Sally Renish and Barbara Stanley on behalf of themselves and all others similarly situated, Respondents, vs. Hometown America, L.L.C., d/b/a Rosemount Woods Manufactured Home Community, Appellant.

Sally Renish and Barbara Stanley on behalf of themselves and all others similarly situated, Respondents, vs. Hometown America, L.L.C., d/b/a Rosemount Woods Manufactured Home Community, Appellant. A05-2384, Court of Appeals Unpublished, August 29, 2006.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2004).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A05-2384

 

Sally Renish and Barbara Stanley

on behalf of themselves and all

others similarly situated,

Respondents,

vs.

 

Hometown America, L.L.C.,

d/b/a Rosemount Woods Manufactured

Home Community,

Appellant.

 

Filed August 29, 2006

Affirmed

Forsberg, Judge*

 

Dakota County District Court

File No. C8-04-9373

 

Kay Nord Hunt, Barry A. O'Neil, Valerie Sims, Lommen, Abdo, Cole, King & Stageberg, P.A., 2000 IDS Center, 80 South Eighth Street, Minneapolis, MN  55402 (for respondents)

 

John F. Bonner III, Robyn K. Johnson, Bonner & Borhart LLP, 1950 U.S. Bank Plaza, 220 South Sixth Street, Minneapolis, MN  55402 (for appellant)

 

            Considered and decided by Willis, Presiding Judge, Lansing, Judge, and Forsberg, Judge.

U N P U B L I S H E D   O P I N I O N

FORSBERG, Judge

            Appellant Hometown America, the owner and operator of the manufactured home community in which respondents live, challenges the decision of the district court granting a permanent injunction and partial summary judgment in favor of respondents.  Appellant argues that the district court erred in applying the doctrine of collateral estoppel and in determining on the merits that imposing separate utility bills was a substantial modification to the lease and was arbitrary and capricious under Minn. Stat. §§ 327C.02, subd. 2, .05 (2004).  Because the district court correctly ruled on the merits as a matter of law, we affirm.

FACTS

            Respondents Sally Renish and Barbara Stanley are residents of Rosemount Woods Manufactured Home Community (Rosemount Woods), which is owned and operated by appellant Hometown America.  Rosemount Woods has 182 rental lots with more than 200 residents.  The lease at issue states that the residents will be provided with "sewer, water and normal garbage service at no extra charge."

            Respondents' lease and state law allow appellant to modify the lease with 60 days' notice, but the changes must be reasonable; changes that substantially modify the lease or rules will not be effective.  Minn. Stat. §§ 327C.01, subds. 8, 11 (defining reasonable rule and substantial modification), .02, subd. 2 (requiring 60 days' notice for rule changes) (2004).

            In 1998, appellant notified residents that it was planning to install meters and bill residents directly for water and sewer services.  After the water meters were installed, appellant advised the residents that they would begin receiving sample invoices and that appellant would read the meters for three to four months to calculate average consumption and costs.  Residents were also advised that they would receive a rent reduction when they were billed individually for the utilities.  Effective March 1, 1999, residents were charged for their individual water and sewer usage, and rent was reduced $16 per month.

            In August 2004, respondents brought this lawsuit, asserting that the imposition of the water and sewer charges violated the Manufactured Home Park Lot Rentals Act, Minn. Stat. §§ 327C.01-.15 (2004), and breached the terms of the lease agreement.  They sought actual damages and an injunction precluding appellant from imposing these charges for water and sewer services.  The district court approved class certification.

            Meanwhile, residents of another manufactured home park also owned by appellant had prevailed in a similar lawsuit against appellant after a jury trial.  Schaff v. Chateau Cmty., Inc., No. A04-1246, 2005 WL 1734031 (Minn. App. July 26, 2005), review denied (Minn. Sept. 28, 2005).

            In the present case, respondents moved for summary judgment and sought permanent injunctive relief.  The district court ordered a permanent injunction on the grounds that appellant was collaterally estopped under Schaff; and that, in any event, the undisputed facts established that appellant violated the act because the change was a substantial modification of the lease and the change to the metering was arbitrary and unreasonable.  This appeal followed.

D E C I S I O N

            Generally, an appellate court will review a grant of an injunction under an abuse-of-discretion standard.  Cherne Indus., Inc. v. Grounds & Assocs., Inc., 278 N.W.2d 81, 91 (Minn. 1979).  Findings made in the order for injunctive relief will not be reversed unless clearly erroneous.  LaValle v. Kulkay, 277 N.W.2d 400, 402 (Minn. 1979).  The facts must be considered in the light most favorable to the prevailing party.  Metro. Sports Facilities Comm'n v. Minn. Twins P'ship, 638 N.W.2d 214, 220 (Minn. App. 2002), review denied (Minn. Feb. 4, 2002).  But even in review of an injunction, issues of statutory construction will be analyzed on a de novo basis.  Michels v. Kozitza, 610 N.W.2d 368, 371 (Minn. App. 2000), review denied (Minn. July 25, 2000).  Further, summary judgment will be reviewed as a matter of law.  State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990).

            Appellant contends that the district court erred as a matter of law in determining that imposing separate utility bills was a substantial modification of the rules and was arbitrary and unreasonable.

            The Manufactured Home Park Lot Rentals Act, Minn. Stat. §§ 325C.01-.15 (2004), was an attempt by the legislature to regulate mobile home park lot rentals, "with a view to balancing the positions of park owners and residents."  Lea v. Pieper, 345 N.W.2d 267, 270 (Minn. App. 1984), review denied (Minn. June 12, 1984).  Under the act, every agreement to rent a lot must be in writing, specify the terms and conditions in connection with the rental of the lot, and include "the rights, duties and obligations of the parties, and all rules applicable to the resident."  Minn. Stat. § 327C.02, subd. 1(c).  It must also include the amount of rent per month and a statement of all personal property, services, and facilities that the park owner agrees to provide to the residents.  Id., subd. 1(b).  A park owner who provides utility service may charge the residents for that service.  Minn. Stat. § 327C.04, subd. 1.  It may charge each household based on its individual use of the utility if meters have been installed.  Id., subd. 2.

            A park owner must give residents at least 60 days' notice in writing of any rule change.  Minn. Stat. § 327.02, subd. 2.  But the legislature limited changes owners may make to existing leases as follows:  "A rule adopted or amended after the resident initially enters into a rental agreement may be enforced against that resident only if the new or amended rule is reasonable and is not a substantial modification of the original agreement."  Id. (emphasis added).  Substantial modification is defined to mean "any change in a rule which:  (a) significantly diminishes or eliminates any material obligation of the park owner; (b) significantly diminishes or eliminates any material right, privilege or freedom of action of a resident; or (c) involves a significant new expense for a resident."  Minn. Stat. § 327C.01, subd. 11.  These are in the alternative, and meeting any of these three definitions can constitute substantial modification.  Id.

            When there is a determination that the provisions of Minn. Stat. §§ 327C.01-.14, addressing manufactured home park lot rentals, are violated, the district court is authorized to grant injunctive relief to prevent and restrain violations of law.  Minn. Stat. §§ 327C.15, 8.31, subds. 1, 3 (2004).  An appeal may be taken from an order granting an injunction.  Minn. R. Civ. App. P. 103.03(b).

            Appellant argues that the issue of whether a rule constitutes a substantial modification is essentially a factual question and contends that the district court erred by ruling that the undisputed facts showed that the rule was a substantial modification as a matter of law.  First, the pertinent facts here are undisputed.  Second, when a district court must resolve an issue of whether rule changes constitute a substantial modification under Minn. Stat. § 327C.02, it is faced with a question of law.  See, e.g., Sargent v. Bethel Properties, Inc., 653 N.W.2d 800, 802 (Minn. App. 2002) (addressing issue as a matter of law), review denied (Minn. Feb. 26, 2003); Lemke v. Van Ness, 436 N.W.2d 784, 787 (Minn. App. 1989) (same).

            Next, we address whether the district court properly ruled that a substantial modification occurred.  We first address whether the lease change "significantly diminishes or eliminates any material obligation of the park owner."  Minn. Stat. § 327C.01, subd. 11(a).

            Appellant argues that the rule change requiring the residents to pay their own utility charges did not eliminate a material obligation of appellant, but instead simply changed the form in which the obligation was carried.  Appellant argues that initially it absorbed the cost of utilities directly and passed them along in the form of rent.  When it began billing the residents directly, it offset this obligation by reducing their rent by $16 per month.  Appellant contrasts its actions to several cases in which the court found there was a substantial modification when the owner imposed additional financial obligations on the residents without a reduction in rent.  In Sargent, the owner, who argued that the new utilities charge was actually a rent increase, did not reduce the rent when it began charging for utilities.  653 N.W.2d at 802; see also Lemke, 436 N.W.2d at 786 (no assertion of rent decrease to offset financial liability for repairs).

            The new rule eliminated a material obligation of appellant because previously, the risk and cost of the monthly fluctuation in utility usage was placed on appellant.  With metering, appellant moved that risk and cost from itself to the residents.  Further, in Sargent, 653 N.W.2d at 803, this court held that imposing separate water and sewer charges was a substantial modification as a matter of law, and in Lemke, 436 N.W.2d at 787, this court reached the same conclusion when a rule was changed to require residents to be responsible for certain repairs.  The rent reduction here does not change the result because the rule change imposed the risk and expense of the monthly fluctuation on the residents.

            We also review the second definition of substantial modification, which is any change in a rule that significantly diminishes or eliminates any material right, privilege, or freedom of action of a resident.  Minn. Stat. § 327C.01, subd. 11(b).

            Appellant contends that this definition was not met because water and sewer services are provided just as before, except that now residents are given the right to control their utility usage and resulting expenses.  But previously, residents were not subject to additional charges based on their individual water usage, and their monthly expenses were certain.  Under the change, this is no longer the case, and a substantial modification occurred under this second definition.  In light of our conclusion that the first two definitions of substantial modification were met, we need not reach the final definition.

            After a determination that a rule change was a substantial modification, "a court may consider" mitigating factors, including "(a) any significant changes in circumstances which have occurred since the original rule was adopted and which necessitates the rule change; and (b) any compensating benefits which the rule change will produce for the residents."  Minn. Stat. § 327C.02, subd. 2.  The district court found that none of the mitigating factors set forth in this section were present.

            Appellant focuses on the second factor, contending that the rule change provided compensating benefits for the residents, because they received a rent reduction of $16 per month when they were made responsible for their individual utilities costs.  It further contends that their costs are now unaffected by the usage of others, they can control their costs by controlling their use, and the cost of utility services is fairly distributed.  It also asserts that whether these mitigating facts preclude a finding of substantial modification is another factual issue that should be resolved by trial.

            Appellant's arguments are essentially the same ones made in support of the claim that there was no substantial modification, which we rejected.  Further, the benefits appellant cites do not compensate the residents for the risk and cost of the monthly fluctuation in utility usage that they would face under the rule change.  On the undisputed facts, the district court did not err.

            The district court also held that the rule was arbitrary and unreasonable as a matter of law.  Minn. Stat. § 327C.01, subd. 8, defines a "reasonable rule" in relevant part as a park rule:

                        (a) which is designed to promote the convenience, safety, or welfare of the residents, promote the good appearance and facilitate the efficient operation of the park, protect and preserve the park premises, or make a fair distribution of services and facilities; [and] (b) which is reasonably related to the purpose for which it was adopted.

 

Id.  The district court here concluded that on the record, the new rule making the residents responsible for their own water and sewage charges was unreasonable as a matter of law.  Minn. Stat. §§ 327C.01, subd. 8, .05.  The court noted that the Minnesota legislature's original intent in enacting chapter 327C was to curb "major abuses of power" by park owners.  The court found the rule change at issue here was not designed to promote the convenience, safety, or welfare of the residents, to facilitate efficient operation of the park, or to make a fair distribution of services.  Instead, appellant's "intent in making the change was to solve a budgeting problem and eliminate an unpredictable and variable expense."

            Appellant argues that on the record, a fact-finder could conclude that the rule change was designed to facilitate park operations and make a fair distribution of services and facilities because it fairly distributes costs of utilities according to individual resident usage and fairly implements the rule by the residents' receipt of the rental reduction.  Appellant contends that the district court's decision without factual discussion or reference to the rule was arbitrary and unreasonable as a matter of law.  The relevant facts were undisputed and the district court cited the rule and statute.  The residents do not receive additional services as a result of the new rule, and the district court's decision is correct as a matter of law.

            The decision of the district court ruling that appellant's rule change constituted a substantial modification to the lease and was arbitrary and unreasonable and granting an injunction is affirmed.  In light of our decision on these issues, we do not reach the issue of whether the district court properly relied on collateral estoppel to reach the same result.

            Affirmed.

* Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.