Mhc v. City of San Jose
| Decision Date | 13 February 2003 |
| Docket Number | No. H020648.,No. H022038.,H020648.,H022038. |
| Citation | 106 Cal.App.4th 204,130 Cal.Rptr.2d 564 |
| Court | California Court of Appeals Court of Appeals |
| Parties | MHC OPERATING LIMITED PARTNERSHIP, Plaintiff and Respondent, v. CITY OF SAN JOSE et al., Defendants and Appellants; Wallace Sucholas, Intervener & Respondent. MHC Operating Limited Partnership, Plaintiff and Appellant, v. City of San Jose et al., Defendants and Respondents; Wallace Sucholas, Intervener and Respondent. |
This consolidated appeal arises out of administrative and judicial proceedings involving San Jose's mobilehome rent control ordinance.
The Parties: Appellants and cross-respondents are the City of San Jose and its Department of Parks, Recreation, and Neighborhood Services (collectively, the City). The City has enacted and administers a mobilehome rent control ordinance (the Ordinance). Respondent and cross-appellant is MHC Operating Limited Partnership (MHC). MHC owns and operates a 725-unit mobilehome park within the City known as Westwinds Manufactured Home Community mobilehome park (the Park), which it purchased in 1997. There is also one intervener on appeal, cross-respondent Wallace Sucholas (Sucholas), who is a resident of the Park.
The Ordinance: The Ordinance permits mobilehome park owners a fair and reasonable return. (San Jose Municipal Code, tit. 17, ch. 17.22, § 17.22.020.)1 The Ordinance operates on the rebuttable presumption that net operating income (NOI) provided owners with a fair return in the base year. (§§ 17.22.480, 17.22.510.) The Ordinance therefore defines fair return as the amount needed to maintain base year NOI, as adjusted for inflation. (§ 17.22.550.) Except in the case of rental units previously subject to long-term leases, the Ordinance establishes 1985 as the base year. (§ 17.22.490.) Base year NOI is calculated by subtracting actual operating expenses from gross income for the year. Under the Ordinance, park owners are allowed certain rent increases without review. (§ 17.22.450.) Applications for extraordinary increases (in excess of those allowed without review) must be approved by an administrative hearing officer. (§ 17.22.460.)
Summary of Proceedings Below: MHC applied for an extraordinary rent increase. The hearing officer denied the application on the ground that MHC had failed to provide base year NOI. MHC sought judicial relief, arguing that it was unable to calculate base year NOI because of missing financial records and further arguing that the Ordinance violated its constitutional right to a fair return. In 1999, the Superior Court issued a writ commanding the City to reconsider MHC's application. In response, the City amended the Ordinance to permit estimates of 1985 base year NOI. Thereafter, further administrative proceedings were conducted, but MHC was again denied a rent increase. MHC then sought a supplement writ from the Superior Court, which was denied in July 2000.
The Appeals: On appeal, the City claims that the trial court erred in granting the 1999 writ. MHC asserts that the court erred in refusing to grant supplemental writ relief in 2000. As we explain below, we dismiss the City's appeal as moot, and we reject MHC's appeal on the merits.
In 1998, MHC applied for an extraordinary rent increase under the Ordinance. At the time of MHC's application, the Ordinance contained no provision permitting the use of estimates to establish base year NOI.
Proceedings Leading to the City's Appeal:
Hearings on MHC's rent increase application were conducted in September 1998.2 At those hearings, MHC claimed that it was unable to establish 1985 NOI because the park's prior owner had not retained adequate financial records. MHC therefore sought to use 1996 as the base year, instead of 1985. The hearing officer rejected that approach and denied a rent increase, citing MHC's failure to establish 1985 base year NOI.
MHC then petitioned the Superior Court for a writ of administrative mandamus, challenging the denial of its rent increase application. (Code Civ. Proc., § 1094.5.)
In 1999, the trial court granted MHC's writ petition. The court declared the Ordinance unconstitutional as applied to MHC, because it lacked a mechanism for calculating fair return when mobilehome park owners cannot prove actual base year NOI. Nevertheless, the court observed: "If the Ordinance did allow an estimation of net operating income for 1985, then [MHC] would not be deprived of a fair rate of return because [it] could present circumstantial evidence of the net operating income in 1985____ However, the Ordnance [sic] does not allow estimations." The court issued a writ of administrative mandamus commanding the City to reconsider MHC's rent increase application in light of the court's decision. (Code Civ. Proc., § 1094.5, subd. (f).)
The City's appeal is from the August 1999 judgment granting MHC's writ petition.
Proceedings Leading to MHC's Appeal:
In September 1999, in response to the trial court's decision, the City adopted an Urgency Ordinance, which amended the Ordinance to allow estimates of NOI when actual base year information is unavailable.
In November 1999, the rent control hearing officer conducted further hearings to reconsider MHC's rent increase application in light of the trial court's decision and the City's amendment to the Ordinance. MHC acknowledged that the purpose of the hearings was to permit it "to attempt to establish the net operating income for 1985 by inference...." Despite that acknowledgement, MHC again sought to use 1996 as the base year instead of 1985, based on its claim it could not reasonably estimate 1985 NOI with the information available to it. In support of that claim, MHC offered the testimony of a certified public accountant, Wanda Ginner, who testified that she had "run out of ways to try to estimate 1985" and that "from an accountant's standpoint it cannot be done." To refute MHC's claim, the Park residents offered testimony from their own expert, Dr. Kenneth Baar, who opined that a reasonable estimate of 1985 NOI could be made using the available information.
The hearing officer credited the residents' evidence that 1985 NOI could be estimated. She also rejected MHC's contention that the Ordinance permitted it to use 1996 as a substitute base year. Based on those determinations, the hearing officer concluded that MHC had failed to carry its burden of establishing base year NOI, and she again denied MHC a rent increase. But the hearing officer made her decision "without prejudice," ruling that "MHC may reapply for the rent increase based on estimates of 1985 or such other base years as authorized" by the applicable provisions of the Ordinance.
MHC then moved the Superior Court for issuance of a supplemental writ of administrative mandamus. MHC asserted that the hearing officer had ignored the amended Ordinance and the court's prior order, and that her refusal to establish MHC's fair rate of return constituted an abuse of discretion.
After a hearing in late May 2000, the trial court denied MHC's motion for a supplemental writ, issuing its tentative decision several days after the hearing and its formal order in July 2000.
MHC's appeal challenges the trial court's July 2000 order denying its motion for a supplemental writ of mandate.
Appellate Proceedings:
In early May 2000, MHC moved this court for an order dismissing the City's appeal as moot. We initially deferred determination of MHC's motion pending the trial court's resolution of MHC's request for issuance of a supplemental writ, which was then still pending. In August 2000, after receiving a copy of the trial court's order denying MHC's request, we denied MHC's motion to dismiss the City's appeal, but without prejudice to its mootness claim being raised in the briefs on appeal.
In November 2000, pursuant to stipulation, we consolidated the City's appeal with MHC's appeal in this proceeding. We designated the City as appellant and MHC as the respondent and cross-appellant. At the same time, we established a schedule for submitting briefs and appendices. The following month, on the motion of intervener Sucholas, we amended the consolidation order to permit Sucholas to respond in MHC's appeal. We subsequently denied the parties' requests for a stay of further administrative proceedings.
Both appeals have been fully briefed and argued. We consider each in turn.
The City's appeal challenges the August 1999 judgment in which the trial court initially granted MHC's petition for a writ of administrative mandamus.
The City contends that the trial court erred in two respects when it issued the writ in 1999. First, the City asserts, the court should not have granted the writ petition because MHC failed to join the Park's residents, who were real parties in interest and indispensable parties to the judicial proceeding. Second, the City urges, the trial court erred in ordering the hearing officer to...
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