NFIB Files Amicus Brief in Private Property Case

John Kabateck
California Executive Director, National Federation of Independent Business

The protection of private property from government interference is an ideal this country was built on. This principal is so engrained in American society that the Fifth Amendment includes the ‘Takings Clause,’ stating that government shall not take private property without just compensation. Unfortunately, the courts have by in large disregarded this key tenet of the Constitution, thereby endangering property owners and small businesses throughout the state.

In 1989, the city of San Rafael passed the Mobile Home Rent Stabilization Ordinance, which imposed rent controls on mobile homes. The ordinance was amended in 1993 prohibiting owners from negotiating higher rents when entering a lease with a new tenant. The following year, MHC Financing Ltd. Partnership and Grapeland Vistas Inc. purchased the 396-unit Contempo Marin mobile home community in San Rafael.

Contempo Marin is a luxury mobile home community located just two miles from San Francisco Bay and incudes a great view, pool, spa, and clubhouse. Due to the location and amenities, these mobile homes sell for well over $300,000. The rent- and vacancy-control ordinance imposed by the City of San Rafael in the name of “affordable housing” is clearly misapplied in this instance.

In 1999, San Rafael enacted an amendment eliminating owners’ ability to increase rents to keep up with inflation. MHC then brought suit in 2000, alleging claims under the Takings Clause of the Fifth Amendment, arguing the government must provide compensation when taking property.  MHC also argued that the new ordinance unfairly targeted the company and prevented it from efficiently operating. The district court ruled in favor of MHC on its claims that the city had affected both a regulatory taking and a private taking.

However, in MHC Limited Financing v. City of San Rafael, the Ninth Circuit reversed the district court’s ruling, finding that since one rent regulation existed before MHC bought the property, it was not entitled to bring claims regarding any new regulations. The lower court’s misapplication of the law necessitates the Supreme Court reaffirm that the Takings Clause has no “expiration date.”

Small businesses rely on the protections of the Takings Clause when making business plans and investments. The need for certainty in business planning and property rights has led NFIB’s Small Business Legal Center, along with other industry groups, to file an amicus brief asking the Supreme Court to review the Ninth Circuit’s ruling, to clarify the standard of review applied to takings claims and to confirm that the Takings Clause isn’t rendered inoperative when property is transferred.

Procedural barriers in the Ninth Circuit and California have made it increasingly unlikely for businesses to ever have their regulatory takings claims addressed—particularly those raising challenges to rent control ordinances.  For those rare cases—such as this one—that manage to make it through the Ninth Circuit’s procedural minefield, the Ninth Circuit has consistently deprived small business owners of their constitutionally protected property rights.

As one of the rare cases to reach the merits of a regulatory takings claim this case presents the Supreme Court with a unique opportunity to correct the Ninth Circuit’s repeated misapplication of the Takings Clause. The Supreme Court can correct the Ninth Circuit’s attack on private property rights and provide small business owners a reprieve from the constant regulatory and legislative onslaught stifling economic growth.

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