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July 14, 1980

NEW YORK CITY HOUSING AUTHORITY, et al., Defendants, and UNITED JEWISH ORGANIZATIONS OF WILLIAMSBURG, INC., et al., Intervenor-Defendants; UNITED JEWISH ORGANIZATIONS OF WILLIAMSBURG, INC., et al., Third-Party Plaintiffs, against KENT VILLAGE HOUSING CO., INC., et al., Third-Party Defendants.

The opinion of the court was delivered by: TENNEY

In May 1976, plaintiffs commenced this action to seek redress for alleged discrimination in housing in the Williamsburg section of Brooklyn. They sued under Title VIII of the Civil Rights Act of 1968, 42 U.S.C. §§ 3601-3631 ("Title VIII"), Title VI of the Civil Rights Act of 1964, 42 U.S.C. § 2000d et seq. ("Title VI"), 42 U.S.C. §§ 1981-1983, and 24 C.F.R. § 1.4(b)(2)(ii), as well as under the equal protection clause of the fourteenth amendment. After extensive negotiations and commendable effort, the parties resolved most of the issues in the case by formulating and agreeing to a Consent Decree. Only one group of defendants opposed the Court's approval of the Consent Decree: Kraus Management, Inc. and Ross-Rodney Housing Corp., manager and owner respectively of the Bedford Gardens development ("Bedford Gardens defendants"). They opposed approval of the Consent Decree, not only against themselves, but against other parties. By Memorandum dated May 5, 1978, 450 F. Supp. 602 (S.D.N.Y.1978), the Court approved the entry of the Consent Decree against the consenting parties.

By order to show cause, plaintiffs had previously moved for injunctive relief against the Bedford Gardens defendants. Hearings focusing on those defendants concluded on May 11, 1978. At that time the parties agreed to consolidate the hearing on the preliminary injunction motion with a trial on the merits pursuant to Federal Rule of Civil Procedure ("Rule") 65(a)(2). Over the course of the summer of 1978 the parties filed post-trial memoranda. During that time and to date, all parties by Court order or by representation to the Court have been acting pursuant to the Consent Decree. The Court now addresses whether the Bedford Gardens defendants should be declared to have violated applicable laws against housing discrimination and whether, if so, they should be enjoined from further violations.

 For the reasons given below, the Court concludes that the Bedford Gardens defendants have discriminated in the rental of Bedford Gardens in violation of section 3604 of Title VIII, Title VI, 42 U.S.C. § 2000d, 42 U.S.C. §§ 1981 & 1982, and applicable rules and regulations. The Court directs the Bedford Gardens defendants to act pursuant to the terms of the Consent Decree that has been in force against the consenting parties.


 Procedural History *fn1"

 On May 11, 1976 plaintiffs brought on this action by complaint and order to show cause. They sought a preliminary injunction to prevent the New York City Housing Authority ("NYCHA") and its chairman from using race, religion or national origin in renting apartments in publicly assisted housing in Williamsburg. *fn2" Plaintiffs were the Williamsburg Fair Housing Committee ("WFHC"), *fn3" Division Avenue Tenants Association, *fn4" and Puerto Rican or other Hispanic and Black residents or former residents of Williamsburg. They sought to represent non-White persons who had been denied dwelling units or housing subsidies in five Williamsburg housing developments: Jonathan Williams Plaza, Independence Towers, Taylor-Wythe Houses, 115-123 Division Avenue and Bedford Gardens. Plaintiffs alleged that the NYCHA was responsible in whole or part for the renting of apartments at these five developments and that, in renting them, the Authority was discriminating against non-Whites.

 Shortly thereafter, the United Jewish Organizations of Williamsburg ("UJO") and various individuals intervened as defendants in the main action. They sought to represent White families with existing leases at Bedford Gardens or with priority rights to Bedford Gardens apartments. *fn5" UJO and one individual commenced a third-party action against Kent Village Housing Co. and Los Sures Management Co., owner and manager respectively of Roberto Clemente Plaza. They also brought in as third-party defendants the United States Department of Housing and Urban Development ("HUD") and its Secretary, who allegedly ignored their responsibility to police and supervise the housing project sponsor's efforts to comply with the approved marketing plan and to enforce HUD's regulations regarding priorities in tenant selection. Finally, they sued the Housing and Development Administration of the City of New York, since renamed the Department of Housing Preservation and Development (for consistency, referred to as "HDA"), which had responsibility for supervising tenant selection at Clemente Plaza in compliance with its regulations and federal laws and regulations. The Court approved the third-party action, consolidated it with the main action, and joined HUD and its Secretary as defendants in the main action. Memorandum and Order dated December 10, 1976.

 On June 2, 1976, after the intervention of UJO, plaintiffs filed an Amended Complaint, adding the Bedford Gardens defendants. The Court approved the joinder of these defendants. Memorandum and Order dated December 20, 1976.

 During the earlier stages of this litigation, the Court entered a series of orders regarding renting at the housing developments. Initially, the Court issued temporary restraining orders against renting apartments in the developments pending a hearing. Orders of May 11 and May 26, 1976. In June the Court concluded that continuing the restraining orders would cause irreparable damage to the City. Accordingly, it vacated the May restraining orders. Memorandum and Order dated June 7, 1976. The Court also noted that the Community Relations Service of the United States Department of Justice had offered to mediate among the parties to this dispute. The Court believed that this "dispassionate service, trained and experienced in dealing with racial disputes in urban communities," could assist the parties in reaching an accord without unnecessary financial loss. Id. at 3. Mediation followed and continued throughout the latter part of 1976. All parties participated except the Bedford Gardens defendants.

 In December 1976 the first buildings in Clemente Plaza received certificates of occupancy. UJO then sought and obtained a temporary restraining order against discriminatory renting in Clemente Plaza. After granting the TRO on December 6, the Court held six days of hearings on the motion for a preliminary injunction. The Court concluded that mediation still offered the best hope for a satisfactory resolution of this dispute. Interim Order dated December 23, 1976. Accordingly, the Court adjourned the hearings and, in addition, issued interim orders regarding renting at Clemente Plaza. Id.

 All parties except the Bedford Gardens defendants then resumed settlement negotiations. By summer they had reached an agreement and embodied it in a proposed Consent Decree. The Bedford Gardens defendants would not consent to participation in the Decree. At the Court's request, those defendants prepared a version of the proposed Consent Decree satisfactory to them. In September, they submitted an "Amended Proposed Consent Decree." In October, the community parties indicated that they would not accept the Bedford Gardens defendants' modifications.

 On November 8, 1977 plaintiffs sought approval of the proposed Consent Decree as to consenting parties. They also sought a temporary restraining order and a preliminary injunction limiting rental at Bedford Gardens. On December 1, 1977, the Court directed interim compliance with the terms of the proposed Decree by all parties except the Bedford Gardens defendants. The Court noted that the Bedford Gardens defendants had represented that, pending the return date of the order to show cause, they would act in accordance with the terms of their "Amended Proposed Consent Decree."

 In a further Order, dated February 14, 1978, the Court restated the December 1 Order directing interim compliance with the Consent Decree. In the February Order, the Court also directed that notice of the Consent Decree be published, set a date for a hearing on the Consent Decree and on the preliminary injunction sought against the Bedford Gardens defendants, and certified the plaintiff class for purposes of declaratory and injunctive relief but not at that time for ancillary monetary relief.

 On April 18, 1978, the Court held a hearing on the Consent Decree. Only the Bedford Gardens defendants appeared in opposition to the Decree; they filed a brief. The preliminary injunction hearing was adjourned until May 4, 1978.

 On May 5, 1978, the Court issued a Memorandum approving the Consent Decree against all consenting parties. 450 F. Supp. 602 (S.D.N.Y.1978). The Court examined the Consent Decree in view of the preference under the Fair Housing Act of 1968 for settlements. Id. at 605. Such settlements are especially important where the housing patterns of an entire community are involved. Id. at 606.

 Paragraph six, the core of the Consent Decree, proposed enjoining discrimination in rentals at the six developments and prescribing the use of race, color, religion, sex or national origin in such rentals. The parties recognized, however, that prior to barring the use of such criteria entirely, it was necessary to have interim "adjustment periods" to achieve better integration. Once a certain percentage of White to non-White was reached for a particular project, use of such criteria would be barred. The Consent Decree also provided mechanisms for resolving disputes without continuous court supervision and mechanisms to ensure that information on all developments reached all groups.

 The Court found that the Consent Decree had been validly entered and that its terms were neither unlawful, unjust, unreasonable, nor inequitable. Id. It also found that the Decree embodied the goal of integrated residential housing patterns. Id. at 607. The only opposition to the approval of the Consent Decree came from the Bedford Gardens defendants. The Court considered and rejected their arguments, including their contention that approval of the Decree would prejudice the Court on the preliminary injunction motion. The Court concluded that its approval of the Consent Decree would neither prejudice the Court as to the liability vel non of the Bedford Gardens defendants nor foreclose arguments on the appropriate relief. Finally, the Court found that further delay in the approval of the Consent Decree as to the consenting parties would be detrimental to the spirit of community cooperation responsible for the Consent Decree. Id. at 607-08.


 The Parties' Summaries of the Evidence

 Immediately after approving the Consent Decree against all consenting parties, the Court resumed the hearing on the preliminary injunction motion. The renewed hearing focused on the Bedford Gardens defendants. After completion of the hearing, which took five days in May 1978, the parties consented to consolidation of the hearing with the trial on the merits.

 Plaintiffs' version of the evidence admitted at the May trial may be summarized as follows. Bedford Gardens is a 639-unit publicly assisted housing development in the Williamsburg Urban Renewal Area ("WURA") in Brooklyn. It is owned by Ross-Rodney and managed by Kraus Management. Herman I. Kraus is the sole shareholder of Ross-Rodney and the president of Kraus Management. He establishes those companies' policies. In January 1974 Kraus conceived of a quota for Bedford Gardens and committed it to writing. He designated 75% of each building, apartment size, and subsidy program for Whites, 20% of each category for Hispanics, and 5% for Blacks. He directed Arthur Millman, then director of Kraus Management, to rent according to the quota. Millman and his staff succeeded. The quota was used until at least a year after the litigation began; the Bedford Gardens defendants abandoned it only on the advice of counsel and only after the lawsuit had focused on Bedford Gardens. According to the plaintiffs, the evidence further establishes that the Bedford Gardens quota did not reflect the composition of the WURA or any other relevant neighborhood population. Kraus knew that the population from which applicants were drawn was evenly divided between Whites and non-Whites.

 In addition, Kraus allegedly ignored applicants' claims to priorities under the subsidy programs or accepted HDA's representations that it would attend to the claims for priorities. HDA did not do so. In fact, Kraus reserved 81 of the apartments under section 212 *fn6" subsidies for families recommended by the UJO. The UJO was the only group given such preferences, and it received them because Kraus had a business relationship with it.

 Finally, the plaintiffs contend that the evidence establishes that the Bedford Gardens defendants sometimes acted independently and sometimes in concert with others, but, in either case, illegally at all times that the quota was in force. HDA was not involved in the elaborate planning to achieve the quota in each building, apartment size, and subsidy program. HDA considered the percentages (75/20/5) to be merely goals and did not permit their use as rigid quotas. The evidence of HDA's complicity regarding UJO's involvement in the rental process is substantial, but the record is without documentation to support the Bedford Gardens defendants' claim that HDA was responsible for the quota at Bedford Gardens. The evidence also establishes that the WFHC consistently opposed the use of a quota at Bedford Gardens.

 The Bedford Gardens defendants present a different version of the evidence. Under their version, the ethnic ratio was established by governmental authorities to promote integration in the WURA. The Bedford Gardens defendants followed the ratio. More specifically, they begin by pointing to a changing ethnic composition in the WURA. Over the years, the number of Whites declined and the number of Hispanics increased. Against this backdrop, the HDA and the NYCHA, which were responsible for insuring integration in the WURA, approved different ethnic ratios for the various publicly assisted housing developments. Allegedly, each ratio was approved as a goal and accepted by the competent authorities: HDA, NYCHA and/or HUD. The Hispanic community in the WURA also accepted the ratios at the developments, including the Bedford Gardens ratio because it was balanced by the largely non-White ratio at Clemente Plaza. All parties and community groups monitored, without opposing, the Bedford Gardens ratio. The community agreement on these ratios broke down after Bedford Gardens was almost completely rented.

 According to the Bedford Gardens defendants, the Bedford Gardens ratio called for ethnic breakdowns by building and floor, a practice established to promote integration. This rental practice approximated the ethnic goals, but did not fit them rigidly. Under it, individuals with priorities filed preliminary applications. The applications were forwarded to the Bedford Gardens defendants, who assigned numbers to the applications in the order that the applications were received from HDA. A preliminary applicant who qualified on the basis of family size and income levels was then invited to file a regular application.

 The Bedford Gardens defendants contend that no evidence was introduced regarding the ethnicity of the 500 applicants obtained to complete the rental of Bedford Gardens. There is no evidence, they further contend, of any discrimination in these applications, and plaintiffs have not presented a scintilla of evidence that anyone was denied an apartment to meet the ethnic goals. The record shows only that the 75/25 ratio was achieved at Bedford Gardens as well as at two other projects.

 After the action was commenced, the Bedford Gardens defendants continued to rent according to the ethnic goals. In January 1977, on the advice of counsel, they stopped renting at the HDA ratio and began renting on a first-come, first-serve basis. In November 1977, they began renting in accordance with the proposed Consent Decree, which meant renting predominantly to Minorities rather than Whites. Little or no change in the ethnic ratio resulted.

 The Evidence

 During the trial, the Court heard testimony from Arthur Millman, former director of management for Kraus Management; Herman Kraus, chief executive officer of Kraus Management and Ross-Rodney Housing Corp.; Betty Sargeant, an employee of HDA's Office of Equal Opportunity; Laila Long, Assistant Commissioner of HDA's Office of Equal Opportunity; Douglas Moritz, former secretary of the WFHC and former secretary of the Williamsburg Housing Association; Miriam Kerpen, HDA employee; and Rubin Wolf, former project director for HDA in the WURA. The parties also introduced numerous exhibits, which were added to the many exhibits already before the Court from prior proceedings in this action.

 Arthur Millman

 Arthur Millman, the plaintiffs' witness, was the director of management for Kraus Management from early spring 1975 until April 1977. He testified that his "duties and responsibilities were to direct the operation and management of the multi-family housing that was managed by Kraus Management," including Bedford Gardens. Tr. 8. *fn7" His supervisor was Herman Kraus, whom Millman consulted on virtually a daily basis. Millman was in charge of the daily "rent-up" of Bedford Gardens.

 Millman testified that, prior to the initial rent-up of Bedford Gardens, Kraus instructed him to rent Bedford Gardens 75% to Whites, 20% to Hispanics, and 5% to Blacks. This ratio or quota was to be followed in each building, on each floor, and by each apartment size and public subsidy program. *fn8" Millman communicated this ratio to his staff, and he and his staff used their best efforts to achieve the ratio. They succeeded in substantially achieving that goal. The Kraus Management monitored itself to ascertain whether the ratio was being met.


 In meeting the ratio, Millman and his staff pursued a policy of designating the ethnicity of a particular apartment. When a White family vacated its apartment, only a White family would be put into that apartment. At some point in the rental process, Millman and his staff may have for administrative reasons departed somewhat from that policy. A Black family might have been placed in an apartment vacated by a White family. Their main concern was to maintain the 75/20/5 ratio.

 The initiative for the ratio, Millman testified, was Kraus Management's. Millman could not recall either the HDA or the NYCHA instructing him to rent at the ratio. The NYCHA leased apartments from Bedford Gardens under the section 23 leasing program. *fn9" Millman sent the NYCHA a letter to which he attached schedules, prepared in part by Kraus, designating which apartments were NYCHA-leased apartments and the ethnicity of the various apartments. Letter from Millman to Harold Sole, Director of Leased Housing for the NYCHA, dated November 6, 1975, and attached schedules, Plaintiffs' ("Pl.'s") Exh. 31. *fn10" The NYCHA did rent according to those designations of ethnicity. Millman believes that the NYCHA did not object to Kraus Management's position regarding ethnicity.

 Millman also did not recall being urged by Douglas Moritz of the WFHC or by any other Hispanic group to rent at the 75/20/5 ratio, but Millman did perceive some communications from Moritz as an attempt to make sure that Bedford Gardens did not rent at any other ratio. Millman did not recall telling Kraus that Moritz had encouraged Millman to rent at the ratio.

 Millman was not aware of any studies of "pools" as bases for the ethnic ratio. In his knowledge, no one in Kraus Management studied the ethnic-racial distribution of the potential applicant pool or of the preliminary applicants or of the families found eligible for section 236 apartments. He never saw or heard of such a study by anyone. He recalled no discussion with Kraus of such pools.

 Millman also did not recall whether anyone at Kraus Management exercised independent responsibility to determine priorities of applicants for apartments at Bedford Gardens priorities listed in the HDA rules and regulations or in section 106 of the Land Disposition Agreement. *fn11" As far as he knew, priorities of veterans or priorities of certain applicants for section 212 apartments were not considered. He had thought, however, that HDA would take care of the priorities.

 The 75/20/5 ratio was to apply to all apartments, but Millman testified to a departure from that policy regarding four-bedroom apartments. Bedford Gardens contained 48 four-bedroom apartments. Of the 48, 14 were assigned to the NYCHA under the section 23 leasing program. All of the remaining 34 apartments were rented to White families. Of the 48 total, 45 apartments were rented to Whites, 2 to Hispanics, and 1 to a Black family.

 Millman's testimony or exhibits that had been prepared by him indicated that, of the 96 apartments under the RAPP subsidy, the most desirable subsidy, 81 apartments were set aside for families recommended by the UJO. Millman recommended that the 81 be set aside for the UJO nominees, and Kraus approved the recommendation. Millman understood that this reservation of 81 apartments meant that he was not to rent that number of RAPP apartments to families other than those recommended by the UJO. The UJO made such recommendations; all of them were for White families. *fn12" Millman then acknowledged that Kraus had told him that Kraus Management would or could make Bedford Gardens the Hasidic capital of New York.

 Kraus Management worked with the UJO in other ways. Although there was some "outreach" effort to inform Hispanics of Bedford Gardens, that effort was not as extensive as with Hasidics. Kraus Management consulted with the UJO throughout much of the rental process. In addition to setting aside the 81 apartments for UJO nominees and more extensive advertising in the Hasidic press, Kraus Management also met more regularly with the UJO than with Hispanic community representatives. Millman testified, however, that Kraus said he would serve on a rental committee only if all community groups were represented. Otherwise, Kraus wanted written direction from an official high in city government that Kraus serve on such a committee. Kraus Management received a letter from Roger Starr, which Kraus interpreted as such written direction. *fn13" He worked with the UJO and invited UJO and HDA representatives to be present at Bedford Gardens to oversee rentals. Millman recalled no similar discussions about working with representatives of the Hispanic community.

 Millman testified that "at some point we were in a dither as to whether to continue our policy (of renting in accordance with the ratio) or whether to change it based upon the current litigation." Tr. 64. He also testified that, despite Kraus Management's renting in accordance with the ratio, he was aware of no eligible applicant's being denied an apartment because of the ratio. Finally, he testified that he recalled discussions with HDA employees about the possibility of violence in regard to Bedford Gardens rent-up. He did not recall the conversations specifically, and he did not recall any specific threats being made regarding the ratio. The Court limited the testimony about the possibility of violence to the issue of Kraus's state of mind.

 Herman I. Kraus

 The Bedford Gardens defendants first called Herman I. Kraus. He testified that he is the sole shareholder and president of the Ross-Rodney Housing Corporation, the legal titleholder to Bedford Gardens. He is also the president of Kraus Management, which manages Bedford Gardens. He has been in the subsidized housing field ...

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