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Donovan Smith MHP, LLC v. Hoa

Superior Court of Delaware

October 14, 2019

DONOVAN SMITH MHP, LLC, Appellant,
v.
DONOVAN SMITH HOA Appellee.

         Upon Appellant's Appeal from Arbitrator's Decision dated April 23, 2018 DENIED

          Seth L. Thompson, Esquire, Parkowski Guerke & Swayze, P.A., Attorney for Appellant.

          Dmitry Pilipis, Esquire, Community Legal Aid Society, Inc., Attorney for Appellee.

          Louis J. Rizzo, Jr., Esquire (Arbitrator)

          MEMORANDUM OPINION AND ORDER

          CRAIG A. KARSNITZ, J.

         I. INTRODUCTION

         Before me is an appeal from an Arbitrator's decision (the "Decision1) denying Donovan Smith MHP, LLC ("Appellant1' or "Landowner"), the owner of the Donovan Smith Mobile Home Park in Lewes, Delaware (the "Community'"), a rent increase above CPI-U[1] on the tenants of the Community ("Homeowners") under the Affordable Manufactured Housing Act, colloquially known as the Rent Justification Act (the "Act").[2] The Arbitrator found that Donovan Smith had not met the requirements under the Act to increase the rent in the amount requested.[3]Although I find legal error in one aspect of the Decision, it does not affect the outcome of the matter. Thus, I affirm the Decision for the reasons stated herein.

         II. PROCEDURAL BACKGROUND

         On December 19, 2017, Landowner notified Homeowners of its intent to increase rent above CPI-U effective April 1, 2018.[4] After an unsuccessful meeting between Landowner and Homeowners on January 14, 2018, a group of Homeowners represented by the Donovan Smith Home Owners Association ("Appellee" or the "HOA") filed a petition for arbitration under the Act. The Arbitration was held on April 13, 2018 and the Decision was issued on April 23, 2018. On July 5, 2018, this Court stayed the matter until the Delaware Supreme Court issued its decision in Donovan Smith HOA v. Donovan Smith MHP, LLC, No. 24, 2018. That case was decided on July 10, 2018, "[5] whereupon briefing resumed. Appellant's Opening Brief on Appeal was filed on August 13, 2018, Appellee's Answering Brief on Appeal was filed on September 24, 2018, and Appellant's Reply Brief on Appeal was filed on October 9, 2018. On January 16, 2019, I ordered that the matter be stayed again until the Delaware Supreme Court issued a decision in Sandhill Acres MHC, LC v. Sandhill Acres Home Owners Association, No. 525, 2018 (“Sandhill Acres”). That case was decided on May 14, 2019.[6] On July 30, 2019, 1 heard oral argument from counsel for both parties.

         III. STANDARD OF REVIEW

         The various iterations of the Act have created confusion as to the appropriate standard the Superior Court should use in reviewing arbitration decisions under the Act.[7] The Act now states the following standard:

"The appeal shall be on the record and the Court shall address written and/or oral arguments of the parties as to whether the record created in the arbitration is sufficient justification for the arbitrator's decisions and whether those decisions are free from legal error."[8]

         In Sandhill Acres, supra, the Delaware Supreme Court put to rest the issues surrounding the standard of review. It held:

"We therefore conclude that substantial evidence review is the appropriate standard of review for the arbitrator's factual findings."[9]

         The parties in this case agree that the applicable standard of review is whether the decision of the Arbitrator is supported by substantial evidence and free from legal error. I have a limited role when reviewing the Decision by the Arbitrator. If the Decision is supported by substantial evidence and free from legal error, the Decision will be affirmed. Substantial evidence is evidence that a reasonable person might find adequate to support a conclusion. Freedom from legal error exists when the Arbitrator applied the relevant legal principles. The Arbitrator determines the credibility of witnesses, weighs evidence and makes factual findings. I do not sit as the trier of fact, nor should I substitute my judgment for that rendered by the Arbitrator. I must affirm the decision of the Arbitrator, if properly supported, even if I might, in the first instance, have reached an opposite decision. Only when there is no satisfactory proof in support of a factual finding of the Arbitrator may I overturn it.

         IV. THE ACT

         The Act requires several factors be shown before Landowner may increase rent above CPI-U:

         First, Landowner 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;[10] and

         Second, the proposed rent increase must be "directly related to operating, maintaining, or improving the manufactured home community, [11] and

         Third, the proposed rent increase must be justified by one or more of the following eight factors: (1) capital improvements;[12] (2) changes in taxes;[13] (3) changes in utilities;[14] (4) changes in insurance costs and financing;[15] (5) changes in operating and maintenance expenses;[16] (6) repairs other than ordinary wear and tear;[17] (7) "market rent";[18] and, (8) rental assistance.[19]

         The word "and" emphasized above is important in this case. In Bon Ayre Land, LLC v. Bon Ayre Community Association, 149 A.3d 227 (Del. 2016) (“Bon Ayre II”), Landowner argued that the word "and" should be read as the word "or," and that Landowner could satisfy either the "directly related" requirement or the "market rent" requirement. The Delaware Supreme Court disagreed, determining that Landowner must meet both requirements.[20] Only if Landowner demonstrates that the "directly related" requirement has been met is the door opened to consider whether the "market rent" requirement has been met.

         V. ...


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