Haddon Hous. Assocs., Ltd. v. United States

• Citation: 711 F.3d 1330
• Decision Date: 22 March 2013
• Docket Number: Nos. 2012–5046,2012–5060.,s. 2012–5046
• Parties: HADDON HOUSING ASSOCIATES, LIMITED PARTNERSHIP and Housing Authority of the Township of Haddon, Plaintiffs–Cross Appellants, v. UNITED STATES, Defendant–Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit

711 F.3d 1330

HADDON HOUSING ASSOCIATES, LIMITED PARTNERSHIP and Housing Authority of the Township of Haddon, Plaintiffs–Cross Appellants,

v.UNITED STATES, Defendant–Appellant.

Nos. 2012–5046, 2012–5060.

United States Court of Appeals, Federal Circuit.

March 22, 2013.

Mark J. Valponi, Taft Stettinius & Hollister LLP, of Cleveland, OH, argued for plaintiffs-cross appellants. With him on the brief was Michael J. Zbiegien, Jr. Of counsel was John B. Nalbandian, of Cincinnati, OH.

Cameron Cohick, Trial Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for defendant-appellant. With him on the brief were Stuart F. Delery, Acting Assistant AttorneyGeneral, Jeanne E. Davidson, Director, and Brian M. Simkin, Assistant Director.

Before O'MALLEY, PLAGER, and REYNA, Circuit Judges.

O'MALLEY, Circuit Judge.

The United States (“the government”) appeals two decisions of the United States Court of Federal Claims (“Claims Court”). The first is an order denying the government's motion to dismiss a portion of Appellees' breach of contract action on statute of limitations grounds. Pennsauken Senior Towers Urban Renewal Assoc. v. United States, 83 Fed.Cl. 623, 624 (2008). The second issued following a three-day trial, finding the United States liable for breaching its contract with Appellees during 2001, and each of the years 2003–2006. Haddon Hous. Assoc. v. United States, 99 Fed.Cl. 311 (2011).

Rohrer Towers II Apartments (“Rohrer Towers II”) is a housing facility for low-income elderly residents in Haddon Township, Camden County, New Jersey. Haddon Housing Associates, Limited Partnership leased Rohrer Towers II to Housing Authority of the Township of Haddon (collectively “Haddon”), which, in turn, entered into a housing assistance payments contract (“HAP Contract”) with the United States Department of Housing and Urban Development (“HUD”) to provide low-income housing under the Housing Act of 1937 (“Housing Act”). See Housing and Community Development Act of 1974, Pub. L. No. 93–383, 88 Stat. 633, 662–66 (1974). Haddon filed suit on September 4, 2007 alleging that HUD breached the HAP Contract in each of the years from 2001–2006 by, among other things, requiring rent “comparability studies” to be submitted along with requests for annual rent adjustments and adopting a one-percent reduction of the annual adjustment factors for units occupied by the same tenant(s) from the previous year (“non-turnover units”). The Claims Court agreed and ordered rent adjustments for all relevant years other than 2002.

The government appeals the Claims Court's ruling and contests the earlier denial of its motion to dismiss Haddon's claim for damages for the 2001 rent year on statute of limitations grounds. The government also appeals the Claims Court's decision that regulatory imposition of a mandatory one-percent (1%) rent reduction for non-turnover units was arbitrary, and thus beyond HUD's authority. Haddon appeals the Claims Court's failure to order a rent adjustment for 2002. Finally, Haddon appeals the Claims Court's refusal to set aside the government's post-contract imposition of a requirement that rent adjustment requests be submitted sixty (60) days prior to the HAP Contract anniversary date. All appeals are timely. This court has jurisdiction pursuant to 28 U.S.C. § 1295(a)(3). For the reasons below, we affirm-in-part and reverse-in-part.

I.

Section 8 of the Housing Act created a housing assistance program through which HUD subsidizes the rents of low-income individuals and families living in privately-owned homes and apartments. See42 U.S.C. § 1437f. Building owners enter into HAP Contracts that obligate HUD to pay rent subsidies on behalf of low-income occupants. Id. Each HAP Contract establishes the maximum monthly rent, otherwise known as the “contract rent,” that a building owner is entitled to receive for a particular housing unit. 42 U.S.C. § 1437f(c)(1); 24 C.F.R. § 880.201. The tenants are obligated to pay a portion of the established monthly rent based on particular income guidelines, see42 U.S.C. § 1437a, while the government pays a subsidy to the building owner to bridge the difference between the tenant obligation and contract rent. See42 U.S.C. § 1437f.

The maximum monthly rent is tied to the fair market rental value of the housing. The “fair market rental” value for an area is published in the Federal Register and is based on the most recent available data of rents for existing or newly constructed rental units of various sizes and types in the market area. 42 U.S.C. § 1437f(c)(1). Once a baseline rent is established, the Housing Act also provides for at least yearly adjustments of the contract rent. 42 U.S.C. § 1437f(c)(2)(A). The upward rental adjustments are to “reflect changes in the fair market rentals established in [a] housing area for similar types and sizes of dwelling units or, if the Secretary determines, on the basis of a reasonable formula.” 42 U.S.C. § 1437f(c)(2)(A).

HUD uses Automatic Annual Adjustment Factors (“AAAF”) to calculate the amount of the upward rental adjustments. 24 C.F.R. § 888.201. HUD publishes the AAAFs in the Federal Register at least annually. 24 C.F.R. § 888.202. Yearly increases, however, are subject to an overall limitation to ensure that “[a]djustments in the maximum rents ... shall not result in material differences between the rents charged for assisted and comparable unassisted units of similar quality, type, and age in the same market area, as determined by the Secretary.” 42 U.S.C. § 1437f(c)(2)(C).

Congress twice modified the administration of HAP Contracts, in 1989 and 1994. In 1989, Congress amended the Housing Act to enforce the overall limitation by providing that the Secretary will establish regulations for conducting “comparability studies.” See Department of Housing and Urban Development Reform Act of 1989, Pub. L. No. 101–235, 103 Stat. 1987, 2057–59 (codified at 42 U.S.C. § 1437f(c)(2)(C)). A comparability study compares private market rents against Section 8 rents of units of comparable size and type in a particular area. See Cisneros v. Alpine Ridge Grp., 508 U.S. 10, 14, 113 S.Ct. 1898, 123 L.Ed.2d 572 (1993). HUD, prompted by the amendment requirement, began to create the studies to enforce the overall limitation in rental markets where the Secretary believed application of the AAAFs to the contract rents would generate materially higher rents for assisted units compared to similar unassisted units. Id. After a challenge by building owners, the Supreme Court concluded that the HAP Contracts authorized HUD to conduct such comparability studies. Id. at 21, 113 S.Ct. 1898. Congress was not yet finished amending the statutory framework of Section 8.

In 1994, Congress revised the Housing Act and shifted the burden to building owners to prove that the adjusted rents ( i.e., the maximum rents plus a particular year's AAAFs) do not exceed rents of comparable unassisted units. The amendment states that, should an AAAF adjustment cause the monthly rent to exceed the fair market rent for the units, the owner must demonstrate that the adjusted rent would not exceed the rent for comparable unassisted units in the same market. See Departments of Veterans Affairs and Housing and Urban Development, and Independent Agencies Appropriations Act of 1995, Pub. L. No. 103–327, 108 Stat. 2298, 2315 (1994) (“1994 Amendments”).

In response to the 1994 Amendments, HUD issued Notice 95–12. See HUD Directive 95–12, Annual Adjustment Factor Rent Increase Requirements Pursuant to the Housing Appropriations Act of 1995 (Mar. 7, 1995). Notice 95–12 provides that a building owner must submit a rent comparability study at least 60 days prior to the HAP Contract anniversary date if the adjusted rent (after application of the annual AAAF) should exceed the published fair market rent for the area. Id. at 2–3. Absent submission of such a study, the rent would not be adjusted. But, if the owner submitted the information outside the 60–day window, the rent would be adjusted 60 days after receipt of the required information, so long as the request was made before the next contract anniversary date. Id. at 3. Should the owner demonstrate via a comparability study that rents for unassisted units in the area are more than five percent over the current contract rent, HUD maintained that it would increase the rent to the lesser of: (1) the rent level adjusted by the AAAF or (2) the comparable, unassisted rent plus the initial difference (the amount by which the original contract rent exceeded the original comparable rent). Id. at 3–4. Should the comparability study demonstrate that the current contract rent was above the current rents for comparable unassisted units, the rent would remain steady and would not be reduced. Id. at 4.

Beyond the rent comparability study requirement, the 1994 Amendments amended other aspects of the administration of HAP Contracts. For non-turnover units, or units occupied by the same family at the time of the last annual rental adjustment, Congress instituted a mandatory one-percent reduction of the applicable AAAFs. See42 U.S.C. § 1437f(c)(2)(A); Department of Veterans Affairs and Housing and Urban Development, and Independent Agencies Appropriations Act of 1995, 108 Stat. at 2315. Congress also added a provision to 42 U.S.C. § 1437f(c)(2)(A) that where application of an AAAF causes the contract rent to exceed “ the fair market rental for an existing dwelling unit in [a] market area,” the owner must demonstrate that the adjusted rent would not exceed the rent for an unassisted unit. See id. (emphasis added). This new provision could be interpreted to supersede the overall limitation in existing HAP Contracts targeted to identify “material differences” between the rents charged for assisted units and comparable unassisted units, not whether the rent would exceed the fair market rental value....