Once HUD funds were released, however, the loan applicants decided to demolish the historic building and erect a new one on the same site. After the demolition and the onset of new construction, neighborhood residents filed suit in district court alleging a violation of Section 106 of the National Historic Preservation Act (NHPA). The district court denied the property owners' request for a temporary restraining order and preliminary injunction and dismissed the case. In denying the request, the court found that the neighborhood was not protected by NHPA because it had not been "officially" determined eligible for the National Register. According to the district court, only properties listed in or officially determined eligible for listing in the National Register fall within NHPA's purview.
The court of appeals disagreed with the district court's interpretation of NHPA, concluding that "eligible" property is not restricted to a property that has been officially determined eligible for inclusion in the National Register. Id. at 349. Analyzing amendments to NHPA and corresponding regulatory changes, the appellate court noted that before 1976, NHPA required agencies to consider the impact of their undertakings only on properties included in the National Register. Id. at 348-49. In 1976, however, Congress amended NHPA to require consideration of properties included in or eligible for inclusion in the National Register. Id. at 349 (citing 16 U.S.C. § 470(f)). Moreover, upon reviewing the regulations that implement Section 106, the court found that "eligible property" includes any property that meets National Register criteria, even if it has not been formally determined as meeting the criteria. Id.
Because the court of appeals found that the neighborhood was eligible for listing and thus subject to NHPA, it remanded the case to the district court so that plaintiffs could seek relief in light of the appellate court's finding. The court, however, affirmed the district court's denial of a preliminary injunction since the project was well underway at the time of the district court hearing. Subsequently, on petition for rehearing, the appellate court vacated the district court order denying the preliminary injunction because it was based on an erroneous interpretation of NHPA. The court did note that a preliminary injunction might nonetheless be inappropriate given that construction had progressed substantially at the site.
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