author: CHOY, Circuit Judge: HUFSTEDLER, Circuit Judge

text:
    GENEVA TOWERS TENANTS ORGANIZATION, an unincorporated association, et al., Plaintiffs-Appellees, v. FEDERATED MORTGAGE INVESTORS, and Geneva Apartments, Inc., et al., Defendants-Appellants. GENEVA TOWERS TENANTS ORGANIZATION, etc., et al., PlaintiffsAppellees, v. George W. ROMNEY, Individually and in his capacity as Secretary of Housing and Urban Development, et al., Defendants-Appellants. GENEVA TOWERS TENANTS ORGANIZATION, an unincorporated association, et al., Plaintiffs-Appellants, v. FEDERATED MORTGAGE INVESTORS, et al., Defendants-Appellees. Nilda KELLER et al., PlaintiffsAppellees, v. George W. ROMNEY, Individually and in his capacity as Secretary of Housing and Urban Development, and James H. Price, Individually and in his capacity as Director, San Francisco Area Office, Department of Housing and Urban Development, Defendants-Appellants. Nilda KELLER et al., Plaintiffs-Appellees, v. KATE MAREMONT FOUNDATION, Defendant-Appellant; Nilda KELLER et al., Plaintiffs-Appellants, v. KATE MAREMONT FOUNDATION et al., Defendants-Appellees.
    Nos. 72-2338, 72-2270, 72-2314, 72-2756, 72-2784 and 72-2788.
    United States Court of Appeals, Ninth Circuit.
    Oct. 2, 1974.

      Hufstedler, Circuit Judge, dissented and filed opinion.

      Ronald R. Glancz (argued), Civil Div., U. S. Dept, of Justice, Washington, D.C., for appellants in 72-2270 and 72-2756 and for appellees in 72-2314.
    David B. Bryson (argued), National Housing and Economic Development Law Project, Berkeley, Cal., for appel-lees in 72-2270, 72-2338, 72-2784 and 72-2756 and for appellants in 72-2314 and 72-2788.
    Sal C. Balistreri (appeared), San Francisco, Cal., for appellees in 72-2314 and for appellants in 72-2338.
    Allan M. Berland (argued), of Elkus & Berland, San Francisco, Cal., for appellant in 72-2784 and for appellee in 72-2788.
    Before HUFSTEDLER and CHOY, Circuit Judges, and TAYLOR, District Judge.

       The Honorable Fred M. Taylor, United States District Judge for the District of Idaho, sitting by designation.

   CHOY, Circuit Judge:

This is a consolidated appeal by tenants in two federally financed housing projects: Geneva Towers Appartments and Crescent Park. In two district court actions, they sought rescission of rent' increases granted their landlords by the Federal Housing Administration (FHA) and an injunction compelling the federal defendants to grant the tenants a full and fair hearing prior to the implementation of the rent increases. They also sought a declaratory judgment that the actions of their landlords in applying for and the FHA in granting the rent increases violated the National Housing Act, the Administrative Procedure Act and the Due Process Clause of the Fifth Amendment. The district court in each case ruled that the Due Process Clause requires: (1) that tenants be given notice of their lessor’s application for approval of a rent increase; (2) that tenants have a reasonable opportunity to make written objections; and (3) that tenants be furnished with a concise statement of the FHA’s reasons for approving an increase. All parties appealed. The landlords and the government contend that the district courts improperly established procedures for tenant review of rent increase applications. The tenants reassert their argument for full-scale hearings. We affirm.

Geneva Towers and Crescent Park were financed by the federal government pursuant to § 221(d)(3) of the Housing Act of 1961, 12 U.S.C. § 1715¿(d) (3). Congress determined that there are many families who have sufficiently high incomes to preclude them from eligibility for low-rent public housing, but who cannot afford home ownership even if assisted by conventional FHA insurance. Section 221(d)(3) was designed to assist private industry in providing housing for these low and moderate income families and, in addition, persons displaced by urban renewal. The means Congress chose were the incentive of subsidized interest rates, 12 U.S.C. § 1715J(d)(5), and certain tax advantages.

Those eligible to receive subsidized mortgages include nonprofit corporations, such as the Kate Maremont Foundation, and limited dividend corporations, such as Geneva Apartments, Inc. See 24 C.F.R. § 221.510 (1973). Congress decided that the benefits of federal financing would be available only where mortgagors operated the projects subject to controls on admissions, rents and profits. Therefore, the FHA has promulgated extensive regulations governing § 221(d)(3) developments. The regulations prescribe the form and content of mortgage instruments, wage labor and construction standards, occupancy requirements, and priorities, and establish federal controls over capital structure, rate of return on investment and rents. See 24 C.F.R. § 221.502-749 (1973).

Geneva Apartments, Inc. and Kate Maremont Foundation each- signed the standard regulatory agreement to receive federal financing of its project. The agreement implements the regulatory provisions outlined above and, with respect to rent increase applications, provides:

The Commissioner will at any time entertain a written request for a rent increase properly supported by substantiating evidence and within a reasonable time shall;
Approve a rent schedule that is necessary to compensate for any net increase, occurring since the last approved rental schedule, in taxes (other than income taxes) and operating and maintenance expenses over which the owners have no effective control, or
(2) Deny the increase stating the reasons therefore.

The goal is to provide reasonable charges to tenants and a fair return to the mortgagor.

Both landlords applied for and were granted rent increases. In neither case were the tenants given notice of the application or an opportunity to participate in the determination of a rent increase. No FHA procedure, regulation or federal statute provides for tenant participation. The issues presented on this appeal are: (1) whether there is sufficient governmental participation and involvement to subject § 221(d)(3) projects to the due process clause; (2) whether the tenants’ interest in not having their rents increased is a constitutionally protected “property interest”; and if so (3) what procedural safeguards does due process require to protect that interest.

I. GOVERNMENT INVOLVEMENT

The Due Process Clause of the Fifth Amendment applies to and restricts only the federal government and not private persons. Public Utilities Comm’n v. Pollak, 343 U.S. 451, 461, 72 S.Ct. 813, 96 L.Ed. 1068 (1952). The standards utilized to find federal action for purposes of the Fifth Amendment are identical to those employed to detect state action subject to the strictures of the Fourteenth Amendment. See United States v. Davis, 482 F.2d 893, 897 n. 3 (9th Cir. 1973). What is “private” action and what is “state” action is often difficult to determine. See Evans v. Newton, 382 U.S. 296, 299, 86 S.Ct. 486, 15 L.Ed.2d 373 (1966). “Only by sifting facts and weighing circumstances can the nonobvious involvement of the State in private conduct be attributed its true significance.” Burton v. Wilmington Pkg. Auth., 365 U.S. 715, 722, 81 S.Ct. 856, 860, 6 L.Ed.2d 45 (1961). Burton held that where a state-owned and operated parking facility leased a portion of its building to a coffee shop which engaged in racial discrimination, the state so far insinuated itself into a position of interdependence as to be a joint participant in the unconstitutional activity. Therefore, the Fourteenth Amendment was applicable. The interdependence was principally financial. The rents paid by the shop partially defrayed the cost of the public facility and enhanced its success. Improvements by the shop did not result in increased taxes to it because the fee was held by a tax-exempt government agency. There were a variety of incidental mutual benefits.

Moose Lodge No. 107 v. Irvis, 407 U. S. 163, 92 S.Ct. 1965, 32 L.Ed.2d 627 (1972), reveals a situation distinguishable from the symbiotic relationship in Burton. The Court held that a state-issued liquor license with accompanying regulation did not amount to sufficient state involvement to require the application of the Fourteenth Amendment. The Lodge was a private club in its own building without public funding. The state regulation did not make the state a partner in the club’s enterprise. Id. at 177, 92 S.Ct. 1965.

Analysis of the facts and circumstances in the instant cases discloses sufficient government involvement in the § 221(d)(3) program to subject the activities of the landlords to the Fifth Amendment. Private investors such as Geneva Apartments, Inc. and Kate Maremont Foundation, are engaged in a joint undertaking with the federal government to provide housing for low and moderate income families. Participation in the § 221(d)(3) program subjects the investors to an elaborate and pervasive body of government regulations. The benefits are mutual. The investors are able to construct facilities aided by government financing, below-market interest rates and tax advantages. The government alleviates the housing crisis and insures compliance with its goal through a monitoring system that commences with construction of the housing and does not terminate until the mortgagors’ obligations are satisfied. The § 221(d)(3) program is not merely a case of government subsidization but an independent relationship comparable to that found in hospital construction under the Hill-Burton Act. We hold the Fifth Amendment applicable to these § 221(d)(3) projects. Accord McQueen v. Druker, 438 F.2d 781, 784-785 (1st Cir. 1971); Harlib v. Romney (N.D.Ill., March 6, 1973); Paulsen v. Coachlight Apartments Co. (W.D.Mich., March 8, 1973); Colon v. Tomkins Square Neighbors, Inc., 294 F.Supp. 134, 137-138 (S.D.N.Y.1968); Note, Procedural Due Process in Government-Subsidized Housing, 86 Harv.L.Rev. 880, 895-96 (1973) ; see Langevin v. Chenango Court, Inc., 447 F.2d 296, 304 (2d Cir. 1971) (Oakes, J., dissenting); McClellan v. University Heights, Inc., 338 F.Supp. 374, 380-382 (D.R.I.1972). But see Langevin v. Chenango Court, Inc., supra at 301.

II. TENANTS’ PROPERTY INTEREST

The Supreme Court, in Goldberg v. Kelly, 397 U.S. 254, 90 S.Ct. 1011, 25 L.Ed.2d 287 (1970), enunciated a two-step process for analyzing cases involving the deprivation of a governmental benefit. First, it must be ascertained whether the interest at issue is a constitutionally protected “property” or “liberty” interest. See id. at 262, 90 S.Ct. 1011. Second, if the interest is a protected one, the beneficiary’s interest in avoiding .loss must be balanced against the government's interest in summary adjudication. Id. at 262-266, 90 S.Ct. 1011. See generally Note, supra, 86 Harv.L.Rev. at 889.

The Court recently elaborated upon the first requirement of Goldberg v. Kelly in announcing broad guidelines for the assessment of “property interests” —Board of Regents v. Roth, 408 U.S. 564, 92 S.Ct. 2701, 33 L.Ed.2d 548 (1972), and Perry v. Sindermann, 408 U.S. 593, 92 S.Ct. 2694, 33 L.Ed.2d 570 (1972). Roth was a nontenured teacher who completed a one year term of employment and was not rehired. State law required four years of year-to-year employment prior to tenure and entitled a new teacher to nothing beyond one academic year. The Court made clear “that the property interests protected by procedural due process extend well beyond actual ownership of real estate, chattels, or. money, ... Yet the Court . . . has at the same time observed certain boundaries.” Board of Regents v. Roth, supra 571-572, 92 S.Ct. 2171 at 2706. Certain attributes of “property interests” were delineated:

To have a property interest in a benefit, a person clearly must have more than an abstract need or desire for it. He must have more than a unilateral expectation of it. He must, instead, have a legitimate claim of entitlement to it. It is a purpose of the ancient institution of property to protect those claims upon which people rely in their daily lives, reliance that must not be arbitrarily undermined.
Property interests, of course, are not created by the Constitution. Rather, they are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law —rules or understandings that secure certain benefits and that support claims of entitlement to those benefits.

Id, at 577, 92 S.Ct. at 2709. Roth’s rights were defined by his appointment, and the Court held that he had merely an abstract concern and not a “property' interest” in being rehired. Therefore, he was not afforded procedural due process.

Sindermann had taught in the Texas state college system, a system without formal tenure, for ten years. The Court remanded the case after finding that rules and understandings concerning teacher reappointment could have created a de facto tenure program objectively justifying Sindermann’s legitimate claim of entitlement to continued employment. Perry v. Sindermann, 408 U.S. at 601-603, 92 S.Ct. 2593.

Thus Roth requires more than an abstract need or unilateral expectation of a benefit. And Sindermann demonstrates that the source need not be explicit but can be implicit in the overall workings of a governmental program. Accord, Morrissey v. Brewer, 408 U.S. 471, 479, 481-482, 92 S.Ct. 2593, 2599 (1972) (interest of parolees in continued liberty qualifies for protection; “[ijmplicit in the system’s concern with parole violations is the notion that the parolee is entitled to retain his liberty as long as he substantially abides by the conditions of his parole.” The touchstone is whether those seeking the protection of the Fifth Amendment have a legitimate, objectively justifiable claim to the benefits of the governmental program.

We think the tenants of § 221(d)(3) housing do have such a claim, and it lies in their expectation, statutorily created, that they will continue to receive the benefits of low cost housing.

Section 221(d)(3) plainly contemplates that low and moderate income tenants are to be its principal beneficiaries ; as the statute’s statement of purpose declares, the program is “designed to assist private industry in providing housing for low and moderate income families and displaced families.” 12 U. S.C. § 17151(a). See generally Marshall v. Lynn, 497 F.2d 643 (D.C.Cir. 1973). Section 221 was originally enacted as a part of the National Housing Act of 1954, 68 Stat. 599. It established means of providing housing for families displaced by urban renewal. See National Housing Act of 1954, P.L. 560, § 221(a), 68 Stat. 599 (1954); Conf. Report, H. Rep.No. 2271, 83rd Cong., 2d Sess. 70 (1954). So, at the outset the purpose of the program was to benefit a class of individual tenants.- In 1961 the class of beneficiaries was broadened to include those of low and moderate income in addition to those displaced by urban renewal. See Housing Act of 1961, P.L. 87-70, 75 Stat. 149 (1961). The concern, however, was still with benefitting the individual tenants expected to occupy subsidized housing. The House Report emphasizes this in setting forth for whom the program was created:

There are many families whose incomes are sufficiently high so that they are not eligible for low-rent public housing but who . . . also cannot afford apartment-type housing even of modest design if it is financed at the going FHA interest rate and subject to the regular FHA insurance premium.

H.Rep. No. 447, 87th Cong., 1st Sess. 11 (1961); S.Rep. No. 281, 87th Cong., 1st Sess. 7 (1961), U.S.Code Cong. & Admin.News, p. 1929. In short, there can be little doubt that Congress intended to endow those occupying the housing with some form of benefit. Compare Marshall v. Lynn, supra (§ 221(d)(3) intended to benefit individual tenants) with Tenants Council of Tiber Island-Carrollsburg Square v. Lynn, 497 F.2d 648 (D.C.Cir., 1973) (§ 220 of the National Housing Act, 12 U.S.C. § 1715k, primarily intended for urban renewal purposes and not to aid individual tenants of the projects).

Since entitlement under the Roth-Sin-dermann analysis depends on a right to the specific benefit the deprivation of which is threatened by the government, the next question is what type of benefit did Congress intend to bestow upon the tenants of § 221(d)(3) housing. Congress’ purpose was, again quite clearly, to provide the tenants with the benefit of low cost housing. The source of the tenants’ entitlement is explicit: it lies in the congressionally stated purpose of providing persons of meager economic means with low-priced housing, see 12 U.S.C. § 17151(a), and the statutory requirement that the FHA regulate the rents charged by the private developer. See 12 U.S.C. § 17151(d)(3). The legislative history buttresses this conclusion. As the 1961 House Report stated it:

The below-market interest rate and reduction of FHA mortgage insurance premiums would .be made available only where the mortgagors [are willing to] operate the housing subject to related controls on rentals and income limits for admission of tenants to the housing.

H.Rep. No. 447, supra at 11; S.Rep. No. 281, supra at 8, 1961 U.S.Code Cong. & Admin.News, p. 1930. The tenants of § 221(d)(3) housing sign leases with the expectation — created by the congressional commands — that rents will be kept as low as economically feasible. Therefore, even more so than with the type of implicit expectations giving rise to property rights in Sindermann and Morrissey, the tenants of § 221(d)(3) housing have an objectively justifiable right to low cost housing. Accord, Burr v. New Rochelle Municipal Housing Authority, 479 F.2d 1165, 1167-1168 (2d Cir. 1973) ; Paulsen v. Coachlight Apartments Co., (W.D.Mich., March 8, 1973); Note, supra, 86 Harv.L.Rev. at 896; see Marshall v. Lynn, supra; Thompson v. Washington, 497 F.2d 626 (D.C.Cir.1973).

III. PROCEDURAL DUE PROCESS

The second step of the Goldberg analysis requires that we determine what form of procedural due process need be accorded tenants of a § 221(d)(3) project. This calls for an analysis of three factors: (1) the importance of the tenants’ interest; (2) the input the tenants can make in the adjudicatory process; and (3) the governmental interest at stake.

The interest of the tenants in procedural safeguards is substantial. They seek to retain decent housing at a price that is within their power to pay. A rise in the cost of housing could force tenants to forego other perhaps necessary purchases and could even force some tenants to seek other less expensive housing. Moreover, the tenants desire to insure that any rent increase is fairly justified by all the relevant data. And, not the least important, affording the tenants some participation in the rent adjustment process “generat[es] the feeling . . . that justice has been done.” Joint Anti-Fascist Refugee Committee v. McGrath, 341 U.S. 123, 172, 71 S.Ct. 624, 649, 95 L.Ed. 817 (1951) (Frankfurter, J., concurring); see also U. S. Dep’t. of Housing and Urban Development, Management of HUD-Insured Multifamily Projects Under Section 221(d)(3) & Section 236, A HUD Guide, No. HM G 4351.1 at 209 (1971).

As to the input tenants can make, rent determination is based in significant part upon various technical factors. See id. at 209. Tenants can contribute little to such calculations. This argues for giving the tenants less than a full-dress hearing. But it does not mean that they should be denied any role whatsoever. The FHA must also consider whether increased expenses have occurred and whether unnecessary expenses have been minimized, for the FHA will only entertain rent increases when justified by expenses “over which owners have no effective control.” Id. Moreover, a rent increase hinges on whether there are any violations of the Regulatory Agreement and whether the property is being adequately maintained. U. S. Dep’t of Housing and Urban Development, Insured Project Servicing Handbook, A HUD Handbook, No. RHM 4350.1 Supp. 1 at 3, 5 (1970). Obviously, tenants are in a good position to know the facts relative to these matters. Hence, this factor justifies some limited tenant involvement.

The government’s interest is also substantial. It is to preserve the flexibility of the § 221(d)(3) program, for if the program becomes encumbered with bureaucratic obstacles, private investment in the program may be significantly deterred.

However, we find, as did the district courts, that the government’s interest is not sufficient to outweigh entirely the need — and helpfulness — of permitting tenants a limited right of intervention. A full-dress hearing is not necessary. The potential for lengthy delay if a hearing precedes a rent increase would be particularly great with such a requirement especially considering the sheer number of tenants involved. Moreover, as we have said, the tenants’ contribution is not likely to be as important as, say, that of the welfare recipient in Goldberg v. Kelly, because of the technical issues which are a part of a rent determination. However, “[t]he formality and procedural requisites for [a due process] hearing can vary, depending upon the importance of the interests involved and. the nature of subsequent proceedings.” Boddie v. Connecticut, 401 U.S. 371, 378, 91 S.Ct. 780, 786, 28 L.Ed.2d 113 (1971). The tenants’ substantial interest in low cost housing added to the contribution they can make on certain rent adjustment issues requires, we think, that they be given notice of the rent increase, an opportunity to make written objections and receipt of a concise statement of the FHA’s reasons for its action, as the two district judges here specified.

Furthermore, the tenants must be given notice of the proposed rent increase and a right to reply before the FHA approves the landlord’s request. Although Mitchell v. W. T. Grant Co., 416 U.S. 600, 94 S.Ct. 1895, 40 L.Ed.2d 406 (1974), has perhaps cast doubt on the continued vitality of the “presumption” in cases like Bell v. Burson, 402 U.S. 535, 542, 91 S.Ct. 1586 (1971) and Boddie v. Connecticut, 401 U.S. at 378-379, 91 S.Ct. 780, in favor of pre-action notice and opportunity for hearing, the balancing process in this case leads nonetheless to the pre-deprivation result. Here, there is no grave danger that providing an opportunity for written objections will significantly delay justified rent increases and, therefore, deter investment in § 221(d)(3) housing; indeed, the danger is remote at best. True, it could be argued that the tenants’ countervailing interest is minimal, for if the tenants are given a post-increase right to challenge and the rent is then rolled back, their deprivation will only be temporary. But “the extent of deprivation has a qualitative and not a mere quantitative character.” Thompson v. Washington, 497 F.2d at 636. A slight deprivation to most of us may be very serious to a poor person. See Burr v. New Rochelle Municipal Housing Authority, 479 F.2d at 1168 (increase of rent in public housing) ; Hunt v. Edmunds, 328 F.Supp. 468 (D.Minn. 1971) (reduction of welfare benefits); Woodson v. Houston, 27 Mich.App. 239, 183 N.W.2d 465 (1970) (same); but see Hahn v. Gottlieb, 430 F.2d 1243, 1247 (1st Cir. 1970). In that sense it is like the form of pre-judgment wage garnishment condemned in Sniadach v. Family Finance Corp., 395 U.S. 337, 89 S.Ct. 1820, 23 L.Ed.2d 349 (1969). There too the deprivation would have been temporary if the wage-earner had ultimately prevailed, but, as the Court observed, that temporary loss could “as a practical matter drive a wage-earning family to the wall.” Id. at 341-342, 89 S.Ct. 1820, 1823 (footnote omitted). Here also a temporary deprivation could have very serious effects, serious enough, we think, to require the procedural safeguards outlined by the district courts.

Affirmed.

HUFSTEDLER, Circuit Judge

(dissenting) :

These tenants present a sympathetic case. Rent increases beyond their means threaten them with the loss of the housing they now enjoy, and the prospects are bleak for their finding adequate replacements. Their plight is of no less concern because it is shared by tens of thousands of other tenants whose incomes have not kept pace with spiraling inflation and to whom no recourse to the procedural protections of the Fifth and Fourteenth Amendments is available because neither a state nor the federal government is significantly involved in their housing arrangements. The Supreme Court has made it clear, however, that the fact alone that one suffers grievous loss because of a governmental act does not give the injured person a right to . prior notice and hearing. (Compare Board of Regents v. Roth (1972) 408 U.S. 564, 92 S.Ct. 2701 with Joint Anti-Fascist Refugee Committee v. McGrath (1951) 341 U.S. 123, 168, 71 S.Ct. 624 (Frankfurter, J., concurring).) Furthermore, these tenants are not the only low and moderate income housing consumers with interests in the outcome of this controversy; other such housing consumers will be adversely affected if these tenants prevail. Sympathy for these plaintiffs, therefore, cannot substitute for careful analysis of the nature and the legal consequences of their interests.

I agree with the First and Second Circuits and with the majority in the cases at bench that the tenants have no statutory right to notice and an evidentiary hearing anteceding rental increases (Hahn v. Gottlieb 1st Cir. 1970) 430 F.2d 1243; Langevin v. Chenango Court, Inc. (2d Cir. 1971) 447 F.2d 296.) If the tenants are to have a right, it must be founded on the Constitution. I also agree with my brothers that the federal government is sufficiently enmeshed in the housing projects before us that the Fifth Amendment can be invoked. (See Public Utilities Comm’n v. Pollak (1952) 343 U.S. 451, 72 S.Ct. 813; Adams v. Southern California First Nat’l Bank (9th Cir. 1974) 492 F.2d 324, 340 (Hufstedler, J., dissenting from denial of hearing en banc).) However, I disagree that the nature of the interests asserted by these tenants is such that the Fifth Amendment can be applied to require their landlords or the Government to give them notice and opportunity to be heard before rental increases can be approved and effected.

I.

The tenants have a right to prior notice and hearing only if they have “a legitimate claim of entitlement” to the governmentally conferred benefit. (Board of Regents v. Roth, supra, 408 U.S. at 577, 92 S.Ct. 2701.) The search for a definition of entitlement is elusive because the concept has only recently emerged and in its present formative stage its features are not fully discernible. To say that interests are entitlements only if they are property interests (see id.) is not a useful definitional tool because the term “property” embraces multiple concepts that have differing consequences depending upon the kind of “property” involved and the setting in which the concepts are invoked. In the entitlement context, the property label does little more than alert the reader to the court’s conclusion that, whatever entitlement is, it is within the protection afforded by the due process clauses of the Fifth and Fourteenth Amendments. The appellation provides no assistance in deciding what kinds of interests in gov-ernmentally conferred benefits can become entitlements.

Although comprehensive definition of the entitlement concept is not yet possible, the contexts in which prior notice and hearing have or have not been required provide guidance in determining the kinds of interests that are entitlements. An interest that gives rise to an entitlement is always a conditional interest, but not all conditional interests in governmental benefits give rise to entitlements. To create an entitlement, the law must remove the decision to grant the benefit from agency discretion. (See, e. g., Arnett v. Kennedy (1974) 416 U.S. 134, 181-182, 94 S.Ct. 1633, 40 L.Ed.2d 15 (op’n of White, J.) (government employment terminable at will of government not subject to prior notice and hearing).)

It is not sufficient, however, that there be a legal requirement that mandates conferral of the benefit; the legal requirement must be one that the beneficiary may insist upon at a hearing. (See Perry v. Sindermann (1972) 408 U.S. 593, 601, 92 S.Ct. 2694.) Every remedial statute directly and indirectly confers benefits on numerous people. Although conferral of an actual benefit may be essential to the creation of an entitlement, not all recipients of actual benefits have entitlements. Benefits arising from a statute that can become entitlements should be restricted to those benefits conferred on those beneficiaries to whom Congress intended to extend some kind of enforceable interest or, to put it slightly differently, to whom Congress intended to create a governmental obligation.

Thus, a unilateral expectation of continued conferral of a benefit is not an entitlement. (See Board of Regents v. Roth, supra, 408 U.S. at 577, 92 S.Ct. 2701.) The majority errs in implying that an expectation that is reasonable in the light of the purpose of the law from which the benefit flows is an entitlement. Reasonableness of an expectation in absence of some kind of binding legal requirement (cf. Restatement of Contracts § 90) is not enough to generate an entitlement. (Cf. Perry v. Sinder-mann, supra, 408 U.S. at 601-602, 92 S. Ct. 2694.) The governmental obligation may arise from statute, contract, or common law. (See id.) It may be explicit, or it may be implicit, as for example, a legal obligation based on implied contract (see id.; cf. Morrissey v. Brewer (1972) 408 U.S. 471, 92 S.Ct. 2593), or on a statutory scheme that, by granting power to terminate benefits under certain circumstances, implicitly disallows termination in all other circumstances. (See id.; Goldberg v. Kelly, supra, 397 U.S. 254, 90 S.Ct. 1011.)

The nature of due process, however, indicates that entitlements involve a component in addition to the existence of an enforceable right. Due process is a practical concept; prior notice and hearing are not required when a hearing would be pointless. The purpose of a prior evidentiary hearing in the entitlement context is to resolve those questions of fact upon which a controversy turns; if there are no material issues of fact to be resolved, a prior evidentiary hearing to determine the existence of facts is meaningless, and the very purpose of requiring procedural due process guarantees evaporates. (See K. Davis, Administrative Law Treatise § 7.01 (1958 & Supp.1970); cf. Greene v. McElroy (1959) 360 U.S. 474, 496, 79 S.Ct. 1700, 3 L.Ed.2d 1377.) The substantive law from which the benefit springs of course determines what factual issues are material. (See, e. g., J. Wigmore, Evidence § 2, at 6-7 (3d ed. 1940).) For a fact to be material, there must be a legal requirement that the benefit be conferred if the fact is established. Unless such a legal requirement exists, there is nothing meaningful for an evidentiary hearing to resolve. Unless the law requires that consequences follow from the proof of a fact, that fact is immaterial to resolution of a conflict; whether the fact is proven or disproven at the hearing has no necessary impact on the outcome of the controversy. In sum, only those interests can become entitlements that are conditional upon the continued existence of one or more controvertible and controverted facts. If none of the material facts is, or could be, controverted, there is no significant issue for a prior hearing to resolve. (Cf. Board of Regents v. Roth, supra, 408 U.S. 564, 92 S.Ct. 2701 (Roth’s right to continued employment was conditioned on whether the contractual termination date had arrived; Roth did not claim that the date had not arrived).)

Thus, if the beneficiary shows that he is the recipient of a governmentally conferred benefit that is rooted in a legal obligation and that the legal obligation conditions his initial or continued receipt of the benefit on the existence of a controverted fact, he has an entitlement, and he must be accorded prior notice and an opportunity to be heard for the purpose of resolving, the controverted factual issue. (E. g., Arnett v. Kennedy, supra, 416 U.S. 134, 94 S.Ct. 1633 (right to employment conditioned on absence of sufficient cause for dismissal); Perry v. Sindermann, supra, 408 U.S. 593, 92 S.Ct. 2694 (same); Morrissey v. Brewer, supra, 408 U.S. 471, 92 S.Ct. 2593 (right to freedom from incarceration conditioned on absence of violation of parole conditions); Goldberg v. Kelly, supra, 397 U.S. 254, 90 S.Ct. 1011 (right to welfare conditioned on claimant’s meeting eligibility requirements).)

From these principles we can draw a working definition of an entitlement; An entitlement is a legally enforceable interest in receiving a governmentally conferred benefit, the initial receipt or the termination of which is conditioned upon the existence of a controvertible and controverted fact. Such an interest cannot be impaired or destroyed without prior notice to the beneficiary and a meaningful opportunity for him to be heard for the purpose of resolving the factual issue.

II.

These tenants have not met the criteria for claiming an entitlement. They are recipients of some governmentally conferred benefits, but the conferral of these benefits is not controlled by the requisite kind of legal requirement and, more importantly, even if there were an appropriate legal requirement, it would not give rise to the kind of enforceable obligation that could ripen into an entitlement.

The benefits which the tenants received are occupancy of housing that would not have been available had not section 221 of the Housing Act been enacted and their expectation that rental increases would not be permitted without FHA approval under standards that could be promulgated by the FHA.

The tenants did not receive a benefit that their rents could not be increased during their tenancy, because the statute itself contemplated that rents could thus be raised. Nor can the tenants claim that rents could not be increased beyond the ability of any individual tenant or groups of tenants to pay because, while Congress wanted to make housing available to members of a class consisting of low and moderate income groups, Congress did not gear rent levels to the budgets of individual members of the class or to the means of subclasses within the overall class. Indeed, it was contemplated that rent raises might deprive some of the tenants of the ability to remain in a project.

To have an entitlement to low rents, these tenants must assert a legal requirement that would render a rent increase improper under disputable and disputed facts. However, the statute merely requires that the Secretary in his discretion may regulate rents (12 U.S.C. § 1715J(d) (3)); it does not fix or require the Secretary to fix specific factual standards under which rents are to be regulated. The regulations adopted to implement the rent control requirement reflect the need for flexibility that is implicit in the statute. The only regulation that does more than paraphrase the statute, 24 C.F.R. § 221.531(c), does not apply to these projects (compare 24 C.F.R. § 221.510(a), (c), (e) with id. §§ 221.531, 221.532(a)) and does no more than indicate that certain factors are to be balanced in rent control decisions. The HUD handbook on which the tenants rely appears not to be legally binding (see Thorpe v. Housing Authority (1969) 393 U.S. 268, 275, 89 S.Ct. 518, 21 L.Ed.2d 474), and it does no more than enumerate factors that generally are to be considered. Finally, the regulatory agreement imposes no requirement that rent increase requests be denied in certain circumstances; rather, it requires that rent increases be granted at least in certain circumstances and, if denied, that the denial be communicated in a stated manner.

In dealing with statutes that confer direct aid upon identified classes of persons, such as welfare and veterans’ benefit statutes (e. g., Goldberg v. Kelly, supra, 397 U.S. 254, 90 S.Ct. 1011), it is reasonable to infer, in the absence of expressed intent, that Congress intended those direct beneficiaries to have legally enforceable interests in such benefits as long as the beneficiaries’ eligibility continued. Granting the beneficiary a legal interest assures that each beneficiary receives the benefit that Congress intended to give him. Attaching due process protections to the vindication of the right promotes, rather than impairs, the congressional scheme. Section 221(d) (3), however, gives no direct financial aid to the tenants. Financial inducements are given, not to the tenants, but to private industry to encourage the private sector to build new rental units that would be accessible to lower and middle income families. Congress could have imposed a strict low rent control system expressly for the benefit of the tenants as a price for the government’s financial inducements to prospective builders. But it did not do so because it was not oblivious to the reality that the greater was governmental control of rents and the more procedural detail that enswathed these projects, the less likely it would be that the private sector could be induced to participate. Congress balanced the interests of the tenants in existing 221(d)(3) projects in retaining low rents and the interests of other low and moderate income housing consumers in giving the private sector a sufficiently painless opportunity to earn enough return on its investments to induce it to build, by granting to the individual tenants no enforceable interest in their benefits and by delegating to the FHA the task of regulating rents within flexible standards. (Cf. Langevin v. Chenango Court, Inc., supra, 447 F.2d at 301; Hahn v. Gottlieb, supra, 430 F.2d at 1250.)

The same notion can be expressed in a different way. While section 221(d)(3) was clearly intended to benefit speeifi-cally those persons who rent units in section 221(d)(3) housing projects, the statutory scheme is more directed to benefiting the class of low and middle income housing consumers than it is to benefiting any specific tenants. The purpose of section 221(d)(3) can be met only if a balance is struck between conflicting goals, the generation of housing, and the maintenance of low rents in the housing generated. Crucial to the balance is the acceptance of somewhat less than optimal achievement of each goal. Thus, although more housing would be generated if rents in section 221(d)(3) projects were not controlled, rents must be subjected to some kind of restraints. Conversely, the fact that tenants of a certain project have their rents raised, even if the rent increase is not necessary for the economic viability of the project, does not mean that achievement of the purpose of the statute is impaired. Section 221(d)(3) is a program intended to maximize the benefit generated for the whole class, even if to do so requires that many individuals in the class be given a less than optimal benefit or no benefit at all. Congress apparently concluded that it is more important that more reasonably inexpensive housing projects be built than that Nilda Keller tenants, for example, have a legal right to rents as low as economically feasible.

If these tenants are allowed to prevail, the ability of the program to benefit the entire class of low and moderate income housing- consumers would be impaired. To hold that Congress necessarily conferred a legitimate claim of entitlement on these tenants is to hold that Congress is without power to benefit to the degree it desired the entire class of potential tenants. This court should not hold that Congress’ power to control its benevolence is so limited. Congress may not confer a legal interest on the condition that if it is accepted, the beneficiaries’ interests will be protected by procedures not satisfying due process (see Arnett v. Kennedy, supra, 416 U.S. 134, 166-167, 185, 211, 94 S.Ct. 1633) because of the costs consequent upon a grant of prior notice and hearing; however, it may decide not to confer the legal interest at all (cf. Richardson v. Belcher (1971) 404 U.S. 78, 81, 92 S.Ct. 254; Bell v. Burson (1971) 402 U.S. 535, 539, 91 S.Ct. 1586). Where, as here, the costs of procedural due process protections are substantial, we should not infer that Congress granted an entitlement.

Because the tenants have not been able to make the essential showing that they have any enforceable interest in continuing to receive the benefits that they derived from the statutory scheme, they cannot successfully assert that they have entitlements.

III.

Although neither the statute nor the Constitution requires that the tenants be given notice and an opportunity to be heard, I believe that the kind of participation that my brothers describe should be accorded by administrative policy implemented by appropriate regulations.

Even if I agreed with my brothers that the tenants had an entitlement, I could not join the majority opinion because, in the guise of granting due process, it eviscerates the due process protections that it purports to grant. The great procedural protections of due process are reduced by the majority to little more than a right to send and receive mail. Procedural due process is flexible, but it is not flaccid. At the barest of mínimums, due process requires not only adequate prior notice but also a meaningful evidentiary hearing with a right to personal appearance and a right to call and to examine witnesses as well as to present documentary evidence. While stating that the tenants’ interest is substantial, the majority opinion gives the tenants fewer procedural protections than the Supreme Court has held to be constitutionally due prisoners, under the extremely difficult conditions attending prison disciplinary proceedings. (Wolff v. McDonnell (1974) 418 U.S. 539, 94 S.Ct. 2963, 41 L.Ed.2d 935.)

I would reverse.

      . Keller v. Kate Maremont Found., 365 F.Supp. 798 (N.D.Cal.1972) ; Geneva Towers Tenants Org. v. Federated Mortgage Investors, No. C-70 104 SAW (N.D.Cal., Jan. 2, 1973), summarized at 2 CCH Pov.L.Rep. If 16,402.
      The district court in Geneva Towers also specified that notice to the tenants must be adequately in advance of the effective date of the proposed increase and include the lessor’s reasons; that relevant information was to be provided in the application to permit effective challenge; and that the tenants might request information supplied by the FIIA to the lessor regarding rents, rent increases and comxrarable cost structures.

      . The district court stayed its order in Geneva Towers pending appeal. Pursuant to stipulation, the rent increase has been paid by the tenants; but the monies have been deposited with the district court.
      There have been a number of developments in Keller during the pendency of this appeal. The court granted the government’s motion for a stay pending appeal with the proviso that the rents be paid but deposited by the landlord into a special account. Kate Mare-mont Foundation claimed it was unable to meet the proviso and requested that the FHA reprocess the rent increase application in accordance with the order of the district court. The FHA notified the tenants of the application, received written submissions and, after extensive investigation, granted an additional 4.74% "rent increase over the original 10% granted in 1971. The FHA subsequently provided a concise statement of the reasons for approving the increase on April 20, 1973. The ramifications of these developments have been discussed in the context of mootness by the parties in supplemental briefs.
      Mootness is not the problem here, for the controversy over what due process rights, if any, should be afforded the tenants of § 221(d) (3) projects, remains a live one to the foundation. Cf. Powell v. McCormack, 395 U.S. 486, 495-500, 89 S.Ct. 1944, 23 L.Ed.2d 491 (1969). The issue is whether Kate Maremont Foundation’s compliance with the district court’s order forecloses its appeal. We think it does. The general rule in the federal courts is that compliance with a judgment, of itself, does not cut off the right of appeal. Ferrell v. Trailmobile, Inc., 223 F.2d 697, 698 (5th Cir. 1955). There are exceptions to the rule: (1) when compliance is by way of compromise or shows an intention to abide by the judgment; (2) when compliance is coupled with acceptance of a benefit; or (3) when compliance renders appellate relief futile. Id. at 698. Not only did Kate Maremont Foundation indicate an intention to abide by the order of the district court, there is no relief this court can now grant the Foundation other than of a declaratory nature. We point out that our foreclosing of Kate Maremont’s appeal in no way jeopardizes that of the tenants or the government in Nos. 72-2756, 72-2784, or 72-2788.

      . H.Rep. No. 447, 87th Cong., 1st Sess. 11 (1961).

      . 12 U.S.C. § 1715i(a).

      . See Note, Procedural Due Process in Government-Subsidized Housing, 86 Harv.L.Rev. 880, 884 n. 19 (1973).

      . 12 U.S.C. § 1715l(a) ; H.Rep. No. 447, supra note 3, at 11; S.Rep. No. 281, 87th Cong., 1st Sess. 8 (1961), U.S.Code Cong. & Admin.News. p. 1923.

      . This is in accordance with federal regulation, 24 C.F.R. § 221.531(c) (1973), which provides:

        Bents and Charges. In approving the allowable rents and charges and in passing upon applications for changes, consideration will be given to the following and similar factors:
      (1) Rental income necessary to maintain the economic soundness of the project.
      (2) Rental income necessary to provide a reasonable return on the investment consistent with providing reasonable rentals to tenants.
      The procedure for FIIA approval of a rent increase is found in U.S. l)ei>’t. of Housing and Urban Development, Insured Project Servicing Handbook, A IIUD Handbook, No. RHM 4350.1, supp. 1 (1970).

      . Regulations also specify that a limited distribution mortgagor, sucli as Geneva Apartments, Inc., cannot receive more than a six percent return on its initial equity investment. 24 O.F.R. § 221.532(a) (1973).

      . 42 Ü.S.C. §§ 291-291o (1970). The Hill-Burton Act provides federal subsidization for the construction of private nonprofit hospital facilities pursuant to a federally-approved state plan. A number of courts have found the requisite federal action in the program. See, e. g., Simkins v. Moses H. Cone Memorial Hosp., 323 F.2d 959 (4th Cir. 1963).

      . The Court held in Goldberg that welfare benefits were a matter of statutory entitlement for persons qualified to receive them, id. at 262, 90 S.Ct. 1011, and required a bearing before benefits could be terminated. Id. at 266-271, 90 S.Ct. 1011.

      . See Arnett v. Kennedy, 416 U.S. 134, 94 S.Ct. 1633, 40 L.Ed.2d 15 (1974) ; Morrissey v. Brewer, 408 U.S. 471, 481, 92 S.Ct. 2593, 33 L.Ed.2d 484 (1972) ; Board of Regents v. Roth, 408 U.S. 564, 569-572, 92 S.Ct. 2701 (1972) ; Perry v. Sindermann, 408 U.S. 593, 599-600, 92 S.Ct. 2694 (1972) ; Fuentes v. Shevin, 407 U.S. 67, 84, 92 S.Ct. 1983, 32 L.Ed.2d 556 (1972).

      . See, e. g., Morrissey v. Brewer, supra at 483-490, 92 S.Ct. 2593.

      . Arnett v. Kennedy, 416 U.S. 134, 94 S.Ct. 1633, 40 L.Ed.2d 15 (1974), does not affect this frame of analysis but, in fact, reaffirms it. There, the Court held that a federal civil service employee had no right to a full hearing prior to dismissal from his job. Tiie case centered on a provision of the Lloyd-LaFollette Act, 5 U.S.O. § 7501, which provides that “Lajn individual in the competitive service may be removed or suspended without pay only for such cause as will promote the efficiency of the service.” In subsection (b) of this provision the employee is given tiie right to respond in writing to the charges but is specifically denied tire right to a full scale hearing which would include the right to confront witnesses and the like. Justice Rehnquist’s plurality opinion, joined by the Chief Justice and Justice Stewart, reasons that the employee did not have a statutory entitlement to continued employment based on a right to a pre-dis-o.harge hearing because the right to employment was statutorily conditioned on a denial of a full hearing. Id. at 136, 94 S.Ct. 1633. However, the other six justices rejected this reasoning. See id. at 164, 171, and 206, 94 S.Ct. 1633 (Justice Powell, concurring; Justice White, concurring in part and dissenting in part; and Justice Brennan, dissenting). They basically agreed that once a substantive right lias been created, it is the Due Process Clause which provides the jirocedural mínimums, and not a statute or regulation. Justice Powell, joined by Justice Blackmun, agreed with the plurality only as to the result based on a Goldberg-typo balancing; he reasoned that the statutory procedures were sufficient to satisfy Due Process, particularly since the employee had a right to a full post-discharge hearing. Sec id. at 164, 94 S.Ct. 1633.

      . It is perhaps possible to argue that the primary beneficiaries of § 221(d)(3) are the class of low income housing consumers, and not merely the tenants of the projects, since a purpose of the program is arguably to depress the cost of housing available to the entire class by adding to the stock. Therefore, it could be said that since no individual benefit is intended, the tenants have no claim of entitlement. Although it is perhaps true that low income housing consumers are a class of beneficiaries, the legislative history leaves little doubt that the individual tenants were intended to be the principal beneficiaries. See ante and compare Tenants Council of Tiber Island-Carrollsburg Square v. Lynn, 497 F.2d 648 (D.C.Cir.1973).

      . Hee, e. g., Morrissey v. Brewer, 408 U.S. at 481-490, 92 S.Ct. 2593; Bell v. Burson, 402 U.S. 535, 539-542, 91 S.Ct. 1586, 29 L.Ed.2d 90 (1971) ; Richardson v. Perales, 402 U.S. 389, 401-406, 91 S.Ct. 1420, 28 L.Ed.2d 842 (1971) ; Goldberg v. Kelly, 397 U.S. at 263-271, 90 S.Ct. 1011; Note, supra, 86 Harv.L.Rev. at 891.

      . This Guide, at 209, sets forth the general factors that the FHA will consider:
      HUD will entertain a written request for a rent increase to compensate for any net increases in taxes and operating expenses over which owners have no effective control.
      [T]he mortgagor should carefully consider the local rental market to determine if a rent increase will allow the project to remain competitive. .
      A mortgagor must also be certain that all unnecessary expenses are reduced to a minimum.
      Evidence of increased expenses must also be submitted.

      . See Mitchell v. W. T. Grant Co., supra at 624-627, 94 S.Ct. at 1908-1909 (Powell, L, concurring).

      . In Mitchell, in which the Court upheld a Louisiana statute permitting a seller to gain sequestration of installment-purchased goods without prior notice and hearing, the balance worked out quite differently. If pre-sei-zure notice and hearing were to be required, the rights of the seller — who was viewed, importantly, as a joint owner of the goods, id. at 604, 94 S.Ct. at 1898 — would be jeopardized since the goods would continue to de-precíate and the debtor might sell the goods cutting off the seller’s security interest altogether. Id. at 604^605, 94 S.Ct. at 1899. On the other hand, the debtor was relatively well protected. The seller was required to put up a bond adequate to cover the value of the goods and attorney’s fees should the sequestration prove groundless; process was issued by a judge and not a court clerk, thus “Minimiz [ing] the risk of error,” id. at 609, 94 S.Ct. at 1901; the debtor could regain the property by putting up a bond; and the debtor could have an immediate post-sequestration hearing on the matter of possession.

      . Certain other courts are in agreement. See Marshall v. Lynn, supra; Thompson v. Washington, supra; Burr v. New Rochelle Municipal Housing Authority, supra; Paul-sen v. Coachlight Apartments Co., supra. But see Hahn v. Gottlieb, supra; People’s Rights Org. v. Bethlehem Associates, 356 F.Supp. 407 (E.D.Pa.1973).

      . Thus, that an interest is legally protected is both a prerequisite to (cf., e. g., West River Bridge Co. v. Dix (1848) 47 U.S. (6 How.) 507, 532, 12 L.Ed. 535; Reich, The New Property, 73 Yale L.J. 733, 739) and a consequence of (see, e. g., Board of Regents v. Roth (1972) 408 U.S. 564, 92 S.Ct. 2701) its being termed property. Because the relevant legal protections may be of various sorts, an interest may be protected in one manner but not in another. Therefore, a given interest, seemingly paradoxically, may be both property and not property. (Compare Richardson v. Belcher (1971) 404 U.S. 78, 81, 92 S.Ct. 254, 30 L.Ed.2d 231, with Goldberg v. Kelly (1970) 397 U.S. 254, 262 n. 8, 90 S.Ct. 1011.)

      . The interest in a benefit that gives rise to an entitlement cannot be an absolute right. If the beneficiary’s right to receive the benefit were absolute, the Government without awarding him just compensation could not constitutionally deprive him of the right even after prior notice and hearing.

      . The notion is akin to standing doctrines. (See generally, e. g., Association of Data Processing Service Organizations, Inc. v. Camp (1970) 397 U.S. 150, 90 S.Ct. 827, 25 L.Ed.2d 184.) Prerequisites to a claimant’s asserting a legal obligation for the purpose of compelling prior notice and hearing are perforce more stringent than those in which he seeks to assert a legal requirement to support review of governmental action in a proceeding after the government has acted.

      . Thus, if in Arnett v. Kennedy (1974) 416 U.S. 134, 94 S.Ct. 1633, Kennedy had been able to rebut any governmental proof of wrongdoing on his part, the Government would have been statutorily required to have continued his employment; if in Perry v. Sindermann (1972) 408 U.S. 593, 92 S.Ct. 2694, Sindermann had been able to rebut charges of misbehavior, the state might have been required by implied contract of “common” law to have continued his employment; if in Morrissey v. Brewer (1972) 408 U.S. 471, 92 S.Ct. 2593, Morrissey had rebutted charges that he violated a condition of his parole, the state would have been disem-powered from revoking his parole; if in Goldberg v. Kelly (1970) 397 U.S. 254, 90 S.Ct. 1011, Kelly had established his eligibility for welfare, the state would have been statutorily required to continue to pay him welfare benefits.

      . No factual dispute is material, of course, unless the benefit is conditioned on the existence of the disputed fact.

      . “. . . . Congress has made clear not only in the statutory language, § 221(a), which we have quoted, but in a relevant committee report, that the purpose of the § 221(d)(3) program was to promote ‘the construction of housing by private enterprise’ S.Rep. No. 281, 87th Cong., 1st Sess., p. 3 (1961). By leaving rent control in such projects to ‘a regulatory agreement’ between the Secretary and the mortgagor if no Federal, State, or local law required more, see fn. 7, Congress indicated its belief that a mandatory provision for subjecting all rent increases in such projects to what would amount to a full-fledged public utility rate proceeding, with the expense and delay necessarily incident thereto, might well kill the goose in ‘solicitude for the eggs.’ Hahn v. Gottlieb, supra, 430 F.2d at 1246. Congress might reasonably think that, in an inflationary era, construction on the basis of distributions limited to 6% of equity investment, with all the other restrictions imposed on landlords of such projects, would be decidedly unattractive, even with a 3% interest rate on the mortgage, if rent increases ‘necessary to compensate for any net increase, occurring since the last approved rental schedule, in taxes * * * and operating and maintenance expenses over which Owners have no effective control,’ the only basis recognized in tlie standard regulatory agreement, can be held up for months during a trial-type hearing, with discovery of the owner’s records, the taking of testimony, and written findings by an examiner, ...” Langevin v. Chenango Court, Inc. (2d Cir. 1971) 447 F.2d 296, 301 (footnote omitted).

        (Cf. Hahn v. Gottlieb (1st Cir. 1970) 430 F.2d 1243, 1250.) Even the streamlined procedure mandated by the district courts in Geneva Towers and Keller carries with it a substantial risk of disruptive effect. The finances of section 221 (d) (3) projects are finely balanced; the desire to keep rents low leaves landlords no uncommitted income to absorb extraordinary costs. Nor are landlords allowed to obtain increases for most predicted rises in costs; rather, rent increases are generally allowed only for cost increases that have already occurred. Hence, if adjustments for increased costs are even slightly delayed, the viability of the projects would be impaired. Furthermore, the costs of successfully applying for governmental approval of a rent increase would also rise. More dangerous than the realization of these risks with regard to existing projects, however, is the deterrent effect that the mere possibility of such effects would have on potential new participants in the program.

      . The Government in Arnett v. Kennedy argued that the statute there in question did not give a government employee a right to continued employment absent sufficient cause for dismissal; “it confers instead a narrower right to employment unless sufficient cause for dismissal is established in accordance with the procedures prescribed therein.” (Brief for Appellants at 17, Arnett v. Kennedy, supra.) In essence, therefore, the Government in Kennedy argued that the statute conferred not an entitlement conditioned on a fact, but rather an entitlement conditioned on a finding. . Under this view, any expectation of continued employment would have been illegitimate after the requisite finding of unfitness had been made, even if the employee were in fact not unfit for employment. The plurality opinion in Kennedy seems to accept this argument. A majority of the Justices in Kennedy, however, reject the notion that constitutionally sufficient. procedures are required when a governmental benefit is conditioned on a fact, but not when it is conditioned on a finding under statutorily prescribed procedures; due process requires, in essence, that when a finding of controverted fact is to be made, it shall be made pursuant to constitutionally sufficient procedures.


source: Caselaw Access Project

author: GARTH, Circuit Judge.

license: Public Domain

text:
    In the Matter of DOLLY MADISON INDUSTRIES, INC., and Its Subsidiaries, et al., Debtors. Appeal of STATE CORPORATION COMMISSION OF VIRGINIA, an administrative, legislative and judicial division of the government of Virginia.
    No. 73-2105.
    United States Court of Appeals, Third Circuit.
    Submitted under Third Circuit Rule 12(6) Sept 4, 1974.
    Decided Oct. 10, 1974.
    J. Gregg Miller, Philadelphia, Pa., for debtors; Pepper, Hamilton & Scheetz, Philadelphia, Pa., of counsel.
    Lewis S. Minter, Joel H. Peck, Richmond, Va., for appellant.
    Before SEITZ, Chief Judge, and GIBBONS and GARTH, Circuit Judges.
   OPINION OF THE COURT

GARTH, Circuit Judge.

This appeal involves the scope of summary jurisdiction in bankruptcy. We are called upon to determine whether it is within the summary jurisdiction of a .Chapter X reorganization court to order .a State Corporation Commission to reinstate a debtor’s certificate of authority to do business. The district court’s order of October 3, 1973 ordered reinstatement. We reverse and hold that jurisdiction to issue such an order was lacking.

I.

In 1969, Dolly Madison Industries, Inc. (hereinafter “DMI”) was issued a certificate of authority to transact business in the State of Virginia by the State Corporation Commission (hereinafter “SCC”). Article IX, Section 2 of the Virginia Constitution (1971) provides that “. . . the [SCC] shall be the department of government through which shall be issued all licenses of foreign corporations to do business in this Commonwealth.” In 1970, a registration fee was assessed against DMI pursuant to Sections 58-450 and 58-451, 1950 Code of Virginia, as amended. DMI failed to pay the required registration fee and failed to file the annual report required by Sections 13.1-120 and 13.1-121, 1950 Code of Virginia, as amended.

On June 24, 1970, the District Court for the Eastern District of Pennsylvania entered an order approving DMI’s petition for reorganization under Chapter X of the Bankruptcy Act, 11 U.S.C. § 501 et seq. That order, which authorized the trustee to operate the business of the debtor, included, among other provisions, authority to incur the expenses necessary to preserve, protect and conduct the affairs of the debtor; specific authority to pay, “The cost of maintaining the corporate existence of said debt- or . . . ” (Par. 10(c), order of June 24, 1970); and an injunction against interference with the trustee’s management of the debtor.

The trustee, having received notices from several states of the revocation of DMI’s certificate of authority to do business, petitioned the district court for an order enjoining various secretaries of state from cancelling DMI’s authorizations. The reorganization court, on the same day, December 4, 1970, issued the desired injunctive order.

In January 1971, the SCC mailed a notice of registration fee assessment and an annual report form to the debtor corporation, Neither the fee nor the completed 1971 annual report was received by the SCC before the March 1st due date. Accordingly, by letter dated April 30, 1971, the SCC notified DMI that its certificate of authority would be automatically revoked on June 1, 1971, pursuant to Section 13.1-117, 1950 Code of Virginia, as amended, for failure to file the required annual reports and to pay the related fees for two consecutive years. On May 31, 1971 (one day prior to the statutory revocation date), the SCC received from the trustee of DMI, the debtor’s annual reports for the years 1970 and 1971. DMI did not remit any registration fees, contending that “ . . . the U.S. District Court has enjoined us from paying any obligations incurred prior to June 24, 1970 and has prohibited any public officials from instituting any actions or proceedings until further notice.” (Letter from DMI to the SCC dated May 28, 1971). On June 4, 1971, the SCC returned the two annual reports, pursuant to § 13.1-121, 1950 Code of Virginia, as amended (see . n.2, supra), on the ground that the reports were inaccurate as filed. SCC further advised the debt- or that its certificate of authority was revoked by operation of law on June 1, 1971, and that the SCC had no discretion in the matter.

Unwilling to proceed pursuant to Virginia’s re-entry statute, the trustee petitioned the district court on May 3, 1973 for an order to show cause why the certificate of authority should not be deemed in full force and effect. The order to show cause issued on May 4, 1973. The SCC argued that the certificate had been revoked automatically under Virginia law for failure of DMI to file annual reports for two successive years (since, when filed, the reports were inaccurate) and for failure of DMI to pay the required registration fees before the June 1, 1971 deadline. The SCC also denied the jurisdiction of the district court. The court, in its Memorandum Opinion and Order of October 3, 1973, implicitly rejected SCO’s jurisdictional argument and interpreted its prior order of December 4, 1970, as precluding the SCC from taking into consideration pre-petition failures to comply with Virginia law (i.e., the delinquent 1970 filing and fees). Concluding that at worst the debtor had failed to comply with Virginia’s statutes for one year (1971), the court ordered the SCC to reinstate DMI’s certificate of authority. The SCC appeals from that order.

II.

Section III of the Bankruptcy Act confers on a reorganization court “ . . . exclusive jurisdiction of the debtor and its property, wherever located.” 11 U.S.C. § 511. Courts of bankruptcy are empowered to issue an injunction in a summary proceeding when necessary to prevent the defeat or impairment of their exclusive jurisdiction or to protect the property and assets of a bankrupt wherever situated. The power of a bankruptcy court to protect by injunction the subject matter of its jurisdiction is inherent in the court as a virtual court of equity and exists as well by virtue of Sec. 2, sub. (a) (15) of the Bankruptcy Act, 11 U.S.C. § 11, sub. (a) (15). In re International Power Securities Corp., 170 F.2d 399, 402 (3d Cir. 1948). See First National Bank v. Lake, 199 F.2d 524, 528 (4th Cir. 1952); In re Standard Gas and Electric Co., 139 F.2d 149, 152 (3d Cir. 1943).

Summary jurisdiction is generally limited to the adjudication of questions concerning (1) the administration of the debtor’s estate, and (2) the property in the court’s actual or constructive possession. See Katchen v. Landy, 382 U.S. 323, 327, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966). See also 2 Collier on Bankruptcy, jf 23.02(1), et seq., 6 Collier on Bankruptcy, f[ 3.03, et seq. (14th ed.). The trustee does not contend that the district court’s order was based on the power of the court to administer the reorganization. Thus, the district court’s summary jurisdiction, if any, must stand or fall on whether that court was exercising control over the debtor’s property.

The trustee does not argue that the certificate of authority is itself a property right. Rather, the trustee points to DMI’s Blackstone, Virginia manufacturing plant as the res required for the exercise of summary jurisdiction by the district court. The trustee then argues that revocation of the certificate of authority deprives DMI of the right to operate that plant; thus, constituting an interference with “property” within the jurisdiction of the reorganization court. We do not believe, however, that the scope of a bankruptcy court’s summary jurisdiction is as broad as the trustee suggests.

In the instant case, the reorganization court has not acted to preserve its power to adjudicate claims- relating to the trustee’s property. Unlike the situation in which a bankruptcy court enjoins prosecution of a claim in a different forum, here the SCC has made no claim against “property” of the debtor corporation. The mere fact that the debtor’s property may be affected by state law does not constitute a “claim” against that “property” and absent such a “claim” summary jurisdiction is unavailable.

In Gillis v. California, 293 U.S. 62, 55 S.Ct. 4, 79 L.Ed. 199 (1934), the receiver of a corporation undergoing reorganization asked- the district court to sanction non-compliance with a California licensing law. The receiver contended that without such an exemption he would be unable to continue operating the business. The Supreme Court held that the bankruptcy court was powerless to authorize non-compliance with the state licensing statute, regardless of the consequences. Significantly, the Court concluded its opinion with this statement :

We are not dealing here with the acknowledged power of courts to protect property in their custody, (emphasis added)

293 U.S. at 67, 55 S.Ct. at 6. In light of Gillis, the district court’s order to reinstate DMI’s certificate of authority to do business cannot be viewed as protective of a res within the court’s jurisdiction. Since preservation of the debtor’s property is the only theory advanced by the trustee in support of the district court’s jurisdiction, it follows that the court lacked the summary jurisdiction necessary to issue the October 1973 order under review.

The cases relied upon by the trustee do not compel a contrary result. In re International Power Securities Corp., 170 F.2d 399 (3d Cir. 1948) involved the consolidation of claims against the debt- or’s estate: As the court indicated, “It was impossible to administer the estate, or to reorganize the debtor, without determining the controversy between appellants and appellee.” 170 F.2d at 405. In re Standard Gas & Electric Co., 139 F.2d 149 (3d Cir. 1943) and In re Preston Mining Co., 203 F.Supp. 103 (E.D.Pa.1962) affirmed the power of the district court to enjoin direct interferences with potential choses in action of the debtor corporation. In each of these cases, unlike the instant case, the district court acted to preserve the “property” of the debtor.

The district court’s reliance on Stout v. Green, 131 F.2d 995 (9th Cir. 1942) and In re Hotel Martin Co., 41 F.Supp. 392 (N.D.N.Y.1941) was misplaced. In Stout, the Court upheld the issuance of an injunction against the enforcement of California’s Alcoholic Beverage Control Act. Section 51 of that Act authorized the seizure of unlicensed stills. One of the debtor’s assets consisted of such a still and the injunction, therefore, only prevented interference by State. Liquor Officers with property belonging to the debtor and clearly within the traditional summary jurisdiction of the bankruptcy court. In Hotel Martin, the district court granted a motion for an order restraining the New York Department of Labor from holding a hearing to determine the debtor’s liability for unemployment taxes. Once again the threatened state action was aimed directly at the property of the debtor corporation and warranted an exercise of summary jurisdiction to preserve the debtor’s res for ultimate disposition in the bankruptcy court. Neither of these cases authorize an injunction against the operation of a state law absent a claim against a “property” interest of the debtor.

Since the order of the district court, requiring the reinstatement of DMI’s licate of authority to do business was based neither on the court’s power over the administration of the debtor’s estate nor on its power to preserve the debtor’s property, the district court lacked summary jurisdiction.

The judgment of the district court will be reversed, with the direction that the order of October 3, 1973 be vacated.

      . § 58-450. Annual registration fees for domestic and foreign corporations. — Every domestic corporation, and every foreign corporation authorized to do business in this State, . . . shall pay into the State treasury on or before the first day of March in each and every year an annual registration fee . . .
      * * * * *
      * :!: :!- *
      ?! ?! ?! ?!
      * * * sj: *
      Such annual registration fee shall be irrespective of any specific license tax or other tax or fee imposed by law upon the corporation for the privilege of carrying on its business in this State or upon its franchise, property or receipts. .
      § 58-451. Assessment of registration fee and forwarding of statement. — The State Corporation Commission shall ascertain from its records the amount of the authorized maximum capital stock of each of such corporations, as of the first day of January of each year, and shall assess against each such corporation the registration fee herein imposed. A statement of the assessment, when made, shall be forwarded by the clerk of the State Corporation Commission, before the fifteenth day of February, to the Comptroller and to each such corporation.

      . § 13.1-120. Annual report of domestic and foreign corporations. — Each domestic corporation, and each foreign corporation authorized to transact business in this State, shall file, within the time prescribed by this Act, an annual report setting forth :
      (a) The name of the corporation. . . .
      (b) .........
      (c) * * *
      (<b * * *
      (e) * * *
      (f) * * *
      The report shall be made on forms furnished by the Commission, shall supply the information as of the date of the report and shall be verified by the oath of the president or a vice-president or the secretary or an assistant secretary of the corporation.
      § 13.1-121. Filing of annual report. — The annual report of a domestic or foreign corporation shall be delivered to the Commission between the first day of January and the first day of March of each year after the calendar year in which it was incorporated or authorized to transact business in this State. If the report is incomplete or inaccurate, the Commission shall return it for correetion. Otherwise the Commission shall file it in the clerk’s office, (emphasis supplied)

      . The order authorized the trustee:

        i\i * s¡í * :¡;
      (9) (g) To do any and all such things and to incur such other expenses as may be necessary and advisable in the proper management and conduct of the affairs of said debt- or and in the preservation and protection of the property and assets of the within estate, •including, if said trustee deems it necessary and advisable, the consummation of the agreements between Dolly Madison Industries, Inc. and other parties, all as described in the petition;
      * * * * *
      (10) That until the further order of this court, said trustee, in his discretion, be, and he hereby is, authorized to pay from time to time out of any [and] all funds now or hereafter coming into his hands and available for such purposes.
      (b) All proper expenses and obligations incurred by him on or after the date of this order in operating the business and preserving and maintaining the property and assets of the within estate, as herein authorized,

      . The broad language used by the district court arguably included an injunction against suspension of DMI's certificate of authority to do business in Virginia:
      15. That until final decree or the further order of this court, all creditors and stockholders, and all sheriffs, marshals and other officers, and their respective attorneys, servants, agents and employees, and all other persons, firms and corporations be, and they hereby are, jointly and severally, enjoined and stayed from commencing or continuing any action at law or suit or proceeding in equity against said debtor or said trustee in any court, or from executing or issuing or causing the execution or issuance out of any court of any writ, process, summons, attachment, subpoena, replevin, execution or other process for the purpose of impounding or taking possession of or interfering with or enforcing a lien upon any property owned by or in the possession of the said debtor or said trustee, and from doing any act or thing whatsoever to interfere with the possession or management by said debtor or said trustee of the property and assets of the within estate, or in any way interfere xoith said trustee in the discharge of his duties herein, or to interfere in any manner during the pen-dency of this proceeding with the exclusive jurisdiction of this court over said debtor and said trustee and their respective properties. . . . (emphasis added)

      . The district court’s order of December 4, 1970 provided in relevant part:
      LT]lie Secretaries of State, taxing authorities and other appropriate officials of the states listed below (hereinafter referred to as the “Officials") are hereby specifically enjoined and stayed from -instituting any actions at law or proceedings in equity against the trustee and/or the debtor corporations listed along with such states below and from taking any other action to interfere with the conduct of business of the debtor corporations by the trustee in such jurisdictions, including specifically the revocation of authority to do business in such jurisdictions, where such action at law, proceeding in equity or other action is based on the debtor’s failure to take certain action in such jurisdiction prior to .Tune 24, 1970 or the non-payment of liabilities to such jurisdictions which had accrued on or before June 24, 1970:
      Name oe Debtoe States
      * * *
      (a) Dolly Madison Industries, Inc. Virginia
      * sit sit * Sit
      Provided that, such Officials may hereafter intervene in these proceedings to seek appropriate modifications or vacation of this Order.

      . If any foreign corporation shall fail on two successive annual dates to file the annual report required by this Act or to pay the annual registration fee required by law, the Commission shall mail notice to it of impending revocation of its certificate of authority to do business in this State. Whether or not such notice be mailed, if the corporation fails before the first day of June after the second such annual date to file the annual report or to pay the annual registration fees, together with a penalty of five per centum, of the registration fees and interest at the rate of six per centum per annum on the total amount of any registration fees assessed, such foreign corporation shall thereupon automatically cease to be authorized to do business in this State and its certificate of authority shall be automatically revoked as of the first day of June. . . .

      . The SCC subsequently received from DMI a check in the amount of $26.25. Taking the position that revocation of DMI’s certificate had not extinguished its liability for past due registration fees, the check was deposited to the credit of the Treasurer of Virginia.

      . Va. Code Ann. § 13.1-115.1 provides that:
      A foreign corporation whose authority to transact business in this State has been surrendered or revoked shall, upon re-entering the State, comply with all the requirements of law applicable to an original application for a certificate of authority, including the payment of fees, except that it need not file again a copy of its charter or any amendment thereof that is then on file in the office of the clerk of the Commission. . .
      The trustee’s reluctance to comply with the statutory reinstatement procedure apparently stems from the fear that a $1,250. fee would bo imposed to obtain a new certificate of authority.

      . The SCC argues that Virginia does not penalize a corporation’s failure to file one annual report and to pay one registration fee. It is only when a second consecutive failure to comply with Virginia statutes occurs that revocation of a corporation’s certificate of authority results. The post-petition filing requirement was an obligation of the trustee, contends SCC, and it was that second consecutive default, not the pre-petition default, that triggered revocation of DMI’s authorization. (We note that the trustee had authority under paragraph 10(c) of the June 1970 order to file such reports and incur such expenses).
      By reason of our disposition, holding that the district court did not have summary jurisdiction to issue its order of October 3, 1973, we need not reach this issue or other issues raised by the parties. In particular, we do not reach and, hence, we do not decide whether 28 U.S.C. § 959(b) bars a mandatory injunction against the State of Virginia such as the October 1973 order from which this appeal is taken.

      . In ordinary bankruptcy, “administrative” control relates to such matters as “. the allowance, rejection, and reconsideration of claims, the reduction of the estates to money, and its distribution, the determination of the preferences and priorities to be accorded to claims presented for allowance and payment in regular course, and the supervision and control of the trustees and others who are employed to assist them.” United States Fidelity & Guaranty Co. v. Bray, 225 U.S. 205, 217, 32 S.Ct. 620, 625, 56 L.Ed. 1055 (1912).

      . The trustee’s May 4, 1973 petition, among other things, alleges: “ . . .7. The penalties for doing business in Virginia without a Certificate of Authority are (a) inability to institute actions to enforce contracts in the State of Virginia and (b) personal liability to officers and directors up to $1,000 each. . . .”

      . Appellant correctly points out that not every “affect” on the debtor’s property constitutes proper subject matter for an exercise of summary jurisdiction by the reorganization court. As the Supreme Court indicated in Callaway v. Benton, 336 U.S. 132, 142, 69 S.Ct. 435, 441, 93 L.Ed. 553 (1949), “. . . Congress did not give the bankruptcy court exclusive jurisdiction over all controversies that -in some way affect the debtor’s estate. .” (emphasis added)

      . In In re Standard Gas & Electric Co., 139 F.2d at 152, this Court noted :
      It will hardly be questioned that a District Court has power to protect by injunction its exclusive jurisdiction over the property and assets of a bankrupt. And the same is true with respect to the property and assets of a debtor or the proceedings in bankruptcy for the debtor’s reorganization. . (citations omitted)

      . In Callaway v. Benton, supra, the Supreme Court concluded that summary jurisdiction did not extend to particular property interests owned by a party other than the debtor. While the Court recognized that the ultimate disposition of the “property” might cause “[a] serious practical problem” to the debtor’s res (336 U.S. at 148, 69 S.Ct. 435), there is no suggestion that this practical problem would be legally sufficient to invoke the bankruptcy court’s jurisdiction.

      . In any event, In re Hotel Martin Co., supra, constitutes questionable authority in support of the district court’s jurisdictional theory. In Hotel Martin, the New York State Department of Labor filed its claim for taxes (alleging priority) in the bankruptcy proceeding. Without regard to any other consideration, such a voluntary act by the claimant would necessarily submit it to the summary jurisdiction of the bankruptcy court.