Cuyahoga Met. Housing Auth. v. City of Cleveland

• Decision Date: 05 May 1972
• Docket Number: Civ. A. No. 72-222.
• Citation: 342 F. Supp. 250
• Parties: CUYAHOGA METROPOLITAN HOUSING AUTHORITY, Plaintiff, v. CITY OF CLEVELAND et al., Defendants.
• Court: U.S. District Court — Northern District of Ohio

342 F. Supp. 250

CUYAHOGA METROPOLITAN HOUSING AUTHORITY, Plaintiff, v. CITY OF CLEVELAND et al., Defendants.

Civ. A. No. 72-222.

United States District Court, N. D. Ohio, E. D.

May 5, 1972.

COPYRIGHT MATERIAL OMITTED

Walter C. Kelley, Fred J. Livingstone, Cleveland, Ohio, for plaintiff.

Nicholas DeVito, Malcolm Douglas, Milton Schulman, Richard M. Harmody, William Van Aken, Cleveland, Ohio, for defendants.

MEMORANDUM OPINION AND ORDER

BATTISTI, Chief Judge:

Cuyahoga Metropolitan Housing Authority (CMHA) has brought this action against the City of Cleveland and the members of the City Council of the City of Cleveland pursuant to 28 U.S.C. § 1331(a) to declare invalid the action of the City Council in adopting Ordinance No. 392-72 purporting to cancel its 1971 Cooperation Agreement with CMHA. In addition, CMHA seeks to have this court order the City to comply with said agreement.

On May 10, 1971, the Council of the City of Cleveland passed Ordinance No. 836-71 entitled "An Emergency Ordinance authorizing the execution of a Cooperation Agreement with the Cuyahoga Metropolitan Housing Authority for the development of and administration of 2,500 dwelling units for low income persons." Pursuant to the authorization granted him by Ordinance No. 836-71, the Mayor of the City of Cleveland, on May 21, 1971, on behalf of the City of Cleveland, entered into a Cooperation Agreement with CMHA. The City of Cleveland has received the substantial benefit of certification of its "Workable Program" by HUD because it executed the Cooperation Agreement. Such benefits accrued under other programs.

After execution of the Cooperation Agreement in May of 1971, CMHA in performance thereunder and in reliance upon this agreement instituted and engaged in the following activities.

General plans for the development of the 2,500 units over a 2½ year period under the Cooperation Agreement were conceived. It was decided that construction under the new agreement was to proceed in five separate phases which would result in the development of 2,000 family units and 500 elderly units.

For the first phase of development, CMHA requested a program reservation for 500 units from the Department of Housing and Urban Development (HUD), which was approved and granted. All of the 500 units in the first phase were designated for single family scattered site housing to be developed under the traditional Turnkey method of construction. However, the plans and approvals have been recently changed so that now 150 units are to be constructed under a Turnkey acquisition program.

CMHA hired an additional planner and real estate officer, and also created a new position of Deputy Director, in order to meet the new demands for the development of the 2,500 units and the various development programs thereunder and assigned additional staff to the development program. The CMHA staff developed a letter inviting proposals and containing criteria to be sent to proposed Turnkey developers which were approved by HUD. CMHA placed legal advertisements inviting proposals from developers for the development of 500 Turnkey units.

Pursuant to said advertised invitation, proposals from ten developers were received by CMHA for a total of 509 units, and thereafter the CMHA staff devoted considerable time and money to the evaluation of said proposals. After the CMHA staff and the CMHA Board tentatively approved over 100 proposed sites, the HUD staff spent considerable time and effort in evaluating and studying same.

After the proposed sites had been approved by the CMHA staff, the CMHA Board and HUD, the CMHA staff and Board also spent considerable time in evaluating the financial and construction aspects of the various Turnkey proposals. To date, the CMHA Board has approved plans for approximately 71 sites in all respects and has agreed to enter into development programs therefor. These proposed development programs have all been sent to HUD for funding by amendments to existing Annual Contributions Contracts but the City of Cleveland's actions have created a cloud and have resulted in delays in HUD's approval.

To date, CMHA has expended approximately $45,000 in the development and planning of the 500 scattered site units as the first stage of construction under the 1971 Cooperation Agreement. This development money will not be reimbursed by HUD unless and until the proposed units are approved by HUD for construction by the execution of a development program. This latter action is dependent upon the existence of a Cooperation Agreement. Federal funds amounting to approximately 62.5 Million Dollars will be lost by CMHA, which loss will prevent CMHA from carrying out its statutorily mandated purpose of providing persons of low income with decent, safe, and sanitary housing. The Council of the City of Cleveland on March 27, 1972, passed Ordinance No. 392-72 which purports to repeal Ordinance No. 836-71 and to cancel the Cooperation Agreement authorized and executed thereunder.

The question before this court is whether the City may rescind the Cooperation Agreement under which it and CMHA have pursued their obligations for almost one year. This issue has been presented to at least three State courts, and all three have overturned or enjoined the municipality from repudiating or cancelling a valid Cooperation Agreement. State ex rel. Helena Housing Authority v. City Council of City of Helena, 125 Mont. 592, 242 P.2d 250 (1952); Housing Authority of City of Los Angeles v. City of Los Angeles, 38 Cal.2d 853, 243 P.2d 515 (1952); Housing Authority of City of Oakland v. City of Oakland, 222 Cal.App.2d 771, 35 Cal. Rptr. 527 (1963).

These courts held that subsequent legislation cancelling a Cooperation Agreement impairs the obligation of contract in violation of Article I, Section 10 of the United States Constitution. Subsequent to the three decisions, the United States Supreme Court decided City of El Paso v. Simmons, 379 U.S. 497, 85 S.Ct. 577, 13 L.Ed.2d 446 (1965). This case altered the scope of review under the contract clause and must be carefully reviewed.

In 1910 the Texas State Land Board sold some public land by contract calling for a small down payment plus annual interest and principal payment. State law provided for the termination of the contract and forfeiture of the land for nonpayment of interest. The purchaser or vendee could reinstate his claim on written request and payment of delinquent interest, unless rights of third parties intervened. In 1941 the law was amended limiting reinstatement rights to five years from the forfeiture date. The land was forfeited in 1947. Simmons, thereafter, took quitclaim deeds to the land, filed for reinstatement and tendered payment more than five years later. The application was denied. In 1955 the State sold the land to the City of El Paso and Simmons filed suit to determine who had title. The District Court granted the City's motion for summary judgment on the ground of the 1941 statute. The Court of Appeals reversed. 320 F.2d 541 (5th Cir. 1963). They held that the right to reinstate was a vested contractual right and that the 1941 statute constituted an impairment of Article I, § 10.

El Paso attempted to bring the case within the long line of cases recognizing a distinction between contract obligations and remedies and permitting a modification of the remedy as long as there was substantial impairment of the value of the obligation. Sturges v. Crowninshield, 4 Wheat. 122, 200, 4 L. Ed. 529 (1819); Von Hoffman v. City of Quincy, 4 Wall. 535, 553-554, 18 L. Ed. 403 (1866); Honeyman v. Jacobs, 306 U.S. 539, 59 S.Ct. 702, 83 L.Ed. 972 (1938). Mr. Justice White refused to review again the dividing line between "remedy" and "obligation". Rather he felt that . . . "it is not every modification of a contractual promise that impairs the obligation of contract under federal law, any more than it is every alteration of existing remedies that violates the Contract Clause". 379 U.S. at 507, 85 S.Ct. at 583. He felt that the modification of the provision for reinstatement after default did not contravene the contract clause.

The El Paso Court adopted the standard which Chief Justice Hughes announced in 1937 in Home Building & Loan Ass'n v. Blaisdell, 290 U.S. 398, 428, 54 S.Ct. 231, 236, 78 L.Ed. 413 (1937)

"But full recognition of the occasion and general purpose of the clause does not suffice to fix its precise scope. Nor does an examination of the details of prior legislation in the States yield criteria which can be considered controlling. To ascertain the scope of the constitutional prohibition, we examine the course of judicial decisions in its application. These put it beyond question that the prohibition is not an absolute one and is not to be read with literal exactness like a mathematical formula. Justice Johnson, in Ogden v. Saunders, supra, page 286 of 12 Wheat., 6 L.Ed. 606, adverted to such a misdirected effort in these words: `It appears to me, that a great part of the difficulties of the cause, arise from not giving sufficient weight to the general intent of this clause in the constitution, and subjecting it to a severe literal construction, which would be better adapted to special pleadings.' And, after giving his view as to the purport of the clause, `that the States shall pass no law, attaching to the acts of individuals other effects or consequences than those attached to them by the laws existing at their date; and all contracts thus construed, shall be enforced according to their just and reasonable purport,' Justice Johnson added: `But to assign to contracts, universally, a literal purport, and to exact from them a rigid literal fulfillment, could not have been the intent of the constitution. It is repelled by a hundred examples. Societies exercise a positive control as well over the inception, construction and fulfillment of contracts, as over the form and measure of the remedy to enforce them.'"

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