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Kenneth Arms Tenant Association v. Martinez

2001 U.S. Dist. LEXIS 11470, No. Civ. S-01-832 LKK/JFM (E.D.Ca. order July 3, 2001)

Summary: Court preliminarily enjoined a proposed prepayment of 236 mortgages and termination of Section 8 project-based contract. The decision was based primarily on violation of state law, Cal. Gov't Code Secs. 65863.10 and 65863.11. The court found no federal preemption of state statute, determined HUD has no duty to enforce state law, and dismissed HUD.

Demand Letter to Owner (WPD)

Describes requirements of federal and California notice law for opt-out and prepayment and requests that owners issue adequate notices prior to taking any action.

Settlement Agreement (PDF)

Plaintiff's Reply Brief in Support of Motion for Preliminary Injunction (PDF)

* HUD has waived sovereign immunity
* Plaintiffs will suffer irreparable harm if injunctive relief is not granted
o Future tenants will be harmed by the irretrievable loss of subsidized units
o Current and future tenants will be harmed by the lost opportunity to bid on the properties, or to encourage nonprofit purchasers to bid on the properties
o The loss of the federal subsidies will harm existing tenants

* Plaintiffs have demonstrated a likelihood of success on the merits on their claims against Owners

o Owners have not complied with state notice requirements
o In failing to comply with state notice requirements governing notices of intention to opt out of Section 8 contracts, Owners have also violated federal notice requirements
o In sending defective notices, Owners have interfered with tenants' access to enhanced voucher housing subsidies, in violation of 12 U.S.C. § 1715z-1b

* Plaintiffs have demonstrated a likelihood of success on the merits on their claims against HUD

o HUD failed to comply with the federal opt-out notice requirements in violation of the APA
o HUD approval of the defective opt-out notices violated 12 U.S.C. § 1715z-1b and thus must be set aside under the APA
o HUD violated 12 U.S.C. Sec. 1701z-11(k)(2) by approving the sale of subject properties even though the sales transaction involves additional subsidy funds and the post-sale rental housing terms will be less advantageous to existing and future tenants as compared to the current rental terms
o The use agreements at issue herein should be deemed void on the grounds that HUD abused its discretion in executing them; however, regardless of whether they are valid or invalid, HUD's actions in executing the use agreements and holding them out as valid until after the filing of this action caused serious harm to plaintiffs
o HUD failed to abide by its Transfer of Physical Assets procedures governing the sale of a HUD-insured project
o HUD has violated its affirmative duties under the Fair Housing Act by approving and facilitating the sale of the properties without first considering the racial and socioeconomic effects of its actions
o HUD's failure to even consider whether the subject properties were eligible for its program known as "Mark-up-to-Market" which would provide financial incentives for the owners to stay in the project-based Section 8 program was inconsistent with the objectives of the National Housing Act

Plaintiff's Application for TRO (PDF)

* Plaintiffs Have Established That They Will Likely Succeed on the Merits of Their Claims Against Defendant Owners.
o Defendant Owners Have Not Complied with State and Federal Law Governing Section 8 Opt Out and Prepayment out Notices.
o Defendants Have Failed to Comply with Their Legal Obligation to Afford a Right of First Refusal to Interested Entities Who are Committed to Maintaining the Affordability of the Complexes.
o By Issuing Defective Notices, the Defendant Owners Have Interfered with Plaintiffs' Efforts to Obtain Enhanced Voucher Rent Subsidies.

* Plaintiffs Have Established That They Will Likely Succeed on the Merits of Their Claims Against Defendant Martinez.

o Defendant Martinez Has Failed to Enforce Federal and State Notice Requirements.
o Defendant Martinez Has Failed to Prohibit the Owners from Interfering With Tenants' Efforts to Obtain Rent Subsidies.
o In Approving the Owners' Requests to Sell Their Properties And Executing Use Agreements Defendant Martinez has Failed to Ensure That the Terms of the Sale are as Advantageous as Existing Terms.
o Defendant Martinez' Execution of Use Agreements With the Prospective Owner Permitting it to Charge Current Tenants up to 30% of 80% of AMI is an Abuse of Discretion.
o The Decisions of Defendant Martinez to Permit the Owners to Withdraw the Properties from the Federal Housing Programs were Undertaken Without any Consideration of the Racial and Socio-Economic Impact of These Actions in Violation of HUD's Affirmative Duties Under the Fair Housing Act.

* Plaintiffs Indisputably Will Suffer Irreparable Harm If Injunctive Relief Enjoining Defendants' Unlawful Termination of Federal Subsidies and Sale of the Developments Is Not Granted, While Defendants Will Remain at the Status Quo If Preliminary Relief Is Issued, and Thus the Balance of Hardships Tips Sharply in Plaintiffs' Favor.
* The Bond Requirement Should Be Waived Because Plaintiffs Are Indigent and Bring this Action in the Public Interest.

Complaint (PDF)

* Violation of Federal Notice Requirements Governing Termination of Section 8 Contracts (42 U.S.C. § 1437f)
* Violation of Section 202 of the Housing and Community Development Amendments of 1978, as amended (12 U.S.C.§ 1715z-1b)
* Violation of California Opt-Out and Prepayment Notice Requirements (Cal. Govt. Code § 65863.10)
* Violation of CA Right of First Refusal Requirements (Cal. Govt. Code § 65863.11)
* Unlawful Business Practice (CA Business and Professions Code Sec. 17200 et seq.)
* Violation of the Administrative Procedure Act 28 U.S.C. § 701 et seq.
* Declaratory Judgment Act (28 U.S.C. §§ 2201-2202)

Opinion (PDF)

HUD Letter Brief to Judge Karlton re no preemption (PDF)

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