Huff v. Vilsack

• Decision Date: 05 July 2016
• Docket Number: Civil Action No. 15-cv-00438 (KBJ)
• Citation: 195 F.Supp.3d 343
• Parties: John T. HUFF, Jr., et al., Plaintiffs, v. Tom VILSACK, in his official capacity as Secretary of Agriculture, United States Department of Agriculture, Defendant.
• Court: U.S. District Court — District of Columbia

195 F.Supp.3d 343

John T. HUFF, Jr., et al., Plaintiffs,

v.Tom VILSACK, in his official capacity as Secretary of Agriculture, United States Department of Agriculture, Defendant.

Civil Action No. 15-cv-00438 (KBJ)

United States District Court, District of Columbia.

Signed July 5, 2016

Addy R. Schmitt, Andrew Dewald Herman, Miller & Chevalier, Chartered, Washington, DC, Iyen A. Acosta, James T. Massey, Reno & Cavanaugh PLLC, Washington, DC, for Plaintiffs.

April Denise Seabrook, U.S. Attorney's Office, Washington, DC, for Defendant.

MEMORANDUM OPINION AND ORDER

KETANJI BROWN JACKSON, United States District Judge

For the past twenty-three months, Plaintiff John T. Huff, who is a private real-estate developer and the General Partner of several business entities that own multifamily housing projects in the state of Alabama, has been seeking permission from the Rural Development ("RD") division of the United States Department of Agriculture to transfer one of his properties—Barbour Creek Apartments ("Barbour Creek")—to a new business entity named Meadow Manor L.P., in order to access Low Income Housing Tax Credits ("LIHTCs") that the Alabama Housing Finance Authority ("AHFA") has awarded. The AHFA granted the valuable tax credits to Meadow Manor in the context of a competitive bidding process, and Meadow Manor proposed to use those credits to generate funds that would enable substantial upgrades to the rental-assistance units in Barbour Creek, which is a residential building that (like many other rural housing projects for low-income families) has become outdated and is in need of substantial repairs. As part of the application for the LIHTCs, Meadow Manor requested and received a "commitment letter" from RD, which notified the AHFA that RD was "committed to the transfer[.]" (Commitment Letter, Ex. 11 to Pls.' Mot. for Prelim. Inj., ECF No. 15-12, at 2.)¹ But when it came time for RD to approve the transfer officially, the agency determined that the transfer request could not be approved because "the transferee, Meadow Manor, [was] not an eligible borrower" and Barbour Creek Apartments, Ltd. (the Huff entity associated with the Barbour Creek property) was "ineligible for Agency assistance" under the applicable regulations, given that Huff was not in compliance with all regulatory requirements with respect to some of his other properties. (See June 24 Denial, Ex. 2 to Pls.' Emergency Mot. for Summ. J., ECF No. 102-4.)

This letter denying Huff's transfer application, which RD issued on June 24, 2015—after withdrawing a previous denial decision and thereby mooting a scheduled administrative review hearing—prompted two responses by Huff and his associates: first, they launched an administrative appeal (see Director Determination, Ex. 9 to Pls.' Emergency Mot. for Summ. J., ECF No. 102-11, at 3), and second, they filed a motion for a preliminary injunction in the instant lawsuit, claiming that "[t]he Agency's decision to reverse course and renege on its commitment to approve the transfer of Barbour Creek to Meadow Manor was arbitrary, capricious, an abuse of discretion, and contrary to law." (Pls.' Mot. for Prelim. Inj. ("Pls.' Prelim. Inj. Mot."), ECF No. 15, at 1). From this Court's perspective, RD's June 24th transfer-denial letter was also the beginning of a lengthy saga that has included earnest claims of urgency and irreparable harm, an improvident request for a transfer of the case to a federal district court that lacked the resources to accept it, threshold concerns regarding exhaustion of administrative remedies, and two failed attempts at settlement—all of which has made resolution of this matter alarmingly elusive and troubling from the standpoint of all concerned.

Significantly for present purposes, on January 13, 2016, a Hearing Officer of the National Appeals Division of the Department of Agriculture ("the NAD") finally reached the merits of Plaintiffs' contention that RD had erred with respect to its transfer decision. (See Appeal Determination ("Hearing Officer Determination"), Ex. 8 to Pls.' Emergency Mot. for Summ. J., ECF No. 102-10, at 3, 7.) The Hearing Officer agreed with Plaintiffs, finding "that the Agency's decision was in error" (see id. at 3), and when the agency requested that the NAD Director review the Hearing Officer's determination, the NAD Director, too, concluded that "RD erred when it denied [the] request to transfer to Meadow Manor" (see Director Determination at 3). At that point, federal statutes and regulations required RD to "implement" the NAD decision, 7 U.S.C. § 7000(a), and, on May 4, 2016, the agency issued a decision purporting to do so (see Implementation, Ex. 1 to Pls.' Emergency Mot. for Summ. J., ECF No. 102-3, at 2).

Before this Court at present are two motions related to the agency's purported implementation: (1) Plaintiffs' "emergency" motion for summary judgment—which contends that, when the agency issued an implementation letter that denied the transfer request yet again, it relied on the same improper bases that the NAD had already considered and rejected, and therefore plainly failed to satisfy the implementation objective (see Pls.' Emergency Mot. for Summ. J. ("Pls.' Mot."), ECF No. 102; Pls.' Mem. in Supp. of Pls.' Mot. ("Pls.' Mem."), ECF No. 102-1, at 8)—and (2) the agency's cross-motion for summary judgment, which asserts that RD's implementation of the NAD's adverse decision is now complete and that this Court should enter judgment in its favor with respect to the Plaintiffs' claim that the denial of the Barbour Creek transfer was arbitrary and capricious and thus violated the Administrative Procedure Act ("APA"), 5 U.S.C. §§ 701 –06 (see Def.'s Opp'n to Pls.' Mot. & Def.'s Cross-Mot. for Summ. J. ("Def.'s Mem."), ECF No. 105, at 5–6.)

For the reasons explained below, this Court concludes that RD has acted arbitrarily and capriciously with respect to its implementation determination, and as a result, Plaintiffs are entitled to summary judgment on their Barbour Creek transfer claim. The Court reaches this conclusion because, after RD's purportedly de novo review of Plaintiffs' transfer application in light of the NAD determinations, RD has denied the transfer application on the same grounds that the NAD previously deemed inconsistent with the facts and applicable regulations, and thus cannot be said to have implemented the NAD's decision in any meaningful sense. Moreover, because the agency's own course of action with respect to reviewing the transfer request indicates that only one rational option (to approve the transfer) remains open to the agency if this matter is remanded back to it as a result of this Court's ruling, this Court will not send the matter to the agency for further consideration; instead, it will avoid further needless delay by ordering the agency to approve the transfer application within thirty days.

I. BACKGROUND

This case has a long and tortuous history that relates to a lengthy business relationship that Plaintiff John T. Huff has had with the U.S. Department of Agriculture ("USDA") in the state of Alabama. (See generally Am. Compl. ("Compl."), ECF No. 7.)² According to the facts set forth in the record, Huff has long owned or been involved with many "multi-family housing properties" in rural areas of the state (Director Determination at 4), and he finances these projects via federal loans that are issued pursuant to the Housing Act of 1949, 42 U.S.C. § 1471 et seq. The Housing Act promotes the "realization ... of the goal of a decent home and a suitable living environment for every American family[,]" Pealo v. Farmers Home Admin. of U.S. Dep't of Agric. , 562 F.2d 744, 745 (D.C.Cir.1977) (citation omitted), and as relevant here, the Act authorizes the USDA to administer a loan-financing scheme with respect to certain privately owned residential properties. Specifically, under section 515 of the Housing Act, the Secretary of Agriculture is permitted to "make loans to private nonprofit corporations and consumer cooperatives to provide housing and related facilities for ... families of low income in rural areas." Id. at 746 ; see also 42 U.S.C. § 1485(a). The Rural Housing Service section of the USDA's RD division (referred to hereinafter as "RD") administers this loan program through its local offices nationwide. 7 C.F.R. § 2003.18(b)(4).³

A. Transfer Requests Regarding Section 515 Properties

The narrow issue presently before this Court involves a Section 515-financed property in Alabama known as the Barbour Creek Apartments. (See Compl. ¶ 68.) That property is owned by Plaintiff Barbour Creek Apartments, Ltd. (hereinafter "BCA Ltd"), which has Plaintiff John Huff as its General Partner (see id. ¶¶ 19–22), and in that regard, is like the other limited partnership Plaintiffs in this action (see id. ). In 2014, BCA Ltd—acting through Huff—asked RD for permission to transfer ownership of Barbour Creek Apartments to Meadow Manor L.P., an entity that was formed at least in part to facilitate the receipt and renovation of the Barbour Creek Property. (See Pls.' Mem. in Supp. of Pls.' Prelim. Inj. Mot. ("Pls.' Prelim. Inj. Mem."), ECF No. 15-1, at 19.) The statute expressly provides for such transfers, see 42 U.S.C. § 1485(h), and the undisputed impetus for Huff's transfer request was his desire to gain access to LIHTCs and the funds that LIHTCs generate.

The specifics of the LIHTC system are not material to the instant dispute; in general terms, the regime involves the coordinated efforts of the Federal government, State governments, and for-profit entities to provide affordable housing by making federal tax credits available (via distribution to state housing agencies) to for-profit entities that invest in the development or rehabilitation of certain types of housing projects. See Adam McNeely, Improving Low Income Housing: Eliminating the Conflict Between Property Taxes and the LIHTC Program , 15 J. Affordable Housing & Community Dev. L. 324, 325–26 (...