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).
In addition, the statute vests HUD with the authority to delegate its functions and duties to local public or private agencies, § 1452b(f), and with the power to issue rules and regulations and to impose requirements and conditions upon loans awarded under the program, § 1452b(g). Accordingly, HUD entered into an agreement with the City that designated OHCD as the local public agency responsible for administering the Section 312 loan program for the Philadelphia area. See Agreement for City of Philadelphia Section 312 Rehabilitation Loans (June 21, 1977). This agreement gives the City the final authority to approve applications for Section 312 loans in connection with property containing up to four dwelling units. Id. at paragraph 2. Such approval, however, is subject to HUD's verification that sufficient loan funds are available. Id. The agreement also specifies that the City's authority to approve Section 312 loans is to be exercised in accordance with the procedures and requirements established by HUD. Id. at paragraph 4.
One source of HUD procedures and requirements for local public agencies is a document entitled Rehabilitation Financing Handbook, 7375.1 Rev. (1974) (the Handbook). The Handbook, issued by HUD, outlines in detail the administrative functions of the local public agency. In particular, the Handbook directs that the local public agency inspect the prospective recipient's property, determine the work to be done, and calculate the amount of loan funds necessary to complete the contemplated work. After HUD verifies and reserves the necessary loan funds, the Handbook directs the local public agency to prepare work specifications and to assist the recipient in obtaining bids from private contractors, selecting an acceptable contractor, preparing the contract documents, and executing a contract with the lowest approved bidder. During performance of the rehabilitation work, the Handbook directs the local public agency to maintain the recipient's loan funds in an escrow account, inspect the work performed, and release the loan funds for payment.
The Section 312 loan program thus generally establishes HUD as the source of financing, delegates administrative duties to local agencies, and leaves the actual rehabilitation work to be performed by the recipient or a private contractor. In the present action, plaintiff seeks to hold the City responsible for the private contractor's unsatisfactory performance, because of the City's failure to carry out properly the administrative functions specified in the Handbook.
A. Plaintiff's Federal Statutory Claim
Plaintiff presents three theories to support her federal statutory claim against the City in Count I: (1) a private right of action expressed in 42 U.S.C. § 1452b(e), (2) a private right of action implied in the Section 312 loan program, and (3) a private right of action under 42 U.S.C. § 1983. The City contends that this court lacks subject matter jurisdiction over plaintiff's statutory claim because no private right of action exists under any of these theories. Although the City is correct in contending that a private right of action is not maintainable, this assertion goes to the merits of the case, (i.e., whether the plaintiff has asserted a cause of action), and not to this court's jurisdiction.
Generally, if the plaintiff raises a "substantial" claim under federal law, federal jurisdiction is proper and the court must address the merits of the claim. The Fair v. Kohler Die & Specialty Co., 228 U.S. 22, 25, 57 L. Ed. 716, 33 S. Ct. 410 (1913). A federal court does not lose its subject matter jurisdiction because it ultimately decides against the plaintiff on the merits of the federal claim, unless the claim of a federal right is "so insubstantial, implausible, foreclosed by prior decisions of this Court, or otherwise completely devoid of merit as not to involve a federal controversy. . . ." Oneida Indian Nation v. County of Oneida, 414 U.S. 661, 666, 39 L. Ed. 2d 73, 94 S. Ct. 772 (1974). See Duke Power Co. v. Carolina Environmental Study Group, 438 U.S. 59, 70-71, 57 L. Ed. 2d 595, 98 S. Ct. 2620 (1978); Hagans v. Lavine, 415 U.S. 528, 542-43, 39 L. Ed. 2d 577, 94 S. Ct. 1372 (1974); Bell v. Hood, 327 U.S. 678, 683, 90 L. Ed. 939, 66 S. Ct. 773 (1946). This principle extends to the claim of an implied right of action under federal law. See Bivens v. Six Unknown Named Agents, 403 U.S. 388, 29 L. Ed. 2d 619, 91 S. Ct. 1999 (1971); J.I. Case Co. v. Borak, 377 U.S. 426, 12 L. Ed. 2d 423, 84 S. Ct. 1555 (1964). As the subsequent discussion of plaintiff's federal statutory claim reveals, plaintiff's claim, although not ultimately successful, is not so insubstantial or frivolous that a federal controversy does not exist. I shall proceed, therefore, to decide whether plaintiff has stated a federal statutory claim for which this court may grant damages or other relief.
Plaintiff's theory of an express right of action under 42 U.S.C. § 1452b(e) can be dispatched with little difficulty. Section 1452b(e) states:
(e) In the performance of, and with respect to, the functions, powers, and duties vested in him by this section, the Secretary shall have (in addition to any authority otherwise vested in him) the functions, powers, and duties set forth in section 1749a of Title 12 (except subsection (c)(2)).
42 U.S.C. § 1452b(e). Among the functions, powers and duties specified under 12 U.S.C. § 1749a and incorporated by reference in Section 1452b(e) is that the Secretary may "sue or be sued". 12 U.S.C. § 1749a(c)(3). Plaintiff attempts to elevate this language into an expressed authorization for a private right of action to redress violations of Section 1452b. The "sue or be sued" language, however, "merely indicates that the Secretary is capable of being sued." Fox v. City of Chicago, 401 F. Supp. 515, 517 (N.D. Ill. 1975). This language simply confers a status or capacity upon the Secretary, and makes no expression that a private right of action is the necessary or appropriate means of enforcing the statute. Moreover, the defendant in the present suit is the City, which acted under the authority delegated by the Secretary pursuant to 42 U.S.C. § 1452b(f). The "sue or be sued" language does not indicate that agents or delegates of the Secretary were meant to sue or be sued in the same capacity as the Secretary. Consequently, Section 1452b(e) cannot be said to authorize an express right of action for the claimed statutory violations.
Plaintiff's theory of an implied right of action requires a more detailed examination of the Section 312 loan program. The thrust of the Supreme Court decisions on implying rights of action from federal statutes is to focus the inquiry squarely on Congressional intent. See Merrill, Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353, 377-378 & n. 60, 72 L. Ed. 2d 182, 102 S. Ct. 1825 (1982) and cases cited therein. A person seeking to imply a right of action must establish that Congress intended such an action despite the statute's silence on the question of private enforcement. United States v. FMC Corp., 717 F.2d 775, 780 (3rd Cir. 1983). In discerning Congressional intent, the Court has assigned the greatest weight to the first two factors of the four part test articulated in Cort v. Ash, 422 U.S. 66, 78, 45 L. Ed. 2d 26, 95 S. Ct. 2080 (1975). See California v. Sierra Club, 451 U.S. 287, 297-98, 68 L. Ed. 2d 101, 101 S. Ct. 1775 (1981); Touche Ross & Co. v. Redington, 442 U.S. 560, 580, 61 L. Ed. 2d 82, 99 S. Ct. 2479 (1979) (Brennan, J., concurring) FMC Corp., 717 F.2d at 781. The first two Cort factors are:
First, is the plaintiff "one of the class for whose especial benefit the statute was enacted, "-- that is, does the statute create a federal right in favor of the plaintiff? Second, is there any indication of legislative intent, explicit or implicit, either to create such a remedy or to deny one?