California Property Rights Journal

According to the California First District Court of Appeals, a property owner is not damaged by the enforcement of an illegal rent control law for seven years in which space rents were kept well below market. The park owner must first prove that the effect of this regulation was to deny the park owner a “just and reasonable return.” That is the holding of the First District Court of Appeals in Hillsboro Properties v. Rohnert Park (April 6, 2006)

For seven years, the City of Rohnert Park, in Sonoma County, California, imposed an illegal rent control regime on mobile home park owners. After succeeding in invaliding the Ordinance, the park owner sought to recover damages against the City for imposing an unconstitutional ordinance. The First District Court of Appeal affirmed the dismissal of the lawsuit. Amazingly, the Court of Appeals concluded that the park owner had not alleged a cognizable damage claim.

The decision is questionable in severable respects, but is fundamentally flawed in its view of damages. The Court of Appeals concluded that, although an illegal rent control law was enforced for seven years, there was no harm asserted as to any constitutionally protected right because the park owner had not shown the park was denied a “just and reasonable return” during that seven year period. A "just and reasonable return" is the constitutional minimum return for price regulation, which courts have applied for substantive due process challenges to such regulation. Property owners have a constitutionally protected property interest in real property, which includes the right to freely lease and sell property at market rates. While public entities may, under some circumstances, pass laws that limit these rights, absent such a law, the right to charge market rents is part of the bundle of sticks that comes with owning real property.

The simple fact is that if the City had not imposed this unconstitutional law, the park owner could have charged market rents for seven years. (In fact, the park owner actually gave notice of the intent to charge such rents in this case, to be collected in the event the park owner succeeded in invalidating the ordinance) The Court of Appeals confused the substantive due process minimum standard for deciding whether rent control ordinance has been constitutionally applied, with the question of whether a property owner was damaged by an unconstitutional statute. The basic measure of damages in inverse condemnation actions is market value. See, e.g. City of Ripon v. Sweetin, (2002) 100 Cal. App. 4th 887, 897 citing Tilem v. City of Los Angeles (1983) 142 Cal. App. 3d 694, 707. The Court of Appeals has adopted a different rule, that holds the measure of damages is the difference between the space rent the property owner collected and the lowest regulated rate the public entity could have forced the park owner to bear if there had been a constitutional rent control law.

The Court's reasoning process turns the law inside out. The result is that municipalities are encouraged to adopt harsh rent controls for political reasons, blatantly violating the Constitution, with no real risk because the standard for proving damages is so difficult to surmount.

The opinion was written by Justice Stuart Pollack, who has an interesting background. He was only relatively recently appointed to the Court of Appeals (2002) by former Governor Davis. Pollack graduated Harvard Law School with honors and clerked for Supreme Court Justice Earl Warren. He later served as a “special assistant to the Attorney General” in the Johnson administration. He served as a San Francisco County Superior Court judge for two decades until his elevation to the Court of Appeal.

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I think the essential point is not that the court found there is no injury from 7 years of illegal regulation; rather, the court found there is no remedy for that injury in the California courts. This is exactly what we had been arguing for years, as a basis for getting as-applied takings claims into federal court. Hillsboro confirms that we were correct in that evaluation of California law, and that the state's nullification of federal constitutional protections extends to the Due Process Clause, as well as the Takings Clause.

This will be the basis for our petition for review to the California Supreme Court. I think it's possible that the court's present configuration may be willing to back away from the implications of Kavanau and Galland, once the consequences of those decisions are pointed out to them in the form of the Hillsboro opinion. If not, there could be grounds for a cert petition to the United States Supreme Court. If all else fails, at least rental property owners will finally have their long-sought ticket to federal court.

R. S. Radford
Principal Attorney
Pacific Legal Foundation
Visit Pacific Legal Foundation's website at pacificlegal.org