Poway Royal Mobilehome Owners v. Poway

• Decision Date: 20 April 2007
• Docket Number: No. D048211.,D048211.
• Citation: 149 Cal.App.4th 1460,58 Cal.Rptr.3d 153
• Court: California Court of Appeals Court of Appeals
• Parties: POWAY ROYAL MOBILEHOME OWNERS ASSOCIATION et al. Plaintiffs and Appellants, v. CITY OF POWAY et al. Defendants and Respondents. City of Poway et al. Plaintiffs and Respondents, v. Poway Royal Mobilehome Owners Association et al. Defendants and Appellants.

58 Cal.Rptr.3d 153

149 Cal.App.4th 1460

POWAY ROYAL MOBILEHOME OWNERS ASSOCIATION et al. Plaintiffs and Appellants, v. CITY OF POWAY et al. Defendants and Respondents.

City of Poway et al. Plaintiffs and Respondents, v. Poway Royal Mobilehome Owners Association et al. Defendants and Appellants.

No. D048211.

Court of Appeal, Fourth District, Division 1.

April 20, 2007.

Mitchell & Gilleon, James C. Mitchell, San Diego; and V'Frank Asaro, San Diego, for Plaintiffs and Appellants and for Defendants and Appellants.

Stradling Yocca Carlson & Rauth, Douglas J. Evertz and Thomas P. Clark, Jr., Newport Beach, for Defendants and Respondents and Plaintiffs and Respondents City of Poway, Poway Redevelopment Agency, City Counsel of the City of Poway, James L. Bowersox, and Wakeland Housing and Development Corporation.

McDougal, Love, Eckis, Smith & Boehmer, El Cajon, and Lisa A. Foster, for Defendants and Respondents and Plaintiffs and Respondents City of Poway and Poway Redevelopment Agency.

McCONNELL, P.J.

This case arises from the City of Poway's (the City) two-step plan to divest itself of ownership of the Poway Royal Mobilehome Park (the Park). The City held one hearing in which it approved resolutions allowing it to issue tax-exempt bonds and loan the proceeds to the Poway Redevelopment Agency (Redevelopment Agency) for its purchase of the Park, and the Redevelopment Agency to later loan the proceeds and resell the Park to Wakeland Housing and Development Corporation (Wakeland) or its subsidiary, on the condition that it obtain a determination of tax-exempt status from the Internal Revenue Service (IRS). If Wakeland or its subsidiary did not qualify, the Redevelopment Agency would retain ownership of and manage the Park so the tax-exempt status of the bonds would not be jeopardized.

Plaintiffs, Poway Royal Mobilehome Owners Association and 273 of its members (sometimes collectively the Owners Association), appeal a judgment of dismissal entered after the trial court sustained without leave to amend the demurrer of defendants, the City, the City Council of the City of Poway (City Council), City Manager James Bowersox, and the Redevelopment Agency (sometimes collectively the City). The Owners Association contends the court erred by finding it may not maintain promissory estoppel and related claims against the City arising from its alleged breach of oral promises to provide the Owners Association with "a real, true and non-illusory opportunity to purchase" the Park at fair market value. Additionally, the Owners Association contends the court abused its discretion by denying it leave to file a third amended complaint to attach a resolution of the City Council in an effort to satisfy the requirement of a written contract. We affirm the judgment.

Additionally, the Owners Association challenges the judgment in the City's action to validate its two-step plan to divest itself of the Park and associated bond financing. The Owners Association contends the court ignored that during the City's public hearing under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) (26 U.S.C. § 147(f)), it failed to submit evidence that Wakeland or its subsidiary qualified for tax-exempt bond financing, or that the Park met the requirement of being a "`qualified residential rental project[,]'" meaning "20 percent or more of the residential units ... are occupied by individuals whose income is 50 percent or less of area median gross income" (20-50 rule). (26 U.S.C. § 142(d)(1)(A).) We agree the TEFRA hearing was insufficient, and accordingly reverse that judgment.

FACTUAL AND PROCEDURAL BACKGROUND¹

The Park has 399 spaces and is situated on approximately 50 acres of land. In January 1991 the Redevelopment Agency purchased the Park, intending to stabilize rents and preserve affordable housing. In 1995 the Redevelopment Agency transferred ownership of the Park to the City. Also in 1995, the City issued bonds in the amount of $31,770,000, which paid off debt related to the Redevelopment Agency's purchase of the Park in 1991. City staff and contract employees managed the Park until 2004, when that responsibility was transferred to Wakeland.

In 1999 the City adopted a long-term goal for the divestiture of its mobilehome parks. The City orally advised tenants of the Park that when and if it decided to sell the Park it would give them an opportunity to purchase it. The Owners Association represented tenants in seeking private ownership, and the City knew 70 percent of the Park's tenants were willing, ready and able to purchase the Park at fair market value.

In November 2004, however, the City announced its intent to sell the Park "to a [26 United States Code section] 501(c)(3) nonprofit housing corporation using tax exempt bond financing," which would exclude the Owners Association and residents of the Park as purchasers since they cannot qualify as a nonprofit entity. Nonetheless, in February 2005 the Owners Association submitted a proposal to the City to purchase the Park. The following June the City rejected the proposal and agreed to sell the Park to the Redevelopment Agency, which would resell it to Wakeland, a nonprofit housing corporation, contingent on it qualifying for tax-exempt status under federal law.

The City then filed a complaint for validation of its sale of the Park and associated tax-exempt bond financing. The complaint alleged the City would first sell the Park to the Redevelopment Agency for $35.6 million, its asserted fair market value, plus reserve deposits to ensure the Park's successful operation. To finance the purchase, the City agreed to issue bonds not to exceed $32 million and loan the proceeds to the Redevelopment Agency, and to take an additional note from it for approximately $9.5 million. Wakeland would then purchase the Park from the Redevelopment Agency for $35.6 million, plus reserve deposits, and would assume the Redevelopment Agency's rights and obligations under the bond financing documents and $9.5 million loan agreement with the City.

The Owners Association answered the complaint and contested the legality of the City's actions. Additionally, the Owners Association filed a first amended complaint against the City for promissory estoppel and declaratory relief. The parties stipulated to the consolidation of the two actions.

The first amended complaint alleged the City and Redevelopment Agency "orally and publicly, and in certain instances, in writing, expressed [an] intent" to allow the Owners Association and tenants to purchase the Park "on terms that are nonillusory, true and real, that reasonably relate to the [P]ark's fair market value and are customary and usual for any sale to tenants/residents of a mobilehome park where the ownership will be converted to residential ownership." The City allegedly breached the promise by not offering the Park to the Owners Association and tenants on reasonable terms, but rather "concoct[ing] a sales price, terms and a financing scheme" for the Park that eliminated Owners Association or tenants as purchasers. Specifically, the City required tax-exempt bond financing; provided nonprofit housing corporation bidders, including Wakeland, with financing information and Park financial information, but refused to provide the same information to the Owners Association; gave the Owners Association an unreasonably short period to submit a purchase proposal; set a closing date for the sale so soon it precluded the Owners Association from complying with the statutory process for converting the Park to resident ownership; and allowed nonprofit housing corporations to submit offers on the Park that did not require the payment of any cash.

The first amended complaint also alleged that in reliance on the City's representations, tenants of the Park signed or renewed leases, financed mobilehome purchases, relinquished the opportunity to move to other mobilehome parks and anticipated earning equity on their mobilehome spaces. The complaint sought an order requiring the City to provide the Owners Association and tenants of the Park "with a price and terms for them to purchase the [P]ark that are true, real and non-illusory, is at the fair market value of the [P]ark and upon customary and usual, fair and reasonable terms for sale to tenants/residents." Alternatively, the complaint prayed for $21 million in economic damages and damages for emotional distress.

The City demurred on the ground the promissory estoppel doctrine may not trump the requirement that public agency contracts must be adopted in accordance with statutory procedures that require, for instance, formal approval and a writing signed by the appropriate official. The court issued a tentative order sustaining the demurrer without leave to amend. After a hearing, however, the court granted the Owners Association leave to amend.

In December 2005 the Owners Association filed a second amended complaint, adding a cause of action for breach of the implied covenant of good faith and fair dealing based on leases between the City and Park tenants. The complaint alleged the leases incorporate by reference California's Mobilehome Residency Law, which requires an owner to give notice to tenants of the intent to sell a mobilehome park (Civil Code, § 798.80), and the notice the City gave the tenants here was a "sham" because it was not "notice of an intent to sell the park on true, real and non-illusory terms."

The promissory estoppel cause of action remained essentially the same, but added that the City unfairly offered bond financing and subsidized the sale to Wakeland, and alleged the City "engaged in a sham, non-arms length transaction with Wakeland, which transaction will have the inevitable result of substantially increasing the present rents at the [P]ark to service the excess non-recourse debt the City and the [Redevelopment] Agency are creating." Regarding the, City's representations, the second amended...