Transcript

IN THE SUPREME COURT OF THE UNITED STATES

JOHN K. YEE, ET AL., Petitioners v. CITY OF ESCONDIDO, CALIFORNIA

No. 90-1947

January 22, 1992

The above-mentioned matter came on for oral argument before the Supreme Court of the United States at 11:03 a.m.

APPEARANCES:

ROBERT J. JAGIELLO, ESQ., Lake Arrowhead, California; on behalf of the Petitioners.

CARTER G. PHILLIPS, ESQ., Washington, D.C.; on behalf of the Respondent.

PROCEEDINGS

11:03 a.m.

CHIEF JUSTICE REHNQUIST: We'll hear argument next in No. 90-1947, John K. Yee v. City of Escondido.

Mr. Jagiello, you may proceed.

ORAL ARGUMENT OF ROBERT J. JAGIELLO ON BEHALF OF THE PETITIONERS

MR. JAGIELLO: Mr. Chief Justice, and may it please the Court:

The tenant who sold the coach to Mrs. Morrison in the Azul case got $77,000 for a $5,000 coach. And we proved that trial in that case that it was the direct result of vacancy control, could not have occurred without vacancy control, and all the legal arguments in the world can't disguise that fact.

Now how did it happen? It happened because the rent control ordinance gives two sets of rights in the property to the tenant in residence. The first are possessory, and the second relate to rents. What are those possessory rights? The right to occupy at a reduced rate in perpetuity, and secondly, the right for the first time to sell that right without the consent of the landlord to an incoming tenant. With respect to the rents, the tenant receives the right to increase the rents, to collect the increase, and to keep the proceeds so collected.

QUESTION: Do you think the ordinance requires the owner of the property to rent in perpetuity?

MR. JAGIELLO: Yes, it --

QUESTION: Can't the landlord decide just not to use the property for this purpose anymore?

MR. JAGIELLO: No, not effectively. It's not a practical alternative. The reality is --

QUESTION: Well, is that what the ordinance says, or you say it's just impractical?

MR. JAGIELLO: No, what happens is that there's a State system for going out of business that, in conjunction with local ordinances, precludes that alternative as a practical reality. For example, I'm in a case where we have finished 4 years of administrative hearings where we've just gotten the administrative record, and the condition that they imposed to going out of the business was that we pay the in-place value, exactly the harm that we're talking about here. And now we've got 3 or 4 more years of litigation while we try to contest the constitutional validity of imposing a condition of that nature upon us as a condition for our going out of business. It's not a practical alternative.

QUESTION: Anyway, that's the State law that --

MR. JAGIELLO: Well, it happens --

QUESTION: It's not the ordinance.

MR. JAGIELLO: No, but it happens to be the case that the local agency is given the right under State law to impose the conditions, and it's the local agency that then does impose the conditions.

QUESTION: But it will be a practical alternative if you win this other case, which I'm sure you expect to win, right?

MR. JAGIELLO: I would have come all the back here in about 7 years, Your Honor.

QUESTION: But we really don't know that it's not a practical alternative. You assert that it ought to be a practical alternative. You're asserting that in another case.

MR. JAGIELLO: I know that right now nobody's gotten out of business, and that we've been litigating it for 4 years.

QUESTION: But if you win, everybody will know it is a practical alternative.

MR. JAGIELLO: If we win in this case or the subsequent case?

QUESTION: Well, both of them.

(Laughter.)

MR. JAGIELLO: If we win in this case, we'll short-cut the other one because we will have established that they didn't have the right to impose that condition. It is an unconstitutional taking.

But we're talking about a transfer of rights here. This is not the garden-variety police power case that --

QUESTION: Is that other case in the appellate courts or still before the agency?

MR. JAGIELLO: We just got the administrative record 4 years down the line, Your Honor, so we're filing in the lower courts in California at this moment.

QUESTION: It's not a reported case, then?

MR. JAGIELLO: Not at this time, it is not.

We're talking about a transfer of rights, not a garden-variety police-power case where there's a diminution of the value of the property. This is out and out expropriation of real property rights and a transfer to a favored group of citizens.

QUESTION: Mr. Jagiello, why don't you slow down a little bit in your presentation. I think we could follow you more easily.

Did this case go to trial?

MR. JAGIELLO: No, this case did not. It's a pleadings case.

QUESTION: A demurrer was sustained?

MR. JAGIELLO: Correct. And we're here on the pleadings. And as a consequence, we have to look to the pleadings. Those are the facts that are properly before the Court. And what do the pleadings tell us? That an ordinance was passed, the tenants were given the right to occupy at a reduced rate. They can sell that right for the first time to an incoming tenant. That they do sell it and that they receive a profit when they sell it by selling the coach for more than it's worth, and that premium value represents the value of the interest of property that are transferred under the ordinance.

What is the city's defense to this claim? Stripped of its sociology, it's basically this: that the tenants own a portable structure which they bring onto my client's land on wheels. While it's parked on my client's land, they put it on jacks. And when it gets old enough, or if it becomes obsolescence and the tenant decides to remove it, they put wheels under it again and they haul it off.

And the city says, under the circumstances, this is such a unique relationship that we are justified in creating thousands of estates in land in transferring the value to the tenants who own the portable structures.

And what are the justifications given for this -- that is (1) it preserves low- and moderate-income housing, and (2) it protects the investment. We need to examine this claim from a number of perspectives. First, three Federal courts of appeal have held this to be a physical taking because it is. The local ordinance requires that we renew and that we cannot terminate any leases for present tenants as well as prospective tenants.

QUESTION: Would you describe exactly what it is that is the physical taking here? Because I have a little trouble grasping that.

MR. JAGIELLO: Yes, Your Honor, the ordinance by itself achieves this effect. You have -- prior to the passage of the ordinance, the park owner has effective ability to control who will get an invitation onto his land. And if I could put this in context, it is the Florida Power case that says it's the invitation that makes the difference.

And Loretto tells us the invitation has to be offered by someone who has the authority to give the invitation. As this Court will recall in Loretto, the prior owner -- the cable company was not a stranger to the premises. The prior owner had given consent to be there. Then Mrs. Loretto came on, bought the property, looked around, told the cable company we're revoking your invitation. And under those circumstances, this Court had no problem in finding that continued occupancy under compulsion of the law, was a physical per se taking.

Exactly the same thing occurs here. The owner remains the same, the tenants are different, and the departing tenant who doesn't have the right but for the law invites the incoming tenant in, who's then an interloper with a Government license, and the ordinance causes the owner to become disabled from controlling that access. And the way --

QUESTION: So you say the incoming tenant is the one who is physically occupying the property against the will of the owner, corresponding to the cable company in Loretto?

MR. JAGIELLO: Certainly the incoming tenant you could obviously argue in a typical rent control case, which this is not, that it's the holdover tenant as well. But the incoming tenant has been invited onto the premises by the departing tenant. He doesn't have the authority to extend the invitation. Before the ordinance was passed, the park owner had the power and the right to control who would get an invitation onto his property because he would exercise that control by insisting that the incoming tenant agree to rental terms. And if that incoming tenant did not agree to the rental terms, the park owner had every right not to allow him onto the property or to extend the invitation.

QUESTION: Is every anti-discrimination ordinance a taking of property, then?

MR. JAGIELLO: No, it's not, Your Honor, and we're not claiming --

QUESTION: But that's what they do. They say you can't keep people off your property or out of your business just because you don't like their race, religion, or nationality. Is that taking?

MR. JAGIELLO: We're certainly not claiming that kind of right here.

QUESTION: I guessed you weren't, but tell me why it's any different.

MR. JAGIELLO: Because there are overriding and overarching values that are to be served.

QUESTION: It becomes a taking if there's an overarching -- it ceases to become a taking if there's an overarching value? I thought it was still a taking.

MR. JAGIELLO: Well, it can be the case, of course, that the person is there on the premises, but I believe that we finally decided there are purposes that are so substantial and overarching that we can require that people be treated without being discriminated against.

QUESTION: Well, we've never held, so far as I know, Mr. Jagiello, that where you're talking about a physical taking, that the governmental purpose made any different at all -- any difference at all, however magnificent it may have been or however poor it may have been. We -- I don't believe we've ever used governmental purpose as a basis for evaluating whether there's been a physical occupation.

MR. JAGIELLO: Well, that's true. And in terms of determining --

QUESTION: Then how does your answer to Justice Scalia make any sense?

MR. JAGIELLO: Well, the problem that I'm facing here is we are facing two fundamental kinds of rights that collide with each other, and that case is not the case that's presently before the Court. And so I can't resolve in an instant the colliding of those particular rights. I don't know how that will come down when that becomes an issue.

QUESTION: Well, can't you say that in an anti-discrimination ordinance, something like an ordinary rent control ordinance limits the authority of the landowner. He can't charge exactly what he wants but -- in a rent control case. But that -- we've upheld ordinary rent control as not anything like a physical occupation.

MR. JAGIELLO: Correct. And this is absolutely unlike ordinary rent control because here the owner of the property loses the ability to decide who's going to occupy his property. The tenant in a typical rent control case does not have the power to determine the identity of the new tenant, to set the terms of the occupancy in terms of its rent, nor do they have the right to sell the -- the right to occupy at a reduced rate.

QUESTION: Well, to a large extent, that's true in the anti-discrimination ordinance. Is the difference the loss in value to the owner?

MR. JAGIELLO: No, it's not. In the case of the physical taking, it could well be the case that there'd be insignificant loss of value, and it still would be a physical taking. The difference is that we're making --

QUESTION: So we're not concerned here with the extent to which the economic expectations and the economic real values of the owner are affected?

MR. JAGIELLO: Well, we're concerned, of course, if we look at it as a regulatory taking, which I'll discuss in a few minutes, but we are not concerned with it if it's viewed, as the three lower courts of appeal viewed it, as physical taking, because there the economic consequences are not particularly relevant in resolving the issue of whether or not the -- the conduct is unconstitutional.

QUESTION: Also, can I ask one question? It's sort of a background question. As I understand it, some of the restrictions that make ownership costly in this area are imposed by a statute, the California Mobilehome Residency Law. And I understand you haven't challenged that statute. Is it your position that if that statute were repealed entirely that you would still have just as strong a case?

MR. JAGIELLO: Oh, of course, because the ordinance itself provides for rent control and eviction control. It states that we cannot refuse to renew, nor can we terminate any lease for present tenants or any prospective purchasers as to all spaces not covered by the Mobilehome Park Residency Law. So that if tomorrow, or 2 hours ago, the State Mobilehome Park Residency Law were repealed, the ordinance itself would accomplish exactly the same end.

Now --

QUESTION: I don't see how the rent control has anything to do with your taking claim. Is that an essential part? I mean, wouldn't it be a taking whether or not they fixed the rents?

MR. JAGIELLO: You mean and they allowed the tenant --

QUESTION: They just say people in -- people that are currently occupying you must allow to continue to occupy, and you can't turn down future tenants for -- you know.

MR. JAGIELLO: If they said that, you may have just a physical taking on that basis. But we have a different mechanism that works here. After the ordinance is passed, the park owner is no longer free to tell the incoming tenant I will invite you on to these premises, if but only if we come to an agreement on rental terms. And if we do not, prior to the passage of the ordinance, the park owner has the right to tell the tenant not to come on. That changes. Once the ordinance is passed, the tenant for the first time is vested with the absolute right to invite the tenant on without a veto power of any kind over the park owner, and the landowner is stripped of his right and his power --

QUESTION: Well, it's --

MR. JAGIELLO: -- to condition his consent.

QUESTION: Excuse me. It's not absolute, is it? I mean, he has the right to refuse if he has reason to believe or reason to prove -- the basis to prove that the new tenant probably won't or cannot pay the rent, or won't otherwise abide by the rules of the park. So it's not an absolute right.

MR. JAGIELLO: That's correct, and I stand corrected on that. There are those -- mild -- modern -- strike that -- minor abilities on the part of the park owner to still control who comes on. But the plain fact is that the massive loss of control that he experienced by being able to say to somebody, unless we come to terms that are agreeable, you can't come on has been transferred to the tenant, and the park owner himself has been stripped of his right and his power.

QUESTION: But in an ordinary rent control ordinance, which you say you don't challenge, and which the court has upheld, the landowner, the landlord does not have the right to insist on rental terms that he wishes to impose.

MR. JAGIELLO: But what he can do is he can still distribute the benefits in a variety of ways. He could give the apartment with its rent control benefits to his friends, to his relatives. He controls the distribution of the benefits, and he doesn't have to accept onto premises any particular tenant as long as he has a reasonable and nondiscriminatory basis for doing so.

But here, the landlord can no longer exclude. He has lost the right to exclude, and the ordinance transfers that right, and thus, it's a physical taking.

With respect to the --

QUESTION: To whom was that right transferred?

MR. JAGIELLO: It was transferred to the tenant, Your Honor, who now has the right to determine who comes in by selling his coach.

QUESTION: So the transfer is between landlord and tenant, not with the City of Escondido.

MR. JAGIELLO: The City of Escondido didn't get the transfer; it causes the transfer. It didn't get the transferred value.

We can also look at takings as a continuum, with Loretto on the one end and Agins on the other, and ask ourselves, where we have an expropriation of the right to impose rent increases, collect the rent increases, and keep them, and transfer that right over to the departing tenant, have we reached that point that Hodel v. Irving tells us, that we have a fundamental attribute of property which is expropriated or extinguished? We believe so, and it's a taking.

Let's look at Mrs. Morrison's case again. The tenant got $77,000, which with a cap rate of 10, comes out to about $650 a month. Her rent was $340. He took two-thirds of the rent due to the property, pocketed it, and left the premises. And we submit that under those circumstances, that is an out and out expropriation of property and a taking under the Fifth Amendment.

QUESTION: But is that different -- I can remember back many years ago during rent control when the tenant could get a lot of money for the furniture when there would be a new tenant coming in.

MR. JAGIELLO: Sell the refrigerator.

QUESTION: Is that basically different?

MR. JAGIELLO: It looks a lot like it. That it's key money -- that's what it was called in an apartment context, and generally rendered illegal.

QUESTION: Did that constitute a taking in that context?

MR. JAGIELLO: It sure did.

QUESTION: It did.

MR. JAGIELLO: Yes.

And with respect to --

QUESTION: What about price controls on theatre tickets. Let's assume a municipality does that and the tickets can't be sold above $20. And of course, they're immediately scalped for $100 if there's a scarcity of them. Is that a taking of property?

MR. JAGIELLO: Conceivably it could be. I think you have to look at the purpose.

QUESTION: You have the same -- it's the same thing that you're talking about here, isn't it?

MR. JAGIELLO: Yes, if you look at the purpose, because the purpose is not served of keeping the prices down to the $10 or whatever the limit was, $20, on the tickets. Absent a justifying purpose --

QUESTION: Any regulation that enables somebody else other than the person who without the regulation would make the profit to make the profit is a taking.

MR. JAGIELLO: Not necessarily. Here we have other elements. We've got a transfer of an interest in real property in order to create then the value or the wealth. And that transfer of the interest in real property, that is the right to determine who will occupy it, and an elimination of the right to exclude, makes it fundamentally different than just a price control kind of case.

And that's why rent control in this context, in a mobile home park context, involves the transfer of real property interest to people who have personal property.

QUESTION: Would the constitutionality be saved if the city went ahead and regulated the -- the price of the sale of the homes? Put a ceiling on it so that the tenant couldn't get it.

MR. JAGIELLO: No, it wouldn't. You'd still have the physical taking. It's the departing tenant who can determine --

QUESTION: So the profit by the tenant is not a part of your case, then.

MR. JAGIELLO: It is a part of our case, but if we -- to address the hypothetical --

QUESTION: If you eliminate it by putting a ceiling on, it doesn't solve the problem.

MR. JAGIELLO: No, but if you -- I'm just addressing the hypothetical. And that is if you put a limit on the price, you would still have a physical taking because the departing tenant still determines who's invited onto the property, and the owner has lost the power to exclude.

Now, under Nollan, we have a -- the test is substantially advanced: a legitimate governmental interest. What is the governmental interest in Mrs. Morrison's case, when a tenant takes $77,000, puts it in his pocket, and leaves the premises forever burdened with the additional cost of occupancy? I submit there is no public purpose, and if you do it 1 time or 3,000 times, a private purpose does not become a public purpose.

But the city also gives us two other reasons. One is to preserve low-and moderate-income housing. That's by and large disappeared from the briefs. We've had two trials on the issue. We proved to the trial court's satisfaction that it --

QUESTION: I thought this came up on demurrer.

MR. JAGIELLO: Yes, this case did come up on demurrer, Your Honor. I'm referring to the facts in the Azul case, which were noted in the --

QUESTION: The what case?

MR. JAGIELLO: The Azul Pacifico v. the City of Los Angeles.

QUESTION: The Ninth Circuit case?

MR. JAGIELLO: Yes, Your -- that's correct, Your Honor.

QUESTION: So, when you speak of Mrs. Morrison, you're not talking about a party to this case.

MR. JAGIELLO: I'm talking about the example used by Judge Kazinsky in his decision to illustrate the core problem of the case, that there's a massive transfer or wealth to a departing tenant who owns a depreciating asset.

And so --

QUESTION: Was that based on a trial transcript there?

MR. JAGIELLO: Yes, it was. I took her deposition, Your Honor, and what occurred was that she testified she bought the coach. I asked her --

QUESTION: All I wanted to find out was whethen it was based on a trial transcript. I've now found that out.

MR. JAGIELLO: Okay, fine. Thank you, Your Honor.

QUESTION: So why is it relevant in this case?

MR. JAGIELLO: Because it show what happens in fact, as what is alleged in theory in this case. We were thrown out on the pleadings. We never had an opportunity to prove the facts, but the Azul case provided us with the factual context we need to show how this actually occurs, as opposed to just stating that it occurs as a matter of theory.

QUESTION: You've said twice, I think, that three courts of appeals agree with you?

MR. JAGIELLO: That's correct. Two Ninth Circuit decisions and the Third Circuit in Pinewood v. --

QUESTION: Well, that's not three courts of appeals, that's just two.

MR. JAGIELLO: Okay. Two courts of appeal. Two different panels at two different times in the Ninth Circuit.

QUESTION: Well, maybe the Ninth Circuit is different.

(Laughter.)

MR. JAGIELLO: Okay. It could be. When I appear before the different panels, sometimes, it seems like it.

In any event, they -- the purpose is to preserve low-and moderate-income housing, we're told. And all of a sudden that pretty much has disappeared because we demonstrated that didn't occur. So --

QUESTION: You -- every time -- you say there's been a massive transfer of wealth. Except for the adjective massive, there's always a transfer of wealth whenever there's price control. That's the object of price control.

MR. JAGIELLO: That's correct, but what you don't --

QUESTION: So every price control does what you're talking about. I mean, the consumer gets wealth which he would otherwise be out.

MR. JAGIELLO: But he doesn't get an estate in the provider's land. They didn't give him a life estate in a bottling company. I mean, the reality is that -- I was thinking about Keystone case for a while, and I said, well, there's a possible argument for transfer of wealth. The house if it's up is worth a lot more than it falls in a hole. But they didn't give the owner of the house the right to and mine the coal. It didn't give the owner of the house the right to go and occupy the mine. The fact is that this of necessity involves the creation of an estate in land of another and transfers the wealth of that land to the tenant.

And the argument that they then advance is that this is justified because it protects the tenant's investment. That raises at least two factual questions to which we're entitled to a trial. One is, what is the extent of the investment? Ninety-six percent of the coaches in California are 10 to 50 years old. Many of them cost $5,000 brand new. And if we have a chance to a trial, we'll prove that a lot of the coaches have no significant investment at all.

And as well, what we've got is a question: can an end be reached? If you're going to substantially advance an end, it presumes that the end can be accomplished. And we submit, and expert testimony will be offered, you cannot stop a wasting asset from depreciating. It's of the very nature of it, and this ordinance and their justification for it requires that you revoke the laws of economics as they relate to personal property.

QUESTION: I'm still a little puzzled on -- assuming that rent control is permissible, what would cure the constitutional violation that you see? The right to pick a tenant and charge him whatever you want? Or the right to just pick a different tenant that you happen to like his looks better or something?

MR. JAGIELLO: What cures the problem in this case is to permit the park to raise rent at the time of sale so that they --

QUESTION: But then you're attacking rent control, period.

MR. JAGIELLO: No, I'm not. What it does is that's the technique and device that the owner has available to select the identity of the incoming tenant, as well as to capture -- there were two sets of rights -- to capture the rights to rents which are otherwise transferred to party in tenant.

QUESTION: But the heart of your case, then, is the inability of the landlord to raise the rent when there's a change in the occupancy.

MR. JAGIELLO: No, there are two elements to my case. But that will solve the problem. The element of the case --

QUESTION: Well, I'm just wondering if it would be constitutional for the city say the same rent shall apply after a change of ownership but you can put in any tenant you want to. Would that be constitutional or unconstitutional?

MR. JAGIELLO: That's -- that, it seems to me, is getting closer to a constitutional result, as long as you can choose the tenant, if I understand the hypothetical.

QUESTION: Even though you get no monetary benefit out of the choice then? What the monetary loss?

MR. JAGIELLO: As -- because the tenant as a consequence -- I presume that part of it also is that the tenant cannot raise -- cannot sell the coach for more than it's worth. Was that part of the hypothetical?

QUESTION: The hypothetical simply is that you may pass on any tenant you want, the qualification of the tenant, but you may not raise the rent upon the transfer of ownership.

MR. JAGIELLO: Right. That would still be unconstitutional because, as I said, there two classes of rights: possessory interests and the rights to rents which are real property.

QUESTION: But under my hypothetical, how is that different from any other rent control ordinance?

MR. JAGIELLO: You can select the tenant -- because the tenant in a typical apartment situation cannot sell the right to occupancy. And as I understand your hypothetical, the tenant can still charge more for the coach than he would be able to without the --

QUESTION: Why can't he sell? He says, I'll leave -- says the tenant, I will leave -- I'm willing to give up my apartment so you can rent it if you give me $5,000.

MR. JAGIELLO: Generally --

QUESTION: That sort of thing used to happen during rent control in New York, Washington, Chicago.

MR. JAGIELLO: Well, it's been made illegal in a lot of places where we've got new generation rent controls as a public purpose that the legislation wanted to serve.

QUESTION: And I'm assuming always that the rent control enables you to get a fair return on your investment.

MR. JAGIELLO: Well, that's not the case. What happens that -- in this case, for example --

QUESTION: But don't we have to assume it's the case because the ordinance provides for a fair return?

MR. JAGIELLO: Well, provides for a fair return, but it also contains a provision that rents are rolled back 2-1/2 years. So I don't know how you get fair return by rolling back rents 2-1/2 years.

QUESTION: Well, do we assume that the rent control is invalid because the rents are not high enough?

MR. JAGIELLO: I am not making that argument --

QUESTION: So don't we have to assume they are high enough to give you a return on your capital?

MR. JAGIELLO: Well, the plain fact is they are not high enough. And we've got a 2-1/2-year rollback.

QUESTION: Well, you didn't raise that in your petition. You didn't claim in your petition for certiorari that the -- you didn't get a fair return on the profit.

MR. JAGIELLO: Absolutely. It's never been part of the case. And --

QUESTION: Well, why bring it in now?

MR. JAGIELLO: I thought I was asked a question --

QUESTION: You're going to win nothing if you bring it in now. I mean, even you win the case, you're going to have a decision that it's not constitutional to fail to provide a fair return on the investment. That's not a big deal.

MR. JAGIELLO: Well, I was --

QUESTION: We've said that before.

MR. JAGIELLO: I thought I was responding to a question, frankly, Your Honor. And --

QUESTION: You say that the county has no public -- the public purpose that the county asserts that it has, and I'd like to hear you tell me why that isn't true, is that it is really just counteracting what would be a market imperfection. And that is, when a tenant leaves, or wants to leave, it's very expensive to cart off this mobile home that isn't worth very much money anywhere else, and hence, the landlord can in effect, extract from the would be departing tenant a payment in order to obtain the profit from that inconvenience.

MR. JAGIELLO: Well, first of all, you know, this case is here on the pleadings, and those aren't the facts that are part of the record, and they hypothesize that as a purpose. But the reality is that the coach has a certain value, a box value, that's determined by traditional methods of evaldation, like the Kelley Blue Book, and that box value is obtainable whether it's on the pad or off the pad. But that's all the tenant owns.

So the maximum exposure that the tenant faces, as pointed out in Hirsch v. Hirsch article, is the cost of moving. And the cost of moving, if it turns out to be $1,500, translates into a $12.50 rent increase per month. That's the maximum leverage that the landlord has over the tenant under those circumstances. And for that, you don't give a $77,000 estate in land in order to protect against that kind of overreaching, which is what is occurring under the present rent control ordinances.

I think as well, and somewhat on point there, is that their argument also is a new wrinkle that high rents cause distress sale prices. What the reality is that in fact what we have found, the only systematic study is Hirsch v. Hirsch, that no coaches are selling for below Blue Book value anywhere in the State of California but for two rural jurisdictions, where the plentitude of space is apparently puts a down pressure on the selling price of coaches.

But secondly, as a matter of logic, the park owner can only raise rents at the time of sale. He wants the sale to occur and, as a consequence, would facilitate the sale.

And third, it violates the close-fit notions of Nollan in any event because if you're concerned about the park owner depressing prices so that he can buy the coach, pass a law that says something like the park owner can only buy at Blue Book value and not less. Or, if you're concerned about a third person coming in, say to the third person -- or say to the park owner, you can only charge rents that are charged in comparable spaces in areas that are near us in non-rent-controlled environments.

QUESTION: Now let me just make sure -- so it would be constitutional for the State to pass a statute saying that no more than the Blue Book value can be charged?

MR. JAGIELLO: No, you can't buy for less than the Blue Book value if you're the park owner in order to avoid the sales --

QUESTION: Suppose my statute -- you have a statute which says the tenant can charge no more than the Blue Book value.

MR. JAGIELLO: I don't know if that would be constitutional because what I think would occur there is that the tenant would argue that you -- the ordinance creates the power for somebody else to take their property for less than its value. I mean, it's conceivable. But, you know, it looks like a typical rent control case or price control case to me. I suspect it's a constitutional exercise of power.

QUESTION: But in that case, your clients would not receive this value that you're complaining that you've lost here.

MR. JAGIELLO: Within the context of a mobile home coach, that's correct that they wouldn't have the monetized rents transferred to the departing tenant, but they would have lost their right to control occupancy, they would have lost the right to exclude. So there's still a taking, even though you control the price of the coach, and it can't be sold for more than Blue Book value.

QUESTION: So that it would still be a taking, even if under the rental agreement the tenant as a matter of contract could not sell for more than the Blue Book value when the tenant left. You'd still say there was a taking here.

MR. JAGIELLO: No, it depends on what the provisions of the lease were with respect to assignment and a variety of matters like that.

QUESTION: Well, what if the only relevant provision were the limitacion on sale price to Blue Book value, other things being equal? Other things being equal to what you've alleged, would you still say there was a taking?

MR. JAGIELLO: Has the tenant -- does the lease agreement provide that the tenant has the right to assign or not assign? Is that written in lease as well? I don't know because I'm looking at who has the right to decide --

QUESTION: Well, I presume the tenant can do exactly what the tenant can do now, except the tenant cannot reap the windfall.

MR. JAGIELLO: It still would be unconstitutional if what occurs is that we are limited to controlling the access to the property because we no longer have the ability to essentially act as a veto power by requiring a rental agreement from a new, incoming tenant before they come in.

In any event, what you can't do --

QUESTION: I think you've answered the question, Mr. Jagiello. Your time has expired.

MR. JAGIELLO: Thank you, Your Honor.

QUESTION: Mr. Phillips, we'll hear now from you.

ORAL ARGUMENT OF CARTER G. PHILLIPS ON BEHALF OF THE RESPONDENT

MR. PHILLIPS: Thank you, Mr. Chief Justice, and may it please the Court:

Petitioners' counsel has explicitly conceded, both prior to this appearance and here before the Court today, that if this case involved merely rent control, there would be no serious constitutional issue posed. Petitioners, prior to this argument, seemed to have conceded because they did not challenge the State statute itself, that California's residency law, which requires park owners to permit homeowners to sell their homes in place and to lease those properties to an incoming home purchaser, is itself not unconstitutional. I assume that concession to have been based on the Connecticut decisions that this Court has summarily affirmed in the past.

QUESTION: I understood him to say that the same -- essentially the same provision was in the rent control ordinance, and that's why he didn't challenge the statute. Do I misunderstand that?

MR. PHILLIPS: He did say that. The problem with that argument, Justice Stevens, is that the rent control in Escondido simply fills in interstitially where the State statute otherwise doesn't control. So by its own force, at least as things stand right now, that there is no provision that you could enforce through city law to guarantee the hold over tenants' rights under those circumstances. Those rights are derived from the State law. It's only in those areas where there's no homeowner subletting --

QUESTION: He told me the case would be just as strong if they repealed the statute, and you're saying that he just hasn't read the whole ordinance.

MR. PHILLIPS: Well, the problem if they repeal the statute is then you have a statutory interpretation question of what it means to say that where the protections of the State law do not apply. And if they don't apply because it doesn't exist, I don't know what the city would do with that particular circumstance.

QUESTION: Well, it's one thing to talk about someone -- your opponent's concessions. It's another thing to argue your own case. I think you really argue your own case now. What you're saying is perhaps that he should have conceded, but I agree with Justice Stevens. I don't think he did.

MR. PHILLIPS: Fair enough. Although I don't read him to have challenged in any of his briefs directly and exclusively the notion that the holdover tenancy provisions that are embodied in the State law are by themselves unconstitutional. Certainly no -- as I understood his argument, he was saying that there are these two -- two courts of appeals who have reached these conclusions, neither of which has been prepared to condemn the holdover provisions by themselves. And in fact, the Ninth Circuit expressly recognized that that's a very different case. So -- but you may be right. It's not a concession, but it seems to me settled law at this stage, that those two forms of regulation are clearly permissible.

Where petitioners, I think, now urge the Court to draw the constitutional line is when these two forms of otherwise perfectly permissible regulation overlap. And in that case, their argument is that this is no longer even a more serious regulatory takings issue under the Fifth Amendment, but that these two forms of regulation are mystically converted into an occupation of physical property, and therefore, requires per se condemnation under the Constitution.

There are two fundamental flaws in the petitioners' arguments that will be the main theme of my argument today. First, the presence of more than one form of regulation by a governmental entity may complicate the regulatory takings analysis, but it does not convert the regulatory scheme into an occupation or into physical invasion. And it seems to me it particularly does not raise any more serious constitutional concerns here, with each layer of regulation is designed to protect a segment of the society that is clearly requiring protection by the Government because they are unable economically to protect themselves.

This leads me to the second flaw in the petitioners' argument. And that is that they do not have a legally protected property interest that they claim to have been taken. I heard counsel today indicate that there's an estate in land, that there's a property right, that there's a massive shift in economic resources. I heard all of those things. What I never heard from him is what it is that was taken. What is that property interest that the State would recognize --

QUESTION: Well, I thought he said it was the right to exclude others from his property --

MR. PHILLIPS: But, he has --

QUESTION: -- the owner's property.

MR. PHILLIPS: Well, he has -- he does say --

QUESTION: I understood that was what he said was taken.

MR. PHILLIPS: Well, I didn't understand him even actually to have said that. All I heard him say was in more general terms. I do think it's fair to say from his brief that there has been an argument that a right to exclude from the property is a problem. Of course, the difficulty that that poses is that that same right to exclude would create problems in the civil rights laws, and yet he conceded quite plainly that at least on an occupational theory, that those provisions are in no sense placed into jeopardy. And it's simply impossible to reconcile an argument that says that those statutes are clearly permissible, those occupations, in quote, not troublesome at all, and yet this one, which involves simply sort of economic regulation, is suddenly rendered a per se unconstitutional act.

QUESTION: I think the argument he's trying to run, I must -- as I understand it, is that it's one thing to eliminate a right to exclude. It's one -- it's another thing to take it from me and give it somebody else. That somehow the latter constitutes a taking even though the former doesn't. And what has effectively occurred here is that the right and the economic value of that right has not just been eliminated, but it's been taken from the park owner and given to the tenant.

MR. PHILLIPS: And that's an interesting observation, Justice Scalia, because it's not clear to me he really does say that because in response to a number of questions about what would happen if that amount were then controlled subsequently, what would the outcome be. That way -- so there is no transfer of money from the mobile home owner -- or mobile park owner to the homeowner-tenant. And he said, well, that doesn't eliminate the problem. So that's not a central element of the case at some points. At other points it is a central element of the case.

It seems to me that we have here a fairly slippery legal theory. And I submit to you that the reason you have a slippery legal theory is that you're trying to take what ought to analyzed under a regulatory takings theory -- these are regulations, there may be more than one, but they are, at core, regulations -- and trying to slip them into an occupation theory. And the reason he has to do that is because he's challenged this ordinance on its face.

Now, we can listen about Mrs. Morrison, and we certainly heard a lot about here both here and in briefs prior to this case, and we can talk about whether or not it's possible to get out of running a mobile park -- mobile home park, and we can talk about whether or not the rents are just and reasonable. But the truth is petitioners chose to bring their challenge facially. They chose to make this an occupation or physical invasion case because they require per se condemnation --

QUESTION: At point do you say they chose to do that, Mr. Phillips? Certainly their complaint in the superior court just said a Fifth Amendment taking. It didn't opt for one theory or another. And the complaint was sustained, demurrer was sustained without leave to amend.

MR. PHILLIPS: As -- my reading of their complaint, frankly, is that it is a much more focused complaint than what you described, Mr. Chief Justice. They describe in fairly close detail the legal reasoning of the Court in Hall. It follows in the wake of Hall, and it sounds very much like Hall. They had in mind physical occupation theory. But even if they didn't abandon it at that point -- although it's still a facial challenge. It remains a facial challenge.

There's no basis upon which to go and examine these property interests in an individualized context, because there's no individual chain -- individual claim. I mean, you can't say that a statute that guarantees fair, just, and reasonable rates is facially unconstitutional because we may not get them.

QUESTION: Well, but you said a moment ago in your argument that the purpose of the -- one of the purposes of the statute was to give benefits to people who were economically needful of them. Now, you know, perhaps that's something -- that's an issue that might have been tried, isn't it?

MR. PHILLIPS: Well, I -- with all respect, no, Your Honor, I don't believe that's an issue for trial. Because if the State government or the local government makes a judgment that there are individuals within their jurisdiction who require protection -- and that is precisely what this initiative and ordinance were designed to accomplish, and there's no dispute about that part of it; that's what it was intended to accomplish -- it is not the providence of a jury years later to conclude, based on economic theories propounded by the petitioners and their hired counsel to say that the legislature was wrong.

QUESTION: You say that is not subject to any sort of review in the courts. That that determination by the legislature --

MR. PHILLIPS: I don't say that it's not subject to review by the courts. What I say is it's not subject to factual adjudicatory review by the courts. That is, the legislative judgments of course are open for this Court to analyze, just as the Court has analyzed a whole host of legislative actions, and that --

QUESTION: On the rational basis --

MR. PHILLIPS: -- the question is the standards.

QUESTION: -- the rationale basis for implementing those judgments, no? I mean, at least, even if you don't take testimony, it is certainly open to say that this is irrational. That there is no way that a legislator that had the objective in mind, which you express, would have chosen this as a means to do it. Isn't that argument at least open?

MR. PHILLIPS: The means, the relationship between --

QUESTION: No rational basis.

MR. PHILLIPS: I think it is much more difficult for me to envision the notion that a jury would come back after the fact and conclude that the evidence before the legislators was insufficient to support the legislative judgment and that that's a basis upon which to declare legislative acts unconstitutional.

I do agree with you that under Nollan and other takings cases that look for a substantial relationship between the means and the ends chosen, that is subject to a serious inquiry. But again, that's not a jury's inquiry; that is for this Court to undertake. And therefore, it is appropriate to dismiss a complaint at the outset if that court made the judgment that the means-ends relationship was adequate. And that analysis, of course, is subject to subsequent review by this Court. I have no quarrel about that.

I don't think, however, the question of whether or not there is a legitimate State interest is a jury issue. As read -- as I read Williams -- Williamson v. Lee Optical, Justice Douglas speaking for the Court hypothesized interests that would not be served.

QUESTION: Will you tell us how the means-ends relationship is adequate here?

MR. PHILLIPS: Absolutely. Let me say, as a sort of initial matter, it is far from clear to me that the Nollan issue has been preserved and in this case at all. This case came up on a physical occupation theory, and I don't perceive Nollan, which looks to the substantiality of the State's interest and the fit as part of a physical occupation theory. So I interposed that objection initially.

But as it happens, the Nollan inquiry in this context seems to me relatively simple. We have a group of residents within the city of Escondido who have placed a tremendous investment. Now Mr. Jagiello can demean that investment if he chooses to by saying it's merely thousands -- a few thousand dollars one way or the other, but the truth is for people who are in the average age of 64, a few thousand dollars is a significant investment, I think.

QUESTION: Suppose you had a scheme in which the State was a required party to any negotiation. And if the tenancy is sold, the landowner gets the Blue Book value of his improvements and the State gets the balance. Would that be lawful?

MR. PHILLIPS: And the State takes that money?

QUESTION: Yes.

MR. PHILLIPS: For its own purposes.

QUESTION: The State takes this premium.

MR. PHILLIPS: That sounds sort of strikingly like Webb's -- Fabulous Pharmacy to me, where the interest of the State is unrelated to the money that it happens to be taking, that it doesn't serve any purpose, certainly not a fee, for the benefit of providing the kind of arbitral arrangement --

QUESTION: Well, it's related and in the extent to which a premium is going to paid. It's not going to be given as a windfall to the property owner, if the State considers it a windfall, and it used the money for parks and schools, et cetera.

MR. PHILLIPS: It is reasonably clear to me that under Nollan the State would have to -- well, I mean that's -- that may be close -- that's a close question under Nollan, whether or not --

QUESTION: Well, isn't the reason that it's a close case is because that there is a property interest that's being affected by this regulation? And the question is whose property interest it is.

MR. PHILLIPS: No, I don't believe it's a property interest that's being affected by the regulation any more than in the Interpleader case. You say there's a property interest that's being affected. There's an economic interest that's being affected. Sure, there is a transfer of wealth. But that doesn't answer the takings issue of whether or not there is a protected property right that we have to deal with in a particular way.

So I don't know. I don't think it's -- that the natural conclusion that you draw, Justice Kennedy, follows from that particular premise.

To get back, Justice Scalia, to the nexus. So we're talking --

QUESTION: Basically what I might be telling you is why a rational means of solving the $1,500 to $2,000 problem of -- that it takes to move the trailer somewhere else or to sell it somebody who will move it, why, in order to do that, you have to place a system that allows somebody to reap a $77,000 premium in some cases.

MR. PHILLIPS: Sure. Okay. That's no problem. The -- it --

QUESTION: (Inaudible).

(Laughter.)

MR. PHILLIPS: It is not simply the $2,000 transport fee that costs. I mean, the truth is it's also $10,000 to $15,000 transportation. But it's the entire investment in their home that's at risk at that point in time. They bought the home, they paid for it, and now they're being told by the park owner, you can't go with it. Take your home elsewhere if you want to leave. That's fine. Go take that home. Well, you can't pay to take that home, so you --

QUESTION: But that's a circular argument. You're assuming that that's a value that's his. And that's the whole issue in the case.

MR. PHILLIPS: That's a value that's whose? I'm sorry, Justice Kennedy.

QUESTION: The tenants.

MR. PHILLIPS: But -- you mean the investment in his own home? Of course that's a value that's his.

QUESTION: Well, that's -- no, that's the issue in the case.

MR. PHILLIPS: I don't believe (inaudible), with respect.

QUESTION: At the time he signed the tenancy, it was a tenancy for, I take it, a number of years, which has now expired, and the question is whether or not the State can by its laws extend that tenancy and extend the right to sell it so that the economic value that's given by the law is just and is constitutional.

MR. PHILLIPS: But this Court has in a whole host of areas involving economic relationships held that those economic relationships in order to serve important State interests must continue on beyond the terms of the contracts. I don't think there is an argument to be made at this point that suddenly in this context where it seems to me the State's interest is, if anything, is more substantial to protect these particular homeowners, that they cannot go on and require this kind of protection.

QUESTION: But I'm assuming that absent any State regulation, he could not have this premium because the landlord would have a veto. So you can't just say that he has this -- the tenant, he or she, has this investment. That's the whole issue in the case. The only reason he does is because the pattern of regulation that's now before this Court for review.

MR. PHILLIPS: Maybe we're talking about two different kinds of investments. The investment I'm talking about is the investment in the mobile home and purchasing that home in the first instance and placing it into the park and the improvements and the investments in making those improvements. That is sunk-cost investment that a mobile home owner has put down.

Now that mobile home owner wants to leave. He's picked up a job someplace else, may have passed away. In any event, has no particular continuing interest in continuing to reside in that mobile home. The problem at that stage is the mobile home park owner is in a position to exploit that situation and say, we're not going to allow anybody else in here at any reasonable rental rate. Which means that the mobile home owner has one of two choices. Either walk away from the substantial amount of money they've placed into their home, or agree to sell it to the park owner at a distress sale. And that was as much recognized, frankly, by Judge Kazinsky's opinion in the Ninth Circuit that -- as any part of the problem.

So that is the investment I'm talking about. That is the problem that we need to solve. Now the question is how do you solve that? And do you have to come up with a least restrictive means for solving that problem?

QUESTION: No, no, but the fact that there is a pretty easy means, namely requiring payment of no less than the Blue Book value if the tenant leaves the thing on the premises. That's one way to do it. Now, the way you do it is to say the tenant can sublease to anybody he wants at whatever rental he wants, and keep the proceeds.

MR. PHILLIPS: Well, no. The problem with the theory there, of course, is that there is no frozen rentals. The park owner is always entitled to a fair, just, and reasonable rental. And if Mrs. Morrison exercises --

QUESTION: Yes, but the tenant is entitled to more than a fair, just, and reasonable rental. He's entitled to keep whatever he wants out of the transaction.

MR. PHILLIPS: He's entitled to keep whatever he can get out of the transaction. The fact that someone has made a poor judgment, and I would submit that if Mrs. Morrison lived in Escondido, it would be a poor judgment to purchase a home in a situation where the landowner -- the park owner remains free to seek and obtain fair, just, and reasonable increases in his rents and to depart from being a park owner and thereby jeopardize that portion of the investment. It seems to me, that's just a poor judgment on her part.

QUESTION: You seem to think that there's a pretty close correlation between fair, just, and reasonable and market price, and there certainly isn't. And that's the whole purpose of price controls.

MR. PHILLIPS: I agree with that.

QUESTION: The tenant is getting the market price, which very often is quite a bit above what --

MR. PHILLIPS: But the point -- the question, as I understand the takings clause, is not what someone else is getting, the question is what has the park owner or the landlord lost. And as I view it, he's lost nothing to which he is entitled. He lost a right to have -- he's lost the right to exploit rents above a fair, just, and reasonable level. But I know of nothing in State law that precludes that.

QUESTION: I wasn't talking about the takings clause immediately, I was asking you to explain why this is reasonable regulation. If we're just approaching it as an ordinary regulatory taking case, something that has deprived an individual of the value of his property. Why is this a reasonable regulation at all?

MR. PHILLIPS: It seems to me a mistake to divorce the ultimate inquiry of reasonableness from the ultimate purpose of the takings clause. If what we're looking at is not so much worry about the individual homeowner, but the overall interrelationships among these parties, I don't see how it become irrational simply to allow certain -- to allow for a certain windfall.

QUESTION: And you say that --

MR. PHILLIPS: Any more than it's irrational -- I'm sorry, Chief Justice.

QUESTION: And you say that so long as the landlord is getting a fair return on the value of his investment, the State can let the windfall, or require the windfall to go somewhere else.

MR. PHILLIPS: Absolutely. Just as in any kind of a usery law. I mean, you have your money, you are going to go out in the marketplace and obtain whatever you can as a return on it. The market allow you to go however high you are. But for years it's been well recognized, I think, that usery laws are perfectly legitimate means by which to regulate the relationships between those parties.

QUESTION: Because there's no readily imaginable means by which you could achieve the same result without that effect. But here there is. If the result -- if the purpose is what you say it is, this is a ridiculous way to achieve that purpose, to permit this enormous wealth transfer. You have to do it for the purpose of the usery laws, but I don't see why you have to do it here.

MR. PHILLIPS: Justice Scalia, I'd -- what I guess I have difficulty with is the assumption that somehow the statute is in its way designed to provide for this huge windfall. It may be a side consequence that in some instances, one extreme instance -- that's the only one that's been identified -- there may be some who get a windfall.

QUESTION: But I thought that's the whole theory --

MR. PHILLIPS: But --

QUESTION: But that's the whole theory of your argument, that it's designed to protect these homeowners who are in this position, the tenancy owners.

MR. PHILLIPS: That's true. It's designed to protect them because there are other market conditions that will restrict their relationship between the current homeowner and a successor homeowner. Now that makes perfect sense. I don't see why the legislature is not permitted to allow the ordinary market relationships between homeowner-purchaser -- or homeowner-seller and homeowner-purchaser to restrict those kinds of profits that you identify as so worrisome. I think that that's a perfectly rational basis for the legislature to go.

In the landlord-tenant relationship the imbalance is so great that some restraint has to be placed on it. In the homeowner-home purchaser relationship the market will work in a way that will constrain them. And I don't believe that it is a basis in any kind of rational relationship analysis or substantial nexus analysis that converts it back over into the -- into something else.

The -- it's important, though, I think, having now spent a fair amount of time talking about Nollan and having started with the argument that Nollan isn't really -- I don't think -- in this case, I don't think it was preserved below. Cert. petition doesn't cite Nollan. Cert. petition doesn't cite Penn Central. I don't believe any of that stuff is properly before the Court.

To turn back to the question of physical occupation, if only to identify what it seems to me are the clear flaws in the argument that mere regulation can be magically converted into physical occupation. In this case, it seems to me clear that there are four very serious problems with petitioners' basic argument. One, there is no occupation. The landlord decides to go into the business of offering these properties for rent. That was his choice. He has the choice to get out of that business if he chooses to do so.

QUESTION: How realistic is that choice, do you think, able to get out?

MR. PHILLIPS: On the face of the statute, that choice seems to me perfectly realistic because it has a reasonable notice requirement to allow the tenants to find alternative housing arrangements. And the only -- the only impediments are the ordinary zoning and land use restrictions that would otherwise apply to any property. So as a practical matter, I don't think that's -- that that's that serious an impediment. And the truth is in most of these cases, and it's true with the appraiser's report that petitioners' own appraiser put forward, the highest and best use for this property, frankly, is as mobile home park. So I don't think that's an obstacle. But at minimum, there is no occupation.

Second, this is not a physical act. I mean, the physical occupation cases this Court's identified in the past -- in Loretto, you have the hang -- the wall mountings that are on there. You can physically see it. In Pumpali you can see the flooding waters. Those are all physical acts that the Government authorized in one way or another that destroyed the economic value. This is a very different kind of an animal. This is an economic regulation that looks not like the physical taking.

Third, the kind of trial that the petitioners call for in this case looks very different to me than what I would expect for per se analysis. Questions about what are the property values, between when you have one set of regulatory arrangements or another set of regulatory arrangements, and do mobile homes appreciate or depreciate in value, are not the kinds inquiries that I ordinarily associate with a per se kind of analysis. They look like a regulatory type of analysis.

And finally, I don't think petitioners have in any way justified, at least in my mind, why it is that the Court would take what has heretofore been a, I think, reasonably useful physical occupation rule that per se condemns certain activities and completely create the same inexactness and uncertainty that's necessarily inherent in the regulatory takings doctrine as the Court recognized in Penn Central.

QUESTION: And it's your position, Mr. Phillips, that the regulatory takings aspect of the Fifth Amendment was not raised below, and shouldn't be considered here?

MR. PHILLIPS: That's correct, Mr. Chief Justice. I don't believe that it is in this case at this point. However, for the reasons that I discussed earlier, I believe there's no question that at least on a -- certainly on a facial level we would prevail on that theory.

QUESTION: If we don't decide those issues, I suppose you'd just be back right away, and they'd just re-raise them?

MR. PHILLIPS: Well, I'd hope I wouldn't have to racing back in. Mr. Jagiello may be back --

QUESTION: I mean, they'll still be fighting about the ordinance, though, on those grounds.

MR. PHILLIPS: On those grounds.

QUESTION: Yeah.

MR. PHILLIPS: I suppose that's right. Although no one has, up to now -- no lower court that has struck down statutes on pure Nollan grounds -- as I said, in the court of appeal's most recent opinion, it analyzed whether or not the protection for this specific homeowner -- satisfied the substantial nexus test in Nollan, and at least that court was prepared to hold that it clearly did.

QUESTION: Well, it's also easier to justify the sustaining of a demurrer without leave to amend where you're talking about a claim of physical occupation than you are when you're talking about an invalid regulatory taking, I would think.

MR. PHILLIPS: I think that would generally be the case, depending on the nature of the facial challenge that you --

QUESTION: Suppose the facial challenge is to a rent control ordinance, Mr. Phillips, in which there are limits put on the rent that the landlord can charge, but no limits whatever upon the rents that the tenants can charge in subleasing. Would that be a valid ordinance? Do you think it would be challengeable on its face?

MR. PHILLIPS: You mean as an unfair --

QUESTION: Well, I don't know what it is. But it just seems very strange to me that the State says we have some interest that we're furthering by preventing landlords from charging more than a certain amount, but their tenants can sublease for whatever they want. Now what possible State interest would that achieve?

MR. PHILLIPS: In that context, I'm not sure that there is one. But in my context there is one because the difference here is I have a captive seller -- I mean, a captive individual. The tenant is a captive trying to sell that home. Whoever is asked to come in to purchase that home subsequently is not captive. There's a whole market out there for those people to deal with. And that market can constrain the amount that the --

QUESTION: But that's contradicted by the fact that you have price controls. If there's a whole competitive market out there, I don't understand that.

MR. PHILLIPS: Well, there are alternatives. If a -- if someone asks --

QUESTION: No so many that the State doesn't the State doesn't think it necessary to have price controls.

MR. PHILLIPS: But see, it's the choice of the State to decide where there's a problem. I think this city is permitted to make the choice that it sees a more serious difficulty by a park owner imposing his will, essentially, on a mobile home owner at the time of sale than it is worrying about whether the mobile home owner will be able to take advantage of the situation in selling to another market. There -- to another purchaser. In that situation, there is a whole wide range of markets out there to chose from. No one has to buy a mobile home. Once you own a mobile home and it's on a lot, you then have that sunk investment.

That difference seems to me a perfectly rational way to distinguish between your cases. Now your sublet --

QUESTION: If the State believed that, it wouldn't have price controls. It would say, hey, we don't need price controls because there are a lot of options. The market will take care of that. You don't have to live in a mobile home. You can live somewhere else. We don't need price controls.

The very -- the very decision to impose price controls shows that that's not true.

MR. PHILLIPS: But the problem -- but that's not -- the question here is not the general rationality of the price controls. The question here is the general rationality of distinguishing, at least as I understand your question, is distinguishing between the unique protections afforded to the mobile home owner and the protections not afforded to the mobile home seller -- or the mobile home buyer -- the -- the second buyer, I'm sorry. And my argument is that their market situation is very different.

Now, you can say that you don't think that their market situation is very different, but it sounds to me like the kind of legislative judgment that traditionally, at least, this Court has been extremely deferential to. I think the court of appeal was in this case, and I would urge the Court to affirm.

CHIEF JUSTICE REHNQUIST: Thank you, Mr. Phillips.

The case is submitted.

(Whereupon, at 12:02 p.m., the case in the above-entitled matter was submitted.)