Franconia Assoc. v. U.S.

• Decision Date: 15 February 2001
• Citation: 240 F.3d 1358
• Parties: (Fed. Cir. 2001) FRANCONIA ASSOCIATES, DAVID HODGES, SR. C/O HODGES DEVELOPMENT CORP, JOANNE M. HODGES, R.C. GETTY APARTMENTS, R.C. MO APARTMENTS, R.C. PIERRE APARTMENTS, R.C. SPRINGS APARTMENTS, SCENIC VALLEY ASSOCIATES, VALLEY ASSOCIATES, DUBLIN PLAZA, INC., EVERGREEN MANOR ASSOCIATES, FOX RIDGE PHASE II, MARILYN GRAHAM, GREENWAY OF ALTOONA ASSOCIATES, PHASE I, GREENWAY OF NEWTON ASSOCIATES, PHASE I, PHOEBE J. PERRI, PINE NEEDLES APARTMENTS, PRAIRIE VILLAGE OF ALTOONA ASSOCIATES, PRAIRIE VILLAGE OF GRIMES ASSOCIATES, PRAIRIE VILLAGE OF HUXLEY ASSOCIATES, PRAIRIE VILLAGE OF LAPORTE CITY ASSOCIATES, PRAIRIE VILLAGE OF SLATER ASSOCIATES, PRAIRIE VILLAGE OF STATE CENTER ASSOCIATES, TIMBERBROOK PROPERTIES and BRIAN E. WELLS, Plaintiffs-Appellants, v. UNITED STATES, Defendant-Appellee. 99-5123 DECIDED:
• Court: U.S. Court of Appeals — Federal Circuit

Page 1358

240 F.3d 1358 (Fed. Cir. 2001)

FRANCONIA ASSOCIATES, DAVID HODGES, SR. C/O HODGES DEVELOPMENT CORP, JOANNE M. HODGES, R.C. GETTY APARTMENTS, R.C. MO APARTMENTS, R.C. PIERRE APARTMENTS, R.C. SPRINGS APARTMENTS, SCENIC VALLEY ASSOCIATES, VALLEY ASSOCIATES, DUBLIN PLAZA, INC., EVERGREEN MANOR ASSOCIATES, FOX RIDGE PHASE II, MARILYN GRAHAM, GREENWAY OF ALTOONA ASSOCIATES, PHASE I, GREENWAY OF NEWTON ASSOCIATES, PHASE I, PHOEBE J. PERRI, PINE NEEDLES APARTMENTS, PRAIRIE VILLAGE OF ALTOONA ASSOCIATES, PRAIRIE VILLAGE OF GRIMES ASSOCIATES, PRAIRIE VILLAGE OF HUXLEY ASSOCIATES, PRAIRIE VILLAGE OF LAPORTE CITY ASSOCIATES, PRAIRIE VILLAGE OF SLATER ASSOCIATES, PRAIRIE VILLAGE OF STATE CENTER ASSOCIATES, TIMBERBROOK PROPERTIES and BRIAN E. WELLS, Plaintiffs-Appellants, v. UNITED STATES, Defendant-Appellee.

99-5123

United States Court of Appeals for the Federal Circuit

DECIDED: February 15, 2001

Appealed from: United States Court of Federal Claims Senior Judge Reginald W. Gibson

Jeff H. Eckland, Faegre & Benson LLP, of Minneapolis, Minnesota, argued for plaintiffs-appellants. With him on the brief were John F. Beukema, William L. Roberts, and Mark J. Blando.

Mark L. Josephs, Trial Attorney, Commercial Litigation Branch, Civil Division, Department of Justice, of Washington, DC, argued for defendant-appellee. With him on the brief was David M. Cohen, Director.

Before MAYER, Chief Judge, NEWMAN, and SCHALL, Circuit Judges.

SCHALL, Circuit Judge.

Appellants are owners of low income rental housing units financed by mortgage loans from the Farmers Home Administration of the United States Department of Agriculture ("FmHA").¹ The loans were made pursuant to section 515 of the National Housing Act of 1949, Pub. L. No. 87-723, § 4(b), 76 Stat. 671 (1962) (codified as amended at 42 U.S.C. § 1485 (1994)) ("National Housing Act"), and provided funding for low income housing in rural areas. In exchange for a low interest mortgage loan, each of the appellants agreed to restrictions on the use of the property that was subject to the mortgage and on the investment return that could be enjoyed from the property. However, under their original agreements with FmHA, appellants had the option of prepaying their loans at any time, thereby ending the restrictions.

In 1988 and 1992, respectively, Congress enacted the Emergency Low Income Housing Preservation Act of 1987, Pub. L. No. 100-242, 101 Stat. 1877 (1988) (codified as amended in relevant part at 42 U.S.C § 1472(c) (1988)) ("ELIHPA"), and the Housing and Community Development Act of 1992, Pub. L. No. 102-550, 106 Stat. 3681, 3841 (1992) (codified as amended in relevant part at 42 U.S.C. § 1472(c) (1994)) (the "1992 legislation"). On May 30, 1997, appellants filed suit in the United States Court of Federal Claims. In their complaint appellants alleged that, by restricting their ability to prepay their FmHA loans, ELIHPA and the 1992 legislation had constituted a breach of their contracts with FmHA and had amounted to a taking of their property, in violation of the Fifth Amendment to the Constitution.

The government moved to dismiss appellants' breach of contract claims for lack of jurisdiction, asserting that the claims had accrued more than six years prior to the date the suit was filed and therefore were barred by the six year statute of limitations set forth in 28 U.S.C. § 2501 (1994). The Court of Federal Claims agreed and dismissed appellants' breach of contract claims. It also sua sponte dismissed their takings claims. Appellants appeal the dismissal of their suit. Because we conclude that appellants' causes of action accrued in 1988 when ELIHPA was enacted, which was more than six years before appellants filed suit, we affirm the Court of Federal Claims' dismissal of their action.

BACKGROUND

I.

Appellants' loans had terms of up to 50 years. In exchange for their loans, appellants promised to accept only eligible persons as tenants at their properties, to charge rents no higher than those permitted by FmHA regulations, to restrict the returns on their initial capital contributions, and to maintain certain cash reserves. Appellants all entered into loan agreements with FmHA prior to December 21, 1979. ²

Under the section 515 program, in addition to a loan agreement, each borrower's contract with FmHA was based upon a promissory note and a real estate mortgage. The note and mortgage were expressly referenced in the loan agreement. The note included an "escape hatch," whereby the owner could convert the property to market-rate housing if the loan evidenced by the note was paid in full. Thus, each promissory note contained the following provision: "Prepayments of scheduled installments, or any portion thereof, may be made at any time at the option of the Borrower." This provision made it possible for appellants to prepay their loans at any time and then convert their property from low income to more profitable market-rate housing without first obtaining the permission of FmHA.

By the late 1970's many property owners had begun to exercise their prepayment options, thereby reducing the amount of available section 515 housing. In response, Congress passed the Housing and Community Development Amendments of 1979, Pub. L. No. 96-153, § 503, 93 Stat.1134 (1979) (codified as amended in relevant part at 42 U.S.C. § 1472 (1982)) (the "1979 legislation"). The 1979 legislation, which amended the National Housing Act, prohibited FmHA from accepting prepayment of any section 515 loan made before or after the date of enactment of the statute unless the owner agreed to maintain the low income status of the housing for at least 15 years from the date of the loan. FmHA could waive this requirement only if it determined that the need for low income housing in the relevant area was satisfied.

Reaction to the 1979 legislation, however, persuaded Congress to further amend the National Housing Act in 1980 to eliminate the retroactive application of the 1979 legislation. The Housing and Community Development Act of 1980, Pub. L. No. 96-399, § 514, 94 Stat. 1671 (1980) (codified as amended in relevant part at 42 U.S.C. §1472 (1994)), restored to pre-1979 section 515 borrowers, such as appellants, the right to prepay their mortgage loans at any time. The statute left the 1979 legislation's restrictions in place for loan transactions arising after the 1979 legislation.

Six years later, the continued short supply of low income housing prompted Congress to act again. Starting in October of 1986 and continuing through 1988, it enacted a series of moratoriums on loan prepayments. See H.R. Rep. No. 100-122(I) at 55 (1987), reprinted in 1987 U.S.C.C.A.N. 3317, 3369. Before the last moratorium expired, Congress passed ELIHPA, which was enacted February 5, 1988, to amend the National Housing Act to permanently maintain a steady supply of low income housing. ELIHPA contained multiple provisions affecting different programs that supplied low income housing to the public. Only Subtitle C of Title II, "Rural Rental Housing Displacement Prevention," pertains to appellants. § 241, 101 Stat. 1886-90. The other provisions of Title II deal with changes to Department of Housing and Urban Development ("HUD")-insured housing and other measures to preserve low income housing. Subtitle C imposes restrictions on prepayments of section 515 mortgages that originated before December 21, 1979. One restriction, codified in 42 U.S.C.§ 1472(c)(4)(A) (1988), requires that before FmHA can accept a prepayment, it must "make reasonable efforts to enter into an agreement with the borrower under which the borrower will make a binding commitment to extend the low income use of the assisted housing and related facilities for not less than the 20-year period beginning on the date on which the agreement is executed." If, after this "reasonable period," no agreement has been entered into, FmHA must require the owner to sell the housing to a nonprofit organization or public agency for a fair market value. 42 U.S.C. § 1472(c)(5)(A)(i) (1988). Only if no offer to buy is made within 180 days may FmHA accept prepayment. 42 U.S.C. § 1472(c)(5)(A)(ii) (1988). ELIHPA placed "those owners of projects placed in service prior to 1979 on the same playing field as those post-1979 projects who are required by law to keep their units low-income for 20 years." H.R. Rep. No. 100-122(I) at 55, reprinted in 1987 U.S.C.C.A.N at 3371. The portion of ELIHPA that governed HUD-insured loans was temporary, with an express two year time limit. § 203, 101 Stat. 1878 ("Effective upon the expiration of the 2-year period beginning on the date of enactment of this Act - (1) subtitles B and D [dealing with HUD-insured loans] are repealed; and (2) each provision of law amended by subtitle B or D is amended to read as it would without such amendment.").

Four years after ELIHPA, Congress passed the 1992 legislation. This legislation amended the National Housing Act to apply the prepayment restrictions of ELIHPA to section 515 loans made after December 21, 1979. 42 U.S.C. § 1472(c)(4)(A) (1994).

II.

As noted above, appellants filed suit in the Court of Federal Claims on May 30, 1997. In Count One of their complaint, they asserted that the 1992 legislation "anticipatorily repudiated the contract between the defendant and each of the plaintiffs." According to appellants, the government's anticipatory repudiation had deprived, and would deprive, appellants of their right to prepay and terminate their loans at will. In Count Two of the complaint, appellants alleged that the repudiation of this contract right had amounted to a taking under the Fifth Amendment, for which they sought compensation.

In due course, the government moved to dismiss claims that involved pre-1979 loans, on the grounds that the statute of limitations had run as to those claims. The government maintained that it was ELIHPA that had affected the rights of the pre-1979 borrowers, not...