City of Joliet v. New West ( 2019 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 18-1787
CITY OF JOLIET, ILLINOIS,
Plaintiff-Appellee,
v.
NEW WEST, L.P., AND NEW BLUFF, L.P.,
Defendants-Appellants.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 05 C 6746 — Charles R. Norgle, Judge.
____________________
ARGUED FEBRUARY 21, 2019 — DECIDED APRIL 18, 2019
____________________
Before EASTERBROOK, SYKES, and BARRETT, Circuit Judges.
EASTERBROOK, Circuit Judge. This appeal is New West V in
a saga that began in 2005 when Joliet proposed to condemn
and raze the Evergreen Terrace apartments as a public nui-
sance. By 2017 the district court had held that Joliet is enti-
tled to condemn the buildings, had set just compensation at
about $15 million, and had held that New West cannot ob-
tain relief against the City under federal housing-
discrimination statutes. New West, L.P. v. Joliet, 891 F.3d 271
2 No. 18-1787
(7th Cir. 2018) (New West IV), affirms the last of those deci-
sions, and we supposed that the litigation was over.
Back in the district court, however, the parties disputed
the status of a reserve fund, worth about $2.8 million, that
the Department of Housing and Urban Development held to
provide for the needs of the federally subsidized apartment
complex. The City asked the judge to order HUD to transfer
these funds to an account for Joliet’s benefit. New West op-
posed this motion, contending that the money in the reserve
fund came from rents to which it was entitled by contract
with HUD and that, once it no longer had responsibility for
the apartment buildings, HUD must write it a check.
The district court recognized that the status of the reserve
fund had not been part of either the City’s condemnation
proceeding or New West’s housing-discrimination suit.
Nonetheless, the court proceeded to resolve the motion on
the merits. It rejected New West’s claim of ownership, con-
cluded that the fund should accompany the buildings, and
ordered: “Defendants shall deposit the Reserves in an ac-
count or accounts designated by Joliet for the benefit of the
Properties, as determined by HUD.” New West asked the
judge to reconsider, but he declined.
The judge did not say much about why he came to this
conclusion. And an order requiring “[d]efendants” to trans-
fer the money is anomalous, for the defendants are New
West and its fraternal business New Bluff. They lack ability
to transfer the money to themselves or anyone else. HUD
controls the reserve fund and is the only entity that can use
(or direct its use) for the benefit of Joliet or disburse it to
New West. But HUD was dismissed as a party in 2013. As
part of a sellement that year, HUD agreed that it could be
No. 18-1787 3
reinstated as a party if necessary to resolve a dispute about
the reserves. But that was not done. HUD was not a party
when the district court acted and is not a party now, so the
district court lacked authority to issue orders requiring HUD
to do anything. The orders appealed from are ineffectual.
Instead of prolonging this condemnation suit, which
reached its end in 2016, when Joliet v. New West, L.P., 825
F.3d 827 (7th Cir. 2016) (New West III), affirmed the award of
compensation, and the Supreme Court declined to review
our decision, 137 S. Ct. 518 (2016), New West needs to file a
new action in which it is the plaintiff and HUD is the de-
fendant. It is improper to keep adding issues to a condemna-
tion suit that has been resolved. (New West, rather than Jo-
liet, would be the proper plaintiff, because HUD is currently
administering the reserve for the City’s benefit.)
One natural place for a new suit would be the Court of
Federal Claims. New West contends that it owns the reserve
fund as a result of contracts between itself and HUD, read in
light of regulations that (New West believes) require release
of the funds if the subsidized parcel is sold. In other words,
New West wants a court to order the federal government to
pay it a sum of money. The Tucker Act, 28 U.S.C. §1491,
waives sovereign immunity for contract claims, provided
that the litigation occurs in the Court of Federal Claims.
Contrast 28 U.S.C. §1346(a)(2) (the “Lille Tucker Act,” which
permits contract suits seeking $10,000 or less to proceed in
district courts).
Until oral argument of this appeal the litigants, the dis-
trict judge, and HUD (appearing as amicus curiae) all had ig-
nored the Tucker Act. Indeed, they had ignored the fact that
HUD is not a party and that the district court’s directive to
4 No. 18-1787
“[d]efendants” ordered the impossible. We asked the parties,
plus HUD, to file supplemental memoranda addressing
these subjects. HUD and New West both replied that 42
U.S.C. §1404a permits litigation about the reserves to occur
in the district court, in a newly filed suit against HUD. This
is not as clear to us as it is to the parties.
Section 1404a permits HUD to “sue and be sued … with
respect to its functions under the United States Housing Act
of 1937”. According to New West, the status of the reserve
fund is a “function[] under the United States Housing Act of
1937”. Yet New West principally relies on its housing-
subsidy contract with HUD, not on the terms of any statute.
Indeed, at oral argument counsel for all sides represented
that the statute does not resolve this dispute.
But 12 U.S.C. §1702, which the parties’ supplemental
briefs do not mention, appears to cover the subject. It pro-
vides that “[t]he Secretary shall, in carrying out the provi-
sions of [several subchapters of the National Housing Act],
be authorized, in his official capacity, to sue and be sued in
any court of competent jurisdiction, State or Federal.” FHA v.
Burr, 309 U.S. 242 (1940), holds that this statute must receive
a generous construction and provides that the FHA (which is
now part of HUD) may be sued to the same extent as a pri-
vate enterprise, when the topic of the suit comes within one
of the listed subchapters and the money to satisfy the judg-
ment will come from funds within the FHA’s control. The
statute behind the mortgage insurance provided to New
West, 12 U.S.C. §1715l, is within one of these chapters, and
HUD controls the reserve fund, so New West’s claim to that
fund, whether based on contract, regulation, or statute,
comes within the waiver in §1702. See, e.g., Merrill Tenant
No. 18-1787 5
Council v. HUD, 638 F.2d 1086 (7th Cir. 1981); Selden Apart-
ments v. HUD, 785 F.2d 152, 156–57 (6th Cir. 1986) (collecting
authority). One decision, United States v. Adams, 634 F.3d
1261, 1265 (10th Cir. 1980), might be seen as contrary, but it
is incompatible with Merrill and does not reflect this circuit’s
understanding of §1702.
New West thus has a choice: the district court or the
Court of Federal Claims. It cannot pursue both options at
once, however. See 28 U.S.C. §1500; United States v. Tonoho
O’odham Nation, 563 U.S. 307 (2011). In either forum, the
judge should start from scratch, disregarding the missteps in
the condemnation suit. We have nothing to say here about
the merits of that dispute, which must receive a proper air-
ing before it is resolved on appeal—and if the suit proceeds
in the Court of Federal Claims, final decision on the merits
belongs to the Federal Circuit rather than to us.
The district court’s decision is vacated.