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Donovan Smith HOA v. Donovan Smith MHP, LLC

Superior Court of Delaware

December 19, 2017

Donovan Smith HOA, Appellant,
v.
Donovan Smith MHP, LLC, Appellee.

          Submitted: September 1, 2017

         Upon Appellants' Appeal from the Decision of the Arbitrator, AFFIRMED.

          Brian S. Eng, Esq., Community Legal Aid Society, Inc., Attorney for Appellant.

          Seth L. Thompson, Esq., Sergovic Carmean Weidman McCartney & Owens, P.A., Attorney for Appellee.

          OPINION

          M. Jane Brady Judge.

         I. INTRODUCTION

         Before the Court is an appeal by the residents of the Donovan Smith Manufactured Home Park ("Homeowners") from a decision by an Arbitrator to allow Donovan Smith MHP, LLC ("Donovan Smith") to impose a rent increase greater than the CPI-U.[1] The Arbitrator found that Donovan Smith had met the statutory requirements to increase the rent in the amount requested.[2]

         Following appeal and briefing, the matter was referred for consideration on September 1, 2017. This is the Court's decision.

         II. STANDARD OF REVIEW

         While there has been some question about the proper standard of review of the arbitration process provided by this statute, [3] the parties appear to agree that the standard used in an administrative appeal as applicable. That is, the standard is whether the decision of the Arbitrator is supported by substantial evidence[4] and free from legal error.[5] The Court has a limited role when reviewing a decision by an administrative agency. If the decision is supported by substantial evidence and free from legal error, the decision will be affirmed.[6] Substantial evidence is evidence that a reasonable person might find adequate to support a conclusion.[7]Freedom from legal error exists when the agency "applied the relevant legal principles."[8] The agency determines credibility, weighs evidence and makes factual findings.[9] This Court does not sit as the trier of fact, nor should the Court substitute its judgment for that rendered by the agency.[10] The Court must affirm the decision of the agency, if properly supported, even if the Court might have, in the first instance, reached an opposite conclusion.[11] Only when there is no satisfactory proof in support of a factual finding of the agency may this Court overturn it.[12]

         III. THE ARBITRATION HEARING[[1]]

         The arbitration was conducted in a less formal fashion than a trial proceeding, but was structured to allow each party to present witnesses and evidence, conduct cross-examination and present final argument. Neither side was represented by an attorney at the hearing.

         The Arbitrator invited the Homeowners to proceed first as they were challenging the rent increase.[14] Ms. Terry Saunders, [15] representing the interests of the Homeowners, testified briefly regarding health and safety concerns at the park, a lack of amenities and landscaping, and of generally poor conditions.[16] She acknowledged, however, that Donovan Smith had not been cited by any governmental or regulatory agency for health or safety violations.[17] She then called James McCarty as a witness. Mr. McCarty, a resident, spoke regarding the communities that Donovan Smith had claimed were comparable in a letter to the Homeowners.[18] Mr. McCarty also testified that the other communities included water, sewer and trash in the rents charged.[19]While Mr. McCarty thought Donovan Smith's property was less attractive, and not as well manicured, [20] he testified that McNichol Place was a community "along the same lines of Donovan Smith."[21] When asked to compare that community to Donovan Smith, he testified that McNichol Place was "Similar. I can't say better."[22]

         Mr. Kenneth Burnham represented the interests of Donovan Smith. He called Ms. Jacqueline McIlvain, office manager for Donovan Smith, who testified that Donovan Smith currently charged $447.60 per month, which included water, sewer and trash expenses. She also testified that the McNichol Place, Whispering Pines and Love Creek Communities were comparable to Donovan Smith.[23] She had researched rents at those parks and found they exceeded Donovan Smith by a substantial amount.[24] She further testified that the most similar community was McNichol Place because, like Donovan Smith, it was older and did not offer a pool, community center or recreation area.[25] Ms. McIlvain also testified that in the previous year Donovan Smith had installed paved driveways in each unit in the park and painted the maintenance building.[26]

         Following testimony, each party presented argument. Mr. Burnham argued the improvements established that the rent increase was directly related to increased expenses for the improvement and maintenance of the community. Further, he contended that Donovan Smith had established that a market rent increase was justified based on the testimony regarding the comparable communities and the rents charged in those communities.

         Ms. Saunders argued the comparison between communities showed that Donovan Smith was not as well-maintained or in as good condition as the others being used for comparison. She further argued that Donovan Smith had not shown that expenses had increased or that Donovan Smith was having trouble "balancing the books."[27] Further, that the whole purpose of the law was to balance the interests of the Homeowners and Donovan Smith and to prevent undue hardship on residents.

         As noted above, the Arbitrator found that the statutory requirements were met and the rent increase was justified. The Arbitrator also commented in the decision that, in his opinion, this community, which was only populated year round by approximately 50% of the homeowners, was not the kind of community the law was intended to benefit.[28]

         IV. APPLICABLE LAW

         The Rent Justification Act requires several factors be shown before Donovan Smith may increase rent above CPI-U.[29]

         First, the community owner must not have been found, in the most recent 12 months, to be in violation of any provision that "threatens the health and safety of the residents" for more than 15 days after notification of the violation.[30]

         Second, the proposed rent increase must be "directly related to operating, maintaining, or improving the manufactured home community."[31]

         Third, if the previous two requirements are met, the rent increase must be justified by one or more of eight specific, listed factors. To specifically justify a rent increase based on market rent, those factors include capital improvements, changes in taxes, insurance, utility ...


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