Santa Monica landlords accused of price gouging tenants during a declared state of emergency after raising rents by 250% have agreed to a diversion program that could keep them out of criminal proceedings. 

Following a joint request from the Santa Monica City Attorney and attorneys for the defendants — 1433 Euclid Street, LLC and WS Communities, LLC — a California Superior Court judge ruled Monday that the defendants would be permitted to enter a pretrial diversion program including making payments totaling $35,000, posting notices of price restrictions and attending tenant’s rights training. Should the defendants, landlords at 1433 Euclid, meet all stipulations laid out in the proposed program, they will avoid potential punishments.

Although Santa Monica was in a state of emergency relating to the ongoing COVID-19 pandemic when charges were filed, the alleged price gouging at issue in the court case occurred during a different concurrent emergency. At the time, Gov. Gavin Newsom had declared wildfire-related emergencies in seven counties including Los Angeles; since his predecessor Jerry Brown first issued a wildfire emergency in October 2017, various areas of California including Los Angeles County have essentially been in an extended emergency due to the impact of destructive wildfires.

The amended complaint, filed in California Superior Court in May 2022, alleges that on Feb. 1, 2020, a little more than three years after purchasing the multi-unit residential property at 1433 Euclid Street, WS Communities raised monthly rent on a unit from $865 per month to $3,000 per month — at about 250%, the change represented “an increase of more than ten percent (10%) in violation of Penal Code section 396(e),” the City Attorney’s Office wrote. A 10% increase would have seen the rent go from $865 to $951.50. 

The pretrial diversion includes a $20,000 donation to homeless nonprofit The People Concern, a $15,000 payment to the City of Santa Monica toward tenant protection enforcement and outreach, posting of visible notices “informing the tenants of the existence of pricing restrictions during a state of emergency” and two representatives from 1433 Euclid Street attending and completing a tenant’s rights training program.

In response to follow-up questions regarding the pretrial diversion, Chief Deputy City Attorney Eda Suh wrote in an email to the Daily Press that “acceptance of diversion is not an admission of guilt” and that “the court and the parties agreed that diversion was appropriate under the facts of this case.” 

The complaint follows an earlier complaint filed in January 2021 that contained the same allegations.

The decision also marks the second diversion program tied to alleged misdeeds committed by landlords at 1433 Euclid Street; in July, another California Superior Court judge placed defendants Adam Shekhter, MySuite, LLC., 1238 10th Street, LLC., and 1433 Euclid Street, LLC., in a  diversion program following alleged tenant harassment, public nuisance, and zoning violations at two other properties: 1238 and 1242 10th Street.

According to previous Daily Press reporting, WS Communities was created as a spin-off of Shekhter’s NMS Properties in 2017. While NMS was mired in a legal fight with a former partner over ownership of several apartment buildings, WS Communities was able to secure several additional projects including six micro-apartment developments in the Downtown area.

WS Communities’ local projects include a 100-unit mixed use residential building at 1550 Lincoln Boulevard that has made substantial progress toward its completion. 

Other proposed future projects include residential buildings at 1543 7th Street, 1441 Lincoln Boulevard, 2901 Santa Monica Boulevard, 1437 6th Street and more. 

*Editor’s note: A previous version of this story stated the pretrial diversion kept landlords from potential jail time; however, according to City Attorneys, “because a business entity defendant cannot practically be imprisoned, the maximum punishment in this case would have been a fine of up to $10,000 per count, or a fine of less than $10,000 along with a maximum of 12 months of probation with conditions imposed by the Court.” The story has been updated to remove references to jail time.