Santa Monica Rent Control Case Challenges Power of Civil Agencies

Eight years ago, the City of Santa Monica passed one of the strictest rent-control laws in the nation. In its wake came hundreds of complaints to a newly established rent control board accusing landlords of charging excessive rents.

In one case, the board found that Haidy McHugh had overcharged two tenants living in her $400-a-month units and awarded them $4,390.99 in damages--triple the amount of the overcharge for what the board said was a willful violation of the law.

McHugh, a consultant for the RAND Corp., no longer rents the apartments, but her battle with the board goes on. She filed suit in 1982 challenging the five-member elected body’s authority to make the kind of monetary awards it imposed on her.

“They’re very arbitrary,” she said. “They are the judge, jury and executioner.”

The dispute has finally reached the state Supreme Court, and the outcome could affect scores of administrative agencies that assert a wide assortment of quasi-judicial powers in California.

Money Is the Issue

At issue before the court is whether the Santa Monica board infringed on the historic authority of the judiciary to award money damages.

The case, to be argued this week in Sacramento, comes before the justices as administrative agencies are steadily expanding their role in state and local government--holding hearings, issuing licenses and imposing civil penalties in complex and specialized proceedings.

The trial judge in the McHugh case held that the Santa Monica rent control board had improperly assumed judicial power in violation of the state Constitution. The judge issued an order barring the board from receiving complaints, holding hearings and awarding damages in excessive-rent disputes.

In 1985, however, a state Court of Appeal overturned that ruling, finding instead that administrative agencies such as the board were entitled to such authority whenever it is “directly responsive and integral” to enforcing laws within their jurisdiction.

To hold otherwise, the three-judge panel said, would undermine the enforcement abilities of a variety of agencies providing important consumer protections, ranging from the authority of the state Fair Employment and Housing Commission to award damages to victims of discrimination to the power of the Bureau of Automotive Repair to grant restitution to consumers forced to correct faulty mechanical work.

In their subsequent appeal to the state Supreme Court, McHugh’s attorneys contend that the appellate panel decision infringed on the power of the judiciary and could limit access to the courts, which traditionally have been the most independent and least partisan branch of government.

‘Profound Impact’

“The ruling is very open-ended,” said Christopher M. Harding, a Santa Monica lawyer representing McHugh. “It could have a profound impact, particularly at the state level.”

Harding contended that the panel’s decision will invite administrative agencies to assume broad, quasi-judicial authority. If rent control boards are allowed to make monetary awards in disputes between private parties, what is to stop the Department of Motor Vehicles from awarding damages in automobile accident cases? he asked.

On the other side, attorneys for the Santa Monica board defend its assertion of authority as a practical and legitimate means of enforcing rent control laws.

“As the Court of Appeal pointed out, administrative proceedings like this provide a much more accessible and quick remedy for people involved in such disputes,” said Joel Martin Levy, general counsel for the board. “The proceedings are designed to promote the regulatory goals of the agency by deciding who owes what to whom. . . . It is regulatory, not judicial.”

In a past decision, the justices have already upheld the authority of municipalities to adopt rent controls. Now the question is what measures are permissible to enforce those regulations--and the outcome is being watched closely in cities with rent control.

Rely on Courts

Berkeley and San Francisco are among the cities with enforcement systems similar to Santa Monica’s. Others, such as Los Angeles, rely on the courts to penalize landlords who charge excessive rents.

In Los Angeles, authorities can bring misdemeanor charges against offending landlords but in most instances will drop the case if the landlords agree to compensate aggrieved tenants. Less than 1% of the 3,000 complaints filed annually result in prosecution, officials said.

“If the evidence indicates the landlord is doing something illegal, most of the time he will comply,” said James C. Fleck, an analyst for the Community Development Department. “Very few are willing to fight City Hall.”

The McHugh case arose after the enactment of a rent control initiative in Santa Monica in 1979. The measure is one of the strictest of its kind in the nation.

The board was established under the law to enforce its provisions, determine maximum allowable rents and regulate the eviction of tenants.

Withhold Rents

In disputes over excessive rent, tenants could file complaints with the board and, if the board ruled in their favor, withhold rent in the amount determined by the board.

If the overcharge was found intentional, a $500 penalty--or triple the amount of the overcharge, whichever is more--could have been imposed. (The treble-damage provision was later removed by the electorate.)

From 1979 to 1983, when the trial court struck down the process, more than 2,000 tenant complaints of excessive rents were filed with the board. Hearings were conducted in 1,300 cases, with rulings resulting in favor of tenants most of the time, according to a board spokesman.

Only 34 losers in the disputes, including McHugh, appealed board rulings to Superior Court.

McHugh’s case drew considerable attention when it was heard in October, 1983, before Superior Court Judge Laurence J. Rittenband. Pro-rent control groups and landlords demonstrated outside the courthouse before the proceedings began.

Judge Rittenband, declaring the board’s authority invalid, issued an injunction prohibiting the agency from adjudicating any further excessive-rent disputes. The judge held that there was a “critical distinction” between legitimate functions of administrative agencies--such as issuing and revoking permits--and unconstitutional awards of monetary damages.

The state Court of Appeal overturned Rittenband’s ruling. The appeal court found that there was no constitutional barrier to an administrative agency awarding restitution or civil penalties to a private party when the agency is enforcing laws within its jurisdiction.

“We believe the enforcement mechanism of the Santa Monica ordinance is directly responsive to its purpose: to assure tenants their rents will not be unreasonably increased and that landlords will receive no more than a fair return on their investment,” Appellate Justice Earl Johnson wrote in an opinion joined by Justices Leon Thompson and Mildred Lillie.

While not challenging the board’s authority to administer rent control, McHugh’s attorneys say its enforcement mechanisms should rest primarily with the courts.

Aggrieved tenants can go to court to seek damages against landlords, the board can seek court injunctions to uphold the law and the city attorney can bring criminal charges for violations of the ordinance, the lawyers say.

The rent control board’s attorneys counter that it is inevitable that some limited quasi-judicial authority must be delegated to administrative agencies.

The agencies actually assist and complement the courts by resolving many disputes that might otherwise clog the judicial system, the lawyers say.

As long as administrative rulings can still be appealed to the courts--as they could in Santa Monica--there is no intrusion on the right of individuals to judicial review of their cases, they say.