District Court Erred in Granting Preliminary Injunction in Class Action Against FEMA Alleging Arbitrary Denial of Continuing Rental Assistance Benefits for Individuals Displaced from Homes Following Hurricanes because Recipients did not have Property Interest in Those Benefits Fifth Circuit Holds
Plaintiffs filed a class action lawsuit against the Federal Emergency Management Agency (FEMA) arising out of FEMA’s administration of, and termination of benefits under, a rental assistance program instituted for individuals displaced from their homes by Hurricane Katrina and Hurricane Rita: specifically, the class action was brought “a class of individuals who received rental assistance payments from the federal government after Hurricanes Katrina and Rita, [and] alleg[ed] various constitutional and statutory deficiencies in the process by which the rental assistance program is administered.” Ridgely v. Federal Emergency Management Agency, 512 F.3d 727, 2008 WL 54799, *1 (5th Cir. 2008). The class action complaint alleged that FEMA could not terminate benefits under the program “until certain notice, hearing, and appeal procedures have been provided,” and plaintiffs’ lawyer moved for a preliminary injunction in order to require FEMA to continue making payments under the program until a decision on the merits of the class action claims. Id. Defense attorneys opposed the motion, arguing that recipients of benefits under the rental assistance program did not have a due process property interest in continued benefits thereunder, id. The district court issued the preliminary injunction requested by plaintiffs. Id. Defense attorneys filed an interlocutory appeal only from the issuance of the injunction, not from the granting of class action status, and the Fifth Circuit reversed.
Following Hurricanes Katrina and Rita, FEMA provided rental assistance “to individuals displaced from their homes on account of either storm” that was to be used by recipients “to rent alternate housing.” Ridgely, at *1. This program is governed by the Stafford Act, 42 U.S.C. § 5121 et seq. and FEMA’s implementing regulations, id. FEMA’s practice is to provide benefits in three-month blocks – that is, FEMA gives recipients “a single payment designed to cover rent for three months”; if assistance is needed beyond the three-month benefit provided, an application may be made for continued rental assistance which, if granted, are again made in three-month blocks. Id. After FEMA denied plaintiffs’ applications for continued rental assistance, id., at *2, they filed a class action “alleg[ing] due process violations in the process by which FEMA makes eligibility determinations for these additional awards.” Id., at *1.
We do not here discuss the provisions of the Stafford Act or FEMA’s regulations, or the process by which individuals qualify for assistance under the rental assistance program. See Ridgely, at *1. For present purposes, it is sufficient to note that FEMA has been “flexible” in its administration of the program, at times requiring minimal or even no documentation from applicants, and at other times requiring more detailed documentation in order to receive benefits or continued benefits. Id. The class action alleged that FEMA’s administration of the program is “arbitrary” and violates the Due Process clause, id., at *2. Specifically, the class action complaint “charged that FEMA: (1) denies applications for continued rent assistance by issuing notices containing only confusing codes, instead of understandable explanations; (2) operates an unresponsive system that precludes effective challenges to FEMA decisionmaking before the loss of assistance; and (3) fails to publish eligibility standards.” Id.
Plaintiffs’ lawyer was aggressive, filing a motion for class action certification and preliminary injunction “[b]efore FEMA could answer the complaint.” Ridgely, at *2. The district court heard oral argument but did not hold an evidentiary hearing despite the fact that “the materials submitted by the parties, together with the pleadings, paint two very different pictures of FEMA’s administration of the rental assistance program.” Id. On July 13, 2007, the district court granted plaintiffs’ class action certification motion and issued the preliminary injunction plaintiffs’ requested. Id., at *2-*3. The district court rejected defense arguments that “plaintiffs lacked the property interest necessary to support a due process claim,” agreeing with plaintiffs that FEMA’s procedures were “inadequate.” Id., at *3. After reviewing the statutory framework and regulations underlying the rental assistance program, see id., at *3-*5, and noting that “only principles of due process are at issue here,” id., at *5, the Fifth Circuit turned to FEMA’s argument that the district court abused its discretion in issuing the preliminary injunction.
“To prevail on a due process claim, plaintiffs must show that: (1) they possess a property interest that is protected by the due process clause, and (2) FEMA’s procedures are constitutionally inadequate.” Ridgely, at *6 (citing Logan v. Zimmerman Brush Co., 455 U.S. 422, 428 (1982)). The allegations in the class action complaint “describe an overly bureaucratic and frustratingly unresponsive agency that misapplies its own rules and standards, [that] uses incomprehensible codes to inform applicants of its decisions on their requests for assistance, and fails to offer any meaningful review of those decisions on administrative appeal.” Id. But a preliminary injunction may not issue absent a showing of a likelihood of success on the merits, and defense attorneys argued that this requirement cannot be met because plaintiffs cannot establish a property interest in the benefits provided under the rental assistance program, id. The Fifth Circuit agreed. While recognizing that it may be possible for plaintiffs to establish such a property interest “based on FEMA’s policies and practices in implementing the statute and regulations to provide rental assistance,” the Circuit Court held that “[s]tanding alone, the statute and regulations governing the rental assistance program are not sufficient to create a property interest.” Id.
The Fifth Circuit explained that while benefits under government programs may constitute property protected by the Due Process clause, “not all government benefits programs create constitutionally recognized property interest.” Ridgely, at *6. “A property interest only arises when an entitlement to benefits exists.” Id. (citation omitted). Because the Stafford Act and the regulations implementing it afford FEMA discretion in the distribution of rental assistance under the program, see id., at *7-*8, plaintiffs could not establish “entitlement” to such benefits sufficient to create a property interest therein, id., at *8. The Fifth Circuit also rejected plaintiffs’ theory that their prior receipt of rental assistance benefits supported a property interest in continued benefits. See id., at *8-*10. However, the Circuit Court could not “conclude that a property interest is entirely foreclosed,” particularly as the district court failed to hold an evidentiary hearing. Id., at *11. Accordingly, it went no further than to hold that the district court abused its discretion in granting the preliminary injunction, id., and remanded the matter to the district court for further proceedings, id., at *13.