Rehearing and Rehearing En Banc Denied October 26, 1972.
LAY, Circuit Judge.
At issue is the authority of the Department of Housing and Urban Development to promulgate Regulations RHM 7465.8 and RHM 7465.9 (hereinafter referred to as Circulars 8 and 9), under the United States Housing Act of 1937, as amended, 42 U.S.C. §§ 1401-1436. The district court enjoined the implementation of the regulations holding that (1) they were issued in violation of the Administrative Procedure Act, 5 U. S.C. § 553(b), requiring publication of general notice of the proposed rules in the Federal Register and (2) they were invalid under 42 U.S.C. § 1401, the so-called "local autonomy amendment" of the Housing Act. 54 F.R.D. 402 (D. Neb.1972). We find this holding to be error and vacate the district court's order.
On February 22, 1971, HUD issued Circulars RHM 7465.8 and RHM 7465.9 (Circulars 8 and 9) pursuant to its apparent authority under the United States Housing Act, 42 U.S.C. § 1401 et seq.
Ten local housing authorities across the country later joined by fourteen others,
HUD answered and counterclaimed seeking declaratory relief that the regulations were valid. Thereafter the NTO, local tenant organizations and tenants of housing projects operated by plaintiffs were permitted to intervene pursuant to Rule 24(b)(2) Fed.R.Civ.P. The respective parties each sought a summary judgment and a motion for preliminary injunction. The district court ruled in plaintiffs' favor granting the motion for summary judgment declaring the challenged regulations invalid and enjoining their enforcement. HUD and the intervenors filed this appeal.
Under § 10(a) of the United States Housing Act of 1937, 50 Stat. 891, as amended, 42 U.S.C. § 1410(a) (1970), HUD is authorized to enter into an Annual Contributions Contract (ACC) with local housing authorities. Under this contract HUD furnishes a certain amount of money to the local authorities over a period of years. Section 8 of the Housing Act of 1937, 42 U.S.C. § 1408, provides HUD with its general rulemaking power which gives HUD the authority to "make, amend, and rescind such rules and regulations as may be necessary to carry out the provisions of this chapter." Under this rule-making power HUD has issued a Low-Rent Management Manual. The manual "contains requirements that supplement the provisions of the annual contributions contract applicable to project management." Thorpe v. Housing Authority of the City of Durham, 393 U.S. 268, 275, 89 S.Ct. 518, 522, 21 L.Ed.2d 474 (1969).
In essence, Circular 8 requires that the local housing authorities incorporate in their leases that rental payments must be accepted without regard to any other monies owed by the tenant; that eligibility requirements and standards for increasing or decreasing rent must be outlined; that reciprocal duties of both the tenant and landlord must be set forth with respect to using reasonable care in maintaining the premises; that rent shall abate if hazardous defects are not repaired or other accommodations provided within 72 hours following notice to the landlord; that the landlord may inspect the premises only during reasonable hours upon written notice and the tenant may be present at any such inspection; that notices under the lease must be in writing and either delivered personally or by certified mail; that termination of the lease may be only for good cause; and that the tenant must be given the reasons for the eviction at a private conference and permitted the opportunity to reply at a subsequent hearing.
Circular 9 basically requires that a tenant be afforded an administrative hearing before an impartial board or official whenever the lease or the local housing authorities' regulations, policies or practices are alleged to be violated; the tenant must be given notice of the
The declaration of Section 1 of the United States Housing Act of 1937, 50 Stat. 888, 42 U.S.C. § 1401, declares it to be "the policy of the United States to promote the general welfare . . . and to remedy the unsafe and insanitary housing conditions and the acute shortage of decent, safe and sanitary dwellings for families of low income."
Section 2 of the Housing Act of 1949, 63 Stat. 413, 42 U.S.C. § 1441, specifies that all agencies "having powers, functions, or duties with respect to housing . . . exercise their powers, functions, and duties under this or any other law, consistently with the national housing policy declared by this Act and in such manner as will facilitate sustained progress in attaining the national housing objective hereby established . . ."
When the circulars are considered in light of the statutory language, we find it self-evident that their requirements have a "reasonable relationship to the purposes for which HUD's rule-making power was authorized." Thorpe v. Housing Authority of the City of Durham, supra at 281, 89 S.Ct. at 526.
However, the district court held Circulars 8 and 9 invalid on the basis that they violated Section 1 of the Act, which reads in part:
The trial court generally concluded that the circulars contravened congressional policy by placing HUD in the position of dictating day-to-day management procedure. We acknowledge that HUD's promulgation of these rules cannot be interpretive support as to the extension of its own power. Social Security Board v. Nierotko, 327 U.S. 358, 369, 66 S.Ct. 637, 90 L.Ed. 718 (1946); Stark v. Wickard, 321 U.S. 288, 309-310, 64 S.Ct. 559, 88 L.Ed. 733 (1944); United States v. New England Coal and Coke Company, 318 F.2d 138, 143 (1 Cir. 1963); Stark v. Brannan, 82 F.Supp. 614, 618 (D.D.C.1949), aff'd 87 U.S. App.D.C. 388, 185 F.2d 871 (1950), aff'd 342 U.S. 451, 72 S.Ct. 433, 96 L.Ed. 497 (1952). On the other hand, HUD's prior exercise of its rule-making power does give persuasive force as to defining its responsibility in carrying out the objectives of the Act.
We have no difficulty joining other decisions
Both parties have recited legislative history of the amendment at length. The local housing authority cites remarks of Senators Clark and Proxmire, 105 Cong.Rec. 1868-1869 (1959), which emphasize that the amendment to § 1401 was intended to prevent HUD from interfering with the local authorities. On the other hand the National Tenants Organization emphasizes the view of Dr. Wheaton, representing the National Housing Conference, where he stated:
In interpreting Section 1401, we find it significant that (1) there was not a complete transfer of authority to the local housing authorities,
The background history leading up to the promulgation of the circulars clearly reflects a national concern as to the inequities in public housing throughout the nation.
Finding that the circulars are within HUD's statutory rule-making authority, we must still determine whether the circulars are unlawful by reason of HUD's failure to comply with the notice provision of Section 4 of the Administrative Procedure Act (APA), 5 U.S.C. § 553.
The exemptions of matters under Section 553(a)(2) relating to "public benefits," could conceivably include virtually every activity of government. However, since an expansive reading of the exemption clause could easily carve the heart out of the notice provisions of Section 553, it is fairly obvious that Congress did not intend for the exemptions to be interpreted that broadly. The legislative history tends to support this logic. The Senate Judiciary Committee reported on its version (S.7) of the Administrative Procedure Act as follows: "It should be noted . . . that the exceptions apply only `to the extent' that the excepted subjects are directly involved." (Emphasis ours.) S.Rep. 752, 79th Cong., 1st Sess. 13 (1945). Not only were exempted regulations limited to those where the excepted subjects were directly involved, but also the excepted subjects appeared to be limited in their scope to those where the government had a "proprietary" or other unique interest. The specific exemption for "public contracts" seems to have developed from a concern to avoid having the notice section applied to minimum wage determinations of the Department of Labor in connection with public contracts. S.Doc. 248, 79th Cong., 2d Sess. 17-18 (1946). In 1946 the Department of Labor was authorized to issue public contracts under the Davis-Bacon Act (40 U.S.C. § 276a et seq.) and the Walsh-Healey Act (41 U.S.C. §§ 35-45). In Perkins v. Lukens Steel Co., 310 U.S. 113, 129, 60 S.Ct. 869, 84 L.Ed. 1108 (1940), the Court held that the government must be free from vexatious restraints which interfere with the manner in which it may dispatch its own internal affairs. To insure that the notice provisions of the APA would not be used in a similar manner to restrain the government's administration of public contracts, Congress included the exemption. See Reich, Administrative Procedure Act: Analysis of its Requirement as to Rule-Making, 33 A.B.A.J. 315, 317 (1947).
The Annual Contributions Contract represents a governmental "proprietary interest," in that it effectuates the government's stewardship over public housing projects which are purchased with public funds. The Housing Act makes this clear. If any local housing authority fails to adhere to its obligations under the contract, HUD can reduce or terminate the annual contributions payable under such contract
In a somewhat analogous situation, the Federal Housing Administration (FHA) has offered mortgages at very reduced interest rates to industry to encourage the building of low-rent housing. In exchange for the mortgages, the FHA implemented a number of extensive regulations covering the activities of the mortgagor. Among these were regulations controlling and supervising rents. One regulated project, Chenango Court, Inc., applied to FHA for an increase in the rents which was approved accordingly but without any prior notice. In a challenge to the action in Langevin v. Chenango Court, Inc., 447 F.2d 296, 300 (2 Cir. 1971), the court
As earlier observed in Thorpe, HUD's circulars in question directly supplement the Annual Contributions Contract by imposing additional obligations on the parties. 393 U.S. at 275, 89 S.Ct. 518. We hold that the district court erred in not holding as a matter of law that the exemption under 5 U.S.C. § 553(a)(2) was applicable. See Chicago Housing Authority v. Harris, 275 N.E.2d 353 (Ill.1971).
This brings us to the final argument raised on appeal—that the coerced implementation of the circulars by withholding funds violates the due process clause of the Fifth Amendment. On May 7, 1971, HUD promulgated Circular HM 7465.1 Supp. 2 which provided in paragraph 4 that HUD could withhold funds other than guaranteed subsidies in the Annual Contributions Contract against those local housing authorities which failed to implement HUD's model lease and grievance procedures. In the Thorpe case the Supreme Court strongly suggested that such an action might violate the constitutional prohibition of impairment of contracts. U.S.Const. Art. 1, § 10; Lynch v. United States, 292 U.S. 571, 579, 54 S.Ct. 840, 78 L.Ed. 1434 (1934); see Thorpe v. Housing Authority of the City of Durham, 393 U.S. at 279 n. 33, 89 S.Ct. 518. On the record before us HUD has never approved the withholding of any funding pursuant to HM 7465.1 Supp. 2. In fact, the circular itself specifies that withholding of funds is only one possible means of enforcement, with alternative remedies including judicial relief "or such other action as may be authorized and deemed appropriate." HM 7465.1 Supp. 2, ¶ 4 (May 7, 1971). Since there exists no threatened loss of funds for failure to comply with Circulars 8 and 9, the issue of contract impairment at this time is purely hypothetical. In Thorpe, the Court observed, "We do not sit, however, `to decide abstract, hypothetical or contingent questions . . . or to decide any constitutional question in advance of the necessity for its decision.'" 393 U.S. at 284, 89 S.Ct. at 527. Under the circumstances we determine that HUD was within its authorized power to promulgate Circulars 8 and 9 and that any decision as to the constitutionality of using HM 7465.1 Supp. 2 to assure implementation of the circulars would be premature.
Judgments reversed and remanded with directions to enter summary judgments on behalf of the defendants and intervenor parties upholding the validity of the circulars.
Thereafter NAHRO, NTO and HUD conducted a series of meetings with the goal of eventually drafting a model lease agreement and grievance procedure. After each meeting new drafts were prepared by HUD based on the recommendations of the task force and were sent to NTO and NAHRO for comment. However, at no time prior to the issuance of the regulations by HUD did NAHRO circulate to its membership the texts of these drafts. NAHRO did set forth a history of the negotiations in its information service bulletin which was sent to all its members on December 21, 1970. A tentative agreement between the two organizations, NAHRO and NTO, was reached on November 5, 1970. Further proceedings were held to alleviate certain concerns expressed by a NAHRO committee.
In taking into account the above legislative history we adhere to the general principle that committee reports represent the most persuasive indicia of congressional intent. See Zuber v. Allen, 396 U.S. 168, 186, 90 S.Ct. 314, 24 L.Ed.2d 345 (1969); United States v. O'Brian, 391 U.S. 367, 385, 88 S.Ct. 1673, 20 L.Ed.2d 672 (1968); Northern States Power Co. v. State of Minnesota, 447 F.2d 1143, 1152 (8 Cir. 1971), aff'd, 405 U.S. 1035 (1972); see generally, G. Folsom, Legislative History, 33 (1972).
HUD believed the grievance procedure established in Circular 9 was needed to help alleviate the friction and strain in tenant-management relations which would thereby "promote improved housing environment to the advantage of the low-rent public housing program. . . ." (RHM 7465.9) The underlying facts of, for example, the strains between management and tenants which HUD claims have partly justified the development of these circulars must be presumed to exist. Thompson v. Consolidated Gas Utilities Corp., 300 U.S. 55, 69, 57 S.Ct. 364, 81 L.Ed. 510 (1937). Furthermore, whether or not HUD is correct in believing that the circulars will improve tenant-management relations and the public housing environment is not for a court to predict. Our function is not to act as a super-commission. American Trucking Associations, Inc. v. United States, 344 U.S. 298, 308-309, 73 S.Ct. 307, 97 L.Ed. 337 (1953). As the Supreme Court noted in Federal Security Administrator v. Quacker Oats Co., 318 U.S. 218, 227-228, 63 S.Ct. 589, 595, 87 L.Ed. 724 (1943):
Cf. Lewis v. Martin, 397 U.S. 552, 559, 90 S.Ct. 1282, 25 L.Ed.2d 561 (1970); Red Lion Broadcasting Co. v. FCC, 395 U.S. 367, 381, 89 S.Ct. 1794, 23 L.Ed.2d 371 (1969); Zemel v. Rusk, 381 U.S. 1, 11, 85 S.Ct. 1271, 14 L.Ed.2d 179 (1965). In Thorpe v. Housing Authority of the City of Durham, 393 U.S. 268, 281, 89 S.Ct. 518, 525, 21 L.Ed.2d 474 (1969), the Court dispelled any doubts that the HUD regulation at issue was authorized by the statute by saying:
Here HUD seeks to institute new lease provisions which primarily recognize the rights of tenants while at the same time not ignoring the rights of landlords, and which institute new grievance procedures designed to reduce friction and courtroom litigation. These objectives, in turn, are alleged to promote the larger goals of better tenant-management relations and better public housing environments which doubtless conform with the objectives of the Housing Act. It is not unreasonable or arbitrary to expect that the new lease provisions and grievance procedures may bring about these desired goals. See Housing Authority of City of Milwaukee v. Mosby, 192 N.W.2d 913 (Wis.1972).