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BAILEY v. ROMNEY

December 18, 1972

Luke BAILEY et al., Plaintiffs,
v.
George ROMNEY, Secretary of the Department of Housing and Urban Development, et al., Defendants


Aubrey E. Robinson, Jr., District Judge.


The opinion of the court was delivered by: ROBINSON, JR.

Aubrey E. Robinson, Jr., District Judge.

 This matter is before the Court on Plaintiffs' motions for a preliminary injunction and certification as a class action. The controversy centers on the alleged failure of the Secretary of the Department of Housing and Urban Development (HUD), and persons acting under his authority, to comply with the language and intent of the Section 235 Existing Home Program provisions of the National Housing Act. *fn1" Plaintiffs are purchasers of homes under the Section 235 Program. They seek declaratory relief to the effect that houses sold under this program must meet both the property standards of the Federal Housing Administration (FHA) and the provisions of the local housing code before the mortgages on such houses may be insured under the § 235 program. Plaintiffs further seek reimbursement for structural and other defects present in the homes they purchased that affect the use and livability of the home, and ask this Court to declare the reimbursement regulations promulgated by Defendant Romney to be invalid.

 Having fully considered the issues, the Court holds that jurisdiction exists to maintain this suit here, that the exhaustion of remedies doctrine does not apply, that defendants owe a duty to plaintiffs to properly inspect homes under the § 235 program, that reimbursement should be made for those defects that are violations of the statutorily prescribed standard for reimbursement, and that a preliminary injunction should issue to prevent the continuation of irreparable harm to these plaintiffs by application of a standard for reimbursement not in conformity with the statutory requirements. The request for certification as a class action is denied.

 Defendants' assertion that the Court lacks jurisdiction over this action because plaintiffs have not exhausted their administrative remedies is without merit. The thrust of this case is that the regulations promulgated by the defendants are void. The Administrative Procedure Act grants this Court jurisdiction to review the regulations to determine whether they conform to the statutory authority of the defendants. *fn2" In challenging the validity of the regulations, there is no need for these plaintiffs to first exhaust the administrative process as to their claims. Pre-enforcement review of administrative regulations is recognized as valid procedure. *fn3" Moreover, administrative remedies for these plaintiffs are inherently inadequate and are applied in such a manner as to deny plaintiffs' rights under the law. *fn4"

 Defendants also contend that this Court does not have subject matter jurisdiction here because it may not review a discretionary act specifically protected by statute. This argument misconstrues both the nature of plaintiffs' suit and the words of the statute. Plaintiffs attack the validity of the regulations promulgated under 12 U.S.C. § 1735b(c). The establishment of regulations under this law to implement reimbursement for defects is not a discretionary act. Further, the content of these regulations is not discretionary. The regulations must conform to the statutory requirements. This is a question distinct from review of a discretionary act performed under the regulations. The statute reads:

 
The Secretary shall by regulations prescribe the terms and conditions [under] which expenditures and payments may be made under the provisions of this section, and his decisions regarding such expenditures and payments, and the terms and conditions under which the same are approved or disapproved, shall be final and conclusive and shall not be subject to judicial review. *fn5"

 The statute clearly makes the decision of the Secretary final upon applications for reimbursement under the promulgated regulations, but does not deny judicial review of the regulations themselves. *fn6"

 Plaintiffs have asserted federal jurisdiction under 28 U.S.C. § 1331, alleging substantial questions arising under the Constitution and laws of the United States. There is no serious contention by the defendants that plaintiffs have not met their burden of establishing jurisdiction under § 1331. All plaintiffs' homes are presently valued by the defendants over the $10,000 jurisdictional minimum, and plaintiffs desire to rescind their purchase contracts. *fn7" The Court determines that the amount in controversy is sufficient to meet the jurisdictional requirements of § 1331.

 Jurisdiction is alternatively premised on the provisions of 28 U.S.C. § 1361, authorizing actions in the nature of mandamus to compel an official of the United States to perform a duty owed to the plaintiff. Plaintiffs' complaint here alleges that Secretary Romney has unlawfully deviated from his statutory duty by promulgating the regulations in question. Further, that the statute requires the Secretary to employ a different standard from that presently in use for reimbursement under 12 U.S.C. § 1735b(b). If the statute creates this standard, then plaintiffs are entitled to the mandamus they seek and jurisdiction is proper.

 Defendants next contend that they owe no duty to these plaintiffs to properly inspect the homes plaintiffs purchased, citing United States v. Neustadt, *fn8" for this proposition. Neustadt, however, dealt with a claim arising under the Federal Tort Claims Act, while the present action is premised on specific reimbursement provisions recently added to the National Housing Act. *fn9" The clearly expressed intent of these provisions is to provide a remedy to home purchasers under the § 235 program for defects seriously affecting the use and livability of the homes that should have been disclosed upon inspection by FHA appraisers. *fn10" Neustadt held simply that there was no remedy under the Tort Claims Act for the complaint involved in that case. *fn11" Here, however, Congress has specifically recognized the abuses in the § 235 Program and provided a remedy. Thus, defendants do have a duty to plaintiffs to properly inspect their homes prior to approval of the purchase.

 The paramount question here on the motion for preliminary injunction is the likelihood of success on the merits. The burden on the plaintiff of showing his probable success is even greater where the preliminary relief sought would in effect grant plaintiff a substantial part of the relief it would obtain after full litigation on the merits. *fn12" The grant of a preliminary injunction here will grant plaintiffs much of the ultimate relief sought. It is in this light that the Court views the question of probable success on the merits.

 The existing home program established under § 235 was designed to enable low-income families to purchase existing homes with the assistance of mortgages approved and insured by the FHA. The program has been the subject of much notoriety and much abuse. *fn13" Recognizing that some of the abuses disclosed in Congressional hearings on the program had resulted from FHA approval of mortgages on patently substandard dwellings, Congress in 1970 amended the Housing Act to authorize the Secretary of Housing and Urban Development to

 
make expenditures to correct, or to compensate the owner for structural or other defects which seriously affect the use and livability of any single-family dwelling which is covered by a mortgage insured under . . . (Section 235 of the National Housing Act) if . . . the defect is one that existed on the date of the issuance of the insurance commitment and is one that a proper inspection could ...

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