Recent Challenges to Minn. Stat. Chapter 327C by Manufactured Home Park Residents

6/3/2005

In 1982, the Minnesota legislature passed laws governing the unique relationship between manufactured home park owners and residents. The legislature intended to make major changes in the existing laws governing the rights and duties of owners and residents of manufactured home parks.¹ While considering the enactment of Chapter 327C, the legislature recognized the unusual status of the manufactured home park owner: "Not simply a private land owner or an ordinary landlord, the park owner has come to resemble a private government."² "In short, a park owner is like an unelected mayor of a bedroom community."³ Minn. Stat. § 327C et seq. was originally enacted, in part, to curtail "major abuses of power" by park owners that sought to unreasonably control resident conduct.⁴

For nearly 20 years, challenges brought by residents under Minnesota Statutes Chapter 327C were relatively minimal, and park owner/tenant disputes consisted mostly of eviction matters. But in 1999, that all changed.

The Castle Towers Case

In 1999, Lommen Nelson accepted a pro bono opportunity through the Pro Bono Rountable to represent a group of manufactured home community residents ("MHC") at the Castle Towers Manufactured Home Park in East Bethel, Minnesota. The residents sought legal representation when the owners of their community installed water meters on their homes and began charging for water and sewer services even though the residents’ leases provided that water and sewer services would be included in lot rent and provided by the owner at no additional charge.

Despite widespread objection, the meters were installed and residents were charged separately for their water use in addition to the monthly lot rent. Monthly bills for water and sewer services varied wildy. Several residents were charged upwards of $100 with little recourse if they disputed the charges.

Under Minn. Stat. § 327C.02, new park rules must be reasonable and must not substantially modify the existing lease. By installing water meters and charging for water use, the Anoka County Court ruled that the Park created a rule that substantially modified the residents’ leases.

Anoka County Judge Donald Venne found as matter of law that the policy of metering and charging for water and sewer usage was a means through which the Park sought to control or affect the behavior of residents by encouraging them to conserve and was not simply a permissible rent increase. The Judge also determined that since the new rule significantly diminished a material obligation of the Park (to provide water and sewer), significantly eliminated and diminished a material right or privilege of the residents (to have water and sewer provided at no additional charge), and involved a significant new expense for the residents, the new rule was a substantial modification of the residents’ original rental agreements and in violation of Minn. Stat. § 327C.02, subd. 2.

The park owners appealed, and the decision was upheld. In Sargent v. Bethel Properties, Inc., 653 N.W.2d 800 (Minn. Ct. App. 2002), review denied, the Court of Appeals held that the addition of utility charges to existing rental agreements was a new rule that substantially modified the agreements and, thus, rendered the charges unenforceable as a matter of law. The Court of Appeals upheld a permanent injunction stopping the Park from charging residents for water and sewer services under the existing agreements. The Minnesota Supreme Court denied review, making the case the authority for MHC residents across the State of Minnesota.

Not a New Phenomenon

Since the Castle Towers case, a number of MHCs installed water meters and began charging residents for water and sewer services in addition to lot rent, despite lease agreements stating that water and sewer services would be provided at no additional cost. The Castle Towers precedent was no deterent. Dakota and Washington county Judges have also refused to decide the cases as a matter of law, opting instead to have the cases tried by juries. MHC owners have continued to defend their position that water meters are not a substantial modification of the lease agreements and are otherwise a reasonable rule change because the policy of conservation made the change permissible.

Minn. Stat. § 327C.02, subd. 2 provides a basis for the MHC owner to assert such an affirmative defense. In any action in which a rule change is alleged to be a substantial modification of the rental agreement, a court may consider (a) any significant changes in circumstances which have occurred since the original rule was adopted and which necessitate the rule change; and (b) any compensating benefits which the rule change will produce for the residents. MHC owners have presented the limiting factors to two different juries by arguing that resulting water conservation produced compensating benefits to the community. Despite conservation policies, the juries have found the metering constitutes a substantial modification of the existing lease agreements.

On March 25, 2004, a Dakota County jury rendered a $383,628 verdict in favor of Manufactured Home Park Residents of Cedar Knolls in Apple Valley. Just as in Castle Towers, the case entitled Schaff, et al. v. Chateau Communities, Inc., Dakota County Court File No. 19-CX-03-6402, was a class action lawsuit by all of the residents of Cedar Knolls Manufactured Home Community in Apple Valley whose lease agreements stated that water and sewer services were to be provided by the Park at no extra charge above the lot rental fee. Cedar Knolls unilaterally changed the lease agreements and began charging residents for their water and sewer services. The jury found that the change substantially modified the lease agreements and was unenforceable. Additionally, the jury found that the rates Cedar Knolls charged to residents were more than what the City of Apple Valley could charge directly, which was also unlawful.

On October 28, 2004, a Washington County jury awarded the residents of Cimarron Manufactured Home Community in Lake Elmo the sum of $288,697.21. The issues in Cavanaugh, et al. v. Chateau Communities, Inc., Washington County Court File No. C-4-02-2886, involved the same defendant as in the Shcaff case and the same corporate policy to "roll out" metering at each of the company’s Midwest holdings. The jury determined that separate metering and billing constituted a significant new expense for the residents, whose bills ranged from $15 to $100 or more, and thus substantially modified the lease agreements. A finding of a violation of Chapter 327C permits the Court to impose a permanent injunction preventing the park from imposing the utility fees.

Castle Towers, Cedar Knolls, and Cimarron are not alone. Several other community residents have challenged their landlords under this provision and reached amicable settlements. At least three other residents' class actions are pending in Anoka and Dakota counties.

Other provisions of this unique statute are worth noting:

Retaliation - Minn. Stat. § 327C.12

The retaliation provision of Chapter 327C has never been addressed in a published Minnesota case. Section 327C.12 provides that a park owner may not increase rent, decrease services, alter an existing rental agreement or seek to recover possession or threaten such action in whole or in part as a penalty for a resident's (a) good faith complaint to the park owner or to a government agency or official; (b) good faith attempt to exercise rights or remedies pursuant to state or federal law; or (c) joining and participating in the activities of a resident association. Minn. Stat. § 327C.12. The only unpublished Court of Appeals decision that addresses this provision found insufficient evidence to support a trial court’s conclusion that an eviction was retaliatory.⁵

The residents of Cedar Knolls are seeking review of the Dakota County Court’s similar conclusion that a rent increase imposed after the March 25, 2004 jury verdict on the water meter issue was not retaliatory under this section. Within days of the final order in Schaff, et al. v. Chateau Communities, Inc., Dakota County Court File No. 19-CX-03-6402, Cedar Knolls issued a notice to residents imposing a $36 rent increase "[b]ecause a number of residents brought a class action lawsuit."⁶ A decision from the Minnesota Court of Appeals is expected in Summer 2005.

Freedom of Expression - Minn. Stat. § 327C.13

The legislature enacted section 327C.13 specifically to protect the freedom of expression of residents and "other persons" in manufactured home communities to equalize the balance of power in such living situations. Management at two MHCs have threatened to arrest park residents or employees of a local non-profit resident organization if they are seen handing out flyers that promote resident organizing. But park owners do not possess the power to make such a determination on behalf of community residents who own their homes and rent the land. The Minnesota legislature expressly reserved the right of free speech within manufactured home communities to prevent such an arbitrary use of power by park owners, and the prevention of peaceful leafleting and canvassing for non-commercial purposes is a clear violation of Minn. Stat. § 327C.13, which provides that "no park owner shall prohibit or adopt any rule prohibiting residents or other persons from peacefully organizing, assembling, canvassing, leafleting or otherwise exercising within the park their right of free expression for noncommercial purposes." One case involving the application of this section was tried before a Dakota County Judge on November 17, 2004.⁷

Attorney Fees Under Minn. Stat. § 327C.15

Minn. Stat. Ch. 327C provides for attorney fees and costs under the private right of action statute (§ 8.31, subd. 3a.). Minn. Stat. § 327C.15 provides that "any violation of sections 327C.01 to 327C.14 is a violation of a law referred to in section 8.31, subdivision 1." The private attorney general statute permits an award of attorney fees where the plaintiff demonstrates that the cause of action was of benefit to the public. Section 327C.15 specifically provides a manufactured home park resident the protection of the private attorney general statute. Similar to the consumer fraud act, the protections afforded manufactured home park residents in Chapter 327C are designed to preserve and protect residents from mischievous business practices of owners. See Ly v. Nystrom, 615 N.W.2d 302 (Minn. 2000). Lommen Nelson has successfully represented numerous manufactured home residents at no cost to them using this provision.

For more information regarding this article, contact Valerie Sims at 612-336-9318 or valerie@lommen.com.

1.    Bill Summary of SF 1918.  All legislative materials referred to in this memorandum are maintained at the Minnesota Historical Society Legislative Records Archive:  129.A.15.3(B).

2.    Sentate Memorandum from Office of Senator Gene Merriam, 1982.

3.    Id.

4.    Id.

5.    Brandondale, Ltd. v. Duren, 1995 WL 15138 at *1 (Minn. Ct. App. 1995) (unpublished).

6.    Exhibit C to Complaint in Schaff v. Hometown America, LLC, Dakota County Court File No. C2-04-7568.

7.    All Parks Alliance for Change v. Uniprop, Inc., d/b/a Ardmor Village, Dakota County Court File No. C4-04-6504.