Solomon v. Dominguez-Konopek – Second District Court of Appeals Disapproves of Trial Court’s “Split the Baby” Equitable Remedy in light of Rent Board Issue Preclusion

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In an unpublished decision, Division Five of the Second District Court of Appeals ruled that the trial court in a declaratory relief action was not permitted to fashion a compromise equitable remedy to balance a landlord’s predecessor’s imposition of unlawful rental rates and a tenant’s entitlement to equitable offsets for past overpayments going beyond the statute of limitations. Interestingly, the court made this determination on collateral estoppel principles.

Landlord Solomon inherited a rent-controlled property in Santa Monica from his mother. Tenant Dominguez-Konopek had been renting an apartment in the property since 1996, and the original landlords increased her rent above the permissible price ceilings of the rent ordinance.

Generally, a landlord stands in the shoes of their predecessor as to liability for past, non-conforming rent increases. (See, Baychester Shopping Center, Inc. v. San Francisco Residential Rent Stabilization and Arbitration Bd. (2008) 165 Cal.App.4th 1000.) However, Santa Monica has a conclusive presumption that a successor owner is in compliance with the applicable rent ceiling (absent some factors not present in this case).

Solomon sought a verification of the lawful rent from the rent board, which certified it under Cal. Civ., §1947.8. However, the board then filed a complaint against Solomon to enforce Dominguez-Konopek’s rights – a proceeding she abstained from, because she did not want to be bound by the three-year statute of limitations – seeking instead to withhold overpayments going back to 1996 under the decision Minelian v. Manzella (1989) 215 Cal.App.3d 457 (allowing the use of equitable offsets against future rent obligations). In fact, Solomon sought to evict Dominguez-Konopek, to which she raised “Minelian offsets” as a successful defense.

While the unlawful detainer action was pending, Solomon petitioned for writ of mandate against the rent board, and the trial court granted the petition, ordering the rent board to evaluate the permissible rental rate in light of its conclusion that Solomon was not bound by his predecessor’s mistakes. After he was unsuccessful in the unlawful detainer action because of the Minelian defense, Solomon sought declaratory relief against Dominguez-Konopek, which prompted the trial court in that action to fashion a compromise remedy:

“The trial court believed the issue before it was one of fairness after finding what it thought was a conflict between Rent Control Regulation 8024(h), pursuant to which Solomon bore no liability for noncompliance with the Charter Amendment prior to his acquisition of Dominguez-Konopek’s unit, and Minelian, which Dominguez-Konopek relied upon to argue she could withhold rent from Solomon until she had recouped all overpayments since 1996. The court’s identified conflict, however, was a false one. The proper resolution of this case does not depend on an exercise of equitable powers to promote fairness but rather on application of issue preclusion principles. Applying those principles, we conclude Solomon may not be held liable for any conduct preceding his acquisition of the property and Dominguez-Konopek is not permitted to withhold rent.”

However, because the rent board had already issued a final determination following the unlawful detainer case, the parties were not free to re-litigate whether Solomon was liable for his predecessor’s noncompliance and what the applicable rental rate was.

The unlawful detainer court was not bound by this decision because it wasn’t yet final. In fact, the unlawful detainer court came to its own conclusion about the lawful rental rate. However, the rent board subsequently found that the lawful rental rate was $760, not $530, on the basis that Solomon wasn’t bound by his predecessor’s mistakes. This determination constituted a material change in the factual basis of the determination that Solomon sought, such that the unlawful detainer court’s determination was not afforded a preclusive effect, and the declaratory relief court was bound by the rent board determination instead.