Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-13-01198/USCOURTS-caDC-13-01198-0/pdf.json

Parties Involved:
James Harry Grier
Petitioner
Mantua Gardens East, Inc.
Petitioner
United States Department of Housing & Urban Development
Respondent

Document Text:

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 4, 2014 Decided July 14, 2015

No. 13-1198

JAMES HARRY GRIER AND MANTUA GARDENS EAST, INC.,

PETITIONERS

v.

UNITED STATES DEPARTMENT OF HOUSING & URBAN

DEVELOPMENT,

RESPONDENT

On Petition for Review of an Order of the 

Department of Housing & Urban Development

James A. Bell argued the cause for petitioners. On the

briefs was Jennifer C. Bell.

Imran R. Zaidi, Attorney, U.S. Department of Justice,

argued the cause for respondent. With him on the brief were

Stuart F. Delery, Assistant Attorney General, and Michael Jay

Singer, Attorney.

Before: BROWN, Circuit Judge, and WILLIAMS and

SENTELLE, Senior Circuit Judges.

Opinion for the Court filed by Senior Circuit Judge

SENTELLE.

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SENTELLE, Senior Circuit Judge: Petitioners were found

liable by an Administrative Law Judge for violations of laws

governing programs administered by the U.S. Department of

Housing and Urban Development. The ALJ imposed penalties. 

The petitioners appealed to the Secretary of HUD. The

Secretary upheld the ALJ’s liability determinations but imposed

higher penalty amounts. In petitioning this court for review,

petitioners contend that the Secretary’s liability determinations

and penalty amounts are arbitrary, capricious, and not supported

by substantial evidence. For the reasons stated below, we deny

the petition for review.

I. Background

This case concerns two programs of the U.S. Department of

Housing and Urban Development (HUD). One is the Section

236 program of the National Housing Act, 12 U.S.C. § 1715z-1,

pursuant to which the Federal Housing Administration (FHA)

insures loans to private developers in exchange for their

commitment to provide low-income housing. As part of the

Section 236 program, HUD also provides interest-reduction

payments to FHA-approved mortgagees on behalf of the

mortgagors. In exchange for these benefits, the mortgagor

executes a Regulatory Agreement that requires the mortgagor to

operate the project in accordance with various programmatic and

contractual obligations. The second program is the Section 8

Housing Choice Voucher Program of the United States Housing

Act, 42 U.S.C. § 1437f. Pursuant to Section 8, HUD subsidizes

low-income tenants’ rents by making rental subsidy payments

to participating project owners on behalf of those tenants. In

exchange for this financial assistance, project owners execute a

Housing Assistance Payment (HAP) contract that requires, inter

alia, owners to provide HUD and affected tenants at least one

year’s notice before terminating the contract.

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Mantua Gardens East Project (“Mantua Project”) is a 52-

unit housing complex located in Philadelphia. The complex is

owned by petitioner Mantua Gardens East, Inc. (“Mantua

Gardens”), whose president and board chairman is petitioner

James Grier (“Grier”). In 1970, Mantua Gardens obtained a

mortgage from Firstrust Bank (“Firstrust”), an FHA-approved

lender. The mortgage was secured as part of HUD’s Section

236 program. The maturity date was May 1, 2012. Mantua

Gardens entered into a Regulatory Agreement with HUD to

ensure Mantua Gardens would provide and maintain affordable

housing. Subsequently, in 1983, Mantua Gardens entered into

a Section 8 HAP contract with HUD.

In January 2008, Grier sent a letter to Firstrust requesting

that the bank deposit $325,000 from Mantua Gardens’ reserve

account into an account at Wachovia Bank. The next month,

Grier formed Mantua Gardens East, LLC. Mantua Gardens

East, LLC, subsequently secured a loan from Wachovia, using

the $325,000 deposited in January as collateral. Grier, acting as

managing member of Mantua Gardens East, LLC, then used the

loan to send a check to Firstrust “in full payment” of the original

1970 mortgage. In 2011, apparently believing that HUD

statutory and regulatory requirements now no longer pertained

to the Mantua Project because of the mortgage transfer, Mantua

Gardens and Grier issued a notice to all of their subsidized

tenants stating that they would have to sign new leases and pay

new rents. Soon thereafter, Mantua Gardens and Grier began

issuing vacate notices to subsidized tenants.

In 2012 HUD filed a complaint with its Office of Hearing

and Appeals against Mantua Gardens and Grier. The complaint

sought civil money penalties for violations of the provisions

governing Section 236 and Section 8 programs, in particular

concerning the new leases and rent notices as well as the notices

to vacate. The complaint sought $212,500 against Mantua

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Gardens and Grier jointly and severally, for violation of the

requirements of the Section 236 program, and $1,260,000 solely

against Mantua Gardens for violation of the requirements of the

Section 8 program. In 2013, the Administrative Law Judge

assigned to the case found Mantua Gardens and Grier liable for

violating their HUD statutory, regulatory, and contractual

obligations. In re Mantua Gardens East, Inc., HUDALJ 12-F043-CMP-3, 2013 WL 663168 (Feb. 1, 2013). The ALJ found

that Mantua Gardens and Grier deserved the maximum

penalties, resulting in total liability of $262,500 jointly and

severally, and $2,325,000 for Mantua Gardens. However, the

ALJ observed that the governing regulations provided for

consideration of “ability to pay” in the determination of penalty

amounts. Id. at 11; see 24 C.F.R. § 30.80(c). After considering

that regulatory factor, the ALJ determined that Mantua Gardens,

instead of $2,325,000, could reasonably pay a penalty of only

$450,000. Mantua Gardens, 2013 WL 663168, at *19-20. The

ALJ also determined that under another regulatory factor, “such

other matters as justice may require,” 25 C.F.R. § 30.80(j), HUD

had conducted its penalty analysis in bad faith, i.e., HUD’s

motivation was to bankrupt Mantua Gardens and Grier, Mantua

Gardens, 2013 WL 663168, at *21. The ALJ consequently

reduced both the $262,500 penalty and the $450,000 penalty by

25%, resulting in final penalties of $196,875 jointly and

severally, and $337,500 for Mantua Gardens. Id. at *22.

The government filed an appeal of the ALJ’s penalty

determination. Petitioners filed a cross-appeal of the ALJ’s

liability determinations. The appeal was made to the Secretary

of HUD. Pursuant to 24 C.F.R. § 26.52(k), the Secretary may

“affirm, modify, reduce, reverse, compromise, remand, or settle

any relief granted in the initial decision.” The Secretary issued

a decision upholding the liability determinations but modifying

the penalty amounts. In re Mantua Gardens, Inc., HUDALJ 12-

F-043-CMP-3 (May 28, 2013) (hereinafter “Sec’y’s Op.”),

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Supp. JA 1. First, the Secretary vacated the ALJ’s reduction of

the joint and several penalty, restoring it to $262,500 as

originally imposed by the ALJ. Second, the Secretary vacated

the ALJ’s reductions of Mantua Gardens’ penalty, restoring it to

the amount proposed by the government, $1,260,000.

Mantua Gardens and Grier petition for review of the

Secretary’s decision.

II. Discussion

A. Jurisdiction

Our first task when presented with any case is determining

whether we have jurisdiction. See, e.g., Nat’l Treasury Emp.

Union v. FLRA, 754 F.3d 1031, 1038 (D.C. Cir. 2014) (“The

first and fundamental question we are bound to ask and answer

is whether we have jurisdiction to decide [the] petition for

review.” (internal quotation marks and citations omitted)). 

Here, HUD questions our jurisdiction. Pursuant to 12 U.S.C.

§ 1735f-15(e), a party seeking judicial review of an order

imposing civil money penalties must file a petition in the

appropriate court of appeals “within 20 days after the entry of

such order or determination.” The statute does not otherwise

define “entry,” its meaning is not self-evident, and we have had

no occasion to address the issue. HUD argues that here we

should consider the date of entry to be the date of the Secretary’s

order imposing civil money penalties, May 28, 2013. HUD

further argues that the 20-day period for filing a petition for

review expired on June 17, 2013. Since the petitioners did not

file their petition until one day later, i.e., June 18, 2013, HUD

contends that the petition was late and therefore this court lacks

jurisdiction to review it. See Bowles v. Russell, 551 U.S. 205,

209 (2007) (“the taking of an appeal within the prescribed time

limit is mandatory and jurisdictional.”) (internal quotation marks

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and citations omitted). While we note that “Bowles did not hold

categorically that every deadline for seeking judicial review and

civil litigation is jurisdictional,” Henderson v. Shinseki, 562 U.S.

428, 436 (2011), we will assume arguendo that it is under this

statute, as in the end it matters not at all, as we would have

jurisdiction even applying that theory.

In response, petitioners point to the date on the Certificate

of Service*

, May 29, 2013, i.e., one day after the date of the

Secretary’s order. They argue that this date should be the date

on which the “entry” of the Secretary’s order was made, and

consequently the petition for review was timely filed. In support

of their position, petitioners cite our decision in Energy Probe

v. U.S. Nuclear Regulatory Comm’n, 872 F.2d 436 (D.C. Cir.

1989). In that case, we noted that pursuant to the Hobbs Act, 28

U.S.C. § 2341 et seq., a party may appeal a final order of the

Nuclear Regulatory Commission (NRC) within 60 days of the

“entry” of the final order. We held that under the Hobbs Act,

“the date of ‘entry’ . . . is the date on which the agency’s final

decision is signed and served.” 872 F.2d at 438 (emphasis

added). Petitioners argue that in this case, although the order

itself was signed on May 28, 2013, the date they were “served”

was the date of the Certificate of Service, i.e., May 29, 2013,

and consequently that date should be the date on which the 20-

day time limit commenced.

HUD, in support of its contrary argument that the date of

“entry” here should be the date of the Secretary’s order, and not

the date of the Certificate of Service, relies on an Eighth Circuit

case, U.S. Dep’t of Agric. v. Kelly, 38 F.3d 999 (8th Cir. 1994). 

Kelly involved an order of the Secretary of the USDA issued

*

The Certificate of Service was not included in any

submissions to the court. At oral argument the parties agreed that the

date on the Certificate of Service was May 29, 2013.

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pursuant to the Horse Protection Act, 15 U.S.C. § 1821 et seq.

The Secretary’s order was dated a day earlier than the order was

mailed/served. If the date commencing the time limit of the

notice of appeal was the date of the order, then Kelly’s appeal

was untimely; if instead the date of commencement was the next

day, when the order was mailed/served, then the appeal was

timely. Kelly argued that the court should follow our decision

in Energy Probe and use the date of service as the

commencement date. The Eighth Circuit rejected that argument,

noting that the Horse Protection Act was clear on its face that an

appeal must be filed “‘within 30 days from the date of such

order.’” Kelly, 38 F.3d at 1001 (quoting 15 U.S.C. § 1825(b)(2))

(emphasis added). The court consequently held that under the

Horse Protection Act the commencement time limit for filing an

appeal “begins on the date of the order, not the date on which

service is mailed.” Id. at 1002. HUD argues that likewise here

the date of the Secretary’s order should be the date on which the

20-day time limit for filing an appeal begins.

We do not find HUD’s argument persuasive. First, we do

not consider Kelly helpful. In that case, the statute specifically

referred to the date of the order as the date for commencing the

filing-of-an-appeal time limit. Here, the statute refers only to

the “entry” of the order. The order date and the day entry of the

order is made may be one and the same, but not necessarily. 

Second, HUD’s contention that “entry” occurs when the order

is signed is untenable as it would permit an agency to shorten a

would-be petitioner’s review period by delaying service of a

signed order. Instead, we find helpful our holding in Energy

Probe. In that case the relevant document was signed on a

certain date and stamped “served.” 872 F.2d at 437. As noted

above, we held that under the Hobbs Act the date of “entry” “is

the date on which the agency’s final decision is signed and

served.” Id. at 438. In the present case, the agency’s final

decision was not “signed and served” until the certificate of

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service on May 29. Following the clear guidance of Energy

Probe, we hold that Petitioners’ petition filed on June 18, 2003,

was therefore within the 20-day time limit which commenced on

May 29, 2013, the date of the Certificate of Service. Therefore,

this petition is within our jurisdiction.

B. Standard of Review

We may set aside the Secretary’s decision only if it is not

supported by substantial evidence or if it is “arbitrary,

capricious, an abuse of discretion, or otherwise not in

accordance with law.” 5 U.S.C. § 706(2)(A) and (E).

C. Merits

1. Liability for Section 8 Violations

Pursuant to HAP and statutory requirements, a property

owner may not, inter alia, increase Section 8 tenants’ rents

without giving those tenants and HUD one year’s notice of the

proposed termination of a HAP contract. Nevertheless, in

September 2011, Mantua Gardens sent notices to all of its

Section 8 tenants informing them that they would have to sign

new leases and pay new rents. No notice was given to either

HUD or the tenants of any proposal to terminate the HAP

contract. The ALJ and the Secretary found that this conduct by

Mantua Gardens violated 42 U.S.C. § 1437f(c)(8)(B), and

imposed penalties. Mantua Gardens argues, as it did before the

agency, that at the time of its alleged violations of the Section 8

program, there was no HAP contract in place to violate because

the contract had expired and had not yet been replaced with a

new contract. Mantua Gardens asserts that consequently the

Secretary’s finding of liability for violations of the Section 8

program was arbitrary and capricious and not supported by

substantial evidence. But as the Secretary explained, not only

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is the prohibition on raising rents before notice is given a

contractual obligation in the HAP contract, it is also a statutory

requirement, see 42 U.S.C. § 1437f(c)(8)(B), that Mantua

Gardens was obligated to follow as a Section 8 property owner. 

Mantua Gardens violated this obligation, and Mantua Gardens

has given us no reason to disturb the Secretary’s finding of

Section 8 violations by Mantua Gardens.

2. Penalty for Section 8 Violations

In its Complaint, HUD sought $1,260,000 against Mantua

Gardens for its Section 8 violations. After finding that Mantua

Gardens violated the requirements of the Section 8 program, the

ALJ initially concluded that the penalty should be $2,325,000. 

Mantua Gardens, 2013 WL 663168, at *20. But after

considering the “ability to pay” factor set forth in 24 C.F.R.

§ 30.80 as a requirement to be considered when determining a

penalty amount, the ALJ reduced the penalty to $450,000. This

amount, according to the ALJ, was the most Mantua Gardens

could reasonably be expected to pay and still stay in business. 

The ALJ noted that Mantua Gardens introduced no evidence to

show the lack of an ability to pay the higher penalty amount. Id.

at *19–*20. The Secretary reversed the ALJ’s penalty

reduction, imposing instead the original amount sought by HUD,

$1,260,000. Pursuant to 24 C.F.R. §§ 30.75(b) and 30.80(c), the

Secretary explained, the ability to pay a penalty is presumed

unless it is raised as an affirmative defense and documentary

evidence is provided. The Secretary noted that in this instance

no evidence was presented showing Mantua Gardens’ ability to

pay any penalty amount. Sec’y’s Op. at 8–9, Supp. JA 8–9.

Mantua Gardens argues that the Secretary’s reversal of the

ALJ’s $450,000 penalty was arbitrary and capricious and not

supported by substantial evidence. According to Mantua

Gardens, its financial health and inability to pay the $1,260,000

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penalty requested by HUD was known to all parties and

decision-makers. It was clear from the evidence, Mantua

Gardens argues, that it did not have money, did not have

sufficient income, and did not have the ability to borrow. But in

fact the ALJ found that Mantua Gardens introduced no evidence

whatsoever to substantiate its claim of financial vulnerability. 

Mantua Gardens, 2013 WL 663168, at *19. As the Secretary

noted, under the regulations an ability to pay is presumed unless

a party raises it as an affirmative defense and provides

documentary evidence. Sec’y’s Op. at 8–9, Supp. JA 8–9. 

Since Mantua Gardens presented nothing to suggest that it could

not pay HUD’s requested penalty, we have no basis to disturb

the Secretary’s decision.

3. Liability for Section 236 Violations

In January 2008, Grier requested that Firstrust, mortgagee

of the property, deposit $325,000 from Mantua Gardens’ reserve

account into an account at Wachovia Bank. The next month,

Grier formed Mantua Gardens East, LLC. Mantua Gardens

East, LLC, then secured a loan from Wachovia Bank, using the

$325,000 deposited in January as collateral. Grier, acting as

managing member of Mantua Gardens East, LLC, subsequently

used the loan to send a check to Firstrust “in full payment” of

the original mortgage. Apparently Grier believed that HUD

statutory and regulatory requirements no longer pertained to the

Mantua Project, and proceeded accordingly. Because of Grier’s

actions, HUD in its Complaint charged Grier and Mantua

Gardens with encumbering the rents of the property via the loan

with Wachovia; encumbering the project’s real property via the

same Wachovia loan; withdrawing money from the project’s

reserve fund without HUD’s permission; firing the project

manager without HUD’s approval; and failing to provide HUD

adequate financial disclosure reports for the project. The ALJ

found that Grier and Mantua Gardens committed these

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violations, and the Secretary agreed. See Mantua Gardens, 2013

WL 663168, at *11–*16; Sec’y’s Op. at 3–8, Supp. JA 3–8. 

Mantua Gardens and Grier argue that the Secretary’s

finding of liability for violations of the Section 236 program was

arbitrary and capricious and not supported by substantial

evidence. They claim that no violations by them can be found

after February 25, 2008, because that was the date on which the

mortgage on Mantua Gardens was purchased from Firstrust by

Mantua Gardens East, LLC. Mantua Gardens East is not an

FHA-approved mortgagee. By transferring the mortgage to

Mantua Gardens East, LLC, Mantua Gardens and Grier argue,

the mortgage ceased to be insured, co-insured, or held pursuant

to the Regulatory Agreement, and therefore liability for

violations of the Agreement could no longer attach. Mantua

Gardens and Grier further contend that no violations of the

Regulatory Agreement by them can be found prior to February

25, 2008, because the transfer of the reserve funds from Firstrust

to Wachovia was tacitly approved by Firstrust, and Firstrust had

full knowledge that Mantua Gardens intended to use some of

that money as collateral for a loan. Noting that Firstrust is an

FHA-approved mortgagee subject to HUD oversight and

responsible for ensuring compliance with FHA requirements,

Mantua Gardens and Grier argue that if anybody is at fault it is

Firstrust.

We disagree. The Secretary’s decision noted that although

the premature cancellation of an insurance contract can be

accomplished by prepayment (as Grier and Mantua Gardens

attempted here), the Secretary must make a determination that,

inter alia, the project no longer meets the housing needs of

lower income families. See 24 C.F.R. § 207.253, 207.253a; 12

U.S.C. § 1715z-15. The Secretary determined that here no

request was made for Secretarial approval of a prepayment, and

therefore no cancellation of the agreement occurred. Sec’y’s

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Op. at 4–5, Supp. JA 4–5. We again have no basis to disturb the

Secretary’s determination.

4. Penalty Reductions for Section 236 and Section 8

Violations

After determining that the penalty for Section 8 violations

was to be $450,000 and the penalty for Section 236 violations

$262,500, the ALJ then reduced both penalties by 25%, to

$337,500 and $196,875, respectively. Mantua Gardens, 2013

WL 663168, at *22. In making these reductions the ALJ

explained that, pursuant to 24 C.F.R. § 30.80, in determining a

penalty amount he must weigh, inter alia, the factor of “[s]uch

other matters as justice may require.” In this case, the ALJ

stated, testimony from a HUD official showed that HUD had

chosen its requested penalty amount of $1,260,000 for the

Section 8 violations in an attempt to bankrupt Grier and Mantua

Gardens. Id. at *11. Consequently, according to the ALJ, HUD

had conducted its penalty analysis in bad faith, and justice

required the penalty reductions. Id. The Secretary, however,

vacated the ALJ’s 25% reductions, determining that the ALJ

misinterpreted the testimony of the HUD official as suggesting

that HUD had set out to bankrupt Mantua Gardens and Grier. In

the Secretary’s view the testimony was not an indication that

HUD sought to bankrupt Grier and Mantua Gardens, but instead

showed that HUD used the “ability to pay” factor to actually

reduce the penalty amount it would be requesting. Sec’y’s Op.

at 11–13, Supp. JA 11–13. While the ALJ expressed reliance on

the entire testimony of the witness, he apparently was

specifically interpreting the witness’s statement that:

I think where we came from it was looking at, “Well, what

is the property worth?” and the combined amount for the

HAP contracts is about what the property may be worth. 

The idea might be that it would be appropriate to force the

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sale of the property from [petitioners] to another nonprofit

to run it in a way that is in accordance with our

requirements.

Mantua Gardens, 2013 WL 663168, at *11. The ALJ

interpreted this testimony as establishing that HUD had

“identified 1.5 million as the proverbial ‘knockout blow,’” and

therefore, “the Government’s initial request of a 1.6 million

penalty cannot be considered a ‘mere coincidence.’” Id. 

Mantua Gardens and Grier argue that there is no factual

support in the record providing adequate valid reasons to

support the Secretary’s vacation of the ALJ’s 25% reductions.

According to them, the ALJ’s decision to reduce the penalties by

25% turned on his assessment of witness credibility based on his

observation of the testimony. The Secretary, they argue, never

explains why the ALJ’s opportunity to see the witnesses, to hear

them testify, and to observe their demeanor, does not “put the

ALJ in the cat bird seat with respect to divining truth.” Pet’rs’

Br. 25. They cite Aylett v. Sec’y of HUD, 54 F.3d 1560, 1566-67

(10th Cir. 1995), for the proposition that the Secretary’s decision

is subject to “heightened scrutiny” where the Secretary has

rejected the ALJ’s credibility findings.

We do not find Aylett helpful. That case involved witness

credibility determinations, and we agree with HUD that here the

ALJ’s finding of bad faith on the part of HUD was based, not on

the ALJ’s determination of witness credibility, but on the ALJ’s

misinterpretation of the testimony of the HUD official. The

Secretary and the ALJ did not disagree about the credibility of

the HUD official’s testimony, but rather the meaning of the

testimony. The Secretary’s reversal of the ALJ’s bad faith

finding was based on an interpretation and weight of the

evidence. On these points the Secretary owed the ALJ no

deference, and given the Secretary’s broad discretion, the

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Secretary properly determined that HUD conducted an

appropriate penalty analysis.

III. Conclusion

The petition for review is denied.

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