This case comes to us on certification from the Appeals Court of its opinion in Zussman v. Rent Control Bd. of Brookline, 4 Mass.App.Ct. 135 (1976).
The facts as stated in that opinion are essentially as follows. The plaintiff, as trustee, owns an apartment complex in Brookline purchased by him in 1972 for $700,000. The purchase was financed with a $700,000 mortgage with an interest rate of approximately 9%. The plaintiff bought the buildings intending to convert them to condominiums. Twenty-six units of the premises are subject to rent control, the provisions of St. 1970, c. 842 (the rent control enabling act), having been accepted by Brookline in 1970.
In May, 1973, the plaintiff filed a petition with the rent control board of Brookline (board) seeking increases in the maximum rents applicable to the rent controlled units in the complex. This petition dealt with twenty-six units, the remaining five units having been converted to condominiums. After a public hearing the board issued an order allowing the plaintiff a 6.8% rate of return on the total value of the units subject to rent control.
The Appeals Court remanded the case to the Superior Court for further proceedings conforming to the scope of judicial review delineated in Sherman v. Rent Control Bd. of Brookline, 367 Mass. 1 (1975), on the basis that the Superior Court judge had substituted his judgment for that of the board in determining the fair rate of return, thus violating the standard laid down in the Sherman case, supra. The Appeals Court further opined that on remand the plaintiff had a constitutional right to judicial review of both fact and law with respect to his claim that the rate which the board had set resulted in a confiscation of his property, and the opinion contained an order that the Superior Court hold an evidentiary hearing on this question. Zussman v. Rent Control Bd. of Brookline, supra at 138-139.
Appearing again before the same judge in the Superior Court, the plaintiff waived the opportunity to present further evidence, and the parties stipulated that the judge should base his reconsideration on the record already before him. The Superior Court judge once more found that 10% was a reasonable rate of return and that the rate set by the board was confiscatory in that it had failed to consider financing costs in determining fair net operating income. The board again was ordered to recompute monthly rents for the affected apartments in the complex to produce a 10% rate of return on the value of those units retroactive to the date of the board's decision.
The case was then returned to the Appeals Court on appeal by the board. The Appeals Court held that the Superior Court on remand had correctly followed the Sherman case standard of review, and also that the Superior Court judge was correct in holding a 6.8% rate of return to be confiscatory on the facts of this case. However, the judge also held that there was no evidence to support a finding of a constitutional entitlement to a 10% rate of return even though it was conceivable that that rate might be reasonable given adequate evidence to support it. The
We refer to the language of Sherman v. Rent Control Bd. of Brookline, 367 Mass. 1, 10 (1975), where we reviewed the rent adjustment process and held that "the coincidence of an insistence on procedural protections in proceedings before the [rent control] board, and reliance on the board to exercise informed judgment and discretion in the award and admeasurement of rent adjustments, points to the conclusion that the [trial] court's proper role is not to take evidence afresh and decide for itself what rent is to be fixed, but is rather to decide whether the board's decision was supported by the facts before it and was legally justified." We reaffirm that decision today and specifically hold that a landlord who asserts that confiscation of his property has resulted from a decision under St. 1970, c. 842, § 8 (a), is not entitled to a trial de novo. We do not agree with the language of the Appeals Court in Zussman v. Rent Control Bd. of Brookline, supra at 138.
The Appeals Court would extend to the field of rent control the doctrine of Ohio Valley Water Co. v. Ben Avon Borough, 253 U.S. 287 (1920). This we decline to do. The Ben Avon doctrine originated as a principle of public utility law, holding that if a utility claims that a rate decision
We have adopted this principle of judicial review in cases involving public utilities, New England Tel. & Tel. Co. v. Department of Pub. Util., 327 Mass. 81 (1951); Lowell Gas Co. v. Department of Pub. Util., 324 Mass. 80 (1949), and in motor vehicle rate litigation, Opinion of the Justices, 251 Mass. 569, 610-611 (1925). Even in these cases, however, there is no constitutional requirement that the reviewing court itself hear evidence of an alleged confiscation. "[T]here is no constitutional requirement, even in a case involving a claim of confiscation or of other violation of constitutional right, as to the precise method by which the court must review a commission's findings of fact, provided the method is fully adequate to enable the reviewing court to make certain that it has before it all available pertinent evidence on the constitutional issue and provided that, as to that issue, the court is free to act upon its own independent judgment as to both law and fact. We think it would be constitutional to require that all evidence be first heard and passed upon by the commission and that the reviewing court hear the case on the transcript of that evidence, together with the findings of the commission. The determination of facts by a court upon a transcript of evidence not taken before it is a method of review by no means unknown to our law. But if this method should be adopted we think it would be necessary (1) to lodge in the reviewing court full authority to see to it that, by remanding to the commission or otherwise, the commission should hear and report all pertinent evidence, and (2) that this authority should extend to new evidence necessary to bring the proof as nearly as reasonably possible down to the date of final decision. The court should have control over the evidence applicable to constitutional issues substantially equivalent to that which it has over evidence
We are not to be understood as downgrading or underestimating the importance of judicial review in the preservation of constitutional rights. There can be no doubt that judicial review should be available in this case. The effect of this opinion is to limit the power of the reviewing court in substituting its own evidentiary hearing for that already conducted by the rent control board. We hold that judicial review of facts in rent control cases does not extend to the taking of evidence de novo.
In assessing whether the standard has been met, it was made clear in Sherman v. Rent Control Bd. of Brookline, 367 Mass. 1, 10 (1975), that a reviewing court was obliged "to decide whether the board's decision was supported by the facts before it and was legally justified." We reiterate, however, that in rent control cases the power of the reviewing court does not extend to the taking of evidence de novo.
On the assumption that this case were to be remanded, the judge would be limited to the record already made before the board. We do not find remand warranted, however, for we rule that despite the expanded hearings below the plaintiff has failed to prove confiscation. He has enjoyed three opportunities to present evidence in the trial courts, although he was not properly entitled to them in light of the Sherman case and today's decision. Indeed, on the third occasion he declined to produce further evidence, and the parties stipulated that the judge should base his reconsideration on the record already before him. None of the parties has subsequently alleged the existence of new evidence which would affect the outcome of this litigation. Cf. Sherman v. Rent Control Bd. of Brookline, supra at 11 n. 10; Opinion of the Justices, 328 Mass. 679, 687 (1952).
The board valued the property at $550,000,
The trial judge made his finding of confiscation "in light of the large interest factor with which [the plaintiff] is faced and which has in no degree been considered as a cost factor by the Board in determining fair net operating income in this case." This approach was erroneous. Under c. 842 a rent control board is not bound to consider the landlord's financing arrangements in setting rates, and there are sound practical reasons consistent with the intent of that chapter which support the board's policy. The rationale is particularly evident on the facts of this case, where the landlord has chosen to finance 100% of the cost of the building.
The plaintiff's debt service charges clearly would be less if he had undertaken "conservative" financing, which the trial judge found to be 70% of fair market value. They would be even less had he chosen to give a more substantial
The case is remanded to the Superior Court with instructions to enter a new judgment affirming the decision of the judge of the Municipal Court of Brookline which affirmed the board's decision here challenged.
WILKINS, J. (concurring).
I agree with the result. There are, however, matters of significance not discussed in the court's opinion.
I read the opinion of the court as saying that (1) a new evidentiary trial is not required at the judicial level, even where confiscation is alleged, (2) a court which hears an appeal in which confiscation is asserted engages in its own analysis of the confiscation claim on the record before the administrative board, and (3) the amount of the mortgage interest obligation payable by the landlord is not an automatic floor in determining the line of confiscation. I agree with these conclusions.
1. The opinion suggests that rent control rate matters fall into a different category from public utility and insurance rate matters and, therefore, the denial of a trial de novo is justified when confiscation is alleged in a rent control case. However, the fact is that a trial de novo is not required constitutionally in any of these various rate appeals. Opinion of the Justices, 328 Mass. 679, 687 (1952). See 4 K.C. Davis, Administrative Law § 29.09 (1958). Thus the rule announced today for rent control cases is no
2. Although I accept the point made in the opinion concerning the landlord's right under the Massachusetts Constitution to an independent analysis of the facts, the opinion offers little guidance concerning the function of a judge in this situation.
We are presented here, apparently for the first time, with the problem of the role of successive courts in extending judicial review to a rent control board decision which is challenged on grounds of confiscation. The Appeals Court concluded that the finding of confiscation made by the Superior Court judge was not "clearly erroneous" within the meaning of Mass. R. Civ. P. 52 (a), 365 Mass. 816 (1974), and the Appeals Court made no independent analysis of the facts to reach its own conclusion on the constitutional point. Zussman v. Rent Control Bd. of Brookline, 4 Mass.App.Ct. 135, 142 (1976). The Appeals Court did not analyze the evidence to see whether the findings of the judge of the Municipal Court of Brookline, who denied relief, were "clearly erroneous." This problem of the proper handling of successive judicial review of a constitutional challenge to rates has not arisen previously in this Commonwealth because cases in the public utility and insurance rate areas have come to this court directly.
If the court were to decide this issue, I would hope that under the present statute each court would be said to be entitled to its own judgment, unfettered by the views of any court which had previously dealt with the same appeal. Each court is conducting an analysis of the same
The court's opinion does not discuss the extent of the duty of a court in making its independent determination of the facts when confiscation is asserted. Our opinions have articulated the principle of de novo review (see, e.g., Boston Gas Co. v. Department of Pub. Utils., 368 Mass. 51, 54 , and cases cited), but have not stated the limits, if any, on the court's involvement in fact determinations. In my opinion, questions of credibility and the making of subsidiary fact determinations are for the agency alone (assuming substantial evidence to support the agency's conclusions) and are not a part of the constitutional function of a reviewing court. The court's constitutional function extends only to ultimate findings of fact, and to the conclusions to be drawn from the subsidiary facts. Moreover, a person challenging an agency determination on the ground that its decision produces confiscation has a heavy burden of overcoming the presumptive validity of the agency decision. When one recognizes and applies these limitations on the court's constitutional function, the landlord's proof, which I discuss next, fails to demonstrate a case for confiscation.
3. The opinion of the court seems to regard the controversy as resolved when it concludes, correctly in my view, that in this case the landlord's interest obligation does not have to be met by the level of rents allowed by the board. The landlord has argued, however, that if a 9% return on the fair market value of its property is not required constitutionally, there is a level of return which must be allowed in order to avoid a confiscatory return on his investment. The opinion of the court does not consider whether the
If that analysis were made, as I believe it should be, the result reached by the court would be unchanged because the landlord has not proved confiscation. A return of 6.8% was allowed by the board. That return was apparently the return allowed when rent control came into effect and was valid presumptively. On February 1, 1972, the rent control board allowed a rent adjustment based on a return of 6.8%. The landlord has neither proved that the initial return was inappropriate nor that changes have occurred which require an adjustment in that 6.8% return. Consequently, both in making an independent analysis of the ultimate facts and in assessing whether there was substantial evidence to support the rent control board's decision, I conclude that there is no ground for reversing the board's decision.