JOHN W. deGRAVELLES, District Judge.
This matter is before the Court on the Federal Defendants' Motion to Dismiss Amended Complaint, (Doc. 59), filed by the United States Department of Housing and Urban Development ("HUD") and the United States Department of the Treasury ("the Treasury") (collectively, the "Federal Defendants"). Plaintiffs Rowan Court Subdivision 2013 Limited Partnership ("Rowan") and John Does 1-60 (the "John Doe Plaintiffs") (collectively, the "Plaintiffs") oppose the motion. (Doc. 67). The Federal Defendants have also filed a reply in further support of their motion. (Doc. 73). Oral argument is not necessary.
Having carefully considered the law, allegations of Plaintiffs' Amended Complaint, and arguments of the parties, the Federal Defendants' motion is granted, and Plaintiffs' claims against the Federal Defendants are dismissed.
Plaintiffs bring this suit for relief related to the award of low-income housing tax credits and other federal funding available under 26 U.S.C. § 42. Plaintiffs assert claims under (1) the Due Process and Equal Protection clauses of the Fourteenth Amendment; (2) the Due Process clause of the Fifth Amendment; (3) Article 2, Section 1 of the Louisiana Constitution; and (4) Louisiana Civil Code articles 1967, 2315, and 2316. (Doc. 55 at 1). Plaintiffs claim that various defendants improperly evaluated Rowan's application for tax credits and federal funding related to the development of a housing subdivision and improperly awarded tax credits and funds to two other projects. The John Doe Plaintiffs are alleged to be individuals in Ouachita Parish who were adversely affected by these actions, specifically:
Plaintiffs allege that the Federal Defendants oversee and provide funds for the program at issue in this action.
Plaintiffs' claims were first raised in a Complaint filed in December 2015. (Doc. 1). The Federal Defendants moved to dismiss the Complaint, arguing that Plaintiffs lacked Article III standing, Plaintiffs had not established a valid waiver of sovereign immunity, and Plaintiffs' allegations were conclusory and failed to state a claim on which relief could be granted. (Doc. 21).
On August 11, 2016, the Court granted the Federal Defendants' motion to dismiss, ruling that Plaintiffs had failed to demonstrate that the Federal Defendants waived sovereign immunity and had failed to state a claim on which relief could be granted. (Doc. 48 at 9). The Court did not reach the Federal Defendants' arguments concerning standing. (Id.) The Court granted Plaintiffs leave to amend but "strongly caution[ed]" Plaintiffs regarding their obligations under Federal Rule of Civil Procedure ("Rule") 11. (Id.). Specifically, the Court opined that original Complaint's allegations "came close to" being impermissible under Rule 11, which states that an attorney filing a complaint certifies that the complaint's claims are warranted by existing law or a nonfrivolous argument to extend, modify, or reverse existing law or create new law. (See id. at 9, 22).
The operative Amended Complaint was filed in September 2016.
In Rowan Court Subdivision 2013 Limited Partnership v. Louisiana Housing Agency, 2015-1212 (La. App. 1 Cir. 2/24/16); 2016 WL 759121, writ denied, 2016-0591 (La. 5/20/16), 191 So.3d 1067, the Louisiana First Circuit Court of Appeal provided an overview of the low income housing tax credit program at issue in this case. As the First Circuit explained:
Id., 2016 WL 759121 at *1.
Plaintiffs allege that, in 2013, LHC issued a request for proposals to developers to participate in a "competitive 2014 Housing Tax Credit Round, pursuant to HUD and Treasury regulations and consent." (Doc. 55 at 5). LHC developed and implemented "selection criteria" to be used to score all applications in order to rate them pursuant to a QAP. (Id.)
Rowan submitted a proposal seeking tax credits and other funds for its subdivision, and the proposal received a score of 122. (Id.) Rowan objected to the score as "incorrect under the selection criteria used to allocate points to its application" and submitted a "10-Day Challenge Letter," which Plaintiffs maintain was in compliance with the protest procedure outlined in the QAP. (Id. at 6). In November 2013, Rowan was notified that LHC "refused to allocate the additional points that [Rowan] was entitled to[.]" (Id.) Rowan has filed this lawsuit to challenge LHC's "improper denial of the full point value of [Rowan's] application." (Id.) Plaintiffs also challenge LHC's reservation of tax credits for two projects that were allegedly based on incorrect and falsified applications. (Id.). Specifically, Plaintiffs claim that applications for tax credits related to "Sycamore Point" and "Trinity Estates" projects certified that these projects were located in the City of Richwood but were actually located outside of Richwood. (Id. at 7).
With respect to the Federal Defendants, Plaintiffs allege that HUD "failed to enforce its own regulations, which require LHC to reserve tax credits based on the strict point system contained in the HUD[-]approved QAP," which in turn caused Rowan to be denied tax credits it was entitled to. (Id. at 8). Plaintiffs purport to seek "an extension of the existing law" that would permit a private citizen to bring suit in federal court to challenge the action or inaction of a federal agency "when its employees have failed to do the jobs for which they were hired." (Id.). Plaintiffs further allege that applying "requires the applicant [to] agree to abide by the numerous federal statutes enumerated in this application," that federal funds are "in the possession of HUD and awarded by HUD," and that federal tax credits are awarded by HUD after review of an application. (Id. at 9). Plaintiffs contend that "employees and officers of HUD were negligent in their decision to award . . . funds to the Trinity [Estates] and Sycamore Point Projects, as they were falsely represented to be in the Town of Richwood, when they were not." (Id.) Finally, Plaintiffs allege upon information and belief that HUD and the Treasury were negligent and failed to "oversee" that program requirements were followed and federal statutes were complied with in the Trinity Estates and Sycamore Point applications. (Id.)
Plaintiffs claim to seek no damages from the Federal Defendants, but request "a declaratory judgment that the employees of the aforementioned agencies have breached the duty owed to [Plaintiffs] cited hereinafter." (Id. at 4-5). According to the body of the Amended Complaint, the declaratory judgment sought would also state that "LHC's actions in denying [Rowan's] full due point value and reserving tax credits for the Trinity Estates and Sycamore Point projects was in violation of the QAP rules approved by HUD, and illegal under Louisiana Civil Code Article 7." (Id. at 7-8).
Plaintiffs' prayer for relief asks the Court to "declare" that: (1) the credits reserved for the Trinity Estates and Sycamore Point projects violate unspecified QAP "rules;" (2) Rowan is located in Ouachita Parish; (3) the awards to the Trinity Estates and Sycamore Point projects are "absolute nullities and void ab initio" under Louisiana law; and (4) HUD and certain State Defendants "have violated the civil rights of [Plaintiffs] by engaging in actions that violated due process and equal protection under the law." (Id. at 11-12). Plaintiffs further request that the Trinity Estates and Sycamore Point tax credits be reallocated to "other qualifying projects," or, in the alternative, that Rowan receive damages in the amount of the tax credits that would otherwise have been awarded to Rowan. (Id. at 11-12). Plaintiffs in most instances do not specify what relief is sought against each Defendant.
The Federal Defendants move to dismiss the Amended Complaint under Rules 12(b)(1) and 12(b)(6). The Court addresses each standard in turn.
Concerning the standard for Rule 12(b)(1) motions, the Fifth Circuit has explained:
In examining a Rule 12(b)(1) motion, the district court is empowered to consider matters of fact which may be in dispute. Williamson v. Tucker, 645 F.2d 404, 413 (5th Cir. 1981). Ultimately, a motion to dismiss for lack of subject matter jurisdiction should be granted only if it appears certain that the plaintiff cannot prove any set of facts in support of his claim that would entitle plaintiff to relief. Home Builders Ass'n of Miss., Inc. v. City of Madison, Miss., 143 F.3d 1006, 1010 (5th Cir.1998).
Ramming v. United States, 281 F.3d 158, 161 (5th Cir. 2001).
In Johnson v. City of Shelby, Miss., ___ U.S. ___, 135 S.Ct. 346, 190 L. Ed. 2d 309 (2014), the Supreme Court explained that "[f]ederal pleading rules call for a `short and plain statement of the claim showing that the pleader is entitled to relief,' Fed. R. Civ. P. 8(a)(2); they do not countenance dismissal of a complaint for imperfect statement of the legal theory supporting the claim asserted." 135 S.Ct. at 346-47 (citation omitted).
Interpreting Rule 8(a), the Fifth Circuit has explained:
Lormand v. U.S. Unwired, Inc., 565 F.3d 228, 257 (5th Cir. 2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556, 127 S.Ct. 1955, 1965, 167 L. Ed. 2d 929 (2007)).
Applying the above case law, the Western District of Louisiana has stated:
Diamond Servs. Corp. v. Oceanografia, S.A. De C.V., No. 10-00177, 2011 WL 938785, at *3 (W.D. La. Feb. 9, 2011) (citation omitted).
More recently, in Thompson v. City of Waco, Tex., 764 F.3d 500 (5th Cir. 2014), the Fifth Circuit summarized the standard for a Rule 12(b)(6) motion:
Id. at 502-03 (citations and internal quotations omitted).
The Federal Defendants argue principally that the Amended Complaint fails to cure the deficiencies addressed in the Court's prior ruling. (Doc. 59-1 at 6). In the alternative, the Federal Defendants claim that Plaintiffs continue to lack Article III standing. (Id.).
After considering the arguments of the parties, the Court dismisses Plaintiffs' claims against the Federal Defendants. First, the Plaintiffs have failed to demonstrate a waiver of sovereign immunity. Plaintiffs seek to invoke the waiver of sovereign immunity provided by the Administrative Procedure Act, 5 U.S.C. § 500 et seq. ("APA"). However, Plaintiffs' claims constitute an impermissible "programmatic" challenge to the manner in which the low income housing tax credit program was run and will be run in the future. Moreover, Plaintiffs challenge the Federal Defendants' alleged inaction but have not demonstrated that the Federal Defendants failed to perform an action that they were required to perform.
Second, even assuming that any of Plaintiffs' claims were not barred by sovereign immunity, Plaintiffs have again failed to state a claim for which relief can be granted. For this additional reason, the Amended Complaint is dismissed.
Because Plaintiffs wholly failed to cure the deficiencies addressed in the original Complaint, which was already "close to [the Rule 11(b)(2)] line," and it appears that Plaintiffs are either unable or unwilling to allege facts sufficient to survive a motion to dismiss, granting further leave to amend would be futile. The Amended Complaint is therefore dismissed without further leave to amend.
"Whether the United States is entitled to sovereign immunity is a question of law[.]" Alabama-Coushatta Tribe of Tex. v. United States, 757 F.3d 484, 488 (5th Cir. 2014) (quoting Koehler v. United States, 153 F.3d 263, 265 (5th Cir. 1998)). "It is well settled that the United States may not be sued except to the extent that it has consented to suit by statute." Id. (citing Koehler, 153 F.3d at 265). Moreover, "[w]here the United States has not consented to suit or the plaintiff has not met the terms of the statute the court lacks jurisdiction and the action must be dismissed." Id. (citing Koehler, 153 F.3d at 266). A plaintiff bears the burden of showing Congress's unequivocal waiver of sovereign immunity. St. Tammany Parish, ex rel. Davis v. Federal Emergency Management Agency, 556 F.3d 307, 315 (5th Cir. 2009).
Preliminarily, the Amended Complaint does not directly address the immunity of the Federal Defendants or cite any statutes or regulations demonstrating that the United States has waived immunity. On this basis alone, Plaintiffs have failed to meet their burden, and the Amended Complaint should be dismissed.
In their opposition to the Federal Defendants' motion, Plaintiffs argue that the APA provides the appropriate waiver of sovereign immunity. (Doc. 67 at 3-6). Plaintiffs contend that the APA waives immunity for suits for declaratory and injunctive relief and that, for these suits, the waiver extends to any suit, whether brought directly under the APA or not. (Id.) Plaintiffs allege that they challenge HUD's failure to "follow its own regulations when it did not force . . . LHC to recall the tax credits that were awarded in violation of the HUD[-]approved QAP" and do not challenge the "broad methods" HUD uses to reserve tax credits. (Id. at 5-6). The Federal Defendants respond that Plaintiffs appear to seek an "enforcement action" against LHC for the use of allegedly false submissions and that these claims are not justiciable under the APA. (Doc. 73 at 2).
Section 702 of the APA provides in relevant part, "[a]n action in a court of the United States seeking relief other than money damages and stating a claim that an agency . . . failed to act in an official capacity or under color of legal authority shall not be dismissed nor relief therein be denied on the ground that it is against the United States[.]" 5 U.S.C. § 702.
However, as the Court has previously observed, Section 702's waiver of sovereign immunity is limited. (Doc. 48 at 12-13). In Alabama-Coushatta Tribe of Texas, the Fifth Circuit explained:
757 F.3d at 489 (emphasis added).
"Failures to act are sometimes remediable under the APA, but not always." Norton v. S. Utah Wilderness All., 542 U.S. 55, 61, 124 S.Ct. 2373, 2378, 159 L. Ed. 2d 137 (2004). "[F]ailure to act" is "properly understood as a failure to take an agency action — that is, a failure to take one of the agency actions (including their equivalents) earlier defined in § 551(13)."
The Court previously ruled that Plaintiffs had failed to allege a "discrete agency action," but instead made an impermissible "programmatic" challenge to the way the Federal Defendants administer the program at issue in this action. (Doc. 48 at 14). In an apparent attempt to comply with the Court's ruling, the Amended Complaint describes as "discrete federal action[s]" the Federal Defendants' failure to "oversee" that statutes and program requirements were followed in the Trinity Estates and Sycamore Point applications. (Doc. 55 at 9). Plaintiffs' opposition to the instant motion claims that HUD "failed to follow its own regulations when it did not force [LHC] to recall the tax credits that were awarded in violation of the HUD[-]approved QAP." (Doc. 67 at 5).
Notwithstanding Plaintiffs' assertions, Plaintiffs' challenges constitute impermissible "programmatic" challenges. As the Federal Defendants observe, the "day-to-day administration of the federal program, including the actual expenditure of federal funds, is delegated to State and local authorities." Dixson v. United States, 465 U.S. 482, 486, 104 S.Ct. 1172, 1175, 79 L.Ed.2d 458 (1984); see also 24 C.F.R. § 570.480(c) (HUD gives "maximum feasible deference" to state interpretation of statutory and regulatory requirements, provided that these interpretations are not "plainly inconsistent with the Act."). Although Plaintiffs' description of the relief they seek is frequently vague, the scope of the declaratory and injunctive relief sought is broad and appears designed to force the Federal Defendants to modify their supervision of the program at issue so that it complies with Plaintiffs' understanding of what the Constitution requires. Despite Plaintiffs' assertions that they challenge HUD's failure to follow its own regulations in a few specific instances, Plaintiffs devote little space or attention to this challenge. Instead, the general gravamen of the Amended Complaint is a broad, constitutionally-based attack upon the way that HUD administers the program at issue.
Indeed, Plaintiffs' opposition confirms that Plaintiffs seek a declaration that "will prevent the injury caused to Rowan from repeating itself year after year when tax credits are awarded by the LHC." (Doc. 67 at 3). They further claim that the Federal Defendants failed to properly supervise the award of federal funds and credits, particularly by failing protect against "bias or favoritism" by "requiring a disinterested party [to] evaluate any applicants appeal." (Doc. 67 at 2-3). Plaintiffs claim that, had the Federal Defendants "properly supervised" the award of federal funds, harm would not have occurred because "proper procedures and protections would have been in place and followed." (Id. at 3).
Therefore, based upon Plaintiffs' description, this action seeks "wholesale improvement" of a HUD program "by court decree, rather than through Congress or the agency itself where such changes are normally made," and it thus constitutes an impermissible "programmatic" challenge. Alabama-Coushatta Tribe of Tex., 757 F.3d at 490 (quoting Sierra Club v. Peterson, 228 F.3d 559, 566 (5th Cir. 2000) (en banc)). The fact that Plaintiffs have identified some specific agency actions in support of their claims does not alter this conclusion. See id. at 491 ("Even if the Tribe were to name some specific agency actions as examples of the agencies' alleged wrongdoing, it remains that the challenge is directed at the federal agencies' broad policies and practices[.]").
Plaintiffs also assert that they "have clearly alleged facts that show the Federal [D]efendants had a ministerial duty to act and failed to do so." (Doc. 67 at 6). Plaintiffs' assertion appears addressed to the Supreme Court's observation in Norton that "the only agency action that can be compelled under the APA is action legally required. . . . § 706(1) empowers a court only to compel an agency to perform a ministerial or non-discretionary act, or to take action upon a matter, without directing how it shall act." 542 U.S. at 63-64, 124 S. Ct. at 2379 (citations omitted). It is unclear whether Plaintiffs seek to compel the Federal Defendants to take any particular action with respect to the Trinity Estates and Sycamore Point awards. Regardless, the Court disagrees with Plaintiffs' central assertion: Plaintiffs have identified no federal law requiring the Federal Defendants to take any particular action related to their claims. Therefore, if Plaintiffs seek to compel the Federal Defendants to act, their challenge does not arise under the APA such that sovereign immunity is waived.
Plaintiffs bear the burden of demonstrating that sovereign immunity is waived. St. Tammany Parish, ex rel. Davis, 556 F.3d at 315. Plaintiffs have failed to demonstrate that their claims are cognizable under the APA, and they have made no other attempts to meet this burden. Therefore, the Federal Defendants are immune from Plaintiffs' claims, and these claims should be dismissed without prejudice. See Smith v. Booth, 823 F.2d 94, 98 (5th Cir. 1987) (suit against federal entity was barred by sovereign immunity and district court was required to dismiss claims without prejudice for lack of jurisdiction).
The Federal Defendants' motion generally asserts that Plaintiffs have not corrected the deficiencies that led to the dismissal of the initial Complaint. (Doc. 59-1 at 10-12). Plaintiffs' opposition reiterates the allegations of the Amended Complaint and emphasizes that Rule 12(b)(6) is a "notice pleading" standard and motions to dismiss under Rule 12(b)(6) are "disfavored" and should be granted only in "extraordinary circumstances." (Doc. 67 at 6-9).
The Court again agrees with the Federal Defendants. Plaintiffs have failed to state a claim either for due process or equal protection violations.
"Procedural due process guarantees do not protect all imaginable private interests affected by government action but only the liberty and property interests encompassed by the fifth amendment." McCachren v. U.S. Dep't of Agric. Farmers Home Admin., 599 F.2d 655, 656 (5th Cir. 1979); Ridgely v. Federal Emergency Management Agency, 512 F.3d 727, 734 (5th Cir. 2008). As the Court previously observed, several courts have analyzed due process challenges involving the federal tax credits at issue, and these Courts have agreed that neither the federal statute creating the tax credit, 26 U.S.C. § 42, nor the relevant state laws create for developers a constitutional entitlement to unawarded tax credits. (See Doc. 48 at 16-18); DeHarder Inv. Corp. v. Ind. Hous. Fin. Auth., 909 F.Supp. 606 (S.D. Ind. 1995); Barrington Cove Ltd. P'ship v. R.I. Hous. & Mortg. Fin. Corp., 246 F.3d 1 (1st Cir. 2001).
For example, in DeHarder, the district court explained that, to have a constitutionally protected property interest in something, a person must have a "legitimate claim of entitlement to it." 909 F. Supp. at 613 (quoting Bd. of Regents of State Colleges v. Roth, 408 U.S. 564, 577, 92 S.Ct. 2701, 2709, 33 L. Ed. 2d 548 (1972)). DeHarder then explained that Section 42 of the Tax Code did "little more than require states to distribute credits pursuant to a `qualified allocation plan.' . . . `[O]nce the criteria are considered, no particular outcome necessarily follows.'" Id. at 613-14. Similarly, "no particular outcome [was] mandated" under the state law at issue. Id. at 614. The court concluded that property interests protected by the Constitution depend on "explicitly mandatory language, in connection with the establishment of specified substantive predicates to limit discretion," and "the tax credit allocation scheme envisioned by § 42 and the Indiana Plan appeals to discretion." Id. (citations omitted). Accordingly, the developers whose tax credit applications had been denied had no protected property interest. Id.
Similarly, in Barrington, the First Circuit Court of Appeals affirmed the granting of a motion to dismiss a developer's due process claim. As in DeHarder, the Court found that a plaintiff making a due process claim had to demonstrate a "`legitimate claim of entitlement' to the supplemental tax credits," and the plaintiff failed to do so; "[s]ince the Regulations ultimately vest in [the state agency] the absolute discretion to determine whether federal income tax credits are awarded to an applicant, [plaintiff] can lay claim to no cognizable `property interest' in the `promised' federal income tax credits." 246 F.3d at 5-6 (emphasis in original). Relying on DeHarder, the Barrington court stated that "the federal statute simply mandates that states promulgate their own allocation plans regarding these federal income tax credits, without identifying any particular condition under which the states are obligated to allocate them." Id. at 6. Due to the discretion given to the state agency in awarding credits, the plaintiff "never acquired a `legitimate claim of entitlement' to supplemental federal income tax credits." Id.
Thus, DeHarder and Barrington demonstrate that developers like Rowan have no protected interest in low income housing tax credits. If developers like Rowan lack such an interest, then the more attenuated claims made on behalf of the John Doe Plaintiffs must also fail. For this alternative reason, Plaintiffs' due process claims are dismissed for failure to state a claim upon which relief can be granted.
In B.A. v. Mississippi High Sch. Activities Association, Inc., 983 F.Supp.2d 857 (N.D. Miss. 2013), the district court provided a thorough analysis of the requirements of an equal protection claim:
Id. at 863-64.
Here, even accepting as true Plaintiffs' allegations and construing them in a light most favorable to Plaintiffs, Plaintiffs have failed to allege an equal protection violation. Initially, Plaintiffs have not alleged that the Federal Defendants' actions had a discriminatory effect; again, the Federal Defendants were only legally required to promulgate certain rules, see 26 U.S.C. § 42(n), and there is no allegation before the Court that the promulgation of these rules had discriminatory effects. Similarly, there is no allegation that the Federal Defendants were "motivated by a discriminatory purpose." There is nothing indicating that the Federal Defendants "selected or reaffirmed a particular course of action at least in part because of, not merely in spite of its adverse effects upon an identifiable group." See Mississippi High Sch., 983 F. Supp. 2d at 863 (citing Feeney, 442 U.S. at 279, 99 S.Ct. 2282).
Finally, Plaintiffs have made absolutely no showing that the Federal Defendants' conduct fails to satisfy a rational basis test. Plaintiffs have done nothing to show that there is no "reasonably conceivable state of facts that could provide a rational basis" for the Federal Defendants' conduct. Id. at 864.
For these reasons, Plaintiffs have failed to allege an equal protection violation. On this alternate ground, the Federal Defendants' motion is granted, and Plaintiffs' equal protection claim is dismissed for failure to state a claim upon which relief can be granted.
"[A] court ordinarily should not dismiss the complaint except after affording every opportunity to the plaintiff to state a claim upon which relief might be granted." Byrd v. Bates, 220 F.2d 480, 482 (5th Cir. 1955). The Fifth Circuit has further stated:
Great Plains Trust Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305, 329 (5th Cir. 2002). Relying on Great Plains and other cases from this circuit, one district court in Texas articulated the standard as follows:
Tow v. Amegy Bank N.A., 498 B.R. 757, 765 (S.D. Tex. 2013). Finally, one leading treatise explains:
5B Charles A. Wright, Arthur R. Miller, et al., Federal Practice and Procedure § 1357 (3d ed. 2016).
Here, acting in accordance with "wise judicial practice," the Court previously afforded Plaintiffs an opportunity to file an Amended Complaint. (Doc. 48 at 21). The Court cautioned Plaintiffs, however, that their original Complaint "came close to" being impermissible under Rule 11. (Id. at 9, 21-22).
After reviewing the Amended Complaint, the Court concludes that granting further leave to amend would be futile. Plaintiffs have repeatedly failed to show that the Federal Defendants have waived their sovereign immunity against Plaintiffs' claims, and the Amended Complaint also comes no closer to plausibly alleging that the Federal Defendants violated Plaintiffs' rights. Because the Amended Complaint is subject to dismissal, and it appears that Plaintiffs are either unwilling or unable to amend in a manner that would avoid dismissal of a future complaint, the Court declines to grant further leave to amend. See Marucci Sports, L.L.C. v. National Collegiate Athletic Ass'n, 751 F.3d 368, 378 (5th Cir. 2014) (amendment is futile if amended pleading would not survive a Rule 12(b)(6) motion).
Accordingly,
Judgment shall be entered accordingly.
5 U.S.C. § 702.
Norton, 542 U.S. at 62, 124 S. Ct. at 2378.
