Independence Park Apartments v. U.S.

• Citation: 449 F.3d 1235
• Decision Date: 06 June 2006
• Docket Number: No. 05-5035.,No. 05-5034.,05-5034.,05-5035.
• Parties: INDEPENDENCE PARK APARTMENTS, Pico Plaza Apartments, St. Andrews Gardens, and Sherman Park Apartments, Plaintiffs-Cross Appellants, v. UNITED STATES, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit

Page 1235

449 F.3d 1235

INDEPENDENCE PARK APARTMENTS, Pico Plaza Apartments, St. Andrews Gardens, and Sherman Park Apartments, Plaintiffs-Cross Appellants, v. UNITED STATES, Defendant-Appellant.

No. 05-5034.

No. 05-5035.

United States Court of Appeals, Federal Circuit.

June 6, 2006.

Richard P. Bress, Latham & Watkins, of Washington, DC, argued for plaintiffs-cross appellants. With him on the brief were Everett C. Johnson, Jr., Leonard A. Zax, Matthew K. Roskoski; and Susan S. Azad, of Los Angeles, California.

Mark R. Freeman, Attorney, Appellate Staff, Civil Division, United States Department of Justice, of Washington, DC, argued for defendant-appellant. With him on the brief were Peter D. Keisler, Assistant Attorney General and Mark B. Stern, Attorney.

Before MICHEL, Chief Judge, NEWMAN, and BRYSON, Circuit Judges.

BRYSON, Circuit Judge.

This is an appeal from a judgment of the Court of Federal Claims in a takings case. Independence Park Apartments v. United States, 61 Fed.Cl. 692 (2004). This case has had an extended history and now reaches this court for the fourth time. In the immediately preceding appeal to this court, Cienega Gardens v. United States, 331 F.3d 1319 (Fed.Cir.2003) ("Cienega VIII"), we held that federal statutes enacted in 1988 and 1990 caused a compensable temporary taking of certain rights that the plaintiffs had under contractual arrangements with the Department of Housing and Urban Development ("HUD"). On remand, the Court of Federal Claims awarded the plaintiffs a total of $3,388,208.43 as just compensation for the taking. The United States and the plaintiffs have both appealed from that judgment. We reverse and remand for a recalculation of damages.

I

A

The plaintiffs are four owners of rental property in Los Angeles. In the 1970s they entered into agreements with HUD as part of a nationwide federal program designed to increase the supply of low-income housing by providing incentives to owners and developers of such housing. Under the agreements, HUD subsidized 40-year mortgages for the plaintiffs, and the plaintiffs agreed to abide by restrictions on the mortgaged property, such as making the property available to low-income tenants, keeping rents significantly below market rates, and not selling or encumbering the property without HUD approval. Each agreement provided that it would remain effective throughout the life of the mortgage. A rider to each agreement provided that the owner could not prepay its mortgage without HUD approval during the first 20 years of the mortgage. After 20 years, however, the owner could prepay its mortgage and thereby free itself from the restrictions in the regulatory agreement.

In the late 1980s, when a large number of the mortgages were nearing the 20-year mark, HUD became concerned that many of the owners might exercise their prepayment rights, resulting in the removal of hundreds of thousands of units from the nation's supply of low-income housing. Congress responded in 1988 and 1990 by enacting two statutes forbidding owners in the federal program from prepaying their mortgages without HUD approval. The first, the Emergency Low Income Housing Preservation Act ("ELIHPA"), Pub.L. No. 100-242, tit. II, 101 Stat. 1877 (1988), was a temporary measure. The second, the Low-Income Housing Preservation and Resident Homeownership Act of 1990 ("LIHPRHA"), Pub.L. No. 101-625, tit. VI, 104 Stat. 4249, made the restriction permanent. The two statutes also empowered HUD to enter into "use agreements" with owners in which HUD offered the owners further incentives to remain subject to the federal restrictions on their property. In 1996, Congress enacted another statute, the Housing Opportunity Extension Act of 1996 ("the HOPE Act"), Pub.L. No. 104-120, 110 Stat. 834, which effectively removed the prepayment restrictions, although it did not expressly repeal LIHPRHA. In the late 1990s, Congress stopped funding the use agreements.

B

In 1994, the four plaintiffs, along with 38 others, sued the United States in the Court of Federal Claims on a number of theories, including breach of contract and violation of the Takings Clause of the Fifth Amendment. The Court of Federal Claims granted summary judgment to the plaintiffs on their breach of contract claims, and the parties selected the four plaintiffs in the instant case as "model plaintiffs" for a trial on damages. See Cienega Gardens v. United States, 38 Fed. Cl. 64, 67 n. 3 (1997) ("Cienega III"). The court then held a damages trial. At the conclusion of the trial, the court awarded the four plaintiffs a total of $3,061,107 as damages for the breach of contract consisting of the statutory ban on mortgage prepayment. On appeal, we vacated the award because of lack of privity of contract between the plaintiffs and the United States. Cienega Gardens v. United States, 194 F.3d 1231, 1245 (Fed.Cir.1998) ("Cienega IV"). After further proceedings both in the trial court and on appeal, the case reached us again in 2003, when we were presented with the question whether ELIHPA and LIHPRHA had caused the plaintiffs to suffer a compensable temporary regulatory taking under the test established by the Supreme Court in Penn Central Transportation Co. v. New York City, 438 U.S. 104, 98 S.Ct. 2646, 57 L.Ed.2d 631 (1978). Relying on the factual record already developed in this case, we concluded in Cienega VIII that the plaintiffs had suffered a regulatory taking. We then directed the Court of Federal Claims on remand to consider the breach of contract damages award as just compensation for the taking and to adjust the award as appropriate.

Following the remand proceedings, the Court of Federal Claims awarded the plaintiffs a total of $3,388,208.43. The government sought to argue that the plaintiffs' damages should be reduced because even if they had prepaid their mortgages after 20 years, the Los Angeles Rent Stabilization Ordinance, L.A. Mun.Code, ch. XV, §§ 151.00-151.20 ("LARSO"), would have applied to their property and limited the rent that they could have charged tenants after leaving the federal program. The Court of Federal Claims rejected that argument, holding that it was barred by this court's mandate and by the doctrine of law of the case from entertaining that contention. In the alternative, the court held that LARSO would not have reduced the amount of the award because it was expressly preempted by the preemption provision of LIHPRHA, which was codified at 12 U.S.C. § 4122(a). Independence Park, 61 Fed.Cl. at 705-06.

Two of the plaintiffs argued that they were entitled to an increase in the damages award on the basis of what they characterized as additional costs that they incurred in connection with use agreements that they entered into in an effort to mitigate their damages before the mortgage prepayment rights were restored in 1996. The court, however, rejected that argument. Id. at 700-02.

On appeal, the United States challenges (1) the trial court's refusal to reduce the damages award on the ground that, if the owners had exercised their prepayment rights and escaped federal restrictions, they would have been subject to LARSO, and (2) the trial court's selection of the "valuation date" for the temporary regulatory taking as being the end of the takings period rather than as of the beginning. The plaintiffs cross-appeal, challenging the trial court's refusal to increase the award to two of the plaintiffs based on their claimed mitigation costs.

For the reasons set forth below, we hold that the trial court erred in declining to consider the effects of the Los Angeles rent control ordinance in calculating the damages from the taking. We therefore remand for reconsideration of the quantum of damages in light of the effect of the Los Angeles rent control ordinance on the compensation due to the plaintiffs. On the cross-appeal, we remand for a recalculation of damages for the two plaintiffs that entered into use agreements before the passage of the HOPE Act.

II

We first address the question whether the Court of Federal Claims erred in holding that this court's mandate in Cienega VIII and the law of the case doctrine preclude the United States from litigating the effect of LARSO on the plaintiffs' damages award. The plaintiffs make two arguments in defense of the judgment below. First, they argue that our holding in Cienega VIII that the plaintiffs had suffered a "serious financial loss" under the second prong of the Penn Central test foreclosed the government from arguing the effect of LARSO on remand. The plaintiffs reason that the decision in Cienega VIII rested in part on the trial court's holding in Cienega III that LARSO was preempted by federal law and thus did not affect the calculation of the plaintiffs' damages. Accordingly, they contend, the preemption ruling in Cienega III became law of the case. Second, the plaintiffs argue that the government waived the right to argue the effect of LARSO on remand by failing to raise that issue before this court in Cienega VIII.

We conclude that our mandate in Cienega VIII is best understood as leaving the preemption issue open for remand. In Cienega III, the trial court awarded the plaintiffs $3,061,107 as damages for breach of contract, reasoning that the plaintiffs were unlawfully prevented from prepaying their mortgages, and that the award was an appropriate estimate of the amount of money necessary to compensate the plaintiffs for the loss of their right to prepay their mortgages. In reaching that conclusion, the court assumed that the plaintiffs would have prepaid their mortgages after 20 years and that they would have raised the rental rates on their properties to market levels after prepayment. The government countered by arguing that even if the plaintiffs had prepaid their mortgages, LARSO would have restricted their ability to raise rents, and that the damages award should be reduced accordingly. The Court of Federal Claims rejected that...