Opinion
A117394
9-19-2008
CONTEMPO MARIN HOMEOWNERS ASSOCIATION, Plaintiff and Respondent, v. MANUFACTURED HOME COMMUNITIES, INC., ET AL., Defendants and Appellants.
Not to be Published
A mobilehome park owner increased the rent of the homeowners in the park to recoup the costs of capital expenditures. An arbitration proceeding under the citys mobilehome rent control ordinance resulted in a settlement, which was confirmed by an arbitrator. Two years later, a dispute arose over the meaning of that settlement. The dispute was submitted to arbitration, but the park owner did not comply with the arbitrators decision. The homeowners in the park then filed this lawsuit, which led to a decision of this court in an interlocutory appeal and an ultimate settlement of the action. Consistent with the terms of the settlement, both sides applied for attorney fees. The trial court granted attorney fees to the homeowners pursuant to a fee-shifting provision in the rent control ordinance and the private attorney general statute, Code of Civil Procedure section 1021.5. The court denied the park owners application for fees under the ordinance. We affirm.
Background
Contempo Marin Mobilehome Park (the Park) in San Rafael, California, leases lots to 396 mobilehome owners. The Park is owned by Manufactured Home Communities, Inc. and MHC Financing Limited Partnership (hereafter individually or collectively, MHC). The homeowners are represented by the Contempo Marin Homeowners Association (Homeowners Association or Association).
San Rafael Mobilehome Rent Stabilization Ordinance
The San Rafael Mobilehome Rent Stabilization Ordinance (the Rent Ordinance or Ordinance), San Rafael Municipal Code, Title 20, generally limits annual rent increases in mobilehome parks to a set percentage of the California consumer price index. (San Rafael Munic. Code, tit. 20, § 20.08.010(B).) A mobilehome park owner/operator may implement an annual cost-of-living increase after submitting documentation in support of the increase for the city managers review and approval. (§§ 20.08.020, 20.08.030.) Homeowners who dispute the increase may invoke the Ordinances rental dispute hearing process by filing a petition signed by more than 25% of affected homeowners. (§ 20.12.010.)
All statutory references are to the San Rafael Municipal Code, Title 20, unless otherwise indicated.
The ordinance distinguishes between mobilehome park operators (the owners, operators or property managers of a mobilehome park within the city) and mobilehomepark owners (the owners, or lessors of real property used for a mobilehome park within the city). (§ 20.04.020(J), (K).) Because the distinction is not relevant for purposes of this appeal, we refer to both as "owner/operators."
Rent increases other than the annual cost-of-living increases apparently may be implemented only upon a petition by the owner/operator. (§ 20.12.050.) The petition "shall be heard and processed in the same manner as provided in this title for homeowner applications." (§ 20.12.050.) The owner/operator bears the burden of proving that a rent increase is reasonable, which is determined according to standards of reasonableness set forth in the Ordinance, which are expressly designed to ensure the owner/operator receives a fair and reasonable return. (§ 20.12.070, 20.12.110.)
The rental dispute hearing process is an arbitration proceeding conducted by an outside arbitrator who is appointed by the city and paid by the parties. (§§ 20.12.060, 20.12.100.) The arbitrators decision is appealable to the city council, and the city councils decision may be reviewed by administrative mandamus. (§ 20.12.090.)
In addition to limiting the amounts of rent increases, the Ordinance requires mobilehome park owner/operators to provide 90 days notice of any planned rent increase. (§§ 20.04.020(I), (J); 20.08.020.) "Failure to timely comply with the [notice] provisions . . . shall defer the effective date of any proposed annual increase until ninety (90) days after compliance." (§ 20.08.030.)
The Ordinance provides homeowners with civil remedies: "If any owner or operator demands, accepts, receives, or retains any payment of rent in excess of the maximum lawful lot rent, as determined under this title, the homeowners of such park affected by such violation, individually or by class action, may seek relief in a court of appropriate jurisdiction for injunctive relief and/or damages. In any such court proceeding, the prevailing party shall be awarded his reasonable attorneys fees and the court, in its discretion and in addition to any other relief granted or damages awarded, shall be empowered to award to each affected homeowner civil damages in the sum of not more than three (3) times the total monthly lot rent demanded by the operator from each such homeowner." (§ 20.16.040.)
September 1996 Phase One Rent Increase
In September 1996, MHC served residents with a notice of a rent increase based on its expenditures on the first phase of a storm water flood control project for the Park known as the lagoon transfer station project. The announced rent increase was $18.37 per month for 20 years (240 months) beginning April 1, 1997. As required by the Ordinance, MHC filed a petition for approval of the rent increase, arguing the rent increase was necessary to recoup $442,666 in capital expenditures on the project. (§ 20.12.050.) Park residents signed a petition protesting the increase.
1997 Settlement Agreement and Arbitrators 1997 Settlement Decision
The City Attorneys office referred the matter to arbitration before Andrea Ponticiello. Before the arbitration hearing took place, the parties settled. The settlement agreement (1997 Settlement Agreement) authorized a Phase One rent increase of $7.50 per month for 240 months beginning April 1, 1997, and waived any notice violations as to the September 1996 increase. The agreement conditionally approved a Phase Two rent increase of up to $7.50 per month for 240 months in the event additional capital expenditures were made on the lagoon transfer station that were verified by documentation. The agreement provided that the Phase Two rent increase "shall be implemented without further petition, hearing, or approval under [the Ordinance]."
The operative language regarding the Phase Two increase was the following: "In the event additional capital expenditures are made by Petitioner in any way related to the Lagoon Transfer Station and related facilities and discharge lines, Petitioner may additionally increase rents at the Park to recover such additional capital expenditures, but any such increases shall be limited, in the aggregate, to no more than an additional $ 7.50 per space per month for a period of no more than 240 months. . . . Any such additional monthly rent increase may be billed to the homeowners of the Park commencing no sooner than April 1, 1998, and only upon expenditure by Petitioner after January 1, 1997 of additional funds relating to the Lagoon Transfer Station and related facilities and discharge lines in an amount equal to or greater than the aggregate, cumulative amount of such increase. Any such additional billing . . . shall become effective after expenditure of such funds, and shall be implemented without further petition, hearing, or approval under Ordinance No. 1654, or any successor ordinance thereto; provided, however, the documentation supporting such increase shall be subject to review by the Parks Homeowners Association. Petitioner shall provide at least 90 days written notice of imposition of this second $7.50 per space per month maximum increase, and upon reasonable prior notice shall make available for inspection by the Parks Homeowners Association during regular business hours reasonable documentation supporting said increase; and Petitioner will not collect said increase until the Homeowners Association has had the reasonable opportunity to inspect such documentation; which support the dollar amount of said increase."
On April 17, 1997, in a "Settlement Decision" (1997 Settlement Decision), the arbitrator approved the settlement agreement as a fair resolution of a real and substantial dispute about MHCs right to a rent increase. The arbitrator ordered the parties to comply with the 1997 Settlement Agreement, which was incorporated into the decision by reference.
September 1999 Notice of Phase Two Rent Increase
In September 1999, MHC issued a notice of a Phase Two rent increase of $7.50 per month for 240 months effective January 1, 2000. MHC provided the Homeowners Association with documentation of $263,818.62 in Phase Two capital expenditures, to which it added a 17.5% combined rate of interest and rate of return on its investment (hereafter, interest and return on investment shall be referred to simply as interest). MHC included the 17.5% interest rate even though, because it had not taken out a loan to fund the expenditures, it had not incurred actual interest costs. At 17.5% interest over 20 years, the $263,818.62 expenditure translated to a monthly rent increase for each resident of $10.03 ($2.78 in principal and $7.25 in interest). Pursuant to the 1997 Settlement Agreement, the rent increase was capped at $7.50 a month.
The Homeowners Association reviewed MHCs documentation and contested about $10,000 of the capital expenditures as not within the scope of Phase Two of the lagoon transfer station project. The Association also challenged all of the 17.5% interest, arguing that under the terms of the 1997 Settlement Agreement, MHC was not entitled to recover any costs it had not actually incurred. The Association also objected to MHCs having announced the increase before it had documented its expenditures.
1999-2000 Meetings with the Arbitrator
The City Attorneys office informed the original arbitrator, Ponticiello, about the dispute and arranged for her to meet with the parties. It described the parties disputes as follows: "1) Must the park owner provide to the homeowners association the required documentation justifying the second assessment, PRIOR to the 90-day notice of rent increase required by the ordinance, or PRIOR to the actual implementation of the second assessment? [¶] 2) Can the park owner collect, as part of the second assessment, interest on the second phase of the capital improvements? Was a certain interest rate or formula agreed to by the parties as part of the settlement?" At a November 10, 1999 meeting, the arbitrator made a tentative decision on the first issue, ruling that documentation of the capital expenditures could be submitted after the rent increase notice was issued but before the increase was implemented. The Homeowners Association acquiesced in that decision. The second issue remained unresolved and hearings on the matter were held on December 13, 1999, and January 24, 2000.
While the arbitration proceeding was pending, MHC abandoned its claim for the $10,000 in capital expenditures that had been challenged by the Homeowners Association. MHCs amended documentation listed $253,720.96 in Phase Two capital expenditures. At 17.5% interest over 20 years, the new amount justified a monthly rent increase of $9.64 ($2.67 for principal and $6.97 for interest). Pursuant to the 1997 Settlement Agreement, the increase was capped at $7.50 a month.
In about December 1999, MHC issued a Notice of Revised Rent Increase to Park residents. The notice withdrew the September 1999 notice of a $7.50 Phase Two rent increase and explained that the issue was under review by an arbitrator and the "amount approved by the arbitrator will be retroactive to January 1, 2000."
On February 14, 2000, the arbitrator issued an "Arbitration Decision" authorizing a Phase Two rent increase of $3.72 per month for 240 months commencing January 1, 2000 (2000 Arbitration Decision). The $3.72 figure was based on capital expenditures of $253,818.62 plus 1.97% interest. The arbitrator essentially found that the 1.97% interest rate was an implied term of the 1997 Settlement Agreement, as it was the implied rate of interest that had been included in the $7.50 Phase One rent increase adopted in that agreement.
Administrative Appeal of February 2000 Arbitration Decision
MHC appealed the 2000 Arbitration Decision to the city council. Because no reporters transcript was made of the December 1999 and January 2000 arbitration hearings, the City Attorneys office and the arbitrator directed the parties to prepare a settled statement of the proceedings. The parties submitted separate proposed settled statements for the arbitrators review.
MHC wrote in its proposed settled statement that the 1999 and 2000 meetings with the arbitrator "were not an arbitration" pursuant to the Ordinance and were not authorized by the 1997 Settlement Agreement. It contended that no jurisdiction for those proceedings had been conferred by the parties on either the arbitrator or the city council. The Homeowners Association agreed that the 1999-2000 meetings "did not constitute an Arbitration Hearing under the authority of San Rafael Municipal Ordinance 1654" and described the proceedings as "an informal mediation process attempting to resolve a disagreement" between the parties.
In light of these representations, the City Attorneys office wrote that the appeal was " `moot and of no effect. " As expressed in an October 2000 letter to the Association, the position of the City Attorneys office was that the parties dispute did not arise under the Ordinance, that the 2000 Arbitration Decision was not an arbitration under the Ordinance, and that the 1999-2000 arbitration proceeding was not binding: "[A]lmost one year ago the City Council directed this office to arrange for the park tenants and park owner representatives to meet to resolve the dispute over the amount of the Phase II assessment for the Lagoon Transfer Station improvements. After numerous meetings and a `supplemental arbitration decision (later determined by both parties to be invalid under the Ordinance), the issue remained unresolved. [¶] This disputed issue concerns interpretation of the 1997 Settlement Agreement and Decision. The amount of the Phase II assessment, its computation and collection are no longer matters directed or controlled by the Ordinance. The Settlement Agreement signed by both parties, specifically states that the second assessment `shall be implemented without further petition, hearing or approval under [the] Ordinance . . . [¶] The dispute over the computation and collection of the Phase II assessment for the Lagoon Transfer Station must be settled by the parties themselves, whether by agreement, by voluntary arbitration, or by legal action."
Some of the facts in this and the next paragraph are taken from our opinion in the prior appeal. (Contempo Marin Homeowners Association v. MHC Financing Ltd. Partnership (May 28, 2004, A102593) [nonpub. opn.] (Contempo Marin I).)
MHC filed no objection to the dismissal of its appeal to the city council, and it did not petition for a writ of mandate (Code Civ. Proc., § 1085), or a writ of administrative mandate (Code Civ. Proc., § 1094.5), to compel the city council to hear the appeal. Nor did MHC file a petition to have the 2000 Arbitration Decision vacated or corrected under the provisions of the California Arbitration Act (Code Civ. Proc., § 1285 et. seq.).
September 2000 Notice of Phase Two Rent Increase
In September 2000, MHC issued a notice of rent increase to Park residents that announced it intended to enforce the September 1999 notice of a $7.50 Phase Two rent increase commencing January 1, 2000: "Please also take notice that . . . you are responsible to pay [$7.50] per month in 2001 pursuant to the 90 Day Notice sent to you in September 1999. Said Ninety Day Notice of Rent Increase of September 1999 set forth that a [$7.50] per month per space rent increase would be implemented as of January 1, 2000 and would remain in effect for [240] consecutive months from that date. Despite an earlier settlement agreement on the issue, residents of the community failed to pay this portion of the noticed amount during 2000. The amount you owe for this portion of additional rent representing payments 1 through 12 of the 240 scheduled payments, as of January 1, 2001, is [$ 90]. The owner of Contempo Marin considers this amount delinquent. . . .[¶]. . . [¶] It is also the position of the owner of Contempo Marin that residents failure to pay in 2000 the additional rent noticed in 1999 constitutes a material breach of the original settlement agreement executed in spring of 1997. Therefore you should be aware that [the] owner intends to seek approval under the San Rafael Ordinance to recover the entire cost of the lagoon transfer station (subject to amounts already paid). Owner will also seek a `fair rate of return rent increase for Contempo Marin. Any such additional rent allowed as a result of such proceedings will be due as allowed by law."
Federal and State Lawsuits
In October 2000, MHC filed an action in federal district court against the City of San Rafael challenging the constitutionality of the Ordinance under the Takings Clause of the Fifth Amendment. (MHC Financing, Ltd. v. City of San Rafael (Jan. 29, 2008, No. C-00-03785 VRW) [nonpub. opn.] (MHC Financing).) The Homeowners Association was permitted to intervene in the action to defend the Ordinance.
We grant appellant MHCs requests for judicial notice, filed August 10, 2007 and February 4, 2008. (Evid. Code, §§ 452, subds. (c), (d); 459, subd. (a).)
In December 2000, the Homeowners Association, newly represented by Legal Aid of Marin, and Hanson, Bridgett, Marcus, Vlahos & Rudy LLP, filed this action in superior court against MHC. The Association alleged that MHC had agreed to be bound by the results of the 1999-2000 arbitration proceeding. The complaint alleged seven causes of action and sought declaratory, injunctive, and monetary relief:
The first cause of action was for unfair business practices in violation of Business and Professions Code section 17200 et seq. The alleged unfair practices were (1) including unincurred costs and a 17.5% rate of interest and return on investment in its calculation of Phase Two costs, contrary to the terms of the 1997 Settlement Agreement; (2) demanding a Phase Two rent increase without complying with conditions precedent in the 1997 Settlement Agreement or with the Ordinance; (3) refusing to abide by the arbitrators decision; (4) threatening homeowners with liability for a retroactive $7.50 rent increase in September 2000; and (5) initially demanding (but later withdrawing) $ 10,000 in Phase Two capital expenditures that were not related to the transfer station. The complaint alleged that these were MHCs continuing regular business practices and would likely result in an attempt to evict residents who did not pay the unjustified September 2000 retroactive rent increase absent injunctive relief, and in MHCs unjust enrichment.
The second cause of action was for violation of the Ordinance by demanding rent in excess of the maximum rent permitted under the Ordinance. The Association asked for injunctive relief, compensatory damages, an award of three times the monthly rent demanded by MHC from each resident (hereafter, treble damages award), and attorney fees, and costs.
The third cause of action was for declaratory relief with respect to the validity of the September 2000 rent increase and the status of the arbitrators decision.
The fourth cause of action was for injunctive relief requiring MHC to comply with its legal duties "as alleged herein."
The fifth cause of action was for breach of a settlement agreement by demanding a retroactive $7.50 rent increase in September 2000. The Association alleged that, under the 1997 Settlement Agreement, MHC was entitled to a Phase Two rent increase of no more than $2.67 per month and only after 90 days written notice to the homeowners.
The sixth cause of action was for breach of a rental agreement, as modified by the 1997 Settlement Agreement, by demanding a retroactive $7.50 rent increase in September 2000, although it was entitled to a rent increase of no more than $2.67 per month and only after 90 days written notice to the homeowners.
The seventh cause of action was for confirmation and enforcement of an arbitration award pursuant to Code of Civil Procedure section 1285. The Association alleged, "MHC voluntarily agreed to submit the amount of the disputed Phase 2 rent increase to arbitration, granting the arbitrator the power to determine the correct amount of that disputed rent increase under the Settlement Agreement . . . [and] to be bound by `the amount approved by the arbitrator. MHC then fully participated in the arbitration on the question of the amount of the award, and raised no objection to the authority of the arbitrator to determine that question," yet refused to abide by the arbitrators award. It sought confirmation of the 2000 Arbitration Decision.
In May 2001, MHC filed a cross-complaint against the Association, and it amended the cross-complaint in September. MHC alleged that it had never agreed that the arbitrator had the power to interpret and enforce the 1997 Settlement Agreement and the 1997 Settlement Decision, and it argued the court should interpret and enforce the agreement. The first cause of action sought a declaration that MHC was entitled to charge a $7.50 Phase Two rent increase effective January 1, 2000 and that any arbitration process commenced in response to the September 1999 notice of rent increase was void and of no legal effect. The second cause of action sought rescission, based on mistake, of the Phase Two terms of the 1997 Settlement Agreement, which it alleged were severable from the rest of the agreement. The third cause of action sought reformation of the 1997 Settlement Agreement to reflect the parties true mutual intent that MHC was entitled to charge $7.50 for the Phase Two rent increase.
Summary Adjudication for the Homeowners Association
In July 2001, the Homeowners Association sought summary adjudication of its third and seventh causes of action for confirmation of the 2000 Arbitration Decision and associated declaratory relief. The Association also demurred to the second and third causes of action in MHCs cross-complaint. The motions were argued jointly in November.
On December 18, 2001, the trial court granted the summary adjudication motion. The court found that the 1999-2000 arbitration proceeding was an extension of the 1997 arbitration under the Ordinance. MHC impliedly consented to the arbitrators jurisdiction by willingly participating in the arbitration, and it could not attack the underlying agreement to arbitrate after the arbitrator issued her award. Nor was the arbitration award itself subject to attack: MHC did not file a mandamus petition to force the city council to hear its administrative appeal of the 2000 Arbitration Decision, and it did not file a timely challenge to the decision under state arbitration law. The court concluded the 2000 Arbitration Decision was "binding on all parties and [] MHC is only entitled to charge a Phase Two rent increase as provided for therein." The court also sustained the Associations demurrer to MHCs cross-complaint.
Although the Association did not demur to the first cause of action in MHCs cross-complaint, the cause of action was effectively resolved by the courts confirmation of the 2000 Arbitration Decision. As noted, the first cause of action sought a declaration of the parties duties and responsibilities under the 1997 Settlement Agreement and 1997 Settlement Decision, including MHCs right to collect a $7.50 Phase Two rent increase. The 2000 Arbitration Decision itself answered those questions and was confirmed by the court. The register of actions for this case does not reflect any litigation of MHCs cross-complaint after the courts December 2001 ruling.
MHC petitioned this court for a writ of mandate vacating the summary adjudication order, which it claimed "enshrine[d] as a `binding arbitration what was in fact a mediation attempting to settle a rent-control dispute in the City of San Rafael." We denied the petition on procedural grounds. MHC then filed a second petition, which we summarily denied in May 2002.
MHC Cross-Complaint Against the City and Demurrer
In August 2002, MHC filed a cross-complaint against the City of San Rafael (City), asserting causes of action for violation of due process rights, inverse condemnation, and violation of equal protection. MHC alleged that the City conspired with the Homeowners Association to induce MHC to participate in the 1999-2000 arbitration proceeding, thereby depriving MHC of its rights to trial, appeal, fair return on its property, and reformation or rescission of the settlement agreement.
Some of the facts in this paragraph are taken from our opinion in the prior appeal. (See Contempo Marin I, supra, A102593.)
The City demurred to the cross-complaint, and in March 2003, the trial court sustained the demurrer without leave to amend. The trial court wrote: "Each cause of action is based on the Citys position regarding the [1999-2000] arbitration hearing, and [] its dismissal of MHCs appeal. . . . [¶] When the City Attorney denied MHCs appeal to the City Council, MHC should have filed with this court a petition for writ of mandate (Code Civ. Proc., § 1085), or a petition for writ of administrative mandamus (Code Civ. Proc., § 1094.5), to compel the City Council to hear and determine its appeal. [Citations.] Failure to do so gives the Citys decision finality, and has the effect of establishing `the propriety of the [Citys] action. [Citation.]" The court added: "As a separate reason for sustaining the demurrer, the courts previous order granting [the] Associations motion for summary adjudication of the third and seventh causes of action found that MHC had `impliedly consented to the jurisdiction of the arbitrator by willingly participating in the arbitration. MHC is estopped from challenging the validity of the rent dispute process or attack the arbitrators decision, under the guise that its due process rights were violated."
MHC appealed. (Contempo Marin I, supra, A102593.)
Appeal No. A102593
In Contempo Marin I, supra, A102593, we reviewed not only the trial courts March 2003 order sustaining the Citys demurrer but also its December 2001 order granting summary adjudication to the Homeowners Association, because the latter order necessarily affected the former. (Contempo Marin I, supra, A102593.) We allowed the Homeowners Association to participate as an intervenor to defend the summary adjudication ruling. (Ibid.)Our May 2004 opinion affirmed the trial courts rulings. (Contempo Marin I, supra, A102593.) Regarding the summary adjudication order, we wrote: "Because MHC freely participated in the arbitration hearings before Ms. Ponticiello, MHC may not rely on the absence of an underlying [written] agreement [to arbitrate] to challenge her jurisdiction after receiving an unfavorable decision." (Ibid.) We implied, but did not expressly state, that we considered the 1999-2000 arbitration a private proceeding. (Ibid.)
Regarding the order sustaining the demurrer, we affirmed on two grounds. (Contempo Marin I, supra, A102593.) On the Citys alleged misconduct in inducing MHC to participate in the 1999-2000 arbitration proceeding, we held the issue was resolved against MHC in the summary adjudication ruling, which concluded that MHC voluntarily consented to be bound by the arbitration and forfeited its opportunities to challenge the arbitration decision by failing to file a timely petition to vacate or correct the award. (Ibid.) On the Citys failure to entertain MHCs administrative appeal of the 2000 Arbitration Decision, we held that MHC was not prejudiced because the Citys action was based on the parties statements that the 1999-2000 arbitration was not an arbitration under the Ordinance — a position still maintained by MHC. (Ibid.) The dismissal of the appeal freed MHC to challenge the arbitration decision in court, but MHC did not pursue that remedy. (Ibid.) Alternatively, if the dismissal of the appeal was prejudicial to MHC, the claim was forfeited when MHC failed to timely challenge the dismissal by a mandamus petition in superior court. (Ibid.)
MHC filed a petition for review with the Supreme Court, which was denied in August 2004.
MHCs Motion for Summary Judgment on Remand
On remand, the litigation proceeded on the Associations remaining claims for relief.
In April 2003, the trial court certified a class of all Park residents, with the Homeowners Association as class representative, with respect to the second cause of action for violations of the Ordinance. Discovery on this cause of action proceeded while the prior appeal was pending. In a discovery response, the Association elaborated on its demand for treble damages: "For a period of 28 months, MHC wrongfully demanded (and in many cases received and retained) `total monthly lot rent of, on average, $615 from each household in Park. This average is calculated from MHCs rent rolls. By demanding and collecting this rent overcharge from 396 households, MHC has thus subjected itself to a treble damage award of as much as $20,457,360 ($615 x 28 months x 396 households x 3)." The 28-month period apparently referred to the period between September 1999, when MHC first announced a $7.50 Phase Two rent increase, and December 2001, when the trial court confirmed the arbitration award limiting the Phase Two increase to $3.72.
In December 2004, MHC moved for summary judgment on the Homeowner Associations remaining causes of action. An unsuccessful mediation took place in March 2005. In April 2005, the court granted summary adjudication to MHC on the Homeowner Associations first cause of action for unlawful business practices, but denied summary adjudication of the remaining claims.
On the first cause of action, the court wrote: "The Phase Two rent increase notices were not `unlawful at the times they were sent. Until the cour[t] of appeals order affirming the 12/18/01 order on Plaintiffs motion for summary adjudication on the 3rd and 7th causes of action, there was no final adjudication of the propriety of the 9/28/99 notice or the 9/27/00 notice." As the trial court later explained: "I dont believe that the defendants protecting its legal position by standing on its initial notice of increase to [$]7.50 was unlawful until the Court of Appeal finally said . . . that the arbitrators decision was binding and that the rent could not be set at a higher figure than $3.72. [¶] . . . I dont believe that the act was unlawful ab initio."
On the second cause of action for violations of the Ordinance and for treble damages, the court ruled: "Although the Phase Two rent increase notices were not `unlawful at the times they were sent . . ., section 20.16.040 of the Ordinance penalizes a park owner who `retains any excessive rent. Thus, defendants arguably violated the Ordinance by retaining excessive amounts after the Court of Appeals decision became final in 2004. . . . [¶] . . . [¶] Defendants have not established as a matter of law that plaintiff `is estopped or has waived any claim under the Ordinance. Regardless of what the parties may have `agreed previously as to the applicability of the Ordinance, this court has determined that the 1999-2000 arbitration proceedings were conducted under the Ordinance (see 12/18/01 order, and 11/28/01 hearing transcript at 29:9-12). This conclusion was not addressed on appe[a]l, and the Court of Appeal affirmed on a different ground. However, the Court of Appeals decision is not inconsistent with, and does not nullify, this conclusion. Further, defendants have not persuaded the court that a contrary conclusion is warranted."
On appeal, the Association concedes that the trial courts order established that "the notices MHC sent for $7.50 in Phase Two rent before this Courts May, 2004 ruling . . . could not form the basis for a treble damages award."
On the fourth cause of action for injunctive relief, the court wrote that injunctive relief "is available for the 2nd cause of action. . . . The 12/18/01 order did not `moot the claim for injunctive relief, particularly since defendants still contend that the 1999-2000 arbitration proceedings were not conducted under the Ordinance, and that defendants are not bound by the arbitrators 2/14/00 decision."
On the fifth and sixth causes of action for breach of the 1997 Settlement Agreement and MHCs rental agreements with the homeowners, the court ruled: "Plaintiff raises a triable issue of material fact as to whether any member of the Association suffered damages."
The Association unsuccessfully sought reconsideration of the order and a writ of mandate from this court. (Contempo Marin Homeowners Association v. Superior Court (August 17, 2005, A110511) [nonpub. order].)
2006 Settlement Agreement
In March 2006, MHC and the Homeowners Association executed a settlement agreement (2006 Settlement Agreement). The parties agreed the Phase Two rent increase would be $3.72 per month for 240 months and would commence on January 1, 2006. MHC would reimburse or credit Park residents who had made any Phase Two payments prior to that date. Regarding attorney fees, "It is specifically agreed that Plaintiffs and Defendants shall be permitted to apply to the Court for their respective attorneys fees, and that each party shall have the opportunity to oppose the other partys fee application. . . . [¶] . . . Plaintiffs Counsel shall not seek to recover more than $375,000 in attorneys fees and costs, and any such fee application or recovery by Plaintiffs Counsel shall be limited to those fees that Plaintiffs Counsel incurred in connection with the Action up through the Courts December 18, 2001 Order, as well as any subsequent appeals from that December 18, 2001 Order. The Parties further agree that there shall be no cap on the amount that Defendants may seek to recover by way of application to this Court." The parties released each other from claims related to the action, but agreed the settlement would have no effect on the federal actions.
The trial court approved the 2006 Settlement Agreement and entered judgment in June 2006.
Attorney Fee Motions
In September 2006, the Homeowners Association filed a motion for attorney fees. The Association characterized the litigation as follows: "[MHC] demanded double the Phase II rent increase that it was entitled to impose on some 1,000 low-income and senior residents of Contempo Marin Mobilehome Park. It did so violating two different arbitration awards — one of which it had even agreed to — expecting to get away with collecting close to half a million dollars in excessive rent. [¶] And MHC very nearly did get away with it. As MHC well knew, the homeowners and their Association lacked the substantial funds necessary to hire an attorney to protect their legal rights. Legal Aid of Marin and the Hanson Bridgett law firm finally agreed to bring suit on a pro bono basis, when no other attorney would. MHCs response was to fight back on a massive scale, with meritless demurrers and cross-complaints, obstructive discovery tactics and endless rounds of briefing. [¶] But as a result of this litigation, MHC ultimately agreed to collect from the residents only the Phase II rent increase which the arbitrator had originally awarded — as demanded by the Homeowner Associations complaint. But vindication for the residents came at a steep price. The Homeowners Associations counsel expended time worth nearly $1.3 Million to achieve that result." The Association asked for $375,000 in attorney fees pursuant to the private attorney general statute and the Ordinance.
In its opposition brief, MHC dismissed the Associations description as a "hyperbolic and inaccurate view of this litigation" and characterized the case as follows: "From the beginning, this lawsuit was about the financial interests of the individual homeowners, who did not wish to pay the full $7.50 monthly pass-through to which MHC believed it was entitled, and who wanted to punish MHC by claiming $20 million in monetary `damages that would likely be used as part of [the Associations] efforts to purchase the Park. As such, this lawsuit is not the kind of `public interest litigation that the private attorney general statute was intended to cover. In addition, this is not a case where a fee award is appropriate because the cost of litigating on behalf of the public outweighed a plaintiffs own financial interest. To the contrary, from the beginning the [Associations] claimed financial interest has been in excess of $20 million, far more than its attorneys allegedly incurred."
MHC also moved for its own award of attorney fees pursuant to the Ordinance, citing "the Courts ruling in favor of MHC with respect to various claims and defenses under [the Ordinance]," leading to the 2006 settlement: "The Courts ruling was a significant victory for MHC, allowing it to overcome the [Associations] efforts to obtain an unsupported $20 million damages claim based on unfounded allegations that MHC sent `unlawful rent notices in violation of the Ordinance. In truth, those notices were statutorily required. Yet having already obtained a favorable settlement preventing MHC from passing through the full cost of the significant improvements MHC had made (as it was entitled to do under the Ordinance), the [Association] tried to turn a disagreement over the proper interpretation of the settlement agreement into a monetary windfall. By prevailing on the [Associations] causes of action under the Ordinance, MHC won an important victory for park owners, demonstrating that park owners need not fear exorbitant damage claims based on simple disagreements as to agreements reached with park residents, or face multimillion damage claims based on statutorily required notices."
In February 2007, the trial court granted the Association $ 346,749 in fees and denied MHCs request for fees. The court found that the Association was the prevailing party under the Ordinance and that it satisfied the criteria for a private attorney generals award. The court also wrote that the Association was a prevailing party under a catalyst theory. The fee award covered the Associations work opposing MHCs demurrer, conducting discovery, demurring to MHCs cross-complaint, moving for summary judgment or adjudication, opposing MHCs writ petitions, opposing MHCs motion for reconsideration, opposing MHCs appeal, and other miscellaneous litigation activities. MHC appeals from this order.
2007-2008 Federal Court Rulings
While this appeal was pending, the federal district court issued a preliminary (July 2007) and then a final (January 2008) decision invalidating the Ordinance as unconstitutional. (MHC Financing, supra, C-00-03785 VRW.) The federal court concluded that enforcement of the Ordinance constitutes a taking "for the singular purpose of transferring the value of land from one private party to another." (Id. at p. 51.) It further concluded that unconstitutional provisions in the Ordinance were not severable from the rest of the Ordinance and that the appropriate remedy was to enjoin enforcement of the entire Ordinance. (Id. at pp. 72-73, 75-76, 78-79.) The court ruled that the Ordinances caps on rent increases and vacancy control provisions, in combination with zoning regulations and practices that prevented MHC from changing its use of the property, were tantamount to a physical taking of MHCs property for the benefit of the Park residents. (Id. at pp. 24-27.) The court found that MHC was singled out to bear the financial burden of the Ordinance and "the City imposed the Ordinance under the mere pretext of a public purpose." (Id. at p. 34, 49.) The court specifically found that the handling of the dispute over MHCs rent increases to recoup its expenses on the lagoon transfer station project "makes clear that the Citys discretionary rent increase process does not provide a remedy to cure an impermissibly low rental increase." (Id. at pp. 61-62.)
Discussion
We affirm the trial courts award of fees to the Association under the Ordinance and its denial of fees to MHC under the Ordinance. Because this resolves the issues on appeal, we need not address the parties arguments regarding the fee award under the private attorney general statute, Code of Civil Procedure section 1021.5.
The Rent Ordinance provides that, in an action for injunctive relief or damages by homeowners against an owner/operator who charges rent "in excess of the maximum lawful lot rent, as determined under this title," "the prevailing party shall be awarded his attorney fees." (§ 20.16.040, italics added.) The critical issues regarding the fee award, therefore, are whether and to what extent this lawsuit was an action against MHC for charging rent "in excess of the maximum lawful lot rent, as determined under [the Ordinance]," and who if anyone was the prevailing party. The two issues are closely related.
Where a fee-shifting statute does not specify how to identify the "prevailing party" for purposes of awarding fees, courts of appeal have applied the "pragmatic inquiry" applicable under the private attorney general statute, Code of Civil Procedure section 1021.5. (Heather Farms Homeowners Assn. v. Robinson (1994) 21 Cal.App.4th 1568, 1574 (Heather Farms); Winick Corp. v. Safeco Insurance Co. (1986) 187 Cal.App.3d 1502, 1507-1508 (Winick Corp.).) The court "must realistically assess the litigation and determine, from a practical perspective, whether or not the action" achieved the relief the party sought under the statute that includes the fee-shifting provision. (See Woodland Hills Residents Assn., Inc. v. City Council (1979) 23 Cal.3d 917, 938 [pragmatic inquiry into whether litigation vindicated an important right] (Woodland Hills); Winick Corp., at pp. 1504, 1508 [pragmatic inquiry into whether defendant prevailed in action on contractors bond].) The trial courts prevailing party determination is reviewed for abuse of discretion. (Heather Farms, at p. 1574.)
I. Forfeiture
As a preliminary matter, we address MHCs argument that the Association forfeited its claim for fees under the Ordinance because it did not raise the claim in its moving papers in the trial court. Because MHC had an adequate opportunity to address the claim and because the trial court decided the issue on the merits, we conclude there is no bar to our reviewing the issue on appeal.
The issue, although belatedly raised, was fully litigated by the parties. In its notice of motion for attorney fees, the Association wrote that it would seek fees pursuant to the Ordinance. In its opening brief, however, the Association only requested fees under Code of Civil Procedure section 1021.5. MHC argued in both its opposition to the motion and in its own motion for fees that the Association had abandoned its claim for fees under the Ordinance. In its reply brief, the Association responded that it had not abandoned that claim and expressly argued it was entitled to fees as the prevailing party under the Ordinance. In opposition to MHCs motion for fees under the Ordinance, the Association again argued that it was the prevailing party under the Ordinance. MHC responded to these arguments in its reply on its own motion for fees and again at the hearing on the motions.
MHC did not argue at the hearing that the Association had forfeited its claim to fees under the Ordinance by failing to raise the issue in its opening brief. Nor does MHC cite legal authority that required the trial court to deem the issue forfeited because it was not raised in the Associations opening brief. In our view, the trial court had the discretion in the circumstances to address the arguments on the merits. (Cf. In re Marriage of Moschetta (1994) 25 Cal.App.4th 1218, 1227 [ultimately, and within bounds of due process, whether to entertain issue first raised on appeal is within appellate courts discretion].) The trial court addressed the issue on the merits and awarded fees to the Association under the Ordinance.
In support of its argument that the claim for fees under the Ordinance has been forfeited, MHC relies on Black v. Financial Freedom Senior Funding Corp., wherein the appellate court refused to address an argument that had been raised in a notice of motion in the trial court, but not in the partys brief in support of the motion. (Black v. Financial Freedom Senior Funding Corp. (2001) 92 Cal.App.4th 917, 925, fn. 9.) In Black, however, there is no indication that the argument was ever addressed on the merits in the trial court. Here, in contrast, MHC had an opportunity to respond to the argument that the Association was entitled to fees under the Ordinance; the issue was thoroughly litigated before the trial court; and the trial court addressed the issue on the merits. Because the issue was argued and decided on the merits below, there is no bar to our reviewing it on appeal.
II. Action for Charging Rent "In Excess of the Maximum Lawful Lot Rent"
MHC argues that only one of the Homeowners Associations seven causes of action gave rise to a potential fee award under the Rent Ordinance: the second cause of action, which expressly alleged violations of the Ordinance. Realistically assessed, however, the entire complaint sought enforcement of the maximum lawful Phase Two rent increase under the Ordinance as determined in the 1997 Settlement Decision.
A. The 1997 Settlement Decision Establishes the Maximum Lawful Phase Two Rent Increase Under the Ordinance
In 1996, both the homeowners and MHC invoked the Ordinances rental dispute hearing process to determine the maximum lawful additional rent MHC could charge to recoup its expenses on the lagoon transfer project. The arbitration process got underway, but before it could be completed, the parties reached a settlement — the 1997 Settlement Agreement. The arbitrator reviewed the settlement, determined it was fair, and incorporated it into a formal decision. This 1997 Settlement Decision, which incorporates the 1997 Settlement Agreement, established the maximum lawful rent MHC could charge for its expenditures on the lagoon transfer project. The decision became final when no administrative appeal was taken to the city council.
In 1999, a dispute arose regarding the meaning of the 1997 Settlement Agreement. In our opinion in the prior appeal in this action, we held that MHC and the Homeowners Association voluntarily agreed to submit the dispute to binding arbitration. The arbitrator ruled that, under the terms of the 1997 Settlement Agreement, the Phase Two rent increase was limited to $3.72 per month for 240 months beginning January 1, 2000. That decision became final when the City dismissed MHCs administrative appeal, MHC did not challenge the dismissal in court, and MHC did not challenge the arbitration decision in court. Once the 2000 Arbitration Decision became final, the maximum lawful additional rent MHC could charge under the Ordinance for Phase Two of the lagoon transfer project was $3.72 per month beginning January 1, 2000.
There is much dispute in the record about whether the 1999-2000 arbitration proceeding was a rental dispute hearing process under the Ordinance or a private arbitration proceeding. Although our decision in the prior appeal implied that the proceeding was a private arbitration, the trial court on remand ruled that the proceeding was conducted under the auspices of the Ordinance. We need not resolve this dispute. Even assuming the parties voluntarily agreed to submit the issue of the proper interpretation of the 1997 Settlement Agreement to private arbitration, that proceeding did not transform the 1997 Settlement Agreement into a private contract unrelated to the Rent Ordinance. The 1997 Settlement Agreement, as incorporated into the 1997 Settlement Decision, established the maximum lawful rent that could be charged under the Ordinance for lagoon transfer project expenses; the 2000 Arbitration Decision interpreted that agreement and quantified the maximum lawful rent as $3.72 per month for 240 months beginning January 1, 2000.
Case law supports our conclusion that enforcement of the 1997 Settlement Agreement, as incorporated into the 1997 Settlement Decision, is equivalent to enforcement of the maximum lawful rent chargeable under the Ordinance for purposes of applying the Ordinances attorney fee provision. In Berti v. Santa Barbara Beach Properties, the court of appeal applied a statutory fee-shifting provision to the enforcement of a settlement agreement that had resolved the plaintiffs assertion of his statutory rights. (Berti v. Santa Barbara Beach Properties (2006) 145 Cal.App.4th 70, 72.) At issue in Berti was the statutory right of a partner to inspect the financial records of a partnership. (Id. at pp. 72, 74; Corp. Code, § 15634.) The applicable statute included a fee shifting provision. (Corp. Code, § 15634, subd. (g).) The parties settled the action seeking inspection of the records, but the complainant had to return to court to enforce the settlement agreement. (Berti, at pp. 72-73.) When he requested fees for his successful enforcement efforts, the trial court denied the request because the settlement agreement itself did not provide for a fee award for enforcement efforts. (Id. at pp. 73-74.) The court of appeal reversed. (Id. at p. 78.) "Here the stipulated judgment [incorporating the settlement agreement] arose out of an action brought under section 15634. Subdivision (g) applies to the enforcement of the judgment." (Id. at p. 76.)
In a comparable federal case, a court of appeal again awarded fees for successful enforcement of the plaintiffs statutory claims. In Gilbert v. Monsanto Co., the parties settled an age discrimination suit, and the court retained jurisdiction to enforce the settlement agreement. (Gilbert v. Monsanto Co. (8th Cir. 2000) 216 F.3d 695, 698.) The plaintiff returned to court to enforce the settlement and sought fees for his enforcement efforts. (Id. at pp. 699, 702.) The defendant argued the plaintiff was not eligible for fees under the discrimination law because he was simply prevailing on a contract claim. (Id. at p. 702.) The court of appeal rejected this argument: "Gilberts relief, which consisted of the enforcement of his right to receive benefits [under the settlement], materially altered the relationship between him and Monsanto. Monsanto denied that it had agreed to pay accelerated pension benefits, and the issue had to be litigated to a successful conclusion by Gilbert. Gilbert is therefore a prevailing party" under the discrimination law. (Id. at pp. 702-703.)
We hold that, for purposes of awarding attorney fees under the Ordinance, enforcement of the 1997 Settlement Agreement, as approved by and incorporated into the arbitrators 1997 Settlement Decision and as interpreted by the 2000 Arbitration Decision, is equivalent to enforcement of the maximum lawful rent chargeable under the Ordinance for MHCs lagoon transfer project capital expenditures. The prevailing party in such an enforcement action, therefore, is entitled to fees pursuant to section 20.16.040 of the Ordinance.
B. The Associations Complaint Seeks Enforcement of the Maximum Lawful Phase Two Rent Increase Under the Ordinance
Realistically assessed, the complaint in its entirety seeks enforcement of the maximum lawful rent chargeable under the Ordinance for MHCs lagoon transfer project capital expenditures.
The first cause of action alleges a pattern of unfair and unlawful business practices in that MHC was not abiding by the 1997 Settlement Agreement or 2000 Arbitration Decision: MHC included 17.5% interest in its Phase Two rent increase; failed to comply with conditions precedent to the rent increase; refused to abide by the results of an arbitration; threatened homeowners who had not paid past due Phase Two rent charges; and overstated its capital expenditures for Phase Two of the project. That is, MHC was charging rent in excess of the maximum lawful rent as determined by the 2000 Arbitration Decision.
The second cause of action alleges violations of the Rent Ordinance without specific supporting factual allegations.
The third cause of action seeks a declaration about the validity of the purported Phase Two rent increase and the status of the 2000 Arbitration Decision.
The fourth cause of action seeks an injunction against MHCs demanding a Phase Two rent increase to which it was not entitled and threatening homeowners with eviction if they did not pay the increase.
The fifth cause of action alleges breach of the 1997 Settlement Agreement in that MHC was demanding a $7.50 Phase Two rent increase.
The sixth cause of action alleges breach of MHCs rental agreements with the homeowners, as amended by the 1997 Settlement Agreement, in that MHC was demanding a $7.50 Phase Two rent increase.
Finally, the seventh cause of action seeks confirmation and enforcement of the 2000 Arbitration Decision.
In sum, all of the causes of action seek enforcement of the maximum lawful additional rent chargeable under the Ordinance for Phase Two lagoon transfer project expenses, as established by the 1997 Settlement Agreement, which is incorporated into the 1997 Settlement Decision, and as quantified by the 2000 Arbitration Decision.
III. Prevailing Party
As previously stated, the court "must realistically assess the litigation and determine, from a practical perspective, whether or not the action" achieved the relief the party sought under the statute that includes the fee-shifting provision. (See Woodland Hills, supra, 23 Cal.3d at p. 938 [pragmatic inquiry into whether litigation vindicated an important right].) "The critical fact is the impact of the action, not the manner of its resolution." (Folsom v. Butte County Assn. of Governments (1982) 32 Cal.3d 668, 685 (Folsom).) Plaintiffs may be deemed prevailing parties even if the case is won on a preliminary issue, is settled before trial, or is dismissed after the defendant voluntarily ceases an unlawful practice. (Ibid. )
To conduct the pragmatic assessment, we compare the situation immediately prior to commencement of the action to the situation after its resolution, consider the role the litigation played in effecting any changes, and compare those changes to the plaintiffs litigation goals. (Leiserson v. City of San Diego (1988) 202 Cal.App.3d 725, 735; see Folsom, supra, 32 Cal.3d at pp. 685-686.)
A. Comparison of Litigation Goals and Litigation Success
MHC makes much of the fact that the complaint includes claims for no Phase Two rent increase, for an increase of only $2.67, and for treble damages, none of which was achieved by the Association. However, a realistic assessment of both the complaint and the Associations conduct of the litigation discloses that its primary litigation goals were enforcement of the 2000 Arbitration Decision, delay in the commencement of the Phase Two rent increase, compensation for excessive rent improperly collected and retained by MHC, and treble damages. It substantially achieved these goals and, thus, could properly be deemed the prevailing party. Alternatively, the Association achieved partial success in confirming the 2000 Arbitration Decision, and the trial court appropriately awarded fees for that partial success, which was limited to their work up to the December 2001 ruling on their summary adjudication motion and the appeals therefrom. The trial court reasonably concluded that MHC was not a prevailing party under the Ordinance.
1. The Complaint
The complaint seeks the following forms of relief: (1) "a declaration that the Phase 2 Rent Increase is void and of no effect," and an injunction against MHCs "demanding, accepting, receiving or retaining the Phase 2 Rent Increase, or any part of it"; (2) in the alternative, "a declaration that the Phase 2 Rent Increase may be imposed in an amount not to exceed $2.67 per month, effective 90 days from the date proper notice is served"; (3) in the alternative, confirmation of the 2000 Arbitration Decision; (4) "statutory damages" and treble damages under the Rent Ordinance; (5) compensatory damages and restitution of Phase Two rent increases improperly collected by MHC or other moneys improperly held by MHC; and (6) an injunction against evictions for failure to pay the improperly demanded Phase Two increase.
We understand the claim for "statutory damages" to be identical to the claim for treble damages under the Rent Ordinance. No other source of statutory damages is mentioned in the complaint.
We group these prayers for relief into the following categories: (a) a cap on the amount of the Phase Two rent increase and associated declaratory and injunctive relief; (b) delay in commencement of the Phase Two rent increase; (c) compensatory damages; and (d) treble damages.
2. Cap on Amount of Phase Two Increase
Regarding the amount of the Phase Two rent increase, MHC argues the Associations primary goal "was to avoid any obligation to MHC, and their secondary goal was to limit it to $2.67 a month. . . . [T]he $3.72 obligation this Court established in 2004 was their last and worst alternative . . . ." We conclude that the most reasonable construction of the complaint was that it sought to limit the increase to $2.67 (and delay its effective date until 90 days after notice of the correct amount of the rent increase) or, in the alternative, limit the increase to $3.72. The Associations litigation conduct, however, demonstrates that its primary litigation goal was to limit the rent increase to $3.72.
It is true, as noted above, that the complaint requests "a declaration that the Phase 2 Rent Increase is void and of no effect," and an injunction against MHCs "demanding, accepting, receiving or retaining the Phase 2 Rent Increase, or any part of it." This language is ambiguous. Does "Phase 2 Rent Increase" refer to the specific rent increase demanded in the September 2000 notices of rent increase or to any rent increase designed to compensate MHC for its Phase Two capital expenditures, no matter when demanded or for what amount?
Nothing in the body of the complaint provides a factual or legal foundation for a claim that the homeowners had no legal obligation to pay any part of the costs of Phase Two of the transfer project at any time. On the contrary, the complaint alleges that the 1997 Settlement Agreement "entitled" MHC to a rent increase to recoup its actual expenditures on Phase Two of the project if MHC documented those expenditures, provided 90 days notice of the increase, and limited the increase to a maximum of $7.50 per month. The complaint further alleges that "MHC provided documentation of actual Phase 2 expenditures . . . justifying a Phase 2 rent increase of no more than $2.67 per month." In its fifth cause of action for breach of the settlement agreement, the Association alleged that MHC was not entitled to a Phase Two rent increase "in excess of $2.67." In the same cause of action, it further alleged that MHC "did not become entitled to a Phase 2 rent increase in any amount because it failed to give 90-days written notice of that amount, as required by the Settlement Agreement." (Italics added.) This language suggests that, pursuant to the terms of the Settlement Agreement, any Phase Two rent increase is contingent on MHCs providing 90 days advance notice of the correct, lawful amount of the increase, not that it could never be charged at any time.
The language quoted above from the complaints prayer for relief is most reasonably construed, therefore, as a request for a declaration and injunction barring enforcement of the September 1999 and September 2000 notices of $7.50 Phase Two rent increases. As explained, the complaint also seeks to limit the Phase Two increase to $2.67, effective 90 days after MHC provides notice of a rent increase of that amount. In the alternative, the complaint seeks to limit the rent increase to $3.72 pursuant to the terms of the 2000 Arbitration Decision.
The Associations litigation conduct discloses that its primary litigation goal was to confirm and enforce the 2000 Arbitration Decision, which set the maximum Phase Two rent increase at $3.72. The Associations first affirmative action in the case, after the trial court had ruled on the cross-demurrers, was to successfully seek confirmation of the 2000 Arbitration Decision by moving for summary adjudication on the third and seventh causes of action. The Association successfully defended that ruling in the prior appeal. The achievement was ultimately confirmed in the terms of the 2006 Settlement Agreement. The success of this position obviously negated any claim that it owed $2.67 for the Phase Two lagoon transfer project work or that it owed nothing until proper notice was issued.
Although the order granting summary adjudication pertained to the Associations third and seventh causes of action for confirmation of the 2000 Arbitration Decision, rather than its second cause of action for violations of the Ordinance, the practical effect of the ruling was to enforce the maximum lawful rent under the Ordinance. When a party obtains a judicial ruling in its favor, the precise legal grounds for the ruling are not dispositive on eligibility for attorney fees. " `Litigants in good faith may raise alternative legal grounds for a desired outcome, and the courts rejection of or failure to reach certain grounds is not a sufficient reason for reducing a fee. The result is what matters. [Citation.]" (City of Sacramento v. Drew (1989) 207 Cal.App.3d 1287, 1303.)
The complaint also included claims for injunctive relief that were closely linked to the claims for a cap on the Phase Two rent increase. The Association sought an injunction preventing MHC from enforcing its $7.50 Phase Two rent increase or from taking any steps toward evicting homeowners for failing to pay the increase. The Association ultimately achieved effective success on these claims in the 2006 Settlement Agreement, when MHC agreed to charge no more than $3.72 per month in a Phase Two rent increase, beginning January 1, 2006.
In sum, the Association achieved its primary goal with respect to setting a cap on the Phase Two rent increase through judicial rulings and the 2006 Settlement Agreement.
3. Delay in Commencement of the Phase Two Rent Increase
As we explained above, the Associations claim for a delayed commencement of the Phase Two rent increase appeared to be based on the argument that MHC failed to give written notice of the correct amount of the Phase Two rent increase "as required by the Settlement Agreement." The claim was linked to the Associations claim that the maximum Phase Two rent increase should be $2.67. By seeking confirmation of the 2000 Arbitration Decision early in the litigation, the Association essentially abandoned these claims. The 2000 Arbitration Decision declared that the $3.72 rent increase was retroactive to January 1, 2000.
The Association, however, was ultimately successful in delaying the effective date of the $3.72 rent increase. It did not achieve that success by way of one of its causes of action. As just explained, once it obtained confirmation of the 2000 Arbitration Decision, it had no factual or legal ground to argue for a delay in the effective date in the rent increase. Therefore, its ultimate success on the issue must be seen as a gain it achieved in overall settlement of the action. The delay had a financial value to the Park homeowners: not only did the delay relieve many homeowners of having to make a large lump sum payment (the amount they owed for the Phase Two rent increase for six years from January 1, 2000 to January 1, 2006), but the delay also reduced the real cost of the payments because of the time value of money (the homeowners could earn interest on the money or otherwise put the money to use during the period between January 1, 2000 to January 1, 2006). In sum, the delay was a financial gain that must be considered when we assess what each party achieved in the final settlement of the action (an issue we address below).
4. Compensatory Damages
The complaint includes a demand for unspecified compensatory damages and for restitution of money MHC collected pursuant to the $7.50 Phase Two rent increase notices and any other money MHC improperly acquired. As explained above, early in the litigation the Association abandoned its claims that it owed only $2.67 (or nothing) for the Phase Two rent increase. Therefore, the demand for compensatory damages simply encompasses any amounts MHC collected and retained in excess of the $3.72 Phase Two rent increase approved by the arbitrator. The Association achieved this litigation goal in the 2006 Settlement Agreement, which provided that any such sums were to be refunded or credited to the affected homeowners.
5. Treble Damages
The Associations claim for treble damages was uncertain on several grounds. First, it was committed to the trial courts discretion under the Ordinance whether to award any additional damages over and above compensatory damages. Second, even if the trial court decided to exercise its discretion to award additional damages, the amount of such an award was also discretionary: the court could award "not more than" three times the total monthly lot rent demanded by the operator from each homeowner. Third, it was not clear from the plain language of the Ordinance whether treble damages could be awarded for each month in which an alleged violation occurred or whether the maximum treble damages award was three times one months total rent.
The Association actively pursued treble damages during the litigation. In April 2003, the Association sought and obtained class certification for purposes of its second cause of action for violations of the Ordinance. The parties conducted discovery on the claim. The tide apparently changed when the trial court granted summary adjudication of the Associations first cause of action. The Association admits that the courts ruling wiped out any claim for treble damages based on MHCs excessive rent demands before May 2004. All that remained was a potential treble damages claim based on excess rent that was actually collected and retained by MHC. The magnitude of the claim was substantially decreased.
When the Association settled the action in 2006, it did not obtain any treble damages payments. It did, however, obtain a delay in the commencement date of the Phase Two increase, which had financial value and did not arise from any still-viable claim asserted by the Association in its complaint. Therefore, the delay in the commencement date can be seen as a trade-off for the abandonment of the Associations treble damages claim.
6. Overall Success
The Association was successful in setting the maximum Phase Two rent increase at $3.72 and in obtaining compensatory damages (restitution) for amounts collected and retained in excess of that amount. The Association did not collect treble damages, but it obtained a delay in the commencement date of the Phase Two rent increase, which translated into a concrete financial dividend to the homeowners. In light of these overall results, the trial court reasonably concluded the Association was the prevailing party under the Rent Ordinance.
Alternatively, the Association achieved partial success and was appropriately awarded fees for its efforts in achieving that success. Plaintiffs who prevail on any significant issue are prevailing parties; partial success is a factor to be considered in determining the amount of a fee award, not the partys entitlement to fees. (Lyons v. Chinese Hospital Assn. (2006) 136 Cal.App.4th 1331, 1345-1346.) The Association obtained a judicial ruling in its favor on the validity of the 2000 Arbitration Award and, pursuant to the terms of the 2006 Settlement Agreement, its fee award was limited to its work on obtaining those rulings. For the reasons stated above, confirmation of the 2000 Arbitration Award amounted to enforcement of the maximum lawful additional rent chargeable under the Ordinance for Phase Two of the lagoon transfer project and, thus, fees were properly awarded for that work pursuant to the Rent Ordinance.
B. Phases of the Litigation
MHC characterizes the litigation as proceeding in two phases — before and after the Supreme Court denied review of our opinion in the prior appeal — and argues it prevailed on the Ordinance claims in the second phase. MHC, however, cites no legal authority for such a bifurcated approach to litigation success. Nevertheless, we assume for purposes of argument that the litigation may appropriately be analyzed in two phases as MHC proposes. We disagree that MHC prevailed in the second phase. As previously explained, once the 2000 Arbitration Decision was confirmed, the Associations remaining claims for relief included compensation for any amounts paid for the Phase Two rent increase in excess of $3.72 a month and treble damages under the Ordinance. Also as previously explained, the claim for treble damages was very uncertain. The Association achieved compensation for all amounts paid for the Phase Two rent increase before January 1, 2006, and additional monetary relief for all homeowners (whether or not they had ever paid the Phase Two rent increase) in the form of a delayed commencement date for the Phase Two increase. Under these circumstances, the trial court reasonably concluded that MHC was not a prevailing party under the Ordinance: the evidence supports a conclusion that either there was no prevailing party in the so-called second phase of the litigation or the Association prevailed.
C. Effect of the Federal Court Decision
At oral argument, while discussing the effect of the January 2008 federal court ruling on this appeal, MHC argued that the award of fees to the Association under the Ordinance must be reversed under the doctrine of collateral estoppel (issue preclusion) because the Ordinance has been declared invalid by the federal court. We deem the issue forfeited.
In the trial court, MHC did not argue the unconstitutionality of the Ordinance as a basis for denying fees under the Ordinance. Ordinarily, an argument may not be raised for the first time on appeal. (Ward v. Taggart (1959) 51 Cal.2d 736, 742.) At oral argument, MHC noted that it could not have made its issue preclusion argument in the trial court because the federal court had not yet declared the Ordinance unconstitutional. However, MHC could have made the underlying substantive argument that the fee provision of the Ordinance was unenforceable because the Ordinance was unconstitutional. We recognize that the constitutionality of the Ordinance was being litigated in federal court with the full awareness of all parties. MHC fails to demonstrate, however, how it preserved the constitutionality issue in this action with respect to the attorney fees issue. Notably, MHC had already settled the merits of this action in the 2006 Settlement Agreement; the trial court had entered judgment on the merits; and the judgment had become final. (The judgment became final when no appeal was taken within 60 days from the date the Association served notice of entry of judgment on July 6, 2006). As to the merits of this action, therefore, the constitutionality issue was not preserved. While the attorney fees ruling on appeal here has not become final, MHC has not pointed to any measures it took to preserve the constitutionality issue as a defense to the fee award.
We may exercise our discretion to consider an argument raised for the first time on appeal if it involves a pure question of law. (Hussey-Head v. World Savings & Loan Assn. (2003) 111 Cal.App.4th 773, 783, fn. 7; Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2007) ¶ 8.240.1 at p. 8-139 (Rev. #1 2007).) It is not self-evident, however, that the issue MHC wishes to raise for the first time on appeal is a pure question of law. First, in federal court MHC attacked the constitutionality of the Ordinance as applied: the issue was not a pure question of law. Of course, MHC does not propose to relitigate those factual issues in this action. Nevertheless, whether issue preclusion applies to the fee award may also involve factual disputes. At oral argument, the Association contended that the release of claims in the 2006 Settlement Agreement precluded MHC from raising new issues related to the federal case during the fee litigation, including both the constitutionality of the Ordinance and the preclusive effect of a federal ruling. The plain language of the 2006 Settlement Agreement does not clearly dispose of the Associations contention and the Association has not had an opportunity to brief the issue. Therefore, we cannot confidently say that MHCs argument raises pure questions of law. We decline to entertain the argument for the first time on appeal.
In any event, MHC further forfeited its argument by failing to raise it on appeal before oral argument. Indeed, it can be inferred from the briefs that MHC made a deliberate tactical decision not to raise the issue preclusion argument with respect to the fee award under the Ordinance before oral argument. In both its opening and reply brief, MHC argued vigorously that the award of fees under Code of Civil Procedure section 1021.5 was barred by the then-tentative federal court ruling: it argued the ruling had preclusive effect on the issue of whether the Association enforced an important right affecting the public interest by prevailing in this action, a prerequisite to an award of fees under section 1021.5. MHCs briefs, however, did not make the issue preclusion argument with respect to the fee award under the Ordinance. In fact, as to its own claim to fees under the Ordinance, MHC argued the federal court ruling did not preclude a fee award. Having had ample opportunity to raise the issue in its briefs and having failed to do so, the issue is forfeited. (Cf. REO Broadcasting Consultants v. Martin (1999) 69 Cal.App.4th 489, 500 [refusing to entertain an argument raised for the first time in a reply brief].)
MHC apparently felt prompted to raise the issue at oral argument by a letter we sent to the parties, which stated the following: "The panel requests that the parties be prepared to discuss the effect of the January 2008 federal court ruling that the San Rafael Mobilehome Rent Stabilization Ordinance is unconstitutional."
We also reject MHCs argument that the federal ruling somehow entitled it to fees under the Ordinance in this action. MHC analogizes from the rule that, in an action on a contract that includes an attorney fee provision, a defendant who prevails by demonstrating the contract is invalid is nevertheless entitled to fees under the contract. (Sessions Payroll Management, Inc. v. Noble Construction Co. (2000) 84 Cal.App.4th 671, 678.) We assume for purposes of argument that the same rule would apply in an action on a statute that includes a fee-shifting provision. (See, e.g., Mt. Hood Beverage Company v. Constellation Brands, Inc. (2003) 149 Wash.2d 98, 120-122 [holding defendant who successfully defends action by demonstrating the statute is unconstitutional may recover fees as the prevailing party under a fee-shifting provision of the same statute].) The rule does not assist MHC. The Ordinance authorizes an award of fees to a party that prevails in an action brought under the Ordinance. For the reasons stated above, the Association, not MHC, prevailed in this action. Judgment was entered on the merits of the action in 2006 and became final two months later. The federal court rulings in 2007 and 2008 did not change the fact that the Association prevailed in this action. That MHC prevailed in the federal action by demonstrating that the Ordinance was unconstitutional does not entitle it to attorney fees in this action.
IV. Fees On Appeal
Ordinarily, parties who are entitled to a fee award are also entitled to fees they incur in litigating the fee issue. (See Bouvia v. County of Los Angeles (1987) 195 Cal.App.3d 1075, 1086, fn. 9; Phipps v. Saddleback Valley Unified School Dist. (1988) 204 Cal.App.3d 1110, 1123, fn. 10; Lyons v. Chinese Hospital Assn., supra, 136 Cal.App.4th at p. 1356.) MHC argues, however, that the terms of the 2006 Settlement Agreement limited the Association to a total fee award of no more than $375,000. The Association, on the other hand, argues the $375,000 limit only applied to its initial request for fees, not for additional fees incurred in litigating the fee issue.
The 2006 Settlement Agreement provides in paragraph 3.4: "the Parties have agreed to submit to the Court the question of whether either Partys counsel is entitled to attorney fees in connection with this Action." They further agreed that, "with respect to the fee applications identified in Paragraph 3.4, above, Plaintiffs Counsel shall not seek to recover more than $375,000 in attorneys fees and costs, and any such fee application or recovery by Plaintiffs Counsel shall be limited to those fees that Plaintiffs Counsel incurred in connection with the Action up through the Courts December 18, 2001 Order, as well as any subsequent appeals from that December 18, 2001 Order."
This language is susceptible to conflicting interpretations: that the $375,000 limit applies only to the initial fee application in the trial court or that it applies to the total fees the Association sought to recover in connection with this action. Ambiguities are often resolved against the drafter of a contract, who bears the responsibility for failing to clarify the terms of the agreement. (Moss Dev. Co. v. Geary (1974) 41 Cal.App.3d 1, 10; Civ. Code, § 1654.) The 2006 Settlement Agreement, however, provides that it "reflects the joint drafting efforts of all parties to this Agreement and any ambiguities in this Agreement shall not be construed against any party to this Agreement." Parol evidence is admissible to resolve an ambiguity in a contract, even when as here the contract is integrated. (Casa Herrera, Inc. v. Beydoun (2004) 32 Cal.4th 336, 343; Code Civ. Proc., § 1856.) MHC, however, does not proffer any parol evidence that might clarify the ambiguity.
"If a contract is susceptible to more than one interpretation, and if the ambiguity is not eliminated by extrinsic evidence, the court is bound to give the contract `. . . such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties. [Citations.]" (Moss Dev. Co. v. Geary, supra, 41 Cal.App.3d at pp. 9-10.) We conclude that the most reasonable interpretation is that the ordinary rules regarding attorney fee awards would apply. The ordinary rule, cited above, is that a party who prevails on appeal in obtaining a fee award is entitled to recover its fees for litigating the appeal. In the absence of express language altering that rule in the terms of the 2006 Settlement Agreement, the most reasonable construction of the agreement is for it to be consistent with the ordinary rule. Therefore, we conclude the terms of the 2006 Settlement Agreement do not bar an award of attorney fees for litigating this appeal of the fee award.
Disposition
The order on the attorney fees motions is affirmed. The Association is entitled to its fees and costs on appeal.
We concur:
JONES, P. J.
SIMONS, J.