From Casetext: Smarter Legal Research

Douglas v. City of S.F.

COURT OF APPEAL OF THE STATE OF CALIFORNIA FIRST APPELLATE DISTRICT DIVISION FIVE
Apr 26, 2018
A150556 (Cal. Ct. App. Apr. 26, 2018)

Opinion

A150556

04-26-2018

LOUISE C. DOUGLAS et al., Plaintiffs and Appellants, v. CITY AND COUNTY OF SAN FRANCISCO, Defendant and Respondent.


NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes (San Francisco County Super. Ct. No. CPF-15-514667)

After the San Francisco Residential Rent Stabilization and Arbitration Board (rent board) denied their petitions, certain tenants of the Midtown Park Apartments petitioned for writ of administrative mandate (Code Civ. Proc., § 1094.5) in San Francisco Superior Court, alleging their tenancies are subject to San Francisco's Rent Stabilization and Arbitration Ordinance (rent ordinance). The superior court sustained the City of San Francisco's (City) demurrer to the operative first amended writ petition and entered judgment for the City.

Tenants appeal. They claim their tenancies are protected by the rent ordinance because their rents were not "controlled or regulated by any government unit, agency or authority" between February and May 2014. (S.F. Admin. Code, ch. 37, § 37.2, subd. (r)(4).) We disagree and affirm.

As relevant here, the rent ordinance does not apply to "dwelling units whose rents are controlled or regulated by any government unit, agency or authority." (S.F. Admin. Code, ch. 37, § 37.2, subd. (r)(4).) Tenants are: Louise C. Douglas, Marchell Johnson, Chong Davidson, Zabira Adbullina, Ivan Johnson, Sabrina Brewer, Sienna Dunn, Aida Pangilinan, Rakhila Majitova, Arthur Raquel, Geraldo Recidoro, Olivia Geter, Salomon Tamerat, James Ross, Sergey Scherbakov, Rufus Watkins, Francis Thomas, Konjit Bekele, Burnell Gray, Moges Berhano, Aristotle Saunders, Sanjuan Soontorn, Marilou Galeos, Weera Saelai, Khammay Vongsy, James Hurbert, Babu Workeneh, Oljas Majitov, Sylvia Richardson, Tomiko Oshiro, Jane Ige, Pat Smith, Donald Griggs, Demetrice Enis, Myles Dixon, Aziz Smahi, CT Miller, Trevor Green, Merie Timmoson, Enoch Lawson, Phyllis Bowie, Mary Cuffy, Gilmore, Amelia Horton, Manzell Clay, Doris Lanier, Mary Waddell, Furlishous Wyatt, Michael Pangilinan, Hakika Miller-Drisker, Khaled Smahi, David Burban, Ruhard Milam, James Taylor, Alesandro Taban and Autherine Stallworth. The rent board, a defendant in the trial court, is not a party to this appeal.

FACTUAL AND PROCEDURAL BACKGROUND

On an appeal from an order sustaining a demurrer, we "accept as true the properly pleaded material factual allegations of the complaint, together with facts that may properly be judicially noticed." (Crowley v. Katleman (1994) 8 Cal.4th 666, 672.) We also consider "evidentiary facts found in recitals of exhibits attached to a complaint." (Satten v. Webb (2002) 99 Cal.App.4th 365, 375; see also SC Manufactured Homes, Inc. v. Liebert (2008) 162 Cal.App.4th 68, 83.) On our own motion, we augment the record with the demurrer moving and opposition papers. (Cal. Rules of Court, rule 8.155(a)(1)(A).)

The City owns the Midtown Park Apartments, a 139-unit apartment complex (apartments, or complex) for moderate and low-income tenants in the Western Addition neighborhood. From 1968 to early 2014—and pursuant to a lease with the Midtown Park Corporation—the San Francisco Board of Supervisors (Board of Supervisors) set the rental charges for the apartments. Because the rents were "controlled or regulated by [a] government unit, agency or authority," the rent ordinance did not apply. (S.F. Admin. Code, ch. 37, § 37.2, subd. (r)(4).)

On January 31, 2014, the City terminated the lease with Midtown Park Corporation. Effective that same date, the City—acting by and through the Mayor's Office of Housing and Community Development (MOHCD)—entered into a management and lease agreement (lease or Mercy Lease) with Mercy Midtown, Inc. (Mercy Housing). The lease required the City to develop a Rental Credit Program (program) to set new rental rates in the complex, and provided that no rent increases would be imposed before the effective date of the program. Pursuant to the lease, Mercy Housing would obtain income certifications for existing occupants "using the standard certification form required by MOHCD for multifamily affordable housing rental developments," and would charge rents as set forth in the program, except that for existing occupants who "refuse to complete an income certification, Mercy may charge such tenant a market rate rent."

Section 36.4 of the lease provided the lease was "null and void" and did not "create any binding obligations on the City" until it was approved by the Mayor and the Board of Supervisors. On May 1, 2014, the City and Mercy Housing amended the lease. According to the amendment: (1) the lease "inadvertently" and "mistake[nly]" included section 36.4's "boilerplate" and inapplicable language; (2) section 36.4 "was of no force and effect with respect to the Lease"; and (3) the "Lease became effective immediately upon execution and delivery by Mercy and the City." The amendment deleted section 36.4 "from the Lease, effective January 31, 2014."

Rent Board Proceedings and the Program

In February 2014, certain tenants filed petitions with the rent board, alleging their tenancies were subject to the rent ordinance. Tenants argued the rent ordinance applied because: (1) the Mercy Lease had not been approved by the Mayor and the Board of Supervisors and, as a result, there was no lease for the complex; and (2) "[w]ithout an operative lease," no government entity regulated or controlled the rents at the complex. In response, the City argued that under the Mercy Lease, rents could not "be increased until such time as the MOHCD establishes the . . . Program, and rents will be regulated by MOHCD after the . . . Program is established. Therefore, the subject property remains exempt from the Rent Ordinance since the MOHCD is a government agency that regulates the rents through the master lease with Mercy."

In April 2014, an Administrative Law Judge (ALJ) held a hearing, at which the City offered evidence that the "[p]rogram will be created by MOHCD, and will regulate all individual dwelling unit rental rates" at the complex. In a written decision, the ALJ denied the petitions and concluded: "rental units at the subject property are exempt from the Rent Ordinance because rents for the units are controlled and regulated by a government agency. This determination is supported by the following: (1) between 1968 and January 31, 2014, the master lease between the City and Midtown Park Apartments Corporation required rents to be set by the . . . Board of Supervisors; and (2) effective February 1, 2014, the Mayor's Office of Housing and Community Development entered into a new master lease with Mercy Housing, and the month-to-month master lease does not allow for any rent increases until such time as the MOHCD completes the . . . Program. The new master lease further provides that rents will be regulated by the MOHCD after the . . . Program is established. The tenants' petitions are therefore denied . . . because rents at the property are controlled and regulated by a government agency."

The ALJ, however, declined to consider the "argument that the January 31, 2014 master lease with Mercy Housing is null and void because the master lease was not ratified by the Board of Supervisors. The Rent Board does not have jurisdiction to determine the validity of the master lease between the City and Mercy Housing, which must be determined in civil court. Absent such a court determination, the lease on its face regulates the rents of the subject units, and Mercy has operated the property in accordance with the lease restriction." (Italics added.) The rent board upheld the ALJ's determination.

In June 2014, the MOHCD sent tenants a notice describing the program. The revised program, effective July 2015, provided that rents would "be based on 30% of the household's pre-tax or 'gross' income or the market rate, whichever is less." Rent increases, if any, would be phased in over a five-year period. Households failing to submit income certifications would be charged "market-rate" rent, based on "the most recent market rate survey conducted by the City. Such rental rates shall be subject to periodic increases based on updated market rate surveys conducted by the City." In 2016, participation in the program would be "mandatory and all households [would] be required to income certify and execute a lease" to live at the complex.

After the program went into effect, tenants filed petitions with the rent board, again alleging their apartments became rent controlled after the lease with Midtown Park Corporation terminated. In July 2015, the ALJ denied the petitions without a hearing. First, the ALJ concluded "tenants have not alleged any new facts to support their claim that the units are no longer exempt from the [Rent] Ordinance. Rather, the tenants' sole argument is the same one raised in the prior petitions, i.e. that the exemption from the [Rent] Ordinance terminated on February 1, 2014 because there was no valid master lease governing the regulation of rents at the complex as of that date."

Next, the ALJ determined "[t]he only matter at issue . . . is the validity of the January 31, 2014 . . . lease with Mercy Housing. . . . [T]he Rent Board does not have jurisdiction to determine the legality of the January 31, 2014 . . . lease between the City and Mercy Housing, which must be decided in civil court. However, even assuming the court were to find the [Mercy] lease was void for the technical reasons advanced by the tenant petitioners, it would not change the conclusion herein since the undisputed facts show that the MOHCD continued to regulate the rents in conjunction with Mercy Housing after the prior master lease expired on January 31, 2014 whether or not it did so pursuant to a valid written lease or any lease at all. MOHCD in fact did not allow any rent increase after January 31, 2014 . . . . [¶] For the above reasons, . . . the subject units are exempt from the [rent] [o]rdinance because the rents are regulated by a government agency. Accordingly, the tenant petitions are denied for lack of jurisdiction."

Superior Court Proceedings

After the rent board upheld the ALJ's decision, tenants filed a verified petition for writ of administrative mandamus (Code Civ. Proc., § 1094.5) to compel the rent board to exercise jurisdiction over, and consider the merits of, the rent board petitions. The operative verified first amended petition (writ petition) alleged the ALJ erred by determining the rent board lacked jurisdiction, and by concluding the apartments were outside the reach of the rent ordinance. Tenants claimed they "became entitled to the protections" of the rent ordinance as of February 1, 2014, because the lease with Midtown Park Corporation had terminated, and the Mercy Lease was not effective until May 1, 2014. They also argued the program did not constitute " 'regulation of rents by a governmental agency' " because it allowed rents to be "set by Mercy at 'market rates' determined at its discretion." (Emphasis omitted.) Next, tenants alleged the City's ownership of the complex did not exempt the apartments from the rent ordinance because the City acted as a landlord, not as a regulatory agency. Finally, tenants averred the ALJ abused its discretion by denying the petitions without a hearing, and that the ALJ's decision was based on an "unfair and arbitrary application of the facts."

The City demurred, arguing the writ petition "establishes on its face that MOHCD 'controls or regulates' " rents at the complex and, as a result, the rent ordinance "does not apply." The City urged the court to reject tenants' argument that the MOHCD did not control rents for those tenants who did not participate in the program, noting: (1) tenants did not raise this argument before the ALJ; (2) the lead tenant participated in the program and the writ petition did not allege "any facts to establish that any of the [tenants] have standing to pursue this claim"; (3) MOHCD controls all rents—including market rate rents—at the complex; and (4) participation in the program is mandatory as of 2016. The City also argued MOHCD controlled or regulated the rents at the complex, regardless of the lease's validity. Finally, the City contended the ALJ properly declined to conduct an evidentiary hearing because the facts were undisputed.

Tenants opposed the demurrer. Following a hearing, the court sustained the demurrer with leave to amend, concluding: the writ arose out of the ALJ's July 2015 decision and "[t]he issues ripe for review are contained in the third paragraph of the Decision, specifically, (1) whether the ALJ erred in finding that the Rent Board does not have jurisdiction to determine the legality of the . . . lease; and (2) whether the ALJ erred in finding that the 'undisputed facts show that the MOHCD continued to regulate the rents in conjunction with Mercy Housing after the prior master lease expired on January 31, 2014 whether or not it did so pursuant to a valid written lease or any lease at all.' The Petition on pages 1-5 and/or pages 1-18 does not state sufficient facts to state a claim on either of these issues. [¶] Both sides appear to invite the Court to make a determination regarding the validity of the . . . lease on this petition . . . . The issue of validity of the . . . lease is not properly before the Court on this Petition."

Tenants did not amend the writ petition, and the court entered judgment for the City.

DISCUSSION

A party may seek a writ of administrative mandamus on the grounds an agency has acted in excess of jurisdiction, deprived the petitioner of a fair trial, or committed a prejudicial abuse of discretion. (Code Civ. Proc., § 1094.5, subd. (b).) "Abuse of discretion is established if the [agency] has not proceeded in the manner required by law, the order or decision is not supported by the findings, or the findings are not supported by the evidence." (Ibid.) "These standards 'do not change on appellate review from a trial court's denial of a petition for writ of mandate from a decision of the [rent board]; an appellate court independently determines whether substantial evidence supports the [rent board]'s findings, not the trial court's conclusions.' [Citation.] However, insofar as an appeal from an administrative mandamus proceeding presents questions of law, our review is de novo." (Telish v. State Personnel Bd. (2015) 234 Cal.App.4th 1479, 1487.)

"We may affirm the trial court's ruling on any ground supported by the record." (Taylor v. Elliott v. Turbomachinery Co. Inc. (2009) 171 Cal.App.4th 564, 573, fn. 5.) "It is the ruling, and not the reason for the ruling, that is reviewed on appeal." (Muller v. Fresno Community Hospital & Medical Center (2009) 172 Cal.App.4th 887, 906-907.)

I.

The Mercy Lease Was Effective January 31, 2014

Tenants fault the ALJ for failing to determine the validity of the lease, then challenge the ALJ's implied conclusion that the lease was valid. According to tenants, the lease was "not in effect until it was modified" on May 1, 2014. We disagree, under any standard of review. The undisputed evidence establishes the lease was amended with a retroactive date of January 31, 2014. Paragraph C of the amendment provided the lease "became effective immediately upon execution and delivery by the City and Mercy." It is well settled "a party of a contract may . . . fix retroactive dates of execution for a contract" (Du Frene v. Kaiser Steel Corp. (1964) 231 Cal.App.2d 452, 458) and may agree that a contract "be dated as of a previous time." (Wright v. Prudential Ins. Co., Etc. (1938) 27 Cal.App.2d 195, 219.) Here, Mercy and the City agreed the lease became effective on January 31, 2014. (Brix v. Peoples Mutual Life Ins. Co. (1932) 124 Cal.App. 65, 67-68 [parties "may by their agreement bring the contract into being at such time as they see fit"].)

In their reply brief, tenants acknowledge the lease was amended effective January 31, 2014, but claim "backdating" the lease to avoid the rent ordinance violates public policy. We need not consider this belated argument. (Doe v. California Dept. of Justice (2009) 173 Cal.App.4th 1095, 1115.) In any event, the argument fails because the record is devoid of evidence the lease was "backdated" with the purpose of avoiding the rent ordinance. Instead, the documents attached to the writ petition demonstrate the lease's inclusion of section 36.4 was "an inadvertent mistake," and that the amendment was intended to correct that mistake, not to avoid the rent ordinance.

Tenants' reliance on a single case, Stonehocker v. Cassano (1957) 154 Cal.App.2d 732, does not alter our conclusion. Stonehocker concerned a stock purchase agreement that violated a provision of the Corporations Code. The appellate court determined the parties' "subsequent conduct" did "not give validity to the sale made in violation of the law. If an agreement grows immediately out of an illegal act, a court will not lend its aid to enforce it." (Id. at p. 736.) Stonehocker does not apply here because this case does not concern a stock purchase agreement, and because the lease did not grow "out of an illegal act." (Ibid.)

Tenants rely on rent board decisions in other cases, In re 620 Font Blvd. (S.F. Rent Board Case No. T071601); In re 1030 Post Street (S.F. Rent Board Case No. T060948); and In re 3048 16th Street (S.F. Rent Board Case No. T040767), all of which are easily distinguishable. --------

Because we conclude the lease was effective January 31, 2014, we reject tenants' argument that their tenancies became subject to the rent ordinance while the lease was "null and void." We also decline to consider tenants' claim that the City was acting as an "owner of residential property" or as a "direct landlord" while there was no lease. Finally, and because we agree with the City on the merits, we need not address its argument that tenants are collaterally estopped from relitigating issues raised before the rent board in 2014.

II.

Under the Mercy Lease, a Government Entity Controlled or Regulated

Rents at the Complex

In their opening brief, tenants acknowledge "the control of rents by the MOHCD imposed by [the Mercy lease]." In their reply brief, however, tenants claim their tenancies are subject to the rent ordinance even if the lease was effective on January 31, 2014 because MOHCD did not control or regulate rents under the lease. This contention—raised "for first time in its reply brief, without offering any good reason why it did not raise it in its opening brief"—is forfeited. "It is improper to raise new contentions in the reply brief." (Taylor v. Roseville Toyota, Inc. (2006) 138 Cal.App.4th 994, 1001 & fn. 2.)

The argument also fails on the merits. The ALJ determined "MOHCD continued to regulate the rents in conjunction with Mercy Housing after . . . January 31, 2014, whether or not it did so pursuant to a valid written lease or any lease at all." Substantial evidence supports this conclusion. The plain language of the lease states MOHCD will establish the program, to set "rental charges for [e]xisting [o]ccupants" at the complex. The lease also provides that Mercy Housing "shall charge rents at the rate set forth" in the program. Evidence offered at the 2014 rent board hearing and quoted in the 2014 decision provides the program "will regulate all individual dwelling unit rates" at the complex. Together, this evidence demonstrates MOCHD controls or regulates the rents at the complex within the meaning of the rent ordinance. (S.F. Amin. Code, ch. 37, § 37.2, subd. (r)(4).)

Tenants' arguments to the contrary are not persuasive. For example, tenants contend MOHCD does not control or regulate the rents because the lease grants Mercy Housing "unilateral power to set 'market rates' " on tenants who do not participate in the income certification process. Not so. Under the program, market rate rents are based on "the most recent market rate survey conducted by the City. Such rental rates shall be subject to periodic increases based on updated market rate surveys conducted by the City." The "market rates" are set by the City, not by Mercy Housing. Tenants also claim MOHCD does not control or regulate the rents because participation in the program is voluntary. This argument fails for at least two reasons. First, lead tenant Louise C. Douglas participated in the program and the writ petition does not allege other tenants declined to participate in the program. Second, beginning in 2016, participation in the program is "mandatory and all households [would] be required to income certify and execute a lease in order to live" at the complex.

Tenants proffer other arguments challenging the ALJ's conclusions and the trial court's refusal to consider the validity of the lease. We have considered those arguments, and we reject them. (Lyons v. Santa Barbara County Sheriff's Office (2014) 231 Cal.App.4th 1499, 1506.) For the reasons discussed above, we conclude the court did not err by sustaining the City's demurrer to the writ petition.

DISPOSITION

The judgment is affirmed. Respondent City and County of San Francisco is entitled to costs on appeal. (Cal. Rules of Court, rule 8.278(a)(2).)

/s/_________

Jones, P. J. We concur: /s/_________
Simons, J. /s/_________
Needham, J.


Summaries of

Douglas v. City of S.F.

COURT OF APPEAL OF THE STATE OF CALIFORNIA FIRST APPELLATE DISTRICT DIVISION FIVE
Apr 26, 2018
A150556 (Cal. Ct. App. Apr. 26, 2018)
Case details for

Douglas v. City of S.F.

Case Details

Full title:LOUISE C. DOUGLAS et al., Plaintiffs and Appellants, v. CITY AND COUNTY OF…

Court:COURT OF APPEAL OF THE STATE OF CALIFORNIA FIRST APPELLATE DISTRICT DIVISION FIVE

Date published: Apr 26, 2018

Citations

A150556 (Cal. Ct. App. Apr. 26, 2018)