Yee v. Mobilehome Park Rental Review Bd. (City of Escondido)

• Decision Date: 18 March 1998
• Docket Number: No. D026324,D026324
• Citation: 73 Cal.Rptr.2d 227,62 Cal.App.4th 1409
• Parties: , 98 Cal. Daily Op. Serv. 2699, 98 Daily Journal D.A.R. 3694 John YEE et al., Plaintiffs and Appellants, v. MOBILEHOME PARK RENTAL REVIEW BOARD, Defendant and Appellant. The CITY OF ESCONDIDO, Real Party in Interest.
• Court: California Court of Appeals Court of Appeals

Page 227

73 Cal.Rptr.2d 227

62 Cal.App.4th 1409, 98 Cal. Daily Op. Serv. 2699,

98 Daily Journal D.A.R. 3694

John YEE et al., Plaintiffs and Appellants, v. MOBILEHOME PARK RENTAL REVIEW BOARD, Defendant and Appellant.

The CITY OF ESCONDIDO, Real Party in Interest.

No. D026324.

Court of Appeal, Fourth District, Division 1, California.

March 18, 1998.

[62 Cal.App.4th 1412] Callahan, Blaine & Williams, Daniel J. Callahan and Jim P. Mahacek, Irvine, for Plaintiffs and Appellants.

Endeman, Lincoln, Turek & Heater, Donald R. Lincoln and Linda B. Reich, San Diego, for Defendant and Appellant.

Jeffrey Epp, City Attorney, Escondido, for Real Party in Interest.

NARES, Associate Justice.

In previous appeals (Yee v. Mobilehome Park Rental Review Bd. (1993) 17 Cal.App.4th 1097, 23 Cal.Rptr.2d 1 and Yee v. Mobilehome Park Rental Review Bd. (July 12, 1995) D022341 [nonpub. opn.] ), plaintiffs John and Irene Yee, owners of two contiguous mobilehome parks in the City of Escondido which are subject to rent control, successfully argued in this court (after having petitions for mandate denied in the superior court) that rent control decisions made by the Escondido Mobilehome Park Rental Review Board (Board) were not adequately supported by the evidence which had been received in hearings before the Board.

In the first appeal, we reversed Board's decision to permit only a $27.50 increase in monthly rent per space, finding it was not supported by [62 Cal.App.4th 1413] substantial evidence (Yee v. Mobilehome Park Rental Review Bd., supra, 17 Cal.App.4th at p. 1105, 23 Cal.Rptr.2d 1), and we remanded the matter, directing that the superior court mandate Board to conduct a new rent increase hearing. (Id. at p. 1111, 23 Cal.Rptr.2d 1.)

In D022341, we reversed Board's decision to permit only a $40 monthly rental increase, and because the Board had twice failed to arrive at a reasonable increase, we remanded with directions that this time the superior court fix a reasonable rental increase based upon record factors. The superior court thereafter determined that a rental increase of $96.96 monthly would be adequate to provide a fair rate of return to the Yees on their investment in the parks. No party herein now challenges the rental rate which was so determined.

The Yees now appeal, however, from the superior court's refusal to award them damages for the "lost profits" during the period when they were only permitted a $40 increase (a sum which may amount to anywhere from half a million to over a million dollars), arguing that the actions of Board require the Yees be indemnified under state statutes or compensated for a regulatory "taking" in violation of both state and federal constitutional provisions, that they are entitled to a jury trial on these issues, and also that their request to amend the complaint was improperly rejected. Board argues on a cross-appeal the matter should be remanded to Board. We consider these contentions in light of a recent California Supreme Court decision, and affirm.

FACTUAL AND PROCEDURAL BACKGROUND

1. The Prior Proceedings ¹

"In July 1986 the Yees purchased the Friendly Hills and Sunset Terrace mobilehome

parks for a total price of $3,350,000. Friendly Hills has 87 spaces; Sunset Terrace has 72. In June 1988 Escondido voters passed a mobilehome rent control initiative ordinance (the Ordinance). It provided, among other things, for a rollback of rents to January 1, 1986, levels and designated the Escondido City Council as the Mobilehome Park Rental Review Board to consider requests for rent increases filed by park owners

"The Ordinance provides that upon application by the lessor, '[t]he Board shall approve such rent increases as it determines to be just, fair and reasonable.' ... [p] ...

[62 Cal.App.4th 1414] "Between July 1986 (when the Yees purchased the parks) and June 1988 (when the Ordinance was passed), average rents at Friendly Hills had increased $58 or 28 percent. Average rents at Sunset Terrace had increased $61 or 30 percent. In June 1989 the Yees filed rent increase applications for both parks, seeking average increases for Friendly Hills and Sunset Terrace of 63 and 64 percent respectively. The applications included an appraisal and rate-of-return analysis in which the Yees calculated the current appreciated value of the two parks at $4,334,000. Deducting for the amount of current indebtedness, the Yees claimed equity in the two parks of approximately $1.5 million and asserted entitlement to a reasonable return on that amount. A methodology such as this which focuses on the owner's equity rather than the total cost or value of the property can be referred to generally as a 'return on equity' approach.... [p] ...

"Following a hearing in December 1990, the Board voted unanimously to authorize a rental increase of $27.50 at Sunset Terrace. A similar motion with respect to Friendly Hills carried by a vote of four to one...."

2. Interlude I: Yee Challenges the Ordinance as a Taking

Before seeking rent increases, Yee filed a lawsuit asserting the Ordinance was an unconstitutional "taking." The demurrers of City were sustained, and we affirmed. (Yee v. City of Escondido (1990) 224 Cal.App.3d 1349, 274 Cal.Rptr. 551.) Thereafter the California Supreme Court denied hearing, but the United States Supreme Court granted certiorari and unanimously affirmed, ruling the ordinance did not constitute a "physical taking" of the Yees' property. (Yee v. Escondido (1992) 503 U.S. 519, 112 S.Ct. 1522, 118 L.Ed.2d 153 (hereinafter Yee I ).)

3. Yee Challenges the Board's Determination

While Yee I was still in the appellate process, following the above-noted Board determination to allow smaller increases in rent than Yee had sought, Yee petitioned for a writ of mandate in superior court to overturn Board's $27.50-per-space rent increase decision. The superior court denied the writ, and Yee appealed.

4. Proceedings on The First Board Appeal (Yee II)

On the appeal Yees contended "(1) the rent control ordinance is an unconstitutional denial of substantive due process; (2) the ordinance is so [62 Cal.App.4th 1415] worded as to be unconstitutional for denial of procedural due process; (3) the decision of the Board lacks support in substantial evidence; and (4) they are entitled to damages and attorney fees." (Yee v. Mobilehome Park Rental Review Bd., supra, 17 Cal.App.4th at p. 1104, 23 Cal.Rptr.2d 1 (hereinafter Yee II ).)

We rejected the constitutional due process arguments, and declined to address the damages claim as premature, while finding the lack-of-substantial-evidence argument had merit. (Yee II, supra, 17 Cal.App.4th at pp. 1104-1111, 23 Cal.Rptr.2d 1.) This court's disposition of the first appeal was: "Judgment reversed. The superior court is instructed to issue a writ directing the Board to conduct a new rent increase hearing consistent with the dictates of this opinion." (Id. at p. 1111, 23 Cal.Rptr.2d 1.)

5. Proceedings on Remand

On January 12, 1994, the Board met to consider again the application of the Yees for a rent increase, which had been originally filed in June 1989. The attorney for the Yees argued that the evidence before the Board supported a per space rate increase of between $87 and $102 monthly in order to provide a 10 percent rate of return, which has been accepted in all these proceedings as approximately "fair."

The Board, however, rejected Yees' arguments in support of the requested rate increase, and instead voted to authorize a $40 monthly increase only per space. In the superior court again, the Yees' petition for a writ of mandate was again denied, and the case then came to us once again on appeal.

6. Interlude II: The Second "Takings" Case (Yee III) ²

"The day after the decision in Yee I, the Yees filed [an] action alleging the Ordinance effects a regulatory taking.... [p] In this case (Yee III ), the trial court sustained the City's demurrer to the complaint without leave to amend on the ground of res judicata. While the regulatory taking issue was raised in the trial court in Yee II, it was not expressly ruled upon by the appellate court. We believe that the doctrine of res judicata supports the trial court's decision in this case but we do not rest our decision on its determination. Instead, we expressly rule on the regulatory taking issue." (Yee III, typed opn., pp. 2-4, italics added, fn. omitted.)

We concluded that "[e]ven if this action is not precluded by the previous suits, the Ordinance does not effect a regulatory taking. Rent control, per se, [62 Cal.App.4th 1416] is not a taking. [Citation.]" We thus rejected Yees' challenges and affirmed the judgment. (Yee III, supra, D017840, italics added.)

7. The Second Board Appeal (Yee IV)

On the second appeal from the Board's rate-setting decision (Yee v. City of Escondido, supra, D022341 [nonpub. opn.], hereinafter Yee IV ) we again found "the decision of the Board in this case is not supported by substantial evidence...." This court's disposition of the second appeal was: "The judgment is reversed. The superior court is instructed to determine the amount of a rent increase, based on the present record, considering (1) the historical cost of the properties ... and (2) the necessity for a 10 percent rate of return on the Yees' investment. The superior court will thereafter mandate the Board to adopt such increase." (Yee IV, supra, D022341.)

8. Return to Superior Court

In compliance with the above directions, the superior court thereafter determined that a per-space increase of $96.96 was appropriate. On March 19, 1996, the superior court ruled that (1) the Yees were not entitled to a jury trial on the issue of damages, sought under Code of Civil Procedure section 1095, (2) there was no reason to remand any part of the matter to Board, and (3) the Yees' "lost rent" amounted to $591,415.80. The court did not then determine whether this amount was recoverable as damages.

On April 5, 1996, the...