Appendix — Abbott v. Medgar Evers Houses Associates, L. P.

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UNITED STATES COURT OF APPEALS

FOR THE

SECOND CIRCUIT

THIS SUMMARY ORDER WILL NOT BE PUBLISHED IN

THE FEDERAL REPORTER AND MAY NOT BE CITED

AS PRECEDENTIAL AUTHORITY TO THIS OR ANY

OTHER COURT, BUT MAY BE CALLED TO THE

ATTENTION OF THIS OR ANY OTHER COURT IN A

SUBSEQUENT STAGE OF THIS CASE, IN A RELATED

CASE, OR IN ANY CASE FOR PURPOSES OF

COLLATERAL ESTOPPEL OR RES JUDICATA.

At a Stated Term of the United States Court of

Appeals for the Second Circuit, held at the United States

Courthouse, Foley Square, in the City of New York, on the

16th day of November, one thousand nine hundred and

ninety-nine.

PRESENT: HON. JOSEPH M. McLAUGHLIN,

HON. DENNIS JACOBS,

HON. ROBERT A. KATZMANN,

Circuit Judges.

X

Amilia ABBOTT; Kanvra Abdul-Karim; Edwin Acervedo;

Carolyn Adams; Deborah Alston; Patricia Alston; Marlene

Anaya; Annie Barnes; Charise Barnes; Sheila Batts; Jeanine

2a

Bell: Cecilia Benique; Clinton Biet; Teresita Bowman;

Elizabeth Browde; Annette Brown; Cora Brown, Jerelyn

Brown: Leona Brown; Robert W. Brown, Roberta Brown;

Ramona Bryan; Cheryl Burke; Sandra Byrd; Debbie Cannon,

Pernice Carroll; Hazel Carter; Marsha Carter, Louise

Chaneyfield; Sonia Clintron, Karen Cleveland; Toni

Cleveland: Cora Cofield; Belinda Collier; Gwendolyn

Cooper; Shirley Cooper; Shirley Corley; Antonia Creel;

Deborah Davis: Kim D. Day; Ruby Dicks; Monique Dorsey;

Douglas Drayton; Lovellan Dunton, Mary Dyson; Robert

Edward: Beatrice Estwick; Kahesa Farmer; Sally Farmer;

Margaret Fason; Carmen Feliciano; Sheri-Ann Felix; Paulette

Ferguson; Francine Fortune; Latisha Frederick; Dorthy Mae

Gainyard; Estelle Gibson; Geraldine Giles; Margaret

Gillyard; Ethel Gladden; Modesto Gonzalez; Pamela Gordon,

Concencia Gorman; Ernestine Green; Elsie Griffin; Joan

Griffith: Sheila Grimes; Remona Hall; Rachel Henderson;

Crystal Hollins; Sylvia Holman; Lorena Holme; Gloria

Howard: Flora Hudson; Virginia Jackson; Deborah Jones,

Ethel Jones: Mattie Jones; Odessa Jones; Gregory Kearse,

Gladys Kendrick; Loretta Knox; Ronald Knox; Wanda Knox;

Albert Langston; Barbara Lewis; Odessa McKenzie; Jean

Mabry; Joseph Maddox; Arlene Madison; Donna Mahon;

Darene Mallery; Gloria Marcus; Luz Martinez; Diane

Mashburn: Addie Mazyck; Brenda Michel; Joann Mitchell;

Theresa Moody; Letona Moffett; Willena Moore; Medgar

Evers Houses Tenants Association; Grace Morgan; Rachael

Morris; Shalon Murdaugh; Rochelle Murdaugh; Edwina

Murphy; Kisha nelson; John Nixon; Lee Anne Ogbewele;

Cheryl L. Page; Barbara Paign; Vonzella Palmer, Vickie

Parker; Gale Patterson; Jean Penn; Rosetta Pattiford; Minnie

3a

Pierce; Essie Porter; Emma Pratt; Ronnie Pullian; Thelma

Pullian; Bettie Ramizee; Carol Reddick; Raquel Rivera;

Fdella Robinson; Idela Robinson; Charlotte Rodgers; Lola

Rodgers; Linda Roy; Marsha Roy; Jessie Sanders; Lena

Settles; Latoya Shannon; Mary Shipman; Theodore Simmons;

Sylvia Simpkins; Carrie Simpson; Onella Simpson; Hazel

Smalls; Sharron Smith; Sonia Smith; Latisha Spencer; Picola

Spencer; Janice Staton; Jocynthia Stokes; Johnie Stovall;

Carol Sutton; Evelyn Sutton; Alison Taylor; Maxine Taylor;

Chester Thomas; Karen Thomas; Laraine M. Thomas;

Monica Thomas; Shirley Thomas; Shana Thompson; Tenyatta

Turpin Gregory; Aisha Tyler; Beverly Vaden; Virginia

Vaughan; Gladys Vice; Clarice Wade; June Wallace; Sonia

Wallace; Patricia Washington; Alissa Webb; Dorothy White;

Banquetta Whitt; Michele Wike; Kathleen Wildmon; Dorothy

Williams; Lavon Williams; Michelle T. Williams; Sarah

Williamson; Nacomis Wilson; Cassandra Womack; Bonnie

Worley; Evelyn Worrell; Darlene Wortham; Ethel Wright;

Tywanna Wright Gardner,

Plaintiffs-Appellants,

Vv.

MEDGAR EVERS HOUSES ASSOCIATES, L.P.; Philip

Rosenberg; Douglas Rosenberg; BPC Management

Corporation; New York City Department of Housing

Preservation and Development; Seymour Maslow; Richard

Curtis; New England Management Company, Inc.,

Defendants-Appellees;

4a

United States Department of Housing and Urban

Development,

Defendant.

No. 98-6275.

Appearance for Appellant:

NAOMI J. SCHRAG, New York, NY, (Lisa E.

Cleary, Frederick B. Warder, Patterson Belknap Webb &

Tyler, LLP, Richard J. Wagner, Jim E. Provost, Brooklyn

Legal Services Corp. A., on the brief).

Appearance for Appellee:

FRANKLYN H. SNITOW, New York, NY, (Robert

P. Devlin, Snitow & Cunningham, LLP, on the brief).

Appeal from a final judgment entered on October 23,

1998 in the United States District Court for the Eastern

District of New York, (Gleeson, J.)

UPON DUE CONSIDERATION, IT IS HEREBY

ORDERED, ADJUDGED AND DECREED that the

judgment is AFFIRMED.

Tenants in a federally subsidized low-income housing

project brought this civil RICO suit against the owners and

managers of the project alleging that the defendants engaged

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in mail and wire fraud. It is alleged (i) that the defendants

made false certifications regarding conditions at the project in

monthly filings with the United States Department of

Housing and Urban Development (HUD), and thereby

induced the payment of federal subsidies; (i1) that the

defendants submitted to HUD a series of false written

statements assuring HUD that) major repairs and

improvements to the project were imminent; and (iii) that the

defendants submitted to HUD monthly and annual financial

statements that contained material misrepresentations about

the project's operating costs. As a result of the alleged mail

and wire fraud, the tenants claimed they “suffered the

substantial diminution in both the value of their occupancies

as well as in the value of the millions of entitlement dollars

paid to the owner on behalf of [tenants] in the form of

monthly rent subsidies.”

The district court dismissed the complaint on the

ground, inter alia, that the tenants could not establish that

their injuries were proximately caused by the alleged RICO

violation; the defendants made misrepresentations only to

HUD, not to the tenants directly.

The district court’s analysis, which is consistent with

then-existing precedent, has been further supported by later

decisions of this court. To state a claim under RICO, the

tenants must allege that their “injuries were both factually and

proximately caused by the alleged RICO violation.” /n re

American Express Co. Shareholder Litig., 39 F.3d 395, 399

(2d Cir.1994) (citing Holmes v. Securities Investor Protection

Corp., 503 U.S. 258, 266 68 (1992)). “The causation

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requirement, which is jurisdictionally mandated, has two

different components. There must be ‘transaction causation,’

meaning that the misrepresentation must have led the

plaintiffs to enter into the transactions at issue, and there must

be ‘loss causation,’ meaning that the misrepresentation must

be both an actual and a proximate source of the loss that the

plaintiffs suffered.” Moore v. PaineWebber, Inc., 189 F.3d

165, 169 70 (2d Cir.1999) (citing First Nationwide Bank y.

Gelt Funding Corp., 27 F.3d 763, 769 (2d Cir.1994)).

The tenants here failed to establish loss causation

because they failed to establish that the defendants’

misrepresentations were a proximate source of the tenants’

injuries. “[T]o plead a direct injury is a key element for

establishing proximate causation, independent of and in

addition to other traditional elements of proximate cause.

Thus, the other traditional rules requiring that defendant's acts

were a substantial cause of the injury, and that plaintiff's

injury was reasonably foreseeable, are additional elements,

not substitutes for alleging (and ultimately, showing) a direct

injury.” Laborers Local 17 Health & Benefit Fund v. Philip

Morris, Inc., 191 F.3d 229, 235 36 (2d Cir. 1999). As the

district court concluded, the tenants can allege no direct injury

because the defendants’ misrepresentations were made only

to HUD. The tenants’ injuries are therefore necessarily

derivative of injuries sustained by HUD. Because such

derivative injuries are insufficient to establish proximate

cause, see id. at 235-36, 238-39, the tenants cannot establish

the loss causation necessary for RICO standing.

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Accordingly, for the reasons set forth above, the final

judgment entered on October 23, 1998 is hereby AFFIRMED.

i a Hae ae SOA. We

8a

United States District Court,

E.D. New York.

MEDGAR EVERS HOUSES TENANTS ASSOCIATION,

et al.,

Plaintiffs,

¥.

MEDGAR EVERS HOUSES ASSOCIATES, L.P., The

United States Department of Housing and Urban

Development, et al.,

Defendants.

No. 97-CV-2919 (JG).

Oct. 23, 1998.

Naomi Schrag, Patterson Belknap Webb & Tyler LLP, New

York City, Richard J. Wagner, Brooklyn Legal Services

Corp., "A", Brooklyn, NY, for Plaintiffs.

Franklyn H. Snitow, Snitow & Pauley, New York City,

Medgar Evers Houses Assoc., L.P., BPC Management Corp.,

New England Management Corp., Philip Rosenberg, Douglas

Rosenberg, Seymour Maslow, Richard Curtis, for defendants.

Zachary W. Carter, United States Attorney, Eastern District

of New York, Brooklyn, NY, by Richard Molot, Assistant

United States Attorney, for defendant United States,

Department of Housing and Urban Development.

9a

MEMORANDUM AND ORDER

GLEESON, District Judge.

The Medgar Evers Houses Tenants Association and

181 tenants bring this action against the Medgar Evers Houses

Associates, Limited Partnership ("MEHALP"), BPC

Management Corporation ("BPC"), the New England

Management Company, Inc. ("New England Management"),

and others, claiming violations of the Racketeer Influenced

and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961

et seq., and New York State Real Property Actions and

Proceedings Law (RPAPL) Article 7A, §§ 769-78. The

defendants against whom relief is sought’ have moved to

dismiss the RICO claim on the ground that it fails to state a

claim upon which relief could be granted. For the reasons set

forth below, defendants' motion is granted.

FACTS

Medgar Evers Houses Tenants Association is an

unincorporated association of tenants of the Medgar Evers

Houses, a federally subsidized, low-income housing project

' The United States Department of Housing and Urban

Development ("HUD") and the Department of Housing and Preservation

Development of the City of New York ("HPD"), named in the complaint

as "co-defendants," are nominal defendants. HUD holds the mortgage on

the property at issue and regulates the project, and HPD serves as the

municipal agency charged with enforcement of New York City and State

housing laws. Neither has taken a position on this motion. Unless

otherwise noted, the term "defendants" refers only to MEHALP, BPC,

New England Management, and the individual defendants.

10a

consisting of nine buildings in the Bedford-Stuyvesant section

of Brooklyn, New York. The individual plaintiffs are the

tenants in 181 of the 315 apartment units located in the

project. All of them participate in the federal program known

as "Section 8" rental assistance.

Defendant MEHALP has owned the Medgar Evers

Houses since 1985. Defendant BPC operated and managed

the project for MEHALP from approximately 1985 to 1990.

Defendant New England Management has operated and

managed the project for MEHAEP since 1990. The

individual defendants are employees of BPC or New England

Management.

A. The Statutory and Regulatory Framework

The Section 8 program helps low-income families

obtain a wholesome place to live, see 42 U.S.C. § 1437f,

furthering the National Housing Act's "goal of a decent home

and a suitable living environment for every American family.”

42 U.S.C. § 1441. To achieve this goal, HUD provides,

among other benefits, mortgage insurance or direct mortgages

to the private sector at below-market rates for development or

purchase and maintenance of low-income housing for the

duration of the mortgage. Section 8 rental assistance consists

of monthly rent subsidy payments to the owners of qualifying

housing projects, such as Medgar Evers Houses. The

government subsidizes that portion of each tenant's total

contract rent that exceeds 30% of the tenant's adjusted gross

income.

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HUD regulates Section 8 properties pursuant to

various laws and regulations as well as through a Housing

Assistance Payment ("HAP") Contract and a Regulatory

Agreement between HUD and the property owner, in this

case, MEHALP. Through the HAP Contract and Regulatory

Agreement, HUD imposes on owners of Section 8 projects

the duty to provide services and maintain the premises in

compliance with HUD regulations and in conformity with

state and local laws.

The government pays Section 8 rent subsidies on the

tenants’ behalf directly to the owner upon its (or its agent's)

submission of a HUD form known as a "Housing Owner's

Certification and Application for Housing Assistance

Payments" ("Owner's Certification"). The Owner's

Certification requires the owner to sign a statement that

provides, in relevant part, that "all required inspections have

been completed ... [and] the units for which assistance is

billed are safe, decent and sanitary and occupied or available

for occupancy." Complaint § 47.

HUD retains the power and authority to replace

non-performing management, to withhold subsidy payments

and, if necessary, declare a default under the mortgage and

regulatory agreement, and to become a "mortgagee in

possession” or commence mortgage foreclosure proceedings.

B. The Conditions at the Medgar Evers Houses

HPD serves as the New York City agency responsible

for inspecting residential apartment units for violations of

various housing and building safety codes. HPD generally

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conducts such inspections in response to tenant complaints or

housing court disputes in which tenants allege conditions

impairing building safety or habitability. Violations issued by

HPD inspectors fall into three categories of severity. The

most severe are designated "C" violations, issued for

conditions that present immediate hazards to the health and/or

safety of the tenants. These must be corrected within

twenty-four hours. Next in severity are "B" violations, issued

for hazardous conditions, which must be corrected within

thirty days. The least severe are "A" violations, which cover

non-hazardous conditions that must be corrected within six

months. Plaintiffs allege that, as of the filing of their

complaint in May 1997, a total of 1,595 housing code

violations existed at Medgar Evers Houses, of which 1,188

were either "C" or "B" violations.

Between 1990 and the present, HUD has conducted at least

six on-site inspections. These inspections found various types

of repairs and maintenance needed in many areas, including

elevators, exterior walls and foundations, water and sewage

systems, insulation, electrical fixtures and systems, and

heating systems. The inspectors also found a need for rodent

and vermin extermination and a pervasive condition of mold

and mildew throughout the project.

63 The Plaintiffs’ Claims

Although HUD is named as a "co-defendant" in the

complaint, plaintiffs have conceded that it is only a nominal

defendant, from which no relief is sought unless the Court

orders the dissolution of the RICO "enterprise" and places the

project in receivership. See Complaint § 3; Transcript of

sede ingle OE lial i oN LGR I

l3a

Oral Argument, Jan. 9, 1998 ("Tr."), at 18-19. ° Plaintiffs

thus do not assert that federal jurisdiction arises because HUD

is a party to this action. Rather, federal jurisdiction rests on

their RICO claim and on supplemental jurisdiction under 28

U.S.C. § 1367. The complaint alleges that MEHALP, BPC,

New England Management, and the individual defendants

constituted an "associated in fact" "enterprise" within the

meaning of 18 U.S.C. § 1961(4). Plaintiffs charge those

defendants with violating 18 U.S.C. § 1962(c) and (d) by

participating and conspiring to participate in the conduct of

the affairs of the enterprise through a pattern of racketeering

activity consisting of acts of mail fraud and wire fraud.

Specifically, plaintiffs allege "three distinct types of mail

and/or wire frauds." Complaint § 45.

The first centers on the monthly Owner's Certification

filed with HUD. As noted above, each such certification must

contain a statement by the project owner that "all required

inspections have been completed ... [and] the units for which

assistance is billed are safe, decent and sanitary." Plaintiffs

allege that in each Owner's Certification since December

1985, MEHALP made that statement knowing it to be false

and misleading. The second type of fraud alleged in the

complaint consists of statements made by MEHALP to HUD

in response to its site inspection reports and management

reviews conducted between 1986 and 1997. These letters,

: "Similarly, the New York City Department of Housing and

Preservation Development (HPD) is named as a nominal defendant

because plaintiffs also assert a supplemental State claim for the

appointment of an Article 7-A Administrator...." Complaint § 3.

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plans, and other written submissions (six are specified at

Complaint § 52) allegedly contained false and misleading

statements to HUD regarding repairs and improvements to the

project in order to "lull HUD into inaction." Complaint 4 54.

The third type of fraud alleged by plaintiffs deals with

monthly and annual financial reports which MEHALP

submitted to HUD. These submissions allegedly contained

false statements about MEHALP's costs and expenses in order

"to conceal from HUD the ‘diversion’ and misappropriation of

Project funds." Complaint { 56.

Plaintiffs also allege conspiracy and substantive

violations of 18 U.S.C. § 1962(b), contending that the

defendants maintained their interest in, and control of, the

charged enterprise through a pattern of racketeering activity.

In addition to the RICO claims, plaintiffs allege violations of

the New York Real Property Action and Proceedings Law

based on the condition of the apartments in the project.

Plaintiffs seek an order (1) dissolving the charged enterprise

and placing its assets in receivership; (2) directing the

defendants to divest themselves of their interest in the

enterprise and in Medgar Evers Houses; and (3) enjoining the

defendants from owning or managing public-assisted housing.

They also seek treble damages under the RICO statute, an

accounting, the appointment of an administrator under the

RPAPL, ’ and attorneys’ fees. |

3 Defendants assert that the RPAPL claim is moot in light of a

Stipulation and Order dated August 11, 1997, under which HUD be:came

the Mortgagee-In-Possession of the Medgar Evers Houses and Jeffrey

Goldstein was appointed a managing agent.

lSa

DISCUSSION

A. The Standard for Dismissal Under Rule 12(b)(6)

A federal court's task in determining the sufficiency of

a complaint is "necessarily a limited one." Scheuer v. Rhodes,

416 US. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974). The

inquiry focuses not on whether a plaintiff might ultimately

prevail on her claim, but on whether she is entitled to offer

evidence in support of the allegations in the complaint. /d.

"Indeed it may appear on the face of the pleadings that a

recovery is very remote and unlikely but that is not the test."

Id. Rule 12(b)(6) warrants a dismissal only if "it appears

beyond doubt that the plaintiff can prove no set of facts in

support of his claim which would entitle him to relief."

Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d

80 (1957); see also Hamilton Chapter of Alpha Delta Phi,

Inc. v. Hamilton College, 128 F.3d 59 (2d Cir.1997). In

addition, in ruling on defendant's motion, the Court must

accept as true all the factual allegations in the complaint and

must draw all reasonable inferences in favor of the plaintiff.

See Hamilton, 128 F.3d at 59 (citing Hospital Bldg. Co. v.

Trustees of Rex Hosp., 425 U.S. 738, 740, 96 S.Ct. 1848, 48

L.Ed.2d 338 (1976)).

B. The RICO Claims

The RICO statute furnishes a private civil action to a

person who has been "injured in his business or property by

reason of a violation of" 18 U.S.C. § 1962. 18 U.S.C. §

1964(c). In order to prove a violation of § 1962, a plaintiff

must prove that the defendant used money derived from a

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pattern of racketeering activity to invest in an enterprise,

acquired control of an enterprise through a pattern of

racketeering activity, or conducted the affairs of an enterprise

through a pattern of racketeering activity, or conspired to do

any of those things. 18 U.S.C. § 1962(a)-(d). A pattern of

racketeering activity requires, inter alia, at least two "acts of

racketeering activity." 18 U.S.C. § 1961(5). The acts of

racketeering activity alleged here consist of mail fraud and

wire fraud in violation of 18 U.S.C. §§ 1341 and 1343,

respectively.

l. The § 1962(c) Claim

The Supreme Court has interpreted the "by reason of"

language in § 1964(c) as requiring not only actual causation,

but proximate cause as well. Holmes v. Securities Investor

Protection Corp., 503 U.S. 258, 268, 112 S.Ct. 1311, 117

L.Ed.2d 532 (1992). Holmes involved a RICO claim brought

by the Securities Investor Protection Corporation ("SIPC"), a

private nonprofit corporation established pursuant to a federal

statute to provide financial protection to the customers of

failed broker-dealers who were members of SIPC. SIPC had

advanced nearly $13 million to the customers of two such

broker-dealers and brought the RICO claim against Holmes

and others on the theory that their fraudulent activity had

prevented the broker-dealers from satisfying their obligations

to those customers, thus triggering SIPC's statutory duty to

reimburse those customers. 503 U.S. at 260-64, 112 S.Ct.

1311.

In rejecting SIPC's RICO claim, the Supreme Court

focused on the distinction between injuries actually caused by

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RICO violations and the narrower category of injuries

"proximately" caused by them. The boundaries of the latter

category have evolved as the result of a legal policy

determination. As the Court put it, "Here we use 'proximate

cause’ to label generically the judicial tools used to limit a

person's responsibility for the consequences of that person's

own acts. At bottom, the notion of proximate cause reflects

‘ideas of what justice demands, or of what is administratively

possible and convenient.’ " /d. at 268, 112 S.Ct. 1311 (quoting

W. Page Keeton et al., Prosser and Keeton on the Law of

Torts § 41, at 264 (Sth ed.1984)). The Court concluded that

in the civil RICO context, justice demands that a plaintiff

demonstrate a direct relationship between the injury asserted

and the RICO violation.

The Court identified several reasons for this directness

requirement. First, "the less direct an injury is, the more

difficult it becomes to ascertain the amount of a plaintiff's

damages attributable to the violation, as distinct from other,

independent, factors." /d. at 269, 112 S.Ct. 1311 (citation

omitted). Second, extending the private RICO claim beyond

the first level of injury would "force courts to adopt

complicated rules apportioning damages among plaintiffs” at

different levels of injury from the acts of racketeering, in

order to prevent the risk of multiple recoveries. /d. Finally,

the Court observed, there remains little need to address these

complex issues, as the ability of directly-injured victims to

bring suit generally serves the deterrent purpose of the private

civil action. See id. at 269-70, 112 S.Ct. 1311.

Guided by these concerns, first expressed in the

antitrust context, the Court concluded that SIPC was not a

18a

proper RICO plaintiff. SIPC's claim would require a

determination of whether the broker-dealers' customers’ losses

resulted from the alleged stock manipulation "as opposed to,

say, the broker- dealers’ poor business practices or their

failures to anticipate developments in the financial markets."

Id. at 273, 112 S.Ct. 1311. Putting that factual causation issue

aside, the conferral of a cause of action on those indirectly

injured would require the apportionment of the prospective

recoveries among the various plaintiffs, "who would

otherwise each be entitled to recover the full treble damages."

Id. at 259, 112 S.Ct. 1311. Finally, "the law would be

shouldering these difficulties despite the fact that those

directly injured, the broker-dealers, could be counted on to

bring suit for the law's vindication." /d. at 273, 112 SAA.

ist.

Those concerns equally apply to this case. The

various false and misleading statements that constitute the

acts of racketeering activity were all made to HUD. Plaintiffs

do not allege that defendants made any of the representations

underlying the mail and wire fraud allegations to the

plaintiffs. Indeed, plaintiffs were not even aware of the false

statements; in opposing defendants’ statute of limitations

argument, plaintiffs assert that they did not discover the

scheme to defraud HUD until the spring of 1997. Plaintiffs’

Mem. at 8. ;

The second-level injuries plaintiffs claim to have

suffered are analogous to those alleged by the SIPC in

Holmes and would impose similar burdens on the courts. If

this RICO claim proceeds, the fact-finder would be required

to determine whether the complained of conditions at the

19a

Medgar Evers Houses in fact resulted from the false

statements to HUD, as opposed to, for example, the

defendants’ poor management of the housing project. Putting

that factual issue aside, permitting plaintiffs to maintain a

treble damage action would seem to require an apportionment

of possible recoveries among the directly defrauded party

(HUD) and others indirectly injured by the fraudulent scheme,

a group not necessarily limited to the plaintiff tenants.‘

Finally, as in Holmes, the law need not shoulder these

difficulties. HUD itself can deter fraudulent statements to

HUD. Owners who make the fraudulent statements face

criminal prosecution under 18 U.S.C. § 1001, see United

States v. Mandanici, 729 F.2d 914 (2d Cir.1984), and remain

subject to civil penalties and other remedies under the HUD

regulations.

Plaintiffs rely on the Second Circuit's articulation of the

proximate cause requirement in Hecht v. Commerce Clearing

House, Inc., 897 F.2d 21, 23-24 (2d Cir.1990). In that case,

the court stated that the RICO pattern or act must be a

"substantial factor in the sequence of responsible causation,"

* For example, a plumbing contractor with a contract to make the

plumbing repairs at the project could allege that, as a result of false

statements to HUD that plumbing repairs had been made, it was injured in

its business, i.e., but for the fraud, it would have done the repair work.

Such a contractor would also face an actual causation hurdle (in the

absence of the fraud, would the defendants really have used the contractor

to make the repairs?), but would be no further removed from the

fraudulent conduct than the plaintiffs.

20a

and the injury must be "reasonably foreseeable or anticipated

as a natural consequence" of the defendant's fraudulent

conduct. Plaintiffs here argue that the pattern of false

representations to HUD enabled the defendants to get and

keep federal funds that should have been expended for

plaintiffs’ benefit, and thus this pattern was a "substantial

factor” in a sequence of events causing foreseeable injury to

them. See Plaintiffs' Mem. at 18-19.

I disagree. Even accepting that the defendants’

fraudulent statements to HUD constituted a "but for" cause of

the conditions at the Medgar Evers Houses, those conditions

were neither reasonably foreseeable when the defendants

made the false statements nor the natural consequence of

those statements. The racketeering acts allowed the

defendants to receive continued, even increased, Section 8

funding. The defendants’ failure to use the money to benefit

the tenants did not flow from the misrepresentations made to

HUD. This failure may have been a foreseeable result of

plaintiffs’ generalized allegations that defendants

misappropriated federal funds, but plaintiffs do not include

those allegations among the racketeering acts in the RICO

claim. °

Second, plaintiff's reliance on Hecht ignores the fact

that Hecht was decided=before Holmes. Arguably, the

proximate cause standard articulated by Hecht, and especially

5 | do not mean to suggest that the RICO claim would

survive if it had included the misappropriations as

racketeering acts.

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its focus on the foreseeability of injury to the plaintiffs,

requires some modification after Holmes, which focused on

the directness of that injury. Indeed, it is not clear to me that

the SIPC's claim in Holmes would have failed if the Court

had applied to it the Hecht standard quoted above.

Although the Second Circuit has stated that "Holmes

essentially endorsed ([Hecht's ] definition of proximate

cause," /n re American Express Co. Shareholder Litig., 39

F.3d 395, 399 (2d Cir.1994), a careful reading of its decisions

reveals a refinement of the Hecht formulation of the

proximate cause requirement.

In Hecht, the court held that the plaintiff's injuries

were not reasonably foreseeable or the natural consequence of

the RICO violations because the plaintiff was "neither the

target of the racketeering enterprise nor the competitor[ ] nor

the customer{ ] of the racketeer[s]."_ 897 F.2d at 24 (internal

quotations and citations omitted). More recently, the Second

Circuit has made explicit a requirement, implied in Hecht and

Holmes, that in order for a plaintiff to succeed on a RICO

claim, the injuries alleged must be the "preconceived

purpose" or the "specifically intended consequence" of the

defendants’ racketeering, or else they are not the "necessary

result" or "foreseeable" consequence of those actions. Jn re

American Express, 39 F.3d at 400; see also Abrahams vy.

Young, & Rubicam, Inc., 79 F.3d 234, 237 (2d Cir.1996)

(holding that plaintiff failed to establish RICO claim because

he was not "the target of the racketeering enterprise[,] ... [t]hat

is to say, [his] injuries did not flow from the harms that the

predicate acts ... were intended to cause" (internal quotations

22a

and citations omitted)), cert. denied, --- U.S. ----, 117 S.Ct.

66, 136 L.Ed.2d 27 (1996).

Thus, the cases in which RICO claims have failed

involve racketeering acts directed at persons other than the

plaintiffs. The claim in Hecht was brought by an employee

who alleged fraudulent acts (such as forging customer

signatures on orders and fabricating bills) committed by

fellow employees and their agents against their customers.

897 F.2d at 22. In Manson v. Stacescu, 11 F.3d 1127 (2d

Cir.1993), cert. denied, 513 U.S. 915, 115 S.Ct. 292, 130

L.Ed.2d 206 (1994), plaintiffs charged the defendants with

numerous criminal acts committed as part of a scheme to loot

a company. The plaintiffs, who were shareholders or

employees of the company, or guarantors of its debt, lost their

RICO claim because their injuries, unlike those of the

corporate victim, were indirect. See id. at 1132; see also In

re American Express, 39 F.3d at 399-401 (determining that

shareholder derivative RICO claim failed because corporate

officers' alleged conspiracy to defame rival company involved

criminal acts directed at others, not at corporation);

Abrahams, 79 F.3d at 238 (stating that intended targets of

advertising firm's illegal scheme to obtain foreign account by

bribery and other illegal acts were firm's competitors, and thus

intended recipient of bribes, who was injured only by fallout

from scheme's disclosure, could not maintain RICO claim).

On the other hand, RICO claims survive proximate

cause-based motions to dismiss when the plaintiff stands as

the target of the racketeering acts. In G/CC Capital Corp. v.

Technology Fin. Group, Inc., 30 F.3d 289 (2d Cir.1994), cert.

denied, 518 U.S. 1017, 116 S.Ct. 2547, 135 L.Ed.2d 1067

23a

(1996), for instance, the plaintiff, a creditor of a corporation,

brought a RICO claim against defendants who looted the

corporation's assets, causing the corporation to default on his

note. Although the circumstances in GICC Capital appear

superficially similar to those in Manson, supra, the plaintiff

in GICC Capital negotiated the note with the defendants

while they looted the company and alleged fraudulent

behavior directed at him in connection with the issuance of

the note. G/CC Capital at 292-93.

Measured against this standard, the RICO claims here

fail. The alleged racketeering acts were "intended to mislead

HUD," Complaint § 52, "to lull HUD into inaction and induce

it to forego punitive and/or remedial enforcement actions

against MELHAP," Complaint § 54, and "to conceal from

HUD the 'diversion' and misappropriation of Project funds,"

Complaint | 56. By plaintiffs' own formulation of their claim,

HUD was the sole target of the alleged misrepresentations,

and defendants induced HUD alone to part with millions of

dollars. The plaintiffs were "not the intended targets of the

RICO violations." Jn re American Express, 39 F.3d at 400;

see also In re Crazy Eddie Securities Litig., 714 F.Supp.

1285, 1291 (E.D.N.Y.1989) (dismissing RICO claim where

racketeering acts were "directed not at Crazy Eddie but at the

shareholders and the investing public.").

Plaintiffs rely on Trautz v. Weisman, 819 F.Supp. 282

(S.D.N.Y.1993), in which the residents of a facility for

mentally ill adults alleged that a pattern of mail fraud

involving misrepresentations made by the facility's owners to

the New York State Department of Social Services ("DSS")

proximately caused their injuries. Specifically, the defendants

24a

misrepresented to DSS that the squalid conditions that existed

at the facility would be corrected, when the real purpose of

those assurances was to maintain the facility's operating

certificate. Proximate cause for the RICO claim was satisfied,

according to Judge Goettel, because the operating certificate,

procured by fraud on the DSS, resulted in the residents’

Supplemental Social Security Income ("SSI") benefits being

higher, thereby allowing the defendants to charge the

residents a higher monthly fee for substandard care. Judge

Goettel concluded that "it was the residents ... who were

intended to be the ultimate targets of defendants’ alleged

scheme. Fraudulently securing renewals of the operating

certificate was only a necessary step in eventually parting the

... residents from their SSI monies." /d. at 287.

I respectfully disagree with Judge Goettel's decision in

Trautz. He based it on a premise not justified by the

proximate cause requirements of Holmes (which the Trautz

opinion does not mention). Judge Goettel concluded that the

plaintiff residents were the "alleged targets of the racketeering

enterprise," 7rautz at 287, ignoring the requirement that the

"compensable injury necessarily is the harm caused by the

predicate acts." Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479,

497, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985) (emphasis

added). See also Hecht, 897 F.2d at 21 ("[T]he RICO pattern

or [racketeering] acts must proximately cause plaintiff's

injury."). In short, the conclusion in 7rautz that injury by the

"racketeering enterprise" is sufficient to confer RICO standing

ignores the "direct-injury limitation" adopted by Congress

25a

when it enacted 18 U.S.C. § 1964(c). Holmes, 503 U.S. at

272, 112 S.Ct. 1311.°

2. The 1962(b) Claim -

Even if plaintiffs had alleged injuries resulting directly

from the racketeering acts, more would be required to sustain

their 1962(b) claim. Essentially, that section prohibits

racketeers from muscling in on enterprises. The RICO

plaintiff must therefore allege a distinct injury caused by the

defendants’ acquisition or maintenance of an interest in or

control of an enterprise. See Discon, Inc. v. NYNEX Corp., 93

F.3d 1055, 1062-63 (2d Cir.1996). Here, the alleged

enterprise is the association of the defendants themselves.

See Complaint § 61. They are alleged to have "maintained

their interest in and control of said enterprise through a

pattern of racketeering activity in violation of 18 U.S.C. §

1962(b)." Complaint § 64.

First, the claim must fail because plaintiffs do not

allege any facts to support a finding that the defendants'

"interest" in their "association" was acquired or maintained

through the pattern of racketeering activity. See Discon, 93

° | assume, without deciding, that the reliance element of the

plaintiffs’ mail and wire fraud racketeering acts is established by HUD's

reliance on the fraudulent statements. See Cement and Concrete Workers

Dist. Council Welfare Fund v. Lollo, 148 F.3d 194, 196-97 (2d Cir.1998).

The reliance element of a fraud claim is distinct from the proximate cause

element of a civil RICO cause of action.

26a

F.3d at 1062. Second, plaintiffs have failed to allege injury

stemming from the defendants’ acquisition or maintenance of

that interest. See id. at 1063. Accordingly, the § 1962(b)

claim must fail.

3. The 1962(d) Claims

Since I have held that the § 1962(b) and (c) claims do

not state a cause of action, the RICO conspiracy claims, based

solely on alleged agreements to commit the aforementioned

acts, must be dismissed as well. See Discon, 93 F.3d at 1064.

ton The State Law Claim

Plaintiffs assert a state law claim seeking the

appointment of an administrator to manage the Medgar Evers

Houses. In light of the dismissal of the federal claims, it is

appropriate to decline jurisdiction over these state claims. 28

U.S.C. § 1367(c)(3). See also United Mine Workers v. Gibbs,

383 U.S. 715, 726, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966)

("Certainly if the federal claims are dismissed before trial ...

the state claims should be dismissed as well."); Block v. First

Blood Assocs., 988 F.2d 344, 351 (2d Cir.1993) (finding no

abuse of discretion to dismiss state law discrimination claims

where all federal claims had been dismissed before trial).

CONCLUSION

The plaintiff's allegations, which I accept as true, cry out for

relief. There may well be an avenue for such relief in state

court, as plaintiffs’ counsel acknowledged during oral

argument. For the reasons stated above, however, the civil

27a

RICO cause of action is not a proper vehicle for these

allegations.’ The motion to dismiss is granted.

The Clerk of the Court is advised that this Order

closes the case.

So Ordered.

” Defendants raise various additional challenges to the RICO

claims, which need not be addressed here.

28a

UNITED STATES CODE ANNOTATED

TITLE 18. CRIMES AND CRIMINAL PROCEDURE

PART I--CRIMES CHAPTER 96--RACKETEER

INFLUENCED AND CORRUPT ORGANIZATIONS

Current through P.L. 106-55, approved 8-17-99

§1961. Definitions

As used in this chapter—

(1) "racketeering activity" means (A) any act or threat

involving murder, kidnapping, gambling, arson, robbery,

bribery, extortion, dealing in obscene matter, or dealing in a

controlled substance or listed chemical (as defined in section

102 of the Controlled Substances Act), which is chargeable

under State law and punishable by imprisonment for more

than one year; (B) any act which is indictable under any of

the following provisions of title 18, United States Code:

Section 201 (relating to bribery), section 224 (relating to

sports bribery), sections 471, 472, and 473 (relating to

counterfeiting), section 659 (relating to theft from interstate

shipment) if the act indictable under section 659 is felonious,

section 664 (relating to embezzlement from pension and

welfare funds), sections 891-894 (relating to extortionate

credit transactions), section 1028 (relating to fraud and related

activity in connection with identification documents), section

1029 (relating to fraud and related activity in connection with

access devices), section 1084 (relating to the transmission of

gambling information), section 1341 (relating to mail fraud),

section 1343 (relating to wire fraud), section 1344 (relating to

financial institution fraud), section 1425 (relating to the

29a

procurement of citizenship or nationalization unlawfully).

section 1426 (relating to the reproduction of naturalization or

citizenship papers), section 1427 (relating to the sale of

naturalization or citizenship papers), sections 1461-1465

(relating to obscene matter), section 1503 (relating to

obstruction of justice), section 1510 (relating to obstruction of

criminal investigations), section 1511 (relating to the

obstruction of State or local law enforcement), section 1512

(relating to tampering with a witness, victim, or an

informant), section 1513 (relating to retaliating against a

witness, victim, or an informant), section 1542 (relating to

false statement in application and use of passport), section

1543 (relating to forgery or false use of passport), section

1544 (relating to misuse of passport), section 1546 (relating

to fraud and misuse of visas, permits, and other documents),

sections 1581-1588 (relating to peonage and slavery), section

1951 (relating to interference with commerce, robbery, or

extortion), section 1952 (relating to racketeering), section

1953 (relating to interstate transportation of wagering

paraphernalia), section 1954 (relating to unlawful welfare

fund payments), section 1955 (relating to the prohibition of

illegal gambling businesses), section 1956 (relating to the

laundering of monetary instruments), section 1957 (relating

to engaging in monetary transactions in property derived from

specified unlawful activity), section 1958 (relating to use of

interstate commerce facilities in the commission of

murder-for-hire), sections 2251, 2251A, 2252, and 2260

(relating to sexual exploitation of children), sections 2312 and

2313 (relating to interstate transportation of stolen motor

vehicles), sections 2314 and 2315 (relating to interstate

transportation of stolen property), section 2318 (relating to

trafficking in counterfeit labels for phonorecords, computer

30a

programs or computer program documentation or packaging

and copies of motion pictures or other audiovisual works),

section 2319 (relating to criminal infringement of a

copyright), section 2319A (relating to unauthorized fixation

of and trafficking in sound recordings and music videos of

live musical performances), section 2320 (relating to

trafficking in goods or services bearing counterfeit marks),

section 2321 (relating to trafficking in certain motor vehicles

or motor vehicle parts), sections 2341-2346 (relating to

trafficking in contraband cigarettes), sections 2421-24

(relating to white slave traffic), (C) any act which is indictable

under title 29, United States Code, section 186 (dealing with

restrictions on payments and loans to labor organizations) or

section 501(c) (relating to embezzlement from union funds),

(D) any offense involving fraud connected with a case under

title 11 (except a case under section 157 of this title), fraud in

the sale of securities, or the felonious manufacture,

importation, receiving, concealment, buying, selling, or

otherwise dealing in a controlled substance or listed chemical

(as defined in section 102 of the Controlled Substances Act),

punishable under any law of the United States, (E) any act

which is indictable under the Currency and Foreign

Transactions Reporting Act, or (F) any act which is indictable

under the Immigration and Nationality Act, section 274

(relating to bringing in and harboring certain aliens), section

277 (relating to aiding or assisting certain aliens to enter the

United States), or section 278 (relating to importation of alien

for immoral purpose) if the act indictable under such section

of such Act was committed for the purpose of financial gain;

** *

UNITED STATES CODE ANNOTATED

TITLE 18. CRIMES AND CRIMINAL PROCEDURE

PART I--CRIMES

3la

CHAPTER 96--RACKETEER INFLUENCED AND

CORRUPT ORGANIZATIONS

Current through P.L. 106-55, approved 8-17-99

§1962. Prohibited activities

** *

(c) It shall be unlawful for any person employed by or

associated with any enterprise engaged in, or the activities of

which affect, interstate or foreign commerce, to conduct or

participate, directly or indirectly, in the conduct of such

enterprise's affairs through a pattern of racketeering activity

or collection of unlawful debt.

* * *

32a

UNITED STATES CODE ANNOTATED

TITLE 18. CRIMES AND CRIMINAL PROCEDURE

PART I--CRIMES

CHAPTER 96--RACKETEER INFLUENCED AND

CORRUPT ORGANIZATIONS

Current through P.L. 106-73, approved 10-19-1999

§ 1964. Civil remedies

* * *

(c) Any person injured in his business or property by

reason of a violation of section 1962 of this chapter may sue

therefor in any appropriate United States district court and

shall recover threefold the damages he sustains and the cost

of the suit, including a reasonable attorney's fee, except that

no person may rely upon any conduct that would have been

actionable as fraud in the purchase or sale of securities to

establish a violation of section 1962. The exception

contained in the preceding sentence does not apply to an

action against any person that is criminally convicted in

connection with the fraud, in which case the statute of

limitations shall start to run on the date on which the

conviction becomes final.

33a

UNITED STATES CODE ANNOTATED

TITLE 18. CRIMES AND CRIMINAL PROCEDURE

PART I--CRIMES

CHAPTER 63--MAIL FRAUD

Current through P.L. 106-55, approved 8-17-99

§1341. Frauds and swindles

Whoever, having devised or intending to devise any

scheme or artifice to defraud, or for obtaining money or

property by means of false or fraudulent pretenses,

representations, or promises, or to sell, dispose of, loan,

exchange, alter, give away, distribute, supply, or furnish or

procure for unlawful use any counterfeit or spurious coin,

obligation, security, or other article, or anything represented

to be or intimated or held out to be such counterfeit or

spurious article, for the purpose of executing such scheme or

artifice or attempting so to do, places in any post office or

authorized depository for mail matter, any matter or thing

whatever to be sent or delivered by the Postal Service, or

deposits or causes to be deposited any matter or thing

whatever to be sent or delivered by any private or commercial

interstate carrier, or takes or receives therefrom, any such

matter or thing, or knowingly causes to be delivered by mail

or such carrier according to the direction thereon, or at the

place at which it is directed to be delivered by the person to

whom it is addressed, any such matter or thing, shall be fined

under this title or imprisoned not more than five years, or

both. If the violation affects a financial institution, such

person shall be fined not more than $1,000,000 or imprisoned

not more than 30 years, or both.

De ee

34a

UNITED STATES CODE ANNOTATED

TITLE 18. CRIMES AND CRIMINAL PROCEDURE

PART I--CRIMES

CHAPTER 63--MAIL FRAUD

Current through P.L. 106-55, approved 8-17-99

§1343. Fraud by wire, radio, or television

Whoever, having devised or intending to devise any

scheme or artifice to defraud, or for obtaining money or

property by means of false or fraudulent pretenses,

representations, or promises, transmits or causes to be

transmitted by means of wire, radio, or television

communication in interstate or foreign commerce, any

writings, signs, signals, pictures, or sounds for the purpose of

executing such scheme or artifice, shall be fined under this

title or imprisoned not more than five years, or both. If the

violation affects a financial institution, such person shall be

fined not more than $1,000,000 or imprisoned not more than

30 years, or both.

35a

UNITED STATES CODE ANNOTATED

TITLE 42. THE PUBLIC HEALTH AND WELFARE

CHAPTER 8--LOW-INCOME HOUSING

SUBCHAPTER I--GENERAL PROGRAM OF ASSISTED

HOUSING

Current through P.L. 106-55, approved 8-17-99

§1437f. Low-income housing assistance

(a) Authorization for assistance payments

For the purpose of aiding low-income families in

obtaining a decent place to live and of promoting

economically mixed housing, assistance payments may be

made with respect to existing housing in accordance with the

provisions of this section.

(c) Contents and purposes of contracts for assistance

payments; amount and scope of monthly assistance payments

* * *

(4) The assistance contract shall provide that

assistance payments may be made only with respect to a

dwelling unit under lease for occupancy by a family

determined to be a lower income family at the time it initially

occupied such dwelling unit, except that such payments may

be made with respect to unoccupied units for a period not

exceeding sixty days (A) in the event that a family vacates a

dwelling unit before the expiration date of the lease for

occupancy or (B) where a good faith effort is being made to

36a

fill an unoccupied unit, and, subject to the provisions of the

following sentence, such payments may be made, in the case

of a newly constructed or substantially rehabilitated project,

after such sixty-day period in an amount equal to the debt

service attributable to such an unoccupied dwelling unit for a

period not to exceed one year, if a good faith effort is being

made to fill the unit and the unit provides decent, safe, and

sanitary housing. No such payment may be made after such

sixty-day period if the Secretary determines that the dwelling

unit is in a project which provides the owner with revenues

exceeding the costs incurred by such owner with respect to

such project.

37a

CODE OF FEDERAL REGULATIONS

TITLE 24--HOUSING AND URBAN DEVELOPMENT

SUBTITLE B--REGULATIONS RELATING TO

HOUSING AND URBAN DEVELOPMENT

CHAPTER VIII--OFFICE OF THE ASSISTANT

SECRETARY FOR HOUSING-FEDERAL HOUSING

COMMISSIONER, DEPARTMENT OF HOUSING AND

URBAN DEVELOPMENT (SECTION 8 HOUSING

ASSISTANCE PROGRAMS, SECTION 202 DIRECT

LOAN PROGRAM, SECTION 202 SUPPORTIVE

HOUSING FOR THE ELDERLY PROGRAM AND

SECTION 811 SUPPORTIVE HOUSING FOR PERSONS

WITH DISABILITIES PROGRAM)

PART 886--SECTION 8 HOUSING ASSISTANCE

PAYMENTS PROGRAM--SPECIAL ALLOCATIONS

SUBPART A--ADDITIONAL ASSISTANCE PROGRAM

FOR PROJECTS WITH HUD-INSURED AND

HUD-HELD MORTGAGES

Current through January 1, 2000; 64 FR 73853

§ 886.108 Maximum annual contract commitment.

* * *

(c) Project Account. In order to assure that housing

assistance payments will be increased on a timely basis to

cover increases in Contract Rents or decreases in Family

Incomes:

(1) A Project Account shall be established and

maintained, in an amount as determined by the Secretary

consistent with his responsibilities under Section 8(c)(6) of

the Act, out of amounts by which the maximum annual

Contract commitment per year exceeds amounts paid under

38a

the Contract for any year. This account shall be established

and maintained by HUD for each project as a specifically

identified and segregated account, and payment shall be made

therefrom only for the purposes of (i) housing assistance

payments, and (ii) other costs specifically authorized or

approved by the Secretary.

39a

CODE OF FEDERAL REGULATIONS

TITLE 24--HOUSING AND URBAN DEVELOPMENT

SUBTITLE B--REGULATIONS RELATING TO

HOUSING AND URBAN DEVELOPMENT

CHAPTER II--OFFICE O? ASSISTANT SECRETARY

FOR HOUSING--FEDERAL HOUSING

COMMISSIONER, DEPARTMENT OF HOUSING AND

URBAN DEVELOPMENT

SUBCHAPTER A--GENERAL

PART 200--INTRODUCTION TO FHA PROGRAMS

SUBPART H--PARTICIPATION AND COMPLIANCE

REQUIREMENTS

PREVIOUS PARTICIPATION REVIEW AND

CLEARANCE PROCEDURE

Current through January 1, 2000; 64 FR 73853

§ 200.219 Content of certification.

(a) Each principal who executes the certificate

certifies that:

(1) The certificate contains a listing of every

assisted or insured project of HUD, Farmers Home

Administration and State or local government housing finance

agencies in which the principal has been or is now a principal;

(2) For a period beginning 10 years prior to

the date of the certificate under review and except as shown

on the certificate;

(i) No mortgage on a project listed has

ever been in default nor has mortgage relief been given;

40a

(ii) There have been no defaults or

noncompliances under any conventional construction contract

or Turnkey contract of sale in connection with a public

housing project;

(i11) There are no known unresolved

findings raised as a result of HUD audits, management

reviews or other governmental investigations;

(iv) There has been no suspension or

termination of payments under any HUD assistance contract

attributable to the fault or negligence of principal;

(v) The principal has not been

convicted of a felony (See definitions § 200.215(b)) and is not

presently the subject of a complaint or indictment charging a

felony;

(vi) The principal has not been

suspended, debarred, or otherwise restricted by any

Department or Agency of the Federal Government or of a

State Government from doing business with such Department

or Agency;

(vil) The principal has not defaulted on

an obligation covered by a surety or performance bond, and

has not been the subject of a Claim under an employee fidelity

bond;

(3) The principal has listed all parties who are

known to him to be principals under § 200.215(e)(2);

4la

(4) The principal is not a HUD employee or a

member of an employee's immediate household as defined by

HUD's Standards of Conduct in 24 CFR 0.735-205(c);

(5) Except as shown on the certificate under

review, the principal is not a participant (i) in a HUD assisted

or insured project on which construction, as of the date of said

certificate, has stopped for a period in excess of twenty days

or; (ii) in an insured project on which construction, as of the

date of said certificate, has been substantially completed for

more than 90 days and documents for closing, including cost

certification, have not been filed with HUD;

(b) The project owner shall certify that he has also

listed all other parties who are principals under §

200.215(e)(1).

(c) If a principal cannot certify as to any items under

paragraphs (a) and (b) of this section, such items may be

deleted from the face of the certificate and a full explanation

of the reason for the deletion, signed by the principal, may be

attached to the certificate for HUD's review, evaluation and

determination.

(d) Each principal who executes the certificate must

also certify that said principal is not a Member of Congress or

a Resident Commissioner.

42a

CODE OF FEDERAL REGULATIONS

TITLE 24--HOUSING AND URBAN DEVELOPMENT

SUBTITLE B--REGULATIONS RELATING TO

HOUSING AND URBAN DEVELOPMENT

CHAPTER II--OFFICE OF ASSISTANT SECRETARY

FOR HOUSING--FEDERAL HOUSING

COMMISSIONER, DEPARTMENT OF HOUSING AND

URBAN DEVELOPMENT

SUBCHAPTER B--MORTGAGE AND LOAN

INSURANCE PROGRAMS UNDER NATIONAL

HOUSING

ACT AND OTHER AUTHORITIES

PART 265--TRANSFER FROM NONPROFIT TO

PROFIT-MOTIVATED OWNERSHIP FOR

MULTIFAMILY HOUSING PROJECTS WITH HUD-

INSURED OR HUD-HELD MORTGAGES

45 FR 54205, Aug. 14, 1980

§ 265.10 Criteria for approval.

(a) The proposed purchaser and its principals shall, to

the Director’s satisfaction, meet the following criteria as

supported by written findings of fact:

* * *

(2) Show the ability to provide sound project

management, especially sound physical and financial

management. Employing a local management agent is

strongly encouraged. If a proposed management agent is not

local, the agent shall show evidence of its capacity to manage

a project successfully outside the area of its principal place of

business.

43a

(4) Show an overall capacity, including

financial capacity as determined by the Commissioner, to

operate the project successfully for the remaining term of the

mortgage. The involvement of the owner in other multifamily

housing projects will be considered in making this

determination.

44a

OCCUPANCY REQUIREMENTS OF SUBSIDIZED

MUTLI-FAMILY HOUSING PROGRAMS

Directive Number 43503 Chg. 15

CHAPTER 6. BILLING FOR ASSISTANCE PAYMENTS

SECTION |. GENERAL INFORMATION

* * *

6-6. .QWNER/AGENT MUST CERTIFY FORMS

A. Signing forms certifies:

oO

Assistance payments, recertifications,

and special claims are computed

accurately.

All inspections have been completed

i.e., MOVe-in, MOve-out.

Units are decent, safe, and sanitary.

Assistance payments have not been

billed or paid previously.

Facts and data reported are actual and

timely.

Payments have not been received form

the tenant or other sources beyond that

authorized in the assistance contract or

the lease, except as permitted by

HUD.

45a

NOTE: Owners/agents are not

eligible for assistance

payments until form HUD

50059 is signed by both

owner/agent and tenant

on or before the effective

date of the form HUD

50059.

"Warning: 18 U.S.C. 1001 provides, among other

things, that whoever knowingly and willingly makes

or uses a document or writing containing any false,

fictitious, or fraudulent statement or entry, in any

matter within the jurisdiction of any department or

agency of the United States, shall be fined not more

than $10,000, or imprisoned for up to 5 years, or

both".

Warning: 31 U.S.C. 3729 provides a civil penalty of

not less than $5,000 and not more than $10,000, plus

3 times the amount of damages for any person who

knowingly presents, or causes to be presented, a false

or fraudulent claim; or who knowingly makes, uses, or

causes to be used, a false record or statement; or

conspires to defraud the Government by getting a

false or fraudulent claim allowed or paid.

Owners/agents are also warned that false statements

or false certifications may lead to the imposition of:

(1) Penalties and assessments under the

Program Fraud Civil Remedies Act as

implemented by HUD's Regulations,

24 CFR Part 30.

(2)

(3)

46a

Civil money penalties under the HUD

Reform Act of 1989, as implemented

by HUD's Regulations, 24 CFR Part

28.

Administrative sanctions by HUD

pursuant to CFR Part 24.

te