11-1795-cv
Valentine Props. Assocs. v. HUD

                                  UNITED STATES COURT OF APPEALS
                                      FOR THE SECOND CIRCUIT

                                           SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED
BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1.
WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY
MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE
NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY
OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.


        At a stated Term of the United States Court of Appeals for the Second Circuit, held at the
Daniel Patrick Moynihan United States Courthouse, 500 Pearl Street, in the City of New York,
on the 25th day of October, two thousand twelve.

Present:    PIERRE N. LEVAL,
            ROSEMARY S. POOLER,
            BARRINGTON D. PARKER,
                        Circuit Judges.
_____________________________________________________

VALENTINE PROPERTIES ASSOCIATES, LP, PARK PROPERTIES ASSOCIATES, LP,

                                    Plaintiff-Appellants

                            -v-                                                 11-1795-cv

UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, SHAUN
DONOVAN, IN HIS CAPACITY AS SECRETARY OF THE UNITED STATES
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT,

                        Defendant-Appellees.
_____________________________________________________

Appearing for Appellant:            ALAN D. SINGER, Welby, Brady & Greenblatt, LLP, White
                                    Plains, NY

Appearing for Appellee:             MARA E. TRAGER (Sarah S. Normand, on the brief) for Preet
                                    Bharara, United States Attorney for the Southern District of New
                                    York
       Appeal from the United States District Court for the Southern District of New York
(Sweet, J.).

     ON CONSIDERATION WHEREOF, IT IS HEREBY ORDERED, ADJUDGED,
AND DECREED that the judgment of said District Court be and it hereby is AFFIRMED.

        Plaintiff-Appellants (“Plaintiffs”) appeal from an April 7, 2011 judgment of the district
court (Sweet, J.), which granted Defendant-Appellee United States Department of Housing and
Urban Development’s (“HUD’s”) motion for judgment on the pleadings. We assume the parties’
familiarity with the underlying facts, the procedural history, and the issues presented for review.

        We review a district court’s grant of judgment on the pleadings de novo, “employing the
same . . . standard applicable to dismissals pursuant to Fed. R. Civ. P. 12(b)(6).” Johnson v.
Rowley, 

, 43 (2d Cir. 2009) (internal quotation marks omitted). “[W]e will accept all
factual allegations in the complaint as true and draw all reasonable inferences in [Plaintiffs’]
favor.” Id.

        Plaintiffs challenge HUD regulations that provide standards for “decent, safe, and
sanitary” low-income housing. See 42 U.S.C. § 1437a(b)(1) (defining “low income housing” as
“decent, safe, and sanitary dwellings”). Under Section 8 of the Housing Act of 1937, HUD
provides housing assistance through both “project-based assistance,” where HUD enters into
contracts with property owners to subsidize designated dwellings, and “tenant-based assistance,”
where HUD gives vouchers for tenant-selected dwellings. 42 U.S.C. § 1437f(f)(6)-(7). In 1998,
HUD published prospective new regulations to adopt “uniform physical condition standards”
and ensure that HUD housing is “decent, safe, and sanitary.” 63 Fed. Reg. 35,650 (June 30,
1998). The proposed new inspection regulations applied to project-based assistance but not to
tenant-based assistance. Id. at 35,652. HUD adopted the new regulations after a period of notice
and comment. 63 Fed. Reg. 46,566 (Sept. 1, 1998) See also 24 C.F.R. §§ 5.701-.705 (the new
regulations). During adoption, HUD announced that they would not require “inspections in
accordance with the uniform physical condition standards and procedures until HUD issue[d] the
final version of the inspection software and accompanying guidebook.” 63 Fed. Reg. at 46,567.
In 1999, HUD issued a second proposed rulemaking listing the administrative processes for the
new inspection regulations. 64 Fed. Reg. 66,530 (Nov. 26, 1999). After a period of notice and
comment, HUD finalized the administrative processes regulations and its inspection software
and guidebook. 65 Fed. Reg. 77,230 (Dec. 8, 2000). See also 24 C.F.R. §§ 200.850-.857 (the
new regulations).

        Plaintiffs challenge HUD’s inspection regulations as “arbitrary and capricious.” When
we review an agency’s regulations, we first ask “whether Congress has directly spoken to the
precise question at issue” and “give effect to the unambiguously expressed intent of Congress.”
Chevron, U.S.A., Inc. v. NRDC, 

, 842-43 (1984). “[I]f the statute is silent or
ambiguous with respect to the specific issue, the question for the court is whether the agency’s
answer is based on a permissible construction of the statute.” Id. at 843. “If Congress has
explicitly left a gap for the agency to fill, there is an express delegation of authority to the

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agency to elucidate a specific provision of the statute by regulation. Such legislative regulations
are given controlling weight unless they are arbitrary, capricious, or manifestly contrary to the
statute.” Id. at 843-44. The Chevron framework applies when an agency passes regulations
through notice and comment. United States v. Mead Corp., 

, 223 (2001).

       HUD passed its inspection regulations through notice and comment. See 63 Fed. Reg.
35,650; 63 Fed. Reg. 46,566; 64 Fed. Reg. 66,530; 65 Fed. Reg. 77,230. Accordingly, we
should analyze under the Chevron framework.

        Under Section 8 of the Housing Act, Congress has tasked HUD with developing and
maintaining public low-income housing. Congress defined “low-income housing” as “decent,
safe, and sanitary” dwellings, but it failed to define “decent, safe, and sanitary.” 42 U.S.C. §
1437a(b)(1). Congress, however, has explicitly delegated to HUD the power to “make such
rules and regulations as may be necessary to carry out [HUD’s] functions, powers, and duties.”
42 U.S.C. § 3535(d); see also 42 U.S.C. § 1437l(j)(2) (1998) (specifically giving HUD authority
to promulgate regulations defining “decent, safe, and sanitary” for repealed modernization fund).
Given this express grant of authority, we find that HUD has authority to develop regulations
interpreting “decent, safe, and sanitary.” Because HUD engaged in proper notice-and-comment
rulemaking, we find that HUD’s inspection standards are entitled to Chevron deference.

        Even if regulations are entitled to deference, we may set them aside if they are “arbitrary,
capricious, or manifestly contrary to the statute.” Chevron, 467 U.S. at 844; see also 5 U.S.C. §
706(2)(A). “Normally, an agency rule would be arbitrary and capricious if the agency has relied
on factors which Congress has not intended it to consider, entirely failed to consider an
important aspect of the problem, offered an explanation for its decision that runs counter to the
evidence before the agency, or is so implausible that it could not be ascribed to a difference in
view or the product of agency expertise.” Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto
Ins. Co., 

, 43 (1983). However, we must not “substitute [our] judgment for that of
the agency.” Citizens to Preserve Overton Park, Inc. v. Volpe, 

, 416 (1971),
overruled on other grounds by Califano v. Sanders, 

 (1977).

        Here, HUD promulgated new rules through notice and comment, explaining both the
purpose of the rules and the decision to apply the rules only to project-based housing. See 63
Fed. Reg. 35,650; 63 Fed. Reg. 46,566; 64 Fed. Reg. 66,530; 65 Fed. Reg. 77,230. In their
complaint, Plaintiffs point to nothing to suggest that HUD failed to consider an aspect of the
problem or offered an implausible explanation. The new inspection regulations bear a reasonable
relationship to HUD’s stated goals of maintaining “decent, safe, and sanitary” dwellings.
Therefore, HUD’s regulations are not arbitrary and capricious.

        HUD’s decision to apply their inspection regulations to project-based assistance but not
tenant-based assistance is also entitled to deference. Congress provided that tenant-based
assistance should meet “housing quality standards . . . for safe and habitable housing established
by [HUD].” 42 U.S.C. 1437f(o)(8)(A)-(B). Project-based assistance has no such statutory
directive, but falls only under the general “decent, safe, and sanitary” requirement of all Section

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8 Housing. Given that Congress employed different statutory language for the two categories,
we see no justification for the Plaintiffs’ contention that HUD acted arbitrarily and capriciously
in establishing different standards for the two categories in its regulations. Accordingly, HUD’s
decision to apply its regulations only to project-based assistance is entitled to
Chevron deference.

      We have considered all of Plaintiffs’ other arguments and find them without merit.
Accordingly, the judgment of the district court is AFFIRMED.

                                                     FOR THE COURT:
                                                     Catherine O’Hagan Wolfe, Clerk




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