United States Court of Appeals, District of Columbia Circuit
Argued November 4, 2014
On Petition for Review of an Order of the Department of Housing & Urban Development.
James A. Bell argued the cause for petitioners. On the briefs was Jennifer C. Bell.
Imran R. Zaidi, Attorney, U.S. Department of Justice, argued the cause for respondent. With him on the brief were Stuart F. Delery, Assistant Attorney General, and Michael Jay Singer, Attorney.
Before: BROWN, Circuit Judge, and WILLIAMS and SENTELLE, Senior Circuit Judges.
Sentelle, Senior Circuit Judge :
Petitioners were found liable by an Administrative Law Judge for violations of laws governing programs administered by the U.S. Department of Housing and Urban Development. The ALJ imposed penalties. The petitioners appealed to the
Secretary of HUD. The Secretary upheld the ALJ's liability determinations but imposed higher penalty amounts. In petitioning this court for review, petitioners contend that the Secretary's liability determinations and penalty amounts are arbitrary, capricious, and not supported by substantial evidence. For the reasons stated below, we deny the petition for review.
This case concerns two programs of the U.S. Department of Housing and Urban Development (HUD). One is the Section 236 program of the National Housing Act, 12 U.S.C. § 1715z-1, pursuant to which the Federal Housing Administration (FHA) insures loans to private developers in exchange for their commitment to provide low-income housing. As part of the Section 236 program, HUD also provides interest-reduction payments to FHA-approved mortgagees on behalf of the mortgagors. In exchange for these benefits, the mortgagor executes a Regulatory Agreement that requires the mortgagor to operate the project in accordance with various programmatic and contractual obligations. The second program is the Section 8 Housing Choice Voucher Program of the United States Housing Act, 42 U.S.C. § 1437f. Pursuant to Section 8, HUD subsidizes low-income tenants' rents by making rental subsidy payments to participating project owners on behalf of those tenants. In exchange for this financial assistance, project owners execute a Housing Assistance Payment (HAP) contract that requires, inter alia, owners to provide HUD and affected tenants at least one year's notice before terminating the contract.
Mantua Gardens East Project (" Mantua Project" ) is a 52-unit housing complex located in Philadelphia. The complex is owned by petitioner Mantua Gardens East, Inc. (" Mantua Gardens" ), whose president and board chairman is petitioner James Grier (" Grier" ). In 1970, Mantua Gardens obtained a mortgage from Firstrust Bank (" Firstrust" ), an FHA-approved lender. The mortgage was secured as part of HUD's Section 236 program. The maturity date was May 1, 2012. Mantua Gardens entered into a Regulatory Agreement with HUD to ensure Mantua Gardens would provide and maintain affordable housing. Subsequently, in 1983, Mantua Gardens entered into a Section 8 HAP contract with HUD.
In January 2008, Grier sent a letter to Firstrust requesting that the bank deposit $325,000 from Mantua Gardens' reserve account into an account at Wachovia Bank. The next month, Grier formed Mantua Gardens East, LLC. Mantua Gardens East, LLC, subsequently secured a loan from Wachovia, using the $325,000 deposited in January as collateral. Grier, acting as managing member of Mantua Gardens East, LLC, then used the loan to send a check to Firstrust " in full payment" of the original 1970 mortgage. In 2011, apparently believing that HUD statutory and regulatory requirements now no longer pertained to the Mantua Project because of the mortgage transfer, Mantua Gardens and Grier issued a notice to all of their subsidized tenants stating that they would have to sign new leases and pay new rents. Soon thereafter, Mantua Gardens and Grier began issuing vacate notices to subsidized tenants.
In 2012 HUD filed a complaint with its Office of Hearing and Appeals against Mantua Gardens and Grier. The complaint sought civil money penalties for violations of the provisions governing Section 236 and Section 8 programs, in particular concerning the ...