# In th e United States Court of Federal Cl aims

No. 13-940C (F iled: December 30, 2015)

************************************* SONOMA APARTMENT ASSOCI ATES, * A California L imited Partnership, *

* Motion for Partial Summary J udg ment on Plaintiff, * L iability ; Motion to Dismiss; EL I HPA;

* HCDA; Prepay

ment of L oan; Effect of Entry

v. * of Partial Summary J udg ment on L iability

* for B reach of Contract on F ifth Amendment THE UNI TED STATES, * Taking s Claim

* Defendant. *

*************************************
Michael G. Miller, Santa Rosa, CA, for plaintiff.

J effrey A. Reg ner, United States Department of J ustice, W a shing ton, DC, for defendant.

OP INION AND ORDER

SWEENEY , J udg e
Plaintiff Sonoma Apartment Associates, a California L imited Partnership, obtained a loan from the federal g overnment to construct rural low- and moderate-income housing . Plaintiff contends that the g o vernment improperly denied its request to prepay the balance of the loan, alleg ing b o th a breach of contract and a violation of the Taking s Clause of the F ifth Amendment to the United States Constitution. Currently before the court are plaintiff’s motion for partial summary judg ment as to defendant’s liability for breach of contract, and defendant’s motion to dismiss plaintiff’s taking s claim. F or the reasons set forth below, the court g rants both motions.

I. BACK G ROUND

A . F actual History
On September 4, 1984, plaintiff ex ecuted an ag reement with the F armers Home Administration of the United States Department of Ag riculture in which the g overnment agreed, pursuant to section 515 of the Housing Act of 1949, to lend plaintiff $1,261,080 to construct athirty -unit family apartment project at 59 W e st Ag ua Caliente Road, Sonoma, California. 1 Plaintiff ag reed to repay

the loan in installments over a fifty -y ear period.

I n conjunction with the loan ag r eement, plaintiff ex ecuted two promissory notes in favor of the g o vernment, one for $1,222,650, and the other for $38,430. B oth promissory notes reflected the fifty

-y ear loan repay

ment period and included the following provision: “Prepay ments of scheduled installments, or any portion thereof, may

be made at any

time at the option of B orrower providing the loan is in a current status.” The promissory notes, in turn, were secured by

a deed of trust. The deed of trust included a rider containing the following lang uag e:
The borrower and any

successors in interest ag

ree to use the housing

for the purpose of housing p e o ple elig ible for occupancy as provided in section 515 of Title V of the Housing Act of 1949 and [ F a rmers Home Administration] regulations then ex tant during this 20-y ear period, beg inning the date this instrument is filed of record.

The deed of trust was recorded on October 28, 1985.
After plaintiff ex ecuted the loan ag reement, the promissory notes, and the deed of trust, Cong r ess enacted two statutes that retroactively limited a borrower’s rig

ht to prepay

the balance of a loan made pursuant to section 515 of the Housing Act of 1949: the Emerg e ncy L ow I ncome Housing Preservation Act of 1987 (“ELI HPA”), Pub. L . No. 100-242, 101 Stat. 1877 (1988), and the Housing and Community Development Act of 1992 (“HCDA”), Pub. L . No. 102-550, 106 Stat. 3672.
Plaintiff provided housing to elig ible individuals for the twenty

- y ear period described in the deed of trust rider. Subsequently , on November 5, 2010, plaintiff submitted a written request to Rural Development–THE ag ency within the United States Department of Ag riculture responsible for the rural housing prog rams formerly

administered by

the F armers Home Administration–to prepay the balance of its loan. On J anuary 3, 2011, Rural Development sent a General I ncentive Offer to plaintiff proposing several Specific I

n centive Offers in lieu of accepting prepay ment. Plaintiff rejected the offer, and on J anuary 7, 2011, Rural Development rejected plaintiff’s prepay ment request.

B. P rocedural History
Plaintiff filed suit in this court on November 27, 2013, alleg ing that Rural Development improperly

refused plaintiff’s request to prepay the balance of its loan. I t thereafter filed an amended complaint in which it asserted two claims for relief: breach of contract and a F ifth Amendment taking . Upon the close of discovery , plaintiff filed a motion for partial summary judg ment as to the g o vernment’s liability for breach of contract pursuant to Rule 56 of the Rules

1 All facts are undisputed.

-2-of the United States Court of F ederal Claims (“RCF C”). In its response to plaintiff’s motion,

defendant conceded that the g overnment was liable for breach of contract, noted that plaintiff did not seek summary

judg ment with respect to its F ifth Amendment taking s claim, averred that the court need not address plaintiff’s F ifth Amendment taking s claim, and indicated that the only remainingissue was the quantum of plaintiff’s damag es.
Plaintiff, in its reply , reiterated its request for partial summary judg ment as to the g overnment’s liability for breach of contract. I t then addressed its F ifth Amendment taking s claim. After remarking

that defendant had not sought the dismissal of its taking s claim, it asserted that “consideration of its taking s claim may properly be deferred until resolution of its breach of contract claim, and that to the ex tent that it is fully

compensated under the breach of contract claim, it is not entitled to, nor does it seek, a double recovery under its alternative taking s theory

. ” Reply

2; accord id. at 3 (“[ T] he trial court may properly defer consideration of the taking issue in favor of first addressing the contract issue. [ Plaintiff] reserves its right to continue to press its taking s cause of action if it does not receive full compensation for the injury arising from the Government’s conduct.”); see also id. at 4 (“A trial should be set for the issue of damag es for breach of contract . . . . To the ex tent [ plaintiff’s] damag es are not resolved by the factual finding s requested and the damag es awarded for the Government’s breach, then a trial should be set to resolve [ plaintiff’s] taking s claim . . . .”).

I n lig ht of plaintiff’s representations reg arding the continuing viability of its F ifth Amendment taking s claim, the court directed that one or both parties file a dispositive motion with respect to that claim. Ultimately , defendant moved to dismiss the claim pursuant to RCF C 12(c) and RCF C 56.

B o th plaintiff’s motion for partial summary judg ment and defendant’s motion to dismiss are fully briefed. The court deems oral arg ument unnecessary

.

II. P LAINTIF F ’S MOTION F OR P A R TIAL SUMMARY JUDG MENT
As noted above, plaintiff moves for partial summary judg ment, contending that the g overnment is liable for breach of contract. Summary judg ment is appropriate when there is no g enuine issue of material fact and the moving party is entitled to a judg ment as a matter of law. RCF C 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A fact is material if it “mig ht affect the outcome of the suit under the g overning law.” Anderson v. L iberty L obby , I nc., 477 U.S. 242, 248 (1986). An issue is g enuine if it “may reasonably

be resolved in favor of either party .” I d. at 250. Entry

of summary

judg ment is mandated ag ainst a party w ho fails to establish “an element essential to that party ’ s case, and on which that party will bear the burden of proof at trial.” Celotex Corp., 477 U.S. at 322.

I n this case, there are no g enuine issues of material fact. I ndeed, defendant concedes that it is liable for breach of contract. Specifically
, defendant represents that it anticipatorily repudiated plaintiff’s promissory notes upon the enactment of EL I HPA and HCDA, and that the

-3-repudiation ripened into a breach of contract on J anuary 3, 2011, when Rural Development offered incentives to plaintiff in lieu of allowing plaintiff to prepay

the balance of its loan. According ly , the court g r ants plaintiff’s motion for partial summary judg ment and finds the g overnment liable for breach of contract.

III. DEF ENDANT’S MOTION TO DISMISS

Nex t, defendant moves to dismiss plaintiff’s F ifth Amendment taking s claim pursuant to RCF C 12(c) and RCF C 56. RCF C 12(c) allows for the entry for judg ment “on the basis of the underlying substantive merits of the parties’ claims and defenses as they are revealed in the formal pleading s.” 5C Charles Alan W rig ht & Arthur R. Miller, F ederal Practice and Procedure § 1367 (3d ed. 2004). “[ W ] hen considering a motion under RCF C 12(c), the court applies substantially the same test as it does for a motion to dismiss for failure to state a claim under RCF C 12(b)(6).” Sikorsky Aircraft Corp. v. United States, 122 F ed. Cl. 711, 719 (2015); accord Peterson v. United States, 68 F ed. Cl. 773, 776 (2005) (“The leg al standard applied to evaluate a motion for judg ment on the pleading s is the same as that for a motion to dismiss.”). Therefore, the court “must assume each well-pled factual alleg ation to be true and indulg e in all reasonable inferences in favor of the nonmovant . . . .” Owen v. United States, 851 F .2d 1404, 1407 (F ed. Cir. 1988). However, if “matters outside the pleading s are presented to and not ex cluded by the court, the motion must be treated as one for summary judg ment and disposed of as provided in RCF C 56.” RCF C 12(d). Under both RCF C 12(c) and RCF C 56, judg ment is “appropriate where there are no material facts in dispute and the [ moving party ] is entitled to judg ment as a matter of law.” New Z ealand L amb Co. v. United States, 40 F .3d 377, 380 (F ed. Cir. 1994); accord RCF C 56(a).
Plaintiffs are permitted to plead, in the alternative, a breach of contract and a F ifth Amendment taking . Stockton E. W ater Dist. v. United States, 583 F .3d 1344, 1368-69 (F ed. Cir. 2009); accord I

nteg rated L og istics Support Sy s. I n t’l, I nc. v. United States, 42 F ed. Cl. 30, 34 (1998) (“[ T] aking claims are not presumed to be foreclosed by claims for breach of ex

press contract merely

because the claims share the same factual backg round.”). However, “the concept of a takingas a compensable claim theory has limited application to the relative rights of party litig ants when those rig hts have been voluntarily created by contract. I

n such instances, interference with such contractual rig hts g enerally

g ives rise to a breach claim not a taking claim.” Sun Oil Co. v. United States, 572 F .2d 786, 818 (Ct. Cl. 1978) (citation omitted). Specifically , “[ t] aking claims rarely arise under g overnment contracts because the Government acts in its commercial or proprietary capacity in entering c ontracts, rather than in its sovereig n capacity . According ly , remedies arise from the contracts themselves, rather than from the constitutional protection of private property rig h ts.” Hug hes Comm’cs Galax y , I nc. v. United States, 271 F .3d 1060, 1070 (F ed. Cir. 2001) (citation omitted); accord St. Christopher Assocs., L .P. v. United States, 511 F .3d 1376, 1385 (F ed. Cir. 2008) (“I n g e neral, taking s claims do not arise under a g overnment contract because . . . the g overnment is actingin its proprietary rather than its sovereig n capacity
, and because remedies are provided by the contract.”). Thus, when a plaintiff pleads, in the alternative, a breach of contract and a F ifth Amendment taking based on

-4-the same g overnment action, recovery for breach of contract ty

pically precludes recovery

for a F ifth Amendment taking . See Stockton E. W ater Dist., 583 F .3d at 1368 (“It has long been the policy of the courts to decide cases on non-constitutional g rounds when that is available, rather than reach out for the constitutional issue. And of course when a plaintiff is awarded recovery for the alleg ed wrong

under one theory , there is no reason to address the other theories.” (citation omitted)); Sun Oil, 572 F .2d at 817-18 (“Since plaintiffs would only be entitled to one recovery [ due to the g o vernment action] , it would seem that the taking claim is an alternative claim to the breach of lease contract claim. Therefore, recovery on one claim theory

would seem to preclude recovery on the other claim theory .”).

I n its motion to dismiss, defendant contends that plaintiff’s F ifth Amendment taking s claim should be dismissed upon the court’s entry of partial summary

judg ment in plaintiff’s favor on the issue of the g overnment’s liability for breach of contract. I

t asserts that the takingalleg ed by plaintiff is the g overnment’s breach OF its contractual oblig ation to accept plaintiff’s prepay ment of the balance of its loan, and that plaintiff does not have a taking s claim separate from the claim arising from the breach of contract. Plaintiff disputes defendant’s characteriz ation of its taking s claim. I t contends that its taking s claim is not solely premised on its contractual relationship with the g overnment, but is also premised on its rig h t to lease the real property encumbered by that contractual relationship. Specifically , it avers:

[ Sonoma Apartment Associates (“SAA”)] put an end to its contract with the Government by

tenderingprepay

ment per the terms of the ag reement. . . . Since SAA tendered prepay ment, the relationship has not been based on a consensual agreement or contract. SAA did not ag r ee, and does not ag

ree, to be in a continuing contractual relationship with the Government at any time past its tender of prepay

ment. Any

continued effort by the Government to force SAA to restrict its use of its property in accordance with the terms of the loan ag reement is a de facto partial taking

of that property , not based on contract, but simply on the Government’s belief that low-income housing is beneficial to the public at larg e

. Pl.’s Resp. 9; accord id. at 10 (contending that its breach-of-contract and taking s claims “are conceptually

distinct, with one flowing from the violation of a contract term and the other from the violation of an underly ing property

rig h t, albeit that the same factual conduct by the Government g ave rise to both claims”). Plaintiff further asserts that its damag es for its breachof-contract claim may

not be duplicative of its damag es for its taking s claim. Defendant, in its reply , contends that the only property rig ht at issue is plaintiff’s contractual rig h t to prepay

the balance of its loan; that the g overnment is unable to accept plaintiff’s offer of prepay ment due to the enactment of EL I HPA and HCDA, and that, as a result, plaintiff’s contracts with the g overnment remain in effect for their full fifty

- y ear terms; and that damag es are the same for both plaintiff’s breach-of-contract claim and plaintiff’s taking s claim.
As plaintiff acknowledg e s, its breach-of-contract and F ifth Amendment taking s claims are premised upon the same conduct–the g overnment’s inability to honor its contractual

-5-oblig ation to accept plaintiff’s offer to prepay the balance of its loan due to the enactment of EL I HPA and HCDA. Indeed, even if the court accepts plaintiff’s characteriz ation of its taking s claim as flowingfrom the g overnment’s unilateral imposition of a continuing contractual relationship notwithstanding its breach, it is readily apparent that but for the g overnment’s breach of contract, plaintiff would not have a viable taking s claim. In a nonbreach world, the g overnment would have accepted plaintiff’s offer to prepay the balance of its loan. As a result, the parties’ contractual relationship would have ceased, leaving the real property at issue unencumbered by

the restrictions set forth in the deed of trust rider. I n other words, it is only because of the g overnment’s breach of contract that plaintiff has a cause of action ag a inst the g overnment. And, because plaintiff’s relationship with the g overnment is controlled by contract, plaintiff’s remedy for the g overnment’s refusal to accept plaintiff’s offer to prepay the balance of its loan is a claim for breach of contract. Consequently , the court must dismiss plaintiff’s taking s claim. Accord F ranconia Assocs. v. United States, 61 F ed. Cl. 718, 737-40 (2004) (rejecting , in a case with analog ous facts, the plaintiffs’ F ifth Amendment taking s claim because (1) the g overnment’s infring ement of the plaintiffs’ contractual rig ht to prepay

the balance of their loans was remediable throug

ha breach-of-contract claim, and (2) Cong ress, in enacting EL I HPA and HCDA, did not appropriate the real property at issue for public use); Alleg re Villa, a Ltd. P’ship v. United States, 60 F ed. Cl. 11, 18 (2004) (holding , in a case with analog ous facts, that the plaintiffs “rested [ their] claim on a contract rig ht to prepay

ment that was substantially limited by subsequent leg islation,” and that “[ g ] iven that contract right, plaintiffs’ recovery lies in a theory of breach, not taking s”).
The case law cited by

plaintiff does not compel a different result. F o r ex ample, plaintiff relies upon Cieneg a Gardens v. United States, 331 F .3d 1319 (F ed. Cir. 2003), for the proposition that the enactment of EL I HPA and another similar statute can constitute a compensable F ifth Amendment taking . See id. at 1338 (agreeing that the enactment of the two statutes “had the character of a taking because the statutes authoriz e the continuing phy sical occupation of particular developers’ properties to address a societal shortag e of low-income housing and that this is intrusive bey ond the level of traditional g overnmental limits on land titles”). However, in that case, the g overnment was not contractually oblig ated to accept prepay ment of the plaintiffs’ loan balances; rather, the prepay ment provision was included in “a deed of trust note pay

able to a private lending

institution.” Cieneg a Gardens v. United States, 194 F .3d 1231, 1234 (F ed. Cir. 1998). B ecause there was no privity of contract between the g overnment and the plaintiffs with respect to the prepay ment provision, the plaintiffs lacked a breach-of-contract remedy ag ainst the g overnment. I d. at 1234, 1246. Thus, Cieneg a Gardens is disting uishable from this case.
Plaintiff also relies upon Integ rated L og istics, in which the court noted that a F ifth Amendment taking s claim is not necessarily precluded by

a breach-of-contract claim based on the same facts. See 42 F ed. Cl. at 34. I n that case, the court was unable to ascertain, based solely on the alleg ations set forth in the complaint, whether the plaintiff’s contract with the g overnment addressed the g overnment’s rig hts to possess, use, own, and alienate the property at issue. I d. at 35. I t therefore declined to dismiss the plaintiff’s taking s claim, allowing the plaintiff to plead its

-6-taking s and breach-of-contract claims in the alternative. I d. This case, in contrast, has moved bey o nd the pleading s stag e; indeed, the court has ruled that plaintiff is entitled to partial summary judg ment on the issue of the g o vernment’s liability for breach of contract. Moreover, the court has concluded that plaintiff’s relationship with the g overnment is controlled by contract, precludinga taking s claim. Therefore, I nteg rated L og istics is inapposite.
Also without merit are plaintiff’s attempts to disting uish various decisions cited by defendant on the g

r ound that the courts in those cases did not address the arg ument that plaintiff advances here: that by

forcingplaintiff to continue in a contractual relationship, the g overnment is depriving plaintiff from enjoy ing all of the property

rig hts inherent in its fee simple ownership of the apartment project. However, the decisions cited by defendant, including

St. Christopher Associates and Allegre Villa, rest on the proposition that a F ifth Amendment taking s claim is not viable when the parties’ rig hts and oblig ations are g overned by contract. See Hug

hes Comm’cs Galax y , 271 F .3d at 1070; Sun Oil, 572 F

. 2d at 818; accord Stockton E. W ater Dist., 583 F .3d at 1368. This proposition is set forth in binding precedent, and the court will not disreg ard it. Moreover, by

characteriz ing the g overnment’s conduct as a forced contractual relationship, plaintiff appears to be challeng ing the validity or lawfulness of that conduct. B ut, to maintain a taking s claim, a plaintiff must concede the validity of the g overnment’s actions. See Reg ’l Rail Reorg . Act Cases, 419 U.S. 102, 126-27 & n.16 (1974); Tabb L akes, L td. v. United States, 10 F .3d 796, 802-03 (F ed. Cir. 1993).

I n short, plaintiff has not established that it possesses a viable F ifth Amendment taking s claim separate and distinct from its claim for breach of contract.

IV. CONCLUSION

F or the foreg o ing reasons, the court G RANTS plaintiff’s motion for partial summary judg ment as to the g o vernment’s liability for breach of contract, and G RANTS defendant’s motion to dismiss plaintiff’s F ifth Amendment taking s claim. This case is now ripe for an adjudication of the quantum of plaintiff’s damag es. Thus, the parties shall confer, and then by no later than F riday, January 29, 2016 , file a joint status report containing (1) a sug g ested schedule for pretrial proceeding s; (2) at least three proposed trial dates (along with an estimated trial leng th); and (3) a proposed trial location.

IT IS SO ORDERED.
s/ Marg aret M. Sweeney MARGARET M. SW EENEY J udg e

-7-