UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
September 18, 1984
UNITED STATES OF AMERICA, Plaintiff, and YONKERS BRANCH-NATIONAL ASSOCIATION FOR THE ADVANCEMENT OF COLORED PEOPLE, et al., Plaintiffs-Intervenors, against YONKERS BOARD OF EDUCATION, CITY OF YONKERS, and YONKERS COMMUNITY DEVELOPMENT AGENCY, Defendants.
The opinion of the court was delivered by: SAND
MOTION TO DISMISS COUNTERCLAIM and THIRD-PARTY COMPLAINT
LEONARD B. SAND, U.S.D.J.
This action was brought by the United States against the City of Yonkers, the Yonkers Community Development Agency (collectively "the City") and the Yonkers Board of Education, alleging violations of Title VI of the Civil Rights Act of 1964, Title VIII of the Civil Rights Act of 1968, and the Fourteenth Amendment, in the administration of Yonkers' school system and public housing programs. Soon thereafter, the Yonkers Branch of the National Association for the Advancement of Colored People ("NAACP") intervened as a party-plaintiff.
In its amended answer, the City has asserted a counterclaim against the United States and a third-party complaint against the Department of Housing and Urban Development ("HUD"). Subsequently, the NAACP also asserted a claim against HUD.
The claims of the NAACP against HUD were settled by a consent decree approved by this Court on March 19, 1984. Thus, the only remaining claims that involve HUD are those asserted by the City. The United States and HUD have moved to dismiss the City's counterclaim and third-party complaint. For the reasons stated, the motion is granted.
At the outset, we note certain unusual aspects of defendant's counterclaim and third-party complaint. Both of these causes of action arise from the same alleged breach by HUD of its statutory responsibilities. Moreover, the plaintiff, the United States, is both the counterclaim defendant and the real party in interest with respect to the third-party claim, since HUD is an agency of the federal government.
See, e.g., 14 Wright & Miller, Federal Practice and Procedure § 3655, at 174-75 (1976). Thus, the claims asserted in the counterclaim and third-party complaint are clearly alternative theories of liability, since the defendant could not recover on both.
The City's counterclaim and third-party claims seek monetary relief to reimburse the City in whole or in part for the cost of providing any remedy the Court might order or, alternatively, the equitable equivalent thereof, such as an order requiring HUD "to include the City among the governmental units receiving HUD funding." Defendants' Memorandum of June 13, 1984 at 10.
The United States and HUD have asserted two grounds for dismissal of the City's claims: first, that they are barred by the doctrine of sovereign immunity; and second, that they fail to state a claim for which relief can be granted.
A. Sovereign Immunity
The sovereign immunity defense in this case is grounded upon the ancient principle that the United States, as sovereign, is immune from suit, except to the extent that Congress otherwise consents. United States v. Mitchell, 445 U.S. 535, 538, 63 L. Ed. 2d 607, 100 S. Ct. 1349 (1980); United States v. Testan, 424 U.S. 392, 399, 47 L. Ed. 2d 114, 96 S. Ct. 948 (1976); United States v. Sherwood, 312 U.S. 584, 586, 85 L. Ed. 1058, 61 S. Ct. 767 (1941). Of course, sovereign immunity applies equally to claims, such as those asserted by the City against HUD, brought against federal agencies regarding their official functions. See Dugan v. Rank, 372 U.S. 609, 620, 10 L. Ed. 2d 15, 83 S. Ct. 999 (1963). See generally 14 Wright & Miller, Federal Practice and Procedure § 3655 at 172-75 (and cases cited therein) (1976). Thus, the City's claims are barred unless they fall within some applicable congressional waiver of the sovereign immunity defense.
The City has advanced three theories upon which it asserts that sovereign immunity has been waived in this case. One theory relies on the recoupment exception to the doctrine of sovereign immunity, a second on the general waiver provision of the Administrative Procedure Act, and the third on the "sue and be sued" clauses of the National Housing Act and the Housing Act of 1948. The first two theories can readily be dismissed as inapplicable to the present case. The issues raised by the third theory are more complex. Ultimately, however, we conclude that this theory, too, fails to provide a basis for finding that sovereign immunity has been waived.
The City first argues that sovereign immunity is no bar in the present case because its counterclaim against the United States is in the nature of a recoupment. It is settled doctrine that when the government brings a suit, it waives sovereign immunity as to counterclaims arising out of the same transaction which seek only to defeat all or part of its original claim. E.g., Frederick v. United States, 386 F.2d 481, 488 (5th Cir. 1967); United States v. Wallace & Wallace Fuel Oil Corp., 540 F. Supp. 419, 431-32 (S.D.N.Y. 1982). See also 14 Wright & Miller, Federal Practice and Procedure § 3654, at 165 (1976). To fall within this rule, however, the counterclaim must not only involve the same transaction as that sued on by the government, but must also not seek "relief different in kind or nature to that sought by the government or in the sense of exceeding the amount of the government's claims[.]" Frederick, supra, 386 F.2d at 488. See also United States v. Ameco Electronic Corp., 224 F. Supp. 783 (E.D.N.Y. 1963) (defendant could not assert a counterclaim seeking monetary relief on theory of recoupment where government brought action for replevin of chattels). The United States in this action seeks only equitable relief. The City, in contrast, seeks monetary relief, or the equitable equivalent thereof. Thus, the City cannot rely upon the recoupment exception to the sovereign immunity defense, since its claims involve "relief different in kind or nature to that sought by the government." Frederick, supra, 386 F.2d at 488.
2. The Administrative Procedure Act
The second theory advanced by the City is the general waiver of sovereign immunity contained in the Administrative Procedure Act, 5 U.S.C. § 702. However, that provision is, by its express terms, inapplicable when the relief sought is an award of monetary damages.
Moreover, the provision has also been held inapplicable when the relief sought is equitable relief that is the equivalent of monetary damages, such as, for example, an order to pay money. See, e.g., Jaffee v. United States, 592 F.2d 712, 719 (3d Cir.), cert. denied, 441 U.S. 961, 60 L. Ed. 2d 1066, 99 S. Ct. 2406 (1979). Cf. B.K. Instrument, Inc. v. United States, 715 F.2d 713, 727 (2d Cir. 1983) (jurisdictional limitations over monetary claims "could not be avoided by framing a complaint to appear to seek only injunctive, mandatory or declaratory relief against government officials when result would be the equivalent of obtaining money damages").
The City acknowledges this limitation but maintains nevertheless that its claims seeking recovery of the cost of a remedy by requiring HUD "to include the City among the governmental units receiving HUD fuinding" would fall within the waiver. We believe that this reading of the statute is plainly incorrect. In Jaffee, supra, the Third Circuit held that a purported equitable claim would be considered the equivalent of a claim for monetary damages if it could be satisfied by the payment of money. 592 F.2d at 715.
We cannot imagine a clearer case of an "equitable claim" that would meet this test than the City's prayer "to include the city among the governmental units receiving HUD funding.
3. The Housing Acts
Finally, the City contends that sovereign immunity has been waived because its claims fall within the "sue and be sued" provisions of the National Housing Act, 12 U.S.C. § 1702, and the Housing Act of 1948, 42 U.S.C. § 1404(a). Section One of the National Housing Act (12 U.S.C. § 1702) provides in pertinent part:
The Secretary shall, in carrying out the provisions of this subchapter and subchapters II, III, V, VI, VII, VIII, IX-A, IX-B, and X of this chapter, be authorized, in his official capacity, to sue and be sued in any court of competent jurisdiction, State or Federal.
Similarly, 42 U.S.C. § 1404(a) provides that the United States Housing Authority, a predecessor of HUD, "may sue and be sued only with respect to its functions under this chapter, and sections 1501 to 1505 of this title."
These statutes, of course, waive sovereign immunity for claims alleging direct violations by HUD of the substantive provisions of the Housing Acts themselves. See, e.g., Abrams v. Hills, 547 F.2d 1062, 1070 (9th Cir. 1976) (failure to implement an "operating subsidy" program for federally financed housing as required by the National Housing Act). More difficult questions of interpretation arise as to claims against HUD alleging breaches of other legal duties that purportedly occurred during the course of, or in connection with, the administration of programs under the enumerated statutes. The City argues that, in such circumstances, civil rights claims may be asserted against HUD.
The definitive authority on the construction of § 1702 is FHA v. Burr, 309 U.S. 242, 60 S. Ct. 488, 84 L. Ed. 724 (1940).
There the Supreme Court held that § 1702 constituted a waiver of sovereign immunity with respect to an action for garnishment of wages due a federal employee. The rationale for this result was that "when Congress launched a governmental agency into the commercial world and endowed it with authority to "sue or be sued," that agency is not less amenable to judicial process than a private enterprise under like circumstances would be." Id. at 245.
In the forty years since Burr, actions brought under § 1702 typically have involved contractual or quasi-contractual claims relating to the construction of housing projects financed under the act. See, e.g., Industrial Indemnity, Inc. v. Landrieu, 615 F.2d 644 (5th Cir. 1980); S.S. Silberblatt, Inc. v. East Harlem Pilot Block Housing Development Fund Co., Inc., 608 F.2d 28 (2d Cir. 1979); Bor-Son Bldg. Corp. v. Heller, 572 F.2d 174 (8th Cir. 1978).
Several attempts have recently have made to extend the reach of § 1702 to civil rights actions against HUD, but they have generally been rejected by the courts with little or no discussion. In Community Brotherhood of Lynn, Inc. v. Lynn Redevelopment Authority, 523 F. Supp. 779 (D.Mass. 1981), for example, the court held that the plaintiffs could not avail themselves of the waiver provisions of 12 U.S.C. § 1702 in bringing a Title VI claim against HUD "by asserting that the National Housing Act was violated by being administered discriminatorily in contravention of "correlative" civil rights statutes." Id. at 783. See also Unimex, Inc. v. HUD, 594 F.2d 1060 (5th Cir. 1979) (complaint alleging that HUD violated civil rights laws in processing mortgage application did not fall within waiver provisions of National Housing Act); Little Earth of United Tribes, Inc., v. HUD, 584 F. Supp. 1292, 1298-1300 (D.Minn. 1983) (complaint alleging that HUD violated the Constitution and civil rights laws in connection with a decision to foreclose on a housing project).
We are aware of only one case in which a court has held that § 1702 constitutes a waiver of sovereign immunity for civil rights actions against HUD, and that court made no attempt to reconcile its holding with the commercial obligation rationale of Burr. See Baker v. F. & F. Investment Co., 489 F.2d 829 (7th Cir. 1973) (action against HUD for money damages under 42 U.S.C. §§ 1981 and 1982 and the Fifth and Thirteenth Amendments).
Civil rights actions do not "arise[e] out of the commercial relationships which [HUD] enters into in pursuit of its statutory mission." S. S. Silberblatt, supra, at 36. The affirmative duties imposed upon HUD by the civil rights provisions at issue here are sovereign responsibilities such as could be imposed only upon an agency of the United States.Thus, to hold that § 1702 waives sovereign immunity for civil rights actions against HUD would require a significant departure from the understanding of § 1702 that was expressed in Burr, and that has persisted for more than forty years unchallenged, to our knowledge, by subsequent courts or Congress.
The City offers little by way of support for departing from Burr. The two cases it cites as supporting its position, Merrill Tenant Council v. HUD, 638 F.2d 1086 (7th Cir. 1981) and Burroughs v. Hills, 564 F. Supp. 1007 (N.D.Ill. 1983), fit squarely within the Burr analysis. The claims in those cases could have been asserted against private businesses in like circumstances.
Nor is it adequate simply to assert that "titles VI and VIII are integral parts of the housing statutes," Defendants' Memorandum of June 13, 1984, at 6, and that civil rights actions against HUD thus fall within the "sue and be sued" clauses. Titles VI and VIII are not literally part of the Housing Acts. Whether the waiver provisions of those Acts can be considered to cover actions based upon other statutes must depend upon whether Congress can reasonably be understood to have intended such a result. The City has offered no argument to suggest that it can.
It is true that the words of § 1702, standing alone, could be read as a waiver of sovereign immunity for any action against HUD that relates to the administration of the Housing Acts. The words do not, however, stand alone. They were enacted as part of a statute that "launched a governmental agency into the commercial world." Burr, 309 U.S. at 245. The duties of HUD upon which the City bases its present claim for damages are sovereign, not commercial, in nature, and they are duties imposed by statutes enacted long after the Housing Acts. Thus, we cannot conclude that the Congress which enacted § 1702 intended that section to waive sovereign immunity in actions against HUD based upon alleged violations of the civil rights statutes.
Nor is there any indication that the Congresses which enacted the civil rights laws intended § 1702 to be read as waiving sovereign immunity for actions based upon those laws. Indeed, there is evidence to the contrary. Section 603 of the Civil Rights Act of 1964 privides that agency action taken pursuant to the civil rights laws is subject to review according to the provisions of the Administrative Procedure Act. See Civil Rights Act of 1964, Pub. L. No. 88-352, Title VI, § 603, July 2, 1964, 78 Stat. 253, codified as 28 U.S.C. § 2000d-2.
This provision clearly suggests that Congress intended the review provisions of the APA, not the "sue and be sued" clauses of the Housing Acts, to serve as the means of ensuring agency compliance with the civil rights laws.
Significantly, we are not aware of any case in which a civil rights plaintiff seeking injunctive or declarative relief against HUD has relied on the waiver provision of § 1702.
It is only where, as here, the claimants seek monetary damages, and thus cannot rely on the APA, that § 1702 is urged as a waiver of sovereign immunity for civil rights actions against HUD.
The degree of strictness with which a waiver of sovereign immunity is to be construed is, at present, a matter of some confustion among the courts.
The basic principle remains clear, however, that the consent of Congress is required before a particular action can be maintained against the United States. For the reasons stated, we do not believe that the "sue and be sued" clauses of the Housing Acts can be interpreted as congressional consent to actions for damages against HUD based upon alleged violations of the civil rights laws. Accordingly, we hold that the City's claims are barred by the doctrine of sovereign immunity.
B. Failure to State a Claim
The City's claims must also be dismissed for failure to state a claim for which relief can be granted.There is no legal basis for claims for contribution or indemnity for a defendant charged with violation of the provisions at issue in this case.
The controlling authority in this area is Northwest Airlines, Inc. v. Transport Workers, 451 U.S. 77, 67 L. Ed. 2d 750, 101 S. Ct. 1571 (1981), in which the Supreme Court held unanimously that there was no implied statutory or common law right of contribution available to a defendant charged with violation of Title VII of the Civil Rights Act of 1964 and the Equal Pay Act. In doing so, the Court provided a general methodology by which contribution claims could be assessed under other federal statutes, such as those involved in this case. Recently, for example, this Court has had occasion to apply the Northwest Airlines decision to a claim for contribution and indemnity arising under § 1981 of the Civil Rights Act of 1871. Anderson v. Local No. 3, 582 F.supp. 627 (S.D.N.Y. 1984).
The primary teaching of the Northwest Airlines case is that without some indication of congressional intent to create such actions and contribution claims, courts simply do not have the power to entertain them where to do so would potentially disrupt "a comprehensive legislative scheme including an integrated system of procedures for enforcement." 451 U.S. at 97.
The City has attempted to distinguish Northwest Airlines in several ways, many of which address factors that the Court specifically held to be irrelevant to its determination. For example, the participation of HUD officials in public housing activities for which the City is charged with discrimination might be the type of factor that would, under traditional analysis, support a common law right to contribution. However, the Supreme Court in Northwest Airlines assumed for purposes of its decision
that all of the elements of a typical contribution claim are established. This means that we assume that the plaintiffs . . . could have recovered from [the original defendant or the contribution defendant] . . . and that it is unfair to require [the original defendant] to pay the entire judgment.
451 U.S. at 88-89.The Court also assumed that the contribution defendant bore "significant responsibility for discriminatory practices that these statutes were designed to prohibit." Id. at 90. Thus, the City's protestations that the alleged conduct of HUD would support a common law claim for contribution or "implied indemnity" are unavailing.
The City also urges as a basis for its claims that it has standing to sue under the liberal "injury-in-fact" standing requirements of Title VIII. This argument misses the mark completely because possession of the requisite interest in a controversy to have standing (even assuming it were present here) does not a fortiori prove that one has a cognizable claim to assert. Cf. Northwest Airlines, supra, 451 U.S. at 90 (Court assumed for purposes of its decision that, under some circumstances, an employer -- such as the contribution plaintiff -- could be a "person aggrieved" under Title VII).
The City has also cited Texas Industries, Inc. v. Radcliff Materials, Inc., 451 U.S. 630, 640-42, 68 L. Ed. 2d 500, 101 S. Ct. 2061 (1981), which, although holding that there is no right of contribution under the antitrust laws, contains some language which superficially might seem to support the city's position. The Texas Industries Court noted that the proposed contribution action did "not implicate "uniquely federal interests' of the kind that oblige courts to formulate federal common law." 451 U.S. at 642. Here, the City argues, "by contrast, the case concerns housing, urban renewal and civil rights statutes intended to implement important national policies for the benefit of the public at large," and is therefore distinguishable from a contribution action among private parties.
The argument misconstrues the relevant portions of the Texas Industries case. By "uniquely federal interests," the Court did not mean, as the City seems to suggest, issues of public importance, but rather "such narrow areas as those concerned with the rights and obligations of the United States, interstate and international disputes implicating the conflicting rights of States or our relations with foreign nations, and admiralty cases." Id. at 641 (footnotes omitted).
Moreover, the City's argument ignores the teachings of Northwest Airlines that "federal common law is "subject to the paramount authority of Congress" 451 U.S. at 95, quoting New Jersey v. New York, 283 U.S. 336, 348, 75 L. Ed. 1104, 51 S. Ct. 478 (1931), and that where "Congress has enacted a comprehensive legislative scheme . . . [t]he judiciary may not . . . fashion new remedies that might upset carefully considered legislative programs." 451 U.S. at 97 (footnote omitted).
Nor do we find any merit in the City's contention that Texas Industries is distinguishable from this case because of the judiciary's broader power under the statutory and constitutional provisions at issue here to formulate equitable remedies. First, for the reasons previously noted, the City's claims are monetary rather than equitable in nature. Second, the power to fashion an equitable remedy does not necessarily include the power to recognize actions for contribution, see Northwest Airlines, supra, 451 U.S. at 93 n.28 (Court noted that its holding did not adress "[a] court's broad power under [Title VII] to fashion relief against all respondents named in a properly filed charge").
The only argument advanced by the City in support of a right of contribution that begins to address the criteria of Northwest Airlines is that HUD, unlike private defendants, has an affirmative duty under Title VIII to promote the policies of that provision rather than a merely passive duty to avoid discrimination. Thus, the City urges, "[p]articipation by HUD in the remedy for any violation in which HUD participated would be consistent with Congress' recognition of the need for effective remedies to compensate the victims of discrimination and of the need to deter HUD from unlawful conduct." Defendants' Memorandum of June 13, 1984 at 17.
This contention raises two distinct lines of argument. First, the City seems to suggest that recognition of a right of contribution would be consistent with the overall policy of Title VIII. This argument fails because it too falls within the list of contentions that the Court in Northwest Airlines assumed to be true for purposes of its decision, but found unavailing.451 U.S. at 89. See also Texas Industries, supra, 451 U.S. at 646-47.
On the other hand, the City also may be suggesting that the imposition of special statutory responsibilities upon HUD evidences congressional intent to allow contribution actions against HUD by a defendant accused of violating the lesser duty that Title VIII imposes upon parties other than HUD. While the argument, so construed, at least points in the right direction, it fails to raise a sufficiently strong inference of congressional intent specifically to allow contribution actions against HUD. The imposition of statutory responsibilities upon HUD does not indicate, without more, how or by whom those responsibilities can be enforced.
The City also contends that, apart from statutory and common law theories, it has a constitutional right to contribution. It contends that where HUD has participated in discriminatory housing practices, it may be held liable for violating the Fifth Amendment. Hills v. Gautreaux, 425 U.S. 284, 47 L. Ed. 2d 792, 96 S. Ct. 1538 (1976). However, the fact that HUD may have violated the Constitution does not give rise to a monetary claim for contribution by a party similarly accused. The City's allegations, if true, would only be a basis for finding HUD liable to the plaintiffs.
We therefore hold that the City cannot maintain the claims it has asserted against HUD. It follows therefore that HUD must be dismissed as a party to this case, since no claims remain asserted against it.
Nothing in this Opinion, however, should be interpreted as intimating any view as to whether the facts alleged by the City in support of its claims would be relevant in shaping the relief, if any, that might be awarded against the City.A court has broad discretion to shape equitable relief in accordance with factors that might not be sufficient to give rise to a claim of legal entitlement. Moreover, although HUD will no longer be a party to this action in eo nomine, the United States will still be before the Court. Relief that binds the United States also binds its subordinate officers and agencies such as HUD. See Sunshine Coal Co. v. Adkins, 310 U.S. 381, 402-03, 84 L. Ed. 1263, 60 S. Ct. 907 (1940); Mervin v. FTC, 192 U.S. App. D.C. 212, 591 F.2d 821, 830 (D.C.Cir. 1978); River Valley, Inc. v. Dubuque County, 507 F.2d 582, 585-86 (8th Cir. 1974). Thus, if HUD's participation is required in any future action that may be ordered by the Court, we would not be without means to obtain such participation.
Accordingly, for the reasons stated, the motion of HUD and the United States to dismiss the third-party complaint and counterclaim asserted against them is granted.