Statesman II Apartments, Inc. v. United States

71 Fed. Cl. 662, 2006 U.S. Claims LEXIS 188, 2006 WL 1793678
CourtUnited States Court of Federal Claims
DecidedJune 29, 2006
DocketNos. 04-805C, 04-806C
StatusPublished
Cited by3 cases

This text of 71 Fed. Cl. 662 (Statesman II Apartments, Inc. v. United States) is published on Counsel Stack Legal Research, covering United States Court of Federal Claims primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Statesman II Apartments, Inc. v. United States, 71 Fed. Cl. 662, 2006 U.S. Claims LEXIS 188, 2006 WL 1793678 (uscfc 2006).

Opinion

OPINION AND ORDER

LETTOW, Judge.

These consolidated cases involve contracts to provide low-income housing under the United States Housing Act of 1937, Pub.L. No. 75-412, 50 Stat. 888 (1937) (codified as amended at 42 U.S.C. §§ 1404a — 1440) (also known as the Wagner-Steagall Housing Act) (“Housing Act”). Statesman II Apartments, Inc. (“Statesman II”), plaintiff in No. 04-805C, and Beach House Development Company (“Beach House”), plaintiff in No. 04-806C, each entered into a contract with the Department of Housing and Urban Development (“HUD”) to provide housing for low-income tenants under this statutory scheme. In a prior decision rendered July 20, 2005, this court held that the government repudiated the contracts in 1994 when Congress amended the Housing Act to, among other things, statutorily override contractual provisions governing how certain adjustments to owners’ properties’ rents were to be determined. Statesman II Apartments, Inc. v. United States, 66 Fed.Cl. 608, 619-20 (2005) (“Statesman”). The court further determined that the repudiation ripened into a breach of the contracts on each date on which HUD failed to make an adjustment to rents as required by the contracts. Id. at 620 (citing Franconia Assocs. v. United States, 536 U.S. 129, 142-43, 122 S.Ct. 1993, 153 L.Ed.2d 132 (2002); Restatement (Second) of Contracts § 235(2) (1981)).

In Statesman, however, the court was unable to resolve the extent of the breach. Pending before the court at the time of that decision were cross-motions for summary judgment, and genuine disputes of material fact prevented the court from acting definitively on the scope of the breach and damages. Consequently, a trial was scheduled to address the disputed facts and to assess the damages, if any, incurred as a result of the breach. On the eve of trial, at the final pretrial conference, the parties announced that they had reached agreement on a stipulation of the disputed facts, obviating the need for trial. In accord with the ensuing stipulations filed by the parties, the court has [664]*664proceeded with the case as a trial on stipulated facts.1

BACKGROUND

A rudimentary recitation of the evolution of HUD’s administration of the tenant-assistance program under the Housing Act is necessary to provide a context for the parties’ stipulations.

The contracts entered by Statesman II and Beach House with HUD called for a “maximum monthly rent” to be established and for HUD to supplement the tenant’s payments by making “assistance payment[s]” to the landlord up to the amount of that rent. 42 U.S.C. §§ 1437a(a), 1437f(c)(3). The “maximum monthly rent” was to be based upon the “fair market rental” value of the pertinent dwelling unit based upon the market rate plus an upward adjustment to compensate for the expenses attendant to participation in the Housing Act’s “Section 8” program. Statesman, 66 Fed.Cl. at 610. The contracts provided for “[ajutomatic [ajnnual [adjustments” to be made to the rents. Id. at 610-11 (quoting Section 1.8b of Statesman II’s Housing Assistance Payment (“HAP”) contract). The annual adjustments were “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 [of HUD] determines, on the basis of a reasonable formula.” 42 U.S.C. § 1437f(c)(2)(A) (1976). The contract rents were, however, subject to an “overall limitation” which provided that “[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.” Statesman, 66 Fed.Cl. at 611 (quoting 42 U.S.C. § 1437f(c)(2)(C) (1982) (emphasis added)). The “overall limitation” in turn was subject to the proviso “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.” Statesman, 66 Fed.Cl. at 611 (quoting Section 1.8d of the Statesman II and Beach House contracts).2

Beginning in the 1980s, HUD implemented these contractual provisions by conducting “comparability studies” in markets in which it believed annual adjustments would generate rents that were materially higher than those for comparable unassisted units. See Cisneros v. Alpine Ridge Group, 508 U.S. 10, 14, 113 S.Ct. 1898, 123 L.Ed.2d 572 (1993). Landlords challenged the conduct and use of comparability studies by HUD,3 but Congress acted in 1988 to authorize HUD to employ such studies in its implementation of these housing-assistance contracts. Housing and Community Development Act of 1987, Pub.L. No. 100-242, § 142(c)(2)(B), 101 Stat. 1815, 1850 (1988); see Statesman, 66 Fed.Cl. at 611. Shortly thereafter, Congress specifically authorized HUD to use comparability studies to limit automatic annual increases in rents. See Statesman, 66 Fed.Cl. at 611-12 (quoting Department of Housing and Urban Development Reform Act of 1989, Pub.L. No. 101-235, § 801(c), 103 Stat.1987, 2058). In Cisneros, the Supreme Court held that HUD’s use of comparability studies for this purpose did not breach the Section 8 housing [665]*665assistance contracts. 508 U.S. at 21, 113 S.Ct. 1898.

The statutory context was significantly revised in 1994 when Congress shifted to owners the burden of proving that the adjusted rent for an assisted unit would not exceed the rent for a comparable unassisted unit. See Statesman, 66 Fed.Cl. at 612 (quoting Departments of Veterans Affairs and Housing and Urban Development, and Independent Agencies Appropriations Act of 1995, Pub.L. No. 103-327, 108 Stat. 2298, 2315 (1994) (amending 42 U.S.C. § 1437f(c)(2)(A))). HUD thereafter issued Notice 95-12, Annual Adjustment Factor Rent Increase Requirements Pursuant to the Housing Appropriations Act of 1995 (March 7, 1995), which provided that increases in rent would be allowed only if owners submitted comparability studies prior to the HAP contract anniversary date. Statesman, 66 Fed.Cl. at 612-13. “Any adjustment to the contract rent would be limited to the lesser of (1) the ‘adjusted comparable rent,’ determined by adding to the comparable rent the initial difference (the amount by which the original contract rent exceeded the original comparable rent), or (2) the rent level adjusted by the appropriate annual adjustment factor.” Id. at 613 (citing HUD Notice 95-12, 1995 WL 137978). The 1994 amendments also “reduced by one percent the annual adjustment factor for units occupied by the same tenant during the previous year.” Statesman, 66 Fed.Cl. at 612 (citing 42 U.S.C. § 1437f

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71 Fed. Cl. 662, 2006 U.S. Claims LEXIS 188, 2006 WL 1793678, Counsel Stack Legal Research, https://law.counselstack.com/opinion/statesman-ii-apartments-inc-v-united-states-uscfc-2006.