Roman v. Korson
| Decision Date | 01 March 2004 |
| Docket Number | No. 1:91-CV-274.,1:91-CV-274. |
| Parties | Rogelio ROMAN, et al., Plaintiffs, v. Gerald KORSON, et al., Defendants. |
| Court | U.S. District Court — Western District of Michigan |
Fred R. Wagner, April Roach, Gideon Anders, Stephen M. Arner, Washington, DC, Teresa M. Hendricks, Grand Rapids, MI, and Roger Rosenthal, Washington, DC, for Plaintiffs.
Rupa Bhattacharyya, Michael Sitcov, Rachel Hines, Peter Keisler, Frank Crummer, Washington, DC, Margaret M. Chiara, Cassopolis, MI, and Agnes Kempker-Cloyd, Grand Rapids, MI, for Defendants.
This class action lawsuit was filed in 1991 to challenge the systematic failure of the Department of Agriculture and the Farmer's Home Administration1 to enforce mandatory regulatory duties of the Section 514 loan program, authorized under 42 U.S.C. § 1484. The program was designed to provide loans to borrowers to build housing for domestic farm labor. The mandatory regulations require borrowers to submit budgetary information demonstrating "the need and justification" of proposed rental and utility charges, obtain advance approval of rental and utility charges, bill tenants consistent with the approved rates, notify tenants of approved changes to rent and utility charges, and, in the event of unauthorized rental charges, rollback and rebate or credit the affected tenants. 7 C.F.R. Pt.1930, Subpart C, Ex. C, III & VI.
This Court certified this class on November 30, 1993. The class was defined as:
All agricultural workers in the United States who reside, have resided or will reside in FmHA § 514 housing projects operating without loan agreements who have been or will be charged unauthorized rent and/or utilities.
Roman v. Korson, 152 F.R.D. 101 (W.D.Mich.1993). Federal Defendants' statistics indicate that there were 274 noncompliant borrowers who rented to tenants meeting this definition. .)
By Order and Opinion of July 25, 1995, this Court determined liability against Federal Defendants and held that: (1) the Department of Agriculture abdicated its regulatory responsibilities by failing to enforce labor housing regulations requiring borrowers to follow notice and comment procedures prior to increasing rents and to roll back and refund illegally charged rent; and (2) the Department of Agriculture acted arbitrarily and capriciously in enforcing labor housing regulations that allowed borrowers to be exempt from the loan agreement requirement and from the reporting requirement relating to charging of rent if borrowers stated that they would not charge rent. Roman v. Korson, 918 F.Supp. 1108, 1113-14 (W.D.Mich.1995).
After further briefing, the Court then entered its Judgment and Permanent Injunction against the Federal Defendants. The Court determined consistent with the decisions in Bresgal v. Brock, 843 F.2d 1163, 1171 (9th Cir.1987) and Global Van Lines v. Interstate Commerce Comm'n, 804 F.2d 1293, 1305 n. 95 (D.C.Cir.1986) that it was preferable to first allow the agency to self-correct its policy of non-enforcement. Therefore, the Court merely enjoined "Federal Defendants and their successors in office .. to CEASE in their failure to enforce the rollback and rebate or credit duty" and "to CEASE in their failure to enforce the notice and comment duty." (J. & Permanent Inj. of Feb. 9, 1996.) The Court's Opinion, however, warned Federal Defendants that failure to take enforcement action would result in future remedies. (Feb. 9, 1996 Op., at 4 & n. 2.)
Plaintiff later moved for post-judgment relief on December 17, 1999. This motion was granted by an Opinion and Order Amending Judgment entered on March 21, 2000. Roman v. Korson, 89 F.Supp.2d 899, 908-09 (W.D.Mich.2000). The Opinion recognized that the Federal Defendants had made some efforts to notify borrowers of the mandatory regulations, but also further recognized that the Federal Defendants had essentially made no efforts to enforce those mandatory regulations as to noncompliant borrowers (in over 90 percent of the cases of noncompliant borrowers). Id. at 905. To that date, while borrowers did receive "initial servicing letters," the lack of further enforcement action demonstrated that the Federal Defendants' enforcement was "essentially fictional." Id. The Opinion also warned Federal Defendants against using techniques such as accepting prepayment of section 514 loans as a method of avoiding borrower compliance. Id. at 903 n. 4. The Court then modified the previous general injunction by requiring the extension of the effective dates of the Federal Defendants' Administrative Notice (the policy document authored to ensure compliance) for three years, by directing the Federal Defendants to perform certain enforcement measures detailed within their own Administrative Notice with respect to noncompliant borrowers, and by directing reporting as to compliance during the three years. (Order Amending J.) The Administrative Notice lapsed in March 2003, but has since been voluntarily extended through 2004. (RD AN No. 3924 (1930-C), exp. date Dec. 31, 2004.)
In accordance with the Order Amending Judgment, the Federal Defendants have filed quarterly reports concerning their compliance. The last quarterly report filed, the Twelfth Quarterly Report, was filed with the Court on September 18, 2003 and relates to data collected by them through March 31, 2003. The data collected by them shows that the Federal Defendants have obtained roughly 50 percent compliance with their mandatory regulations (id.)-though the data is somewhat questionable because of the history of mis-reporting data in this case. (See April Roach Decl. at ¶¶ 8-9.) As of March 31, 2003, according to these statistics, they had obtained compliance of 139 of 274 noncompliant borrowers. (Id., at 1, Cols. 2 & 4.) Of those borrowers, the majority of them are located in six states which extensively utilize tenant farm laborers. Those states are Arkansas (with 125 noncompliant borrowers), Hawaii (with 16 noncompliant borrowers), Michigan (with 50 noncompliant borrowers), Mississippi (with 10 noncompliant borrowers), Tennessee (with 15 noncompliant borrowers), and Vermont (with 38 noncompliant borrowers). (Id.) Of those states, almost all have obtained some significant level of compliance among noncompliant borrowers except for Arkansas (only 22 of 125 noncompliant borrowers have come into compliance) and Hawaii (0 of 15 noncompliant borrowers have come into compliance). (Id.) While these are only two states, they represent a large percentage of the program total of noncompliance because of the large programs in these states. Most distressing of the data reported is the small number of servicing actions instituted regarding problems cases. While all noncompliant borrowers in Hawaii were subjected to servicing actions, only 7 of 103 noncompliant borrowers in Arkansas were subjected to servicing. (Id. at Col. 7.) This is so despite the requirement of the Order Amending Judgment that Federal Defendants comply with section 5E (requiring servicing actions) of the Administrative Notice regarding noncompliant borrowers.
Plaintiffs estimate that only 5.4 percent of the illegal rental and utility charges have been collected by Federal Defendants. (Roach Decl. at ¶ 16.) Federal Defendants' statistics, though, suggest a slightly higher level of collection in that they have obtained credits or rebates in 71 of 274 cases of noncompliant borrowers, 26 percent. This difference, though, mostly relates to the fact that Plaintiffs are tracking success as to the total amount of the charges and Federal Defendants are tracking the percentage of cases in which rebates were paid. What the numbers tend to show is that either Federal Defendants are not obtaining rebates from borrowers who owe large rebates, are accepting only nominal rebates in those cases, or both.
On September 12, 2003, after reviewing the pertinent reports concerning borrower compliance and other information, Plaintiffs filed the instant Motion for an Order to Show Cause Why Defendants Should Not Be Held in Contempt. In the contempt motion, Plaintiffs argued that the following acts were contemptuous: (1) the failure to submit the last two quarterly reports required by Order Amending Judgment; (2) the failure to obtain rebates or credits of more than 5 percent of the total estimated unauthorized rental or utility charges; (3) the failure to send "secondary request letters" to many noncompliant borrowers; (4) the failure to send "last notice" letters to many noncompliant borrowers; (5) the failure to take "servicing actions" as to many noncompliant borrowers; and (6) the knowing allowance of certain practices by agency staff which are deliberately calculated to frustrate enforcement, i.e., allowing retroactive approval of utility charges, non-enforcement of prepaid loans, and other waivers and exceptions to mandatory enforcement.
In response, Federal Defendants have both moved to dismiss the contempt motion based on lack of standing and argued that contempt sanctions are unwarranted because there have been no violations of a "clear and definite" court order shown by "clear and convincing evidence."
Both sides have had the opportunity to file reply briefs and sur-reply briefs to fully explain their positions on the pending motions. The Court has also reviewed a large number of exhibits, which includes declarations, quarterly reports, portions of noncompliant borrower files, charts and reports prepared by the parties, and correspondence concerning noncompliant borrowers.
Federal Defendants have moved for dismissal due to lack of standing and lack of subject matter jurisdiction. Though the parties have not discussed the underlying procedure, it is clear that the instant motion is one filed pursuant to Federal Rule of Civil Procedure 12(b)...
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