One & Ken Valley Housing Grp. v. Maine State Housing Auth.

• Decision Date: 14 May 2013
• Docket Number: No. 12–1952.,12–1952.
• Citation: 716 F.3d 218
• Court: U.S. Court of Appeals — First Circuit
• Parties: ONE AND KEN VALLEY HOUSING GROUP, et al., Plaintiffs, Appellants, v. MAINE STATE HOUSING AUTHORITY, Defendant/Third–Party Plaintiff, Appellee, v. Shaun Donovan, Secretary, U.S. Department of Housing & Urban Development, Third–Party Defendant, Appellee.

716 F.3d 218

ONE AND KEN VALLEY HOUSING GROUP, et al., Plaintiffs, Appellants,

v.MAINE STATE HOUSING AUTHORITY, Defendant/Third–Party Plaintiff, Appellee,

v.Shaun Donovan, Secretary, U.S. Department of Housing & Urban Development, Third–Party Defendant, Appellee.

No. 12–1952.

United States Court of Appeals, First Circuit.

May 14, 2013.

Harry J. Kelly, III, with whom W. Daniel Deane and Nixon Peabody LLP were on brief, for appellants.

Robert A. Jaffe, with whom Barry P. Steinberg, Kutak Rock LLP, and John Bobrowiecki, Maine State Housing Authority, were on brief, for appellee Maine State Housing Authority.

Kyle A. Forsyth, Attorney, with whom Stuart F. Delery, Acting Principal Deputy Assistant Attorney General, J. Christopher Kohn, Director and Ruth A. Harvey, Assistant Director, Commercial Litigation Branch, Civil Division, were on brief for appellee U.S. Department of Housing and Urban Development.

Carl A.S. Coan, III, Raymond K. James and Coan & Lyons on brief for National Association of Home Builders, National Leased Housing Association, National Apartment Association, National Multi Housing Council, National Affordable Housing Management Association, Institute of Real Estate Management, Council for Affordable and Rural Housing, and Leading Age, amici curiae in support of appellants.

Before LYNCH, Chief Judge, HOWARD, Circuit Judge, and CASPER, ^* District Judge.

HOWARD, Circuit Judge.

The Section 8 program is a vast effort on the part of federal, state, and local authorities to provide decent, safe, and sanitary housing to low-income families, the elderly, and the disabled. The program is administered by the U.S. Department of Housing and Urban Development (“HUD”) in conjunction with state and local public housing agencies across the country. Under the part of the program at issue here,¹ state and local agencies enter into housing assistance payments (“HAP”) contracts with private landlords, and the landlords agree to make units available to Section 8–assisted households. The assisted households, in turn, pay 30 percent of their monthly adjusted income to their landlords in rent; the landlords receive the remainder of the rent from the relevant public housing agency; and the public housing agencies are fully reimbursed by HUD.² The payments from the state and local agencies to the Section 8 landlords are adjusted periodically according to guidelines promulgated by HUD.

Plaintiffs-appellants are five limited partnerships that own multifamily housing rental projects in southern and central Maine. All of the partnerships have entered into HAP contracts with the Maine State Housing Authority (“MaineHousing”) in order to participate in the Section 8 program. In December 2009, the partnerships sued MaineHousing in federal district court for breach of contract, alleging that MaineHousing had wrongfully refused to grant them certain annual increases in their Section 8 payments (although MaineHousing has allowed some upward adjustments). MaineHousing, while denying the plaintiffs' allegations, impleaded HUD as a third-party defendant, arguing that if MaineHousing had breached its contracts with the partnerships, then it had done so only at HUD's direction. All parties sought summary judgment; a magistrate judge recommended judgment for MaineHousing and HUD on the grounds that no material breach of contract had occurred; and the district court adopted the magistrate's recommended decision. The partnerships appeal, and we affirm.

I.

Although this case ultimately turns on a narrow question of contract law, it arises in the context of a complex web of statutes and regulations governing federal housing aid. In 1974, Congress amended the New Deal-era Housing Act to add the provision commonly known as “Section 8”; this provision authorized the HUD Secretary “to enter into annual contributions contracts with public housing agencies pursuant to which such agencies may enter into contracts to make assistance payments to owners of existing dwelling units.” Housing and Community Development Act of 1974, Pub.L. No. 93–383, § 201(a), 88 Stat. 633, 662 (codified as amended at 42 U.S.C. § 1437f(b)(1)) (amending United States Housing Act of 1937, Pub. L. No. 75–412, 50 Stat. 888). While these “annual contributions contracts” make reference to particular projects, the only parties to the annual contributions contracts are HUD and the public housing agencies administering the Section 8 program. Between 1975 and 1978, HUD and MaineHousing entered into annual contributions contracts covering each of the five sites at issue in the present litigation.

The original Section 8 statute provided that rents paid to landlords at program sites would be adjusted on at least an annual basis “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.” 88 Stat. at 663 (codified at 42 U.S.C. § 1437f(c)(2)(A)). To guard against these rent adjustments producing a windfall for Section 8 landlords, the statute added the caveat that automatic adjustments “shall not result in material differences between the rents charged for assisted and comparable unassisted units, as determined by the Secretary.” Id. (codified at 42 U.S.C. § 1437f(c)(2)(C)). These statutory provisions remain in force today.

Pursuant to Section 8, HUD publishes “automatic annual adjustment factors” for specific Census regions and metropolitan areas that reflect changes in the Consumer Price Index for rent and utilities over the previous year. See24 C.F.R. §§ 888.201–.204 (2012); 77 Fed. Reg. 22,340, 22,340–43 (Apr. 13, 2012). HUD regulations state that Section 8 rents should be calculated by multiplying the applicable annual adjustment factor for the appropriate Census region or metropolitan area by the rent stipulated by contract for each unit. 24 C.F.R. § 888.203.

HUD has also drafted a standard form contract for state and local agencies to use when entering into agreements with Section 8 landlords. Once HUD and MaineHousing had entered into annual contributions contracts covering the five sites in question, MaineHousing entered into housing assistance payments contracts with owners of the five properties. The HAP contracts varied in duration, with the longest providing for renewals over the course of 40 years, until 2018. All of the HAP contracts contained a provision, section 1.9(b)(2), stating that each year, “the Contract Rents shall be adjusted by applying the applicable Automatic Annual Adjustment Factor most recently published by the Government.” All of the contracts also included an “overall limitation clause” (section 1.9(d)), which states that:

Notwithstanding 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 [housing authority] ...; 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.

At the outset of the Section 8 program's existence, public housing agencies applied the automatic annual adjustment factors published by HUD and granted regular rent increases to Section 8 landlords; HUD, for its part, funded these rent increases through its annual contributions to the public housing agencies. In the early 1980s, however, officials at HUD became concerned that the automatic annual adjustments were pushing rents at some Section 8 sites well above the market rates for comparable unsubsidized units. In 1983, when HUD and a local housing authority sought to prevent an automatic annual adjustment from taking effect at a Section 8 site in Bremerton, Washington, the affected landlord filed a federal suit. The Ninth Circuit held that—despite the overall limitation clause in the HAP contract between the Section 8 landlord and the local housing agency—the landlord was still entitled to automatic annual adjustments in rental payments. Rainier View Assocs. v. United States, 848 F.2d 988, 990–91 (9th Cir.1988), cert. denied,490 U.S. 1066, 109 S.Ct. 2065, 104 L.Ed.2d 630 (1989). HUD refused to apply the Rainier View decision outside of the Ninth Circuit, and other courts disapproved of Rainier View's holding. See, e.g., Carmichaels Arbors Assocs. v. United States, 789 F.Supp. 683, 685, 688–89 (W.D.Pa.1992); Sheridan Square P'ship v. United States, 761 F.Supp. 738, 743–44 (D.Colo.1991); Nat'l Leased Hous. Ass'n v. United States, 22 Cl.Ct. 649, 652, 659–60 (Cl.Ct.1991).

With litigation over the HAP contracts pending in various federal courts, Congress passed a series of amendments addressing HUD's efforts to rein in rent increases. The first two of these amendments, enacted in 1988 and 1989, clarified the process by which the HUD Secretary could deny automatic annual adjustments at Section 8 sites. Under the amendments, HUD or a public housing agency could deny an automatic annual adjustmentat a Section 8 site by submitting a “comparability study” to the project owner at least sixty days before the annual adjustment was set to take effect. See Housing and Community Development Act of 1987, Pub. L. 100–242, § 142(c)(2), 101 Stat. 1815, 1850 (1988) (codified at 42 U.S.C. § 1437f(c)(2)(C)); Department of Housing and Urban Development Reform Act of 1989, Pub. L. No. 101–235, § 801(c), 103 Stat. 1987, 2058 (same).

After the 1988 and 1989 amendments, Section 8 landlords in Washington and California brought suit again, claiming that their HAP contracts entitled them to automatic annual adjustments without regard to the results of comparability studies conducted by HUD. The Ninth Circuit reiterated its holding in Rainier View and “rejected HUD's argument that an ‘Overall Limitation’ provision in the contracts...