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Cienega Gardens v. United States

10/17/2007

 
Opposing Regulatory Takings Without Just Compensation

On September 25, 2007, the Federal Circuit Court of Appeals rendered a decision in this case addressing the doctrine that one must view the “parcel as a whole” in evaluating an alleged regulatory taking under the Fifth Amendment.  The Court of Federal Claims had held that the Low-Income Housing Preservation and Resident Homeownership Act of 1990, Pub. L. No. 101-625, 104 Stat. 4249 (1990), and predecessor emergency legislation (collectively “LIHPRHA”), which for eight years effectively barred owners of multifamily housing projects subject to affordability restrictions from exercising contractual rights to pre-pay their mortgages and convert their buildings to full market-rate rents, effected a temporary taking.  The Federal Circuit, in an opinion that dissenting Circuit Judge Newman complains effectively revokes the court’s own 2003 decision in this case, ruled that the trial court’s methodology, supported by NELF, did not properly consider the impact of the regulation on the “parcel as a whole.”   The trial court had applied a “return on equity approach,” which compared the return the owner received on its investment for each one-year period under the challenged law to a hypothetical return on its investment without the statutory restriction.  

NELF had argued in its brief that this approach by the trial court properly reflected the actual loss caused by the regulatory change, namely the substantial diminution of the building owners’ rental income during the period when the statutes prevented pre-payment.  NELF argued that, if investors come to believe they will not be compensated fairly when the government fails to keep its regulatory promises aimed at attracting their investment in a socially desired program, they will either not invest in such programs or will require higher returns, to the detriment of all taxpayers and the very people whom the government is seeking to help (here, families in need of affordable housing).  

Rejecting NELF’s position, the court remanded the case and instructed the lower court to apply standards that appear designed to result in a determination that no regulatory taking has occurred despite clear and costly defeat of property owners’ reasonable investment-backed expectations. Cienega Gardens petitioned the U.S. Supreme Court for a writ of certiorari and NELF filed a brief in support of that petition reiterating the key arguments made in its previous brief.

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