PHILIP CASEY AND ROSEMARIE CASEY, PETITIONERS V. JACK KEMP, SECRETARY OF HOUSING AND URBAN DEVELOPMENT, AND THE FEDERAL NATIONAL MORTGAGE ASSOCIATION No. 89-7251 In The Supreme Court Of The United States October Term, 1990 On Petition For A Writ Of Certiorari To The United States Court Of Appeals For The Third Circuit Brief For The Federal Respondent In Opposition OPINIONS BELOW The judgment order of the court of appeals (Pet. App. 1-2) and the opinion of the district court (Pet. App. 5-30) are unreported. JURISDICTION The judgment of the court of appeals was entered on February 23, 1990. The petition for a writ of certiorari was filed on April 13, 1990. The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1). QUESTION PRESENTED Whether the Department of Housing and Urban Development's informal administrative decision, refusing to accept assignment of petitioners' mortgage, is subject to de novo judicial review. STATEMENT The National Housing Act, 12 U.S.C. 1701 et seq., authorizes the Department of Housing and Urban Development (HUD) to assist low-income families in purchasing homes by providing mortgage loan insurance and mortgage subsidy payments. See 12 U.S.C. 1715z. Since 1969, HUD has assisted petitioners in purchasing a single family home in New Jersey. HUD insured their 25-year, $12,350 mortgage loan and has provided a mortgage subsidy payment to the private lender of approximately $50 per month. Pet. App. 6-7. Petitioners regularly made their monthly mortgage payments but failed to pay their water bills for approximately ten years and fell $5,000 in arrears. In 1987, petitioners' mortgage servicing company, the National State Bank, paid that debt and instructed petitioners to repay the sum through a one year increase in monthly mortgage payments. Petitioners were unable to pay the higher mortgage payments, and the servicing company refused petitioners' offer of partial payment. In July 1988, the mortgage holder, respondent Federal National Mortgage Association, commenced foreclosure proceedings, and HUD, pursuant to its regulations (24 C.F.R. 235.375(b)(3)), suspended its mortgage subsidy payments. Pet. App. 7-8. The National Housing Act authorizes HUD, upon notice of default, to "make all or part of the monthly payments under the mortgage directly to the mortgagee on behalf of the mortgagor, if such default was caused by circumstances which are beyond the mortgagor's control * * *." 12 U.S.C. 1715u(a)(1). The Act prohibits HUD from making payments, however, unless there is a "reasonable prospect" that the mortgagor will resume full payments within 36 months and will pay the mortgage in full by its maturity date (or by a later date established by the Secretary). 12 U.S.C. 1715u(a)(2). In August 1988, petitioners applied to HUD to accept an assignment of their mortgage pursuant to these provisions. Pet. App. 8. HUD sought data and a written statement from petitioners explaining the circumstances and reasons for their mortgage default. Thereafter, HUD advised petitioners of its initial determination to refuse to accept assignment of the loan. Petitioners requested an administrative hearing, and on September 21, 1988, a HUD loan officer heard testimony and arguments from petitioners and petitioners' counsel. On October 12, 1988, HUD informed petitioners of its decision not to accept assignment of the mortgage. HUD explained that the cause of petitioners' default -- the non-payment of their water bills -- was not a circumstance beyond their control and that their present income provided no reasonable prospect that they would be able to resume full mortgage payments. HUD provided petitioners with a second hearing and opportunity to present evidence and, on January 11, 1989, concluded again that the agency could not accept assignment of the mortgage. Pet. App. 8, 31, 32-33. The Federal National Mortgage Association filed this action in New Jersey state court, seeking to foreclose on the mortgage, and petitioners filed a third-party action against the Secretary of HUD, claiming that the Secretary improperly terminated the mortgage subsidy and refused to accept assignment of the mortgage. The Secretary removed the action to federal court, where both petitioners and the Secretary filed motions for summary judgment. Pet. App. 9. The district court entered summary judgment in favor of the Secretary. Pet. App. 3-30. The court explained (id. at 11-14) that the Secretary's refusal to accept assignment of petitioners' mortgage was informal agency action subject to judicial review under the Administrative Procedure Act (APA), 5 U.S.C. 706. It concluded that the Secretary applied the correct statutory criteria in refusing to accept assignment (Pet. App. 24-25), observing that the Secretary's determinations were "neither arbitrary, nor an abuse of discretion" and gave appropriate consideration to "the relevant factors" (id. at 27, 29). The court of appeals affirmed the district court's judgment without opinion (id. at 1-2). ARGUMENT Petitioners contend that the district court failed to apply the correct standard of review in upholding the Secretary's refusal to accept assignment of petitioners' mortgage loan. There is no merit to this argument. Section 10(2) of the APA provides, in relevant part, that a reviewing court shall hold unlawful agency action found to be: (A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; * * * * * (C) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right; * * * * * (F) unwarranted by the facts to the extent that the facts are subject to trial de novo by the reviewing court. 5 U.S.C. 706(2). Petitioners do not challenge the district court's conclusions that the Secretary employed the correct statutory criteria or that his decision was not arbitrary, capricious, or an abuse of discretion. Instead, petitioners maintain that they were entitled to a "trial de novo by the reviewing court." 5 U.S.C. 706(2)(F). This Court has already explained the very limited nature of the APA's de novo review provision. The Court stated in Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402 (1971), that a district court may engage in a trial de novo only in "certain narrow, specially limited situations" (id. at 414): De novo review of whether the Secretary's decision was "unwarranted by the facts" is authorized by Section 706(2)(F) in only two circumstances. First, such de novo review is authorized when the action is adjudicatory in nature and the agency factfinding procedures are inadequate. And, there may be independent judicial factfinding when issues that were not before the agency are raised in a proceeding to enforce nonadjudicatory action. 401 U.S. at 415. Accord Camp v. Pitts, 411 U.S. 138, 141-142 (1973). /1/ The Secretary's action in this case was "adjudicatory in nature" (see 5 U.S.C. 551(6) & (7)) and thus a de novo trial would be appropriate only if, at a minimum, "the agency factfinding procedures are inadequate." In this instance, the district court conducted a careful examination of the administrative record and concluded that HUD considered the relevant factors and articulated a rational connection between the facts found and the choices made. Pet. App. 14. Petitioners fail to identify any inadequacies in HUD's factfinding procedures that would warrant de novo review. Quite to the contrary, the agency's procedures provided convincing proof that petitioners did not meet the statutory prerequisites for assignment of their loan. See Pet. App. 24-30. HUD first requested a written explanation from the petitioners explaining the circumstances and reasons for their mortgage default. HUD Brief in Opposition to Defendant's Motion for Summary Judgment, Exh. 6. After issuing its initial refusal to accept assignment of the mortgage, HUD informed petitioners of their right to appeal this initial decision and to request an in-person hearing with a Hud official to whomn they could present additional evidence. Id., Exh. 7; Pet. App. 8. Petitioners exercised that right and a HUD loan officer heard testimony and argument. Ibid. Following that hearing, HUD reached the same conclusion that it could not accept the assignment, but it remained willing to reconsider its decision and provided petitioners with a second hearing and opportunity to present evidence. Thus, the agency provided petitioners with ample opportunities to demonstrate that they satiisfied the statutory requirements for HUD to accept assignment of their mortgage loan. The agency's factfinding procedures simply revealed that petitioners did not qualify for the relief that they sought. /2/ Petitioners argue (Pet. 12) that, to resolve confusion among the lower courts, this Court should issue detailed guidelines on when factfinding procedures are so inadequate as to require de novo review. There is no confusion. The courts of appeals have either assumed or held that a HUD decision whether to accept assignment of a mortgage loan is subject to the APA's arbitrary and capricious standard. See Armstead v. HUD, 815 F.2d 278, 281 (3d Cir. 1987) ("assum(ing) without deciding that the arbitrary and capricious standard applies here"); Anderson v. HUD, 701 F.2d 112, 113-115 (10th Cir. 1983) (applying the arbitrary and capricious standard). More generally, the courts of appeals uniformly agree that de novo review is appropriate only in truly exceptional cases. See, e.g., Acumenics Research and Technology v. United States Dep't of Justice, 843 F.2d 800, 804-805 (4th Cir. 1988); National Org. for Women v. Social Sec. Admin., 736 F.2d 727, 745-746 (D.C. Cir. 1984) (Mikva, J., and McGowan, J., concurring); Upjohn Mfg Co. v. Schweiker, 681 F.2d 480, 483 (6th Cir. 1982). This clearly is not such a case. CONCLUSION The petition for a writ of certiorari should be denied. Respectfully submitted. KENNETH W. STARR Solicitor General STUART M. GERSON Assistant Attorney General MICHAEL JAY SINGER ROBERT M. LOEB Attorneys JULY 1990 /1/ The Court has since indicated that "if the reviewing court simply cannot evaluate the challenged agency action on the basis of the record before it, the proper course, except in rare circumstances, is to remand to the agency for additional investigation or explanation. The reviewing court is not generally empowered to conduct a de novo inquiry into the matter being reviewed and to reach its own conclusions based on such an inquiry." Florida Power & Light Co. v. Lorion, 470 U.S. 729, 744 (1985). /2/ Although petitioners contend that they were entitled to "subpoena or cross-examine witnesses" (Pet. 14), they do not explain how these additional procedures would have produced a different result. In any case, an agency need not use such formal procedures unless the Due Process Clause or a statute requires them. See Pension Benefit Guaranty Corp v. LTV Corp., No. 89-390 (June 18, 1990), slip op. 20; Montgomery Nat'l Bank v. Clarke, 703 F. Supp. 1161, 1171-1172 (D. N.J.), aff'd, 882 F.2d 87 (3d Cir. 1989).