In Gombiner v. Swartz, (— Cal.Rptr. 3d —, Cal.App. 2 Dist., Oct. 29, 2008), a California Court of Appeal considered whether, among other things, a city’s rent stabilization ordinance was applicable to a duplex; the question arose from a dispute between a landlord and tenant over a number of issues including the determination of rent owed by the tenant to the landlord. The Court of Appeal concluded that the city’s rent stabilization ordinance was applicable because the residential unit was designated a duplex, and therefore rent increases were limited to approximately three percent (3%) per year.
Facts
In 1997, landlord Daniel Swartz converted his house located in Los Angeles (“City”) into two residential units. In January 1998, Swartz entered into a two-year lease with Andrew Gombiner. The agreement provided that Gombiner would pay $3,500 per month for the first year of the lease, and $4,000 per month for the second year. In July 1998, Gombiner sued Swartz for fraud and related charges because Swartz did not disclose to Gombiner that his rented unit was actually part of a duplex, and that his landlord, Swartz, occupied the ground floor of the house. Swartz signed a settlement agreement, paying Gombiner $25,000. In addition, they agreed to an extension of the lease for another 18 months, leaving the rent at $4,000 per month. In July 2001, they agreed to raising the monthly rent to $5,900 per month, and also amended the lease to allow for termination of the lease upon 90-days’ notice.
In January 2004, Gombiner decided to withhold rent from Swartz because of money he personally spent on fixing a broken water heater. Swartz assessed a late payment fee in excess of that provided for in their lease agreement. In response, Gombiner informed Swartz that he believed Los Angeles Rent Stabilization Ordinance (“RSO”) applied to the property thereby making Swartz’s increase in rent illegal, and that he was entitled to $83,400 in unauthorized rent increases. Swartz filed an action to collect the late fee and gave Gombiner his 90-day notice. Also, Swartz reminded Gombiner that under the settlement agreement, Gombiner was proscribed from talking to the City or any other government agency about the premises or he would have to return the $25,000 payment under the settlement agreement and pay another $25,000 for breaching the agreement. In November 2004, Swartz took measures to restore the property to a single residence.
The parties were in and out of court a total of three different, though related, judicial proceedings. In the first case, Judge Abrams found that the RSO did apply since the property had in fact been turned into a duplex. Because of this ruling, Gombiner began withholding rent as credit for the unauthorized increase. Swartz brought another suit against Gombiner and this suit was consolidated with a third that was pending. Under this consolidated preceding, Judge Murphy found that the parties were not subject to the RSO because they were sophisticated individuals negotiating under the supervision of a superior court when they entered into the settlement agreement and new lease agreements. Judge Murphy would not allow Gombiner to inform the jury about the finding of the previous court regarding the application of the RSO, and that it was that ruling which compelled Gombiner to withhold rent from Swartz. As a result, a jury found that Gombiner breached the lease agreement by not paying back rent. The jury also found that he violated the settlement agreement, and after assessing attorney’s fees and costs, Swartz’s net recovery was $453,000.
Decision
The Court of Appeal began by discussing the illegality of the rent increases. The court pointed to Judge Abrams’s finding that the property was a duplex, at least at the point while the proceedings were before him, and therefore the property was subject to the RSO. Judge Murphy simply ignored the decision of Judge Abrams. The Court of Appeal found this decision to be in error because according to prior precedent, Judge Murphy was required to give effect to the findings of Judge Abrams.
Because Judge Murphy did not honor the finding of Judge Abrams, and prohibited Gombiner from informing the jury about the decision, he had no theory by which to recover his rent overpayments from Swartz. Moreover, Gombiner could not explain why he was withholding rent which left him defenseless to Swartz breach of lease charge. The court explained that the jury should be instructed that any rent increase greater than the amount permitted under the RSO was unlawful and therefore uncollectible, regardless of any private agreement or settlement between the tenant and the landlord.
Next the court considered whether the property was restored to a single-family residence, and the effect of such a finding. Gombiner argued that Judge Murphy’s finding that the property was a single-family residence was in error because Judge Abrams already determined that it was not. However, during the trial with Judge Abrams, Swartz took measures to restore the property to single-family residence status. The Court of Appeals concluded that it was possible that the judges’ findings could coexist based on the timing of the proceedings before them respectively. Therefore, the court found no error of the finding of Judge Murphy in connection with the single-family residence status of the house.
The Court of Appeal also addressed, and rejected arguments by Gombiner in connection with the settlement agreement. The court explained that Gombiner had violated the settlement agreement when he interfered with Swartz’s attempts to restore the house to a single-family dwelling and therefore the jury’s finding was not in error. The court also rejected Gombiner’s arguments based on his retaliation claim against Swartz because the jury found that Swartz had retaliated, but that Gombiner was not harmed by the retaliation. Therefore, any error by the court in its instruction to the jury regarding Gombiner’s retaliation claim was harmless because the jury found that Gombiner was not harmed by the retaliation.
In conclusion, the Court of Appeal concluded that the RSO was applicable because the residential unit was designated a duplex, and therefore rent increases should have been limited to approximately three percent (3%) per year. To the extent Gombiner paid more, he should be entitled to recover that amount.
Questions
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Karina Terakura | KMTG Sacramento Office 916.321.4500