Normandy Apartments, Ltd. v. United States
| Decision Date | 02 August 2011 |
| Docket Number | No. 10-51C,10-51C |
| Parties | NORMANDY APARTMENTS, LTD., Plaintiff, v. THE UNITED STATES, Defendant. |
| Court | U.S. Claims Court |
Contract case; Motion to dismiss for lack of jurisdiction under RCFC 12(b)(1); Judicial estoppel; Position taken by government in district court case not clearly inconsistent with current position and did not mislead other courts; Privity of contract lacking; Argument that state agency was agent of HUD rejected; Amendment of complaint under RFCF 15; Futility; Plaintiff permitted to amend complaint to raise regulatory takings argument.
OPINIONWalter Wayne Mills, Mills and McKeever, P.C., Oklahoma City, OK, for plaintiff.
Amanda L. Tantum, Civil Division, United States Department of Justice, Washington, D.C., with whom was Assistant Attorney General Tony West, for defendant.
The plaintiff in this action is a property owner that participated in a subsidized housing program run by the Department of Housing and Urban Development (HUD). In exchange for rent subsidies and other benefits, plaintiff agreed to maintain its property in a decent, safe, and sanitary manner. The contract in which it made this promise - a Housing Assistance Payment contract (HAP contract) - provided that the failure to maintain and operate the property would be an event of default that could result in the suspension or cancellation of payments. In fact, upon finding that the property in question was neither decent, safe, nor sanitary, HUD informed plaintiff that it was cancelling Plaintiff’s subsidy payments. Plaintiff challenges this action, and the inspection findings on which it was premised, contending that HUD's cancellation of its rent subsidies breached its HAP contract.
In a motion to dismiss under RCFC 12(b), defendant asserts, inter alia, that this court lacks jurisdiction over this case because Plaintiff’s HAP contract was not with HUD, but with astate public housing authority. Privity, defendant contends, is thus absent in this case. For the reasons that follow, the court GRANTS, in part, defendant's motion to dismiss. As will also be explained, the court GRANTS plaintiff leave to file an amended complaint raising a regulatory takings claim.
A brief recitation of the facts provides necessary context.1
In 1974, Congress amended the Housing Act of 1937 to create what is known as the Section 8 Housing Program (the Section 8 Program). See 42 U.S.C. § 1437f. That program provides federally-subsidized housing to millions of low-income tenants by authorizing, inter alia, the payment of rent subsidies to private owners and developers of low-income housing. Under the program, tenants make rental payments based upon their income and ability to pay; HUD then provides "assistance payments" to the private landlords to make up the difference between the tenant's contribution and a "contract rent" agreed upon by the landlord and HUD. See 42 U.S.C. §§ 1437a(a), 1437f(c)(3)(A); Park Props. Assocs., L.P. v. United States, 82 Fed. Cl. 162, 164 (2008) (describing the program); Cuyahoga Metro. Hous. Auth. v. United States, 57 Fed. Cl. 751, 753 (2003) (Cuyahoga I) (same).
Normandy Apartments, Ltd. (Normandy) owns and manages Normandy Apartments, a 208-unit complex constructed in Tulsa, Oklahoma, in 1968. Normandy financed the construction of this complex with a mortgage insured under the National Housing Act, 12 U.S.C. § 1715l. Effective October 1, 1992, Normandy and "the United States of America, acting through [HUD]" entered into a HAP contract, with the acting director of HUD's Tulsa office signing the contract on behalf of the United States. Although this original HAP contract expired in 1997, it was periodically renewed throughout the period in question.
In 2000, Normandy sought to prepay its mortgage. On May 23, 2000, it entered into a "Use Agreement" with HUD under which Normandy was allowed to prepay its HUD-insured mortgage in exchange for its promise to maintain the property as low-income housing for a period of time. Various statutes then in force required the execution of agreements like this as a precondition for HUD to allow a property-owner to prepay its mortgage. See Independence Park Apartments v. United States, 449 F.3d 1235, 1248 (Fed. Cir. 2005) (). The agreement was signed by one of Normandy's partners and the Director of HUD's Oklahoma City Multifamily Center. Under the Use Agreement, Normandy was to reserve its units for low-income tenants under HUD's Section 8 Program until June 1, 2009.
On October 1, 2004, Normandy entered into a HAP Basic Renewal Contract (the HAP Renewal Contract). This contract listed the Oklahoma Housing Finance Agency (OHFA)2 as thecontract administrator and was signed by OHFA's Executive Director and one of Normandy's partners. HUD was neither a named party nor a signatory on the renewal contract. The renewal contract stated that "except as specifically modified by the Renewal Contract, all provisions of the Expiring Contract are renewed;" it extended HAP payments to Normandy for five years.
The aforementioned contracts and HUD's regulations required Normandy's Section 8 units to be kept "decent, safe, sanitary, and in good repair" at all times and contemplated regular inspections of the property. See 24 C.F.R. § 886.323. In November 2004, HUD's Real Estate Assessment Center (REAC) inspected the Normandy Apartments and gave the physical condition of the property a failing score of 59c*.3 Normandy tried to correct these deficiencies. Starting in February 2005, OHFA conducted a series of follow-up reviews of the property, finding, at that time, that the "exigent health and safety" deficiencies had been corrected. HUD did not conduct a follow-up review. In February 2006, however, HUD sent Normandy a certified letter stating that because it had been unable to reinspect the property "due to unforeseen circumstances," it was closing its review of the property's November 2004 REAC physical condition score.
On August 23, 2006, REAC inspected Normandy Apartments and gave the property a failing score of 54c*. On August 29, 2006, OHFA conducted a management review inspection of Normandy Apartments. It concluded that "the deficiencies noted on the last REAC physical inspection conducted on 8/23/06 have been satisfactorily completed" and that "the REAC score of 54c* does not reflect the appearance of the property" because "the property is in decent, safe, and sanitary condition." Subsequently, Normandy requested an adjustment of the August 23, 2006, REAC score. On or about October 15, 2006, and, again in November 2006, it called HUD to check the status of its appeal, but was unable to obtain any information. A week after the last of these calls, HUD informed Normandy that the appeal would not be considered because it was untimely. In March 2007, HUD asked Normandy for a letter stating its intent to comply with the inspection requirements; HUD later assured Normandy that it would grant it another REAC inspection. No further REAC inspections occurred.
On June 20, 2007, HUD instead informed Normandy that it was terminating its Section 8 HAP payments to Normandy because of its August 2006 REAC failing score. HUD notified Normandy's tenants that it would stop providing rent assistance payments. A September 28,2007, letter from HUD confirmed its termination of Normandy's Section 8 HAP payments. HUD abated its HAP payments beginning on November 1, 2007, and continued the abatement through June 1, 2009.
In October of 2007, Normandy filed suit in the United States District Court for the Western District of Oklahoma, seeking declaratory and injunctive relief to stop HUD from abating the HAP payments, claiming that HUD had breached the HAP contract and violated its regulations. On November 1, 2007, the district court denied Normandy's motion for a preliminary injunction, finding that this court, and not it, had exclusive jurisdiction over the breach of contract claim against HUD. Normandy Apartments, Ltd. v. U.S. Dep't of Hous. & Urban Dev., 2007 WL 3232610, at *2 (W.D. Okla. Nov. 1, 2007). On appeal, the United States Court of Appeals for the Tenth Circuit affirmed the dismissal of the breach of contract claim, but reversed the dismissal of a separate claim that HUD violated its own regulations. Normandy Apartments, Ltd. v. U.S. Dep't of Hous. & Urban Dev., 554 F.3d 1290, 1297, 1299-1300 (10th Cir. 2009). Subsequently, however, plaintiff moved to voluntarily dismiss its case, which motion the district court granted on April 2, 2009.
On January 25, 2010, plaintiff filed a complaint in this court, alleging that HUD breached the 2004 HAP Renewal Contract with Normandy by failing to follow the proper protocol for termination of HAP payments. On April 2, 2010, defendant filed a motion to dismiss pursuant to RCFC 12(b)(1), alleging there is no privity of contract between defendant and Normandy, and pursuant to RCFC 12(b)(6), alleging that Normandy failed to state a claim. On May 3, 2010, plaintiff filed its response, and on May 20, 2010, defendant filed its reply. The court held oral argument on defendant's motion on September 8, 2010. On June 1, 2011, defendant provided the court with additional documentation regarding the contracts in question.
Deciding a motion to dismiss "starts with the complaint, which must be well-pleaded in that it must state the necessary elements of the Plaintiff’s claim, independent of any defense that may be interposed." Holley v. United States, 124 F.3d 1462, 1465 (Fed. Cir. 1997); see also Bell Atl. Corp., 550 U.S. at 555. The plaintiff must establish that the court has subject matter jurisdiction over its claims. Reynolds v. Army & Air Force Exch. Serv., 846 F.2d 746, 748 (Fed. Cir. 1988); Hansen v. United States, 65 Fed. Cl. 76, 94 (2005). The court may look beyond the pleadings and "inquire into jurisdictional facts" to determine whether jurisdiction exists. Rocovich...
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