Opinion ID: 209417
Heading Depth: 3
Heading Rank: 1

Heading: Occurrence of Breach

Text: Appellants contend that the Court of Federal Claims erred as a matter of law by misapplying the Supreme Court's governing Franconia precedent to the transactions at issue in this case. According to Appellants, the Court of Federal Claims erroneously found that Appellants' acceptance of the use restrictions in the incentive loans accrued their breach of contract claims, and, in doing so, erroneously disregarded the textual limitations of the operative documents relied on by the government, as well as their pro forma nature and the artificiality of the process in which they were generated. In Franconia, the Supreme Court held that ELIHPA's enactment qualified as a repudiation of the parties' bargain, not a present breach of the loan agreements. 536 U.S. at 133, 122 S.Ct. 1993. As a consequence, breach would occur when a borrower attempted to prepay, for only at that time would the [g]overnment's responsive performance become due. Id. at 143, 122 S.Ct. 1993. In other words, the time of accrual [of a claim] depends on whether the injured party chooses to treat the repudiation as a present breach. Id. at 144, 122 S.Ct. 1993. The six-year statute of limitations commences when a borrower tenders prepayment and the [g]overnment then dishonors its obligation to accept the tender and release its control over use of the property that secured the loan. [13] Id. at 133, 122 S.Ct. 1993. The main thrust of Appellants' contentions is that the Court of Federal Claims erred as a matter of law by misapplying Franconia 's requirement of tender of prepayment and rejection by the government. In particular, Appellants take issue with the Court of Federal Claims' treatment of the acceptance of the twenty-year use restriction as tantamount to the government's rejection of a demand for performance, [when it held] that the [g]overnment's offer of incentives in exchange for an agreement by borrowers to extend the restrictions on their properties constitutes precisely the breach and accrual that Franconia contemplated. In Franconia the Court did not define the contours of the tender and rejection that are sufficient to trigger the six-year statute of limitations. We now clarify whether the circumstances of this case were sufficient to constitute a breach under Franconia.
Appellants contend that the operative documents relied on by the Court of Federal Claims neither tendered prepayment nor rejected tender. The letters submitted to the FmHA in 1988 by Mullica and in 1991 by Park Terrace each state that [t]his letter will serve as a request to pay off the remaining mortgage balance for the above property. Appellants' contention that this does not constitute tender within the meaning of Franconia relies on the definition of tender from Black's Law Dictionary 1477-80 (4th ed.1999), which states that tender is an unconditional offer of money or performance to satisfy a debt or obligation. Appellants also look to Williston on Contracts, which defines tender as an unconditional offer of payment consisting of an actual production of a sum not less than the amount due on a particular obligation. § 72.27 (4th ed.2007). Appellants assert that the 1988 and 1991 letters did not constitute tender, because they were only requesting the right to pay in a perfunctory manner and did not actually tender money or assert a demand to release the property from the use restrictions. Although the Supreme Court did speak in terms of tendering payment in Franconia, the Franconia decision is not authority for tender being satisfied only by the highly formalized and technical process advanced by Appellants. See 536 U.S. at 133, 122 S.Ct. 1993. The Franconia Court also stated that breach would occur when a borrower attempt[s] to prepay and that the government's obligation was ultimately to accept prepayment. Id. at 143, 122 S.Ct. 1993. The Franconia opinion does not suggest that a physical transfer of money must be attempted in order to constitute a tender of payment. Under the terms of the original loans, Mullica and Park Terrace had an unconditional right to prepay the loans at any time, and the government had a corresponding unconditional obligation to accept prepayment. The 1988 and 1991 letters sent by Mullica and Park Terrace to the government were clear, unconditional offers of prepayment sufficient to trigger a duty by the government to accept the tender under the terms of the pre-1979 loans. In the alternative, Appellants contend that even if the letters requesting to prepay the loans are regarded as tenders, the government's response letters were not rejections sufficient to trigger breach under Franconia. The government's responses to Mullica and Park Terrace did not explicitly state that the offers of prepayment were rejected. [14] However, the government did not accept those offers. Pursuant to ELIPHA, instead of accepting prepayment, the government offered incentive loans. ELIHPA provides that, in lieu of accepting prepayment, the government make reasonable efforts to enter into an agreement with the borrower, by which the borrower would be offered incentives to keep the property committed to low-income uses. See 42 U.S.C. § 1472(c)(4)(A)-(B). In other words, by offering incentive loans in response to Appellants' requests for prepayment, the government necessarily rejected the tender and breached its obligation to accept prepayment at any time. This conclusion is reinforced in the case of Mullica, given that the government's offer of incentives was preceded by a letter in which the government expressly declined to accept prepayment. The degree of formalism in communications for which Appellants advocate is unnecessary given Congress' clear repudiation of the unfettered right to prepay in ELIPHA. When the government responded to Appellants' requests to prepay with offers of incentive loans, those offers were functionally co-extensive with a rejection of prepayment. The Franconia decision requires no more formalism than the written request to prepay followed by non-acceptance of the request by the government to trigger the running to the statute of limitations. Although other conduct could constitute breach by the government, the Court of Federal Claims correctly ruled that at least by 1991 and 1992, the dates the Appellants entered into ELIPHA incentive loans, breach-triggering rejections had occurred.
Relatedly, Appellants contend that the Court of Federal Claims erred by refusing to consider evidence concerning the context of the actions that it held had accrued the claims. The primary thrust of this contention is that the requests for prepayment were pro forma and were part of a charade designed to secure incentives in lieu of insistence on prepayment. In other words, Appellants contend that the prepayment letters were just part of a mechanical process to get incentives, and were never intended to declare the government in breach of the underlying loan agreements. [15] In support of this theory, Appellants cite a number of government documents that speak in terms of incentives to avert prepayment of the FmHA loans. Appellants also rely on FmHA Guidelines for Accepting Prepayment in Order to Ensure Tenant Protections, which state: [E]very borrower who requests to prepay, and can document the ability to prepay, will be offered an incentive not to do so. The size of the incentive will be based on whether this housing is needed by current tenants and other low- and moderate-income people in the market area, and on the loss to the borrower by remaining in the FmHA program. The size of the incentive may not be based on whether the borrower actually wishes to prepay or wishes to receive an incentive not to repay, or on whether the borrower is a servicing problem. Appellants suggest that this passage from the Guidelines evidences a charade because of its reference to offering incentive loans under circumstances where the borrower might not actually wish to prepay but offers to do so in order to qualify for an incentive loan. Appellants are misreading the Guidelines. The cited language instructs that the size of the incentive should be independent of the motivation or payment history of the borrower and does not transform the process into a charade. Further, Appellants' assertions that their prepayment requests and the government's response letters were mere paperwork in the context of a charade, in which they never intended to call the government into breach, are undermined by the allegations in their own Complaint. For example, the Complaint alleges: But for the [g]overnment's conduct, plaintiffs would have terminated their contracts by prepaying their mortgage loans. As a consequence of the [g]overnment's conduct, certain of the plaintiffs have submitted applications for prepayment and/or an offer of incentives from the [g]overnment. The [g]overnment has in every instance refused to accept prepayment from plaintiffs pursuant to the provisions of their contracts. Those plaintiffs have been compelled to change their position to their detriment in reliance upon the [g]overnment's repudiation, including accepting incentives in lieu of a sale at fair market value. The allegations in the Complaint suggest both that Appellants desired to prepay their FmHA loans and that their requests to do so were rejected by the government. The Complaint speaks of the incentives as a form of detrimental reliance, not as something Appellants sought to secure in the absence of any attendant desire to repay their loans. Accordingly, we affirm the Court of Federal Claims' determination that the transactions underpinning Appellants' acceptance of incentive loans triggered breach of the original loan agreements and commencement of the six-year statute of limitations. As a consequence, the six-year statute of limitations expired in 1997 for Mullica and in 1998 for Park Terrace.