James Grier v. HUD , 797 F.3d 1049 ( 2015 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 4, 2014 Decided July 14, 2015
No. 13-1198
JAMES HARRY GRIER AND MANTUA GARDENS EAST, INC.,
PETITIONERS
v.
UNITED STATES DEPARTMENT OF HOUSING & URBAN
DEVELOPMENT,
RESPONDENT
On Petition for Review of an Order of the
Department of Housing & Urban Development
James A. Bell argued the cause for petitioners. On the
briefs was Jennifer C. Bell.
Imran R. Zaidi, Attorney, U.S. Department of Justice,
argued the cause for respondent. With him on the brief were
Stuart F. Delery, Assistant Attorney General, and Michael Jay
Singer, Attorney.
Before: BROWN, Circuit Judge, and WILLIAMS and
SENTELLE, Senior Circuit Judges.
Opinion for the Court filed by Senior Circuit Judge
SENTELLE.
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SENTELLE, Senior Circuit Judge: Petitioners were found
liable by an Administrative Law Judge for violations of laws
governing programs administered by the U.S. Department of
Housing and Urban Development. The ALJ imposed penalties.
The petitioners appealed to the Secretary of HUD. The
Secretary upheld the ALJ’s liability determinations but imposed
higher penalty amounts. In petitioning this court for review,
petitioners contend that the Secretary’s liability determinations
and penalty amounts are arbitrary, capricious, and not supported
by substantial evidence. For the reasons stated below, we deny
the petition for review.
I. Background
This case concerns two programs of the U.S. Department of
Housing and Urban Development (HUD). One is the Section
236 program of the National Housing Act, 12 U.S.C. § 1715z-1,
pursuant to which the Federal Housing Administration (FHA)
insures loans to private developers in exchange for their
commitment to provide low-income housing. As part of the
Section 236 program, HUD also provides interest-reduction
payments to FHA-approved mortgagees on behalf of the
mortgagors. In exchange for these benefits, the mortgagor
executes a Regulatory Agreement that requires the mortgagor to
operate the project in accordance with various programmatic and
contractual obligations. The second program is the Section 8
Housing Choice Voucher Program of the United States Housing
Act, 42 U.S.C. § 1437f. Pursuant to Section 8, HUD subsidizes
low-income tenants’ rents by making rental subsidy payments
to participating project owners on behalf of those tenants. In
exchange for this financial assistance, project owners execute a
Housing Assistance Payment (HAP) contract that requires, inter
alia, owners to provide HUD and affected tenants at least one
year’s notice before terminating the contract.
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Mantua Gardens East Project (“Mantua Project”) is a 52-
unit housing complex located in Philadelphia. The complex is
owned by petitioner Mantua Gardens East, Inc. (“Mantua
Gardens”), whose president and board chairman is petitioner
James Grier (“Grier”). In 1970, Mantua Gardens obtained a
mortgage from Firstrust Bank (“Firstrust”), an FHA-approved
lender. The mortgage was secured as part of HUD’s Section
236 program. The maturity date was May 1, 2012. Mantua
Gardens entered into a Regulatory Agreement with HUD to
ensure Mantua Gardens would provide and maintain affordable
housing. Subsequently, in 1983, Mantua Gardens entered into
a Section 8 HAP contract with HUD.
In January 2008, Grier sent a letter to Firstrust requesting
that the bank deposit $325,000 from Mantua Gardens’ reserve
account into an account at Wachovia Bank. The next month,
Grier formed Mantua Gardens East, LLC. Mantua Gardens
East, LLC, subsequently secured a loan from Wachovia, using
the $325,000 deposited in January as collateral. Grier, acting as
managing member of Mantua Gardens East, LLC, then used the
loan to send a check to Firstrust “in full payment” of the original
1970 mortgage. In 2011, apparently believing that HUD
statutory and regulatory requirements now no longer pertained
to the Mantua Project because of the mortgage transfer, Mantua
Gardens and Grier issued a notice to all of their subsidized
tenants stating that they would have to sign new leases and pay
new rents. Soon thereafter, Mantua Gardens and Grier began
issuing vacate notices to subsidized tenants.
In 2012 HUD filed a complaint with its Office of Hearing
and Appeals against Mantua Gardens and Grier. The complaint
sought civil money penalties for violations of the provisions
governing Section 236 and Section 8 programs, in particular
concerning the new leases and rent notices as well as the notices
to vacate. The complaint sought $212,500 against Mantua
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Gardens and Grier jointly and severally, for violation of the
requirements of the Section 236 program, and $1,260,000 solely
against Mantua Gardens for violation of the requirements of the
Section 8 program. In 2013, the Administrative Law Judge
assigned to the case found Mantua Gardens and Grier liable for
violating their HUD statutory, regulatory, and contractual
obligations. In re Mantua Gardens East, Inc., HUDALJ 12-F-
043-CMP-3, 2013 WL 663168 (Feb. 1, 2013). The ALJ found
that Mantua Gardens and Grier deserved the maximum
penalties, resulting in total liability of $262,500 jointly and
severally, and $2,325,000 for Mantua Gardens. However, the
ALJ observed that the governing regulations provided for
consideration of “ability to pay” in the determination of penalty
amounts. Id. at 11; see 24 C.F.R. § 30.80(c). After considering
that regulatory factor, the ALJ determined that Mantua Gardens,
instead of $2,325,000, could reasonably pay a penalty of only
$450,000. Mantua Gardens, 2013 WL 663168, at *19-20. The
ALJ also determined that under another regulatory factor, “such
other matters as justice may require,” 25 C.F.R. § 30.80(j), HUD
had conducted its penalty analysis in bad faith, i.e., HUD’s
motivation was to bankrupt Mantua Gardens and Grier, Mantua
Gardens, 2013 WL 663168, at *21. The ALJ consequently
reduced both the $262,500 penalty and the $450,000 penalty by
25%, resulting in final penalties of $196,875 jointly and
severally, and $337,500 for Mantua Gardens. Id. at *22.
The government filed an appeal of the ALJ’s penalty
determination. Petitioners filed a cross-appeal of the ALJ’s
liability determinations. The appeal was made to the Secretary
of HUD. Pursuant to 24 C.F.R. § 26.52(k), the Secretary may
“affirm, modify, reduce, reverse, compromise, remand, or settle
any relief granted in the initial decision.” The Secretary issued
a decision upholding the liability determinations but modifying
the penalty amounts. In re Mantua Gardens, Inc., HUDALJ 12-
F-043-CMP-3 (May 28, 2013) (hereinafter “Sec’y’s Op.”),
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Supp. JA 1. First, the Secretary vacated the ALJ’s reduction of
the joint and several penalty, restoring it to $262,500 as
originally imposed by the ALJ. Second, the Secretary vacated
the ALJ’s reductions of Mantua Gardens’ penalty, restoring it to
the amount proposed by the government, $1,260,000.
Mantua Gardens and Grier petition for review of the
Secretary’s decision.
II. Discussion
A. Jurisdiction
Our first task when presented with any case is determining
whether we have jurisdiction. See, e.g., Nat’l Treasury Emp.
Union v. FLRA, 754 F.3d 1031, 1038 (D.C. Cir. 2014) (“The
first and fundamental question we are bound to ask and answer
is whether we have jurisdiction to decide [the] petition for
review.” (internal quotation marks and citations omitted)).
Here, HUD questions our jurisdiction. Pursuant to 12 U.S.C.
§ 1735f-15(e), a party seeking judicial review of an order
imposing civil money penalties must file a petition in the
appropriate court of appeals “within 20 days after the entry of
such order or determination.” The statute does not otherwise
define “entry,” its meaning is not self-evident, and we have had
no occasion to address the issue. HUD argues that here we
should consider the date of entry to be the date of the Secretary’s
order imposing civil money penalties, May 28, 2013. HUD
further argues that the 20-day period for filing a petition for
review expired on June 17, 2013. Since the petitioners did not
file their petition until one day later, i.e., June 18, 2013, HUD
contends that the petition was late and therefore this court lacks
jurisdiction to review it. See Bowles v. Russell, 551 U.S. 205,
209 (2007) (“the taking of an appeal within the prescribed time
limit is mandatory and jurisdictional.”) (internal quotation marks
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and citations omitted). While we note that “Bowles did not hold
categorically that every deadline for seeking judicial review and
civil litigation is jurisdictional,” Henderson v. Shinseki, 562 U.S.
428, 436 (2011), we will assume arguendo that it is under this
statute, as in the end it matters not at all, as we would have
jurisdiction even applying that theory.
In response, petitioners point to the date on the Certificate
of Service*, May 29, 2013, i.e., one day after the date of the
Secretary’s order. They argue that this date should be the date
on which the “entry” of the Secretary’s order was made, and
consequently the petition for review was timely filed. In support
of their position, petitioners cite our decision in Energy Probe
v. U.S. Nuclear Regulatory Comm’n, 872 F.2d 436 (D.C. Cir.
1989). In that case, we noted that pursuant to the Hobbs Act, 28
U.S.C. § 2341 et seq., a party may appeal a final order of the
Nuclear Regulatory Commission (NRC) within 60 days of the
“entry” of the final order. We held that under the Hobbs Act,
“the date of ‘entry’ . . . is the date on which the agency’s final
decision is signed and served.” 872 F.2d at 438 (emphasis
added). Petitioners argue that in this case, although the order
itself was signed on May 28, 2013, the date they were “served”
was the date of the Certificate of Service, i.e., May 29, 2013,
and consequently that date should be the date on which the 20-
day time limit commenced.
HUD, in support of its contrary argument that the date of
“entry” here should be the date of the Secretary’s order, and not
the date of the Certificate of Service, relies on an Eighth Circuit
case, U.S. Dep’t of Agric. v. Kelly, 38 F.3d 999 (8th Cir. 1994).
Kelly involved an order of the Secretary of the USDA issued
*
The Certificate of Service was not included in any
submissions to the court. At oral argument the parties agreed that the
date on the Certificate of Service was May 29, 2013.
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pursuant to the Horse Protection Act, 15 U.S.C. § 1821 et seq.
The Secretary’s order was dated a day earlier than the order was
mailed/served. If the date commencing the time limit of the
notice of appeal was the date of the order, then Kelly’s appeal
was untimely; if instead the date of commencement was the next
day, when the order was mailed/served, then the appeal was
timely. Kelly argued that the court should follow our decision
in Energy Probe and use the date of service as the
commencement date. The Eighth Circuit rejected that argument,
noting that the Horse Protection Act was clear on its face that an
appeal must be filed “‘within 30 days from the date of such
order.’” Kelly, 38 F.3d at 1001 (quoting 15 U.S.C. § 1825(b)(2))
(emphasis added). The court consequently held that under the
Horse Protection Act the commencement time limit for filing an
appeal “begins on the date of the order, not the date on which
service is mailed.” Id. at 1002. HUD argues that likewise here
the date of the Secretary’s order should be the date on which the
20-day time limit for filing an appeal begins.
We do not find HUD’s argument persuasive. First, we do
not consider Kelly helpful. In that case, the statute specifically
referred to the date of the order as the date for commencing the
filing-of-an-appeal time limit. Here, the statute refers only to
the “entry” of the order. The order date and the day entry of the
order is made may be one and the same, but not necessarily.
Second, HUD’s contention that “entry” occurs when the order
is signed is untenable as it would permit an agency to shorten a
would-be petitioner’s review period by delaying service of a
signed order. Instead, we find helpful our holding in Energy
Probe. In that case the relevant document was signed on a
certain date and stamped “served.” 872 F.2d at 437. As noted
above, we held that under the Hobbs Act the date of “entry” “is
the date on which the agency’s final decision is signed and
served.” Id. at 438. In the present case, the agency’s final
decision was not “signed and served” until the certificate of
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service on May 29. Following the clear guidance of Energy
Probe, we hold that Petitioners’ petition filed on June 18, 2003,
was therefore within the 20-day time limit which commenced on
May 29, 2013, the date of the Certificate of Service. Therefore,
this petition is within our jurisdiction.
B. Standard of Review
We may set aside the Secretary’s decision only if it is not
supported by substantial evidence or if it is “arbitrary,
capricious, an abuse of discretion, or otherwise not in
accordance with law.” 5 U.S.C. § 706(2)(A) and (E).
C. Merits
1. Liability for Section 8 Violations
Pursuant to HAP and statutory requirements, a property
owner may not, inter alia, increase Section 8 tenants’ rents
without giving those tenants and HUD one year’s notice of the
proposed termination of a HAP contract. Nevertheless, in
September 2011, Mantua Gardens sent notices to all of its
Section 8 tenants informing them that they would have to sign
new leases and pay new rents. No notice was given to either
HUD or the tenants of any proposal to terminate the HAP
contract. The ALJ and the Secretary found that this conduct by
Mantua Gardens violated 42 U.S.C. § 1437f(c)(8)(B), and
imposed penalties. Mantua Gardens argues, as it did before the
agency, that at the time of its alleged violations of the Section 8
program, there was no HAP contract in place to violate because
the contract had expired and had not yet been replaced with a
new contract. Mantua Gardens asserts that consequently the
Secretary’s finding of liability for violations of the Section 8
program was arbitrary and capricious and not supported by
substantial evidence. But as the Secretary explained, not only
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is the prohibition on raising rents before notice is given a
contractual obligation in the HAP contract, it is also a statutory
requirement, see 42 U.S.C. § 1437f(c)(8)(B), that Mantua
Gardens was obligated to follow as a Section 8 property owner.
Mantua Gardens violated this obligation, and Mantua Gardens
has given us no reason to disturb the Secretary’s finding of
Section 8 violations by Mantua Gardens.
2. Penalty for Section 8 Violations
In its Complaint, HUD sought $1,260,000 against Mantua
Gardens for its Section 8 violations. After finding that Mantua
Gardens violated the requirements of the Section 8 program, the
ALJ initially concluded that the penalty should be $2,325,000.
Mantua Gardens, 2013 WL 663168, at *20. But after
considering the “ability to pay” factor set forth in 24 C.F.R.
§ 30.80 as a requirement to be considered when determining a
penalty amount, the ALJ reduced the penalty to $450,000. This
amount, according to the ALJ, was the most Mantua Gardens
could reasonably be expected to pay and still stay in business.
The ALJ noted that Mantua Gardens introduced no evidence to
show the lack of an ability to pay the higher penalty amount. Id.at *19–*20. The Secretary reversed the ALJ’s penalty
reduction, imposing instead the original amount sought by HUD,
$1,260,000. Pursuant to 24 C.F.R. §§ 30.75(b) and 30.80(c), the
Secretary explained, the ability to pay a penalty is presumed
unless it is raised as an affirmative defense and documentary
evidence is provided. The Secretary noted that in this instance
no evidence was presented showing Mantua Gardens’ ability to
pay any penalty amount. Sec’y’s Op. at 8–9, Supp. JA 8–9.
Mantua Gardens argues that the Secretary’s reversal of the
ALJ’s $450,000 penalty was arbitrary and capricious and not
supported by substantial evidence. According to Mantua
Gardens, its financial health and inability to pay the $1,260,000
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penalty requested by HUD was known to all parties and
decision-makers. It was clear from the evidence, Mantua
Gardens argues, that it did not have money, did not have
sufficient income, and did not have the ability to borrow. But in
fact the ALJ found that Mantua Gardens introduced no evidence
whatsoever to substantiate its claim of financial vulnerability.
Mantua Gardens, 2013 WL 663168, at *19. As the Secretary
noted, under the regulations an ability to pay is presumed unless
a party raises it as an affirmative defense and provides
documentary evidence. Sec’y’s Op. at 8–9, Supp. JA 8–9.
Since Mantua Gardens presented nothing to suggest that it could
not pay HUD’s requested penalty, we have no basis to disturb
the Secretary’s decision.
3. Liability for Section 236 Violations
In January 2008, Grier requested that Firstrust, mortgagee
of the property, deposit $325,000 from Mantua Gardens’ reserve
account into an account at Wachovia Bank. The next month,
Grier formed Mantua Gardens East, LLC. Mantua Gardens
East, LLC, then secured a loan from Wachovia Bank, using the
$325,000 deposited in January as collateral. Grier, acting as
managing member of Mantua Gardens East, LLC, subsequently
used the loan to send a check to Firstrust “in full payment” of
the original mortgage. Apparently Grier believed that HUD
statutory and regulatory requirements no longer pertained to the
Mantua Project, and proceeded accordingly. Because of Grier’s
actions, HUD in its Complaint charged Grier and Mantua
Gardens with encumbering the rents of the property via the loan
with Wachovia; encumbering the project’s real property via the
same Wachovia loan; withdrawing money from the project’s
reserve fund without HUD’s permission; firing the project
manager without HUD’s approval; and failing to provide HUD
adequate financial disclosure reports for the project. The ALJ
found that Grier and Mantua Gardens committed these
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violations, and the Secretary agreed. See Mantua Gardens, 2013
WL 663168, at *11–*16; Sec’y’s Op. at 3–8, Supp. JA 3–8.
Mantua Gardens and Grier argue that the Secretary’s
finding of liability for violations of the Section 236 program was
arbitrary and capricious and not supported by substantial
evidence. They claim that no violations by them can be found
after February 25, 2008, because that was the date on which the
mortgage on Mantua Gardens was purchased from Firstrust by
Mantua Gardens East, LLC. Mantua Gardens East is not an
FHA-approved mortgagee. By transferring the mortgage to
Mantua Gardens East, LLC, Mantua Gardens and Grier argue,
the mortgage ceased to be insured, co-insured, or held pursuant
to the Regulatory Agreement, and therefore liability for
violations of the Agreement could no longer attach. Mantua
Gardens and Grier further contend that no violations of the
Regulatory Agreement by them can be found prior to February
25, 2008, because the transfer of the reserve funds from Firstrust
to Wachovia was tacitly approved by Firstrust, and Firstrust had
full knowledge that Mantua Gardens intended to use some of
that money as collateral for a loan. Noting that Firstrust is an
FHA-approved mortgagee subject to HUD oversight and
responsible for ensuring compliance with FHA requirements,
Mantua Gardens and Grier argue that if anybody is at fault it is
Firstrust.
We disagree. The Secretary’s decision noted that although
the premature cancellation of an insurance contract can be
accomplished by prepayment (as Grier and Mantua Gardens
attempted here), the Secretary must make a determination that,
inter alia, the project no longer meets the housing needs of
lower income families. See 24 C.F.R. § 207.253, 207.253a; 12
U.S.C. § 1715z-15. The Secretary determined that here no
request was made for Secretarial approval of a prepayment, and
therefore no cancellation of the agreement occurred. Sec’y’s
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Op. at 4–5, Supp. JA 4–5. We again have no basis to disturb the
Secretary’s determination.
4. Penalty Reductions for Section 236 and Section 8
Violations
After determining that the penalty for Section 8 violations
was to be $450,000 and the penalty for Section 236 violations
$262,500, the ALJ then reduced both penalties by 25%, to
$337,500 and $196,875, respectively. Mantua Gardens, 2013
WL 663168, at *22. In making these reductions the ALJ
explained that, pursuant to 24 C.F.R. § 30.80, in determining a
penalty amount he must weigh, inter alia, the factor of “[s]uch
other matters as justice may require.” In this case, the ALJ
stated, testimony from a HUD official showed that HUD had
chosen its requested penalty amount of $1,260,000 for the
Section 8 violations in an attempt to bankrupt Grier and Mantua
Gardens. Id. at *11. Consequently, according to the ALJ, HUD
had conducted its penalty analysis in bad faith, and justice
required the penalty reductions. Id. The Secretary, however,
vacated the ALJ’s 25% reductions, determining that the ALJ
misinterpreted the testimony of the HUD official as suggesting
that HUD had set out to bankrupt Mantua Gardens and Grier. In
the Secretary’s view the testimony was not an indication that
HUD sought to bankrupt Grier and Mantua Gardens, but instead
showed that HUD used the “ability to pay” factor to actually
reduce the penalty amount it would be requesting. Sec’y’s Op.
at 11–13, Supp. JA 11–13. While the ALJ expressed reliance on
the entire testimony of the witness, he apparently was
specifically interpreting the witness’s statement that:
I think where we came from it was looking at, “Well, what
is the property worth?” and the combined amount for the
HAP contracts is about what the property may be worth.
The idea might be that it would be appropriate to force the
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sale of the property from [petitioners] to another nonprofit
to run it in a way that is in accordance with our
requirements.
Mantua Gardens, 2013 WL 663168, at *11. The ALJ
interpreted this testimony as establishing that HUD had
“identified 1.5 million as the proverbial ‘knockout blow,’” and
therefore, “the Government’s initial request of a 1.6 million
penalty cannot be considered a ‘mere coincidence.’” Id.Mantua Gardens and Grier argue that there is no factual
support in the record providing adequate valid reasons to
support the Secretary’s vacation of the ALJ’s 25% reductions.
According to them, the ALJ’s decision to reduce the penalties by
25% turned on his assessment of witness credibility based on his
observation of the testimony. The Secretary, they argue, never
explains why the ALJ’s opportunity to see the witnesses, to hear
them testify, and to observe their demeanor, does not “put the
ALJ in the cat bird seat with respect to divining truth.” Pet’rs’
Br. 25. They cite Aylett v. Sec’y of HUD, 54 F.3d 1560, 1566-67
(10th Cir. 1995), for the proposition that the Secretary’s decision
is subject to “heightened scrutiny” where the Secretary has
rejected the ALJ’s credibility findings.
We do not find Aylett helpful. That case involved witness
credibility determinations, and we agree with HUD that here the
ALJ’s finding of bad faith on the part of HUD was based, not on
the ALJ’s determination of witness credibility, but on the ALJ’s
misinterpretation of the testimony of the HUD official. The
Secretary and the ALJ did not disagree about the credibility of
the HUD official’s testimony, but rather the meaning of the
testimony. The Secretary’s reversal of the ALJ’s bad faith
finding was based on an interpretation and weight of the
evidence. On these points the Secretary owed the ALJ no
deference, and given the Secretary’s broad discretion, the
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Secretary properly determined that HUD conducted an
appropriate penalty analysis.
III. Conclusion
The petition for review is denied.