674 F.2d 906 (D.C. Cir. 1981), 79-1880, Shivers v. Landrieu

Docket Nº:79-1880.
Citation:674 F.2d 906
Party Name:Dennis SHIVERS, et al., Appellants, v. Moon LANDRIEU, in his Official Capacity as Secretary, U. S. Department of Housing and Urban Development, et al.
Case Date:March 27, 1982
Court:United States Courts of Appeals, Court of Appeals for the District of Columbia Circuit
 
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Page 906

674 F.2d 906 (D.C. Cir. 1981)

Dennis SHIVERS, et al., Appellants,

v.

Moon LANDRIEU, in his Official Capacity as Secretary, U. S.

Department of Housing and Urban Development, et al.

No. 79-1880.

United States Court of Appeals, District of Columbia Circuit

March 27, 1982

Page 907

Appeal from the United States District Court for the District of Columbia (D.C.Civil Action No. 79-0816).

Florence Wagman Roisman, Washington, D. C., with whom Ilene J. Jacobs and Paula D. Scott, Washington, D. C., were on brief for appellants.

Regina C. McGranery, Asst. U. S. Atty., Washington, D. C., with whom Charles F. C. Ruff, U. S. Atty., John A. Terry and Michael W. Farrell, Asst. U. S. Attys., Washington, D. C., were on brief for appellee, Secretary, U. S. Dept. of Housing and Urban Development.

J. Jonathan Schraub, Washington, D. C., with whom Warren K. Kaplan, Washington, D. C., was on brief for appellees, Garfield Development Corp., et al.

Susan R. Baron, Washington, D. C., with whom Richard O. Duvall, Washington, D. C., was on brief for appellee, Institutional Securities Corp.

John Evans, Washington, D. C., was on brief for appellee, Hessick Inv. Corp.

E. William Furey, Chevy Chase, Md., was on brief for appellee, Karl W. Corby & Co., Inc.

Before MacKINNON, WILKEY and GINSBURG, Circuit Judges.

Opinion for the Court filed by Circuit Judge WILKEY.

WILKEY, Circuit Judge:

This appeal involves a thirty-year old housing complex in southeast Washington, D.C., known as "Garfield Hill Apartments." Appellants are past and present tenants of the 104-unit project who complain of evictions, high rents, and deficient maintenance standards, etc. Appellants brought suit in the U.S. District Court against the Department of Housing and Urban Development (HUD) as well as against a number of private parties who hold (or held) varying interests in the property. This action is cognizable in federal court, appellants contend, because the mortgage for Garfield Hill had been insured since 1948 by the federal government pursuant to the National Housing Act, 1 and was therefore subject to HUD regulatory obligations. In December 1978, however, three months before this lawsuit was initiated, Garfield Hill's owner prepaid the full mortgage terminating the insurance and the government's erstwhile security or regulatory interest in the property.

The district court dismissed the action with prejudice on 2 August 1979. The court found that as to the government defendant, HUD, the lawsuit was moot because the mortgage prepayment had eliminated any federal interest or duty. Thereupon, with respect to the private parties, the court found that it was without subject-matter jurisdiction and dismissed those claims as well. Motions for summary disposition made to this court by both sides were denied on 25 January 1980.

We now affirm the district court, but rely on different grounds. We hold that the proper ground for dismissal was the appellants' failure to state a claim upon which relief could be granted.

I. FEDERAL INSURANCE FOR THE GARFIELD HILL MORTGAGE

Section 608 of the National Housing Act 2 was enacted to address the housing needs of war veterans. 3 To stimulate the construction

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of apartment complexes favoring veterans, Congress authorized the federal government to insure mortgages on property meeting certain relevant conditions. One condition for insurance eligibility under section 608 was the application of federal "regulations and procedures" to occupancy priorities and rents, etc., of the mortgaged property. 4

Acting through the Secretary for Insurance, the government on 23 August 1948 endorsed a note executed by appellee Garfield Development Corporation, the owner-mortgagor. This endorsement provided mortgage insurance to the original lender, Riggs National Bank of Washington (and later, appellant Institutional Securities Corporation), guaranteeing payment in case of mortgagor's default. FHA regulations in effect on the date of FHA's endorsement, 23 August 1948, formed the contract of mortgage insurance between the FHA and the lender. 5 The regulations empower the Secretary of HUD (originally the Federal Housing Commissioner) to impose regulations on the mortgagor and, in particular, provide that the Secretary may acquire an interest in the mortgagor corporation by purchasing its preferred stock. 6 The government paid the Garfield Development Corporation 100 dollars for 100 shares of its preferred stock. Thus HUD was in position to exercise its discretion to regulate Garfield Hill within its authority under section 608.

For the most part mortgage payments proceeded fairly smoothly, so no demand for insurance benefits was ever made to HUD (or to the FHA, its predecessor agency). Consequently, neither the government nor the lender, for that matter, ever attempted to control the project, or acquire anything beyond a security interest in Garfield Hill.

Those security interests had themselves terminated in December 1978, several months before the complaint in this action was filed on 16 March 1979. In 1978 the mortgagor, Garfield Development Corporation, exercised its "prepayment privilege," making full payment to the lender of the remaining balance under the mortgage. Three days later, Garfield Development Corporation paid 100 dollars to HUD, thereby redeeming in full the preferred stock issued to that government agency. Paying off the mortgage naturally satisfied the lender and extinguished its security interest in the property. Similarly, prepayment terminated the government's contract for mortgage insurance. 7 In a sense, then, the jurisdictional predicate of governmental involvement may have evaporated before the case began. 8

The applicable regulations state plainly that "(u)pon the termination of all obligations of the (Secretary) ... all regulations and restriction of the mortgagor shall cease." 9 By redeeming HUD's preferred stock and making full payment of the mortgage, the government's obligations and restrictions over the mortgaged property were terminated. 10 Moreover, prepayment is itself contemplated within the federal

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regulations. 11 Hence, the mortgagor may by paying off the loan cancel at anytime the contract for mortgage insurance, and thereby extinguish outside security interests, including HUD's.

II. DISCUSSION

A. The Parties

Real estate transactions usually involve a number of parties, each with distinct interests and obligations. If litigation ensues, it is rarely a two party case, but here the complaint named defendants whose links with the mortgaged property were remarkably attenuated. For instance, appellee Hessick Investment Corporation was sued in its "capacity" as a prospective purchaser of Garfield Hill. The deal, however, had never gone through, as both parties to the proposed sale agreed to forget it in October of 1978. The former owner of Garfield Development Corporation's common stock, Karl W. Corby & Company, Inc., was also sued. Corby removed itself from contact with Garfield Hill in December 1977 when it sold its stock to the various individuals, associations, and corporations who are the current stockholders of the Garfield Development Corporation. (The property itself has been owned by the Corporation at all times since 1948.) These parties, along with the Corporation, are all sued together as the landlord of Garfield Hill. And then, there is the crucial defendant, the Secretary of HUD. By insuring the...

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