EXHIBIT 1
Sierra Lake Reserve v. City of Rocklin, 938 F.2d 951(1991) Appeal from the United States District Court for the Eastern 938 F.2d 951 District of California.
United States Court of Appeals,
Ninth Circuit. Before GOODWIN, KOZINSKI and NOONAN, Circuit Judges.
SIERRA LAKE RESERVE, Plaintiff-Appellant,
V. Opinion
The CITY OF ROCKLIN; the Rocklin Mobile
KOZINSKI, Circuit Judge.
Home Rent Review Commission; Carlos
Urrutia; Rusty Selix; Rudolf Michaels; Sierra Lake, a mobile home park owner, alleges that the City George Paras, Defendants-Appellees. of Rocklin's rent control ordinances had effected a taking of its property without just compensation; plaintiff also complains No. 89-15371. of due process and equal protection violations in connection with the passage and implementation of the ordinances.
Argued and Submitted Aug. 15, 1990.
We consider whether plaintiffs taking claim is ripe for Decided July 9, 1991. adjudication in federal court despite its failure to exhaust state judicial remedies and whether the district court
Synopsis
properly dismissed Sierra Lake's procedural due process and Mobile home park owner sued city alleging that rent control equal protection claims. We also consider whether plaintiff ordinance had effected taking of its property without just adequately pleaded a substantive due process claim and, if so, compensation and that the passage and implementation of whether it was properly dismissed without leave to amend. ordinance violated due process and equal protection. The United States District Court for the Eastern District of California, Lawrence K. Karlton, Chief Judge, dismissed all claims without leave to amend. Owner appealed. The Court Facts of Appeals, Kozinski, Circuit Judge, held that: (1) city's rent control ordinance could be reviewed in federal court in light Sierra Lake bought a mobile home park in the City of Rocklin of demonstrated inability to obtain just compensation through in late 1978, at a time when no rent control was in effect. inverse condemnation action under any circumstances in state On September 1, 1979, Sierra Lake raised its rents to cover court, and (2) owner stated claim for violations of substantive the cost of improvements. On November 5, the City imposed due process to extent that owner alleged that rent increases rent control on Rocklin mobile home parks and set all rents allowed due to capital improvements merely set off cost of at their July 1979 level-effectively cancelling Sierra Lake's those improvements and did not allow owner a profit. September rent increase.
Sierra Lake continued to make capital improvements and, on Reversed and remanded.
October 16, 1984, applied for a rent increase under Ordinance No. 472, the rent control ordinance then in effect. The Rocklin Goodwin, Circuit Judge, concurred and filed opinion.
City Manager rejected the application' and advised Sierra Lake to refile under a new rent control ordinance, soon to be Attorneys and Law Firms enacted.
*953 William H. Plageman, Jr., and Anthony C. Rodriguez, Thelen, Marrin, Johnson & Bridges, Oakland, Cal., for Sierra Lake alleges that the rejection was "wrongfull ]." CR 1, Complaint at 4.
plaintiff-appellant.
On April 1, 1985, the City replaced Ordinance No. 472
Michelle Marchetta Kenyon, McDonough, Holland & Allen, with Ordinance No. 529. Whereas previous ordinances Sacramento, Cal., for defendants-appellees. provided that mobile home park owners could recover all capital expenditures, the new ordinance limited recovery to reasonable expenditures. Expenditures on work completed WESTLAW © 2020 Thomson Reuters. No claim to original U.S. Government Works.
Sierra Lake Reserve v. City of Rocklin, 938 F.2d 951 (1991) within the last twelve months were presumed to be property through governmental regulation, motions to dismiss reasonable; previously incurred expenditures were subject and motions for summary judgment must be viewed with to review for reasonableness. On August 30, 1985, *954 particular skepticism. The importance of the specific facts Sierra Lake refiled its rent increase application under the and circumstances relating to the property and the facts and new ordinance. The City Manager rejected this application circumstances relating to the governmental action militate because Sierra Lake had not indicated the place of against summary resolution in most cases." Del Monte Dunes execution. The City Manager refused to allow Sierra Lake at Monterey, Ltd. v. City of Monterey, 920 F.2d 1496, 1508 to cure the defect, even though the application form contained (9th Cir. 1990) (citation omitted). no blank space for indicating the place of execution.
I. Takings Claim
2 Sierra Lake alleges that the City Manager also rejected Plaintiff claims that the rent control ordinance resulted in an the application on "non-statutory grounds... unilaterally unconstitutional taking of its property. The facts of this case and arbitrarily imposed by the city manager himself." are almost identical to those of Hall v. City of Santa Barbara, Brief for Appellant at 7. 833 F.2d 1270 (9th Cir. 1987), cert. denied, 485 U.S. 940, 108 Sierra Lake refiled the application on September 30. The S.Ct. 1120, 99 L.Ed.2d 281 (1988). In Hall, we found that City Manager accepted this application and referred it to a physical taking could result where "the tenant is able to mediation. The rent increase finally became effective on derive an economic benefit from the statutory leasehold by December 1, 1985. capturing a rent control premium when he sells his mobile home." Id. at 1276. Here, as in Hall, the plaintiff alleges that Sierra Lake filed suit in district court on September 23, a rent control ordinance has operated to transfer a valuable 1987, alleging due process and equal protection violations. possessory interest in the property from the landlord to the In addition, the complaint alleged that the vacancy control tenant, and the tenant is able to capture a premium to which provision common to all the City's rent control ordinances the landlord would otherwise be entitled. effected a taking for which just compensation was due. This provision limited the amount by which Sierra Lake could While recognizing that the complaint stated a takings claim increase the rent following a vacancy at the park. According to under Ninth Circuit law, the district court found the claim Sierra Lake, this transferred an interest in the rented premises unripe under Williamson County Planning Commission v. from landlord to tenant, an interest that departing tenants Hamilton Bank, 473 U.S. 172, 105 S.Ct. 3108, 87 L.Ed.2d were able to monetize by selling their mobile homes at a 126 (1985). In Williamson, the United States Supreme Court premium. " The district court granted defendants' motion held that a takings claim cannot be presented in federal court under Fed.R.Civ.P. 12(b)(6), dismissing all of Sierra Lake's if the state courts are available to provide compensation:
claims without leave to amend "[I]f a State provides an adequate procedure for seeking just compensation, the property owner cannot claim a violation of 3 the Just Compensation Clause until it has used the procedure Despite their name, mobile homes are not all that mobile.
Thus, when a tenant sells his mobile home, the home and been denied just compensation." *955 Id. at 195, 105 S.Ct. at 312l. Interpreting Williamson, we have held that remains on the rent-controlled space, resulting in a higher price to the buyer than a home on a space not subject to if state law was "unclear or undeveloped" at the time of rent control. See Hall v. City of Santa Barbara, 833 F.2d the alleged taking, plaintiff must first try to recover in state 1270, 1273-74 (9th Cir. 1987), cert. denied, 485 U.S. court. Austin v. City and County of Honolulu, 840 F.2d 678, 940, 108 S.Ct. 1120, 99 L.Ed.2d 281 (1988). 680 (9th Cir.), cert. denied, 488 U.S. 852, 109 S.Ct. 136, 102 L.Ed.2d 109 (1988). Thus, unless plaintiff can show that "the state courts establish that landowners may not Discussion obtain just compensation through an inverse condemnation action under any circumstances, [California] procedures are We review the district court's dismissal of plaintiff's claims adequate within the terms of Williamson County. " Id. at 681. de novo. We take all material allegations of the non-moving party as true and construe them in the light most favorable At the time of the alleged taking, California state courts to that party. "In this type of action, where the property consistently took a dim view of takings claims based on owner contends that it has been unconstitutionally deprived of rent control ordinances. See, e.g., Fisher v. City of Berkeley, WESTLAW © 2020 Thomson Reuters. No claim to original U.S. Government Works.
Sierra Lake Reserve v. City of Rocklin, 938 F.2d 951 (1991) 37 Cal.3d 644, 693 P.2d 261, 209 Cal.Rptr. 682 (1984), economic regulation—to the Supreme Court's 'very narrow' aff'd, 475 U.S. 260, 106 S.Ct. 1045, 89 L.Ed.2d 206 (1986); holding in Loretto [v. Teleprompter Manhattan CATV Corp., Nash v. City of Santa Monica, 37 Cal.3d 97, 688 P.2d 894, 458 U.S. 419, 102 S.Ct. 3164, 73 L.Ed.2d 868 (1982) ]." 207 Cal.Rptr. 285 (1984), appeal dismissed, 470 U.S. 1046, Casella, 230 Cal.App.3d 43, 52, 280 Cal.Rptr. 876. We 105 S.Ct. 1740, 84 L.Ed.2d 807 (1985); Birkenfeld v. City accept Oceanside, Yee and Casella as correct statements of Berkeley, 17 Cal.3d 129, 550 P.2d 1001, 130 Cal.Rptr. of California law, there being no contrary authority. Thus, 465(1976). Even when they found a rent control ordinance plaintiff does not rely on the "mere generalized hostility of unconstitutional, the remedy they granted was invalidation the state courts to takings claims," Schnuck v. City of Santa rather than compensation. See, e.g., Gregory v. City of Monica, 935 F.2d 171, 174 (9th Cir. 1991), but instead on its San Juan Capistrano, 142 Cal.App.3d 72, 191 Cal.Rptr. 47 demonstrated inability to "obtain just compensation through (1983). 4 an inverse condemnation action under any circumstances." Austin, 840 F.2d at 681. The district court erred in dismissing 4 plaintiff's takings claim. S
The Supreme Court has since held that compensation is
required for losses incurred while an invalid regulation was in effect. See First English Evangelical Lutheran Contrary to the suggestion in the concurrence, the Church v. County of Los Angeles, 482 U.S. 304, 318-19, substantive issue decided in Hall v. City of Santa Barbara 107 S.Ct. 2378, 2387-88, 96 L.Ed.2d 250 (1987). The is not before us. We note, however, that the only other relevant date for an inquiry as to the status of the state circuit to address this issue reached the same result after law, however, is the time of the taking. See Williamson, interpreting the same Supreme Court cases as we did 473 U.S. at 194, 105 S.Ct. at 3120; Del Monte Dunes, 920 in Hall. See Pinewood Estates v. Barnegat Township F.2d at 1507 (holding ripe a claim for a pre-1987 taking Leveling Bd., 898 F.2d 347, 353-54 (3d Cir. 1990). because prior to First English, "California law did not permit landowners to seek compensation for a regulatory *956 II. The Remaining Claims taking through an action in inverse condemnation"). Noting that "overlapping state remedies are generally More germane to our case, the state appellate courts have irrelevant to the question of the existence of a cause of explicitly rejected compensation under the theory we adopted action under § 1983," Zinermon v. Burch, 494 U.S. 113, 122, in Hall. In Oceanside Mobilehome Park Owners' Ass'n v. City 110 S.Ct. 975, 982, 108 L.Ed.2d 100 (1990), the Supreme of Oceanside, 157 Cal.App.3d 887, 204 Cal.Rptr. 239 (1984), Court divided the universe of section 1983 claims into three a group of mobile home park owners challenged the vacancy categories. The first consists of claims under an express control aspect of a rent control ordinance because it allowed constitutional provision that by its terms prohibits some state tenants to sell their mobile homes at a premium. The court action. In such cases, the violation occurs and becomes viewed the claim as a regulatory challenge and rejected it, actionable at the time of injury. Id., 110 S.Ct. at 983. The stating that "[t]he ordinance is structured to establish a fair second category consists of claims under the "substantive base rent which reflects general market conditions.... Rents component [of the Due Process Clause] that bars certain will not be 'reduced more than required for the purposes of arbitrary, wrongful government actions 'regardless of the the police power.' " Id. at 907, 204 Cal.Rptr. 239. fairness of the procedures used to implement them.' " Id. (quoting Daniels v. Williams, 474 U.S. 327, 106 S.Ct. 662, Two recent state court opinions have refused to follow our 88 L.Ed.2d 662 (1986)). Substantive due process claims, decision in Hall. Yee v. City of Escondido, 224 Cal.App.3d like claims for violations of express constitutional provisions, 1349, 274 Cal.Rptr. 551 (1990); Casella v. City of Morgan arise at the time of the violation; a plaintiff "may invoke Hill, 230 Cal.App.3d 43, 280 Cal.Rptr. 876 (1991). These § 1983 regardless of any state-tort remedy that might be courts considered physical takings challenges to mobile home available to compensate him for the deprivation of these rent control ordinances that were virtually identical to those rights." Id.; see also Shah v. County of Los Angeles, 797 in Oceanside and Hall. In Yee, the court "reviewed the F.2d 743 (9th Cir. 1986). We discuss plaintiff's substantive due issue anew in light of Hall," and found "Hall's reasoning process claims at pp. 957-58 infra. The final category consists unpersuasive and reaffirmed] the conclusion ... reached in of procedural due process claims. In these cases, the violation Oceanside. " Yee, 224 Cal.App.3d at 1351, 274 Cal.Rptr. does not occur and is therefore not actionable "unless and 551. Similarly, the Casella court "repudiate[d] Hall's attempt until the State fails to provide due process." Zinermon, 494 to bootstrap a mobile home rent control ordinance-an
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Sierra Lake Reserve v. City of Rocklin, 938 F.2d 951 (1991) U.S. at 122, 110 S.Ct. at 983. We discuss plaintiff's procedural due process claims immediately below. Ordinance 529 exempts from review cost-of-living rent increases based on a formula derived from the California Consumer Price Index.
4. Procedural Due Process
A claim for violation of procedural due process has two As to plaintiff's first theory, it simply fails to state a claim for procedural due process. Even assuming that plaintiff had components. First, plaintiff must show that a protected a vested interest in the rent increases allowed by prior law, it property interest was taken. Second, it must show that
the procedural safeguards surrounding the deprivation were received all the process due it when the City's elected officials inadequate. See Board of Regents v. Roth, 408 U.S. 564, 568- discharged their legislative responsibilities in the manner prescribed by law. While plaintiff may challenge legislative 69, 92 S.Ct. 2701, 2704-05, 33 L.Ed.2d 548 (1972).
action on substantive grounds or demand compensation if the Plaintiff first claims a property interest in the rent increases action amounts to a taking, it may not raise a procedural due process challenge to such action. When the action complained allowable under the predecessors to Ordinance 529 on
account of expenditures made for capital improvements to of is legislative in nature, due process is satisfied when the legislative body performs its responsibilities in the normal the rent controlled property. As noted, prior to Ordinance 529 all expenditures on capital improvements could be manner prescribed by law.? recovered through rent increases, whereas under Ordinance 529 expenditures on work completed more than 12 months 7 We need not consider here whether a claim of major prior to the application have to be adjudged reasonable by corruption of the legislative process-such as the mediators, subject to review by arbitrators. Plaintiff claims acceptance of bribes by one or more of the legislators- that it incurred a variety of expenditures in reliance on prior would give rise to a procedural due process claim. law, and that its property interest was diminished or impaired Plaintiff's second and third theories, although involving when the law was changed retroactively so as to deny it rent different alleged property interests, both hinge upon a increases justified by expenditures already incurred. Under claim that the City Manager treated plaintiff's application this theory, the deprivation resulted from the action of the City wrongfully and arbitrarily, depriving it of a property right in passing Ordinance 529 and making it retroactive. that had vested under state law. Such allegations can amount to a claim for denial of procedural due process. See Sinaloa Second, plaintiff claims that even if it had no vested property Lake Owners Ass'n v. City of Simi Valley, 882 F.2d 1398, rights at the time it spent the money for capital improvements, 1405-06 (1989), cert. denied, 494 U.S. 1016, 110 S.Ct. such rights vested when Sierra Lake attempted to file its 1317, 108 L.Ed.2d 493 (1990). Whether such a claim is application for a rent increase, before Ordinance 529 went barred by Parratt v. Taylor, 451 U.S. 527, 101 S.Ct. 1908, into effect. Plaintiff claims its application was wrongfully 68 L.Ed.2d 420 (1981), is unclear after Zinermon. Parratt rejected by the City Manager who told Sierra Lake to refile held that a plaintiff must first pursue state remedies when after the new ordinance went into effect. Under this second bringing a claim for violation of procedural due process based scenario it was the action of the City Manager in wrongfully on random, unauthorized acts of state officials; Zinermon rejecting the rent increase application, and his directive that appears to allow federal claims in similar situations by the application not be refiled until the new law was passed, focusing on the authority and function of the state official that caused the alleged deprivation. in question. Two of our sister circuits have taken conflicting views on the subject, in each case raising strong dissents. See Finally, Sierra Lake claims a property interest in one- Caine v. Hardy, 905 F.2d 858 (5th Cir. 1990); id. at 863 (Jones, month's cost-of-living rent increase under Ordinance 529. 6 J., dissenting); Easter House v. Felder; 910 F.2d 1387 (7th According to Sierra Lake, it presented a properly filled out Cir. 1990) (en banc), cert. denied, 498 U.S. 1067, 111 S.Ct. application under Ordinance 529 on August 30, 1985, but 783, 112 L.Ed.2d 846 (1990); id. at 1408 (Easterbrook, J., the City Manager rejected it for arbitrary and insubstantial concurring); id. at 1410 (Cudahy, J., joined by Cummings reasons. See note 2 supra. The rejection, according to Sierra and Posner, JJ., dissenting). We need not enter the fray at Lake, resulted in a one- *957 month delay in the approval this time because plaintiff's claims about the City Manager's of the rent increase, costing it a month's higher rent to which action can equally well be stated as substantive due process it was otherwise entitled. claims. Where, as here, the plaintiff alleges that the denial of WESTLAW © 2020 Thomson Reuters. No claim to original U.S. Government Works.
Sierra Lake Reserve v. City of Rocklin, 938 F.2d 951 (1991) due process consists of an official's arbitrary action, a claim then there was no deprivation, and therefore Sierra for violation of substantive due process is indistinguishable Lake would be entitled only to nominal damages. See from a claim for violation of procedural due process. Because Zinermon, 110 S.Ct. at 983. the Supreme Court held in Zinermon that substantive due Sierra Lake may also have a substantive due process claim process claims are not subject to diversion to state court under to the extent it complains that Ordinance 529 deprived it of Parratt, see 110 S.Ct. at 983, we need not consider whether a "fair and reasonable" return on its investment by denying it the procedural due process claims, standing alone, would rent increases on account of capital improvements made prior have to be so diverted. to its enactment and by limiting the amount it may recover on account of later-made improvements. See Guaranty National Insurance Co. v. Gates, 916 F.2d 508, 512-14 & n. 4 (9th B. Substantive Due Process
Cir. 1990).
As noted, Sierra Lake's procedural due process claims can also be stated as substantive due process claims. While a Under Guaranty National, every dollar the landlord puts into substantive due process claim may arise out of the same facts the property by way of capital improvements constitutes an as a procedural due process claim, the claims are different investment in the property for which a "fair and reasonable" in several important respects. Whereas a procedural due return must be allowed. Breaking even is not enough; the law process claim challenges the procedures used in effecting a must provide for a profit on one's investment. Id. at p. 515. deprivation, a substantive due process claim challenges the Thus, Ordinance 529 must do more than simply allow plaintiff governmental action itself. Because the harm of a substantive to pass through certain costs; it must ensure that plaintiff due process violation occurs at the time of the wrongful will receive a reasonable return on those expenditures. To government action, plaintiff's section 1983 action arises when the extent plaintiff alleges that the rent increases allowed the wrongful action is taken. Zinermon, 110 S.Ct. at 983.
Parratt's requirement that plaintiff avail itself of state tort on account of capital improvements merely offset the cost of those improvements (or less), it has stated a claim
remedies does not apply to substantive due process claims. Id. for a violation of substantive due process under Guaranty To establish a violation of substantive due process, Sierra National. '° Lake "must prove that the government's action was 'clearly arbitrary and unreasonable, having no substantial relation to Sections 2.46.200A & B of Ordinance 529 could be the public health, safety, morals, or general welfare.' " *958 construed to permit only a passing through of costs Sinaloa Lake Owners, 882 F.2d at 1407 (quoting Village of without allowance for a reasonable profit. On remand, Euclid v. Ambler Realty Co., 272 U.S. 365, 395, 47 S.Ct. 114, the district court should determine whether Ordinance 121, 71 L.Ed. 303 (1926)); see also Bateson v. Geisse, 857 529 in fact allows a reasonable return on investment.
F.2d 1300, 1303 (9th Cir. 1988). The principle of "fair and reasonable return on investment" may support a takings claim as well as a
According to the allegations of the complaint, the City and substantive due process claim. See Mountain Water Co. its officials obstructed Sierra Lake's rent increase applications v. Montana Dep't of Public Serv. Regulation, 919 F.2d at almost every turn, and then finally allowed an increase 593, (9th Cir. 1990) (citing Duquesne Light Co. v. that was still less than what Sierra Lake considers adequate. Barasch, 488 U.S. 299, 109 S.Ct. 609, 102 L.Ed.2d 646 It is well within the realm of possibility that plaintiff could (1989)). establish that the City's actions in processing the applications Sierra Lake also alleges a substantive due process violation were wrongful or arbitrary. Given that plaintiff could state based on the enactment of the vacancy control provision of a substantive due process claim, the district court erred in the ordinance, see pp. 953-54 supra. To prevail on this claim, dismissing without leave to amend. Hall, 833 F.2d at 1274 n. Sierra Lake must show that no rational relationship exists 6; see also McCalden v. California Library Ass'n, 919 F.2d between the vacancy control provision and the purpose of 538, 546 47 (9th Cir. 1990). & the ordinance. See Boone v. Redevelopment Agency of City of San Jose, 841 F.2d 886, 892 (9th Cir.), cert. denied, 488 8 U.S. 965, 109 S.Ct. 489, 102 L.Ed.2d 526 (1988). Sierra On remand, the district court will have to determine
whether the initial rent increase application was valid. Lake cannot meet this heavy burden. Although it may be If the initial rent increase application was not valid, true that the ordinance in some cases takes money from the WESTLAW © 2020 Thomson Reuters. No claim to original U.S. Government Works. 5 Sierra Lake Reserve v. City of Rocklin, 938 F.2d 951(1991) (citing USDA v. Moreno, 413 U.S. 528, 93 S.Ct. 2821,
landlord and puts it into the pocket of a tenant who no longer 37 L.Ed.2d 782 (1973)). Thus, if the district court on
resides at the park, the City Council could reasonably believe remand were to find that the enactment of Ordinance
that in the majority of cases the ordinance serves the valid 529 reflected hostility toward landlords as a group, it public purpose of keeping mobile home rent from becoming would be obligated to analyze the statute for legitimacy, prohibitively high. See, e.g., Pennell v. City of San Jose, 485 as opposed to mere rationality.
U.S. 1, 13, 108 S.Ct. 849, 858, 99 L.Ed.2d 1 (1988). How well the ordinance serves this purpose is a legislative question, one the court will not consider. Conclusion
The district court's judgment is reversed. We remand for C. Equal Protection Claims further proceedings consistent with this opinion.
Sierra Lake also alleges that it was denied equal protection of the laws. Plaintiff can establish an equal protection claim by showing that the City of Rocklin or its officials applied GOODWIN, Circuit Judge, concurring. the law in an arbitrary or invidiously discriminatory manner. Today we hold that the Rocklin rent control ordinance, as Although equal protection challenges to state action that applied, results in a physical taking of private property. We reach this result because the law of the circuit is found in Hall does not "trammel[ ] fundamental *959 personal rights or implicate[ ] a suspect classification" receive only rational v. City of Santa Barbara, 833 F.2d 1270 (9th Cir. 1987), cert. basis scrutiny, "the rational relation test will not sustain denied, 485 U.S. 940, 108 S.Ct. 1120, 99 L.Ed.2d 281 (1988). conduct by state officials that is malicious, irrational or plainly arbitrary." Lockary v. Kayfetz, 917 F.2d 1150, 1155 I concur under the compulsion of precedent, but for the record I want to note that I have not forgotten the difference (9th Cir. 1990); see also Del Monte Dunes, 920 F.2d at 1509 (citing Nollan v. California Coastal Comm'n, 483 U.S. 825, between the physical and the metaphysical. Hall reached 835 & n. 4, 107 S.Ct. 3141, 3148 & n. 4, 97 L.Ed.2d 677 a commendable legislative result by calling a regulatory ordinance a physical taking. I am in somewhat the same
(1987)). In this context, plaintiff's equal protection claim is identical to its first substantive due process claim, and we position as I found myself upon first reading Roe v. Wade, 410 U.S. 113, S.Ct. S.Ct. 705, L.Ed.2d L.Ed.2d 147(1973), applauding the reverse the district court for the same reason.
result but disturbed by the method. Nonetheless, stare decisis is a proven policy, and I concur.
11 To the extent Sierra Lake raises an equal protection challenge to the enactment of Ordinance 529, such a
challenge could succeed only if the ordinance served "no legitimate governmental purpose and if impermissible All Citations animus toward an unpopular group prompted the statute's enactment." Mountain Water Co., 919 F.2d at 598 938 F.2d 951 End of Document © 2020 Thomson Reuters. No claim to original U.S. Government Works.
WESTLAW © 2020 Thomson Reuters. No claim to original U.S. Government Works. 6 EXHIBIT 2
(d) Capital Improvement Rent Increases. A park owner may increase the mobile home owner's rent based on the mobile home owner's pro-rata share of capital improvement expenditures in the park; provided, that such increases are certified pursuant to this subsection and Sections 9.55.070 through 9.55.100. The purpose of this subsection is to provide the park owner a streamlined procedure for recovering capital improvement dollars invested in the mobile home park.
Any such rent increase shall be amortized over the useful life of the capital improvement, using the table of capital improvement life expectancies on file with city. If the table of capital improvement life expectancies is not applicable, the park owner shall use the Class Life Asset Depreciation Range System ("ADR System"). Interest may be imputed on any such rent increase(s) using the prime rate in effect 30 days prior to the date of the application, plus two percent. However, in no event may any single rent increase, or any cumulative rent increases under this subsection, exceed five percent of the mobile home owner's then existing rent. Any rent increase implemented under this subsection based on the cost of a capital improvement shall not be included as part of the base rent upon which future rent increases under this chapter are based and shall be deleted from the space rent once the mobile home owner's pro-rata share of the capital improvement rent increases has been recovered.
Nothing in this subsection shall preclude a park owner from foregoing the right to seek a rent increase under this subsection and instead applying for a major rent increase, including applying for a major rent increase based on capital improvement expenditures that would otherwise result in a rent increase in excess of five percent of the mobile home owner's then existing rent.
9.55.070 Capital improvement rent increase certification requirements. (a) Generally. In accordance with the procedures set forth in Section 9.55.080 or 9.55.090, costs determined to be attributable to qualifying capital improvements shall be amortized over the relevant period as established for the type of work performed in the table of capital improvement life expectancies on file with city, or if applicable, the ADR system. The intention of this section is to provide an incentive to park owners to improve and renovate their property, while at the same time protecting mobile home owners from excessive rent increases.
Applications must be filed and certification issued prior to the collection of a capital improvement rent increase.
In order to promote advance fiscal planning, park owners shall have the option of precertifying capital improvements pursuant to Section 9.55.080 in advance of performing the work. In the alternative, park owners may apply for certification after the work is completed. (b) Requirements. Costs of capital improvements may only be certified where the following criteria are met:
(1) The capital improvements were completed or are to be completed on or after January I, 1995;
(2) The park owner has not yet increased the rent or rents to reflect the cost of the work; (3) The park owner has not been or will not be compensated for the work by insurance proceeds;
(4) The park owner files the certification application no later than 24 months after the work has been completed;
(5) The costs are capital improvements as opposed to routine repair; (6) The costs of the capital improvement are not associated with the purchase or installation of meters or other similar devices used for the separate billing of utilities; (7) The individual mobile home owner's pro-rata share of the capital improvement costs, or the cumulative capital improvement costs assessed if one or more capital improvement rent increases have been imposed and are still being charged, will not exceed five percent of the then existing base rent.
(c) Cost Allocation. The cost of capital improvements shall be allocated on a pro-rata basis to affected mobile home owners.
(d) Declaration Regarding Tax Treatment of Capital Improvement. At the time of filing an application for a capital improvement rent increase, the park owner shall submit to the rent review officer a declaration under penalty of perjury stating that the park owner has, or will, treat the capital improvement as a capital improvement for federal income tax purposes. Once each year during the amortization period for the capital improvement the rent review officer may request the park owner to provide an updated declaration stating under penalty of perjury that the park owner treated the capital improvement as a capital improvement for federal income tax purposes on the park owner's most recent tax return. In the event the park owner does not provide the rent review officer with such a declaration within 60 days of the rent review officer's request, the rent review officer may appoint a hearing officer to conduct hearings in order to recalculate the amount of the capital improvement rent increase. The hearing and recalculation shall proceed on the presumption that the park owner received a tax deduction for all of the previously nonamortized portion of the capital improvement expenditure during the year immediately following the last year for which the park owner submitted a declaration stating that he/she was amortizing the capital improvement in accordance with federal law.
The sole purpose of the hearing shall be to readjust the amount of the capital improvement rent increase to disallow any excess income the park owner may receive by expending all of the previously nonamortized portion of the capital improvement in the year immediately following the park owner's most recent declaration on the subject, rather than continuing to amortize the capital improvement.
The park owner shall not be required to submit such a declaration and no such recalculation shall occur if federal law has been changed so that the capital improvement may no longer be amortized, or if the park is sold, in which case the new owner may not be able to amortize any capital improvement expenditure made by the previous owner. (Ord. 2115 § 1, 3-28-95; Ord. 2121 § 1, 6-20-95; amended during 2012 reformat. 1990 Code § 3-13104.2.)
9.55.080 Precertification procedure for capital improvement rent increase. (a) Application. Park owners who seek to ascertain whether the cost of proposed capital improvement projects will be certified may file an application with the rent review officer to have the determination regarding whether the costs may be passed on to the residents made in advance of incurring those costs. The application shall be on a form established by the rent review officer. (b) Supporting Documentation. The application shall contain the following information and be accompanied by copies of relevant supporting documentation:
(1) A description of the improvement.
(2) Contracts or bid documents showing the cost estimate of the proposed improvement. (3) The amortization period to be used.
(4) The interest rate to be used.
(5) The formula used to calculate the pro-rata share of each resident. (6) The monthly cost to each resident in dollars.
(7) That the cumulative cost of all capital improvement rent increases in effect and to be approved will not exceed five percent of the then existing base rent of each tenant. (c) Notification to Mobile Home Owners. Copies of the application together with the supporting documentation shall be served on all affected mobile home owners, together with a notice of rent increase based on the estimated cost of the capital improvement. In the alternative, park owners may opt to serve the mobile home owners with summaries of the information in lieu of the actual documentation. In the event that summaries are used, the notice provided to the mobile home owners shall state that the complete documentation supporting the application can be reviewed at the park office, and at the office of the rent review officer. The documentation supporting the application must be made available for review at the specified park location during normal hours of operation. Proof of service either of the application and supporting documentation or of the summaries on the mobile home owners shall be required before the application will be deemed complete. (d) Objection by Mobile Home Owners. Mobile home owners shall have 60 days from the post- marked date of the above-described notification to file an objection to the application for a capital improvement rent increase. If objections signed by 10 percent of the affected mobile home owners are not filed within the 60-day period, the rent review officer shall precertify the capital improvements in the amount requested. The increase may not go into effect until the capital improvements are completed. If objections signed by the requisite number of affected mobile home owners are received in a timely fashion by the rent review officer, a hearing on objections shall be held pursuant to the provisions of Section 9.55.100. The decision shall be subject to subsection (e) of this section. (e) Effect of Precertification. Where park owners employ this precertification procedure, and obtain a decision allowing the capital improvement costs in a particular amount, they may proceed to make the improvements and are entitled to recover the precertified costs as set forth herein. Upon the completion of the improvements, the park owners are to submit to the rent review officer documentation of the actual cost of the capital improvement, and the rent increase notice to be sent to the affected mobile home residents.
(1) If the actual cost was less than the estimated cost, only the amounts actually incurred may be passed through to the mobile home owners in their proportionate share. In that case, a new notice of capital improvement rent increase identifying the actual amount to be charged must be sent to the affected mobile home owner before the rents may be raised. (2) If the actual cost of the capital improvement was more than estimated, the park owner has the option of waiving the excess amount and collecting only the precertified amount. Alternatively, the park owner may provide a second notice of capital improvement rent increase in the full amount incurred. In the event that the park owner notices an increase in the full amount, affected mobile home owners will be entitled to object to that portion and only that portion of the increase that exceeds the amount allowed in the precertification decision. The procedure for objection will be that contained in Section 9.55.100; provided, however, that the sole basis for objection will be the grounds identified in Section 9.55.100(c). (Ord. 2115 § 1, 3-28-95; Ord. 2121 § 1, 6-20-95. 1990 Code § 3-13104.4.)
9.55.090 Post capital improvement certification procedure for rent increase. (a) Application. Park owners who seek to pass through the cost of capital improvements after they are completed through this certification procedure, rather than through precertification or through a major rent increase petition, must file an application with the rent review officer on a form established by the rent review officer.
(b) Supporting Documentation. The application shall contain the following information and be accompanied by copies of relevant supporting documentation:
(1) A description of the improvement.
(2) Contract documents showing the actual cost of the improvement including copies of all checks and invoices for the project.
(3) The amortization period to be used.
(4) The interest rate to be used.
(5) The formula used to calculate the pro-rata share of each resident. (6) The monthly cost to each resident in dollars.
(7) That the cumulative cost of all capital improvement rent increases in effect and sought to be approved will not exceed five percent of the then existing base rent of each tenant. (c) Notification to Mobile Home Owners. Copies of the application together with the supporting documentation shall be served on all affected mobile home owners together with a notice of rent increase based on the cost of the capital improvement. In the alternative, park owners may opt to serve the mobile home owners with summaries of the information in lieu of the actual documentation.
In the event that summaries are used, the notice provided to the mobile home owners shall state that the complete documentation supporting the application can be reviewed at the park office and at the office of the rent review officer. The documentation supporting the application must be made available for review at the specified park location during normal hours of operation. Proof of service of the application and supporting documentation or the summaries on the mobile home owners shall be required before the application will be deemed complete. (d) Objection by Mobile Home Owners. Mobile home owners shall have 60 days from the date the application is deemed complete to file an objection to the application for a capital improvement rent increase. If objections signed by 10 percent of the affected mobile home owners are not filed within the 60-day period, the rent review officer shall certify the capital improvements in the amount requested, and the increase may be imposed as noticed. If objections signed by the requisite number of affected mobile home owners are received in a timely fashion by the rent review officer, a hearing on objections shall be held pursuant to the provisions of Section 9.55.100. (Ord. 2115 § 1, 3-28-95; Ord. 2121 § 1, 6-20-95. 1990 Code § 3-13104.6.)
9.55.100 Procedure for hearing objections.
(a) Scheduling of Hearing on Objection. Within 10 working days of receipt of objections to application for a capital improvement rent increase, signed by 10 percent or more of the affected mobile home owners, the rent review officer shall appoint a hearing officer. The rent review officer shall set a date for the hearing no sooner than 10 calendar days, nor later than 30 calendar days, after the hearing officer is assigned; provided, that the rent review officer or hearing officer may set or reset the date for the hearing at a later date upon application of either or both parties for good cause. The rent review officer shall provide prompt notice of the hearing date to the park owner and affected mobile home owners.
(b) Conduct of Hearing. The hearing shall be conducted by the appointed hearing officer. The parties may offer such documents, testimony, written declarations or other evidence as may be pertinent to the proceedings. A record of the proceedings shall be maintained for purposes of appeal. (c) Burden of Proof at Hearing and Grounds for Contesting Increase. (1) Park Owner's Initial Burden of Proof. The burden shall initially be on the park owner to establish that the required information regarding the capital improvement in the park owner's rent increase notice is accurate, including:
(A) The cost of the capital improvement project.
(B) The interest rate used by the park owner.
(C) The amortization period used by the park owner.
(D) The formula used to calculate the pro-rata share of each resident. (E) The determination that the cumulative capital improvement rent increases will not exceed five percent of the then existing base rent.
(2) Mobile Home Owner's Burden of Proof to Rebut. In the event the park owner establishes that the required information regarding the capital improvement in the park owner's capital improvement rent increase application is accurate, the burden shall shift to the mobile home owner to defeat or reduce the amount of the capital improvement expenditure solely on the following four alternative grounds:
(A) The cost of the capital improvement project was clearly excessive given industry standards.
(B) The capital improvement was necessitated due to the elimination, reduction, or deferment of maintenance below the level existing on or after January 1, 1986, thereby requiring replacement of the preexisting improvement prior to the expiration of its normal expected life, as adjusted pursuant to subsection (e) of this section. (C) That the interest rate charged is greater than financing reasonably available to the park owner in an arm's length transaction with a private lending institution. (D) That the improvement was not reasonably related to the operation of the mobile home park business.
(d) Remedy If Burden of Proof Met by Mobile Home Owners. The purpose of the preceding four alternatives for contesting capital improvement rent increases is to ensure the good faith of park owners, including but not limited to ensuring that park owners do not engage in nepotism, kick-backs and/or deferred maintenance, or make improvements that are unnecessary to the operation of the mobile home park business. If the hearing officer determines that the tenants have satisfied their burden of proof with respect to all or any part of the cost of a capital improvement expenditure, the hearing officer may reduce the amount of the rent increase by a corresponding amount, but not more, subject to the limitations set forth in subsection (e) of this section. In the event the hearing officer determines that the park owners have engaged in perjury, fraud, nepotism, or kick-backs with respect to a capital improvement rent increase, the hearing officer may reduce the amount of the rent increase to the level the hearing officer deems appropriate under the circumstances. (e) Limitations on Grounds for Contesting Rent Increase. In determining the normal expected life of a capital improvement, the hearing officer shall look first to the amortization table on file with city, or, if not applicable, the ADR System and/or the regulations, guidelines and amortization tables established by the Internal Revenue Service for capital improvements. It is recognized that the normal expected life of a capital improvement is based on averages and that the actual life may fall short of the normal expected life, for reasons other than deferred maintenance. In the event the normal expected life of a capital improvement is less than five years, the "adjusted expected life" of the capital improvement shall be 90 percent of its normal expected life. In the event the normal expected life of a capital improvement is five years or more, the "adjusted expected life" of the capital improvement shall be 80 percent of its normal expected life. Where a mobile home owner challenges a capital improvement pursuant to subsection (c)(2)(B) of this section, the hearing officer may not reduce the amount of the rent increase by an amount in excess of the difference between the actual life of the capital improvement and its "adjusted expected life." For example, if the mobile home owners establish that as a result of deferred maintenance a preexisting capital improvement with an expected life of 10 years and an "adjusted expected life" of eight years in fact only lasted seven years, the hearing officer may reduce the amount of the requested rent increase by 10 percent, but no more. In no event may the hearing officer reduce the amount of a capital improvement rent increase based on alleged deferred maintenance where the capital improvement rent increase is necessitated by a catastrophe, act of God, or other uncontrollable circumstance, including earthquakes, landslides, earth movement, fire or flood.
(f) Determination of Hearing Officer. The hearing officer shall make findings as to whether or not the proposed rent increases, or any portion thereof, are allowable under this subsection. (g) Decision of Hearing Officer. The hearing officer shall prepare written findings of fact, and shall certify the amount of the capital improvement increase to be allowed, if any. Within 15 working days of the conclusion of the hearing, the hearing officer shall serve the decision on the rent review officer, who shall forthwith distribute copies of the decision by mail or other means to the park owner and all affected mobile home owners.
(h) Decision Final. The decision of the hearing officer is final and binding upon the park owner and all affected mobile home owners on the date of mailing or other service of the decision by the rent review officer regardless of their participation or lack of participation in the hearing process unless challenged pursuant to Section 9.55.130(g). Park owner may impose a capital improvement rent increase only in the amount allowed by the rent review officer and/or the hearing officer pursuant to the certification process.
(i) Post Certification Notice. In the event the certification procedure is not completed prior to the date set forth in the park owner's original notice of rent increase, or if the amount certified is different than the amount stated in the park owner's original rent increase notice, the park owner must send out a new notice of rent increase advising the mobile home owners of the actual increase and the actual effective date. Such a notice shall not be subject to review under this chapter, provided the amount set forth in the notice does not exceed the certified amount. (Ord. 2115 § 1, 3-28-95; Ord. 2121 § 1, 6-20-
95. 1990 Code § 3-13104.8.)
EXHIBIT 3
Santiago Financial, Inc. - COMPARABLE SALES REPORT
ROYAL CRES1
Park Name: MOBILE ESTATES
Park 2300 SCHOOL S
SANTIAGO FINANCIAL, INC ddress: FORTUNA, CA 955-
www.santiagofinancial.com Spaces: 205
From : 1/13/2024 to 1/13/2026
800-232-3908 Report date: 1/13/2026
Address Mfd Date Original Decal Total sq F
MFG Current Legal WaLt Per Sq Fi
City Trade Sales Date Dealer
124 CREST DR 04/29/1993 $74,883.00 LAU6746
SKYLINE CORP $200,000.00 14 52 5157.36
FORTUNA HOMETTE CORP 12/15/2025
1604 IMPERIAL WY #107 02/05/1992 $51,634.00 LAT7664
SKYLINE HM INC $62,500.00 1258.75 34133
FORTUNA WOOD MANOR 11/18/2025
160 MONARCH DR 05/06/1986 $32,778.00 LAJ4512 1344
SKYLINE CORP $30,000.00 1448 $22.32
FORTUNA HOMETTE CORP 11/13/2025
167 MONARCH DR 11/17/1989 $54,850.00 LAR5352 12 56
M SYSTEMS IN $125,000.00
FORTUNA AYWOOD 08/28/2025 12 56
1529 IMPERIAL WAY 01/01/1973 $10,199.00 LBC3644 960
SUNNY $37,000.00 1240 $38.54
FORTUNA 08/05/2025
2275 CREST DR 01/01/1974 $15,200.00 AAE9457 1260 3113.19 MADISON $163,000.00
FORTUNA MADISON 07/28/2025
196 EMPIRE DR 11/13/1987 $37,975.00 LAL4034 1248 1152
KAUFMAN/BROAD HOME SYSTE $40,000.00 12 48 $34.72
FORTUNA BAYWOOD 07/21/2025
1578 KINGS ROW 01/01/1965 $1,700.00 ABB5660 600
$10,393.00 1060 $17.32
FORTUNA CHALET 07/11/2025
Santiago Financial Inc. - Buying? Selling? Refinancing? [email protected] 800-232-3908
133 CASTLE CT 07/09/1987 $59,310.00 LAS 1913 1792
FUQUA HM INC $173,000.00 1484 $96.54
FORTUNA FUQUA 06/27/2025
2270 CREST DR #202 10/03/1983 $30,900.00 LAE3416 1248
FUQUA $83,000.00 1252 $66.51
FORTUNA BEAIRE MANOR 06/13/2025
187 EMPIRE DR 08/21/1987 $36,800.00 LAK9287
KAUFMAN/BROAD HOMES $95,000.00 1252 578822
FORTUNA BAYWOOD 06/04/2025
2248 ROYAL DR 01/01/1965 $2,999.00 LBC1503 880
SKYLINE $60,000.00 1044 $68.18
FORTUNA HILLCREST 05/16/2025
152 MONARCH DR 11/06/1991 $47,788.00 LASS074 12 41 1152 FLEETWOOD HM INC $89,000.00 241 $77.20
FORTUNA SANDALWOOD 04/01/2025
1574 QUEENS ROW 01/01/1965 $2,100.00 LAY7677
SKYLINE $27,000.00 10 55 35009
FORTUNA HILLCREST 03/17/2025
2273 CREST DR 01/01/1972 $16,199.00 AAE9189 12 6
REDMOND IND $185,000.00 5128.47
26 FORTUNA FLAMINGO 03/11/2025
1539 CREST DR #7 01/01/1968 $7,300.00 AAW9426 880
SKYLINE $61,000.00 1044
FORTUNA HOMETTE 02/26/2025 $69.32
Santiago Financial Inc. - Buying? Selling? Refinancing? You Tube
[email protected] 800-232-3908
1603 QUEENS ROW #41 06/06/1978 $17,700.00 AAD9156
SKYLINE $90,500.00 1241 381.97
FORTUNA HOMETTE 02/14/2025
2211 CROWN DR 07/23/2012 57000000 LBL.3260
CMH MANUFACTURING WEST INO 13.560 380.42
FORTUNA GOLDEN WEST HOMES 02/12/2025
1556 CREST DR 07/19/2001 $42,500.00 LBC9877 728
SKYLINE HOMES ING - CLOSED $95,000.00 14 52 $130.49
FORTUNA LAURELWOOD 01/31/2025
1604 QUEENS ROW #57 01/01/1969 $15,300.00 10 55 1100
COMMODORE $125,000.00 LBC7510
FORTUNA CASA LOMA 01/09/2025 10 55 $113.64
2257 CROWN DR 01/13/1993 $43,900.00 10 48 960
SKYLINE HM INC $78,500.00 LAV9613
FORTUNA WOODMANOR 12/18/2024 10 48 $81.77
1585 KINGS ROW #63 $21,300.00 LBP7473 12 62 1488
GOLDEN WEST $32,000.00 12 62 $21.51
FORTUNA CORONADO 11/27/2024
1589 IMPERIAL WAY 04/17/2018 $107,348.00 LBN7638 13.556 1512 CH MANUFACTURING WEST INC $163,500.00 13.556 $108.13
FORTUNA KARSTEN 10/18/2024
1579 IMPERIAL WY #87 01/01/1972 $2,100.00 ABB1800 576
$34,000.00 1248
FORTUNA 09/30/2024 $59.03
CHAMPION
Santiago Financial Inc. - Buying? Selling? Refinancing? (You Tube
[email protected] 800-232-3908
1514 IMPERIAL WAY #94 01/01/1971 $14,900.00 LBG8221 12 64 ROYAL HOMES $55,000.00 12 64 555.81
FORTUNA WESTERNER 08/21/2024
194 EMPIRE DR 08/10/1984 $24,000.00 896
SILVERCREST $83,500.00 LAST MORTGAGE 1464
FORTUNA $93.19
SUPREME 08/16/2024
1575 PRINCESS LN $5,300.00 LBC2960
$42,400.00 1255 560.24
FORTUNA HILLCREST 07/18/2024
180 EMPIRE DR 06/24/1987 $42,200.00 LAP4702
OLDEN WEST H $80,000.00 1256 55952
FORTUNA :ANTERBUR 07/03/2024
197 EMPIRE DR 09/04/1981 $18,497.00 LAC1913
SKYLINE $11,175.00 1244 1056
FORTUNA SKYLINE 06/19/2024 $10.5
156 MONARCH DR 08/19/1987 $33,360.00
FLEETWOOD HM INC $80,000.00 LAM4974 1248 1152
FORTUNA SANDALWOOD 06/07/2024 $69.44
132 EMPIRE DR 12/05/1990 $45,135.00 1056
SKYLINE HM INC $65,000.00 LAT4263 1244
FORTUNA WOOD MANOR 06/05/2024 $61.55
147 MONARCH DRIVE 03/09/1990 $47,500.00 LAS9723 1232
SKYLINE CORP $115,000.00 1444 $93.34
FORTUNA HOMETTE CORP 05/30/2024
Santiago Financial Inc. - Buying? Selling? Refinancing? You Tuse
[email protected] 800-232-3908
1524 IMPERIAL WAY $8,900.00 LAS9656
$77,000.00 1260
FORTUNA HILLCREST 04/22/2024
149 MONARCH DR 05/18/1990 $53,000.00 1344
SKYLINE CORP $125,000.00 LAR6064 1448
FORTUNA HOMETTE 02/28/2024 $93.01
177 EMPIRE DR 11/24/1987 $32,331.00 875
FUQUA HM INC $69,500.00 LAN4188 14 62.5
FORTUNA FUQUA 01/30/2024 $79.43
2267 CREST DR 01/01/1973 $13,399.00 LBC9406
$160,000.00 1260 3140.11
FORTUNA HILLCREST 01/22/2024
2217 CROWN DR #19 09/23/1998 $47,616.00 LAZ4408 11.7540 940 FLEETWOOD HOMES OF CALIF. INC $68,500.00 11.75 40 $72.87 FORTUNA VOGUE MANSION 01/19/2024
Original Resale
Total $1,189,941.00 $3,161,468.00
Average $32,160.57 $85,445.08
Max $107,348.00 $200,000.00
Min $1,700.00 $10,393.00
Avg $SaFt $27.70 $73.59
Avg Saft 1136 1136
Number of records 37
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