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PEOPLE'S RIGHTS ORG. v. BETHLEHEM ASSOCS.

March 23, 1973

PEOPLE'S RIGHTS ORGANIZATION, an unincorporated association, et al.
v.
BETHLEHEM ASSOCIATES et al.


Troutman, District Judge.


The opinion of the court was delivered by: TROUTMAN

TROUTMAN, District Judge.

 The individual plaintiffs in this action are tenants of Bethlehem Townhouse Apartments, which are owned by defendant, Bethlehem Associates. People's Rights Organization is an unincorporated association of the tenants of the Bethlehem Townhouse Apartments. The apartments were financed under mortgages insured by defendant, Federal Housing Authority [FHA] pursuant to Section 236 of the National Housing Act, 12 U.S.C. § 1715z-1 and continue to receive subsidies under the Act.

 On September 12, 1972, defendant Bethlehem Associates applied to defendant Department of Housing and Urban Development [HUD] for permission to increase the rent for their apartments. HUD approved the increase in basic rental charges in October of 1972, and these increases were implemented upon the expiration of the current leases. Neither HUD nor Bethlehem Associates afforded the tenants notice of the application or an opportunity to present their objections prior to its approval. Plaintiffs allege that the rental increase will create an unbearable hardship on them and may force them to vacate their apartments.

 Plaintiffs have filed this action, seeking injunctive relief, compelling rescission of the HUD approval of the rental increase and compelling defendants to grant plaintiffs a full and fair hearing prior to the approval of any application for rent increases. In addition, plaintiffs seek damages in the amount of the increased rent collected and a judgment declaring that defendants' actions violated the National Housing Act, 12 U.S.C. § 1701 et seq. and the regulations promulgated thereunder, the Administrative Procedure Act, and the Due Process Clause of the Fifth Amendment. Jurisdiction is predicated on the Fifth Amendment, 12 U.S.C. § 1701 et seq., 28 U.S.C. § 1331, 5 U.S.C. § 701, and 28 U.S.C. § 1361. Before the Court are defendants' motions to dismiss the complaint for lack of jurisdiction and for failure to state a claim upon which relief can be granted.

 I. Section 236

 To administer this program, the statute confers a broad discretion on the Secretary of HUD and provides in pertinent part:

 
"(e) As a condition for receiving the benefits of interest reduction payments, the project owner shall operate the project in accordance with such requirements with respect to tenant eligibility and rents as the Secretary may prescribe. Procedures shall be adopted by the Secretary for review of tenant incomes at intervals of two years (or at shorter intervals where the Secretary deems it desirable)." 12 U.S.C. § 1715z-1(e).
 
* * *
 
"(h) In addition to establishing the requirement specified in subsection (e) of this section, the Secretary is authorized to make such rules and regulations, to enter into such agreements, and to adopt such procedures as he may deem necessary or desirable to carry out the provisions of this section."

 The FHA has promulgated regulations for the implementation of the Section 236 program, 24 C.F.R. § 236.1 et seq., and such regulations provide that the Commissioner may regulate the mortgagor throughout the life of the mortgage through a regulatory agreement or such other means as the Commissioner approves. 24 C.F.R. § 236.1; 24 C.F.R. § 221.529. The applicable standards for rental charges are set forth in 24 C.F.R. § 236.55. Pursuant to these regulations, Bethlehem Associates and the FHA entered into a regulatory agreement which provides as follows:

 
"4. The Owners covenant and agree that:
 
(a) With the prior approval of the Commissioner, they will establish for each dwelling unit (1) the basic rental charge determined on the basis of operating the project with payments of principal and interest under a mortgage bearing interest at one per cent and (2) a fair market rental charge determined on the basis of operating the project with payments of ...

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