Opinion
NOT TO BE PUBLISHED
Superior Court County of Ventura, Steven E. Hintz, Judge, Super. Ct. No. 237853
Hart, King & Coldren, Robert S. Coldren, C. William Dahlin and Mark D. Alpert for Plaintiff and Appellant.
Richards, Watson & Gershon, Rochelle Browne, Gary L. Gillig, City Attorney and James F. Rupp. Jr., Assistant City Attorney, for Defendants and Respondents.
GILBERT, P.J.
Royal Palms LLC. (Royal Palms), a mobilehome park, appeals a judgment which denied, in part, its petition for writ of administrative mandamus against respondents City of Oxnard (City) and the City of Oxnard Mobilehome Park Rent Review Board (the Board). In its mandamus action Royal Palms claimed the Board's decision prevented it from raising rents for its mobilehome park tenants to achieve a fair return. We conclude: 1) substantial evidence supports the Board's finding that Royal Palms did not show that its 1982 base year rents were below market rates, 2) the court properly vacated the Board's awards of interest to Royal Palms on a retroactive rent increase and on capital improvements, and 3) it correctly remanded these issues for further Board proceedings. We affirm.
FACTS
The City enacted a mobilehome park rent control ordinance which went into effect in 1983. It instituted rent controls because "rapidly rising rents had occurred in the mobilehome parks in the City due to a shortage of mobilehome spaces and the high cost of relocating a mobilehome."
Royal Palms owns a mobilehome park with 154 spaces. It was built in 1963 and its current owners acquired it in 1997.
In 2004 Royal Palms submitted applications with the City to increase rents. The City approved a 2.1 percent increase based on the consumer price index (CPI).
The park filed an additional "Discretionary Rent Increase application." It claimed it had not received a fair rate of return because in the unregulated "base year" of 1982 its rents were below market rates, and consequently its net operating income (NOI) was too low. It sought "an increase of 60 %, or approximately $184.04 per month" based on the ordinance's maintenance of net operating income [MNOI] formula. It also requested a $121.31 per space increase "to recover capital" costs it incurred for park improvements. Part of that increase involved the park's claim for "imputed interest" of 10 percent on these expenditures.
The tenants objected. They claimed the residents were mostly elderly, on fixed incomes and could not afford the increases. A hearing on Royal Palms' application took place before the Board's administrative hearing officer.
Michael Cirillo, who managed the park, said Royal Palms did not "have financial records for . . . 1982," but "CPA Michael McCarthy has 'reconstructed' financial records for Royal Palms" relying on 1982 Ocean-Aire Mobilehome Park records. Cirillo said Oxnard mobilehome park owners charged lower than market rate rents in 1982. They were told at owner meetings to be "very cautious about rent increases" because "if one of us gets out of line, we're going to have a rent control ordinance."
McCarthy testified that a $184.04 increase per space was needed to maintain the park's "net operating income" and receive "a reasonable return." He said the park was entitled to 10 percent "imputed" interest on its capital improvement expenditures. On cross-examination he said he was not an economist or an investment counselor, and no City ordinance authorized imputed interest. He did not look at Royal Palms' tax returns for 1982 or 1983, did not check the park's sales agreement for assets or depreciation and did not request documents from the City to determine Royal Palms' 1982 expenses. He did not know the location of Royal Palms' 1982 financial records, but was informed they were destroyed or lost. He reviewed more recent Royal Palms' income statements, but had not seen all invoices and receipts. McCarthy used 1982 Ocean-Aire records because he felt the parks were comparable, but he said it would be "more appropriate" to use Royal Palms' records had they been available. He calculated the rent increase with the assumption that Royal Palms and Ocean-Aire had the same 1982 NOIs. He prepared a rent comparability report which did not reflect that Royal Palms was in a an industrial zone.
Kenneth Merideth, a CPA, analyzed McCarthy's report. He said McCarthy compared the rents and size of Royal Palms and Ocean-Aire. But he did not "compare net operating income per park . . . so there is no way of knowing . . . whether [Royal Palms] had the same expenses in the resulting net operating income." Consequently, "it was difficult to determine whether Ocean-Aire is a comparable park."
Donald Pyne, a CPA, testified parks may appear comparable and have the same market value. But their operational costs, maintenance and acquisition costs may differ, and these factors are essential in determining comparability.
The tenants introduced a 1982 Royal Palms' application to increase rents, which reflected that for the first 10 months of 1982 the park charged rents ranging from $130 to $135 for single spaces, and $160 for one double lot. Karl Lawson, a City employee, testified that the Board held a hearing on the 1982 application and Royal Palms prepared a "housing services schedule" which was "made available to the public." The City approved a Consumer Price Index (CPI) rent increase effective November 1, 1982, for single spaces ranging from $15.50 to $16 and a $19 increase for the double lot.
Royal Palms introduced a survey which accompanied the Ocean-Aire park's 1994 application for a rent increase. That survey reflected that Royal Palms' 1982 rents ranged between $146.50 to $179 and Ocean-Aire's were from $135 to $160. It concluded that the average 1982 rent for the seven parks in the survey was $208. Ocean-Aire had claimed this showed that its 1982 average rent was $60 below the market rate. Royal Palms claimed that because the City granted Ocean-Aire's increase, it was entitled to a similar one.
The hearing officer approved a 18.64 percent rent increase as an allowable discretionary rent adjustment. But he rejected Royal Palms' claim that it was entitled to a greater increase because its 1982 base year rents were below market rates as shown by Ocean-Aire's records. He found Ocean-Aire's documents were contradictory because its increase application described Royal Palms to be inferior to Ocean-Aire, but its survey indicated it was superior. The two parks were not comparable and Ocean-Aire's records were not reliable proof. He said there was "no reason to substitute imputed figures from another mobilehome park for verified figures from Royal Palms itself." He found that Royal Palms' rent income figures set forth in its 1982 CPI application was superior evidence. Royal Palms appealed.
The Board ruled that Royal Palms did not show that its 1982 base year rents were below market rates and consequently, it could not obtain a rent increase based on that factor. It found the park was entitled to "imputed" interest for its capital expenses at the rate of seven percent, and interest on an approved retroactive rent increase, effective November 1, 2004, at the rate of four percent. It noted that on imputed interest, witnesses had disagreed as to whether the rate should be 10 percent or seven percent, and for interest on the approved retroactive rent increase the Board relied on certificate of deposit rates.
Royal Palms filed an administrative mandamus action. The court upheld the Board's findings on the base year rent issue, but set aside the interest awards. It said the Board did not show the actual basis for its decision to award interest on capital improvements and must reconsider its decision to award interest on retroactive rent. It said "the Board may consider new evidence on these two issues or may base its reconsideration on the existing administrative record. [It] may, but it is not required, to refer the matter to the hearing officer for reconsideration."
DISCUSSION
I. Findings on Royal Palms' 1982 Base Year Rents
Royal Palms contends the court erred by upholding the Board's decision and finding that it did not present competent evidence to prove that its 1982 base year rents were below market rates. It claims that it met its burden to produce evidence, its proof was not refuted, the Board's and the court's findings are not supported by the record, and it was denied a fair return. We disagree.
"Price controls on rent are within the City's police power if they are reasonably calculated both to eliminate excessive rents and to provide the owner with a 'just and reasonable' return on its property." (Concord Communities, L.P. v. City of Concord (2001) 91 Cal.App.4th 1407, 1414.) "A just and reasonable return is one which is generally commensurate with returns on investments in other enterprises having corresponding risks." (Id. at p. 1415.) But "it is also one which is not so high as to defeat the purposes of rent control" by leading to excessive rents. (Ibid.)
The City's ordinance allows park owners: 1) to obtain periodic rent increases based on the consumer price index (CPI) (City of Oxnard Ord. No. 2475, § 17.1-9; see, e.g., Concord Communities, L.P. v. City of Concord, supra, 91 Cal.App.4th at p. 1411); 2) to request higher "discretionary rent increases" (City of Oxnard Ord. No. 2475, Res. No. 11, 468, Guidelines § IV, subd. P; and 3) to have a hearing on whether the park's net operating income NOI, [the "annual gross total income" minus the "annual operating expenses"] is a fair return. (City of Oxnard 2475, Guidelines § V, subd. (B)(1).)
In deciding discretionary rent increases, the City requires that its "hearing officer's review shall be structured to permit a continuation of the [NOI] to the owner and a just and reasonable return on the owner's investment at the same level (adjusted for the effect of inflation) experienced by the park in the year immediately preceding the first impact of rent stabilization on the park." (City of Oxnard Ord. No. 2475, § 17.1-10, subd. (C).) Here that base year is 1982. It was the last time owners could charge rents without regulation. Cities may initially presume parks charged market rates during that period and their base year NOIs reflect a fair return. (MHC Operating Limited Partnership v. City of San Jose (2003) 106 Cal.App.4th 204, 221; Concord Communities, L.P. v. City of Concord, supra, 91 Cal.App.4th at p. 1411.)
The City's ordinance provides that its hearing officers must "presume that all space rents received by owners both prior and subsequent to all discretionary rent increases were, and are, above the minimum required and not at a confiscatory level, unless there is clear and convincing evidence to the contrary." (City of Oxnard Ord. No. 2475, Res. No. 11,468, Guidelines § IV, subd. (P) (2).) They must also presume "that the [NOI] received in the base year provided owners with a just and reasonable return above the required minimum on their investment unless there is clear andconclusive evidence to the contrary." (Ibid.; City of Oxnard Guidelines § IV, subd. (P)(3).) These presumptions may be overcome by proof that base year rents were below market rates. (Ibid., Guidelines § V, subd. (B)(1)(c).) These provisions follow the generally accepted presumptions for deciding rent increase applications. (MHC Operating Limited Partnership v. City of San Jose, supra, 106 Cal.App.4th at p. 221.)
Royal Palms argues that it met its burden to produce evidence and the Board erred by rejecting it. But the trier of fact determines whether the evidence produced is sufficient and credible; and has discretion to reject even uncontradicted testimony. (Evid. Code, § 604; Estate of Peters (1970) 9 Cal.App.3d 916, 923; Estate of Evans (1969) 274 Cal.App.2d 203, 216; Bazaure v. Richman (1959) 169 Cal.App.2d 218, 222.) The park claims there is no substantial evidence to support the findings of the Board and the court. But, as the City notes, Royal Palms waived this issue by not setting forth all the evidence which supports the judgment. (Glendale Federal Savings & Loan Assn. v. Marina View Heights Development Co., Inc. (1977) 66 Cal.App.3d 101, 152.) But even on the merits, the result is the same. Royal Palms has the burden of showing that the Board erred. (MHC Operating Limited Partnership v. City of San Jose, supra, 106 Cal.App.4th at p. 220.)
The City correctly notes that the Board could reasonably find that Royal Palms did not present competent proof to overcome the presumption that its base year rents were at market rates. Royal Palms did not introduce its 1982 financial records, and consequently it lacked essential base year documentation. But a park may reconstruct its missing base year records by obtaining verification from other sources, such as tax documents, and prior rent control proceedings. (MHC Operating Limited Partnership v. City of San Jose, supra, 106 Cal.App.4th at p. 225.) Royal Palms did not do this. McCarthy did not review the park's 1982 tax returns or other available records from the City.
The Board could reasonably draw negative inferences because the park did not present the best available documentary proof. (Evid. Code, § 412; MHC Operating Limited Partnership v. City of San Jose, supra, 106 Cal.App.4th at p. 225 [park failed to submit available evidence].) The Board also noted that the park introduced "no evidence from anyone who was associated with Royal Palms in 1982."
Royal Palms claims that because its experts said its base year rents were below market rates and it was not receiving a fair return, the Board erred by rejecting their testimony. But the Board is not bound by the conclusions of experts. (People v. Lawley (2002) 27 Cal.4th 102, 132; In re Marriage of DeRoque (1999) 74 Cal.App.4th 1090, 1096.) It may reject their opinions if they were based on insufficient information, conjecture or if the experts are not credible. (Biren v. Equality Emergency Medical Group, Inc. (2002) 102 Cal.App.4th 125, 139; In re Marriage of Rosen (2002) 105 Cal.App.4th 808, 822.) Royal Palms suggests that the Board exceeded its authority by adding findings about its witnesses and its evidence which were not made by the hearing officer. We disagree. It may add findings from its review of the record. "The board, not the ALJ, is the ultimate fact-finder, entitled to draw inferences from the available evidence." (Trustees of the California State University v. Public Employment Relations Board (1992) 6 Cal.App.4th 1107, 1129; Respers v. University of California Retirement System (1985) 171 Cal.App.3d 864, 873.)
Here the Board could reasonably reject the conclusions of the park's experts. They used 1982 records from another park and claimed it was comparable. But the two parks were located in substantially different environments. A report McCarthy considered described Ocean-Aire as a "well-maintained park" in a residential area, but Royal Palms was "an older park in an industrial commercial pocket" with "high density." Yet, in his written analysis McCarthy did not include these differences. He conceded the surrounding environment was relevant in determining rental rates and the presence of railroad tracks near Royal Palms was a negative rental value factor. In addition, a document which Royal Palms introduced into evidence described the park as being inferior to Ocean-Aire in facilities and location.
There were other differences. Ocean-Aire was larger with 181 spaces and Cirillo conceded the two parks did not have "precisely the same amenities." The Board could reasonably infer the parks were not comparable. From Merideth's and Pyne's testimony it could find that McCarthy's expertise about comparability was suspect. The Board could also find that McCarthy had been impeached on cross-examination.
A Royal Palms' witness claimed Oxnard mobilehome parks charged below market rents before 1982. Cirillo said owners were urged to watch their rates because "if one of us gets out of line we're going to have a rent control ordinance." But the Board said it was "unconvinced that the phrase 'if one of us gets out of line' means 'if one of us charges fair market rents.'"
Cirillo testified that the prior Royal Palms owner in 1982 did not charge market rates because the "park was small potatoes compared to his overall portfolio." But the Board found this was speculation. Cirillo was not associated with the park in 1982, had no personal knowledge and admitted he was not an appraiser. The Board concluded the reliable evidence was "the actual rents charged in Royal Palms in 1982 by the park owner, and as verified by the Rent Review Board in 1982." It also noted that Cirillo was "not an uninterested witness" because of his financial interests. He was the general manager of "the interested party in this proceeding," he had financial interests in another mobilehome park in the city and he operated two others. He claimed there was no available information on Royal Palms for 1982, but this was impeached by other evidence. The Board could reasonably reject his testimony. (Biren v. Equality Emergency Medical Group, Inc., supra, 102 Cal.App.4th at p.139.)
Royal Palms claims the Board erred by rejecting the evidence of base year market rates in Ocean-Aire's survey. The Board found that the survey did not accurately reflect Royal Palms' 1982 rents. The park notes that the rental rates for the last two months of 1982 in the survey are accurate. But the Board also could consider the first 10 months of that year. Here the Board found the survey was not competent proof. It showed a high 1982 Royal Palms rental rate of $179. But the Board noted that for the first ten months of 1982 Royal Palms rented 110 spaces at $130 a month, 42 spaces at between $133 to $135, and only one space (a double) rented for $160.
There was a substantial disparity between the rent for the only double space lot and all the remaining lots in the park. To obtain a proper average rent a trier of fact could reasonably infer that the double space lot rent should be excluded. Consequently the Board could view the survey's range of rates for Royal Palms to be unreliable for comparative analysis.
Moreover, there are numerous evidentiary and foundational problems involving this short document. The survey contained multiple hearsay. (In re Shannon C. (1986) 179 Cal.App.3d 334, 342.) It was prepared to support Ocean-Aire's rent increase. But it did not list an average base year rent for Royal Palms or reflect whether the rental rates for the other parks included double lots. The survey had conclusory "comments" about comparability without stating the sources of information. Nor did it compare the parks by using objective factors such as monthly expenses and profits. From Merideth's testimony the Board could infer this was a substantial omission. The Board also noted the absence of competent testimony to validate the survey and the methods of preparation. (People v. Campos (1995) 32 Cal.App.4th 304, 309.) It said, "[i]n light of the actual rents charged in Royal Palms in1982, as submitted by the owners . . . and as verified by the [Board] in 1982, it seems reasonable for the Hearing Officer to have concluded that those are more reliable."
The Board was entitled to make its findings based on the evidence which it found to be most reliable. That the survey was used by another park years earlier, does not relieve Royal Palms of its burden to prove its applicability here with competent evidence. The Board and the court could reasonably infer that the survey was an ambiguous and conclusory document which left unanswered questions and did not bridge the evidentiary gaps in Royal Palms' case. The park has not met its burden to show either a lack of substantial evidence or that the Board's findings were arbitrary. (MHC Operating Limited Partnership v. City of San Jose, supra, 106 Cal.App.4th at p. 220; Glendale Federal Savings & Loan Assn. v. Marina View Heights Development Co., Inc., supra, 66 Cal.App.3d at p. 152.) There was no error.
II. Vacating the Board's Findings on Entitlement to Interest
Royal Palms claims it challenged only the rates of interest which the Board awarded on its retroactive rent increase and on its capital improvement expenditures. It claims the court erred by vacating the Board's findings on its entitlement to interest and allowing the Board to re-open that issue. It argues entitlement to interest was not an issue. We disagree.
A court may not sustain an administrative award of interest unless that agency had jurisdiction to grant it. (American Federation of Labor and Congress of Industrial Organizations v. Unemployment Insurance Appeals Board (1996) 13 Cal.4th 1017, 1023.) This issue may be raised at anytime. (Vo v. Board of Medical Quality Assurance (1991) 235 Cal.App.3d 820, 826; City and County of San Francisco v. Padilla (1972) 23 Cal.App.3d 388, 400.) In administrative mandamus the court decides whether the agency has proceeded in excess of its jurisdiction (Code Civ. Proc., § 1094.5, subd. (b)) and whether its findings are adequate. (MHC Operating Limited Partnership v. City of San Jose, supra, 106 Cal.App.4th at p. 216.) If the findings are insufficient a remand for additional findings is appropriate to allow the court to examine the agency's "mode of analysis." (Glendale Memorial Hospital & Health Center v. State Department of Mental Health (2001) 91 Cal.App.4th 129, 140; Rabago v. Unemployment Insurance Appeals Board (1978) 84 Cal.App.3d 200, 212.)
Here the court could reasonably find that the Board did not make adequate findings on its authority to make these two interest awards. On the issue of entitlement to interest on the retroactive rent award the Board simply stated in conclusory terms, "[T]he Board finds that interest should be awarded . . . ." The court could also question the award of interest on capital improvements because of the lack of findings on the Board's authority to award it, on whether the park would have a fair return without it, and on the impact to the tenants. (Morgan v. City of Chino (2004) 115 Cal.App.4th 1192, 1200.)
Moreover, the Board's position on this appeal provides further justification for a remand. Although it found that Royal Palms was entitled to these two types of interest, it now claims there is no provision in the City's ordinances authorizing these interest awards. It does not indicate whether it considered the Mobilehome Residency Law (Civ. Code, § 798 et seq.) or other authority. The Board contends that theses awards of interest were made under its discretionary power.
But unlike courts, administrative bodies do not have inherent power to award interest. (American Federation of Labor and Congress of Industrial Organizations v. Unemployment Insurance Appeals Board, supra, 13 Cal.4th at p. 1023.) They must identify the statutes or other legal authority which authorizes the award. (Ibid.) A remand will allow the Board the opportunity to do this. Because of the Board's special expertise, the trial court acted within its discretion to allow it to revisit these issues on remand. (MHC Operating Limited Partnership v. City of San Jose, supra, 106 Cal.App.4th at p. 219; Vargas v. Municipal Court (1978) 22 Cal.3d 902, 912.)
Royal Palms claims the court erred by ruling that on remand the Board may take additional evidence. We disagree. It properly decided not to restrict the manner in which the Board exercises its discretion when it reconsiders these issues. (Carson Gardens, L.L.C. v. City of Carson Mobilehome Park Rental Review Board (2006) 135 Cal.App.4th 856, 867.)
We have reviewed Royal Palms' remaining contentions and conclude they are without merit.
The judgment is affirmed. Costs on appeal are awarded in favor of respondents.
We concur: YEGAN, J., PERREN, J.