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MHC Financing Limited Partnership Two v. City of Santee

March 15, 2010

MHC FINANCING LIMITED PARTNERSHIP TWO, PLAINTIFF AND APPELLANT,
v.
CITY OF SANTEE, DEFENDANT AND RESPONDENT.
CITY OF SANTEE, PLAINTIFF, CROSS-DEFENDANT AND RESPONDENT,
v.
MHC FINANCING LIMITED PARTNERSHIP TWO, DEFENDANT, CROSS-COMPLAINANT AND APPELLANT.



APPEALS from judgments of the Superior Court of San Diego County, Kevin A. Enright, Eddie C. Sturgeon, Judges. Judgment in case No. D053345 affirmed; judgment in case No. D054298 affirmed in part and reversed in part. (Super. Ct. Nos. GIC777094 & GIE020524).

The opinion of the court was delivered by: Irion, J.

CERTIFIED FOR PARTIAL PUBLICATION*fn1

Appellant MHC Financing Limited Partnership Two (MHC) owns and operates a mobilehome park (the Park) in the City of Santee (the City). This consolidated appeal arises out of two lawsuits concerning the City's mobilehome rent control ordinances.

The first lawsuit, filed by MHC against the City (the MHC Action), was the subject of a previous appeal in which we remanded to the superior court with directions that it determine whether MHC is entitled to recover damages from the City. (MHC Financing Limited Partnership Two v. City of Santee (2005) 125 Cal.App.4th 1372, 1399 (MHC).) The second lawsuit (the City of Santee Action) involves (1) a complaint filed by the City against MHC, in which it seeks, among other things, restitution on behalf of the Park's tenants; and (2) a cross-complaint by MHC against the City alleging, among other things, that the City's mobilehome rent control ordinances constitute an unconstitutional taking of private property and violate the right to substantive due process.

MHC's appeal in the MHC Action challenges the trial court's ruling that MHC is not entitled to damages based on the issues that we specified in our remand directive. MHC's appeal in the City of Santee Action challenges (1) the trial court's ruling sustaining a demurrer to MHC's allegations that the City's ordinances effected a private and physical taking of private property; (2) the trial court's order granting summary judgment in favor of the City on all of the causes of action in MHC's amended cross-complaint; and (3) the trial court's ruling granting summary adjudication in favor of the City on its causes of action seeking restitution and an accounting on behalf of the Park's tenants.

As we will explain, in the published portion of our opinion we conclude that the trial court in the MHC Action properly ruled that MHC was not entitled to damages, and we accordingly affirm the judgment in that action. With respect to the City of Santee Action, in the unpublished portion of our opinion we reverse in part and affirm in part. Specifically, we conclude that the trial court erred in granting summary adjudication in favor of the City on its causes of action seeking restitution and an accounting on behalf of the Park's tenants, but in all other respects, we affirm the judgment.

I. FACTUAL AND PROCEDURAL BACKGROUND

A. The City's Rent Control Ordinances

Prior to November 27, 1998, the City's municipal code regulated the rents charged by mobilehome park owners through Ordinance 324, as amended by Ordinance 329 (collectively, Ordinances 324/329).

In 1998 a member of a group of mobilehome owners, acting under Elections Code section 9201 et seq., submitted to the City an initiative petition for a new mobilehome rent control ordinance. (MHC, supra, 125 Cal.App.4th at p. 1377.) Less than a month later, another member submitted a modified version of the initiative. (Ibid.) After a petition containing the modified initiative was circulated and signed by more than 10 percent of the City's registered voters, the city council chose, pursuant to Elections Code section 9215, to adopt the proposed ordinance, which was codified as Ordinance 381 and became effective on November 27, 1998. (MHC, at p. 1378.) However, the city council inadvertently adopted the form of the ordinance proposed in the original initiative instead of the form of the ordinance proposed in the modified initiative. (Ibid.)

In January 2001, after becoming aware of the error, the city council enacted Ordinance 412, which stated that the text of Ordinance 381 was corrected to contain the text of the ordinance set forth in the modified initiative circulated in 1998, and that the correction was made retroactive to the effective date of Ordinance 381. (MHC, supra, 125 Cal.App.4th at pp. 1378-1379.) The City began enforcing Ordinance 412 on February 23, 2001. (Id. at p. 1379.)

B. The MHC Action

MHC filed a lawsuit against the City (the MHC Action). The MHC Action asserted, among other things, (1) a claim that the City had violated the Elections Code due to the city council's mistake in adopting the wrong text for Ordinance 381 and attempting to correct the error by enacting Ordinance 412; and (2) a claim that certain provisions of Ordinance 381 and Ordinance 412 violated MHC's right to petition the government for a redress of grievances as guaranteed by article I, section 3, subdivision (a) of the California Constitution (hereafter, article I, section 3(a)).*fn2

On June 6, 2003, the trial court ruled, among other things, that Ordinance 381 and Ordinance 412 were void because the City had not complied with the Elections Code, and that certain provisions of the ordinances (hereinafter, the Unconstitutional Provisions) violated MHC's right to petition under the California Constitution.*fn3 Addressing the remedy for the City's violation of the Elections Code, the trial court stated that "[t]he remedy of future rent increases, as opposed to an award of damages, will adequately compensate MHC. This remedy will place the cost of compensating MHC on those tenants who benefited from the invalid rent control ordinance."

The City appealed the ruling declaring Ordinance 381 and Ordinance 412 to be void because of noncompliance with the Elections Code, but it did not take issue with the trial court's ruling that the Unconstitutional Provisions violated MHC's right to petition under the California Constitution. (MHC, supra, 125 Cal.App.4th at pp. 1381, 1391.) In January 2005 we reversed in part, concluding that the city council properly enacted Ordinance 412 and made it retroactively effective to cure the defects in Ordinance 381. (MHC, at p. 1381.) We remanded with the following instructions:

"The matter is remanded for further proceedings to determine (1) whether MHC suffered any legally remediable injury as a result of any differences between Ordinance 412 and Ordinance 381 and the retroactive application of Ordinance 412 to the effective date of Ordinance 381; (2) whether MHC suffered any legally remediable injury as a result of enforcement of any of the provisions in Ordinances 381 and 412 that the court found to be unconstitutional; and (3) the proper remedy for any such injury." (Id. at p. 1399.)

On remand the trial court conducted a bench trial on the issues specified in our opinion and issued a lengthy statement of decision.

In considering the first issue, the trial court extensively reviewed each of the differences between Ordinance 412 and Ordinance 381 that MHC had relied on for its damages argument, and it concluded that MHC had not established any injury from the retroactive application of Ordinance 412 to the time period between the enactment of Ordinance 381 and Ordinance 412.*fn4

In considering the second issue (i.e., whether MHC suffered any legally remediable injury as a result of enforcement of the Unconstitutional Provisions in violation of MHC's right to petition), the trial court made a two-part ruling.

As the first part of its ruling, the trial court held that MHC was limited to declaratory and injunctive relief to remedy the violation of its right to petition under article I, section 3(a). In support of this conclusion, the trial court cited decisions of our Supreme Court holding that a plaintiff may not recover damages as a remedy for an infringement of its right to free speech or a due process liberty interest arising under the California Constitution. (Degrassi v. Cook (2002) 29 Cal.4th 333 (Degrassi) [free speech]; Katzberg v. Regents of University of California (2002) 29 Cal.4th 300 (Katzberg) [due process liberty interest].)*fn5 In short, consistent with our remand directive, the trial court concluded that any injury MHC might have suffered as a result of the violation of its right to petition was not legally remediable through an award of damages.

As a second and independent basis for its ruling, the trial court reviewed the evidence presented at trial and concluded that, even if a violation of MHC's right to petition was legally remediable through an award of damages, MHC had not established it had suffered any injury. The trial court reasoned that because the effect of the Unconstitutional Provisions was to chill MHC's ability to petition the City for a rent adjustment, it would have to determine whether MHC would have obtained a rent adjustment if it had filed a rent adjustment application with the City's Manufactured Home Fair Practices Commission (the Commission). The trial court then concluded that the Commission would not have granted MHC a rent adjustment had it applied for one during the period the Unconstitutional Provisions were in effect and, accordingly, MHC suffered no injury from the Unconstitutional Provisions.*fn6

C. The City of Santee Action

1. Background

In September 2003, after the trial court in the MHC Action ruled that Ordinance 381 and Ordinance 412 were void, the City sent a notice to mobilehome park owners, including MHC, stating that the annual permissive rent adjustment for 2004 should be calculated based upon the former mobilehome rent control provision, Ordinances 324/329, which allowed an adjustment of 100 percent of the San Diego Consumer Price Index (CPI), instead of 70 percent of the CPI as would have been permitted by Ordinances 381 and 412.*fn7 The notice stated that "[i]f the appellate court reverses the trial court's decision, the [City] reserves its right to recoup and refund to tenants the difference between the one hundred percent of the average rate change in the [CPI] and the annual permissive adjustment permitted under Ordinances 381/412."

MHC then sent a notice to tenants in the Park, advising them that not only would MHC implement the permissive annual rent adjustment allowed by the City, but that effective January 1, 2004, (1) mobilehome park tenants would incur a one-time charge of $920.12, representing "the additional rent that would have been collected pursuant to Ordinance Nos. 324/329 for the period November 2000 to the effective date [of the trial court's judgment,] if those Ordinances had been in effect;" and (2) the base rent at the Park would increase to $708.21, representing "the base rent which would have existed had Ordinance Nos. 324/329 had [sic] been effective and enforced instead of Ordinance Nos. 381/412."

2. The City's Original and Amended Complaint

After MHC rejected a request by the City that it rescind its notice of the rent increases, the City filed a lawsuit against MHC in December 2003 to enjoin it from collecting any rent increase other than the annual permissive rent adjustment for 2004 (the City of Santee Action).*fn8 The trial court denied the City's request for a preliminary injunction, and MHC implemented the two-part rent increase described in its notice to the Park's tenants.

In December 2005, after we reversed the trial court's ruling in the MHC Action and thereby established that Ordinance 412 was retroactively effective to the date of the enactment of Ordinance 381 (MHC, supra, 125 Cal.App.4th 1372), the City amended its complaint to include causes of action for (1) "Recovery of Amount Paid on Reversed Judgment," and (2) an accounting of the rents received from the Park's tenants in 2004 and 2005.*fn9 On behalf of the Park's tenants, the City sought an order requiring MHC to pay restitution of all of the monies it collected from the tenants following the trial court's ruling that Ordinances 381 and 412 were void, including (1) the difference between the permissive annual rate adjustment allowed by Ordinances 324/329 and the permissive annual increase allowed by Ordinance 412; and (2) the base rent increase and one-time payment that MHC implemented in January 2004.

3. MHC's Original Cross-complaint

In April 2006 MHC filed a cross-complaint in the City of Santee Action, asserting five causes of action.

The first and second cause of action focused on (1) the City's enforcement of the provisions in Ordinances 381 and 412 that (as established in the MHC Action) violated MHC's right to petition for a redress of grievances; and (2) the City's retroactive application of Ordinance 412 to the date of the enactment of Ordinance 381. The first cause of action alleged that enforcement of the mobilehome rent control ordinances under those circumstances constituted an unconstitutional regulatory taking in violation of the federal and state Constitutions under Penn Central Transp. Co. v. New York City (1978) 438 U.S. 104 (Penn Central). The second cause of action alleged that enforcement of the mobilehome rent control ordinances under those circumstances violated the right to substantive due process under the state and federal Constitutions in that it imposed "substantial retroactive liability and costs" and it was "an 'irrational' land use regulation."

The third and fourth causes of action focused on the substantive provisions of Ordinances 324/329, Ordinance 381 and Ordinance 412 (collectively the Ordinances). The third cause of action alleged that the Ordinances effected an unconstitutional taking in violation of the state and federal Constitutions under four distinct theories: (1) a regulatory taking under Penn Central, supra, 438 U.S. 104; (2) a physical taking on the ground that "MHC is precluded from converting to another use by the City's political commitment to maintaining [the Park property] as a mobilehome park"; (3) a private taking as described in Kelo v. New London (2005) 545 U.S. 469 (Kelo), because "[t]he clear purpose and effect of the Ordinances was to confer a favor on a discrete number of private individuals who then resided in the Park and who sought to acquire the Park"; and (4) a taking because it required an exaction as a condition to the owner's use of the property as described in Nollan v. California Coastal Comm'n (1987) 483 U.S. 825 (Nollan) and Dolan v. City of Tigard (1994) 512 U.S. 374 (Dolan). The fourth cause of action alleged that the Ordinances violate the right to substantive due process under the federal and state Constitutions.

The fifth cause of action sought equitable indemnification. MHC alleged that "[h]aving created a confusing regulatory scheme of enacting void and illegal ordinances, reviving old ordinances, and filing lawsuits in which they take inconsistent positions on which ordinance is in effect, the City should indemnify MHC for any costs, expenses, or liabilities it incurs defending itself against claims that it has not complied with the Ordinances."

4. The Trial Court's Ruling on the Demurrer to the Original Cross-complaint

The City filed a demurrer to MHC's cross-complaint. The trial court (1) sustained the demurrer to the first and third causes of action on ripeness grounds, with leave to amend; (2) sustained the demurrer without leave to amend as to the private taking and physical taking theories alleged in the third cause of action; and (3) with respect to the first and third causes of action, ruled that the statute of limitations barred recovery for any damages arising before April 7, 2004.

5. MHC's Amended Cross-complaint

MHC then filed an amended cross-complaint. The first cause of action alleged that the City's enforcement of the Ordinances, from April 7, 2004, to December 15, 2005,*fn10 effected a regulatory taking under Penn Central, supra, 438 U.S. 104. The second cause of action alleged a violation of the federal and state constitutional right to substantive due process based on "[t]he City's enforcement since approximately November 1998 of provisions that unconstitutionally chilled MHC's right to seek a discretionary rent increase and its retroactive application of Ordinance 412." The third cause of action focused on "the City's conduct on December 15, 2005, in severing the unconstitutionally chilling provisions of Ordinance 412 to make it a valid law, and then retroactively applying Ordinance 412 to the effective date of Ordinance 381," and alleged (1) a regulatory taking under Penn Central, supra, 438 U.S. 104, and (2) a taking under the theory described in Nollan, supra, 483 U.S. 825, and Dolan, supra, 512 U.S. 374. Finally, as in the original cross-complaint, the fourth cause of action alleged that the Ordinances violated the state and federal constitutional right to substantive due process, and the fifth cause of action sought equitable indemnification.

6. The City's Motions for Summary Judgment and Summary Adjudication

The City filed a motion for summary judgment challenging MHC's ...


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