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HomeMy WebLinkAbout1989-02-06 RRC Minutes MINUTES PALM DESERT RENT REVIEW COMMISSION MEETING MONDAY, FEBRUARY 6, 1989 3:00 P.M. CIVIC CENTER COUNCIL CHAMBER * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * I. CALL TO ORDER Chairman White convened the meeting at 3:00 p.m. II. PLEDGE OF ALLEGIANCE III. ROLL CALL Present: Excused Absence: Commissioner Joe Abbondondola Commissioner Wanda Tucker Commissioner Jim Ainsworth Vice Chairman Joyce Wade-Maltais Chairman Randall White Also Present: Doug Phillips, Deputy City Attorney Sheila R. Gilligan, City Clerk/Public Information Officer Rick Erwood, Hearing Officer Mary P. Frazier, Deputy City Clerk IV. NEW BUSINESS A. CONSIDERATION OF THE PARK OWNER'S OPPOSITION TO THE HEARING OFFICER'S RECOMMENDATION IN THE CASE OF THE PETITION FOR HARDSHIP RENT INCREASE BY PALM DESERT MOBILE ESTATES. THE FOLLOWING IS A VERBATIM TRANSCRIPT OF THIS MATTER: Key RW Rent Review Commission Chairman Randall White SRG Sheila R. Gilligan, City Clerk RE Rick Erwood, Hearing Officer JAB Commissioner Joe Abbondondola JA Commissioner Jim Ainsworth DP Doug Phillips, Deputy City Attorney RC Robert Coldren, Attorney for Park Owner CP Charles Prawdzik, Attorney for Homeowners MPF Mary P. Frazier, Deputy City Clerk RW The New Business on calendar this afternoon is consideration of the park owner's opposition to our hearing officer's recommendation in the case of the petition for hardship rent increase by Palm Desert Mobile Estates. Usually what we do is have a presentation by City staff first. MINUTES PALM DESERT RENT REVIEW COMMISSION MEETING FEBRUARY 6, 1989 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * SG In this case, it would be the evidentiary hearing officer and with subsequent response from the City Attorney's office. RW I think that's appropriate. . .if we could hear from Mr. Erwood first to present his findings in the hearing. RE Thank you, Chairman White. The hearing was held on December 9, 1988, and initially some objections were raised to proceeding on the petitions, and I'm using that plural, that had been filed with respect to this park. The first objection, as I have indicated in my report, was made by the representative, Mr. Prawdzik, who is representing the homeowners, and he asked that the petition be dismissed for lack of proof of notice that the last two petitions had been served upon each and every homeowner. There was representation made by Mr. Horwitz, who is the lawyer, the attorney, for the park owner indicating that he did have proof of service at his office with respect to mailing Mr. Prawdzik the two later petitions. The first one, the one dated in July, had been served on each and every homeowner, and that was before Mr. Prawdzik had been retained to represent the homeowners. After those representations were made, I found that the service on Mr. Prawdzik was proper and proceeded to address the next issue, and that was the fact that the representative of the homeowners had not had copies of the documentation given to him by the applicant. I have behind me, which you can't see, but it's a regular cardboard file box which is probably three quarters full of documentation which was received by the City in support of the petitions. Mr. Prawdzik had been given an opportunity to view those items at City Hall; however, due to the volume of written material, he felt that in order to represent his clients appropriately he needed copies of those items. Regardless of that, upon further inquiry by myself, Mr. Prawdzik did indicate that he was prepared to go forward, he was not requesting any additional time to view the documentation. Mr. Prawdzik then addressed the issue of myself being contacted by Mr. Horwitz with respect to the petition, and he objected to me viewing documentation in the form of written material and photographs prior to the evidentiary hearing. I indicated to Mr. Prawdzik that not only had I viewed the documentation that was in support of the petition but also the letters that had been written in opposition. They were quite extensive. Initially when this matter was filed in July, many residents wrote the City of Palm Desert indicating that they wanted the matter continued because they would not be available to attend the hearing and they were making written objections to the petition for hardship rent increase. I informed Mr. Prawdzik that the fact that I had prepared myself by reading the documentation did not in any way affect my ability to be fair and impartial with respect to making my decision on the evidence presented before me. Then we got to the last issue that ended up being dispositive as far as I was concerned with respect to this matter, and that was the objection to having a hardship rent increase proposed within 12 months of a CPI increase being given, or excuse me, not being given but being imposed by the park owner. The code provides that basically as a matter of course yearly the park owner can impose a three quarters of the CPI (Consumer Price Index) increase and apply that to his rents; however, Section 9.50.060 indicates that in talking about the CPI increase, it indicates "No mobilehome park owner shall be entitled to more than one such rent increase in a 12-month period. No mobilehome park owner shall be entitled to such an increase within 12 months of the granting of a hardship increase." After hearing arguments on both sides of that, it was my feeling that the term "within 12 months" applied to the time period before the 2 MINUTES PALM DESERT RENT REVIEW COMMISSION MEETING FEBRUARY 6, 1989 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * hardship rent increase was imposed and/or after the hardship rent increase was imposed. And so based upon that objection, I made my finding that it was the apparent intent of the drafters of that section that twelve months should elapse before a rent increase is imposed. You have been given, I believe, summations of both counsel with respect to their arguments as to what in fact occurred. With respect to some things I'd like to point out, in this case there were three petitions filed for hardship rent increase. The park owner's representative claims that these were just basically modifications, but you will note that on each modification the request for a rent increase kept on increasing; in other words, the ante was going up with each filing of the petition. I asked Mr. Horwitz what code provision provided for either filing amendments or subsequent petitions; he did not direct my attention to one, nor did I find one. Mr. Horwitz indicated that he felt the City should be estopped and he made that argument at the hearing, and he also made that argument in his written documentation. That is, since the City has never made this type of ruling before, the hearing officer has never ruled this way before, that the City should be barred from now so doing because the park owners have relied to their detriment on the prior rulings. In the time that I have been a hearing officer for the City of Palm Desert, this issue has never been raised by anyone before. Therefore, I don't feel that the City would be estopped. First of all, it has never been addressed; secondly, this is really an issue between the park owners and the homeowners, and the activity by the City can't prejudice the right of the people that live in the mobilehome parks. I note that in his written objection, and I'm talking about Mr. Horwitz's or who filed the arguments for the park, there's what I consider to be reference to the City inviting litigation if they support my findings. I would just urge the Commission to view the documentation from the City Clerk's Office as to what is proper for consideration. There is no evidence for me as a hearing officer nor do I believe before this body that there is going to be litigation, and I think that this is basically an attempt to intimidate this board by the threat of a lawsuit. Mr. Horwitz indicated they had been prejudiced by the fact that they had allowed this matter to be continued from first filing in July until way past into December, and that's what caused them to go beyond the date that they would impose their CPI increase and they had been prejudiced by that activity. However, there had been no objection to the setting of the date in December for the hearing by Mr. Horwitz, so I don't think that that's a valid argument either. Mr. Horwitz did indicate, or excuse me, a representative from his law firm in his written documentation that the Consumer Price Index calculation was included within the petition for hardship rent increase. I did not see that in the evidence that was presented to me in written form nor did Mr. Horwitz argue that when the matter was placed before me, so I don't believe that, obviously I couldn't rule on that argument if it wasn't made. With respect to the comment that had been made by the respondents representative, he did agree to, he waived his objection to us considering the last petition after which we had talked about which petition we were going to go with. The transcript of the hearing reflects that he waived his objection and we were intending to proceed on the last petition filed if we had gotten that far. He was correct in his argument with respect to there is no provision for filing a successive number of petitions. And if there is any question with respect to the respondents desire to proceed on the last petition that had been filed and any discussion about waiver, I would just direct or 3 MINUTES PALM DESERT RENT REVIEW COMMISSION MEETING FEBRUARY 6, 1989 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * invite the attention of the Commission to page 4 of the transcript, lines 5 through 9, and page 15 of the transcript, lines 6 through 10. And that concludes my report. RW Commissioners, do we have any questions of the hearing officer? JAB I have a question for Mr. Erwood. In Section 3, Page 3, did you preside over these cases at the time these are mentioned? RE You'll have to direct me to. . . JAB Roman numeral one in the middle of the page. RE I think I'm on a different. . .is this the third section of your. . . JAB I'll make it simpler than that then. Portola Palms, March 1, 1988, and August 25, 1988, it makes reference to them. Did you preside over the Portola Palms hearings? RE Yes. It's been since 1986 I think it was when I began. JAB And those cases are similar or different and in what respect? Do you remember? RE Well, first of all, in Portola Palms there's no objection made with respect to this issue. And what happened in that I believe that's talking about the last petition when I finally conducted the evidentiary hearing and made my recommendation to the City, neither side filed an objection, and my findings, therefore, by operation of the ordinance, become final within 15 days if there is no objection. So that's basically what happened there. JAB Thank you. JA I have a question. There's nowhere in the ordinance where it states that a representative served is the same as serving all the tenants. RE That is correct. JA Shouldn't that be explicit in there or not? Or is that just understood? RE Well, it depends on. . .obviously you would like to have an ordinance that would cover all contingencies since this has arisen. But there were different ways we could proceed. We could have proceeded on the July petition. That's the one that was served on all the individuals. Mr. Prawdzik rather indicated he wanted to proceed on the last petition. You can't have it both ways. You can't argue non-service and, if he's going to argue non-service then my point would be well then let's address the petition that was served properly in July, and we could proceed on that. It's common practice for a lawyer who represents a client to accept service for that client upon himself on behalf of that client. Although it doesn't state that in the ordinance, that's a common practice between lawyers because the State Bar rules prohibit a lawyer from contacting a client of another lawyer directly. So whether or not that would be technical violation of the rule or not I don't know. 4 MINUTES PALM DESERT RENT REVIEW COMMISSION MEETING FEBRUARY 6, 1989 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * RW Just as a corollary to that, Mr. Prawdzik apparently represents all the homeowners. Have we received that representation or are there some homeowners who are not represented at this time. RE The City had the mandate of the park, but there was no documentation as we have had to do in the past, we've had to have a list of the people who have consented to representation when they are represented by a lawyer because of problems that have occurred in the past. That was not done in this case. RW Is there any indication whatsoever, and I'm addressing this also to City staff, that there are people who reside in the park who may not be represented by Mr. Prawdzik or who have expressed a contrary view somehow of the evidence? SG We have received none. In fact, in this particular case I believe the only contact from the residents, with the exception of maybe one or two questions, has been directly with Mr. Prawdzik. But we don't have a petition indicating how many he does or does not represent. RW Any other questions by the Commissioners? Thank you, Mr. Erwood. Mr. Phillips, do you have some additions, corrections, comments? DP No corrections, just some discussion with you about the procedure that the Commission needs to take today. Our recommendation I believe would be that following my report and any questions that you might have of me, that you would open the hearing and hear arguments from counsel and any other arguments that would be appropriate. You might ask counsel any questions that you have and close the hearing at that point. And then we see there being three alternatives available to you folks. The first alternative would be to adopt the recommendation of the hearing officer. That would basically be a ruling from this body that would require the owner to postpone any hardship increase petition until October of 1989. Do you understand the first recommendation? And the second alternative would be to overrule the hearing officer's recommendation and that would require that the matter be referred back to the hearing officer for a hearing on the merits because the merits have not been addressed at this point. The third alternative would be if you're not sure whether to adopt either the first recommendation or the second recommendation that I've given to you, and you desire some further opinion, you can certainly request that. Our office would be happy to review the briefs that have been filed and provide you with a written opinion in a relatively short period of time so that there is no additional time prejudice to either of the parties. We believe that we could provide such a report to you or an opinion to you in two weeks. Let me say it differently. We believe that if you reschedule the hearing in two weeks, that would give us adequate time to prepare an opinion for you, and it would be something I think that should be provided to all counsel because they may have some rebuttal argument that they would wish to make in response to what we have given to you. What is really before the Commission this afternoon is an interpretation of 9.50.060 of the Palm Desert Municipal Code. The code appears to state that no mobilehome park owner shall be entitled to such an increase, meaning an automatic increase, within 12 months of the granting of a hardship increase. And our hearing officer has interpreted the words to mean that that means that if there has been a hardship increase, I beg you pardon, if there has been an automatic increase granted, then owner must wait 12 months before a hardship increase can then be granted. What I 5 MINUTES PALM DESERT RENT REVIEW COMMISSION MEETING FEBRUARY 6, 1989 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * believe that interpretation means is that a park owner can request both at once and they can both be granted at the same time. But that is not what occurred in October of 1988. All that happened in October of 1988 was the automatic increase. And I would also concur with the hearing officer's statement that the automatic increase is not something that the owner needs to obtain City approval for. It is in fact automatic. But it appears that according to the words that I have read that the granting of a hardship increase within 12 months of a CPI increase appears to be prohibited. I guess at this point we have not had adequate time to review the briefs of both sides and we think that we would ask for that. You can ask me my thoughts now, but I would simply reserve the right to change those thoughts once I've had an opportunity to review the briefs. There is one word in the section that I've just read, that is the word "within". There are two opposing viewpoints on what that means. Does "within" mean within 12 months after, or does "within" mean 12 months before or 12 months after. And we will need to research that. Bottom line is, this is a question of statutory interpretation, and we would request the opportunity if you desire our opinion to have the two weeks to provide you with such an opinion. If the board's decision is to request that opinion from us, we would suggest that you open the public hearing and continue this matter to a date that is agreeable with your calendars and calendars of counsel. Unless you have any questions, I have nothing further. JA One question. DP Yes, sir. JA Under that 9.50.060. . . DP Right. JA . . .it states that no mobilehome park owner shall be entitled to more than one rent increase in any 12 months. Then it goes on to say that no mobilehome park owner shall be entitled to any increase within 12 months. Now why is there a difference? DP I don't know. I don't know why there's a difference. There is. . . JA Does it make a difference? DP I don't think so. I don't think it does. RW Any other questions? I have a couple of questions. Has the hearing officer or the City Attorney's Office ever been presented with this argument before concerning the hardship increase and CPI increase occurring within the same year? DP Not to my knowledge. RW Okay. DP This is a first impression question for us. RW Alright. Now the three alternatives that you have presented to us, one of those alternatives, the first alternative adopting the hearing officer's recommendation wherein the owner would postpone the petition until October 19, 1989, I noted that one of the arguments made by the owner was that it would not require that the petition be 6 MINUTES PALM DESERT RENT REVIEW COMMISSION MEETING FEBRUARY 6, 1989 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * postponed until that time but simply that the increase, the proposed increase if any, be postponed until that time. Do you have any initial thoughts about that? DP No, I really don't. That may be one way to resolve the point. If there is no increase until the next automatic increase is granted, then I'm not sure that that violates the ordinance. I'm not sure that it does. RW But as I understand your opinion at this time, you would like the City Attorney's Office to have the opportunity to prepare a brief on the issue and come to some formal opinion. DP That's right. You have before you two briefs from one side and one brief from another, and unless you're desirous now of resolving that legal question today, you may wish a more impartial opinion where we analyze both sides and give you our best shot. RW Just off the cuff and without putting you on the spot, Mr. Phillips, does the word "within" have a common legal meaning? DP In this particular case as applied to these facts, no it doesn't. It has a common sense meaning to me, which is "within" means 12 months before or 12 months after. But that may be incorrect. RW So in order for you to present a complete opinion on this matter, it would be necessary for you and your firm to conduct further research into the area. DP That's right. We would take the briefs and review those, analyze the positions taken by both sides, and then provide you with our analysis and give you our belief or our best interpretation of what this code section means. Also there are some constitutional arguments that have been raised that we need to make sure that any opinion that we would give to you in recommending an analysis or a decision by you accorded itself with any constitutional problems that might exist. RW Now if you were to conduct some further research into this area encompassing those constitutional arguments, the equal protection argument, would you also be concerned with the due process argument which was made by the other side? DP Yes. RW If we were to adopt your suggestion that the City staff, the City Attorney's Office, provide us with a further legal written opinion, would it be necessary at this hearing to open the hearing for public comment? DP It would be my recommendation that you would but bearing in mind that if that's your thought, that you're going to be waiting for an opinion from us, that really what this is is a legal argument at this point. You might suggest that there are going to be arguments today, that those arguments be related to the issues outside of the briefs. We've often heard judges tell us that, that they will read the briefs or they have read them and please give us any new arguments that you might have. But I think that the lawyers are certainly entitled, or their representatives are entitled, to make their points today. If they've already made them in writing, perhaps you might ask for any 7 • MINUTES PALM DESERT RENT REVIEW COMMISSION MEETING FEBRUARY 6, 1989 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * additional items that they have that aren't included in the briefs, and that might shorten it up a bit. RW Commissioners, are there any other questions? JA I have one on this CPI. DP Yes. JA That seems to work only one way, going up. DP As long as the CPI goes up, that's right. JA How about if it goes below? Nothing in the ordinance saying anything about that. DP Right. It's called the CPI increase. I would imagine if the CPI went down, the owner would sit tight. JA Well, is there any automatic on the other side? DP I don't believe there is. I'm not aware of an automatic CPI decrease. RE There isn't one. JA There's no provision for it? RW Only in the best of all possible worlds. Any other comments, questions? RE If I could just interject something. You might be able, though, if there was a period where the CPI went down and the park owner had received what you might consider to be elevated rents, somewhere down the line when the park owner comes in for a hardship rent increase the homeowners could bring that to the hearing officer's attention and this board to work out the equities of the situation. So I'm not saying that. . .although there's no provision, that doesn't mean that it's totally lost as far as working out the equities of the situation. JA Are the homeowners able to bring a petition before this.board for a rent decrease? RE The only thing they can bring is a petition for interpretation. Now, they can bring it, they can contend that their rents are too high for some reason, whether it's because the CPI has gone down or not. We have not been presented with that issue, but there is a mechanism to file a petition for interpretation to see if a proposed action violates the terms of the ordinance or not. So there is some recourse that they might have. RW Okay, if there are no further questions or comments, at this time I'd like to open up the hearing to the public and perhaps first we should hear from the petitioner if you wish to make any comments which are hopefully outside of what has already been presented. We have read the briefs and we are well aware of the arguments that have been made. RC Thank you, Mr. White. My name is Robert Coldren. I'm an attorney with the law firm of Hart, King and Coldren. We represent the petitioner or appellant in this matter. 8 • MINUTES PALM DESERT RENT REVIEW COMMISSION MEETING FEBRUARY 6, 1989 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * The purpose of oral argument, and this really is in many senses oral argument much akin before trial court or appellate court, is to try to bring into focus certain of the issues. That's what I hope to do. I'm going to try not to repeat the contents of my brief except to the extent that it is necessary to put some flush on the comments I'm trying to make today. At the outset may I inquire, we had some trouble getting a transcript of the hearing before the hearing officer and indeed my office wound up typing it up and providing it to the City as the City's version of the transcript for the time being. Is this hearing being transcribed by tape machine of some sort? SG Yes, we're taping it as we go. RC Thank you. RW My understanding is that if anyone, either the petitioner or the respondent wishes to have a court reporter present, that is available; however, that individual or entity must make arrangements for that. RC Thank you. Well, we've had no trouble in the past getting the tapes from the City, and I don't anticipate it in this case either. In any event, I represent Palm Desert Mobilehome Estates, the appellant in this matter. We are here to talk about a procedural ruling which has deprived my client, the park owner, the opportunity to seek what in my client's view are legitimate and warranted increases. We're here looking for a substantive result, as Mr. Phillips described, I believe, a decision on the merits. We'd like to get to the merits as quickly as possible, and we'd like to know whether we're entitled to a hardship adjustment or not. We haven't had the opportunity to present our case yet; procedural niceties have precluded that to date. We're simply looking for reasonable rate of return here. Another thing I'd like to point out in this regard is that there's an adage that "justice delayed is justice denied." That adage is no truer than in the context of a rent control ordinance where these long procedural delays over many months that preclude our opportunity to come and get a decision on the merits to our entitlement to a hardship adjustment. Every month that goes by, those rents are lost, that income to the park owner is lost forever. And to the extent that the hearing officer ultimately decides that we are entitled to a higher rent level than we were achieving before the hearing, it is apparent that we have just lost that entitlement forever. So I do concur with Mr. Phillips that it's a legal question that is before you, and I do think it's important for you to get the legal input and advise you feel you need to make a decision and I would endorse and encourage the City Attorney's suggestion that the matter be referred to his firm for a formal legal opinion. But I would also simply like to indicate that we would like to get a decision here as quickly as reasonably possible so that we can move on and hopefully present our case finally to some form that will listen to the guts of whether we're entitled to a hardship adjustment or not. I also agree with Mr. Phillips that the facts are not in dispute in this hearing. This is not a question of second-guessing Mr. Erwood's determination as to the credibility of any witness or whether the facts were thus and such or the other way. This is very simply a legal question, a question of interpretation. No one disputes the facts that were presented before Mr. Erwood. We initially applied for our rent increase in July of 1988. Mr. Elias, the property manager for the park, issued a rent increase notice at or about that time. When he applied for this rent increase, he stated in the rent increase notice that we were going to be implementing the CPI portion of the increase in 60 days, because under the mobilehome residency law you are required to give 60 days notice before you can 9 • MINUTES PALM DESERT RENT REVIEW COMMISSION MEETING FEBRUARY 6, 1989 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * implement a rent increase, and were going to defer the balance of that increase that we are seeking until such time as the City of Palm Desert has adjudicated our entitlement to it in the context of a hardship hearing. So it's our position that what we've really done here is nothing more than notice the residents with one increase and acted and implemented the CPI portion of that increase at the appropriate time, 60 days downstream, and pursuant to the ordinance deferred the balance of the increase until we got an endorsement from the City of Palm Desert saying we are entitled to that portion of the increase. July 28th, that's an interesting date. July 28th is when my client initially, on or about that date is when he initially noticed his rent increase. December 9th of 1988 was the first time we ever had a hearing, procedural, substantive, or otherwise, and we never got to the merits as you know, and that's why we're here today on February the 6th. In other words, a period of about seven months so far that my client has been attempting to get somebody to address the issue of whether he's entitled to a hardship adjustment based on the facts of his case, of his mobilehome park. We so far have been wrestling with this for seven months. Even if you made your decision today and even if your decision today was favorable to the park owner, inevitably we'd go back for a further hearing before Mr. Erwood, hopefully now on the merits of the matter. That would be done in about 30 days, then there'd be appeals after that, then after that we'd have a 60 day notice under the mobilehome residency law before we could get our increase. Heck, it would probably be at least a year from the time we started this process until we got any of our increase in any event. But I do concur with Mr. Phillips and that's why I'd like Mr. Phillips to pay particular attention during these comments because he's hopefully going to be asked to address the legal import and impact of the ordinance. There are a whole variety and a whole number of independent reasons any one of which taken alone would justify the interpretation of that section of the ordinance that my clients propose here today and that forms the substance of this appeal. In other words, any one of these reasons standing alone independently justify a reversal of the hearing officer's decision. Taken together, these grounds are overwhelming and militate dramatically in favor of, in this event, deciding that exercising your independent judgment, Mr. Erwood erred in his legal conclusion as to the way the ordinance is supposed to work. I'd like to just review a few of those, again keeping in mind that the issue here before us today is whether a park owner can legitimately notice an increase, saying he's going to collect the CPI portion as soon as he can in 60 days, but defer the balance of it until a hearing officer has decided his entitlement to it. First, we have the issue of stari desisus. The City has processed other hardship applications in the past, which hardship applications and which hearings have in fact referenced a CPI adjustment within the preceding 12 months, and the City has never taken this position before that a park owner cannot proceed in this fashion. I know it because Mr. Erwood indicates that he's been the hearing officer for a number of years, I've been embroiled in litigation with the City of Palm Desert and in these rent control hearings for a number of years out here. For example, prior to the most recent Portola Palms hearing, the one that Mr. Erwood was referring to, the one that had to do with the sewer issue, there was another Portola Palms hearing. During that hearing, my client specifically had implemented a CPI increase, then went before you folks for a hardship petition, and the hardship petition was considered and granted. Now on other grounds, it went through litigation and all the way up to the 4th District Court 10 • MINUTES PALM DESERT RENT REVIEW COMMISSION MEETING FEBRUARY 6, 1989 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * of Appeal and back again. But in that case, when we were arguing for the hardship petition, it was clear on the record that we had already implemented a CPI increase. And I think in the most recent one, that was also the case, if I'm not mistaken. There are two other examples in the City of Palm Desert, and if you'll review your own administrative files, you'll see that you have followed precisely the interpretation that we, the park owner, are advancing here today. I believe one of them was Indian Springs, and the other was Silver Spur, another one of your parks here. RW May I interrupt you for just a moment? RC Yes, sir. RW Is it not a rule of law that an objection not made is waived? So if a respondent never made the objection, it would be waived. RC That is true, but the fact that a respondent does not raise the issue does not deprive the tribunal of the opportunity if it has knowledge of the existence of that issue to raise it on its own and to dispose of it on its own. And that's very commonly done. Just because someone is poorly represented or inadequately represented at a hearing doesn't mean a judge or tribunal such as yours or a hearing officer should blind his eyes and sit there and allow things to go downstream without raising the issue. And judges do it all the time. They raise the issue when it's apparent to them from the facts that that issue exists. RW Okay. I didn't mean to interrupt. Go ahead. RC I appreciate the opportunity to answer your questions. That's one of the main reasons I'm here today, to try to get through and explain our position to you as thoroughly as I can. Another independent reason, all you need to do is look at common sense. From a common sense standpoint, the ordinance means that you can't get a CPI, if it means anything, what is has to mean in the context of what we're discussing is that you can't get a CPI increase within 12 months after you have received a hardship increase. And that makes some sense because presumably when you're going for your hardship increase, your ordinance adopts what's called an NOI maintenance formula. And it says when you come before us for a hardship petition and the guidelines very clearly say, we want you to follow an NOI maintenance kind of formula. What an NOI maintenance formula means is that we're coming to you saying in order to maintain our net operating income for the next 12 months, we need you to give us "x" number of dollars in terms of a prospective increase. So it makes a lot of sense in that context to say, look, you can't get two bites of the apple, park owner. You can't on the one hand come and have us award a hardship net operating income maintenance increase to you, which is supposed to take care of you for the next 12 months, and then double dip, if you will, and take two bites by then the following month implementing a CPI increase. That makes sense, and we're not debating that here today. What doesn't make sense is the other way around, to say in effect we're going to punish, we are going to penalize any park owner who takes advantage of the automatic CPI adjustment, which he is entitled to under the ordinance, we're going to punish that park owner by telling that park owner that he can't come before us and seek to get a hardship petition unless he waits 12 months. Let me just give you a quick example. Let's assume that a park owner takes advantage of the automatic CPI adjustment spelled out in the ordinance. Let's assume that the following month his clubhouse burns down, or let's assume that the following month after he takes the CPI adjustment, let's assume the 11 • MINUTES PALM DESERT RENT REVIEW COMMISSION MEETING FEBRUARY 6, 1989 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * following month the City imposes some horrendous tax or some huge assessment, a sewer assessment of some sort or something. You have two mobilehome parks, one remember that implemented the CPI increase, and the other one let's assume that they didn't implement the CPI increase. The net effect of the interpretation that Mr. Erwood has lent to this ordinance and which Mr. Prawdzik would have you adopt, the net effect is to punish the mobilehome park that took advantage of the entitled CPI increase and to say to that park owner, "Park owner, you shouldn't have done that. You should have looked into your crystal ball and gazed into your crystal ball and foreseen that some horrible calamity was going to befall your mobilehome park, which was going to increase your expenses dramatically and entitle you to a hardship increase. We're going to punish you, park owner, for taking advantage of the entitled CPI increase." We are only looking for one increase here, we are not looking for double dipping, nor are we looking for two increases. Again, if you'll look at the notice itself, which is part of your administrative record, it says we're going to collect the CPI portion of the increase in October, we're not going to collect the rest of our increase unless and until the City tells us we can have the rest of our increase. It's one increase. Furthermore, if you'll look at the paperwork which we have presented on the merits, the substantive merits, in other words all the numbers crunching from the accountant and whatnot, you'll notice that that takes into account changes in the Consumer Price Index. We're not coming before the hearing officer nor the rent review board seeking to double dip. We come acknowledging that we received a CPI portion of our increase in October. We're not asking for that twice at all. We're asking you to maintain our net operating income out into the future, and if you have any familiarity with the maintenance of net operating income formula, which is I guess the formula of choice now in a number of rent control jurisdictions, you'll understand that the Consumer Price Index adjustment is already taken into account in that formula. So we're not seeking to double dip. We're only looking for one increase. DP Where does it do that? RC Pardon me? DP Where does it do that? RC The very nature of the maintenance of net operating income formula presupposes that. The way the maintenance of net operating income formula works is you select a base year. And in the base year you determine what expenses were in the base year and what gross income was during the base year, subtract one from the other, and you come up with the net operating income for the base period. The next step is to bring that net operating income forward by a CPI adjustment. In fact, this was exactly the point of the lawsuit that one of my other clients brought against the City of Palm Desert under its rent control ordinance in the case of Natter or Portola Palms vs. the City of Palm Desert. You bring that forward by the changes in the Consumer Price Index, and then you bring it to the present and then you say we want to maintain our net operating income for the next 12 months. So what you're doing is you are solving for your rents for the next 12 months. It's presupposed, the entire net operating income maintenance formula as it is acknowledged by accountants and every expert I've ever had testify for me presupposes and takes it into account. 12 MINUTES PALM DESERT RENT REVIEW COMMISSION MEETING FEBRUARY 6, 1989 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * DP So the numbers that you have provided in the petitions that you filed take into account the automatic increase you were granted in October, 1988. RC Unequivocally, because remember, and I want to make this clear, what you are solving for in the equation using mathematical terms, what you are solving for are the new rent levels. So it doesn't matter if your rents last month were $100 or $200 higher or lower than during the base period, that doesn't matter, because what you're comparing is the base period to the rents that the rent review board is going to give you. So it doesn't matter. Do you follow what I'm saying? DP Yes, and the three petitions were filed commencing in July? RC If I'd brought all those files, I'd have a couple of bears with me. DP So what those petitions did was they assumed that there would be the automatic increase in October? RC Exactly the opposite. They took that into account. Built into the formula, in other words built into the maintenance of net operating income formula, built right into it, is the acknowledgement of and the adjustment for any rent increase you may have received in the past couple of months or few months by virtue of the CPI. It's irrelevant. JA I've got a question. You made the statement that in July you told them you were going to implement the CPI. RC We told them that under the California Civil Code, Section 798, we were going to implement that portion of the increase that we were automatically entitled to within 60 days, and that was October. So the CPI portion of the increase, and I wasn't involved, that was in October that that went into effect. We began collecting the CPI portion of the increase in October. JA Were they notified how much the rest of it would be, the balance? RC I believe the notice indicated it was going to be an amount not exceeding a certain dollar amount but whatever the Commission gave. JA Was that in July? RC Yes, those went out July 28th. JA They got both of these, they knew there'd be another increase? RC Sure, unequivocally. The ordinance nowhere, at no place in your ordinance do you preclude a hardship hearing or an adjudication within 12 months. Now, this doesn't solve my client's problem, but I think it points up how you can fall into a trap by not carefully evaluating the language of the ordinance. We are not promoting this idea, the idea I'm just going to explain. But it indicates that if nothing else, at the very least, Mr. Erwood's interpretation is incorrect. Look at the ordinance, look at Section 9.70.50, I believe it is. Look at it with me, and I want you to tell me where, now understand Mr. Erwood's decision is that we are not entitled to process, to process, to have a hearing, on the merits of our entitlement to a hardship increase until October 13 • MINUTES PALM DESERT RENT REVIEW COMMISSION MEETING FEBRUARY 6, 1989 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * of 1990. Show me where in that section, the section at issue, it says anything about anything at all precluding us from having a hearing and a determination of our entitlement to a hardship. DP You meant October, 1989. RC Exactly, October of 1989. It doesn't. It doesn't. What it says, it talks about when you can collect an increase. It nowhere says that we're not entitled to our day in court. DP Were you referring to Section 9.50.070(A)? RC Well, I'm sure I am. I'm sorry, I don't have that. . .let me just take a quick look. JA Page 7. RC Right, it says that. . .the language that Mr. Erwood based his opinion on was the language that appears at the end of the first full paragraph, under Section 9.50.060, which reads "no mobilehome park owner shall be entitled to such an increase within 12 months of the granting of a hardship increase." Does that say no mobilehome park owner shall be entitled to have a hearing on an application for a hardship increase or does it say no mobilehome park owner shall be entitled to have a determination relative to whether he can get a hardship increase? No, it doesn't. It doesn't even address that. Now again, I don't think you've solved the problem if all you do is send us back and say well, have a hearing on the merits and then we'll defer the question of whether you have to wait until October to collect it or not for another day. But I just want to point out that no matter what you might say about the merits of our position here, it's clear that Mr. Erwood's ruling does not comport with the language of your ordinance. Again, another independent ground, what I'm giving you here are lists of independent reasons, any one of which standing alone militate in favor of finding for my client, the park owner, and against the residents in this case. Section 109 of the guidelines say that the hearing officer is to take prior or current CPI increases into account in awarding a hardship. Why would it say that if it didn't contemplate that there were going to be CPI increases. Look at the, I don't know if you have the guidelines in front of you, but if you'll look at Section, which section is that, Section 109 of your guidelines, it specifically says in determining what the hearing officer is to look at in adjudicating our entitlement to a hardship increase, one of the things he is to look at are current or anticipated changes/adjustments in the Consumer Price Index increases. Now, why would that be a factor if you adopt Mr. Erwood's position with regard to the meaning of this language? Let's drop down now to another independent reason which standing alone supports our position. Logic dictates that the Consumer Price Index increase can legitimately be followed by a hardship increase for a number of reasons. First, the Consumer Price Index increase, the automatic increase provided for under your ordinance, is an automatic increase and it's an entitlement. The ordinance itself says you're entitled to a CPI increase. When do you measure whether or not you're entitled to the CPI increase? There's only one time to measure that entitlement, and that is when you go in for your CPI increase. When you get your CPI increase and you give those notices out, how can you know if there's going to be a need for a hardship or there is going to be a hardship application within the next 12 months? You don't know, and if you 14 • MINUTES PALM DESERT RENT REVIEW COMMISSION MEETING FEBRUARY 6, 1989 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * read the language of your ordinance under 9.50.060, the language of your ordinance itself talks in terms of entitlement. If you're entitled on day one, that entitlement can't be revoked by your subsequent conduct in applying for a hardship increase. Notice that language says "such increase". Does the words "such increase" mean a hardship increase? No. If you read that sentence, the only logical construction to give to it is that such increase, the word "such" modifies "CPI". Another logical reason. What if the park owner, we've already talked about this, what if the park owner experiences an extraordinary loss. What you're essentially doing is causing a park owner to either abandon his entitlement to an automatic CPI increase or take his CPI increase and run the risk that something bad is going to happen in his mobilehome park that he's not going to in any way, shape, or form be able to recoup. Because if you adopt Mr. Erwood's reasoning, what you're saying is that if you take advantage of the CPI entitlement, vested entitlement under the ordinance, you've given up your right to come in for a hardship increase for 12 months. Another logical reason. Why do you think this sentence is put in the ordinance, why do you think it talks about how you can only get one such increase within 12 months or whatever. The reason is because they don't want people running in here before you every two minutes seeking an adjustment in their rents. They don't want you appearing before them every day or every other day saying well this week we need another 20 bucks. Administratively, it would be a nightmare. Let's see what happens if you adopt Mr. Erwood's interpretation. Let's see what happens. What you are effectively saying is "Park owner, every park owner, you should apply for a hardship adjustment every 12 months. Why? Because, park owner, you're definitely going to get your automatic CPI adjustment every 12 months, you're entitled to that, the Board has to give it to you. But, park owner, if you don't apply for your hardship adjustment every 12 months, you'll never have an entitlement to do it. If all you do every year is seek your CPI adjustment, you'll be forever giving up your right to a hardship adjustment." In other words, what you'd be doing if you adopt the decision as it now stands, is promoting not judicial economy, but you'd be encouraging needless hardship petitions. We've talked about how the maintenance of net operating income formula, the one that's been chosen by your Rent Review Board as the formula of choice, already adjusts for the CPI adjustment, so I won't go back over that. We talked about how to avoid double dipping so that the argument that otherwise we'd be double dipping is not of any moment or import. With all due respect for Mr. Erwood's characterization of our observation that with upholding this decision and not modifying it would promote litigation, I didn't pull that out of thin air. There's, as I'm sure you're aware, it's in your own administrative records, there's litigation right now pending over this exact issue in connection with other mobilehome parks within this City. And I would just say that if what you in effect do here today is say that on all these previous hardship increases that went through, had their lawyers simply raised this issue, those increases wouldn't have gone through, what you'll be doing, unequivocally in my view, is promoting litigation. I want to make it clear, I'm not threatening litigation, what I'm telling you is that others are going to be out there looking at this from the tenants' side as a point of litigation against the City and against the park owners. And that's what I meant when I was talking about stari desisus; in other words, that's what I meant when I was talking about my original argument about stari desisus. Mr. Prawdzik or Mr. Phillips 15 MINUTES PALM DESERT RENT REVIEW COMMISSION MEETING FEBRUARY 6, 1989 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * or Mr. Erwood, either Mr. Phillips or Mr. Erwood, here today mentioned the fact that the net effect is that it precludes the. . .the upholding of this decision would preclude a CPI increase in any less than 12 months. In fact, it's 24 months if you think about it because what winds up happening is if you go 12 months, if you interpret the word "within" to mean 12 months prospectively or 12 months retroactively, then if you have your hardship hearing at point "x", you are precluded from getting a CPI increase 12 months in back of that or 12 months in front of that. Do you suppose it was really the intent of the framers of this ordinance that if you want to seek a hardship petition, a hardship increase, you'd better be prepared not to take advantage of an automatic increase for two years? In fact, it's two years and two months because under the mobilehome residency law you have to give 60 days notice of an increase. Do you really think that's what the drafters of the ordinance had in mind? I doubt it. If they had it in mind, I don't think that the framers of the California United States Constitution had that in mind, that you should have to suffer within low market rents for two years at a crack. The City did know of our plan to implement the CPI increase and then after that implement the hardship portion of the increase, and the City did not object and took no action against us at all and never advised us that it was something that they felt was inappropriate or improper. And you're right, we did rely upon the history of the City in this regard to some extent as well as the common sense interpretation of the ordinance. But for the City to say well we didn't know at the time you noticed your hardship petition that you were going to collect the CPI increase before the hardship petition, that's incorrect. If you'll look in your own administrative file, you'll see that one of the things we filed with the City was a copy of the notice of increase that Mr. Elias prepared and distributed in July of 1988 to all the residents. And that notice clearly says we're going to take the CPI portion in October and the balance when the City gives it to us. So the City clearly knew exactly what was going on here. There are a couple of other reasons. I'm not going to bore you with them. . .there are a number of other reasons, and I won't bore you with them because they are largely legal reasons, but Mr. Phillips has heard them a dozen times before. . .denial of equal protection, denial of due process, not a legitimate exercise of your police power purpose to interpret the ordinance in this fashion, punitive forfeiture, all kinds of constitutional concerns. I'd observe a couple of common sense issues before I close, however. The hearing would have been held before the CPI increase became effective if we'd had our druthers, if the park had had its druthers, and perhaps the park shouldn't have accommodated the City. The summer months are hot out here, unlike today, as we all know. A lot of the residents are snow birds and they are away. As reflected in your administrative record and as further supported by the declaration of Richard Elias that you have before you in connection with this appeal, the hearing should have taken place I believe within 30 days or 45 days or something like that of the date that we mailed our rent increase notice, which was in July. But the City received a lot of letters from about 30 residents of the park saying we're out of town, it's the summer time, it's a bad time to have it, nobody's here, we can't have a good hearing, let's put it over. So the City put it over until, I believe the first scheduled hearing date at the City's initiation was November 28th. And again, our CPI portion of our increase went into effect in October. So, but for the fact that the park kind of said okay we want to have a full hearing on the merits here, we're willing to accommodate the City in that regard, we wouldn't find ourselves before you today. I suppose in the future we should perhaps feel more cautious about granting those kinds of accommodations. 16 • MINUTES PALM DESERT RENT REVIEW COMMISSION MEETING FEBRUARY 6, 1989 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * DP Could I ask a question? RC Sure. DP When was the last petition filed for hardship? There were three, I understood. RC No, there was one, Mr. Phillips. But the last amendment to the hardship petition was filed in, I believe it was mid November. I believe it was mid November. You have it in your administrative record. I do believe it was mid November. JA (unclear) . . .filed November 18th. RC Okay, that's quite possible. You know, I could go on for a long time about whether it was one petition or three petitions. Clearly one petition, in my view. Did they require fees for three, did the City require fees for three petitions? No. Did the City consider it one petition at all times? Yes. I mean, what are we talking about here? This is one petition, this is a park owner who wants his rents adjusted. Let's look at the last paragraph of that section that is the subject of this. Actually, all you need to look at is Mr. Erwood's own decision. Let's look at where he quotes the relevant portion of the ordinance, that's on page 4 of Mr. Erwood's decision. If you'll look at the last full paragraph of the quoted portion, now understand this falls right after the disputed language, the language that says "no mobilehome park owner shall be entitled to such an increase within 12 months of the granting of a hardship increase." Then it goes on, and Mr. Erwood even quotes it: "no mobilehome park owner shall increase any rent in excess of the above set forth allowable increase unless and until the mobilehome park owner obtains a hardship adjustment granted by the Rent Review Board as provided herein." What's the purpose of that language if it's not to say that irrespective of anything provided for under the allowable increase, park owner if you've got extraordinary circumstances, park owner if you've got a problem that has cropped up out of the blue, or if you've decided that you think you're entitled to an increase in order to keep pace with what is required for reasonable return, you can come in and get an increase above the allowable increase. That's what that paragraph has to mean if you're going to read it, if you're going to give it any meaning at all in conjuction with the preceding paragraph. And that's what we did. I would simply observe and perhaps Mr. Phillips could check with, I don't know, are you with Best, Best and Krieger, sir? DP Yes. RC You might check with Rochelle Brown of your office. DP She's with Richards, Watson and Gershon. RC Excuse me, she is. You might check with her because this may be the first time this issue has been considered by the City of Palm Desert. But it's not the first time this issue has been considered by other rent control jurisdictions. Indeed, Ms. Brown has just interpreted the ordinance for the City of Montclair, which has a very similar kind of provision and, I might add, that her interpretation does not comport with Mr. Erwood's interpretation. So it just goes to show you that there are differences of opinion about how this section of the ordinance ought to be interpreted. 17 MINUTES PALM DESERT RENT REVIEW COMMISSION MEETING FEBRUARY 6, 1989 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * Finally, I'd like to observe that there's a lot of other stuff in the briefs, particularly in the reply brief submitted by Mr. Prawdzik. He goes on about a number of different items. I would indicate that as long as we seem to be standing on procedural aspects of ordinances here, Mr. Prawdzik's clients did not appeal from the findings of the hearing office. They did not file an appeal. So when Mr. Prawdzik stands up and wants to talk about a whole bunch of issues collateral to this issue, collateral to the issue of whether we have a right to seek a further increase within 12 months of implementing a CPI portion, when he or the residents seek to talk to other issues, this body has no jurisdiction to entertain those other issues. You can take public comment, if you wish, on proposed changes to the ordinance, but you have no jurisdiction to consider those other issues. In fact, Mr. Prawdzik did a little of our work for us. If you'll turn to Mr. Prawdzik's brief which he submitted, he even indicates that his brief is divided into two parts. And he says the first part of this brief responds directly to the arguments of petitioner as submitted by petitioner on January 20th. In other words, the first part of my brief, this is Mr. Prawdzik's statement, the first part of my brief has to do with the appeal that's been brought by the park from the ruling. Then he goes on to say the second part of his brief is respondents' argument to matters not addressed in the hearing officer's findings. In other words, to collateral arguments and collateral issues. Mr. Prawdzik and his clients had an opportunity to file a cross appeal in this action within 15 days; they didn't take their opportunity to file a cross appeal on this matter and, again, as long as procedure appears to play such a large role in the administration of the rent control ordinance of the City of Palm Desert, I would insist upon my client's procedural rights as well. I thank you, and I really do invite any questions that you might have about any of these issues. I would also like to say that I concur with Mr. Phillips' view that it's a legal question, that you need to exercise your independent judgment, that you ought to be sure you've got good legal opinion and good legal support, and I also would concur with Mr. Phillips' suggestion to have the matter fully aired. Mr. Prawdzik and myself should have an opportunity to respond to any additional legal briefs that might be submitted by any party. Thank you. RW Thank you. Any comments, questions by Commissioners? JA One I'd like to address. If there was a vacancy factor, say of 30%, how would this increase be divided? RC I'm sorry. If there was. . .in other words, if in the unlikely, in this area highly unlikely event that there was a vacancy in the mobilehome park, how would it be divided? Unequivocally, it would be divided, under your ordinance as presently drafted, among the tenants who were in the park. If you had, and I'm giving an absurd example to make an absurd point, if you had a 300-space mobilehome park and there were three tenants in that mobilehome park, the rents of those tenants would be high enough under your ordinance to justify a maintenance of the net operating income of the park, and that would require significant and substantial rents being paid by those three mobilehomes in that park. Fortunately, as you know, I can't remember the last time any of my clients in Palm Desert had a vacancy in their park. I don't think it happens. RW Any other questions? RC Thank you very much. 18 MINUTES PALM DESERT RENT REVIEW COMMISSION MEETING FEBRUARY 6, 1989 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * RW Thank you. JA Just one more. RW One more question. JA You talked about furnishing chairs, lounges, and the roads have to be resurfaces and all that. Weren't these in there when the tenants moved in? RC Okay, Mr. Ainsworth, I am happy to respond, I'm going to respond to your question. I would observe, though, that's really outside of the scope of this particular hearing, which is designed to address a narrow issue. But in response to your question. . .again, your ordinance as adopted, I didn't adopt it, your Rent Review Commission adopted a maintenance of net operating income theory as the cornerstone theory for adjudicating entitlements to hardship adjustments. Commonly, in those kinds of ordinances, in that theory, if I had my accountant experts here to talk to you about it, they would all say look, any prudent park owner and any prudent accountant would create what are called "reserves for replacement" or "capitalization" of these items. And those would be included in the net operating income, and we'd be entitled to maintain those net operating income items because, obviously, even though you don't resurface the streets or reasphalt the streets every year, okay, or even if you don't have to replace your ceptic tanks with a sewer system every year, you have to do it at some point in time. And so what you have to do, you have to reserve for those items every year, at least as a bookkeeping entry, you've got to take some money out of the park's income and put it aside and say we're going to hold this for the day we've got to reroof the clubhouse or we've got to reasphalt the street. Does that answer your question? JA Yes, in a way, because those streets are used by numerous people that are not there now. RC Right, unequivocally. JA And the chairs and the furniture. RC And we would love, Mr. Ainsworth, that's why the park is here today. We want to have the opportunity to address those issues. The City has not given us that opportunity. We're here on some procedural issue. All we want to do is get on with it. We want to go back down to the hearing officer, put on our evidence, if the residents are concerned about the level of maintenance in my client's mobilehome park, let's get it out in the open and let's get it resolved. Thank you, sir. RW Thank you. Now I think we should give an opportunity for the other side to make a presentation. If you would please, restrict your comments to those areas under consideration at this point, and if there is going to be more than one speaker, I would like to know that in advance so that we can provide for time if necessary. Is there any intention that we have more than one speaker on the other side? Okay. If you'd like to proceed. CP Members of the Rent Review Board and City staff and representatives. My name is Charles Prawdzik, I am an attorney, and I represent the respondents, the residents of the Palm Desert Mobile Estates. Firstly, I believe that my written brief speaks for 19 MINUTES PALM DESERT RENT REVIEW COMMISSION MEETING FEBRUARY 6, 1989 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * itself, I believe that in and of itself it is quite complete. However, I would like to address the Board with regard to some notes that I made before the hearing commenced. I certainly do not intend to address any number of collateral issues excepting the issue before the panel. I would like to mention, however, that I, too, was quite offended in regards to the last paragraph that was submitted by the petitioner in reply to the brief that I had submitted, whereby the petitioner has a very, very veiled threat that if the petitioner did not get a favorable ruling, most likely a good deal of litigation would occur. I threaten no litigation. As an aside, I don't know, yesterday morning being cold and not playing golf, I picked up the Los Angeles Times, and one of the sections, I should have brought it, in the View Section, it had a big headline "Abuse of the Elderly". Een though it addressed the issues of family abuse and so forth, I think there is more abuse of the elderly, even with regards to the hardship increases that are made in regards to the mobilehome ordinance. This is the issue that I represent these residents. Going on to the briefs that are submitted, I think it's very important that the Board really differentiate the difference between a CPI increase and a hardship increase. I know generically you know what it's all about; however, the City Attorney and the attorney for the petitioner really abuse that definition because in one case they said that the CPI increase was automatic, and in another case the petitioner says that the landlord is entitled. The language of the ordinance is very plain. It doesn't use either of those words, automatic or entitled. It merely says that this is the maximum amount that the landlord can request, demand, or receive. It doesn't infer, imply, or suggest that it's automatic or that it's even an entitlement because if you read further in the ordinance, you will find out that upon the implementation of a hardship increase, there is no CPI increase within 12 months, so how could it be automatic and how can you be entitled when the ordinance is very clear on its face? The City doesn't even get into the act in most cases of the CPI increase. The landlord, in pursuance of the terms and conditions of the ordinance, merely applies it and since the ordinance is very specific, one increase per year, he usually annualizes that increase. It's certainly not automatic, and it's certainly not an entitlement. So I would really urge you, both the attorney and the Board, to address that issue because it has been abused here before this panel this afternoon. With regards to a hardship increase, I think there's no doubt, it's obvious that the burden is on the petitioner, the landlord. The landlord is the only person who has possession of all of his figures; he knows what his budget is going to be and has them. The tenants, on the other hand, are merely the end result of a hardship petition; they pay the rent. Therefore, all of the obligation when you talk about a hardship petition, is on the landlord. The landlord hires professionals to manage his park, law firms from the larger metropolitan areas to bring their arguments. They're not mom and pop operations. These parks have 150 units and, in some cases, more. They are very professional, and they know what they're doing. However, they also know that when they can get away with something, they'll get away with it, particularly if it puts money in their pockets. And that's exactly what has been happening here. The petitioner, when he got caught in his double dipping, because that's his words, double dipping, and that's what he has been doing and attempted to do again. He's not only done it at this park, he's done it at others. And you know what he tries to do? He tries to blame the cities for his wrongful acts. The City should have done this, turned the matter in 30 days, the City should have allowed this, the City put it over, the City didn't wipe my nose. That's what he's saying. He doesn't put any blame on himself for his wrongful acts. He looks to others to blame. He admits himself that he made 20 MINUTES PALM DESERT RENT REVIEW COMMISSION MEETING FEBRUARY 6, 1989 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * three petitions. Now, when it's challenged, he says he's only made one. Well, if he made a petition on July 28, 1988, I urge the Board to look at that petition. It's invalid on its face. He supplied a petition on July 28, 1988. The ordinance and the guidelines call for the submittal of 1982 base year figures; he used the last six months of 1984 and compared them with the first six months of 1988. His petition, original petition, was invalid on its face. Thank God, they filed subsequent petitions in November, because the one in July was just not arguable. They admitted it themselves, they had to come in and correct it. The City didn't make any delays. If I had been retained as an attorney in August, I would have been knocking on the door here to have the hearing on their petition for July; it wasn't worth the paper it was written on. Look at it, it's in your file. They are arguing before you today, and in their brief, that a hardship petition has two components, that it has a CPI component and a hardship component. I don't know what ordinance they're practicing under. It might be Newport or it might be Santa Ana, but it's certainly not Palm Desert, because I read the ordinance and there's no such thing as a CPI component of a hardship petition. There's no such thing. You either have a CPI rent increase or you have a completely different thing, you have a hardship increase. One's not a part of the other. Any attempt on their part to try to make it so is not so. The petitioner then relies upon the argument that stari desisus. Well, you know, in law, as lawyers, stari desisus means nothing more than if a court had already made a ruling on the same issue, then that issue cannot be argued or heard with a different result. It really gets down probably in laymen's terms as being precedent. Well you know what this petitioner is trying to do? He is saying on his way over from Santa Ana today, hundreds of people were speeding at 70 miles an hour, they were committing an unlawful act, and the CHP picked him up and gave him a ticket, let him use that argument with the California Highway Patrol, that a hundred times more people are speeding 70 miles an hour faster than I am, since you didn't give them a ticket you have created a precedent and you can't give me one. He'll never get away with argument. You know, the fact of the matter is, if you commit an unlawful act, I don't know that you can create a precedent for an unlawful act. It is unlawful of the petitioner/landlord to impose CPI increases within 12 months of a hardship increase. He's admitted that they have been doing that, and he wants you to accept it. I don't think that the Federal, Constitution, Statutory laws of the State, or the laws of this City by ordinance condones the commission of an unlawful act, and in no way does the ordinance create a provision to sanction an unlawful act. The petitioner starts to argue that it's just a matter of common sense, that he reads into the petition that the CPI cannot be granted 12 months after, and he gave you all the kinds of logic that supposing a storm happened or a fire burned the clubhouse down. He indicated that wouldn't that be punitive? Not really. He's got the next year. What's he's trying to do is to look for a hardship prospectively. Take a look at it. He hasn't suffered a hardship. His petition is looking for a prospective hardship, not a hardship that has already occurred, not a hardship that he's taken a penny out of his pocket. As a matter of fact, he is looking for a capital improvement without taking one copper penny out of his pocket. He is asking these people to pay for a prospective capital improvement into the future. Since he brought up the subject about punitive, I'm going to read you a very short paragraph. This happens to be taken out of a case Oceanside Mobilehome Park Owners vs. the City of Oceanside, and this was the park owners bringing a lawsuit against the City for their ordinance. But nevertheless, this is the opinion of the Appellate judges, and I'm going to read you just one little paragraph or half a paragraph: "in summary, to be just and reasonable (a 21 MINUTES PALM DESERT RENT REVIEW COMMISSION MEETING FEBRUARY 6, 1989 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * hardship petition) , to be just and reasonable, a rate of return must be high enough to encourage good management, including adequate maintenance of services to furnish a reward for efficiency, to discourage the flight of capital from rental housing markets, and to enable operators to maintain and support credit. A just and reasonable return is one which is generally commensurate with returns on investment and other enterprises having corresponding risks. On the other hand, it is also one which is not so high as to defeat the purposes of rent control nor permit landlords to demand of tenants more than the fair value of the property and services which are provided. Constitutional provisions do not require that rent control ordinance allow landlords to recover all increases in their operating expense. They require only that the landlord be permitted to obtain a just a reasonable return." What the petitioner is saying is that he wants all of his expenses returned because if an extraordinary thing happened, he wants to come back in immediately and get that returned. The rent control ordinance is set up to be operated on budgetary kinds of arguments. They submit prospectively, and that's what they've done in their petition. They submit prospectively what they think their budget's going to be for the following year. As I say, they have not experienced the hardship, they haven't resurfaced roads, they haven't put in sewers. It's a prospective budgetary type of an activity. It certainly defeats his argument that it would be punitive and that it takes away and you can't take into account the CPI. The petitioner mentions section 109 of your guidelines, that the CPI has to be included in calculating how much money they will get for their hardship increase. Of course it does. You know, one of the odd things about hardship increases, you see these people have a base rent. Let's say their base rent is like $200.00, and they get a hardship increase of $100.00, when the 12 months expires, do you apply the CPI on top of the whole $300.00 or do you apply it merely on the base rent? Do you allow the hardship increase to also (problem with tape) . . .and then again on top of a hardship would be certainly unconscionable. That's the reason why the hearing officer and the Rent Review Board must take into account the CPI and perhaps even make it part of their decisions to say that in future years after the granting of a hardship increase, whether or not the CPI should be applicable to the base rent and the hardship rent on top of that. Sure, 109 is, therefore, meaningful. Then he says something else, too, that the petitioner was arguing about this one increase per year. The City of Palm Desert didn't originate this ordinance, you know, from nothing. Throughout the State of California, there are rent control ordinances. Usually, you pick up somebody else's and you copy as much as possible the language that has sustained itself in court. Well, when you're talking about no such increases and CPI within 12 months of a hardship, take a look at the other ordinances. Take a look at Rancho Mirage. You know what Rancho Mirage did? They were faced with this same kind of an issue, and they had struck the word "such" out of their ordinance, just within the past nine months or one year. They have stricken the word "such" out of here so that the language now reads "no mobilehome park owner shall be entitled to more than one rent increase per year." One, makes no difference whether it's CPI or hardship. That certainly was the intent, and it's expressed in quite clear language, of the Palm Desert ordinance. Petitioner cannot buy this kind of language as he knows it's evolving, but it's the truth. When the petitioner says that he includes the CPI increase, this is not the evidentiary hearing, when that comes to fore and even though you have the material in front of you. We received a copy of his 1987 profit and loss statement, and he submitted the gross income for 1988 or proposed gross income for 1988, and if you take a look at the gross income, he did not add on the CPI increase that he did in October of 1987 and another one that he already did in 1988. He used one but not both. So even though he says it's done, their figures during the evidentiary hearing will belie that. 22 MINUTES PALM DESERT RENT REVIEW COMMISSION MEETING FEBRUARY 6, 1989 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * I believe that the written arguments that the respondent has submitted to the City speaks fairly loud and clear with regards to our argument. We know that we're going to have to face an evidentiary hearing. We're prepared, whether it be tomorrow morning or a year from tomorrow morning. We feel that the landlord has certain entitlements that are provided for him under the ordinance and that whatever decision this board makes, it's going to be short lived. But, nevertheless, I believe that the petitioner stood up for its rights, they are seeking no litigation at all, all they're seeking is a fair and a reasonable hearing on the merits of the hardship petition, and along those lines in order to address Mr. Ainsworth's argument, and I'm very very glad to see that the attorney for the petitioner agreed, that generally speaking reserves should be set up for the repair and replacement of streets worn out, reroofing and painting. And generally speaking, that should be done. And if that were done in 1982, the base year, we wouldn't be having these problems today. But, unfortunately for us, the landlords have failed to supply any data that they had on all of their financial for all these parks in Palm Desert for 1982. They have no reserves for replacements of streets because if they did have them, they're no longer in (unclear) anyore when it comes to the hardship hearings because they know that having zero in 1982 and then having any number of dollars in 1988, they're going to get a hardship increase. So what they should have done they didn't do, and it wasn't the fault of the City. You can't blame the ordinance. It's their accounting practices that has caused these problems that have generated these hardship increases. Thank you, I'll be glad to submit to questions. RW Thank you. Commissioners, do we have any questions? JAB One for Mr. Erwood. RW Before we get to that, any questions for Mr. Prawdzik? Okay. At this point I think it would be appropriate to declare the public portion of this hearing closed, and if we have questions for Mr. Phillips, perhaps we can do that ow. JAB Mr. Phillips, in your opinion, what is specifically the issue here again, if you'd like to repeat it? DP Sure. The issue is whether or not if the park owner obtains an automatic or a 75% CPI increase, whether then the owner can obtain a hardship increase within 12 months after that time. JAB Okay, thank you. And one other question. Is there a relevance between one versus three petitions? They've both mentioned it. Does that have any relevance? DP To the issue before us today? JAB Yes. DP Not really. Not on that legal point. Well, perhaps one point, yes, to the extent there's an argument that the City is now estopped or has waived somehow its ability to challenge this interpretation by our hearing officer, a problem in my mind comes up on that point because if there were three petitions or if there were amendments to that petition filed all the way up until November, I want to take that into account when I'm determining whether or not there was a waiver or an estoppel. Because the argument was all the hearings kept on being continued either at the City's request or with the 23 MINUTES PALM DESERT RENT REVIEW COMMISSION MEETING FEBRUARY 6, 1989 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * City's approval. Certainly they were with the City's approval, but I was just wondering about the date of the last amendment or petition that was filed. That might give me some help. RW Of course, you'd also take that into consideration in determining what the due process was accorded to the respondent in this matter. DP Sure. RW Commissioner Ainsworth, do you have any questions? Okay. I do have some questions. I think you have defined the issue well, Mr. Phillips. I have some other concerns that were raised by both counsel in their arguments on both sides. I am not sure what the answer to this question is under the ordinance and I would like both the City Attorney's Office and counsel to address this issue at the next hearing. That is, provided we have another hearing. I am not sure that there is a CPI entitlement, that it is automatice as has been previously discussed. I would like to know whether the NOI hardship formula is inconsistent with the CPI or can there be both at the same time as has been proposed by the petitioner. I would like to know what the legislative intent was of the drafters of this ordinance concerning that issue and also concerning the issue which you previously raised. The issue of the delays I think is a third item which should be addressed in your opinion and whether those delays had any effect on due process, whether there has been a waiver by the respondent of that due process, and the issue which was raised near the end of Mr. Prawdzik's presentation concerning whether a hardship petition can be presented concerning prospective applications or must it only pertain to items which have already been installed, for lack of a better word. DP You're talking about capital improvements? RW Capital improvements, yes. I think what we need to go back to now, unless there are other comments or questions of the Commissioners, are the three alternatives which were presented by the City Attorney's Office, the first being to either adopt the hearing officer's recommendation, to overrule the hearing officer, or to submit a request that the City staff in the person of the City Attorney's Office provide us with a written opinion, and I would entertain from the Commissioners any concerns that you have about that and also any motions that may arise. JAB I would like to motion that we continue the hearing. . . (unclear) RW Okay. Is there a second for that? JA I'll second it. RW What you're suggesting then is that we refer to the City Attorney's Office a request for a written opinion on the issues which have arisen as a result of this hearing? Is that correct? JAB Correct. RW That has been moved and seconded. Is there any further discussion? All in favor say "Aye" 24 MINUTES PALM DESERT RENT REVIEW COMMISSION MEETING FEBRUARY 6, 1989 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * NOTE: "AYES" from all Commissioners. DP And you are reopening the public hearing so that any further arguments can be heard at that time? RW At the time of the presentation of the written opinion, is that what you're referring to? DP Correct. RW Does that need to be a portion of his motion, or can we simply do that? DP I think it should be part of his motion, and I'm sorry I was late in bringing it up. The question really is whether or not there's going to be further testimony at the next hearing and to avoid the need for any further notices, that sort of thing. It might be best to simply now to reopen this hearing and continue it to a date certain. (unclear) RC We do not see the need for a continued hearing. We would both be willig to present our briefs after getting your opinion. DP What you've just heard is an understanding that both the appellant and the respondent they don't see the need for any additional hearing. But I would imagine that this Commission would like to discuss whatever it is that I submit to you. And not only to see something from me but also to decide whether or not you agree with it and then rule accordingly. RW If counsel does not wish to further orally argue the issues and wishes to submit on written briefs. . . DP That have already been filed. RW . . .that have already been filed or any additional briefs that you wish to file with the City Attorney's Office or with the City, I should say, then I don't think we have any objection to that. Commissioners, do you have any objection to that. I think that procedure is adequate. DP Can I put that on the record that everybody's agreed. RC Alright, for all of our convenience and sake and to have a clear record, let me make the following suggestion to the City Attorney, if I might. We agree that your brief to the City will be filed within, what, ten working days? DP That would be fine if agreeable to everybody else. RC And filed with and also served upon Mr. Prawdzik's office and my office, that we will then have a period of five days, five working days from then to file replies, and I believe under the ordinance we need a decision within 30 days, so hopefully we could have a decision from you folks by, it's February the 6th now, hopefully by March 6th. Is that possible? DP That would in essence give. . . 25 MINUTES PALM DESERT RENT REVIEW COMMISSION MEETING FEBRUARY 6, 1989 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * RW Well, what you're talking about is giving us no time to review the documents. RC Is that right? What's ten working days, it would be two weeks. I'm talking about ten days, then five days for a reply, and then the balance of the time for you to review the. . . RW Ten days and five days is three weeks. RC Okay. RW If we were to set the hearing on the date four weeks from today, that would probably be adequate time for us to review the documents. Is that a day that is available on the calendar? SRG It is. RW Is that alright, then? Thank you. Is that alright with you, Mr. Prawdzik? CP Okay. RW Thank you. Okay, counsel has agreed that that date is appropriate and to the procedure which has been previously outlined. Unless there are further questions from the City Attorney's Office concerning the issues framed or comments from the hearing officer. DP Just so I'm clear on ten working days, that is as I recall two weeks or so then for my response to the Board and to the City, and the attorneys would then be due on the 20th. SRG Which is a government holiday. DP What day of the week is it? SRG A Monday. DP Monday? SRG Correct. DP How about the preceding Friday? What day is that? SRG It would be February the 17th. DP We'll submit ours and send it out by February 17, 1989, and then the responses to you would be due five days after that. And we'll send our brief out Federal Express. RW I'm sure that would be fine. RC Five days. . . . (unclear) DP The following Friday. 26 MINUTES PALM DESERT RENT REVIEW COMMISSION MEETING FEBRUARY 6, 1989 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * RC (unclear) Is that alright? RW Sure, that's fine. Okay, I believe that is all the business which is to come before the Board at this time, unless there are. . . SRG Chairman White, may I make one suggestion, and that is if the Commission were to adjourn this meeting to, say, 3:00 p.m. on Monday, March 6th, it would eliminate the need for filing any more notices. RW I was just going to suggest that if there were any further oral communications on other issues that may need to become before the Board, that they should be brought before the Board at this time. Is there anyone who wishes to speak on other issues? At that point, I would entertain a motion to continue this hearing to March 6th at 3:00 p.m. JAB I move that motion. RW It has been moved that we continue this hearing to March 6th. Is there a second to that? JA Second. RW Second, all in favor say AYE. NOTE: "AYES" from all Commissioners. RW Motion carries. Let's adjourn. V. ORAL COMMUNICATIONS None VI. ADJOURNMENT Upon motion by Abbondondola, second by Ainsworth, and unanimous vote of the Commission, Chairman White adjourned the meeting at 4:55 p.m. to 3:00 p.m. on Monday, March 6, 1989. RESPECTFULLY SUBMITTED, MARY P. R ZIER, SECR ARY 27