En Banc Ninth Circuit Rejects Unfounded Regulatory Takings Claim

Yesterday, in Guggenheim v. City of Goleta, the United States Court of Appeals for the Ninth Circuit, sitting en banc, rejected a far-reaching and misguided 2-1 panel decision by Circuit Judge Jay Bybee (of torture memo fame) that would have dramatically (and improperly) expanded regulatory takings jurisprudence.  Plaintiffs in the case, Daniel and Susan Guggenheim, argued that a rent control regulation that predated their purchase of a mobile home park by eighteen years could nonetheless constitute a “taking” under the Fifth Amendment.   Constitutional Accountability Center, joined by the American Planning Association (APA), APA California, and the Western Center on Law and Poverty, filed an amicus brief challenging the Guggenheims’ claim and Judge Bybee’s novel application of takings law as inconsistent with the text and history of the Fifth Amendment, as well as existing Supreme Court precedent.

In a lopsided 8-3 decision written by conservative Judge Anthony Kleinfeld (who had dissented from Judge Bybee’s earlier opinion for the three-judge panel), the Ninth Circuit agreed with CAC, dismissing the notion that anything had been taken from the Guggenheims.  Instead, Judge Kleinfeld and seven of his colleagues – including Judge Alfred Goodwin, who had previously joined Judge Bybee’s opinion – agreed that the District Court had it right in the first place, that the Guggenheims “got exactly what they bargained for when they purchased the Park – a mobile-home park subject to” rent control.

Judge Kleinfeld rested his opinion on the conclusion that the City’s rent control regulation does not interfere with any “distinct investment-backed expectations,” the primary factor in what is called the Penn Central test for regulatory takings.  Judge Kleinfeld explained that reasonable investment-backed expectations means “a reasonable probability . . . not starry eyed hope of winning the jackpot if the law changes . . . The idea, after all, of the constitutional protection we enjoy . . . is to protect the property we have, not the property we dream of getting.”  The en banc dissenters would have found it enough that the Guggenheims may have held the belief when they purchased the property that the rent control laws might someday change, creating a kind of speculative interest.  In the view of the dissenters, this speculative interest could result in compensation under the Takings Clause when the Guggenheims’ beliefs did not match reality.

But, as CAC argued in its brief, because the rent control regulation was in effect at the time the Guggenheims purchased the mobile home park, not only did the Guggenheims make their purchase with full knowledge of the restrictions, but the economic effects of the regulation resulted in their paying a discounted purchase price.  Awarding them compensation under the Takings Clause would have amounted to an unwarranted windfall.  While this may be the “season of giving,” the Ninth Circuit was correct in reading the Takings Clause as not requiring that the Guggenheims be given such a gift.