Opinion
20-P-951, 20-P-1339
02-24-2022
Paul HENAULT v. MOBILE HOME RENT CONTROL BOARD OF SPRINGFIELD (and a companion case ).
MEMORANDUM AND ORDER PURSUANT TO RULE 23.0
These appeals arise out of petitions filed with the Springfield mobile home rent control board (board) to adjust the rents at the Bircham Bend Mobile Home Park (park). While the owner of the park, Hayastan Industries, Inc. (Hayastan), sought a rent increase, various residents of the park sought a rent decrease. The board approved a forty-six dollar increase to each lot's monthly rent, thereby granting Hayastan's petition and denying the residents’ petitions. To challenge the rent increase, resident Paul Henault brought an action for judicial review in 2014 (2014 action), which set off a tortuous appeal process involving a remand to the board, the board's decision on remand, and subsequent consolidated actions for judicial review brought by Hayastan and Henault in 2016 (2016 actions). In the 2016 actions, a judge of the Housing Court modified the board's decision on remand.
We are asked to decide whether the Housing Court judge who ruled on the motions pertinent to these appeals erred in the following respects: (1) in the 2014 action, by dismissing a notice of appeal Hayastan filed on February 27, 2020, purportedly from the judgment entered in the 2016 actions and (2) in the 2016 actions, by modifying the board's decision on remand. We affirm, although we affirm the order dismissing Hayastan's February 27, 2020 notice of appeal for a different reason than the one set forth in the order.
The board did not file an appellate brief in either appeal.
Background. 1. Mobile home rent control in Springfield. In 1985, the Legislature approved an act (act) authorizing the city of Springfield to establish a mobile home rent control board and to adopt ordinances regulating rents in mobile home parks in the city. See St. 1985, c. 610, § 2. The act requires any such board to make "individual or general adjustments [to rents], either upward or downward, as may be necessary to assure that rents ... are established at levels which yield to owners a fair net operating income." St. 1985, c. 610, § 3. Fair net operating income is defined as follows.
Pursuant to the act, the provisions of G. L. c. 30A are applicable to the board, and the act gives the Springfield Division of the District Court Department, the Housing Court, and the Superior Court concurrent jurisdiction to hear actions for judicial review brought pursuant to G. L. c. 30A. See St. 1985, c. 610, §§ 4, 5.
"Fair net operating income shall be that income which will yield a return, after all reasonable operating expenses, on the fair market value of the property equal to the debt service rate generally available from institutional first mortgage lenders or such other rates of return as the board[,] on the basis of evidence presented before it, deems more appropriate to the circumstances of the case."
Id. Pursuant to its authority under the act, the city adopted an ordinance establishing the board, Ordinances, c. 30-1 (1986), of the city of Springfield, and the board promulgated a regulation defining reasonable operating expenses to exclude mortgage interest and amortization.
An ordinance adopted by the city and a regulation promulgated by the board contain substantially the same definition of fair net operating income. See Ordinances, c. 30-4 (1986), of the city of Springfield.
2. Proceedings before the board and the Housing Court. In 2013, Hayastan and various residents filed petitions to adjust the rents, which at that time were $214 per month for some lots and $222 per month for other lots. The board held public hearings on the petitions and then met to discuss them. During the meeting, counsel to the board provided some context regarding how the board had been calculating fair net operating income. He stated that "the board ... used to kind of have a funky way of figuring out [fair] net operating income" but that the "last board" used an alternative method, which he thought "made the most amount of sense." According to counsel, the "last board" thought a fair net operating income was one that made a park a worthwhile investment for a potential purchaser. This method involved figuring out a park's gross income and reasonable operating expenses, estimating the debt service a potential purchaser would have, subtracting the reasonable operating expenses and hypothetical debt service from the gross income, and determining whether the resulting net operating income equaled a reasonable return on investment. The board agreed to use this method.
In a decision dated January 30, 2014 (2014 decision), the board approved a forty-six dollar increase to each lot's monthly rent. In particular, the board found that the increase would result in $448,032 in annual gross income. The board also found that the park had $416,841.64 in reasonable annual operating expenses, which included the hypothetical debt service and a ten percent management fee. The board subtracted $416,841.64 from the proposed gross income of $448,032, resulting in $31,190.36 in annual net operating income. Next, to determine whether this net operating income was fair, the board looked to what a potential purchaser would have to do for financing. The board found that a potential purchaser would need to invest twenty-five percent in equity on the assessed value of $1,797,800, i.e., $449,450, and that a net operating income of $31,190.36 on a $449,450 investment equaled a reasonable 6.94 percent return on investment. Based on the foregoing, the board determined that a forty-six dollar increase in each lot's monthly rent resulted in a fair net operating income and approved the increase. This brought the maximum monthly rent to $260 for some lots and $268 for other lots.
On March 3, 2014, Henault brought an action in the Housing Court for judicial review pursuant to G. L. c. 30A and the act. In a motion for judgment on the pleadings, Henault argued that the board's consideration of the hypothetical debt service was problematic for two reasons: (1) a park's reasonable operating expenses do not include its debt service; and (2) the board used a different method for calculating fair net operating income than the one set forth in the act. The judge concluded that, in effect, the board attempted to use a different rate of return, pursuant to its discretion to do so under St. 1985, c. 610, § 3, but that the board's exercise of its discretion was not supported by the evidence. See St. 1985, c. 610, § 3 (board may use "such other rates of return as the board[,] on the basis of evidence presented before it, deems more appropriate to the circumstances of the case"). An order entered "vacating the [board's 2014] decision ... and remanding the case for further proceedings before the [b]oard, consistent with [the judge's order]." On August 12, 2016, a judgment entered in the 2014 action memorializing the judge's order, and Hayastan did not file a notice of appeal at that time.
Henault also asserted a claim for deprivation of due process, pursuant to 42 U.S.C. § 1983. As a result, the 2014 action took a brief detour to the United States District Court for the District of Massachusetts until that court dismissed the procedural due process claim and remanded the 2014 action back to the Housing Court.
On remand, the board discussed whether to reopen the matter for more evidence, or to calculate fair net operating income using (1) the method set forth in the act and (2) the numbers previously found by the board, minus the hypothetical debt service. The board decided not to reopen the matter for more evidence. As a result, while the board omitted the hypothetical debt service from the park's reasonable operating expenses, the board continued to include among those expenses the ten percent management fee. In a decision dated September 30, 2016, the board set each lot's maximum monthly rent at $241.16.
The board's decision on remand eliminated the two different rent tiers and set one rent that applied to all lots.
In November 2016, Henault brought another action in the Housing Court for judicial review pursuant to G. L. c. 30A and the act, and Hayastan brought a similar action in the Superior Court. Hayastan's action was subsequently transferred to the Housing Court and consolidated with Henault's action, and Hayastan and Henault cross-moved for judgment on the pleadings. On January 4, 2019, an order entered on the cross motions for judgment on the pleadings. The judge concluded that (1) there was no evidentiary basis for the board's finding that the park's reasonable operating expenses included the ten percent management fee and (2) the board otherwise acted within its discretion. Accordingly, the judge denied Hayastan's motion for judgment on the pleadings, allowed Henault's motion for judgment on the pleadings in part, and modified the board's decision so as to set each lot's maximum monthly rent at $214.87.
Meanwhile, Hayastan moved to vacate the judgment entered on August 12, 2016, in the 2014 action on the basis that it was interlocutory, and to consolidate the 2014 action with the 2016 actions. In the judge's January 4, 2019 order on the cross motions for judgment on the pleadings, she also denied Hayastan's motion to vacate as moot, stating that the board's decision on remand placed "the findings and conclusions from its 2014 decision that were not otherwise addressed by the [Housing] [C]ourt's remand order ... back before the court for review."
Over a year later, on January 28, 2020, a judgment entered in the 2016 actions consistent with the judge's January 4, 2019 order. On February 7, 2020, and February 27, 2020, Hayastan filed notices of appeal in the 2016 actions and 2014 action, respectively. Both notices of appeal purported to be from the January 28, 2020 judgment entered in the 2016 actions. On June 16, 2020, an order entered dismissing Hayastan's February 27, 2020 notice of appeal filed in the 2014 action. On July 14, 2020, Hayastan filed a second notice of appeal in the 2014 action, this time from the order dismissing its February 27, 2020 notice of appeal.
In the intervening year, Hayastan filed motions for reconsideration in both the 2014 action and the 2016 actions; the motions were denied on September 4, 2019.
The judgment entered in the consolidated Housing Court cases with docket numbers 16H79CV001074 and 17H79CV000105.
The order entered in the Housing Court case with docket number 14H79CV000150.
Discussion. 1. February 27, 2020 notice of appeal. The judge dismissed the February 27, 2020 notice of appeal as untimely, on the basis that a final, appealable judgment entered in the 2014 action on August 12, 2016. For the reasons that follow, we conclude that the August 12, 2016 judgment was interlocutory but that, regardless, Hayastan's February 27, 2020 notice of appeal is now moot.
"It is well established that, in an action seeking judicial review of an administrative agency's decision, no appeal lies from a decision of the trial court remanding the matter to the agency for further proceedings where ‘the administrative tribunal has choices to make about the result, in nuance and fundamental conclusion.’ "
Lankheim v. Board of Registration in Nursing, 454 Mass. 1013, 1014 (2009), quoting Federman v. Board of Appeals of Marblehead, 35 Mass. App. Ct. 727, 729 (1994). See Chief Justice for Admin. & Mgt. of the Trial Court v. Massachusetts Comm'n Against Discrimination, 439 Mass. 729, 730 n.5 (2003) ; Kelley v. Boston Fire Dep't, 86 Mass. App. Ct. 913, 913 (2014). However, an order that gives the administrative agency "no discretion" and orders the administrative agency "to decide the matter in controversy in a manner specified by the court" may be deemed a final, appealable judgment. Lankheim, supra, quoting Politano v. Selectmen of Nahant, 12 Mass. App. Ct. 738, 740 (1981). See Federman, supra at 730, and cases cited (order of remand allowing administrative agency no leeway "takes on the character of finality"). See also Recreational Amusements of Mass., Inc. v. Massachusetts Turnpike Auth., 74 Mass. App. Ct. 651, 654 n.10 (2009).
While an exception applies where an administrative agency appeals from an order of remand that is final as to the agency, see Cliff House Nursing Home, Inc. v. Rate Setting Comm'n, 378 Mass. 189, 191 (1979), that exception does not apply to the 2014 action because the board did not appeal from the order of remand. Kelley, 86 Mass. App. Ct. at 913 n.5, quoting Kelly v. Civil Serv. Comm'n, 427 Mass. 75, 76 n.2 (1998).
Underlying the August 12, 2016 judgment was an order "remanding the case for further proceedings before the [b]oard, consistent with [the order of the judge]." The judge did not order the board to decide the controversy in any specific manner and instead gave the board leeway to make choices about the result. That the board had discretion regarding how to proceed is apparent from the board's own discussion regarding whether to reopen the matter for more evidence. For these reasons, the order of remand and the August 12, 2016 judgment were interlocutory. See Commercial Wharf E. Condominium Ass'n v. Department of Envtl. Protection, 93 Mass. App. Ct. 425, 430 n.7 (2018) (fact that interlocutory order was memorialized in document labeled "judgment" did not render it final and appealable).
As mentioned above, in 2017, Hayastan moved to vacate the August 12, 2016 judgment on the basis that it was interlocutory. Henault argues that the order denying Hayastan's motion to vacate, and Hayastan's failure to appeal from that order, made the finality of the August 12, 2016 judgment "uncontestable." This argument overlooks the fact that the judge denied Hayastan's motion to vacate as moot, and not on the basis that the August 12, 2016 judgment was interlocutory.
Regardless, much has occurred since the August 12, 2016 judgment: on remand, the board issued a second decision; Hayastan and Henault filed the 2016 actions for judicial review of the board's decision on remand; a final, appealable judgment entered in the 2016 actions; and Hayastan timely appealed from that judgment. These subsequent events have placed Hayastan's arguments regarding the board's decisions before this court for review. We conclude that the February 27, 2020 notice of appeal Hayastan filed in the 2014 action is moot, and the order dismissing Hayastan's February 27, 2020 notice of appeal is affirmed on that basis.
In denying Hayastan's motion to vacate the August 12, 2016 judgment, the judge reached a similar conclusion. See note 12, supra. She stated that the board's decision on remand placed "the findings and conclusions from its 2014 decision that were not otherwise addressed by the [Housing] [C]ourt's remand order ... back before the court for review." We interpret this statement as meaning that the board's 2014 decision was back before the Housing Court for review, but that the judge would not reconsider the findings and conclusions already addressed in her order of remand; we do not interpret it to purport to limit the issues Hayastan could raise on appeal to this court.
2. The board's decisions. As to the substance of the board's decisions, Hayastan argues that the board properly found that the park's reasonable operating expense included the hypothetical debt service and the ten percent management fee. Hayastan argues that the board erred, however, in the following respects: (1) by omitting capital improvements from the park's reasonable operating expenses and (2) by excluding the value of a third lot in determining the fair market value of the park.
Hayastan also argues that the judge did not have the full administrative record -- including specifically a copy of Hayastan's petition for a rent increase -- before her when ruling on the parties’ cross motions for judgment on the pleadings in the 2016 actions. This argument is without merit. Henault's motion for judgment on the pleadings included a copy of Hayastan's petition, minus approximately 140 pages documenting each resident's registration and a spreadsheet showing the monthly rent associated with each lot. Even assuming that the judge did not have those pages as part of some other submission, Hayastan was not prejudiced, as those pages have no bearing on Hayastan's arguments.
In addressing Hayastan's arguments, we review the board's decisions in accordance with the standards set forth in G. L. c. 30A, § 14 (7).
"[We] may modify or set aside [the board's] decision[s] only if it is determined that the substantial rights of a party were prejudiced because the contested ... decision[s] [were] (1) in violation of constitutional provisions, (2) in excess of its statutory authority or jurisdiction, (3) based on an error of law, (4) made upon unlawful procedure, (5) unsupported by substantial evidence, or (6) arbitrary or capricious, an abuse of discretion, or otherwise not in accordance with law."
McGovern v. State Ethics Comm'n, 96 Mass. App. Ct. 221, 226-227 (2019). We "give due weight to the experience, technical competence, and specialized knowledge of the [board], as well as to the discretionary authority conferred upon it." G. L. c. 30A, § 14 (7). The "principles of deference ... are not principles of abdication," however, and a decision must be supported by substantial evidence. McGovern, supra at 227, quoting Commissioner of Revenue v. Gillette Co., 454 Mass. 72, 75 (2009). " ‘Substantial evidence’ means such evidence as a reasonable mind might accept as adequate to support a conclusion." G. L. c. 30A, § 1 (6).
a. Hypothetical debt service. Hayastan argues that the board, in its 2014 decision, properly found that the park's reasonable operating expenses included the hypothetical debt service. Hayastan relies on the act's definition of fair net operating income:
"that income which will yield a return, after all reasonable operating expenses, on the fair market value of the property equal to the debt service rate generally available from institutional first mortgage lenders or such other rates of return as the board[,] on the basis of evidence presented before it, deems more appropriate to the circumstances of the case" (emphasis added).
St. 1985, c. 610, § 3. Hayastan's argument conflates different components of the definition of fair net operating income, as well as the difference between a park's debt service and its debt service rate.
The definition of fair net operating income embraces the following instructions: (1) when a park's reasonable operating expenses -- which the board's regulations define as excluding mortgage interest and amortization, i.e., debt service -- are subtracted from the park's gross income (2) the resulting net operating income should equal the fair market value of the property multiplied by the debt service rate generally available from institutional first mortgage lenders. See St. 1985, c. 610, § 3. Under the first component, a park's reasonable operating expenses do not include its debt service, meaning that a park's debt service may not be subtracted from its gross income. Under the second component, the available debt service rate is a proper consideration. The problem here was that, under the first component, the board (1) found that the park's reasonable operating expenses included the hypothetical debt service and (2) subtracted the hypothetical debt service from the park's gross income.
Hayastan argues in the alternative that the board properly considered the hypothetical debt service because the board had the discretion to use a different rate of return. See St. 1985, c. 610, § 3. Cf. Marshal House, Inc. v. Rent Control Bd. of Brookline, 358 Mass. 686, 706 (1971) (interpreting identical language in another act, definition of fair net operating income is flexible and consistent with "overriding requirement of a reasonable return on investment"). This argument fails because (1) the act gives the board discretion to use other rates of return only if there is evidence presented to the board that it would be appropriate to do so in the circumstances of the case, see St. 1985, c. 610, § 3, and (2) there was no such evidence here. Instead, the board found that the park's reasonable operating expenses included the hypothetical debt service based on counsel's representations that "the board ... used to kind of have a funky way of figuring out [fair] net operating income" and that the "last board" used a sounder method, which required the board to estimate the debt service a potential purchaser would have. These statements of opinion were not based on any evidence presented to the board regarding why a different rate of return would have been appropriate to the circumstances of the case and were insufficient to support the board's exercise of its discretion. See St. 1985, c. 610, § 3.
Henault argues that the act gives the board the discretion to multiply the fair market of the property by a different rate of return than the debt service rate generally available from institutional first mortgage lenders, and that the board here went far beyond the discretion afforded to it by using a different method for calculating fair net operating income than the one set forth in the act. We do not reach this argument, as we conclude that the board's exercise of its discretion was not supported by the evidence.
b. Ten percent management fee. As to the park's management expenses, the issue is whether the board's decision to credit Hayastan with a ten percent management fee was supported by substantial evidence. We conclude that it was not.
Hayastan petitioned for a rent increase by completing and submitting a form approved by the board, which requested information on the park's management expenses. Under the section for management fees, Hayastan could have itemized "[a]ctual monies paid to a separate management firm" or "[ten percent] of gross income for self-management." Hayastan did not select either option, but provided a budget for fiscal year 2012 that showed $369,168 in gross income and $55,390 in management expenses, i.e., approximately fifteen percent of the gross income. Hayastan also provided a "[l]ist of [e]mployees" showing a $350 weekly salary for the owner, a $350 weekly salary for a primary caretaker, and a $225 weekly salary for a part-time worker. The list included the caveat that the primary caretaker and part-time worker were independent contractors.
In a subsequent submission, Hayastan provided (1) a budget for January 1, 2013, to September 30, 2013, that showed $258,975 in gross income and $38,846.25 in management expenses, i.e., precisely fifteen percent of the gross income and (2) a revised "[l]ist of [e]mployees" showing a $350 weekly salary for the owner, a $425 weekly salary for the primary caretaker, and a $300 weekly salary for the part-time worker. This list included the same caveat about the primary caretaker and part-time worker being independent contractors.
The board decided that the requested fifteen percent management fee was "excessive" but credited Hayastan with a slightly smaller ten percent management fee. The board's decision appears to have been based on the following discussion. Counsel expressed his opinion that a fifteen percent management fee was high and suggested a ten percent management fee. The board chair agreed that "ten [percent was] more of an average across the board." Another board member responded that she "wouldn't know what the average was." The chair clarified that "it does range," but that ten percent was "more of an average" than the fifteen percent Hayastan requested. The board decided to "go with ten [percent]."
As conceded by Hayastan at oral argument, the evidence was insufficient to support a fifteen percent management fee. Putting aside the fact that the purported employee salaries were unsupported by payroll records or other evidence, there was no evidence that Hayastan employed the primary caretaker and part-time worker on a year-round basis; they were instead described as independent contractors. Nor was there evidence that the employees spent all their time performing management work versus maintenance work, which was a separate line item on the budget. Nonetheless, Hayastan argues that the board permissibly used its own expertise to find that a ten percent management fee was the industry standard and to credit Hayastan with that amount. Hayastan relies, in part, on the petition form approved by the board, which included a preprinted option for Hayastan to select "[ten percent] of gross income for self-management." Hayastan did not select that option.
Hayastan's argument overstates the deference given to the "experience, technical competence, and specialized knowledge of the [board]." G. L. c. 30A, § 14 (7). In deferring to the board's factual findings, we "do not decide questions of credibility or weigh conflicting evidentiary versions, and we respect the agency's expertise insofar as the drawing of inferences is concerned" (citation omitted). Silvia v. Securities Div., 61 Mass. App. Ct. 350, 358 (2004). We do not, however, defer to a factual finding that is not supported by substantial evidence. See McGovern, 96 Mass. App. Ct. at 227. In other words, "[w]hile the board is free to evaluate evidence in light of its expertise, it cannot use its expertise as a substitute for evidence in the record." Arthurs v. Board of Registration in Med., 383 Mass. 299, 305 (1981).
Where the board relied on the unsubstantiated opinions of its members regarding the industry standard, and not on any evidence presented to it, the board's finding was not supported by substantial evidence. The petition form approved by the board does not alter our analysis. The petition form asked Hayastan to itemize "[a]ctual monies paid to a separate management firm" or "[ten percent] of gross income for self-management." Even if Hayastan had selected "[ten percent] of gross income for self-management," which it did not, the board still would have needed to determine, based on the evidence presented to it, whether the amount was a reasonable operating expense. That evidence could have, perhaps, come in the form of documentation of the expenses required for personnel to manage the park. There was no such evidence here.
To the extent Hayastan argues that the petition form effectively established a rule that a park's reasonable operating expenses include, at a minimum, a ten percent management fee, there is no merit to the argument. If the board wanted to establish such a generally applicable rule, it would need to follow the provisions of G. L. c. 30A regarding the promulgation of regulations. See St. 1985, c. 610, § 4 (provisions of G. L. c. 30A are applicable to board).
c. Capital improvements. Regarding capital improvements, Hayastan argues that the board erred by omitting them from the park's reasonable operating expenses. This argument fails where there was no evidence supporting the costs Hayastan claimed to have incurred making capital improvements. Hayastan's petition for a rent increase listed five capital improvements: oil tanks, streetlights, electrical, garage, and roadway paving. The petition also listed a cost, estimated life, and yearly amortization cost for each improvement. For oil tanks, for example, the petition stated that they cost $50,000, that the estimated life was fifteen years, and that the yearly amortization cost was therefore $3,333. But there was no evidence supporting any of these numbers, such as invoices or financing documents. Accordingly, there was no error in the board's decision to omit the capital improvements from the park's reasonable operating expenses. See McGovern, 96 Mass. App. Ct. at 226-227.
Hayastan subsequently revised its list of capital improvements to include four capital improvements: oil tanks, roadway paving, plow truck, and dump truck. The figures for the oil tanks were also revised to reflect that they cost $18,000, that the estimated life was twenty years, and that the yearly amortization cost was therefore $900.
Henault argues that Hayastan had to show that the capital improvements were listed in the residents’ occupancy agreements. See 940 Code Mass. Regs. § 10.03(2)(l) (1996) (unfair or deceptive act or practice for operator of manufactured housing community to recover costs of capital improvements "to the extent such costs exceed $100 in the aggregate; provided that the amortized costs of such capital improvements may [if specifically listed in the occupancy agreement] be recovered from tenants over the useful life of such improvements through community-wide nondiscriminatory rent increases"). We do not reach this argument.
d. Third lot. Lastly, Hayastan argues that the board erred by excluding the value of a third lot in determining the fair market value of the park. The board added the assessed values of two lots to determine that the park's fair market value was $1,797,800, but Hayastan argues that board should have included a third lot in its calculations. Hayastan does not point to any evidence in the record, but instead claims that in the past the board included the value of the third lot when deciding a prior petition for a rent adjustment. Regardless what the board may have decided in a prior matter, there was no evidence of a third lot before it in this matter, and thus no error in the board's failure to include the value of the third lot in determining the fair market value of the park. See McGovern, 96 Mass. App. Ct. at 226-227.
A regulation promulgated by the board provides that the fair market value of a park "shall mean the current assessed valuation of the property unless, on the basis of evidence presented to the [b]oard, the [b]oard in any specific case deems another valuation is more appropriate to the circumstances of the case before it."
Judgment entered January 28, 2020, affirmed.
Order entered June 16, 2020, affirmed.