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RIDDICK v. SUMMIT HOUSE

October 18, 1993

LILLIAN RIDDICK, Plaintiff,
v.
SUMMIT HOUSE, INC., as grantee of FERRIS AVENUE REDEVELOPMENT COMPANY, INC., SUMMIT HOUSE COOPERATIVE BOARD, REGINA S. HUNT, PRESIDENT, ELM MANAGEMENT ASSOCIATES, INC., KELVIN MURRAY, MANAGER & BERT SANTOS, MANAGER, Defendants.



The opinion of the court was delivered by: VINCENT L. BRODERICK

 VINCENT L. BRODERICK, U.S.D.J.

 I

 Plaintiff Lillian Riddick ("Riddick"), a tenant in a privately owned federally subsidized building, finds herself caught between regulatory requirements imposed by the U.S. Department of Housing and Urban Development ("HUD") concerning such buildings, and objections by the defendant owners and managers of the building (collectively "Summit") that they never agreed to become subject to such requirements.

 Summit contends that current HUD requirements are improper and hence has refused to sign agreements necessary for Riddick to continue to receive a federal rent subsidy. The underlying dispute, entirely beyond Riddick's control, arises between HUD and Summit, but has sideswiped Riddick, depriving her of her subsidized tenancy.

 It is the duty of the courts to find ways to uphold the rights of all parties and not to permit any rights improperly to be forfeited because of the complexity of the legal structure. *fn1"

 II

 This litigation arises under two landmark federal housing statutes:

 (a) the National Housing Act enacted June 27, 1934, ch 847, 48 Stat. 1246, § 221, now codified as 12 USC § 1715l ("§ 221"), granting federal credit assistance for housing provided under the Act, and

 (b) Section 8 of the Act of September 1, 1937 ch 986, as added by 88 Stat. 662 (1974), now codified as amended, as 42 USC § 1437f ("§ 8"), granting rent subsidies to qualified low-income tenants.

 Jurisdiction is predicated upon 28 USC § 1331.

 III

 Summit has received both kinds of subsidy; Riddick is a beneficiary of the § 8 program. The parties have submitted the case for disposition by the court based on agreed facts. *fn2"

 On December 29, 1966 Summit as a recipient of federal mortgage assistance under the National Housing Act of 1934 signed a "Regulatory Agreement" providing that Summit as mortgagor "may be regulated and restricted by the Commissioner as provided for in [§ 221] and the applicable Rules . . ." Relevant regulations, 24 CFR § 221.530(a), permit HUD to regulate rents charged by mortgagors under § 221.

 24 CFR § 822.110 authorizes rent subsidies to qualified tenants in buildings operated by mortgagors covered by § 221, which are provided pursuant to § 8; Summit accepted such tenants subsidized under § 8 at least as early as 1986.

 Section 8 provides that no "owner who has entered into a contract for housing assistance payments under this section on behalf of any tenant in a multifamily housing project shall refuse . . . (B) "to lease any available dwelling unit . . . to a holder of a certificate of eligibility under this section a proximate cause of which is the status of such prospective tenant as a holder of such certificate, and to enter into a housing assistance payments contract respecting such unit . . ." 42 USC § 1437f(t)(1)(A).

 In effect this means that owners who have already taken § 8 tenants must continue to do so and sign necessary agreements unless their failure to do so occurs for reasons other than the status of the tenant as a § 8 subsidy recipient. Summit continued to accept subsidized tenants under § 8 after subsection (t) was added in 1988 by Public Law 100-242 § 147. Summit also signed agreements since 1986 substantially similar to the one it now refuses to sign. *fn3"

 Notwithstanding its prior acceptance of virtually identical terms, Summit now refuses to sign documents required by HUD for current renewal of Riddick's subsidy on the ground that those documents went beyond what Summit was properly required to accept. Summit's refusal has led to loss of Riddick's § 8 subsidy, which is the basis of her lawsuit against Summit.

 This is not a case in which Summit can credibly claim unfair surprise in regard to the provisions of the current HUD § 8 contract, providing Summit with a bona fide business reason for not signing it. See Martin v. Joseph Harris Co., 767 F.2d 296 (6th Cir. 1985); Sierra Diesel Injection Service v. Burroughs Corp., 890 F.2d 108, 112-15 (9th Cir. 1989); West American Ins. Co. v. Park, 933 F.2d 1236, 1239 (3d Cir. 1991).

 Summit, a sophisticated institutional entity able to obtain advice of counsel, cannot claim to have been misled by technical legal language or fine print in the standard forms it executed, nor that it not have access to relevant statutes and regulations defining its obligations if it accepted §§ 8 and 221 subsidies; it can properly be held to its contractual commitments. See D.H. Overmyer Co. v. Frick Co., 405 U.S. 174, 31 L. Ed. 2d 124, 92 S. Ct. 775 (1972); Swarb v. Lennox, 405 U.S. 191, 31 L. Ed. 2d 138, 92 S. Ct. 767 (1972) (confessions of judgment by sophisticated business entities upheld); Northwestern National Insurance Co. v. Donovan, 916 F.2d 372 (7th Cir. 1990) (treating status of parties as millionaires as significant background fact in evaluating fairness of holding them to forum selection clause); Lone Star Industries v. Nelstad Material Corp., 811 F. Supp. 147 (S.D.N.Y. 1993) (principal of corporation signed guarantee of its debts without specifying maximum limit of liability).

 Summit argues that its refusal to sign the current HUD § 8 agreement because of its objectionable features, and not Riddick's status as a § 8 subsidy recipient, is the proximate cause of Riddick's loss of her status as a Summit tenant under § 8 and hence there is no violation of 42 USC § 1437f(t). This may be so if and only if there is a bona fide business reason or legitimate non-pretextual ground for declining to sign the HUD agreement apart from the status of the tenant as a § 8 subsidy recipient. Peyton v. Reynolds Associates, 955 F.2d 247 (4th Cir. 1992) (requiring a longer lease than previously involved).

 Since § 221, Summit's Regulatory Agreement and its prior § 8 agreements authorize the provisions now complained of, Summit would have a bona fide business reason to object to the current agreement only because of changed circumstances in its own business or in the administration of the § 8 agreement (not claimed here) or if signature of the § 8 agreement would estop Summit from contesting a) whether it was properly adopted, or b) unauthorized or confiscatory administration of that agreement in the future. *fn4"

 IV

 I decline to adopt the preliminary objections raised by Summit and its contention that HUD's current § 8 contract requirements are improper on their face as applied to Summit, but I find that Summit is entitled to contest the validity of HUD-required agreements and their implementation before or with HUD authorities or their local authority representatives. Summit may do so without being deemed to have waived such objections by signing the current HUD § 8 subsidy contract. *fn5"

 I deny Riddick's application for punitive damages, reserve decision on Riddick's application for attorney's fees and direct the parties to consider a potential resolution of their dispute as discussed below. I authorize an application for relief as described below if no resolution is agreed to. I also authorize Summit to add ...


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