City of Joliet, Ill. v. New West, L.P.

• Decision Date: 09 April 2009
• Docket Number: No. 08-3032.,No. 08-3033.,08-3032.,08-3033.
• Citation: 562 F.3d 830
• Parties: CITY OF JOLIET, ILLINOIS, Plaintiff-Appellee, v. NEW WEST, L.P., and New Bluff, L.P., Defendants-Appellants. United States Department of Housing and Urban Development and Evergreen Terrace Tenants, Intervening Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

562 F.3d 830

CITY OF JOLIET, ILLINOIS, Plaintiff-Appellee, v. NEW WEST, L.P., and New Bluff, L.P., Defendants-Appellants United States Department of Housing and Urban Development and Evergreen Terrace Tenants, Intervening Defendants-Appellants.

No. 08-3032.

No. 08-3033.

United States Court of Appeals, Seventh Circuit.

Argued January 12, 2009.

Decided April 9, 2009.

Carl Gigante, Attorney, Peter A. Silverman, Attorney, Figliulo & Silverman, Chicago, IL, for Plaintiff-Appellee.

Katherine E. Walz, Attorney, Sargent Shriver National Center on Poverty Law, Chicago, IL, Christine N. Kohl, Attorney, Department of Justice Civil Division, Appellate Staff, Washington, DC, for Defendants-Appellants.

Before EASTERBROOK, Chief Judge, and WILLIAMS and SYKES, Circuit Judges.

EASTERBROOK, Chief Judge.

For several years the City of Joliet, Illinois, has been trying to acquire the Evergreen Terrace apartment complex, which the City believes is so run-down that it constitutes a public nuisance. After the City commenced eminent domain proceedings in state court, New West, a partnership that owns the complex, removed the proceeding to federal court and filed a suit under 42 U.S.C. § 1983 seeking an injunction and damages. The district court put the condemnation on ice and dismissed the § 1983 action — erroneously, we held in New West, L.P. v. Joliet, 491 F.3d 717 (7th Cir.2007). We directed the district court to take up the condemnation proceeding first, as its disposition could resolve some or all of the issues in the § 1983 suit.

One of New West's arguments in the § 1983 suit was that, because it has accepted a federal subsidy under § 8 of the Housing Act of 1937, 42 U.S.C. § 1437f, federal law preempts the City's proceeding. Our opinion had this to say:

New West contends that § 8 and the Fair Housing Act [42 U.S.C. §§ 3601-19] prevent condemnation of Evergreen Terrace, but it does not rely on any particular provision of that statute. Section 8 is a subsidy program, a carrot rather than a stick. HUD's regulations implementing the § 8 program contemplate the possibility of the parcel's condemnation; they do not purport to forbid condemnations. See 24 C.F.R. §§ 245.405, 248.101. For its part, the Fair Housing Act forbids discrimination in housing programs without providing that any given housing development has a right to continued existence. Just as with § 8, federal regulations implementing the FHA cover the demolition of housing projects. 24 C.F.R. Part 970, and exempt condemned buildings from these rules, see 24 C.F.R. § 970.3. If Joliet thinks that a given parcel of land should be put to a public use, such as a park, and is willing to foot the bill, it is hard to see any obstacle in federal law.

491 F.3d at 721. In the district court the Department of Housing and Urban Development intervened and contended that § 221 of the National Housing Act of 1954 (as amended in 1961 and 1966), 12 U.S.C. § 1715 l, and the Multifamily Assisted Housing Reform and Affordability Act of 1997, 42 U.S.C. § 1437f note, block condemnation. The district court rejected that contention in reliance on our opinion, but, after concluding that HUD was making new arguments that we had not addressed, certified the case for interlocutory appeal under 28 U.S.C. § 1292(b). We accepted the appeal, because we thought that HUD was relying on particular language said to preempt state and local condemnation laws. Now that the appeal has been fully briefed and argued, however, HUD and the other parties acknowledge that neither of these statutes has any clause preempting state law. At this point we could stop and affirm, relying on the law of the case. But because HUD was not a party to the first appeal, and has invoked two statutes that New West did not mention, we think it best to give the Department a full hearing and plenary decision.

First, however, a word on subject-matter jurisdiction. Joliet contends that there is none, because when the case was removed HUD was neither a party to the suit nor even a lender to New West. The eminent domain proceeding arises under state and local law. Although New West raised preemption as a federal defense, it has long been understood that a federal defense does not support removal. See, e.g., Metropolitan Life Insurance Co. v. Taylor, 481 U.S. 58, 107 S.Ct. 1542, 95 L.Ed.2d 55 (1987); Gully v. First National Bank, 299 U.S. 109, 57 S.Ct. 96, 81 L.Ed. 70 (1936); Bennett v. Southwest Airlines Co., 484 F.3d 907, rehearing denied, 493 F.3d 762 (7th Cir.2007). (The exception for "complete preemption," see Franchise Tax Board of California v. Construction Laborers Vacation Trust, 463 U.S. 1, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983), does not apply; no one argues that federal law occupies the fields of housing or municipal powers.)

Still, the presence of the national government as a party with a security interest in the real estate supplies jurisdiction. 28 U.S.C. §§ 1444, 2410. It would be pointless to order this suit remanded, only to have HUD re-remove it in a trice. The Supreme Court has held that, when a suit is removed prematurely, the district court may proceed if it has subject-matter jurisdiction at the time it enters judgment. American Fire & Casualty Co. v. Finn, 341 U.S. 6, 71 S.Ct. 534, 95 L.Ed. 702 (1951); Grubbs v. General Electric Credit Corp., 405 U.S. 699, 92 S.Ct. 1344, 31 L.Ed.2d 612 (1972); Caterpillar Inc. v. Lewis, 519 U.S. 61, 117 S.Ct. 467, 136 L.Ed.2d 437 (1996). This rule, coupled with the presence of HUD (and its desire to have the suit resolved in federal court), means that remand is unnecessary.

Three federal statutes are involved in this proceeding, and HUD contends that two of them preempt state and local law. The first statute, § 8 of the Housing Act, 42 U.S.C. § 1437f, provides federal rent subsidies for low-income tenants; as we observed in 2007, this statute does not preempt any state or local law. HUD concurs. The second is § 221 of the National Housing Act, 12 U.S.C. § 1715 l. This statute creates a program under which the federal government insures mortgages on privately owned, multifamily properties, some tenants of which receive rent subsidies under § 8. HUD has established criteria that owners must meet before a loan is insured. HUD also is authorized to pay off the private lenders and become a direct lender. For descriptions of this program, see Cienega Gardens v. United States, 194 F.3d 1231 (Fed.Cir. 1998), and Geneva Towers Tenants Organization v. Federated Mortgage Investors, 504 F.2d 483 (9th Cir.1974). The final statute, the Multifamily Assisted Housing Reform and Affordability Act of 1997, 42 U.S.C. § 1437f note, allows HUD to renegotiate mortgages insured or assumed under § 221 of the National Housing Act. High mortgage payments make it hard (sometimes impossible) for owners to offer below-market rents to their tenants; renegotiated mortgages with lower monthly payments cut the rents to the beneficiaries of the § 8 program. Owners who seek lower mortgage payments under the 1997 Act must promise to keep their rental properties available to low-income tenants for 30 years.

Evergreen Terrace, which has 356 apartments, has participated in the § 8 and § 221 programs since the 1960s. By the late 1970s the owner was in default on its mortgage loans. HUD paid off the lenders, became the mortgage holder, foreclosed, and took title to the complex. New West purchased part of the complex from HUD in 1980 for $1, and the rest in 1982 for another $1. New West took out large mortgage loans, which HUD insured under § 221. New West promised both the lenders and HUD that it "will not permit or suffer the use of any of the property for any purpose other than the use for which the same was intended at the time this Mortgage was executed."

In 2001 New West asked HUD to restructure the mortgages under the 1997 Act, reducing the monthly payments. Both the Illinois Housing Development Authority and Heskin Signet Partners reported to HUD that the approximately 600 residents of Evergreen Terrace lack other available options for low-income housing. Relying on these reports, HUD approved the restructuring in 2006, paid off the original lenders, and became the lender (and mortgage holder) itself. As part of the transaction, New West promised that, for the next 30 years, the property "shall be used solely as rental housing with no reduction in the number of residential units unless approved in writing by HUD". New West simultaneously entered into new 20-year agreements with HUD for § 8 subsidies to low-income tenants. These agreements undertake not to transfer, assign, or encumber the property without HUD's approval.

When we agreed to hear this interlocutory appeal, we understood HUD to argue that the contracts that New West had signed in 2006 themselves preempted any state and local powers of condemnation, and we directed the parties to address the question how New West could give away a governmental power that it never possessed. (Neither the City of Joliet nor the State of Illinois has made any promise to HUD about the maintenance of Evergreen Terrace.) HUD's appellate brief responded to our inquiry by disclaiming this theory of preemption. The contracts do not affect state or local powers, HUD recognizes. Owners such as New West must comply with all state and local laws-indeed, 24 C.F.R. § 883.310(b)(6) specifies that recipients of federal assistance are bound by all "[a]pplicable State and local laws, codes, ordinances, and regulations."

Why isn't eminent domain among these applicable state and local laws? HUD's answer is that condemnation would interfere with the purposes of § 221 and the 1997 Act. Both statutes are designed to enlarge, or at least preserve, the stock of housing available for low-income tenants. The "findings" in § 511 of the 1997 Act make this explicit. If Joliet can condemn Evergreen Terrace, 356 apartments for low-income tenants will disappear, and these tenants do...