Alder Terrace, Inc. v. U.S., 98-5008

• Citation: 161 F.3d 1372
• Decision Date: 24 November 1998
• Docket Number: No. 98-5008,98-5008
• Parties: ALDER TERRACE, INC., Alder Terrace Associates and David A.Bolin, Sr., individually and as Trustee of the Irrevocable Living Trust of David A. Bolin, Sr., Plaintiffs-Appellants, v. UNITED STATES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1372

161 F.3d 1372

ALDER TERRACE, INC., Alder Terrace Associates and David

A.Bolin, Sr., individually and as Trustee of the

Irrevocable Living Trust of David A.

Bolin, Sr., Plaintiffs-Appellants, v. UNITED STATES, Defendant-Appellee.

No. 98-5008.

United States Court of Appeals, Federal Circuit.

Nov. 24, 1998.

Bruce Babbitt, Jameson Babbitt Stites & Lombard, P.L.L.C., Seattle, Washington, argued for plaintiffs-appellants.

Brian M. Simkin, Trial Attorney, Commercial Litigation Branch, Civil Division, Department of Justice, Washington, DC, argued for defendant-appellee. With him on the brief were Frank W. Hunger, Assistant Attorney General, and David M. Cohen, Director. Of counsel was Pete Giere, Office of the Assistant General Counsel, Washington State Office, Department of Housing and Urban Development, Seattle, Washington.

Before RICH, NEWMAN, and MICHEL, Circuit Judges.

Opinion for the court filed by Circuit Judge MICHEL. Dissenting opinion filed by Circuit Judge PAULINE NEWMAN.

MICHEL, Circuit Judge.

Plaintiffs-Appellants Alder Terrace, Inc., Alder Terrace Associates, and David A. Bolin, Sr. (collectively, the "Developer") appeal from the judgment of the United States Court of Federal Claims dismissing their complaint pursuant to Rules 12(b)(1) and (4) of the Rules of the United States Court of Federal Claims for lack of jurisdiction and for failure to state a claim upon which relief can be granted. See Alder Terrace, Inc. v. United States, 39 Fed.Cl. 114 (1997). Oral argument was heard on September 3, 1998. Because the Developer's claims for breach of contract or, alternatively, for just compensation under the Takings Clause of the Fifth Amendment accrued when enactment of a statute vitiated the Developer's contractual right to prepay its loan more than six years before the Developer filed suit, we agree with the Court of Federal Claims that the Developer's claims were barred by that court's six-year statute of limitations and therefore affirm its dismissal of the action.

BACKGROUND

This case concerns an alleged government-caused breach of certain contracts between the Department of Housing and Urban Development ("HUD") and the Developer for the construction and operation of rental housing for low income persons in Ellensburg, Washington. The contracts were entered into and performed pursuant to a complex statutory and regulatory scheme (the "Program"), the evolution of which is described comprehensively in the Court of Federal Claims's opinion in this case as well as those deciding Anaheim Gardens v. United States, 33 Fed. Cl. 773 (1995), and Cienega The events relevant to this decision began when the Developer contracted with HUD pursuant to section 221(d)(3) of the National Housing Act, 12 U.S.C. §§ 1715l (d)(3), 1715z-1, to construct a fifty-one unit housing project named "Alder Terrace." The National Housing Act was expressly "designed to assist private industry in providing housing for low and moderate income families and displaced families." Id. § 1715l (a). To this end, the statute authorized HUD ¹ to insure mortgages "upon such terms and conditions as [HUD] may prescribe." Id. § 1715l (b). Thus, a developer enters the Program when HUD becomes a party to the financing of its housing project. In return for HUD insuring its loan, a developer submits to HUD regulation of its housing project.

Gardens v. United States, 33 Fed. Cl. 196 (1995). Only the aspects of the Program relevant to our decision will be described here.

Entering the Program

The Developer executed a promissory note (the "Note") to its lender, Sparkman and McLean Company, secured by a long-term deed of trust on January 4, 1968. In accordance with the statute, HUD and the Developer's lender then entered into a contract for mortgage insurance dated January 6, 1968. The Developer qualified for such mortgage insurance because it was a "limited distribution mortgagor" as defined by HUD regulations:

The limited distribution mortgagor shall be a corporation, trust, partnership, association, other entity, or an individual. Such mortgagor shall be restricted by law (or by [HUD] ) as to distribution of income ² and shall be regulated as to rents, charges, rate of return, and methods of operation in such form and manner as is satisfactory to [HUD] to effectuate the purposes of this provision.

24 C.F.R. § 221.510(c). ³ Pursuant to these statutory and regulatory provisions, the Developer entered into a "Regulatory Agreement" with HUD regarding the operation of Alder Terrace, which governed such matters as tenant eligibility, rent rates, profits, maintenance, and finance. The Regulatory Agreement was to remain in place as long as HUD insured, or had the obligation to insure, the mortgage on Alder Terrace.

In accordance with the applicable regulation, HUD's insurance of the Developer's mortgage loan was indicated by an endorsement on the Note. See 24 C.F.R. § 207.254(a). The effect of such an "initial endorsement" is that HUD, the Developer, and the lender "shall be bound by the provisions of [24 C.F.R. Part 207, Subpart B] to the same extent as if they had executed a contract including [those] provisions ... and the applicable sections of the [National Housing Act]." 24 C.F.R. § 207.254(c).

The Note provided that prepayment prior to the final maturity date was not permitted without the approval of HUD. However, in accordance with the regulations, the Note also provided that "a maker which is a limited dividend corporation may prepay without such approval after twenty (20) years from the date of final endorsement of this note by [HUD]." ⁴ Because the Developer qualified as a limited dividend (distribution) corporation and because the final endorsement was dated January 5, 1969, the Developer was contractually Meanwhile, on February 5, 1988, the Emergency Low Income Housing Preservation Act of 1987 (the "Emergency Act"), Pub.L. No. 100-242, 101 Stat. 1877 (1988) (codified at 12 U.S.C. § 1715l note (1988)), was enacted. This was a temporary measure placing a two-year moratorium on unconditional, unilateral prepayments of HUD-insured mortgage loans. Under the Emergency Act, an eligible project owner wishing to prepay its mortgage loan was required to file a "notice of intent" and "plan of action" with HUD. See 101 Stat. 1879. Before approving such a plan of action, the Emergency Act required that HUD make a written finding (1) that implementation of the plan of action would not "materially increase economic hardship for current tenants" or "involuntarily displace current tenants (except for good cause) where comparable and affordable housing is not readily available"; and:

entitled to prepay the Note after January 5, 1989.

[ (2) that the] supply of vacant, comparable housing [would be sufficient to ensure that the prepayment would] not materially affect ... (i) the availability of decent, safe, and sanitary housing affordable to lower income and very low-income families or persons in the area that the housing could reasonably be expected to serve; (ii) the ability of lower income and very low-income families or persons to find affordable, decent, safe, and sanitary housing near employment opportunities; or (iii) the housing opportunities of minorities in the community within which the housing is located....

101 Stat. 1880. As directed by the statute, HUD issued interim implementing regulations on April 5, 1988, and final regulations on September 21, 1990, which were codified at 24 C.F.R. Part 248. Because no suitable, alternative housing was available in the area served by Alder Terrace, the Developer was unable to satisfy these prepayment conditions as of January 5, 1989.

On November 28, 1990, the Low-Income Housing Preservation and Resident Homeownership Act of 1990 (the "Permanent Act"), Pub.L. No. 101-625, 104 Stat. 4249 (codified at 12 U.S.C. §§ 4101-4147 (1994)), was enacted. The Permanent Act made permanent the Emergency Act's temporary restrictions on prepayments of HUD-insured mortgage loans (with certain modifications that are not material to this decision). The Permanent Act additionally provided that owners who no longer wish or are unable to continue in the government's housing program, may sell to third parties approved by HUD, at a price determined by HUD, and subject to HUD's approval of financial assistance and the availability of funds. HUD proposed interim implementing regulations on April 8, 1992, which became effective on May 8, 1992, and which are codified at 24 C.F.R. Part 248. As with the Emergency Act, the Developer was unable to satisfy the Permanent Act's conditions for prepayment.

In the interim, on December 19, 1988, following a refusal by HUD under the April 1988 interim regulations to allow prepayment, the Developer caused Riley Mortgage Group, Inc., the mortgage servicer, to send a request to HUD for voluntary termination of mortgage insurance. This request preceded the Developer's twenty-year prepayment date of January 5, 1989 by several weeks. On July 31, 1989, HUD finally approved the request and placed an endorsement on the Note stating that the insurance had been canceled. The cancellation was made retroactive to December 19, 1988, and the Seattle Region X office of HUD accordingly removed Alder Terrace from its inventory of HUD-controlled projects.

At the time of the cancellation, it was HUD's policy, in accordance with its interpretation of the Emergency Act as then in effect, to treat requests for termination of mortgage insurance (as opposed to mortgage prepayment) as non-discretionary when made jointly by the mortgagor and mortgagee. However, the Emergency Act was amended in December 1989 to provide expressly that it was intended to restrict, not just mortgage loan prepayment, but also the termination of HUD mortgage loan insurance. See Department of Housing and Urban Development Reform Act of 1989 (the "Reform Act"), Pub.L. No. 101-235 § 202, 103 Stat. 1987 (1990) (codified at 12...