Granberry v. Islay Investments

• Decision Date: 30 October 1984
• Parties: Lisa GRANBERRY, Cosetti Jordan, Christopher Glasspool, Alice Glasspool, and all others similarly situated, Plaintiffs and Appellants, v. ISLAY INVESTMENTS, a partnership. Marvin Trevillian, Does 1 through 100, inclusive, Defendants and Respondents. Civ. 68686.
• Court: California Court of Appeals Court of Appeals

Page 652

207 Cal.Rptr. 652

161 Cal.App.3d 382

Lisa GRANBERRY, Cosetti Jordan, Christopher Glasspool, Alice Glasspool, and all others similarly situated, Plaintiffs and Appellants, v. ISLAY INVESTMENTS, a partnership. Marvin Trevillian, Does 1 through 100, inclusive, Defendants and Respondents.

Civ. 68686.

Court of Appeal, Second District, Division 6, California.

Oct. 30, 1984.

Hearing Denied Jan. 3, 1985.

David H. Schwartz of Hill, Schwartz, Stenson & Boutin, San Francisco, for plaintiffs-appellants.

Ernest L. Graves for plaintiffs-appellants.

Willard Hastings, Jr., Legal Defense Center, Inc., Santa Barbara for plaintiffs-appellants.

Arlo Smith, Dist. Atty. and David C. Moon and Steven J. Castleman, Asst. Dist. Attys., as amicus curiae on behalf of plaintiffs-appellants.

Department of Consumer Affairs, Division of Consumer Services, Legal Services Unit, Richard A. Elbrecht, Supervising Attorney, A. Paul Griebel, Litigation Coordinator, Roger Dickinson, Lead Counsel, Sacramento, as attorneys for amicus curiae on behalf of plaintiffs-appellants.

Antonio R. Romasanta and Frances E. Komoroske of Goux, Romasanta & Cappello, Santa Barbara, for defendants and respondents.

GILBERT, Associate Justice.

Here we attempt to make sense out of Civil Code section 1950.5. ¹

Defendant Islay Investments (Islay) is a partnership that owns and rents apartments. Codefendant Marvin Trevillian is Islay's managing partner. Plaintiffs are We hold that the trial court erred in granting summary judgment to Islay because the court misinterpreted the statute.

tenants of Islay, who have been certified as a class under Code of Civil Procedure section 382. They contend that Islay's rental practices violate Civil Code section 1950.5, ² and appeal from a partial summary judgment entered in favor of Islay.

FACTS

Islay rents each of its individual apartments for an initial term of 31 days. ³ After the expiration of this term, the tenant may continue to rent the apartment daily, weekly, biweekly or monthly, or may terminate the tenancy without further obligation. If the tenant chooses to continue to rent the apartment monthly after the initial term, the tenant is charged a lower rent for the subsequent months. ⁴

Plaintiffs challenge this practice as being violative of Code of Civil Procedure section 1950.5. After initial skirmishes at the pleading stage, when demurrers were sustained to plaintiffs' first amended complaint, and Islay's first motion for summary judgment was denied, plaintiffs filed their second amended complaint which is comprised of five causes of action.

The first two causes of action seek declaratory relief and a determination that the extra amount charged by Islay for the first month's rent is a security prohibited by Civil Code section 1950.5. The additional causes of action seek injunctive relief, an accounting, and damages. Plaintiffs and Islay each brought motions for summary judgment, or in the alternative, for determination of issues without substantial controversy as to the first two causes of action, respectively.

The trial court granted Islay's motion for summary judgment, finding that the "first month's rental charged by defendant Islay was 'rent' in fact as well as in name." Since the remaining causes of action were dependent on the first two causes of action, the trial court then granted Islay's motion for judgment on the pleadings as to those causes of action.

HISTORICAL BACKGROUND

1970 saw the enactment of Civil Code section 1950.5 ⁵ which gave tenants a right to recover payments to landlords when the primary function of such payments was to secure the performance of a rental agreement. Immediately prior to the enactment of section 1950.5 Islay had been charging its tenants a "refundable security deposit" in addition to the first months' rent. Tenants had to remain tenants for a specified time in order to qualify for this refund.

Upon the enactment of section 1950.5, Islay converted its so-called "refundable security deposit" to a "non-refundable cleaning fee" in order to avoid disputes in litigation over refunds. Islay determined the amount of this cleaning fee by whatever the market would bear.

In Bauman v. Islay Investments (1973) 30 Cal.App.3d 752, 106 Cal.Rptr. 889, the appellate court reversed the trial court's sustaining of a demurrer without leave to amend, and held that Islay's non-refundable cleaning fee could entitle tenant plaintiffs to relief under Civil Code 1950.5. Islay thereafter charged a fixed amount for the first month's rent for each new tenancy. When the tenant elected to continue the tenancy on a monthly basis, the tenant was charged lower rent for subsequent months. That portion of the first month's rent which was greater than the amount charged for subsequent months was determined again by what the market would bear.

The Legislature made the next move. It amended Civil Code section 1950.5 to define the term "security" to include any payment for any purpose so that "security" was no longer related to the purpose for which the front-end payment was taken.

The trial court had to determine whether the extra payment Islay required of its tenants for the first month's rent was in fact rent or a disguised security. There were available to the judge the results of protracted discovery consisting of several depositions, interrogatories, requests for production of documents, requests for admissions and declarations. We nevertheless reverse because the trial court defined "security" too narrowly.

DISCUSSION

The original version of Civil Code section 1950.5 defined security as "any payment or deposit of money the primary function of which is to secure the performance of a rental agreement or any part of such an agreement, .... made to secure the execution of a rental agreement...." In the current version of section 1950.5, the definition of "security" is no longer dependent on its primary function. The legislative counsel's digest in its description of the amendment to the statute suggested that even an advance payment of rent could be a security. Subsection (b) defines a "security" as any payment, fee, deposit or charge which includes, but is not limited to, an advance payment of rent, used for any purpose, including, but not limited to:

"(1) The compensation of a landlord for a tenant's default in the payment of rent.

(2) The repair of damages to the premises caused by the tenant.

(3) The cleaning of the premises upon termination of the tenancy."

These common examples of the purposes for obtaining a security do not comprise the exclusive definition of what constitutes a security under the statute.

To further confound anyone trying to make sense out of the statute, it might appear from subsection (e) that function is in fact tied to the definition of "security." That subsection is related to subsection (b) because it states that "[t]he landlord may claim of the security only such amounts as are reasonably necessary to remedy tenant defaults in the payment of rent, to repair damages to the premises caused by the tenant, exclusive of ordinary wear and tear, or to clean such premises, if necessary, upon termination of the tenancy." Subsection (e) in fact only states when the landlord may forfeit the security.

A literal reading of subsection (b), however, reveals a conundrum. Included in the definition of a security is "[A]n advance payment of rent, used or to be used for any purpose...." Therefore, a legitimate advance payment of rent would be a security. Such an absurd result would effectively put most landlords out of business and render tenants homeless. This is not the first statute to teeter on the brink of unintelligibility.

"One of the cardinal rules of construction requires that words be given such interpretation as will promote rather than defeat the general purpose and policy of the law. [Citation.] A statute should be interpreted so as to produce a result that is reasonable. [Citation.] If two constructions are possible, that which leads to the more reasonable route should be adopted." (Alford v. Pierno (1972) 27 Cal.App.3d 682, 688, 104 Cal.Rptr. 110.) Alford also states that courts have to look for the context of the law, and where uncertainty exists give consideration to consequences that will flow from a particular interpretation. [Id.]

The words of a statute will not be literally construed if this would cause an absurd result, or if it would fail to give effect to the manifest purposes of the statute in light of its legislative history. (Golden v. City of Oakland (1975) 49 Cal.App.3d 284, 288, 122 Cal.Rptr. 400.) " '[T]hat construction is favored which would defeat subterfuges, expediencies, or evasions employed to continue the mischief sought to be remedied by the statute, or to defeat compliance with its terms, or any attempt to accomplish by indirection what the statute forbids.' " (Freedland v. Greco (1955) 45 Cal.2d 462, 467, 289 P.2d 463 (quoting 50 Am.Jur., Statutes, § 361).)

Obviously, "security" cannot mean the same thing as rent. That a landlord chooses to call a payment "rent" however, does not mean that such a payment is in fact rent. Subsection (c) of the statute specifically states that "[a] landlord may not demand or receive security, however denominated...." Also, under subsection (c) a landlord may receive in addition to the first month's rent, a security in an amount equal to two or three months' rent, depending upon whether the unit is furnished or not. Therefore legitimate rent is not a security within the meaning of the statute. Thus a security which masquerades as rent solely because the landlord chooses to call it rent, is still a security.

When the trial judge tackled his unenviable chore of deciding whether Islay's rental practices ran afoul of section 1950.5, he apparently misinterpreted the statute (an easy thing to do).

In his statement of decision the trial judge erroneously found in the statute a connection...