Sandpiper Residents Ass'n v. United States Dep't of Hous. & Urban Dev.

• Decision Date: 21 May 2022
• Docket Number: Civil Action 20-1783 (RDM)
• Parties: SANDPIPER RESIDENTS ASSOCIATION, et al., Plaintiffs, v. UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, Defendant.
• Court: U.S. District Court — District of Columbia

SANDPIPER RESIDENTS ASSOCIATION, et al., Plaintiffs,
v.
UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, Defendant.

Civil Action No. 20-1783 (RDM)

United States District Court, District of Columbia

May 21, 2022

MEMORANDUM OPINION

RANDOLPH D. MOSS UNITED STATES DISTRICT JUDGE

Compass Pointe Apartments, also known as Sandpiper Cove, is a privately owned apartment complex in Galveston, Texas, that is subsidized by the U.S. Department of Housing and Urban Development (“HUD”) through a contract with Sandpiper Cove's owner under HUD's Project Based Rental Assistance (“PBRA”) program. HUD's contract with the property owner and HUD regulations require the owner to maintain the apartment's PBRA units in decent, safe, and sanitary condition. In this action, Plaintiffs-two tenants and the tenant association of Sandpiper Cove-allege that Sandpiper Cove's owner has failed to maintain the apartment's units in a habitable condition, in violation of the owner's contractual and regulatory obligations. In May 2019, HUD shared that assessment and issued a Notice of Default to Sandpiper's prior owner, after an inspection found an array of deficiencies, including missing or inoperable smoke detectors, pest infestations, leaking or clogged pipes, missing or inoperable kitchen appliances, holes in walls, and damaged doors.

Plaintiffs do not, however, bring this action against the owner of the property. Rather, they have sued HUD on the theory that issuance of the Notice of Default, along with imminent

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health and safety risks to the tenants posed by the deplorable conditions at the apartment complex, triggered an obligation by HUD to provide “Tenant Protection Vouchers” to the Sandpiper Cove tenants. Those vouchers, in turn, would enable the tenants to relocate to different housing that meets HUD's decent, safe, and sanitary standard. On Plaintiff's telling, HUD's failure to issue the vouchers violates the Administrative Procedure Act (“APA”), 5 U.S.C. § 701 et seq., and amounts to intentional discrimination on the basis of race and ethnicity in violation of the Fifth Amendment and the Fair Housing Act, 42 U.S.C. § 3604(a). As a result, Plaintiffs seek an injunction compelling HUD to issue Tenant Protection Vouchers to any qualified Sandpiper Cove tenant who wishes to leave the complex. Dkt. 25 at 59-60 (2d Am. Compl. ¶ 212).

Before the Court is Plaintiff's motion for a preliminary injunction, Dkt. 26, and HUD's motion to dismiss the complaint for lack of jurisdiction and for failure to state a claim, Dkt. 36. For the reasons set forth below, the Court will DENY Plaintiff's motion for a preliminary injunction and will GRANT HUD's motion to dismiss.

I. BACKGROUND

A. Statutory Background

Section 8 of the United States Housing Act authorizes HUD to provide financial assistance to “aid[] low-income families in obtaining a decent place to live” and to “promot[e] economically mixed housing.” 42 U.S.C. § 1437f(a). Under the Act, HUD may disburse this assistance through various programs, which generally take on one of two forms: (1) “tenantbased assistance, ” in which assistance is linked to individual households, or (2) “project-based assistance, ” in which assistance is linked to specific housing units and payments are made to the units' owners pursuant to a Housing Assistance Payment contract. See id. § 1437f(b), (f)(6)-(7), (o); see also 24 C.F.R. §§ 886.309, 982.1(b)(1).

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Tenant-based assistance is provided through the Housing Choice Voucher Program, which is funded by HUD but administered by local public housing authorities. Under this program, local public housing agencies issue housing vouchers to individual households based on availability and need. See 42 U.S.C. § 1437f(o)(6). Once a household is issued a voucher, it is responsible for finding a housing unit and a landlord who is willing to rent to it, which it must then submit to the public housing authority for approval. 24 C.F.R. § 982.302(a)-(b). The public housing authority undertakes a process to approve the tenancy, which includes an inspection of the unit, an analysis to determine if the rent is reasonable, and a review of the owner. See id. §§ 982.305, 982.306. Once the tenancy is approved, HUD makes monthly financial assistance payments equal to the amount by which the household's rent exceeds a certain percentage of its monthly income. 42 U.S.C. § 1437f(o)(2)(A).

The units in question at Sandpiper Cove are subsidized through project-based assistance, not tenant-based assistance. Under a project-based assistance program, HUD does not have a contractual relationship with tenants. Instead, HUD enters into Housing Assistance Payments (“HAP”) contracts with private landlords to designate certain units they own as project-based assistance units. Id. § 1437f(c). These contracts set forth the terms under which HUD will make annual assistance payments to landlords and subject the landlords to HUD oversight and enforcement. Id. The landlords, in turn, enter into private lease agreements directly with tenants. Id. § 1437f(d)(1)(B). HUD does not select the tenants who live in project-based assistance units; rather, landlords are authorized to select their own tenants, subject to any preferences or restrictions placed by the statute or the applicable HAP contract. Id. § 1437f(d)(1)(A). Tenants then make rental payments to their landlord based on their income and ability to pay, Cisneros v. Alpine Ridge Grp., 508 U.S. 10, 12 (1993); see 42 U.S.C. §§ 1437a(a), 1437f(c),

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and HUD pays the landlord the “difference between the tenant's contribution and a ‘contract rent' agreed upon by the landlord and HUD, ” Cisneros, 508 U.S. at 12; 42 U.S.C. § 1437f(c)(2)(C)(3). As of 2021, approximately 1.2 million households received project-based rental assistance at 17, 200 multifamily housing properties. See U.S. Dep't of Housing & Urban Dev., Fiscal Year 2021 Congressional Justifications 21-1, https://www.hud.gov/sites/dfiles/CFO/documents/FY21HUDCongressionalJustifications.pdf.

HUD has promulgated numerous regulations implementing its housing assistance programs, including under Section 8. See 24 C.F.R. pt. 5 (general HUD program requirements); 24 C.F.R. pt. 886 (Section 8 program requirements). Among many other things, these regulations require PBRA unit owners to provide housing that is “decent, safe, sanitary, and in good repair” and to “provide all the services, maintenance, and utilities” required by the owner's HAP contract with HUD. Id. §§ 5.703, 886.123(a). To satisfy these conditions, owners must comply with various “physical condition standards, ” which generally require HUD housing to be “structurally sound, ” “secure, ” “habitable, ” and “free of health and safety hazards.” Id. § 5.703(a)-(f). In addition to these standards, HUD housing owners must continue to comply with “State and local codes for building and maintenance, ” which the HUD regulations “do not supersede or preempt.” Id. § 5.703(g).

HUD ensures compliance with these requirements through periodic inspections, id. § 886.123(c), which are performed by HUD's Real Estate Assessment Center (“REAC”), id. § 200.857(a)(1). The REAC inspects a sample of a property's units and then scores the property on a 100-point numerical scale. Id. § 200.857. A PBRA property fails its REAC inspection if it receives a score of 60 or less. See Consolidated Appropriations Act, 2021, Pub. L. No. 116-260, § 219(b) & (c), 134 Stat. 1182, 1897-98 (2020). Under the 2021 Consolidated Appropriations

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Act (the “Act”), a failing REAC score triggers a mandatory enforcement action by HUD, which is required, within fifteen days, to “[p]rovide the owner with a Notice of Default” that includes “a specified timetable, determined by [HUD], for correcting all deficiencies.” Id. at § 219(c)(1), 134 Stat. at 1898.

The Act then prescribes a range of discretionary enforcement actions that HUD “may” take “if the owner fails to fully correct [the] deficiencies” within the specified timetable, including:

(A) requir[ing] immediate replacement of project management with a project management agent approved by the Secretary;

(B) impos[ing] civil money penalties, which shall be used solely for the purpose of supporting safe and sanitary conditions at applicable properties, as designated by the Secretary, with priority given to the tenants of the property affected by the penalty;

(C) abat[ing] the [S]ection 8 contract, including partial abatement, as determined by the Secretary, until all deficiencies have been corrected;

(D) pursu[ing] transfer of the project to an owner, approved by the Secretary under established procedures, which will be obligated to promptly make all required repairs and to accept renewal of the assistance contract as long as such renewal is offered;

(E) transfer[ing] the existing [S]ection 8 contract to another project or projects and owner or owners;

(F) pursu[ing] exclusionary sanctions, including suspensions or debarments from Federal programs;

(G) seek[ing] judicial appointment of a receiver to manage the property and cure all project deficiencies or seek[ing] a judicial order of specific performance requiring the owner to cure all project deficiencies;

(H) work[ing] with the owner, lender, or other related party to stabilize the property in an attempt to preserve the property through compliance, transfer of ownership, or an infusion of capital provided by a third-party that requires time to effectuate; or

(I) tak[ing] any other regulatory or contractual remedies available as deemed necessary and appropriate by the Secretary.

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Id. at § 219(c)(2), 134 Stat. 1898.

One option available to HUD under the Act is to issue Tenant Protection Vouchers to residents in the affected property. Tenant Protection Vouchers are a specific form of tenantbased rental assistance authorized annually through a...