December 31, 2014
Ridgewood Manor II, Inc.
The Delaware Manufactured Home Relocation Authority
Date Submitted: July 22, 2014
Plaintiffs, landlords and tenants of manufactured home communities throughout Delaware, filed this action seeking declaratory relief, injunctive relief, and disgorgement of monthly assessments collected under the Manufactured Home Owners and Community Owners Act by Defendants from February 1, 2006, through April 8, 2014. The parties have stipulated that there is no dispute of material fact and have filed cross-motions for summary judgment. For the reasons that follow, Plaintiffs' motion for summary judgment is generally denied, except to the extent that the Court concludes that certain assessments were collected unlawfully and leaves open the possibility of recovery.
Defendant the Delaware Manufactured Home Relocation Authority (the "Authority" or "DMHRA") has collected a monthly assessment of $3 per rented manufactured home lot in Delaware pursuant to a resolution adopted by its board (the "Board") on February 19, 2004. The assessments have been deposited in the Delaware Manufactured Home Relocation Trust Fund (the "Trust Fund"), an account maintained by Defendant the Division of Revenue of the Delaware Department of Finance (the "Division of Revenue, " and collectively with DMHRA, the "Defendants"). Plaintiffs are landlords and tenants who have paid the monthly assessments.
The General Assembly established DMHRA in 2003 "to provide financial assistance to tenants and landlords in manufactured home communities who may be required to relocate, abandon, or remove manufactured homes under a variety of circumstances." This financial assistance comes from the assessments Defendants collect and hold in the Trust Fund. The parties do not dispute that, at least before February 1, 2006, 25 Del. C. § 7012(f)(1) gave DMHRA the power to collect and change the amount of the monthly assessments:
The board of directors of the Authority shall set a $3.00 monthly assessment for deposit in the Trust Fund for each rented lot in a manufactured home community. The board may adjust, eliminate or reinstate the assessment, and shall notify landlords and tenants of each adjustment, elimination or reinstatement [pursuant to board regulations]. If the board does not adopt an adjusted assessment on or before January 31, 2006, the board shall eliminate the fee in its entirety.
The Board established the $3 assessment at a meeting on February 19, 2004. At all times relevant to the litigation, the nine-member Board needed a 75% majority of votes to "'adjust, eliminate, or reinstate the Trust Fund assessment.'" The implementing legislation provided that the Authority and the Board may "[s]ue or be sued, " but also granted them immunity from a "civil cause of action of any nature . . . for any act or omission in the performance of powers and duties under this subchapter unless the act or omission complained of was done in bad faith or with gross or wanton negligence."
DMHRA has consistently collected the $3 assessment. It has also made various expenditures, including relocation benefits and administrative costs. As of January 31, 2006, the Trust Fund reported a balance of $843, 057.17. At 1:19 p.m. on the same day, DMHRA's administrative assistant, Leslie Bird, sent an email to the members of the Board asking each to "'respond as a vote wether [sic] you approve the reinstatement of the fee.'" By 2:33 p.m., five members of the Board had voted by email to approve. The last of the nine approvals came in at 5:15 p.m. The parties agree that all nine members of the Board voted in favor of reinstating the fee on January 31, 2006. They also agree that, with respect to the January 31 vote, there was no public notice of a meeting, no public meeting, no record in the form of minutes, and no subsequent notice of the contested Board actions to any landlords or tenants. The extent of deliberation involved in the Board's vote is unclear. Meeting minutes show that the Board had hired an actuarial consultant in the months before the vote. Yet while the Board's Actuary Committee had "no report" at the January 11, 2006, meeting,  the Board considered holding "an informal meeting to discuss increasing the collected fee to $5 or $6 over time" at its meeting held shortly after the email vote. The Board officially mustered the requisite votes to recommend increasing the assessment to $4 at a June 2008 meeting,  but neither the General Assembly nor the Board has actually changed the assessment from the original $3 amount.
The Trust Fund had a balance of $6, 093, 948.57 and had paid out $572, 714.59 in relocation benefits and $940, 615.98 in administration and overhead costs as of October 2013. Financial summaries indicate that no relocation benefits have been paid since 2009,  but the Trust Fund provides insurance value and has been authorized to cover some arbitration fees since June 2013. In July 2013, the General Assembly voted to (1) raise the cap on the Trust Fund from $10 million to $15 million and (2) extend the Trust Fund's term from July 1, 2014, to July 1, 2019. Pursuant to an April 8, 2014, amendment, 25 Del. C. § 7012(f)(1)'s final sentence (regarding elimination of the fee absent an adjusted assessment) was removed. The synopsis of the amending bill states that the General Assembly removed the sentence because "[t]he Authority having complied with the requirement, the sentence is no longer relevant."
Plaintiffs filed this action on May 6, 2013. There is no evidence that Plaintiffs complained about the assessments before then. To promote efficient resolution, the parties agreed "to bifurcate the substantive merits of the claims stated by the Plaintiffs' Complaint . . . from the issues of class certification . . . and what remedies are available to the class, " if applicable. The parties have submitted a stipulated record and cross-motions for summary judgment on the merits of the claims. In addition, Plaintiffs have filed a motion in limine to exclude certain evidence on the grounds of relevance, confusion, and undue prejudice.
Plaintiffs contend that Defendants' continued collection of the monthly assessments from February 1, 2006, to April 8, 2014, fell beyond their statutory mandate and that the money should be returned. They argue that the Board acted unlawfully, not only by maintaining the dollar amount of the assessment without meaningful analysis, but also by disregarding the Freedom of Information Act ("FOIA") requirements for public bodies and the requirement for notice of fee-related actions in 25 Del. C. § 7012(f)(1). They read the implementing legislation to mean that DMHRA would lose the power to collect any assessments in the future unless the Board changed the monthly assessment to an amount other than $3 before February 1, 2006. They ask for strict construction of DMHRA's statutory authority and claim that theirs is the clear and unambiguous interpretation, giving effect to all parts of the statute and its mandatory language. They further allege unjust enrichment and seek a constructive trust for the disputed amounts collected.
Defendants, on the other hand, argue that the Board complied with 25 Del. C. § 7012(f)(1) on January 31, 2006, because the Board made a reasoned decision to maintain the level of the assessment under the then-present circumstances.They explain that their interpretation of the requirement to adopt an adjusted assessment (and the consequences of failing to do so) is correct by invoking the plain language of the statute, legislative intent, a holistic reading, and subsequent legislative acts. They also argue that Plaintiffs' real complaint lies in the acts (or lack thereof) taken on or around January 31, 2006. As such, immunity, the three-year statute of limitations prescribed by 10 Del C. § 8106(a), the six-month statute of limitations for FOIA violations set by 29 Del. C. § 10005(a), and laches bar Plaintiffs' claims.
In response to Defendants' affirmative defenses of immunity and statutes of limitations,  Plaintiffs attempt to frame the dispute as one about continuing, unlawful collections. Plaintiffs assert that immunity does not prevent recovery because they are only asking for disgorgement rather than seeking to hold DMHRA and its Board liable for damages, Defendants were not acting within their authority granted by the statute, and the Board acted with bad faith or gross or wanton negligence. Plaintiffs further explain that their seven-year delay is not a bar because the violation is continued unlawful collection,  they more recently became aware of the injustices in collection and use of the assessments,  they cannot be penalized for the Board's concealment of its wrongdoing,  and a mutual running account is not subject to the three-year statute of limitations. "At the very worst, " Plaintiffs ask the Court to grant relief extending back to three years before the date the Complaint was filed.
A. The Summary Judgment Standard
To succeed on a motion for summary judgment, the moving party bears the burden of showing, through "the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, . . . that there is no genuine issue as to any material fact and that [it] is entitled to a judgment as a matter of law." The Court views the evidence, presented in compliance with Rule 56, in the light most favorable to the non-moving party. When the parties agree to present cross-motions for summary judgment based on an absence of dispute over any fact material to either motion,  "the Court shall deem the motions to be the equivalent of a stipulation for decision on the merits based on the record submitted with the motions."
B. Statutory Construction and the Nature of the Alleged Wrong
The threshold question for the Court is what 25 Del. C. § 7012(f)(1) required of DMHRA and the Board. Plaintiffs assert that Defendants acted outside their powers because they continued to collect assessments after the Board did not adjust or eliminate the assessment (or provide relevant notice of any adjusted assessment) as required under a plain-meaning interpretation of the statute and supported by a debate in the House of Representatives. Defendants emphasize legislative intent and reasonableness in support of their theory that the Board did adopt an adjusted assessment on January 31, 2006 (or at least could have lawfully continued to collect future assessments). The Court's job is to "determine and give effect to legislative intent" when interpreting statutes. Under Delaware law, "[i]t is well settled that statutory language is to be given its plain meaning and that when a statute is clear and unambiguous there is no need for statutory interpretation." If there is ambiguity in the text itself, however, the Court interprets the statute in a manner "that will promote its apparent purpose and harmonize with other statutes."
Here, the Court's statutory construction exercise begins and ends with a plain-meaning analysis. The statute stated that "[i]f the board does not adopt an adjusted assessment . . ., the board shall eliminate the fee." The Court finds the language clear for the purposes of this dispute. Defendants observe that "[h]ad the General Assembly intended to divest the Authority of the power to take some act, it knew how to do so in clear and unequivocal language." The Court agrees. The statute was not self-cancelling and did not strip the Board of continued power to act. In fact, the Board had a duty to eliminate the fee (in other words, act) if it did not adopt an adjusted assessment before or on January 31. Failure to do both would constitute a breach of duty by the Board and result in unlawful action by Defendants.
The next question is whether the Board complied with its statutory mandate. Plaintiffs argue that the Board failed to adopt an adjusted assessment because it did not (1) change or minimally evaluate the assessment amount, (2) officially act pursuant to FOIA, and (3) send notice of any adjusted assessment to affected parties. The Board could adopt an adjusted assessment by a 75% majority vote according to 25 Del. C. § 7011(c)(3). Implicit in this provision is that directors must consider their positions and come to an agreement representing the official decision of the Board. Furthermore, DMHRA is a public body subject to FOIA.Thus, generally speaking, the Board needs to hold public meetings,  for which advance notice is given to the public and minutes are maintained.
The parties do not dispute that FOIA applies to meetings of the Board and that the Board did not hold a formal public meeting on January 31, 2006. However, FOIA claims are barred by a six-month statute of limitations, and the Court cannot void the Board's actions on those grounds. Yet even independently of FOIA, the Board did not meet the statutory mandate to adopt an adjusted assessment. The Court does not decide whether the Board needed to gather physically and vote,  but it observes that there was no meaningful opportunity for the members of the Board to exchange opinions on the specific topic of whether each "approve[d] the reinstatement of the fee" prior to the individual votes. Defendants offer no basis to conclude that the unanimous email vote met the requirements for a meeting and board act other than the unavailing assertion that "the Authority repeatedly and extensively considered the issue, in public, and with the assistance of appropriate experts" before that day. Thus, the Board did not effectively act to adopt an adjusted assessment on or before January 31, 2006.Whether the statutory language required the Board to change the assessment to an amount other than $3 or merely to adopt an assessment appropriate to the circumstances is inconsequential. Plaintiffs have shown that the Board did neither.
There is also no evidence that the Board officially acted to eliminate the $3 assessment on or around February 1, 2006. The General Assembly could have drafted 25 Del. C. § 7012(f)(1) to say that the power to collect assessments would automatically end absent an adjustment on or before January 31, but it did not. Instead, the statute required the Board to eliminate the assessment. The underlying wrong may have been the Board's breach of duty by failing to eliminate the assessment shortly after the statutory deadline, but each subsequent collection without Board action to eliminate the fee separately violated 25 Del. C. § 7012(f)(1). Plaintiffs have thus shown that Defendants did not rightfully collect the assessments between February 1, 2006, and April 8, 2014.
C. Affirmative Defenses
Because the Board did not perform the acts with which it was charged by statute, the next question for the Court is whether any of Defendants' affirmative defenses bars Plaintiffs' recovery. Defendants focus on the affirmative defenses of immunity, statutes of limitations, and laches in their briefs.
Defendants first contend that Plaintiffs cannot recover any damages because this is a civil suit against DMHRA for acts within the scope of the Board's duties, and Defendants have the benefit of statutory immunity. While DMHRA and its board may be sued under 25 Del. C. § 7011(d)(1), Subsection (b)(3) protects them from civil liability and civil causes of action "of any nature . . . for any act or omission in the performance of powers and duties under this subchapter unless the act or omission complained of was done in bad faith or with gross or wanton negligence." Bad faith, analogizing from the corporate law context, includes "not only an intent to harm but also intentional dereliction of duty." Gross negligence requires "'an extreme departure from the ordinary standard of care, '" and wanton behavior requires "'conscious indifference' or [an] 'I-don't-care' attitude."
Plaintiffs, in their answering brief, explain that immunity does not apply because (1) this is an action seeking disgorgement of Plaintiffs' money to Plaintiffs rather than seeking to hold the Authority or the Board liable for damages, (2) Defendants' continued collection was not "in the performance of powers and duties" under the statute, and (3) the Board at least knowingly violated its statutory mandate by arranging a hasty email vote and withholding subsequent notice from Plaintiffs. To begin, the statutory grant of immunity is worded broadly. The Court, therefore, cannot meaningfully separate a suit seeking return of monies collected by DMHRA and one seeking recovery against DMHRA for illegal assessments, both of which would be paid from the Trust Fund pool. In other words, this is at heart a civil cause of action against DMHRA to recover money. Secondly, as discussed above, the Board violated its duties through an (ongoing) failure to eliminate the assessment—an omission in the performance of its statutory duties. Because the assessments were not self-eliminating, Defendants were technically acting within their powers under the law by continuing to collect them.
Plaintiffs lastly contend that Defendants' conduct demonstrated bad faith or gross or wanton negligence. Generally speaking, the record shows that the members of the Board, serving without pay and holding regular meetings before January 31, 2006,  attempted to comply (and appear to have believed that they had complied) with their duties by responding promptly to Leslie Bird's correspondence. They were mistaken, but the record does not contain evidence of their improper motives or extreme lack of care in so believing—at least until Plaintiffs filed the Complaint. Once the Complaint focused Defendants' attention on deficiencies in the Board's conduct, the alleged shortcomings might have been so clear that continuing to collect the assessment in normal course qualified as conscious indifference. In fact, because immunity generally applies to bar recovery of damages from Defendants, Plaintiffs' primary recourse was to file suit to compel the Board to eliminate the assessment. However, the parties did not anticipate that the case would evolve in this manner and did not address this line of reasoning in their briefs. The Court did not raise the potential difference between the pre- and post-filing periods during oral argument, either. The parties should address the issue to make briefing complete, and the Court declines to resolve the immunity defense without providing the parties fair opportunity to present their arguments.
D. Unjust Enrichment
Plaintiffs assert that DMHRA has been unjustly enriched by collecting assessments unlawfully and using them to fund administrative expenses. Defendants argue that Plaintiffs have not established the elements for an unjust enrichment claim, for one because the assessments are held in trust for Plaintiffs' benefit. To establish a claim for unjust enrichment, one must show "(1) an enrichment, (2) an impoverishment, (3) a relation between the enrichment and impoverishment, (4) the absence of justification, and (5) the absence of a remedy provided by law." With respect to the first prong, Plaintiffs allege that the Authority has been enriched by collecting more than it can legitimately (and actually does) spend to benefit landlords and tenants. However, even if the Authority's financial reports paint a somewhat bleak picture, the General Assembly created the Trust Fund to assist landlords and tenants; the money in the Trust Fund ultimately will be returned to landlords and tenants as classes (or support the seemingly inevitable cost of administration); and Plaintiffs have not shown evidence of abusive spending. Thus, Defendants have not been unjustly enriched.
For the reasons stated above, Defendants' motion for summary judgment is granted except for the possibility that Plaintiffs are entitled to some measure of recovery for the assessments collected between the date they filed the Complaint and April 8, 2014. Plaintiffs' motion for summary judgment is granted as to the failure of the Board "to adopt an adjusted assessment on or before January 31, 2006, " or eliminate the fee, but it is otherwise denied.
IT IS SO ORDERED.
Very truly yours,
JOHN W. NOBLE