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ROUSSEAU v. CITY OF PHILADELPHIA

March 6, 1984

A. DANIELLE ROUSSEAU
v.
CITY OF PHILADELPHIA



The opinion of the court was delivered by: VANARTSDALEN

 VanARTSDALEN, J.

 Plaintiff has asserted a number of state and federal claims that essentially seek to hold the City of Philadelphia (the City) *fn1" responsible for inadequate and unworkmanlike construction by a private contractor who sought to rehabilitate plaintiff's property utilizing funds provided through a federal loan program. Beginning in 1977, plaintiff undertook the rehabilitation effort in question with the assistance of low interest loan funds made available by the Department of Housing and Urban Development (HUD) under the Section 312 loan program, 42 U.S.C. § 1452b. *fn2" Although a private contractor performed the rehabilitation work on plaintiff's property, plaintiff seeks to impose liability on the City, which acted as the local public agency responsible for administering the Section 312 program.

 Plaintiff takes issue with several aspects of the City's administration and processing of her rehabilitation loan. In particular, plaintiff contends that the City restricted the amount of available loan funds by improperly treating her property as containing only two dwelling units, approved an unqualified and inexperienced contractor to perform the work, wrote insufficient work specifications, and approved the inadequate work performed by the contractor. In addition, plaintiff avers that once the workmanship problems came to light, the City failed to assist her in her disputes with the contractor, and failed to release emergency funds from its escrow account to permit plaintiff to hire another contractor to complete the work. Plaintiff contends that these actions and omissions on the part of the City caused damage to her property. She further contends that long delays in the completion of the rehabilitation project have cost her significant amounts of money above the loaned amount, and have prevented her from using and enjoying her property.

 Count I of Plaintiff's complaint claims that the City's actions and omissions violated the City's federal statutory obligations under the Section 312 loan program. Count II presents a constitutional claim under 42 U.S.C. § 1983, alleging that the City caused plaintiff's property to be taken without just compensation and that the City acted in an arbitrary and capricious manner in violation of the fifth and fourteenth amendments. Counts III through VII assert various state claims, including common law negligence, gross negligence, intentional infliction of emotional distress, intentional denial of the use and enjoyment of property, and violation of fiduciary duties.

 The City now moves for summary judgment on all of plaintiff's claims. The City's motion relies on several grounds, many of which potentially are dispositive or partially dispositive of this action. *fn3" Because I find that a private right of action is not maintainable for the claimed federal statutory violations, and that the City has not caused an unconstitutional taking of plaintiff's property; summary judgment will be granted in favor of the City on Counts I and II. In light of this holding on plaintiff's federal claims, I will decline to exercise pendent jurisdiction over plaintiff's state law claims. Counts III through VII, therefore, will be dismissed for lack of federal subject matter jurisdiction, subject to the rights plaintiff may have under 42 Pa. Cons. Stat. Ann. § 5103(b)(1) to transfer such state causes of action to state court.

 I. Factual Background

 During 1978, OHCD prepared written specifications for the rehabilitation of plaintiff's property. In April, 1978, OHCD advertised for bids from eligible contractors. The lowest bidder, Anthony DeCicci, submitted a bid of $57,625 to complete the specified work. OHCD approved DeCicci, but he was unable to proceed with construction at that time because the supply of Section 312 funds available in fiscal year 1978 had been exhausted. In October, 1978, Section 312 funds again became available and HUD approved a $58,000 loan for the plaintiff in order to meet the cost of rehabilitation under the DeCicci bid. HUD then cancelled the original loan reservation of $20,000. The approved loan funds were placed in an escrow account held on behalf of the plaintiff by the City. OHCD then notified plaintiff that construction could proceed. Contractor DeCicci, however, refused to start construction because inflation during the intervening months had increased construction costs beyond the amount contemplated by his bid, and because he had undertaken other work.

 Plaintiff experienced difficulty in obtaining another contractor willing to bid on her rehabilitation project, apparently because of problems associated with the City's administration of the Section 312 program. Eventually, a contractor named Al Masino submitted his qualifications to OHCD for review, and was approved. Masino submitted a bid in the amount of $70,867, which exceeded the approved loan amount of $58,000. OHCD informed plaintiff that she was not eligible for any further increase in her Section 312 loan above the $58,000, because that amount represented the maximum she could obtain for a property having two dwelling units. Plaintiff, however, previously had obtained the zoning necessary for three dwelling units and had specified three dwelling units on her Section 312 loan application. As a result of the differential between the cost of the Masino bid and the amount of the approved loan, several work items were removed from the written specifications and plaintiff was required to undertake these items with her own financing if the project was to proceed. Masino then revised his bid by deleting items, whereby the total bid would correspond to the amount of the approved Section 312 loan funds. Plaintiff and Masino executed a contract in the amount of $57,625. The remaining work that had been deleted from Masino's bid was to be completed under a second contract with financing to be obtained privately by plaintiff separate from the Section 312 program.

 In May, 1979, plaintiff signed a "proceed order" authorizing Masino to begin work. After waiting for certain permits to be issued by the Department of Licenses and Inspections, Masino employed a very inexperienced construction staff, and his own experience was limited. The largest construction project Masino had undertaken prior to bidding on plaintiff's project was for a contract price of about $15,000.

 Masino and his employees performed much of the rehabilitation work in an unworkmanlike manner, leaving areas of plaintiff's property in violation of City housing codes. In particular, most of the windows were installed incorrectly, leaving gaps that permitted rain and the elements to enter plaintiff's property. Most of the electrical work was done in violation of electrical codes. Plumbing work was done improperly and was cited for violation by the Department of Licenses and Inspections. Insulation work also was installed improperly. During the course of construction, Masino and his crew failed to secure the property, thereby causing substantial damage to plaintiff's furniture and property. Although OHCD inspected the work on plaintiff's property during its construction, none of OHCD's inspectors offered any comments concerning the inadequate and unworkmanlike performance.

 Masino was not financially secure and needed to obtain a loan from the Philadelphia Citywide Development Corporation (PCDC) to advance funds for the performance of the rehabilitation work on plaintiff's property. Masino's lack of funds required plaintiff to make the initial interest payment on Masino's loan with PCDC. Masino also was unable to meet several payrolls, and this failure required plaintiff to advance Masino further loans. Masino encountered cost overruns and refused to provide plaintiff with documentation of his claimed costs. As a result of Masino's defective and unworkmanlike performance and his cost overruns, plaintiff instructed Masino to stop work on the project as of September 25, 1979. Thereafter, despite several meetings, no compromise among the parties could be reached. Masino filed for arbitration, and plaintiff counterclaimed. Following a hearing, plaintiff was awarded a judgment in arbitration of approximately $18,500. Masino unsuccessfully appealed, and then filed for bankruptcy before plaintiff could collect her judgment.

 During her dispute with Masino, plaintiff had requested that OHCD permit her to use the funds remaining in her Section 312 escrow account in order to finance emergency rehabilitation work. The City, however, refused her request. Finally, in 1980, HUD approved a new loan for plaintiff under the Section 312 program in the amount of $81,000 to replace the $58,000 loan. HUD also provided plaintiff with a grant in the amount of $11,000. The total cost of rehabilitation, however, still exceeded the available funds. Plaintiff undertook additional rehabilitation work on her property from the fall of 1980 through the spring of 1981, but a substantial amount of rehabilitation work remains to be completed to rehabilitate the property as contemplated when the Section 312 loan was originally approved. Plaintiff does not have an operational kitchen, her electrical work is incomplete, and many other items of the original 1978 written specifications have yet to be completed. During the winter months, plaintiff has been able to use only one or two rooms of her property. In addition, inflation in the construction industry has further increased the total cost of construction. Contractors have estimated that the cost to complete the rehabilitation work is between $71,000 and $100,000. Plaintiff has been required to obtain additional financing at conventional rates. She has suffered the loss of rental income on the two contemplated rental units on her property, and has suffered emotional harm from her ordeal.

 Although plaintiff's version of the facts, which must be taken as true, is quite compelling, the critical question for purposes of the present motion is whether such facts justify the relief sought under federal law. Before turning to the specifics of plaintiff's federal statutory and constitutional claims, however, a brief description of the Section 312 program is in order.

 II. The Section 312 Loan Program

 The statutory authority for the Section 312 rehabilitation loan program appears in 42 U.S.C. § 1452b. This statute identifies the considerations relevant in determining eligibility for rehabilitation loans, § 1452b(a); specifies certain terms and conditions to be included in such loans, § 1452b(c); and authorizes the appropriation of funds to the Secretary of HUD, § 1452b(d). The relevant eligibility considerations look to the location and condition of the property to be rehabilitated and the financial condition of the prospective applicant. § 1452b(a). The specified terms and conditions set the maximum interest rate, term and amount allowable for each rehabilitation loan. § 1452b(c).


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