Barrington Cove L.P. v. RI Housing Finance Corp

• Decision Date: 11 May 2000
• Docket Number: No. 99-1930,99-1930
• Citation: 246 F.3d 1
• Parties: (1st Cir. 2001) BARRINGTON COVE LIMITED PARTNERSHIP, Plaintiff, Appellant, v. RHODE ISLAND HOUSING AND MORTGAGE FINANCE CORPORATION, RHODE ISLAND HOUSING TRUST FUND AND RICHARD H. GODFREY, JR., PERSONALLY AND IN HIS CAPACITY AS EXECUTIVE DIRECTOR OF THE RHODE ISLAND HOUSING AND MORTGAGE FINANCE CORPORATION, Defendants, Appellees. Heard
• Court: U.S. Court of Appeals — First Circuit

Page 1

246 F.3d 1 (1st Cir. 2001)

BARRINGTON COVE LIMITED PARTNERSHIP, Plaintiff, Appellant, v. RHODE ISLAND HOUSING AND MORTGAGE FINANCE CORPORATION, RHODE ISLAND HOUSING TRUST FUND AND RICHARD H. GODFREY, JR., PERSONALLY AND IN HIS CAPACITY AS EXECUTIVE DIRECTOR OF THE RHODE ISLAND HOUSING AND MORTGAGE FINANCE CORPORATION, Defendants, Appellees.

No. 99-1930

United States Court of Appeals For the First Circuit

Heard May 11, 2000

Decided April 5, 2001

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF RHODE ISLAND. [Hon. Ernest C. Torres, U.S. District Judge] [Copyrighted Material Omitted] Fred A. Kelly, Jr., with whom Jeffrey S. Brenner and Nixon Peabody LLP were on brief for appellant.

Allen P. Rubine, with whom Melissa M. Horne and Winograd, Shine & Zacks, P.C. were on brief for appellees.

Before Lynch, Circuit Judge, Cyr, Senior Circuit Judge, and Lipez, Circuit Judge.

CYR, Senior Circuit Judge.

Barrington Cove Limited Partnership ("Barrington") appeals from a district court order which dismissed its civil rights action against the Rhode Island Housing and Mortgage Finance Corporation (RIHMFC) for allegedly violating its constitutional rights to substantive due process and equal protection by denying federal income tax credits needed to finance its construction of a housing project for lower-income families. We affirm.

I BACKGROUND

RIHMFC, an agency established by the State of Rhode Island to foster development of low-to-moderate-income housing, also administers the federal lower-income housing tax credit program in Rhode Island. See 26 U.S.C. § 42 et seq. During 1996, RIHMFC was authorized to award approximately $1.7 million in federal tax credits to qualified private developers of lower-income housing. Under its Rules and Regulations and Qualified Action Plan [hereinafter: "Regulations"], RIHMFC allocates these federal tax credits in accordance with various criteria, such as project design, site location and overall construction costs. The Regulations require that RIHMFC employ the same application procedures in relation to for-profit and non-profit developers. See Regulations at § 5 (setting application fee at $500 and 2% of tax credit requested).

In 1996, Barrington, whose general partner is a company owned by a Massachusetts resident, constructed an apartment building for lower-income residents in Barrington, Rhode Island, and submitted an application to RIHMFC for federal income tax credits. Its application was awarded more points than any other application under the criteria prescribed by the Regulations, resulting in a $519,536 federal tax credit.

In order to minimize its resort to RIHMFC resources, however, Barrington explicitly represented in its RIHMFC application that it also expected to receive from the National Park Service $100,000 in historic restoration tax credits in connection with the lower-income apartment project. Although Barrington had begun construction on the project before its application for National Park Service historic restoration tax credits was processed, it had been assured -- informally -- that RIHMFC would "work with" Barrington in the event the historic restoration tax credits failed to materialize. After construction had advanced to the point that abandonment of the project would have resulted in a substantial financial loss to Barrington, the National Park Service rejected the application for historic restoration tax credits, thereby effectively rendering the project financially unsound.

In due course, Barrington applied for an additional $100,000 federal income tax credit to offset its failure to obtain the National Park Service historic restoration tax credit. Initially, RIHMFC and defendant-appellee Richard Godfrey, Jr., its executive director, were unreceptive, with Godfrey stating not only that Barrington ought not receive "another dime" from RIHMFC, but that it should be left "holding the bag" and absorb the loss. Nevertheless on December 11, 1996, RIHMFC awarded Barrington an additional $122,000 in federal income tax credits, provided its individual contractors agreed to make a $366,000 charitable contribution to the Rhode Island Affordable Housing Trust Fund.¹

Meanwhile, however, on November 20, 1996, another developer, Gemini Hotel, had "remitted" to RIHMFC its $253,462 federal income tax credit allocation for 1996, in return for a commitment from RIHMFC that Gemini Hotel would receive federal income tax credits the following year. The Gemini Hotel "refund" was more than enough to fund all pending applications for supplemental 1996 federal income tax credits, including that submitted by Barrington. Thus, the statement Richard Godfrey, Jr. allegedly made to Barrington -- that Barrington's "charitable contribution" was essential in order that other qualified lower-income housing project developers not be denied additional federal income tax credits in 1996 -- was knowingly false.

Furthermore, Barrington later learned that RIHMFC had allocated additional federal income tax credits to several developers in 1996, all of which (unlike Barrington) were non-profits sponsored by Rhode Island residents. Yet those developers were not required to make a charitable contribution.

Thereafter, in December 1997, Barrington sought to determine why it was the only developer seeking additional 1996 federal income tax credits which was required to make a charitable contribution. Although Godfrey offered no explanation, he ventured the opinion that Barrington should not have received additional federal income tax credits in the first place. Finally, in May 1998, prior to its tax deadline, Barrington reluctantly disbursed $323,172 to the Rhode Island Affordable Housing Trust Fund in order to obtain the necessary federal income tax credit documentation from RIHMFC.

In due course, Barrington filed its ten-count complaint against RIHMFC and Godfrey in Rhode Island Superior Court, which RIHMFC removed to federal district court. Count one alleges that RIHMFC and Godfrey, by requiring a charitable contribution, exceeded and abused their statutory and regulatory authority under the Regulations relating to the imposition of application fees. Counts two through nine allege that the defendants thereby violated Barrington's federal and state constitutional rights to equal protection and substantive due process. Finally, count ten asserts an unjust enrichment claim under Rhode Island law.

After RIHMFC and Godfrey moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), a magistrate judge recommended that the district court dismiss, with prejudice, counts two through nine and that the pendant state-law claims in counts one and ten be dismissed, without prejudice. The district court adopted the report and recommendation and Barrington appealed.

II DISCUSSION

A. The Standard of Review

We review Rule 12(b)(6) dismissals de novo, accepting all factual allegations in the amended complaint as true and drawing all reasonable inferences favorable to the appellant. Bessette v. Avco Fin. Servs., Inc., 230 F.3d 439, 443 (1st Cir. 2000). We are to affirm the district court ruling only if it clearly appears that Barrington cannot recover on any viable legal theory, given the facts alleged in its amended complaint. Id. Although we construe all well-pleaded allegations liberally at this stage in the proceedings, see, e.g., Barrios-Velazquez v. Asociacion, 84 F.3d 487, 490 (1st Cir. 1996); see alsoLeatherman v. Tarrant Cty. Narcotics Intelligence and Coordination Unit, 507 U.S. 163, 168 (1993) (rejecting heightened pleading requirements for civil rights claims), we do not credit conclusory assertions, subjective characterizations or "outright vituperation." Coyne v. City of Somerville, 972 F.2d 440, 444 (1st Cir. 1992); see also Judge v. Lowell, 160 F.3d 67, 72 (1st Cir. 1998).

B. The Substantive Due Process Claim

First, Barrington argues that its amended complaint stated a viable claim that the $323,172 "charitable contribution" demanded by RIHMFC violated its substantive due process rights under the federal and state constitutions. In order to prevail against a motion to dismiss a substantive due process claim under Rule 12(b)(6), however, it was essential that the complaint either (i) allege that RIHMFC deprived Barrington of a cognizable "property interest," i.e., its right to acquire additional federal income tax credits without being required to pay an application fee in excess of that expressly required by the Regulations, or, failing that, (ii) allege that Barrington's conduct was so egregious as to "'shock[] the conscience.'" Cruz-Erazo v. Rivera-Montanez, 212 F.3d 617, 622 (1st Cir. 2000) (citation omitted); Coyne, 972 F.2d at 443 (citation omitted); L.A. Ray Realty v. Town of Cumberland, 698 A.2d 202, 211 (R.I. 1997) (adopting federal test). As Barrington failed to plead various essential allegations, the district court correctly dismissed the substantive due process claims. We explain.

1. The Alleged "Property Interest" in the Tax Credits

First, we consider whether Barrington held a cognizable "property interest" in further federal income tax credits. In order to qualify for "substantive due process" protection, an alleged "property interest" in a governmental benefit must consist of something more than either (i) "an abstract need or desire" for the governmental benefit, or (ii) a mere "unilateral expectation" that the claimant deserves it. Thus, Barrington needed to allege facts demonstrating a "legitimate claim of entitlement" to the supplemental tax credits. Board of Regents v. Roth, 408 U.S. 564, 577 (1972) (emphasis added); Coyne, 972 F.2d at 443; Reed v. Village of Shorewood, 704 F.2d 943, 948 (7th Cir. 1983) (observing that a cognizable property interest "is what is securely and durably yours under state [or federal] law, as distinct from what you hold subject to so many conditions as to make your interest meager,...