CCA Assocs. v. United States

Citation667 F.3d 1239
Decision Date09 February 2012
Docket Number2010–5101.,Nos. 2010–5100,s. 2010–5100
PartiesCCA ASSOCIATES, Plaintiff–Cross Appellant, v. UNITED STATES, Defendant–Appellant.
CourtUnited States Courts of Appeals. United States Court of Appeals for the Federal Circuit

OPINION TEXT STARTS HERE

Elliot E. Polebaum, Fried, Frank, Harris, Shriver & Jacobson, LLP, of Washington, DC, argued for plaintiff-cross appellant.

David A. Harrington, Senior Trial Counsel, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for defendant-appellant. With him on the brief were Tony West, Assistant Attorney General, Jeanne E. Davidson, Director, Brian M. Simkin, Assistant Director, Elizabeth Speck and Kenneth D. Woodrow, Trial Attorneys.

Before DYK, MOORE, and O'MALLEY, Circuit Judges.

Opinion for the court filed by Circuit Judge MOORE.

Opinion concurring in the judgments and dissenting-in-part filed by Circuit Judge DYK.

MOORE, Circuit Judge.

The United States appeals from the decision of the Court of Federal Claims that the Emergency Low Income Housing Preservation Act, Pub. L. No. 100–242, § 202, 101 Stat. 1877 (1988) (ELIHPA), and the Low–Income Housing Preservation and Resident Homeownership Act, Pub. L. No. 101–625, 104 Stat. 4249 (1990) (LIHPRHA) resulted in a temporary regulatory taking. CCA Associates (CCA) cross-appeals, asserting that ELIHPA and LIHPRHA resulted in a breach of the government's contractual obligations. Because we are bound to apply the economic analysis outlined in Cienega X, we conclude that the Court of Federal Claims determination on the temporary taking must be reversed. Because the Court of Federal Claims correctly held that our Cienega IV precedent forecloses CCA's breach of contract claim, we affirm the judgment against CCA on the breach of contract claim.

Background

The history of the statutes involved in ELIHPA and LIHPRHA takings cases was summarized by this court on several occasions. See, e.g., Cienega Gardens v. United States, 503 F.3d 1266 (Fed.Cir.2007) ( Cienega X ); Cienega Gardens v. United States, 331 F.3d 1319 (Fed.Cir.2003) ( Cienega VIII ); Cienega Gardens v. United States, 194 F.3d 1231 (Fed.Cir.1998) ( Cienega IV ). A brief recap of the legislative background leading up to ELIHPA and LIHPRHA is necessary to understand the issues in this case. In 1961, Congress amended the National Housing Act to allow private developers to meet the needs of moderate income families. Cienega X, 503 F.3d at 1270. Among other things, the amendment provided financial incentives to private developers to build low income housing. Id. These incentives included below-market mortgages, which permitted the owners to borrow 90% of the cost of the project. Id. While the term of the mortgage was 40 years, the contracts allowed the developer to prepay the mortgage after 20 years. Id. Congress also protected the lenders against default by authorizing the Federal Housing Administration to insure the mortgages. Id. at 1270–71. The tax laws at the time provided a number of tax incentives, which allowed general and limited partners to take large deductions in the earlier years of the investment. Id. at 1271. The highly leveraged nature of the investment made the tax benefits large in comparison to the small up-front investment. Id.

These development programs were regulated by the Department of Housing and Urban Development (HUD), and the developers were required to sign a regulatory agreement binding them to get approval from HUD for certain relevant decisions, for example increases in rent. Id. The developer also signed a secured note and a mortgage. HUD, in turn, provided mortgage insurance for the investment. Id. The restrictions in the regulatory agreement were in effect as long as HUD insured the mortgage on the property; for practical purposes this meant the developers were subject to HUD regulation until the mortgage was paid off. Id. The twenty year prepayment option in the mortgage therefore gave the developers an opportunity to cast off the regulatory burden and convert their development to market rate housing.

While this plan induced developers to provide low income housing, Congress ultimately grew worried that participants would prepay their mortgages and exit the program en mass. Id. at 1272. In order to avoid the resulting shortage of low income housing, Congress enacted ELIHPA and LIHPRHA. Id. The exact restrictions placed on the developers are detailed in, e.g., Cienega X, but the salient issue in this case is that an owner was no longer free to prepay the mortgage after twenty years. Instead, the owner either needed HUD approval to prepay the mortgage (which was not a viable option, id. at 1272 n. 2), or go through a series of regulatory hoops that would delay prepayment and therefore extend the time the landowner was subject to HUD regulation, id. at 1272–73. Among other restrictions, while under HUD regulation the landowner could not charge market rates for renting the property. Eventually, Congress restored prepayment rights to the program participants. Id. at 1274.

In order to enter the program, the developer signed three documents: the regulatory agreement, the secured note, and the mortgage. In this case, each of these three documents were contemporaneously signed by Ernest B. Norman and J. Robert Norman in a conference room at HUD's New Orleans office in 1969. CCA Assocs. v. United States, 91 Fed.Cl. 580, 585–86 (2010).1 Each document was drafted by HUD, and these agreements were written on either HUD or Federal Housing Authority forms. Id. at 586. The secured note, which was endorsed by HUD, included a term allowing prepayment after 20 years, and also incorporated the mortgage by reference. Id. The mortgage, in turn, incorporated the secured note and regulatory agreement by reference, and was signed by the Norman brothers and the Pringle–Associated Mortgage Corporation (but not by HUD). Id. Finally, the regulatory agreement was signed by HUD and the Norman brothers. In the regulatory agreement, the Norman brothers agreed to charge HUD-approved rents to HUD-approved tenants as long as the contract for mortgage insurance continued in effect. The regulatory agreement incorporated by reference legislation and regulations related to the program. Id. In sum, HUD was a signatory to only the regulatory agreement, which did not expressly include the 20 year prepayment provision. The Norman brothers later transferred their interest to CCA. Id. at 586–87.

Under the terms of the documents signed by the Norman brothers, the 20 year prohibition on prepayment expired in May 1991. Id. at 602. As a result of LIHPRHA, however, CCA was not allowed to prepay the mortgage and was forced to continue to operate the development (Chateau Cleary) as low income housing. In 1996, Congress lifted its prior restriction on prepayment with the HOPE Act. The total time that CCA was prohibited from prepayment was five years and ten days. Id.

This case involves two issues related to the restriction on prepayment effectuated by ELIHPA and LIHPRHA (the “preservation statutes). First, does the restriction on prepayment, which resulted in limitations on the property owner's use of its land due to the required continued participation in the HUD program, constitute a temporary regulatory taking? The Court of Federal Claims held that the statutory restriction of prepayment rights constituted a taking. The United States appeals this portion of the decision. Second, did Congress breach the contract between HUD and CCA by abrogating the prepayment right, thereby mandating the property continue to be subject to use and rent restrictions? The Court of Federal Claims held that the statutory restriction of prepayment rights did not constitute a breach of contract. CCA cross-appeals this portion of the decision. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(3).

Analysis

The issues presented in this case are not unique to CCA. The ELIHPA and LIHPRHA statutes spurred a number of claims from parties similarly situated to CCA. Much of our jurisprudence in the area stems from the Cienega Gardens line of cases, which sets out a framework that we are bound as a panel to apply to the case at hand. Indeed, CCA's claims in this case were previously remanded for consideration and application of our decision in Cienega X, 503 F.3d 1266. CCA, 91 Fed.Cl. at 584.

Many of CCA's arguments in this case are directed at issues resolved by Cienega X and Cienega IV. Even if we are sympathetic to the arguments challenging the propriety of the economic analysis required by Cienega X and the breach of contract law of Cienega IV, we cannot consider these arguments at the panel stage. Panels are bound by the law of prior panels. See Hometown Financial, Inc. v. United States, 409 F.3d 1360, 1365 (Fed.Cir.2005) ([W]e are bound to follow our own precedent as set forth by prior panels.”).

I. CCA's takings claim

Typically, when considering whether government action constitutes a regulatory taking, we apply factors set forth in Penn Central: (1) [t]he economic impact of the regulation on the claimant; (2) “the extent to which the regulation has interfered with distinct investment-backed expectations”; and (3) “the character of the governmental action.” Penn Cent. Transp. Co. v. New York City, 438 U.S. 104, 124, 98 S.Ct. 2646, 57 L.Ed.2d 631 (1978). We will consider each of these factors in light of the legal rules of Cienega X, by which we are bound.

A. Economic Impact

The first factor in a takings analysis is the “economic impact on the claimant.” Penn Cent., 438 U.S. at 124, 98 S.Ct. 2646. The economic impact of the five year delay in prepayment has admittedly been a bit of a moving target. Applying an analytical approach previously affirmed by this court in Cienega VIII, the trial court initially found an 81.25% diminution in return on equity as a result of the five years that the preservation statutes prohibited prepayment. CCA, 91...

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