[00:00:19] Speaker 00:
Good morning, Your Honors. Jonathan Houghton on behalf of Appellant 1210 Cacique Street.

[00:00:28] Speaker 00:
And may I reserve two minutes for rebuttal, please? Thank you.

[00:00:32] Speaker 00:
The district court in this case utilized an improper heightened pleading standard.

[00:00:38] Speaker 00:
It was contrary to Rule 8.

[00:00:40] Speaker 00:
It was contrary to the Supreme Court's determinations in Twombly, Iqbel, and its recent determination in Burke v. Choi in January.

[00:00:49] Speaker 00:
And it turns property rights into a disfavored second class constitutional right. The district court's decision should be reversed.

[00:00:59] Speaker 00:
A complaint does not need to allege detailed factual allegations.

[00:01:04] Speaker 00:
If the facts is true, plausibly allege that the city of Santa Barbara's vacancy control was an unconstitutional regulatory taking. Then the complaint survives the motion to dismiss, and the complaint moves into discovery and on to trial.

[00:01:20] Speaker 00:
It's not about whether this property owner wins. It's not about whether or not this property owner will prevail at trial. And in fact, the Supreme Court has said that even if a court views it as improbable that a property owner will win, so long as the claim is plausibly alleged, then the case moves on.

[00:01:40] Speaker 00:
The point of this, Your Honors, is that Rule 8 is an extraordinarily low bar.

[00:01:46] Speaker 00:
As the Supreme Court recently said in Berk v. Choi, pleadings are designed and the pleading standard is designed for the case to get into discovery. A property owner does not have to provide evidence. A property owner only has to allege the minimum of facts in order to plausibly allege a claim because Rule 8 is a ceiling. And it's intended to be a low ceiling.

[00:02:13] Speaker 04:
So can I ask, one of the phrases you use in the complaint, I think, is operate at a loss. What do you mean by that?

[00:02:21] Speaker 00:
Operating at a loss, Your Honor, are facts supporting the fact that the vacancy control regulation took 92.5% worth of value away from this property.

[00:02:35] Speaker 04:
But by value, you mean just what was expected in the person who bought its mind?

[00:02:41] Speaker 00:
No, Your Honor, what it was worth.

[00:02:43] Speaker 00:
The property is worth 92.5% less because of the vacancy control regulation. That's the allegation.

[00:02:53] Speaker 04:
How is that calculated? Has there been an appraisal of selling the property, or what do you mean by that?

[00:03:01] Speaker 00:
Well, I'm actually glad you raised that, Your Honor, because I think it raises a very important point and why this is a heightened pleading standard that's being imposed by the district court.

[00:03:12] Speaker 00:
We don't have to put an appraisal within our complaint.

[00:03:16] Speaker 04:
Well, I guess I'm just wondering, though, how we can even tell if that's sort of an assertion of law or an assertion of fact. I mean, I don't under... Of a conclusion. Right. Because you can't just assert the legal conclusion, right? You would acknowledge that. You can't just say this is a taking.

[00:03:32] Speaker 00:
Yes, you're right.

[00:03:33] Speaker 04:
Absolutely. So you've got to say something more than that. And so there needs to somewhere be an allegation of fact. And if the phrases used are so vague that we can't tell what type of fact you're even talking about, that's what I was struggling with. And I don't really see you asking us to give you leave to amend either. You seem to be wanting us to say this complaint is enough as it is.

[00:03:54] Speaker 00:
Well, it is, Your Honor. I mean, if the court wants to send it back, but I will say that we alleged in the complaint that the value of this property is worth $6.9 million less, and that is 92.5% worth of the property's value. That is a fact.

[00:04:11] Speaker 02:
We allege... You're basing that...

[00:04:14] Speaker 02:
This part of the complaint is a little vague, but I understood you to be basing that on something in the nature of an assessment of the discounted present value of the revenue that you would get from the property?

[00:04:27] Speaker 00:
Well, we're basing that, Your Honor, on the loss of income where we allege that – we allege facts that in December of 2021, we would be losing $665 a month, then $1,000 a month. The way that you get from that to a diminution in value, I think, is by saying that the value of –

[00:04:53] Speaker 02:
This does not have subjectivity. You are not sitting there enjoying the view. The value is you're getting revenue from it, right? Yes, you're right. the market value of a revenue-generating property is the discounted present value of the stream of future income from it, right? And if the income goes down, then the value goes down, right? Yes, Your Honor. Okay, and the complaint doesn't really spell that out with very much or any mathematical precision, but that's sort of what the complaint is gesturing at.

[00:05:27] Speaker 02:
Is that right?

[00:05:28] Speaker 00:
Well, I wouldn't say it's gesturing at, Your Honor. I mean, I would say that we pled the income losses in the complaint that go along with the loss of value of 92.5%. But I think the distinction here, Your Honor.

[00:05:43] Speaker 01:
But aren't you assuming that the fair market value of the rent is higher than the control limit?

[00:05:53] Speaker 00:
Yes, Your Honor.

[00:05:55] Speaker 01:
And how did you get to that number? Does that factor into the 92.5% number? Yes, Your Honor.

[00:06:02] Speaker 00:
Well, it's a reasonable inference, Your Honor, from the numbers that we pled, but I think here's the distinction. Are you asking us to prove our case as a matter of law within our complaint, or do we simply have to plead it?

[00:06:18] Speaker 00:
That, I think, is the disconnect here.

[00:06:19] Speaker 01:
If you concluded that the fair market value of the rent was under 10%, do you have a case?

[00:06:28] Speaker 00:
I'm sorry, Your Honor. I may not have understood that. Can you repeat that again, please? Isn't the cap 10%? The cap is 10% when a vacancy occurs, yes.

[00:06:38] Speaker 01:
And if you concluded that without the cap, you could only get, now the town is imposing the cap, but the fair market value of a rent increase on that lot is only 8.9%.

[00:06:54] Speaker 01:
You don't have a constitutional case, do you?

[00:06:58] Speaker 01:
We might because I – There's a loss.

[00:07:03] Speaker 00:
Yeah. You know, Penn Central is – there's no minimum mandatory economic threshold.

[00:07:10] Speaker 04:
Sorry. I think in the hypothetical, the cap imposed by the city is 10%.

[00:07:17] Speaker 04:
You can't raise the rent more than 10%. But I think Judge Vitagliano's hypothetical is the fair market value would be less of an increase than that. Like no one would rent it if it was more than a 7% increase.

[00:07:28] Speaker 04:
So if that's the case, I don't see how you could possibly have a claim.

[00:07:32] Speaker 00:
I apologize. I misunderstood the hypothetical. And yes, Your Honor, you would be right. But what we have alleged in the complaint is that as a direct result of the ordinance, we have suffered a 92.5 percent loss in value.

[00:07:47] Speaker 02:
And I think – And what interest rate are you using to discount the future rental income? Because that's not in the complaint.

[00:07:57] Speaker 00:
It's not, Your Honor, because it's a complaint. And the interest rate that is used to discount values comes from Rule 26, Expert Discovery.

[00:08:07] Speaker 02:
That, I think, is the problem in the disconnect, is that the district court... It seems to me that there is some force to what you're saying about Rule 8 and Iqbal, but at the same time, it seems like you have created part of the problem here, because you must have had, in order to You've got a bunch of numbers that do not obviously get you to $6.9 million. So there is some calculation that you were doing and some assumptions that you were using, but you didn't tell anybody what those were.

[00:08:39] Speaker 02:
So I guess I'm just saying part of the problem here is of your creation and how you chose to draft this complaint by leaving out a lot of the detail that you must have had in mind in order to do the calculations.

[00:08:53] Speaker 00:
But I would respectfully say, Your Honor, that I think part of the problem here is that the district court did not take these numbers as true. We said that we lost 92.5% of value, and they said, I don't believe you.

[00:09:12] Speaker 00:
We are saying that we're going to be losing ultimately $590,000 a year in lost rent, and the response we're getting back is, I don't believe you. We will prove these numbers at trial. We will prove these numbers when we produce income and expense statements and pro formas and our expert report in our Rule 26 discovery. But we are not required to give evidence and prove our case within our complaint. And I think the central conceit and the central difficulty here is that when we say we lost 92.5% of value, the response we're getting back from the district court is, I don't believe you prove it.

[00:09:53] Speaker 00:
And you need to provide evidence behind these numbers, and you need to provide how you got there, and you need to provide discounted cash flows and what your interest rates are. That's proving your case. That's not pleading your case.

[00:10:08] Speaker 04:
And you're not claiming that you're operating at a loss in the sense of you need to spend more each month to keep this property going than you're getting.

[00:10:20] Speaker 00:
Well, we are operating at a loss, Your Honor, because we said in the complaint that starting as of December 2021, we're going to be losing $665 a month.

[00:10:29] Speaker 04:
But is that against what the profit – you're making less profit than you had anticipated, or you're actually spending more than you're taking in each month?

[00:10:41] Speaker 00:
The complaint, Your Honor, simply says less profit than anticipated. But overall, what all of the cases say is, you know, talk about your value and how has your value changed and what is your before and what is your after. And with a $6.9 million loss equating to 92.5% of value, that means our value before was $7.4 million and our value after is $550,000.

[00:11:09] Speaker 00:
And in terms of plausibly alleging a regulatory takings claim, those facts taken as true plausibly allege a regulatory takings claim. A 92.5% loss in value is a plausible regulatory takings claim. And even if this court thinks, you know what? I think you're going to lose. It doesn't matter. Because all we're talking about is a complaint, not a trial. And that is the disconnect.

[00:11:39] Speaker 00:
And that is why the district court here was imposing a heightened pleading standard.

[00:11:44] Speaker 04:
So I know that you have arguments on all three prongs of the test. We've been talking a lot about just the loss of value part. But if we disagree with you on the other prongs, then does it matter whether your allegation about loss is good enough?

[00:12:00] Speaker 00:
Well – For Penn Central overall, Your Honor, we don't have to run the table and get three out of three. But I will say we do need to get at least one out of three.

[00:12:08] Speaker 00:
You know, we can't fail on all of those. But I will say that for Penn Central, it is an ad hoc test. There is no magic formula.

[00:12:18] Speaker 00:
There is no precise mathematical variables. But I would submit, Your Honor, that even beyond economic impact, I think we certainly plausibly allege the others as well. I mean, for example, with respect to investment-backed expectations, in 2006, the mayor said that he couldn't figure out a legal basis to reinstate vacancy control.

[00:12:43] Speaker 04:
But it's not the same mayor anymore. No one would anticipate that it's always going to be the same mayor. And the case that he was relying on had been overruled already. So I'm confused to how this is a good argument.

[00:12:54] Speaker 00:
Well, the first, Your Honor, is don't we as a property owner have a right to rely upon the government in terms of our reasonable investment-backed expectations? If the government says, I'm not going to do this –

[00:13:08] Speaker 04:
Well, he didn't really say I'm not going to or not trying to. He just said I didn't think you could. And it seems like he was wrong as a matter of law that someone could have easily figured out if – I mean maybe that begs the question of this case. But in terms of why he thought he couldn't do it, it seems like that wasn't true.

[00:13:24] Speaker 00:
I would submit, Your Honor, that if the government says we're not going to do this, we have a right to reasonably rely on that. But beyond that –

[00:13:32] Speaker 01:
The government didn't say that. A mayor said that, a mayor who was no longer in office, and perhaps a mayor who was no longer in office because he said that.

[00:13:43] Speaker 01:
And the people of the city decided to elect a new mayor who might have a different view.

[00:13:49] Speaker 00:
I think it puts property owners in a difficult position, Your Honor, if they can't rely upon statements made by the government and disavowing a statement by the government takes away our investment-backed expectations. But beyond that, the other part of it is we're not relying on a legal case. We're relying on 31 consecutive years of the city of Santa Barbara not implementing vacancy control.

[00:14:14] Speaker 00:
Well after this happened and well after Yee For 26 consecutive years after Yee's, they said they did not implement vacancy control. So it's not just about that. It's about 31 years of continuous conduct.

[00:14:32] Speaker 04:
And is there a case that tells us when we look at what an expectation is, we should look at the precise jurisdiction, like the only issue is Santa Barbara? Or do we think about California? Do we think about the Ninth Circuit? What tells us?

[00:14:44] Speaker 00:
Well, I'm glad you raised that, Your Honor.

[00:14:47] Speaker 00:
The first is I don't know of a case that specifically says Santa Barbara, but we are doing this as an as-applied claim. I think that it is improper to expand it beyond that and base reasonable expectations on other jurisdictions.

[00:15:03] Speaker 04:
But with that – I guess it's just a troubling – I mean there's always going to be the first rent control ordinance, right? And in our circuit, generally, rent control ordinances have been upheld as not takings and similarly with mobile home places. So the idea that they hadn't done it yet, it seems to sort of undermine all of those cases because it's always going to be – there's always going to be a first.

[00:15:26] Speaker 00:
I have two responses to that, and I see my time hit, but if I can continue.

[00:15:29] Speaker 04:
Okay, as long as we're asking questions, you can keep answering.

[00:15:31] Speaker 00:
Fantastic, Your Honor. Thank you.

[00:15:34] Speaker 00:
The first is to simply say that you don't have investment-backed expectations because you are a property owner is essentially to take this as a matter of law and say reasonable investment-backed expectations don't count anymore. You as a property owner have to anticipate everything, and as a matter of law, your investment-backed expectations can never be disrupted.

[00:15:56] Speaker 04:
Well, I don't think it would be any property owner. It would be a property owner of a type of property that is used for rent that has been regulated elsewhere in the legal jurisdiction at least.

[00:16:07] Speaker 00:
Which I'm also glad you raised, Your Honor, because in the state of California – Only 93 out of 483 cities implement rent control for mobile home parks, 19%. And in the state of California, only 10 out of 58 counties implement rent control for mobile home parks. And even less of those.

[00:16:34] Speaker 04:
Why is that helpful to you? I mean, why isn't that enough to show it can be done?

[00:16:38] Speaker 00:
Well, because, Your Honor, in terms of reasonable investment-backed expectations, our reasonable investment-backed expectations can also be based on the fact that we are in the 80 percent, not the 19 percent.

[00:16:52] Speaker 01:
Does a crazy thing called democracy have anything to do with reasonable expectations? I'm sorry, Your Honor? Government has a right to change its mind, doesn't it?

[00:17:04] Speaker 00:
They do, Your Honor, but – and this is why it goes back to the city of Santa Barbara. They do, Your Honor, but here are the two important facts to that. Number one, they changed their mind.

[00:17:16] Speaker 00:
We had a right to rely upon the regulations that were in place as of the day we bought the property. The Ninth Circuit said that in Bridge and Alea. Many other Ninth Circuit cases have said that as well. So yes, they can change their mind. But when they do change their mind in a way that interrupts investment-backed expectations, that creates a plausible claim. And again, Your Honor, we have to keep in mind that the context of this is plausible pleading. If I say that we have a right to rely on the mayor and we have a right to rely on 31 years, 31 consecutive years of the government not implementing rent control.

[00:17:54] Speaker 01:
Those are legal arguments. They're not factual arguments.

[00:17:58] Speaker 00:
I think they're factual arguments, Your Honor, because I think we have a right to rely.

[00:18:04] Speaker 01:
We're not questioning whether or not the mayor made that statement. We're not questioning whether or not your client relied on that statement.

[00:18:14] Speaker 01:
What's an issue is whether or not there's a right that's been infringed when government changed its mind. Isn't that what this case is about?

[00:18:23] Speaker 00:
That's correct, Your Honor, and I'll take the word right out of that. That was not the correct word. We have a reasonable expectation based on 31 consecutive years, based upon the mayor's statement, based upon the fact that 80% of the municipalities do not implement rent control. All of these things create reasonable investment-backed expectations. If there are material issues of fact, that's a trial issue.

[00:18:48] Speaker 02:
And you might just – do you agree that you might have a reasonable investment-backed expectation – And still lose because balancing all of the pen central factors together, like you don't make out a claim ultimately.

[00:19:05] Speaker 00:
We may, Your Honor, but it doesn't matter now because this is a complaint, this is plausible pleading, and it's a low bar. We're not talking about providing evidence that we win. We're talking about have we given the government notice of a claim? If we want to come back here and have this same debate After trial, I'm more than happy to do that. But now, have we given the government notice of a plausible regulatory takings claim?

[00:19:36] Speaker 00:
with facts. We have. And that's the only bar that we need to achieve now. But because we're getting into do you win, do you not win, I don't agree with you, I disagree with you, those are trial issues, not plausible pleading issues. Or perhaps summary judgment issues. Absolutely. Yeah, they can be summary judgment issues as well, Your Honor. But that's why what the district court created here is a heightened pleading standard. Because all we're talking about is, have we given the city of Santa Barbara notice of a regulatory takings claim?

[00:20:13] Speaker 00:
And we have.

[00:20:16] Speaker 04:
We'll give you two minutes to rebuttal still, but let's hear from the other side.

[00:20:27] Speaker 03:
Good morning, and may it please the court. Pamela Graham on behalf of the city of Santa Barbara.

[00:20:32] Speaker 03:
So what the district court did here is not unique. There's a lot of cases, many cases of precedent that we've cited in the briefs where a district court has gone through on a motion to dismiss the three Penn Central factors and found that the pleading simply did not hold water. We cite a few of those cases, but I'd like to focus on one first. In Hotel and Motel Association of Oakland versus City of Oakland, which was a case by this circuit, the court explained that although the Penn Central balancing test is necessarily fact-specific, federal courts often examine these factors at the motion to dismiss stage to assure that the plaintiffs have satisfied their burden to establish the plausibility of their claims.

[00:21:18] Speaker 03:
In other words, the claims are looked at carefully to make sure that it actually holds water. That's what the district court did here.

[00:21:26] Speaker 02:
So if we start with the first factor under Penn Central, the diminution in value, the complaint alleges a 92.5% decrease in the value.

[00:21:36] Speaker 02:
Is it your view that that is not a plausible factual allegation in the Iqbal and Twombly sense?

[00:21:44] Speaker 03:
I think it's a conclusion, and really those are the arguments that we made. Of course, this was on a first amended complaint. When we raised the motion to dismiss arguments on the original complaint, Some of these same numbers were included, but this is a number that has no substantiation.

[00:22:00] Speaker 02:
So in terms of – When you say it's a conclusion, you're not saying it's a legal conclusion. It's a fact, right?

[00:22:04] Speaker 03:
I'm saying it's a bold number that does not have support. So specifically, there is a number that is quoted, the $6.9 million decrease, and there are also some allegations in terms of lost rent. but there are things that are missing. So obviously this lawsuit and this appeal are solely looking at the vacancy control ordinance. There are also rent control provisions by the city of Santa Barbara. There is no explanation in the recitation of these figures as to whether, for example, the lost rents are due to rent control generally or whether it is specific to vacancy control.

[00:22:42] Speaker 03:
So, for example, there's no discussion of how many people actually vacated mobile homes during the time that these numbers are cited for the particular years. There is no discussion of how those rents actually equate to the $6.9 million loss in value that is included in the allegations. And those numbers are very important because there's case precedent that is very clear that just citing a loss of rent and rent control cases is not enough.

[00:23:13] Speaker 03:
You need to actually show what the value is of the property pre-regulation versus post-regulation, and that's really what's missing here.

[00:23:21] Speaker 02:
You can derive one from the other, right? Because if you model the value as the discounted present value of the rent you're going to get from it, right?

[00:23:31] Speaker 03:
I think you can derive the beginning value and the end value. That's correct. So we actually discuss in our brief that if you apply these numbers and there is a purchase price of $7.5 million, What's being alleged is that the appellants only paid $670,000 for the park. These are very wild numbers. They're simply not supported. So yes, that's something that you could derive. What you can't figure into the equation is how these numbers that quote the lost rent, the compounding of lost rent, actually come up to a $6.9 million loss.

[00:24:05] Speaker 03:
And that's critical because that's what the cases focus on. They focus on Again, what is the actual taking? How does it actually get to the point of really akin to a physical taking or an appropriation based on the regulation? And that's what is missing from this complaint.

[00:24:24] Speaker 02:
Suppose that they just had one number. They just had the 92%.

[00:24:28] Speaker 02:
And they said, you know, we consulted a real estate appraiser. And he's told us that because of this ordinance, the property value has gone down by 92%. Would that survive a motion to dismiss? Yes.

[00:24:46] Speaker 03:
I think that still warrants a motion to dismiss, just based on your hypothetical.

[00:24:52] Speaker 02:
If they say we have somebody who's going to come and testify?

[00:24:56] Speaker 03:
Sure, and that may be a next step, but there needs to be more in the complaint to actually support that there's a diminution in value. From the case law, we know that the first and the second pencentral factors are most critical, so it's very important. to actually lay out where that number comes from. And I think even in your example, that's what's missing. This is still a conclusory value that's thrown out there without any support for it. And that's the basis for the takings claim.

[00:25:23] Speaker 03:
Obviously, there has to be a discussion as the district court went through on the second and the third factors, but I think those are more straightforward in this case and lacking.

[00:25:33] Speaker 03:
I think the district court was appropriate to say as well, that even assuming a diminution in value here because there is absolutely no support on the reasonable investment-backed expectation or the nature of the government action, that this case would fail on the second two elements. But I think that – correct, Judge, on your example.

[00:25:53] Speaker 04:
So would you urge us to just use the second two – the second and third elements to resolve this case, or do we need to grapple with the first?

[00:26:01] Speaker 03:
I think you – well, I don't think you need to. I think that you could find on the second two that there is simply not enough for this to go past the pleading stage. But I do think that there's enough support certainly in this record to say that there's simply no way on these facts to allege a Penn Central case. So, yes, Your Honor, I think you could conclude it on the second two.

[00:26:25] Speaker 04:
What do you think they – what would be more facts that they could have alleged?

[00:26:30] Speaker 03:
I think they could have alleged a few things that I've already noted. They could allege how many people actually left the mobile homes during the relevant time frame for purposes of the first element. That's what I'm focusing on, Your Honor. I think that they could support where they're coming up with the numbers for a loss of rent. Again, whether it is clearly based on the vacancy control provision or whether it is also some loss of rent based on a fair market value for rent overall. Because, again, there are rent control provisions generally for existing tenants.

[00:27:01] Speaker 04:
And when you say that, are you saying there's only so much that you can raise the rent in a mobile home park because people instead would just go rent apartments in the rent control departments? Right. And do those have vacancy control?

[00:27:15] Speaker 03:
Within the city beyond the mobile home?

[00:27:17] Speaker 03:
I'm not as clear on the city's rent control provisions overall. but there is rent control on mobile home parks within the city.

[00:27:27] Speaker 04:
I understand that, but someone who is new, so is coming into a vacant mobile home, would need to come into a vacant apartment. I'm just trying to understand your argument about rent control in the city generally, because someone new coming in would need there to be vacancy control in the apartment also.

[00:27:47] Speaker 03:
Well, I'm referring to the vacancy – the rent control that actually applies to the mobile homes themselves. So you're right that somebody may, as a new resident within the city, may be comparing an apartment versus actually occupying a mobile home.

[00:28:01] Speaker 03:
But really what I'm talking about is they need to support in their complaint the loss of rent that they're citing from existing tenants who continue year to year and are subject to the other provisions of the city's rent control. Oh, I see.

[00:28:15] Speaker 04:
That's what you're saying. Oh, well, I was – Gosh, I was assuming they weren't using that. That would be very weird, wouldn't it? I mean, I think they're trying to say that the difference comes from the vacant ones.

[00:28:26] Speaker 03:
Well, I don't think it's clear from the complaint. I don't think it's clear where these numbers come from. And that is something else that I think could be included to support it. So if you're going to give a round number. terms of how much value has been lost as a result of this regulation and you're going to cite the fact that you couldn't charge market rents because of the rent control as well as the vacancy provision itself you need to support where those numbers are coming from and that's lacking here so that's another way I think that they could support their allegations and you you

[00:29:03] Speaker 02:
When you say you need to support where the numbers come from, that requirement, that's a reflection of your reading of Iqbal?

[00:29:11] Speaker 03:
It's a reflection of my reading of the cases where we're actually dealing either in California with rent control ordinances or specifically vacancy control ordinances, yes.

[00:29:22] Speaker 02:
There isn't a special – requirement for how to plead loss of value in rent control cases, right? So, I mean, the principles that we're applying here are the same principles that would be applied in any case where some element of economic loss was an element of a claim, right?

[00:29:43] Speaker 03:
That's true, yes. But I think we see it applied in many cases that actually deal with rent control.

[00:29:51] Speaker 01:
The rent control motion to dismiss cases that you refer us to Those cases applied the Iqbal standard, I assume, on the motions to dismiss that were granted in those cases.

[00:30:05] Speaker 03:
That's correct, Your Honor. So just to cite one of them, it's actually an unpublished case, but it is from this court. It's Chesson, trustee of 1997 K&M Family Trust versus City of San Rafael. On that one, the court specifically focused on the lack of of an interference with investment-backed expectation.

[00:30:25] Speaker 03:
But we also cite others in our briefs that go through some of the other factors.

[00:30:36] Speaker 03:
So I'm happy to discuss the other two elements. I really think that there's There's a strong discussion in our briefs on them in terms of the reasonable expectation-backed investment. Obviously, here we've got some clear case authority. The only point that I would add to some of the things that the panel has already addressed with appellant is the point that this is a heavily regulated industry. So this is not just about what ordinances the city of Santa Barbara had in place when they implemented rent control, when they implemented their vacancy control.

[00:31:09] Speaker 03:
But it's also very important to remember that this is a heavily regulated industry and we have a sophisticated mobile home park.

[00:31:16] Speaker 04:
And when you say that, I mean, what is your answer to my question of the other side about what jurisdiction we look at? Do we look at California, the Ninth Circuit? Is there a case that tells us what the boundaries are of the reasonable expectation in terms of like what kind of regulation there could be or whether it is a heavily regulated industry?

[00:31:36] Speaker 03:
No, I mean, I don't think it necessarily is limited to California, although here the focus certainly is on California because we're looking at the city of Santa Barbara's ordinance. In other rent control cases, there have been certainly discussions of the numbers of cities within the state that actually have rent control specific to California. There are statutes that are very specific to mobile home parks themselves. Mobile home park owners are aware of these. They discuss terms of the lease, what needs to be included, what can be negotiated, how you actually challenge the terms of the lease.

[00:32:14] Speaker 03:
So all of this goes to the point that this is an industry where somebody that is buying into it, and certainly somebody that is sophisticated and has previously owned parks within California, knows that it is heavily regulated.

[00:32:27] Speaker 02:
Does that mean that in the rent control context, that prong two of Penn Central can never be satisfied?

[00:32:36] Speaker 03:
I think it's difficult. I think it's difficult in a mobile home park a rent control ordinance case for that element to weigh in the favor of the mobile home park owner.

[00:32:46] Speaker 02:
Suppose the city council had said, you know, we've heard that there are some people who think that rent control has a tendency to depress supply. That's a theory. And so we're concerned about that, so we're going to pass a resolution that says, you know, we really, really promise we're never going to impose rent control.

[00:33:08] Speaker 02:
And then a few years later they do. Would that be – or you would still say, well, it's a regulated industry. People should have known better.

[00:33:15] Speaker 03:
I would say that, and I would add to that the points that the panel has already made, which is that this is a police power of the municipality to be able to at some point, if they choose, to impose some type of rent control in conformance with statute. So I would argue even there that that is not a clear case where there's a reasonable expectation.

[00:33:39] Speaker 03:
Is it up to the mayor or who decides this in Santa Barbara? Well, it's up to the city council ultimately. Here, it was obviously something that they weighed with over the years, whether it was something that they wanted to pass to actually promote continued affordable housing, which is an issue for so many cities in California, but it is up to the city council.

[00:34:00] Speaker 04:
Is the mayor a member of the city council?

[00:34:03] Speaker 03:
The mayor, yes, has the ability obviously to to weigh in with staff on whether this is something that is appropriate and to provide recommendations to the city council. Yes.

[00:34:16] Speaker 04:
In my city, though, the mayor is actually a member of the city council. Is that true in Santa Barbara as well?

[00:34:23] Speaker 04:
I think we may not have any other questions. Thank you. Let's put two minutes on the clock for rebuttal.

[00:34:35] Speaker 00:
Thank you, Your Honor.

[00:34:37] Speaker 00:
What I'd like to start with is Your Honor's question going back that you asked me as well in terms of what jurisdictions can you look at.

[00:34:46] Speaker 00:
I think for me, I am not aware of any case, any regulatory takings case in which they looked outside of the city itself to go someplace else. I will say, candidly, I'm not aware of any case that discussed that specifically. You know, can you go inside or outside? But I don't know of any case that looked outside of the jurisdiction itself. And I think looking outside creates a monumentally heightened pleading standard and burden that no property owner can ever satisfy because it is a slippery slope that never stops.

[00:35:23] Speaker 00:
You cannot require a property owner to go one town over, two towns over, three towns over, five counties over, whatever it is, to determine investment-backed expectations, which is besides the fact that under the standard advocated by the district court, investment-backed expectations can never be disrupted as a matter of law because a property owner must expect everything.

[00:35:51] Speaker 00:
And must expect all change that is part of the heightened pleading standard that the district court adopted and going outside of santa barbara is only going to heighten it even further secondly your honor i wanted to talk about the issue that was raised by the city frequently is that you have to provide support we need more you have to provide more for your numbers And I think, Your Honor, that dovetails into the heightened pleading standard that was enacted by the district court here, which essentially is saying, I know you lost this amount of money, but I don't believe you.

[00:36:31] Speaker 00:
Prove it.

[00:36:31] Speaker 02:
Well, so, I mean, setting that aside for a moment, you know, could you provide more support? I mean, if you were to file – if you were to have the opportunity to file another complaint, I mean, you heard the points the city brought up. You heard some of the questions I asked, like, Are those numbers there? Of course. We absolutely – You didn't ask in your brief for leave to amend.

[00:37:04] Speaker 02:
So what can you say to assure us that you would be able to provide more detail?

[00:37:10] Speaker 00:
Well, the information is there, Your Honor. I mean, we have income and expense statements. We can retain an expert appraiser. We can even put that in with it. But we shouldn't have to.

[00:37:24] Speaker 00:
And I think that's the point. Certainly we can. And if given the chance to, we absolutely will.

[00:37:29] Speaker 00:
But what I do want to point the court to on this issue directly is the Supreme Court's recent decision of Burke v. Choi.

[00:37:37] Speaker 00:
That I provided in a supplemental authority back in January. It's docket number 35.

[00:37:45] Speaker 00:
And in it, they talked about the pleading standard. And what the court said that's relevant to here is Rule 8 is a ceiling. You do not have to provide evidence. You do not have to provide expert evidence. All you have to do is plausibly allege a claim.

[00:38:03] Speaker 00:
If the court wants to impose a heightened pleading standard and tells us what that heightened pleading standard is, we will meet it.

[00:38:12] Speaker 00:
Any amount that you ask us to provide, we can provide, but we shouldn't have to because a complaint is not a trial.

[00:38:21] Speaker 00:
And we should not have to provide that. Certainly we can and we will. But the point of this whole exercise, Your Honor, is that the district court below and many other courts have been subjecting property owners in rent control, this case included, to a heightened pleading standard that is turning property rights into a second-class constitutional right. And that, I think, is amplified by what the city said in their brief and what the court said, which is property owners always lose.

[00:38:52] Speaker 00:
They're not talking about the facts. Our pled facts don't matter in that equation. They don't care what our complaint says. We are a property owner, and because we're a property owner and rent control, you therefore lose.

[00:39:06] Speaker 00:
And that is a persistent, improper, heightened pleading standard that Thank you. Thank you. We have your argument. Thank you both sides for helpful arguments. This case is submitted.