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Homestead Affordable Housing, Inc. v. Federal Home Loan Bank Topeka

United States District Court, D. Kansas

August 5, 2014

HOMESTEAD AFFORDABLE HOUSING, INC., Plaintiff,
v.
FEDERAL HOME LOAN BANK TOPEKA, Defendant.

MEMORANDUM AND ORDER

ERIC F. MELGREN, District Judge.

Plaintiff Homestead Affordable Housing, Inc. ("Plaintiff") seeks a declaratory judgment, pursuant to 28 U.S.C. § 2201, against Defendant Federal Home Loan Bank Topeka ("Defendant") for violations of 12 C.F.R. § 1291, the regulations governing the federal Affordable Housing Program. This matter is before the Court on Defendant's Motion to Dismiss for lack of subject matter jurisdiction or, in the alternative, failure to state a claim upon which relief can be granted (Doc. 15). For the reasons stated below, Defendant's Motion is denied.

I. Factual and Procedural Background

Plaintiff is a not-for-profit organization headquartered in Holton, Kansas, that is engaged in the business of providing affordable housing opportunities. To achieve its objective, Plaintiff seeks funding from a variety of sources, including grant opportunities through the federal government. One such program is the Affordable Housing Program ("AHP"), which was created by Congress and is one of the largest private sources of subsidies for affordable housing in the United States. The AHP is administered by the Federal Home Loan Bank ("FHL Bank"), which is regulated by the Federal Housing Finance Authority ("FHFA"). Defendant is a member bank of the FHL Bank.

In 2003, Plaintiff sponsored an application to Defendant for AHP funds to aid in the development of a project known as the Junction City Senior Residences, located in the historic Bartell Hotel in Junction City, Kansas (the "City"). The project became known as the "Bartell Project" and was designed to provide affordable housing to seniors. Plaintiff originally anticipated receiving a donation of the land site for the Bartell Project from the City and listed this contribution on its 2003 application. Plaintiff's 2003 AHP application resulted in an award of $160, 000 of AHP funds.

After it submitted the 2003 application, Plaintiff was notified that the City would not donate the land for the Bartell Project but instead would donate the funds to Plaintiff to purchase the land. Plaintiff notified Defendant of this change after notification, but prior to distribution, of the 2003 AHP award. The City donated $238, 000 to Plaintiff to aid in Plaintiff's acquisition of the project site. Plaintiff thereafter submitted a revision of its 2003 AHP application, as requested by Defendant, and was subsequently informed by Defendant that the Bartell Project was still eligible for the $160, 000 award.

In 2007, Plaintiff worked with Defendant to prepare and submit a second application for AHP funds, seeking an additional $160, 000. In its 2007 application, Plaintiff disclosed that the City had donated funds to Plaintiff to acquire the Bartell Project site. It also disclosed that the residential portion of the project had been sold to Junction City Senior Residences, LP ("Senior Residences") in 2006 and that Senior Residences had expended $275, 000 to acquire title to the project site. Plaintiff indicated that its fee associated with the project was $330, 000. Allegedly in consultation with Defendant, Plaintiff did not list in the Bartell Project's "source of funds" the cash donation Plaintiff received from the City.

Defendant thereafter conducted a compliance review of the Bartell Project, which included a complete review of all grant terms, tenant income compliance, services and amenities provided, and compliance with all terms of the AHP commitment. Plaintiff received a notification of compliance from Defendant and was informed that the Bartell Project was subject to a fifteen-year compliance period to ensure that the AHP award was going toward providing affordable housing.

On June 26, 2013, six years into the fifteen-year compliance period, Plaintiff received an email inquiry from Defendant about the nature of the City's donation to the Bartell Project. Defendant asked Plaintiff to clarify the City's cash donation and to indicate whether the cash donation was used to acquire the project site because the Bartell Project's budget did not reflect the City's donation. Plaintiff was then summoned to meet with Defendant to discuss the Bartell Project in greater detail. On July 17, 2013, during this in-person meeting, Defendant made a demand for repayment by Plaintiff of $275, 000, claiming that the Bartell Project was over-subsidized. Defendant gave Plaintiff less than ten days to either repay the $275, 000 in full or enter into an acceptable repayment plan. Plaintiff failed to do either.

As a consequence for failing to abide by Defendant's request for repayment, Defendant placed Plaintiff on its "Problem Projects List, " effectively deeming Plaintiff ineligible to participate in the AHP competitive application process for additional housing projects. Plaintiff allegedly was not given an opportunity to appeal this decision. Plaintiff subsequently requested permission to modify its 2007 application to reflect the City's cash donation. Defendant refused the request.

On September 17, 2013, Plaintiff filed a Complaint in the United States District Court for the District of Kansas requesting that the Court declare, pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201, that: (1) Defendant's demand for repayment violates 12 C.F.R. § 1291, and (2) Plaintiff does not owe Defendant $275, 000. In conjunction with its Answer, Defendant filed a counterclaim seeking recapture of the $275, 000 pursuant to 12 C.F.R. § 1291.8(a), Plaintiff's AHP Implementation Plan, and the applications signed by Plaintiff. On April 10, 2014, Defendant filed a Motion to Dismiss Plaintiff's Complaint in its entirety, citing a lack of subject matter jurisdiction and, in the alternative, failure to state a claim upon which relief can be granted.

II. Analysis

A. The Arguments

In its motion to dismiss, Defendant argues that Plaintiff's claim for declaratory judgment lacks subject matter jurisdiction because Plaintiff asserts claims against Defendant only under the AHP regulations, found at 12 C.F.R. § 1291. According to Defendant, neither these regulations, nor the statute authorizing them, 12 U.S.C. § 1430(j), creates any private right of action in favor of Plaintiff or ...


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