Haddon Hous. Associates LLC v. U.S., 07-646C

• Decision Date: 24 June 2011
• Docket Number: No. 07-646C,07-646C
• Parties: HADDON HOUSING ASSOCIATES, LLC, and THE HOUSING AUTHORITY OF THE TOWNSHIP OF HADDON, NEW JERSEY, Plaintiffs, v. UNITED STATES, Defendant.
• Court: U.S. Claims Court

HADDON HOUSING ASSOCIATES, LLC, and THE HOUSING AUTHORITY OF THE TOWNSHIP OF HADDON, NEW JERSEY, Plaintiffs, v. UNITED STATES, Defendant.

No. 07-646C

United States Court of Federal Claims

Filed: June 24, 2011

Claim for damages arising from alleged breach of rent-assistance contract; assignment in which HUD joined; proper party plaintiff; effect on the contract of the 1994 Amendments to the Housing Act of 1937; 42 U.S.C. § 1437f; liability determination

Fred J. Livingstone, Taft Stettinius & Hollister LLP, Cleveland, Ohio for plaintiff. With him at trial and on the briefs was Majeed G. Makhlouf, and with him on the briefs was Mark J. Valponi, both of whom are with Taft Stettinius & Hollister LLP, Cleveland, Ohio.

Armando A. Rodriguez-Feo, Trial Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, D.C., for defendant. With him on the briefs were Tony West, Assistant Attorney General, Civil Division, Jeanne E. Davidson, Director, and Brian M. Simkin, Assistant Director, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, D.C. With him at the trial and on the briefs was Amber Richer, Office of General Counsel, Department of Housing and Urban Development, Washington, D.C.

OPINION AND ORDER

LETTOW, Judge.

This post-trial decision addresses liability for an alleged breach of a rent-assistance contract. Rohrer Towers II Apartments ("Rohrer Towers II") is a rental housing facility for elderly residents located in Haddon Township, Camden County, New Jersey. Plaintiff Haddon Housing Associates, Ltd. ("Haddon Associates"), the owner of Rohrer Towers II, leased the property to plaintiff Housing Authority of the Township of Haddon, New Jersey ("Housing Authority"). Housing Authority in turn entered into a housing assistance payments contract ("HAP Contract" or "Contract") with the United States Department of Housing and UrbanDevelopment ("HUD") to provide low-income housing under an amendment enacted in 1974 to the Housing Act of 1937 (also known as the Wagner-Steagall Housing Act). See Housing and Community Development Act of 1974, Pub. L. No. 93-383, 88 Stat. 633, 662-66 (1974) (adding Section 8 to the Housing Act of 1937, codified as amended at 42 U.S.C. § 1437f).

Plaintiffs contend that a 1994 amendment to the Housing Act, which altered, among other things, the manner in which rent adjustments under HAP contracts were to be determined, contravened its HAP Contract with HUD. Specifically, plaintiffs allege that HUD breached the HAP Contract when it failed to grant annual rent adjustments to plaintiffs as required by the terms of the Contract. The government resists liability and also raises procedural objections. It argues that Haddon Associates is not a proper plaintiff in this case because it was not initially a party to the HAP Contract, even though it is now party to that contract by way of an assignment in which HUD joined. It contends also that Housing Authority's claim must fail because the contract at issue required Housing Authority to request annual rent increases, and plaintiffs consequently lack any "entitlement" to adjustments under the contract. Alternatively, the government asserts that even if the HAP Contract was breached, plaintiffs' failure to request a rent adjustment for the years 2001 through 2003 precludes them from recovering damages for those years. At issue as well are other provisions of the 1994 Amendments, which provisions serve to limit or otherwise reduce the rental assistance payments property owners may receive under HAP contracts. Plaintiffs filed their complaint on September 4, 2007; thus, the period covered by their claim reaches back to September 4, 2001.¹

Previously, this court considered and denied a motion for summary judgment by plaintiffs and a cross-motion for summary judgment by the government. See Haddon Housing Assocs., LLC v. United States, 92 Fed. Cl. 8, 20 (2010). In ruling that material issues of fact precluded summary disposition, the court pointed to evidence suggesting that Haddon Associates was potentially a proper plaintiff notwithstanding its absence from the HAP Contract as originally entered between Housing Authority and HUD. In addition, from the materials then at hand, it appeared that plaintiffs had requested some rent adjustments, and that the parties had substantially differing accounts as to the course of performance under the Contract. See id. at 19.²

Thereafter, a three-day trial on liability was held from November 15 to 17, 2010 in Philadelphia, Pennsylvania. Post-trial briefing has been completed, and on April 29, 2011, the parties presented their respective closing arguments. The case is accordingly ready for disposition.

FACTS ³

A. The Section 8 Housing Program

Pursuant to Section 8 of the Housing Act of 1937 ("the Housing Act"), HUD may enter into HAP contracts with private property owners. HAP contracts establish an agreed "maximum monthly rent" the property owners will require from tenants, as supplemented by HUD's supply of "assistance payments" to the owners. See 42 U.S.C. § 1437f (1976). Under the Act, the "maximum monthly rent" was to be based upon the "fair market rental" value of the dwelling unit plus an upward adjustment, determined by the application of that year's "automatic annual adjustment factor" ("AAAF"), to compensate for the expenses attendant to compliance with the Section 8 program. See 42 U.S.C. §§ 1437f(c)(1), (2)(A) (1976). HUD was required by statute to adjust the maximum monthly rents on at least an annual basis. See 42 U.S.C. § 1437f(c)(2)(A) (1976). Such adjustments, however, were subject to an overall limitation, which dictated that "[a]djustments in the maximum rents . . . shall not result in material differences between the rents charged for assisted and comparable unassisted units, as determined by the Secretary." 42 U.S.C. § 1437f(c)(2)(C) (1976) (which text appears in similar form in the initial sentence of Section 1437f(c)(2)(C) as amended).

Beginning in the 1980s, HUD began conducting "comparability studies" to enforce the overall limitation in markets in which it believed automatic annual adjustments were generating rent levels that were materially higher than those for comparable, unassisted units. See Cisneros v. Alpine Ridge Grp., 508 U.S. 10, 14 (1993). After landlords successfully contested HUD's action in a court of appeals, see Rainier View Assocs. v. United States, 848 F.2d 988 (9th Cir. 1988), Congress amended the Housing Act in 1987 by adding the following sentence to Section 1437f(c)(2)(B): "If the Secretary . . . does not complete and submit to the project owner a comparability study not later than 60 days before the anniversary date of the assistance contract . . . , the [AAAF] shall be applied." Housing and Community Development Act of 1987, Pub. L. No. 100-242, § 142(c)(2)(B), 101 Stat. 1815, 1850 (1988).

In 1989, Congress further modified the administration of HAP contracts by enacting Section 801 of the 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) (Supp. II 1991) and 42 U.S.C. § 1437f note (Supp. II 1991)) ("1989 Amendments"), which prescribed new procedures for calculating rent adjustments. In relevant part, the 1989 Amendments required HUD to formulate "regulations for conducting comparability studies for projects where theSecretary has reason to believe that the application of the formula adjustments . . . would result in . . . material differences" and to establish modified AAAFs on that basis. Section 801(c), 103 Stat. at 2058 (emphasis added). The Supreme Court subsequently upheld Section 801, concluding that the 1989 Amendments did not constitute a breach of the HAP contracts because the contracts authorized HUD to generate such studies and use them in its administration of rent adjustments. Cisneros, 508 U.S. at 21.

In 1994, Congress once more revised the statutory framework and shifted to owners the burden of proving that the adjusted rent for their units would not exceed the rent for a comparable, unassisted unit. 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) (amending 42 U.S.C. § 1437f(c)(2)(A)) ("1994 Amendments"). In this vein, the Amendments dictated that if application of the AAAF to the monthly rent would "exceed[] the fair market rental for an existing dwelling unit in the market area, the Secretary shall adjust the rent only to the extent that the owner demonstrates that the adjusted rent would not exceed the rent for an unassisted unit of similar quality, type, and age in the same market area, as determined by the Secretary." 108 Stat. at 2315 (emphasis added). The Amendments also reduced by one percent the AAAF for units occupied by a tenant who was remaining in a unit he or she had occupied in the previous year ("non-turnover units"). Id.

HUD thereafter issued guidance on the 1994 Amendments in the form of Notice 95-12.⁴See JX 41 at 1 (HUD Directive 95-12, Annual Adjustment Factor Rent Increase Requirements Pursuant to the Housing Appropriations Act of 1995 (Mar. 7, 1995)).⁵ The Notice stated:

If current project rents on a . . . contract (before application of the [A]AAF) are above the published [fair market rent] for the area then in order to receive a rent increase, the owner must submit, at least 60 days prior to the HAP contract anniversary date [a rent comparability study].

Id. at 2-3. The Notice provided as well that if the owner failed to submit the study at least 60 days prior to the contract anniversary date, the rent levels would not be adjusted on the anniversary date, but rather the new rent levels would go into effect 60 days after receipt of the required information. If the owner failed to submit the study within the contract anniversary year,...