HOUSING AUTHORITY OF THE CITY OF PITTSBURGH v. SMITH
Filing
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MEMORANDUM OPINION. We find that the Plaintiff, Housing Authority of the City of Pittsburgh, would not be in violation of 11 U.S.C. Section 525(a) should it pursue eviction proceedings against Defendant, Angel Smith. Signed by Judge Maurice B. Cohill on 12/11/2014. (cag)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
THE HOUSING AUTHORITY OF THE CITY )
OF PITTSBURGH,
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Plaintiff,
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v.
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ANGEL SMITH,
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Defendant.
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Civ. No. 2:14-cv-00976
Judge Maurice B. Cohill
MEMORANDUM OPINION
Pending before the Court is an Appeal from Bankruptcy Court [ECF No. 1] filed by the
Housing Authority of the City of Pittsburgh ("HACP"). In its Appeal, HACP asserts that the
Bankruptcy Court wrongly decided the case below in favor of Defendant, Angel Smith
("Smith").
More specifically, HACP asserts that the Bankruptcy Court relied on a flawed
analysis when they found that Smith's public housing lease is akin to a "grant" under 11 U.S.C.
§ 525(a), and therefore, HACP may not evict Smith post-discharge without violating the
discharge injunction or the anti-discrimination provisions of the Bankruptcy Code [ECF No. 10
at 7]. For the following reasons, we find in favor of HACP and reverse the decision of the
Bankruptcy Court.
I. Procedural History
Smith filed for protection under Chapter 13 of the Bankruptcy Code after failing to pay
rent when due and failing to report all household income as required by the lease [ECF No. 10 at
8].
After several years in Chapter 13 bankruptcy, Smith fell behind in her monthly plan
payments and converted her case to Chapter 7 bankruptcy [ECF No. 10 at 8]. Sixty (60) days
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after Smith converted her case, Smith's lease was rejected as a matter of law pursuant to 11
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U.S.C. § 365(d)(l) [ECF No. 10 at 8].
HACP sought a declaratory judgment from the
Bankruptcy Court regarding the effect of the Bankruptcy Code's anti-discrimination provision
(11 U.S.C. § 525(a)) on a public housing authority lease [ECF No. 10 at 8]. Specifically, HACP
sought a declaration that it could evict Smith without violating 11 U.S.C. §§ 524 or 525 [ECF
No. 10 at 8]. The Bankruptcy Court ruled against HACP and held that a public housing lease
was protected by 11 U.S.C. § 525(a) because it is a "similar grant" to a license, charter, permit or
franchise, which are protected under the statute [ECF No. 10 at 8]. As a result, HACP filed the
Appeal before this Court [ECF No. 1].
HACP filed a Brief in support of its Appeal on
September 11, 2014 [ECF No. 10]. Smith filed a Brief in Opposition on October 27, 2014 [ECF
no. 14]. HACP filed its Reply Brief on November 10,2014 [ECF No. 16].
II. Relevant Facts
Smith currently resides in the Homewood North Community, a community owned and
operated by HACP [ECF No. 10 at 9].
The Homewood North Community contains only
townhouse-type rental units each with features of a refrigerator, gas stove, free parking, and an
enclosed yard as well as a community room [ECF No. 10 at 9].
The Homewood North
Community also has added security with security cameras throughout the community and an onsite manager to assist the residents [ECF No. 10 at 9].
HACP considers Homewood North
Community to be one of its more desirable communities which is evidenced by its waiting list of
over 200 individuals and families who have expressed an interest in living there [ECF No. 10 at
9].
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Smith would have to cure the defaults under the Lease to avoid rejection of the Lease by the Chapter 7
Trustee. The Trustee could then assume the Lease and assign it to Smith. However, once the Lease has been
rejected, which is undisputed in this case, pursuant to the Bankruptcy code, it is deemed to have been
breached pre-petition and it is abandoned back to the Debtor and is no longer property of the bankruptcy
estate. ~ 11 U.S.C. 365(g) [ECF No. 10 at 17].
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Smith and HACP first entered into a Rental Lease Agreement ('"Lease") on June 9, 2000
[ECF No. 10 at 10]. Smith moved to a new property in 2010 and signed an Addendum to the
Lease (""Addendum") on May 18, 2010 [ECF No. 10 at 10]. On October 1, 2010 HACP and
Smith entered a second Rental Lease Agreement ('"20 10 Lease"), which carried with it all of
Smith's delinquencies under the original Lease and Addendum [ECF No. 10 at 10]. The terms of
the 2010 Lease required Smith to go through an annual Re-Determination process, which
includes reporting any changes in income to HACP within 10 days to ensure her eligibility for
public housing and the accuracy of the rent calculation [ECF No. 10 at 10]. Smith defaulted
under the terms of the 2010 Lease by failing to pay rent when due and by failing to disclose
additional household income [ECF No. 10 at 10].
The failure to disclose the additional
household income resulted in a significant back-charge of rent to Smith [ECF No. 10 at 10].
When Smith filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code
on March 10, 2009 she owed HACP over $8,500.00 in past due rent [ECF No. 10 at 11].
Subsequently Smith failed to make all of the payment due under her Chapter 13 Plan and by
September 18,2012 she still had $2,640.00 owing in past due plan payments [ECF No. 10 at 11].
Smith converted her Chapter 13 case to a Chapter 7 case on February 21, 2013 [ECF No. 10 at
11]. To date Smith has not cured the pre-conversion monetary defaults of the 2010 Lease,
however, Smith still intends to remain in the HACP property [ECF No. 10 at 11]. HACP would
like to evict Smith because of the failure to cure the defaults and because the Chapter 7 Trustee
has rejected the 2010 Lease as part of the bankruptcy estate [ECF No. 10 at 11].
III. Legal Analysis
11 U.S.C. § 525 (""Protection against discriminatory treatment") provides:
(a) ... a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit,
charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to
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such a grant against, deny employment to, terminate the employment of, or discriminate with
respect to employment against, a person that is or has been a debtor under this title or a bankrupt
or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has
been associated, solely because such bankrupt or debtor is or has been a debtor under this title or
a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of
the case under this title, or during the case but before the debtor is granted or denied a discharge,
or has not paid a debt that is dischargeable in the case under this title or that was discharged
under the Bankruptcy Act.
11 U.S.C.A. § 525 (West)
For Section 525(a) to apply, preventing HACP from evicting Smith the three following
elements must be satisfied:
(1) The prohibitive conduct must have been performed by a governmental unit;
(2) The governmental unit must have denied, revoked, suspended or refused to renew a
license, permit, charter, franchise or other similar grant (emphasis added) to the
debtor; and
(3) The action must have been taken solely because the debtor filed for bankruptcy, was
insolvent or failed to pay a debt that is subject to discharge.
In re Valentin, 309 B.R. 715, 720 (Bankr. E.D.Pa. 2004).
The second two elements are the issues in dispute in this case.
A. Is a Lease a Grant?
The crux of the argument in this case is whether the eviction of Angel Smith would run
afoul of Section 525(a) that aims at protecting bankruptcy debtors from discrimination in
obtaining "licenses, permits, charters, franchises, or OTHER SIMILAR GRANTS" (emphasis
added). More specifically, whether revoking the federally subsidized public housing tenancy
benefits and lease, of a person who is a Chapter 7 debtor, for owing dischargeable past due rent
is discrimination under the statute. Smith argues that a HACP lease would fall under the term
"other similar grants," thus, making her eviction illegal, while HACP argues that a lease is not a
grant and does not fall within the parameters of the statute. Both parties rely on what they
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perceive as "precedent" for said issue. Indeed there have been conflicting outcomes among the
Courts deciding this issue.
HACP argues there is established Third Circuit precedent that rejects the proposition that
a public housing lease is a grant and claims the Bankruptcy Court erred by reading Section
525(a) expansively [ECF No. 10 at 14]. HACP declares there is no fundamental right to
housing. See Lindsey v. Normet, 405 U.S. 56 (1972). There is no "constitutional or statutory
duty to provide low income housing." Acevedo v. Nassau County, 500 F.2d 1078, 1080-81 (2d
Cir. 1974). HACP uses the ruling in Watts v. Pennsylvania Housing Finance Co., 876 F.2d 1090
(3d Cir. 1989) to support its position. In the Watts case the Third Circuit Court of Appeals held
that the denial of a Pennsylvania Homeowner's Emergency Mortgage Assistance Program loan
by the Finance Agency due to a bankruptcy did not violate Section 525 because a loan "is not a
'license, permit, charter, franchise, or other similar grant."' The Watts Court also stated, "[I]t
seems perfectly clear that the items enumerated are in the nature of indicia of authority from a
governmental unit to the authorized person to pursue some endeavor." Id. at 1093.
Using Watts as guidance, HACP asserts that a housing lease is not a vehicle by which a
person pursues an endeavor. The items listed in Section 525 are different from a lease in that
leases do "not directly enable their holders to engage in the kind of an income generating activity
as do licenses, permits, charters and franchises." In re Stoltz, 315 F .3d 80 at 96 (2nd Cir. 2002)
(C.J. Walker Dissent). HACP furthers its argument by stating that had Congress intended a lease
to be part of the list of protected items it would have included leases in Section 525 as it does in
other sections ofthe Bankruptcy Code such as 11 U.S.C. §§ 363, 365, 929 and 1169 [ECF No.
10 at 14].
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The Bankruptcy Court in its decision in this case relied on the Second Circuit's decision
in In re Stoltz, 315 F.3d 80 (2nd Cir. 2002) instead ofWatts. The Court in Stoltz found that the
application of"similar grant" includes leases. See id. at 89-90. The Stoltz Court using Black's
Law Dictionary (9th ed. 2009) defines grant as "An agreement that creates a right or interest in
favor of a person or that effects a transfer of a right or interest from one person to another.
Examples include leases, easements, charges, patents, franchises, powers, and licenses." Stoltz,
315 F.3d at 89. Smith classifies the 2010 Lease as a grant under Section 525 relying on the
decision in Stoltz and in her Brief, Smith refers to her lease as a "Public Housing Tenancy
Grant" [ECF No. 14 at 16).
The reasoning behind the Court's interpretation that a Lease may be considered similar to
a "grant" is that this decision supports the underlying bankruptcy policy of providing a debtor
with a "fresh start." Smith relies on the legislative intent of Section 525(a) for this proposition.
Namely, Smith contends that the purpose of the law is to promote the debtor's "fresh start" and
eviction from one's home would certainly seriously inhibit one's livelihood or fresh start [ECF
No. 14 at 12]. "[A] public housing lease is essential to a debtor's fresh start ... an evicted
debtor-tenant, along with any dependents, would quite possibly become homeless- a status not
conducive to economic survival." Stoltz, 315 F.3d at 90 (citations omitted).
As stated above, HACP asserts that the listing of protected rights in Section 525
("licenses, permits, charters, franchises, or other similar grants") should be read strictly as
protecting vehicles that support "endeavors." Smith claims HACP' s reading of the statute is too
narrow and that the Statute has been interpreted broadly by several courts who included inter
alia, right to a parking permit, right to the renewal of motor vehicle registration, and right to
receive an academic transcript among the rights protected in Section 525 [ECF No. 14 at 17].
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Smith views the list differently and claims that the commonality of the protected rights in
Section 525 is that they are all unobtainable except through a particular governmental unit. If a
debtor is deprived ofthat right, he/she cannot pursue it elsewhere [ECF No. 14 at 25]. Smith
claims the same situation is true in this case. If she loses her Public Housing Lease she cannot
obtain that lease elsewhere. HACP disagrees stating that Smith would not necessarily go
homeless if she lost her public housing tenancy; there are alternatives to the Housing Authority
lease such as the voucher program or an inexpensive home [ECF No. 16 at 8].
Finally, Smith claims precedent is on her side because all federal district courts faced
with this question uniformly agree that Section 525(a) protects a Chapter 7 public housing
tenant/debtor's receipt of continued public housing tenancy benefits, despite the tenant's nonpayment of dischargeable pre-petition rent [ECF No. 14 at 14]. As one supporting authority,
Smith cites to Biggs v. Housing Authority ofthe City of Pittsburgh, 2007 WL 654247 (W.D. Pa
2007), 2 where Judge Schwab adopted the Stoltz reasoning and held that Section 525(a) prevented
HACP from pursuing state court eviction proceedings based upon the debtor having been
insolvent, or a debtor under the bankruptcy code [ECF No. 14 at 14]. HACP contends that it is
an overstatement to claim that all federal district courts uniformly agree that Section 525(a)
protects public housing tenancy benefits and lists several cases that support its position [ECF No.
16 at 7]. HACP further argues that the Stoltz interpretation undermines the binding precedent of
Watts [ECF No. 10 at 18].
We find that Smith's 2010 Lease may not be considered a "grant" under 11 U.S.C.
§ 525(a). The Court agrees with and chooses to follow the reasoning in Watts and finds that a
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The .Biggs case was appealed and the appeal was dismissed as moot by the Third Circuit. Similar to our case
at issue, the lease in the .!liggs_ case was rejected by the Chapter 7 Trustee. Once the lease was rejected the
automatic stay was terminated pursuant to 11 U.S. C.§ 362(c)(2)(C). Therefore, the subsequent lifting of the
stay by the Bankruptcy Court to allow for eviction and then the reinstatement of the stay by Judge Schwab
was all moot. We view the Iligg.s. case as informational but not as support.
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lease does not have the same qualities as the other listed protected rights and, therefore, cannot
be considered an "other similar grant" under the Statute. We also believe that had Congress
intended a lease to be considered in the Statute it would have explicitly included leases in the
language but it did not. We cannot speculate that Congress intended leases to be considered
under Section 525 simply based on the "fresh start" analysis. Taking into account the legislative
history noted in Smith's Brief, we realize that Congress did intend for a debtor to have a "fresh
start," however, we don't believe that Congress intended that fresh start to be at the expense of
the rights of the lease holder, HACP, or at the expense ofthe rights ofthe other low-income
candidates who qualify for public housing. Furthermore, we believe that a fresh start can be
obtained by the debtor through the mechanisms put into place by way of the bankruptcy
proceedings. Finding that a lease is not a grant we may terminate our analysis here and find that
HACP is not acting in a discriminatory fashion when proceeding in the eviction of Smith.
However, we will continue our analysis to cover the third element of the law.
B. Is the Eviction Discriminatory?
Assuming for argument sake that a lease may be considered a grant, we move to the third
element in the legal analysis to determine whether eviction in this case would be considered
discriminatory under Section 525. Section 525 protects a debtor from being evicted "solely
because" she was a debtor in bankruptcy. HACP asserts that Smith's eviction is not solely
because she was a debtor in bankruptcy [ECF No. 10 at 27].
In order to be considered
discriminatory "the failure to pay must alone be the proximate cause of the cancellation,
irrespective of motive." In re Valentin, 309 B.R. 715, 722 (Bankr. E.D. Pa. 2004). HACP
claims because the 2010 Lease in this case was rejected by the Chapter 7 Trustee it is considered
breached by operation of law once the bankruptcy is over [ECF No. 10 at 28], thus, HACP seeks
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to evict because ofthe rejection ofthe Parties' 2010 Lease under 11 U.S.C. § 365(d) and the
breach of contract.
If debtors wish to retain the benefits of unexpired leases, they must assume and/or cure
any defaults under those contracts. See 11 U.S.C. § 365; In re Kiwi Intern. Air Lines, Inc., 344
F.3d 311,317-18 (3d Cir. 2003). A breach created by the rejection and by 11 U.S.C. § 365(g)
triggers rights and remedies available to the landlord under applicable state law. See In re
Thompson-Mendez, 321 B.R. 814 (Bankr. D.MD. 2005). HACP asserts that the Debtor only has
a contractual right to the Property if the Lease is complied with. The Housing Authority,
therefore, can pursue its in rem rights as a landlord/creditor by evicting Smith because 11 U.S. C.
§ 525(a) is not intended to prohibit the Housing Authorities contractual rights to its real property
as a creditor [ECF No. 10 at 31 ].
Smith asserts there is no evidence of record to dispute that HACP sought to terminate
Smith's public housing tenancy solely because she failed to pay rent, a dischargeable debt [ECF
No. 14 at 28]. Smith says the two concepts are intertwined and cannot be considered separately
for eviction-sake. "[E]ven if [Reading Housing Authority] RHA asserted that it was only
seeking to terminate its contractual relationship with Debtor based upon the Trustee's rejection,
the inescapable conclusion is that the failure to pay pre-petition rent is the reason for the
termination." In re Valentin, 309 B.R. at 722 n.ll [ECF No. 14 at 30]. The Supreme Court
supported this contention in F.C.C. v. NextWave Personal Communications, Inc., 537 U.S. 293,
301 (2003):
When the statute refers to failure to pay a debt as the sole cause of cancellation
("solely because"), it cannot reasonably be understood to include, among the
other causes whose presence can preclude application of the prohibition, the
governmental unit's motive in effecting the cancellation. Such a reading would
deprive § 525 of all force. It is hard to imagine a situation in which a
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governmental unit would not have some further motive behind the cancellation.'!
In furtherance of this argument, Smith contests the assertion that HACP makes when
saying the rejection by the Chapter 7 Trustee constitutes a breach of contract allowing for
eviction. Smith asserts that rejection does not equate to termination [ECF No. 14 at 38].
Rejection does not terminate an unexpired lease, but merely removes it as
property of the estate. Because the lease is no longer estate property, "bankruptcy
courts generally grant private landlords relief from the stay to exercise their state
law remedy of ejectment" when the debtor has defaulted on the rejected lease.
After the termination of the automatic stay which comes into place at the time of
discharge under chapter 7, landlords can enforce their rights under the lease other
than the right to collect the discharged debt. Stoltz v. Brattleboro Hous. Auth ..
259 B.R. 255, 258 (D. Vt. 2001) affd sub nom. In re Stoltz. 315 F.3d 80 (2d
Cir. 2002)(internal citations omitted)
Finally, Smith contends that Sections 525(a) and 365(b) cannot be read together. Section 525 is
the more specific statute of the two statutes, and therefore, it should have controlling effect [ECF
No. 14 at 42].
We agree that it is impossible to determine whether HACP would be evicting
Smith solely because the she filed for bankruptcy, was insolvent, or failed to pay a debt
that is subject to discharge. Indeed the facts ofthe case are that Smith was insolvent,
failed to pay her debt, and filed for bankruptcy. However, in this case we also have
present a rejection of the 2010 Lease by the Chapter 7 Trustee, which by operation of law
places the "asset" outside of the bankruptcy estate but still in default. Furthermore, Smith
failed to pay the debt or cure the default once the 2010 Lease was returned to her
"possession." It is our understanding that Smith continues to be in default of the loan.
Now, inconsequential of the bankruptcy proceeding, it is our opinion that HACP may
assert its in rem rights and evict Smith based on their breached contractual agreement.
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Finally, we don't believe that our finding in favor ofHACP frustrates the intent of
Congress to protect a debtor from discrimination nor do we believe it will frustrate a
debtor's "fresh start." Mrs. Smith has been in default for over five years. While the
eviction may provide an unpleasant reality to a debtor, certainly a debtor may still start
anew and seek out housing that better suits her income. To allow her to continue under a
breached lease that is in default indefinitely because she has been through Chapter 7
bankruptcy certainly usurps the in rem rights of HACP to its property and cannot possibly
be the intent of Congress for the debtor to start anew.
IV. Conclusion
Pursuant to the foregoing reasoning, we hold that Housing Authority of the City of
Pittsburgh would not be in violation of 11 U.S.C. § 525(a) should it pursue eviction proceedings
against Angel Smith due to her default under the terms and conditions of her public housing
lease. We find that the lease is not a "grant" under the Section 525(a). Further, we find that the
Housing Authority for the City of Pittsburgh has other plausible legitimate cause for evicting
Angel Smith besides the fact that she was a Chapter 7 debtor who filed for bankruptcy, was
insolvent or failed to pay a debt that is subject to discharge. For these reasons we reverse the
decision of the Bankruptcy Court and remand for further proceedings.
An appropriate Order follows.
DATE:
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M~6.~~~~·
2014
Maurice B. Cohill, Jr.
Senior United States District Court Judge
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