When Tenants Grow Pot, Sacramento Homeowners Face Six-Figure Fines And An Appeals Process Attorneys Call 'A Kangaroo Court'

Editor’s Note: This is part of CapRadio’s series, “Cultivating Fines,”  investigating Northern California homeowners who have received significant penalties from the city of Sacramento after their tenants were caught growing illegal cannabis. The landlords claim innocence and say they had no idea about the pot grows, yet in many cases receive six-figure fines. You can read our full investigation at CapRadio.org/CultivatingFines.

John Nguyen is the kind of success story you’d expect to see in a promotional brochure for UC Davis: The son of immigrant parents, he graduated from the university with a degree in civil engineering and now works as a network engineer at Facebook, making a comfortable salary of $135,000 a year in the Bay Area.

But there’s one thing that doesn’t square with that picture: The city of Sacramento says he’s responsible for an illegal cannabis grow, and owes nearly $400,000 in fines.

Nguyen, who lives in San Jose with his wife and young daughter but owns a rental property in Sacramento, says he’s a responsible landlord, and that his tenant operated the grow without his knowledge. He claims the penalty would financially cripple him. 

He challenged the city’s penalty in June and had about 90 minutes to make his case in front of a hearing examiner.

“We think about this every day, every night,” Nguyen told CapRadio. “We can’t sleep because of the uncertainty. I feel like a victim.”

Sacramento has issued hundreds of these fines for illegal pot grows in the past two years, totaling about $94 million in penalties. Property owners have challenged more than $50 million worth, claiming they’re innocent and that the fines are excessive. 

Defense attorneys say the appeals— which are not court proceedings but brief administrative hearings overseen by the city — are disorderly, rushed and violate property owners’ right to due process. The hearing examiners are not judges, either, but instead city appointees who, until recently, had no background in law. 

And under an ordinance passed last year, property owners are liable for the penalties even if they can prove they didn’t know their tenants grew pot — a fact that defense attorneys argue robs homeowners of the ability to prove their innocence. 

“The only term that would accurately describe [the hearing process] is a kangaroo court,” said Todd Leras, a defense attorney and former prosecutor who represents five property owners. “There is no fairness.”

The hearings are designed to be “informal” and “quick,” according to statements made by city attorneys in court, typically lasting 30 minutes to an hour-and-a-half. City attorneys argue this structure benefits property owners because they can represent themselves instead of hiring an attorney. They also acknowledge the shorter hearings are designed to let the city to get through more appeals — sometimes a dozen or more in one day. 

City Attorney Susana Alcala Wood says the appeal process offers adequate opportunity for property owners to make their case.

“That due process piece … is the backbone of our program,” Wood said. “If they don’t have the ability to question the action we’re about to take against them and appeal it, then this whole program pretty much falls apart.”

But Nguyen says the appeal process only did more harm: The city punished him for challenging the penalty, he claims, by trying to squeeze more money out of him and making it virtually impossible to sell the property to pay the fine.

An Overwhelmed System

Investigations into illegal cannabis grows often start with the Sacramento Municipal Utility District.

Cultivating indoors requires tremendous amounts of electricity. High consumption rates or certain usage patterns can tip a SMUD investigator off to a potential grow house. In rental homes, the bill is almost always in a tenant’s name.

Suspicious homes are passed on to the Sacramento Police Department, which works with the city attorney’s office to get a warrant. Police often raid a home within weeks of receiving a tip. 

Some property owners are caught at the home during the raid. Defense attorneys largely agree that those individuals should face some penalty for their involvement — though many argue that a fine of hundreds of thousands of dollars is still excessive.

In the case of a rental home, tenants are typically charged with a misdemeanor — if they haven’t skipped town. 

Rental home owners aren’t charged with a crime, but they’re subject to large fines. Under city code, the penalty is $500 for each plant over the six-plant residential limit. 

That adds up quickly. Penalties against individual property owners typically range from $100,000 to $500,000, and in a few cases have exceeded $1 million. The $94 million in administrative penalties issued by the city against property owners dwarfs the roughly $17 million it brought in through taxes on the legal cannabis industry in the last two years. 

Some argue the city targets property owners because it can pursue their assets — including their home — if a fine is challenged or goes unpaid.

“The city seems to go after property owners because they have deep pockets, rather than tenants who get away with little or no consequences at all,” said Jim Lofgren, senior vice president at the California Apartment Association. “It’s unfair that rental owners receive six-figure fines for something they knew nothing about and could do little to prevent.”

Sacramento has collected less than $5.5 million of the $94 million it issued in administrative penalties, in part because hundreds of property owners have challenged the fines. The number of appeals has overwhelmed the city attorney’s office.

Earlier this year, Sacramento’s former chief of cannabis enforcement, Joe Devlin, requested the city hire four additional positions in the city attorney’s office to solely handle appeal cases for illegal cultivation penalties. City attorneys and staff were experiencing “significant administrative burdens,” according to Devlin. City Council approved the request.

Councilman Eric Guerra, whose district has struggled with illegal residential grows, commended the city attorney’s office at the meeting.

“They’ve been very creative in making sure that we go after the folks who have been appealing and making sure we set a strong case,” he said. “If we hit them in the pocket book, they’re going to stop their practice.”

‘Very Easy’ For Tenants To Break The Law Without Homeowners Knowing

Defense attorneys argue that “creativity” simply means violating the right to due process, which guarantees a fair procedure when someone faces criminal charges or civil penalties. Many of the people getting hit in the pocketbook claim to be innocent landlords, and their attorneys say the city’s quick, informal hearings — modeled off of appeals for parking tickets — violate these protections, lack clear rules and result in a free-for-all environment that is hard to navigate even as a lawyer. 

Property owners without legal representation, they say, are often steamrolled.

Attorneys claim the city routinely introduces unannounced witness testimony, supplies answers to witnesses during cross-examination and charges new code violations in the middle of hearings — which they argue disadvantages property owners challenging the penalty.

And since city code holds property owners responsible for illegal grows operated by a tenant, even if they can show they didn’t know about it, the burden of proof to uphold penalties is very low. 

By comparison, law enforcement agencies that investigate criminal connections between property owners and illegal grows can take years to build a case and prove it in court. But Sacramento’s ordinance allows the city to swiftly apply massive fines to property owners and avoid the time and resources required for complex criminal prosecutions.

Hearing Examiner Edith Awuah listens to a defense argument from landlords at an appeals hearing.Scott Rodd / CapRadio

During the appeals hearings, city attorneys have to prove two things are more than likely true: the individual who received the penalty owns the property, and that cannabis was illegally grown there.

Scott Radcliffe, a partner at Alves Radcliffe LLP, says this is a blatant violation of a property owner’s rights. “Fundamental to our society is that you’re responsible for things that you’re aware of,” he said. “That’s due process.”

At Nguyen’s  hearing, he made the case that he is a responsible landlord and had no reasonable way to know his tenant was doing something illegal. 

He explained he bought one side of a single-story duplex on Spoerriwood Court in South Sacramento shortly after graduating from UC Davis in 2010. He borrowed money from his older brother and sister for the down payment and lived there for eight months until he got a job offer in San Jose.

He chose to keep the house as a rental investment, since property values were steadily climbing after the recession. His father, Long Nguyen, offered to help manage it. 

John Nguyen rented to several tenants without issue. In 2017, his father advertised the property in a Vietnamese grocery store. A woman responded and his dad interviewed her in person. She claimed to work at a nearby restaurant, and he called to confirm. She signed a lease agreement that explicitly prohibited cannabis cultivation, and his dad did a walk-through inspection in April 2017 shortly after she moved in.

Lofgren with the California Apartment Association says landlords in Sacramento are required to inspect their properties annually — but that doesn’t mean they catch everything. 

“Tenants have privacy rights that limit rental owners’ access inside their units,” he said. “It is very easy for renters to break the law without their rental owner’s knowledge.”

Long Nguyen visited the house monthly to examine it from the outside in addition to the annual inspection. When he came to do one in 2018, the tenants weren’t home. If he believed there was illegal activity occurring inside, he could have asked to enter the home within 24 hours. But he testified he had no suspicions of anything improper. He walked around the outside of the house and nothing looked amiss, and planned to come back for the inspection another time.

Several months later, police raided the home. They found 785 cannabis plants — well over the city’s six-plant limit. The tenants weren’t there, and it’s unclear if they were charged with a crime. But police left John Nguyen a citation for $389,500 — about $175,000 more than the value of the home.

He spent about $9,000 repairing the damage caused by the illegal grow after the raid.

After reviewing the evidence and listening to testimony, hearing examiner Camille Dixon, whose full-time job is with the California Department of Insurance, upheld the entire penalty against John Nguyen. 

Her primary reason: The father had not inspected the interior of the home in the months leading up to the raid, “which would have possibly prevented the illegal cultivation.”

Dixon declined an interview and directed CapRadio to the city attorney’s office.

Hearing examiner decisions are subjective — there isn’t a set standard for what evidence should absolve property owners. As a result, they can be inconsistent and sometimes contradictory, according to a CapRadio review of more than 100 decisions from 2018 and early 2019.

Of those decisions, fewer than 10 were reduced to zero dollars. But the reasons for dismissing those penalties were ignored in other cases — and sometimes worked against the property owner. 

• An examiner dismissed a $281,000 fine in early 2019, with the primary reason that the SMUD bill was in the tenant’s name, not the owner’s name. The owner therefore could not have noticed the high electricity usage — a circumstance present in nearly every case involving a rental property.
• A $250,000 fine was dismissed in March 2019, in part because the owner confirmed the tenant’s income source and conducted a move-in inspection. Those arguments were discounted in numerous other cases — including in Nguyen’s.
• An examiner cleared another penalty, totaling $84,000, for reasons that included the owner doing drive-by inspections.  Zuhu Wang, whose story CapRadio explored earlier in this series, did multiple drive-by inspections of his home — in addition to hiring a property manager who did the same. Those inspections were discounted during the hearing process.
• Another reason given by the examiner for dismissing the aforementioned $84,000 penalty: having relatives watch the house. The monthly inspections by Nguyen’s father, however, did little to persuade a hearing examiner.
• An $83,000 penalty was dismissed in early 2018, in large part because the owner hired a local property manager to oversee the rental home. Property owners hired managers in numerous other cases, but their appeals were denied. In one case, for example, a hearing examiner upheld an $880,000 penalty, despite the owner having a property manager — and a lease that explicitly prohibited cannabis cultivation. “The owner is responsible if his agent fails to property monitor and inspect the property to insure compliance with lease provisions that prohibited growing cannabis,” the hearing examiner wrote in her decision.

In June, Sacramento appointed a new hearing examiner, Edith Awuah, after determining that a trained attorney should oversee the process. She declined an interview for this story.

‘I’d Be Doomed For Life’

Hearing examiners occasionally reduce penalties in light of evidence and testimony — but the lowered fines can still be financially devastating.

Thanh V. Vo and Anh Nguyen (no relation to John Nguyen) purchased a single-story home on Fruitridge Road in 2003. The now-retired couple lived there until 2010, when they moved to Elk Grove. Vo and Nguyen kept the home as an investment property and began renting it out.

In 2015, the couple moved to San Jose to take care of Nguyen’s aging mother, who had lung cancer. A father and son rented the home in 2017. A year later, Sacramento police raided the property and issued a $337,500 fine after finding 681 cannabis plants.

The couple says they had no idea there was an illegal grow in the house. At an appeals hearing, they presented evidence showing the property was registered with the city’s Rental Housing Inspection Program and had been inspected by the city in 2015 and 2016. They presented the signed lease agreement, and even submitted medical records to show Nguyen’s mother underwent surgery in early 2018 and needed ongoing care in the Bay Area.

The couple did a walkthrough with the new tenants in April 2017. Nothing seemed amiss. The following April, they contacted the tenants for an annual inspection, but received no response. Nguyen went to the home and found a “Dangerous Building” notice. Weeks later, she received the penalty in the mail.

At the appeal hearing, deputy city attorney Emilio Camacho seized on the facts that the couple did not conduct a background check on the tenants and that the tenants moved from New York. Conducting the check is not required by law, and no statute prohibits landlords from leasing to tenants who move from out-of-state, but that was enough to convince the hearing examiner that the couple was still liable for $100,000.

Radcliffe, who represents them, argues they did everything expected of responsible landlords.

“This is their investment, this is their livelihood,” he said. “They’re looking at having their retirement being taken away from them.”

Before a case goes to an appeal hearing, Wood says the city attorney’s office may offer a settlement to property owners who can show they acted responsibly. She also claims the city has wiped out a number of penalties ahead of hearings.

CapRadio reviewed 51 settlements from 2018 and early 2019 and found four penalties had been reduced to zero dollars. A request for additional records on settlements, and the overall number of fines levied against property owners, is still pending.

The city attorney’s office typically offers settlements that are a quarter of the original penalty, often ranging from $30,000 to $70,000, and sometimes exceeding $100,000. According to defense attorneys, the settlement offers are still extreme for what may amount to minor acts of landlord negligence — if negligence occurred at all.

According to John Nguyen, property owners who don’t take settlement offers from the city may be punished for it later on. 

He says the city came to him with a settlement offer of $100,000 before his hearing. He declined the offer, believing he could prove his innocence. After the hearing examiner upheld the  $389,500 penalty, his attorneys went back to the city. 

Suddenly, the settlement offer jumped to $200,000. The city refused to budge, according to Nguyen, so he took it. 

“I felt like I was forced to sign that settlement,” he said. “Because otherwise, I’d be doomed for life.

Within a week of the hearing, the city put a lien on the Spoerriwood Court house, marring the best asset Nguyen had to pay the fine. He says he applied for a loan to pay the city, using the house as collateral, but multiple banks denied him. The title showed the home was busted as a grow house, he says, making banks unwilling to issue a loan. He ran into similar issues when he tried to sell the property. 

“We’re trying to think of ways to get the money,” Nguyen said. “It’s kind of lost hope. I don’t know what the future is for my family.”