Chase v. Theodore Mayer Bros.

• Decision Date: 14 November 1983
• Docket Number: Civ. A. No. C-1-82-054.
• Citation: 592 F. Supp. 90
• Parties: Robert CHASE, et al., Plaintiffs, v. THEODORE MAYER BROS., et al., Defendants.
• Court: U.S. District Court — Southern District of Ohio

592 F. Supp. 90

Robert CHASE, et al., Plaintiffs, v. THEODORE MAYER BROS., et al., Defendants.

Civ. A. No. C-1-82-054.

United States District Court, S.D. Ohio, W.D.

November 14, 1983.

Ronnie E. Dixon, Legal Aid Society of Cincinnati, Cincinnati, Ohio, for plaintiffs.

Ronald L. McDermott, John J. Cruze, Asst. U.S. Atty., Robert E. Coletti, Keating, Muething & Klekamp, Stuart L. Richards, Anthony J. DeCenso, Cincinnati, Ohio, for defendants.

MEMORANDUM AND ORDER

DAVID S. PORTER, Senior District Judge:

I.

Plaintiffs in this action are five tenants in the Pendleton III housing project. This litigation was instituted in the Hamilton County Municipal Court against defendants Theodore Mayer Bros. Realtor and Samuel Pierce, in his official capacity as the Secretary of Housing and Urban Development (hereinafter "Secretary") (doc. 1, attachment). The action was subsequently removed to federal court at the behest of the United States (docs. 1, 2). Plaintiffs then filed an amended complaint (doc. 15), which added as party-defendants Anthony J. DeCenso and Clarence A. Doerger.

The gravamen of plaintiffs' complaint is that defendants have failed to maintain plaintiffs' apartments and common areas in a decent, safe and sanitary condition in accordance with the obligations imposed by the Cincinnati, Ohio Basic Building Code and Ohio Rev.Code § 5321.04, thereby breaching a warranty of habitability implied in plaintiffs' leases.

The Secretary filed a motion to dismiss or, in the alternative, for summary judgment, accompanied by a memorandum of law (doc. 12), to which plaintiffs responded (doc. 20). After the Secretary filed a reply brief (doc. 24), the court heard oral argument (doc. 32). At the invitation of the court, the parties filed supplemental memoranda in support of their respective positions (see docs. 33, 34, 35, 36, 37, 38). Defendant's motion is now before the court for disposition.

In its relevant aspects, plaintiffs' theory of the case is that HUD is bound by the Ohio Landlord-Tenant Act, see Ohio Rev. Code § 5321 et seq., to live up to the terms of a warranty of habitability which is an implied term in all leases of "residential premises" in Ohio. Plaintiffs seek both equitable relief and damages under the provisions of the Ohio statute. In the alternative, plaintiffs contend they have a private right of action under Section 203 of the Housing and Community Development Amendments of 1978, 12 U.S.C. § 1701z-11.¹

By his motion, the Secretary raises several issues, including the defense of sovereign immunity, failure to state a claim upon which relief can be granted, the asserted inapplicability of state law to the activities of HUD in this context (e.g., preemption and intergovernmental immunity), and the asserted lack of a private right of action under the federal statutes.

II.

Although we anticipate factual disputes when the merits of this case are reached, there is general agreement between the parties regarding the facts which are relevant to the instant motion. Pendleton III is a 78-unit multifamily rental housing project for low or moderate income families. The project is owned by general partners Clarence A. Doerger and Anthony J. DeCenso and has been managed by defendant Theodore Mayer Bros. Realtor (under contract with HUD) since February of 1981.

In February of 1971, HUD approved and provided mortgage insurance under Section 221(d)(3) of the National Housing Act of 1934, as amended, 12 U.S.C. § 1715l. The statute provides for HUD-FHA insurance of mortgage loans to assist in financing projects designed to provide housing for low and moderate income families. In addition, HUD provides Pendleton III with operating subsidies.

In February of 1977, the mortgage was assigned to HUD due to delinquent mortgage payments. HUD is obligated under its contract of mortgage insurance to accept the assignment of the mortgage securing the property upon a default in the insured mortgage. On October 20, 1979, because of continued default on payments, HUD became mortgagee-in-possession. As mortgagee-in-possession, HUD employs property managers to manage and operate the project and to secure needed repairs. Repairs are generally accomplished through the use of available rent income and operating subsidies.

Plaintiff tenants made repeated complaints to HUD concerning the disrepair of fixtures, filth, and vermin infestation in their apartments and surrounding environs. Some measures have been taken to correct these conditions. The tenants have, in the meantime, withheld rent payments and deposited the amount of those payments with the Clerk of the Hamilton County Municipal Court pursuant to Ohio Rev.Code § 5321.07.

III.

Sovereign Immunity

The Secretary's first contention is that plaintiffs' claims for damages against HUD are barred by the doctrine of sovereign immunity. Although our disposition of the remaining issues in this case may blunt the thrust of the Secretary's attack in this regard, we think it is proper to dispose of the sovereign immunity issue in any event.²

12 U.S.C. § 1702 provides, inter alia, that the "Secretary shall, in carrying out the provisions of this subchapter ... be authorized, in his official capacity, to sue and be sued in any court of competent jurisdiction, State or Federal." The Secretary contends that the "sue and be sued" provision quoted above is merely a limited waiver of sovereign immunity and in no way confers an affirmative grant of jurisdiction, citing Ames-Ennis, Inc. v. Midlothian Ltd., Etc., 469 F.Supp. 939, 942 (D.Md.1979). In support of his defense of sovereign immunity, the Secretary cites the Tenth Circuit's opinion in United States v. Adams, 634 F.2d 1261 (10th Cir.1980). In Adams, a developer sued HUD and a local housing authority, alleging that they were liable in contract for failure to make home-sites available on a timely basis. The court held that the limited waiver of immunity expressed in the statute did not extend to a contract damage suit where plaintiff sought recovery beyond the monies appropriated or committed for a specific project. Id. at 1265-66.

We note, however, that in Federal Housing Administration v. Burr, 309 U.S. 242, 245, 60 S.Ct. 488, 490, 84 L.Ed.2d 724 (1940), the Supreme Court held that "sue and be sued" provisions like § 1702 should be construed liberally. The Court found that a creditor's garnishment action brought against the Federal Housing Administration to attach wages due an employee was within the waiver of immunity provided by Congress.

The Seventh Circuit's decision in Merrill Tenant Council v. United States Department of Housing and Urban Development, 638 F.2d 1086 (7th Cir.1981) is closer factually to the instant case. In Merrill, a tenant council sued for payment of interest on tenant security deposits on the theory that the Illinois statute requiring such interest payments was incorporated as an implied term in the tenants' leases with HUD. The court found that § 1702 operated as a waiver of sovereign immunity in that case, and that plaintiffs could proceed in contract to recover the interest due. In so holding, the court concluded that the action was within the limiting language of § 1702 in that it involved the Secretary's "carrying out" a provision of the National Housing Act. Specifically, the court found that the duty imposed by the Illinois statute arose by virtue of the federal mortgage insurance programs under which HUD is responsible for operating and leasing apartments. The court also noted that there were funds available from the specific project (e.g., rents, security deposits) to pay a judgment apart from the general funds of the Treasury. See also City of Philadelphia v. Page, 363 F.Supp. 148 (E.D.Pa. 1973) (court found a waiver of sovereign immunity under § 1702 and under the Tucker Act, 28 U.S.C. § 1346(a)(2) in the context of an alleged breach of implied warranty of habitability in the sale of property by HUD).

We find the Merrill decision dispositive of this issue, and hold that plaintiffs' action is not barred by the doctrine of sovereign immunity. In so holding, we note that the Secretary's activities as mortgagee-in-possession in this case involve his "carrying out" the provisions of the National Housing Act, and that there are funds available apart from the general funds of the Treasury should plaintiffs be entitled to relief. The Secretary is therefore amenable to suit in this proceeding.

IV.

Implied Warranty of Habitability In Leases of HUD-Owned Property

Our research reveals only one circuit court opinion dealing with the implied warranty of habitability issue in this context. See Alexander v. U.S. Department of Housing Development, 555 F.2d 166 (7th Cir.1977), aff'd on other grounds, 441 U.S. 39, 99 S.Ct. 1572, 60 L.Ed.2d 28 (1979).³ In Alexander, as here, HUD insured repayment of a loan secured by a mortgage on an apartment housing project under § 221(d)(3) of the National Housing Act. In the face of continuing default by the developer, HUD acquired title to the property. The project was so deteriorated that HUD decided to terminate the project.⁴

During the time the project was operating, all tenants were required to post a $100.00 security deposit at the time of their initial tenancy. When the project was terminated, HUD returned the security deposits to all tenants who were current in their rent payments. In the case of five tenants, however, HUD applied their security deposits to the balance of any rent in arrears.

The aggrieved tenants contended that their obligation to pay rent was relieved by HUD's breach of the warranty of habitability which is to be implied in their leases. Thus, they argued, their security deposits were wrongfully withheld by HUD.

The court noted a substantial number of state court decisions "which have revolutionized the law of landlord-tenant relationships" by implying a warranty of habitability in residential leases. 555 F.2d at 170. The court,...