author: NEESE, Senior District Judge,

text:
    Thomas Eugene MALONE, Petitioner, v. Michael DUTTON, etc., Respondent.
    Civ. A. No. 3-83-0852.
    United States District Court, M.D. Tennessee, Nashville Division.
    Nov. 8, 1983.
    Thomas Eugene Malone, pro se.
    William M. Leech, Jr., Atty. Gen., Nashville, Tenn., for respondent.
   MEMORANDUM OPINION, ORDERS AND CERTIFICATE

NEESE, Senior District Judge,

Sitting by Designation and Assignment.

The petitioner has now paid the required filing-fee to commence this action, see memorandum and order of October 24, 1983 in general docket no. 3-83-X-66, this District. He contends that he is in the custody within this District of the respondent-warden pursuant to the judgment of January 28, 1981 of the Criminal Court of Greene County, Tennessee, within the Eastern District of Tennessee, Northeastern Division, 28 U.S.C. § 123(a)(2), in violation of the Constitution, Fourteenth Amendment, Due Process Clause, and Sixth Amendment, Right to Assistance of Counsel Clause. 28 U.S.C. § 2254(a).

The applicant claims his application to the aforenamed State-Court for Post-Conviction relief was denied May 7, 1982; that his appeal from that judgment was denied January 25, 1983 by the Court of Criminal Appeals of Tennessee “ * * * because no timely notice of appeal was filed * * * and that his petition for a delayed-appeal was denied by the immediately-aforenamed Court, supra, on June 30, 1983. It is noted that the provisions of the Post-Conviction Procedure Act of Tennessee related to a delayed-appeal apply only where the petitioner was denied his right of an appeal in the nature of a writ of error from his original conviction (i.e., a direct-appeal from his or her judgment of conviction). Baugh v. State, 3 Tenn.Cr.App. 121, 457 S.W.2d 887, 888[3] (1970), aff'd. by the Supreme Court of Tennessee (1970).

“An applicant shall not be deemed to have exhausted the remedies available in the courts of the State, within the meaning of this section [28 U.S.C. § 2254], if he has the right under the law of the State to raise by any available procedure, the question^] presented.” 28 U.S.C. § 2254(c). Mr. Malone appears to have the continuing right under the law of Tennessee to raise the federal constitutional questions he seeks to present to this Court in its courts; “ * * * [r]elief under the Post-Conviction Procedure Act [of Tennessee] is granted when the conviction * * * is void or voidable [inter alia ] because of the abridgement in any way of rights guaranteed by * * * the Constitution of the United States. T. C.A. § 40-3805 [now, T.C.A. § 40-30-105], * * * ” Cable v. Russell, 2 Tenn.Cr. App. 363, 365, 454 S.W.2d 163, 165[2] (1969), cert. den. by the Supreme Court of Tennessee (1969).

The remedy of (state)-habeas corpus remains available under Tennessee law in the courts of Tennessee “ * * * in those rare cases in which the new remedy [under T.C.A. [now] § 40-30-105, supra,] does not appear to be ‘adequate or appropriate.’ * * * ” State ex rel. Huskey v. Hatler, 606 S.W.2d 534, 536 (Tenn.1980). 28 U.S.C. § 2254, supra, authorizes the use of the federal writ of habeas corpus to challenge a conviction upon the claims of a disregard of the federal constitutional rights of the applicant where such federal writ is the only effective means of preserving his or her rights. Wainwright v. Sykes, 433 U.S. 72, 79, 97 S.Ct. 2497, 2502, 53 L.Ed.2d 594 (1977), reh. den. 434 U.S. 880, 98 S.Ct. 241, 54 L.Ed.2d 163 (1977). “ * * * [0]nly if the state courts have had the first opportunity to hear the claimfs] does it make sense to speak of the exhaustion of state remedies. * * * ” Picard v. Connor, 404 U.S. 270, 276, 92 S.Ct. 509, 512[1], 30 L.Ed.2d 438 (1977); cf. also Frazier v. Lane, 446 F.Supp. 19, 25[5] (D.C.Tenn.1977) (Only where “the States withhold effective remedy» [do] the federal courts have the power and duty to provide it.”)

For his failure to exhaust available state remedies, it appears plainly on examination of the face of the applicant’s petition in preliminary consideration that he is not now entitled to relief in this or another federal Court, 28 U.S.C. §§ 2241(d), 2254(b); Rule 4, 28 U.S.C. fol § 2254. Under that circumstance, it hereby is

ORDERED:

1. that the petitioner’s application herein is DISMISSED summarily, id.;

2. that the clerk will forthwith so notify the petitioner, id.; and,

3. that a copy of the petition herein and of this order be served by the clerk forthwith by certified mail on the respondent-warden and the attorney general and reporter of Tennessee, id.

Should the petitioner give timely notice of an appeal from the judgment and order to be entered herein, Rule 58(1), F.R.Civ.P., such notice will be treated as an application for a certificate of probable cause, Rule 22(b), F.R.App.P. Any such certificate should NOT issue for the reason that it appears plainly from the face of his application that the applicant has available to him a procedure under the law of Tennessee for relief which has not been exhausted. Id.

      . "No State shall * * * deprive any person of * * * liberty * * * without due process of law * * Constitution, Fourteenth Amendment, supra. " * * * 'A fair trial in a fair tribunal is a basic requirement of due process.’ * * * ” Irvin v. Dowd, 366 U.S. 717, 722, 81 S.Ct. 1639, 1642[3], 6 L.Ed.2d 751 (1961).

      . “In all criminal prosecutions, the accused shall have the right * * * to have the Assistance of Counsel for his defence * * Constitution, Sixth Amendment, supra. The right to counsel is the right to effective assistance of competent counsel. McMann v. Richardson, 397 U.S. 759, 771, 90 S.Ct. 1441, 1449[10], 25 L.Ed.2d 763 (1970). This is also a fundamental part of the "due process of law” guaranteed defendants in the criminal courts of Tennessee and other states by the Constitution, Fourteenth Amendment, supra. Faretta v. California, 422 U.S. 806, 818, 95 S.Ct. 2525, 2532[2], 45 L.Ed.2d 562 (1975). “* * * To satisfy the requirement of the Constitution, Sixth Amendment, to the assistance of counsel, the applicant must have been represented by counsel reasonably likely to have rendered and who rendered reasonably effective assistance. * * * ” United States v. LaRiche, 549 F.2d 1088, 1095[11] (6th Cir.1977), cert. den. 430 U.S. 987, 97 S.Ct. 1687, 52 L.Ed.2d 383 (1977).


source: Caselaw Access Project

author: LASKER, District Judge.

license: Public Domain

text:
    Jan Allen REINER, Peter Fairchild and Joseph Bilera each individually and on behalf of all others similarly situated and Jan Allen Reiner as President of West Village Houses Fair Rent Committee, Plaintiffs, v. WEST VILLAGE ASSOCIATES, West Ville Associates, Washington Village Housing Corp., Raqz, Inc., Starrett Brothers & Eken, Inc., Grenadier Realty Corp., Kreisel Company, Inc., Samuel R. Pierce, Jr., As Secretary of The Department of Housing and Urban Development, The City of New York and The New York City Housing Development Corporation, Defendants.
    No. 81 Civ. 6632(MEL).
    United States District Court, S.D. New York.
    Jan. 17, 1985.

      Faust, Rabbach & Sweet, New York City, for plaintiffs; Gerald M. Kleinbaum, New York City, of counsel.
    Lipkowitz & Plaut, New York City, for defendants West Village Associates, West Ville Associates, Washington Village Housing Corp., Raqz Inc., Starrett Brothers & Ekin, Inc., Grenadier Realty Corp. and Kreisel Company, Inc.; Gerald D. Roth, Louis Lauer, Stephen Sussman, Daniel Friedman; Lauer & Kessler, New York City, of counsel.
    Rudolph W. Giuliani, U.S. Atty., S.D. N.Y., New York City, for defendant Samuel R. Pierce, Jr., as Secretary of the Department of Housing and Urban Development; Alan Nisselson, Asst. U.S. Atty., New York City, of counsel.
    Frederick A.O. Schwarz, Jr., Corp. Counsel of City of New York, New York City, for defendants City of New York and the New York City Housing Development Corporation; Fred Kolikoff, New York City, of counsel.
   LASKER, District Judge.

This action, which controverts allegedly impermissible rent increases, involves interplay between the National Housing Act (“NHA”), Article 2 of the New York State Private Housing Finance Law (“Mitchell-Lama”) and New York City’s Administrative Code (“Merola”). The plaintiffs are tenants of the West Village Houses apartment project (“project”) and Jan Reiner as president of their representative organization, the West Village Houses Fair Rent Committee. The defendants include the past and present owners of the project and the project’s managing agencies (past and present) (collectively “owner” or “landlord”), the City of New York (“City”), the New York City Housing Development Corporation (“HDC”) and Samuel Pierce as Secretary of the Department of Housing and Urban Development (“HUD”).

The complaint presents five claims. The plaintiffs allege (1) that HUD and the landlord violated plaintiffs’ right to due process of law and HUD violated its own regulations and procedures in approving the disputed rent increase; (2) that HUD denied the tenants due process by failing to order a rollback of the rents charged in excess of those permitted under the Regulatory Agreement between HUD and the project owner (“the agreement”); (3) that the landlord has been unjustly enriched by the collection of rents not authorized by the agreement; (4) that the landlord has been unjustly enriched by virtue of having made mortgage payments to the City from allegedly unauthorized rents, and (5) that the City has been unjustly enriched by accepting mortgage payments from the landlord with knowledge that the payments were made from unauthorized rents collected by the landlord.

Pursuant to Rule 56 of the Federal Rules of Civil Procedure all of the defendants move for summary judgment on the ground that (1) the tenants have no standing under the agreement to contest rental increases and (2) the tenants were not entitled to notice of or an opportunity to comment on the owners’ application to HUD for a rental increase. The City and HDC move for summary judgment on the further ground that the complaint fails to state a cause of action against either of them. The plaintiffs cross move for summary judgment against each of the defendants, asserting that the law requires conclusions opposite to those urged by the defendants.

For the reasons set forth below the defendants’ joint motion for summary judgment is granted and the complaint is dismissed.

I. Statutory and Regulatory Background

The National Housing Act

Pursuant to Section 223(f) of the National Housing Act the Secretary of HUD is authorized, at his discretion, to enter into contracts of insurance with mortgagees which are State or local agencies. The mortgages to be insured must meet the eligibility requirements specified in the regulations promulgated in Title 24 of the Code of Federal Regulations, Part 207.-32a(k). That section requires that the State or local government, or agency, enter into an agreement with the Commissioner by which the mortgagee establishes a special fund for the purpose of partially reimbursing the Commissioner in the event HUD is called upon to pay an insurance claim on a defaulted mortgage. Such an agreement must contain assurances by the State or local government, or agency that:

The projects securing the mortgages in each portfolio shall not be subject to rent controls by the State, or a political subdivision thereof, or by any authority regulating rents pursuant to State or local law....

Generally, the procedure for effectuating a Section 223(f) refinancing in New York City involves four steps: 1. HDC, on behalf of the City, applies to HUD pursuant to Section 223(f) for a commitment to insure a portion of a Mitchell-Lama mortgage; 2. HUD issues a commitment indicating the principal amount of a mortgage on the property involved that HUD is prepared to insure; 3. the City divides the Mitchell-Lama mortgage into a Senior Mortgage in a principal amount equal to HUD’s insurance commitment and a Subordinate Mortgage in a principal amount equal to the remainder of the face amount of the initial mortgage and accrued unpaid interest; 4. HUD insures the Senior mortgage and enters into a Regulatory Agreement with the owner, which, together with the statute and HUD regulations, subject the project to HUD’s supervision.

The Mitchell-Lama Law

Article 2 of New York State’s Private Housing Finance Law (“Mitchell-Lama”) provides benefits such as partial property tax exemptions and tax exempt mortgage financing to private enterprises which construct and maintain low cost housing accommodations for persons qualified under the law to be tenants. Individuals who form “Limited-profit housing companies” pursuant to the law are subject to the supervision and control of the Supervising Agency. Even if a limited-profit housing mortgage is refinanced under the federal 223(f) program it remains governed by the provisions of the Mitchell-Lama statute, rules and regulations

except as provided otherwise by agreement with, or regulations of, the U.S. Department of Housing and Urban Development (HUD). In general, all matters involving management, maintenance, and operation shall be supervised by HUD.

In 1976 the New York State Legislature amended Section 31 of Mitchell-Lama to add the following:

Where the mortgage loan of the company is insured or held by the federal government or where a project is owned by the federal government, rental rates shall be varied without regard to the provisions of any general, special or local law which would otherwise limit or control such rental rates or the determination or variation thereof for so long as such mortgage loan remains outstanding or the project financed by such a mortgage loan is owned by the federal government.

The Merola Law

Section B 61.0 of the Administrative Code of the City of New York (the “Merola Law”) was enacted to govern the procedure for instituting rental increases in City-aided Mitchell-Lama projects. It provides in relevant part:

a. Before acting upon any application or motion for an increase in the maximum rental per room to be charged tenants and cooperators of dwellings where the housing and development administration [11] of [sic] the ‘supervising agency’ under the provisions of the private housing finance law, a public hearing shall be held. Said hearing shall be held upon no less than twenty day’s written notice to the tenants and said notice shall have annexed thereto a copy of the application or motion for increase in rentals and shall set forth the facts upon which the application or motion is based.

II.

The facts of this case are substantially undisputed. West Village Houses is a development containing 420 apartments which was initially constructed as a City-aided Mitchell-Lama cooperative project. The project was granted, and still enjoys, partial real property tax exemption by the City, and the development of the project was financed by a $23,961,700 City mortgage loan.

In September, 1975, when the then owner of the project defaulted on its obligations under the mortgage the City commenced a foreclosure action in the Supreme Court, New York County. The court appointed the Administrator of HPD as receiver and authorized him to complete construction of the project, to retain a rental and managing agent and to rent the apartments at market rentals.

In the Spring of 1976 the rental program was commenced by an independent rental and management agent retained by HPD. Substantially full occupancy was achieved by September of that same year. Until September 13, 1978, when the receivership was terminated, tenants were charged the going market rate at the time of the rental. Thus, as a general rule the later an apartment was rented the higher the rental rate, since market rates for Manhattan residential properties were increasing during the period.

On August 5, 1977 HDC submitted an application to HUD for mortgage insurance for the project under Section 223(f). A rental schedule which represented the rent roll then in effect at the project was attached to the application. On March 2, 1978, HUD issued a commitment to insure a mortgage on the project in the amount of $12,034,500. The commitment contained a rental schedule virtually identical to the one supplied to HUD by HDC.

At the closing on September 13, 1978 the City’s original mortgage was divided into (1) a Senior mortgage of $12,034,500 and (2) a Subordinate mortgage in the amount of $11,927,200 plus accrued unpaid interest. The receivership of the Administrator was terminated and control of the project was reconveyed to the owner. Finally, HUD insured the Senior mortgage and entered into a Regulatory Agreement with the owner.

The agreement provides that “Owners shall make dwelling accommodation and services of the project available to occupants at charges not exceeding those established in accordance with a rental schedule approved in writing by the Secretary.” Def. Exh. D, Regulatory Agreement It 4(a). The contract further provides that HUD will consider requests for increases in a previously approved rental schedule to compensate for increased costs over which the owner has no control or to provide funds to pay debt service under the Subordinate Mortgage if “market conditions warrant” and the economic stability of the project will not be jeopardized. Id. at 114(c).

The rental schedule annexed to the Regulatory Agreement at the time it was signed in September of 1978 was a copy of the one contained in the commitment issued by HUD in March of 1977, and was therefore almost identical to the original schedule submitted with the application thirteen months earlier. However, since the rental rates had been increasing proportionate to market rates between August 1977 and September 1978 the schedule approved by HUD in September, 1978 inaccurately reflected the rent role actually in effect at the project at the time the Regulatory Agreement became effective.

The discrepancy between the actual rent roll and the one approved by HUD was discovered a few months after the owner resumed operation of the Project. By letter dated March 27, 1979 the owner’s managing agent requested that HUD correct the schedule. In response on June 21, 1979, HUD advised the owner that upon receipt of a complete application HUD would consider the request, an action which they later described as a “denial” of the owner’s March application.

At some point between the owner’s letter to HUD and HUD’s response the tenants learned of the owner’s request and wrote to HUD seeking an opportunity to comment on the owner’s application. Despite HUD’s “denial” of the owner’s March request the tenants remained concerned about their rights with respect to rent setting procedures. In an apparent attempt to set up a procedure which would allow them to say as to HUD’s consideration of future increase applications, the tenants requested, and were granted, a meeting with HUD representatives. At that meeting on July 24, 1979 the tenants were told that it was HUD’s view that they had lost certain rights enjoyed by them under the old status as a Mitchell-Lama project. Nevertheless, HUD advised the tenants that in all likelihood a written request by them to review future rent increase submissions would be granted.

On September 30,1979 the project’s managing agent posted a notice in each building of the complex informing the tenants of the owner’s intent to file for an increase in the maximum gross potential rents. The owner applied to HUD for an increase from $2,452,857 to $2,698,143 on October 15, 1979. HUD allowed the tenants to review the owner’s submissions and on November 10, 1979 certain tenants submitted written comments and materials to HUD in opposition to the application.

At the subsequent request of HUD, the owner submitted further information pertinent to the October application. Moreover, on February 22, 1980 in addition to submitting requested documents, the owner added papers seeking an increase in excess of $1,000,000 above the amount proposed by the owner on October 15. The latter increase was eventually granted by HUD, internally on May 15, 1980, and by formal action on July 22,1980, without the tenants having been made aware of the increased application. This approval by HUD was the catalyst for the present suit.

III. Plaintiffs’ Standing Under the Regulatory Agreement

The tenants assert claims against the owners, the managing agents, the City, HDC and HUD, the gravamen of which is that the rentals charged after September 13, 1978, in excess of those provided for in the rental schedule annexed to the Regulatory Agreement, were legally impermissible. In answer the defendants argue that the tenants have no standing to enforce the Regulatory Agreement between HUD and the project owners because they are not intended beneficiaries of the contract.

The defendants correctly assert that every federal court that has considered the issue of whether tenants are “intended” or “third party” beneficiaries of Regulatory Agreements entered into between HUD and project owners under HUD’s various mortgage insurance programs have held that they are not. See, e.g., Falzarano v. United States, 607 F.2d 506, 511 (1st Cir.1979) (§ 221(d)(3) program, below-market interest rates for insured mortgages, 12 U.S.C. § 17151(d)(3)); Ellis v. HUD, 551 F.2d 13 (3d Cir.1977), aff'g, No. 75-1721 (E.D.Pa. April 8, 1976) (§ 220 program, mortgage insurance for projects built in urban renewal areas, 12 U.S.C. § 175k); Harlib v. Lynn, 511 F.2d 51, 55-56 (7th Cir.1975) (§ 221(d)(3) program); LeGrand Reed v. Esplanade Gardens, Inc., No. 80 Civ. 3780 (S.D.N.Y.1981) (§ 223(f) program). Plaintiffs do not dispute that these have been the federal rulings but argue that those decisions do not control this case. Relying primarily on Zigas v. Superior Court of the State of California, 120 Cal.App.3d 827, 174 Cal.Rptr. 806 (1981), cert. denied, 455 U.S. 943, 102 S.Ct. 1438, 71 L.Ed.2d 655 (1982), the tenants argue that the facts of this case compel the conclusion that they are third party beneficiaries of the Regulatory Agreement. In Zigas, the California court held that tenants of a housing project had standing to enforce a regulatory agreement when the landlord was collecting more rent than the agreement authorized and the government failed to take action against him. However, Zigas is inapplicable to the instant action because, unlike Zigas, in which the third party beneficiary issue was decided based upon state law (since the suit was between private parties and raised no question regarding the liability of the United States) in the present ease a federal government agency is a party and the outcome of this case will affect financial obligations of the United States. Accordingly, federal common law governs. See United States v. Standard Oil Co., 332 U.S. 301, 307, 67 S.Ct. 1604, 1907, 91 L.Ed. 2067 (1947); Clearfield Trust Co. v. United States, 318 U.S. 363, 63 S.Ct. 573, 87 L.Ed. 838 (1943); Holbrook v. Pitt, 643 F.2d 1261, 1270 n. 16 (7th Cir.1981).

It is established as a matter of federal law that to be entitled to enforce a contract a third party must be an intended, and not merely an incidental beneficiary. See, e.g., Holbrook v. Pitt, 643 F.2d at 1270. With respect to mortgage insurance Regulatory Agreements between HUD and project owners federal courts have consistently held that tenants of the projects are neither creditor, nor donee beneficiaries. See, e.g., Falzarano v. United States, 607 F.2d at 511; Harlib v. Lynn, 511 F.2d at 55-56; see also LeGrand Reed v. Esplanade Gardens, Inc., No. 80 Civ. 3780, slip op. at 23-24.

In Ellis v. United States Department of Housing and Urban Development, No. 75-1721 (E.D.Pa. Apr. 8, 1976), aff'd, 551 F.2d 13 (3d Cir.1977), the default provision of the Regulatory Agreement which the plaintiffs sought to enforce as third party beneficiaries was identical to the default provision in the case at hand. The provision specifically empowers the Secretary of HUD to take various actions in the case of a breach of the agreement by the owner. The district court concluded and the third circuit affirmed, that the provision contained the exclusive remedies for a breach and held that there was no expression of intention that the plaintiffs-tenants were to be obligees of the Regulatory Agreement.

The Ellis analysis is applicable here since, as indicated, the default provisions are the same. Moreover, the Regulatory Agreement between HUD and West Village contains no provision which indicates an intent contrary to what is expressed in the default paragraph giving the Secretary the exclusive right to enforce the contract. We conclude the tenants are not intended beneficiaries of the agreement and therefore have no standing to enforce it. Accordingly, plaintiffs’ second, third, fourth and fifth causes of action, each of which are based upon the Regulatory Agreement, are dismissed.

IV. Plaintiffs Due Process Claim

Applicability of Merola

The primary issue presented by the cross-motions for summary judgment is whether the due process clause of the Fifth Amendment gives the tenants of a housing project constructed under the Mitchell-Lama Law the right to notice of, and an opportunity to comment on, the owner’s application for a rent increase before HUD approves it. Determination of the question depends on (1) whether the tenants’ interest in receiving notice and the right to comment before a rent increase occurs is a constitutionally protected “property interest” and (2) whether there is sufficient government involvement to invoke the due process clause. The defendants argue that neither the National Housing Act, the Mitchell-Lama Law, the Merola Law, nor HUD’s own regulations grant the tenants a constitutionally protected property interest. The plaintiffs do not respond to the defendants’ arguments that the NHA and the Mitchell-Lama Law do not grant the tenants a protected property interest, but rely instead on the Merola Law and the landlord’s and HUD’s practices and procedures. Turning first, then, to the Merola Law, as a threshold matter it must be determined whether that law was applicable to the project after the date of the refinancing, that is September 13, 1978.

The defendants contend that, whatever applicability the Merola Law may have had to the project before 1978, the law was inapplicable to the project after the refinancing because of (1) HUD’s assumption of management of the project and (2) the 1976 amendment to Section 31 of MitehellLama, which provides in relevant part that

... rental rates [in HUD-insured Mitchell-Lama projects] shall be varied without regard to the provision of any general, special or local law which otherwise would limit or control such rental rates or the determination or variation thereof.

Plaintiffs respond that because the City continued to hold the subordinate Mitchell-Lama mortgage, despite the refinancing, the project remained a City-aided Mitchell-Lama project governed by Merola and under the partial supervision of HPD. They add that Merola is not within the purview of or affected by the Section 31 amendment because Merola is merely a procedural measure which does not restrict HUD’s rent setting power.

In particular plaintiffs argue that the notice and hearing provisions of Merola do not purport to “limit”, “control”, “determine” or vary any rental rates. The contention, however, is premised on a misreading of the statute and is contrary to the “ordinary meaning” of the words used. See, e.g., Richards v. United States, 369 U.S. 1, 82 S.Ct. 585, 7 L.Ed.2d 492 (1962) (In the absence of evidence to the contrary it is to be assumed that the legislative purpose is expressed by the ordinary meaning of the words used). As we read the statute it suspends the applicability of laws which: (1) limit or control ... rental rates; or (2) limit or control the determination of ... rental rates; or (3) limit or control the variation of ... rental rates.

Nevertheless, even if Merola were deemed merely to set forth a “procedure”, the practical result of holding that Merola is applicable to HUD would be to prohibit HUD from approving any rental increase request in Mitchell-Lama projects without first providing 20 days advance notice to the tenants and holding a public hearing. If Merola was applied, HUD would still be free, after holding such a hearing, to approve an owner’s application even if presented with compelling reasons why a requested rate increase is unwarranted. Thus, the power of HUD to determine rents would not be constrained. However, our analysis assumes serious compliance with Merola, which, if it is to serve a valid purpose, mandates not only a hearing, but also requires that the criticisms, comments and information received are carefully evaluated and factored into any rent setting determination. Consequently, to require HUD to comply with Merola would, in effect, limit or control HUD in its determination or variation of rental rates, not only by mandating procedures and setting restrictive time frames, but also by governing the information which would control the outcome. This seems to be the result against which the amendment of Section 31 of Mitchell-Lama was meant to protect.

Moreover, as indicated below, the motivation behind the enactment of Section 31 and the manner upon which it was relied by HUD and the City in entering into a Reimbursement Agreement, supports this interpretation. The defendants argue, and the plaintiffs do not disagree, that the 1976 amendment was enacted to enable the state, and its political subdivisions, to meet the qualifications for obtaining mortgage insurance. HUD’s regulations require the signing of a Reimbursement Agreement, and the agreement must warrant that the project for which mortgage insurance is sought is not subject to rent controls by the state, or any political subdivision thereof. 24 C.F.R. § 207.32a(k)(i). Paragraph four of the Reimbursement Agreement entered into by HUD and the City states:

HDC and HDA represent and warrant that pursuant to state legislation,
(1) The projects which constitute the security for the mortgages included in the portfolio are not subject to rent controls by the State of New York or any political subdivision thereof or any authority regulating rents pursuant to State or local laws, or to the requirements of Chapter 61, Section B61.0, subdivisions (a) and (b) of the New York City Administrative Code (the “Merola Law”) concerning procedures for increasing rents and the timing of such rental increases. ...

This language makes it clear that the City interpreted the provisions of Section 31 as excluding HUD mortgage-insured projects from the operation of the Merola Law. Although the City’s interpretation is not decisive as to whether by amending the law the State legislature intended to pre-empt the applicability of Merola to such projects, the clause in the agreement is significant evidence that that was the legislative purpose.

In further support of their contention that Merola is still viable, plaintiffs rely on Article XX, Section 1 of HPD’s Rules which provides that housing companies refinanced under the 223(f) program remain subject to Mitchell-Lama and the Rules and Regulations governing City-aided limited-profit housing companies. However, that Section also states that the cited provisions apply “except as provided otherwise by agreement with, or regulations of ... HUD.” (Emphasis supplied). Moreover, as the defendants correctly point out, Section 7 of HPD’s Rules states in pertinent part:

HUD will be responsible for the approval of all rent/carrying charge increases with respect to all refinanced developments.

When read together with HUD’s Regulations and the Reimbursement Agreement, HPD’s Rules support a conclusion that Merola is no longer viable after the 1976 amendment to Section 31 of Mitchell-Lama.

For the foregoing reasons we find the Merola Law was not applicable to West Village House after September 13, 1978.

Claimed Sources of Entitlement

Having concluded that Merola was not applicable to the project after the date of the refinancing, in September 1978, the question remains whether the tenants possessed a legitimate entitlement sufficient to invoke a right to procedural due process. The defendants argue that if the Merola Law was pre-empted by the refinancing, and we have concluded that it was, any previous “entitlement” of the plaintiffs arising from it was terminated. Plaintiffs respond that they clearly had an entitlement before the refinancing and they continued to possess it after September 1978 because the previous applicability of Merola had established a practice which gave rise to the tenants’ reasonable expectation of a benefit within the meaning of Perry v. Sindermann, 408 U.S. 593, 92 S.Ct. 2694, 33 L.Ed.2d 570 (1972).

Although any tenant undoubtedly has a general interest in not having his rent increased, the right to procedural due process exists only when the interest in question rises to the level of a “property interest” as that term is defined, most notably, in Board of Regents v. Roth, 408 U.S. 564, 577, 92 S.Ct. 2701, 2709, 33 L.Ed.2d 548 (1972):

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____
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.

In Roth’s companion case, Perry v. Sindermann, 408 U.S. 593, 92 S.Ct. 2694, 33 L.Ed.2d 570 (1972), the Court elaborated on its holding in Roth, concluding that an individual may be entitled to due process protection where he legitimately relies on “policies and practices” which create a reasonable expectation to a benefit.

Thus, the analysis must focus on the plaintiffs’ claimed source of entitlement and whether plaintiffs had a legitimate basis to expect a benefit. Applying the RothSindermann formula the Second Circuit held in Grace Towers Tenants Association v. Grace Housing Development Fund Co., 538 F.2d 491 (2d Cir.1976) that Section 221(d)(3) of the National Housing Act did not provide the tenants of a federally subsidized housing project with a legitimate entitlement. The court found that the purpose of the 221(d)(3) program was to promote the construction of housing by private enterprise, Id. at 494, and to accomplish that objective rent regulation was left to the “experienced discretion” of the Secretary. From these findings the court concluded the tenants could not legitimately expect either immunity from rental increases or participation in the process.

A different result had been reached in Burr v. New Rochelle Municipal Housing Authority, 479 F.2d 1165 (2d Cir.1973). There the tenants resided in apartments “controlled and operated by ... a public corporation organized under New York State law to provide low rent housing for persons of low income.” The court held the tenants possessed a property interest under Roth, and that they were entitled to limited procedural safeguards prior to the landlord’s imposition of across the board rent increases. However, the court did not focus on the claimed source of entitlement in their decision. Moreover, the above-quoted language, as well as the decision of the lower court, 347 F.Supp. 1202, 1205-6 (S.D.N.Y.1972) which the Second Circuit affirmed in relevant part, make it clear that the fact that the landlord itself was a "pub-lie body” was an important factor in finding a due process entitlement.

Plaintiffs rely heavily on Gramercy Spire Tenants Association v. Harris, 446 F.Supp. 814 (S.D.N.Y.1977). The tenants in Gramercy Spire lived in apartments governed by the New York City Rent Stabilization Law (“RSL”) and the court concluded that since they were the “intended beneficiaries” of the RSL, the law conferred upon the tenants a statutorily created property interest which entitled them to due process protection. However, the Gramercy apartments were under the concurrent regulation of the federal government and the City rent control laws from 1969 until HUD pre-empted the City laws in 1976. Here, in contrast, the City Merola Law became inapplicable to the project once it was under federal regulation by virtue of the amended Section 31 of the State Mitchell-Lama law.

Further, in contrast to the situation in Gramercy Spire, West Village Houses, the project in this case, has never been subject to New York City rent control laws. However, a major purpose of Mitchell-Lama is to provide adequate housing to low income tenants, and West Village Houses is controlled by a company incorporated pursuant to that law. The certificate of incorporation states:

The Company has been organized to serve a public purpose____ All real and personal property acquired by it, and all structures erected or rehabilitated by it, shall be deemed to be acquired, rehabilitated or created for the proper effectuation of the purposes of the Act.

Moreover, assuming arguendo, that Merola was applicable before September 1978, the tenants had a specific statutory right to notice and public hearing prior to the institution of rental increases. Thus, there is a strong argument for the proposition that under Roth and Burr the tenants at one time may have possessed a property interest to which due process attached. The question remains, however, whether that interest continued after the federal refinancing. The issue appears to be one of first instance.

Under Roth and Sindermann a determination that an entitlement exists depends on finding both that a statute (or rules or regulations) conferred an intended benefit on the plaintiff and that the conferring act is in effect at the time the claimed right to due process arises. As the Roth court put it: “[property interests] ... are defined by existing rules ... that secure certain benefits 408 U.S. at 564, 92 S.Ct. at 2702 (emphasis supplied).

Here, there is no question that Merola secures certain benefits, namely, the right to notice of and an opportunity to comment on any proposed rent increase. Further, the law is, literally, in existence. However, since we have concluded that Merola was no longer applicable to West Village Houses once the development was refinanced through the Federal 223(f) program in September 1978, we accordingly conclude that after that date Merola no longer conferred a benefit upon the tenants who reside in the housing complex. Cf., Goldberg v. Kelly, 397 U.S. 254, 262, 90 S.Ct. 1011, 1017, 25 L.Ed.2d 287 (1969) (“[Welfare] benefits are a matter of statutory entitlement for persons qualified to receive them.”) (Emphasis supplied).

We recognize that in Roth and Sindermann the Supreme Court was not faced with the question whether a statutory entitlement would continue to exist if the statute was later declared inapplicable. Nor, as previously stated, have we uncovered any other decisions which address the issue. However, in the very context of tenants’ rights it has been held that a “property interest” possessed by a tenant in a government housing project is terminated when the nature of the project changes. Russell v. Landrieu, 621 F.2d 1037 (9th Cir.1980) (Low income housing project tenants did not continue to maintain statutory entitlement to operation of project for low income renters after foreclosure on property by HUD and conveyance to later purchaser). Accordingly, we conclude that notwithstanding the fact that the plaintiffs may have been entitled to claim a “property interest” before September 1978, once the housing development became subject to federal regulations, the tenants in West Village no longer possessed such an entitlement.

Plaintiffs next assert that even if they do not possess a property interest under Merola, they legitimately relied on a “practice” established by HUD and the landlord when those parties gave plaintiffs notice and an opportunity for comment on the October 1979 increase application. The defendants answer that a “prior” practice could not have been established because (1) there were no rental increases for tenants in occupancy between its opening and the 1980 HUD-approved increase and (2) the February 22, 1980 request for a further increase was merely supplemental to the October request.

We find that the October and February requests constituted two separate applications because in spite of the fact that the second request did not include an entirely new set of forms, the landlord asked for a substantial increase over the initial application. The issue then, is whether the fact that the landlord posted notice and HUD allowed the tenants an opportunity to comment on the landlord’s October application created a “practice” giving rise to a legitimate expectation of future participation.

The cases appear to find that a “practice” may arise in two ways: (1) where, as discussed above, a policy or procedure is contained in some form of written guidelines, see Perry v. Sindermann, 408 U.S. 593, 92 S.Ct. 2694, 33 L.Ed.2d 570 (1972) (teacher legitimately relied upon guidelines promulgated by the Coordinating Board of the Texas College and University System which provided that a teacher like himself had some form of job tenure); Argo v. Hills, 425 F.Supp. 151 (E.D.N.Y.1977) aff'd. mem., 578 F.2d 1366 (2d Cir.1978) (tenants had a legitimate expectation that their rents would not be increased without the procedures provided for in the Rent Stabilization Law being followed) or (2) less frequently, where a “custom” has been established. Cf., Lopez v. Henry Phipps Plaza South, Inc., 498 F.2d 937 (2d Cir.1974) (custom of renewal of leases under Federal Housing and Development Act gave tenants a property interest in continued occupancy and entitled them to some procedural safeguards in eviction proceedings). Here no written guidelines exist and no custom was ever established.

On September 30, 1979 the owner posted notice of his intent to file a rent increase. In November of that year HUD allowed the tenants to file comments in objection to the application. Based upon these actions the tenants assert the existence of an “established practice”. No authority is cited for this proposition, and we conclude that the one-time occurrence on which plaintiffs rely is not enough under the decisions in this Circuit to have established a practice out of which due process protection arises.

Finally, plaintiffs argue that HUD’s New York Office’s voluntary adoption on July 11, 1980 of an internal procedure which would allow tenants in developments under the 233(f) program to have notice and an opportunity for comment on rent increase applications, created an entitlement. The defendants respond that (1) the owner’s application had already been internally approved before the date of the adoption of the new procedures and (2) the new procedures were not intended to cover pending applications.

Documentary evidence in the record establishes that HUD had internally approved the owner’s application as early as May 15, 1980 and that by letter of June 27, 1980 the owner was advised that formal approval was imminent. Moreover, the affidavit of Alexander Naclerio, Director of Housing in HUD’s New York Office represents that the new procedures were adopted and went into effect after the approval of the West Village application.

Upon the foregoing facts and, in light of the United States Supreme Court’s holding in Udall v. Tallman, 380 U.S. 1, 16-17, 85 S.Ct. 792, 801, 13 L.Ed.2d 616 (1965) that deference to the interpretation given an administrative regulation by the officers or agency charged with its administration is particularly in order, we find that the procedures adopted by the New York office were not applicable to West Village. It follows that the adoption of such procedures did not confer a benefit under which the tenants had a due process right.

V. Government Involvement

We have concluded above that Merola was no longer applicable to the project after September 1978. However, even if it were concluded that the plaintiffs legitimately relied on the continuing existence of Merola, the question would remain whether the existence of governmental involvement in this case was sufficient to invoke the due process clause, the absence of which would defeat plaintiffs’ claim. The defendants do not directly address the issue of government action, arguing only that the due process clause has not been invoked here because this case is not an instance in which the government has pre-empted any local rent control laws. The plaintiffs assert that sufficient government involvement exists because the owners have been assisted in their venture by extensive governmental support under Mitchell-Lama. Although this is not such a case, they contend that where the government acts as landlord the tenants are entitled as a matter of right to notice of proposed rent increase applications and the right to comment thereon. There appear not to be any decisions which clearly resolve the question whether there is sufficient government action to invoke the clause on the facts presented in the instant case. However, determinations by the courts in this Circuit do set parameters by providing examples of when the government’s role is, and is not sufficient to require due process.

The leading case is Langevin v. Chenango Court, Inc., 447 F.2d 296 (2d Cir.1971). Langevin involved a government authorized rental increase in a federal mortgage insurance § 221(d)(3) project. The court held that it was insufficient to invoke the due process clause since the government itself did not raise the rents, but rather, HUD merely “... allowed the landlord to institute an increase ... which he would have been legally free to do but for its regulatory agreement ....” The court stated:

The due process clause does not forbid Congress from deciding, if it wishes, that federal assistance to ‘private industry in providing housing for low and moderate income families and displaced families’ in the form of insurance and purchase of low interest mortgages need not be conditioned on the granting of an evidentiary hearing with respect to rent increases, but, in the absence of some governmental scheme of rent control, whether general or particularized, may instead be confided to the decision of the experienced staff of the FHA, which has been instructed to subject rent increase applications to thorough investigation to the end that tenants should not be imposed upon.

Id. at 301.

In contrast with Langevin it is clear that where the government is itself the landlord due process will be invoked. See, e.g., Burr v. New Rochelle Municipal Housing Authority, 347 F.Supp. 1202 (S.D.N.Y.1972), aff'd in relevant part, 479 F.2d 1165 (2d Cir.1973).

Since Langevin the question of government action in the context of project rentals has been addressed by several District. Courts within this Circuit. In Klein v. Dept. of Housing and Urban Development, 416 F.Supp. 615 (E.D.N.Y.1976) the facts were that at the time HUD authorized rental increases in the apartment project on which it had, as here, merely insured the mortgage, “no local agency-exercised or was endeavoring to exercise authority over the rents”. Id. at 617. Relying on Langevin v. Chenango Court, Inc., 447 F.2d 296, the court held:

It is beyond dispute that when an agency of the United States, acting as a mortgagee, merely permits a landlord to increase rents and in no way repeals a local government rent control regulation such permission need not be preceded by hearings at which the tenants may be heard.

Klein v. Dept. of Housing and Urban Development, 416 F.Supp. at 617 (citations omitted); but see cf., Caramico v. Secretary of the Dept. of Housing and Urban Development, 509 F.2d 694 (2d Cir.1974) (where government’s own regulations required the landlord to take certain specified action which impacted on the tenants there was sufficient governmental involvement to invoke due process).

In contrast to Klein, Argo v. Hills, 425 F.Supp. 151 (E.D.N.Y.1977), aff'd mem., 578 F.2d 1366 (2d Cir.1978), involved an apartment project with a HUD insured mortgage which was subject to the New York City Rent Stabilization Law and Rent Stabilization Code. When the local rent control board did not act upon the landlord’s request for a rent increase, HUD determined that its interest in the guaranteed mortgage was in jeopardy and eventually issued a formal certification that it had pre-empted local rent controls pursuant to HUD regulations to protect the government’s interests. The court held that the § 207 program alone was insufficient governmental involvement to invoke due process, but that where the government had not only insured the mortgage but had also taken the active measure of pre-empting local (rent control) law to insure its interests, the tenants were entitled to procedural due process. Id. at 156-57; see also Gramercy Spire Tenants Association, 446 F.Supp. 814 (S.D.N.Y.1977).

The relevant rules of law which emerge from these decisions can be summarized as follows: where HUD approves a rental increase, there is sufficient government involvement to invoke due process if the government is the landlord, or, if not the landlord, actively pre-empts local rent control law in authorizing the increase.

The facts of this case do not bring it within the penumbra of the decisions which found sufficient government action to require due process protection. Here the government is not the landlord and the project is not subject to New York’s Rent Control or Stabilization Laws. Moreover, we have concluded in Point II above that the 1976 amendment to the Mitchell-Lama law revoked the applicability of the Merola Law to the project after September 13, 1978. HUD’s 1980 approval of a rent increase, therefore, did not constitute government pre-emption of any local law controlling or restricting rents. Furthermore, although the tenants assert that there was sufficient government involvement (with the landlord) to trigger the right to due process because Washington Village Housing Corporation was organized and receives certain benefits under Mitchell-Lama (a state law), they do not explain why or how the state’s involvement can be imputed to the federal government, against whom the tenants assert the due process claim. Finally, there is no allegation in the case at bar that the government in any way required the landlord to seek an increase in the project rents. Accordingly, we conclude that there is insufficient government action to invoke the due process clause in the instant action.

For the foregoing reasons the defendants’ joint motion for summary judgment is granted and the plaintiffs’ cross-motion is denied. The complaint is dismissed.

It is so ordered.

      . 12 U.S.C. §§ 1701 et seq. (1982).

      . N.Y.PRIV.HOUS.FIN.LAW §§ 1 et seq. (McKinney 1976).

      . N.Y.C.ADMIN.CODE Chapter 61, §§ B61.0(a) and (b).

      . Plaintiffs Jan Allen Reiner, Peter Fairchild and Joseph Bilera bring this action individually and “on behalf of all others similarly situated”. However, there has been no class certification, resolution of that issue having been stayed pending decision of the instant summary judgment motions.

      . In their moving papers and during oral argument on the motion counsel for the City represented that the City and HDC argue this point only in the event that the defendants do not prevail on the other grounds urged in the joint memorandum for summary judgment. Since summary judgment is granted on the grounds set forth in the memorandum we do not consider these points.

      . Section 223(f) authorizes the Secretary to administer the program under a variety of different Sections of the NHA. The Secretary has elected to administer the 223(f) program under Section 207.

      . Housing and Urban Development, 24 C.F.R. § 207. 32a (1984).

      . “Commissioner" refers to the Federal Housing Commissioner acting on behalf of the Secretary of Housing and Urban Development. 24 C.F.R. § 200.4.

      . 24 C.F.R. § 207.32a(4)(k)(i).

      . N.Y.PRIV.HOUS.FIN.LAW § 13.

      . Id. § 31.

      . The Housing and Development Administration (“HDA") was the predecessor agency to the Department of Housing Preservation and Development (“HPD”).

      . HPD is the supervising agency of City-aided Mitchell-Lama projects. N.Y.PRIV.HOUS.FIN.LAW §§ 2(15) and (17).

      . The first management agent was Mandel Management Company. Grenadier Realty Corp. took over management of the project from January 1, 1977 to about March 20, 1980, at which time the responsibility, was assumed by Kreisel Company Inc., the present manager. Only the latter two are defendants in this action.

      . Even under state law principles plaintiffs’ reliance on Zigas is misplaced. The California court found that the federal cases which held that tenants are not third party beneficiaries of a regulatory agreement were distinguishable from the action before them because in Zigas the contested rent increase was never HUD approved. That is not true of the disputed increase in this case.

      . The relevant portion of ¶ 9(g) states:
      Upon a violation of any of the above provisions of this Agreement by Owners, the Secretary may give written notice, thereof, to Owners, ____ If such violation is not corrected to the satisfaction of the Secretary within thirty (30) days after the date such notice is mailed or within such further time as the Secretary determines is necessary to correct the violation, without further notice the Secretary may declare a default under this Agreement effective on the date of such declaration of default and upon such default the Secretary may: [take various other action].

      . A third prong of the analysis, "what process is due?”, is not at issue here with respect to the plaintiffs’ due process claims.

      . The defendants maintain, inter alia, that the Merola Law is invalid since it conflicts with the broad powers and discretion granted to HPD relating to rent increases under the state Mitchell-Lama Law and therefore was never applicable to the Project. The arguments on this point on their face have appeal. Nonetheless, the issue of whether Merola is invalid when construed with the state law has yet to be decided by the New York courts. In view of the fact that summary judgment is granted for the defendants on other grounds, we do not address this novel question of state law. Cf., Perry v. Sindermann, 408 U.S. 593, 604, 92 S.Ct. 2694, 2717, 33 L.Ed.2d 570 (1972) (Burger, C.J., concurring) ("Because the availability of the Fourteenth Amendment right to a prior administrative hearing turns in each case on a question of state law, the issue of abstention will arise in future cases ____ If relevant state law is unclear, a federal court should, in my view, abstain____”).

      . The defendants do not dispute that the rentals in the project were subject to regulation by HPD pursuant to the provisions of Mitchell-Lama at least until September 13, 1978. Indeed, evidence submitted by the defendants in support of their joint motion supports this conclusion. See Lerner Affidavit at ¶ 2. Nor do the defendants dispute plaintiffs’ assertion that the procedure for effecting rent increases at City-aided Mitchell-Lama projects is governed by the provisions of Section B 61.0 of the Administrative Code of the City of New York, i.e., the Merola Law, and that such provisions have been adopted by HPD in its regulations. However, the defendants argue that since the rents in the project were originally established by court order resulting from the foreclosure, and not by HPD, it follows that Merola, which provides for a hearing prior to HPD action on a rent increase, never applied to the project. As previously stated, when the Supreme Court, New York County, authorized the receiver to rent the apartments, each was rented at the market rate prevailing at the time of the individual rental. Since market rates were climbing during the period from the Spring of 1976 through September 13, 1978, the amount of rent paid by tenants in the project varied depending on when they rented an apartment unit. However, no tenant was subjected to a rent increase during the time he remained in his apartment and none requested a hearing to contest such an increase. Nonetheless, although no occasion may have arisen between 1976 and 1978 in which the hearing requirement would appropriately have been applied in this project, that fact does not justify the analytical leap necessary to conclude that the Merola Law was inapplicable. However, since we conclude that Merola was not applicable after 1978 in any event, we do not decide this issue.

      . As the defendants correctly assert, unlike the limited due process protection which has been granted to tenants contesting a rental increase based on a legitimate claim of entitlement, see Burr v. New Rochelle Municipal Housing Authorhy, 479 F.2d 1165 (2d Cir.1973), the Merola Law requires a public hearing involving a hearing officer, testimony and other formal attributes.

      . Although not decisive of the question before us, we note the defendants’ argument that as a practical matter, the Merola requirement that HPD give notice and hold a public hearing is inconsistent with the 223© program under which HUD is responsible for rent regulation; plaintiffs do not address this discrepancy,

      . Construction of the project was not completed prior to January 1, 1974, and post-January 1, 1974 buildings are not covered by New York’s Rent Control or Stabilization Laws. N.Y. UNCONSOL. LAWS § Y51-3.0(h) (McKinney 1974) (New York City Rent Control Law); N.Y. UNCONSOL. LAWS §§ YY 51-3.0(a)(l) (McKinney 1974) (New York City Rent Stabilization Law); N.Y. UNCONSOL. LAWS § 8625 (McKinney Supp. 1983-84) (Emergency Tenant Protection Act).

      . See footnotes 18 and 19, supra.

      . While we have concluded that the plaintiffs are not entitled to due process protection as a matter of law, there are also compelling policy considerations which lend additional support to this result. Although there are State statutes which continue to govern West Village Houses, management of the complex, including rents, is subject to the control of the federal government and is governed by federal laws and regulations. It is notable that the stated goal of the state program pursuant to which, in certain instances, Merola attaches, is to provide safe, low-cost housing. In contrast, this circuit has held that although suitable housing is one objective of the National Housing Act, the primary goal of the federal program is to encourage private industry involvement as a more efficient means by which to meet housing needs. See Grace Towers Tenants’ Association v. Grace Housing Development Fund Co., 538 F.2d at 494; Langevin v. Chenango Court, 447 F.2d at 301. The successful administration of the federal program requires flexibility to insure its continued economic feasibility and to protect the economic interests of the federal government. See Hahn v. Gottlieb, 430 F.2d 1243 (1st Cir.1970). The Secretary has broad discretion in order to execute the statutory scheme. See Hahn v. Gottlieb, 430 F.2d at 1246; Grace Towers Tenants' Association v. Grace Housing Development Fund Co., 538 F.2d at 494.
      It would be inconsistent with these policies and objectives, as well as the general policies protected by the Supremacy Clause, to conclude that a city statute requires the federal government to be bound by its terms.


author: WHITMAN KNAPP, District Judge.

text:
    Judith GINSBERG, Plaintiff, v. TWAYNE PUBLISHERS, INC. and G.K. Hall Corp., Defendants.
    No. 82 Civ. 7744 (WK).
    United States District Court, S.D. New York.
    March 7, 1984.
    As Amended March 20, 1984.
    Benedict Ginsberg, P.C., New York City, for plaintiff.

      Russell G. Tisman, New York City, for defendants.
   MEMORANDUM & ORDER

WHITMAN KNAPP, District Judge.

This action concerns the attempts of plaintiff to have published a treatise on Spanish literature. At the time she instituted this action, plaintiff alleged in her Complaint that defendant, which had contracted to publish her book, had reneged on its contract, and that she had been unsuccessful in her attempts to find another publisher. At some later time another publisher was found; and approximately one year after commencing this action plaintiff requested leave to amend her complaint to reflect this changed turn of events. Where the original Complaint had demanded both specific performance and compensatory and punitive damages, the proposed Amended Complaint included only a revised demand for monetary damages, reflecting the additional work demanded of plaintiff by her new publisher, but withdrawing the demand for punitive damages. We granted the motion to amend by our Memorandum and Order of December 12, 1983.

On December 16, 1983 plaintiff did amend her Complaint as she had proposed. In addition to the changes described in the motion, however, the Amended Complaint bore a demand for trial by jury — the first time that such a demand had been made by either party. It is plaintiff’s entitlement to make such a demand which is the subject of the instant motion.

Defendant does not contest that plaintiff’s claims for monetary damages are in fact triable by a jury; it simply contends that plaintiff’s demand was made too late. We agree. Fed.R.Civ.Proc. 38 provides:

(b) Any party may demand a trial by jury of any issue triable of right by a jury by serving upon the other parties a demand therefor in writing at any time after the commencement of the action and not later than 10 days after the service of the last pleading directed to such issue ...
(d) The failure of a party to serve a demand as required by this rule ... constitutes a waiver by him of trial by jury.

Plaintiff commences her opposition to this motion by pointing out that since her original complaint was filed in state court, where our Rule 38 obviously does not apply and where no similar rule limits the time within which a jury demand must be made, her original complaint need not have contained a jury demand. She extrapolates from this indisputable proposition the contention that, since she could not .have amended her complaint until she had contracted with a new publisher, she could not have made a jury demand until this document was filed. This argument, however, is fallacious. Rule 38 requires only that a jury demand be made in writing, not that it be contained in a pleading or indeed take any particular form. Nor do we see that plaintiff’s ability to demand a jury was in any way affected by her ability to find a new publisher. Plaintiff may have chosen to wait before making her jury demand, but such choice was in no way forced upon her, as she suggests, and she cannot thus avoid the strictures of Rule 38.

Plaintiff next asserts that, since her original complaint demanded equitable relief which would not have entitled her to a jury, her right to trial by jury only accrued with the filing of her Amended Complaint (which, as we have noted, includes only a demand for monetary relief). However, the original Complaint also included demands for monetary relief, which would have been triable to a jury even as are the equivalent demands in the Amended Complaint. The mere presence of an equitable cause of action among such claims does not, of course, render a complaint wholly equitable for purposes of the right to jury trial. Curtis v. Loether (1974) 415 U.S. 189, 94 S.Ct. 1005, 39 L.Ed.2d 260. Plaintiff thus would have been entitled to demand a jury in her original Complaint (although such jury could of course have determined only her demand for monetary damages and not that for specific performance).

Finally, plaintiff asserts that the “last pleading” for purposes of Rule 38 had not yet been filed at the time defendant made the instant motion, since the motion was filed on January 6, 1984, and defendant did not answer the Amended Complaint' until four days after that date. This latter date, plaintiff contends, marks the period from which Rule 38’s ten days start to run. This, however, is not the law. The filing of an amended complaint does not suspend the running of the time set forth by the Rule. Rather,

where the ten day period of Rule 38(b) has run, an amendment of a pleading which does not introduce new issues will not give rise to the right to demand a jury.

Leighton v. New York, Susquehanna & Western Railroad Co. (S.D.N.Y.1964) 36 F.R.D. 248, 249 (citations omitted).

We find that no “new issues” are presented by the Amended Complaint. That pleading changes neither the “character of the suit,” the “general issues” involved, nor the “basic legal theory” underlying them. Rosen v. Dick (2d Cir.1980) 639 F.2d 82, 94-96. The original Complaint stated a cause of action for breach of contract; the Amended Complaint is, in essence, but an expansion of these original claims. The facts, to be sure, are somewhat altered, as is the relief requested. However, these alterations are all within the framework of the breach of contract claim. This is in no way changed by plaintiffs election not to pursue her original demand for punitive damages. Similarly, while it may make a world of difference to plaintiff personally that she has found a new publisher, we simply cannot say that this is of sufficient legal significance. We conclude, therefore, that plaintiffs demand for trial by jury was untimely made and must be dismissed.

SO ORDERED.


author: SAROKIN, District Judge.

text:
    Bruce MERLI, Plaintiff, v. Margaret M. HECKLER, Secretary of Health and Human Services, Defendant.
    Civ. A. No. 83-189.
    United States District Court, D. New Jersey.
    June 7, 1984.

      Traynor & Hogan by John P. Hogan, Morristown, N.J., for plaintiff.
    W. Hunt Dumont, U.S. Atty. by Vincent E. Gentile, Asst. U.S. Atty., Newark, N.J., for defendant.
   OPINION

SAROKIN, District Judge.

The Department of Health and Human Services has apparently determined to effect economies by systematically denying disability benefits to those persons who are entitled to them. The evidence (of which the court takes judicial notice) in support of this conclusion is so overwhelming that it cannot be refuted.

In the six months ending in December 1983, of the appeals taken to this United States District Court from such denials, 56 percent were reversed or remanded. In a survey of ninety-one districts in the nation the percentage reversed or remanded during this same period was 49 percent. Since the beginning of 1984 the reversal rate in the Third Circuit Court of Appeals of those cases that were affirmed by district courts has been “about fifty percent.” Wier v. Heckler, 734 F.2d 955 at 957 (3d Cir.1984). Such a rate of reversal throughout the land is staggering and paints an undeniable picture of a heartless and indifferent bureaucratic monster destroying the lives of disabled citizens and creating years of agony and anxiety by ignoring both facts and legal precedent.

The callousness demonstrated is particularly revealing when one recognizes the high threshold which the courts must reach before they are permitted to disturb the administrative conclusion on appeal. The courts do not determine whether the decision is correct or incorrect, but merely whether there is substantial evidence to support it. One can envision even a much greater reversal rate if the courts were permitted to conduct a de novo review and decide the matter without reference to the administrative finding.

Furthermore, it should be noted that in addition to adversely affecting the lives of the petitioners, the systematic denial of benefits and the appeals which inevitably follow, have brought or will bring the courts to a standstill in respect to other litigation. These appeals now make up a staggering 14.6 percent of all of this district’s civil business. If the trend continues, the court will be unable to attend to its other business or to these appeals which merit careful and considered attention.

All of the foregoing is particularly relevant to the application for counsel fees now before the court in this matter. Routinely counsel fees are paid by the petitioner out of the award eventually received. The fee is usually 25 percent of the past-due benefits received and may not exceed that amount by statute. The effect, of course, is obvious. As a result of this insidious policy of denying benefits in many cases in which they should be granted, petitioners receive far less than they should have received, had the benefits not been wrongfully denied in the first instance. Only due to these abuses by the government agency is this multitude of persons compelled to litigate and pay for such litigation.

The court is satisfied that one way to stem this tide and alter what has been described as the government’s policy of “informal nonacquiescence,” is to require the government and not the claimants to pay counsel fees in these matters. Under the present system the government has nothing to lose by putting these persons through the agony of the appellate process even if it must ultimately pay the benefits found to be due. Hopefully, by imposing counsel fees on the government, this cruel and inhumane policy and the blatant contempt for judicial decisions will end.

The court also reminds counsel for the government of their obligation under Rule 11, which provides:

Every pleading, motion, and other paper of a party represented by an attorney shall be signed by at least one attorney of record in his individual name, whose address shall be stated. A party who is not represented by an attorney shall sign his pleading, motion, or other paper and state his address. Except when otherwise specifically provided by rule or statute, pleadings need not be verified or accompanied by affidavit. The rule in equity that the averments of an answer under oath must be overcome by the testimony of two witnesses or of one witness sustained by corroborating circumstances is abolished. The signature of an attorney or party constitutes a certificate by him that he has read the pleading, motion, or other paper; that to the best of his knowledge, information, and belief formed after reasonable inquiry it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law, and that it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation. If a pleading, motion or other paper is not signed, it shall be stricken unless it is signed promptly after the omission is called to the attention of the pleader or movant. If a pleading, motion, or other paper is signed in violation of this rule, the court, upon motion or upon its own initiative, shall impose upon the person who signed it, a represented party, or both, an appropriate sanction, which may include an order to pay. to the other party or parties the amount of the reasonable expenses incurred because of the filing of the pleading, motion, or other paper, including a reasonable attorney’s fee.

With few exceptions, counsel for the government defend and support the agency’s determinations. It is inconceivable to the court that there are not many instances in which government counsel could and should consent to a reversal or remand. The rubber stamp approval does not comport with their obligation to the court as attorneys or their duty as counsel for the United States.

In this case plaintiff Bruce Merli applies for an award of counsel fees under the Equal Access to Justice Act (EAJA), 28 U.S.C. § 2412. Plaintiff brought this civil action to challenge the decision of the Secretary of Health and Human Services (the Secretary) terminating his disability benefits. The court, in an opinion filed on February 23,1984, granted summary judgment to the plaintiff and against the Secretary. By order of February 23 the matter was remanded to the Secretary for the continuation of disability benefits. This application was timely filed on March 23, 1984.

Plaintiff was awarded disability benefits beginning on June 3, 1968, primarily due to residuals of injuries received as a soldier in Viet Nam. On that date plaintiff was shot in the head. Hospitalizations and surgery followed. He was honorably discharged from the Army in 1968 with a permanent service-connected disability of 100 percent. The wound resulted in significant brain damage manifested by inability to understand and use language, difficulty in reading and writing, muscular weakness affecting the left side of the body, memory impairment and defective vision. The Secretary later reviewed the case and determined that plaintiff’s condition had improved sufficiently to allow him to engage in employment. This court reversed, finding no substantial evidence to support that eonelusion.-

The EAJA provides, in pertinent part:

... a court shall award to a prevailing party other than the United States fees and other expenses ... incurred by that party in any civil action ... brought by or against the United States in any court having jurisdiction of that action, unless the court finds that the position of the United States was substantially justified or that special circumstances make an award unjust.

28 U.S.C. § 2412(d)(1)(A). The party seeking fees is required to submit an application within thirty days of the entry of final judgment

which shows that the party is a prevailing party and is eligible to receive an award under this subsection, and the amount sought, including an itemized statement from any attorney ... stating the actual time expended and the rate at which fees and other expenses are computed. The party shall also allege that the position of the United States was not substantially justified.

28 U.S.C. § 2412(d)(1)(B). The government has the burden of showing that its position was substantially justified. Dougherty v. Lehman, 711 F.2d 555 (3d Cir.1983). The test of whether or not the position of the government was substantially justified is one of reasonableness. Where the government can prove that its position had a reasonable basis both in fact and in law no award should be made. Id.

The government opposes this application and urges that its position in this litigation was substantially justified in law and in fact. The court recognizes that the government’s position on the critical question of law was essentially reasonable. In a termination of benefits case, after the claimant presents evidence that the condition remains unchanged, the Secretary must find that the claimant’s condition has improved sufficiently since the initial determination to allow him or her to engage in substantial gainful activity. Kuzmin v. Schweiker, 714 F.2d 1283 (3d Cir.1983). The court found that there was no substantial evidence to support this finding, and now finds that the position of the government was not substantially justified in fact. In its brief the government argues at length that the evidence was sufficient for the Secretary to conclude that plaintiff’s condition had improved, making reference to specific findings in the medical reports. The court rejects the attempt of the government to reargue its case in spite of the following findings of this court:

There is no evidence of improvement in the weakness of his left side caused by his gunshot wound.

Merli v. Heckler, No. 83-189, slip op. at 11-12 (D.N.J. February 23, 1984).

None of the psychological or neurological reports indicate that plaintiff’s language and memory difficulties have improved to the extent that he is now able to engage in employment.

Id. at 12.

The only credible evidence about the ability of plaintiff to perform the duties of a gas station manager is the evidence presented by plaintiff of his inability to perform the job due to stress and his difficulty with numbers.

Id. This was not a case where the legal standards were unclear or in dispute, or a case that was factually a close one. The position of the government in this litigation was not substantially justified.

The government also contends that the application should be denied because of two technical errors in the application. The government asserts that plaintiff has included in the itemization of services time spent in prosecuting this case at the administrative level, while fees are only available for work performed in this court. A review of the affidavit of services reveals that this appears to be a valid objection. The government also notes that plaintiff has not set forth the rate at which the fees are to be computed in his application. The government contends that these errors are a sufficient ground upon which to deny the application.

The court recognizes that the EAJA is a waiver of sovereign immunity, and as such, it must be strictly construed in favor of the sovereign. Ruckelshaus v. Sierra Club, 462 U.S. 680, 103 S.Ct. 3274, 3277, 77 L.Ed.2d 938 (1983). The government relies upon several cases in which fee applications were denied because of this principle. Ruckelshaus, 103 S.Ct. at 3274 (holding that a party may not recover attorney’s fees under the Clean Air Act absent some degree of success on the merits); Monark Boat Co. v. N.L.R.B., 708 F.2d 1322 (8th Cir.1983) (it was not error to deny application for fees under the EAJA when application was submitted one day after the time limit contained in the Act); Commissioners of Highways v. United States, 684 F.2d 443 (7th Cir.1982) (holding that the EAJA was not applicable when the only matter pending on its effective date was a denial of the motion for fees. As an alternative ground, the court found that the Commissioners were not a “party” within the meaning of the Act.)

The defects in the application before this court are not significant enough to warrant denial of the application, and the government has not been harmed by them. Plaintiff’s application clearly states that compensation is sought only for services performed before this court and not for work performed in the agency proceedings. It seems that some noncompensable hours were inadvertently included in the affidavit of services. The government knew, on the date it received the application, the maximum number of hours that could be the basis of an award of fees; this allowed the government to estimate its maximum liability for fees, utilizing the usual statutory maximum rate of $75.00 per hour. 28 U.S.C. § 2412(d)(2)(A). Similarly, the government has not been harmed by the failure of the plaintiff to specify the rate at which fees should be computed. As noted above, the statute contains a maximum rate of $75.00 per hour “unless the court determines that an increase in the cost of living or a special factor, such as the limited availability of qualified attorneys for the proceedings involved, justifies a higher fee.” Id. Nothing in the application indicates that an increased rate will be sought. Thus, the government was able to estimate its maximum liability upon receipt of the application.

Because the court concludes that the deficiencies in the application are minor, and the government has not been harmed thereby, the court will grant the application for fees, but reserve the determination of the amount. Plaintiff is directed to file, within ten days, an affidavit setting forth the hourly rate of compensation and the number of hours spent in preparation of the case before this court. The government shall thereafter have ten days to respond. See Constantino v. United States, 536 F.Supp. 60 (E.D.Pa.1981) (because the court had insufficient facts from which to set a fee under the EAJA the motion was denied without prejudice and plaintiff was directed to amend the application to include an itemization of the hours expended on the case.) When these submissions are received the court will determine the amount of the award.

CONCLUSION

Although the court’s introductory remarks are predicated upon statistics, it is important to recognize the lack of humanity that the system now engenders in individual cases. The denial of disability benefits in a case in which they are warranted has a devastating effect upon the individual and his or her family. The process which follows is long, humiliating and ex-, pensive. If denial and degradation have become official government policy, then we have forgotten the purpose for which these broad social programs were enacted. If economies are to be effected, let the government do it forthrightly and openly through legislation and not through this insidious process which demeans the individual and denies him or her the benefits Congress intended and to which he or she has .contributed.

The present policy of the Department of Health and Human Services has demonstrated contempt for the rulings of the federal courts and for the rights and needs of the people affected by its arrogance. Congress makes the law. The judiciary interprets it. The executive administers it. In this instance, the Department of Health and Human Services apparently has arrogated all three functions unto itself.

The federal agency should be reminded that the Social Security laws were enacted to relieve human suffering, not to cause it. It is hoped that by shifting the cost of this litigation from the innocent petitioner to the government, in instances where the law permits, that even the Department of Health and Human Services will correct its ways, if not in the interests of the claimants, at least in the interests of the taxpayers whom it supposedly serves.

      . The source of these figures is Allyn Z. Lite, Clerk of the United States District Court for the District of New Jersey. The figures were compiled from data obtained from the Statistical Analysis and Report Division of the Administrative Office of the United States Courts.

      . "Depending upon one's perspective, either the judicial system is placing impossible burdens on the administrative apparatus set in place by Congress to initially evaluate benefit claims or the officials in charge of the disability programs are, at least in many instances, ignoring the law." Wier, at 956.

      . This figure represents the percentage of pending civil cases on May 1, 1984 in the District of New Jersey. The Court of Appeals has recently commented upon the number of social security appeals that are currently being filed. ‘‘[T]he past three years have seen over a 400 percent increase in the number of filings ...” nationally of suits by individuals denied disability benefits. Wier v. Heckler, at 956.

      . 42 U.S.C. § 406 provides, in pertinent part: Whenever the Secretary, in any claim before him for benefits under this subchapter, makes a determination favorable to the claimant, he shall, if the claimant was represented by an attorney in connection with such claim, fix (in accordance with the regulations prescribed pursuant to the preceding sentence) a reasonable fee to compensate such attorney for the services performed by him in connection with such claim. If as a result of such determination, such claimant is entitled to past-due benefits under this subchapter, the Secretary shall, notwithstanding section 405(i) of this title, certify for payment (out of such past-due benefits) to such attorney an amount equal to whichever of the following is the smaller: (A) 25 percentum of the total amount of such past-due benefits, (B) the amount of the attorney's fee so fixed, or (C) the amount agreed upon between the claimant and such attorney as the fee for such attorney’s services.