In the

United States Court of Appeals

For the Seventh Circuit

Nos. 08-3032 & 08-3033

CITY OF JOLIET, ILLINOIS,

Plaintiff-Appellee,

v.

NEW WEST, L.P., and NEW BLUFF, L.P.,

Defendants-Appellants.

UNITED STATES DEPARTMENT OF HOUSING

AND URBAN DEVELOPMENT and EVERGREEN

TERRACE TENANTS,

Intervening Defendants-Appellants.

Appeals from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 05 C 6746—Charles R. Norgle, Sr., Judge.

ARGUED JANUARY 12, 2009—DECIDED APRIL 9, 2009

Before EASTERBROOK, Chief Judge, and WILLIAMS and

SYKES, Circuit Judges.

EASTERBROOK, Chief Judge. For several years the City of

Joliet, Illinois, has been trying to acquire the Evergreen
2 Nos. 08-3032 & 08-3033

Terrace apartment complex, which the City believes is so

run-down that it constitutes a public nuisance. After the

City commenced eminent domain proceedings in state

court, New West, a partnership that owns the complex,

removed the proceeding to federal court and filed a suit

under 42 U.S.C. §1983 seeking an injunction and damages.

The district court put the condemnation on ice and dismissed the §1983 action—erroneously, we held in New

West, L.P. v. Joliet, 491 F.3d 717 (7th Cir. 2007). We

directed the district court to take up the condemnation

proceeding first, as its disposition could resolve some

or all of the issues in the §1983 suit.

One of New West’s arguments in the §1983 suit was that,

because it has accepted a federal subsidy under §8 of the

Housing Act of 1937, 42 U.S.C. §1437f, federal law preempts the City’s proceeding. Our opinion had this to say:

New West contends that §8 and the Fair Housing

Act [42 U.S.C. §§ 3601–19] prevent condemnation

of Evergreen Terrace, but it does not rely on any

particular provision of that statute. Section 8 is a

subsidy program, a carrot rather than a stick.

HUD’s regulations implementing the §8 program

contemplate the possibility of the parcel’s condemnation; they do not purport to forbid condemnations. See 24 C.F.R. §§ 245.405, 248.101. For its part,

the Fair Housing Act forbids discrimination in

housing programs without providing that any

given housing development has a right to continued existence. Just as with §8, federal regulations

implementing the FHA cover the demolition of
Nos. 08-3032 & 08-3033 3

housing projects. 24 C.F.R. Part 970, and exempt

condemned buildings from these rules, see 24

C.F.R. §970.3. If Joliet thinks that a given parcel of

land should be put to a public use, such as a park,

and is willing to foot the bill, it is hard to see any

obstacle in federal law.

491 F.3d at 721. In the district court the Department of

Housing and Urban Development intervened and contended that §221 of the National Housing Act of 1954 (as

amended in 1961 and 1966), 12 U.S.C. §1715l, and the

Multifamily Assisted Housing Reform and Affordability

Act of 1997, 42 U.S.C. §1437f note, block condemnation.

The district court rejected that contention in reliance on

our opinion, but, after concluding that HUD was making

new arguments that we had not addressed, certified the

case for interlocutory appeal under 28 U.S.C. §1292(b). We

accepted the appeal, because we thought that HUD was

relying on particular language said to preempt state

and local condemnation laws. Now that the appeal has

been fully briefed and argued, however, HUD and the

other parties acknowledge that neither of these statutes

has any clause preempting state law. At this point we

could stop and affirm, relying on the law of the case. But

because HUD was not a party to the first appeal, and has

invoked two statutes that New West did not mention, we

think it best to give the Department a full hearing and

plenary decision.

First, however, a word on subject-matter jurisdiction.

Joliet contends that there is none, because when the case

was removed HUD was neither a party to the suit nor even
4 Nos. 08-3032 & 08-3033

a lender to New West. The eminent domain proceeding

arises under state and local law. Although New West

raised preemption as a federal defense, it has long been

understood that a federal defense does not support removal. See, e.g., Metropolitan Life Insurance Co. v. Taylor,

481 U.S. 58 (1987); Gully v. First National Bank, 299 U.S. 109

(1936); Bennett v. Southwest Airlines Co., 484 F.3d 907,

rehearing denied, 493 F.3d 762 (7th Cir. 2007). (The exception for “complete preemption,” see Franchise Tax Board

of California v. Construction Laborers Vacation Trust, 463

U.S. 1 (1983), does not apply; no one argues that federal

law occupies the fields of housing or municipal powers.)

Still, the presence of the national government as a

party with a security interest in the real estate supplies

jurisdiction. 28 U.S.C. §§ 1444, 2410. It would be pointless to order this suit remanded, only to have HUD reremove it in a trice. The Supreme Court has held that,

when a suit is removed prematurely, the district court

may proceed if it has subject-matter jurisdiction at the

time it enters judgment. American Fire & Casualty Co. v.

Finn, 341 U.S. 6 (1951); Grubbs v. General Electric Credit

Corp., 405 U.S. 699 (1972); Caterpillar Inc. v. Lewis, 519 U.S.

61 (1996). This rule, coupled with the presence of HUD

(and its desire to have the suit resolved in federal court),

means that remand is unnecessary.

Three federal statutes are involved in this proceeding,

and HUD contends that two of them preempt state and

local law. The first statute, §8 of the Housing Act, 42

U.S.C. §1437f, provides federal rent subsidies for lowincome tenants; as we observed in 2007, this statute does
Nos. 08-3032 & 08-3033 5

not preempt any state or local law. HUD concurs. The

second is §221 of the National Housing Act, 12 U.S.C.

§1715l. This statute creates a program under which the

federal government insures mortgages on privately

owned, multifamily properties, some tenants of which

receive rent subsidies under §8. HUD has established

criteria that owners must meet before a loan is insured.

HUD also is authorized to pay off the private lenders

and become a direct lender. For descriptions of this

program, see Cienega Gardens v. United States, 194 F.3d 1231

(Fed. Cir. 1998), and Geneva Towers Tenants Organization v.

Federated Mortgage Investors, 504 F.2d 483 (9th Cir. 1974).

The final statute, the Multifamily Assisted Housing

Reform and Affordability Act of 1997, 42 U.S.C. §1437f

note, allows HUD to renegotiate mortgages insured or

assumed under §221 of the National Housing Act. High

mortgage payments make it hard (sometimes impossible)

for owners to offer below-market rents to their tenants;

renegotiated mortgages with lower monthly payments

cut the rents to the beneficiaries of the §8 program.

Owners who seek lower mortgage payments under the

1997 Act must promise to keep their rental properties

available to low-income tenants for 30 years.

Evergreen Terrace, which has 356 apartments, has

participated in the §8 and §221 programs since the 1960s.

By the late 1970s the owner was in default on its

mortgage loans. HUD paid off the lenders, became the

mortgage holder, foreclosed, and took title to the complex. New West purchased part of the complex from HUD

in 1980 for $1, and the rest in 1982 for another $1. New

West took out large mortgage loans, which HUD insured
6 Nos. 08-3032 & 08-3033

under §221. New West promised both the lenders and

HUD that it “will not permit or suffer the use of any of

the property for any purpose other than the use for

which the same was intended at the time this Mortgage

was executed.”

In 2001 New West asked HUD to restructure the mortgages under the 1997 Act, reducing the monthly payments. Both the Illinois Housing Development Authority

and Heskin Signet Partners reported to HUD that the

approximately 600 residents of Evergreen Terrace lack

other available options for low-income housing. Relying

on these reports, HUD approved the restructuring in

2006, paid off the original lenders, and became the

lender (and mortgage holder) itself. As part of the transaction, New West promised that, for the next 30 years, the

property “shall be used solely as rental housing with no

reduction in the number of residential units unless approved in writing by HUD”. New West simultaneously

entered into new 20-year agreements with HUD for §8

subsidies to low-income tenants. These agreements undertake not to transfer, assign, or encumber the property

without HUD’s approval.

When we agreed to hear this interlocutory appeal, we

understood HUD to argue that the contracts that New

West had signed in 2006 themselves preempted any

state and local powers of condemnation, and we directed

the parties to address the question how New West could

give away a governmental power that it never possessed.

(Neither the City of Joliet nor the State of Illinois has

made any promise to HUD about the maintenance of
Nos. 08-3032 & 08-3033 7

Evergreen Terrace.) HUD’s appellate brief responded to

our inquiry by disclaiming this theory of preemption. The

contracts do not affect state or local powers, HUD recognizes. Owners such as New West must comply with all

state and local laws—indeed, 24 C.F.R. §883.310(b)(6)

specifies that recipients of federal assistance are bound

by all “[a]pplicable State and local laws, codes, ordinances,

and regulations.”

Why isn’t eminent domain among these applicable

state and local laws? HUD’s answer is that condemnation

would interfere with the purposes of §221 and the 1997

Act. Both statutes are designed to enlarge, or at least

preserve, the stock of housing available for low-income

tenants. The “findings” in §511 of the 1997 Act make this

explicit. If Joliet can condemn Evergreen Terrace, 356

apartments for low-income tenants will disappear, and

these tenants do not have ready alternatives. (That’s what

the Illinois Housing Development Authority and Heskin

Signet Partners concluded.) Removing 356 units from the

housing stock could undermine achievement of the national purpose and so is preempted, the argument concludes. This line of argument implies that local government cannot condemn any housing, whether or not the

owner has secured federal financing—for demolition of

unsubsidized units diminishes the supply, and drives up

the price of remaining units, as surely as the demolition

of units that already enjoy federal subsidies. Yet none of

the litigants ventures an argument that bold.

The question at hand is whether a state or local law can

be preempted by the “findings” and “purposes” clauses of
8 Nos. 08-3032 & 08-3033

a federal statute, even though the state or local law does

not conflict with any rule of law established in the federal

statute. Recently the Supreme Court emphasized that

preemption inferred from a clash of goals and objectives

should not be used expansively, unless the agency has

issued a preemptive regulation with the force of law, and

that an agency’s view that application of local law would

interfere with the national objective is no substitute

for such a regulation. Wyeth v. Levine, No. 06–1249 (U.S.

Mar. 4, 2009), slip op. 17–25. Justice Breyer filed a concurring opinion to stress the importance of a preempting

regulation, and Justice Thomas, concurring in the judgment, expressed doubt about this entire category of

implied preemption.

HUD does not contend that any federal regulation

prevents state and local governments from using eminent

domain or otherwise exercises the federal power of preemption under the Supremacy Clause. One federal regulation issued under the statutes at issue does preempt

state and local law, but HUD understandably does not

rely on (or even mention) it. This regulation, 24 C.F.R.

§248.183, says that no state or local law may prevent

any borrower under the federal programs from

prepaying the loan, and that no state or local law may set

a cap on the rate of return that owners participating in

the federal programs may realize. Subsection (c) of this

regulation says that other state and local laws, such as

zoning and building standards, are not preempted. So

federal regulations not only do not contain the sort of

clause that the Justices thought important in Wyeth but

also state that most state property regulations survive.
Nos. 08-3032 & 08-3033 9

True, this savings clause does not mention eminent domain, but the main point is that no federal regulation

even tries to displace local governments’ power to take

ownership of property by paying just compensation.

The approach of Wyeth to one side, it is hard to see any

conflict between federal and state goals, because (a) none

of the three statutes at issue makes participation compulsory; it is not a violation of federal law for a given owner

to remain outside the program, so it cannot be said that

federal law demands that a particular apartment unit

remain standing; and (b) the agreements by which

private owners enter the program do not diminish state

and local powers (as HUD concedes).

Private owners are entitled to withdraw their properties from the program at any time despite their 20-year

and 30-year promises. All they have to do is pay off the

federally insured loan. 24 C.F.R. Part 248. The conditions last only as long as the loans. If private owners

can withdraw (and then demolish) their properties

without violating any rule of federal law, why can’t state

or local governments acquire the properties through

eminent domain and then withdraw and demolish them?

The regulations treat condemnation as one legitimate

source of proceeds used to prepay and retire the loans, and

thus to escape the conditions. 24 C.F.R. §248.101. Indeed,

the regulatory approval needed to prepay the loans and

withdraw from the program voluntarily is not required

when proceeds of condemnation are the source of funds

used to pay off the loans. Ibid. By treating condemnation

as a special case, one that removes the property from
10 Nos. 08-3032 & 08-3033

an otherwise-required approval, the agency has shown

that condemnation is possible. What’s the point of a

special rule for applying the proceeds of condemnation

if, as HUD argues, condemnation is always preempted?

Another regulation provides that HUD’s approval for

changing a property’s use is not required when the

change results from eminent domain. 24 C.F.R. §245.405,

§970.3. And that’s not all. The documents that New West

signed contemplate the possibility of condemnation.

Paragraphs 6 and 8 of the loans and mortgages provide

that the proceeds of condemnation must be paid first to

the lenders (including HUD) until the loans have been

satisfied; that’s a strange proviso if condemnation is

always forbidden by federal law. HUD dismisses all of

these clauses, and its own regulations, as irrelevant

because they are not issued under the 1997 Act, but the

fact remains that there is no affirmative declaration of

preemption in any statute or rule, no concrete conflict

between condemnation and any part of the 1997 Act, and

no good reason to think that the 1997 Act contravenes

HUD’s own regulations under §8 and §221.

All that can be said is that, when housing is withdrawn

by prepayment (including prepayment made possible by

just compensation paid for a taking), the statutory goal of

increasing (or at least preserving) the stock of low-income

housing is undercut. Yet HUD does not point to any

decision of the Supreme Court holding a state or local

law preempted by broad goals (such as that more

housing is better than less, low prices better than high

prices) or by a general declaration such as “there exists
Nos. 08-3032 & 08-3033 11

throughout the Nation a need for decent, safe, and affordable housing”, §511(a)(1) of the 1997 Act. Nor has HUD

cited any decision of any federal court holding that §221

or the 1997 Act—or for that matter any other subsidy

system, such as farm price supports or loan guarantees

for veterans or small business owners, all of which

include “findings” sections comparable to §511—preempts

any state or local authority to take ownership through

eminent domain.

That silence is telling. We do not deal here with a city

or state as regulator of private conduct. Eminent domain

is a governmental power. Many decisions of the

Supreme Court hold that only a clear statement in a

national statute can supersede a governmental body’s

own operations. See, e.g., Cook County Solid Waste Agency

v. Corps of Engineers, 531 U.S. 159, 171 (2001); Gregory

v. Ashcroft, 501 U.S. 452, 460–61 (1991). HUD does not

contend that any language in §221 or the 1997 Act

supplies a “clear statement” of a national decision to

displace eminent domain. As we have mentioned, there

is no statement to that effect, clear or otherwise. There

is only HUD’s contention that condemnation will

interfere with national goals. That stripe of argument

was made in Solid Waste Agency and Gregory, where it

did not prevail. Congress may well have the power to

prevent state or local governments from condemning lowincome housing, but it has not declared that it has exercised that power; there has been no debate, no opportunity for the states to make their positions known to

Congress, no proposed regulation with preemptive
12 Nos. 08-3032 & 08-3033

effect, and no focused decision by the Legislative and

Executive Branches of the national government.

Quite apart from the Supreme Court’s plain-statement

canon for federalism cases, there is the principle that

general statements of national policy do not preempt

concrete laws. “Findings” and “purpose” clauses are

common in federal statutes. Like the clauses in §511 of

the 1997 Act, they are usually sweeping in scope and

declare an urgent need to solve a problem. But in legislation details matter. How far will the legislature go, and

what costs will it bear, to achieve its ends? “[N]o legislation pursues its purposes at all costs. Deciding what

competing values will or will not be sacrificed to the

achievement of a particular objective is the very essence

of legislative choice—and it frustrates rather than effectuates legislative intent simplistically to assume that whatever furthers the statute’s primary objective must be the

law.” Rodriguez v. United States, 480 U.S. 522, 525–26 (1987)

(emphasis in original). When courts rely on purpose

clauses, rather than the concrete rules that the political

branches have selected to achieve the stated ends, judges

become effective lawmakers, bypassing the give-andtake of the legislative process. It is therefore no surprise

that the Supreme Court does not think that declarations

of purpose, however sweeping, preempt state or local

laws. See Hawaii v. Office of Hawaiian Affairs, No. 07–1372

(U.S. Mar. 31, 2009), slip op. 10–11 (37 “whereas” clauses

setting out congressional findings and reasons for

adopting a joint resolution do not have any effect independent of the resolution’s two operative clauses).
Nos. 08-3032 & 08-3033 13

Consider Puerto Rico Dep’t of Consumer Affairs v. ISLA

Petroleum Corp., 485 U.S. 495 (1988). A federal statute

ended most federal price controls for petroleum and

natural gas. The statute’s purpose clause (and the accompanying committee reports) declared that it is bad policy

to interfere with the market’s pricing mechanism, in the

absence of monopoly or equivalent concerns. Puerto Rico

continued to enforce its own price controls for these

products, and the producers contended that the Commonwealth’s legislation was preempted by the combination of the purpose clause, the end of federal regulation,

and the legislative history showing the intent behind

these provisions. A court of appeals agreed and held

the law preempted—but the Supreme Court reversed.

The Court explained: “While we have frequently said

that pre-emption analysis requires ascertaining congressional intent . . . , we have never meant that to signify congressional intent in a vacuum, unrelated to the giving of

meaning to an enacted statutory text. . . . Respondents

have brought to our attention statements that may

reflect general congressional approval of a free market

in petroleum products, or general congressional belief

that such a market would result from enactment of the

[statute], or even general congressional desire that it

result. But unenacted approvals, beliefs, and desires are

not laws. Without a text that can, in light of those statements, plausibly be interpreted as prescribing federal preemption it is impossible to find that a free market was

mandated by federal law.” 485 U.S. at 501 (emphasis in

original). In other words, it takes a federal command to

preempt a state or local law; a conflict between a local
14 Nos. 08-3032 & 08-3033

law and legislative aspirations does not displace another

jurisdiction’s law. Wyeth reiterated that point. Cf. American

Hospital Ass’n v. NLRB, 499 U.S. 606 (1991); Lincoln v. Vigil,

508 U.S. 182 (1993). Similarly, Congress desired (and

hoped) that §211 and the 1997 Act would increase the

stock of low-income housing, but a text that preempts

state or local legislation is not among the steps that Congress took toward that objective.

This is not to say that federal law leaves local powers

unaffected. A state or local government is not free to use

its powers in order to discriminate against persons of a

particular race, for example. And federal law limits the

use of condemnation powers (as well as zoning

or building codes) to turn a jurisdiction into an allwhite, upper-income enclave. See Arlington Heights v.

Metropolitan Housing Development Corp., 429 U.S. 252 (1977).

Cf. Wisconsin Community Services, Inc. v. Milwaukee, 465

F.3d 737 (7th Cir. 2006) (en banc). But HUD does not

contend that Joliet has invoked the power of eminent

domain with an intent, or an effect, forbidden by the

Constitution or a federal statute; HUD maintains that the

City does not have a power to condemn federally subsidized housing, no matter how run-down the building,

no matter how large the remaining supply of housing

for low-income tenants, and no matter the use to which

the city will put the land. On HUD’s view, a city is forbidden to acquire and raze a decrepit and dangerous

building, near a brand new apartment block with unused

low-income units, in order to replace the old building

with a new park or city hall—and this is so even if the

federal appropriation can be redirected to another
Nos. 08-3032 & 08-3033 15

property to maintain the aggregate supply of low-income

housing. (HUD does not contend that condemnation of

Evergreen Terrace would leave it unable to spend its full

appropriation.) Such a sweeping displacement of governmental authority cannot be imputed to §221 or the 1997

Act. It might be sensible to enact a system under which

HUD could certify a lack of affordable housing in a

given locale and thus block any steps to diminish the

existing stock. But no federal statute gives HUD this

authority, let alone one that can be exercised without

notice to the cities whose powers will be diminished.

Although HUD concedes that no court has attributed any

preemptive effect to §221 or the 1997 Act, it urges us to

draw guidance from Public Utility District No. 1 of Pend

Oreille County v. United States, 417 F.2d 200 (9th Cir. 1969),

and Morgan City v. South Louisiana Electric Cooperative Ass’n,

31 F.3d 319 (5th Cir. 1994), amended and rehearing en banc

denied (over dissent), 49 F.3d 1074 (5th Cir. 1995). These

decisions held that federal law preempts state or local

efforts to condemn rural electric utilities that enjoyed

federal financing under the Rural Electrification Act, 7

U.S.C. §901 et seq. (At least one court of appeals has

reached a contrary conclusion. See Stilwell v. Ozarks Rural

Electric Cooperative Corp., 79 F.3d 1038 (10th Cir. 1996).) As

HUD sees things, the decisions of the fifth and ninth

circuits show that local condemnation powers are incompatible with federally subsidized financing designed to

achieve a federal goal (whether providing electricity to

farms or housing to low-income renters).

Neither the fifth circuit nor the ninth discussed the clearstatement rule for preemption of core governmental
16 Nos. 08-3032 & 08-3033

powers, or the need (which the Court stressed in ISLA

Petroleum) to find a conflict with a concrete statutory text.

Perhaps those principles were not argued in those cases. To

the extent these courts think that federal financing routinely displaces state laws, their decisions cannot be

reconciled with Arkansas Electric Cooperative Corp. v.

Arkansas Public Service Comm’n, 461 U.S. 375 (1983),

and Wabash Valley Power Ass’n v. Rural Electrification

Administration, 903 F.2d 445 (7th Cir. 1990). What is more,

both the fifth and the ninth circuits stressed that the

federal interest was not principally related to financing.

The problem with local condemnation is that electricity

is distributed by a network. Pull out one generating

station or set of transmission lines, and the rest of the

network can be adversely affected. “This is not an

ordinary case because what is sought to be taken here

is part of a system and [if one part is condemned] a question remains as to the capacity of the remaining portions

of the system to function.” Pend Oreille, 417 F.2d at 201.

One jurisdiction’s condemnation thus could affect consumers in other jurisdictions; that justified a federal role.

There is no comparable network externality when one

city condemns an apartment block.

New West, and a tenants’ association at the apartment

complex, advance additional arguments, none of which

HUD supports. They contend, for example, that condemnation of Evergreen Terrace violates the Contract

Clause (Art. I §10 cl. 1) because it will affect the contracts

that New West has with other entities. But “the Contract

Clause has never been thought to protect against the

exercise of eminent domain.” Hawaii Housing Authority v.
Nos. 08-3032 & 08-3033 17

Midkiff, 467 U.S. 229, 243 n.6 (1984). A state cannot displace

a contract by fiat, but it may take interests in contracts,

as in other property. New West and the tenants’ association contend that, if this is so, then Joliet must be trying

to take HUD’s mortgage interests in Evergreen Terrace,

and as no state may acquire federal property against

the wishes of the national government, see Armstrong v.

United States, 364 U.S. 40, 43 (1960), it follows that the

City’s resort to eminent domain violates the Property

Clause (Art. IV §3 cl. 2) or principles of intergovernmental

immunity. Yet the national government does not own

Evergreen Terrace, which Joliet proposes to acquire.

HUD’s interest is as a secured creditor of New West.

No case of which we are aware holds that the Property

Clause (or any other part of the Constitution) treats a

federal loan as immunizing the borrower from state

regulation (including eminent domain) on the theory that

the state is “really” regulating the federal interest as a

lender. One might as well say that if New West owed

taxes, and the IRS had placed a lien on Evergreen Terrace,

that step would prevent the City from using eminent

domain (or a bankruptcy court from selling the building

to satisfy New West’s other creditors).

This eminent domain proceeding has been stalled since

its institution more than three years ago. We trust that

the district court will now bring it to a speedy conclusion.

AFFIRMED

4-9-09