UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF COLUMBIA 

ASSOCIATED MORTGAGE BANKERS, 

INC., 

 Plaintiff, 

 v. 

BEN CARSON, et al., 

 Defendants. 

 Civil Action No. 17-0075 (ESH) 

 

MEMORANDUM OPINION 

 Defendants have filed a partial motion to dismiss plaintiff’s amended complaint, or, in 

the alternative, to remand to the administrative agency. For the reasons set forth below, the 

Court grants the motion to remand in part and grants the motion to dismiss in part. The Court 

also enters judgment on plaintiff’s behalf on its Appointments Clause claim (Count III). As a 

remedy, the Court vacates the December 16, 2016 decision and order by the U.S. Department of 

Housing and Urban Development (“HUD”) Administrative Judge and remands to HUD for a 

new hearing before a different official appointed in accordance with the Appointments Clause of 

the U.S. Constitution. The Court dismisses plaintiff’s two remaining claims (Counts I and II) as 

moot. 

BACKGROUND 

I. FACTUAL BACKGROUND 

Plaintiff Associated Mortgage Bankers, Inc. (“AMB”) is a New York company that 

originates mortgage loans. (Am. Compl. ¶¶ 1–2, ECF No. 34.) Some of those mortgages are 
2 

eligible to be insured by defendant HUD’s Federal Housing Administration (“FHA”) insurance 

program. (Id. ¶ 2.) The FHA insures mortgage loans made by FHA-approved lenders for single 

family and multifamily homes. (Id. ¶¶ 10–11.) 

 One of the FHA-insured loans originated by AMB (the “Loan”) became the subject of a 

HUD audit, which resulted in AMB and HUD entering into an Indemnification Agreement on 

December 10, 2012. (Id. ¶ 69.) HUD’s audit had identified AMB lending practices that did not 

comply with FHA standards, thereby increasing the risk that the Loan would default; the 

Indemnification Agreement was signed to address this increased risk to HUD. (Decision of 

Administrative Judge at 2, Ex. 11 to Am. Compl., ECF No. 34-11.) Under the terms of the 

Indemnification Agreement, AMB “agree[d] to indemnify HUD for losses which have been or 

may be incurred related to the FHA Case Number 374-5838647 [the ‘Loan’].” (Indemnification 

Agreement ¶ 1, Ex. 3 to Am. Compl., ECF No. 34-3.) 

 As part of its Single Family Loan Sales (“SFLS”) program, HUD sold the note for the 

Loan for $360,531.24 in September 2013. (Am. Compl. ¶¶ 77, 92, 190.) AMB asserts that this 

only constituted 66% of the value of the collateral associated with the Loan. (Id. ¶ 128.) AMB 

represents that the property underlying the Loan was valued at somewhere between $530,100 

and $550,000 at the time of the note’s sale. (Id. ¶¶ 79–80.) 

 SFLS is the name for a HUD program that, at an earlier time, was titled Accelerated 

Claim Disposition (“ACD”). (Id. ¶¶ 22–23.)1 The program originated in February 2002, when 

HUD issued a “Notice of FHA Accelerated Claims Disposition Demonstration” (the “February 

2002 Notice”). (Id. ¶ 24 (citing 67 Fed. Reg. 5,418 (Feb. 5, 2002)).) The February 2002 Notice 

 

1

 In addition to SFLS and ACD, the program has also been referred to as: Accelerated Claim and 

Asset Disposition, Single Family Joint Venture Loan Sales, Single Family Mortgage Acquisition 

and Recovery Initiative, and Distressed Asset Stabilization Program. (Am. Compl. ¶ 23.) 
3 

requested comments regarding a proposed program under which “HUD would pay accelerated 

claims on certain defaulted FHA-insured mortgages.” (Am. Compl. ¶¶ 24–25 (quoting 67 Fed. 

Reg. at 5,418).) 

After a comment period, HUD published a final “Notice of FHA Accelerated Claims 

Disposition Demonstration” in October 2002, formally establishing the program (the “October 

2002 Notice”). (Am. Compl. ¶ 26 (citing 67 Fed. Reg. 66,038 (Oct. 29, 2002)).) The October 

2002 Notice specified that the program would be limited in duration and geographic scope. 67 

Fed. Reg. at 66,040. It further stated that “[o]nly certain defaulted FHA-insured loans are 

eligible for the accelerated claim payment process.” Id. Among the restrictions on eligible loans 

was the requirement that “[t]o the knowledge of the participating mortgagee, the mortgage loan 

is not subject to an Indemnification Agreement as of the provisional claim approval date.” Id. at 

66,041. 

In June 2006, HUD publicly contemplated making the ACD program permanent. (Am. 

Compl. ¶¶ 35–36.) It published an Advance Notice of Proposed Rulemaking, seeking comments 

before proceeding to issue a proposed rule that would establish the program’s permanence. (Id.

(citing 71 Fed. Reg. 32,392 (June 5, 2006)).) This proposed rulemaking was withdrawn in 

March 2007, and HUD has not initiated a new rulemaking process regarding the ACD program 

since that time. (Am. Compl. ¶¶ 44–45.) However, HUD has continued the program. HUD 

asserts in its motion—without any citation in support—that “HUD’s decision to withdraw the 

June 2006 [Advance Notice of Proposed Rulemaking] reflects the agency’s decision to continue 

the ACD Demonstration while retaining the flexibility to modify the procedures used.” (HUD 

Memo. in Support of Mot. to Dismiss or Remand (“HUD Mot.”) at 21, ECF No. 46-1.) 
4 

 When HUD sold the note for the Loan in 2013 as part of the SFLS program, it did so in a 

bulk sale of over two thousand notes. (Am. Compl. ¶¶ 83–84.) JPMorgan Chase Bank, N.A. 

(“JP Morgan”), the loan servicer, had entered into a Participating Servicer Agreement (“PSA”) 

with HUD in connection with this bulk sale. (Id. ¶¶ 104–05.) The PSA provided that HUD 

would pay JP Morgan’s insurance claims for “Eligible Mortgage Loan[s].” (Id. ¶ 106.) Part of 

the definition of an “Eligible Mortgage Loan” in the PSA was that “the Mortgage Loan is not 

subject to an Indemnification Agreement.” (Id. ¶ 107; PSA at 9, Ex. 6 to Am. Compl., ECF No. 

34-6.) 

 JP Morgan made an insurance claim on the Loan in August 2013 in the amount of 

$520,979.86. (Am. Compl. ¶ 114.) HUD paid this claim to JP Morgan on August 10, 2013, 

having “failed to screen out the Loan as ineligible for an insurance claim [under the terms of the 

PSA] due to the presence of the Indemnification Agreement.” (Id. ¶¶ 116–17.) 

On July 28, 2014, HUD sent AMB a demand notice seeking to recoup the $160,448.62 

difference between the amount HUD paid in the insurance claim and what it received in the sale 

of the note for the Loan. (Id. ¶ 145.) On October 13, 2014, HUD issued a notice indicating its 

intent to collect the amount via an administrative offset. (Id. ¶ 147.)2 AMB disputed the debt. 

In response, HUD sent a December 8, 2014 letter in which it “acknowledge[d] that the 

indemnified loan was erroneously included” in the SFLS program, but asserted that “this event 

did not impact on the legal enforceability of the Indemnification Agreement.” (Dec. 2014 Letter, 

Ex. 10 to Am. Compl., ECF No. 34-10.) 

 

2

 An “‘administrative offset’ means withholding funds payable by the United States . . . to, or 

held by the United States for, a person to satisfy a claim.” 31 U.S.C. § 3701(a)(1). 
5 

HUD regulations provide that “[a] debtor who receives notice of intent to offset . . . has 

the right to a review of the case” by an Administrative Judge (“AJ”) of the HUD Office of 

Appeals “and to present evidence that all or part of the debt is not past due or not legally 

enforceable.” 24 C.F.R. §17.69(a). In accordance with this regulation, AMB filed an appeal 

with HUD’s Office of Appeals regarding the administrative offset sought by HUD. (Am. 

Compl. ¶ 167.) 

Before HUD AJ Vanessa L. Hall, AMB argued that it was not obligated to pay the 

alleged debt because 1) the mortgage insurance claim paid was not valid; 2) HUD breached the 

Indemnification Agreement by negligently including the Loan in the SFLS program; 3) HUD 

acted in contravention of its internal guidance; and 4) HUD violated the Indemnification 

Agreement’s implied covenant of good faith and fair dealing. On December 16, 2016, the AJ 

issued a decision rejecting each of AMB’s arguments and concluding that the debt was legally 

enforceable against AMB. (Decision of AJ at 3–9.) 

II. PROCEDURAL HISTORY 

On January 12, 2017, AMB filed suit against HUD and its Secretary (collectively referred 

to herein as “HUD”). AMB’s initial complaint brought two claims: 1) an arbitrary-andcapricious challenge under the Administrative Procedure Act (“APA”) to the AJ’s decision, and 

2) a claim that HUD breached the Indemnification Agreement’s implied covenant of good faith 

and fair dealing. (Compl. ¶¶ 47–56, ECF No. 1.) HUD filed a motion to dismiss, which was 

granted with respect to the implied covenant claim based on a lack of subject matter jurisdiction. 

Associated Mortg. Bankers, Inc. v. Carson, 279 F. Supp. 3d 58, 64 (D.D.C. 2017). The Court 

denied HUD’s motion to dismiss the APA challenge to the AJ’s decision, concluding that the 

claim was facially plausible. Id. 
6 

On September 15, 2017, AMB filed a motion to amend its complaint. (Mot. for Leave to 

File First Am. Compl., ECF No. 22.) AMB’s Amended Complaint alleged the following claims: 

1) HUD had violated the APA by failing to utilize notice-and-comment rulemaking for its 

longstanding SFLS program (Count I); 2) HUD had violated the APA because its AJ’s decision 

was arbitrary and capricious (Count II); 3) the HUD AJ’s appointment violated the U.S. 

Constitution’s Appointments Clause (Count III); and 4) HUD had breached the Indemnification 

Agreement’s covenant of good faith and fair dealing (Count IV). (Am. Compl. ¶¶ 204–31.) 

Counts I and III stated new claims not previously contained in AMB’s original complaint. 

In support of Count I’s new notice-and-comment claim, AMB pointed to a July 2017 report 

issued by the HUD Office of Inspector General (the “HUD OIG Report”), which found that 

“HUD did not conduct rulemaking or develop formal procedures for its single-family note sales 

program.” (HUD OIG Report at 5, Ex. 2 to Am. Compl., ECF No. 34-2.) The HUD OIG Report 

explained that “[w]hen HUD expanded its notes sales to a nationwide level, it did so without a 

formal plan to transition from a demonstration to an official program.” (Id. at 6.) The Report 

recommended that “[b]ecause HUD already operates its note sales nationwide, it should 

complete the rulemaking process.” (Id.) HUD wrote a response letter indicating that it agreed 

with the Report’s recommendations. (Id. at 10–11; Am. Compl. ¶ 59.) 

AMB’s second new claim, found in Count III, alleged that HUD AJs are inferior officers 

within the meaning of the Appointments Clause of the U.S. Constitution. (Am. Compl. ¶ 220.) 

AMB argued that HUD had not complied with the Appointments Clause’s requirements 

regarding who may appoint an inferior officer, and thus the AJ’s decision contravened the U.S. 

Constitution. (Id. ¶¶ 221–22.) 
7 

The Court granted in part and denied in part AMB’s motion for leave to amend its 

complaint. Associated Mortg. Bankers, Inc. v. Carson, No. 17-cv-0075, 2017 WL 6001733, at 

*1 (D.D.C. Dec. 1, 2017). The Court struck the breach of the covenant of good faith and fair 

dealing claim (Count IV) since that claim had already been dismissed in the Court’s prior ruling. 

Id. at *4. The Court permitted the rest of AMB’s proposed amendments to its complaint. Id. at 

*6. 

On August 15, 2018, HUD filed the present partial motion to dismiss Counts I and III of 

the Amended Complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), or, 

in the alternative, to remand the case for a new hearing before a duly appointed AJ and dismiss 

the Amended Complaint in its entirety. (HUD Mot. to Dismiss or Remand at 1–2, ECF No. 46.) 

ANALYSIS 

The Court’s analysis will begin with Count III, AMB’s Appointments Clause claim, as 

the Court’s ruling on this count alters the analysis of AMB’s other claims. HUD’s motion seeks 

to dismiss this claim, or, in the alternative, to remand the case to a duly appointed AJ. (HUD 

Mot. at 1, 12.) As explained herein, the Court will not dismiss this claim but will remand to the 

agency. The Court will then proceed to Counts I and II to determine if it has subject matter 

jurisdiction over these remaining claims given its ruling on Count III. The Court concludes that 

it lacks jurisdiction, and it will therefore dismiss Counts I and II without prejudice. 

I. LEGAL STANDARDS 

A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1) challenges a 

federal court’s subject matter jurisdiction. In addressing a Rule 12(b)(1) motion, “the court may 

consider the complaint supplemented by undisputed facts evidenced in the record, or the 

complaint supplemented by undisputed facts plus the court’s resolution of disputed facts.” 
8 

Herbert v. Nat’l Acad. of Scis., 974 F.2d 192, 197 (D.C. Cir. 1992). Mootness is an issue of 

subject matter jurisdiction, and it is properly addressed under a Rule 12(b)(1) motion or sua 

sponte by the Court. See Cierco v. Lew, 190 F. Supp. 3d 16, 22–23 (D.D.C. 2016). 

A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) asserts that a 

defendant has failed to state a claim upon which relief can be granted. “To survive 

a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state 

a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) 

(quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). 

Where an agency moves for remand, “[t]he decision whether to grant an agency’s request 

. . . is left to the discretion of the court.” Code v. McHugh, 139 F. Supp. 3d 465, 468 (D.D.C. 

2015). Granting an agency’s remand request is often appropriate where there is new evidence, 

where intervening events have affected the validity of the agency’s actions, or where an agency 

has raised “‘substantial and legitimate’ concerns in support of remand.” FBME Bank Ltd. v. 

Lew, 142 F. Supp. 3d 70, 73 (D.D.C. 2015); see also Code, 139 F. Supp. 3d at 468. Courts 

“should deny an agency’s request to remand where the request is ‘frivolous or in bad faith.’” 

Code, 139 F. Supp. 3d at 468 (quoting Sierra Club v. Van Antwerp, 560 F. Supp. 2d 21, 23 

(D.D.C. 2008)). 

II. COUNT III: APPOINTMENTS CLAUSE CLAIM 

The Appointments Clause of the U.S. Constitution specifies, in relevant part, that 

“Congress may by Law vest the Appointment of such inferior Officers, as they think proper, in 

the President alone, in the Courts of Law, or in the Heads of Departments.” U.S. Const. art. II, 

§ 2, cl. 2. Count III of AMB’s Amended Complaint argues that the Administrative Judge, who 

decided its case at the HUD Office of Appeals on December 16, 2016, was an inferior officer 
9 

within the meaning of the U.S. Constitution’s Appointments Clause. And, because the HUD AJ 

was not appointed by the President, a court of law, or a head of a department, AMB argues that 

her appointment was unconstitutional. (Am. Compl. ¶¶ 217–24.) 

HUD does not dispute the merits of this claim in light of the Supreme Court’s recent 

decision in Lucia v. Securities & Exchange Commission, 138 S. Ct. 2044 (2018), where the 

Court held that administrative law judges at the Securities and Exchange Commission (“SEC”) 

are inferior officers of the United States within the meaning of the Appointments Clause. Id. at 

2049. The Court reasoned that the judges held “a continuing office established by law” and 

exercised “significant discretion when carrying out . . . important functions.” Id. at 2053 

(internal citation and quotation marks omitted). HUD concedes that its AJs sufficiently mirror 

the characteristics of the SEC’s administrative law judges such that they too are inferior officers 

within the meaning of the Appointments Clause. (HUD Mot. at 2.) 

HUD argues that the Court should nonetheless dismiss AMB’s Appointments Clause 

claim because AMB forfeited the claim by failing to raise it before the agency. (Id. at 8; HUD 

Reply at 4, ECF No. 49 (“It is well-established that a party generally may not challenge an 

agency decision on a basis that was not presented to the agency.”) (quoting In re DBC, 545 F.3d 

1373, 1378 (Fed. Cir. 2008)). In support of its argument, HUD cites to the Supreme Court’s 

statement in Lucia that “‘one who makes a timely challenge to the constitutional validity of the 

appointment of an officer who adjudicates his case’ is entitled to relief.” Lucia, 138 S. Ct. at 

2055 (emphasis added) (quoting Ryder v. United States, 515 U.S. 177, 182–83 (1995)). Lucia 

did not define the scope of what constitutes a timely challenge, as there was no claim in Lucia 

that the challenge to the appointment of the SEC’s administrative law judge—advanced for the 

first time on appeal to the SEC—was not timely raised. Lucia, 138 S. Ct. at 2050, 2055. 
10 

The Court here need not attempt to define what constitutes a timely challenge such that a 

party would be “entitled to relief,” id. at 2055 (emphasis added), for, as HUD concedes, courts 

have discretion to grant relief to an untimely challenger with an Appointments Clause claim. 

(HUD Reply at 8 (citing Freytag v. Comm’r of Internal Revenue, 501 U.S. 868, 879 (1991)).) 

The Supreme Court has “expressly included Appointments Clause objections to judicial officers 

in the category of nonjurisdictional structural constitutional objections that could be considered 

on appeal whether or not they were ruled upon below.” Freytag, 501 U.S. at 878–79 (citing 

Glidden Co. v. Zdanok, 370 U.S. 530 (1962)). In Freytag (on which the Supreme Court heavily 

relied in Lucia) the Court utilized its discretion to reach an Appointments Clause claim that was 

raised for the first time in the Fifth Circuit. Freytag, 501 U.S. at 871–82, 878–80 (“We conclude 

that this is one of those rare cases in which we should exercise our discretion to hear petitioners’ 

challenge”); see also Lucia, 138 S. Ct. at 2053. The Freytag Court justified its use of discretion 

by explaining the importance of the Appointments Clause in “maintaining the constitutional plan 

of separation of powers” and that “[t]he structural interests [it] protect[s] . . . are not those of any 

one branch of Government but of the entire Republic.” Freytag, 501 U.S. at 879–80. Applying 

Freytag’s rationale, this Court will utilize its discretion to reach the Appointments Clause claim. 

This case is particularly well-suited for the Court to exercise its discretion because the 

policy rationales underlying the waiver rule—“development of a factual record, the application 

of agency expertise, [and] the exercise of administrative discretion”—are inapplicable. See R.R. 

Yardmasters of Am. v. Harris, 721 F.2d 1332, 1338–39 (D.C. Cir. 1983). Where these policy 

rationales are absent, “judicial review” is less likely to be “hindered by the failure of the [party] 

to raise its challenge before the [agency].” See id. 
11 

The refrain that parties ought to present issues to an agency before seeking judicial 

review is analogous to the general rule that appellate courts should not consider arguments not 

raised before the district court. See Advocates for Highway & Auto Safety v. Fed. Motor Carrier 

Safety Admin., 429 F.3d 1136, 1148 (D.C. Cir. 2005). Yet, the D.C. Circuit has found it 

appropriate to address issues not raised before the district court where the claim is “is one of law, 

requires no further factual development, has been fully briefed by both parties, and can be 

resolved beyond any doubt.” R.R. Yardmasters, 721 F.2d at 1337; see also Ass’n of Am. R.R. v. 

U.S. Dep’t of Transp., 821 F.3d 19, 26 (D.C. Cir. 2016) (reaching a claim not raised below where 

it was of “purely legal character,” had been fully briefed, and pertained to “significant structural 

constitutional rights”). On the other hand, the D.C. Circuit has been reluctant to review a lastminute Appointments Clause challenge that did not have the benefit of “thorough, considered 

briefing from all interested parties,” as this could cause a Court to “run the risk of [issuing] an 

improvident or ill-advised opinion on the legal issues tendered.” Intercollegiate Broadcast Sys., 

Inc. v. Copyright Royalty Bd., 574 F.3d 748, 755–56 (D.C. Cir. 2009) (internal quotation marks 

and citation omitted) (holding it was “certainly” within the D.C. Circuit’s power to consider 

plaintiff’s Appointments Clause challenge first raised in a supplemental brief to the Circuit, but 

declining to do so given the “potential for far-reaching consequences” of finding an 

Appointments Clause violation in the circumstances presented). 

Given this framework, review of AMB’s Appointments Clause claim is appropriate in 

this case. The development of a further factual record at the agency level would have been of no 

assistance to the Court in deciding the Appointments Clause issue as it is a purely legal claim, 

and since it is a constitutional question, there is no reason to defer to agency expertise or 

discretion. Moreover, given the parties’ agreement that AMB’s claim is unquestionably 
12 

meritorious in light of Lucia, there is no plausible concern that AMB’s delay in raising the 

argument could hinder this Court’s ability to decide the Appointments Clause claim or could 

cause the Court to issue an ill-advised opinion on the merits. See R.R. Yardmasters of Am., 721 

F.2d at 1338; Intercollegiate Broadcast Sys., Inc., 574 F.3d at 756. 

HUD’s argument against this Court utilizing its discretion appears to rely primarily on 

the Federal Circuit’s decision in In re DBC, 545 F.3d 1373 (Fed. Cir. 2008). (See HUD Reply at 

8–9.) In DBC, the Federal Circuit refused to entertain a plaintiff’s Appointments Clause 

challenge to a decision of the United States Patent and Trademark Office Board of Patent 

Appeals and Interferences that had been first raised in a supplemental brief to the Federal Circuit 

after briefing in the appeal had been completed. 545 F.3d at 1377 n.2, 1381. The Federal Circuit 

declined to utilize its discretion because 1) the plaintiff’s failure to raise the issue earlier was due 

to a “lack of diligence”; 2) there was no “intervening change in law or facts”; 3) remedial action 

had been taken whereby the head of the agency reappointed the administrative patent judges at 

issue pursuant to a new statute and in accordance with the Appointments Clause; and 4) if the 

court were to remand, there was “nothing to suggest that the [agency] would do anything other 

than simply . . . assign the case to the same panel” of administrative patent judges who 

previously heard the case. Id. at 1380–81. None of these factors is present here. 

First, in light of the circumstances, the Court would not characterize AMB’s failure to 

raise the issue below as demonstrating a complete lack of diligence. AMB’s opportunity to raise 

its Appointments Clause claim before the agency was quite limited. HUD regulations restricted 

the AJ’s review to “whether there is a debt that is past due and whether it is legally enforceable.” 

24 C.F.R. § 17.69(c); see also id. at § 17.73(a). HUD argues that AMB should have raised its 

Appointments Clause argument via a motion to disqualify the AJ (HUD Mot. at 9), but such a 
13 

motion would not have yielded reassignment to a lawfully-appointed AJ given that HUD did not 

appear to have any at that time. (AMB Opp. at 9 n.6, ECF No. 48.) Furthermore, the “timely” 

challenger in Lucia did not raise his Appointments Clause claim before the administrative law 

judge whose appointment he was challenging; instead, Lucia first raised it on appeal to the SEC. 

Lucia, 138 S. Ct. at 2050, 2055. AMB did not have a similar opportunity to raise the issue in an 

appeal to HUD, as HUD’s regulation provides that “[t]he decision of the administrative judge . . . 

concerning whether a debt or part of a debt is past due and legally enforceable is the final agency 

decision.” 24 C.F.R. § 17.73(a). 

Second, there has been a change in law since AMB first litigated before the HUD AJ. At 

the time the AJ issued her decision on December 16, 2016, the Supreme Court had not yet 

handed down its decision in Lucia. Instead, the binding law of the D.C. Circuit at the time was 

the panel decision in Lucia v. SEC, 832 F.3d 277 (D.C. Cir. 2016), which held that the SEC’s 

administrative law judges were not officers within the meaning of the Appointments Clause. Id. 

at 283–89. The Supreme Court reversed the D.C. Circuit opinion in a decision issued on June 

21, 2018, more than a year after AMB’s case was filed in this Court. 

Third, there is no indication that HUD has taken remedial steps since Lucia was issued to 

ensure that all of its AJs are currently lawfully appointed. Instead, HUD only indicates that its 

Secretary has the statutory authority to appoint AJs—not that the Secretary has done so. (Reply 

at 12.)3 

 

3

 AMB argues that the Court should vacate the AJ’s decision without remand because “HUD 

does not yet have any ‘properly appointed’ AJs . . . and it is not yet entirely clear” that the HUD 

Secretary currently has the authority from Congress to appoint new AJs. (AMB Opp. at 12–13.) 

AMB’s argument appears to rest on the hypothetical idea that the HUD Secretary might, in the 

future, attempt to appoint an AJ to hear AMB’s case without having received the authority to do 

so from Congress, or, in the alternative, fail to appoint new AJs despite Lucia’s mandate. Both 

hypothetical scenarios are mere speculation. In Lucia, the Supreme Court refused to entertain 
14 

Finally, if this Court remands the case to HUD, HUD cannot assign it to the same AJ who 

heard the case before. Lucia made clear that where a court remands to an agency for rehearing 

due to an Appointments Clause violation, a different AJ (or the agency itself) must hold the new 

hearing. Lucia, 138 S. Ct. at 2055. 

For these reasons, the Court will utilize its discretion to reach AMB’s Appointments 

Clause claim. Given that the claim is undisputedly meritorious under Lucia, the Court grants 

judgment to AMB on Count III of its Amended Complaint.4 The Court further grants the Luciaprescribed remedy of vacating the decision of the unconstitutionally appointed AJ and remanding 

for hearing before a different AJ who has been appointed in accordance with the Appointments 

Clause of the U.S. Constitution. 

III. COUNT II: APA CLAIM CHALLENGING THE ADMINISTRATIVE JUDGE’S 

DECISION 

In Count II of its Amended Complaint, AMB asserts that the AJ’s December 16, 2016 

decision is arbitrary, capricious, and contrary to law in violation of the Administrative Procedure 

 

the plaintiff’s argument that an SEC order “‘ratif[ying]’ the prior appointments of its ALJs” was 

invalid, explaining it was speculation to assume that Lucia’s case would be heard on remand by 

“an ALJ whose claim to authority rests on the ratification order.” Lucia, 138 S. Ct. at 2055 n.6. 

The Supreme Court explained that “[t]he SEC may decide to conduct Lucia’s rehearing itself . . . 

[o]r it may assign the hearing to an ALJ who has received a constitutional appointment 

independent of the ratification.” Id. Following the rationale of Lucia, this Court will decline to 

reach AMB’s hypothetical arguments. HUD has pointed to a statute that it believes gives its 

Secretary authority to appoint inferior officers. (HUD Reply at 12 (citing 42 U.S.C. § 3535(c)).) 

Perhaps the HUD Secretary will appoint AJs under this statute, or perhaps he will do so pursuant 

to another statute passed by Congress. Either way, AMB’s conjecture regarding how HUD may 

act in the future does not provide a basis for this Court to decline to remand to the agency at this 

juncture. 

4

 AMB requested that the Court enter judgment on this count in order to preserve AMB’s right to 

seek attorneys’ fees associated with this claim. (AMB Opp. at 13.) While it will enter judgment 

on this claim because it has determined “there is no just reason for delay,” Fed. R. Civ. P. 54(b), 

the Court’s action should not be construed as an endorsement of AMB’s claim for attorneys’ 

fees. 
15 

Act. (Am. Compl. ¶¶ 209–16); see also 5 U.S.C. § 706(2)(A) (“The reviewing court shall . . . 

hold unlawful and set aside agency action, findings, and conclusions found to be . . . arbitrary, 

capricious, an abuse of discretion, or otherwise not in accordance with law.”). Because the Court 

has ruled that, as a remedy for the Appointments Clause violation articulated in Count III, the 

AJ’s decision is vacated, Count II becomes moot. The now-vacated decision of the AJ no longer 

presents a “live controversy” fit for judicial review. Coal. of Airline Pilots Ass’ns v. F.A.A., 370 

F.3d 1184, 1189 (D.C. Cir. 2004). The Court thus dismisses Count II of the Amended Complaint 

without prejudice. 

IV. COUNT I: CLAIM ALLEGING VIOLATION OF APA’S NOTICE-ANDCOMMENT REQUIREMENTS 

In Count I, AMB asserts a claim based on HUD’s failure to employ notice-and-comment 

rulemaking before implementing its SFLS program. (Am. Compl. ¶¶ 204–08.) AMB urges that 

it be permitted to continue litigating Count I despite the remand associated with Count III, while 

HUD urges that the claim be dismissed. (See AMB Opp. at 13–16; HUD Mot. at 12–14.) The 

Court will dismiss Count I because the claim has become moot in light of the vacatur of the AJ’s 

decision. 

“Article III, section 2 of the Constitution limits federal court jurisdiction to cases or 

controversies, meaning that a live controversy must exist at all stages of review.” Coal. of 

Airline Pilots Ass’ns, 370 F.3d at 1189 (internal quotation marks omitted). A case becomes 

moot, and thus a court lacks subject matter jurisdiction, where a “plaintiff no longer has a legally 

cognizable injury which is traceable to defendants’ alleged [conduct].” Ctr. for Biological 

Diversity v. Kempthorne, 498 F. Supp. 2d 293, 296–97 (D.D.C. 2007); see also Kennecott Utah 

Copper Corp. v. U.S. Dep’t of Interior, 88 F.3d 1191, 1207 (D.C. Cir. 1996) (“An issue becomes 

moot if intervening events leave the parties without ‘a legally cognizable interest.’”). 
16 

The only concrete interest that AMB has identified is its owing of money associated with 

the Loan under the Indemnification Agreement. (AMB Opp. at 20.) That injury is eliminated 

now that the Court has vacated the AJ’s decision holding that such money is due.5 

Given the vacatur of the AJ’s decision, the only remaining grievance that AMB can point 

to is a procedural one: it was unable to provide comments regarding the SFLS program through 

notice-and-comment procedures. This is insufficient, for “deprivation of a procedural right 

without some concrete interest that is affected by the deprivation . . . is insufficient” for purposes 

of Article III. Summers v. Earth Island Inst., 555 U.S. 488, 496 (2009) (describing the necessary 

interest required for Article III standing); Arizonans for Official English v. Arizona, 520 U.S. 43, 

68 n.22 (1997) (explaining that “[t]he requisite personal interest that must exist at the 

commencement of the litigation (standing) must continue throughout its existence (mootness)”) 

(citation omitted). The Court thus dismisses Count I of the Amended Complaint as moot. 

CONCLUSION 

For the reasons stated above, the Court enters judgment in AMB’s favor on Count III. 

The Court vacates the decision and order of HUD’s AJ and remands for a hearing before a 

different AJ who has been appointed in accordance with the U.S. Constitution’s Appointments 

Clause. The Court dismisses without prejudice Counts I and II of the Amended Complaint as 

moot. A separate Order accompanies this Memorandum Opinion. 

 

5

 AMB’s Opposition alludes to a possible harm it may face due to a second indemnified AMB 

loan sold through the SFLS program (see AMB Opp. at 21), but this is insufficient to alter the 

conclusion that AMB’s notice-and-comment claim is now moot. The case regarding this second 

AMB loan is currently pending before a HUD AJ. (Id.) Since the AJ has not yet ruled regarding 

AMB’s possible debt for this second loan, the Court cannot conclude that AMB has suffered any 

injury associated with this second loan’s inclusion in the SFLS program. 
17 

 _______________________ 

 ELLEN S. HUVELLE 

 United States District Judge 

Date: January 4, 2019