Delaware Manufactured Home Owners Association v. Investors Realty, Inc.

IN THE SUPREME COURT OF THE STATE OF DELAWARE
DELAWARE MANUFACTURED §
HOME OWNERS ASSOCIATION, § No. 408, 2017
GEORGE MAKDAD, and §
BREANNA WALTZ, § Court Below: Court of Chancery
§ of the State of Delaware
Plaintiffs Below, §
Appellants, § C.A. No. 2017-0111
§
v. §
§
INVESTORS REALTY, INC., §
ST. JONES LANDING, LLC, §
K-4 MANAGEMENT, and §
DELAWARE MANUFACTURED §
HOME RELOCATION §
AUTHORITY, §
§
Defendants Below, §
Appellees. §
Submitted: April 11, 2018
Decided: May 31, 2018
Before STRINE, Chief Justice; VALIHURA and VAUGHN, Justices.
ORDER
On this 31st day of May 2018, upon consideration of the parties’ briefs and the
record on appeal, it appears to the Court that:
(1) This case arises from a change in use of a manufactured home
community. Prior to the change, each tenant placed a manufactured home which
the tenant owned upon a lot owned by the landlord and leased to the tenant. The
change converted the community into one in which the tenant leased both the lot and
the dwelling unit from the landlord. Appellants, Delaware Manufactured Home
Owners Association (“the Association”), George Makdad, and Breanna Waltz,
appeal from a Court of Chancery bench ruling which denied their motion for an
injunction to prevent the change of use. Appellants contend the Court of Chancery
erred by finding that the change was legally permissible; that Appellees’ notice to
tenants of the change was legally sufficient; and that the Association had no standing
to pursue claims.
(2) Appellee St. Jones Landing, LLC, (“St. Jones”) is the owner of the land
which is the subject of this litigation. As mentioned, it operated as a “land lease
only” community in which the tenant owned the manufactured home but paid rent
to St. Jones for the lot on which the home was placed. Appellee K-4 Management
(“K-4”) was the property management company which ran the day-to-day operations
of St. Jones. Appellee Investors Realty, Inc., is a dealer of manufactured homes but
had no management or ownership role in St. Jones.
(3) On March 4, 2016, K-4 sent notice letters to the St. Jones tenants
leasing Lots 1-10 and 62-65 (“First Notice”). The First Notice advised the tenants
that St. Jones and K-4 planned to change the use of the St. Jones land upon which
their manufactured homes were situated. The tenants were notified that their land
lease agreements with St. Jones were being terminated effective March 31, 2017.
2
Sent along with the First Notice was a Relocation Plan. Simultaneously with the
service of the First Notice on the tenants, K-4 sent a copy of the First Notice and the
Relocation Plan to the Delaware Manufactured Home Relocation Authority (“the
Authority”). This was to be Phase I of the land use change.
(4) On August 22, 2016, K-4 sent notice letters to the St. Jones tenants
leasing Lots 11-16, 41, and 50-56 (“Second Notice”). The Second Notice advised
the tenants of the proposed change in use and notified the tenants that their land lease
agreements with St. Jones were being terminated effective August 31, 2017. A
Relocation Plan accompanied the Second Notice. As was done with the First
Notice, K-4 sent a copy of the Second Notice and Relocation Plan to the Authority.
This was to be Phase II of the land use change.
(5) The lots in Phase I and Phase II were being changed from a land lease
only arrangement to a full rental arrangement under which St. Jones would own the
dwelling unit and the lot–both of which would be rented to a tenant. The First and
Second Notices informed tenants that St. Jones was changing from a manufactured
home park to an “apartment style lease project.”1
(6) On February 14, 2017, Appellants filed a Verified Complaint, Motion
for Expedited Proceedings, and Motion for Preliminary Injunction against
1
App. to Appellant’s Opening Brief at A21 & A36.
3
Appellees. The injunction request sought to stop the eviction of the Phase I and
Phase II tenants, stop all relocation payments from the Authority, and stop St. Jones
from doing any new construction to replace the current manufactured homes with
new ones. Appellants sought penalties for Appellees alleged violations of the
Manufactured Home Owners and Community Owners Act (“Act”).2
(7) The Court of Chancery heard oral argument on the Motion for
Preliminary Injunction on September 6, 2017. In its decision on that motion, the
Court of Chancery found: St. Jones’ intended change of the use of the land was a
permissible basis for terminating the tenants’ leases under the Act; the First and
Second Notices complied with the Act; Appellants failed to demonstrate irreparable
harm; the Association lacked organizational standing; and the injunctive claims were
moot as all tenants, including Appellants Makdad and Waltz, because they had
moved or were in the process of voluntarily moving from St. Jones. The parties
then submitted, and the Court of Chancery approved, a stipulation for entry of final
judgment. This appeal followed.
(8) All tenants in Phase I and Phase II of St. Jones, including Appellants
Makdad and Waltz, have relocated, with the assistance of relocation funds made
available by the Authority. Relocation funds are paid under a statutorily created
2
25 Del. C. §§ 7001–7027.
4
program of state financial assistance to tenants who have to relocate due to a change
in the use of a manufactured home community. The land–lease only to landlord-
tenant change has been completed.
(9) We review the denial of a motion for a preliminary injunction under the
abuse of discretion standard.3 However, we review the Court of Chancery’s legal
conclusions de novo.4 In order for the Court of Chancery to issue a preliminary
injunction the plaintiff must show: a reasonable probability of success on the merits;
that irreparable harm will follow should the injunctive relief not be granted; and that
the equities balance in plaintiff’s favor.5
(10) In this appeal, Appellant’s first two arguments challenge the Court of
Chancery’s legal conclusions in interpreting several provisions of the Act. Issues
of statutory construction and interpretation are reviewed de novo.6 First, we must
determine whether the statute is ambiguous.7 If it is not, we assign the statute its
plain meaning.8 If the statute is susceptible to two reasonable interpretations, then
we must consider the statutory scheme as a whole and interpret the statute in a
3
Lawson v. Meconi, 897 A.2d 740, 743 (Del. 2006).
4
Id. (citations omitted).
5
SI Management L.P. v. Wininger, 707 A.2d 37, 40 (Del. 1998) (citations omitted).
6
CML V, LLC v. Bax, 28 A.3d 1037, 1040 (Del. 2011).
7
Id. at 1041.
8
Id.
5
manner that will “produce a harmonious whole.”9
(11) Section 7010(a)(1) of the Act regulates termination of rental
agreements in manufactured home communities and changes in the use of such
communities. Specifically, of relevance to this case, it allows a landlord to
terminate a lot rental agreement in a manufactured home community when the
landlord intends to make a “change in the use of the land” in good faith.10
(12) The Appellants first argue that the Court of Chancery erred in finding
the Appellee’s proposed change in the use of St. Jones Landing to be a “change in
the use of the land.”11 They argue that a “change in the use of the land” means a
change in a subdivision plan or a zoning designation, neither of which have occurred
here.12
(13) The phrase “change in the use of the land” is not explicitly defined by
the Act. The Appellants draw their definition from § 7010(c)(2). That section
provides that prima facie evidence exists that the owner did not intend in good faith
to change the use of the land where the owner resumes lot rentals for manufactured
homes within seven years of terminating tenants leases and did not make “a material
9
Id.
10
25 Del. C. § 7010(a)(1).
11
Id.
12
§ 7010(c)(2).
6
and bonafide effort to change the subdivision plan or zoning designation, or both.”13
(14) The Court of Chancery rejected the Appellant’s contention that a
change in the use of the land must include a material and bonafide effort to change
a subdivision plan or zoning designation. It reasoned that a change from owner
occupied manufactured homes on rented lots to landlord ownership of both the lot
and the dwelling unit resulted in a materially different use of the land. It also
reasoned that this conclusion was supported by the fact that the legal relationship
between St. Jones and the residents would no longer be governed by the Act. Since
the relationship between St. Jones and the residents would now be one purely of
landlord-tenant, the Residential Landlord-Tenant Code in Part III of Title 25 would
apply, not the Act, which is in Part VI of Title 25. We find no error in the Court of
Chancery’s reasoning and agree that the change in use involved here is a change in
use under the Act. Title 25 § 7010(c)(2) simply provides a statutory prima facie
instance where the landowner did not intend in good faith to change the use of the
land. It is not applicable to the facts of this case.
(15) The Appellants next argue that the Court of Chancery erred in finding
that Appellees’ First and Second Notices complied with the notice requirements in
the Act. They argue § 7010(b)(1)’s requirement that the landowner’s notice
13
Id.
7
“inform[] the tenants of the intended change” in the use of the land means that the
landlord must do so in specific, detailed terms which explain the exact manner in
which the use of the land will be changing. They argue that the notices in this case
failed to meet that standard.
(16) Section 7010(b)(1) requires a landlord who intends to undertake a
change in the use of the land to “[p]rovide all tenants affected with at least a 1-year
termination or nonrenewal notice, which informs the tenants of the intended change
of use and their need to secure another location for their manufactured homes.”14 In
this case, the First and Second Notices informed the tenants that the “intended future
use is an apartment style lease project.”15
(17) The Court of Chancery ruled that § 7010(b)(1) “merely requires a
landlord to provide its tenants with a notice that informs the tenants of the intended
change of use and of their need to secure another location for their manufactured
homes. No degree of specificity is either expressed or implied in that provision.”16
We agree that no degree of specificity is required by the statute. We need not decide
whether the notice can simply inform the tenants that a change in use is intended
without more. We are satisfied in this case that informing the tenants that the
14
§ 7010(b)(1).
15
App. to Appellant’s Opening Brief at A21 & A36.
16
Am. Ex. A to Appellant’s Opening Brief at 50.
8
intended use was an apartment style lease project satisfies the notice requirement.
The Appellants’ contention that the statute requires a more detailed statement is
rejected.
(18) Finally, the Association argues the Court of Chancery erred in finding
it did not have standing to pursue the claims alleged in the verified complaint. All
parties seem to agree that the individual Appellants had standing to assert the claims
brought here. Given this and our disposition of the Appellants’ first two claims, we
need not address the Association’s standing issue.
NOW, THEREFORE, IT IS ORDERED that the judgment of the Court of
Chancery is AFFIRMED.
BY THE COURT:
/s/ James T. Vaughn, Jr.
Justice
9