Tag: property rights

Luxury Mobile-Home Parks Don’t Need Rent Control

Contempo Marin isn’t your stereotypical mobile-home park. The park sits two miles from San Francisco Bay and offers tenants a pool, spa, clubhouse, and lagoon. Because of the location and amenities, these mobile homes—some of which offer vaulted ceilings, gas fireplaces, walk-in closets, and jetted tubs—can sell for over $300,000. That’s what makes the rent- and vacancy-control ordinance imposed on the park by the City of San Rafael in the name of “affordable housing” so outrageous.

The ordinance caps the amount that MHC Financing, the owner of Contempo Marin, may charge its tenants—who own their mobile homes but rent the land underneath—and mandates that the land be rented at the same price to each homeowner. The result isn’t lower costs for incoming tenants, but a redistribution of the value from the below-market rent directly to the mobile-home owners, whose homes now sell at a premium of nearly $100,000 above their pre-existing value. Thus far, the ordinance has transferred more than $95 million from MHC to its tenants.

MHC challenged the ordinance in federal court as an unconstitutional taking. The district court ruled in MHC’s favor, finding that the alleged public purpose of the ordinance—“affordable housing”—was merely a pretext, such that the ordinance violated the Fifth Amendment’s mandate that property only be taken for a “public use.” As Justice Kennedy clarified in Kelo v. City of New London (2005), “transfers intended to confer benefits on particular, favored private entities and with only incidental or pretextual public benefits, are forbidden by the Public Use Clause.”

The U.S. Court of Appeals for the Ninth Circuit, however, reversed the district court, holding that rent control generally, rather than the specific rent-control scheme at issue here, is “rationally related to a conceivable public purpose” and thus automatically meets the public-use requirement. MHC is now asking the Supreme Court to review that ruling and Cato has filed a supporting amicus brief, encouraging the Court to clarify the standard of review applied to pretextual takings claims and to confirm that the Takings Clause isn’t rendered inoperative when property is transferred.

The Ninth Circuit’s approach essentially bars future pretextual takings claims; any regulatory scheme viewed at its broadest theoretical level could have some “conceivable public purpose.” This evisceration of the Public Use Clause leaves the appropriate standard for determining if a government’s public-use justification is mere pretext in desperate need of Supreme Court clarification. The Ninth Circuit also undermined the Fifth Amendment by finding that no taking had even occurred because MHC had bought Contempo Marin after the rent- and vacancy-control provision had been enacted and therefore could have no investment-backed expectation as to the property value taken by the city. This decision directly conflicts with Palazzolo v. Rhode Island (2001), in which the Supreme Court held that buying property with knowledge of a regulation doesn’t preclude a takings challenge. The Ninth Circuit ignored the same precedent in Guggenheim v. City of Goleta in 2011—a case in which Cato also filed a brief supporting a petition for review—and the lower court’s continued misapplication of the law here reiterates the need for the Supreme Court to reaffirm that the Takings Clause has no “expiration date.” 

The Court will decide whether to take the case of MHC Financing LP v. City of San Rafael later this fall.

This blogpost was co-authored by Cato legal associate Lauren Barlow.

Building Housing That Some People Can’t Afford Isn’t Racist

“Disparate impact” theory holds someone liable for discrimination for a race-neutral policy that statistically disadvantages a specific racial group — say, blacks score lower on a firefighter-promotion test than whites — even if that negative “impact” was neither foreseen nor intended. The application of this theory has been fraught with controversy, to say the least, but it comes up again and again, in contexts ranging from employment to education to voting.

While disparate impact claims have sometimes been sustained under the federal Fair Housing Act (which makes it unlawful to deny housing on the basis of race) since the 1970s, the Supreme Court has only recently agreed to decide whether these claims are lawful. Two years ago, the Court was about to hear such a case, Magner v. Gallagher, when the Justice Department, led by now-Labor Secretary Tom Perez, pressured the city of St. Paul, Minnesota to settle it. The same sort of political pressure is now being brought to bear on Mount Holly Township, New Jersey; supporters of disparate impact theory simply don’t think that it can survive legal scrutiny.

The current case involves a redevelopment plan for a blighted Mount Holly neighborhood (“the Gardens”) that would transform the neighborhood into mid-range single-family dwellings. (Thus far, the township has acquired 259 of 329 properties through various financial incentives, without yet resorting to eminent domain.) The Gardens’ residents sued, arguing that the redevelopment plan violated the FHA because a majority of them would not be able to afford the new homes.

The district court dismissed this argument, holding that the redevelopment plan affected Gardens residents equally, without regard to race, and was tied only to economic considerations. The court of appeals reversed that ruling, holding that the residents’ association had set out a case of discrimination under the theory of disparate impact because a majority of the affected residents were non-white.

Cato has now joined the Pacific Legal Foundation and four other public-interest organizations on an amicus brief arguing not only that disparate impact claims are impermissible under the text of the FHA, but that such claims force unconstitutional actions when applied to governments. Before putting race-neutral policies into effect, government agencies would have to determine whether a particular racial group would be disproportionately impacted and take steps to remedy that difference. By mandating an equality of ends — as opposed to an equality of opportunity — disparate impact liability encourages the adoption of discriminatory quota systems.

Eminent Domain for a Soccer Stadium?

Taxpayers in the District of Columbia have agreed – well, their agreement has been attested to by the mayor – to pony up $150 million to build a new stadium for D.C. United, the Major League Soccer team owned by Indonesian media magnate Erick Thohir. And just in case money isn’t enough to get the job done, the city administrator has made clear that the mayor has other tools in his kit:

A top District official reiterated Wednesday that the city is prepared to seize land in court to build a new soccer stadium after questions emerged over the ownership of a key plot needed for the project backed by Mayor Vincent C. Gray and D.C. United’s owners.

City Administrator Allen Y. Lew said the District was ready to exercise eminent domain should it be unable to come to terms with the current owners of the proposed site. “That’s always out there, that the mayor has the power to do that,” he said at a news conference Wednesday. “We’d like to work this out in an amicable way.”

Eminent domain. That is, taking land by force. For a soccer stadium. 

I am reminded of Justice Sandra Day O’Connor’s scathing dissent in the case of Kelo v. New London:

Under the banner of economic development, all private property is now vulnerable to being taken and transferred to another private owner, so long as it might be upgraded–i.e., given to an owner who will use it in a way that the legislature deems more beneficial to the public–in the process….

The specter of condemnation hangs over all property. Nothing is to prevent the State from replacing any Motel 6 with a Ritz-Carlton, any home with a shopping mall, or any farm with a factory….

Any property may now be taken for the benefit of another private party, but the fallout from this decision will not be random. The beneficiaries are likely to be those citizens with disproportionate influence and power in the political process, including large corporations and development firms. As for the victims, the government now has license to transfer property from those with fewer resources to those with more. The Founders cannot have intended this perverse result.

The Founders may well not have intended this perverse result. But alas, O’Connor was writing in dissent. Five justices of the Supreme Court upheld the taking of Susette Kelo’s home to give it to Pfizer. And now, the owners of the Super Salvage scrap yard know that “nothing is to prevent the State” from taking their property to benefit “citizens with disproportionate influence and power in the political process.”

It’s one thing to argue that the Founders intended to give the government the power to take private property “for public use,” such as a military installation, a road, or a school. But for a corporate office park? Or a soccer stadium? The Founders cannot have intended this perverse result.

Community Associations Have Property Rights Too

The U.S. housing market has seen a major shift in the past 30 years: the rise of the community association. In 1970, only 1 percent of U.S. homes were community association members; today, more than half of new housing is subject to association membership, including condominium buildings. These organizations provide substantial benefits, including community facilities, maintenance, and rules designed to preserve property values, in exchange for assessment fees.

Accordingly, Mariner’s Cove Townhomes Association v. United States affects the rights of the more than 60 million Americans currently living in these associations. This case arises from the federal government’s taking 14 of 58 townhouses from one development in the wake of Hurricane Katrina. Mariner’s Cove owned a right to collect dues that was appended to those 14 townhomes, and sued the government for extinguishing that valuable right without just compensation under the Fifth Amendment’s Takings Clause.

In contrast to most lower courts, however, the U.S. Court of Appeals for the Fifth Circuit held that “the right to collect assessments, or real covenants generally” are not subject to Takings Clause analysis. In other words, the government can take those rights without paying anything to the owners. Cato and a group of esteemed professors, including Richard Epstein, James W. Ely Jr., and Ilya Somin, has submitted an amicus brief supporting Mariner’s Cove and arguing that the Supreme Court should take the case to clarify whether community association fees are compensable property under the Fifth Amendment.

Without such clarification, these beneficial private communities will be undercut. Such associations often shoulder the burden of providing and maintaining infrastructure, services, and utilities, which allows for more diverse and customizable amenities for homeowners than if those decisions were left with remote municipal governments. Because of these benefits, and because they increase the tax base, local governments are increasingly requiring developers to structure developments as community associations.

The perverse implications of the Fifth Circuit’s ruling are clear: it would allow for local governments to require he creation of a community association, benefit from the resulting private delivery of services while collecting taxes from its members, and later take the property without even paying back the very fees that enabled the government’s benefit. And the Fifth Circuit’s holding affects more than simply community associations. The court’s reference to “real covenants generally” implicates conservation easements, for example, which restrict the development and use of land for preserving the land’s natural, historic, or ecological features. This precedent would make association land an attractive option for uncompensated government takings.

The ruling also clashes with the Supreme Court’s recent decision in Koontz v. St. John’s River Water Management District: that an income stream from real property is a compensable interest under the Fifth Amendment. For these reasons, we urge the Supreme Court to take the case and to recognize the compensable property rights of the Mariner’s Cove Townhomes Association and the millions of other Americans choosing—and paying—to live in a community association.

A Legal Blow to Cities That Want to Take Your Property

As Roger Pilon has previously noted, on Tuesday, June 25, the Supreme Court issued a decision that helps protect people’s property rights from greedy municipalities. On Thursday, the New York Times published an op-ed critical of that decision by Vermont Law School Professor John Echeverria, who considers it a blow to “sustainable development,” whatever that means. 

In the case, a Florida property owner named Coy Koontz Sr. wanted to fill and develop 3.7 acres of wetlands. To mitigate the wetland fill, Koontz offered to put 11 acres of his property (75 percent of the total) under a conservation easement. But the St. Johns River Water Management District denied the permit, saying it wanted either 13.9 acres of Koontz’s land (leaving him less than an acre, or just 5 percent of the total, for development) or for Koontz to spend a bunch of his money helping the district restore wetlands elsewhere.

Koontz sued, citing the Supreme Court’s Nollan and Dolan decisions. (Cato and the Institute for Justice filed an amicus brief supporting Koontz.) In the Nollan/Dolan cases, permits were granted on the condition that the property owners give some of their land to the public. The Supreme Court had held that such conditions were an unconstitutional taking of private property.

The Florida Supreme Court rejected Koontz’s argument, saying that there was a big difference between his situation and the Nollan/Dolan cases. In the latter cases, the permits were granted conditional upon the property owners giving up land. In Koontz’s case, the permit was denied unless he gave up land or money.

Echeverria considers these differences to be so clear and obvious that he is amazed that five Supreme Court justices were bamboozled into overturning the Florida court’s decision. After all, granting a permit conditional on giving up your land is completely different form denying a permit unless you are willing to give up your land. Moreover, giving you a choice between giving up your money or property is completely different from simply demanding that you give up your land.

The Constitution Protects Even Old-Timey Property Rights

In the 19th Century, when railroads were being built across the West, the federal government granted significant land and benefits to the railroad companies. The Great Railroad Right-of-Way Act of 1875 allowed the government to give railroad companies easements to build tracks — that is, a right to use sections of another’s property without legally owning it. The Brandt family eventually acquired land in Wyoming that came with pre-existing railroad easements.

In 2001, the owner of the easement formally abandoned all claims to it, presumably returning the property to the Brandts. But the government wanted that land. In 2006, it sued for title to the former easement land on the theory that the government retained a residual claim to it after the railroad abandoned it. The Brandts argue that the government has no such right and that taking their land requires just compensation under the Fifth Amendment’s Takings Clause.

Although this may seem like a small, unique problem, the scope of the Old West’s railway system was huge and those old easements criss-cross the land of thousands of property owners. In 1983, Congress amended the National Trails System Act to allow the government to take abandoned railroad easements and turn them into land for public recreation and “railroad banking.” Landowners have been fighting the taking of their property under the Trails Act ever since, claiming, as here, that the government’s original grant to the railroads contained no residual right of possession for the government.

Indeed, two federal courts of appeals, the Seventh and Federal Circuits, have held that the government didn’t retain any residuary rights. In the Brandts’ case, however, the Tenth Circuit held otherwise. This circuit split is untenable. Over 5,000 miles of abandoned track has been taken by the government since the Trails Act, and about 10,000 property owners are currently fighting in federal courts to hold onto their property.

Of course, given the possible benefits of not having to pay compensation to landowners, the government has responded to these claims by being aggressively litigious, reaching into its endless war-chest of taxpayer-provided resources to challenge the landowners on every tiny point. As the Federal Circuit said, the government’s behavior is “puzzling” in that it is “foregoing the opportunity to minimize the waste both of its own and plaintiffs’ litigation resources, not to mention that of scarce judicial resources,” but also by advancing arguments “so thin as to border on the frivolous.”

U.S. Can’t Use Supreme Court’s Property Rights Ruling to Rewrite Takings Law

The Supreme Court ruled in December that a taking occurs when a government action gives rise to “a direct and immediate interference with the enjoyment and use of land,” thus allowing the Arkansas Game & Fish Commission to proceed with claims relating to the damage caused by government-induced flooding of a state wildlife management area. (The lower court had bizarrely held that while temporary physical invasions and permanent floods were subject to takings analysis, temporary flooding, even if repeated, was not.  For more background and links to Cato’s amicus briefs before the Supreme Court, see Roger Pilon’s commentary.)

On remand to the U.S. Court of Appeals for the Federal Circuit, however, the United States, relying on a single passage from the opinion, contends that the Supreme Court created a new multi-factor test applicable to all regulatory and temporary physical takings claims. Cato has now joined the Pacific Legal Foundation, National Federation of Independent Business, and National Association of Home Builders on a brief supporting the Commission and arguing that the passage upon which the government relies is both non-binding (“dicta” in legal terms) and in any event cannot be read to upset the distinction between regulatory and physical takings that the Court has consistently asserted.

It is well established in the Supreme Court’s takings jurisprudence that government intrusions on private property that permanently deprive the owner of a valuable property interest are to be subjected to the same test, regardless of whether the invasions are permanent or temporary. Under that test, courts are to consider the duration of the government intrusion, along with other information, to determine (1) whether the invasion is the direct cause of injury to the property and (2) whether the injury is substantial enough to subtract from the owner’s full enjoyment of the property and limit his exploitation thereof. If the injury to the property is substantial, it doesn’t matter whether the it was caused by an invasion of limited duration; once it is shown that the government invasion directly and substantially interfered with an owner’s property right, the government has a categorical duty to pay compensation.

In this case, the government’s intrusion permanently damaged significant property — valuable timber, from the destruction of trees — and is thus a compensable taking. The Supreme Court’s decision in Arkansas Game & Fish Commission didn’t modify or overturn the well-settled test for adjudicating physical takings claims, which remains distinct from the test that controls regulatory takings claims.

The Federal Circuit will hear argument in the case later this spring.