1923, 1968. All of the mortgagors named in the previous version of § 207(b) remained eligible for § 207 mortgage insurance; the Senate Report states that the amendment was intended "to permit individuals, groups of individuals, or partnerships to be rental housing mortgagors if approved by Commissioner (in addition to those under present law)." S.Rep. No. 281, supra, reprinted in 1961 U.S.Code Cong. & Ad.News 1923, 2024 (emphasis added).
The legislative history clearly shows that Congress intended to allow cooperatives to be eligible § 207 mortgagors. The text of the present § 207(b)(2), 12 U.S.C. § 1713(b)(2), is virtually identical to the 1961 version.
The Senate Report accompanying the 1961 amendment makes clear that Congress intended the "any other mortgagor" language to subsume the listing of specific eligible mortgagors added in 1938 and contained in the then-current version of § 207. Since cooperatives were specifically listed as eligible mortgagors before the 1961 amendment, they are eligible mortgagors under § 207 as it stands today. The court sees no reason (nor have plaintiffs advanced any) why the Secretary may not approve a transfer of assets from one eligible § 207 mortgagor to another. Other provisions of the National Housing Act indicate Congress' affirmative intent to encourage cooperative housing. See, e.g., 12 U.S.C. §§ 1709(n) (insurance of mortgages on individual cooperative units), 1715e (discussed supra p. 731), 1715z (mortgage assistance payments for homeowners and cooperative members), 1715z-1 (interest reduction payments for renters and cooperative members), 1715z-8(d) (mortgage assistance payments for middle-income cooperative members). The court concludes that the Secretary's approval of the transfer of the assets of Troy Towers Apartments from defendant Associates to a cooperative does not violate 12 U.S.C. § 1713.
Plaintiffs' claim that the Secretary's consent to the transfer of Troy Towers' assets would violate 12 U.S.C. § 1713 must be dismissed. In addition, plaintiffs are not entitled to mandamus relief because they have not shown that the Secretary owes them a clear, ministerial, and nondiscretionary duty. See Mattern v. Weinberger, 519 F.2d 150, 156 (3d Cir. 1975), vacated on other grounds, 425 U.S. 987, 96 S. Ct. 2196, 48 L. Ed. 2d 812 (1976). Since plaintiffs seek neither damages against the Secretary nor any relief at all against Associates under § 1713, the court need not consider the Secretary's argument that plaintiffs have no private right of action under § 1713.
2. Due process claim.
Next, plaintiffs assert that the Secretary, by approving the conversion of Troy Towers to a cooperative, will deprive them of a constitutionally protected property interest in "reasonable rental housing." Although plaintiffs do not invoke a particular constitutional provision, presumably they are attempting to state a claim under the due process clause of the fifth amendment. In order to allege a due process violation, plaintiffs must allege (1) that they have a constitutionally protected property interest, (2) that they were deprived of that interest by government action, and (3) that the procedural safeguards afforded the interest are insufficient to protect it. See, e.g., Hewitt v. Helms, 459 U.S. 460, 103 S. Ct. 864, 74 L. Ed. 2d 675 (1983). Here the complaint is obviously defective because plaintiffs fail to plead that HUD's procedures were inadequate. They admit that they received notice of the intent to convert, that they had the opportunity to submit written objections to HUD's main office in Washington, D.C., and that they received a written response from that office, Complaint paras. 6, 16-17 & Exs. A, D, E, but do not allege that these procedures failed to protect their interest. Dismissal of the relevant portions of the complaint would be proper for this reason alone.
Dismissal with leave to amend would be futile, however, because plaintiffs do not have a constitutionally protected property interest which would allow them to remain in their apartments under a conventional rental arrangement. Since the Supreme Court's decision in Board of Regents v. Roth, 408 U.S. 564, 92 S. Ct. 2701, 33 L. Ed. 2d 548 (1972), it has been clear that
to have a property interest in a benefit, a person clearly must have more than an abstract need or desire for it. He must have more than a unilateral expectation of it. He must, instead, have a legitimate claim of entitlement to it . . . . Property interests, of course, are not created by the Constitution. Rather, they are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law -- rules or understandings that secure certain benefits and that support claims of entitlement to those benefits.
Id. at 577, 92 S. Ct. at 2709. See, e.g., Greenholtz v. Inmates of Nebraska Penal & Correctional Complex, 442 U.S. 1, 99 S. Ct. 2100, 60 L. Ed. 2d 668 (1979); Meachum v. Fano, 427 U.S. 215, 96 S. Ct. 2532, 49 L. Ed. 2d 451 (1976); Bishop v. Wood, 426 U.S. 341, 96 S. Ct. 2074, 48 L. Ed. 2d 684 (1976). In this case, plaintiffs argue that their property interest arises from three sources: 12 U.S.C. § 1713; the regulatory agreement between the original mortgagor and HUD; and the Union City rent stabilization ordinance, Union City, N.J.Rev. Ordinances ch. 12 (Supp.1981).
Upon examination, however, it is clear that none of the three confers on plaintiffs a legitimate claim of entitlement.
For the reasons stated above, § 1713 does not give plaintiffs an entitlement to have Troy Towers remain as conventional rental units, rather than a cooperative. Nor does § 1713 give tenants a protected property interest in a certain rental charge. Gramercy Spire, supra, 446 F. Supp. at 824-25; Rodriguez v. Towers Apartments, Inc., 416 F. Supp. 304, 308 (D.P.R.1976); cf. Falzarano, supra, 607 F.2d at 513 (12 U.S.C. § 1715 l (d)(3) mortgage insurance and subsidy program does not give plaintiff tenants any constitutionally protected property interest); Ellis v. HUD, supra, 551 F.2d at 17 (same, for 12 U.S.C. § 1715k mortgage insurance program); Grace Towers Tenants Ass'n v. Grace Housing Development Fund Co., 538 F.2d 491, 494 (2d Cir.1976) (same, for 12 U.S.C. § 1715 l (d)(3) mortgage insurance and subsidy program); Harlib v. Lynn, supra (same); Tenants' Council of Tiber Island-Carrollsburg Square v. Lynn, 162 U.S. App. D.C. 61, 497 F.2d 648 (D.C.Cir. 1973) (same, where mortgage insured under 12 U.S.C. § 1715k), cert. denied, 419 U.S. 970, 95 S. Ct. 235, 42 L. Ed. 2d 186 (1974); People's Rights Organization, supra, 356 F. Supp. at 411-13 (same, for 12 U.S.C. § 1715z-1 mortgage insurance and subsidy program). But cf. Geneva Towers Tenants Organization v. Federated Mortgage Investors, 504 F.2d 483 (9th Cir.1974) (tenants in project insured and subsidized under 12 U.S.C. § 1715 l (d)(3) have constitutionally protected property interest in continuing to receive benefits of low cost housing); Marshall v. Lynn, 162 U.S. App. D.C. 56, 497 F.2d 643 (D.C. Cir.1973) (same), cert. denied, 419 U.S. 970, 95 S. Ct. 235, 42 L. Ed. 2d 186 (1974). Because plaintiffs have no rights under the regulatory agreement, see infra at pp. 734-736, the regulatory agreement cannot be the source of a protected property interest either. That leaves the Union City rent control ordinance as the only possible source of an entitlement.
The Union City ordinance cannot be interpreted to give plaintiffs a protected interest in maintaining their present rental arrangements, however.
The ordinance is a fairly typical rent control law, establishing a base rent (as of March 1, 1973) and permitting increases only in accordance with its terms. It says nothing about cooperative conversion. Any attempt to construe the ordinance as prohibiting such conversions would run afoul of N.J.S.A. 2A:18-61.1 et seq., which sets out a comprehensive scheme regulating the conversion of conventional rental units to condominiums or cooperatives. See supra p. 725. As this court stated on a previous occasion, the provisions of N.J.S.A. 2A:18-61.1 et seq. make clear that
the New Jersey Legislature intended its legislation to be the exclusive source of law regulating the eviction of tenants from apartments being converted to condominiums [and cooperatives] . . . . [Its] complex and thorough treatment of the question of what steps are necessary before eviction occurs is evidence of a clear and unmistakable intent to have a statewide policy on removal of tenants when an apartment is converted . . . . Similarly, the very depth of the legislation supports the belief that the legislature intended the rules on this subject to be uniform throughout the state, without variation among municipalities and with its legislation being exclusive in the field.
Claridge House One, Inc. v. Borough of Verona, 490 F. Supp. 706, 711 (D.N.J.), aff'd without opinion, 633 F.2d 209 (3d Cir.1980). Thus, even if the language of the Union City ordinance could be construed to ban conversion of rent-controlled apartments to cooperative units, the ordinance would be preempted by the comprehensive state scheme, which regulates but does not preclude conversions. Id.18 Given this result, the ordinance cannot be the source of a property interest in maintaining conventional rental arrangements.
In sum, neither 12 U.S.C. § 1713 nor the regulatory agreement nor the Union City rent stabilization ordinance can be the source of the interest plaintiffs seek to assert. Plaintiffs fail to state a constitutional claim, and the portions of the complaint which attempt to do so must be dismissed.
3. Claims under the regulatory agreement.
Finally, plaintiffs seek a declaration that the subscription agreements by which current Troy Towers tenants subscribed for shares of cooperative stock, see Complaint para. 9, are invalid because they violate the regulatory agreement between HUD and the original mortgagor.
Plaintiffs also seek an injunction prohibiting Associates from enforcing or claiming any rights under the subscription agreements. Plaintiffs do not request any relief against HUD on this theory. HUD, however, argues that plaintiffs fail to state a claim against either defendant under the regulatory agreement.
First, it is unclear exactly what type of claim plaintiffs are attempting to assert. They would have no rights under any of the subscription agreements, since they are not parties to those agreements, Complaint para. 16, and since it would be impossible for them to argue that they are third-party beneficiaries of agreements which will result in their eviction. The other possible source of contract rights is the regulatory agreement. Because they are not parties to that agreement, id. P 13 & Ex. C, plaintiffs would have to sue as third-party beneficiaries. The complaint does not allege that the plaintiffs are third-party beneficiaries of the regulatory agreement; arguably, this omission alone should lead to dismissal of the relevant portions of the complaint for failure to state a claim. See Picture Lake Campground, Inc. v. Holiday Inns, 497 F. Supp. 858, 862 (E.D.Va.1980); Hauer v. Bankers Trust New York Corp., 425 F. Supp. 796, 800 (E.D.Wis.1977). The court will assume, however, that an allegation of third-party beneficiary status may be implied from the allegations that the regulatory agreement was made pursuant to 12 U.S.C. § 1713 and that the plaintiffs live in housing which is covered by § 1713 mortgage insurance, and will go on to consider the contract claim.
When a contract is in writing, the question whether a third party has enforceable contractual rights is largely a question of interpretation. 4 A. Corbin, Corbin on Contracts § 733 (1951). In this case, the court need not decide whether federal or state law controls the interpretation of the regulatory agreement,
since federal common law and New Jersey law do not conflict. Federal common law employs "the general principles that have evolved concerning the interpretation of contractual provisions." United States v. Seckinger, 397 U.S. 203, 210, 90 S. Ct. 880, 884, 25 L. Ed. 2d 224 (1970). The general principle is that a third party acquires enforceable contract rights if the parties to the contract intended to confer a benefit upon him, but not if he benefits only incidentally from the contract. Restatement (Second) of Contracts §§ 302, 304, 315 (1981); Corbin, supra, §§ 773-777, 779C, 779G (1951). New Jersey law is the same. See Dravo Corp. v. Robert B. Kerris, Inc., 655 F.2d 503, 510 (3d Cir.1981); First National State Bank of New Jersey v. Commonwealth Federal Savings & Loan Ass'n, 610 F.2d 164, 170 (3d Cir.1979); Broadway Maintenance Corp. v. Rutgers, State University, 90 N.J. 253, 259-60, 447 A.2d 906 (1982).
Although the Third Circuit has not engaged in any extended discussion of the precise issue before this court, in Ellis v. HUD, supra, 551 F.2d at 18, it rejected as "without merit" a third-party beneficiary claim that the plaintiff tenants attempted to assert under the mortgage insurance agreement entered into by their landlord and HUD pursuant to 12 U.S.C. § 1715k. Other courts that have considered this issue have concluded that tenants are not intended beneficiaries of the mortgage guarantee agreements between a landlord and HUD. See Falzarano, supra, 607 F.2d at 511 (mortgage insurance and subsidy under 12 U.S.C. § 1715 l (d)(3)); Harlib v. Lynn, supra, 511 F.2d at 55-56 (same); Carson v. Pierce, 546 F. Supp. 80, 86-87 (E.D.Mo.1982) (mortgage insurance under 12 U.S.C. § 1713); Fenner v. Bruce Manor, Inc., 409 F. Supp. 1332, 1349 (D.Md.1976) (mortgage insurance under 12 U.S.C. §§ 1715 l (d)(3), 1715z-1(e)). Cf. Roberts v. Cameron-Brown Co., 556 F.2d 356, 362 (5th Cir.1977) (HUD insured mortgage pursuant to 12 U.S.C. § 1715z; tenants held not to be third-party beneficiaries of any implied contract which HUD Handbook may have created between HUD and landlord).
In this case, the regulatory agreement is primarily a loan agreement and does not disclose an intent to benefit tenants except as they might be incidental beneficiaries.
Plaintiffs' contract claim against Associates must be dismissed for failure to state a claim.
Plaintiffs have stated neither a statutory nor a constitutional nor a contract claim. The entire complaint against the Secretary must be dismissed, pursuant to Fed.R.Civ.P. 12(b)(6). Associates' motion for judgment on the pleadings is granted. Plaintiffs' motion for reconsideration of their summary judgment motion is denied. Troy Towers Tenants Association's motion to intervene is denied.