Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 76 C 1604 -- James B. Moran, Judge.
Posner and Flaum, Circuit Judges, and Nichols,*fn* Senior Circuit Judge.
The court is unanimously of the opinion that the decision of District Judge Moran on summary judgment dismissing the petition, ought to be affirmed, and judgment is entered to that effect. The court is also unanimously of the opinion that the decision of the same district judge, denying costs to the prevailing parties, ought to be reversed, and judgment is entered to that effect. The judges of this panel differ somewhat in stating their reasons and, therefore, the views of each judge are separately appended. However, Judge Posner joins in Judge Nichols' opinion except Part IV B, and except for that part, it may therefore be taken as the opinion of the court. Affirmed in No. 83-1604 and reversed in No. 83-2289.
NICHOLS, Senior Circuit Judge
This action was brought in the Northern District of Illinois by eight individuals and a voluntary community organization, against former Housing and Urban Development (HUD) Secretary Carla Hills, various regional and local HUD officials, and Seward Rist, Area Management Broker. Hills is no longer Secretary, but successors have not been formally substituted as parties. Plaintiffs originally sought injunctive relief but now seek money damages only, on account of injury they allege they suffered as nearby residents because defendants allowed certain Chicago residential property acquired by foreclosure to be vacant and a hazard to health and safety of community residents from acquisition, November 1974, through disposal, July 19, 1976, all contrary to Federal law, state law, municipal ordinance, and in Mr. Rist's case, his contract. A motion to dismiss was early denied, but this holding is passed over here because not assigned as error in any party's appeal. The injunctive relief issue has been considered mooted since the disposal of the property shortly after the suit was filed.
On March 8 and 10, 1983, District Judge Moran, having before him cross-motions for summary judgment and a fact stipulation signed by all the parties, granted defendant's motion and dismissed the petition, but denied the defendants their costs. Burroughs v. Hills, 564 F. Supp. 1007 (N.D. Ill. 1983). This appeal followed and there is a cross-appeal relating to costs only.
The stipulated facts represent a somewhat unhappy situation from the Federal taxpayer's point of view. The case is said to be representative of others, and a test. The property in question is a three-story residential structure at 7228 S. Coles Avenue in Chicago. Becoming titleholder by foreclosure, HUD allowed the building to be unoccupied and unguarded, with no watchman on duty, and unfenced. Glass was broken throughout, rats, mice, other rodents and insects were present, foundations were cracked, exterior walls needed tuck pointing, floors were unstable, exterior doors were unsecured, the front steps and back porch were in disrepair, debris was scattered around the building, including rubble, refuse, and lumber material "knocked down by vandals" for whom the building was "a frequent target." Mr. Rist as contract "area management broker" (AMB) inspected seven times and reported the building was secured, the windows boarded, the grass cut, and the lot free of debris. (Evidently the parties mean to imply that Mr. Rist reported falsely.) Mr. Rist had the management of 150-200 government-owned buildings and so far as appears is the only defendant who actually saw this property, but the official defendants had independent means of knowing what was occurring so far as they were aware of plaintiffs' complaints.
HUD originally considered the property had a fair market value of $40,000, less needed repairs at $17,389, making it available at $22,600. Some $285 was spent on maintenance pursuant to Mr. Rist's invoices. HUD paid all the taxes. On July 19, 1976, HUD sold the property to the city for $1, which could, under the applicable program, be done only if the appraised value was under $5,000. Chicago conveyed it to the South Shore Senior Citizens Association, which was stipulated to be proceeding with repairs estimated to cost over $40,000, to be financed by HUD by "block grant." Thus the stipulated facts indicate a precipitate decline in market value during the period of HUD ownership, and we assume that this occurred, with an increase in the repairs needed.
Plaintiffs are eight individuals who resided as tenants within 500 feet of this derelict property, plus the Five Block Club, a voluntary organization formed for the purpose of combating neighborhood blight. The interest of the individual plaintiffs was their concern for the health and safety of themselves and their families. They feared increased crime and drug activity because the building was "a likely hideout for criminals and gangs." They routinely passed the immediate area and saw the building each day. None of them claim to own any real property in the neighborhood.
We note that dwelling within 500 feet of such an offending structure is a fact that confers special status under Illinois law, whether one is owner or tenant. If his property or person are "substantially affected" by an alleged violation, in addition to other remedies, he may sue for injunction, without having to "prove any special or unique damages to himself or his property from the alleged violation." Chapter 24, paragraph 11-13-15 of Illinois Revised Statutes, as amended and in effect when the complaint was filed.
Plaintiff Burroughs first complained to defendant Waner on March 19, 1975, and on April 2 the Five Block Club presented Waner with petitions signed by 107 members, one of whom oddly enough was defendant Rist. At that time they urged immediate sale to a buyer who would rehabilitate. They frequently communicated afterwards to Mr. Rist, but it is stipulated that the official defendants obtained no more information as to the bad condition of the building until the suit was filed. The stipulation describes their duties, from which we are perhaps expected to infer that it was their duty to know. Mr. Rist was a party to a contract with the government by which he was to perform, as to properties to which HUD acquired title, various services including inspection, and taking the necessary steps when repairs were found necessary.
The stipulation closes with a curious provision that if the official defendants are liable, they are liable jointly and severally in the amount of $1,000, and if Rist is liable, it is in the amount of $350. The stipulation is silent, and we are not informed what liability might be asserted in companion cases, if any, should what we here hold suggest such liabilities and what we say treated as stare decisis.
Defendant Hills and the other official defendants are held by plaintiffs to be liable in their official capacities under Federal law. The official defendants, except Hills, are said to be liable in their individual capacities also under Federal law. Mr. Rist is liable under his contract with HUD, and under state and local law, they contend.
The district judge also dealt with what he considered to be pendent jurisdiction claims under the doctrine of United Mine Workers of America v. Gibbs, 383 U.S. 715, 726, 86 S. Ct. 1130, 16 L. Ed. 2d 218 (1966). He pointed out that under the state law relied on, injunctive relief only is provided and he denied damages on that ground. Plaintiffs do not argue any reason why this is erroneous. This, however, does not preclude consideration of local law because in HUD operations, as we will point out, Federal law requires property management in conformity to local law, and thus if a breach of state law occurs, it may ipso facto be a breach of duties under Federal law, and it may not be necessary for the court to rely on pendent jurisdiction. HUD properties do not become like some Federal properties, enclaves exempt from local law. Merrill Tenant Council v. HUD, 638 F.2d 1086 (7th Cir. 1981).
Plaintiffs admit that the National Housing Act, 12 U.S.C. § 1701 and ff is the authority under which the United States insured and then foreclosed the mortgage on the involved property, becoming owner of record, and under which the Federal defendants acted. 12 U.S.C. §§ 1713(k), 1710(g). They also admit that the act contains no language expressly authorizing suits against the Secretary of HUD, or any of her subordinates, to enforce official or personal liability for not executing the granted powers in a proper manner. The theory of the action, in its most basic form therefore, is that the litigation rights asserted herein are among those which can be held to have been implied by the legislative scheme, according to the standards stated in Cort v. Ash, 422 U.S. 66, 95 S. Ct. 2080, 45 L. Ed. 2d 26 (1975) or in the progeny of that case.
Insofar as the suit is against the defendant officers in their official capacities, it is understood by the parties and held by the district judge, that the Secretary may sue and be sued in her official capacity by 12 U.S.C. § 1702 which, as a practical matter, means that the "Mortgage Insurance Fund," or possibly other government funds, may be used to pay judgments and that issues of sovereign immunity and consent to be sued are eliminated. Merrill Tenant Council v. HUD, supra at 1091. But section 1702 does not of its own force create a private cause of action. Shivers v. Landrieu, 218 U.S. App. D.C. 247, 674 F.2d 906, 911 n. 21 (D.C. Cir. 1981).It would seem that so far as official funds are concerned, naming the Secretary as a defendant suffices and other officials need not have been joined.
The pleadings, the stipulations, and pronouncements of counsel make it clear, however, that personal damages recoverable from individual officials are also sought. Originally this is on a tort theory. Evidently this mulcting of personal rather than official finds would make some changes in application of the Cort v. Ash factors: the detriment to other beneficiaries of the program by depletion of available housing funds would be eliminated, but on the other hand, there would be created a disincentive to anyone accepting appointment as a HUD official. These differences between the two kinds of relief sought are surprisingly little discussed by the parties, and the district judge seems to disregard the possibility that the official defendants, except Hills, may be personally liable.
The theory of Mr. Rist's liability is necessarily a little different. He contracted to do things for HUD which, had he done them, would have lessened or eliminated any detriment to the plaintiffs. They presumably sue him as third-party beneficiaries under his contract. Cf. Merrill Tenant Council v. HUD, supra at 1093. This may eliminate Cort v. Ash as controlling authority in his case, but if they are to show that they were intended contract beneficiaries, they must have to make a showing that in effect he was working for them.
The supposed pendent state law claims are really claims that the policy of the Housing Act, 12 U.S.C. § 1701 and ff, requires that when HUD becomes owner of real property located within sovereign states, acting under the General Welfare clause and not under specific Federal constitutional grants of power, HUD must conform to construction codes, etc., of local law just as the previous but now foreclosed mortgagors had to do. The existence of such a policy of law is not in dispute and is illustrated by quotes from HUD documents which need not be detailed. For example, Mr. Rist's contract required him to prepare local tax returns and see that HUD was duly advised of tax liabilities. It is therefore plain that plaintiffs can, as they do, buttress their Federal claims by references to breaches of local law.
Statutes, Regulatory Provisions, and Contract Provisions Relied On
These are placed in Appendix A and are given verbatim as plaintiffs quote them in their brief.
The HUD Handbook is quoted and relied on by plaintiffs as a government regulation. It appears on its face to be intended for internal use for the information and guidance of HUD officials. Such handbooks are usual in the Executive Branch of the United States Government. Uncertainty often exists whether a handbook is meant to be, or is inadvertently made to be, an independent source of legal rights or claims against the United States Government and its officials. See treatment of this problem in Fiorentino v. United States, 221 Ct. Cl. 545, 607 F.2d 963 (Ct. Cl. 1979), cert. denied, 444 U.S. 1083, 100 S. Ct. 1039, 62 L. Ed. 2d 768 (1980). See also Litton Systems, Inc. v. Whirlpool Corp., 728 F.2d 1423, 1439, 221 U.S.P.Q. (BNA) 97 (Fed. Cir. 1984), which says of the Manual of Patent Office Examining Procedure, "the MPEP has no binding force on us, but is entitled to notice so far as it is an official interpretation of statutes or regulations with which it is not in conflict." That is the weight we give the HUD Handbook here. Mr. Rist's contract is on a standard government form for Area Brokers.
In view of the very conspicuous inability of the plaintiffs to cite any statute granting them expressly a right to sue in the Federal courts on account of the kind of inadequate performance by HUD officials described in the stipulation, or by their contractors, it is necessary for them to show that Congress granted them by implication a right to sue under a Cort v. Ash analysis. They undertook to make such a showing to the district court and partly persuaded it. Judge Moran held, to summarize briefly his carefully reasoned analysis, that a breach of duty owed towards these plaintiffs clearly occurred, but to enforce it by money damages in his court would be counterproductive because it would "ultimately come from the pocket of a beneficiary" meaning apparently that payment would deplete the Mortgage Insurance Fund and that it would provide "some balm to some undefined and virtually undefinable class of people for continuing coexistence with substandard housing" but not even necessarily deter future derelictions of duty by HUD officials; the theory here again being that funds would be diverted to give balm to aggrieved individuals rather than being used to bring housing up to standard. Here again there seems to be the unspoken assumption that the HUD defendants are sued only in their official capacities and will not be required to make plaintiffs whole out of their own pockets. The stipulation does not say this and we fail to see where it so implies. It says all named defendants are "obligated" to pay the sums stated. The official group are "jointly and severally obligated." If public funds were to be used, it would have sufficed to say that the Secretary was "obligated." Moreover, the class of possible claimants is not all that open-ended. They were not certified as a class, but they defined themselves as persons dwelling within 500 feet of the offending structure. This is treated as a distinct category under local law, conferring standing to enforce local statutes as we have shown.
Judge Moran's analysis places him in the position of one perceiving the occurrence of a legal wrong yet denying any remedy to the persons wronged. This does not, by itself, establish the he is in error, but it does invite our thoughtful analysis. Though we agree with Judge Moran's result, we deem it necessary to undertake our own Cort v. Ash analysis, adding ourselves to the many other circuit judges who have undertaken this task in line of duty.
To understand Cort v. Ash fully, it is necessary to note that it is a case where the proponent of an implied cause of action lost, by unanimous vote of all the Justices. The four standards explain why that claimant lost. Had he won, their meaning might be different. It is always an error to separate statements by Justices or judges from their context. The questions there stated to be the right ones are summarized. (422 U.S. at 78.).
First, is the plaintiff "one of the class for whose especial benefit the statute was enacted?" [Emphasis in original.]
Second, is there any indication of legislative intent, explicit or implicit, either to create such a remedy or to deny one?
Third, is it consistent with the underlying purposes of the legislative scheme to imply such a remedy?
Finally, is the cause of action one traditionally relegated to state law?
Appellants make a valiant effort to show their entitlement to an implied Federal cause of action under all four Cort v. Ash factors, but it is suggested that this court in Indiana National Corp. v. Rich, 712 F.2d 1180, 1182 (7th Cir. 1983), treated the Cort v. Ash factors as somewhat outmoded. We cited Touche Ross & Co. v. Redington, 442 U.S. 560, 575, 99 S. Ct. 2479, 61 L. Ed. 2d 82 (1979) as establishing that the "factors were not of equal weight, but that the central inquiry, at which the first three factors were all directed, was one of congressional intent." We referred also to Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 18, 100 S. Ct. 242, 62 L. Ed. 2d 146 (1979) which anticipates Judge Moran in allowing implication of some private remedies, but denying enforcement by money damages. We do not think later Supreme Court cases, if they really modify Cort v. Ash, do so in a manner helpful to appellants' case. It cannot be unfair to them to make a full Cort v. Ash analysis, whether or not their failure on the second or intent issue is by itself decisive. We surmise that any dissatisfaction with the factors arises from cases, such as Touche Ross where the intermediate courts have applied them too readily in favor of an implied cause of action.
In applying the first Cort v. Ash factor, we ask if nonproperty owners residing within 500 feet of an offending structure are persons for whose "especial benefit the statute was enacted." Here we need not doubt that Congress and the agency, HUD, all wanted the Housing Act to be administered in such a way that plaintiffs' class and others would not be avoidably harmed. The damage they might suffer from the neighborhood of dilapidated, abandoned, or vandalized government-owned structures was foreseen and so far as possible guarded against. But, bearing in mind that the necessity of foreclosure arises when a primary program has already failed, and that the object of administration between ...