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February 13, 1975

James LYNN, In his official capacity as the Sec. of Dept. of Housing & Urban Development (HUD), et al.

Biunno, District Judge.

The opinion of the court was delivered by: BIUNNO

BIUNNO, District Judge.

 Four tenants, as representative of all the tenants in Coppergate House, East Orange, N.J., and their tenants' association, filed suit in the Superior Court of New Jersey, Chancery Division, against the landlord, East Orange Senior Citizens Housing Association (EOSCHA), as well as its managing agent, Zoephel, the Department of Housing and Urban Development (HUD), and the Federal Housing Administration (FHA).

 The complaint is that a notice dated May 31, 1974 was served on all the tenants notifying them of increases in their monthly rent, to be effective July 1, 1974. It is said that as a non-profit corporation which built and operates this housing project for the elderly and handicapped with the aid of federal funds under sec. 202 of the Housing Act of 1959, 12 U.S.C. sec. 1701q, et seq., EOSCHA may not increase rents without the approval of HUD/FHA. The tenants do not claim that this approval was not obtained; they object that the application, its processing and disposition were handled without their participation as parties in an adversary, hearing-type proceeding.

 The tenants asked for temporary restraints, preliminary and final injunctions against the increase in rents, setting aside the approval and requiring the federal agency to grant them a full hearing on the merits of the increase. They also ask for a declaratory judgment that the federal regulations, rules, guidelines, procedures and actions violate the Fifth Amendment requirement of due process of law as well as the mandate, purpose and letter of the National Housing Act.

 The complaint was filed August 30, 1974, and on the same day an Order to Show Cause, to constitute process as well (under N.J. Court Rule 4:67), was issued returnable September 27, 1974. On September 16, 1974, on petition of the federal defendants, the suit was removed here, 28 U.S.C. 1441(a).

 Answer by EOSCHA and Zoephel was filed September 26, 1974. An amended complaint was filed November 4, 1974. The federal parties' answer to the Amended Complaint was filed November 8, 1974, and the Amended Answer of EOSCHA and Zoephel on November 15, 1974. Requests for admissions have been served and answered, and filed on January 8, 1975.

 On January 21, 1975, the tenants filed a motion for summary judgment as to the validity of the regulations, etc., for a rebate of any rents found to have been unlawfully collected and such other relief as is just and proper.

 On January 30, 1975, the federal defendants filed a cross-motion for summary judgment in their favor. EOSCHA and Zoephel have filed a like motion.

 At the court's request, copies of the original agreements of rental and of the notices of increase of rental, verified by Zoephel's affidavit, have also been served and filed.

 This 128 unit housing project was financed pursuant to a Loan Agreement made March 1, 1968 between the United States, through HUD, and EOSCHA. The project was located in the Doddtown Urban Renewal Project Area. The financing consisted of a loan of $1.86 million, payable in level monthly installments over a 50 year term, at 3% interest, and it is secured by a first mortgage lien on the project and improvements, as well as on the gross revenues from operation. The agreement also requires that EOSCHA, before closing, obtain an agreement from the City of East Orange for payment of 15% of the annual gross shelter rent as an annual service charge in lieu of taxes (presumably pursuant to the Senior Citizens Nonprofit Rental Housing Tax Law, N.J.P.L.1965, c. 92, NJSA 55:14I-1, et seq.).

 The agreement also set out the initial monthly rates and charges authorized by HUD for the use of the dwelling units in the project, as well as requirements for the submission of an initial budget and annual budget, certified annual audit reports, and the like. Another provision explicitly states that the Loan Agreement "is not for the benefit of third parties, and the Government shall be under no obligation to any such parties."

 By a separate Regulatory Agreement entered into on the same day, EOSCHA agreed to make the facilities available to eligible occupants "at charges established in accordance with a schedule to be approved in writing by the Government," and, in addition agreed that it would neither require any kind of payment or deposit of any tenant other than those for rents, utilities, collateral services and a one month's security deposit, nor accept any contribution or gratuity as a basis for occupancy or occupancy preference. The same agreement states that "The Government shall not be liable for any of its acts hereunder except for flagrant misfeasance."

 The project was completed in 1969 and rented out to applicants at that time. Initial rentals were on the basis of written leases for a one-year term, which specified the monthly rental and stated that heat, hot water, cooking ...

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