Diaz v. U.S. Dep't of Housing and Urban Dev.

OPINION & ORDER Before the Court are Defendants New York City Housing Authority (“NYCHA”),¹ United States Department of Housing and Urban Development (“HUD”),² C+C Apartment Management L.L.C. (“C+C”) and Harlem River Preservation L.L.C.’s (“HRP”)³ motions to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). Plaintiffs oppose the motions.⁴ For the reasons below, the motions to dismiss are GRANTED. I. Background This action concerns the Harlem River Houses, a public housing authority (“PHA”) development funded under Section 9 of the Housing Act of 1937 originally owned and managed by NYCHA. (Dkt. no. 4 at 1.)⁵ Plaintiffs seek injunctive relief, challenging HUD’s approval of NYCHA’s plan to convert Harlem River Houses into a privately owned and managed development corporation funded under Section 8 of the Housing and Community Development Act of 1974, 42 U.S.C. §5301 et seq. (Id.) HRP was created in April 2020 to be the RAD/PACT developer for the Harlem River Houses conversion. (AC at 152.) HRP is a partnership of at least four corporate entities: (a) C+C Apartment Management, LLC, a private property management company which manages thousands of residential units, most of which are funded under the LIHTC; (b) the Settlement Housing Fund, a non-profit developer/owner created in 1971, which has a bevy of high-paid executives and which received 90 percent of its funds from “related organizations”; (c) West Harlem Group Assistance, a small non-profit which is half-funded by management fees and half-funded by government grants; and (d) L&M Builders, a multi-million dollar General Contractor, which is to be the General Contractor at Harlem River Houses. Tenants are not being asked to sign leases with HRP, they are being asked to sign leases with C+C, the private sector property manager, the only entity in HRP which seems designed to stick around after federal money is used, under Section 8, to perform renovations at Harlem River Houses. (Id.) A. Plaintiffs’ Communications with HUD and Issues with HRP In 2021, Plaintiffs organized as United Front Against Displacement and lodged “a series of complaints⁶ with HUD about what C+C Apartment Management, LLC and NYCHA were doing at Harlem River Houses.” (AC at 165.) The two emails attached as exhibits to the AC complained of “intimidation” and “harassment” by C+C trying to pressure Plaintiffs into signing the new private leases. (Dkt. nos. 4-12 and 4-14.) The AC alleges that the C+C lease “does not contain all of the protections of the NYCHA lease (Exhibit A) and the tenants have none of the statutory protections set forth in Section 9 of the Housing Act[] of 1937.” (AC at 157.) The AC alleges that representatives of HRP and C+C: continued to push Plaintiffs and all other Harlem River Houses NYCHA tenants to sign their leases. They intrusively visited tenants’ apartments, insisting that they have a right to enter in order to do a survey so that they could plan repairs, and, in many cases, using those visits as an opportunity to tell tenants that they would face eviction of [sic.] they don’t sign leases with C+C, which they say will come into effect when conversion occurs ‘in the Fall [of 2021].’ Tenants have multiple notices posted on their apartment doors, are pressured to come to meetings with C+C, and are being told that repair orders they requested of NYCHA will have to be refiled with C+C and be reassessed. (AC at 168.) On August 2, 2021, Taí Merey Alex of the HUD Office of Recapitalization responded to Plaintiffs’ June 22, 2021 email. (Dkt. no. 4-15.) Alex informed Plaintiffs that HUD would investigate the claims set out in Plaintiffs’ email and attached letter and, at the conclusion of the investigation, HUD would issue a findings letter that would include whether HUD determined there to be program violations. (Id.) Alex further assured Plaintiffs that if HUD found non-compliance with RAD program requirements or HUD regulations, HUD would “take appropriate actions” in response. (Id.) Alex noted that while NYCHA had submitted the “preliminary application,” NYCHA had not then submitted the full project proposal, and as a result, HUD had not yet done “a detailed review of the project proposal documents.” (Id.) Finally, Alex instructed Plaintiffs to send any future correspondence about RAD to Alex’s email address and requested contact information for Plaintiffs’ primary contact so that HUD could “communicate with [Plaintiffs] effectively during [HUD's] fact-finding.” (Id.) On September 17, 2021, Plaintiffs’ Counsel responded to Alex’s August 2, 2021 email, asking that he be kept up to date on HUD’s investigation. (Dkt. no. 4-16.) In October 2021, HRP announced that it would begin repairs on apartments, that in “many cases” the repairs would require tenants to move out, and HRP did not provide any assurances about whether tenants would return to their apartments or how long tenants would be “forced out” of their apartments. (AC at 172.) Plaintiffs’ counsel then emailed Alex complaining of the relocations, alleging that C+C was the real entity in control of the RAD conversion and asserting that NYCHA was ineligible to supervise a RAD conversion due to its status as a troubled PHA. (Dkt. no. 4-18.)⁷ Alex responded on November 15, 2021. Alex informed Plaintiffs’ counsel that HUD was conducting a fact-finding to investigate specific items raised to HUD by residents, that the submitted financial plan was under review, and that C+C’s proposed relocation was under review. (Dkt. no. 4-17.)⁸ Regarding Plaintiffs’ counsel’s statements on NYCHA’s status as a troubled PHA, Alex referred Plaintiffs’ counsel to the RAD Notice. (Id.) Around February 18, 2022, C+C sent notice to all Harlem River Houses tenants that it was the new managing agent of Harlem River Houses. (AC at 175.) Plaintiffs allege that HUD did not give them any notice of the RAD conversion approval, that Plaintiffs were not interviewed by HUD regarding their complaints, and that neither they nor Plaintiffs’ counsel were given copies of NYCHA’s applications, financing plans, or the fact-finding results. (Id. at 176.) Plaintiffs allege that: [T]heir rights as Section 9 tenants will be severely compromised by the RAD conversion and their change to being Section 8 tenants. NYCHA tenants will begin to have different obligations and be governed by a different set of regulations as Section 8 tenants. NYCHA tenants will continue to have certain reporting obligations to NYCHA, which administers the Section 8 program, and other obligations to their new landlords. They will pay their rent to the new landlord, and will have to contact the new landlord about any repair issues. In fact, all existing work orders, i.e., repairs which tenants have requested to make their apartments habitable, will be erased, and new requests will have to be made to the new landlord. The landlord-tenant relationship will be shifted to NYC Housing Court instead of to administrative proceedings before NYCHA staff with expertise. (AC at 158.) Further, Plaintiffs take issue with a process called “rightsizing,” which Plaintiffs allege C+C will undertake after it begins managing the Harlem River Houses. (AC at 159.) Rightsizing involved reassessing tenants to “determine whether they are living in an apartment which is the right size for their household composition.” (Id.) Plaintiffs allege that “[t]enants whose apartments are selected for repair and renovation have a right to return to the same property but not necessarily the same unit. Rightsizing is likely to result in evictions of people who according to NYCHA’s records, are not in the household composition.” (Id.) B. Legal Authority for the Conversion NYCHA’s conversion plan is authorized under the federal Rental Assistance Demonstration (“RAD”) program, implemented by NYCHA under the moniker Permanent Affordability Commitment Together (“PACT”). (AC at 2.) Under RAD, HUD subsidizes tenants’ rent payments and NYCHA provides a subsidy to the private developer. The developer then renovates the housing with its own capital and retains private property management companies to operate the development. (Id. at 149.) Under PACT, NYCHA owns the housing and leases it to the private developers. (Id.) Before a PHA can convert a development under RAD, the PHA must submit a plan to HUD, HUD must approve the plan, and the conversion must close. (Id. at 160.) HUD regulations limit RAD eligibility to PHAs that are: classified as a Standard or High Performer under the Public Housing Assessment System (PHAS). If classified as “troubled” (Troubled) the PHA may still be eligible if the PHA is making substantial progress under its Recovery Agreement, Action Plan, Corrective Action Plan (CAP) or Memorandum of Agreement (MOA) or proposes a revision to such agreement or plan that incorporates conversion under RAD and that is acceptable to HUD. HUD must have determined that the factors resulting in the PHA’s Troubled status will not affect its capacity to carry out a successful conversion under this Demonstration.⁹ HUD regulations further require each project selected for a RAD award to perform a “detailed physical inspection” that “must have been completed no earlier than 180 days prior to submission of the Financing Plan, except with HUD approval.” (RAD Notice at 23.) Finally, HUD regulations require that: [e]xcept where permitted to facilitate the use of tax credits, during both the initial term and all renewal terms of the HAP Contract, HUD will require ownership or control of the Covered Project by a public or non-profit entity. HUD may also allow ownership of the project to be transferred to a tax credit entity controlled by a for-profit entity to facilitate the use of tax credits for the Covered Project, but only if HUD determines that the PHA or a non-profit entity preserves an interest in the property. (Id. at 30.) C. Plaintiffs’ Causes of Action Plaintiffs assert that they “have a right to be tenants in a converted development run by a qualified non-profit, supervised by a public housing agency which has the ability and desire to supervise the new RAD landlord, approved by HUD in a transparent process.” (AC at 183.) Plaintiffs write that the fact that none of these rights has been met has caused Plaintiffs “irreparable injury.” (Id.) Both of Plaintiffs’ causes of action assert that HUD’s approval of the Harlem River Houses conversion was “arbitrary, capricious and in violation of applicable law.” (Id. at