The opinion of the court was delivered by: LACEY
This action is brought by certain tenants of Troy Towers Apartments, 380 Mountain Road, Union City, New Jersey, against the Secretary of the United States Department of Housing and Urban Development (HUD) and the plaintiffs' landlord, Hudson Troy Towers Associates, Ltd. (Associates), owner of the Apartments. The material facts are not in dispute. Hudson Troy Towers Apartments is an unsubsidized, rent-controlled, 315-unit apartment project, the mortgage of which is insured by HUD pursuant to section 207 of the National Housing Act (the Act) as amended, 12 U.S.C. § 1713 (1976 & Supp.V 1981). Associates seek to convert the apartments from conventional rental units to cooperative ownership by transferring the apartments' physical assets to a new corporation, Hudson Troy Towers Apartments Corp. Those wishing to reside in the cooperative would purchase shares of stock in the latter corporation, and would receive a 50-year proprietary lease in return. In order to substitute the new corporation for Associates as the mortgagor, HUD approval of the transfer of assets is required. Plaintiffs, who have not subscribed to the cooperative plan and who will be subject to eviction if conversion occurs, seek to enjoin the Secretary from consenting to the transfer. They also seek a declaratory judgment that the Secretary's consent would violate 12 U.S.C. § 1713, and an order in the nature of mandamus. Jurisdiction exists pursuant to 28 U.S.C. §§ 1331, 1337, and 1361.
On August 26, 1982, Associates filed an answer. On October 15, 1982, plaintiffs moved for summary judgment and both defendants moved to dismiss the complaint.
Troy Towers Tenants Association also moved for permission to intervene as a defendant. Finding the matter not ripe for adjudication because HUD's review of the conversion proposal was still in the early stages, the court denied plaintiffs' motion, took defendants' motions under advisement, and adjourned the hearing of the Tenants Association's motion. On October 21, 1982, plaintiffs filed a notice of motion for rehearing of their summary judgment motion. This motion, which has not yet been formally ruled upon, is ruled upon at this time and is denied. The order entered on this opinion shall so provide.
On June 2, 1983, HUD granted preliminary approval for the transfer of assets from Associates to Hudson Troy Towers Apartment Corp., subject to two conditions. Amended Complaint para. 19. Since final approval will issue on compliance with those conditions and the issues involved are purely legal, the matter is now ripe for decision. See Southeastern Pennsylvania Transportation Authority v. ICC, 644 F.2d 253, 260-62 (3d Cir.1981); Exxon Corp. v. FTC, 588 F.2d 895, 903 (3d Cir.1978).
The overall aim of the National Housing Act is to stimulate housing production and community development, so as to remedy the housing shortage and realize as soon as possible the "national goal . . . of 'a decent home and a suitable living environment for every American family.'" 12 U.S.C. § 1701t (quoting Housing Act of 1949, § 2, 42 U.S.C. § 1441). In order to achieve these ends, Congress declared, "there should be the fullest practicable utilization of the resources and capabilities of private enterprise" and individual self-help. 12 U.S.C. § 1701t. Cf. Housing Act of 1949, § 2, 42 U.S.C. § 1441 (policy of Housing Act of 1949 is to encourage private enterprise "to serve as large a part of the total need as it can"); Department of Housing and Urban Development Act of 1965, §§ 2, 3(a), 42 U.S.C. §§ 3531 (HUD to "encourage the maximum contributions that may be made by vigorous private home-building and mortgage lending institutions to housing, urban development, and the national economy"), 3532(b) (Secretary of HUD to do the same). Congress particularly wished to encourage production of low- and moderate-income housing. See e.g., Gramercy Spire Tenants' Ass'n v. Harris, 446 F. Supp. 814, 825 (S.D.N.Y.1977) (citing cases).
any other mortgagor approved by the Secretary which, until the termination of all obligations of the Secretary under the insurance . . ., is regulated or restricted by the Secretary as to rents or sales, charges, capital structure, rate of return, and methods of operation to such extent and in such manner as to provide reasonable rentals to tenants and a reasonable return on the investment.
Id. § 1713(b)(2). The statute contains an explicit statement of congressional intent:
The insurance of mortgages under this section is intended to facilitate particularly the production of rental accommodations, at reasonable rents, of design and size suitable for family living. The Secretary is, therefore, authorized and directed in the administration of this section to take action, by regulation or otherwise, which will direct the benefits of mortgage insurance hereunder primarily to those projects which make adequate provisions for families with children, and in which every effort has been made to achieve moderate rental charges.
Id. § 1713(b). The statute also defines "rental housing":
The term . . . means housing, the occupancy of which is permitted by the owner thereof in consideration of the payment of agreed charges, whether or not, by the terms of the agreement, such payment over a period of time will entitle the occupant to the ownership of the premises . . . .
Id. § 1713(a)(6). The statute provides no guidance as to the meaning of "reasonable rents," "moderate rental charges," or "reasonable return on the investment."
Pursuant to § 1713, the Secretary (then Federal Housing Commissioner)
agreed to insure the mortgage on Troy Towers Apartments and entered into a regulatory agreement with the Apartments' original mortgagor, Troy Village, Section C, Inc., on September 16, 1964. Complaint para. 13 & Ex. C. This agreement provides, inter alia, that the mortgagor will not rent premises for a period of more than three years at a time, will not charge rents in excess of those approved by the Secretary, and will not, without the Secretary's prior written approval, convey the mortgaged property or require, as a condition of occupancy, any consideration other than first month's rent and a month's security. Id., Ex. C, PP 4(a), 6(a), 6(g). If the mortgagor violates any provision of the agreement, the Secretary may declare a default and may foreclose, take possession, or seek judicial relief. Id., Ex. C, P 10. The mortgagor warrants that it will not execute any agreement having provisions contrary to those of the regulatory agreement, and states that the regulatory agreement shall control the rights and obligations set forth therein. Id., Ex. C, P 15. The regulatory agreement is binding on the original mortgagor's successors, heirs and assigns. Id., Ex. C. Although the complaint does not allege that Associates is the successor, heir or assign of the original mortgagor, this conclusion can fairly be drawn from the allegations that Associates owns the Apartments and that the mortgage is still insured by HUD.
HUD has promulgated regulations that govern its administration of the section 207 mortgage insurance program, 24 C.F.R. §§ 207.1-.499 (1982), as well as an Insured Project Servicing Handbook, HM 4350.1, which sets out policies and procedures regarding changes in ownership of property covered by a HUD-insured mortgage. Neither source discusses conversion of rental property to cooperative ownership; the standards for such conversions appear in HUD Notice H-80-83, 45 Fed.Reg. 67,777 (1980). The notice states that HUD's interim policy (pending full-scale departmental review) is "to avoid conversions that would involve moderate cost rental housing or a significant portion of tenants with limited financial resources," without "inhibit[ing] conversions unreasonably where these concerns are not relevant." Id. Where a mortgage is insured under 12 U.S.C. § 1713, the Secretary may approve a transfer of assets to a purchaser who intends to convert to cooperative ownership "only where the standard transfer requirements are satisfied and the project rents prior to conversion equal or exceed 125 percent of the Section 8 Existing Housing FMRs [fair market rents] for the same location and type and size of units." Id. at 67,778.
The owner or converter must also provide tenants with certain protection and benefits, including notice and an opportunity to purchase their units at the lowest sale price at which the unit is offered, before the units are offered for sale to others. Id.
The New Jersey Legislature has also promulgated a comprehensive scheme regulating the conversion of rental units to condominiums or cooperatives, N.J.S.A. 2A:18-61.1 et seq. (West Supp.1983). N.J.S.A. 2A:18-61.1 k provides that a tenant may be removed from his apartment if "the landlord or owner of the building . . . is converting from the rental market to a condominium, cooperative or fee simple ownership." No action for possession may be brought until the act has been complied with. N.J.S.A. 2A:18-61.1 k. The statute provides that the landlord must give tenants 60 days' notice of his intent to convert, must give them an exclusive 90-day option to purchase their units, and must notify them of the option and of their statutory rights. N.J.S.A. 2A:18-61.8. After giving this notice, he may give a notice of eviction; however, three years' prior notice is required before a dispossession action may be instituted and, if there is a lease, the action must also await its expiration. N.J.S.A. 2A:18-61.2 g. A tenant who receives a notice of eviction under N.J.S.A. 2A:18-61.2 g is entitled to receive from the owner "moving compensation of [sic] waiver of payment of 1 month's rent." N.J.S.A. 2A:18-61.10. Within 18 months of receiving the notice of eviction, the tenant may also request that the landlord provide him with "the rental of comparable housing." N.J.S.A. 2A:18-61.11 a, which is defined as housing that is safe, sanitary, "located in an area not less desirable than the area in which the tenant then resides," and "provided with facilities equivalent to that provided by the landlord in the dwelling unit . . . in which the tenant then resides," in regard to apartment size and rent range, inter alia. N.J.S.A. 2A:18-61.7 a. In any proceeding to evict the tenant, the landlord must prove that the tenant was offered comparable housing. N.J.S.A. 2A:18-61.11 a. If the court is not satisfied that the tenant was offered such housing, it may grant up to five stays of one year each; no more than a one-year stay may be granted if the owner waives payment of five months' rent. N.J.S.A. 2A:18-61.11 a, c. Senior citizens and disabled persons are entitled to additional protection. N.J.S.A. 2A:18-61.22 et seq.
On June 17, 1981, all tenants at Troy Towers Apartments received notice of Associates' intent to convert to cooperative ownership, together with a copy of the 228-page plan of conversion. Complaint para. 6 & Ex. A. Under that plan, the new corporation, Hudson Troy Towers Apartment Corp., would issue 135,200 shares of $1 par value common stock; between 500 and 750 shares were allocated to each apartment, depending on the unit's size and elevation. Id. P 8. Those wishing to reside in the cooperative would purchase the shares assigned to the unit. Id. P 9. Each tenant was given an exclusive option, for a ninety-day period (subsequently extended), to subscribe for the shares allocated to his unit at the price of $74 per share (a total of $25,000 to $45,000 per unit). Id. PP 9-10. If the tenant did not subscribe within that period, the shares would be offered to the public at $94 per share. Id. P 10. As of April 13, 1982, more than 60% of the tenants had subscribed; plaintiffs allege that some subscribed under "economic duress." Id. PP 15, 23.
On or about August 18, 1981, all tenants of Troy Towers received a three-year notice to quit and demand for possession, terminating their tenancies as of September 10, 1984 (unless a written lease expired after that date), because of the landlord's intent to convert the premises to cooperative ownership. Complaint para. 7 & Ex. B. Plaintiffs, who have not subscribed, state that they face eviction as of September 18, 1984. Id. PP 7, 16.
Plaintiffs do not contest Associates' compliance with either HUD's or New Jersey's cooperative conversion requirements. Rather, they argue that the Secretary cannot, under any circumstances, approve the conversion of rental housing to a cooperative, when the mortgage on the property is insured pursuant to 12 U.S.C. § 1713. They contend that the Secretary's consent to the transfer of assets would violate § 1713 and would deprive them of a constitutionally protected property interest. In addition, they assert that the stock subscription agreements are invalid because they violate the terms of the regulatory agreement.
Defendants raise a number of arguments in favor of dismissing the complaint. Initially, Associates asserts that plaintiffs lack standing to maintain this suit.
Next, both the Secretary and Associates argue that HUD approval of the proposed transfer would not violate § 1713; in addition, the Secretary contends that plaintiffs have no private right of action under the statute. Both defendants assert that plaintiffs fail to state a claim under either the regulatory agreement or the ...