Morgan v. Secretary of Housing and Urban Development, 91-9554

• Decision Date: 18 February 1993
• Docket Number: No. 91-9554,91-9554
• Citation: 985 F.2d 1451
• Parties: Lee MORGAN, Petitioner, v. SECRETARY OF HOUSING AND URBAN DEVELOPMENT, Respondent. Frank Riciotti, III, Real Party in Interest.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1451

985 F.2d 1451

Lee MORGAN, Petitioner, v. SECRETARY OF HOUSING AND URBAN DEVELOPMENT, Respondent Frank Riciotti, III, Real Party in Interest.

No. 91-9554.

United States Court of Appeals Tenth Circuit.

Feb. 18, 1993.

Edward Mulhall, Jr., Delaney & Balcomb, P.C., Glenwood Springs, CO, for petitioner.

Thomas E. Chandler, Attorney, (John R. Dunne, Asst. Atty. Gen., David O. Simon, Acting Deputy Asst. Atty. Gen., Jessica Dunsay Silver, Attorney, and Linda F. Thome, Attorney on the brief), Dept. of Justice, Washington, DC, for respondent.

Before KELLY and McWILLIAMS, Circuit Judges, and BROWN, District Judge. ^*

PAUL KELLY, Jr., Circuit Judge.

Petitioner Lee Morgan appeals from a decision of an administrative law judge (ALJ) finding that he engaged in a discriminatory housing practice based on familial status against complainant Frank Riciotti, III, contrary to 42 U.S.C. § 3604(a)-(d). ¹ The ALJ awarded Riciotti $14,297.99 in damages, imposed the maximum civil penalty of $10,000 and enjoined Morgan from discriminating against any persons with respect to housing because of familial status. See 42 U.S.C. § 3612(g)(3). The decision of the ALJ became final upon the expiration of thirty days without review by the Secretary. See 42 U.S.C. § 3612(h)(1). On appeal, Morgan challenges HUD's jurisdiction, the conciliation process, sufficiency of the evidence, and the award. Our jurisdiction arises under 28 U.S.C. § 2344 and 42 U.S.C. § 3612(i), and we affirm in part and reverse in part.

Background

Morgan owned a mobile home park and leased spaces to mobile home owners for $175 per month. The park rules, which were drafted by a tenants' committee before discrimination based on familial status was prohibited, barred new tenants with children from living in the park and required park management to approve new tenants. ² The Secretary alleged two separate incidents concerning the rental of lots and the sale of mobile homes in which Morgan withheld approving prospective tenants, relying on existing park rules. ³

A. Sarno Home

In June 1989, tenants Michael and Rauna Sarno attempted to sell their home, priced at $29,500, to Debra and Frank Riciotti, III, who had a three-year old son. On June 2, the Riciottis offered the Sarnos $28,500. The Sarnos and the Riciottis attempted to persuade Morgan to waive the restriction on children. He refused. The Sarnos then received another offer from a couple with no children under eighteen. The offer was more than $28,500, but less than the $29,500 asking price. The Riciottis then made a second offer of $29,500, but on June 5, the Riciottis learned that the home was sold to the other couple for $29,500. The ALJ found that the unlawful "adults only" policy resulted in the sale of the Sarno home to the other couple rather than the Riciottis.

The next day, the Riciottis' attorney (Mrs. Riciotti's father) wrote Morgan a demand letter informing him that his refusal to consider the Riciottis' application for tenancy in the mobile home park violated the Fair Housing Act. Pet.Br.Add., doc. 5. The letter also indicated that unless Morgan reconsidered his decision, he would be sued. Upon receiving the letter, Morgan immediately contacted the Riciottis and advised them that he was retracting the policy. Morgan requested Riciotti withdraw his HUD complaint alleging discrimination based on familial status, and Riciotti agreed with the understanding that he would look for another home in the park. The Riciottis continued to look in the park during June, finding one home for sale that they did not like.

B. Krigbaum Home

A day or two after the July 4 holiday, the Riciottis made a $35,500 offer to purchase a larger home in the park owned by Marilyn Krigbaum, and the offer was accepted. Id. at 43. However, on July 10, when the Riciottis met with Morgan to go over the park rules and obtain approval, they noticed, but were not concerned, that the rules still contained the "adults only" policy. They also noticed that the amount of the rent was $225, not $175 as before. The Riciottis declined to purchase the home. A month later, the Krigbaum home was sold to another couple without children under eighteen. The new owners received a copy of the park rules with the "adults only" policy excised and paid the increased $225 rent required of all new tenants. The Riciottis purchased a townhome and reinstated their complaint with HUD.

The ALJ determined that Morgan had not denied the Riciottis the opportunity to purchase the Krigbaum home because the "adults only" rule was not applied to them. Recognizing the possible inferences from Morgan's failure to excise the offending rule and the subsequent rent increase, the ALJ declined to find that such acts were calculated to "otherwise make unavailable or deny" the Riciottis the Krigbaum home. See 42 U.S.C. § 3604(a). Rather, the ALJ determined that failure to excise the offending rule was inadvertent and the rent increase for new tenants was consistent with the rents charged by other parks, adopted prior to the Riciotti's second attempt to purchase a home in the park, and applied evenly to all new tenants. The Secretary has not appealed the ALJ's determination as to the Krigbaum home.

Discussion

I. Jurisdictional Defense--Tenth Amendment and Commerce Clause

Morgan first contends that HUD lacked subject matter jurisdiction over this case because of the absence of federal financing. All mobile homes were owned by the tenants and no evidence indicated that the Sarno or Krigbaum homes were financed with federal loans. Application of the Fair Housing Act after December 31, 1968, however, does not turn on the presence or absence of federal financing. See 42 U.S.C. § 3603(a).

Relying on the Tenth Amendment, Morgan next contends that the Secretary is exercising a power reserved to the States when he attempts to regulate mobile home space rentals. Recognizing that the Commerce Clause, U.S. Const. art. I, § 8, provided the federal jurisdictional base for the original Fair Housing Act, Morgan suggests that the amendments to the Act did not invoke the Commerce Clause and the Commerce Clause has never been exercised to prohibit discrimination based on familial status.

We reject this constitutional challenge to the Fair Housing Act amendments which pertain to familial status. The Eleventh Circuit has rejected virtually identical arguments. See Seniors Civil Liberties Assn. v. Kemp, 965 F.2d 1030, 1033-35 (11th Cir.1992) (per curiam). Morgan's challenge fails for several reasons. First, the familial status provisions regulate private citizens, rather than regulating the states as states; consequently, the Tenth Amendment does not apply. See Garcia v. San Antonio Metro. Transit Auth., 469 U.S. 528, 537, 105 S.Ct. 1005, 1010, 83 L.Ed.2d 1016 (1985); Hodel v. Virginia Surface Mining & Reclamation Ass'n, 452 U.S. 264, 286, 101 S.Ct. 2352, 2365, 69 L.Ed.2d 1 (1981). Second, the absence of formal findings concerning the effect on interstate commerce of discrimination based on familial status does not prevent Congress from regulating under the Commerce Clause. See Katzenbach v. McClung, 379 U.S. 294, 299, 85 S.Ct. 377, 381, 13 L.Ed.2d 290 (1964). Only a rational basis need support a finding that a regulated activity affects interstate commerce and the means selected by Congress need only be reasonably adapted toward the permissible end. Preseault v. ICC, 494 U.S. 1, 16-18, 110 S.Ct. 914, 924-25, 108 L.Ed.2d 1 (1990); McClung, 379 U.S. at 303-04, 85 S.Ct. at 383-84.

The legislative record, when viewed against a backdrop of the legislative history of the 1968 Fair Housing Act, provides a rational basis for finding that the sale and rental of residential housing, including mobile home lots, concerns more than one state and "has a real and substantial relation to the national interest." Heart of Atlanta Motel, Inc. v. United States, 379 U.S. 241, 255, 85 S.Ct. 348, 356, 13 L.Ed.2d 258 (1964). See Senior Civil Liberties Ass'n, 965 F.2d at 1034; Fair Housing Act of 1967: Hearings on S. 1358, S. 2114, and S. 2280 Before Subcomm. on Housing and Urban Affairs of the Senate Comm. on Banking and Currency, 90th Cong., 1st Sess. 6-14, 23-24 (1967). Housing discrimination based on familial status surely interferes with the efficient allocation of housing resources and could hinder interstate relocation. Congress could reasonably seek to remove such impediments by relying upon its commerce power to bar discrimination. See H.R.Rep. No. 711, 100th Cong., 2d Sess. 19, reprinted in 1988 U.S.C.C.A.N. 2173, 2180. See also Seniors Civil Liberties Assn v. Kemp, 761 F.Supp. 1528, 1545-46 (M.D.Fla.1991), aff'd, 965 F.2d 1030 (11th Cir.1992). Neither Congress nor the Secretary was required to show "that these mobile home space rentals in any way affect interstate commerce," see Pet.Br. at 8, because Congress may regulate an entire class of activities which affect interstate commerce, a case-by-case analysis is not required. See Heart of Atlanta Motel, 379 U.S. at 275, 85 S.Ct. at 367; McClung, 379 U.S. at 302-03, 85 S.Ct. at 382-83.

II. Failure to Conciliate

As an affirmative defense to this proceeding and any penalty, Morgan claimed that the Secretary failed to meaningfully conciliate. The Fair Housing Act requires that "the Secretary shall, to the extent feasible, engage in conciliation...." 42 U.S.C. § 3610(b)(1). Morgan claims error in the ALJ's evidentiary rulings. The ALJ held two in camera hearings and allowed Riciotti to testify concerning conciliation efforts, but apparently restricted Morgan to a proffer insofar as his testimony. I R. doc. E & F. The ALJ relied on 42 U.S.C. § 3610(d) and 24 C.F.R. § 103.330(a), which generally prohibit public disclosure of conciliation information and its use as substantive evidence concerning discrimination.

We find no reversible error concerning this evidentiary matter and we reject Morgan's argument that the present record does not allow...