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DAVIS v. ROMNEY

February 13, 1973

Rubylee DAVIS et al., Plaintiffs,
v.
George W. ROMNEY, individually and in his capacity as Secretary of Housing and Urban Development, et al., Defendants


John Morgan Davis, District Judge.


The opinion of the court was delivered by: DAVIS

Presently before this Court are two motions, defendant's Motion to Dismiss filed pursuant to Rule 12(b) Fed.R.Civ.P. and plaintiff's Motion for Partial Summary Judgment filed pursuant to Rule 56 Fed.R.Civ.P.

 In their Complaint, plaintiffs seek injunctive and declaratory relief to compel the defendants to insure only those mortgages under § 235 and § 221(d)(2) which are secured by properties which comply with the Philadelphia Housing Code. Further plaintiffs seek damages and injunctive relief to redress the violation of rights secured by these sections and the appointment of a master pursuant to Rule 53 Fed.R.Civ.P. to adjudicate the amount of damages in each individual case. Jurisdiction is alleged under 28 U.S.C. § 1361 (action in the nature of mandamus against federal officials), under 5 U.S.C. §§ 702-4 (action for judicial review of federal agency decisions), under 28 U.S.C. § 1337 (action arising under statutes regulating commerce), under 28 U.S.C. §§ 2201-2 (action for declaratory relief), and under 28 U.S.C. § 1346(a)(2) (action for certain claims against the government, commonly called the Tucker Act).

 By their Motion to Dismiss, Defendants contend (1) that this Court does not have jurisdiction to order injunctive or declaratory relief or to grant the right to relief under the Tucker Act, and (2) that plaintiffs have failed to exercise their administrative remedies under 12 U.S.C. § 1735b(b), § 518(b) of the National Housing Act, rendering this Court without jurisdiction to hear plaintiff's claims for monetary damages at this time.

 By their Motion for Partial Summary Judgment plaintiffs seek (1) a declaratory judgment that the 235 and 221(d)(2) Existing House Programs require properties to be in compliance with local housing and other codes as a condition for insuring the mortgage, (2) a writ in the nature of Mandamus and a permanent injunction requiring the individual defendants to insure only those mortgages under the 235 and 221(d)(2) Existing House Programs which are secured by properties which comply with the Philadelphia Housing Code, and (3) the right to damages from defendant United States in an amount which will enable them to correct all Philadelphia Housing Code violations existing at the time of the mortgage insurance commitment.

 The Complaint before this Court arises from those provisions of § 235 and § 221(d)(2) which are designed to assist members of the lower economic strata of our society in the purchase of rehabilitated existing houses. Other provisions of these sections permit low income families to purchase new homes or memberships in cooperatives. These two sections were amendments to the National Housing Act, § 235 being enacted in 1968, 12 U.S.C. § 1715z(i)(2), and § 221(d)(2) being enacted in 1961, 12 U.S.C. § 1715(l)(d)(2).

 Two qualifications must be met by a family in order to obtain a house under the 235 Existing House Program (1) It must have an income not exceeding 135 percent of the income of the same size family eligible to move into local public housing, and (2) it must have an acceptable credit rating. If determined to be eligible and F.H.A. funds are available, the family can receive a mortgage not exceeding $18,000-$20,000, depending upon its size and other special circumstances. The family must make a minimum down payment of $200.00 on the house and pay a mortgage insurance premium not to exceed 1/2%.

 The family can also receive a mortgage subsidy which may reduce the interest charges on the mortgage to 1%. The responsibility for administration of this program is delegated to the Commissioner of the Federal Housing Authority by the Secretary of Housing and Urban Development.

 To obtain an F.H.A. insured mortgage under § 221(d)(2) or § 235 of the National Housing Act an application must be made to the Philadelphia Office of the F.H.A. When this initial contact is made, the Philadelphia Office sends out an appraiser, either a member of the staff or a "fee appraiser", an individual employed on a part time basis and paid a flat rate per appraisal, who estimates the value of the property. After the appraisal, the Philadelphia Office will issue a "conditional commitment", a statement which indicates the F.H.A.'s estimate of the value of the property and sets the maximum amount of loan it will issue for an acceptable purchaser. If the appraiser notices serious defects he may add on the conditional commitment a list of repairs which must be made as a condition for obtaining mortgage insurance. He may also require, if necessary, certificates as to lack of termites and the adequacy of heating, plumbing, electrical systems, and the roof. Upon determination that the purchaser is eligible and the F.H.A. has available funds, a firm commitment to insure the mortgage on the property is issued. At closing, or just before, the certifications are transmitted to the mortgagee and sent to the Philadelphia Office with other closing documents. On the basis of these documents, the F.H.A. insures the mortgage on the property.

 The allegations made in the Complaint as to plaintiffs' common home buying experience can be summarized as follows. Plaintiffs are inexperienced home buyers, none of whom has ever owned a home previously. They are desperate for safe and adequate housing due to the lack of decent housing in Philadelphia. Attracted by the promise of the 235 and 221(d)(2) Existing House Programs, with their liberal credit arrangements, they consult with real estate brokers who often use the term "F.H.A. approved" or the expression "the Federal Government will stand by it", to create interest in a particular house. After their interest is thus aroused, they are shown houses which are substandard as defined by the Philadelphia Housing Code. Since the inspections are often cursory and conducted by brokers using a hard sell technique, they do not easily or often reveal defects to the inexperienced purchaser. Some defects are latent, and some impossible for the purchaser to detect because they involved utilities which had been shut off. Such defects as are discovered are often explained away or represented by the real estate agent as repairs which the F.H.A. will require the seller to make or which the seller plans to make before he moves. Sometimes the real estate agents manage to prevent the purchaser from seeing all or part of the house before settlement. At closing the purchaser, usually not represented by an attorney, is told that the house is "F.H.A. approved." Only when he finally moves in does the purchaser realize that ignorance, need, and insidious business tactics have combined to place him in a house that does not meet his aspirations or his expectations.

 The result is that plaintiffs find themselves in houses with local housing and other code violations ranging from minor violations to major structural, heating, electrical, plumbing and health violations which render them unfit for human habitation and dangerous to the health and safety of the occupants. The responsibility for these conditions they attribute to the practices and procedures of the Philadelphia Office of the F.H.A. Primarily they challenge defendants' use of Chapter IV of the F.H.A. Minimum Property Standards, "General Acceptability Criteria" (F.H.A. No. 300) and the stated objectives contained in that publication to determine eligibility for an insured mortgage rather than local housing codes. In line with this plaintiffs contend (1) that the F.H.A. staff and fee appraisers are not trained or sufficiently knowledgeable to be able to determine whether a property meets local housing and other code standards or even whether it meets the standards the F.H.A. has established; (2) that the F.H.A. and fee appraisers often overlook obvious defects; (3) that the actual practices and policies of the Philadelphia Office of the F.H.A., its staff and fee appraisers are so vague, incomplete and inconsistent as to render almost impossible F.H.A.'s following the standards for eligibility which it has adopted; and (4) that the Philadelphia Office of the F.H.A. has been aware that the F.H.A. is insuring substandard housing but instead of trying to rectify the situation has attempted to cover up their administration of the 235 and 221(d)(2) Existing House Programs.

 We shall first consider the injunctive and declaratory relief aspects of the Motion for Partial Summary Judgment initially weighing the jurisdictional issues defendants have raised in their Motion to Dismiss. We shall then take up the damages aspect of the case again weighing first the jurisdictional question.

 I. DECLARATORY AND INJUNCTIVE RELIEF

 A. STANDING.

 Although the issue of standing has not been raised directly by the defendants, it serves as the central theme of their arguments to dismiss plaintiffs' prayer for declarative and injunctive relief. It is incumbent, therefore, upon this Court to consider plaintiff's "standing" before delving into the specific jurisdictional challenges raised by the defendants. The Supreme Court has held that two elements are necessary to sustain "standing" in any particular case. Flast v. Cohen, 392 U.S. 83, 88 S. Ct. 1942, 20 L. Ed. 2d 947 (1968); Association of Data Processing Service Organizations, Inc. et al. v. Camp, 397 U.S. 150, 90 S. Ct. 827, 25 L. Ed. 2d 184 (1970) and Barlow v. Collins, 397 U.S. 159, 90 S. Ct. 832, 25 L. Ed. 2d 192 (1970).

 The first element is derived from Article III of the Constitution which restricts the exercise of Judicial power to "cases" and "controversies." Simply stated, the plaintiff must allege that he has suffered a wrong, economic or otherwise, which will give him "some personal stake in the outcome of the litigation." Norwalk Core v. Norwalk Redevelopment Authority, 395 F.2d 920, 927 (1st Cir. 1968). In Association of Data Processing, 397 U.S. 150, at 151-152, 90 S. Ct. 827, at 829, 25 L. Ed. 2d 184 the Court approved a statement made earlier in Flast v. Cohen, supra :

 
"In terms of Article III limitations on federal court jurisdiction, the question of standing is related only to whether the dispute sought to be adjudicated will be presented in an adversary context and in a form historically viewed as capable of judicial resolution."

 Similarly, the Court in Flast, by quoting from an earlier Opinion reiterated that:

 
The "gist of the question of standing" is whether the party seeking relief has "alleged such a personal stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of issues upon which the court so largely depends for illumination of difficult constitutional questions." Baker v. Carr, 369 U.S. 186, 204, [82 S. Ct. 691, 7 L. Ed. 2d 663] (1962).

 392 U.S. at p. 99, 88 S. Ct. at p. 1952. Standing does not contemplate what a plaintiff's legally protected interests may be on the merits or whether the controversy is otherwise justiciable but only "whether the person whose standing is challenged is a proper party to request an adjudication of a particular issue." Flast v. Cohen, supra, 392 U.S. at 99-100, 88 S. Ct. at 1952.

 The United States Court of Appeals for the Third Circuit has devised the "injury in fact" test for determining whether a particular plaintiff's Complaint confirms with the dictates of Article III. In Shannon v. HUD, 436 F.2d 809 (3rd Cir. 1970), the Court granted standing to plaintiffs, who were residents, businessmen, and representatives of civic groups challenging the approval of a housing project site on the grounds that HUD did not, and had no means by which to, consider its effects on community racial concentration. The Court in rejecting defendants' argument that plaintiffs' interest was too remote, held:

 
The defendants point out that the instant plaintiffs are neither displaced residents nor potential occupants and that the HUD action which they challenge was not taken under the Model Cities statute. Such persons, they say, have too remote an interest to confer standing on them to challenge these administrative actions. We do not agree. Certainly, the dispute which they seek to have adjudicated will be presented in an adversary context. Flast v. Cohen, 392 U.S. 83, 101, 88 S. Ct. 1942, 20 L. Ed. 2d 947 (1968). The test, for Article III purposes, is whether or not plaintiffs allege injury in fact. They do indeed. They allege that the concentration of lower income black residents in a 221(d)(3) rent supplement project in their neighborhood will adversely affect not only their investments in homes and businesses, but even the very quality of their daily lives.

 [ 436 F.2d 809, 818]

 In the Complaint before this Court, the plaintiffs have alleged "injury in fact." They complain that defendants' actions have caused them to purchase and live in inadequate and substandard houses, which now require substantial repairs not only to bring them into conformity with the local housing codes but also to render them healthy and safe places in which to live. The necessary repairs will cost money, the lack of which is the prerequisite to being eligible for the 221(d)(2) and 235 programs in the first place. Plaintiffs also complain of injuries of a noneconomic nature. The dream of the pride and dignity that would inure from home ownership has been shattered and destroyed; in its place has been substituted the nightmare of the two options open to them: live in the homes as they are, or move and lose the investment already made. It is clear to this Court that the plaintiffs have presented in their Complaint the requisite "personal stake in the outcome" of the suit to satisfy Article III. Baker v. Carr, supra, 369 U.S. at 204, 82 S. Ct. 691 (1962).

 The second element that must be present to achieve standing concerns the question "whether the interest sought to be protected by the complainant is arguably within the zone of interests to be protected or regulated by the statute or constitutional guarantee in question." Data Processing, supra, 397 U.S. at 153, 90 S. Ct. at 830. This "zone of interest" test was designed to replace the "legal right" test which the Court recently held to go to the merits of the case rather than to the preliminary issue of standing. Id., at 153, 90 S. Ct. 827. The old test was quite strict, denying standing to any plaintiff "unless the right invaded [was] a legal right, one of property, one arising out of contract, one protected against tortious invasion, or one founded on a statute which confers a privilege." Tennessee Power Co. v. T.V.A., 306 U.S. 118, 137, 59 S. Ct. 366, 369, 83 L. Ed. 543. Under the "zone of interest" test, any interest which a statute may contemplate, be it economic or otherwise, can serve as a basis for standing to seek the protection of that statute. "'Aesthetic, conservational, and recreational,' as well as economic" are among the diverse values which may be encompassed within the "zone of interest." Scenic Hudson Preservation Conference v. F.P.C., 354 F.2d 608, 616 (2 Cir. 1965), cert. denied Consolidated Edison Co. v. Scenic Hudson Preservation Conference, 384 U.S. 941, 86 S. Ct. 1462, 16 L. Ed. 2d 540 (1965). See also Office of Communication of United Church of Christ v. F.C.C., 123 U.S.App.D.C. 328, 359 F.2d 994 (1966); Data Processing, supra. Even spiritual values have been deemed sufficient to give standing to raise issues touching upon the Establishment Clause and the Free Exercise Clause. Abington School District v. Schempp, 374 U.S. 203, 83 S. Ct. 1560, 10 L. Ed. 2d 844 (1962). What must be found in any action is simply a "nexus" between the status of the plaintiff and the "precise nature" of the statutory infringement alleged. Flast v. Cohen, supra, 392 U.S. at p. 102, 88 S. Ct. 1942, 20 L. Ed. 2d 947. In Western Addition Community Organization v. Weaver, D.C., 294 F. Supp. 433, 443 (1969), vacated for other reasons, D.C., 320 F. Supp. 308 (1968), the Court noted:

 
In the recent case of Hardin v. Kentucky Utilities Co., 390 U.S. 1, 5-7, 88 S. Ct. 651, 19 L. Ed. 2d 787 (1968) the Supreme Court, dealing with the Tennessee Valley Authority Act, has made clear that, when a statute clearly reflects a Congressional purpose to protect the interests of a particular class, persons within that class have standing to require compliance with the statute.

 Whether or not a particular group was intended to be the primary beneficiaries of a statute is of no moment to the question of whether they fall within the "zone of interest". As the Circuit Court of the District of Columbia stated in Peoples v. United States Department of Agriculture, 138 U.S.App.D.C. 291, 427 F.2d 561, 563-564 (1970):

 
Recent Supreme Court precedents, and underlying principles . . . establish a presumptive standing . . which permits a complaint, alleging that executive programs unlawfully deviate from statutory requirements, to be filed by those who were intended beneficiaries of the statutory provisions, even though they are not the primary beneficiaries of the statute.
 
* * *
 
The principles of standing discussed above establish the standing of poor people to complain of illegal departures by the Secretary from the Congressional Plan, since they are an intended beneficiary of Congress, and this principle is neither undercut by the fact that the farmers were also beneficiaries, nor dependent on some process of appraisal to determine whether the poor people weighed heavier in the scales than the farmers, or which should be labeled the "primary" beneficiaries.

 See also Flast v. Cohen, supra.

 The Courts have recognized the interest of various groups when the issue of Urban renewal and housing is concerned. As we have noted above, the Third Circuit Court of Appeals in Shannon v. HUD, supra held that plaintiffs, who were residents, businessmen, and representatives of civic groups, had the right to challenge the procedures surrounding the adoption of an urban renewal project. The court stated 436 F.2d at 818:

 
The plaintiffs here, perhaps more than the displaced and relocated former residents or the potential occupants of new housing, are vitally affected by the adequacy of the particular program of community improvement for the preservation of a residential community with decent homes and a suitable living environment which they seek to challenge.

 See also Northwest Residents Association v. Department of Housing and Urban Development, 325 F. Supp. 65 (E.D.Wisc.1971). Residents, of urban renewal areas have been granted standing to challenge the adequacy of provisions adopted under the Housing Act of 1949 for relocation of displaced persons upon Court findings that it was intended for their benefit. Powelton Civic Home Owners Association v. Department of Housing and Urban Development, D.C., 284 F. Supp. 809; Norwalk CORE v. Norwalk Redevelopment Authority, 395 F.2d 920 (2nd Cir. 1968); Western Addition Community Organization v. Weaver, supra.

 Turning to the National Housing Act of which § 235 and § 221(d)(2) are but a part we note that it contains the following declaration of policy:

 
The Congress affirms the national goal, as set forth in section 1441 of Title 42, of "a decent home and a suitable living environment for every American family."
 
The Congress finds that this goal has not been fully realized for many of the Nation's lower income families; that this is a matter of grave national concern; and that there exist in the public and private sectors of the economy the resources and capabilities necessary to the full realization of this goal.
 
The Congress declares that in the administration of those housing programs authorized by this Act which are designed to assist families with incomes so low that they could not otherwise decently house themselves, and of other Government programs designed to assist in the provision of housing for such families, the highest priority and emphasis should be given to meeting the housing needs of those families for which the national goal has not become a reality; and in the carrying out of such programs there should be the fullest practicable utilization of the resources and capabilities of private enterprise and of individual self-help techniques.

 [ 12 U.S.C. § 1701t]

 This declaration demonstrates Congress' intention to include persons such as the plaintiffs amongst the beneficiaries of the National Housing Act and to place them within the groups whose interests it protects. From the wording of the National Housing Act and from the wide variety of interests that the Courts now recognize, we find that the plaintiffs in the case at bar are within the "zone of interests" sought to be protected by it. Plaintiffs are the ones who have primary interest in their housing needs, which is the whole purpose of Act, to provide them with safe adequate housing at a price which is within their limited means. No other group, but the plaintiffs, surely not the real estate brokers or the mortgagees or the contractors, can be considered so concerned about seeing the mandate of Congress as expressed in the National Housing Act is carried forth and ...


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