MULTI-FAMILY MANAGEMENT, INC. v. HANCOCK, 93-CV-346

• Decision Date: 31 August 1995
• Docket Number: No. 93-CV-346,No. 93-CV-383,93-CV-346,93-CV-383
• Parties: MULTI-FAMILY MANAGEMENT, INC., Appellant/Cross-Appellee, v. Robert HANCOCK, Appellee/Cross-Appellant.
• Court: D.C. Court of Appeals

664 A.2d 1210

MULTI-FAMILY MANAGEMENT, INC., Appellant/Cross-Appellee, v. RobertHANCOCK, Appellee/Cross-Appellant.

Nos. 93-CV-346, 93-CV-383.

District of Columbia Court of Appeals.

Argued June 21, 1994.

Decided August 31, 1995.

APPEAL FROM THE SUPERIOR COURT, DISTRICT OF COLUMBIA, GLADYS KESSLER, J.

Sheldon P. Schuman, Bethesda, MD, for appellant.

David A. Wanger, Supervising Attorney, with whom Michael A. Delaney, Law Student Counsel, and Ann Marie Hay, Executive Director, D.C. Law Students in Court, Washington, DC, were on the brief, for appellee.

Frank W. Hunger, Assistant Attorney General, Eric H. Holder, Jr., United States Attorney, and Michael Jay Singer and Jeffrey Clair, Attorneys, Appellate Staff, Civil Division, United States Department of Justice, Washington, DC, submitted a brief for the United States as amicus curiae.

Before FERREN, STEADMAN, and FARRELL, Associate Judges.

Judgment Per Curiam.

Opinion concurring in part and dissenting in part by Associate Judge FERREN at p. 1211.

Separate opinion by Associate Judge STEADMAN at p. 1224.

Separate opinion by Associate Judge FARRELL at p. 1225.

PER CURIAM:

Pursuant to Parts I., II., and III.B. of the opinion of Judge FERREN, joined in this regard by Judge STEADMAN, the order appealed from is reversed insofar as it orders payment by plaintiff to the Department of Housing and Urban Development. Pursuant to the opinion of Judge STEADMAN, joined in this regard by Judge FARRELL, the case is remanded for further proceedings consistent therewith.

FERREN, Associate Judge, concurring in part and dissenting in part:

This case began when the landlord, Multi-Family Management Inc., sued the tenant, Robert Hancock, for possession of Hancock's apartment based on failure to pay rent. The trial court entered a protective order requiring Hancock to pay his rent into the court registry each month "during the pendency of this case." Hancock filed an answer and counterclaim, alleging housing code violations in the apartment and in common areas of the building. The trial judge found there were code violations and accordingly ordered rent abatements. Pursuant to a Housing Assistance Payments (HAP) contract¹ between the United States Department of Housing and Urban Development (HUD) and the landlord, however, HUD in effect paid thebulk of the apartment rentals this private landlord received. In recognition of this dual payment regime, the trial court divided the rent abatements between the tenant and HUD, apportioning to each the percentage representing the portion of the rent each had paid for the unit. The court then ordered the landlord to pay these respective amounts to the tenant and to HUD, even though HUD was never a party to the litigation. Both parties now appeal.²

Hancock, the tenant, claims the right to 100% of the abatements, on two alternative grounds: First, as the beneficiary of a lease that provides the tenant with a substantial bargain — i.e., a $560/month apartment for his $168/month rental — the tenant is entitled to benefit from that bargain by receiving rent abatements based on the apartment's full ($560) rental value, not on the lesser value ($168) of the rent he actually paid. See Cruz Management Co. v. Wideman, 417 Mass. 771, 633 N.E.2d 384 (1994). Second, as a third party beneficiary of the landlord's HAP contract with HUD — i.e., as the recipient of a HUD rental subsidy — the tenant is entitled not only to the portion of each abatement attributable to his own rental payment but also to the balance representing the subsidy paid by HUD, because HUD, in executing the HAP contract, had effectively transferred, and thus released, for the benefit of the tenant HUD's original interest in the subsidy funds. See, e.g., Holbrook v. Pitt, 643 F.2d 1261 (7th Cir. 1981).

Multi-Family, the landlord, also appeals. It supports the trial court's ruling that the tenant, at most, can claim for himself abatements based on the portion of the total rent he paid, not on the total amount paid for the apartment (including HUD's contributions under the HAP contract). But the landlord contends the trial court erred in ordering the landlord to pay a portion of the abatements to HUD since HUD is not a party. Thus, the landlord maintains that it should retain a portion of the abatement funds that would be awardable in full to the tenant if the apartment had been rented on the open market, not under a federal subsidy program.³

Focusing first on a threshold jurisdictional issue, I conclude in the opinion that follows that HUD is not an indispensable party. Next, it would appear — at least to this judge — that, because HUD was not a party, the trial court had no authority to award HUD a portion of the abatements (the total amount of which is unchallenged). But even if the court had such authority, the court should not have made that award because it is not at all clear that HUD had a legal claim to any portion of the rent abatements. Finally, as between tenant and landlord, I conclude that the terms of the lease and persuasive case law favor awarding the tenant 100% of the abatements attributable to the deteriorated condition of his apartment, rather than leaving with the landlord the portion of the abatement funds attributable to HUD's subsidy or remanding for further proceedings (as Judge STEADMAN would do). Perhaps HUD can recover from the tenant the portion of the abatements representing its subsidy, although there is persuasive authority that the tenant is a third party beneficiary of the HAP contract, leaving HUD without a claim; but even if HUD retains an equity vis-a-vis the tenant, that equity does not extend to the landlord, who does not challenge the appropriateness or the amounts of the rent abatements. See supra note 3. Nor can the landlord claim any equity in the abatements by citing a possibility of double recovery by the tenant and HUD in separate litigation against the landlord (based, respectively, on the common law and on the HAP contract). That possibility is probably foreclosed in this case because it appears that HUD has waived its right to rent abatements under its HAP contract with the landlord by failing to give a notice to cure. But even if HUD can still proceed separately against the landlord for violation of the HAP contract, the landlord probably would be able to protect itselfagainst double recovery by impleading the tenant in any action HUD eventually brings and arguing that HUD's recovery, if any, must come from the tenant on an unjust enrichment theory. Accordingly, I would reverse and remand.

I. FACTS AND PROCEEDINGS

When Multi-Family sued its tenant, Hancock, on December 11, 1991, for possession of the apartment based on alleged non-payment of rent, Hancock defended and counterclaimed on the ground that the apartment and common areas had housing code violations amounting to breaches of the implied warranty of habitability, to wit: drug addicts and transients continuously loitered, slept, littered, and urinated in the common areas of the complex; Hancock's oven had been broken since he first moved in; water continuously ran from the faucets in the kitchen and in the bedroom; and certain windows in the apartment would not open while others would not stay open by themselves.

The trial court found numerous violations both in the apartment and in the common areas. The court therefore concluded that various rent abatements were required based on percentage diminutions of the "reasonable rental value of the leased premises."⁴ Complications arose, however, because of the fact that Hancock was paying only a percentage of the total rent for the apartment; HUD, in effect, was paying the rest under a 1984 HAP contract with Multi-Family. See supra note 1. The trial court, therefore, postponed its final ruling, requesting the parties to submit additional memoranda discussing who should be entitled to the abatements.

After receiving the memoranda, the trial court ruled as follows in a written Memorandum-Order:

Neither party has submitted any dispositive case law, federal regulation, or federal statute on the issue presented. This Court concludes that the only fair and equitable result which will protect the interests of all concerned (i.e., the tenant, the landlord, and the United States taxpayers who are subsidizing the rental of this apartment) is [1] to apply the percentage abatements to the actual rent being paid by the Defendant Mr. Hancock, and [2] to require the Plaintiff Multi-Family Management to refund to the Department of Housing and Urban Development the percentage abatements of the subsidy it receives from the Section 8 Program.

Although the trial court did not refer to either of the two contracts involved here (i.e., the lease between landlord and tenant and the HAP contract between landlord and HUD), the terms of these contracts play an important role in analysis of the case.

Several provisions of the lease between Hancock and Multi-Family recognize HUD's payments allocable to Hancock's apartment.⁵ The lease also includes provisions prohibiting the landlord from changing any term of the lease without following the administrative procedures set forth in HUD's handbooks. It further requires the landlord to maintain the common areas of the complex in a clean, safe condition, to keep appliances in working order, and to make necessary repairs promptly. Pursuant to the terms of this lease agreement, Hancock paid from $151 to $168 per month as his rent. See supra note 4.

Under the separate HAP contract between HUD and Multi-Family (to which Hancock is not a party), see supra note 1, HUD paid the landlord the difference between the amount the tenant paid and the fair market value of the apartment, which over the years changed from $425 to $560.⁶ HUD's monthly subsidy to Multi-Family therefore ranged from $274 ($425-$151) to $409 ($560-$151), leveling off at $392 ($560-$168) since mid-1991. See supra note 4.

The HAP...