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Greenbrier v. United States

October 04, 1999

GREENBRIER, WOODLAKE VILLAGE PARTNERSHIP, CARRIER ARMS APARTMENTS, LTD., COLONIAL TERRACE APARTMENTS LTD., FIRST BROOKWOOD, LTD., FIRST BUENA VIDA, LTD., FIRST FAIRMONT II, LTD., FIRST PLAZA DORADO LIMITED PARTNERSHIP, FIRST VILLAGE WEST LIMITED PARTNERSHIP, FIRST PLAZA HILLS EAST LIMITED PARTNERSHIP, HIGH HOUSE VILLAGE APARTMENTS, LTD., HILLCREST APARTMENTS, LTD., JACKSON MANOR APARTMENTS, LTD., SKYLINE FOX HOLLOW JOINT VENTURE, SOUTH PARK APARTMENTS, LTD., SOUTHSIDE VILLAGE APARTMENTS, LTD., FIRST PARKWOOD LIMITED PARTNERSHIP, AMERICAN RIVER LIMITED PARTNERSHIP, ASPEN MANOR, BEAR MOUNTAIN VILLAGE, CAMELOT NORTH COMPANY, CAMELOT SOUTH COMPANY, CANYON APARTMENTS COMPANY, CASCADE TERRACE LIMITED PARTNERSHIP, COTTONWOOD MANOR COMPANY, ELLENDALE ARMS APARTMENTS, ESCONDIDO PARK APARTMENTS, FOOTHILL GARDENS LIMITED PARTNERSHIP, HOLLISTER PLAZA LIMITED, IMPERIAL VILLA APARTMENTS, LA VERNE TERRACE LIMITED PARTNERSHIP, LAUREL CANYON TERRACE, MEYLER PARK APARTMENTS, MILLER AVENUE APARTMENTS, NAPA PARK LTD., ONTARIO TOWNHOUSES, PALMDALIA LIMITED PARTNERSHIP, QUEEN ANN INVESTMENT COMPANY, ROSE GARDENS HOUSING LIMITED, SANTA CLARA TERRACE COMPANY, TEMPE APARTMENTS, A LIMITED PARTNERSHIP, TEMPE GARDEN I, C.A. HOBBS, JR., LAURYCE G. HOBBS, CHARLES L. ADRIAN, SOUTHBROOK GARDEN APARTMENTS, LTD., SUGAR GROVE SQUARE LTD., HUGH V. SMITH ENTERPRISES, INC. AND FIRST FAIRMONT TERRACE, LTD., PLAINTIFFS-APPELLANTS,
V.
UNITED STATES, DEFENDANT-APPELLEE



Before Mayer, Chief Judge, Lourie, and Rader, Circuit Judges.

The opinion of the court was delivered by: Lourie, Circuit Judge

Appealed from: United States Court of Federal Claims Judge James F. Merow

Opinion of the court filed by Circuit Judge LOURIE. Concurring opinion filed by Circuit Judge RADER.

Greenbrier et al. (the "Owners") appeal from the decisions of the United States Court of Federal Claims denying them class certification, see Greenbrier (Lake County Trust Co. No. 1391) v. United States, No. 96-326C (Mar. 7, 1997) and granting summary judgment in favor of the United States on the Owners' breach of contract and takings claims, see Greenbrier (Lake County Trust Co. No. 1391) v. United States, 40 Fed. Cl. 689 (Fed. Cl. 1998). Because the trial court correctly determined that the United States was not in privity of contract with the Owners and therefore could not be held liable for breach of such contracts, and correctly determined that the Owners' takings claim is not ripe for review, we affirm its grant of summary judgment against the Owners and its dismissal of their complaint. In light of these holdings, the petition for class certification is moot.

BACKGROUND

Greenbrier et al. are 249 low-income housing Owners who allege that they each secured the contractual right from the United States to prepay without its approval their government-insured mortgage loans after 20 years and that Congress's enactment of the Emergency Low Income Housing Preservation Act of 1987 ("ELIHPA")*fn1 and the Low-Income Housing Preservation and Resident Homeownership Act of 1990 ("LIHPRHA"),*fn2 both of which required that the Owners obtain permission from HUD before prepaying their mortgage loans, breached their contracts. The Owners alternatively argue that such statutory enactments gave rise to a taking of their properties, entitling them to just compensation. The Owners also seek to be certified as a class.

The breach of contract claim asserted by the Owners in this case is identical to that asserted by the low-income housing owners in Cienega Gardens v. United States, 162 F.3d 1123 (Fed. Cir. 1998). The only difference between this case and Cienega Gardens is that this case also presents takings and class certification issues. Because the background facts relating to the issues in this case are indistinguishable from those involved in Cienega Gardens, only a simplified description of the parties' agreements and the regulatory scheme is set forth herein, a more exhaustive description being set forth in that opinion.

In the 1960s and 1970s, pursuant to two National Housing Act programs referred to as "Section 221(d)(3)"*fn3 and "Section 236,"*fn4 the Owners entered into agreements with the Department of Housing and Urban Development ("HUD") and private lending institutions for the purpose of financing the construction of low- and moderate-income public housing projects. In return for submitting to certain HUD regulation of their housing projects, the Owners each benefited from mortgage insurance and low-interest mortgage loans.*fn5 At issue in this case is whether the Owners contracted with the United States for particular mortgage loan prepayment rights and whether Congress's enactment of ELIHPA and LIHPRHA, which restricted mortgage loan prepayments, breached such contractual rights. Also at issue is whether the Owners' claim that these statutes effected a taking of their properties is ripe for review and whether the trial court abused its discretion by denying them class certification.

Each of the Owners executed substantially similar sets of contracts with the United States and the lenders. First, a lender and an Owner submitted to HUD an application for insurance of a mortgage loan for a property on which a low- or moderate-income housing project would be constructed. The application had to comply with certain eligibility requirements, terms, and conditions prescribed by HUD. See 12 U.S.C. §§ 1715l(b), 1715z-1(j) (1994). The Federal Housing Commissioner, acting on behalf of the Secretary of HUD, thereafter gave the lender and Owner a "Commitment for Insurance of Advances" wherein it promised to endorse for insurance a 40-year mortgage note in a specified amount, "subject to compliance with the requirements of the Regulations, the terms and conditions set forth below, and the attached specified conditions, if any." The commitment specified certain mortgage loan payment terms and stated that certain documents relating to the construction project and its financing, including the mortgage and note, were to be submitted to HUD for approval. The commitment did not specify any prepayment terms, but it did state that "[a]ll forms, certificates, documents and agreements called for by this commitment shall be upon forms approved or prescribed by the Commissioner and shall be completed, executed and filed . . . in such manner as he shall prescribe."

After receiving commitments for insurance, the Owners and lenders executed substantially similar 40-year mortgage notes and mortgages on the subject properties. Although some Owners executed notes that did not permit prepayment at any time without the Commissioner's consent, the notes (or riders thereto) generally allowed prepayments without prior HUD approval "after 20 years from the date of final endorsement of this note by the Federal Housing Commissioner," provided the Owner was a "limited distribution entity."*fn6 HUD did not sign the notes. The mortgages each incorporated by reference the mortgage note and a Regulatory Agreement (see infra) between HUD and the Owner, and provided that upon the Owner's default, under the Regulatory Agreement and upon the Federal Housing Commissioner's request, the lender had the option to declare the whole of the indebtedness due and payable.

On or about the same dates as the notes and mortgages were signed, the Owners and HUD also executed virtually identical Regulatory Agreements that set in place low-income affordability restrictions for the subject properties. These agreements each stated that, in consideration of the Commissioner's endorsement of the note for insurance, the Owner agreed to comply with applicable statutes and regulations and to follow various rules concerning the operation and management of the project for as long as the contract of mortgage insurance was in effect. These rules included restrictions on the rate of return that an Owner could receive from the project and restrictions on the rental rates it could charge the tenants. The Regulatory Agreements did not contain any provisions regarding prepayment of the mortgage notes. HUD thereafter endorsed each note to indicate its insurance commitment to the lender and entered into a separate mortgage insurance agreement with that lender.

The agreements can thus be summarized as follows: Each Owner agreed with HUD to submit to its regulation for as long as HUD insured the Owner's 40-year note. In return for the lender's financing, the Owner promised the lender not to prepay its mortgage loan for at least 20 years without HUD's approval, and also agreed to comply with the Regulatory Agreement that it had entered into with HUD. Each of the Owners thereby bound itself to HUD's regulation (and therefore limited investment returns) for the duration of the loan.

In 1987, Congress became concerned that a large number of housing project Owners would prepay their mortgage loans, leave the housing programs to earn more money from their properties, and thereby reduce the supply of low-income rental housing. It therefore enacted ELIHPA, which placed a two-year moratorium on unconditional, unilateral prepayments of HUD-insured mortgage loans and required that an Owner obtain HUD approval before any prepayment, even after 20 years.*fn7 ELIHPA also authorized HUD to provide financial incentives to applicants who agreed to remain in the program.*fn8 When ELIHPA was enacted, some of the Owners were already entitled to prepay their mortgage loans under the terms of their notes because 20 years had passed since HUD endorsed the notes. Other Owners were not yet entitled to prepay their loans.

In 1990, Congress replaced ELIHPA with LIHPRHA, which continued ELIHPA's prepayment regulations and authorized HUD to grant the Owners numerous financial incentives in order to encourage them not to prepay their mortgage loans and to remain in the programs. See 12 U.S.C. § 4101-47. Thus, the Owners could not prepay their mortgage loans after 20 years without HUD approval, even though their notes permitted such prepayments. As a consequence of ELIHPA and LIHPRHA, the Owners had to overcome yet another hurdle in order to leave the federal housing program, convert their properties into conventional rental or other properties, and earn higher returns on their investments.

In 1996, Congress enacted the Housing Opportunity Program Extension Act of 1996 ("HOPE").*fn9 Among other things, HOPE authorized low-income housing owners to prepay their mortgage loans without HUD's prior approval. That hurdle has thus now been removed.

None of the 249 Owners in this case ever sought permission to prepay their mortgage loans during the period when HUD's prior approval was required under ELIHPA and LIHPRHA (1988-1996). Many of them did apply to extend the affordability restrictions or to transfer their projects to qualified purchasers. See Greenbrier, Nos. 96-326C, -364C, -435C, and -697C, Declaration of Joseph Malloy at 4-6, attachment A (May 3, 1997). Since HOPE's enactment, a small number of the Owners have prepaid their notes; the vast majority have not, even though they are presently free to do so without HUD's approval.*fn10

Greenbrier filed suit against the United States in the Court of Federal Claims shortly after HOPE's enactment in 1996. The case was consolidated with three others*fn11 and additional plaintiffs were also joined, making a total of 249 separate plaintiffs. Greenbrier also filed a motion for class certification. The court denied the motion, reasoning that "factual differences among individual Plaintiffs' claims may well serve to distinguish the putative contractually bargained-for-rights at issue here" and that the ...


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