Opinion ID: 466307
Heading Depth: 2
Heading Rank: 2

Heading: Change in HUD Policy

Text: 36 Although the district court abused its discretion in holding that HUD violated an unequivocal command in the 1979 amended decree, the court put forth a second ground to support the contempt citation. The court found that, after the 1979 amended decree took effect, HUD switched from using the advancement rule to using the two-month rule. The court concluded: 37 It is clear that HUD not only used the two month rule, but that it did so knowing that it was a change in procedure [i.e., from the advancement rule] which reduced mortgagors' rights and after [the two-month rule] had been held invalid [in Etheridge ]. This change curtailed basic rights of mortgagors under the assignment program in violation of paragraphs 3 and 14 of the Amended Stipulation. Whatever HUD's intent, this clear violation of an unambiguous command of our order of November 8, 1979 constitutes contempt. Not only did HUD change the method of calculating the date of default, it did so without following the notice provisions of paragraph 3 of the Amended Stipulation. This action also constitutes contempt of our order. 38 HUD argues that the district court abused its discretion by finding that HUD changed its policy following the 1979 amended decree. First, HUD argues that the district court failed to base its decision on the clear and convincing evidence necessary for a finding of contempt. See United States v. Huebner, 752 F.2d 1235, 1241 (7th Cir.1985) (in civil contempt proceeding for violation of consent decree, plaintiffs must prove violation by clear and convincing evidence). HUD then contends that the court abused its discretion in basing its finding of contempt on a factual issue that was not at issue before the court, and thus an issue that HUD had no opportunity to litigate. Moreover, HUD alleges the court abused its discretion by denying HUD's post-trial Rule 59 motion in which HUD attempted to present evidence of its actual practice in 1979. Because we hold that the court below abused its discretion in basing its finding upon a factual issue not at issue, and thus one that HUD had no opportunity to contest, we need not decide whether the district court's finding was clearly erroneous. 39 The plaintiffs claim that their petition for contempt put HUD on notice that the issue of HUD's practice prior to the 1979 amended decree was at issue. Plaintiffs point to sections of their petition which discuss HUD's use of the two-month rule and an attached letter, a memorandum of the HUD Tampa Office Supervisor, which according to plaintiffs indicated that the field office practice prior to being ordered to use the two-month rule was to use the 'current default' on all assignment requests. 40 Plaintiffs point out that HUD did not deny the factual allegations in the petition, but rather agreed to try the contempt matter on the basis of the papers already filed. Plaintiffs further point out that at no time prior to the court's March 22, 1985 ruling did HUD indicate surprise or lack of preparedness to litigate the entire matter. Finally, plaintiffs argue that all the Rule 59 evidence filed by HUD was available to HUD at the time of the prior hearing. Thus, plaintiffs argue that the district court acted within its discretion in finding that HUD changed its policy, and then denying HUD's Rule 59 motion. 41 Upon close examination, however, plaintiffs' argument that HUD was on notice that its prior policy was at issue cannot prevail. A careful reading of the plaintiffs' petition reveals that HUD reasonably thought it was litigating only one issue--whether its use of the two-month rule violated an unambiguous command from the court. Nowhere in the section of the petition which plaintiffs relied upon at oral argument to demonstrate HUD had notice of the issue do the plaintiffs mention paragraph 3 of the 1979 amended decree, the section which requires HUD to notify plaintiffs' counsel before modifying the assignment program. 12 This failure to mention paragraph 3 is emphasized by the fact that later in the petition plaintiffs do list several alleged HUD policy changes about which HUD allegedly failed to notify plaintiffs' counsel. The two-month rule is noticeably not among the listed changes. 42 Were this a normal trial between two adversarial parties, we would possibly treat the plaintiffs' new change-in-policy argument as waived. We recognize, however, that a trial court has a great deal more latitude in enforcing its own decrees in a contempt proceeding. See Thompson v. Cleland, 782 F.2d 719, 721 (7th Cir.1986) (judicial sanctions in civil contempt appropriate to (1) coerce defendant into compliance with court's order and (2) to compensate plaintiff for loss). Nevertheless, it is still an abuse of discretion for the trial court to find a party in contempt without giving the party an opportunity to contest the issue. In this case, HUD had no reason to litigate its pre-1980 policy; HUD justifiably litigated solely the issues raised in the plaintiffs' petition for contempt. 43 When HUD discovered that the district court had based its contempt citation in part on its finding that HUD had changed its policy, HUD filed, under Fed.R.Civ.P. 59, a motion for a new trial, to vacate judgment, and enter new judgment. HUD sought a new trial to correct alleged manifest errors of law or fact, primarily flowing from the court's finding about HUD's change in policy. HUD offered 12 new affidavits and over 150 pages of additional documentation because the issue to which the previously available evidence would be responsive had not been clearly and timely framed in the proceedings before the court, and thus HUD had been unfairly surprised by the new approach and focus taken by the court. 44 Plaintiffs argued that HUD was merely attempting to relitigate the issue. The district court agreed. Both the district court and the plaintiffs point out that HUD had all the new evidence previously available. HUD concedes that it had the evidence available, but argues that prior to the district court's opinion it had no reason to present the evidence. As we said above, HUD had no reason to present the evidence in the earlier hearing because HUD's pre-1980 policy was not at issue. The denial of HUD's Rule 59 motion further prevented HUD from receiving the fair hearing to which it was entitled before being held in contempt. The district court abused its discretion in holding HUD in contempt because the 1979 amended decree contained no unambiguous command which HUD violated and HUD did not have an opportunity to litigate the change-in-policy charge. Therefore, we must vacate the district court's contempt citation. 13