When Uncle Sam pleads poverty

Lawyers for fire victims want court to pry open Housing Authority’s pockets
By Pam Smith – Recorder Staff Writer*

After a public-housing fire killed five people in late 1997, it took their relatives more than three years to win a $12 million jury verdict for the landlord’s failure to install smoke detectors.

It’s taking even longer to collect.

The San Francisco Housing Authority claims it can’t come up with the money because its funding, most of which comes from the federal government, has strings attached.

On Friday, the First District Court of Appeal heard the Housing Authority’s request to overturn two San Francisco Superior Court orders, which directed the agency to pay the judgment in full in 2003.

Nossaman Guthner Knox & Elliott partner John Hansen, who only became involved in the Housing Authority’s case a couple of weeks ago, was peppered with questions for nearly 20 minutes.

“So, is it your position that the Housing Authority is basically judgment proof?” Justice Douglas Swager asked.

Two of the justices noted that the Housing Authority didn’t pay the plaintiffs anything until after the court orders, though the agency had settled a bad faith case with its insurers for at least $3 million.

Once the Housing Authority got that money, “What does it do?” Swager asked rhetorically. “It holds onto it, pays its attorneys, and [the plaintiffs] have to get a court order. What does that tell us about how the agency has acted?”

While collections disputes are nothing new, the Housing Authority claims its funding and mission put it in a rare position. Hansen told the First District that state lawmakers and judges have never addressed such a situation.

“It appears to me that the issue presented here was simply not contemplated either by the Legislature” or by courts that have interpreted state laws about local public entities’ obligations, Hansen said.

The plaintiffs claim the agency lacks the will rather than the means.

“This is an agency that receives in excess of $200 million each year and refuses to recognize its obligations under the law,” said Thomas Brandi, who represents many of the eight plaintiffs in Joseph v. San Francisco Housing Authority, A104946 and A105134, and argued the case Friday.

Since San Francisco Superior Court Judge Kevin McCarthy’s 2003 orders, the Housing Authority has made a partial payment of $2.7 million, but says the well has run dry.

“The Housing Authority finds itself factually and legally unable to comply, “ Hansen told the court Friday.

While Justices Swager, William Stein, and Sandra Margulies let Brandi’s brief monologue pass without a question, they repeatedly challenged Hansen on whether the agency had picked the correct time and court to cry poor, and if it had more options – no matter how uncomfortable – to explore.

The Housing Authority contends that its funding structure makes it impossible to pay the judgment. To take money away from its budget, it implies in its briefs, would rob the needy of low-income housing and other services.

In fiscal year 2003, the Housing Authority received about $210 million of its $225 million in revenues from the federal government, and the other $15 million came from rents, according to its brief. It claims the U.S. Department of Housing and Urban Development “unilaterally” determines its federal funding and imposes rules as to how its money can be spent.

“The agency finds itself between the proverbial ‘rock and a hard place,’ having immutable demands made by judgment creditors and inviolable rules promulgated by HUD that cannot be reconciled, coupled with SFHA’s abiding and compelling need to fulfill its mission of providing housing to the poor without interruption,” the Housing Authority says in its brief, written by Terrance Stinnett of Goldberg, Stinnett, Meyers & Davis. More than 50,000 families are on the waitlist for housing and rent subsidies at any given time, the brief says.

“Judgment obligations are important,” Hansen told the court Friday. “But the Legislature said it’s equally important that the government not shut down.”

State law says that if a local public entity doesn’t have the money, it needs to appropriate it, Hansen acknowledged. But “then the code hits a wall,” he added. “How do you put it in your budget if you don’t have any control?”

The agency has no taxing authority, and no one would buy bonds if it issued them, Hansen told the justices.

Stein suggested it could sell some of its real estate, “just like any other judgment debtor.”

“If you sell property, it means you have to evict people,” Hansen objected.

It’s a tough spot, Stein conceded. “It’s not a pleasant choice. I understand that.”

But Stein suggested the trial court would be a more appropriate venue to try to convince a court that it’s done everything it can, perhaps in a contempt hearing for violating the lower court’s order.

Absent a factual record on the agency’s efforts, “I don’t understand why you’re here today making the argument that you can’t comply,” Stein said.

“Did you ask for an evidentiary hearing?” added Margulies.

Stein was a more sympathetic, but only a bit. “You’re saying you’re doing everything you can. And I believe you,” he told Hansen. But the plaintiffs couldn’t be faulted for seeking the court orders, he added. “It seems to me, the time has come to put some pressure on.”

If the court upholds McCarthy’s orders, both sides indicated they expect to end up in superior court arguing over their enforcement.

Even if the justices seemed to signal that the agency was premature in making its argument last week, Hansen said, he read in their comments an indication that the Housing Authority would have another chance to demonstrate its inability to pay.

“That certainly is an opportunity the Housing Authority wants because it really wants the court to believe that what it’s saying is true – that it would pay this if it could, but its hands are tied.”

Since the jury verdict, the Joseph plaintiffs and the Housing Authority have tried mediation to no avail.

They initially agreed that the Housing Authority would drop its appeal if the plaintiffs would defer collection for a while, according to Brandi, of the Brandi Law Firm in San Francisco.

He contends the agency should have handed the bad faith settlement money over right away rather than using some to pay its attorneys and dangling the rest as leverage for the Joseph and other plaintiffs to settle for less than their full judgments. “Rather than paying us the money, which is what they were supposed to do, they kept it.”

Hansen declined to discuss mediation conversations, citing confidentiality. But in its brief, the agency said it was trying to be practical and negotiate a plan to distribute the insurance settlement among all its litigation creditors and avoid a battle among them.

Plaintiffs in two other cases have also gotten trial courts to order the Housing Authority to pay their judgments, worth about $1.5 million in all.

*”When Uncle Sam plead poverty: Lawyers for fire victims want court to pry open Housing Authority’s pockets” The Recorder Volume 11, Tuesday, January 18, 2005

Saturday, February 26, 2005 (SF Chronicle) SAN FRANCISCO/Court tells housing agency to pay in fatal fire Rachel Gordon, Chronicle Staff Writer.

The state Court of Appeal has upheld a $12 million judgment against the San Francisco Housing Authority for its culpability in a deadly blaze at one of its properties more than seven years ago.

The Housing Authority, landlord to 12,000 low-income tenants at 53 developments in the city, contends it does not have the money to pay the judgment that a jury awarded in 2001.

The fire Dec. 13, 1997, claimed the lives of a grandmother and five children. To date, the Housing Authority has paid the victims' relatives a little more than $2.7 million, which the agency received from its insurer.

The Housing Authority told the court in its appeal that it would be a "futile act" for the plaintiffs to try to collect the rest because there's no money for it in the agency's budget.

The agency receives most of its $225 million annual budget from the U.S. Department of Housing and Urban Development, which would have to approve the diversion of federal money to pay the judgment. An attorney for the Housing Authority said the agency had been in talks with federal officials.

The Housing Authority "may or may not have funds available at the present time, but that means only that it has an excuse for not paying the full amount of the judgment during the current fiscal year," the Court of Appeal said in its unanimous decision Thursday.

"Nothing ... prevents (the Housing Authority) from using HUD grants or properties, or rents obtained from the properties to pay the judgment," the court said. The Housing Authority "may have to seek approval from (federal authorities) for that use, but that fact does not render the properties unavailable."

The panel also said the Housing Authority could issue bonds to fulfill its legal obligation, or try to tap into city coffers.

Housing Authority Executive Director Gregg Fortner told The Chronicle last fall that agency officials were exploring the possibility of declaring bankruptcy because of several legal judgments, including the fire case.

The Housing Authority's attorney, John Hansen, said Friday that the bankruptcy discussion was off the table, and he offered no solutions for coming up with the money other than trying to get the federal government's help.

"We're in continual discussions with HUD about this," Hansen said.

The case now goes back to the Superior Court for a judge to decide what steps to take next. It's possible the judge could hold the Housing Authority commissioners, who are appointed by the mayor, in contempt of court "if they don't come up with some way to find the money," Hansen said.

Hansen said the agency had not decided whether to appeal to the state Supreme Court.

The fire swept through an apartment at the Hunters View public housing project. It killed Delores Evans, 42; her two grandchildren, Markeisha Joseph, 3, and Ziyadeh Latef, 7 months; two nieces, Raquel Shelton, 6, and Donneisha Shelton, 4; and Valerie Redmond, 8, the daughter of Evans' boyfriend.

Fire investigators said Valerie's father, Henry Redmond, had accidentally started the fire with a cigarette and had fled the unit without warning anyone. The victims' relatives blamed a faulty wall heater and pointed out that the unit had no smoke detectors. The jury found the Housing Authority 80 percent liable and Redmond 20 percent, but he was not named as a defendant and will never have to pay his penalty.

The money from the judgment is to be divided among four families of the victims. Valerie's family did not sue.

Thomas Brandi, lead attorney for the plaintiffs, said Friday that the Housing Authority "has exhibited a conscious disregard for the law of the state, choosing to ignore the findings of a jury, a judgment entered by a court, an order compelling them to pay, and now finally an appellate court ordering them to pay. Hopefully, the Housing Authority will do what everyone else in our society is required to do, follow the law and do the right thing."

As for the agency's claim it is unable to pay, Brandi said, "I believe that this is a question of lack of will, not lack of means."

E-mail Rachel Gordon at rgordon@sfchronicle.com.

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