CATHEDRAL SQUARE PARTNERS v. S. DAKOTA HOUS. DEV.

• Citation: 679 F. Supp.2d 1034
• Decision Date: 30 March 2009
• Docket Number: No. Civ. 07-4001.,Civ. 07-4001.
• Parties: CATHEDRAL SQUARE PARTNERS LIMITED PARTNERSHIP; West Park, Ltd.; 46th Street Partners Limited Partnership; and Riverview Properties, Ltd., Plaintiffs, v. SOUTH DAKOTA HOUSING DEVELOPMENT AUTHORITY, Defendant and Third-Party Plaintiff, v. Roy Bernardi, Acting Secretary, United States Department of Housing and Urban Development, Third-Party Defendant.
• Court: U.S. District Court — District of South Dakota

679 F.Supp.2d 1034

CATHEDRAL SQUARE PARTNERS LIMITED PARTNERSHIP; West Park, Ltd.; 46th Street Partners Limited Partnership; and Riverview Properties, Ltd., Plaintiffs, v. SOUTH DAKOTA HOUSING DEVELOPMENT AUTHORITY, Defendant and Third-Party Plaintiff, v. Roy Bernardi, Acting Secretary, United States Department of Housing and Urban Development, Third-Party Defendant.

No. Civ. 07-4001.

United States District Court, D. South Dakota, Southern Division.

March 30, 2009.

Joel D. Vos, Heidman Law Firm, Sioux City, IA, for Plaintiffs.

Michael L. Luce, Murphy Goldammer & Prendergast, LLP, Sioux Falls, SD, for Defendant.

MEMORANDUM OPINION AND ORDER

LAWRENCE L. PIERSOL, District Judge.

Plaintiffs, Cathedral Square Partners Limited Partnership, West Park, Ltd., 46th Street Partners Limited Partnership, and Riverview Properties, Ltd., have sued Defendant and Third-Party Plaintiff, South Dakota Housing Development Authority ("SDHDA"), alleging that SDHDA breached their Housing Assistance Payment ("HAP") contracts which were established and are administered pursuant to Section 8 of the United States Housing Act of 1937. SDHDA's alleged breach stems from administering these HAP Contracts in accordance with the 1994 Amendments made by Congress to the statutes governing Section 8 and in accordance with Notice H 95-12, issued by the Housing Development Authority ("HUD") implementing the Congressional amendments. In turn, SDHDA sued Roy Bernardi ("the Secretary"), Acting Secretary of the United States Department of Housing and Urban Development in his official capacity. SDHDA contends that this Court has subject matter jurisdiction over its Third-Party Complaint by invoking the Court's general federal question jurisdiction under 28 U.S.C. § 1331 together with the waivers of sovereign immunity provided by the Administrative Procedures Act ("APA"), 5 U.S.C. § 701, et seq., or in the alternative, Section 1404a of the United States Housing Act of 1937, 28 U.S.C. § 1404a. The Secretary has moved to dismiss the Third-Party Complaint, alleging that these claims are within the exclusive jurisdiction of the Federal Court of Claims pursuant to the Tucker Act, 28 U.S.C. § 1491, and in the alternative, that this Court lacks jurisdiction to hear these claim as they fall outside the APA's and the United States Housing Acts's limited waivers of sovereign immunity. (Doc. 43.)

BACKGROUND

Pursuant to Section 8 of the United States Housing Act of 1937, as amended, the United States, acting through the U.S. Department of Housing and Urban Development ("HUD"), subsidizes the rents of low-income tenants of privately-owned dwellings. 42 U.S.C. § 1437f. The rent subsidy is provided in one of two ways: either HUD enters into a Housing Assistance Payments contract ("HAP contract") directly with a private landlord or HUD enters into an Annual Contributions Contract ("ACC") with a public housing agency and the public housing agency enters into a HAP contract with the landlord. In either case, the HAP contract specifies a monthly contract rent for particular housing units. The contract rent is initially set by HUD to approximate the fair market value of the rental property for the local area, taking into account certain adjustments to reflect additional costs associated with complying with Section 8 requirements. The tenant pays the landlord a portion of the contract rent based on the tenant's income, and either HUD or the public housing agency pays the landlord the difference between the tenant's payment and the contract rent.

In addition to setting initial contract rents, HUD is responsible for adjusting the contract rents on at least an annual basis to reflect changes in the fair market rentals. The means by which HUD adjusts rents under its contracts are as follows: "The adjusted monthly amount of the Contract Rent of a dwelling unit shall be determined by multiplying the Contract Rent in effect on the anniversary date of the contract by the applicable Automatic Annual Adjustment Factor. . . ." 24 C.F.R § 888.203(b). HUD publishes these Adjustment Factors at least annually by notice in the Federal Register.

HUD entered into ACCs with Defendant/Third-Party Plaintiff, South Dakota Housing Development Authority ("SDHDA"), and SDHDA entered into HAP contracts with Plaintiffs Cathedral Square Partners Limited Partnership, West Park, Ltd., 46th Street Partners Limited Partnership, and Riverview Park, Ltd. Each of the HAP contracts that SDHDA entered into with Plaintiffs provided that "on each anniversary date of the Contract, the Contract Rents shall be adjusted by applying the applicable annual adjustment factor most recently published by the Government."

In 1994, Congress amended Section 8 in two relevant respects. First, the Amendments provided that, "where the maximum monthly rent, for a unit in a new construction, substantial rehabilitation, or moderate rehabilitation project, to be adjusted using an annual adjustment factor exceeds the fair market rental for an existing dwelling unit in the market area, the Secretary shall adjust the rent only to the extent that the owner demonstrates that the adjusted rent would not exceed the rent for an unassisted unit of similar quality, type, and age in the same market area, as determined by the Secretary." 42 U.S.C. § 1437f(c)(2)(A) (1994). Second, the amendments provided that "for any unit occupied by the same family at the time of the last annual rental adjustment, where the assistance contract provides for the adjustment of the maximum monthly rent by applying an annual adjustment factor and where the rent for the unit is otherwise eligible for an adjustment based on the full amount of the annual adjustment factor, 0.01 shall be subtracted from the amount of the factor, except that the annual adjustment factor shall not be reduced to less than 1.0" Id.

As part of its effort to implement the 1994 amendments, HUD issued Notice H 95-12 requiring owners to file timely rent comparability studies containing at least three examples of unassisted housing in the same market area of similar age, type and quality in order to receive a rent increase. According to the directive, any adjustment to the contract rent would be limited to the lesser of (1) the "adjusted comparable rent," determined by adding to the comparable rent the initial difference (the amount by which the original contract rent exceeded the original comparable rent), or (2) the rent level adjusted by the appropriate annual adjustment factor.

As it was bound to do so under law, SDHDA administered its HAP contracts with the Plaintiffs in accordance with Congress's Amendments and HUD's Notice H 95-12.

Plaintiffs allege that by administering its HAP contracts with Plaintiffs in accordance with the 1994 Congressional Amendments and Notice H 95-12, SDHDA breached Plaintiffs' rights under the HAP Contracts and wrongly deprived them of rent increases for many years. In their Second Amended Complaint which was filed on June 24, 2008, Plaintiffs allege that SDHDA breached their HAP contracts on three grounds: (1) by failing to increase contract rents or by increasing contract rents less then the amount called for in the HAP contracts; (2) by reducing the annual adjustment factor by .01 for units occupied by the same family in consecutive years; and (3) by requiring plaintiffs to submit rent comparability studies. Plaintiffs request that the Court award compensatory damages for SDHDA's alleged breaches of contract as well as reimbursement for costs and expenses incurred in pursuing this matter in court. Additionally, Plaintiffs asks the Court to order SDHDA to increase the contract rents at Plaintiff's rental housing project to reflect the rent increases to which Plaintiffs are entitled under their HAP Contracts with SDHDA.

On June 10, 2008, SDHDA filed a Third-Party Complaint against Roy Bernardi, Acting Secretary, United States Department of Housing and Urban Development in which it alleges three claims for relief. First, SDHDA alleges that "if HUD has caused SDHDA to breach Plaintiffs' HAP Contracts and to apply incorrect requirements and procedures to the adjustment of contract rents for other HAP Contracts to which SDHDA is a party, HUD's actions are arbitrary, capricious, an abuse of discretion, contrary to law, and contrary of constitutional right, in violation of 5 U.S.C. § 706." Accordingly, SDHDA contends that "HUD must provide any additional housing assistance payments, retroactive or prospective, to which plaintiffs or other Section 8 housing owners are entitled when adjustments to the contracts rents are calculated correctly and in conformance with applicable legal requirements." Second, SDHDA claims that if HUD has caused SDHDA to breach its HAP Contracts with Plaintiffs, HUD has breached the related ACCs with SDHDA and SDHDA is "entitled to indemnification by HUD for all costs and expenses it has sustained or will sustain to remedy those breaches." Third, SDHDA "seeks a declaration of its rights and responsibilities in applying the 1994 amendments and Notice H 95-12 with respect to future adjustments of Contract Rents for the HAP Contracts to which it is a party, and its right to have such rent adjustments funded by HUD pursuant to the related ACCs."

The Secretary contends that the Court lacks jurisdiction over all claims asserted against him as they fall outside the waivers of sovereign immunity under the Administrative Procedures Act ("APA"), 5 U.S.C. § 701, et. seq., and Section 8 of the United States Housing Act of 1937, 42 U.S.C. § 1404a. The Secretary asserts that pursuant to the Tucker Act, 28 U.S.C. §§ 1491, 1346(a)(2), these claims are within the proper jurisdiction of the Court of Federal Claims. The Secretary has thus moved to dismiss the Third-Party Complaint in its entirety.

STANDARD OF REVIEW

To sue the United States, a plaintiff must show both a waiver of sovereign immunity and a grant of subject matter...