High Court Backs Rent Board Authority : Panel Can Resolve Excessive-Rent Cases, Order Repayment; Appeals Allowed

The California Supreme Court, reaffirming the regulatory authority of administrative agencies, ruled Thursday that a local rent control board may resolve excess-rent claims against landlords and order wrongdoers to repay tenants.

But the justices, by a vote of 6 to 1, held also that landlords must get the chance to challenge a repayment order in court--and that a board may not go so far as to assess triple damages for a deliberate rent overcharge.

The ruling came in a legal challenge by landlords to a Santa Monica rent control law enacted in 1979 as one of the most stringent in the nation.

The landlords argued that the rent control board, in deciding excessive-rent disputes, had unlawfully assumed judicial powers in violation of the state Constitution. The board lacked authority to resolve such cases, assess damages or authorize rent withholding by tenants, they said.

The board replied that its assertion of such authority was a practical and lawful means of enforcing rent-control regulations--and that a ruling to the contrary would undermine the well-established authority of countless administrative agencies to exercise quasi-judicial authority in the regulatory process.

‘A Complete Win’

The high court’s ruling Thursday upholding the general authority of the board to resolve rent disputes was greeted enthusiastically by Joel Martin Levy, counsel for the board. He noted that the treble-damages provision has since been removed from the law--and said that the rent-withholding section was insignificant. “We look upon this as a complete win,” Levy said. “From our point of view, we got everything we really wanted.”

Thomas A. Nitti, an attorney representing one of the landlords in the case, called the ruling “a split decision.”

“The court put limitations on treble damages, and more importantly, said the rent board decisions are not final,” Nitti said. “On the other hand, the court gave the board credit for maturity and responsibility that the board does not possess. The board is biased in favor of tenants and is incapable of making a fair decision.”

In the decision, the justices agreed that while it was permissible for the board to levy fines, make awards of costs and attorneys’ fees and take similar steps to ensure compliance with the law, the since-abandoned provision of the ordinance allowing treble damages against landlords was unconstitutional.

Such power, Chief Justice Malcolm M. Lucas wrote, “poses a risk of producing arbitrary, disproportionate results. . . . “

Nor, said the court, could the city allow a tenant to immediately withhold rent without permitting a landlord to seek judicial review of such an order.

Resolving Disputes

But the justices found that the board’s general power to resolve disputes and order restitution by errant landlords was permissible--so long as doing so was “reasonably necessary” to enforce rent control and losing parties remained free to challenge board orders in court.

In dissent, Justice Allen E. Broussard agreed that the board’s general assertion of authority was legitimate, but he objected to the court’s invalidation of the treble-damages and rent-withholding provisions.

“If we follow the majority’s lead in this case, we will put ourselves in the business of deciding whether the thousands of administrative regulations that bind up modern commercial activity are a good idea,” he said.

The case arose in a suit brought in 1982 by Haidy McHugh, a Santa Monica landlord involved in an excessive-rent dispute with two tenants. McHugh, later joined by 20 other landlords, challenged a board award of $4,390.99 in damages to the two tenants--triple the amount of her alleged overcharge. At the time, the ordinance permitted damages of $500 or three times the overcharge, which ever was higher, for willful violations of rent control laws.

Trial Court Ruling

In 1983, a trial court judge ruled that the board had improperly assumed judicial authority in violation of the Constitution and barred the board from receiving complaints, holding hearings and awarding damages in excessive-rent cases. Later, a state Court of Appeal found the board’s actions lawful, and McHugh and the other landlords took the issue to the state Supreme Court.

Staff writer Julio Moran in Santa Monica contributed to this report.