IN THE UNITED STATES COURT OF APPEALS
FOR THE EIGHTH CIRCUIT
Case No. 02-2445/02-2609
FOREST PARK II, a Minnesota Limited Partnership,
Plaintiff-Appellant,
v.
KATHERINE HADLEY, in her capacity as
Commissioner of the Minnesota Housing Finance
Agency, et al.,
Defendants-Appellees,
TROY DURANT,
Defendant-Appellant,
CAROLYN BROWN, et al.,
Defendants-Appellees,
JEANETTA FORGA,
Defendant-Appellant,
PAUL HENRY, et al.,
Defendants-Appellees,
FAMILY HOUSING FUND,
Intervenor Below-Appellee.
ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MINNESOTA
BRIEF OF THE APPELLEES FOREST PARK II
TENANTS' ASSOCIATION AND OTHER
INDIVIDUALLY-NAMED TENANTS
Dated: September 12, 2002
HOUSING PRESERVATION PROJECT
Timothy L. Thompson (#0109447)
Ann M. Norton (#7987X)
John Cann (#174841)
Christine R. Goepfert (#0303252)
570 Asbury Street, Suite 105
St. Paul, MN 55104
(651) 642-0102
Attorneys for the Appellees
Forest Park II Tenants' Association and
other individually-named tenants
1
JURISDICTIONAL STATEMENT
Appellees Forest Park II Tenants Association and other individuallynamed tenants agree with the Jurisdictional Statement of the Appellants,
except that the District Courts had jurisdiction in this matter with respect to
these Appellees only pursuant to 28 U.S.C. § 1367.
2
STATEMENT OF ISSUES PRESENTED FOR REVIEW
I.
Whether the District Court properly granted summary judgment that
Minnesota Statutes §§ 471.9997 and 504B.255 are not preempted by federal
law.





II.
Medtronic, Inc. v. Lohr, 116 S.Ct. 2240, 518 U.S. 470 (1996);
English v. General Electric Company, 110 S.Ct. 2270, 496 U.S. 72
(1990);
Kenneth Arms Tenants Ass'n v. Martinez, Civ. No. S-01-832, U.S. Dist.
2001 LEXIS 11470 (N.D. Cal. July 3, 2001);
Topa Equities, Ltd. v. City of Los Angeles, CV 00-10455 GHK (RNBX),
2002 U.S. Dist. LEXIS 10194 (C.D. Cal. Apr. 8, 2002).
12 U.S.C. § 4122.
Whether the District Court correctly held that Appellant had
abandoned its Contract Clause claim.


III.
Taylor v. Southwestern Bell Telephone Co., 251 F.3d 735, 740 (8th Cir.
2001).
U.S. Constitution Art. I, § 10.
Whether the District Court abused its discretion in granting a
permanent injunction requiring Appellant to comply with Minnesota law.

Randolph v. Rodgers, 170 F.3d 850 (8th Cir. 1999).
3
STATEMENT OF THE CASE
Forest Park II, a Minnesota limited partnership, (hereafter, “the
Owner”) owns Forest Park Apartments, a 60 unit building in Forest Lake
Minnesota, which is subsidized under Section 236 of the National Housing
Act, 12 U.S.C. § 1701. Under this program, the Owner’s rents are strictly
regulated and occupancy is limited to low income households, pursuant to a
regulatory agreement between the Owner and the U.S. Department of
Housing and Urban Development (HUD). The regulatory agreement, and
federal controls over rents and occupancy, are terminated when an owner
prepays the Section 236 mortgage.
When tenants of Forest Park Apartments learned that the Owner
planned to prepay the mortgage on May 1, 2002, they organized the Forest
Park Tenants Association (hereafter “Association”) and informed the Owner
that compliance with Minn. Stat. §§ 504B.255 and 471.9997, requiring a
year’s notice to tenants and certain governmental entities, was necessary
before the mortgage could be prepaid. Rather than comply with the statute,
the Owner then brought this action seeking a declaration that these
Minnesota statutes were preempted by federal law and violated the Contract
Impairment Clause of the U.S. Constitution. The Owner also sought an
injunction against enforcement of the state statutes. In addition to the
Association, all of the individual tenants of Forest Park Apartments as well
4
as the governmental entities entitled to notice under the Minnesota statutes
were named as defendants.
The Association and a number of individual tenants counter-claimed
for a declaratory judgment that the proposed prepayment would violate the
Minnesota statutes and for injunctive relief requiring compliance. Because
the proposed prepayment was imminent, these defendants sought a
preliminary injunction based on the threatened violation of the Minnesota
statutes prohibiting prepayment of the mortgage until the court could render
a decision on the merits; or, alternatively, advancement of the action
pursuant to Fed. R. Civ. P. 65(a)(2), and entry of partial summary judgment
on the Association's counterclaim and a permanent injunction. This motion
was joined by defendants Metropolitan Council, and intervenor Family
Housing Fund, and supported by the Minnesota Housing Finance Agency.
The motion was opposed by tenants Troy Durant ("Durant") and Jeanette
Forga ("Forga").
On May 10, 2002, the District Court issued a Memorandum Opinion
and Order finding that the Owner had abandoned the Contract Clause claim,
granting summary judgment declaring that the Minnesota statutes are not
preempted and that the Owner’s compliance was required prior to
prepayment, and enjoining prepayment until the required notices were given
5
and a year had elapsed. The Owner, Durant and Forga have appealed this
decision.
STATEMENT OF FACTS
A.
Statutory Background
1.
The Section 236 Mortgage Subsidy Program
Forest Park II Apartments is a 60 unit complex located in Forest Lake,
Minnesota. Complaint ¶ 1, Appendix of Appellees Forest Park II Tenants'
Association and Other Individually-Named Tenants (hereinafter "FPTA
App.") 2-3. Forest Park II is subject to a mortgage which is insured and
subsidized under the federal Section 236 program. Id. The Section 236
program provides mortgage insurance and interest reduction payments to
subsidize a project’s market rate mortgage so the monthly debt service
payments are those of an uninsured 1% mortgage. This assistance, enacted
as part of the Housing and Urban Development Act of 1968, P.L. 90-448,
U.S.C.C.A.N. 82 Stat. 476, was made available to owners if they agreed to
lower income affordability restrictions. Id. These mortgages were typically
40-year mortgages. Id. Forest Park II is no exception; its mortgage term
expires on March 1, 2015. Mortgage Note, Declaration of Ann Norton
(hereafter "Norton Decl."), Ex. 1, FPTA App. 16-18.
As the administrator of the Section 236 program, HUD entered into a
standard regulatory agreement with owners which, with applicable HUD
6
regulations, limits occupancy to lower income households and limits rent
levels to those necessary to pay operating expenses, debt service and a
modest return on equity.1 The regulatory agreement and its limitations on
occupancy and rent remain in effect only as long as the mortgage is in effect.
Norton Decl. Ex. 2, FPTA App. 23. The mortgage note, in turn, restricts
prepayment of the mortgage for 20 years. Contrary to the Owner’s
assertion, the Section 236 statute, 12 U.S.C. § 1715z-1, contains no
reference to prepayment rights. While the HUD regulations in effect at the
time that Section 236 mortgages were approved did permit prepayment,
these regulations were expressly subject to amendment at any time, subject
only to the requirement that such amendment not adversely affect the
lender’s interests. 24 C.F.R. § 236.30, 236.599 (1973).
2.
The Minnesota Statutes.
Two Minnesota laws, Minn. Stat. § 504B.255 and Minn. Stat. §
471.9997, are at issue in this case.
Minn. Stat. § 504B.255 provides in pertinent part:
The landlord of federally subsidized rental housing
must give residential tenants of federally
Tenants pay 30% of income for rent, but no less than a “base rent”
necessary to cover costs plus debt service on a 1% mortgage and no more
than the rent necessary to cover costs plus full debt service (the “market
rent”). Owners must also agree to impose occupancy preferences for lower
income tenants. Regulatory Agreement, Norton Decl., Ex. 2, FPTA App.
19-28.
1
7
subsidized rental housing a one-year written notice
under the following conditions:
(1) a federal section 8 contract will expire;
(2) the landlord will exercise the option to
terminate or not renew a federal section 8 contract
and mortgage;
(3) the landlord will prepay a mortgage and
the prepayment will result in the termination of
any federal use restrictions that apply to the
housing; or
(4) the landord will terminate a housing
subsidy program.
Minn. Stat. § 471.9997, the tenant impact statement law, provides:
471.9997 Federally assisted rental housing; impact
statement.
At least 12 months before termination of participation in a
federally assisted rental housing program, including projectbased Section 8 and Section 236 rental housing, the owner of
the federally assisted rental housing must submit a statement
regarding the impact of termination on the residents of the
rental housing to the governing body of the local government
unit in which the housing is located. The impact statement must
identify the number of units that will no longer be subject to
rent restrictions imposed by the federal program, the estimated
rents that will be charged as compared to rents charged under
the federal program, and actions the owner will take to assist
displaced tenants in obtaining other housing. A copy of the
impact statement must be provided to each resident of the
affected building, the Minnesota housing finance agency, and,
if the property is located in the metropolitan area as defined in
section 473.121, subdivision 2, the metropolitan council.
(Emphasis added.)
The tenant impact statement law was passed by the Minnesota Legislature as
part of a biannual appropriation of $20 million to the Minnesota Housing
Finance Agency (“MHFA”) to be used “to finance the acquisition,
rehabilitation, and debt restructuring of federally assisted rental property”
8
threatened with conversion to market rate. 1998 Minn. Laws, c 389, art. 14,
sec. 1, 2. The Owner proposed to prepay without complying with either
statute.2 Complaint¶¶ 8, 9, FPTA App. 8-9.
3.
The Initial Preservation Efforts by Congress: ELIPHA and
LIHPRHA.
In 1987, concerned by the specter of more than 330,000 low income
housing units being lost through prepayment of subsidized mortgages,
Congress passed the Emergency Low Income Housing Preservation Act of
1987 (ELIHPA), Title II of P.L. 100-242, U.S.C.C.A.N. 101 Stat. 1877.
ELIHPA, at Section 221, prohibited prepayment except in accordance with a
“plan of action” approved by HUD. HUD was authorized to offer incentives
to project owners to preserve the housing as affordable. ELIHPA, Section
224. Congress stated that it passed ELIHPA to:
(1) preserve and retain to the maximum extent practicable as
housing affordable to low income families or persons those
privately owned dwelling units that were produced for such
purpose with federal assistance;
(2) minimize the involuntary displacement of tenants currently
residing in such housing; and
(3) continue the partnership between all levels of government
and the private sector in the production and operation of
housing that is affordable to low income Americans.
P.L. 100-242, Sec. 202(b), U.S.C.C.A.N. 101 Stat. 1878 (1987).
Because a Chapter 471 notice also satisfies the Chapter 504B notice
requirements, the discussion herein will focus on the requirements of Section
471.9997.
2
9
In 1990, Congress amended ELIHPA with the Low Income Housing
Preservation and Resident Homeownership Act of 1990 (LIHPRHA), P.L.
101-625, Title VI, Subtitle A, codified at 12 U.S.C. §§ 4101-4125 (2001).
LIHPRHA also prohibited prepayment of a subsidized mortgage except in
accordance with a plan of action approved by HUD and provided that any
prepayment not in compliance was “null and void, and any low-income
affordability restrictions on the housing shall continue to apply . . .” 12
U.S.C. § 4101(c) (2001). The statute provided for notice to HUD, the
tenants, and local government of an owner’s intent to prepay. § 4102. HUD
was then to offer a package of incentives to the owners. §§ 4103-4106,
4109, 4110, 4112. An owner who rejected the incentives could prepay, but
only by submitting to HUD a plan of action which protected the current
tenants and only with a HUD finding that the prepayment would not
adversely affect the low income housing supply. § 4108, 4113. Section
4113 provided protections from displacement for tenants if a mortgage was
prepaid.
One part of this comprehensive preservation program was a
preemption provision, § 4122, which rendered ineffective certain state and
local laws restricting or inhibiting prepayments of mortgages on LIHPRHAeligible buildings, defined as “eligible low-income housing”. This section
reads as follows:
10
12 U.S.C. § 4122. Preemption of State and local laws
(a) In general. No State or political subdivision of a State may
establish, continue in effect, or enforce any law or regulation
that-(1) restricts or inhibits the prepayment of any mortgage
described in section 229(1) [12 USCS @ 4119(1)] (or the
voluntary termination of any insurance contract pursuant to
section 229 of the National Housing Act [12 USCS @ 1715t])
on eligible low income housing;
(2) restricts or inhibits an owner of such housing from
receiving the authorized annual return provided under section
214 [12 USCS @ 4104];
(3) is inconsistent with any provision of this subtitle,
including any law, regulation, or other restriction that limits or
impairs the ability of any owner of eligible low income housing
to receive incentives authorized under this subtitle (including
authorization to increase rental rates, transfer the housing,
obtain secondary financing, or use the proceeds of any of such
incentives); or
(4) in its applicability to low-income housing is limited
only to eligible low-income housing for which the owner has
prepaid the mortgage or terminated the insurance contract.
Any law, regulation, or restriction described under paragraph
(1), (2), (3), or (4) shall be ineffective and any eligible lowincome housing exempt from the law, regulation, or restriction,
only to the extent that it violates the provisions of this
subsection.
(b) Effect. This section 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. This section shall not
preempt, annul, or alter any contractual restrictions or
obligations existing before the date of the enactment of the
11
Cranston-Gonzalez National Affordable Housing Act [enacted
Nov. 28, 1990] that prevent or limit an owner of eligible lowincome housing from prepaying the mortgage on the housing
(or terminating the insurance contract on the housing).
Section 4122(a)(1) was included in the original House version of the
bill. This section was amended on the House floor to include a new
subsection (b). In the July 31, 1990 House floor debates, Congressman
Hoagland, sponsoring the amendment that became Section 4122(b),
described it as "narrow[ing] the State and local law preemption language in
the bill so that only the State and local laws that contradict this statute will
be preempted." 136 Cong. Rec. H6053-01, H6183. Section 4122(b)
expressly allows state and local laws to remain in force so long as they are
“not inconsistent with the provisions” of LIHPRHA. § 4122(b). It was
Congress’ intent that Section 4122 “would preempt State and local laws that
target only prepayment projects for special treatment.” Cranston-Gonzalez
National Affordable Housing Act, House Conference Report No. 101-943,
reprinted in 1990 U.S.C.C.A.N. 6070, 6165.
The Minnesota Statutes do not apply only to prepayment projects.
Minn. Stat. § 504B.255(4) applies to termination of any housing subsidy
program of any type: local, state, or federal. Although a federal subsidy
must be involved in the project, it need not be the subsidy which is
terminated. Minn. Stat. § 471.9997 applies to termination of participation in
all federally assisted rental housing programs. It specifically includes
12
termination of project based section 8 assistance, which occurs not through
prepayment, but by termination of a housing assistance payment contract.
Further, the preemption provision is limited to local laws which
conflict with specific provisions of LIHPRHA set out in Section 4122(a)(1)(4). § 4122(a). Therefore, it explicitly does not preempt local laws which
may conflict with other provisions of federal law relating to prepayment.
HUD’s regulations, upon which the Owner’s complaint exclusively
relies for its preemption claim, Complaint ¶ 4, FPTA App. 4, repeat the
prepayment provisions of ELIPHA and LIHPRHA, including the preemption
provision. 24 C.F.R. Chapter 248, § 248.183.
4.
Congress’ Current Policy on Prepayment and Preservation.
Beginning in 1996, Congress adopted a series of annual funding and
policy decisions which rendered LIHPRHA inoperable, permitted owners to
prepay their mortgages, provided for alternative preservation tools and
strategies, and provided for Section 8 vouchers to the tenants threatened with
displacement as a result of prepayment.
This process began with the Housing Opportunity Program Extension
Act (HOPE) of 1996. Pub. L. 104-120, Norton Decl. Ex. 5, FPTA App. 3537, which permitted prepayments “notwithstanding the requirements of” the
LIHPRHA provision prohibiting prepayment absent a plan of action.
Congress continued this annual right to prepay in the HUD Appropriation
13
Acts for fiscal years 1996, Pub L. No. 104-134, U.S.C.C.A.N. 110 Stat.
1321-67, and 1997, Pub. L. No. 104-204, U.S.C.C.A.N. 110 Stat. 2884, let
the provision lapse for fiscal year 1998, Pub. L. No. 105-65, U.S.C.C.A.N.
111 Stat. 1351, and then made it permanent in 1999 with Section 219 of the
1999 Appropriations Act, U.S.C.C.A.N., 112 Stat. 2461, 2487-88. Norton
Decl., Ex. 6, FPTA App. 38-39. Concerned that LIHPRHA preservation
costs were excessive3, Congress also began to reduce funding for the
program with HOPE in 1996, and starting in FY 1998, Congress provided no
funding to operate LIHPRHA.4 The Owner’s brief asserts, at p. 34, that a
number of LIHPRHA provisions are “in full force and effect.” However, all
of these provisions provide for HUD financial assistance for preservation
and with no funding since FY 1998, these provisions are all moribund.
Although it has abandoned the comprehensive, but expensive,
3
See Topa Equities, 2002 U.S. Dist. LEXIS 10194 at 32.
4
Beginning in 1996, Congress began reducing funding for LIHPRHA,
permitting owners of covered projects to prepay their subsidized loans, and
providing voucher assistance. Pub. L. No. 104-120, §§ 2(b) (HOPE), 110
Stat. 834 (Mar. 28 1996); Pub. L. No. 104-134, §§ 101(e), Title II, paragraph
entitled Annual Contributions for Assisted Housing, 110 Stat. 1321-265-69
(Apr. 26, 1996) ($624 million, permitting prepayment and providing
vouchers); Pub. L. No. 104-204, 110 Stat. 2874, 2885 (Sept. 26, 1996) ($350
million to fund primarily transfers, permitting prepayment and providing
vouchers); Pub. L. No. 105-65, 111 Stat. 1343, 1355-56 (Oct. 27, 1997) (no
preservation funding, only $10 million for transaction costs); Pub. L. No.
105-276, U.S.C.C.A.N. 112 Stat. 2461 (Oct. 21, 1998) (no funds); Pub. L.
No. 106-74, 113 Stat. 1047 (Oct. 20, 1999) (no funds); Pub. L. No. 106-377,
114 Stat. 1441 (Oct. 27, 2000) (no funds).
14
preservation scheme set out in LIHPRHA and permitted prepayments,
Congress has continued to pursue the goals set out originally in ELIPHA of
preserving project based subsidized housing and preventing displacement of
tenants as a result of prepayment. In the FY 1996 and 1997 HUD
Appropriations Acts, in the same section providing for a right to prepay
Section 236 mortgages, Congress allowed owners of Section 236 projects to
keep revenues which previously were required to be turned back to HUD,
“for the purpose of preserving the low and moderate income character of the
housing." Pub. L. No. 104-134, U.S.C.C.A.N. 110 Stat. 1321-267 (1996),
Pub. L. No. 104-204, 1996 U.S.C.C.A.N. 110 Stat. 2884.” In Section 532 of
the FY 2000 HUD Appropriations Act, P.L. 106-74, Congress authorized a
number of additional incentives for owners of Section 236 projects who
agree to continue low income affordability restrictions. The incentives
included the ability of owners to refinance but keep the interest rate subsidy
and the ability to substantially increase rents, in return for restrictions on
project use and on prepayment.
When Congress began to permit prepayments notwithstanding
LIHPRHA, it also took steps to assure that the interest rate subsidies
recycled to HUD as the result of prepayments were used to preserve other
subsidized housing. The FY 1996 HUD Appropriations Act provides that
recaptured Section 236 subsidies are to be used “in conjunction with
15
properties that are eligible for assistance under…LIHPRHA.” Pub. L. No.
104-134, U.S.C.C.A.N. 110 Stat. 1321-67. In 1997, Congress enacted, as
Section 531 of the 1998 HUD Appropriations Act, Section 236(s) of the
National Housing Act which provides that Section 236 interest rate subsidy
funds which become available as a result of prepayments are to be used to
make rehabilitation grants to owners of other current and formerly
subsidized housing whose owners agree to affordability and use restrictions.
P.L. 105-65, Section 531, 1997 U.S.C.C.A.N. 111 Stat. 1409.5
Prevention of involuntary displacement of tenants as a result of
prepayment has been a second major theme of Congressional preservation
policy since ELIPHA. Beginning with HOPE, Congress provided
“enhanced” Section 8 vouchers “in lieu of” the displacement protection
provisions of Section 4113 of LIHPRHA. Pub. L. No. 104-20,
U.S.C.C.A.N. 110 Stat. 834-35. The “enhanced” feature allows residents to
elect to remain in their units after prepayment even though the rents were
higher than would ordinarily be permitted in the Section 8 program. HOPE,
Norton Decl., Ex. 5, FPTA App. 37.; 42 U.S.C. § 1437f(t). The purpose of
these “enhanced” vouchers is to "prevent the involuntary displacement of
As discussed further below, the Owner’s repeated assertion that these
recycled Section 236 subsidy funds have been appropriated for tenant based
assistance rather than for preservation of subsidized rental projects is simply
wrong. To the contrary, Congress has consistently required that these funds
be used to preserve project based subsidized housing.
5
16
low income families...because of the loss of affordable housing stock." Pub.
L. No. 104-204, U.S.C.C.A.N. 110 Stat. 2882. In Title V of the 2000
Appropriations Act, Pub. L. 106-74, codified at 42 U.S.C. § 1437f(t),
Congress made permanent the enhanced voucher program for residents of
prepayment properties.
Congress has expressed skepticism regarding the utility of such
vouchers, indicating that they have been provided to prevent displacement
where federal subsidies are lost, but are not an adequate substitute for project
based subsidies. While expanding the use of enhanced vouchers in the 2000
Appropriations Act, Congress made clear that vouchers were only to be
viewed as a last resort—HUD’s first duty is to preserve project-based
subsidies wherever possible. In approving S. 1596, the Senate’s version of
the Appropriations Act, the Senate Committee on Appropriations
emphasized:
This bill includes legal authority to allow HUD to provide
section 8 rental assistance up to the market rent of a unit for
low-income families where owners of projects assisted with
section 8 project-based assistance choose to not renew their
expiring section 8 contracts... The Committee believes that
HUD must first make every effort to renew the expiring
section 8 contracts which are attached to this assisted housing,
especially those projects located in low vacancy areas,
including those in high cost urban areas...
Senate Committee on Appropriations Report No. 106-161 on S.1596,
“Housing Certificate Fund (Including Transfer of Funds) Committee
17
Recommendation” (September 16, 1999) (emphasis supplied)(available on
the Library of Congress website at http://thomas.loc.gov). The Senate
Appropriations Committee went on to express its concern that tenant-based
Section 8 vouchers “do not always provide real rental choice for assisted
families” noting that “in a number of cases, families with vouchers are
unable to use their vouchers to obtain affordable housing.” Id. House and
Senate conferees noted that:
…vouchers are not a panacea for low-income affordable
housing. The voucher program has significant problems, with
families in many areas of the country unable to utilize
effectively this housing subsidy.
House Conference Report No. 106-379, Public Law 106-74 (October 13,
1999), reprinted in 1999 U.S.C.C.A.N. 111.
Thus, Congress has completely replaced the preservation provisions
of LIHPRHA with an alternative set of laws addressing prepayment rights,
preservation incentives, and tenant protections. Although LIHPRHA has
never been formally repealed, these subsequent Congressional enactments
have rendered the program inoperable except with respect to projects which
received preservation incentives under LIHPRHA. Because the preemption
provision of LIHPRHA, 12 U.S.C. § 4122(b), expressly does not preempt
local laws consistent with the provisions of LIHPRHA, and because
LIHPRHA now applies only to projects which received preservation
incentives, the preemption provision also applies only with respect to such
18
projects.
Under LIHPRHA, HUD was responsible for implementing all aspects
of this comprehensive prepayment statute. It is HUD’s position that
…even though LIHPRHA has never been repealed by
Congress, because HUD does not have authority to accept new
preservation applications or to enter into new plans of action, it
has continued to implement and enforce the provisions of
LIHPRHA only as to those owners who were in the program
prior to the passage of HOPE in 1996.
HUD Letter Brief, Norton Decl., ¶ 5, Ex. 4, FPTA App. 14, 31-34.
B.
The Owner’s Proposed Prepayment
On October 25, 2001 the Owner sent to the tenants written notice of
its intent to prepay the Section 236 mortgage loan on May 1, 2002. Norton
Decl., Ex. 3, FPTA App. 29-30. This notice was sent pursuant to a federal
law requiring at least 150 days notice of such a prepayment. P.L. 105-276,
Sec. 219(b)(3); Norton Decl., Ex. 6, FPTA App. 38-39. A copy was also
sent to the MHFA. Norton Decl., Ex. 3, FPTA App. 29-30. This notice did
not provide the one year notice, nor the information on the number of units
affected, estimated rent increases resulting from the prepayment, nor actions
to be taken to assist displaced tenants required by Minn. Stat. § 471.9997.6
The MHFA confirmed in writing to the Owner that this notice did not meet
the requirements of Minn. Stat. § 471.9997. Norton Decl., Ex. 7, FPTA
19
App. 40. No notice has been provided to local government nor to the
Metropolitan Council as required by this law. The Owner's complaint
confirms its ongoing refusal to comply with Minn. Stats. §§ 471.9997 and
504B.255. Complaint ¶¶ 21, 22, FPTA App. 8-9.
The Owner has never complied with the state notice requirements,
even after the District Court’s decision. Further, the federal notice which the
Owner did provide permitted prepayment only through July 21, 2002. Sec.
219(b)(3) of the 1999 Appropriations Act. The Owner has not provided a
new federal notice and is thus no longer in a position to prepay, even under
federal law.
C.
The Adverse Effects of Prepayment
If the Forest Park II mortgage is prepaid, these 60 units will be
permanently and irretrievably lost as affordable housing. The metropolitan
area is in the midst of a severe shortage of housing affordable to low income
families and the loss of these units will exacerbate that shortage, to the
detriment of current residents of Forest Park II as well as to future low
income applicants. Declaration of Charles Warner (“Warner Decl.”), ¶¶ 5-7,
FPTA App. 53-54, Declaration of Tom Fulton (hereinafter "Fulton Decl."), ¶
10, FPTA App. 90-91.
Information on projected rents and number of units was apparently sent to
HUD, but not to the tenants or any of the public entities required to be
notified under Minn.Stat. § 471.9997.
6
20
The failure of the Owner to comply with the requirements of Minn.
Stat. §§ 471.9997 and 504B.255 deprived the tenants and governmental
entities entitled to one year notice of an adequate opportunity to explore
possible preservation alternatives to prepayment. See, 215 Alliance v.
Cuomo, 61 F.Supp.2d 879, 887 (D.Minn. 1999)(similar federal notice statute
was intended to provide an “opportunity to do something” to prevent loss of
project based subsidy); See also, Affidavit of Robert L. Odman (hereinafter
"Odman Aff.") ¶5,6, FPTA App. 81; Warner Decl., ¶¶ 11-14, FPTA App.
55-56 (indicating necessity of adequate notice to achieve preservation
objectives.) Similar Section 236 projects have been preserved in Minnesota
using a combination of the state preservation funds and the federal
incentives described above. Odman Aff. ¶ 4, FPTA App. 79-81. In these
cases, the Section 236 mortgage is refinanced, but the interest subsidy is
preserved and low income use restrictions are extended. Second Declaration
of Charles Warner (hereinafter "Warner Decl. II") ¶ 8, FPTA App. 62-63.
HUD is required to provide the tenants of prepayment properties with
Section 8 vouchers which will cover the difference between a tenant rent
payment based on 30% of income and the new rents the Owner will charge.
42 U.S.C. § 1437f (t). However, even with voucher assistance, over two
thirds of the current Forest Park tenants will suffer rent increases as a result
of the prepayment (39 out of 56 occupied units), averaging $117/month and
21
threatening them with displacement from their homes. Declaration of Robert
Griffin (hereinafter "Griffin Decl.") Ex A; Appellant's Joint Sealed
Appendix (hereinafter "ASA") 5-7, Amended Declaration of Antoinette
Smith ("Smith Decl."), ¶5, Appellant's Joint Appendix (hereinafter "AA")
60, and Declaration of Tammy Sanz ("Sanz Decl."), ¶ 5, AA 61.
The Owner repeatedly characterizes Forest Park tenants who will
experience rent increases as the result of prepayment as "middle income"
tenants who are ineligible for vouchers. In fact, those tenants for whom
prepayment will result in rent increases are largely very low and low income
households. Thirty eight percent (15 households) have incomes under
$20,000 and 72% (28 households) have incomes under $25,000. Griffin
Decl., Ex. A, ASA 5-7. For instance, the tenth row in Ex. A of the Griffin
Declaration describes a person making $17,536 a year who will receive a
rent increase of $113/month; the 28th row, a two person household with an
income of $23,505 which will receive a $173/month increase. Two thirds
(26 households) are immediately eligible for and will receive vouchers and
as a result will experience rent increases.7 Id.
See the right-hand column of Exhibit A of the Griffin Declaration,
indicating rent increases and column immediately to the left indicating
receipt of vouchers. Of the remaining 13 households who are not
immediately eligible for vouchers if they stay in Forest Park, the majority
have incomes which make them eligible for vouchers and would be eligible
for voucher assistance if they moved to higher rent apartments.
7
22
While it is the case that some tenants could benefit financially from
receipt of enhanced vouchers, this would be the case only if those tenants
moved from their current homes. The enhanced vouchers have a feature
which requires recipients to pay no less than they were paying at the time of
prepayment, unless they move out of the building in which the prepayment
occurred. Therefore, the only way that Forest Park tenants can benefit
financially from receipt of a voucher is to move out of their homes. Not all
of the tenants in this position wish to move. Declaration of Tara Wood, ¶¶
4, 5, FPTA App. 86-87.
Nor is it necessarily easy for such tenants to benefit financially by
moving. The Owner asserts that a tenant based voucher permits the voucher
holder to "rent any apartment anywhere in the United States." The Owner
knows this is not true because until February 13, 2002, the over 500 market
rate properties managed by Gaughan Properties, which manages Forest Park
and is controlled by the same individuals as the Owner, had a “very old
policy” of not renting to Section 8 voucher holders. Warner Decl. II ¶ 4,
FPTA App. 59-60. This policy was changed only as a result of the tenants’
challenge to the Owner’s proposed prepayment. Id. In fact, owners are
generally not required to accept vouchers, many owners do not, and
vouchers can be very difficult to use. Id.¶¶ 4-6, FPTA App. 59-61; 24
23
C.F.R. § 982.302(b). See also House Con. Report No. 106-379, supra at p.
17.
SUMMARY OF ARGUMENT
The District Court correctly held that the Minnesota notice statutes are
not preempted by federal law. The express language and legislative history
of the federal law on which the Owner bases its express preemption
arguments indicate that notice laws such as Minnesota’s were not intended
by Congress to be preempted and that the state statutes are not preempted
with respect to Forest Park Apartments. There is no conflict preemption
because it is possible for an owner to comply with both state and federal
notice statutes and because, contrary to the Owner’s characterization, the
state statutes do not present an obstacle to Congressional policy but rather
support a clearly stated Congressional policy of preserving Section 236
projects.
The Owner's remaining claims lack merit as well. The Owner’s Rule
56(f) affidavit did not raise issues relevant to the summary judgment motion
which was before the Court. The District Court also properly held that the
Owner had abandoned its claim related to the Contracts Clause of the U.S.
Constitution and in any case, this claim is without merit. Finally, the
District Court did not abuse its discretion in entering a permanent injunction.
The Owner’s arguments regarding a private cause of action were not raised
24
below and are without merit. A prepayment without compliance with the
notice statutes will cause irreparable harm, and the District Court’s
consideration of the balance of harms and the public interest was not an
abuse of discretion. The discovery opportunities requested by the Owner
were not necessary in order for the District Court to reach a decision on the
merits, as a matter of law, or to properly consider the factors required for
issuance of an injunction.
ARGUMENT
A.
Standard of Review.
This appeal is from the District Court’s grant of summary judgment
and a permanent injunction requiring compliance with the state notice
statutes as a precondition to prepayment. A summary judgment decision is
reviewed de novo. Randolph v. Rodgers, 170 F.3d 850, 856 (8th Cir. 1999);
Mudlitz v. Mutual Service, Ins. Companies, 75 F.3d 391, 393 (8th Cir. 1996).
The reviewing court applies the same standard as the court below.
Orthomet, Inc. v. A.B. Medical, Inc., 990 F.2d 387, 390 (8th Cir. 1993).
Summary judgment is appropriate when there is no genuine issue of material
fact and the moving party is entitled to judgment as a matter of law. See
Fed. R. Civ. P. 56(c); Rifkin v. McDonnell Douglas Corp., 78 F.3d 1277,
1289-80 (8th Cir. 1996). The appellate court reviews a district court's
issuance of a permanent injunction for abuse of discretion. Randolph, 170
25
F.3d at 856; U.S. v. Grand Laboratories, Inc., 174 F.3d 960, 965 (8th Cir.
1999). Abuse of discretion occurs if the district court reaches its conclusion
by applying erroneous legal principles or relying on clearly erroneous
factual findings. Randolph, 170 F.3d at 856. The arguments below
demonstrate that the District Court’s judgment and order were appropriate
and should be upheld.
B.
The District Court’s Grant of Summary Judgment Was Proper
and Should be Upheld.
1.
The State Statutes Are Not Preempted by Federal Law.
The Owner argues that the Minnesota notice statutes are preempted
expressly by the preemption provision of LIHPRHA and impliedly by
current federal housing laws related to prepayment. The District Court
correctly held that the state statutes are not preempted, relying in part on the
position of HUD, the federal agency charged with interpretation and
enforcement of LIHPRHA, and in part on the similar decisions of the two
other federal district courts which have ruled in analogous cases.
Preliminarily, it should be noted that the Owner confuses express
preemption under Section 4122 of LIHPRHA with implied preemption
based on Section 219 of the 1999 HUD Appropriations Act (hereafter, “the
1999 Appropriations Act”). See, Owner's Brief at ps 21-23, arguing that
because the Minnesota statutes purportedly conflict with the 1999 HUD
Appropriations Act notice provisions, they are preempted by Section 4122 of
26
LIHPRHA. Whether or not the preemption provision of LIHPRHA is still
effective, by its terms it preempts only state statutes which conflict with
provisions of "this subsection" (i.e. with the LIHPRHA provisions
referenced in § 4122(a)(1)-(4)). 12 U.S.C. § 4122(a). This express
provision dictates that Section 4122 does not preempt state law which
conflicts with the completely separate 1999 Appropriations Act.
Because Section 4122 expressly limits its preemptive reach to certain
state statutes, it cannot be interpreted to preempt other state statutes by
implied preemption. Cipollone v. Liggett Group, Inc., 112 S.Ct. 2608, 2618,
505 U.S. 504, 517-518 (1992). The 1999 Appropriations Act notice
provisions have no express preemption provisions. Therefore, any
preemption flowing from the 1999 federal statute can only be implied
preemption.
Preemption is not simply an issue of application of statutory language
to a specific fact situation. It is a constitutional issue raising fundamental
issues of federalism. Jones v. Rath Packing Co., 97 S.Ct. 1305, 1309, 430
U.S. 519, 525 (1977); United States v. Bass, 92 S.Ct. 515, 523, 404 U.S.
336, 349 (1971). Analysis of the preemptive scope of a federal statute
“start[s] with the assumption that the historic police powers of the state are
not to be superseded by….Federal Act unless that is the clear and manifest
purpose of Congress.” City of Columbus v. Ours Garage and Wrecker
27
Service, Inc., 122 S.Ct. 2226, 2232, 70 U.S. ___ (2002); Medtronic, Inc. v.
Lohr, 116 S.Ct. 2240, 2250, 518 U.S. 470, 484 (1996); Cipollone v. Liggett
Group, Inc., 112 S.Ct. 2608, 2617, 505 U.S. 504, 516 (1992)(citing Rice v.
Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S.Ct. 1146, 1152 (1947)).
This principle is among the “basic tenets of our federal system.” City of
Columbus, 122 S.Ct. 2233. Regulation of housing and protection of tenants
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 given a conflict in this area, “reconciliation is to
be preferred to complete ouster of state law”).
a.
There is No Express Preemption of the Minnesota
laws.
Appellant argues that Minn. Stat. §§ 471.9997 and 504B.255 are
expressly preempted by Section 4122 of LIHPRHA. To the contrary, these
laws are not preempted by this federal law which by its own terms and
legislative history does not, and was not intended to, apply to either this
property or these state laws.
There are two lines of argument demonstrating that the Minnesota
notice statutes, and numerous similar state statutes, are not preempted. The
first is that advanced by HUD and adopted by the federal district courts in
28
Kenneth Arms Tenants Ass'n v. Mel Martinez, Civ. No. S-01-832, 2001 U.S.
Dist. LEXIS 11470 (N.D. Cal. July 3, 2001) and Topa Equities Ltd. v. City
of Los Angeles, CV 00-10455 GHK (RNBX), 2002 U.S. Dist. LEXIS 10194
(C.D. Cal. Apr. 8, 2002)). In Kenneth Arms, a federal district court upheld a
California notice statute similar to the Minnesota laws in the face of a
preemption argument identical to the one advanced by the Owner. Kenneth
Arms, 2001 U.S. Dist. LEXIS 11470 at 20-29, 53.
HUD’s interpretation of the preemption provisions of LIHPRHA was
not at issue in the case. However, at the court’s request, HUD submitted to
the court a description of the agency’s policy with respect to the preemption
effect of LIHPRHA. HUD’s position is that no state law could be
inconsistent with LIHPRHA for a property which was not in the LIHPRHA
preservation program prior to 1996 and that § 4122(b) only preempted
certain state laws with respect to LIHPRHA-preserved properties:
The preemption provision in LIHPRHA at Section 232, 12
U.S.C. § 4122, was intended to afford protection to owners of
properties that were, or are, operating under the LIHPRHA
preservation program…Section 4122(b) states that the section
‘shall not prevent the establishment, continuing in effect, or
enforcement of any law or regulation of any State…not
inconsistent with the provisions of this subchapter.’ Thus, a
state law could not be inconsistent with the provisions of
LIHPRHA for an owner who was never involved in the
LIHPRHA Preservation Program and never operated under a
LIHPRHA plan of action.
HUD Letter Brief, Norton Decl., ¶ 5, Ex. 4, FPTA App. 14, 31-34.
29
Contrary to the Owner’s assertion, the HUD policy is not that
LIHPRHA has been impliedly repealed. Rather, HUD’s position is based on
the express language of § 4122(b), limiting preemption to local laws
inconsistent with LIHPRHA. Since LIHPRHA now applies only to projects
having received LIHPRHA preservation incentives, state laws can be
inconsistent with LIHPRHA only with respect to such projects. HUD’s
interpretation is determinative as to its own regulations, upon which the
Owner’s complaint relies for its preemption claim. Auer v. Robbins, 117
S.Ct. 905, 911, 519 U.S. 452, 461 (1997)(agency interpretation of its own
regulations is “controlling unless ‘plainly erroneous or inconsistent with the
regulation.’”) Like the agency interpretation at issue in Auer, which was
submitted in an amicus brief, HUD’s interpretation regarding preemption in
the Kenneth Arms case was submitted by letter brief at the court’s invitation.
The agency’s interpretation was not at issue in the Kenneth Arms case, and
thus, like the agency interpretation in Auer, “there is simply no reason to
suspect that the interpretation does not reflect the agency’s fair and
considered judgment on the matter in question.” Auer, 117 S. Ct. at 912,
519 U.S. at 462. Forest Park II has never operated under a LIHPRHA plan
of action and is thus not covered by the regulation relied upon by the Owner.
Declaration of Christine Goepfert (hereinafter "Goepfert Decl."), ¶¶ 1-2,
FPTA App. 71.
30
The court in the Kenneth Arms case concluded that the comprehensive
LIHPRHA process to provide incentives to owners of federally subsidized
housing to retain their subsidy programs had been replaced by Congress with
a completely different process, permitting prepayments, set out in HOPE.
Kenneth Arms, 2001 U.S. Dist. LEXIS 11470 at 24; Norton Decl., Ex. 10, p.
18-19, FPTA App. 43-44. The court noted that HUD continues to apply the
provisions of LIHPRHA, including the preemption provisions, only to
projects that actually took advantage of LIHPRHA. Id. Because the owners
attempted to prepay under HOPE, rather than under LIHPRHA, the
LIHPRHA provisions simply did not apply.
The Topa Equities decision holds that the Los Angeles Rent
Stabilization Ordinance (LARSO) is not preempted by Section 4122 of
LIHPRHA for the same reasons. Topa Equities, 2002 U.S. Dist. LEXIS
10194 at 31-33. The Court criticizes the Court of Claims decision in
Cienega Gardens v. United States, 38 Fed. Cl. 64 (1997), upon which the
Owner relies, which held that LARSO was preempted by LIHPRHA. Topa
Equities, 2002 U.S. Dist. LEXIS 10194 at 35-42. The Court of Claims
decision in Cienega Gardens was decided in May of 1997. For fiscal year
1997, Congress appropriated $350 million for LIHPRHA preservation;
funding for LIHPRHA was not terminated until fiscal 1998. See, footnote 4
above. Thus the Court of Claims in this Cienega Gardens case could not
31
even have considered the argument which was the basis for the decisions in
Topa Equities and Kenneth Arms regarding the very limited preemptive
reach of § 4122 of LIHPRHA.
Because Forest Park II Apartments, like the properties at issue in
Kenneth Arms, has never been subject to a LIHPRHA plan of action and
because its owner, like those of the Kenneth Arms properties, relies on
HOPE and subsequent similar enactments rather than on LIHPRHA for its
right to prepay, the LIHPRHA preemption provisions do not apply.
The second line of argument which the Kenneth Arms court found
unnecessary to address is that the language and legislative history of
LIHPRHA indicate that the preemption provision of LIHPRHA was not
intended to apply to notice laws such as Minnesota’s. The Minnesota laws
do not “restrict or inhibit” prepayment, but instead merely require that
owners complete certain steps such as giving notice of their intent to prepay.
In Lifgren v. Yeutter, 767 F. Supp. 1473 (D.Minn.1991) an owner challenged
a similar federal statute requiring owners of Farmers’ Home Administration
subsidized properties to give notice of prepayment. The court stated:
The Preservation Act and regulations relating thereto are
not inconsistent with the borrower’s option to prepay at any
time. Rather, the Preservation Act and its regulations simply
provide procedures which must be followed in the event that a
borrower evidences an intent to prepay...
Id. at 1486.
32
The task before the court in an express preemption case is to
determine the scope of express preemption provisions in light of the
presumption against preemption and the requirement of “clear and manifest”
Congressional intent to preempt. Cipollone, 112 S.Ct. at 2618, 505 U.S. at
518 (narrow reading of the scope of express preemption language in light of
presumption against preemption). Courts must closely examine the facts of
each case to determine where the line separating the powers of state and
federal governments lies and “whether the dangers and hardships of diverse
regulation justify foreclosing a state from the exercise of its traditional
powers.” Colorado Anti-Discrimination Commission v. Continental Air
Lines, Inc., 83 S.Ct. 1022, 1024, 372 U.S. 714, 719 (1963). In preemption
cases, the Supreme Court has regularly examined the text, structure and
purpose of the statute as a whole, and its legislative history to determine how
Congress intended the statute to work in practice and whether such a “clear
and manifest” intention exists. Medtronic, 116 S.Ct. at 2251, 518 U.S. at
982; Shaw, 103 S.Ct. 2890, 463 U.S. 85.
In this case, the structure and legislative history of LIHPRHA
reinforce the conclusion that the “restrict or inhibit” language of § 4122 was
not intended to preempt state notice statutes. The express language of § 4122
requires a narrow construction of the reach of the preemptive effect.
Subdivision (a) concludes with the provision that a local law is preempted
33
“only to the extent that it violates the provisions of this subsection.”
Subdivision(b) limits preemption to local laws “inconsistent” with
LIHPRHA. The legislative history of LIHPRHA makes it clear that state
notice laws were not intended to be preempted because they are not
inconsistent with LIHPRHA. The Conference Committee Report on
LIHPRHA states:
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 the House bill as well as in State laws
such as the Maryland Assisted Housing Preservation Act.
House Conf. Rep. No. 101-943, reprinted in 1990 U.S.C.C.A.N. 6070, 6171.
Congress explicitly intended that LIHPRHA tenant protections build
upon protections already provided in various state laws. Congress did not
intend to preempt such state laws, but rather intended LIHPRHA to work in
conjunction with them. It is equally clear that Congress intended that such
state laws were not considered to conflict with a federal policy of uniform
national application of LIHPRHA provisions.
The Maryland law, which was specifically cited in the legislative
history, was adopted in 1989, the year before Congress enacted LIHPRHA.
This state law requires owners to provide to local government and the
tenants at least a year before prepayment, information which is more
comprehensive than that required by the Minnesota tenant impact statement
34
law. See, MD. CODE ANN. 83B, §9-101 et seq. (2001); See also California
Federal Sav. and Loan Ass'n v. Guerra, 107 S.Ct. 683, 692, 479 U.S. 272,
287 (1987)(finding "significant" the fact that Congress was aware of and
acknowledged in debates existing similar state laws when enacting federal
law and "failed to evince the requisite 'clear and manifest' purpose to
supersede them."). If the Maryland law was not intended to be preempted,
then clearly the Minnesota laws, which are less far reaching, are certainly
not preempted.
In addition, throughout LIHPRHA are requirements that the owner
and HUD notify both the tenants and state or local government entities of all
activity leading toward prepayment, that state and local entities use this
information to assist tenants to preserve affordable housing, and that local
entities assist and coordinate with HUD in implementing the Act:
 The owner’s notice to HUD of intent to prepay must be also be
filed with the chief executive of the local government jurisdiction
and provided to the tenants. 12 U.S.C. § 4102(b) (2001).
 The information which HUD then provides to the owner must be
provided to the tenants, “together with other information relating to
rights and opportunities” under the Act. § 4106(c).
 The owner’s plan of action providing for termination must be
submitted to the tenants and the local government, along with all
supporting documentation. § 4107(a)(2).
 The local government is to “review the plan and advise the tenants
of the housing of any programs that are available to assist the
tenants in carrying out the purposes” of LIHPRHA. Id.
 HUD is to coordinate with local public housing agencies to
mitigate effects of any displacement caused by prepayment. §
4113(b).
35
 HUD is required to confer with any appropriate state and local
agency to confirm any state or local assistance that may be
available to achieve the preservation purposes of LIHPRHA and
must give consideration to the views of such agency when making
any LIHPRHA determinations. § 4118.
These provisions indicate a Congressional purpose that tenants and
state and local governments be fully informed and in a position to effect the
preservation purposes of the Act. They demonstrate that Congress did not
intend to preempt state and local efforts to assure an effective flow of
information regarding prepayment, and that it did not view such local efforts
as in conflict with LIHPRHA. The structure of LIHPRHA and its legislative
history demonstrate the lack of the “clear and manifest” intent of Congress
required for § 4122 to preempt state notice laws such as Minn. Stat. §§
471.9997 and 504B.255 and instead demonstrate a Congressional approval
of such supplementary state efforts.
b.
There is No Conflict Preemption of the Minnesota
Laws.
The Owner also argues that the state notice requirements are
preempted because they conflict with a purported “vibrant and coherent”
national policy which favors prepayments so that the Section 236 interest
subsidies can be “re-routed” into the Section 8 voucher program.
Appellant’s Brief at 28, 29,-31, 34-35, 39-40. This argument fails on several
grounds. Conflict preemption occurs either when it is “impossible for a
private party to comply with both state and federal requirements” or where
36
state law “stands as an obstacle to the accomplishment and execution of the
full purposes and objectives of Congress.” English v. General Electric
Company, 110 S.Ct. 2270, 2275, 496 U.S. 72, 79 (1990). Conflict
preemption also requires a “clear and manifest” intent of Congress that state
law be preempted. Id. at 2277, 83.
State law is not preempted simply because it imposes procedural
requirements not required by federal law or restrictions more stringent than
those imposed by federal law. Id. at 2280, 89; California v. ARC America
Corp., 109 S.Ct. 1661, 1667, 490 U.S. 93, 105 (1989)(“ordinarily, state
causes of action are not pre-empted solely because they impose liability over
and above that authorized by federal law”); Kenneth Arms Tenants
Association, 2001 U.S. Dist. LEXIS 11470 at 27-28, Norton Decl., Ex. 10,
FPTA App. 45 (similar state laws not subject to conflict preemption simply
because they impose procedural requirements not in federal law). Thus, the
Minnesota laws are not preempted simply because they require notice which
is three months longer than the maximum period required under the notice
provision of the 1999 Appropriations Act. It is easy for any owner to
comply with both simply by giving the one year notice required by state law
and then, within the 150-270 day time frame, giving the notice required by
37
federal law. At least one Minnesota owner has done so.8
There is an additional reason why there is no conflict preemption
based on the 1999 Appropriations Act. When a federal statute expressly
preempts some other law, it is implied that there is no Congressional intent
that there be wider preemption through application of the conflict
preemption concept. English v. General Electric Company, 110 S.Ct. at
2280, 469 U.S. at 89; Cipollone v. Liggett Group, Inc., 112 S.Ct. at 2618,
505 U.S. at 518 (“Congress’ enactment of a provision defining the preemptive reach of a law implies that matters beyond that reach are not
preempted.”) The current federal prepayment notice requirement of Section
219 of the 1999 Appropriations Act provides that “notwithstanding” Section
211 of LIHPRHA (41 U.S.C. § 4101) and Section 221 of ELIPHA, an owner
of low income housing may prepay the mortgage by giving a notice of at
least 150, and not more than 270 days. The statute expressly supercedes only
Sections 211 of LIHPRHA and 221 of ELIPHA (the prepayment
prohibitions of these statutes) creating the implication that no other laws,
certainly no state laws, are preempted.
This implication is strengthened by the language of the statute. Had
8
The owner of Mountain View Estates, a 52 unit project in Detroit Lakes
Minn. prepaid the 236 mortgage in January of 2002. A state law tenant
impact statement was provided on 12/14/00 and the federal notice required
by P.L. 105-276 was provided on 7/21/01. Goepfert Decl., Ex. 1-3, FPTA
App. 73-76.
38
Congress intended to preempt any other statutory provisions relating to
prepayment in the 1999 Appropriations Act prepayment and notice
provisions, it would have used the phrase “notwithstanding any other
provision of law” or similar language. As in Cipollone, the preemptive
reach of the 1999 Appropriations Act must be read “in light of the
presumption against” preemption. Cipollone, 112 S.Ct. at 2618, 505 U.S. at
518. As was the case with the statute at issue in Cipollone, the 1999
Appropriations Act does not “foreclose additional obligations imposed under
state law” and therefore does not preempt such obligations. Id.
Nor is there the slightest indication that the state one year notice
requirement frustrates any Congressional purpose. The legislative history of
the 1999 Appropriations Act provides no hint as to the purpose of the
provision requiring the federal notice within 270 days of prepayment. The
most likely explanation is that Congress did not want prepayments based on
“stale” notices – that is, it did not want owners to be able to simply give an
open-ended notice which it could rely on at any time in the future.
What is certain is Congressional intent that Section 236 projects be
preserved as affordable housing. See, discussion supra at 14-15. Compliance
by an owner with both the federal and state laws will give full effect to
Congress’ intentions with respect to Section 236 projects. There is,
therefore, no conflict preemption.
39
The limited preemptive reach of the 1999 Appropriations Act is
closely analogous to that of the federal statute at issue in English v. General
Electric Company, in which the Supreme Court reversed lower court
decisions that a provision of a federal law preempted state law. 110 S. Ct.
2270, 96 U.S. 72 (1990). The Supreme Court noted that on its face the
provision at issue superceded only a different federal law and not state law,
that there was no legislative history to the contrary, and that state law is not
preempted simply because it imposes liability over and above that
authorized by federal law. Likewise, the 1999 Appropriations Act refers on
its face only to other provisions of federal law, there is no legislative history
to the contrary, and it does not preempt state laws providing for additional
restrictions on prepayment. As in English, the clear Congressional intent
that state law be preempted is entirely lacking and the state law is therefore
not preempted.
The Owner argues that the state statutes conflict with a “vibrant and
coherent” national policy which favors replacing subsidized projects with
vouchers so that project based subsidies may be recycled into tenant based
assistance. This purported national policy exists only in the imagination of
the Owner’s counsel. In fact, Congressional policy has consistently
supported preservation of project based subsidies and continues to do so,
even though LIHPRHA has been abandoned as too expensive. See supra
40
footnote 3. Contrary to the misstatements upon which the Owner’s
argument rests, Congress has always provided that Section 236 interest
subsidy payments, which are saved when a prepayment occurs, should be
recycled into preservation of subsidized multi-family housing. Congress has
never even remotely suggested that these funds be used to fund the Section 8
voucher program.
The Owner’s argument that the state notice statutes conflict with
federal policy favoring prepayment is contrary to the fact that Congress has
consistently favored preservation of the Section 236 interest subsidies and
low income use restrictions (although the mechanisms favored by Congress
have evolved dramatically since passage of LIHPRHA). Since passage of
HOPE, Congress has enacted substantial incentives for owners of Section
236 projects to extend the low income commitments. See Section 532 of the
Fiscal Year 2000 HUD Appropriations Act, P.L. 106-74, U.S.C.C.A.N. 113
Stat. 1116-1119. These provisions have been used, in conjunction with state
preservation funds, to preserve Section 236 projects in Minnesota including
Franklin Lane and Shingle Creek Towers. Warner Decl. II, ¶ 8, FPTA App.
62-63.
Appellant’s repeated assertion that Congress wishes to recycle Section
236 interest subsidies into tenant based assistance is simply wrong. On its
face, the provision of the 1996 HUD Appropriations Act cited at page 30 of
41
the Owner’s Brief provides that recaptured Section 236 subsidies are to be
used “in conjunction with properties that are eligible for assistance
under…LIHPRHA.” Subsequently, Section 531 of the 1998 HUD
Appropriations Act added Section 236(s) to the National Housing Act,
providing that Section 236 interest rate subsidy funds which become
available as a result of prepayments are to be used to make rehabilitation
grants to owners of current and formerly subsidized housing whose owners
agree to affordability and use restrictions. P.L. 105-65, Section 531, 1999
U.S.C.C.A.N. 111 Stat. 1409. Thus, Congress has consistently provided that
recaptured interest rate subsidies are to be used for preservation of projectbased affordable housing and has never provided that such funds are to be
used for tenant based vouchers.
2.
The District Court Correctly Held That The Owner Had
Abandoned Its Contract Clause Claim and The State
Statutes Do Not Violate the Contracts Clause of the U.S.
Constitution.
Because the Owner’s complaint set out a cause of action for violation
of the contracts clause, the Tenants Association addressed the issue below in
its memorandum in support of its motion for summary judgment. The
Owner, however, did not present any argument to the District Court as to
why the Minnesota notice statutes violated the Contracts Clause. The
Owner’s memorandum in opposition to the Tenants Association motion for
summary judgment merely asserted in footnote 34, without any supporting
42
argumentation, that the Tenants Association argument was “absurd” and that
the statutes did violate the contracts clause. The District Court appropriately
ruled that the Owner had abandoned this issue. The Owner did not raise
this issue below and the Eighth Circuit has consistently declined to hear
issues that were not raised below. Taylor v. Southwestern Bell Telephone
Co., 251 F.3d 735, 740 (8th Cir. 2001); Entergy, Arkansas, Inc. v. Nebraska,
241 F.3d 979, 986 n.1 (8th Cir. 2001); Vaughn v. Sexton, 975 F.2d 498, 503
(8th Cir. 1992); Kriegesmann v. Barry-Wehmiller Co., 739 F.2d 357, 358 (8th
Cir. 1984); Byrd v. Wolff, 490 F.2d 1277, 1278 (8th Cir. 1974).
In any event, a state statute does not violate the Contract Clause
simply because it affects duties created by contracts entered into before its
enactment. Burlington Northern Railroad Co. v. State of Nebraska, 802
F.2d 994, 1005 (8th Cir. 1986). Under certain circumstances, the statute may
even altogether bar performance under the contract. Id. Contracts are
assumed to be subject to the exercise of the police power by state
governments and legitimate exercises of this power which affect existing
contracts do not necessarily violate the contract clause. Home Building &
Loan Ass’n v. Blaisdell, 54 S.Ct. 231, 239, 290 U.S. 398, 435 (1934);
Murphy v. Amoco Production Co., 729 F.2d 552, 557 (8th Cir. 1984). A
Contract Clause challenge to a state statute is analyzed using a three part
43
test. Angostura Int’l Ltd. v. Melemed, 25 F. Supp.2d 1008, 1010 (D. Minn.
1998):
The threshold inquiry is whether the state law has, in fact,
operated as a substantial impairment of a contractual relationship.
Second, the Court considers whether there is a significant and
legitimate public purpose behind the regulation causing the substantial
impairment. Finally, the Court must consider whether the adjustment
of the rights and responsibilities of the parties is based upon
reasonable conditions and is of a character appropriate to the public
purpose justifying the legislation’s adoption.”
Id. (citations omitted).
The threshold inquiry of substantial impairment also involves a three
part test: “whether a contractual relationship exists; whether a change in the
law impairs that contractual relationship; and whether the impairment is
substantial.” Western Nat’l Mutual Ins. Co. v. Lennes, 46 F.3d 813, 817-18
(8th Cir. 1995); see also Allen v. State of Minnesota, 867 F. Supp. 853 (D.
Minn. 1994).
The only document relating to a Section 236 project which contains
any provisions regarding prepayment of the loan is the mortgage note.
Cienega Gardens v. U.S., 194 F.3d 1231, 1242 (Fed. Cir. 1998). None of
the agreements between the Owner and HUD reference prepayment. Id.;
Alexander Investment v. U.S., 51 Fed. Cl. 102, 106 (2001)(no privity of
contract between the U.S. and the owner with respect to a right to prepay
because the prepayment provision was not in the regulatory agreement).
Therefore, the Forest Park II Note is the only contract at issue. See Note,
44
Norton Decl. Ex 1, FPTA App. 16-18.
The HUD regulations in effect at the time that Section 236 mortgages
were approved did permit prepayment but were expressly subject to
amendment at any time without regard to whether the owner’s interests were
adversely affected. 24 C.F.R. § 236.30, 236.599 (1973). Thus, the only
contract provision on which the Owner can rely is a provision in the Note
which prohibits prepayment for 20 years. Any expectation by the owner that
a prepayment could occur after that time was necessarily limited by HUD’s
ability to amend the regulations regarding prepayment at any time without
regard to the owner’s interests. In fact, with ELIPHA and LIHPRHA
Congress did drastically limit owners’ prepayment rights after the initial 20year period.
The state laws impair the prepayment provision of the note only if
Forest Park II had a “reasonable expectation” that it could prepay its
mortgage without giving the one year’s notice required. Lennes, 46 F.3d at
818. A party’s “reasonable expectations” are affected by the regulated
nature of an industry in which a party is contracting; heavy regulation of an
industry may reduce reasonable expectations. Id.; see also Burlington
Northern, 802 F.2d at 1006 (finding no Contracts Clause violation where
“given the highly regulated nature of the railroad industry, Burlington
Northern had no reasonable expectation that it could remove from legislative
45
scrutiny aspects of its operations potentially bearing on public safety”).
Government-subsidized housing is a highly regulated “industry".
Given that the note provides no positive “right” to prepayment, but only a
limitation on an express prohibition and that HUD’s regulations on
prepayment were subject to change without consideration of the owner’s
interests, the Owner had no reasonable expectation regarding ability to
prepay without notice. Challenges to the constitutionality of
ELIPHA/LIHPRHA and a similar Rural Housing preservation statute on
other theories have been rejected, in part because of the recognition that
owners knew from the outset they were incurring the risk of intensive
regulation and the possibility of changing rules. Alexander, supra,
Parkridge Investors, Ltd. v. Farmers Home Administration, 13 F.3d 1192,
1198 (8th Cir. 1994).
Further, any contract impairment must be “substantial.” Angostura,
25 F.Supp. at 1010. The requirement of one year’s notice is not much more
onerous than the 150-270 day notice already required by the federal
program. Additional obligations imposed on contracting parties by state
laws must be measured against the general obligations of the parties
previously existing to determine if the additional obligations substantially
impair the contract as a whole. See Murphy v. Amoco Production Co., 729
46
F.2d 552, 557 (8th Cir. 1984) (additional liability imposed by state law not
significant given preexisting liabilities and cost of the activity).
In this case, the Minnesota laws impose at most an additional 95 days’
notice requirement (approximately 3 months) on owners intending to prepay
mortgages and terminate their Section 236 obligations. Given the initial 40
year mortgage and the 20 year minimum before an owner is allowed to
terminate, an additional three month’s notice is not a severe impairment of
Forest Park II’s contract rights. Instead, the effect of the laws on Forest Park
II’s obligations is “slight.” See, e.g., Burlington Northern, 802 F.2d at 1006
(finding no substantial impairment of contract in the case of a statute
requiring manned cabooses where the contract at issue only guaranteed
railroads the right to negotiate for removal of all cabooses or seek
permission to remove cabooses from some of its trains).
Even if the one year notice provisions were found to constitute
substantial impairment, the state has demonstrated a significant and
legitimate public purpose. See Lennes, 56 F.3d at 820. Congress itself has
emphasized the important public purpose involved in preservation of Section
236 housing as affordable. See discussion supra at ps. 14-15. The means
chosen to achieve this legitimate public purpose are reasonably related to the
preservation purpose. See Minnesota Ass’n of Health Care Facilities, Inc.,
742 F.2d 442, 450 (8th Cir. 1984); Liberty State Bank v. Minnesota Life and
47
Health Ins. Guar. Assn, 149 F.3d 832,835 (8th Cir. 1998). The one year
notice requirements are the same as that which Congress has imposed for
termination of a Section 8 housing subsidy contract (42 U.S.C. §
1437f(c)(8)), only slightly longer than that currently imposed by Congress
for prepayment, and the same as that favorably noted by Congress in
discussing the tenant protection provisions of LIHPRHA (the Maryland
statute, see pages 33-34 above).
3.
Appellant’s Rule 56(f) Affidavit Was Not Relevant to the
District Court’s Summary Judgment.
Appellant argues that the District Court’s summary judgment was in
error because the Owner had submitted a Rule 56(f) affidavit. Rule 56(f)
provides that a court may deny or continue a motion for summary judgment
when the non-moving party submits an affidavit setting out reasons why it is
at that time unable to present facts essential to that party’s opposition to the
motion. A party seeking a continuance pursuant to Rule 56(f):
must do so in good faith by affirmatively demonstrating why he
cannot respond to a movant’s affidavits as otherwise required
by Rule 56(e) and how postponement of a ruling on the motion
will enable him, by discovery or other means, to rebut the
movant’s showing of the absence of a genuine issue of fact.
Allen v. Bridgestone/Firestone, Inc., 81 F.3d 793, 797-98 (8th Cir. 1996),
citing Willman Poultry Co. v. Morton-Norwich Prods., Inc., 520 F.2d 289,
297 (8th Cir. 1975), cert. denied, 424 U.S. 915, 96 S.Ct. 1116, 47 L.Ed.2d
320 (1976). The discovery which is the subject of the Rule 56(f) affidavit
48
must be relevant to the summary judgment motion. Allen, 81 F.3d at 798.
When the summary judgment motion involves pure issues of law, no issues
of fact are relevant and a court does not err by denying a continuance.
Williams v. Phillips Petroleum Co., 23 F.3d 930, 937 (5th Cir. 1994).
The Owner’s Rule 56(f) affidavit dealt exclusively with issues of
harm to the parties which the affidavit itself characterized as relevant only to
the Tenants Association’s motion for an injunction. The only part of the
affidavit which relates in any way to the Tenants Association’s summary
judgment motion is the section headed “Third Dataphase Factor.” In that
section, the affiant indicates a desire to depose a HUD representative
regarding “the development, interpretation, and application of federal
housing statutes and regulations.” The affiant indicates that “the
construction, meaning, and vitality” of provisions of LIHPRHA “are
material issues in this litigation.” However, the “development,
interpretation, and application” of statutes and the “construction, meaning
and vitality” of LIHPRHA are issues of law, not of fact. A deposition of a
HUD representative on these matters could in no way rebut the Tenant
Association’s assertion that there are no material issues of fact and that
summary judgment depends solely on the legal issues of preemption and
contract impairment. These were pure issues of law and no Rule 56(f)
affidavit would have been relevant. Williams, 23 F.3d at 937. The District
49
Court did not err in refusing to grant a continuance for more discovery prior
to granting summary judgment.
Because the propriety of the District Court’s summary judgment is a
pure question of law and because the requested discovery related solely to
issues relevant only to an injunction, even a finding by the Court of Appeals
that the District Court erred in failing to permit further discovery cannot
affect the summary judgment motion, but only the grant of the permanent
injunction.
Further, the Owner’s Rule 56(f) affidavit was also not germane to the
Owner’s opposition to the Tenants Association’s motion for an injunction.
The express purpose of Rule 56(f) is to provide for continuance of a motion
for summary judgment.
C.
The District Court Did Not Abuse Its Discretion in Granting
Injunctive Relief .
The Owner challenges the District Court’s grant of an injunction on
the grounds that the Minnesota notice statutes do not provide for a private
right of action; that there was no irreparable harm alleged; that the District
Court did not properly balance the harms associated with issuance of an
injunction; and that the District Court did not properly assess the public
interest. None of these arguments has merit.
50
1.
Private right of Action
This issue was not raised nor addressed by any party below.
Therefore, these issues may not be raised on appeal. See, cases cited above
at p. 42.
In any event, the Owner’s argument is without merit. First, it is
difficult for the Owner, which was the plaintiff below, to complain that the
defendant below has no right of action. The Owner commenced this action
seeking a declaration as to the rights of the parties with respect to the
Minnesota notice statutes. The District Court’s summary judgment provided
the Owner with just such a declaration. The declaratory judgment statute, 28
U.S.C. § 2201, provides a right of action to “any interested party” seeking a
declaration of “rights and other legal relations” with respect to actual
controversies. 28 U.S.C. § 2201. The Tenants Association was certainly an
interested party, having been sued by the Owner. Pursuant to 28 U.S.C. §
2202, the District Court, having issued a declaratory judgment, was then
empowered to grant injunctive relief against the Owner. See also State v.
Haveland, 25 N.W.2d 474, 477 (Minn. 1946), Thuma v. Kroschel, 506
N.W.2d 14, 20 (Minn.App. 1993), (party need not possess a cause of action
as a basis for obtaining declaratory relief).
Second, The existence of a right of action depends on legislative
intent. Flour Exchange Bldg. Corp. v. State, 524 N.W.2d 496, 499
51
(Minn.App. 1994). In each of the cases cited by the Owner, the “right of
action” which was at issue was an action for damages, rather than equitable
relief. Here, the Tenants Association sought declaratory and injunctive
relief. The basis for distinguishing a suit for equitable relief from one for
damages is clearly illustrated by the present case. The equitable remedy
sought by the Tenants Association does no more than give concrete
expression in a particular situation to the clear intent of the legislature – that
owners provide the required notice a year before terminating the subsidy. A
damage remedy on the other hand, would impose a result about which the
legislature was silent as to its intent.
There is a long history of adherence to the legal maxim that the
creation of a statutory mandate carries with it, by necessary implication, the
right to its enforcement. Franklin v. Gwinnett County Public Schools, 112
S.Ct. 1028, 1033, 503 U.S. 60, 66 (1992); Marbury v. Madison, 5 U.S. 137,
163 (1803), (our government has been termed one of laws, not of men, but
“It will certainly cease to deserve this high appellation, if the laws furnish no
remedy for the violation of a vested legal right”); Associated Schools of
Independent District No. 63 of Hector v. School District No. 83 of Renville
County, 142 N.W. 325 (Minn. 1913); Willis v. St. Paul Sanitation Co., 50
N.W. 1110 (Minn. 1892); See also Singer, Sutherland Statutory
52
Construction, § 55.03 (4th Ed. 1984)(If a statute which creates a right does
not indicate expressly a remedy, one is usually implied.)
While legislative silence on a remedy may well be held to imply that
the legislature did not intend a damage remedy, it certainly does not imply
that the legislature intended the statute to be unenforceable through court
order. Since there is no administrative or other mechanism to enforce the
statute, the statute is meaningless without a private right of equitable action.
It is only common sense that legislative bodies do not adopt statutes that
they intend to be ignored with impunity.
Indeed, in Freedom Resource Center v. South Park Apartments, a
Minnesota district court recently issued partial summary judgment and a
permanent injunction in a case remarkably similar to this one. See Order
dated February 8, 2002, Clay County Dist. Ct. File # C2-01-2165, attached
hereto as Ex. 11 to Norton Decl., FPTA App., 50-51. The court enjoined the
owner from opting out of the Section 8 program without first complying
with Minn. Stat. § 471.9997.
2.
The Threat of Irreparable Harm
Although irreparable injury can take many forms, it must be of such a
nature that a legal remedy will not make the injured party whole. Allen v.
State of Minnesota, 867 F. Supp. 853, 858-59 (D. Minn. 1994). See
53
generally, Wright, Miller, & Kane, Federal Practice and Procedure: Civil 2d
§ 2948.1 (2d ed. 1995).
The Owner intended to prepay the Section 236 mortgage and
terminate the regulatory agreement. Once those actions occurred, Forest
Park II Apartments would have been permanently and irreparably lost as an
affordable housing resource. The threatened harm to the residents
represented by the Association is twofold. First, many low income residents
are threatened with substantial rent increases, which may lead to the loss of
their homes. Griffin Decl. ¶ 10, ASA 4; Smith Decl., ¶ 5, AA 60, and Sanz
Decl., ¶ 5, AA 61; See, discussion supra at p. . This threat was real and
imminent.
While the Forest Park tenants had not received eviction notices, many
were faced with very substantial rent increases which could have led to loss
of their homes. The District Court’s decision, at page 10, correctly
recognized this threat. The Court cited an analogous case which held that
irreparable injury flows from the similar injury of eviction. That does not
mean that the Court based its finding of irreparable injury on an incorrect
finding that there was a threat of eviction in the record; it simply means that
it found the threat of rent increases and displacement which was in the
record to constitute an irreparable injury.
54
Courts have repeatedly recognized that substantial rent increases and
the risk of losing one’s housing are irreparable injuries supporting
preliminary relief. McNeill v. New York City Housing Authority, 719 F.
Supp. 233, 254 (S.D.N.Y. 1989) (public housing authority enjoined from
collecting increased rents); Brown v. Artery Organization, Inc., 654 F. Supp.
1106, 1118-19 (D.D.C. 1987) (landlord enjoined from evicting tenants
during conversion of complex to high rent units; “it is axiomatic that
wrongful eviction constitutes irreparable injury”); Tenants for Justice v.
Hills, 413 F. Supp. 389, 393 (E.D. Pa. 1975) (landlords enjoined from
evicting tenants when HUD foreclosed on a subsidized project and sold it
without rent restrictions).
Second, the tenant impact statement law was passed in conjunction
with an appropriation of $10 million to the MHFA to be used for
preservation of federally assisted rental property threatened with conversion
to market rate. 1998 Minn. Laws, c 389, art. 14, sec. 1, 2. The Legislature
has since appropriated an additional $50 million for this purpose. Odman
Aff., ¶¶ 2-4, FPTA 77-80. With this substantial financing commitment, the
Legislature recognized the important public purpose involved in preserving
the affordability of federally subsidized housing and provided public
resources to make such preservation a reality. Id. Congress has also made
substantial incentives available to owners of Section 236 projects who agree
55
to extend low income occupancy restrictions. P.L. 106-74, Sec. 532,
U.S.C.C.A.N. 113 Stat. 1116. There are numerous instances of successful
preservation of such projects. Warner Decl., ¶¶ 9-13, FPTA App. 54-56.
However, negotiation and implementation of such preservation efforts are
complex and time consuming, often requiring at least a year. Id. at ¶¶ 11-13,
FPTA App. 55-56; Odman Aff. ¶¶ 5,6, FPTA App. 81. The Owner’s refusal
to comply with the state one year notice statutes substantially undermined
any possibility of finding a long-term alternative to the loss of this housing.
Warner Decl. at ¶¶ 13-14, FPTA App. 56.
There is a separate kind of irreparable injury to the Association itself.
Its goal is to preserve Forest Park II as affordable housing for current and
future members. Prepayment harms the Association's ability to keep the
project affordable for future low income applicants. Such applicants will not
have vouchers available to them and will be unable to afford the new, and
much higher, rents.
The Owner seeks to characterize the permanent and irrevocable
opportunity to preserve affordable housing as simply a case of lost
opportunity to save money. What is at issue is more than that – it is the loss
of affordable housing resources and the loss of the opportunity to preserve
those resources. See Odman Aff. ¶¶3-6, FPTA App. 78-81. The Family
Housing Fund and the state agencies charged with producing and preserving
56
affordable housing have limited resources. Preservation of existing
affordable housing results in more affordable housing at a much lower cost
than producing new affordable housing. Fulton Decl. ¶ 6, FPTA App. 89.Thus limited resources will produce more housing if preservation is a
realistic tool. This will be the case only if those parties which have a vital
interest in preservation receive adequate notice of the proposed loss of
assisted housing. Odman Aff. ¶¶ 5,6, FPTA App. 81. Prepayment without
adequate notice causes harm which cannot be remedied apart from an order
requiring compliance with the state notice statutes.
3.
Balance of Harms
The Owner cites an alleged loss of rental income of $15,891 as harm
not properly assessed by the District Court. However, as discussed above,
the Owner has never taken the easy steps required to protect against this loss
by giving the required state notice. Nor has the Owner reissued the federally
required notice, which has now lapsed. Thus, if the Court of Appeals were
to decide in the Owner’s favor today, the Owner would still not be able to
prepay for at least six months. These facts cast serious doubt on the
Owner’s assertions regarding serious economic harm resulting from the
injunction.
In addition, the lost income figure represents additional potential rents
which the Owner might receive after prepayment. Declaration of Patrick
57
Gaughan, A.A. 2-3. It does not, however, reflect the additional debt service
to be incurred by the Owner in prepaying a one-percent mortgage nor the
additional vacancy losses to be expected once the higher rents are charged.
Because the Owner provided no information on these offsetting costs, the
Owner failed to provide a basis for the District Court to consider economic
losses to the Owner. Further, any such hardship is attributable to the
Owner's refusal to conform to the unambiguous, and minimally burdensome,
requirements of state law.
The Owner also argues that the District Court failed to consider the
harm related to the fact that enhanced vouchers, which will allow some
tenants to pay less rent, will not be available unless there is a prepayment.9
But voucher holders never pay less than they did at the time of prepayment,
unless they move from their homes. Not all of the tenants wish to move.
Declaration of Tara Wood, ¶ 5, FPTA App. 86-87. In any event, the
Congressional purpose behind enhanced vouchers is to prevent displacement
of tenants of prepayment properties not encourage it. Further, preservation
alternatives utilized in similar projects have resulted in both preservation of
While trumpeting the virtues of Section 8 vouchers in this litigation, the
Owner also controls and employs a management company that, prior to this
litigation, refused to accept Section 8. Warner Decl. II, Ex. C, FPTA App.
67.
9
58
long term affordability and availability of enhanced vouchers for tenants.
Warner Decl. II ¶ 8, FPTA App. 62-63.
Finally, it must be emphasized that the injunction does not prevent
tenants from receiving enhanced vouchers, it simply conditions this receipt
on the Owner’s compliance with state law. By the time this case is decided,
the Owner will likely have litigated for the better part of a year over whether
it had to give notice three months earlier than it did. The Owner could easily
have complied with this requirement and prepaid on May 1, 2002. It was the
Owner’s decision to defy the state notice requirement, and to date, the
Owner has not taken the minimal steps necessary to comply, or to restore its
ability to prepay under the federal notice statute.
All of these issues were before the District Court and the finding of
irreparable harm was well within its discretion.
4.
Public Interest
The District Court entered a permanent injunction based on its
summary judgment that the Owner had proposed to prepay in violation of
the Minnesota Notice statutes and that these statutes were not preempted.
With this summary judgment entered, it is clear that public policy favors
granting the proposed injunction. The Minnesota legislature mandated
owners to provide the required tenant impact statement one year in advance
of termination of the project based federal subsidy. Minneapolis Federation
59
of Teachers, AFL-CIO, Local 59 v. Minneapolis Public Schools, Special
Dist. No. 1, 512 N.W.2d 107, 112 (Minn.App. 1994)(public policy is set by
legislative enactments). The legislature has also clearly established
preservation of affordable housing as a major public policy. Odman Aff. ¶¶
2-4, FPTA App. 77-81; Warner Decl. ¶ 9, FPTA App. 54-55. Furthermore,
Congress has repeatedly emphasized the importance of public policies
preserving affordable housing. See discussion supra, pages 14-15.
In the administration of the Section 236 program, HUD has been
directed by Congress to give “the highest priority and emphasis” to meeting
the housing needs of those families for whom the national housing goal has
not become a reality. Id. Congress has adopted a number of incentives
aimed at encouraging Section 236 project owners to extend low income use
restrictions. P.L. 106-74, § 532, U.S.C.C.A.N. 113 Stat. 1116. In enacting
ELIHPA, later followed by LIHPRHA, Congress declared that the loss of
housing such as Forest Park II “would inflict unacceptable harm on current
tenants and would precipitate a grave national crisis in the supply of low
income housing” and “would irreparably damage hard-won progress toward
such important and long-established national objectives as . . . providing a
more adequate supply of decent, safe, and sanitary housing that is affordable
to low income Americans.” ELIHPA, Sec. 202(a)(4) and (5).
60
5.
The District Court Did Not Err By Refusing to Allow
Additional Discovery.
Ruling on discovery or evidentiary issues is within the discretion of
the court and therefore, reviewable for abuse of discretion. Porchia v.
Design Equipment Co., 113 F 3d 877, 880 (8th Cir. 1997); American Eagle
Ins. Co. v. Thompson, 85 F. 3d 327, 333 (8th Cir. 1996). Abuse of discretion
occurs if the district court reaches its conclusions by applying erroneous
legal principles or relying on clearly erroneous factual findings. Randolph v.
Rodgers, 170 F. 3d 850, 856 (8th Cir. 1999).
The District Court did not abuse its discretion in limiting the Owner’s
requests for extensive and full discovery that went well beyond the issues
raised by the Tenants Association's motion for preliminary injunction. This
case moved speedily below only because of the Owner’s refusal to delay its
proposed illegal mortgage prepayment date of May 1, 2002. The proposed
prepayment of the mortgage on May 1, 2002, was barely two months from
the time that the Owner commenced the litigation. The Tenants Association
responded to the Owner’s commencement of the litigation by seeking to
enjoin the prepayment until the purely legal issues raised in the litigation
could be determined by the court.10 The Owner responded by repeatedly
seeking extensive and full discovery under the guise of needing additional
10
The Family Housing Fund joined in this motion for preliminary injunction.
61
facts to respond to the preliminary injunction motion. The Owner’s motions
for expedited discovery were subject to much consideration by the district
court, including three expedited hearings and briefing by the parties, and
were granted in part. 11 As the district court correctly determined, the
Owner’s discovery requests went far beyond the balancing of the harms
raised by the preliminary injunction motion:
With respect to the balancing of the harms, what I have
heard is a desire to do discovery for purposes of soliciting
opinions, challenging credibility of arguments and the like, but
not soliciting facts. The facts are of record, nobody disputes the
facts. The only disputed fact that I can see is what the average
anticipated rent increase is and whether there’s a housing crisis.
Both sides have information and facts in that regard, they
disagree.”
Excerpts of Magistrate Judge Susan Nelson ruling at the April 12, 2002
Hearing, A.A. 55.
The Owner’s repeated discovery requests were extremely broad and
went well beyond the issue of harm to the Tenants Association or any
individual tenants. The Owner sought depositions of Charles Warner, many
of the tenants, the Tenants Associations attorneys, representatives of the
governmental defendants (Appellees Katherine Hadley, Minnesota Housing
Contrary to Appellant’s assertion that there was an Order allowing
discovery to begin, (Appellant’s brief p. 54), both Magistrate Judge
Lebedoff and Magistrate Judge Nelson consistently ruled that the
determination of discovery beyond the deposition of Trisha Graham would
be scrutinized carefully and would only be considered after the conclusion of
the Graham deposition.
11
62
Finance Agency, the Metropolitan Council and the City of Forest Lake) and
of HUD and also sought interrogatories and production of documents from
the Tenants Association.
For example, the Owner sought to depose a number of the tenants
allegedly to obtain information related to various issues, including the issue
of “tenants at Forest Park II suffering rent increases even if they receive
vouchers”, or to determine whether their incomes exceeded the income
guidelines for the voucher program. Yet, the Owner knows the incomes of
all the tenants, which must be certified on an annual basis, and knows the
rents which it charges now and which it intends to charge after the
prepayment. The rules and regulations regarding enhanced vouchers are
published and publicly available. As the district court correctly determined,
the implementation of all of these factors and the effect on individual tenants
is a matter of mathematical calculations using information within the
Owner’s current knowledge and should not have required further discovery.
All of the information which the Owner claimed it needed to obtain
through deposition and interrogatories related to balancing of the harms and
was either irrelevant to the harm issue or was already within its control. The
district court’s decision to deny this additional discovery was proper and
within its discretion.
63
6.
Appellees Were Not Required To Post A Bond
Securing The Permanent Injunction.
The Tenants Association incorporates the arguments of the Family
Housing Fund on this issue and notes that a bond is obviously not required
in the case of a permanent injunction.
D.
The District Court Properly Granted the Family Housing Fund’s
Motion to Intervene.
The Tenants Association incorporates the arguments of the Family
Housing Fund on this issue.
CONCLUSION
For all of the foregoing reasons, the District Court's judgment should
be affirmed in all respects.
HOUSING PRESERVATION PROJECT
Dated: September 12, 2002
___________________________________
Jack Cann (#0174841)
Timothy Thompson (#0109447)
Ann M. Norton (#7987X)
Christine R. Goepfert (#030252)
570 Asbury Street, Suite 105
St. Paul, MN 55104
(651) 642-0102
Attorneys for Appellees Forest Park II
Tenants' Association and other individuallynamed tenants
64