Plaintiffs, bring this action for declaratory and ...



UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

_________________________________________

SHARON RUTLEDGE, NACHELLE JOHNSON,

LULA HAMPTON, TAURA CHEATHAM, and

the PARKVIEW TENANTS’ ASSOCIATION,

File No. CV-

Plaintiffs,

v. Hon.

ALPHONSO JACKSON, Secretary of the U.S. U.S. Mag. Judge

DEPARTMENT OF HOUSING AND URBAN

DEVELOPMENT (HUD), in his official capacity,

and HUD,

Defendants.

_________________________________________/

COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Preliminary Statement

1. Parkview Apartments is a HUD-subsidized 144-unit apartment complex for low- and middle-income families located in Ypsilanti, Michigan.

2. Parkview Apartments was foreclosed on by HUD in 2004, and a foreclosure sale was held by HUD on May 27, 2005.

3. The buyer at the foreclosure sale was Emmanuel Ku/Dakko Management/Chun Tai Holding, LLC (“Ku/Dakko”).

4. Ku/Dakko is a New York developer and rental property owner with a record of poor management of multifamily rental properties in New York City.

5. The plaintiffs are individual residents and the Parkview tenants’ association.

6. The plaintiffs seek declaratory and injunctive relief to prevent HUD from closing on the sale of Parkview Apartments to Ku/Dakko or to void the sale, for failure to comply with federal law.

7. Upon information and belief, the closing has not yet occurred, in part because the closing was barred by virtue of the automatic stay incident to Parkview Apartments having filed for bankruptcy on June 1, 2005. See E.D. Mich. Bankruptcy No. 05-57708 (Hon. Phillip J. Shefferly).

8. On November 18, 2005, the Bankruptcy Court granted HUD’s motion to lift the stay against it, making this action necessary.

9. Parkview had filed an action in this Court in 2004 to prevent HUD from fore-closing on the property, but that action was dismissed. See Parkview Apartments Non-Profit Housing Corporation v. HUD, E.D. Mich. No. CV-04-74303-DT (Hon. Victoria A. Roberts), discussed at ¶¶ 42-43 below.

Jurisdiction and Venue

10. This Court has jurisdiction over the plaintiffs’ claims under 28 U.S.C. § 1331 (federal questions) and 5 U.S.C. § 704 (authorizing judicial review of final agency actions).

11. Venue is proper in this judicial district under 28 U.S.C. § 1391(b) and (e).

12. The plaintiffs seek declaratory and injunctive relief against the defendants pursuant to 28 U.S.C. §§ 2201 and 2202.

Parties

13. Plaintiff Sharon Rutledge has been a resident of Parkview since 1998. She is co-chair of the Parkview Tenants’ Association.

14. Nachelle Johnson has been a resident of Parkview since 2004. She is a member of the Parkview Tenants’ Association.

15. Plaintiff Lula Hampton has been a resident of Parkview since 1985. She is co-chair of the Parkview Tenants’ Association.

16. Plaintiff Taura Cheatham has been a resident of Parkview since 2004. She is a member of the Parkview Tenants’ Association.

17. Plaintiff Parkview Tenants’ Association is an organization comprising Parkview tenants who share the common goals of enhancing the quality of life there and preserving Parkview Apartments for low-income tenants.

18. The individual and organizational plaintiffs seek to ensure that the complex is purchased and managed by a developer/investor who meets the requirements and goals of the National Housing Act, and who will bring the building up to code and keep it code-compliant in the future.

19. Defendant Alphonso Jackson is the Secretary of HUD. He is responsible for the administration and enforcement of all HUD functions, powers, and duties. Defendant Jackson is sued in his official capacity.

20. HUD is the federal agency responsible for the administration and enforcement of federal laws pertaining to the operation, maintenance, rehabilitation, and disposition of federally funded or assisted multifamily housing projects like Parkview Apartments.

Facts

21. Parkview Apartments (Parkview) is a HUD-subsidized multifamily rental housing property for low- and moderate-income families, located in Ypsilanti, Michigan.

22. Parkview consists of 144 one, two, and three bedroom rental units.

23. Since Parkview was built in the 1970s, its owner has been the Parkview Apartments Non-Profit Housing Corporation (the Corporation).

24. During its 30 years of existence, Parkview has been governmentally subsidized in at least two ways.

25. First, the Corporation received a loan of about $2.75 million in 1970, the repayment of which (to the lender and original mortgagee, Lambrecht Realty Company) was secured by a mortgage that HUD insured under Section 236 of the National Housing Act (12 U.S.C. § 1701).

26. As part of this transaction, the Corporation also received a monthly “interest reduction payment” which effectively reduced the loan interest rate to one percent per annum.

27. In exchange for its Section 236 loan and interest reduction payments, the Corporation also entered into a regulatory agreement with HUD that outlined the Corporation’s obligations for owning and running the property.

28. Second, beginning in 1982, 20 of Parkview’s rental units were covered by a Housing Assistance Payments (HAP) Contract under Section 8 of the U.S. Housing Act of 1937 (42 U.S.C. § 1437f). The HAP contract provided additional income to operate the property.

29. Despite this assistance, there have been numerous problems in the management of Parkview Apartments, including poor property maintenance and large unpaid utility and property tax bills.

30. There has been ongoing disagreement between the Corporation and HUD about who was responsible for the deteriorating state of affairs at Parkview.

31. A major issue between the Corporation and HUD concerned unpaid bills for water service provided by the Ypsilanti Community Utility Authority (YUCA).

32. In September 2003, HUD declared that the Corporation was in default of its obligations under the regulatory agreement.

33. At the same time, HUD also declared that a regulatory agreement default was a default of the HUD-insured mortgage. HUD instructed the mortgagee (Fannie Mae) and its servicer (GMAC) to accelerate payment of the loan balance.

34. In December 2003, HUD accepted assignment of the mortgage.

35. On April 7, 2004, HUD informed the Corporation that HUD had decided to proceed to foreclose the mortgage.

36. Beginning in the fall of 2004, HUD looked at proposals submitted by the Ypsilanti Housing Commission (YHC) and the City of Ypsilanti (City) to purchase the property from HUD following foreclosure.

37. HUD selected the Ypsilanti Housing Commission’s (YHC) proposal. (See YHC proposal, attached and incorporated as Exhibit A.)

38. The YHC proposal would have retained the affordable low-income housing characteristics of Parkview Apartments.

39. The YHC proposal also included substantial rehabilitation, renovation, and repair of the property.

40. The YHC proposal projected the cost of rehabilitation, renovation, and repair of the property to be between $3.96 and $4.752 million, based on a rehab/renovation cost of either $27,500 or $33,000 per unit. (See YHC Proposal, p. 8.)

41. HUD ultimately decided (on the eve of the foreclosure sale) not to proceed with a sale to YHC because the City, which had oversight authority over YHC, was too slow to approve the sale.

42. On December 3, 2004, the Corporation filed a complaint against HUD in this Court seeking damages and an injunction against foreclosure of the mortgage, because of alleged breach by HUD of the regulatory agreement between the parties. See Parkview Apartments Non-Profit Housing Corporation v. HUD, E.D. Mich. No. CV-04-74303-DT (Hon. Victoria A. Roberts).

43. On January 24, 2005, this Court granted HUD’s motion to dismiss in that case.

44. On April 21, 2005, HUD issued a notice of default and foreclosure sale. The notice announced a foreclosure sale for May 27, 2005.

45. An “invitation for bid” for the foreclosure sale outlined the terms and conditions of the sale.

46. Among the terms of sale were:

■ that the purchaser complete repairs, estimated by HUD to cost $1,056,157, to HUD’s satisfaction within 18 months of closing;

■ the imposition of a use restriction that the owner maintain the property as affordable housing for at least 20 years from the date of transfer.

47. The foreclosure sale was held on May 27, 2005.

48. The successful bidder at the sale was Ku/Dakko, of New York City.

49. Five days later, on June 1, 2005, the Corporation filed a Chapter 11 petition in the U.S. Bankruptcy Court, Eastern District of Michigan, Southern Division.

50. In that bankruptcy case, the Corporation has filed a plan of reorganization, and seeks to retain or regain ownership of Parkview Apartments.

51. On or about October 11, 2005, the named plaintiffs here filed a proof of claim in the bankruptcy court.

52. The claimants in the bankruptcy proceeding alleged that the claims of the tenants, in the aggregate, comprised a significant claim against the debtor’s estate. The specific claims were for the return of security deposits held by Parkview, and for abatement of rents because of

the Corporation’s failure to maintain the property and its failure to have certificates of occupancy for many of the units.

53. As noted above, on November 18, 2005, the Bankruptcy Court granted HUD’s motion for relief from the bankruptcy stay.

54. The same tenants, plus the Parkview Tenants’ Association, now file this action to void or set aside the foreclosure sale to Ku/Dakko, and/or to bar closing of the sale.

CLAIMS

Violation of Administrative Procedures Act, 5 U.S.C. § 701 et seq.

55. The primary statement of federal policy concerning disposition through mortgage foreclosure of multifamily rental properties subject to a HUD-held mortgage is contained in 12 U.S.C. § 1701z-11 (the Multi-Family Housing Property Disposition Reform Act of 1994, or MHPDRA).

56. This section mandates several goals that such a disposition must address. 12 U.S.C. § 1701z-11(a).

57. Among these goals, which must be addressed “in the least costly fashion among reasonable available alternatives,” are:

■ “preserving certain housing so that it can remain available to and affordable by low-income persons;

■ preserving and revitalizing residential neighborhoods; and

■ maintaining existing housing stock in a decent, safe, and sanitary condition.”

12 U.S.C. § 1701z-11(a)(3)(A)-(C).

58. Consistent with these goals, Congress has said that when HUD forecloses on a property with a HUD-held mortgage, prospective buyers at the foreclosure sale must meet statutory “participation and certification requirements.” See e.g., Section 219 of Pub.L.No. 108-199, 118 Stat. 397 (Jan. 23, 2004), Consolidated Appropriations Act of 2004, and 12 U.S.C. § 1701z-11(c)(3)(B).

59. Among these requirements is that HUD dispose of such a multifamily property “only to a purchaser” who is:

capable of implementing a sound financial and physical management program that is designed to enable the project to meet anticipated operating and repair expenses to ensure that the project will remain in decent, safe, and sanitary condition and in compliance with any standards under applicable State or local laws, rule, ordinances, or regulations relating to the physical condition of the housing and any such standards established by the Secretary requirements.

12 U.S.C. § 1701z-11(c)(3)(B).

60. More recently, Congress has identified as a participation and certification requirement that a purchaser be “in substantial compliance with applicable State or local government housing statutes, regulations, ordinances and codes with regard to other properties owned by the purchaser.” See Section 219 of Pub. L. No. 108-199, 118 Stat. 397 (Jan. 23, 2004), Consolidated Appropriations Act of 2004.

61. Upon information and belief, the primary location of properties owned or managed by purchaser Emmanuel Ku/Dakko Management is New York, New York.

62. Upon information and belief, Emmanuel Ku/Dakko Management has not been, and is not, in substantial compliance with New York state and local housing laws with regard to the properties he owns there. See Affirmation of Harold M. Shultz, Special Counsel to the Commissioner of the Department of Housing Preservation and Development of the City of New York, attached and incorporated as Exhibit B.

63. To the contrary, Ku/Dakko has a longstanding record of non-compliance, mismanagement, poor maintenance, and under-investment in his New York properties. Id.

64. HUD either made no determination pursuant to Section 219 about whether Ku/Dakko was in substantial compliance with New York state and local housing laws and codes, or its determination was erroneous and not supported by the facts, and/or its determination was an abuse of discretion.

65. A proper review of Ku/Dakko’s record of property management would have revealed that he does not meet the participation requirement/capability standard stated in 12 U.S.C. § 1701z-11(c)(3)(B).

66. A proper review of the repair needs of Parkview Apartments would have revealed

that the proposed commitment of only $1 million is grossly inadequate to restore the property to a decent, safe, and sanitary condition, in compliance with state and local housing laws.

67. By its failure to make the determinations necessary under Section 219 of Pub. L. No. 108-199, 118 Stat. 397 (Jan. 23, 2004) and 12 U.S.C. § 1701z-11(c)(3)(B), the defendants acted unlawfully under the Administrative Procedures Act.

68. Specifically, the defendants’ actions were arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; or the defendants’ actions or inactions were in excess of statutory jurisdiction, authority, or limitations; or they were short of statutory right; or they were without observance of procedure required by law; or they were unwarranted by the facts. 5 U.S.C. § 706(2).

69. As a result of the defendants’ violation of the APA, this Court should set aside the defendants’ explicit or implicit finding that Ku/Dakko is qualified to be a purchaser of Parkview Apartments under federal law.

Violation of the Fifth Amendment

70. Alternatively, the plaintiffs have a property interest, arising under the National Housing Act and the statutes set forth above, as well as under the Fifth Amendment to the U.S. Constitution, in living in housing that meets applicable state and local codes, and in units that have a certificate of occupancy.

71. The defendants’ actions have deprived the plaintiffs or will deprive them of this property interest without due process of law.

RELIEF REQUESTED

The plaintiffs request that this Court:

a. Declare that the defendants’ acts and omissions violate federal law;

b. Enter a preliminary and permanent injunction enjoining the defendants from proceeding with or closing on the foreclosure sale to Emmanuel Ku/Dakko Management;

c. Enter an order voiding or setting aside the foreclosure sale or purchase agreement between HUD and Emmanuel Ku/Dakko Management;

d. Order the defendants to re-list Parkview Apartments for sale to a purchaser who meets the requirements of federal law;

e. Grant further relief as justice requires; and

f. Award the plaintiffs their costs and reasonable attorneys’ fees as permitted by law.[1]

Respectfully submitted,

MICHIGAN POVERTY LAW PROGRAM

__________________________

By: James E. Schaafsma (P-42899)

611 Church Street, Suite 4A

Ann Arbor, MI 48104-3000

(734) 998-6100

MICHIGAN CLINICAL LAW

PROGRAM

___________________________

By: Paul D. Reingold (P-27594)

363 Legal Research Building

801 Monroe Street

Ann Arbor, MI 48109-1215

(734) 763-4319

LEGAL SERVICES OF SOUTH-CENTRAL MICHIGAN

_________________________

By: Robert F. Gillett (P-29119)

Min Kim (P-57707)

420 North Fourth Avenue

Ann Arbor, MI 41804

(734) 665-6181

Jake Ouslander and Matt Vasconcellos

Student Attorneys for the Plaintiffs

Dated: December 1, 2005

-----------------------

[1] Attorneys’ fees are requested only by the Michigan Clinical Program, and not by Legal Services of South-Central Michigan or the Michigan Poverty Law Program.

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