism. 471 U.S. 1124 [86 L.Ed.2d 270, 105 S.Ct. 2653]; Hutton Park Gardens v. Town Council (1975) 68 N.J. .543 [350 A.2d 1].) In such a case, the economic benefit of the ordinance is spread among all succeeding tenants. In this case, of course, plaintiffs and the Hall court would assert that the benefit of the ordinance is limited to those mobilehome tenants renting spaces at the time the ordinance is enacted. In both cases, however, the value “taken” from the property owner is conceptually identical.⁸

Beyond its “monetization” argument, Hall merely identifies the necessary relationship between the prices charged for complementary goods and services—in this case the mobilehome and the mobilehome rental space—and uses it as facile but irrelevant justification for the conclusion that a taking has occurred. Put more simply, if the rents charged by park owners before rent control were excessive, the market price for used mobilehomes was artificially and perhaps unfairly low. (But see ante, fn. 3) When government acts to restore fair rents by imposing rent control, the fact that the price of used mobilehomes rises has not unreasonably “taken” anything from the landlord, let alone caused a “permanent physical occupation” of the landlord’s property.⁹

Moreover, if Loretto were not clear enough that a rent control ordinance of the type considered in Hall does not constitute a per se taking, that conclusion was punctuated in FCC v. Florida Power Co., supra, 480 U.S. 245, decided six months after Hall. Florida Power involved a federal rent control statute limiting the amount utilities could charge cable television companies for the right to use power poles to string television cable. The court emphasized that the “element of required acquiescence is at the heart of the concept of occupation.” (Id. at p. 252 [94 L.Ed.2d at p. 290], italics added.) The power company contended “it is a taking under Loretto for a tenant invited to lease at a rent of $7.15 to remain at the regulated rent of $1.79.” (Ibid.) Rejecting this contention, the court responded, “[I]t is the invitation, not the rent, that makes the difference. The line which separates these cases from Loretto is the unambiguous distinction between a commercial lessee and an interloper with a government license.”¹⁰ (Id. at pp. 252-253 [94 L.Ed.2d at p. 290]; accord Eamiello v. Liberty Mobile Home Sales (1988) 208 Conn. 620 [546 A.2d 805, 818].)

The owners of mobilehome parks in Santa Barbara or Escondido are not required to acquiesce in the occupation of some or all of their property by third persons designated by the government. Nothing requires them to rent their property to mobilehome owners. If they choose to do so, however, the terms on which they may do so are regulated by state statute and local ordinance. Read in light of Florida Power, Loretto in no way suggests that the Escondido ordinance authorizes a permanent physical occupation of the landlord’s property and therefore constitutes a per se taking.¹¹

C

Whether rent control is a good idea is politically debatable. (See generally, e.g., Salins, Reflections on Rent Control and the Theory of Efficient Regulation (1988) 54 Brooklyn L.Rev. 775.) The footnotes of the Hall opinion suggest an interest in contributing to that debate. (See, e.g., 833 F.2d at p. 1281, fn. 26.) While we find the topic an interesting one, it is not a discussion we are prepared to join. As we read the opinions of the United States Supreme Court and lower federal and state courts, the decision whether to use rent control as a tool to correct imperfections in the market system is a political issue for legislative bodies and not a question of constitutional law for the courts. Here, finding no persuasive reasoning to the contrary, we simply reaffirm what we assumed six years ago in Oceanside was accepted constitutional principle.¹²

Disposition

Judgment affirmed.

Work, J., concurred.

1 The Yees have filed a parallel action in federal court which was stayed by the district court judge pending exhaustion of all state court remedies. Assuming the California Supreme Court does not grant review, the Yees will then be able to return to federal court where the district court judge may feel compelled to follow Hall and grant the Yees the relief they seek. On the other hand, as we later explain (post, pp. 1357-1358), we think at least one United States Supreme Court decision which postdates Hall demonstrates that Hall’s analysis constitutes an interpretive misstep.

2 The members of the Escondido City Council serve as the Mobilehome Park Rental Review Board.

3 One might argue that monopolistic effects have caused the price of used mobilehomes to be artificially high and, as a result, such prices should be regulated as well. Even if this were true, however, it is an issue between mobilehome buyers and sellers. It does not suggest that governmental regulation of excessive rents has “taken” anything from landlords.

4 Other than Loretto, Hall places primary reliance on Justice Rehnquist’s solitary dissent to the court’s dismissal in Fresh Pond Shopping Center, Inc. v. Callahan (1983) 464 U.S. 875 [78 L.Ed.2d 215, 205 S.Ct. 218] for want of a substantial federal question. Hall explains, “We do not interpret the Fresh Pond dismissal as repudiating everything said by Justice Rehnquist in his dissent.” (833 F.2d at p. 1276, fn. 14.) There being no opinion of the court in the case of a dismissal, we have some difficulty understanding on what basis the Hall panel can distinguish those portions of dissent which can be relied upon from those which cannot.

5 Even commentators sympathetic to Hall’s result have implicitly criticized its analysis, warning against “stretching doctrine to conclude that government has ‘physically occupied’ property . . . .” (Hirsch & Hirsch, Legal-Economic Analysis of Rent Controls in a Mobile Home Context: Placement Values and Vacancy Decontrol (1988) 35 UCLA L.Rev. 399, 466.)

6 Pinewood Estates v. Barnegat Tp. Leveling Bd. (3d Cir. 1990) 898 F.2d 347, which follows Hall, suffers from a similar defect.

7 Commenting on Hall in light of the history of Supreme Court takings jurisprudence, Professor Manheim observes that Ninth Circuit’s approach, “finding a taking of a quantifiable ‘monetized’ interest in a mobile home’s placement value, is essentially that of Justice Holmes’ repudiated model” in Pennsylvania Coal Co. v. Mahon (1922) 260 U.S. 393 [67 L.Ed. 322, 43 S.Ct. 158, 28 A.L.R. 1321], (Manheim, op. cit. supra, 1989 Wis. L.Rev. at p. 968.) “Indeed,” concludes Manheim citing Penn Central Transp. Co. v. New York City (1978) 438 U.S. 104, 130 [57 L.Ed.2d 631, 652, 98 S.Ct. 2646], “the Court has squarely rejected Justice Holmes’ model of dividing single parcels into discrete estates, favoring instead Justice Brandéis’ approach of looking at a law’s impact on overall property value . . . . [¶] Under the modern unitary approach, the net economic impact of the state [mobilehome residency] law, even when combined with local rent control, would be insufficient to cause a regulatory taking." (Manheim, op. cit. supra, at pp. 967-968, fns. omitted.)

8 It may be that what really underlies the Hall result is the court’s doubt that mobilehome rent control rationally furthers a legitimate governmental purpose. (See 833 F.2d at pp. 1280-1281.) This same concern has been voiced by a set of sympathetic commentators who question whether rent control does anything to alleviate the shortage of available mobilehomes or lessen the total economic burden on mobilehome park tenants. (Hirsch & Hirsch, supra, 35 UCLA L.Rev. at pp. 461-463.) While portions of the Supreme Court’s takings jurisprudence have their origins in notions of substantive due process, Hall’s resurrection of a Lochner-type analysis (see Lochner v. New York (1905) 198 U.S. 45 [49 L.Ed. 937, 25 S.Ct. 539]) has been criticized as inconsistent with the modern Court’s deferential view of the nexus between legitimate governmental purposes and chosen legislative means. (Manheim, op. cit. supra, 1989 Wis. L.Rev. at p. 938, fn. 86, 948-950; Hall, supra, 833 F.2d at p. 1284 (Schroeder, J. dis. from denial of rhg. en banc).)

9 Hall and commentators of a like view assume that the uncontrolled rent for a mobilehome space is its “fair” rental value. (See Hall, supra, 833 F.2d at p. 1276 [Tenants pay “only a fraction of what it is worth in rent. . . .”]; Hirsch & Hirsch, op. cit. supra, 35 UCLA L.Rev. at p. 427 [“[W]e assume that a pad’s fair rental value is the market rental of a similar pad in a jurisdiction without rent controls.”].) Such analysis begs the ultimate question for it fails to acknowledge that rent controls may be justified if quasi-monopolistic market conditions have allowed park owners to charge higher rents than would be possible if the market were perfectly competitive. (See, e.g., Cotati Alliance for Better Housing v. City of Cotati (1983) 148 Cal.App.3d 280, 287 [195 Cal.Rptr. 825].) Hirsch and Hirsch take issue with such a theory, arguing that mobilehome rent control ordinances generally penalize landlords “irrespective of the rental rates charged to tenants, the amount or frequency of rent increases, or the profits reaped by particular landlords.” (Hirsch & Hirsch, op. cit. supra, 35 UCLA L.Rev. at p. 463.) Such an argument is presumably meant to suggest that not all landlords take advantage of the quasi-monopoly power they may possess.

Here, however, plaintiffs have limited themselves to a facial attack on the ordinance’s constitutionality, refusing to seek individualized upward adjustments in the allowable rent as provided for in the ordinance. (See ante, pp. 1351-1352.) As the California Supreme Court has explained, “[W]hether rental regulations are fair or confiscatory depends ultimately on the result reached. [Citation.] That determination, of course, can only be made by analyzing a challenge to the regulation as applied .... [W]e will [only] declare a regulation invalid on its face ‘when its terms will not permit those who administer it to avoid confiscatory results in its application to the complaining parties.’ [Citations.]” (Fisher v. City of Berkeley, supra, 37 Cal.3d 644, 679, app. dism. 471 U.S. 1124 [86 L.Ed.2d 270, 105 S.Ct. 2653].) Certainly plaintiffs cannot now be heard to complain that the ordinance is indiscriminate in its approach.

10 The Third Circuit in Pinewood Estates v. Barnegat Tp. Leveling Bd., supra, 898 F.2d 347 adopted Hall’s reasoning but failed to discuss or even cite Florida Power.

11 It is true the court in Florida Power reserved the issue of how Loretto might apply “if the FCC in a future case required utilities, over objection, to enter into, renew, or refrain from terminating pole attachment agreements.” (480 U.S. at p. 252, fn. 6 [94 L.Ed.2d at p. 290].) Here, however, even the California Mobilehome Residency Law does not require mobile-home park owners to “refrain from terminating” mobilehome space leases. It simply regulates the economic relationship between the landlord and tenant, requiring that the landlord terminate the space rental only for good cause. As Loretto itself was careful to emphasize, such reasonable regulation of the landlord-tenant relationship has never been viewed as a per se taking. (458 U.S. at p. 440 [73 L.Ed.2d at p. 885]; see also Florida Power, supra, 480 U.S. at p. 252 [94 L.Ed.2d at p. 290].)

12 We are sensitive to the concerns raised by the dissent that this is a pleading case. We have accepted the allegations of plaintiffs’ complaints as true. Our difference with the federal courts in Hall and Pinewood Estates is not based on our respective determinations of what constitutes a disputed factual issue requiring the taking of evidence. The circuit courts con-eluded that if the Hall and Pinewood plaintiffs could prove their allegations, they would establish a cognizable takings claim. Assuming proof of the same factual predicates, we would find no taking. The issue is purely a question of law.

In addition, the question whether the Escondido ordinance is constitutional as applied is simply not before us. Plaintiffs specifically limited their argument to a claim of facial unconstitutionality. Our opinion should not be read to preclude these or other plaintiffs from challenging the ordinance as applied if the appropriate prerequisites (e.g., seeking adjustments from the rental review board) are satisfied.