DeSuze v. Carson

UNITED STATES DISTRICT COURT Orr)

EASTERN DISTRICT OF NEW YORK

nen □□□□□□□□□□□□□□□□□□□□□□□□□□□ XK

MARY DeSUZE, LOUISE GRANT, PETRA

MONTGOMERY, CARLOTA BROWN, LEONARD

ANDRE, RENEE AVENT, ARLENE HIPP, MEMORANDUM ce □□□□□□

DEBORAH PRIESTER, ANGELA JONES, ELVIA 18-CV-180 (NGG) (RER)

SCHARSCHMIDT, and PAMELA LOCKLEY, for

themselves and other similarly situated current or □□

former tenants of Linden Plaza; F I LE D

IN CLERK'S OFFICE

Plaintiffs, US DISTRICT COURT □□□□□□□

-against- tk MAR 0 5 2020

BEN CARSON, SECRETARY OF THE UNITED BROOKLYN OFFICE

STATES DEPARTMENT OF HOUSING AND

URBAN DEVELOPMENT, THE UNITED STATES

DEPARTMENT OF HOUSING AND URBAN

DEVELOPMENT; LINDEN PLAZA

PRESERVATION L.P.; LINDEN PLAZA

ASSOCIATES, L.P.; and CITY OF NEW YORK,

Defendants.

cc ae mer eR rRNA care

NICHOLAS G. GARAUFIS, United States District Judge.

i BACKGROUND

Plaintiffs are current or former tenants of Linden Plaza, an affordable housing complex in

Brooklyn, New York. (Amended Complaint (“Am. Compl.”) (Dkt. 23) {J 2, 7.) Linden Plaza,

although privately owned, receives both federal mortgage interest assistance under Section 236

of the National Housing Act of 1934, codified at 12 U.S.C. § 1715z-1 et seqg., and various state

incentives under Article 2 of New York’s Private Housing Finance Law. (/d. 40.) In

exchange, Linden Plaza is required to provide affordable housing and adhere to a multi-faceted

regulatory scheme if it seeks to raise tenants’ rents. (/d. {| 26-37.)

Plaintiffs bring claims under the Administrative Procedure Act, 42 U.S.C. § 1983, and

New York common law against Defendants United States Department of Housing and Urban

Development (“HUD”) and its Secretary, Ben Carson (the “HUD Secretary”), the City of New

York (the “City”), as well as Linden Plaza Preservation L.P. and Linden Plaza Associates, L.P.

(collectively, the “Linden Defendants”). (id. §] 121-136.) Before the court are the motions to

dismiss of HUD, the City, and the Linden Defendants. For the reasons set forth below, the

motions to dismiss are GRANTED.

A. Facts

1. Section 236 Regulations

Section 236 of the National Housing Act of 1934 authorizes the HUD Secretary to make

“periodic interest reduction payments on behalf of the owner of a rental housing project designed

for occupancy by lower income families.” 12 U.S.C. § 1715z-1(a). Under Section 236, HUD

may continue to make these interest reduction payments (“IRP”) for a mortgage that has been

refinanced if the owner “enters into such binding commitments as the Secretary may require. . .

to ensure that the owner will continue to operate the project in accordance with all low-income

affordability restrictions.” Jd. § 1715z-1(e)(2). This process—whereby the IRPs are separated

from the original mortgage—is known as “decoupling” because, while the landlord continues to

receive IRP assistance from HUD, that assistance is severed from the original Section 236

mortgage. (Am. Compl. § 22.)

The decoupling process depends, among other things, on whether the owner’s mortgage

is insured by HUD. If it is, the owner proposing to refinance must submit an action plan to HUD,

and HUD must make a finding that there are binding commitments to ensure the building will be

retained for affordable housing and that existing tenants will not be displaced. See 12 U.S.C. §

4112; 24 C.F.R. § 245.330. Where a mortgage is not insured by HUD, however, Section 236

requires an owner wishing to refinance to take different steps. In general, owners of such non-

insured buildings submit all relevant materials to the state or local public housing agency

administering assistance (the “PHA”), which, in turn, reviews the information and submits it to

HUD for approval. Jd. Under Section 236(e)(2), however, such an owner may “elect to refinance

[its] Section 236 mortgage by providing a written proposal to [HUD’s] Multifamily Hub [that

has] jurisdiction for the project.” U.S. Dep’t of Housing & Urban Dev., Notice H 00-8 (May 16,

2000) (“Notice 2000-08”).! Regardless, while HUD establishes federal rent parameters, the PHA

retains authority to ensure that proposed rent increases conform with state and local restrictions.

(Id. at § 4.) The relevant PHA in this case is New York City’s Department of Housing

Preservation and Development (“HPD”). (Am. Compl. { 44.)

While the PHA retains many obligations under the Section 236 regulatory scheme, the

statute outlines specific procedural requirements that HUD must follow when approving a

proposed refinancing and rent increase. In particular, the subsection titled Tenant Participation in

Multifamily Housing Projects, explains that “the purpose of this [sub]section is to recognize the

importance and benefits of cooperation and participation of tenants in creating a suitable living

environment in multifamily housing projects.” 12 U.S.C. § 1715z-1b(a). To further the goal of

tenant “cooperation and participation,” Section 236 requires that the HUD Secretary “shall

assure” that “tenants have adequate notice of, reasonable access to relevant information about,

and an opportunity to comment on” certain actions taken by HUD, including “an owner’s request

for rent increase.” Id. § 1715z-1b(b).

' Notice 2008-08, which was the relevant HUD guidance at the time of the rent increase at issue in this case, has

been replaced by Notice H 2013-25, See U.S. Dep’t of Housing & Urban Dev., Notice H 2013-25 (Aug. 23, 2013).

2. Mitchell-Lama Program and Linden Plaza

Article 2 of New York’s Private Housing Finance Law (“Mitchell-Lama”) provides

incentives such as partial property tax exemptions and tax-exempt mortgage financing to private

enterprises that construct and maintain low cost housing accommodations for moderate to

middle-income residents. (Am. Compl. fff 27-30; 41 N.Y. Priv. Hous. Fin. Law §§ 22-23.) In

exchange for these benefits, housing companies are subject to numerous statutory restrictions

and regulatory oversight, including with respect to the rent they may charge. (/d.) If a housing

company seeks to increase rents in a Mitchell-Lama building, it must apply to HPD (which

supervises Mitchell-Lama developments in New York City) for approval and undergo a public

hearing process, (See Rules of the City of New York, tit. 28, ch. 3 §§ 3-10.)

Linden Plaza is a Mitchell-Lama housing complex in Brooklyn that initially opened in

1971. id. J§ 38-39.) In 1972, the New York City Housing Development Corporation (“HDC”)

issued a mortgage to Linden Plaza insured under Mitchell-Lama. (fd) A year later, Linden Plaza

began receiving IRP assistance from HUD. (/d. { 40.) Because of its status as a Mitchell-Lama

project that also receives IRP subsidies, Linden Plaza is supervised by HPD, and all proposed

refinancing or rent increases pursued by Linden Plaza’s owners must follow Section 236 and

Mitchell-Lama regulations. (/d. §] 37-47.) -

, 3. The City’s New Housing Marketplace Plan

Plaintiffs allege that HPD supervises Mitchell-Lama buildings like Linden Plaza under

the City’s New Housing Marketplace Plan (the “Housing Plan”). Ud. J 99.) Plaintiffs allege that

the Housing Plan, which was in operation between 2003 and 2014, included a Mitchell-Lama

preservation strategy. Id.) The preservation strategy—allegedly implemented because it would

be more cost-effective than new construction—sought to preserve over 100,000 Mitchell-Lama

units by encouraging owners to extend affordability commitments through tax abatements,

preservation rehabilitation loans, and mortgage refinancing. (See generally Decl. of Gregory

Louis (“Louis Decl.”) & Exs. thereto (Dkt. 46-1).) One Plaintiff, Pamela Lockley, a former

President of the Linden Plaza Tenant Association Council, received a letter from HUD in July

2015 that “advised her that the [Linden Plaza] preservation transaction arose out of the Mayor

and Defendant City of New York’s New Housing Marketplace Plan and the numerous programs

developed out of this plan to respond to the problem of rising operating cost and aging building

systems and structure.” (/d.) Plaintiffs likewise point to the preservation transaction at Janel

Towers, another Mitchell-Lama building in New York City, as evidence of the Housing Plan’s

preservation strategy. (Am. Compl. { 102.)

4... The Linden Plaza Preservation Transaction and 2008 Rental Increase

In May 2007, the Linden Defendants served Plaintiffs and other tenants with notice that

Linden Plaza was applying to both HUD and HPD for permission to increase rents. (/d. | 59.)

The notice advised that copies of the materials the Linden Defendants would be submitting to

HPD and HUD would be made available to tenants for inspection and review. (/d.) In June 2007,

the Linden Defendants provided Plaintiffs and other tenants with a document entitled

“Application by Linden Plaza Associates, L.P. for Rent Increase,” which included, among other

things, a financial breakdown of “(i) projected income and expenses, (i1) other income, (iii)

operating expenses, and (iv) utility expenses.” (Ud. | 62). Plaintiffs allege that, at the time, they

believed that this document represented the full extent of the costs on which the proposed rent

increase would be based. (/d.)

Also in June 2007, the Linden Defendants—through their acquisition consultant Skyline

LLC—applied to HUD for approval of decoupling and rent increases (the “HUD Application”).

(id. 48.) A month later, in July, the Linden Defendants filed a separate application to HPD for a

Mitchell-Lama rent increase (the “HPD Application”). (Jd. | 49.) On August 27, 2007, tenants

attended a Mitchell-Lama rent-increase hearing regarding the HPD Application. (Id. J 53.) At the

hearing, tenants were not presented with the HUD Application and were denied the right to

comment—either at the hearing or subsequently in writing—on the HUD Application’s proposed

rent increase. (/d.)

Plaintiffs allege that their inability to review and comment on the HUD Application was

particularly problematic because the HUD Application and the HPD Application did not contain

the same information and projected costs. According to a November 15, 2007 financial statement

(the “November 2007 Statement”), the HUD Application included $50.8 million in acquisition

costs, $73.1 million of rehabilitation costs, and a $16 million developer fee cost. (Id. J] 79, 82.)

These costs were not submitted as part of the HPD Application (and, in turn, HPD did not submit

a pre-approval of these costs to HUD). (/d. J] 49, 69.) Nonetheless, HUD approved the HUD

Application’s proposed rent increases on December 14, 2007. Ud. 50.) In response to HUD’s

approval of the HUD Application, HPD cancelled its approval of the HPD Application, and

replaced the Mitchell-Lama rents with the new rents approved by HUD. (/a@.)

5. Post-2008 Factual Discoveries

Plaintiffs allege that, at the time of the 2008 rent increase, they did not know (and could

not have known) (1) the fact that Linden Plaza submitted the HUD Application in addition to the

HPD Application; (2) the contents of the HUD Application and (3) the discrepancies between the

cost projections in the HUD Application and the actual costs associated with the Linden Plaza

preservation transaction. (See id. J] 75-91.) However, Plaintiffs allege that they came to learn of

these discrepancies in the years to come, during which time many of the Plaintiffs sought legal

and regulatory relief from the 2008 rent increase.

In July 2008, shortly after HPD approved the rent increase at the center of this case,

Linden Plaza Leaseholders Corporation (whose members were tenants living at Linden Plaza

apartments) filed an Article 78 proceeding in state court, arguing that HPD’s approval of the

Linden Defendants’ rent increase request was arbitrary and capricious and against controlling

law. (See July 28, 2008 Not. of Pet., Index No. 21896/08 & Verified Pet. (Dkt. 41 at ECF 31-

44).) By joint stipulation on January 12, 2009, the parties agreed to mark-off the Article 78

proceeding, and, because the Leaseholders Corporation did not seek to restore the proceeding to

the state court calendar within one year, the proceeding was deemed abandoned pursuant to

CPLR § 3404 (See Joint Stip. Jan. 12, 2009 (Dkt. 41 at ECF 48-49).)

In 2011, Plaintiffs DeSuze and Grant commenced a lawsuit in Kings County Supreme

Court, alleging that certain “HUD Excess charges” assessed by the Linden Defendants were not

authorized under Mitchell-Lama.* (Id. § 75.) Plaintiffs allege that it was not until April 2011,

during discovery in that action, that they learned that HUD had approved decoupling expenses in

the 2008 rent increase.? (Ud. J] 71-72.) Until that point, Plaintiffs allege, they did not know (and

could not have known) that the Linden Defendants had submitted a proposal directly to HUD or

that HUD had considered any decoupling expenses as a basis for the 2008 rent increase. (/d.)

In 2013, Plaintiffs DeSuze, Grant, and Montgomery filed a request under New York’s

Freedom of Information Law (“FOIL”) with HPD seeking all documents relating to the 2008

preservation transaction and rent increase applications. (/d. 76.) Also in 2012 and 2013, all but

? That suit has been making its way through the state courts and is still ongoing. See De Suze v. Linden Plaza Pres.,

24 N.Y-S. 3d 370 (2d Dep’t 2016).

3 Plaintiff Montgomery alleges she did not learn of HUD’s involvement in the 2008 rent increase until she was

added to the state court action in 2012. (Am. Compl. {f 71-72.)

one of the Plaintiffs filed a pro se lawsuits in this district against HUD, HPD, the Linden

Defendants, and the New York State Homes and Community Renewal Commission. (id. | 77;

see also DeSuze et al v. Donovan, No. 13-CV-2093 (JG) (E.D.N.Y. Sept. 3, 2013) (the “2013

Federal Action”).)* The gravamen of these complaints was that “HUD failed to properly

supervise HPD and HDC in their administration of the local rent programs at Linden Plaza.”

(Transcript of Oral Argument in 2013 Federal Action (Dkt. 47-1 at ECF 1-38.) Judge Gleeson

granted HUD’s motion to dismiss, finding that Plaintiffs’ lacked standing and that their suit was

barred by sovereign immunity. (/d. at pp. 33-34.) Plaintiffs allege, however, that it was not until

August 2013, when HUD’s attorney gave Plaintiffs a copy of the November 2007 Statement

during a hearing in the 2013 Federal Action, that Plaintiffs finally learned the specific costs

included in the HUD Application and considered by HUD when HUD approved the 2008 rent

increase (Id. J] 79-82.) .

Plaintiffs allege they also submitted numerous FOIL requests to HPD for several years

after the 2008 increase. (Jd. J 85.) In March 2016, HPD’s FOIL Appeals Unit provided Plaintiffs

with a memorandum dated April 8, 2014 (the “HPD FOIL Memorandum”), stating that the actual

cost of the Linden Plaza renovations was only $20 million. (/d. { 86.) Plaintiffs allege that this

figure conflicts with the information contained in the November 2007 Statement, which

projected renovation costs to be $57 million, id. | 87, and other “HPD and HD[C]

documentation,” which, according to Plaintiffs, puts the renovation costs “[at] $0,” id. 791.

Plaintiffs allege that, despite the difference between the projected and actual renovation costs,

4 Also in 2013, Plaintiffs Brown, Andre, Avent, Hipp, Priester, and Scharsschdmit likewise commenced pro se

actions in this district, which were subsequently joined with the 2013 Federal Action plaintiffs before Judge

neither HUD nor HPD has directed the Linden Defendants to “reduce the rents to reflect the

actual cost of the renovations.” (/d. J 91.)

6. Subsequent Rent Increases and Current Conditions

In 2014, HUD approved another rent increase for Linden Plaza. (/d. J 73.) Plaintiffs

allege that, as a result of the 2008 increase and the 2014 increase, Plaintiffs have seen their rent

increase by an average of roughly 110%. (/d.) Certain Plaintiffs have had nearly 140% rent

increases. (/d.) In 2017, RY Management, the company that manages Linden Plaza, informed

Plaintiffs that the Linden Defendants intended to request another rent increase. (/d. JJ 119-120.)

According to Plaintiffs, the Linden Defendants planned to justify the rent increase, at least in

. part, by the need to repair the elevator system, though elevator repairs were part of the Linden

Defendants’ justification for the 2008 rent increase. (fd) In June 2018, the Linden Defendants

distributed to Plaintiffs and other tenants a notice of intent to submit a request to HPD and HUD

for approval of an increase in maximum permissible rents. (See June 29, 2018 Linden Plaza

Notice to Tenants (Dkt. 46-1) at 4-5.)

Plaintiffs allege that, despite the multiple rent increases over the last decade, living

conditions in Linden Plaza have significantly deteriorated. id. 119-117.) In particular,

Plaintiffs allege that the renovations used as a basis for the rent increases were poorly performed

or never performed at all. (/d. J 110.) Plaintiffs allege these inadequate renovations have led to

an increase in vermin, pests, and mold due to inadequate renovations, and that Plaintiffs and

other tenants have had to cope with frequent elevator breakdowns. (Ud. 112-115.)

B. Procedural History

Plaintiffs filed their Complaint (Dkt. 1) in this case on January 11, 2018 and their

Amended Complaint on June 16, 2018. Defendants HUD, the City, and the Linden Defendants

all moved to dismiss, and Plaintiffs have opposed each motion. (See HUD Mot. to Dismiss

(“HUD Mem.”) (Dkt. 47); HPD Mot. to Dismiss (“HPD Mem.”) (Dkt. 41); Linden Plaza Mot. to

Dismiss and Mot. for Summ. J. (“LP Mem.”) (Dkt. 44); Plaintiffs’ Consl. Mot. in Opp’n

(“Opp.”) (Dkt. 42); HUD Reply in Support of Mot. to Dismiss (“HUD Reply”) (Dkt. 48); HPD

Reply in Support of Mot. to Dismiss (“HPD Reply”) (Dkt. 43); Linden Plaza Reply in Support of

Mot. to Dismiss and Mot. for Summ. J. (“LP Reply”) (Dkt. 45).)

Il LEGAL STANDARD

A. Rule 12(b)(1)

Under Rule 12(b)(1), the court must dismiss a claim “for lack of subject matter

jurisdiction .. . when the . . . court lacks the statutory or constitutional power to adjudicate it.”

Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000). When considering a Rule 12(b)(1)

motion, the court “must take all uncontroverted facts in the complaint . . . as true, and draw all

reasonable inferences in favor of the party asserting jurisdiction.” Tandon v. Captain’s Cove

Marina of Bridgeport, Inc., 752 F.3d 239, 243 (2d Cir. 2014). Where, however, the facts are

disputed, “the party asserting subject matter jurisdiction ‘has the burden of proving by a

preponderance of the evidence that it exists.’” Jd. (quoting Makarova, 201 F.3d at 113). When a

defendant moves to dismiss both for lack of subject matter jurisdiction and on other grounds

such as failure to state a claim upon which relief can be granted, the court must address the issue

of subject matter jurisdiction first. See Rhulen Agency, Inc. v. Alabama Ins. Guar. Ass'n, 896

F.2d 674, 678 (2d Cir. 1990).

B. Rule 12(b)(6)

To survive a Rule 12(b)(6) motion to dismiss, “a complaint must contain sufficient

factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft

10.

v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570

(2007)). A complaint must contain facts that do more than present a “sheer possibility that a

defendant has acted unlawfully.” Iqbal, 556 U.S. at 678. In deciding Defendants’ motion to

dismiss, the court “will accept all factual allegations in the [cJomplaint as true and draw all

reasonable inferences in [Plaintiffs’] favor.” L-7 Designs, Inc. v. Old Navy, LLC, 647 F.3d 419,

429 (2d Cir. 2011). However, the court will “identify[] pleadings that, because they are no more

than conclusions, are not entitled to the assumption of truth.” Jgbal, 556 U.S. at 679. The court

must then evaluate the “well-pleaded factual allegations” and “determine whether they

plausibl[y] give rise to an entitlement to relief.” Jgbal, 556 U.S. at 679. Even when, before

discovery, ‘facts are peculiarly within the possession and control of the defendant,” the

complaint must still provide “enough facts to raise a reasonable expectation that discovery will

reveal evidence of illegality.” Arista Records, LLC v. Doe 3, 604 F.3d 110, 120 (2d Cir. 2010)

(quoting Twombly, 550 U.S. at 556).

Il. DISCUSSION

A. Claims against HUD

Plaintiffs seek relief against HUD pursuant to Section 706 of the APA. In particular,

Plaintiffs allege that HUD violated Section 1715z-1b of the National Housing Act by failing to

ensure that Plaintiffs had “adequate notice of, reasonable access to relevant information about,

and an opportunity to comment on. . . [the Linden Defendants’] request for rent increase.” 12

U.S.C. § 1715z-1b(b); see also Am. Compl. §§ 49-52. Plaintiffs also argue that HUD violated the

APA when it accepted a proposal for a rent increase directly from the Linden Defendants without

first allowing HPD the opportunity to review and preapprove it, in violation of 24 CFR

§ 245.330. (Am. Compl. { 69.)

11

HUD argues that this court lacks jurisdiction because Plaintiffs lack Article III standing

and because HUD’s actions are not subject to judicial review under the APA. (HUD Mot. at 11-

16; HUD Reply at 2-6, 12-14.) HUD also argues that Plaintiffs’ claim must be dismissed because

it is (1) time-barred and (2) precluded under both the doctrines of collateral estoppel and res

judicata. (HUD Mot. at 6-10; HUD Reply at 7-12.) The court finds that Plaintiffs have standing

to pursue their claim under § 1715z-1b and that HUD is subject to judicial review. However,

because the court finds that Plaintiffs’ § 1715z-1b claim is time-barred, the court grants HUD’s

motion to dismiss.

1. Standing

To satisfy the “irreducible constitutional minimum” of Article IIT standing, a plaintiff

must demonstrate (1) “injury in fact,” (2) a “causal connection” between the injury and

complained-of conduct, and (3) a likelihood “that the injury will be redressed by a favorable

decision.” Lujan v. Defs. Of Wildlife, 504 U.S. 555, 560-61 (1992) (internal quotation marks

omitted). HUD argues that Plaintiffs fail to demonstrate injury in fact because “even assuming

... HUD did not comply with applicable procedures, HPD was responsible for making the final

decision on the actual rent level.” (HUD Mot. at 5.) HUD likewise argues that due to HPD’s final

authority to set rents (and ensure Linden Plaza’s compliance with Mitchell-Lama requirements),

Plaintiffs fail to demonstrate both a causal connection between HUD’s violation of its own

procedures and Plaintiffs’ injury and a means by which a favorable ruling would remedy that

injury. (HUD Reply at 2-6.)

HUD’s argument, however, misconstrues Plaintiffs’ injury. HUD’s position is premised

on framing Plaintiffs’ injury as simply being charged illegally inflated rents. Yet, Plaintiffs’ APA

claim seeks relief for violations of their procedural rights under 12 U.S.C. § 1715z-1b and 24

12

C.F.R. § 245.330. The question, therefore, is not whether Plaintiffs have standing to assert a

claim solely for allegedly inflated rents; rather, it is whether Plaintiffs have demonstrated they

have standing to assert their procedural rights.

Plaintiffs have standing to assert procedural rights “so long as the procedures in question

are designed to protect some threatened concrete interest . . . that is the ultimate basis of

[their] standing.” Zujan, 504 U.S. at 573 n.8. In addition, a “litigant to whom Congress has

accorded a procedural right to protect his concrete interests ... can assert that right without

meeting all the normal standards for redressability and immediacy.” Massachusetts v. EPA, 549

U.S. 497, 517-18 (2007) (citation and internal quotation marks omitted). “[W]hen a litigant is

vested with a procedural right, that litigant has standing if there is some possibility that the

requested relief will prompt the injury-causing party to reconsider the decision that allegedly

harmed the litigant.” Jd. at 518.

Here, Plaintiffs fail to establish standing for their claim under 24 C.F.R. § 245.330. That

is because Plaintiffs fail to demonstrate that Congress vested tenants with a procedural right to

have a local PHA—such as HPD—teview an owner’s proposed rent increase before it is sent to

HUD. While it is true that 24 C.F.R. § 245.330(a)(2) requires relevant rent increase materials to

be sent to HPD before HUD, transactions under § 1715z-a(e)(2) need not follow that procedure.

Indeed, as Notice 2000-08 (on which both Plaintiffs and HUD rely) explains, “the project’s

mortgagor or prospective mortgagor may elect to refinance the Section 236 mortgage by

providing a written proposal to the [HUD] Multifamily Hub having jurisdiction for the project.”

Notice 2000-08 at § 9. Because Plaintiffs cannot establish a procedural right under Section 236

to have all rent increase proposals reviewed by HPD before HUD, they fail to establish the

necessary injury to establish standing.

13

Plaintiffs’ claim under Section 1715z-1b, however, is a different story. Congress

established explicit procedural protections for tenants in multifamily housing projects receiving

mortgage assistance from HUD. Section 1715z-1b’s stated purpose is to “recognize the

importance and benefits of cooperation and participation of tenants in creating a suitable living

environment in multifamily housing projects.” 12 U.S.C. § 1715z-1b(a). To fulfill that purpose,

Subsection (b) enumerates the “Rights of Tenants” which include that the HUD Secretary “shall

assure” that “tenants have adequate notice of, reasonable access to relevant information about,

and an opportunity to comment on... an owner’s request for [a] rent increase.” Jd. § 1715z-

1b(b). This statutory language manifestly establishes that Plaintiffs have procedural rights

designed to “protect some threatened interest,” namely, an improper increase of their rent.

Further, there is “some possibility” that if HUD had followed Section 1715z-1b and provided

Plaintiffs with an opportunity review and comment on the HUD Application, the result would

have been different. See Batalla Vidal v. Duke, 295 F. Supp. 3d 127, 156 (E.D.N.Y. 2017).

To suggest otherwise and adopt HUD’s reasoning would only serve to frustrate the

explicit aims of Section 236. While it may be the case that HPD—and not HUD—was ultimately

responsible for approving the Linden Plaza rent increase (and ensuring compliance with

Mitchell-Lama), HUD nonetheless owed statutory obligations to Plaintiffs and other tenants. To

deny Plaintiffs standing to assert a claim that HUD failed to meet those obligations merely

because other actors in a complex federal, state, and local regulatory scheme had final authority

over setting rents would insulate HUD from judicial scrutiny and render Plaintiffs’ procedural

protections—as codified by Congress—meaningless. Accordingly, Plaintiffs have Article III

standing to assert their APA claim against HUD alleging HUD failed to comply with Section

1715z-1b.

14

2. Judicial Review under the APA

_ HUD next contends that, even if it failed to comply with Section 1715z-1b, it is not

subject to judicial review under the APA. (HUD Mot at 13-15; HUD Reply at 12-14.) The APA

provides that “[a] person suffering legal wrong because of agency action, or adversely affected

or aggrieved by agency action within the meaning of a relevant statute, is entitled to judicial

review thereof,” and waives the government’s sovereign immunity in actions for relief “other

than money damages” against officials acting in their official capacity. 5 U.S.C. § 702. The cause

of action provided under the APA applies to “[a]gency action made reviewable by statute and

final agency action for which there is no other adequate remedy in a court.” Id. § 704.

“T]he Administrative Procedure Act’s generous review provisions must be given a

hospitable interpretation.” Abbott Laboratories v. Gardner, 387 U.S. 136, 140-41 (1967)

(citations and internal quotation marks omitted), overruled on other grounds by Califano v.

Sanders, 430 U.S. 99 (1977). However, the APA’s waiver of immunity does not extend to cases

where: “(1) statutes preclude judicial review; or (2) agency action is committed to agency

discretion by law.” 5 U.S.C. § 701(a). These exceptions are to be construed narrowly in light of

the APA’s strong presumption in favor of judicial review. See Abbott Labs., 387 U.S. at 141.

HUD argues that the APA’s waiver of sovereign immunity does not apply in this case

because (1) Plaintiffs have an adequate alternate remedy (2) no statute or regulation requires

HUD to take discrete action with respect to the rents charged to Linden Plaza tenants, and (3)

HUD’s enforcement decisions are committed to agency discretion. (See HUD Mot. at 13-15.)

The court disagrees and holds that HUD’s alleged failure to comply with Section 1715z-1b is

subject to judicial review under the APA.

15

As a preliminary matter, HUD’s reliance on the Supreme Court’s admonition in Heckler

v. Chaney regarding the “general unsuitability for judicial review of agency decisions to refuse

enforcement” is inapposite. 470 U.S. 821, 834 (1985). Here, unlike in Heckler, the issue is not

whether HUD refused enforcement, but whether HUD followed its own procedural requirements.

In addition, HUD’s argument that “Plaintiffs cannot point to any statute or regulation containing

a mandatory duty for HUD to take discrete action,” HUD Mot. at 14, is likewise unavailing. To

the contrary, as discussed above, Section 1715z-1b requires HUD to take certain steps to ensure

certain “[rJights of tenants,” which HUD has allegedly not done. 12 U.S.C. § 1715z-1b.

HUD’s remaining argument for why it is not subject to judicial review under the APA in

this case is that Plaintiffs have an alternative adequate remedy. In Darby v. Cisneros, the

Supreme Court explained that “Congress intended [the adequate alternative remedy] provision

simply to avoid duplicating previously established statutory procedures for review of agency

actions.” 509 U.S. 137, 146 (1993). And, in Bowen v. Massachusetts, the Supreme Court held

that the adequate alternative limitation in § 704 “should not be construed to defeat the central

purpose of providing a broad spectrum of judicial review of agency action.” 487 U.S. 879, 903

(1988). Construing § 704’s limitation “narrowly,” the court finds that Plaintiffs claims against

both HUD and the Linden Defendants do not offer an “adequate” alternative remedy to their

claim that HUD failed to follow its own statutory requirements. There is no question that the

APA provides district courts with the authority to review this type of challenge; in fact, the APA

explicitly requires a reviewing court to “hold unlawful and set aside agency action, findings, and

conclusions found to be [, inter alia,] without observance of procedure required by law.”

5 U.S.C. § 706(2)(D). Accordingly, HUD’s alleged failure to comply with Section 1715z-1b is

subject to judicial review.

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3. Statute of Limitations

HUD argues that Plaintiffs’ APA claim is barred by 24 U.S.C. § 2401’s six-year statute

of limitations because their claim accrued when HUD approved the Linden Plaza rent increase in

2008. (HUD Mot. at 10; HUD Reply at 7.) Plaintiffs contend that their claim did not accrue until

August 2013 and is therefore timely. (Opp. at 14.) In the alternative, Plaintiffs argue the court

should exercise its discretion and equitably toll the statute of limitations. (/d. at 19.)

Under 24 U.S.C. § 2401, every civil action commenced against the United States must be

commenced within six years after the right of action accrues. A federal claim accrues “once [a]

plaintiff knows or has reason to know of the injury that serves as the basis for the action.” Veal v.

Geraci, 23 F.3d 722, 724 (2d Cir. 1994) (citations and internal quotations omitted). For the

purposes of accrual, “know[ledge] of the injury” means knowledge of both the harm and the

cause of harm. Barrett v. United States, 689 F.2d 324, 333 (2d Cir. 1982).

Plaintiffs argue that their APA claim under Section 1715z-1b did not accrue until August

23, 2013, which is “when [Plaintiffs] first learned of the specific expenses that justified the rent

increase and that were not presented to tenants in the 2007 Mitchell-Lama hearing.” (Opp. at 16.)

Plaintiffs base this accrual date on the fact that an attorney for HUD gave Plaintiffs a copy of the

November 2007 Statement, which they allege first alerted them to the actual costs HUD

considered when it approved the HUD Application. (Am. Compl. § 68.)

Yet, Plaintiffs were aware as early as 2011 that HUD had approved the Linden

Defendants’ Section 236(e)(2) preservation proposal and request for a rent increase. The

Amended Complaint alleges as much, noting that Plaintiffs DeSuze and Grant “were notified, for

the first time of HUD’s approval of decoupling increases, in April 2011 during their appearance

in a state court action.” (Am. Compl. 71.) The manner by which Plaintiffs DeSuze and Grant

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became aware of this information was through a December 14, 2007 letter (the “December 2007

Letter”) from HUD to the Linden Defendants’ acquisition consultant, Skyline, LLC, approving

the HUD Application, which Plaintiffs alleged in the 2013 Federal Action to have received in

March 2011 (and which Plaintiffs appended to the 2013 complaint as an exhibit). See Compl.,

DeSuze v. Donovan, E.D.N.Y. No. 13-CV-2093 (Dkt. 1 at ECF 50-54). And, as HUD points out,

the December 2007 Letter makes clear that HUD had approved a rental increase request: (1) that

was not first submitted to the City, (2) that included decoupling expenses, and (3) the details of

which Plaintiffs had not been made aware of at the time of the original approval in 2008. (See

HUD Reply at 9 n.6.) Therefore, the statute of limitations began to run by March 201] at the

latest when Plaintiffs knew or should have known that HUD had violated their procedural rights

under Section 1715z-1(b).

In their brief, Plaintiffs distinguish between receiving the December 2007 Letter in

March 2011 and receiving the November 2007 Statement in August 2013. (Opp. at 14.) Plaintiffs

suggest that it was not until that latter date that they “discovered the specific decoupling

expenses——expenses that may not be included in Mitchell-Lama rents—that justified the 2008

rent increase.” (Id) Yet, the distinction between, on the one hand, knowing that HUD approved a

rent increase directly from the Linden Defendants without giving tenants an opportunity to

comment on the proposal and, on the other hand, knowing the “specific decoupling expenses”

that HUD in fact reviewed in that process, is immaterial for the purposes of when the statute of

limitations begins to run. Once Plaintiffs received HUD’s December 2007 Letter in 2011, they

were aware (or should have been aware) that they potentially had a claim against HUD for

failing to follow the procedures outlined in Section 1715z-1b. Because Plaintiffs’ commenced

this suit more than six years after the time of accrual, their claim is time-barred.

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Plaintiffs attempt to save their claim by invoking the doctrine of equitable tolling. (Opp.

at 19-21.) “Generally, a litigant seeking equitable tolling bears the burden of establishing two

elements: (1) that he has been pursuing his rights diligently, and (2) that some extraordinary

circumstance stood in his way.” Pace v. DiGuglielmo, 544 U.S. 408, 418 (2005) (citation

omitted). “The Second Circuit has explained that the type of situation warranting equitable

tolling is one where a plaintiff could show that it would have been impossible for a reasonably

prudent person to learn about his or her cause of action.” Lefebvre v. Morgan, 234 F. Supp. 3d

445, 459 (S.D.N.Y. 2007) (citation and internal quotation marks omitted). For that reason,

equitable tolling is “only appropriate in rare and exceptional circumstances.” Zerilli-Edelglass v.

N.Y.C. Transit Auth., 333 F.3d 74, 80 (2d Cir. 2003) (citation and internal quotation marks

omitted) (alterations adopted).

Here, Plaintiffs fail to demonstrate that some “extraordinary circumstance” stood in the

way of filing their APA claim within the statute of limitations. Plaintiffs contend that “they were

prevented from filing a timely claim by Defendants’ refusal to provide the information that

revealed Defendants’ wrong doing.” (Opp. at 21.) However, as discussed above, Plaintiffs did

receive information as early as 2011 that should have alerted them to their potential Section

1715z-1(b) injury, and they can point to no other reason for why they did not commence this suit

until January 2018. See Watson v. United States, 865 F.3d 123, 133 (2d Cir. 2017) (“[e]quitable

tolling [may not] be premised on . . . pro se status, or ignorance of the right to bring a claim.”

(citation omitted)). Thus, no “exceptional circumstances” exist to warrant application of the

equitable tolling doctrine to Plaintiffs’ APA claim.

Accordingly, HUD’s motion to dismiss is granted.

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B. Claims against the City

Plaintiffs also bring a claim under 42 U.S.C. § 1983 against the City. (See Am. Compl.

132-136.) Plaintiffs allege that the City’s New Housing Marketplace Plan constitutes a

discriminatory policy or practice that has deprived Plaintiffs of “their constitutional or statutory

property interest in or right to reduced rentals or affordable housing in having to pay more in rent

than they otherwise would have.” Ud. J 135.) Plaintiffs’ Section 1983 claim against the City has

a three-year statute of limitations. See Milan v. Wertheimer, 808 F.3d 961, 963 (2d Cir. 2015).

Plaintiffs’ filed their Amended Complaint in 2018, well beyond the relevant limitations period

but argue that their claim is timely under the continuing violation doctrine. (See Opp. at 18-19.)

l. Continuing Violation Doctrine

The continuing violation doctrine, where applicable, provides an “exception to the

normal knew-or-should-have-known accrual date.” Harris v. City of New York, 186 F.3d 243,

248 (2d Cir. 1999). It applies to claims “composed of a series of separate acts that collectively

constitute one unlawful [ ] practice.” Washington v. Cty. Of Rockland, 373 F.3d 310, 318 (2d Cir.

2004) (quoting Nat'l R.R. Passenger Corp. v. Morgan, 536 U.S. 101, 111 (2002)). “[W]Jhen a

plaintiff experiences a continuous practice and policy of discrimination, the commencement of

the statute of limitations period may be delayed until the last discriminatory act in furtherance of

it.” Dimitracopoulos v. City of New York, 26 F. Supp. 3d 200, 211 (E.D.N.Y. 2014) (citation and

internal quotation marks omitted) (alteration adopted). The doctrine does not apply, however, to

“discrete unlawful acts, even where these acts are part of a serial violation, but [only] to claims

that by their nature accrue only after the plaintiff has been subjected to some threshold amount of

mistreatment.” Gonzalez v. Hasty, 802 F.3d 212, 220 (2d Cir. 2015) (citations and internal

quotation marks omitted) (alterations adopted). That is so even when the discrete acts are

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“undertaken pursuant to a general policy that results in other discrete acts occurring within the

limitations period.” Chin v. Port Authority of N.Y. & N. J., 685 F.3d 135, 157 (2d Cir. 2012).

Such discrete acts are distinct from, for example, an alleged hostile work environment, which by

its “very nature involves repeated conduct.” Morgan, 536 U.S. at 115. In those circumstances,

“Tsjuch claims are based on the cumulative effect of individual acts . . . [such that] a single act of

harassment may not be actionable on its own.” Id.

Courts in this circuit “have generally been loath to invoke the continuing violation

doctrine and will apply it only upon a showing of compelling circumstances.” Crosland v. City of

N.Y., 140 F. Supp. 2d 300, 307 (S.D.N.Y. 2001), aff'd sub nom. Crosland v. Safir, 54 F. App’x

504 (citation and internal quotation marks omitted). “Compelling circumstances have been found

where the unlawful conduct takes place over a period of time, making it difficult to pinpoint the

exact day the violation occurred; where there is an express, openly espoused policy [that is]

alleged to be discriminatory; or where there is a pattern of covert conduct such that the plaintiff

only belatedly recognizes its unlawfulness.” Ruane v. Cty. Of Suffolk, 923 F. Supp. 2d 454, 459-

60 (E.D.N.Y. 2013) (citations and internal quotation marks omitted). In the context of claims

brought under Section 1983, the Second Circuit has held that “a continuing violation cannot be

established merely because the claimant continues to feel the effects of a time-barred

discriminatory act.” Harris, 186 F.3d at 250. Instead, the claimant “must allege both the

existence of an ongoing policy of discrimination and some non-time-barred acts taken in

furtherance of that policy.” Jd.

Here, Plaintiffs allege that the City has an unconstitutional policy of “pushing

preservation transactions even where preservatio[n] transactions negatively impact tenants and

violate federal and state law enshrining the property right to lower rentals.” (Opp. at 19.) That

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policy, Plaintiffs allege, led not just to rent increases at Linden Plaza in 2008, but also to rent

increases as recently as 2016, and will lead to more rent increases in the future. (/d.)

The court finds that the continuing violation doctrine does not apply to Plaintiffs’ claim.

Specifically, the Amended Complaint fails to allege “some non-time-barred acts taken in

furtherance” of the City’s alleged policy of pushing preservation transactions to the detriment of

tenants’ constitutional rights. Harris, 186 F.3d at 250; see also Panos v. Universal Forest Prods.,

Inc., No. 18-CV-2066 (KMIK), 2020 WL 416445, at * 6 (S.D.N.Y Jan. 27, 2020) (“[P]laintiff

does not allege that Defendants committed wrongs during the statutory period such that the

continuing violation doctrine would apply.”). Indeed, as the Plaintiffs note, “a claim alleging an

ongoing policy or practice accrues at the time of the last action ‘in furtherance of it.’” (Opp. at

18. (quoting Harris, 186 F.3d at 248).)

The Amended Complaint alleges that, in 2014, “HPD processed HUD’s rent increase

approval.” (Am. Compl. { 73.) It also alleges that Plaintiffs incurred rent increases in 2010,

2014, 2015, and 2016 as a result of the “2008-2010 and 2014-2016[] HUD approvals.” (d. J 74.)

Yet, the Amended Complaint does not allege any facts to suggest that the increased rents

incurred by Plaintiffs in the limitations period (i.e. within three years of the filing of the □

complaint, such that the act would be timely under Section 1983’s statute of limitations) were the

result of the alleged “policy or practice” of “pushing preservation transactions” that Plaintiffs

allege was (at least in part) the cause of the original 2008 rent increase. Without such facts,

Plaintiffs fail to demonstrate the nexus between the rent increase in 2008 and the rent increase in

the limitation period was the alleged HPD policy; indeed, were the 2016 rent increase simply the

“continuing effect of earlier unlawful conduct,” Panos, 2020 WL 416445 at *6, the continuing

violation doctrine would not apply. And, without such a nexus, the various rent increases

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incurred by Plaintiffs merely constitute “discrete” acts that do not trigger the application of the

continuing violation doctrine. See Chin, 685 F.3d at 157. As a result, Plaintiffs’ claims against

the City are dismissed as time-barred.

C. Claims against the Linden Defendants

Plaintiffs also bring state-law fraud and misrepresentation claims against the Linden

Defendants. (Am. Compl. f§ 125-128.) Having determined that Plaintiffs’ federal claims should

be dismissed, the court sees no reason to retain jurisdiction over Plaintiffs’ remaining state law

claims. The court therefore declines to exercise supplemental jurisdiction over Plaintiffs’

remaining claims. See 28 U.S.C. § 1267(c)(3); see also In re Merrill Lynch Ltd. P’ships Litig.,

154 F.3d 56, 61 (2d Cir. 1998) (per curiam) (“[W]hen the federal claims are dismissed the state

claims should be dismissed as well.” (citations and internal quotation marks omitted)).

IV. CONCLUSION

For the foregoing reasons, Defendants’ motions to dismiss (Dkts. 41, 44, 47) are

GRANTED in full. The Clerk of Court is respectfully DIRECTED to enter judgment in favor of

Defendants and close the case.

SO ORDERED.

Nicholas G. Garaufis

Dated: Brooklyn, New York NICHOLAS G. GARAUFIS |

March 5, 2020 United States District Judge

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