Holbrook v. Pitt

• Decision Date: 02 July 1981
• Docket Number: No. 80-1006,80-1006
• Citation: 643 F.2d 1261
• Parties: Doris HOLBROOK, Plaintiff-Appellant, v. Henry C. PITT, Defendant and Third-Party Plaintiff, v. SECRETARY, UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, Third- Party Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1261

643 F.2d 1261

Doris HOLBROOK, Plaintiff-Appellant, v. Henry C. PITT, Defendant and Third-Party Plaintiff, v. SECRETARY, UNITED STATES DEPARTMENT OF HOUSING AND URBAN

DEVELOPMENT, Third- Party Defendant-Appellee.

No. 80-1006.

United States Court of Appeals Seventh Circuit.

Argued May 28, 1980.

Decided March 2, 1981.

Rehearing Denied July 2, 1981.

Lawrence G. Albrecht, James A. Grambling, Jr., Legal Action of Wisconsin Inc., Milwaukee, Wis., for plaintiff-appellant.

William C. Calahan, Jr., Asst. U. S. Atty., Milwaukee, Wis., for third-party defendant-appellee.

Before BAUER, Circuit Judge, KILKENNY, Senior Circuit Judge, ^* and CUDAHY, Circuit Judge.

CUDAHY, Circuit Judge.

This is an appeal by tenants of certain housing projects in Wisconsin who are beneficiaries of housing assistance payments made by the United States Department of Housing and Urban Development ("HUD") under its housing assistance program for existing multifamily projects benefiting from HUD-insured or HUD-held mortgages. This program was established pursuant to Section 8 of the United States Housing Act of 1937 (as amended by § 201(a) of the Housing and Community Development Act of 1974), 42 U.S.C. § 1437f (1976) ("Section 8"). Under this program, HUD executes contracts with project owners to make rental payments on behalf of eligible low-income tenants (the "Contracts"). Appellants contend they are entitled to these rent subsidies within a reasonable time after the effective date of the Contracts between HUD and the various project owners. The tenants also argue that the rent subsidies should be made retroactive to the effective dates of the respective Contracts. Appellants further claim that HUD's procedures for making rental assistance payments violate the Due Process clause of the Fifth Amendment to the United States Constitution.

The district court granted summary judgment in favor of the Secretary of HUD (the "Secretary"), who was the third-party defendant, finding that the tenants had no claim under the Contracts since no provisions of the Contracts were breached. The district court also found that the tenants' interest in receiving housing assistance payments was only a "subjective expectancy" which was not entitled to due process protection. We hold that the Contracts were breached and that the tenants can recover retroactive benefits as third-party beneficiaries; we also find that tenants in existing HUD-insured projects assisted under Section 8 are generally entitled to housing assistance benefits within a reasonable time after the effective date of the applicable Section 8 Contract. We further determine that appellants have a legitimate claim of entitlement to housing assistance payments as of the effective dates of the Contracts. We therefore reverse and remand.

The Case

This litigation began as a small claims action in Milwaukee County Court in July 1977, to recover housing assistance payments allegedly due to plaintiff Doris Holbrook from defendant Henry Pitt, the owner of Main Street Gardens, the housing project in which Holbrook lived. Pitt subsequently filed a third-party complaint against the Secretary, alleging a breach of duty to inform Pitt of his Section 8 Contract obligations. HUD removed the action to the United States District Court for the Eastern District of Wisconsin.

After the district court granted Holbrook's motion to amend her complaint, the original complaint was redesignated as Count I. In Count II, Holbrook then asserted a class claim for declaratory judgment and damages on behalf of the class of tenants in multifamily projects in Wisconsin who had been certified for Section 8 assistance payments by the owners of their dwelling units. ¹ Count II was based on the theory that the members of the tenant class were third-party beneficiaries of the Contracts executed between HUD and the owners of the projects in question, and that the class was thereby entitled to Section 8 benefits retroactive to the effective dates of the Contracts, payable within a reasonable time after the dates of execution.

In Count III, the plaintiff class alleged that they were denied retroactive assistance payments in violation of the Due Process clause of the Fifth Amendment to the United States Constitution. ² The tenants argued that they had a legitimate claim of entitlement to the receipt of Section 8 benefits as of the date of Contract execution and that the provision of such benefits must commence not later than thirty days after the execution date. To enforce these rights, plaintiffs requested, inter alia, that HUD be ordered to provide a meaningful opportunity for all class members to challenge HUD's procedures regarding administration of the Contracts.

After extensive discovery, the parties, on a joint statement of uncontested facts, filed cross motions for summary judgment. While these motions were pending, Pitt certified Holbrook for the claimed retroactive housing assistance payments. HUD then tendered full payment to Holbrook.

The district court found that, because of the payment to Holbrook, Count I had become moot. As to Count II, the district court held that, even assuming that plaintiffs were third-party beneficiaries, they were bound by the terms of the Section 8 Contracts, which HUD had not breached. With respect to Count III, the court found that plaintiffs possessed only an "inchoate property interest" in the receipt of housing assistance payments, which was merely a "subjective expectancy" not entitled to due process protection. HUD's motion for summary judgment was therefore granted. ³

Plaintiff Holbrook lived with her four minor children in Milwaukee, Wisconsin in Main Street Gardens, a housing development owned by Henry Pitt. On June 10, 1976, HUD and Pitt executed a Section 8 Contract under which housing assistance payments were to be paid to Pitt's eligible tenants, including Holbrook. Under the Contract, HUD committed funds to make housing assistance payments on behalf of eligible tenants as of June 1976. Funds were not disbursed under the Contract, however, until Pitt certified to HUD the names of the eligible tenants and the amount of subsidy to which each was entitled. ⁴

Despite prodding by Holbrook and HUD, a Section 8 application, and eligibility and certification forms were not mailed by Pitt to residents of Main Street Gardens until November 16, 1976. Holbrook and other eligible families at Main Street Gardens were then certified and received Section 8 payments beginning December 1976. But, at the time of certification, no retroactive payments were made, as were authorized and for which funds had been set aside. ⁵

The Section 8 Program

The federal policy of providing decent, safe and sanitary housing for all families first articulated in the United States Housing Act of 1937, ch. 896, 50 Stat. 888 (codified in scattered sections of 42 U.S.C.), has inspired numerous programs designed to increase the availability of housing for lower income families. ⁶ The Section 8 lower income housing assistance program, which was enacted as part of the Housing and Community Development Act of 1974, Pub.L. 93-383, 88 Stat. 633 (codified in scattered sections of 5, 12, 20, 31, 42, 49 U.S.C.), is one of the most ambitious of these efforts. ⁷ This program was enacted for the dual purposes "of aiding lower-income families in obtaining a decent place to live and of promoting economically mixed housing." 42 U.S.C. § 1437f(a) (1976). Section 8 was designed to achieve these goals by providing rent subsidies to lower income families living in housing owned primarily by private developers. All tenants whose incomes do not exceed 80 percent of the median income for their area are eligible for Section 8 assistance. ⁸

In implementing Section 8, HUD has created several distinct subprograms, which are set forth in the regulations found at 24 C.F.R. § 880 et seq. (1980). Defined according to the characteristics of the housing to be subsidized, there are separate subprograms governing Section 8 assistance payments for, inter alia, newly constructed housing, 24 C.F.R. § 880 (1980), substantially rehabilitated housing, 24 C.F.R. § 881 (1980), existing housing, 24 C.F.R. § 882 (1980), and housing developed under public housing agency programs, 24 C.F.R. § 883 (1980).

Appellants reside in projects with HUD-insured or HUD-held mortgages. Main Street Gardens, for example, where Holbrook resides, received the benefit of mortgage interest payments under Section 236 of the Housing and Urban Development Act of 1968, 12 U.S.C. § 1715z-1 (1976). ⁹

The regulations applicable to the making of housing assistance payments on behalf of tenants in projects subject to HUD-insured mortgages are found at 24 C.F.R. § 886 (1980). These regulations, together with HUD's program instruction handbook, ¹⁰ establish the policies and procedures pursuant to which HUD makes housing assistance payments for projects with HUD-insured mortgages. The heart of this Section 8 subprogram is the Contract between HUD and the owner, which governs the relationship between the contracting parties and defines the rights and duties of the owner with respect to the administration of the Section 8 subprogram.

Prior to execution of a Contract, the owner must submit information regarding the gross income, number of household members under age 18 and rent-to-income ratio for each resident household, present vacancies and any rental increases currently being processed by HUD. At the time a Contract is executed, HUD commits funds to that project. The dollar amount of HUD's maximum commitment of funds is set at 75 percent of the current HUD-approved rents for the units expected to receive Section 8 subsidies. These units include the units occupied by families whose gross incomes and rent payments would appear to make them eligible for Section 8 assistance as well as the units that were vacant when the owner applied for a Contract. This calculation of...