LRL Properties v. Portage Metro Housing Authority

• Citation: 55 F.3d 1097
• Decision Date: 06 July 1995
• Docket Number: No. 93-3456,93-3456
• Parties: LRL PROPERTIES, et al., Plaintiffs-Appellants, v. PORTAGE METRO HOUSING AUTHORITY, et al., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

Page 1097

55 F.3d 1097

LRL PROPERTIES, et al., Plaintiffs-Appellants, v. PORTAGE METRO HOUSING AUTHORITY, et al., Defendants-Appellees.

No. 93-3456.

United States Court of Appeals, Sixth Circuit.

Argued May 6, 1994.

Decided May 25, 1995.

Rehearing and Suggestion for Rehearing

En Banc Denied

July 6, 1995.

Steven H. Steinglass (argued), Cleveland, OH, Stanley S. Keller, President (briefed), Keller & Curtin, C. David Witt (briefed), C. David Witt & Associates, Cleveland, OH, for plaintiffs-appellants LRL Properties, LRL Properties, II, Ltd., Melvin Ross.

R. Todd Hunt (argued), John H. Gibbon (briefed), Walter, Haverfield, Buescher & Chockley, Cleveland, OH, Antonios C. Scavdis, DelGuzzi & Scavdis, Ravenna, OH, for defendants-appellees Portage Metropolitan Housing Authority, et al.

Before: JONES, RYAN, and BATCHELDER, Circuit Judges.

BATCHELDER, J., delivered the opinion of the court, in which RYAN, J., joined. JONES, J. (pp. 1112-1118), delivered a separate dissenting opinion.

BATCHELDER, Circuit Judge.

Plaintiffs LRL Properties, LRL Properties II, Ltd., and Melvin S. Ross, a general partner of LRL and LRL II, filed a complaint on October 21, 1992, alleging claims under 42 U.S.C. Sec. 1983 and supplemental state claims of defamation and tortious interference with business relationships. The complaint named eight defendants, including the Portage Metropolitan Housing Authority (PMHA), and the PMHA's executive director, a program administrator, and its five board members at the time of the filing of the suit.

Defendants filed a Fed.R.Civ.P. 12(b)(6) motion to dismiss plaintiffs' complaint and plaintiffs moved for leave to file a First Amended Complaint. The district court expressly denied plaintiffs' motion for leave to amend their complaint and granted defendants' motion, dismissing each of plaintiffs' federal claims and dismissing, without prejudice, plaintiffs' state claims. For the reasons that follow, we affirm.

I.

A.

Because this case was dismissed on a Rule 12(b)(6) motion, "[t]his Court must construe the complaint in the light most favorable to the plaintiff[s], accept all factual allegations as true, and determine whether the plaintiff[s] undoubtedly can prove no set of facts in support of [their] claims that would entitle [them] to relief." In re DeLorean Motor Co., 991 F.2d 1236, 1240 (6th Cir.1993); Mayer v. Mylod, 988 F.2d 635, 638 (6th Cir.1993). And since the district court denied plaintiffs' motion to file an amended complaint, we review both the complaint and the proposed amended complaint for purposes of construing the facts.

Plaintiffs LRL and LRL II are Ohio partnerships organized in part for the purpose of owning and operating an apartment complex ("Kenwood Courts") in the City of Kent, Ohio. Plaintiff Melvin Ross is a general partner of both LRL entities. Kenwood Courts, a large-scale low-income housing project, consists of 216 apartments in Phase I, owned by LRL, and 228 apartments in Phase II, owned by LRL II. Through a variety of subsidy programs, Kenwood Courts is able to charge its tenants below market-rate rent; it looks to the government to make up the difference between rents collected and operating expenses. In Portage County, the primary conduit for housing subsidies is the PMHA.

Defendant PMHA is a political subdivision of the State of Ohio with the authority and duty to administer low-income housing programs in Portage County, Ohio, and specifically, as an agent of the Department of Housing and Urban Development (HUD), to administer federal Section 8 housing programs in Portage County. Defendant Anderson is Executive Director of the PMHA. Defendant Smith is the Director of the Section 8 Department at the PMHA. Defendants Durst, Davison, Antognoli, Sicura, and Crews are or were members of the Board of Commissioners of PMHA during the time relevant to the claims asserted.

Plaintiffs allege that since at least 1985, the PMHA has pursued a political and/or economic objective of replacing the existing management and ownership of Kenwood Courts with alternative ownership and management, either by the PMHA or by those with whom defendants have a favored or preferred relationship. Further, plaintiffs allege that in pursuing this goal the defendants have violated plaintiffs' procedural and substantive due process rights, have treated plaintiffs differently from similarly situated persons, have defamed plaintiffs, and have tortiously interfered with plaintiffs' business interests.

B.

In 1985 and 1986, plaintiffs received a HUD Section 8 rent subsidy for 129 units in Phase II of Kenwood Courts. In early 1987, the PMHA offered to purchase Kenwood Courts from the plaintiffs for $8,000,000, but the City of Kent refused to enter into a Cooperation Agreement, a prerequisite to the purchase. Later in 1987, plaintiffs entered into an option agreement to sell Kenwood Courts to a private development entity known as Renaissance Village Ltd. Partnership ("RVLP") for $7,000,000.

In 1988 and 1989, the PMHA, over the course of thirteen months, awarded 191 units of Section 8 Moderate Rehabilitation Rental Assistance to RVLP for the purpose of renovating Kenwood Courts. Plaintiffs do not allege that during this thirteen month period they applied for any Section 8 rehabilitation funds.

In late 1989, it became apparent that the RVLP proposal was no longer feasible. In August, 1990, RVLP was declared in default of its agreement with the PMHA Board. According to plaintiffs, when it became apparent to PMHA that the RVLP proposal was no longer viable, defendants pursued a number of alternative strategies in furtherance of their goal to replace existing ownership of Kenwood Courts. Plaintiffs assert that the defendants proposed converting the Section 8 Moderate Rehabilitation Assistance to other forms of assistance that only PMHA could utilize to the exclusion of plaintiffs and other property owners. Plaintiffs further contend that defendants proposed a secret joint venture with RVLP wherein PMHA would, through a related non-profit organization, purchase Phase II of Kenwood Courts at a depressed price. According to plaintiffs, the only proposal the defendants did not seriously consider was permitting plaintiffs to benefit directly from the Section 8 program.

Plaintiffs also assert that in an effort to damage and impugn the reputation of plaintiffs and to force alternative ownership at Kenwood Courts, defendants made a number of malicious and knowingly false communications. According to plaintiffs, on June 28, 1989, defendant Anderson sent copies of a letter to HUD, indicating that more than 60 units had been terminated from Section 8 assistance at Kenwood Courts for failure to meet housing standards. Also in June 1989, Anderson wrote to HUD claiming that Kenwood Courts was deteriorating. This, according to plaintiffs, was a campaign of "defamation and innuendo."

Plaintiffs also allege that defendant Smith intentionally refused to give plaintiffs requisite rent increases in the Section 8 Program, increases to which plaintiffs were entitled under the terms of the United States Code of Federal Regulations. Plaintiffs allege that this occurred three times--in or around April 1988, in or around March 1989, and in or around July 1990.

Further, plaintiffs assert that defendants embarked upon a campaign of arbitrary and capricious enforcement of housing quality standards relating to the Section 8 Existing Housing Program. Plaintiffs complain that defendant Smith and his housing inspectors imposed their own arbitrary standards, invented violations, and held plaintiffs to a more rigorous standard than other similarly situated property owners. Plaintiffs also claim that defendants weakened plaintiffs' financial standing by providing their tenants with alternative financing assistance for rental housing and encouraging the tenants to move elsewhere, all in violation of HUD regulations.

On September 1, 1990, in the wake of RVLP's failure, the PMHA readvertised for applications for participation in the Section 8 Moderate Rehabilitation Program. Plaintiffs allege that even prior to readvertisement defendants had decided that if plaintiffs applied, their application would be rejected. Plaintiffs did submit an application for Moderate Rehabilitation assistance, but only for Phase I of Kenwood Courts.

Pursuant to federal regulation, PMHA established procedures for processing the proposals for Moderate Rehabilitation assistance. Proposals were to be screened for completeness, for evidence indicating that there would be no permanent displacement of tenants, for preliminary verification of tenant eligibility, and for evidence that the existing rent was below the Moderate Rehabilitation Fair Market Rent. According to plaintiffs, these criteria constituted a threshold. Developers submitting proposals failing to meet these criteria would be notified; remaining proposals would then be ranked. These remaining proposals, that is, those that had met the threshold requirements, would be entitled to participate in the Section 8 Moderate Rehabilitation Assistance funds. Plaintiffs contend that the purpose of the ranking was simply to determine the order of priority among the competitors and that once ranked, all participants were entitled to assistance, at least to the extent that funds remained in the Section 8 allocation from HUD and until any project was determined financially unfeasible. According to plaintiffs, the PMHA abandoned its specific procedures in contravention of the law, regulations, and its own internal policies in order to assure that plaintiffs would not receive assistance.

The PMHA received three proposals in addition to plaintiffs': (1) Portage Area Development Corporation for 68 units of assistance; (2) Frank S. Polichena for 4 units; and (3) Associated Estates Corporation (AEC) for 191 units in connection with their proposed purchase of Kenwood Courts from plaintiffs. The PMHA awarded Portage...