504 F.2d 483 (9th Cir. 1974), 72-2338, Geneva Towers Tenants Organization v. Federated Mortgage Investors

Docket Nº:72-2338, 72-2270, 72-2314, 72-2756, 72-2784 and 72-2788.
Citation:504 F.2d 483
Party Name:GENEVA TOWERS TENANTS ORGANIZATION, an unincorporated association, et al., Plaintiffs-Appellees, v. FEDERATED MORTGAGE INVESTORS, and Geneva Apartments, Inc., et al., Defendants-Appellants. GENEVA TOWERS TENANTS ORGANIZATION, etc., et al., Plaintiffs-Appellees, v. George W. ROMNEY, Individually and in his capacity as Secretary of Housing and Urban
Case Date:October 02, 1974
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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Page 483

504 F.2d 483 (9th Cir. 1974)

GENEVA TOWERS TENANTS ORGANIZATION, an unincorporated

association, et al., Plaintiffs-Appellees,

v.

FEDERATED MORTGAGE INVESTORS, and Geneva Apartments, Inc.,

et al., Defendants-Appellants.

GENEVA TOWERS TENANTS ORGANIZATION, etc., et al., Plaintiffs-Appellees,

v.

George W. ROMNEY, Individually and in his capacity as

Secretary of Housing and Urban Development, et

al., Defendants-Appellants.

GENEVA TOWERS TENANTS ORGANIZATION, an unincorporated

association, et al., Plaintiffs-Appellants,

v.

FEDERATED MORTGAGE INVESTORS, et al., Defendants-Appellees.

Nilda KELLER et al., Plaintiffs-Appellees,

v.

George W. ROMNEY, Individually and in his capacity as

Secretary of Housing and Urban Development, and James H.

Price, Individually and in his capacity as Director, San

Francisco Area Office, Department of Housing and Urban

Development, Defendants-Appellants.

Nilda KELLER et al., Plaintiffs-Appellees,

v.

KATE MAREMONT FOUNDATION, Defendant-Appellant.

Nilda KELLER et al., Plaintiffs-Appellants,

v.

KATE MAREMONT FOUNDATION et al., Defendants-Appellees.

Nos. 72-2338, 72-2270, 72-2314, 72-2756, 72-2784 and 72-2788.

United States Court of Appeals, Ninth Circuit

October 2, 1974

Page 484

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Page 485

Ronald R. Glancz (argued), Civil Div., U.S. Dept. of Justice, Washington, D.C., for appellants in 72-2270 and 72-2756 and for appellees in 72-2314.

David B. Bryson (argued), National Housing and Economic Development Law Project, Berkeley, Cal., for appellees in 72-2270, 72-2338, 72-2784 and 72-2756 and for appellants in 72-2314 and 72-2788.

Sal C. Balistreri (appeared), San Francisco, Cal., for appellees in 72-2314 and for appellants in 72-2338.

Allan M. Berland (argued), of Elkus & Berland, San Francisco, Cal., for appellant in 72-2784 and for appellee in 72-2788.

Before HUFSTEDLER and CHOY, Circuit Judges, and TAYLOR, [*] District judge.

CHOY, Circuit Judge:

This is a consolidated appeal by tenants in two federally financed housing projects: Geneva Towers Appartments and Crescent Park. In two district court actions, they sought rescission of rent increases granted their landlords by the Federal Housing Administration (FHA) and an injunction compelling the federal defendants to grant the tenants a full and fair hearing prior to the implementation of the rent increases. They also sought a declaratory judgment that the actions of their landlords in applying for and the FHA in granting the rent increases violated the National Housing Act, the Administrative Procedure Act and the Due Process Clause of the Fifth Amendment. The district court in each case ruled that the Due Process Clause requires: (1) that tenants be given notice of their lessor's application for approval of a rent increase; (2) that tenants have a reasonable opportunity to make written objections; and (3) that tenants be furnished with a concise statement of the FHA's reasons for approving an increase. 1 All parties appealed. The landlords and the government contend that the district courts improperly established procedures for tenant review of rent increase applications. The tenants reassert their argument for fullscale hearings. 2 We affirm.

Geneva Towers and Crescent Park were financed by the federal government pursuant to 221(d)(3) of the Housing

Page 486

Act of 1961, 12 U.S.C. 1715l(d)(3). Congress determined that there are many families who have sufficiently high incomes to preclude them from eligibility for low-rent public housing, but who cannot afford home ownership even if assisted by conventional FHA insurance. 3 Section 221(d)(3) was designed to assist private industry in providing housing for these low and moderate income families and, in addition, persons displaced by urban renewal. 4 The means Congress chose were the incentive of subsidized interest rates, 12 U.S.C. 1715l(d)(5), and certain tax advantages. 5

Those eligible to receive subsidized mortgages include nonprofit corporations, such as the Kate Maremont Foundation, and limited dividend corporations, such as Geneva Apartments, Inc. See 24 C.F.R. 221.510 (1973). Congress decided that the benefits of federal financing would be available only where mortgagors operated the projects subject to controls on admissions, rents and profits. 6 Therefore, the FHA has promulgated extensive regulations governing 221(d) (3) developments. The regulations prescribe the form and content of mortgage instruments, wage labor and construction standards, occupancy requirements and priorities, and establish federal controls over capital structure, rate of return on investment and rents. See 24 C.F.R. 221.502-749 (1973).

Geneva Apartments, Inc. and Kate Maremont Foundation each signed the standard regulatory agreement to receive federal financing of its project. The agreement implements the regulatory provisions outlined above and, with respect to rent increase applications, provides:

The Commissioner will at any time entertain a written request for a rent increase properly supported by substantiating evidence and within a reasonable time shall:

Approve a rent 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 the owners have no effective control, or (2) Deny the increase stating the reasons therefore. 7

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The goal is to provide reasonable charges to tenants and a fair return to the mortgagor. 8

Both landlords applied for and were granted rent increases. In neither case were the tenants given notice of the application or an opportunity to participate in the determination of a rent increase. No FHA procedure, regulation or federal statute provides for tenant participation. The issues presented on this appeal are: (1) whether there is sufficient governmental participation and involvement to subject 221(d)(3) projects to the due process clause; (2) whether the tenants' interest in not having their rents increased is a constitutionally protected 'property interest'; and if so (3) what procedural safeguards does due process require to protect that interest.

I. GOVERNMENT INVOLVEMENT

The Due Process Clause of the Fifth Amendment applies to and restricts only the federal government and not private persons. Public Utilities Comm'n v. Pollak, 343 U.S. 451, 461, 72 S.Ct. 813, 96 L.Ed. 1068 (1952). The standards utilized to find federal action for purposes of the Fifth Amendment are identical to those employed to detect state action subject to the strictures of the Fourteenth Amendment. See United States v. Davis,482 F.2d 893, 897 n. 3 (9th Cir. 1973). What is 'private' action and what is 'state' action is often difficult to determine. See Evans v. Newton,382 U.S. 296, 299, 86 S.Ct. 486, 15 L.Ed.2d 373 (1966). 'Only by sifting facts and weighing circumstances can the nonobvious involvement of the State in private conduct be attributed its true significance.' Burton v. Wilmington Pkg. Auth., 365 U.S. 715, 722, 81 S.Ct. 856, 860, 6 L.Ed.2d 45 (1961). Burton held that where a state-owned and operated parking facility leased a portion of its building to a coffee shop which engaged in racial discrimination, the state so far insinuated itself into a position of interdependence as to be a joint participant in the unconstitutional activity. Therefore, the Fourteenth Amendment was applicable. The interdependence was principally financial. The rents paid by the shop partially defrayed the cost of the public facility and enhanced its success. Improvements by the shop did not result in increased taxes to it because the fee was held by a tax-exempt government agency. There were a variety of incidental mutual benefits.

Moose Lodge No. 107 v. Irvis, 407 U.S. 163, 92 S.Ct. 1965, 32 L.Ed.2d 627 (1972), reveals a situation distinguishable from the symbiotic relationship in Burton. The Court held that a state-issued liquor license with accompanying regulation did not amount to sufficient state involvement to require the application of the Fourteenth Amendment. The Lodge was aprivate club in its own building without public funding. The state regulation did not make the state a partner in the club's enterprise. Id. at 177, 92 S.Ct. 1965.

Analysis of the facts and circumstances in the instant cases discloses sufficient government involvement in the 221(d)(3) program to subject the activities of the landlords to the Fifth Amendment. Private investors such as Geneva Apartments, Inc. and Kate Maremont Foundation, are engaged in a joint undertaking with the federal government to provide housing for low and

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moderate income families. Participation in the 221(d)(3) program subjects the investors to an elaborate and pervasive body of government regulations. The benefits are mutual. The investors are able to construct facilities aided by government financing, below-market interest rates and tax advantages. The government alleviates the housing crisis and insures compliance with its goal through a monitoring system that commences with construction of the housing and does not terminate until the mortgagors' obligations are satisfied. The 221(d)(3) program is not merely a case of government subsidization but an independent relationship comparable to that found in hospital construction under the Hill-Burton Act. 9 We hold the Fifth Amendment applicable to these 221(d) (3) projects. Accord McQueen v. Druker, 438 F.2d 781, 784-785 (1st Cir. 1971); Harlib v. Romney (N.D.Ill., March 6, 1973); Paulsen v. Coachlight Apartments Co. (W.D.Mich., March 8, 1973); Colon v. Tomkins Square Neighbors, Inc., 294 F.Supp. 134, 137-138...

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