Alameda County Board of Supervisors
SAN FRANCISCO - A federal judge won’t let Alameda County rental home owners continue their lawsuits claiming a Covid-era eviction ban became an unconstitutional regulatory taking when the bans continued for years, severely harming the landlords financially.
U.S. District Judge Laurel Beeler issued an opinion Aug. 29 granting the Alameda County Board of Supervisors’ motion to dismiss amended complaints from private property owners and organizations like the California Apartment Association, who together claimed millions of dollars in losses, interference with their expected return on investment and an improper shift of social costs of housing from the government to private businesses.
According to Beeler, the landlord groups invoked a 1978 U.S. Supreme Court opinion, Penn Central Transportation v. New York, to argue a standing ban on evicting nonpaying tenants results in an imbalance of the economic impact against the necessity of the government’s actions. She dismissed their initial complaint for failure to allege “a severe economic impact in the form of reduced property values,” but allowed them to amend the pleadings.
Despite further allegations, Beeler again sided with the government, which continued to claim insufficient argument of economic impact “particularly given the moratoria’s limited duration of approximately three years and the ability to sue non-paying renters for breach of contract.”
Gov. Gavin Newsom’s March 2020 emergency declaration allowed local governments to temporarily limit eviction powers. Although that provision expired at the end of September 2020, state lawmakers enacted the COVID-19 Tenant Relief Act extending certain provisions to the end of September 2021. Alameda County took its own actions in April 2021, ultimately terminating its state of public health emergency and eviction ban effective April 29, 2023. An Oakland ban, with different terms, extended into that July.
The two lawsuits comprise allegations from more than 60 landlords and property management firms encompassing more than 90 properties. Many detailed allegations of tenants who refused to pay rent or cooperate with rental assistance programs. Some claimed the tenants heavily damaged or destroyed their properties and one alleged a tenant who wouldn’t leave or pay rent was selling rooms in a home they didn’t own on short-term rental websites.
Using the Penn Central framework, Beeler wrote, “an allegation that a regulation has diminished the property’s value or destroyed the potential for its highest and best use does not, without more, constitute a taking” on par with the government ousting a property owner or directly appropriating a private parcel. She also said there doesn’t appear to be a record showing a court found a taking where the alleged value diminution was less than 50%.
Looking at the properties involved in the complaint as a whole, Beeler continued, the landowners alleged nine met that 50% threshold, but she said the plaintiffs didn’t respond to the government’s contention that a gross-rent multiplier used to reach that level didn’t account for the fact the eviction freezes were temporary, conceding that argument.
“The plaintiffs instead rely on their expert’s assessment of the moratoria’s effect on property values,” Beeler wrote. “Assuming that methodology is valid, the value of rental property is estimated by dividing a property’s net operating income by a hypothetical capitalization rate, ordinarily 6.5%, but increased by two or three percentage points due to the moratoria. Assuming a capitalization rate of 9.5%, the resulting estimated decrease in property value is 31.6%. The plaintiffs did not allege a basis for the decrease in value of three properties (from 52.99% to 55.16%). Presumably the decreases — like the others in the complaint — are based on the gross-rent multiplier. If they were not, they are too low to constitute a taking.”
Beeler further rejected arguments about investment-backed expectations, noting landlords “operate in a regulated field and cannot reasonably expect freedom from landlord-tenant regulation. The temporary nature of the moratoria and the availability of back-rent recovery mitigate any interference. As the court’s earlier summary-judgment order recounts, these issues — while substantial — do not impair the landlords’ reasonable investment-backed expectations.”
Finally, Beeler said the eviction freezes didn’t have the effect of a physical taking, but where rather a public program adjusting economic costs and benefits in promotion of common good. She dismissed all remaining claims without leave to amend.
The landlords and CAA are represented in the action by attorneys Christopher E. Skinnell and Hilary J. Gibson, of the firm of Nielsen Merksamer, of San Rafael.
