MHC Financing LP_v_City of San Rafael

Diminution in value is not sufficient to establish a private or public taking, and when an ordinance is in effect prior to acquisition of property, the proper analysis of the economic impact under Penn Central is a comparison of the economic impact at the time when the property was acquired and the economic effect after the property was acquired.

In 1989, the city of San Rafael passed the Mobilehome Rent Stabilization Ordinance, which imposed rent controls on mobile home pads. The Ordinance was amended in 1993 to include “vacancy control,” which would allow new residents to pay the same rent as the previous tenant. In 1993, the owner of Contempo Marin, a San Rafael mobile home park, sued the city, alleging the rent control ordinance constituted a taking. While the case was on appeal, MHC Financing Limited Partnership and Grapeland Vistas, Inc. (“MHC”) purchased the park. In 1999, the city amended the Ordinance to limit rent increases to 75% of the Consumer Price Index. MHC began a new suit in 2000, alleging the Ordinance constituted a taking. In 2001, MHC and San Rafael entered a settlement agreement where the city agreed that it would repeal the vacancy control portion of the ordinance. When the city did not repeal vacancy control, MHC moved to enforce the agreement, and the district court granted that motion. In 2004, MHC filed a new suit, alleging that the ordinance reduced its net operating income by 75%, establishing a taking under Penn Central, a private taking under Kelo v. City of New London, and that the ordinance violated MHC’s substantive due process rights. The Ninth Circuit held that the ordinance was rationally related to a public purpose and was not a private taking under Kelo. The panel reversed the district court’s holding, stating that the ordinance was not a regulatory taking under Penn Central because the Penn Central analysis incorrectly assumed that the ordinance was not in place when MHC purchased the park. Further, MHC did not have an “investment-backed expectation” that rent control would cease to exist, and diminution in value is not sufficient to demonstrate a taking. AFFIRMED IN PART; REVERSED IN PART.