Hilburn, et al v. Vilsack, et al

Filing 137

OPINION AND ORDER re Motion to Dismiss for Lack of Jurisdiction 128 . Signed on 5/11/2022 by Judge Michael H. Simon. (kgc)

Case 3:16-cv-02116-SI

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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON

LISA McFALLS, MICHAEL McFALLS,
FRED WOODRING, and COMMUNITY
ACTION RESOURCE ENTERPRISES,
INC.,

Case No. 3:16-cv-2116-SI
OPINION AND ORDER

Plaintiffs,
v.
THOMAS J. VILSACK, Secretary of the
Department of Agriculture; JUSTIN
MAXSON, Deputy Undersecretary for
Rural Development; JOAQUIN ALTORO,
Administrator of the Rural Housing
Service; and MARGARET HOFFMANN,
Oregon Rural Development State Director,
Defendants.

Gideon A. Anders, NATIONAL HOUSING LAW PROJECT, 1663 Mission Street, Suite 460, San
Francisco, CA 94103; and Michael Pijanowski, Edward Johnson, and Kathryn McNeill,
OREGON LAW CENTER, 230 NE Second Avenue, Suite F, Hillsboro, OR 97124. Of Attorneys for
Plaintiffs.
Scott Erik Asphaug, Unites States Attorney; Sean E. Martin and Joshua Keller, Assistant United
States Attorneys, UNITED STATES ATTORNEY’S OFFICE, DISTRICT OF OREGON, 1000 SW Third
Avenue, Suite 600, Portland, OR 97204. Of Attorneys for Defendants.

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Michael H. Simon, District Judge.
Plaintiffs Lisa McFalls, Michael McFalls, Fred Woodring, and Community Action
Resource Enterprises, Inc. (CARE) (collectively, Plaintiffs) bring an as-applied challenge to the
decision made by the United States Department of Agriculture Rural Development (Rural
Development) to approve prepayment of the Section 515 loan for Golden Eagle II (Golden
Eagle), a low-income housing development in Tillamook, Oregon.1 Plaintiffs allege that:
(1) Defendants violated the Administrative Procedures Act (APA) by implementing regulations
inconsistent with the governing statute with respect to analyzing the effect of prepayment on
minorities; (2) Rural Development violated the APA by failing to establish standards for
determining the effect of prepayment on minorities; (3) Rural Development violated the APA by
administering its voucher program in an arbitrary and capricious manner; and (4) Rural
Development’s regulations authorizing the termination of use restrictions violates the Emergency
Low Income Housing Preservation Act. Defendants move to dismiss, arguing that Plaintiffs’
claims are moot because a new owner has purchased Golden Eagle and does not seek
prepayment of the Section 515 loan. For the reasons discussed below, the Court grants
Defendants’ motion.
STANDARDS
Federal courts are courts of limited jurisdiction. Gunn v. Minton, 568 U.S. 251, 256
(2013) (quotation marks omitted). As such, a court is to presume “that a cause lies outside this
limited jurisdiction, and the burden of establishing the contrary rests upon the party asserting

1

At the time of filing, Plaintiffs named Sonny Perdue, Roger Glendenning, Rich Davis,
and John E. Huffman as Defendants. Under Rule 25(d) of the Federal Rules of Civil Procedure,
the Court has substituted Defendants Thomas J. Vilsack, Justin Maxson, Joaquin Altoro, and
Margaret Hoffmann.

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jurisdiction.” Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994) (citations
omitted); see also Robinson v. United States, 586 F.3d 683, 685 (9th Cir. 2009); Safe Air for
Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). A motion to dismiss under
Rule 12(b)(1) of the Federal Rules of Civil Procedure for lack of “subject-matter jurisdiction,
because it involves a court’s power to hear a case, can never be forfeited or waived.” United
States v. Cotton, 535 U.S. 625, 630 (2002). An objection that a particular court lacks subject
matter jurisdiction may be raised by any party, or by the court on its own initiative, at any time.
Arbaugh v. Y&H Corp., 546 U.S. 500, 506 (2006); Fed. R. Civ. P. 12(b)(1). The Court must
dismiss any case over which it lacks subject matter jurisdiction. Fed. R. Civ. P. 12(h)(3); see also
Pistor v. Garcia, 791 F.3d 1104, 1111 (9th Cir. 2015) (noting that when a court lacks subjectmatter jurisdiction, meaning it lacks the statutory or constitutional power to adjudicate a case, the
court must dismiss the complaint, even sua sponte if necessary).
A Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction may be either
“facial” or “factual.” See Safe Air for Everyone, 373 F.3d at 1039. A facial attack on subject
matter jurisdiction is based on the assertion that the allegations contained in the complaint are
insufficient to invoke federal jurisdiction. Id. “A jurisdictional challenge is factual where ‘the
challenger disputes the truth of the allegations that, by themselves, would otherwise invoke
federal jurisdiction.’” Pride v. Correa, 719 F.3d 1130, 1133 n.6 (9th Cir. 2013) (quoting Safe Air
for Everyone, 373 F.3d at 1039)). When a defendant factually challenges a plaintiff’s assertion of
jurisdiction, a court does not presume the truthfulness of the plaintiff’s allegations and may
consider evidence extrinsic to the complaint. See Terenkian v. Republic of Iraq, 694 F.3d 1122,
1131 (9th Cir. 2012); Robinson, 586 F.3d at 685; Safe Air for Everyone, 373 F.3d at 1039. A
factual challenge “can attack the substance of a complaint’s jurisdictional allegations despite

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their formal sufficiency.” Dreier v. United States, 106 F.3d 844, 847 (9th Cir. 1996) (citation and
quotation marks omitted).
BACKGROUND
Golden Eagle is a federally subsidized low-income housing development. Its continued
designation as low-income housing, however, depends on whether its owner has paid the
government loan that provided funding for that development. Government loans made under the
Housing Act of 1949 (Housing Act) and its implementing regulations provide borrowers with
low interest rates and decades-long repayment terms, while restricting the developments for use
as subsidized low-income housing for the length of the loans.2 Borrowers may apply for
prepayment of the loan, which, if approved, allow the borrower to operate the housing
development at the market rate and not as low-income housing. Before approving a prepayment
application, however, the Housing Act and its implementing regulations require that Rural
Development first conduct a “civil rights impact analysis” to determine whether prepayment
would adversely affect housing for minorities.
In September 2016, Rural Development approved a prepayment application from Golden
Eagle’s owner. Plaintiffs filed this lawsuit the following month and moved for a preliminary
injunction, challenging Rural Development’s decision to approve Golden Eagle’s prepayment.
Shortly before the preliminary injunction hearing, Rural Development rescinded its approval of
prepayment of the Golden Eagle loan and represented that it would conduct a second civil rights
impact analysis before reconsidering the prepayment application. Based on Rural Development’s
changed position, the Court denied Plaintiffs’ motion for preliminary injunction without

2

The Court previously described the statutory and regulatory background of this case at
McFalls v. Purdue, 2018 WL 785866, at *4-7 (D. Or. Feb. 8, 2018). The terms used here have
the same meaning as used in the Court’s earlier Opinion and Order.

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prejudice. Rural Development’s second impact analysis concluded that prepayment would have a
disproportionate effect on housing options for minorities. Rural Development then required
Golden Eagle’s owner to offer Golden Eagle for sale to a nonprofit or public agency.
In July 2017, Plaintiffs filed their Second Amended Complaint (ECF 49), which is the
operative pleading. Shortly thereafter, Defendants moved to dismiss that complaint, arguing that
Plaintiffs claims were moot because Rural Development had rescinded its prior prepayment
approval. The Court denied Defendants’ motion, explaining that the voluntary cessation
exception to mootness applied. ECF 67. In April 2019, Plaintiffs moved for summary judgment
on their first and fourth claims. ECF 79. The Court stayed briefing on Plaintiffs’ motion pending
resolution of a motion to compel. ECF 81.
The parties filed a joint status report in March 2020, informing the Court that Northwest
Coastal Housing (Northwest Coastal) had signed an agreement to purchase Golden Eagle and
assume the existing government loan. ECF 109. Based on the pending negotiations for the
purchase of Golden Eagle, the Court entered a stay on March 17, 2020. ECF 111. On
December 28, 2021, Northwest Coastal completed its purchase of Golden Eagle. Northwest
Coastal assumed the existing Section 515 loan with new rates and terms and received additional
Section 515 financing from Rural Development. The two loans will mature in 2051. Northwest
Coastal also agreed to record a restrictive covenant against the property requiring Northwest
Coastal and any of its successors in interest to use Golden Eagle in compliance with Section 515
and related statutes and regulations and for the purpose of housing low-income individuals
through 2051. This restrictive covenant runs with the land and will remain in effect upon
foreclosure or transfer of title.

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On February 25, 2022, Defendants filed a new motion to dismiss Plaintiffs’ claims for
lack of subject matter jurisdiction. That motion has been fully briefed. The Court heard oral
argument on May 10, 2022, after providing the parties with a tentative opinion and order.
DISCUSSION
Defendants contend that the sale of Golden Eagle to Northwest Coastal renders Plaintiffs’
claims moot. Defendants argue that there is no longer a live controversy because Golden Eagle
will remain subject to Section 515 restrictions after its sale to Northwest Coastal. Plaintiffs
respond that the voluntary cessation exception to mootness applies and that their claims are not
moot because Northwest Coastal may seek prepayment or borrowers for other Section 515
housing developments in Tillamook County may seek prepayment.
These arguments raise factual challenges to the Court’s jurisdiction under Rule 12(b)(1).
Thus, the Court considers documents and evidence outside the pleadings. See Robinson, 586
F.3d at 685 (stating that in a 12(b)(1) motion “[a] district court may hear evidence regarding
jurisdiction and resolve factual disputes where necessary” (simplified)); Farr v. United
States, 990 F.2d 451, 454 (9th Cir. 1993) (stating that “it is proper for the district court to
consider evidence outside of the pleadings for the purpose of deciding a jurisdictional issue
(emphasis in original)); McCarthy v. United States, 850 F.2d 558, 560 (9th Cir. 1988) (“[W]hen
considering a motion to dismiss pursuant to Rule 12(b)(1) the district court is not restricted to the
face of the pleadings, but may review any evidence, such as affidavits and testimony, to resolve
factual disputes concerning the existence of jurisdiction.”).
“The doctrine of mootness, which is embedded in Article III’s case or controversy
requirement, requires that an actual, ongoing controversy exist at all stages of federal court
proceedings.” Pitts v. Terrible Herbst, Inc., 653 F.3d 1081, 1086 (9th Cir. 2011). “A case
becomes moot ‘when the issues presented are no longer “live” or the parties lack a legally
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cognizable interest in the outcome’ of the litigation.” Id. (quoting Powell v. McCormack, 395
U.S. 486, 496 (1969)). “A moot case cannot be revived by alleged future harm that is ‘so remote
and speculative that there is no tangible prejudice to the existing interests of the parties.’” Doe
No. 1 v. Reed, 697 F.3d 1235 (9th Cir. 2012) (emphasis in original) (quoting Feldman v.
Bomar, 518 F.3d 637, 643 (9th Cir. 2008)); see also Ctr. for Biological Diversity v. Lohn, 511
F.3d 960, 964 (9th Cir. 2007) (concluding that the federal agency’s decision to list a killer whale
population as an endangered species mooted the plaintiff’s claims challenging the agency’s
endangered species listing policy and stating: “That the DPS Policy might adversely affect the
Southern Resident’s endangered species status or the Service’s listing determination of
certain other killer whale populations at some indeterminate time in the future is too remote and
too speculative a consideration to save this case from mootness” (emphasis in original)).
After the sale of Golden Eagle to Northwest Coastal, Plaintiffs’ claims became moot.
Each of Plaintiffs’ claims challenge Rural Development’s actions and policies related to
prepayment applications. There is no pending application for prepayment of the Golden Eagle
loan, and Northwest Coastal has not indicated that it plans to file one. Indeed, Northwest Coastal
recorded a restrictive convent ensuring that Golden Eagle would operate as a low-income
housing development under Section 515 until 2051. Plaintiffs’ claims therefore lack a live
controversy for the Court to resolve.
Plaintiffs argue that the claims asserted by Plaintiff CARE are not moot because it has an
interest in the availability of low-income housing and other Section 515 borrowers in Tillamook
County might someday apply for prepayment.3 Only Golden Eagle, however, is at issue in this

3

At oral argument, Plaintiffs conceded that the claims of individual Plaintiffs Lisa
McFalls, Michael McFalls, and Fred Woodring are moot.

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case. Plaintiffs do not assert any claim against Defendants with respect to any action related to
any other housing development or other Section 515 borrowers in Tillamook County. Plaintiffs
also argue that if the Court rules that CARE’s claims are moot, CARE will have to file a new
lawsuit if Rural Development approves prepayment for some other development in Tillamook
County. Plaintiffs are correct. The burden of filing a new complaint on a new set of facts,
however, does not create a live controversy in this case. Further, under Plaintiffs’ theory, even if
Golden Eagle were subject to a restrictive covenant prohibiting its owner from applying for
prepayment, Plaintiff CARE would still have a live claim based on the possibility that borrowers
for other developments not currently before the Court might someday apply for prepayment.
Proceeding on those facts would call for an impermissible advisory opinion by this federal court.
Plaintiffs also argue that application of the voluntary cessation exception to mootness is
the law of this case and that Defendants must therefore meet the heightened mootness standard
under that exception. Plaintiffs misunderstand the law of the case doctrine. The fact that the
Court previously ruled that Rural Development’s rescission of the prepayment approval
constituted voluntary cessation does not mean that any subsequent factual development that
moots Plaintiffs’ claims also constitutes voluntary cessation. In the Court’s prior Opinion and
Order, the Court concluded that the voluntary exception to mootness applied because Rural
Development ceased the challenged conduct—its approval of the prepayment application for
Golden Eagle. Here, Defendants have not merely ceased the challenged conduct. Instead, the
reason Plaintiffs’ claims are moot is because a non-party has purchased Golden Eagle and
assumed the Section 515 loan. Thus, the Court grants Defendants’ motion to dismiss Plaintiffs’
claims without prejudice.

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CONCLUSION
The Court GRANTS Defendants’ motion to dismiss without prejudice. ECF 128.
IT IS SO ORDERED.
DATED this 11th day of May, 2022.
/s/ Michael H. Simon
Michael H. Simon
United States District Judge

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