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Nozzi v. Hous. Auth.

United States Court of Appeals, Ninth Circuit

November 30, 2015

MICHAEL NOZZI, an individual; NIDIA PELAEZ, an individual; LOS ANGELES COALITION TO END HUNGER AND HOMELESSNESS, a non-profit organization, on behalf of themselves and similarly situated persons, Plaintiffs-Appellants,
v.
HOUSING AUTHORITY OF THE CITY OF LOS ANGELES; RUDOLPH MONTIEL, in his official capacity, Defendants-Appellees

Argued and Submitted, July 10, 2015, Pasadena, California

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Appeal from the United States District Court for the Central District of California. D.C. No. 2:07-cv-00380-GW-FFM. George H. Wu, District Judge, Presiding.

SUMMARY[**]

Civil Rights

The panel reversed the district court's summary judgment in favor of defendants, directed that summary judgment be entered in favor of plaintiffs, and remanded for further proceedings in a putative class action in which plaintiffs alleged that defendants, the local administrators of the Section 8 Housing Choice Voucher Program, reduced the amount of Section 8 beneficiaries' subsidies without providing adequate notice, in violation of federal and state law.

The panel first noted that this Court had previously held that plaintiffs have a property interest in Section 8 benefits to which the procedural protections of the Due Process Clause apply. Nozzi v. Housing Authority of the City of Los Angeles, 425 Fed.Appx. 539 (9th Cir. 2011). The panel held that the Housing Authority failed to provide meaningful information to Section 8 beneficiaries about a change to the program's subsidy payment standard and the effect of that change upon the beneficiaries and their property interests. The panel held that this failure violated both the requirements of the Voucher Program regulations and the requirements of procedural due process. It also resulted in a violation of two state statutes, California Government Code § § 815.6 & 815.2, which require public entities to take reasonable efforts to comply with the mandatory duties established by federal regulations. The panel reversed and remanded with instructions for the district court to enter summary judgment in favor of the plaintiffs on the merits of the federal and state law claims.

The panel ordered that on remand, the case be reassigned to a different district judge--a judge other than the two identified by the current district judge who himself had declined to hear the case further. The panel stated that further factual development may be needed to determine the size and validity of plaintiffs' class and to determine the appropriate remedy.

Barrett S. Litt (argued), Kaye, McLane, Bednarski & Litt, LLP, Pasadena, California; Patrick Dunlevy, Lisa R. Jaskol, Stephanie Carroll, Public Counsel, Los Angeles, California, for Plaintiffs-Appellees.

Roy G. Weatherup (argued) and Brant H. Dveirin, Lewis Brisbois Bisgaard & Smith LLP, Los Angeles, California, for Defendants-Appellees.

Before: Stephen Reinhardt and Richard R. Clifton, Circuit Judges and Miranda M. Du,[*] District Judge.

OPINION

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Stephen Reinhardt, Circuit Judge.

The Section 8 Housing Choice Voucher Program provides rental assistance to the most vulnerable members of our society. For many, especially those in areas with a high cost of living, the continuous receipt of these benefits is the only means through which Section 8 beneficiaries and their families can obtain safe, affordable housing. For those on a fixed income or those living paycheck to paycheck, any unexpected decrease in the subsidy can result in homelessness. For this reason, the program contains procedural protections designed to ensure that beneficiaries have at least a full year to plan for certain changes that may decrease the beneficiary's subsidy and increase the rent that they will have to pay.

Plaintiffs are the putative class representatives of a group of tenants who receive rent subsidies through the Section 8 Housing Choice Voucher Program. They assert that the Defendants, the local administrators of the Voucher Program, reduced the amount of Section 8 beneficiaries' subsidies without providing adequate notice, in violation of federal and state law. We agree. Accordingly, we reverse the grant of summary judgment in favor of the defendants, direct that summary judgment be entered in favor of the plaintiffs, and remand for further proceedings consistent with this opinion.

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I. Statutory and Regulatory Background

A. Overview of the Section 8 Housing Choice Voucher Program

In 1974, Congress created the Section 8 housing program in order to " aid[] low-income families in obtaining a decent place to live" and " promot[e] economically mixed housing." Housing and Community Development Act of 1974, Pub. L. 93-383 § 201(a), 88 Stat. 633, 622-66 (1974) (codified as amended at 42 U.S.C. § 1437f). For over four decades, the program has provided rental assistance to low-income, elderly, and disabled families. See generally Park Village Apartment Tenants Ass'n v. Mortimer Howard Trust, 636 F.3d 1150, 1152 (9th Cir. 2011).

The majority of federal housing assistance takes place through the Housing Choice Voucher Program, which subsidizes the cost of renting privately-owned housing units. 42 U.S.C. § 1437f(o). The Voucher Program is funded and regulated by the federal Department of Housing and Urban Development, and it is administered at the local level through " public housing agencies." 24 C.F.R. § 982.1(a).

The public housing agencies determine whether individuals are eligible to participate in the program. 24 C.F.R. § 982.201. When an individual is approved, the public housing agency gives that person a voucher which entitles him to search for qualifying privately-owned housing. 24 C.F.R. § 982.302. When a voucher-possessing individual finds a qualifying unit, the unit owner and public housing agency will negotiate and enter into a housing assistance payment contract, which inter alia specifies the maximum monthly rent that the unit owner may charge. 42 U.S.C. § 1437f(c). After that contract has been formed, the public housing agency will make subsidy payments to the unit owner on behalf of the tenant.[1]

An extensive set of statutory provisions and regulations governs the calculation of the subsidy that must be paid on behalf of each tenant. See 42 U.S.C. § 1437f(o); 24 C.F.R. § 982.501 et seq. To begin with, the Department of Housing and Urban Development must set the fair market rent for established geographic areas across the United States. 24 C.F.R. § 982.503(a)(1). The public housing agency must use this fair market rent to create a local voucher " payment standard" for each of the areas in its jurisdiction. 24 C.F.R. § 982.503(b)(1)(i). A payment standard is the maximum subsidy payment that the housing agency will provide for each type of apartment in the area. Id. It must generally be set between 90 percent and 110 percent of the fair market rent for the area. 24 C.F.R. § 982.503(b)(1)(i).[2]

All tenants are responsible for contributing 30% of their monthly adjusted income or 10% of their gross monthly income, whichever is greater. 42 U.S.C. § 1437f(c)(2)(A).[3] Tenants whose rental units cost more than the payment standard have a higher expected contribution. Such tenants must also pay any amount by

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which their rent exceeds the established payment standard. 42 U.S.C. § 1437f(o)(2)(B).[4] In either case, the subsidy covers the balance of the rent.

B. Procedures for Decreasing the Payment Standard

Practically, the formula for calculating a tenant's expected rent contribution means that a decision by the public housing agency to increase the payment standard will generally yield larger subsidies. By contrast, a decrease in the payment standard will generally decrease subsidies and may increase the rental contribution of a substantial number of tenants.[5]

To avoid any hardship caused by this change, the Department of Housing and Urban Development's regulations are designed to ensure that beneficiaries have a one-year period of stable benefits in which to plan for changes to the payment standard that may adversely affect their subsidy amount and rent contribution. Each year, the public housing agency conducts annual examinations of each beneficiary, usually on the anniversary of the beneficiary's entry into the Section 8 program, to verify his continued eligibility for benefits and to calculate his expected rent contribution for the current year. 24 C.F.R. § 982.516. Alterations to a tenant's benefits may occur due to circumstantial changes, such as adjustments to the tenant's income, family composition, or cost to rent his apartment, but the regulations limit the discretion of public housing agencies to lower subsidies based on adjustments to the payment standards. If the public housing agency decides to lower the payment standards, it must provide information about the change to all beneficiaries at their annual reexaminations following the decision, and must further advise these beneficiaries that the change will not go into effect until their following reexamination one year later. See 24 C.F.R. § 982.505(c)(3).

This requirement provides some measure of financial stability for vulnerable Section 8 beneficiaries as it protects against sudden decreases in subsidy at the whims of the public housing agency. Absent any changes to a beneficiary's circumstances, he can be assured that his subsidy will renew with, at a minimum, the same terms as the prior year unless he had previously been warned that the public housing agency has taken an action that could adversely affect his subsidy. The regulations cast this warning in terms of the public housing agency's duty to provide information to the beneficiary that the payment standard has been decreased, to be effective at least a year afterward. Thus, under that mandatory procedure, the beneficiary necessarily has an expectation in an unaffected one-year term of

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benefits following the warning in which to plan for the change's potential adverse impact.

II. FACTUAL AND PROCEDURAL BACKGROUND

A. Implementation of the 2004 Payment Standard Decrease

The Housing Authority of the City of Los Angeles (" Housing Authority" ) administers the Voucher Program for that city.[6] In 2004, the Department of Housing and Urban Development required the Housing Authority to limit spending in order to balance the Department's 2004 budget. To meet the budget constraints, the Housing Authority's Board of Commissioners reduced the payment standard from 110% of the 50th percentile of rents in Los Angeles County to 100% of the 40th percentile of rents. At the time, the Board estimated that " approximately 45% of its approximately 45,000 Section 8 tenants would be adversely affected by the April 2004 decrease, and would have to pay an average of $104 more in rent each month if they chose to remain in their current units. Of this number, nearly 5,000 were elderly families, and nearly 4,500 were non-elderly, disabled families." [7]

That year, the Housing Authority instructed its staff to attach a copy of a flyer to each Section 8 beneficiaries' " notice of review determination" or " RE-38," which is a form sent annually to all Section 8 beneficiaries at the time of their annual reexamination that confirms their renewed eligibility for benefits and sets forth their rent contribution and subsidy amount for the current year. The flyer, which was printed in both English and Spanish, stated:

HOUSING AUTHORITY OF THE CITY OF LOS ANGELES

NOTICE

Effective April 2, 2004 the Housing Authority lowered the payment standards used to determine your portion of the rent. We will not apply these lower payment standards until your next regular reexamination. If you move, however, these new lower payment standards will apply to your next unit.

That message was followed by (1) a heading stating " PAYMENT STANDARDS AND TENANT-BASED SHELTER PLUS CARE PAYMENT STANDARDS EFFECTIVE APRIL 2, 2004" ; (2) a table listing the new payment standards; and (3) a statement that " Regardless of its location, the unit's rent can never be higher than the comparable rents determined by the housing authority." [8] For simplicity, this will hereinafter be referred to as the " flyer." The attached RE-38 form showed the tenant's subsidy and rent contribution for the current year, a number that was unaffected by the decreased payment standards.

Approximately one year later and only thirty days before the changes to the payment standard were scheduled to be implemented and to adversely affect the tenants' subsidies and rent contributions, the Housing Authority sent out another notice of review determination. This particular notice, which will hereinafter be referred to as the " four-week notice," set forth the tenants' subsidies and rents for the upcoming year using the new, lowered payment standard. This was the first time that

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tenants were actually notified that the change would affect them personally or that there would be an increase to their rent contributions.

B. The Impacted Beneficiaries Sue

In 2007, Plaintiffs Michael Nozzi and Nidia Palaez, together with the Los Angeles Coalition to End Hunger and Homelessness, filed an amended class action complaint on behalf of affected Section 8 beneficiaries against the Housing Authority and its Executive Director.[9] They claimed that, as relevant here, the Defendants' failure to provide comprehensible information to Section 8 beneficiaries about the payment standard change and its effect one year in advance of the change's implementation: (1) violated the due process clauses of the United States and California Constitutions, (2) violated California Government Code § 815.6, which governs liability for public entities that breach mandatory duties, and (3) constituted negligence pursuant to California Government Code § 815.2.

Plaintiff Michael Nozzi, a Section 8 beneficiary since December 2003, is totally and permanently disabled under Social Security's standards. As a result of the 2004 change, his expected rent contribution increased 48%--from $231 to $342 per month. Plaintiff Nidia Palaez, a beneficiary since February 2004, is a single mother with a young daughter. She experienced a 177% increase in her portion of the rent as a result of the 2004 change. She alleges that this increase has adversely affected her family's quality of life, that she has had difficulty affording suitable school clothes for her daughter, and that she has had to divert money from her food budget to cover her increased rent costs.

Both Nozzi and Palaez allege that they did not understand that their Section 8 benefits would decrease and that their own rent obligations would increase until they received notices approximately one year after the flyer, four weeks before the change in the payment standard adversely affected their rent contribution. Neither recalls ...


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