Langevin v. Chenango Court, Inc.

• Decision Date: 23 July 1971
• Docket Number: No. 1050,Docket 71-1452.,1050
• Citation: 447 F.2d 296
• Parties: Francis M. LANGEVIN et al., Appellants, v. CHENANGO COURT, INC., and Robert J. Smith, Deputy Director of the Federal Housing Administration, Appellees.
• Court: U.S. Court of Appeals — Second Circuit

447 F.2d 296 (1971)

Francis M. LANGEVIN et al., Appellants, v. CHENANGO COURT, INC., and Robert J. Smith, Deputy Director of the Federal Housing Administration, Appellees.

No. 1050, Docket 71-1452.

United States Court of Appeals, Second Circuit.

Argued June 11, 1971.

Decided July 23, 1971.

Stanley B. Reiter, Waite, Berry & Reiter, Binghamton, N. Y., for appellants.

Stewart E. Walls, Kramer, Wales, Robinson & McAvoy, Binghamton, N. Y. (Donald W. Kramer, Binghamton, N. Y., of counsel), for appellee Chenango Court, Inc.

Raymond D. Battocchi, Atty., Dept. of Justice, Washington, D. C. (L. Patrick Gray, III, Asst. Atty. Gen., James J. Sullivan, Jr., U. S. Atty., Dept. of Justice, of counsel), for appellee Robert J. Smith.

Alvin Hirshen and David B. Bryson, Berkeley, Cal., for National Housing and Economic Development Law Project as amicus curiae.

Before FRIENDLY, Chief Judge, and HAYS and OAKES, Circuit Judges.

FRIENDLY, Chief Judge:

I.

Since 1934 Congress has provided various forms of federal assistance to housing. Our concern here is with § 221 of the National Housing Act. As enacted in 1954, 68 Stat. 599, this was limited to the grant of federal mortgage insurance to certain types of nonprofit mortgagors on housing for rental to persons displaced by urban renewal projects or as a result of other governmental actions. In 1961 the program was greatly expanded, 75 Stat. 149. Its design was declared to be "to assist private industry in providing housing for low and moderate income families and displaced families," § 221 (a), 12 U.S.C. § 1715l(a).¹ The mortgagor could be "a limited dividend corporation (as defined by the Secretary)," § 221(d) (3), 12 U.S.C. § 1715l(d) (3).²

The mortgages were to bear below-market interest of approximately 3%, 12 U.S.C. § 1715l(d) (5); it was contemplated they would be purchased by the Federal National Mortgage Association. The amended statute provided, as did its predecessor, that the mortgagor must be "regulated or supervised under Federal or State laws or by political subdivisions of States, or agencies thereof, or by the Secretary under a regulatory agreement or otherwise, as to rents, charges, and methods of operation, in such form and in such manner as in the opinion of the Secretary will effectuate the purposes of this section."³

The FHA has implemented the § 221 (d) (3) program by extensive regulations, 24 C.F.R. § 221.501 et seq. With respect to supervision of rents, the applicable regulation provides:

Rents and charges. In approving the allowable rents and charges and in passing upon applications for changes, consideration will be given to the following and similar factors:

(1) Rental income necessary to maintain the economic soundness of the project;

(2) Rental income necessary to provide a reasonable return on the investment consistent with providing reasonable rentals to tenants. 24 C.F.R. § 221.531(c).⁴

Defendant Chenango Court, Inc., was organized as a limited dividend corporation under New York law to construct Countrytowne, a housing complex of some 255 rental units in Binghamton, New York, with federal assistance under § 221(d) (3). It entered into the standard regulatory agreement with the FHA under which it covenanted that:

No increase will be made in the amount of the gross monthly dwelling income for all units as shown on the rental schedule unless such increase is approved by the Commissioner, who will at any time entertain a written request for an increase properly supported by substantiating evidence and within a reasonable time shall:

(1) Approve a rental schedule that is necessary to compensate for any net increase, occurring since the last approved rental schedule, in taxes (other than income taxes) and operating and maintenance expenses over which Owners have no effective control, or

(2) Deny the increase stating the reasons therefor.

The history of the project has not been a happy one. Since its inception in 1963, Chenango's investors have received no dividends and Chenango has received no management fees. During the year ended July 31, 1970, it lost more than $122,000. Shortly thereafter it defaulted on payments due under the mortgage and on certain real estate taxes, and the United States instituted a foreclosure action, which was stayed by stipulation pending an FHA investigation of Chenango's financial affairs.

Chenango then filed an application with the FHA under the regulatory agreement for an increase in rents. On December 11, 1970, the FHA approved increases of from 15% to 18%, effective only upon the expiration of existing leases, conditioned on no decrease in services, and subject to reductions at any time in the FHA's sole discretion. Chenango notified the tenants accordingly. Many tenants failed to pay. At a meeting with regional FHA officials they sought all information submitted by Chenango or developed by the FHA relevant to the rent increases. They also sought an opportunity to present opposing material. The FHA officials declined, and Chenango rejected a tenant proposal to escrow the amounts of rent increases pending an opportunity to be heard. Chenango then initiated a suit in the New York courts for the rents due or the eviction of tenants who had not paid them.

Plaintiffs countered with this action in the District Court for the Northern District of New York against Chenango and Robert J. Smith, Deputy Director of the FHA.⁵ They sought a temporary restraining order preventing Chenango from enforcing the rent increases or proceeding with the evictions,⁶ a declaration that approval of the increases violated the National Housing Act and the Due Process clause of the Fifth Amendment, and an injunction preventing Chenango and the FHA from enforcing the proposed increases or effecting any further increases except after procedures generally conforming to those prescribed for "adjudication" by §§ 5 and 7 of the Administrative Procedure Act, 5 U.S.C. §§ 554 and 556.

Chenango moved to dismiss the complaint for lack of jurisdiction over the subject-matter in that no tenant had a claim in excess of $10,000, as required by 28 U.S.C. § 1331, and aggregation could not be permitted under Snyder v. Harris, 394 U.S. 332, 89 S.Ct. 1053, 22 L.Ed.2d 319 (1969), and that the complaint failed to state a claim upon which relief could be granted. Plaintiffs cross-moved for summary judgment. The judge granted Chenango's motion to dismiss for lack of jurisdiction and denied plaintiffs' motion. Later he denied a motion to amend the complaint so as to add claims concerning the alleged unconscionability of certain provisions in the leases and to assert additional jurisdictional grounds. This appeal followed.

II.

We are met at the outset by two jurisdictional problems, one concerning our own appellate jurisdiction, the other relating to that of the district court.

The FHA, without pressing the point, has raised the question whether the judge dismissed the complaint with respect to all the defendants or only with respect to Chenango. If he did the latter, the order would not be appealable as from a final decision under 28 U.S.C. § 1291, in the absence of a certificate from the district judge, doubtless readily forthcoming, under F.R.Civ.P. 54(b). However, as we read the order, the judge meant to dismiss the complaint against both defendants. In any event, since the plaintiffs sought an injunction against Chenango and this prayer for relief was dismissed for lack of jurisdiction, an appeal would lie under 28 U.S.C. § 1292(a) (1). See Western Geophysical Company of America, Inc. v. Bolt Associates, Inc., 440 F.2d 765, 769-770 (2 Cir. 1971) and cases there cited.

The issue with respect to the jurisdiction of the district court has been eased by what we deem an appropriate concession by the Government that plaintiffs' claim of entitlement to a hearing before the FHA is an "action in the nature of mandamus to compel an officer or employee of the United States or any agency thereof to perform a duty owed to the plaintiff," 28 U.S.C. § 1361, which has no requirement of jurisdictional amount. Since jurisdiction thus existed as to defendant Smith, Chenango was properly joined as a defendant under F.R.Civ.P. 19(a). We therefore proceed to the merits, which the district court, because of its views as to lack of jurisdiction, did not reach.

III.

Appellants' contention that the denial of a "trial-type" hearing on the proposed rent increases violated their statutory rights is readily answered. Under § 5 of the APA, 5 U.S.C. § 554, such a hearing is demanded only in a "case of adjudication required by statute to be determined on the record after opportunity for an agency hearing." Section 221(d) (3) of the National Housing Act contains no such requirement; the statute leaves it open to the Secretary to deal with rents by "a regulatory agreement or otherwise," thus according him the widest latitude of procedural choice.⁷ Any argument that at least the rule-making procedures of § 4 of the APA, 5 U.S.C. § 553, were demanded would be answered by the exception in § 553(a) for "a matter relating to agency management or personnel or to public property, loans, grants, benefits, or contracts." In all this we are in accord with Hahn v. Gottlieb, 430 F.2d 1243, 1247 fn. 4 (1 Cir. 1970).

The question whether denial of a hearing was consistent with due process is a closer one. In contrast to Judge Coffin's opinion in Hahn,supra, 430 F. 2d at 1248, we find it impossible to deny that the material the tenants sought to develop before the FHA constituted what Professor Davis terms "adjudicative facts," that is, "facts about the parties and their activities, businesses, and properties," as distinguished from "general facts which help the tribunal decide questions of law and policy and discretion." Administrative Law Treatise, § 7.02 at 413 (1958). Normally, when a civilian executive or administrative agency is about to take action adverse to a citizen, on the basis of ...