Colony Cove Properties v. City of Carson

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
COLONY COVE PROPERTIES, LLC, a No. 16-56255
Delaware limited liability company,
Plaintiff-Appellee, D.C. No.
2:14-cv-03242-
v. PSG-PJW
CITY OF CARSON, a municipal
corporation; CITY OF CARSON OPINION
MOBILEHOME PARK RENTAL REVIEW
BOARD, a public administrative
body,
Defendants-Appellants.
Appeal from the United States District Court
for the Central District of California
Philip S. Gutierrez, District Judge, Presiding
Argued and Submitted February 9, 2018
Pasadena, California
Filed April 23, 2018
Before: Susan P. Graber and Andrew D. Hurwitz, Circuit
Judges, and Edward R. Korman, * District Judge.
Opinion by Judge Hurwitz
*
The Honorable Edward R. Korman, United States District Judge
for the Eastern District of New York, sitting by designation.
2 COLONY COVE PROPERTIES V. CITY OF CARSON
SUMMARY **
Civil Rights
The panel reversed the district court’s judgment and
remanded with instructions to enter judgment in favor of
defendant in an action brought by the owner of a mobile
home park who alleged that defendant, the City of Carson,
engaged in an unconstitutional taking in violation of the
Fifth Amendment when it approved a lower rent increase
than plaintiff had requested.
Applying the factors set forth in Penn Central
Transportation Co. v. City of New York, 438 U.S. 104 (1978)
the panel first held that plaintiff did not present sufficient
evidence to create a triable question of fact as to the
economic impact caused by the City’s denial of larger rent
increases. The panel then held that plaintiff failed to present
sufficient evidence supporting its investment-backed
expectations claim. Finally, the panel held that the character
of the City’s action could not be characterized as a physical
invasion by the government. The panel concluded that based
on the evidence, no reasonable finder of fact could conclude
that the denials of plaintiff’s requested rent increases were
the functional equivalent of a direct appropriation of the
property. Accordingly, the panel held that the district court
should have granted the City’s motion for judgment as a
matter of law.
**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
COLONY COVE PROPERTIES V. CITY OF CARSON 3
COUNSEL
Matthew Dwight Zinn (argued) and Andrew W. Schwartz,
Shute Mihaly & Weinberger LLP, San Francisco, California;
Jeff M. Malawy, Stephen R. Onstot, June S. Ailin, William
W. Wynder, and Sunny K. Soltani, Aleshire & Synder LLP,
Irvine, California; for Defendants-Appellants.
Anton Matlitsky (argued), O’Melveny & Myers LLP, New
York, New York; Adam P. Wiley, Thomas W. Casparian,
and Richard H. Close, Gilchrist & Ruiter PC, Santa Monica,
California; Daniel J. Tully, Dimitri Portnoi, and Matthew W.
Close, O’Melveny & Myers LLP, Los Angeles, California;
for Plaintiff-Appellee.
Christine Van Aken, Chief of Appellate Litigation; Dennis
J. Herrera, City Attorney; City Attorney’s Office, San
Francisco, California; for Amici Curiae League of California
Cities and California Chapter of the American Planning
Association.
Navneet Grewal and Sue Himmelrich, Western Center on
Law and Poverty, Los Angeles, California; Shirley Gibson,
Legal Aid Society of San Mateo County, Redwood City,
California; for Amici Curiae California Rural Legal
Assistance Inc., California Coalition for Rural Housing,
Community Legal Services of East Palo Alto, The Golden
State Manufactured-Home Owners League Inc., Housing
California, Legal Aid Foundation of Los Angeles, Legal Aid
Society of San Mateo County, National Housing Law
Project, Public Advocates, Public Counsel Law Center, The
Public Interest Law Project, Tenants Together, Western
Center on Law and Poverty, and Theresa L. Forsythe.
4 COLONY COVE PROPERTIES V. CITY OF CARSON
OPINION
HURWITZ, Circuit Judge:
The Takings Clause of the Fifth Amendment, made
applicable to the States by the Due Process Clause of the
Fourteenth Amendment, provides that “private property”
may not “be taken for public use, without just
compensation.” The issue in this case is whether a
California city engaged in an unconstitutional taking when it
approved a lower rent increase for a mobile home park than
the park had requested.
After a jury trial, the district court entered a judgment
finding an unconstitutional taking and awarding the park
more than $3 million in damages. We reverse and instruct
that the district court enter judgment in favor of the City.
I. Background
A. The Rent Control Ordinance
In 1979, the City of Carson adopted a “Mobile Home
Space Rent Control Ordinance,” establishing a seven-
member Rent Review Board to “hear and determine
applications of property owners for rent adjustments.” The
ordinance directs the Board to grant property owners a “fair,
just and reasonable” rent increase, one that both “protects
Homeowners from excessive rent increases and allows a fair
return on investment to the Park Owner.”
To balance these competing concerns, the ordinance lists
several factors to be considered when evaluating a proposed
rent increase, including changes in the Consumer Price
Index (“CPI”), rent at comparable parks, capital
improvements conducted since the last increase, and changes
COLONY COVE PROPERTIES V. CITY OF CARSON 5
in operating and maintenance expenses. The listed factors,
however, are neither exclusive nor dispositive.
To assist the Board, the City Council adopted
Implementation Guidelines in 1998. The original
Guidelines permitted, but did not require, the Board to
conduct a “Gross Profits Maintenance Analysis” (“GPM
Analysis”) in evaluating a rent increase application. A GPM
Analysis “compares the gross profit level expected from the
last rent increase granted to the park prior to the current
application . . . to the gross profit shown by the current
application.” The Analysis “provide[s] an estimate of
whether a park is earning the profit estimated to provide a
fair return, as established by the immediately prior rent
increase, with some adjustment to reflect any increase in the
CPI.” Acquisition debt service can be a relevant expense
under the GPM Analysis “if the purchase price paid was
reasonable in light of the rents allowed under the Ordinance
and involved prudent and customary financing practices.”
But the Guidelines expressly state that a GPM Analysis “is
not intended to create any entitlement to any particular rent
increase.”
In October 2006, the City amended the Implementation
Guidelines to permit the Board also to conduct a
“Maintenance of Net Operating Income Analysis” (“MNOI
Analysis”) when considering applications for rent increases.
The MNOI Analysis “compares the net operating income
(NOI) level expected from the last rent increase granted to a
park owner and prior to any pending rent increase
application . . . to the NOI demonstrated in any pending rent
increase application.” “[C]hanges in debt service expenses
are not to be considered in the” MNOI Analysis.
6 COLONY COVE PROPERTIES V. CITY OF CARSON
B. Colony’s Purchase of the Mobile Home Park and
Requested Rent Increases
On April 4, 2006, Colony Cove Properties, LLC
(“Colony”) purchased Colony Cove Mobile Estates (“the
Property”), a mobile home park in Carson, for $23,050,000;
$18,000,000 of the purchase price was obtained through a
loan. The annual debt service on that loan—$1,224,681—
far exceeded the prior owner’s annual profit of $718,240.
At the time of purchase, the Implementation Guidelines
provided only for the GPM Analysis. Colony first filed an
application for a rent increase in 2007, after the Guidelines
were revised to also allow an MNOI Analysis. That
application sought a rent increase of $618.05 per space; it
was later amended to seek only $200 per space. The Board’s
GPM Analysis suggested a rent increase of $200.93 per
space, driven largely by the post-acquisition debt service.
The Board’s MNOI Analysis, which did not account for the
debt service, suggested a rent increase of only $36.74. The
Board adopted the MNOI Analysis and approved the $36.74
increase. In 2008, Colony requested a $342.46 rent increase.
The Board again conducted both a GPM and an MNOI
Analysis, adopted the latter, and granted an increase of
$25.02.
C. Colony’s Previous Litigation
In 2008, Colony sued the City, asserting facial and as-
applied takings and due process claims with respect to the
Board’s 2007 decision. See Colony Cove Props., LLC v. City
of Carson, 640 F.3d 948, 953–54 (9th Cir. 2011). The
district court dismissed the facial attack as time-barred and
the as-applied takings claim as unripe; we affirmed. Id. at
956–57, 959.
COLONY COVE PROPERTIES V. CITY OF CARSON 7
The same day it appealed the first district court order,
Colony also “filed a petition for writ of administrative
mandate seeking review of the Board’s 2008 determination
of its September 2007 rent increase applications” in state
court; Colony later filed a similar second petition concerning
the 2008 application. See Colony Cove Props., LLC v. City
of Carson, 163 Cal. Rptr. 3d 499, 515 (Ct. App. 2013). The
state trial court denied Colony’s petitions, and the California
Court of Appeal affirmed, holding that state law allowed use
of MNOI Analysis and that the Board’s failure to take debt
service into account did not deprive Colony of a fair rate of
return. Id. at 521–24, 530. The California Supreme Court
denied review. 1
D. The Current Litigation
Having exhausted its state-law claims, 2 Colony returned
to federal court, alleging that the 2007 and 2008 Board
decisions were an unconstitutional taking and violated
Colony’s substantive due process rights. The district court
dismissed all of Colony’s claims except for an as-applied
1
The state trial court struck Colony’s England reservation of its
federal takings claims, but the Court of Appeal reinstated the reservation.
Colony Cove Props., 163 Cal. Rptr. 3d at 529–30; see England v. La.
State Bd. Of Exam’rs, 375 U.S. 411, 421 (1964).
2
A “writ of administrative mandate” is a judicial avenue for relief
from rent control decisions created by the California Supreme Court. See
Kavanau v. Santa Monica Rent Control Bd., 941 P.2d 851 (Cal. 1997).
If the writ is granted, the property owner may seek a future rent
adjustment “that takes into consideration past confiscatory rents.” Id. at
866. “[T]he Kavanau adjustment process” satisfies the exhaustion
requirements of Williamson County Regional Planning Commission v.
Hamilton Bank of Johnson City, 473 U.S. 172, 195 (1985). See Equity
Lifestyle Props., Inc. v. Cty. of San Luis Obispo, 548 F.3d 1184, 1192
(9th Cir. 2008).
8 COLONY COVE PROPERTIES V. CITY OF CARSON
regulatory takings claim premised on Penn Central
Transportation Co. v. City of New York, 438 U.S. 104
(1978).
Over the City’s objection, the district court allowed a
jury trial. At trial, Colony presented expert testimony that
the Board’s use of the MNOI Analysis and the consequent
failure to take debt service into account in setting the 2007
and 2008 rents would cause Colony to lose rental income of
approximately $5.7 million. Colony’s owner, James
Goldstein, also testified that, when he bought the Property,
he expected the Board to consider debt service in future rent
increase determinations, and he would not have paid $23
million for the park absent that expectation.
The City moved for judgment as a matter of law after
both the close of Colony’s case and the close of evidence.
After the district court denied the motions, the jury found
that the Board’s 2007 and 2008 decisions were regulatory
takings and awarded Colony $3,336,056 in damages. The
City then filed a renewed Federal Rule of Civil Procedure
50(b) motion for judgment. The court denied the motion and
awarded Colony prejudgment interest, attorneys’ fees, and
costs, entering a final judgment of $7,464,718.41. 3
The City timely appealed. We have jurisdiction under
28 U.S.C. § 1291, and we review de novo the district court’s
denial of a motion for judgment as a matter of law. United
States ex rel. Hopper v. Anton, 91 F.3d 1261, 1268 (9th Cir.
1996). In doing so, “[w]e must view the evidence in the light
3
In the final judgment, the district court noted its agreement with
the jury’s verdict: “Having independently weighed and considered the
evidence, the Court agrees with the jury’s finding that a taking occurred,
as well as the amount of damages that the jury awarded . . . .”
COLONY COVE PROPERTIES V. CITY OF CARSON 9
most favorable to the nonmoving party . . . and draw all
reasonable inferences in that party’s favor.” Ostad v. Or.
Health Scis. Univ., 327 F.3d 876, 881 (9th Cir. 2003).
“Judgment as a matter of law is proper when the evidence
permits only one reasonable conclusion and the conclusion
is contrary to that reached by the jury.” Id.
II. Discussion
“The Takings Clause of the Fifth Amendment provides
that private property shall not ‘be taken for public use,
without just compensation.’” Murr v. Wisconsin, 137 S. Ct.
1933, 1942 (2017). Although the paradigm of an
unconstitutional taking is the direct appropriation of
property, the Supreme Court has long acknowledged that “if
regulation goes too far it will be recognized as a taking.”
Penn. Coal Co. v. Mahon, 260 U.S. 393, 415 (1922).
“[T]he Court for the most part has refrained from
elaborating . . . definitive rules” about when regulation goes
so far as to become a taking. Murr, 137 S. Ct. at 1942.
Judicial decisions considering regulatory takings claims are
typically “characterized by essentially ad hoc, factual
inquiries, designed to allow careful examination and
weighing of all the relevant circumstances.” Tahoe-Sierra
Pres. Council, Inc. v. Tahoe Reg’l Planning Agency,
535 U.S. 302, 322 (2002) (internal quotation marks and
citations omitted). The goal is to determine whether
regulatory actions “are functionally equivalent to the classic
taking in which government directly appropriates private
property.” MHC Fin. Ltd. P’ship v. City of San Rafael,
714 sF.3d 1118, 1127 (9th Cir. 2013) (quoting Lingle v.
Chevron U.S.A. Inc., 544 U.S. 528, 539 (2005)).
The Penn Central factors ground our regulatory takings
analysis. Penn Central instructs us to consider “[1] the
10 COLONY COVE PROPERTIES V. CITY OF CARSON
regulation’s economic impact on the claimant, [2] the extent
to which the regulation interferes with distinct investment-
backed expectations, and [3] the character of the government
action.” MHC Fin., 714 F.3d at 1127. The question is
whether Colony presented sufficient evidence on these
factors to allow a reasonable finder of fact to conclude that
the Board’s denials of Colony’s requested rate increases
were the functional equivalent of the direct appropriation of
the Property. We address each factor in turn.
A. Economic Impact
In considering the economic impact of an alleged taking,
we “compare the value that has been taken from the property
with the value that remains in the property.” Keystone
Bituminous Coal Ass’n v. DeBenedictis, 480 U.S. 470, 497
(1987). Penn Central stresses that, “[i]n deciding whether a
particular governmental action has effected a taking, this
Court focuses rather both on the character of the action and
on the nature and extent of the interference with rights in the
parcel as a whole.” 438 U.S. at 130–31. If “an owner
possesses a full ‘bundle’ of property rights, the destruction
of one ‘strand’ of the bundle is not a taking, because the
aggregate must be viewed in its entirety.” Andrus v. Allard,
444 U.S. 51, 65–66 (1979).
The jury concluded that Colony would have received
approximately $3.3 million in additional income over an 8-
year period if the Board had adopted the alternative GPM
Analysis and factored debt service into the 2007 and 2008
rent increases. But the mere loss of some income because of
regulation does not itself establish a taking. Rather,
economic impact is determined by comparing the total value
of the affected property before and after the government
action. See MHC Fin., 714 F.3d at 1127. Projected income
streams can contribute to a method for determining the post-
COLONY COVE PROPERTIES V. CITY OF CARSON 11
deprivation value of property, but the severity of the loss can
be determined only by comparing the post-deprivation value
to pre-deprivation value. Id.
Not every diminution in property value caused by a
government regulation rises to the level of an
unconstitutional taking. “Government hardly could go on if
to some extent values incident to property could not be
diminished without paying for every such change in the
general law.” Penn. Coal Co., 260 U.S. at 413. Although
no litmus test determines whether a taking occurred, we start
from the premise that the Penn Central factors seek “to
identify regulatory actions that are functionally equivalent to
the classic taking in which government directly appropriates
private property or ousts the owner from his domain.” See
Lingle, 544 U.S. at 539. Thus, we have observed that
diminution in property value because of governmental
regulation ranging from 75% to 92.5% does not constitute a
taking. MHC Fin., 714 F.3d at 1127–28. The Federal
Circuit has noted that it is “aware of no case in which a court
has found a taking where diminution in value was less than
50 percent.” CCA Assocs. v. United States, 667 F.3d 1239,
1246 (Fed. Cir. 2011). Nor are we.
There was no evidence before the district court allowing
a comparison of the pre-deprivation and post-deprivation
values of the Property. Colony purchased the Property for
approximately $23 million, and we assume that this number
establishes the pre-deprivation value. But Colony presented
no evidence, expert or otherwise, about the Property’s post-
deprivation value. Rather, the only evidence concerned the
amount of rent claimed to be lost over an 8-year period
because of the Board’s refusals to approve higher increases.
Even assuming that the lost rental income asserted by
Colony—$5.7 million—equates to diminution in property
12 COLONY COVE PROPERTIES V. CITY OF CARSON
value, that reduction would only be 24.8% of the assumed
$23 million pre-deprivation value of the Property, far too
small to establish a regulatory taking. 4
Colony argues that post-deprivation “sale value is not the
only permissible basis to consider economic loss.” We
agree—for example, the discounted future cash flows
produced by an income-producing property can provide an
appropriate valuation methodology. See, e.g., Cienega
Gardens v. United States, 503 F.3d 1266, 1282 (Fed. Cir.
2007) (determining economic impact by “compar[ing] the
lost net income due to the restriction (discounted to present
value at the date the restriction was imposed) with the total
net income without the restriction over the entire useful life
of the property (again discounted to present value)”). But
Colony presented no evidence, by virtue of analyzing
diminished income streams or otherwise, of the post-
deprivation value of the Property.
Colony also asserts that the Board took its property
because it suffered annual operating losses in 2007 and 2008.
But those losses resulted directly from Colony’s decision to
incur a large debt when purchasing the property and cannot
alone establish a taking. Even if Colony’s decision to
borrow was commercially reasonable, it serves only to
establish that the purchase price of $23 million is the pre-
deprivation value. The post-deprivation value of the
Property cannot be dictated by debt service; otherwise, two
identical mobile home properties would have different
values, depending on how their owners chose to finance the
acquisitions. See Colony Cove Props., 163 Cal. Rptr. 3d at
4
The jury, whose award Colony does not challenge on appeal, found
that the lost rental income was only $3.3 million, which would equate to
a 14.3% reduction in the Property’s value.
COLONY COVE PROPERTIES V. CITY OF CARSON 13
521 (praising the MNOI Analysis “for its fairness and ease
of administration” in contrast to the GPM Analysis, which
can be “problematic to administer, because an owner’s
equity can be greatly affected by individual differences in
methods and costs of financing” (internal quotation marks
omitted)).
Thus, on the first Penn Central prong, Colony did not
present sufficient evidence to create a triable question of fact
as to the economic impact caused by the City’s denial of
larger rent increases. We therefore turn to the second prong.
B. Distinct Investment-Backed Expectations
Colony argues that, when it acquired the Property, it had
a distinct investment-backed expectation that the Board
would use the GPM Analysis and account for debt service in
determining future rent increases. It is this expectation,
Colony argues, with which the City interfered, and the jury
therefore properly awarded Colony the rent increases it
expected. Even accepting Colony’s argument that we should
focus only on the lost rental income, rather than the post-
deprivation value of the Property as a whole, 5 the argument
fails.
To form the basis for a taking claim, a purported distinct
investment-backed expectation must be objectively
reasonable. See CCA Assocs., 667 F.3d at 1247; see also
Lucas v. S.C. Coastal Council, 505 U.S. 1003, 1035 (1992)
(Kennedy, J., concurring in the judgment) (noting that
investment-backed “expectations protected by the
5
Cf. Penn Cent., 438 U.S. at 130 n.27 (stating that in determining
whether a regulatory taking occurred, the government’s action is
measured against “the parcel as a whole”).
14 COLONY COVE PROPERTIES V. CITY OF CARSON
Constitution are based on objective rules and customs that
can be understood as reasonable by all parties involved”);
Chancellor Manor v. United States, 331 F.3d 891, 907 (Fed.
Cir. 2003) (holding that courts must use “an objective
analysis to determine the reasonable investment-backed
expectations of the Owners”). Colony claims that, when it
purchased the Property, it reasonably expected that debt
service would be recognized in future rent increases because
(1) the existing Implementation Guidelines then provided
only for a GPM Analysis; (2) the Board had always
recognized debt service as a factor when granting rent
increases on another mobile home park owned by Goldstein;
and (3) two California Court of Appeal opinions—Palacio
de Anza v. Palm Springs Rent Review Commission, 257 Cal.
Rptr. 121 (Ct. App. 1989), and Carson Gardens, L.L.C. v.
City of Carson Mobilehome Park Rental Review Board,
37 Cal. Rptr. 3d 768 (Ct. App. 2006)—required
consideration of debt service. We address each argument in
turn.
1. The Implementation Guidelines—even before the
2006 Amendment allowing MNOI Analysis—clearly could
not have formed the basis for an objectively reasonable
expectation that the Board would always account for debt
service in considering future rent increases. The Guidelines
plainly stated that “[n]o one factor in the Ordinance is
determinative and the facts must be considered together and
balanced in light of the purposes of the Ordinance and all the
relevant evidence.” More importantly, the Guidelines
stressed that the GPM Analysis “is not intended to create any
entitlement to any particular rent increase.” Indeed, Colony
concedes that “Carson does not permit an automatic rent
increase based on a set formula.”
COLONY COVE PROPERTIES V. CITY OF CARSON 15
2. Goldstein’s experience as an owner of another
mobile home park in Carson in the two decades before his
purchase of the Property did not establish a reasonable
expectation that the Board would consider debt service in all
rent increase applications. As a general matter, an investor
must account for “the burden of rent control” in its
expectations about future increased rental income.
Guggenheim v. City of Goleta, 638 F.3d 1111, 1120–21 (9th
Cir. 2010) (en banc). And, the Implementation Guidelines,
adopted in 1998—long before the purchase of the
Property—made plain that use of a GPM Analysis created
no expectation to a particular rent increase. Moreover, the
Board did not consider acquisition interest expenses in
Goldstein’s first application for a rent increase at his other
park. Goldstein initially applied for a $57.85 rent increase
for that park, $41.38 of which related to increased debt
service. The Board, however, granted only a $12 rent
increase, which did not account for the debt service. Thus,
an objectively reasonable person could not have expected
that all future rent increase applications seeking increases
because of debt service would be granted. 6
3. Colony’s contention that the two California Court of
Appeal decisions require “the City to take debt service into
account in considering rent-increase applications, and . . .
preclude[d] the City from . . . using MNOI,” misreads both
opinions. Neither mandates that a rent control board account
for debt service in determining rent increases. Rather, both
merely hold that a Board must conduct the analyses it
6
Colony’s purported expectation of a $200 increase in 2007 would
have resulted in a 49.5% per-space rent increase for Colony Gardens.
Such an increase would have been twice as large as the largest increase
ever previously granted by the Board and significantly larger than the
largest increase Goldstein’s other properties ever received—$58.70.
16 COLONY COVE PROPERTIES V. CITY OF CARSON
represented it would conduct, without requiring the adoption
of a particular method of analysis.
Palacio de Anza simply required a rent control board to
apply its guidelines when considering a rent increase
application. 257 Cal. Rptr. at 124. There is no contest that
the Board did so here. And, in Carson Gardens, the Court
of Appeal expressly held:
[N]othing in the [City of Carson’s] ordinance
requires the Board to apply any particular
formula or methodology without deviation.
Indeed, the city’s Guidelines specifically
state that the [GPM] analysis ‘is an aid to
assist the Board in applying the factors in the
Ordinance and is to be considered together
with the factors in [the ordinance], other
relevant evidence presented and the purposes
of the Ordinance,’ and is not intended to
create any entitlement to any particular rent
increase.
37 Cal. Rptr. 3d at 777 (fourth alteration in original). At
most, Carson Gardens compels the Board only to consider
a GPM Analysis, see id. at 776–77, and in affirming the trial
court’s dismissal of Colony’s petition, the Court of Appeal
here expressly acknowledged that the Board did precisely
that in evaluating both the 2007 and 2008 Colony
applications, see Colony Cove Props., 163 Cal. Rptr. 3d at
504–11. 7
7
The Court of Appeal also noted that “the MNOI approach has been
upheld by every court to have considered it.” Colony Cove Props.,
163 Cal. Rptr. 3d at 522.
COLONY COVE PROPERTIES V. CITY OF CARSON 17
In Carson Gardens the plaintiff sued the Board, claiming
in part that the Board did not conduct a GPM Analysis.
37 Cal. Rptr. 3d at 770–76. A trial court ordered the Board
to conduct the analysis and remanded the case, but the Board
failed to conduct the GPM Analysis on remand. Id. at 772–
73. On the second challenge, the trial court granted the
plaintiff’s proposed rent increase based on its GPM
Analysis, but the Court of Appeal reversed. Id. at 774–75,
777. Although the initial trial court’s order required
consideration of debt service costs, the Court of Appeal
remanded the case “so that the Board c[ould] exercise its
discretion on the question of whether passing through the
entire amount of debt service costs was necessary to provide
a fair return.” Id. at 776.
No objectively reasonable person confronted with this
evidence in 2006 could have expected that the Board would
always account for debt service when determining rent
increases. 8 Colony failed to present sufficient evidence
supporting its investment-backed expectations claim under
Penn Central’s second prong.
C. Character of the Government Action
Penn Central instructs that “[a] ‘taking’ may more
readily be found when the interference with property can be
8
Colony also claims that its expectations were reasonable because
a former City employee testified that the Implementation Guidelines
were “more important, at least for day-to-day operation[s]” than the
ordinance. But the Guidelines, even before their amendment, made clear
that a property owner had no right to a rent increase based on the GPM
Analysis. And Colony does not contend that it relied on this statement,
which was made in a deposition in this litigation, in determining whether
to purchase the Property.
18 COLONY COVE PROPERTIES V. CITY OF CARSON
characterized as a physical invasion by government than
when interference arises from some public program
adjusting the benefits and burdens of economic life to
promote the common good.” 438 U.S. at 124 (citation
omitted). 9 The City’s rent control ordinance is precisely
such a program, striving to “protect[ ] Homeowners from
excessive rent increases and allow[ ] a fair return on
investment to the Park Owner.” This central purpose of rent
control programs “counsels against finding a Penn Central
taking.” MHC Fin., 714 F.3d at 1128.
Citing Lingle, 544 U.S. at 539, and David Hill
Development, LLC v. City of Forest Grove, No. 3:08-CV-
266-AC, 2012 WL 5381555 (D. Or. Oct. 30, 2012), Colony
argues that the 2006 amendment to the Guidelines should be
characterized as a taking because it targeted Colony’s
acquisition of the Property and the consequent large debt
service. But these cases are inapposite. Lingle simply held
that a plaintiff could not claim that a regulation constituted a
taking merely because it did not substantially advance a
legitimate state interest. 544 U.S. at 547–48. And David
Hill dealt with an express exaction. 2012 WL 5381555, at
*9–12. More importantly, government action is legitimately
prompted by changes in regulated areas. Even assuming that
the 2006 Amendment to the Guidelines was prompted by the
large amount of debt service involved in Colony’s
acquisition and the City’s realization that a more
sophisticated analysis than the GPM might be needed to
9
The Supreme Court also stressed that the first two Penn Central
factors are the most important. See Lingle, 544 U.S. at 538–39 (“Primary
among those factors are the economic impact of the regulation on the
claimant and, particularly, the extent to which the regulation has
interfered with distinct investment-backed expectations.” (internal
quotation marks and brackets omitted)).
COLONY COVE PROPERTIES V. CITY OF CARSON 19
address requests for rent increases, the character of the
government regulation remains the same. The third Penn
Central prong therefore is not satisfied.
III. Conclusion
On the evidence in this case, no reasonable finder of fact
could conclude that the Board’s denials of Colony’s
requested rent increases were the functional equivalent of a
direct appropriation of the Property. Accordingly, the
district court should have granted the City’s motion for
judgment as a matter of law. We therefore REVERSE the
judgment of the district court and REMAND with
instructions to enter judgment in favor of the City. 10
10
We therefore need not consider the City’s alternative argument
that a district court, not a jury, is the appropriate finder of fact in
regulatory takings cases.