33 Cal. App. 5th 230
Cal. Ct. App. 5th2019Background
- 69 mobilehome residents sued Terrace View owners and manager alleging failure to maintain the park and unreasonably high space rents impaired residents' ability to sell homes; 16 residents tried in a first-phase bench/jury trial.
- Leases contained an annual CPI+4% increase and a "catch-up" clause (30th-month increase to the average of the three highest park rents); month-to-month tenants paid CPI+5%.
- Park offered an "Emergency Rent Stabilization" amendment with lower increases in exchange for releases, arbitration, and a right-of-first-refusal to buy homes.
- Jury found defendants liable on multiple theories (intentional interference with property rights, breach of implied covenant of good faith and fair dealing, nuisance as to failure to enforce rules, breach of contract/quiet enjoyment, negligence) and awarded $1,289,000 compensatory damages and $57 million punitive (later reduced by the trial court to $1,289,000); court also ruled the catch-up clause violated the UCL and awarded attorneys' fees.
- On appeal, the court held most of the jury's damages were premised on overpayment of rent (i.e., rents authorized by the leases or month-to-month law) and therefore could not support tort or contract damages; the unsegregated verdict made it impossible to determine what portion of damages were legally sustainable, so the court reversed compensatory and punitive damages, the UCL injunctive ruling on the catch-up clause, and attorneys' fees and costs, while affirming other lease-provision rulings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether defendants can be liable for charging rents permitted by leases or month-to-month law | High rents and rent practices (including catch-up and discretion on assignees) tortiously interfered with residents' property rights and justified compensatory and punitive damages | Absent local rent control, landlords may set rents allowed by contract or law; charging rent authorized by lease cannot be tort or contract violation | Court: Rent authorized by lease or month-to-month law cannot constitute tortious interference or a breach of contract/implied covenant; liability cannot be premised on authorized overpayment of rent |
| Validity and effect of Special Instruction No. 66 (implied covenant standard) | Instruction properly limited unilateral discretion to objectively reasonable exercise and permitted jury to find breach for unreasonable rents or discretionary acts | Instruction was overbroad and allowed jury to treat any decision affecting rights as subject to objective-reasonableness limit, contradicting express contract terms | Court: Instruction was erroneous and, combined with counsel's argument and evidence, improperly permitted finding breach of implied covenant based solely on rents the contracts authorized |
| Whether jury could award damages (including "overpayment of rent" and diminution) under negligence, nuisance, breach of contract, or quiet enjoyment theories | Damages include overpayment of rent and diminution in home value caused by high rents and park conditions | Charging contractually-authorized rent is not negligence or breach; negligence may attach to performance of services but not to charging a lawful price; primary nuisance theory (failure to maintain) was rejected by jury | Court: Damages premised primarily on overpayment of rent are not sustainable under presented legal theories; the jury rejected the primary maintenance-based nuisance, so award cannot be sustained and verdict is ambiguous and reversible |
| Effect of unsegregated special verdict and remedies on punitive damages and fees | Unsegregated verdict is procedurally acceptable; reversal of some parts not required if at least some legal theories support damages | Because damages are legally unsupportable and unsegregated, reversal is required; punitive damages and fee awards depend on compensatory damages | Court: Because damages cannot be allocated and the improper rent-based awards permeate verdict, compensatory and punitive damages and fee/cost awards are reversed; case remanded for retrial on viable claims (e.g., maintenance-based nuisance, UCL, declaratory relief) |
Key Cases Cited
- Barkett v. Brucato, 122 Cal.App.2d 264 (recognizes tort for wrongful eviction/serious interference with quiet enjoyment)
- Ginsberg v. Gamson, 205 Cal.App.4th 873 (distinguishes tort wrongful eviction from breach of contract/quiet enjoyment where tenant remains in possession)
- Carma Developers v. Marathon Dev. Cal., 2 Cal.4th 342 (implied covenant of good faith cannot contradict express contract terms)
- Automatic Vending Co. v. Wisdom, 182 Cal.App.2d 354 (discretion to vary price is subject to implied limitations such as reasonableness, in context)
- Vance v. Villa Park Mobilehome Estates, 36 Cal.App.4th 698 (MRL is not a rent-control statute; rent may be set by contract)
- Liodas v. Sahadi, 19 Cal.3d 278 (punitive damages must bear reasonable relation to actual damages; exemplary damages tied to compensatory award)