Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-15-01566/USCOURTS-ca8-15-01566-0/pdf.json

Parties Involved:
Affordable Communities of Missouri
Appellant
EF&A Capital Corporation
Not Party
EF&A Funding LLC
Not Party
Federal National Mortgage Association
Appellee

Document Text:

United States Court of Appeals

For the Eighth Circuit

___________________________

No. 15-1566

___________________________

Affordable Communities of Missouri

lllllllllllllllllllll Plaintiff - Appellant

v.

Federal National Mortgage Association, a federally chartered corporation

lllllllllllllllllllll Defendant - Appellee

EF&A Capital Corporation; EF&A Funding LLC

lllllllllllllllllllll Defendants

____________

Appeal from United States District Court 

for the Eastern District of Missouri - St. Louis

____________

 Submitted: January 14, 2016

 Filed: February 24, 2016

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Before MURPHY, SMITH, and BENTON, Circuit Judges.

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MURPHY, Circuit Judge.

AffordableCommunities ofMissouri (Affordable) alleges that Federal National

Mortgage Association (Fannie Mae) breached its contract by penalizing Affordable

for prepaying its loan after it was forced to sell its Jefferson Arms Apartments

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(Jefferson Arms) property to avoid condemnation. The district court held a bench

1

trial and found that Fannie Mae was not liable because Affordable had not sold the

Jefferson Arms property to avoid condemnation. The court alternatively concluded

that Affordable's claimfailed because it had voluntarily paid Fannie Mae. Affordable

appeals, and we affirm. 

I. 

This case is before our court for the second time. In the previous appeal, we

affirmed the district court's dismissal of all of Affordable's claims against Fannie Mae

except for breach of contract. See Affordable Communities of Mo. v. Fed. Nat'l

Mortgage Ass'n, et al., 714 F.3d 1069 (8th Cir. 2013). In its surviving claim,

Affordable alleged that Fannie Mae had erroneously required it to pay a defeasance

penalty when it sold Jefferson Arms to avoid condemnation, for under the parties'

loan contract Affordable was exemptfrompaying such a penalty. We determined that

the contract was "ambiguous as to whether [the] 'condemnation award' [clause]

includes a sale in lieu of condemnation," and we remanded for "further proceedings

consistent with [our] opinion." Id. at 1076–77. 

On remand the district court held a bench trial. According to the evidence

presented at trial Affordable purchased Jefferson Arms, a senior independent living

center in St. Louis, and its adjoining parking garage in 1993. Affordable also owned

St. Louis Centre, another property in St. Louis. In April 1999, Affordable acquired

refinancing for its secured debt on Jefferson Arms from Eichler, Fayne, and

Associates (EFA), which operates exclusively under Fannie Mae's underwriting

program. Affordable's loan contract includes a defeasance provision which imposes

a penalty on it if it were to prepay the loan. The provision statesthat the penalty does

The HonorableCatherine D. Perry, UnitedStatesDistrict Judge for the Eastern 1

District of Missouri.

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not apply in the case of "a prepayment occurring as the result of . . . [a] condemnation

award under the Security Instrument." Rather, in that event, any proceeds from the

sale are to be transferred to Fannie Mae to satisfy the remaining loan debt and

Affordable would not be liable for any additional fees. After signing the loan, EFA

sold and assigned it to Fannie Mae.

In 2005 Affordable decided to sell St. Louis Centre and Jefferson Arms to

another developer, Pyramid Construction, Inc. (Pyramid). The sale agreement stated

that Jefferson Arms was being sold in lieu of threatened condemnation. Under the

agreement, Pyramid was required to obtain "a letter addressed to [Affordable] from

the City of St. Louis, Missouri . . . confirming the threat of condemnation." On

November 4, 2005 Pyramid acquired a letter from the executive director of

development for the city, Barbara Geisman. Her letter states that the city is

"concerned about the future of [Jefferson Arms]," it specifies that the garage is in "a

serious state of disrepair," and warns that if Cohen failsto make improvements to the

property, "theCity will seek to passlegislation authorizing the use of eminent domain

in order for a responsible developer to acquire the property and improve it, and, if

such responsible developer does not voluntarily acquire the property, seek to acquire

the property by condemnation and eminent domain." Cohen admitted that he required

Pyramid to obtain this letter so that he could take advantage of tax laws which apply

to property that has been involuntarily converted. See 26 U.S.C. § 1033. 

Affordable then wrote to EFA to inform it of the sale and seek a release of its

lien on the property. In July 2006 Affordable completed the defeasance process,

obtained a release of the lien on Jefferson Arms, and sold Jefferson Arms and St.

Louis Centre to Pyramid. Affordable paid Fannie Mae the outstanding loan balance

and a defeasance penalty of approximately $500,000. Cohen claimed that one year

later his accountant informed him that under the condemnation clause exception in

the contract, he was not required to pay the defeasance penalty. 

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Several witnesses testified at trial, including Cohen, Pyramid owner John

Steffen, Pyramid's director of commercial development Timothy O'Leary, and city

executive Geisman. The district court found the testimony of Cohen and Steffen not

to be credible. Cohen was vague and often changed his answers. The court found

Steffen potentially biased because Cohen had recently released him voluntarily from

a $1.3 million consent judgment, and the two were contemplating working together. 

While the court adopted Affordable's contract interpretation and assumed that the

term "condemnation award" included a sale in lieu of condemnation, it found that

Fannie Mae was not liable for breach of contract. That was because there had been

no actual threat of condemnation against Jefferson Arms, and Cohen could not have

reasonably believed that the city was threatening condemnation. The district court

alternatively concluded that Fannie Mae was protected fromliability by the voluntary

payment doctrine. Affordable appeals.

II. 

In reviewing a judgment after a bench trial, we review the district court's

factual findings and credibility determinations for clear error, and its legal

conclusions de novo. Fed. R. Civ. P. 52(a)(6); Outdoor Cent., Inc. v.

GreatLodge.com, Inc., 688 F.3d 938, 941 (8th Cir. 2012). We will overturn a finding

of fact only if it is not supported by substantial evidence, it is based on an erroneous

view of the law, or we are left with a definite and firm conviction that an error has

been made. Sawheny v. Pioneer Hi–Bred Intern., Inc., 93 F.3d 1401, 1407–08 (8th

Cir. 1996). 

A.

The district court's factual findings and credibility determinations were not

clearly erroneous because they were not so "implausible . . . that a reasonable

factfinder would not credit [them]." Cf. In re LeMaire, 898 F.2d 1346, 1351 (8th Cir.

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1990) (en banc) (internal quotation marks omitted). The court's determination that

Jefferson Arms was not sold in lieu of condemnation was based primarily on the

testimony of Pyramid's director of commercial development, Timothy O'Leary. The

court credited O'Leary's testimony over that of Cohen and Steffen. O'Leary testified

that Cohen had first raised the issue of selling Jefferson Arms to Pyramid before any

threat of condemnation was communicated from the city. Although Pyramid was

initially interested in purchasing the St. Louis Centre property, O'Leary reported that

Cohen only agreed to sell St. Louis Centre if Pyramid were also to purchase Jefferson

Arms. According to O'Leary, Cohen required Pyramid to acquire a "threat of

condemnation" letter from the city in order to gain favorable tax treatment. 

Affordable credits its own witness testimony more than that of Fannie Mae, but

O'Leary's testimony was not implausible and did not contradict the documentary

evidence. See Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 575 (1985). 

We conclude that substantial evidence supports the district court's findings that the

city's letter did not cause Cohen to sell Jefferson Arms because he had already

intended to sell the property before receiving it. 

Moreover, the district court's findings were not based on an erroneous view of

the law. See Sawheny, 93 F.3d at 1407–08. Affordable does claim that the district

court erred in determining whether Jefferson Arms was sold in lieu of condemnation

because it applied the incorrect legal standard. Affordable argues that the court

should have determined whether Cohen had a reasonable subjective belief that the

city was going to condemn his property. Fannie Mae points out that the tax court has

been willing to find a threat of condemnation in § 1033 cases if a taxpayer had an

objectively reasonable belief, given the "surrounding circumstances," that his

property would likely be condemned if he did not sell it. See Tecumseh Corrugated

Box Co. v. Comm'r Internal Revenue, 94 T.C. 360, 376 (1990), aff'd, 932 F.2d 526

(6th Cir. 1991); Maixner v. Comm'r Internal Revenue, 33 T.C. 191, 195 (1959). In

this case the district court determined that Cohen's belief was "not reasonable (or did

not even exist)" because Cohen was not credible and the sequence of events leading

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to the sale of Jefferson Arms suggests that he did not actually fear condemnation and

had requested the city letter merely in order to gain a tax advantage. We conclude

that the district court's findings were not based on an erroneous view of the law. 

B.

Affordable also claims that the district court erred when applying the voluntary

payment doctrine. The doctrine provides that "a person who voluntarily pays money

with full knowledge of all the facts in the case, and in the absence of fraud and

duress, cannot recover it back, though the payment is made without a sufficient

consideration, and under protest." Huch v. Charter Commc'ns, Inc., 290 S.W.3d 721,

726 (Mo. 2009) (internal quotation marks omitted). Affordable contends that it did

not have full knowledge of all the relevant facts before paying the defeasance penalty

because it did not realize that there was a condemnation award exception until one

year after making the payment. 

The district court properly determined that the voluntary payment doctrine

precludes Affordable fromrecovering on its breach of contract claim. Affordable had

full knowledge of all the relevant facts. Cohen signed the contract and had access to

all of the loan documents, had thirty years of experience with large real estate

investments, and was represented throughout the prepayment transaction by an

attorney who reviewed the loan documents. Moreover, Affordable failed to present

any evidence of fraud or duress. We conclude that the district court did not err in

determining that the voluntary payment doctrine prevents Affordable fromrecovering

on its breach of contract claim. 

For these reasons the judgment of the district court is affirmed.

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