Appel v. Beyer

• Decision Date: 06 May 1974
• Citation: 39 Cal.App.3d Supp. 7,114 Cal.Rptr. 336
• Parties: 39 Cal.App.3d Supp. 7 Uranus J. APPEL et al., Plaintiffs and Respondents, v. Ellen BEYER, Defendant and Appellant. Joseph KORDA, Plaintiff and Respondent, v. Lucy A. McDANIELS, Defendant and Appellant. Civ. A. 13237 and Civ. A. 13286. Appellate Department, Superior Court, Los Angeles County, California
• Court: California Superior Court

Page 336

114 Cal.Rptr. 336

39 Cal.App.3d Supp. 7

Uranus J. APPEL et al., Plaintiffs and Respondents, v. Ellen BEYER, Defendant and Appellant.

Joseph KORDA, Plaintiff and Respondent, v. Lucy A. McDANIELS, Defendant and Appellant.

Civ. A. 13237 and Civ. A. 13286.

Appellate Department, Superior Court, Los Angeles County, California.

May 6, 1974.

Joel S. Aaronson, Aviva K. Bobb and Patricia M. Tenoso, San Fernando Valley Neighborhood Legal Services, Inc., Pacoima, for defendants and appellants.

Jack Levy, Beverly Hills, for plaintiffs and respondents in No. 13237.

Dicker & Dicker and Robert L. Dicker, Los Angeles, for plaintiff and respondent in No. 13286.

Stanton J. Price, Rosalyn M. Chapman, and Philip L. Goar, Los Angeles, as amicicuriae in No. 13286.

HOLMES, Acting Presiding Judge.

These cases present the question, novel to the California appellate courts, whether housing projects carried out by joint participation of private enterprise and government under section 221(d)(3) of the National Housing Act (12 U.S.C. § 1715l(d)(3)) and section 101 of the Housing and Urban Development Act of 1965 (Pub.L. No. 89--117, Aug. 10, 1965, 12 U.S.C. § 1701s) involve such 'state action' that due process of law, including notice and proof of good cause for eviction, must be accorded a tenant who holds over after expiration of the agreed term of his tenancy. ¹ We answer this question in the affirmative.

In the Appel case (Civ.A. No. 13237) the landlord operates a residential apartment complex called Sherman Oaks Manor whose construction was largely financed by a federally guaranteed mortgage loan resulting, the trial court found, in the tenant receiving 'the benefit of a lower than market charge.'

In the Korda case (Civ.A. No. 13286) the landlord operates a similarly financed residential project called Panorama View Apartments. He receives part of the rent in the form of 'rent supplement' payments by the Federal Housing Administration (FHA) ² on behalf of the tenant.

In each case, the landlord is required, in consideration of financial benefits received, to accept only low or moderate income tenants whose eligibility is previously approved by FHA. In each case the landlord and tenant entered into a written month-to-month lease on a form supplied by FHA containing a provision that either party might terminate upon expiration of any term by giving 30 days' prior notice. Neither lease expressly required notice of good cause or hearing and proof thereof as a condition to such termination, nor did any FHA regulation purport to require them.

In each case, the landlord gave the tenant the 30-day notice of termination prescribed by section 1946 of the Civil Code and sued for unlawful detainer under section 1161 et seq. of the Code of Civil Procedure when the tenant failed to vacate. Each tenant pleaded affirmatively that a due process notice and hearing of cause was necessary in view of the governmental involvement in the housing project. Rejecting this contention, the trial court in each case rendered judgment for possession and overdue rent in favor of the landlord. The tenants appealed and the trial court stayed judgment pending appeal.

The Appel case is before us on the clerk's transcript. The trial court made extensive findings of fact. Condensed, they declare: The Sherman Oaks Manor project was created to provide decent housing for low and moderate income families pursuant to section 221(d)(3) of the National Housing Act and financed by a 40-year mortgage loan of $1,630,000 bearing interest at 3 percent, below the market rate. The project's owners received income tax benefits not accorded to non-federally involved housing projects. In order to obtain section 221(d)(3) benefits, the owners were required to obtain FHA approval or major decisions concerning planning, construction and management of the project, and to enter into a 'regulatory agreement' with FHA governing its operation. Some of the facts so found will be hereinafter referred to in more detail.

The Housing Act of 1937 (Sept. 1, 1937, ch. 896, § 1, 50 Stat. 888 as amended; 42 U.S.C. § 1401) declared it to be 'the policy of the United States to promote the general welfare of the Nation by employing its funds and credit . . . to assist the several States and their political subdivisions to . . . remedy the unsafe and unsanitary housing conditions and the acute shortage of decent, safe and sanitary dwellings for families of low income . . ..' In 1961, section 221(d)(3) was adopted (Pub.L. No. 87--70, § 101(a), 75 Stat. 149, June 30, 1961, 12 U.S.C. § 1715l) with the legislative statement that it was 'designed to assist private industry in providing housing for low and moderate income families . . .', thus enlisting private capital in the government's fight against substandard housing. (See Procedural Due Process In Government-Subsidized Housing (1972) 86 Harv.L.Rev. 880, 882--883.)

The findings of the trial court in the Appel case reflect the breadth and depth of this joinder of government and private enterprise to achieve a public purpose. First, private capital is wooed by the incentive of small investor's outlay in proportion to the total capital commitment. The private investor need hazard no more than 10 percent of the project cost. He is offered very long-term financing (40 years) at an interest rate of 3 percent or less and is assured a market for such financing by federal insurance of the loan (12 U.S.C. § 1715l). He is offered favorable income tax benefits. These inducments manifestly are not intended to enrich landlords but to enlist private capital in implementation of the government's housing policy.

The federal government's devotion to this policy is reflected by the manner in which private capital is induced to invest. Instead of guaranteeing investors a profitable return, the government modified the structure of its income tax laws to make investment in federally assisted housing projects attractive regardless of operational profit or loss. ³ In consequence, the owner of such a project is not vitally concerned with profitability of its day-to-day operation in the way that a traditional landlord is concerned with the operating results of his venture. Much of the daily function and involvement of the traditional landlord has been transferred, in federally assisted projects, from the landlord to FHA as the supervising agency. (See: McQueen v. Druker (E.D.Mass.1970), 317 F.Supp. 1122, 1131; same case on appeal, McQueen v. Druker (1st Cir. 1971), 438 F.2d 781.)

The restrictions imposed on the owner by the FHA lease form and the 'regulatory agreement' with FHA again underscore the government's purpose to make private capital a tool of government housing policy. The owner may accept as tenants only those of low or moderate income as defined by FHA. He must give preference to applicants who hold FHA certificates of eligibility. He must terminate the tenancy of any tenant who ceases to meet such definition. He must require the tenant to requalify at any time requested by FHA. He may charge rents only at rates approved by FHA and may not increase them without FHA approval. These limitations on traditional freedom of the landlord can have no other purpose than furtherance of the government's drive for decent housing for persons of modest means.

Other features of the relationship between owner and FHA covered by the findings point clearly to the predominance of the federal government's interest. Thus, the surveillance by FHA of the project's economic feasibility, design, title status, street access, owner's credit, construction costs and, especially, the right of FHA to step in and take over management in event of default, all demonstrate that protection of the government's financial commitment to the project is a primary objective.

The limitation on distribution of earnings, the requirement for maintenance of reserves and disbursement only of 'surplus' cash and the provision for periodic reports by the owner to FHA all strongly suggest the government's concern for permanence and continuity of the housing project as well as for safety of the government's financial commitment.

The obligations imposed by the FHA lease document on the tenant to supply on request full information regarding his income and to vacate or pay increased rent if his initial eligibility ceases, also demonstrate the government's purpose that this privately owned enterprise be so operated as to implement the federal housing policy.

It thus appears that the primary function of this owner and this housing project is to provide a conduit for federal power to turn the wheel of federal policy. Any benefit to the owner or tenant is a product of governmental action. The government is, essentially, the landlord. Without the government, there would be no such low-cost housing; with the government, the quality and cost of the housing is such as the government allows.

It is well established that 'the government as landlord is still the government. It must not act arbitrarily, for, unlike private landlords, it subject to the requirements of due process of law.' (Rudder v. United States (1955) 96 U.S.App.D.C. 329, 226 F.2d 51, 53.)

The findings of the trial court, above set forth, demonstrate to our satisfaction that the federal government 'has so far insinuated itself into a position of interdependence' with this housing project that 'the government must be recognized as a joint participant' therein, and that because of such governmental involvement the project 'cannot be considered to have been so 'purely private' as to fall without the scope of' due process requirements inhibiting governmental action. (Burton v. Wilmington Parking Authority (1961), 365 U.S. 715, 725, 81 S.Ct. 856, 862, 6 L.Ed.2d 45.) ⁴

McQueen v. Druker (1st Cir. 1971), 438 F.2d 781 held that a section 221(d)(3) housing project on a site acquired by exercise of the state's power of eminent domain and...