LEGAL SERVICES OF NORTHERN CALIFORNIA
MONA TAWATAO, State Bar No. 128779
BRIAN AUGUSTA, State Bar No. 203840
VALERIE FELDMAN, State Bar No. 210155
515 - 12th Street
Sacramento, California 95814-1418
Telephone:
(916) 551-2150
Facsimile:
(916) 551-2196
NATIONAL HOUSING LAW PROJECT
JAMES R. GROW, State Bar No. 083548
CRAIG CASTELLANET, State Bar No. 176054
614 Grand Avenue, Suite 320
Oakland, CA 94610
Telephone: (510) 251-9400
Facsimile: (510) 451-2300
Attorneys for Plaintiffs
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SACRAMENTO
COLLEGE GARDENS PRESERVATION
COMMITTEE, CALIFORNIA COALITION FOR
RURAL HOUSING PROJECT, and SOFIA ORDAZ,
Plaintiffs,
CASE NO. 03AM03563
PLAINTIFFS’ REPLY
MEMORANDUM IN SUPPORT
OF MOTION FOR
PRELIMINARY INJUNCTION
v.
EUGENE BURGER MANAGEMENT
CORPORATION, A California Corporation, TEMPE
GARDENS ASSOCIATES, A California Limited
Partnership, and DOES I - XX, Inclusive,
Defendants.
Date: May 9, 2003
Time: 2:00 p.m.
Dept. 53
“REPLY FILED ON MAY 7, 2003
PURSUANT TO EX PARTE ORDER
SHORTENING TIME ISSUED ON APRIL
28, 2003"
TABLE OF CONTENTS
INTRODUCTION
1
ARGUMENT
1
I.
II.
FEDERAL LAW DOES NOT PREEMPT THE CALIFORNIA
NOTICE STATUTE 1
A.
The California Notice Law Is Not Expressly Preempted
By LIHPRHA
2
B.
Defendants Have Failed To Demonstrate Conflict
Preemption 5
PLAINTIFFS ESTABLISH MORE THAN A REASONABLE LIKELIHOOD
THAT THEY WILL PREVAIL ON THE MERITS IN THIS ACTION
6
A.
Defendants Have Neither Strictly Nor Substantially Complied
With The State Prepayment Notice Requirements Under
Section 65863.10
6
B.
Plaintiffs Have Established A Significant Likelihood That They
Will Prevail On Their Claim that Defendants' Violated Section
65863.11 Which Requires Notice of the Opportunity to Make An
Offer to Qualified Entities 9
C.
III.
1.
Plaintiffs have standing to seek injunctive
relief under this claim
9
2.
Defendants are not exempted from the requirements of
Section 65863.11
11
Plaintiffs’ Have a High Likelihood of Success on the Merits of
Their FEHA Claim 13
PLAINTIFFS’ OVERWHELMING DEMONSTRATION OF HARM, AS
COMPARED TO DEFENDANTS’ SPECULATIVE SHOWING TIPS THE
BALANCE OF HARDSHIPS DECIDEDLY IN PLAINTIFFS’ FAVOR 13
A.
Tenants Who Receive Enhanced Vouchers are Irreparably Harmed
Because Enhanced Vouchers are Inferior to the Section 236 Subsidy
B.
Enhanced Vouchers Are Not Available to Prospective Tenants
13
15
C.
Defendants Ignore the Many Other Harms Caused by the Prepayment
Beyond the Loss of Rent Restrictions
15
D.
Defendants’ Speculative Pronouncements of Financial Harm Do Not
Constitute Irreparable Harm and Are Greatly Outweighed by the
Clearly Articulated Harm Prepayment Will Visit Upon Plaintiffs
and Those They Represent 17
CONCLUSION
18
TABLE OF AUTHORITIES
CASES
Federal
Barnett Bank of Marion County, N.A. v. Nelson
116 S.Ct. 1103, 1108 (1996) 2
Cienega Gardens v. U.S.
162 F.3d 1123 (Fed. Cir. 1998) 3
Cienega Gardens v. U.S.
38 Fed. Cl. 64 (1997)
4
3
Cipollone v. Liggett Group, Inc.
112 S.Ct. 2608, 2617 (1992) 2, 5
Consumers Union of the United States v. Fisher Development, Inc.
208 Cal.App.3d 1433 (1989) 11
County of Alameda v. Carleson
5 Cal.3d 730 (1991) 9
Davenport v. Blue Cross of California
52 Cal.App.4th 435, 447 (1997)
17
Forest Park II v. Hadley
203 F.Supp.2d at 1075-76, on appeal, Nos. 02-2445, 02-2609
(8th Cir., pending May 2003)
4
Free v. Bland
369 U.S. 663 (1962) 6
Franklin Tower One, L.L.C. v. N.M.
725 A.2d 1104 (N.J. 1999) 6
Kargman v. Sullivan
552 F.2d 2, 11 (1st Cir. 1977)
2
Kenneth Arms Tenant Assoc. v. Martinez
2001 U.S. Dist. LEXIS 11470, No. Civ. S-01-832 LKK/JFM,
slip op. at 19, (E.D. Cal. 2001)
Lifgren v. Yeutter
767 F. Supp. 1473 (D.Minn.1991)
4
Loder v. City of Glendale
216 Cal.App.3d 777, 785 (1990)
17
3
Medtronic Inc. v. Lohr
518 U.S. 470, 485 (1996)
2
Midpeninsula Citizens for Fair Housing v. Westwood Investors
221 Cal.App.3d 1377, 1387 (1990) 9
People v. McKale
25 Cal.3d 626, 631-32 (19790
10
Residents of Beverly Glen, Inc. v. City of Los Angeles
34 Cal.App.3d 117, 121 (1973)
9, 10
Rosenbluth Int'l, Inc. v. Superior Court
101 Cal.App.4th 1073, 1077 (2002) 10
Smith v. Board of Supervisors, supra.
265 Cal.Rptr. at 475 8
Stop Youth Addiction, Inc. v. Lucky Stores
17.Cal4th, 553, 561 (1998) 10
Topa Equities v. City of Los Angeles, CV 00-10455 GHK (RNBX), 2002 U.S. Dist.
LEXIS 10194 (C.D. Cal. Apr. 8, 2002), on appeal (9th Cir., pending May 2003) 3-5
Walker v. Pierce
665 F.Supp. 831, 839 (N.D. Cal.. 1987)
16
Statutes
12 U.S.C. § 4122
1, 3-4
12 U.S.C. § 4122(a)(1)
4
12 U.S.C. § 4122(a)(3), (b) 3
12 U.S.C. § 4122(b) 2, 4-5
Public Laws
Pub. L. No. 104-120, § 2(b), 110 Stat. 834 (1996) 2
Pub. L. No. 104-204, 110 Stat. 2874 (Sept. 26, 1996)
Pub. L. No. 105-276, §219, 112 Stat. 2461, 2487 (1998)
Miscellaneous
Business & Professions
Section 17200
10
2
2
Section 17201
Section 17204
10
10
Federal
H.R. Conf. Rep. No. 943, 101st Cong., 2d Sess. at 466 (1990),
1990 U.S. Code Cong. & Admin. News 6070
4
Md. Ann. Code Art. 83B §§ 9-103
4
Gov't Code
Section 65863.10
Section 65863.10(a)
Section 65863.10(i)
Section 65863.11
1, 6, 8-11
10
10
1, 9-12
State
1990 Cal.Stat (S.B. 1913), Sec. 2, codified at Cal.Health & Safety Code Sec. 50850
9
INTRODUCTION
Defendant Owners oppose Plaintiffs’ Motion for Preliminary Injunction on the grounds
that one of their principals made a poor choice about managing personal finances leading to a
self-created “crisis” thereby entitling Defendants to disregard applicable mortgage prepayment
notice laws. The Court must reject this audacious (and unsupported) proposition, particularly
when balanced against the real and irreparable harm that permitting such illegal prepayment will
bring upon plaintiffs and those whose interests they represent–current tenants, prospective tenants,
members of the general public, particularly those in need of affordable housing, affordable
housing providers and affected public entities. Defendants also claim that the state prepayment
notice statutes at issue here–Government Code Sections 65863.10 and .11–are pre-empted by
federal law contrary to the opinions of three federal district courts, counsel for the Department of
Housing and Urban Development (HUD) and to any reasonable interpretation of applicable law.
Finally, the purported series of “notices” that Defendants throw up as a smoke screen to obscure
their failure to comply with the notice statutes do not cure the serious notice deficiencies upon
which this action is based.
Thus, Plaintiffs have satisfied the criteria necessary to obtain an
injunction enjoining prepayment of the federally-subsidized mortgage at College Gardens
Apartments.
I.
ARGUMENT
FEDERAL LAW DOES NOT PREEMPT THE CALIFORNIA NOTICE STATUTE.
Defendants ask this Court to refuse enforcement of the decade-old California notice law,
Cal. Gov’t Code § 65863.10-11, on the grounds that it is preempted by federal law. Defendants
base their claim on the express preemption clause of Section 232 of the Low-Income Housing
Preservation and Resident Homeownership Act of 1990 (LIHPRHA), codified at 12 U.S.C. §
4122, and a derivative implied preemption claim. Three recent federal court cases have all
rejected claims of express and implied preemption of similar state and local laws on the grounds
that LIHPRHA’s Section 232 is simply inapplicable to prepayments made outside of the
now-defunct LIHPRHA program and Congress had no purpose to permit prepayment unregulated
by state or local law . Defendants offer no reason why this Court should rule otherwise.
In seeking to preempt state law, Defendants must carry a heavy burden to show
Congres-sional intent to preempt. See Medtronic Inc. v. Lohr, 518 U.S. 470, 485 (1996)
Analysis of the preemptive effect of a federal statute “start[s] with the assumption that the historic
police powers of the state1 are not to be superseded by… Federal Act unless that is the clear and
manifest purpose of Congress.” Cipollone v. Liggett Group, Inc., 112 S.Ct. 2608, 2617 (1992).
Such a showing requires an “irreconcilable conflict” between state and federal law, or that
compliance with both statutes is a “physically impossibility.” Barnett Bank of Marion County,
N.A. v. Nelson 116 S.Ct. 1103, 1108 (1996). As detailed below, Defendants’ cursory analysis of
the California prepayment statute, and failure to even cite, much less analyze, the express limits on
preemption in 12 U.S.C. § 4122(b), falls well short of meeting this heavy burden.
A.
The California Notice Law Is Not Expressly Preempted by LIHPRHA
First, because Defendant will prepay pursuant to Pub. L. No. 105-276, §219, 112 Stat.
2461, 2487 (1998), not under the restrictive terms of LIHPRHA, Section 232 of LIHPRHA’s
express preemption provision simply does not apply and Defendant cannot claim LIHPRHA’s
protections.2 Congress never intended to preempt state and local laws where the federal
LIHPRHA program is no longer operating to regulate or fund preservation or conversions.
1
Regulation of housing and tenant protections are "significant and uniquely local interests with which the[federal]
courts should not lightly interfere.” Kargman v. Sullivan, 552 F.2d 2, 11 (1st Cir. 1977) (also observing that federal
subsidized housing policy is “superimposed and consciously interdependent with the substructure of local law
relating to housing” and where in conflict “reconciliation is to be preferred to complete ouster of state law.”)
2
Defendant agrees that the current authority for prepayment is subsequent to LIHPRHA. See Oppositionat 6, 13.
While erroneously citing only Pub. L. No. 104-120, § 2(b), 110 Stat. 834 (1996), and Pub. L. No. 104-204, 110 Stat.
2874 (Sept. 26, 1996) as authority for prepayment, these are substantially similar to the current authority in Pub. L.
No. 105-276, §219, 112 Stat. 2461, 2487 (1998).
PLAINTIFFS' REPLY MEMORANDUM IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION
2
Section 232 is one small part of the comprehensive 1990 LIHPRHA program addressing the threat
of the large-scale loss of HUD-subsidized multifamily developments nationwide. As Defendants
acknowledge, LIHPRHA balanced federal restrictions prepayment with market appraisal-based
compensation to owners either through sale or incentives to preserve affordability. Opposition at
5, 13. Thus, under LIHPRHA the federal government both regulated the exit or preservation of
these developments, and provided the funding necessary to operate the program.
The preemption provision of Section 232 rendered ineffective certain state and local laws
restricting prepayments if such laws were targeted exclusively at LIHPRHA-eligible buildings
(“eligible low-income housing”). Its purpose was to prevent state and local governments from
adopting restrictions on prepayment that would unfairly target only LIHPRHA-eligible properties,
to reduce their value and the level of incentives which LIHPRHA might otherwise provide.
However, beginning in 1996, Congress began to short-fund the program, and starting in FY ‘98,
Congress provided no funding to operate LIHPRHA. Since then, HUD has had no authority to
accept new preservation or prepayment applications or enter into new plans of action under
LIHPRHA, rendering the program inoperable. Kenneth Arms Tenant Assoc. v. Martinez, 2001
U.S. Dist. LEXIS 11470, No. Civ. S-01-832 LKK/JFM, slip op. at 19, (E.D. Cal. 2001).3
Moreover, Section 232's text itself purports to preempt only those state and local laws that
are inconsistent with the “provision[s] of this subchapter.” 12 U.S.C. Section 4122(a)(3), (b).
While the unrepealed LIHPRHA and Section 232 still apply to roughly 100,000 units with
approved plans that received federal LIHPRHA benefits, Defendant offers no evidence that
College Gardens received LIHPRHA incentives with accompanying restrictions. Thus, there is
3
In Kenneth Arms, HUD confirmed that LIHPRHA is no longer funded or operational, and joined theCourt in
concluding that “state law could not be inconsistent with the provisions of LIHPRHA for an owner who was never
involved in the LIHPRHA Preservation Program . . . .” Letter from Hannigan, HUD Attorney, to Judge Karlton, June
21, 2001, at 3. Attached as Exhibit 1.
PLAINTIFFS' REPLY MEMORANDUM IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION
3
no applicable provision of LIHPRHA with which California law can be “inconsistent.”
Beyond Kenneth Arms, supra, two other federal courts have reviewed § 232 (§ 4122) and
reached similar conclusions. In Topa Equities v. City of Los Angeles, CV 00-10455 GHK
(RNBX), 2002 U.S. Dist. LEXIS 10194 (C.D. Cal. Apr. 8, 2002), on appeal (9th Cir., pending
May 2003), the court upheld local rent stabilization’s use of rent levels in effect prior to
prepayment as proscribed by neither the express nor conflict preemption doctrines, using similar
reasoning.4 Likewise, a third federal court recently rejected an owner's preemption challenge to
Minnesota's similar notice law because “the property ... was not involved in the LIHPRHA
program prior to 1996, the provisions of §4122 are not implicated.” Forest Park II v. Hadley, 203
F.Supp.2d at 1075-76, on appeal, Nos. 02-2445, 02-2609 (8th Cir., pending May 2003).
Even absent these prior decisions, three additional reasons show that state law is not
preempted. First, LIHPRHA’s provisions were clearly intended to build upon state preservation
laws, not preempt them:
In the event of prepayment, HUD would have several tools to protect the existing
tenants and assist the affected community in replacing the stock. The tenant
protections build upon provisions contained ... in State laws such as the Maryland
Assisted Housing Preservation Act.
H.R. Conf. Rep. No. 943, 101st Cong., 2d Sess. at 466 (1990), 1990 U.S. Code Cong. & Admin.
News 6070, attached in Appendix of Additional Authorities. Like the California statute,
Maryland’s law (Md.Ann.Code Art 83B, §§ 9-103; 9-104) requires notice to local government and
4
Defendants erroneously seek support from an earlier case seeking compensation from the United States for an
alleged taking by the enactment of LIHPRHA - a case litigated without participation from either the residents or the
City to adequately brief the preemption claims. Cienega Gardens v. U.S., 38 Fed. Cl. 64 (1997). That court initially
ruled that the Los Angeles rent stabilization law was preempted, relying in part on LIHPRHA’s express preemption
clause, but this ruling was vacated on appeal when reversed on other grounds, Cienega Gardens v. U.S., 162 F.3d
1123 (Fed. Cir. 1998). The trial court’s superficial reasoning on the preemption issue withstands no analysis, since
the court failed to even cite 12 U.S.C. §4122(b) that limits its preemptive scope, and its evaluation of conflict
preemption exhibits little rigor. For this reason, it was specifically rejected by Topa Equities, supra.
PLAINTIFFS' REPLY MEMORANDUM IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION
4
the tenants, and a right of first refusal. If Congress did not intend to preempt that law, then clearly
California’s similar law is not preempted.
Second, Section 232(a) itself does not preempt state procedural requirements, preempting
only laws that “restrict or inhibits” prepayment. 12 U.S.C. § 4122(a)(1). California’s notice law
does not “restrict or inhibit” prepayment, but merely requires that owners give notice of intent to
prepay and afford a right of first offer. See, e.g, Lifgren v. Yeutter, 767 F. Supp. 1473
(D.Minn.1991) (similar federal statute requiring FmHA owners to give prepayment notice and
offer project for sale does not “inhibit” prepayment).
Third and finally, California law is not expressly preempted because Section 232(b)
specifically exempts laws of general applicability that do not specifically target
LIHPRHA-eligible properties.5 Since California covers other federally subsidized developments
beyond LIHPRHA (e.g., HUD Section 202 and Rural Housing Services, project-based Section 8,
and Tax Credit units), it is a law of general applicability exempt from any LIHPRHA preemption.
B.
Defendants have failed to demonstrate conflict preemption.
Conflict preemption does not exist in this case. Here, where Congress has already
explicitly addressed the scope of preemption (in LIHPRHA Section 232, discussed supra), conflict
preemption cannot generally invalidate what Congress has not directly prohibited. Cipollone v.
Liggett Group, Inc., 112 S.Ct. 2608, 2618 (1992). Once Congress has spoken, those state laws
falling outside Congress’ expressed intent create no irreconcilable conflict with any permissible
5
In relevant part, Section 232 (b) provides: [Section 232]shall not prevent the establishment, continuing in
effect, or enforcement of any law or regulation of any State or political subdivision of a State not
inconsistent with the provisions of this subtitle, such as any law or regulation relating to building
standards, zoning limitations, health, safety, or habitability standards for housing, rent control, or
conversion of rental housing to condominium or cooperative ownership, to the extent such law or
regulation is of general applicability to both housing receiving Federal assistance and nonassisted
housing.
12 U.S.C. § 4122(b) (emphasis added).
PLAINTIFFS' REPLY MEMORANDUM IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION
5
federal objectives.
While citing three ostensibly supporting elements Opposition at 12, Defendants’ conflict
preemption argument rests on the faulty premise that Congress has evidenced a purpose manifested in federal statute - to permit prepayments unfettered by regulation under the state or
local police power. Defendants first misleadingly cite a 1968 Senate Report allegedly referring to
prepayment, Opposition at 4, 12. In fact the excerpted quotation does not refer to prepayment,
but to the authorization for nonprofit and cooperative purchasers with Section 236 insurance to
purchase properties from original owners. This is simply and wholly irrelevant. Second,
Defendant seeks support from the disfavored analysis of the trial court in Cienega Gardens, supra.
As set forth above, the opinion failed to apply any recognized preemption doctrine and was thus
rejected by the Topa Equities court, supra. Finally, Defendants cite to a statement from a lone
Senator (Heflin) offered in support of a political argument 20 years after 1968, setting forth his
personal characterization of owners’ expectation interest in the LIHPRHA preservation program.
One Senator’s isolated statement has no bearing on Congressional intent.
While Defendants contend that the balanced LIHPRHA program was replaced with a
“sleek prepayment system” Opposition at 13, all the federal government has done is withdraw
extensive federal regulation of prepayment. Where the federal government no longer regulates an
area, state regulation cannot be said to conflict at all, much less “irreconcilably” so. Defendants
citation to Free v. Bland, 369 U.S. 663 (1962) is inapposite, since there the federal government did
not withdraw from regulation of U.S. Savings Bonds. Moreover, even if federal law authorizes
some prepayments and provides some tenant protections, this would not demonstrate a federal
intent to displace state and local solutions. General federal housing program provisions are
insufficient to preempt state or local laws governing that housing. See, e.g., Franklin Tower One,
L.L.C. v. N.M., 725 A.2d 1104 (N.J. 1999) (upholding state nondiscrimination law against general
PLAINTIFFS' REPLY MEMORANDUM IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION
6
conflict preemption claim based on federal laws governing the Section 8 voucher program).
Certainly general laws and policies are insufficient to preempt where, as here, owners are
departing from the federal program.
Based on the foregoing, Defendants have not met their heavy burden to demonstrate
statutory authority or Congressional intent for either express or implied preemption.
II.
PLAINTIFFS ESTABLISH MORE THAN A REASONABLE LIKELIHOOD THAT
THEY WILL PREVAIL ON THE MERITS IN THIS ACTION.
A.
Defendants Have Neither Strictly nor Substantially Complied with the State
Prepayment Notice Requirements Under Section 65863.10.
Defendants assert that they meet the notice requirements of Section 65863.10 under a
substantial compliance standard, conceding, at least impliedly, that they cannot meet the
requirements under a strict compliance standard. Opposition, pp. 2, 14. Disregarding the strict
standard upheld in Kenneth Arms, supra. and creatively spinning cases supportive of Plaintiffs’
position, Defendants contend that the strict compliance standard does not apply. For all the
reasons set forth in Plaintiffs Opening Memorandum (see pp. 9 - 13) Defendants are simply
wrong.
In any case, Defendants’ notice deficiencies are so significant that Defendants cannot be
found in compliance with Section 65863.10 no matter which standard the Court applies.
Defendants cite to several “notices” clearly hoping that, taken together, they will amount to
good notice under Section 65863.10. Upon examination of these notices, however, Defendants’
smoke screen blows away.
Defendants assert that notices they issued to College Gardents tenants on March 29,
October 1, and October 31, 2001 somehow gave early notice to tenants of the now imminent
prepayment date. However, none of these 2001 notices reference a May 10, 2003 prepayment
date. In fact, the March 29, 2001 notice does not reference any Section 236 prepayment at all, but
rather, refers to the owners intent not to renew the project-based Section 8 Contract, a subsidy
PLAINTIFFS' REPLY MEMORANDUM IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION
7
entirely different from the Section 236 subsidy at issue in the present case.6
Declaration of
Wilma Wilson, Exh. A. Conversely and inexplicably, the October 1, 2001 notice Defendants rely
on is labeled “Second Notice of Intent to Prepay”and references a 236 prepayment, however
there is no first notice of intent to prepay preceding it. Wilson Declaration, Exh. C. Finally, the
October 31, 2001 notice is labeled a 5-month Federal Notice of Prepayment of Mortgage and
provides no date of intended action.7 Wilson, Exh. F.
The only other notices Defendants rely on in asserting compliance with the notice statutes
are an August 30, 2002 notice, and a December 11, 2002 notice.8
Wilson, Exhs. I and L.
Again, these notices reference different subsidies–the August 30 notice indicates an intent not to
renew the project-based Section 8 subsidy, and the December 11, 2002 notice references only an
intent to prepay and therefore bear no relation to one another. Neither specifically state that
prepayment will occur on May 10, 2003. Indeed, the August 30 notice states an intent to end the
Section 8 subsidy on June 30, 2003; the December 11 sets forth no specific prepayment date.
Wilson, Exhs. I and L.
In fact, none of the notices issued prior to July 25, 2002 should be considered to give any
indication of the owners’ intended actions in 2003. A newsletter clearly intended for tenants
dated July 25, 2002 from College Gardens’ management states in relevant part:
6
Opting-out of the project-based Section 8 contract, although similar in impact to a prepayment as far asloss of units
and other harms are concerned, involves an entirely different process, including a unique set of incentives offered and
regulated by HUD to entice owners not to opt out. See Excerpts of Section 8 Conversion Handbook, attached in
Appendix of Additional Authorities. Additionally, it is undisputed that 61 units at College Gardens aren’t even
covered by the project-based Section 8 subsidy.
7
The October 29, 2001 letter regarding a November 7, 2001 tenant meeting is not a Section 65863.10notice. Also,
see the Declaration of CCRHP staff person Andy Potter countering Wilma Wilson’s representations regarding
CCRHP’s participation in the meeting and the tenants allegedly complacency regarding prepayment of the 236
mortgage.
8
The myriad deficiencies of this notice are described in Plaintiffs' Opening Memorandum, p. 13.
PLAINTIFFS' REPLY MEMORANDUM IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION
PREPAY UPDATE
As you know by now–the loan for the property was not prepaid; and we are once again
back the way we were. Sooner or later, the process will probably begin again. But, you
will have plenty of warning starting with the one year (12 month) notice. And obviously,
it is a lengthily [sic] process that does not always finalized [sic]. For now, the property
will go on as it has for years.
Emphasis added. A true and correct copy is attached hereto as Exhibit 2.
Based on this communication alone, it would have been entirely reasonable for any
recipient of the newsletter to assume that any notices issued prior to July 25, 2002 are moot and
that any proper notices issued thereafter starts the noticing process anew.
It is also reasonable
to conclude that until further notice, the status of College Gardens would not change and that any
notice of change would be issued 12 months in advance. The only notices issued after July 25,
2002 were the August 30, 2002 and December 11, 2002 notices. As stated earlier, neither comply
with Section 65863.10's requirements.9
In sum, none of the notices Defendants rely on to support their “substantial compliance”
claim specifically reference a May 10, 2003 prepayment, some do not even refer to prepayment,
and none are proper 12 or 6 month notices of intended prepayment under Section 65863.10.
Further, in light of the July 25, 2002 newsletter, Defendants cannot credibly claim that they
intend the 2001 notices to relate to the 2002 notices.
The foregoing analysis is clearly consistent with applicable law. One notice cannot be
substituted for another where statutory time requirements have not been met, even if those
receiving the notice were aware of a subsequent untimely, but properly detailed notice. Smith v.
City and County of San Fransicso,
265 Cal.Rptr. 466, 475 (1989).10
9
The fact that the December 11 notice is labeled "First Notice" also tends to prove that Defendants did notintend that
the 2001 notices issued relate to the December 11 notice, but rather, that the December 11 notice was intended to
start the noticing process anew, albeit deficiently.
10
Smith involved the sufficiency of a notice of hearing issued by the San Francisco Board of Supervisors regarding
various reductions in city medical and health services. The state notice statute at issue had certain time
PLAINTIFFS' REPLY MEMORANDUM IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION
In sum, none of the notices, taken by themselves, together, or in any combination, even
under the more lenient “substantial compliance” standard comply with the 12 and 6 month notice
requirements under Section 65863.10 Thus, these notices do not accomplish one of the
Legislature’s key objectives in enacting these statutes– to give the tenants, affected public entities
and other stakeholders the opportunity to “aid in the deterrence of conversion of the existing
affordable housing stock”11– but rather create a confusing mish-mash of information that actually
frustrates this objective.
B.
Plaintiffs Have Established a Significant Likelihood That They Will Prevail on
Their Claim that Defendants’ Violated Section 65863.11 Which Requires
Notice of the Opportunity to Make an Offer to Qualified Entities.
Apparently conceding their failure to give qualified entities the required notice under
Section 65863.11, Defendants resort to challenging plaintiffs’ standing and the applicability of this
section to the situation at hand. Defendants’ arguments are unpersuasive.
1.
Plaintiffs have standing to seek injunctive relief under this claim.
An association or organization comprised of persons who individually have standing to
sue, has standing to sue on behalf of those individuals. Residents of Beverly Glen, Inc. v. City of
Los Angeles, 34 Cal.App.3d 117, 121 (1973).12 Beverly Glen followed a line of cases including
County of Alameda v. Carleson, 5 Cal.3d 730 (1971), holding that organizations have standing to
requirements and also required "a detailed list" of the proposed reductions or changes including the expected budget
savings and number of persons affected. Id At issue specifically was the sufficiency of two notices which the
Board argued taken together, constituted sufficient notice: One issued on May 27, 1988 that failed to meet the
content, i.e."detailed list" requirements, and one issued on June 21, 1988 that met the statutory requirements, but was
untimely.
The Court rejected this argument, holding that the untimely second notice could not cure the contents
defects in the original notice. Id. 876.
11
1990 Cal.Stat (S.B. 1913), Sec. 2, codified at Cal.Health & Safety Code Sec. 50850. See Plaintiffs'Appendix of
Additional Authorities in Support of Opening Memorandum, App. B.
12
See also Midpeninsula Citizens for Fair Housing v. Westwood Investors, 221 Cal.App.3d 1377, 1387(1990)
(upholding standard articulated in Beverly Glen).
PLAINTIFFS' REPLY MEMORANDUM IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION
sue based on the injuries to their members. In Carleson, the Court found that an unincorporated
association representing welfare recipients had standing to sue the County for violations of welfare
payment laws which injured members of the association Carleson at 737, fn. 6. Clearly, CHOC,
the non-profit interested in and willing to purchase College Gardens and maintain its long term
affordability and the other individual qualified entity members of CCRHP who did not receive
notice (see Declaration of Rob Wiener paras. 7, 8; Andy Potter para. 2) have standing to sue under
Section 65863.11(p)(i). Thus, under Beverly Glen, CCRHP has standing to sue on their behalf.13
Independent of each Plaintiff's standing under 65863.10 and 65863.11, Plaintiffs also
have standing under the Unfair Competition Law (Business and Professions code § 17200 et.
seq.) to assert each claim in the complaint. The UCL confers broad standing on any person14
acting in his or her own interest or the interests of its members or the general public, to obtain
relief under the UCL for any unlawful or unfair business act or practice. See B & P §§ 17201 and
17204.
The scope of the UCL is broad, sweeping into its ambit any unlawful, deceitful or unfair
business practice and giving rise to an independent cause of action for relief under the statute.
See B & P §§ 17201 and 17204; People v. McKale 25 Cal.3d 626, 631-32 (1979). A UCL claim
"borrows" violations of other laws committed in the course of business and treats them as
separate and distinct causes of action under the UCL. Thus, in this case, Defendants’ failure to
comply with 65863.10 and 65863.11 gives rise to a cause of action thereunder and separately,
under the UCL. Indeed, a UCL action may be premised solely upon unlawful conduct not
otherwise cognizable in a civil action. See Stop Youth Addiction, Inc. v. Lucky Stores, 17 Cal.4th
13
This reasoning obviously applies with respect to CGPC's ability to sue under Section 65863.10, since itstenant
members are “aggrieved persons” with standing to sue under subsection (i). See Section 65863.10(a) and (i).
14
Under the UCL, a "person" includes "natural persons, corporations, firms, partnerships, joint stockcompanies,
associations and other organizations of persons." B&P § 17201.
PLAINTIFFS' REPLY MEMORANDUM IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION
553, 561 (1998) (finding standing to assert UCL claim premised on Penal Code violation).
The standing provisions of the UCL are correspondingly broad. The UCL confers standing
upon any person to assert a violation of a predicate statute, even where that statute itself does not
provide a private right of action, unless the statute expressly excludes a cause of action under the
UCL. Stop Youth Addiction, Inc, supra 17 Cal.4th at 561. This is true even where the plaintiff
has not herself been injured by the defendant's conduct, as the UCL confers standing upon the
plaintiff to obtain relief for others not before the court. Id. Indeed, the representative plaintiff
need not show actual harm to any person---only a likelihood of harm to a member or members of
the public. Rosenbluth Int'l, Inc. v. Superior Court, 101 Cal.App.4th 1073, 1077 (2002).
Moreover, even where the legislature has granted standing to enforce a predicate statute
only to specified individuals, it does not limit standing under the UCL based upon on a violation
of that statute.
Consumers Union of the United States v. Fisher Development, Inc, 208
Cal.App.3d 1433 (1989). In other words, one who is not within the standing provisions of the
predicate law may still obtain relief for its violation under the UCL. Id. For example, in
Consumers Union, a consumers group brought a UCL action against the developer of a
subdivision, alleging that the developer had discriminated against persons on the basis of their age
and against families with children, in violation of the Unruh Act. Consumers Union of the United
States v. Fisher Development, Inc, 208 Cal.App.3d 1433 (1989). The Unruh Act confers standing
only upon persons aggrieved by conduct that violates the Act. Id. at 1437. The trial court ruled
that the Plaintiff could not invoke the standing provisions of the UCL because it was not a "person
aggrieved" under Unruh. The appellate court reversed, holding that the Plaintiff nonetheless had
standing under the UCL. Id. at 1443-44.
In the present case, the Defendants assert that all of the Plaintiffs lack standing under
65863.11 and that Plaintiffs CGPC and CCRHP lack standing under 65863.10, because they are
PLAINTIFFS' REPLY MEMORANDUM IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION
not affected tenants or public entities. As the foregoing amply demonstrates, the Defendants are
incorrect. The UCL confers standing upon each of the Plaintiffs to enjoin Defendants' unlawful
conduct in failing to comply with Sections 65863.10, 65863.11 and FEHA. Moreover, just as in
Consumers Union, even if the court determines that Section 65863.10 or .11 confers standing only
upon specified individuals or entities, each of the Plaintiffs nonetheless have standing under the
UCL to obtain the requested relief from Defendants' violation of these sections.
2.
Defendants are not exempted from the requirements of Section
65863.11.
Defendants argue that because Defendant Owners here are currently re-financing and not
selling, even a qualified entity with standing has not been harmed under Section 65863.11(p)
because absent a sale or pending sale, a qualified entity only has the right to make an offer to
purchase, which the Owner is not obligated to accept.
This argument misses the mark.
65863.11(g)(i) provides that “owners shall first give [12 month] notice of the opportunity to offer
to purchase to each qualified entity” “[i]f an owner decides to terminate a subsidy contract, or
prepay the mortgage pursuant to Section 65863.10, or sell or otherwise dispose” of the property.
Gov’t Code Sec. 65863(g)(1) (emphasis added).
The use of the disjunctive “or” means that the
obligation to provide this notice applies regardless of whether there is a sale or not.
This is
because receipt of a good offer may in fact induce an owner terminating the federal subsidy not
originally predisposed to selling to sell the property to an entity that will preserve the affordability
of the units. If Defendants are not made to go through this process before prepaying, such
opportunity will never be discovered let alone pursued. Thus, CHOC is clearly “adversely
affected” within the meaning of Section 65863.11(p)(i).
Defendants further argue that they need not comply with Section 65863.11 because Eugene
Burger has certified under penalty of perjury “the existence of a financial emergency . .
PLAINTIFFS' REPLY MEMORANDUM IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION
.requiring immediate access to the proceeds of the sale of the development.” Gov’t Code
65863.11(m) as cited by Defendants, Opposition, p. 17:3-4, Burger Dec., para. 12.
Defendants
do not qualify for this exemption for at least two reasons. First, as Defendants acknowledge, the
instant case currently involves a refinance, not a sale. Second and bolstering the first point, this
exemption applies only where there is “the existence of a financial emergency during the period
covered by the first right of refusal[.]” Sec. 65863.11(m). The first right of refusal refers the
obligation of an owner in the midst of selling a subsidized development and terminating the
federal subsidy to give qualified entities the right to match a non-qualified entity’s offer of sale
within certain time constraints. Id., subsec. (g)(i). As there is no sale pending here, presumably
there is no pending purchase offer from a non-qualified entity, and thus no existing period covered
by the first right of refusal.
Accordingly, the financial emergency exemption under subsection
(m) does not exist here.15
The negative impact of Defendants’ undisputed failure to comply with Section 65863.11
must not be trivialized. The qualified entities are a critical component of the network of
stakeholders created by the notice statutes because of their potential to provide a long term
solution to the prospective loss of housing affordable to lower incomes families.
///
C. Plaintiffs Have a High Likelihood of Success on the Merits of their FEHA Claim
Defendants assert that a discriminatory impact claim, as distinct from a discriminatory effect
claim, requires a showing of discriminatory intent. Defendants completely misread the two
federal cases upon which they rely; both hold precisely the opposite. See Pfaff v. HUD, 88 F.3d
739, 745-46 (9th Cir. 1996) ("we find no support for the proposition that a finding of intent is
15
The fact that the "emergency" nature of the financial problem alleged herein is debatable is yet anotherreason to
deny Defendants the safe harbor provided by this subsection. See section III.A.
PLAINTIFFS' REPLY MEMORANDUM IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION
required to establish a prima facie case of disparate impact."); Moore v. Hughes Helicopters, Inc.
708 F.2d 475, 481 ("In an 'impact' case . . [d]iscriminatory intent need not be proven"). More
importantly, FEHA expressly states that a showing of intent is not necessary. Govt. Code §
12955.8.
Defendants also attack, prematurely, Plaintiffs evidence as being "fatal" to the claim.
Opposition at 18, line 18-24 and fn 11. While additional discovery may well yield further
evidence of a discriminatory impact prior to trial on the merits, Plaintiffs have more than met their
burden at this stage in the litigation, having shown that a disproportionate number of residents of
College Gardens are racial minorities. This is sufficient to establish a prima facie case of
disparate impact under FEHA. Govt. Code § 12955.8.
III.
PLAINTIFFS’ OVERWHELMING DEMONSTRATION OF HARM, AS
COMPARED TO DEFENDANTS’ SPECULATIVE SHOWING TIPS THE
BALANCE OF HARDSHIPS DECIDEDLY IN PLAINTIFFS’ FAVOR.
Defendants claim that the tenants will not suffer harm as the result of the prepayment
because 1) they will get enhanced vouchers, or already have project-based Section 8, and 2)
Defendants have “agreed” not to raise the rents for any tenants who do not get vouchers for 12
months. As set forth below, even tenants who receive enhanced vouchers are harmed. And,
while the effect of potential rent increases caused by prepayment on current tenants is certainly a
central concern in this case, Defendants fail even to acknowledge the myriad other harms that
will be caused by prepayment. Finally, Defendants fail to articulate with any certainty the
irreparable harm they will experience if not permitted to prepay on May 10, 2003.
A.
Tenants Who Receive Enhanced Vouchers are Irreparably Harmed Because
Enhanced Vouchers are Inferior to the Section 236 Subsidy.
Relying solely on the testimony of Eugene Burger and Wilma Wilson, neither of whom
establish any specific knowledge of or expertise regarding the enhanced voucher program,
PLAINTIFFS' REPLY MEMORANDUM IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION
Defendants contend that the tenants who appear to be eligible to receive enhanced vouchers will
not be harmed by the prepayment. This is simply untrue, as experts in the administration of the
enhanced voucher program attest.
A tenant's eligibility for an enhanced voucher is determined by the local housing authority
in the jurisdiction where a prepayment is taking place, not the property owner. PIH Notice
2001-41, pp. 15-17. In this case that entity is the Sacramento Housing and Redevelopment
Agency (SHRA). According to Chris Ostrow, the SHRA staff person who oversees the issuance of
enhanced vouchers, not all tenants in a Section 236 mortgage prepayment situation are eligible for
vouchers, and obtaining a voucher does not mean that a tenant’s rent remains the same.
Declaration of Chris Ostrow, para. 4. A tenant’s rent, even with a voucher, will increase if he or
she was not paying 30% of gross income for rent prior to prepayment and sometimes, enhanced
voucher tenants must pay an additional security deposit as well. Ostrow, para. 4.
According to Ophelia Basgal, Executive Director of the Housing Authority of the County
of Alameda, the enhanced voucher subsidy "is substantially different, and in many respects
inferior, to the form of assistance under the Section 236 mortgage program."Declaration of
Ophelia Basgal, para. 4. Basgal, who has 30 years of affordable housing experience and has
overseen the issuance of enhanced vouchers at six properties, corroborates Ostrow’s testimony
regarding rent increases and new security deposits. She also testifies that there is a greater
potential for displacement under the enhanced voucher program as compared to the Section 236
program, particularly for tenants living in a unit inappropriate for their family size. Basgal para.
10. Additionally, Basgal testifies that enhanced vouchers are issued subject to appropriations by
Congress, unlike with Section 236 that regulates rents through a use agreement recorded for the
property. Basgal para. 13. There is pending legislation that proposes converting the Section 8
federal program to a state “block grant” program creating greater instability in the funding levels
PLAINTIFFS' REPLY MEMORANDUM IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION
for this subsidy. Id. Accordingly, she concludes that enhanced voucher recipients are at greater
risk of losing housing assistance than 236 tenants. Id.
The Court should not be misled by Wilma Wilson’s proffered chart of tenants and
projected post-prepayment rents. First of all, Wilson does not establish that she is qualified to
predict what tenant rents will be after prepayment. Indeed, such predictions can be grossly
inaccurate. For example, in Rubanenko v Martinez, 2002 US. Dist. LEXIS 24740 (E.D. Cal.,
April 11, 2002), which Defendants reference in their opposition brief (pp. 19 and 20, a case which
also involved prepayment of a Section 236 mortgage at a similarly-sized building in West
Sacramento16, a HUD staff person “predicted” in a declaration submitted prior to prepayment that
lead plaintiff Natalya Rubanenko’s rent would not increase by more than $9 per month. See
Declaration of Mona Tawatao para. 4. However after prepayment, in fact, Rubanenko’s rent
increased by $173 per month, causing financial hardship to her husband and their five school age
children. Tawatao, para. 4.
B.
Enhanced Vouchers Are Not Available to Prospective Tenants.
Enhanced vouchers are only available to tenants who are residing in the property at the
time of the prepayment. 42 U.S.C. 1437f(t)(2). Basgal, para. 2, and Ostrow para. 3. Thus,
persons on the waiting list are not entitled to enhanced vouchers. Basgal, para. 12.
Accordingly, once the Section 236 protections are extinguished, persons on the waiting list
have irretrievably lost their opportunity to rent a below-market rental unit. Plaintiffs have
submitted declarations of at least two persons on the waiting list who will be so harmed. See
Declarations of Chan Saechao and Nai Saecaho. Members of Plaintiff CGPC include both
16
Contrary to Defendants' assertions, the case involved a sale of the property as well as prepayment.
PLAINTIFFS' REPLY MEMORANDUM IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION
current tenants and persons on the waiting list. Declaration of Sofia Ordaz, para. 2. Likewise,
CCRHP’s constituents include persons on the waiting list for College Gardens. Wiener, para. 6.
Based upon the authorities cited above, these organizational plaintiffs have standing,
under both Section 65863.10 and the UCL, to seek injunctive relief to prevent harm to these
persons.
C.
Defendants Ignore the Many Other Harms Caused by the Prepayment Beyond
the Loss of Rent Restrictions.
The issuance of enhanced vouchers, and, even owner Eugene Burger’s “stipulation”
to freeze the rents for 12 months for those who don’t get vouchers, if it comes to pass, will not
address or mitigate many of the forms of irreparable harm that will be visited upon current and
prospective tenants and the general public as a result of prepayment.
The loss of rent restrictions is just one of many protections tenants and prospective tenants
lose upon prepayment and termination of the 236 subsidy. The other protections include due
process and other rights in the context of eviction, 24 C.F.R. Sec. 247.3, a 24 C.F.R. Sec. 247.4;
the tenants’ right to organize and have owners recognize tenant organizations, 24 C.F.R. Sec.
245.100, et seq., and increased obligations toward persons with disabilities. 24 C.F.R Secs. 8.23,
8.24. Loss of these protections constitutes irreparable injury. Walker v. Pierce, 665 F.Supp.
831, 839 (N.D. Cal. 1987)
Moreover, prepayment means that the affordability of the units is lost forever.
The
benefits of enhanced vouchers do not run with the unit, but rather inure only to the tenant. Thus,
even if a current resident receives a voucher, if that tenant moves or passes away, the subsidy also
goes away because it isn’t attached to the unit. The same is true with respect to the owner’s offer
to freeze rents for those who do not get vouchers for 12 months. Once a person receiving such
benefits leaves, the rent for the unit is no longer subsidized. In other words, immediately upon
PLAINTIFFS' REPLY MEMORANDUM IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION
prepayment, the Section 236 affordability restrictions are gone permanently for all 100 units.17
As set forth in Plaintiffs’ Opening Memorandum, such loss is devastating for the
community, particularly those in need of affordable housing and undermines the City of
Sacramento’s efforts and land use obligations to plan for lower income households in need of
affordable housing. Opening Memorandum, p. 20.
Allowing prepayment in the absence of proper notice also impedes the stakeholders’
(tenants, public entities, etc.) ability to pursue options that might avert prepayment, which, in
cases like this, might actually benefit the owners, given their alleged financial problems.
Finally, as set forth above, all three Plaintiffs have standing under the UCL to seek
injunctive relief not only for themselves and their members, but for the public as a whole. Here,
there is direct evidence that the City and SHRA have been impeded in their efforts to find a
potential solution to the prepayment due to the lack of proper notice thereof. This exacerbates the
affordable housing crisis in the Sacramento area and therefore harms the general public, a harm
clearly actionable under the UCL.
D.
Defendants’ Speculative Pronouncements of Financial Harm Do Not
Constitute Irreparable Harm and Are Greatly Outweighed by the Clearly
Articulated Harm Prepayment Will Visit Upon Plaintiffs and Those They
Represent.
A financial hardship will not rise to the level of irreparable harm because damages that can
be compensated cannot be irreparable. Loder v. City of Glendale, 216 Cal.App.3d 777, 785
(1990). In the this instance, Defendants have offered no proof of the financial hardship they
allege in opposing Plaintiffs’ motion.
Eugene Burger claims that Defendant Eugene Burger Management Corporation (EBMC)
17
Defendants indicate the intent to maintain the project-based Section 8 contract for the 39 units receivingsuch
subsidy for another year, however this does not address the removal of the Section 236 subsidy from these units.
PLAINTIFFS' REPLY MEMORANDUM IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION
raised revenue to pay off notes against Defendants’ properties by using funds from his personal
line of credit and that this line of credit that is now due. Burger para. 9. Defendants indicate
that if the debt incurred on the line of credit is not paid by May 10, 2003 the bank will take legal
action. Burger para. 12. Defendants have not articulated any harm that will result other than
implying that they will have to potentially defend themselves against this “legal action.” In fact,
Defendants offer no proof as to how imminent that harm is, nor whether the harm can be easily
cured. For instance, Burger states he continues to negotiate with the bank that has previously
given him oral extensions on this. Burger para. 11. Defendants have submitted no evidence that
clarifies what possible harm could result from the bank’s legal action against them. Plaintiffs’
harm overwhelmingly outweighs any possible harm to Defendants because Defendants have failed
to establish what specific harm they will suffer if prepayment is merely delayed.
Defendants related contention that this injunction will not preserve the status quo is also
without merit. The nature of an injunction is based on the substance not the form of the
injunction. Davenport v. Blue Cross of California, 52 Cal.App.4th 435, 447 (1997). Plaintiffs
have requested a prohibitory injunction that will preserve the status quo. The prepayment, if
allowed to occur, would alter the status quo by removing the rent restrictions and other tenant
protections currently in place at College Gardens. A prohibitory injunction that preserves the
status quo is subject to less scrutiny than a mandatory injunction compelling action by one of the
parties. Id at 646.
Furthermore, Defendants erroneously contend that a preliminary injunction will effectively
deprive the owners of the benefits of a final determination in their favor. On the contrary, the
injunction will only delay their ability to refinance; it will not deprive them of the opportunity to
prepay their HUD subsidized mortgage at a future date after proper notice is provided to the
necessary parties.
PLAINTIFFS' REPLY MEMORANDUM IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION
CONCLUSION
Based on the foregoing, Plaintiffs’ Motion for Preliminary Injunction should be granted.
May 7, 2003
LEGAL SERVICES OF NORTHERN CALIFORNIA
By:_________________________________________
Mona Tawatao, Attorney for Plaintiffs
.
PLAINTIFFS' REPLY MEMORANDUM IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION