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03/27/81 Dennis Shivers, Et Al., v. Moon Landrieu


March 27, 1981




Before MacKINNON, WILKEY and GINSBURG, Circuit Judges.


Appeal from the United States District Court for the District of Columbia (D.C.Civil Action No. 79-0816).


Opinion for the Court filed by Circuit Judge WILKEY.


This appeal involves a thirty-year old housing complex in southeast Washington, D.C., known as "Garfield Hill Apartments." Appellants are past and present tenants of the 104-unit project who complain of evictions, high rents, and deficient maintenance standards, etc. Appellants brought suit in the U.S. District Court against the Department of Housing and Urban Development as well as against a number of private parties who hold (or held) varying interests in the property. This action is cognizable in federal court, appellants contend, because the mortgage for Garfield Hill had been insured since 1948 by the federal government pursuant to the National Housing Act, *fn1 and was therefore subject to HUD regulatory obligations. In December 1978, however, three months before this lawsuit was initiated, Garfield Hill's owner prepaid the full mortgage terminating the insurance and the government's erstwhile security or regulatory interest in the property.

The district court dismissed the action with prejudice on 2 August 1979. The court found that as to the government defendant, HUD, the lawsuit was moot because the mortgage prepayment had eliminated any federal interest or duty. Thereupon, with respect to the private parties, the court found that it was without subject-matter jurisdiction and dismissed those claims as well. Motions for summary disposition made to this court by both sides were denied on 25 January 1980.

We now affirm the district court, but rely on different grounds. We hold that the proper ground for dismissal was the appellants' failure to state a claim upon which relief could be granted. I. FEDERAL INSURANCE FOR THE GARFIELD HILL MORTGAGE

Section 608 of the National Housing Act *fn2 was enacted to address the housing needs of war veterans. *fn3 To stimulate the construction of apartment complexes favoring veterans, Congress authorized the federal government to insure mortgages on property meeting certain relevant conditions. One condition for insurance eligibility under section 608 was the application of federal "regulations and procedures" to occupancy priorities and rents, etc., of the mortgaged property. *fn4

Acting through the Secretary for Insurance, the government on 23 August 1948 endorsed a note executed by appellee Garfield Development Corporation, the owner-mortgagor. This endorsement provided mortgage insurance to the original lender, Riggs National Bank of Washington (and later, appellant Institutional Securities Corporation), guaranteeing payment in case of mortgagor's default. FHA regulations in effect on the date of FHA's endorsement, 23 August 1948, formed the contract of mortgage insurance between the FHA and the lender. *fn5 The regulations empower the Secretary of HUD (originally the Federal Housing Commissioner) to impose regulations on the mortgagor and, in particular, provide that the Secretary may acquire an interest in the mortgagor corporation by purchasing its preferred stock. *fn6 The government paid the Garfield Development Corporation 100 dollars for 100 shares of its preferred stock. Thus HUD was in position to exercise its discretion to regulate Garfield Hill within its authority under section 608.

For the most part mortgage payments proceeded fairly smoothly, so no demand for insurance benefits was ever made to HUD (or to the FHA, its predecessor agency). Consequently, neither the government nor the lender, for that matter, ever attempted to control the project, or acquire anything beyond a security interest in Garfield Hill.

Those security interests had themselves terminated in December 1978, several months before the complaint in this action was filed on 16 March 1979. In 1978 the mortgagor, Garfield Development Corporation, exercised its "prepayment privilege," making full payment to the lender of the remaining balance under the mortgage. Three days later, Garfield Development Corporation paid 100 dollars to HUD, thereby redeeming in full the preferred stock issued to that government agency. Paying off the mortgage naturally satisfied the lender and extinguished its security interest in the property. Similarly, prepayment terminated the government's contract for mortgage insurance. *fn7 In a sense, then, the jurisdictional predicate of governmental involvement may have evaporated before the case began. *fn8

The applicable regulations state plainly that "(u)pon the termination of all obligations of the (Secretary) ... all regulations and restriction of the mortgagor shall cease." *fn9 By redeeming HUD's preferred stock and making full payment of the mortgage, the government's obligations and restrictions over the mortgaged property were terminated. *fn10 Moreover, prepayment is itself contemplated within the federal regulations. *fn11 Hence, the mortgagor may by paying off the loan cancel at anytime the contract for mortgage insurance, and thereby extinguish outside security interests, including HUD's. II. ARGUMENT

A. The Parties

Real estate transactions usually involve a number of parties, each with distinct interests and obligations. If litigation ensues, it is rarely a two party case, but here the complaint named defendants whose links with the mortgaged property were remarkably attenuated. For instance, appellee Hessick Investment Corporation was sued in its "capacity" as a prospective purchaser of Garfield Hill. The deal, however, had never gone through, as both parties to the proposed sale agreed to forget it in October of 1978. The former owner of Garfield Development Corporation's common stock, Karl W. Corby & Company, Inc., was also sued. Corby removed itself from contact with Garfield Hill in December 1977 when it sold its stock to the various individuals, associations, and corporations who are the current stockholders of the Garfield Development Corporation. (The property itself has been owned by the Corporation at all times since 1948.) These parties, along with the Corporation, are all sued together as the landlord of Garfield Hill. And then, there is the crucial defendant, the Secretary of HUD. By insuring the Garfield Hill mortgage from 1948 through 1978, and by promulgating regulations pursuant to the National Housing Act, it is HUD as mortgage insurer which allegedly provides the federal jurisdictional link and the springboard for jurisdiction over the other private parties. The mortgagee, Institutional Securities Corporation, was the beneficiary of that mortgage insurance, and consequently was also sued by appellants.

We find that appellants' claims against the prospective purchaser, the former owner of the Corporation's stock, and the mortgagee are totally unwarranted, the product of legal inventiveness run riot. No cause of action has been stated, or could be at this time. Only the action against the landlord-owner of Garfield Hill and the Secretary of HUD is colorable at all. We turn now to consider the legal basis for the lawsuit against these two parties.

B. The District Court Decision

In a short order entered on 2 August 1979 the district court dismissed the complaint, finding that allegations based on HUD regulatory authority were moot, and that the court was consequently without subject-matter jurisdiction over the nonfederal parties. Though we agree that the complaint cannot stand, we find that the district court was not without subject-matter jurisdiction to consider claims against the federal and private parties under the National Housing Act. *fn12 Interpretation of that Act is necessary to determine whether those claims are valid. The district court did not address the question of whether the plaintiffs had a private cause of action under the National Housing Act-if they did have one, then the possibility of a private damages remedy which would survive any termination of an insured or regulatory interest neatly disposes of the mootness argument. Thus we are compelled to decide the extent of judicial review over HUD's actions, and whether a private cause of action exists. *fn13

C. Judicial Review of HUD's Functions Under Section 608

There is no provision for judicial review in the National Housing Act itself. We turn first, therefore, to the Administrative Procedure Act in search of a legal standard applicable to HUD's conduct here. *fn14

Though HUD's conduct as mortgage insurer for veterans' housing is arguably committed exclusively to the agency's discretion and thereby exempted from judicial review, *fn15 we would reluctantly forgo review on this basis. Consideration is unnecessary, for in this case we run into a specific statutory obstacle to judicial review. The substance of appellant's complaint against HUD is that the agency failed to enforce its own regulations and exercise its power as a preferred shareholder in the Garfield Development Corporation for the protection of the project's tenants. Section 1743 of title 12 of the United States Code codified section 608 of the National Housing Act authorizing HUD to acquire such preferred stock. *fn16 Likewise, the Secretary's authority to promulgate regulations for federally insured veterans' housing derives from that same statutory section. In the Administrative Procedure Act we find that judicial review of "functions conferred by section... 1743 ... of title 12" is explicitly excluded. *fn17 As the relevant regulations and any rights growing out of the preferred shareholder interest are all pursuant to section 1743, Congress has removed these functions from our review under the Administrative Procedure Act. *fn18

In effect, then, our only source of, and standard for, review must spring from the substantive statute itself-the duties of the obligors and the rights of the beneficiaries as contemplated by the National Housing Act. *fn19 We proceed now to examine the question of a private right of action under the statute.

D. Private Remedy Under the National Housing Act

The Act does not provide an express private cause of action-the statute's various intended beneficiaries are thus without an explicit remedy either against HUD or against any of the other private parties also involved in the statutory scheme.

Conceivably, however, it might be appropriate for this court to infer the existence of a private cause of action according to the principles of Cort v. Ash. *fn20 We find that the statute does not support a judicial inference that tenants in federally insured veterans' housing have a right to sue the government or these private parties in a federal court to force compliance with HUD regulations. *fn21 We join the First Circuit in holding that mortgage insurance provided under the National Housing Act is an insufficient predicate for implication of a private cause of action. *fn22

Cort v. Ash *fn23 outlines four factors indicative of an implied cause of action:

First, is the plaintiff "one of the class for whose especial benefit the statute was enacted," ...-that is, does the statute create a federal right in favor of the plaintiff? Second, is there any indication of legislative intent, explicit or implicit, either to create such a remedy or to deny one? ... Third, is it consistent with the underlying purposes of the legislative scheme to imply such a remedy for the plaintiff? ... And finally, is the cause of action one traditionally relegated to state law, in an area basically the concern of the States, so that it would be inappropriate to infer a cause of action based solely on federal law? *fn24

The provision of the National Housing Act at issue *fn25 "neither creates federal rights in favor of any private party nor proscribes the behavior herein complained of." *fn26 Rather, what is clear is that the statute embodied Congress' hope that the possibility of federal mortgage insurance would encourage lenders to lend, builders to build, and developers to develop new housing that would culminate in a benefit for the war veterans. This was fairly complex legislation that created and relied on financial incentives to accomplish a welfare objective. Congress thereby induced private entrepreneurs to enter the housing market through investments in projects ultimately redounding to the advantage of prospective tenants who were also veterans. In fact, the codification of the mortgage insurance provisions for "section 608 housing" is in the "Banks and Banking" title of the United States Code, and not in the "Public Health and Welfare" title where other sections of the National Housing Act are codified. *fn27 Plainly, though, veterans and tenants are the vicarious beneficiaries of the Act.

They are not, however, the Act's only beneficiaries-obviously, the benefit of mortgage insurance operates directly in favor of the bankers, builders, and developers. To be sure, HUD has limited authority to regulate the housing projects whose mortgages it insures; this permits HUD to ensure that the projects will continue to be financially viable, and will not, therefore, require the government to pay out on its default obligations. Section 608 thus does not so "especially" benefit tenants that it can be said, under the first Cort v. Ash criterion, that the statute creates an enforceable duty running to tenants, which can be claimed by them as a matter of right. *fn28

The second Cort v. Ash factor refers us to the presence or absence of a legislative intent to create a private remedy. We see here no indication that Congress intended a private right of action to emanate from the provision of mortgage insurance pursuant to the National Housing Act. Neither the statutory history nor the terms of the statute itself contradict this conclusion. *fn29 Without some palpable indication of legislative intent we would be most ill-advised to discover an implied private cause of action. *fn30

Consistency with the overall legislative scheme is the third Cort v. Ash factor. Since a primary objective of the statute was to stimulate the construction of housing, *fn31 an implied cause of action giving tenants the right to sue HUD and private parties in the real estate market might impede, rather than promote, the construction of housing units. *fn32

Whether the cause of action in question is traditionally relegated to state law is the fourth Cort v. Ash factor. Here too we must hold for the appellees. Without reflecting at all on the merits of appellants' claims, we are compelled to recognize that the stated claims are typical of the landlord-tenant relationship, local in character and generally reserved for resolution by the states. *fn33 Complaints of excessive rent, improper maintenance, and unlawful evictions are cognizable in the state courts, but have no basis for remedy under federal law, or at least not under section 608 of the National Housing Act which simply authorizes HUD to insure mortgages. The federal involvement here is minimal; it is insufficient for the purpose of authorizing private parties to require HUD to compel landlords, or of compelling the landlords directly, to utilize their property in particular ways.

HUD is granted authority in connection with the mortgage insurance provisions so that it may implement national housing policy, not administer in detail a particular privately owned housing project. That policy requires the financial viability of projects like Garfield Hill, and it is not clear at all that an implied private, federal cause of action by tenants against anyone would serve that policy. We therefore hold, on Cort v. Ash principles, that tenants in section 608 housing projects have no right of action to proceed against their landlord, against HUD, or against other private parties based simply on the mortgage insurance provisions of the National Housing Act. III. HOLDING

We do not here decide the merits of appellants' claims that they are the victims of unlawful evictions, illegal rents, and deficient maintenance, etc. These are charges which the local jurisdiction, the District of Columbia, may resolve according to its own laws. We hold simply that the National Housing Act does not harbor an implied right of action allowing tenants in housing developments whose mortgages have been insured by the federal government to sue the government or private parties for alleged breaches of landlord-tenant obligations. We thus affirm the dismissal of this action on the ground that appellants have failed to state a claim on which relief can be granted. We also find that we are without jurisdiction under the Administrative Procedure Act to review HUD's conduct with respect to regulations it has issued pursuant to 12 U.S.C. ยง 1743.

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