46 F.4th 514
6th Cir.2022Background:
- New Lansing renewed a 20-year Section 8 HAP contract with Columbus Metropolitan Housing Authority in 2014; the contract’s Section 5 requires a fifth-year rent adjustment using "comparable market rents" and directs the contract administrator to act "in accordance with HUD requirements."
- HUD issues Section 8 Renewal Guidebooks (including the 2017 Guidebook) that prescribe procedures for Rent Comparability Studies (RCSs); the 2017 Guidebook imposes a "140% Rule" requiring HUD to obtain an independent RCS when an owner’s RCS exceeds 140% of median gross rent and prescribes how to reconcile differing RCS results.
- In 2019 New Lansing submitted an owner RCS seeking higher rents; the Housing Authority sent it to HUD per the Guidebook, HUD commissioned its own RCS, and the resulting HUD-based rents produced a net reduction in New Lansing’s contract rents.
- New Lansing sued the Housing Authority for breach of contract and declaratory relief, alleging the Housing Authority improperly applied the 2017 Guidebook/140% Rule (and relied on a flawed HUD RCS); it did not sue HUD.
- The district court dismissed for failure to state a plausible breach claim; the Sixth Circuit reviewed de novo and affirmed, holding the Guidebook procedures (including the 140% Rule) were incorporated by contract and consistent with the Renewal Contract.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the 2017 Guidebook apply to New Lansing’s 2014 Renewal Contract and its 2019 rent submission? | 2017 Guidebook is limited to contracts post-dating July 28, 2017, so it doesn't apply. | The Guidebook applies to amend-rent packages post-marked July 28, 2017, and Section 8 of the Contract adopts HUD requirements during the contract term. | Held: Guidebook applies to New Lansing’s 2019 rent submission; Contract incorporated HUD requirements. |
| Are HUD Guidebooks incorporated into the Renewal Contract? | The Renewal Contract does not expressly incorporate any Guidebooks. | Section 8 requires compliance with HUD regulations and later HUD requirements unless inconsistent; Guidebooks qualify as HUD "requirements." | Held: Guidebooks are incorporated as HUD requirements unless inconsistent with specific contract provisions. |
| Does the 140% Rule conflict with Section 5’s requirement that the contract administrator determine and set rents at "comparable market rents" (thus making the Rule inapplicable)? | 140% Rule strips the Authority’s contractual duty to determine market rents and caps/rewrites the required adjustment amount. | Section 5 requires adjustments “in accordance with HUD requirements”; Congress authorized HUD to prescribe methods for determining market rents (MAHRA §524). | Held: No conflict. The Contract required the administrator to follow HUD methods; the 140% Rule is consistent with Section 5. |
| Did the Housing Authority breach the Contract by unreasonably applying the 140% Rule or relying on an allegedly "fraudulent" HUD RCS? | Following HUD’s RCS enforces an unreasonable result and/or a fraudulent study, breaching the contract’s reasonableness requirement. | Contract required following HUD-prescribed methods; complaints about HUD RCS accuracy are directed at HUD (not the Housing Authority). | Held: No plausible claim; following HUD requirements is not unreasonable under the Contract, and New Lansing failed to plead a viable fraud/breach claim against the Authority. |
Key Cases Cited
- Graoch Assocs. #33, L.P. v. Louisville/Jefferson Cnty. Metro Hum. Rels. Comm’n, 508 F.3d 366 (6th Cir.) (describing HUD Section 8 program mechanics)
- Caswell v. City of Detroit Hous. Comm’n, 418 F.3d 615 (6th Cir.) (PHAs administer Section 8 program)
- One & Ken Valley Hous. Grp. v. Maine State Hous. Auth., 716 F.3d 218 (1st Cir.) (HUD reimburses PHAs; rent adjustments under HUD guidance)
- Savedoff v. Access Grp., Inc., 524 F.3d 754 (6th Cir.) (elements of Ohio breach of contract and contract interpretation principles)
- In re Fifth Third Early Access Cash Advance Litig., 925 F.3d 265 (6th Cir.) (contract interpretation and ambiguity rules)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S.) (pleading standard for plausible claims)
- SunAmerica Hous. Fund 1050 v. Pathway of Pontiac, Inc., 33 F.4th 872 (6th Cir.) (contract provisions interpreted in the context of the governing program)
- Med. Billing, Inc. v. Med. Mgmt. Scis., Inc., 212 F.3d 332 (6th Cir.) (limits on fraud damages and distinguishing fraud from contract claims)