Fair Housing Justice Center, Inc. v. Goldfarb Properties, Inc.

Background

FHJC challenged an earlier minimum-income policy used by the defendants, who were described as owners of rental buildings in New York City. The earlier policy required prospective renters to have annual income of at least 43 times the total monthly rent, even when a rental subsidy paid some or all of that rent. FHJC alleged that this policy violated the federal Fair Housing Act and the New York City Human Rights Law because it effectively excluded many people receiving rental subsidies, including many people with disabilities.

In January 2019, the defendants adopted a new policy. According to their counterclaim, applicants receiving rental subsidies had to meet the 43-times requirement based only on the portion of the rent they personally had to pay, rather than the total rent. The defendants sought a declaration that this new policy was lawful. FHJC moved to dismiss the counterclaim under Federal Rule of Civil Procedure 12(b)(6), which tests whether a pleading states a legally sufficient claim.

FHJC’s arguments

FHJC argued that the defendants improperly filed the counterclaim without first obtaining the court’s permission. It also argued that the counterclaim was filed late, expanded the case beyond the issues raised by FHJC’s complaint, and would prejudice FHJC. Finally, FHJC argued that the defendants lacked standing under the Fair Housing Act, that the declaratory-judgment claim was not ready for decision, and that the defendants could not seek attorney’s fees under the Fair Housing Act based on the counterclaim.

Timeliness and scope of the counterclaim

Judge Ramos ruled that the counterclaim was properly and timely asserted in response to FHJC’s second amended complaint. The court relied on the Second Circuit’s guidance that a defendant responding to an amended complaint may include a new counterclaim in its amended answer within the applicable response period.

The court recognized that the counterclaim concerned the new policy while FHJC’s complaint mainly challenged the earlier policy. Even so, the court concluded that the counterclaim did not unduly expand the litigation or prejudice FHJC. The court reasoned that minimum-income requirements were central to the case, that FHJC had already conducted discovery concerning the new policy, and that additional discovery about the new policy could be relevant even if it were treated only as a possible remedy. The court also stated that it would allow limited additional fact discovery.

Standing and ripeness

The court agreed with FHJC that the defendants were not “aggrieved persons” entitled to sue under the Fair Housing Act. But the court held that the defendants could seek a declaration under the Declaratory Judgment Act. FHJC did not dispute that the defendants had standing under that statute.

The court also held that the counterclaim was ripe, meaning that there was a sufficiently immediate and real dispute for judicial decision. The parties were already litigating the defendants’ income requirements, and FHJC had questioned the legality of the new policy. The court therefore denied FHJC’s request to dismiss the counterclaim in its entirety.

Attorney’s fees

The court ruled that the defendants could not invoke the Fair Housing Act’s fee-shifting provision merely by prevailing on their Declaratory Judgment Act counterclaim. The court reasoned that the defendants were not “aggrieved persons” under the Fair Housing Act, so their counterclaim was not a civil action under the statutory provision authorizing those fees.

However, the court declined to strike the defendants’ broadly worded request for attorney’s fees and costs. It stated that the defendants might still try to show that FHJC’s action concerning the earlier policy was frivolous, unreasonable, or without foundation. The court also noted its inherent equitable power to award fees in certain circumstances, such as bad faith.

Disposition

The court denied FHJC’s motion to dismiss the defendants’ counterclaim. It did not decide whether the new policy was lawful. It also did not strike the defendants’ fee request at that stage. The Clerk was directed to terminate the motion.