Cathedral Square Partners Ltd. P'ship v. S.D. Hous. Dev. Auth.

• Decision Date: 22 June 2012
• Docket Number: No. CIV 07–4001.,CIV 07–4001.
• Citation: 875 F.Supp.2d 952
• Parties: CATHEDRAL SQUARE PARTNERS LIMITED PARTNERSHIP; West Park Ltd.; 46th Street Partners Limited Partnership; and Riverview Park, Ltd., Plaintiffs, v. SOUTH DAKOTA HOUSING DEVELOPMENT AUTHORITY, Defendant.
• Court: U.S. District Court — District of South Dakota

875 F.Supp.2d 952

CATHEDRAL SQUARE PARTNERS LIMITED PARTNERSHIP; West Park Ltd.; 46th Street Partners Limited Partnership; and Riverview Park, Ltd., Plaintiffs,

v.SOUTH DAKOTA HOUSING DEVELOPMENT AUTHORITY, Defendant.

No. CIV 07–4001.

United States District Court,

D. South Dakota,

Southern Division.

June 22, 2012.

Joel D. Vos, Heidman Law Firm, Sioux City, IA, for Plaintiff.

Michael L. Luce, Murphy Goldammer & Prendergast, LLP, Sioux Falls, SD, for Defendant.

MEMORANDUM OPINION AND ORDER RE: MOTION FOR RECONSIDERATION AND MOTION FOR PROSPECTIVE RELIEF

LAWRENCE L. PIERSOL, District Judge.

After the Court issued is Memorandum Opinion and Order regarding the parties' motions for partial summary judgment and summary judgment (Doc. 106), the parties moved pursuant to Fed.R.Civ.P. 53(c) for a declaratory judgment stating the parties' prospective rights and obligations under their Housing Assistance Payments contracts in accordance with the Court's rulings in the Summary Judgment Memorandum Opinion. Doc. 116. Plaintiff West Park, Ltd. then moved for reconsideration of the Summary Judgment Memorandum Opinion (Doc. 118) and also submitted a notice of supplemental authority regarding a United States Court of Federal Claims decision addressing the same issues raised by Plaintiff West Park, Ltd. in its motion for reconsideration. Doc. 124. Defendant South Dakota Housing Authority then submitted a notice of supplemental authority and motion for reconsideration regarding this Court's March 30, 2009 decision granting the motion of the United States Department of Housing and Urban Development (HUD) to dismiss South Dakota Housing Authority's third-party complaint in this action. Doc. 127. HUD responded to the motion for reconsideration on the dismissal of South Dakota Housing Authority's third-party complaint stating it does not oppose reconsideration of the Court's order dismissing the third-party complaint with regard to the breach of contract claim, but opposes reconsideration of the dismissal of the APA and Declaratory Judgment claims.

WEST PARK'S MOTION FOR RECONSIDERATION

In the Summary Judgment Memorandum Opinion this Court held that Plaintiffs Cathedral Square Partners Limited Partnership, 46th Street Partners Limited Partnership, and Riverview Park, Ltd. were entitled to summary judgment on the issue of whether their Housing Assistance Payments Contracts were breached by the shifting of the burden to the landlord to prove entitlement to annual rent increases. This Court in its Summary Judgment Memorandum Opinion notes, however, that the Housing Assistance Payments Contract with Plaintiff West Park, differs from the contracts with the other plaintiffs in that the rent adjustments provision in the West Park contract is not characterized as “automatic,” and provides that “[u]pon request from the Owner to [South Dakota Housing Development Authority] Contract Rents will be adjusted on the anniversary date of the Contract in accordance with 24 CFR Part 8884 and this Contract.” This Court concluded in its Summary Judgment Memorandum Opinion that the “upon request from the Owner” language in the West Park contract operated as a condition precedent to receiving the rent increases.

This Court in its Summary Judgment Memorandum Opinion rejected West park's arguments that strict compliance with the condition precedent was not required because the South Dakota Housing Development repudiated the Housing Assistance Payments Contract and because it was futile to submit a request for a rent increase for the years in issue based on the South Dakota Housing Authority's Procedures, the denial of West Park's requests in 1995 and 2000, and West Park's General Partner's substantial experience with other Section 8 projects. In rejecting the futility argument this Court stated:

While the General Partner may have determined that he did not want to spend the $2,500 to $3,000 for a rent comparability study when the chances of getting a rent increase appeared unlikely, he has not set forth facts which support an inference of futility. In fact, the approval of West Park's 2006 request refutes such an inference.

Doc. 106 at p. 13; Cathedral Square Partners L.P. v. South Dakota Hous. Dev. Auth., 2011 WL 43019, at *9 (D.S.D. Jan. 5, 2011).

Lewis F. Weinberg, the General Partner of West Park, provided an affidavit dated December 10, 2009, in which he stated in paragraph 7; “SDHDA did approve a rent increase at West Park Apartments effective January 1, 2007. This is the only rent increase at West Park Apartment approved by SDHDA since 1996.” Doc. 80. Mr. Weinberg also provided a second declaration, dated June 25, 2010, in which he stated, “In 2006, I submitted to SDHDA a budget-based request for a rent increase at West Park. SDHDA approved this request effective January 1, 2007. This is the only rent increase approved by SDHDA at West Park since 2000.” Doc. 97.

Although the pleadings submitted prior to the Court issuing its Summary Judgment Memorandum Opinion did not elaborate on the significance that the 2006 request for a rent increase was “budget-based,” ¹ West Park's motion for reconsideration explains that “[a] budget-based rent increase is completely different than, and is not a substitute for, annual rent increases using the automatic annual adjustment factors (“AAAFs”) published by the Department of Housing and Urban Development.” West Park further explained that the budget-based rent increase was granted by South Dakota Housing Authority as a one-time adjustment. Doc. 118.

After moving for reconsideration, West Park later gave notice of a United States Court of Federal Claims decision, Haddon Hous. Assocs., LLC v. United States, 99 Fed.Cl. 311 (2011), to supplement its motion for reconsideration. This decision was issued after West Park moved for reconsideration. In this Court's memorandum opinion, this Court relied in part upon the earlier summary judgment opinion in the Haddon Housing case in deciding that the “upon request from the Owner” language in the West Park contract as well as the other facts surrounding that contract precluded West Park from recovering adjustments of contract rents based on the failure to comply with the condition precedent. In the memorandum opinion this Court relied as follows upon the reasoning in the summary judgment opinion in the Haddon Housing case:

In Haddon Hous. Assocs., LLC v. United States, 92 Fed.Cl. 8, 19 (2010), Judge Lettow in the Court of Federal Claims examined an argument similar to ones advocated by Plaintiffs in a case involving contractual language similar to that found in West Park's contract. Judge Lettow found, in applying the basic rules of contract interpretation, that the plaintiff lessor of a low-income rental housing project was required pursuant to the terms of its housing assistance payments contract to request a rent increase as a condition precedent to receiving such increase. 92 Fed.Cl. at 19. Judge Lettow found that “[o]n its face, the HAP Contract appears to require plaintiffs to request rent increases.” Id. Judge Lettow concluded that such a requirement was not necessarily inconsistent with the regulations which refer to “Automatic Annual Adjustment Factors.” Id. In so concluding, Judge Lettow reasoned that “[a] contract could require one party to request a rent adjustment that was then applied according to automatic adjustment factors.” Id. In the Haddon Housing case, however, the defendant's motion for summary judgment was denied because questions of material fact existed as to whether the plaintiff had made a request for the rent increases in issue. Id.

Cathedral Square Partners, 2011 WL 43019 at *8.²

After denying cross-motions for summary judgment and conducting a three-day trial, and considering post-trial briefing and closing arguments from the parties in the Haddon Housing case, Judge Lettow from the United States Court of Federal Claims issued a decision in which he held that the owners of a rental housing facility's failure to fulfill the condition precedent of a Section 8 contract by submittingrent requests to HUD was excused under the doctrine of prevention. 99 Fed.Cl. 311 (2011). Judge Lettow advised in this decision that it was the first instance in which the United States Court of Federal Claims had occasion to determine whether there had been a breach of a new-form Housing Assistance Payment Contracts, “which differed in a significant respect from the old-form” contract in that it included the provision that “upon request from the Owner to the C[ontract] A[dministrator], Contract Rents will be adjusted on the anniversary date of the Contract in accordance with 24 C.F.R. [Part] 888 and this Contract.” 99 Fed.Cl. at 316–17, 327.

In the Haddon Housing case Judge Lettow had to determine whether the plaintiffs' nonperformance of the condition precedent of requesting the rent adjustments was excused when HUD had previously denied the plaintiffs' requests because rent comparability studies had not been provided. The reason provided by the administrator of a rental housing facility for the nonperformance was: “After asking for requests for three years and being denied for three years ... I didn't feel as though if I sent a letter every day they would [grant an adjustment]—[rather] I would receive the same response.” 99 Fed.Cl. at 319. Judge Lettow in the Haddon Housing case, after conducting a three-day trial and finding that an owner had not submitted a request for the rent increases between 1999 and 2003, determined that this failure was excused under the doctrine of prevention.

In the case at hand, Lewis F. Weinberg, the General Partner of West Park provided the following similar explanation for why he did not submit a request for an automatic annual adjustment factor after his 2000 request for the same was denied:

I did not, on behalf of West Park, Ltd., submit any request for an AAAF rent increase after my 2000 request was denied because I did not...