Rodeway Inns of America, Inc. v. Frank

• Decision Date: 13 September 1976
• Docket Number: No. 75-1563,75-1563
• Parties: RODEWAY INNS OF AMERICA, INC., a corporation, and Madesco Investment Corporation, a corporation, Appellants, v. Maurice B. FRANK et al., Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 759

541 F.2d 759

RODEWAY INNS OF AMERICA, INC., a corporation, and Madesco Investment Corporation, a corporation, Appellants, v. Maurice B. FRANK et al., Appellees.

No. 75-1563.

United States Court of Appeals,

Eighth Circuit.

Submitted June 16, 1976.

Decided Sept. 13, 1976.

Theodore D. Ponfil, Clayton, Mo., for appellants; Eugene Portman, St. Louis, Mo., on brief.

Barrie L. Goldstein, Economic Litigation Section, Civ. Div., U. S. Dept. of Justice, Washington, D. C., for appellee; Rex E. Lee, Asst. Atty. Gen., Donald J. Stohr (former U. S. Atty. effective May 15th, Barry A. Short, U. S. Atty.), and Leonard Schaitman, Attorney with Dept. of Justice, on brief.

Gary S. Heifetz, St. Louis, Mo., for private appellees; Richard J. Sheehan, St. Louis, Mo., on brief.

Before BRIGHT, ROSS, and STEPHENSON, Circuit Judges.

BRIGHT, Circuit Judge.

When the owners of the South Tower of the Mansion House Center, an apartment building located in an urban renewal area of downtown St. Louis, Missouri, began converting the Tower into a hotel, competitor hotel owners filed this lawsuit against the owners of the South Tower and the Secretary of the Department of Housing and Urban Development (HUD), the latter having approved the conversion decision. The plaintiffs sought an injunction, asserting that, because the construction of this building had been financed through loans insured by HUD, the conversion to a hotel was barred by specific provisions of the National Housing Act. Plaintiffs also complained of unlawful procedures relating to HUD's consent to the conversion decision and that the conversion action violated state law and the ordinances of St. Louis Missouri. The district court dismissed the action for failure to state a claim of violation of any provision of the National Housing Act and for lack of standing to raise the remaining claims. The plaintiffs brought this appeal. We affirm.

Plaintiffs-appellants, Rodeway Inns of America, Inc. and Madesco Investment Corporation, own and operate hotels within the City of St. Louis. They allege that conversion of the apartment tower into a hotel will subject them to competitive injury through the diversion of customers. Defendant-appellee Carla A. Hills, Secretary of HUD, is responsible for the administration of the NHA and presently holds the mortgage to the apartment tower. Subject to HUD regulation, the tower is owned and operated by the private mortgagors, defendants and appellees in this action. ¹

Appellants level broad-based attacks against the conversion decision. The district court divided these challenges into five groups:

1) The Secretary's conversion decision violates the National Housing Act, 12 U.S.C. § 1701 et seq., especially §§ 1715k(d)(3)(B)(iv) and 1731b, HUD regulations, and long-standing HUD policy.

2) The Secretary's decision to allow conversion is improper and unauthorized by statute because (a) plaintiffs were not afforded an opportunity for a hearing on the decision; (b) the decision was arbitrary and capricious; and (c) the decision resulted from improper methods used by the private defendants to persuade the Secretary to allow conversion.

3) The private defendants through misrepresentation induced the Secretary to consent to a Third Modification Agreement which provided for the deferment and capitalization of principal and interest payments then outstanding and those which would become due during the period August 1, 1972 through July 31, 1977. Plaintiffs also challenge the Secretary's decision to permit the lien of its mortgage to become junior to a newly arisen bank claim and assert that the Secretary has failed to enforce certain duties of the private defendants imposed by the mortgage and ancillary agreements.

4) The conversion violates St. Louis City Ordinance No. 50033; Chapter 353, Revised Statutes of Missouri; and Article I, Section 10 of the Missouri State Constitution. ²

5) The actions of the Secretary in this matter violate the equal protection and due process clauses of the fourteenth amendment to the Constitution of the United States. ³

As to the first claim, the court determined that appellants (Competitors) failed to state any claim of violation of the National Housing Act, HUD regulations or HUD policy. As to the portions of the second, third, and fourth groups which remain in issue on appeal, the district court denied standing to these Competitors. For reasons stated below, we agree with the district court's determination.

In resolving the threshold questions of standing and failure to state a claim, the district court relied upon additional factual background, which we quote:

The Mansion House Center was constructed as an urban blighted area redevelopment project authorized by (St. Louis) City Ordinance No. 50033 (approved December 5, 1963), pursuant to Chapter 353, Revised Statutes of Missouri. This ordinance provided for development within the City in an area bounded by Third Street, Chestnut Street, Fourth Street, and Washington Boulevard. It further provided for the erection of three twenty-eight story apartment buildings (the three towers of the Mansion House Center) each containing approximately three hundred thirty-six apartment units, and of four commercial and office buildings not higher than ten stories.

In 1967 the Secretary insured the leasehold mortgage and note liability that encumbered the Mansion House Center south tower, pursuant to § 220 of the National Housing Act, as amended, 12 U.S.C. § 1715k (urban redevelopment). In 1971 the mortgagor defaulted on the note liability. The mortgagee-lender, John Hancock Mutual Life Insurance Company, applied for and in 1972 received $12,015,769.07 in mortgage insurance proceeds from the Secretary. In exchange, on February 11, 1972, the mortgagee assigned the note and the mortgage to the Secretary. Thereafter, the Secretary decided to allow the mortgagor to operate the south tower as a hotel instead of as an apartment complex as it had been operated originally. (Footnotes omitted).

The district court also observed that plaintiffs own or operate hotels within 50 miles of the Mansion House South Tower and determined that appellants alleged sufficient economic loss through the diversion of customers to the newly-converted hotel to create a justiciable controversy.

I. Specific Violations of the NHA.

We initially address the appellees-defendants' assertion that appellants lack standing even to assert their claim alleging specific violations of the National Housing Act.

Section 513 of the National Housing Act, 12 U.S.C. § 1731b, provides in pertinent part:

(a) The Congress declares that it has been its intent since the enactment of this chapter that housing built with the aid of mortgages insured under this chapter is to be used principally for residential use; and that this intent excludes the use of such housing for transient or hotel purposes while such insurance on the mortgage remains outstanding.

(b) Notwithstanding any other provisions of this chapter, no new, existing, or rehabilitated multifamily housing with respect to which a mortgage is insured under this chapter shall be operated for transient or hotel purposes unless (exceptions inapplicable).

(i) Any person owning or operating a hotel within a radius of fifty miles of a place where a violation of any provision of this section has occurred or is about to occur, or any group or association of hotel owners or operators within said fifty-mile radius, at his or their sole charge or cost, may petition any district court of the United States or the district court of any Territory or other place subject to United States jurisdiction within whose jurisdictional limits the person doing or committing the acts or practices constituting the alleged violation of this section shall be found, for an order enjoining such acts or practices(.)

The statute specifically declares that housing built with the aid of federally insured mortgages under the NHA is to be principally residential while the insurance remains outstanding. Congress in this statute has conferred a specific right of action on competing hotel owners or operators to seek injunctive relief against acts or practices "constituting the alleged violation of this section * * *."

Thus as to claim 1, the record discloses that these Competitors claiming injury assert a right of action specifically conferred by statute. These allegations establish standing. As the Supreme Court has said:

It is, of course, true that "Congress may not confer jurisdiction on Art. III federal courts to render advisory opinions," Sierra Club v. Morton, 405 U.S. 727, 732 n. 3 (92 S.Ct. 1361, 1365, 31 L.Ed.2d 636) (1972). But Congress may enact statutes creating legal rights, the invasion of which creates standing, even though no injury would exist without the statute. See, e. g., Trafficante v. Metropolitan Life Ins. Co., 409 U.S. 205, 212 (93 S.Ct. 364, 368, 34 L.Ed.2d 415) (1972) (White, J., concurring); Hardin v. Kentucky Utilities Co., 390 U.S. 1, 6 (88 S.Ct. 651, 654, 19 L.Ed.2d 787) (1968). (S. v. D., 410 U.S. 614, 617 n. 3, 93 S.Ct. 1146, 1148, 35 L.Ed.2d 536 (1973).)

Moreover, plaintiffs-appellants' allegations of economic injury are sufficient to meet the demands of Art. III, see Association of Data Processing Service Organizations v. Camp, 397 U.S. 150, 151-53, 90 S.Ct. 827, 25 L.Ed.2d 184 (1970). Thus, the district court properly granted these competitor hotels standing to assert that defendants' conduct violated the National Housing Act, including HUD regulations and policy.

The district court, however, determined on the merits that the facts alleged make out no statutory violation. The district court held that the proscriptions of the statute apply only so long as the mortgage insurance remains outstanding. The language of the statute, reinforced by the legislative history, establishes the correctness of that conclusion. Where, as here, the Government has paid the...