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

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386004_1039%3A2

## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 2000
- **Citation:** 529 U.S. 1130

## Text

4

Seer eat

la

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THIS SUMMARY ORDER WILL NOT BE PUBLISHED IN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

Sa

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

6a

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.

Ta

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.

lla

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

12a

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.

l4a

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

l6a

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

17a

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.

2la

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

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386004_1039%3A2. Public record. Not legal advice.