Yetiv v. U.S. Dept. of Housing and Urban Dev.

• Decision Date: 20 September 2007
• Docket Number: No. 04-76044.,04-76044.
• Citation: 503 F.3d 1087
• Parties: Jack YETIV; TREIMee Corporation, Petitioners, v. U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, Respondent.
• Court: U.S. Court of Appeals — Ninth Circuit

503 F.3d 1087

Jack YETIV; TREIMee Corporation, Petitioners, v. U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, Respondent.

No. 04-76044.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted November 15, 2006.

Filed September 20, 2007.

Jack Z. Yetiv, Gardnerville, NV, for the petitioners.

Greg Addington, Assistant United States Attorney, Reno, NV, for the respondent.

On Petition for Review of an Order of the Department Of Housing & Urban Development. Hud No. CV-03-00665-LRH/VPC.

Before: WILLIAM C. CANBY, JR., JOHN T. NOONAN, and RICHARD A. PAEZ, Circuit Judges.

Opinion by Judge CANBY; Concurrence by Judge NOONAN.

CANBY, Circuit Judge:

Jack Yetiv and his wholly-owned TREIMee Corporation (collectively, "Yetiv") petition for review of an administrative decision of the U.S. Department of Housing and Urban Development ("HUD") imposing civil monetary penalties under 12 U.S.C. § 1735f-15(c). The penalties were imposed for Yetiv's failure to provide HUD with audited annual financial statements relating to the operation of Yetiv's multi-family housing project, which Yetiv purchased with a HUD-insured loan. Yetiv presents numerous challenges to HUD's decision, most notably that: (1) HUD was without jurisdiction to impose penalties because Yetiv pre-paid the HUD-insured loan prior to the final adjudication of HUD's Administrative Law Judge ("ALJ"); (2) the decision to impose penalties was arbitrary and capricious in violation of section 706(2)(a) of the Administrative Procedure Act ("APA"), 5 U.S.C. § 706(2)(a), because the ALJ applied an illogical standard in determining that the violations were "material" (and hence eligible for penalties); and (3) the decision imposing penalties was not supported by substantial evidence. We affirm.

Background

The Park on Westview property ("the property") is a 212-unit multi-family housing project in Houston, Texas. Yetiv purchased the property in 1997 with a HUD-insured loan. To secure HUD insurance, Yetiv was required to sign a regulatory agreement which imposed various duties related to the management and financial operations of the property, including the duty to submit annual financial statements. As a multi-family mortgagor, Yetiv was additionally subject to the Civil Money Penalty statute, 12 U.S.C. § 1735f-15, which authorizes HUD to impose civil penalties against mortgagors who "knowingly and materially" commit certain enumerated violations. § 1735f-15(b)(1). One of the violations for which civil penalties may be imposed is the failure to provide HUD with annual audited financial statements. See § 1735f-15(c)(1)(B)(x).

After Yetiv failed to file financial statements for the five fiscal years spanning 1997-2001, HUD issued an administrative complaint in July 2002 seeking civil penalties pursuant to the Civil Monetary Penalty statute. Five months later, prior to an adjudication on the merits, Yetiv prepaid the HUD-insured loan. Despite Yetiv's contention that his early payment deprived HUD of jurisdiction to maintain the enforcement action, the HUD ALJ issued a summary judgment order finding that TREIMee "knowingly and materially" violated the financial reporting requirement for the years 1997-2001. After a hearing to determine the amount of TREIMee's penalty and the extent of Yetiv's individual liability as an officer of TREIMee, the ALJ issued an Initial Decision ordering TREIMee to pay $50,000.00 for its violations and imposing a penalty of $20,000 against Yetiv and TREIMee jointly and severally.¹ Yetiv subsequently appealed to the Secretary of HUD, who adopted the ALJ decision without change. Yetiv petitions for review and we have jurisdiction under 12 U.S.C. § 1735f-15(e) over Yetiv's timely petition for review.

Standard of Review

We review de novo the scope of an agency's jurisdiction. Saratoga Sav. & Loan Ass'n v. Fed. Home Loan Bank Bd., 879 F.2d 689, 691 (9th Cir.1989). HUD's decision to impose civil money penalties is reviewed pursuant to the Administrative Procedure Act ("APA"), 5 U.S.C. § 706. 12 U.S.C. § 1735f-15(e)(3). Under Section 706, HUD's action "must be set aside if the action was `arbitrary, capricious, an abuse of discretion, otherwise not in accordance with law' or if the action failed to meet statutory, procedural, or constitutional requirements." Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 414, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971), overruled on other grounds by Califano v. Sanders, 430 U.S. 99, 105, 97 S.Ct. 980, 51 L.Ed.2d 192 (1977), (quoting 5 U.S.C. § 706(2)(A), (B), (C), and (D)). We must also set aside any factual findings that are not supported by substantial evidence. § 706(2)(E).

Discussion

As a threshold matter, Yetiv contends that HUD lacked jurisdiction to impose civil money penalties because he prepaid the HUD-insured loan prior to the final adjudication. We reject that contention.

Under 12 U.S.C. § 1735f-15(c)(1)(A), the Secretary of HUD has jurisdiction to proceed against mortgagors who commit any of the violations listed in subsection (B), including the failure to file an annual financial statement. § 1735f-15(c)(1)(B)(x). The governing statute does not state that the Secretary loses jurisdiction to prosecute past violations the moment a HUD-insured mortgage is paid off. An agency generally does not lose jurisdiction over a claim for money penalties because of the post-violation actions of the violator. See Reich v. Occupational Safety & Health Review Comm'n, 102 F.3d 1200, 1202 (11th Cir.1997). The general rule is that liability for civil penalties attaches at the time of the violation, see, e.g., San Francisco BayKeeper, Inc. v. Tosco Corp. 309 F.3d 1153, 1159-60 (9th Cir.2002), and we see no reason to create an exception in this case. Were we to accept Yetiv's argument, the practical effect would be to encourage mortgagors to forego the expense of compliance because, in the event of an enforcement action, they could always escape liability by prepaying the HUD-insured mortgage before the assessment of penalties. Yetiv's early payment of the loan, after his failure to supply annual financial statements to HUD, accordingly did not deprive HUD of jurisdiction to maintain the enforcement action and, ultimately, to impose penalties.

At oral argument, Yetiv characterized himself as the victim of a vendetta: he had paid off his loan, neither HUD nor the public had lost any money, and it was simply asking too much to require annual audited statements and to persevere in that requirement after the loan had been paid off. Unquestionably there is considerable exasperation on the part of both parties reflected in the record. But surely HUD is entitled to require, by regulation and agreement, that the borrowers it insures regularly document the financial health of their HUD-insured projects.² And Congress has authorized HUD to exact monetary penalties for the failure to file such reports. See § 1735f-15(c)(1)(B)(x). Collection of a penalty here serves a deterrent purpose that goes beyond the circumstances of Yetiv's successful loan; it discourages other project operators from failing to file audited financial statements. Requiring such statements across the board is a legitimate regulatory and legislative goal.

We also are not persuaded by Yetiv's primary procedural argument. He contends that HUD's decision to impose penalties was arbitrary and capricious because the ALJ used an illogical standard for determining whether the violations were "material." Under the controlling regulations, a material violation is one that is significant in some respect or to some degree. 24 C.F.R. § 30.10. The ALJ found that Yetiv's violations were significant by considering, as the Secretary requires, the so-called "totality of circumstances" factors set forth in 24 C.F.R. § 30.80 (the same factors used to determine the amount of the penalty). As relevant here, these factors are: the gravity of the offense, § 30.80(a); any history of prior offenses, § 30.80(b); the ability to pay the penalty, § 30.80(c); the injury to the public, § 30.80(d); any benefits received by the violator, or the extent of potential benefit to other persons, § 30.80(e), (f); deterrence of future violations, § 30.80(g); the degree of the violator's culpability, § 30.80(h); and such other matters as justice may require, § 30.80(j).

Yetiv argues, and we tend to agree, that some of these factors (notably, the violator's ability to pay), while perhaps relevant to the determination of the amount of a penalty, have no logical relationship to the significance of the underlying violation. The issue here, however, is not whether HUD's materiality standard is logical in the abstract, but whether its application in this case resulted in a decision that is arbitrary or capricious. The ALJ acknowledged the inapplicability of some of the HUD-prescribed...