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Greer v. Ill. Housing Dev. Authority

OPINION FILED NOVEMBER 6, 1986.

KATHLEEN GREER ET AL., PLAINTIFFS-APPELLANTS,

v.

THE ILLINOIS HOUSING DEVELOPMENT AUTHORITY, DEFENDANTS-APPELLEES.



Appeal from the Circuit Court of Cook County; the Hon. Richard L. Curry, Judge, presiding.

JUSTICE MCMORROW DELIVERED THE OPINION OF THE COURT:

Rehearing denied January 6, 1987.

Plaintiffs, residents of the Kenwood neighborhood in the city of Chicago (the neighbors), brought suit against the Illinois Housing Development Authority (IHDA) and the owners (the developers) of a proposed rehabilitation development project in Kenwood (the proposed development) for which IHDA approved assisted mortgage financing. The trial court entered judgment on the pleadings in favor of IHDA with respect to the neighbors challenge of IHDA's agreement to fund the proposed development. The trial court found that the Chicago zoning ordinance did not preclude the type of rehabilitation planned by the developers, and dismissed, for failure to state a claim, the neighbors' action against the developers with regard to an alleged zoning violation. Following an evidentiary hearing, the trial court entered judgment for the developers on the premise that the development would not violate the Chicago building code or the Chicago rehabilitation code. The neighbors appeal.

There are essentially five questions presented for our review: (1) whether the actions of IHDA at issue here are placed beyond the scope of judicial review by virtue of certain language of the Illinois Housing Development Act (the IHDA Act) (Ill. Rev. Stat. 1985, ch. 67 1/2, par. 301 et seq.); (2) whether the neighbors have standing to seek judicial review of IHDA's approval of assisted mortgage financing for the proposed development; (3) whether the parties' pleadings established as a matter of law that IHDA's decision to provide assisted mortgage financing for the development was proper in that IHDA had no "statutory obligation of economic integration" with respect to the proposed development and in that IHDA reached its decision to provide financing based upon its own independent consideration of all pertinent factors in light of its having no "statutory obligation of economic integration"; (4) whether the neighbor's complaint stated a claim that the development violated the Chicago zoning ordinance; and (5) whether evidence heard by the trial court established that the developers' rehabilitation of the proposed development would not violate the Chicago building and rehabilitation codes.

On appeal the court's resolution of these complex questions has been greatly facilitated by the cogency and thoroughness of thought and analysis displayed by the learned trial court judge and the parties' able counsel. For the reasons set forth more fully below, we conclude that the IHDA Act does not place the actions of IHDA at issue here beyond the scope of judicial review and that the neighbors have standing to seek judicial review of IHDA's financing of the proposed development.

With regard to the neighbors' argument that the IHDA Act imposes upon IHDA a "statutory obligation of economic integration," we determine that judgment on the pleadings was erroneously entered. Our review of the record indicates that the neighbors' argument, IHDA's response, and, as a result, the trial court's determination, do not clearly distinguish between two possible conceptions of IHDA's alleged "statutory obligation of economic integration." IHDA's "statutory obligation" as alleged in the neighbors' complaint may be interpreted as either an obligation to actively promote economic integration or heterogeneity or an obligation to avoid economic segregation or homogeneity. In view of the fact that the parties' arguments and the trial court's order can be interpreted as having relied upon either, or both, of these conceptions of IHDA's alleged "statutory obligation of economic integration," we consider whether judgment on the pleadings in favor of IHDA was properly entered either on the basis that IHDA has no duty to actively promote economic integration or on the basis that IHDA has no duty to avoid economic homogeneity.

We conclude that IHDA has no statutory duty under the IHDA Act to affirmatively promote economic integration in the projects which it agrees to finance. Our review of the Act leads us to conclude that IHDA has, instead, a statutory obligation to refrain from promoting economic homogeneity in the developments for which it provides assisted mortgage financing. We further determine that the parties' pleadings dispute material facts and the reasonable inferences to be drawn therefrom regarding whether IHDA violated its statutory duty to refrain from promoting economic homogeneity among the tenant composition in the proposed development at issue here and whether IHDA failed to exercise its discretionary authority to finance projects that avoid economic homogeneity. As a result, we reverse the trial court's entry of judgment on the pleadings in favor of IHDA with regard to IHDA's "statutory obligation of economic integration" and remand the matter for further proceedings consistent with the nature of IHDA's statutory obligation as enunciated herein.

In addition, we determine that the neighbors' claim failed to state a cause of action that the rehabilitation of the proposed development intended by the developers would constitute an "addition to or enlargement of" the developments' structures in alleged violation of the Chicago zoning ordinance. We therefore affirm the trial court's dismissal of the neighbors' claim against the developers with respect to an alleged Chicago zoning ordinance violation. We also find that the neighbors' evidence established that the proposed development violates certain provisions of the Chicago building code and the Chicago rehabilitation codes and reverse the cause in this regard and remand for further proceedings.

Plaintiffs are nine residents of the Kenwood neighborhood in the city of Chicago. The developers plan to rehabilitate structures located at 4710 South Woodlawn Avenue (the Woodlawn structure) and 4716-28 South Ellis Avenue (the Ellis structures) in the Kenwood neighborhood. The developers intend to construct a total of 48 units of housing in the Woodlawn and Ellis structures.

Defendants are the legal and beneficial owners of the properties, as well as the beneficiaries of the land trust in which title to the property has been placed. IHDA has agreed to a loan commitment to the developers of approximately $2.3 million to rehabilitate the Woodlawn and Ellis structures.

The neighbors filed their initial complaint against IHDA and the developers on January 23, 1985. As ultimately amended, the complaint pleaded challenges to the actions of IHDA in counts I, IA, and IB: allegations that the proposed development violated the Chicago zoning ordinance in count II and part of count IV; and claims that certain aspects of the intended rehabilitation of the development were prohibited by the Chicago building code in count III and part of count IV. Because the trial court dismissed some of the counts on the pleadings and disposed of others following a hearing, each group will be considered separately.

I. CHALLENGES TO ACTIONS OF IHDA

BACKGROUND

The neighbors claims against IHDA sought declaratory relief and an order of common law certiorari. IHDA answered the allegations of the pertinent counts of the pleading as well as later amendments to these counts. The neighbors also sought injunctive and declaratory relief from IHDA in count IV of their complaint, alleging that IHDA's provision of assisted mortgage financing for the proposed development constituted an unlawful participation by IHDA in the developers' violations of the Chicago zoning ordinance and the Chicago building and rehabilitation codes. Since the sufficiency or merit of the allegations against IHDA in count IV are not at issue between the parties on appeal, we do not consider their substance herein.

• 1 As a preliminary matter, we note that IHDA contends that its motion for judgment on the pleadings pursuant to section 2-615(e) of the Code of Civil Procedure (Ill. Rev. Stat. 1985, ch. 110, par. 2-615(e)) brought into question both the neighbors' complaint and IHDA's answer and exhibits thereto. The neighbors argue that IHDA's answer and attached exhibits are not the proper subject of consideration because the trial court ruled on IHDA's section 2-615(e) motion before the period for the neighbors' reply had expired. (See 87 Ill.2d R. 182(a).) However, the neighbors never objected to the trial court's early ruling at the hearing on IHDA's section 2-615(e) motion. As a result we deem this argument waived on appeal (see Spencer v. Community Hospital (1980), 87 Ill. App.3d 214, 217-18, 408 N.E.2d 981) and conclude that this court's review of the trial court's order properly includes consideration of the pleadings of both the neighbors and IHDA. See Walker v. State Board of Elections (1976), 65 Ill.2d 543, 552-53, 359 N.E.2d 113; Cunningham v. MacNeal Memorial Hospital (1970), 47 Ill.2d 443, 448, 266 N.E.2d 897; Heritage Standard Bank & Trust Co. v. Trustees of Schools (1980), 84 Ill. App.3d 653, 659-60, 405 N.E.2d 1196; Oak Park National Bank v. Peoples Gas Light & Coke Co. (1964), 46 Ill. App.2d 385, 393, 197 N.E.2d 73.

• 2 IHDA further argues that the neighbors' failure to reply to additional matter alleged in IHDA's answer constituted an admission by them of those matters. The record shows that the neighbors were granted leave to amend, and did amend, their complaint after IHDA filed its answer to the pleadings and that the allegations in the amended complaint responded to IHDA's answer. The record also indicates that IHDA's subsequent answer to the amendments consisted of admissions or denials that raised no additional significant matter. As a result we determine that the neighbors' amended complaint met and denied IHDA's answer and that the neighbors' failure to reply did not constitute an admission of the matters set up in IHDA's answers to the neighbors' complaint. See Ill. Rev. Stat. 1985, ch. 110, pars. 2-602, 6-610(b); Nitrin, Inc. v. American Motorists Insurance Co. (1968), 94 Ill. App.2d 197, 207, 236 N.E.2d 737.

Based upon the foregoing, we set forth the pertinent facts surrounding IHDA's decision to provide assisted mortgage financing for the proposed development to the extent that these matters are not substantially in dispute between the parties. The controverted allegations found in the neighbors' complaint and IHDA's answer follow thereafter. Background regarding Federal and Illinois housing assistance programs is provided where necessary to elucidate the relevance of certain factual matter appearing in the parties' pleadings.

IHDA is a statutorily created body politic and corporate. (Ill. Rev. Stat. 1985, ch. 67 1/2, par. 304.) One of its functions is, in essence, to distribute, in housing assistance payment contracts (HAP contracts) with Illinois developers, the section 8 housing assistance funds which it has agreed to receive from the United States Department of Housing and Urban Development (HUD). (See Ill. Rev. Stat. 1985, ch. 67 1/2, pars. 307.11, 310, 312; 42 U.S.C. § 1437f(a) (1985); 24 C.F.R. sec. 813.101 (1985).) IHDA's annual contributions contract with HUD, pursuant to which IHDA approved assisted mortgage financing for the proposed development, was dated January 27, 1984. IHDA's grant to the developers of approximately $2.3 million in financing was based upon IHDA's approval of the developers' proposed tenant selection plan. This tenant selection plan stated that "[a]t least 100% of the units will be made available to persons who qualify under the very low income level of Section 8 [42 U.S.C. § 1437f] for a given area."

The section 8 program is a housing assistance payment program administered by HUD. Section 8 assistance payments are designed "[f]or the purpose of aiding lower-income families in obtaining a decent place to live and of promoting economically mixed housing." (42 U.S.C. § 1437f(a) (1985).) Under the section 8 program, tenants pay no more than 30% of their income towards rent; HUD compensates the developer for the remaining balance needed to generate rentals which HUD has determined to be the "market rate" for the area. See 42 U.S.C. § 1437(a), 1437(c) (1985); 24 C.F.R. sec. 813.107 (1985).

Generally, section 8 funds may be used to subsidize housing for either low income families or very low income families, as those levels are defined in the Code. (See 42 U.S.C. § 1437a(b)(2), 1437f(c)(4), 1437n (1985); see also 24 C.F.R. secs. 813.101, 813.102, 813.105 (1985).) Although the Code originally required that at least 30% of section 8 funds be used for very low income assisted housing (see 42 U.S.C. § 1437f(c)(7) (repealed); 24 C.F.R. sec. 883.704(c)), the section 8 program was modified by Congress in 1981 to require that at least 95% of section 8 funds be allocated to very low income assisted housing. See Pub. L. No. 97-35, sec. 322 et seq., 95 Stat. 354, 400 (Omnibus Budget Reconciliation Act of 1981); 42 U.S.C. § 1437n (1985); 24 C.F.R. sec. 813.105 (1985) (requiring 100% allocation to very low income assisted housing); see also Martinez v. Rhode Island Housing & Mortgage Finance Corp. (1st Cir. 1984), 738 F.2d 21.

In a letter dated February 18, 1983, to HUD, IHDA commented on HUD's (then proposed) regulations implementing the 1981 amendments. IHDA's letter objected to several of the proposals (now 24 C.F.R. secs. 813.013, 813.103 (1985)). As background to its specific remarks, IHDA's letter noted that "[o]ne of the cornerstones of [IHDA's] development activities has been promotion of the concept of mixed-income housing. * * * Many of our developments have only 20% to 30% of all units subsidized. In addition, the Authority has promoted economic integration within the subsidized units by attempting to achieve a balance between low-income and very low-income tenants. * * * Given the Authority's emphasis on mixed-income housing, the Housing and Community Development Amendments of 1981 and the proposed regulations will have a profound effect on the Authority's program activities."

The developers' request for funding from IHDA was submitted in November 1983 and specified that all of the units were intended for section 8 assistance. The developers' proposal as well as the responses thereto in the following referenced letters or memoranda of HUD, other State agencies or officials, and IHDA were exhibits incorporated by reference into IHDA's answer to the neighbors' complaint. Since the authenticity of the exhibits is not disputed, we accept their authenticity for the purposes of analysis upon review.

HUD recommended approval of the project in a memorandum which indicated that there was a need for the units, the development was consistent with the Gautreaux consent decree (which calls for scattered site/subsidized housing) (see Gautreaux v. Pierce (7th Cir. 1982), 690 F.2d 616) and the city of Chicago's housing assistance program, the proposed market-rate rents were compatible with the designated fair market rents for the area, and the proposed development would not cause an undue concentration of assisted housing in the area.

A report of the Northeastern Illinois Planning Commission (see Ill. Rev. Stat. 1985, ch. 85, par. 1101 et seq.), dated August 22, 1984, also advised funding of the proposed development. The report suggested waiver of section 8's guideline of only 20% assisted housing in the development (see 42 U.S.C. § 1437f(c)(4) (1985)) because the "[s]ite is small scale-scattered site proposal (49 units or less)" and because the "[p]roposal will replace substandard housing units in the area." The Commission's report enclosed letters from the department of planning and the department of housing of the office of the mayor of the city of Chicago, stating that the development had been reviewed and that these departments had no objection to its going forward. Other public officials also suggested approval of the project.

IHDA approved the developers' proposed tenant selection plan on November 15, 1984. The plan specified that all of the units would be made available to rental by section 8 "very low income" families.

IHDA internal memoranda also advised financial assistance for the proposed development. One memorandum, dated December 21, 1984, concluded that the "48 units proposed for Kenwood Apartments would have a negligible impact on the community * * *." Another internal memorandum, dated January 18, 1985, determined that the development was not feasible for market-rate rental because "[t]he housing stock of the 4700 blocks of both Ellis and Woodlawn is simply too run-down to attract market-rate tenants. The sites are also too far from the University of Chicago to attract the needed student market * * *. * * * [I]t is highly doubtful that a significant percentage of market-rate units could be rented at these locations with the current rent schedule [proposed in the Developers' application for IHDA funding]."

The Federal Housing Administration (FHA) also reviewed the developers' proposal and agreed to provide a mortgage repayment guarantee. The neighbors argue, and IHDA implicitly concedes, that the FHA performed a market study prior to IHDA's approval. The precise date and substance of FHA's study and approval do not appear in the record. Of some clarification, however, is IHDA's answer to the neighbors' allegations regarding IHDA acceptance of the FHA's study. Specifically, IHDA's answer stated, "IHDA admits that it conducts formal market studies before making a loan commitment on an uninsured mortgage loan; that it conducted a less formal, although wholly adequate, market study with respect to the Proposed Development (as is IHDA's customary practice with all other FHA developments, where the FHA conducts a market analysis); and that the mortgage loan for the Proposed Development is insured by the FHA."

The neighbors instituted their litigation challenging IHDA's provision of assisted mortgage financing for the proposed development on January 23, 1985. It is undisputed that plaintiffs include both black and white individuals and persons of varying economic circumstances. The parties also agree that the Kenwood neighborhood is, similarly, a racially and economically integrated community composed of persons of a variety of racial and economic backgrounds and that census tracts indicate that there is already subsidized housing in the area.

The sites of the Ellis and Woodlawn structures are located on the border between the Kenwood neighborhood and, in the words of the neighbors, a more "ghetto-like" area populated by poor, black persons. The neighbors' complaint alleged that the section 8 income levels in the proposed development will be "even lower than the limits now in effect for persons eligible to reside in public housing projects operated by the Chicago Housing Authority." According to the neighbors, the proposed development will "substantially contribute to the already existing concentration of assisted housing" in the vicinity; "discourage the racially and economically integrated character of the Kenwood neighborhood"; and "severely impair and may totally prevent the development of market-rate, racially and economically integrated housing on the immediately adjacent parcels and throughout the Kenwood neighborhood." They claimed that IHDA failed "at any time to take into consideration [these] facts." The neighbors also alleged that the proposed development would cause a decrease in the values of their homes.

Count I of the neighbor's complaint argued in substance that IHDA was created for the purpose of providing safe and sanitary housing for persons or families of low and moderate income and that these assisted housing developments were statutorily required to be such that they avoided "undue economic homogeneity" in both the structures themselves as well as the overall area in which the structures are located. The neighbors alleged that the proposed development violated the Act's requirement of economic heterogeneity because all of the units would be available for rental by families of "very low income" under section 8 standards. They alleged that IHDA's approval of financing for the proposed development violated IHDA's statutory obligation to promote economic heterogeneity and that rehabilitation and rental of the proposed development as envisioned by IHDA would cause the neighbors severe and irreparable injury. They stated that "[u]nless enjoined * * *, IHDA will violate its statutory obligations and cause severe and irreparable injury to the [neighbors] and the neighborhood in which they reside." They requested "a declaratory judgment finding and determining that IHDA may not proceed with the funding of the Proposed Development because IHDA has failed to comply with its * * * statutory obligations."

In count IA the neighbors' complaint alleged in substance that IHDA had not taken the proper steps of independent review in considering the developers' proposal. Specifically, they alleged that IHDA failed to conduct a market study "to determine whether the development in question complies with the Act's standards, including those intended to generate economic diversity. In the case of the Proposed Development, IHDA abdicated its responsibility to conduct such a study or to make the analysis to determine whether the Proposed Development complies with the economic diversity requirements of the Act." The neighbors averred in essence that IHDA changed its policy of funding mixed-income housing "in order to be eligible for and to receive the benefit of funds made available under the federal Section 8 Program [of HUD]." They claimed that in so doing "IHDA knowingly abdicated its statutory responsibilities under the Act."

The neighbors stated that IHDA was not required to "disregard its Illinois statutory obligations" in order to receive section 8 program benefits. They observed that "[u]nder the Section 8 Program, IHDA is free to use Section 8 funds to support assisted units in developments that are part market-rate and part assisted." They noted that IHDA had developed such projects in the past, including some in the Kenwood neighborhood. They claimed that "[t]hrough such projects IHDA is able to realize the benefits of the Section 8 Program while fulfilling its Illinois statutory duty to promote economic diversity in its developments." They also observed that IHDA failed to request a waiver of HUD's "very low income" requirements, even though IHDA could have requested such a waiver.

The neighbors' complaint concluded that IHDA's actions were "in disregard of its statutory responsibilities under the Act to promote housing for persons of varied economic means," that IHDA had "abdicated and failed to exercise its independent Illinois statutory responsibilities or any discretion vested in it by the Act," and that "IHDA's actions with respect to the Proposed Development are unlawful, inconsistent with its statutory mandate and constitute arbitrary and capricious action." The neighbors requested a declaratory judgment to this effect.

Count IB of the complaint, based upon the pertinent allegations in Counts I and IA, requested the issuance of a common law writ of certiorari. The neighbors alleged that "[a]t no time prior to its approval of the Proposed Development did IHDA give any consideration whatever, or exercise any discretion whatever, with respect to the statutory requirements for economic integration * * *." They claimed that they were entitled to the relief of a common law writ of certiorari "against IHDA because (a) by virtue of IHDA's failure to consider or exercise any discretion with respect to the statutory requirements for economic integration * * *, IHDA failed to follow the minimum procedures required of it under the Act, and (b) IHDA's action in approving the proposed Development was contrary to the manifest weight of the evidence, and was also unlawful in that IHDA failed to even consider evidence relating to the statutory requirements for economic integration."

IHDA's verified answer to the neighbors' complaint was comprised, in substance, of a denial that the funding of the development was not within the scope of IHDA's authority or that IHDA had abdicated its statutory obligations or otherwise abused its discretion. It also included numerous reports, letters, and other documents to indicate that IHDA had performed an informal market study, solicited comments from public officials and organizations regarding the development, and thereby considered the impact of the proposed development.

IHDA's answer interposed six affirmative defenses to the neighbors' action: (1) the neighbors lacked standing; (2) IHDA's decision was not subject to judicial review; (3) the Illinois legislature had not conferred a private right of action upon the neighbors; (4) IHDA's actions were within its statutory authority; (5) the neighbors' complaint failed to state a cause of action against IHDA; and (6) the neighbors' complaint was barred by laches.

IHDA subsequently filed a motion for judgment on the pleadings pursuant to section 2-615(e) of the Code of Civil Procedure (Ill. Rev. Stat. 1985, ch. 110, par. 2-615(e)). Following briefing and oral argument by the parties, the trial court granted IHDA's motion in a written order which provided that IHDA's motion for judgment on the pleadings was granted "for all the reasons stated in the Court's statements on March 6 and March 7, 1985, transcripts of which are attached hereto as Exhibits A and B and incorporated herein by reference." The trial court's stated reason for judgment in favor of IHDA was, in essence, that the neighbors lacked standing to challenge IHDA's decision to provide assisted mortgage financing for the proposed development. The court's remarks, however, touched upon all of the first four affirmative defenses alleged by IHDA in its answer to the neighbors' complaint (i.e., standing, nonreviewability, no private right of action, proper exercise of discretion). The neighbors' timely appeal followed.

OPINION

The instant appeal presents significant and novel questions with respect to the right of neighbors to challenge, and the power of a court to review, the decision of IHDA to provide assisted mortgage financing to a particular housing development. For the reasons stated more fully hereinafter, we conclude as follows:

(1). The Act does not place beyond the scope of judicial review the funding decision of IHDA which the neighbors challenge in their complaint. The language of section 10 of the Act (Ill. Rev. Stat. 1985, ch. 67 1/2, par. 310) to the effect that IHDA shall, in its "sole judgment," determine that the "estimated benefit" of its funding has been properly allocated among the number of assisted units and the rental charges therefor, does not preclude judicial review of IHDA's decision at issue here.

(2). The neighbors have standing to seek judicial review of IHDA's financing of the proposed development, since they allege a legally protectable interest, viz, economic injury resulting from a decrease in the values of their properties. Assuming arguendo that standing under Illinois law requires that a plaintiff be an "intended beneficiary" or within the "zone of interest" of the Act, the Act contemplates that homeowners neighboring a development would be such beneficiaries with respect to the neighbors' claims in the present cause.

(3). The IHDA Act imposes upon IHDA the duty to avoid undue economic homogeneity in the composition of tenants who reside in IHDA-funded projects and in the project's overall effect upon the community in which the development is located. The IHDA Act does not obligate IHDA to affirmatively promote economic integration. To the extent that the neighbors argue that IHDA has an affirmative obligation to actively promote economic integration, we find their analysis incorrect. Nevertheless, we also disagree with IHDA's claim that it is not obligated under the Act to even consider whether the proposed development will avoid undue economic homogeneity with regard to the tenant composition in the development itself as well as in the neighborhood overall. Since the allegations in the parties' pleadings dispute whether IHDA properly exercised its discretionary authority to fund projects that avoid economic homogeneity when IHDA agreed to provide assisted mortgage financing for the proposed development and whether IHDA improperly delegated to HUD or the FHA the discretionary authority placed upon IHDA to determine whether a proposed development avoids economic homogeneity, we reverse the trial court's entry of judgment on the pleadings in favor of IHDA and remand the matter for further proceedings consistent with the views expressed herein.

JUDICIAL REVIEW OF IHDA's DECISION

The comments of the trial court which were incorporated into its final judgment indicate that the court found that the decision of IHDA to provide assisted mortgage financing for the proposed development is not reviewable by a court of law. The court reached the conclusion that IHDA's decision is beyond the scope of judicial review by virtue of certain language in section 10 of the IHDA Act regarding IHDA's "sole judgment" to allocate the estimated benefit of IHDA's financing among the number and rental prices of assisted units in a development. (See Ill. Rev. Stat. 1985, ch. 67 1/2, par. 310.) Because section 10 must be interpreted in the overall ...


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