Colony Cove Properties v. City of Carson
888 F.3d 445
9th Cir.2018Background
- Colony Cove purchased a Carson mobile home park in April 2006 for $23,050,000, funding $18,000,000 with a loan whose annual debt service ($1,224,681) exceeded the prior owner’s annual profit.
- Carson’s Rent Review Ordinance (1979) and 1998 Implementation Guidelines authorized a Gross Profits Maintenance (GPM) analysis to consider debt service in assessing fair rent increases, but stated no single factor was dispositive and no entitlement to particular increases existed.
- In 2006 the City amended the Guidelines to permit an alternative Maintenance of Net Operating Income (MNOI) analysis that excludes acquisition debt service from consideration.
- Colony applied for rent increases in 2007 and 2008; the Board ran both GPM and MNOI analyses, adopted MNOI, and approved modest increases that excluded debt service.
- Colony sued, alleging Penn Central regulatory takings; after juried trial the jury found a taking and awarded damages (~$3.3M), and the district court entered final judgment for Colony. The City appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Board’s denials of Colony’s requested rent increases constituted a regulatory taking | Board’s use of MNOI and refusal to consider debt service deprived Colony of expected returns and effectively took property (lost rental income) | Denial was lawful application of rent-control scheme; not functionally equivalent to physical appropriation; no taking | Reversed: no taking — judgment for City |
| Economic impact (Penn Central factor 1) | Lost rental income over 8 years (~$5.7M claimed; jury awarded ~$3.3M) shows significant diminution | Plaintiff failed to prove pre- vs post-deprivation property value; claimed loss is too small relative to $23M purchase price | Held for City: no evidence of sufficient diminution (loss <50% and here ~25% or less) |
| Investment-backed expectations (Penn Central factor 2) | Colony reasonably expected Board would use GPM and allow debt service passthrough because Guidelines previously referenced GPM and past practice/case law supported debt consideration | Guidelines expressly disclaimed entitlement; prior Board practice was inconsistent; case law requires only that Board follow its stated procedures, not guarantee debt passthrough | Held for City: expectations were not objectively reasonable |
| Character of government action (Penn Central factor 3) | Amendment to Guidelines targeted Colony’s acquisition and thus functionally appropriated value | Rent-control program adjusts economic benefits/burdens to serve public good; amendment changed analysis but remained regulatory in character | Held for City: character favors no taking — routine regulatory decision |
Key Cases Cited
- Penn. Coal Co. v. Mahon, 260 U.S. 393 (recognizes regulation may be a taking when it goes too far)
- Penn Cent. Transp. Co. v. City of New York, 438 U.S. 104 (establishes three-factor regulatory takings test)
- Lingle v. Chevron U.S.A. Inc., 544 U.S. 528 (clarifies takings inquiry and rejects "substantially advances" takings theory)
- Murr v. Wisconsin, 137 S. Ct. 1933 (discusses parcel-as-a-whole and ad hoc takings analysis)
- Tahoe-Sierra Pres. Council, Inc. v. Tahoe Reg’l Planning Agency, 535 U.S. 302 (endorses ad hoc factual takings inquiry)
- Andrus v. Allard, 444 U.S. 51 (bundle of rights concept in takings analysis)
- MHC Fin. Ltd. P’ship v. City of San Rafael, 714 F.3d 1118 (9th Cir.) (applies Penn Central factors)
- CCA Assocs. v. United States, 667 F.3d 1239 (Fed. Cir.) (noting courts rarely find takings for diminution under 50 percent)