United States District Court, E.D. Wisconsin
DECISION AND ORDER
WILLIAM C. GRIESBACH, CHIEF JUDGE
Le Gros Enterprises, LLC (Le Gros) seeks a money judgment
from the United States Department of Housing and Urban
Development (HUD) for breach of Housing Assistance Payments
(HAP) contracts that Le Gros entered into with the Wisconsin
Housing and Economic Development Authority (WHEDA). The HAP
contracts cover housing units that Le Gros rented to
low-income families pursuant to Section 8 of the United
States Housing Act of 1937, 42 U.S.C. § 1437f (Section
8). HUD has moved for dismissal of Le Gros' breach of
contract claim pursuant to Rule 12(b)(6) on the grounds that
Le Gros lacks privity of contract with HUD and that HUD did
not waive its sovereign immunity. HUD also claims Le Gros
failed to serve the Secretary of HUD in accordance with
Federal Rule of Civil Procedure 4(i). In response, Le Gros
filed a motion for additional time under Federal Rule of
Civil Procedure 4(i)(4). For the reasons that follow, Le
Gro's motion will be denied and HUD's motion will be
owns two multifamily housing rental projects in Green Bay,
Wisconsin and asserts a breach of contract claim related to
its participation in a rent subsidy program governed by
Section 8. (Compl. ¶ 4, ECF No. 1.) The purpose of
Section 8 is to assist low-income families in obtaining
housing. (Id. ¶ 8.) Section 8 achieves this
goal by providing rent subsidies on behalf of low-income
families living in rental housing owned by non-public persons
and entities. (Id. ¶ 9.) HUD implemented the
Moderate Rehabilitation Program to provide annual
contributions to public housing authorities (PHA), such as
WHEDA, in accordance with an Annual Contributions Contract
(ACC) between HUD and the PHA. (Id. ¶ 11.)
Under the ACC, HUD provides annual contributions to the PHA
that enables the PHA to make monthly housing assistance
payments to a property owner pursuant to a HAP contract.
(Id. ¶ 12.)
alleges it entered into a HAP contract with WHEDA in order to
receive federal rental subsidies for two properties: the
Baybrooke Estates and the University Apartments.
(Id. ¶ 17.) Le Gros alleges it did not receive
rental payments for the Baybrooke Estates from November 2014
through July 2015 and the University Apartments for June
2015. (Id. ¶¶ 43, 50, 60.) Accordingly, Le
Gros seeks a money judgment for rent and vacancy compensation
for the Baybrooke Estates and the University Apartments.
(Id. at 15.)
motion to dismiss under Rule 12(b)(6) challenges the
sufficiency of the complaint to state a claim upon which
relief may be granted. Fed.R.Civ.P. 12(b)(6). Rule 8(a)(2)
mandates that a complaint need only include “a short
and plain statement of the claim showing that the pleader is
entitled to relief.” Fed.R.Civ.P. 8(a)(2). The
plaintiff's short and plain statement must “give
the defendant fair notice of what the claim is and the
grounds upon which it rests.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007) (citation omitted).
While a plaintiff is not required to plead detailed factual
allegations, it must plead “more than labels and
conclusions.” Id. A simple, “formulaic
recitation of the elements of a cause of action will not
do.” Id. A claim is plausible on its face when
“the plaintiff pleads factual content that allows the
court to draw the reasonable inference that the defendant is
liable for the misconduct alleged.” Ashcroft v.
Iqbal, 556 U.S. 662, 663 (2009). In evaluating a motion
to dismiss, the court must view the plaintiff's factual
allegations and any inferences reasonably drawn from them in
a light most favorable to the plaintiff. Yasak v.
Retirement Bd. of the Poliemen's Annuity & Benefit
Fund of Chi., 357 F.3d 677, 678 (7th Cir. 2004). The
court should also consider any documents, such as contracts,
that are attached to or referenced in the complaint and that
form the basis of the claim asserted. Venture Assocs.
Corp. v. Zenith Data Sys. Corp., 987 F.2d 429, 431 (7th
argues and Le Gro concedes that Le Gro failed to properly
serve the Secretary in accordance with Rule 4(i) of the
Federal Rules of Civil Procedure within the 90 days of filing
its complaint allowed by Rule 4(m). Rule 4(i) requires
service in triplicate on the United States Attorney for the
district in which the action is brought, the Attorney
General, and the Secretary of the Agency being sued.
Fed.R.Civ.P. 4(i)(2). Le Gro properly served the U.S.
Attorney and the Attorney General, but failed to serve the
Secretary of the Department of Housing and Urban Development.
It has now moved for an extension of time in which to
complete service on the Secretary. Normally, Le Gro's
motion would be granted as a matter of course. Rule 4(i)
provides that the court “must allow a party a
reasonable time to cure its failure to . . . serve a person
required to be served under Rule 4(i)(2), if the party has
served either the United States attorney or the Attorney
General of the United States.” Fed.R.Civ.P. 4(i)(4)(A).
But since the complaint fails to state a claim against HUD,
granting Le Gro's motion for an extension of time would
be futile. For this reason, Le Gro's motion will be
argues that Le Gros' complaint fails to state a claim
under Rule 12(b)(6) because there is no privity of contract
between Le Gros and HUD. To sue the United States or its
agencies in federal court, a plaintiff must “identify a
statute that confers subject matter jurisdiction on the
district court and a federal law that waives sovereign
immunity of the United States to the cause of action.”
Clark v. United States, 326 F.3d 911, 912 (7th Cir.
2003) (per curiam) (citing Macklin v. United States,
300 F.3d 814, 819 (7th Cir. 2002); Kanar v. United
States, 118 F.3d 527, 530 (7th Cir. 1997)). “It is
axiomatic that the United States may not be sued without its
consent and that the existence of consent is a prerequisite
to jurisdiction.” United States v. Navajo
Nation, 537 U.S. 488, 502 (2003) (citation omitted). The
Government acknowledges a limited waiver of sovereign
immunity in 42 U.S.C. § 1404a, but claims that does not
apply here because there is no contract between Le Gros and
asserts that Le Gros has not pled any factual allegations
supporting the existence of a contract between Le Gros and
HUD. Indeed, it is clear from the contracts attached to Le
Gros' complaint that its only contracts are with WHEDA
and/or Integrated Community Solutions, Inc. (ICS). HUD and
WHEDA entered into an ACC under which HUD provides annual
contributions to WHEDA. (Compl. ¶ 11, ECF No. 1.) The
annual contributions enable WHEDA to make monthly housing
assistance payments to a property owner in accordance with a
HAP contract entered into between WHEDA and the owner.
(Id. ¶ 12.) There is no allegation that HUD
breached its ACC with WHEDA.
contract at issue in this case names WHEDA and
Ziegler-Limbach of Green Bay Limited Partnership, Le
Gros' predecessor in contract, as the parties and
signatories. (Compl. Ex. 1, ECF No. 1.) HUD is neither a
named party nor signatory of the HAP contract. Thus, by its
plain language, HUD is not a party to the HAP contract. HUD
argues that the two-tier contractual structure-the first
being the ACC between HUD and WHEDA and the second being the
HAP contract between WHEDA and Le Gros-does not create
privity of contract between HUD and Le Gros.
Le Gros claims that it has privity of contract with HUD
because WHEDA signed the HAP contract as HUD's agent. An
agency relationship exists when “one person (a
‘principal') manifests assent to another person (an
‘agent') that the agent shall act on the
principal's behalf and subject to the principal's
control, and the agent manifests assent or otherwise consents
to so act.” Restatement (Third) of Agency § 1.01;
see also Edelman v. Belco Title & Escrow, LLC,
754 F.3d 389, 395 (7th Cir. 2014). Although Le Gros did not
plead the existence of an agency relationship in its
complaint, it argues in its response brief that WHEDA is
HUD's agent in administering the Section 8 housing
program as it relates to Le Gros' properties. (Resp. Br.
in Opp'n to HUD's Mot. to Dismiss at 2-4, ECF No.
26.) As such, Le Gros contends HUD is responsible for damages
caused by the breach of contract.
the Seventh Circuit has not addressed this issue, the Court
of Appeals for the Federal Circuit concluded in Katz v.
Cisneros, 16 F.3d 1204 (Fed. Cir. 1994), that HUD is not
in privity of contract with a property owner simply because
the owner entered into a HAP contract with a PHA. The court
reasoned that a “grant of benefits and subsequent
oversight by HUD is insufficient to establish a contractual
obligation between [a property owner] and the government,
” even if the PHA is merely acting “as a conduit
for federal funds.” Id. at 1210 (citing
Marshall N. Dana Constr., Inc. v. United States, 229
Ct. Cl. 862 (1982)). Moreover, case law overwhelmingly holds
that PHAs do not act as HUD's agents in administering
Section 8. See, e.g., New Era Constr. v. United
States, 890 F.2d 1152, 1155 (Fed. Cir. 1989) (citing
Hous. Corp. of Am. v. United States, 468 F.2d 922,
924 (1972) (HUD's funding and approval of PHA projects
does not make the PHA an agent of HUD.)); Garreaux v.
United States, 77 Fed.Cl. 726, 732 (2007) (“The
Court of Appeals for the Federal Circuit and its predecessor
court have made clear that when the federal government
subsidizes local government projects, the federal government
does not make itself a party to contracts relating to the
projects, nor does the local government become an agent of
the federal government.”); Greenleaf Ltd.
P'ship v. Ill. Hous. Dev. Auth., 08 C 2480, 2015 WL
5307511, *6 (N.D. Ill. Sept. 9, 2015) (finding that PHAs ...