Penagaricano v. Allen Corporation

• Decision Date: 04 June 1959
• Docket Number: No. 5438.,5438.
• Citation: 267 F.2d 550
• Parties: Juan T. PENAGARICANO, Acting Economic Stabilization Administrator, Defendant, Appellant, v. ALLEN CORPORATION et al., Plaintiffs, Appellees.
• Court: U.S. Court of Appeals — First Circuit

267 F.2d 550 (1959)

Juan T. PENAGARICANO, Acting Economic Stabilization Administrator, Defendant, Appellant, v. ALLEN CORPORATION et al., Plaintiffs, Appellees.

No. 5438.

United States Court of Appeals First Circuit.

June 4, 1959.

Edgar S. Belaval, Asst. Atty. Gen., with whom Francisco Espinosa, Jr., Acting Atty. Gen., and Arturo Estrella, Asst. Atty. Gen., were on brief, for appellant.

William G. Grant, Atlanta, Ga., with whom Benicio Sanchez Castano, San Juan, P. R., was on brief, for appellees.

Before MAGRUDER, Chief Judge, and MARIS and WOODBURY, Circuit Judges.

WOODBURY, Circuit Judge.

The plaintiffs-appellees are fifteen corporations, all of which were organized under the laws of South Carolina and none of which is domiciled in Puerto Rico. Each corporation was organized for the purpose of providing housing for rent and sale pursuant to § 608 of the National Housing Act, 56 Stat. 303, as amended, 12 U.S.C.A. § 1743, and each is the owner of forty-one or more two family duplex houses in Caparra Terrace, in the Ward of Monacillo, Rio Piedras, in the City of San Juan, Puerto Rico, located on land owned by the corporation subject to a mortgage insured by the Federal Housing Administration. Pursuant to the authority conferred in the above section of the Act to "require such mortgagor to be regulated or restricted as to rents or sales, charges, capital structure, rate of return, and methods of operation," and to "acquire for not to exceed $100 stock or interest in any such mortgagor, as the Commissioner may deem necessary to render effective such restriction or regulation," the Federal Housing Commissioner acquired all of the preferred stock of each corporation and caused certain restrictions to be included in each plaintiff's corporate charter, including the following:

"Article 7. The corporation shall not, without the prior approval of the holders of a majority of the shares of preferred stock * * * (c) permit the occupancy of any dwelling accommodations of the corporation except at or below the rents fixed by the schedule of rentals provided hereinafter —.

* * * * * *

"Article 9. (a) Dwelling accommodations of the corporation shall be rented at a maximum average rental per room per month fixed by the Board of Directors of the corporation and approved by the holders of the preferred stock. A schedule of rentals for the reasonable rental value of each apartment based upon the average so determined shall be filed with the holders of the preferred stock, prior to the leasing or offering for lease of any of the dwelling accommodations of the project, and when approved by them, shall thereafter be maintained except as provided in Article 7 hereof."

In August 1952 the Commissioner approved lease-option agreement rent schedules, insofar as here material, of $100 per month for a duplex with the requirement that the lessee-optionee keep and maintain the leased premises "in the same condition, order and repair, natural wear and tear excepted" as the premises were in at the time of the lease and that the lessee-optionee "strictly follow and immediately comply with any and all written instructions as to required repairs and maintenance." Under the lease-option agreements the lessee-optionee is given a credit in increasing amount for each $100 of rent paid, thus establishing as time goes on a potential credit toward payment of the purchase price fixed for the premises. Each of the plaintiff-appellee corporations has entered into a number of these agreements and various lessee-optionees have accumulated potential credits in varying amounts ranging from small sums to amounts in excess of $900.¹ The Commissioner in approving the lease-option agreements provided that the rental specified therein was not to be increased or decreased without his written consent, and although it does not appear that the Commissioner was ever asked to do so, it does affirmatively appear that in fact he has never given his consent to any increase or decrease in the rental specified and required in any lease-option agreement.

The defendant-appellant is the Administrator of the Reasonable Rents Act of the Commonwealth of Puerto Rico, 17 L.P.R.A. §§ 181-218, and he is, of course, a citizen and resident of that Commonwealth. He has taken the position that the local Act applies to the duplex houses owned by the plaintiffs-appellees, and has asserted that as to those accommodations he intends to enforce § 190 of the Act which provides that except for repairs made necessary by reason of "malicious damages" caused to the leased property by the tenant "the lessor is bound to make all necessary repairs to the rented property during the period of the lease, in order to maintain it in a condition suitable for the use to which it has been devoted, and to maintain all its services in operation." Accordingly, he has directed one of the plaintiffs, the Delaware corporation, to make repairs to a duplex owned by that corporation. Recently The Federal Commissioner caused a survey to be made for the purpose of determining the condition of the plaintiffs-appellees buildings and he is now "calling on the plaintiffs to see that the necessary repairs are made without delay."² The list of repairs required of each of the plaintiff corporations exceeds $3,500 in cost.

Faced with the demand of the Administrator to repair their properties in spite of the provision in the lease-option agreements that the lessees-optionees make their own repairs, which could not be changed without the written consent of the Federal Housing Commissioner, the lessor corporations sought a declaratory judgment in the court below that § 190 of the Reasonable Rents Act cannot "be constitutionally applied as to and enforced against" their duplex dwellings and that, if constitutionally applicable, the Act is not violated by the repair requirement of the lease-option agreements for the reason that those agreements embodied "two separate and distinct contracts", one for the leasing of the property and the other for its purchase at a fixed price, and the tenants' covenant to keep in repair was given as consideration for the contract of purchase. The plaintiff corporations did not ask for either coercive or monetary relief.

The District Court denied a motion by the defendant to dismiss for lack of jurisdiction and on the facts outlined above, which by stipulation of counsel it derived from the pleadings and supporting affidavits, the court below entered a declaratory judgment that the Act "cannot be applied as to, and enforced against, the duplex dwellings owned by the plaintiffs." The defendant-Administrator thereupon took the present appeal.

The District Court correctly denied the motion to dismiss for lack of jurisdiction.

First. From the facts stated above the trial court's diversity jurisdiction under § 41 of the Organic Act of 1917 popularly called the "Jones Act," 39 Stat. 965, as amended, 62 Stat. 989, 48 U.S.C. A. § 863, is abundantly clear. See Cepero v. Pan American Airways, 1 Cir., 1952, 195 F.2d 453, certiorari denied 344 U.S. 840, 73 S.Ct. 50, 97 L.Ed. 653.

Second. While it is well established that "Puerto Rico cannot be sued without its consent," Bonet (Sancho) v. Yabucoa Sugar Co., 1939, 306 U.S. 505, 506, 59 S.Ct. 626, 627, 83 L.Ed. 946, we believe that this is not a case for application of the rule of sovereign immunity.

We shall not attempt to support this conclusion by undertaking to distill from the cases a verbal formula or rule designed for general application. Even a cursory examination of the authorities shows the futility of venturing in that direction. Nor shall we attempt by an analysis of decisions to trace the tortuous line between suits against a sovereign and suits only against the officers of a sovereign. That was thoroughly done ten years ago in the majority and dissenting opinions in Larson v. Domestic & Foreign Commerce Corp., 1949, 337 U.S. 682, 69 S.Ct. 1457, 93 L.Ed. 1628. It will suffice for us to say that in our opinion the case at bar is ruled by the line of cases of which Philadelphia Co. v. Stimson, 1912, 223 U.S. 605, 32 S.Ct. 340, 56 L.Ed. 570, cited with approval in the Larson case, is typical, wherein, against the defense of sovereign immunity, the Court sustained a suit by a property owner against the Secretary of War for an injunction restraining him from establishing under federal statutes harbor lines further inland than high water lines established years before by state action. With reference to the situation presented in that case, and we think the language clearly also applies to this one, then Mr. Justice Hughes speaking for a unanimous Court said (we omit his citations), at pages 619-620 of 223 U.S., at page 344 of 32 S.Ct.:

"If the conduct of the defendant constitutes an unwarrantable interference with property of the complainant, its resort to equity for protection is not to be defeated upon the ground that the suit is one against the United States. The exemption of the United States from suit does not protect its officers from personal liability to persons whose rights of property they have wrongfully invaded. * * * And in case of an injury threatened by his illegal action, the officer cannot claim immunity from injunction process. The principle has frequently been applied with respect to state officers seeking to enforce unconstitutional enactments * * *. And it is equally applicable to a Federal officer acting in excess of his authority or under an authority not validly conferred. * * *

"The complainant did not ask the court to interfere with the official discretion of the Secretary of War, but challenged his authority to do the things of which complaint was made. The suit rests upon the charge of abuse of power, and its merits must be determined accordingly; it is not a suit against the United States."

See also Ex parte Young, 1908, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714, and Georgia R. R. & Banking Co. v. Redwine, 195...