author: CELEBREZZE, Circuit Judge. EDWARDS, Circuit Judge

text:
    Mary FLETCHER et al., Plaintiffs-Appellants, v. HOUSING AUTHORITY OF LOUISVILLE et al., Defendants-Appellees.
    No. 73-1466.
    United States Court of Appeals, Sixth Circuit.
    Argued Oct. 15,1973.
    Decided Jan. 25, 1974.

      David M. Kirstein, Louisville, Ky., for plaintiffs-appellants; Kurt Berggren, Legal Aid Society of Louisville, Louisville, Ky., on brief.
    J. D. Raine, Louisville, Ky., Neal Knox, Atty., Dept. of Housing and Urban Development, Atlanta, Ga., for defendants-appellees; George J. Long, U. S. Atty., Louisville, Ky., William E. Grossman, Regional Counsel, Dept. of Housing & Urban Development, Atlanta, Ga., Zirkle, Raine, Francis & Highfield, Louisville, Ky., on briefs.
    Before CELEBREZZE, EDWARDS and MeCREE, Circuit Judges.
   CELEBREZZE, Circuit Judge.

This appeal presents one of an increasing number of challenges to the administration of the federally funded housing program. On November 27, 1972, the District Court dismissed Plaintiffs’ request for declaratory and injunctive relief against the institution of a “rent range formula” by the Housing Authority of Louisville (HAL). In brief, the formula allocates available apartments among eligible applicants so as to ensure accelerated entry of applicants who can pay higher rents than other applicants, thereby generating increased rental income for HAL. The decision below gives this policy legal sanction.

This case arises against the background of a previous District Court case, which invalidated HAL’s arbitrary method of admitting people to public housing. Under a June 21, 1972 decision of the District Court for the Western District of Kentucky, HAL was ordered to halt its unconstitutional admission procedures and to agree “to make all decisions regarding the admission of applicants to all Louisville Housing Authority housing projects based upon criteria which is [sic] consistent with HUD guidelines, and is [sic] concerned only with the date of application and the family needs of each applicant.” Virginia Morris v. Housing Authority of Louisville, Civ. No. 6948 (W.D.Ky., filed June 21, 1972).

Once an applicant was found eligible for public housing, under the June 21, District Court decree, he or she was placed on a chronological waiting list and advanced accordingly, subject to pre-emption by applicants in greater housing need.

On August 22, 1972, the Members of HAL’s Board changed these admission procedures. Implementing the provisions of a Circular issued by the U.S. Department of Housing and Urban Development (HUD), HAL’s Resolution stated:

“RESOLUTION NO. 51-72

WHEREAS, a review of the Ranges of Rents paid by tenants now occupying apartments operated by this Authority and a comparison with preliminary figures of the 1970 Census reveals the following :

WHEREAS, the Public Housing Program made possible under the Housing Act of 1933 and its amendments, provided housing for the low-income segment of the population within established income limits of admission and continued occupancy determined by the Local Authority and approved by the Department of Housing and Urban Development ; and

WHEREAS, the financial solvency of the Louisville Authority, because of housing a majority of its residents in income ranges extremely below the operating costs of the Authority, has reached a point where the solvency of the Authority is in jeopardy; and

WHEREAS, the Louisville Area Office of the Department of HUD has expressed a most urgent need for this Authority to increase its rental income sufficiently to meet its operating expenses in its letter dated July 24, 1972, a copy of which is attached hereto and made a part hereof the same as if copied in full herein; and

WHEREAS, it has been determined by the staff and the Department of HUD that the following Ranges of Rents would produce additional rental income to the Authority:

NOW, THEREFORE, BE IT RESOLVED BY THE HOUSING AUTHORITY OF LOUISVILLE; That,

The manner of placing eligible applicants in vacant units operated by this Authority be maintained at a level approximating the following Ranges of Rents, in accordance with the existing Statement of Policies and Procedures Governing Admission to and Continued Occupancy of the HUD-Aided Projects:

BE IT FURTHER RESOLVED THAT the establishment of Ranges of Rents and the Percentages applying thereto, as provided in this resolution, shall apply to those applicants on the priority list as well as non-priority applicants.

This resolution shall become effective when approved by the Department of Housing and Urban Development.”

By instituting this “rent range formula”, HAL made prospective tenants’ ability to pay rent a key factor in determining which eligible applicants would receive Louisville’s federally aided public housing and in what order. The discrimination against applicants in the rent range between $0 and $30 emerges from a review of these figures:

The final column of figures shows that for a period after the rent range formula was in effect, applicants in the $0 to $30 range faced much longer delays in obtaining public housing as compared with more affluent applicants.

Precisely how long Appellants’ wait will be extended because of the institution of the rent range formula is not clear from the proceedings below. Based on evidence in the record, the extra delay occasioned by the August 22d Resolution to an Appellant obtaining public housing could be more than two years. .

Appellees argue that there is no discrimination occasioned by the rent range formula, since it is drawn to ensure that the public housing tenant body eventually reflects the percentages of persons in each rental group eligible to apply for public housing in Louisville. We reject Appellees’ contention for two basic reasons.

First, Appellees focus on the wrong groups when they look to the groups apparently eligible to apply for public housing. In determining the presence of discrimination, the relevant pools to be compared among the four rent ranges are those who have expressed an interest in public housing—those who have applied for it, not those who might apply. Granting automatic preferences to higher income applicants who might apply in the future over at least equally needy lower income tenants who have been on a waiting list is discriminatory. The rent range formula “vaguely smacks of a quota system,” thus casting doubt on its constitutionality. Colon v. Tompkins Square Neighbors, Inc., 294 F.Supp. 134, 139 (S.D.N.Y.1968).

Second, we find that HAL’s rent range Resolution imposes a significant penalty on the group of eligible applicants who have been on the waiting list for public housing since August 22, 1972. Cole v. Housing Authority of Newport, 435 F.2d 807, 811 (1st Cir. 1970). Cf. King v. New Rochelle Municipal Housing Authority, 442 F.2d 646, 648 (2d Cir.), cert. denied, 404 U.S. 863, 92 S.Ct. 113, 30 L.Ed.2d 107 (1971); but cf. Lane v. McGarry, 320 F.Supp. 562 (N.D.N.Y.1970). From their positions in line, they have been abruptly moved behind others of no greater housing need with a later application date— simply because these latter applicants can pay more rent. Shifting positions among those waiting in line for a limited supply of housing reinforces the injustice of a change which is itself unauthorized or unreasonable. Cole v. Housing Authority of Newport, 312 F.Supp. 692, 695 (D.R.I.); aff’d., 435 F.2d 807, 811 (1st Cir. 1970). Cf. United States v. Leahey, 434 F.2d 7,11 (1st Cir. 1970); McGautha v. California, 402 U.S. 183, 273, 274, 91 S.Ct. 1454, 28 L.Ed.2d 711 (1971) (Brennan, J., concurring).

Shuffling the order in which public benefits are to be allocated is not, standing alone, indefensible. Apportioning scarcity requires flexibility for those administrators who perform that unenviable task. Dandridge v. Williams, 397 U.S. 471, 480, 90 S.Ct. 1153, 25 L.Ed.2d 491 (1970); Lindsey v. Normet, 405 U.S. 56, 74, 92 S.Ct. 862, 31 L.Ed.2d 36 (1972). Given the harsh discrimination against those applicants who could pay only between $0 and $30 rent to HAL, our inquiry must be whether the rent range formula is an abuse of discretion by defendants. “It hardly need be said that the existence of an absolute and uncontrolled discretion in an agency of government vested with the administration of a vast program, such as public housing, would be an intolerable invitation to abuse.” Holmes v. New York City Housing Authority, 398 F.2d 262, 265 (2d Cir. 1968). The basis for a change in admission policies must be reasonable and must be grounded in the purposes of the Act under which the administrative agency making such changes exercises its discretion. Otero v. New York City Housing Authority, 484 F.2d 1122 (2d Cir. 1973). The lodestar of review of HAL’s August 22d Resolution is the National Housing Act of 1937, as amended. We measure the rent range Resolution against the purposes of that Act for two reasons.

First, in contracting with HUD for annual federal subsidies, HAL agreed to function according to the terms of that Act. Barber v. White, 351 F.Supp. 1091, 1093 (D.Conn.1972); Otero v. New York City Housing Authority, 484 F.2d 1122 (2d Cir. 1973). “When [federal] money is spent to promote the general welfare, the concept of welfare or the opposite is shaped by Congress, not by the states.” Helvering v. Davis, 301 U.S. 619, 645, 57 S.Ct. 904, 910, 81 L.Ed. 1307 (1937) (Cardozo, J). Cf. Rosado v. Wyman, 397 U.S. 397, 422-423, 90 S.Ct. 1207, 25 L.Ed.2d 442 (1970) (Harlan, J., concurring). The expression of federal policy in the area of low-income housing is the National Housing Act of 1937, as amended. So long as HAL operates under an annual contributions contract with HUD, it must meet the requirements of the National Housing Act. It may not set eligibility criteria unauthorized by Congress. King v. Smith, 392 U.S. 309, 88 S.Ct. 2128, 20 L.Ed.2d 1118 (1968).

Second, HAL’s August 22d Resolution was the result of HUD’s deliberate and steady pressure, which effectively forced HAL to implement the provisions of its Circular No. 7465.12 (reprinted as Appendix A). Under these circumstances, HAL’s August 22d Resolution represents the Louisville culmination of HUD’s attempt to enforce a nationwide policy of rent range provisions for public housing.

HUD argues that its Circular merely suggested that local housing agencies consider implementing a rent range scheme. For us to accept this argument as a reason for not reviewing HAL’s rent range formula would be to blind ourselves to the realities of cooperative federalism in this case. The record is clear that the sole reason for HAL’s implementation of HUD Circular No. 7465.12 was the desire to conform to HUD’s wishes. HUD’s desire may not have taken the form of a formal requirement that HAL adopt a particular rent range formula. But it took the form of a demand through HUD’s control over HAL’s federal funding.

Nowhere in the Resolution itself or the testimony of HAL officials is it asserted that the rent range formula was desirable in the absence of a fiscal crisis. The rent range formula was passed to help alleviate HAL’s financial straits and to justify HAL’s request for operating funds from HUD. Thus, the actions of HAL are those of one arm of the federal housing program carrying out the wishes of the head. The Circular acquired federal force as it filtered into funding negotiations between HAL and HUD. “[W]e think it clear that HUD does have the ultimate supervision and authority in carrying out the objectives of the Housing Act.” Housing Authority of Omaha v. United States Housing Authority, 468 F.2d 1, 7 (8th Cir. 1972), cert. denied, 410 U.S. 927, 93 S.Ct. 1360, 35 L.Ed.2d 588 (1973).

We do not conclude that any suggestion which HUD might make to local officials automatically subjects HUD’s actions to judicial review. On the facts of this case, it is clear that HUD’s actions made Circular No. 7465.-12 a matter of federal policy, not federal suggestion. HAL’s original budget request for fiscal year 1972 was disapproved by HUD and was sent back for redrafting. HAL made deep cuts in maintenance and other controllable cost items and proceeded to institute the rent range formula which HUD “suggested” in Circular No. 7465.12. HUD’s disapproval of HAL’s initial budget request, in the context of the Circular which urged local agencies “to immediately establish ranges of specified rents and to make admissions to [their] projects from among eligible applicants . as necessary to achieve, maintain, or improve the solvency of the operation,” is a sufficient exercise of federal control to subject HUD’s actions to judicial review. We cannot believe that if HAL had refused to implement a rent range formula or otherwise act to increase its operating income, HUD would have made up the difference in operating subsidies. Indeed, this would have undermined the reason for issuing the Circular. HUD’s action in enforcing its Circular, through its power to disapprove HAL’s budget requests, subjects HUD’s Circular to the test of compatibility with the National Housing Act. Thorpe v. Housing Authority, 393 U.S. 268, 281, 89 S.Ct. 518, 21 L.Ed.2d 474 (1969). “The courts may enjoin federal administrative action or inaction when it is violative of legislative enactments.” Sloan v. United States Dept. of Agriculture, 335 F.Supp. 816, 820 (W.D.Wash.1971).

Given that HAL’s rent range formula -discriminates against a group of applicants and that HAL’s Resolution must be tested under the National Housing Act, we can uphold the rent range Resolution only if it is reasonable and is consistent with the Act. Manhattan General Equipment Co. v. Commissioner of Internal Revenue, 297 U.S. 129, 134, 56 S.Ct. 397, 80 L.Ed. 528 (1936). We conclude that Appellees’ actions have not been consistent with the National Housing Act and that their implementation of Hud Circular No. 7465.12 constitutes an abuse of discretion under that Act.

It is a basic rule of law that an exercise of administrative discretion not in accord with the agency’s enabling legislation is invalid. Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971); Schaffer Transportation Co. v. United States, 355 U.S. 83, 78 S.Ct. 173, 2 L.Ed.2d 117 (1957). Otherwise, administrative agencies would be free to do as they please, rather than as the legislature authorized them to act. See Davis v. Romney, 355 F.Supp. 29 (E.D. Pa.1973); Sloan v. United States Dept. of Agriculture, 335 F.Supp. 816 (W.D. Wash.1971). It is a question of law for a court to decide whether an administrative action is reasonable and accords with its statutory foundation. Manhattan General Equipment Co. v. Commissioner of Internal Revenue, 297 U.S. 129, 56 S.Ct. 397, 80 L.Ed. 528 (1936).

Here the enabling legislation of HAL and HUD is the National Housing Act of 1937, as amended. To understand the incompatibility of HAL’s rent range Resolution with the National Housing Act it is important to review the legislative history of that Act.

The National Housing Act of 1937 established a program of federal aid to local agencies engaged in providing decent housing to those who could not obtain it on the private market. The basic purpose of the Act was

“to assist the several States . to remedy the unsafe and insanitary housing conditions and the acute shortage of decent, safe, and sanitary dwellings for families of low income.” 42 U.S.C. § 1401.

“Families of low income” was defined to mean “families . . . who are in the lowest income group and who cannot afford to pay enough to cause private enterprise ... to build an adequate supply of decent, safe, and sanitary dwellings for their use.” 42 U.S.C. § 1402(2). The Act authorized annual federal contributions to public housing agencies “to assist in achieving and maintaining the low-rent character of their housing projects.” 42 U.S.C. § 1410(a).

Congress was aware in 1937 that “families of low income,” those who would benefit from the Act, would actually not include the extremely poor. The Act did not provide direct subsidies to the poorest of the poor but subsidized public housing operations. The limited extent of the subsidy meant.that families with annual incomes of from $600 to $1,000 would be the primary beneficiaries.

In subsequent years Congress struggled to extend the availability of public housing to all who needed it. Aware that World War II veterans’ families, many of whom were on moderate incomes, were remaining in public housing after their need for public housing had ended, Congress passed the National Housing Act of 1949. In its declaration of national housing policy, Congress made a commitment: “the realization as soon as feasible of the goal of a decent home and a suitable living environment for every American family.” 42 U.S.C. § 1441. Congress declared it to be national policy that

“(4) governmental assistance to eliminate substandard and other inadequate housing through the clearance of slums and blighted areas, to facilitate community development and redevelopment, and to provide adequate housing for urban and rural non-farm families with incomes so low that they are not being decently housed in new or existing housing shall be extended to those localities which estimate their own needs and demonstrate that these needs are not being met through reliance solely upon private enterprise, and without such aid.”

The Department of Housing and Urban Development (then the Housing and Home Finance Agency) was ordered to exercise its powers in conformity with that policy.

The national housing policy declared in the 1949 Act made it clear that local housing agencies could not set minimum income limits for admission but must extend eligibility to all who could not purchase decent housing on the private market. This policy was backed by a requirement that local agencies not discriminate against tenants on public assistance and a mandatory preference for those in the most urgent housing need. A memorandum from the Housing and Home Finance Agency, relied upon during the Senate debates, stated that the preference for those in the most urgent housing need was “necessary in order to assure that the families with the very lowest income get a fair chance at the dwellings in a pubic housing project when it is first tenanted.” Under the 1949 Act, maximum income limits set by local agencies were made subject to federal approval. Under Section 301 of the 1949 Act, local agencies were required to submit periodic reports that all their tenants were in fact poor and had come from inadequate housing. To underline the urgency of its desire that all the ill-housed be well-housed the Congress provided that “Insofar as the provisions of any other law are inconsistent with the provisions of this Act, the provisions of this Act shall be controlling.”

The scope of federal subsidies was enlarged under the 1949 Act. Yet, because Congress did not assure that operating deficits would be covered by federal aid, local agencies were forced to institute rent ranges, to keep a balance between very poor and less poor tenants. Congress understood that this would happen in passing the 1949 Act, since a report of the Housing and Home Finance Agency was before it which predicted this result. Local agencies would charge more affluent tenants higher rents than lower income tenants, with “the average of these rents [sufficing] to pay project costs after Federal and local contributions have been received.” The rent ranges at that time thus increased the number of very low income tenants in public housing.'

In 1961, Congress reacted to local housing agencies’ financial pressures by authorizing special subsidies of up to $120 per elderly family housed by an agency, where an amount was determined necessary to enable the public housing agency to lease dwelling units to elderly families at acceptable rents and to operate the project on a solvent basis. Another section of the 1961 Act repealed the maze of preferences and eligibility criteria, replacing it with the present 42 U.S.C. § 1410(g) (2):

“(g) Every contract for annual contributions for any low-rent housing project shall provide that—
* * * * * *
“(2) the public housing agency shall adopt and promulgate regulations establishing admission policies which shall give full consideration to its responsibility for the rehousing of displaced families, to the applicant’s status as a serviceman or veteran or relationship to a serviceman or veteran or to a disabled serviceman or veteran, and to the applicant’s age or disability, housing conditions urgency of housing need, and source of income: Provided, That in establishing such admission policies the public housing agency shall accord to families of low income such priority over single persons as it determines to be necessary to avoid undue hardship 42 U.S.C. § 1410(g)(2).

This section speaks directly to the policies a local agency must follow in setting admission standards from among eligible applicants for federally aided public housing. Except for the veterans’ preference, the criteria relate directly to housing need.

The special $120 subsidy provision of § 1410(a) was extended to include displaced families in 1964, and to include large families and families of “unusually low income” in 1968. These subsidies were provided as a reaction to the increasing exclusion of the poorest housing applicants because of local agencies’ financial problems.

Despite Congress’ expressed concern that applicants of very low income not be squeezed out of the competition for public housing, it became clear that inflationary pressures were forcing such a result. Congress responded with the legal mandate that local housing agencies not attack their financial problems by shutting out the very poor. The first so-called Brooke Amendment limited the amount of rent that local agencies could charge a tenant, to one-fourth of his income. Subsequent amendments tightened the definition of income by requiring that certain amounts be deducted before computing income.

To compensate for the loss of rental income caused by the Brooke Amendments, Congress increased HUD’s contract authorization and authorized HUD to make annual contributions that would cover the difference between operating costs and rental income. A later amendment removed the statutory maximum on this latter authorization, thus authorizing HUD to pay whatever is required (1) to assure the low-rent character of the projects and (2) to achieve adequate operating and maintenance costs.

In funding these programs Congress has appropriated a significant amount that is restricted to covering operating deficits. It has further appropriated additional funds which could be used to cover operating deficits caused by the congressional requirement that very low-income applicants not be excluded. Since the Brooke Amendment has been in effect, according to Senator Brooke,

“[Sufficient funds were provided to make housing authorities ‘whole’ by eliminating past operating deficits and to insure that, in the future, public housing authorities would have sufficient funds to provide those services, repairs, and training programs which are essential if we are to honor the commitment of a ‘decent home and suitable living environment for every American family.’ ”

In view of the history of the National Housing Act, we conclude that tenant admission policies which discriminate against applicants because of their poverty are no longer justified. Eligibility criteria unauthorized by Congress are not permissible when a state agency dispenses a federally funded benefit. King v. Smith, 392 U.S. 309, 88.S.Ct. 2128, 20 L.Ed.2d 1118 (1968). Local housing agencies’ financial problems must be resolved through negotiation with HUD and by the funding decisions of Congress. Barber v. White, 351 F.Supp. 1091 (D.Conn.1972); National Tenants Organization, Inc. v. Dept. of Housing and Urban Development, 358 F.Supp. 312 (D.D.C.1973).

Discriminatory tenant admission techniques such as HAL’s August 22d Resolution are forbidden under 42 U.S.C. § 1410(g)(2) and under the policies implicit in the Brooke Amendments.

42 U.S.C. § 1410(g)(2), supra at n. 30, requires local housing agencies to give “full consideration” to the basic criterion of housing need. By making the factor of one’s ability to pay a higher rent than another applicant a central feature of its admissions policies, HAL has introduced a criterion wholly extraneous to those specified in § 1410(g)(2). The rent range formula not only ignores housing need but actually discriminates against those in greatest need.

Appellees cite no statutory or constitutional provision that would allow them to disregard the criteria of date of application and housing need, which HAL is under a court order to recognize as the exclusive criteria for admission of eligible applicants. Appellees’ argument that HAL would go bankrupt if the rent range formula is not implemented, even if an accurate forecast, does not compel a contrary conclusion. HAL’s bankruptcy would be a proper legal outcome, should Congress and Kentucky authorities will it so by not appropriating sufficient funds to avoid that result. Barber v. White, 351 F.Supp. 1091 (D.Conn.1972). See Pozen, “The Financing of Local Housing Authorities: A Contract Approach,” 82 Yale L. J. 1208, 1216-17 (1973).

Appellees try to justify HAL’s August 22d Resolution on other grounds.

First, they argue that § 1402(1) authorizes HAL to take its fiscal solvency into account in setting its admission policies. Under § 1402(1), maximum income limits and rents “shall be fixed” by the local housing agency “and approved” by HUD

“after taking into consideration (a) the family size, composition, age, physical handicaps, and other factors which might affect the rent-paying ability of the family, and (B) the economic factors which affect the financial stability and solvency of the project.” 42 U.S.C. § 1402(1).

This provision relates solely to fixing rents and setting maximum income limits for eligibility. It does not apply to admissions priorities among those already found eligible. These two areas of agency policy have been clearly distinguished by Congress, which has treated rent levels and eligibility in sections 2(1) and 10(g)(1) and has handled admission policies under section 10(g)(2). Indeed, HAL’s ability to refer to “the economic factors which affect the financial stability and- solvency of the project” in deciding on maximum income limits for eligibility and rent levels undermines its assertion that its only means of avoiding financial disaster is to juggle admission priorities among eligible applicants. Likewise, cases cited by HAL wherein courts have refused to interfere with local agency decisions on rent levels are simply not relevant to the question of admission priorities. These decisions affirm HAL’s discretion in fixing rents as a means of generating income. Setting rents demands far more deference to administrative expertise than deciding admission priorities.

Second, HAL invokes the broad principle of local autonomy in Section 1 of the Act:

“It is the policy of the United States to vest in the local public housing agencies the maximum amount of responsibility in the administration of the low-rent housing program, including responsibility for the establishment of rent and eligibility requirements (subject to .the approval of [HUD]), with due consideration to accomplishing the' objectives of this chapter while effecting economies.” 42 U.S.C. § 1401.

This statement evinces Congress’ intent to give maximum responsibility over rent, eligibility, and similar decisions to local housing agencies, subject to the policies of the Act. It does not speak directly to admission policies. Even if admission priorities were within the group of decisions to which deference should be given to local expertise, the priorities set forth in HAL’s August 22d Resolution were effectively mandated by HUD as a national policy. Appellees cannot claim that the rent range formula represents a bona fide exercise of local autonomy, geared to peculiar local needs, when the impetus for the rent-range formula came from HUD.

Thus, we are left with the stark assertion that HAL may take its August 22, 1972 action simply to relieve its fiscal stress, though no statutory language credits this rationale in establishing admission procedures. It is on this point that the legislative history of the National Housing Act is pointedly against Appellees’ contentions.

The 1969 Congressional debate on the Brooke Amendment expresses a clear Congressional policy that HUD ensure the low-rent character of public housing and that local agencies not handicap applicants because of their poverty. In view of this legislative history, it is inconceivable that Congress could have intended that local housing agencies should have the authority systematically to allocate apartments based on one applicant’s ability to pay a higher rent than other applicants. By limiting what a public housing tenant could be forced to pay to one-fourth of his income, Congress sought to ensure that a “reverse means test” would not be required by local housing agencies in allocating public housing among eligible applicants. Barber v. White, 351 F.Supp. 1091 (D. Conn.1972) ; National Tenants Organization, Inc. v. Dept. of Housing and Urban Development, 358 F.Supp. 312 (D. D.C.1973).

The incompatibility of HAL’s August 22d Resolution and the National Housing Act can be seen by taking the next logical step under Appellees’ analysis. If HAL may give some priority to certain applicants over those equal in all respects except the ability to pay rent, then HAL could provide that the applicant who could pay the highest amount of rent would be admitted first, regardless of other factors. There is no inherent legal difference between favoring more affluent applicants through a discriminatory quota system and favoring more affluent applicants through -an absolute preference. Both procedures would be defended as within the local agency’s discretion and as reasonably related to HAL’s financial solvency. Indeed, the absolute preference for more affluent applicants would be more effective in achieving HAL’s desire to balance its budget.

An absolute priority for more affluent applicants would gut the intent of the Brooke Amendment and the 1970 amendment which instructed HUD to alleviate local public housing agencies’ operating deficits and “assure the low-rent character” of the units. The priority system which the August 22d Resolution of HAL embodies is equally inconsistent with the purposes of the National Housing Act. In short, Congress intended no reverse means test that favors more affluent over poorer applicants for public housing. Under the present National Housing Act, any system which purposely and effectively embodies such a preference is beyond a local public housing agency’s discretion to enact and beyond HUD’s proper discretion to require or enforce.

If the fiscal crisis of local public housing agencies grows sufficiently severe, Congress may face a choice between forcing some public housing agencies out of business or of loosening the constraints which it has imposed on public housing authorities. But this is not the only choice. Congress may choose to appropriate enough funds to keep the present units in operation under the current provisions of the National Housing Act, and force HUD to release moneys for that purpose. Or Congress may choose to allow HAL to do what HUD urged it do to in this case. In 1972, an amendment to condition HUD’s annual contributions on a local housing authority’s establishment of a rent range formula was proposed. It was not approved. HUD will have to win Congressional approval before it may again try to implement such a preference for more affluent applicants. It cannot do on its own what it failed to win from the Legislature. Having found that HAL’s rent range Resolution as applied exceeds the lawful discretion which Appellees exercise under the National Housing Act, we need not reach Appellants’ constitutional objections to the rent range formula. The decision of the District Court is reversed. This cause is remanded for summary relief consistent with this opinion. No costs are to be taxed.

APPENDIX A

U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT HOUSING MANAGEMENT

TRANSMITTAL NOTICE No. 12 HM 7465.12

6/2/71

1. This Notice Transmits the Following:

Circular HM 7465.12, Housing a Cross-Section of Low-Income Families in Low-Rent Public Housing, dated 6/71.

2. Explanation of Material Transmitted:

Cites need for increased efforts to attain objectives of socially and financially sound programs and clarifies LHAs' role in achieving these objectives.

3. Filing Instructions:

File directly following Circular HM 7465.11, dated 5-13-71.

/s/ G. RICHARD DUNN ELLS

Assistant Secretary for

Housing Management

DISTRIBUTION: A and B-3, 6, 9, 23 (LHA's) E-3, HA-8, 1-1 W-l, W—2, W—3, W-3-1, W—4 R—1, R—2, R—3, R-3-1 (HMCS), R-5

U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT HOUSING MANAGEMENT

CIRCULAR HM 7465.12

6/2/71

SUBJECT: Housing a Cross-Section of Low-Income Families in Low-Rent Public Housing

1. PURPOSE. The purpose of this Circular is to bring to your attention the continuing concern of this Department over excessively high operating costs and, in some instances, deplorable deterioration of low-rent public housing projects and the environment in which tenants live. Sharp increases in vandalism and crime, accompanied by the move-out of many families still eligible for and in need of public housing, have resulted in either, or both, high vacancy rates or concentrations of the lowest income families, many with serious problems.

2. OBJECTIVES. To advance our objective of socially and financially sound local programs, increased efforts must be made by Local Authorities to achieve and maintain in their low-rent projects a cross-section of the low-income families in their localities. HUD staffs will, of course, provide all possible assistance, upon request.

3. ESTABLISHMENT OF RENT RANGES

a. Each, Local Authority having a graded rent system, if it has not already done so, is urged to immediately establish ranges of specified rents and to make admissions to its projects from among eligible applicants at such rents or within such ranges of rent as may be necessary to achieve, maintain, or improve the solvency of its operation and to insure, insofar as is possible, serving a representative cross-section of the low-income families in its locality.
b. There has been some question as to whether the application or admission preferences at specified rents or within specified ranges of rent is consistent with the objectives of Title VI of the Civil Rights Act of 1964 and HUD regulations and requirements pursuant thereto. You are advised that admission preference may be extended by a Local Authority in this manner:
(1) If its adopted admission regulations so provide, and
(2) If such action would not result in the exclusion of applicants of a particular race, color, or national origin.
c. Among the actions which Local Authorities should take immediately to improve or promote a better economic and social cross-section in its tenant body are to:
(1) Review and analyze its application intake and pool and take steps to stimulate interest in and increase applications from more wage earner and two-parent families having greater potential for stability.
(2) Review income limits for admission and continued occupancy and take action, as necessary, to establish them at appropriate levels.
(3) Attempt through all practicable means to retain stable eligible and overineome families in occupany until such time as they are, in fact, able to obtain standard housing within their ability to pay.

4. OCCUPANCY STANDARDS

a. The Circular dated 12\-17-68 on “Admission and Continued Occupancy Regulations for Low-Rent Public Housing,” advised Local Authorities that recent court decisions, while holding that a Local Authority might not deny admission or continued occupancy to a family solely on the basis of the presence of an out-of-wedlock child or children, or moral judgments, also reaffirmed a Local Authority’s right to establish standards for admission and occupancy that will protect the health, safety, morals, and comfort of public housing tenants. Specifically, this Circular stated:
“A Local Authority shall not establish policies which automatically deny admission or continued occupancy to a particular class, such as unmarried mothers, families having one or more children born out of wedlock, families having police records or poor rent-paying habits, etc. “To determine whether applicants or occupants should be admitted to or remain in its projects, a Local Authority may establish criteria and standards bearing on whether the conduct of such tenants (in an applicant’s present or prior housing, or in occupancy, in the case of present tenants) does or would be likely to interfere with other tenants in such a manner as to materially diminish their enjoyment of the premises. Such, interference must relate to the actual or threatened conduct of the tenant and not be based solely on such matters as the marital status of the family, the legitimacy of the children in the family, police records, etc.” [emphasis added]
b. Local Authorities clearly, therefore, have the right to determine, under appropriate criteria, whether applicants or occupants should be admitted to or remain in their projects.
c. The right of any rejected applicant, or of any tenant to be evicted, to a hearing or a review of grievances would not be affected. HUD policies concerning notifications to applicants and grievance procedures are contained in Circular HM 7465.5 dated 6-24-70 and Circular HM 7465.9 dated 2-22-71.

EDWARDS, Circuit Judge

(dissenting).

The Louisville Housing Authority’s admission policy which is attacked by appellants seems to me to be bad social planning. I do not, however, believe that it is outside the broad grant of authority established by Congress in the applicable federal housing legislation (42 U.S.C. § 1401 et seq. (1970) ). Nor do I believe that the United States Constitution requires Congress in attacking a great social problem like that of providing adequate shelter to those Americans unable to afford decent housing to wait until it can do the whole job at once. Nor do I think the Constitution requires Congress to start at any particular point in the spectrum of need.

      . The following decisions have involved successful challenges to the actions of the U. S. Department of Housing and Urban Development or local housing agencies: Thomas v. Housing Authority of Little Rock, 282 F. Supp. 575 (E.D.Ark.1967); Holmes v. New York City Housing Authority, 398 F.2d 262 (2d Cir. 1968); Thorpe v. Housing Authority, 393 U.S. 268, 89 S.Ct. 518, 21 L.Ed.2d 474 (1969); Cole v. Housing Authority of Newport, 435 F.2d 867 (1st Cir. 1976); Shannon v. U. S. Dept. of Housing and Urban Development, 436 F.2d 869 (3d Cir. 1976), noted in 85 Harv.L.Rev. 876 (1972); Hammond v. Housing Authority, 328 F.Supp. 586 (D.Or.1971); Crow v. Brown, 332 F.Supp. 382 (N.D.Ga.1971), aff’d., 457 F.2d 788 (5th Cir. 1972); Male v. Crossroads Associates, 469 F.2d 616 (2d Cir. 1972); Barber v. White, 351 F.Supp. 1691 (D.Conn. 1972) ; Davis v. Romney, 355 F.Supp. 29 (E.D.Pa.1973); Findrilakis v. Secretary of Dept. of Housing and Urban Development, 357 F.Supp. 547 (N.D.Cal.1973); and National Tenants Organization, Inc. v. Department of Housing and Urban Development, 358 F.Supp. 312 (D.D.C.1973).

      . After a trial on the merits of the permanent injunction, Plaintiffs’ complaint was dismissed on November 27, 1972. On March 9, 1973, the District Court issued its Findings of Fact and Conclusions of Law. The Court found no violation of Plaintiffs’ constitutional rights or of the National Housing Act. It considered the rent range formula a rational attempt to deal with HAL’s financial problems. See Memorandum, Opinion, Order and Judgment, Civ. No. 7399-G (W.D. Ky., filed Mar. 9, 1973, amended Mar. 12, 1973) .

      . In full operation, the rent range formula would admit eligible applicants according to their ability to approximate the 30-20-20-30 distribution specified in the Resolution of August 22. Thereafter, admissions would be made on the basis of these quotas.
      Within this procedure, all applicants in the $0 to $30 range would not be entirely foreclosed from public housing until the quotas were achieved. HAL keeps two waiting lists—priority and non-priority. Emergency need could justify giving a unit to a $0 to $30 rent range applicant instead of to one who could help HAL approximate its rent range goals but had no emergency need for housing. Nonetheless, all $0 to $30 applicants on the non-priority list would have to wait behind those in higher rent ranges until the desired distribution is approximated. This would mean that a more affluent eligible applicant who is equal to Plaintiff class in housing need but who applied long thereafter will be placed in a housing unit before an applicant in the $0 to $30 range.

      . It is impossible to tell precisely how long an extra delay will face any given applicant in the $0 to $30 rent range because of the August 22d Resolution. This will depend on how many more affluent applicants come forward, how many applicants drop off the list, and other factors. In estimating the possible delays involved, however, we can derive some indication from the evidence available.
      HAL operates 5,800 units with an annual turnover rate of 700. Transcript, Nov. 17, 1972, at 72. Before a non-priority applicant in the $0 to $30 rent range will be admitted, the 21.64% bulge such tenants currently represent over the allotted 30% for tenants in the $0 to $30 range must be reallocated to the higher rent ranges. This means that 1,255 applicants in the higher rent ranges must be jumped ahead of those in the lowest range. Assuming that at least 145 urgent cases will also arise in the space of two years, 1,400 applicants will be placed ahead of those in the $0 to $30 range who have already been found eligible and have been waiting in line. It would take two years to place this number in units as they become available.

      . HAL seems to contend that the rent range formula is merely a guideline. See Nov. 17 Tr., at 111, 123. We cannot accept this argument. If it were merely advisory, HAL would be injecting an arbitrary element into its admissions process, the very thing found illegal on June 21, 1972. See text, supra. We will not construe the Resolution to abridge the due process rights of applicants. See Holmes v. New York City Housing Authority, 398 F.2d 262 (2d Cir. 1968). Furthermore, such an advisory resolution would lead HAL officials to violate HAL’s own regulations, as mandated by the June 21st District Court Order. We will not construe a Resolution as authorizing disobedience to an agency’s own regulations.

      . HAL contracts with HUD under 42 U.S.C. § 1410.

      . In Otero the local agency claimed the right to violate its own regulations because of a statutory and constitutional obligation not to segregate tenant populations. The Second Circuit held, “To the extent that the [local agency’s] regulation conflicts with the Authority’s duty to integrate, the regulation must yield.” In the case before us nAL’s August 22d Resolution must yield if it conflicts with either the Federal Constitution or the National Housing Act.

      . In Rosado, Justice Harlan pointed out that the validity of a state’s regulation in dispensing AFDC benefits depends on whether the state’s action comports with the requirements of federal law.

      . Nov. 17, 1972, Tr. 55, 57, 72. HAL’s Director of Management stated that the rent range formula had not been used previously “because it had not been approved for them to do so,” by HUD. Tr., 57.

      . We do not confront the question whether the Circular should be considered a formal federal rule, for which publication and notice were required but not given by HUD. The Circular appeared to be non-mandatory on its face, so that its issuance may have been proper under the Administrative Procedure Act. As the Circular was enforced, however, HUD’s actions proved that the Circular’s policies would be carried out by HUD. It is HUD’s actions in enforcing the Circular’s provisions, not the issuance of the Circular, which are in question in this case.

      . HUD has the authority to “make, amend, and rescind such rules and regulations as may be necessary to carry out” the provisions of the Housing Act. 42 U.S.C. § 1408. “[W]here HUD determines that local authorities have failed to act or have acted in an inimical way to the objectives of the Act, . . . the ultimate authority is vested in HUD to set overall policy. When the latter occurs the real limitation to HUD’s authority to act is whether its policies are reasonably related to carrying out Congress’ expressed objectives to the low-rent housing program.” 468 F.2d at 7, 8. See Hamlar, “HUD’s Authority to Mandate Effective Management of Public Housing,” 50 J.Urban L. 79 (1972).

      . Some indication of HAL’s inability to obtain approval of its budget without implementing a rent range policy appears in the testimony of HUD Regional Director Maxwell: “In my judgment, rent ranges are absolutely necessary for the restoration of a financially sound position with local housing authorities.” Oct. 4, 1972 Tr., 18. Given Mr. Maxwell’s views, it is doubtful that HAL could have convinced him that its budget was sound within 42 U.S.C. § 1410, had it not passed its rent range Resolution.
      HUD itself contributed to HAL’s perception of the Circular as mandatory. The Circular stated that “increased efforts must, be made by Local Authorities to achieve and maintain in their low-rent projects a cross-section of the low-income families in their localities.” This is not language of mere suggestion.

      . HAL believed that the rent range formula could not be adopted without HUD’s approval. This appears on the face of the August 22d Resolution (last sentence).

      . In Manhattan, the Supreme Court stated: “The power of an administrative officer or board to administer a federal statute . . . is the power to adopt regulations to carry into effect the will of Congress as expressed by the statute. A regulation which does not do this, but operates to create a rule out of harmony with the statute, is a mere nullity, (citations omitted) And not only must a regulation in order to be valid, be consistent with the statute, but it must be reasonable.” 297 U.S. at 134, 56 S.Ct. at 400.

      . See generally N. Dorsen & S. Zimmerman, Housing for the Poor: Rights and Remedies (1967); 1949 U.S.Code Cong. Service, p. 1550.

      . Section 1 of the Housing Act of 1937. Sept. 1, 1937, c. 896, § 1, 50 Stat. 888.

      . Senator Wagner’s responses to questions from Senator Pepper make this clear. Senator Wagner admitted, “there are some people whom we cannot possibly reach; I mean those who have no means to pay the rent minus the subsidy.” ... “I think [the bill] would be interpreted to mean the lowest income group that the bill can reach.” 81 Cong.Record 8098-8099.

      . See H.Rept.No.1545, 78th Cong., 1st Sess., 6-7.

      . National Housing Act of 1949, July 15, 1949, P.L. 171, 81st Cong., 63 Stat. 429.

      . July 15, 1949, c. 338, § 2, 63 Stat. 413.

      . 42 U.S.C. § 1441 states:
      “The Department of Housing and Urban Development, and any other departments or agencies of the Federal Government having powers, functions, or duties with respect to housing, shall exercise their powers, functions, and duties under this or any other law, consistently with the national housing policy declared by this Act and in such manner as will facilitate sustained progress in attaining the national housing objective hereby established.”
      As HUD contracts with local agencies and exercises its powers under the Act, it is bound by the following principle:
      “No administrative body has authority to contract with a regulated corporation in a manner contrary to the statute which is being administered, nor in any way which does not give effect to the intent of Congress.” Peoples Bank v. Eccles, 82 U.S.App.D.C. 126, 161 F.2d 636, 644 (1947), rev’d on other grounds, 333 U.S. 426, 68 S.Ct. 641, 92 L.Ed. 784 (1948).

      . See Sen. Sparkman’s remarks. 95 Cong. Record 4811 (1949).

      . See S.Rept.No.84, 81st Cong., 1st Sess. 19 (1949) ; U.S.Code Cong.Serv.1949, p. 1550; 95 Cong.Record 4810-11 (1949). The ban on discrimination against welfare recipients was repealed in 1961 as _ unnecessary. That such discrimination would be illegal is clear. Colon v. Tompkins Square Neighbors, Inc., 294 F.Supp. 134 (S.D.N.Y.1968). The mandatory preference for those in urgent housing need was melded in 1961 into the policies of 42 U.S.C. § 1410(g)(2).

      . 95 Cong.Record 4808-4809.

      . 42 U.S.C. § 1410(g) (1).

      . S.Rept.No.84, 81st Cong., 1st Sess., 19 (1949), U.S.Code Cong.Serv.1949, p. 1550.

      . 42 U.S.C. § 1443.

      . 95 Cong.Record 4808-4809.

      . Pub.L. 87-70, § 203 (1961), amending 42 U.S.C. § 1410(a).

      . Pub.L. 87-70, § 205(a) (1961).
      “Under Section 10(g)(3), the local agency ‘shall determine, and so certify to the Authority [(HUD)], that each family in the project was admitted in accordance with duly adopted regulations and approved income limits.’ Section 10(g) (4) requires that local agencies promptly notify those determined to be eligible for admission ‘of the approximate date of occupancy insofar as such date can be reasonably determined.’ ”

      . Pub.L. 88-560, § 402 (1964). “Displaced families” became defined in broader terms. Pub.L. 88-560, § 401(b) amending 42 U.S.C. § 1410(g)(2).

      . Pub.L. 90-448, § 206(b) (1968).

      . H.Rept.No.1585, 90th Cong. 2d Sess. 32 (1968), U.S.Code Cong, and Admin.News 1968, ]). 2873.

      . Nee DeLeeuw, Operating Costs in Public Housing—A Financial Crisis (Urban Inst. 1970), published in Hearings Before the Subcommittee on Housing and Urban Affairs of the Senate Banking and Currency Committee, 91st Cong., 2d Ness. 1063-1128 (1970).

      . Pub.L. 91-352, § 213(a), 83 Stat. 389, amending 42 U.S.C. § 1402(1).

      . Pub.L. 91-609, § 208(a), 84 Stat. 1778 (1970) ; Pub.L. 92-213, § 9, 85 Stat. 677 (1971) , amending 42 U.S.C. § 1402(1).

      . Pub.L. 91-609, 84 Stat. 1776 (1970). Pub.L. 91-152, § 212(a), 83 Stat. 388, amending 42 U.S.C. § 3410(b). In authorizing payments to cover operating deficits, the Congressional intent was to remove the local agencies’ economic justification for excluding the very poor. The Senate Report on the 1969 amendments stated:
      “This section would enable families, regardless of how low their incomes are, to afford the rentals necessary to support project operating costs with no more than 25% of their income.” S.Rept.No.91-392, 91st Cong. 1st Sess. 19 (3969), U.S.Code Cong, and Admin.News 3969, p. 1524. Nee also H.Rept.No.91-740, 91st Cong, 1st Sess. 30-32 (1969), U.S.Code Cong, and Admin.News 1969, p. 1524.

      , Pub.L. 92-503, 86 Stat. 906 (1972), amending 42 U.S.C. § 1410(b). See also Housing and Urban Development Act of 1970, Pub.L. 91-609, § 210, 84 Stat. 1778 (1970), amending 42 U.S.C. § 1410(a). HUD's contract authority lias been amply increased in recent years. See National Tenants Organization, Inc. v. Dept. of Housing and Urban Development, 358 F.Supp. 312, 316, n. 7 (D.D.C.1973).

      . HAL admits that “while Congressional Appropriations have sought to keep pace with local needs, the Executive Branch of the Federal Government has not released adequate funds to local authorities.” Appellee HAL’s Brief on Appeal, citing p. 10 of the District Court’s Memorandum Opinion. See National Association of Housing and Redevelopment Officials v. Romney, Civ. No. 2080-72 (D.D.C. Mar. 21, 1973).
      There is no proof in the record that the deficits which HAL projects are not due to inefficient management or other controllable matters short of establishing a rent range system. Congress intended HUD to force better management techniques on local housing authorities. See n. 47, infra. But this intent cannot justify an improper means of achieving that result. Davis v. Romney, 355 F.Supp. 29, 44 (E.D.Pa.1973).

      . Remarks of Senator Brooke, 116 Cong. Record 24, 298, July 15, 1970.

      . Having concluded that HAL’s August 22d Resolution is inconsistent with the National Housing Act, we need not consider whether the rent range formula is otherwise “rea sonable.” We have doubts whether it is. See Thomas v. Housing Authority, 282 F.Supp. 575 (E.D.Ark.1967).

      . There is no indication in the record that HAL's August 22d Resolution was taken after "full consideration" of its impact on the factors listed in § 1410(g)(2). Furthermore, HAL's Resolution was passed without prior notice and hearing, and HUD's Circular 7465.12 was issued with no prior notice or opportunity of interested parties to voice objections. Since HAL's Resolution constitutes a rule of an arm of the Federal Government, we have doubts whether its promulgation was proper under the Federal Administrative Procedure Act. See Buckeye Power, Inc. v. Environmental Protection Agency, 481 F.2d 162 (6th Cir. 1973). At least a showing that HAL "fully considered" the factors Congress ordered it to consider might be necessary. See Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971). Were we otherwise to find the rent range Resolution in conformity with the National Housing Act, a remand could be necessary because of possible procedural defects.
      We do not remand for compliance with procedural rules because of our finding that HAL’s rent range regulation is substantively invalid under the National Housing Act.

      . Evidence in the record indicates that at least some applicants in the $60 and over range can afford decent private housing. One witness stated, without challenge, that she places people in standard private housing at $50 per month, excluding heat and utilities. Nov. 17 Tr., 40. The rent range system, according to this witness, would place “hundreds of families ... at the mercy of substandard housing.” Nov. 17 Tr., 42.

      . See text supra at p. 795.

      . See House Comm. on Banking and Currency, 93d Cong., 1st Sess., Supplement (with Amendments through Feb. 2, 1973) to Basie Law and Authorities on Housing and Urban Development, dated Jan. 31, 1971 (Comm. Print Mar. 31, 1973).

      . Appellees cite Hahn v. Gottlieb, 430 F.2d 1243 (1st Cir. 1970). But see Burr v. New Rochelle Municipal Housing Authority, 347 F.Supp. 1202 (S.D.N.Y.1972), modified, 479 F.2d 1165 (2d Cir. 1973). We agree that rent level decisions are complex and require that flexibility be given administrative decision-makers in this area. Rent levels, however, is not the question before us.

      . In 1970 the phrase “with due consideration . . .” was added to emphasize that local agencies must conform with the basic policies of the Act. Housing and Urban Development Act of 1970, Pub.L. No. 91-609, 84 Stat. 1770 (1970). See generally, Defcoe, “HUD’s Authority to Mandate Tenants’ Rights in Public Housing,” 80 Yale L.J. 463 (1971).

      . A local housing authority made the same argument in Cole v. Housing Authority of Newport, 435 F.2d 807 (1st Cir. 1970). It argued that a two-year residency requirement was justified as a means of “effecting economies”. The Court rejected this contention.

      . See S.Rept.No.91-392, 91st Cong., 1st Sess. 19 (1969) ; U.S.Code Cong, and Admin. News 1969, p. 1524; H.Rept.No.91-740, 91st Cong., 1st Sess. 30-32 (1969) ; U.S.Code Cong, and Admin.News 1969, p. 1524. See text, supra, at ns. 37—40.

      . This conclusion does not mean that Congress intended to favor the .“lowest of the low” income tenants. We need not confront Appellants’ attempt to show that the lowest income applicants must be given priority over equally needy applicants who can afford to pay higher rents.

      . In 1972 the House Committee on Banking and Currency originally proposed an additional $200,000,000 for operation subsidies conditioned on local housing authorities’ implementation of “effective management procedures,” including the following:
      “The establishment of tenant eligibility criteria which, within a reasonable period of time will assure that the project will include families with a broad range of incomes and will avoid concentrations of very low-income and socially deprived problem families.”
      This proposal did not receive a rule from the House Buies Committee. Instead, the eventual enactment provided an additional $150,000,000 for the public housing program in the year 1973. This was described by Chairman Patman of the House Banking and Currency Committee as “a bare bones authorization for the public housing program, needed to keep the program operating during this current fiscal year”. The Congressional intent that HUD not force local housing agencies to implement rent range formulas is provided by the comment of a supporter of the rent range idea, immediately before the House approved the $150,000,000 authorization without the rent range provision included:
      “While the absence of [the rent range] provision in the resolution means that HUD cannot legally so condition operating subsidies, it should be clear that the great majority of the House Banking and Currency Committee members desire HUD to take a stronger stance in encouraging improved management.” (Rep. Barrett)
      Thus, Congress did not approve the rent range formula as a technique of fiscal management, in full awareness that the absence of such a provision foreclosed HUD from instituting rent range procedures on its own. Instead, Congress authorized additional funds for operating subsidies and urged HUD to take other actions to encourage more efficient management of public housing.

        See debate on H.Res. 1165, Cong.Record, Oct. 14, 1972, H. 10067-68.
      We note that the House Report accompanying the proposed Housing and Urban Development Act of 1972 (H.Rept.No.921429, 51) supported this amendment for reasons apart from the strictly financial ones on which HAL based its August 22d Resolution.

      . Language in the adopted admission policies to accomplish this purpose might state:.
      Tenants will be selected from among applicants eligible for dwellings of given sizes and within such ranges of rent as may be established from time to time to ensure the financial solvency and stability of the program, in the following order [specify particular preference order established by the Local Authority]


source: Caselaw Access Project

author: TIMBERS, Circuit Judge:

license: Public Domain

text:
    CONSUMERS UNION OF UNITED STATES, INC., Petitioner, v. CONSUMER PRODUCT SAFETY COMMISSION, Respondent.
    No. 161, Docket 73-1617.
    United States Court of Appeals, Second Circuit.
    Argued Nov. 30, 1973.
    Decided Jan. 4, 1974.

      Marsha N. Cohen, Washington, D. C. (Peter H. Schuck, Washington, D. C., on the brief), for petitioner.
    Thomas S. Brett, Atty., Dept. of Justice, Washington, D. C. (Thomas E. Kauper, Asst. Atty. Gen., Gregory B. Hovendon, Atty., Dept. of Justice; Michael A. Brown, Acting Gen. Counsel, Paul W. Hallman, Counsel, Consumer Product Safety Commission, Washington, D. C., on the brief), for respondent.
    Before MOORE, HAYS and TIMBERS, Circuit Judges.
   TIMBERS, Circuit Judge:

The sole issue before us on this petition to review portions of regulations of the Food and Drug Administration, 21 C.F.R. §§ 191b.5(e), 191b.-3(e)(2) and 191b.7 (1973), establishing standards for electrically operated toys and other electrically operated articles intended for use by children is whether the determination by the Commissioner of Food and Drugs in promulgating the regulations was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law”. 5 U.S.C. § 706 (2)(A) (1970). We hold it was not. We deny the petition to review.

On January 13, 1972, the Commissioner proposed, and later published in the Federal Register, certain regulations of the FDA designed to ban electrically operated toys or other electrically operated articles intended for use by children which failed to meet certain prescribed labeling, design, construction and performance standards. 37 Fed.Reg. 1020-27 (January 21, 1972). The regulations were proposed to implement the Federal Hazardous Substances Act of 1960, as amended by the Child Protection and Toy Safety Act of 1969, 15 U.S.C. §§ 1261-74 (1970), and pursuant to powers delegated by the Secretary of HEW to the Commissioner by 21 C.F.R. § 2.-120(a)(1) (1973).

Consideration of the proposed regulations followed standard rule making procedure prescribed by the Administrative Procedure Act, 5 U.S.C. § 553 (1970), including requirements as to notice and public participation. Among the forty-five comments received in response to the Commissioner’s invitation was a two page letter of comment submitted by the petitioner herein on February 24, 1972. After due consideration, the Commissioner concluded that the regulations should be adopted. Accordingly, they were promulgated on March 2, 1973, to become effective September 3, 1973. 38 Fed.Reg. 6141-48 (March 7,1973).

Having failed to persuade the Commissioner to incorporate in the regulations as promulgated those modifications suggested in its letter of comment, petitioner filed its petition to review in our Court on April 27, 1973. Essentially petitioner claims that the agency action here under review, 21 C.F.R. §§ 191b.-5(e), 191b.3(e)(2) and 191b.7 (1973), was arbitrary and capricious within the meaning of 5 U.S.C. § 706(2) (A) (1970) because the Commissioner (1) failed to require double insulation or grounding on toys with high shock risk, (2) chose maximum acceptable surface temperatures for electrically operated toys, and (3) relied upon cautionary labeling to protect children from thermal hazards —all without full consideration of crucial safety issues and without any apparent rational basis for his determination. We disagree.

Here, under the “arbitrary, capricious” standard, our scope of review is even narrower than it was in Scenic Hudson Preservation Conference v. FPC (Scenic Hudson 11), 453 F.2d 463 (2 Cir. 1971), cert. denied, 407 U.S. 926 (1972), where the statutory standard was “substantial evidence”. Under either standard, at a minimum, an agency must exercise its jurisdiction where it properly lies. It must not ignore evidence placed before it by interested parties. See Scenic Hudson II, supra, 453 F.2d at 467-68.

Petitioner here does not claim that respondent failed to exercise its jurisdiction. It does claim that the FDA failed even to consider its position—especially its position with regard to grounding. This claim is belied by petitioner’s letter of comment, by the fact that the Commissioner specifically rejected other suggestions of petitioner, and by the fact that the Commissioner incorporated in the final regulations suggestions of ten others who submitted comments.

Scenic Hudson II also held that there must be a reasoned basis for agency action. However, a formal opinion specifically covering all rejected alternatives is not required in an informal rule making proceeding.

Petitioners challenge the sufficiency of the factual record. The record need not be as complete under the “arbitrary, capricious” standard as under the “substantial evidence” standard. Thus, in the present case, it is sufficient that the regulations be supported by evidence in the Commission’s files, or even by its experience. The record clearly establishes that there was sufficient evidence to support the regulations in the three respects challenged by petitioner:

(1) The record supports the Commission’s choice of a generalized electric shock standard, rather than one of the two shock-minimization strategies favored by petitioner. There was evidence that grounding is not effective because of the small number of households wired for three-prong plugs. The evidence in favor of rejecting double insulation was more tenuous, but the FDA could have concluded that the general standard is more desirable because it gives the manufacturer a wider choice of cost options.
(2) There was a wealth of evidence supporting the chosen maximum surface temperature levels, assuming an “irreversible tissue damage” standard. From the relatively small number of pain-related injuries, and from its own experience, the FDA could have concluded that tissue damage was the appropriate standard.
(3) The child developmental information, and the letter from the Director of the Poison Control Center, provided a sufficient basis for the decision to rely on labeling for toys used by children older than eight years of age.

In short, our careful examination of the record satisfies us that the regulations were promulgated on the basis of an adequate administrative record indicating that the Commissioner fairly considered, among other things, pertinent aspects of electrical shock hazards, thermal ihjury hazards and cautionary labeling. The claims asserted by petitioner do not warrant our interfering with a presumably expert agency’s exercise of its rule making discretion. Congress gave the job of regulating toy manufacturers to the Secretary of HEW and more recently to the Consumer Products Safety Commission, not to us. We have no special expertise in the complexities of child development.

Petition denied.

      . Pursuant to the Consumer Product Safety Act, 15 U.S.C. § 2079(a) (1970), the functions of the Secretary of HEW (and through him, the functions of the Commissioner) under the Federal Hazardous Substances Act were transferred on May 14, 1973 to the Consumer Product Safety Commission. The latter was substituted for the FDA as respondent herein on June 11, 1973.
      Since the regulations here involved were proposed and promulgated by the FDA, the parties in their briefs and arguments have referred to the FDA, rather than the Commission, as the respondent. We do likewise.


author: MANSFIELD, Circuit Judge:

text:
    In the Matter of CONTINENTAL VENDING MACHINE CORP. and Continental Apco, Inc., Debtors. JAMES TALCOTT, INC., Appellant, v. Irving L. WHARTON, Trustee, Appellee.
    No. 115, Docket 73-1296.
    United States Court of Appeals, Second Circuit.
    Argued Nov. 19, 1973.
    Decided Jan. 22, 1974.

      J. Jacob Hahn, New York City (Julius J. Abeson, Hahn, Hessen, Margolis & Ryan, New York City, of counsel), for appellant.
    Morton J. Schlossberg, New York City (Joseph J. Marcheso, New York City, of counsel), for appellee.
    Before LUMBARD, MANSFIELD and MULLIGAN, Circuit Judges.
   MANSFIELD, Circuit Judge:

This appeal arises from a refusal by the trustee in bankruptcy of Continental Vending Machine Corp. (“Continental”) to make payment on several certificates issued by him and by his fiduciary predecessor, a court appointed conservator for Continental, in connection with three loans by James Talcott, Inc. (“Talcott”), a New York corporation, to Continental and its wholly owned subsidiary, Continental Apeo, Inc. (“Apeo”). Talcott applied for a court order directing payment on the certificates on September 25, 1972. The trustee maintained, and the district court found, that payment should be denied on the ground that Talcott had disregarded its obligation under an agreement entered into by it on August 14, 1964, which was construed by the court to require it, before it could look to the trustee for payment, first to use certain funds realized from the sale of certain of Continental’s vending routes to satisfy the certificates. The district court also ordered Talcott to account for all moneys received from or on account of Continental or Apeo and to apply them according to its agreement as construed by the court. Because we do not accept the view that the agreement was unambiguous we remand for more detailed findings and conclusions as to the circumstances surrounding the agreement and the intent of the parties in entering it.

Continental and its subsidiary Apeo are in the vending machine business, with Continental operating several “routes” of vending machines and Apeo manufacturing such machines. Continental’s agreement with Talcott, dated August 14, 1963, the terms of which are at issue here, was entered by the parties in the course of a long series of financial arrangements involving Apeo as well as Continental and beginning, for our purposes, in 1960. Any attempt to understand the obligations of the parties requires a review of their rather complex and convoluted prior dealings with each other.

The background begins on May 11, 1960, when Talcott, a New York corporation engaged principally in the business of lending money, agreed to advance to Continental up to 75% of the net amount of Continental’s accounts receivable in exchange for an assignment to Talcott of these accounts plus the right to hold “all property of [Continental] at any time to its [Continental’s] credit or in [Talcott’s] possession or upon or in which [Talcott] may have a lien or security interest, as security for any and all obligations of [Continental] at any time owing to [Talcott]. . . .” On April 1, 1961, Talcott entered a similar financing agreement with Apeo and received an assignment of Apco’s accounts receivable.

Early in 1963 a deteriorating financial situation at Continental led to the court’s appointment, upon application of the Securities and Exchange Commission to the Southern District of New York, of a conservator, John P. Campbell. Apeo was not a party to the conservatorship proceedings and continued to operate as a going concern outside the conservatorship. On May 29, 1963, Campbell, acting with authorization from Judge Bonsai of the Southern District, borrowed $175,000 from Talcott for Continental and gave a conservator’s certificate guaranteeing repayment of this loan.

On June 24, 1963, Apeo borrowed $200,000 from Talcott to keep its operations continuing. In connection with this loan Apeo delivered to Talcott notes promising repayment, which stated that the notes were issued pursuant to the April 1, 1961, financing agreement between Apeo and Talcott and that they were entitled “to all the benefits of any security provided therein.” Six months later, after Continental had gone into reorganization pursuant to Chapter X of the Bankruptcy Act, 11 U.S.C. § 501 et seq., its trustees in bankruptcy were authorized to issue certificates guaranteeing repayment of Talcott’s earlier $200,000 loan to Apeo.

Thus, at all times relevant to this appeal, Talcott’s May 29, 1963, loan of $175,000 to Continental was evidenced by conservator’s certificates and Talcott’s June 24, 1963, loan of $200,000 to Apeo was not only evidenced by Apco’s promissory notes and secured by the assignment of receivables pursuant to the April 1961 financing agreement but also guaranteed by certificates issued by trustees for Continental. In addition Talcott, as the financier of many of Continental’s “routes,” held (1) mortgages and conditional sales agreements on the vending machines located on these routes, (2) assignments of route location contracts, and (3) provisions for cross-collateral in route financing agreements, similar to the provisions that were part of the 1960, 1961 and 1963 financing agreements already described.

The involuntary petition for the reorganization of Continental under Chapter X of the Bankruptcy Act was filed in the United States District Court for the Eastern District of New York on July 10, 1963, and approved by Judge Mishler of that court on July 12, 1963, with Campbell and Irving I. Wharton being appointed as trustees. When Apeo, still neither in conservatorship nor in reorganization, needed more money to stay in business and to exhibit a new machine to the industry, it sought a further loan from Talcott which agreed, subject to approval by the Eastern District of New York, to lend it an additional $650,000 pursuant to the terms of existing financing agreements (i. e., the April 1, 1961, and June 24, 1963, agreements between the parties), to be evidenced by promissory notes, provided the loan would be additionally secured by certificates issued by Continental’s trustees guaranteeing repayment of the loan and, subject to certain conditions, by part of the proceeds expected to be realized from Continental’s sale of certain of its vending routes. An agreement purporting to incorporate the terms of the loan was drafted. Since this appeal arises out of a dispute as to the meaning of certain provisions of that agreement, it is the key document for present purposes.

On August 14, 1973, an application was made by Continental’s trustees and by Apeo for authorization to enter into the agreement with Talcott for the $650,000 loan. The application stated that the debt service on the routes to be sold exceeded the cash flow (profit before debt service) by some $500,000 per year and that because of “the enormous amount of debt claimed by (creditors with loans secured by the routes) there appears to be no equity in the routes.” However, the application went on to state that the debtor owned the inventory in these routes, estimated as worth $450,000, free and clear of any liens, that sale of the routes would enable the debt- or to realize on the inventory, and that the $650,000 loan from Talcott would provide working capital that would enable manufacture of machines to be undertaken.

The agreement itself, also dated August 14, 1963, stated in pertinent part:

“[T]he Trustees of Continental will bring on for sale . . . the so-called Santa Ana, San Francisco and Buffalo cigarette and music routes. The total funds received from the sale of the three routes above-mentioned, exclusive of the amounts attributable to inventory value, shall be paid to you [Talcott] on closing of the sale, and you hereby agree to credit Continental in reduction of its debts, obligations and liabilities to you the total amount of the funds received by you from such sale less all payments [necessary to satisfy vendor’s or lendor’s liens or encumbrances] . . . .’ You further agree that after you have given such credit . . . the surplus, if any, then remaining in your hands shall be turned over to the Trustees.
“We also represent that the said Trustees will bring on for sale the so-called Detroit route the so-called Hammond, Indiana route and the so-called St. Louis, Missouri route. .
“We also represent that the Trustees will use the funds received by them from the sale of the three above-mentioned routes (not including the funds received from the sale of inventory of said routes) first to pay off any and all liens on any specific property sold. .
“The balance of such funds plus any other funds to which the Trustees may become entitled by virtue of the sale of the above-mentioned six routes shall be used as follows: First to retire any Conservator’s Certificates presently remaining unpaid together with interest thereon; second to pay to us sufficient funds to enable us to pay off the total indebtedness of $650,000 created herein; third to pay to us sufficient funds to enable us to pay any unpaid balance of your prior advance to us of $200,000; and fourth the Trustees shall hold any balance of the funds received from the above-mentioned sales in a separate account subject to the determination of the rights of any persons who may have claims thereon.”

In an order dated August 16, 1963, Judge Mishler granted “in all respects” the trustees’ motion for an order authorizing them to enter into the August 14, 1963, agreement. The order recited in a prefatory paragraph that the money received for the routes was to be used

“to liquidate existing secured indebtedness on the said routes and the balance of said proceeds to be used to liquidate certain administration expenses now existing on behalf of the debtor and any residue to be used by the debtor for such purpose as it may see fit. ...”

The Santa Ana, San Francisco and Buffalo cigarette and music routes were, on September 9, 1963, sold for $2,850,000. Since the purchase price was advanced by Silco Automatic Vending Co. the parties have referred to the funds received and held by Talcott from the sale of these three routes as the “Silco reserve.”

On October 4, 1963, a petition was filed in the Eastern District of New York for the reorganization of Apeo under Chapter X of the Bankruptcy Act and this petition was approved by an order dated October 10, 1963. Later it became clear that Continental’s trustees would need even more money to save the business of the two companies and so still another loan—this time for $750,000—was sought and obtained in November 1963 from Talcott. The November loan agreement provided for, and there was attached to it, various statements, all as of October 31, 1963, showing, among other things, (1) the total liability of Continental and Apeo to Talcott and its subsidiaries, (2) the actual and provisional balances held by James Talcott, Inc. to the credit of Continental, and, finally (3) Talcott’s overall collateral position. Both the credit balance and the collateral position statements referred to the Silco reserve. The former referred to the reserve as a credit held by Talcott “against the obligations owing to it by Continental” and the latter included the reserve as collateral for the “payment or retirement of the obligations, whether direct or as guarantor, of the Conservator and/or the Trustees with respect to certificates or borrowings.”

Under the November loan agreement, Continental was also required to deliver a general release to Talcott, which Continental did on January 24, 1964. The release discharged Talcott from any claim which Continental might have on account of “any transactions, acts or omissions on the part of (Talcott),” but specifically excepted from the release “[a]ny obligation on the part of Talcott under the Order of (the) Court approving the sale of the California and Buffalo routes to satisfy and discharge prior liens on any of the equipment included in the sale of the said routes.”

Campbell resigned as a trustee for Continental on September 14, 1964. On June 23, 1969, Wharton, continuing as Continental’s sole trustee, filed a reorganization plan proposing, among other things, that all claims, except secured claims, against Continental and Apeo be treated on a consolidated basis so that claims against one could be satisfied out of assets of the other. An amended version of the plan was approved by Judge Mishler, pursuant to 11 U.S.C. § 574 on May 20, 1971, on the grounds that the managements of the two companies were virtually identical and not independent, that dealings between the two companies served Continental’s needs alone and that Apeo had no separate economic existence from Continental and constituted a mere instrumentality of Continental. After approval by Judge Mishler Talcott, pursuant to 11 U.S.C. § 579, objected to its ultimate confirmation on the grounds that by virtue of the clause ex-eepting secured claims from the effect of the consolidation, the plan improperly deprived Talcott of its right, in view of the virtual identity of the two debtors, to use collateral pledged by Apeo against debts of Continental.

In its petition in the district court, dated September 25, 1972, Talcott alleged that it was still owed, as of December 31, 1971, $101,861.91 (principal plus interest) on its May 29, 1963, loan to Continental, $139,819.46 (principal plus interest) on its June 24, 1963, loan to Apeo, and $633,805.85 (principal plus interest) on its August 14, 1963, loan to Apeo. Since these loans had been approved by court order and represented expenses of administration evidenced by trustees’ or conservator’s certificates, Talcott asked for an order directing payment out of the assets held by Continental’s trustee. Judge Mishler, however, found that the August 14, 1963, loan and route sale agreement, when “viewed in the light of the history and purpose of the agreement and further amplified by the court in its order of August 14 (sic) 1963,” was “unambiguous” and that it required Talcott to use the Silco reserve to be applied toward payment of outstanding conservator or trustees’ certificates rather than toward payment of any other debts of Continental to it. Since Talcott apparently had not done this, but instead had used the reserve to pay off other debts of Continental—including charges for legal and miscellaneous expenses—Judge Mishler denied Talcott’s petition for payment of the certificates and ordered it to make a “detailed accounting of all moneys received from or on account of the debtors (Continental and Apeo) and apply the moneys to the credit of the debtors in accordance with” the court’s decision.

On this appeal by Talcott from the district court’s decision both parties, in advancing their multiple claims and contentions, have gone far beyond both the four corners of the August 14, 1963, agreement and the other narrow issues considered by the district court. Talcott insists that the agreement permitted it to use the Silco reserve to pay off any debt of Continental to it, not just the conservator and trustees' certificates. It relies not only on the language of the agreement—specifically the first part broadly authorizing it to use the funds “to credit Continental in reduction of its debts, obligations and liabilities to you [Talcott]”-—but also on the statement of actual and provisional credit balances as of October 31, 1963, which included the Silco reserve as a credit against the obligations of Continental without making any specific reference to conservator or trustee certificates, and also the January 24, 1964, release, which, in excepting Talcott’s obligations under the August 14 route sale agreement, made no reference to any obligation to pay off conservator or trustee certificates. In reply, the trustee offers as additional support for its own and the lower court’s interpretation of the agreement the collateral position statement attached to the November 1963 loan agreement which, at Schedule F, says that the Silco reserve is collateral for the payment of the certificate obligations. Furthermore the trustee insists that acceptance of Talcott’s interpretation of the agreement and a grant to Talcott of permission to use the Silco reserve to pay off Continental’s debts to it other than those incurred by Continental’s conservator and trustee would result in an impermissible preference with respect to those other debts.

Both parties dispute here, although the district court made no express holding on the matter, a separate issue, i. e., whether Talcott was obligated not only to use the Silco reserve to pay off the conservator’s and trustees’ certificates but also to use the funds collected on Apco’s accounts receivable to pay off Apco’s June and August borrowings, which underlay the trustees’ certificates, as distinguished from borrowings by Continental. The trustee, arguing that the funds collected on Apco’s receivables must be applied to Apeo’s borrowings, relied on the promissory notes issued by Apeo in connection with the June and August borrowings wherein Apeo pledged its accounts receivable as security for these new borrowings. Echoing its objection to confirmation of the reorganization plan, Talcott says it had every right to apply money collected on behalf of Apeo to any debts of Continental since the two entities were found by Judge Mishler, in connection with his order of May 20, 1971, approving the reorganization plan, not to be independent. Thus, Talcott continues, a detailed accounting showing that it credits certain receipts to one debtor (Apeo) rather than to the other (Continental) is unnecessary. The trustee does not respond directly to this oblique attack on the district court’s accounting order, but asserts that the accounting issue is moot since Talcott has filed all accountings required by a schedule fixed by the district court.

Finally, both parties dispute the propriety of Talcott’s charges for alleged legal, auditing and collection expenses in connection with liquidation of its security. Talcott says that these charges were fully authorized by its financing agreements with Continental and Apeo and were specifically approved when the statement of the total liability of Continental and Apeo and its subsidiaries as of October 31, 1963 (attached to the November 1963 loan agreement) was agreed to by Continental’s trustees.

DISCUSSION

Normally we would refer to the district court’s interpretation of an agreement authorized and approved by it. In this instance, however, the record indicates that the district court may not have considered all of the facts relevant to the provisions of the agreement - required to be construed. Furthermore, whether or not the facts related to us by the parties are considered, we cannot agree with the district court’s characterization of the August 14, 1963, agreement as “unambiguous” in light of its history and purpose and as “amplified” by the court order approving it. We are particularly troubled by the failure of the first portion of the agreement (third paragraph), which deals with Talcott’s obligations arising out of the payment to it of the proceeds from the sale of the Santa Ana, San Francisco, and Buffalo routes (the Silco reserve), to make any specific reference to the conservator’s or trustees’ certificates oi the debts which they guaranteed. These are referred to, but only later on in the agreement in that portion (sixth paragraph) dealing with the trustees’ obligation after Talcott had received the proceeds from the sale of the other three routes (Detroit, Hammond and St. Louis) plus whatever was left, if anything, after Talcott had used the proceeds from the sale of the first three routes “to credit Continental in reduction of its debts, obligations, and liabilities.”

Under the trustee’s interpretation of the agreement, concurred in by the district court, we cannot see how the “debts, obligations, and liabilities” portion of the agreement can be explained. If, by referring to Continental’s “debts, obligations and liabilities” in this portion of the agreement, the parties intended to restrict Talcott to payment first of the outstanding trustees’ or conservator’s certificates (or the debts they represented or guaranteed) it seems likely they would have said so, particularly in view of their later explicit language (sixth paragraph) setting forth the trustees’ obligations with respect to the funds they received from the route sale.

The district court apparently reasoned that Talcott’s interpretation of the agreement was impossible since the “purpose of the sale was to make available some cash to Continental in the hope that the manufacturing operation would continue,” and that this purpose could hardly be accomplished if the agreement gave Taleott the right to use most of the proceeds from the sale to pay off any pre-existing debt of Continental’s. But the record makes clear that except for the proceeds realized from the sale of the unencumbered inventory, Continental’s trustees had no hope of raising money from the sale itself; rather the money to continue Apco’s manufacturing operations was to come principally from the loan induced by the sale. Thus in their application for court approval of the August 14, 1963, agreement the trustees stated that “[b]ecause of the enormous amount of debt claimed by secured creditors (i. e., Talcott), there appears to be no equity in these routes for the debtor.” Clearly this statement suggests an awareness on the part of Continental’s trustees of Talcott’s general lien on these routes and an expectation that Taleott would receive the sale proceeds in reduction of any or all of Continental’s “debts, obligations, and liabilities” to it.

The district court also relied on its previous order approving the agreement which recited that the proceeds of the route sales were to “be used to liquidate existing secured indebtedness on the said routes and the balance of said proceeds to be used to liquidate certain administration expenses.” The trustee points out that, since the order was settled on notice to Taleott, the latter’s failure to object to the court’s recital evidences its concurrence in the recitation as the proper construction of the agreement. We disagree. Taleott is not in any sense bound by the court’s recital. There is no dispute that “recitals as to things proper to be shown in the record on which a judgment rests may be overborne by reference to that record.” Bass v. Hoagland, 172 F.2d 205, 208 (5th Cir. 1949), cert. denied, 338 U.S. 816, 70 S.Ct. 57, 94 L.Ed. 494 (1950). In deciding whether to authorize the trustees to enter the agreement the district court had no power to rewrite the agreement. Cf. Houston Oilers, Inc. v. Neely, 361 F.2d 36 (10th Cir. 1966), cert. denied, 385 U.S. 840, 87 S.Ct. 92, 17 L.Ed.2d 74 (1967); Jaeger v. Canadian Bank of Commerce (Cal.), 327 F.2d 743 (9th Cir. 1964). Indeed, the district court made no attempt to do this. Rather the decretal part of the order simply granted the trustees’ motion for an order authorizing them to enter into the August 14, 1963, agreement, “in all respects.” Thus in no way did the authorization order relieve the district court of the duty, when a dispute subsequently arose, to look to the agreement rather than to the order’s prefatory recital and give effect to every part of the agreement if reasonably practicable. See National Equipment Rental, Limited v. Reagin, 338 F.2d 759 (2d Cir. 1964) ; Kelso v. Kelso, 225 F.2d 918 (10th Cir. 1955); Dolch v. Garrard Publishing Co., 289 F.Supp. 687 (S.D.N.Y.1968).

Continental’s trustee asserts that “[pjerhaps the most telling argument” against Talcott’s position is that it would result in a preference to Taleott over Continental’s other creditors. Essentially, the trustee is saying that prior to the August 14, 1963, agreement the Santa Ana, San Francisco and Buffalo routes were the property of the trustees and Taleott had no greater claim to the proceeds of their sale, beyond the extent of its vendor’s or purchase money lendor’s liens, than any of Continental’s other creditors, except as to the conservator’s or trustees’ certificates. This argument ignores the pre-1963 financing agreements which gave Taleott a right to hold “all property” of Continental in which Taleott might have or obtain a security interest, as security “for any and all obligations of [Continental] at any time owing to [Taleott].” The trustee does not assert that these agreements were invalid under New York law or improperly filed or that Taleott had a security interest in the three routes which had attached within four months before the filing of the involuntary reorganization petition. See 11 U.S.C. § 96. The trustee merely insists that, while Talcott’s debt “was secured ... to the extent that it held valid liens against specific property of the debtors,” the Silco reserve “was nothing more than funds held by Talcott as disbursing agent for the trustees.”

The trustee seems to be saying that Talcott’s general lien against the routes could not continue in the cash proceeds of their sale, even if the general lien was initially valid and perfected. We disagree. Nothing in the Bankruptcy Act forbids a secured creditor of an insolvent debtor from receiving the cash proceeds from the sale of his collateral provided he can trace them. Cf. Uniform Commercial Code § 9-306(4). Absent any showing or finding by the district court that Talcott had not perfected a general lien on the San Francisco, Santa Ana, and Buffalo routes, we cannot see how Taleott’s interpretation of the August 14, 1963, agreement would be impermissible under the Bankruptcy Act.

In light of the fact that the parties are now advancing upon us several contentions not addressed to or by the district court, involving factual details which do not appear in the record, we are constrained to remand the case to the district court for a closer examination of the agreement as a whole—particularly the “debts, obligations, and liabilities” language—and the circumstances surrounding the agreement. A remand will give the district court a new opportunity to consider the several documents and matters outside of the agreement to which the parties are now referring us, including the statements and release accompanying the subsequent loan in November 1963, and the trustees’ argument that Talcott’s interpretation would constitute a preference. In the absence of more detailed findings of fact and conclusions of law by the district court with regard to these documents and contentions, we cannot render a final decision on the issues which they raise.

We also consider it both unnecessary and unwise to rule now on the issue of whether Talcott was required to limit application of the moneys it collected on Apco’s accounts receivable ‡0 Apco’s debts to it, since the district court has not yet ruled on this issue and Talcott appears to be raising the issue only in an effort to avoid an accounting which it has already given. Talcott insists that a ruling from us is necessary because it has only accounted for the period after October 31, 1963 (the date of the statements of liability, credit balance and collateral which were attached to the November 1963 loan agreement) and it wants to be sure it will not be ordered to account for earlier periods. In the absence of any indication that the district court is presently dissatisfied with the accountings already rendered and in view of the fact that the district court is presently considering exactly the same contention—that Talcott is entitled to treat the debts of Continental as the debts of Apeo—in connection with Talcott’s objection to confirmation of the trustees’ reorganization plan, a decision by us on this matter would be premature. Talcott will have every opportunity to appeal on this issue if on remand the district court reverses its prior construction of the August 14, 1963, agreement but continues to refuse an order directing payment on the certificates on the ground that the underlying indebtedness should have been reduced from the funds collected by Talcott on Apco’s accounts receivable.

We do not read Judge Mishler’s decision as a final determination that Talcott’s charges for legal, auditing and collection expenses in connection with the liquidation of its security are rejected. Judge Mishler has only sought to prevent Talcott from circumventing the proof of claim procedure, see 11 U.S.C. § 596, by making payments to itself for these charges, even though the charges had never been allowed by the reorganization court, out of the moneys received from or on behalf of Continental and Apeo. Once again, in view of the present state of the record, and the limited findings of fact by the district court, we are in no position to pass on the propriety of these charges. We agree with Judge Mishler, however, that Talcott will not be entitled to payment of these charges without first submitting a proof of claim and gaining court approval pursuant to 11 U.S.C. § 596. In the absence of a proof of claim and court approval, Judge Mishler was therefore correct in disallowing the charges.

For the reasons stated we remand to the district court for further proceedings.

      . The parties do not dispute that this certificate, like the trustees’ certificates subsequently issued, see infra, was, to the extent it remained unsatisfied, entitled to priority over all other claims secured or unsecured, as a cost or expense of administration within the meaning of 11 U.S.C. § 104(a)(1). Cf. 6 W. Collier, Bankruptcy ¶ 6.40 (rev. ed. 1972).

      . This order was resettled on September 3, 1963, for reasons not relevant here.

      . In its objection to confirmation of the reorganization plan Talcott alleged that on “information and belief” it alone held secured claims against Continental or Apeo.

      . Apparently the November 1963 loan to Apeo has been completely repaid.

      . Under these agreements Continental and Apco agreed to repay Talcott for “all costs and expenses incurred, including a reasonable allowance for attorneys’ fees, to obtain or enforce payment of any receivables assigned” or of any obligations of Continental or Apeo to Talcott.