The opinion of the court was delivered by: GREEN
JOYCE HENS GREEN, UNITED STATES DISTRICT JUDGE.
In this action for declaratory and injunctive relief, plaintiffs, two active mortgage bankers approved by HUD to be Federal Housing Administration ("FHA") coinsuring lenders with authority to provide financing and issue mortgage insurance for qualified multifamily housing projects, and a trade association of which the two mortgage bankers are members, challenge certain actions of officials at the Department of Housing and Urban Development ("HUD"). HUD Secretary Jack F. Kemp recently announced his intention to terminate HUD's coinsurance program under Section 244 of the National Housing Act, as amended, 12 U.S.C. § 1715z-9. In addition, certain pre-commitment review requirements were imposed on approved coinsurance lenders which mandated HUD approval prior to the issuance of any binding commitments. These requirements had never before existed.
On February 6, 1990, this Court denied plaintiffs' motion for a temporary restraining order and set a briefing schedule for plaintiffs' motion for preliminary injunction and defendants' dispositive motion. Since that time, defendants have filed a motion to dismiss certain portions of the complaint and briefing has been completed. The parties appeared before the Court on March 7, 1990 for argument on both motions. Having considered the pleadings, the argument of counsel, and the entire record, the Court shall grant plaintiffs' motion for preliminary injunction and grant defendants' motion to dismiss Counts IV and V of the complaint.
On April 19, 1990, plaintiffs filed a second motion for temporary restraining order and a preliminary injunction, seeking to enjoin the enforcement of an Interim Final Rule submitted by HUD to Congress on March 6, 1990 and published in the Federal Register on March 27, 1990. The proposed Interim Final Rule would establish the same precommitment review procedures which plaintiffs challenged in their original motion for a temporary restraining order and preliminary injunction. The effective date of the Interim Final Rule is April 26, 1990. Briefing on plaintiffs' second motion for a temporary restraining order has been completed. As explained below, the Court shall grant that motion as well.
The facts relevant to the instant motions are set forth in this Court's February 6, 1990 opinion and are incorporated here by reference.
Before turning to the merits, however, the Court pauses briefly to comment on the relief sought by the plaintiffs. In their motion for a temporary restraining order, plaintiffs did not seek to vitiate nor enjoin any of defendants' prior actions, including the issuance of Coinsuring Lender Letters Nos. 89-12, 90-1, and 90-2. Rather, concerned that defendants would take further action altering or terminating the coinsurance program, they sought to preserve the status quo as of January 23, 1990 (the date that Coinsuring Lender Letter No. 90-2 was issued) and requested an order restraining and enjoining defendants from "otherwise impairing the authority and autonomy of approved coinsuring lenders, or failing to follow the coinsurance regulations, as codified in 24 C.F.R. Parts 251, 252, and 255." See Memorandum Opinion, Feb. 6, 1990, 732 F. Supp. 180 ("Mem. Op."), pp. 15-16. However, "because [plaintiffs were] not seeking to enjoin any specific present or past action of defendants nor any action which defendants [were] contemplating taking within the next ten days," id. at 16, the Court denied plaintiffs' motion for a temporary restraining order.
Plaintiffs have moved for preliminary injunctive relief only with respect to Counts I, II, and III of their complaint. Defendants have simultaneously opposed plaintiffs' motion for a preliminary injunction and moved to dismiss Counts IV and V of the complaint. Before turning to defendants' motion, the Court shall first address whether plaintiffs are entitled to a preliminary injunction.
A preliminary injunction may be granted only when the plaintiff demonstrates (1) a substantial likelihood of success on the merits; (2) that irreparable injury will result in the absence of the requested relief; (3) that no other parties will be harmed if temporary relief is granted; and (4) that the public interest favors entry of a temporary restraining order. Washington Metropolitan Area Transit Commission v. Holiday Tours, Inc., 182 U.S. App. D.C. 220, 559 F.2d 841, 843 (D.C. Cir. 1977); accord, Virginia Petroleum Jobbers Ass'n v. Federal Power Commission, 259 F.2d 921, 925 (D.C. Cir. 1958). This test is not a wooden one, for as our court of appeals has noted, relief may be granted "with either a high probability of success and some injury, or vice versa." Cuomo v. United States Nuclear Regulatory Commission, 772 F.2d 972, 974 (D.C. Cir. 1985) (per curiam) (emphasis in original). See also Holiday Tours, 559 F.2d at 843.
A. Likelihood of Success on the Merits
1. Notice and Comment Rulemaking
Counts I and II of plaintiffs' complaint, which form the core of their claims, allege that Coinsuring Lender Letters Nos. 89-12, 90-1 and 90-2 constitute substantive rules requiring notice and comment rulemaking pursuant to 5 U.S.C. § 553 and 42 U.S.C. § 3535(o). The Court agrees.
The Interim Rule, attached to Norris' declaration, states that "without conceding that rule making is legally required, and in the interest of extreme caution, HUD is issuing this Interim Rule to minimize the severity of any financial losses that HUD might suffer if the court were to preliminarily enjoin the Lender Letters for lack of rule making." Norris Decl., Attachment, p. 3.
In light of this action, the Court inquired at the hearing on March 7, 1990 as to whether a live case or controversy still existed sufficient to invoke federal jurisdiction. All parties agreed that a case or controversy did exist, as HUD intended to continue to give force and effect to Coinsuring Lender Letters Nos. 89-12, 90-1, and 90-2 until such time as the Interim Rule became effective. Furthermore, it was not known if or when Congress would grant the waivers; nor was it known when the interim rule would become effective.
Since the briefing on plaintiffs' motion for preliminary injunction and defendants' motion to dismiss was completed, the Court has been advised that HUD published the Interim Rule in the Federal Register on March 27, 1990 with the effective date fixed as April 26, 1990. 55 Fed. Reg. 11,342. This Interim Rule is now the subject of plaintiffs' second motion for a temporary restraining order and preliminary injunction, which is discussed, infra.
The Court's analysis begins
with the recognition that the purposes of the notice and comment requirements are dual: "to reintroduce public participation and fairness to affected parties after governmental authority has been delegated to unrepresentative agencies," Batterton v. Marshall, 208 U.S. App. D.C. 321, 648 F.2d 694, 703 (D.C. Cir. 1980), and to "assure that the agency will have before it the facts and information relevant to a particular administrative problem, as well as suggestions for alternative solutions." Guardian Federal Savings & Loan Ass'n v. Federal Savings & Loan Insurance Corp., 191 U.S. App. D.C. 135, 589 F.2d 658, 662 (D.C. Cir. 1978). Stated differently, "the purpose of § 553 is 'to enable the agency promulgating the rule to educate itself before establishing . . . procedures which have a substantial impact on those regulated.'" National Tour Brokers Ass'n v. United States, 192 U.S. App. D.C. 287, 591 F.2d 896, 902 (D.C. Cir. 1978) (footnotes omitted).
Accordingly, our circuit has repeatedly recognized that the exceptions to the notice and comment requirements of § 553 are to be construed narrowly. See American Hospital Association v. Bowen, 266 U.S. App. D.C. 190, 834 F.2d 1037, 1044 (D.C. Cir. 1987) ("Congress intended the exceptions to § 553's notice and comment requirements to be narrow ones"); Alcaraz v. Block, 746 F.2d 593, 612 (D.C. Cir. 1984) ("The exceptions to section 553 will be 'narrowly construed and only reluctantly countenanced'") (citation omitted); National Association of Home Health Agencies v. Schweiker, 22 3 U.S. App. D.C. 209, 690 F.2d 932, 949 (D.C. Cir. 1982), cert. denied, 459 U.S. 1205, 75 L. Ed. 2d 438, 103 S. Ct. 1193 (1983) (exceptions to the notice and comment provisions of § 553 are to be recognized "only reluctantly," so as not to defeat the "salutary purposes behind the provisions").
are not determinative of issues or rights addressed. They express the agency's intended course of action, its tentative view of the meaning of a particular statutory term, or internal house-keeping measures organizing agency activities. They do not, however, foreclose alternative courses of action or conclusively affect rights of private parties. Although an agency empowered to enact legislative rules may choose to issue non-legislative statements, an agency without legislative rulemaking authority may issue only non-binding statements. Unlike legislative rules, non-binding policy statements carry no more weight on judicial review than their inherent persuasiveness commands.
Batterton, 648 F.2d at 702 (footnotes omitted).
At issue here is the third of the three exemptions contained within § 553(b)(A) for "rules of agency organization, procedure, or practice." The purpose of this exemption is to ensure "that agencies retain latitude in organizing their internal operations." Batterton, 648 F.2d at 707.
A useful articulation of the exemption's critical feature is that it covers agency actions that do not themselves alter the rights or interests of parties, although it may alter the manner in which parties present themselves or their viewpoints to the agency.
Id. (citation omitted). As was noted in American Hospital Association, 834 F.2d at 1047,
Over time, our circuit in applying the § 553 exemption for procedural rules has gradually shifted focus from asking whether a given procedure has a "substantial impact" on parties, see Pickus [v. United States Board of Parole], 507 F.2d  at 1112-13 [D.C. Cir. 1974], to inquiring more broadly whether the agency action also encodes a substantial value judgment or puts a stamp of approval on a given type of behavior. The gradual move away from looking solely into the substantiality of the impact reflects a candid recognition that even unambiguously procedural measures affect parties to some degree.
Measured by this standard, Coinsuring Lender Letters 89-12, 90-1, and 90-2 are not "procedural rules" exempt from the notice and comment requirements of the APA. The Coinsuring Lender Letters at issue here can hardly be characterized as "house-keeping measures" or HUD's "tentative view of the meaning of a particular statutory term." Rather, they "alter the rights and interests" of approved coinsuring lenders.