Free Motion for Judgment on the Pleadings - District Court of Federal Claims - federal

Case 1:05-cv-00677-CCM

Document 24

Filed 11/16/2006

Page 1 of 18

IN THE UNITED STATES COURT OF FEDERAL CLAIMS TAMERLANE, LIMITED, et. al, Plaintiffs, v. THE UNITED STATES, Defendant. ) ) ) ) ) ) ) ) )

No. 05-677C (Judge Christine O.C. Miller)

DEFENDANT'S MOTION FOR JUDGMENT ON THE PLEADINGS, DISMISSING THE CLAIMS OF PARK TERRACE LIMITED AND MULLICA WEST LIMITED Pursuant to Rule 12(c) of the Rules of the United States Court of Federal Claims and this court's Order dated November 15, 2006, defendant respectfully requests the Court to grant the Government judgment on the pleadings, dismissing the claims of plaintiffs Park Terrace Limited ("Park Terrace") and Mullica West Limited ("Mullica") , for lack of jurisdiction or for failure to state a claim upon which relief can be granted.1 In support of this motion, we rely upon the complaint,2 the attached appendix,3 and the following brief.

In our Motion to Lift Stay for Purpose of Allowing Filing and Adjudication of Dispositive Motion, we stated that we would also seek dismissal of Count Two of the complaint (alleging a taking of property without just compensation) as to all plaintiffs, for failure to state a claim upon which relief can be granted. In its November 15, 2006 Order, the Court lifted the stay for all purposes, but also stated that the Court "deem[ed] that the jurisdictional issues only should be addressed." For this reason, the present motion is limited to the statute of limitations issue, which is jurisdictional. We reserve the right to file a separate dispositive motion concerning the merits of Count Two, and any other non-jurisdictional issues, at a later time. For the purposes of this motion only, the factual allegations contained in the complaint will be treated as true. If the Court concludes that the untimeliness of the claims in question is not sufficiently evident upon the face of the pleadings, the Court may properly consider the attached correspondence pursuant to Rule 12(c), which provides: (continued...)
3 2

1

Case 1:05-cv-00677-CCM

Document 24

Filed 11/16/2006

Page 2 of 18

DEFENDANT'S BRIEF Nature Of The Case Plaintiffs allege that they are property owners who entered into loan agreements with the Farmers Home Administration, United States Department of Agriculture ("FmHA"),4 pursuant to sections 515 and 521 of the Housing Act of 1949, 42 U.S.C. § 1485, 1490a, to provide rental housing for low- and moderate-income persons. Complaint ¶¶ 1, 19. Plaintiffs allege that the Government breached these agreements, or effected a taking of plaintiffs' property without just compensation, through the enactment and implementation of two statutes: the Emergency Low Income Housing Preservation Act, Pub. L. No. 100-242, 101 Stat. 1877 (1988) ("ELIHPA"), and the Housing and Community Development Act of 1992, Pub. L. No. 102-550, 106 Stat. 3672 (1992) ("the 1992 Act"). Specifically, loan agreements contained various provisions designed to ensure the lowincome affordability of the projects. These provisions included restrictions as to the tenants to whom the plaintiffs could rent, the rents plaintiffs could charge, and the profits plaintiffs could receive, as well as requirements regarding the maintenance and financial operations of each

3

(...continued) If, on a motion for judgment on the pleadings, matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in RCFC 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by RCFC 56.

The Rural Housing Service is the successor agency to the Farmers Home Administration. For purposes of this brief, "FmHA" refers to the Farmers Home Administration or the Rural Housing Service, where appropriate. 2

4

Case 1:05-cv-00677-CCM

Document 24

Filed 11/16/2006

Page 3 of 18

project. Complaint ¶ 17. In connection with these loan agreements, each plaintiff executed a promissory note and real estate mortgage. Complaint ¶ 18. According to plaintiffs, these documents also provided plaintiffs with the option of prepaying their mortgages, and thereby discontinuing the low-income affordability restrictions, at any time, Complaint ¶¶ 21-22, except that, in the case of loans into which plaintiffs entered after December 21, 1979, plaintiffs were required by the terms of the loan documents to maintain the low-income affordability of the housing for a 20 year period following the date of the loan. Complaint ¶ 7. Plaintiffs complain that ELIHPA amended the Housing Act of 1949 to place restrictions upon the prepayment options available to housing project owners who had entered into mortgages prior to December 21, 1979, Complaint ¶ 26, and that the 1992 Act extended these prepayment restrictions to loans made after that date. Complaint ¶ 31. Plaintiffs allege that this legislation repudiated the purported right of these FmHA loan program participants to prepay their loans and "terminate" their loan agreements at any time. Complaint ¶¶ 24, 31, 39. In Count One of their complaint, plaintiffs assert a claim for breach of contract, upon the theory that this legislation "anticipatorily repudiated the contract between the defendant and each of the plaintiffs," and that this "anticipatory repudiation has deprived and will deprive each plaintiff of its contractual right to terminate its contract at any time at its option . . . ." Complaint ¶ 50. In Count Two, plaintiffs allege that "defendant's conduct constitutes a taking of plaintiffs' properties for public use and requires payment to plaintiffs of just compensation under the Fifth Amendment to the U.S. Constitution." Complaint ¶ 53.

3

Case 1:05-cv-00677-CCM

Document 24

Filed 11/16/2006

Page 4 of 18

According to the complaint, however, all of the events that gave rise to the claims of plaintiffs Park Terrace and Mullica occurred well in excess of six years before the complaint was filed. The claims of these plaintiffs, therefore, are time-barred. ARGUMENT One of the jurisdictional prerequisites for suit in this Court is that the suit be filed within six years of the accrual of the claim asserted. "Every claim of which the United States Claims Court has jurisdiction shall be barred unless the petition thereon is filed within six years after such claim first accrues." 28 U.S.C. § 2501. As the United States Court of Appeals for the Federal Circuit has observed: Section 2501 constitutes a jurisdictional limit on the authority of the Court of Federal Claims. In Caguas Central Federal Savings Bank v. United States, we explained why this is so: "[I]n the Court of Federal Claims, the statute of limitations is jurisdictional, because filing within the six-year period was a condition of the waiver of sovereign immunity in the Tucker Act." . . . Frazer v. United States, 288 F.3d 1347, 1351 (Fed. Cir.2002), quoting Caguas Central Federal Savings Bank v. United States, 215 F.3d 1304, 1310 (Fed. Cir.2000).5 The principles governing the time of accrual of the claims in this case were addressed by the Supreme Court in Franconia Associates v. United States, 536 U.S. 129 (2002). In Franconia, the Supreme Court reversed the decisions of this Court and of the Federal Circuit (which had held that the plaintiffs' claims accrue upon the enactment of ELIHPA), and stated: "Unless

Although the statute of limitations is jurisdictional, some of the decisions of this Court and the United States Court of Appeals for the Federal Circuit state that failure to state a claim rather than lack of subject matter jurisdiction is the more appropriate ground for dismissal based upon the statute of limitations. Grass Valley Terrace v. United States, 69 Fed. Cl. 341 (2005), and cases cited therein at 345-48. 4

5

Case 1:05-cv-00677-CCM

Document 24

Filed 11/16/2006

Page 5 of 18

petitioners treated 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 (footnote omitted). Further, although the Supreme Court's analysis of the statute of limitations issue focused upon the breach of contract claims, the Court reached the same conclusion with respect to the takings claims, stating: [W]e need not separately address petitioners' alternative theory of recovery based on the Takings Clause of the Fifth Amendment. The Federal Circuit's holding that takings relief was time barred hinged entirely on its conclusion that petitioners' contract claims accrued upon passage of ELIHPA. See 240 F.3d, at 1365-1366. Because that conclusion was incorrect, we hold, the Federal Circuit erred in dismissing petitioners' takings theory on grounds of untimeliness. 536 U.S. at 149. Elsewhere in the same opinion, a breach of contract is described as occurring "when a borrower tenders prepayment and the Government then dishonors its obligation to accept the tender and release its control over use of the property that secured the loan." Id. at 133. This does not mean, however, that the borrower's attempt to prepay must take the form of mailing a check or otherwise physically transmitting the outstanding balance of the loan in order to trigger the running of the statute of limitations. According to plaintiffs' theory of the case, as reflected in the complaint, their submission of a prepayment requests triggered the Government's obligation to perform, and the Government's refusal to accept these requests to prepay constituted a breach of contract and a taking of property. See Complaint ¶¶ 41-48. Further, as plaintiffs themselves put it:

5

Case 1:05-cv-00677-CCM

Document 24

Filed 11/16/2006

Page 6 of 18

The Government's repudiation does not constitute a failure to carry out any immediate duty of present performance unless and until the date of Government performance required by each contract arrives, i.e., the date that any FmHA contract holder would have achieved its option of terminating its contract but for the Government's repudiation. . . . Complaint ¶ 39. "The Government's anticipatory repudiation constitutes a breach of each plaintiff's contract as of the date of Government performance required by each contract, i.e., the date that each plaintiff would terminate its contract but for the Government's repudiation." Complaint ¶ 50. "As of the date of Government performance required by each contract entered into between defendant and the plaintiffs, defendant's conduct constitutes a taking of plaintiffs' properties for public use . . . ." Complaint ¶ 53. In the case of Park Terrace and Mullica, the complaint itself indicates that the date of the Government's alleged obligation to perform occurred by 1992, 15 years before the commencement of this action. Thus, with respect to Park Terrace, plaintiffs allege: In or about 1992, the Government, aware that contractually the partnership had the unfettered right to prepay its loan, informed the partnership that notwithstanding its unfettered right to prepay the FmHA would never approve prepayment, and urged the partnership that it should settle for "incentives." The partnership, under duress and otherwise by reason of the wrongdoing of the Government, accepted "incentives" and obligated itself to a 20 year period in which it agreed not to take the project out of the program. Complaint ¶ 11.2. The complaint makes the identical allegation with respect to Mullica, except that the same events are alleged to have occurred in 1991. Complaint ¶ 11.4. Although the complaint does not expressly state that Park Terrace and Mullica each submitted a prepayment application prior to being offered incentives to remain in the program, such an allegation is implicit in the allegation that incentive offers were made, for two reasons. First, as plaintiffs 6

Case 1:05-cv-00677-CCM

Document 24

Filed 11/16/2006

Page 7 of 18

allege in paragraph 41 of the complaint, such incentive offers were made to those plaintiffs who applied to prepay ("certain of the plaintiffs have submitted applications for prepayment and/or an offer of `incentives' from the Government. The Government has in every instance refused to accept prepayment from plaintiffs pursuant to the provisions of their contracts"). Complaint ¶ 41. Second, the applicable regulations do not provide for incentive offers except in response to prepayment requests. See 7 C.F.R. § 1965.90(b)(1) (1992), and Exhibit E, to subpart B, referenced therein. Moreover, even if the complaint does not expressly and unequivocally state that Park Terrace and Mullica submitted prepayment requests by 1992, the fact is that they did so. Park Terrace initially applied to prepay by letter dated November 18, 1991. Def. App. 1. By letter of April 14, 1992, Park Terrace requested reinstatement of its prepayment application. Def. App. 2. By letter of June 23, 1992, the Government made an incentive offer to Park Terrace. Def. App. 3. By letter of September 1, 1992, the Government increased the amount of the incentive offer. Def. App. 4. By letter of September 23, 1992, Park Terrace accepted the September 1, 1992 offer. Def. App. 5. Mullica initially applied to prepay by letter dated October 11, 1988. Def. App. 6. By letter of March 14, 1991, the Government made an incentive offer to Mullica. Def. App. 7. By letter of the same date, Mullica accepted the March 14, 1991. Def. App. 8. If, as plaintiffs allege, the Government "refused to accept prepayment from plaintiffs pursuant to the provisions of their contracts," Complaint ¶ 41, this refusal established an immediate breach for statute of limitation purposes. Franconia, 536 U.S. at 142-43 ("Once the Government's pledged performance is properly comprehended as an obligation to accept prepayment, the error in the Federal Circuit's reasoning becomes apparent. Failure by the

7

Case 1:05-cv-00677-CCM

Document 24

Filed 11/16/2006

Page 8 of 18

promissor to perform at the time indicated for performance in the contract establishes an immediate breach").6 The allegations in the complaint concerning the Government's refusal to accept prepayment from Park Terrace and Mullica, and concerning their acceptance "under duress" of incentives to remain in the FmHA loan program in lieu of prepayment, indicate that the events that triggered the running of the statute of limitations on these plaintiffs' breach of contract and takings claims occurred in 1991 and 1992. If the complaint leaves any room for doubt in the matter, that doubt is eliminated by the correspondence in the attached appendix. CONCLUSION For the foregoing reasons, the claims of plaintiffs Park Terrace and Mullica should be dismissed. Respectfully submitted, PETER D. KEISLER Assistant Attorney General

s/David M. Cohen DAVID M. COHEN Director

We note that, in referring to an "obligation to accept prepayment" and an "immediate breach," the Supreme Court was not addressing the merits of the claim. The merits ­ including the question whether ELIHPA was inconsistent with any contractual rights ­ were not before the Supreme Court, and were not decided by that court. 8

6

Case 1:05-cv-00677-CCM

Document 24

Filed 11/16/2006

Page 9 of 18

OF COUNSEL Michael S. Dufault Kenneth S. Kessler Commercial Litigation Branch Civil Division Department of Justice Alicia Peden Office of General Counsel Department of Agriculture

s/Shalom Brilliant SHALOM BRILLIANT Senior Trial Counsel Commercial Litigation Branch Civil Division Department of Justice 1100 L Street, N.W. Attn: Classification Unit 8th Floor Washington, D.C. 20530 Telephone: (202) 305-7561 Facsimile: (202) 305-7643 Attorneys for Defendant

Filed electronically November 16, 2006

9

Case 1:05-cv-00677-CCM

Document 24

Filed 11/16/2006

Page 10 of 18

Case 1:05-cv-00677-CCM

Document 24

Filed 11/16/2006

Page 11 of 18

Case 1:05-cv-00677-CCM

Document 24

Filed 11/16/2006

Page 12 of 18

Case 1:05-cv-00677-CCM

Document 24

Filed 11/16/2006

Page 13 of 18

Case 1:05-cv-00677-CCM

Document 24

Filed 11/16/2006

Page 14 of 18

Case 1:05-cv-00677-CCM

Document 24

Filed 11/16/2006

Page 15 of 18

Case 1:05-cv-00677-CCM

Document 24

Filed 11/16/2006

Page 16 of 18

Case 1:05-cv-00677-CCM

Document 24

Filed 11/16/2006

Page 17 of 18

Case 1:05-cv-00677-CCM

Document 24

Filed 11/16/2006

Page 18 of 18