Federal Housing Administration v. The Darlington, Inc.

PETITIONER:Federal Housing Administration
RESPONDENT:The Darlington, Inc.
LOCATION:Charleston, South Carolina

DOCKET NO.: 13
DECIDED BY: Warren Court (1958-1962)
LOWER COURT:

CITATION: 358 US 84 (1958)
ARGUED: Oct 13, 1958
DECIDED: Nov 24, 1958
GRANTED: Jan 21, 1957

ADVOCATES:
Alan S. Rosenthal – for the appellant
J. C. Long – for the appellee

Facts of the case

The Federal Housing Administration (FHA) was authorized under the Veterans’ Emergency Housing Act of 1946 to insure mortgages for projects that provide housing to war veterans. The Darlington, Inc., a corporation formed in 1949, obtained FHA mortgage insurance for a building in Charleston, South Carolina. Although The Darlington, Inc. submitted the required reports of its monthly rental rates for each of the units, the reports never mentioned the fact that an affiliate of the corporation was renting fully furnished rooms on a daily basis. The affiliate continued to rent these transient apartments after an amendment to the Act specifically excluded such units from eligibility for federal mortgage insurance. The FHA stopped insuring the mortgages because The Darlington, Inc. violated the terms of the Act. The Darlington, Inc. sued the FHA for a declaratory judgment and claimed to still be eligible as long as the building was used for “principally” residential purposes. The district court granted relief. On appeal, the Court remanded the case to a three-judge panel. The panel affirmed.

Question

Does the Veterans’ Emergency Housing Act of 1946 allow mortgage companies to rent to transients?

Earl Warren:

Number 13, Federal Housing Administration, Appellant, versus The Darlington Incorporated.Before the argument in this case I make the announcement that the orders of the Court appear upon the list certified by the Chief Justice and filed with the clerk and will not be orally announced.

Now, Mr. Rosenthal, you may proceed in number 13.

Alan S. Rosenthal:

May it please the Court.

This case arises out of the Veterans’ Emergency Housing Program, which was established in 1946.

In that year, Congress was apprised that a national emergency existed because of a critical housing shortage.

In this connection, it was called specifically to the congressional attention, almost 3 million returning World War II veterans and their families would be in need of residential housing by the end of 1946 and that the majority of them would not have the means to purchase homes, and therefore, would require so-called “rental housing”.

In an endeavor to meet this acute problem in the statutory words to accelerate the production of houses with preference for World War II veterans and at sales prices or rentals within their means, Congress amended Section 608 of the National Housing Act to authorize the Federal Housing Administration to ensure mortgages covering multifamily housing projects in which a preference would be given to veterans.

The particularly attractive feature of Section 608 was its provision that the principle obligation of the insured mortgage could be as much as 90% of the reasonable replacement cost of the project.

This meant that if the project sponsor served as architect and builder of the project, they could construct it with little, if any, outlay of cash and thus, with little, if any, risk of loss, that the other 10% would be represented by architect fees and the builder’s profit.

Now, judged by any objective standard, this program established under Section 608 was an immense success.

Well over 7,000 apartment houses were constructed containing over 450,000 rental units.

These projects were backed by Government insurance in an amount in excess of $3 billion.

With extremely due exceptions, these projects were successful in their operation, as is evidenced by the fact that the rate of default has run only between 1% and 1.5% of the total mortgages outstanding.

At the same time however, in some instances, project owners having applied for and obtained the advantage of Government mortgage insurance which enabled them to build this residential housing at little or no cost to themselves.

Started to engage, endeavored to increase the profitableness of their operations in a practice outside what we deem at any rate to be the scope of the legislative aid, namely the practice of renting units for transient occupancy.

One of these instances was that of the appellee in this case.

How general is that right?

Alan S. Rosenthal:

Your Honor, there are no specific statistics on it, insofar as the record and the congressional reports indicate that it could hardly be described as a widespread practice, but there were instances of it being done.

I don’t think that there is any really — really available figures on the — the precise percentage of instances, but I think it is fair to characterize it as a — as not a widespread practice, as a limited, relatively few of the 7000 plus units that were built.

Now, the issue in this case is the appellee’s right to engage in this practice of transient rentals.

Now, on December 1949, the appellee was incorporated in the State of South Carolina for the purpose of obtaining Section 608 insurance of a mortgage covering a 12-storey apartment house to be constructed in Charleston.

Consistent with this purpose, it’s charter which was prepared on a standard FHA form, specifically prohibited it from engaging in any business other than a construction and operation of a rental housing project so long as any of its property was subject to FHA insurance — insured mortgage.

The appellee submitted an application to the FHA for a mortgage commitment on a — this proposed project.

This application was disapproved by the local FHA officials, because the chief underwriter was dissatisfied with the location, which the apartment house was to have.

At the insistence of the appellee however, the rejection by the local officials was reversed by the FHA officials in Washington and the mortgage commitment was authorized not withstanding the local objection to the location at which the project was to be built.

Project was completed in July 1951 and in September 1951 as it was required to do under its charter and under the regulations, the appellee submitted and the Federal Housing Administration approved a proposed schedule of maximum monthly rentals.

And this schedule contained no indication that the appellee intended to furnish any of the partners.

One month later however, with the aid of a parent corporation which held all but three of the 1999 shares of common stock in a dollar form, the appellee engaged on a course of conduct concealed from the FHA which in the words of the Court below was a subterfuge.

First, without seeking FHA approval, the parent corporation furnished a number of appellees apartments and the tenants of those apartments were charged $15 to $20 a month in addition to the scheduled approved rentals.

This additional rental however was paid to the parent corporation so that it appeared that appellee was maintaining its schedule of rentals.

Alan S. Rosenthal:

Four month later in February of 1952, again, without applying for permission or even advising the FHA that it intended to do so, the appellee started to rent his furnished efficiency apartment on a transient basis at the rate of $6 per day.

Now, the schedule rental on these apartments was $77.50 per month which broken down to a daily basis would have been less than $2.60.

In order again to maintain the appearance of complying with its schedule of rentals, the appellee divided the $6 into two parts, it retained the $2.60 approximately and the balance was paid over as a so-called “furniture rental” to the parent corporation.

Additionally, in April of 1952, the appellee submitted the required rental housing occupancy report to the Federal Housing Administration.

In that report it failed to disclose that some of the units had been furnished and were being rented on a daily basis, despite the fact that the instruction from the Court indicated that the report should reflect those units if any which were furnished.

In short, at no time from the inception of the project did the appellee make an extended endeavor to obtain a larger number of residential tenants at the schedule of rentals, nor if I’m able to obtain residential tenants at those rentals, did it make an endeavor to increase the occupancy of the project through lower rentals.

Has anybody turned down who otherwise would have been eligible or have it or — or if you had a little preference to —

Alan S. Rosenthal:

Insofar as the record shows, no, Your Honor.

But the — our point here is that the appellee at these rentals, the appellee apparently felt it was unable to build its buildings, it resorted to furnishing apartments rather than to lowering their rentals in an endeavor to acquire tenants that way.

And there’s no showing in this record that their rents could not have been lowered.

Now, what it did here was almost immediately after the establishment of the project, it went into the — first, into the furnish departments of rentals in excess of those approved in the schedule.

And then when that didn’t prove a financial success, it embarked on the practice of running the transients.

Now, it is to be noted here that the rental only was a part but gain was $77.50 a month, that if potentially, these transient units could have obtained up to $180 a month, considerably in excess of that.

And of course, it has to be taken again against the congressional background as we’ll see that Congress was endeavoring to provide for the veterans, moderate and low-cost rental housing.

Now in 1954, the attention of Congress was directed to the fact that some Section 608 projects, which it received as Government aid to provide residential housing for veterans were being used as the appellee’s project for transit purposes.

It further came to the attention of the Congress that in a due isolated instances, the record indicates that this was between 12 and 15.

Where the FHA deemed a hardship to exist, it had granted permission for transient rentals and it had done so in the belief that the power inferred to qualify the statue to regulate the methods of operation, of the mortgagor, gave it discretion in what it deemed be to be a hardship case to — to permit this, but it was done on these 12 to 15 cases only on a special — special request.

Well, this came to the attention of Congress.

Both of the congressional committees concerned agreed that this practice clearly violated the legislative purpose underlying Section 608 and that the integrity of the multifamily housing project program required that the FHA take action to ensure that the practice stopped.

Now, the House Committee thought that no further legislation was needed to archive this end.

Senate Committee however decided that in order to ensure the enforcement of the legislative intent, a provision emphasizing that intent should be inserted in the National Housing Act, and the Conference Committee agreed with this view and accordingly, Section 513 was added to the statute.

And it, one, expressly declares the consistent congressional purpose that housing projects subject to FHA insured mortgages are not to be used for hotel or transient purposes while the insurance remains outstanding.

Secondly, provides subject to two exceptions, which do not pertain to this appellee, that no new existing or rehabilitated multifamily housing subject to an FHA insured mortgage maybe operated for such purposes.

And three, directs the Federal Housing Commissioner to enforce the prohibition with all appropriate means at his disposal and authorize the Attorney General in the event that voluntary compliance not obtained, to obtain injunctive relief.

Now, the Court below has enjoined —

Earl Warren:

(Voice Overlap) before you get to that, how about those instances where the FHA did permit them to do that.

Are they still operating in that manner, or were they enjoined?

Alan S. Rosenthal:

No, the — if your Court pleases, the Congress recognized and the Congress felt that the FHA had misconstrued the statute a provision as to methods of operations, but the — but the Congress recognized that there were these instances of expressed approval.

Earl Warren:

Yes.

Alan S. Rosenthal:

So one of the two exceptions to the operation of this prohibition is that where the FHA gave approval, a mortgagor can continue to rent the number of units that it had been previously given permission to rent on a transient basis.

Earl Warren:

Is that specifically in the statute?

Alan S. Rosenthal:

That’s correct.

Earl Warren:

And how could — how could that logically follow if Congress had always intended that it should be — should not be used for transient rooms.

Alan S. Rosenthal:

It follows, we think, for this reason, the Congress — in Congress’ view, the FHA had made a mistake in authorizing these 12 to 15 projects, approval.

Earl Warren:

Yes.

Alan S. Rosenthal:

In this 12 to 15 projects.

In the Congress’ view however, that out of a sense of fairness, believe that it would be unfair to impose this restriction now in — on — in those cases where this specific approval erroneously had been given by the FHA.

Earl Warren:

Well now, if the statute — if the statute prohibited the FHA from doing it in the first instance, how could a later statute say that they were all right?

Alan S. Rosenthal:

Later statute — well, of course, it would be within the — the congressional power of course to — to authorize this practice.

But in the Congress’ view, it at all times had been prohibited, that the FHA had misinterpreted the provision giving it control over methods of operation.

And what the Congress was saying is that this practice has always been contrary to the legislative purpose, we’re now going to stop it, but we are going to make this one exception, that where, and this of course isn’t the appellee’s case at all.

But where the FHA did and erroneously, give this permission, we will let the — the project continue, except of course only those units which the FHA had given permission to rent.

Now —

Earl Warren:

So it’s your position that if — if the FHA had given permission to Darlington before the 1954 statute, you could not enjoin them.

Alan S. Rosenthal:

The statute would make an expressed exception —

Earl Warren:

Yes.

Alan S. Rosenthal:

— before that case but the point is that the — the Darlington never came to the FHA.

As the — the record indicates as the District Court itself have suggested —

Earl Warren:

Yes.

Alan S. Rosenthal:

— that this was —

Earl Warren:

Well now, this — what you’ve been telling us is all — is not legislative history but it’s — it’s post history if one might call it that.

What is there in the Act that shows affirmatively that they have no power to do this?

Alan S. Rosenthal:

Well, the Act, if the Court pleases again, as we said —

Earl Warren:

(Voice Overlap) —

Alan S. Rosenthal:

In the 1946 Act which established —

Earl Warren:

Yes.

Alan S. Rosenthal:

— this veteran’s housing program.

All the way through it, is the — the court below itself recognizes the dominant aim, the single aim indeed of providing long-term modest cost housing for the veterans.

Legislative history contains no indication of any kind of congressional concern with providing financing for hotels or for any other kind of transient accommodations.

The preamble to the statute to which I eluded before talks in terms of this statute, this program, acceleration of houses with preference for the veterans and their families at rentals and sales prices within their means.

Alan S. Rosenthal:

And —

Earl Warren:

Was there any limitation at all on — on the — like the time that — that these should be occupied, these apartments of veterans.

Alan S. Rosenthal:

The — there was a — there is a limitation, a maximum limitation of three years.

Now, we suggest, if the Court please, however that that does not carry with it the implication that anything less including overnight rentals.

Earl Warren:

Well, what is it to indicate that what the minimum might be?

Alan S. Rosenthal:

Well the minimum — of course the — the minimum, we — the transient occupancy is defined in terms of 30 days.

And again, that of course is a relatively arbitrary figure, but the notion is a long-term tenant is there for at least that period of time.

And again, this program, the reason why there would have been — there would have been absolutely no necessity for the establishment of a — of a minimum period, because Congress was dealing here, expressly with this problem of the veteran difficulty in finding accommodations for his families, residential units, that’s the only thing that the Congress was addressing itself to.

Earl Warren:

Well, the thing that troubles me is this.

If Congress intended that there should be no transient tenancies, why wouldn’t that have been on the contracts?

Why wouldn’t the FHA have put that in some of these contrast.

Alan S. Rosenthal:

Your Honor, the — the fact of the matter is again that the — the whole program being setup in terms of a long-term residential project, the terms of the contract or the terms of rather the charter, there actually wasn’t a contract as such, but the terms of the appellee’s charter, the regulations of the FHA, were all geared in terms all of this long range operation.

Now, if you look at the regulations, they talk, for example, in terms of dwelling accommodations.

Dwelling accommodation shall be this and that and the other thing.

Now, dwelling accommodations as we indicate in our brief both in common and in legal parlance.

We first do something which is intended as a resident for a person on a more or less permanent basis.

It talks about leases in the — in the charter.

And again, a lease is a document which normally connotes a occupancy over a period of time, and it talks again in terms of, for example, the deposit, there can’t be — the mortgagor can’t require a deposit of more than one month’s rent.

And in other places there is again as reference to one month’s rent.

We think if the Court pleases, if you go through these documents, you will see that they are all addressed in the terms of really what Congress had in — in mind, which was a long-term residential occupancy.

Charles E. Whittaker:

Do you argue that in those — for all that those recitals are inconsistent with less than 30-day periods.

Alan S. Rosenthal:

That’s — that’s — that’s correct, Your Honor.

We think that they are — they are inconsistent to — with a lot of conspiracies.

Charles E. Whittaker:

Not expressly sold, but implicitly sold?

Alan S. Rosenthal:

Implicitly sold.

Charles E. Whittaker:

Implicitly sold?

Alan S. Rosenthal:

Absolutely, and we think also that the rentals to transients is implicitly, if not expressly inconsistent with the statutory objective as stated in the statute of providing this — this housing at lower or moderate cost.

Transient housing after all is usually as this case itself clearly indicates, not on a low-rate basis, I mean here, this — on one month basis, one of these efficiency apartments would have come to $180 that per month.

And the Congress was thinking in terms again of the — of the moderate cost, and we think that the charter and the regulations taken together give a little question that the contemplation all on the line, the obligation which was assumed by this appellee was that of renting its apartments for residential use.

Now, the appellee has harped on the — the fact that the regulations referred to structures principally designed for residential use.

Alan S. Rosenthal:

And if that says that word “principally” means the part of the property could be devoted to transient use.

Charles E. Whittaker:

Do you argue that use for residential purposes for a period shorter than 30 days is not residential use?

Alan S. Rosenthal:

It isn’t residential use in the — in the context in which the terms employ, that’s right.

Now, I think the court below didn’t dispute that.

The court below said — it just says principally designed for residential use and it was thinking about the non-principle part of it, but as we just show in our brief, this term “principally designed for residential use”, well, it isn’t in Section 608, it wasn’t some of the other statutes dealing with mortgage programs and it has been consistently interpreted as meaning simply that the — the mortgagor can put in his building professional offices and such commercial facilities as would cater to the needs of the more or less permanent occupants.

And it has never been construed as conferring any kind of authority to rent to — to transients.

Charles E. Whittaker:

In conjunction with the questions or series of questions propounded to you by the Chief Justice, would you give us your view of the meaning of subsection (c) set forth at pages 48 and 49 in your brief, saying that “Notwithstanding any other provision of this act.”

This is 1954 Act now, “No mortgage with respect to multifamily housing shall be insured under this Act, (except pursuant to a commitment to ensure issued prior to the effective date of the Housing Act of 1954).”

And skipping the parenthesis now, “No mortgage with respect to multifamily housing shall be issued for an additional term unless the mortgagee — mortgagor certifies that while the insurance remains effective, he will not rent or permit the rental of the housing or any part thereof for a transient or hotel purpose, is that not inconsistent with (Voice Overlap) —

Alan S. Rosenthal:

No, Your Honor.

That — that’s dealing of course with the necessity for the mortgagor’s certification under oath and the — the — and of course the other provision, subsection 2.

Subsection — if you look at 2 (b), that’s the — says flatly that notwithstanding any other provisions of this Act, this is on page 48.

“No new existing or rehabilitated multifamily housing with respect to which a mortgage is insured shall be operated for transient or hotel purposes, and that covers the — the gamut.

And then again in the enforcement section which is subsection (b), the — 49, “The commissioner is hereby authorized and directed to enforce the provisions of this section by all appropriate means at his disposal as to all existing multifamily housing with respect to which mortgage was insured under this Act prior to the effective date of the Housing Act of 1954.”

The only thing that subsection (c) relates to is, what is going to be required in the future of my way of — at the time that these mortgages were insured.

Now, they only can be insured if the — the mortgagor certifies under oath that he will not engage in transient rentals, so this was merely an additional weapon that was being placed at the hands of the FHA Commissioner to ensure compliance, but we don’t think that that is at all inconsistent with our position that — that this statute is indeed clarified if clarification was necessary, the legislative intent from the very beginning that this program was set up for this particular purpose and that the individuals who obtained the benefits of this program were restricted to using the property for the purpose which Congress says that the program up for.

Earl Warren:

Well Mr. Rosenthal, it — the thing that seems a little strange to me is this, within a program that is going to involve $3 billion, that the — neither the reports of the committees nor the speeches of the sponsors of the bill on the floor would show affirmatively what type of tenancy this — this is, you would think that somebody, some place along the line would say, “We are not competing — going to compete with hotels, we’re — we’re not going to do this or that.

We’re going to — this is for longer term tenancies.”

Alan S. Rosenthal:

Well, there’s no — there’s no doubt, Your Honor, that it would have been much better for all concerned if there had been an expressed provision in the Act, but all I can say is this.

The Congress there again, that people — that Congress’ attention was directed to this particular problem.

Earl Warren:

Well, yes.

I can understand — I could point that, yes.

Alan S. Rosenthal:

And it was a serious problem and it was to that, that the congressional attention was directed.

Now, it might have been better had the Congress said that all of these non-conforming uses are not permitted.

The fact is, we submit, that even without the expressed prohibition that this is implicit, in the statute and we submit that these people are governed by that, that when the power — if the program, anyway that you would look at it, the program was setup, as the legislative history indicates, for this single purpose.

And we think that having gotten the benefits of the program, they are obliged to comply with the — to use their property only for those purposes which are specified.

Assuming that what you disagree is to the original covering, original scope of the act, namely that is here today, as it were not (Inaudible).

Do you claim that the 1954 Act could be applied retroactively?

Alan S. Rosenthal:

Yes, sir, because we say this at the very least.

Yes.

Alan S. Rosenthal:

There was no vested right conferred upon these people to operate as a transient project.But the most there was with an absence of an expressed prohibition.

They can find nothing in the statutes and the regulations in their charter which conferred any kind of affirmative right on them to do so.

So that there, we do not have here a case of a fairly unequivocally expressed right to rent a transient, which would be entitled to congressional protection against a retrospective statute.

I mean we draw in that connection of course on Keefe versus Clark in 322 which indicates that there must be some kind of clearly and unequivocally expressed right by contract or otherwise.

That’s just isn’t here.

Supposing — supposing the statute is construed as the lower court, as I read its opinion, construed it, namely that it did not prohibit, did not prohibit 30-day tenancy?

Alan S. Rosenthal:

Which statute did not?

The original Act of 1946.

Alan S. Rosenthal:

Well again, that if it — if it didn’t, it is only because there was not an expressed prohibition.

There’s no question as even the lower court recognized that this was contrary to the intent of the Congress.

The primary intent of the Congress is to provide this veterans housing.

So that at most, this was a practice which was of questionable standing and there wasn’t any again, any clear and unequivocally expressed right upon these people, either by the statute or by the regulation.

It had been a case of the statute saying, “You may rent a transient,” so the regulation is saying you may rent a transient.

And subsequently, the Congress were to take that away, that would be an entirely different question, but here, there — it’s just that mere absence, there isn’t anything here which could be construed as affirmatively giving a right upon these people to do something which the statute obviously was designed not to accomplish.

Earl Warren:

If there wasn’t a prohibition of it, wouldn’t there be a right?

Alan S. Rosenthal:

Not necessarily, Your Honor.

It wasn’t in any way the clear an expressed right, it was nothing which affirmatively created this right.

And all that at most it was, was a congressional oversight not setting forth not only what they wanted done, but all of the things that they didn’t want done.

But again it was violating the spirit of the — of the 1946 Act throughout.

And we don’t think any rights were —

Charles E. Whittaker:

Is the difference, Mr. Rosenthal, that in the lease of real property for returns, does not the landlord give to the lessee the right to make any use of the property except as restricted by the governance of the lease?

Alan S. Rosenthal:

Your Honor, in this case, this wasn’t a sale of property.

This — the government was —

Charles E. Whittaker:

No, but — but Darlington did own it.

Alan S. Rosenthal:

That’s right.

But it owned it subject of course to the — this statute was subject to the regulations.

And again, we submit, that this was a program set up for this — this purpose, and it was just as if that the Congress had established a program or to say for the construction of stables, that no one I would think would argue seriously that — and provided this type of benefit that the — the mortgagor could turn around and use this property if he didn’t find it profitable as a stable for a — for a garage or for something else.

The program — the program was set up for one purpose and that’s the only purpose which Congress had in mind providing these people with these — these very decided benefits by way of financing.

During the — during the three years, 1951 to 1954 that this was going on, after it came to the attention of the Federal Housing Administration, did they try to enjoin to stop the 30-day rentals?

Alan S. Rosenthal:

The record indicates, if the Court pleases, that as to this case, as to the Darlington, apparently this was not discovered until quite late in — in the proceedings.

Alan S. Rosenthal:

There is evidence to the effect that the FHA had discovered other instances of transient rentals.

And when they discovered these instances, they tried, the record indicates, to put a — to get these people to stop.

By a suit?

Alan S. Rosenthal:

They did not — they did not resort to suit.

What they did was, they — they tried to do it through this period of time by voluntary compliance, there is no indication of any — of a suit.

Earl Warren:

What practicum in this case to —

Alan S. Rosenthal:

Well —

Earl Warren:

— to we have a suit?

Alan S. Rosenthal:

Of course, this — the 1954 Act if Your Honor recalls, and — and it provided certain specific weapons, namely the injunctive process and directed the —

Earl Warren:

Yes.

Alan S. Rosenthal:

— the — the FHA couldn’t obtain a voluntary compliance to turn it over to the Attorney General for the use of this process.

Earl Warren:

Yes.

Alan S. Rosenthal:

And it was the threat of turning the matter over to the Attorney General which brought this suit for declaratory judgment and for an injunction against the enforcement of the provision.

Earl Warren:

Now, when this suit was started did the others stop or continued to — to use them for places for transient rentals?

Alan S. Rosenthal:

The other properties?

Earl Warren:

Yes, the other ones that you say were not enjoined.

Alan S. Rosenthal:

The record doesn’t — doesn’t disclose what the — the status of — of the other — of other properties are (Voice Overlap) —

Earl Warren:

Well, isn’t that rather important to us?

Alan S. Rosenthal:

Well, we would submit to Your Honor that all of these — these properties of course are — are subject to the — the provision of the Act.

Now, I suppose you could regard this in — in part as being a test case, because it will determine whether these — these projects in the Darlington’s position can continue to the rental transient or not.

But there’s no suggestion that the FHA was engaging in discriminatory enforcement of these provisions against this particular appellee.

Earl Warren:

How many apartment houses would you say would be affected by this decision?

Is it a great number?

Alan S. Rosenthal:

I don’t know, Your Honor, how many apartment houses are in the category of the Darlington.

I could of course call upon the FHA for such information as they may have, and I’ll be glad to furnish it if the —

Earl Warren:

It might be interesting if —

Alan S. Rosenthal:

If — I don’t know —

Earl Warren:

Yes.

Alan S. Rosenthal:

I just don’t know whether they have information available on this —

Earl Warren:

If it is — we’d like to have it.

Alan S. Rosenthal:

— on that particular aspect of the problem.

Earl Warren:

Well, you may have three minutes afterward to sum up — we’ve taken out your time.

J. C. Long:

Mr. Chief —

Earl Warren:

Mr. Long.

J. C. Long:

Mr. Chief Justice, members of the Court.

It’s been a rather rugged history to this little case, started about four years ago and the issue is a very simply one.

Simply can Congress pass a law that will retroactively effect the vested rights?

The facts in this case —

Felix Frankfurter:

Aren’t you going to argue the construction —

J. C. Long:

I’ve — I must say that I’m a little hard to hearing, not deaf enough to one of those ear trumpets and I do have a little complication, so I want to ask the justice to repeat.

Felix Frankfurter:

Are you not going to argue that as a matter of construction —

J. C. Long:

I intend —

Felix Frankfurter:

— exactly bars such a construction before you ever reach the constitutional question or added thereto that since there maybe a non-frivolous and serious constitutional question, it ought to be construed the way you contend it.

Aren’t you going to argue that?

J. C. Long:

Yes, Your Honor.

Felix Frankfurter:

All right, I was just wondering because you started off a simple question with constitutionality.

J. C. Long:

Well, Your Honor, it’s our —

Felix Frankfurter:

All right.

You follow your own course of argument, but I just wanted you to — wanted to know whether you give up the construction problem.

J. C. Long:

Not in the least, I have been fighting that for four years, and I’m right here still continuing that when you read the Act itself, that if you read the Act itself you will find that’s an ingeniously worded piece of legislature.

On its face, it would appear as if it did as the wording of the Act, to retroactively apply to the prior insured project.

But when you start analyzing the Act, where it states this Act and that Act, you will find that Congress has itself stated that this Act shall not apply to those projects that was insured prior to a State.

In the 1954 Act that even goes farther than that.

It says that shall not apply to projects upon which a mere commitment had been issued prior to the effective date of the Act.

And I will say, if the Court pleases, if you will refer to the decisions in the two lower courts, you will find that they didn’t come out and just say the Act was unconstitutional, they simply state that we simply hold that the terms of the 1954 Act cannot retroactively be applied to the Darlington apartments, implying that the Act — the terms of the Act did not apply to those projects prior thereto.

Now, I have at some length in the briefs here taken section by section of the 1954 Act and shown where the Act does not apply to projects insured prior to the date thereof.

You will find that in my brief, it’s set forth starting at page 63.

We take section by section and show that the wording of the Act does not apply to projects insured prior to the dates thereof.

It has been however the contention of the Government throughout that the 1954 Act was constitutional and it could be retroactively applied to the prior situation.

It would be rather hard for me to take and go over this for the Court section by section, but I call your attention to this.

J. C. Long:

The enacting clause of the Housing Act states that this Act will be merely cited as the Housing Act of 1954.

Now, they distinguish it as I say, as separate act.

The second paragraph state, “It had been the intent of Congress since the enactment of National Housing Act that housing built with aid to mortgage and insured under that Act, be used possibly for residential use and that such intent excludes the use of such housing for transient or hotel purposes.”

There was little interest in side like there that we mentioned in our brief but — which Senator Capehart, who introduced this Act, that said it always would be the intent — has always been the intent of Congress that it would be used for residential purposes.

When asked about this Act before the Committee Hearing, they — he said, “I can’t tell you Senators what was the intention back there, and I wasn’t him.”

So I respectfully submit that any approach of one Congress to declare what was the intent of another Congress literally goes into the use of (Inaudible) Board in my way of thinking, I don’t see how they could tell what was the intent of another Congress.

Certainly, the gentleman who presented this Act admitted that he couldn’t tell what was the intent of the prior struggle.

Now, and the third paragraph states —

Felix Frankfurter:

It does — it does shed some light on an earlier act, if Congress in the later act thinks it has to do something which would be needless if it hadn’t been accomplished by the earlier act.

It shed —

That has nothing do with technical law, but it has to do with good commonsense.

J. C. Long:

It certainly does, Your Honor, and this Court has held that and specially in the Sioux Indian Tribe case, in an opinion of this Court.

They went back and said that what one of the committees I think on — forget the committee, had stated that it had never been intended to give the Indians a grant and that all they had was a easement to use the land and this Court views what that committee said then and they reached a decision as to whether a grant had been given to the Indians or not, that’s under Sioux Indian case here that’s cited in the brief.

Now, the third paragraph states that no multifamily housing with respect to which a mortgage insure under this Act.

I take that to mean the 1954 Act, on page 68, shall be operated for transient or hotel purposes.

The two stated exceptions however where projects operated for transient or hotel purposes maybe insured under the 1954 Act, where the Commission had agreed to such operations prior to May 28th, that was the date of the Committee Report to Congress, and where the project is located in an area which the Commission determines to be a resort area.

To us, that is an unusual part of this Act, because in the discussion and on the Senate floor, Senator (Inaudible) who was taking care of the State of Florida said to Senator Capehart, said, “Does that exclude the whole State of Florida?”

There was no misunderstanding about this.

Senator Capehart said, “It excludes the whole State of Florida and the statistics we have from the Federal Housing Administration is that there’s 10,400 apartments in the State of Florida.”

That is excluded under this Act, had they been renting apartments prior to the effective date thereof.

Now, we go to this, we submit the term of this Act as used in paragraph B specifically refers to the 1954 Act.

Then if you go down to paragraph C, it says that no mortgage with respect to multifamily housing shall be insured under this Act.

The Housing Act of 1954 are insured for an additional term unless the mortgagor agree he will not rent any part of the project for hotel or transient purposes.

There is the significant thing.

They said that, “We won’t increase it unless you agree that you won’t do what you’ve been doing, but if you are willing for the same amount, you can keep on doing what you’ve been doing.”

You read this throughout that it would take all of my argument if I attempted to digress the — I mean analyze the Act, you will find that the wording of the Act itself does not apply to projects insured before it.

The first three-judge court, this case got before, held that.

The situation was this, we appeared before Judge Hoffman.

Judge Hoffman thought there was a constitutional question involved.

He asked for a three-judge court, our late and beloved judge Parker called the court.

J. C. Long:

And then when the matter — he called for brief and when we set it in the brief by a per curiam decision by Judge Parker, Judge Timmerman and Judge Hoffman, they sent it back to the Judge Hoffman and said, “We don’t need a three-judge court here, this is a matter of simple statutory construction, does not involve the constitutionality of the Act.”

So then we went back and we had our day before Judge Hoffman and the matter was referred to this Court, and this Court thought there was a constitutional question and sent it back and we had our day before the three-judge court, and the three-judge court adopted the decision of Judge Hoffman and here we are now.

And before —

Earl Warren:

Mr. Long — Mr. Long, if we — if we decide in your favor, does this mean that every apartment house that was built under this program prior to the 1954 Act can now lease any or all of its apartments on a transient basis?

J. C. Long:

I would not think so for two reasons.

One, I would not think so because I feel that the corporate charter in this case is in a grave deal like a lease or a restrictive covenants on the land.

And it is true that the — the rules and regulations of the Federal Housing Administration which was not incorporated in the charter itself, but as a matter of law, becomes a part of the charter.

It said that it shall be designed, not used, principally for residential use.

Second, it said that our corporation shall engage in the operation of a rental housing project, it’s our contention.

And third, that preference must be given to veterans in the occupancy of the building.

It’s our position that the courts below was correct when it simply held that we had a right to rent a reasonable number of apartments in the building and have them available for transient use if there was no demand otherwise, if there was no demand otherwise.

To me, this case involves, and we get away from the 1954 Act not applying to it, it involves this.

Congress when it passed Section 608 of the Act and has set forth in the appellant’s brief, and it’s very brief law, and I tell you why it’s a brief law.

Congress was faced with a dilemma.

They needed housing, and the — the boys were returning home, the — the young fellows that had went out to war, come back as young men and they needed — my friend here stated not hundreds or thousands of houses, but millions of houses.

Congress unlike in any other provision of the Housing Act, turned over to the Commissioner, said, “You go out and get these houses built, you use your emergency power and get these houses built.”

We placed no restriction on them at all, Congress placed no restriction on them at all.

And in not placing any restriction on — on them at all, Congress had to eliminate a prior provision of an Act which this Act amended that had required them to be designed for principles laid for residential use.

Now, having eliminated that, they said to the Commissioner, “You go out and get it.”

And here is what the Act said, the mortgage on property shall be held by a mortgagor, approved by the Commission.

The Commissioner may, leaving it to his discretion, and his discretion requires such mortgagor to be regulated or restricted as to rents or sales.

Charges, capital structure, rate of return, methods of operations, rate or returns or methods of operations.

In that regard, I would like to say to the Court that he could have — the Commissioner could have restricted the use of these apartments in any way he seen fit, Congress give him that right.

Congress further said, “If you are going to use that right, Mr. Commissioner, this is a manner in which you must use that right.”

The Commissioner may make such contract with and acquire but not exceeding $100 stock, or interest of any such mortgagor, as the Commissioner may deem necessary to render effective such restrictions and regulations.

Now, he did do that.

He said to — to the Darlington and my friend said to 7000 others, in a charter that they prepared as my friend admits, their wordings, their charter considered perhaps 7000 times.

They said, “We are going to put this provisions in the charter.

First we are going to say the purpose for which your — your corporation shall organize,” and I’m reading from the charter itself.

Hugo L. Black:

Where is the charter?

J. C. Long:

On page 184 of the transcript of record.

Here is the purpose as is stated.

The purpose for which the corporation is formed and the business objects to be carried on and promoted by it are as follows.

To create a private corporation to provide housing for rent or sale and to acquire any real estate or interest of right therein or pertinence thereto, in any and all personal property in connection therewith.

To improve and operate, to sella and assign mortgagors.

To borrow money, and issue evidence of indebtedness in further of and all of the objects of his business, to secure the same for mortgage, deed of trust, pledge or lien.

Now, this is the two provisions I call your particular attention to is D and E, because I say this is our lease, this is the written contract that controls our methods of operation.

To apply for and obtained to be caused to be obtained from the Federal Housing Administration a contract, a contract to mortgage insurance.

Pursuant to the provisions of the National Housing Act as amended, covering bonds, notes, other evidence of indebtedness issued by this corporation and any indent to a mortgage or deed of trust securing the same.

So long as any property of this corporation is encumbered by a mortgage or deed of trust, insured by the Federal Housing Commission, it shall engage in no business other than the construction and the operation of rental housing projects of such.

Now E, to enter into, perform and carry out contracts of any kind necessary to or in connection with the incidental accomplishment or any one or more purposes of this corporation.

Then if you go further into this charter, you will find that the Commissioner gave consideration to the term of rentals, stated first, “You shall not rent any apartment for more than three years, nor can you rent all of the apartments in the building.”

But the Commissioner did not put any limitation expressly or impliedly anyway whatsoever on renting apartments for less than 30 days and there was good reasons why, because Senator Alben Barkley when he introduced this legislation, he stated in the Senate.

He says, “An emergency is upon us, the emergency begets the need.

This Act, we will not introduce it as a part of the permit of Housing Act, but deals with permit or housing, we need temporary housing to serve the temporary needs of the veterans, many of them in schools,” Senator Barkley said.”

Many of them is out seeking jobs, many of them don’t know where the home would be, they need temporary housing now and I instruct the Federal Housing Commissioner to go out and use its emergency power to produce those houses.”

I submit that a project owner had one of these apartments, had a vacant apartment and a veteran who gets priority under the Act, knocked on his door and said, “I want to rent this apartment for two nights,” how could the project owner under the law say to the veteran, “I won’t let you have it for two nights, I am limiting this for 30- day rental.”

Felix Frankfurter:

Mr. Long may I ask you this question, you say for two nights, he might rent part of these things for one night, yes?

J. C. Long:

Right.

Felix Frankfurter:

Now, what I want to ask you is this.

Does the phrase operation of a rental housing project as a matter of ordinary English, let’s forget our specialized thing in the law, operation of a rental housing.

Is that a phrase that one would use for overnight guests?

J. C. Long:

No, sir.

It’s not if he intended that the operation would be for overnight guests only, that’s not what he would do.

Felix Frankfurter:

Well then one night, I thought you agreed it could be for one night rather than two, that’s what I mean by (Voice Overlap) —

J. C. Long:

It could be for one night over two, it could for one week or three weeks.

Felix Frankfurter:

Well now, does that phrase cover that kind of occupancy?

J. C. Long:

The part that we state in reference to that, that particular phrase does not, rental housing implies something more than renting by overnight occupancy.

But by the same token, if the Court pleases, in subdivision (e), it says, “To enter into, perform and carry out contracts of any kind necessary to or in connection with or incidental to the accomplishment of any one or more in the preference of the corporation.

I think it would be practical enough when an apartment building the size of The Darlington, the 156 apartments.

J. C. Long:

From time to time, the people who lived in that apartment may have a relative come to visit them, there is not room for them.Would the apartment owner be prohibited from renting that, a relative of the regular owner for two or three days, that’s an incidental use.

And in this case, if the Court please, the rental — the transient is an incidental use.

It’s undisputed, conceded, they sent the order to Charleston that no time in the history of this project has much as 10% of the apartments been rented for transient purpose.

Felix Frankfurter:

Did I understand you to say earlier that they could set apart, set apart not for the kind a mother-in-law visiting a young couple, but set apart a fraction, a reasonable fraction of the total available apartment for transient.

J. C. Long:

I don’t — we don’t content that could set apart, no sir.

We contend that those apartments available then, and if those entitled to priority comes in and wants one, they are entitled to it, but we contend that as an incidental purpose of the operation of this corporation, that they shall have a right from time to time when there is no demand otherwise, to rent available vacant units for less than 30 days when they don’t go out and advertise as a hotel.

They don’t give any bellboy service, there is no room service attendant to it at all.

The only way the record shows that any man gets a room in this building for less than 30 days is to come there and ask for it.

Felix Frankfurter:

Well, let me — let me put another question, Mr. Long.

J. C. Long:

Yes, sir.

Felix Frankfurter:

I can understand if this were the letting overnight or for two nights of a transient couple or a transient person, one apartment or two.

For myself, I would dismiss that as de minimis.

That’s really not to be taken into account.

But this was a practice, wasn’t it?

This was a systematic letting of available apartments to transients of the part of the carrying on of the business.So, am I wrong about that?

J. C. Long:

I — as a matter of fact, the record would not show that but I think it is in so many words, but I think the record discloses this, that here sits a man with his apartment building.

It must be remembered that this record shows that at all times when he was renting for less than 30 days, there was other apartments available for rent for more than 30 days, there was always vacant apartment, the record shows in this.

The situation is, that a man has entered into a mortgage, the Government has insured.

He’s got to pay that mortgage, and it comes, vacancies in his building.

He sits there and someone wants to rent a vacant apartment for a night, a week for which there is no demand, he does the intelligent thing, he rents the apartment and we respectfully submit that that apartment maybe rented overnight tonight.

Tomorrow it maybe rented for six months or a year, there is no given apartment set aside for a transient guest and there’s no (Voice Overlap) —

Felix Frankfurter:

I will — I will wait the Government’s reply to what you’ve just said.

For me it would make a lot of difference if what you — if what you’ve just said presents — is the problem in this case, rather than a practice, a business practice of utilizing part of the available apartments for transient uses.

J. C. Long:

Your Honor, there is the record.

Felix Frankfurter:

All right, I’ll do what he said.

Earl Warren:

Well, Mr. Long, in addition to what you have said Darlington did, didn’t they go out and furnish up a large number of these apartments for the — for the sole purpose of — of renting them in a — in a different manner than the — than the vast majority of them?

J. C. Long:

No, Your Honor.

Under FHA regulations, you are allowed to rent apartments and I’m glad Your Honor called that point to my attention because I wanted to correct something.

Under FHA regulations, you are allowed to rent apartments but you cannot charge the tenant over one forty-eighth of the cost of the furniture per month.

In other words, the — they was trying to protect the veterans.

J. C. Long:

And now, you can rent this furnished apartment but you can’t charge them over one forty-eighth of the cost to the apartment per month.

In this record, it shows that many of these — many furnished apartments, maybe ten times as many was ever used for transient purpose was rented on a monthly basis upon which the tenant only paid $14 a month for the rent, for the furniture that went in that apartment.

Now, there were some mentions made about a corporation other than the Darlington, buying that furniture.

Under this charter, the Darlington cannot go out and mortgage any property and it was a question of those that was interested in the apartment putting the furniture in there which the FHA allowed, and so much until now, they have passed in such a case, they passed a regulation that you can put furniture in the apartment, you don’t have to — and it’s in the record what I say.

And you don’t have to charge one forty-eighth, you can charge what you please but you must sign that you won’t rent it for less than 30 days.

In other words, if you don’t rent it for less than 30 days, now you charge what you please for as many apartments as you want, that’s in this record in this case.

Now, the if Court pleases.

Hugo L. Black:

I still do not understand precisely what is this agreement, a part, who are the interested persons, are they stockholders or officers of the company, have they formed the corporation which requires some way of payment of rent to them instead — for the furniture instead of the The Darlington?

Is it an open and shut thing, or is it a mess of some kind to get away from the regulations of the apartments?

J. C. Long:

Absolutely open and shut, set forth in the records of the company, and when requested by the Government that they’d be allowed to send the order to the Charleston, it was agreed that they could send the order to — in Charleston and do the operation.

Hugo L. Black:

Who owns that corporation?

J. C. Long:

It’s owned by Long Corporation.

Hugo L. Black:

Who’s the Long Corporation?

J. C. Long:

The Long Corporation happens to be relatives of mine.

Hugo L. Black:

Well, who are they?[Laughter]

Are they interested in the Darlington?

J. C. Long:

Darlington Corporation is owned by Long Corporation.

Hugo L. Black:

Darlington Corporation is owned by Long —

J. C. Long:

Long Corporation.

Hugo L. Black:

And the Long Corporation owns the furniture.

J. C. Long:

Owned the furniture.

Hugo L. Black:

And it bought the furniture.

J. C. Long:

Bought the furniture —

Hugo L. Black:

I suppose the transient comes in until — stay there at night.Does he pay the Darlington or does he pay the Long Corporation?

J. C. Long:

Pays both of them.

Hugo L. Black:

Pays both of them.

J. C. Long:

And the record shows that.

What —

Hugo L. Black:

The object — what’s the object of that?

J. C. Long:

The object of that is this, the furniture does not belong to the Darlington.

J. C. Long:

Under their charter, they couldn’t go out and buy it on time.

They was losing money the first nine months they was in existence, they lost 70 odd thousand dollars.

And I’d like right at this time to make an observation.

We talked about somebody making profits, only six or eight cases.

Well, we’ve heard alot about windfalls in some of the cases, but this is a winless case.[Laughter]

My client, if the record is undisputed, had over 300,000 of cashed American dollars invested in this building when it was completed and that’s what he is fighting to try to save.

Hugo L. Black:

How much did the Government have in?

J. C. Long:

The Government has a mortgage for $1,300,000 and they’ve been paid on that now about a 100 and some odd thousands, paid by my clients at a loss to them each month.

They —

Hugo L. Black:

And may I — may I ask you one other question?

J. C. Long:

Yes, Mr. Justice.

Hugo L. Black:

Suppose you were to lose this case, are there any damages that your company will suffer or is it merely to regulate the use of the building in the future?

I don’t quite understand.

J. C. Long:

As a matter of audited record, my client would suffer a loss of more than $400,000.

Hugo L. Black:

How?

J. C. Long:

Because the Government said the building would cost so much money, and I’d say the Government said the building costs that because under FHA regulation, they set the contract price.

My client went out and built this building and the cost to the building ran $300,000 more than what the cost was supposed to be.

The FHA insured only 90% of what they estimated would be the cost, what they estimate would be the cost.

So my client would lose that $400,000 if they went out and if this thing was foreclosed because of —

Hugo L. Black:

Is the Government — is the Government claiming that it will foreclose or is this an effort to foreclose or is this is an effort to regulate the conduct of the Darlington in the future?

J. C. Long:

Well, this Your Honor, was a suit where my client brought against the Government because they said this.

This case started when they wrote down to my client and said, “You can’t rent for less than 30 days.”

My client wrote back and said, “Listen, we’d like to find out why we can’t rent for less than 30 days, we don’t see any charter provision prohibiting it, we want to cooperate but what stops us from renting for less than 30 days?”

And the Deputy Commissioner of the Federal Housing Administration, he wrote back and said, “Have you heard of a new law, the 1954 law?”

Says, “That stops you from renting for less than 30 days.”

We at Charleston not too big a place and it is a nice thing to have someone bring a suit against you to say you’re violating something.

So, my client brought this declaratory judgment suit just to ask the courts to declare the rights of the parties to this — to this action.

Hugo L. Black:

Has your client since that time —

J. C. Long:

What’s that?

Hugo L. Black:

Has your client since that time been renting for transients?

J. C. Long:

Yes, sir.

Hugo L. Black:

It’s carried on that practice up to now.

J. C. Long:

That — that on —

Hugo L. Black:

And if you lose this, all you lose is — so far as I hear what you say, I don’t know, is that you filed a suit to enjoin them and try to enforce that regulation against you, and that’s what this suit is about.

J. C. Long:

That’s right.

Felix Frankfurter:

You wouldn’t have to, if I may break in or add to Justice Black’s question.

I think you answered this question, but you wouldn’t have to restore to the Government the records you received for less than 30 day rentals, would you?

J. C. Long:

No, sir.

Felix Frankfurter:

So this is merely a question of whether you can continue to do this in the future.

J. C. Long:

That’s right, but it is —

Felix Frankfurter:

Well, I don’t understand your answer to Justice Black, you lose — what is it?$40,000.

J. C. Long:

Well, this is —

Felix Frankfurter:

But as far as I can understand it, you don’t need to lose that which you would be disabled from renting less than for 30 days.

J. C. Long:

We would go broke.

Charles E. Whittaker:

Well, Mr. Long, I thought you —

J. C. Long:

The record shows in this case that without this rental from this transient, there will be no money to pay them all.

Felix Frankfurter:

In the future, in the future, you would —

J. C. Long:

In the past, it’s told in the past, and the record (Voice Overlap) —

Felix Frankfurter:

Well, I don’t understand again.

Would you have to restore any cash that you have gotten up to date?

J. C. Long:

No, Your Honor because while my friend talked about $180 a month, that’s presuming a transient — rents it $180 a month, but there is a little thing about laundry, you understand and cleaning up (Voice Overlap) —

Felix Frankfurter:

But this is all — this is all in futural, this is all for the future.

J. C. Long:

It’s all in the future from this standpoint, but without this transient rentals, my client doesn’t have funds to make the payments called for by the mortgage which has been insured by them.

Felix Frankfurter:

This is a forecast of the income that you would lose if you couldn’t rent for less than 30 days, the access — the excess apartment.

That’s it.

J. C. Long:

That —

Hugo L. Black:

What you are saying is that this project which you undertook cannot possibly be operated with a pure rental housing project.

J. C. Long:

It cannot.

Hugo L. Black:

That you’ve got to run it as a kind of motel or hotel in part.

J. C. Long:

We’ve got to take advantage of any vacant apartments that we have that we can rent that the people come and ask for and which there’s no demand for more than 30 days, I think Justice — I thought one of you gentlemen —

I thought that Judge Hoffman — Hoffman — his opinion was adopted by the three-judge court in substance found that if you were not permitted to avail yourselves of these ad hoc 30-day rentals, not at the expense of anybody who is entitled to a longer rental, but rather than having them lying vacant, that that would simply put a hold to the project back on the Government’s hands and the mortgage would be foreclosed.

J. C. Long:

That is right, and that’s the statement of facts.

Charles E. Whittaker:

As I understand it, you — the judge of the trial court found in your argument that without these rentals that you fixed up that you wouldn’t otherwise get too many while you could make payments of interest and amortization on the mortgage.

J. C. Long:

That’s the Court —

Charles E. Whittaker:

Default would occur, foreclosure would result.

Your $400,000 would be gone.

The Government has the property as what it — is — as it found to one note which it insured, isn’t that right?

J. C. Long:

That’s right, Your Honor.

Hugo L. Black:

What percentage — what percentage of your income comes from these rentals to transients?

J. C. Long:

About 8%.

Hugo L. Black:

8%.

J. C. Long:

I base that upon this, Justice Black, and I am doing some mental calculation.

There’s 156 apartments in the building.

At no time has it been rented more than 10% or 15% and that’s in the fair best months.

Sometimes they — they don’t rent it one a day, sometimes it’s four day, but at no time has it ever been more than 15 apartments in this building rented at any one day.

Hugo L. Black:

What evidence was it before Judge Hoffman upon which he could base a forecast at Charleston business nature as such that he would know at this time if you lose this 8% of the income that you would go broke?

J. C. Long:

The affidavits that was in the record by the Government to file orders that were not contested.

The facts as found by their own orders, showed that prior to the time that we started renting on a transient basis, that the rental to this project had to be supplemented by the people that owned it but better than a $120,000.

And the record showed that if this rental was not coming in, they would still have to supplement it to the tune of many thousand dollars each month.

Hugo L. Black:

Was an audit made of your books by the Government?

J. C. Long:

Yes sir.

Hugo L. Black:

Was there audit made of the Long Corporation’s books looking at their expenses from whom they bought (Inaudible) and what dividends the owners of the Long Corporation furniture company or if you call it that —

J. C. Long:

But there’s never been any dividends paid for this corporation.Darlington never paid a dividend yet.

Hugo L. Black:

So what about Long, the one — the subsidiary?

J. C. Long:

The construction company?

Hugo L. Black:

The one that rents the furniture.

The Long Company.

J. C. Long:

The Long Corporation.

Hugo L. Black:

The one that rents the furniture.

J. C. Long:

No, there was no audit made of their books.

Hugo L. Black:

Well, how could he know that, precisely what was going to happen?

How could the judge know precisely what’s going to happen in the future laying aside the fact it forecasted, included different things.

J. C. Long:

Well, I’ve got to admit, Your Honor, I don’t know how anybody can know what’s going to happen in the future except with the past.

And the past showed that unless this rental come in, there weren’t going to be sufficient funds to make the payment of the mortgage, and while some people may have the money filed that gives out and we put out over $120,000 in making up the payments even would — it loses money even with the furniture rent.

This project actually loses money even with rental coming out from the furnitures.

Hugo L. Black:

Does the Long Company lose money on its furniture investment?

J. C. Long:

That would depend as to whether or not the likelihood of the furniture is going to withstand the way of these — the furniture rental charge were based upon the rental, furniture rental charge per day, would based upon the basis of 148 of the cost per month.

Then it was the expense of cleaning the linen and other things, based upon the four year life that the FHA has established for the furniture.

This corporation would continue to lose money.

Hugo L. Black:

Did Judge Hoffman take any evidence on the business operations of the furniture corporation —

J. C. Long:

No, sir.

Hugo L. Black:

— showing how much it had invested, showing how much it had paid out and to show — make a basis of whether they were going to lose or make money.

J. C. Long:

Well (Voice Overlap) —

Hugo L. Black:

The subsidiary company.

J. C. Long:

There is an affidavit in the file here of how that — of how that works, the — of the $6 a day.

And let me say this, three people sleep in one room $6, one people sleep — one person sleep in a room $6, it isn’t of this business like the wholesale you go out, two people you are charging twice as much as one, to be rented a room, that’s all.

And they took the — they take from that $6 first, one-thirtieth of it for the rent for the apartment.

They deducted the maid service and other service and then the remainder was supposed to represent a one-thirtieth or one forty-eighth of the cost to the furniture with a day’s rent.

Felix Frankfurter:

I’d like — I’d like to ask you what the Chief Justice has commissioned, one question.

When an apartment was rented to a transient as my brother Harlan said, these ad hoc rentals, whether such an ad hoc rental was made.

Was the furniture brought in for the transient guest or there are always apartments which had Long furniture to await the transient customer?

J. C. Long:

There are some 60 odd apartments in the building furnished and there was no furniture brought in.

If one of those was available, he —

Felix Frankfurter:

Well, then —

J. C. Long:

— moved in.

Felix Frankfurter:

So — well, then those 60 odd apartments that were furnished by Long furniture always set aside in expectation of a transient flow?

J. C. Long:

Absolutely not, and the record shows that — shows that they were not.

That —

Felix Frankfurter:

Well, then suppose a — suppose a veteran came in, would he — would he take one of these furnished apartments for six months or a year?

J. C. Long:

He did, but he only paid $14 a month for his furniture, only $14 a month.

J. C. Long:

On a monthly basis, the furniture charge was $14 because the veteran would sweep his own floor, take care of his own linen and it becomes his.

Felix Frankfurter:

On what basis was 60 apartments out of the total, whatever they were, furnished as against the others that were not furnished?

J. C. Long:

A matter of finance because that’s all the Long Corporation could afford to put the money in there too, because it costs — that were some $50 or $1000.

It cost about almost $1000 per apartment.

Felix Frankfurter:

And they would — that furniture would be available to the yearly tenants as well as to the 20-day tenant.

J. C. Long:

And two-thirds of it, this record disclose, was rented to the yearly tenants and not the daily tenants.I see the red light.

Thank you, gentlemen.

Earl Warren:

Mr. Rosenthal.

Alan S. Rosenthal:

If it please the Court.

With reference to Mr. Justice Frankfurter’s point, Mr. Justice Frankfurter’s —

Felix Frankfurter:

A question, it wasn’t a point.

Alan S. Rosenthal:

— question on page 235 of the record, there is a —

Felix Frankfurter:

What page, Mr. —

Alan S. Rosenthal:

235.

There are the four which the Darlington used in connection with their transient rentals which has on it, “Have you left your key, and rent, security deposits, telephone, furniture rental.”

And I suggest that this at least is one indication that this was not a merely ad hoc occasional relationship.

Felix Frankfurter:

But that doesn’t — that doesn’t tell us — that doesn’t give you the quantitative light.

Alan S. Rosenthal:

No, but if the Court pleases, these people, right from the very outset started to rent — furnish apartments and rent furnished apartments.

They didn’t wait to — and to see whether on a furnished basis, they could attract veterans.

They went right into the furnishing business, they charged, I think the record indicates, $15 to $20 per month more.

So instead of this being $77.50 apartments, they were $92 or $97 apartments.

Felix Frankfurter:

How long has the practice you complain of been going on (Inaudible)?

Alan S. Rosenthal:

The practice (Inaudible).

Felix Frankfurter:

(Inaudible) I think it is still going on.

Alan S. Rosenthal:

This building was built in — finished in July of 1951.

They started to furnish in October 1951, they started to rent to transients in February 1 and the FHA didn’t know it because when they filed their occupancy report, they disclosed the fact that they were even renting to — even renting furnished apartments.

Now, insofar as —

I thought the record showed that the Darlington people had gone to the FHA, had disclosed they were renting the — wanted to rent these things on a — on a basis, and asked for their approval of a rent schedule.

Alan S. Rosenthal:

Absolutely not.

Isn’t — am I wrong about that?

Alan S. Rosenthal:

No, the record in — the record does not indicate that, what the record indicates is that the FHA sometime around to December of 1952 discovers they are renting furnished.

They didn’t — FHA didn’t know transient, but they knew that they had furniture in some of these apartments.

So the FHA then says to the Darlington, “You can’t do this unless, one, that you get a furniture rental schedule approved, and second, you agree not to rent to transients.

Now, the record doesn’t express — the — the printed record at any rate does not expressly indicate when the practice of renting to transients was discovered by the FHA, but it’s at least an implication from this later correspondence, it wasn’t until very late in the game, but they never came and asked for permission.

They were doing this and they were concealing the fact and —

Felix Frankfurter:

But is there nothing in the record which fairs on the determination of this fact?

That was my question to you in the light of what this — the Long said, namely that rentals to transients was not a device to make extra money, although they could have rented for — beyond 30 months, but that was a necessity as a matter of experience.

Some of these apartments would have stood empty and this was a way of utilizing the excess available apartment.

Alan S. Rosenthal:

The Court —

Felix Frankfurter:

That’s what Mr. Long said if I understood it.

Alan S. Rosenthal:

If the Court — if the Court pleases, we — we don’t think that the record indicates one way or the other on that.

We would suggest this that before experience could tell them anything in this instance, right — beginning with February, they — they furnished 60 of their units.

Secondly, we would submit that —

Felix Frankfurter:

Well, how do you know that — how long — when — how soon after apartments were available, did they rent it to the — the transients?

Alan S. Rosenthal:

They rented to transients.

Well, it was the period from the very end of July to the following February.

Now, on that —

Felix Frankfurter:

July to February.

Alan S. Rosenthal:

That’s right.

Felix Frankfurter:

But on the other side, I know little about these things, but very often before an apartment house is under way, inquiries are made about future rentals.

Alan S. Rosenthal:

That’s — that’s — that may well be true.

But of course in the interim here, they had taken out 60 apartments without the FHA’s knowledge from the — from the range of unfurnished apartments.

Secondly, and this is we think is the very important point.

And this again, and you view it in terms of the purpose for which this — this program was established.

These people hit upon the device of furnished apartments and then transients is the way out of their difficulty.

They made no endeavor here to try to and reduce their rents.

The record indicates they were in a poor location.

This isn’t the FHA’s fault, it was their fault, they insisted upon it.

Before it — but first, this is being a error of judgment on their part, instead of trying to encourage veterans to come in.

That’s the purpose of the program.

Felix Frankfurter:

Let me —

Alan S. Rosenthal:

They go out immediately and follow this — this entirely different task.

Felix Frankfurter:

Let me ask you a question, Mr. Rosenthal.

So far as I am concerned, if this was an isolated case, this just as Darlington Company —

Alan S. Rosenthal:

I have some information on that.

Felix Frankfurter:

— down there — let me put my question.

Alan S. Rosenthal:

Oh, excuse me.

Felix Frankfurter:

I wouldn’t think this was — the case was fit to be here.

And therefore, the only problem as far as I am concerned is the construction of a statute or the implied powers of the FHA.

What I want to know is this.

Does the FHA, insofar as you are able to speak for it and you ought to be able to speak for it, contend that if as a matter of honest business judgment, an apartment house is practically not rentable and that there is some excess apartment that the owners or the mortgagor may rent that excess, shown by past business experience or allowable judgment, to transients.

Alan S. Rosenthal:

I think —

Felix Frankfurter:

As a matter of policy.

Alan S. Rosenthal:

No, the FHA’s position today is that even in the so-called hardship cases to which Your Honor has alluded, the congressional prohibition operates that they may not do it.

This that — and there was one time they took a — this is right through before 1954, they thought that in the —

Felix Frankfurter:

Has your apartment houses mortgaged prior to 1954?

Alan S. Rosenthal:

That’s right (Voice Overlap) —

Felix Frankfurter:

They must leave those vacant and not to make (Inaudible) to which you may put its rent.

Alan S. Rosenthal:

Yes.

Of course, they — they may —

Felix Frankfurter:

That is your position.

Alan S. Rosenthal:

They may not resort to the transient rental, the advise, in an effort to — to fill the house.

Felix Frankfurter:

They must —

Alan S. Rosenthal:

It doesn’t —

Felix Frankfurter:

— leave them vacant.

Alan S. Rosenthal:

Oh, no.

There is other — again, we come down to the fact that there is no — nothing in this record on which to base an assumption that the Darlington was faced with that desperate Hobson’s choice.

Felix Frankfurter:

I’m — I’m trying to — I’m trying to enlarge this problem away from the Darlington to a general proposition if that’s the law of it.

Alan S. Rosenthal:

As — as a general proposition, we would say that’s right, and we would say again this, that if Congress sets up a program for a particular purpose, the beneficiary of that program cannot, because he’s unable to make a success of the program — to working at the program as it was constituted, go in and into some other completely different field of endeavor.

Felix Frankfurter:

That is not as a matter of explicit congressional language, but the implication from the general policy underlying it, right?

Alan S. Rosenthal:

I think that’s correct.

Now, I might just — if I may I say this, in answer to a question that was asked.I had been advised while I was sitting down that there are between 12 to 15 suits now — no 10 to 15 suits now pending with respect to this transient rental issue which are of course waiting for this decision to — decision of the Court.

Earl Warren:

Does that include all of those who were — who were permitted prior to the 1954 —

Alan S. Rosenthal:

No, the —

Earl Warren:

— Act?

Alan S. Rosenthal:

— no, the people that were permitted, expressly permitted prior, they have an exception.

Earl Warren:

Those were in — had a contract to that —

Alan S. Rosenthal:

Well, it had asked the FHA for permission.

Earl Warren:

Yes.

Alan S. Rosenthal:

The FHA —

Earl Warren:

Yes.

Alan S. Rosenthal:

— under the methods of operation clause granted it, that’s right.

Earl Warren:

Now, excluding those, are all of the others treated the same as this — this one?

Alan S. Rosenthal:

Well, I would — I would presume — presume so.

I will check — ascertain whether in addition to the 10 to 15 lawsuits pending, if there are other —

Earl Warren:

Yes.

Alan S. Rosenthal:

— instances of this, of the persons in the Darlington position which would, if necessarily to —

Earl Warren:

Yes.

If you will please.

Hugo L. Black:

May I ask you what I — excuse me.

Earl Warren:

No, no, no.

Please, go ahead.

Hugo L. Black:

— what I asked to Mr. Long.

What from your standpoint is the effect on this company, as to the past and as to the future if the Government wins?

Alan S. Rosenthal:

As to the past, there is no effect at all.

The statute is perfectly clear on that, that the — the statute does not impose any kind of liabilities with respect to the past, so that the Government —

Hugo L. Black:

Is the Government is claiming that it can be (Over Overlap) —

Alan S. Rosenthal:

No, of course not.

We’re not claiming that they are liable for the — they — their past transient rental collections at all.

Our — the effect of this would be simply, that in the future, they would be prohibited from renting these units to transients.

Alan S. Rosenthal:

They could furnish them, they can rent them on a furnished basis, but not for periods of time less than 30 days.

Hugo L. Black:

Now, would it be possible for you to the Federal Housing Administration to give us the example of the same thing if there are such, in other parts of the country, where they are.

Alan S. Rosenthal:

Examples of?

Hugo L. Black:

Of — of the rental of these units that were built, the lower rental houses for veterans being used for motels or hotels or transients.

Alan S. Rosenthal:

I think that I’ll make an endeavor to get them, Your Honors.

Felix Frankfurter:

You are really suggesting, this is a device to submerge a purpose of their houses.

Alan S. Rosenthal:

That’s right.

Felix Frankfurter:

That is the —

Alan S. Rosenthal:

That’s precisely what —

Felix Frankfurter:

That’s your position.

Alan S. Rosenthal:

That’s precisely what —

Felix Frankfurter:

Therefore, the enquiries that Justice Black made have — seems to me very important.

But as to that —

What have you got to say as to this comment of Judge Hoffman in his opinion?

The unusual situation created by reason of the FHA’s insistence to cease the practice of renting apartments for periods of less than 30 days will admittedly necessitate, will admittedly necessitate the financial downfall of the Darlington with the result in the loss of an initial investment together with the monthly payments of $6000 each beginning January or June 1.

It certainly would not justify the continued existence of Darlington, and bankruptcy would be the ultimate answer, the foreclosure of the mortgage would follow with the Commissioner of the FHA requiring title, as it is a bear assumption, no purchase or sale or there’s an amount equal to or in excess of the unpaid balance due on the mortgage.

Alan S. Rosenthal:

I don’t — my recollection is that the Government certainly made no admission.

It — I think —

That finding was adopted by the three-judge court afterwards, wasn’t it?

Alan S. Rosenthal:

It what is — that was true on this record or at least appears to be true, is that if the Darlington continues its operation in the manner in which it has been continuing it, leaving off simply the practice of renting the transients that they will be in financial difficulties.

Again, I come back to the — the point that there’s no indication in this record that I can see, that on a lower rental basis or by adopting certain other practices which are within the scope of the — the statute and the regulations, the Darlington could not make a goal.

But again we would emphasize that if — even if that so, we say that — that that isn’t a critical consideration here, because these people, I misspoke myself for this purpose, and we think that whether they are — were unable to make a financial success of the — the project for the purpose for which it was established.

We think that that’s regrettable, but we don’t think it is warrant for going into some other completely different line of endeavor and competing with hotels in this case and other transient accommodations which didn’t have this type of alien construction, and which Congress clearly, by the 1946 Act, was not intending to setup competition for.

Earl Warren:

Well, in that connect, Mr. Rosenthal, what — what do you have to say to the — the point Mr. Long raised about this second exception in the 1954 Act where the project is located in an area which the Commissioner determines to be a resort area plus the response of the sponsor of the — the bill that that would include the entire State of Florida with about 11,000 projects of it.

Alan S. Rosenthal:

The answer is here that — to that is this, that the Congress as determined by the 1954 Act that it wasn’t incumbent upon the FHA, they have been doing before to determine what was hardship cases and what weren’t.

The FHA was given no discretion in that regard.

What the Congress decided was that they were going to carve out an exception for the State of Florida, where as a overall basis, it’s very difficult during seasons of those years for — to — to rent, except on a — on a transient basis.

Now, that determination, we submit, is hard, works an unconstitutional discrimination against the appellee and we don’t think actually the appellee is affected by it and has an — works then as a challenge.

Earl Warren:

Well, but my point is this, when you — you use this, 1954 Act to establish legislative intent to apply this original act, only to long-term tenancies.

Now, how does this establish any such thing if they eliminate an entire State that has 1100 projects in it.

Earl Warren:

How does that establish the fact ten years before they intended for the entire nation to be under it?

Alan S. Rosenthal:

Well, of course this intent continued all along, as is seen by the — the express — expressed statement of intent in the 1954 Act, which has this — this provision for resort areas.

Earl Warren:

And was there any such thing in the prior Act?

Alan S. Rosenthal:

No, no, no.

There could be — the prior Act did not have any provision for resort areas.

The prior Act wasn’t dealing with the — the transient rental problem directly because the prior Act again was in terms of providing residential housing for veterans.

The Congress then when it was called to their attention that there were these activities beyond the scope of the program as intended, got into the matter of transient rentals, and 513 of course has these particular provisions.

But 513 itself, well it has the — the resort area exception, again contained the expressed declaration of the congressional intent on the inception of the Housing Act right up to the — the present time.

Earl Warren:

What is there in the legislative history to show why they exempted the resort areas?

Alan S. Rosenthal:

Resort areas were exempted, Your Honor, because it was — they were deemed by Congress to present a special and sui generis situation.

In the resort areas, people in those areas do not — or — or very small numbers actually established long-term residence.

In that case, it (Voice Overlap) —

Earl Warren:

You mean in the entire State of Florida, people don’t establish permanent residencies?

Alan S. Rosenthal:

Well, these projects were —

Earl Warren:

I thought it was one of the fast growing States in the union?

Alan S. Rosenthal:

Yes.

But these projects are presumably are established in the — are in the resort area.

Earl Warren:

And you mean that the FHA deliberately established all of these apartment houses in — in Florida in resort areas where soldiers wouldn’t come?

Alan S. Rosenthal:

I don’t know — I don’t — I don’t know where the projects were — were established in Florida.

But Congress in its wisdom chose to — to setup this — this resort area exception, but that — at the same time that they again came down with the reaffirmation of a — of the legislative intent, we don’t think of course —

Earl Warren:

Reaffirmation was in there, was it?

Alan S. Rosenthal:

Well, if they — as they viewed it, the Committee Reports viewed it, this was merely a restatement of an intent which they thought had — was clear enough from the — the 1946 Act itself when it’s preamble.

They weren’t thinking of the 1954 Act, Section 513 in terms of a change in the existing law.

Felix Frankfurter:

You mean that the 1946 Act impliedly without all the resorts?

Alan S. Rosenthal:

No, no, no.

The 1946 Act didn’t contain any — anything to —

Felix Frankfurter:

But you said that this doesn’t make a change, in — in answer to the Chief Justice’s question that if this was the purpose of the Housing Act, why should the Housing Act go in for supporting resort — resort communities instead of communities by which — which reference common law’s housing.

Alan S. Rosenthal:

The initial — no it made a change in the existing law to that extent, but they didn’t view the prohibition, the general prohibition of transient rentals as constituting a departure from existing law.

And we think that the — the Committee Reports on that indicate that quite clearly, thus, I indicated earlier, the House Committee for its part, it didn’t think that there was any —

Felix Frankfurter:

Did it or didn’t it make a change as to resorts?

Alan S. Rosenthal:

It made a change as to resort.

And what Congress was doing in effect was saying that we are going to take over the job which the FHA had been in our — in the Congress’ view was proper in exercising before, under take before.

That of determining what are the — the hardship cases.

And I said the FHA does not have discretion under the methods of operation, we’re going to carve out the two exceptions.

Felix Frankfurter:

But my question is, why should an inapplicable situation with reference to the purpose of the Housing Act to which resorts, the taking out of the statute or had been in the statute to begin with.Congress wasn’t concerned with fly-by-night Florida visitors, was it?

Alan S. Rosenthal:

No.

Congress — Congress —

Felix Frankfurter:

And yet it took them out.

And since before that, and you said that, that implied that it was always in there as to every other place.

Alan S. Rosenthal:

No, I don’t say that they — because they took it out from — took — included a expressed exception for Florida; as that — in those that — it was in as to everybody else before.

I would — all that I said was that Congress, when they were viewing the problem in 1954, they deemed Section 513 as making no change in its broad scope of an existing law.

They then decided in their wisdom and this is we submit is an appropriate subject of legislative resolution whether we might agree with it or not, then decided to —

Felix Frankfurter:

But it would — it would get nonsense to Congress if you can help it.

Alan S. Rosenthal:

But they then decided to carve out the — the Florida exception and we think there’s no question from the enforcement provisions of this Act as well as from subsection (b), that contrary what Mr. Long has suggested, the Act in terms applies to existing projects as well as projects built subsequent to 1954.

Of course, Section 608 itself, there have been no mortgages insured under that section since 1950, the program expired, even though they still are permanent mortgage programs.

Earl Warren:

Mr. Rosenthal, are there any other states that come under the umbrella of this — of this section?

Alan S. Rosenthal:

Not to my knowledge Your Honor.

Earl Warren:

Are there any other great areas that are denominated as — as resort areas?

Alan S. Rosenthal:

Not to my knowledge.

Earl Warren:

It applies only to the State of Florida.

Alan S. Rosenthal:

It is — that is my understanding of this restriction in its operation to the State of Florida.

Earl Warren:

And why — why then didn’t they say so in the Act and — and why did they leave it to this — to this conversation between the sponsor of the bill and the Senator from Florida as to —

Alan S. Rosenthal:

That —

Earl Warren:

— to whether it excluded the whole — whole State of Florida?

Alan S. Rosenthal:

That, Your Honor, I don’t know but I could guess.

Earl Warren:

But that’s the interpretation that the FHA puts out.

Alan S. Rosenthal:

That’s — but that’s — that’s right.

And that again, that the statute declared —

Earl Warren:

Florida — State of Florida is out —

Alan S. Rosenthal:

That’s the way I —

Earl Warren:

because of that —

Alan S. Rosenthal:

— that’s how I understand that.

Earl Warren:

— conversation in the — in the legislative history.

Alan S. Rosenthal:

That is —

Earl Warren:

— and not by reason of any words that are in the Act.

Alan S. Rosenthal:

That is my understanding, if I’m wrong in this regard, I will —

Earl Warren:

Yes.

Alan S. Rosenthal:

— correct it by statement.

It is my understanding.

Earl Warren:

Yes.

Alan S. Rosenthal:

That is how —

Earl Warren:

That is that your understanding also that it was — that, that conversation limited it specifically to — to the State of Florida and did not mean other — other resort areas where they’d use this language?

Alan S. Rosenthal:

All, but I wouldn’t go to that extent.

That all that I — that I would state at this point is, it’s — it’s my understanding that the — the Federal Housing Administration is — is applying the resort area exception to the State of Florida and I know of no other things in other States.

And whether —

Earl Warren:

Now, will you let us know please if it is applying it to any other States besides Florida and if so, to what States?

And if not, to entire States, to what resort areas?

Alan S. Rosenthal:

I will do that.

Earl Warren:

If you please.

Felix Frankfurter:

May — may an Easterner say that Southern California is — is repeatable in those areas?

Earl Warren:

[Laughs] Well, I was again in terms of –[Laughter] — was again in terms laughing.

Hugo L. Black:

One — one other question — one other question.

Does this record contain all the evidence?

Alan S. Rosenthal:

I —

Hugo L. Black:

If not, where is the other evidence?

Or is it the same to all the evidence undertaken that all in such a plan that (Inaudible)

Hugo L. Black:

This shows the whole evidence that exists with reference to the financial operations and the conditions.

Alan S. Rosenthal:

That’s right.

Hugo L. Black:

And with reference to whether they could have been rented at a cheaper rate and anything of that kind.

No other evidence except what’s in here.

I think — I think it is planned (Inaudible)

Felix Frankfurter:

Did the Government put in — did the FHA put in evidence?

Did the FHA introduce evidence before either Judge Hoffman originally or when it came back to the three-judge court on — I know the veteran if it’s so because they just acted under Judge Hoffman record.

That’s how it is.

Alan S. Rosenthal:

Yes they had a new —

Felix Frankfurter:

The Government — did the Government introduce any evidence under that?

Alan S. Rosenthal:

Yes.

Yes, Your Honor.

They put on the stand two witnesses and a couple of affidavits.

It’s in the record.