Opinion
No. CV 03-0823006
September 23, 2004
The plaintiff, Scitico Gardens Limited Partnership, brought this action seeking a declaratory judgment establishing the balance it owes to the defendant State Housing Authority on a certain federally insured mortgage. The federal Department of Housing and Urban Development (HUD) granted the plaintiff's request for an override of the mortgage's prepayment prohibition. The plaintiff asserts that, because HUD approved prepayment, the defendant must now provide a payoff figure. The defendant maintains, however, that no prepayment is permitted because HUD acted in excess of its regulatory authority in granting the override of the prepayment prohibition.
The plaintiff has filed a motion in limine seeking to exclude any evidence pertaining to the validity of HUD's override of the mortgage prepayment restriction. Specifically, the plaintiff argues that the defendant may challenge HUD's override only by pursuing an administrative appeal in federal court pursuant to the federal Administrative Procedure Act (APA), 5 U.S.C. § 701 et seq. In response, the defendant argues that this court has subject matter jurisdiction to decide all issues relevant to the plaintiff's declaratory judgment action, including whether HUD had authority to grant the override. The defendant further argues that the court properly may determine the validity of the HUD override because no appeal was available under the APA.
"The [federal] APA's comprehensive provisions for judicial review of `agency actions' are contained in 5 U.S.C. § 701-706. Any person `adversely affected or aggrieved' by agency action, see § 702, including a `failure to act,' is entitled to `judicial review thereof,' as long as the action is a `final agency action for which there is no other adequate remedy in a court,' see § 704. The standards to be applied on review are governed by the provisions of § 706. However, before any review at all may be had, a party must first clear the hurdle of § 701(a). That section provides that the chapter on judicial review `applies, according to the provisions thereof, except to the extent that — (1) statutes preclude judicial review; or (2) agency action is committed to agency discretion by law.'" Heckler v. Chaney, 470 U.S. 821, 828, 105 S.Ct. 1649, 84 L.Ed.2d 714 (1985).
Thus, in the present case, as provided by 5 U.S.C. § 701(a), the defendant could not have appealed HUD's override in federal court (1) if there was a statute precluding judicial review or (2) if the override was a matter committed to HUD's discretion by law. With regard to the first circumstance, the defendant has not cited to any statute precluding judicial review of HUD's override of a prepayment prohibition, and a search of the statutes has failed to reveal any such provision. With regard to the second circumstance, it is noted that the parties agree that the relevant provision governing HUD's override is 24 C.F.R. § 200.87(d). (See defendant's memorandum in opposition to motion in limine, p. 6; plaintiff's reply memorandum, p. 6.) Section 200.87(d) provides: "In the event of a default, the Commissioner may override any lockout, prepayment penalty or combination thereof in order to facilitate a partial or full refinancing of the mortgaged property and avoid a claim." Although that provision may arguably grant the commissioner discretion regarding the decision to grant an override, it permits the exercise of that discretion only "[i]n the event of a default . . ." The defendant's argument in the present case is that HUD improperly granted the override because no default had occurred. Because 24 C.F.R. § 200.87(d) provides for the granting of an override only where a default has occurred, the decision of whether to grant an override where no default has occurred, as the defendant asserts HUD did in the present case, is not a matter committed to the discretion of HUD. Furthermore, it is difficult to see how this court, a state court, could rule on a matter that Congress has committed to the sole discretion of a federal agency. Therefore, neither of the exceptions to judicial review set forth in 5 U.S.C. § 701(a) are applicable in the present case.
The court, having determined that an appeal would not have been barred by the exceptions set forth in 5 U.S.C. § 701(a), must next consider whether HUD's override of the prepayment prohibition in the present case constituted "final agency action" within the meaning of 5 U.S.C. § 704. "As a general matter, two conditions must be satisfied for agency action to be `final': First, the action must mark the `consummation' of the agency's decision making process, Chicago Southern Air Lines, Inc. v. Waterman S.S. Corp., 333 U.S. 103, 113, 68 S.Ct. 431, 92 L.Ed. 568 (1948) — it must not be of a merely tentative or interlocutory nature. And second, the action must be one by which `rights or obligations have been determined,' or from which `legal consequences will flow,' Port of Boston Marine Terminal Assn. v. Rederiaktiebolaget Transatlantic, 400 U.S. 62, 71, 91 S.Ct. 203, 27 L.Ed.2d 203 (1970)." Bennett v. Spear, 520 U.S. 154, 177-78, 117 S.Ct. 1154, 137 L.Ed.2d 281 (1997). In the present case, it does not appear that HUD's override was in any way tentative or interlocutory, and it seems clear that HUD determined the parties' rights and obligations, namely, the plaintiff's right to prepay. Accordingly, this court finds that HUD's override was a final decision under 5 U.S.C. § 704.
Finally, it is noted that 5 U.S.C. § 706 specifically authorizes a federal court hearing an administrative appeal to "hold unlawful and set aside agency action . . . found to be . . . in excess of statutory jurisdiction, authority, or limitations, or short of statutory right . . ." In the present case, the defendant's precise claim is that HUD acted in excess of its authority in granting the override of the prepayment prohibition. Accordingly, the defendant's claim appears to fit squarely within the scope of issues authorized to be determined in an appeal pursuant to the federal APA.
Nevertheless, the defendant argues that no appeal of HUD's override was available because there is no statute, apart from the APA itself, conferring jurisdiction on a federal court to hear such an appeal. The plaintiff argues in response that a federal district court has jurisdiction over such an appeal pursuant to 28 U.S.C. § 1331. This court agrees with the plaintiff. In Reiner v. West Village Associates, 768 F.2d 31 (2nd Cir. 1985), the Second Circuit Court of Appeals considered arguments similar to those advanced by the parties in the present case. The court stated: "HUD's attempts to argue that the tenants have no APA claim are ill conceived; it is now clear that the federal courts have subject matter jurisdiction under 28 U.S.C. § 1331 . . . over a claim that an agency has violated the APA. See Califano v. Sanders, 430 U.S. 99, 105, 97 S.Ct. 980, 984, 51 L.Ed.2d 192 (1977). Every court addressing an APA issue in the HUD context has held or assumed that it had jurisdiction. See Frakes v. Pierce, 700 F.2d 501, 504-06 (9th Cir. 1983) (citing cases)." Reiner v. West Village Associates, supra, 33. In addition, the court in Reiner considered the argument advanced by the defendant in the present case that "the APA does not afford an implied grant of subject-matter jurisdiction." (Internal quotation marks omitted.) Id., 33 n. 3. The court noted that although that proposition is true, "the Califano Court clearly held that § 1331's 1976 amendment, which removed the reference to an amount in controversy requirement in federal question cases, makes the issue irrelevant." Id. Accordingly, the plaintiff is correct that 28 U.S.C. § 1331 provides an adequate jurisdictional basis for a federal court to hear an appeal from HUD's override of the prepayment prohibition.
For the foregoing reasons, this court holds that the defendant in the present case failed to exhaust its administrative remedies by neglecting to appeal HUD's override of the mortgage's prepayment prohibition pursuant to the federal Administrative Procedure Act.
Plaintiff's motion to exclude evidence pertaining to HUD's override of the prepayment restriction is therefore granted.
Freed, J.