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35-41 Clarkson LLC v. New York City Housing Authority

November 30, 2012

35-41 CLARKSON LLC, 2600 CRESTON AVE OWNER LLC, MDRJ, LLC, MMIKP, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS,
v.
NEW YORK CITY HOUSING AUTHORITY, DEFENDANT.



The opinion of the court was delivered by: P. Kevin Castel, District Judge

MEMORANDUM AND ORDER

Plaintiffs, landlords participating in the U.S. Department of Housing and Urban Development's ("HUD") Section 8 housing program bring this putative class action against the New York City Housing Authority ("NYCHA") alleging NYCHA's non-compliance with the federal statute (42 U.S.C. § 1437f) and regulations (24 C.F.R. Part 982) governing the Section 8 program, as well as NYCHA's own policies and the contracts entered into between each plaintiff and NYCHA in connection with the Section 8 program. Plaintiffs allege that NYCHA's non-compliance constitutes a denial of plaintiffs' Fourteenth Amendment procedural due process rights that is actionable under 42 U.S.C. § 1983. Additionally, plaintiffs allege that 42 U.S.C. § 1437f and 24 C.F.R. Part 982 create a private right of action under which plaintiffs may assert their claims. Finally, and in the alternative, plaintiffs allege a state-law claim for breacch of contract.

NYCHA moves to dismiss the amended complaint, arguing that plaintiffs; allegations amount merely to a state-law contract dispute over which the Court lacks subject matter jurisdiction, that the amended complaint fails to state a claim under 42 U.S.C. § 1983, and that there is no private right of action under 42 U.S.C. § 1437f or 24 C.F.R. Part 982. NYCHA asks that the Court decline to exercise supplemental jurisdiction over the contract claim.

Separately, Section 8 tenants Xiomara Torres, Alexsandra Nesaty, and Samuel Starker, on behalf of themselves and others similarly situated, move to intervene pursuant to Rule 24, Fed. R. Civ. P.

For the reasons set forth below, the amended complaint fails to state a claim upon which relief can be granted, and NYCHA's motion to dismiss the amended complaint is therefore granted. The motion to intervene is denied as moot.

BACKGROUND

The following facts are taken from the amended complaint and assumed to be true for the purposes of deciding this motion.

Pursuant to Section 8 of the United States Housing Act of 1937, NYCHA acts as a Participating Housing Authority ("PHA") and enters into Housing Assistance Payment ("HAP") contracts with participating landlords, under which NYCHA provides payments directly to landlords to subsidize the cost of housing for low-income tenants. (Compl. ¶¶ 9, 12.) An agency of the City of New York, NYCHA is responsible for overseeing more than 95,000 Section 8 housing units. (Id. ¶¶ 8, 10.) Each named plaintiff is a New York limited liability company that operates rental properties in New York City that participate in the Section 8 program through HAP contracts with NYCHA. (Compl. ¶¶ 3-6.) The HAP contracts between NYCHA and each plaintiff run concurrently with the lease term, and each provides that NYCHA "must pay housing assistance payments promptly when due to the owner." (Id. ¶¶ 25, 27.)

NYCHA's obligation to make payments to landlords is conditioned upon exercise of its rights with respect to Housing Quality Standards ("HQS"). Under the HAP contracts, NYCHA has the right to inspect Section 8 units and premises as it deems necessary to ensure compliance with HQS. (Id. ¶ 29.) If NYCHA "determines that a breach has occurred, NYCHA may exercise any of its rights and remedies under the HAP contract" and "shall notify the owner of such determination." (Id. ¶ 30.) NYCHA "shall not make any housing assistance payments if the contract unit does not meet the HQS, unless the owner corrects the defect within the period specified by the PHA [NYCHA] and the PHA [NYCHA] verifies the correction." (Id. ¶ 28 (brackets in amended complaint).)

NYCHA's public website explains that landlords may avoid rent suspensions due to HQS violations by correcting the violation within 30 days of the inspection, and that NYCHA may be informed of such corrections either by a joint certification by the landlord and tenant or by re-inspection. (Id. ¶¶ 59-61.) Even if the HQS violation is not corrected within 30 days, NYCHA states that the owner has the right to cure the HQS violation and resume receipt of rent payments if NYCHA receives a certification of repair by the tenant and owner (a "Joint Verification") or if NYCHA conducts a satisfactory re-inspection. (Id. ¶ 62.) In either case the "payments will resume retroactive" to the date of re-inspection, Joint Verification, or the date of repair if properly documented. (Id. ¶ 63.)

Contrary to the requirements of its HAP contracts with plaintiffs, NYCHA, upon identifying HQS violations at Section 8 units owned by plaintiffs, failed to notify plaintiffs of these violations in a timely manner. (Id. ¶¶ 66, 67.) Further, after plaintiffs became aware of violations and remedied them, NYCHA failed to follow its procedures allowing plaintiffs to cure the violations prior to suspension of rent payments, failed to pay plaintiffs rent payment after receiving Joint Verifications, failed to conduct re-inspections of plaintiffs' units within the time periods stated in NYCHA's policy, failed to follow its policy of re-instating plaintiffs' units after HQS violations were remedied, and failed to reinstate rent payments retroactively to the date of the completed work order or Joint Verification. (Id. ¶¶ 68-75.) NYCHA has no grievance procedure for owners to challenge these failures. (Id. ¶ 64.)

NYCHA has also failed to comply with its own policies and procedures regarding rent increases. According to NYCHA's public website and its "Landlord Request for Lease Renewal Approval" form, owners may request a rent increase for a particular unit upon expiration of a lease. (Id. ¶¶ 32-35.) Such increases will generally be based on the percentage increase permitted by the New York City Rent Guidelines Board unless the owner seeks a larger increase and attaches supporting documentation, which will be assessed under the "rent reasonableness" standard. (Id. ¶ 35.) Plaintiffs have applied for rent increases in conjunction with renewed leases, but NYCHA has failed to raise rents. (Id. ¶ 36-42.) Landlords may also seek rent increases after completing Major Capital Improvements or Individual Apartment Improvements. (Id. ¶¶ 45-57.) Plaintiffs have applied for such increases but NYCHA has not approved or denied those requests. (Id.) NYCHA has no grievance procedure to challenge its failure to raise rents. (Id. ¶ 43.)

DISCUSSION

I. Pleading Standard

To survive a motion to dismiss for failure to state a claim upon which relief can be granted, "a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). In assessing plausibility, courts draw all reasonable inferences in favor of the non-movant. See In re Elevator Antitrust Litig., 502 F.3d 47, 50 (2d Cir. 2007). Legal conclusions, however, are not entitled to any presumption of truth, and a court assessing the sufficiency of a complaint disregards them. Iqbal, 556 U.S. at 678. Instead, the court must examine only the well-pleaded factual allegations, if any, "and then determine whether they plausibly give rise to an entitlement to relief." Id.

"[O]n a motion to dismiss, a court may consider 'documents attached to the complaint as an exhibit or incorporated in it by reference, . . . matters of which judicial notice may be taken, or . . . documents either in plaintiffs' possession or of which plaintiffs had knowledge and relied on in bringing suit,'" although "mere notice or possession is not enough" absent plaintiff's reliance on such documents. Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002) (quoting Brass v. Am. Film Techs., Inc., 987 F.2d 142, 150 (2d Cir. 1993) (omissions in Chambers). A court may also consider "[a]n affirmative defense . . . raised by a pre-answer motion to dismiss under Rule ...


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