Manufactured Home Communities v. City of San Jose

• Decision Date: 23 August 2005
• Docket Number: No. 03-16766.,03-16766.
• Citation: 420 F.3d 1022
• Parties: MANUFACTURED HOME COMMUNITIES INC.; MHC Operating Limited Partnership, an Illinois limited partnership, Plaintiffs-Appellants, v. CITY OF SAN JOSE; Enis Rice; Gary DeWet; Martin Vancil; Marsha Skratt, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

420 F.3d 1022

MANUFACTURED HOME COMMUNITIES INC.; MHC Operating Limited Partnership, an Illinois limited partnership, Plaintiffs-Appellants, v. CITY OF SAN JOSE; Enis Rice; Gary DeWet; Martin Vancil; Marsha Skratt, Defendants-Appellees.

No. 03-16766.

United States Court of Appeals, Ninth Circuit.

Argued April 14, 2005.

Submitted August 17, 2005.

Filed August 23, 2005.

COPYRIGHT MATERIAL OMITTED

Elliott L. Bien, Bien & Summers, LLP, Novato, CA, for the appellants.

David Bradford and Lisa T. Scruggs, Jenner & Block, LLC, Chicago, IL, for the appellants.

Richard Doyle, George Rios, and Shannon Smyth-Mendoza, Office of the City Attorney, San Jose, CA, for appellee City of San Jose.

Bruce E. Stanton, Law Offices of Bruce E. Stanton, San Jose, CA, for appellees Enis Rice, Gary DeWet, Martin Vancil, and Marsha Skratt.

Appeal from the United States District Court for the Northern District of California; James Ware, District Judge, Presiding. D.C. No. CV-03-01713-JW.

Before LAY,^* B. FLETCHER, and HAWKINS, Circuit Judges.

BETTY B. FLETCHER, Circuit Judge.

Manufactured Home Communities, Inc.¹ and MHC Operating Limited Partnership² (collectively MHC) sued the City of San Jose challenging the City's Mobilehome Rent Ordinance as unconstitutional. MHC also sued four individual tenants of the MHC mobilehome park: Enis Rice, Gary DeWet, Martin Vancil, and Marsha Skratt (collectively Individual Defendants). MHC argued that the Individual Defendants are not eligible for rent control under California state law and are, thus, in violation of the City's Ordinance and California state law for refusing to pay increased rent.

MHC appeals the district court's dismissal of MHC's complaint for various jurisdictional and res judicata problems. We affirm the district court's decision on the basis of res judicata, untimeliness, failure to state a federal question, lack of supplemental jurisdiction, and California's statute of limitations.³ Although it does not affect the outcome of this case, we reverse the district court's holding on the Rooker-Feldman doctrine.⁴ We reverse and remand the matter of attorneys' fees.

Jurisdiction and Standard of Review

The district court dismissed several of MHC's claims for lack of subject matter jurisdiction under the Rooker-Feldman doctrine. Manufactured Home Cmtys., Inc. v. San Jose, 358 F.Supp.2d 896 (N.D.Cal.2003). The district court affirmed its dismissal under res judicata. The district court also dismissed MHC's claims for lack of ripeness, want of supplemental jurisdiction, and failure to comply with California's statute of limitations. This court has jurisdiction to review the district court's decision pursuant to 28 U.S.C. § 1291. Hacienda Valley Mobile Estates v. City of Morgan Hill Rent Review Comm'n, 353 F.3d 651, 653 (9th Cir.2003).

Rooker-Feldman jurisdiction claims are reviewed de novo. Noel v. Hall, 341 F.3d 1148, 1154 (9th Cir.2003). Res judicata claims are also reviewed de novo. Palomar Mobilehome Park Ass'n. v. City of San Marcos, 989 F.2d 362, 363 (9th Cir.1993). Ripeness is a question of law, and it is reviewed de novo. Ventura Mobilehome Cmtys. Owners Ass'n v. City of San Buenaventura, 371 F.3d 1046, 1050 (9th Cir.2004). Whether a district court had supplemental jurisdiction is reviewed de novo; a district court's decision to decline supplemental jurisdiction is reviewed for abuse of discretion. Trs. of the Constr. Indus. & Laborers Health & Welfare Trust v. Desert Valley Landscape & Maint., Inc., 333 F.3d 923, 925 (9th Cir.2003). Whether a claim is barred by a statute of limitations and when a statute of limitations begins to run are reviewed de novo. Cashman v. City of Cotati, 374 F.3d 887, 892 (9th Cir.2004). The facts alleged in a complaint dismissed for lack of subject matter jurisdiction are accepted as true. Carson Harbor Village, Ltd. v. City of Carson, 353 F.3d 824, 826 (9th Cir.2004).

Factual Background and Procedural History

The City of San Jose passed a Mobilehome Rent Ordinance in 1986. San Jose Municipal Code (SJMC) ch. 17.22. The Ordinance includes, among other things, rent control provisions. The rent control provisions allow for a maximum annual rent increase calculated in relation to the Consumer Price Index. SJMC § 17.22.450. Proposed increases exceeding the calculated amount are subject to administrative review.

The maximum annual rent increase is supposed to allow mobilehome park owners a fair and reasonable return on their investment. A fair return is defined as an amount allowing an owner to maintain the same level of income, adjusted for inflation, as the owner received in the "base year." SJMC § 17.22.550. This system is known as the maintenance of net operating income approach to stabilizing rents. The base year under the Ordinance is 1985. SJMC § 17.22.490.

If a mobilehome park owner believes the maximum annual rent increase will not provide a fair return, then he may petition the City for a rent increase. SJMC § 17.22.700. An administrative hearing officer will conduct a hearing on the petition. SJMC § 17.22.750. At the hearing there is a rebuttable presumption that the level of income received in the base year provides a fair and reasonable return. SJMC § 17.22.480. An owner may rebut this presumption by showing that operating expenses were unusually high or low in the base year or that gross income was disproportionate in the base year. SJMC § 17.22.510. Decisions by the administrative hearing officers are subject to judicial review. SJMC § 17.22.1040.

Individual mobilehome owners may voluntarily exempt themselves from the City's rent control provisions. SJMC § 17.22.370. Certain mobilehome units are automatically exempt from the provisions. SJMC § 17.22.350-360. Under California's Civil Code "if a mobilehome space within a mobilehome park is not the principal residence of the homeowner and the homeowner has not rented the mobilehome to another party, it shall be exempt" from the City's Ordinance. Cal. Civ.Code § 798.21(a). The burden of proving a unit is exempt from the rent control provisions or that a rent increase is exempt from the provisions rests with the park owner. SJMC §§ 17.22.390 & 17.22.452.

MHC, a publicly traded real estate investment company, owns and operates Westwinds mobilehome park in San Jose, California. MHC purchased Westwinds in August 1997. Due to an increase in ground rent in 1996, MHC says the park's operating expenses increased by $1.3 million that year. In May of 1998, MHC petitioned the City's rental dispute program for a special rent increase to cover the increased costs. Unfortunately, Westwinds' financial records for the base year, 1985, were destroyed by the park's previous owner. MHC only has financial records for Westwinds for the years 1996 and 1997. Although MHC's initial petition for review included an estimate of the 1985 numbers, MHC now says an accurate estimate of the 1985 numbers is impossible. MHC submitted an amended petition using 1996 as the base year for determining whether a rent increase was appropriate.

After an administrative hearing, an administrative hearing officer ruled against MHC's petition for a rent increase in October of 1998.⁵ The hearing officer determined that financial information for 1996 could not be used as a base and only 1985 could be used. MHC then sought a writ of administrative mandamus in California Superior Court pursuant to California Civil Procedure Code § 1094.5. MHC alleged that the failure to grant a rent increase was arbitrary, capricious, an abuse of discretion, and in disregard of the uncontradicted evidence. MHC argued the City's actions violated the Ordinance and the Constitutions of California and the United States.⁶ The Superior Court ruled in favor of MHC, deeming the Ordinance unconstitutional because it did not provide a mechanism for calculating a fair return when mobilehome park owners cannot, through no fault of their own, prove actual base year net operating income.

In response, the City passed an Urgency Ordinance amending the Ordinance.⁷ City of San Jose Urgency Ordinance No. 25958. The Urgency Ordinance allowed for estimates of base year income and expenses when exact information is unavailable. SJMC § 17.22.495. It also said that "[n]o provision . . . shall be applied so as to prohibit the Administrative Hearing Office from granting a rent increase that is demonstrated as necessary." SJMC § 17.22.030.

After passage of the Urgency Ordinance, MHC repetitioned for a rent increase. MHC again provided only 1996 financial information. The administrative hearing officer held a hearing in November of 1999. At the hearing MHC presented evidence that it is impossible to estimate the 1985 financial information. The City presented evidence that it is possible to estimate the 1985 financial information. The hearing officer found it possible to estimate the 1985 financial data and denied MHC's petition without prejudice.

MHC then petitioned for a supplemental writ of administrative mandamus in Superior Court. MHC abandoned its constitutional claims before the Superior Court and challenged only the hearing officer's interpretation of the Ordinance and the officer's factual finding that MHC is able to estimate the 1985 financial data. The Superior Court said that the City remedied the constitutional problems with the Ordinance by passing the Urgency Ordinance, noting MHC "no longer challenges its constitutionality." The court affirmed the hearing officer's interpretation of the Ordinance and affirmed the officer's decision that estimating the 1985 financial information is possible for the purposes of calculating a fair return under the Ordinance.

MHC then appealed to the California Courts of Appeal. MHC argued that the City hearing officer and the Superior Court misinterpreted the Urgency Ordinance. MHC also revived its constitutional challenge to the Ordinance. The Courts of Appeal characterized MHC's challenge by quoting MHC's opening brief...