Hillcrest Terrace Corporation v. Brown

• Citation: 137 F.2d 663
• Decision Date: 27 July 1943
• Docket Number: No. 17.,17.
• Court: U.S. Temporary Emergency Court of Appeals
• Parties: HILLCREST TERRACE CORPORATION v. BROWN, Price Adm'r.

137 F.2d 663 (1943)

HILLCREST TERRACE CORPORATION v. BROWN, Price Adm'r.

No. 17.

United States Emergency Court of Appeals.

Argued June 9, 1943.

Decided July 27, 1943.

Petition for Clarification or Modification Denied August 26, 1943.

Ben S. Fisher, of Washington, D.C., (James W. Bellamy, of Rapid City, S.D., on the brief), for complainant.

Morton Meyers, of Johnstown, Pa., (George J. Burke, Gen. Counsel, Thomas I. Emerson, Associate Gen. Counsel, and Nathaniel L. Nathanson, Asst. Gen. Counsel, all of Washington, D. C., Sol. M. Linowitz, of Rochester, N. Y., and Maurice Alexandre, all of the Office of Price Administration, of Washington, D. C., on the brief), for respondent.

Before MARIS, Chief Judge, and MAGRUDER and LAWS, Judges.

MAGRUDER, Judge.

The complaint here seeks review under § 204(a) of the Emergency Price Control Act, 56 Stat. 31, 50 U.S.C.A. Appendix, § 924(a), of an order of the Price Administrator denying a protest by Hillcrest Terrace Corporation directed against Maximum Rent Regulation No. 49 for Housing Accommodations Other Than Hotels and Rooming Houses in the Rapid City-Sturgis Defense-Rental Area, in the State of South Dakota.

Maximum Rent Regulation No. 49 was issued September 21, 1942, to become effective October 1, 1942. 7 F.R. 7500. In its general scheme of rent control it follows the pattern of the rent regulations considered by us in Chatlos v. Brown, Em. App., 136 F.2d 490, decided May 28, 1943, and Lakemore Company v. Brown, Em. App., 137 F.2d 355, Wilson and Bennett v. Brown, Em.App., 137 F.2d 348, and Taylor v. Brown, Em.App., 137 F.2d 654, decided by us July 15, 1943. For housing accommodations which were rented on March 1, 1942, the regulation prescribes that the maximum rent shall be "the rent for such accommodations on that date." This is the generally applicable formula, but the regulation also prescribes several grounds upon which landlords may petition for individual adjustment to increase the maximum rent otherwise allowable.

The selection by the Administrator of March 1, 1942, as the rent-freezing date bore hard upon complainant, for on that date it was operating its apartment building under a scale of rentals, approved by the Federal Housing Administration, which passed on to the tenants the benefit of a temporary real estate tax exemption for new construction, with the understanding of all concerned, including the Federal Housing Administration, that appropriate increases of rentals would shortly thereafter be made, upon the expiration of such limited period of tax exemption. No one of the prescribed grounds for individual adjustment quite fits complainant's case, and the burden of its argument is that the Administrator acted arbitrarily and capriciously in refusing to make appropriate amendment of the adjustment provisions.

The justification for the adoption by the Administrator of the maximum rent date method of rent stabilization is, as we pointed out in the Chatlos case, that rentals are thereby rolled back and frozen as of an earlier date at levels which landlords and tenants had worked out for themselves by free bargaining in a competitive market, prior to the time when defense activities had injected into the market an abnormal factor resulting, or threatening to result, in rent increases inconsistent with the purposes of the Act. While Congress undoubtedly sanctioned the Administrator's use of this as a generally applicable formula for determining maximum rents, it recognized that some provision for adjustments and exceptions would be essential in formulating workable maximum rent regulations. See Sen. Rep. No. 931, 77th Cong., 2d Sess., p. 17. Accordingly, it provided in § 2(c) of the Act, 50 U.S.C.A. Appendix, § 902(c), that the regulations "may contain such classifications and differentiations, and may provide for such adjustments and reasonable exceptions, as in the judgment of the Administrator are necessary or proper in order to effectuate the purposes of this Act."

The Administrator has exercised his power under § 2(c) to make provision for adjustments in numerous situations where, for one reason or another, the assumptions implicit in the general formula are not valid.

One such assumption is that the housing accommodations affected by the regulation remain substantially the same as on the rent-freezing date. Because the Administrator recognized that a major capital improvement or a substantial increase in the services furnished would destroy the validity of this assumption, he provided in § 1388.135 of the regulation that in such cases any landlord might file a petition for adjustment upwards of the maximum rent.

Another such assumption was that the rental in effect on the rent-freezing date was the product of general market conditions of supply and demand on that date, and thus in effect represented a bargaining valuation of the property for rental purposes as of that date, made by the landlord and tenant, and not unduly influenced by war conditions. But where the rental which was in force on the rent-freezing date had been established by a lease entered into on a date considerably earlier, it is evident that such rental does not necessarily reflect market conditions of supply and demand on the rent-freezing date. Hence, the Administrator provided in the regulation that any landlord might petition for an adjustment upwards of the maximum rent if there was in force on March 1, 1942, "a written lease, which had been in force for more than one year on that date, requiring a rent substantially lower than the rent generally prevailing" for comparable housing accommodations on March 1, 1942. For somewhat similar reasons the Administrator provided for adjustments where the rent in force on March 1, 1942, was established by a lease which provided for a substantially higher rent at other periods during the term of such lease, or where the rent in force on March 1, 1942, was substantially lower than at other times of the year by reason of seasonal demand for such housing accommodations.

Finally, the Administrator recognized that the rent in force on the rent-freezing date might in particular cases have been fixed without any reference to market conditions of supply and demand; hence he provided that any landlord might petition for an adjustment upwards of the maximum rent if the rent in force on March 1, 1942, "was materially affected by the blood, personal or other special relationship between the landlord and the tenant and as a result was substantially lower than the rent generally prevailing" for comparable housing accommodations on that date.

The general pattern of these adjustment provisions is, as explained by the Administrator, that they permit an individual increase of rents in those limited classes of cases where experience has shown that an increase after the rent-freezing date would have been likely in a normal rental market even in the absence of a housing shortage brought about or accentuated by defense and war activities. "The individual adjustments thus provided for," says the Administrator, "are consistent with the general plan of establishing maximum rents at levels reached through the normal bargaining of landlords and tenants before the impact of defense activities on the rental market in the defense-rental area."

With the foregoing in mind, we must consider whether complainant here has presented a situation falling within the general pattern for individual adjustments already provided in the regulation, even though not fitting exactly in any of the specific enumerated categories.¹ If so, then the Administrator, when the situation was called to his attention by the protest, acted arbitrarily in refusing to expand the adjustment provisions to cover the situation — unless, indeed, there might be reason to believe that the particular amendment sought might entail so substantial an administrative burden as to impede the effective administration of the Act. Evidently the Administrator did not regard the grounds of adjustment originally provided in the regulation as the last word, for on March 1, 1943, he added to this and other rent regulations an eighth ground for upward revision of maximum rents. 8 F. R. 2674.² The reason why Congress required persons affected by regulations to file a protest with the Administrator before seeking review in this court was to enable the Administrator to reconsider the protested regulation in the light of situations, economic data, or arguments brought to his attention by such protest. Thus it was expected, and we understand the expectation has been fulfilled, that many difficulties would be ironed out by administrative action.

The protest, and accompanying affidavit by complainant's president, set forth the following facts:

Complainant is a South Dakota corporation. Its charter and by-laws were adopted in conformity with and as provided by § 207 of Title II of the National Housing Act, 52 Stat. 16, 12 U.S.C.A. § 1713, and the rules and regulations issued thereunder.³ Complainant owns and operates a rental housing project, consisting of 46 family units, located in Rapid City, South Dakota, which was financed and built under the terms of the National Housing Act. A mortgage of $117,500 was insured by the Federal Housing Administration. The project was worked out in detail with that agency as to plans, specifications,...