[00:00:01] Speaker 05:
Case number 21-1212, PF Sunset Plaza LLC petitioner versus United States Department of Housing and Urban Development.

[00:00:10] Speaker 05:
And case number 21-1228, PF Holdings LLC petitioner versus United States Department of Housing and Urban Development.

[00:00:18] Speaker 05:
Mr. Kahane for the petitioners PF Sunset Plaza LLC and PF Holdings LLC.

[00:00:24] Speaker 05:
Ms.

[00:00:24] Speaker 05:
Clark for the respondent.

[00:00:30] Speaker 02:
Good morning, Mr. Kahane.

[00:00:30] Speaker 04:
Good morning, Your Honors.

[00:00:35] Speaker 04:
May it please the court, Josh Kahane and my colleague Aubrey Greer, all the way from Memphis, Tennessee, and it really is quite an honor to be with Your Honors and in this courtroom.

[00:00:45] Speaker 04:
It is quite humbling, so thank you for having us.

[00:00:48] Speaker 04:
We are here on behalf of the petitioners, PF Holdings LLC and PF Sunset Plaza LLC, and with

[00:00:54] Speaker 04:
The court's consent, I have reserved three minutes of my time for rebuttal at the end.

[00:00:59] Speaker 04:
I may please the court.

[00:01:00] Speaker 04:
Council filed the subject appeals seeking relief from the administrative law judges orders of dismissal, which resulted in the imposition of civil money penalties against both PF holdings and the amount of $586,000 and change and PF sunset Plaza and the amount of approximately $391,000 and change.

[00:01:22] Speaker 04:
Petitioners argued that the ALJ's error in this suespante order of dismissal claiming that somehow it lacked jurisdiction over the matter and that this suespante dismissal is in contravention of both 42 USD and importantly HUD's own regulations under 24 CFR which were codified under the APA.

[00:01:46] Speaker 01:
Would this be jurisdictional or essentially a claims processing rule?

[00:01:51] Speaker 01:
It would not, Your Honor, because we believe that the... What would not?

[00:01:57] Speaker 04:
I'm sorry, Your Honor.

[00:01:58] Speaker 01:
Is it not jurisdictional or is it claims processing?

[00:02:01] Speaker 04:
This is not a jurisdictional issue.

[00:02:02] Speaker 04:
This is a claims issue.

[00:02:04] Speaker 04:
And there are two separate and independent issues as it relates to the claims here.

[00:02:09] Speaker 04:
One of them deals only with PF Holdings LLC.

[00:02:12] Speaker 04:
The other one deals with both PF Holdings LLC and PF Sunset.

[00:02:16] Speaker 04:
And with the course permission, perhaps I'll begin with the one that deals only with PF Holdings LLC.

[00:02:21] Speaker 02:
Let me just ask you before you go there, why would it matter whether we characterize the time limit

[00:02:30] Speaker 02:
and the finality provision as jurisdictional or non-jurisdictional.

[00:02:34] Speaker 02:
What rides on that in this case?

[00:02:36] Speaker 04:
Because, Your Honor, if it's a claims-related issue, then the ALJ would have the opportunity to review each case and each set of facts on a case-by-case basis and make a determination about whether or not the extra day that was needed to file a response or whether or not there were appropriate causes and just cause

[00:02:55] Speaker 04:
to allow for an accommodation for a late filed response, et cetera.

[00:02:59] Speaker 04:
If there's a jurisdictional element that on day 16, jurisdiction has been removed from the court and the administrative law judge has no jurisdiction whatsoever to involve itself in this court.

[00:03:11] Speaker 02:
How does that matter in this case?

[00:03:12] Speaker 02:
Because it seems that the next hurdle would be failure to exhaust, that there was no, the ALJ didn't do that, the ALJ, you know,

[00:03:24] Speaker 02:
There's no exhaustion here in either of that.

[00:03:29] Speaker 04:
Well, there would be if the ALJ's determination that they lose all jurisdiction and as a result there's a full dismissal, then there wouldn't have been an exhaustion of the opportunity for these parties to dispute A, whether or not the relevance of their involvement is appropriate, and two, whether or not they're provided proper notice, proper opportunity to dispute the claim, and proper opportunity to exhaust its defensive remedies under the APA.

[00:03:56] Speaker 04:
So your honor as a result and as it relates to the issue of PF holdings LLC in particular.

[00:04:02] Speaker 04:
The ALJ held that because PF Holdings failed to tender its demand for a hearing within 15 days, that automatically they waived all of their rights, they waived all their defenses, and there is a final judgment against them moving forward.

[00:04:19] Speaker 04:
And we would suggest that while it is true that HUD has certain delegated authority to issue civil penalties

[00:04:27] Speaker 04:
under certain bases as it relates to P.F.

[00:04:30] Speaker 04:
Holdings LLC, those bases don't exist because HUD's delegated authority by Congress relates only to those entities or those organizations with whom they have a contract.

[00:04:41] Speaker 04:
That contract being the housing assistance payment or the HAP contract.

[00:04:46] Speaker 04:
And it is under that particular contract

[00:04:49] Speaker 04:
that the parties to that contract agree that in the event HUD believes that there is some failure on the part of the owner of the project, that HUD can issue this notice of monetary fines and at that point 15 days is the entire window for which a response can be filed.

[00:05:10] Speaker 04:
Absent that HAP contract,

[00:05:12] Speaker 04:
There is no such agreement between the parties.

[00:05:14] Speaker 01:
So what are you considering to be the final order in the case?

[00:05:17] Speaker 04:
Well, that's the question.

[00:05:19] Speaker 04:
That's the $893,000 question because the final order in this case needed to be under the regulations, either an order of default issued because the owner failed to respond within 15 days,

[00:05:34] Speaker 04:
or an order on the merits of the case, finding that the monetary citation issued by HUD was appropriate based on the facts and circumstances.

[00:05:44] Speaker 04:
And in every other case that HUD has had in this realm, they have always included the case with this final agency action in the form of either an order of default because the owner failed to respond or an order on the merits of the case.

[00:06:00] Speaker 04:
this sui sponte approach taken by the administrative law judge to say that at the end of the 15 days, even without an order of default and without an order on the merits, and now somehow they lack jurisdiction and it's a order of dismissal.

[00:06:14] Speaker 02:
I know in your brief, you spend a lot of time on this argument.

[00:06:18] Speaker 02:
I'm just trying to figure out where it gets you because the, the bureau now doesn't understand it that way.

[00:06:26] Speaker 02:
And the statute,

[00:06:29] Speaker 02:
doesn't clearly prevent it from accepting the understanding that it now has.

[00:06:33] Speaker 02:
I'm just not sure where that gets you.

[00:06:37] Speaker 02:
You do mention a couple times in the brief, you mentioned the words due process, but you don't make a freestanding due process claim.

[00:06:45] Speaker 04:
It gets us exactly where I think the parties need to be, which is if the administrative law judge maintains jurisdiction until such time as a final agency action in the form of an order is issued, then the fact that the answer was filed one or two or three days late would give the administrative law judge the same discretion that any other judge might have.

[00:07:08] Speaker 02:
This administrative law judge or the two administrative law judges expressed no discomfort with treating the unresponded to complaint as in effect a concession that the allegations were true and

[00:07:27] Speaker 02:
So, and we have, clearly, as your brief concedes, we have final agency action in the form of the ALJ order.

[00:07:34] Speaker 02:
So if the ALJ is not saying, well, here, my hands are tied, sure, I would give you more time, except I can't because this is jurisdictional.

[00:07:42] Speaker 02:
Like, we just don't have that record.

[00:07:44] Speaker 02:
So I'm trying to understand, I mean, you've highlighted things that seem, I would say, quite unusual about the scheme.

[00:07:51] Speaker 02:
It's not the clearest.

[00:07:54] Speaker 02:
It hasn't been the most consistently applied.

[00:07:58] Speaker 02:
But I'm not sure that you have a challenge where the statute says after 15 days, if no hearing is requested, it's final and unappealable.

[00:08:10] Speaker 04:
Your honor, respectfully, I'm not, I'm not sure that that's precisely what the statute says, but the statute says that after 15 days, if no response is filed, then HUD

[00:08:22] Speaker 04:
can issue its citations.

[00:08:24] Speaker 00:
HUD can issue... The statutory language is pretty short.

[00:08:27] Speaker 00:
Why don't you just read that statutory language to us now?

[00:08:30] Speaker 00:
Yes, sir.

[00:08:33] Speaker 00:
Tell us what it really says.

[00:08:49] Speaker 04:
If a respondent does not respond within 15 days, the imposition of the penalty under 42 U.S.A.

[00:08:55] Speaker 04:
1437 Z1B shall constitute a final and unappealable determination.

[00:09:04] Speaker 04:
I would respectfully suggest, Your Honor, and as I think is consistent with the conduct of HUD in applying this statute forever, is that after 15 days, HUD then has the opportunity to file a motion with the administrative law judge.

[00:09:19] Speaker 00:
That's not what the statute says.

[00:09:21] Speaker 00:
The statute says what you just read and what the presiding judge said.

[00:09:24] Speaker 02:
So the imposition of a penalty.

[00:09:26] Speaker 02:
So are you focusing on that there hasn't been any imposition of a penalty?

[00:09:32] Speaker 02:
So it's not about final orders or not or default or not.

[00:09:36] Speaker 02:
You're saying that the unanswered complaint under the statute, as you read it, doesn't amount to the imposition of a penalty.

[00:09:46] Speaker 02:
It amounts to a proposal to impose a penalty.

[00:09:49] Speaker 02:
That's exactly right.

[00:09:50] Speaker 04:
Because otherwise, what would be challengeable?

[00:09:53] Speaker 04:
What, what could an owner who disagreed and who failed or wanted to bring something to this court, what would they bring the complaint?

[00:10:01] Speaker 04:
They bring up a stack of allegations.

[00:10:03] Speaker 02:
Well, you were way before coming to this court.

[00:10:06] Speaker 02:
So if your clients think this is not us and there's something that says, you know, 15 days to request a hearing or final and unappealable, why not say, uh-huh,

[00:10:22] Speaker 02:
This is not I have nothing to do with these contracts.

[00:10:25] Speaker 04:
There is no question that your honor's approach is the best approach and that within the 15 days they should have submitted the challenge.

[00:10:33] Speaker 04:
But the failure to submit the challenge does not negate the fact that a judgment against a party with whom HUD has no no contractual relationship, no jurisdictional relationship, they are not within the ambit of the HUD world.

[00:10:49] Speaker 04:
That is a void judgment.

[00:10:51] Speaker 02:
So if the complaint had as part of the prayer for relief something titled imposition of penalty and said, you know,

[00:11:05] Speaker 02:
If there's no response, the actions described above will be deemed to have occurred and the remedies sought will be imposed.

[00:11:15] Speaker 02:
That would suffice for your purposes.

[00:11:18] Speaker 04:
Your Honor, the regulations actually require such language, which is not present in these complaints.

[00:11:23] Speaker 04:
Which regulation are you looking at?

[00:11:28] Speaker 04:
Your Honor, under 24 CFR 30.85,

[00:11:34] Speaker 04:
There are six elements that must be included within such a complaint.

[00:11:39] Speaker 04:
And those are the factual basis, the applicable civil money penalty statute, the amount of the penalty.

[00:11:45] Speaker 02:
Exactly.

[00:11:45] Speaker 02:
But why doesn't that undercut your position?

[00:11:47] Speaker 02:
Because they included all of those things.

[00:11:49] Speaker 04:
Well, they don't include all of these elements in this particular case.

[00:11:53] Speaker 04:
In this particular complaint, they did not include all six of those elements.

[00:11:57] Speaker 04:
They did not establish the facts.

[00:11:59] Speaker 04:
What element did they not include in the complaint?

[00:12:02] Speaker 04:
Sir, they did not establish the facts.

[00:12:04] Speaker 00:
No, don't tell me they didn't establish.

[00:12:06] Speaker 00:
What element did they not include in the complaint?

[00:12:08] Speaker 02:
You're saying the factual basis for the decision to seek a penalty?

[00:12:11] Speaker 02:
That's correct.

[00:12:12] Speaker 02:
That's correct.

[00:12:13] Speaker 02:
Because in the complaint itself... Well, you disputed it, but they didn't put a factual basis.

[00:12:17] Speaker 04:
They suggest as to each allegation upon information and belief, there is either a direct or an indirect

[00:12:25] Speaker 04:
link between that, that is not a factual assertion.

[00:12:29] Speaker 02:
That is a broad answer.

[00:12:31] Speaker 04:
When it's conceded, it becomes one.

[00:12:33] Speaker 04:
Okay.

[00:12:34] Speaker 04:
So now we're back to your honor's original question, which I think is, is a fair question to ask, but, but the failure, again, if we're looking at PF Holdings LLC itself, the failure to respond does not negate the fact that a judgment rendered against a non-party that is not an owner, that is, that does not fit within the ambit

[00:12:55] Speaker 04:
of the jurisdictional requirements of HUD's assessment of penalties, that is a void judgment.

[00:13:02] Speaker 04:
That judgment doesn't exist.

[00:13:04] Speaker 04:
And as a result of that, the party has the right to challenge the voidness of the judgment as would be any judgment under whether it be rule 60 or any effort to void it.

[00:13:17] Speaker 00:
Council, that is not a given when the statute has the language of being unaffordable in it.

[00:13:23] Speaker 00:
How can you say they have the same right

[00:13:25] Speaker 00:
that they would have as to any judgment.

[00:13:29] Speaker 00:
They're not the same thing, Your Honor.

[00:13:32] Speaker 04:
Your Honor, I would, if we can take it simply for purposes of comparison or a parallel analysis, in a standard commercial lawsuit, where a lawsuit is filed and there is no response by the party and a default judgment is taken, the law provides for such a default judgment that becomes a final judgment after a certain amount of time.

[00:13:50] Speaker 04:
Nevertheless, and in some later period of time, there is an opportunity to challenge

[00:13:54] Speaker 00:
As a number one piece, but there are many, there is an assumption, a presumption of appeal ability or review ability in administrative law, but it is not irrebuttable where Congress expressly says there is not an appeal ability.

[00:14:10] Speaker 00:
Haven't you lost your parallel there with

[00:14:13] Speaker 00:
Not the same thing as a civil lawsuit.

[00:14:15] Speaker 04:
No sir, respectfully, not if it's void by nature.

[00:14:19] Speaker 04:
If HUD incorrectly named your honor as the defendant in this case, and your honor for whatever reason was out of the country for 15 days and didn't respond, I don't believe that your honor would now be responsible for P.F.

[00:14:30] Speaker 04:
Holdings' failure.

[00:14:31] Speaker 04:
I don't believe it has much to do with this count.

[00:14:33] Speaker 04:
I understand.

[00:14:34] Speaker 04:
I'll take myself then as the example.

[00:14:36] Speaker 00:
I don't think your example is getting you very far anyway.

[00:14:41] Speaker 00:
If it's an administrative proceeding that says it's not reviewable, it's not reviewable, is it?

[00:14:51] Speaker 00:
If you said it's not reviewable.

[00:14:53] Speaker 02:
And the government cites granted not many cases, but the Cronholm case and the KPMG case in which there were somewhat parallel statutes with final and unreviewability language and the courts accepted that those were in fact

[00:15:12] Speaker 02:
truncating what would otherwise be access to court.

[00:15:17] Speaker 02:
You didn't file a reply, so we don't have your response to those cases.

[00:15:21] Speaker 02:
I mean, are you saying that this is just something that agencies just cannot do?

[00:15:25] Speaker 02:
And if so, on what authority?

[00:15:29] Speaker 04:
Your Honor, I think we addressed both of those cases in detail in our brief, and those cases are completely different from this case.

[00:15:37] Speaker 04:
Because in both of those cases,

[00:15:40] Speaker 04:
those entities, those organizations had entered into a contract with those administrative agencies in which they agreed.

[00:15:48] Speaker 02:
That's a factual distinction, but it's not a distinction based on the permissibility or not of cutting off review where someone hasn't sought a relative opportunity to be heard in a relatively short amount of time.

[00:16:08] Speaker 04:
That would be, that would be true.

[00:16:10] Speaker 04:
would be true.

[00:16:11] Speaker 02:
And you're not raising a due process claim.

[00:16:15] Speaker 02:
Right, you're not raising a due process, you never cited Matthews versus Eldridge or any other due process case.

[00:16:21] Speaker 04:
We did argue that the imposition of a judgment against a party to whom a judgment cannot be rendered without giving them the opportunity to defend such action would be a violation of their due process.

[00:16:38] Speaker 02:
I don't think you cited

[00:16:40] Speaker 02:
You use the terms due process maybe once or twice in the brief, but I don't think any of your argument headings or refers to due process.

[00:16:48] Speaker 02:
And I don't think you've cited a single due process case from the Supreme Court or otherwise.

[00:16:52] Speaker 02:
Am I right about that?

[00:16:54] Speaker 04:
I will certainly defer to the court if that would be the case.

[00:16:57] Speaker 02:
So you're brief.

[00:16:58] Speaker 02:
You don't have to defer to me.

[00:16:59] Speaker 04:
I don't remember offhand.

[00:17:01] Speaker 04:
But the court certainly seems confident and I'm not in a position to argue if that's the case.

[00:17:07] Speaker 01:
Was PF Holdings ever an owner or manager?

[00:17:09] Speaker 04:
Never.

[00:17:11] Speaker 04:
PF Holdings was never an owner, was never a manager, and was never an identity of interest.

[00:17:18] Speaker 04:
I think the government agrees that they were never an owner.

[00:17:21] Speaker 04:
I think that's not a dispute.

[00:17:24] Speaker 04:
What the government tries to do is suggest that PF Holdings is an identity of interest entity.

[00:17:29] Speaker 04:
And they do so by arguing that at some point in some situation, PF Holdings might have been the third party fee manager.

[00:17:36] Speaker 04:
But that's not the correct analysis.

[00:17:38] Speaker 04:
The analysis is whether or not the owner also owns

[00:17:43] Speaker 04:
That manager and exerts control over that manager because the essence and the basis in the they don't have to own that.

[00:17:51] Speaker 04:
They have to have an identity of interest have an ownership interest.

[00:17:55] Speaker 04:
One element one of the three elements of identity of interest is that the owner of the project likewise has an ownership interest in the management.

[00:18:03] Speaker 04:
And the reason is because the Congress did not want to allow owners to get away from their responsibility to honor their obligations under the HAP contract by creating these alter egos and saying that has nothing to do with me.

[00:18:15] Speaker 02:
That's an independent entity.

[00:18:17] Speaker 02:
Exactly.

[00:18:19] Speaker 02:
Exactly.

[00:18:19] Speaker 02:
And you can't say on this record that your clients are strangers

[00:18:24] Speaker 02:
to this operation, to this contract.

[00:18:26] Speaker 02:
So this is not somebody who was out of the country for 15 days.

[00:18:29] Speaker 02:
This is somebody who's had significant contact with HUD leading up to the complaint.

[00:18:36] Speaker 02:
Am I wrong?

[00:18:37] Speaker 04:
You're right, but in this case,

[00:18:39] Speaker 04:
Actually, their previous counsel responded within 15 days and communicated with the government within 15 days and disputed the claims within 15 days.

[00:18:50] Speaker 04:
And then there was the issuance of the complaint and I can't speak to the court.

[00:18:55] Speaker 02:
I think you may have misspoke.

[00:18:56] Speaker 02:
You said responded within 15 days of the.

[00:18:58] Speaker 04:
I'm sorry, of the, of the, of the pre, of the notice, of the initial notice.

[00:19:01] Speaker 02:
Pre-complaint notice.

[00:19:02] Speaker 02:
They did not respond.

[00:19:03] Speaker 02:
I mean, we wouldn't be here if they hadn't responded.

[00:19:05] Speaker 04:
That's correct, Ron.

[00:19:06] Speaker 04:
I have.

[00:19:06] Speaker 02:
Right.

[00:19:07] Speaker 02:
So this is a business represented by council that is aware of HUD's understanding of the situation that, and that HUD believes that PF Holdings and PF Sunset, in fact, have a responsible relationship and an identity of interest with, with the owner.

[00:19:26] Speaker 02:
So this is not a stranger on the street.

[00:19:28] Speaker 02:
I'm right about that.

[00:19:30] Speaker 04:
You weren't correct about that.

[00:19:32] Speaker 04:
You weren't correct about that.

[00:19:34] Speaker 02:
But that's, I'm not sure that's the standard.

[00:19:36] Speaker 02:
No, I'm just responding to the hypotheticals that you're posing about the potential unjust application of this

[00:19:47] Speaker 02:
the scheme and trying to relate that to the facts.

[00:19:50] Speaker 04:
It is not uncommon for management companies and ownership groups to have relationships that exist on multiple properties and multiple locations.

[00:19:59] Speaker 04:
I would suggest to the court that's actually commonplace.

[00:20:02] Speaker 04:
What you do not often have is a management company that is owned and controlled by an ownership group.

[00:20:08] Speaker 04:
In that scenario, certainly the management company should be held equally responsible for their failures because the ownership group is controlling the management group.

[00:20:17] Speaker 04:
But in a scenario where that's not the case, the ownership group is responsible for their failures.

[00:20:22] Speaker 04:
They're the ones holding the money.

[00:20:23] Speaker 04:
They're the ones making decisions.

[00:20:24] Speaker 00:
And in fact, in this case... But isn't that the sort of thing that should be raised in that response within 15 days rather than something you come along with after you've failed to comply with the statutory limits?

[00:20:34] Speaker 04:
Yes, sir.

[00:20:35] Speaker 04:
And I agree with the court wholeheartedly that within the 15 days these arguments should have been raised.

[00:20:42] Speaker 04:
As it relates to P.F.

[00:20:43] Speaker 04:
Holdings, however, it is our position that there is not a basis for the assertion of a judgment against a party that is neither an owner nor an identity of interest under the statute.

[00:20:55] Speaker 04:
So even if the court were to find and

[00:20:58] Speaker 04:
and affirm the fact that a failure to respond by day 16 results in an unappealable decision.

[00:21:05] Speaker 04:
And even if the court were to find that the failure of the court to enter an order somehow is not an issue, and even if the court's willing to ignore the fact that HUD has always filed motions for default judgment, and in this case, in fact, filed a motion for default judgment, and then we all received a response to the order, and HUD kind of jumped on the bandwagon that they really didn't have to do that, if we ignore all of those facts,

[00:21:27] Speaker 04:
We still have a judgment against an entity that is not party to a half contract.

[00:21:32] Speaker 04:
That is not an owner.

[00:21:33] Speaker 04:
That is not an identity of interest.

[00:21:35] Speaker 00:
There is a certain and that is a question that could have been litigated and we could have that decision.

[00:21:42] Speaker 00:
If the responsibility made within 15 days, just because you say that they were outside the jurisdiction doesn't mean they were outside the year.

[00:21:50] Speaker 00:
And all we have at this point is you coming in ex post facto and saying their aspect.

[00:21:56] Speaker 04:
Perhaps your honor, the court would would consider allowing the administrative judge to examine that particular issue by by remanding the case for the purpose of determining whether or not there is a void judgment against an entity with whom HUD has no enforcement authority.

[00:22:10] Speaker 02:
Let me ask you what what is what is the status of your clients?

[00:22:15] Speaker 02:
I thought they were owners.

[00:22:17] Speaker 02:
I thought they were holding companies properties for

[00:22:20] Speaker 02:
that are under these HUD contracts.

[00:22:25] Speaker 02:
If you could have that hearing with the ALJ, just the basics, what would be the assertion of the actual relationship and who HUD should actually be going against?

[00:22:37] Speaker 04:
HUD should go against the exact entity they went against in the first part, which is Ralston GALLC, and against whom they have a judgment.

[00:22:46] Speaker 02:
And you said the owner is the one that has the money, but they don't have the money.

[00:22:51] Speaker 04:
I don't represent them.

[00:22:53] Speaker 02:
I understand.

[00:22:55] Speaker 02:
But I was asking about the relationship of your client to this situation.

[00:22:59] Speaker 04:
PF Holdings LLC has absolutely and has never had any ownership interest whatsoever in Rawson.

[00:23:05] Speaker 02:
What interest has it had in these properties?

[00:23:10] Speaker 04:
There is a member of PF Holdings LLC

[00:23:15] Speaker 04:
who also was a member of a not-for-profit charity, who was a member of Ralston GA, a gentleman named Mr. Puritz, who I believe might be on some of the HUD documents.

[00:23:25] Speaker 04:
That is the only relation.

[00:23:27] Speaker 04:
There is a separate and distinct matter, the P.F.

[00:23:30] Speaker 04:
Sunset matter.

[00:23:31] Speaker 04:
In that case, as Your Honor will note, we have not argued this issue of they are the wrong party.

[00:23:37] Speaker 04:
It's a void judgment because in that case, in fact, P.F.

[00:23:40] Speaker 04:
Sunset LLC was the owner and was the manager and they would be subjected to the power and the citation rights of HUD.

[00:23:51] Speaker 02:
And what's their strongest claim here before us?

[00:23:54] Speaker 02:
We've mostly focused on P.F.

[00:23:55] Speaker 02:
Holdings because you started with the distinct

[00:23:58] Speaker 04:
We would suggest that there is no final agency action with regard to the PF sunset matter.

[00:24:04] Speaker 02:
You don't really mean no final agency action because that has to do with something that is right for our review and here we have the ALJ determinations.

[00:24:12] Speaker 02:
You mean there is no imposition of a penalty?

[00:24:15] Speaker 04:
Thank you.

[00:24:16] Speaker 04:
If you look at the statute carefully, the imposition of the civil money penalty has not in fact taken place because instead of there being an order, whether by default or on the merits of the case, there was a dismissal for lack of jurisdiction.

[00:24:31] Speaker 04:
That dismissal does not in fact impose.

[00:24:38] Speaker 03:
Right.

[00:24:38] Speaker 03:
Thank you, Your Honor.

[00:24:39] Speaker 03:
Appreciate all the time and the questions.

[00:24:40] Speaker 04:
Thank you for the opportunity.

[00:24:41] Speaker 02:
And did you want to save any time for rebuttal?

[00:24:43] Speaker 04:
We had requested, if possible, to save us three minutes.

[00:24:48] Speaker 04:
I recognize certainly we went over time.

[00:24:49] Speaker 02:
I mean, we contributed to your going over time.

[00:24:51] Speaker 02:
We'll give you two.

[00:24:52] Speaker 04:
Thank you, Your Honor.

[00:24:53] Speaker 02:
Thank you.

[00:24:54] Speaker 02:
Morning, Ms.

[00:24:55] Speaker 02:
Clark.

[00:25:03] Speaker 06:
To face the court, Sarah Clark for the United States.

[00:25:07] Speaker 06:
I just want to take a step back and refocus on the statutory text.

[00:25:11] Speaker 06:
So the statutory text says that the time starts, this 15-day time period to request a hearing, begins on the date on which notice of opportunity for hearing is received.

[00:25:22] Speaker 06:
And then it goes on to say, the imposition of a penalty under subsection B shall constitute a final and unappealable determination if the hearing is not requested.

[00:25:32] Speaker 06:
If you don't request a hearing in time, the penalties are final and unappealable.

[00:25:36] Speaker 02:
What is your response to Mr. Khan's argument that there hasn't been an imposition of a penalty and to his contentions that this is something of a change or at least a crystallization of HUD's own understanding of this statute of right?

[00:25:57] Speaker 06:
So on the first point, on the imposition point, for one, that's not what they argued in their brief.

[00:26:02] Speaker 06:
So I think they have forfeited that argument.

[00:26:04] Speaker 06:
And second, the statutory text makes clear that once you miss the 15-day deadline, the penalties are imposed.

[00:26:12] Speaker 06:
So there is, in fact, an imposition of a penalty.

[00:26:16] Speaker 06:
So I don't think that argument gets them anywhere.

[00:26:18] Speaker 06:
As for their argument that this has been a change, I think the change has been in the mechanism that HUD uses to close out the case.

[00:26:26] Speaker 06:
So in the past, essentially, parties had tried to come in after missing the hearing request deadline, and HUD enforcement had gone to request default judgment to close the case.

[00:26:38] Speaker 06:
But their arguments, as they were here, were sort of leading off that,

[00:26:45] Speaker 06:
Given the fact that the petitioners missed the deadline, everything else was essentially moot.

[00:26:50] Speaker 06:
There was no further avenue for challenge, and that the cases were over.

[00:26:54] Speaker 06:
So although the vehicle for that argument was a default judgment motion here, the core and the substance of the argument was the same.

[00:27:03] Speaker 06:
And since the ALJs in these cases clarified the right way to go about this is a motion to dismiss, that's how these cases have proceeded since then when a party misses the 15-day statute

[00:27:15] Speaker 02:
What's your view on whether C2A is jurisdictional and does it matter?

[00:27:22] Speaker 06:
Our first argument is that because the penalties are now final and unavailable, is that this court has no jurisdiction.

[00:27:30] Speaker 06:
So it's certainly jurisdictional in that sense.

[00:27:33] Speaker 06:
And I think that's actually consistent with and sort of works together with our second argument, which is that petitioners have failed to exhaust their administrative remedies, right?

[00:27:42] Speaker 02:
So that- And is the exhaustion requirement here jurisdictional?

[00:27:45] Speaker 02:
I mean, I'm just trying to get clear whether we need to determine

[00:27:50] Speaker 02:
the jurisdictional or simply the finality of the determination.

[00:27:57] Speaker 06:
So we haven't taken a position on whether the exhaustion requirement, the exhaustion of remedies requirement is jurisdictional because even if it's not, petitioners have failed to meet it.

[00:28:06] Speaker 06:
That said, obviously our first argument is that unappealable language standing on its own deprives the support of jurisdiction because the penalties are no longer subject to challenge.

[00:28:21] Speaker 02:
Or why is this a jurisdiction?

[00:28:24] Speaker 02:
There's nothing for us to appeal, I mean to consider.

[00:28:29] Speaker 02:
I guess to me the question would be, and maybe you could respond to the way that Mr. Kahane relied on it, which is he said it matters whether it's jurisdictional because even though the ALJs didn't say so,

[00:28:48] Speaker 02:
they would have perhaps felt free to extend the short time had they understood it to be non-jurisdictional.

[00:28:59] Speaker 02:
Is it actually understood as jurisdictional?

[00:29:05] Speaker 02:
It's not necessarily clearly passed that way within the statute.

[00:29:10] Speaker 06:
Right.

[00:29:11] Speaker 06:
I think it is best understood that way.

[00:29:12] Speaker 06:
And so if we get to the point sort of down the line of examining the ALJ's decision and whether it was right to conclude that the penalties were no longer subject to challenge and that it no longer had a jurisdiction, then I think the reason why it's jurisdictional is because the deadline is set forth in statute.

[00:29:29] Speaker 06:
And the regulations that govern these proceedings actually echo that.

[00:29:33] Speaker 06:
So in the deadline provision, it says this mandated period cannot be extended.

[00:29:39] Speaker 06:
In the regulations that govern the hearings, it specifically says that ALJs cannot extend time limits that are mandated by statute.

[00:29:48] Speaker 06:
That's in 24 CFR 2632.

[00:29:50] Speaker 06:
So I think that just reinforces that there's no wee way for the ALJ to say, oh, well, you were only one day late, and you have really good reason.

[00:30:00] Speaker 02:
But I mean, it could be a claims processing role as distinct from technically a jurisdictional role and still be quite harsh and still be something that the ALJ didn't have authority to extend.

[00:30:10] Speaker 02:
So again, I'm trying to figure out with it because, you know, the cases on the character of a statutory requirement being jurisdictional have really

[00:30:20] Speaker 02:
narrowed and said, you know, be be judicious about how you use the term jurisdictional, even when the courts have referred to things as jurisdictional.

[00:30:30] Speaker 02:
The Supreme Court has told us there's jurisdictional and then jurisdictional in the common sense, meaning and so jurisdictional in the sense of really going to authority and being non waivable.

[00:30:40] Speaker 02:
I'm not sure we need to so characterize it.

[00:30:45] Speaker 02:
to rule for the government here, and I'm not sure that it would be wise.

[00:30:47] Speaker 02:
I don't see an analysis chapter inverse of those cases, you know, spreading from our bond forward.

[00:30:54] Speaker 06:
So I agree that you don't need to agree with the government on that to rule for us, because even further down the line, I don't think any petitioners arguments succeed.

[00:31:04] Speaker 06:
And they certainly have no argument, not attempted to present any argument as to why they should get

[00:31:10] Speaker 06:
sort of excused from this requirement, even if it were sort of more lenient type of claims processing role rather than either a mandatory claims processing role that has to be applied when it's asserted or a jurisdictional rule.

[00:31:23] Speaker 06:
But I think going back again, I think the language word unappealable

[00:31:29] Speaker 06:
just in its ordinary meaning means no further challenge.

[00:31:32] Speaker 06:
And I'll just return briefly to the exhaustion provision, which I think sheds light on that.

[00:31:37] Speaker 06:
The exhaustion provision, so that's 1735 F15 E1, that's exhaustion of remedies provision, that says you can get judicial review after exhausting all administrative remedies established by the secretary.

[00:31:51] Speaker 06:
And then it refers in that section to the multifamily mortgager procedures, which are the same that are

[00:31:57] Speaker 06:
And so that makes it clear that if you're not going through the steps that you need to do before the agency, you can't go on and challenge the penalty or the court.

[00:32:12] Speaker 06:
And I guess I'll just take one step back and say that petitioners have no theory of what unappealable means in this context or why that language should title them to further review.

[00:32:24] Speaker 06:
But as you pointed out, or as you alluded to, the court doesn't need to agree on that front to find that here they have nothing to accept.

[00:32:34] Speaker 02:
So is, I should have looked this up, but is exhaustion

[00:32:40] Speaker 02:
a ground that under Steel Co.

[00:32:42] Speaker 02:
we could rely on without first determining whether the final and unappealable is jurisdictional with respect to this court.

[00:32:55] Speaker 02:
It's kind of preliminary, you know, under Sino Cambergas, Steel Co.

[00:32:59] Speaker 06:
Right, so without having that, the fact that that specific case at my fingertips, I think, you know, here

[00:33:08] Speaker 06:
So if the exhaustion requirement is jurisdictional, obviously the court can pick and choose between that and the first argument about the unequal language.

[00:33:15] Speaker 06:
Otherwise, I think typically the court would have to first assess its own jurisdiction.

[00:33:20] Speaker 06:
I just think they hear the provisions work together.

[00:33:23] Speaker 06:
But if we're in the world of exhaustion, I think there's no argument the petitioners have satisfied that requirement, especially not under the logic of Woodford versus Snow.

[00:33:33] Speaker 01:
Where does the compelling, extraordinary, compelling language fit in?

[00:33:38] Speaker 06:
So I think you may be referring to the requirement that parties exhaust the issues that they raised as well.

[00:33:48] Speaker 06:
So 1735, F15E2 says the court can't consider an argument that wasn't raised below unless there are extraordinary circumstances.

[00:33:58] Speaker 06:
And I think that just means if you've requested a hearing in time and gone through the process but you didn't raise x argument, then when you come before this court, of course, you can't raise it unless there are

[00:34:09] Speaker 06:
circumstances, I think that only underscores that there really should be no exception or that there is no exception under the exhaustion remedies provision, which has no carve out for extraordinary circumstances or any form of excuse.

[00:34:22] Speaker 06:
Basically, you have to exhaust your remedies before you come into it.

[00:34:28] Speaker 02:
This is an extraordinary scheme, and it's hardly crystal clear.

[00:34:35] Speaker 02:
But there's no due process claim

[00:34:38] Speaker 02:
before the court today.

[00:34:40] Speaker 06:
Your Honor, they have been made a due process claim.

[00:34:43] Speaker 06:
And I don't think one would be meritorious, right?

[00:34:46] Speaker 06:
So here, the complaints, the statute, the regulations all provide notice to the party and an opportunity for a hearing.

[00:34:54] Speaker 06:
And there's actually multiple steps of notice.

[00:34:56] Speaker 06:
There's the pre-penalty notice, which lays out the specific facts of the offenses.

[00:35:01] Speaker 06:
In this photo, it describes in detail the allegations

[00:35:06] Speaker 06:
I see that my time is up.

[00:35:07] Speaker 02:
It's all right.

[00:35:08] Speaker 02:
You can continue.

[00:35:09] Speaker 06:
And it gives the party a chance to respond.

[00:35:11] Speaker 06:
There is then the complaint phase, which gives the party a chance to request a hearing.

[00:35:16] Speaker 06:
And at that hearing, hold HUD to its burden of proof.

[00:35:19] Speaker 06:
And I think to some of the points that opposing counsel is raising, any sort of argument that they have as to whether you know the party, the proper venue for that is at the hearing.

[00:35:30] Speaker 06:
And to your point about sort of the scheme here,

[00:35:35] Speaker 06:
I think one thing that is clear throughout, and that petitioners have not argued is confusing, is the deadline and is the effect of the deadline.

[00:35:43] Speaker 06:
The statutory language and the regulatory language are clear.

[00:35:47] Speaker 06:
Petitioners have never suggested that they were confused or that they had some reason for missing it.

[00:36:06] Speaker 03:
Quick minutes.

[00:36:08] Speaker 04:
I would just start where my colleague ended.

[00:36:10] Speaker 04:
I think the language is not clear, and I think that that's why we are where we are.

[00:36:15] Speaker 04:
It's not even clear as when we look at the regulations, there are two regulations as a result as relate to what happens when the 15 days are passed.

[00:36:25] Speaker 04:
If the 15 days passed and there was an automatic imposition of penalties,

[00:36:30] Speaker 04:
then the statute of the regs would have said that.

[00:36:33] Speaker 04:
But that's not what the regs say.

[00:36:34] Speaker 04:
24 CFR 2641 says.

[00:36:37] Speaker 04:
The respondent may be found in default upon motion for failure to file a timely response to the government's complaint.

[00:36:45] Speaker 04:
The motion shall include a copy of proposed order, shall be served on the parties, and the respondent shall have 10 days from such service to respond to the motion.

[00:36:54] Speaker 02:
Okay, so under the statute and regulations, if your clients had requested a hearing, but then had not responded to the complaint,

[00:37:06] Speaker 02:
that default process would kick in.

[00:37:09] Speaker 02:
But we don't even get there where there's no request.

[00:37:13] Speaker 02:
And I understand from your brief that you're saying, well, if there's no request, that this default process still plays out.

[00:37:23] Speaker 02:
And indeed, it seems like the ALJ, in at least one of your cases, so thought.

[00:37:29] Speaker 02:
But what if we think that was wrong?

[00:37:31] Speaker 02:
How does that help you?

[00:37:34] Speaker 04:
Because perhaps it's not wrong.

[00:37:36] Speaker 04:
Perhaps HUD has acted in that way forever because that is the appropriate way to do it.

[00:37:44] Speaker 04:
And that the ALJ's order moving away from such a system wherein there is proper opportunity and process for the respondent, that is the error.

[00:37:55] Speaker 02:
So your clients were waiting for the motion for default judgment to respond?

[00:38:02] Speaker 04:
I believe our clients responded within days of the 15th.

[00:38:05] Speaker 02:
Okay.

[00:38:05] Speaker 02:
But just, let's say they responded thinking we're going to really get our day in court when there's a motion from HUD for default judge, right?

[00:38:16] Speaker 02:
Because that, that you're, the way you're understanding it is you're saying, no, no, the 14 days doesn't create, doesn't impose a penalty.

[00:38:23] Speaker 02:
There has to be some further process.

[00:38:25] Speaker 02:
So let's say HUD is preparing to move for default judgment.

[00:38:30] Speaker 02:
And your client responds and says, no, the facts aren't as you say.

[00:38:33] Speaker 02:
And then HUD says, oh, actually, you never responded to the complaint and sought a hearing.

[00:38:39] Speaker 02:
No chance for a hearing.

[00:38:42] Speaker 02:
So what else do you have in opposition to default judgment at that point?

[00:38:47] Speaker 04:
And we would argue the merits of the claim.

[00:38:49] Speaker 02:
In a brief with no factual record.

[00:38:53] Speaker 04:
Yes, I believe the ALJ judge would have the opportunity at that point to determine whether or not

[00:38:59] Speaker 04:
based on the retention of jurisdiction, whether or not the owner would have the opportunity at that point when the motion was filed to respond and to bring its defenses to the cause of action.

[00:39:11] Speaker 02:
I don't think that goes to the merits of a default judgment within the context of a HUD administrative proceeding.

[00:39:17] Speaker 02:
I don't think you get to do, and you get to talk about whether you defaulted or not.

[00:39:20] Speaker 02:
You don't get to talk about merits.

[00:39:23] Speaker 02:
It seems to be that's the premise of your argument though.

[00:39:25] Speaker 02:
That would be the merits opportunity.

[00:39:27] Speaker 04:
I would think that, again, to follow the statute, there must have an unappealable imposition of fines.

[00:39:35] Speaker 04:
There must be something beyond simply the 15th day, the 24th hour finishing.

[00:39:42] Speaker 04:
And Your Honor, and I'll sit down after this and keep me as long as the court would like, but 24 CFR 2650, which is the merits claim, has the exact same language.

[00:39:52] Speaker 04:
And it says that the ALJ is required, shall issue a decision.

[00:39:57] Speaker 04:
It doesn't say that there is just this imposition.

[00:40:01] Speaker 04:
There is clearly the contemplation that after 15 days, the regulatory agency may at that point move for the imposition of these unappealable fines.

[00:40:11] Speaker 04:
Prior to that point, there is not this unappealable imposition of the fines.

[00:40:16] Speaker 04:
And in this case, when

[00:40:18] Speaker 04:
There is a judgment taken that is void.

[00:40:21] Speaker 04:
And when there was a denial of the opportunity not based on anything other than the administrative law judge saying, I can't even consider the arguments in the briefs that are filed because I don't have jurisdiction.

[00:40:32] Speaker 04:
We would ask the court to reconsider that.

[00:40:34] Speaker 02:
Thank you, Mr. Khan.

[00:40:35] Speaker 04:
The case is submitted.

[00:40:36] Speaker 04:
Thank you.