U.S. v. Winthrop Towers

• Decision Date: 29 August 1980
• Docket Number: No. 79-2055,79-2055
• Citation: 628 F.2d 1028
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. WINTHROP TOWERS, a limited partnership, and Metropolitan Bank and Trust Company as Trustee under Trust 1037, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1028

628 F.2d 1028

53 A.L.R.Fed. 518

UNITED STATES of America, Plaintiff-Appellee, v. WINTHROP TOWERS, a limited partnership, and Metropolitan Bank and Trust Company as Trustee under Trust 1037, Defendants-Appellants.

No. 79-2055.

United States Court of Appeals Seventh Circuit.

Argued April 29, 1980.

Decided Aug. 29, 1980.

David V. Kahn, Chicago, Ill., for defendants-appellants.

John H. Mahoney, Dept. of Housing and Urban Development, Chicago, Ill., argued for plaintiff-appellee; Mary A. Thomas, Frederick H. Branding, Asst. U. S. Attys., Thomas P. Sullivan, U. S. Atty., Chicago, Ill., on brief.

Before WOOD, Circuit Judge, MARKEY, Chief Judge, ^* and CUDAHY, Circuit Judge.

CUDAHY, Circuit Judge.

This is an action brought by the United States, on behalf of the Secretary of Housing and Urban Development (the "Secretary" and "HUD") to foreclose a federally insured mortgage because the mortgage loan was in default. The defendant mortgagor, Winthrop Towers, admitted that the loan was in default but raised four affirmative defenses to HUD's action. The district court concluded that the Secretary's decision to foreclose such a mortgage loan was "committed to agency discretion by law" and therefore could not be reviewed under the Administrative Procedure Act, 5 U.S.C. § 701, so it granted HUD's motion for summary judgment. United States v. Winthrop Towers, 475 F.Supp. 320 (N.D.Ill.1979). The district court based its conclusion on a finding that "there was no law to apply," but we disagree with this finding. We therefore affirm part of the district court order on different grounds, reverse the remainder and remand the case to the district court for further proceedings in accordance with this opinion.

Facts

Defendant Winthrop Towers is a limited partnership which is the beneficial owner of property in the Uptown area of Chicago known as Winthrop Towers. Defendant Metropolitan Bank and Trust Company is the trustee of the land trust which holds title to the Winthrop Towers property. In September 1968 defendants entered into a complicated series of agreements with various parties pursuant to which it granted a non-recourse mortgage on the Winthrop Towers property in return for a $4,720,700 loan at a below market interest rate. The loan was made under § 221(d)(3) of the National Housing Act, 12 U.S.C. § 1715l (d)(3). HUD insured the mortgage to the extent of advances and in return defendants entered into a regulatory agreement with HUD. The regulatory agreement governs tenant eligibility, rent levels and other aspects of the project's management. It also limits the annual distribution to defendants to 6% of their equity investment.

The proceeds of this government insured loan were used to construct the Winthrop Towers housing project, a 281-unit, 19-story housing project for low and moderate income tenants. Defendants failed in December 1973 to meet their installment obligations under the mortgage loan. In March 1975 the then-insured mortgagee, Government National Mortgage Association, assigned its interest in the note and the mortgage to the Secretary of HUD in return for payment of its claim for loss. Thus HUD became the lawful owner of the note and the mortgage.

In April 1976 defendants entered into a "provisional workout arrangement" with HUD, which provided that defendants would make a lump sum payment to HUD of $250,000 followed by reduced mortgage payments beginning in July 1976. HUD officials later agreed to let defendants begin making the reduced mortgage payments in October 1976. Defendants defaulted on the payments due under this arrangement and in August 1977 plaintiff filed the instant action on behalf of HUD in the district court seeking foreclosure. In its complaint plaintiff alleged that defendants had "failed to pay the installment due December 1, 1973, prior to the due date of the next monthly installment and has made no subsequent payment sufficient to restore the loan to currency, by reason of which Plaintiff declares due the entire balance of principal." HUD also sought immediate possession of the property. ¹

In their answer defendants admitted that "certain payments have not been made in accordance with the original terms of the Note and Mortgage." However defendants also stated that but for "HUD's departures from its own clearly established policies and regulations, as set forth in Affirmative Defenses one through four, defendants would have made all payments required" under the provisional workout arrangement. (Defendants' Answer, pp. 2-3).

Defendant's first affirmative defense alleges that HUD had imposed a nationwide moratorium on foreclosures of HUD-held mortgages on projects such as Winthrop Towers, so it was arbitrary and capricious to bring the instant action to foreclose. Defendants also state in the alternative that if the moratorium was limited only to the Boston area, the decision to treat projects located in Boston differently from those located in Chicago was arbitrary and capricious. Defendants' second affirmative defense alleges that foreclosure of the mortgage on Winthrop Towers would be in derogation of the goal of the National Housing Act to provide decent, safe and sanitary living quarters for low and moderate income families.

In their third affirmative defense defendants contend that HUD acted arbitrarily and capriciously by not making certain "Section 8" rent subsidies available to the present owners of Winthrop Towers even though HUD officials indicated that such funds might be available to a subsequent owner. Defendants also argue that HUD's failure to make such subsidies available to Winthrop Towers violates HUD's regulations concerning Section 8 funds, HUD's policy of avoiding foreclosure and national housing goals. The fourth affirmative defense alleges that HUD's "discriminatory and negligent treatment" of the Winthrop Towers project resulted in its financial difficulties. More specifically, defendants contend that HUD contributed to the default by (1) failing to include Winthrop Towers in its list of low and moderate income housing, (2) causing many similar low and moderate income housing projects to be constructed in the Uptown area and (3) releasing the builder from its bond although there were latent defects in the structure.

Discussion

The Administrative Procedure Act, 5 U.S.C. § 701 et seq. (the "APA"), governs judicial review of agency action. Section 702 provides that "(a) person suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute, is entitled to review thereof." Section 706(2) instructs the reviewing court to

"hold unlawful and set aside agency action, findings, and conclusions found to be-

(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law . . . ."

However review of agency action is not available "to the extent that . . . agency action is committed to agency discretion by law." 5 U.S.C. § 701(a). In Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971), the Supreme Court stated that the exception for action "committed to agency discretion by law" is very narrow.

"The legislative history of the Administrative Procedure Act indicates that it is applicable in those rare instances where 'statutes are drawn in such broad terms that in a given case there is no law to apply.' S.Rep.No.752, 79th Cong., 1st Sess., 26 (1945)." 401 U.S. at 410, 91 S.Ct. at 820-821.

In the instant case the district court examined § 207(k) of the National Housing Act, 12 U.S.C. § 1713(k)(2), ² which authorizes the Secretary to "institute proceedings for foreclosure on the property covered by any such insured mortgage and prosecute such proceedings to conclusion." The court observed that an earlier version of the National Housing Act required the Federal Housing Authority ("FHA") to acquire or foreclose a multifamily housing project within one year of default, but § 108 of the Housing Act of 1964 abolished the one year requirement. United States v. Winthrop Towers, 475 F.Supp. 320, 321 (N.D.Ill.1979). The court noted that the Senate Report on this section stated that eliminating this requirement

" 'would give FHA latitude to consider each case on its own merits and to take such action as is required in each case. . . . (W)here there is no hope of reinstatement or the project is being mismanaged, foreclosure would be undertaken as soon as possible after a default. In this connection the committee wishes to explain that the primary purpose of the amendment is to give the FHA the discretion to work with the mortgagor, in a promising case only, for a reinstatement of the loan.' S.Rep. 1265, 88th Cong., 2nd Sess. at 39, 40 (1964)." (Emphasis omitted) 475 F.Supp. at 321-22.

The district court here concluded that the relevant statutes gave the Secretary of HUD "blanket authorization" to foreclose a mortgage like that of Winthrop Towers, "with no restrictions or standards whatsoever." 475 F.Supp. at 321. Defendants argued that the statement of national housing policy contained in 42 U.S.C. § 1441 should guide the court's review of HUD's actions but the district court considered the language of § 1441 too broad to provide a standard for review. Id.

Having found that the relevant statutory provisions did not restrict HUD's authority to foreclose the mortgage, the district court concluded that there "was no law to apply" within the meaning of Overton Park, supra, construing § 701(a) of the APA, so it could not review the Secretary's decision to foreclose the Winthrop Towers mortgage. The district court expressly declined to follow Kent Farm Company v. Hills, 417 F.Supp. 297 (D.D.C.1976) and United States v. American National Bank and Trust Company of Chicago, 443 F.Supp. 167 (N.D.Ill.1977).

In Kent Farm the plaintiff-mortgagor sought a preliminary injunction to prevent HUD from foreclosing a mortgage...