Sixty thousand dollars. That is the amount of money the City of Norco, California, forced resident Ron Mugar to pay for having the gall to successfully defend himself in court.
That might sound unbelievable, but such brazenness is to be expected when a city outsources its justice to a law firm like Dapeer, Rosenblit & Litvak LLP (Dapeer) that promises cost-neutral code enforcement and financially benefits from fining its victims.
Ron was a victim of an increasingly common practice in California called “health and safety receiverships.” Traditionally, receiverships allow a city to take temporary ownership of a property to fix an imminent danger to a community, like a structurally unsound building. The owner then would receive a bill for the work done. The bill is attached to the property in the form of a property lien. If the homeowner cannot pay the bill, the receiver can sell the property.
Unfortunately, in California receiverships are now being used to address even minor code violations. That is because there is money to be made. A few code violations can justify the government’s taking of a property, “flipping” it and reaping the financial proceeds. Ron received a notice that the city was going to put his home into a receivership for having a yard with too much machinery, tools and other project materials. Because of this clutter, the city decided to take his home.
After digging into his life savings for a lawyer and cleaning up his property, Ron successfully stopped the receivership from going into effect. He thought he had won. Then, in November 2018, the city filed a motion asking for attorneys’ fees for all the time spent on Ron’s case. State statutes and local ordinances allow municipalities to seek fees for the cost of prosecuting nuisance violations. The city explained its request for over $60,000 by alleging that Ron had engaged in “obstructive tactics”: that is, he tried to defend himself in court. Ron asked the court to reconsider the receivership because it wasn’t necessary. And he disputed some of the city’s allegations. For defending his property rights, Ron owed tens of thousands of dollars.
With representation by the Institute for Justice (IJ), Ron challenged Norco’s abusive receivership practices under the U.S. and California Constitutions for violating his First Amendment and property rights. Unfortunately, the California Supreme Court refused to hear his appeal. Californians in particular remain vulnerable to abusive receivership abuse arrangements, and IJ remains committed to challenging them.
An avid machinist, Ron loves to build things: solar arrays, a hybrid-cell go-kart and classic cars. After retiring from a career in graphic design, he became a hobby machinist. He first began building things as a kid, but he now pushes himself with bigger and bolder projects.
Ron lives in Norco, located in Southern California’s “Inland Empire.” Known as “Horsetown, USA,” Norco has horse trails in place of sidewalks, and some residents even use their horses to run local errands. Like many Norco residents, Ron Mugar has a large property with several outbuildings. But while some of his neighbors use their land to keep horses, Ron has kept materials in his yard. This clutter has occasionally attracted the ire of some of his neighbors, but he has always brought his property into compliance when cited by the local government.
In the spring of 2017, the city of Norco’s “prosecutor,” Dapeer, obtained a warrant to search Ron’s property. 1 The building inspector conducted a search, and the city prosecutor cited Ron with approximately 20 total violations of the city’s code, including violations for having “dismantled or inoperable automobiles,” “tools” and “other equipment” in his yard. 2 In addition to citations for the outdoor clutter, there were also citations for clutter inside the house.
Instead of simply fining Ron and letting him address the issues, as Ron had always done before, the city prosecutor told Ron that it intended to place his house into a receivership. That means Dapeer would take possession of the property away from Ron and give it to a receiver. The receiver would hire contractors to fix up the property and then charge Ron for the work, including fees for legal work and for the individual appointed as a receiver. The latter costs would greatly exceed the costs of the actual physical work that needed to be done on the property. If Ron could not afford these costs, which is likely, the receiver could sell his house to get the money.
In preparing to fight the receivership, Ron and his children focused on bringing the property into full code compliance before the scheduled hearing date. Unfortunately, Ron had more difficulties ahead. After experiencing chest pains, Ron was admitted to the ICU and underwent heart surgery. Unable to leave the hospital, he missed the hearing, and the court granted the city prosecutor’s receivership petition.
With his back against the wall, Ron had no choice but to dip into his modest savings to hire a lawyer. His new lawyer promptly filed a motion to reconsider or vacate the receivership, arguing both that the property was being brought into compliance without a receiver and that Ron was medically unable to attend the hearing but that he should have an opportunity to be heard. Just eight days later, the court ordered that the receivership be stayed, allowing Ron to retain possession of his property while the court considered his motion.
While the court took the motion under consideration, Ron and the city prosecutor began to negotiate, ultimately agreeing that the receivership action would be dismissed if Ron passed an inspection. Ron thought he was in the clear.
Ron’s property passed the inspection with only one exception: his house had a laundry room that contained some violations that apparently dated to its construction in the 1960s. 3 The city prosecutor argued that the entire laundry room had to be demolished because it wasn’t constructed with a permit. Ron argued that it was constructed in 1969 under a valid permit, and therefore it needed to be in compliance with only that 1969 permit’s standards.
The court held another hearing to resolve the laundry room dispute. In front of the judge, the city prosecutor adopted a new position—that Ron could keep his laundry room if the city building inspector approved it. After the hearing, Ron was vindicated: the building inspector issued him a permit requiring only that he bring the room up to the 1969 permit’s standards. Ron submitted an application for the required upgrades, and the city granted him a construction permit. After the work was completed and passed inspection, the court vacated its earlier order granting the receivership.
Ron and his children were ecstatic. Norco’s attorneys had tried to take their home and later to force them to partially demolish it. But they had fought back, brought it up to code at a comparatively small expense and now they were going to get to keep it. But in November 2018, Ron learned his nightmare was not over. The city prosecutor filed a motion with the court, asking to be “declared the prevailing party” and awarded over $60,000 in attorneys’ fees, about half of which were for Ron engaging in “obstructive tactics” by asking the court to reconsider the receivership and disputing the laundry room issue. 4
Receivership Abuse: The latest form of for-profit policing in America
Local governments around the country are increasingly using their justice systems as tools to raise revenue. 5 Fines, fees and civil asset forfeitures are a significant line-item on many cities’ budgets, and law enforcement officers and prosecutors are pressured to meet those projections. This pressure perverts the fair and impartial administration of justice. For instance, in Pagedale, Missouri, police were ticketing residents for walking on the wrong side of the sidewalk, having mismatched curtains, or having beer too close to their barbeque grills. 6 A class action lawsuit filed by IJ put a stop to those ridiculous practices. 7
Closer to Norco, IJ is currently litigating against the cities of Indio and Coachella, which are also located in Southern California’s Riverside County. 8 These cities outsourced their code enforcement to a law firm called Silver & Wright, which criminally prosecuted residents for minor housing code violations that carried only small fines. People typically paid their fines and pleaded guilty, not knowing that the law firm would later demand that defendants pay its attorneys’ fees, which sometimes ran into the tens of thousands of dollars. If defendants couldn’t pay, the private law firm would put a lien on their property. Incidentally, Silver & Wright was also an early pioneer of the kind of receivership abuse that happened to Ron.
An industry of small law firms has sprung up around California, specializing in “health and safety receiverships.” These receiverships were once considered a tool of last resort, a way of dealing with properties that were imminent dangers to the community but whose owners just wouldn’t or couldn’t address the dangers. But in recent years these firms have started using receiverships to deal with even minor code violations that pose little or no threat to public health or safety. This is happening because firms have learned that receiverships can be extremely lucrative, and they promise that they’ll save cities money.
The receiver usually pays contractors to fix the property out of pocket and keeps track of expenses. When the work is completed, the receiver and the law firm that filed the petition will demand that the property owner pay their expenses. But fees can often run into the hundreds of thousands of dollars, and most property owners don’t have that kind of money lying around. The receiver and the law firm can attach priority liens, debts the homeowner must pay off, to the house and sell it to cover their expenses. 9 So as a practical matter, when a court grants a receivership petition, the property owner is usually about to lose his or her home, and the private law firm representing the city is about to get a big payday.
IJ has teamed up with Ron to oppose the city of Norco’s attempt to collect over $60,000 in fees from him. There are four reasons why the city is not entitled to any money from Ron:
First, the Due Process Clauses of the United States and California Constitutions require city attorneys to be neutral, without a direct financial stake in the cases they bring. But here, Norco’s prosecutor has a financial interest: it is seeking to recoup attorneys fees on a case that it prosecuted. It does this because its business model requires it to “maximize cost recovery.” 10 This creates an incentive both to use the draconian tool of receiverships in cases where it is unwarranted and unnecessary and to run up costs, rather than pursuing simpler and more cost-effective methods of code enforcement. Instead of considering whether the public interest requires code enforcement, the private prosecutor is simply concerned with winning a case and qualifying for attorneys’ fees under the local ordinance and state statute.
Second, by seeking prosecution fees, the city of Norco is essentially charging Ron more money because he vigorously, and successfully, defended his rights in this litigation. If he hadn’t fought back, the city argues, then the city would not have had to rack up so many fees. 11 By penalizing people for litigating to protect their property rights, the city of Norco is violating Ron’s First Amendment right to access and petition the courts.
Third, the city of Norco is seeking its fees pursuant to an unconstitutional ordinance that gives the city the sole discretion to decide, at the outset of each case, whether fees will be available. 12 This one-sided ordinance violates Due Process: it allows the government to avoid the cost of litigation when it is afraid it might lose, but to impose the full costs of litigation when it is confident it will win. The government is not allowed to simply change the rules to fit how strong its case is.
Finally, the city is not entitled to fees because Ron was the prevailing party. He successfully fought both the receivership and the city’s later demand that he tear down part of his own house.
Ron intends to remind the city of Norco—and other cities around California—that law enforcement is not a tool for squeezing cash out of citizens and that people cannot be punished for simply asserting their rights.
The litigation team consists of IJ Attorneys Joshua House and Jeffrey Redfern and Paralegal Emily Gammon. They are teaming up with local counsel Thomas V. Loran III and William Palmer, along with paralegal Deirdre Campino, of Pillsbury Winthrop Shaw Pittman LLP, which is taking this case pro bono.
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