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Front St.City Hall Section - Clovis Free PressBack St.
Vol. 17  No. 21 Final Edition
Clovis Free Press
July 8, 2000
City of Clovis Violated
Property Rights
Property Owner Awarded $1,019,261.50 Damages

By Howard Hobbs President Valley Press Media Network

CLOVIS -- Roger and Virginia Galland owned a mobilehome park in Clovis that is subject to rent control. The Clovis Rent Review Commission and Clovis City Council (collectively Clovis) denied or permitted only a portion of the proposed rent increases in 1988, 1989 and 1990.

The City of Clovis [Rent Control Ordinance] Clovis Municipal Code section 5-13.0 was enacted in 1978 was intended to protect mobilehome park tenants from unreasonable rent increases while recognizing the need of mobilehome park owners to receive rent increases sufficient to cover increased costs and to generate a "fair return on their investment." (Ord., 5-3.01.) That Ordinance provided that a petition signed by more than 50 percent of the tenants of a mobilehome park, the City of Clovis would review the rent increase and determine whether it was reasonable or not. Decisions could be appealed to the Clovis City Council within 15 days after the final written decision.

The Gallands filed an appeal to overturn the City of Clovis rent commission decisions and for damages for violations of their due Constitutional process rights. The trial court found that the City of Clovis had acted unfairly by ebnacting the rent control rules and made life so burdensome and expensive that it had violated the Gallands' due proceClovis appaled to the %th District Court in Fresno. However, the Appeals Court ruled against the City in finding that the Gallands were deprived of both procedural and substantive due process rights and the trial court did not abuse its discretion in dismissing the administrative proceedings and awarding $1,019,261.50 as damages.

The appellate court ruling follows below.

_______________________________________________________________________________

Galland v. City of Clovis (1999) , 73 Cal.App.4th 371

[No. F025257. Fifth Dist. Jun 7, 1999.]

[REVIEW GRANTED]

[As modified July 7, 1999.]

ROGER GALLAND et al., Plaintiffs and Respondents, v. CITY OF CLOVIS et al., Defendants and Appellants.

[Opinion certified for partial publication. fn. *]

[Reprinted without change for tracking pending review and disposition by the Supreme Court.]

(Superior Court of Fresno County, No. 418831-4, Gary Ray Kerkorian, Judge.)

(Opinion by Thaxter, J., with Dibiaso, Acting P. J., and Buckley, J., concurring.)

COUNSEL

Lozano, Smith, Smith, Woliver & Behrens, Thomas J. Riggs, Jerome M. Behrens and David J. Wolfe for Defendants and Appellants.

Worthington & Worthington and Jaquelynn C. Pope for Plaintiffs and Respondents.

OPINION

THAXTER, J.-

Roger and Virginia Galland own a mobilehome park in Clovis that is subject to rent control. The Clovis Rent Review Commission and Clovis City Council (collectively Clovis) denied or permitted only a portion of the proposed rent increases in 1988, 1989 and 1990. The Gallands [73 Cal.App.4th 373] filed this action to overturn the rent decisions (Code Civ. Proc., 1094.5 (section 1094.5)), and for damages for violations of their due process rights (42 U.S.C. 1983 (section 1983)).

The trial court found that Clovis's application of the ordinance resulted in a rent review process that was unfair and so burdensome and expensive that it violated the Gallands' procedural and substantive due process rights and deprived them of a fair return on their regulated property. The court concluded that remand under section 1094.5 was an inadequate remedy; it dismissed the administrative proceedings and awarded damages of $1,019,261.50 under section 1983. The damages included an amount for rent lost during the period of 1988 through March 31, 1995.

Clovis appeals, contending that any error involved procedural, not substantive, due process rights and the proper remedy is remand for lawful rent review hearings pursuant to section 1094.5 rather than an award of damages under section 1983. We conclude the Gallands were deprived of both procedural and substantive due process rights and the trial court did not abuse its discretion in dismissing the administrative proceedings and awarding damages pursuant to section 1983. Further, Kavanau v. Santa Monica Rent Control Bd. (1997) 16 Cal.4th 761 [66 Cal.Rptr.2d 672, 941 P.2d 851] (Kavanau), decided while this appeal was pending, does not compel reversal of the award of lost rent damages against Clovis. We therefore affirm.

Facts

The Gallands, residents of Utah, purchased the Woods Mobile Country Club (the Woods or park) in 1978. The Woods is a 260-space, upscale mobilehome park with numerous amenities. The Gallands hired Planned Management Services (PMS), a Utah corporation which manages mobilehome parks in a number of states, to manage the Woods. John Chamberlain, the president of PMS, has managed the Woods and acted as the Gallands' representative in the rent review proceedings since 1978. PMS's compensation is based on a percentage of the earnings of the Woods.

The Ordinance

The Mobile Home Rent Review and Stabilization Ordinance, chapter 13, Clovis Municipal Code section 5-13.01 et seq. (Ordinance) enacted in 1978 (repealed in 1993) was intended to protect mobilehome park tenants from unreasonable rent increases while recognizing the need of mobilehome park owners to receive rent increases sufficient to cover increased costs and to generate a "fair return on their investment." (Ord., 5-3.01.) The Ordinance [73 Cal.App.4th 374] provided that on the filing of a petition signed by more than 50 percent of the tenants of a mobilehome park, the Clovis Mobile Home Rent Review Commission (Commission) would review the rent increase and determine whether it was "so great as to be an unreasonable increase." (Ord., 5-3.06(b).) The park owner had the burden to prove by a preponderance of the evidence that the rent increase was reasonable in light of the nonexclusive factors enumerated in Ordinance section 5-3.06(i). Those factors included utility rates, property taxes, insurance, advertising, cost-of-living increases attributable to incidental services, repairs and maintenance, capital improvements, amenity and service upgrades, fair rate of return on investment, and increased property values. The Ordinance provided that Commission decisions could be appealed to the Clovis City Council within 15 days after the final written decision was mailed to the parties.

Prior Proceedings

In 1983, the Gallands challenged the constitutionality of the Ordinance and a decision by the Commission permitting only a portion of a noticed rent increase. This court upheld the constitutionality of the Ordinance and the Commission's rent decision. In 1985, the Gallands (by PMS and Mr. Chamberlain) again challenged a Commission decision permitting less than the noticed rent increase. The trial court rejected their contentions, and this court affirmed in an unpublished opinion that sanctioned PMS for a frivolous appeal.

The Challenged Rent Review Proceedings

1988 Rent Increase

The Gallands noticed a $6 a space rent increase effective April 1, 1988, which raised the monthly rent to $275. The tenants petitioned the Commission to review the matter. Mr. Chamberlain asked what materials and information the Commission would like produced. The city clerk responded that Clovis would provide that information, but set the matter for hearing without specifying what information to submit.

Mr. Chamberlain submitted a letter stating that the rent increase was less than half the increase in the consumer price index (CPI). Park expenses had increased $46,000 in the last year and cash flow in constant dollars had fallen $10,275 since 1986 and $30,000 since 1984. Ray Wyland, the president of the Woods tenant association, responded that the CPI included increases for items other than housing, Mr. Chamberlain had not specified which expenses had increased, and the Woods' rent had increased from $143 in 1978 or 1979 to $269 in 1987. [73 Cal.App.4th 375]

In response, Clovis requested that Mr. Chamberlain provide a copy of the CPI and documentation demonstrating the increased expenses and decreased cash flow.

Mr. Chamberlain submitted several applicable CPI's and prepared tables setting forth the Woods' receipts, disbursements and pretax cash flows for 1984 through 1987. The tables showed that expenses had increased more than income resulting in diminishing cash flows. Mr. Chamberlain also prepared a table showing the Gallands' return on investment (ROI) for the years 1984 through 1987. The average ROI for the Woods for the past 10 years was 13.47 percent. The return on corporate bonds for the same period was 12.47 percent. Mr. Chamberlain stated that because real estate is a higher risk, nonliquid investment, it requires a higher rate of return than bonds. The 1987 ROI for the Woods was between 11.29 and 14.62 percent depending on how the figures were adjusted for inflation.

The Commission heard the matter on April 13, 1988. In addition to Mr. Chamberlain, the Gallands' accountant, Certified Public Accountant Richard Miranda, testified that regardless of the CPI used, cash flows had decreased over the last four years. During that period, income had increased 10.8 percent while expenses had increased 18.3 percent. The tenants argued the rent should not be increased because the Woods rent was already one of the highest in Fresno County.

The matter was continued with the consent of the parties to April 29, 1988, to provide the commissioners additional time to digest the materials presented. In the interim, the Commission asked the Gallands to provide substantial additional information by April 26, 1988. That information included further breakdowns and explanations for various expenditures, information on vacancies and cash flow for the prior nine years, and additional information and calculations related to ROI. Mr. Chamberlain provided much, but not all of the information requested. He felt that some of the requested information was irrelevant and other materials could not be gathered in the short amount of time provided to do so.

At the completion of the continued hearing on April 29, 1988, the Commission voted three to two that no increase was justified.

The Commission issued draft findings and decision denying the rent increase. The Gallands objected to the decision on various grounds including that the Commission had relied on information not presented at the hearing. The Commission met on May 13, 1988, to consider the draft findings. The commissioners expressed difficulty in determining a fair ROI based on the evidence before them. The hearing was continued one week. [73 Cal.App.4th 376]

On May 20, the commissioners reiterated their decision that no increase was warranted. They justified the decision, in part, on a portion of Mr. Chamberlain's testimony in the 1985 rent review proceedings regarding fair ROI, which they misconstrued to support their conclusion that the current rent provided a fair ROI. The Commission had not notified the parties it would consider evidence from earlier proceedings. The Commission issued its final decision on June 3, 1988, finding three to two that the Gallands had not demonstrated by a preponderance of the evidence that any rent increase was justified.

The Gallands appealed the decision to the city council which set the matter for hearing on July 18, 1988. The Gallands challenged the Commission's findings and decision, and the fairness of the proceedings. After hearing from both parties, the city council decided the Gallands had not provided sufficient information to enable the council or the Commission to make an intelligent decision regarding a fair rate of return for the Woods. The council remanded the matter to the Commission for further proceedings and ordered the Gallands to provide extensive accounting materials and financial documents which the Commission would consider in determining a fair rate of return.

The information requested included audited financial statements for the past 10 years showing assets, liabilities, the Gallands' equity, the ratio of debt to equity and the results of operations; and highs, lows, averages and ranges of the rates of ROI for each of the other mobilehome parks managed by PMS since 1978. The council also instructed the parties that any adjustment for inflation should be based on the U.S. Shelter Index.

The Gallands objected to producing some of the information requested because it was extremely costly and time-consuming to obtain and prepare. The ten-year audit would cost approximately $75,000 and would take two to three months to complete. Further, the financial information on the other mobilehome parks was confidential and PMS could not disclose the data without the permission of the owners. Mr. Chamberlain and the tenants' attorney met with Clovis officials and reached a compromise regarding the additional materials to present, which reduced the Gallands' burden somewhat.

On October 17, 1988, the Gallands submitted extensive materials in response to the council's order. The submissions include information in narrative and table format from 16 other mobilehome parks that PMS managed. The data indicated that the average ROI in constant dollars for the parks was 21.7 percent compared to the Woods' average of 11.9 percent. [73 Cal.App.4th 377] Regarding vacancy rates over the past 10 years, the Woods averaged a 2.1 percent vacancy rate while other mobilehome parks in Fresno and Clovis averaged a 5.03 percent rate. Regarding fair rate of return on the Woods and similar investments, the Gallands submitted a 19-page discussion of various types of investments, their attendant risks and their expected return.

The Gallands also submitted declarations from two experts. Accountant Miranda declared that the financial records from which the Gallands' figures were taken were accurate. Chapman Findlay, Ph.D., former chairman of the department of finance and business economics at the University of Southern California, provided an opinion regarding the fair rate of ROI for the Woods. He compared the expected return for various types of investments and, based on the comparisons, opined that a fair rate of return for the Woods measured before tax on equity was 25 percent.

The tenants submitted a declaration from their expert Richard Nordstrom, Ph.D., a professor at California State University, Fresno. Dr. Nordstrom stated that the Woods' rents and profits since 1978 had increased at a greater rate than the CPI. His calculations, which compared the Gallands' return after debt service with their actual investment not adjusted for inflation, indicated the Gallands received a 24.9 percent ROI in 1987.

At the Commission hearing on December 16, 1988, the commissioners grappled with defining the "investment" for purposes of calculating fair ROI. Dr. Nordstrom testified return should be calculated on actual dollars invested with no adjustment for inflation. Dr. Findlay stated, albeit in a garbled fashion, that investment dollars must be adjusted for inflation.

The Commission concluded the Gallands were receiving a fair ROI and had not justified the rent increase. The commissioners reasoned that Dr. Findlay was of the opinion that a 25 percent ROI was fair. By Dr. Nordstrom's calculations (using figures not adjusted for inflation), the Gallands received a 24.9 percent ROI in 1987. The Commission also found that both experts had calculated rate of ROI without adjusting the initial investment for inflation.

The Gallands appealed the decision to the city council, pointing out that Dr. Findlay's calculations had adjusted the initial investment for inflation. The city council heard the appeal on March 3, 1989. The council agreed that the historical investment was the proper figure to use in calculating ROI and affirmed the decision of the Commission. On March 29, 1989, the Gallands requested that Clovis prepare a record of the 1988 rent review proceedings pursuant to section 1094.6. [73 Cal.App.4th 378]

1989 Rent Increase

In 1989, the Gallands noticed an $18 a month rent increase effective April 1, 1989. On February 14, 1989, the tenants challenged the increase and petitioned the Commission to review the matter. The Ordinance required that rent challenges be heard no later than 45 days after the petition is filed. Mr. Chamberlain asked that the hearing be continued for three months because he was involved in a lengthy civil trial in San Jose. He agreed to postpone collecting the increased rent until the Gallands prevailed in the matter. Clovis set the matter for hearing on June 23, 1989, and ordered the Gallands to submit their documentation supporting the increase by May 19, 1989. Mr. Chamberlain failed to submit the Gallands' material because he was still involved in the trial and asked for a continuance on May 22. The tenants objected and asked that the matter be dismissed. The Gallands submitted their presentation on June 7. On June 9, 1989, the Commission dismissed the proceedings but failed to prepare a written decision on the matter until January 29, 1992, after the Gallands applied to the superior court for an order requiring Clovis to do so.

On June 29, 1989, the Gallands noticed a $25 a month rent increase effective September 1, 1989, which raised the per space rents to $294 a month. The tenants challenged the increase and the matter was set for hearing on September 29, 1989.

The Gallands supported the rent increase with updated figures noting that no rent increase had been permitted for two and a half years. Based on the CPI, the purchasing power of the current $269 rent (worth $119 in 1978 dollars) was less than the $144 rent charged in 1978. The $294 increased rent was worth only $127.89 in 1978 dollars. The increased rent remained below market levels. In the past six months, four new tenants had rented spaces at the Woods for $315. The Gallands contended they were not receiving a fair ROI. They renewed their argument that ROI calculations must be adjusted for inflation to prevent confiscatory results. The projected ROI for the Woods in 1989 was 9 percent, the same return realized in 1988.

The tenants responded that the low ROI appeared to be due to unusually high operating expenses. The tenants opined that the increase reflected the Gallands' attempt to pass their unsuccessful rent review litigation costs on to the tenants.

The Gallands replied that they did not include legal fees incurred solely to obtain the 1988 rent increase. They had included the legal and expert fees incurred to comply with the city council's order on remand which was [73 Cal.App.4th 379] geared to educating the Commission and the council as to appropriate guidelines in applying the Ordinance.

At the conclusion of the hearing, the Commission voted to disallow legal and expert fees as operating expenses. The Commission then found, based on its misinterpretation of a document presented in an unrelated rent proceeding which was introduced after the hearings in this proceeding were closed, that 60 percent of the items reflected in the CPI were not relevant to a mobilehome park. Therefore, the rent should be increased by an amount equal to 40 percent of the increase in the index. Under this formula, a $14 increase was justified.

The Commission reviewed the draft findings with the parties at a hearing on November 3, 1989. Clovis's city attorney acknowledged the Commission should not have relied on the ex parte information without notice to the parties. The hearing was continued to give the parties an opportunity to review and respond to that information.

The Gallands pointed out the Commission's mistake in interpreting the CPI table. However, on December 13, 1989, at a continued hearing on the matter, the Commission readopted its earlier findings. The Commission did not issue a final decision until January 29, 1992, after the Gallands sought a court order directing its issuance. The Gallands could not appeal the 1989 Commission decisions to the city council until the final written decisions were issued. When the final decisions issued, the Gallands appealed to the city council in February 1992.

Under the Ordinance, the Gallands could continue to collect the full $25 increase until an appeal before the city council was final. However, they opted not to collect the disputed $11 portion of the noticed increase as of February 1, 1990.

The appeal was eventually heard by the city council in May 1992. The council upheld the decisions of the Commission finding them reasonable and supported by a preponderance of the evidence.

1990 Rent Proceedings

In January 1990, the Gallands noticed a rent increase of $15 a month for tenants of double-wide mobilehome coaches, and $9 a month for tenants of single-wide coaches, effective April 1, 1990. The tenants petitioned for review of the increases, a hearing on the matter was set for May 18, 1990, and the parties were given a briefing schedule with the materials due at 12 noon on the given dates. [73 Cal.App.4th 380]

The Gallands submitted their opening presentation on the date it was due but at 2:19 p.m. rather than by noon. They included current financial figures showing an 8.1 percent return for the Woods in 1989, approximately the same return generated by certificates of deposit at local institutions. They again reiterated that standard accounting principles required the investment be adjusted for inflation in calculating rate of return.

The tenants responded that the rent increase should be disallowed and the proceedings dismissed because the Gallands' materials were not timely submitted. On the merits, the tenants challenged various items on the Gallands' cash flow table and concluded since the Woods' rent was the second highest in the area, the Gallands were receiving more that a fair ROI. With their response, the tenants filed a request that the city council issue a subpoena duces tecum requiring the Gallands to produce all financial statements and balance sheets, all accounting work papers and supporting documents, and all support and work papers used to generate the cash flow tables for 1978 through 1989.

The Gallands objected to the subpoena request, noting that the cost of complying would be "staggering" and their accountant had verified the accuracy of the figures in earlier proceedings.

On May 8, 1990, 10 days before the scheduled hearing, the Commission asked the Gallands to provide additional information including: an auditor's statement supporting the Gallands' reported expenses, further breakdown of a number of the income and expense categories, details regarding the Woods purchase, and copies of the Consumer Price Shelter Index for the Pacific Cities and U.S. Cities Average for 1986 through 198,. to the tenants' request to dismiss the proceedings and request for subpoena. They offered to make the Woods' financial records available for audit by an independent CPA at the tenants' expense.

The Commission met on June 4, 1990, to consider the tenants' requests to dismiss the proceeding because of the Gallands' "late" filing and for a subpoena. After a two-and-a-half-hour hearing, the Commission denied the motion to dismiss and attempted to broker a compromise regarding the subpoena. The city attorney proposed that Clovis hire an independent CPA to review the audit work papers and auditor's statement for the last five years and to answer specific questions raised by the tenants. The Commission agreed to that proposal.

In response, the tenants requested extensive detail regarding the information the Gallands' had prepared in response to the Commission's request for [73 Cal.App.4th 381] further information on May 8. The Commission requested that Mr. Chamberlain provide a sworn declaration setting forth details regarding almost every aspect of the park's operation since 1978 including: purchase, ownership, and day-to-day operations; daily, monthly and annual business and accounting practices; the same information as to PMS; and auditing practices and procedures for the Woods, for other parks managed by PMS, and for the Gallands with regard to this investment. The Commission also requested additional information (the items cover two and a half, single-spaced, typed pages) regarding utilities, water and sewer payments, interest income, management fees, lease payments and

The Gallands complied. Mr. Chamberlain provided a detailed 22-page declaration and 18 pages of additional information.

On July 2, 1990, the Commission met to decide whether to request a subpoena or an independent audit. After a two-and-one-half-hour hearing, the Commission decided that neither was necessary. The matter was set for further hearing on August 13, 1990.

On August 2, 1990, the city attorney notified the Gallands that a Commission member had contacted the tenants' representative and provided him with copies of public records relating to the purchase of the Woods. The Commission provided copies of those materials to the Gallands and requested additional information regarding the Woods' purchase, financing and lease payments. Mr. Chamberlain had supplied this information in his June declaration. The Commission asked the Gallands to produce the purchase agreement and lease documents and to provide "a full explanation with details." In addition, because public records indicated that Mr. Galland was an incorporator of PMS in 1978, the Gallands should "fully and clearly" explain his status in this regard. The tenants requested the PMS corporate minutes from the date of incorporation through the present, and a record of all stock sales.

Mr. Chamberlain submitted another declaration and supporting documents which explained the purchase/lease back agreements. In May 1978, the Margaret G. Rose Testamentary Trust agreed to provide the Gallands with $600,000 to purchase the Woods in exchange for title to the land and a 50-year lease back. On June 9, 1978, the Gallands purchased the Woods from a third party for $4,158,625 (land-$500,000, improvements- $3,613,625, personal property-$45,000). The Gallands made a $600,000 down payment and the sellers took two notes. On August 1, 1978, the Gallands executed a grant deed to the trust as required by the terms of the May agreement. [73 Cal.App.4th 382]

Margaret G. Rose was Mrs. Galland's mother. She died in 1969 and the trust was created pursuant to her will. Mrs. Galland's father has a life estate in the trust. Income from the trust estate and, if necessary, principal, are used for his benefit. On his death, any remaining assets will be distributed to Mrs. Galland.

Mr. Galland was a 50 percent shareholder in PMS from 1978 until 1985 but had received no compensation or dividends after he resigned as president in 1980. In 1985, Mr. Chamberlain purchased Mr. Galland's shares of stock in PMS.

The Commission, minus the member who had contacted the tenants, heard the matter on August 13, 1990. The Gallands presented evidence supporting the $15 and $9 rent increases. Their current return on their investment in the Woods (adjusted for inflation) was 8.1 percent whereas equally risky investments enjoyed a 25 percent rate of return. The ROI in adjusted dollars pursuant to Dr. Nordstrom's method which the Commission had employed in past years was 16 percent. The increase would bring that return up to 20.44 percent.

Dr. Nordstrom testified for the tenants. He reversed his earlier position that the investment need not be adjusted for inflation and claimed that had been his position all along. He now believed the requested rent increase was not justified because the Gallands had misstated their "investment" in past years. He opined that the purchase/lease-back transaction resulted in a down payment of $0 rather than $600,000. Thus, the Gallands' investment consisted of principal payments only. By his calculations, the Gallands received a 140.63 percent ROI in 1989. Dr. Nordstrom also believed that management fees, lease payments and extraordinary operating expenses should be deducted to determine cash flow. And, contrary to his opinion in 1988 that a 20 percent return was fair, he now believed a 14 percent return was fair.

At the conclusion of the almost seven-hour hearing, the Commission approved increases of $7.50 and $4.50, half of the increases requested. The Commission found the Woods was jointly owned by the Gallands and the Rose Trust. Therefore, the lease payments were return on investment rather than expenses. In addition, the Commission disallowed attorney and expert fees incurred in the rent review proceedings. With these adjustments, the Gallands' return on the inflation adjusted investment was 11.8 percent. However, contrary to the opinion of both experts, the Commission concluded based on "common sense" that the ROI calculation should be based on historic investment. Using the unadjusted figures, the approved rent increases yielded a 23.5 percent ROI, which the Commission deemed fair. [73 Cal.App.4th 383]

The proposed findings and decision were issued on September 21, 1990. The final decision was not issued until January 29, 1992, pursuant to court order. Both parties appealed. The city council heard the appeals in May 1992 with the Gallands' appeal of the Commission's decisions on the 1989 rent increases. The city council upheld the decisions of the Commission.

Judicial Proceedings

In May 1990, the Gallands sued Clovis for damages for inverse condemnation, denial of substantive and procedural due process under the state and federal Constitutions, and for violations of civil rights protected by section 1983. They contended that Clovis's application of the Ordinance constituted a regulatory taking because it decreased the value of the property. Clovis's actions also denied them a fair return on their investment. They filed concomitant petitions for writ of administrative mandate challenging the process employed and the denial or modification of the 1988 and 1989 rent increases. The matters were consolidated for trial. The Gallands filed a first amended complaint in January 1993 adding allegations stemming from the 1990 rent review proceedings.

The Gallands alleged that Clovis denied them procedural due process by failing to provide adequate notice as to what they must prove to establish a rent increase is not an "unreasonable increase" under the Ordinance. Despite the Gallands' request for some standards, Clovis issued no written guidelines and the Commission's decisions were so inconsistent that they provided no de facto notice as to the owner's burden. In addition, Clovis's application of the rent review scheme denied the Gallands a fair hearing. The Commission relied on ex parte information without notice to the Gallands, it imposed costly and onerous information demands only to ignore the information when it was produced, it disallowed the Gallands' costs of complying with those requests as increased operating expenses to support a rent increase, it ignored uncontroverted expert evidence, and it made arbitrary and inconsistent findings to justify its decisions. Further, Clovis failed to issue final Commission decisions and to prepare the administrative record, thus preventing the Gallands from obtaining judicial review of the administrative proceedings and decisions.

The Gallands alleged that the same acts also denied them substantive due process. Clovis's actions in implementing rent control were arbitrary and unfair and placed an impermissibly onerous and costly burden on the park owner. As a result, the Gallands were denied a fair return on their property. Clovis's actions, which were taken in accordance with the custom of the [73 Cal.App.4th 384] municipality, deprived the Gallands of the right to due process in violation of section 1983.

The Gallands also challenged the Commission decisions pursuant to section 1094.5 on a number of grounds alleging essentially the same procedural and substantive due process violations as set forth in their complaint.

Clovis answered the complaint, essentially denying the allegations of wrongdoing. It did not assert any affirmative defenses. The case was set for trial on August 19, 1991.

In May 1991, the Gallands filed a motion to compel and for sanctions for Clovis's failure to respond to discovery requests. The Gallands took the matter off calendar in reliance on Clovis's promise to provide responses. In late June, the Gallands filed a motion to compel further responses. The parties eventually agreed that Clovis would provide further answers by July 17, 1991. About that time, the court consolidated the complaint for damages with the writs of mandate and assigned the matter to Judge Gary Ray Kerkorian for trial.

In August 1991, Judge Kerkorian set the matter for trial on June 29, 1992, and ordered Clovis to prepare final written decisions of all proceedings to be served on the parties by October 1, 1991, and to prepare the administrative record by November 1, 1991. Clovis failed to prepare the final decisions causing the Gallands to seek relief from the trial court. At the hearing on that motion, the parties stipulated to a second briefing schedule and trial was reset a second time for July 14, 1992. The amended order gave Clovis until January 1, 1992, to complete the administrative proceedings. By mid-January 1992, Clovis had not prepared the final Commission decisions and the Gallands returned to court to force Clovis to comply with the court orders. At the hearing on the motion, the parties stipulated to a third briefing schedule and trial was reset for October 15, 1992. Clovis served the final Commission decisions on January 29. The parties agreed the appeal to the city council would be heard on March 9, 1992, and the council's final decision would be prepared by March 17, 1992.

Clovis continued the hearing before the city council until mid-May, after the city council elections. Clovis had still not prepared the administrative record. At a status conference on May 11, 1992, the parties stipulated to a fourth pretrial briefing schedule and order. The order required the appeal to be heard on May 19 and a final decision to be issued by June 1, 1992. Trial was reset a fourth time for December 1, 1992. [73 Cal.App.4th 385]

In October 1992, Clovis substituted its current counsel for its former counsel,

Meanwhile, the Gallands had noticed rent increases in 1991 and 1992, which the tenants challenged. The Gallands protested that further rent review proceedings should be postponed until Clovis completed the 1989 and 1990 proceedings. Clovis initially agreed but, in November 1992, it notified the Gallands it intended to proceed with the rent challenges. The Gallands petitioned the court for a peremptory writ of prohibition staying further administrative proceedings pending judgment on the pending writs of mandate. Clovis opposed the stay. In February 1993, the trial court granted the Gallands' petition and stayed the 1991 and 1992 rent increase proceedings. The court found the Commission could not meaningfully review the rent increases when prior increases remained unsettled.

Pursuant to a fifth amended briefing schedule, the parties filed extensive briefs in May and June 1993. The administrative record was lodged with the court on June 3, 1993. At a status conference on June 22, 1993, the parties agreed the court would determine liability from the administrative record, the parties' briefs and the court's file in the matter. If the court determined the Gallands had prevailed on the petitions for writ of mandate and/or the complaint, the court would hold further proceedings to determine remedies and damages.

Trial Court Decision

In August 1994, the court issued a statement of decision. It found that the manner in which the Commission and council applied and administered the Ordinance during the 1988, 1989 and 1990 rent review proceedings violated the Gallands' procedural and substantive due process rights. However, the violations did not effect a taking under the Fifth Amendment to support an inverse condemnation claim.

Based on the due process violations, the court granted the petitions for writ of administrative mandate, vacated the Commission decisions and dismissed the administrative proceedings. The expense and delay caused by the due process violations rendered the rehearing remedy provided by section 1094.5 "patently inadequate." The court concluded the Gallands were entitled to damages under section 1983 for their loss of a fair ROI and for the expenses, costs and reasonable attorney fees incurred as a result of Clovis's arbitrary and unreasonable actions.

After hearings on the issue, the court awarded the Gallands damages pursuant to section 1983 as follows: (1) $247,885 for costs incurred as a [73 Cal.App.4th 386] result of the arbitrary and unreasonable administrative proceedings ($254,860 [amount actually spent] minus $6,975 [amount the Gallands would have spent absent the constitutional violations]); (2) $236,806 for lost rents from 1988 through March 31, 1995, based on the methodology stipulated to by the parties for calculating fair ROI; (3) prejudgment interest on items (1) and (2); (4) attorney fees of $378,955; (5) costs of suit pursuant to Code of Civil Procedure section 1033.5; and (6) postjudgment interest from October 10, 1995.

Discussion

1. -3. fn. *

* * *

4. Kavanau does not compel reversal of the award of lost rent damages against Clovis.

Reference Note[1] In Kavanau, supra, 16 Cal.4th 761, an apartment house owner incurred expenses improving the property and applied for a rent increase. The Santa Monica Rent Control Board granted an increase but required that the rent be increased gradually over an eight-year period subject to the board's rule that total increases not exceed 12 percent a year. In a prior action, the Court of Appeal had concluded that the 12 percent limit deprived Kavanau of a fair return and ordered the board not to apply the limit to his application for rent increases. (Kavanau v. Santa Monica Rent Control Bd. (1993) 19 Cal.App.4th 730, 736 [23 Cal.Rptr.2d 724].) Subsequently, Kavanau filed this action to recover damages stemming from the temporary application of the limitation. He alleged causes of action for inverse condemnation and for a deprivation of due process (section 1983). The trial court granted the board's demurrer. (Kavanau, supra, 16 Cal.4th at pp. 766-768.)

The Supreme Court questioned the appellate court's reasoning that application of the 12 percent limit to Kavanau's petition for rent increases violated his due process rights. However, the judgment in that case was final so the court accepted as true the conclusion that application of the limit deprived Kavanau of a fair return and thus violated his right to due process. (Kavanau, supra, 16 Cal.4th at pp. 777-779, 781.) Kavanau abandoned his section 1983 claim for damages on appeal, choosing to focus on his claim for inverse condemnation damages. (Kavanau, supra, at p. 780.) [73 Cal.App.4th 387]

The Kavanau court concluded it need not decide whether a rent regulation that violates a property owner's right to due process also constitutes a regulatory taking. Assuming it might, the availability of an adequate remedy for the due process violation obviated the taking. The adequate remedy was a valuable benefit that satisfied the takings clause. (Kavanau, supra, 16 Cal.4th at p. 782.) The court reasoned, since due process required that future rent increases must enable the owner to achieve a fair return, the rent board, when setting rent ceilings, had to consider the cost to Kavanau of any confiscatory rent ceilings the board had previously imposed. Thus, "irrespective of whether section 1983 would have afforded Kavanau a remedy for the due process violation, his continuing right to an adjustment of future rents can provide an adequate remedy." (16 Cal.4th at p. 783.) This remedy placed the cost of compensating Kavanau on the tenants who benefited from the unconstitutionally low rents and avoided imposing a burden on the court to determine appropriate rent in order to measure damages. (Id. at p. 784.)

The court noted, if the landlord promptly challenged the confiscatory rent setting, and sought a stay of that order during litigation, lost rents, and thus any future rent adjustments, were likely to be relatively small. On the other hand, a landlord who permitted large losses to accumulate could not complain if market forces prevented him from recouping those losses. (Kavanau, supra, 16 Cal.4th at p. 785.) The court did not decide what alternative remedy might be appropriate if a landlord established that future rent adjustments were unavailable. But, the court held, before a landlord could allege such unavailability, he must petition for those adjustments, the rent board must determine, subject to judicial review, their appropriate amount, and he must attempt to impose them. (Ibid.)

Subsequently, in Yee v. Mobilehome Park Rental Review Bd. (1998) 62 Cal.App.4th 1409 [73 Cal.Rptr.2d 227], the court applied Kavanau to a mobilehome park owners' claim for damages for "lost profits" during the period when they were denied sufficient rents to receive a fair return. In earlier proceedings, the appellate court found that the rent control board's decision, which authorized lower rent increases than requested by the Yees, was not supported by substantial evidence. After the Yees eventually were awarded the requested rent increase, they sought damages. The trial court found the Yees had lost $591,415 in rents, but denied their request for damages on the grounds the rent board was immune from liability under Government Code section 820.2 and the park tenants were not parties to the action. (62 Cal.App.4th at pp. 1416-1417.)

The Court of Appeal affirmed. Assuming without deciding that the Yees' lost profits claim amounted to a due process violation, Kavanau's remedy [73 Cal.App.4th 388] applied. Regardless of whether section 1983 would have provided the Yees relief for the due process violation, their continuing right to an adjustment of future rents provided an adequate remedy. (Yee v. Mobilehome Park Rental Review Bd., supra, 62 Cal.App.4th at pp. 1421, 1424-1425.) The Yees, like Kavanau, could recover the lost rents by a request to the rent control board for an adjustment of future rents to reflect the past deficiencies. (Id. at p. 1425.) The ongoing process of setting rent ceilings dispelled the due process violation. (Id. at p. 1427.)

Clovis submits Kavanau and Yee support its claims that the lost rent damages must be paid by the tenants through future rent adjustments and are not a proper element of damages against the public entity. The Gallands contend Kavanau does not apply in this section 1983 case. The Gallands have the better argument.

Unlike this case, Kavanau and Yee do not involve viable section 1983 claims. Kavanau abandoned his civil rights claim on appeal, and the Yee court determined the rent board was immune from section 1983 liability under Government Code section 820.2. Thus, in concluding that irrespective of whether section 1983 would have afforded the landlords relief, the right to future rent adjustments provided an adequate remedy, neither court addressed whether an adequate state remedy precluded an alternative remedy under section 1983 for the substantive due process violation. That is the issue before this court.

The purpose of damages under section 1983 is to compensate the plaintiff for injuries caused by the deprivation of constitutional rights. (Farrar v. Hobby (1992) 506 U.S. 103, 112 [113 S.Ct. 566, 573, 121 L.Ed.2d 494].) Section 1983 was intended to provide a remedy for violations of civil rights where the state remedy, though adequate in theory, is not available in practice. Thus, overlapping state remedies are generally irrelevant to whether the plaintiff is entitled to damages under section 1983. (Zinermon v. Burch (1990) 494 U.S. 113, 124 [110 S.Ct. 975, 982-983, 108 L.Ed.2d 100.) Under section 1983 and Zinermon, the trial court properly awarded the Gallands lost rents damages from Clovis as an element of their injuries caused by Clovis's substantive due process violations. Nothing in Kavanau precludes that award in this case.

In addition, Kavanau is distinguishable because it involved a "takings" claim rather than a deprivation of due process claim. Takings claims require the plaintiff to attempt to obtain compensation before the claim is ripe. (Kavanau, supra, 16 Cal.4th at p. 783.) Substantive due process claims [73 Cal.App.4th 389] brought under section 1983 are ripe at the time of harm, and the plaintiff need not seek compensation under state remedies. (Zinermon v. Burch, supra, 494 U.S. 113.) Thus, Kavanau's rule that the plaintiff must seek compensation through the rent review process is inapplicable to the Gallands' right to recover for denial of substantive due process under section 1983.

Moreover, certain policy considerations underlying the Kavanau future rent adjustment remedy to compensate for lost rents do not apply in this case. For example, to the extent Clovis's irrational application of the Ordinance resulted in rents insufficient to provide the Gallands a fair return, the tenants in this case, like the tenants in Kavanau, received a corresponding benefit and should bear the financial burden of correcting the error. However, Kavanau's lost rent losses and thus the future rent adjustments were probably relatively small. (Kavanau, supra, 16 Cal.4th at p. 782.) In contrast, the Gallands' lost rents and interest as of 1995 exceeded $235,000. Responsibility for the substantial accumulation of lost rent damages lies with Clovis rather than the Gallands or the tenants because Clovis's delay in issuing final decisions and preparing the administrative record precluded the parties from obtaining more timely judicial review.

Additionally, the lengthy delays in this case and the fact that many of the Woods' tenants are elderly render Kavanau's remedy less likely to place the cost of compensating the Gallands on those tenants who benefited from the confiscatory rents in 1988, 1989 and 1990. Finally, the long and tortured path this case has taken to date militates against sending the matter back for further administrative proceedings addressing these ancient claims.

Accordingly, Kavanau and Yee do not compel reversal of the award of lost rent damages against Clovis. [73 Cal.App.4th 390]

Disposition: The judgment is affirmed. Respondents are awarded costs on appeal.

Dibiaso, Acting P. J., and Buckley, J., concurred.

FN *. Pursuant to California Rules of Court, rules 976(b) and 976.1, this opinion is certified for publication with the exception of parts 1-3 of Discussion.

FN *. See footnote, ante, page 371.

Letter to the Editor

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