Court Opinion

ID: 9371998
Source: CourtListenerOpinion
Date Created: 2023-02-17 16:00:39.613492+00
Date Added: 2024-06-11T17:16:31.666317
License: Public Domain

United States Court of Appeals
        FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 20, 2022        Decided February 17, 2023

                      No. 21-1212

                PF SUNSET PLAZA, LLC,
                     PETITIONER

                          v.

    UNITED STATES DEPARTMENT OF HOUSING & URBAN
                    DEVELOPMENT,
                     RESPONDENT

                      No. 21-1228

                  PF HOLDINGS, LLC,
                      PETITIONER

                          v.

    UNITED STATES DEPARTMENT OF HOUSING & URBAN
                    DEVELOPMENT,
                     RESPONDENT
                              2

       On Petitions for Review of Final Orders of the
       Department of Housing & Urban Development

     S. Joshua Kahane argued the cause for petitioners. On the
briefs was Aubrey B. Greer.

    Sarah J. Clark, Attorney, U.S. Department of Justice,
argued the cause for respondent. With her on the briefs were
Brian M. Boynton, Principal Deputy Assistant Attorney
General, and Abby C. Wright, Attorney.

   Before: PILLARD and CHILDS, Circuit Judges, and
SENTELLE , Senior Circuit Judge.

   Opinion for the Court filed by Senior Circuit Judge
SENTELLE .

        SENTELLE , Senior Circuit Judge: Petitioners PF Sunset
Plaza, LLC (“Sunset Plaza”) and PF Holdings, LLC
(“Holdings”) were each assessed monetary penalties by the
Department of Housing and Urban Development (“HUD”) for
violations of their duty to provide “decent, safe, and sanitary
housing” to low-income families under Section 8. 42 U.S.C.
§ 1437z-1(b)(2); see 24 C.F.R. § 5.703. Petitioners now
petition to reverse ALJ decisions dismissing these HUD
enforcement actions against them for lack of subject matter
jurisdiction. See In the Matter of PF Sunset Plaza LLC, Case
No. 21-AF-0131-CM-006 (HUD Office of Hearings &
Appeals Oct. 7, 2021) (Fernández-Pons, A.L.J.) (order
dismissing action against Sunset Plaza); In the Matter of
Ralston GA LLC, Case No. 21-JM-0180-CM-007 (HUD Office
of Hearings & Appeals Oct. 25, 2021) (Mahoney, C.A.L.J.)
                               3
(order dismissing action against Holdings). Petitioners oppose
the dismissals because they leave the penalties undisturbed. On
March 1, 2022, this Court consolidated the two cases for oral
argument. For the reasons explained below, we deny both
petitions.

   I. Background

        These cases present similar factual backgrounds, as
both Petitioners are Section 8 housing owners, or alleged
identity-of-interest managers, against which HUD assessed
penalties for alleged statutory violations.

           a. Sunset Plaza

       In the case of Sunset Plaza, HUD inspected Petitioner’s
property at Sunset Plaza Apartments in Tulsa, Oklahoma in late
2019. It there found violations of Sunset Plaza’s duty to
provide low-income housing in “decent, safe, sanitary and . . .
good repair” in ten different units. 24 C.F.R. § 5.703; see also
42 U.S.C. §§ 1437f, 1437z-1(b)(2). The violations also
breached Sunset Plaza’s Housing Assistance Payment contract
with HUD.

       HUD subsequently issued a pre-penalty notice to
Sunset Plaza in March 2020. It stated that HUD was
considering imposing civil money penalties and that Sunset
Plaza had thirty days to respond to the accusations within.
Sunset Plaza, via counsel, requested several extensions to this
deadline in light of the developing COVID-19 pandemic.
However, Sunset Plaza failed to respond or to ask for an
extension by the last deadline HUD gave of August 2020.
Sunset Plaza finally responded to the pre-penalty notice on
March 24, 2021. On April 26, 2021, HUD filed a Complaint
against Sunset Plaza seeking $391,210.00 in civil money
                                4
penalties, the statutory maximum of $39,121.00 for each of the
ten violations. The Complaint contained a statement, as
regulatorily required, that Sunset Plaza had the opportunity to
request a hearing within fifteen days of receipt of the
Complaint and should answer the Complaint within thirty days.
The Complaint made clear that the mandatory fifteen-day
period for requesting a hearing could not be extended. If Sunset
Plaza did not respond, HUD could assess penalties against
Sunset Plaza. Sunset Plaza did not request a hearing within
fifteen days.

           b. Holdings

        The facts of PF Holdings follow a similar trajectory. In
November 2019, HUD inspected a Section 8 property in
Columbus, Georgia and found significant violations of the
statutory requirement for safe housing in fifteen different units.
While Holdings neither owns nor contracted with HUD for the
subject property, HUD identified Holdings as an “identity-of-
interest” manager of the property. Under the statute, HUD may
impose penalties for Section 8 housing violations not only upon
owners of properties, but also upon “any agent employed to
manage the property that has an identity of interest with the
owner or the general partner of a partnership owner of the
property.” 42 U.S.C. § 1437z-1(b)(1)(C). The statute defines
an “identity-of-interest” manager as “an entity . . . (A) that has
management responsibility for a project; (B) in which the
ownership entity, including its general partner or partners (if
applicable), has an ownership interest; and (C) over which such
ownership entity exerts effective control.” Id. § 1437z-1(h).

        As in Sunset Plaza, HUD then sent a pre-penalty notice
to both the owner of the property, Ralston GA LLC (“Ralston
GA”), and alleged identity-of-interest manager Holdings
stating its intent to impose civil money penalties for the
                                5
violations. Holdings responded that it neither owned nor
managed the property and did not own any interest in the entity
that did. HUD rejected this contention and subsequently filed a
Complaint against Ralston GA and Holdings on June 24, 2021,
seeking $586,815.00 in civil money penalties. The Complaint
alleged that Holdings “served as management agent for the
Project during the time relevant to [the] Complaint” and that
two people “directly or indirectly own and control both Ralston
GA and PF Holdings.” Holdings, Pet. App. 7 (emphasis
added). The Complaint further alleged that through these two
people, property owner Ralston GA “has the ability to control
PF Holdings and has a direct or indirect ownership interest in
PF Holdings.” Id. As required, the Complaint informed both
parties of their right to request a hearing within fifteen days of
receipt of the Complaint. Holdings did not request a hearing
within fifteen days.

           c. Statutory Scheme

        Congress passed 42 U.S.C. § 1437, commonly referred
to as “Section 8,” to “remedy the unsafe housing conditions and
the acute shortage of decent and safe dwellings for low-income
families” and “to address the shortage of housing affordable to
low-income families.” Id. § 1437(a)(1)(A)-(B). To that end,
Congress authorized assistance payments to owners of
multifamily rental housing who agree via a Housing Assistance
Payment (“Payment”) contract to abide by the tenets of Section
8; namely, to provide “decent, safe, and sanitary housing” to
low-income families. See generally id. § 1437f; 24 C.F.R.
§ 5.703. HUD may impose civil money penalties for violations
of Payment contracts. 42 U.S.C. § 1437z-1(b).

      Indeed, assessing penalties is the main mechanism by
which HUD enforces the duties owed by Section 8 housing
owners. After HUD becomes aware through inspection of a
                               6
potential violation at a Section 8 property, it issues a pre-
penalty notice to the Payment-contracted property owner,
giving notice of its intent to impose penalties. 24 C.F.R.
§ 30.70(a). Then, once the time to respond to the pre-penalty
notice has elapsed, and if HUD decides to seek a penalty, HUD
issues a complaint, which it must serve on the property owner,
now respondent, and simultaneously file with the Appeals
Office. Id. §§ 30.85(b), 30.90(c).

        Next, federal regulations state that “[i]f the respondent
desires a hearing before an administrative law judge, the
respondent shall submit a request for a hearing to HUD and the
Office of Hearings and Appeals no later than 15 days following
receipt of the complaint, as required by statute. This mandated
period cannot be extended.” Id. § 30.90(a). Notice of this right
must be provided to the respondent in the complaint. Id.
§ 30.85(b)(4). “If a hearing is not requested before the
expiration of the 15-day period beginning on the date on which
the notice of opportunity for hearing is received, the imposition
of a penalty under subsection (b) shall constitute a final and
unappealable determination.” 42 U.S.C. § 1437z-1(c)(2)(A).

        If, however, a respondent requests a hearing, the
regulations require that the respondent “serve upon HUD and
file with the Office of Hearings and Appeals a written answer
to the complaint within 30 days of receipt of the complaint,
unless such time is extended by the administrative law judge
for good cause.” 24 C.F.R. § 30.90(b). If HUD receives no
response, it can file for default judgment against the
respondent. Id. § 30.90(c).
                               7
           d. Failure to Request a Hearing

       As noted above, neither Sunset Plaza nor Holdings
requested a hearing within fifteen days of their respective
Complaints.

        In the case of Sunset Plaza, Petitioner also did not
answer the Complaint within thirty days. In that case, HUD
filed a motion for default judgment, and the ALJ entered an
order to show cause. Eight weeks after receiving the
Complaint, Sunset Plaza then entered a notice of appearance
and asked the ALJ permission for an extension to respond to
the Complaint. Without waiting for the ALJ’s decision, Sunset
Plaza filed its Answer and Affirmative Defenses and a reply
brief in support of its motion for an extension of time. HUD
opposed the extension of time, and moved to strike the reply
brief.

       In the case of Holdings, Petitioner filed its Answer and
Request for Hearing simultaneously on July 21, 2021,
approximately one month after HUD issued its Complaint.
Holdings raised issues of subject matter jurisdiction in its
Answer, rejecting its label as an “identity-of-interest” manager.
HUD moved to strike Holdings’ Request for Hearing and
Answer as untimely and moved for default judgment.

           e. ALJ Decisions

        Sunset Plaza was decided first, and the ALJ dismissed
for lack of subject matter jurisdiction. He found that the “plain
language” of 42 U.S.C. § 1437z-1(c)(2)(A) requires that
HUD’s “proposed penalty . . . becomes ‘final and
unappealable’ . . . upon the expiration of the 15-day deadline.”
Sunset Plaza, Pet. App. 127 (quoting 42 U.S.C. § 1437z-
1(c)(2)(A)). In other words, “the penalty becomes a fait
                               8
accompli once the 15-day deadline has elapsed, meaning that
the hearing official’s jurisdiction never attaches because there
is no issue to be decided.” Id. The ALJ acknowledged that
both he and the parties had not behaved as though the penalty
were final after the fifteen-day deadline, as he had issued a
show cause order and the parties had filed other motions after
that time, including HUD’s motion for default judgment. The
ALJ also spent a significant portion of his opinion outlining the
ways in which the regulatory complaint procedure was
“flawed” and in conflict with both the governing statute and the
regulations themselves. Id. at 128–130. Nevertheless, he
ultimately concluded he lacked jurisdiction over Sunset Plaza’s
case because the penalty had already become final by operation
of the statute and dismissed the case.

        Following the decision in Sunset Plaza, the ALJ in
Holdings likewise determined he lacked subject matter
jurisdiction over the case, as the penalty assessed by HUD
against Holdings became final and unappealable upon
expiration of the fifteen-day statutory deadline.

       Sunset Plaza and Holdings appealed to this Court,
which consolidated oral argument for the two Petitioners.

   II. Discussion

         Despite the rather lengthy background, these cases
present the same simple question: does the statute operate to
bar appeal of a civil monetary penalty should a respondent miss
the fifteen-day deadline to request an administrative hearing?
The answer is unequivocally yes. The statute says what it
means and means what it says. See Cuozzo Speed Techs., LLC
v. Lee, 579 U.S. 261, 271 (2016) (“Cuozzo”) (“[Petitioner’s
contention] is not appealable. For one thing, that is what [the
statute] says.”).
                                9

        42 U.S.C. § 1437z-1(c)(2)(A) states that “[i]f a hearing
is not requested before the expiration of the 15-day period
beginning on the date on which the notice of opportunity for
hearing is received, the imposition of a penalty under
subsection (b) shall constitute a final and unappealable
determination.” Id. (emphasis added). Congress’s use of the
word “shall” leaves no room for an ALJ’s discretion. See
Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523
U.S. 26, 35 (1998) (“[T]he mandatory ‘shall’ . . . normally
creates an obligation impervious to judicial discretion.”).

        Contrary to the protestations of Petitioners and the
Sunset Plaza ALJ, the regulations implementing this statute are
not inconsistent. HUD’s complaint process proceeds as
follows: (1) HUD issues a pre-penalty notice warning alleged
Section 8 violators that it is considering monetary penalties
under the statute, 24 C.F.R. § 30.70(a)(1)-(6); (2) HUD issues
a complaint, which it serves on the respondent and files with
its Appeals Office, giving notice that respondent has fifteen
days to request an administrative hearing, id. §§ 30.85(b),
30.90(c); and (3) if fifteen days elapse without a hearing
request, the penalties assessed in the complaint become final
and unappealable by operation of law, 42 U.S.C. § 1437z-
1(c)(2)(A). If respondent does timely request a hearing, then it
also must file an answer with HUD’s Appeals Office within
thirty days of the complaint, and the matter proceeds to a
hearing. 24 C.F.R. § 30.90(b).

        At the risk of being repetitive, again, if respondent does
not request a hearing within fifteen days, as was the case for
both Petitioners here, the penalties assessed against them
become final and unappealable. If a respondent has nothing to
appeal, an ALJ has nothing to review. Likewise, the imposition
of penalties cannot be appealed to this Court, notwithstanding
                                10
the general judicial review provisions cited by Petitioners. See
12 U.S.C. § 1735f-15(e); 42 U.S.C. § 1437z-1(d).

        Our decision is supported by Supreme Court precedent.
In Cuozzo, the Supreme Court rejected petitioner’s request for
judicial review of a decision by the Patent Office. In
interpreting the statute, the Court held petitioner’s claim was
“not appealable” because the statute clearly stated that
“determination by the [Patent Office] whether to institute an
inter partes review under this section shall be final and
nonappealable.” Cuozzo, 579 U.S. at 271 (alterations in
original) (quoting 35 U.S.C. § 314(d)). As the Court dryly
noted, concluding petitioner’s claim was not appealable was
“[f]or one thing . . . what [the statute] says.” Id. Such is true
here. “Final and unappealable” is, for one thing, what the
statute says. 42 U.S.C. § 1437z-1(c)(2)(A).

        Petitioners’ arguments to the contrary strain credulity.
Both claim that because the deadline falls under a subheading
entitled “Final Orders,” a final order from HUD must occur
before operation of the deadline commences. Petitioners argue
that HUD’s issuance of a complaint is simply an invitation to
engage in litigation, not a triggering of the fifteen-day deadline.
Because HUD issued no final order here, they contest, the
fifteen-day period never began.

        Petitioners misunderstand the statutory subheading.
Congress entitled the section “Final Orders” because it
enumerates two examples of how HUD’s penalties become
final. See 42 U.S.C. § 1437z-1(c)(2). The other scenario in
which penalties are finalized, other than a respondent failing to
request an administrative hearing within fifteen days of
receiving the complaint, is if the Secretary declines to review a
determination by HUD within ninety days, making it final. Id.
§ 1437z-1(c)(2)(C). As HUD aptly states, Petitioners’ reading
                               11
of this statutory subheading gets the issue “exactly backwards.”
Sunset Plaza, Resp. Br. 26.

       Petitioners’ remaining arguments prove similarly
unavailing. They each claim that the imposition of steep
financial penalties by operation of a fifteen-day deadline
produces an “exceedingly unjust result.” Sunset Plaza, Pet. 23;
Holdings, Pet. 25. But neither develops any kind of ultra vires,
due process, or other constitutional claim arguing the length of
the deadline is too short or legally unfair. Therefore, no such
argument is before us.

         Petitioners also argue that HUD has never before
considered the operation of the fifteen-day deadline to preclude
further review by an ALJ, and that the regulations pose internal
inconsistencies that make them difficult to follow. To the latter
point, as previously described, the statute and accompanying
regulations clearly prescribe HUD’s process for issuing pre-
penalty notices and complaints. More importantly, they are
absolutely unequivocal about the consequences of missing the
deadline to request an administrative hearing. That HUD never
before treated the deadline as rendering a penalty unreviewable
is of little import, as this case represents the first time an ALJ
was asked to assess the implications of the missed deadline
after which respondents filed an answer. See Sunset Plaza, Pet.
App. 129 n.2.

        Lastly, because we do not rely on the two nonbinding
cases cited by HUD and to which Petitioners object, including
Kronholm v. Fed. Deposit Ins. Corp., 915 F.2d 1171 (8th Cir.
1990) and KPMG Peat Marwick of P.R. v. U.S. Immigr. &
Naturalization Serv., 943 F.2d 91 (1st Cir. 1991), we need not
address Petitioners’ remaining arguments on those two cases.
                               12
        Petitioner Holdings finally advances one different
argument from Petitioner Sunset Plaza; namely, that having
neither owned nor, as it contests, managed the subject property,
Holdings is not subject to HUD’s jurisdiction to issue penalties.
To this we respond that Petitioner Holdings was free to make
this argument at an administrative hearing, had it timely
requested one. HUD was well aware that Holdings contested
HUD’s ability to issue penalties against it, as Holdings
answered the pre-penalty notice denying any identity-of-
interest manager relationship with the owners of the violator
property. Despite this, HUD set forth a number of facts in its
Complaint connecting Holdings to the property as an identity-
of-interest manager. See Holdings, Pet. App. 1, 7 (“PF
Holdings served as management agent for the Project during
the time relevant to this Complaint. . . . Chaim Puretz and Aron
Puretz directly or indirectly own and control both Ralston GA
and PF Holdings. . . . Through Chaim Puretz and Aron Puretz,
Ralston GA has the ability to control PF Holdings and has a
direct or indirect ownership interest in PF Holdings.”).
Holdings therefore was on notice that HUD considered it liable
under the statute and, perhaps more importantly, that it had
fifteen days to request a hearing to adjudicate its identity-of-
interest manager dispute. Having missed that crucial deadline,
the imposition of HUD’s penalties against Holdings has
become final and unappealable.

   III. Conclusion

        For the foregoing reasons, we deny both petitions. The
penalties assessed by HUD against Petitioners Sunset Plaza and
Holdings are final and unappealable.