East Palo Alto's biggest landlord suffered a legal setback Tuesday when a San Mateo County judge granted an injunction barring it from raising rents at its properties.
The injunction was requested by a group of tenants of Page Mill Properties, a Palo Alto-based company that owns about 1,700 apartments in East Palo Alto's Woodland Park neighborhood. Tenants have accused Page Mill of hiking rents in violation of the city's rent-control ordinance and argued that the company formed an assortment of sham limited-liability companies largely to avoid having to comply with the ordinance.
On Tuesday, San Mateo County Superior Court Judge Steven Dylina granted the plaintiff's request for a preliminary injunction enjoining Page Mill and its many alternate entities from "collecting or enforcing any rent increases imposed on plaintiffs and other tenants living in properties owned by the LLC defendants since they took ownership of the properties." The ruling also bars Page Mill from imposing rent increases on plaintiffs and other tenants while the litigation is ongoing.
Most of Tuesday's arguments focused on the relationship between Page Mill and more than a dozen smaller companies, each of which owns four or fewer units. East Palo Alto's ordinance, which limits how much rents can be increased each year, includes a "mom and pop" provision that exempts landlords that own four or fewer units. Tenants' attorneys Robert Hawk and Ryan Marsh, both from the local firm Hogan & Hartson, argued that Page Mill acted in bad faith when it characterized its limited liability companies as entities separate from itself.
Hawk argued that Page Mill typically treats all the apartments owned by these companies as its own when it sends out newsletters to tenants or applies for loans. But Page Mill suddenly starts treating the companies as separate companies when it wants to raise rents.
"It is inherently bad faith. It is inherently inequitable when the defendants, time and time again, where it's convenient, asserted themselves as a common organization," Hawk said. "But, on the other hand, when it's convenient, they asserted themselves as separate entities."
Marsh cited statements from numerous tenants, some of whom said they had to go without medication, cancel doctor appointments, collect cans to make money or move out after seeing their rents increased by more than 40 percent last year. He noted that of the four plaintiffs, three no longer live at Page Mill-owned properties.
Page Mill's attorney Christine Griffith, from the San Francisco firm Ellman, Burke, Hoffman & Johnson, argued that Page Mill's system of forming smaller entities is very common in real-estate management. She also said Page Mill never denied that the companies are all related.
"We have never hidden the fact that these are related companies," Griffith said. "There is no evidence of subterfuge; there is no evidence of a hidden agenda."
Dylina said the plaintiffs "have shown that there will be an 'inequitable result' if the entities are treated separately for the purpose of applying the (rent-stabilization ordinance)." But Dylina also said he has seen no evidence demonstrating that Page Mill formed its network of limited-liability corporations for fraudulent or deceptive purposes.
The company's organization, he ruled, could be based on legitimate purposes.
The tenants' attorneys will now compose the court-granted injunction, which would then be reviewed by Page Mill's attorneys and take effect at the end of the month.
The legal skirmish between Page Mill and the tenants in their subsidiaries is one of many the controversial property owners has been involved in since it purchased the East Palo Alto properties in 2007. The company has also been involved in more than 10 lawsuits against the City of East Palo Alto.
Meanwhile, the Palo Alto Police Department has been conducting an internal investigation on Lt. Tim Morgan, a former police lieutenant who moonlighted for Page Mill while still on the Palo Alto police force.
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