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September 19, 1980

The CITYWIDE EDUCATION ACTION PROJECT, The Crown Heights Education Committee, Shellman Johnson, Violet R. Hines, and Helen Lord, Plaintiffs,
The COMMUNITY SERVICES ADMINISTRATION OF the UNITED STATES (CSA), Graciela Olivarez (Director of CSA), Vaughn Gearan (Regional Counsel of CSA), Nevin Greene (Metropolitan Director of CSA), Grace McCabe (Senior Field Representative of CSA), Edward I. Koch (Mayor of the City of New York), The Human Resources Administration of the City of New York (HRA), Stanley Brezenoff (Commissioner of HRA), The Community Development Agency of the City of New York (CDA), Roger P. Alvarez (Commissioner of CDA), John Nolan (Director of the Audit Review Dept. of CDA), The Members of the Citywide Community Action Board of CDA, Robert Gersony and Joseph L. Jacobson, Defendants

The opinion of the court was delivered by: SAND

Plaintiffs Citywide Education Action Project ("CEAP"), Crown Heights Education Committee ("CHEC"), Shellman Johnson, Violet Hines and Helen Lord bring suit against federal and New York City defendants, in an action arising from what plaintiffs characterize as the termination of funding of two educational programs, CEAP and CHEC. *fn1" The federal defendants are the United States Community Services Administration ("CSA"), Graciela Olivarez, Director of CSA; Vaughn Gearan, Regional Counsel of CSA; Nevin Greene, Metropolitan Director of CSA; and Grace McCabe, Senior Field Representative of CSA. *fn2" Named as New York City defendants are the Community Development Agency of the City of New York ("CDA"); Roger P. Alvarez, Commissioner of CDA; John Nolan, Director of the Audit Review Department of CDA; the members of the Citywide Community Action Board of CDA; Joseph L. Jacobson, formerly Inspector General of CSA; Robert Gersony, an official of the City of New York; the Human Resources Administration of the City of New York ("HRA"), which, plaintiffs allege, bears responsibility for the operations of CDA; Stanley Brezenoff, Commissioner of HRA; and Edward I. Koch, Mayor of the City of New York.

Plaintiffs claim that they should have been afforded the procedures set forth in 42 U.S.C. § 2944(2) or 2944(3) governing appeals by grantees which have been "terminated" or "superseded" within the meaning of that statute. They seek a preliminary injunction directing the refunding and reinstatement of CEAP and CHEC, enjoining the continuation of review proceedings begun by defendants, and declaring such procedures illegal. *fn3" As permanent relief, plaintiffs seek a judgment declaring that the harassment and termination of the programs are illegal, declaring that CDA has breached its contract with plaintiffs, and awarding $ 1,000,000 in damages plus attorneys fees.

 Plaintiffs apparently seek judicial review under the Administrative Procedure Act, 5 U.S.C. § 551 et seq. Plaintiffs allege violations of their rights under the First, Fourth, Fifth, Ninth and Fourteenth Amendments to the United States Constitution, and deprivation of civil rights under 42 U.S.C. § 1983. Finally, plaintiffs ask for indemnification, back pay, damages and restoration of property, and claim deprivation of procedural due process under the Administrative Procedure Act, the Economic Opportunity Act, and unspecified provisions of New York law.

 Federal and city defendants have moved to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(6) on the ground that plaintiffs have failed to state a claim upon which relief can be granted. In the alternative, city defendants seek summary judgment pursuant to Fed.R.Civ.P. 56.

 I. Background

 CSA is the federal anti-poverty agency which is the successor to the Office of Economic Opportunity ("OEO"), the agency established by the Economic Opportunity Act of 1964, 42 U.S.C. §§ 2701 et seq. ("the Act"). Under Title II of the Act, 42 U.S.C. §§ 2781-2837, federal money is made available to local communities for various "community action programs." 42 U.S.C. § 2795. These are defined as programs which are community based and operated and which include a sufficient number of projects or components to provide a range of services and activities which will have some impact on the causes of poverty in the particular community. 42 U.S.C. § 2790(a).

 The mechanism for the administration of the funds is established by 42 U.S.C. §§ 2790 and 2791. Under these statutes, a community action agency (the grantee of the funds) may be a state or political subdivision of a state, or a public or private non-profit organization. 42 U.S.C. § 2790(a). Where the community action agency is a state or political subdivision thereof, the grant is to be administered through a community action board which meets certain statutory requirements. 42 U.S.C. § 2791(a). The community action board may, in turn, place responsibility for policy determinations in neighborhood-based local subsidiary boards. 42 U.S.C. § 2791(c).

 In the instant case, the City of New York is the community action agency and is the direct grantee of funds under Title II; defendant CDA is the responsible city agency with respect to those funds; and, until June 30, 1977, the Council Against Poverty functioned as the City's community action board pursuant to 42 U.S.C. § 2791(c).

 Exercising its authority under 42 U.S.C. § 2791(c), the Council Against Poverty created or recognized twenty-six community corporations to make certain decisions about the use of funds in their neighborhoods. The primary role of those community corporations is to develop programs, plan overall strategy and coordinate local poverty operations. Various "delegate agencies" and service organizations are funded under short term contracts through the community corporations.

 In short, the overall funding scheme is as follows: CSA grants funds to the City of New York, by way of its antipoverty agency CDA; CDA, administering the funds through its community action board, funded twenty-six neighborhood based community corporations, one of which was the Crown Heights North Multi-Service Center, Inc., ("Crown Heights North"). CHEC and its alter ego CEAP were in turn funded through Crown Heights North. *fn4"

 II. Facts

 Plaintiff CEAP is a project of CDA which began in 1976 and maintains offices in New York City. Complaint, Par. 13. Plaintiff CHEC, originally a local educational program in the community of Crown Heights, was created in 1967. Id. Par. 14. In 1974, it was established as a Council Against Poverty pilot project, (Id.) and in 1976 it became an advisory committee to CEAP. (Id.) Plaintiff Johnson is the director of both CEAP and CHEC, and plaintiffs Hines and Lord hold various positions in educational programs in Brooklyn. Id. Pars. 15-17. *fn5"

 The most recent City contract through which federal Economic Opportunity Act funds were provided to CHEC was signed by CDA, acting on behalf of the City, and the Crown Heights Center. This contract, for the period October 1, 1977 through March 31, 1978, was extended to June 30, 1978 by an agreement between the parties. (City Exhibits B and C). While funding for CHEC was expressly provided in the original contract and its amendment, neither CHEC nor its alter-ego signed either document. CHEC received all its funding through the Crown Heights North Multi-Service Center, Inc. contract. (City Exhibits B and C). By memorandum from CDA to the Chairperson and Executive Director of Crown Heights North, the CDA contract period with the center was extended from June 30, 1978 to July 31, 1978 for the express purpose of providing CDA time within which to determine whether Crown Heights North warranted continued funding. (City Exhibit D). Crown Heights Center was urged to meet with CDA Field Operations and Program Audit staff to discuss audit findings and to present any additional information it desired. (Id.) The CDA contract with Crown Heights North, the corporation through which CHEC received all its funding, expired on July 31, 1978 and was not renewed. *fn6" The contract expressly stated that there was no right to renewal and that CDA was under no obligation to renew its agreement or to continue the program, in whole or in part, after the expiration of the contract period. (See City Exhibit B2, Article VIII, Section A.)

 Plaintiffs allege that on August 11, 1978, plaintiff Johnson was informed by CDA that funding for CEAP and CHEC would cease on August 31, 1978, notwithstanding the fact that these programs were budgeted until September 30, 1978. Complaint Par. 19, (Pl. Exhibit C.). CDA invited CEAP and CHEC to appeal this "termination" *fn7" and to submit a proposal for further funding to CDA pursuant to Instruction 6441-1 of the Office of Economic Opportunity ("OEO"). Id., Par. 20. Johnson followed this procedure, with the result that CDA extended funding until September 15, 1978 to accommodate the closeout of the programs. Id., Par. 21. Johnson's requests that he be furnished with the reasons why his proposal was rejected went unanswered by CDA, and on October 19, 1978, CEAP and CHEC were evicted from their offices by the Inspector General of CDA, thus terminating the operation of the programs. Id. Pars. 22-24.

 Thereafter, the Commissioner of CDA sent a copy of his determination with respect to CEAP and CHEC to defendant Gearan, Regional Counsel of CSA. Id., Par. 25. On January 8, 1979, Gearan notified CDA that it had not given fair and adequate consideration to the CEAP/CHEC proposal and directed that the proposal be reconsidered on or before January 31, 1979. Id., Par. 26. (Pl. Exhibit E). CDA again rejected the proposal, and, pursuant to the programs' appeal, Gearan again rejected the determination on the ground that CDA had not given the proposal fair consideration. Id., Par. 27. (Pl. Exhibit F). CDA was asked to have the Community Action Board of CDA consider the proposal when that body was formed. Id.

 On July 5, 1979, the Community Action Board adopted its subcommittee's recommendation that the CEAP/CHEC proposal be rejected. Id., Par. 28. (Pl. Exhibit G). Plaintiffs allege a variety of procedural irregularities in connection with this determination. Id., Pars. 29-31. By letter dated July 30, 1979, CSA was informed of the steps taken by the Community Action Board to review CHEC's application and of its decision not to fund. (City Exhibit K). In this letter, it was noted that CHEC "was free to submit ... (its) ... proposal to an Area Policy Board through the open submission process." (Id.). CHEC has apparently not made such a submission.

 III. Appeal Procedures Under 42 U.S.C. § 2944

 Plaintiffs contend that upon notice on August 11, 1980 by the CDA that funding for their programs would not be continued, they were entitled to the administrative review set forth in 42 U.S.C. § 2944(2) and 2944(3). They allege that CDA improperly channeled them into the appeal procedure of 42 U.S.C. § 2944(1) and that the federal defendants failed to rectify this error. Complaint, Pars. 20-21, 26.

 A. The Statute

 42 U.S.C. § 2944 provides:

 Appeals, notice, and hearing

 The Director shall prescribe procedures to ...

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