331 F.3d 1319 (Fed. Cir. 2003), 02-5050, Cienega Gardens v. United States

Docket Nº:02-5050
Citation:331 F.3d 1319
Opinion Judge:MICHEL, Circuit Judge.
Party Name:CIENEGA GARDENS, Claremont Village Commons, Covina West Apartments, Del Amo Gardens, Del Vista Village, Desoto Gardens, Independence Park Apartments, Kittridge Gardens I, Kittridge Gardens II, Las Lomas Gardens, Oxford Park, Parthenia Townhomes, Pioneer Gardens, Puente Park Apartments, Rayen Park Apartments, Reseda Park Apartments, Roscoe Park Apar
Attorney:Richard P. Bress, Latham & Watkins, of Washington, DC, argued for plaintiffs-appellants. With him on the brief were Everett C. Johnson, Jr., Leonard A. Zax, and Matthew R. Lewis. John E. Kosloske, Senior Trial Counsel, Commercial Litigation Branch, Civil Division, Department of Justice, of Washin...
Judge Panel:Before NEWMAN, Circuit Judge, ARCHER, Senior Circuit Judge, and MICHEL, Circuit Judge.
Case Date:June 12, 2003
Court:United States Courts of Appeals, Court of Appeals for the Federal Circuit
 
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331 F.3d 1319 (Fed. Cir. 2003)

CIENEGA GARDENS, Claremont Village Commons, Covina West Apartments, Del Amo Gardens, Del Vista Village, Desoto Gardens, Independence Park Apartments, Kittridge Gardens I, Kittridge Gardens II, Las Lomas Gardens, Oxford Park, Parthenia Townhomes, Pioneer Gardens, Puente Park Apartments, Rayen Park Apartments, Reseda Park Apartments, Roscoe Park Apartments, St. Andrews Gardens, San Jose Gardens, Sherman Park Apartments, Sunland Park Apartments, Argonaut Apartments, Beck Park Apartments, Blossom Hill Apartments, Casa San Pablo, Central Park Apartments, Drehmoor Apartments, Fairview Green Apartments, Genessee Park Apartments, Grace & Laughter Apartments, Green Hotel, Hollywood Knickerbocker Apartments, Hollywood Plaza, Kings Canyon Apartments, Lawrence Road Apartments, Livermore Gardens, Palo Alto Gardens, Pico Plaza Apartments, Placita Garden Apartments, Skyline View Gardens, Villa Fontana, and Village Green, Plaintiffs-Appellants,

v.

UNITED STATES, Defendant-Appellee.

No. 02-5050.

United States Court of Appeals, Federal Circuit

June 12, 2003

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Richard P. Bress, Latham & Watkins, of Washington, DC, argued for plaintiffs-appellants. With him on the brief were Everett C. Johnson, Jr., Leonard A. Zax, and Matthew R. Lewis.

John E. Kosloske, Senior Trial Counsel, Commercial Litigation Branch, Civil Division, Department of Justice, of Washington, DC, argued for defendant-appellee. With him on the brief was David M. Cohen, Director. Of counsel on the brief were Carole W. Wilson, Associate General Counsel; Angelo Aiosa, Assistant General Counsel; and Terri L. Roman, Trial Attorney, Office of General Counsel, Department of Housing and Urban Development, of Washington, DC.

Before NEWMAN, Circuit Judge, ARCHER, Senior Circuit Judge, and MICHEL, Circuit Judge.

MICHEL, Circuit Judge.

In this Fifth Amendment regulatory takings case, Plaintiffs Cienega Gardens, et al. ("the Owners") appeal the United States Court of Federal Claims' grant of summary judgment to the government. Cienega Gardens v. United States, No. 94-1C (Fed.Cl. Jan. 8, 2002) (order granting summary judgment). Specifically, the Owners contend that when Congress enacted the Emergency Low Income Housing Preservation Act of 1987, Pub.L. No. 100-242, tit. II, 101 Stat. 1877 (1988) (codified at 12 U.S.C. § 1715l note (1988)) (hereinafter "ELIHPA"), and the Low-Income Housing Preservation and Resident Homeownership Act of 1990, Pub.L. No. 101-625, tit. VI, 104 Stat. 4249 (1990) (codified at 12 U.S.C. §§ 4101 et seq. (1994)) (hereinafter "LIHPRHA"), it abrogated the Owners' contractual rights to prepay their forty-year mortgage loans after twenty years. In doing so, the Owners argue, the government prevented them from regaining possession and control of their real estate because only extinguishment of their mortgages released the Owners from the Department of Housing and Urban Development ("HUD") low-rent housing programs. This harmed the Owners because, under the programs, rental rates were held below market rates. On exiting the programs, however, the Owners could charge market rentals or sell their properties.

Because the parties agreed 1 with the trial court that its decision in Alexander Investment v. United States, 51 Fed. Cl. 102 (2001), controls this case, the trial court granted summary judgment solely on the basis of that decision. This appeal is, therefore, in essence, a review of the legal conclusions by the same judge in the Alexander Investment decision. 2 We conclude

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that on this record the trial court erred in holding: (1) that developers who voluntarily participated in the HUD housing programs had no vested property rights despite their two agreements--one with the lenders and one with HUD--and despite their ownership in fee simple of the land; and (2) that if any taking occurred, it could not, as a matter of law, be a compensable taking. Under constitutional, real estate, and contract law, we conclude a property right vested in the Owners that was temporarily taken. We also conclude that there is no reason this taking is not, as a matter of law, compensable under the Takings Clause of the Fifth Amendment to the United States Constitution. We further hold with respect to at least the subset of Owners for whom there is a well-developed record before us, that they are entitled to "just compensation." We therefore reverse the trial court's grant of summary judgment of no taking as to that subset of plaintiffs and for the other plaintiffs remand for further proceedings, as more fully set forth, post.

BACKGROUND

The Owners' original complaint included claims for breach of contract, for just compensation under the Takings Clause of the Fifth Amendment, and for allegedly unlawful administrative actions. 3 This appeal is one in a series of proceedings, including two prior appeals decided by this court: Cienega Gardens v. United States, 194 F.3d 1231 (Fed.Cir. 1998) ("Cienega IV "), which reversed a breach of contract judgment in the plaintiffs' favor for lack of privity with the government, thereby overturning a damage award of some three million dollars stemming from a damage trial for a subset of plaintiffs; 4 and Cienega Gardens v. United States, 265 F.3d 1237 (Fed.Cir. 2001) ("Cienega VI "), which affirmed the dismissal of per se takings claims but held that the regulatory takings claims were ripe for adjudication because it would have been futile to require plaintiffs to await a HUD ruling on applications for prepayment permission because, under the undisputed facts, HUD lacked statutory authority to grant such permission. Our remand in Cienega VI led to the summary judgment now appealed.

There are forty-two plaintiffs in this case. This includes four Model Plaintiffs who had a damages trial on their breach of contract claims (after the entire group of plaintiffs had previously won a summary judgment motion on liability for the breach of contract claims in front of the trial court). These are the only plaintiffs for whom there is a well-developed record. The other thirty-eight have never been given a trial on any claim and it is unclear whether there has even been discovery with respect to any of their claims. There are also a number of related cases involving similarly-situated plaintiffs. See, e.g., Chancellor Manor v. United States, 51 Fed. Cl. 137 (2001); Anaheim Gardens v. United States, No. 93-655C, 1997 WL 580613 (Fed.Cl.1997) (granting a stay for part of the case pending the outcome of the Cienega litigation). The former case is

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presently under submission after argument on March 3, 2003.

The Owners are real estate developers who received loans from private lenders to construct housing projects that for a period of years would be under the housing programs established by sections 221(d)(3) 5 and 236 6 of the National Housing Act (generally codified at 12 U.S.C. §§ 1701 et seq.). HUD provided participants' mortgage insurance, which facilitated low-interest, forty-year mortgages. In return, each participant entered into a "Regulatory Agreement" with HUD.

Each Regulatory Agreement placed a variety of restrictions on the Owners, including restrictions on the income levels of tenants, allowable rental rates, and the maximum rate of return on initial equity that the Owners could receive from their housing projects. The Regulatory Agreement also prohibited sale or further mortgage of the property without HUD approval and required each participant to submit to extensive HUD audits, inspections, and management reviews. The Regulatory Agreements were to remain in effect only "so long as the contract of mortgage insurance continues in effect." The Regulatory Agreements also referenced the relevant provisions of the National Housing Act. 7

HUD's regulations then in effect included recognition of the Owners' rights to prepay their forty-year mortgages after twenty years 8 and the mortgage documents themselves were reviewed by HUD and drafted to conform to existing HUD regulations. 9 The mortgage trust notes provided that the Owners could not prepay their mortgages (without HUD approval) during the first twenty years of the mortgage, but could do so "without such approval" after twenty years. 10 Though not a party to the mortgage contracts, HUD reviewed, endorsed, and approved them and their terms mirrored HUD

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regulations.11] Thus, under the original regulatory scheme, the Regulatory Agreements and their attendant restrictions were to remain in effect for at least twenty years, at which point the Owners would have the option of prepaying the mortgages and thereby dissolve the mortgage insurance and hence the restrictive Regulatory Agreements.

The relevant HUD regulations also provided that they could be amended but not to the prejudice of the lenders. 12 The mortgage documents themselves, however, contained no explicit reference to the amendment provision. The Regulatory Agreements each mention either section 221(d)(3) or section 236 and the corresponding regulations in their preambles but do not otherwise cite any further provision of the statutes or regulations.

As the Owners' participation in the housing programs approached the twenty-year mark, it became clear to Congress that large numbers of owners would prepay their mortgages and remove their properties from the federally-assisted low-income housing pool. H.R. Conf. Rep. No. 100-426, at 192 (1987). 13 Loss of this federally-assisted, low-income housing "would inflict unacceptable harm on current tenants and would precipitate a grave national crisis in the supply of low income housing that was neither anticipated nor intended when...

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