Supreme Court Evaluates Escondido Rent Controls : Housing: Both sides debate the limits on mobile home rents in a case that could have nationwide repercussions.

Escondido’s mobile home rent-control law, challenged by park owners as an unfair invasion of property rights, was argued before the U.S. Supreme Court on Wednesday in a case that could affect similar regulatory laws in California and across the country.

Park owners say the Escondido ordinance deprives them of the full economic use of their property because tenants are able to reap sizable financial gains when the mobile homes are sold. Landlords, meanwhile, face restrictions on the rents they can charge and have little say in who tenants sell to.

Park owners also argue that the rent-control law amounts to a “taking” of their property, a definition that the court has narrowly applied in the past but may look more favorably on as more conservative justices have joined the bench.

Robert J. Jagiello, who argued the park owners’ case before the high court, said the ordinance transfers to tenants a number of benefits rightfully belonging to the landlord. The owner, Jagiello said, “has been stripped of his rights” by this law.

While not specifically challenging rent controls in general, Jagiello argued that the Escondido ordinance violates owners’ rights by limiting how they select new tenants and use or dispose of their property.

The result, Jagiello argued, is that tenants enjoy a virtual--and often lucrative--leasehold on their mobile homes. This amounts to a “possessory interest” in the property requiring compensation under the Fifth Amendment to the Constitution, Jagiello said.

The city of Escondido countered that the law was necessary to prevent landlords from uncontrolled rent increases in a popular form of low- and moderate-income housing.

“The park owner has lost nothing,” said Carter G. Phillips, who argued the case for Escondido. “He’s only lost the ability to charge rents above the fair market.” Jagiello, he said, was trying to undermine the city’s legitimate power to regulate based on “a fairly slippery legal theory.”

“This regulatory scheme cannot be construed as a ‘taking,’ ” Phillips told the justices.

The Supreme Court has consistently distinguished between physical occupation of an individual’s property and the regulation of that property, according to a brief Escondido filed with the court.

“If this regulatory scheme constitutes a physical occupation, it is impossible to predict what actions will be treated as takings by the courts,” the brief said.

The case before the court was brought by John K. and Irene Yee, owners of two mobile home parks, and joined by seven other petitioners. The Yees contend that under the Escondido law their tenants have been able to sell their mobile homes--”coaches” in legalese--for far more than without rent control.

Because mobile homes have become popular over the years as affordable housing--combined with their relative scarcity--park owners had the upper hand in bargaining, the city contends. Some landlords charged exorbitant entrance and exit fees. Some, by evicting mobile home owners who could not relocate elsewhere, purchased the residents’ homes at distress prices.

When rent control ordinances were enacted to offset these abuses, the financial pendulum swung too far to the tenants’ side, park owners say.

Jagiello argued Wednesday that Escondido’s ordinance, by keeping rents well below market price, artificially boosted the “premium” tenants could reap when selling their mobile homes.

Jagiello said such a premium should be construed as a property right transferred to tenants and should persuade the court that Escondido’s law fits the legal definition of a “physical taking” of property--and is deserving of compensation.

Phillips scoffed at the “magical” leap that he said park owners were asking the court to make.

Justices peppered both sides with questions, and it was clear the court was interested in the legal issues illuminated by the case.

Chief Justice William Rehnquist said early in Jagiello’s argument that he had “a little trouble grasping” how the rent control regulations amounted to a “physical occupation” of the property.

Justice Antonin Scalia said the Escondido law appears to be unnecessarily broad by giving a tenant the power to determine who can move in.

“It’s one thing to eliminate the (landlord’s) right to exclude” a tenant, Scalia said. “It’s another thing to give it to someone else.”

While regulation may be necessary to protect the rights of tenants, he continued, “this a ridiculous way to achieve that purpose,” and he questioned why the law should create windfalls for some tenants.

Justice Anthony M. Kennedy said the city appears to be taking something of value from the park owners--their potential profit from transferring tenancy to a new occupant of their land.

“That’s the value at issue in this case,” he said.

Phillips responded that the tenants’ profits are an “economic” interest born of market forces and that the government need not compensate the owners.

Escondido officials who heard the argument before Supreme Court were upbeat and pleased with the presentation of their case.

Mayor Jerry Harmon said “it was (his) gut feeling that the city would win--unless the Supreme Court wants to make new law . . . and if they do, that will open up a national debate on the impact of rent control laws and who can live where.”

Harmon graded Phillips’ performance as a “nine out of a possible 10” but thought Jagiello, who bases his law practice in Running Springs, “was over his head and very ineffective,” an opinion not shared by Jagiello.

Escondido Assistant City Atty. Jeffrey R. Epp was also enthusiastic.

“The justices asked some very good questions, but I thought we had the upper hand,” he said. “(Justice) Scalia had some very tough questions and seemed to be very troubled that (the other side) didn’t seem to see where they were going or know what they wanted.

“It was clear that the issues were exposed to strict scrutiny. You could tell the justices were up to speed and could see the weaknesses (in Jagiello’s argument.)”

For Jagiello, this was his first appearance before the Supreme Court in 28 years of practicing law. And it was the fastest half-hour of his professional life.

“They’re supposed to shine lights at you to tell you’re close to running out of time. I never saw them. Finally, the Chief Justice had to tell me to wrap it up. It was like being in a dryer for a half-hour,” Jagiello joked.

But Jagiello, whose focus is rent-control cases, was adamant about which side was the better prepared.

“On the fundamental issues before the court, we were covered, the other side wasn’t.”

On the critical issue of tenants earning high profits from selling their mobile homes, Jagiello said, “(Phillips) couldn’t answer the question of how (a tenant) could sell a worthless coach for $77,000.”

There are 28 mobile home parks in Escondido, with about 3,150 rental spaces. More than 75 California cities have similar rent control laws for mobile homes.

The state has about 450,000 mobile homes, representing 4.5% of its housing.

The case has attracted widespread attention because it raises the possibility the justices could force regulators to compensate many property owners--or repeal regulations.