620 F.3d 340 (3rd Cir. 2010), 09-1087, Massie v. United States Dept. of Housing & Urban Development

Docket Nº:09-1087.
Citation:620 F.3d 340
Opinion Judge:FUENTES, Circuit Judge:
Party Name:Jean MASSIE; Shirley Sowell; Aline Reid; Yugonda Alice; Third East Hills Park, Inc.; Louise Brandon v. UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT; Alphonso Jackson, Secretary Jean Massie, Appellant.
Attorney:Donald Driscoll, Esq., Kevin L. Quisenberry, Esq. (Argued), Community Justice Project, Pittsburgh, PA, for Appellants. Robert L. Eberhardt, Esq. (Argued), Megan E. Farrell, Esq., Office of the United States Attorney, Pittsburgh, PA, for Appellees. James R. Grow, Esq., Housing Preservation Project...
Judge Panel:Before: FUENTES, HARDIMAN, and NYGAARD, Circuit Judges.
Case Date:September 08, 2010
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit

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620 F.3d 340 (3rd Cir. 2010)

Jean MASSIE; Shirley Sowell; Aline Reid; Yugonda Alice; Third East Hills Park, Inc.; Louise Brandon



Jean Massie, Appellant.

No. 09-1087.

United States Court of Appeals, Third Circuit.

September 8, 2010

Argued May 18, 2010.

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[Copyrighted Material Omitted]

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Donald Driscoll, Esq., Kevin L. Quisenberry, Esq. (Argued), Community Justice Project, Pittsburgh, PA, for Appellants.

Robert L. Eberhardt, Esq. (Argued), Megan E. Farrell, Esq., Office of the United States Attorney, Pittsburgh, PA, for Appellees.

James R. Grow, Esq., Housing Preservation Project, National Housing Law Project, Oakland, CA, Amici Curiae-Appellants.

Before: FUENTES, HARDIMAN, and NYGAARD, Circuit Judges.


FUENTES, Circuit Judge:

Plaintiffs are a class of former residents of Third East Hills Park (" Third East Hills Park" or " the property" ), an apartment development in Pittsburgh, Pennsylvania, who formed a co-op known as Third East Hills Park, Inc. (the " Co-op" ).1 The Co-op entered into a project-based Section 8 Housing Assistance Payments (" HAP" ) contract with the United States Department of Housing and Urban Development (" HUD" ).2 Pursuant to the HAP contract, HUD would pay a portion of the monthly rent on behalf of eligible low-income tenants. Plaintiffs filed this class action lawsuit seeking to compel action that they claim was unlawfully withheld by HUD. First, they seek an order compelling HUD to maintain the HAP contract at the property following foreclosure (and purchase and rehabilitation by a new owner). They argue that this course of action is required by Pub.L. No 109-115, § 311, 119 Stat. 2396 (2005) (" Section 311" ).3 Second, Plaintiffs seek an order compelling HUD to provide class members with relocation assistance at Uniform Relocation Act (" URA" ) levels, pursuant to 24 C.F.R. § 290.17(d), rather than the lesser amount that HUD provided under 24 C.F.R. § 290.17(c).

Our analysis begins with a threshold issue of the scope of this appeal. We find that the appeal of all class members is properly before us. Turning to the substantive issues, we hold that Section 311 did apply to HUD's management and disposition of the property at issue in this case. HUD failed to make a determination

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that the property was not feasible for continued assistance and therefore failed to comply with the terms of Section 311. Accordingly, we reverse the District Court's grant of summary judgment and hold that HUD must reinstate the HAP contract at the property. We also conclude that the grant of summary judgment on the issue of relocation assistance was improper and remand for additional fact-finding on the issues of whether the tenants were displaced due to a federally financed project and, if so, whether the tenants who were entitled to relocation assistance at URA levels received such assistance.


A. HUD Inspections and Foreclosure Recommendation

Each resident of Third East Hills Park had an opportunity to become a shareholder in the Co-op by paying a membership fee. When the Co-op was established in 1974, the fee was $350; this amount has varied over the years. In 1976, the Co-op entered into a Section 8 HAP contract with HUD. The contract was renewed in 2001 for a twenty-year term. Under the HAP contract, HUD pays a portion of each eligible tenant's monthly rent, so long as the Co-op meets certain contractual obligations. Among these, the HAP contract requires the Co-op to lease units on the property to eligible low-income families and to maintain and operate the housing units and related facilities to provide " decent, safe, and sanitary housing." (App. at 707.)

The contract also provides that, if HUD determines that the Co-op has failed to comply with the contract,

[HUD] shall notify the [Co-op] of (1) the nature of the non-compliance, (2) the actions required to be taken and the remedies to be applied on account of the non-compliance (including actions by the Owner to cure the non-compliance and, where appropriate, abatement of housing assistance payments in whole or in part and recovery of overpayments), and (3) the time within which the [Co-op] shall respond with a showing that it has taken all the actions required of [it]. If the [Co-op] fails to respond or take action to the satisfaction of [HUD], [HUD] shall have the right to terminate the Contract in whole or in part or take other corrective action to achieve compliance.

( Id. at 723.)

HUD inspected the property, to ensure compliance, through its Real Estate Assessment Center (" REAC" ). Annual inspections, with the purpose of ensuring that units were in a decent, safe, and sanitary condition, were performed in accordance with HUD regulations. The regulations provide for use of a 100-point scale. They also allow for inspection of " a statistically valid sample of the units in [a Public Housing Authority's] public housing portfolio." 24 C.F.R. § 902.20(b)(1). Although the property at issue here was not owned by a public housing authority, this same sampling process was applied.

REAC inspected Third East Hills Park on October 9, 2002; December 5, 2003; and September 22, 2004. The October 2002 inspection resulted in a score of 53. A May 2003 letter identified the deficiencies and gave the Co-op sixty days to correct them. The December 2003 inspection resulted in a score of 55. A June 2004 follow-up by HUD's Departmental Enforcement Center noted numerous deficiencies, many of which had been found in prior inspections. HUD issued a written notice on July 12, 2004, giving the Co-op thirty days to correct deficiencies and certify compliance and stating that failure to do so would cause HUD to pursue any and all remedies, including abatement or suspension

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of the HAP contract and possibly foreclosure. The September 2004 reinspection resulted in a score of 43 points. Plaintiffs contended before the District Court that all exigent deficiencies were corrected within three business days of the inspection and that they disputed many of the non-exigent deficiencies.

HUD sent a " notice of abatement" to the Co-op President on November 10, 2004, explaining that the Co-op had failed to address the deficiencies outlined in prior letters and was therefore in default on the HAP contract. (App. at 745.) The notice stated that HUD would abate payments on all of the units in the property and forbid the Co-op from accepting new Section 8 tenants. On the same day, HUD sent a separate letter to the Co-op President. It stated that HUD would initiate foreclosure proceedings on the property's mortgage, which was in technical default due to the failure to correct the physical deficiencies. HUD would provide an opportunity to show legal reasons why a foreclosure should not occur and allow twenty days for the Co-op to submit its position in writing. The letter also stated that, at the Co-op's request (within seven days), a meeting would be scheduled-at the Atlanta, Georgia office of HUD-to hear any legal reasons why HUD should not foreclose upon the property. ( Id. at 780-81.)

The local HUD office sent a memorandum, also on November 10, 2004, to HUD's Atlanta Multifamily Property Distribution Center, recommending foreclosure on the property. The memo included the prior inspection reports and other documentation. It also included a document entitled " Field Office Foreclosure Recommendation," which described the property. The Recommendation noted that the property adjoined two other affordable housing developments, which had both been sold to developers, who were awarded low-income tax credits and would be improving those properties. According to the Recommendation, Third East Hills Park, in its current condition, would negatively affect the success of the other properties. The area was described in the Recommendation as " heavily impacted with subsidized housing." ( Id. at 748.) The Recommendation also noted many over-housed units at the property, meaning that the occupants were living in larger units than necessary for their household size. It concluded that the property should be sold to the City of Pittsburgh and the number of units reduced.

In response, the Atlanta office requested additional information regarding the property's fiscal condition. On February 9, 2005, an architecture firm retained by HUD issued a Comprehensive Repair Survey and estimated the total cost of repairs at the property to be $2,497,098. ( Id. at 822.) HUD determined that the repair costs and operating expenses at the property exceeded the potential property income and " as-is value." Plaintiffs dispute this analysis. As they note, a question at the bottom of HUD's Sales Analysis form-which analyzed repair costs, operating expenses, and potential income-specifically asks whether the project is financially viable after repairs, and the answer given is " yes." ( Id. at 822.) The form also states that the project would produce an annual " net operating income" of $343,934. ( Id. )

B. Displacement of Residents

In November 2004, during the same period that it sent the Co-op a " notice of abatement" and recommended foreclosure on the property, HUD also sent a " notice of displacement" to residents informing them of its intent to relocate them for " health, safety, and security reasons." ( Id. at 784.) Residents with executed leases would receive moving expenses, and income-eligible

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tenants would receive a voucher for Section 8 tenant-based rental assistance. The letter also announced a December 2, 2004 meeting to discuss relocation benefits.4 HUD sent another letter on February 10, 2005 to all residents, advising them...

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