Northwood Apartments v. Brown, 41.

• Citation: 137 F.2d 809
• Decision Date: 27 August 1943
• Docket Number: No. 41.,41.
• Parties: NORTHWOOD APARTMENTS, Inc., v. BROWN, Price Adm'r.
• Court: U.S. Temporary Emergency Court of Appeals

137 F.2d 809 (1943)

NORTHWOOD APARTMENTS, Inc., v. BROWN, Price Adm'r.

No. 41.

United States Emergency Court of Appeals.

Heard July 29, 1943.

Decided August 27, 1943.

James Piper and Charles T. LeViness, both of Baltimore, Md. (W. Thomas Kemp, Jr., of Baltimore, Md., on the brief), for complainant.

Sol M. Linowitz, Atty., Office of Price Administration, of Rochester, N. Y. (George J. Burke, Gen. Counsel, Thomas I. Emerson, Associate Gen. Counsel, Nathaniel L. Nathanson, Asst. Gen. Counsel, and Maurice Alexandre and Nancy Fraenkel Wechsler, Attys., all of Office of Price Administration, all of Washington, D. C., on the brief), for respondent.

Before MARIS, Chief Judge, and MAGRUDER and LAWS, Judges.

MAGRUDER, Judge.

Claim is made in this case that the Emergency Price Control Act, 56 Stat. 23, 50 U. S.C.A. Appendix § 901 et seq., requires the Administrator to establish maximum rents for housing accommodations covered by Federal Housing Administration mortgage insurance at the level of the rents generally prevailing for comparable accommodations, instead of the rents actually charged, on the maximum rent date. The further, but subsidiary, point is urged that in the rent regulation in question the Administrator has discriminated against the owners of such housing accommodations in favor of certain owners of similar accommodations who are permitted to petition for adjustment of their individual maximum rents to the levels of "comparability" or whose maximum rents are directly fixed in the regulation on the comparability basis.

The applicable regulation is Maximum Rent Regulation No. 24 for Housing Accommodations Other than Hotels and Rooming Houses in the Baltimore Defense-Rental Area, which was issued on June 25, 1942, to become effective July 1, 1942. 7 F.R. 4793 et seq. Section 4 of the regulation prescribes as a general rule that the maximum rent for housing accommodations rented on April 1, 1941, shall be "the rent for such accommodations on that date." The regulation also prescribes several grounds upon which landlords may petition for individual adjustment to increase the maximum rent otherwise allowable; these adjustment provisions will be referred to more particularly at a later point in this opinion.

Complainant did not come within any of the exceptional adjustment provisions, and the application to it of the general formula established its lawful maximum rents as the rents which were actually being charged by it on the maximum rent date.

On August 24, 1942, complainant filed with the Administrator a protest against the regulation. The protest was denied by order issued March 30, 1943, and the present complaint was duly filed in this Court pursuant to § 204(a) of the Act.

The protest recited the following facts: Northwood Apartments, Inc., owns and operates an apartment house development consisting of 388 dwelling units in Baltimore, Maryland. The project had been financed by mortgage loan of $1,480,000 from the New York Life Insurance Company, insured by the Federal Housing Administration, under a commitment dated January 18, 1938, pursuant to § 207 of the National Housing Act, as amended, 52 Stat. 16, 12 U. S.C.A. § 1713; and the rules and regulations issued thereunder. This commitment established $15.50 as the maximum rent per room in the projected apartments and provided that such rent could not be increased without the prior approval in writing of the Federal Housing Administration, which acquired all the preferred stock of the complainant corporation. The Federal Housing Administration has never given such approval to any increase in complainant's rents. The development was opened to the public in November, 1938; the apartments were immediately rented, and the entire building was filled by February, 1939. Both in the protest and accompanying affidavits, there are statements to the effect that on April 1, 1941, rentals of comparable accommodations were from 10 to 12% higher than those charged by complainant. As evidence of this, the experience of the Pentridge Apartments in Baltimore was cited. This development was privately financed by the same interests backing Northwood. It consisted of 208 additional units, built near Northwood and of substantially the same design, construction and equipment. Pentridge was opened to the public in September, 1940, at rents 12% higher than those at Northwood, and was filled within eight months. Complainant's manager stated in his affidavit that other apartment owners protested to the Federal Housing Administration against the low rentals established for Northwood because there was a vacancy of 5 to 8% in most apartment buildings in Baltimore. Finally, in support of its protest, complainant submitted an affidavit of Clyde L. Powell, Assistant Commissioner, Federal Housing Administration, dated September 1, 1942, stating that under the circumstances and in the absence of other control of the rentals of Northwood Apartments, Inc., the Federal Housing Administration would be willing to approve an increase in the rentals of Northwood Apartments, Inc., of approximately 6% over the rentals currently in force.

Complainant's rental charges were established in 1938 pursuant to § 207 of the National Housing Act, as amended, which provides that the Federal Housing Administrator is authorized to insure mortgages which cover property held by: "Private corporations * * * which, until the termination of all obligations of the Administrator under such insurance, are regulated or restricted by the Administrator as to rents or sales, charges, capital structure, rate of return, and methods of operation to such extent and in such manner as to provide reasonable rentals to tenants and a reasonable return on the investment." 52 Stat. 17. The section further provides that: "No mortgage shall be accepted for insurance under this section * * * unless the Administrator finds that the property or project, with respect to which the mortgage is executed, is economically sound." 52 Stat. 18.

These statutory provisions were supplemented by administrative regulations providing that:

"No charge shall be made by the mortgagor corporation for the accommodations offered by the project in excess of a rental schedule to be filed with the Administrator prior to the opening of the project for rental, which schedule shall be based upon a maximum average rental fixed prior to the insurance of the mortgage. Such schedule shall not thereafter be changed except upon application of the mortgagor corporation and the written approval of the Administrator. In establishing such maximum and in passing upon applications for changes, consideration will be given the following and similar factors:

"(i) Rental income necessary to maintain the economic soundness of the project.

"(ii) Relation of the proposed rentals to those currently being paid in the given community by families for whom this type of housing is intended." 24 Code Fed. Reg. § 532.17.

We assume that the normal routine was followed by the complainant and the Federal Housing Administration both in accepting the application for the mortgage insurance and, consequently, in fixing the schedule of rent charges for the dwelling units. This routine includes a personal survey and thorough investigation of the rental market in the neighborhood of the applicant's site to determine the amounts of rent currently being received by the owners of competitive housing for family units of the type and size proposed to be offered by the applicant.¹

Section 2(b) of the Emergency Price Control Act, 50 U.S.C.A. Appendix § 902(b), provides that "in establishing any maximum rent for any defense-area housing accommodations, the Administrator shall ascertain and give due consideration to the rents prevailing for such accommodations, or comparable accommodations, on or about April 1, 1941." The Administrator found that defense activities began to effect increases in rents in the Baltimore Defense-Rental Area on or about April 1, 1941, and adopted for that area the maximum rent date suggested in the statute. The validity of this method of rent control has been considered by us and upheld as a generally fair and equitable method of establishing rents in a defense-rental area. Chatlos v. Brown, Em.App., 136 F.2d 490, decided May 28, 1943; Lakemore Company v. Brown, Em. App., 137 F.2d 355, and Taylor v. Brown, Em.App., 137 F.2d 654, decided July 15, 1943. As was pointed out in the Chatlos case, "Rentals are thus rolled back and frozen as of an earlier date and at levels which landlords and tenants had worked out for themselves by free bargaining in a competitive market prior to the time when defense activities had injected into the market an abnormal factor resulting, or threatening to result, in rent increases inconsistent with the purposes of the Act." 136 F.2d 493.

Complainant has no quarrel with these decisions, nor with the maximum rent date selected for the Baltimore area. Nevertheless it insists that the Administrator cannot apply the general formula, but rather is required by § 2(b) of the Act to establish maximum rents on a "comparability" basis in all situations where the rental charges in force on the maximum rent date were not the result of a free economic bargain in a competitive market, entered into between landlord and tenant on the maximum rent date or within a reasonable period prior thereto — otherwise, it argues, the maximum rents established by the regulation will not be "generally fair and equitable."

Based on this premise, complainant's contention is that the Administrator was required to use the comparability basis for determining complainant's maximum rents (and those of others in like situation), because the rents it was charging on the maximum rent date had not been worked out between it and its tenants in a free competitive market on or about that date, within the language of the Chatlos case. On the contrary, it asserts that the rents...