UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA
September 5, 1990
BEVERLY CURTIS, VIRGINIA THOMAS, CHRISTINE BLANCHARD and ARNITA HINES, on behalf of themselves and all others similarly situated, Plaintiffs,
HOUSING AUTHORITY OF THE CITY OF OAKLAND; HAROLD DAVIS, Executive Director; DONALD A. DUFFY, FREDERICK JAMES, WILLIAM BUFORD, TED DANG, ARABELLA MARTINEZ, and CLARA PROVOST, Members of the Board of Commissioners, Defendants
The opinion of the court was delivered by: LYNCH
ORDER GRANTING PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT
EUGENE F. LYNCH, UNITED STATES DISTRICT JUDGE
Plaintiffs are tenants in federally assisted public housing projects for low income tenants, owned and operated by defendant Housing Authority of the City of Oakland (hereinafter "OHA"),
a public housing authority operating under the United States Housing Act of 1937 (hereinafter "the Act"). 42 U.S.C. §§ 1437, et seq. In 1981, OHA adopted a policy discontinuing the provision of stoves to new tenants under the age of 62, continuing maintenance of stoves for existing tenants only for the useful lives of existing stoves, and exempting tenants over the age of 62 from this policy. Plaintiffs allege that this policy violates OHA's obligations under the Act, breaches OHA's contract with the Department of Housing and Urban Development (hereinafter "HUD") for operation of the public housing projects under OHA's management, and constitutes a violation of their civil rights under 42 U.S.C. section 1983 and the fourteenth amendment.
As the facts which give rise to this case are largely undisputed, plaintiffs and defendants have both filed summary judgment motions seeking a ruling on the legality of OHA's policy regarding provision and maintenance of stoves for its tenants. For the reasons set forth in this order, the Court finds that OHA's policy breaches its operating contract with HUD. The Court therefore grants plaintiffs' motion and denies defendants' motion on this issue.
I. FACTS AND PROCEEDINGS
The current system of federally assisted low income housing programs was established by the Act in 1937. The stated purpose of the Act is:
To remedy the unsafe and unsanitary housing conditions and the acute shortage of decent, safe, and sanitary dwellings for families of low income and, consistent with the objectives of this chapter, to vest in local public housing agencies the maximum amount of responsibility in the administration of their housing programs.
42 U.S.C. § 1437. Stated simply, the Act authorizes HUD to provide financial assistance to local public housing authorities (hereinafter "PHA's") to develop and operate low income housing projects which follow HUD guidelines. Rental payments by the tenants of such projects are statutorily limited to a certain percentage of their income. 42 U.S.C. § 1437a (hereinafter "the Brooke Amendment"). In return for rental payments, the tenants are entitled to reside in "decent, safe, and sanitary dwellings." Id.2
The terms and conditions of HUD's provision of financial assistance to OHA are governed by an "Annual Contributions Contract" (hereinafter "ACC") between HUD and OHA. The ACC dictates to OHA many of the aspects of the development and operation of its low income housing projects in some detail. In consideration of OHA adhering to these obligations in the development and operation of the projects, HUD agrees in the ACC to provide financial assistance to OHA, including federal guarantees for bond issues for development as well as subsidies to repay the bonds and to meet operating expenses.
Several specific provisions of the ACC are material to the issue currently before the Court. Section 312 of the ACC defines a "project" as including "all personal property . . . which is acquired and held in connection with such Project." Section 313 of the ACC permits OHA to dispose of personal property after making a determination, in accordance with section 308, that such personal property is in "excess to the needs" of the project. Section 308 provides that a determination that personal property is in excess of the needs of the project can be made if the personal property is "no longer useful or necessary to the development or operation of such Project."
Finally, section 209 requires OHA to maintain its projects "in good repair, order, and condition."
In 1975, HUD implemented the Performance Funding System (hereinafter "PFS") to calculate the level of operating subsidies which PHA's were to receive. Under PFS, HUD determines the annual operating subsidy to a particular project by subtracting that project's expected income from a predetermined expense level; the difference between these two figures constitutes HUD's operating subsidy to the PHA. The expense level of a PHA is determined by examining the project's operating budget, as well as other factors such as a project's size and age, during a base year and adjusting this expense level annually to account for inflation.
On August 10, 1981, OHA's Board of Commissioners adopted Resolution Number 2439, which set forth its new policy regarding provision and maintenance of stoves for its tenants.
It does not appear from the facts that OHA ever sought HUD approval for this action; section 308 of the ACC does not require that OHA seek such approval. Additionally, OHA never made any public statement regarding a determination that stoves were in excess to the needs of its projects, nor did it make any public finding that stoves were "no longer useful or necessary" to its projects. Its only contentions to the contrary seem to be based on determinations reached privately and/or after Resolution Number 2439 was adopted.
Subsequent to OHA's adoption of its new policy regarding stoves, HUD issued a document entitled Notice 83-35 on July 13, 1984. This document addressed concerns raised by HUD Field Offices which had received requests by PHA's to phase out provision of major appliances. HUD responded to these concerns by directing Field Offices to inform the requesting PHA's that their obligations under the ACC regarding the maintenance and disposition of personal property required continuation of provision and repair of major appliances if the project was developed including these appliances. HUD also directed the Field Offices to inform requesting PHA's that phasing out provision and maintenance of major appliances would be permitted only with HUD approval, following provision of an allowance to the affected tenant to replace the removed appliance.
On April 26, 1989, plaintiffs initiated this action by filing their complaint in California Superior Court seeking a writ of mandate to compel OHA to comply with its constitutional, statutory and contractual duties. Plaintiffs further sought damages, as well as declaratory and injunctive relief. OHA timely removed the case to this Court on May 26, 1989. On September 27, 1989, plaintiffs filed an amended complaint which included class action allegations.
On April 20, 1990, plaintiffs and OHA filed their cross-motions for summary judgment currently before the Court; plaintiffs also filed a motion for class certification that same date. At oral argument on the motions on May 18, 1990, the Court granted plaintiffs' motion for class certification and took the cross-motions for summary judgment under submission pending filing of an amicus curiae brief by HUD. HUD filed a brief from another case to which it was a party
with somewhat similar facts and supplemented this submission with a further brief specific to the facts of this case upon request by the Court.
II. STANDARD FOR SUMMARY JUDGMENT
Federal Rule of Civil Procedure 56(c) provides that a motion for summary judgment shall be granted if the moving party establishes the absence of any genuine issue of material fact which would preclude a ruling by the Court on the motion as a matter of law. Where, as here, the operative facts are largely undisputed, the disputed issue is especially susceptible to disposition by a summary judgment motion. Braxton-Secret v. A.H. Robins Co., 769 F.2d 528, 531 (9th Cir. 1985). In addition, interpretation and construction of statutes and unambiguous contracts are traditionally matters of law, which are therefore appropriate matters for summary adjudication. Western Oil & Gas Ass'n v. United States Envtl. Protection Agency, 767 F.2d 603, 606 (9th Cir. 1985) (statutory construction); Edison v. Reliable Ins. Co., 664 F.2d 1130, 1131 (9th Cir. 1981) (unambiguous contracts).
Plaintiffs make two arguments that they are entitled to a ruling that OHA's policy regarding provision and maintenance of stoves to tenants is somehow illegal. First, they contend that the Brooke Amendment requires OHA to provide stoves to tenants in return for the tenant's statutorily limited rental payments. They arrive at this conclusion, even though HUD disputes this point, by examining the language of the Brooke Amendment itself, and by interpreting HUD's regulations promulgated to implement the Brooke Amendment. Secondly, plaintiffs argue that OHA has breached its obligation to HUD and to them as third party beneficiaries under the ACC to continue to provide stoves once a federally assisted project has been developed including stoves.
OHA disagrees strongly on both of these points. It argues that it is under no statutory or contractual obligation to continue to provide or maintain stoves. In the alternative, OHA posits that it has complied with any contractual obligation it may have under the ACC. For these reasons, OHA feels that it is entitled to a ruling that its policy is legal in all respects as a matter of law.
A. OHA'S DUTY UNDER THE BROOKE AMENDMENT
The Brooke Amendment expressly limits the portion of its income that a lower income family must pay for rent in order to reside in a federally assisted housing project. 42 U.S.C. § 1437a(a)(1). In return for such rent, a public housing tenant is entitled to live in a "decent, safe, and sanitary dwelling" with "all necessary appurtenances thereto. . . ." 42 U.S.C. § 1437a(b)(1). The Brooke Amendment itself provides no more specific guidance than this as to the required composition of a public housing project. Nevertheless, plaintiffs urge the Court to rule that this language dictates that OHA must provide stoves to its tenants in return for their rental payments.
It is true, of course, that the most persuasive evidence of a statute's meaning is the language of the statute itself. Only when there is a "clearly expressed legislative intention to the contrary" should a court interpret a statute inconsistent with the ordinary meaning of its language. American Tobacco Co. v. Patterson, 456 U.S. 63, 68, 71 L. Ed. 2d 748, 102 S. Ct. 1534, 1537 (1982). In the context of this case, however, the language of the statute is far from clear. All the statute says is that the public housing provided to the tenants must be "decent, safe, and sanitary."
In addition, case law and the legislative history interpreting the requirements of the Brooke Amendment are sparse.
Therefore, as an aid in interpreting the Brooke Amendment, the Court turns to HUD's regulations which implement the statute. In interpreting a statute, a court should defer to the administrative agency charged by Congress with carrying out that statute. Chemical Manufacturer's Ass'n v. National Resources Defense Council, Inc., 470 U.S. 116, 125, 84 L. Ed. 2d 90, 105 S. Ct. 1102, 1107 (1985). To sustain the agency's position, a court need not find the agency's position the only permissible construction of the statute. Only if the agency's interpretation of a statute is not "rational" or clearly contrary to Congressional intent should a court not follow that interpretation. Id.
Plaintiffs argue that HUD's regulations implementing the Brooke Amendment have consistently interpreted the Brooke Amendment to include stoves as a part of the dwelling unit to which a tenant becomes entitled in return for a statutorily limited rental payment. HUD disputes this contention, both in the Brown brief and its amicus brief submitted in this case. The Brown brief states that:
HUD does not interpret the Brooke Amendment per se to require the provision of stoves and refrigerators without extra charge. Nor does HUD interpret the Brooke Amendment's rent limitation per se to require what a tenant pays as "rent" pursuant to the Amendment include charges for stoves and refrigerators.
Brown brief at 3.
Plaintiffs assert, however, that HUD's regulations themselves belie HUD's position on this point. As the Court views HUD's actions in implementing the Brooke Amendment as more material than its legal positions taken in response to lawsuits, the Court shall examine HUD's regulations implementing the Brooke Amendment to determine whether HUD has indeed interpreted the Brooke Amendment "rent" limitation clause to include provision and maintenance of stoves.
Plaintiffs first point to a HUD regulation in force in 1981 at the time of OHA's adoption of Resolution Number 2439 as demonstrating that HUD considered provision of stoves to be included in the Brooke Amendment's definition of "rent." In 1981, 24 C.F.R. section 860.403(a) stated:
Contract Rent. Contract rent means the rent charged a tenant for use of dwelling accommodations and equipment (such as ranges and refrigerators but not including furniture), and reasonable amounts of utilities . . . .
While the plaintiffs argue that this language shows conclusively that HUD considered provision of stoves to be within the "rent" definition, HUD contends that this language, rather than requiring PHA's to supply stoves, was not mandatory and was meant only as a non-exclusive list of "equipment" that a PHA might consider providing to its tenants. Brown brief at 3-4, note 1.
In 1984, this regulation was amended; the successor to 24 C.F.R. section 860.403(a) does not explicitly include stoves or ranges as a part of "rent." Rather, 24 C.F.R. section 913.103 reads:
Tenant Rent. The amount payable monthly by the Family as rent to the PHA. Where all utilities (except telephone) and other essential housing services are supplied by the PHA, Tenant Rent equals Total Tenant Payment. Where some or all utilities (except telephone) and other essential housing services are not supplied by the PHA and the cost thereof is not included in the amount paid as rent, Tenant Rent equals Total Tenant Payment less the Utility Allowance.
The companion regulation which sets forth the procedure for computing the "Utility Allowance" discussed in 24 C.F.R. section 913.103 states:
Allowances for both PHA-Furnished and Tenant-Purchased Utilities shall be designed to include such reasonable consumption for major equipment or for utility functions furnished by the PHA for all tenants (e.g., heating furnace, hot water furnace), for essential equipment whether or not furnished by the PHA (e.g., range and refrigerator), and for minor items of equipment (such as toasters and radios) furnished by tenants.
24 C.F.R. § 965.473(b) (1984).
Thus, in the 1984 regulations, it became clear that HUD considered provision of stoves by PHA's to their tenants to be optional.
This is consistent with the interpretation of its regulations that HUD now proffers. In addition, it appears to be consistent with the actions HUD has taken over the years in implementing the Brooke Amendment.
Therefore, the Court for the purposes of this case accepts HUD's explanation of these regulations as not requiring, but as allowing, PHA's to develop federally assisted housing projects with stoves.
Plaintiffs also argue that 24 C.F.R. section 880.203, which defines "Fair Market Rent" in the context of "Section 8" housing
to include ranges and refrigerators, demonstrates that HUD intended for PHA's to provide and maintain stoves for their tenants pursuant to the Brooke Amendment. In support of this argument, plaintiffs cite HUD's administrative comments in the Federal Register that the regulations on public housing and Section 8 housing are to be interpreted in "uniformity." 49 Fed. Reg. 21477 (May 21, 1984).
This argument, however, misses the point of the regulations and the administrative comment. It is clear from the regulations that "Fair Market Rent" merely determines the amount of rent to which a landlord is entitled for a similar unit in the relevant rental marketplace, whether the landlord is an owner of an existing dwelling unit or is the PHA itself in the case of a public housing project. It says nothing about which accessories a public housing tenant is entitled to in return for a monthly rental payment. This definition is therefore directed at the amount HUD must subsidize operators of lower income housing rather than the rents tenants must pay.
The final argument which plaintiffs make in support of their position that OHA is required by the Brooke Amendment, as interpreted by HUD's implementing regulations, is the system for determining OHA's annual operating subsidy, PFS. Although OHA disputes this point, it is clear that its allowable expense level was computed in 1975 using a budget that included allocations for provision and maintenance of stoves, as OHA was providing those services at the time. See 24 C.F.R. §§ 990, et seq.; see also HUD Notice 83-35. It is therefore true that OHA's annual operating subsidy was determined taking into account its policy at the time of providing and maintaining stoves. It is also true that OHA's operating subsidy has not been changed to reflect this fact even after adoption of Resolution Number 2439 in 1981.
However, plaintiffs' argument in this regard ultimately fails because the regulations which dictate PFS are not regulations implementing the Brooke Amendment, but are merely directed toward determining the level of operating subsidy to PHA's. They have nothing to say regarding what is to be provided by a PHA in return for a tenant's payment of rent. Thus, while it may be true that a PHA which discontinues provision and maintenance of stoves may receive some form of a "windfall" under PFS,
this alone is not a source of that PHA's obligation to provide stoves. That obligation must be found elsewhere. To that issue, the Court now turns.
B. OHA'S OBLIGATIONS UNDER THE ACC
Plaintiffs' other major argument that OHA's policy regarding provision and maintenance of stoves to its tenants is illegal is that the policy breaches OHA's obligations under the ACC to HUD and to them as third party beneficiaries to the contract.
In its amicus brief, HUD appears to agree with this assertion. OHA argues, on the other hand, that plaintiffs and HUD overstate its obligations under the ACC. Alternatively, they contend that they have complied with the ACC even if the Court accepts the interpretation of the ACC proffered by HUD and the plaintiffs.
As a preliminary matter, the Court agrees with OHA that it is not under the same obligation to defer to HUD's interpretation of the ACC as it must defer to HUD's interpretation through its regulations of the Brooke Amendment.
Even granting OHA's point that HUD is not entitled to any deference at all in its interpretation of the ACC, however, the Court still is obligated to interpret the ACC in a manner that prefers reasonable interpretations over unreasonable ones or ones that would render the contract illusory. Kennewick Irr. Dist. v. U.S., 880 F.2d 1018, 1032 (9th Cir. 1989). In addition, a contract is to be construed with reference to the document as a whole, taking into account the overall purpose underlying the document. Id.
Here, section 312 of the ACC defines a project as including any personal property which is acquired in the course of development or operation of the project. In order to dispose of personal property so acquired, section 313 permits OHA to "determine" under section 308 that such personal property is "excess to the needs" of the project. This determination can be made upon a finding that the personal property is "no longer useful or necessary" to the project. As long as the personal property remains part of the project, OHA remains under an obligation under section 209 to maintain the property in "good repair, order, and condition."
Thus, the crucial issue in this case is whether OHA ever made such a determination that stoves were in excess to the needs of its projects because they were no longer useful or necessary, and whether such determination, if made, was sufficient to meet OHA's obligations under the ACC. Both of these questions turn on an interpretation of the ACC as to what form it requires the determination by OHA to take.
OHA argues, quite correctly, that the ACC does not require that HUD approve OHA's determination pursuant to section 308 prior to disposal of personal property acquired in connection with development or operation of the project. OHA cannot argue, however, that it is required to make no determination whatsoever before disposing of personal property, as the plain language of section 308 requires such a determination.
OHA submits, through declarations and deposition testimony, that prior to adopting Resolution Number 2439, it determined that stoves became "useless" to its projects once the cost of repairing the stoves exceeded their market value. When, where and how this determination was made remains unclear from the record. OHA does not appear, however, to genuinely dispute that it never made any such finding publicly, or in a manner accessible to anyone outside of OHA's boardroom or executive offices.
Furthermore, OHA contends it made a determination that stoves were not necessary to the project because OHA staff members were aware in 1981 that Section 8 tenants had generally been able to acquire stoves through their own resources when not furnished by a landlord.
In addition, OHA submits that prior to adopting Resolution Number 2439, OHA had determined that to continue providing and maintaining stoves would, given HUD's subsidy limitations, have caused OHA to become insolvent.
OHA is correct when it argues that it need only find that the stoves were either not useful or not necessary, rather than both. This position is supported by the plain language of section 308 of the ACC. Beyond that point, however, the Court parts ways with OHA on the proper interpretation of the ACC. In the final analysis, the Court finds that OHA's proffered interpretation is an unreasonable one which would render the contract illusory.
OHA would have the Court rule that OHA was entitled to determine, without public or tenant input, and without any later public accountability, that the stoves were in excess to the needs of its projects, and that it could discontinue their provision and maintenance despite the fact that the stoves were purchased largely with federal financial assistance. To allow this interpretation would read the determination requirement out of the ACC altogether, as OHA would be permitted to act in an entirely arbitrary and self-serving fashion. Such a decision by this Court would be contrary to the spirit of the ACC and the United States Housing Act, both of which were expressly intended for the benefit of lower income individuals and families, not the PHA's charged with carrying out this policy.
Instead, the Court holds that section 308 of the ACC requires, prior to disposal of personal property acquired in connection with the development or operation of a project, a public notice of a determination by OHA that such personal property is either no longer useful or no longer necessary. Such notice should be reasonably calculated to communicate the substance of OHA's determination to the affected tenants and should at least take the form of a public posting of the relevant determination by OHA in a place reasonably accessible to those tenants.
Additionally, the Court holds that OHA's determination must be a rational one within the context of the purpose of the ACC. In other words, there must be some relationship between OHA's determination that the personal property in question is no longer useful or no longer necessary and the interests the primary beneficiaries of the ACC, the low income tenants of OHA's projects. A determination based on OHA's own economic interests will not be sufficient under this standard, especially when such a determination is directly contrary to the tenants' interests.
With this standard in mind, the Court finds that in this case, OHA's determination regarding provision and maintenance of stoves breaches the ACC. As discussed above, there is no genuine issue of fact regarding whether OHA ever made a public statement of its determination that the stoves were no longer useful or necessary to its projects. The sort of private decision followed by after the fact justification which OHA has engaged in here breaches OHA's obligations under the ACC to HUD and the tenants as third party beneficiaries. OHA purchased the stoves with public money, became obligated to repair and maintain them, and accepted some limitation on their disposition. OHA incurred public responsibility for the personal property which it purchased with public funds for the public benefit; it cannot now avoid this responsibility without some form of public accountability.
Furthermore, even if the Court were to accept OHA's notice of its determination as proper, the Court would also find that OHA's reasons for determining the stoves to be no longer useful or necessary to be without a rational relationship to the interests of the tenants. OHA based its finding that the stoves were no longer useful on a straight economic analysis: When an individual stove reaches a point where it costs more to repair than its market value, it becomes useless. This analysis misses the point of section 308 almost entirely as it is based on OHA's own economic interests rather than the interests of the tenants of OHA's projects.
Section 308 assumes that personal property acquired during the development or operation of a project with federal assistance was useful to the tenants when purchased. To determine otherwise, OHA must show more than mere obsolescence of an individual piece of equipment. Rather, it must show that some condition or combination of conditions has occurred which renders the property useless or unnecessary to the affected tenants. Absent such a showing, OHA remains under an obligation, pursuant to section 209 of the ACC, to maintain the property in good repair and, indeed, to replace it when repair is no longer economical.
One other factor mitigates against crediting as rational OHA's purported determination of the stoves as useless. Resolution Number 2439 explicitly exempts tenants over the age of 62 from OHA's policy of discontinuing stove provision and maintenance. Why a stove is less useful to a younger tenant family than to an elderly tenant remains a mystery to the Court. Surely, younger tenants have an equal need to cook their meals as do elderly tenants. This part of OHA's purported determination strains all credibility.
OHA's also claims that it made a determination that stoves were no longer necessary to public housing tenants because it was aware in 1981 that Section 8 tenants were generally able to acquire stoves through their own resources. The Court considers this determination to be faulty as well because it does not take into consideration the interests of the tenants of OHA's public housing projects.
Section 8 is a program quite different from the public housing program; Section 8 tenants generally receive housing in existing privately owned dwellings, as opposed to the typical public housing tenant who resides in a project developed by a PHA. The decision to provide a stove by a section 8 landlord is driven by economic factors, e.g., whether offering for rental a dwelling unit without a stove makes economic sense in terms of the reimbursement the landlord is likely to get from HUD. Furthermore, the section 8 landlord is not bound by the same ACC as is a PHA. Because of the differing nature of the two programs, the Court cannot see that there is any basis for having made a necessity determination by utilizing facts arising out of the Section 8 program.
OHA's final argument that it made a proper determination under section 308 that stoves were no longer useful or necessary to the tenants is purely financial. OHA contends that it made a determination that continuing to maintain and provide stoves would cause it to become insolvent. OHA argues that this justification is within the dictates of expired HUD Notice 83-35, which expressly states that substantial cost savings would be one factor which HUD would consider in approving a request by a PHA to discontinue providing and maintaining major appliances. OHA misreads the notice, however, which goes on to say that HUD approval would be forthcoming only if the PHA provided an allowance to the affected tenant to replace the lost appliance, which OHA has not done.
Furthermore, the Court finds it inappropriate that OHA would rely on "substantial cost savings" alone to support a determination that stoves were no longer useful or necessary in its projects. PFS was adopted to encourage efficient budget management by PHA's; OHA's operating subsidy was calculated based on an operating budget in which OHA allocated funds for provision and maintenance of stoves. In this context, OHA was charged with the responsibility of running its budget efficiently within the limitations set by PFS. The Court fails to see how OHA's failure to meet its budgetary limitations translates into a justification for discontinuing an important service to its tenants which was part of its budgetary allocation to begin with.
Thus, the Court finds that OHA did not make a proper determination under section 308 of the ACC that stoves were no longer useful or necessary to the Project. OHA may, of course, attempt to make such a determination in the future, but it must do so in accordance with the terms of this order. Once it has done so, OHA remains accountable to either its tenants or to HUD, who are entitled to bring an action in court challenging OHA's action.
Therefore, plaintiffs' motion for partial summary judgment is granted on the grounds that OHA's actions violate its obligations under the ACC.
The Court considers that the only remaining issue in this case is determination of the proper remedies to be afforded the various plaintiffs. The Court suggests that identification of the class action plaintiffs and division of the plaintiffs into sub-classes based on differing entitlements because of differing factual situations should be the next step before final remedies are determined.
The parties shall appear at a status conference before the Court on Wednesday, October 31, 1990 at 8:45 A.M. to discuss this and any other remaining issues.
IT IS SO ORDERED.
DATED: SEPTEMBER 5, 1990.