Bon Ayre Land LLC v. Bon Ayre Cmty. Ass'n

Decision Date26 February 2015
Docket NumberC.A. No. K14A-08-001 WLW
PartiesBON AYRE LAND LLC, a Delaware Limited Liability Co., Appellant, v. BON AYRE COMMUNITY ASSOCIATION, Appellee.
CourtDelaware Superior Court

BON AYRE LAND LLC, a
Delaware Limited Liability Co., Appellant,
v.
BON AYRE COMMUNITY ASSOCIATION, Appellee.

C.A. No. K14A-08-001 WLW

SUPERIOR COURT OF THE STATE OF DELAWARE IN AND FOR KENT COUNTY

Submitted: November 17, 2014
February 26, 2015


ORDER

Upon the Appeal from the Decision of the Delaware Manufactured Home Relocation Authority; Superior Court's Decision on Appellant's Request for a Rent Increase. Denied.

L. Vincent Ramunno, Esquire of Ramunno & Ramunno, P.A., Wilmington, Delaware; attorney for Appellant.

James G. McGiffin, Jr., Esquire of Community Legal Aid Society, Inc., Dover, Delaware; attorney for Appellee.

WITHAM, R.J.

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The Delaware General Assembly recently enacted legislation under the Delaware Manufactured Home Owners and Community Owners Act ("Act"), which among other things, governs rent increase in manufactured housing communities. The new legislation mandates that a community owner, prior to increasing rent above the average annual increase of the Consumer Price Index For All Urban Consumers in the Philadelphia-Wilmington-Atlantic City area ("CPI-U") comply with a number of statutory proscribed procedures.1

This case involves a rent justification action between community owner Bon Ayre Land LLC ("Appellant"), and Bon Ayre Community Association2 ("Appellee"). Pursuant to 25 Del. C. § 7044, the Appellant appeals from the non-binding decision of the arbitrator who found that the Appellant's proposed rent increase was not justified under the Act. The Appellant raises four issues on appeal: (1) The rent justification act is unconstitutional, inconsistent and unworkable; (2) the arbitrator erred in excluding relevant and admissible evidence; (3) the arbitrator erred in not complying with the legal doctrine of collateral estoppel; and (4) the arbitrator's decision was contrary to the law and the evidence. I begin by reviewing the Act.

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DELAWARE MANUFACTURED HOME OWNERS AND COMMUNITY OWNERS ACT3

The General Assembly provided us with the following purpose:

Manufactured housing has become a vital source of affordable housing in Delaware, particularly as a home ownership opportunity for low-income households who otherwise would likely not be able to move into home ownership. In recent years, Delaware has experienced a difficult economic climate which has resulted in a crisis in affordable housing availability. Additionally, manufactured home owners make substantial and sizeable investments in their manufactured homes. Once a manufactured home is situated on a manufactured housing community site, the difficulty and cost of moving the home gives the community owner disproportionate power in establishing rental rates. The continuing possibility of unreasonable space rental increases in manufactured home communities threatens to diminish the value of manufactured home owners' investments. Through this subchapter, the General Assembly seeks to protect the substantial investment made by manufactured home owners, and enable the State to benefit from the availability of affordable housing for lower-income citizens, without the need for additional state funding. The General Assembly also recognizes the property and other rights of manufactured home community owners, and seeks to provide manufactured home community owners with a fair return on their investment. Therefore, the purpose of this subchapter is to accommodate the conflicting interests of protecting manufactured home owners, residents and tenants from unreasonable and burdensome

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space rental increases while simultaneously providing for the need of manufactured home community owners to receive a just, reasonable and fair return on their property.4

Accordingly, to ensure rental increase is attributed to normal market forces and not the disproportionate bargaining power enjoyed by the community owners; for any increase above the CPI-U, the community owner must demonstrate the increase is justified.5 To do so, the community owner must demonstrate: (1) it has not had any health or safety violations that persist more than 15 days after it received notice of the violation during the previous twelve month period; (2) the proposed increase is directly related to operating, maintaining, or improving the manufactured home community; and (3) the increase is justified by at least one of several factors.6

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One such factor, and the only one relied on by the Appellant in arbitration and on appeal, is market rent. The Act defines market rent as, "rent which would result from market forces absent an unequal bargaining position between the community owner and the home owners."7 In calculating market rent, "relevant considerations include rents charged by comparable manufactured home communities."8 To be considered a comparable manufactured home community within the meaning of the statute, the comparables "must offer similar facilities, services, amenities and management."9 Finally, at the meeting, the community owner must "disclose financial and other pertinent documents and information supporting the reasons for the rent increase."10

In addition to being able to actually show the rental increase is justified within the meaning of 25 Del. C. § 7042, the Act requires the community owner to undertake a number of procedural requirements. In a recent case, this Court explained what is procedurally required:

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First, the community owner must give written notice to each affected home owner, the community's home owners' association ("HOA"), and the Authority at least 90 days prior to any increase in rent. Second, if the proposed increase is over the CPI-U, there must also be a meeting between the community owner and the other parties. At the meeting, the community owner must provide [...] disclosures, in good faith, of all material factors resulting in its decision to increase rent. These material factors include "financial and other pertinent documents and information." Finally, if the parties cannot reach a resolution at the meeting, any affected homeowner, or the HOA on behalf of one or more of the affected homeowners, may petition the Authority for non-binding arbitration in which the Authority will render a decision as to whether the community owner may increase rent in the manufactured community.11

The Court went on to explain:

If arbitration is sought by one of the parties, the Authority is charged with considering evidence regarding the increases in the costs of operating, maintaining, and improving the affected community. The Authority is to employ the standard codified in 25 Del. C. § 7042. If the Authority finds that the community owner has not established the requirements laid out in § 7042, it will deny the community owner's request for the rent increase. The community owner, the affected community's HOA, or any affected homeowner is entitled to appeal to the Superior Court on the record with regard to the Authority's decision to grant or deny the rent increase. The statute requires the Court to make an independent decision based on the record below instead of

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affirming or reversing the arbitrator's decision.12

BACKGROUND

Bon Ayre is a manufactured home community consisting of 194 homes located in Smyrna, Delaware.13 Residents of the community own their homes and rent a plot of land from the Appellant.14 On February 18, 2014 and again on March 10, 2014, Appellant sent the Appellee and affected homeowners notice of Appellant's intent to increase rent above the applicable CPI-U.15 Appellant scheduled two separate meetings to discuss the rental increase which took place on March 7, 2014 and April 8, 2014.16 Present at the meeting was Dick Draper, on behalf of the Appellant and members of the Bon Ayre community.17 The parties where unable to reach an agreement at either meeting and Appellee filed petitions for arbitration for all of the proposed increases.18 Sometime before arbitration, the Appellant commissioned a

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certified general appraiser to estimate the current market rents of Bon Ayre and a number of comparable manufactured homes communities.19 The report was completed on May 22, 2014, and contained over 37 pages of comparable data.20

On May 28, 2014, the parties participated in arbitration. Based on the record established through live testimony and exhibits, the arbitrator determined the Appellant had not met its burden of proof in justifying a $70 rent increase and limited the increase to $30 a month.21 Now before this Court is Appellant's timely appeal.

STANDARD OF REVIEW

"A community owner, [Home Owners Association], or any affected home owner may appeal the non-binding decision of the Arbitrator to the Delaware Superior Court. The appeal is on the record without a trial de novo. The Court must independently address arguments of the parties as to whether the record created in the arbitration is sufficient to justify an increase in rent above the CPI-U."22

DISCUSSION

Appellant's first contention is that the Act violates its Delaware Constitutional right to have a trial by jury in civil proceedings. Article I, Section 4 of the Delaware Constitution provides that "[t]rial by jury shall be as heretofore." The legal and

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historical significance of "heretofore" has been examined at length by the Supreme Court of Delaware.23 The Court has explained:

When Delaware adopted its next Constitution in 1792, its citizens were guaranteed the right to trial by jury "as heretofore." Consequently, since its inception in 1776, the Delaware Constitution has afforded its citizens the right to trial by jury in both criminal and civil proceedings. In doing so, the Delaware Constitution has expressly preserved all of the fundamental features of the jury system as they existed at common law. A sine qua non of that common law jurisprudence is the principle that either party shall have the right to demand a jury trial upon an issue of fact in an action at law. As previously noted, the 1776 Delaware Declaration of Rights, which was
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