Court Opinion

ID: 2673293
Source: CourtListenerOpinion
Date Created: 2014-05-10 03:12:53.511085+00
Date Added: 2024-06-11T13:06:47.654303
License: Public Domain

In the United States Court of Federal Claims
                                     No. 12-651C

                                 (Filed: April 9, 2014)

*************************************
                                    *
RAMONA INVESTMENT GROUP,            *          Motion to Dismiss; RCFC 12(b)(1);
                                    *          Voluntary Dismissal; RCFC 41(a)(1);
                    Plaintiff,      *          Section 515 of the Housing Act of 1949;
                                    *          Emergency Low Income Housing
v.                                  *          Preservation Act of 1987 (ELIHPA);
                                    *          Anticipatory Repudiation; Effect of
THE UNITED STATES,                  *          Dismissal Without Prejudice on Statute
                                    *          of Limitations.
                    Defendant.      *
                                    *
*************************************

Jeff H. Eckland, with whom was Mark J. Blando, Eckland & Blando LLP, Minneapolis,
Minnesota, for Plaintiff.

Jeffrey A. Regner, with whom were Stuart F. Delery, Assistant Attorney General, Bryant
G. Snee, Acting Director, and Franklin E. White, Jr., Assistant Director, Commercial
Litigation Branch, Civil Division, U.S. Department of Justice, Washington, D.C., for
Defendant.

                               OPINION AND ORDER

WHEELER, Judge.

        This case is one of many proceedings arising from the Government’s repudiation,
through its enactment of the Emergency Low Income Housing Preservation Act of 1987
(ELIHPA), of certain loan agreements made under § 515 of the Housing Act of 1949.
Under the § 515 agreements, property owners received low-interest mortgage loans from
the Farmers Home Administration (FmHA) of the U.S. Department of Agriculture
(USDA) in exchange for providing low-income rural housing for eligible tenants during
the life of the loan. The agreements also provided that the property owners could prepay
their mortgages, thereby freeing the housing from the covenants restricting their use.
When Congress enacted the ELIHPA, it repudiated these agreements by announcing that
the Government would not fulfill its obligation to automatically accept tenders of
prepayment. Franconia Assocs. v. United States, 536 U.S. 129, 142 (2002).

        Because the ELIHPA constitutes only a renunciation of future obligations, it does
not ripen into an immediate breach in any particular case until the § 515 borrower either
(1) attempts prepayment or (2) files suit. Id. at 143. Under either scenario, the moment
of immediate breach starts the running of the six-year statute of limitations that applies to
every claim over which this Court has jurisdiction, and claims not filed before the
expiration of that six-year period are barred. Id. at 133.

        The question presented by the Government’s Rule 12(b)(1) motion to dismiss is
whether that six-year period begins with the filing of a § 515 borrower’s complaint, even
if that complaint is later voluntarily dismissed without prejudice. As explained below,
the Court finds that because a dismissal without prejudice renders the prior proceedings a
legal nullity, it therefore cannot have the legal effect of starting the running of the statute
of limitations. Accordingly, the Government’s motion to dismiss is denied.

                                         Background

        On November 22, 1985, Plaintiff Ramona Investment Group (“Ramona”) and the
FmHA entered into a contract pursuant to § 515 of the Housing Act of 1949 for the
development of a low- and moderate-income rural housing project known as
“Countryside I Apartments.” Dkt. Nos. 25-2 to 25-4. The contract terms, memorialized
in a loan agreement, promissory note, and mortgage, provided that the FmHA would
make a low-interest loan to Ramona, and in return Ramona would abide by certain
restrictive-use covenants, such as renting only to eligible low-income tenants. Id. Those
covenants would remain in place for the 50-year life of the mortgage, unless Ramona
exercised its option of prepaying the loan, thereby exiting the § 515 program and freeing
itself of the restrictive covenants. Id. Under the terms of the agreement, Ramona had an
absolute right to exercise that option after 20 years, i.e., after November 22, 2005. Id.

       The Government subsequently repudiated the contract with the enactment of the
ELIHPA, which imposed permanent restrictions on the prepayment of § 515 mortgages
entered into before December 21, 1979, and the Housing and Community Development
Act of 1992 (HCDA), which extended those restrictions through 1989. See Franconia,
536 U.S. at 133, 137 n.3. In particular, the ELIHPA directed the FmHA not to accept
tenders of prepayment, but instead to negotiate with borrowers to continue the provision
of low-income housing in exchange for certain incentives, such as offering an additional
loan or reducing the interest rate on the current loan. Id. at 136.

                                              2
        After the Government’s anticipatory repudiation, Ramona took two discrete steps.
First, on August 6, 2004, Ramona elected to treat the repudiation as an immediate breach
by filing suit in this Court, alleging breach of contract and a Fifth Amendment taking
without just compensation. Ramona Inv. Grp. I v. United States, No. 1:04-cv-01267
(“Ramona I”). Second, on October 4, 2006, Ramona submitted a formal application for
prepayment to the USDA, requesting a prepayment date of July 1, 2007. Dkt. No. 25-5.
However, in order to prevent § 515 borrowers from receiving “double compensation,” the
USDA’s policy was not to consider applications for prepayment (and therefore not to
offer incentives to avert such prepayment) while a borrower was seeking damages
through litigation. Dkt. No. 25-6. Consequently, the USDA informed Ramona that it
could not take both actions at the same time, but instead “must choose to either pursue
loan prepayment OR seek damages for not being permitted to prepay.” Id.

       Ramona elected to pursue loan prepayment and, through a joint stipulation filed
pursuant to Rule 41(a)(1) of the Rules of the U.S. Court of Federal Claims, voluntarily
dismissed its claims without prejudice on February 20, 2007. Ramona I, Dkt. No. 15. On
March 2, 2007, the USDA acknowledged the dismissal of Ramona I and stated that it
would begin reviewing Ramona’s prepayment application. Dkt. No. 25-7. However, the
ensuing negotiations over incentives failed to produce tangible results. Ultimately, on
September 17, 2012, the USDA notified Ramona that the Government would no longer
offer any incentives in exchange for continued participation in the § 515 program. Dkt.
No. 25-9.

       Upon receiving that notification, Ramona commenced this action by filing its
complaint on September 28, 2012. The complaint is based on the same factual
allegations and stated the same causes of action as in the first action: breach of contract
and a Fifth Amendment taking without just compensation.

       On January 23, 2014, the Government filed a Rule 12(b)(1) motion to dismiss,
arguing that the six-year clock for bringing claims in this Court began ticking with the
filing of the complaint in Ramona I on August 6, 2004. Under this view, the clock
stopped ticking six years later on August 6, 2010, and Ramona’s claims in this case thus
must be barred as untimely. Ramona counters that its 2004 complaint was voluntarily
dismissed without prejudice, and therefore cannot be used to define the accrual date of its
claims. Instead, Ramona asserts that its intended prepayment date of July 1, 2007 is the
proper accrual date. Under this view, its 2012 complaint was filed well within the six-
year limitations period.

       The motion is fully briefed. The Court finds oral argument unnecessary, and the
matter is ready for decision.

                                            3
                                         Analysis

       Subject matter jurisdiction is a threshold requirement that must be satisfied before
this Court can adjudicate the merits of a case. Semiconductor Energy Lab. Co. v. Nagata,
706 F.3d 1365, 1368 (Fed. Cir. 2013). One element of this jurisdictional requirement is
that a complaint must be filed “within six years after [a] claim first accrues.” John R.
Sand & Gravel Co. v. United States, 552 U.S. 130, 132 (2008) (quoting 28 U.S.C.
§ 2501). Naturally, the date that the six-year period expires depends on the date when it
began; in other words, the date when the claim first accrued.

       Where the cause of action is breach of contract, the accrual date is the moment at
which the breach allegedly occurred. Franconia, 536 U.S. at 142–43. Where, as here, the
Government had repudiated an FmHA loan agreement through its enactment of the
ELIHPA, unless a promisee treats “ELIHPA as a present breach by filing suit prior to the
date indicated for performance, breach would occur when a borrower attempted to
prepay, for only at that time would the Government’s responsive performance become
due.” Id. at 143.

       It is undisputed that July 1, 2007 was the date on which the Government first
denied Ramona’s attempt to prepay. Consequently, the question is whether that date
should stand as the date of breach, and therefore of claim accrual, or whether the date
should be August 6, 2004, when Ramona first filed suit. Answering that question
requires the resolution of one issue: the significance of Ramona’s dismissal without
prejudice of its first suit pursuant to Rule 41(a)(1).

       Under Rule 41(a)(1), a plaintiff may voluntarily dismiss an action by, among other
ways, filing a stipulation of dismissal signed by all parties. In general, the effect of such
a voluntary dismissal “is to render the proceedings a nullity and leave the parties as if the
action had never been brought.” Bonneville Assocs. v. Barram, 165 F.3d 1360, 1364
(Fed. Cir. 1999) (alterations and internal quotation marks omitted). Application of that
general rule to this case—that is, leaving the parties as if Ramona I had never been
brought—would mean nullifying the effect of Ramona’s filing of the 2004 complaint,
including the effect it would have had in starting the six-year statute of limitations.

       The Government attempts to limit the application of this rule, citing Cooter & Gell
v. Hartmarx Corp., 496 U.S. 384 (1990), for the proposition that “[w]hether a voluntary
dismissal without prejudice affects an issue depends upon whether that issue turns on an
adjudication of the merits of the complaint.” Dkt. No. 26 at 4. However, this is an
imprecise characterization of the holding in Cooter & Gell. In reality, that case did
nothing to limit the nullifying effect of a dismissal on an underlying dispute. Instead, it
merely affirmed the well-established rule that courts retain jurisdiction to “consider

                                             4
collateral issues after an action is no longer pending,” and clarified that the definition of
“collateral issues” includes the imposition of Rule 11 sanctions. Cooter & Gell, 496 U.S.
at 395–96. The Supreme Court reasoned that once a litigant abuses the judicial system,
the harm “has already occurred,” and therefore a voluntary dismissal cannot “expunge the
Rule 11 violation.” Id. at 395, 398. That reasoning does not apply here, for unlike the
commission of a Rule 11 violation, the filing of a complaint can be undone. In fact, this
is precisely the purpose of voluntary dismissal as recognized by Rule 41.

       Moreover, as the Government points out, ostensibly in support of its motion, the
statute of limitations is not tolled during the pendency of a suit that is voluntarily
dismissed without prejudice because such a suit “is treated as if it had never been filed.”
Stone Container Corp. v. United States, 229 F.3d 1345, 1353–54 (Fed. Cir. 2000)
(internal quotation marks omitted). It strikes this Court as logically incoherent and
patently unfair to find that a dismissed suit has a decisive legal effect on starting the
statute of limitations period, but zero effect on its tolling. That conclusion is amplified
by the circumstances of this case, where Ramona dismissed its first action because the
USDA required such dismissal as a precondition for entering negotiations necessitated by
the USDA’s renunciation of its contractual duty—negotiations that the USDA later
abandoned. Indeed, just as a “plaintiff should not be penalized for leaving to the
defendant an opportunity to retract his wrongful repudiation” before his performance
comes due, Franconia, 536 U.S. at 146, a plaintiff likewise should not be penalized for
affording the defendant the same opportunity through a Rule 41(a)(1) dismissal.

        Accordingly, the Court finds that the parties’ joint stipulation of voluntary
dismissal without prejudice in Ramona I served to nullify any legal effect of that suit on
the claims currently before the Court. The Government’s breach of contract could not
have occurred until at least July 1, 2007, when Ramona attempted prepayment, and the
limitations period could not have expired until six years after July 1, 2007.
Consequently, Ramona’s September 28, 2012 filing of the complaint in this case was
timely.

                                        Conclusion

      For the reasons set forth above, the Government’s motion to dismiss is DENIED.
The parties shall submit their joint preliminary status report no later than June 9, 2014.

       IT IS SO ORDERED.

                                                         s/ Thomas C. Wheeler
                                                         THOMAS C. WHEELER
                                                         Judge

                                             5