Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-95-05215/USCOURTS-caDC-95-05215-0/pdf.json

Nature of Suit Code: 290
Nature of Suit: Other Real Property Actions
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 15, 1996 Decided November 8, 1996

No. 95-5215

JANICE L. BOOKER,

APPELLANT

v.

CYNTHIA E. EDWARDS AND HENRY G. CISNEROS, SECRETARY OF THE

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

APPELLEES

Appeal from the United States District Court

for the District of Columbia

(No. 94cv00883)

Benny L. Kass argued the cause and filed the briefs for appellant.

Michael J. Ryan, Assistant U.S. Attorney, argued the cause and filed the brief for the federal

appellees. Eric H. Holder, Jr., U.S. Attorney, and R. Craig Lawrence, Assistant U.S. Attorney, were

on the brief with him.

Jeffrey D. Watkiss, argued the cause and filed the brief for appellee Cynthia E. Edwards.

BEFORE: WILLIAMS, ROGERS and TATEL, Circuit Judges.

Opinion for the Court filed by Circuit Judge WILLIAMS.

WILLIAMS, Circuit Judge: The Department of Housing and Urban Development became the

owner of a house as a result of a default by its owner on a HUD-insured mortgage. HUD allowed

the defaulting mortgagor to remain in the house under a month-to-month lease. When HUD sold the

property to the highest bidder, the defaulting mortgagor sought to invoke a District of Columbia law

entitling a tenant to a right of first refusal when the premises are sold. HUD instead applied its own

regulations. As it read them, a defaulting mortgagoreven one who after default occupies the

premises under a leasehas no such rights. Because HUD's interpretation of its regulations is plainly

valid and preempts conflicting local law, we need not reach the issue whether the District provision

would otherwise be applicable to HUD. The defaulting mortgagor, who has for more than three

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years thwarted the winning bidder's right to the house, must now yield. 

* * *

Janice L. Booker owned a house in Northeast Washington, D.C., subject to a HUD-insured

mortgage. She defaulted. The mortgagee foreclosed and then, when HUD paid the insurance claim

on the resulting loss, transferred the property to HUD. The Department allowed Booker to remain

in occupancy of the house under a month-to-month lease. HUD put the house on the market in a

sealed bid auction and Booker bid for itbut Cynthia Edwards's bid topped hers by more than

$10,000.

When Booker refused to vacate, claiming a right of first refusal under D.C. Code § 45-1637,

EdwardssuedBooker in D.C. Superior Court,seeking possession. Besides resisting the suit, Booker

filed a complaint in Superior Court against both Edwards and HUD. The cases were consolidated,

and HUD removed them to the United States district court pursuant to 28 U.S.C. § 1442's provision

for removal of actions against a federal officer or agency, as well as the general provisions for

removal of actions over which the district courts would otherwise have original jurisdiction, 28

U.S.C. §§ 1441(a), 1446. Federal jurisdiction over the dispute between Booker and Edwards appears

to fit comfortably with the district court'ssupplemental jurisdiction under 28 U.S.C. § 1367(a). The

district court found that HUD lawfully deeded the property to Edwards, to the exclusion of Booker,

and granted summary judgment in favor of Edwards and HUD. We affirm.

* * *

We assume in Booker's favor that she is right in her claim that under District law she would

be entitled as a tenant to exercise a right of first refusal, even though HUD is the owner of the

property. Such a reading of District law could be effected in full accord with HUD regulations if

Booker were a tenant who had not been the defaulting mortgagor. The regulations provide:

(4) Tenants in occupancy will be offered the right of first refusal to purchase

the property where:

(i) The tenant has a recognized ability to acquire financing and a good

rent-paying history, and has made a request to HUD to be offered the right of

first refusal; or

(ii) State or local law requires that tenants be offered the right of first

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refusal. 

24 CFR § 291.100(a)(4) (1996).

In the very same regulation, however, HUD also makes it clear that a defaulting mortgagor

is not entitled to such a privilege:

(2) Former mortgagorsinoccupancywho have defaulted on the mortgage will

not be offered the right of first refusal to repurchase the same property. They may

submit an offer, or bid, to purchase the property when it is publicly listed, which will

be treated in the same manner as other offers received from other prospective

purchasers during the listing period.

Id. § 291.100(a)(2). There is no question that Booker is a "former mortgago[r] in occupancy who

[has] defaulted on the mortgage." The question, then, is whether signing a lease and becoming

HUD's "tenant" undercut § 291.100(a)(2)'s express disabling provision and left her free to enjoy a

tenant's right of first refusal under § 291.100(a)(4).

HUD's Property Division Handbookwhich government counsel at oral argument said gets

a good deal more public circulation than do its regulationsprovides an answer. It says that

"[t]enants in occupancy, excepting former mortgagors, will be offered the right of first refusal...."

Property Division, U.S. Dep't of Housing and Urban Development, Handbook 4310.5, REV-1, ¶ 6-

10B (emphasis in original). Under a long line of cases on the deference that is due agencies'

interpretations of their own regulations, we review only to determine if HUD'sreading isreasonable.

See, e.g., Udall v. Tallman, 380 U.S. 1, 16 (1965). It is.

First, HUD noted in the preamble to the rule that it had considered extending the right of first

refusal to defaulting mortgagors but decided against it. "HUD's prior experience with granting the

right offirst refusal to former mortgagors proved to be counterproductive, because many ofthemdid

not have the financial capability to close the sale, resulting in additional holding costs to the

Department." Single Family Property Disposition Program, 56 Fed. Reg. 48,964/3 (September 16,

1991). Thus HUD's primary reason for denying defaulting mortgagors a right of first refusal is one

that would seem to apply to those who happen to become tenantsin the interval between foreclosure

and resale as much as to any other defaulting mortgagors.

Further, under HUD regulations no defaulting mortgagor will ever be in possession without

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a lease. Subject to minor exceptions for ill or injured occupants, all who occupy single-family homes

in HUD's ownership under this insurance program, former mortgagor or not, must sign leases. 24

CFR § 203.674(b)(2). Thus, under Booker's interpretation § 291.100(a)(2)'s express denial of the

right of first refusal for defaulting mortgagors would apply only to those who were completely out

of possessionpersons who would appear to have so little claim to a right of first refusal as hardly

to be worth mention. And if executing a lease with a defaulting former mortgagor meant that the

person would secure a right of first refusalwhich HUD found "counterproductive" because of its

experienceit would presumably incline HUD officers simply to evict people such as Booker.

At oral argument Booker suggested there was something anomalous in HUD's allowing a

right of first refusal under local law to persons who may not have a good credit historysee 24 CFR

§ 291.100(a)(ii)but denying that right to defaulting mortgagors. But it seems reasonable of the

Department to defer to local law in the general default case (those who fail affirmatively to qualify

under § 291.100(a)(i)), yet take advantage of its own experience in a specific class of cases in which

it haslearned to expect troubledefaulting mortgagors, whose apparentlyrecurrent inabilityto close

the transaction has generated extra closing costs. See 56 Fed. Reg. at 48,964/3. The distinction

seems especially valid in light of the Department's equitable point that it is defaulting mortgagors

whose conduct has caused the problem in the first place. Id. at 48,965/1.

We have assumed that in the absence of preemption District law would afford Booker a right

of first refusal. Booker points out that "federal regulation of a field of commerce should not be

deemed preemptive of state regulatory power in the absence of persuasive reasonseither that the

nature of the regulated subject matter permits no other conclusion, or that the Congress has

unmistakably so ordained." Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142

(1963). But the Supreme Court has been quite clear that "[t]he statutorily authorized regulations of

an agency will pre-empt any state or local law that conflicts with such regulations or frustrates the

purposesthereof." City of NewYork v. FCC, 486 U.S. 57, 64 (1988). If the regulation and state law

cannot be reconciled, we are to disturb a federal regulation only if the agency's failure to

accommodate local law "is not one that Congress would have sanctioned." Id. (citation omitted).

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Booker pointsto nothing in the statute or legislative history suggesting that Congress would

not have sanctioned HUD's resolution of the issue. In fact, Congress gave HUD broad authority to

manage properties acquired through the operations ofits variousmortgage programs"to dealwith,

complete, rent, renovate, modernize, insure, or sell for cash or credit, in his discretion, any

properties...." 12 U.S.C. § 1710(g). The disposal and management of federal property is, moreover,

an area traditionally governed by federal law. See Clearfield Trust Co. v. United States, 318 U.S.

363, 366 (1943). Of course in the absence of federal regulation, even when federal property issues

are involved, courts incorporate local law asthe federalrule, unlessthere is a clear need for a federal

common law rule arising from factorssuch as a need for uniformity. United States v. Kimbell Foods,

Inc., 440 U.S. 715, 728 (1979). But where there is no doubt that a "regulatory scheme, complete

as it is in every detail, was intended to provide the whole and exclusive source of protection of the

[relevant] interests," United States v. Shimer, 367 U.S. 374, 381 (1961), the regulatory scheme

controls. See also Free v. Bland, 369 U.S. 663, 668 (1962) (holding that state law must give way

to Treasury Department regulations governing survivorship rights in U.S. bonds). By contrast, a

regulation that does not clearly establish a uniform federal rule may be construed to leave room for

application of local law. See North Dakota v. United States, 495 U.S. 423, 442 & n.12 (1990)

(interpreting Department of Defense regulations of alcohol sales, enacted under a statute allowing

regulation of alcoholsales "at or near" military installations, as not preempting state regulationsthat

had the incidental effect of raising costs to military alcohol consumers). The HUD regulations here

clearly fall into the former category, completely covering the issue of rights of first refusal.

Booker cites Rowe v. Pierce, 622 F. Supp. 1030 (D.D.C. 1985), in which the court addressed

a conflict between a District law not allowing eviction on the ground of the tenant's refusal to sign

a lease, and a HUD regulation calling for eviction on precisely that ground. Because the court found

"absolutely no indication that the Secretary intended to preempt state law," id. at 1033, it held that

the District law was not preempted. To the extent that the Rowe court looked for some precise

manifestation ofintent to preempt local law, we think its methodology inconsistent with that of cases

like City of New York and Shimer. In many cases the agency may never have dreamed that local

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regulation might bear on the issue its regulation resolved. It is enough that the agency, with

appropriate Congressional authorization, intended to encompass the area in questionan intent

relatively readily found for activities characteristicallygoverned byfederallaw such asthe disposition

of federal property. Here, in fact, HUD did address the issue of preemption, expressly allowing local

law to control in some cases, 24 CFR § 291.100(a)(ii), but not in the rest. The regulation's complete

coverage of the issue in question, however, was sufficient.

As Booker had no right of first refusal, and accordingly no claim to upset HUD's conveyance

of the property to Edwards, the district court's grant ofsummary judgment in favor of Edwards and

the Department is

Affirmed.

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