Enayati v. City of Santa Monica

Filed 9/27/06 Enayati v. City of Santa Monica CA2/7

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SEVEN

APPEAL from an order of dismissal of the Superior Court for the County of Los Angeles, Valerie Baker, Judge. Affirmed.

Law Office of Harold E. Griffin and Harold E. Griffin for Plaintiff and Appellant Andrew H. Enayati.

Marsha Jones Moutrie, City Attorney, Joseph Lawrence, Assistant City Attorney, and Cara E. Silver, Deputy City Attorney, for Defendant and Respondent City of Santa Monica.

David R. Daniels, General Counsel, and Keith J. Kresge, Staff Attorney, for Defendant and Respondent Santa Monica Rent Control Board.

_____________________________

Andrew H. Enayati appeals from the order of dismissal entered after the trial court sustained without leave to amend the demurrers filed by the City of Santa Monica (City) and the Santa Monica Rent Control Board (Board) to Enayati’s first amended complaint for declaratory relief, injunctive relief, mandate and restitution. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

1. Enayati’s Re-entry into the Residential Rental Business

Enayati purchased a four-unit apartment building in Santa Monica in June 2000. On approximately July 7, 2000 Enayati began withdrawing the units from the rental housing market in accordance with the Ellis Act (Gov. Code, § 7060 et seq.),[1] which was enacted to ensure residential property owners are not forced to stay in the residential housing business. (City of Santa Monica v. Yarmark (1988) 203 Cal.App.3d 153, 165 [“The legislative history of the Act consistently demonstrates the purpose of the Act is to allow landlords who comply with its terms to go out of the residential rental business by evicting their tenants and withdrawing all units from the market, even if the landlords could make a fair return, the property is habitable, and the landlords lack approval for future use of the land”].) In September 2003, after the units had been vacated, Enayati decided to re-enter the residential rental business; Enayati notified the Board, registered the units, paid the rent control registration fees and began renting the units.

In early October 2003 the Board sent Enayati a letter informing him he was required to re-rent all the units to the former tenants who had been displaced or pay them six times the rent in effect on the date of withdrawal as punitive damages; his rents would be restricted through July 7, 2006; and he was required to obtain an occupancy permit from the City planning department pursuant to Santa Monica Municipal Code part 4.32.130 (part 4.32.130). Part 4.32.130 (c)(2)[2] provides an occupancy permit shall be granted if the property “is to be used for multifamily rental housing, and the Rent Control Board has certified that the owner has complied with the requirements set forth in Government Code Sections 7060.2 and 7060.4 and with applicable regulations promulgated by the Rent Control Board.” Section 7060.2[3] permits local governments to enact rent control restrictions on a landlord’s re-rental of units that have been withdrawn pursuant to the Ellis Act and was enacted “to insure against the removal of rental units for the sole purpose of circumventing rent control ordinances.” (City of Santa Monica v. Yarmark, supra, 203 Cal.App.3d at p. 168.)

On approximately October 22, 2003 the City planning department notified Enayati that it would not process his occupancy permit application until he had fully complied with the demands set forth in the Board’s letter.[4] The following week Enayati informed two of his former tenants -- Ron Passaro and Lilette Mastro -- they were not entitled to re-rent their units because they had abandoned them while owing rent and damages. The next day the Board again advised Enayati it would not provide the planning department with the Board’s approval for the occupancy permit unless Enayati offered the rental units to all of the former displaced tenants or paid them punitive damages; the Board also notified Enayati that renting the units may constitute a violation of part 4.32.130. The Board was not persuaded by Enayati’s contention Passaro and Mastro were not entitled to re-rent the units or receive payment of damages because they had abandoned their units. On approximately July 13, 2004 Enayati notified the Board he had complied with the Board’s demands under protest and had paid Passaro $4,584 and Mastro $5,286. On August 23, 2004 the determination granting the occupancy permit was issued.

2. Enayati’s Complaint and First Amended Complaint

On May 9, 2005 Enayati filed a complaint for declaratory relief, injunctive relief, mandate and damages against the City and the Board. On July 26, 2005 Enayati filed a first amended complaint substantially similar to the initial complaint except the fifth cause of action was relabeled as one for restitution rather than for damages.

The first and second causes of action for declaratory and injunctive relief were asserted only against the City. Enayati alleged the occupancy permit fee of $1,337.22 is an unconstitutional tax because it exceeds the reasonable cost of providing services necessary for the activity for which the fee is charged and part 4.32.130 is preempted by and conflicts with provisions of the Ellis Act because the Board, not the City, is authorized to implement provisions of the Act. The third and fourth causes of action, brought against only the Board, sought declaratory relief and a traditional writ of mandate. The fifth cause of action for restitution, filed against both the City and the Board, alleged Enayati had been wrongfully compelled to pay punitive damages to Passaro and Mastro as well as the occupancy permit fee of $1,337.22.

3. The City’s and the Board’s Demurrers to the First Amended Complaint

The City demurred to the first amended complaint, arguing in part Enayati had failed to exhaust his administrative remedies and his claims were barred by the statute of limitations. The Board also demurred, asserting Enayati’s causes of action for declaratory relief and mandate were time barred, and characterizing the fifth cause of action as one for damages, not restitution, arguing it was statutorily immune from monetary damages.

The trial court sustained the demurrers without leave to amend, finding Enayati had failed to exhaust his administrative remedies, his claims were barred by the applicable statute of limitations and the Board had statutory immunity. Enayati filed a timely notice of appeal. He challenges only the trial court’s ruling sustaining the demurrers without leave to amend as to the first, second and fifth causes of action.

DISCUSSION

1. Standard of Review

On appeal from an order dismissing a complaint after the sustaining of a demurrer, we independently review the pleading to determine whether the facts alleged state a cause of action under any possible legal theory. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967; Berger v. California Ins. Guarantee Assn. (2005) 128 Cal.App.4th 989, 998.) We give the complaint a reasonable interpretation, “treat[ing] the demurrer as admitting all material facts properly pleaded,” but do not “assume the truth of contentions, deductions or conclusions of law. [Citation.]” (Aubry, at p. 967.) We liberally construe the pleading with a view to substantial justice between the parties. (Code Civ. Proc., § 452; Kotlar v. Hartford Fire Ins. Co. (2000) 83 Cal.App.4th 1116, 1120.) “If the trial court has sustained the demurer, we determine whether the complaint states facts sufficient to state a cause of action. If the court sustained the demurrer without leave to amend, as here, we must decide whether there is a reasonable possibility the plaintiff could cure the defect with an amendment. [Citation.] If we find that an amendment could cure the defect, we conclude that the trial court abused its discretion and we reverse; if not, no abuse of discretion has occurred. [Citation.] The plaintiff has the burden of proving that an amendment would cure the defect.” (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.)

2. Enayati Has Failed To Exhaust His Administrative Remedies with Respect to His Claims Against the City

A party generally must exhaust administrative remedies before resorting to the courts. (Coachella Valley Mosquito & Vector Control Dist. v. California Public Employment Relations Bd. (2005) 35 Cal.4th 1072, 1080; Abelleira v. District Court of Appeal (1941) 17 Cal.2d 280, 292.) “In brief, the rule is that where an administrative remedy is provided by statute, relief must be sought from the administrative body and this remedy exhausted before the courts will act.” (Abelleira, at p. 292.) The rule “is not a matter of judicial discretion, but is a fundamental rule of procedure . . . binding upon all courts.” (Id. at p. 293.) Indeed, the Supreme Court has “emphasized that, ‘Exhaustion of administrative remedies is “a jurisdictional prerequisite to resort to the courts.” [Citation.]’ [Citation.]” (Campbell v. Regents of the University of California (2005) 35 Cal.4th 311, 321.) The exhaustion doctrine, moreover, requires presentation to the administrative agency of the entire controversy between the parties. (Jonathan Neil & Assoc., Inc. v. Jones (2004) 33 Cal.4th 917, 933 [exhaustion requires agency decision of “‘entire controversy’”]; Bleeck v. State Board of Optometry (1971) 18 Cal.App.3d 415, 432 [exhaustion requires “a full presentation to the administrative agency upon all issues of the case and at all prescribed stages of the administrative proceedings”].) “There are exceptions to the exhaustion doctrine. ‘The doctrine is inapplicable where “the administrative remedy is inadequate [citation]; where it is unavailable [citation]; or where it would be futile to pursue such remedy [citation].”’” (Unnamed Physician v. Board of Trustees (2001) 93 Cal.App.4th 607, 620.)

Enayati asserts he was not required to exhaust his administrative remedies because the remedy was inadequate. An administrative remedy is inadequate “if it does not square with the requirements of due process” (Unnamed Physician v. Board of Trustees, supra, 93 Cal.App.4th at p. 620) or if the remedy provides no mechanism to resolve the particular challenge asserted. (See Park ‘N Fly of San Francisco, Inc. v. City of South San Francisco (1987) 188 Cal.App.3d 1201, 1208-1209 [exhaustion doctrine inapplicable when tax ordinance only provided mechanism for appealing classification, not constitutional challenge to ordinance itself]; Action Apartment Assn. v. Santa Monica Rent Control Bd. (2001) 94 Cal.App.4th 587, 611 [landlords not required to exhaust rent adjustment administrative remedies when challenge was to requirement that landlords pay interest rate on security deposits in excess of what banks paid on deposits].)

Enayati contends the remedy was inadequate because he was granted an occupancy permit and there was no reason for him to appeal a favorable determination by the planning director. Part 4.32.130, however, specifically provides, “Any decision of the Planning Director approving, conditionally approving, or denying an occupancy permit may be appealed to the Planning Commission . . . [and] [a]ny decision of the Planning Commission may be further appealed to the City Council . . . .” By appealing, Enayati would have been able to raise his challenge to the validity of the occupancy permit fee and the requirements of part 4.32.130 before the planning commission and city council. Even if not successful on the merits, utilizing the available administrative remedies would have allowed the development of a factual record for review by the courts should the dispute proceed to that stage. (See Jonathan Neil & Assoc., Inc. v. Jones, supra, 33 Cal.4th at p. 932 [policies underlying the exhaustion doctrine are “‘administrative autonomy (i.e., the courts should not interfere with an agency determination until the agency has reached a final decision) and judicial efficiency (i.e., overworked courts should decline to intervene in an administrative dispute unless absolutely necessary)’”].) The fact Enayati was required to pay the occupancy permit fee -- under protest, as he informed the Board -- and obtain a permit to trigger his appeal rights is not unusual (see § 66020 [to protest imposition of certain development project fees, party must pay fee or provide evidence of arrangements to pay fee and file written protest]) or illogical. It ensures that only actual controversies are appealed and litigated.

Enayati also contends the remedy was inadequate because the City failed to identify any authority demonstrating the planning commission or the city council had the discretion to reduce or eliminate the occupancy permit fee. The city council enacted part 4.32.130 and the fee resolution after a study of existing and proposed fees was completed; clearly the city council also had the authority to revoke the ordinance or modify the fee if it were persuaded by Enayati’s arguments. Enayati further contends the remedy was not “economical,” and could only have increased his damages, because the City’s fee of $3,265 per appeal to the planning commission and city council was well in excess of the $1,337.22 fee he is challenging.[5] Enayati cites no authority to support his novel proposition that the cost to exhaust administrative remedies -- presumably less than what Enayati has incurred to pursue his lawsuit -- must be less than the amount in controversy, nor has he separately challenged the appeal fee as unreasonable. (See Sea & Sage Audubon Society, Inc. v. Planning Com. (1983) 34 Cal.3d 412, 419-421 [rejecting contention plaintiffs should have been excused from exhausting administrative remedies because administrative filing fee was unauthorized and excessive].) Alternatively, Enayati asserts, even if the planning department or city council had the discretion to reduce or eliminate the occupancy permit fee, he was excused from exhausting his administrative remedies because his appeal would have been futile: The City has consistently applied the ordinance and collected the fee; it failed to dispute Enayati’s futility argument before the trial court and gave no indication Enayati may have been successful if he had exhausted his administrative remedies. The burden, however, is not on the City to disprove Enayati’s bald assertion his appeal would have been futile, but on Enayati to adduce direct evidence demonstrating further administrative proceedings would have been a sham and, in the end, the City would have inevitably denied his appeal. (Jonathan Neil & Assoc., Inc. v. Jones, supra, 33 Cal.4th at p. 936 [“The futility exception requires that the party invoking the exception ‘can positively state that the [agency] has declared what its ruling will be on a particular case.’”]; Toigo v. Town of Ross (1998) 70 Cal.App.4th 309, 327 [“The futility exception is extremely narrow: ‘[T]he mere possibility, or even the probability, that the responsible agency may deny the permit should not be enough to trigger the excuse. [Citations.] To come within the exception, a sort of inevitability is required: the prospect of refusal must be certain (or nearly so).’”].) That the City has enforced its own ordinance since inception and has not given an indication of its position on Enayati’s challenge is not surprising and certainly insufficient to support the very narrow futility exception.

Pointing to allegations in the first amended complaint that only the Board, not the City, is authorized to implement provisions of the Ellis Act, Enayati also contends the exhaustion doctrine is not applicable because he is challenging the administrative procedures themselves and they are the source of his injury. Enayati’s attack on the City’s implementation of the Ellis Act, however, is not a constitutional challenge to the administrative procedures that supports an exception to the exhaustion requirement. (Bollengier v. Doctors Medical Center (1990) 222 Cal.App.3d 1115, 1127 [“Under this exception, a party is excused from exhausting the administrative remedies where the challenge is to the constitutionality of the administrative agency itself or the agency’s procedure.”]; cf. Bockover v. Perko (1994) 28 Cal.App.4th 479, 486 [general rule of exhaustion forbids a judicial action when administrative remedies have not been exhausted, even as to constitutional challenges].) Enayati’s only constitutional challenge is that the occupancy fee is in actuality a tax in violation of article XIII and/or XIIID of the California Constitution because it exceeds the reasonable cost of the services for which the fee is charged. His allegation the City is not authorized to implement the Ellis Act is a component of his claim that part 4.32.120 conflicts with and is preempted by the Ellis Act. Even if it could be characterized as a challenge to the City’s administrative procedures, it nevertheless is not a constitutional challenge within the meaning of this exception to the exhaustion requirement.

Finally, citing Professional Fire Fighters, Inc. v. City of Los Angeles (1963) 60 Cal.2d 276, 287 (Professional Fire Fighters), Enayati contends it is unnecessary to exhaust local administrative remedies when the challenged municipal ordinance is in conflict with state law.[6] In Professional Fire Fighters, at pages 279-280, the fire fighters’ union brought an action under the Labor Code alleging the City of Los Angeles had discriminated against employees who had joined a particular union. The city contended the Labor Code was invalid because, among other reasons, it conflicted with the California Constitution and the city’s charter, laws and regulations and “constitute[d] an unlawful and arbitrary inference with the legislative and administrative discretion of the City of Los Angeles and its Board of Fire Commissioners in the organization, control, regulation, supervision and managements” of its fire department and fire department employees. (Id. at p. 280.) The Supreme Court held the union could sue the city for discrimination without exhausting the administrative remedies created by the board of fire commissioners in regulations that conflicted with valid and applicable provisions of the Labor Code. (Id. at p. 287 [“[T]he legal remedies which the trial court would require plaintiffs to exhaust before granting relief herein are the creatures of local enactment which are valid and binding on plaintiffs only if Labor Code sections 1960-1963 are inapplicable to defendant.”].)

In the case at bar, the conflict alleged by Enayati between part 4.32.130 and the Ellis Act is not a complete conflict between a state statutory scheme and municipal regulations as was the case in Professional Fire Fighters. Essentially, what Enayati alleges is the City should not be involved in administering the Ellis Act; he does not assert the requirement to obtain an occupancy permit or the administrative process prescribed for reviewing a decision involving an occupancy permit is preempted by the Ellis Act. Consequently, the exception in Professional Fire Fighters is inapplicable here.

In sum, Enayati was required to exhaust available administrative remedies before pursuing his claims against the City. Because he failed to do so, the trial court properly sustained the City’s demurrer to the first, second and fifth cause of action without leave to amend.

3. Enayati Seeks Damages, Not Restitution, for Sums He Paid to His Former Tenants; the Board Is Statutorily Immune from Liability for Damages

Under the Government Claims Act (also known as the Tort Claims Act) (§ 800 et seq.), except as provided by statute, public entities are immune from liability for injuries arising out of acts or omissions by the public entity or its employees, including acts or omissions involving an exercise of discretion, whether or not the discretion was abused. (§§ 815, 815.2, subd. (b), 820.) Enayati does not dispute the Board enjoys statutory immunity for damages due to an injury. Rather, he contends he is seeking restitution, not damages, and thus the trial court erred in sustaining the Board’s demurrer without leave to amend.

Enayati’s effort to change the nature of his cause of action from damages, which was the fifth cause of action in his initial complaint, to restitution by simply renaming it is unavailing. “Under the law of restitution, an individual may be required to make restitution if he [or she] is unjustly enriched at the expense of another. [Citation.] A person is enriched if he [or she] receives a benefit at another’s expense.” (Ghirardo v. Antonioli (1996) 14 Cal.4th 39, 51.) Enayati does not allege, either directly or indirectly, the Board was unjustly enriched by any of the payments for which he seeks recovery. Rather, he alleges his “injuries” “have been caused by both Defendants acting in cooperation with each other”; and, as a result of the Board and the City’s unlawful action, he was compelled to pay the occupancy permit fee of $1,337.22 to the City, $4,584 to former tenant Passaro and $5,286 to former tenant Mastro. That is, Enayati is seeking damages for the Board’s allegedly unlawful acts. The Board is immune from this claim. (§§ 815, 815.2, subd. (b), 820.)

The trial court properly declined to permit Enayati leave to amend his fifth cause of action to cure this deficiency. Regardless of the language he may choose, Enayati is seeking damages from the Board for injuries within the purview of the Government Claims Act. (See O’Hagan v. Board of Zoning Adjustment (1974) 38 Cal.App.3d 722, 726 [action for damages arising from allegedly wrongful revocation of use permit; “it is plain that under the Torts Claims Act injuries stemming from the issuance, denial, revocation or suspension of licenses, permits and similar official authorizations are excluded from the scope of tort liability of entities and employees”].)

DISPOSITION

The judgment is affirmed. The City of Santa Monica and the Santa Monica Rent Control Board are to recover their costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

PERLUSS, P. J.

We concur:

JOHNSON, J.

ZELON, J.

Publication courtesy of San Diego free legal advice.

Analysis and review provided by Santee Property line Lawyers.

[1] Statutory references are to the Government Code unless otherwise indicated.

[2] Part 4.32.130 provides, “(a) No property or rental units therein which have been withdrawn pursuant to the Ellis Act, Government Code Sections 7060 et seq., shall be subsequently occupied unless an occupancy permit is obtained in accordance with the provisions of this Section. . . . (c) An occupancy permit for residential occupancy of a property or any rental unit therein may be granted: . . . (2) By the Planning Director, if the Planning Director finds that the property or rental unit therein is to be used for multifamily rental housing, and the Rent Control Board has certified that the owner has complied with the requirements set forth in Government Code Sections 7060.2 and 7060.4 and with applicable regulations promulgated by the Rent Control Board. . . . The Planning Director shall make a written report to the Planning Commission and the City Council within five (5) days of approving or conditionally approving an occupancy permit pursuant to this Section. Any decision of the Planning Director approving, conditionally approving, or denying an occupancy permit may be appealed to the Planning Commission in accordance with the provisions in Part 9.04.20.24 of Article 9 of this Code. Any decision of the Planning Commission may be further appealed to the City Council in accordance with the same provisions. . . .”

[3] As of July 7, 2000, when Enayati informed the Board of his intention to withdraw his units from the residential housing market, section 7060.2 provided, “If a public entity, by valid exercise of its police power, has in effect any control or system of control on the price at which accommodations may be offered for rent or lease, that entity may, notwithstanding any provision of this chapter, provide by statute or ordinance, or by regulation as specified in Section 7060.5, that any accommodations which have been offered for rent or lease and which were subject to that control or system of control at the time the accommodations were withdrawn from rent or lease, shall be subject to the following: . . . [(a)](4) Any owner who offers accommodations again for rent or lease shall first offer the unit for rent or lease to the tenant or lessee displaced from that unit by the withdrawal pursuant to this chapter, if the tenant has advised the owner in writing within 30 days of the displacement of his or her desire to consider an offer to renew the tenancy and has furnished the owner with an address to which that offer is to be directed. . . . If the owner again offers the accommodations for rent or lease pursuant to this subdivision, and the tenant or lessee has advised the owner pursuant to this subdivision of a desire to consider an offer to renew the tenancy, then the owner shall offer to reinstate a rental agreement or lease on terms permitted by law to that displaced tenant or lessee. . . . (b)(1) If the accommodations are offered again for rent or lease for residential purposes more than two years after the date the accommodations were withdrawn for rent or lease, the accommodations shall be subject to any control on the price at which they may be offered in the manner and to the same extent as if the accommodates had not been withdrawn from rent or lease, subject to any adjustments otherwise available under the system of control. . . .”

[4] Although the City and Enayati refer to the occupancy permit as both an occupancy permit and a re-occupancy permit, consistent with part 4.32.130 we will refer to it as an occupancy permit.

[5] Although Enayati claims the appeal fee is greater than the $1,337.22 occupancy permit fee he is challenging, his action also includes a claim for damages (albeit labeled restitution) for the $9,870 he was required to pay former tenants Passaro and Mastro and injunctive relief to preclude the City from continuing to apply part 4.32.130 against Enayati. The economic value of his claims, therefore, is substantially in excess of the appeal fee.

[6] Javidzad v. City of Santa Monica (1988) 204 Cal.App.3d 524 does not support this proposition, as Enayati contends, because the case did not involve any question whether plaintiffs had failed to exhaust their administrative remedies. (See Chevron U.S.A., Inc. v. Workers’ Comp. Appeals Bd. (1999) 19 Cal.4th 1182, 1195 [opinion is not authority for proposition not considered].)