Growth Horizons, Inc. v. Delaware County, Pa.

• Decision Date: 21 January 1993
• Docket Number: No. 92-1195,92-1195
• Citation: 983 F.2d 1277
• Parties: , 3 NDLR P 239 GROWTH HORIZONS, INC., Appellant, v. DELAWARE COUNTY, PENNSYLVANIA.
• Court: U.S. Court of Appeals — Third Circuit

Page 1277

983 F.2d 1277

1 A.D.D. 385, 3 NDLR P 239

GROWTH HORIZONS, INC., Appellant, v. DELAWARE COUNTY, PENNSYLVANIA.

No. 92-1195.

United States Court of Appeals, Third Circuit.

Argued Sept. 18, 1992.

Decided Jan. 21, 1993.

Edmond A. Tiryak (argued), Philadelphia, PA, for appellant.

Joseph M. Fioravanti (argued), Curran, Winning & Fioravanti, P.C., Media, PA, for appellee.

Before STAPLETON, SCIRICA, and NYGAARD, Circuit Judges.

OPINION OF THE COURT

STAPLETON, Circuit Judge:

Plaintiff/appellant, Growth Horizons, Inc., ("Growth") appeals an order dismissing its Fair Housing Act ("FHA") and breach of contract claims for lack of subject matter jurisdiction. Growth Horizons, Inc. v. Delaware County, 784 F.Supp. 258 (E.D.Pa.1992). Given the rather unusual procedural context of this case, we are required to address three distinct issues--whether the district court possessed jurisdiction over Growth's FHA claim, whether Growth has a claim under that Act on which relief could be granted, and whether the district court had supplemental jurisdiction over the breach of contract claim.

I.

Growth is a Pennsylvania corporation which provides Community Living Arrangements (CLA's) to retarded individuals in which these individuals are cared for and taught "normal living skills" in as normal an environment as possible. In July 1990, Growth signed a contract with Delaware County to provide fifteen retarded individuals, who are class members in the prolonged ongoing litigation in Halderman v. Pennhurst State School and Hospital, No. 74-1345, with CLA placements. Growth proceeded to lease and renovate four sites for this purpose.

The first site Growth opened developed substantial operating problems which were, Growth admitted, at least partially its own fault. The Special Management Unit ("SMU"), a state monitoring agency, expressed serious concerns about Growth's management of the first facility ¹ and recommended that the County not permit Growth to open any other sites until the first CLA met appropriate standards.

The contract with Growth was canceled by the County, after giving the required notice, on June 30, 1991. At that time three of the four sites remained unoccupied by retarded individuals. Growth then brought suit against the County alleging that under the contract, the County is obligated to assume Growth's interests in the sites, or alternatively, to force the successor provider to assume Growth's interests. ² Growth also alleged that the County's failure to assume the leases was the result of political pressure emanating from bias against the handicapped. ³ For this reason, Growth contends that the County's refusal to assume the leases constituted unlawful discrimination against handicapped individuals under the Fair Housing Act Amendments of 1988, 42 U.S.C.A. § 3601 et. seq. (West Supp.1992).

Shortly after service of the complaint, the County filed a motion to dismiss pursuant to Rules 12(b)(1) and 12(b)(6), and Growth moved for a preliminary injunction. At the hearing on these motions, the court initially expressed reservations concerning whether Growth had standing and suggested the possibility of hearing evidence on that issue first in order to resolve the County's motion to dismiss for lack of subject matter jurisdiction. Ultimately, however, as a matter of convenience, the court decided to hear all evidence from both parties concerning the merits of the action, or as the court put it, concerning both "the discrimination issue" and the "standing issue," (App. at 271), reserving only the issue of damages for possible later consideration. See Growth Horizons, 784 F.Supp. at 260 n. 6.

The district court concluded that subject matter jurisdiction was lacking because the County's conduct did not run afoul of the statute's prohibitions and therefore did not raise a federal question. The court declined to reach the issue of whether Growth had standing. It also did not discuss the issue of supplemental jurisdiction but rather dismissed Growth's state law claim on the grounds that Growth had conceded that such claim would "fall by the wayside" if the federal claim were dismissed. Growth Horizons, 784 F.Supp. at 261. Growth Horizons filed this timely appeal.

II.

Because the presence or absence of subject matter jurisdiction over a complaint invoking federal question jurisdiction is an issue of law, we consider the district court's action on the FHA claim under a plenary standard of review. See, e.g., York Bank & Trust v. Federal Savings and Loan Insurance Corp., 851 F.2d 637, 638 (3d Cir.1988), cert. denied, 488 U.S. 1005, 109 S.Ct. 785, 102 L.Ed.2d 777 (1989).

The district court dismissed plaintiff's FHA claim pursuant to Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction rather than under Rule 12(b)(6) for failure to state a claim. It first took note of the federal statute on which Growth relied most heavily in asserting its federal claim: "The Fair Housing Act makes it illegal to 'discriminate in the sale or rental, or to otherwise make unavailable or deny, a dwelling to any buyer or renter because of a handicap....' " Growth Horizons, 784 F.Supp. at 261 (quoting 42 U.S.C. § 3604(f)(1)(C)). The district court then concluded that the question of subject matter jurisdiction turned on a two part inquiry:

First, is the relationship between a provider and a client a sufficient "relationship" to make the client "any person associated with that person" for purposes of giving the provider a right of action under the Fair Housing Act? Second, does a county's refusal to assume a lease "make unavailable or deny" housing to mentally retarded individuals?

Id. at 261. The district court held that Growth's claim failed to meet the second prong of this two part test and after an abbreviated discussion of the first prong, declined to rule on that issue. We can accept neither the district court's analysis nor its conclusion. Growth's complaint states a federal claim over which the district court had subject matter jurisdiction.

The district court dismissed Growth's suit because, in its view, the County's actions did not "make unavailable or deny housing to mentally retarded individuals," and accordingly, the Fair Housing Act was "not implicated." Id. at 261-62. Even if this is an accurate conclusion, however, it does not justify a jurisdictional dismissal. In Bell v. Hood, 327 U.S. 678, 66 S.Ct. 773, 90 L.Ed. 939 (1946), the Supreme Court laid down the basic rule concerning dismissals for lack of subject matter jurisdiction in cases alleging a violation of the Constitution or a federal statute:

Whether the complaint states a cause of action on which relief could be granted is a question of law and ... it must be decided after and not before the court has assumed jurisdiction over the controversy. If the court does later exercise its jurisdiction to determine that the allegations in the complaint do not state a ground for relief, then dismissal of the case would be on the merits, not for want of jurisdiction.

Id. at 682, 66 S.Ct. at 776. The Court specified only two exceptions to this rule: "where the alleged claim under the Constitution or federal statutes clearly appears to be immaterial and made solely for the purpose of obtaining jurisdiction or where such a claim is wholly insubstantial and frivolous." Id.

The rule that legal insufficiency of a federal claim generally does not eliminate the subject matter jurisdiction of a federal court has been reaffirmed and clarified by both the Supreme Court and this Court on several occasions: "[D]ismissal for lack of jurisdiction is not appropriate merely because the legal theory alleged is probably false, but only because the right claimed is 'so insubstantial, implausible, foreclosed by prior decisions of this Court, or otherwise completely devoid of merit as not to involve a federal controversy.' " Kulick v. Pocono Downs Racing Ass'n, 816 F.2d 895, 899 (3d Cir.1987) (quoting Oneida Indian Nation v. County of Oneida, 414 U.S. 661, 666, 94 S.Ct. 772, 776, 39 L.Ed.2d 73 (1974)); see also Luderstadt v. Colafella, 885 F.2d 66, 70 (3d Cir.1989) (quoting Kulick on this point and noting that "[t]he threshold to withstand a motion to dismiss under Fed.R.Civ.P. 12(b)(1) is thus lower than that required to withstand a Rule 12(b)(6) motion"); Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1408-09 (3d Cir.), cert. denied --- U.S. ----, 111 S.Ct. 2839, 115 L.Ed.2d 1007 (1991).

The district court neither mentioned nor applied this rule when it dismissed Growth's action. ⁴ Instead, after hearing evidence, it engaged in a detailed analysis as to whether Growth had shown it had a valid claim under the FHA. See Growth Horizons, 784 F.Supp. at 261-62. The court's "factual inquiry" into jurisdiction, ⁵ and its legal conclusions went to the heart of the merits of plaintiff's claim--the dismissal was based upon a finding that the County's actions did not " 'make[ ] unavailable or den[y] housing' to mentally retarded individuals." Growth Horizons, 784 F.Supp. at 262. By ruling that the County's conduct did not violate the federal statute as Growth alleged, the district court rendered a judgment on the merits rather than a jurisdictional decision.

A district court has federal question jurisdiction in any case where a plaintiff with standing makes a non-frivolous allegation that he or she is entitled to relief because the defendant's conduct violated a federal statute. Here, the plaintiff makes a non-frivolous claim that the County's refusal to assume the leases violated the FHA. Whether or not Growth's claim is one on which relief can be granted, if it has standing, the district court has subject matter jurisdiction.

III.

The Supreme Court has held that with regard to the rights granted by the Fair Housing Act,

"Congress intended standing ... to extend to the full limits of Art. III" and ... the courts accordingly lack the authority to create...