Diaz v. United States Department of Housing and Urban Development

Background

The case concerned Harlem River Houses, a public-housing development originally owned and managed by the New York City Housing Authority (NYCHA). The development was funded under Section 9 of the Housing Act of 1937. NYCHA planned to convert it under the federal Rental Assistance Demonstration (RAD) program, implemented there as Permanent Affordability Commitment Together (PACT). Under the conversion, the development would receive Section 8 funding and be privately developed and managed. Harlem River Preservation L.L.C. (HRP) was created as the RAD/PACT developer, and C+C Apartment Management L.L.C. was to manage the property.

The plaintiffs alleged that representatives of C+C and HRP pressured tenants to sign new leases and that the new arrangements would reduce or change protections available under the Section 9 public-housing program. They also objected to planned repairs, tenant relocations, and a process called “rightsizing,” which would reassess whether apartments matched household size. The plaintiffs had complained to the Department of Housing and Urban Development (HUD), which told them it would investigate alleged program violations and take appropriate action if it found noncompliance.

Claims and requested relief

The plaintiffs’ two causes of action alleged that HUD’s approval of the conversion was arbitrary, capricious, and unlawful. One claim relied on NYCHA’s alleged “Troubled” status, its alleged failure to make substantial progress under a consent agreement, and its alleged failure to complete a required detailed physical inspection. The other claim alleged that C+C, a private, for-profit entity, would become the long-term landlord and that NYCHA or HRP would retain little or no genuine interest in the property.

The plaintiffs sought preliminary and permanent injunctions reversing HUD’s approval, a declaration that NYCHA was ineligible to participate in the RAD process, and a declaration that HRP was ineligible to own a RAD property.

Motions and legal standard

NYCHA, HUD, C+C, and HRP moved to dismiss under Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure. Rule 12(b)(1) concerns the court’s subject-matter jurisdiction—the court’s legal authority to hear a case. HUD argued that the plaintiffs lacked Article III standing, the constitutional requirement that a plaintiff show an actual injury, a connection between that injury and the challenged conduct, and a likelihood that a favorable court decision would fix the injury.

The court stated that it could resolve the motion based on redressability, meaning whether the requested court relief could remedy the alleged injury. It therefore did not decide whether the plaintiffs had adequately alleged an injury in fact.

Court’s analysis

The court found that the RAD conversion had already been completed through numerous transactions. These included a ground lease; a corporate structure allocating investment, risk, and control; approximately $63 million in investment by Chase Community Investments, LLC; more than $209 million in mortgages, loans, and other debt; and a management contract with C+C. The original declarations of trust had also been released, and the project had acquired numerous financial and property encumbrances.

The court concluded that the requested relief—reversing the approval and effectively returning Harlem River Houses to the Section 9 program—could not likely be accomplished through a favorable decision. The court relied on decisions explaining that courts cannot undo completed transactions involving commingled assets and substantial structural changes. It also noted HUD’s position that returning the property to Section 9 would require additional approvals and could reduce annual subsidies by nearly $6 million, potentially making the project insolvent and exposing it to foreclosure. The court agreed with HUD’s analysis.

The plaintiffs argued that effective relief could still be available and relied on a case involving an escrow of funds. The court rejected that comparison, explaining that the plaintiffs had not sought a preliminary injunction before the conversion closed and that their requested relief would require rescinding numerous completed financial and property transactions, rather than ordering funds to be held.

The court also rejected the plaintiffs’ argument that its ruling would make RAD approvals impossible to challenge. The court stated that the plaintiffs knew of the planned conversion roughly eight months before it closed and could have sued and sought a preliminary injunction or a temporary stay under Section 705 of the Administrative Procedure Act before the conversion was completed.

Disposition

The court held that the plaintiffs failed to establish that their alleged injuries were likely to be redressed by a favorable judicial decision. It therefore held that they lacked standing, dismissed the amended complaint for lack of subject-matter jurisdiction, granted the defendants’ motions to dismiss, and ordered the Clerk to close the case and any open motions. Judge Loretta A. Preska did not decide the plaintiffs’ alleged injury in fact or the merits of their challenges to the RAD conversion.