Feeley v. Woods, Housing Expediter, 190 F.2d 228 (9th Cir. 1951)

In this action the Housing Expediter sought (a) an injunction restraining appellant from renting or offering for rent any of the accommodations in what the Expediter claimed to be a controlled multiple unit housing accommodation in Seattle, Washington, and (b) an order directing appellant to restore the sum of $4056.08 to certain named tenants by way of restitution this being the aggregate of certain specified sums claimed to have been collected as rentals from these tenants during the period from about September 1, 1948 to about January 17, 1949. These sums were claimed to be in excess of the maximum rentals as the same were established pursuant to the provisions of the Housing and Rent Act of 1947 as amended in 1948, 50 U.S.C.A.Appendix, §§ 1881-1906, referred to herein as the Act, and the action was brought under authority of Section 206(b) of the Act for violation of Section 206(a) of the Act.

On or about June 5, 1948 appellant purchased the Seattle structure here involved. For a long time prior thereto it had been operated as a low class apartment house accommodation containing 17 unfurnished apartment "units." The building was in an unsafe condition and was threatened with condemnation by the authorities. Appellant evicted the tenants in order to make certain required repairs (including a new roof) and thereafter and on or about September 1, 1948 reopened the repaired structure for occupancy.

From a stipulation of certain facts and other facts shown in the evidence the following matters and things were clearly established as facts. The apartment house when purchased by appellant was under "rent control" and the schedule of rents applicable thereto had been previously established by an Order of the Rent Director of O.P.A. made on June 3, 1943. Appellant did not make any structural changes in the physical layout of the 17 apartment units in the building but redecorated all of these apartments and generally rehabilitated them. He changed the units from unfurnished to furnished units, installed refrigerators, provided maid service, bedding and linen, laundry of linen, lights, cooking fuel and dishes and utensils. All of these additionally provided "services" and facilities were made available to and utilized by the tenants in whose behalf this suit was brought. An awning was placed in front of the rehabilitated structure bearing the legend "Feeley's Apartment Hotel."

Desiring to see the changes made and because of the contentions of appellant¹  the trial judge personally inspected the premises. Appellant took the position that under his new system of operating this old apartment enterprise he had really "converted" the former apartment house into a "hotel", this because under his system he was supplying his tenants with what amounted to "hotel services." He believed that he had a moral and legal right to charge his tenants daily, weekly and monthly rates which he did until February 21, 1949 at which time the Housing Expediter brought the instant suit wherein he challenged appellant's right to charge these claimed "hotel rates." This was the posture of the case when it reached the district court.

The trial judge foreshadowed his Findings and Conclusions in an oral opinion in which reference was made to the many repairs and improvements made by appellant. He noted that the previously authorized rent schedule²  was made for apartment units wholly unfurnished in a dilapidated and leaking building with inadequate and ineffective plumbing whereas under appellant's new operation the plumbing and lighting facilities and the walls and roof had been repaired and the walls decorated, new and attractive furniture for the units was added along with new ranges and new refrigerators. Various new services, including maid service, linen, and towel service were supplied, all of which left no room for comparison between a proper rental for the apartment and services rendered by appellant as against rental for the totally inadequate unfurnished apartment units listed under the earlier rent schedule (schedule of 1943, see Footnote 2).

The oral opinion also pointed out that the premises had not been freed from rent control and were neither a hotel nor generally considered or reputed as such in the community. The court emphasized that the rehabilitated apartments and the new services provided for tenants therein did make the tenancy under appellant unique in that the tenants were not required to rent the apartments on a month to month basis, but could readily obtain them on a daily basis, weekly basis, monthly basis, or a combination thereof. The judge was quite evidently impressed with the fact that appellant's operations were not those of the orthodox apartment house in that appellant was giving services to tenants which were quite similar to many which were provided by regular hotels and that the tenants were reasonably well satisfied. The court also expressed the view that appellant, in good faith, believed that he had the right to make the charges he did and in good faith believed that his new enterprise was freed from rent control under the Act — this because of the "hotel" status he claimed and because of the expenditures he had made.

The court formally found that appellant's structure is not, and has not been, a hotel in the community, nor is it nor has it been known as such within such community, nor were additional housing accommodations created by conversion; that the rentals established by an Order of the Rent Director of the Office of Price Administration made on June 3, 1943 were not changed or adjusted until the Expediter did make an adjustment of rentals by an Order dated May 18, 1949 which was made effective as of January 17, 1949. (Footnote 2). These findings are supported by the facts in evidence and are not clearly erroneous.

Formal conclusions of law recite generally that appellant's structure is a controlled housing within the meaning of the Housing and Rent Act of 1947 as amended, and that in the exercise of sound discretion the determination of any restitution due justly and fairly should be predicated on rental rates fixed in the (retroactive) Order of May 18, 1949 rather than on the "maximum rent technically in effect" (under the old 1943 Order) during the rather short period of occupancy of the tenants here affected; that this was the proper measure of restitution because the increased rentals established in and by the Order of May 18, 1949 were a just, fair and equitable basis for restitution in light of the fact that the tenants had enjoyed the services, equipment and improvements during their term as tenants and appellant had acted in good faith in making his rental charges.

Other conclusions entered dealt with the question of a just and proper restitution to be allowed, and indicated the basis adopted by the court in arriving at that amount. These conclusions covered various uncertain tenancies over the period here involved and the rates to be allowed in such cases, this in the light of equitable considerations stemming from the very peculiar and unusual circumstances of this case. We think that the conclusions of law adopted by the court are fully supported by the findings.

The computation of "overcharges" based on the foregoing conclusions resulted in a judgment by the court that such overcharges should be fixed in the sum of $1498.31. Judgment was accordingly entered granting the injunction prayed for and directing appellant to forthwith pay said amount into the registry of the court and providing that upon proper written application the Clerk should pay over to each of the tenants listed in the judgment the amount which the court had found should be paid to such tenant as his proper measure of restitution.

We think that the judgment reflects a fair and equitable solution of the unusual problem confronting the trial court³  and should be affirmed. However, appellant's vigorous contention that adoption of appellee's theory would result in a misapplication of the law applicable to the particular facts of this case suggests the propriety of a more specific discussion of appellant's arguments which are summarized:

(1) Appellant's accommodations are a "hotel" and therefore exempt from control.

(2) Appellant's conversion and rehabilitation work "created new housing."

(3) The right to sue for restitution of overcharges is a right limited to tenants.

(4) The rates established by the Housing Expediter were not equitable.

The foregoing points are considered in the order presented.

Point One

In order to lawfully establish that the premises here involved are exempt from rent control (on the theory that they are now being operated as a "hotel,") the evidence would have to show that appellant's establishment was, on June 30, 1947, enjoying the status of a "hotel" by common knowledge in the particular community where it was then located, and that customary "hotel services" were then being furnished to occupants of this hotel. However, the evidence in this case clearly establishes (and it is conceded) that on June 30, 1947 the establishment which appellant purchased was in the same location and was then being operated solely as a low class apartment house under rent control and that it continued as such until appellant purchased the apartment structure in June of 1948. It is clear that under applicable law both of the above noted requirements for "decontrol" and exemption as a hotel must have co-existed on June 30, 1947 in order to validate appellant's claim that his establishment now enjoys a hotel status.⁴  See Section 202(c) (1) Housing and Rent Act of 1947. The authorities (cited in Footnote 5) dealing with this point have clarified this issue and leave no doubt on this score.

Though it might be argued that appellant's present venture, measured by some standards, could be considered a "hotel," the court found as a fact that it was not a hotel; this finding has support in the evidence and is binding on us. No contention is made on this appeal nor was proof offered at the trial that on June 30, 1947 the then rent-controlled apartment house enjoyed the status of a hotel by common knowledge in its particular community and that customary hotel services were then being furnished to its tenants. We agree with appellee that the cases which reflect the rule of law applicable to the instant situation indicate clearly that in order for appellant to prevail in this action the burden was upon him to show that his establishment met the "hotel status" requirements which conformed to the statutory requirements above noted on what has been termed "the cut-off date" of June 30, 1947.⁵  This he failed to do.

Appellant stipulated at trial that "the same units in the same space existed upon reopening as existed prior thereto." On the issue of conversion and rehabilitation the court found as a fact that no additional housing accommodations were created by conversion. It is unnecessary to labor this point since this finding is amply supported by the evidence. We point out that subsequent to the effective date of the (amending) Housing and Rent Act of 1948, April 1, 1948, and prior to the renting of the accommodations here involved the Expediter issued a series of interpretations and published them on August 25, 1948 (13 Fed.Reg. 5001-03). In these it was provided that "where there has been a structural change involving substantial alteration or remodeling, decontrol occurs only if additional housing accommodations result from this work" — whether "additional housing accommodations" are created is determined "by comparing the number of dwelling units before and after the conversion."

With these interpretations of record, the Congress again amended the Act, Housing and Rent Act of 1949, and in amending Section 202(c) (3) (A) Congress not only approved the prior regulations and interpretations but wrote these provisions into the Act itself.⁶  Both Senate and House Committees accepted and adopted the "conversion" interpretations of the Expediter. See comments on the "conversion" problem in Woods v. Ginocchio, 9 Cir., 180 F.2d 484 and Elma Realty Co. v. Woods, 1 Cir., 169 F.2d 172.

Point Three

We find no merit in appellant's contention that a right in this case to sue for restitution of overcharges is a right which may be exercised only by the tenant.⁷ 

Point Four

In footnote 2 we referred to the Expediter's rental Order issued on May 18, 1949 (effective as of January 17, 1949) which appears to have been made in response to a petition for a rental adjustment filed by appellant on January 17, 1949. The Order granted the increases requested in the petition and made these increases effective as of January 17, 1949. No appeal was taken from the Order although Revised Rent Procedural Regulation No. 1 (13 Fed.Reg. 2369) provided for such an appeal. There is a well recognized principle that administrative remedies must be exhausted before one may resort to equity. See our holding in La Verne Co-Op. Citrus Ass'n v. United States, 9 Cir., 143 F.2d 415. We have applied the same rule to administrative orders in Woods v. Kaye, 9 Cir., 175 F.2d 886 and Babcock v. Koepke, 9 Cir., 175 F.2d 923. The contention advanced under point four is without merit.

An aspect of this case, which provoked comment in appellee's brief, merits a brief reference. So far as the record indicates appellant has not as yet applied for a possible "adjustment" based upon Section 5(a) of the Regulations (Part 825, Amendment 92, 14 Fed.Reg. 2233) which relates to housing accommodations not yielding a fair net operating revenue. This avenue of relief through the medium of the administrative process apparently remains open to appellant, therefore he is not in position to invoke some form of equitable relief at our hands based on a mere assertion that his rents are not "fair and equitable." We call his attention to the fact that on April 1, 1949, the Congress provided for a fair net operating income to landlords. Section 204(b) (1) of the Act. This provision of law was implemented on May 1, 1949 by a Regulation providing for a fair net operating income and establishing a formula to attain it — (Amendment 92, 14 Fed.Reg. 2233).

We agree with appellee that in any event appellant's failure to obtain statutory benefits to which he may be entitled is not a ground for decontrol of his property.

The judgment is affirmed.