Nordbye v. BRCP/GM Ellington

• Decision Date: 26 October 2011
• Docket Number: 071113782; A141698.
• Citation: 246 Or.App. 209,266 P.3d 92
• Parties: Sarah NORDBYE, individually and on behalf of all others similarly situated, Plaintiff–Appellant, v. BRCP/GM ELLINGTON, an Oregon limited liability corporation; and the Oregon Housing and Community Services Department, Defendants–Respondents.
• Court: Oregon Court of Appeals

246 Or.App. 209

266 P.3d 92

Sarah NORDBYE, individually and on behalf of all others similarly situated, Plaintiff–Appellant,

v.BRCP/GM ELLINGTON, an Oregon limited liability corporation; and the Oregon Housing and Community Services Department, Defendants–Respondents.

071113782; A141698.

Court of Appeals of Oregon.

Argued and Submitted Dec. 7, 2010.Decided Oct. 26, 2011.

Alice Warner argued the cause for appellant. With her on the briefs was Edward Johnson.

Thomas H. Tongue argued the cause for respondent BRCP/GM Ellington. With him on the brief were Brian R. Talcott and Dunn Carney Allen Higgins & Tongue LLP.

Judy C. Lucas, Senior Assistant Attorney General, argued the cause for respondent Oregon Housing and Community Services Department. With her on the brief were John R. Kroger, Attorney General, and David B. Thompson, Interim Solicitor General.Jeffrey B. Litwak filed the brief amicus curiae for Columbia River Gorge Commission.Dennis Steinman and Kell Alterman & Runstein, LLP, filed the brief amicus curiae for National Housing Law Project.Mark Manulik, Sara Kobak, and Schwabe, Williamson & Wyatt, P.C., filed the brief amicus curiae for Oregon Land Title Association.

Before HASELTON, Presiding Judge, and ARMSTRONG, Judge, and DUNCAN, Judge.

HASELTON, P.J.

Plaintiff, a former tenant of a residential rental property that was financed, at least in part, through the federal Low–Income Housing Tax Credit (LIHTC) program, appeals.¹ Plaintiff challenges (1) the trial court's allowance of summary judgment, on grounds of “ Chevron deference,” ² against her claims for injunctive and declaratory relief pertaining to the enforceability of certain “use restrictions” related to the LIHTC program; and (2) the court's denial of her cross-motion for summary judgment. As described below, we conclude that Chevron deference is inapposite. We further conclude that, as a matter of law, plaintiff is entitled to enforce the disputed use restrictions pertaining to the operation of the property as low-income housing. Accordingly, we reverse and remand.

Before turning to the particular circumstances of this dispute, it is not only useful, but essential, to describe the LIHTC program. The purpose of the LIHTC program is to encourage the development of low-income rental housing through the allocation of tax credits pursuant to section 42 of the Internal Revenue Code (IRC). Oti Kaga v. South Dakota Housing Dev. Authority, 188 F.Supp.2d 1148, 1152 (D.S.D.2002), aff'd, 342 F.3d 871 (8th Cir.2003). In general, the federal government allocates tax credits, and state housing agencies are responsible for distributing the credits and monitoring recipient projects for compliance with program requirements. Treas. Reg. § 1.42–1 T; Treas. Reg. § 1.42–5. The LIHTC program is regulated by, and state housing agencies report to, the Internal Revenue Service. IRC § 42( l ), (n). Further, as a general rule, the tax credits are claimed annually by the recipient taxpayer over the first 10 years of a project. IRC § 42(f)(1); Treas. Reg. § 1.42–1 T(a)(1). In return for receiving the tax credits, the taxpayer must commit to maintain the project as low-income housing for 30 years. The 30–year term is composed of an initial 15–year compliance period and an additional 15–year “extended use period.” IRC § 42(h)(6).

For our purposes, it is not necessary to describe the LIHTC program rental and occupancy restrictions in detail. Suffice it to say there are three salient features. First, the taxpayer agrees that a specified number of units in the project will be rented for a restricted amount of rent to tenants whose income is a certain percentage less than the median income of the geographical area in which the project is located. See IRC § 42(g). Second, federal law requires that the taxpayer and state housing agency enter into an “extended low-income housing commitment,” which is to be “binding on all successors of the taxpayer,” and recorded as a restrictive covenant pursuant to state law. IRC § 42(h)(6)(A), (B). Third, “individuals who meet the income limitation applicable to the building * * * (whether prospective, present, or former occupants of the building)” have the right to enforce the extended low-income housing commitment “in any State court.” ³ IRC § 42(h)(6)(B)(ii).

Consistently with those requirements, in December 1990, Rose City Village Limited Partnership, the original owner of the project, entered into a Low–Income Housing Tax Credit Reservation and Extended Use Agreement (the extended use agreement) with the Department. The original owner agreed, among other things, that it would maintain 100 percent of the project as low-income housing for 30 years and that, as a condition precedent to the issuance of tax credits, it would record a “declaration of land use restrictive covenants.”

In the Declaration of Land Use Restrictive Covenants for Low–Income Housing Tax Credits (the declaration), which was recorded in Multnomah County, the original owner acknowledged the obligations and restrictions imposed under the extended use agreement. Section 2(b) of the declaration provides:

“The Owner intends, declares and covenants, on behalf of itself and all future Owners and operators of the Project during the term of this Declaration, that this Declaration and the covenants and restrictions set forth in this Declaration regulating and restricting the use, occupancy and transfer of the Project ( [1] ) shall be and are covenants running with the Project land, encumbering the Project for the term of this Declaration, binding upon the Owner's successors in title and all subsequent Owners and Operators of the Project[,] ( [2] ) are not merely personal covenants of the Owner, and ( [3] ) shall bind the Owner (and the benefits shall inure to the Department and any past, present or prospective tenant of the Project) and its respective successors and assigns during the term of this Declaration. The Owner hereby agrees that any and all requirements of the laws of the State of Oregon to be satisfied in order for the provisions of this Declaration to constitute deed restrictions and covenants running with the land shall be deemed to be satisfied in full, and that any requirements of privileges [ sic ] of estate are intended to be satisfied, or in the alternate, that an equitable servitude has been created to insure that these restrictions run with the Project. For the longer of the period this Credit is claimed or the term of this Declaration, each and every contract, deed or other instrument hereafter executed conveying the Project or portion thereof shall expressly provide that such conveyance is subject to this Declaration, provided, however, the covenants contained herein shall survive and be effective regardless of whether such contract, deed or other instrument hereafter executed conveying the Project or portion thereof provides that such conveyance is subject to this Declaration.”

Further, and of critical significance, section 8 of the declaration, which is captioned “Enforcement of Section 42 Occupancy Restrictions,” provides, in part:

“(b) The Owner acknowledges that the primary purpose for requiring compliance by the Owner with restrictions provided in this Declaration is to assure compliance of the Project and the Owner with IRC Section 42 and the applicable regulations, AND BY REASON THEREOF, THE OWNER IN CONSIDERATION FOR RECEIVING LOW–INCOME HOUSING TAX CREDITS FOR THIS PROJECT HEREBY AGREES AND CONSENTS THAT THE DEPARTMENT AND ANY INDIVIDUAL WHO MEETS THE INCOME LIMITATION APPLICABLE UNDER SECTION 42(WHETHER PROSPECTIVE, PRESENT OR FORMER OCCUPANT) SHALL BE ENTITLED, FOR ANY BREACH OF THE PROVISIONS HEREOF, AND IN ADDITION TO ALL OTHER REMEDIES PROVIDED BY LAW OR IN EQUITY, TO ENFORCE SPECIFIC PERFORMANCE BY THE OWNER OF ITS OBLIGATIONS UNDER THIS DECLARATION IN A STATE COURT OF COMPETENT JURISDICTION. The owner hereby further specifically acknowledges that the beneficiaries of the Owner's obligations hereunder cannot be adequately compensated by monetary damages in the event of any default hereunder.”

(Uppercase in original.)

The Department allocated more than $2 million of LIHTC tax credits to the project and monitored the project for conformity with LIHTC program requirements. The project experienced compliance problems over the years. In the course of trying to remediate those problems, the Department learned that, in 2002 or 2003, the original owner had transferred ownership of the project to Rose City Village Affordable Housing Limited Partnership (the middle owner). The manner in which the original owner transferred the project violated the terms of the declaration. The declaration requires, among other things, that the owner notify the Department prior to any transfer of ownership and that the owner obtain the agreement of any buyer “that such acquisition is subject to the requirements of” the declaration and IRC section 42. Those requirements were not satisfied.

The Department ultimately concluded that, although the middle owner had made substantial progress in some respects, the project could not be brought into full compliance with all of the requirements of the LIHTC program.⁴ In 2004, a Department compliance officer notified the Internal Revenue Service (IRS) of that conclusion in a letter, which stated, in part:

“Due to the severity of the noncompliance issues relating to this project, it has been determined that this project is not currently, is unlikely to be in the future, and may not have ever been in compliance. It is apparent that the Owner failed to make reasonable attempts to comply with the requirements of the Program. Therefore, because of the egregious nature of the noncompliance, it is the decision of [the Department] to remove this project from the Low–Income Housing Tax Credit Program.”With that letter, the Department also submitted multiple IRS 8823 forms, entitled “Low–Income Housing Credit Agencies...