Thompson v. Washington

• Citation: 497 F.2d 626
• Decision Date: 10 December 1973
• Docket Number: No. 71-2049.,71-2049.
• Parties: Rev. Chester O. THOMPSON, Individually and on behalf of all others similarly situated, et al., Appellants, v. Walter WASHINGTON, Individually and as Commissioner of the District of Columbia and as "The Authority" of the National Capital Housing Authority Under Executive Order.
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

497 F.2d 626 (1973)

Rev. Chester O. THOMPSON, Individually and on behalf of all others similarly situated, et al., Appellants, v. Walter WASHINGTON, Individually and as Commissioner of the District of Columbia and as "The Authority" of the National Capital Housing Authority Under Executive Order.

No. 71-2049.

United States Court of Appeals, District of Columbia Circuit.

Argued December 18, 1972.

Decided December 10, 1973.

As Amended December 20, 1973.

COPYRIGHT MATERIAL OMITTED

Edward E. Schwab, Washington, D. C., for appellants.

Dirk D. Snel, Atty., Dept. of Justice, of the Bar of the United States Supreme Court, pro hac vice, by special leave of the Court, with whom Kent Frizzell, Asst. Atty. Gen., and Edmund B. Clark, Atty., Dept. of Justice, were on the brief for appellee.

Before BAZELON, Chief Judge, and TAMM and LEVENTHAL, Circuit Judges.

LEVENTHAL, Circuit Judge:

This case is one of three related cases decided today which involve the procedural rights of tenants of housing, constructed under various provisions of the Federal housing legislation, prior to official approval of rent increases. In the case at bar, we hold that tenants of low-rent public housing are entitled not only to receive notice of proposed rent increases but also to participate in the process of official consideration of rent increases by making written presentations. In Marshall v. Romney, No. 71-1786, we hold that the same opportunities must be afforded tenants of lowand moderate-income housing constructed pursuant to § 221(d) (3) of the National Housing Act, with both FHA mortgage insurance and below-market-interest-rate loans. In Tenants' Council of Tiber Island v. Lynn, No. 71-1931, we hold that the opportunity to participate need not be accorded tenants of housing constructed under § 220 of the Housing Act, as part of area redevelopment plans.

The case at bar is a class action for injunctive and declaratory relief, brought in 1969 by Chester H. Thompson on behalf of tenants ofapproximately 6000 rental units of the National Capital Housing Authority (NCHA). Plaintiff complained of failure to accord the tenants the procedural requisites for approval of the rental increases in low-rent public housing programs established under the United States Housing Act (Act) as amended, 42 U.S.C. 1401 et seq. The suit named as defendants "Mayor" Washington, Commissioner of the District of Columbia, and his Assistant, in their capacity as the members of the NCHA (see E.O. 11401, 33 F.R. 4559), certain NCHA subordinates, and the Secretary of the Department of Housing and Urban Development (HUD) and two subordinates. Plaintiffs sought to enjoin a major modification of the rent schedule approved by those officials, scheduled to become effective January, 1970. The plaintiff class consists of the majority of NCHA tenants, who pay according to a "graded rent" schedule, and does not include certain welfare recipients, elderly tenants, and others, paying so-called flat rents, who were not affected by this rental increase.

This is the second time this litigation has come before this court. In Mc-Kinney v. Washington, 143 U.S.App.D.C. 4, 442 F.2d 726, decided November 25, 1970, the court affirmed the denial of a preliminary injunction on the ground that appellants were unlikely to prevail on the merits. The case now comes before the court on appeal from the District Court's order of October 15, 1971, granting the defendants' motion to dismiss the amended complaint. The plaintiff class raises two distinct claims: (1) The summary procedures used by NCHA and HUD — wholly excluding notice to the tenants of the proposed rent increases (by NCHA), or opportunity for tenants to express views, or to present evidence in opposition, on review of rent increase proposals (by HUD) — violate the Act and administrative due process. (2) A rent increase which is beyond "the financial reach of families of low income" violates the Act. The District Court dismissed the complaint on the grounds that it was a suit against the United States to which it had not consented, and failed to state a claim on which relief could be granted. We reverse the dismissal of the complaint and remand for further proceedings.

I. STATEMENT OF FACTS AND STATUTORY BACKGROUND

The program of low-rent public housing was established by the United States Housing Act of 1937.¹ The legislation authorized a variety of Federal subsidies to Local Housing Authorities, such as the National Capital Housing Authority, to assist in the development and operation of the housing projects. When constructing new units of public housing, the LHAs float tax-free bonds, guaranteed by the Federal Government.² The Federal Government also has the authority to make grants to LHAs in the form of annual contributions,³ including subsidies for certain categories of tenant families,⁴ for modernization and rehabilitation of projects,⁵ and for tenant services.⁶ In addition to grants, loans may be made for specified purposes.⁷ The local government also subsidizes the LHA by agreeing to accept Payment in Lieu of Taxes, through which the LHA gets an effective reduction in real estate and other local taxes.⁸

The history of NCHA's economic affairs in the 1960's illustrates the current financial crisis generally affecting public housing.⁹ Federal subsidies to LHAs in this period derived from an Annual Contributions Contract, which provided generally that the projects would be self-supporting, with operating expenses paid from income. During most of the 1960's whatever operating deficits arose could be covered by "residual receipts" — past surpluses accumulated during prior successful years of operation.¹⁰ In 1968, however, HUD had to commit $7,000,000 to NCHA for the purpose of modernizing its projects.¹¹

In the years immediately preceding the requested rental increase of 1969, the NCHA was running operating deficits in its current budget and was required to spend $2.4 million in reserve funds to supplement income derived from rents.¹² In October 1969, however, NCHA claimed exhaustion of its reserves. At the end of fiscal year 1969 (June 30) NCHA had an operating deficit of $910,000 and anticipated the deficit would grow. NCHA applied for a $900,000 loan from HUD, promising to repay the loan from future grants under § 10(a) of the Act, providing for special subsidies for large families and elderly tenants.¹³

NCHA then applied to HUD for a $3-million administrative loan which HUD was authorized to grant under § 9 of the 1937 Act, as amended, 42 U.S.C. § 1409. The loan was intended to meet anticipated operating deficits in fiscal years 1970 and 1971. While this application for a loan was pending, HUD was reviewing the FY 1970 proposed budget submitted by NCHA in April 1969. Meanwhile NCHA, in order to reduce its projected deficit, had secured the agreement of District of Columbia officials to reduce further or eliminate payments in lieu of taxes.¹⁴ On June 27, 1969, HUD rejected the budget submitted because the expenditures projected exceeded the income anticipated.¹⁵ The crisis came to a head on July 22, 1969, when HUD notified NCHA by letter that approval of its budget, and considerations of its $3,000,000 loan application, was dependent on NCHA's devising "a rent schedule that will produce sufficient income to assure the Authority's attaining financial stability within the next few years."¹⁶ NCHA responded by proposing a new graded rent schedule, approved by HUD on September 19, 1969, and announced by NCHA to tenants by a letter dated October 1, 1969. That rent schedule is the subject of this litigation.¹⁷

To understand the nature of the rent increases some explanation of the graded rent structure is needed.¹⁸ The schedule sets rent primarily on the basis of family income and family size. Family size is taken into account indirectly by providing different rents for different sized dwelling units. Gradation with respect to family income can be illustrated by the structure of rents for a one bedroom apartment under the new rent schedule. The minimum rent for that apartment is $40 per month, while the maximum is $110 per month. The minimum rental calculates to 26% of an annual income of $1800, and a tenant family with that income is entitled to the minimum rental, but it calculates to 48% of the income of a family with, say, $1000 annual income.¹⁹

Submissions by the parties furnish contradictory information as to the precise impact of the new rent schedule on tenants. For example, appellants assert that the average amount of increase is $23.17 per month for the 6,000 units affected (Reply Br. 3), while the Government brief (p. 6) claims the increase is $11.16 per unit month. We cannot resolve such matters on the record before us, particularly since neither the Government nor the District Court developed its legal position on the basis of such factual refinements. On a motion to dismiss we must accept the averments of the complaint, that NCHA's proposed rent increases (between $10 and $44 per month) amount to between 17 and 38% of the previous rent (par. 7), and that the new rents are beyond the financial means of plaintiffs. Appellants assert (Br. 13) that the increased rents force many members of plaintiff class to forego basic necessities of life.²⁰

Plainly, the NCHA faced a difficult situation in 1969, a situation shared by most LHAs at that time. In view of operating deficits under the existing rent schedule the only alternative to increased Federal subsidies was an increase in rents (unless economies which would reduce project expenses could be discovered).

In December, 1969, Congress enacted an amendment to the 1937 Housing Act, known as the Brooke Amendment,²¹ setting a rent ceiling at 25% of family income. It authorized HUD to pay additional annual contributions to "make up the amount by which the proportionate share of operating and maintenance expenses attributable to a public housing unit exceeds 25...