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Shannon v. United States Department of Housing and Urban Development

decided: December 30, 1970.

MAURICE SHANNON ET AL., APPELLANTS,
v.
UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, GEORGE ROMNEY, SECRETARY OF DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, WARREN P. PHELAN, REGIONAL ADMINISTRATOR, REGION II, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, AND THOMAS J. GALLAGHER, REGIONAL ADMINISTRATOR, FEDERAL HOUSING ADMINISTRATION, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT



Hastie, Chief Judge, and Staley and Gibbons, Circuit Judges.

Author: Gibbons

Opinion OF THE COURT

GIBBONS, Circuit Judge.

Plaintiffs-Appellants in this action are white and black residents (some homeowners and some tenants), businessmen in, and representatives of private civic organizations in the East Poplar Urban Renewal Area of Philadelphia. They sue in their own right, and as class representatives of others similarly situated pursuant to Rules 23 and 17(b) of the Federal Rules of Civil Procedure. The individual defendants are those federal officials of the Department of Housing and Urban Development responsible for implementing the several federal statutes on fair housing and urban development. The Department of Housing and Urban Development (HUD) is also named as a defendant. Their complaint seeks a preliminary and a final injunction against the issuance of a contract of insurance or guaranty, and against the execution or performance of a contract for rent supplement payments, for Fairmount Manor, an apartment project which, when the complaint was filed, was about to be constructed in the East Poplar Urban Renewal Area. Jurisdiction is claimed under 28 U.S.C. § 1331 (federal questions), under 28 U.S.C. § 1361 (mandamus against federal officials), under 28 U.S.C. § 1343 (civil rights), and 28 U.S.C. § 2201 (declaratory judgments). A number of substantive and procedural irregularities are alleged in the steps leading to federal approval of the contract of insurance and the approval of the project for a rent supplement contract. The essential substantive complaint is that the location of this type of project on the site chosen will have the effect of increasing the already high concentration of low income black residents in the East Poplar Urban Renewal Area. The essential procedural complaint preserved on appeal is that in reviewing and approving this type of project for the site chosen, HUD had no procedures for consideration of and in fact did not consider its effect on racial concentration in that neighborhood or in the City of Philadelphia as a whole.

The district court denied plaintiffs' application for a preliminary injunction. It also denied defendants' Rule 12 motion to dismiss for failure to state a claim or for lack of jurisdiction. The defendants then filed an answer alleging lack of standing on the part of the plaintiffs, sovereign immunity, administrative discretion, and due compliance with all substantive and procedural requirements of the applicable law. An accelerated final hearing followed. On October 7, 1969 the district court filed an opinion containing findings of fact and conclusions of law and entered a final judgment dismissing the complaint.

We have been advised by the parties, although the facts do not fully appear in the record, that while the suit was pending construction of Fairmount Manor proceeded to completion and that the project is now occupied. We have also been advised that no mortgage insurance contract has been issued by HUD insuring a permanent mortgage on the project.

Fairmount Manor is designated a "221(d) (3)" project. This type housing project is authorized by Section 221(d) (3) of the Housing Act of 1954, 68 Stat. 590, 599, 12 U.S.C. § 1715 l (d) (3). This mode of assistance, designed to assist private industry in providing for low and moderate income families, 12 U.S.C. § 1715 l (a), provides that HUD may insure mortgages on housing owned by eligible sponsors for the entire replacement cost of the project. 12 U.S.C. § 1715 l (d) (3) (iii). Sponsors eligible for such one hundred per cent mortgage insurance include private nonprofit corporations. Philadelphia Housing Development Corporation (PHDC) is an eligible nonprofit corporation which was formed for the express purpose of becoming a sponsor for Fairmount Manor. It made application to HUD for mortgage insurance under § 221(d) (3), 12 U.S.C. § 1715 l (d) (3), which was approved on November 20, 1968. As is often the case with such nonprofit sponsors, there is a connection between the nonprofit sponsor and a commercial real estate developer, in this case Abram Singer & Sons (Singer).

Rent supplement contracts are authorized by § 101 of the Housing and Urban Development Act of 1965. 12 U.S.C. § 1701s. That statute authorizes HUD to contract with "housing owners" to make annual payments on behalf of "qualified tenants." "Qualified tenants" are individuals or families having incomes below the maximum permitted in the area for occupation of public housing dwellings, 12 U.S.C. § 1701s(c) (1), and who are occupying substandard housing, or have been displaced by condemnation or disaster, or are physically handicapped or aged. 12 U.S.C. § 1701s(c) (2). "Qualified tenants" are, in short, tenants who, but for the rent supplement contract pursuant to which the government pays part of their rent, would be living either in low rent public housing or in slum housing. "Housing owners," for purposes relevant to this case, are 221(d) (3) nonprofit sponsors.*fn1 Prior to its approval of Fairmount Manor for 221(d) (3) mortgage insurance, HUD approved PHDC as a "housing owner" and Fairmount Manor as a project eligible for 100 percent occupancy by "qualified tenants" receiving rent supplement assistance. Such approval did not require that PHDC rent only to "qualified tenants," but only that if it did so the government would pay a rent supplement for all such tenants. The record does not disclose what percentage of the tenants now occupying the project are "qualified tenants."

Fairmount Manor is located between 6th and 7th Streets and Fairmount Avenue and Green Street in North Philadelphia. It is within the East Poplar Urban Renewal Area, which is bounded, in turn, by 5th and 9th Streets and Spring Garden Street and Girard Avenue. East Poplar is the subject of an urban renewal plan. That plan was formulated by the Philadelphia Redevelopment Authority, which is a local public agency (LPA) within the meaning of the Housing Act of 1949. 42 U.S.C. § 1450 et seq. That statute authorizes HUD to advance loans and grants to local public agencies for urban renewal projects. The LPA first formulated an urban renewal plan for East Poplar on October 24, 1958. This plan was formally revised on five occasions, and the presently effective plan is the Fifth Amended Plan for East Poplar, dated June, 1964. Federal funds were made available for site acquisition and other purposes in connection with the East Poplar urban renewal plan pursuant to a Loan and Grant Contract between HUD and the LPA.

Under § 101(c) of the Housing Act of 1949 no contract may be entered into by HUD for federal financial assistance, and no mortgage may be insured, unless there is presented to the Secretary

Section 105(d) of the Housing Act of 1949, 42 U.S.C. § 1455(d), provides,

No land for any project to be assisted under this subchapter shall be acquired by the local public agency except after public hearing following notice of the date, time, place, and purpose of such hearing.

The legislative history of § 105(d) indicates that it was intended to give the public in an affected area an opportunity to be heard with respect to an urban renewal plan before the LPA entered into a contract for federal financial aid.*fn2 HUD has no published regulations in the Code of Federal Regulations respecting the time or manner of conducting a § 105(d) public hearing, nor has it published such regulations respecting the manner in which a LPA will satisfy HUD that it has a workable program for community improvement. Instead, the agency has published for internal departmental use an Urban Renewal Handbook. That Handbook recognizes that a modification of an urban renewal plan may be of such magnitude as to require a new § 105(d) hearing. Urban Renewal Handbook, RHA 7206.1, ch. 3. The Handbook also specifies what submissions must be made by a LPA to satisfy HUD respecting compliance with the workable program for community improvement under § 101(c). Among the submissions required is one designated R-215:

Report on Minority Group Considerations, if project will result in substantial net reduction in supply of housing in project areas available to racial minority families.

The last time a § 105(d) hearing was held on a revision of the East Poplar plan was prior to the Fifth Amendment, which was prepared by the LPA in June of 1964 and submitted to the Urban Renewal Administration*fn3 in October, 1965. That submission contained a form R 215 which stated:

The proposed redevelopment of this section of the East Poplar Urban Renewal Area is for residential and commercial purposes and will not result in a substantial reduction in housing for minority group families.

The original urban renewal plan, adopted in 1959, called for a combination of rehabilitation of structures by property owners in part of the area, and of site acquisition in another part. Within the tract to be acquired existing structures deemed non-salvageable were to be cleared, and salvageable structures were to be conveyed to a redeveloper for rehabilitation as single family and multifamily owner occupied dwellings. In addition the redeveloper was to erect 244 single family owner occupied units. The changes approved in Amendments One through Five left these features of the Plan essentially unchanged.

Plaintiffs claim that in reliance on the original Plan and subsequent amendments, which contemplated redevelopment of the Fairmount Manor area primarily for single family owner-occupied homes, they made substantial investments, commitments, and in some cases home purchases. Rehabilitation of some 70 structures originally deemed salvageable did not proceed on schedule and these were eventually vandalized. In 1966 these were, with HUD approval (granted without a § 105(d) Hearing), demolished. Of the 244 new single family dwellings only 70 have been erected to date.

Thus in 1966 the vision if not the letter of the Fifth Amended Plan seemed largely frustrated in this area of East Poplar. Singer, because of financial contingencies in his contract with the LPA, was not technically in default on those contracts. Singer proposed a 221(d) (3) project with federal rent supplements, to be built by him for a nonprofit sponsor. The LPA entered into a revised contract with Singer for such a project on September 26, 1967. This contract referred to a 221(d) (3) project for families of moderate income, but it is undisputed that at all times after the project was first discussed a 221(d) (3) project with rent supplements was contemplated. Prior to the execution of the September 26, 1967 contract between Singer and the LPA, the proposed change in the Plan was submitted in some form to the HUD Assistant Regional Administrator for Renewal Assistance, who on June 30, 1967 informed the LPA that the maximum housing density permitted by the urban renewal plan would have to be reduced as a prerequisite to HUD approval (Exhibit P-61). A new submission with lower housing density was submitted. On November 3, 1967 the HUD Assistant Regional Administrator advised the Regional Administrator as follows:

We have reviewed the subject application in accordance with the provisions of Sections 2-2-3 and 2-2-4 of Volume VII, Field Service Manual, and find that the Alternate Procedure No. 2, Approval of Proposed Revision and Local Approvals by the Regional Administrator is appropriate.

Findings

1. No aspect of the proposed change makes necessary or desirable referral to the Deputy Assistant Secretary for Renewal Assistance.

2. This amendment merely reduces the maximum dwelling unit density from 59 per acre to 32 in a one block area of the project consistent with FHA approval.

3. Since this revision is of a minor nature and represents no substantial departure from the Ordinance adopted approving the previous Urban Renewal Plan, no ...


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