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McFalls v. Perdue

United States District Court, D. Oregon

February 8, 2018

SONNY PURDUE, Secretary of the Department of Agriculture; ROGER GLENDENNING, Undersecretary for Rural Development; RICH DAVIS, Administrator Rural Housing Service; and JOHN E. HUFFMAN, Oregon Rural Development State Director, Defendants.

          Juhi S. Aggarwal, Ellen Johnson, Michael Pijanowski, and Edward Johnson, Oregon Law Center, 230 NE Second Avenue, Suite F, Hillsboro, OR Gideon A. Anders and Jessica L. Cassella, National Housing Law Project, Of Attorneys for Plaintiffs.

          Billy J. Williams, Unites States Attorney, James E. Cox, Jr., Assistant United States Attorney, and Sean E. Martin, Assistant United States Attorney, United States Attorney's Office, Of Attorneys for Defendants.


          Michael H. Simon, United States District Judge.

         Plaintiffs Lisa McFalls, Michael McFalls, and Fred Woodring (the “Individual Plaintiffs”) are low-income renters who live in federal subsidized housing at the Golden Eagle II (“GE”) apartment building in Tillamook, Oregon. Plaintiff Community Action Resource Enterprises, Inc. (“CARE”) is a nonprofit organization based in Tillamook County, Oregon. CARE assists low-income persons in obtaining affordable housing in Tillamook County, including at GE.

         GE is an affordable housing unit for low-income persons. GE was financed with a direct government loan and also receives operating subsidies from the United States Department of Agriculture (“USDA”) Rural Housing Service and Rural Development (“RD”) agencies. Plaintiffs sue Defendants Sonny Purdue, Secretary of the USDA; Roger Glendenning, Undersecretary for RD; Rich Davis, Administrator of the USDA's Rural Housing Service; and John E. Huffman, Oregon State Director of RD, all in their official capacities.

         In their original complaint, Plaintiffs challenged RD's initial Civil Rights Impact Analysis (“CRIA I”), which concluded that prepayment of GE's loan would not materially affect minority housing opportunities and approved the request by GE's owner's to prepay the loan. This prepayment would have reduced the protections provided to GE's tenants under RD's program and might have resulted in the displacement of the Individual Plaintiffs. After Plaintiffs filed their original complaint and moved for a preliminary injunction to enjoin the approval of the requested loan prepayment, Defendants rescinded their approval. RD then issued a second Civil Rights Impact Analysis (“CRIA II”), which found that prepayment would materially affect minority housing opportunities. Based on that finding, RD required that GE be offered for sale to a nonprofit or public agency for 180 days in order to try to maintain GE as affordable housing. Defendants state that the mandatory 180-day waiting period began on October 17, 2017, and will conclude on April 15, 2018.

         After RD issued CRIA II, Plaintiffs filed a Second Amended Complaint. Plaintiffs allege: (1) Defendants violated the Administrative Procedures Act (“APA”), 5 U.S.C. §§ 701 et seq., by implementing regulations inconsistent with the governing statute with respect to analyzing the effect of prepayment on minority housing; (2) RD violated the APA by failing to establish standards or guidance for determining the effect of prepayment on minority housing opportunities; (3) RD violated the APA by administering the Rural Voucher Program in an arbitrary and capricious manner; and (4) RD's regulations authorizing the termination of use restrictions violates the Emergency Low Income Housing Preservation Act (“ELIHPA”), 42 U.S.C. § 1472. Defendants move to dismiss Plaintiffs' Second Amended Complaint, arguing that Plaintiffs lack standing, the Court lacks subject-matter jurisdiction because there is no final agency action for the Court to review, and Plaintiff's First and Fourth Claims for Relief alleged in the Second Amended Complaint fail to state a claim upon which relief can be granted because they are time-barred.[1] For the reasons that follow, Defendants' motion to dismiss is denied.

         STANDARDS A. Article III Standing

         The U.S. Constitution confers limited authority on the federal courts to hear only active cases or controversies brought with standing. See Spokeo, Inc. v. Robins, 136 S.Ct. 1540, 1546-47 (2016); Already, LLC v. Nike, Inc., 133 S.Ct. 721, 726 (2013). Standing “limits the category of litigants empowered to maintain a lawsuit in federal court to seek redress for a legal wrong.” Spokeo, 136 S.Ct. at 1547.

         To have standing, a plaintiff must have a “personal interest . . . at the commencement of the litigation.” Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 189 (2000). The constitutionally required personal interest must satisfy three elements: (1) an injury-in-fact, i.e., an invasion of a legally protected interest that is concrete and particularized, as well as actual or imminent; (2) a causal connection between the injury-in-fact and the defendant's challenged behavior; and (3) likelihood that the injury-in-fact will be redressed by a favorable ruling. Id. at 180-81, 189; see also Spokeo, 136 S.Ct. at 1547 (reiterating that the “irreducible constitutional minimum” of standing consists of “an injury in fact . . . fairly traceable to the challenged conduct of the defendant, and . . . likely to be redressed by a favorable judicial decision”).

         An injury is “particularized” if it “affect[s] the plaintiff in a personal and individual way.” Spokeo, 136 S.Ct. at 1548 (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 n.1 (1992)). An injury is “concrete” if it is “‘de facto'; that is, it must actually exist, ” meaning that it is “‘real' and not ‘abstract.'” Id. “‘Concrete' is not, however, necessarily synonymous with ‘tangible.' Although tangible injuries are perhaps easier to recognize, [the Supreme Court has] confirmed in many . . . previous cases that intangible injuries can nevertheless be concrete.” Id. at 1549.

         Although Article III's injury requirement cannot be displaced by statute, when a statute creates a legal right, the invasion of that legal right may create standing. See Spokeo, 136 S.Ct. at 1549 (noting that Congress “is well positioned to identify intangible harms that meet minimum Article III requirements” and “has the power to define injuries and articulate chains of causation that will give rise to a case or controversy where none existed before, ” but emphasizing that “Article III standing requires a concrete injury even in the context of a statutory violation”); Edwards v. First Am. Corp., 610 F.3d 514, 517 (9th Cir. 2010) (noting that standing can exist by virtue of “statutes creating legal rights, the invasion of which creates standing”). When a person claims standing based on a violation of a statute, that person must also show that he or she has what has been variously referred to as “statutory standing, ” “prudential standing, ” or “zone of interest standing.” See generally Lexmark Int'l, Inc. v. Static Control Components, Inc., 134 S.Ct. 1377, 1386-88 (2014).

         The relevant question for statutory standing in this case is whether the “statutory provision on which the claim rests properly can be understood as granting persons in the plaintiff's position a right to judicial relief.” Edwards, 610 F.3d at 517. This can be established by pleading a violation of a right conferred by statute, provided the plaintiff alleges “a distinct and palpable injury to himself, even if it is an injury shared by a large class of other possible litigants.” Warth v. Seldin, 422 U.S. 490, 501 (1975). A “violation of a procedural right granted by statute can be sufficient in some circumstances to constitute injury in fact. In other words, a plaintiff in such a case need not allege any additional harm beyond the one Congress has identified.” Spokeo, 136 S.Ct. at 1549 (emphasis in original). A plaintiff cannot, however, “allege a bare procedural violation [of a statute], divorced from any concrete harm, and satisfy the injury-in-fact requirement of Article III.” Spokeo, 136 S.Ct. at 1549 (providing, by way of example of a procedural violation that would not likely present any material risk of harm, an allegation that a credit reporting agency disseminated a report containing an incorrect zip code). Additionally, in statutorily created causes of action, the plaintiff also must demonstrate that he or she is within the “zone of interests” protected by the law invoked in order to have standing to sue for a violation of the statute. See Lexmark, 134 S.Ct. at 1388-89. Whether a plaintiff has stated a basis for statutory standing is generally tested under Rule 12(b)(6) of the Federal Rules of Civil Procedure, rather than Rule 12(b)(1). See Maya v. Centex Corp., 658 F.3d 1060, 1067 (9th Cir. 2011).

         B. Motion to Dismiss Under Rule 12(b)(1)

         Federal courts are courts of limited jurisdiction. Gunn v. Minton, 133 S.Ct. 1059, 1064 (2013) (quotation marks omitted). As such, a court is to presume “that a cause lies outside this limited jurisdiction, and the burden of establishing the contrary rests upon the party asserting jurisdiction.” Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994) (citations omitted); see also Robinson v. United States, 586 F.3d 683, 685 (9th Cir. 2009); Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). A motion to dismiss under Rule 12(b)(1) for lack of “subject-matter jurisdiction, because it involves a court's power to hear a case, can never be forfeited or waived.” United States v. Cotton, 535 U.S. 625, 630 (2002). An objection that a particular court lacks subject-matter jurisdiction may be raised by any party, or by the court on its own initiative, at any time. Arbaugh v. Y&H Corp., 546 U.S. 500, 506 (2006); Fed.R.Civ.P. 12(b)(1). The Court must dismiss any case over which it lacks subject-matter jurisdiction. Fed.R.Civ.P. 12(h)(3).

         A motion to dismiss for lack of subject-matter jurisdiction under Rule 12(b)(1) may be either “facial” or “factual.” See Safe Air for Everyone, 373 F.3d at 1039. A facial attack on subject-matter jurisdiction is based on the assertion that the allegations contained in the complaint are insufficient to invoke federal jurisdiction. Id. “A jurisdictional challenge is factual where ‘the challenger disputes the truth of the allegations that, by themselves, would otherwise invoke federal jurisdiction.'” Pride v. Correa, 719 F.3d 1130, 1133 n.6 (9th Cir. 2013) (quoting Safe Air for Everyone, 373 F.3d at 1039)). When a defendant factually challenges the plaintiff's assertion of jurisdiction, a court does not presume the truthfulness of the plaintiff's allegations and may consider evidence extrinsic to the complaint. See Terenkian v. Republic of Iraq, 694 F.3d 1122, 1131 (9th Cir. 2012); Robinson, 586 F.3d at 685; Safe Air for Everyone, 373 F.3d at 1039. A factual challenge “can attack the substance of a complaint's jurisdictional allegations despite their formal sufficiency.” Dreier v. United States, 106 F.3d 844, 847 (9th Cir. 1996) (citation and quotation marks omitted).

         C. Motion to Dismiss Under Rule 12(b)(6)

         Lack of statutory standing requires dismissal for failure to state a claim. See Maya, 658 F.3d at 1067. A motion to dismiss for failure to state a claim may be granted only when there is no cognizable legal theory to support the claim or when the complaint lacks sufficient factual allegations to state a facially plausible claim for relief. Shroyer v. New Cingular Wireless Servs., Inc., 622 F.3d 1035, 1041 (9th Cir. 2010). In evaluating the sufficiency of a complaint's factual allegations, the court must accept as true all well-pleaded material facts alleged in the complaint and construe them in the light most favorable to the non-moving party. Wilson v. Hewlett-Packard Co., 668 F.3d 1136, 1140 (9th Cir. 2012); Daniels-Hall v. Nat'l Educ. Ass'n, 629 F.3d 992, 998 (9th Cir. 2010). To be entitled to a presumption of truth, allegations in a complaint “may not simply recite the elements of a cause of action, but must contain sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively.” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011). All reasonable inferences from the factual allegations must be drawn in favor of the plaintiff. Newcal Indus., Inc. v. Ikon Office Sol., 513 F.3d 1038, 1043 n.2 (9th Cir. 2008). The court need not, however, credit the plaintiff's legal conclusions that are couched as factual allegations. Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009).

         A complaint must contain sufficient factual allegations to “plausibly suggest an entitlement to relief, such that it is not unfair to require the opposing party to be subjected to the expense of discovery and continued litigation.” Starr, 652 F.3d at 1216. “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)).

         D. Mootness

         A federal court does not have jurisdiction “to give opinions upon moot questions or abstract propositions, or to declare principles or rules of law which cannot affect the matter in issue in the case before it.” Church of Scientology of Cal. v. United States, 506 U.S. 9, 12 (1992) (quoting Mills v. Green, 159 U.S. 651, 653 (1895)). “A claim is moot if it has lost its character as a present, live controversy.” Rosemere Neighborhood Ass'n v. U.S. Envtl. Prot. Agency, 581 F.3d 1169, 1172-73 (9th Cir. 2009) (quoting Am. Rivers v. Nat'l Marine Fisheries Serv., 126 F.3d 1118, 1123 (9th Cir. 1997)). To determine mootness, “the question is not whether the precise relief sought at the time the application for an injunction was filed is still available. The question is whether there can be any effective relief.” Nw. Envtl. Def. Ctr. v. Gordon, 849 F.2d 1241, 1244-45 (9th Cir. 1988) (quoting Garcia v. Lawn, 805 F.2d 1400, 1403 (9th Cir. 1986)) (emphasis in original). If a course of action is mostly completed but modifications can be made that could alleviate the harm suffered by the plaintiff's injury, the issue is not moot. Tyler v. Cuomo, 236 F.3d 1124, 1137 (9th Cir. 2000). A case becomes moot “only when it is impossible for a court to grant any effectual relief whatever to the prevailing party.” Chafin v. Chafin, 133 S.Ct. 1017, 1023 (2013) (emphasis added) (citation omitted). The party alleging mootness bears a “heavy burden” to establish that a court can provide no effective relief. Karuk Tribe of Cal. v. U.S. Forest Serv., 681 F.3d 1006, 1017 (9th Cir. 2012) (quoting Forest Guardians v. Johanns, 450 F.3d 455, 461 (9th Cir. 2006)).

         “Standing and mootness are similar doctrines: Both require some sort of interest in the case, and both go to whether there is a case or controversy under Article III.” Jackson v. Cal. Dept. of Mental Health, 399 F.3d 1069, 1072 (9th Cir. 2005). The doctrines, however, have important differences-standing doctrine ensures that scarce judicial resources are devoted to disputes in which the parties have a concrete stake, and “[m]ootness issues arise later in the case, when the federal courts are already involved and resources have already been devoted to the dispute.” Id. at 1072-73. That is why the Supreme Court recognizes exceptions to mootness that are not allowed as exceptions to standing, such as the exceptions for “voluntary cessation” and “capable of repetition, yet evading review.” See Laidlaw, 528 U.S. at 189-90.


         A. Statutory Background

         Sections 515 and 521 of the Housing Act of 1949 (“Housing Act”), 42 U.S.C. §§ 1485, 1490a, provide for the development of low- and moderate-income housing in rural areas. This program was originally managed by USDA Farmers Home Administration, which was later incorporated into the Rural Housing Service. See Schroeder v. United States, 569 F.3d 956, 958-59 (9th Cir. 2009).

         Under the Housing Act, owners of housing units are given government loans at favorable interest rates and other governmental subsidies in exchange for an agreement to rent units to qualified low-income, elderly, and disabled rural residents for the duration of the loan. Among other things, the housing program allows an “Interest Credit” subsidy, which reduces the interest rate on the loan to an effective rate of one percent. 42 U.S.C. § 1490a(a)(1)(B). Under the Interest Credit subsidy, owners establish a “basic rent” for each unit, which is generally less than the market rate. Residents benefitting from the Interest Credit subsidy pay the higher of 30 percent of their income or the basic rent. 7 C.F.R. § 3560.203(a).

         The housing program also provides a “Rental Assistance” subsidy. This is a subsidy passed through to low and very low income residents as lowered rent. The program allows such tenants to pay no more than 30 percent of their income for rent, regardless of the basic rent amount. 42 U.S.C. § 1490(a)(2)(A). RD enters into agreements with owners specifying the number of units in a development that will receive Rental Assistance. In GE, 19 of the 32 households receive the Rental Assistance subsidy, and the remaining households pay the higher of 30 percent of income or basic rent (the Interest Credit subsidy).

         As originally drafted, property owners who developed rural low income housing had a contractual right to prepay their loans and leave the program, usually after a particular period of time, ending the borrower's obligation to rent to qualified individuals. See Franconia Assocs. v. United States, 536 U.S. 129, 135 (2002); Airport Rd. Assocs., Ltd. v. United States, 120 Fed.Cl. 706, 708 (2015). Concerned that the number of borrowers who were exercising their prepayment option was threatening the goals of the program, in 1979 Congress passed an amendment to the Housing Act that restricted certain prepayments to “to stem the loss of low-cost rural housing due to prepayments.” Franconia, 536 U.S. at 135. In 1980, however, Congress again amended the Housing Act to remove any prepayment restrictions from loans made before December 21, 1979. Id. “By 1987, Congress had again become concerned about the dwindling supply of low- and moderate-income rural housing in the face of increasing ...

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