LITTLE EARTH OF UNITED STATES TRIBES, INC., ET AL., PETITIONERS V. JACK F. KEMP, SECRETARY OF HOUSING AND URBAN DEVELOPMENT No. 89-1094 In The Supreme Court Of The United States October Term, 1989 On Petition For A Writ Of Certiorari To The United States Court of Appeals For The Eighth Circuit Brief For The Respondents In Opposition TABLE OF CONTENTS Question Presented Opinions below Jurisdiction Statement Argument Conclusion OPINIONS BELOW The opinion of the court of appeals (Pet. App. 220-231) is reported at 878 F.2d 236. The district court's decision (Pet. App. 1-208) is reported at 675 F. Supp. 497, and the order amending the district court's decision (Pet. App. 209-219) is reported at 691 F. Supp. 1215. JURISDICTION The judgment of the court of appeals was entered on June 23, 1989. A petition for rehearing was denied on August 16, 1989 (Pet. App. 232-233). The petition for a writ of certiorari was filed on November 14, 1989. The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1). QUESTION PRESENTED Whether the court of appeals erred in affirming the district court's finding that the decisions by the United States Department of Housing and Urban Development not to provide additional subsidies to a housing project and to foreclose on the project mortgage: (1) were not racially motivated, (2) were not arbitrary and capricious, and (3) did not violate the American Indian trust doctrine. STATEMENT 1. Little Earth is a 212-unit low and moderate income housing complex in Minneapolis, Minnesota. The project was built in the early 1970s with the proceeds of a loan insured and subsidized by the Secretary of Housing and Urban Development under Section 236 of the National Housing Act, 12 U.S.C. 1715z-1. From the beginning, the Department of Housing and Urban Development (HUD) has provided substantial cash subsidies to the project. Since 1977, moreover, HUD has made subsidy payments available for every unit in the project under Section 8 of the United States Housing Act of 1937, 42 U.S.C. 1437f (1982 & Supp. V. 1987). Pet. App. 10, 222-223. Petitioner, Little Earth of United Tribes, Inc. (LEOUT), is the owner of the project. LEOUT is controlled by the American Indian Movement. Originally, the tenant population was racially mixed; however, since the late 1970s, the vast majority of the tenants have been American Indians. Pet. App. 16-18. Despite the significant assistance of HUD, LEOUT consistently failed to meet its financial obligations. In addition, the project showed a steady pattern of physical decline. The financial problems began almost immediately when LEOUT failed to make its first mortgage payment due on January 1, 1975. The mortgage has remained in default ever since. In June, 1975, the insured lender assigned the mortgage to HUD in exchange for over $4.5 million in insurance proceeds. Pet. App. 17-21. /1/ In the years after it assumed the loan, HUD attempted to work with LEOUT to solve the project's problems. Among other things, HUD increased its subsidy payments to the project and refrained from exercising its right to foreclose on the defaulted mortgage. Pet. App. 20-22. During this same period, HUD conducted numerous reviews of the project. These reviews consistently showed that LEOUT was not willing to take the steps needed to restore the project to physical and financial stability. Pet. App. 37, 47, 53, 55, 60, 73. In September 1981, after LEOUT had refused to transfer control of the corporation to an entity that was competent to operate the project, HUD's Minneapolis office recommended to HUD's Central Office that the project mortgage be foreclosed. By that time, the loan was nearly $900,000 in arrears and less than six months' worth of payments had been made on the loan since January 1980. Moreover, the project needed repairs costing nearly $2 million. Pet. App. 73-75. The recommendation was accepted by HUD's Central Office and, on March 13, 1982, HUD began advertising the nonjudicial foreclosure sale of the Little Earth project. The sale was scheduled to take place on May 3, 1982. At that time, LEOUT's total accelerated debt to HUD was more than $5.25 million. Pet. App. 81. On April 16, 1982, LEOUT asked HUD for a 90-day extension of the foreclosure sale. HUD granted that request. In addition, the HUD Area Manager asked a consultant who had experience in the syndication of HUD projects to come to Minneapolis to work on a deal that would avoid foreclosure. When LEOUT asked for a second extension of the foreclosure date, HUD postponed the sale to August 16, 1982. By August, however, HUD was unwilling to postpone the sale again. Pet. App. 105-109. Following HUD policy, the Department planned to bid more than $4.5 million (90% of the then-existing debt to HUD) at the foreclosure sale. That figure is much higher than the $1.1 million appraised value of the property at the time. Pet. App. 94. Thus, it was very unlikely that a third party, with no prior interest in the project, would outbid HUD. /2/ When HUD acquires a project such as Little Earth, the tenants continue to pay the same rents as they did before the project was sold. 24 C.F.R. 290.17. Moreover, HUD's management of the property must be consistent with the goal of preserving multifamily housing projects that are available to low and moderate income persons. See 12 U.S.C. 1701z-11. Thus, the tenants of Little Earth have not faced eviction or any change in the rents they must pay. Pet. App. 100-103, 189-191, 230. 2. On August 13, 1982, petitioners -- LEOUT and the project's tenant association -- filed suit to enjoin foreclosure. Petitioners' complaint contained numerous allegations. The district court characterized the claims as "administrative action claims" and "civil rights claims." In June and August 1983, the district court granted summary judgment to HUD on the administrative action claims, dismissed some of the civil rights claims, and enjoined the foreclosure pending resolution of the remaining civil rights claims. 584 F. Supp. 1287, 1292, and 1301. /3/ In 1984, HUD filed a counterclaim for judicial foreclosure. At a three week bench trial in 1987, the district court heard testimony on all aspects of HUD's conduct regarding the Little Earth project. During the trial, ten HUD officials appeared and testified; six other HUD officials and a former HUD consultant testified through their depositions. The district court, in a lengthy and detailed decision, ruled for HUD on all claims. Pet. App. 1-208. 3. The court of appeals affirmed in a per curiam opinion. The court noted: The district court's decision rests essentially on three key determinations. First, the court held "HUD's actions were taken without discriminatory intent," * * * 675 F. Supp. at 532, and were justified without reference to racial factors, see id. at 533. Second, the court held HUD's administrative actions regarding the project did not establish a defense to foreclosure and, on the whole, were not arbitrary or capricious or an abuse of discretion. See id. at 525; see also id. at 526-530. Finally, the court concluded the evidence did not show HUD's foreclosure decision would inevitably lead to displacement of low-income Indian tenants. See id. at 534. Pet. App. 227-228. The court of appeals then summarized petitioners' arguments and concluded: We have carefully reviewed Little Earth's contentions in light of the district court's thorough decision in this case, the record, and the parties' arguments on appeal. Having done so, we conclude the district court's decision is based on findings of fact that are not clearly erroneous, and no error of law appears. Pet. App. 231. ARGUMENT The outcome of this case turned on the district court's findings of fact. The court of appeals upheld those findings as supported by the evidence, and there is no reason for further review. 1. Petitioners first contend (Pet. 13-36) that the lower courts failed to treat this case as a mixed-motive case and, consequently, erred in not following the analysis of Price Waterhouse v. Hopkins, 109 S. Ct. 1775 (1989). But this is not a case where an illegal motive played a role in HUD's decisions. On the contrary, the district court found "(a)fter careful review * * * that HUD's actions were taken without discriminatory intent." Pet. App. 179. The court of appeals correctly reviewed that finding under the "clearly erroneous" standard. See Anderson v. City of Bessemer City, 470 U.S. 564, 573 (1985); Pullman-Standard v. Swint, 456 U.S. 273 (1982). The district court's finding that HUD acted without an illegal motive is amply supported. The district court reviewed extensive evidence and carefully rejected each of the petitioners' charges of discriminatory intent. /4/ See, e.g., Pet. App. 179-187. The record fully supported the district court's central finding -- i.e., "On the present record, the Court cannot conclude that HUD's treatment of LEOUT and Little Earth residents was in any way impermissibly attributable to race." Pet. App. 178-179 (emphasis added). /5/ Thus, this is not a mixed-motive case requiring analysis under Price Waterhouse. 2. Petitoner's next question presented (Pet. iii) is whether HUD's decision to foreclose is subject to judicial review under the Administrative Procedure Act. Neither the district court nor the court of appeals, however, held that HUD's decision to foreclose the project mortgage was not subject to judicial review. Every court that has addressed the issue has held that HUD's decision to foreclose on a mortgage of a multifamily project may be reviewed to determine if HUD's action was arbitrary or capricious. See, e.g., United States v. Prince Hall Village, Inc., 789 F.2d 597 (7th Cir. 1986); United States v. Beacon Terrace Mutual Homes, Inc., 594 F. Supp. 53 (D. Md. 1984). The district court in this case, citing the Eighth Circuit's decision in United States v. Victory Highway Village, Inc., 662 F.2d 488 (1981), likewise ruled that HUD's decision to foreclose was subject to judicial review. Pet. App. 150. The district court simply found, after engaging in that review, that HUD's decision to foreclose the Little Earth mortgage should be sustained. Pet. App. 150-163. Petitioners also challenge HUD's decisions regarding subsidies for the project and rent increases. The district court, however, found that HUD's decisions were "fully justified." Pet. App. 141. See also id. at 157-158. The court noted that HUD had been very generous in subsidizing the LEOUT project, but that LEOUT had continually failed to meet its loan obligations. The court concluded: "Continuing default in the face of such agency largess belies (petitioners') claim that HUD's administrative decisions some four years after the initial mortgage default doomed the project." Pet. App. 152. /6/ 3. The third question stated by petitioners (Pet. iv) -- whether the American Indian trust doctrine applies to wrongful action by HUD -- is also not presented in this case. As petitioners themselves recognize (Pet. 49), the district court ruled that the trust doctrine does, in fact, apply to HUD's actions regarding the Little Earth project. See Pet. App. 194. The district court and the court of appeals assumed that wrongful action by HUD toward Little Earth would offend the trust doctrine. The district court found, however, that there was no such wrongful action in this case. The court found that HUD aided "the project by waiting more than seven years after the project's initial default to exercise its clear statutory and contractual right of foreclosure. Surely, HUD's trust obligations do not dictate continued financing of a demonstrably mismanaged and failing project." Pet. App. 195-196. Petitioners argue (Pet. 54-55) that the district court "missed the point" because it failed to consider "that loss of Indian control is likely to be followed by loss of Indian services and eventually Indian residents." Again, however, the district court's findings do not support this claim. The district court expressly found that "no evidence was introduced to establish the inevitable loss of (Indian) services after foreclosure." Pet. App. 197. CONCLUSION The petition for a writ of certiorari should be denied. Respectfully submitted. KENNETH W. STARR Solicitor General STUART M. GERSON Assistant Attorney General BARBARA C. BIDDLE Attorney JOHN P. KENNEDY Associate General Counsel HERBERT L. GOLDBLATT Assistant General Counsel SARAH E. CANZONERI Attorney Department of Housing and Urban Development MARCH 1990 /1/ Since 1983, when the project was threatened with utility shut-offs due to unpaid bills, a court-appointed receiver has managed Little Earth. HUD has also advanced more than $7 million for rehabilitation and operating expenses. Pet. App. 136-137. /2/ Today, it is even more likely that HUD will acquire the project at the foreclosure sale because the accelerated debt is more than $13.4 million and the project is worth less than $3 million. /3/ Petitioners appealed the first of these orders, but the appeal was dismissed for lack of jurisdiction. See 738 F.2d 310. /4/ Petitioners rely extensively (Pet. 18-26) on a statement made by a consultant hired by HUD. The district court found, however, that the consultant's statement was not HUD policy. See Pet. App. 113. /5/ Petitioners err in asserting (Pet. 18) that the district court focused only on whether HUD policy was discriminatory. On the contrary, the court specifically found that HUD's actions with respect to LEOUT were not motivated by illegal factors. See, e.g., Pet. App. 179. /6/ The court also found that HUD was justified in denying rent increases because, inter alia, the project was not well maintained and "LEOUT was not an effective manager." Pet. App. 158.