Opinion ID: 765541
Heading Depth: 2
Heading Rank: 2

Heading: Likelihood of Prevailing on the Merits

Text: 18 We note at the outset that the substantive merits of this case boil down to the basic question whether HUD should be required to continue operating the mortgage assignment program as it existed under the Amended Stipulation. The district court defined the merits as the plaintiffs' contempt motion. See Ferrell, 1998 WL 160916, at . Accordingly, in determining the plaintiffs' likelihood of prevailing on the merits thus defined, the district court focused on HUD's procedural shortcomings in failing to move promptly to vacate the Amended Stipulation before terminating the assignment program. The court found that the plaintiffs would likely prevail on the issue of contempt, given HUD's blatant disregard of the court's order without seeking prior vacation of the order. Id. at . 19 We believe that, in assessing the probability of success on the merits, the district court should have focused on the plaintiffs' ultimate request that HUD continue to operate the mortgage assignment program or an equivalent substitute in accordance with the Amended Stipulation. It is the likelihood of prevailing on the merits of this request that might justify a preliminary injunction requiring HUD to reinstate the program pending resolution of the underlying motions. Even if HUD might be found in contempt for its delay in seeking modification of the Amended Stipulation, this shortcoming would not justify a preliminary injunction unless it is also true that the plaintiffs have some likelihood of prevailing on the ultimate issue of HUD's obligation to continue the assignment program. If there is no likelihood that HUD can be required to continue the program, then a preliminary injunction cannot be sustained even if HUD's actions warrant a finding of contempt. 5
20 With these considerations in mind, we turn now to the issue whether the plaintiffs have any likelihood of prevailing on the merits of their claim that HUD must continue the mortgage assignment program in accordance with the Amended Stipulation. We therefore must first determine whether Congress, in enacting the Downpayment Act, withdrew HUD's statutory authority to operate the assignment program. 21 Various provisions of the Downpayment Act manifest Congress' intent to terminate the mortgage assignment program required by the Amended Stipulation. Section 407(b) of the Downpayment Act amended Section 230 of the National Housing Act (12 U.S.C. sec. 1715u), which had previously provided the authority for HUD's operation of the mortgage assignment program. Although the new Section 230 permits mortgage assignments under certain limited circumstances, see 12 U.S.C. sec. 1715u(c), Congress made clear in other provisions of the amended Section 230 that it wanted HUD to terminate the mortgage assignment program previously operated pursuant to the Amended Stipulation and under the authority of the former Section 230. Specifically, the amended Section 230 provides that no law shall be construed to require the Secretary to provide an alternative to foreclosure or to accept mortgage assignments. See id. sec. 1715u(f). Section 230 also precludes judicial review of any decision by the Secretary to exercise or forgo exercising any authority under the section. See id. sec. 1715u(d). Moreover, the amended provisions require mortgagees to take certain foreclosure avoidance and loss mitigation actions but expressly exclude from those required actions the assignment of mortgages to the Secretary. See id. sec. 1715u(a). 22 Additionally, Section 407(a) of the Downpayment Act amended Section 204(a) of the National Housing Act (12 U.S.C. sec. 1710(a)) to authorize HUD to pay insurance benefits to mortgagees who take foreclosure avoidance actions but excluded from such recompensable actions the assignment of mortgages to the Secretary. 23 We read these provisions of the Downpayment Act as expressing Congress' intent to remove the previous statutory authority for operation of the mortgage assignment program and to establish a new approach to assisting mortgagors in default. Indeed, the district court acknowledged that Section 204(a) of the National Housing Act (12 U.S.C. sec. 1710(a)), as amended by Section 407(a) of the Downpayment Act, no longer authorizes the operation of the mortgage assignment program. See Ferrell, 1998 WL 160916, at .
24 We turn now to the plaintiffs' contention, and the district court's holding, that other statutory provisions left intact by the Downpayment Act provide sufficient statutory authority for the continued operation of the mortgage assignment program. We are unpersuaded that the general authority conferred by 42 U.S.C. sec. 1441 and 42 U.S.C. sec. 3535 is sufficient to support HUD's continued operation of the assignment program. Those provisions, in very general terms, direct HUD to exercise its powers consistently with national housing policy and authorize HUD to make such rules and regulations as are necessary to carry out its duties. We believe that a far more reasonable interpretation of the statutory scheme is to conclude that Congress expected the more particular provision to govern the more general. Indeed, to conclude that Congress, in withdrawing the specific statutory authority for the assignment program by amending Section 230 of the National Housing Act, still intended that HUD retain the authority to operate the program under these other general provisions would impute to Congress-- undeservedly--uncertainty and confusion in articulating national housing policy that the statutory text, fairly read, simply does not convey. 25 The plaintiffs next submit, and the district court found, that, even if the Downpayment Act removed HUD's statutory authority to operate the assignment program, HUD still retains authority to operate an equivalent substitute in the form of a mandatory partial claim program under sec. 407(b) of the Downpayment Act (12 U.S.C. sec. 1715u(a), which is now codified at 12 U.S.C. sec. 1715u(b) (Supp. 1999)). We cannot accept this argument. Section 1715u(b) of Title 12 states that the Secretary may establish a program for payment of a partial claim to a mortgagee that agrees to apply the claim amount to payment of a mortgage . . . . Id. (emphasis added). This statutory language does not support the plaintiffs' argument that HUD is empowered to structure a partial claim program as a mandatory program. The district court and all parties seem to agree that the authority granted to HUD under this subsection is permissive, not mandatory, in nature. From HUD's perspective, the section permits--but does not require--the Secretary to administer such a program. 6 Secondly, from the perspective of the mortgagee, such a program hardly would be mandatory. The Secretary must supply sufficient economic incentive to make acceptance of the partial payment advantageous to the mortgagee. In short, the authority, and the obligations, of the Secretary under the newly enacted provisions are not the same as those under the earlier statutory scheme that the Amended Stipulation was intended to enforce.
26 We conclude that Congress' enactment of the Downpayment Act has rendered HUD's continued operation of the mortgage assignment program statutorily unauthorized. 7 This court has recognized the principle that a change in the law can require modification of a consent decree. See David B. v. McDonald, 116 F.3d 1146, 1149-50 (7th Cir. 1997), cert. denied, 118 S. Ct. 692 (1998); Ferrell, 743 F.2d at 464 (citing System Federation No. 91 v. Wright, 364 U.S. 642 (1961)). Indeed, the Supreme Court has held that [a] consent decree must of course be modified if, as it later turns out, one or more of the obligations placed upon the parties has become impermissible under federal law. Rufo v. Inmates of Suffolk County Jail, 502 U.S. 367, 388 (1992). In this case, the amendments to the National Housing Act constituted a change in the law that has made HUD's continued compliance with the Amended Stipulation an impossibility. We therefore hold that there is no likelihood of the plaintiffs' prevailing on the merits of their motion to require HUD to reinstate the assignment program. Because we hold that the plaintiffs have no likelihood of success on the merits, we need not review the district court's findings regarding irreparable harm or the absence of an adequate remedy at law in order to conclude that the issuance of the preliminary injunction was erroneous. The district court's grant of a preliminary injunction must be reversed.
27 HUD's delay of almost eight months after Congress passed the Downpayment Act before petitioning the district court for modification of the Amended Stipulation gives us pause. However, HUD's delay in seeking modification of the consent decree cannot justify a preliminary injunction requiring HUD to do something that it no longer has the statutory authority to do. See System Federation No. 91, 364 U.S. at 651; Ferrell, 743 F.2d at 464. Nor, under the circumstances presented here, does it warrant the imposition of a contempt citation against HUD. See Collins v. Barry, 841 F.2d 1297, 1300 (6th Cir.), cert. denied, 488 U.S. 826 (1988). The purposes of a civil contempt order are to coerce compliance with the underlying order and/or to compensate the complainant for loss sustained by disobedience. Blocksom & Co. v. Marshall, 582 F.2d 1122, 1124 (7th Cir. 1978). When the underlying order is erroneously issued or is no longer valid, a civil contempt order would serve neither of those purposes. See id.; see also Squillacote v. Local 248, Meat & Allied Food Workers, 534 F.2d 735, 746 (7th Cir. 1976); Lewis v. S.S. Baune, 534 F.2d 1115, 1119 (5th Cir. 1976). Moreover, the plaintiffs' contempt motion was part and parcel of its effort to enforce the Amended Stipulation and to receive compensation for HUD's termination of the assignment program. Now that we have resolved in HUD's favor the question of HUD's obligation to continue the assignment program under the Amended Stipulation, a contempt order would not be appropriate.