No. C 01-04569 WHA
May 28, 2002
ORDER DISMISSING COMPLAINT AND DISSOLVING INJUNCTION
In this action alleging the wrongful administration by defendant city of federal loans earmarked for community development, defendants move to dismiss the complaint under Rule 12(b)(1) and Rule 12(b)(6). This order DISMISSES the complaint for lack of subject-matter jurisdiction. Any injunction in existence is DISSOLVED.
On November 29, 2001, plaintiff Ralbert Brooks-Hamilton filed a complaint for race discrimination under Title VI of the Civil Rights Act of 1964, with pendent state-law claims. Therein, plaintiff alleged that he was unlawfully required, due to his race, to post his residence and business property as security in deeds of trust for HUD loans administered by defendant City of Oakland. Since the original complaint, plaintiff has filed two amended complaints. Significantly, the federal cause of action was dropped along the way. At a prior hearing, the Court specifically raised with plaintiffs counsel whether the deletion would deprive it of subject-matter jurisdiction. Counsel, nonetheless, pushed for the proposed amendment. The second amended complaint avers only state-law claims. They are: (1) negligent administration of federal funds, (2) breach of contract, (3) intentional interference with prospective economic advantage, (4) negligent interference with prospective economic advantage, (5) intentional infliction of emotional distress and for punitive damages and (6) fraud, misrepresentation and deceit. Defendants City and City Council Members Ignacio De La Fuente, Henry Cheng, John Russo and Richard Spees now move to dismiss the second amended complaint for lack of subject-matter jurisdiction and for failure to state a claim.
The second amended complaint alleges that this Court has "jurisdiction over this lawsuit because this action involves a federal matter" (¶ 2). Other than federal-question jurisdiction, no other basis for subject-matter jurisdiction is alleged. Since the second amended complaint asserts only state-law claims, the question presented is whether the presence of a federal issue in state-created cause of actions is sufficient for subject-matter jurisdiction. See e.g., Merrell Dow Pharm. Inc. v. Thompson, 478 U.S. 804, 809-10 (1986). Specifically, is a claimed violation of a federal statue as an element of a state-law tort claim sufficiently "substantial" to confer federal-question jurisdiction? In such an instance, federal-question jurisdiction exists if the federal statute entails a private right of action, express or implied. Id. at 808. Clearly, in this case, the Court lacks subject-matter jurisdiction.
The only federal-question issue plaintiff raises within the second amended complaint is styled as a statutory duty of care (¶¶ 16, 20, 21) (emphasis in original):
16. The City was not following the provisions of 24 C.F.R. § 507.209(a) et seq. inclusive of Appendix "A" or equivalent. This code section required among other things, that the City conduct an analysis to determine the appropriate amount of CDBG [Community Development Block Grant] assistance, inclusive of an evaluation of whether too much or too little CDBG funds are being requested as a whole and per line item, and a line item review of all proposed costs.
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20. The City, members of the City Council and the City Manager had a duty of ordinary care in its dealings with Plaintiff and Plaintiffs business enterprise. Further, Defendants have a statutory duty under 24 C.F.R. § 507.209(a) et seq. to maintain, control and disburse Section 108/EDI funds according to the provisions of the regulation.
21. Defendants breached their duty of ordinary care and the statutory duty owed Plaintiff, resulting not only in the failure and loss of Plaintiffs business enterprise, but also in the attempted foreclosure of Plaintiffs home, business property and equipment by Defendants.
Significantly, 24 C.F.R. § 570.209 (which plaintiff incorrectly cites as 24 C.F.R. § 507.209) is not a statue, but a regulation promulgated by the Secretary of the Department of Housing and Urban Development. As such, no private right of action can arise from this regulation. See Smith v. Dearborn Financial Services, Inc., 982 F.2d 976, 979 (6th Cir. 1993) ("[F]ederal regulations cannot themselves create a cause of action; that is a function for the legislature. A grant of federal rulemaking power is not authority to create federal jurisdiction. That authority lies solely with Congress. Therefore, no implied private right of action can be found from the regulations standing alone. Rather, the statute must be examined to determine if an implied private right of action can be found from the statute."). This is because congressional intent — which is absent from regulations promulgated by an executive official — is the key to determining whether an implied right of action exists. See e.g., Daily Income Fund, Inc. v. Fox, 464 U.S. 523, 535-36 (1984).
Moving to the federal statute, the one in question is the Housing and Community Development Act of 1974, 42 U.S.C. § 5301-5321 (HCDA). Compliance with this act by a municipal entity, however, is enforced by the federal government. 42 U.S.C. § 5311. Specifically, the act does not expressly provide for a private right of action. See 42 U.S.C. § 5301-5321. Nor does the act entail an implied private right of action. See Walker v. City of Lakewood, 272 F.3d 1114, 1127 (9th Cir. 2001). This is dispositive on the absence of subject-matter jurisdiction in this action. Merrell Dow, 478 U.S. at 814 ("We simply conclude that the congressional determination that there should be no federal remedy for the violation of a federal statute is tantamount to a congressional conclusion that the presence of the claimed violation of the statute as an element of a state cause of action is insufficiently "substantial" to confer federal-question jurisdiction.").
While plaintiff makes no mention of this statute in the second amended complaint, it is clear that this is the statute at issue. Specifically, the "CDBG" or Community Development Block Grant alleged are administered by HUD pursuant to the HCDA, and HUD regulations governing this program are found at 24 C.F.R. § 570. See White v. Massachusetts Council of Const. Employers, Inc., 460 U.S. 204, 212 n. 9 (1983). Plaintiffs allegation that the administration of these community development funds fall under 42 U.S.C. § 3531-3547 is wrong (Second Am. Compl. ¶ 7). This chapter established the Department of Housing and Urban Development.
The decisions plaintiff cites are inapplicable. Huntington Branch, N.A.A.C.P. v. Town of Huntington, 844 F.2d 926, 927 (2nd Cir. 1988), involved claims of race discrimination under the Fair Housing Act (FHA). Unlike the HCDA, the FHA expressly provides for a private right of action. See 42 U.S.C. § 3613. Plaintiff makes no allegation in the second amended complaint toward the FHA. The remaining decisions of Coalition for Block Grant Compliance v. Dept. of Housing and Urban Dev., 450 F. Supp. 43 (E.D.Mich. 1978), and Lower Moreland Homeowner's Assoc. v. Dept. of Housing and Urban Dev., 479 F. Supp. 886 (E.D.Pa. 1979), are likewise distinguishable. In Lower Moreland, the plaintiffs there sued HUD under the Administrative Procedures Act (APA), alleging that the Secretary had abused its discretion in not complying with the HCDA and the FHA. Id. at 890. In Coalition, the question of an implied private right of action under the HCDA against the municipal defendant was not raised because the plaintiffs there also alleged violation of the FHA and the Civil Rights Act of 1964. Moreover, the district court granted injunctive relief due to HUD's abuse of discretion in violation of the APA. 450 F. Supp. at 49, 52.
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In opposition papers to defendants' motion, plaintiff for the first time argues that the federal statute asserted in this action is actually the National Housing Act, under 12 U.S.C. § 1701-1750g (NHA). Absolutely no mention of the NHA is made in the second amended complaint. Transparently, plaintiff is reverting to eleventh-hour maneuvers, again. In the past, due to the gravity of race-discrimination allegations, the Court has allowed plaintiff wide latitude to do so at defendants' expense. On the first occasion, plaintiff filed the first amended complaint on the same day as the hearing for preliminary injunction. Since one of the claims therein raised a substantial question on an allegedly defective notice of default, the Court enjoined the foreclosure sale of plaintiffs residence, even though there was no doubt he defaulted. On the second occasion, instead of opposing defendants' motion to dismiss the first amended complaint, plaintiff moved for leave to file this second amended complaint three days before the dismissal hearing. At that hearing, the Court specifically raised with plaintiffs counsel whether the deletion of the Title VI race-discrimination claim would deprive the Court of subject-matter jurisdiction. Plaintiffs counsel pressed for the proposed amendment anyway. The Court reluctantly withheld ruling on defendants' motion on the merits and allowed amendment. This time around, however, the Court will not indulge plaintiffs eleventh-hour attempt to undercut defendants' fair attack on the second amended complaint, especially when at the last round the warning was clear: further leave to amend the complaint will not be granted in the future (Order March 28, 2002).
Specifically in briefing, plaintiff posits that "[t]he federally-assisted loans and grants authorized under HUD's section 108 program, (the Community Development Act) is regulated under 42 U.S.C. § 5301. However, the Act governing this regulation is embodied in the National Housing Act, under 12 U.S.C. § 1701 et seq." (Opp. 6). At the hearing, counsel explained that since the NHA was the "genesis" of the HCDA, the NHA is the true statute at issue. As authority for this "genesis" theory, counsel cited 12 U.S.C. § 170 lu. This provision falls woefully short. It does not support the contention that the NHA was the "genesis" of the HCDA or the contention that the NHA "governs" the HCDA and, therefore, is the true statute at issue. As such, the decisions cited by plaintiff involving the NHA are irrelevant.
At all events, the relevant statute is the HCDA, as discussed above. In the second amended complaint, plaintiff alleges the violation of regulations promulgated pursuant to the HCDA and nothing else. At the hearing, plaintiffs counsel admitted the second amended complaint does not mention or reference to the NHA. Plaintiff's brand-new contention of implicitly incorporating a statute multiple steps removed from the regulations actually pled, moreover, deprives defendants of fair notice. FRCP 8.
Any and all injunctions against defendants are DISSOLVED. The complaint is DISMISSED for lack of subject-matter jurisdiction. Judgment of dismissal will be entered. The Clerk shall CLOSE the file.