Santa Monica Rent Control v. Pearl Street

• Decision Date: 20 June 2003
• Docket Number: No. B157751.,B157751.
• Court: California Court of Appeals Court of Appeals
• Parties: SANTA MONICA RENT CONTROL BOARD, Plaintiff and Appellant, v. PEARL STREET, LLC, et al., Defendants and Respondents.

135 Cal.Rptr.2d 903

109 Cal.App.4th 1308

SANTA MONICA RENT CONTROL BOARD, Plaintiff and Appellant, v. PEARL STREET, LLC, et al., Defendants and Respondents.

No. B157751.

Court of Appeal, Second District, Division 3.

June 20, 2003.

Review Denied October 15, 2003.

Doris M. Ganga and Michaelyn Jones, Fountain Valley, for Plaintiff and Appellant.

Law Offices of Rosario Perry, Rosario Perry and Dionne M. Marucchi, Santa Monica, for Defendant and Respondent Robert Hackamack.

Renay G. Rodriguez, for Defendants and Respondents Pearl Street, LLC and Rosario Perry.

CROSKEY, Acting P.J.

In this appeal, plaintiff, the Santa Monica Rent Control Board (the Board),¹ challenges orders that (1) granted defendants' special motion to strike the Board's complaint, and (2) awarded defendants attorney's fees and costs. Defendants are Pearl Street, LLC, a limited liability company, Rosario Perry, sued as manager of Pearl Street, LLC, and Robert Hackamack (Pearl Street, Perry, and Hackamack, collectively, defendants).²

The Board filed this suit for declaratory and injunctive relief because it contends that portions of state and local rent control law have been violated by defendants in their ownership or management of a four-unit residential rental property at 1028 Pearl Street in the City of Santa Monica. Rental of such property is subject to article XVIII and to relevant provisions of state law.³

This case concerns the Board's skepticism about the nature of defendants' rental of two of the four rental units. Specifically, the Board asserts defendants created sham tenancies to enable themselves to fulfill the letter of state rent control law while avoiding the economic constraints of the spirit of such law. That law provided that when a landlord withdrew a residential unit from the rental market and then later restored that unit to the market, the rent charged for the initial tenancy upon such restoration could not be greater than it would have been if the units had not been withdrawn. However, when such initial tenancy of a restored unit was legally terminated by the landlord or the tenant, the landlord would then be free to charge the next tenant market rent for the unit. In the instant case, the Board was presented with facts that raised a suspicion as to whether defendants' initial rental of two units⁴ after their restoration to the rental market were legitimate tenancies or simply sham rentals for an intentionally short duration in order to permit the defendants to charge market rents upon the termination of the initial tenancies. Upon learning of the suspicious rentals, the Board filed this suit, alleging that defendants were not legitimately entitled to charge market rate for the rentals.

Defendants filed a special motion to strike the Board's complaint based on their contention that the lawsuit constituted what is known as a "SLAPP"—a strategic lawsuit against public participation.⁵ The trial court agreed that this case is a SLAPP, and on that basis, granted the special motion to strike the complaint, and awarded defendants attorneys fees and costs.

Our review of the record, as well as applicable law, convinces us that defendants failed to meet their burden of showing that the basis of this suit is an act taken by defendants in furtherance of their constitutional right of petition or free speech. Therefore, the order striking the Board's complaint must be reversed, as must the order awarding defendants attorney's fees and costs, as the latter order was based on defendants' having prevailed on their special motion to strike. The case will be remanded for further proceedings.

BACKGROUND OF THE CASE⁶

1. Allegations of the Complaint Regarding the History of the Subject Residential Rental Building

According to the Board's complaint, defendant Hackamack is a member and/or manager of Pearl Street. He owned the subject property from May 3, 1990 to December 12, 2000, and title to the property was transferred to defendant Pearl Street on the latter date.

Prior to such transfer of title, Hackamack, on July 1, 1999, filed notice with the Board that he intended to withdraw the property from the rental market.⁷ The date of withdrawal was August 30, 1999.

According to such notice of withdrawal, one Arlynn Hackamack was the tenant in unit A. The notice identified her as the "owner's mother" and stated that she paid no rent. A Leslie Boraz was identified as the tenant of unit B, with a rent of $635. Walter and Ruth Schechter were identified as the tenants of Unit C, with a rent of $464. The notice identified Gayle Hackamack and defendant Robert Hackamack as the tenants of unit D and stated that they paid no rent. On August 30, 1999, the tenancies of Leslie Boraz ("Boraz") and Walter and Ruth Schechter ("Schechter") were terminated by eviction notices served by Hackamack.

Then, on September 14, 2000, Hackamack filed a notice with the Board of his intention to restore the subject property to the rental market. On that same day, he filed an application for a permit for occupancy of the subject property as residential rental property.

Displaced tenants Boraz and Schechter sent the Board copies of the notices they had served on Hackamack indicating they desired to re-rent their former units. However, rather than offering the units to Boraz and Schechter, Hackamack paid them statutory damages pursuant to Government Code section 7060.2.

On September 20, 2000, the Board wrote to Hackamack, acknowledging his notice of intent to re-rent the withdrawn rental units, and advising him of the restrictions on how much rent he could charge for the initial re-rental tenancies of the previously withdrawn Units, citing Government Code section 7060.2.

Subsection (f)(1) of section 1803 of the City's rent control law authorizes the Board to set a maximum allowable rent for a rent-controlled unit. Section 7060.2 of the Government Code provides that when a previously withdrawn unit is restored to the rental market, and such unit is subject to local rent control and was so subject at the time it was withdrawn from the rental market, the first rent charged for the unit upon re-rental shall be no greater than the rent that would be in effect if the unit had not been withdrawn from the rental market. When the subject property was restored to the rental market, the maximum allowable initial rent for units A and C was $467 each. The appellate record contains copies of rental agreements for restored units A and C, showing that those units were rented on a month to month basis, commencing on November 1, 2000, for such maximum allowable initial rent.

On February 20, 2001, Pearl Street filed a "vacancy unit registration" for unit C. The registration stated that unit C was being rented for $1,750, for a tenancy commencing February 1, 2001. Thus, the tenancy for that unit that had commenced on November 1, 2000, with a monthly rent of $467, was shown to be a three-month tenancy.

Then, on May 17, 2001, Pearl Street filed a vacancy unit registration for unit A. It stated that unit A was being rented for $1,661, for a tenancy beginning May 11, 2001, and that the previous tenant had vacated unit A in January 2001. Thus, the November 1, 2000 rental of unit A was also a three-month tenancy. The rental agreement identified Arlynn Hackamack (defendant Hackamack's mother) as that three-month tenant.

2. The Board's Allegations of Wrongdoing

In its complaint, the Board alleged that, contrary to the information on the vacancy unit registrations that Pearl Street filed for units C and A, (1) the first rental period for unit C following its return to the rental market was actually the tenancy commencing on February 1, 2001, and (2) Arlynn Hackamack, a former owner of the property, was not actually a legitimate tenant of unit A and she did not pay rent for the occupancy of that unit. The Board also had evidence that there was no tenant at all in unit C during the November 1, 2000 to January 31, 2001 period.⁸

The complaint contains two causes of action—for declaratory relief and for injunctive relief. The Board sought a judicial determination that the maximum allowable rent for the February 1, 2001 rental of unit C, and the May 11, 2001 rental of unit A was $467 each. The Board also sought injunctive relief on behalf of the real parties in interest tenants that had rented units A and C, specifically, that defendants be prohibited from charging those parties more than the maximum allowable rents that would have been in effect for units A and C had such units not been withdrawn from the rental market. The Board alleged that the City's rent control law was enacted for the public's benefit and the public would be harmed if defendants were permitted to charge a rent that violated the Ellis Act and the Board's regulations. It further alleged it had been judicially enjoined from administratively changing the rent that defendants are charging for units A and C.⁹

3. Defendants' Motion to Strike

The defendants responded to the Board's action with a special motion to strike the complaint. The defendants asserted that the Board's action was an attempt to punish them for following the statutory procedure for an upward adjustment of the amount of rental on the subject units. They contended that the Board improperly chilled their right, and the rights of others similarly situated, to seek redress of government by means of the rent control process established by the rent control law.

The special motion to strike was heard and granted on December 7, 2001. An order of dismissal was signed and filed by the court on January 2, 2002. Notice of entry of the order was served by defendants on January 24, 2002.¹⁰

Defendants moved for attorney's fees and costs, pursuant to subdivision (c) of section 425.16. The motion was granted on February 5, 2002. Thereafter, the Board filed a timely notice of appeal from the order of dismissal and the order awarding fees and costs.

ISSUES ON APPEAL...