Donovan Smith HOA v. Donovan Smith MHP, LLC

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
Donovan Smith HOA, )
)
Appellant, )
)
v. ) C.A. N0. Sl7A-06-001 MJB
)
Donovan Smith MHP, LLC, )
)
Appellee. )
Submitted: September l, 2017
Decided: December 19, 2017
Upon Appellcmts ’ Appealj$'om the Decision of the Arbitrator, AFFIRMED.
OPINION
Brian S. Eng, Esq., Community Legal Aid Society, Inc., 840 Walker Road, Dover, Delaware
19904, Attomey for Appellant.
Seth L. Thompson, Esq., Sergovic Carmean Weidman McCartney & Owens, P.A., 406 S.
Bedford Street, Suite l; P.O. Box 751, Georgetown, Delaware 19947, Attorneyfor Appellee.
BRADY, J.
I. INTRODUCTION
Before the Court is an appeal by the residents of the Donovan Smith Manufactured Home
Park (“Homeowners”) from a decision by an Arbitrator to allow Donovan Smith MHP, LLC
(“Donovan Smith”) to impose a rent increase greater than the CPI-U.l The Arbitrator found that
Donovan Smith had met the statutory requirements to increase the rent in the amount requested2
Following appeal and briefing, the matter was referred for consideration on September 1,
2017. This is the Court’s decision.
II. STANDARD OF REVIEW
While there has been some question about the proper standard of review of the arbitration
process provided by this statute,3 the parties appear to agree that the standard used in an
administrative appeal as applicable That is, the standard is whether the decision of the
Arbitrator is supported by Substantial evidence4 and free from legal error.5 The Court has a
limited role when reviewing a decision by an administrative agency. If the decision is supported
by substantial evidence and free from legal error, the decision will be affirmed6 Substantial
7
evidence is evidence that a reasonable person might find adequate to support a conclusion.
Freedom from legal error exists when the agency “applied the relevant legal principles.”8 The
' This is defined in the statute as the “average annual increase in the Consumer Price 1ndex for All Urban
Consumers in the Philadelphia-Wilmington-Atlantic City area. .. for the most recently available 36-month
period.” 25 Del. C. §7043.
2 The rent prior to the requested increase was $447.60. The request was to raise the rent to $477.50, an increase of
$29.90. The figures in the Arbitrator’s Report were incorrect.
3 See December Corp. v. Wild Meadows Home Owners Ass 'n, 2016 WL 3866272 (Del. Super. July 12, 2016).
4 General Motors Corp. v. Freeman, 164 A.2d 686, 689 (Del. 1960).
5 Boone v. Syab Serv./Capitol Nursing, 2012 WL 386]059, *1 (Del. Super. Ct. Aug. 23, 2012).
° See General Motors Corp, 164 A.2d, at 688; Sirkin andLevine v. Timmons, 652 A.2d 1079 (Del. Super. Ct. 1994).
7 Oceanport lndus. [nc. v. Wilminglon Slevedores, Inc., 636 A.2d 892, 899 (Del. 1994).
8 Slale v. Kasi, 1994 WL 637028, at *4 (Del. Super. Ct. Mar. 1 1, 1994).
2
agency determines credibility, weighs evidence and makes factual findings.9 This Court does
not sit as the trier of fact, nor should the Court substitute its judgment for that rendered by the
agency.10 The Court must affirm the decision of the agency, if properly supported, even if the
Court might have, in the first instance, reached an opposite conclusion ll Only when there is no
satisfactory proof in support of a factual finding of the agency may this Court overturn it.12
III. THE ARBITRATION HEARING13
The arbitration was conducted in a less formal fashion than a trial proceeding, but was
structured to allow each party to present witnesses and evidence, conduct cross-examination and
present final argument. Neither side was represented by an attorney at the hearing.
The Arbitrator invited the Homeowners to proceed first as they were challenging the rent
increase14 Ms. Terry Saunders,15 representing the interests of the Homeowners, testified briefly
regarding health and safety concerns at the park, a lack of amenities and landscaping, and of
generally poor conditions16 She acknowledged, however, that Donovan Smith had not been
cited by any governmental or regulatory agency for health or safety violations.17 She then called
J ames McCarty as a witness. Mr. McCarty, a resident, spoke regarding the communities that
Donovan Smith had claimed were comparable in a letter to the Homeowners.18 Mr. McCarty
9 Johnson v. Chrjysler Corp., 213 A.2d 64, 66-67 (Del. 1965).
'° ld. at 66. (also see City of Newark v. Unemployment ]ns. Appeal Bd., 802 A.2d 318, 323 at *2 (Del. Super. Ct.
2002)).
" Slraley v. Advanced Stajj‘z``ng, 2009 WL 1228572, *2 (Del. Super. Ct. Apr. 30, 2009) (citing PAL of Wilmington v.
G)'aham, 2008 WL 258986, at *3 (Del. Super. Ct. Jun. 18, 2008).
'2 Johnson., 213 A.2d, at 67.
’3 The parties agree all procedural provisions under the statute required to precede a hearing were completed
'4 Tr. of Arbitration Hearing, at 8 (Apr. 20, 2017) (hereinafter, “Arbitration Tr.”).
‘5 At some points in the proceedings she is referred to as Dr. Saunders, but it is unclear if she is a physician or PhD.
Active or retired.
'6 Arbitration Tr., at l3-14.
'7 ld. at 20-21.
'8 The two communities referenced in the letter were McNichol Place and Whispering Pines. While there was also
testimony regarding the Love Creek Community, l\/ls. Saunders objected to consideration of that information
3
also testified that the other communities included water, sewer and trash in the rents charged.19
While Mr. McCarty thought Donovan Smith’s property was less attractive, and not as well
manicured,20 he testified that McNichol Place was a community “along the Same lines of
Donovan Smith.”21 When asked to compare that community to Donovan Smith, he testified that
McNichol Place was “Similar. l can’t say better.”22
Mr. Kenneth Burnham represented the interests of Donovan Smith, He called Ms.
Jacqueline Mcllvain, office manager for Donovan Smith, who testified that Donovan Smith
currently charged $447.60 per month, which included water, sewer and trash expenses. She also
testified that the McNichol Place, Whispering Pines and Love Creek Communities were
comparable to Donovan Smith.23 She had researched rents at those parks and found they
exceeded Donovan Smith by a substantial amount.24 She further testified that the most similar
community was McNichol Place because, like Donovan Smith, it was older and did not offer a
pool, community center or recreation area.25 Ms. Mcllvain also testified that in the previous year
Donovan Smith had installed paved driveways in each unit in the park and painted the
maintenance building.26
Following testimony, each party presented argument. Mr. Burnham argued the
improvements established that the rent increase was directly related to increased expenses for the
because Donovan Smith had not notified the Homeowners that it would be considered The Arbitrator, however,
ruled the information would be considered because the Love Creek community had been discussed in the meeting
with the Homeowners, which took place before the arbitration. See Arbitration Tr., at 35.
"’ ld. at 24.
20 [d
21 ]d
22 [a'. at 30.
23 [d. at 36.
24 Speciflcally, the rents were reported to be as follows: McNichol Place, $570/mo., not including water, sewer and
trash; Whispering Pines, $535/mo., not including water, sewer and trash; Love Creek $530/mo., including water,
sewer and trash.
25 Arbitration Tr., at 46.
26 [d. at 46-48.
improvement and maintenance of the community. Further, he contended that Donovan Smith
had established that a market rent increase was justified based on the testimony regarding the
comparable communities and the rents charged in those communities
Ms. Saunders argued the comparison between communities showed that Donovan Smith
was not as well-maintained or in as good condition as the others being used for comparison She
further argued that Donovan Smith had not shown that expenses had increased or that Donovan
Smith was having trouble “balancing the books.”27 Further, that the whole purpose of the law
was to balance the interests of the Homeowners and Donovan Smith and to prevent undue
hardship on residents.
As noted above, the Arbitrator found that the statutory requirements were met and the
rent increase was justified. The Arbitrator also commented in the decision that, in his opinion,
this community, which was only populated year round by approximately 50% of the
homeowners, was not the kind of community the law was intended to benefit.28
IV. APPLICABLE LAW
The Rent Justification Act requires several factors be shown before Donovan Smith may
increase rent above CPl-U.29
First, the community owner must not have been found, in the most recent 12 months, to
be in violation of any provision that “threatens the health and safety of the residents” for more
than 15 days after notification of the violation.30
27 ld. at 61.
28 His reasoning appears to be that, if the intent of the law is to provide restrictions on rent increases so persons of
limited or fixed means do not lose their home, those persons who can afford two homes don’t need the protection
29 See 25 Del. C. §§7040-7046.
30 25 Del. C. §7042 (a)(l).
Second, the proposed rent increase must be “directly related to operating, maintaining, or
improving the manufactured home community.”3 1
Third, if the previous two requirements are met, the rent increase must be justified by one
or more of eight specific, listed factors To specifically justify a rent increase based on market
rent, those factors include capital improvements changes in taxes, insurance, utility expenses,
extraordinary repairs or adjustment for market rent increases32
In order to properly determine whether an increase is justified to meet market rent
increases, “relevant consideration include rents charged to recent new homeowner entering the
subject manufactured home community and/or by comparable manufactured home communities
To be comparable, a manufactured home community must be within the competitive area and
must offer similar facilities, services, amenities and management.”33
V. PARTIES’ CONTENTIONS
On appeal the Homeowners argue that Donovan Smith was required, and failed, to prove
the rent increase was directly related to operating, maintaining or improving the community and
that the amount requested was the appropriate market rent for Donovan Smith.
The Homeowners further argue that the Arbitrator erred by shifting the burden of proof to
the Homeowners, by considering factors outside those provided by statute, and in his
interpretation of the statute,
31 25 Del. C. §7042 (a)(z)
32 25 Del. C. §7042(c)(7).
33 [d_
Finally, the Homeowners argue that Donovan Smith failed to show their “profits were
down because their costs were up,” and that, therefore, the Arbitrator’s decision to grant the rent
increase was erroneous
Donovan Smith argues the Arbitrator did not shift the burden of proof, that his ruling was
not erroneous, and that his interpretation of the language was consistent with the purpose of
statute and case law.
VI. ANALYSIS
The Court finds that the Arbitrator’s decision was supported by substantial evidence and
free of legal error. Further, that the Arbitrator did not shift the burden of proof, and did not
consider matters outside the stature, and even if he did, that it did not affect the integrity of the
ruling.
The evidence before the Arbitrator included testimony regarding the completion of some
regular maintenance, the painting of a maintenance building, and capital improvements to
Donovan Smith, the paving of a driveway for each unit in the community. The Homeowners
argue, in essence, that Donovan Smith should have been required to open its books to inspection,
in order to establish the owner’s bottom line was affected by the work they did. The Court does
not find that was the intent or purpose of the statute. The statute imposes some significant
requirements on an owner to justify a rent increase - they cannot do so if they are allowing
conditions to affect the health and safety of the residents; they are not allowed to do so unless
they incur expenditures beyond routine maintenance or to improve the community; and they are
not allowed to increase the rent beyond the market tolerances in the same competitive
environment Nothing in the statute, however, requires that the private owner expose its
financial information to public scrutiny. While the intent of the statute is to maintain the same
relative return on the property that the owner was satisfied to receive before the statute took
effect,34 there is no requirement that it be a penny for penny or dollar for dollar analysis, at least
in these circumstances when the owner is seeking to justify the increase based on market rent.
The Court leaves open the question whether such an analysis would be appropriate if the
justification was to recoup increased expenses for taxes, insurance, capital improvements or
some extraordinary rehabilitation work.
Donovan Smith also established there was a discrepancy in the market rents charged in
comparable communities The communities, particularly McNichol Place, were agreed by all to
be comparable, and even excluding the evidence regarding the Love Creek community (to which
the Homeowners objected), the evidence showed a significant difference between what Donovan
Smith charged in rent and what the other communities charged. There was substantial evidence
to support the Arbitrator’s findings
The Court further finds that the Arbitrator did not alter the appropriate burden of proof.
While the Arbitrator did invite the Homeowners to proceed with their presentation first, the
findings he entered applied the burden to Donovan Smith to establish the justification for the rent
increase. No burden to establish the request was n_ot justified was imposed on the Homeowners,
nor did the Arbitrator find they did not meet such a burden. The Homeowners have not shown
they suffered any prejudice or were precluded from presenting any evidence because of the order
of presentation of testimony or argument.
Finally, the Arbitrator did not err in his interpretation of the statute. The requirements of
the statute were met. While the Arbitrator did question the applicability of the statute to a
34 Bon Ayre Land, LLC, v. Bon Ayre Community Association, 149 A.3d 227 (Del. 2016).
8
community in which many of the homes were not primary residences, the evidence presented
clearly established that the requirements of the statute were met and the rent increase was
justified The Court finds no error in the fact that the Arbitrator made the comment in question.
VII. CONCLUSION
For the foregoing reasons, the Court finds the decision of the Arbitrator is AFFIRMED.
IT IS SO ORDERED.
L'MMAQ
M. Jal(:_§)lady
Superio .ourl Judge