Skowron v. Santa Monica Rent Control Bd.

Filed 3/16/07 Skowron v. Santa Monica Rent Control Bd. CA2/8

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION EIGHT

APPEAL from a judgment of the Superior Court of Los Angeles County, Paul G. Flynn, Judge. Affirmed.

Law Offices of Rosario Perry, Rosario Perry and Robert J. Franklin for Plaintiffs and Appellants.

David R. Daniels and Keith J. Kresge for Defendant and Respondent.

* * * * * *

On July 1, 2002, respondent Santa Monica Rent Control Board (Board) assessed an annual registration fee of $792 on an apartment building owned by appellants Walter L. Skowron and Helen M. Skowron^[1](the Skowrons). The Skowrons withdrew the apartments from the rental market effective August 21, 2002. The Skowrons offered to pay prorated fees of $44, but the Board took the position that fees were due for the entire fiscal year 2002/2003. In cross-motions for summary judgment, the trial court agreed with the Board, and rejected the Skowrons challenge to the constitutionality of the registration fee. The Skowrons appeal; we affirm.

FACTS

The Skowrons own 928 21st Street in Santa Monica, a six-unit apartment building that was subject to the jurisdiction of the Board and the rent control regulations of the City of Santa Monica. On August 14, 2001, the Skowrons served notice under the Ellis Act (Govt. Code, 7060 et seq.) that they were withdrawing their units from the rental market; the Ellis Act was enacted to supersede Nash v. City of Santa Monica (1984) 37 Cal.3d 97, and to enable landlords to go out of business.^[2] The notice filed by the Skowrons gave the tenants one year to find other accommodations. During the next 12 months, three of the tenants moved out. The three remaining tenants vacated in July and August 2002. On August 21, 2002, the last units were withdrawn from the rental market under the Ellis Act; after that date, the units could no longer be legally rented.

The Boards fiscal year started on July 1, 2002. Under section 11200 of chapter 11 of the Boards Rent Control Regulations, the Board assessed a fee of $792. Section 11200 provides in pertinent part that the annual registration fee for each controlled unit, with certain exceptions not material hereto, is $132. Subdivision (a) of section 11200 states that the purpose of the registration fee is to finance the reasonable and necessary expenses of the Santa Monica Rent Control Board for the regulation of controlled rental units in Santa Monica.

On July 18, 2002, Walter Skowron, stating that he was doing so on the advice of counsel, submitted a check for $44, which was a prorated sum based on three units rent-controlled in July, and one in August.

The Board advised the Skowrons that proration of registration fees was not authorized, and that penalties would accrue. The Board filed a small claims action to recover unpaid fees and penalties, but that action was taken off calendar once the Skowrons filed their action.

The Skowrons first amended complaint^[3]alleges that, once all rental units were withdrawn from the market, the Board had no functions to perform with reference to these units and therefore the registration fee, which is used to finance the Board, no longer served its stated purpose. The complaint alleges that, in light of the foregoing, the registration fees are taxes in violation of articles XIII C, section 2; XIII D, section 3; and XIII D, section 6, subdivision (b)(4) of the California Constitution.^[4]

We note here that articles XIII C and D enacted the provisions of Proposition 218, passed in 1996, that were adopted to close government-devised loopholes to Proposition 13, the measure that limited property taxes. Article XIII C requires voter approval for all local government special taxes and article XIII D sets forth requirements for assessments, fees and charges. Section 2, subdivision (e) of article XIII D provides that a  [f]ee or charge means any levy other than an ad valorem tax, a special tax, or an assessment, imposed by an agency upon a parcel or upon a person as an incident of property ownership, including a user fee or charge for a property related service. The ballot arguments [in favor of Proposition 218] identify what was perhaps the drafters main concern: tax increases disguised via euphemistic relabeling as fees, charges, or assessments.  (Apartment Assn. of Los Angeles County, Inc. v. City of Los Angeles(2001) 24 Cal.4th 830, 839 (Apartment Association).)

The Skowrons moved for summary judgment, contending that the Board was constitutionally required to prorate their fees and since it did not do so, the fees violate article XIII D. The Board also moved for summary judgment, contending that the registration fee was not a tax but a valid local regulation. The trial court granted the Boards motion, concluding that the registration fee is not a tax, that it is not a property-related fee, and was not imposed solely because a person owns property.

DISCUSSION

1. The Registration Fee Imposed by Section 11200 of the Rent Control Regulations Is Not a Fee For a Property Related Service

In Apartment Association, supra, 24 Cal.4th 830, the court considered whether an inspection fee of $12 per rental unit per year imposed by the City of Los Angeles on all residential rental properties with two or more dwelling units on the same lot was a fee for a property related service, as that term is defined in subdivision (e) of section 2 of article XIII D.

The court concluded that the fee in question was not a fee for a property-related service. The court explained: We turn to the definitive language: restrictions on any levy imposed upon a parcel or upon a person as an incident of property ownership. (Art. XIII D, 2, subd. (e).) [] The foregoing language means that a levy may not be imposed on a property owner as such ‑‑ i.e., in its capacity as property owner ‑‑ unless it meets constitutional prerequisites. In this case, however, the fee is imposed on landlords not in their capacity as landowners, but in their capacity as business owners. The exaction at issue here is more in the nature of a fee for a business license than a charge against property. It is imposed only on those landowners who choose to engage in the residential rental business, and only while they are operating the business. (Apartment Association, supra, 24 Cal.4th at 839-840.) In other words, taxes, assessments, fees, and charges are subject to the constitutional strictures when they burden landowners as landowners. The ordinance does not do so: it imposes a fee on its subjects by virtue of their ownership of a business ‑‑ i.e., because they are landlords. (Id. at p. 842.) An important aspect of Apartment Association is the courts observation that subdivision (e) of section 2 of article XIII D does not refer to fees imposed on an incident of property ownership, but on a parcel or a person as an incident of property ownership. As amicus curiae for the city persuasively argue, the distinction is crucial. (Apartment Association, supra, 24 Cal.4th at p. 840.)

The registration fee at issue in this appeal is not imposed as an incident of property ownership, but rather as an incident of conducting the business of renting apartments. If a unit is not on the rental market, the Board does not impose a registration fee or, for that matter, any fee. We note here that the Skowrons do not claim that the Board attempted to impose a registration fee on July 1, 2003.

The Skowrons attempt to distinguish Apartment Association on the ground that in Santa Monica every rental property owner is a landlord even if they do not rent or try to rent their property^[5]and that, for this reason, the registration fee imposed by section 11200 of the Rent Control Regulations is a fee on a property-related service. The premise of this argument appears to be that the Board imposes a registration fee whether or not the unit is on the rental market. This premise, however, is mistaken; the registration fee is not imposed on units that are not on the rental market.

The fact that the registration fee was required to be paid for the entire fiscal year 2002/2003, even though the units were off the rental market as of August 21, 2002, does not aid the Skowrons. There are two reasons for this.

First, according to the declaration of a staff attorney for the Board, Keith J. Kresge, the Board performs certain winding-down functions after a rental unit is taken off the market. Without giving a complete list of these functions, they include serving notices of recordation, onsite inspections to ascertain whether the units are actually off the market, and responding to inquiries from the withdrawing owner and displaced tenants. Thus, there is a pragmatic basis for charging registration fees during the balance of the fiscal year that a unit is taken off the market, i.e., there is a rational basis for the Boards refusal to prorate the registration fee.

The Skowrons point to the fact that the Board does prorate fees on rental units that come on the rental market during the Boards fiscal year. The Skowrons contend that this shows that the Boards refusal to prorate fees on rentals units leaving the market during the fiscal year shows that the Boards policies are at best arbitrary and at worst a tax on property. We do not think that either is true. Refusing to prorate fees on units leaving the market is based on the fact that the Board continues to expend time and effort, at least for a while, on units that have left the market. There is no such basis for imposing a fee on a rental unit before it is on the market, and before the Board has expended time and effort on that unit. And, as we point out immediately below, what is a lawful fee at the time it is assessed is not converted into a tax on property because the fee is not prorated ‑‑ especially when there is a rational basis for not prorating the fees.

Second, the Skowrons do not question that, as of July 1, 2002, the Board could lawfully require them to pay registration fees under section 11200 of the Rent Control Regulations. What was a lawful fee on July 1, 2002, does not change into an unlawful tax after August 21, 2002, when the final units went off the market. The registration fee remains just that, i.e., a registration fee, in return for which the Board continues to perform certain functions even after the units are off the rental market.

We must disagree with the Skowrons that the registration is property related because Santa Monicas rental property owners can not opt-out. They certainly can opt out, as the Skowrons did in this case, by withdrawing their rental property from the rental market. As far as not being able to opt out while the units are on the rental market, there is no claim here that the registration fee imposed by the Board is, for some reason, unlawful. Thus, since it is a lawful and proper fee, there is no more reason to consider whether a person can opt out than there is to allow a speeding driver to opt out from the posted speed limit.

The Skowrons cite the view of the Legislative Analysts Office that rent control administrative fees would be considered property-related if there were no practical way that the owner could avoid the fee, short of selling the property or fundamentally changing its use. We find this unpersuasive. This view is at odds with Apartment Association that focuses analysis on whether the fee burdens landowners as landowners or whether it is a fee on a business conducted by the owner. (Apartment Association, supra, 24 Cal.4th at p. 842.) The ability to opt out plays no role in the foregoing distinction.

We are also not persuaded by the contention that since the obligation to pay the registration fee runs with the land, the fee is property related. This argument is premised on the fact that a current landlord is responsible for registration fees that were not paid by a former landlord. For one, the obligation to pay the registration fee exists as long as the apartment is on the rental market; if the obligation runs with anything, it runs with the fact that the apartment is on the rental market. The obligation ceases ‑‑ and therefore does not run with the land ‑‑ as soon as the units are taken off the rental market.

Citing Howard Jarvis Taxpayers Assn. v. City of Roseville (2002) 97 Cal.App.4th 637 (Roseville) and Howard Jarvis Taxpayers Assn. v. City of Fresno (2005) 127 Cal.App.4th 914 (Fresno), the Skowrons contend that because the registration fee can be passed through to the tenant, the fee is property related. The facts of Rosevilleand Fresno were that, in those cases, the municipalities charged in lieu fees for utility services that were delivered to the properties. Under the analytical framework set forth in Apartment Association, the appellate courts in Rosevilleand Fresno held that the fees for utility services were charged as an incident of property ownership. Whether the fees were, or were not, passed through to the ultimate payer of the fees was not decisive, or even material.^[6]

2. The Registration Fee Imposed by the Board Did Not Deprive the Skowrons of the Right To Withdraw Their Property from the Rental Market

The Skowrons contend that the registration fee imposed under section 11200 of the Rent Control Regulations impermissibly burdens their right under the Ellis Act to withdraw their rental units from the market.

We begin with the observation that this contention was not advanced in the Skowrons motion for summary judgment. A party appealing a summary judgment may not raise a factually novel legal theory of liability on appeal. (Beroiz v. Wahl (2000) 84 Cal.App.4th 485, 498, fn. 9.)

While the foregoing rule, that rests on obvious considerations of fairness to the litigants and the trial court (Richmond v. Dart Industries, Inc. (1987) 196 Cal.App.3d 869, 874), disposes of the Skowrons contention, we note that there is nothing to indicate that the Board impermissibly burdened the Skowrons right to withdraw from the rental market. In fact, the Skowrons withdrew their units from the rental market without encountering any obstacles imposed by the Board or anyone else.

The Skowrons claim that the Board has taxed them for withdrawing from the market is apparently based on the fact that the Board did not prorate the registration fee. As we have observed, a lawful fee does not change into a tax, especially when there are legitimate reasons for not prorating the last fee imposed on the rental units.

3. The Registration Fee Imposed by the Board Is Not a Special Tax

The Skowrons contend, again for the first time on appeal, that if the registration fee is not property related, then it is a special tax and, absent voter approval, therefore invalid under article XIII C. As the Board points out, while the Skowrons complaint makes a single reference to article XIII C, their motion for summary judgment alleges violations of only article XIII D. As noted, the Skowrons are barred from raising legal theory of liability on appeal that was not addressed in the proceedings in the trial court. (Beroiz v. Wahl, supra, 84 Cal.App.4th at p. 498, fn. 9.)

In any event, a special tax shall not include any fee which does not exceed the reasonable cost of providing the service or regulatory activity for which the fee is charged and which is not levied for general revenue purposes. (Govt. Code, 50076.) We have before the declaration to Board attorney Kresge, filed in support of the motion for summary judgment, which details the services provided in return for the registration fee. Thus, the record before us indicates that the registration fee imposed by the Board is not a special tax.

DISPOSITION

The judgment is affirmed. Respondent is to recover its costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

FLIER, J.

We concur:

COOPER, P. J.

BOLAND, J.

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^[1] Helen Skowron is deceased. The record does not advise us whether a personal representative has been appointed. Since the parties do not question Helen Skowrons continued presence as a party to this litigation, we will refer to the Skowrons in the collective.

^[2] Government Code section 7060.7 provides in relevant part: It is the intent of the Legislature in enacting this chapter to supersede any holding or portion of any holding in Nash v. City of Santa Monica, 37 Cal.3d 97 to the extent that the holding, or portion of the holding, conflicts with this chapter, so as to permit landlords to go out of business. Nash upheld a city regulation requiring a predemolition removal permit in the instance of rental units subject to the citys rent control laws. (Nash v. City of Santa Monica, supra, 37 Cal.3d at pp. 103-107.)

^[3] All references are to this complaint.

^[4] All references to articles are to articles contained in the California Constitution.

^[5] This argument is premised on the Boards definition of landlord: An owner, lessor, sublessor or any other person entitled to receive rent for the use and occupancy of any rental unit. The Skowrons state that this means that in Santa Monica anyone who owns rental property is a landlord.

^[6] The municipalities in Rosevilleand Fresno contended that because the utility fees were passed through to renters of properties who did not own the land, the fees were not property related. The courts in Rosevilleand Fresnorejected this contention but they did not conclude that the fees were property related because they were passed through. In Roseville, the court concluded that the utility services are necessarily delivered to property, and the fees for these services were therefore imposed as an incident of property ownership. (Roseville, supra, 97 Cal.App.4th at pp. 644-645.) In Fresno, the court concluded that water, waste and sewer services were imposed as an incident of property ownership. (Fresno, supra, 127 Cal.App.4th at p. 925.)