Renaissance Equity Holdings, LLC v. Donovan, Case No. 12-CV-1639 (FB) (SMG)

• Decision Date: 21 May 2013
• Docket Number: Case No. 12-CV-1639 (FB) (SMG)
• Parties: RENAISSANCE EQUITY HOLDINGS LLC, et al., Plaintiffs, v. SHAUN DONOVAN, in his official capacity as Secretary of the United States Department of Housing and Urban Development, UNITED STATED DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, and UNITED STATES OF AMERICA, Defendants.
• Court: U.S. District Court — Eastern District of New York

RENAISSANCE EQUITY HOLDINGS LLC, et al., Plaintiffs,

v. SHAUN DONOVAN, in his official capacity as Secretary of the United States Departmentof Housing and Urban Development, UNITED STATED DEPARTMENT OF HOUSINGAND URBAN DEVELOPMENT, and UNITED STATES OF AMERICA, Defendants.

Case No. 12-CV-1639 (FB) (SMG)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

Filed: May 21, 2013

MEMORANDUM AND ORDER

Appearances:

For the Plaintiffs:

JOSEPH ZELMANOVITZ, ESQ.

EVAN M. NEWMAN, ESQ.

STAHL & ZELMANOVITZ

For the Defendants:

LORETTA E. LYNCH, ESQ.

United States Attorney

Eastern District of New York

BY: AMEET B. KABRAWALA, ESQ.

Assistant United States Attorney

BLOCK, Senior District Judge:

Plaintiffs Renaissance Equity Holdings LLC, Renaissance Equity Holdings LLC "A," Renaissance Equity Holdings LLC "B," Renaissance Equity Holdings LLC "C," Renaissance Equity Holdings LLC "D," Renaissance Equity Holdings LLC "E," Renaissance Equity Holdings LLC "F," and Renaissance Equity Holdings LLC "G," ("plaintiffs") bring this action against defendants Shaun Donovan, as Secretary of the United States Department of Housing and Urban Development, the United States Department of Housing and Urban Development ("HUD"), and the United States of America ("defendants") for violations of theHousing Act of 1937, 42 U.S.C. § 1437 et seq., and its implementing regulations, 24 C.F.R. § 982 et seq. Defendants move to dismiss pursuant to Rules 12(b)(1) and 12(b)(6). As discussed below, defendants' motion is denied as to 12(b)(1) and granted as to 12(b)(6).

I. Background

For purposes of this motion the Court must accept as true all of the allegations in plaintiffs' complaint, and draw all inferences in plaintiffs' favor. See Weixel v. Board of Educ., 287 F. 3d 138, 145 (2d Cir. 2002).

Plaintiffs Renaissance Equity Holdings LLC "A" through "G" are corporations that own groups of units in a residential housing complex, which collectively constitute the "Flatbush Gardens complex" in Brooklyn, New York. The seven entities are managed and operated by plaintiff Renaissance Equity Holdings, LLC. Plaintiffs participate in the Section 8 Housing Choice Voucher Program, a federal program created by the United States Housing Act of 1937 and the Housing and Community Development Act of 1974 ("Section 8 program"). 42 U.S.C. § 1437f. The Section 8 program was created "for the purpose of aiding low-income families in obtaining a decent place to live and of promoting economically mixed housing." 42 U.S.C. § 1437f(a). The program operates by providing federal subsidies to private building owners like plaintiffs, who lease apartment units to low-income families at a reduced rental rate. The program is administered by local public housing agencies ("PHAs"), and these entities receive funding from HUD for their corresponding costs. 24 C.F.R. § 982.1(a)(1). HUD's funding covers rental subsidy payments that PHAs make to building owners, as well as the costs that PHAs incur in administrating the program. 24C.F.R. § 982.1(a)(1). The amount and terms of the rental subsidy payments PHAs make to owners are determined by Housing Assistance Payment ("HAP") contracts executed by the PHAs and owners. Building owners enter into separate leases with the respective low-income tenants, but do not contract directly with HUD. The New York City Housing Authority ("NYCHA") is the PHA tasked with administering the Section 8 program in New York City.

HUD prescribes certain housing quality standards ("HQS") with which all Section 8 housing must comply in order for owners to receive the rental subsidies.¹ 42 U.S.C. § 1437f(o)(8); 24 C.F.R. § 982.401. If the owner of Section 8 housing fails to maintain the unit in compliance with HQS, the PHA is obligated to "take prompt and vigorous action to enforce the owner obligations." 24 C.F.R. § 982.404(2). Where an owner remains unable or unwilling to correct an HQS violation, the PHA is entitled to terminate the owner's Section 8 funding. 24 C.F.R. § 982.306(c)(1).

Plaintiffs allege that they entered into separate but identical HAP contracts with NYCHA providing for their participation in the Section 8 program for certain units in Flatbush Gardens. They state that they provided Section 8 housing according to the terms of their HAP contracts, but did not receive corresponding Section 8 rental subsidy payments. They also claim that where certain of their units did not meet HQS, they were not timely notified of such violations, and where other units were repaired to meet HQS, these units were not re-inspected as required for reinstatement of Section 8 rental subsidy payments.Plaintiffs place the blame for their loss of Section 8 rental subsidy payments on HUD. Specifically, they contend that as a result of HUD's failure to fund the Section 8 program, NYCHA was unable to properly administer the program and make appropriate Section 8 rental subsidy payments. Plaintiffs also claim that HUD failed to adequately supervise NYCHA's administration of the Section 8 program, and that this failure likewise caused their loss of Section 8 benefits. Plaintiffs allege that HUD's actions have caused them to incur losses of more than $ 700,000 in back-rent. Accordingly, they seek damages and equitable relief for violations of 42 U.S.C. § 1347f and its implementing regulations, 24 C.F.R. § 982.51 et seq. and 982.401 et seq.

II. Analysis

Where a defendant moves for dismissal under Rule 12(b)(1) as well as other grounds, "the court should consider the Rule 12(b)(1) challenge first since if it must dismiss the complaint for lack of subject matter jurisdiction, the accompanying defenses and objections become moot and do not need to be determined." Rhulen Agency, Inc. v. Ala. Ins. Guar. Assocs., 896 F.2d 674, 678 (2d Cir. 1990). Accordingly, defendants' Rule 12(b)(1) arguments are discussed first.

1. Subject Matter Jurisdiction and Sovereign Immunity

Defendants initially assert that the Court lacks subject matter jurisdiction to entertain plaintiffs' claims. Because plaintiffs' claims are alleged against the federal government, they must demonstrate "both a grant of subject matter jurisdiction and a valid waiver of sovereign immunity." C.H. Sanders Co. v. BHAP Hous. Dev. Fund Co., 903 F.2d 114, 117 (2d Cir. 1990). At the outset, plaintiffs contend that the Court has jurisdiction pursuantto 28 U.S.C. § 1331, which provides that "district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331. Since the complaint alleges that plaintiffs' claims arise under the United States Housing Act, 42 U.S.C. § 1437f, there clearly is subject matter jurisdiction pursuant to § 1331. See C.H. Sanders Co., 903 F.2d at 118 (court had subject matter jurisdiction where plaintiff alleged HUD failed to comply with the National Housing Act, 12 U.S.C. § 1701q; noting that a plaintiff is required only to "alleg[e] a cause of action, not patently frivolous on its face, that purportedly arises under a federal statute."); FHM Constructors, Inc. v. Vill. of Canton Hous. Auth., 779 F. Supp. 677, 680-81 (N.D.N.Y. 1992) (court had subject matter jurisdiction under § 1331 where claims alleged against HUD arose under 42 U.S.C. § 1437 et seq.). While defendants do not challenge subject matter jurisdiction, they contend that plaintiffs have not demonstrated a waiver of sovereign immunity.

"The sovereign immunity defense . . . is grounded upon the ancient principle that the United States, as sovereign, is immune from suit, except to the extent that Congress otherwise consents." United States v. Yonkers Bd. of Educ., 594 F. Supp. 466, 468 (S.D.N.Y. 1984). Plaintiffs assert that defendants have waived sovereign immunity pursuant to 42 U.S.C. § 1404a, which states: "The Secretary of Housing and Urban Development may sue and be sued only with respect to its functions under the United States Housing Act of 1937, as amended [42 U.S.C.A. § 1437 et seq.] and title II of Public Law 671 . . . as amended [42 U.S.C.A. § 1501 et seq.]." 42 U.S.C. § 1404a.

Since the complaint alleges that defendants have failed to fulfill their statutory duties to fund and administer the Section 8 program pursuant to 42 U.S.C. § 1437f and itsregulations, defendants are not entitled to sovereign immunity in the face of their motion to dismiss. See, e.g., Yonkers, 594 F. Supp. at 470 (Section 1404a waives HUD's sovereign immunity "for claims alleging direct violations by HUD of the substantive provisions of the Housing Acts themselves."); Ippolito-Lutz, Inc. v. Harris, 473 F. Supp. 255, 259 (S.D.N.Y. 1979) (sovereign immunity waived under § 1404a where contractor sued HUD Secretary to recover costs incurred in building public housing project pursuant to United States Housing Act, 42 U.S.C. §§ 1401-1440 and where breaching housing authority was alleged to be HUD's alter ego); FHM Constructors, 779 F. Supp. at 681 (sovereign immunity waived under § 1404a where plaintiffs' allegations concerned a contractual provision required by HUD pursuant to 42 U.S.C. § 1437j(a)); Valentine Prop. Assocs. v. U.S. Dep't Hous. & Urban Dev., 2007 WL 3146698, at *6 (S.D.N.Y. Oct. 12, 2007) (waiver under § 1404a where owners' claims were based upon contracts for Section 8 rental subsidy payments, concluding that in contracting for such housing, HUD had "act[ed] with respect to its functions under § 1437 . . . [t]hus it waived its sovereign immunity pursuant to § 1404a.").

It matters not, as defendants maintain, that HUD did not have a direct contractual relationship with plaintiffs. See, e.g., Ippolito-Lutz, Inc., 473 F. Supp. at 259 (waiver under § 1404a where contractor built public housing pursuant to 42 U.S.C. §§ 1401-1440 but did not itself contract with HUD); FHM Constructors, 779 F. Supp. at 681 (waiver under § 1404a where plaintiff contracted with local housing authority for construction of low income housing project funded by HUD pursuant to 42 U.S.C. § 1437 et seq.).²

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