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HOUSING AUTH. OF KING v. PIERCE

December 12, 1988

Housing Authority of the County of King, Plaintiff,
v.
Samuel R. Pierce, Secretary of the Dep't of Housing and Urban Development, Defendant



The opinion of the court was delivered by: RICHEY

 CHARLES R. RICHEY, UNITED STATES DISTRICT JUDGE.

 This matter is before the Court on the parties' cross-motions for summary judgment. Plaintiff, the Housing Authority of the County of King ("HACK"), is a federally subsidized, nonprofit corporation organized under the laws of the State of Washington. HACK's mission is to provide affordable housing to low-income tenants, with federal assistance, under the United States Housing Act of 1937. 42 U.S.C. § 1437 et seq. The Defendant, the United States Department of Housing and Urban Development ("HUD"), administers the Housing Act, and supervises funding for the numerous housing authorities similar to HACK currently operating around the nation. As described in greater detail below, a dispute arose in 1983 between HUD and HACK over such funding. HUD claimed that from 1981 to 1983 HACK received more money than it should have. Accordingly, HUD set in motion mechanisms designed to recover the purported overpayment. In this lawsuit, HACK does not challenge the merits of HUD's overpayment claim, but instead attacks HUD's decision, in moving forward with its recoupment scheme, not to comply with the administrative review provisions of the Federal Claims Collection Act (the "Act"), 31 U.S.C. § 3701 et seq., and HUD's departmental review provisions established pursuant to the Act, contained at 24 C.F.R. § 17.100 et seq. HACK contends that HUD is required by law to comply with the Act and the regulations in recovering overpayments in the manner HUD has chosen, and that, under the circumstances of this case, the failure to do so works a denial of HACK's right to due process under the Fifth Amendment. For the reasons described below, this Court rejects HACK's arguments and grants summary judgment in favor of HUD.

 FACTUAL BACKGROUND

 HACK, as a public housing authority operating pursuant to the Housing Act of 1937, receives annual operating subsidies from Congress. HUD supervises the payment of these subsidies. The annual subsidies, which are paid in advance of the period they are intended to cover, are designed to correspond to the difference between the recipient's projected annual operating expenses and the recipient's projected annual income. The shortfall between a public housing authority's expenses and its income arises principally from the fact that, in setting rents, the public housing authority typically may not charge over thirty per cent of the tenant household's income. 42 U.S.C. § 1437(a).

 In 1983, HUD's Office of the Inspector General for Audit ("OIG") determined that HACK's annual subsidies for the years 1981-83 had been established pursuant to faulty criteria, and therefore concluded that HACK's subsidies had been substantially more than they should have been for that period. *fn1" HUD initially notified HACK of its position on November 9, 1983. Apparently matters sat dormant for some time thereafter, until, in a letter dated August 6, 1986, Harold E. Saether of HUD's Seattle office reiterated HUD's position that HACK had been over-subsidized, and asked HACK to recompute its utility allowances pursuant to HUD's suggested criteria. HACK refused to do so on the grounds that HUD's criteria were inapplicable. As a result, on February 6, 1987, Mr. Saether notified HACK that HUD itself had recomputed the amount of the overcompensation to be $ 570.611, and that if that sum were not paid within 30 days, HUD would "collect the debt by administrative offset under the provisions of 24 C.F.R. § 17.60 et seq." *fn2" HACK then wrote directly to HUD's headquarters in Washington. HACK's letter, dated February 27, 1987, challenged HUD's decision, and, as part of the administrative review to which it considers itself entitled under the Act and 24 C.F.R. § 17.10 et seq., HACK requested a hearing in Washington and the production of relevant documents pursuant to 24 C.F.R. § 17.105.

 In response to inquiries into the status of its request for a hearing and the production of documents, HACK initially received only a letter from HUD, dated May 4, 1987, stating that HUD was reviewing all material associated with the matter. Finally, on February 6, 1988, J. Michael Dorsey, HUD's General Counsel, advised HACK that, despite Mr. Saether's previous representations, the "recapture" of the excess subsidies would not be effected pursuant to 24 C.F.R. 17.10 et seq.3 Instead, according to Mr. Dorsey, the recapture would occur pursuant to the authority granted HUD under 24 C.F.R. § 990.110(e). That provision allows HUD to adjust the annual subsidy of a public housing authority either upward or downward "as a result of data subsequently available to HUD which alters projections upon which the approved operating subsidy was based." Mr. Dorsey's letter noted that because the recapture of HACK's excess subsidies would occur pursuant to § 990.110(e), HUD would not be bound by the administrative review provisions of 24 C.F.R. § 17.10 et seq. By its terms, 24 C.F.R. § 990.110(e) makes no reference to any right of administrative review of a HUD decision to adjust annual subsidies. Accordingly, Mr. Dorsey's letter denied HACK's request for a hearing and the production of documents, and advised HACK that steps would begin immediately to recapture the excess payments.

 HACK filed this suit on February 25, 1988. HACK alleges: (1) that HUD is required by law to afford HACK the administrative procedures contained in the Act and at 24 C.F.R. § 17.10 et seq. before implementing its "recapture" program; and (2) that, even if HUD is not required to comply with the Act and the regulations promulgated thereunder, its failure to afford HACK formal review procedures constitutes a denial of HACK's due process rights under the Fifth Amendment. The Court addresses HACK's contentions in turn.

 ANALYSIS

 I. HUD IS NOT REQUIRED TO COMPLY WITH THE ACT OR THE REGULATIONS PROMULGATED THEREUNDER PRIOR TO IMPLEMENTING ITS RECAPTURE PROGRAM

 In essence, HACK contends that HUD's proposed scheme to recoup the excess payments constitutes an "administrative offset" as contemplated by both the Act and HUD's regulations promulgated thereunder, and that HUD violated each by not satisfying their procedural requirements prior to implementing the scheme. *fn4" Although both parties devoted much paper and energy to briefing other, related issues, in the Court's view the dispositive issue on this point is whether the Act and HUD's administrative offset regulation, by their express terms, apply in this situation. The Court finds that they do not.

 At 31 U.S.C. § 3701, the Act's definitional section, the term "person" as it used in § 3716 is expressly held not to include "an agency of the United States Government, of a State government, or of a unit of general local government." *fn5" HUD's administrative offset regulation contains an identical exclusion. 24 C.F.R. § 17.100(a). Thus, before HACK can argue that HUD was in any way bound to comply with the terms of either the Act or HUD's regulations, HACK must show that it is not "an agency . . . of a State government, or . . . a unit of general local government."

 This, it is clear from the record, HACK cannot do. Under the laws of the State of Washington that authorize the creation and regulation of public housing authorities, it is manifestly apparent that HACK, if not an agency of the State of Washington, is at least a unit of general local government, and thus beyond the parameters of the Act and HUD's administrative offset regulations. Title 35, sections 35.82.010-.910 of the Revised Code of Washington describe the creation and regulation of public housing authorities. These provisions make clear that public housing authorities in Washington are created at the pleasure of either city or county officials, 35 R.C.W. § 35.82.030, and that these officials are charged with the appointment of commissioners to operate the housing authorities. 35 R.C.W. § 35.82.040. City or county officials have the power to remove commissioners for cause. 35 R.C.W. § 35.82.060. Housing authorities have the authority to conduct hearings on matters material to their operation, and to issue subpoenas ordering attendance at such hearings and the production of documents. 35 R.C.W. § 35.82.070(8). They also have the power of eminent domain over private property. 35 R.C.W. § 35.82.110. In the apparent opinion of the Washington legislature, it was necessary that public housing authorities enjoy these powers, and that local officials retain control over the authorities' exercise of these powers, because of the "essential government functions" housing authorities perform. 35 R.C.W. § 35.82.010.

 Although any interpretation of the language of the Act and HUD's administrative offset regulation is clearly a matter of federal law, the functions and powers of housing authorities, as articulated and defined by statute, inform the federal law determination in this context. Here, HACK's state law powers make clear that HACK is, if not an agency of state government, at least a "unit of local government" within the meaning of the Act and HUD's administrative offset regulation. *fn6" Accordingly, neither ...


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