Appeals from the United States District Courtfor the District of HawaiiDavid A. Ezra, District Judge, PresidingSMALL LANDOWNERS OF OAHU,Plaintiff-Appellant, No. 94-16327v. D.C. No. CV-92-00372-HMFCITY AND COUNTY OF HONOLULU,Defendant-Appellee.Appeal from the United States District Courtfor the District of HawaiiHarold M. Fong, District Judge, PresidingArgued and SubmittedNovember 2, 1995--Honolulu, HawaiiFiled September 8, 1997Before: Procter Hug, Jr., Chief Judge, David R. Thompsonand Diarmuid F. O'Scannlain, Circuit Judges.Opinion by Chief Judge Hug; Partial Concurrence andPartial Dissent by Judge O'Scannlain
_____________________________COUNSEL C. Michael Hare, Cades Schutte Fleming & Wright, Hono-lulu, Hawaii; James K. Mee, Honolulu, Hawaii, for theplaintiffs-appellants.Thomas P. Rack, Deputy City Counsel, City and County ofHonolulu, Honolulu, Hawaii; Lex R. Smith, Kobayashi,Sugita & Goda, Honolulu, Hawaii, for the defendant-appellee.Dennis E.W. O'Connor and Jerrold K. Guben, ReinwaldO'Connor Marrack Hoskins & Playdon, Honolulu, Hawaii,for the intervenor-appellee-cross-appellant.H.K. Bruss Keppeler, Honolulu, Hawaii, for the amicuscuriae.OPINIONHUG, Chief Judge:In these consolidated cases we are asked to determine theconstitutionality of two land reform ordinances passed by theCity Council for the City and County of Honolulu (the"City"). Ordinance 91-95 provides a mechanism for convert-ing leasehold interests in condominium units to fee interests,through the use of the City's condemnation power. Ordinance91-96 is a rent control measure that limits increases in groundrent due the owner of the land under the condominium units.The trustees of the Bishop Estate ("Bishop Estate") broughtan action before District Judge Ezra contesting the constitu-tionality of both ordinances. The Small Landowners of Oahu("Small Landowners") brought a separate action before Dis-trict Judge Fong. Judges Ezra and Fong each entered sum-mary judgments upholding Ordinance 91-95. Judge Ezra alsoentered a summary judgment holding Ordinance 91-96 (therent control ordinance) unconstitutional. We have jurisdictionunder 28 U.S.C. S 1291 and we affirm.I. BACKGROUNDPrior to American acquisition, Hawaii developed an exten-sive feudal land ownership system that has proved remarkablyresistant to change. Although Hawaiian leaders and Americansettlers have repeatedly attempted to divide the large Hawai-ian land estates, the results have generally been unsuccessful.As of the late 1980's, the largest eighteen landowners in thestate owned 40% of the available land. L.A. Powe, Jr.,Economic Make-Believe in the Supreme Court, 3 Const.Comm. 385, 389 (1986). The seventy-two largest landownersowned 47%. Id. With the federal and state government own-ing 49% of the land in the state, id., little is left for the restof the population. As might be expected in an area of desir-able real estate with little land for sale, the price of owningland in Hawaii has grown exponentially over the past severaldecades.The large private landowners have adopted a pattern ofleasing their land for long terms rather than selling it. Oftenthe land is leased to a developer who builds condominiums1on the property. The condominiums are then sold subject tothe ground lease. Sometimes the landowners themselves buildand sell the condominiums, subject to a ground lease. Theleases, commonly for 55 years or longer, require a substantialinitial payment and lease payments for 25 to 30 years at afixed rate. At the end of the initial term, the rent is renegoti-ated pursuant to the terms of the lease. The new rent usuallyis based on the market value of the unimproved land asdescribed in the lease. Stated another way, the renegotiatedrent is fixed at a percentage of the market value of the parcelunderneath the condominium exclusive of improvements (i.e.,the condominium).2 In almost all cases, the renegotiated rentsubstantially exceeds the initial fixed rate.To break up this pattern of land ownership and control theescalating prices of housing, the City passed Ordinances 91-95 and 91-96 on December 18, 1991.That day the appellants in Richardson filed suit in federalcourt before Judge Ezra seeking declaratory and injunctiverelief. The Richardson appellants are trustees of the BishopEstate, a charitable trust established in 1884 under the will ofKe Ali'i Bernice Pauahi Bishop, the great-grandaughter ofKing Kamehameha I, to erect and maintain schools for indi-gents and orphans who are native Hawaiians. The BishopEstate owns the fee simple title to the land underneath condo-miniums in Honolulu that are affected by the Ordinances.3 Agroup of condominium owners calling themselves the HawaiiLeaseholders Equity Coalition (the "HALE coalition") wasgranted permission to intervene in the action as an interestedparty.On February 14, 1992, the Bishop Estate filed a partialmotion for summary judgment. On June 8, 1992, the HALECoalition also moved for partial summary judgment. On June9, 1992, the City filed a cross-motion for summary judgmenton all counts.Meanwhile, on June 12, 1992, the Small Landowners, anonprofit membership corporation representing landownerswho own smaller plots of land underneath condominium proj-ects, filed a separate complaint in federal court before JudgeFong seeking a declaration that Ordinances 91-95 and 91-96were constitutionally invalid. The Small Landowners movedto consolidate their action with (or alternatively, to intervenein) the action instituted by the Bishop Estate. The motion wasdenied and the Small Landowners' suit proceeded separately.On September 16, 1992, Judge Ezra (1) declared Ordinance91-96 unconstitutional on its face under the Takings Clause;(2) held that Ordinance 91-95 was facially constitutionalunder the Public Use, Just Compensation, Due Process, andEqual Protection Clauses of the federal and Hawaii constitu-tions; and (3) certified to the Hawaii Supreme Court the ques-tion whether Ordinance 91-95 was preempted by state law.See Richardson v. City & County of Honolulu, 802 F. Supp.326 (D. Haw. 1992).The Small Landowners and the City subsequently stipu-lated to dismiss the Small Landowners' claim regarding Ordi-nance 91-96. The parties also agreed to dismiss the SmallLandowners' claims regarding state law preemption, becausethose questions would be decided by the Hawaii Supremecourt in the Richardson case. On September 16, 1993, JudgeFong issued his order holding that Ordinance 91-95 wasfacially constitutional under the Takings, Due Process, andEqual Protection Clauses of the federal and Hawaii constitu-tions, and that the Small Landowners' claims that Ordinance91-95 failed to provide just compensation or comply with theCity's Charter were unripe. See Small Landowners of Oahu v.City & County of Honolulu, 832 F. Supp. 1404 (D. Haw.1993).On February 22, 1994, the Hawaii Supreme Courtanswered the certified question from Richardson in the nega-tive, Richardson v. City & County of Honolulu, 868 P.2d1193 (Haw. 1994), and on April 12, 1994, Judge Ezra adoptedthe Hawaii Supreme Court's answer. On April 18, 1994,Judge Ezra entered final judgment. Judge Fong entered finaljudgment in Small Landowners on June 20, 1994. All partiesfiled timely notices of appeal. Because of the similar issuespresented, the two actions were consolidated before this courtafter oral argument.II. ORDINANCE 91-95A. The StatuteOrdinance 91-95, which closely parallels Hawaii's LandReform Act of 1967, creates a mechanism through which con-dominium owners can convert their leasehold interests intofee simple interests. When at least 25 owners in a condomin-ium complex or the owners of 50% of the units, whichever isless, apply to purchase their leased fee interest, the Ordi-nance's condemnation procedure is triggered. The Depart-ment of Housing and Community Development (the"Department") then determines if the property is proper forcondemnation. The Department will begin condemnation pro-ceedings within twelve months unless the owner agrees tovoluntarily sell the leased fee interest to the lessees. If theDepartment condemns the land, the lessee must purchase theland from the City within 60 days.In conjunction with enacting the Ordinance, the City madeseveral findings regarding the concentration of land in Hono-lulu and the effects on such concentration on the local econ-omy. First, the City found that landowners have refused to sellproportionate shares in their fee simple titles and that the fewsales that occurred involved exorbitant prices. Honolulu City& County, Haw. Ordinance 91-95, S 1(a). This refusal to sellfee simple titles, along with other factors, has caused a dra-matic increase in the price of housing in Honolulu. Id. TheCity further found that persons wishing to reside on Oahuwere forced to sign long-term leases that provide for periodicrent renegotiation. Id. These conditions have led to the acute recent inflation of land costs [that ] has adversely affected lease rent negotiations of persons who have purchased leasehold multi-family units as their homes: in some instances renegotiations have resulted in lease rents that have increased over 1,000 percent. Under the burden of increased lease rents, many owner-occupants of residential condominium apartments . . ., especially those on fixed incomes, have found, and will continue to find themselves unable to afford to continue living in their homes.Id. Moreover, the City determined that these defects in thehousing market would adversely affect the City's economy: There is a close relationship between the monetary values accorded land on Oahu and the stability and strength of Oahu's economy as a whole. Residential condominium . . . land values, artificially inflated by concentrated or single ownership, market conditions or other factors, skew Oahu's economy toward unnecessarily high levels. The pervasive and sub- stantial contribution made to inflation by high resi- dential condominium . . . land values creates a potential for economic instability and disruption on Oahu. Economic inflation, instability and disruptions on Oahu have real and potential damaging conse- quences for all members of an affected society.Id. The City thus decided to exercise its power of eminentdomain to establish a proper real estate market in Honoluluand to reduce the potential for economic instability on Oahu.B. The Public Use ClauseThe Bishop Estate and the Small Landowners (collectivelythe "landowners") argue that Ordinance 91-95 violates thePublic Use Clause of the United States and Hawaii constitu-tions. The Fifth Amendment of the United States Constitutionprovides that "private property [shall not ] be taken for publicuse, without just compensation." U.S. Const. amend. V. Thisprovision applies to the states through the Fourteenth Amend-ment. See Missouri Pac. Ry. v. Nebraska,
164 U.S. 403
, 417(1896). Municipalities possessing delegated eminent domainpower also are subject to the restrictions of the Fifth andFourteenth Amendments. See Chicago B. & O. R.R. Co. v.City of Chicago,
166 U.S. 226
, 238-39 (1896). Similarly, theHawaii Constitution provides that "[p]rivate property shall notbe taken or damaged for public use without just compensa-tion." Haw. Const. art I., S 20.The landowners argue that Ordinance 91-95 is unconstitu-tional because it takes land for the benefit of private personsand, alternatively, that its public purpose is not served by itsmechanism. As noted above, the Ordinance is similar toHawaii's Land Reform Act of 19674 (the "Act"), which wasupheld on public use grounds in Hawaii Housing Authority v.Midkiff,
467 U.S. 229
(1984). Because of the Ordinance'ssimilarity to the Act, we begin our analysis with Midkiff.In that case, the Supreme Court upheld the Act, concludingthat Hawaii could constitutionally use its power of eminentdomain to break up a land oligopoly. Id. at 241-42. TheSupreme Court rejected the landowners' arguments that theAct violated the public use requirement of the Takings Clause.5The Court stated, "The `public use' requirement thus is coter-minous with the scope of a sovereign's police powers." Id. at240.Thus, as the Court noted, the judiciary's role in reviewingthe legislature's judgment regarding public use is extremelynarrow. Id. The judiciary should defer to the legislature's pub-lic use determination unless the use involves an "impossibil-ity" or is "palpably without reasonable foundation." Id. at240-241. The Court further noted that "where the exercise ofthe eminent domain power is rationally related to a conceiv-able public purpose, the Court has never held a compensatedtaking to be proscribed by the Public Use Clause. " Id. at 241.Applying that test, the Court noted that the state legislaturedetermined a land oligopoly existed in Hawaii. The Court rea-soned that regulating the "oligopoly and the evils associatedwith it is a classic exercise of a State's police powers." Id. at242. Even though the Act's result was to turn land over fromone private owner to another, the Court held that the statute'spurpose was sufficiently public. See id. at 241. Finally, theCourt noted that using a lease-to-fee transfer statute to regu-late that oligopoly was not irrational. Id. Accordingly, theCourt upheld the Act.The analysis under the Hawaii Constitution is similarly def-erential to the legislature's public use determination. [O]nce the legislature has spoken on the social issue involved, so long as the exercise of the eminent domain power is rationally related to the objective sought, the legislative public use declaration should be upheld unless it is palpably without reasonable foundation. The crucial inquiry is whether the legis- lature might reasonably consider the use public, and whether it rationally could have believed that appli- cation of the sovereign's condemnation powers would accomplish the public use goal.Hawaii Housing Authority v. Lyman, 704 P.2d 888, 897(Haw. 1985) (internal citation omitted).[1] In the present action, both district courts determinedthat Midkiff controlled the outcome of this dispute. Becausethe statute in Midkiff and Ordinance 91-95 are so similar, bothcourts found no merit in the Landowners' public use argu-ments. Before this court, the landowners seek to distinguishMidkiff on several grounds: (1) that the standard of review haschanged since Midkiff; (2) that the public purpose of the Ordi-nance is not as compelling as the purpose asserted in Midkiff;and (3) that the means of effectuating the purpose is irrationalin light of developments since Midkiff. We discuss each ofthese arguments.1. Change in the standard of review[2] The landowners argue that, in light of Dolan v. City ofTigard,
512 U.S. 374
(1994), Lucas v. South CarolinaCoastal Council,
505 U.S. 1003
(1992) and Nollan v. Califor-nia Coastal Comm'n,
483 U.S. 825
(1987), the deferencegiven in Midkiff to the legislative body's public use findingsis inappropriate. The landowners assert that those casesrequire heightened scrutiny. We conclude that those cases arenot applicable because they involved uncompensated regula-tory takings, in which the issues are quite different.In a regulatory taking case, the court must determinewhether a putative regulatory action masks a taking. Forexample, in Dolan, the most recent case, a shopowner in Ore-gon brought suit against the City of Tigard. She had appliedfor a permit needed to expand her store and pave a parkingarea. Dolan,
512 U.S. at 379
. The city's planning commissiongranted the permit application, but only on the condition thatthe shopowner dedicate to the city part of her property thatwas within a floodplain plus a 15 foot strip of land for use asa pedestrian pathway. Id. at 379-80. The shopowner filed suitalleging that the condition was an unconstitutional regulatorytaking.Dolan, as well as Lucas and Nollan, are quite differentfrom the cases before us. At bottom, those cases involve bal-ancing the authority of state and local governments to engagein land use planning against the property rights of individuals.See Dolan,
512 U.S. at 383
-86. The primary issue is whetherthe landowner is to receive just compensation. See e.g., id. at385 ("Under the well-settled doctrine of `unconstitutionalconditions,' the government may not require a person to giveup a constitutional right -- here the right to receive just com-pensation when property is taken for a public use -- inexchange for a discretionary benefit conferred by the govern-ment where the property sought has little or no relationship tothe benefit."). That is, if the Court would have upheld theputative regulatory actions in those cases, the landowners'property would have been subject to the challenged landrestriction and the owner would not have been entitled tocompensation for the diminution in land value. The height-ened scrutiny applied in Dolan thus is necessary to preventthe government from using its regulatory power to force indi-viduals to bear burdens that properly should be born by thepublic. See id., at 389 ("We think this standard is too lax toadequately protect petitioner's right to just compensation ifher property is taken for a public purpose.").[3] Conversely, in the cases before us, the government hasexpressly exercised its condemnation power and will compen-sate the landowners. Here, as in Midkiff, the requirement ofjust compensation ensures that individuals will not be forcedto bear public burdens, which in all fairness should be borneby the public as a whole. Heightened scrutiny thus is inappro-priate. The language used throughout Midkiff indicates thatdeference to the legislative body's public use determination isrequired when the taking is fully compensated. See e.g.,Midkiff,
467 U.S. at 241
("[W]here the exercise of the emi-nent domain power is rationally related to a conceivable pub-lic purpose, the Court has never held a compensated taking tobe proscribed by the Public Use Clause."). For these reasons,we believe that Nolan-Lucas-Dolan trio does not signal achange from this long standing rule of deference because wesee nothing inconsistent in applying heightened scrutiny whenthe taking is uncompensated, and a more deferential standardwhen the taking is fully compensated.[4] We hold, therefore, that the standard of review to beused in examining Ordinance 91-95 is the minimum scrutinytest espoused in Midkiff. We will defer to the City's determi-nation regarding public use unless the use involves an "im-possibility" or is "palpably without reasonable foundation."Midkiff,
467 U.S. at 240
-41.2. The rationality of the public purpose[5] Unlike the statute at issue in Midkiff, the Ordinance isnot grounded on the desire of breaking up a land oligopoly.Rather, the City enacted the Ordinance to strengthen Oahu'seconomy and remedy perceived failures in its real estate mar-ket. The City found: There is a close relationship between the monetary values accorded land on Oahu and the stability and strength of Oahu's economy as a whole. Residential condominium, cooperative housing and planned development land values, artificially inflated by con- centrated or single ownership, market conditions or other factors, skew Oahu's economy toward unnec- essarily high levels. The pervasive and substantial contribution made to inflation by high residential condominium, cooperative housing and planned development land values creates a potential for eco- nomic instability and disruption on Oahu. Economic inflation, instability and disruptions on Oahu have real and potential damaging consequences for all members of an affected society. Checking inflation, improving the stability of the economy, and avoiding disadvantageous economic disruptions all are pro- ductive of general benefit to all members of Oahu's community.Honolulu City & County, Haw. Ordinance 91-95 S 1(a).[6] This purpose -- remedying a failure in the real estatemarket and strengthening the economy -- is a public purpose.See Midkiff,
467 U.S. at 242
(land oligopoly caused failure inreal estate market; regulating evils associated with oligopolyis classic exercise of police power); Berman v. Parker, 348U.S. 26 (1954) (affirming the constitutionality of the Districtof Columbia Redevelopment Act of 1945, which provided forthe condemnation of slum areas for possible sale to privateinterests). The landowners contend, however, that the evi-dence presented to the City does not support the stated publicpurpose. They assert that, contrary to the City's findings,ownership of condominium units is not concentrated in thehands of large landowners and that landowners do sell propor-tionated shares of their fee simple titles. Thus, they argue thatbecause the City incorrectly determined these facts, the find-ings do not support the Ordinance's stated public purpose.[7] Under the standard espoused in Midkiff, we must acceptthe public purpose of the Ordinance unless the City's findingsare "palpably without reasonable foundation." Midkiff, 467U.S. at 241. The City held three days of public hearingsbefore enacting the Ordinance. The City determined that theprice of condominiums was higher because the ownership ofthe fee-simple titles to the land underneath the condominiumswas excessively concentrated. While the hearings producedconflicting testimony, one study presented to the City showedthat the largest 20 Landowners own 34.9% of the land undercondominium units in Honolulu, and that the largest 60 own50.4%. Legislative Reference Bureau, Report No. 6,Ownership Patterns of Land Beneath Hawaii's Condomini-ums and Cooperative Housing Projects 21 (1987) (OwnershipPatterns). While the largest 20 landowners own a smaller per-centage of land underneath condominiums than the largest 22owned of the fee simple titles when the Court decided Midkiff,see Midkiff,
467 U.S. at 232
, the concentration of ownershipof land underneath condominiums is greater than the concen-tration of land ownership throughout the state at the timeMidkiff was decided. Compare Ownership Patterns at 21 (60persons own 50.4% of land under condominiums), with Mid-kiff,
467 U.S. at 232
(72 persons own 47% of land in Hawaii).We thus cannot say that the City's finding is without reason-able foundation.[8] Similarly, the evidence presented to the City regardingthe amount of fee simple lands for sale underneath condomin-iums was conflicting. We are not free to substitute our judg-ment for that of the City. The evidence reviewed by the Cityadequately demonstrated that the land underneath the condo-miniums was not being sold and that the lack of such saleswas driving up the price of housing in Honolulu. We thereforemust accept the City's asserted public purpose because itsfindings are not without reasonable foundation. See Midkiff,
467 U.S. at 241
("In short, the Court has made clear that itwill not substitute its judgment for a legislature's judgment asto what constitutes a public use `unless the use be palpablywithout reasonable foundation.' ") (citation omitted).3. The reasonableness of the means usedThe landowners also argue that, between 1987 and 1990,the price of condominiums in Hawaii increased by 66%.However, the price of single-family dwellings -- which weresubject to the Act's lease-to-fee provision -- increased by98%. Dep't of Business and Economic Dev., The State ofHawaii Databook 1990: A Statistical Abstract 549 (1990).Thus, the landowners argue that even if a lease-to-fee statutewas reasonably related to eliminating a land oligopoly at thetime of Midkiff, such means are not rationally related to reme-dying a failure in the real estate market and strengthening theeconomy in light of recent history.Deference to the legislative body's public use determina-tion is required " `until it is shown to involve animpossibility.' " Midkiff,
467 U.S. at 240
(quoting OldDominion Co. v. United States,
269 U.S. 55, 66
(1925)). "Anydeparture from this judicial restraint would result in courtsdeciding on what is and is not a governmental function andin their invalidating legislation on the basis of their view onthat question at the moment of decision, a practice which hasproved impracticable in other fields." United States ex rel.T.V.A. v. Welch,
327 U.S. 546, 552
(1946). Additionally, inMidkiff the Court noted that whether the statute actually suc-ceeds is irrelevant. But "whether in fact the provision will accomplish its objectives is not the question: the [constitutional requirement] is satisfied if . . . the . . .[state] Legisla- ture rationally could have believed that the[Act] would promote its objective." When the legislature's purpose is legitimate and its means are not irrational, our cases make clear that empirical debates over the wisdom of takings . . . are not to be carried out in the federal courts.Midkiff,
467 U.S. at 242
-43 (brackets in original) (quotingWestern & Southern Life Ins. Co. v. State Bd. of Equalization,
451 U.S. 648, 671
-72 (1981)) (internal citations omitted).[9] Under the rational basis test, we hold that the Ordinanceis constitutional under both the United States and Hawaii con-stitutions. Regardless of what has occurred with single-familydwellings, the City rationally could have believed that, if thesupply of condominiums increased (through the lease-to-feemeasure of Ordinance 91-95), the price of those condomini-ums would decrease. Additionally, although the price ofsingle-family houses increased dramatically between 1987and 1990, there is no indication that the price would not havegone up even more without the Act's lease-to-fee mechanism.Finally, even if the price of condominiums does not decreaseas a result of the Ordinance, some of the public purposes ofthe Ordinance will be served. If a family is allowed to pur-chase its condominium, that family will not risk being thrownout of its home in 25 years because the family cannot affordthe renegotiated rent. The City rationally could have con-cluded that the lease-to-fee mechanism would remedy defectsin the housing market and stabilize Oahu's economy.C. The Just Compensation ClauseWhen a government uses its powers of eminent domain tocondemn property, it must provide the property owner with"just compensation." U.S. Const. amend V.; accord Haw.Const. art. I, S 20. Just compensation is the "full monetaryequivalent of the property taken." United States v. Reynolds,
397 U.S. 14, 16
(1970).The landowners argue that Ordinance 91-95 does not fullycompensate them for the taking of their property. In particu-lar, they argue that the Ordinance fails to provide compensa-tion for their loss of rental income or for the diminution in thevalue of their remaining fee simple interest in any land thatis involuntarily converted from their sole ownership to acotenancy under the ordinance.6 Both district courts dismissedthese claims as unripe. Richardson, 802 F. Supp. at 341;Small Landowners, 832 F. Supp. at 1411.[10] Ripeness is a question of law reviewed de novo.Carson Harbor Village Ltd. v. City of Carson, 37 F.3d 468,474 (9th Cir. 1994). "If a claim is unripe, federal courts lacksubject matter jurisdiction and the complaint must bedismissed." Southern Pac. Transp. Co. v. City of Los Angeles,922 F.2d 498, 502 (9th Cir. 1990). Whether a claim is ripegenerally turns on the fitness of the issues for judicial decisionand the hardship to the parties of withholding court consider-ation. Pacific Gas & Elec. Co. v. State Energy ResourcesConserv. & Devel. Comm'n,
461 U.S. 190, 201
, 103 S.Ct.1713, 1720 (1983). The "central concern [of the ripenessinquiry] is whether the case involves uncertain or contingentfuture events that may not occur as anticipated, or indeed maynot occur at all." 13A Charles Alan Wright et al., FederalPractice and Procedure S 3532 at 112 (2d ed. 1984).[11] Here, the Bishop Estate came to federal court the sameday the City enacted the Ordinance. The condemnation proce-dure at issue is not self-executing. Rather, several events mustoccur before any taking will occur. First, at least 25 condo-minium owners or the owners of 50% of the units, whicheveris less, must file an application with the Department to triggerthe Ordinance's procedures. Then, after "[d]ue notice is givenand a public hearing held," the Department must determinewhether the "exercise of the power of eminent domain"requested by the applicants "will effectuate the public pur-poses of [the Ordinance]." Honolulu City & County, Haw.Ordinance 91-95 S 2.2(a)(2). The Ordinance also requiresthat, before the Department exercises its power of eminentdomain, that the lessor and lessees negotiate "the just com-pensation which" will be paid. Honolulu City & County,Haw. Ordinance 91-95 S 4.6. Only then will the Departmentset forth to condemn property.[12] At this juncture, no group of tenants has asked theDepartment to invoke the condemnation procedures createdby the Ordinance. It is possible that any one of the conditionsprecedent to the exercise of the Department's eminent domainpower might not occur. A sufficient number of qualifying ten-ants, see Honolulu City & County, Haw. Ordinance S 4.4 (set-ting forth seven requirements that lessee must meet before asale takes place), might not file an application with theDepartment. The Department might conclude in any givencase that exercising its power of eminent domain would notfurther the public purpose of the Ordinance. In any event, therequired preliminary negotiations could result in an agreementas to the appropriate compensation. Because any one of thesecontingent events might not occur, we conclude that the land-owners' claim under the Just Compensation clause is not ripefor federal adjudication.The Supreme Court's clear guidance regarding applicationof the ripeness doctrine to takings claims reinforces our con-clusion that the landowners' claim is not ripe. The Court has"placed two hurdles in the way of a takings claim brought infederal court against states and their political subdivisions."Levald, Inc., v. City of Palm Desert, 998 F.2d 680, 686 (9thCir. 1993) (internal quotation omitted). It is the second ofthese two hurdles, which requires that plaintiffs "seek com-pensation through the procedures the State has provided fordoing so before turning to the federal courts," id. (internalquotation omitted), that has not been met here. Because noproperty has been targeted for taking, the landowners have notsought and been denied condemnation by the Department.Moreover, the landowners have not invoked the processesprovided by Hawaii's courts for obtaining just compensation.The landowners argue and the dissent concludes, however,that their claims are ripe because the Ordinance's plain lan-guage fails to provide for full compensation. Requiring thelandowners to seek compensation through Hawaii's proce-dures, they argue, would be futile under existing state law.See id. at 686. The landowners burden of showing that com-plying with the state's procedures would be futile is a heavyone. American Savings & Loan Ass'n v. County of Marin, 653F.2d 364, 371 (9th Cir. 1981). We conclude that the landown-ers have not carried their burden.The Ordinance provides that "[t]he compensation to be paid. . . shall be the current fair market value of the leased feeinterest." Honolulu City & County, Haw. OrdinanceS 1.2. Itdefines "leased fee interest" as the "reversionary interests ofthe fee owner . . . other than the lessee's or sublesee'sinterest." Id. The dissent argues that the plain meaning of theOrdinance deprives the landowners of compensation for thelost stream of rental payments and, therefore, "unless theOrdinance means something other than what it very clearlysays, it does not authorize the Department to give landownersjust compensation." Dissenting Opinion at 12022. We dis-agree.The Ordinance speaks of "reversionary interests " as beingin the plural. This points to a recognition of multiple factorsto be included in the valuation. The Fifth Circuit has statedthat a "reversionary interest is any future interest left in atransferor or his successor in interest." United States v. 50.822Acres of Land, More or Less, 950 2d 1165, 1169 n. 4 (5th Cir.1992) (internal quotation omitted) (emphasis added). TheDepartment could well interpret the "reversionary interests"of the fee owner as his entire interest in the land under thecondominiums as of the date the eminent domain action iscommenced.Basic principles of property law, in fact, practically compelthat interpretation. The reversionary interest of a lessor, as thedissent notes, is "[t]he property that reverts to the grantor afterthe expiration of an intervening income interest. " Blacks LawDictionary 1186 (5th ed. 1979). In other words, a reversionaryinterest is "[a] right to the future enjoyment of property, atpresent in possession or occupation of another." Id. The Ordi-nance thus directs the Department to pay the fair market valueof the property which reverts to the lessor at the expiration ofthe lease. What reverts to the lessor is a fee interest in theground underneath the condominium. The projected earningof that property would be a normal factor in determining thevalue of the property that reverts to the lessor. See Ordinance91-95 at S 1.2 (defining fair market value as the price towhich a willing buyer and seller taking into consideration "alluses to which the land is adapted or might in reason beapplied").We hold that the landowners' challenge is not ripe. Thereare obviously many different ways the Department couldapproach the valuation of the lessors' reversionary interest.The Department has not issued regulations regarding the com-pensation of the landowners and there is no basis for deter-mining that the landowners will not be fully compensated fortheir interests. It is apparent that the "plain meaning" of theOrdinance does not foreclose the payment of constitutionallyadequate compensation for the landowners' "reversionaryinterests." Moreover, the City's intent to pay the current fairmarket value of the leased fee interest is clear. The Ordinanceanticipates a complete valuation of the lessors' property inter-ests. It is only if the definition of "leased fee interest" is givena restricted meaning that the landowners would not receiveconstitutionally adequate compensation. Until that happens,federal adjudication of the landowners' just compensationclaim is premature.D. The Due Process Clause[13] The Due Process Clause of the Fourteenth Amendmentprovides that no State shall "deprive any person of life, lib-erty, or property, without due process of law." U.S. Const.amend. XIV; accord Haw. Const. art. I, S 5. The Due Processclause confers both procedural and substantive rights. UnitedStates v. Salerno,
481 U.S. 739, 746
(1987); Armendariz v.Penman, 75 F.3d 1311, 1318 (9th Cir. 1996) (en banc). Amunicipal act that neither utilizes a suspect classification nordraws distinctions among individuals that implicate funda-mental rights will violate substantive due process rights whenit is shown that the action is not "rationally related to a legiti-mate governmental purpose." Munoz v. Sullivan, 930 F.2d1400, 1404 (9th Cir. 1991). We will strike down a statute onsubstantive due process grounds if it is arbitrary and irratio-nal. Del Monte Dunes v. City of Monterey, 920 F.2d 1496,1508 (9th Cir. 1990).The landowners again argue that the Ordinance is arbitraryand irrational because it has no legitimate public purpose,because lease-to-fee statutes have been proved not to work,and because the Ordinance is not rationally related to achiev-ing a valid objective.[14] The challengers' burden to show that a statute is arbi-trary and irrational is extremely high. See Del Monte Dunes,920 F.2d at 1508. "In a substantive due process challenge, wedo not require that the City's legislative acts actually advanceits stated purposes, but instead look to whether`the govern-mental body could have had no legitimate reason for itsdecision.' " Kawaoka v. City of Arroyo Grande, 17 F.3d 1227,1234 (9th Cir. 1994) (quoting Levald, Inc., 998 F.2d at 690).As explained above, see supra section II (B) (2), the City hasexpressed a valid public purpose in attempting to control con-dominium price inflation. Furthermore, the City's decision toutilize a lease-to-fee ordinance to effectuate this purpose isnot irrational. See supra section II (B) (3). Accordingly, wehold that the landowners cannot meet the burden of showingirrationality.E. The Equal Protection ClauseThe United States Constitution guarantees that "[n]o Stateshall . . . deny to any person within its jurisdiction the equalprotection of the laws." U.S. Const. amend. XIV; accordHaw. Const. art. I, S 5. The Bishop Estate and the SmallLandowners assert that Ordinance 91-95 violates the EqualProtection Clause in two ways. First, the Bishop Estatealleges that ordinance 91-95 was enacted to favor non-Hawaiian lessees over Native Hawaiians and Native HawaiianTrusts in violation of their equal protection rights. The SmallLandowners additionally allege that the Ordinance violatestheir equal protection rights by "irrationally grouping togetherall condominium landowners without any factual or legalbasis for inclusion of small landowners."1. Native Hawaiians' equal protection claims [15] The Ordinance applies to condominiums regardless ofwhether the owner is Native Hawaiian or non-Hawaiian. Itthus does not on its face draw a distinction on the basis of asuspect classification. Nonetheless, the landowners assert thatthe Ordinance is unconstitutional due to its discriminatoryeffects. To prevail, however, the Bishop Estate must show notonly a discriminatory effect, but also discriminatory intent.Village of Arlington Heights v. Metropolitan Housing Dev.Co.,
429 U.S. 252
265, (1977).[16] The Bishop Estate introduced no evidence of discrimi-natory intent on the part of the City. Instead, the Estatealleged that the City must have known that it and other NativeHawaiians owned numerous interests in leased condominiumsand therefore that the City was aware the Ordinance wouldseverely affect the Bishop Estate Trust and would harm theinterests of Native Hawaiians. We agree with Judge Ezra thatthese allegations, even if true, do not present a prima faciecase of discrimination. It is not enough to show that the Cityknew the law would affect Native Hawaiians. "Discriminatorypurpose . . . implies more than an awareness of conse-quences." Personnel Adm'r v. Feeney,
442 U.S. 256
, 279(1979). Because the landowners offered no other evidence ofdiscriminatory intent, summary judgment on their equal pro-tection claim was appropriate.2. Small Landowners' equal protection claim The Small Landowners contend that the Ordinance violatestheir equal protection rights by grouping small landownerswith owners such as the Bishop Estate, which owns manycondominium projects. We disagree.[17] The Small Landowners do not contend they constitutea suspect class; hence, we will uphold the Ordinance if it isrationally related to a legitimate state interest. See Massachu-setts Bd. of Retirement v. Murgia,
427 U.S. 307, 312
(1976).As explained above, the Ordinance furthers a legitimate stateinterest. See supra section II (B) (2). The Ordinance is ratio-nally related to that interest. See supra section II (B) (3). Thuswe hold Ordinance 91-95 does not violate the Small Land-owners' equal protection rights.III. ORDINANCE 91-96A. The OrdinanceAs noted above, the land underneath condominiums onOahu ordinarily is owned by someone other than the owner ofthe condominium. The condominium owner leases the groundunder the condominium, ordinarily for very long terms. In thetypical lease, the rent initially is fixed for a term of years,after which the rent is subject to renegotiation. The renegoti-ated rent is normally a percentage of the fair market value ofthe land appurtenant to the unit exclusive of improvements, asof the date of renegotiation. The rapid rise in Hawaiian landprices often results in renegotiated rent several hundred timesgreater than the initial fixed rent.Ordinance 91-96 was enacted at the same time as Ordi-nance 91-95 and essentially is a rent control ordinance. TheOrdinance accomplishes its goal in two ways. First, the Ordi-nance, which applies to all leases that contain provisions forrenegotiation of lease rents for owner-occupied condomini-ums, limits the number and regulates the timing of renegotia-tions. Section 1.4 of the Ordinance provides that the firstrenegotiation shall not occur within fifteen years of the initialdate of the lease, while subsequent renegotiations shall occurno sooner than every ten years.Second, the Ordinance caps rents by linking the maximumrenegotiated rent to the consumer price index. Section 1.5(b)of the Ordinance limits the renegotiated rent to the initial rentmultiplied by a rent factor. The initial rent is the greater of therent specified by the lease and the reasonable rental value onthe effective date of the lease. Honolulu City and County,Haw. Ordinance 91-96 S 1.1. The rent factor is the averageconsumer price index for the six-month period in which therent renegotiation occurs, divided by the average consumerprice index on the date of the initial lease. Id. S 1.5(b) (1)-(2).The Ordinance also contemplates the conveyance of condo-miniums subject to renegotiated leases on the underlying land.Section 1.10 of the Ordinance facilitates the conveyance ortransfer of these renegotiated leases. That section providesthat, if an owner-occupant of a condominium conveys ortransfers the leasehold interest in the underlying land duringa renegotiated rent period to a person who intends to occupythe condominium apartment, the renegotiated land rent shallapply to the transferee tenant. Id. S 1.10. In other words, theowner-occupant of a condominium is free to convey his or herleasehold interest in the underlying land to a person intendingto occupy the condominium and the transferee will receive thebenefit of the renegotiated land lease. However, if the condo-minium is conveyed to someone who is not an owner-occupant, the lessor of the underlying land may reopen thenegotiation. Id. S 1.13.The Bishop Estate moved for summary judgment, contend-ing that Ordinance 91-96 violates the Takings, Contract andDue Process Clauses. The district court ruled, at summaryjudgment, that the Ordinance violates the Takings Clause. Thedistrict court did not reach the Bishop Estate's Contract andDue Process Clause arguments.The City and the HALE coalition each filed a timely noticeof appeal.B. The Takings ClauseThe Bishop Estate argues that Ordinance 91-96 violates theTakings Clause in two ways. First, the Estate contends thatOrdinance 91-96 fails to substantially further its stated publicpurposes and, therefore, constitutes a regulatory takingbecause the Ordinance allows a lessee to monetize a below-market renegotiated rent at the expense of the lessor. Second,the Bishop Estate asserts that the Ordinance violates the FifthAmendment because it fails to provide for consideration ofindividualized factors that might affect the value of the leaseat the time of renegotiation. The City and HALE coalitionargue that individualized consideration is not necessary andthe alleged ground lease premium does not render the Ordi-nance unconstitutional. We turn to the Bishop Estate's argu-ment that the Ordinance fails to substantially further alegitimate state interest.[18] A land use regulation, as noted above, does not effecta taking if it substantially furthers a legitimate state interestand does not deny the landowner economically viable use ofhis land. Dolan,
512 U.S. at 385
. Ordinance 91-96 is designedto further the City's interest in maintaining affordable owner-occupied residential housing. Honolulu City & County, Haw.Ordinance 91-96, S 1. The Bishop Estate does not maintainthat this is not a legitimate state interest, but rather asserts thatthe Ordinance fails to substantially further that interest. TheBishop Estate cites Yee v. City of Escondido,
503 U.S. 519
(1992) in support of its argument.Yee involved a rent control ordinance enacted by the Cityof Escondido that capped the rent a mobile home park ownercould charge his lessees. Yee
503 U.S. at 524
. The Yees, own-ers of two mobile home parks, brought suit alleging that therent control ordinance violated the Takings Clause. Id. at 525.They offered two arguments in support of their contention: (1)the rent control ordinance effected a physical taking of theirproperty; and (2) the ordinance effected a regulatory taking oftheir property.The Court did not reach the regulatory taking issue becausethat question was "not fairly included in the question onwhich we granted certiorari." Id. at 533. With respect to theirphysical taking argument, the Yees relied "heavily on theirallegation that the ordinance benefits incumbent mobile homeowners without benefiting future mobile home owners, whowill be forced to purchase mobile homes at premiums. " Id. at530. The Court pointed out that this premium effect distin-guished the Escondido ordinance from ordinary rent controlstatutes. Apartment tenants do not sell anything to their suc-cessors and, quite often, are statutorily precluded from charg-ing "key money." Id. The ordinary rent control ordinancedoes not allow the lessee to monetize the present value of thereduced rent by conveying an apartment subject to a leasewith a below market rent. Although the Court ultimatelyrejected the Yees' argument because "it has nothing to dowith whether the ordinance causes a physical taking," id., itnoted that "[t]his effect might have some bearing on whetherthe ordinance causes a regulatory taking, as it may shed somelight on whether there is a sufficient nexus between the effectof the ordinance and the objectives it is supposed to advance."Id. (citing Nollan,
483 U.S. at 834
-35).The Bishop Estate makes a similar challenge to Ordinance91-96. It contends that the Ordinance's conveyance provisionscreate a premium, which an owner-occupant can capturewhen she sells a condominium subject to a renegotiated landrent. If the transferee intends to occupy the condominium, shereceives the benefit of the renegotiated rent. Hence, the trans-feror will charge a premium reflecting the net present valueof the difference between the renegotiated land rent and thefree market land rent.The district court found that the Ordinance allowed a lesseeto capture the present value of the below market land rent.Richardson II, 802 F. Supp. at 338. The Ordinance's failureto regulate resales, according to the district court, effected atransfer of wealth from lessors to lessees. Id. Because of thistransfer of wealth, which generally does not occur in the ordi-nary rent control ordinance, the court held that the Ordinanceis unconstitutional. While we agree that the Ordinance effectsa regulatory taking and, therefore is unconstitutional, we doso for somewhat different reasons than the district court.The City enacted the Ordinance to provide renegotiatedland lease rents "which are affordable to condominium apart-ment owner-occupants and fair to lessors" and to "maintain[affordable housing] for owner-occupants." The conveyanceprovision, as explained above, vitiates the cause-and-effectrelationship between the property use restricted (rent rates)and the social evil the Ordinance seeks to remedy (lack ofaffordable housing). Despite this, the City and the Hale Coali-tion assert that it does not effect an unconstitutional regula-tory taking. They assert that all land use regulations increasethe value of some property while decreasing the value of otherproperty.Initially, we must determine whether the Bishop Estate'stakings claim is ripe. "There are two independent prudentialhurdles to a regulatory taking claim brought . . . in federalcourt." Suitum v. Tahoe Regional Planning Agency, _______ U.S._______, 117 S. Ct. 1659, 1664 (1997). The first hurdle, that theplaintiff obtain a final decision regarding the application ofthe regulation to the property at issue from the entity chargedwith implementing the regulation, id. at 1665, does not applyto facial regulatory takings claims. Levald, 998 F.2d at 686.Twice before we have characterized premium based chal-lenges to a rent control statute as facial challenges. See Car-son Harbor, 37 F.3d at 474 n. 5 ("In Levald, which involvedsimilar facts, we noted that the premium is `relevant only toa facial, not an as-applied, regulatory challenge.' "). The firsthurdle thus does not apply to the Bishop Estate's argument.[19] "The second hurdle stems from the Fifth Amend-ment's proviso that only takings without `just compensation'infringe that Amendment; `if a State provides adequate proce-dure for seeking just compensation, the property owner can-not claim a violation of the Just Compensation clause until ithas used the procedure and been denied just compensation.' "Suitum, 117 S. Ct. at 1665 (quoting Williamson County, 473U.S. at 195 (1985)). Because the Bishop Estate's argumentthat the Ordinance does not substantially further a legitimatestate interest does not depend upon the extent to which theEstate is compensated, its facial regulatory taking claim isripe. See Yee,
503 U.S. at 534
("As this[premium argument]does not depend on the extent to which petitioners aredeprived of the economic use of their particular pieces ofproperty or the extent to which these particular petitioners arecompensated, petitioners' facial challenge is ripe."). Wetherefore turn to the merits of the Bishop Estate's argument.[20] Land use regulations do influence the value of prop-erty, but to be constitutional, they must do so in a manner thatsubstantially furthers a legitimate government interest.Nollan,
483 U.S. at 834
. Ordinance 91-96 does not do this. Itregulates the use of the lessors' property interests in a mannerthat does not substantially further the goal of creating afford-able housing. The absence of a mechanism that prevents les-sees from capturing the net present value of the reduced landrent in the form of a premium, means that the Ordinance willnot substantially further its goal of creating affordable owner-occupied housing in Honolulu. Incumbent owner occupantswho sell to those who intend to occupy the apartment willcharge a premium for the benefit of living in a rent controlledcondominium. The price of housing ultimately will remain thesame. The Ordinance thus effects a regulatory taking. See id.(regulation must substantially advance a legitimate state inter-est); see also, Pennell v. San Jose,
485 U.S. 1, 20
(1988)("Traditional land-use regulation (short of that which totallydestroys the economic value of property) does not violate [theprinciple that one should not be forced to bear a burden whichbelongs to the public as a whole] because there is a cause-and-effect relationship between the property use restricted bythe regulation and the social evil that the regulation seeks toremedy.") (Scalia, J., concurring). We accordingly hold thatOrdinance 91-96 violates the Fifth Amendment to the Consti-tution of the United States.7IV. CONCLUSIONIn summary, we hold that Ordinance 91-95 (the lease to feeordinance) is constitutional. The Ordinance admittedly takesprivate property, but it does so for a sufficiently public pur-pose and no constitutional deprivation has as yet been estab-lished. Ordinance 91-96 (the rent control ordinance), on theother hand, is unconstitutional because it fails to substantiallyfurther a legitimate governmental interest. The respectivejudgments of the district courts are thereforeAFFIRMED.
_____________________________O'SCANNLAIN, Circuit Judge, concurring in part and dis-senting in part.I join the court's opinion regarding the constitutionality ofOrdinance 91-96. With respect to Ordinance 91-95, I concurin the court's conclusion in Part II-B that there is no violationof the Public Use Clause, but write separately to express con-cern about Hawaii Housing Authority v. Midkiff,
467 U.S. 229
(1984). I respectfully dissent from Part II-C, however,because I believe that the challenge to Ordinance 91-95'scompensation provision is ripe, and that the provision doesnot provide just compensation.IIn Part II-B the court concludes that Ordinance 91-95 doesnot violate the Public Use Clause and relies heavily onHawaii Housing Authority v. Midkiff.AThe Fifth Amendment to the Constitution states:". . . norshall private property be taken for public use without justcompensation." U.S. Const., amend. V. The Public UseClause is an explicit limit on the power of the government totake private property for, as the Supreme Court has long rec-ognized, a taking must be for public use; a taking for a purelyprivate use is unconstitutional. See Thompson v. ConsolidatedGas Corp.,
300 U.S. 55, 80
(1937).Notwithstanding this principle, however, the SupremeCourt in Midkiff gave the Public Use Clause an exceedinglybroad reading: to satisfy the Clause, a taking need only be"rationally related to a conceivable public purpose." Midkiff,
467 U.S. at 241
. "The `public use' requirement is thus coter-minous with the scope of a sovereign's police powers." Id. at240; Nat'l R.R. Passenger Corp. v. Boston & Maine Corp.,
503 U.S. 407, 422
-42 (1992).Since Midkiff was decided, however, the Supreme Court'sregulatory takings jurisprudence has undergone considerablechange. See Dolan v. City of Tigard, 114 S. Ct. 2309 (1994);Lucas v. South Carolina Coastal Council, 112 S. Ct. 2886(1992); Nollan v. California Coastal Comm'n,
483 U.S. 825
(1987). Nollan, Lucas, and Dolan, of course, dealt with a dif-ferent area of takings jurisprudence, subject to a different setof rules than the one before us: here we have a challengeunder the Public Use Clause whereas that trio dealt with regu-latory takings.Notwithstanding that the Nollan-Lucas -Dolan trio dealtwith a different part of the Takings Clause, the landownersargue that these cases have modified Midkiff's deferentialreview of a legislature's public use determination. The courtrejects this argument, and I agree: the Nollan -Lucas-Dolantrio does not expressly modify or overrule Midkiff, and there-fore we must apply Midkiff in this case. Indeed, recent NinthCircuit authority confirms that Midkiff is still viable. See BayView, Inc. v. AHTNA, Inc., 105 F.3d 1281, 1286 (9th Cir.1997) ("After [Midkiff], a legislative determination of whatconstitutes `public use' is subject to `an extremely narrow'review, and will be upheld so long as it's rational."). Midkiff'sdeferential standard compels me to conclude that Ordinance91-95's taking serves a "conceivable public purpose."BAlthough Midkiff has not been overruled, and althoughNollan, Lucas, and Dolan deal with a different part of theTakings Clause, I nevertheless believe that there is tensionbetween these two lines of authority. The underlying thrust ofthe Nollan-Lucas-Dolan decisions--increasing the scrutiny ofregulations to determine if they go "too far" (enough torequire compensation)--is inconsistent with Midkiff's sweep-ing deference. It may be time for the Supreme Court to recon-sider Midkiff.To provide the context for this observation, I must take abrief detour. It seems to me that, speaking in broad terms,there are three ways the government can exercise control overproperty, especially real property. First, it can regulate pursu-ant to its broad police powers. Second, it can use its power ofeminent domain to take the property without the consent ofthe owner as long as it pays just compensation. Third, it canbuy land from a voluntary seller after negotiating a price--that is, it can use its revenues to behave like any other arm'slength purchaser of private property. See Thomas W. Merrill,The Economics of Public Use, 72 Cornell L. Rev. 61, 72(1986).Nollan, Lucas, and Dolan dealt with the relationshipbetween the first two categories. Lucas established when agovernment regulation goes too far. See Lucas, 112 S. Ct. at2901 ("When . . . a regulation that declares "off-limits" alleconomically productive or beneficial uses of land goesbeyond what the relevant background principles would dic-tate, compensation must be paid to sustain it."). Nollan andDolan tightened the required fit between the legitimate pur-pose sought to be accomplished by a government regulationand the means chosen--thereby identifying some exercises ofthe police power as takings. A police power regulation will betreated as a taking--an exercise of eminent domain--requiring compensation unless it adequately fits its purposes;that is, unless there is an "essential nexus" between a legiti-mate state interest and the regulation. See Dolan, 114 S. Ct.at 2317; Nollan,
483 U.S. at 837
.The Nollan-Lucas-Dolan trio therefore established that theTakings Clause is a limitation upon the state's police powers;if a regulation goes too far, or does not have the right fit, thenit must be treated as an exercise of eminent domain--a taking--which requires compensation. The Public Use Clauseappears to serve the same sort of function, but with respect tothe second and third categories--it limits the state's power ofeminent domain. If an exercise of eminent domain goes toofar--if it is for a private purpose, not a public one--then itcannot stand. If the state wants to acquire property in such cir-cumstances (and has the statutory authority to do so), it maynegotiate with the landowner to purchase the property at anagreed price, but it may not use its condemnation power.1Because the Nollan-Lucas-Dolan trio increased the level ofscrutiny given to police power regulations, identifying someof them as takings, it stands to reason that the same increasedscrutiny should be given to outright condemnation. If a takingdoes not have the required fit--perhaps something likeNollan's "essential nexus"--between its proclaimed publicuse and its actual effect, then it should be invalid under thePublic Use Clause.The court's opinion seeks to distinguish these cases, but Iam unpersuaded. To the majority, the distinction is the provi-sion of compensation: "[W]e see nothing inconsistent inapplying heightened scrutiny when the taking is uncompen-sated, and a more deferential standard when the taking is fullycompensated." Whereas the majority is correct that there isless reason to be suspicious of a fully compensated takingthan an uncompensated one, more deference does not implyabsolute deference. We ought not vitiate the public userequirement because, even if a landlord does receive the "fairmarket value" of the property, the landlord loses his right toexclude. Whether because of a sentimental attachment to hisproperty or a conviction that the property is actually worthmore than what the market will currently bear, a landlordmight choose not to sell, even at the "fair market value." Thelandlord who refuses to sell is asserting his right to exclude.As the Dolan Court recognized, "th[e ] right to exclude othersis `one of the most essential sticks in the bundle of rights thatare commonly characterized as property.' " Dolan, 114 S. Ct.at 2320 (quoting Kaiser Aetna v. United States,
444 U.S. 164
,176 (1979)). The public use requirement protects this right bylimiting government encroachment on private property -- byforcing the government to prove that it is upholding the publicwelfare and not merely transferring wealth to a class of per-sons with a stronger political voice.Therein lies the mischief of Midkiff. Hopefully the SupremeCourt will have the opportunity to extend its emerging takingsjurisprudence to protect the right to exclude and to add vitalityto the public use requirement. If the Clause is to have anyeffect at all, it must mean that a court will not feign blindnesswhen it sees through a patently transparent legislative recitalthat a taking is for a public use. When the government useseminent domain to take real property from A and give it to B,with no meaningful impact on anyone else or on the commu-nity at large, the taking is purely private and should violatethe Public Use Clause.In my view, Ordinance 91-95, unlike the statute in Midkiff,is a purely private taking. In Midkiff, the legislature wasattempting to break up an oligopoly in land ownership--aremnant of Hawaii's feudal past--to allow single familyhome ownership. Breaking apart large blocks of land held bya small group of landowners--blocks which encompassedalmost half the entire State of Hawaii--could be reasonablyexpected to spark more land transactions and lead to a morefluid real estate market. See Midkiff,
467 U.S. at 232
-33. Thatsome economists might disagree with the legislature's remedydoes not mean that the statute would be invalid--it retainedan "essential nexus" to its purpose and would be constitu-tional.In this case, however, the Honolulu City Council found noland oligopoly, but a mere concentration of land ownership inthe hands of landowners (a tautology), many of whom refusedto sell their land to their leasehold tenants (typically groups ofhighrise condominium owners), which in turn led to increasedreal property prices. As a remedy, when properly triggered,Ordinance 91-95 would condemn the property of the land-owners and transfer it in pro rata shares to the condominiumowners. It seems to me that the ordinance is nothing morethan a naked transfer from one property owner to another--from landlords to tenants. To be sure, because tenants will beable to own land that they could not purchase in the open mar-ket, the ordinance might well make today's tenants better off,and will certainly eliminate their need to pay rent altogether.But transferring title to the tenants will not change the valueof the property--which will still equal the combined value ofthe leasehold interest and the reversionary interest--andhence should not lower the price a seller will demand. If thelandlords constituted an oligopoly, then the division of theownership of the land could have the effect of lowering landprices from an oligopolistic level to something approachingthe free-market level. In the absence of a showing of an oli-gopoly, however, Ordinance 91-95 has nothing to do withchanging the structure of Hawaii's real estate market.Nevertheless, Midkiff's language limits the public useinquiry to whether there is a conceivable public purposebehind the law. Applying that deferential standard, I concludethat Ordinance 91-95 barely passes muster, and therefore Ireluctantly concur in the court's conclusion that it does notviolate the Public Use Clause.IIIn Part II-C of its opinion, the court concludes that the land-owners' compensation claims are not ripe. It does so whiletheoretically recognizing the well-established rule that a partyneed not seek compensation when doing so would be futileunder existing state law. See Levald, Inc. v. City of PalmDesert, 998 F.2d 680, 686 (9th Cir. 1993); see also William-son County Regional Planning Comm'n v. Hamilton Bank,
473 U.S. 172, 196
-97 (1985).Ordinance 91-95 sets the compensation for the taking as"the current fair market value of the leased fee interest." Ordi-nance 91-95, S 5.3. It defines the "leased fee interest" as the"reversionary interests of the fee owner." Id. at S 1.2.By its plain meaning, the ordinance pays only the currentfair market value of the landowner's reversionary interest. Inother words, the landowner gets paid only for his interest inthe property which excludes the leasehold. Conspicuouslyabsent from this formula is any payment for the currentstream of rental payments from the tenants to the landlord.Undoubtedly, the landlord has a protected property interest inthe rental payments--a lessor's interest distinct from thereversionary interest in the land. Currently, the tenants payrent to the landlord for the lease term. Under the ordinance,the tenants stop paying rent immediately upon condemnation.The landlord loses the stream of payments for the leaseholdperiod but is not compensated for the loss.In the court's view, Honolulu's Department of Housing andCommunity Development could interpret the compensationprovision broadly and include the lost rental payments in thecompensation formula. I do not think a fair (or even generous)reading of the ordinance will sustain that conclusion. Theordinance is clear: the landowners will get paid only for their"reversionary interests," which, as a matter of basic propertylaw, do not include the current income from the property. SeeBlack's Law Dictionary 1186 (5th ed. 1979) (defining"reversionary interest" as "[t]he property that reverts to thegrantor after the expiration of an intervening incomeinterest"). The Supreme Court has recognized that merelycompensating a lessor for the reversionary interest is insuffi-cient: "[W]hen a lease of trust land is made, . . . upon a subsequent condemnation by the United States, the trust must receive the then full value of the rever- sionary interest that is subject to the outstanding lease, plus, of course, the value of the rental rights under the lease."Alamo Land & Cattle Co., Inc. v. Arizona,
424 U.S. 295
, 303(1976) (emphasis added). The landlord must receive the valueof the leased payments because that is the difference betweenwhat is taken by the government (a present fee simple) andthe fair market value of the "reversionary interests."The court reaches the incorrect result because its analysisis incomplete. After noting that what reverts back to the land-lord is a fee interest, the court states that "[t]he projected earn-ing of that property would be a normal factor in determiningthe value of the property that reverts to the lessor." The courtis correct in that what reverts back is a fee interest, and thatthe value of a fee interest takes into account all projectedearnings. The court does not recognize, however, that a rever-sionary interest in fee simple is a lesser estate than a presentfee simple, and that the difference is the interim lease pay-ments. One can view the value of property as the sum of thediscounted future cash flows. A reversionary interest is lessvaluable than a present fee simple because the value of areversionary interest does not include the rent payments madeprior to reversion, as those would be past cash flows.Thus, to provide just compensation, Hawaii must pay thelandlords the value of the reversionary interest plus the pres-ent value of the lease payments. There is no need to wait andsee how the Department administers Ordinance 91-95, forunless the ordinance means something other than what it veryclearly says, it does not authorize the Department to givelandowners just compensation. In light of the plain meaningof the ordinance, any compensation paid by Honolulu to thelandowners would be constitutionally inadequate. The formal-ity of pursuing such compensation would therefore be futile.For that reason, I would conclude that the landowners' com-pensation claims are ripe for review, and that the districtcourt's order should be reversed to that extent.
___________________________FOOTNOTES 1 For purposes of this opinion, unless otherwise noted, references to"condominiums" or "condominium properties " include condominiumproperty regime developments, cooperative housing corporation develop-ments, and planned unit developments, which are the three types of devel-opments addressed by Ordinances 91-95 and 91-96.2 An example provided by the landowners in their brief is illustrative.The lessees of one apartment purchased their unit in January of 1988 for$986,500, and assumed the existing ground lease. They currently pay $45per month in ground lease rent and will continue to do so until the 30-yearfixed rent period expires in 1997. At that time, the lease fixes the new rentat six percent of the fair market value of the land exclusive of improve-ments. If the period had ended in 1991, the parties to the lease might haveused the real property tax assessed value used by the City as the fair mar-ket value of the land exclusive of improvements. In 1991 the real propertytax assessed value used by the City for the land appurtenant to the unit was$213,300. The new ground lease rent would be 6% of that figure, whichis $12,798 per year, or $1,066 per month.3 The City contends that the Bishop Estate owns approximately 20% ofthe condominiums on Oahu. The Bishop Estate does not refute this num-ber.4 The Act was designed to compel large landowners to break up theirestates. Under the Act, tenants who lease and live on single-family resi-dential lots within developmental tracts at least five acres in size can askthe Hawaii Housing authority ("HHA") to condemn the property on whichthey live. When half of the tenants in the tract, or 215 tenants, whicheveris less, file an application, the HHA can acquire some or all of the lots inthe Act by condemnation. The HHA then can sell the lots to the tenants.5 The landowners in Midkiff were trustees of the Bishop Estate, theappellants in the Richardson action.6 Under the Ordinance, the Department has the option of condemningonly a portion of the fee simple title under a condominium project (suchas where some of the condominium lessors do not wish to purchase the feesimple title). In such a situation, the original land owner will share the feesimple title to the land with each condominium purchaser as a cotenant.7 In light of our conclusion that Ordinance 91-96 fails to substantiallyfurther a legitimate state interest, we need not reach either the BishopEstates argument that it fails to provide for consideration of the character-istics of individual lessors or its other arguments.1 This is not to say that the Public Use Clause prohibits the governmentfrom possessing property for a non-public use; if the government with thestatutory power to do so purchases the property from a voluntary seller,there is no taking at all because there is no use of eminent domain. Thegovernment becomes the owner with the consent of the seller.