Terrace Housing Associates, Ltd. v. Cisneros, s. 93-6267

• Decision Date: 09 August 1994
• Docket Number: 93-6272,Nos. 93-6267,93-6268,93-6276 and 94-5032,s. 93-6267
• Citation: 32 F.3d 461
• Parties: TERRACE HOUSING ASSOCIATES, LTD., and Rolling Green Housing Associates, Ltd., Plaintiffs-Appellees, v. Henry G. CISNEROS, Secretary, Department of Housing and Urban Development, Defendant-Appellant, and Oklahoma City Housing Authority, Defendant. ROLLING GREEN HOUSING ASSOCIATES, LTD., and Terrace Housing Associates, Ltd., Plaintiffs-Appellees, v. Henry G. CISNEROS, Secretary, Department of Housing and Urban Development, Defendant, and Oklahoma Housing Finance Agency, and Oklahoma City Housing Authority, Defendants-Appellants. WINDSONG HOUSING ASSOCIATES, LTD., Plaintiff-Appellee, v. Henry G. CISNEROS, Secretary, Department of Housing and Urban Development, Defendant-Appellant, and Tulsa Housing Authority, City of Tulsa, Oklahoma, Defendant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 461

32 F.3d 461

TERRACE HOUSING ASSOCIATES, LTD., and Rolling Green Housing

Associates, Ltd., Plaintiffs-Appellees, v. Henry G. CISNEROS, Secretary, Department of Housing and Urban Development, Defendant-Appellant, and Oklahoma City Housing Authority, Defendant.

ROLLING GREEN HOUSING ASSOCIATES, LTD., and Terrace Housing

Associates, Ltd., Plaintiffs-Appellees, v. Henry G. CISNEROS, Secretary, Department of Housing and Urban Development, Defendant, and Oklahoma Housing Finance Agency, and Oklahoma City Housing

Authority, Defendants-Appellants.

WINDSONG HOUSING ASSOCIATES, LTD., Plaintiff-Appellee, v. Henry G. CISNEROS, Secretary, Department of Housing and Urban Development, Defendant-Appellant, and Tulsa Housing Authority, City of Tulsa, Oklahoma, Defendant.

Nos. 93-6267, 93-6268, 93-6272, 93-6276 and 94-5032.

United States Court of Appeals, Tenth Circuit.

Aug. 9, 1994.

Deborah Ruth Kant, Appellate Staff, Civ. Div., Dept. of Justice, Washington, DC (Frank W. Hunger, Asst. Atty. Gen., Washington, DC, Vicki Miles-LaGrange, U.S. Atty., Oklahoma City, OK, and Michael Jay Singer, Dept. of Justice, Washington, DC, with her on the brief) for Henry Cisneros, Secretary, Dept. of Housing and Urban Development.

Steven D. Gordon, Dunnells & Duvall, Washington, DC (Michael H. Ditton, also of Dunnells & Duvall, with him on the brief) for appellees, Rolling Green Housing Associates and Terrace Housing Associates, Ltd.

R. Steven Haught, Daugherty, Bradford, Haught & Tomkins, P.C., Oklahoma City OK, submitted a brief, for appellant Oklahoma City Housing Authority.

Jack R. Lawrence, Lawrence & Ellis, P.A., Oklahoma City, OK, submitted a brief, for appellant Oklahoma Housing Finance Agency.

Before LOGAN and McWILLIAMS, Circuit Judges, and BROWN, Senior District Judge ^*.

WESLEY E. BROWN, Senior District Judge.

Section 8 of the United States Housing Act of 1937, 42 U.S.C. Sec. 1437f, set up a system of housing assistance payments to aid low income families in renting decent housing. There are several federal programs which provide Section 8 housing assistance and among them is the one involved in these cases--the Moderate Rehabilitation Program, 42 U.S.C. Sec. 1437f(e)(2), hereafter referred to as the Program. ¹ The appeals before us involve the efforts of the Secretary of the Department of Housing and Urban Development (HUD) to correct alleged overcharges and errors in contract rents negotiated for subsidized housing by public housing agencies and the private owners of such housing. ²

The Secretary states that "as part of the ongoing effort to root out waste and fraud in the government-assisted housing programs," he discovered in 1992 that there were overcharges and errors in the initial contract rents set for the housing projects involved in these appeals, and he sought the rent rollbacks in order to recoup the government losses. The alleged errors resulted from the housing owners improperly including ineligible costs such as discount points, or inflated costs such as insurance charges, but it appears that the bulk of the errors came from change orders which increased rehabilitation costs. The Secretary found that since the changes were foreseeable, they should have been included in the original estimates of construction costs. ³

The Secretary has directed that the initial contract rents set in 1987 be "rolled back" in order that alleged excess payments of housing subsidies may be recovered from the private owners. The owners filed these actions, claiming that a 1987 amendment to the United States Housing Act bars any kind of rent rollback. In each of the three cases now before us, the district court found that the amendment barred the rollbacks, and the Secretary has been enjoined from recovering the claimed overpayments. ⁴

Under the statutory scheme, contract rates for rental units are set at the "fair market value" of such rentals in the particular housing area, but the low-income tenants pay rent according to their incomes, and the federal government makes up the difference between actual rents paid and the fair market value of the rental units through funding of the local housing authorities.

After rehabilitation of housing units is complete, the local housing authority inspects the property and enters into a "housing assistance payments contract" with the owner of the housing. Such a contract sets a "contract rent" for each unit according to space. These contracts are reviewed by HUD before they are signed by the local housing authority.

Section 1437f(c)(1), 42 U.S.C., establishes the guidelines for setting initial contract rates according to the value of fair market rates. Section 1437f(c)(2) governs prospective annual adjustments in the contract rent to account for inflation and other changes in expenses. Section 1437f(c)(2)(A), which provides for annual adjustments in the contract rent, provides for these adjustments "to reflect changes in the fair market rentals established in the housing area...." Section 1437f(c)(2)(B) provides for annual adjustments due to increases in property taxes, utility rates, etc., which are not otherwise covered by the annual increase of Section 1437f(c)(2)(A). Section 1437f(c)(2)(C) provides that adjustments described above "shall not result" in material differences in rent between open market rentals and subsidized rents.

During the 1980's, it appears that HUD was relying on Section 1437f(c)(2)(C) not only to deny annual rent increases but to reduce rents when the agency's studies indicated that market rents were lower than those being charged for assisted housing. In 1987, Congress amended Section 1437f(c)(2)(C) to prevent the practice of reducing rents on that basis.

The 1987 amendment, 42 U.S.C. Sec. 1437f(c)(2)(C), provides in pertinent part that:

The Secretary may not reduce the contract rents in effect on or after April 15, 1987, for newly constructed, substantially rehabilitated, or moderately rehabilitated projects assisted under this section ... unless the project has been refinanced in a manner that reduces the periodic payments of the owner. (Emphasis supplied)

In each of the cases before us in this appeal, the district court found that the plain meaning of this amendment bars any effort by the Secretary to rollback rents in the housing complexes.

The Secretary contends that the amendment bars rent reductions only as to the annual prospective rent adjustments and not to the correction of errors in the establishment of the initial contract rents. In this respect, the contention is that the bar can only refer to the power of the Secretary to adjust rents and not to the power to establish the initial rents and to make corrections in those initial rents. The Secretary claims that the district court's reading of Section 1437f(c) "produces very harsh, inequitable results" for it would prevent him from correcting fraud and other serious errors in calculations.

We find that the 1987 amendment explicitly prohibits all reductions of contract rents. There is no distinction made for "annual adjustments of rent" and "corrections of initial contract rents" and, contrary to the Secretary's contention, the amendment is not ambiguous. The district court in the Terrace Housing Associates case, 1993 WL 643371, recognized the absence of ambiguity in the 1987 amendment in these words:

The court cannot conceive a more clear direction from the Congress that rent rollbacks such as those contemplated in this case are prohibited.... (The Secretary) argues that the statute does not refer to contract rents as initially set, but rather that it prohibits reductions in rents based on authorized annual adjustments. The argument is a credible one, but in the end, the plain language of the statutory prohibition draws no such distinction. (Slip opinion, p. 5)

In the factually similar case of Linden Housing Associates Ltd., v. Cisneros, Case No. CV-N-92-358-HDM (D.C.Nev.1993), relied on by the district court in Terrace Housing Associates, the court found that rent rollbacks were barred, stating:

After reviewing the history of the pertinent regulations, the Court is satisfied that the scope of HUD's "post audit" authority is limited to verifying the owner's cost and mortgage loan certifications, and recalculating the contract rents if any material errors are discovered in those certifications. However, this "post audit" authority is not a grant of plenary power to audit and redo calculations of contract rents based upon alleged errors unrelated to the verification of the owner's cost and mortgage loan certifications.

In this case, HUD is not attempting to rollback the rents based on alleged errors in the owners' certifications. Instead, HUD contends that an alternative methodology should have been applied to determine the initial contract rents, and it is attempting to invoke the "post audit" authority to recompute the rents using that alternative formula. However, the "post audit" authority conferred by HUD's regulations and by the corresponding provision in the ... Contract does not extend this far. Accordingly, the rent rollbacks are unauthorized and are void for that reason. ⁵ (Slip opinion at p. 4)

Most recently, in Atlantic Terrace Limited Partnership v. Cisneros, (Civil Action No. 94-0051, 1994 WL 248239, May 23, 1994), the District of Columbia court, which was presented with facts identical to those now before us, ruled that the plain meaning of the 1987 amendment barring rent rollbacks must prevail. In so doing, the Court relied upon Connecticut Nat'l Bank, --- U.S. ----, at ----, 112 S.Ct. 1146, at 1149, 117 L.Ed.2d 391 (1992), which found that:

canons of construction are no more than rules of thumb that help courts determine the meaning of legislation and in interpreting a statute a court should always turn first to one, cardinal canon before others ... (C)ourts must presume that a legislature says in a statute what it means and...