Opinion ID: 2759280
Heading Depth: 3
Heading Rank: 2

Heading: Algorithmic Properties

Text: In Cienega Gardens, this court held that HUD lacks discretion to grant a prepayment request unless (1) implementation of the plan will not materially increase economic hardship for current tenants; and (2) the supply of vacant, comparable housing is sufficient to ensure that prepayment will not materially affect the availability of decent, safe, and sanitary housing affordable to lowincome persons in the area. Cienega Gardens v. United States, 265 F.3d 1237, 1246 (Fed. Cir. 2001). These limitations on HUD’s discretion spring directly from 12 U.S.C. § 4108. Further, in Cienega Gardens we held that the model plaintiffs established futility by presenting property-specific evidence related to the economic hardship and effect of supply of low-income housing in the relevant communities. 265 F.3d at 1246–47. They presented property-specific evidence that HUD would not have been able to approve prepayment of these mortgages pursuant to its limited discretion under § 4108. Id. This included determining the affordable and market rate rents for each of the properties. Id. at 1242. Allowing the model plaintiffs to terminate affordability restrictions and charge market rents would have caused the monthly rent 16 BIAFORA v. US of those tenants to increase by more than 10%. Id. at 1243. We remanded, instructing the trial court to determine under the applicable facts whether each of the other plaintiffs could similarly establish futility. Id. at 1249. In this case, the parties filed cross-motions for summary judgment of ripeness. It is undisputed that Thetford IV did not exhaust its administrative remedies, namely it did not obtain a final refusal from HUD through the administrative process before proceeding to bring this action. Thetford IV argued that it would have been futile for it to await a decision from HUD because HUD did not have the discretion to grant pre-payment under § 4108. The Court of Federal Claims granted Thetford IV’s motion holding that there was no genuine issue of material fact that it would have been futile for Thetford IV to pursue pre-payment through HUD; therefore, the claims were ripe for the Algorithmic Properties. Correspondingly, it denied the government’s summary judgment motion on the same ground. On appeal, the government argues that the Court of Federal Claims incorrectly decided that the takings claims related to the Algorithmic Properties were ripe. It argues that prepayment could have been approved by HUD if a plan was presented which did not terminate the affordability restrictions. The government, quoting its declarations from Messrs. East and Barry, explains that approval could have been given to a plan to prepay from a property owner like Thetford IV: If an owner’s plan of action proposed to prepay the mortgage pursuant to the Preservation Statutes, but did not seek to terminate low-income afforda- bility restrictions in the original regulatory agreement, the plan of action would have been approved by HUD. This is because the plan of ac- tion would have no effect upon current tenants or the supply of low-income housing and would BIAFORA v. US 17 therefore have satisfied the statutory criteria for prepayment. Br. of Appellee in No. 2013-5136 at 54. This, however, is not what Thetford IV was seeking. Thetford IV sought to prepay its mortgages and terminate the affordability restrictions. Thetford IV J.A. 973. Terminating these restrictions would allow it to realize the appreciation of its property values. Id. Thus, the question is whether HUD could have allowed Thetford IV to prepay and terminate restrictions, in light of the limitations presented in § 4108. The government’s arguments and evidence about potential approval under factual scenarios that differ from Thetford IV do not create a genuine issue of fact. We likewise reject the government’s argument that a plan must be submitted or that an application for prepayment would have to be filed with HUD before a futility analysis can be undertaken. In circumstances, like here, where the property owner demonstrates, and the government fails to refute, that HUD could not have approved prepayment consistent with the limitation of § 4108, futility is established. The government challenges on appeal the Court of Federal Claims’ reliance on Mr. Smith’s expert opinion, data, and calculations as establishing futility. As before the trial court, here, the government’s arguments miss the mark. Mr. Smith’s opinion contained property-specific data and analysis of the impact on current tenants as well as supply of low income housing in the relevant communities. Mr. Smith’s first algorithmic test evaluated whether a property was located in an affordable area. If the fair market rent exceeded 15% of the median income for an area, Mr. Smith determined that the property was not located in an affordable area. He opined that if a property was not located in an affordable area, it could not satisfy the Preservation Statutes’ requirements for prepayment. His second algorithmic test evaluated whether a property 18 BIAFORA v. US was located in a market in which there was an excess of supply over demand. For this, he compared market rents in a given area with regulated affordable rents. Mr. Smith opined that the divergence between market and affordable rents demonstrated that that market lacked sufficient supply of affordable properties. Thus, he determined that demand exceeded supply in a market if the difference between market and affordable rents was greater than 10%. He opined that if a property were located in an area in which demand exceeded supply, an owner would be unable to obtain HUD’s approval to prepay the mortgage and terminate the affordability restrictions of that property. Mr. Smith’s report analyzed each of the Algorithmic Properties, performed calculations for each, and opined that they were payment ineligible pursuant to the criteria of § 4108. As the Court of Federal Claims found, Mr. Smith’s data was “strikingly akin” to the data found sufficient in Cienega Gardens. Anaheim Gardens v. United States, 109 Fed. Cl. 33, 35 (Fed. Cl. 2013). The government argues that Mr. Smith’s first test is invalid because HUD did not use the affordable areas test to evaluate plans. The government witnesses testified only that an affordable areas list was not used and that projects located in metropolitan areas that were not on the affordable areas list “remained potential candidates for prepayment.” Thetford IV J.A. 1073, 1078. The relevant question is not whether HUD used this test, but whether utilizing this data demonstrated that the properties did not meet the conditions for prepayment eligibility. The government provided no evidence that established that this data and analysis was flawed. The government’s claim that a property not in an affordable area might nonetheless be a candidate for prepayment does not raise a genuine dispute of material fact. Again the government provides no specific evidence, data, or explanation of the criteria under which such a property might still be approved. BIAFORA v. US 19 Messrs. Barry and East explained that plans could be approved if an owner’s plan “did not seek to terminate low-income affordability restrictions in the original regulatory agreement.” Thetford IV J.A. 1018, 1023. Again this is not what Thetford IV sought. It is undisputed that Thetford IV sought to remove the affordability restrictions. Thus general statements about approval in circumstances unlike the ones at issue in this case do not create a genuine issue of fact regarding the propriety of Mr. Smith’s data, methodology or opinion. The government challenges to Mr. Smith’s second test are likewise flawed. We agree with the Court of Federal Claims that “[i]t is less important whether the [Windfall Profits Test] was intended as a test for financial incentives rather than for prepayment approval, than whether the calculations themselves that Mr. Smith employed in the course of utilizing the WPT demonstrated that the properties did not meet the conditions for prepayment under the criteria of the Preservation Statutes.” Anaheim Gardens v. United States, 109 Fed. Cl. 33, 37 (Fed. Cl. 2013). The government complains that Mr. Smith disregarded nine of the ten factors in HUD guidance regarding a “soft” market. The government does not refute the reliability of Mr. Smith’s test, which determined supply did not exceed demand if market rents are greater than affordable rents by ten percent. Finally, we made clear in Cienega Gardens that whether it would be futile for a property owner to seek prepayment approval must be determined on the basis of facts and calculations specific to each property. 265 F.3d at 1248. Yet in this case, the government failed to provide any specific data or calculations related to the Algorithmic Properties and the requirements of § 4108. The government made only generalized assertions that prepayment was possible for properties in general, but its argument was not tied to any of the Algorithmic Properties or the factual circumstances of those properties. The 20 BIAFORA v. US government’s argument and declarations fail to address whether Thetford IV could prepay in the circumstances presented. We agree with the Court of Federal Claims that, in these circumstances, summary judgment of ripeness was properly granted.