Schroeder v. United States of America et al

Filing 48

OPINION AND ORDER - Plaintiff's motion 12 is GRANTED, Defendants' motion 21 is DENIED, and Defendants are ordered to accept Plaintiff's prepayment of her loan and release her property from related encumbrances within thirty (30) days of the date of this opinion. IT IS SO ORDERED. Signed on 1/21/10 by Magistrate Judge John V. Acosta. (peg)

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IN T H E UNITED STATES DISTRICT COURT F O R T H E DISTRICT OF OREGON P O R T L A N D DIVISION

ALBERTA E. SCHROEDER, Plaintiff, v. UNITED STATES OF AMERICA; S E C R E T A R Y O F T H E UNITED STATES DEPARTMENT OF AGRICULTURE; ADMINISTRATOR OF T H E R U R A L H O U S I N G SERVICE, U N I T E D S T A T E S DEPARTMENT OF AGRICULTURE; OREGON STATE D I R E C T O R OF R U R A L D E V E L O P M E N T , UNITED S T A T E S DEPARTMENT OF AGRICULTURE, Civ. No. 08-1277-AC OPINION A N D ORDER

Defendant.

A C O S T A , M a g i s t r a t e Judge: O P I N I O N AND O R D E R

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Introduction
This m a t t e r is cUll'ently before the c o u r t o n the parties' cross-motions f P l a i n t i f f A l b e r t a E . S c h r o e d e r ( " S c h r o e d e r " ) alleges t h a t D e f e n d a n t s h determination o f the N a t i o n a l Appeals Division ("NAD"). or s u m m m y j u d g m e n t .

a v e failed t o i m p l e m e n t a final

She a s k s t h e c o u r t t o o r d e r a i n i n g financial o b l i g a t i o n for

i m p l e m e n t a t i o n b y requiring Defendants to accept p a y m e n t o f h e r rem

ncumbrances o n that property the l o w - i n c o m e rental property she owns, and to deem satisfied the e n d a n t s a s s e r t t h a t they h a v e so t h a t i t no longer is subject to restricted-use provisions. D e f e ndisturbed their interpretation i m p l e m e n t e d the N A D d e t e r m i n a t i o n . T h e y a s k t h a t t h e c o u r t l e a v e u o ft h e N A D d e t e r m i n a t i o n a n d p e r m i t t h e m t o c o n d u c t a n e w Civil R i g h t s I m p a c t Analysis ( " C R I A " )

r e p a y " h e r p r o g r a m loan. to assist t h e m i n d e c i d i n g whether Schroeder m a y be p e r m i t t e d to " p Defendants failed to S c h r o e d e r ' s m o t i o n is granted a n d D e f e n d a n t s ' m o t i o n is denied. b y l a w , thus foreclosing t h e m i m p l e m e n t t h e N A D final d e t e r m i n a t i o n w i t h i n t h e p e r i o d r e q u i r e d before the N A D , S c h r o e d e r ' s f r o m p o s t - h o c i n t e r p r e t a t i o n s a n d arguments. Thus, o n t h e r e c o r d i n t e r p r e t a t i o n o f t h e N A D d e t e r m i n a t i o n is c o n e c t . E v e n considering D e f e n d a n t s ' post-hoc reting t h e N A D d e t e r m i n a t i o n

interpretations a n d arguments, t h e y c o m m i t t e d a clear error by interp

b a s i s i n the determination to t o a l l o w t h e m t o c o n d u c t a s e c o n d C R I A , as t h e r e i s n o r e a s o n a b l e t h e p o s i t i o n Defendants arg s u p p o r t that interpretation. Furthermore, t h e N A D p r e v i o u s l y r e j e c t e d ue

t their proffered interpretation. h e r e t o d e f e n d against S c h r o e d e r ' s c l a i m s i n this lawsuit a n d to SUppOl Accordingly, D e f e n d a n t s shall accept S c h r o e d e r ' s payment, clem"the encumbrances o n h e r p r o p e l t y ,

t h i r t y days o f t h e d a t e o f t h i s a n d relieve t h e p r o p e r t y f r o m t h e restricted-use provision, w i t h i n

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opinion.!

Factual Background
l a n d and p r o p e r t y i n T h e m a t e r i a l f a c t s a r e n o t d i s p u t e d . I n 1984, S c h r o e d e r p u r c h a s e d H e p p n e r , Oregon, c o n s i s t i n g o f a parcel o f l a n d a n d s i x r e s i d e n t i a l h o u s i n g units i n a single s t m c t u r e .

the predecessor o f t h e Rural T h e p r i o r o w n e r h a d p u r c h a s e d t h e p r o p e r t y p u r s u a n t t o a l o a n from H o u s i n g Service ( " R H S " ) , a n agency o f t h e U n i t e d States D e p a r t m e n t P a l t o f a p r o g r a m designed t o stimulate i n v e s t m e n t i n affordable h o u s i o f Agriculture ( " U S D A " ) , a s

n g for l o w - i n c o m e a n d e l d e r l y

e property. W h e n S c h r o e d e r people. P r o g r a m regulations i m p o s e d restricted-use p r o v i s i o n s o n t h a t " t h e r e s t r i c t e d u s e w a s to purchased the propelty, the purchase w a s subject to the condition t h continue for twenty years from September 1, 1984[,]" regardless o f pa y m e n t o r n o n - p a y m e n t o f the

.) total o b l i g a t i o n . ( P l a i n t i f f s C o n c i s e S t a t e m e n t o f M a t e r i a l F a c t s ~ 1
I n N o v e m b e r 2 0 0 4 , a f t e r c o m p l e t i n g her t w e n t y - y e a r o b l i g a t i o n t o o b s provisions o f her agreement w i t h RHS, Schroeder notified R H S t h a t sh erve the restricted-use

e w i s h e d to p a y t h e r e m a i n i n g empting

iming t h a t she w a s att financial obligation. R H S r e f u s e d t o a c c e p t S c h r o e d e r ' s p a y m e n t , c l a a " p r e p a y m e n t " o f he I ' o b l i g a t i o n i n c o n s i s t e n t w i t h t h e E m e r g e n c y L o

w I n c o m e Housing Protection

r o e d e r b o u g h t t h e property. A c t ( " E L I H P A"), w h i c h C o n g r e s s e n a c t e d s e v e r a l years a f t e r S c h (b), w h i c h s Specifical1y, RHS based its p o s i t i o n o n regulation 7 C.F.R. § 3560.658 r e q u i r e m e n t s for a s s e s s i n g w h e t h e r a b o r r o w e r m a y prepay: cordance w i t h (b) I f t h e borrower does n o t elect o r agree to enter an agreement i n ac e impact o f prepayment p a r a g r a p h (a) o f t h i s s e c t i o n , t h e n the A g e n c y w i l l a s s e s s t h f decent, safe, o n t w o factors: h o u s i n g o p p O l t u n i t i e s f o r m i n o r i t i e s a n d t h e s u p p l y o ill r e v i e w relevant s a n i t a r y , a n d a f f o r d a b l e h o u s i n g i n t h e m a r k e t area. T h e A g e n c y w ! The p a l t i e s have consented to j u r i s d i c t i o n by magistrate j u d g e in acco § 626(c)(1). OPINION AND O R D E R 3 rdance w i t h 28 U.S.C. ets t h e p r o c e d u r a l

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housing for information to determine the availability o f comparable affordable h e waiting list existing tenants in the market area and i f minorities i n the project, o n t e loss o f the o r in the market area will be disproportionately adversely affected by th affordable rental housing units. (1) I f restrictive-use provisions are in place, the borrower will agree to sign the restrictive-use provisions, as determined by the Agency, and at the end o f the restrictive-use period, offer to sell the housing to a qualified nonprofit organization or public body in accordance w i t h § 3560.659. (2) I f the Agency determines that prepayment will have an adverse impact on minorities, then the borrower must offer to sell to a qualified n o n p r o f i t o r g a n i z a t i o n o r p u b l i c b o d y i n accordance w i t h the provisions o f paragraph (a) o f this section. (3) I f the Agency determines that the prepayment will not have a n adverse effect o n housing oppOliunities for minorities but there is not an adequate supply o f decent, safe, and sanitary rental housing affordable to program eligible tenant households i n the market area, the loan may b e prepaid only i f the bOlTower agrees to sign restrictive-use provisions, as detelmined by the Agency, to protect tenants at the time o f prepayment. (4) I f the Agency determines that there is no adverse impact o n minorities and there is an adequate supply o f decent, safe, and sanitary rental housing affordable to program eligible tenant h o u s e h o l d s i n t h e m a r k e t a r e a the p r e p a y m e n t will b e accepted w i t h no fUliher restriction. LIHPA and, in April 2006 Accordingly, M I S infOlmed Schroeder that she must comply with the E ,

ld be allowed to prepay her it commenced formal procedures to determine whether Schroeder wou to her agreement w i t h RHS, loan. Schroeder disputed for several reasons that the ELIHP A applied LIHP A process. but she nonetheless pursued her attempts to pay her loan through the E
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quiet title a c t i o n i n At the same time, Schroeder pursued alternative remedies. She filed a eding to determine whether a s e p a r a t e federal l a w s u i t a n d i n s t i t u t e d a s e p a r a t e a d m i n i s t r a t i v e p r o c e N e i t h e r p r o c e e d i n g n o r the h e r property is subject to the ELIHP A, which currently is before NAD. o f this case. issues i n dispute are the subject o f or relevant to the cOUli's resolution
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r's prepayment would Based o n i t s O c t o b e r 2006 CRIA, the R H S concluded t h a t S c h r o e d e r e s u l t i n a shOitage o f d e c e n t , h a v e a n a d v e r s e e f f e c t o n h o u s i n g o p p o r t u n i t i e s for m i n o r i t i e s a n d -eligible tenants. I n F e b r u a r y safe, sanitary, a n d a f f o r d a b l e h o u s i n g i n t h e m a r k e t a r e a t o p r o g r a m i c h appeal R H S d e f e n d e d b y 2 0 0 7 Sclu'oeder a p p e a l e d the R H S d e t e r m i n a t i o n t o t h e N A D , w h a r g u i n g t h a t the N A D l a c k e d j u r i s d i c t i o n b e c a u s e R H S ' s r e l i a n c e o n t h e C R I A to deny S c h r o e d e r ' s

t h a t could b e appealed. T h e r e q u e s t was merely a r e c o m m e n d a t i o n , n o t an " a d v e r s e decision" H e a r i n g O f f i c e r a g r e e d and d i s m i s s e d S c h r o e d e r ' s appeal, a n d S c h r o e o f t h e H e a r i n g O f f i c e r ' s r u l i n g i n a c c o r d a n c e w i t h 7 C . F . R . § 11.6. f i c e r ' s determination, O n Octo bel' 11, 2007, the N A D Director reversed t h e H e a r i n g O f ision over w h i c h N A D had f i n d i n g t h a t R H S ' s a c t i o n c o n s t i t u t e d a n appealable adverse d e c t its C R I A s h o j u r i s d i c t i o n . R e l e v a n t t o t h i s case, R H S h a d a r g u e d t o t h e D i r e c t o r t h a wed prepayment der requested Director review

r minorities and o n t h e supply w o u l d h a v e h a d a n adverse i m p a c t b o t h o n h o u s i n g o p p o r t u n i t i e s f o g r a m tenants. T h e D i r e c t o r o f decent, safe, sanitary, a n d affordable h o u s i n g for available p r o s p e c i f i c a l l y f o u n d t h a t " [c] l e a r l y , R H S d e t e r m i n e d t h r o u g h a n a d m i n i strative process, memorialized

] l o a n w o u l d h a v e an adverse i n i t s CRIA, t h a t p r e p a y m e n t o f t h e [ m u l t i f a m i l y h o u s i n g ( " M F H " ) n t s . " (Sclu'oeder D e c l a r a t i o n e f f e c t o n m i n o r i t i e s a n d t h e s u p p l y o f h o u s i n g for a v a i l a b l e t e n a m a t t e r to t h e H e a r i n g Officer ( " D e c ! . " ) ( # 2 7 ) , E x h i b i t ( " E x " ) K a t 4.) T h e D i r e c t o r r e m a n d e d t h e for a d e t e r m i n a t i o n o f S c h r o e d e r ' s c l a i m o n t h e merits. that t h e C R I A findings O n January 1 0 , 2 0 0 8 , the merits hearing convened. S c h r o e d e r a r g u e d a n d c o n c l u s i o n s w e r e e r r o n e o u s and t h a t t h e C R I A a c t u a l l y s h o w e d s ufficient n u m b e r s o f available

loan w i t h o u t restrictions. T h e h o u s i n g units i n the m a r k e t area, a n d s h e sought to p r e p a y h e r M F H ons w h e n i t d e t e r m i n e d that H e a r i n g O f f i c e r n o t e d t h a t R H S a r g u e d it " f o l l o w e d i t s r e g u l a t i OPINION AND O R D E R 5

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w o u l d c a u s e a shortage o f prepayment would adversely affect minorities, and that prepayment x. B at 1.) available affordable housing for displaced tenants." (Rooney Dec!., E ppeal D e t e r m i n a t i o n On February 1 5 , 2 0 0 8 , the NAD Hearing Officer issued his Remand A (hereinafter " t h e 2008 N A D D e t e r m i n a t i o n " ) . The Hearing Officer framed the issues for

that prepayment would: (1) d e t e r m i n a t i o n a s w h e t h e r , u n d e r t h e C R l A , RHS c o r r e c t l y d e t e l m i n e d adversely impact minorities, and (2) lead to inadequate supply o f decent, safe, sanitaly and affordable erse d e t e r m i n a t i o n

d e a n adv h o u s i n g . T h e H e a r i n g O f f i c e r f i r s t r e a f f i r m e d t h a t R H S i n fact h a d m a against Scln'oeder:

ays h e r M F H RHS prepared a CRlA and determined that i f A p p e l l a n t ' s owner prep for housing loan without restrictions, prepayment will have an adverse i m p a c t , a n d sanitary opportunities for minorities, and that a n adequate supply o f decent, safe market area. r e n t a l h o u s i n g w i l l n o t b e a v a i l a b l e to e l i g i b l e t e n a n t s i n A p p e l l a n t ' s er M F H l o a n A s a result, RHS determined that Appellant's owner cmmot prepay h ,without restrictions. rectly d e t e l m i n e d t h a t , b a s e (Rooney Dec!., Ex. B a t 2.) The Hearing Officer found that "RHS incor o n the CRlA, prepayment would have an adverse impact o n housing op d

portunities for minorities." -inclusive definition

a n over Id. at 6. Specifically, the Hearing Officer found that RHS had applied o f "minority" and that when the proper the definition was applied, none m i n o r i t i e s a n d p r e p a y m e n t therefore w o u l d n o t h a v e a n a d v e r s e i m p a c

o f S c l n ' o e d e r ' s t e n a n t s were t o n minorities. Further, t h e

C R l A ' s determination that Hearing Officer found there w a s "no evidence to SUppOit the RHS p r e p a y m e n t w o u l d l e a d to a s h o r t a g e o f d e c e n t , s a f e a n d s a n i t a r y a f f o r d able housing[.]" Id. a t 7. O n

nclude s i m i l a r p r o p e l t i e s i n this point, the Hearings Officer obselved that the RHS had failed to i that the C R l A contained no outlying areas b u t that were part o f the applicable "market area," and i f i e d were n o t d e c e n t , safe, data to show that the 77 available housing units that h a d been ident

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d that Schroeder m e t her b u r d e n sanitaJy, and affordable housing. T h e H e a r i n g O f f i c e r t h u s c o n c l u d e o f showing the R H S ' s adverse decision t o b e erroneous a n d s t a t e d tha determination o f the D e p a r t m e n t o f Agriculture unless a timely reque D e c l . , E x . B a t 8.) e t e r m i n a t i o n t o a s k for T h e A g e n c y h a d fifteen days f o l l o w i n g r e c e i p t o f the 2 0 0 8 N A D D D i r e c t o r r e v i e w o f t h i s r u l i n g but did n o t d o so, a n d S c h r o e d e r did n o t a s k for Director review w i t h i n t h i s d e t e r m i n a t i o n w a s " a final

s t for r e v i e w is f i l e d . " ( R o o n e y

3 D e t e r m i n a t i o n b e c a m e final o n t h e t h i r t y - d a y p e r i o d a l l o t t e d t o her. C o n s e q u e n t l y , t h e 2 0 0 8 N A D

expired, t h e A g e n c y h a d thirty M a r c h 1 7 , 2 0 0 8 . See 7 C . F . R § 11.8(t). O n c e t h e r e v i e w d e a d l i n e n . See 7 C . F . R § 1 1 . 1 2 ( a ) " d a y s , to A p r i l 1 6 , 2 0 0 8 , t o i m p l e m e n t t h e 2 0 0 8 N A D D e t e r m i n a t i o S c h r o e d e r w r o t e t h e R H S o n A p r i l 4 , 2 0 0 8 , a f t e r t h e t i m e for r e q u e s t ing Director r e v i e w h a d

etermination, asking t h e R H S e x p i r e d b u t p r i o r to t h e d e a d l i n e f o r i m p l e m e n t i n g t h e 2 0 0 8 N A D D Director r e v i e w a N A D Hearing O f f i c e r ' s detelmination. i n a t i o n (7 C . F . R § 11.9(a)(1 ) ) , T h e a p p e l l a n t m u s t do so w i t h i n t h i r t y d a y s o f r e c e i v i n g t h e d e t e r m i n a t i o n (7 C . F . R § 11.9(a)(2)). a n d t h e a g e n c y m u s t do so w i t h i n f i f t e e n d a y s o f r e c e i v i n g t h e d e t e r m
3 E i t h e r party m a y request the N A D

summaJy judgment, the Agency acknowledged that "after a decision ency h a s 3 0 days to i m p l e m e n t h a s b e e n m a d e by N A D a n d t h e c a s e i s r e t u m e d t o t h e agency, t h e a g randum o f Law in Support o f t h e f i n a l d e c i s i o n . 7 C . R F . R . [sic] § 1 1 . 1 2 . " D e f e n d a n t s ' M e m o ' Response to P l a i n t i f f s Motion D e f e n d a n t s ' C r o s s - M o t i o n for S u m m a r y J u d g m e n t a n d D e f e n d a n t s plementation period expired. 5. S o m e c o n f u s i o n e x i s t s a b o u t t h e d a t e o n w h i c h t h e t h i r t y - d a y i m s A p r i l 16, 2 0 0 8 , b u t i n o t h e r Schroeder c l a i m e d i n s o m e o f h e r correspondence t h a t t h e date w a a y I , 2008, a n d i n h e r Concise letters a n d i n h e r b r i e f i n g o n t h e s e m o t i o n s s h e i d e n t i f i e d i t as M the N A D determination o n M a y S t a t e m e n t o f M a t e r i a l F a c t s she alleged t h a t R H S r e c e i v e d n o t i c e o f h w o u l d have required R H S to 1 , 2 0 0 8 ( P l a i n t i f f s C o n c i s e S t a t e m e n t o f M a t e r i a l F a c t s ~ 5), w h i c endants n e v e r identify t h e date i m p l e m e n t t h e N A D d e t e r m i n a t i o n b y M o n d a y , J u n e 2 , 2008. D e f d i r e c t l y r e s p o n d t o SclU'oeder's o n w h i c h they b e l i e v e i m p l e m e n t a t i o n m u s t h a v e occurred and never tion t h a t implementation o f the a l l e g e d dates, b u t they a d m i t S c h r o e d e r ' s c o n c i s e s t a t e m e n t a l l e g a S r e c e i v e d notice and t h a t RHS N A D determination w a s required within t h i t t y days o f t h e date R H s Concise Statement o f Material received notice o n M a y 1 , 2 0 0 8 . D e f e n d a n t s ' Response t o P l a i n t i f f lementation deadline w a s April F a c t s ~ 2. U l t i m a t e l y , i t m a k e s n o d i f f e r e n c e h e r e w h e t h e r t h e i m p n d a n t s d i d n o t take any action 16, M a y I , o r J u n e 2, 2 0 0 8 , b e c a u s e t h e r e i s n o d i s p u t e t h a t D e f e before o r o n J u n e 2, 2 0 0 8 , t o i m p l e m e n t t h e N A D d e t e r m i n a t i o n .
4 I n its c r o s s - m o t i o n f o r

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e r letter t h a t t h e 2008 N A D to i m p l e m e n t the determination. Schroeder specifically stated i n h D e t e r m i n a t i o n c o n c l u d e d t h a t her " t e n d e r e d p a y m e n t is e x c e p t e d f r o m [ E L I H P A] c o n s t r a i n t s , " a n d

mbrances." (Schroeder Decl. a s k e d t h a t R H S c o m p l e t e t h e d o c u m e n t s n e c e s s a r y t o s a t i s f y the e n c u ( # 1 4 ) E x . B . ) R H S n e v e r r e s p o n d e d t o t h i s letter. S c h r o e d e r again w r o t e t h e Secretary o f t h e U n i t e d S t a t e s D e p a r t m e n t o f Agriculture o n J u l y

0 0 8 , t h e O r e g o n state d i r e c t o r 6 , 2 0 0 8 , asking t h a t i t i m p l e m e n t t h e determination. O n A u g u s t 1 5 , 2 cknowledge the request i n h e r o f t h e U S D A ' s R u r a l D e v e l o p m e n t section, w r o t e t o S c h r o e d e r t o a July 2008 letter a n d to e x p l a i n i n p a r t R H S ' s position: The National Y o u , i n t u r n , a p p e a l e d o u r civil r i g h t s a n a l y s i s and w o n t h e appeal. did n o t d e n y A p p e a l s D i v i s i o n , however, n e v e r understood t h a t t h e Agency ke our "impact p r e p a y m e n t b a s e d o n the civil rights assessment o r t h a t w e do n o t m a w e recognized o n h o u s i n g d e c i s i o n " u s i n g a civil r i g h t s d e t e r m i n a t i o n . N e v e r t h e l e s s , r the housing" t h e n e e d for a n e w i m p a c t o n m i n o r i t y d e c i s i o n a n d a n i n i t i a l " n e e d fo s and the n e x t decision. O n c e t h a t is c o m p l e t e d , y o u will b e a d v i s e d o f o u r f i n d i n g e Agency t h u s steps t h a t n e e d t o b e followed to c o n s u m m a t e y o u r prepayment. T h ulations at 7 C F R c o n t e n d s (holds, m a i n t a i n s , asserts) t h a t t h e p r o c e s s f o u n d i n t h e r e g h i s w r i t i n g and 3 5 6 0 , S u b p a r t N , H o u s i n g P r e s e r v a t i o n , h a s n o t b e e n e x h a u s t e d as o f t cept repayment t h a t until the p r o c e s s is completed the Agency has no authority to ac o f y o u r loan. ( S c h r o e d e r Decl. (#22), E x . N a t 2 . ) S c h r o e d e r e x c h a n g e d additional correspondence w i t h

e i r interpretation o f t h e N A D D e f e n d a n t s for several more m o n t h s , w i t h e a c h party reasserting t h o compel enforcement o f h e r d e t e r m i n a t i o n . S c h r o e d e r filed t h i s l a w s u i t o n O c t o b e r 2 8 , 2 0 0 8 , t interpretation o f the N A D determination. h p u r p o r t e d to b e p a r t H o w e v e r , o n O c t o b e r 2 7 , 2008, R H S c e r t i f i e d a s e c o n d C R I A , w h i c t granting S c h r o e d e r ' s request o f S c h r o e d e r ' s original administrative process a n d w h i c h f o u n d t h a w o u l d n o t adversely i m p a c t m i n o r i t i e s b u t w o u l d result i n a shortag e o f safe, d e c e n t , s a n i t a r y , a n d

adverse decision to the N A D , a f f o r d a b l e h o u s i n g f o r p r o g r a m participants. S c h r o e d e r a p p e a l e d t h i s OPINION A N D O R D E R 8 {JVA}

e d the c o m p a r a b l e h o u s i n g arguing that the 2008 NAD Determination had "previously determin M a y 15, 2009, the Hearing availability issue i n her favor." (2009 N A D Determination 1.) O n N A D Determination), was Officer concluded that the original Remand Decision (i.e., the 2008 er satisfied the require administratively final and determined, as a matter o f l a w , that Schroed ments

a t i o n (hereinafter " t h e 2009 o f ELIHPA. The Agency requested director review o f this determin H e a r i n g O f f i c e r ' s decis NAD Determination"). O n August 21, 2009, the Director reversed the ion

o f t h i s decision, w h i c h w a s and ruled in favor o f t h e Agency. Schroeder requested reconsideration n that date. denied o n November 6, 2009. The D i r e c t o r ' s reversal became final o c h r o e d e r ' s appeal o f During this same time period, the N i n t h Circuit issued a decision in S Uli's July 22, 2009, opinion the district cOUli decision o n her quiet title lawsuit. The appellate cO affirmed the district cOUli's ruling that the ELIHP A applied to Schroede i m p o s e d a d d i t i o n a l r e s t r i c t i o n s o n S c h r o e d e r ' s federal l o a n , b e y o n d t h e r's request to prepay and thus terms o f t h e l o a n a g r e e m e n t .

'prepayment' as ' [ p]ayment The court wrote: " T h e regulations interpreting ELIHP A define a loan i n full o f the outstanding balance o n a n Agency loan prior to the n o t e ' s o riginally s c h e d u l e d maturity

uoting 7 C.F.R. § 3560.11). date. " , Schroeder v. United States, 569 F J d 956, 962 (9th Cir. 2009) (q l o a n s w e r e 2015 a n d 2 0 3 4 , The c o u r t r e a s o n e d that b e c a u s e t h e m a t u r i t y dates o f t h e o r i g i n a l " S c l u ' o e d e r ' s 2004 a t t e m p t e d p a y m e n t c o n s t i t u t e d a prepayment under the applicable r e g u l a t i o n s . "

quirements, Sclu'oder must [d. Furthermore, because Schroeder' loans were subject to ELIHPA re t h e r (1) s h e c o m p l e t e s t h e c o m p l y w i t h ELIHP A a n d , a c c o r d i n g l y , m a y n o t p r e p a y " u n t i l e i pires." [d. at 9 6 3 . ' prepayment procedures outlined in ELIHPA; or (2) the loan period ex E L I H P A a p p l i e d to ' T h e only issue in Sclu'oeder's quiet title action was whether o r n o t the E L I H P A a p p l i e d t o h e r loan, Schroeder's loan. In the instant case, Schroeder argued that even i f the , Schroder n e v e r challenged s h e h a s f u l f i l l e d t h e p r o c e d u r a l p r e c o n d i t i o n s t o p r e p a y h e r loan. T h u s O P I N I O N AND O R D E R

9

{lVA}

The parties n o w dispute what action Defendants were required t o take t o

correctly i m p l e m e n t

ess o f the second CRIA, and the 2008 NAD determination. The parties also dispute the appropriaten h a t detelmination. the effect o f the 2009 NAD Determination and D i r e c t o r ' s reversal o f t

Legal Standard
ct C A P A " ) " a p p l y , T h e j u d i c i a l r e v i e w provisions o f t h e Administrative Procedures A t e s p r e c l u d e j u d i c i a l review; according to the provisions thereof, except to the extent that - (1) statu .C. § 701 (a) (2009). Where or (2) agency action is committed to agency discretion by law." 5 U.S t h a t p r e l i m i n m y r e q u i r e m e n t is m e t , " [ a ] p e r s o n s u f f e r i n g l e g a l w r o n g b e c a u s e o f a g e n c y action, o r a relevant statute, is entitled

adversely affected or aggrieved by agency action within the meaning o f

l m a t t e r , t h e r e is a " s t r o n g to judicial review thereof." 5 U.S.C. § 702 (2009). As a genera

v. St. Cyr, 533 U.S. 289, 298 p r e s u m p t i o n i n favor o f j u d i c i a l r e v i e w o f administrative a c t i o n . " I N S higan A c a d e m y o f F a m i l y (2001), superseded by statute on other grounds (citing Bowen v. Mic
e A P A applies to review o f Physicians, 476 U.S. 667 670 (1986) (additional citations omitted)). Th 7). NAD determinations. Lane v. USDA, 120 F.3d 106, 109 (8th Cir. 199 wable by statute," or An agency action is subject to judicial review where it is "made revie n a c o u r t [ . ] " 5 U.S.C. § 7 0 4 is a "final agency action for which there is no other adequate remedy i r e v i e w i n g c o u r t shall decide (2009). "To the extent necessary to decision and when presented, the ovisions, a n d determine t h e all relevant questions o f law, interpret constitutional and statutOly pr

§ 706 (2009). The C O U I t is meaning or applicability o f the terms o f an agency action." 5 U.S.C.
onably delayed" and " h o l d a u t h o r i z e d t o " c o m p e l agency a c t i o n unlawfully w i t h h e l d o r u n r e a s

s that was the subject o f h e r i n t h i s c a s e t h e a p p l i c a b i l i t y o f t h e E L I H P A p r o v i s i o n s t o h e r loan, a q u i e t t i t l e action. O P I N I O N AND O R D E R 10 {JVA}

unlawful and set aside agency action, findings, and conclusions found to

be . . . arbitrary, capricious,

.S.C. §§ 706(1) and (2)(A) a n a b u s e o f discretion, o r o t h e l w i s e n o t i n accordance w i t h l a w [ . ] " 5 U (2009).
See 7 U . S . C . § 6 9 9 9 An unappealed NAD determination is a final administrative decision.

d enforceable by any United (2008) ("A final determination o f the Division shall be reviewable an S t a t e s d i s t r i c t c o u r t o f c o m p e t e n t j u r i s d i c t i o n i n a c c o r d a n c e w i t h [the A P A]. ''). See also Entelpl'ise

) ( " N e i t h e r t h e B a n k n o r the National Bank v. Johanns, 539 F. Supp. 2 d 343, 345 (D.C. Cir. 2008 and Appeal D e t e l w i n a t i o n A g e n c y a p p e a l e d this H e a r i n g O f f i c e r ' s d e t e r m i n a t i o n ; t h u s , t h e R e m c a s e . " ) . A s such, t h e c o m i remains intact as the ultimate administrative decision regarding this C. §§ 706(2). This standard r e v i e w s t h e m a t t e r u n d e r t h e a r b i t r a r y a n d c a p r i c i o u s standard. 5 U . S .
ank, 539 F. Supp. 2 d at 345, o f r e v i e w is "highly deferential" to the agency, Enterprise National B

s o t h a t t h e c o u l i n e e d n o t f i n d t h a t t h e a g e n c y ' s i n t e r p r e t a t i o n is t h e o n l

y reasonable one. A m e r i c a n

. 4 0 2 , 422 ( 1 9 8 3 ) . T h e c o m i Paper Institute, Inc. v. American Elec. Power Service Corp., 461 U.S s i d e r w h e t h e r the a g e n c y ' s may n o t substitute its judgment for that o f the agency, but must con d e c i s i o n w a s b a s e d o n a c o n s i d e r a t i o n o f t h e r e l e v a n t factors a n d w h e t h er there h a s b e e n a c l e a r e r r o r

08). T h e c o m i ' s r e v i e w is o f judgment. Arrington v. Daniels, 516 F.3d 11 06, 1112 (9th Cir. 20 e t h e d e c i s i o n w a s made. confined to the full administrative record before the agency at the tim
Enterprise National Bank, 539 F. Supp. 2 d at 345. Discussion

A.

Effect o f Agency's Failure t o Implement within RegulatOlY Time Peri

od

o f R H S ' s failure to The initial question for the court is the effect on Schroeder's claims i m p l e m e n t t h e 2 0 0 8 N A D D e t e r m i n a t i o n o n o r before t h e d e a d l i n e s e t b OPINION AND O R D E R y t h e g o v e m i n g regulations.
{JVA}

11

o t h e y e v e r directly r e g i s t e r Although the parties never actually agree o n the exact deadline, neither d d i s a g r e e m e n t o v e r a n y o f t h e three p o s s i b l e d e a d l i n e s t h a t S c h r o e d e r i d e n t i f i e s i n h e r various b r i e f s

notice o f the 2008 NAD and exhibits. Combining Defendants' admission that they received was to have occurred Determination o n May 1,2008, and their admission that implementation thirty days o f their receipt o f that notice, the latest date by which implem Determination should have occurred is Monday, June 2, 2008." took any action to There is no question that neither RHS nor any o f the Defendants ions define " i m p l e m e n t " a s implement the NAD determination o n or before that date. The regulat nd promptly to effectuate a "[t]he taking o f action by an agency o f the Department in order fully a k no action by the deadline; final determination o f the Division." 7 C.F.R. §11.1 (2009). RHS too 2008 N in fact, the first action o f record by any o f t h e Defendants regarding the e is R H S ' s August 15, 2008, letter to SclU'oeder in which RHS informs h A D Determination within

e n t a t i o n o f the 2008 N A D

r t h a t i t will c o n d u c t a n e w

5, 2008, letter constitutes CRIA. Assuming for purposes o f this issue that R H S ' s August 1 nths after the latest date by "implementation," its action did not occur until two and one-half mo w h i c h RHS should have implemented the 2008 NAD Determination. The statutes and regulations do not specify the consequences o f an agen c y ' s v i o l a t i o n o f the

a t s u c h violation precludes deadlines established by the regulations, but the logical implication is th t h e agency in an enforcement action such as Schroeder's from offering p o f a N A D determination and new arguments to support its original acti o s t-deadline interpretations

ons. A c o n t r a r y c o n c l u s i o n

ew is confined to the full w o u l d v i o l a t e a b a s i c p r i n c i p l e i n t h e s e cases, t h a t t h e c o u r t ' s r e v i

e 2, 2008, was the The thirtieth day after May 1 , 2 0 0 8 , was May 3 1 , 2 0 0 8 , a Saturday. Jun first business day following the May 31, 2008, deadline.
6

OPINION AND ORDER

12

{JVA}

de. See Enterprise National administrative record before the agency at the time the decision was ma
Bank, 539 F. Supp. 2 d a t 345 ("[J]udicial review is confined to the full

a d m i n i s t r a t i v e record b e f o r e

ement Co. v. Newcomb, 995 t h e a g e n c y at t h e t i m e t h e d e c i s i o n w a s m a d e . " ) ; M i l e n a S h i p M a n a g

i s t r a t i v e a c t i o n ' o n t h e full F.2d 620, 624 (5th Cir. 1993) ("[W]e base our review o f an admin . . a t the t i m e he made his a d m i n i s t r a t i v e r e c o r d t h a t was b e f o r e t h e [ a d m i n i s t r a t i v e o f f i c e r ] . 08) ("[W]e are forbidden to decision. "'). See also Arrington v. Daniels, 516 F.3d 1106 (9th Cir. 20

A. . . . We are limited to the c o n s i d e r [ p o s t h o c r a t i o n a l i z a t i o n s ] i n c o n d u c t i n g r e v i e w u n d e r t h e AP
explanations offered by the agency in the administrative record."); Dal
y v. U.S. ,53 F . 3 d 1244, 1251

c rationaliz (Fed. Cir. 1995) ("[C]ourts may n o t accept appellate c o u n s e l ' s p o s t ho

ations for agency

t all, o n t h e b a s i s a r t i c u l a t e d action. I t i s well established that an agency's action must be upheld, i f a
ed States, Inc. v. State Farm b y the agency itself.") (quoting Motor Vehicle .Mfi·s. A s s 'n o f the Unit Mut. Auto. Ins. Co., 463 U.S. 29, 50 (1983)).

T h u s , i n a s u b s e q u e n t e n f o r c e m e n t lawsuit, dministrative record a n d n o t

declarations offered b y a n agency to justifY its actions are outside the a

98 U.S. Dist. LEXIS 22433 admissible. First National B a n k v . Glickman, No. 5-97-CV-133-C, 19 dmissible as a matter o f l a w (N.D. Tex. April 3, 1998) ("Thus, the Secretary's declaration is . . . ina ct. The declaration does n o t under the judicial review guidelines o f the Administrative Procedures A es the government SUppOlt it r e c i t e o r r e f e r to m a t t e r s c o n t a i n e d i n t h e a d m i n i s t r a t i v e r e c o r d , n o r d o w i t h any p m t o f or excepts from the administrative record[.]"). process e s t a b l i s h e d T h i s c o n c l u s i o n also p r e s e r v e s t h e p u r p o s e a n d i n t e g r i t y o f t h e r e v i e w etermination, w h i c h i n t h e regulations. E i t h e r p m t y m a y s e e k D i r e c t o r r e v i e w o f a N A D d give the pmties additional oppOltunityto make and respond to argument process

s challenging and suppOlting

ost-hoc justifications for its a N A D determination. I f a reviewing COUIt considers a n agency's p O P I N I O N AND O R D E R 13 {JVA}

t effecti actions, the Director review process is at best undermined and at wors

vely c i r c u m v e n t e d .

allows an agency to cause FUlthermore, consideration o f new reasons for a n agency's decision n. unwarranted, and perhaps limitless, delay o f a d i s p u t e ' s final resolutio y to b e g i n a c t i o n s o f To be sure, reasonable application o f this rule would allow a n agenc on o f a N A D determination r e c o r d w i t h i n t h e t h i l i y - d a y d e a d l i n e p e r i o d where f u l l i m p l e m e n t a t i e r t h i s v i e w a n agency m u s t c o u l d r e q u i r e m o r e t h a n t h i l i y d a y s to a c c o m p l i s h . H o w e v e r , e v e n u n d i t h i n t h e t h i l t y - d a y period. take affirmative and formal steps to begin the implementation process w t or begin implementing the Here there is no dispute that RHS took no steps o f record t o implemen ion. 2008 NAD Detelmination by or before the latest date for implementat d encompassed only I n sum, the administrative record i n this case closed o n June 2, 2008, an record, t h e c o u r t finds t h a t those actions o f record that occurred by that date. Reviewing that l e m e n t i n g t h e 2008 N A D Defendants failed to implement or take any steps t o begin imp D e t e r m i n a t i o n w i t h i n t h e t i m e r e q u i r e d u n d e r t h e c o n t r o l l i n g regulation s . T h e r e f o r e , D e f e n d a n t s are the r e c o r d before the r e c o r d

precluded from offering any interpretation or argument not made and o n closed. B. I m p l e m e n t a t i o n o f t h e 2008 N A D D e t e r m i n a t i o n

The COUlt next turns to the central issue in this action, the proper implem

e nta tion o f t h e 2008

D Determination to permit NAD Determination. Schroeder asks the to COUlt enforce the 2008 N A the propeliy. Defendants h e r to prepay her obligation and extinguish the encumbrances ii-om c o n t e n d that t h e y h a v e p r o p e r l y i m p l e m e n t e d t h e 2 0 0 8 N A D D e t e r m i n a t i o n by c o n d u c t i n g a s e c o n d etermination.

C R I A to c o r r e c t t h e d e f i c i e n c i e s t h e H e a r i n g O f f i c e i d e n t i f i e d i n h i s D

t e r m i n a t i o n requires The COUlt concludes that proper implementation o f the 2008 N A D De OPINION AND O R D E R

14

{JVA}

RHS to accept S c h r o e d e r ' s prepayment and clear all encumbrances a n T h e H e a r i n g O f f i c e r e x p l i c i t l y f o u n d as i n c o r r e c t R H S ' s d e t e r m i n a t i o

d restrictions o n t h e property.

ns t h a t Schroeder c o u l d n o t be

gger b o t h o f the r e g u l a t i o n ' s p e r m i t t e d to p r e p a y h e r obligation because p r e p a y m e n t w o u l d tri ental effect o n t h e a d e q u a t e p r o h i b i t e d o u t c o m e s : a n a d v e r s e i m p a c t o n m i n o r i t i e s and a detrim rogram-eligible t e n a n t s i n the s u p p l y o f d e c e n t , s a f e , a n d s a n i t m y a f f o r d a b l e r e n t a l h o u s i n g for p rect definition o f " m i n o r i t i e s " m a r k e t area. S p e c i f i c a l l y , h e f o u n d t h a t R H S h a d a p p l i e d t h e i n c o r to identifY minorities. The and, c o n s e q u e n t l y , t h a t R H S h a d u s e d a n o v e r - i n c l u s i v e d e f i n i t i o n H e a r i n g O f f i c e r also f o u n d R H S ' s a s s e r t i o n o f a n a d v e r s e i m p a c t o n safe a n d affordable h o u s i n g i n ed no d a t a to substantiate t h a t

t h e m a r k e t a r e a n o t s u p p o r t e d b y the C R I A b e c a u s e t h e C R I A c o n t a i n assertion.

F u t t h e r m o r e , t h e H e a r i n g Officer also found t h a t t h e evidence s h o w e d

that neither prohibited

rrect definition o f " m i n o r i t y " c o n d i t i o n existed. First, t h e H e a r i n g O f f i c e r found t h a t w h e n t h e c o ffected by allowing Schroeder w a s a p p l i e d , the C R I A s h o w e d m i n o r i t i e s w o u l d n o t b e a d v e r s e l y e S h a d used a n under-inclusive t o p r e p a y h e r obligation. Second, t h e H e a r i n g O f f i c e r found t h a t RH d to establish t h a t t h e h o u s i n g m a r k e t a r e a i n identifYing a v a i l a b l e h o u s i n g , a n d t h a t R H S h a d f a i l e s i n g . " I n o t h e r w o r d s , a n d as t h a t w a s i d e n t i f i e d w a s " n o t d e c e n t , safe, a n d s a n i t m y a f f o r d a b l e h o u S c h r o e d e r a r g u e d t o t h e H e a r i n g Officer, t h e R H S ' s o w n " C R I A s h o w o f available housing units i n t h e m a r k e t area[.]" ed t h RHS denied S c h r o e d e r ' s prepayment request because i t had determin a t permitting her s there were adequate n u m b e r s

60.658(b). R H S a s s e l t e d t h i s t o p r e p a y w o u l d t r i g g e r b o t h c o n d i t i o n s p r o h i b i t e d b y 7 C.F.R. § 3 5 r o e d e r ' s r e q u e s t a n d u s e d its i n t e r p r e t a t i o n t o t h e H e a r i n g O f f i c e r as t h e r e a s o n f o r d e n y i n g S c h r ' s request. T h e a d m i n i s t r a t i v e interpretation to SUppOlt its argument t h a t i t properly denied S c h r o e d e OPINION AND O R D E R 15
{JVA}

ts p o s i t i o n . record discloses no other reason offered by RHS i n s u p p o t t o f i administrative record contain any argument by RHS that it was entitled

N o r does the

to or should be permitted to

A n d , n o t h i n g i n the r e c o r d c o n d u c t another C R I A i f t h e N A D rejected R H S ' s determination. indicates that other requirements existed that Schroeder must satisfy as a condition to RHS accepting

ary: her prepayment. In fact, the statute relied u p o n by RHS is to the contr rdance w i t h I f the borrower does not elect or agree to enter a n agreement in acco t o f prepayment paragraph (a) o f this section, then the Agency will assess the impac decent, safe, o n two factors: housing opportunities for minorities and the supply o f i e w relevant sanitary, and affordable housing in the market area. The Agency will rev housing for i n f o r m a t i o n to d e t e r m i n e t h e a v a i l a b i l i t y o f c o m p a r a b l e a f f o r d a b l e e waiting l i s t e x i s t i n g t e n a n t s i n t h e m a r k e t area a n d i f m i n o r i t i e s i n t h e p r o j e c t , o n t h he loss o f t h e or in the market area will be disproportionately adversely affected b y t is no adverse affordable rental housing units . . . . I fthe A g e n c y determines that there cent, safe, a n d s a n i t m y impact o n minorities a n d there is an adequate supply o f de e m a r k e t area rental h o u s i n g affordable to p r o g r a m eligible tenant households in th the p r e p a y m e n t will be a c c e p t e d with no jill'fher restriction. 7 C.F.R. § 3560.658(b) (2008) (emphasis added). 'ect and found, on the Thus, once the Hearing Officer rejected R H S ' s determinations as inC01l o t trigger either prohibited r e c o r d before h i m , t h a t R H S ' s C R I A s h o w e d p r e p a y m e n t w o u l d n d R H S was r e q u i r e d to c l e a r c o n d i t i o n , S c h r o e d e r w a s e n t i t l e d to h a v e h e r p r e p a y m e n t a c c e p t e d a n all e n c u m b r a n c e s a n d r e s t r i c t i o n s f r o m t h e p r o p e r t y . T h e p l a i n l a n g u a g e o f 7 C.F.R. ncy d e t e t m i n e s t h a t t h e r e

§ 3560.658(b)(4) allows for no other result, as i t directs that " [ i ] f t h e Age
is no adverse impact o n minorities and there is an adequate supply o f de

cent, safe, and sanitary rental area the p r e p a y m e n t will be

h o u s i n g a f f o r d a b l e to p r o g r a m e l i g i b l e t e n a n t h o u s e h o l d s i n t h e m a r k e t
a c c e p t e d w i t h n o j i l l ' f h e r r e s t r i c t i o n . " (Emphasis added.)

Accordingly, Schroeder's motion for summary j u d g m e n t is granted and

Defendants' motion

r's prepayment and clear all fol' summary j u d g m e n t is denied. Defendants must accept Schroede OPINION A N D O R D E R 16
{JVA}

f t h e date o f t h i s opinion. encumbrances and restrictions fi'om the property w i t h i n thirty days o C. R H S ' s P o s t - H o c I n t e r p r e t a t i o n o f the 2 0 0 8 N A D D e t e l m i n a t i o n e N A D detem1ination E v e n i f the cOUit considers D e f e n d a n t s ' post-hoc interpretations o f th and its a r g u m e n t s i n s u p p o r t o f t h a t i n t e l p r e t a t i o n , t h e c o u r t still m u s t grant S c h r o e d e r ' s m o t i o n a n d

riginal position regarding the d e n y D e f e n d a n t s ' motion. A s a n initial observation, D e f e n d a n t s ' o action; indeed, t h e i r p o s i t i o n N A D d e t e r m i n a t i o n d i f f e r s f r o m the p o s i t i o n t h e y o f f e r i n t h e c o u r t nts w i t h Schroeder a n d t h e n appears t o have s h i f t e d a n d evolved a s t h e y t r a d e d w r i t t e n argume n t o t h r e e c o n t e n t i o n s : (1) t h e d e f e n d e d t h e i r a c t i o n s i n t h i s lawsuit. D e f e n d a n t s ' a r g u m e n t s d i s t i l l i level, (2) the 2008 N A D N A D d i d n o t u n d e r s t a n d R H S ' s a r g u m e n t at t h e a d m i n i s t r a t i v e S c a n n o t accept S c h r o e d e r ' s D e t e l m i n a t i o n permits RHS to conduct a new CRIA, and (3) RH prepayment because additional regulatory r e q u i r e m e n t s m u s t b e satis b e accepted. N o n e o f t h e s e p o s i t i o n s h a v e merit. f i e d before p r e p a y m e n t c o u l d

1. N A D ' s understanding o fR H S ' s p o s i t i o n a t the administrative level
R H S ' s August 1 5 , 2 0 0 8 , letter to Schroeder w a s Defendants' first resp o n s e o f any k i n d t o t h e

fficer " n e v e r u n d e r s t o o d that 2 0 0 8 N A D D e t e r m i n a t i o n . In t h a t l e t t e r R H S s t a t e d t h a t t h e H e a r i n g O e do not make o u r ' i m p a c t o n t h e Agency d i d n o t deny p r e p a y m e n t b a s e d o n t h e [CRIA] o r t h a t w 2.) T h i s i n t e l p r e t a t i o n , w h i c h h o u s i n g d e c i s i o n ' u s i n g a [ C R I A ] . " ( S c h r o e d e r D e c \ . ( # 2 2 ) , Ex. N a t s patently u m e a s o n a b l e . a t l e a s t i n p a r t u n d e r l i e s R H S ' s s u b s e q u e n t i m p l e m e n t a t i o n efforts, i A N A D d e t e r m i n a t i o n n o t t i m e l y a p p e a l e d b e c o m e s a f i n a l a g e n c y dec ision. See E n t e l p r i s e

gency appealed t h i s H e a r i n g National Bank, 539 F. Supp. 2d at 345 ("Neither t h e B a n k n o r the A e m a i n s i n t a c t as t h e u l t i m a t e O f f i c e r ' s determination; thus, t h e R e m a n d Appeal D e t e r m i n a t i o n r . Utah CanstI'. & Mining Co., a d m i n i s t r a t i v e d e c i s i o n r e g a r d i n g t h i s c a s e . " ) ; s e e also U n i t e d S t a t e s v OPINION A N D O R D E R 17
{JVA}

g in a j u d i c i a l capacity and 384 U.S. 394, 421 (1966) ("When an administrative agency is actin r e s o l v e s d i s p u t e d i s s u e s o f fact p r o p e r l y b e f o r e i t w h i c h t h e p a t t i e s h a v e had an adequate opportunity

e repose."). to litigate, the courts have not hesitated to apply res judicata to enforc sion o n any ground, RHS n e v e r r e q u e s t e d D i r e c t o r r e v i e w o f t h e H e a r i n g O f f i c e r ' s d e c i onsequently, w h e n t h e t i m e i n c l u d i n g t h a t t h e H e a r i n g O f f i c e r did n o t u n d e r s t a n d R H S ' s p o s i t i o n . C A for exercising R H S ' s regulatOlY right t o seek review expired, the 2008 N final. D Detetmination became

ion the 2008 N AD A t that point, RHS no longer had the right t o challenge or quest

nterpreting the 2008 NAD Determination and was required to implement that decision. B y i d a c l e a r e r r o r i n j udgment. Determination as inc011'ect on the merits o f its position, RHS committe s ' interpretation o f the 2008 For this reason, the COUlt finds as arbitrary and capricious Defendant N A D Determination.

2. Conducting a new CRIA
nize[d] the need for In its August 15, 2008, letter, RHS stated that i t "nevertheless [] recog decision." (Schroeder Dec!. a n e w impact on minority decision and a n initial ' n e e d for the housing' g n i z e d " the n e e d for a n e w (#22), Ex. N at 2.) First, it is unclear the extent to which RHS "reco rstand that it did n CRIA based o n its interpretation that the Hearing Officer did n o t unde o t base i t s

scussed above, however, any denial o f Schroeder's prepayment request o n the original CRIA. A s di r e l i a n c e b y R H S o n t h i s i n t e r p r e t a t i o n i s w i t h o u t merit. A, but this does not Second, RHS may well have "recognized" the need for a new CRI ntains no directive that RHS interpret the 2008 N AD Determination, because the determination co c o n d u c t a s e c o n d C R I A , nor d o e s i t s t a t e o r s u g g e s t t h a t a n e w C R I A is needed or desirable. RHS

n that t h e CRIA report was argues that it "interpreted the Remand Appeal Determination to mea OPINION AND O R D E R 18
{JVA}

u m o f Law in S u p p o r t w repOlt." (Defendants' Memorand neous and could be cOITected in a ne elTO HS, the 2008 N A D ary Judgment 9.) According to R fendants' Cross M o t i o n for Summ o f De ing o f the so-called ayment, b u t rather " i m p l i e [ d ] a c u r nation did n o t order it to allow prep Determi g Rooney Dec!. ~ greed to having made." Id. (quotin cision to which the Agency never a adverse de i n a t i o n does m e n t b e c a u s e the 2008 N A D D e t e r m omitted). T h e c o u r t r e j e c t s t h i s a r g u 13, emphasis n o t support it. explicitly First, the 2008 N A D Determination adverse i m p a c t s erroneous because n e i t h e r o f t h e o f found t h a t t h e A g e n c y ' s adverse d e c ision w a s

t h a t w o u l d prevent p r e p a y m e n t w e r

e present.

cts, t h e c a t e e i t h e r o f t h e t w o a d v e r s e impa where prepayment would n o t impli A s a matter o f law, Thus, e , q u o t e d a b o v e , m a k e s t h i s clear. epayment and the controlling statut Agency m u s t a l l o w p r as at prevent prepayment and RHS w w o u l d n o t trigger the c o n d i t i o n s t h S c h r o e d e r ' s prepayment i required to accept her prepayment; t w a s n o t a u t h o r i z e d to c o n d u c t a n e w CRIA. l l o w e d the inference

Second, t h e 2 0 0 8 N A D D e t e r m i n a t i RIA t t h a t R H S could conduct a second C

on could n o t have contemplated o r a

e at no point did RHS o correct the original CRIA, becaus earing Of any way. RHS never argued to the H ficer t h a t

ficient i n argue t h a t t h e original C R I A w a s d e

d additional data e d n e c e s s a r y data, t h a t R H S neede l C R I A w a s flawed o r t h a t i t lack the initia o k precisely t h e u l d b e c o n d u c t e d . I n fact, R H S t o t h e CRIA, o r t h a t a n e w C R I A s h o relevant to l was t h a t t h e argument a t the administrative leve ion regarding its CRIA: R H S ' s sole opposite p o s i t oth o f the e p a y m e n t r e q u e s t w o u l d trigger b a t e d t h a t granting S c h r o e d e r ' s p r C R I A demonstr 08 N A D Thus, R H S ' s argument that the 20 e d b y 7 C.F.R. § 3 5 6 0 . 6 5 8 ( b ) ( 4 ) . conditions prohibit and, itial CRIA has no basis in the record d for a second CRIA to correct the in Determination allowe

O P I N I O N AND O R D E R

19

{JVA}

thus, is arbitrmy and capricious.

7

N A D Determi T h a t R H S d i d n o t interpret t h e 2008

nation is also confirmed b y the decla

ration ants'

u s i n g Specialist Stanle submitted by RHS Multi-Family Ho

y J. Rooney, Jr., in support o f Defend

erpreted t h e N A D R e m a n d D e c r o s s - m o t i o n . R o o n e y states: " I i n t e , for the first time, a m a redo the CRIA assessment and mak

termination to mean RHS should

ion r k e t supply assessment." (Declarat

s no explanation for this c ! . " ) ~ 12.) H o w e v e r , R o o n e y o f f e r Stanley J. Rooney, Jr. ("Rooney De of n t h a t supports this f r o m t h e 2008 N A D D e t e l m i n a t i o retation nor does he cite language interp n y to e s t a b l i s h t h a t o n e y ' s declaration omits any testimo d interpretation. A s i m p o r t a n t l y , R o proffere y the governing pretation w i t h i n t h e t i m e l i m i t s e t b d s u b m i t t e d o n t h e r e c o r d this i n t e r he made an s court may n o t o f f e r s post-hoc r e a s o n s w h i c h t h i . A t b e s t , R o o n e y ' s declaration regulations L E X l S 22433 o. 5-97-CV-133-C, 1998 U.S. Dist. F i r s t N a t i o n a l B a n k v . Glickman, N consider. See matter o f l a w declaration is . . . inadmissible as a ril 3, 1998) ("Thus, the Secretmy's (N.D. Tex. Ap on does n o t ative Procedures Act. The declarati l r e v i e w guidelines o f t h e A d m i n i s t r under the j u d i c i a ppOit i t record, nor does the government SU tters c o n t a i n e d i n the administrative recite or refer to ma w i t h any p a r t o f or excepts from th e a d m i n i s t r a t i v e record[.]"). n d i t i o n s were n o t s a t i s f i e d w a s r e j e c ted

e r e g u l a t i o n ' s co Third, D e f e n d a n t s ' argument t h a t t h ed i t h a d not m by t h e N A D . R H S i n i t i a l l y c o n t e n d

e c t o r review, a d e s u c h a determination. U p o n D i r

to i m p l y t h a t t h e Agency determines" could be read re T h e r e g u l a t i o n ' s language " [ i ] f t h e 7 o r n o t the prohibited c o n d i t i o n s a affirmative determination w h e t h e r Agency m u s t make a n o r e a s o n s . First, . Such a reading is incorrect for tw egardless o f t h e N A D determination of triggered, r r m i n a t i o n " i s a final d e t e r m i n a t i o n r n o t e d i n his decision, a N A D d e t e u c h a reading a n d as the Hearing Office uest for review i s filed." Second, s t o f Agriculture u n l e s s a timely r e q t h e Departmen rse N A D d e t e r m i n a t i o n frustrate implementation o f an adve l d p e n n i t the Agency t o indefinitely r t h e NAD wou ination," w h i c h result would rende a t i t never actually m a d e a " d e t e r m b y contending t h p r o c e s s meaningless. OPINION A N D O R D E R 20 {JVA}

Director remanded S c this contention was rejected and the c a d e t e r m i n a t i o n o n the merits o f h e r

hroeder's case to the Hearing Office

r for

icer u n d laims. Thus, w h e n the Hearing Off

e r t o o k the h e a r i n g

ver m a d e a n adverse R H S ' s c o n t e n t i o n t h a t i t had ne the merits o n Januaty 10, 2008, on d e t e t m i n a t i o n b a s e d o n t h e origina l CRIA was decided against it. 343 (D.D.C. 2008), nal B a n k v . Johann, 539 F. Supp. 2 d tpretation is reasonable and is entitle d to d e f e r e n c e , b u t

D e f e n d a n t s rely o n E n t e r p r i s e N a t i o

e y ' s inte to s u p p o r t t h e i r c o n t e n t i o n t h a t R o o n

t h e b a n k s o u g h t payment o f i t h a t c a s e is d i s t i n g u i s h a b l e . T h e r e ,

ts c l a i m o n a d e f a u l t e d l o a n t h a t t h e st, c i t i n g t h e b a n k ' s a l l e g e d

The agency denied the b a n k ' s reque U S D A ( " a g e n c y " ) h a d guaranteed.

covenants o f its failure to comply w i t h several s s i n g a n d m o n i t o r i n g o f t h e loan, deficient proce , each o f gence i n perfOlming its obligations g a g r e e m e n t s , a n d its g e n e r a l n e g l i controlling lendin e bank a y a d e f a u l t e d g u a r a n t e e d loan. T h o n s t o t h e a g e n c y ' s o b l i g a t i o n to p w h i c h were excepti ination the Hearing Officer issued a determ ' s d e c i s i o n to t h e N A D . U l t i m a t e l y , appealed the a g e n c y uld a t i o n s , b u t also i n d i c a t e d t h a t " h e c o l i g e n t i n p e r f o r m i n g t w o o f its o b l i g t h a t f o u n d the b a n k neg Guarantee." Id. a t 345. tion t o fully reduce the Loan Note o t s u p p o r t the A g e n c y ' s determina n ency i n t e t p r e t e d the N A D l e d t h e N A D determination. T h e a g e i t h e r t h e b a n k n o r t h e agency a p p e a N earing Officer found to n k ' s loss c l a i m the two losses the H rmination b y d e d u c t i n g f r o m the b a dete fference. T h e b a n k sending the bank a check for the di e s u l t o f t h e b a n k ' s negligence, a n d be the r e q u i r e d t h e agency claiming t h a t N A D determination r nforcement action in district court, filed a n e out any deductions. to pay the b a n k ' s claim i n full, with retation The c o u r t u p h e l d t h e a g e n c y ' s i n t e r p his h o l d i n g o f t h e N A D d e t e r m i n a t i o n . K e y to t

nsible for dings t h a t t h e b a n k h a d b e e n respo e t e r m i n a t i o n c o n t a i n e d e x p r e s s fin is that the NAD d gency's hile neither t h e b a n k ' s n o r the a loss. T h e c o u r t o b s e r v e d t h a t w s o m e p a t t o f its OPINION A N D O R D E R 21

{lVA}

[ t ] h e h i g h l y deferentia interpretations were unreasonable, "

l standard o freview requires that this

cOUli

the apricious, even i f the action is n o t n so long as i t is n o t arbitrmy and c u p h o l d t h e agency a c t i o on d. . . . U n d e r t h i s s t a n d a r d , d e d u c t i h e o n e t h i s c o u r t w o u l d h a v e reache m o s t r e a s o n a b l e one o r t not e due to the B a n k ' s negligence was m o f t w o l o s s e s t h a t w e r e f o u n d to b from the overall loss clai 46-47 ( c i t a t i o n omitted). d arbitrmy and capricious." Id. at 3 ' e a s o n a b l e a n d camlot b e c o n s i d e r e um etermination here Enterprise Bank, the 2008 N A D D U n l i k e the N A D determination i n e f r o m t h e 2008 N A D nterpretation. RHS cites no languag ned no finding that supports R H S ' s i contai t a t i o n o f the 2008 orts the i n t e l p r e t a t i o n t h a t i m p l e m e n a t i o n t h a t directly o r indirectly s u p p Determin , the 2008 N A D ond CRIA. As previously discussed mination required conducting a s e c N A D Deter the C R I A in the H e a r i n g Officer c o n c l u d e d t h a t is contrary to that interpretation, as Determination r i g g e r e d by two prohibited effects would be t the conclusion t h a t neither o f the fact supported an. allowing Schroeder to prepay her lo A D Determination a R H S ' s position here that the 2008 N u t h o r i z e d a " r e d o " o f t h e C R I A is

onal r t m e n t o f A g r i c u l t u r e i n First N a t i t a k e n by t h e S e c r e t m y o f t h e D e p a s i m i l a r to t h e p o s i t i o n nd LEXIS 22433 (N.D. Tex. 1998), a 5097-CV-133-C, 1998 U.S. Dist. B a n k v. Glickman, No. lication to the Farmers b a n k s u b m i t t e d a l o a n guaranty a p p cted b y the c o u l i in that case. The reje e d o n a b u s i n e s s plan o f a borrower who sought a loan bas Administration ( " F H A " ) o n b e h a l f Home c a t i o n c i t i n g several i e d t h e b a n k ' s l o a n guaranty a p p l i t h e b a n k d e e m e d sound. F H A d e n which reason for denying h e a r i n g , F H A w i t h d r e w all b u t o n e and the bank appealed to NAD. A t reasons, e x p e n s e s are n o t s p l a n ' s " p r o j e c t e d c r o p income and uaranty application, that the busines the loan g uding w h e a t . " t i o n a n d financial m a n a g e m e n t , i n c l a p p e l l a n t ' s p r o v e n record o f p r o d u c b a s e d o n the n o f p r o o f in t " T h e A p p e l l a n t has m e t h i s b u r d e h e H e a r i n g Officer d e t e r m i n e d t h a Id. at *5-6. T
O P I N I O N AND O R D E R 22 {JVA}

showing that the decision to harvest wheat for grain is in accordance with agency regulations." Id. at *6. The Hearing Officer reversed F H A ' s decision and indicated that FHA "would be contacting the Appellant to implement this Determination." Id. The F H A s t a t e o f f i c e a s k e d t h e n a t i o n a l o f f i c e t o s e e k r e v i e w a n d reversal o f t h e N A D determination, but the agency's deputy administrator declined to do so. However, he instructed the state office to ' ' ' u p d a t e ' all financial information and to base or create a ' r e v i s e d ' financial plan based on 'current' marketing plans." Id. at *6-7. The c o m t noted that none o f these instructions "were authorized or required by the hearing officer's decision." Id. at *7. The FHA s t a f fresponsible for implementing the NAD determination "refused to do so within 30 days o f its finality, as required by 7 U.S.C. § 7000 and 7 C.F.R. § 11.12(a)." Glickman, 1998 U.S. Dist. LEXIS 22433, at * 7. Several weeks after the thirty-day implementation period expired, FHA wrote the bank to advise that it would implement the NAD determination, and it instructed the bank to provide updated financial information and n e w crop appraisals to reflect the then-current market p r i c e s a n d values. F H A " i g n o r e d " the original l o a n g u a r a n t y application and t h e N A D d e t e r m i n a t i o n , a n d " i n s i s t e d t h a t t h e b a n k a n d t h e b o r r o w e r s ' s t m t o v e r ' with a n e n t i r e l y n e w application." !d. at *8. The bank wrote FHA twice thereafter, first to ask why it had not implemented the NAD determination and a second time to state that the bank should not be required to submit new application materials and that FHA should implement the NAD determination "by issuing a loan note guaranty commitment." Id. at *8. For several months thereafter the bank and F H A exchanged letters i n which each reasserted their respective interpretations o f the NAD determination, ultimately producing no resolution o f their disagreement, and the bank filed a n enforcement action i n district court. OPINION AND ORDER 23
{JVA}

The district court found that F H A "violated the government statues and regulations by never implementing the N A D determination" because it never implemented the decision by the deadline dates established by statute and regulation. Jd. at *31. T h e cOUlt also rejected F H A ' s attempts to r e l y o n a d e c l a r a t i o n t h a t o f f e r e d p o s t - h o c r a t i o n a l i z a t i o n s for t h e c h a l l e n g e d a c t i o n s a n d t h a t e v e n i f F H A was enti tied to r e v i e w the financial basis o f t h e application for l o a n guaranty after t h e N A D d e t e r m i n a t i o n , F H A was l i m i t e d to t h e financial i n f o r m a t i o n available at t h e t i m e o f t h e o r i g i n a l a p p l i c a t i o n o r a d v e r s e d e c i s i o n , w h i c h f a c t s d e m o n s t r a t e d t h a t t h e bOll'owers' b u s i n e s s p l a n m e t t h e l o a n guaranty requirements. T h e COUlt concluded: T h e a g e n c y c l e a r l y d i d n o t i m p l e m e n t t h e N A D d e c i s i o n w i t h i n its o w n g o v e r n i n g statues a n d regulations. W h a t t h e a g e n c y d i d w a s essentially " s t o n e w a l l " t h e a p p e a l d e t e r m i n a t i o n , i g n o r e d t h e a g e n c y ' s o w n p r e v i o u s w i t h d r a w a l and w a i v e r o f all reasons for disapproval other than harvested wheat income reason, and found entirely " n e w " additional reasons in 1996 to assert as a basis for denying the 1995 application. T h e s e a c t i o n s are arbitrary, capricious, a n d n o t i n a c c o r d a n c e w i t h t h e law. Id. at *33-34. R H S ' s action i n t h e p r e s e n t case are similar to F H A ' s actions in Glickman. RHS did n o t implement t h e 2008 N A D Determination within the deadline set by statute and regulation, ignored S c h r o e d e r ' s r e p e a t e d r e q u e s t s t o i m p l e m e n t t h e 2008 N A D D e t e r m i n a t i o n , a t t e m p t e d to r e l y o n t h e p r e v i o u s l y rejected r a t i o n a l e t h a t i t had never m a d e a determination o n the d a t a c o n t a i n e d i n the original CRIA, and ultimately a t t e m p t e d to develop n e w reasons to support its original denial o f S c h r o e d e r ' s prepayment request by conducting a second C R l A using n e w data not p a r t o f original C R I A . T h e s e a c t i o n s w e r e n o t i n a c c o r d a n c e w i t h the r e q u i r e m e n t s o f the g o v e r n i n g s t a t u t e s a n d regulations, and were arbitrary and capricious a s that standard is applied to agency implementation o f N A D determinations.

OPINION AND O R D E R

24

{JVA}

3. Satisfaction o f additional regulatOly requirements

RHS contends that Schroeder cannot be allowed to prepay because other requirements exist that must be satisfied even i f Schroder overcomes both ELIPHA requirements under 7 C.F.R.

§ 3560.658(b) (2008). RHS asserts this argument for the first time i n this comi; it made no such
argument at the administrative level. For the reasons stated in Section A , above, RHS is precluded from now asseliing this argument and relying o n n e w facts to support it. Furthermore, RHS fails to explain the conflict in its position with the clear language o f the statute it has consistently cited as controlling the challenged decision i n this case. That statute provides: I f the b o n o w e r does not elect or agree to enter an agreement in accordance with paragraph (a) o f this section, then the Agency will assess the impact o f prepayment o n two factors: housing oppOliunities for minorities and the supply o f decent, safe, sanitaty, and affordable housing i n the market area. The Agency will review relevant information to determine the availability o f comparable affordable housing for existing tenants in the market area and i f minorities in the project, o n the waiting list or in the market area will be dispropOliionately adversely affected by the loss o f the affordable rental housing units . . . . I f the Agency determines that there is no adverse impact on minorities and there is an adequate supply o f decent, safe, and sanitaty rental housing affordable to program eligible tenant households in the market area the p r e p a y m e n t w i l l b e a c c e p t e d w i t h n o jiJrther r e s t r i c t i o n .

7 C.F.R. § 3560.658(b) (emphasis added). The statute's language is clear: RHS must accept
prepayment without any other restrictions i f neither o f the prohibited effects will occur. The NAD Determination resolved that question and found that neither prohibited effect would occur from accepting Schroeder's prepayment. Under the statute, RHS must accept Schroeder's prepayment without interposing any fmiher restrictions as preconditions to prepayment. Finally on this point, that RHS asselied for the first time i n this couli what it purports to be additional prerequisites to Schroeder's ability to prepay approximates the F H A ' s conduct i n OPINION AND ORDER 25
{JVA}

Glickman which the c o u r t there described as "stonewalling." I f these proffered conditions were
additional requirements related to Schroeder's prepayment request, logic compels the conclusion that R H S w o u l d h a v e s p e c i f i c a l l y r e f e r e n c e d t h e m i n its a r g u m e n t s t o t h e N A D H e a r i n g O f f i c e r a n d a t least in its post-determination communications in response to S c h r o e d e r ' s requests for i m p l e m e n t a t i o n . N o m e n t i o n o f s u c h c o n d i t i o n s o r r e q u i r e m e n t s a p p e a r s i n those c o m m u n i c a t i o n s o r i n t h e a d m i n i s t r a t i v e record. A s d i s c u s s e d above, s u c h a c o n t e n t i o n d i r e c t l y c o n t r a d i c t s t h e controlling s t a t u t e ' s clear language and RHS fails t