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May 12, 1980


The opinion of the court was delivered by: CONNER


In a previous opinion, reported at 446 F. Supp. 814, familiarity with which is assumed, the Court remanded this matter to the Department of Housing and Urban Development ("HUD") for a reexamination of defendant 16th Street Associates' ("Associates") application for preemption of local rent control laws as they apply to Gramercy Spire Apartments ("Gramercy Spire") and the tenants' objections thereto. On remand, HUD reaffirmed its prior determination that such preemption was necessary in order to ensure the economic viability of Gramercy Spire. Associates now moves for summary judgment pursuant to Rule 56, F.R.Civ.P., on its counterclaim. For the reasons which follow, defendants' motion for summary judgment is granted.

 Only a brief review of the factual history of this action, set out in detail in the Court's previous opinion, is needed to explicate the present decision. Gramercy Spire, located at 160 Third Avenue in New York City, is a privately owned and financed apartment building; however, the mortgage on Gramercy Spire, which is held by the Lincoln Savings Bank, is insured by the Secretary of HUD pursuant to Section 207 of the National Housing Act ("NHA"), as amended, 12 U.S.C. § 1713. In order to secure the guaranteed mortgage, Associates signed a regulatory agreement with the Federal Housing Administrator ("FHA"), the predecessor of the Secretary of HUD, which gave the agency considerable control over the management of Gramercy Spire, including the authority to approve all proposed rent increases to Gramercy Spire tenants. In addition to regulation by HUD, Gramercy Spire has also been subject to regulation by the Conciliation and Appeals Board ("CAB") pursuant to New York City's Rent Stabilization Law. However, on April 6, 1976, pursuant to 24 C.F.R. §§ 403.1-403.6 HUD preempted the application of the local New York City rent control laws to Gramercy Spire and authorized Associates to increase rents at Gramercy Spire at a rate greater than CAB would have approved. In this suit, instituted on September 9, 1976, plaintiff Gramercy Spire Tenants' Association ("Tenants' Association"), comprised of Gramercy Spire tenants, brought suit against HUD and Associates challenging the preemption order. Associates asserted a counterclaim against plaintiff, CAB, and other defendants in which it sought relief preventing interference with the collection of HUD-approved rents and a declaration as to the validity of the preemption.

 In its previous decision, the Court upheld the legality of the regulations authorizing HUD to preempt the local rent control laws but it also held that the tenants' due process rights had been violated by the procedure utilized by HUD in making its April 6 determination since the tenants had not been afforded an opportunity to present to HUD their objections to Associates' application for preemption. The Court thus held that HUD's April 6 order was "null, void and of no further force and effect," and remanded the matter to HUD for further proceedings on Associates' application. Specifically, the Court ordered that meaningful participation by the tenants in the decision-making process would require: "(1) notice to the tenants at the time of the landlord's filing an application for a rental increase pursuant to 24 C.F.R. § 403.6; (2) an opportunity for the tenants to inspect the materials sent to HUD in support of the application; (3) an opportunity for the tenants to submit opposing materials to HUD in written form; and (4) a written statement from HUD setting forth the reasons underlying its preemption decision." HUD was ordered to "assume the responsibility of formulating specific procedures and timetables consistent with this (Court's) opinion." 446 F. Supp. at 827-28. *fn1"

 Thereafter, on March 8, 1978, Associates (1) resubmitted to HUD and filed with the Clerk of this Court, the materials that it had previously submitted to HUD in connection with its 1975 application for preemption and (2) posted notices at Gramercy Spire informing the tenants that these materials would be available for inspection in the building's Superintendent's office on Mondays through Saturdays for a month and that the tenants could submit comments and opposing materials to a specified person at the local HUD office. Written objections to Associates' application were submitted to HUD by an individual tenant by the name of James N. Palik on April 6, 1978 and by counsel for plaintiff on April 11, 1978. Sometime before May 5, 1978, after reviewing the tenants' objections, HUD determined that information originally submitted by Associates to HUD had been inadvertently omitted from the documents supplied to the tenants and HUD requested that Associates submit these additional materials to the tenants and give the tenants two more weeks to submit additional comments. *fn2" On May 11, 1978, Associates posted a notice at Gramercy Spire notifying the tenants of the availability of those additional materials and of the two-week extension. On June 9, 1978, HUD notified plaintiff's attorney that it had commenced its review of Associates' request for preemption. On July 19, 1978, HUD issued its decision reaffirming its 1976 preemption decision. *fn3" In a detailed report, HUD rejected the tenants' charges that the landlord and HUD had failed to follow HUD's regulations with respect to the processing of Associates' application, discussed infra, and rejected the tenants' request for an independent audit of Gramercy Spire's finances as "unwarranted." The report concluded that:

"As a result of tenants' comments, the HUD New York Area and Regional Offices reevaluated the owner's application, together with the expense figures used to support the request for higher rent levels and preemption of local rents. The New York Area Office submitted a recommendation to the Office of Loan Management in HUD's Central Office in Washington in favor of preemption of local rents.
"The Office of Loan Management finds, after full consideration of tenants' comments on the financial data submitted by the owner, and the recommendation made by the New York Area Office, that the level of residential income necessary to maintain and operate the project, including sufficient funds to meet the mortgage obligation, as determined by HUD in March, 1975 is appropriate. I further certify that the rentals permitted under local law at the time of the preemption determination in April, 1976 were insufficient to provide income necessary to protect the Department's economic interest in this project. I hereby reaffirm my Administrative Determination of April 6, 1976 which preempts local rent control over Gramercy Spire."

 Associates has now returned to this Court to renew its motion for summary judgment on its counterclaim on the ground that the tenants have been afforded procedural due process and that there are no material issues of fact precluding the grant of summary judgment in their favor. Plaintiff opposes the motion on the ground that HUD has failed to grant the tenants the due process rights mandated by the Court's prior decision and judgment and that HUD's decision to preempt is erroneous. Plaintiff asserts that many disputed issues of fact exist and requests a continuance pursuant to Rule 56(f), F.R.Civ.P., "to examine by oral deposition and discovery the moving defendants and HUD" so that plaintiff may discover the details of HUD's decision-making process with respect to preemption applications in general and with respect to Gramercy Spire in particular.

 Two questions are presented by Associates' motion for summary judgment: (1) whether the tenants were afforded procedural due process as mandated by the Court in its previous opinion; and (2) whether the facts underlying HUD's preemption decision are subject to judicial review, and, assuming that they are, whether plaintiff has identified disputed issues of material fact pertaining to the appropriateness of the preemption in this case, which themselves would bar the granting of Associates' motion.

 1. Due Process

 Associates contends that the tenants have been afforded the due process safeguards mandated by this Court by having received notice of and access to Associates' application and an opportunity to comment thereon. Plaintiff argues that the procedure utilized by Associates and HUD was not in conformity with the Court's previous mandate, which, plaintiff argues, contemplated a de novo application by Associates pursuant to 24 C.F.R. § 403.6, and not merely a resubmission of Associates' previous application. Plaintiff points to various phrases in the Court's previous opinion and in the judgment which, it alleges, imply that a de novo application was contemplated.

 The concern expressed by the Court in its previous opinion was with the fact that the tenants had had no input into HUD's decision-making process and no prior notice of the proposed rental increases; in fact, the tenants did not learn of the increases until a month after the preemption order was issued. Recognizing that the case law establishes that something less than a hearing-type procedure is required in the circumstances of the instant case, see 446 F. Supp. at 827, the Court attempted to formulate procedures which would safeguard the tenants' rights and yet would not be inconsistent with the policy underlying the statute, see 446 F. Supp. at 827, nor unduly burden HUD in carrying out its responsibilities thereunder. Thus, the Court ordered that HUD follow procedures formulated by other courts in similar circumstances: it ruled that a landlord who files an application with HUD for rent increases must notify the tenants of the application and make available to them the documents submitted to HUD in support of the application; the tenants must have an opportunity to respond thereto, and HUD, should it determine that preemption is necessary, must set forth in writing its reasons therefor. These safeguards were afforded the Gramercy Spire tenants: they were notified of Associates' reapplication, provided with Associates' supporting materials, and afforded an opportunity to make objections to the application. HUD, in turn, conducted a de novo review of Associates' application and, having decided to reaffirm its previous preemption order, issued a written decision in which it explained how it had arrived at its decision to preempt and specifically addressed the tenants' objections, including their objections to the procedure HUD used in processing Associates' application. The Court rejects plaintiff's argument that Associates did not comply with the Court's order to notify the tenants prior to the time it submitted an application for preemption because it merely notified the tenants that it was resubmitting an application it had previously filed without prior notification to the tenants. This argument rests on a hypertechnical reading of the language in the previous opinion which primarily addressed the general procedures to be followed by a landlord and by HUD in processing a new application for preemption. The instant case deals with a slightly different problem here an application was filed pursuant to HUD regulations which did not provide for notice to the tenants and only subsequently, and as a result of this litigation, was it determined that the tenants had a due process right to participate in the review of a preemption application. To remedy the deficiency in the original review of Associates' application, the Court remanded this matter to HUD for further proceedings in which the tenants would be afforded an opportunity to participate. The procedures utilized by Associates and HUD on remand accomplished that purpose.

 Plaintiff contends, however, that procedural due process required that a new application be filed for two reasons: first, plaintiff implies that Associates resubmitted its old application so as to obtain retroactive payments of rent increases awarded to Associates in 1976 should HUD reaffirm its April 6, 1976 preemption order; and second, plaintiff alleges that because many of the tenants who lived at Gramercy Spire in 1975, at the time the original application was submitted to HUD, were no longer living there in 1978, plaintiff was unable to gather information to effectively challenge the information Associates included in its application, which related to events in 1975.

 With respect to plaintiff's first charge, the Court did not hold that Associates had to submit a new application and thus forego rental increases for 1976 to 1978, even if HUD should subsequently determine, as it later did, that those increases were justified. The Court merely ruled that HUD's 1976 order was void because it violated the tenants' rights to due process. Accordingly, the Court remanded for further proceedings on Associates' application. In fact, the previous decisions that this Court relied on when it formulated the type of proceeding mandated by due process requirements expressly recognize that should HUD, after hearing from the tenants, reaffirm its preemption order, the landlord would be entitled to collect the rental increase previously awarded it, and not merely rental increases from the date of HUD's decision after reconsideration. See Keller v. Kate Maremount Foundation, 365 F. Supp. 798, 804 (N.D.Cal.1972) aff'd, 504 F.2d 483 (9th Cir. 1974) (court ordered that should FHA reapprove rent increases, the monies paid to the landlord pursuant to the previous order, found to have violated the tenants' due process rights, would be retained by the landlord); Ponce v. Housing Authority, 389 F. Supp. 635 (E.D.Cal.1975) (de novo review of earlier filed application for rent increases ordered; reconsideration to focus on whether prior order necessary under conditions as they existed at the time the original rent increase went into effect); Argo v. Hills, 425 F. Supp. 151, 159 (E.D.N.Y.1977), aff'd without opinion, 578 F.2d 1366 (2d Cir. 1978) (court stated that if HUD finds preemption necessary, then ...

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