Appendix — Mandalay Shores Cooperative Housing Ass'n v. Pierce

Appeal from the United States District Court

for the Middle District of Florida.

Before HILL, Circuit Judge, SMITH**, Judge, and

HENDERSON, Circuit Judge.

SMITH, Judge:

Appellant, Mandalay Shores Cooperative Housing Associ-

ation, Inc. (cooperative), appeals a judgment of the United

States District Court for the Middle District of Florida, denying

appellant’s motion for a preliminary injunction and granting

appellee’s motion for summary judgment in favor of appellees,

Samuel R. Pierce, Jr., et al.. Department of Housing and Urban

Development (hereafter HUD). Appellant requests (1) that

HUD be enjoined from selling Mandalay Shores Apartments of

Clearwater, Florida (the project) until the present litigation is

finally completed and (2) that the case be remanded to the

district court in order that material issues of fact present may be

litigated. The project is one to which HUD acquired fee simple

title in 1977 after the second of two defaults on the mortgage.

The cooperative is a nonprofit corporation formed by a number

of the tenants of the apartments, for the purpose of negotiating

a purchase of the project. In its memorandum opinion the

district court held that HUD, acting through its Property

Disposition Committee, did not exercise discretion in an arbi-

trary and capricious manner in rejecting appellant’s offer of

purchase. We denied the motion for injunction in July 1981

and, after hearing oral arguments, we denied appellant’s

request that we stay HUD’s opening of competitive bids on the

project and subsequently, that a closing of sale scheduled for

December 16, 1981, be stayed, pendente lite. After giving full

consideration to the parties’ arguments, briefs and other

submissions, and the record, we affirm the decision of the

district court as contained in its memorandum opinion dated

April 2, 1981.

** Honorable Edward S. Smith, Judge for the U.S. Court of Claims,

sitting by designation.

2a

Appellant claims that the district court made a number of

errors; however, since we affirm the lower court’s decision and

analysis of the issues it discussed we note briefly only those

issues which the lower court did not directly address.

[1] First, appellant claims that a provision in leases which

its members entered into with the receiver in Bankruptcy of the

project requires HUD to sell the project to appellant. The

leases stated that

Should the Landlord announce in writing an in-

tention to submit the***[ project] to a plan of coop-

erative or condominium ownership,***[t]jenant

herein will be given first option to purchase the

apartment at the price and upon terms set forth in

any such plan.

Even viewing the clause as binding on HUD, it is not enforce-

able since HUD decided that the project should remain a rental

property.

[2] Second, appellant argues that under the doctrine of

equitable estoppel HUD is required to negotiate with the

cooperative. Appellant’s only plausible basis for this claim

involves a meeting between representatives of appellant and

Marilyn Melkonian, the then Deputy Assistant Secretary for

Multifamily Housing Programs of HUD, who appellant alleges

assured the cooperative that HUD would negotiate exclusively

with it for the sale of the project. Ms. Melkonian submitted an

affidavit which stated that she never made any such assurances.

However, even if she made such a statement and even if the

regulations' modifying the procedure for selling unsubsidized

projects to tenant cooperatives are, as appellant claims, invalid,

appellant still does not have a cause of action. The regulations

which the contested regulations superseded restricted to the

Property Disposition Committee the authority to transfer

multifamily projects.2 Therefore, since unauthorized actions by

HUD officials do not bind the agency and since appellant is

124 C.F.R. §§ 290.7, 290.53(c) (1981); 44 Fed. Reg. 56,609 ( 1979).

224 C.F.R. § 290.40 (1981).

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deemed to have notice of the officials’ limited authority,

appellant offers no grounds for application of equitable estop-

pel.3

[3] Finally appellant claims that the amendment to 12

U.S.C. § 1701z-11(c)* contained in the Housing and Commu-

nity Development Act of 19805 somehow affects the parameters

of the Secretary’s discretion in disposing of HUD projects.

Nothing in the statute or the legislative history of the act® gives

appellant grounds for that belief. The amendment does not

change, in any way relevant here, HUD’s discretion as to how

to dispose of the project.

[4] Appellant has not demonstrated that there are mate-

rial issues of fact to be litigated. “{W]hen a movant makes out

a convincing showing that genuine issues of fact are lacking, we

require * * * [in order to deny a motion for summary judg-

ment] that the adversary adequately demonstrate by receivable

facts that a real, not formal, controversy exists * * *.”” ( Foot-

note omitted.) We hold that there are no remaining genuine

material issues of fact in this case and, therefore, the decision of

the district court is

AFFIRMED.

3 See Housing Corp. of America v. United States, 199 Ct.Cl. 705, 711, 468

F.2d 922, 925 ( 1972).

#12 U.S.C. § 1701z-11(c)(3) (Supp. IV 1980) reads, in part “(c) * * *

the Secretary shall seek to * * * (3) maintain the project for purposes of

providing rental or cooperative housing for the longest feasible penod.”

5 Pub.L. No. 96-399, 94 Stat. 1614 ( 1980).

*H.R. Conf. Rep. No. 1420, 96th Cong., 2d Sess. 107, reprinted in

[1980] U.S. Code Cong. & Ad. News 3506, 3617, 3652.

? Bruce Constr. Corp. v. United States, 242 F.2d 873, 875 (Sth Cir.

1957).

4a

United States District Court

Mipo.e District Or FLoripa

Tampa DIvIsION

Case No. 80-356 Civ-T-H

MANDALAY SHORES COOPERATIVE

HOUSING ASSOCIATION, INC.,

Plaintiff,

-VS-

SAMUEL R. Pierce, ef ai.,

Defendants.

MEMORANDUM OPINION

This is an action by a non-profit corporation, Mandalay

Shores Cooperative Housing Association, Inc., formed by a

number of tenants of Mandalay Shores Apartments, Clear-

water, Florida. The apartment building is owned by the United

States Department of Housing and Urban Development, and

the Plaintiff seeks to compel HUD to negotiate wi’ th it and sell it

the project.

The Defendants have answered the complaint and have

moved, with supporting affidavits, for the entry of summary

judgment. The Plaintiff has responded to the motion for

summary judgment and has moved, with supporting affidavits,

for the entry of a preliminary injunction prohibiting HUD from

offering the property for sale by competitive bid.

A hearing was conducted in open court on March 17, 1981.

The parties were represented by their counsel of record, and

argument was entertained. Upon full consideration of those

arguments, the affidavits and other papers in the file, including

the legal memoranda of counsel, I have determined that the

Plaintiff's motion for a preliminary injunction should be DE-

NIED and that the Defendants’ motion for summary judgment

should be GRANTED.

Sa

Mandalay Shores Apartments was developed in 1963 with

a loan insured by the Federal Housing Administration under

Section 207 of the National Housing Act, as amended, 12 USC

$1713. The building is located directly on the Gulf of Mexico

in Clearwater Beach. Its 386 units are contained in a central 12

story section with a 10 story connecting wing on each side.

HUD originally acquired the property in April 1965 in

settlement of the insurance claim following a default by the

mortgagor. HUD then sold the property in 1970, taking back a

purchase money mortgage. The purchaser and mortgagor also

defaulted and HUD reacquired the property in 1977 pursuant

to a deed delivered by the mortgagor in settlement of a

foreclosure proceeding instituted by HUD.

In July of 1979 the HUD Area Office formulated a

together with a letter of credit for $100,000. In November,

1979, the Area Office sent each of the individual tenants of

Mandalay Shores a notice that HUD intended to sell the

Feet nrg onc nyt vaemmem Rete abo

This was followed by a meeting conducted by the HUD

Area Manager with the tenants in December 1979.

Thereafter, on February 12, 1980, the Area Manager

notified the Plaintiff by letter that “the purchase proposal

rejected.” The letter also stated, however, that “when a final

recommendation for disposition is prepared, all tenants will

have an opportunity to review the plan and to comment

further.”

This suit was then instituted by the Plaintiff on March 21,

1980. Subsequent to the filing of the suit, however, HUD

continued with its administrative procedures leading up to a

sale. Accordingly, on June 6, 1980, the Area Office provided

6a

tenants of the property with notice of the recommendation it

intended to submit to the Property Disposition Committee of

HUD in Washington; and on June 27, 1980, that recommenda-

tion was forwarded to the Committee. The recommendation

specifically considered the desire and earlier proposal of the

Plaintiff to purchase the property, but recommended against

that form of disposition due to the shortage of rental housing in

the area, the fact that the project was not formerly subsidized,

and the fact that only a few tenants were eligible for Section 8

rent assistance. ( Affidavit of Alexander Pires, Paragraph 14).

On September 30, 1980, the HUD Property Disposition

Committee approved a written decision and authorization for

the sale of Mandalay Shores pursuant to competitive bidding

procedures but subject to a number of conditions designed to

assure the rehabilitation of the building and its continuation as

a rental facility. The specific recommendation approved by the

Committee included the following discussion:

After carefully reviewing the Area Office’s analysis

and recommendation, the comments from the tenants

and the Association, the Association’s August 1980

proposal, Notice H80-83 on Condo/Coop con-

versions, and HUD regulations at 24 CFR 290, we do

concur with the recommendation to provide for some

type of action to prevent imminent displacement of

these elderly tenants, but do not feel that there is

sufficient justification for HUD to maintain this for-

merly unsubsidized project in inventory and under-

take several million dollars worth of repairs without

first attempting to competitively offer it to private

entities which could make the repairs. As for the

Association’s attempts to purchase the project, this

project is not formerly subsidized and therefore the

only manner in which a negotiated sale could be

accomplished, pursuant to the 290 regulations, would

be through a waiver of the advertising requirements

of the regulations. In addition, because of the

shortage of rental housing in the area, conversion of

the project to other than rental use at this time is not

advisable since it would remove units from the rental

7a

market, which would not be in accordance with current

- Departmental policy expressed in Notice H80-63.

(Emphasis supplied )

The statutory provision from which HUD derives its

authority to dispose of the property is embodied in 12 USC

1713( 1):

Notwithstanding any other provisions of law

relating to the acquisition, handling, or disposal of

real and other property by the United States, the

Secretary shall also have power, for the protection of

the interests of the General Insurance Fund, to pay

out of the General Insurance Fund all expenses or

charges in connection with, and to deal with, com-

plete, reconstruct, rent, renovate, modernize, insure,

make contracts for the management of, or establish,

suitable agencies for the management of, or sell for

cash or credit or lease in his discretion, any property

acquired by him under this section. ... (emphasis

supplied )

The statutory provision upon which the Plaintiff relies is

embodied in 12 USC § 1715z-11:

In any case which the Secretary sells a multifam-

ily housing project acquired as the result of a default

on a mortgage which was insured under this chapter

to a cooperative which will operate it on a nonprofit

basis and restrict permanent occupancy of its dwel-

lings to members, or to a nonprofit corporation which

Operates as a consumer cooperative as defined by the

Secretary, the Secretary may accept a purchase mon-

ey mortgage, or upon application of the mortgagee,

insure a mortgage under this section upon such terms

and conditions as the Secretary determines are rea-

sonable and appropriate, in a principal amount equal

to the value of the property at the time of purchase,

which value shall be based upon a mortgage amount

on which the debt service can be met from the

income of property when operated on a nonprofit

basis after payment of all operating expenses, taxes,

and required reserves; except that the Secretary may

add to the mortgage amount an amount not greater

than the amount of prepaid expenses and costs

involved in achieving cooperative ownership, or

make such other provisions for payment of such

expenses and costs as the Secretary deems reasonable

and appropriate. Prior to such disposition of a proj-

ect, funds may be expended by the Secretary for

necessary repairs and improvements.

The Plaintiff does not and could not say that there is

anything in the law which requires that the property be sold to

it. Rather the Plaintiff contends that Section 1715z-11 vests

discretion in the Secretary of HUD to negotiate a sale of

Mandalay Shores Apartments to it, and that the Secretary has

abused that discretion by adopting regulations which automati-

cally foreclose negotiated sales of any multifamily housing

project not formerly subsidized under the Act, i.e., the regu-

lations do not provide for the negotiated sale of unsubsidized

housing projects to non-governmental entities. See 24 CFR

§ 290.53(c).

The Defendant contends, and correctly so, that there is

nothing in the statute which mandates a particular method of

sale for HUD acquired projects; that Section 1715z-11 merely

establishes a method for computing the amount of the loan

which the Secretary may make or insure when he exercises his

discretion to negotiate the sale of a project to a cooperative; and

that his ultimate discretion to negotiate or not to negotiate for a

sale to a cooperative is emphasized in the pertinent legislative

history of the Act. See Conference Report on the Housing and

Community Development Act of 1974, Report No. 93-1279,

93rd Cong., 2d Session, 153.

Although the challenged regulation (24 CFR § 290.53)

does generally abandon one of the options the Secretary would

have in disposing of projects like Mandalay Shores, it does not

9a

follow that the regulation thereby abuses the discretion given to

him by the statute. On the contrary, the regulation may be

viewed merely as a means of exercising that discretion against

negotiated sales of unsubsidized housing to private parties for

the purpose of acting “.. . for the protection of the interest of

the General Insurance Fund.” 12 USC §1713(1). This is

hardly an irrational distinction. Moreover, the regulation is not

an absolute prohibition or bar against such sales; there is an

expressed provision allowing a waiver. 24 CFR § 290.7.*

In any event, it is unnecessary to decide in this case

whether the regulations foreclosing negotiated sales of all

unsubsidized projects to non-governmental agencies constitutes

an abrogation or abuse of the statutory discretion vested in the

Secretary. This is true because the Property Disposition

Committee did not reject the Plaintiff's offer of purchase solely

on the basis of those regulations. Rather, it specifically

considered the merits of the proposal in the context of eval-

uating whether the regulation should be waived (See 24 CFR

§ 290.7) and elected to reject the possibility of a negotiated sale

to the Plaintiff on the additional grounds that such a sale would

remove the apartment units from the rental market in an area

already suffering from a shortage of rental housing, observing

that such result would be contrary to established departmental

policy.

The ultimate issue in the case is whether, pursuant to the

Administrative Procedure Act, 5 USC §§ 701 and 706, the

Secretary’s exercise of discretion in this case was made ic an

arbitrary and capricious manner. See Citizens to Preserve

Overton Park, Inc. v. Volpe, 401 U.S. 402, 91 S.Ct. 814 (1971).

* The Plaintiff also argues that Congress intended that the Secretary

should exercise his discretion more frequently or more freely in favor of

cooperative purchasers of unsubsidized housing, and that the congressional

will is not being served. If that is true, the argument should more

appropriately be addressed to Congress which might wish to consider a more

explicit statutory directive. It might also be observed that even if the

Congress did hope that the Secretary's discretion would favor cooperatives

more often in such circumstances, it does not follow that the Secretary could

or should be required to exercise his discretion in that manner concerning this

project in favor of this Plaintiff.

10a

Manifestly, the factors considered by the HUD Area Office and

the Property Disposition Committee in deciding against a sale

to the Plaintiff were proper considerations to be evaluated in

deciding whether to negotiate with the Plaintiff or seek com-

petitive bids; the basis of the decision was by no means

arbitrary or capricious. Moreover, to the extent the Plaintiff

attempts to assert a denial of due process, the record clearly

shows full and studied consideration of the Vlamsifl’s interest

and offer, as well as the positions .ud interests of the individual

tenants who were given repeated opportunities to be heard. All

of the process that was due was given.

Under these circumstances it follows that the Plaintiff's

motion for a preliminary injunction should be DENIED; and,

further, in the absence of any issue of material fact, that the

Defendants’ motion for summary judgment should be

GRANTED. The Clerk is directed to enter judgment in favor

of the Defendants and against the Plaintiff with costs to be

assessed according to iaw.

IT IS SO ORDERED.

DONE and ORDERED at Tampa, Florida, this 2nd day

of April, 1981.

/s/ We. TERRELL HODGES

United States District Judge