## Facts

- Tenants of a San Francisco apartment building brought a class action against the building’s owners/landlords.
- The building was financed by a federally insured mortgage under the National Housing Act, subject to HUD regulations and a HUD–landlord financing agreement.
- The agreement required the landlords to file a HUD-approved maximum rent schedule and prohibited charging more than the approved rents without prior HUD approval.
- The tenants alleged the landlords charged rents and fees above the HUD-approved maximums, causing overcharges exceeding $2 million.
- The superior court sustained demurrers without leave to amend to several causes of action, reasoning tenants could not enforce the HUD–landlord agreement, and struck all references to the National Housing Act, HUD regulations, and the HUD–landlord agreement.
- The tenants sought a writ of mandate in the Court of Appeal to vacate those rulings; during litigation, the landlords repaid the HUD-insured loan, raising a mootness argument.

## Issues

1. Whether tenants must plead a private federal cause of action to enforce HUD rent limitations, or may proceed under state law.
2. Whether tenants are intended third-party beneficiaries of the HUD–landlord financing agreement under California law and may enforce its rent-limitation terms.
3. Whether repayment of the HUD-insured mortgage moots tenants’ claims for past rent overcharges and restitution.
4. Whether the trial court properly struck all complaint references to the National Housing Act, HUD regulations, and the HUD–landlord agreement.

## Decision

- The Court of Appeal granted mandate and directed the superior court to vacate the orders sustaining demurrers without leave to amend (as to the challenged causes of action) and striking HUD-related allegations.
- The court held the National Housing Act did not create an independent private federal cause of action for tenants, but statutory and regulatory violations could supply the framework for state-law claims.
- The court held the tenants adequately alleged intended third-party beneficiary status under California law, permitting enforcement of the rent-restriction provisions.
- The court held loan repayment did not moot claims for restitution based on past overcharges.
- The court held wholesale striking of references to the federal statute, regulations, and HUD–landlord agreement was improper because those materials defined the obligations and the alleged breach.

## Legal Principles

- The absence of a private right of action under a federal statute does not preclude state-law enforcement of related contractual obligations when state doctrine independently supplies a cause of action.
- Under California law, a nonparty may enforce a contract as a third-party beneficiary when the agreement and surrounding statutory/regulatory purpose show an intent to benefit an identifiable class directly, not merely incidentally.
- Government-contract third-party beneficiary claims are viable where the contractual program is designed to confer a direct, enforceable benefit on the claimant class.
- Repayment or termination of a regulated financing arrangement does not eliminate accrued claims for restitution or damages arising from alleged past violations.
- Allegations incorporating statutes, regulations, and contract terms that define the defendant’s duties generally may not be struck in a manner that removes the operative framework of the pleaded claims at the demurrer stage.

## Conclusion

The Court of Appeal required the superior court to reinstate HUD-based allegations and allow the tenants’ action to proceed, holding that tenants could sue under California third-party beneficiary doctrine to recover past overcharges under HUD-approved rent limits, notwithstanding the lack of a federal private right of action and despite repayment of the insured mortgage.


Zigas v. Superior Court, 120 Cal. App. 3d 827 (Cal. Ct. App. 1981)