Opinion
A20-1367
05-24-2021
Linda Cobb THOMPSON, on behalf of herself and all others similarly situated Appellant, v. ST. ANTHONY LEASED HOUSING ASSOCIATES II, LP, et al., Respondents.
Prentiss Cox, Jordan Hughes (certified student attorney), University of Minnesota Consumer Protection Clinic, Minneapolis, Minnesota; and John Cann, Margaret Kaplan, James Poradek, Housing Justice Center, St. Paul, Minnesota (for appellant) Thomas H. Boyd, David A. Davenport, Sean M. Zaroogian, Peter G. Economou, Winthrop & Weinstine, P.A., Minneapolis, Minnesota (for respondents)
Prentiss Cox, Jordan Hughes (certified student attorney), University of Minnesota Consumer Protection Clinic, Minneapolis, Minnesota; and John Cann, Margaret Kaplan, James Poradek, Housing Justice Center, St. Paul, Minnesota (for appellant)
Thomas H. Boyd, David A. Davenport, Sean M. Zaroogian, Peter G. Economou, Winthrop & Weinstine, P.A., Minneapolis, Minnesota (for respondents)
Considered and decided by Smith, Tracy M., Presiding Judge; Connolly, Judge; and Bryan, Judge.
SMITH, TRACY M., Judge
In this direct appeal, appellant Linda Cobb Thompson, a tenant in an apartment complex owned and managed by respondents, challenges the district court's dismissal of her complaint for failure to state a claim upon which relief may be granted. Thompson asserts a number of statutory and common-law claims, all of which are founded on the allegation that respondents have charged appellant rent in excess of the restrictions imposed by Minn. Stat. § 474A.047 (section 47). Under section 47, when a rental housing project is developed using tax-exempt bonds, 20% of the units must be offered for a period of time at rental rates that do not exceed limits imposed by the statute. Whether the rent charged by respondents has exceeded section 47's limits depends on the interpretation of the statute. We conclude that, under the correct interpretation of section 47, Thompson has not alleged facts that would establish a violation of the statute. Thompson's claims therefore fail as a matter of law, and the district court properly dismissed Thompson's complaint for failure to state a claim. We affirm.
Because we are reviewing the dismissal of a complaint for failure to state a claim, we accept as true the facts in the complaint. See Bodah v. Lakeville Motor Express, Inc. , 663 N.W.2d 550, 553 (Minn. 2003).
Respondents St. Anthony Leased Housing Associates, II, Limited Partnership; St. Anthony Leased Housing Associates, II, LLC; and Dominium Management Services, LLC, are closely related business entities (collectively, Dominium) that own and manage the Legends apartment complex. Dominium built the Legends apartment complex in St. Anthony using tax-exempt residential rental bonds from the City of St. Anthony.
Under section 47, Dominium must rent a portion of the complex's units at or below the "area fair market rent" or "exception fair market rent[ ]," as established by the federal Department of Housing and Urban Development (HUD). See Minn. Stat. § 474A.047, subd. 1(a)(2). In its leases, Dominium informs tenants that any rent increases "will be made in accordance with all applicable state and local laws." Dominium also entered into a regulatory agreement with the City of St. Anthony under which it agreed to abide by section 47.
Since 2015, appellant has resided in one of the rent-restricted units reserved for low-income tenants at the Legends apartment complex. She alleges that Dominium charged rental rates that exceed fair market rent established by HUD by seven percent to just under ten percent. She alleges that these rates exceed the limits of section 47. She asserts that from June 2015 to January 2020 she paid $4,120 in excessive rent.
On behalf of herself and a putative class of similarly situated plaintiffs, Thompson brought a four-count complaint against Dominium. Count I claims that Dominium's excessive rent constitutes a breach of contract and breach of the implied covenant of good faith and fair dealing. Counts II and III claim that Dominium misrepresents that it charges the maximum allowable rent, in violation of the Uniform Deceptive Trade Practices Act, Minn. Stat. §§ 325D.43 -.48 (2020), and the Minnesota Consumer Fraud Act, Minn. Stat. § 325F.69 (2020), respectively. Count IV claims unjust enrichment based on the excessive rent. The complaint seeks a permanent injunction prohibiting Dominium from charging rent that exceeds fair market rent, restitution to remedy unjust enrichment, damages to remedy excessive rent paid, and an award of costs and reasonable attorney fees.
Dominium moved to dismiss Thompson's complaint, arguing that she lacks standing to bring her complaint and, in the alternative, that her complaint fails to allege claims upon which relief could be granted. The district court granted Dominium's motion to dismiss Thompson's complaint. It determined that, under her lease, Thompson has standing to bring her breach-of-contract claim but that section 47 permits Dominium to charge rent at the level it does and that the complaint therefore fails to state a claim.
Thompson appeals.
ISSUE
Did the district court properly grant Dominium's motion to dismiss Thompson's complaint for failure to state a claim?
ANALYSIS
We review de novo a district court's dismissal of a complaint for failure to state a claim upon which relief can be granted under rule 12.02(e) of the Minnesota Rules of Civil Procedure. See Sipe v. STS Mfg., Inc. , 834 N.W.2d 683, 686 (Minn. 2013). A claim may be dismissed on the pleadings "only if it appears to a certainty that no facts, which could be introduced consistent with the pleading, exist which would support granting the relief demanded." N. States Power Co. v. Franklin , 265 Minn. 391, 122 N.W.2d 26, 29 (1963). Thompson contends that her complaint states viable claims because it sufficiently alleges that Dominium charges rent in violation of the limits imposed by section 47. Her allegation requires us to interpret a statute that Minnesota appellate courts have not yet examined. Questions of statutory interpretation are reviewed de novo. See Christianson v. Henke , 831 N.W.2d 532, 535 (Minn. 2013).
Our object when interpreting a statute is to "ascertain and effectuate the intention of the [l]egislature." See Linn v. BCBSM, Inc. , 905 N.W.2d 497, 501 (Minn. 2018) (quoting Minn. Stat. § 645.16 (2016) ). The first step is to determine whether the statute is ambiguous; a statute is ambiguous when it allows for more than one reasonable interpretation. 500, LLC v. City of Minneapolis , 837 N.W.2d 287, 290 (Minn. 2013). If a statute is ambiguous, we may employ canons of construction to determine its meaning, see Brayton v. Pawlenty , 781 N.W.2d 357, 363 (Minn. 2010), including consideration of the object of the law, the consequences of a particular interpretation, and legislative history, Minn. Stat. § 645.16(4), (6), (7) (2020).
A. Section 47 is ambiguous.
Section 47 provides that, when a rental housing project is developed using tax-exempt bonds, "the maximum rent" charged for a specified portion of units may not "exceed the area fair market rent or exception fair market rent[ ] for existing housing, if applicable, as established by the federal Department of Housing and Urban Development." Minn. Stat. § 474A.047, subd. 1(a)(2). Section 47 does not define "area fair market rent" or "exception fair market rent[ ]."
To discern the meaning of those two terms, both parties look to HUD regulations regarding affordable housing. A review of the regulations helps frame the parties’ arguments.
Under its regulations, HUD annually establishes fair market rent (FMR) by setting a specific amount for each geographic market area. 42 U.S.C. § 1437f(c)(1)(B) (2018) ; 24 C.F.R. § 888.111(a) - (b) (2020). HUD sets the FMR at the 40th percentile rent in a market area—that is, the dollar amount below which 40% of standard-quality rental housing units are rented. 24 C.F.R. §§ 888.111(a) - (b), .113(a) (2020). FMR is a concept used by HUD for a number of purposes, including, importantly, the federal housing-choice voucher (HCV) program. Section 8 Tenant-Based Assistance; Statutory Merger of Section 8 Certificate and Voucher Programs; Housing Choice Voucher Program, 64 Fed. Reg. 56,894, 56,911 (Oct. 21, 1999) (codified at 24 C.F.R. pt. 888, 982); U.S. Dep't of Hous. & Urban Dev., Fair Market Rents , https://www.huduser.gov/portal/datasets/fmr.html (last visited May 11, 2021).
The HCV program provides vouchers to low-income, disabled, and elderly tenants to assist them in paying rent. U.S. Dep't of Hous. & Urban Dev., Housing Choice Vouchers Fact Sheet , https://www.hud.gov/topics/housing_choice_voucher_program_section_8 (last visited May 11, 2021). Under HUD regulations, FMR is used in determining the amount of assistance to be provided. The regulations require the local public housing authority (PHA) to adopt a schedule establishing "payment standard amounts" for use in calculating the amount of housing vouchers for program participants. 24 C.F.R. § 982.503(a)(1) (2020). The regulations permit the local PHA to establish a payment-standard amount that is within 90% and 110% of FMR. Id. (b)(1)(i) (2020). This range is called the "basic range." Id. The regulations also permit HUD, in its discretion, to approve a payment-standard amount that is above 110% of FMR. Id. (c) (2020). This amount is called an "exception payment standard amount." Id.
With this background, we can describe the parties’ competing interpretations of the terms in section 47. Thompson contends that, under the plain language of section 47, "area fair market rent" corresponds to the FMR measure that is determined by and published annually by HUD and "exception fair market rent[ ]" corresponds to the HUD-approved exception payment-standard amount above 110% of FMR. Dominium, in its briefing to this court, agrees with Thompson that section 47's "exception fair market rent[ ]" corresponds to the HUD-approved exception payment-standard amount above 110% of FMR but contends that "area fair market rent" corresponds to the PHA-determined payment-standard amount that is within the basic range of 90% to 110% of FMR. This is the interpretation that the district court adopted.
Because section 47 does not define the terms "area fair market rent" or "exception fair market rent[ ]," and because those terms are technical in nature, their meaning is not readily ascertained by a plain-language analysis. We conclude that referring to the HUD regulations governing the HCV program is necessary to understand section 47's terms. Referring to those regulations, we conclude that neither party's interpretation of "area fair market rent" and "exception fair market rent[ ]" in section 47 is unreasonable. Indeed, there is a third possible interpretation—one that Dominium asserted in the district court and in oral argument to this court—namely, that "area fair market rent" means HUD's published FMR and that "exception fair market rent[ ]" means not only a HUD-approved exception payment-standard amount above 110% but also a payment-standard amount established by a local PHA within the basic range of 90% to 110% of FMR. Because there is more than one reasonable interpretation of section 47, the statute is ambiguous. To resolve the ambiguity, we turn to canons of construction.
B. Canons of construction support the district court's interpretation that "area fair market rent" corresponds to a PHA-established payment-standard amount within the basic range and "exception fair market rent[ ]" corresponds to a HUD-approved exception payment-standard amount above 110%.
We begin with the legislative history of section 47. See First Nat'l Bank of Deerwood v. Gregg , 556 N.W.2d 214, 217 (Minn. 1996). Section 47 was amended by the Minnesota Legislature in 2001 to, for the first time, refer to "area fair market rent" and "exception fair market rent[ ]." 2001 Minn. Laws ch. 214, § 24, at 984. HUD's HCV program and its regulatory history shed light on the meaning of those terms.
The HCV program was established under the Quality Housing and Work Responsibility Act of 1998, which became effective in 1999. Quality Housing and Work Responsibility Act of 1998; Notice of Status of Implementation, 66 Fed. Reg. 18,287 (Apr. 6, 2001). That act merged the then-existing section 8 certificate and voucher programs into a single program—the HCV program. See Section 8 Tenant-Based Assistance; Statutory Merger of Section 8 Certificate and Voucher Programs, 64 Fed. Reg. 26,632 (May 14, 1999) (Interim Rule).
Although the then-existing certificate and voucher programs were different programs, both were governed by HUD regulations restricting rent—specifically, HUD's "FMR/exception rent limit." The definitions accompanying HUD's promulgated rule conforming both programs explained: "For a regular tenancy in the certificate program, the initial rent to owner plus any utility allowance may not exceed the FMR/exception rent limit .... For a tenancy in the voucher program, the [local PHA] may adopt a payment standard up to the FMR/exception rent limit." Section 8 Certificate and Voucher Programs Conforming Rule, 63 Fed. Reg. 23,826, 23,858 (Apr. 30, 1998) (Conforming Rule). "FMR" referred to fair market rent published annually by HUD. See id. at 23,832. "Exception rent" was defined as "a maximum rent subsidy in excess of the published FMR." Id. Thus, under the 1998 regulations, the rent was restricted at either (1) FMR or (2) an authorized exception above FMR.
Under those previous regulations, a local PHA could authorize an exception rent up to 110% of FMR and HUD could authorize an exception rent above 110%. Interim Rule, 64 Fed. Reg. at 26,632.
When HUD promulgated regulations for the HCV program in 1999, it removed the references to "FMR/exception rent limit" and the definition of "exception rent." See Interim Rule, 64 Fed. Reg. at 26,640 -41. Instead, the regulations used only the "payment standard amount" terminology from the former section 8 voucher program. Section 8 Tenant-Based Assistance; Statutory Merger of Section 8 Certificate and Voucher Programs; Housing Choice Voucher Program, 64 Fed. Reg. at 56,914. Thus, HUD moved from a regulatory scheme that included explicit restrictions on rent to the HCV-program regulatory scheme, which is based on payment-standard amounts.
Although the previous regulatory scheme addressed rent and the HCV-program regulatory scheme is based on payment-standard amounts, both schemes contain two parts covering a range related to FMR. The 1998 regulations restricted rent to either (1) FMR or (2) an exception rent above FMR, while the regulations promulgated in 1999 (and in effect when the Minnesota Legislature amended section 47) set payment-standard amounts at either (1) the PHA-determined payment-standard amount within the basic range of 90% to 110% of FMR or (2) an exception payment-standard amount above 110% as authorized by HUD.
Section 47 also describes a two-part scheme. It caps rent at either (1) area fair market rent or (2) exception fair market rent. Given the history of HUD regulations, the most logical reading of section 47 is that it borrows the two-part regulatory scheme of the HCV-program regulations, which were promulgated in 1999. Under this reading, (1) "area fair market rent" corresponds to a PHA-approved payment-standard amount within the basic range of 90% to 110% of FMR and (2) "exception fair market rent[ ]" corresponds to an exception payment-standard amount above 110%.
At the request of a PHA, HUD may also approve a payment-standard amount below 90% of FMR. 24 C.F.R. § 982.503(d) (2020). The regulations define "exception payment standard amount" to include only payment-standard amounts above 110% of FMR. Id. (c). Thompson's complaint does not allege that HUD has approved a PHA's request to set a payment-standard amount below 90% of FMR, and we therefore need not decide the application of section 47 to such a rental rate.
Thompson agrees that HUD's exception payment-standard amount is a proxy for "exception fair market rent[ ]" under section 47. But, she argues, the basic-range payment-standard amount under HUD regulations is not a proxy for "area fair market rent." Instead, she argues, "area fair market rent" can only mean HUD's FMR. Under her interpretation, a landlord could charge rent in its restricted units at a rate of up to 100% of FMR or more than 110% of FMR if HUD has approved an exception payment-standard amount, but a landlord could not charge rent at a rate between those amounts regardless of the payment-standard amount set by the PHA. In other words, under Thompson's interpretation, the Minnesota Legislature intentionally created a gap between more than 100% and less than 110% of FMR, preventing landlords from charging rent in that range in their rent-restricted units even if a PHA establishes the payment-standard amount within that range.
But the HCV-program regulations contain no similar gap. They direct local PHAs to designate payment-standard amounts within a range of 90% to 110% of FMR without further HUD approval, 24 C.F.R. § 982.503(b)(1)(i), and they authorize HUD to unilaterally designate an exception payment-standard amount above 110% of FMR, 24 C.F.R. § 982.503(c)(1)-(2). The previous HUD regulations likewise left no gap in rent restrictions—they restricted rent to FMR or to any exception rent above FMR. Because section 47 borrows from the HUD regulations, and because the HUD regulations do not, and did not in the past, reflect the gap that Thompson's interpretation would introduce, her argument is unconvincing.
Thompson contends, though, that the phrase "established by [HUD]" in section 47 supports her interpretation. Under section 47, the landlord must offer 20% of its units at or below "fair market rent or exception fair market rent[ ] for existing housing, if applicable, as established by the federal Department of Housing and Urban Development." Minn. Stat. § 474A.047, subd. 1(a)(2) (emphasis added). Thompson contends that HUD does not "establish" payment-standard amounts within the basic range because section 982.503(b)(1)(ii) provides that a local PHA establishes this payment-standard amount without HUD involvement. But HUD's 1999 regulations "specifically delegate[ ] to the PHA the establishment of a payment standard between 90 to 110 percent of the FMR." Section 8 Tenant-Based Assistance; Statutory Merger of Section 8 Certificate and Voucher Programs; Housing Choice Voucher Program, 64 Fed. Reg. at 56,908. Under HUD regulations, "HUD approval is not required to establish a payment standard amount in that range (‘basic range’)." 24 C.F.R. § 982.503(b)(1)(i). HUD therefore "establishes," albeit indirectly, the area fair market rent by directing local PHAs to establish a payment-standard amount within 90% to 110% of FMR.
Thompson finally marshals policy arguments in support of her interpretation. She contends, first, that allowing a local PHA to unilaterally establish a rent restriction by establishing a payment-standard amount within the basic range impermissibly allows for a nontransparent rental-rate designation process. Thompson maintains, second, that the legislative presumption of favoring the public interest compels us to interpret section 47 to require HUD, not local PHAs, to establish the rent restrictions because direct HUD involvement "binds landlords to a rent measure approved through a federal review process." But the HUD regulations demonstrate that HUD indirectly authorizes the basic-range payment-standard amount and directly authorizes the exception payment-standard amount. While HUD could have created a different process to establish payment standards, the process it chose does not undermine the Minnesota legislative purpose of promoting access to affordable housing. See Minn. Stat. § 474A.047, subd. 1(a)(1) (2020) (providing requirement that tax-exempt bonds fund housing projects serving low-income tenants); see also I.R.C. § 142(d) (2018).
In the end, we agree with the interpretation of section 47 adopted by the district court and advanced by Dominium in its appellate brief: section 47 caps rent in rent-restricted units at either (1) the area fair market rent, which corresponds to the basic-range payment-standard amount selected by the local PHA or (2) an exception fair market rent, which corresponds to an exception payment-standard amount.
We reject the third possible interpretation of section 47, which was advanced by Dominium at the district court and at oral argument to this court. That interpretation, again, is that "area fair market rent" means FMR and that "exception fair market rent[ ]" refers to both a PHA-approved payment-standard amount within the 90% to 110% basic range as well as to an exception payment-standard amount above 110% of FMR approved by HUD. The problem with this interpretation is evident when considering what would happen if a PHA set a basic-range payment-standard amount below 100% of FMR. In that circumstance, the landlord could still charge rent at 100% of FMR even though the tenant's housing voucher would correspond to a payment-standard amount less than 100% of FMR. This would result in a mismatch between the amount of rent that could be charged in a rent-restricted unit and the amount of housing assistance that would be available to the tenant in that unit, to the tenant's disadvantage. The consequence of this interpretation would be to undermine the object of both section 47 and the related federal HCV program: the promotion of access to affordable housing. See Minn. Stat. § 645.16(4), (6) (2020).
Having interpreted section 47, we turn to its application in this case.
C. Thompson fails to allege facts sufficient to show a violation of section 47.
The Legends apartment complex where Thompson resides is in the City of St. Anthony. The local PHA overseeing public housing in St. Anthony is the Metropolitan Council Housing and Redevelopment Authority (Metro HRA). As the local PHA, Metro HRA is charged with establishing the payment-standard amount affecting the Legends apartment complex within the basic range of 90% to 110% of FMR. 24 C.F.R. § 982.503(b)(1)(i) ; Section 8 Tenant-Based Assistance; Statutory Merger of Section 8 Certificate and Voucher Programs; Housing Choice Voucher Program, 64 Fed. Reg. at 56,908. Thompson's complaint does not allege that Dominium has charged rent in its rent-restricted units at a rate that exceeds Metro HRA's established payment-standard amount. The complaint therefore fails to allege facts sufficient to establish a violation of section 47. Because all of Thompson's claims depend on there being a violation of section 47, the claims fail. We therefore affirm the district court's dismissal of Thompson's complaint for failure to state a claim upon which relief may be granted.
DECISION
The district court appropriately granted Dominium's motion to dismiss all of Thompson's claims for failure to state a claim.