Appeal from the United States District Court for the Central District of Illinois. No. 06 C 2234-Michael P. McCuskey, Chief Judge.
The opinion of the court was delivered by: Tinder, Circuit Judge.
SUBMITTED SEPTEMBER 13, 2010 -
Before EASTERBROOK, Chief Judge, and POSNER and
Latif Khan is a landlord in Champaign, Illinois, who began renting properties under the Section 8 Housing Choice Voucher Program in 1993 "The parties stipulated to waive oral argument. through the Housing Authority of Champaign County (HACC). Khan's relationship with the HACC began to deteriorate in 2005 when Khan evicted a Section 8 tenant from one of his units and Edward Bland, the executive director of HACC, became aware that Khan had entered into a side lease with the tenant for the basement of the unit. Bland believed the side lease was a violation of Khan's Section 8 Housing Assistance Payment (HAP) contract and a violation of U.S. Department of Housing and Urban Development (HUD) regulations. At a meeting with Khan and his attorney, Bland informed Khan that he was going to terminate all of Khan's existing HAP contracts and debar him from doing business with HACC's Section 8 program in the future because of the violation. Bland refused to consider Khan's explanation of the side lease. A subsequent meeting between Bland and Khan's attorney had the same outcome. At the time, Khan had four HAP contracts; HACC terminated two of those contracts, but allowed two to continue. Khan was later informed by a prospective Section 8 tenant that Pam Presley, HACC Section 8 Coordinator, told her that Khan was an "undesired person," that he was not good to rent from, and that she could not rent from him.
Kahn brought suit against Bland, HACC Section 8 Manager Tosha LeShure, HACC, and Secretary of HUD Alphonso Jackson (who is not a party this appeal) for violation of his substantive and procedural due process rights under the Fourteenth Amendment pursuant to 42 U.S.C. § 1983. He contends that Defendants-Appellees Bland and HACC wrongfully terminated his existing HAP contracts and debarred him from the Section 8 program without due process. Although LeShure is a named party on appeal, Khan has not appealed the district court's ruling dismissing her from the lawsuit.
Khan presented evidence of his claims (some of which are not at issue here) to a jury, and at the close of his case, the appellees moved for judgment as a matter of law pursuant to Rule 50(a) of the Federal Rules of Civil Procedure. The district court granted the appellees' motion, finding that Khan had no property right in the renewal of his HAP contracts or future contracts and at most, had a state law breach of contract claim for the termination of his existing contracts. Khan declined the court's invitation to amend his complaint to assert a breach of contract action. Khan appeals, contending that the district court erred in granting judgment as a matter of law.
We affirm. Khan does not have a property right in his expectancy to enter into new contracts under the Section 8 program. He has not pointed to any provision of the HAP contract, federal law, or state law that would entitle him to continued participation in the program, and the relevant regulations state that owners/landlords are not entitled to continued participation. While he may have property rights in his existing HAP contracts and extensions of those contracts, he was afforded all the process that was due by his available post-deprivation remedy of a state law breach of contract action. Because Khan was not denied a present entitlement, the due process clause does not require a pre-deprivation hearing to interpret the terms of the HAP contracts and incorporated federal regulations.
Further, although Khan argues that he has a liberty interest at stake, he has forfeited this argument by failing to raise it below. Even if we assume that Khan preserved this line of argument and accept his contention that Presley's allegedly defamatory statements were directed by Bland, Khan cannot meet the stigma-plus test set forth in Paul v. Davis, 424 U.S. 693 (1976), because he has not shown an alteration of his legal status-the "plus" prong of the test. In accordance with this court's holding in Medley v. City of Milwaukee, 969 F.2d 312 (7th Cir. 1992), Khan has no liberty interest in participating in the Section 8 program-a government assistance program designed to provide benefits to third party participants.
Finally, Khan cannot make out a substantive due process claim for his property interest in existing con-tracts. A mere breach of contract does not support a substantive due process claim. Khan cannot show that a fundamental right was implicated by the alleged breach, nor can he show that appellees violated some other substantive constitutional right or that state law remedies were inadequate to redress the alleged violation.
Khan asserted seven counts in his complaint; the only counts at issue in this appeal are Counts I (procedural due process claim against Bland), III (substantive due process claim against Bland), and VI (due process claim against the HACC). More specifically, in Count I, Khan alleged that Bland, as executive director of the HACC, deprived him of valuable property rights, i.e., his contracts with the HACC and his expectancy to continue to contract in the future, without due process of law. In Count III, Khan alleged that Bland debarred him from doing business with the HACC and that Bland's actions were done arbitrarily and capriciously, with malice in retaliation against Khan for evicting a tenant who had violated his lease. In Count VI, Khan alleged that Bland was in a position to make and enforce policies on behalf of the HACC and that his actions in terminating Khan's contracts with the HACC without due process were the actions of HACC.
This court reviews de novo the district court's grant of a motion for judgment as a matter of law. Greene v. Potter, 557 F.3d 765, 767 (7th Cir. 2009). Rule 50 authorizes the entry of judgment as a matter of law if "a reasonable jury would not have a legally sufficient evidentiary basis to find for the party on that issue." Fed. R. Civ. P. 50(a)(1). "In other words, the question is simply whether the evidence as a whole, when combined with all reasonable inferences permissibly drawn from that evidence, is sufficient to allow a reasonable jury to find in favor of the plaintiff." Hall v. Forest River, Inc., 536 F.3d 615, 619 (7th Cir. 2008).
A. The Section 8 Housing Choice Voucher Program
Before exploring the details of this case, we begin by discussing some general aspects of the federal housing subsidy program. The Section 8 Housing Choice Voucher Program provides rental assistance to low-income families to enable them to participate in the private rental market. This program is administered by HUD. 42 U.S.C. § 1437f(o); 24 C.F.R. pt. 982. Although funded by the federal government, it is generally administered by state or local government entities known as public housing agencies (PHAs). 24 C.F.R. § 982.1(a). A PHA must comply with HUD regulations and other HUD requirements for the program. 24 C.F.R. § 982.52(a). Federal regulations require PHAs to adopt written administrative plans that establish local policies for administration of the program in accordance with HUD requirements. 24 C.F.R. § 982.54.
The HACC is the local PHA that administers the Section 8 program for Champaign County, Illinois. The HACC Board of Commissioners establishes the policies under which the HACC conducts business. The principal staff member of the HACC is Executive Director Edward Bland. Bland reports to the Board and is responsible for carrying out HACC policies and managing its day-today operations. Bland can draft written policies for HACC, but he must take them before the Board for approval. The HACC's administrative plan and local policies are not part of the record in this case.
Eligibility for the Section 8 housing voucher is determined by income. 24 C.F.R. § 982.201. Qualified partici-pants pay a percentage of their income toward rent and utilities and receive subsidies for the balance of the rental payment.42 U.S.C. § 1437f. The participant's portion of the rent cannot exceed forty percent of his or her monthly adjusted income. 24 C.F.R. § 982.305(a). The subsidized portion of the rent is paid by the PHA to the rental property owner (the "person . . . with the legal right to lease . . . . a unit to a participant" under the pro-gram, 24 C.F.R. § 982.4) pursuant to an HAP contract. Once a PHA determines that a participant is eligible and that there is available space in the program, the PHA issues the participant a voucher and the participant can search for housing. 24 C.F.R. §§ 982.202, 982.302.
If a property owner agrees to lease a unit to a tenant under the program, he must enter into an HAP contract with the PHA. The HAP contract is prescribed by HUD and specifies the maximum monthly rent an owner may charge. 42 U.S.C. § 1437f(c)(1). Before the PHA enters into an HAP contract, the PHA must determine that the cost of the unit is reasonable and meets HUD's prescribed housing quality standards (HQS). 42 U.S.C. § 1437f(o)(8); 24 C.F.R. § 982.305(a); 24 C.F.R. § 982.401. The HAP contract provides that it "shall be interpreted and implemented in accordance with HUD requirements, including the HUD program regulations at 24 Code of Federal Regulations Part 982." HUD-52641, Part B (3/2000), ¶ 16(b).
The Section 8 participant enters into a separate lease with the owner that must meet certain requirements pursuant to 42 U.S.C. § 1437f(o)(7). For example, the lease must include the required tenancy addendum. 24 C.F.R. § 982.305(a). The housing must also be inspected annually to ensure that it continues to meet the HQS. 42 U.S.C. § 1437f(o)(8)(B)-(D). Tenants must also re-certify family income and composition annually to continue in the program. 24 C.F.R. § 982.516.
And now for the details specifically pertinent to this appeal. Khan began participating in the Section 8 program in 1993 through the HACC. Up until 2005 when Khan evicted Andrew Washington, a tenant participating in the Section 8 program, Khan had a seemingly good relationship with the HACC. Khan first began renting to Washington in 2003. The house Khan rented to Washington had a basement that was not part of the subsidized rental unit and could not be rented as living space. Washington asked to rent the basement for storage. Khan testified that he called Nancy Stone-Johnson, an HACC inspector who did the pre-inspection for the unit rented to Washington, and asked if he could rent the basement as a storage unit to Washington under a separate unsubsidized lease. According to Khan, Stone-Johnson said that since the basement was a separate unit and was not part of the subsidized unit, he could rent it as storage. Stone-Johnson testified that she worked for HACC until 2001, but Khan did not rent to Washington until 2003, so she would not have been an employee of HACC at the time. The testimony at trial, however, indicates that she was employed at HACC when Khan contacted her; neither party addressed this inconsistency. In any event, after speaking with Stone-Johnson, we presume as an employee of HACC, Khan entered into a separate unsubsidized lease with Washington for the basement as storage.
Khan then began having problems with Washington as a tenant. He suspected that there were illegal activities going on at the premises and observed that there were inoperable cars and dangerous dogs on the property, smoke detectors and screens that were missing, some windows that were broken, and pests due to uncleanliness. Washington also fell behind on his payment for the storage and apartment leases. Khan sued to evict Washington for late payment of rent and prevailed in December 2005. Around that time, Washington brought the side lease to Bland's attention. Bland called Khan's attorney who brought the eviction action to inform him that Khan was in violation of HUD's rules for entering into a side lease with Washington and that Khan could lose all his Section 8 payments.
A meeting was held between Bland, Khan, and Khan's attorney (a different attorney from the one handling the eviction proceeding) later that month. Bland informed Khan's attorney that he believed Khan was attempting to get more rent than was allowed under the HAP contract and that he did not think the basement was being rented as storage, but instead was used as a way to get around the rent regulations. Bland said that Khan was not the type of person they wanted in the program. Bland informed Khan that he was terminating all of his HAP contracts and that Khan was being debarred from the program. Khan was not given the opportunity to explain his position.
Khan's attorney asked about an appeal process and Bland said, "Well, if he wants to follow that process, I'll have the Inspector General come in and investigate for fraud." Khan similarly testified that Bland never told him he had a right to a hearing or to an appeal and instead said that "[i]f you do not listen to what I have said, if you ever contest it, I will have you prosecuted criminally." Bland told Khan he had the authority to debar Khan, that he had debarred people before, and that Khan would not be the last person he debarred. Bland testified at trial that an owner can appeal Bland's decisions to the Board and stated that the HACC has a grievance process in place. Nothing in the record describes the ...