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June 22, 1972

Elliott RICHARDSON, Secretary of the United States Department of Health, Education and Welfare, individually and in his official capacity, et al., Defendants

Lacey, District Judge.

The opinion of the court was delivered by: LACEY

LACEY, District Judge:

 This is an action by twenty Housing Authorities organized under the Local Housing Authorities Law, N.J.S.A. 55:14A-1 et seq., against the United States Departments of Health, Education and Welfare (HEW) and Housing and Urban Development (HUD) and their Secretaries. Also named as defendants are the New Jersey Department of Institutions and Agencies, its Commissioner, the New Jersey Division of Public Welfare, its Director, and the Governor of the State of New Jersey.

 Involved herein is the claim that recent changes in New Jersey welfare administration vis a vis recipients who live in public housing have caused highly prejudicial and irreparable injury to the solvency of the various Authorities. In order to understand a rather complex situation some background information is necessary.

 For a number of years, the New Jersey Division of Public Welfare and HUD developed guidelines for preparing rent schedules for welfare recipients who resided in public housing. The procedure developed was known as the "as paid" system and recognized as a component part of the welfare grant the recipient's actual rent expense, whether paid to a private landlord or a Housing Authority.

 In 1970, the Governor's Welfare Study Commission recommended the abolition of the "as paid" system and the substitution therefor of a "flat grant" to welfare recipients. Under this system, of course, there would be no specific ear-marking of part of the monthly grant for rent alone. This "flat grant" system was incorporated into the new Financial Assistance Manual (FAM), which was promulgated by Defendant Engelman pursuant to N.J.S.A. 44:10 et seq. on June 18, 1971. This action was followed by a letter from Defendant Engelman to County Welfare Directors, dated June 7, 1971, which noted that the use of a "fixed family allowance" would make individualized rental contracts with the Housing Authorities "inapplicable to categorial assistance." [Exhibit G attached to plaintiffs' complaint]

 Plaintiffs allege that this administrative action by certain of the defendants constitutes an impairment of the obligation of contracts under Article I, Section 10 of the United States Constitution and Article IV, Section 7, paragraph 3 of the New Jersey Constitution. It is not disputed that the old "as paid" system is no longer in effect or that plaintiffs are presently receiving less rental income than before.

 In addition, plaintiffs allege that the FAM was not submitted to HEW for its approval, as is required by 42 U.S.C. § 602. They further allege that HUD's application to them of the Brooke Amendments [P.L. 91-152, and P.L. 92-213] to the United States Housing Act of 1937, 42 U.S.C. § 1401 et seq., is arbitrary, capricious, and an abuse of discretion. These amendments limit rents charged by Housing Authorities to 25% of income (as defined by HUD) and further provide that neither rent nor welfare assistance shall be lowered because of this 25% limitation.

 Plaintiffs assert subject matter jurisdiction under 28 U.S.C. § 1331, alleging by way of jurisdictional amount that over $1,500,000 a year will be lost because of the rental limitations under both the "flat grant" system and the Brooke Amendments.

 The State defendants have filed motions to dismiss under Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure. The Federal defendants have filed identical motions and affidavits, thus converting the 12(b)(6) motion into one for summary judgment under Rule 56. We shall deal with each set of defendants separately.


 Plaintiffs have moved, pursuant to 28 U.S.C. § 2281, et seq., for convening of a three judge court to decide the claimed impairment of the obligation of contracts. Section 2281 reads as follows:

An interlocutory or permanent injunction restraining the enforcement, operation or execution of any State statute by restraining the action of any officer of such State in the enforcement or execution of such statute or of an order made by an administrative board or commission acting under State statutes, shall not be granted by any district court or judge thereof upon the ground of the unconstitutionality of such statute unless the application therefor is heard and determined by a district court of three judges under section 2284 of this title.

 Plaintiffs meet the explicit requirements of the statute. Nonetheless, they are not entitled to the three judge court procedure because, for the reasons hereinafter set forth, they do not present a "substantial federal question." Ex Parte Poresky, 290 U.S. 30, 32, 54 S. Ct. 3, 78 L. Ed. 152 (1933); Majuri v. United States, 431 F.2d 469 (3 Cir. 1970), cert. denied, 400 U.S. 943, 91 S. Ct. 245, 27 L. Ed. 2d 248 (1971); Jones v. ...

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