Free Memorandum of Contentions of Fact and Law - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS CLAREMONT VILLAGE, et al., Plaintiffs, v. UNITED STATES, Defendant.
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No. 94- 10002C; 94-10003C; 9410005C; 94-10006C; 94-10007C; 9410008; 94-10010C; 94-10020C; 9410030C; 94-10040C (consolidated) Judge Lettow

SET III PLAINTIFFS' PRE-TRIAL MEMORANDUM OF CONTENTIONS OF FACT AND LAW

Everett C. Johnson LATHAM & WATKINS LLP 555 Eleventh Street, NW Suite 1000 Washington, D.C. 20004 Tel: (202) 637-2200 Fax: (202) 637-2201

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TABLE OF CONTENTS Page I. INTRODUCTION .............................................................................................................. 1 A. B. II. Relevant History Of The Case ................................................................................ 1 Issues To Be Tried .................................................................................................. 7

CONTENTIONS OF FACT ............................................................................................. 10 A. B. C. D. E. F. G. The Regulatory Agreements ................................................................................. 10 Plaintiffs' Properties ............................................................................................. 13 ELIHPA and LIHPRHA ....................................................................................... 23 Preservation Benefits ............................................................................................ 34 The HOPE Act ...................................................................................................... 38 Just Compensation ................................................................................................ 39 Interest on Just Compensation Award .................................................................. 75

III.

CONTENTIONS OF LAW .............................................................................................. 75 A. B. Plaintiffs' Takings Claims Are Ripe For Review ................................................. 77 ELIHPA And LIHPRHA Effected A Taking Of Plaintiffs' Right To Prepay Their HUD-Insured Mortgages On Their Twenty-Year Prepayment Dates......... 79 a. b. c. C. The Government's Actions In Enacting ELIHPA And LIHPRHA Have The Character Of A Taking............................................................. 79 ELIHPA and LIHPRHA Caused Sufficiently Severe Economic Impact To Effect a Taking ........................................................................ 84 ELIHPA And LIHPRHA Frustrated Plaintiffs' Distinct, Reasonable, and Investment-Backed Expectations ....................................................... 87

Plaintiffs Are Entitled To Just Compensation For The Taking Of Their Property ............................................................................. 91 a. Plaintiffs Are Entitled To Just Compensation For The Damages They Suffered From The Date Of The Taking Until The Date They Entered Into Use Agreements................................................................................. 91

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b. D.

Plaintiffs Are Entitled To Just Compensation For The Damages They Suffered As A Result Of Their Use Agreements............................ 95

Plaintiffs Are Entitled To Compound Interest As A Component Of Just Compensation ....................................................................................................... 98

CONCLUSION............................................................................................................................. 98

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TABLE OF AUTHORITIES Page CASES 767 Third Ave. Assocs. v. United States, 48 F.3d 1575 (Fed. Cir. 1995) .................................................................................................. 97 Am. Pelagic Fishing Co., L.P. v. United States, 55 Fed. Cl. 575 (2003) .............................................................................................................. 93 Armstrong v. United States, 364 U.S. 40 (1960).................................................................................................................... 79 Bass Enters. Prod. Co. v. United States, 48 Fed. Cl. 621 (2001) .............................................................................................................. 92 CCA Assocs. v. United States, Slip Opinion (Fed. Cl. 2007) ............................................................................................. passim Cienega Gardens v. United States, 194 F.3d 1231 (Fed. Cir. 1998) .............................................................................................. 2, 7 Cienega Gardens v. United States, 265 F.3d 1237 (Fed. Cir. 2001) ................................................................................ 2, 32, 77, 79 Cienega Gardens v. United States, 33 Fed. Cl. 196 (1995) ................................................................................................................ 1 Cienega Gardens v. United States, 331 F.3d 1319 (Fed. Cir. 2003) ......................................................................................... passim Cienega Gardens v. United States, 37 Fed. Cl. 79 (1996) .................................................................................................................. 1 Cienega Gardens v. United States, 38 Fed. Cl. 64 (1997) .................................................................................................... 2, 3, 4, 95 Cienega Gardens v. United States, 46 Fed. Cl. 506 (2000) ................................................................................................................ 2 Cienega Gardens v. United States, 67 Fed.Cl. 434 (2005) ........................................................................................................ passim Cienega Gardens v. United States, No. 94-1-C (Fed. Cl. Jan. 8, 2002) ............................................................................................. 3

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City Line Joint Venture v. United States, 71 Fed.Cl. 486 (2006) ............................................................................................................... 80 Dist. Intown Props. Ltd. P'ship v. District of Columbia, 198 F.3d 874 (D.C. Cir. 1999).................................................................................................. 85 Dolan v. City of Tigard, 512 U.S. 374 (1994).................................................................................................................. 83 Dynamics Corp. of Am. v. United States, 766 F.2d 518 (Fed. Cir. 1985) ................................................................................................ 100 Gen. Motors, 323 U.S. at 382 ......................................................................................................................... 93 Heydt v. United States, 38 Fed. Cl. 286 (1997) .............................................................................................................. 97 Hodel v. Irving, 481 U.S. 704 (1987).................................................................................................................. 83 Independence Park Apartments v. United States, 465 F.3d 1308 (Fed. Cir. 2006) ............................................................................................ 5, 92 Independence Park Apartments v. United States, 61 Fed. Cl. 692 (2004) ....................................................................................................... passim Independence Park Apartments. v. United States, 449 F.3d 1235 (Fed. Cir. 2006) ......................................................................................... passim ITT Corp. v. United States, 17 Cl. Ct. 199 (1989) .............................................................................................................. 101 Kimball Laundry Co. v. United States, 338 U.S. 1 (1949).......................................................................................................... 81, 92, 93 Kirby Forest Indus., Inc. v. United States, 467 U.S. 1 (1984)...................................................................................................................... 99 Lingle v. Chevron U.S.A., Inc., 544 U.S. 528 (2005).................................................................................................................. 80 Loveladies Harbor, Inc. v. United States, 28 F.3d 1171 (Fed. Cir. 1994) ...................................................................................... 80, 84, 87 Lucas v. S.C. Coastal Council, 505 U.S. 1003 (1992)................................................................................................................ 79

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Maritrans v. United States, 342 F.3d 1344 (Fed. Cir. 2003) ................................................................................................ 87 Nollan v. Cal. Coastal Comm'n, 483 U.S. 825 (1987).................................................................................................................. 82 Pa. Coal Co. v. Mahon, 260 U.S. 393 (1922).................................................................................................................. 79 Penn Cent. Transp. Co. v. New York City, 438 U.S. 104 (1978)................................................................................................ 79, 81, 84, 87 Pennell v. City of San Jose, 485 U.S. 1 (1988)...................................................................................................................... 82 Prudential Ins. Co. of Am. v. United States, 801 F.2d 1295 (Fed. Cir. 1986) ................................................................................................ 81 Rose Acre Farms v. United States, 373 F.3d. 1177 (Fed. Cir. 2004) ............................................................................................... 85 Shelden v. United States, 34 Fed. Cl. 355 (1995) ........................................................................................................ 97, 99 Studiengesellschaft Kohle v. Dart Indus., Inc., 862 F.2d 1564 (Fed. Cir. 1988) ................................................................................................ 99 United States v. Commodities Trading Corp., 339 U.S. 121 (1950).................................................................................................................. 92 United States v. Gen. Motors Corp., 323 U.S. 373 ........................................................................................................................ 92-93 United States v. Miller, 317 U.S. 369 (1943)............................................................................................................ 91, 95 United States v. Petty Motor Co., 327 U.S. 372 (1946).................................................................................................................. 92 Vaizburd v. United States, 67 Fed. Cl. 257 (2005) ............................................................................................................ 100 Whitney Benefits, Inc. v. United States, 30 Fed. Cl. 411 (1994) ..................................................................................................... 101-102 Yancey v. United States, 915 F.2d 1534 (Fed. Cir. 1990) ................................................................................................ 84 STATUTES v

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12 U.S.C. § 1715l................................................................................................................... passim 12 U.S.C. § 4101............................................................................................................................. 1 12 U.S.C. § 4108............................................................................................................... 24, 26, 77 12 U.S.C. § 4108(a) ...................................................................................................................... 26 12 U.S.C. § 4108(a)(1)(A) ............................................................................................................ 26 12 U.S.C. § 4108(c) ...................................................................................................................... 27 12 U.S.C. § 4110(b)-(c) ................................................................................................................ 27 12 U.S.C. § 4111(b)-(c) ................................................................................................................ 27 12 U.S.C. § 4112(a)(2)(A) ............................................................................................................ 26 12 U.S.C. § 4114(a)(1)(A) ............................................................................................................ 27 12 U.S.C. § 4114(a)(1)(B)-(2) ...................................................................................................... 27 12 U.S.C. § 4117(c) ...................................................................................................................... 26 12 U.S.C. § 4121........................................................................................................................... 35 42 U.S.C. § 1437f ......................................................................................................................... 34 42 U.S.C. § 1437f(c)(8) ................................................................................................................ 23 L.A. Mun. Code § 151.02 ...................................................................................................... passim L.A. Mun. Code § 151.06 ................................................................................................. 41, 94, 95 RULES 24 C.F.R. § 207.14 ........................................................................................................................ 13 24 C.F.R. § 207.253(a)(2)............................................................................................................. 13 24 C.F.R. § 221.524(a).................................................................................................................. 13 24 C.F.R. § 221.524(a)(1)(ii) ........................................................................................................ 88 24 C.F.R. § 236.30 .................................................................................................................. 13, 88 24 C.F.R. § 248.141(a)(1)....................................................................................................... 24, 77 24 C.F.R. § 248.141(e).................................................................................................................. 27

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24 C.F.R. § 248.213(b) ................................................................................................................. 24 24 C.F.R. §§ 248.1 to 248.319...................................................................................................... 26 24 C.F.R. §§ 248.101 to 248.261.................................................................................................. 23 OTHER AUTHORITIES Housing Act of 1954, Pub. L. No. 83, 68 Stat. 590 (1954) ................................................... passim Housing Act of 1961, Pub. L. No. 87-70, tit. I, § 101(a)(6), 75 Stat. 149 (1961)....................................................................................... 11 Housing and Urban Development Act of 1965, § 101.................................................................. 16 Housing and Urban Development Act of 1968, Pub. L. No. 90-448, tit. II, § 201, 82 Stat. 476, 498-501 (1968) .............................................. 11 Housing Opportunity Program Extension Act, Pub. L. No. 104, 110 Stat. 834 (1996) ............................................................................... passim National Housing Act, Pub. L. No. 73-479, § 1, 48 Stat. 1246 (1934)......................................... 10 Pub. L. No. 104, 110 Stat. 834 (1996) .......................................................................................... 38 Pub.L. No. 101-402, § 1, 104 Stat. 866 (Oct. 1, 1990) ................................................................. 25 Pub.L. No. 101-494, 104 Stat. 1185 (Oct. 31, 1990) .................................................................... 25 S. Rep. No. 101-316 (1990) .................................................................................................... 32, 78 S. Rep. No. 87-281 (1961) ............................................................................................................ 11

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I.

INTRODUCTION A. Relevant History Of The Case

On January 3, 1994, twenty-one property owners filed suit against the United States in the U.S. Court of Federal Claims ("COFC"). The Complaint alleged that, by enacting ELIHPA1 and LIHPRHA,2 the government (i) breached a contractual promise to the owners that it would allow them to prepay their mortgages after 20 years; (ii) effected both a per se and regulatory taking requiring just compensation; and (iii) violated statutory and administrative requirements. See Compl. ¶¶ 30-38. By order dated March 27, 1995, Judge Robinson granted plaintiffs' motion for partial summary judgment on their breach of contract claims, dismissed plaintiffs' statutory and administrative claims, and found the record insufficient to rule on their regulatory takings claims. Cienega Gardens v. United States, 33 Fed. Cl. 196 (1995) ("Cienega I"). On April 1, 1996, 21 similarly-situated plaintiffs were added to the lawsuit. Cienega Gardens v. United States, No. 94-1 (Fed. Cl. Apr. 1, 1996) (Order). These plaintiffs moved for summary judgment on their breach of contract claim only, and on December 11, 1996, the COFC granted that motion. Cienega Gardens v. United States, 37 Fed. Cl. 79 (1996) ("Cienega II"). These 21 plaintiffs, in combination with the original 21 plaintiffs, are jointly referred to herein as "Owners".

1

"ELIHPA" is the Emergency Low Income Housing Preservation Act of 1987, Pub. L. No. 100242, § 202(a)(1), 101 Stat. 1877 (1988) (codified as amended at 12 U.S.C. § 1715l note). ELIHPA is also referred to as "Title II."

"LIHPRHA" is the Low Income Housing Preservation and Residential Homeownership Act of 1990, Pub. L. No. 101-625, § 601, 104 Stat. 4079, 4249, codified at 12 U.S.C. § 4101 et seq. LIHPRHA is also referred to as "Title VI." 1

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Judge Robinson then conducted a trial that focused on the breach-of-contract damages for four "Model Plaintiffs3" that were chosen jointly by Owners and the government. At the conclusion of the trial, Judge Robinson adopted Owners' damages model and concluded that ELIHPA and LIHPRHA caused Model Plaintiffs an aggregate loss of $3,061,107 on their four properties, which represented the economic loss that resulted from being forced to continue operating their properties under the U.S. Department of Housing and Urban Development ("HUD") restrictions instead of being allowed to prepay their HUD-insured mortgages, exit the federal low-income housing programs, and raise their rents to market rates. Cienega Gardens v. United States, 38 Fed. Cl. 64, 85-89 (1997) ("Cienega III"). The U.S. Court of Appeals for the Federal Circuit ("Court of Appeals") reversed the contract liability holding and remanded. Cienega Gardens v. United States, 194 F.3d 1231 (Fed. Cir. 1998) ("Cienega IV"). On remand, Model Plaintiffs and the government filed cross-motions for summary judgment on the takings claims, based largely on the record developed in the earlier damages trial. See Cienega Gardens v. United States, 46 Fed. Cl. 506 (2000) (Hodges, J.) ("Cienega V"). Judge Hodges dismissed Model Plaintiffs' regulatory takings claims on ripeness grounds, concluding that Owners were required preliminarily to apply to HUD for permission to prepay, regardless of whether HUD had the statutory discretion to allow prepayment on the particular properties at issue, and granted summary judgment against Owners' per se takings claims. See id. The Court of Appeals affirmed the ruling against Model Plaintiffs' per se takings claims, but vacated the judgment dismissing Owners' regulatory takings claims. See Cienega Gardens v. United States, 265 F.3d 1237 (Fed. Cir. 2001) ("Cienega VI"). Because the record conclusively established that HUD had no discretion to permit Model Plaintiffs to prepay their
3

The four Model Plaintiffs were the owners of the Sherman Park Apartment, St. Andrews Garden, Independence Park Apartments, and Pico Plaza Apartments properties. 2

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mortgages, the Court of Appeals held that any request by Model Plaintiffs for an exemption from the statutory prepayment ban would have been futile. Id. at 1244­48. The court also agreed with Model Plaintiffs that Judge Hodges erred in dismissing the claims of the remaining 38 plaintiffs who had not yet had any opportunity to prove futility and thus remanded to permit the remaining 38 plaintiffs to develop a record to prove that any request by them for an exemption from the statutory prepayment ban would have been futile. Id. at 1248­49. On remand, without further briefing or oral argument, Judge Hodges directed the entry of judgment against Model Plaintiffs' regulatory takings claims, holding as a matter of law that low-income housing developers' contractual prepayment rights were not property interests compensable under the Fifth Amendment, and that these developers could not satisfy the "investment-backed-expectations" and "character of governmental action" prongs of the Penn Central regulatory-takings analysis. Cienega Gardens v. United States, No. 94-1-C (Fed. Cl. Jan. 8, 2002) (order granting summary judgment). The Court of Appeals again reversed. Cienega Gardens v. United States, 331 F.3d 1319 (Fed. Cir. 2003) ("Cienega VIII"). It remanded the 38 non-Model Plaintiffs' takings claims to allow the parties to develop an appropriate record for the COFC to rule on liability, and if liability was found, also on just compensation. Id. at 1354. For Model Plaintiffs, the Court of Appeals held that LIHPRHA and ELIHPA effected a temporary regulatory taking of Model Plaintiffs' vested property interests. The Court relied upon Judge Robinson's factual findings with respect to Model Plaintiffs' contract damages in Cienega III as well as other numbers derived directly from Owners' expert report on damages to assess ELIHPA and LIHPRHA's economic impact. Id. at 1341-45. The evidence showed that Model Plaintiffs earned a 0.3% rate of return. Id. at 1342-43. Based on this evidence, the Court of Appeals found that the

3

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prohibition against prepayment and conversion to market-based rentals reduced Model Plaintiffs' return on equity by 96%. Id. at 1343. That, according to the Court of Appeals, is, "even under the most conservative view, a `serious financial loss.'" Id. The Court of Appeals further concluded that the government's actions in enacting ELIHPA and LIHPRHA and abrogating Model Plaintiffs' prepayment rights had the character of a taking, in part because "Congress' objective in passing ELIHPA and LIHPRHA ... is the kind of expense shifting to a few persons that amounts to a taking." Id. at 1338-39. In fact, the court found that "the enactment of ELIHPA and LIHPRHA could fairly be characterized as akin to [a] type of physical invasion." Id. at 1338. The Court of Appeals also found that Model Plaintiffs had reasonable investment-backed expectations because the undisputed evidence demonstrated that Model Plaintiffs expected to be able to prepay after 20 years, and their expectations were reasonable given the language of the mortgage note that HUD authorized and approved and the then-existing HUD regulations. Id. The Court of Appeals directed this Court on remand to reinstate the contract damages award from Cienega III as just compensation for Model Plaintiffs' loss and to proceed in developing a factual record with regard to the remaining 38 plaintiffs. Id. at 1353-54. In its judgment, the Court of Appeals stated that "[o]n remand, the trial court may adjust the original damages award reinstated by this court if it is shown by either party not to compensate accurately for the regulatory taking, and may also determine whether interest is or is not due." Cienega Gardens v. United States, No. 94-CV-1 (Fed. Cir. Nov. 5, 2003) (Judgment). Pursuant to the Court of Appeals's instruction, on remand, this Court severed the Model Plaintiffs' claims from the remaining 38 Plaintiffs' claims and conducted a week-long trial to

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determine the appropriate amount of just compensation for their loss.4 On August 27, 2004, this Court rejected the government's attempt to alter the prior findings of this Court and the Court of Appeals and, using Owners' damages model as the basis for the just compensation award, awarded Model Plaintiffs $3,424,040.90 plus compound interest calculated from the Use Agreement date or the date of prepayment under the Housing Opportunity Program Extension Act, Pub. L. No. 104-120, 110 Stat. 834 (1996), ("HOPE Act"), at the ten-year STRIPS rate.5 As part of this decision, this Court held that the Los Angeles Rent Stabilization Ordinance, L.A. Mun. Code § 151.02 ("LARSO") does not affect Model Plaintiffs' takings claims or just compensation awards. Id. at 705. This Court also declined to include in two Model Plaintiffs' just compensation awards the damages they incurred as a result of their Use Agreements and, instead, only awarded just compensation for damages suffered prior to the HOPE Act. On appeal, the Court of Appeals held that the just compensation awards for the two Model Plaintiffs who had executed Use Agreements should include the damages those Plaintiffs suffered, and will suffer, until the end of their Use Agreements because the Use Agreements require those Plaintiffs to continue operating under HUD restrictions until the termination of the agreements, thus making the HOPE Act irrelevant to them. See Independence Park Apartments. v. United States, 449 F.3d 1235, 1247 (Fed. Cir. 2006) ("Independence Park III"). The Court of Appeals also reversed this Court's holding regarding LARSO and remanded "for reconsideration of the quantum of damages in light of the effect of the Los Angeles rent control ordinance on the compensation due to the plaintiffs." Id. at 1238. The Court of Appeals further held that "[o]ur

4 5

This Court restyled this phase as Independence Park v. United States, Case Number 94-1A-C.

Pre-judgment interest from the date of the taking to either the date of the Use Agreement or the date of prepayment under the HOPE Act was included in the Court's underlying damages award. The Court calculated interest for this time period at 10%. See Independence Park Apartments v. United States, 61 Fed. Cl. 692, 717 (2004) ("Independence Park I"). 5

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decision ...does not bar the trial court from considering [Plaintiffs' argument that HUD would have provided certificates that were exempt from LARSO] on remand." Id. The Government filed a petition for rehearing, and the Court of Appeals reiterated that, as to those Model Plaintiffs who had entered into Use Agreements, the just compensation award should include damages incurred until the end of the Use Agreement. Independence Park Apartments v. United States, 465 F.3d , 1308, 1311-12 (Fed. Cir. 2006) ("Independence Park IV"). With regard to the remaining 38 Owners, this Court ordered that discovery and trial of those plaintiffs' claims proceed in three additional sets: Set II, which was tried in November and December 2004 and is currently on appeal, consists of Blossom Hill, Cienega Gardens Apartments, Del Amo Gardens, Las Lomas, and Skyline View Apartments ("Set II Plaintiffs"); Set III, which is the subject of this trial, consists of Claremont Village Commons, Covina West Apartments, Del Vista Village, DeSoto Gardens Apartments, Kittridge Gardens I, Kittridge Gardens II, Oxford Park Apartments, Parthenia Townhouses, Pioneer Gardens Apartments, and Puente Park Apartments (collectively "Plaintiffs"); and Set IV, which consists of the remaining 23 Owners. As noted previously, this Court conducted a trial regarding Set II Plaintiffs' temporary takings claims in November and December 2004. Set II Plaintiffs' claims were consolidated for purposes of trial with three similarly situated plaintiffs. See Cienega Gardens v. United States, 67 Fed.Cl. 434 (2005) (Lettow, J.) ("Cienega IX"). With regard to Set II Plaintiffs, this Court held that (1) Set II Plaintiffs' temporary taking claims were ripe for review; (2) the Use Agreements executed by several Set II Plaintiffs were not an accord and satisfaction of those plaintiffs' claims; and (3) ELIHPA and LIHPRHA effected a temporary taking of Set II Plaintiffs' properties for which Set II Plaintiffs were entitled to just compensation calculated

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from their prepayment eligibility date through either the end of the Use Agreement, the sale of the property, or 60 days after prepayment under HOPE, depending on the plaintiff's circumstances. See id. Once again, this Court used Owners' damages model as the basis for the just compensation award. B. Issues To Be Tried

The March 5, 2007, trial of Set III Plaintiffs' claims will address the ripeness of Plaintiffs' takings claims, whether ELIHPA and LIHPRHA effected a taking of Plaintiffs' vested property interests, and the appropriate amount of just compensation for that taking. As a preliminary matter, the trial will involve the issue of the ripeness of Plaintiffs' takings claims. Although the issue of ripeness was addressed in Cienega VI, the Court of Appeals was unable to fully decide the issue with regard to Plaintiffs' takings claims due to the lack of a developed factual record. The Court of Appeals did hold however that Owners were not obligated to file futile claims and thus, to prove ripeness on remand, Owners need only prove that it would have been futile to apply to HUD for prepayment. Cienega VI, 265 F.3d at 1248. The Court further held that Model Plaintiffs' takings claims, for which there was a welldeveloped factual record, were ripe because the record evidence demonstrated that HUD lacked the discretion to grant prepayment. Cienega VI, 265 F.3d at 1246-47. The Court reasoned that Model Plaintiffs did not meet the statutorily-required criteria for prepayment under LIHPRHA as prepayment would have caused a rent increase of more than 10%, it would have materially affected the supply of low-income housing, and it would have displaced current tenants. Id. The Court therefore held that an application to prepay would have been futile and thus was not required. Id. Similar to Model Plaintiffs and Set II Plaintiffs, see Cienega IX, Plaintiffs will prove that they did not meet the statutorily-required criteria for prepayment under ELIHPA or LIHPRHA and therefore any application to prepay would have been futile. 7

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The trial will also address the issue of whether the enactment of ELIHPA and LIHPRHA effected a taking of Plaintiffs' right to prepay their HUD-insured mortgages. The Court of Appeals has already determined that Plaintiffs had vested property interests both in the right to control the use of their properties and in the contractual right to prepay that were deliberately abrogated by ELIHPA and LIHPRHA, see Cienega VIII, 331 F.3d at 1353. Thus, the trial will only involve the determination of whether the government's actions in enacting ELIHPA and LIHPRHA have the character of a regulatory taking, whether ELIHPA and LIHPRHA caused sufficiently severe economic impact to effect a taking, and whether ELIHPA and LIHPRHA frustrated Plaintiffs' distinct, reasonable, and investment-backed expectations. Plaintiffs will argue that the Court of Appeals and this Court have already established that the government's actions in enacting ELIHPA and LIHPRHA have the character of a taking. Plaintiffs will prove that even if the character of the government's actions in enacting ELIHPA and LIHPRHA was not established in this Circuit, the government's actions in enacting ELIHPA and LIHPRHA have the character of a taking because, like a physical occupation, the statutes substantially interfered with Plaintiffs' rights to use, transfer, and exclude others from their properties. The government's actions compelled the physical occupation of Plaintiffs' properties exclusively by government-approved tenants and the restrictions imposed by these statutes were in no way analogous to traditional common law principles that implicitly limit all landowners' titles. Additionally, Plaintiffs will argue that ELIHPA and LIHPRHA caused sufficiently severe economic impact to effect a taking. Indeed, Plaintiffs will prove that ELIHPA and LIHPRHA caused them to suffer an average diminution-in-investment return of 96.9%, which is, "even under the most conservative view, a serious financial loss." Cienega VIII, 331 F.3d at 1343.

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The government will likely argue that DeSoto Gardens, Kittridge Gardens I, Kittridge Gardens II, Oxford Park Apartments, and Parthenia Townhouses ("Los Angeles Plaintiffs") did not suffer any negative economic consequences as a result of the enactment of ELIHPA and LIHPRHA because Los Angeles Municipal Code § 151.02 ("LARSO") would have prevented those Plaintiffs from raising their rents to market rates upon prepayment. Plaintiffs will show that LARSO would not have barred Los Angeles Plaintiffs from raising their rents to market upon prepayment and that LARSO would have had no effect on those Plaintiffs' average diminution-in-investment return. Plaintiffs will prove that, but for the enactment of ELIHPA and LIHPRHA, the Housing Authority of the City of Los Angeles would have provided the Los Angeles Plaintiffs with certificates at a market rent that were exempt from LARSO, as it did for tenants at prepaying properties after HOPE was enacted. Thus, Plaintiffs will demonstrate that Los Angeles Plaintiffs would have been able to raise rents immediately to market just as other prepaying properties were permitted to do. Additionally, Plaintiffs will prove that the sections of LARSO on which the government will likely rely did not apply to DeSoto Gardens and Kittridge Gardens I, as their prepayment eligibility dates preceded the effective date of those ordinances. Plaintiffs will establish that ELIHPA and LIHPRHA frustrated their distinct, reasonable, and investment-backed expectations. Plaintiffs will prove that they reasonably expected to be able to prepay their mortgages on their twenty-year prepayment eligibility dates and entered into the HUD programs in reliance on those expectations. They will demonstrate that their expectations were based on the express language of the HUD-insured contracts, the then-existing HUD regulations, the federal government's longstanding practice of enacting new housing programs, and the fact that prepayment was a fundamental aspect of the HUD programs prior to the enactment of ELIHPA and LIHPRHA. Plaintiffs will also prove that their expectations were

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objectively reasonable because a reasonable developer in Plaintiffs' position would have believed that the right to prepay was provided by the mortgage contracts (which were consistent with the then-existing HUD regulations), HUD's longstanding practices, and the fact that prepayment was a fundamental aspect of the HUD programs. The government will likely argue that, because of LARSO, Los Angeles Plaintiffs would not have prepaid their mortgages on their twenty-year prepayment eligibility dates. Plaintiffs will prove however that Los Angeles Plaintiffs reasonably expected to prepay their mortgages on their prepayment eligibility dates. The trial will also involve the determination of the appropriate amount of just compensation for the temporary regulatory taking of Plaintiffs' properties. Plaintiffs will show, as they and the other Owners have in previous stages of this litigation, that Dr. Peiser's model (as amended to account for certain of this Court and the Court of Appeals' findings in recent stages of this litigation) best quantifies just compensation, and thus should be applied here. Plaintiffs will also show that they are entitled to pre- and post-judgment compound interest on the just compensation award. II. CONTENTIONS OF FACT A. The Regulatory Agreements 1. During the 1930s, the federal government undertook a program to support

low-income housing. See National Housing Act, Pub. L. No. 73-479, § 1, 48 Stat. 1246 (1934) (authorizing the creation of the Federal Housing Administration); § 207, 48 Stat. at 1252 (authorizing the insurance of mortgages for property owned by federal or state instrumentalities for the provision of low-income housing). 2. Until the 1960s, this program primarily subsidized projects of local public

housing authorities that would develop, own, and manage housing. One such subsidy was 10

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provided via Section 221(d)(3) of the Housing Act of 1954, Pub. L. No. 83-560, 68 Stat. 590, 601 (1954) (codified as amended at 12 U.S.C. § 1715l), which, as originally enacted, authorized mortgage insurance to private non-profit organizations and associations. 3. In 1961, in an effort to "enable private enterprise to participate to the

maximum extent in meeting the housing needs of moderate-income families," Congress amended the National Housing Act to open the Section 221(d)(3) program to private investors. S. Rep. No. 87-281, at 4 (1961), reprinted in 1961 U.S.C.C.A.N. 1923, 1926; Housing Act of 1961, Pub. L. No. 87-70, tit. I, § 101(a)(6), 75 Stat. 149, 150-51 (1961) (codified as amended at 12 U.S.C. § 1715l). Section 221(d)(3) provided a combination of mortgage insurance and interest rate subsidies to non-profit and private owners. 4. In 1968, amendments made to the National Housing Act by the Housing

and Urban Development Act of 1968, Pub. L. No. 90-448, tit. II, § 201, 82 Stat. 476, 498-501 (1968), added Section 236 programs, which provided a combination of mortgage insurance and interest-rate subsidies to public and private owners. Congress reiterated that it sought "the fullest practicable utilization of the resources and capabilities of private enterprise" in housing lowincome and moderate-income families. § 2, 82 Stat. at 476. 5. In order to participate in the Section 221(d)(3) or Section 236 programs,

owners were required to enter into Regulatory Agreements with HUD, pursuant to which the owners agreed to encumber their properties in several ways until their HUD-insured mortgages were paid off. Property owners were required to: (1) construct and maintain housing in accord with HUD specifications; (2) submit to extensive HUD audits, inspections, and management reviews; (3) rent only to tenants at a HUD-approved income level; (4) charge only HUDapproved rents, (5) grant HUD a security interest in the income arising from the project; (6)

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make all payments due under its deed of trust or secured note; and (7) maintain cash reserves for certain maintenance purposes. 6. In addition, the programs restricted the investment return such that owners

could not earn more than an annual return of 6% on the initial equity investment calculated by HUD. This amount did not change throughout the term of the encumbrance, regardless of the amount of equity built up in the properties. Even the 6% return was not guaranteed to be payable on an annual basis because owners could not draw out funds unless project finances permitted it. The 6% return was a severely below market return on equity. 7. In return for these encumbrances, owners in the Section 221(d)(3)

Program received mortgage insurance and rent subsidies. Owners in the Section 236 program received mortgage insurance and interest rate subsidies. 8. Additionally, both programs provided incentives for private developers to

enter the programs. One incentive owners were provided was mortgage insurance to facilitate private financing of 90% of the cost as determined under HUD regulations. 9. Another incentive provided to owners was the ability to leave the

programs and convert the properties to market-rate rental projects after 20 years. More specifically, an owner had the ability to prepay the 40-year mortgage after 20 years without HUD approval and thus free itself from HUD restrictions on occupancy, rents, and use of rental housing. This incentive enabled property owners to provide low-income housing under the restrictions for 20 years, and then terminate the restrictions, charge market rates for the rentals, and make a long-term profit. 10. This prepayment right was made explicit in the mortgage notes executed

for properties in these programs. The notes were printed on forms designed by HUD, were

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reviewed by HUD, and endorsed by HUD in closely at HUD offices. Correlatively, the governing regulations provided that "[a] mortgage indebtedness may be prepaid in full and the Commissioner's controls terminated without the prior consent of the Commissioner where . . . the prepayment occurs after the expiration of 20 years from the date of final insurance endorsement of the mortgage . . . ." 24 C.F.R. § 236.30 (1970); see also id. § 221.524(a)(1)(ii). Cf. id. § 207.14 (requiring certain mortgages to contain a prepayment clause). 11. The 20-year prepayment right was one of the primary inducements offered

to attract owners to the Section 221(d)(3) and 236 programs. See Cienega VIII, 331 F.3d at 1325-26. Industry experts considered this prepayment right to be a fundamental aspect of the program. See Cienega IX, 67 Fed. Cl. at 473 (quoting testimony of W. Dockser). 12. The restrictions under the Regulatory Agreements bound property owners

only for as long as HUD insured their mortgages. HUD's insurance obligations would terminate, and the owner's obligations under the Regulatory Agreement therefore would expire, once the owner paid or prepaid the mortgage. See, e.g., 24 C.F.R. § 207.253(a)(2) (1970); Cienega VIII, 331 F.3d at 1325-26. B. Plaintiffs' Properties 13. The ten Plaintiffs here ­ Claremont Village Commons, Covina West

Apartments, Del Vista Village, DeSoto Gardens Apartments, Kittridge Gardens I , Kittridge Gardens II, Oxford Park Apartments, Parthenia Townhouses, Pioneer Gardens Apartments, and Puente Park Apartments ­ are California real estate partnerships named for the principal property owned by the entity. Jona Goldrich, Sol Kest, Robert Stern, Robert Hirsch, and Warren Breslow, or some combination thereof ("Partners"), developed the properties and were general partners in each of the ten partnerships during the time periods relevant to this action.

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14.

Plaintiffs are small partnerships, similar in nature to closely-held

corporations, that own the ten subject properties. Partners were the original investors in the partnerships and made the decision to develop the subject properties under the Section 221(d)(3) or 236 programs. The properties are multifamily apartment complexes. 15. Partners employed a "buy and hold" approach to real estate, whereby they

purchased property and held it for future appreciation. Partners' ownership of such properties placed them among the largest providers of affordable housing units in California. In sharp contrast to developers of affordable housing in other cities, Partners paid a premium to purchase land in desirable middle-class areas where the potential for appreciation after prepayment was the highest. Partners ensured the properties were well-constructed and well-maintained in order to hold their value so they could be marketed as conventional properties after 20 years. Partners intended to prepay their mortgages after 20 years when they invested in their properties and intended to thereafter maintain those properties as conventional rental properties. 16. For many years, Partners have maintained a substantial fund,

approximately $50 million, which allowed them to make payments for their properties, improvements, and escrows on an expedited basis such that they would not have to wait for the bank to give them a loan. Partners are reluctant to sell their properties unless purchasers are willing to pay far in excess of market value. 17. Two of the Partners also own G&K Management Co., Inc. ("G&K

Management"), which manages (or managed) Plaintiffs' properties and provides those Partners with a management fee for providing management services. They formed G&K Management in order to ensure a high standard of maintenance and aesthetic appeal, and to sustain properties that would be attractive to tenants and that could be converted to conventional or market-rate

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rentals at minimal or no cost to be competitive in the market after prepayment. Carole Glodney is the President of G&K Management. 18. Partners intended to prepay the mortgages on the properties in question

after 20 years and convert them to market-rate properties, so that they could charge higher market rents after prepayment. 19. Partners would not have invested in the Plaintiffs'properties under the

terms that they did but for the right to prepay the mortgages after 20 years. 20. Given the express language in the deed of trust and secured notes, HUD's

then-existing regulations, and the federal government's longstanding practice of creating new low-income housing programs, Plaintiffs had no reason to suspect that the government would eliminate the unfettered right to prepay, which was one of the primary incentives for entering into the HUD programs. Claremont Village Commons 21. The Claremont Village Commons property is a 150-unit garden-style

family apartment complex located at 955 West Arrow Highway, Claremont, California, 91711. It consists of 95 two-bedroom, 53 three-bedroom, and 2 employee units. It is located in a middle-class neighborhood with several schools nearby and there are single-family homes across the street. The complex is gated, has a community recreation room and playgrounds for children, and has ample parking for tenants. 22. On December 1, 1970, the Claremont Village Commons partnership

("Claremont Village") entered into a Regulatory Agreement with HUD under Section 236. The Regulatory Agreement limited Claremont Village's maximum annual dividend to $16,936, 6% of its original equity investment as calculated by HUD.

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23.

Also on December 1, 1970, Claremont Village signed a Deed of Trust

Note ("Note") with Union Bank for $2,547,800. Rider A to the Note permitted Claremont Village to prepay its mortgage without HUD approval after 20 years.6 HUD issued its final endorsement of the Note on December 21, 1971. Thus, Claremont Village had a prepayment eligibility date of December 21, 1991. Covina West Apartments 24. The Covina West Apartments property is a 158-unit garden-style family

apartment complex located at 929 West Cameron Avenue, West Covina, California 91790. It consists of 42 one-bedroom, 59 two-bedroom, 47 three-bedroom, 8 four-bedroom, and 2 employee units. It is located in a middle-class neighborhood, is surrounded by conventional apartments, and has single-family homes, stores, and restaurants nearby. The complex has a community recreation room and playgrounds for children. 25. On June 1, 1970, the Covina West Apartments partnership ("Covina

West") entered into a Regulatory Agreement with HUD under Section 236. The Regulatory Agreement limited Covina West's maximum annual dividend to $16,042, 6% of its original equity investment. 26. Also on June 1, 1970, Covina West signed a Note with Union Bank for

$2,593,300. Rider A to the Note permitted Covina West to prepay its mortgage without HUD approval after 20 years. See n.6. HUD issued its final endorsement on the Note on May 26, 1971. Thus, Covina West had a prepayment eligibility date of May 26, 1991.

Specifically, the Note permitted prepayment if "the Maker is a limited distribution mortgagor which is not receiving payments from the Commissioner under a rent supplement contract pursuant to Section 101 of the Housing and Urban Development Act of 1965, and the prepayment occurs after the expiration of twenty (20) years from the date of final endorsement of this Note by the Commissioner." 16

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Del Vista Village 27. The Del Vista Village property is a 160-unit garden-style family apartment

complex located at 976 Avinita Del Vista, Corona, California, 92882. It consists of 40 onebedroom, 80 two-bedroom, 38 three-bedroom, and 2 employee units. It is located in a middleclass neighborhood, is surrounded by condominiums and conventional apartments, and is near a large residential area with single-family homes. It is next to an elementary school and near a high school. The complex is gated and has a community recreation room, picnic area, and large playgrounds for children. A pool was added to the complex recently. 28. On December 1, 1970, the Del Vista Village partnership ("Del Vista")

entered into a Regulatory Agreement with HUD under Section 221(d)(3). The Regulatory Agreement limited Del Vista to a maximum annual dividend of $15,644, 6% of its original equity investment as determined by HUD. 29. Also on December 1, 1970, Del Vista signed a Secured Note with Union

Bank for $2,355,300. The Secured Note permitted Del Vista to prepay its mortgage without HUD approval after 20 years.7 HUD endorsed the Secured Note on April 7, 1972. Thus, Del Vista had a prepayment eligibility date of April 7, 1992. DeSoto Gardens 30. The DeSoto Gardens property is a 248-unit garden-style family apartment

complex located in the Canoga Park area of Los Angeles, California. The address is 8722 DeSoto Avenue, Canoga Park, California, 91304. It consists of 248 units, including 24 onebedroom, 124 two-bedroom, 98 three-bedroom, and 2 employee units. It is located in a middle-

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Specifically, the Secured Note required HUD approval for prepayment except "a maker which is a limited distribution mortgagor may prepay without such approval after twenty (20) years from the date of final endorsement of this Note by the Commissioner." 17

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class neighborhood in the same general area as Independence Park Apartments (a property involved in Set I of this litigation which has operated as a market rate complex since its owners prepaid the HUD-insured mortgage in 1996) and is surrounded by a large number of conventional market-rate apartment complexes and condominiums. The complex is gated and has a community recreation room and playgrounds for children. A pool was added to the complex recently. 31. On May 15, 1969, the DeSoto Gardens partnership ("DeSoto") entered

into a Regulatory Agreement with HUD under Section 221(d)(3). The Regulatory Agreement limited DeSoto's maximum annual dividend to $29,559, 6% of the owners' original equity investment as calculated by HUD. 32. Also on May 15, 1969, DeSoto signed a Secured Note with United

California Bank for $3,494,500. The Secured Note permitted DeSoto to prepay its mortgage without HUD approval after 20 years. See n.7. HUD issued its final endorsement of the Secured Note on November 2, 1970. Thus, DeSoto had a prepayment eligibility date of November 2, 1990. Kittridge Gardens I 33. The Kittridge Gardens I property is a 128-unit garden-style family

apartment complex located in the Reseda area of Los Angeles, California. The address is 6540 Wilbur Avenue, Reseda, California, 91335. The property has 32 one-bedroom, 64 two-bedroom, and 31 three-bedroom units, as well as 1 employee unit. It is located in a middle-class neighborhood and has conventional market-rate apartment complexes and condominiums across the street. The complex is located near a park and has shopping and schools within one mile. The complex is located next door to Kittridge Gardens II, which is owned by the same partners.

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Kittridge Garden I has a community recreation room, a barbeque area, and large playground areas for children. 34. On June 1, 1968, the Kittridge Gardens I partnership ("Kittridge I")

entered into a Regulatory Agreement with HUD under Section 221(d)(3). The Regulatory Agreement limited Kittridge I to a maximum annual dividend to $9,949, 6% of the owners' original equity investment as calculated by HUD. 35. Also on June 1, 1968, Kittridge I signed a Secured Note with United

California Bank for $1,507,000. The Secured Note permitted Kittridge I to prepay its mortgage without HUD approval after 20 years. See n.7. HUD issued its final endorsement on the Secured Note on September 17, 1969. Thus, Kittridge I had a prepayment eligibility date of September 17, 1989. Kittridge Gardens II 36. The Kittridge Gardens II property is an 80-unit garden-style family

apartment complex located in Los Angeles, California. The address is 6540 Wilbur Avenue, Reseda, California, 91335. It consists of 7 two-story apartment complex structures, which together contain 32 two-bedroom, 16 three-bedroom, and 32 four-bedroom units. The property has 97 open parking spaces and a laundry room. It is located in a middle-class neighborhood near a park and has shopping and schools within one mile. The property has a community recreation room, a barbeque area, and large playground areas for children. It is located next door to the Kittridge Gardens I property, which is also owned by Partners. 37. On February 16, 1970, the Kittridge Gardens II partnership ("Kittridge II")

entered into a Regulatory Agreement with HUD under Section 221(d)(3). The Regulatory

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Agreement limited Kittridge II to a maximum annual dividend of $10,420, 6% of its original equity investment as calculated by HUD. 38. Also on February 16, 1970, Kittridge II signed a Note with Security

Pacific National Bank for $1,441,300. Rider A to the Note permitted Kittridge II to prepay its mortgage without HUD approval after 20 years. See n.6. HUD issued its final endorsement on the Note on April 14, 1971. Thus, Kittridge II had a prepayment eligibility date of April 14, 1991. Oxford Park Apartments 39. The Oxford Park Apartments property is a 3-story, 109-unit senior

apartment complex located at 1920 South Oxford Street, Los Angeles, California, 90018. All of the units are one-bedroom units and the complex has two elevators and underground parking. Oxford Park is located in a middle-class neighborhood with single-family homes with historic mansion architecture next door and across the street. The complex has a large community recreation room and a gazebo in the courtyard. 40. On November 2, 1970, the Oxford Park Apartments partnership ("Oxford

Park") entered into a Regulatory Agreement with HUD under Section 221(d)(3). The Regulatory Agreement limited Oxford Park to a maximum annual dividend of $9,691, 6% of the owners' original equity investment as calculated by HUD. 41. Also on November 2, 1970, Oxford Park signed a Note with Security

Pacific National Bank for $1,519,800. Rider A to the Note permitted Oxford Park to prepay its mortgage without HUD approval after 20 years. See n.6. HUD issued its final endorsement on the Note on October 6, 1972. Thus, Oxford Park had a prepayment eligibility date of October 6, 1992.

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Parthenia Townhouses 42. The Parthenia Townhouses property is a 24-unit garden-style family

apartment complex located in the Canoga Park area of Los Angeles, California. The address is 21218 Parthenia Street, Canoga Park, California, 91304. It consists of 16 two-bedroom, and 7 three-bedroom units, as well as one employee unit. It is located in a middle-class neighborhood in the same general area as the DeSoto and Independence Park properties. It has a common barbeque area and a playground for children. 43. On April 1, 1971, the Parthenia Townhouses partnership ("Parthenia")

entered into a Regulatory Agreement with HUD under Section 221(d)(3). The Regulatory Agreement limited Parthenia to a maximum annual dividend of $2,455, 6% of the owners' original equity investment as calculated by HUD. 44. Also on April 1, 1971, Parthenia signed a Secured Note with Prestige

Mortgage Corporation for $368,000. The Secured Note permitted Parthenia to prepay its mortgage without HUD approval after 20 years. See n.7. HUD issued its final endorsement on the Secured Note on December 17, 1971. Thus, Parthenia had a prepayment eligibility date of December 17, 1991. Pioneer Gardens Apartments 45. The Pioneer Gardens Apartments property is a 141-unit garden-style

family apartment complex located at 9039 Pioneer Boulevard, Santa Fe Springs, California, 90670. It consists of 16 one-bedroom, 63 two-bedroom, 37 three-bedroom, 23 four-bedroom, and 2 employee units. It is located in a middle-class neighborhood and there are single-family homes nearby. Placita Park Apartments, a property involved in Set IV of this litigation and

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which prepaid its mortgage and is operating conventionally, is located two blocks away. The complex is gated and has a community recreation room and playgrounds for children. 46. On June 1, 1970, the Pioneer Gardens Apartments partnership ("Pioneer")

entered into a Regulatory Agreement with HUD under Section 236. The Regulatory Agreement limited Pioneer's maximum annual dividend of $15,374, 6% of the owners' original equity investment as calculated by HUD. 47. On the same day as the Regulatory Agreement was signed, Pioneer signed

a Note with Union Bank for $2,448,500. Rider A to the Note permitted Pioneer to prepay its mortgage without HUD approval after 20 years. See n.7. HUD issued its final endorsement on the Note on May 26, 1971. Thus, Pioneer had a prepayment eligibility date of May 26, 1991. Puente Park Apartments 48. The Puente Park Apartments property is a 132-unit garden-style family

apartment complex located at 14714 East Prichard Street, La Puente, California, 91744. It consists of 8 one-bedroom, 87 two-bedroom, 35 three-bedroom, and two employee units. It is located on a quiet street in a middle-class neighborhood of single family homes. The complex is gated and has a community recreation room and playgrounds for children. 49. On September 10, 1969, the Puente Park Apartments partnership ("Puente

Park") entered into a Regulatory Agreement with HUD under Section 236. The Regulatory Agreement limited Puente Park's maximum annual dividend to $12,692, 6% of its original equity investment as calculated by HUD. 50. Also on September 10, 1969, Puente Park signed a Note with Union Bank

for $1,947,500. Rider A to the Note permitted Puente Park to prepay its mortgage without HUD approval after 20 years. See n.7. The Note was initially endorsed by HUD on September 11,

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1969, and HUD issued its final endorsement on August 31, 1970. Thus, Puente Park had a prepayment eligibility date of August 31, 1990. C. ELIHPA and LIHPRHA 51. By the mid-1980s, at a time the federal government began to cut back on

housing programs, Congress realized that "in the next 15 years, more than 330,000 low income housing units insured or assisted under Sections 221(d)(3) and 236 of the National Housing Act could be lost as a result of the termination of low income affordability restrictions." ELIHPA, Pub. L. No. 100-242, § 202(a)(1), 101 Stat. 1877 (1988) (codified as amended at 12 U.S.C. § 1715l note). 52. In response to this impending low-income housing shortage, on February

5, 1988, Congress enacted ELIHPA which temporarily barred owners from prepaying their mortgages and freeing themselves from the restrictions on their properties. ELIHPA required private owners in the Section 221(d)(3) and 236 programs to obtain HUD approval prior to prepayment and set specific criteria for HUD's approval of prepayment. Id. § 221(a). 53. ELIHPA also placed additional restrictions on owners, such as requiring

owners to provide tenants at least one year's advance notice of any termination of a Housing Assistance Payment ("HAP") contract. Id. § 262 (codified at 42 U.S.C. § 1437f(c)(8)). 54. HUD issued regulations implementing ELIHPA in September 1990, 31

months after the statute was passed. 24 C.F.R. §§ 248.101 to 248.261 (1991). Until those regulations were issued, owners could do nothing to change the restrictions on their properties. 55. Under ELIHPA, owners that sought to eliminate or change the new or old

restrictions on their properties were required to file a notice of intent with the Secretary of HUD describing their intended action. ELIHPA, § 222, 12 U.S.C. § 1715l note. The only actions permitted by ELIHPA were: (1) prepaying under the stringent criteria set out in ELIHPA, (2) 23

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agreeing to extend the affordability restrictions in exchange for certain financial incentives, (3) selling the property to a purchaser who would retain the affordability restrictions at a price determined through a statutorily-mandated process, or (4) continuing to operate under the restrictions mandated by the Regulatory Agreement for the remaining term of the HUD-insured mortgage. Id. §§ 224, 225, 12 U.S.C. § 1715l note. None of these options reimbursed owners for the cash flows they lost as a result of being prohibited from prepaying and converting to market rent levels on their original prepayment eligibility dates. 12 U.S.C. § 4108; 24 C.F.R. § 248.141(a)(1). 56. The owner was then required to file a plan of action. A plan of action was

a more detailed document that described the state assistance that might be available to the owner, detailed the proposed changes to the low-income affordability restrictions, described any proposed changes in ownership, stated the effect of the proposed changes on existing tenants, provided an appraisal (if requesting incentives), and detailed the effect of the proposed changes on the community within which the housing is located (if requesting prepayment). 24 C.F.R. § 248.213(b), ELIHPA, § 223(b), 12 U.S.C. § 1715l note. 57. HUD was required to notify the owner in writing within 60 days if any

deficiencies were found in a plan of action, and to describe alternative ways in which the plan could be revised appropriately. Id. § 227(a), 12 U.S.C. 1715l note. Within 180 days of the submission of a plan of action, or longer if the owner so requested, HUD was required to notify the owner of whether the plan of action was approved. If approval was withheld, HUD was to describe its reasons for not approving the plan, and what the owner could do to secure approval; it was also required to provide a reasonable opportunity to revise the plan. Id. § 227(b)(1)-(2). In practice, if often took many years for HUD to approve a plan of action.

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58.

Because the plan of action process was such a lengthy process and any

delays in processing would force Plaintiffs to operate without the incentives offered by ELIHPA for a longer period of time, G&K Management frequently inquired about the status of the plans of action they submitted on behalf of the Plaintiff properties, made suggestions as to the content of the plans of action, and offered ways to expedite the processing. 59. If an owner requested to prepay in its plan of action, HUD was permitted

to accept that request only if the Secretary of HUD made a written finding that such payment would not "materially increase economic hardsh