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Predatory Landlord Scheme Starts To Unravel in East Palo Alto

Submitted by News Desk on Wed, 09/09/2009 - 2:13pm
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Court Grants Injunction Against Illegal Rent Increases

On September 1, San Mateo Superior Court Judge Steven Dylina granted plaintiff's motion for a preliminary injunction in the closely watched Oberle v. Page Mill Properties class action lawsuit. The injunction will bar Page Mill and its related companies from collecting or enforcing rent increases that do not comply with the limits of the East Palo Alto Rent Stabilization Ordinance. The ruling represents a major setback for Page Mill's plans in East Palo Alto.

After gobbling up more than half of the rent-controlled apartments in East Palo Alto, Page Mill Properties immediately began imposing huge rent increases and evicting tenants at unprecedented rates. The company has repeatedly sued the city over local laws protecting tenants and filed unsuccessful petitions to raise rents. Page Mill Properties has also invoked the controversial Ellis Act to evict outspoken tenant activists, prompting accusations that the evictions are retaliatory.

The Oberle litigation involves Page Mill's effort to exploit a "mom-and-pop" exemption from the local rent law. Under the exemption, owners of four or fewer units are not subject to the rent increase limitations of the RSO. Page Mill created numerous companies, each to own four or fewer units, and then these companies imposed huge rent increases claiming to be exempt from the ordinance.

The Court squarely rejected Page Mill's argument that each of its corporate entities was to be considered separately. Applying the alter ego doctrine, the court disregarded the corporate forms set up by Page Mill in evaluating whether these entities could qualify for the exemption as owners of less than five units. The Court found that the tenant plaintiffs had shown such a "unity of interest" that the separate corporate personalities "do not in reality exist," and that the multiple entities had been used as conduits for a single enterprise. The court determined that recognizing the corporate entities would lead to an inequitable result.

The hearing lasted the entire day on Tuesday. Plaintiffs' counsel, Robert Hawk and Ryan Marsh of the law firm Hogan & Hartson, successfully argued that Page Mill's companies inconsistently claimed to be a single entity when it served their purposes, but then claimed separateness when trying to evade tenant protections through the "mom-and-pop" exemption.

The most moving part of the hearing came near the end, when, after hours of technical legal arguments, Ryan Marsh went through the stories of individual tenants whose declarations had been submitted to the court. Marsh offered stories of tenants whose rent increased from 45% to 75% in a single year under Page Mill ownership. He noted individual tenants who are forced to work overtime to afford the rents, including one tenant who is paying 90% of his income to rent, another who had to stop taking heart medication due to lack of funds, and another who was forced to go to a food bank because of the rent increases.

On the same day as the hearing, the San Jose Mercury News reported that Page Mill is facing financing problems that could lead to foreclosure. According to the article, "ownership of more than 1,700 units in East Palo Alto is in question after the company failed to make a $50 million payment to Wells Fargo Bank last month." Page Mill is urging Wells Fargo to renegotiate the terms of the loan, but tenant advocates question why Wells Fargo should renegotiate with a property owner with Page Mill's track record. The article also notes maintenance problems at Page Mill buildings, with pools recently being shut down by city health officials (including one that is bright green with algae), raising further questions about why Page Mill should be allowed to continue managing the property.

"Page Mill's record is toxic. I can't imagine why any lender would want to be associated with this company at this point." noted Andy Blue, an organizer with the statewide tenant rights group Tenants Together.

Page Mill's activities in East Palo Alto have also received significant financing, to the tune of $100 million, from CalPERS, California's public employee pension fund. Tenant and labor advocates have criticized CalPERS' involvement, noting that the pension fund's members are effectively funding a scheme to displace CalPERS' members from their affordable homes. Tenants Together has urged CalPERS to intervene to protect EPA tenants, and to adopt "predator free" guidelines for real estate investments to make sure public employee pension funds are never again used to partner with a predatory landlord.

Chris Lund, a Page Mill resident and organizer with the EPA Fair Rent Coalition commented, "The judge's rulings are significant and unambiguous victories for East Palo Alto tenants. Page Mill's lender, Wells Fargo, and its partner, CalPERS, should take note."

The injunction in the Oberle case is expected to be issued at a hearing on September 28, prior to October rent being due for the tenants.