2255 New York Ave., Ltd. v. Cisneros, 4:92-CV-560-A.

• Decision Date: 14 January 1994
• Docket Number: No. 4:92-CV-560-A.,4:92-CV-560-A.
• Citation: 842 F. Supp. 924
• Parties: 2255 NEW YORK AVENUE, LTD., Plaintiff, v. Honorable Henry CISNEROS, et al., Defendants.
• Court: U.S. District Court — Northern District of Texas

842 F. Supp. 924

2255 NEW YORK AVENUE, LTD., Plaintiff, v. Honorable Henry CISNEROS, et al., Defendants.

No. 4:92-CV-560-A.

United States District Court, N.D. Texas, Fort Worth Division.

January 14, 1994.

Robert Loyd Tobey, Johnston & Budner, Dallas, TX, Steven D. Gordon, Michael H. Ditton, Richard O. Duvall, Dunnells & Duvall, Washington, DC, Martin L. Lowy, Law Office of Martin L. Lowy, Dallas, TX, for plaintiff.

Steven M. Goldstein, U.S. Dept. of Housing & Urban Dev., Washington, DC, Howard Alan Borg, U.S. Attorney's Office, Ft. Worth, TX, Felix V. Baxter, U.S. Dept. of Justice, Civil Div., Washington, DC, Judry L. Subar, U.S. Dept. of Justice, Civil Div., Washington, DC, for Jack Kemp.

Dan Allan White, John Joseph Harvey, Jr., Hill Heard Gilstrap Goetz & Moorhead, Arlington, TX, for Arlington Housing Authority.

MEMORANDUM OPINION and ORDER

McBRYDE, District Judge.

Before the court for decision are motions for summary judgment. The court has concluded that the motion of plaintiff, 2255 New York Avenue, Ltd., should be granted and that the motions of defendant Henry Cisneros, Secretary, United States Department of Housing and Urban Development, (hereinafter "HUD") should be denied.

I. Nature of the Litigation

This action is one of several pending throughout the United States¹ involving the so-called Section 8 Moderate Rehabilitation Program ("Mod Program"), a rent subsidy program operated by HUD under the authority of section 8 of the United States Housing Act of 1937, as amended, 42 U.S.C. § 1437f. HUD funds this program through annual contributions contracts with public housing agencies such as defendant Arlington Housing Authority ("AHA").² Those agencies, in turn, enter into contracts to make housing assistance payments to private owners of housing in which some or all of the units are to be leased to lower income families. A section 8 housing assistance payments contract specifies a "contract rent" for each covered unit. The amount of the monthly housing assistance payment for each unit is the difference between the contract rent and the amount the tenant is required to pay as rent.

Plaintiff is the owner and operator of the Pebble Creek Apartments complex ("Pebble Creek") in Arlington, Texas. In 1988, plaintiff purchased and renovated Pebble Creek pursuant to the Mod Program. As an integral element of those activities, plaintiff entered into a 15-year Housing Assistance Payment Contract ("HAP Contract") with AHA to rent 334 of the 352 apartments in Pebble Creek to low income tenants. The HAP Contract specified the contract rents for the various apartment units. Pebble Creek is the sole asset of plaintiff. Plaintiff financed the purchase and rehabilitation of Pebble Creek with a HUD coinsured mortgage loan obtained from a HUD-approved coinsuring lender. The loan was secured, in part, by a pledge of plaintiff's prospective income from the HAP Contract.

In 1992 HUD decided the contract rents were too high. At HUD's direction, AHA informed plaintiff that it would reduce the contract rents and would recoup from plaintiff the allegedly excessive part of rent payments previously made. The parties sometimes refer to the attempted rent reduction, which defendants seek to make retroactive, as a "rent rollback."

Plaintiff then filed this action seeking declaratory, mandamus and injunctive relief to halt the threatened rent rollback. Specifically, plaintiff asserts that:

1. The rent rollback violates Section 142(d) of the Housing and Community Development Act of 1987, Pub.L. No. 100-242, 101 Stat. 1815 (enacted Feb. 5, 1988 and codified at 42 U.S.C. § 1437f(c)(2)(C)) hereafter "§ 142(d)", and therefore gives rise to a cause of action for mandamus against defendant HUD.

2. The rent rollback violates the Administrative Procedure Act ("APA") as to defendant HUD, and constitutes an anticipatory breach of contract as to defendant AHA, because

(i) the rollback violates § 142(d);

(ii) there is no regulatory or contractual authority for the rollback;

(iii) any regulatory or contractual authority for the rollback has expired due to the passage of time between the execution of the HAP Contract and the attempt to institute the rollback;

(iv) a "post audit" of the initial contract rents has already been conducted and there is no authority to do yet another audit and adjustment of those rents;

(v) defendants are bound by the initial contract rents, under theories of estoppel and agency; and

(vi) the initial contract rents were correct.

3. Defendant AHA is barred by the doctrine of laches from effectuating the rent rollback.

Pretrial Order at 2-3.

HUD denies plaintiff's assertions as described in 1, 2, and 3 above, contending that it had the authority to reduce the rents pursuant to the provisions of the HAP Contract and under the authority of applicable HUD regulations.³ AHA's primary response is that it has not engaged in conduct that would constitute an anticipatory repudiation of the contract because it has not unconditionally taken the position that it will not pay in the future the rents called for by the HAP Contract. It goes on to contend that its conduct in advising plaintiff that the rents would be reduced is proper because it acted on instructions of HUD. And, AHA joins with HUD in a denial generally of the merit of any of plaintiff's theories of relief.

By agreement of the parties, the rent rollback has been held in abeyance pending the outcome of this action.

II. Summary Judgment History

Plaintiff has filed a motion for summary judgment as to certain of its theories of relief. HUD responded by filing an instrument referred to as a second amended motion for summary judgment⁴ in which, in addition to making known its opposition to plaintiff's motion, HUD sought summary judgment as to all theories of relief asserted by plaintiff that were not urged by plaintiff as grounds of plaintiff's motion.

A hearing was held on the motions on August 18, 1993, at which time the parties, through their respective counsel, clarified on the record their positions relative to the motions. At the August 18 hearing the court invited the parties to submit briefs on the issue of whether the facts of this action would support the conclusion that HUD is estopped to cause a reduction to be made in the rental subsidies; and, in late August 1993 each party filed such brief. The court is treating the estoppel theory as having been asserted by plaintiff as a ground of its motion for summary judgment because all parties have understood since August 18, 1993, that the court has considered the estoppel doctrine potentially dispositive at the summary judgment stage.

On September 30, 1993, HUD filed another motion for summary judgment, that one asking for a summary ruling that the rent rollback was not arbitrary and capricious.

In anticipation of a pretrial conference, the parties submitted an agreed pretrial order, which was accepted by the court as reflecting agreements of the parties and filed on December 20, 1993. It contains, in addition to concise statements of the contentions of the parties, a rather detailed listing of facts that are established without dispute by pleadings, stipulations, or admissions. During a telephone conference the court and the parties held December 21, 1993, the parties agreed that (i) the court can deem that plaintiff has asserted as grounds of its motion for summary judgment each of the theories of relief asserted by plaintiff in paragraphs 1, 2, and 3 of the December 20 pretrial order,⁵ (ii) the court can deem that each defendant has moved for summary judgment on the ground that none of the theories of relief asserted by plaintiff in those paragraphs has legal merit,⁶ and (iii) the only issues to be resolved are legal issues that can be dealt with summarily by the court through the summary judgment process.⁷

III. Undisputed Facts

There is no dispute between the parties as to the facts that are set forth in the first three paragraphs of section I above. In the agreed pretrial order filed December 20, the parties agreed as to the following facts:⁸

1. Plaintiff is a Texas limited partnership and is the owner of Pebble Creek Apartments. The general partner of plaintiff is GCJM, Inc., a Texas corporation.

2. Defendant Cisneros is the Secretary of HUD.

3. AHA is located in Arlington, Texas. It is a public body corporate created pursuant to the terms of the Texas Housing Authorities Law, 3 Tex. Local Gov't Code Ann. § 329.001 et seq. (West 1988). Further, it is a public housing agency as defined in Section 8 of the United States Housing Act of 1937, 42 U.S.C. § 1437f, as amended, ("Section 8").

4. Pebble Creek is located in Arlington, Texas, and consists of 352 apartments located in 39 two-story buildings. Three hundred thirty-four apartment units receive rent supplements under Section 8: 192 one-bedroom, 124 two-bedroom, and 18 three-bedroom units.

5. In July 1987, GCJM, Inc., ("GCJM") submitted a proposal to defendant AHA to rehabilitate Pebble Creek pursuant to the Mod Program. GCJM proposed to finance the purchase and rehabilitation of Pebble Creek with a HUD "coinsured" loan under Section 221(d)(4) of the National Housing Act from Benton Mortgage Company ("Benton"), a HUD-approved coinsuring lender. The renovation would be performed pursuant to an Agreement to Enter into Housing Assistance Payments Contract ("AHAP") between the owner and AHA. Upon completion of the renovation, the project would become the subject of a 15-year HAP Contract between the owner and AHA, funded by HUD under the Mod Program, to rent the apartments to low income tenants at subsidized rental rates established by the contract.

6. By letter dated August 10, 1987, AHA accepted GCJM's proposal to rehabilitate Pebble Creek pursuant to the Mod Program.

7. On November 19, 1987, Benton determined the following unit contract rents for Pebble Creek: 1BR $427; 2BR $500; 3BR $627. Benton submitted these contract...