Kholost et al v. U.S. Department of Housing and Urban Development et al

Filing 32

MEMORANDUM AND ORDER. The plaintiffs' claims against HUD are barred by sovereign immunity; the plaintiffs' FTCA claim against HUD fails because the plaintiffs did not exhaust their administrative remedies and did not allege any tortious act by a federal employee; RealPage is not subject to suit under § 1983 or the FCRA; and the plaintiffs fail to state a claim under FOIA. Accordingly, HUD and RealPage's motions to dismiss are granted. The Court certifies pursuant to 28 U.S.C. § 1915(a)(3) that any appeal would not be taken in good faith and therefore in forma pauperis status is denied for the purpose of any appeal. Ordered by Judge Ann M. Donnelly on 7/23/2018. (Greene, Donna)

IN CLERK'S OFFICE

US DISTRICT COURT E.D.MY*

^ JUL 23 2018 ic
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK

BROOKLYN OFFICE
ETERI KHOLOST;LEONID LEONTIEV,
MEMORANDUM AND ORDER

16-CV-6651 (AMD)(LB)

Plaintiff,

-againstU.S. DEPARTMENT OF HOUSING AND

URBAN DEVELOPMENT,MULTIFAMILY
NORTHEAST REGION; REALPAGE,INC.,
Defendants.

ANN M.DONNELLY,District Judge:

The pro se plaintiffs bring this action pursuant to 42 U.S.C. § 1983 informa pauperis.

They allege that the United States Department of Housing and Urban Development("HUD")and
RealPage, Inc.("RealPage")improperly rejected them for tenancy in Bensonhurst Housing for
the Elderly HDFC,Inc.("Bensonhurst Housing")in violation oftheir "right to Federally
Subsidized Housing Program,"the Fair Credit Reporting Act, and the Freedom ofInformation
Act. HUD moves to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6)
on the grounds that(1)HUD has not waived sovereign immunity, and(2)the plaintiffs do not

allege tortious conduct by a federal employee. RealPage moves to dismiss pursuant to Federal
Rules of Civil Procedure 8 and 12(b)(6) on the grounds that(1)RealPage is not subject to suit
under either § 1983 or FOIA,and(2)the plaintiffs failed to allege sufficient facts to state a claim
under the FCRA. For the reasons discussed below,the defendants' motions are granted.
BACKGROUND

In January 2009,the plaintiffs, Eteri Kholost and Leonid Leontiev, applied for an
apartment at Bensonhurst Housing for the Elderly—^a 71-unit rental building for low-income

elderly—^which receives funding from HUD under Section 202 ofthe Housing Act of 1959, 12
U.S.C. § ITOlq (2012). (ECF No. 1 at 8; ECF No. 19-2.) On January 9, 2009, Bensonhurst
Housing placed the plaintiffs on a waitlist. (ECF No. 1 at 8.) On April 5, 2016,the plaintiffs
were interviewed at Bensonhurst Housing for an available apartment. {See id. at 11.)

On April 13,2016, Danessa Gaston, a manager at Bensonhurst Housing,informed
Kholost by letter that her application was rejected because she had failed a screening. {Id. at 12.)

Gaston explained that "[w]hen we ran your credit report the credit bureau was unable to verify
your social security number due to a fraud alert." {Id.) On the same day, Kholost and Leontiev

received separate letters from Bensonhurst Housing informing them that their applications were
denied due to a "Fraud alert." {Id. at 13, 14.) The company's "decision was based in whole or in

part" on consumer reports from TransUnion and RealPage. {Id.) The letters advised that "Fraud
Alert" could mean either that the plaintiffs had placed a fraud alert on their own credit files or

that "there was some discrepancy in the information [the plaintiffs] provided at the time of
application." {Id.)

The plaintiffs attempted to resolve the issue by submitting additional credit reports to
Gaston by mail and in person. {Id. at 5, 35.) On May 3,2016,the plaintiffs visited Gaston at her
office. {Id. at 5.) According to the plaintiffs, Gaston "refused to hear us and when we politely
insisted, she called the police. Two policemen came and could not understand why they were
called." {Id.)

On June 28, 2016,the plaintiffs delivered a "complaint and all materials" to HUD. {Id.)
On October 27, 2016, HUD responded by letter, informing the plaintiffs that Bensonhurst
Housing had determined that it could not allow the plaintiffs into the housing facility because of
Leontiev's threatening behavior during the May 3rd visit; according to the letter,"Ms. Gaston

reported that law enforcement was called after Mr. Leontiev's behavior became threatening,"
which "was confirmed by several witnesses." {Id. at 39.) Accordingly, Bensonhurst Housing

would be "sending [the plaintiffs] a formal rejection letter." {Id.)
On November 30, 2016,the plaintiffs filed a complaint against HUD and RealPage,
pursuant to 42 U.S.C. § 1983, alleging violations oftheir "right to Federally Subsidized Housing
Program," the Fair Credit Reporting Act, and the Freedom of Information Act. {Id. at 4.) The

plaintiffs seek the following relief: (1)an apartment in Bensonhurst Housing,(2)the "violators

to be punished,"(3)and "relief which the Federal Court finds to be just and proper" since they
"are in difficulty to estimate all losses of[their] budget... caused ... by both defendants." {Id.
at 6.)

On March 13,2017, RealPage filed a motion to dismiss the complaint, pursuant to Rules
8 and 12(b)(6) ofthe Federal Rules of Civil Procedure,for failure to state a claim. (ECF No.

16.) The plaintiffs responded on April 4,2017,(ECF No. 17), and RealPage replied on April 26,

2017,(ECF No. 20). On April 24,2017,HUD filed a motion to dismiss pursuant to Rules
12(b)(1) and (6). (ECF No. 19.) The plaintiffs responded on May 3, 2017. (ECF No. 23.) On
May 31, 2017,the plaintiffs filed a motion to amend their complaint, seeking to add a defendant.

(ECF No. 25.) The Court denied the plaintiffs' motion pending the completion ofa HUD
investigation. On January 25, 2018,the plaintiffs filed a second motion to amend their
complaint, again seeking to add a defendant. (ECF No. 26.) On April 18, 2018,the Court
denied the plaintiffs' motion on the merits. (ECF No. 30.) By letter on May 17,2018,the
plaintiffs submitted a further "analysis" of HUD's motion to dismiss. (ECF No. 31.)

STANDARD OF REVIEW

Under 28 U.S.C. § 1915(e)(2)(B), a district court must dismiss an informa pauperis
action if it is satisfied that the action "(i) is frivolous or malicious;(ii) fails to state a claim on
which relief may be granted; or (iii) seeks monetary relief against a defendant who is immune

from such relief." ^ At the pleadings stage ofthe proceeding, the Court must assume the truth of
"all well-pleaded, nonconclusory factual allegations" in the complaint. Kiobel v. Royal Dutch
Petroleum Co.,621 F.3d 111, 123(2d Cir. 2010)(citing Ashcroft v. Iqhal, 556 U.S. 662(2009)).

A complaint must plead sufficient facts to "state a claim to relief that is plausible on its face."
Bell Atl Corp. v. Twombly,550 U.S. 544,570(2007). Pro se complaints are held to less
stringent standards than pleadings drafted by attorneys, and the Court is required to read the

plaintiffs' pro se complaint liberally and interpret it to raise the strongest arguments it suggests.
Erickson v. Pardus,551 U.S. 89(2007); Hughes v. Rowe,449 U.S. 5,9(1980); Sealed Plaintiff

V. Sealed Defendant #J,537 F.3d 185,191-93(2d Cir. 2008).

'On November 30, 2016,the plaintiffs filed applications to proceed informa pauperis. (ECF Nos.2 and
3). By Order dated December 9,2016,the plaintiffs' applications were denied and they were directed to
pay the required $400 filing fee. (ECF No. 5). The plaintiffs paid the filing fee on December 12, 2016.
(ECF No. 7). On December 15, 2016, the plaintiffs filed letter motions seeking reconsideration ofthe
Court's December 9, 2016 Order. (ECF Nos.9 and 10). By Order dated February 16,2017,the Court
granted the plaintiffs' motions for reconsideration, and allowed them to proceed informa pauperis. The
Court also directed the Clerk of Court to return the plaintiffs' $400 filing fee. Thus, the plaintiffs are
proceeding informa pauperis.

DISCUSSION
I.

HUD

A. Sovereign Immunity
HUD argues that the plaintiffs' action is barred by the doctrine of sovereign immunity. I
agree. HUD has not expressly waived sovereign immunity for its funding activities under 12
U.S.C. § ITOlq.
Suits against the United States and federal agencies require "a cause of action, subject
matter jurisdiction, and a waiver of sovereign immunity." Presidential Gardens Assoc. v. Sec'y

ofHous. and Urban Dev.,175 F.3d 132, 139(2d Cir.1999)(citing United States v. Mitchell, 463
U.S. 206,212(1983));see also C.H Sanders Co. v. BHAP Housing Dev. Fund Co., 903 F.2d
114, 117(2d Cir.1990) C'[A]n action against the sovereign is properly before the district court

only ifthere [is] both a grant of subject matter jurisdiction and a valid waiver
of sovereign immunity."(citations omitted)). As a federal agency, HUD is immune from suit

unless it unequivocally and expressly waived immunity. See Lane v. Pena,518 U.S. 187, 192
(1996).

HUD's funding of Bensonhurst Housing is pursuant to 12 U.S.C. § 1701q. HUD is
immune from suit for its funding pursuant to Section 1701q because it has not expressly waived
sovereign immunity. See United Americans, Inc. v. N.B.C-U.S.A. Housing, Inc. Twenty
Seven, 400 F. Supp. 2d 59,62(D.D.C 2005)(Section 1702 does not waive sovereign immunity
for claims xmder Section 1701q); cf. Almeida v. U.S. Dep't ofHous. & Urban Dev., No.08-CV4582,2009 WL 873125, at *3(S.D.N.Y. Feb. 11, 2009)(Section 1702 does not waive sovereign
immunity for claims under Section 1701z-l 1).

B. 42 U.S.C. §1983 and Federal Tort Claims Act
HUD cannot be sued under § 1983 because it is a federal agency. See Dotson v. Griesa,
398 F.3d 158, 162(2d Cir. 2005). Section 1983 applies only to individuals acting under the
color of state law. See 42 U.S.C. § 1983. However,the Court liberally construes the plaintiffs'
§ 1983 claims against HUD as claims under the Federal Tort Claims Act. See White v. Monarch
Pharm., Inc., 346 F. App'x 739, 741 (2d Cir. 2009).
The plaintiffs' FTCA claim fails because the plaintiffs have not exhausted their

administrative remedies. To bring an FTCA claim, claimants must exhaust their administrative
remedies by executing a Standard Form 95 or notifying HUD in writing ofthe incident,

"accompanied by a claim for monetary damages in a certain sum." 28 C.F.R. § 14.2(a). The
plaintiffs did write to HUD about Bensonhurst Housing's denial oftheir leasing application, but
the plaintiffs did not include a claim for monetary damages. Accordingly, the plaintiffs have
failed to exhaust their administrative remedies.

The plaintiffs' FTCA claim also fails because they have not alleged any tortious actions
by a federal employee. The plaintiffs allege that Gaston improperly rejected their leasing
application, but Gaston is employed by Bensonhurst Housing, a private company, not by HUD.

Therefore, the plaintiffs fail to state a claim against HUD for Gaston's actions under the FTCA.^
See 28 U.S.C. § 2762(FTCA claims are "for money damages against the United States for
injury ... caused by the negligent or wrongful act or omission of any employee ofthe agency
while activing within the scope of his office or employment"). The complaint's reference to

HUD's conduct is to the October 29,2016 letter that HUD sent to the plaintiffs, which the

^ Moreover, HUD is not responsible for the selection oftenants. According to HUD regulations, all
management functions, including the selection oftenants and determining whether applicants meet
disclosure and verification requirements, are the responsibility ofthe owner, Bensonhurst Housing. See
24 C.F.R. § 891.400(b); 24 C.F.R. § 891.410(c)(1).

plaintiffs allege was a "trick of HDD's officials and that had nothing to do with the sense of our
claim," This vague and conclusory allegation fails to state a claim under the FTCA.
IL

RealPage
A. 42 U.S.C.§ 1983

The plaintiffs' claims against RealPage, a privately owned entity, must also be dismissed.
A claim for relief under § 1983 must allege facts showing that the defendant acted under color of

a state "statute, ordinance, regulation, custom or usage." 42 U.S.C. § 1983. Section 1983
"constrains only state conduct, not the 'acts of private persons or entities.'" Hooda v.
Brookhaven Nat. Lab.,659 F. Supp. 2d 382, 393(E.D.N.Y. 2009)(quoting Rendell-Baker v.
Kohn,457 U.S. 830,837(1982)); see also Am. Mfrs. Mut. Ins. Co. v. Sullivan, 526 U.S. 40,49-

50(1999). "Because the United States Constitution regulates only the Government, not private

parties, a litigant claiming that his constitutional rights have been violated must first establish
that the challenged conduct constitutes state action." Flagg v. Yonkers Sav. & Loan Ass'n, 396

F.3d 178,186(2d Cir. 2005)(internal quotation marks omitted). A private actor may be liable
under § 1983 only if there is a sufficiently "'close nexus between the State and the challenged
action' that seemingly private behavior 'may be fairly treated as that ofthe State itself"
Brentwood Acad. v. Tenn. Secondary Sch. Athletic Ass'n, 531 U.S. 288,295(2001)(quoting
Jackson v. Metro. Edison Co.,419 U.S. 345, 351 (1974)).

RealPage is a private entity, and the plaintiffs have not alleged that it was acting under
color ofstate law or that there was otherwise state involvement related to their denial of housing

claims. See Reaves v. Dep't of Veterans Affairs, No.08-CV-1624,2008 WL 2853255, at *2
(E.D.N.Y. July 22, 2008)(Section 1983 claim involving claim of unfair treatment with respect to
public housing could not be brought against the Salvation Army because a private organization

and its staff members are not state actors); see also Brown v. 2149-53 Pacific Street H.D.F.C.,
Inc., No. 11-CV-l 164, 2011 WL 1463988, at *2(E.D.N.Y. Apr. 15, 2011)(dismissing § 1983
claim because defendants are private actors and a private corporation, not state actors).
B. Fair Credit Reporting Act

The plaintiffs also make claims against RealPage under the Fair Credit Reporting Act, but
RealPage is not a "consumer reporting agency" subject to suit under the FCRA.

"The FCRA creates a private right of action against credit reporting agencies" for
violations ofthe statute. Casella v. Equifax Credit Info. Servs., 56 F.3d 469,473(2d Cir. 1995).

A "consumer reporting agency" is a person who "regularly engages...in the practice of
assembling or evaluating consumer credit information or other information on consumers for the
purpose offurnishing consumer reports to third parties ...." 15 U.S.C. § 1681a(f). This

function "involves more than receipt and retransmission ofinformation." DiGianni v. Stern's, 26
F.3d 346, 349(2d Cir. 1994)(internal quotations and citation omitted); see also Ori v. Fifth

Third Bank,603 F. Supp. 2d 1171,1175(E.D. Wis. 2009)("Obtaining and forwarding
information does not make an entity a [credit reporting agency].")
RealPage was merely the conduit between TransUnion and Bensonhurst Housing, not a
credit reporting agency subject to suit under the FCRA. The mere receipt and retransmission of

the TransUnion credit report does not make RealPage a credit reporting agency.

III.

No Right to Housing^
The plaintiffs claim that they were denied their constitutional right to affordable housing.

This claim must be dismissed because "[njeither the United States Constitution nor any other

^ The plaintiffs make a claim under the Freedom ofInformation Act, but do not allege how the defendants
violated FOIA,or that the plaintiffs even made a FOIA request. "FOIA provides a cause of action only to
a requester who has filed a FOIA request that has been denied." Sorodsky v. U.S. Atty., No. 12-CV-4420,
2012 WL 4891697, at *6(E.D.N.Y. Oct. 11, 2012).
8

federal law establishes a fundamental right to public housing or emergency shelter." Mallgren v.
John Doe Corp., No. 13-CV-1265, 2013 WL 1873319, at M (E.D.N.Y. May 2,2013)(citing and
quoting Lindsey v. Normet,405 U.S. 56, 74(1972)(finding no '"constitutional guarantee of
access to dwellings of a particular quality'"); Acevedo v. Nassau County, New York, 500 F.2d
1078, 1080-81 (2d Cir. 1974)("finding no constitutional or statutory duty to provide low income
housing"); Fair Hous. In Huniinglon Comm. v. Town ofHuntington, NY, No. 02-CV-2787,2005
WL 675838, at *8 (E.D.N.Y. Mar. 23,2005)("'Unfortunately for Plaintiffs, there is no
constitutional or statutory duty to provide low income housing, nor is there a constitutional
guarantee of access to dwellings of a particular quality.'"){quoimg Acevedo, 500 F.2d at 108081)(internal quotation marks omitted)).
CONCLUSION

For the reasons explained above, the plaintiffs' claims against HUD are barred by
sovereign immunity; the plaintiffs' FTCA claim against HUD fails because the plaintiffs did not

exhaust their administrative remedies and did not allege any tortious act by a federal employee;
RealPage is not subject to suit under § 1983 or the FCRA; and the plaintiffs fail to state a claim
under FOIA. Accordingly, HUD and RealPage's motions to dismiss are granted. The Court

certifies pursuant to 28 U.S.C. § 1915(a)(3) that any appeal would not be taken in good faith and
therefore informa pauperis status is denied for the purpose of any appeal. Coppedge v. United
States, 369 U.S. 438,444-45 (1962).
SO ORDERED.

s/Ann M. Donnelly

ANT^^.DONNELLY
United States District Judge
Dated: Brooklyn, New York
July 23,2018

^