Lakemore Co. v. Brown

• Decision Date: 15 July 1943
• Docket Number: No. 15.,15.
• Citation: 137 F.2d 355
• Parties: LAKEMORE CO. v. BROWN, Price Adm'r.
• Court: U.S. Temporary Emergency Court of Appeals Court of Appeals

137 F.2d 355 (1943)

LAKEMORE CO. v. BROWN, Price Adm'r.

No. 15.

United States Emergency Court of Appeals.

Heard April 2, 1943.

Decided July 15, 1943.

Lloyd S. Schwenger, of Cleveland, Ohio, for complainant.

Nathaniel L. Nathanson, Asst. Gen. Counsel, of Washington, D. C. (David Ginsburg, Gen. Counsel, Thomas I. Emerson, Associate Gen. Counsel, and William R. Ming, Jr., and Carl H. Fulda, Attys., of the Office of Price Administration, all of Washington, D. C., on the brief), for respondent.

Before VINSON, Chief Judge, and MARIS and MAGRUDER, Judges.

MAGRUDER, Judge.

This complaint raises the question whether the Emergency Price Control Act, 56 Stat. 23, 50 U.S.C.A.Appendix, § 901 et seq., requires the Price Administrator, in promulgating rent regulations thereunder, to make provision for adjustment of the maximum rent applicable to an individual property, on the ground that the local authorities had reappraised the particular property and increased its assessed valuation, with the result of increasing the owner's real estate taxes.

The applicable regulation is Maximum Rent Regulation No. 16 for Housing Accommodations in the Cleveland Defense-Rental Area, which was issued on May 27, 1942, to become effective June 1, 1942. 7 F.R. 4090. In its general scheme this regulation followed closely the form of the rent regulation considered by us in Chatlos v. Brown, decided May 28, 1943. For housing accommodations, which were rented on July 1, 1941, § 4 of the regulation prescribes that the maximum rent "shall be the rent for such accommodations on that date." Section 5 states seven grounds on which alone a landlord may file a petition for adjustment to increase the maximum rent otherwise allowable. The applicable grounds, in general, cover situations in which the rent on the maximum rent date was not fixed by normal economic forces in a free competitive market, or where there has been a major capital improvement or a substantial increase in the services furnished by the landlord. No provision is made for adjustment on account of increased taxes or other operating costs since the maximum rent date.

On June 30, 1942, The Lakemore Company filed with the Administrator a petition for adjustment of maximum rents on the ground of an increase in real estate taxes since the maximum rent date. This petition was denied by the Administrator on July 8, 1942, on the ground that it did not state a case for relief under any of the seven categories enumerated in § 5.

Thereafter, on July 25, 1942, The Lakemore Company, pursuant to § 203(a) of the Act, filed with the Administrator its protest, directed both against Maximum Rent Regulation No. 16 and against the order of the Administrator denying its petition for adjustment. We need to consider the protest only as it is directed against the regulation itself, because it is clear that complainant was not entitled to relief under any of the adjustment provisions in § 5; and if the regulation is valid, the requirements of an equable and non-discriminatory administration of it necessitated a denial of the petition for adjustment.

The protest recited the following facts: The Lakemore Company since May, 1939, has been the owner of an apartment building in Cleveland, Ohio, consisting of forty-two suites, all of which are rented on a month-to-month basis. The rentals which it was receiving on July 1, 1941, "were less than those rentals which were being received for comparable suites in the same neighborhood on said date." On December 19, 1941, the auditor of the County of Cuyahoga gave notice to protestant that the value of the apartment building had been reappraised for the tax year 1941, resulting in an increase of the assessed valuation from $84,250 to $109,250. "This arbitrary increase of assessed valuation" increased the taxes on the property (on the basis of the 1941 tax rate) from $2,687.56 to $3,474.15, an increase of $786.59 per year, which "will remain in effect indefinitely." The increase for the tax year 1941 is first payable during the year 1942. "Had notice of this increase been received by the Protestant prior to July 1st, 1941, rents would have been increased at the time of such receipt, and the schedule of rents as of July 1st, 1941, would have reflected such tax increase. As a matter of fact, rents were slightly increased after July 1st, 1941, but this Protestant has been unable to retain the benefit of this increase by reason of the Rent Control Act. As a result this Protestant has been subjected to an unnecessary hardship."

Specifically, protestant objected to § 5 of the regulation, (1) for failing to make provision for adjustment of rents in those cases where an increase of the assessed valuation has resulted in an increase of real estate taxes, thus increasing the cost of maintenance and operation of the housing accommodation; (2) "for failing to make provision for adjustments in rents in cases of undue hardship"; and (3) "for failing to make provision for adjustment of rents in those cases where conditions beyond the control of the Protestant substantially increase the cost of maintenance and operation of the housing accommodation."

On December 10, 1942, the Administrator entered an order denying the protest. Claiming to be aggrieved by the denial, The Lakemore Company, pursuant to § 204(a) of the Act, filed its complaint in this court on January 9, 1943.

Complainant does not challenge the propriety of the Administrator's selection of July 1, 1941, as the maximum rent date. It makes no attempt to show that the maximum rentals established by § 4 of the regulation for housing accommodations in the Cleveland defense-rental area are not "generally fair and equitable" and will not "effectuate the purposes" of the Act — which is the standard prescribed in § 2(b) of the Act. And even as applied to complainant individually there is no claim that the regulation prevents it from earning a fair return on its property. Nor does it appear that complainant's net operating income under rent control is, or is likely to be, less than the net income from the property during comparable periods prior to rent control.

Much stress is laid by complainant upon the provision in § 2(b) of the Act that so far as practicable, in establishing maximum rents, the Administrator "shall make adjustments for such relevant factors as he may determine and deem to be of general applicability" in respect of housing accommodations within the particular defense-rental area, "including increases or decreases in property taxes and other costs." But the record sufficiently indicates, and the Administrator in his opinion accompanying the denial of the protest has found, "that there has been no general increase either in assessed valuations or real estate taxes in Cleveland for the year 1941." At the argument before us counsel for complainant conceded this, and stated that so far as he knew, complainant was the only landlord affected by the regulation whose property had been subjected to an increase in the assessed valuation since July 1, 1941, the maximum rent date. This, therefore, cannot be deemed a factor of "general applicability" within the meaning of § 2(b). Furthermore, as we pointed out in Chatlos v. Brown, supra, even where there have been, since the maximum rent date, increased items of operating cost of admittedly general applicability, the failure of the Administrator to make provision for adjustment upwards of the established maximum rents does not necessarily demonstrate that such rents are generally unfair and inequitable, because there may be compensating factors as a natural result of war conditions, such as savings resulting from reduction of competitive expenditures, or increased gross revenue because of greater occupancy due to housing shortages enhanced by war activities.

For the purpose of acting on the protest the Administrator...