HON. JOHN C. COUGHENOUR
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
ANGELA GREEN, on behalf of herself )
and all others similarly situated, )
) CIVIL ACTION
Plaintiff, ) NO. C96-1542C
)
vs. )
)
SUNPOINTE ASSOCIATES, LTD. ) PLAINTIFF'S SUPPLE-
PARTNERSHIP, a Washington limited ) MENTAL MEMORANDUM
partnership, dba Avalon Ridge ) IN SUPPORT OF HER
Apartments, AMY OTTO, AMERICA ) MOTION FOR PRELIM-
FIRST PROPERTIES MANAGEMENT CO. ) INARY INJUNCTION
LLC, and AVALON RIDGE APARTMENTS, )
) CLASS ACTION
Defendants. )
___________________________________)
I. INTRODUCTION
Plaintiff Angela Green has filed an amended complaint in
this matter adding a new defendant, American First Properties
Management Co., L.L.C., the management company that operates
and manages the Avalon Ridge Apartments,1 and adding a new cause
of action, that the defendants violated the Regulatory Agreement
executed between the Washington State Housing Finance Commission
and defendant Sunpointe Associates Ltd. Partnership (Sunpointe
1
Pursuant to discovery, the plaintiff learned that the
primary persons involved in the decision to discontinue
participation in the Section 8 program at the Avalon Ridge
Apartments were Mark Hiatt, Chief Operating Officer of America
First Properties Co., L.L.C. (American First) and Amy Otto, the
Property Manager of the Avalon Ridge Apartments who is an employee
of America First Properties Management, Inc., American First is
licensed to do business in the State of Washington under the name
American First Properties Management, Inc. and has an agent for
service of process in the State of Washington.
MEMORANDUM IN SUPPORT OF PLAINTIFF'S
MOTION FOR PRELIMINARY INJUNCTION -- 1
Associates), governing bond financing of the mortgage for the
Avalon Ridge Apartments.2 This memorandum is intended to address
the new cause of action in light of plaintiff's motion for a
preliminary injunction.
II. ARGUMENT
A. The Defendant's Breach of the Regulatory Agreement
In September 1987, defendant Sunpointe Associates entered
into a regulatory agreement with the Washington State Housing
Finance Commission ("Regulatory Agreement") to obtain bond
financing on the mortgage on the Avalon Ridge Apartments.3
Pursuant to the terms of that agreement, Sunpointe Associates
agreed to accept a certain percentage of low income families
as tenants at Avalon Ridge and agreed to not discriminate in
the provision of housing on the basis of receipt of public
assistance or housing assistance by a tenant or prospective
tenant. In the Bond Financed Project Compliance Manual issued
by the Washington State Housing Finance Commission for projects
such as Avalon Ridge, it is specifically stated that "[bond
financed projects] may not discriminate in providing housing
on the basis of . . . receipt of public assistance or Section
8 housing assistance . . . ."4 By instituting and implementing
2
Counsel for the defendants is aware of plaintiff's intention
to file her amended complaint and this memorandum. The briefing
schedule has been adjusted by agreement of counsel to reflect those
filings.
3
A copy of the Regulatory Agreement is attached to
Plaintiff's First Amended Complaint as Ex. A.
4
A copy of the pertinent portions of the bond finance project
compliance manual are attached as Exhibit A.
MEMORANDUM IN SUPPORT OF PLAINTIFF'S
MOTION FOR PRELIMINARY INJUNCTION -- 2
a policy of terminating all Section 8 tenancies and refusing
to take Section 8 tenants in the future at the Avalon Ridge
Apartments, Sunpointe Associates has directly violated the
anti-discrimination requirements of the Regulatory Agreement
between the Washington State Housing Finance Commission and
itself.
B. Angela Green is a Third Party Beneficiary of the
Regulatory Agreement under Washington law
Washington law recognizes third party beneficiaries to
contracts. See Schaaf v. Highfield, 127 Wn.2d 17, 21 n. 5 (1995);
Lonsdale v. Chesterfield, 99 Wn.2d 353, 361 (1983); Burke and
Thomas, Inc. v. International Org. of Masters, 92 Wn.2d 762,
761 (1979). As the court in Schaaf observed, quoting Lonsdale
and Burke and Thomas:
[t]he creation of a third party beneficiary contract
requires that the parties intend that the promissor
assume a direct obligation to the intended beneficiary
at the time they enter into the contract.
Thus, both contracting parties must intend that a third party
beneficiary contract be created. Furthermore, the test of
intent is an objective one; the key is not whether the contracting
parties had an altruistic motive or desire to benefit the third
party, but rather, 'whether performance under the contract would
necessarily and directly benefit' that party. The contracting
parties' intent is determined by construing the terms of the
contract as a whole, in light of the circumstances under which
it was made.
127 Wn.2d at 21 n. 5.
The Lonsdale court, quoting Vikingstadt v. Baggott, 46 Wn.2d
494, 496-97 (1955), defined the intent required to create a third
party contract:
If the terms of the contract necessarily require the
promissor to confer a benefit upon a third person .
. ., then the contract, and hence the parties thereto,
contemplate a benefit to a third person . . . . The
MEMORANDUM IN SUPPORT OF PLAINTIFF'S
MOTION FOR PRELIMINARY INJUNCTION -- 3
"intent" which is a prerequisite of the beneficiary's
right to sue is "not a desire or purpose to confer
a particular benefit upon him," nor a desire to advance
his interests, but an intent that the promissor shall
assume a direct obligation to him.
(Emphasis in original.) Lonsdale, 99 Wn.2d at 361-62. The
Lonsdale court concluded that it "must look to the terms of the
contract to determine whether performance under the contract
would necessarily and directly benefit the petitioners." Id.
In Lonsdale, the court found that lot owners in a housing
development were the third party beneficiaries of a contract
between the original developer and its assignee where the
contract between them contained a provision that obligated the
assignee to install a water system for the development. The
court concluded that the second developer "could not fully
perform its promise to install the water system without directly
benefiting the petitioners as deeded owners of the lots. [The
lot owners] were thus intended third party beneficiaries of the
performance due under the contract." 99 Wn.2d at 362-63.
Low-income and Section 8 tenants at are the intended third
party beneficiaries of the Regulatory Agreement. Sunpointe
Associates' performance under the Regulatory Agreement "would
necessarily and directly benefit" low-income and Section 8
tenants since decent affordable housing would be made available
to them in a non-discriminatory manner at Avalon Ridge. Viewing
the contract as a whole, in order to assess the contracting
parties' intent, reveals that the Regulatory Agreement required
at least two direct and intended obligations to low-income and
MEMORANDUM IN SUPPORT OF PLAINTIFF'S
MOTION FOR PRELIMINARY INJUNCTION -- 4
Section 8 tenants at Avalon Ridge: (1) that a portion of the
apartments at Avalon Ridge be rented to low-income tenants; and
(2) that Sunpointe Associates not discriminate against Section
8 tenants in the provision of housing at Avalon Ridge.
A further review of the Regulatory Agreement confirms these
intended obligations. For example, the Regulatory Agreement
defines "qualified tenants" as individuals or families of low
or moderate income as defined by Section 8 of the United States
Housing Act of 1937.5 The agreement further requires that
Sunpointe Associates rent at least twenty percent of the units
at Avalon Ridge to such qualified tenants and, to insure
compliance with that requirement, to report their compliance
with the low-income set aside twice a year to the Housing Finance
Commission.6
More specifically, the Regulatory Agreement provides that
Sunpointe Associates "shall not discriminate in the provision
of housing on the basis of race, creed, color, sex, national
origin, religion, marital status, age, disability, or the receipt
of public assistance or housing assistance."7 The term "housing
assistance" set forth in Section 5 of the Regulatory Agreement
means Section 8 housing assistance. The Washington Housing
Finance Commission publishes a Bond-Financed Project Compliance
Manual for projects that receive bond financing such as Avalon
Ridge. The compliance manual sets forth the specific grounds
5
Regulatory Agreement at p. 3.
6
Regulatory Agreement Section 3 and 4, at pp. 5 and 6.
7
Regulatory Agreement at Section 5, p. 6.
MEMORANDUM IN SUPPORT OF PLAINTIFF'S
MOTION FOR PRELIMINARY INJUNCTION -- 5
of prohibited discrimination in the provision of bond financed
housing and includes "receipt of public assistance or Section
8 housing assistance."8
The Washington Housing Finance Commission and Sunpointe
Associates intended that a third party beneficiary contract be
created and that the third party beneficiaries of the contract
would be low-income and Section 8 tenants. This intention is
clearly reflected in the terms of the contract as a whole, in
light of the circumstances under which it was made. Sunpointe
Associates was not motivated by altruism. It received direct
financial benefits as a result of obtaining bond financing.9
If Sunpointe Associates had performed its obligations under the
Regulatory Agreement it would have "necessarily and directly
benefited" low-income and Section 8 tenants. Since low-income
and Section 8 tenants are third party beneficiaries of the
Regulatory Agreement they may bring an action to challenge a
breach of the Regulatory Agreement.
C. Subsidized-Tenants are Third Party Beneficiaries to
Regulatory Agreements
Courts examining similar subsidized housing regulatory
agreements between public entities and private housing providers
have found that subsidized tenants are third party beneficiaries
and have standing to enforce the contracts in question. See,
8
Bond Finance Project Compliance Manual at 2.3, copy attached
as Ex. A.
9
The parties to the regulatory agreement "intend[ed] to
restrict the use of [Avalon Ridge] as provided herein to preserve
the exemption from federal income taxation of interest on the
Note." Regulatory Agreement, p. 1.
MEMORANDUM IN SUPPORT OF PLAINTIFF'S
MOTION FOR PRELIMINARY INJUNCTION -- 6
e.g., Zigas v. Superior Court, 120 Cal. App. 3d 827, 835, 174
Cal. Rptr. 806, 809-13 (1st Dist. 1981), cert. denied, 459 U.S.
543 (1982). For example, in the leading case of Holbrook v.
Pitt, 643 F.2d 1261 (7th Cir. 1981), public housing tenants sought
to enforce their landlord's Section 8 contract with HUD. The
court found that the tenants could enforce that contract because
it was made for the direct benefit of tenants. In Holbrook,
the intent to benefit tenants was manifested in the purposes
of the statutes adopted by Congress,10 in the regulations adopted
by HUD, and in the contract language itself. In rejecting HUD's
argument that the contract was formed only to protect financially
troubled projects, the court stated:
If the tenants are not the primary beneficiaries of a program
designed to provide housing assistance payments to low
income families, the legitimacy of the multi-billion dollar
Section 8 program is placed in grave doubt.
In Ashton v. Pierce, 716 F.2d 56, 66 (D.C. Cir.), mod. on
other grounds, 723 F.2d 70 (D.C. Dir. 1983), public housing
tenants sought to enforce HUD's duty under its annual
contribution contract with a public housing authority to monitor
and enforce compliance with HUD's regulations implementing the
Lead-based Paint Poisoning Prevention Act. The Court of Appeals
concluded that the tenants could enforce the contract because
they were its intended beneficiaires. The court
10
The statutory purpose of the Washington State Housing
Finance Commission bond-financing program is "to assist in making
affordable and decent housing available" to "[o]lder people,
disabled persons and low and moderate income families . . . [who]
cannot afford to rent decent housing." RCW 43.180.010. It is
clear from RCW 43.180 that low income tenants are the intended
beneficiaires of bond financed projects.
MEMORANDUM IN SUPPORT OF PLAINTIFF'S
MOTION FOR PRELIMINARY INJUNCTION -- 7
observed,"[i]ndeed, it is difficult to imagine any purpose of
the contract other than to benefit the tenants of public housing."
716 F.2d at 66.
In numerous other cases courts have held that subsidized
tenants are the third party beneficiaries of regulatory
agreements and similar contracts. See Free v. Landrieu, 666
F.2d 698, 700-02 (1st Cir. 1981); Knox Hill Tenant Council v.
Washington, 448 F.2d 1045, 1057-58 (D.C. Cir. 1971); Henry Horner
Mothers Guild v. Chicago Housing Authority, 780 F.Supp. 511,
515-16 (N.D. Ill. 1991); Tinsley v. Kemp, 750 F.Supp. 1001, 1012
(W.D. Mo. 1990); Curtis v. Housing Authority of Oakland, 746
F.Supp. 989, 997 (N.D. Cal. 1990); McNeill v. New York City
Housing Authority, 719 F.Supp. 233, 148-50 (S.D. N.Y. 1989);
Concerned Tenants Association of Father Panik Village v. Pierce,
685 F.Supp. 316, 322-24 (D. Conn. 1988); Gonzalez v. St.
Margaret's House Development Fund Corp., 620 F.Supp. 806, 810
(S.D. N.Y. 1985), subsequent opinion, 668 F.Supp. 187 (S.D. N.Y.
1987) aff'd per curiam, 848 F.2d 391 (2nd Cir. 1988); Concerned
Tenants Association of Indian Trails Apartment v. Indian Trails
Apartments, 496 F.Supp. 522, 528 (N.D. Ill. 1980); Ayala v. Boston
Housing Authority, 404 Mass. 689, 536 N.E. 2d 1082, 1088-90
(1989); Mt. Sinai Hospital v. Loutsch, 462 N.Y.S. 2d 1004, 1006-07
(1983); Guthartz v. Lewis, 408 So. 2d 600 (1981), aff'd 428 So.
2d 222 (1982).
The case of Zakaria v. Lincoln Property Co. No. 415, Ltd.,
185 Cal. App. 3d 500, 229 Cal. Rptr. 669 (1986), mirrors the
MEMORANDUM IN SUPPORT OF PLAINTIFF'S
MOTION FOR PRELIMINARY INJUNCTION -- 8
instant case.11 In Zakaria the defendant, an apartment complex,
obtained municipal bond financing for the development of the
complex. Pursuant to the statutory bond scheme, the defendant
was required to reserve twenty percent of the units at the complex
for low-income tenants. As a condition of obtaining the bond
financing, the defendant was required to enter into a regulatory
agreement that set forth its purpose as the promotion of the
development of low-income housing. However, the defendant then
denied the application of a Section 8 tenant based upon its
persons-per-unit occupancy standard.
The tenant then sued the complex, asserting that she was
a third party beneficiary of the bond-financing regulatory
agreement between the defendant and the municipality. The court
agreed, holding that "holders of Section 8 certificates are
direct beneficiaries of the contract here and . . . entitled
to sue as third party beneficiaries." 229 Cal. Rptr. at 674.
Because low-income and Section 8 tenants are the third party
beneficiaries of the Regulatory Agreement between the Washington
Housing Finance Commission and Sunpointe Associates, they have
the right to enforce the Regulatory Agreement when breached.
In this instance, Sunpointe Associates has breached the
Regulatory Agreement by instituting a policy of terminating all
Section 8 tenancies at the Avalon Ridge Apartments.
II. CONCLUSION
Since the plaintiff Angela Green is likely to prevail on
her claim that the defendants have breached the Regulatory
11
A copy of Zakaria is attached as App. A.
MEMORANDUM IN SUPPORT OF PLAINTIFF'S
MOTION FOR PRELIMINARY INJUNCTION -- 9
Agreement, the court should grant her motion for preliminary
injunction.
Dated: October ____, 1996
___________________________________
David Girard, WSBA No. 17658
Attorney for plaintiff Angela Green
c:\Housing\Green.A\Pleads\S-Memo.PI:bd
MEMORANDUM IN SUPPORT OF PLAINTIFF'S
MOTION FOR PRELIMINARY INJUNCTION -- 10