PF Sunset Plaza, LLC v. HUD ( 2023 )


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  •  United States Court of Appeals
    FOR THE DISTRICT OF COLUMBIA CIRCUIT
    Argued October 20, 2022        Decided February 17, 2023
    No. 21-1212
    PF SUNSET PLAZA, LLC,
    PETITIONER
    v.
    UNITED STATES DEPARTMENT OF HOUSING & URBAN
    DEVELOPMENT,
    RESPONDENT
    No. 21-1228
    PF HOLDINGS, LLC,
    PETITIONER
    v.
    UNITED STATES DEPARTMENT OF HOUSING & URBAN
    DEVELOPMENT,
    RESPONDENT
    2
    On Petitions for Review of Final Orders of the
    Department of Housing & Urban Development
    S. Joshua Kahane argued the cause for petitioners. On the
    briefs was Aubrey B. Greer.
    Sarah J. Clark, Attorney, U.S. Department of Justice,
    argued the cause for respondent. With her on the briefs were
    Brian M. Boynton, Principal Deputy Assistant Attorney
    General, and Abby C. Wright, Attorney.
    Before: PILLARD and CHILDS, Circuit Judges, and
    SENTELLE , Senior Circuit Judge.
    Opinion for the Court filed by Senior Circuit Judge
    SENTELLE .
    SENTELLE , Senior Circuit Judge: Petitioners PF Sunset
    Plaza, LLC (“Sunset Plaza”) and PF Holdings, LLC
    (“Holdings”) were each assessed monetary penalties by the
    Department of Housing and Urban Development (“HUD”) for
    violations of their duty to provide “decent, safe, and sanitary
    housing” to low-income families under Section 8. 42 U.S.C.
    § 1437z-1(b)(2); see 
    24 C.F.R. § 5.703
    . Petitioners now
    petition to reverse ALJ decisions dismissing these HUD
    enforcement actions against them for lack of subject matter
    jurisdiction. See In the Matter of PF Sunset Plaza LLC, Case
    No. 21-AF-0131-CM-006 (HUD Office of Hearings &
    Appeals Oct. 7, 2021) (Fernández-Pons, A.L.J.) (order
    dismissing action against Sunset Plaza); In the Matter of
    Ralston GA LLC, Case No. 21-JM-0180-CM-007 (HUD Office
    of Hearings & Appeals Oct. 25, 2021) (Mahoney, C.A.L.J.)
    3
    (order dismissing action against Holdings). Petitioners oppose
    the dismissals because they leave the penalties undisturbed. On
    March 1, 2022, this Court consolidated the two cases for oral
    argument. For the reasons explained below, we deny both
    petitions.
    I. Background
    These cases present similar factual backgrounds, as
    both Petitioners are Section 8 housing owners, or alleged
    identity-of-interest managers, against which HUD assessed
    penalties for alleged statutory violations.
    a. Sunset Plaza
    In the case of Sunset Plaza, HUD inspected Petitioner’s
    property at Sunset Plaza Apartments in Tulsa, Oklahoma in late
    2019. It there found violations of Sunset Plaza’s duty to
    provide low-income housing in “decent, safe, sanitary and . . .
    good repair” in ten different units. 
    24 C.F.R. § 5.703
    ; see also
    42 U.S.C. §§ 1437f, 1437z-1(b)(2). The violations also
    breached Sunset Plaza’s Housing Assistance Payment contract
    with HUD.
    HUD subsequently issued a pre-penalty notice to
    Sunset Plaza in March 2020. It stated that HUD was
    considering imposing civil money penalties and that Sunset
    Plaza had thirty days to respond to the accusations within.
    Sunset Plaza, via counsel, requested several extensions to this
    deadline in light of the developing COVID-19 pandemic.
    However, Sunset Plaza failed to respond or to ask for an
    extension by the last deadline HUD gave of August 2020.
    Sunset Plaza finally responded to the pre-penalty notice on
    March 24, 2021. On April 26, 2021, HUD filed a Complaint
    against Sunset Plaza seeking $391,210.00 in civil money
    4
    penalties, the statutory maximum of $39,121.00 for each of the
    ten violations. The Complaint contained a statement, as
    regulatorily required, that Sunset Plaza had the opportunity to
    request a hearing within fifteen days of receipt of the
    Complaint and should answer the Complaint within thirty days.
    The Complaint made clear that the mandatory fifteen-day
    period for requesting a hearing could not be extended. If Sunset
    Plaza did not respond, HUD could assess penalties against
    Sunset Plaza. Sunset Plaza did not request a hearing within
    fifteen days.
    b. Holdings
    The facts of PF Holdings follow a similar trajectory. In
    November 2019, HUD inspected a Section 8 property in
    Columbus, Georgia and found significant violations of the
    statutory requirement for safe housing in fifteen different units.
    While Holdings neither owns nor contracted with HUD for the
    subject property, HUD identified Holdings as an “identity-of-
    interest” manager of the property. Under the statute, HUD may
    impose penalties for Section 8 housing violations not only upon
    owners of properties, but also upon “any agent employed to
    manage the property that has an identity of interest with the
    owner or the general partner of a partnership owner of the
    property.” 42 U.S.C. § 1437z-1(b)(1)(C). The statute defines
    an “identity-of-interest” manager as “an entity . . . (A) that has
    management responsibility for a project; (B) in which the
    ownership entity, including its general partner or partners (if
    applicable), has an ownership interest; and (C) over which such
    ownership entity exerts effective control.” Id. § 1437z-1(h).
    As in Sunset Plaza, HUD then sent a pre-penalty notice
    to both the owner of the property, Ralston GA LLC (“Ralston
    GA”), and alleged identity-of-interest manager Holdings
    stating its intent to impose civil money penalties for the
    5
    violations. Holdings responded that it neither owned nor
    managed the property and did not own any interest in the entity
    that did. HUD rejected this contention and subsequently filed a
    Complaint against Ralston GA and Holdings on June 24, 2021,
    seeking $586,815.00 in civil money penalties. The Complaint
    alleged that Holdings “served as management agent for the
    Project during the time relevant to [the] Complaint” and that
    two people “directly or indirectly own and control both Ralston
    GA and PF Holdings.” Holdings, Pet. App. 7 (emphasis
    added). The Complaint further alleged that through these two
    people, property owner Ralston GA “has the ability to control
    PF Holdings and has a direct or indirect ownership interest in
    PF Holdings.” Id. As required, the Complaint informed both
    parties of their right to request a hearing within fifteen days of
    receipt of the Complaint. Holdings did not request a hearing
    within fifteen days.
    c. Statutory Scheme
    Congress passed 
    42 U.S.C. § 1437
    , commonly referred
    to as “Section 8,” to “remedy the unsafe housing conditions and
    the acute shortage of decent and safe dwellings for low-income
    families” and “to address the shortage of housing affordable to
    low-income families.” 
    Id.
     § 1437(a)(1)(A)-(B). To that end,
    Congress authorized assistance payments to owners of
    multifamily rental housing who agree via a Housing Assistance
    Payment (“Payment”) contract to abide by the tenets of Section
    8; namely, to provide “decent, safe, and sanitary housing” to
    low-income families. See generally id. § 1437f; 
    24 C.F.R. § 5.703
    . HUD may impose civil money penalties for violations
    of Payment contracts. 42 U.S.C. § 1437z-1(b).
    Indeed, assessing penalties is the main mechanism by
    which HUD enforces the duties owed by Section 8 housing
    owners. After HUD becomes aware through inspection of a
    6
    potential violation at a Section 8 property, it issues a pre-
    penalty notice to the Payment-contracted property owner,
    giving notice of its intent to impose penalties. 
    24 C.F.R. § 30.70
    (a). Then, once the time to respond to the pre-penalty
    notice has elapsed, and if HUD decides to seek a penalty, HUD
    issues a complaint, which it must serve on the property owner,
    now respondent, and simultaneously file with the Appeals
    Office. 
    Id.
     §§ 30.85(b), 30.90(c).
    Next, federal regulations state that “[i]f the respondent
    desires a hearing before an administrative law judge, the
    respondent shall submit a request for a hearing to HUD and the
    Office of Hearings and Appeals no later than 15 days following
    receipt of the complaint, as required by statute. This mandated
    period cannot be extended.” Id. § 30.90(a). Notice of this right
    must be provided to the respondent in the complaint. Id.
    § 30.85(b)(4). “If a hearing is not requested before the
    expiration of the 15-day period beginning on the date on which
    the notice of opportunity for hearing is received, the imposition
    of a penalty under subsection (b) shall constitute a final and
    unappealable determination.” 42 U.S.C. § 1437z-1(c)(2)(A).
    If, however, a respondent requests a hearing, the
    regulations require that the respondent “serve upon HUD and
    file with the Office of Hearings and Appeals a written answer
    to the complaint within 30 days of receipt of the complaint,
    unless such time is extended by the administrative law judge
    for good cause.” 
    24 C.F.R. § 30.90
    (b). If HUD receives no
    response, it can file for default judgment against the
    respondent. 
    Id.
     § 30.90(c).
    7
    d. Failure to Request a Hearing
    As noted above, neither Sunset Plaza nor Holdings
    requested a hearing within fifteen days of their respective
    Complaints.
    In the case of Sunset Plaza, Petitioner also did not
    answer the Complaint within thirty days. In that case, HUD
    filed a motion for default judgment, and the ALJ entered an
    order to show cause. Eight weeks after receiving the
    Complaint, Sunset Plaza then entered a notice of appearance
    and asked the ALJ permission for an extension to respond to
    the Complaint. Without waiting for the ALJ’s decision, Sunset
    Plaza filed its Answer and Affirmative Defenses and a reply
    brief in support of its motion for an extension of time. HUD
    opposed the extension of time, and moved to strike the reply
    brief.
    In the case of Holdings, Petitioner filed its Answer and
    Request for Hearing simultaneously on July 21, 2021,
    approximately one month after HUD issued its Complaint.
    Holdings raised issues of subject matter jurisdiction in its
    Answer, rejecting its label as an “identity-of-interest” manager.
    HUD moved to strike Holdings’ Request for Hearing and
    Answer as untimely and moved for default judgment.
    e. ALJ Decisions
    Sunset Plaza was decided first, and the ALJ dismissed
    for lack of subject matter jurisdiction. He found that the “plain
    language” of 42 U.S.C. § 1437z-1(c)(2)(A) requires that
    HUD’s “proposed penalty . . . becomes ‘final and
    unappealable’ . . . upon the expiration of the 15-day deadline.”
    Sunset Plaza, Pet. App. 127 (quoting 42 U.S.C. § 1437z-
    1(c)(2)(A)). In other words, “the penalty becomes a fait
    8
    accompli once the 15-day deadline has elapsed, meaning that
    the hearing official’s jurisdiction never attaches because there
    is no issue to be decided.” Id. The ALJ acknowledged that
    both he and the parties had not behaved as though the penalty
    were final after the fifteen-day deadline, as he had issued a
    show cause order and the parties had filed other motions after
    that time, including HUD’s motion for default judgment. The
    ALJ also spent a significant portion of his opinion outlining the
    ways in which the regulatory complaint procedure was
    “flawed” and in conflict with both the governing statute and the
    regulations themselves. Id. at 128–130. Nevertheless, he
    ultimately concluded he lacked jurisdiction over Sunset Plaza’s
    case because the penalty had already become final by operation
    of the statute and dismissed the case.
    Following the decision in Sunset Plaza, the ALJ in
    Holdings likewise determined he lacked subject matter
    jurisdiction over the case, as the penalty assessed by HUD
    against Holdings became final and unappealable upon
    expiration of the fifteen-day statutory deadline.
    Sunset Plaza and Holdings appealed to this Court,
    which consolidated oral argument for the two Petitioners.
    II. Discussion
    Despite the rather lengthy background, these cases
    present the same simple question: does the statute operate to
    bar appeal of a civil monetary penalty should a respondent miss
    the fifteen-day deadline to request an administrative hearing?
    The answer is unequivocally yes. The statute says what it
    means and means what it says. See Cuozzo Speed Techs., LLC
    v. Lee, 
    579 U.S. 261
    , 271 (2016) (“Cuozzo”) (“[Petitioner’s
    contention] is not appealable. For one thing, that is what [the
    statute] says.”).
    9
    42 U.S.C. § 1437z-1(c)(2)(A) states that “[i]f a hearing
    is not requested before the expiration of the 15-day period
    beginning on the date on which the notice of opportunity for
    hearing is received, the imposition of a penalty under
    subsection (b) shall constitute a final and unappealable
    determination.” Id. (emphasis added). Congress’s use of the
    word “shall” leaves no room for an ALJ’s discretion. See
    Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach, 
    523 U.S. 26
    , 35 (1998) (“[T]he mandatory ‘shall’ . . . normally
    creates an obligation impervious to judicial discretion.”).
    Contrary to the protestations of Petitioners and the
    Sunset Plaza ALJ, the regulations implementing this statute are
    not inconsistent. HUD’s complaint process proceeds as
    follows: (1) HUD issues a pre-penalty notice warning alleged
    Section 8 violators that it is considering monetary penalties
    under the statute, 
    24 C.F.R. § 30.70
    (a)(1)-(6); (2) HUD issues
    a complaint, which it serves on the respondent and files with
    its Appeals Office, giving notice that respondent has fifteen
    days to request an administrative hearing, 
    id.
     §§ 30.85(b),
    30.90(c); and (3) if fifteen days elapse without a hearing
    request, the penalties assessed in the complaint become final
    and unappealable by operation of law, 42 U.S.C. § 1437z-
    1(c)(2)(A). If respondent does timely request a hearing, then it
    also must file an answer with HUD’s Appeals Office within
    thirty days of the complaint, and the matter proceeds to a
    hearing. 
    24 C.F.R. § 30.90
    (b).
    At the risk of being repetitive, again, if respondent does
    not request a hearing within fifteen days, as was the case for
    both Petitioners here, the penalties assessed against them
    become final and unappealable. If a respondent has nothing to
    appeal, an ALJ has nothing to review. Likewise, the imposition
    of penalties cannot be appealed to this Court, notwithstanding
    10
    the general judicial review provisions cited by Petitioners. See
    12 U.S.C. § 1735f-15(e); 42 U.S.C. § 1437z-1(d).
    Our decision is supported by Supreme Court precedent.
    In Cuozzo, the Supreme Court rejected petitioner’s request for
    judicial review of a decision by the Patent Office. In
    interpreting the statute, the Court held petitioner’s claim was
    “not appealable” because the statute clearly stated that
    “determination by the [Patent Office] whether to institute an
    inter partes review under this section shall be final and
    nonappealable.” Cuozzo, 579 U.S. at 271 (alterations in
    original) (quoting 
    35 U.S.C. § 314
    (d)). As the Court dryly
    noted, concluding petitioner’s claim was not appealable was
    “[f]or one thing . . . what [the statute] says.” 
    Id.
     Such is true
    here. “Final and unappealable” is, for one thing, what the
    statute says. 42 U.S.C. § 1437z-1(c)(2)(A).
    Petitioners’ arguments to the contrary strain credulity.
    Both claim that because the deadline falls under a subheading
    entitled “Final Orders,” a final order from HUD must occur
    before operation of the deadline commences. Petitioners argue
    that HUD’s issuance of a complaint is simply an invitation to
    engage in litigation, not a triggering of the fifteen-day deadline.
    Because HUD issued no final order here, they contest, the
    fifteen-day period never began.
    Petitioners misunderstand the statutory subheading.
    Congress entitled the section “Final Orders” because it
    enumerates two examples of how HUD’s penalties become
    final. See 42 U.S.C. § 1437z-1(c)(2). The other scenario in
    which penalties are finalized, other than a respondent failing to
    request an administrative hearing within fifteen days of
    receiving the complaint, is if the Secretary declines to review a
    determination by HUD within ninety days, making it final. Id.
    § 1437z-1(c)(2)(C). As HUD aptly states, Petitioners’ reading
    11
    of this statutory subheading gets the issue “exactly backwards.”
    Sunset Plaza, Resp. Br. 26.
    Petitioners’ remaining arguments prove similarly
    unavailing. They each claim that the imposition of steep
    financial penalties by operation of a fifteen-day deadline
    produces an “exceedingly unjust result.” Sunset Plaza, Pet. 23;
    Holdings, Pet. 25. But neither develops any kind of ultra vires,
    due process, or other constitutional claim arguing the length of
    the deadline is too short or legally unfair. Therefore, no such
    argument is before us.
    Petitioners also argue that HUD has never before
    considered the operation of the fifteen-day deadline to preclude
    further review by an ALJ, and that the regulations pose internal
    inconsistencies that make them difficult to follow. To the latter
    point, as previously described, the statute and accompanying
    regulations clearly prescribe HUD’s process for issuing pre-
    penalty notices and complaints. More importantly, they are
    absolutely unequivocal about the consequences of missing the
    deadline to request an administrative hearing. That HUD never
    before treated the deadline as rendering a penalty unreviewable
    is of little import, as this case represents the first time an ALJ
    was asked to assess the implications of the missed deadline
    after which respondents filed an answer. See Sunset Plaza, Pet.
    App. 129 n.2.
    Lastly, because we do not rely on the two nonbinding
    cases cited by HUD and to which Petitioners object, including
    Kronholm v. Fed. Deposit Ins. Corp., 
    915 F.2d 1171
     (8th Cir.
    1990) and KPMG Peat Marwick of P.R. v. U.S. Immigr. &
    Naturalization Serv., 
    943 F.2d 91
     (1st Cir. 1991), we need not
    address Petitioners’ remaining arguments on those two cases.
    12
    Petitioner Holdings finally advances one different
    argument from Petitioner Sunset Plaza; namely, that having
    neither owned nor, as it contests, managed the subject property,
    Holdings is not subject to HUD’s jurisdiction to issue penalties.
    To this we respond that Petitioner Holdings was free to make
    this argument at an administrative hearing, had it timely
    requested one. HUD was well aware that Holdings contested
    HUD’s ability to issue penalties against it, as Holdings
    answered the pre-penalty notice denying any identity-of-
    interest manager relationship with the owners of the violator
    property. Despite this, HUD set forth a number of facts in its
    Complaint connecting Holdings to the property as an identity-
    of-interest manager. See Holdings, Pet. App. 1, 7 (“PF
    Holdings served as management agent for the Project during
    the time relevant to this Complaint. . . . Chaim Puretz and Aron
    Puretz directly or indirectly own and control both Ralston GA
    and PF Holdings. . . . Through Chaim Puretz and Aron Puretz,
    Ralston GA has the ability to control PF Holdings and has a
    direct or indirect ownership interest in PF Holdings.”).
    Holdings therefore was on notice that HUD considered it liable
    under the statute and, perhaps more importantly, that it had
    fifteen days to request a hearing to adjudicate its identity-of-
    interest manager dispute. Having missed that crucial deadline,
    the imposition of HUD’s penalties against Holdings has
    become final and unappealable.
    III. Conclusion
    For the foregoing reasons, we deny both petitions. The
    penalties assessed by HUD against Petitioners Sunset Plaza and
    Holdings are final and unappealable.
    

Document Info

Docket Number: 21-1212

Filed Date: 2/17/2023

Precedential Status: Precedential

Modified Date: 2/17/2023