Claims of taking and due process violation filed by a Ventura mobile home park owner who was denied rent increases have been rejected by the Second District Court of Appeal.

The unanimous three-judge panel ruled that the trial court correctly dismissed the taking claim after deciding that rent increases granted to the park owner fell within a "broad zone of reasonableness." The Second District also ruled that procedural decisions of the trial court and Ventura's Rent Review Board did not deny the landlord due process.

In early 2003, the owner of the 125-space Stardust Mobile Estates submitted an application for rent increases under Ventura's rent control ordinance. Stardust requested increases of $9.95 to $12.19 per month based on inflation and $16,000 worth of driveway repair and replacement expenses. Stardust also sought an increase of either $300 per month because rent control had provided tenants with tens of thousands of dollars in "premiums," or $50.50 because the landlord had not received past increases based on the full rate of inflation. Stardust further sought a $24 increase in the base year rate, which was established in 1981 when the city adopted rent control.

In May 2003, the city's Rent Review Board approved rent increases of $9.23 to $9.70 based on inflation but rejected all other requested rent hikes.

Stardust then filed a lawsuit challenging the rent board's decisions, and contending that the board had violated the park owner's due process rights and caused a taking of private property. Ventura County Superior Court Judge Henry Walsh ruled against the property owners but directed the city to increase rents based on the park owner's driveway maintenance expense.

Ever since rent control became common during the 1970s, property owners have claimed that limited rent increases posed an unconstitutional taking. Property owners generally have not gotten far in court, but there was a brief period earlier this decade when they appeared to gain. In 2004, the Ninth U.S. Circuit Court of Appeals ruled the City of Cotati's mobile home rent control law was unconstitutional because the possibility existed that tenants might receive what amounted to a transfer of equity when selling their units in a rent-controlled park. For this reason, the court found that the ordinance did not "substantially advance" the goal of providing affordable housing. (Cashman v. City of Cotati, 374 F3d 887; see CP&DR Insight, October 2004; CP&DR Legal Digest, September 2004).

The Ninth Circuit's ruling in Cashman threw into doubt most mobile home rent control laws in California. However, less than a year later, the U.S. Supreme Court ruled in Lingle v. Chevron U.S.A., Inc., (2005) 544 U.S. 528, that the "substantially advances" test does not apply when a court is determining whether a regulation effects a taking (see CP&DR, July 2005). The Lingle decision appeared to close the legal door that the property owners had kicked open; Judge Walsh cited Lingle in ruling against Stardust Mobile Estates.

On appeal, Stardust argued that Lingle did not affect its taking claim, which it said was based on Penn Central Transp. Co. v. New York City, (1978) 438, U.S. 104. A Penn Central claim requires a court to consider the economic impact of a regulation on the property owner, the regulation's impact on "distinct, investment-backed expectations," and the character of the government action. Stardust argued that it was entitled to a trial on the Penn Central claim, which Judge Walsh had dismissed.

The Second District found that Stardust's claim was based in part on the substantially advances test, and that the lower court handled things correctly.

"[T]he trial court concluded that substantial evidence supported the rent board's decision except for its ruling on driveway expenses, and the court remanded the case to the rent board which granted Stardust compensation — a rent increase that included the driveway expense, plus interest on those expenses," Justice Paul Coffee wrote for the court. "[T]he court necessarily considered the factors that our state Supreme Court indicates must be considered in evaluating Penn Central taking claims. The court concluded that Stardust had no taking claim and correctly decided that the rent increase granted to Stardust provided it with a return that fell within the requisite ‘broad zone of reasonableness.' Having done so, the court properly dismissed the taking claim."

The appellate court also rejected Stardust's contention that it was denied due process because it could not cross-examine witnesses during a Rent Review Board hearing or discover additional evidence at the trial court level.

The court did rule for the property owner in one key area, though. Stardust sought a "Vega" adjustment to its base year rent because, when the ordinance took effect in 1981, rents were below market rate. Under Vega v. City of West Hollywood, (1990) 223 Cal.App.3d 1342, a property owner may seek a base year rent adjustment if the rent at the time was not reflective of general market conditions. Stardust contended that rents were artificially low in 1981 because the then-park owner was trying to assist elderly tenants. The rent board ruled that it could grant a Vega adjustment only if there were unique circumstances, and that none existed here. But the court said that the "peculiar circumstances" in the Vega decision referred to West Hollywood's ordinance. Ventura's ordinance "contains no ‘unique' or ‘peculiar' circumstances requirement," the court found.

Thus, the court found the rent board's decision "arbitrary and unreasonable." Even the city's consultant had found that a Vega adjustment was warranted, only not as much as the property owner requested, the court noted. The court returned the issue of a base year adjustment to the city.
   
The Case:
Stardust Mobile Estates v. City of San Buenaventura, No. B186454, 07 C.D.O.S. 1955, 2007 DJDAR 2447. Filed February 22, 2007.
The Lawyers:
For Stardust: Robert Coldren, Hart, King & Coldren, (714) 432-8700.
For the city: Donald Lincoln, Endeman, Lincoln, Turek & Heater, (619) 544- 0123.