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PEOPLE'S HOUS. DEV. CORP. v. CITY OF POUGHKEEPSIE

November 5, 1976

PEOPLE'S HOUSING DEVELOPMENT CORPORATION, Plaintiff,
v.
CITY OF POUGHKEEPSIE, NEW YORK, et al., Defendants



The opinion of the court was delivered by: HAIGHT

MEMORANDUM AND ORDER

Plaintiff People's Housing Development Corporation ("PHDC") seeks to enjoin the defendant municipality ("Poughkeepsie") and its governing body (the "Common Council") from terminating a contract entered into between the parties, and additionally requests the imposition of sanctions against the defendants for their averred contempt of an order previously entered by the court in this matter.

Defendants resist the above motions for legal and factual reasons, and also move to dismiss the complaint for lack of subject matter jurisdiction and for failure to state a claim upon which relief can be granted.

 For the reasons set forth below, the motion for a preliminary injunction is denied, and the complaint dismissed for lack of jurisdiction in that no private right of action exists for violation of the federal statute upon which plaintiff rests its claim. The motion for sanctions is treated in accordance with this opinion.

 I

 This action is based upon an agreement between the municipality and plaintiff, a duly chartered not-for-profit corporation whose principal business is providing various necessary services incident to the construction or renovation of government subsidized housing. The funds with which plaintiff was to be paid, and with which plaintiff was to pay its subcontractors, were obtained by the defendant City pursuant to a grant from the Department of Housing and Urban Development ("HUD") as authorized by Title I of the Housing and Community Development Act of 1974 (the "Act"), 42 U.S.C. § 5301, et. seq. This legislation, like its forbear the Model Cities Act, is designed to stimulate investment in adequate housing for low-income persons, thereby improving the quality of life in certain currently blighted urban areas.

 Poughkeepsie was admitted to the Community Development program in early 1975, after the Secretary of HUD approved the City's comprehensive plan for the rehabilitation of residential dwellings within its confines. The plan is broadly drawn in that it surveys the town's current housing stock, assesses the needs of low income residents and sets forth realistic objectives attainable from participation in the Community Development Act. This submission, however, is sufficiently detailed as to outline the development plans for specific tracts. After approving Poughkeepsie's application, approximately $ 32 million over a three year period, or $ 10.8 million per year, was allocated to it. The funds made available to the City, subject to certain reporting requirements and broad guidelines, may be applied in whatever manner the locality believes will most effectively realize the specific objectives stated in its plan.

 In September, 1975, the City entered into negotiations with plaintiff concerning its possible employment pursuant to the appropriation received under the Act. PHDC had previously undertaken certain rehabilitation assignments from the City under the Model Cities Act and, in fact, counsel for the plaintiff has characterized the instant contract as a renewal of services which PHDC had been performing for the City under that prior program. The instant agreement between the parties was "approved" by Poughkeepsie officials in December, 1975, and formally executed on March 8, 1976, providing, inter alia, that in return for $ 350,000, PHDC would over the course of one year "establish and administer a program of acquisition, rehabilitation and home ownership grants concerning real properties located within the City of Poughkeepsie . . ."

 This seed money was to be made available to PHDC on a reimbursement basis that is, it would receive the funds after it had submitted proof of expenditure.

 The contract does not set forth a specific site for development under PHDC's guidance; the contract does, however, give priority to designated tracts, and each parcel within these preferred locations must meet certain criteria in order to qualify for renovation. Additionally, the agreement contains a clause entitled "Termination of Contract for Cause", followed by a second provision entitled "Termination for convenience of City". The latter clause reads in part: ". . . (T)he City may terminate this contract at any time by giving at least ten days notice in writing from the City to the Contractor."

 Subsequent to the execution of the contract, PHDC considered a complex referred to as the "Apple Hill Apartments" for rehabilitation. This site, according to plaintiff, is in an area of the City which is 90% white in racial composition. It appears from the papers before the court that this tract is among those designated to receive priority in renovation during the second year of Poughkeepsie's three year Community Development program.

 On May 3, 1976, PHDC applied to HUD for approval of the Apple Hill project for purposes of receiving rent subsidies available under Title II of the Act. Commonly referred to as "Section 8" grants, these payments are defined as "assistance payments pursuant to contracts with owners or prospective owners who agree to substantially rehabilitate housing in which some or all of the units shall be available for occupancy by lower-income families in accordance with the provisions of the section." 42 U.S.C. § 1437f(b)(2). In other words, these are subsidies paid by the federal government directly to tenants or to landlords on behalf of tenants, who dwell in housing developments which have been approved for such purposes by HUD.

 This type of aid is an integral part of the federal housing scheme in that it conditions the receipt of Community Development funds upon a willingness to permit indigent persons, or those needful of federal rent subsidies, to occupy the properties rehabilitated through HUD grants. Since Poughkeepsie possesses a substantial black population, plaintiff contends that defendants equated the potential beneficiaries of this Section 8 assistance with this minority group. In sum, the application for approval of the Title II rent subsidies was taken as an indication that PHDC's renovation of Apple Hill would lead to the integration of a predominantly white neighborhood, and it was for this reason, plaintiff avers, that the contract was terminated.

 At a May 6 meeting of Poughkeepsie's Common Council, Poughkeepsie's governing body, two councilmen are averred to have threatened to sponsor a resolution in favor of terminating PHDC's contract because of its impact on the racial composition of the neighborhood in which the Apple Hill complex is located. That proposal was in fact made at a Council meeting on May 14, and plaintiff has submitted extracts from the minutes of that meeting and others, indicating that the vote of several members of the Common Council to terminate the contract was due to their desire to keep low-income persons from occupying the area. The resolution was adopted by a seven to two vote on June 7, and plaintiff officially notified by certified mail of the action on June 14.

 At that point in time it does not appear that any significant progress had been made towards realization of the proposed development. Some planning and organizational efforts had gone into the Section 8 application, which was subsequently denied by HUD. Additionally, some perfunctory discussions had been held with the owner of the Apple Hill site, and apparently an "option" to purchase had been obtained by PHDC. The duration of this option and further facts which might establish the existence of PHDC's property interest in the Apple Hill site are obscure. In short, little if anything had actually been accomplished with respect to the Apple Hill apartments; what portion of the $ 350,000 had been expended had gone towards administrative costs rather than investment. Despite having obtained an "option", PHDC had not, and indeed could not under HUD regulations, acquire title to the land. The project was consequently at a very preliminary stage when the contract was terminated.

 Soon after it had been notified of the termination of its contract, PHDC sought redress from HUD by petitioning the Secretary. Plaintiff's charges were received by the administrative agency, and in keeping with the statutory scheme, forwarded them to the City of Poughkeepsie, which in turn denied the allegations. No further departmental action has been taken; and plaintiff has not pursued its complaint with the appropriate HUD officials, but proceeded on a new tack.

 On June 23, 1976, counsel for PHDC initiated the present action by filing a complaint seeking declaratory, injunctive and monetary relief from defendants for their allegedly illegal actions in terminating the contract. Jurisdiction is predicated upon 28 U.S.C. § 1331 and plaintiff's federal cause of action consists solely and entirely of defendants' averred violation of 42 U.S.C. § 5309, which reads:

 
"NONDISCRIMINATION
 
"(a) No person in the United States shall on the ground of race, color, national origin, or sex be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any program or activity funded in whole or in part with funds made available under this title.
 
"(b) Whenever the Secretary determines that a State or unit of general local government which is a recipient of assistance under this title has failed to comply with subsection (a) or an applicable regulation, he shall notify the Governor of such State or the chief executive officer of such unit of local government of the noncompliance and shall request the Governor or the chief executive officer to secure compliance. If within a reasonable period of time, not to exceed sixty days, the Governor or the chief executive officer fails or refuses to secure compliance, the Secretary is authorized to (1) refer the matter to the Attorney General with a recommendation that an appropriate civil action be instituted; (2) exercise the powers and functions provided by title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d); (3) exercise the powers and functions provided for in section 111(a) of this Act (42 USCS § 5311(a)); or (4) take such other action as may be provided by law.
 
"(c) When a matter is referred to the Attorney General pursuant to subsection (b), or whenever he has reason to believe that a State government or unit of general local government is engaged in a pattern or practice in violation of the provisions of this section, the Attorney General may bring a civil action in any appropriate United States district court for such relief as may be appropriate, including injunctive relief."

 In the event the Secretary finds that this provision has been violated, Section 5311 authorizes as sanctions the partial or complete curtailment of funds, or referral to the Attorney General for initiation of a civil suit in any federal district court of appropriate venue. *fn1"

 Plaintiff asserts no causes of action under the federal Constitution or other federal statute. A second cause of action set forth by PHDC in its complaint seeks compensation for work and expenses incurred under the contract prior to its termination.

 During oral argument on the instant motions, counsel for plaintiff reiterated that PHDC was the only party appearing in this action and that the interests, if any, of the prospective tenants of the renovated Apple Hill apartments were not being represented.

 Defendant contests the charge that its cancellation of the contract was motivated by racial considerations and offers several alternative and wholly unconvincing theories *fn2" for the agreement's demise. The motion to dismiss is based on the contention that the action is simply for breach of contract, and consequently, not within the federal question jurisdiction of this court. Additionally, it is argued that the abandonment of the contract was ...


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