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May 14, 1979

Abraham SNYDER, Aaron Jones, Calvin Allen, and Delano Village Tenants Association, Plaintiffs,
AXELROD MANAGEMENT COMPANY and U. S. Department of Housing and Urban Development, Defendants

The opinion of the court was delivered by: WERKER

This action for injunctive and declaratory relief was commenced by the plaintiff tenants *fn1" against their landlord, the Axelrod Management Company ("Axelrod"), and the Department of Housing and Urban Development ("HUD") for alleged violations of 42 U.S.C. §§ 1981 and 1983 and the fifth and fourteenth amendments. Having submitted a stipulation of facts, *fn2" the parties have cross-moved for summary judgment. There being no genuine issue of material fact, the case is ripe for summary judgment.


 The Delano Village development is a privately constructed and financed seven building, 1799 unit housing project located in upper Manhattan. The seven mortgage notes covering the complex are insured by the Secretary of HUD pursuant to section 220 of the National Housing Act (the "NHA"), 12 U.S.C. § 1715k. In 1974, because the gross rental receipts did not meet expenses, Axelrod defaulted on five of the seven notes. The mortgagee elected under the mortgage insurance contract to assign the five notes and security instruments to the Secretary in exchange for insurance benefits of $ 12.6 million.

 Prior to preemption, Delano Village was subject to the New York City Rent Stabilization Law (the "RSL"), N.Y.C.Admin.Code § YY51-1.0 Et seq., reprinted in Unconsol.Laws foll. § 8617 (McKinney 1974 & Supp.1978-1979). Under the RSL, rents in New York City are controlled by the New York City Real Estate Industry Stabilization Association Conciliation and Appeals Board (the "CAB"). N.Y.C.Admin.Code § YY51-6.0.

 On June 17, 1975, Axelrod filed an application for rent increases with HUD's New York Area Office, and on July 7, 1975, the requested rent increases were approved. At some point between the granting of rent increases and August 27, 1975, representatives of HUD met with the plaintiff Snyder, the president of the plaintiff tenants association, and provided him with a detailed explanation of the necessity for the rent increases.

 On October 30, 1975, Axelrod submitted a hardship application for a rent increase to the CAB. No notice of this application was given to the tenants of Delano Village. HUD wrote to the CAB on May 26, 1976 advising it that the Delano Village complex was one of several projects unable to meet operating costs and debt service under the then existing rent structures. HUD advised the CAB that HUD's economic interest in the Delano project had consequently been placed in jeopardy.

 On June 29, 1976, the CAB responded to HUD's Area Office, advising it as follows:

(T)he maximum percentage level of increase which could be granted under the Rent Stabilization Law would be 4.2%, based on the assumption that there is no substantial increase between income and expenses during the current period.
. . . (I)n the event the owner qualifies for a greater comparative hardship increase under current provisions of the Rent Stabilization Law, the rent increase granted the owner in any hardship order would be collectible in an amount not exceeding 6% In any one year (above guidelines) with any balance due the owner collectible in succeeding years at a rate similarly not exceeding 6%. The Rent Stabilization Law limits the owner to no more than one hardship order in any 36 month period.

 Affid. of Fred W. Pfaender, sworn to Jan. 4, 1979, exh. E., at 2. The maximum rent increase which the CAB would have authorized was less than the jeopardy rent increase approved by HUD.

 On August 3, 1976, the Area Office requested HUD's Office of Loan Management *fn3" to preempt the Delano Village project from the operation of local rent control. After reviewing the Area Office's recommendations and the pertinent financial data, the Office of Loan Management determined that due to increased utility and operating expenses and real estate taxes, the increases approved by the Area Office were justified.

 On September 28, 1976, Fred W. Pfaender, the director of the Office of Loan Management, wrote a letter to the New York Housing and Development Administration certifying that the increased rents approved by HUD constituted the minimum amount of rent necessary to meet operating expenses and debt service requirements. On September 29, 1976, Axelrod was notified by Mr. Pfaender that HUD had preempted Delano Village from local rent control. Written notice of HUD's preemption was given to the tenants of Delano Village by Axelrod on October 29, 1976.

 HUD's preemption determination permitted Axelrod to increase rents as leases expired until a new monthly shelter rent potential of $ 387,469 for 1799 units was attained. The preemption determination also limited leases to one year-terms for the duration of the preemption period.

 Axelrod gave the tenants of Delano Village notice of the preemption rent increases on May 9, 1977. Approximately 700 tenants executed an ...

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