Petition — STATE OF NEW YORK, et al. v. MILTON FORMAN, et al. (Nos. 74-647, 74-157)

_—

74-647 4 | “FILED.

"NOV 25 1974

MICHAEL RODAK. Geof

OCTOBER TERM, 1974

No. 74....

Tue Srate or New York and the New York Stare Hovustna

Finance AGENCY,

Petitioners,

against

Mitton Forman and E.xten Formay, et al.,

Respondents,

and

Unitep Hovstne Founnpation, Inc., et al.,

Additional-Respondents.

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Louis J. LEFKowI!Tz

Attorney General of the

State of New York

Attorney for Petitioners

State of New York and

New York State Housing

Finance Agency

Office & P. O. Address

Two World Trade Center

New York, New York 10047

Tel. (212) 488-3446

TABLE OF CONTENTS

PAGE

ED cicunrheavenducnadsatodduiedbacens 2

Jurisdiction of This Court ...................0.5. 2

The Questions Presented .................ceeecuee 3

The Statutes and Rules Involved .................. 3

RT ere rrr 3

PLE 6 cdavcedaiucatscbsnecekacesbads 4

Reasons for Granting Certiorari .................. 4

PT t-ccacadusestbdndenadeesadebesncswccael 15

SE EP ac baednuenbadcueschecwendustvndeneese 17

SE OO kin bee eadcckescadcsdbenbersdecsnsasnes 18

TABLE OF AUTHORITIES

Cases:

DeVoe v. Ostrander, Civ. No. C 3, 74-95 (S.D. Ohio,

decided October 18, 1974) .................... 15

Dugan v. Rank, 372 U.S. 609, 620 (1963) .......... 13, 14

Edelman v. Jordan, 415 U.S. 651 (1974) ..... 6, 8,9, 10, 15

Employees v. Missouri Public Health Employees, 411

ae Ee ED bcccchedcennncuceses 6, 8, 9, 10, 11, 15

Ford Motor Co. v. Department of Treasury of In-

diana, 323 U.S. 459, 465-466, 65 S.Ct. 347, 89

Se Se I occa bucckevadcdssnasens 12, 13

Great Northern Life Ins. Co. v. Read, 322 U.S. 47,

54, 64 S.Ct. 873, 877, 88 L.Ed. 1121 (1944) ...... 12,14

J. I. Case v. Borak, 377 U.S. 426, 12 L. Ed. 2d 423,

BS De, Ge, BRD CEG < i ccccccvcecdcscesscessees 7

ii TABLE OF CONTENTS

Jordan v. Gilligan, 400 F 2d 701, 706 .............. 15

Kennecott Copper Corp. v. State Tax Comm., 327

U.S. 573, 577, 66 S.Ct. 745, 90 L.Ed. 862 (1946) 13

Knight v. State of New York, 443 F. 2d 415 ...... 12, 13, 15

MacKethan v. Commonwealth of Virginia, 370 F.

ees, 3 Ge, TA Wek BUD veecccecccncudccsasce 11

Mader v. Armel, 402 F.2d 158 (6th Cir. 1968) ...... 8

Maryland v. Wirtz, 392 U. S. 183 (1968) .......... 9

Mathews v. Fisher, No. 8482 (S. D. Ohio 1974) ..... 11

Murray v. Wilson Distilling Co., 213 U.S. 151, 171,

53 L. Ed., 742, 29 S. Ct. 458 (1909) ........... 8

Parden v. Terminal Railway of Alabama Docks De-

partment, 377 U.S. 184 (1964) ..... 5, 6, 8, 9, 10, 11, 14

People v. Brooklyn Garden Apartments, 283 N.Y. 373

SEED d6encbccusceseisnacnencasecdcsucessens 15

Petty v. Tennessee-Missouri Bridge Comm’n., 359

By Ek Ee ED Nwredueedccnccccccssontesacens 8

Rothstein v. Wyman, 467 F. 2d 226, 238 (2nd Cir.

1972), cert. den. 411 U.S. 921 (1973) .......... 14

Whitten v. State University Construction, 42 LW

2506 (decided March 5, 1974) ................ 15

Statutes:

New York Private Housing Finance Law,

DEE neckeeskeshedsnesneacensecnseesees 3, 4, 12, 17

TABLE OF CONTENTS

New York Public Housing Law,

Securities Act of 1933,

Section 17(a)

Section 18

Securities Exchange Act of 1934,

Section 10(b)

Rule 10b-5

SP Ge DU. cxccecncunecesneseweebuseeuéaeeeel

BD We BUD wo cncavencccccsvedscccuseckeniehes

Miscellaneous:

1964 New York State Legislative Annual, p.

DO Skunk sdedeideddeiteseuencuaeenaswaneeens

eoeeeoeveeeeeeeeeeeeeeeeeeeeeeeeeeseee @

OTD bide sdivnsndnidcnennciendédccuuees

Dae ves

12

In THE

Supreme Court of the United States

OCTOBER TERM, 1974

No. 74....

A.

—

Tue Srate or New Yor« and the New York Strate Hovsine

FuNance AGENCY,

Petitioners,

against

Mitton Forman and Euxien Formay, et al.,

Respondents,

and

Unirep Hovusine Founpation, Inc., et al.,

Additional-Respondents.

’

vv

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Petitioners, the State of New York and State Housing

Finance Agency, respectfully pray that a Writ of Cer-

tiorari issue to review the judgment of the United States

Court of Appeals for the Second Circuit, dated June 12,

1974, reversing a judgment of the United States District

Court for the Southern District of New York, which had

dismissed the complaint in this action.

Another petition has been filed for such a writ by the

other defendants herein (No. 74-157). At the time of such

2

filing, the State petitioners still had pending before the

Second Circuit a motion for rehearing. Such rehearing

was denied on September 12, 1974.

The State petitioners now join in the petition filed by

the other petitioners. To avoid repetition, we state that

we adopt the position of those petitioners: that “member-

ship” in or share ownership in a state-financed and super-

vised non-profit cooperative housing corporation. as de-

scribed by the District Court (Exh. B, p. 4), did not

constitute a “security” within the ambit of the Securities

Act of 1933 and the Securities and Exchange Act of 1934

for the reasons, among others, stated in their petition (No.

74-157). .

This petition is presented on additional grounds which

affect only the State petitioners: the immunity of the State

from suit in the federal courts by reason of the provisions

of the Eleventh Amendment; and the gross misinterpreta-

tion by the Second Circuit of the provisions of a state stat-

ute, New York Private Housing Finance Law, 4 32(5)

providing for only a limited waiver of sovereign immunity.

Opinions Below

The opinion of the Court of Appeals is reported at 500

F 2d 1246; and is set forth in Appendix A to the connected

petition (No. 74157). The opinion of the District Court

is reported at 366 F. Supp. 1117; and is set forth in Ap-

pendix B to that petition (No. 74-157).

Jurisdiction of This Court

The judgment sought to be reviewed was entered on

June 12, 1974 and is set forth in Appendix C to petition

74-157. The petitioners’ motion for rehearing was denied

by Court of Appeals order, dated September 12, 1974 and

is set forth in Appendix D to this petition.

3

The Questions Presented

In addition to the questions presented by petition 74-157,

this petition presents the following questions:

1. Does a State waive its Eleventh Amendment im-

munity from suit in the federal courts by regulating the

issuance of share membership in a cooperative housing cor-

poration and by supervision of the construction of a low

and middle income housing project, essentially non-profit

in nature, particularly where such a corporation is fur-

nished substantial subsidies through the aid in financing it

received through mortgages provided at low interest rates

by the State Housing Finance Agency?

2. Did the Court of Appeals misconstrue New York

Private Housing Finance Law $§32(5) by giving it a

blanket waiver construction (not shown to be attributed to

it by the New York courts), even though the statute permits

the State its Commissioner or its “supervising agency”

(which the Housing Finance Agency is not) to be sued in

the same manner as a private person, but only as to duties

and liabilities arising out of Article 2 of the New York

Private Housing Finance Law (known as the Mitchell-

Lama Law)?

The Statutes and Rules Involved

The statutes and Rules involved are: those set forth in

petition 74-157 ; and, in addition, as to the State petitioners,

New York State Finance Law, § 32(5), which we reproduce

herein as Appendix E.

Statement of the Case

We adopt, for the purpose of this additional petition,

the statement set forth in petition 74-157 (pp. 4-9).

4

Proceedings Below

The portion of the prior petition’s analysis of the pro-

ceedings below is accurate; and we adopt that analysis as

to those proceedings insofar as they affect all defendants.

As to the state petitioners, it should be noted, however,

that the Second Circuit passed upon Eleventh Amendment

and immunity issues which the District Court, in dismiss-

ing the complaint herein, did not even reach. The Court of

Appeals held the New York State Housing Finance Agency

to be a “person” within the meaning of 42 U.S.C., § 1983;

and found that the State itself had expressly waived im-

munity by the provisions of New York Private Housing

Finance Law, §32(5). See Appendix A to petition 74-157

(pp. 20-22).

Reasons fer Granting Certiorari

(1)

We support fully the reasons set forth in the petition

filed by the other petitioners-defendants (no. 74-157, pp.

11-27).

(2)

Additional reasons for granting a writ of certiorari stem

from the unnecessary burden which will be imposed upon

New York taxpayers and the federal courts by the con-

tinued presence in this litigation of the New York State

Housing Finance Agency and the State itself as defendants.

Even more significant from a national point of view is the

implication of the Court of Appeals decision that a State

has voluntarily subjected itself, by a limited waiver of im-

munity, to liability in the federal courts for the acts or omis-

sions of a state regulatory agency it. supervising the spon-

sorship, planning, development, construction and initial

management of a state-aided real estate project, con-

structed entirely within the geographical limits of the

State.

5

(A)

In the event that this Court permits the State’s regula-

tion of the development and financing of this new City

to become the subject of litigation in federal Courts, it

may be anticipated that an appropriate review of the

details of such development and financing will also en-

cumber the calendars of one or more District Court

judges for years.

As a matter of court administration, this Court, even

though it might not ordinarily choose to pass prior to

final judgment, upon the Eleventh Amendment and im-

munity issues which we urge were erroneously decided

by the Second Circuit, will surely recognize that it is

judicially desirable not to burden the District Court with

the task of reviewing unnecessarily the extraordinary

issues which the State’s defense of its regulatory processes

will entail.

If the case goes back to the District Court in its present

posture, with the Second Circuit’s rulings on the Eleventh

Amendment and immunity issues as the law of the case,

the State may be obligated, upon a step-by-step basis, to

attempt to justify each of the regulatory decisions in-

volved in the development, construction and financing of

the new City of 15,400 housing units. Our new Rome was

not built ina day. Moreover, it was built during a period

when an unprecedented inflationary economy caused the

developers and regulatory agency to reevaluate prior

judgments repeatedly to meet constantly changing con-

ditions. A mass of material may accumulate in this single

trial which will approach the volume presented to this

Court in its current October Term. If this accumulation

ean be dispensed with, it should be.

(B)

The Second Circuit opinion, with reference to the State’s

Eleventh Amendment argument for dismissal, relied on the

decision in Parden v. Terminal Railway of Alabama Docks

6

Department, 377 U.S. 184 (1964) ; but completely and bliss-

fully disregarded this Court’s decision in Edelman v. Jor-

dan, 415 U.S. 651 (1974), which had been decided less than

three months before and which effectively distinguished the

Parden decision.

We shall argue, if certiorari is granted, that the Court

of Appeals decision conflicts with the rationale of this

Court’s recent decision in Edelman, supra. By reason of

a similar lapse and a failure, in addition, to understand

the history of New York’s efforts to develop adequate hous-

ing facilities, it found Employees v. Missouri Public Health

Dept., 411 U.S. 279 (1973) to be distinguishable, 500 F. 2d

1246, 1256, fn. 13.

We shall also assume, for the purpose of this subdivision

of our argument that the State was engaged in the regu-

lation of “securities” in the development of this coopera-

tively organized, state subsidized and state-aided housing

development. Of course, we adhere to the argument pre-

sented by our co-defendants that the State’s regulation did

not relate to “securities” as federally defined.

(1)

In determining whether Congress has, in a particular

instance, exercised its power to require waiver of immunity,

federal courts must, of course, exercise their skills in statu-

tory construction. Fortunately, this Court has given a

great deal of recent guidance in how these skills are to be

exercised.

The first question which must be answered is whether

Congress has authorized suit of the sort sought to be

brought against a class of defendants which includes the

States. Justice Rehnquist stated this requirement in

Edelman, supra, as follows (p. 678) :

“But in this case the threshold fact of congressional

authorization to sue a class of defendants which liter-

ally includes States is wholly absent.”

7

When the instant case is measured against that stand-

ard, it fails. Congress has never authorized suit under

either the 1933 or 1934 Acts against a class of defendants

including States for violations of Section 17(a) of the 1933

Act or Section 10(b) of the 1934 Act.

Consider first the 1934 Act, upon which the plaintiffs

principally rely. That statute contains no section author-

izing a private right of action against any defendant for

violation of Section 10(b). Section 10(b), as written by

Congress, was to be enforced by the Securities Exchange

Commission.

Of course, the courts have implied a private right of

action for violations of Section 10(b) and Rule 10b-5. But

Mr. Justice Rennquist makes it clear that an implied

right of action will not satisfy the “threshold” test of

Edelman (p. 679):

“And while this Court has, in cases such as J. J. Case

v. Borak, 377 U. 8. 426, 12 L. Ed. 2d 423, 84S, Ct. 1555

(1964), authorized suits by one private party against

another in order to effectuate a statutory purpose, it

has never done so in the context of the Eleventh

Amendment and a state defendant.”

The logic of Justice Rehnquist’s position is convincing.

The question before a court looking at an asserted implied

waiver of the Eleventh Amendment is whether Congress

intended to require that waiver. Surely no Congressional

intent to require waiver can be found in court creation of

a private right of action.

Just as there is no Congressional authorization under the

1934 Act to sue a class of defendants including States, so

also there is no such authorization under the 1933 Act for

violations of Section 17(a). Section 17 of the 1933 Act is

a criminal provision, obviously intended by Congress to be

enforced as are all federal criminal laws. Congress created

no private right to sue for violation of Section 17.

8

Some courts have implied a private right of action for

violation of Section 17(a), Mader v. Armel, 402 F. 2d 158

(6th Cir. 1968). But an implied private right of action

does not meet the “threshold” test of Edelman.

In sum, neither statute relied upon by the plaintiffs is

sufficient to satisfy the test of Edelman v. Jordan. In

neither act has Congress authorized suit against States for

the sorts of violations alleged in the Complaint here.

(2)

In addition, this Court requires a showing that Congress

intended to abrogate State immunity.

“The question of waiver or consent under the Eleventh

Amendment was found in those cases [Employees,

Parden and Petty v. Tennessee-Missouri Bridge

Comm’n., 359 U. S. 275 (1959)] to turn on whether

Congress had intended to abrogate the immunity in

question, and whether the State by its participation in

the program authorized by Congress had in effect con-

sented to the abrogation of that immunity.” Edelman,

supra, at 678.

This showing must be a strong one, since

“Constructive consent is not a doctrine commonly asso-

ciated with the surrender of constitutional rights...”

Id.

The court in Edelman adhered to its previous standard of

explicit abrogation of the immunity,

“we will find waiver only where stated ‘by the most

express language or by such overwhelming implica-

tions from the text as will leave no room for any other

reasonable construction.’ Murray v. Wilson Distilling

Co., 213 U. S. 151, 171, 53 L. Ed. 742, 29 S. Ct. 458

(1909).” Id.

&,. .-3 . >

Even if there were a right of action against States under

the 1933 and 1934 Acts, that would not necessarily imply

Congress intended federal court jurisdiction of that right.

In Employees, supra, the court affirmed its previous hold-

ing (Maryland v. Wirtz, 392 U. S. 183 (1968)) that Con-

gress had created a right of action against the States. But

the court denied this right implied any remedy by suit in

federal court. In fact, the teaching of Employees is that

Congress can and does create rights without remedies, at

least where the remedy sought is a suit against an uncon-

senting State in federal court.

In both the 1933 and 1934 statutes, Congress carefully

preserved the jurisdiction of the States to regulate securi-

ties. Section 18 of the 1933 Act provides:

“Nothing in this subchapter shall affect the jurisdiction

of the securities commission (or any agency or office

performing like functions) of any State or Territory

of the United States, or the District of Columbia, over

any security or any person.” (15 U.S.C. § 77r)

In nearly identical language, Section 28 of the 1934 Act

preserves State jurisdiction under that Act (15 U.S.C.

§ 78bb). It would be strange, indeed, to discover that Con-

gress had taken such great pains to protect explicitly State

regulation of securities and then silently intended that, if

any State exercised that jurisdiction, it would forfeit its

Eleventh Amendment immunity.

Indeed, the very argument is absurd. If States had to

risk federal court damage suits for huge amounts of money

by regulating securities, they would all surely abandon the

field. But that is clearly not what Congress intended when

it so explicitly protected their jurisdiction.

In Parden, there was a statute which satisfied the “thresh-

old” test of Edelman (See Edelman opinion at 678), but

that is certainly not the case here. Entirely apart from

OO eee |

10

Edelman, the reach of Parden is severely restricted by

Employees. Mr. Justice Douglas explained (p. 256):

“Parden involved the railroad business which Ala-

bama operated ‘for profit.’ [citation omitted. } Parden

was in the area where private persons and corpora-

tions normally ran the enterprise.”

Alabama was engaged in what Justice Douglas called an

an “isolated state activity” of a proprietary nature usually

performed by private enterprise. There was no logical

reason to exclude the tiny minority of railroad workers

employed by States from the coverage of the FELA; the

court found Congress intended no such exclusion. Proprie-

tary operation of a railroad is no essential governmental

function and Alabama entered into it, the court found,

knowing it would waive its Eleventh Amendment immunity

thereby.

But the kind of implicit waiver in Parden is as far as

this Court would go. Justice Dove tas found the operation

of state hospitals involved in Employees was not a proprie-

tary, bu. a governmental, function. (Jd. at 256). And

Justice MarsHALL, concurring, found Missouri had no real

choice about operating its hospitals and thus did not “‘con-

sent” to federal jurisdiction by continuing to operate them

after the FLSA was amended. He said (p. 263):

‘‘For me at least, the concept of implied consent or

waiver relied upon in Parden approaches, on the facts

of that case, the outer limit of the sort of voluntary

choice which we generally associate with the concept

of constitutional waiver . . . [In contrast with Par-

den]. It obviously is a far different thing to say that

a State must give up established facilities, services,

and programs or else consent to federal suit.”

If the ownership and operation of state hospitals is not

a proprietary act which waives Eleventh Amendment im-

ll

munity, a fortiori a purely governmental act such as regu-

lation of securities does not do so.

In MacK ethan v. Commonwealth of Virginia, 370 F. Supp.

1 (E. D. Va. 1974), Judge Merhige faced precisely the same

issue which is now before this Court. There also a re-

ceiver of a savings and loan association sought to hold the

Virginia banking authorities liable under the federal se-

curities legislation on grounds of negligent supervision.

Judge Merhige dismissed the Complaint, stating (370 F.

Supp. 1, 4):

“Plaintiff now attempts to extend the Parden doctrine

into the area of pure governmental regulation. Such

effort, in the Court’s view, must fail. The impetus

toward application of the Employees rationale is

stronger here than in the case in which it was an-

nounced. While the operation of hospitals is not nec-

essarily a governmental function, the specific nature

of the hospitals involved in Employees gave state ac-

tivity in that area a traditional base. In the present

context, the state activity attacked is necessarily of

a governmental nature. Regulation of securities is

not an endeavor in which private persons are free to

participate.”

There is no language in the 1933 or 1934 Acts to sup-

port the plaintiffs’ theory of waiver. Employees hol’s

waiver must be supported by explicit language and fails

to find it in the semi-proprietary activity of owning and

operating hospitals. Judge Merhige in MacKethan sup-

ports conclusion here that the securities situation is even

clearer than Employees. See also the opinion of Judge

Hogan in Mathews v. Fisher, No. 8482 (S. D. Ohio 1974).

The Second Circuit’s theory of waiver is not sound in any

respect.

12

(C)

The Second Circuit demonstrated a complete lack of

familiarity with the functioning of the Mitchell-Lama Act

and other provisions of New York’s Private Housing

Finance Law.

To illustrate: the panel’s rejection of the State’s claim

of immunity is predicated upon its citation of Private

Housing Finance Law, § 32(5). A footnote in that opin-

ion sets forth that section, with emphasis added (500 F. 2d

1246, 1256, fn. 12):

“With regard to duties and liabilities arising out of

this article the state, the commissioner or the super-

vising agency may be sued im the same manner as a

private person. No costs shall be awarded against the

commissioner, the state, or the supervising agency, as

the case may be, in any such litigation.””*

With reference to State immunity from suit in federal

courts, the panel completely ignored the caveat by Judge

Frienpiy in Knight v. State of New York, 443 F. 2d 415,

in a decision by this very same Circuit, where he carefully

noted (p. 419):

“the Supreme Court has admonished that federal

courts ought not ‘to be astute to read the consent to

embrace a Federal as well as state courts and that

only a ‘clear indication’ of the state’s intention to sub-

mit to suit in federal courts will surmount the Elev-

enth Amendment’s bar, Great Northern Life Ins. Co.

v. Read, 322 U.S. 47, 54, 64 S.Ct. 873, 877, 88 L.Ed.

1121 (1944). See, to the same effect, Ford Motor Co.

* The first sentence of this paragraph merely incorporated, with

an appropriate addition of the words, ‘‘the supervising agency”’,

the suability provision previously contained in Public Housing

Law, § 15, as to the housing commissioner and the State. See 1964

New York State Legislative Annual, p. 342.

te

© memes wee ~ es ee

Ree ee a

13

v. Department of Treasury of Indiana, 323 U.S. 459,

465-466, 65 S.Ct. 347, 89 L.Ed. 389 (1945); Kennecott

Copper Corp. v. State Tax Comm., 327 U.S. 573, 577,

66 S.Ct. 745, 90 L.Ed. 862 (1946). We find no such

‘clear indication’ here.”

With reference to the Housing Finance Agency, the panel

completely overlooked the fact that the term “supervising

agency” contained in the section quoted by Judge Oakes is

strictly defined in Public Housing Law, $2, as follows

(Subd. 15):

“The comptroller in a municipality having a comp-

troller; in a municipality having no comptroller, the

chief fiscal officer of such municipality; except that in

the city of New York it shall be the housing and devel-

opment administration.”

Further confusion in this litigation could be avoided by

a complete deletion from the Second Circuit’s opinion of

its analysis relating to the defenses of the State and

its Agency. The fact that the Agency is an “agency” does

not qualify it as a “supervising agency”.* In fact, it is a

financing agency. Private Housing Finance Law, Art. 3.

And if the purpose of this litigation is to impose any lia-

bility upon it, that liability may be borne ultimately by the

State itself, regardless of any prior statutory commitments

or prohibitions. In this aspect of the case, this Court can

not blink its eyes at the fact that in Knight v. State, 443

F. 2d 415, this same Circuit Court also pointed out (443

F. 2d, at p. 420) that Knight’s suit against state officers

could be deemed a suit against the State, improperly

brought; and noted the general rule in Dugan v. Rank, 372

* Supervision of a state-aided limited profit company is assigned

to the State Commissioner of Housing and Community Renewal, a

person who has not even been made a party to this lawsuit. See

Private Housing Finance Law, Art. 2; and Public Housing Law,

§ 3, subd. 1, Definitions (L. 1961, ¢. 398).

14

U.S. 609, 620 (1963) that:

“a suit is against the sovereign if ‘the judgment sought

would expend itself on the public treasury or domain,

or interfere with the public administration,’ * * * or

if the effect of the judgment would be ‘to restrain the

Government from acting, or to compel it to act.’”

See also the opinion of Judge McGowan for a unanimous

court (Frrenpiy, Ch. J. and Trmsers, C.J.) in Rothstein y.

Wyman, 467 F. 2d 226, 238 (2nd Cir. 1972), cert. den. 411

U.S. 921 (1973) rehearing den. 411 U.S. 988 (1973), under-

lining the rule that any waiver of the shield of the Eleventh

Amendment must be shown to be clear and unequivocal,

citing Great Northern Life Ins. Co. v. Read, 322 U.S, 47,

54 (1944) and effectively distinguishing Parden (supra).

The waiver set forth in Private Housing Finance Law ean

not, on its face, be deemed to be a clear and unequivocal

relinquishment of the State’s immunity from federal court

suit. Moreover, the Second Circuit’s analysis completely

disregards the fact that, as to obligations issued by the

Agency itself specific judicial remedies are provided by

New York Private Housing Law, §$ 50.

If the terms of the Finance Agency’s mortgages are to

be subjected to change by the federal district courts, and

supervision of non-profit state-subsidized projects are to

be subjected to the vagaries of a single District Judge's

conception of a tenant’s expectation of profit from parti-

cipation in a non-profit cooperative enterprise, the District

Court’s assumption of jurisdiction for that purpose will

be self-defeating. The wisdom and propriety of any addi-

tional subsidies to the plaintiffs should be determined by

the people’s representatives in the Legislature, not by the

federal courts.

15

Conclusion

The Second Circuit’s decision ignores this Court’s deci-

sion in Edelman v. Jordan (supra). To avoid any further

confusion in this action and to avoid the risk, which the

Court of Appeals decision presents, of impairing the viabil-

ity of the State’s Mitchell-Lama housing program, a writ

of certiorari should be granted. On its face, the panel’s

decision completely ignores the Circuit’s own holding in

Knight v. State, supra, 443 F. 2d 415. It also ignores the

philosophy of the First Circuit decision in Whitten v. State

University Construction, 42 LW 2506 (decided March 5,

1974). And its attempt to distinguish the recent decision in

Employees v. Missouri Public Health Employees, 411 U.S.

279 (1973), on the ground that the State’s housing activity

came after the enactment of the federal securities laws is

predicated upon a completely factual misconception; and a

failure to recognize New York’s long history of seeking to

solve its housing problems by various methods including a

State Housing Law (L. 1926, C. 823), which provided for

limited divided housing companies (akin to limited-profit

companies authorized by the Mitchell-Lama Act) and state

supervision long before the Federal Securities Act of 1933.

See People v. Brooklyn Garden Apartments, 283 N.Y. 373

(1940). See also DeVoe v. Ostrander, Civ. No. C 3, 74-95

(S.D. Ohio, decided Oct. 18, 1974), where the Forman rea-

soning as to waiver of State immunity for alleged improper

regulation has already been rejected; and the cases cited

therein.

The purpose of the Eleventh Amendment was to protect

the States’ fiscal integrity from attack in federal court.

Jordan v. Gilligan, 400 F 2d 701, 706. If the Second Cir-

cuit’s theory in this case were adopted, it would substan-

tially undermine that constitutional policy, for States would

be target defendants in virtually every stock fraud case

where they had done any regulation. States would be faced

16

with huge contingent liabilities or the option of abandoning

securities regulaition. Neither result was intended by the

Congress or the framers of the Eleventh Amendment.

Respectfully submitted,

Lovis J. LErKOwITz

Attorney General of the

State of New York

Attorney for Petitioners

State of New York and

New York State Housing

Finance Agency

Office & P. O. Address

Two World Trade Center

New York, New York 10047

Tel. (212) 488-3446

by Danie, M. Conen

Assistant Attorney General and

Member of the Bar of the United

States Supreme Court

17

APPENDIX D

(Prior Appendices are contained in No. 74-157)

UNITED STATES COURT OF APPEALS

Seconp Crecuit

At a Stated Term of the United States Court of Appeals,

in and for the Second Circuit, held at the United States

Court House, in the City of New York, on the ninth day of

September, one thousand nine hundred and seventy-four.

Present:

How. Pavt R. Hays

Hon. James L. Oakes,

Cireuit Judges,

Hon. A. SHERMAN CHRISTENSEN,

District Judge

Docket No. 73-2613

4

- 4

Mruron and Exvten Forman, Earce and Patricia McFre.p,

Micuaet and Puyius Sicmiaxn, Jack and Diuye R.

Biackix, Cart and Atma Trost, Ropert and PavLine

Carrincton, Gitsert and Giorta Narins, Murray and

Hevtene Victor, Jerome and Leonare Barr, Haroip

Asyix, Josern S. and Wanna D. O’Conwnor, et al.,

Plaintiffs-Appellants,

Vv.

Community Services, Ixc., Unrrep Hovsine

FounparTIon, et al.,

Defendant-Appellee.

.

A petition for a rehearing having been filed herein by

counsel for the appellee,

Upon consideration thereof, it is

Ordered that said petition be and hereby is denied.

A. Dawytet Fvsaro

Clerk

18

APPENDIX E

§ 32. Supervision and regulation

The commissioner or the supervising agency, as the case

may be, may:

> . . > * .

5. (a) Administer oaths, take affidavits, hear testimony

and take proof under oath at public or private hearings;

(b) subpoena and require the attendance of witnesses and

the production of books and papers pertaining to any in-

vestigations and inquiries authorized by this article and ex-

amine them in relation to any matter concerning which the

power to investigate is granted; (c) issue commissions for

the examination of witnesses who are out of the state or

unable to attend or are excused from attendance; (d) in-

vestigate into the affairs of a company and into the deal-

ings, transactions or relationships of such company with

third persons and into the affairs of any person, firm, cor-

poration or other entity having a financial interest, whether

direct or indirect, in the design, construction, acquisition,

reconstruction, rehabilitation, improvement, financing or

operation of any project undertaken by a company (e)

intervene, as a matter of right, in any action or proceeding

of which notice shall be given affecting the project of a

company; (f) take such steps in such action or proceeding

as may be necessary to protect the public interest.

With regard to duties and liabilities arising out of this

article the state, the commissioner or the supervising

agency may be sued in the same manner as a private per-

son. No costs shall be awarded against the commissioner,

the state, or the supervising agency, as the case may be,

in any such litigation.