                                                                                                                           Opinions of the United
2005 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


9-13-2005

McDowell v. Phila Housing Auth
Precedential or Non-Precedential: Precedential

Docket No. 04-2609




Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2005

Recommended Citation
"McDowell v. Phila Housing Auth" (2005). 2005 Decisions. Paper 479.
http://digitalcommons.law.villanova.edu/thirdcircuit_2005/479


This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 2005 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
                                             PRECEDENTIAL

          UNITED STATES COURT OF APPEALS
               FOR THE THIRD CIRCUIT


                        No. 04-2609


                JACKIE McDOWELL, et al.

                                 v.

     PHILADELPHIA HOUSING AUTHORITY (PHA);
           JOHN WHITE; BARRY MILLER

              Jackie McDowell and the certified
                 class whom she represents,

                                 Appellant


   ON APPEAL FROM THE UNITED STATES DISTRICT
                    COURT
   FOR THE EASTERN DISTRICT OF PENNSYLVANIA

                District Court No. 97-cv-02302
        District Judge: The Honorable John P. Fullam


                    Argued May 27, 2005

 Before: SCIRICA, Chief Judge, ALITO and GARTH, Circuit
                          Judges

                 (Filed: September 13, 2005)

PAUL A. BROOKS (Argued)
GEORGE GOULD
Community Legal Services, Inc.
1424 Chestnut Street
Philadelphia, Pennsylvania 19102

Counsel for Appellants

ALAN C. KESSLER
ABBE F. FLETMAN (Argued)
STEPHANIE L. KOSTA
Wolf, Block, Schorr and Solis-Cohen LLP
1650 Arch Street, 22d Floor
Philadelphia, Pennsylvania 19103

Counsel for Appellees


                   OPINION OF THE COURT


ALITO, Circuit Judge:

        This case requires us to construe a consent decree. The
appellants, a class of tenants living in Philadelphia public housing,
moved the District Court to enforce the decree and to cite the
Philadelphia Housing Authority and two of its employees (together,
the “PHA”) for civil contempt. The tenants alleged that the PHA
had violated the decree by failing to factor rising gas rates into
allowances they were entitled to receive for their gas bills. The
District Court denied the motion initially and on reconsideration,
concluding that the tenants could not show any actual provable
injury as a result of the PHA’s violations. It reasoned that the PHA
could offset its arrears by retroactively reducing the tenants’
allowances in light of evidence that tenant gas consumption during
the period of the violations had been overstated.

       We disagree with this reasoning. The plain text of the
decree and applicable federal regulations do not permit the PHA to
revise the tenants’ allowances retroactively to correct for
historically overstated consumption. The tenants were entitled to
recover in the form of sanctions the difference between the
allowances they received and the allowances they should have
received based on the consumption factor then in effect. The

                                 2
District Court erred in calculating their loss based on the PHA’s
revised figures, and its order denying their motion is vacated.

                                 I.

        This case has its genesis in an April 1997 lawsuit filed
against the PHA by Jackie McDowell, a tenant in Philadelphia’s
public housing system. The suit was brought in federal court
pursuant to 42 U.S.C. § 1983. McDowell’s complaint alleged that
the PHA had deprived her of her federal rights by failing to factor
rising gas rates into the gas allowances she was entitled to receive
under the United States Housing Act of 1937, 42 U.S.C. § 1437 et
seq. McDowell sought relief for herself and for similarly situated
tenants who were allegedly owed allowances by the PHA. The
plaintiff class was certified in May 1997.

        To understand the plaintiffs’ claims, some exposition of the
Housing Act and its accompanying regulations is necessary. Under
section 3(a)(1)(A) of the Act, as amended, a public housing
authority ordinarily may not require a tenant family to pay more
than 30% of its monthly adjusted income as rent. 42 U.S.C.
§ 1437a(a)(1)(A). Since the Department of Housing and Urban
Development (“HUD”) has interpreted “rent” to include the
reasonable cost of utilities, see, e.g., Tenant Allowances for
Utilities, 49 Fed. Reg. 31,399, 31,400 (Aug. 7, 1984); Wright v.
Roanoke Redevelopment & Hous. Auth., 479 U.S. 418, 420
(1987), housing authorities must issue rebates to tenants who
purchase service directly from a utility company. See West v.
Sullivan, 973 F.2d 179, 182 (3d Cir. 1992); West v. Bowen, 879
F.2d 1122, 1129 (3d Cir. 1989).

         These rebates take the form of monthly allowances credited
toward the tenant’s rent. See 24 C.F.R. § 965.504(b). The amount
of the allowance is calculated “to approximate a reasonable
consumption of utilities by an energy-conservative household of
modest circumstances consistent with the requirements of a safe,
sanitary, and healthful living environment.” Id. § 965.505(a).
Separate allowances are calculated for each utility based on the
utility company’s rates and a consumption factor that takes account
of the climate in which the housing is located, the size of the

                                 3
dwelling units, and other relevant circumstances.                Id.
§§ 965.505(d), 965.507(a). If a tenant’s utility bill exceeds the
allowance, the tenant must make up the difference; if the allowance
exceeds the bill, the difference may be pocketed. See West v.
Bowen, 879 F.2d at 1129 & n.8.

       In January 1998, the parties agreed to settle McDowell’s
lawsuit. The stipulation of settlement read in pertinent part:

       6. PHA shall, commencing with 1997, review, at
       least annually, the basis on which utility allowances
       have been established and, if reasonably required,
       shall establish revised allowances.

       7. The annual review shall include all changes in
       circumstances indicating probability of a significant
       change in reasonable consumption requirements and
       changes in utility rates.

       8. PHA may revise its allowances for resident-
       purchased utilities between annual reviews if there is
       a rate change except that PHA shall revise its
       allowances for resident-purchased utilities between
       annual [reviews] if any change in utility rates, by
       itself or together with prior rate changes not adjusted
       for, results in a change of 10 percent or more from
       the rates on which the allowances were based.

       9. Adjustments to utility allowances shall be
       retroactive to the first day of the month following the
       month in which the last rate change taken into
       account in such revision became effective.

App. at 25. The terms of the settlement were incorporated into a
consent decree, which provided that the District Court would retain
continuing jurisdiction over the administration and enforcement of
the parties’ agreement. Id. at 29.

       On December 1, 2000, after three years of stability in gas
prices, the Philadelphia Gas Works (“PGW”) raised the tenants’

                                 4
rates by approximately 11%. A month later, it raised them again.
The PHA’s own data show that the tenants’ rates exceeded the
baseline rate at the time the decree was entered by at least 10%
during all but two months of the 25-month period from December
2000 through December 2002. Despite receiving several letters
from the tenants’ counsel urging it to revise the gas allowances, the
PHA took no action on the rate hikes. The PHA frankly admits
that it “fell out of compliance” with the decree during this period.
PHA’s Br. at 5.

        On October 30, 2002, the tenants filed a motion to enforce
the consent decree and to cite the PHA for civil contempt. Under
a settlement reached in December 2002, the PHA agreed to
increase the tenants’ gas allowances effective January 1, 2003. The
adjustment was not retroactive, however, and the parties’
agreement expressly left unresolved whether the tenants were
entitled to sanctions for the period of noncompliance from
November 2000 through December 2002. The District Court fixed
a briefing schedule to resolve this issue and heard oral argument on
it in July 2003.

       The Court denied the tenants’ motion in an unpublished
order dated March 9, 2004. It found that the tenants had “not
suffered any actual provable injury as a result of any failure of
PHA to comply with the Consent Decree prior to January 1, 2003.”
App. at 536. This finding was based on “[r]evised gas
consumption calculations for the period July 1, 1999, through
December 31, 2002,” which showed that the overstatement of gas
consumption during this period equaled or exceeded the shortfalls
in the allowances due to the higher rates. Id. The revised
calculations were provided by Sud Associates, P.A. (“Sud”), a
consulting firm retained by the PHA.

        The tenants moved for reconsideration under Federal Rule
of Civil Procedure 59(e). In addition to challenging the District
Court’s construction of the consent decree, they argued that the
Court should have afforded them discovery of Sud’s data and an
evidentiary hearing to contest its findings. The Court denied the
motion on May 6, 2004, and the tenants timely appealed on June 4
of that year, raising the same claims rejected on their motion for

                                 5
reconsideration.

                                II.

        The denial of a motion for reconsideration is reviewed for
abuse of discretion. See N. River Ins. Co. v. CIGNA Reinsurance
Co., 52 F.3d 1194, 1203 (3d Cir. 1995). This standard of review
also applies to the underlying decision to deny the motion to
enforce the consent decree. See Holland v. N.J. Dep’t of Corrs.,
246 F.3d 267, 281 (3d Cir. 2001); Harris v. City of Philadelphia, 47
F.3d 1342, 1349 (3d Cir. 1995). An abuse of discretion may occur
as a result of an errant conclusion of law, an improper application
of law to fact, or a clearly erroneous finding of fact. Chiang v.
Veneman, 385 F.3d 256, 264 (3d Cir. 2004).

       The proper construction of the consent decree is a question
of law that receives plenary review. See Holland, 246 F.3d at 270;
Sansom Comm. ex rel. Cook v. Lynn, 735 F.2d 1535, 1539 (3d Cir.
1984). The decision to deny the tenants discovery and an
evidentiary hearing is reviewed for abuse of discretion. See United
States v. Hedaithy, 392 F.3d 580, 605 (3d Cir. 2004); United States
v. Albinson, 356 F.3d 278, 281 & n.5 (3d Cir. 2004). Under these
standards, vacatur may be required if the District Court denied the
tenants’ motions based on a misconstruction of the decree or if it
abused its discretion in denying them discovery and an evidentiary
hearing. We discuss these claims in turn.

                                III.

       Since a consent decree issued upon the stipulation of the
parties has the characteristics of a contract, contract principles
govern its construction. See Frew ex rel. Frew v. Hawkins, 540
U.S. 431, 437 (2004); United States v. New Jersey, 194 F.3d 426,
430 (3d Cir. 1999). One of these principles is that an unambiguous
agreement should be enforced according to its terms. See United
States v. New Jersey, 194 F.3d at 430 (citing Fox v. U.S. Dep’t of
Hous. & Urban Dev., 680 F.2d 315, 319-20 (3d Cir. 1982)).
Whether the decree is unambiguous is a question of law that the
Court decides by considering whether, “from an objective
standpoint, [the decree] is reasonably susceptible to at least two

                                 6
different interpretations.” Id. (citing Hullett v. Towers, Perrin,
Forster & Crosby, Inc., 38 F.3d 107, 111 (3d Cir. 1994)).

        If the decree is ambiguous, the Court may look to extrinsic
evidence of its meaning, see Thermice Corp. v. Vistron Corp., 832
F.2d 248, 252 (3d Cir. 1987), but ambiguities that persist must be
construed against the party seeking enforcement. See Harris, 47
F.3d at 1350; accord FTC v. Kuykendall, 371 F.3d 745, 760-61
(10th Cir. 2004). This rule avoids imposing obligations on the
parties that they did not bargain for, and it ensures that a party has
fair notice of what the decree requires before the serious sanction
of contempt is invoked. See United States v. Armour & Co., 402
U.S. 673, 681-82 (1971); Harris, 47 F.3d at 1350.

       There can be no doubt that the consent decree obligated the
PHA to revise its gas allowances after the rate changes at issue
here. This duty emerges unambiguously from the plain text of
paragraph 8 of the decree, and the PHA does not deny that this duty
was breached. The interpretive question we must answer is how
the consent decree permitted the PHA to remedy this breach. The
PHA argues that the decree permitted it to offset the shortfall in the
allowances the tenants received by revising estimates of tenant gas
consumption during the period when the violations were occurring.
The tenants argue that the PHA may not offset its sanctions in this
manner because the decree does not permit it to adjust the tenants’
allowances retroactively based on revised consumption data.

       We agree with the tenants. The only paragraph of the
decree that discusses consumption is paragraph 7, which permits
the PHA, in the course of an annual review, to consider “all
changes in circumstances indicating probability of a significant
change in reasonable consumption requirements.” App. at 25. The
word “probability” plainly indicates that the focus of the review is
to be prospective. Although paragraph 9 arguably gives limited
retroactive effect to some revisions based on consumption changes,
it does not follow that the revisions may be retrospective. The
unambiguous language of paragraph 7 indicates that revisions must
correct for “probab[le]” changes in consumption, not for past
consumption levels that, in retrospect, were overstated.



                                  7
       Paragraph 8 discusses retrospective adjustments but does not
mention consumption. It permits (and in some cases requires) an
adjustment “if there is a rate change.” Id. In light of the language
of paragraph 7, which mentions both rate and consumption
changes, the omission of consumption in paragraph 8 is a
significant one. A reading of the decree in its entirety, aided by a
straightforward application of the expressio unius canon, compels
the conclusion that the PHA may not revise the tenants’ allowances
retroactively to correct for historic overestimates of gas
consumption.

        This view is buttressed by HUD regulations whose language
the consent decree tracks. Under 24 C.F.R. § 965.502(c), the PHA
must give at least 60 days’ notice to all tenants before the
“proposed effective date” of an adjustment to their allowances.
Section 965.507(b) carves out an exception to the notice
requirement for adjustments based on rate changes of 10% or more
but does not mention adjustments based on consumption changes.
Id. § 965.507(b). Adjustments based on consumption changes thus
remain subject to § 965.502(c)’s notice requirement. Since such an
adjustment may not take effect until 60 days after the tenants have
received notice, retroactive adjustments are plainly forbidden under
the regulations.

       The District Court disregarded the regulations, believing
that the tenants’ motion should be decided solely on the consent
decree, which contains no notice requirement. It is true that a
consent decree should be “construed as it is written, and not as it
might have been written had the plaintiff established his factual
claims and legal theories in litigation.” Armour & Co., 402 U.S.
at 682. Because the decree compromises litigation, it will rarely
afford the plaintiffs all the relief they would have obtained had the
case proceeded to a judgment in their favor. See id. at 681; Harris,
47 F.3d at 1350. Ordinarily, therefore, a court should confine its
interpretation to the four corners of the decree and not try to divine
its meaning from speculation about the purposes of the parties or
the background legal regime. See United States v. Atl. Ref. Co.,
360 U.S. 19, 23 (1959); Hughes v. United States, 342 U.S. 353,
357 (1952).



                                  8
       Notwithstanding these principles, the Supreme Court has
indicated that relevant statutes and regulations may sometimes be
used to shed light on the terms of a consent decree. See United
States v. ITT Cont’l Baking Co., 420 U.S. 223, 238, 240-41 (1975).
The Court in ITT Continental Baking Co. looked to section 7 of the
Clayton Act, 15 U.S.C. § 18, to help gloss the words “acquire” and
“acquisition” in an antitrust consent decree. 420 U.S. at 240-41.
The Court defended its reliance on this extrinsic evidence on two
grounds. First, the gloss supplied by the statute simply confirmed
the meaning that emerged naturally from the decree’s terms. See
id. at 235. Second, the extrinsic evidence was being used to
determine not whether the decree had been violated but what the
appropriate sanction for the violation was. See id. at 237. Since
the contemnor had clearly breached some duty under the decree,
there was no danger that he would be sanctioned for contempt
without fair notice of his obligations. See id.

        These rationales apply equally here. As we noted earlier,
the PHA concedes that it was in violation of the Court’s order. It
disputes only the amount of the sanction. In resolving this dispute,
we may construe the decree “basically as a contract,” and “reliance
on certain aids to construction is proper, as with any other
contract.” Id. at 238; see also United States v. New Jersey, 194
F.3d at 430 (permitting the use of extrinsic evidence to interpret a
decree); Thermice Corp., 832 F.2d at 252 (same). For the reasons
set forth earlier, we believe the plain language of the decree did not
permit the PHA to offset its arrears by revising estimates of tenant
consumption. To the extent that any doubt remains about the
meaning of the decree, the regulations clearly resolve it in the
tenants’ favor. In this respect, the regulations do not guide our
interpretation so much as confirm it.

        The PHA submits that it was required to retroactively revise
the allowances because § 1437a(a)(1) does not allow tenants to pay
less than 30% of their monthly adjusted income in rent. The PHA
points to dicta in Wright v. Roanoke Redevelopment & Housing
Authority, in which the Supreme Court explained that § 1437a
permits a housing authority to charge “no more and no less than 30
percent” of a tenant’s income as rent. 479 U.S. 418, 430 (1987).
According to the PHA, many tenants will end up paying less than

                                  9
30 percent of their income in rent if allowances based on inflated
consumption estimates are left uncorrected.

        Even if the language on which the PHA relies were binding,
it could not support the PHA’s argument. In 1998, over a decade
after Wright was decided, Congress rewrote § 1437a(a)(2) and
added the following language:

       The monthly rental amount determined under this
       clause for a family shall be an amount, determined
       by the public housing agency, that does not exceed
       the greatest of the amounts (rounded to the nearest
       dollar) determined under subparagraphs (A), (B),
       and (C) of paragraph (1). This clause may not be
       construed to require a public housing agency to
       charge a monthly rent in the maximum amount
       permitted under this clause.

Quality Housing and Work Responsibility Act of 1998, Pub. L. No.
105-276, § 523, 112 Stat. 2518, 2566 (codified at 42 U.S.C.
§ 1437a(a)(2)(B)(i)(II)) (emphasis added). The amendment takes
pains to ensure that the amounts set forth in § 1437a(a)(1) are not
construed as minimum rents. Once this putative rent floor is
removed, the PHA’s argument has nothing left to stand on.

        There is consequently no merit to the District Court’s
conclusion that the tenants failed to show “actual provable injury”
resulting from the PHA’s violations. The sanction imposed on a
civil contemnor for his past conduct may not exceed the actual
damages caused by his violation of the court’s order. See Gregory
v. Depte, 896 F.2d 31, 34 (3d Cir. 1990) (citing Quinter v.
Volkswagen of Am., 676 F.2d 969 (3d Cir. 1982)). It does not
follow, however, that the tenants’ actual consumption of gas is the
baseline from which their damages should be measured. As this
Court explained years ago in National Drying Machinery Co. v.
Ackoff, the offended party’s rights under the decree set the
baseline for calculating his loss:

       Whether an award in civil contempt be measured in
       terms of a plaintiff’s loss or a defendant’s profit,

                                10
       such an award, by very definition, must be an
       attempt to compensate plaintiff for the amount he is
       out-of-pocket or for what defendant by his wrong
       may be said to have diverted from the plaintiff or
       gained at plaintiff’s expense.

245 F.2d 192, 194 (3d Cir. 1957); see also Quinter, 676 F.2d at 975
(“[I]n civil contempt proceedings enforcement of the rights and
remedies of a litigant is the ultimate object.”); cf. Leman v.
Krentler-Arnold Hinge Last Co., 284 U.S. 448, 455-56 (1932)
(permitting the recovery of profits from a patent infringement in
violation of a court order even though the patentee could not show
damages resulting from the infringement).

        For the reasons set forth above, the consent decree permitted
the PHA to revise estimates of tenant consumption prospectively
only. When PGW raised its rates, the tenants were entitled under
paragraph 8 of the decree to have their allowances recalculated
based on the increased rates and the consumption factor in effect
at the time. The difference between the allowances so calculated
and the allowances the tenants received is the loss the tenants
suffered and the benefit the PHA reaped as a result of the latter’s
contempt. This is the tenants’ actual provable injury.

                                IV.

       Because we conclude that the consent decree did not permit
the PHA to offset a shortfall in the tenants’ allowances with revised
estimates of tenant gas consumption, we need not consider the
tenants’ alternative argument that they were wrongfully denied
discovery and an evidentiary hearing to contest the revisions. The
order of the District Court denying the tenants’ motion for
reconsideration is accordingly vacated. On remand, the tenants’
motion to cite the PHA for civil contempt shall be granted, and an
appropriate sanction shall be calculated in the manner described
above.




                                 11
