National Leased Housing Ass'n v. U.S., 95-5069
| Decision Date | 30 January 1997 |
| Docket Number | No. 95-5069,95-5069 |
| Citation | 105 F.3d 1423 |
| Parties | NATIONAL LEASED HOUSING ASSOCIATION, and 189 named Plaintiffs, Plaintiffs-Appellants, v. The UNITED STATES, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Federal Circuit |
Charles L. Edson, Peabody & Brown, Washington, DC, argued, for plaintiffs-appellants. With him, on the brief, were Harry J. Kelly and Richard M. Price.
John E. Kosloske, Senior Trial Counsel, Commercial Litigation Branch, Civil Division, Department of Justice, Washington, DC, argued, for defendant-appellee. With him, on the brief, were Frank W. Hunger, Assistant Attorney General, and David M. Cohen, Director.
Before RICH, Circuit Judge, NIES *, Senior Circuit Judge, and PLAGER, Circuit Judge.
In this appeal from an adverse judgment of the Court of Federal Claims, 1 plaintiffs challenge the Government's administration of Section 8 of the United States Housing Act of 1937, as amended, codified at 42 U.S.C. § 1437f (1994). Section 8 provides government rent subsidies for low income individuals and families living in non-government-owned housing. The Court of Federal Claims, Judge Andewelt, in a series of thoroughly-considered opinions spanning a period of four years, dealt with a multiplicity of issues raised, and finally concluded that plaintiffs, a large group of developers and present and former owners of rental housing projects, were not entitled to the relief they sought. On appeal, plaintiff-appellants, now consisting of the National Leased Housing Association and 189 named individuals and organizations, present six issues for decision. 2 Before addressing the several contentions raised by appellants, we give a summary of the lengthy history of the case.
This case originated in the late 1980's, when the Court of Federal Claims consolidated several cases pending in that court because of the common issues presented. 3 As noted, the instant appeal is on behalf of 190 plaintiffs (collectively referred to herein as "plaintiffs" or "appellants"). Each of the plaintiffs is a current or former owner of privately owned rental properties. Each entered into a long-term Housing Assistance Payment Contract ("HAP contract") to provide subsidized housing to low-income tenants pursuant to the provisions of Section 8. Some of the plaintiffs contracted directly with the federal Department of Housing and Urban Development ("HUD") while some, subject to the approval of HUD, contracted with a local public housing agency ("PHA"), which itself had contracted with HUD.
Congress in 1974 enacted Section 8 in order to aid "low-income families in obtaining a decent place to live." 42 U.S.C. § 1437f(a) (1994). Under Section 8, tenants make rental payments according to their income and ability to pay and HUD (or the PHA as the case may be) makes up the difference between that payment and a "contract rent" specified by the HAP contract. This contract rent, as adjusted from time to time as required by Section 8, therefore determines the amount of rent the landlord is due. It is the manner in which this contract rent, once established, is adjusted that is the subject of these disputes.
The contract rent is initially set by HUD to approximate the fair market value of the rental property for the local area (called "Fair Market Rentals" or "FMRs"). To establish the FMR, HUD conducts a survey of at least 12 recently constructed projects within the relevant market area. HUD sets the FMRs by determining the 75th percentile of comparable rent levels for that area and then trends the rent data ahead two years to reflect anticipated changes in those levels. See National Leased Housing Ass'n v. United States, 22 Cl.Ct. 649, 656-7 (1991) (). The initial contract rent, however, is not necessarily set equal to the FMR. Modest adjustments may be made in the initial contract rent to reflect additional costs, such as the provision of facilities for handicapped or elderly tenants, associated with complying with Section 8 requirements. See 42 U.S.C. § 1437f(c)(1) (1994).
Once the initial contract rent is set, HUD is required to adjust at least annually the maximum monthly rents for units covered by the contracts. The statute provides The assistance contract shall provide for adjustments annually or more frequently in the maximum monthly rents for units covered by the contract to reflect changes in the fair market rentals established in the housing area for similar types and sizes of dwelling units or, if the Secretary determines, on the basis of a reasonable formula.
Section 8(c)(2)(A), 42 U.S.C. § 1437f(c)(2)(A) (1994). 4
This annual adjustment requirement of Section 8 is implemented through a provision in the HAP contracts referred to as Section 1.8b. That section provides:
(b) Automatic Annual Adjustments.
(1) Automatic Annual Adjustment Factors ["AAAFs"] will be determined by HUD at least annually; interim revisions may be made as market conditions warrant. Such Factors and the basis for their determination will be published in the Federal Register. These published Factors will be reduced appropriately by HUD where utilities are paid directly by Families.
(2) On each anniversary date of the Contract, the Contract Rents shall be adjusted by applying the applicable [AAAF] most recently published by the Government. Contract Rents may be adjusted upward or downward, as may be appropriate; however, in no case shall the adjusted rents be less than the Contract Rents on the effective date of the Contract. 5
The AAAFs are set by HUD based upon certain broad economic indices, the Consumer Price Index and the Bureau of the Census American Housing Surveys. There is an AAAF for each of four census regions, the States of Alaska and Hawaii, and seventy two metropolitan areas. See generally National Leased Housing Ass'n v. United States, 22 Cl.Ct. 649, 657 (1991).
There are limits, however, to these adjustments. The statute provides for the following limitation:
Adjustments 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.
Section 8(c)(2)(C), 42 U.S.C. § 1437f(c)(2)(C) (1994). Consistent with this, the HAP contracts also provide an "Overall Limitation" section that implements, and tracks in part the language of, this section of the statute. Section 1.8d of the HAP contract provides:
d. Overall Limitation. Not withstanding any other provisions of this Contract, adjustments as provided in this Section shall not result in material differences between the rents charged for assisted and comparable unassisted units, as determined by the Government; provided, that this limitation shall not be construed to prohibit differences in rents between assisted and comparable unassisted units to the extent that such differences may have existed with respect to the initial Contract Rents.
It is this last contract section that is at the heart of the present controversy.
About 1981 HUD began to suspect that in some areas the AAAF adjusted rents were outpacing rents for comparable unassisted units. Prior to that time HUD routinely had been granting the full AAAF adjustment each year. In order to bring the contract rents back in line with those for comparable rents HUD began selectively conducting comparability studies to determine the prevailing rent for comparable unassisted units. HUD then used the results of these studies to cap the rents paid to affected Section 8 owners, relying on the authority of the Overall Limitation provision in section 1.8d of the contracts. Not surprisingly, the owners were not pleased with this change, and this suit to determine the validity of the process arose.
This suit, though a case of first impression in this court, was not the first to address the Plaintiffs in their case before the Court of Federal Claims stood essentially on the position taken by the Ninth Circuit. Meanwhile, the issue of whether HUD could base its rent adjustments on both AAAFs and, when thought necessary, market surveys of the local area, or whether the contracts required HUD to utilize only the formula method, finally made it to the Supreme Court in 1993 in another case from the Ninth Circuit, Alpine Ridge Group v. Kemp, 955 F.2d 1382 (9th Cir.1992), rev'd sub nom. Cisneros v. Alpine Ridge Group, 508 U.S. 10, 113 S.Ct. 1898, 123 L.Ed.2d 572 (1993). But that gets us ahead of the story of this appeal. For that story we turn to the series of decisions below, out of which this appeal comes.
issues raised. The first case out of the box was decided by the Ninth Circuit in 1988. In Rainier View Assocs. v. United States, 848 F.2d 988 (9th Cir.1988), that court held that subsection (c)(2)(A) of Section 8, the subsection quoted above, gave HUD two options. One was to base the periodic adjustments to contract rents on actual changes in the housing market through market surveys; the other was to base them on a "reasonable formula." Since HUD, by adoption of the AAAFs as provided in section 1.8b of the HAP contracts, had indicated its intention to use a formula approach, it could not later change its mind and use surveys as a basis for adjusting the rents. Id. at 991. Accordingly, capping the rents paid to the landlords based on actual market surveys was held unlawful. The landlords were deemed to be due the full amounts authorized by the AAAFs. The Supreme Court denied certiorari. United States v. Rainier View Assocs., 490 U.S. 1066, 109 S.Ct. 2065, 104 L.Ed.2d 630 (1989). In response, the Government announced its intention not to honor the position of the Ninth Circuit outside that circuit; and this litigation proceeded apace
In the first of its four opinions, National Leased Housing Ass'n v. United States, 22 Cl.Ct. 649 (1991) (NLHA I ), the Court of Federal Claims (then the United States Claims Court 6...
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