IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

JOHN IACONA and
ROBERT WEYMOUTH,

Appellants,

V. C.A. No. $17A-04-001 RFS

HOMETOWN REHOBOTH BAY, LLC,

Appellee.

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Submitted: 7/23/2020
Decided: 8/6/2020

Olga K Beskrone, Esq., 100 W. 10" Street, Suite 801, Wilmington DE 19801, Attorney
for Appellants.

Michael P Morton, Esq., 3704 Kennett Pike, Suite 200, Greenville DE 19807, Attorney
for Appellee.

I. INTRODUCTION
Before the Court is Hometown Rehoboth Bay, LLC’s’ (“Appellee”) Motion to Strike and

John Iacona and Robert Weymouth’s (collectively, “Appellants”) appeal from the decision of the

arbitrator. For the reasons that follow, the Court affirms the arbitrator’s decision and denies

Appellee’s Motion to Strike.

II. FACTUAL AND PROCEDURAL HISTORY

Appellants are homeowners in Hometown Rehoboth Bay, a manufactured housing

community owned by Appellee.

 

' Appellee is a Delaware limited liability company, which manages Hometown Rehoboth Bay.
Appellee had increased the rent for 2017 for increased costs incurred during the 2015-2016
year related to capital improvements and rehabilitation work in the community, and other cost
increases in managing, operating, and maintaining the community.” A final meeting was held and
Appellee provided the homeowners with justification for the increase.’

Appellants opposed the rent increase and sought arbitration. After giving both sides an
opportunity to present their arguments, the arbitrator concluded that a rent increase of $76.32 per
month plus a CPI-U* amount of 0.6% was justified. The final amount was approximately a 25%
reduction in the rent increase imposed by Appellee. The arbitrator concluded that Appellee met its
burden to disclose all material factors to Appellants pursuant to 25 Del. C. § 7043(b).° The
arbitrator further concluded that Appellee met its burden in demonstrating the portion of the rent
increase based on changes in the costs of insurance and property taxes; however, he concluded that
Appellee did not meet its burden with respect to changes in reasonable operating and maintenance
expenses.

The arbitrator determined Appellee failed to meet the burden for costs relating to the trash
truck repair, the new maintenance vehicle, the pool/beach picnic area upgrades, the driveway
repair and replacement, and the lift station repairs. The arbitrator determined Appellee met its

burden for part of the pier walkway project, the playground equipment, and the road work. The

arbitrator further found Appellee met its burden for the maintenance shop HVAC replacement and

 

? The items included insurance, taxes, playground equipment, trash truck, maintenance truck, pool/beach picnic area
work, addition of a maintenance shop HVAC, driveway replacement, work completed on the pier/walkway, repairs
to the lift station, road work, the bulkhead stabilization, and operating and maintenance expenses.

325 Del. C. § 7053 (previously 25 Del. C. § 7043) provides a community owner proposing a rent increase must hold
a final meeting.

4 Consumer Price Index For All Urban Consumers in the Philadelphia-Wilmington-Atlantic City area. 25 Del. C. §
7052

°25 Del. C. § 7053.
the bulkhead stabilization project. The bulkhead project is the center of Appellants’ argument on
appeal.

Following the Arbitrator’s decision, Appellants appealed to this Court.® Appellants raised
three questions on appeal: (1) whether the arbitrator erred in holding that the rent increase was
directly related to operating, maintaining, or improving the community; (2) did the arbitrator err
in awarding Appellee a rent increase for the bulkhead stabilization project because it was ordinary
repair, replacement and maintenance; (3) if the bulkhead stabilization was a capital improvement,
can the amount of the cost be recovered in one year and the rent increase be permanent. On May
31, 2019, the Court stayed the appeal pending the decision of the Delaware Supreme Court in
Sandhill Acres MHC LC v. Sandhill Acres Home Owners Association. The Sandhill decision
answered Appellants’ first question, leaving this Court to address the other two questions.’

On June 20, 2019, Appellants filed their Motion to Supplement the Record, seeking to
introduce evidence not previously considered by the Arbitrator. The Court denied their request.*
Following the Court’s decision, Appellants submitted their brief. Appellee also moved to strike
matters in Appellants’ briefs, arguing that Appellants relied on matters outside of the record before
this Court. The Court heard oral argument on July 23, 2020 and reserved decision. This is the
Court’s decision.

Ill. PARTIES’ CONTENTIONS
Appellants present multiple arguments as to why the arbitrator’s decision should be

reversed. First, Appellants contend the arbitrator erred as a matter of law in holding that any of

 

° Section 7054 allows the affected homeowner to appeal the decision of the arbitrator to the Superior Court in the
county of the affected community. 25 Del.C. § 7054 (previously 25 Del. C. § 7044).

7 See Appellants’ Supplemental Reply Br. p. 1.

8 Jacona v. Hometown Rehoboth Bay, LLC, 2019 WL 4740522, at *2 (Del. Super. Ct. Sept. 27, 2019).
Appellee’s proposed rent increase is directly related to operating, maintaining or improving the
manufactured home community.

Appellants also contend the work done on the bulkhead constituted ordinary repair and
maintenance and, therefore, would not satisfy the requirements under 25 Del. C. 7052(c)(1).
Appellee argues the bulkhead stabilization project constituted capital improvement and
rehabilitation work.

Appellants also argue the arbitrator erred by not ordering Appellee to turn over certain
documents. The arbitrator reasoned he lacked the authority to order production of the materials.
Appellants contend this error warrants remand of the case.

Appellants also contend the awarded rent is so high that it must be amortized over a
reasonable time period. They argue over time, the rent increase will exceed the costs incurred by
Appellee. Appellee contends they are entitled to the rent amount awarded by the arbitrator and
there is nothing in the Rent Justification Act that precludes it.

IV. DISCUSSION

Before turning to the merits of the appeal, the Court will first address Appellee’s motion
to strike matters outside the record. Appellants attempt to provide evidence of their demands of
their discovery requests. Appellants requested documents prior to arbitration; however, the
arbitrator did not order production.’

It is now settled that arbitrators have the authority to order production of relevant
documents during arbitration proceedings.!° However, it is the Court’s opinion that had Appellee

provided the documents Appellants requested, the outcome would be the same. Appellee provided

 

? The arbitrator stated he lacked the authority to compel discovery. See App.’s Br. February 16, 2017 Tr.
!© Donovan Smith HOA v. Donovan Smith MHP, LLC, 2018 WL 3360585, at *2 (Del. July 10, 2018); Wild Meadows
MHC, LLC v. Weidman, 2020 WL 3889057, at *9 (Del. Super. Ct. July 10, 2020).
a voluminous amount of documentation in support of the rent increase at the final meeting and at
arbitration. That documentation provided the prior year’s amount, the amount of the current year
at issue, along with an explanation for the difference in increase. It further covered all material
factors as set forth by the Act.

Although an arbitrator has the authority to order production, that authority does not justify
a fishing expedition.!! The January 6, 2017 transcript excerpt recently provided by Appellants
shows Appellants wanted more information from Appellee at the meetings. The excerpt proves
Appellee provided additional information and Appellants were still not satisfied.'* Moreover,
without reviewing the entirety of the packet, Appellants determined it did not have all of the
requested information. !

The arbitrator determined Appellee provided evidence supporting each of the material
factors, satisfying its burden. Moreover, the record supports a finding that Appellee provided a
substantial amount of records to the Appellants.'* As the Supreme Court has previously noted, the
“statutory requirement is a modest one, which only requires the landowner to produce evidence
suggesting that the ‘return’ on its ‘property’ has declined.”!> The arbitrator had enough evidence

to make a decision. Based on the record, remanding the case to compel discovery would be futile.

 

'! The Court in Sandhill a community owner is not in the position to deny a “reasonable” request. (“[A] community
owner seeking a rent increase would not be in any equitable or legal position to resist a reasonable request for
information about its costs and profit margins.”) Sandhill Acres MHC, LC v. Sandhill Acres Home Owners Ass'n,
210 A.3d 725, 731 (Del. 2019).

'2 January 6, 2017 Tr. p. 11.

'3 Appellant Iacona, when asked by the arbitrator whether two of the matters in Appellants’ discovery motion were
satisfied by the additional exhibits provided by Appellee, responded, “I have not had enough time to review the
whole packet. But just briefly going through it, I noticed it is not complete to what we asked” January 6, 2017 Tr. p.
Ll.

“At arbitration, Appellant Weymouth referred to the information provided by Appellee as a “data dump.” App.’s
Br. February 16, 2017 Tr. p. 7.

'S Bon Ayre Land, LLC v. Bon Ayre Cmty. Ass'n, 149 A.3d 227, 235-36 (Del. 2016).
Furthermore, it is Appellants’ burden to show they made a proper discovery request.
Appellants wanted more information than what was provided!*; however, there is insufficient
evidence to find Appellants made a proper request before the arbitrator. Appellants filed a motion
for discovery at arbitration; however, that motion is not part of the record before the Court.!”
Therefore, this Court cannot determine whether Appellants’ request was relevant and specific such
that it should have been granted.

The Court will now turn to the merits of the appeal. Pursuant to section 7054, “the appeal
shall be on the record and the Court shall address written and/or oral arguments of the parties as
to whether the record created in the arbitration is sufficient justification for the arbitrator's
decisions and whether those decisions are free from legal error.””!®

The Rent Justification act provides several requirements that must be met in order to
increase the rent in a manufactured home community. First, the community owner must not have
been in violation of any health or safety regulation. Once the community owner satisfies that
threshold, the community owner must prove that the proposed rent increase is directly related to
operating, maintaining or improving the community.’ After meeting the first two requirements,
the community owner must then justify the cost increases by one of more of the factors set forth
in 25 Del C. 7052 (c).

Section 7052 subsection (c) provides that one or more of several factors may be met to

justify a rent increase. One of those factors include the completion and cost of any capital

 

'6 January 6, 2017 Tr. pp. 5-7.

" Id at 11.

18 95 Del. C. 7054.

995 Del C. § 7052 (previously 25 Del. C. § 7042).
improvements or rehabilitation work in the manufactured home community, as distinguished from
ordinary repair, replacement, and maintenance.”°

When considering whether the arbitrator’s decision is supported by substantial evidence,
the Court must address each of the threshold requirements discussed above. Here, the arbitrator
found no violation of a health or safety regulation and this is not the issue in the current appeal.
Therefore, the Court will move on to the “directly related” requirement. The Delaware Supreme
Court has interpreted the “directly related” requirement to mean that the “community owner must
have “seen its costs increase for ‘operating, maintaining or improving the manufactured home
community,’ the idea being that the community owner's expected returns must have declined due
to that increase in costs.””!

In Sandhill Acres MHC, LC vy. Sandhill Acres Home Owners Association, the Court
explained:

To make a prima facie case that a rent increase is directly related to improving the

community—a requirement that we have previously described as “modest”—it

suffices for the community owner to offer evidence that in making some capital
improvement, the community owner has incurred costs that are likely to reduce its
expected return.”

Here, Appellee offered evidence including itemized invoices and photographs showing it
incurred costs related to work done in the community. Appellants failed to offer contrary evidence
at arbitration to show Appellee’s rent increase was not related.?? Based on the evidence the
arbitrator had before him, the arbitrator correctly found the costs satisfied the directly related

requirement. Therefore, the Court will move to Appellants’ next argument and the third

requirement Appellee must satisfy.

 

20.95 Del. C. § 7052(c)(1).

21 Sandhill Acres MHC, LC v. Sandhill Acres Home Owners Ass'n, 210 A.3d 725 at 727.

22 Id. (citing Bon Ayre Land, LLC v. Bon Ayre Cmty. Ass'n, 149 A.3d 227, 234-35 (Del. 2016)).
23 Arbitrator’s Decision, p. 3.
A community owner must also prove one of more of the factors listed in 25 Del. C. §
7052(c). Appellee relied on 25 Del. C. § 7052(c)(1), which states:

The completion and cost of any capital improvements or rehabilitation work in the

manufactured home community, as distinguished from ordinary repair,

replacement, and maintenance.

The bulkhead was no longer stable and required substantial work. The arbitrator
determined the work done on the bulkhead went beyond ordinary repair, stating, “....this seems to
be an extraordinary job by any reasonable definition, and fit more properly in the category of
rehabilitation work.””4 Moreover, the project involved a near complete replacement of the
bulkhead.”> The Court agrees with the arbitrator’s finding the bulkhead project goes beyond
ordinary repair. Appellants provided no competing evidence, which brings this Court to the
conclusion that the evidence in the record supports the arbitrator’s decision the work done on the
bulkhead constitutes a capital improvement or rehabilitation work, rather than ordinary repair,
replacement, and maintenance.

Furthermore, the Court finds the arbitrator’s award to be appropriate. The arbitrator, in
light of the improvements and costs, determined the rent increase of $76.32 per month to be
appropriate. Although Appellants argue the increase is unreasonable, a review of the record shows
Appellants did not provide evidence to be considered at arbitration. The arbitrator must make a
decision based on the evidence before him and the Appellee provided multiple forms of evidence
to support the arbitrator’s award.

The main issue raised by Appellants involves the bulkhead stabilization project; however,

the Court affirms the arbitrator’s findings as to the other items. The arbitrator denied some of the

 

24 Arbitrator’s Decision, pp. 8, 9.
5 The cost totaled $459,165.85. See Arbitrator’s Decision, p. 8.
items for which Appellee sought a rent increase; however, no appeal was taken. As to the other
items granted, the arbitrator noted that Appellants did not provide any evidence to rebut Appellee’s
evidence. Therefore, the Court concludes the arbitrator’s decision is supported by substantial
evidence and free of legal error.

V. CONCLUSION

Considering the foregoing, the arbitrator’s decision is AFFIRMED.

IT IS SO ORDERED.

 

 

Richard F. Stokes, Judge

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