DeHarder Inv. Corp. v. IND. HOUSING FINANCE AUTH.

• Decision Date: 08 December 1995
• Docket Number: No. IP 95-1044 C B/S.,IP 95-1044 C B/S.
• Citation: 909 F. Supp. 606
• Parties: DeHARDER INVESTMENT CORP., a Florida corporation, Locust Hill, L.P., an Indiana limited partnership, and Hickory Ridge, L.P., an Indiana limited partnership, Plaintiff, v. INDIANA HOUSING FINANCE AUTHORITY, and John Stock, in his capacity as Tax Credit Administrator of the Indiana Housing Finance Authority, Defendant.
• Court: U.S. District Court — Southern District of Indiana

909 F. Supp. 606

DeHARDER INVESTMENT CORP., a Florida corporation, Locust Hill, L.P., an Indiana limited partnership, and Hickory Ridge, L.P., an Indiana limited partnership, Plaintiff, v. INDIANA HOUSING FINANCE AUTHORITY, and John Stock, in his capacity as Tax Credit Administrator of the Indiana Housing Finance Authority, Defendant.

No. IP 95-1044 C B/S.

United States District Court, S.D. Indiana, Indianapolis Division.

December 8, 1995.

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Melvin R. Daniel, Dann Pecar Newman Talesnick & Kleiman, Indianapolis, Indiana, David S. Oliver, Honigman Miller Schwartz & Cohn, Orlando, Florida, for Plaintiff.

Gene R. Leeuw, Klineman Rose Wolf & Wallack, Indianapolis, Indiana, for Defendant.

ENTRY

BARKER, Chief Judge.

This matter is before the Court on the following motions: (1) defendants Indiana Housing Finance Authority ("IHFA" or "the Authority") and John Stock's motion to dismiss; (2) plaintiffs DeHarder Investment Corp. ("DeHarder"), Locust Hill, L.P. ("Locust Hill") and Hickory Ridge, L.P.'s ("Hickory Ridge") motion for preliminary injunction. For the reasons set forth below, defendants' motion is granted and plaintiffs' motion is denied as moot.

I. FACTUAL BACKGROUND

DeHarder is a Florida corporation that engages in the construction and management of real estate developments. Locust Hill and Hickory Ridge are the proposed developers for multi-unit, low-income housing developments in Indianapolis and Anderson, Indiana, respectively. DeHarder's president, Robert DeHarder, also acts as the president of Cornerstone Partners 32, Inc., which is a general partner of both Locust Hill and Hickory Ridge.

On February 22, 1995, Locust Hill and Hickory Ridge each submitted tax credit applications to the IHFA. Pursuant to section 42 of the Internal Revenue Code, 26 U.S.C. § 42, the federal government makes available federal income tax credits in order to stimulate private developers to invest in and construct rental housing for low-income tenants. In Indiana, the agency responsible for reserving and then awarding the tax credits to qualified applicants is the IHFA, which ranks all applicants according to certain criteria contained in § 42 and the Indiana Allocation Plan ("the Plan"). Defendant John Stock was the tax credit administrator for the IHFA at the time Locust Hill and Hickory Ridge each applied for the tax credits.

In May, 1995, the Authority notified DeHarder by phone that its Locust Hill and Hickory Ridge applications had each been denied. The purported reason for the failure of the Locust Hill project was that it exceeded the "per unit cost limitations" established by the IHFA. The Authority also stated that the Hickory Ridge Project did not score enough points to warrant a reservation of credits.

After receiving this oral notification, DeHarder made demands of the Authority on June 7, 1995, and on July 11, 1995, in order to ascertain inter alia why both projects were rejected. Plaintiffs were particularly interested in receiving written notifications explaining the Authority's rationale and detailed descriptions of each project's shortcomings in relation to successful applicants. The defendants denied the requests on July 21, 1995. Plaintiffs responded by filing the instant suit on August 7, 1995. In the five-count complaint, they allege that the defendants have violated (1) the due process clause of the U.S. Constitution (Count II), (2) § 42 of the Internal Revenue Code (Count I), and (3) the federal Freedom of Information Act, 5 U.S.C. § 552 et seq., (Count V). Plaintiffs also assert three state-law claims, including promissory estoppel (Count III), fraud (Count IV) and violations of the Indiana Access to Public Records Act, I.C. § 5-14-3-1 et seq., (Count V). On August 8, 1995, plaintiffs moved for preliminary injunctive relief. Defendants responded by moving to dismiss the complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) on August 23, 1995.

II. MOTION TO DISMISS

Because of its potentially dispositive nature, we will address defendants' motion to dismiss first. On a motion to dismiss, all well-pleaded factual allegations are presumed to be true. Land v. Chicago Truck Drivers, 25 F.3d 509, 511 (7th Cir.1994). The Court must view those allegations in the light most favorable to the plaintiff, Gould v. Artisoft, Inc., 1 F.3d 544, 546 (7th Cir.1993), and accept all reasonable inferences to be drawn from those allegations are true. Meriwether v. Faulkner, 821 F.2d 408, 410 (7th Cir.), cert. denied, 484 U.S. 935, 108 S.Ct. 311, 98 L.Ed.2d 269 (1987). The Court is not constrained, however, by the plaintiffs' legal characterizations of their allegations. Republic Steel Corp. v. Pa. Engineering Corp., 785 F.2d 174, 183 (7th Cir.1986).

A. The Eleventh Amendment Does Not Bar This Action.

States may not be sued in federal court directly in their own names by virtue of the eleventh amendment, which reads:

The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State.

U.S. Const. amend. XI.¹ Undeniably, "eleventh amendment jurisprudence has not precisely followed the text of the amendment." Kroll v. Board of Trustees, 934 F.2d 904, 906 (7th Cir.1991). At its simplest, however, the amendment immunizes a state from suit in federal court unless one of two well-established exceptions exists.² Significantly, for purposes of this analysis, state agencies are entitled to the same protection as are states. Pennhurst State School & Hosp. v. Halderman, 465 U.S. 89, 100, 104 S.Ct. 900, 908, 79 L.Ed.2d 67 (1984); Kroll, 934 F.2d at 907.

Under certain circumstances, the eleventh amendment also prevents suits against state officials. The key inquiry is whether the state is "the real, substantial party in interest." Pennhurst, 465 U.S. at 101, 104 S.Ct. at 908. Thus, as a general rule, suits against state officials in their personal capacities pose no eleventh amendment problems because an award of damages could be executed only against the official's personal assets. See Kentucky v. Graham, 473 U.S. 159, 165-67, 105 S.Ct. 3099, 3104-07, 87 L.Ed.2d 114 (1985). Official-capacity suits, by contrast, involve the resources of the State treasury, thus implicating eleventh amendment protections. Ever since Ex parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908), however, official-capacity suits seeking prospective relief may not be barred.

According to defendants, this suit involves an action against a state agency—the IHFA—as well as an official-capacity suit against Stock for retroactive relief. Thus, defendants maintain that "this Court has no subject matter jurisdiction over the entire Complaint as it pertains to the IHFA and over Counts I, II, III, and IV as they pertain to Stock." (Defendants' Brief in Support, p. 2).

Determining whether a body sponsored or created by a state is itself a "state" is often a difficult task. See Grosz v. State of Indiana, 730 F.Supp. 1474, 1477 (S.D.Ind. 1990). The application of the eleventh amendment "is to be determined not by the mere names of the titular parties but by the essential nature and effect of the proceeding, as it appears from the entire record." In re State of New York, 256 U.S. 490, 500, 41 S.Ct. 588, 590, 65 L.Ed. 1057 (1921), quoted in Grosz, 730 F.Supp. at 1477. In deciding this issue, the Seventh Circuit has set forth two factors for us to consider: (1) the extent of the entity's financial autonomy from the state and (2) its general legal status. Kashani v. Purdue University, 813 F.2d 843, 845-47 (7th Cir.1987); see also Adden v. Middlebrooks, 688 F.2d 1147, 1153 (7th Cir.1982). Although the issue is a close one, we find that the application of these factors in this case indicates that the IHFA is not a state or state agency.

The first factor, an entity's financial autonomy, is "the most salient." Hess v. Port Authority Trans-Hudson Corp., ___ U.S. ___, ___, 115 S.Ct. 394, 404, 130 L.Ed.2d 245 (1994). This criterion looks at "the extent of state funding, the state's oversight and control of the entity's fiscal affairs, the entity's ability independently to raise funds, whether the state taxes the entity, and whether a judgment against the entity would result in the state increasing its appropriations to the entity." Kashani, 813 F.2d at 845.

Here, we note that the Authority exercises a great amount of financial autonomy. For example, the IHFA has the authority to raise funds independently of the State of Indiana. It can issue bonds or notes in order to generate revenue, § 5-20-1-8, and has the discretion to create capital reserve funds to secure those notes. § 5-20-1-16(a). Indeed, as the Authority concedes, it "does not now receive annual appropriations from the state; it relies on income generated through loans and the issuance of bonds, and on the receipt of public and private grants." (Defendants' Brief in Reply, p. 8). Thus, the Authority currently operates independent of state appropriations.

In light of this financial independence, the State's oversight of the IHFA's fiscal affairs is predictably narrow. The Authority, for example, need not submit its budget to the legislature for approval.³ Rather, it need only submit to the governor and the general assembly an annual report of its activities for the preceding year. § 5-20-1-18. True, as defendants correctly observe, the IFHA is subject to the oversight of the State Board of Accounts. That "oversight," however, consists of little more than making the authority subject to a uniform system of accounting that is prescribed for use by every public office, including municipalities and other political subdivisions not entitled to eleventh amendment immunity. See I.C. § 5-11-1-1 et seq.

Significantly, the Authority's obligations do not...