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United States District Court, Northern District of Illinois, E.D

June 4, 1981


The opinion of the court was delivered by: Bua, District Judge.


Before the court is plaintiffs' motion for a preliminary injunction pursuant to Rule 65(a), Fed.R.Civ.P. The plaintiffs seek an order enjoining the Department of Housing and Urban Development and two of its officials from providing housing assistance payments to the owners of the Monterey Apartments on behalf of future tenants, and from providing mortgage insurance on the apartment project. The plaintiffs also seek to enjoin the developers of the Monterey Apartments from continuing rehabilitation work on the apartment buildings, since they allege that such work is proceeding in violation of a City of Chicago ordinance.

Procedural Background

On August 27, 1980, plaintiffs filed a three count complaint against defendants alleging violations of the United States Housing Act of 1937 (as amended by the Housing and Community Development Act of 1974, Pub.L.No. 93-383, 88 Stat. 633, and, in particular by section 201 of the Housing and Community Development Act of 1977, Pub.L.No. 95-128, 91 Stat. 1111, codified in part at 42 U.S.C. § 1437f(c)(1)), section 221(d)(2) of the National Housing Act of 1934, 12 U.S.C. § 1715l(d)(2), Title VIII of the Civil Rights Act of 1968, also known as the Fair Housing Act of 1968, 42 U.S.C. § 3601 et seq., the Housing and Community Development Act of 1974, 42 U.S.C. § 5301 et seq., and the Lake Michigan and Chicago Lakefront Protection Ordinance, CHICAGO, ILL., MUNICIPAL CODE ch 194B (1979).

In essence, plaintiffs' complaint was twofold: (1) the defendant Department of Housing and Urban Development's (HUD) approval of housing assistance payments to the owners of the Monterey Apartments under the section 8 leased housing assistance payments program, 42 U.S.C. § 1437f, see generally Holbrook v. Pitt, 643 F.2d 1261 (7th Cir. 1981), and its provision of mortgage insurance for the Monterey Apartments pursuant to section 221(d)(4), 12 U.S.C. § 1715l(d)(4), was "arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law," 5 U.S.C. § 706(2)(A); and (2) the private defendants violated the Lakefront Protection Ordinance by undertaking the rehabilitation of the Monterey Apartment without first having secured the approval of the Chicago Plan Commission.

On September 8, 1980, plaintiffs moved for a preliminary injunction to enjoin federal assistance to and construction of the Monterey Apartments. They claim that unless a preliminary injunction issues they will suffer irreparable injury in that the concentration of "publicly assisted, low-income, and minority persons in the Uptown area" will increase; racial and minority residential segregation will increase; and "additional strain will be placed on already burdened social services and community resources located in the Uptown area." They also contend that the provision of HUD assistance for the Monterey project will adversely affect the "special environmental, recreational, cultural, historical and aesthetic qualities of the Lake Michigan and Chicago Lakefront Protection District." See Motion for Preliminary Injunction.

On October 6, 1980, plaintiffs sought leave to amend their complaint to add William Duggan, Commissioner of the Department of Inspectional Services, as a defendant and to require him to revoke the building permits and issue a stop work order covering the Monterey Apartments. This issue has been fully briefed by the parties.

On October 17, 1980, private defendants moved to strike and dismiss Count III of the complaint. This issue has been fully briefed by the parties.

On October 23, 1980, private defendants, complaining that plaintiffs' lawsuit was "wholly frivolous and without merit," filed a three count counterclaim against plaintiffs alleging interference with property rights, abuse of process, and tortious, interference with contract, and seeking damages in excess of one million dollars and injunctive relief.

On October 28, 1980, plaintiffs moved to dismiss private defendants' counterclaim.

On October 30, 1980, the federal defendants moved to dismiss plaintiffs' complaint. Federal defendants have filed a memorandum in support of their motion in which private defendants have joined.

On November 21, 1980, plaintiffs were given leave to file an amendment to their preliminary injunction motion to bring into issue the Monterey Apartments' compliance with the court orders in the Gautreaux litigation.

The preliminary injunction hearing began on November 5, 1980 and continued for eleven trial days. At the completion of the plaintiffs' case on November 26, 1980, defendants moved for a directed verdict. The court denied defendants' motion. The taking of evidence was completed on December 2, 1980. The court heard the testimony of twenty witnesses during the evidentiary hearing. Also submitted in evidence were designated portions of a number of depositions and many exhibits.

The Parties

The plaintiffs in this case are the Hutchinson-Hazel-Junior Terrace Association and three of its members. The Association is an unincorporated voluntary membership association whose members own single family residences on R-1 zoned lots on West Hutchinson Street, North Hazel Street, West Junior Terrace and West Buena Avenue in the City of Chicago. All of the members of the Association live within a two block distance from the Monterey. Frank Alschuler resides and owns property at 832 West Junior Terrace, which is approximately 150 feet west of the Monterey Apartments. Morton Weisman resides at 811 West Junior Terrace, which is directly across the street and to the south of the Monterey Apartments. Diane Sokolofski resides at 819 West Junior Terrace, which is also on the south side of the street and two lots west of the Monterey Apartments.

The members of the Association are generally upper middle and upper class families with incomes that are well above the mean and median incomes of Chicago families. Almost all of the members live in large single family homes. The individual plaintiffs valued their homes between $150,000 and $250,000. Out of over sixty families represented by the Association, all of the membership is white with the exception of one black member and one Oriental member. The only member of the Association with a child attending a Chicago Public School is plaintiff Frank Alschuler. His daughter attends Lane Technical High School which is outside of the Uptown community.

The federal defendants are the Department of Housing and Urban Development, an agency of the United States Government responsible for the administration of the rental supplements and mortgage insurance guarantees that have been promised to the private defendants, Elmer Binford and Lawrence B. Simons. Elmer Binford is sued in his capacity as Manager of the Chicago Area Office of HUD. Lawrence B. Simons is sued in his capacity as the federal housing administrator responsible for the administration of the federal mortgage insurance program.

Defendant Monterey Apartments is a California Limited Partnership, with an office at 1011 East Touhy Avenue, Suite 395, Des Plaines, Illinois 60018, and is the record title-holder of the property located at 808 and 812-814 Junior Terrace, Chicago, Illinois, which is within a Private Use Zone of the Lake Michigan and Chicago Lakefront Protection District.

Defendant Ranbir S. Sahni is the general partner and a limited partner of the partnership. He was also the sponsor with respect to the application filed by the owners of the Monterey Apartments for mortgage insurance. Sahni has an office at 1011 East Touhy Avenue, Suite 395, Des Plaines, Illinois, 60018 and is a resident of California. Sahni is also the sole shareholder and president of defendants ADC Mortgage Corporation and Sabina Realty Corporation. Ranbir Sahni has participated in the development of over sixty federally assisted housing developments across the country including four projects in the City of Chicago.

Sabina Realty is a California corporation qualified to do business in Illinois and has an office at 1011 East Touhy Avenue, Suite 395, Des Plaines, Illinois, 60018. Sabina is the Managing Agent of the Monterey development. Sabina Realty has managed other Sahni sponsored developments with general success and has on a number of occasions been requested by HUD to take over developments that were in default in order to bring properties back into a state of financial health and has done so successfully.

Defendant G. Bliudzius Contractors, Inc., an Illinois corporation, is a limited partner of Monterey Apartments and is the contractor for the rehabilitation of the Monterey buildings.

The Property

The property at the center of this litigation consists of two apartment buildings known as the Monterey Apartments. One is a nine-story building located at 808 West Junior Terrace. The other is an adjacent three-story building located at 812-814 West Junior Terrace. The buildings are located at the northwest corner of West Junior Terrace and North Clarendon Avenue. Both buildings are presently vacant and are undergoing substantial rehabilitation. No leases have been executed for the rental of the rehabilitated apartments in these buildings.

The nine-story building, originally constructed in the 1920's is served by one passenger elevator. It contained 141 housing units and was used in the past as an apartment/hotel. The rehabilitation plans of the defendant developers call for its conversion to seventy-nine apartments, forty-four of which will have two bedrooms, and thirty-five of which will have one bedroom. The three-story building contains three, three bedroom apartments.

Several multi-unit, multi-story buildings are adjacent to or within the geographic area encompassed by the Association; however, none of the residents of these multi-family, multi-story properties are members of the Association or have actively expressed opposition to the proposed tenancy of the Monterey Apartments.

In the ten years preceding June 30, 1980, the Monterey buildings were cited for multiple building code violations. A case was pending in the Circuit Court of Cook County against the former owner of the three-flat building for building code violations at the time the Monterey buildings were purchased by defendant Monterey Apartments in 1980. These code violations will be remedied as part of the rehabilitation.

The rehabilitation of the Monterey buildings involves: (1) the gutting and reconstruction of 808 West Junior Terrace according to a new floor plan in order to decrease the density in the building from 141 to 79 units; (2) the rebuilding of all mechanical, plumbing and electrical systems; (3) the installation of an electronic security system; (4) the installation of new appliances, air conditioning, cabinets, trim, and carpeting; (5) the preservation of the architectural character of the nine-story building; and (6) the preservation of limestone carvings, terra cotta, and marble hallway. There will be a recreation room and craft room for the residents in the rehabilitated nine-story building.

        Proposed Occupancy of the Rehabilitated Monterey

All of the tenants of the rehabilitated Monterey buildings will be entitled to receive rent subsidies under Section 8 of the United States Housing Act of 1937, 42 U.S.C. § 1437f(a). Section 8 of the United States Housing Act of 1937 defines a lower-income family qualifying for rental assistance as one whose income does not exceed 80% of the median income in the metropolitan area as adjusted for the size of family. 42 U.S.C. § 1437f(f)(1). The proposed target level for the racial and ethnic integration of the rehabilitated Monterey buildings is: 41 white families, 17 black families, 12 Hispanic families, 7 Oriental families and 4 American Indian families. There is no way of predicting what the future racial occupancy of the Monterey Apartments will actually be.

      Characteristics of the Area Surrounding the Monterey

1. Housing Need in Uptown.

The City of Chicago, and in particular the Uptown Community Area, has a great need for housing. Low-income persons displaced by private investment in the Uptown area are in need of adequate housing. Governmental assistance in terms of subsidized housing is necessary in the Uptown Area with respect to meeting this need for housing. The Department of Housing and Urban Development does not have enough funds to meet the need for housing in the City of Chicago.

2. Location.

The property that is the subject of this lawsuit is located in the Uptown Community Area of the City of Chicago, one of 76 Chicago community areas designated for census purposes. The officially designated Uptown Community Area is the largest community area in the City of Chicago in terms of both population and number of housing units.

The Uptown Community Area is composed of census tracts 301-321. The community area itself is located on the North Side of the City of Chicago, along the shore of Lake Michigan. Its northernmost border is Devon Avenue (6400N) which is approximately one and one half miles south of the Chicago/Evanston border. Uptown's southernmost boundary is Irving Park Road (4000N) which is located approximately four miles north of the City's central business district. The western boundary of Uptown runs north along Clark Street from 1300 E. Irving Park Road to Montrose Avenue (4400N, 1500W), then west along Montrose Avenue to Ravenswood Avenue (1800W) and north again on Ravenswood to Devon.

3. The Relevant Community.

Plaintiff's expert, Elizabeth Warren, Ph.D., published a study in 1979 which divided the Uptown Community Area into the Uptown community in the south and the "Edgewater" community in the north because "attitudinal differences in that area suggest [that Uptown as defined for census purposes] is not a community unit. Even within the 15 Uptown census tracts [and excluding the six northern tracts in Edge-water] upon which this study is based, some people do not consider themselves part of Uptown." Warren, Chicago's Uptown: Public Policy, Neighborhood Decay, and Citizen Action in an Urban Community, p. 4, Plaintiffs' Exhibit 106. Dr. Warren's study then goes on to break down the 15 "Uptown" census tracts into six "traditional [neighborhoods] with names that go back many years. They are not necessarily representative of today's attitudes or internal sense of community. In some cases, indeed, there may be little sense of community, as in the Lake-Front [census] tracts where socio-economic differences are great. Uptowners still speak of these neighborhoods by name, however, so they are included here in groups of census tracts for ready identification." Chicago's Uptown, p. 15. Dr. Warren testified that census tract 321 in which the Monterey is located should not be considered in isolation. She was of the opinion that census tracts 321, 314, 315, 316, 320, 605, 606, 607 and 608 are relevant in attempting to group similar areas together.

The nine-story Monterey Apartment building at 808 West Junior Terrace is located on the 4300 block of North Clarendon Avenue at the corner of West Junior Terrace. North Clarendon Avenue between Irving Park Road (4000N) and Montrose (4400N) is characterized by large single family homes, mid-rise, and high-rise residential buildings of high quality, and nonresidential uses, including two schools and a hospital.

Clarendon Avenue between Irving Park Road (4000N) and Montrose Avenue (4400N) forms the boundary between census tract 321 on the west and census tract 314 on the east. The Monterey Apartments are located in the northeast corner of census tract 321, directly across the street from tract 314. Census tract 314, which borders the Monterey Apartments, is a high income area. Tract 314 is a part of the neighborhood immediately surrounding the Monterey Apartments.

Brenneman School, the local public elementary school, lies in census tract 314, directly across the street from the Monterey Apartments. Brenneman School has a playground for children on the property. There is a second playground directly across the street from the Monterey on Clarendon, and a third on Clarendon, approximately three blocks south of the Monterey Apartments. Approximately one thousand feet east of the Monterey site, in census tract 314, is Lincoln Park, which contains playing fields, jogging and bicycle paths, and beaches.

The plaintiffs conduct their daily activities such as convenience shopping and recreation primarily within the area bounded by Montrose Avenue on the north, Irving Park Road on the south, Broadway to the west, and the Lake on the east. That portion of census tract 321 east of Broadway is generally known as the "Kenmore-Winthrop Corridor." This "corridor" stretches from Foster (5200N) to Irving Park Road along Kenmore and Winthrop Avenues.

The area immediately around the Monterey Apartments is an area where the private market place supports high rental values for apartments ranging from $400 per month and up. In recent years this area surrounding the Monterey has attracted substantial private investment in new construction and rehabilitation of residential rental property, as well as the rehabilitation and condominium conversion of many older apartment structures.

In determining whether completion of the Monterey rehabilitation project will result in an undue concentration of minority residents or lead to a racially segregated housing area, the evidence adduced at the hearing supports a number of ways of defining the relevant area. The deposition testimony of Martin Hauselman, for example, indicates that the Association members themselves have been concerned in the past primarily with an area within two blocks of their Association boundaries. Other plaintiffs feel that their neighborhood is all of Uptown. The conflicting definitions of the "relevant neighborhood" offered by the individual plaintiffs and the plaintiffs' expert, Dr. Elizabeth Warren, for purposes of determining whether an "undue concentration" of assisted persons or minorities exists in the "area" surrounding the Monterey, were based on highly subjective judgments. In many instances the court was left with the firm conviction that boundaries of the relevant area were directly correlated to the witnesses' interest in having this court decide that relevant statistics would show a greater or lesser concentration of poor or minority residents. The point is that the determination of what a neighborhood is, for purposes of determining "undue concentration" of minority residents or assisted persons, is, itself, a highly subjective judgment. That fact necessarily affects this court's determination of whether or not HUD officials abused their discretion in determining that approval of the Monterey project would not result in an undue concentration of assisted persons or minority residents in the area surrounding the project.

This court is reluctant to substitute its judgment for the judgment of HUD officials in determining the "relevant area" that HUD must take into account when it makes a determination that a proposed section 8 housing site is located in an "area" that will avoid undue concentration of minorities or assisted persons. The court is aware of the fact that the district court in King v. Harris, 464 F. Supp. 827 (E.D.N.Y. 1979) did just that, in determining that HUD action similar to the action in this case was arbitrary and capricious. This court does not feel that it is bound to do so on the record made in this case. This court does not know what the record established in King but it is clear that the Second Circuit's decision of September 5, 1980, affirming the district court, relied on the fact that the evidence in that case justified the conclusion of the district court. The district court's opinion in King, strictly read, establishes only that it was arbitrary for HUD officials to consider only the racial and economic mix of the particular census tract in which the project was located. In this case, HUD officials did much more than that. HUD officials considered current available data on the amount of assisted housing available in census tract 321, census tracts contiguous with tract 321, and the Uptown Community Area as a whole. These officials also took into account that the site was located in the "General Public Housing Area" (GPHA) as defined by the injunction in Gautreaux v. CHA, 304 F. Supp. 736, 742 (N.D.Ill. 1969). The GPHA is composed of all census tracts which are not located within one mile of a census tract with a non-white population greater than 30%. In addition, HUD's Area Office officials determined, on the basis of an analysis of market rental prices in the neighborhood, and on the basis of a favorable finding of a loan management specialist, that the area surrounding the Monterey Apartments was not an area containing a high proportion of low-income persons.

4. Concentration of Poor and Minority Residents in the Area.

In July of 1979 when HUD's preliminary processing of the Monterey proposal was taking place, the 1970 census figures were the most reliable available source for determining the ethnic, racial, and economic composition of the immediate neighborhood surrounding the Monterey.

Data relied upon by Dr. Warren during her testimony included 1978 estimates of population and income level for the City of Chicago issued by the National Planning Data Corporation. There is no evidence as to how this data was compiled or of the reliability of the data.

The plaintiffs also introduced evidence of the racial composition of the Chicago Public Schools. There is no evidence that public school racial composition reflects the racial composition of the surrounding community. The plaintiffs also introduced HUD subsidized housing occupancy reports to show that some subsidized housing in the area surrounding the Monterey reflects an increasing percentage of minority occupancy. There is no evidence that HUD occupancy reports accurately reflect the racial composition of the Uptown community or of the neighborhood immediately surrounding the Monterey. Cf. King v. Harris, supra at 835; Lee v. Nyquist, 318 F. Supp. 710, 717 (W.D.N.Y. 1970) (finding correlation between school and residential segregation).

According to 1970 census figures, census tract 314 had a median family income of $14,926 and a mean family income of $18,279. In 1970 in the City of Chicago the median family income was $10,242 and the mean family income was $11,418. Census tract 314 is not a low-income area.

According to 1970 census figures, census tract 321 had a median family income of $7,268 and a mean family income of $8,276. Census tract 321 east of Broadway is far more affluent than the western half, and its residents are economically and socially similar to residents of census tract 314. Census tract 321 east of Broadway is not a low-income area.

According to 1970 census figures, census tract 315 had a median family income of $6,985 and a mean family income of $7,583.

Table I sets out the percentages of total housing units which receive federal subsidies for the census tracts immediately surrounding the Monterey project.


Uptown    321     314    315   316    320  606  607    608

Total Housing
Units as of
1970 (1970
Census)        67,353   5,223   2,831  5,780  2,127  716  609  1,521  2,771

Total Subsidized units as of July 1, 1979
*fn* 6,287 849 18 1,734 321 1 11 285 12

% of Subsidized
units as % of
1970 Total
Housing Units     9.3    16.2      .6     30    15.1   .1   2    17.9    4

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