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Bhattacharya v. Chicago Housing Authority

United States District Court, N.D. Illinois, Eastern Division

March 31, 2017

Arun K. Bhattacharya, individually and on behalf of all others similarly situated, Plaintiff,
The Chicago Housing Authority, a municipal corporation, Ben Carson, [1]Secretary of United States Department of Housing and Urban Development, and United States Department of Housing and Urban Development, Defendants.


          Honorable Thomas M. Durkin United States District Judge

         Plaintiff Arun Bhattacharya, a citizen of Cook County, Illinois residing in subsidized housing alleges that the Chicago Housing Authority (“CHA”) and the Secretary of the United States Department of Housing and Development (“HUD”) and HUD (collectively, “HUD”), charged him and other tenants excessive rents in violation of the rental payment provision of the United States Housing Act, 42 U.S.C. § 1437a, known as the Brooke Amendment (Count I). Plaintiff asserts in the alternative against HUD an identical claim pursuant to the Administrative Procedures Act (“APA”), 5 U.S.C. § 701, et seq. (Count II), and also asserts substantive due process claims under the Fifth and Fourteenth Amendments against both CHA (Count IV) and HUD (Count III) pursuant to 42 U.S.C. § 1983. This Court has subject-matter jurisdiction pursuant to 28 U.S.C. § 1331. The defendants move separately to dismiss. HUD moves under Federal Rule of Civil Procedure 12(b)(1) on the basis that plaintiff lacks standing. Both defendants move under Rule 12(b)(6), arguing that Plaintiff has not alleged any plausible claim for relief. Finally, the CHA moves to dismiss the class claims. For the reasons set forth below, the motions to dismiss counts I, II and IV are denied, the motion to dismiss Count III is granted in part, and the motion to dismiss the class claims is granted in part.


         On or about September 3, 2011, Plaintiff was admitted to the CHA's housing assistance program. R. 26 (Class Compl.) ¶ 25. As part of the program, Plaintiff signed a Lease Agreement with the CHA, R. 26-1, pursuant to which he agreed to pay income-based rent every month, with the amount of his income, and thus his rent, subject to periodic reevaluation. R. 26 ¶ 26; R. 26-1 at 28. The CHA's “Admissions and Continued Occupancy Policy, ” incorporated by reference into the Lease Agreement, stated that to determine plaintiff's income and rent, the CHA would apply “the definition of annual income provided by HUD.” R. 26-2 (Admissions and Continued Occupancy Policy) at 62; R. 26-1 at 3.

         The Brooke Amendment caps rents for low-income families at the highest of the following amounts:

(A) 30 per centum of the family's monthly adjusted income;
(B) 10 per centum of the family's monthly income; or
(C) if the family is receiving payments for welfare assistance from a public agency and a part of such payments, adjusted in accordance with the family's actual housing costs, is specifically designated by such agency to meet the family's housing costs, the portion of such payments which is so designated.

42 U.S.C.A. § 1437a. To support the administration of this statute, HUD promulgated regulations regarding what types of income and assets public housing officials should include (and exclude) to determine participating families' annual income. 24 C.F.R. § 5.609. Among the amounts to be included in the calculation are “interest, dividends, and other net income of any kind from real or personal property.” § 5.609(b)(3). For families with assets exceeding $5, 000, this amount is to be calculated as “the greater of the actual income derived from all net family assets or a percentage of the value of such assets based on the current passbook savings rate, as determined by HUD.” Id. (the “imputed interest regulation”).

         In July 2013, Plaintiff had a total of $11, 952 deposited in his bank checking and savings accounts. R. 26 ¶ 28. At that time, HUD and the CHA applied a passbook savings rate of .51%, though the weekly national interest rate for accounts like Plaintiff's was .06% as reported by the FDIC, and Plaintiff's actual rate of return on his bank accounts was lower still at .01%. Id. ¶ 29. Applying the passbook savings rate of .51% to the amount in Plaintiff's bank accounts, the CHA added $61.00 to its calculation of Plaintiff's total annual income, though the amount of interest that actually accrued on the accounts was only 14 cents. Id. ¶¶ 30-31. Based on the imputed income, the CHA increased Plaintiff's monthly rent from $246 to $248.

         Plaintiff alleges that “[t]his methodology adopted by HUD and used by the CHA resulted in charging plaintiff [and others similarly situated] a monthly rent . . . in excess of the rent ceiling, in violation of [the Brooke Amendment].” Id. ¶ 32. Though argued with greater nuance, the essence of the defendants' arguments for dismissal is that even if rents charged to Plaintiff and those he seeks to represent exceeded the rent ceiling imposed by the Brooke Amendment, neither agency can be held responsible for the violation. Their arguments are examined further below.


         I. Standing

         A motion to dismiss pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure challenges the Court's subject-matter jurisdiction. See Fed. R. Civ. P. 12(b)(1). “The standard of review for a Rule 12(b)(1) motion to dismiss depends on the purpose of the motion.” Bolden v. Wells Fargo Bank, N.A., 2014 WL 6461690, at *2 (N.D. Ill. Nov. 18, 2014) (citing Apex Digital, Inc. v. Sears, Roebuck & Co., 572 F.3d 440, 443-44 (7th Cir. 2009)). “If a defendant challenges the sufficiency of the allegations regarding subject matter jurisdiction (a facial challenge), the Court must accept all well-pleaded factual allegations as true and draw all reasonable inferences in the plaintiffs favor.” Bolden, 2014 WL 6461690, at *2 (citing United Phosphorus, Ltd. v. Angus Chem. Co., 322 F.3d 942, 946 (7th Cir. 2003)). A factual challenge to the court's subject matter jurisdiction, on the other hand, is based on the assertion that “the complaint is formally sufficient but . . . there is in fact no subject matter jurisdiction.” United Phosphorus, 322 F.3d at 946 (emphasis in original). When considering a factual challenge to the court's jurisdiction, “[t]he district court may properly look beyond the jurisdictional allegations of the complaint and view whatever evidence has been submitted on the issue to determine whether in fact subject matter jurisdiction exists.” Evers v. Astrue, 536 F.3d 651, 656-57 (7th Cir. 2008). “[T]he party asserting a right to a federal forum has the burden of proof.” Craig v. Ontario Corp., 543 F.3d 872, 876 (7th Cir. 2008).

         HUD makes a factual challenge to the Court's jurisdiction, arguing that despite what has been pled, Plaintiff does not have standing as to claims asserted against it. R. 42 at 6-8. To establish Article III standing, “a plaintiff must show (1) it has suffered an ‘injury in fact' that is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical; (2) the injury is fairly traceable to the challenged action of the defendant; and (3) it is likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.” Silha v. ACT, Inc., 807 F.3d 169, 173 (7th Cir. 2015) (citing Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 180-181 (2000)). HUD argues that Plaintiff cannot carry his burden as to the second element[2]-causation-because “the federal defendants had no involvement whatsoever in the decision [to set the passbook savings rate for Plaintiff at .51].” R. 54 at 2; R. 42 at 6.

         To support this position, HUD directs the Court to Notice PIH 2012-29, issued by HUD on June 21, 2012 to the “[s]pecial attention” of public housing agencies (“PHAs”) like the CHA. R. 42-1 at 5-6. HUD's purpose in issuing PIH 2012-29 was to “clarif[y] program policy related to the passbook savings rate used to determine annual income from net family assets” in order to “minimize[] the administrative burden on . . . PHAs in conducting a survey of local banks, by relying on a rate that is publicly available and based upon recent market data.” Id. at 5. PIH 2012-29 permits PHAs to “establish [their] own passbook rate, ” provided the rate is “within 75 basis points (plus or minus .75 percent) of the Savings National Rate in effect at the time.” Id. at 6. According to HUD, the authority delegated to PHAs by PIH 2012-29 “irrefutabl[y]” indicates that “the CHA set the passbook savings rate for its tenants, including [Plaintiff], when imputing income” and that “HUD had no involvement in the CHA's decision.” R. 42 at 6-7 (emphasis in original). The Court is not persuaded.

         Even if PIH 2012-29 conferred some measure of independence upon the CHA to set the passbook savings rate for its tenants, it did not simultaneously absolve HUD of the obligation to ensure that the CHA complied with the Brooke Amendment. In fact, to the extent PIH 2012-29 authorized the CHA to reduce its administrative burden by forgoing a survey of local banks to determine an appropriate passbook savings rate for its tenants, and to the extent it permitted the CHA to establish a rate many multiples above the Savings National Rate, HUD condoned and authorized the alleged miscalculations at issue. Far from proving that HUD played no role in Plaintiff's injury, PIH 2012-19 supports Plaintiff's assertion that the injury is fairly traceable to HUD. Plaintiff therefore has constitutional standing and HUD is properly subject to the jurisdiction of this Court.[3]

         III. Sufficiency of the Complaint

         A Rule 12(b)(6) motion challenges the sufficiency of the complaint. See, e.g., Ha linan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). A complaint must provide “a short and plain statement of the claim showing that the pleader is entitled to relief, ” Fed.R.Civ.P. 8(a)(2), sufficient to provide defendant with “fair notice” of the claim and the basis for it. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). This standard “demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While “detailed factual allegations” are not required, “labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555. The complaint must “contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). “‘A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'” Mann v. Vogel, 707 F.3d 872, 877 (7th Cir. 2013) (quoting Iqbal, 556 U.S. at 678). In applying this standard, the Court accepts all well-pleaded facts as true and draws all reasonable inferences in favor of the non-moving party. Mann, 707 F.3d at 877.

         A. Brooke Amendment

         Plaintiff seeks to hold both HUD and the CHA liable for improperly calculating Plaintiff's annual income in a manner that caused him (and others) to be charged rent in excess of the ceiling codified in the Brooke Amendment. R. 26 (Count I). The defendants argue that the claim fails because there is no private cause of action under the Brooke Amendment and because Plaintiff has failed to allege facts sufficient to tie either of them to the alleged violation. Both arguments are addressed, and rejected, in turn.

         1. Private ...

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