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SHANNON v. UNITED STATES HUD

October 7, 1969

Maurice SHANNON et al.
v.
UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT; George Romney, Secretary of Department of Housing and Urban Development; Warren P. Phelan, Regional Administrator, Region II, Department of Housing and Urban Development; and Thomas J. Gallagher, Regional Administrator, Federal Housing Administration, Department of Housing and Urban Development



The opinion of the court was delivered by: LORD, III

 Fairmount Manor occupies the blocks between 6th & 7th Streets and Fairmount Avenue & Green Street within the East Poplar Urban Renewal Area, which is in turn bounded by Spring Garden Street & Girard Avenue, and by 5th & 9th Streets in Philadelphia. East Poplar is subject to an Urban Renewal Plan ("The Plan") approved by Philadelphia's City Council on December 24, 1959, and amended several times thereafter. Federal funds were made available to the Philadelphia Redevelopment Authority ("LPA") for the renewal of East Poplar under the terms of a loan and grant contract between the Department of Housing and Urban Development ("HUD") and the LPA. Plaintiffs' Exhibit 70 (hereinafter cited as "P.Ex.").

 Plaintiffs' request for a preliminary injunction was denied by us on February 5, 1969, because we could find no irreparable harm to the plaintiffs if the injunction did not issue, and we could not then determine that the plaintiffs were likely to succeed on the merits of their complaint. Because of the importance to the public of the issues involved and the urgency to the plaintiffs of a decision on the merits, we heard argument on the defendants' motion to dismiss the complaint as soon as the parties were prepared. On February 17, 1969, we issued an order denying the motion.

 Subsequently, after several days of testimony, the parties agreed to a settlement of the preliminary issue then facing the court, namely, whether the plaintiffs were, in fact entitled to the procedural opportunity granted in Powelton Civic Home Owners Ass'n v. Department of Housing & Urban Dev., 284 F. Supp. 809 (E.D.Pa., 1968). Under the terms of their settlement, HUD agreed to consider certain documentation in support of plaintiffs' position. On April 14, 1969, after consideration of the plaintiffs' proffered data and memoranda, HUD affirmed its earlier decision to permit the erection of Fairmount Manor.

 Not unexpectedly dissatisfied with this result, the plaintiffs returned to us seeking review of HUD's decision, a possibility foreseen by the parties who had agreed that the court should retain jurisdiction over the case during HUD's deliberations. Plaintiffs adduced over a week's testimony, and now attack the Secretary's decision to approve Fairmount Manor on several grounds. Before considering them, however, it is necessary to explain at some length our reasons for denying the government's first motion to dismiss the suit, treating the issue of standing now, and deferring discussion of reviewability to our decision on the second motion to dismiss.

 I.

 FIRST MOTION TO DISMISS

 a. Background

 In their complaint, plaintiffs alleged that: pursuant to the original Plan for East Poplar, the LPA contracted with Abram Singer Sons, Inc., ("Singer") to erect 244 single family dwellings and to rehabilitate existing buildings. Relying on those facts, and representations made by Singer and the LPA, some of the plaintiffs made substantial investments, including the purchase of homes in East Poplar. However, from 1961 until the present time, only seventy-two of the 244 single family units have been constructed. In April, 1966, rehabilitation of the houses ceased, and houses on the Fairmount Manor site were demolished in lieu of rehabilitation. Singer proposed the substitution of a one-and-two-bedroom apartment project with subsidized rentals for the originally planned single family dwellings. This project received approval from the LPA and the Philadelphia City Council as well as federal funding. Construction began on January 3, 1969.

 Finally, plaintiffs alleged that since the adoption of the original Plan, East Poplar has become a low-rent subsidy community contrary to the Plan's original purpose, to wit: only ninety privately-owned single family dwellings presently exist; East Poplar already has within its borders a 203-unit public housing project, and adjacent to East Poplar are two public housing projects of 1324 and 372 units; these three projects comprise 13% of all existing public housing projects in the entire City of Philadelphia. Plaintiffs further alleged that the apartment project would have a markedly deleterious impact upon the already precarious racial and socio-economic balance of the East Poplar community surrounding Fairmount Manor.

 We read plaintiffs' complaint to assert their standing to challenge the adequacy of the procedures used by HUD and the LPA to change significantly the Plan of development for East Poplar. Plaintiffs initially alleged two procedural wrongs: first, that the Philadelphia City Council did not, and HUD had not required it to hold a public hearing on the question whether the allegedly significant change in the original Plan represented by Fairmount Manor should be approved; and second, that the Secretary of HUD (including his designate) refused to afford them a "procedural opportunity" as provided in Powelton Civic Home Owners Ass'n v. Department of Housing & Urban Dev., 284 F. Supp. 809 (E.D.Pa., 1968), to show why the Plan's amendment should not be approved.

 Their crucial allegation, as we viewed their complaint, was that, in effect, no adequate public hearing, as provided in § 105(d), 42 U.S.C.A. § 1455(d) (Supp.1969), was held on the allegedly significant change in the Plan, and that the change was accomplished in an unfair and unauthorized manner. Plaintiffs then brought suit challenging the Secretary's approval of Fairmount Manor and requesting this court to order HUD to hear them, relying on Powelton, supra.

 b. Standing

 In Powelton the court enjoined the disbursement or approval by federal authorities under the control of the Secretary of additional funds to an urban renewal project, in which condemnation proceedings were still incomplete, until the plaintiffs were given an opportunity to present to HUD evidence of the inadequacy of relocation facilities for the project's displacees. The defendants sought to distinguish Powelton by pointing out that the Powelton plaintiffs were given a procedural opportunity to vindicate a specific statutory right to be relocated in adequate housing, 42 U.S.C.A. § 1455(c)(2) (Supp.1969), while plaintiffs here seek to vindicate more general provisions of the Act. These provisions place upon the Secretary a duty to assist and encourage "* * * the development of well-planned, integrated residential neighborhoods, the development and redevelopment of communities * * *", 42 U.S.C.A. § 1441 (Supp.1969), and a duty to approve loan and grant contracts only when he determines that there exists a "workable program" providing "for the establishment and preservation of a well-planned community with well-organized residential neighborhoods of decent homes and suitable living environment for adequate family life." 42 U.S.C.A. § 1451(c) (Supp.1969).

 Defendants argued that the plaintiffs lacked standing to raise this issue because they did not possess the requisite directness of interest enjoyed by the plaintiffs in Powelton and the other relocation cases, since only those persons whose homes or property are taken for the project have any judicial standing. Since all such persons were removed from the tract in question by some time in 1962, no one, according to the defendants' argument, was left with standing to invoke the procedures contemplated by the Act.

 This proposition we cannot accept. *fn1" While it may be true that in some respects the impact of the renewal project is less direct upon the present plaintiffs, who were not required to move, than upon those displaced, it cannot be gainsaid that the future impact of this plan more directly affects them. In determining whether these plaintiffs have the requisite directness of interest, the likelihood that the plaintiffs' interests will be adequately protected by the persons directly affected is a relevant consideration. Joint Anti-Fascist Refugee Committee v. McGrath, 341 U.S. 123, 154, 71 S. Ct. 624, 95 L. Ed. 817 (1951) (Frankfurter, J., concurring); see, Pierce v. Society of the Sisters, 268 U.S. 510, 45 S. Ct. 571, 69 L. Ed. 1070 (1925). It is apparent to us that any amendment to the Plan made after buildings on the tract were demolished could not possibly be as vital a concern to those already displaced as it is to these plaintiffs. The action complained of here - the Plan's amendment after relocation was completed - could only affect directly the people living in areas contiguous to the project area. The present plaintiffs - residents, businessmen, and owners of property in the immediate vicinity of Fairmount Manor - are those persons whose "living environment," 42 U.S.C.A. § 1451(c)(1) (Supp.1969), is directly affected by the challenged amendment of the Plan and, as such, they are the logical parties, indeed, the only presently available ones, to challenge the alleged departure from the procedural process assertedly required under the Act.

 This view is buttressed by the plaintiffs' reliance on the alleged inadequacy of the public hearing held in March, 1968, to consider the approval of the present Fairmount Manor contract between the LPA and the developer and an amendment to the zoning ordinance applicable to Fairmount Manor. Plaintiffs argue that before the Plan could be significantly changed by any project, and before the Secretary or his designate could approve the change, they were entitled to be heard on such changes in the Plan as a matter of federal law.

 Section 105(d), 42 U.S.C.A. § 1455(d) (Supp.1969), provides that all contracts entered into between the local public agency and HUD for federal loans and grants

 
"shall require that - * * *
 
(d) No land for any project to be assisted under this subchapter shall be acquired by the local public agency except after public hearing following notice of the date, time, place, and purpose of such hearing."

 The legislative history of this section is illuminating. Section 105(d) was not contained in the initial version of the Housing Act reported out by the Senate Committee on Banking and Currency. It was an amendment proposed from the Senate floor by Senator Cain, who spoke the only reported words concerning this section.

 
"Public hearings on any community project are as American as they can be. I like to think that we would make more certain the public acceptance of the proposed legislation by writing into it the time-proven constructive American custom of a public hearing on a public question." 95 Cong.Rec. 4864 (1949).

 Immediately thereafter, Senator Cain's amendment was agreed to by the Senate in a form not essentially different from the section ultimately enacted by Congress. *fn2" This legislative attention evidences at the least what one might have expected: a Congressional purpose to subject to public discussion and criticism of, as well as participation in the local authority's decision to proceed with projects designed to receive federal funding. The requirements of section 105(d) have been supplemented by the Secretary in his Urban Renewal Handbook, RHA 7206. 1, chap. 3; these regulations ensure a well-publicized hearing at which all interested parties may be heard concerning the plan proposed by the LPA.

 The procedure of § 105(d) was followed as to the original plan, and as to that plaintiffs have no complaint. There is, however, no statutory provision governing the procedure to be followed should the original projects be changed after their submission to public scrutiny. As to any changes in the plan following the section 105(d) hearing, the Urban Renewal Handbook, id. at 1, says only that

 
"A proposed change in the project may require a new public hearing under the provisions of State or local law or the Contract for Loan and Grant. The LPA shall consult the Regional Office concerning the necessity for a new hearing."

 We think this provision of the regulations appropriately recognizes that Congress could not have intended that the LPA could gain public support for and agreement with a project, hold the required section 105(d) hearing, and thereafter change the Plan significantly and not be required to provide a meaningful hearing at which affected residents and property owners could challenge the local officials' decision. This is equally true when the land has been cleared and there are no people left for the LPA to relocate. Where a significant change in the Plan is proposed by the LPA or the developer, these plaintiffs would be entitled to the hearing contemplated by the Urban Renewal Handbook, a hearing devoted to the changes in the Plan. To hold otherwise would permit the local authorities to change the Plan either by revision of important aspects of one major project, or by the cumulative effect of several minor changes, without permitting the residents an opportunity as effective as they were initially entitled to if the projects had proceeded in the normal manner, the only eventuality contemplated by Congress.

  It may be said that these requirements for public hearing inure to the benefit of the public at large, and not to any group of individuals. However, the fact that all citizens of North Philadelphia and the City at large benefit from the urban renewal fostered by the Housing Act detracts from these plaintiffs' standing not one whit. The better reasoned decisions under the Housing Act have recognized the standing of representative individuals to seek vindication of procedural rights, Gart v. Cole, 263 F.2d 244, 250 (C.A.2), cert. denied, 359 U.S. 978, 79 S. Ct. 898, 3 L. Ed. 2d 929 (1959); Powelton, supra, 284 F. Supp. at 821; as well as constitutional rights, Norwalk Core v. Norwalk Redevelopment Agency, 395 F.2d 920 (C.A.2, 1968), and judicial review of the Secretary's determination that adequate relocation housing exists, Western Addition Community Organization v. Weaver, 294 F. Supp. 433, 441-445 (N.D.Cal., 1968).

 Our conclusions are reinforced by the decision in scenic Hudson Preservation Conference v. FPC, 354 F.2d 608 (C.A.2, 1965), cert. denied, Consolidated Edison Co. v. Scenic Hudson Preservation Conference, 384 U.S. 941, 86 S. Ct. 1462, 16 L. Ed. 2d 540 (1966). There, the Court interpreted section 313(b) of the Federal Power Act, 16 U.S.C.A. § 825 l (Supp.1969), which provides that

 
"[any] party to a proceeding under this chapter aggrieved by an order issued by the Commission in such proceeding may obtain a review of such order * * *."

 The Court held that the Act protected values in which the plaintiff conservationists had exhibited a special interest, namely, "the conservation of natural resources, the maintenance of natural beauty, and the preservation of historic sites," 354 F.2d at 614, and that in order to insure that the Federal Power Commission protected the public interest in those values, the plaintiffs must be held to be within the term "aggrieved." 354 F.2d at 616. For the reasons advanced in Powelton, supra, 284 F. Supp. at 827-828, and Road Review League v. Boyd, 270 F. Supp. 650, 660 (S.D.N.Y., 1967), we conclude that the term "aggrieved" contained in section 10(a) of the Administrative Procedure Act, 5 U.S.C.A. § 702 (Supp.1969), should be similarly construed. Common sense indicates that these plaintiffs, because they literally must live with the decision to change the Plan from sales units to rental, are the very persons who would have appeared at a public hearing to challenge the allegedly new use for land taken for a different purpose; they are therefore within section 10(a) and are entitled to challenge HUD's decision to permit Fairmount Manor and not require the LPA to hold a public hearing. We think it evident that these urban renewal area residents are sufficiently interested in the national goal of "well-planned integrated residential neighborhoods", 42 U.S.C.A. § 1441, and "well-organized residential neighborhoods of decent homes and suitable living environment for adequate family life," 42 U.S.C.A. § 1451(c), that they have standing to seek vindication of the values which the Housing Act seeks to further, and, because they are representatives of that class whose interests the procedural requirements of the Housing Act were designed to protect, it is clear that "no explicit statutory provision is necessary to confer standing" on them. Hardin v. Kentucky Utilities Co., 390 U.S. 1, 7, 88 S. Ct. 651, 655, 19 L. Ed. 2d 787 (1968); cf. Flast v. Cohen, 392 U.S. 83, 88 S. Ct. 1942, 20 L. Ed. 2d 947 (1968).

 While we decided that plaintiffs had standing to challenge the alleged departure from the procedures inferable from the congressional scheme, and accordingly denied the motion to dismiss, we were not certain that the rationale of Powelton applied to the determination made by HUD in this case. We made clear to counsel thereafter that our initial inquiry was whether any administrative remedy should be exhausted first. Subsequent proof concerning the issues involved in this case has confirmed our initial view that a procedural opportunity is not appropriate here. The parties' settlement of that issue has, to be sure, somewhat mooted the problem, but because plaintiffs now contend that HUD failed in several respects to fulfill its obligation to provide a procedural opporunity, we are obliged to elaborate the basis for our decision. For the moment we will merely note that question, returning to it after it has been placed in better perspective.

 II.

 THE PRESENT MOTION TO DISMISS

 Plaintiffs have adduced evidence to prove each of the following contentions: (1) HUD's original approval of Fairmount Manor was illegal and improper because (a) Fairmount Manor is contrary to the Plan, (b) its approval violated the Housing Act; and (c) approval was given without any "citizen participation" in the decision to build Fairmount Manor. Plaintiffs attack HUD's continued approval of the project on two additional grounds: (1) the project is illegal under the Civil Rights Acts of 1964 and 1968, and the Constitution, and (2) the administrative process followed by HUD was inadequate throughout. After plaintiffs rested their case, the defendants moved to dismiss under F.R.Civ.P. 41(b). For the reasons which follow, we have decided to grant that motion.

 Taking the first group of arguments first, our initial inquiry is whether we are empowered to conduct judicial review of the Secretary's decisions under the Housing Act. The first issue which on this record can fairly be said to raise the question of reviewability is the Secretary's decision that Fairmount Manor was not a major change in the plan, and did not require a public hearing. The other issues are simply issues which the court is competent, and indeed, empowered to decide. Administrative Procedure Act, 5 U.S.C.A. §§ 706(2)(B), 706(2)(C) (Supp.1969).

 The reviewability of the Secretary's determination that adequate relocation facilities exist under 42 U.S.C.A. § 1455(c)(1), (2) is established. See Western Community Addition Organization v. Weaver, 294 F. Supp. 433, 441-443 (N.D.Calif., 1968), and cases there cited. The issue before us is strikingly similar, although the determination is one made pursuant to inter-Department "regulation" and not statute. Here, the Secretary's designate, the Regional Administrator, has established a "red line" procedure, implemented to avoid holding a public hearing for every change in the original Plan, no matter how trivial. The Regional Administrator, Mr. Phelan, stated that HUD's experience with holding a public hearing for every change in the Plan had proven to be counter-productive:

 
"[We] found that this kind of procedure repeated over and over again for the disposition or change of any parcel in any one of the five or six hundred projects we were dealing with, every time you went to move not only to change the inside development of a block or two, make adjustments that you find necessary as you proceed along the execution, timing and activities, whether you need to sometimes change street patterns or close a street or open a street or provide for public uses that hadn't originally been conceived of, we find we are making - consuming too much time and so we developed a technique of taking what we considered to be on the relatively insignificant, the minor changes, and handled them by what we call the red line procedure * * *." N.T. 1125. See also, N.T. 1065.

 The red line procedure was promulgated by a HUD memorandum from the Regional Office dated December 29, 1966. P. Ex. 68. Basically, the memorandum sets out a procedure which calls to the Regional Office's attention when the LPA considers a proposed change to be of a minor nature, and describes what a red line submission should be - "simple, dealing with one or perhaps two items * * * should not be a collection of random problems all running together in a confusing package" - and should not be - "should not contemplate grant increases, changes in project boundaries, or changes to the category of project capability." P. Ex. 68, p. 1. The memo also sets out the standards which the agency will use to determine whether a proposed change will require a public hearing.

 
"Since all red pencil changes are changes to the renewal plan, they must be reviewed by the Planning Branch. Here is where the Regional Office determines:
 
(1) whether the change constitutes a material alteration in a basic ...

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