Pealo v. Farmers Home Administration of U.S. Dept. of Agr.

Citation183 U.S.App.D.C. 225,562 F.2d 744
Decision Date12 September 1977
Docket NumberNos. 76-1540 and 76-1541,s. 76-1540 and 76-1541
PartiesWillard La Vern PEALO et al. v. FARMERS HOME ADMINISTRATION OF THE UNITED STATES DEPARTMENT OF AGRICULTURE et al., Appellants (two cases).
CourtUnited States Courts of Appeals. United States Court of Appeals (District of Columbia)

Paul Blankenstein, Atty., Dept. of Justice, Washington, D. C., with whom Rex E. Lee, Asst. Atty. Gen., Earl J. Silbert, U. S. Atty., and Robert E. Kopp, Atty., Dept. of Justice, Washington, D. C., were on the brief, for appellants. Thomas G. Wilson, Atty., Dept. of Justice, Washington, D. C., also entered an appearance for appellants in No. 76-1541.

Anthony Z. Roisman, Washington, D. C., for appellees. Florence Wagman Roisman, Washington, D. C., also entered an appearance for appellees in No. 76-1541.

Before TAMM and WILKEY, Circuit Judges, and WILLIAM B. JONES, * United States Senior District Judge for the United States District Court for the District of Columbia.

Opinion for the Court filed by WILLIAM B. JONES, Senior District Judge.

WILLIAM B. JONES, Senior District Judge:

Defendant-appellants (hereinafter defendants) appeal from orders of the district court entered April 6, 1976, and June 4, 1976, awarding attorneys' fees in a total amount of $38,957.61 to counsel for plaintiff-appellees (hereinafter plaintiffs). Defendants are Farmers Home Administration (FmHA), the Secretary of Agriculture and the Director of the United States Office of Management and Budget. 1 Plaintiffs are three married couples, Pealos, Fishers and Agers, and all other persons similarly situated, who had been denied subsidized loans by FmHA. 2

The plaintiffs brought this action in May, 1973, to obtain a court order requiring defendants to implement the Farmers Home Administration's interest credit loan program so as to achieve the national housing goals established by Congress. FmHA had announced in January 1973 that it was ceasing making interest credit loans under sections 502 and 515 at the low interest rate permitted by section 521 of Title V of the Housing Act of 1949, as amended. (42 U.S.C. secs. 1472, 1485, 1490a (1970) (amended again in 1973 and 1974)) FmHA stated that its cessation of such lending was a part of a governmentwide program of an 18 month moratorium on those federal housing programs administered by Housing and Urban Development (HUD) as announced by the Secretary of HUD.

On July 31, 1973, the district court directed FmHA and the other defendants to implement the section 521 interest loan program. From that order defendants appealed. Before oral argument, FmHA advised this Court that it had decided to continue to implement the interest credit program. That appeal was dismissed as moot and the case was remanded to the district court with directions to vacate the judgment appealed from. The district court, on remand, vacated its July 31, 1973 judgment but it reserved ruling on plaintiffs' claim for attorneys' fees. (J.A. 15-16).

After briefing and argument, the district court entered the order of April 6, 1976, and the orders of June 4, 1976, which awarded plaintiffs attorneys' fees.

The Housing Act of 1949, as Amended

Before considering the orders appealed from and the district court's reasoning as to the propriety of the award of legal fees, an understanding of the statutory authority and purpose of farm housing lending practices becomes necessary. The Housing Act of 1949, as amended, has among its congressionally declared purposes "The realization as soon as feasible of the goal of a decent home and a suitable living environment for every American family * * *." (42 U.S.C. 1441 (1970)) Title V of the Act seeks to achieve such a goal for farm families and others living in rural areas who cannot obtain credit and are therefore unable to secure decent housing. The Act, as amended, seeks to remedy that condition by extending financial assistance to such persons. The Secretary of Agriculture acting through the FmHA is authorized to make loans. (42 U.S.C. 1471, et seq. (1970 & Supp. V 1975))

Section 502 of the Act authorized loans upon the Secretary of Agriculture (Secretary) determining that qualified applicants have "the ability to repay in full the sum to be loaned, with interest, giving due consideration to the income and earning capacity of the applicant and his family from the farm and other sources * * *." (42 U.S.C. 1472(a) (1970) (amended 1974)) Section 502 loans may be made for a maximum period of thirty-three years and bear interest at rates established from time to time by the Secretary. (42 U.S.C. 1472(a), 1490a(a)(1) (Supp. V 1975)) At the time this action was instituted, the interest rate set by the Secretary was 7 1/4 percent. (Appellants' Br. 5)

The Senior Citizens Act of 1962 (76 Stat. 671) added section 515 to the Housing Act of 1949. (42 U.S.C. sec. 1485 (1970) (amended 1973 and 1974)) That Act, among other things, authorized the Secretary to make loans to private nonprofit corporations and consumer cooperatives to provide housing and related facilities for elderly persons and elderly families of low or moderate income or other persons and families of low income in rural areas. The eligibility conditions for a loan under section 515(a) are, with certain exceptions, substantially identical to those specified in section 502. One exception is that the maximum loan period is fifty years. The interest rate for section 515 loans is established by the Secretary from time to time as in the case of section 502 loans. (42 U.S.C. 1485(a), 1490a(a) (Supp. V 1975))

The Housing and Urban Development Act of 1968 (82 Stat. 551) added section 521 to the Housing Act of 1949. Section 521 provides that in making either section 502 or section 515 loans, the Secretary may set the interest rate as low as one percent per annum if he first determines that the applicant for either of such loans cannot obtain financial assistance from other sources. (42 U.S.C. 1490a(a)(1) (Supp. V 1975)) While those loans formally bear the maximum interest rate set by the Secretary, the actual interest payments made by the lower income borrowers are the lower rate set by the Secretary under Section 521. Thus the borrower is subsidized in an amount which reflects the difference between what the borrower would pay at the specified maximum rate and what the borrower actually pays. This is known as the "interest credit program." 3

The money lent to the qualified borrowers under section 502 and section 515 programs is disbursed from the Rural Housing Insurance Fund (RHIF). And this is so whether the loans are subsidized or unsubsidized. (42 U.S.C. 1487(c), (e), 1490a(c) (1970)) Congress created RHIF as a revolving fund (42 U.S.C. 1487(e) (1970)) and appropriated $100 million as the initial capitalization. (79 Stat. 399) While RHIF does not receive annual loan appropriations from Congress, the latter each fiscal year recommends a loan authorization level for the year. (J.A. 55) Any losses suffered by RHIF for any reason Congress covers by appropriations.

Besides the original capitalization appropriation, the sources of RHIF loan funds are several: (1) The Secretary can borrow money directly from the Treasury, which is accomplished by the Secretary issuing notes and obligations for purchase by the Treasury. (2) The Secretary may sell directly borrowers' promissory notes or an undivided interest in such notes. For the most part this has been through sale of certificates of beneficial ownership (CBO's) which are evidence of ownership of a proportionate interest in a block of promissory notes. The CBO's are now being sold only to the Federal Financing Bank. (3) Borrowers repay interest and principal of their loans. (4) Congress makes appropriations to cover RHIF losses.

In the district court the plaintiffs asserted that as a result of their successfully maintaining this litigation a fund of "well over one billion dollars" of interest credit loans were made in slightly more than one fiscal year since the court's July 31, 1973 order. They claim that such fund is benefiting an ascertainable class of beneficiaries. For making those interest credit loans available from RHIF funds, plaintiffs' counsel ask to be compensated. (J.A. 17-21) Defendants contend that to pay such counsel fees out of the RHIF would violate 28 U.S.C. 2412 (1970), which bars recovery of attorneys' fees against the United States. (J.A. 29) But plaintiffs would avoid the prohibitions of that statute by contending that RHIF is private money rather than government money, or alternatively, that even if the RHIF fund were government, the government's interest was simply that of a stakeholder. (J.A. 30-34)

District Court's Orders Awarding Attorneys' Fees

The district court in awarding attorneys' fees to plaintiffs' counsel held that the plaintiffs had incurred costs "in conferring a benefit on the members of the class by releasing RHIF monies for their use, and are entitled to be reimbursed." Pealo v. Farmers Home Administration, 412 F.Supp. 561 at 564 (D.D.C.1976). But the court concluded that, contrary to plaintiff's contention, no common fund had been created. But that fact, according to the district court, would not necessarily defeat the recovery of attorneys' fees in this case. In that connection, the court stated (id. pp. 564-565):

. . . While it is true that the revolving nature of RHIF makes it impossible to say that the plaintiffs have created a fund, per se, the fact that no monetary fund exists has been held to be an insufficient basis by the United States Supreme Court and the Court of Appeals for this Circuit for denying an award of attorneys' fees to a plaintiff who has secured a benefit for others. Mills, supra, 396 U.S. at 392-96, 90 S.Ct. at 625, 24 L.Ed.2d at 606; National Treasury Employees Union v. Nixon, (172 U.S.App.D.C. 217), 521 F.2d 317, 320-21 (1975).

The fact that there is no "fund" per se was...

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