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Massie v. U.S. Dep't of Housing and Urban Development

September 26, 2008

JEAN MASSIE, ET AL., PLAINTIFFS
v.
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, AND ALPHONSO JACKSON, SECRETARY, DEFENDANTS.



The opinion of the court was delivered by: Ambrose, Chief District Judge

OPINION AND ORDER

Before me are Plaintiffs' and Defendants' cross-motions for summary judgment as well as an amicus brief by the National Housing Law Project and Housing Preservation Project filed on behalf of Plaintiffs. For reasons set forth in my opinion below, I am granting Defendants' motion (docket entry no. 103) and am denying Plaintiffs' motion (docket entry no. 106).

I. Procedural History

The procedural history of this case relevant to the disposition of the cross-motions begins with an "emergency complaint" and a temporary restraining order ("TRO") filed by Plaintiffs on July 26, 2006.*fn1 (Docket entry nos. 1 and 2). I granted the TRO on July 27, 2006, received written submissions on the matter, held an injunction hearing on August 4, 2006 where live testimony and documentary evidence was submitted by all parties, and by August 9, 2006, denied the preliminary injunction.*fn2 (Docket entry nos. 3-5 and 12).

After Defendants moved to dismiss the Plaintiffs' Complaint, on January 19, 2007, I granted their motion under Pa.R.Civ.P. 12 (b)(1) for lack of subject matter jurisdiction on all but one count -- Count IV -- wherein Plaintiffs asserted a violation of 109 P.L. 115, §311. I dismissed Count IV under Pa.R.Civ.P. 12(b)(6) for failing to state a claim, thereby disposing of this matter and closing the case. (Docket entry nos. 13 and 33).

On January 29, 2007, Plaintiffs filed a motion for reconsideration. On March 1, 2007, after receiving Defendants' response, I granted Plaintiffs' request for reconsideration and ordered the Clerk of Courts to reopen the case. (Docket entry no. 40). On March 21, 2007, upon Defendants' motion, I clarified my March 1, 2007 order specifically identifying the only three surviving claims. They are: (1) HUD's alleged violation of 109 P.L. 115, §311; (2) HUD's violation of Plaintiffs' procedural due process rights as third party beneficiaries if HUD failed to provide Plaintiffs with the opportunity at the foreclosure hearing to provide factual objections to the foreclosure; and (3) HUD's failure to comply with its own regulations involving the management and disposition of the HUD-held mortgages on Third East Hills Park Property. (Docket entry no. 53).

Defendants filed the administrative record pertaining to this case on November 2, 2007 and filed a supplement to it on December 12, 2007. (Docket entry nos. 87 and 96). Defendants filed their motion for summary judgment, brief in support and concise statement of material facts on December 26, 2007, while Plaintiffs filed their motion, brief and concise statement on December 27, 2006. (Docket entry nos. 103-105 and 106-108, respectively). Responses were filed by both sides to the other's Motions and reply briefs followed. (See, docket entry nos. 113, 115, 121 and 122). The National Housing Law Project and Housing Preservation Project sought and received permission to file an amicus curiae brief on behalf of Plaintiffs, to which Defendants responded. (Docket entry nos. 120 and 129). Thus, the summary judgment matters before me are now ripe for decision.

II. Factual History

Plaintiffs, a class of former residents of Third East Hills Park housing development (hereinafter "the Property"), formed Third East Hills Park, Inc., a co-op (hereinafter, "Co-op"). (Docket entry nos. 105 and 116, ¶1). The Co-op entered into a Section 8 Housing Assistance Payments ("HAP") contract with HUD on September 13, 1976, and renewed the contract on May 24, 2001 for a term of 20 years. (Docket entry no. 87-5, bates pp. 95-106 and 115-130.)*fn3 The HAP contract required the Co-op to lease the units on the Property to eligible low-income families and to maintain and operate the housing units and related facilities in such a way so as to provide "decent, safe and sanitary housing." (Docket entry no. 87-5, bates pp.96, 100). When the HAP contract was renewed, the Co-op specifically warranted that the Property's units would be kept in decent, safe and sanitary condition and warranted that the units would "be maintained in such condition during the [20-year] term of the renewal contract." (Docket entry no. 87-5, bates p. 124).

The HAP contract required HUD to pay a portion of each eligible tenant's monthly rent when Co-op met these (and other) contractual obligations. (Docket entry no. 87-5, bates pp. 98-100, 122).

In order to determine if the Co-op was meeting its maintenance obligations, HUD, through its Real Estate Assessment Center ("REAC") and/or REAC contractors, performed inspections on the Property. (Docket entry no. 87-5, bates pp. 100-101). These inspections had to comply with various HUD regulations codified in the Congressional Federal Record.*fn4 (See, 24 CFR, Subtitle A, generally).

The parties agree that inspections took place on October 9, 2002, December 5, 2003 and September 22, 2004. (Docket entry nos. 105 and 116, ¶10). Defendant contends, and Plaintiffs do not dispute, that as a result of October 9, 2003, the Property received an inspection score of 53 points out of a possible 100. HUD sent the Co-op a written notice dated May 7, 2003 identifying the deficiencies noted during the October inspection, informing the Co-op that it was failing to comply with its contractual requirements to maintain the Property in a decent, safe and sanitary condition, and giving the Co-op sixty days to correct those deficiencies. (Docket entry nos. 105 and 116, ¶¶11 and 13).

The parties also agree that a reinspection of the Property took place on December 5, 2003 at which time the REAC awarded a score of 55 points out of a possible 100. (Docket entry nos. 105 and 116, ¶14). Defendants contend and Plaintiffs do not dispute that a report was prepared in connection with this inspection. (Docket entry nos. 105 and 116, ¶14).

Subsequently, HUD's Departmental Enforcement Center ("DEC") conducted a site visit on June 22-23, 2004, inspecting all of the units inspected on December 5, 2003 as well as some additional randomly selected units, and noted numerous interior and exterior deficiencies. (Docket entry nos. 105 and 116, ¶¶16-19). Defendants contend and Plaintiffs do not dispute that the majority of the DEC's deficiency findings were "recurring issues from previous inspections." Similarly, the parties agree that by way of a July 12, 2004 written notice HUD informed the Co-op it had thirty days to conduct a survey of the deficiencies, correct them, then certify its compliance to HUD. (Docket entry nos. 105 and 116, ¶¶20-21). The notice also stated that if Co-op failed to take these actions, HUD would, without further notice, pursue any and all available remedies, including but not limited to abatement/suspension of the HAP contract and foreclosure. (Docket entry no. 87-4, bates pp. 76-78). The parties agree that following this notice, well after the thirty-day cure period had run, a reinspection of the Property took place on September 22, 2004 and resulted in a score of 43 out of possible 100 points.*fn5 (Docket entry no. 87-5, bates pp. 168-179).

Plaintiffs contend that on October 19, 2004, a conversation took place among various HUD representatives and two pages of handwritten notes bearing the October 19, 2004 can be found in the administrative record. (Docket entry no. 87-4, bates pp. 89-90). The notes contain phrases, not sentences, and the relevant portions of these notes read as follows:

Third East Hills ... REAC 50"c"

2nd score 50"c" recommended foreclosure ... proceeding to foreclosure since in 50's ... DEC inspection ... showed as dump poor physical contd issue notice on 236 agreement another failing REAC ... 43... Disfunctional Board, some problems w/ mgt agent ... Went to OHMAR - reqd new Bd w/ outside leadership HUD-held mortgage voucher out tenants, stop Sec 8 relo language Sec 8 funds foreclose-City/PHA interested units repairable tax credit deal "technical default" not financial ... (Docket entry no. 87-4, bates pp. 89-90).

On November 10, 2004, HUD sent a "notice of abatement" to the President of the Co-op explaining that because the Co-op had failed to "satisfactorily address" deficiencies sent in prior HUD notices (dated May 7, 2003 and July 12, 2004, which indicated the Co-op was in default on the HAP contract for failing to maintain the Property in a decent, safe and sanitary condition), HUD conducted a subsequent inspection (which was performed on September 22, 2004). (Docket entry no. 87-5, bates pp. 133-134). The November 10, 2004 notice of abatement further explained that the September 22, 2004 inspection "confirmed" that the Property remained in an "unacceptable physical condition." (Ibid.) This notice of abatement concluded that because the Co-op had failed to provide HUD with "any acceptable intended action to cure the HAP contract default," HUD had determined it would abate payments on all of the Property's housing units and forbade the Co-op from accepting new Section 8 tenants. (Ibid).

Plaintiffs, citing the HAP contract, contend that by issuing the November 10, 2004 notice of abatement, HUD acted without authority because it did not confirm that each and every unit on the Property assisted under the HAP contract was not in decent, safe and sanitary condition. (Docket entry no. 116, ¶ 25, and docket entry 87-5, bates p. 101). Plaintiffs also assert that HUD could only abate payments on those units it did inspect. (Ibid.)

In addition to sending a notice of abatement to Plaintiffs on November 10, 2004, HUD sent Plaintiffs a "21-day hearing letter" placing the Co-op on notice that HUD would move to foreclose on the Property since the Co-op failed to maintain the Property in a decent, safe and sanitary condition. (Docket entry no. 87-5, bates pp. 188-189). This hearing letter also informed the Co-op that before foreclosure proceedings commenced, any resident could, within 21 days submit in writing a legal reason why HUD should not foreclose on the Property. (Ibid). In addition, the hearing letter also indicated that the Co-op could, within seven days of receipt of the letter, request a hearing and HUD would send a representative to hear any reasons why foreclosure should not occur. (Ibid).

On November 10, 2004, HUD also sent a memorandum to the Atlanta Multifamily Property Distribution Center recommending foreclosure on the Property. (Docket entry no. 87-5, bates pp. 135-187). The memo attached all of the prior inspection reports and additional documentation. (Ibid). One of the additional documents, entitled "Field Office Foreclosure Recommendation" contained a description of the Property and surrounding neighborhood conditions:

Third East Hills Park [the Property] is part of three affordable housing developments located on continuous sites. East Hills Park Apartments and Second East Hills Park Apartments have been sold to profit-motivated developers who were awarded low income tax credits, and these properties are undergoing substantial physical improvements over the next three years. ... The current physical condition of [the Property] will negatively impact the success of the other two properties if ownership is not changed to an entity that will work positively with management.

VII. FIELD OFFICE FORECLOSURE RECOMMENDATION

It is the recommendation of the Pittsburgh Multifamily Program Center that the property be placed in foreclosure based upon technical defaults of the Housing Assistance Payment Contract ...

As a final recommendation the Pittsburgh Multifamily Program Center strongly feels the area is heavily impacted with subsidized housing ... Thus, a total of 625 units in one area. Given the current occupied over-housed units at [the Property], it is this office's recommendation that the property be sold with the intention that some of the units will be demolished or downsized. We also recommend mixed housing with home ownership.

VIII. DISPOSITION RECOMMENDATION

The Pittsburgh Multifamily Program Center recommends the property be sold to the City of Pittsburgh through a negotiated sale. (Docket entry no. 87-5, bates p. 142). When providing justification for the recommendations set forth above, HUD noted that, "[i]n recent conversations with Tom Cummings of the City of Pittsburgh Urban Redevelopment Authority, the City of Pittsburgh may be interested in a negotiated sale." (Docket entry no. 87-5, bates p. 143). It was also recommended that: (1) current eligible residents living on the Property be given vouchers based upon actual household composition and not current unit sizes, since most residents living at the Property were over-housed, and (2) the units located on the Property be demolished or converted to one or two-bedroom units "considering the heavily subsidized units already in the neighborhood." (Ibid).

In response to this submission/recommendation, HUD's Atlanta Multifamily Property Distribution Center requested a series of documents related to the Property's fiscal condition in connection with its referral for foreclosure. (Docket entry nos. 105 and 116, ¶27). In response, on February 9, 2005, Wallace and Associates Architects (who were retained by HUD), conducted a "Comprehensive Repair Survey Report and cost estimate estimating the total repairs" at $2,497,098.00. (Docket entry nos. 105 and 116, ¶28). By way of a Peer Analysis dated April 11, 2005, HUD determined that the repair costs and operating expenses exceeded the potential property income and "as-is value." (Docket entry no. 105, ¶29). Plaintiffs disagree with this analysis. (Docket entry no. 116, ¶29).

The parties agree that on November 14, 2004 HUD sent a "notice of displacement" to each resident indicating that for "health, safety and security reasons" HUD determined to relocate all remaining Property tenants. (Docket entry no. 87-5, bates p. 194). This notice also informed the residents that a meeting regarding relocation would be held on December 2, 2004 and residents with executed leases would be reimbursed for moving expenses while income-eligible tenants would also receive a voucher for Section 8 rental assistance.*fn6 (Ibid). On ...


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