City of Huntington West Virginia v. United States Department of Housing and Urban Development

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
)
CITY OF HUNTINGTON, )
WEST VIRGINIA, )
)
Plaintiff, )
)
v. ) Case No. 19-cv-741 (TSC)
)
U.S. DEPARTMENT OF HOUSING AND )
URBAN DEVELOPMENT, et al., )
)
Defendant. )
)
MEMORANDUM OPINION
Plaintiff, City of Huntington, West Virginia, is a grantee in a federal program administered
by Defendant, the Department of Housing and Urban Development (“HUD”). (ECF No. 1, Compl.
¶ 1.) In October 2017, HUD determined that Plaintiff committed statutory and regulatory violations
and announced that as a result, it would decrease Plaintiff’s access to grant funds (through a credit
reduction) and require Plaintiff to pay back additional funds. (Id. ¶¶ 45–48.) Plaintiff sued under
the Administrative Procedure Act (“APA”), 5 U.S.C. §§ 701, arguing that it was entitled to a
hearing before HUD took these actions, and that HUD’s failure to provide one was arbitrary and
capricious. (Id. ¶¶ 54–67.) The parties have cross-moved for summary judgment. (ECF No. 15,
Def. MSJ; ECF No. 16, Pl. MSJ.) Having reviewed the pleadings, the record before it, and the
applicable law, the court will DENY Defendant’s motion for summary judgment, DENY in part and
GRANT in part Plaintiff’s motion for summary judgment, and remand the matter for adequate
administrative adjudication consistent with the court’s findings.
1
I. BACKGROUND
HUD provides Plaintiff funds through the HOME Investment Partnership Program (the
“HOME Act”), which provides grants to States and local jurisdictions for eligible affordable
housing plans. 42 U.S.C. § 12741 et seq.; 24 C.F.R. § 92.1. By letter dated July 24, 2017,
Defendant notified Plaintiff of “findings of noncompliance” that “required corrective actions.”
(ECF No. 22-1, Joint App’x 2 at AR 199–204.)
The first noncompliance finding concerned the “commitment requirement,” which requires
HOME participants to place available funds “under binding commitment to affordable housing”
within 24 months of receiving access to the funds. 42 U.S.C. § 12748(g). HUD found that Plaintiff
failed to meet its “commitment requirement” in 2012 by $226,196 and in 2015 by $738,918. (Joint
App’x 2 at AR 203.) It announced that it would decrease Plaintiff’s HOME credit line by the total
amount: $965,114. (Id.) The second finding concerned the alleged misuse of $408,814 in
“ineligible and disallowed” expenditures, which HUD instructed Plaintiff to repay to its HOME
account from nonfederal funds. (Id.)
Plaintiff contested both these findings and requested a hearing in three letters sent to HUD
between September 2017 and August 2018. (Id. at AR 205–218; AR 219–221; AR 252–255.) In
October 2018, HUD sent Plaintiff a letter announcing that its initial determinations were final.
(ECF No. 22-4, Joint App’x 5 at AR 629–632.) The letter did not respond to any of Plaintiff’s
defenses against the actions, nor to its request for a hearing. (Id.)
II. STANDARD
A. Summary Judgment
“[W]hen a party seeks review of agency action under the APA, the district judge sits as an
appellate tribunal. The ‘entire case’ on review is a question of law.” Am. Bioscience, Inc. v.
Thompson, 269 F.3d 1077, 1083 (D.C. Cir. 2001); see also Richards v. INS, 554 F.2d 1173, 1177 &
2
n. 28 (D.C. Cir. 1977). If the agency action was “arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law,” it shall be set aside. 5 U.S.C. § 706(2)(A). Review under
the arbitrary and capricious standard, however, is “highly deferential” and “presumes the agency’s
action to be valid.” Envtl. Def. Fund, Inc. v. Costle, 657 F.2d 275, 283 (D.C. Cir.1981); see also
Motor Vehicle Mfrs. Ass’n of U.S. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 30 (1983) (“[A]
reviewing court may not set aside an agency [decision] that is rational, based on consideration of the
relevant factors and within the scope of the authority delegated to the agency by the statute.”) This
does not, however, dispense with the requirements that the Board’s action “be supported by
reasoned decisionmaking,” Haselwander v. McHugh, 774 F.3d 990 (D.C. Cir. 2014), and respond
to all of Plaintiff’s non-frivolous arguments. Frizelle v. Slater, 111 F.3d 172, 177 (D.C. Cir. 1997).
III. ANALYSIS
A. Credit Reduction
HUD reduced Plaintiff’s credit line by $965,114 for two alleged violations of the
commitment requirement. First, HUD found that $226,196 of grant funds “expired” because
Plaintiff had “committed funds” to an affordable housing project that lacked the requisite financial
underwriting and guarantees, in violation of the Consolidated and Further Appropriations Act of
2012 and the pre-2013 definition of a valid HOME commitment in 24 C.F.R § 92.2. (Def. MSJ at
11; Joint App’x 1 at AR 203.) HUD also found that $738,918 in funds had “expired” because
Plaintiff recorded a project commitment amount that exceeded its actual commitments by that
amount. (Id.) In both instances, the allegation was not simply that Plaintiff failed to use the funds,
but that it misused or failed to properly account for the funds.
The HOME Act gives HUD two ways to reduce a grantee’s credit line: one requires a
hearing and one does not. Under 42 U.S.C. § 12753, if HUD determines that a grantee misused
3
funds, it must provide the grantee with a hearing before it reduces the credit line. 42 U.S.C. §
12753 (“the Secretary shall reduce the line of credit” only if “the Secretary finds after reasonable
notice and opportunity for hearing that a [grantee] has failed to comply substantially with any
provision of this part . . .”) By contrast, under 42 U.S.C. § 12748(g), no hearing is required if HUD
finds that a grantee left the funds unused for 24 months. 42 U.S.C. § 12748(g) (funds expire,
without notice or a hearing, if they “are not placed under binding commitment to affordable housing
within 24 months.”) HUD argues that the credit reduction at issue falls under section 12748(g), and
therefore did not require a hearing, while Plaintiff argues that the action falls under section 12753.
(Def. MSJ at 19; Pl. MSJ at 28.)
HUD’s position is plainly in conflict with the language of the statute. Section 12748(g)
requires HUD to reallocate a specific unit of unspent funds; it does not contemplate the imposition
of a penalty for the misuse of funds, as happened here. In order to impose a penalty, HUD was
required to use the provision that governs misuse of funds, and to provide Plaintiff with a hearing.
This conclusion is evident from the text of section 12748(g):
If any funds becoming available to a participating jurisdiction under this
subchapter are not placed under binding commitment to affordable housing
within 24 months after the last day of the month in which such funds are
deposited in the jurisdiction’s HOME Investment Trust Fund, the
jurisdiction’s right to draw such funds from the HOME Investment Trust
Fund shall expire. The Secretary shall reduce the line of credit in the
participating jurisdiction’s HOME Investment Trust Fund by the expiring
amount and shall reallocate the funds by formula in accordance with [42
U.S.C. § 12747(d)].
42 U.S.C. § 12748(g) (emphasis added). The use of the phrases “such funds” and “expiring
funds” indicates that the particular unused funds are the funds to be reallocated when they expire.
HUD’s action was inconsistent with this language because by removing funds years later, HUD did
not eliminate Plaintiff’s right to access the expiring funds, but rather eliminated its right to access
funds that were subsequently made available. Such an action constitutes a penalty, not a
4
reallocation, a term which is itself instructive. By directing HUD to “reallocate” funds that are not
committed within 24 months, the statute ensures that allocated and unused funds are moved to a
jurisdiction where they will be used. The statute’s directive to “reallocate” makes little sense if
what is being done is reducing different funds years after the formerly allocated funds were already
spent.
This interpretation is reinforced by another provision in the statute, which states that HUD
shall “make any reallocations periodically throughout each fiscal year so as to ensure that all funds
to be reallocated are made available to eligible jurisdictions as soon as possible . . .” 42 U.S.C. §
12747. This indicates that the section 12748(g) reallocations are to occur multiple times each year
while funds remain unspent, not years later after allegations that the funds were misspent.
The meaning of the language in section 12748(g) is further illuminated by comparing it to
the language of the other provision that allows for a credit reduction, section 12753. Rather than
referring to a specific reduction of the “expiring funds,” section 12753 explicitly calls for a
reduction from the fund at large: “HUD shall reduce the funds in the participating jurisdiction's
HOME Investment Trust Fund by the amount of any expenditures that were not in accordance with
the requirements of this part.” 18 U.S.C. § 12753. Unlike section 12748(g), this language
establishes that the reduction should be in “the amount” of the funds misspent, not an expiration of
any specific funds.
Based on the language of these two sections, it is clear that HUD cannot use 12748(g) to
remove funds years later for alleged noncompliance. If it seeks to take such an action, it must use
section 12753 and provide a hearing. HUD argues that this conclusion produces an absurd result
and would allow jurisdictions to violate the rules with “impunity.” (ECF No. 18, Def. Opp. at 7.)
But HUD can take the same corrective action it attempts to take here—a credit reduction—as long
5
as it provides a hearing. 18 U.S.C. § 12753. That is the appropriate vehicle for HUD’s action, and
therefore it acted unlawfully by refusing to provide a hearing.
B. $408,814 Repayment
In addition to the credit reduction, HUD asked Plaintiff to repay $408,814 to its HOME
account based on a finding that certain expenditures made before October 2013 were ineligible and
thus disallowed. (Joint App’x 2 at AR 202.)
At a minimum, HUD was required to provide Plaintiff with an opportunity to demonstrate
compliance before it requested repayment. HUD argues that its action was permitted by 24 C.F.R.
§ 92.551, which states that “[i]f HUD determines preliminarily that the [grantee] has not met a
requirement of [part 92], the [grantee] will be given notice of this determination and an opportunity
to demonstrate, within the time prescribed by HUD . . . that it has done so.” 24 C.F.R. §
92.551(b)(1). Here, however, Plaintiff was given neither notice nor an opportunity to demonstrate
compliance. Plaintiff was notified for the first time of the alleged violation when the July 24, 2017
letter presented “findings of noncompliance.” 1 There was no mention of any opportunity for
Plaintiff to demonstrate compliance, nor, as the regulation contemplates, was there a deadline
“prescribed by HUD.” 24 C.F.R. § 92.551(b)(1). The letter did not cite the regulation under which
the action was taken, so Plaintiff was given no notice of the nature of the action and the extent of its
rights to demonstrate compliance. Plaintiff did send letters attempting to demonstrate compliance,
but HUD’s response only further confirms that its first letter was the final determination: the
response does not address any of Plaintiff’s arguments and simply states that the earlier
determinations were final. (Joint App’x 5 at AR 629–632.) HUD thus violated the regulation by
failing to provide Plaintiff with an opportunity to demonstrate compliance.
1
Before receiving this letter, Plaintiff responded to numerous requests for more information from
HUD, but none of those requests provided notice of noncompliance, as required by the regulation.
(Joint App’x 1 at AR 184–193.)
6
In addition, while 24 C.F.R. § 92.551 allows HUD to ask for repayment on a voluntary
basis, it does not allow HUD to order repayment—which is what HUD purported to do here. 24
C.F.R. § 92.55. HUD now argues that repayment was voluntary, but according to the letters HUD
sent Plaintiff, the remedial steps were not voluntary. (Def. MSJ at 19.) The letters “issue[d]
findings of noncompliance” and “require[d] corrective action including the repayment of HOME
funds.” (Joint App’x 1 at AR 199.) A section of the letter is titled “Required Corrective Action,”
and orders Plaintiff to “repay 408,814 to its local HOME program account.” (Id. at AR 202.)
Finally, the letter makes future progress on HOME funding contingent on the repayment of the
funds. (Id. at 203.) Thus, to the extent Plaintiff was ordered rather than asked to make the
repayment, HUD exceeded its authority under 24 C.F.R. § 92.551.
Because HUD did not abide by the requirements of 24 C.F.R. § 92.551, remand is necessary
for Plaintiff to attain the process that is due.
IV. CONCLUSION
The HOME Act provides HUD with multiple tools for regulating participant compliance,
each requiring some form of due process. Here, HUD took two actions against Plaintiff and in both
instances failed to provide the required process. Consequently, those actions will be vacated,
summary judgment will be denied for Defendant, granted in part and denied in part for Plaintiff, and
the matter will be remanded to HUD for adequate adjudication consistent with this opinion.
A corresponding order will be issued simultaneously.
Date: May 29, 2020
Tanya S. Chutkan
TANYA S. CHUTKAN
United States District Judge
7