Rowan Court Subdivision 2013 Ltd. v. Coporation

• Decision Date: 11 August 2016
• Docket Number: CIVIL ACTION NO. 15-870-JWD-RLB
• Parties: ROWAN COURT SUBDIVISION 2013 LIMITED PARTNERSHIP, ET AL. v. THE LOUISIANA HOUSING COPORATION, ET AL.
• Court: U.S. District Court — Middle District of Louisiana

ROWAN COURT SUBDIVISION 2013 LIMITED PARTNERSHIP, ET AL. v. THE LOUISIANA HOUSING COPORATION, ET AL.

CIVIL ACTION NO. 15-870-JWD-RLB

UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF LOUISIANA

August 11, 2016

RULING AND ORDER

This matter is before the Court on the Federal Defendants' Motion to Dismiss (Doc. 21) filed by the United States Department of Housing and Urban Development ("HUD") and the United States Department of the Treasury ("Treasury") (collectively, the "Federal Defendants"). Plaintiffs Rowan Court Subdivision 2013 Limited Partnership ("Rowan") and John Does 1-60 (the "John Doe Plaintiffs") (collectively, the "Plaintiffs") oppose the motion. (Doc. 30.) Oral argument was held on August 9, 2016.

Having carefully considered the law, facts in the record, and arguments of the parties, the Federal Defendants' motion is granted, and the Plaintiffs' claims against the Federal Defendants are dismissed. However, the Plaintiffs shall be granted leave to amend their Complaint to cure the deficiencies detailed in this ruling. If they fail to do so within the prescribed time, their claims against the Federal Defendants shall be dismissed with prejudice.

Moreover, given the need for the Plaintiffs to cure the deficiencies in the Complaint, the Plaintiffs' Motion for Preliminary Injunction and Declaratory Relief (Doc. 4) is denied without prejudice. The Plaintiffs may refile this motion after they have submitted an amended complaint and after the Federal Defendants have had an opportunity to make any objections to same.

I. Relevant Factual Background

A. Overview

Plaintiffs bring this suit for declaratory and injunctive relief related to the award of low-income housing tax credits and other federal funding available under 26 U.S.C. § 42. They purport to bring this suit under (1) the due process and equal protection clauses of the Fourteenth Amendment; (2) Article 2 Section 1 of the Louisiana Constitution; (3) Louisiana Civil Code article 1967; and (4) Louisiana Civil Code articles 2315 and 2316. (Doc. 1 at 1.) In short, the Plaintiffs claim that these tax credits and funds were improperly awarded to two other projects and that, as a result, the Plaintiffs' rights were violated.

Plaintiff Rowan applied for tax credits to finance the development of a subdivision. The John Doe Plaintiffs are alleged to be individuals in Ouachita Parish who were adversely affected by the purportedly improper award. Specifically:

- John Does 1-34 are "the Ouachita Parish people who would have benefited from [a]ffordable housing being provided" (Doc. 1 at 2);

- John Does 35-40 are "the Ouachita Parish contractors who would have worked on the construction jobs" (Doc. 1 at 3);

- John Does 41-50 are "the Ouachita Parish local businesses and their owners that did not receive the increase in business from the construction of the affordable housing" (Doc. 1 at 3); and

- John Does 51-60 are "the Ouachita Parish citizens . . . who lost the benefit of the increase in sales and property tax revenue the construction of the affordable housing would have created." (Doc. 1 at 3.)

The Federal Defendants provided the funds for the federal program at issue. The other Defendants in this action are the Louisiana Housing Corporation ("LHC"); Mayson H. Foster, the Chairman of the Board of the LHC; and Frederick Tombar, III, Executive Director of the LHC (collectively, the "State Defendants"). In short, LHC administered the program on the statelevel. Defendants Foster and Tombar were high ranking officers in LHC and allegedly ran it during all times relevant to this suit. They have filed a separate motion to dismiss. (Doc. 19.)

B. The Low Income Housing Tax Credit Program

An overview of the low income housing tax credit program at issue is helpful in understanding the allegations of the Complaint. The Court will thus briefly turn to the legal framework of the program and then return to the Complaint.

The Louisiana First Circuit Court of Appeal provided such an overview in the recent and related case of Rowan Court Subdivision 2013 Limited Partnership v. Louisiana Housing Agency, 2015-1212 (La. App. 1 Cir. 2/24/16); 2016 WL 759121, writ denied, 2016-0591 (La. 5/20/16), 191 So. 3d 1067. There, the First Circuit explained:

The LHC was established pursuant to La. R.S. 40:600.86, et seq. One of the responsibilities of the LHC is to administer Louisiana's portion of the federal Low Income Housing Tax Credit Program, enacted under 26 U.S.C.A. § 42 (the Internal Revenue Code), which promotes the development of affordable and workforce housing by allocating tax credits to developers of affordable housing. The tax credits are awarded to affordable housing developers in accordance with a detailed application process and criteria set forth in a Qualified Action Plan ("QAP"), which is developed each year after a public hearing. After the affordable housing developers submit a proposed project based on the QAP, the LHC scores the developers' projects and ranks the developers/projects according to their scores. The QAP provides a challenge process through which developers are allowed to challenge the initial allocation of points, and the developers may appeal and have a panel review the LHC decision. Thereafter, the scores are finalized, projects are ranked, and top ranking projects are awarded tax credits by the LHC Board of Commissioners ("Board"). Tax credits that are either not awarded or are subsequently retracted (because of a developer's failure to comply with the QAP) are re-allocated to other developers until the QAP for the next year is approved, in which case the tax credits are rolled over to the next QAP.

Id., 2016 WL 759121 at *1.

C. The Plaintiffs' General Allegations

The Plaintiffs allege that in 2013, LHC issued a request for proposals to developers to participate in a "competitive 2014 Housing Tax Credit Round, pursuant to HUD and Treasury[r]egulations and constructs." (Doc. 1 at 5.) In connection with this, LHC developed and implemented a selection criteria to be used to score all applications in order to rate them pursuant to the Qualified Application Plan (QAP). (Id.)

The Plaintiffs submitted a proposal seeking the tax credits and other funds for its subdivision. (Id.) Rowan was given a score of 122. Rowan objected to the score "as being arbitrary and capricious in the way points were allocated [for] its application and other applications," and thus LHC "arbitrarily refused to allocate any additional points to increase the ratings." (Id. at 5-6.)

The Plaintiffs further allege they are filing this suit "to prevent the defendants from allocating any remaining 2014, 2015, and/or 2016 Housing Tax Credits and/or Home Funds, CBDG Funds, GAP Funds, and other types of grants before a final resolution of this litigation." (Id. at 6.) The Plaintiffs claim that LHC illegally awarded such funds (totaling $20 million dollars) to two projects "which were submitted as being in the City of Richwood, Louisiana, when they were not." (Id.) The Plaintiffs seek declaratory and injunctive relief to prevent these funds, credits, and grants from being allocated. (Id.)

The Plaintiffs also describe in detail how LHC allegedly miscalculated Rowan's score. (Id. at 8-10.) They further maintain that the State Defendants have a "circle of connected developers who work together to freeze out competition." (Id.) The Plaintiffs argue that their due process rights to a "hearing before an impartial tribunal with appeal rights" and against "government deprivations of property" have been violated. (Id.) They claim that, without an injunction, the State Defendants "will move forward with their plans to award 2013, 2014, 2015, and 2016 tax credit allocations . . . to the 'Chosen Few' developers with lower rankings." (Id. at 11.) Concerning the John Doe Plaintiffs, the Plaintiffs state that a failure to enjoin "will result ina delay and ultimate loss of affordable housing tax credits for the citizens of Ouachita Parish, denying these U.S. citizens 34 badly needed houses, and ultimately, a roof over their head, including John Does 1-34." (Id. at 11-12.)

In the "Prayer," the Plaintiffs seek, among other things, the following:

- That Rowan be issued additional points for its 2014 Louisiana Housing Tax Credit submitted to LHC;

- [a declaration] "[t]hat the failure of [LHC] to provide plaintiffs a fair hearing and adequate notice prior to the taking of tax credit points in making an allocations resulted in a violation of the Due Process Clauses of the United States and Louisiana Constitution[s]";

- That judgment be rendered in favor of Rowan and against LHC and Tombar enjoining Foster and the LHC Board of Directors from issuing "any further tax credit allocations or and any Home Funds, CBDG Funds, GAP Funds, and any other types of taxpayer funded grants to any projects which were illegally awarded as being located in the City of Richwood until this matter can be finally resolved and enjoined from issuing any of the $20 Million Dollars for projects which were illegally and void ab initio at the time they were awarded";

- That Rowan be declared to be located in the Parish of Ouachita and that the two awards made by the defendants to the two projects not located in the City of Richwood be declared "absolute nullities" and that "LHC and defendants" be declared to have violated the civil rights of the plaintiffs, including the right to due process and equal protection; and

- That Defendant pay costs and attorneys' fees.

D. The Federal Defendants' Alleged Misconduct

Despite the extensive allegations with respect to the State Defendants, the Plaintiffs provide limited detail in their Complaint about what the Federal Defendants supposedly did. In fact, the sole allegation related to the Federal Defendants is that "HUD and the U.S. Treasury are vicariously liable for failure to supervise the conduct of the parties contracted with to carry out their goals." (Doc. 1 at 7.) As stated above, no prayer is sought...