United States Court of Appeals 

for the Federal Circuit ______________________

SONOMA APARTMENT ASSOCIATES, A 

CALIFORNIA LIMITED PARTNERSHIP,

Plaintiff-Appellee

v.

UNITED STATES,

Defendant-Appellant

______________________

2018-1781

______________________

Appeal from the United States Court of Federal Claims 

in No. 1:13-cv-00940-MMS, Chief Judge Margaret M. 

Sweeney.

______________________

Decided: September 23, 2019

______________________

DEBORAH S. BULL, Perry, Johnson, Anderson, Miller & 

Moskowitz LLP, Santa Rosa, CA, argued for plaintiff-appellee. 

 MATTHEW PAUL ROCHE, Commercial Litigation Branch, 

Civil Division, United States Department of Justice, Washington, DC, argued for defendant-appellant. Also represented by JOSEPH H. HUNT, ROBERT EDWARD KIRSCHMAN,

JR., FRANKLIN E. WHITE, JR. 

 ______________________
2 SONOMA APARTMENT ASSOCIATES v. UNITED STATES

Before NEWMAN, CHEN, and HUGHES, Circuit Judges.

HUGHES, Circuit Judge.

Sonoma Apartment Associates contracted with the 

Government to construct low-income housing in exchange 

for a $1,261,080 loan under Section 515 of the Housing Act 

of 1949. In 2010, Sonoma submitted a written request to 

prepay the balance of its loan. The Government denied the 

request, and Sonoma filed for breach of contract. The 

Court of Federal Claims awarded Sonoma expectancy damages of $4,223,328 and a tax gross-up award of $3,171,990. 

The Government appeals the tax gross-up award. Because 

the Court of Federal Claims clearly erred in using income 

from a single tax year to predict the future rates at which 

each partner would pay taxes, we vacate the tax gross-up 

award and remand for entry of judgment consistent with 

this opinion.

I

A.

Section 515 of the Housing Act of 1949,

42 U.S.C. § 1485, authorizes the Department of Agriculture, Farmers Home Administration1 to loan money to nonprofit entities to provide rental housing for elderly and lowand moderate-income individuals and families. See Franconia Assocs. v. United States, 536 U.S. 129, 134 (2002). To 

participate in the Section 515 program, borrowers must enter into a loan agreement with the Government specifying, 

among other things, the length of the loan and any rights

to make prepayments. See id. at 134–35.

 

1 The Farmers Home Administration is now known 

as the Rural Housing Service. But because the Court of 

Federal Claims referred to the agency as the Farmers 

Home Administration, we follow suit in this appeal.
SONOMA APARTMENT ASSOCIATES v. UNITED STATES 3

Concerned about the number of Section 515 borrowers 

choosing to prepay their loans, Congress amended the 

Housing Act in 1979 and 1980 by imposing prepayment 

limitations. These amendments prohibited the Farmers 

Home Administration from accepting prepayments for 15 

to 20 years from the date of the loan. See Housing and 

Community Development Amendments of 1979, Pub. L. 

No. 96-153, 93 Stat. 1101, 1134–35 (1979); Housing and 

Community Development Act of 1980, Pub. L. No. 96-399, 

94 Stat. 1614, 1671–72 (1980); see also Franconia Assocs., 

536 U.S. at 135. These amendments, however, did not adequately reduce prepayment rates. Congress therefore enacted the Emergency Low Income Housing Preservation 

Act of 1987 (ELIHPA), Pub. L. No. 100-242, 101 Stat. 1877, 

and the Housing and Community Development Act of 1992

(HCDA), Pub. L. No. 102-550, 106 Stat. 3672, to further 

limit the circumstances under which borrowers could prepay their loans. See Franconia Assocs., 536 U.S. at 136–37 

& n.3. 

In Franconia Associates, the Supreme Court determined that the ELIHPA and HCDA anticipatorily repudiated existing Section 515 contracts because they applied 

retroactively. Id. at 148. This anticipatory repudiation ripens into breach when the Government denies a given borrower’s request to prepay the balance of its loan. Id.

B.

Sonoma is a limited partnership formed by Richard 

Gullotta and Richard Parasol to manage housing properties. At the time of formation, each partner owned a 2.5% 

general partnership interest and a 47.5% limited partnership interest. Mr. Parasol later sold his 47.5% limited partnership interest to a married couple. In 2009, the surviving 

spouse sold that interest in equal shares to the living trusts 

for each of Richard Gullotta’s three children for $40,000.

On September 4, 1984, Sonoma entered into a Section 

515 loan agreement with the Farmers Home 
4 SONOMA APARTMENT ASSOCIATES v. UNITED STATES

Administration. The Government agreed to loan Sonoma 

$1,261,080 to construct low-income apartment housing, 

and Sonoma agreed to pay back the loan in installments 

over a fifty-year period ending on October 27, 2035. As part 

of the agreement, Sonoma executed two promissory notes 

for the balance of the loan. The promissory notes provided 

that “[p]repayments of scheduled installments, or any portion thereof, may be made at any time at the option of Borrower providing the loan is in a current status.” Sonoma 

secured the promissory notes with a deed of trust requiring 

it to use the building for low-income apartment housing for 

20 years. The 20-year term ended on October 27, 2005.

Sonoma submitted a written request to prepay the balance of its loan on November 5, 2010. The Government denied the request on January 3, 2011. Sonoma filed a 

complaint for breach of contract at the Court of Federal 

Claims on November 27, 2013.2 Because the Government 

conceded liability for the breach, the case proceeded only 

on damages. 

C.

Sonoma included a claim for a “tax neutralization payment” to offset the negative tax consequences of a lumpsum damages award. The Government moved for partial 

summary judgment, arguing that Sonoma could not recover any such payment. The trial court denied the motion, 

concluding that Sonoma was “entitled to attempt to prove, 

at trial, that a lump-sum damages award would increase 

its overall tax liability beyond what it would have been had 

it received market rate rental income from the date that it 

sought to prepay the balance of its loan.” Sonoma 

 

2 Sonoma also asserted a takings claim. But the 

Court of Federal Claims dismissed that claim, and Sonoma 

does not challenge that decision on appeal.
SONOMA APARTMENT ASSOCIATES v. UNITED STATES 5

Apartment Assocs. v. United States, 127 Fed. Cl. 721, 734 

(2016). The Government later moved in limine to exclude 

the testimony of Dr. Barry Ben-Zion, Sonoma’s expert on 

the “tax neutralization payment.” The trial court denied 

the motion, reasoning that “any criticisms of Dr. Ben-Zion’s 

work, if valid, can be brought out on cross-examination.” 

J.A. 981.

Over the Government’s objection, the court found Dr. 

Ben-Zion qualified as an expert “who could perform a damage calculation based on forensic economic concepts and 

who would opine on all of [Sonoma’s] economic damages including tax neutralization.” J.A. 27 n.14 (cleaned up). Dr. 

Ben-Zion testified that he had calculated the tax gross-up 

by (1) comparing the taxes the partners would have paid if 

the Government had not breached with the taxes the partners would now pay on the property and the lump-sum 

damages award, and (2) “increas[ing] the resulting tax neutralization payment to account for the fact that it, too, will 

be subject to state and federal income tax.” Sonoma Apartment Assocs. v. United States, 134 Fed. Cl. 90, 150 (2017).

Dr. Ben-Zion used 2015 income tax rates to estimate 

Sonoma’s future tax liability. And to determine the applicable tax bracket for each partner, he held constant the adjusted gross income each partner reported on his or her 

most recent federal income tax return. Thus, Dr. Ben-Zion 

assumed that Richard Gullotta, then 72, and his wife

would earn $415,220 per year from 2016 through 2035.3 

He similarly assumed that Mark Gullotta’s household and 

Karen Gullotta Kass’s household would earn $282,572 and 

$72,841 per year, respectively, from 2016 through 2035. 

 

3 The trial court rejected the assumption that Richard Gullotta would receive income through 2035, well into 

his nineties. It required Dr. Ben-Zion to update his calculations to account for Richard Gullotta’s life expectancy.
6 SONOMA APARTMENT ASSOCIATES v. UNITED STATES

And he assumed that Eric Gullotta and his wife would earn 

$12,585 per year from 20154 through 2035.5

The court determined that Sonoma “ha[d] established, 

by a preponderance of the evidence, both ‘a reasonable

probability’ that it will suffer adverse tax consequences due 

to the government’s breach of contract and the existence of 

sufficient evidence to allow for the ‘fair and reasonable approximation’ of those adverse tax consequences.” Sonoma 

Apartment Assocs., 134 Fed. Cl. at 150 (quoting first Locke 

v. United States, 283 F.3d 521, 524 (Ct. Cl. 1960), then Specialty Assembling & Packing Co. v. United States, 355 F.2d 

554, 572 (Ct. Cl. 1966)). In doing so, the court accepted Dr. 

Ben-Zion’s projections for future incomes and tax rates, 

noting that his estimates were “no more speculative than” 

any other estimates and that conducting more research 

“would not have increased the certainty of his projections.” 

J.A. 94, 96. The court ultimately awarded Sonoma a tax 

gross-up of $3,171,990.

The Government appeals the tax gross-up award. We

have jurisdiction under 28 U.S.C. § 1295(a)(3).

II

We review factual findings by the Court of Federal 

Claims for clear error and its legal conclusions de novo. 

John R. Sand & Gravel Co. v. United States, 457 F.3d 1345, 

1353 (Fed. Cir. 2006). Whether a party has proven damages to a reasonable certainty and whether the measure 

 

4 Eric Gullotta’s most recent federal tax return was 

from 2014. Dr. Ben-Zion thus used Eric Gullotta’s adjusted 

gross income from 2014 in his calculations despite using 

adjusted gross income reported on 2015 tax return for the 

other partners.

5 The record contains no evidence on the income of 

Richard Parasol.
SONOMA APARTMENT ASSOCIATES v. UNITED STATES 7

used to calculate damages was too speculative are questions of fact reviewed for clear error. See Dairyland Power 

Co-op. v. United States, 645 F.3d 1363, 1371 (Fed. Cir. 

2011); Fifth Third Bank v. United States, 518 F.3d 1368, 

1375 (Fed. Cir. 2008). A factual finding is clearly erroneous 

when we are “left with a definite and firm conviction that 

a mistake has been committed.” Ind. Mich. Power Co. v. 

United States, 422 F.3d 1369, 1373 (Fed. Cir. 2005) 

(cleaned up).

The Government argues that the Court of Federal 

Claims clearly erred in awarding a tax gross-up because

Sonoma’s calculations were based on the “erroneous assumption that the partners’ taxable income and the tax 

rates applicable to Sonoma’s partners’ income would remain unchanged through 2035.” Defendant-Appellant Br. 

24. Sonoma counters that it provided a fair and reasonable 

approximation of the adverse tax consequences. PlaintiffAppellee Br. 18. For the following reasons, we agree with 

the Government and vacate the trial court’s award of a tax 

gross-up.6

A.

A tax gross-up “is the name given to an increase in the 

damage award to offset the taxes that will be payable on 

the award.” O’Toole v. Northrop Grumman Corp., 499 F.3d 

1218, 1226 (10th Cir. 2007). It is designed to eliminate the 

negative tax consequences a plaintiff might suffer from receiving a lump-sum payment, which “will sometimes push 

a plaintiff into a higher tax bracket than he would have 

occupied had he received [the lost monies] incrementally 

over several years.” Clemens v. Centurylink Inc., 874 F.3d 

1113, 1116 (9th Cir. 2017). By accounting for any increase

 

6 Because the trial court clearly erred in calculating 

future income, we do not address whether the trial court 

clearly erred in assuming constant tax rates.
8 SONOMA APARTMENT ASSOCIATES v. UNITED STATES

in tax burden, a tax gross-up ensures that the plaintiff is 

put in the same position he would have occupied absent 

breach, i.e., that he is made whole.

We first approved grossing up a lump-sum damages 

award to offset negative tax consequences in Home Savings 

of America. We determined that, when the award compensates a plaintiff for lost monies that would not have been 

taxable, a trial court may adjust the award to account for 

the tax implications of a lump-sum payment. Home Sav. of 

Am. v. United States, 399 F.3d 1341, 1356 (Fed. Cir. 2005). 

Because we compared lost monies that would not have been 

taxable to a lump-sum payment that would be taxable, we 

only estimated plaintiff’s tax rate at the time of the lumpsum award. Id. But here, Sonoma must estimate each 

partner’s future tax rates over multiple years.

None of our cases since Home Savings of America have 

considered the situation we face here: when and how to calculate a tax gross-up award where both the lost monies and 

the lump-sum payment would be taxable.7 Nor have any 

of our sister circuits addressed this issue. In Eshelman v. 

Agere Systems, Inc., 554 F.3d 426 (3d Cir. 2009), for example, the Third Circuit affirmed a tax gross-up on an award 

of back pay and compensatory damages, both of which 

would have been taxable. Id. at 430. But Eshelman has 

limited value here. The tax gross-up in Eshelman compensated Ms. Eshelman for past losses for which the applicable 

tax rates and lost income were known. Id. at 442. Sonoma, 

however, must estimate future tax rates and income.

 

7 Carabetta Enters., Inc. v. United States, 482 F.3d 

1360 (Fed. Cir. 2007) presented a similar situation, but we 

did not decide this issue because Carabetta had offered no

evidence that the tax it would have paid on incremental 

earnings differed from the amount it would pay on a lumpsum damages award. Id. at 1367–68.
SONOMA APARTMENT ASSOCIATES v. UNITED STATES 9

Absent precedent on this issue, we turn to the broader 

context of our damages case law to guide our analysis. We 

do not require “absolute exactness or mathematical precision” in the ascertainment of damages. Bluebonnet Sav. 

Bank, F.S.B. v. United States, 266 F.3d 1348, 1355 (Fed. 

Cir. 2001). Our goal is to make the non-breaching party 

whole, so “[i]t is enough if the evidence adduced is sufficient 

to enable a court or jury to make a fair and reasonable approximation” of the non-breaching party’s damages. Id.

(cleaned up). Thus, in Bluebonnet Savings Bank, we determined that the Court of Federal Claims had clearly erred 

in declining to award damages on the grounds that “the 

Deputy Counsel for CFSB was unable to fully explain the 

basis for all the costs set out” in its estimate. Id. at 1357.

Because “the amounts owing under the SAREBA are directly spelled out in that contract and evidence was presented that the Memo Account was prepared in accordance 

with the SAREBA,” we held that the estimate in the Memo 

Account “meets the reasonable certainty test and it is inappropriate to require CFSB to justify the basis for each 

term in the agreement.” Id.

Yet it is not enough to merely assert entitlement to

damages without offering evidence in support. See id. at 

1358. Plaintiffs must provide some measure of substantiation to show the reasonableness of their calculations. In 

Bluebonnet Savings Bank, we found that “the Court of Federal Claims properly rejected Bluebonnet’s claim for nonEBA damages.” Id. We noted that Bluebonnet’s calculations were based on “a speculative financing term of 13.5%” 

and that Bluebonnet had presented no evidence “that anyone would have loaned CFSB the funds required for the 

capital infusions at 13.5%.” Id. 

Similarly, in Fifth Third Bank, we approved the trial 

court’s denial of Fifth Third Bank’s claim for lost operating 

profits because Fifth Third Bank failed to show that the 

“bank’s expanded asset base (which would have included 

the Cincinnati branches in the absence of the breach) 
10 SONOMA APARTMENT ASSOCIATES v. UNITED STATES

would have realized profits at a rate similar to that of the 

actual bank’s profits.” 518 F.3d at 1379. We reasoned that 

“determining hypothetical Cincinnati profits in the absence of the breach was too speculative an endeavor to result in a reasonable approximation of lost profits damages.” 

Id. However, we rejected the Government’s contention that 

a damages award based on a hypothetical sale was speculative. Id. We emphasized that the award “relied on two 

actual transactions—the 1991 sale of the Cincinnati 

branches to Banc One and the 1998 sale of the remaining 

branches to Fifth Third, albeit without the Cincinnati division.” Id. at 1378 (emphasis in original).

B.

Sonoma’s only support for its proposed tax gross-up is 

the testimony of Dr. Ben-Zion. Dr. Ben-Zion used the income from each partner’s most recent tax return to project 

future income, which in turn determined each partner’s income tax bracket for future years.8 The Court of Federal 

Claims accepted his calculations, finding “that projections 

 

8 We reject Sonoma’s contention that income is irrelevant to the tax gross-up calculations. See Plaintiff-Appellee Br. 19–20, 43–45. Although the trial court instructed 

Sonoma to remove income from its wage estimates, each 

partner’s projected tax rate was based in part on projected

income, so income still factors into the calculations. Dr. 

Ben-Zion explained, for example, that “[s]ince we made a 

projection of what the income would have been in the future, we had to take an assumption about what their income 

might be outside of Sonoma apartment[], take the profits 

that Sonoma apartment were projected, divide them 50 

percent to Richard Gullotta, 16 percent to each of the kids, 

and added [sic] to their assumed otherwise income to estimate what their sequential tax would have been.” J.A. 1535

(emphases added).
SONOMA APARTMENT ASSOCIATES v. UNITED STATES 11

of future income based on current expectations are no more 

certain than projections of future income based on current 

income.” J.A. 94. The court therefore concluded that it did 

not matter “whether Dr. Ben-Zion was obligated to investigate the partners’ tax situation beyond reviewing their income tax returns” because such an investigation “would not 

have increased the certainty of his projections.” J.A. 94.

The Court of Federal Claims clearly erred in awarding 

Sonoma a tax gross-up based on calculations that assumed 

each partner’s income would remain constant for 20 years. 

To satisfy its burden of proof, Sonoma needed to show that 

its tax gross-up calculations fairly and reasonably approximated the damages it faced. See Bluebonnet Sav. Bank, 

266 F.3d at 1358. And because its calculations held income

constant, Sonoma needed to show that the adjusted gross 

income from each partner’s most recent tax return fairly 

and reasonably approximated future income. Sonoma 

failed to make this showing.9

Dr. Ben-Zion provided two explanations for his decision 

to hold income constant: (1) future income is unknowable 

and (2) holding income constant produces an overly-conservative estimate.10 Neither explanation, however, 

 

9 To the extent that the Court of Federal Claims 

found it significant that other measures of future income

would be “no more certain than” current income, it misunderstood Sonoma’s burden of proof. Sonoma needed to 

show that it adequately estimated future income, not that 

its measure was no more speculative than any other measure.

10 Sonoma relies on this argument again on appeal. 

See Plaintiff-Appellee Br. at 46. We find it unpersuasive. 

The trial court rejected Dr. Ben-Zion’s assumption that 

Richard Gullotta would continue to make $415,220 per 

year beyond his life-expectancy, which undercuts the notion that Dr. Ben-Zion made an overly-conservative
12 SONOMA APARTMENT ASSOCIATES v. UNITED STATES

suggests that Dr. Ben-Zion’s calculations fairly and reasonably approximated Sonoma’s tax damages. Nor does the 

record remedy this gap. Sonoma provided no evidence to 

support Dr. Ben-Zion’s assumption that each partner’s income would remain unchanged and equal to his or her most 

recent tax return for the next 20 years. Dr. Ben-Zion did 

not question the partners about their future plans or expectations, nor did he discuss with any partner his or her 

most recent tax return. He thus did not account for the fact 

that Eric Gullotta had recently opened his own legal practice and had particularly high expenses in 2014 due to certain start-up costs. Those expenses, totaling $282,626, 

almost completely offset his gross income of $293,924.

Dr. Ben-Zion also did not explain why adjusted gross 

income from a single year was an adequate proxy for future 

income. Despite having access to multiple years of income 

data, he relied on only two pages from a single year’s return 

to estimate the future income of each partner. And he used 

only one measure (adjusted gross income) to make his estimates, ignoring other relevant information from those 

pages (e.g., gross income and expenses). His calculations 

were premised on the accuracy of this single data point, but 

we cannot draw a line from one data point. Thus, like the 

plaintiff in Bluebonnet who proposed a “speculative financing term,” Sonoma failed to provide adequate evidence to 

support a tax gross-up. Bluebonnet Sav. Bank, 266 F.3d at 

1358; cf. Fifth Third Bank, 518 F.3d at 1378 (reversing the 

finding that an estimate based on “two actual transactions” 

was speculative). And although it did at least base its 

 

estimate. And it is not clear in any event that overstating 

Richard Gullotta’s income would adequately offset understating Eric Gullotta’s (and possibly Karen Gullotta Kass’s)

household income for the next twenty years. See PlaintiffAppellee Br. at 46. The record lacks any support for this 

assertion.
SONOMA APARTMENT ASSOCIATES v. UNITED STATES 13

calculations on a figure in the record rather than a madeup estimate, Sonoma failed to show that this measure approximated damages any more accurately than the financing term proposed in Bluebonnet. See Bluebonnet Sav. 

Bank, 266 F.3d at 1358. The Court of Federal Claims 

therefore erred in awarding a tax gross-up based on Dr. 

Ben-Zion’s calculations.

Sonoma argues that holding income from the most recent tax year constant was reasonable because courts have 

allowed Dr. Ben-Zion to make a similar assumption in 

other cases. Plaintiff-Appellee Br. at 47. But the courts

explicitly instructed Dr. Ben-Zion to hold income constant 

in the referenced cases. And these cases typically involved 

Government employees subject to a specific pay scale, not 

self-employed individuals or employees working for private 

employers.

Sonoma also contends that the Government, as the 

breaching party, should bear the burden of imprecision. 

Plaintiff-Appellee Br. 30–33. While we recognize that the 

Government’s breach created the circumstances under 

which we must now consider future income and tax rates, 

we decline to find that it absolves Sonoma of its burden of 

proof. Sonoma is the party seeking damages and thus 

“bear[s] the burden of showing an income-tax disparity and 

justifying any adjustment.” Clemens v. Centurylink Inc., 

874 F.3d 1113, 1117 (9th Cir. 2017). It failed to offer 

enough evidence to meet that burden. We therefore must 

vacate the tax gross-up award.

III

We have considered Sonoma’s remaining arguments 

and find them unpersuasive. For the foregoing reasons, we 

conclude that the Court of Federal Claims committed clear 

error in using a single year of taxable income to predict the 

future rates at which each partner would pay taxes. Thus, 

we vacate the trial court’s grant of a $3,171,990 gross-up 

on the expectancy damages award and remand to the Court 
14 SONOMA APARTMENT ASSOCIATES v. UNITED STATES

of Federal Claims to enter judgment consistent with this 

opinion. 

VACATED AND REMANDED