DAVIS ASSOC., INC. v. SECRETARY, US DEPT. OF H. & U. DEV.

• Decision Date: 03 April 1974
• Docket Number: Civ. A. No. 73-296.
• Citation: 373 F. Supp. 1256
• Parties: DAVIS ASSOCIATES, INC. v. SECRETARY, U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT and Dover Housing Authority.
• Court: U.S. District Court — District of New Hampshire

373 F. Supp. 1256

DAVIS ASSOCIATES, INC. v. SECRETARY, U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT and Dover Housing Authority.

Civ. A. No. 73-296.

United States District Court, D. New Hampshire.

April 3, 1974.

David A. Brock, Perkins, Douglas & Brock, Concord, N. H., for plaintiff.

Joseph M. Corwin, Corwin & Corwin, Boston, Mass., and Donald R. Bryant, Burns, Bryant, Hinchey, Cox & Shea, Dover, N. H., for Dover Housing Authority.

Robert Schwartz, Asst. U. S. Atty., Concord, N. H., David Sonenshein, Regional Counsel, U. S. Dept. HUD, Boston, Mass., for U. S. Dept. of Housing and Urban Development.

MEMORANDUM OPINION

BOWNES, District Judge.

This case arises out of a refusal by the Dover Housing Authority (hereinafter DHA or Dover) and the Department of Housing and Urban Development (hereinafter HUD) to award Davis Associates, Inc., a construction company, a contract to build housing for the elderly under the Low Rent Housing Act, 42 U.S.C.A. § 1401 et seq. Davis, as low bidder, claims that the actions of Dover and HUD

constitutes sic a breach of good faith and an arbitrary, capricious and gross abuse of discretion in the performance and administration of their duties under the laws of the United States, and said action is not in the best interest of the government and in other ways not in accordance with the law. Complaint, ¶ 21.

Jurisdiction is predicated on 28 U.S.C.A. §§ 1331 and 1361 and 5 U.S.C.A. §§ 701-706.

Before delving into the particular facts of this case, a brief overview of how the Low Rent Housing Act operates is necessary. The following description is taken from HUD's brief:

Under the United States Housing Act of 1937, as amended, 42 U.S.C. § 1401 et seq., the construction of public housing is carried out in the following manner: The Local Housing Authority (LHA) here, Dover submits an application to HUD. Once certain prerequisites are fulfilled and the application is approved, a Program Reservation is issued by HUD. The Reservation is not a legal obligation but simply an indication that if funds are available and subsequent legal requirements are met, HUD will provide funds to finance the units. The Preliminary Loan Contract is the first formal agreement between HUD and the LHA. This loan is designed to cover the cost of surveys and options on sites as well as the preparation of the LHA's Development Program. Once a site has been chosen by the LHA and tentatively approved by HUD, the LHA prepares a Development Program, including the LHA's program for implementing its proposal. Once all of these steps have been satisfactorily completed, the LHA and HUD sign an Annual Contributions Contract (ACC), by the terms of which HUD agrees to provide loans for the development of the Project and to cover the capital cost of the Project by paying the annual interest and principal amortization on tax-free bonds to be issued by the LHA, generally maturing in forty years. It is at this point that the LHA invites sealed bids for construction of the Project. When the successful bidder is chosen, he enters into a construction contract with the LHA. . . . Title to the Project remains at all times in the LHA. Following completion of construction, the LHA is responsible for managing and maintaining the project. HUD's Brief at 2.

A. THE FACTS

Viewing them most favorably to the plaintiff, the pertinent facts appear as follows.¹ In the early part of 1973, Dover finalized an annual contributions contract (hereinafter ACC) with HUD for the construction of approximately one hundred dwelling units for the elderly. The HUD Estimated Total Development Cost was $2,450,000. Exhibit 1, Amendment No. 7. Thereafter, Dover sent out invitations for bids which were to be publicly opened on August 27, 1973. Each invitation contained the following language:

The Dover Housing Authority reserves the right to reject any or all bids and to waive any formalities in the bidding. Exhibit 2, Section C at 2.

Several bids were submitted, but none were within the Project prototype cost.

HUD then authorized Dover to negotiate with the lowest three bidders, and Dover commenced negotiations in September of 1973. Exhibits 4 and 5; Exhibit 2, Section D, ¶ 18. Subsequently, one of the three withdrew from negotiations, and another (Reynolds) was disqualified for failure to comply with the procedures for submitting a breakdown of specific substituted subcontractors.² Exhibit 11. Davis' negotiated bid, although still over the proposed Project prototype cost, was within the prototype cost HUD could approve.³ 24 C.F.R. § 275, Appendix B(2). On September 18th the DHA voted to award Davis the contract subject to HUD approval, and on September 19th recommended that HUD approve the award and amend the ACC loan from $2,450,000 to $2,627,100. Exhibits 13 and 16.

On September 25th HUD refused to approve the award to Davis. The refusal was based on "considerable confusion" surrounding the negotiations and the "possibility of litigation" arising therefrom,⁴ as well as

the opinion that considerable savings might possibly result if the Project were to be redesigned . . . and put out for new bids. Exhibit 18; see also Exhibit 22.

On September 28th Dover informed Davis that, on the basis of the HUD ruling, it was rejecting all bids. Exhibit 19.

Having been informally advised by the DHA that failure to get HUD approval was the only obstacle to an award, Davis contacted HUD directly; and a meeting between HUD and Davis was held on October 30th. As a result of this meeting, HUD agreed to modify the terms of its September 25th refusal of approval and so notified Dover by letter on November 5th. Exhibit 23. The November 5th modification set forth several preconditions to HUD's approval of an award to Davis, and noted:

We are modifying the terms of the September 25th letter to the extent that the Dover Housing Authority may, at its discretion, resubmit its previous recommendation to HUD to award the construction contract to Davis. Emphasis added.

* * * * * *

This letter shall not be interpreted as a guarantee of approval to award the contract to Davis Associates, Inc. We shall review your documentation along with the previously submitted material for conformance with all applicable statutes and regulations. If the submitted evidence is justifiable and supportable, a request will be made through the Regional Office to the Central Office for approval of an Amendment to the Annual Contributions Contract. No construction contract may be signed prior to the execution of an amended ACC. Exhibit 23.

On November 28th the DHA voted not to resubmit the Davis bid for HUD approval, Exhibit 24, and later notified HUD that it intended to readvertise the Project for bids. Exhibit 25. In fact, Dover has redesigned the project and put it out for bids. The bids are to be opened on April 2, 1974.

Davis' complaint, as explained by counsel at oral argument, prays that the DHA and HUD be permanently enjoined from rebidding the project and that Davis be awarded the contract on the basis of its negotiated bid plus provable increased costs. The case is before me now on defendants' motions to dismiss.

B. THE CLAIMS

The essence of Davis' complaint is that HUD's disapproval of the negotiated bid and the DHA's decision not to resubmit the Davis bid after HUD's disapproval was conditionally withdrawn were both arbitrary, capricious, and an abuse of discretion. Davis does not claim that it had a contract with either DHA or HUD.⁵ Indeed, such a claim would be futile, for the DHA's September 18th award to Davis makes clear that HUD approval was a condition precedent to a binding contract, Exhibit 13; and such approval is not alleged and does not appear from the documentary evidence before me. Moreover, the DHA clearly reserved its right to reject all bids, and Davis was aware of this reservation. Exhibit 2, Section C at 2; Exhibit 2, Section D, ¶ 12. In fact, Davis implicitly recognizes the lack of a binding contract in its prayer for relief

that the Honorable Court issue an order requiring the defendants to show cause why said contract should not be immediately awarded to the plaintiffs. Complaint, Prayer for Relief, ¶ 2.

Defendants' arguments⁶ are three: first, that the court lacks subject matter jurisdiction; second, that plaintiff has no standing; and third, that "the agency action complained of is committed by law to agency discretion thus barring judicial review."

C. DISCUSSION

1. Jurisdiction. The initial question with which I am confronted is whether this court has subject matter jurisdiction. Plaintiff has alleged jurisdiction under 28 U.S.C.A. § 1331 (federal question), 28 U.S.C.A. § 1361 (mandamus), and 5 U.S.C.A. § 706 (Administrative Procedure Act, hereinafter APA). 28 U.S.C.A. § 1331(a) provides:

The district courts shall have original jurisdiction of all civil actions wherein the matter in controversy exceeds the sum or value of $10,000, exclusive of interest and costs, and arises under the Construction, laws, or treaties of the United States.

In an attempt to invoke federal question jurisdiction, plaintiff relies on 42 U.S. C.A. § 1415(5) and the Federal Procurement Regulations (hereinafter FPR), 41 C.F.R. § 1-1.000 et seq. 42 U.S.C.A. § 1415(5) merely directs the Secretary to establish prototype costs for each area in the United States and provides that

any annual contributions . . . shall not exceed by more than 10 per centum the appropriate prototype cost for the area.

This section does not in any way relate to the decision of whether or not to approve a specific bid, other than to prohibit HUD from approving a bid in excess of 10 per centum over the appropriate Project prototype cost.⁷ Put simply, plaintiff's cause of action does not "arise under" 42 U.S.C.A. § 1415(5).

Plaintiff also contends that the HUD and DHA action is contrary to the FPR. The FPR establish standards to be followed in the negotiated bid situation, and 41 C.F.R. § 24-1.004-1 pro...