S & G Development LLC et al v. Arkansas Development Finance Authority et al

Filing 19

MEMORANDUM OPINION AND ORDER granting 8 MOTION to Dismiss filed by Department of Housing and Urban Development; pltf's claims against HUD are hereby DISMISSED; Department of Housing and Urban Development terminated. Signed by Judge Susan Webber Wright on 5/6/11. (vjt)

IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF ARKANSAS
EASTERN DIVISION

S & G DEVELOPMENT LLC and
DERWIN SIMS,

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Plaintiff,
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vs.
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ARKANSAS DEVELOPMENT FINANCE
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AUTHORITY, UNITED STATES
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DEPARTMENT OF HOUSING AND
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URBAN DEVELOPMENT, and ARKANSAS *
ECONOMIC DEVELOPMENT
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CORPORATION,
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Defendants.
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No. 2:10CV00096 SWW

Memorandum Opinion and Order
Plaintiff S & G Development LLC (“S&G”) is a minority-owned Arkansas corporation.
Its chief executive officer is Plaintiff Derwin Sims, an African-American. Plaintiffs allege the
Arkansas Development Finance Authority (“ADFA”) discriminated against them on the basis of
race when it denied their application for a loan. Plaintiffs also name as defendants the United
States Department of Housing and Urban Development (“HUD”) and the Arkansas Economic
Development Corporation (“AEDC”). Before the Court is a motion to dismiss filed by HUD to
which plaintiffs responded. For the reasons stated below, the motion is granted.
Background
Plaintiffs applied to the ADFA for loan funds under the Neighborhood Stabilization
Program (“NSP”) which were provided to the State of Arkansas through a special Community
Development Block Grant by HUD. They allege the ADFA disqualified their application solely
because of their race, that HUD and the AEDC knew or should have known of the racially

discriminatory practices of ADFA and should be held responsible “for either collaboration with
the violation of federal law against racial discrimination or for ignoring their enforcement and
supervisory responsibility.” Compl. at ¶ 29. Plaintiffs seek compensatory damages, lost profits,
punitive damages, as well as injunctive relief and/or mandamus prohibiting the State of Arkansas
from receiving additional federal funds and staying the funding of any other successful
applicants until a mechanism has been created that would guarantee the enforcement of federal
laws against race discrimination. Plaintiffs bring their claims pursuant to Title VII of the Civil
Rights Act of 1964, 42 U.S.C. § 2000e et seq.; 42 U.S.C. § 1981; and the Arkansas Civil Rights
Act of 1993 (“ACRA”), Ark. Code Ann. § 16-123-101 et seq. They further invoke the
jurisdiction of the Court pursuant to 28 U.S.C. §§ 1331, 1363, and 1391.
HUD moves for dismissal pursuant to Fed.R.Civ.P. 12(b)(1), lack of subject matter
jurisdiction, and Rule 12(b)(6), failure to state a claim. HUD argues plaintiffs have no private
right of action under the Housing and Community Development Act of 1974 where HUD was
simply acting in its administrative capacity and is not alleged to have specifically committed any
of the discriminatory acts alleged. In addition, HUD asserts that the statutes plaintiffs rely on in
asserting jurisdiction do not waive the sovereign immunity of the United States or create a
substantive cause of action against HUD. HUD also contends plaintiffs fail to state a claim for
which relief may be granted. In addition, HUD moves for dismissal because plaintiff’s
complaint fails to meet the pleading standards set out in Rule 8(a).
Standard of Review
A motion to dismiss for lack of subject matter jurisdiction pursuant to Rule 12(b)(1) of
the Federal Rules of Civil Procedure may challenge the factual truthfulness or the facial

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sufficiency of the plaintiff’s jurisdictional allegations. Titus v. Sullivan, 4 F.3d 590, 593 (8th Cir.
1993). Therefore, in deciding a Rule 12(b)(1) motion, the Court must distinguish between a
“facial attack” and a “factual attack.” Osborn v. United States, 918 F.2d 724, 729 n.6 (8th Cir.
1990). Where a defendant makes a “facial attack” to jurisdiction, the Court limits its review to
the face of the pleadings, similar to the review conducted under Rule 12(b)(6). Where a
defendant makes a “factual attack” to jurisdiction, the Court may consider matters outside the
pleadings without converting the motion to dismiss into one for summary judgment. Id. at 729;
Fed. R. Civ. P. 56. In a factual attack the Court “is free to weigh the evidence and satisfy itself
as to the existence of its power to hear the case. . . . [N]o presumptive truthfulness attaches to the
plaintiff’s allegations, and the existence of disputed material facts will not preclude a trial court
from evaluating for itself the merits of jurisdictional claims.” Osborn, 918 F.2d at 730 (quoting
Mortensen v. First Fed. Sav. & Loan Ass’n, 549 F.2d 884, 891 (3d Cir. 1977). The plaintiff
bears the burden of proving that jurisdiction does in fact exist. Id.
Rule 8(a)(2) of the Federal Rules of Civil Procedure provides that a complaint must
contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” A
complaint must contain more than au unadorned claim that the defendants unlawfully harmed the
plaintiffs. Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 1949 (2009) (citing Twombly v. Bell
Atlantic Corp., 550 U.S. 554 (2007). “A pleading that offers ‘labels or conclusions’ or ‘a
formulaic recitation’ of the elements of a cause of action will not do.” Id.
To survive a motion to dismiss, a complaint must contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ A
claim has facial plausibility when the plaintiff pleads factual content that allows
the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged. . . .

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Threadbare recitals of the elements of a cause of action, supported by mere
conclusory statements, do not suffice. . . . [O]nly a complaint that states a
plausible claim for relief survives a motion to dismiss. Determining whether a
complaint states a plausible claim for relief will . . . be a context-specific task that
requires the reviewing court to draw on its judicial experience and common sense.
Id. at 1949-50.
Discussion
Plaintiffs claim that ADFA’s determination that their application for NSP funding was
defective was based on racial considerations only. They claim they were treated differently than
the applicants who were approved for grants, and that HUD knew or should have know of
ADFA’s racially discriminatory practices and done something about them.

They seek

damages as well as injunctive relief and/or mandamus.
Subject Matter Jurisdiction
HUD moves to dismiss plaintiffs’ claims for lack of subject matter jurisdiction on the
grounds of sovereign immunity. “Subject matter jurisdiction ... is a threshold requirement which
must be assured in every federal case.” Turner v. Armontrout, 922 F.2d 492, 293 (8th Cir.1991).
Under 28 U.S.C. § 1331, a federal district court has “original jurisdiction of all civil actions
arising under the Constitution, laws, or treaties of the United States.” “It is elementary that
‘[t]he United States, as sovereign, is immune from suit save as it consents to be sued . . ., and the
terms of its consent to be sued in any court define that court's jurisdiction to entertain the suit.’
A waiver of sovereign immunity ‘cannot be implied but must be unequivocally expressed.’”
United States v. Mitchell, 445 U.S. 535, 538 (1980). The waiver of sovereign immunity is a
prerequisite to federal-court jurisdiction. United States v. Mitchell, 463 U.S. 206, 212 (1983).
“[L]imitations and conditions upon which the [United States] Government consents to be sued
must be strictly observed and exceptions thereto are not to be implied.” Soriano v. United States,
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352 U.S. 270, 276 (1957).
Sovereign immunity bars claims against federal agencies for damages brought under 42
U.S.C. § 1981. See Brown v. Gen. Serv. Admin., 425 U.S. 820, 827 n. 8 (1976). Neither § 1981
nor the Arkansas Civil Rights Act contain a waiver of the federal government’s sovereign
immunity. Plaintiffs also invoke the jurisdiction of the Court under Title VII of the Civil Rights
Act of 1964. They argue in their response that HUD is not entitled to sovereign immunity as to
plaintiffs’ claim that HUD denied them employment and employment opportunities in violation
of Title VII. Congress waived the federal government’s sovereign immunity with respect to
employment discrimination claims by including within Title VII a section specific to
employment discrimination claims brought by employees of the federal government. See 42
U.S.C. § 2000e-16. Any claim brought by plaintiffs’ under Title VII would not be barred by
sovereign immunity. The Court finds, therefore, that plaintiffs’ claims for damages brought
pursuant to § 1981 and the Arkansas Civil Rights Act should be dismissed for lack of subject
matter jurisdiction.1
Failure to State a Claim
Plaintiffs allege that “HUD . . . knew or should have known of the racially
discriminatory practices of ADFA and should be held responsible for either collaboration with
the violation of federal law against racial discrimination or for ignoring their enforcement and
supervisory responsibility.” Compl. at ¶ 29. In response to HUD’s motion to dismiss, plaintiffs

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To the extent plaintiffs assert their claims are brought under 28 U.S.C.§ 1331, this section does
not in and of itself does not “create substantive rights in suits brought against the United States. Thus, if
§ 1331 is to be used to secure relief against the United States, it must be tied to some additional authority
which waives the government’s sovereign immunity.” Sabhari v. Reno, 197 F.3d 938, 943 (8th Cir.
1999).

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characterize their race discrimination claim against HUD as one for employment discrimination
under Title VII. Plaintiffs assert they stated sufficient facts in their complaint to establish a
prima facie claim of race discrimination.
Title VII makes it unlawful for an employer to discriminate against any individual
because of that individual’s race, color, religion, sex or national origin. Plaintiffs applied to the
ADFA for loan funds made available to the states by HUD. ADFA’s stated reasons for denying
plaintiffs’ application were the property was not a foreclosed property and the application
showed the property as commercially zoned for a residential proposal. Compl., Ex. B.
Plaintiffs argue they were discriminated against because of race “in the field of employment or
employability,” see Pls.’ Resp. to Def’s. Mem. at 3 and that “there is no difference between
[Sims’s] application to be considered a contractor in the instant case than would be the standard
required for prima facie establishment if he was simply seeking individual employment.” Id. at
4.
The Court finds that plaintiffs fail to state a claim for relief. Plaintiffs state no facts to
support their allegation that HUD knew or should have known of alleged “racially
discriminatory practices of ADFA” nor what those practices might be. Their complaint fails to
allege any facts as to the actions or inactions of HUD or any of its employees, or as to any facts
that could possibly establish a breach of any duty or obligation by HUD. As HUD points out,
there are no factual allegations concerning HUD’s participation in the NSP application process;
knowledge or notice of plaintiffs’ allegations and/or opportunity, having been provided such
notice, to engage in any investigative or enforcement activity. Moreover, the Court finds Title
VII inapplicable to the facts alleged in the complaint.

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Because plaintiffs’ complaint is vague, conclusory, and general, and does not set forth
specific facts in support of the allegations, the Court finds plaintiffs fail to state a claim for relief
against HUD.
Conclusion
IT IS THEREFORE ORDERED that HUD’s motion to dismiss [docket entry 8] is hereby
granted. Plaintiffs’ claims against HUD are dismissed.
DATED this 6th day of May, 2011.

/s/Susan Webber Wright
UNITED STATES DISTRICT JUDGE

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