Housing Authority of City of Fort Collins v. U.S.

• Decision Date: 24 November 1992
• Docket Number: No. 90-1005,90-1005
• Parties: The HOUSING AUTHORITY OF the CITY OF FORT COLLINS, also known as Ft. Collins Housing Authority, also known as Housing Authority of the City of Ft. Collins, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 624

980 F.2d 624

The HOUSING AUTHORITY OF the CITY OF FORT COLLINS, also known as Ft. Collins Housing Authority, also known as Housing Authority of the City of Ft Collins, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.

No. 90-1005.

United States Court of Appeals Tenth Circuit.

Nov. 24, 1992.

Arthur E. March, Jr. of March & Myatt, P.C., Fort Collins, Colo. (James Bradford March of March & Myatt, P.C., and Gregory C. Denton, with him, on the brief), for plaintiff-appellant.

Paula M. Ray, Asst. U.S. Atty., Denver, Colo. (Michael J. Norton, U.S. Atty., Howard M. Schmeltzer, Asst. Gen. Counsel for Litigation, and Richard Price, Trial Atty., U.S. Dept. of Housing & Urban Development, Washington, D.C., with her, on the brief), for defendant-appellee.

Before SEYMOUR, HOLLOWAY and ANDERSON, Circuit Judges.

HOLLOWAY, Circuit Judge.

The Housing Authority of the City of Fort Collins, Colorado (FCHA), as plaintiff-appellant, appeals from a summary judgment entered by the district court in favor of the defendant-appellee United States. The judgment was entered in an action removed to the district court by the government from a state court of Colorado. That state court action had sought to quiet title to real property of the FCHA. FCHA timely appealed the judgment adverse to it.

I

The controversy arose following the enactment of Section 3004 of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), 42 U.S.C. § 1437b(c)(1). That section of COBRA provides for the forgiveness of Housing Authority indebtedness created under the Housing Act of 1937, 42 U.S.C. § 1437. FCHA was formed by the City of Fort Collins in accordance with the Colorado Housing Authorities Law, CRS § 29-4-201, et seq.

Under the Housing Act of 1937, the Secretary of the United States Department of Housing and Urban Development (HUD) is authorized to "make loans or commitments to make loans to public housing agencies to help finance or refinance the development, acquisition, or operation of lower income housing projects by such agencies." 42 U.S.C. § 1437b(a). In connection with such financing, it has been the practice of HUD to require the execution of various loan notes, and at least one Annual Contributions Contract (ACC). It was not, however, anticipated that a Public Housing Authority would make any payments on the loans since the government agreed to provide debt service subsidies, called annual contributions, pursuant to Section 5 of the Housing Act of 1937, 42 U.S.C. § 1437c(a). Under this procedure the FCHA did not have to pay any debt service obligations repaying portions of the loans which it owes the government. Thus, while the arrangement was denominated as a loan, HUD was actually making grants to Public Housing Authorities such as FCHA. FCHA in actuality then never repaid the loans to HUD and instead only received credit equal to the payments owed to HUD.

Under the ACC executed by FCHA, obligations were imposed on FCHA other than repayment. Pursuant to Section 420 of the ACC, FCHA obligated itself to accept a HUD lien on each of the projects covered by the ACC. The ACC also created obligations which a Public Housing Authority like FCHA was required to perform in operating housing. Section 202 of the ACC requires that the properties be maintained as low-income housing. Section 204 establishes limits on the rents that can be charged, and Section 12 of the ACC contains a prohibition against discrimination in housing. Section 304 assures equal employment opportunities in relation to the housing.

In April 1986, Congress enacted Section 3004 of COBRA, which abolished the fiction that Public Housing Authorities received loans which must be repaid. Section 3004 provides:

At such times as the Secretary may determine, and in accordance with such accounting and other procedures as the Secretary may prescribe, each loan made by the Secretary under subsection (a) of this section [42 U.S.C. § 1437b] that has any principal amount outstanding or any interest amount outstanding or accrued shall be forgiven; and the terms and conditions of any contract, or any amendment to a contract, for such loan with respect to any promise to repay such principal and interest shall be canceled. Such cancellation shall not affect any other terms and conditions of such contract, which shall remain in effect as if the cancellation had not occurred. This paragraph shall not apply to any loan the repayment of which was not to be made using annual contributions, or to any loan all or part of the proceeds of which are due a public housing agency from contractors or others.

42 U.S.C. § 1437b(c)(1) (emphasis added). This controversy concerns principally the portion of Section 3004 emphasized above and the Section's provisions that principal and interest outstanding or accrued shall be forgiven and that the terms and conditions of any contract with respect to any promise to repay such principal and interest shall be cancelled.

Due to these provisions, FCHA argues that the ACC terminated by its own terms upon forgiveness of the loans because Section 518 of the contract provides for termination "[u]pon payment in full of all indebtedness of the [FCHA]," I R.App. 4. FCHA says that the debt forgiveness provided by COBRA was the equivalent of "payment in full" within the meaning of Section 518. Hence, with the cancellation of the repayment obligation, FCHA maintains that the other obligations created under the ACC, and which were to last for 40 years from their creation, were also extinguished. The government, on the other hand, maintains that the obligations in addition to repayment and the liens on the property of FCHA remain in full force and effect.

II

This suit was brought for quiet title relief to remove the government's liens from the properties. The government was named as a defendant in the state court action as permitted by 28 U.S.C. § 2410. The government removed the case to the federal district court pursuant to 28 U.S.C. § 1444.

Upon removal of the case to the federal district court, FCHA amended its complaint to include a claim for a declaratory judgment that all the terms and conditions of the ACC executed in connection with the financing of the projects were, along with the government's liens, extinguished as a result of the loan forgiveness by COBRA. The government moved for summary judgment.

After hearing argument on the motion, the district judge made her ruling orally. III R. 2-5. She relied upon Bowen v. Agencies Opposed to Social Security Entrapment, 477 U.S. 41, 106 S.Ct. 2390, 91 L.Ed.2d 35 (1986). The judge reasoned that contractual arrangements, including those to which the sovereign itself was a party, remain subject to subsequent legislation. The public housing program involved here was viewed as a social welfare program similar to the Social Security program involved in Bowen v. Agencies. The judge said that the same reasoning applies here. There were two very strong positions taken here, that of the plaintiff FCHA for cancellation of the liens and additional obligations, and the interpretation of the statute that such additional obligations continue. The judge noted the position of HUD that its implementation of the statute steers a course between two extremes. ¹

The judge concluded that the government's position made good sense; that the statutory action of COBRA was not arbitrary and irrational; that the 40 year limitation on the additional obligations and the liens was fair; and that the statute meant what it said in providing that the cancellation of the indebtedness "shall not affect any other term and condition of such contract, which shall remain in effect as if the cancellation had not occurred." III R. 3-4. Concluding that the statute was not arbitrary, capricious or irrational, the court granted the government's motion for summary judgment.

III

We review the district court's grant of summary judgment de novo. Eaton v. Jarvis Products Corp., 965 F.2d 922, 925 (10th Cir.1992) All facts and reasonable inferences must be construed in the light most favorable to the nonmoving party. Anderson v. Dept. of Health & Human Services, 907 F.2d 936, 946-47 (10th Cir.1990). Summary judgment is proper if the record shows "that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c).

Here the challenge of FCHA to the summary judgment against it is not premised on the claim that there is a genuine issue of material fact. Instead, FCHA argues that the government was not entitled to judgment as a matter of law. This legal challenge is based on four principal arguments.

First, FCHA maintains that the government does not have the constitutional power to regulate housing projects of a state housing authority; that in adopting the Housing Act of 1937, Congress used its spending power and exercised its authority through grants conditioned on the recipient meeting congressional requirements such as the obligations of the ACC undertaken by FCHA; and that since the loans here have been forgiven, the government no longer has any obligations it can enforce against FCHA pursuant to the Housing Act of 1937. Brief of Appellant at 15-19. Second, the continued imposition of encumbrances and regulations on the property of FCHA is said to constitute an unlawful taking without just compensation and a violation of the Due Process Clause of the Fifth Amendment. Third, FCHA argues that COBRA and its provision for forgiving the debt of the Housing Authorities was enacted for a budgetary rather than a social purpose; the reduction of governmental expenditures as accomplished by COBRA was not the exercise of a sovereign power which could justify the abrogation of a government contract. Id. at 24-25. Fourth, FCHA contends that the government is required by Colorado law to cancel and return the promissory notes and release the declarations of...