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Legal Column, February 2003
By Rosario Perry, Esq.

ACTION SETTLES TWO OF ITS INTEREST RATE CASES

ACTION has settled two of its three interest rate on security deposits cases with very favorable terms. The cases were filed against Santa Monica and Los Angeles. In settling these cases ACTION’s main concerns were: (1) getting each owner of each city a refund of their money without having to make the owner go through hours of paper work in collecting proof of overpayment to their tenants (i.e. checks showing interest payment and bank records showing interest earned on deposited funds); and (2) getting owner’s money back to them without delay (i.e. bringing the litigation to a close). ACTION’s board decided on a settlement posture of simply having the cities waive the owner obligation to make future interest payments to their tenants altogether across the board, without proof of any payment or bank records of any kind. To this end the City of Santa Monica has agreed to waive interest on security deposit for three years (statute of limitations) starting October 1, 2002 through September 30, 2004 and Los Angeles has agreed to waive interest for one year. This settlement is advantageous to owner in another way. In waiving interest, this relieves owners of having to make out checks to tenants as well. The City of West Hollywood wants to continue their fight with ACTION, for whatever reason, and we will be going to trial within a year. ACTION’s Board is happy to get two of these cases behind us so that we can now concentrate on other equally important lawsuits. ACTION filed these lawsuits to protect owner rights. ACTION believed that a owner should not pay interest on tenant’s security deposits in excess of what the owner earned from his or her bank. The Rent Board’s position was that the owner should look around and place the money at a bank which paid the maximum amount of interest. This position of course was like the tail wagging the dog. Banks are seldom chosen for the amount of interest paid on accounts, rather many more important factors come into play, such as working relationship between bank and depositor. ACTION saw this interest on security deposit regulation as just another attempt by the Board to over regulate and interfere with owner’s operation of their business.

ACTION’s initial lawsuit against the Santa Monica Board resulted in a published opinion by the court of appeal. This published opinion stated that there is a taking of the owner’s property when the owner is required to pay interest to the tenant on security deposit in excess of the interest the owner earns. This published opinion has brought relief to thousands of Housing Providers in all cities of our state. It has been used to convince some cities not to impose interest on security deposits at all, and in other cities to limit the interest to only that earned by the owner. Our fellow owner attorneys in San Francisco are using our decision to overturn that city’s illegal ordinance as well. All in all ACTION has scored a great win in promoting the cause of owner’s rights, and has increased our visibility across the State of California and the nation for the good work we have performed.

ACTION is happy to thank Herb Balter for spearheading the lawsuit three years ago by agreeing to be the class representative for the Santa Monica and Los Angeles case. As always Herb has untriedly worked to protect the rights of owners. In addition, equal thanks to Gordon Gitlen and Matt Millen for also agreeing to be class representatives in the Santa Monica case.

ACTION’s PENDING LAWSUITS

ACTION must continue to promote owners’ rights. To that end, ACTION has filed lawsuits (and will file others) against laws and regulations which ACTION’s Board feels materially interferes with owner’s rights to own and operate their properties. Here is an update on some of the lawsuits:

ACTION v. State of California (discrimination, equal rights)
In 2000, Sheila Kuehl sponsored a law which mandated that only L.A., West Hollywood and Santa Monica owners had to give 60-day notice. This law became effective 2001. ACTION sued complaining that this type of political pay-back to her rent controlled constituents, was a gross injustice to owners in these three cities. We are not second class citizens. Because of the lawsuit, Kuehl re-introduced another law, effective 2002 which requires the 60-day notice for all owner statewide. ACTION however, is continuing the lawsuit to judgment, hoping to convince the court that because of the reoccurring nature of the problem, (i.e. these three cities are forever Ms. Kuehl dumping ground), that a ruling be given even though the original law has been changed. No matter what, ACTION has shown Ms. Kuehl that she cannot get away with her cheap political tricks any more.

ACTION v. City of Santa Monica (tenant harassment lawsuit)
ACTION sued the city, claiming that its tenant harassment lawsuit was unconstitutional in very important respects. Unfortunately, the trial court disagreed with ACTION, and now we are on appeal with this lawsuit. We believe that (like in so many other cases which have come before) ACTION will be vindicated at the court of appeal level. The tenant harassment law is a very vaguely worded statute in certain particulars, which imposes criminal and civil penalties for doing such protected constitutional activity as filing a civil complaint.

Hackamack v. Santa Monica Rent Control Board
Can the Board sue a owner to determine if the vacancy registration filed by the owner is correct? Under SLAPP legislation, ACTION is maintaining that when the Board does so without probable cause, that it is liable for malicious prosecution and attorneys fees. The trial court agreed with ACTION’s position, and now the Board has taken an appeal. ACTION’s position is that when a owner files a vacancy registration form, that is protected activity under the First Amendment to the U.S. Constitution (petitioning government for redress of grievances). If Hackamack wins his appeal against the Board, then all owners will be protected from overreaching Board activity. Oral arguments will be heard on this case in March 2003.

ACTION v. Rent Control Board
Is rent control constitutional if it limits the amount of rent that can be charged to rich tenants? What legitimate governmental purpose is there in protecting rich tenants? Isn’t that just a shift of wealth from owner to the already rich tenant? ACTION believes that such a system (such as in Santa Monica) is unconstitutional, and we intend to file a lawsuit challenging it). We must file in federal court however, in that our own State Supreme Court has already ruled that rich people need rent control protection and it is a legitimate governmental restriction to provide it to them. Hopefully ACTION will be filing this lawsuit in the very near future. This lawsuit will seek to have the S.M. rent control law declared unconstitutional.

Borten v. Laird
On appeal. Does Rent Control protect tenants who do not live in their units? In other words, can a tenant live some where else, and keep their unit for storage or for friends’ use when they come to town? This issue is now on appeal. The owner argued in the trial court, that rent control is to protect tenants who live in their units, but not tenants who only use their units for storage, or as a hotel room for friends’ use from time to time. ACTION has seen many situations where tenants actually own and live in a home in Santa Monica, and then keep their unit because the rent is so low. This of course aggravates an already tight housing market. ACTION is monitoring two other cases currently at the trial court level which raise similar constitutional arguments. However, see below, about new pending Board regulations.

NEW S.M. RENT CONTROL REGULATION:
New proposed regulations (Regulation 3304) which hopefully will be adopted by the time you read this article, are a refreshing change to the normal Board regulations which seek only to protect tenants at the expense of affordable housing. These new regulations actually protect housing in Santa Monica, by freeing up hoarded apartment units which are being kept off the market by tenants who live in other cities or residences. There are approximately 5,000 low rent units (according to ACTION’s survey) which are being rented by tenants who do not live in these units. Rather, the tenants live either in their own homes near by, or in other cities. These tenants are holding onto their units because they are so cheap to rent, that they just would rather not let them go. Some of these units are used by the tenants for offices, or storage, or hotel rooms. Now, under the proposed regulation, if the owner can show that the subject unit is not the tenant’s primary residence, then the owner can raise that tenant’s rent to market rate. The regulation acknowledges that because of the serious housing shortage in Santa Monica, when a tenant keeps a unit off the market and does not live there as his/her primary residence, the tenant is hoarding the unit and further harming the housing market. The regulations set up a procedure whereby the owner will petition the Board for a hearing to make a finding of fact as to where the tenant really lives. In most cases, the decision will be an easy one to make.

RECENT CASES TO WATCH

Feldman v. Superior Court
As you might remember, our very own Michael Koenig (attorney) representing our very own Jan Feldman (owner) won a great victory at the appellate court level. However, the opinion was not published, and ACTION requested that court to publish it since it is far reaching and helpful to Housing Providers. It deals with the Ellis Act. It states that the six month times rent penalty is the only penalty that a tenant can receive if the owner decides to go back into business two years after Ellising the property. Michael was successful in overturning Judge Terry Friedman’s trial court decision, which stated otherwise. The Appellate Court refused to publish its decision, and now ACTION has requested of the California Supreme Court that it publish the decision in place of the court of appeal. We will hear about this in the next month.

Travis v. Santa Clara County
Decertified. At the request of Pacific Legal Foundation, ACTION filed a request with the California Supreme Court requesting that court to hear Travis v. County of Santa Clara. Travis, a published court of appeal decision, held that an owner could not attack a local law pre-empting Costa-Hawkins, if that owner did not bring a lawsuit within a very short time period after the law was passed. This in effect puts a statute of limitations on civil rights. Could you imagine a doctrine which stated that one could not attack a segregation law because it was on the books more than a year? Well the Supreme Court decertified the opinion and agreed to hear it. ACTION may be filing an amicus brief in the near future, setting out our position on such a backward legal doctrine.

Drouet v. San Francisco Still Undecided
Drouet is the last of the California Supreme Court cases which has still yet to be decided. Drouet discusses what defenses, if any, tenants can raise if they are being evicted under Ellis withdrawals. The court of appeal decided that only procedural defects could be raised, but tenants wanted the court to sanction “retaliatory eviction” defenses as well. If the tenants’ position is adopted by the court, it will create great expenses in Ellising a property. However, now that Ellis has been so radically changed through amendments to its current form, it is unlikely that it will be the problem that it could have been.