Court Opinion

ID: 211061
Source: CourtListenerOpinion
Date Created: 2011-03-13 08:23:08+00
Date Added: 2024-06-11T17:28:04.429208
License: Public Domain

United States Court of Appeals for the Federal Circuit

                                   05-5034, 5035

                       INDEPENDENCE PARK APARTMENTS,
                            PICO PLAZA APARTMENTS,
                             ST. ANDREWS GARDENS,
                                      and
                          SHERMAN PARK APARTMENTS,

                                                    Plaintiffs-Cross Appellants,

                                         v.

                                 UNITED STATES,

                                                    Defendant-Appellant.

      Richard P. Bress, Latham & Watkins, of Washington, DC, argued for plaintiffs-
cross appellants. With him on the brief were Everett C. Johnson, Jr., Leonard A. Zax,
Matthew K. Roskoski; and Susan S. Azad, of Los Angeles, California.

       Mark R. Freeman, Attorney, Appellate Staff, Civil Division, United States
Department of Justice, of Washington, DC, argued for defendant-appellant. With him
on the brief were Peter D. Keisler, Assistant Attorney General and Mark B. Stern,
Attorney.

Appealed from: United States Court of Federal Claims

Judge Charles Lettow
 United States Court of Appeals for the Federal Circuit

                                     05-5034, -5035

                        INDEPENDENCE PARK APARTMENTS,
                             PICO PLAZA APARTMENTS,
                              ST. ANDREWS GARDENS,
                                       and
                           SHERMAN PARK APARTMENTS,

                                                 Plaintiffs-Cross-Appellants,

                                            v.

                                   UNITED STATES,

                                                 Defendant-Appellant.

                            ___________________________

                            DECIDED: September 15, 2006
                            ___________________________

                            ON PETITION FOR REHEARING

Before MICHEL, Chief Judge, NEWMAN, and BRYSON, Circuit Judges.

BRYSON, Circuit Judge.

       This case involves a takings claim by low-income housing providers who were

barred by statute from prepaying their mortgages and leaving the federal low-income

housing program. In our initial opinion, we set forth a method for the trial court to value

the taking as applied to two of the plaintiffs (St. Andrews Gardens and Sherman Park

Apartments) that had entered “use agreements” with the government before Congress

reinstated the right of housing providers in general to prepay their mortgages.

Independence Park Apartments v. United States, 449 F.3d 1235 (Fed. Cir. 2006).
      The government has filed a petition for rehearing challenging our valuation

analysis as applied to the takings claims of those two plaintiffs. The government argues

that our decision effectively uses a voluntary contractual agreement (the use

agreements entered into by St. Andrews and Sherman Park in 1995) to extend the

period of the taking of their prepayment rights beyond the date of the Housing

Opportunity Program Extension Act of 1996 (“the HOPE Act”), which restored

prepayment rights that had been taken away by earlier legislation in 1988 and 1990.

For the reasons set forth below, we disagree.

      The government treats this case as if Congress first relieved St. Andrews and

Sherman Park of the statutory bar on the prepayment of their mortgages and then

offered them the opportunity to enter into the use agreements that provided certain

benefits in exchange for their agreement to remain in the federal low-income housing

program.   But that is not the way things happened.       In 1988 and 1990, Congress

enacted statutes forbidding owners in the low-income housing program from prepaying

their mortgages.   In 1995, St. Andrews and Sherman Park entered into the use

agreements in which they agreed to remain in the federal low-income housing program

in exchange for certain benefits.   In 1996, Congress passed the HOPE Act, which

effectively removed the prior statutory restrictions on prepayment, but did not alter the

terms of the use agreements. Thus, at the time St. Andrews and Sherman Park entered

into the use agreements, they faced a flat statutory prohibition on prepayment of their

mortgages. Declining to enter the use agreements at that time would not have left them

free to prepay their mortgages and leave the low-income housing program. In fact, as

the plaintiffs have argued, if they had not entered into the use agreements but had

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continued to litigate their takings claims—and the HOPE Act had never been enacted—

the government would likely have been able to argue that the plaintiffs were not entitled

to the full measure of their damages in the takings case because they had failed to

mitigate their damages by accepting the benefits of the use agreements. Once the

plaintiffs entered into the use agreements, which locked them into the low-income

housing program, any subsequent lifting of the statutory ban on prepayment of

mortgages became irrelevant to them. For that reason, the government cannot point to

the reinstatement of the right to prepay mortgages as reducing the amount of the

damages that St. Andrews and Sherman Park can claim.

      Some examples may make the flaw in the government’s position clear. Suppose

a state enacts a statute directing that certain property be converted into a public park.

The owner of the property, who planned commercial development for the site, files an

action claiming a taking.   The state then offers to hire the owner to undertake the

physical conversion of the property into a park. After the owner enters that contract

(without waiving its right to sue for the taking of the property), the state repeals the

legislation requiring that the property be converted into a park and argues that there

was no compensable permanent taking, only a short interlude (or temporary taking) in

which commercial use was not permitted. The state’s argument, if accepted, would

mean that it would get a park without paying just compensation for taking the property,

and instead only paying for the cost of the conversion.

      For an example closer to the facts of this case, suppose that at the same time

that Congress enacted legislation permanently barring the plaintiffs from prepaying their

mortgages, it offered use agreements worth half of what the prepayment bar cost the

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plaintiffs, on the condition that the plaintiffs would agree to remain in the low-income

housing program. Suppose further that the plaintiffs accepted the use agreements in

order to reduce their damages (and avoid the government’s claim that they had failed to

mitigate their damages). Finally, suppose that as soon as the plaintiffs entered into the

use agreements, thereby committing themselves to remain in the low-income housing

program, Congress repealed the statutory prepayment ban.           In that situation, the

statutory prepayment ban might have lasted only days. Yet the government could not

reasonably contend that in valuing the damages from the taking, the court would be

limited to considering only the losses suffered by the plaintiffs during the few days that

the statutory prepayment ban was in effect. If such an argument were accepted, the

government would have been able, by this contrivance, to reduce its liability for the

taking by 50 percent. Although the timing in this case is somewhat different, that is in

essence what has happened here, and the government’s argument that the enactment

of the HOPE Act terminated the takings period for valuation purposes is as unappealing

here as it is in the example.

       The government contends that our decision in this appeal ignores the rule that

takings damages are limited to just compensation for what was taken and do not

encompass consequential damages. See, e.g., City of Monterey v. Del Monte Dunes at

Monterey, Ltd., 526 U.S. 687, 711 (1999); Yuba Natural Res., Inc. v. United States, 904

F.2d 1577, 1581 (Fed. Cir. 1990). We do not believe our decision runs afoul of that

rule. As the Supreme Court has recognized, the task of measuring just compensation

can be difficult in certain instances and is not amenable to a rigid formula. See United

States v. Commodities Trading Corp., 339 U.S. 121, 123 (1950) (“This Court has never

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attempted to prescribe a rigid rule for what is ‘just compensation’ under all

circumstances and in all cases.”); United States v. Toronto, Hamilton & Buffalo

Navigation Co., 338 U.S. 396, 402 (1949) (“Perhaps no warning has been more

repeated than that the determination of value cannot be reduced to inexorable rules.”);

United States v. Cors, 337 U.S. 325, 332 (1949). In cases such as this one, where the

facts differ from the paradigm case of a permanent seizure of real property by eminent

domain, the Supreme Court has characterized the damages analysis as “a guess, as

well informed as possible, as to what the equivalent would probably have been had a

voluntary exchange taken place.” Kimball Laundry Co. v. United States, 338 U.S. 1, 6

(1979).

      The question facing us in this case is how best to calculate the value of what was

taken by the 1988 and 1990 statutes. A person valuing the amount taken at the time

those statutes were enacted would consider the taking permanent and make the

valuation determination on that basis. See Almota Farmers Elevator & Warehouse Co.

v. United States, 409 U.S. 470, 474 (1973) (just compensation for a taking is measured

as of the time of the taking). When subsequent action converts an otherwise permanent

taking into a temporary one, just compensation is typically calculated in the same

manner, adjusted to account for the subsequent events so that the damages will

accurately reflect the value of what was taken. See First English Evangelical Lutheran

Church of Glendale v. County of Los Angeles, 482 U.S. 304, 321 (1987); Yuba, 904

F.2d at 1581. The government insists that the enactment of the HOPE Act terminated

the taking (and thus limited the damages to the pre-enactment period) by restoring the

right of prepayment. In our initial opinion we held (and we reiterate today) that the

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government’s valuation method does not reflect the value of what was taken. Because

St. Andrews and Sherman Park did not have the choice of prepaying their mortgages at

the time they entered into their use agreements, the damages determination cannot be

conducted as if the HOPE Act had restored the plaintiffs’ right to prepay their

mortgages, after which they then voluntarily chose to forgo that right in favor of

obtaining the use agreement benefits.

       The government argues that the decision in this case is contrary to this court’s

decision in Wyatt v. United States, 271 F.3d 1090 (Fed. Cir. 2001), but there is a

fundamental distinction between the two cases. In Wyatt, a mining company allowed its

mining lease to expire while its permit application was pending. We held that the mining

company could not assert a takings claim for the denial of the permit, because at the

time of the denial the company had voluntarily relinquished its interest in the property in

question. The difference between that case and this one is that in Wyatt the deprivation

ended when the plaintiff “voluntarily relinquished its valid property interest.” 271 F.3d at

1097 n.6. In this case, by contrast, St. Andrews and Sherman Park did not have a

“valid property interest” in the right to prepay their mortgages at the time they entered

into the use agreements, because that interest had been unconditionally extinguished

by statute several years earlier.

       The crux of the error in the government’s argument can be found in its statement

that “upon entering the use agreements plaintiffs gave up any prospective right to

takings compensation, because they relinquished the very right that was the subject of

their takings claim,” i.e., the right to prepay the mortgages. The plaintiffs simply did not

have that right at the time they purportedly “gave [it] up.” While the act of entering into

                                             6
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the use agreements may have been voluntary, the plaintiffs cannot be said to have

been restored.      We therefore reiterate that the proper method for assessing

the“voluntarily relinquishe[d]” a right that had already been taken by statute and had not

damages suffered by St. Andrews and Sherman Park is to start with the damages that

would have been assessed for a permanent taking and to reduce that amount by the

value of the benefits conferred on St. Andrews and Sherman Park by the use

agreements, as determined at the time they entered into the agreements.

       Accordingly, the petition for rehearing is granted for purposes of supplementing

our initial opinion with the clarification set forth above. In all other respects, the petition

is denied.

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