Free Motion for Leave to File - District Court of Federal Claims - federal

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Only the Westlaw citation is currently available. "You can check in any time you like, but you can never leave." [FN2] United States Court of Federal Claims. FRANCONIA ASSOCIATES, et al, Plaintiffs, v. THE UNITED STATES, Defendant. No. 97-381C, 97-3812C, 97-3910C. Aug. 30, 2004. Jeff H. Eckland, Eckland & Blando, Minneapolis, Minnesota, for plaintiff. Shalom Brilliant, U.S. Department of Justice, Washington, D.C., with whom was Assistant Attorney General Peter D. Keisler, for defendant. Following a remand from the Supreme Court, this contract case is before the court after a trial held in Des Moines, Iowa. Plaintiffs are various property owners that entered into mortgage contracts with an agency of the United States in exchange for providing low- and moderate-income rural housing. While these loan contracts allowed for prepayment, without restriction, Congress, concerned with the loss of rural housing due to such prepayments, subsequently enacted laws that significantly restricted the exercise of this right. Plaintiffs claim that this legislation constituted a breach of their mortgage contracts and seek damages on account of that breach. Alternatively, they seek just compensation under the Fifth Amendment, alleging that the passage of this legislation effectuated a taking of their property. Based on the evidence provided and the findings based thereupon, and for the reasons that follow, the court concludes that the legislation in question, indeed, effectuated a breach of the mortgage contracts, entitling most--but not all--of the plaintiffs to damages.

OPINION ALLEGRA, J. *1 "The United States are as much bound by their contracts as are individuals." [FN1]

TABLE OF CONTENTS I. Findings of Fact ................................................... ---A. General Facts Regarding the Plaintiffs, the Section 515 Program and Congress' Modifications Thereof ................ ---B. Application of the Legislation to the Plaintiffs ............. ----

C. D. II.

The Options Available under ELIHPA ........................... ---Procedural History of this Case .............................. ----------------------------------------

Discussion ......................................................... A. Liability .................................................... 1. Breach of Contract ..................................... a. Prima facie liability .............................. b. The unmistakability doctrine ....................... 2. Takings ................................................ 3. Redux .................................................. B. Damages ...................................................... 1. Mitigation ............................................. 2. Expectation Damages--Restitutio in Integrum ............ a. Proximate result--Causa Proxima non Remota Spectatur ........................................ b. Forseeability--Providentia ......................... Copr. © 2004 West. No Claim to Orig. U.S. Govt. Works.

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Reasonable certainty--Certum Probabiliter Scire .... i. The calculation period ....................... ii. Projected revenue ............................ iii. Expenses ..................................... iv. Discount factor ..............................

----------------

3. III.

d. Other potential adjustments ........................ ---Determination of the Amount of Damages ................. ----

Conclusion ......................................................... ---Fact Appendix A .................................................... ---Fact Appendix B .................................................... ----

I. FINDINGS OF FACT Based on the record herein, the court finds as follows: A. General Facts Regarding the Plaintiffs, the Section 515 Program and Congress' Modifications Thereof. Plaintiffs currently own and operate properties as affordable housing projects financed by mortgage loans issued by the Farmer's Home Administration ("FmHA"), an agency within the Department of Agriculture, pursuant to sections 515 and 521 of the Housing Act of 1949, 42 U.S.C. § § 1485, 1490a (2000). These sections of the Housing Act were "enacted to ameliorate housing shortages for the elderly and other low-income persons in rural areas." Parkridge Investors Ltd. P'ship v. Farmers Home Admin., 13 F.3d 1192, 1195 (8th Cir.1994). Originally, only non-profit entities could participate in this program, but the complexion of the program changed in 1972, when the FmHA began offering loans to private for-profit owners. *2 Under sections 515 and 521, the FmHA makes direct loans to private entities to develop or construct rural housing designed to serve the elderly and lowor middle-income individuals and families . [FN3] Section 515 loans require the borrower, inter alia, to execute various loan documents, including a loan agreement, a promissory note, and a mortgage or deed of trust. Each plaintiff in this case entered into a loan agreement with the FmHA, in which it certified that it was unable to obtain a comparable loan in the commercial market. In addition, each plaintiff agreed to various provisions designed to ensure that its project was affordable for persons and families with low incomes, among them, restrictions on the owner's

"return on investment," limiting the profit that an owner could earn while in the program to a maximum of eight percent of its "initial investment," i.e., down payment. [FN4] Other restrictions defined eligible tenants and the rents plaintiffs could charge, as well as requirements regarding the maintenance and financial operations of each project. Each loan agreement also specified the length of the loan, which was generally 40 or 50 years. The promissory notes executed by plaintiffs required payment of the principal on each mortgage in scheduled installments, plus interest. They also contained the following prepayment provision: "Prepayments of scheduled installments, or any portion thereof, may be made at any time at the option of the Borrower." No other provision of the loan documents directly addresses prepayment. [FN5] This prepayment option served as a major inducement for recruiting property owners into the program: the option not only benefited the program participants, who viewed the program as a way to acquire equity in a building that would eventually be converted to market rents, but also the FmHA, which through these participants was able to provide needed housing. Indeed, consistent with statutory and regulatory requirements, the original contracts in the program required owners to prepay their loans upon FmHA demand as soon as commercial financing on similar terms became available, so that the moneys derived through prepayment could be invested by the agency in other properties. See 42 U.S.C. § 1472(b)(3) (1982); 7 C.F.R. § 1865.2(c) (1979). [FN6] Over time, however, this funding model began to founder, as the owners prepaying their mortgages far exceeded new entrants in the program. In 1979, Congress found that the increasing number of section

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515 participants prepaying their mortgages threatened the continued availability of rural low- and moderateincome housing and amended the National Housing Act to stem the loss of low-cost rural housing due to prepayments. H.R.Rep. No. 96-154, at 43 (1979). Specifically, in the Housing and Community Development Amendments of 1979, Pub.L. No. 96153, 93 Stat. 1101, Congress prohibited the FmHA from accepting prepayment of any loan made before or after the date of enactment unless the owner agreed to maintain the low-income use of the rental housing for either a 15-year or 20-year period from the date of the loan. § 503(b), 93 Stat. 1134-1135. That requirement could be avoided only if the FmHA determined that there was no longer a need for the low-cost housing or if Federal or other financial assistance provided to residents would no longer be available. Id. *3 In 1980, Congress further amended the National Housing Act to eliminate retroactive application of the Section 515 prepayment changes enacted in the 1979 legislation. Section 514 of the Housing and Community Development Act of 1980, Pub.L. No. 96-399, 94 Stat. 1614, provided that the prepayment restrictions included in the 1979 legislation would apply only to loans entered into after December 21, 1979, the date of enactment of that legislation. 94 Stat. 1671-1672. For loans subject to this legislation, new owners were required to agree to operate their properties as low-income housing for a minimum of 15 or 20 years. Id. The 1980 Act also required the Secretary of Agriculture to report to Congress about any adverse effects of the repeal upon the availability of low-income housing. Pub.L. No. 96-399, § 514, 94 Stat. 1671-1672. After repeal of the 1979 legislation, prepayments by owners under pre-1979 contracts resumed. By 1987, Congress again grew concerned about the dwindling supply of low- and moderate-income rural housing in the face of increasing prepayments of mortgages under section 515 . [FN7] A committee of the House of Representatives found that owners were "prepay[ing] or ... refinanc[ing] their FmHA loans, without regard to the low income and elderly tenants in these projects." H.R.Rep. No. 100-122, at 53 (1987). In response, Congress passed the Emergency Low Income Housing Preservation Act of 1987, Pub.L. No. 100- 242, 101 Stat. 1877 (ELIHPA), which amended the Housing Act of 1949 to impose permanent restrictions upon the prepayment of section 515 mortgages that were entered into before December 21, 1979. That legislation, enacted on February 5, 1988, requires that before FmHA can

accept an offer to prepay a mortgage entered into before December 21, 1979 the [FmHA] shall make reasonable efforts to enter into an agreement with the borrower under which the borrower will make a binding commitment to extend the low income use of the assisted housing and related facilities for not less than the 20-year period beginning on the date on which the agreement is executed. Pub.L. No. 100-242, § 241, 101 Stat. 1886 (codified at 42 U.S .C. § 1472(c)(4)(A)). ELIHPA further provides that, to persuade an owner to keep its property in the program, the FmHA may offer incentives, including an increase in the rate of return on investment, reduction of the interest rate on the loan, and an additional loan to the borrower. § 241, 101 Stat. 1886-1887. Under ELIHPA, if the FmHA determines after a "reasonable period" that an incentive agreement cannot be reached under the aforementioned provisions, the Secretary "shall" require the owner to offer to sell the housing to "any qualified nonprofit organization or public agency at a fair market value determined by 2 independent appraisers." Pub.L. No. 100-242, § 241, 101 Stat. 1887 (codified at 42 U.S.C. § 1472(c)(5)(A)(i)). If an offer to buy is not made by a nonprofit organization or agency within 180 days, the FmHA may accept the owner's offer to prepay or request refinancing. Id. The offer-for-sale to a non-profit requirement does not apply if the FmHA determines that housing opportunities for minorities "will not be materially affected" by prepayment and either: (i) the tenants will not be displaced by prepayment or (ii) there is an "adequate supply" of "affordable" housing in the market area and "sufficient actions have been taken to ensure" that such housing "will be made available" to displaced tenants. Id. at § 241, 101 Stat. 1889. *4 The FmHA promulgated regulations to implement ELIHPA on April 22, 1988, and the regulations became effective on May 23, 1988. 53 Fed.Reg. 13,245 (1988), codified at 7 C.F.R. § 1965.90 (1989). These establish a process by which the FmHA considers prepayment requests, including detailed procedures and requirements regarding whether housing opportunities for minorities will be affected by prepayment and whether other housing has been made available for tenants displaced by prepayment. 7 C.F.R. § 1965.90 (1989). In 1993, the FmHA modified its regulations to require that borrowers seeking to prepay be offered incentives not to do so. 58 Fed.Reg. 38,931 (1993), codified at 7 C.F.R. § 1965.210, 213 (1994). Under the

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regulations, the FmHA first "develop[s] an incentive offer," making "[a] reasonable effort ... to enter into an agreement with the borrower to maintain the housing for low-income use that takes into consideration the economic loss the borrower may suffer by foregoing prepayment." 7 C.F.R. § 1965.210 (2003). In addition, the regulations make clear that the determinations required by 42 U.S.C. § 1472(c)(5)(A) before prepayment can be accepted-regarding the effect on minority housing opportunities, the displacement of tenants, and the supply of affordable housing in the market--will not be made unless and until the FmHA is unable to reach an agreement with a borrower on extending the borrower's participation in the section 515 program. 7 C.F.R. § 1965.215(a) (2003). In 1992, Congress passed the Housing and Community Development Act of 1992 (the HCDA). Pub.L. No. 102-550, 106 Stat. 3672 (codified in relevant part at 42 U.S.C. § 1472(c) (1994 & Supp. V.1999)). That legislation extended ELIHPA's restrictions to loans that were made from December 21, 1979, through 1989. Pub.L. No. 102-550, § 712, 106 Stat. 3841. Thus, beginning in 1992, loans made after December 21, 1979, but before 1989, were subject to the same provisions of ELIHPA adopted for older complexes. B. Application of the Legislation to the Plaintiffs. Plaintiffs collectively own 42 multi-family complexes in one or more of the following states: Iowa, Kansas, Minnesota, New Hampshire, North Carolina, North Dakota, South Dakota, Virginia, West Virginia and Wisconsin. As noted above, all these complexes were constructed with financing obtained from the FmHA under the Rural Rental Housing Program. As illustrated in Fact Appendix A, 34 of the complexes were financed by loans executed prior to December 21, 1979 (hereinafter referred to as the "pre-1979 complexes"), with the remaining seven loans being executed (or assumed) thereafter (hereinafter referred to as the "post-1979 complexes"). [FN8] As is likewise illustrated in that chart, various plaintiffs have made formal requests to prepay their mortgages, although some of the prepayments request were made after this lawsuit was filed. The evidence reveals that the reasons these owners wished to prepay without restriction vary and, in some cases, overlap. In virtually all cases, the projects are in a condition or location that permits profitable sales or conversion to apartments,

condominiums or nonresidential uses. In some cases, owners seek to leave the program because Congress has eliminated tax benefits previously associated with low-income housing and they have exhausted the tax benefits that remain. And in many, if not all, instances, the owners would prefer to prepay their mortgages simply to sever their ties with the Federal government, frustrated not only with what they perceive as the overregulation of their properties, but also with Congress' efforts, through statutes such as ELIHPA, to modify unilaterally critical features of the bargains they previously struck with the FmHA. In light of these developments, these owners believe that they can no longer trust the Federal government to honor its obligations, depriving them of the sort of stable long-term relationship they believe is essential to their continued participation in the program. *5 Based on the record, the court finds that all of the owners would not have signed their contracts absent the prepayment option. In developing their properties, plaintiffs picked locations and completed construction with an eye toward converting to market rents in the future. All of the owners of the pre-1979 complexes intended to prepay as soon as the time was ripe, based on their personal circumstances and market conditions. All of the owners of the post-1979 complexes were required to execute a twenty-year covenant in which they agreed not to seek prepayment; each of the owners intended to prepay as soon as that covenant was satisfied and each of those covenants, indeed, has run. Upon prepayment, the owners planned to raise the rents to market levels and use the proceeds for various purposes, including retirement, investment in other ventures and transfers of wealth to their heirs. It appears that the owners each agreed to enter the program in reliance on the prepayment clause, as part consideration for signing the housing agreements. C. The Options Available under ELIHPA. As noted above, under ELIHPA and the HCDA, the FmHA cannot allow prepayment until it has "ma[d]e reasonable efforts to enter into an agreement with the borrower under which the borrower will make a binding commitment to extend the low income use of the assisted housing for at least 20 years." 42 U.S.C. § 1472(c)(4)(A) (2000). The FmHA can offer a variety of incentives under this program, including: equity loans, increased annual return on investment, and additional units of rental assistance to tenants. However, these "incentives" to continue in the program come with a toll charge--the owner has to agree to restrict its property to low-income housing

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for 20 years (42 U.S.C. § 1472(c)(4)(A) (2000)), at the end of which period the owners must reapply for prepayment, with no assurance that they will be allowed out of the program. Availability of various incentives is subject to annual appropriations and the record indicates that those appropriations have consistently been insufficient, causing incentive requests to accumulate from year to year, leading to a substantial backlog. [FN9] Indeed, no assurances were made to the owners as to when those incentives would actually be received. [FN10] Finally, the incentive initially offered later can be reduced, evidently even after accepted by the owner: the incentive package must be the "least costly alternative for the Federal Government that is consistent with carrying out the purposes of" the statute, 42 U.S.C. § 1472(c)(4)(C)(ii), and may be reduced in case of negative impact on tenants. In the latter regard, the incentive has to "fit within comparable rents," requiring the FmHA to trim an incentive if an increase in rents would be necessary to fund it. Ex. E § IV(A)(3), (c). As reflected in Fact Appendix A, six of the plaintiffs agreed to extend the low-income use of their housing in exchange for one or more of the above-discussed incentives. These plaintiffs, however, testified that either they experienced considerable delay in receiving the incentives or the FmHA made adjustments in their benefits that offset some of the value of the incentives. For example, among the four individuals who requested equity loans, one, Mr. Morosani, applied for the loan in 1994, but had not yet received it at the time of trial; another, Ms. Perri, had to wait five years to obtain the loan; and a third, Mr. Wells, was forced to forego approximately $100,000 of the $273,635 equity loan for which he was eligible in order to avoid increasing rents. Several plaintiffs received other forms of incentives: Ms. Perri, for example, was offered an increase in her annual return on Palmyra Park II, up $7,428 for a total return of $9,300 annually, and ten additional units of rental assistance. She testified, however, that the ten additional units of rental assistance were taken back "to cover [the] extra rent increase" and that she did not "always get" the increased annual return on her investment. Other recipients of such incentives testified that they had to spend money on upkeep and improvements to their complexes and did not receive the annual return on investment provided for in their contracts, due to reserve account requirements that specify when an owner is allowed to take his contractual return on investment. Due to the uncertainty owners faced regarding whether they could take their contractual return, and to the limits

on their ability to do so, the prospect of a slight increase in the return on investment was not an attractive alternative to the owners. *6 If an owner rejects an incentive offer, the statute provides that the owner must offer for six months to sell the property to a qualified nonprofit organization or public agency. 42 USC § 1472(c)(5)(A)(i) (2000). The value of the property is determined by an appraiser selected by the owner, an appraiser selected by the agency, and, if necessary, a third, neutral appraiser selected by the other two appraisers. 7 C.F.R. § 1965.216(a) (2003). Specifically, the regulations provide: The value arrived at will result from two appraisals. One appraisal will be the appraisal contracted and paid for by FmHA or its successor agency under Public Law 103-354 that was used to establish the incentives previously offered. The second appraisal will be obtained and paid for by the borrower. Both appraisals will be conducted by qualified independent appraisers in accordance with FmHA ... Instruction 1922-B (available in any FmHA ... office. If the fair market values arrived at are within 10 percent of each other, the Servicing Office and the borrower will negotiate to arrive at a mutually acceptable value. If the values differ by more than 10 percent, the independent appraisers will be asked to review their appraisals to determine if the values can be reconciled to within 10 percent. If FmHA ... and the borrower are unable to negotiate a mutually acceptable value or the appraisers are unable to reconcile their appraisals within 30 days of the completion of the appraisals, the State Office and the borrower will jointly select a third independent qualified appraiser whose appraisal will be binding on FmHA ... and the borrower .... The cost of the third appraisal shall be divided evenly between FmHA ... and the borrower. Id. The regulations provide that if, 180 days after the owner offered the property for sale to a nonprofit organization or public agency, no qualified purchaser accepted the offer at the appraised fair market value, then the owner may be prepay the loan without restrictions. 7 C.F.R. § 1965.218 (2003). As an alternative to this sale option, owners can apply for the so-called "G-4" prepayment option, under which, under certain circumstances, they will be allowed to prepay, but are required to continue to provide low-income housing to existing tenants. See 42 U.S.C. § 1472(c)(5)(G)(ii)(I) (2000). For an owner to be eligible for this option, the FmHA has to determine, first, that prepayment would have no

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material effect on minorities, either at the project or in the market area. Assuming this condition is met, the owner then has to agree to a restrictive-use agreement, which provides, in part No eligible person currently occupying the housing shall be required to vacate prior to the end of the remaining useful life of the project without cause. Rents, other charges, and conditions of occupancy will be established to meet these conditions for these tenants such that the effect will not differ from what would have been, had the project remained in the FmHA program. Existing tenants are protected to ensure that none experience new or increased rent overburden as a result of owner actions until each voluntarily moves from the project. The owner also agrees to keep a notice posted at the project in a visible place available for tenant inspection, for the remaining useful life of the project or until the last existing tenant voluntarily vacates, stating that the project is to be used in accordance with the Housing Act, and that management practices and rental rates will be consistent with those necessary to maintain the project for low- and moderate-income tenants. *7 The owner also is required to agree and obtain FmHA approval of any changes to rental procedures different from those in place at the time of the prepayment. The G-4 option generally is viable only if the holdover, low-income tenants are able to obtain and consistently hold vouchers from the Department of Housing an Urban Development (HUD) to supplement their rents. If such so-called "section 8" vouchers are not obtained or become unavailable, the property owner is left with a commercial mortgage rate, but below market rents, creating immediate cash flow problems. Based on the expected availability of section 8 vouchers, the G-4 prepayment option was accepted by the two owners of thirteen of the properties at issue. [FN11] Both plaintiffs, however, owned multiple properties and thus were better able to bear the risk that particular tenants would not obtain vouchers. Their actions notwithstanding, in recent years, the section 8 voucher program has received significant funding cuts, increasing the risk of relying upon such vouchers as a means of making the G-4 option viable. Finally, if the FmHA determines "that housing opportunities of minorities will not be materially affected as a result of the prepayment," that "there is an adequate supply of safe, decent, and affordable rental housing within the market area," and that "sufficient actions have been taken to ensure that the

rental housing will be made available to each tenant upon displacement," 42 U.S.C. § § 1472(c)(5)(G)(ii) and 1472(c)(5)(G)(ii)(II) (2000), it may accept the offer to prepay. D. Procedural History of this Case. Plaintiffs filed this action in this court on May 30, 1997. The plaintiffs either entered into loan agreements before December 21, 1979 (the pre-1979 complexes), and were, therefore, subject to ELIHPA; or entered into loan agreements after December 21, 1979 (the post-1979 complexes), and were, therefore, subject to ELIHPA's rules via the HDCA. Plaintiffs' complaint alleged that the prepayment provisions of their promissory notes gave them a "contractual right ... to terminate their contracts by prepaying their [mortgages] at any time at their option." They claimed that ELIHPA "repudiated the contractual right of [plaintiffs] to terminate their contracts at any time at their option." Their complaint sought relief on two theories: breach of contract and a violation of the Fifth Amendment's prohibition against taking property without just compensation. This court (Judge Gibson) granted the government's motion to dismiss the claims brought by the owners of the pre-1979 complexes, on the ground that they were barred by the six-year statute of limitations in 28 U.S.C. § 2501. This court also, sua sponte, dismissed the takings claims of those same plaintiffs, also on statute of limitations grounds. Franconia Assocs. v. United States, 43 Fed. Cl. 702, 715 (1999). The Federal Circuit affirmed this dismissal on timeliness grounds. Franconia Assocs. v. United States, 240 F.3d 1358 (Fed.Cir.2001). The Supreme Court, however, reversed, holding that "ELIHPA's enactment ... qualified as a repudiation of the parties' bargain, not a present breach of the loan agreements." Franconia Assocs. v. United States, 536 U.S. 129, 133, 122 S.Ct. 1993, 153 L.Ed.2d 132 (2002). According to the Court, "a breach would occur, and the six-year limitations period would commence to run, 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. [FN12] On similar grounds, the Court reinstated plaintiffs' takings claims. Id. at 149. It remanded this case to the Federal Circuit for further proceedings consistent with its opinion. Id. The Federal Circuit, in turn, remanded the case to this court. See Franconia Assocs. v. United States, 47 Fed. Appx. 565 (Fed.Cir.2002).

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*8 The case was set for trial and then, on March 19, 2003, reassigned to the undersigned judge. Trial in this matter was conducted in Des Moines, Iowa, from June 16, 2003, through June 26, 2003. At the trial, the court received over 1,000 exhibits and the testimony of 22 witnesses, including several expert witnesses on damages. On July 16, 2004, in anticipation of issuing this opinion, the court severed the claims of 29 of the 30 plaintiffs (the exception being Franconia Associates), and ordered the clerk to consolidate the new actions with the original action. This opinion deals with all but one of the 30 cases now consolidated; by separate order, the court, today, is dismissing the case involving Dublin Plaza, for lack of jurisdiction, based on evidence that the predecessor to the plaintiff therein failed to comply with the statute of limitations contained in 28 U.S.C. § 2501. II. DISCUSSION The gravamen of plaintiffs' complaint is that, under the express terms of their promissory notes, they were entitled to prepay their mortgage loans, without restriction and at any time, thereby releasing their properties from the considerable financial restrictions associated with the section 515 housing program. They assert that the United States abridged their rights when Congress passed ELIHPA and the HCDA, which place permanent restraints upon the prepayment of their FmHA loans. Plaintiffs assert that these statutes effected both a repudiation of their contracts and a taking of their property in violation of the Fifth Amendment. They claim damages calibrated to the alleged lost profitability or value of their complexes, owing to what they view as their forced continued participation in the rural housing program. Defendant mounts a vigorous, multi-faceted counterattack on these contentions, with its initial thrust being that ELIHPA and the HCDA did not significantly alter any contract rights that plaintiffs possessed so as to constitute a repudiation of those rights. In this regard, while defendant does not invoke the so-called "sovereign acts" doctrine, it argues that, under the so-called "unmistakability doctrine," the FmHA, acting on behalf of the United States, sub silentio reserved the right to modify the statute at any time and to have the amended statute supplant the provisions in plaintiffs' notes. Among its many other retorts to plaintiffs' proof, defendant also asseverates that the losses plaintiffs allegedly experienced are self-inflicted and would not have been experienced had plaintiffs taken advantage of various options that Congress offered when it

statutorily modified the prepayment rights. A. Liability. For reasons that soon will become apparent, the court will consider plaintiffs' breach of contract and takings claims seriatim. 1. Breach of Contract. a. Prima facie liability. To determine whether plaintiff's contractual rights were breached, the court first must determine what those rights were. See San Carlos Irrigation and Drainage Dist. v. United States, 877 F.2d 957, 959 (Fed.Cir.1989); Cuyahoga Metro. Hous. Auth. v. United States, 57 Fed. Cl. 751, 759 (2003). Several interpretational guides mark this decisional path. First, as an overarching matter, the court, in interpreting a contract, seeks to "effectuate its spirit and purpose." Gould, Inc. v. United States, 935 F.2d 1271, 1274 (Fed.Cir.1991) (quoting Arizona v. United States, 216 Ct.Cl. 221, 575 F.2d 855, 863 (Ct.Cl.1978)). Toward that end, contract interpretation "begins with the plain meaning of the agreement." Gould, 933 F.2d at 1274; see also Northrop Grumman Corp. v. Goldin, 136 F.3d 1479, 1483 (Fed.Cir.1998); Barseback Kraft AB v. United States, 121 F.3d 1475, 1479 (Fed.Cir.1997). "[A]n interpretation which gives a reasonable meaning to all parts," the law provides, "will be preferred to one which leaves a portion of it useless, inexplicable, inoperative, void, insignificant, meaningless, superfluous, or achieves a weird and whimsical result." Arizona, 575 F.2d at 863; see also Fortec Constr. v. United States, 760 F.2d 1288, 1292 (Fed.Cir.1985); Northrop Grumman Corp. v. United States, 50 Fed. Cl. 443, 458-59 (2001). *9 The promissory notes at issue could not be much clearer in allowing plaintiffs to prepay at any time, indicating unambiguously that "[p]repayments of scheduled installments, or any portion thereof, may be made at any time at the option of the Borrower." In the court's view, the plain meaning of this language controls and gave plaintiffs the unfettered right to prepay their loans at any time. See Allegre Villa v. United States, 60 Fed. Cl. 11, 15- 16 (2004). [FN13] Reasonably construed, this language imposes a concomitant obligation on the FmHA to accept these prepayments and release the respective owner from its obligations under the section 515 program. As the Supreme Court readily observed in Franconia, "[i]f [plaintiffs] enjoyed a 'right to prepay their loans

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at any time,' 240 F.3d at 1363, then necessarily the Government had a corresponding obligation to accept prepayment and execute the appropriate releases." 536 U.S. at 142. The Court further declared that "[a]bsent an obligation on the lender to accept prepayment, the obligation to allow borrowers to prepay would be meaningless," rendering the loan contract "illusory." Id. [FN14] Moreover, that the notes allowed prepayment at any time, without significant restriction, is confirmed by other contract provisions, [FN15] and was prominently highlighted by the FmHA in promoting the program. [FN16] Of course, unlike private contractual undertakings, the contracts here originated in legislation passed by Congress, requiring the court to consider that legislation in construing them. See, e.g., Bennett v. Kentucky Dept. of Educ., 470 U.S. 656, 669, 105 S.Ct. 1544, 84 L.Ed.2d 590 (1985); Barseback Kraft AB, 121 F.3d at 1480-81 (construing an agreement in light of the underlying legislation); Cuyahoga, 57 Fed. Cl. at 761 (same). Tellingly, the legislative history of the Housing Act reveals that the prepayment option initially constituted a key aspect of the financing of the program, loans for which were made from a revolving fund that was capped by Congress at a specified appropriation level. Prepayments allowed the FmHA to recoup funds from owners who no longer needed them, freeing up money to make loans to the lengthy list of waiting applicants. The creator of this funding mechanism, Congress, on several occasions prior to 1979, admonished the FmHA for not graduating from the program owners who could obtain alternative private financing, stating, in typical fashion, in one report: [We] wish to reemphasize to the Administrator of the [FmHA] the necessity for the most careful administration of the 'credit availability' test in order that available federal funds can be conserved for definitely eligible borrowers. We encourage the [FmHA] in the further development of methods for utilizing presently available capital to the maximum extent possible. H. Rep. No. 88-1703, at 23 (1964); see also H. Rep. No. 95-236, at 27 (1977); H. Rep. No. 89-365, at 48 (1965). For decades, then, Congress fully understood and relied upon the fact that under the rural housing program, the owners possessed not only an absolute right, but an obligation, to prepay their loans. [FN17] Legislative history thereby confirms what the plain language of the notes manifests--that the FmHA was required to accept unconditionally any prepayments made by property owners. *10 When the number of owners seeking to prepay

exceeded those willing to enter the program, thereby reducing the available housing stock, Congress knowingly compromised the same prepayment option it had earlier championed--as one legislator put it, "welching" on the deal previously made to induce participation in the program. [FN18] Contrary to defendant's importunings, nothing else in the agreements indicated that the prepayment without restriction option could be limited, in futuro, unilaterally by Congress or the FmHA. Defendant points to language in the loan agreements providing that "any loan made or insured ... will be administered subject to the limitations of the authorizing act of Congress and related regulations." But, were this "subject to" language to mean that the prepayment option could be limited by Congress or the FmHA virtually at will, the same would hold true of all the government's obligations under the agreements, rendering these contracts illusory. To the contrary, defendant's gloss on the quoted language clashes with that part of the loan agreement indicating that it could be modified only "by agreement between the Government and the Partnership," and of the promissory note stating that it was "subject to the present regulations of the Farmer's Home Administration and to its future regulations not inconsistent with the express provisions hereof." Indeed, on at least two occasions-Smithson v. United States, 847 F.2d 791, 794 (Fed.Cir.1988) and Parkridge, 13 F.3d at 1197-courts have refused to construe the "subject to" language upon which defendant relies as incorporating the FmHA's regulations into the rural housing loan agreements, with the Parkridge court specifically concluding that ELIHPA's procedures "are facially inconsistent with the loan agreements," 13 F.3d at 1197. Similar government contract language likewise has been construed not to have the "preincorporation" effect defendant urges. [FN19] Accordingly, this court finds no indication whatsoever that defendant expressly reserved in the program documents the right to modify the prepayment terms of the agreement. In sum, not even a microscopic reading of the contract documents can escape the conclusion that plaintiffs had an unfettered right to prepay their mortgages. It follows that the passage of ELIHPA and the HCDA repudiated that right. Those statutes "conveyed an announcement by the Government that it would not perform as represented in the promissory notes if and when, at some point in the future, petitioners attempted to prepay their mortgages." Franconia, 536 U.S. at 143; see also Restatement (Second) of Contracts (hereinafter "Restatement") §

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250, Comment b (1981) ("[A] statement of intention not to perform except on conditions which go beyond the contract constitutes a repudiation"). [FN20] "[W]hereas under the old scheme FmHA had to accept prepayment from borrowers ... at any time," the Eighth Circuit observed in Parkridge, 13 F.3d at 1196, "under [ELIHPA], FmHA may accept prepayment only at the end of an intricate six-month long (or longer) procedure ...." [FN21] This repudiation ripened into an apparent breach of contract either at the time a request for prepayment was made and not honored or, at the latest, when the complaint in this matter was filed. Franconia, 536 U.S. at 142-43; see also Roehm v. Horst, 178 U.S. 1, 13, 20 S.Ct. 780, 44 L.Ed. 953 (1900); Maine Yankee Atomic Power Co. v. United States, 225 F.3d 1336, 1343 (Fed.Cir.2000); Trauma Serv. Group v. United States, 104 F.3d 1321, 1325 (Fed.Cir.1997); Restatement, § 235(2). However, to determine whether this prima facie breach was, in fact, a breach requires this court to consider the government's principal defense against liability here--that, sub silentio, the government reserved the right to pass ELIHPA and the HCDA under the so-called "unmistakability doctrine." To this topic, the court now turns. b. The unmistakability doctrine. *11 Under the unmistakability doctrine, the "sovereign power" of the United States "is an enduring presence that ... remain[s] intact unless surrendered in unmistakable terms." United States v.. Winstar Corp., 518 U.S. 839, 872, 116 S.Ct. 2432, 135 L.Ed.2d 964 (1996) (citing Merrion v. Jicarilla Apache Tribe, 455 U.S. 130, 148, 102 S.Ct. 894, 71 L.Ed.2d 21 (1982)); see also Cuyahoga, 57 Fed. Cl. at 763. Defendant notes that, before this matter was reassigned to the undersigned, Judge Gibson found that this rule of contract construction applied herein and that, in the housing documents, the United States failed to surrender its sovereign powers with the requisite specificity. Defendant argues that this decision is entitled to great deference under the ubiquitous "law of the case doctrine"--that a " 'decision should continue to govern the same issues in subsequent stages in the same case." ' Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 816, 108 S.Ct. 2166, 100 L.Ed.2d 811 (1988) (quoting Arizona v. California, 460 U.S. 605, 618, 103 S.Ct. 1382, 75 L.Ed.2d 318 (1983), or, more colloquially, that "a litigant given one good bite at the apple should not have a second." Perkin-Elmer Corp. v.. ComputerVision Corp., 732 F.2d 888, 900 (Fed.Cir.), cert. denied, 469 U.S. 857, 105 S.Ct. 187, 83 L.Ed.2d

120 (1984). [FN22] But, this doctrine is not an inexorable command, and must yield where "controlling authority has intervened" or "the earlier decision was clearly erroneous and would work a manifest injustice." Id. at 900; see also Christianson, 486 U.S. at 817; Arizona v. California, 460 U.S. at 618 n. 8; Hughes Aircraft, 86 F.3d at 1566; Mendenhall v. Baber-Greene Co., 26 F.3d 1573, 1582 (Fed.Cir.), cert. denied, 513 U.S. 1018 (1994). While departures from the doctrine under these exceptions occur "very infrequently," Perkin-Elmer Corp., 732 F.2d at 900, such a rare departure is warranted here. Since Judge Gibson's ruling, it appears that every court to consider the issue has concluded that the unmistakability doctrine is inapplicable where Congress, rather than exercising its sovereign powers, targets its preexisting contractual obligations. See Gen. Dynamics Corp. v. United States, 47 Fed. Cl. 514 (2000); Coast-to-Coast Fin. Corp. v. United States, 45 Fed. Cl. 796, 802 (2000). Such was the holding of this court in Cuyahoga, supra, which examined the unmistakability doctrine at length. In that case, this court began by tracing the provenance of the doctrine from its roots in early cases involving the application of the Contracts Clause, U.S. Const., art. I, § 10, cl. 1, through more modern Supreme Court cases. Based on this tour d'horizon, this court observed: A key then is whether [the allegedly breaching] legislation invokes or embodies the types of sovereign power encompassed by the doctrine-those that 'promote the happiness and prosperity of the community,' ... or involve the health, morals, safety, or economic needs of the citizenry.... If such is the case--where, for example, the challenged legislation represents a general exercise of the taxing or police powers--the unmistakability doctrine readily applies. If it is not--where, for example, the challenged legislation represents a bald 'repudiation' of a contractual obligation prompted by Congress' desire to correct what it perceives to be an overly generous deal-- the unmistakability doctrine will avail the government naught. It follows, a fortiori, that the unmistakability doctrine is not triggered by the passage of just any legislation--contrary to defendant importunings, the power of Congress to pass legislation under Article I of the Constitution is neither coextensive nor coterminous with the doctrine. Rather, the doctrine is more limited-owing those limitations to its historical roots in the Contract clause ... *12 57 Fed. Cl. at 769 (citations omitted).

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Considering the more recent treatment of the unmistakability doctrine in the various opinions in Winstar, this court then concluded that "Winstar confirms that in deciding whether the unmistakability doctrine applies in a given case, the nature of the legislation alleged to have breached the contract in question is truly pivotal." Id. at 773. Ultimately, it determined that "Winstar, as well as its progenitors and progeny, teach that the orbit of [the unmistakability] doctrine significantly intersects that of the sovereign acts doctrine--both apply when the Congress acts to protect public safety, morals or the economy; neither applies when the Congress instead targets the government's contractual obligations in an effort to obtain a better deal." Id . at 774. [FN23] Consistent with this analysis, a number of recent cases specifically hold that the unmistakability doctrine does not shield defendant from liability stemming from the passage of ELIHPA and the HCDA. At the anterior of this phalanx is Kimberly Assocs. v. United States, 261 F.3d 864 (9th Cir.2001), in which the Ninth Circuit opined that "the United States was not acting in a sovereign capacity when it altered its contract[s]" under this legislation. 261 F.3d at 869. It reasoned It is unquestionable that, when it altered the terms of its contract[s] ..., the government was not acting in a 'public and general' capacity. The provisions of the 1992 amendments to ELIHPA ... constituted a narrow, targeted piece of legislation aimed at relieving the government from onerous provisions contained in a finite number of specific contracts it had already entered.... In the context of federal programs, it appears relatively few loans were affected, perhaps numbering less than 5,000. To prevent enforcement of these private contracts between the third party trustee and the borrowers would be to 'give the Government-as-contractor powers that private contracting parties lack.' Yankee Atomic Elec., 112 F.3d at 1575 (Fed.Cir.1997). Such a result cannot be countenanced because the government in its private contracting capacity cannot exercise sovereign power 'for the purpose of altering, modifying, obstructing or violating the particular contracts into which it had entered with private parties.' Id. Id. at 870. This court has twice embraced Kimberly. In Grass Valley Terrace v. United States, 51 Fed. Cl. 436 (2002), it reconsidered a prior opinion, see 46 Fed. Cl. 629 (2000), and concluded that ELIHPA and HCDA did not constitute an exercise of sovereign power protected by the unmistakability doctrine. There, it opined that "[t]he impact of ELIHPA and the HCDA legislation fell substantially on the

government's contracting partners" and had the "substantial effect of releasing the government from its own contractual obligations." 51 Fed. Cl. at 44142. More recently, in reaching the same conclusion in Allegre Villa, 60 Fed. Cl. at 16-17, this court surveyed the recent jurisprudence on the unmistakability doctrine and surmised that its refusal to apply the doctrine to ELIHPA was not "groundbreaking." See also Adams, 42 Fed. Cl. at 472 (holding enactment of ELIHPA and HCDA was not a "sovereign" act). [FN24] *13 These cases serve interlocking purposes. First, they lead to the conclusion that the law of case doctrine ought not apply here. While they are not controlling precedent, these cases, together with this court's treatment of the unmistakability doctrine in Cuyahoga, supra, persuasively indicate that, with all due respect, the prior ruling herein was clearly erroneous. In the court's view, adherence to that ruling would be manifestly unjust because, inter alia, it would lead some plaintiffs to be dismissed from this case-- oddly, those not subject to the court's earlier statute of limitations ruling-- while leaving others to pursue remedies under the current--and, in the court's view, correct--formulation of the law. [FN25] See Agostini v. Felton, 521 U.S. 203, 236, 117 S.Ct. 1997, 138 L.Ed.2d 391 (1997) (refusing to apply law of the case doctrine where there had been a significant change in Supreme Court jurisprudence). Nothing could be more contrary to the sound development of the law in this important area than to hold this--and that this court will not do. Of course, these same cases also readily demonstrate that the unmistakability doctrine offers defendant no comfort here. In passing ELIHPA and the HDCA, Congress deliberately targeted the FmHA's contractual obligations under preexisting notes in an effort to obtain a better deal than the one it and the FmHA used to induce plaintiffs to enter into the program. Cuyahoga, 57 Fed. Cl. at 774; see also Coast-to-Coast Fin. Corp., 45 Fed. Cl. at 802 (unmistakability doctrine does not apply where Congress' act is "designed merely to eliminate an obligation that arose under one of the Government's contractual relationships"). The impact of that legislation fell not substantially, but exclusively on the government's contracting partners, limiting their prepayment rights with the obvious intent of forcing them to remain in the section 515 program. To be sure, as defendant emphasizes, this unilateral modification of a preexisting contractual obligation had a general public purpose--to preserve rural housing stock and prevent tenants from being

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displaced. But, that is not enough to insulate the particular means Congress selected from a range of available options to effectuate that purpose. [FN26] So ruled the Supreme Court in Winstar, supra, where a plurality of Justices held that a statute that likewise served an important public objective, the Financial Institutions Reform, Recovery and Enforcement (FIRREA), was not protected by the unmistakability doctrine. There, the Court noted that the unmistakability doctrine ought not apply to a "governmental object of self-relief," explaining that "[s]uch an object is not necessarily inconsistent with a public purpose, of course, and when we speak of governmental 'self-interest,' we simply mean to identify instances in which the Government seeks to shift the costs of meeting its legitimate public responsibilities to private parties." 518 U.S. at 896; see also Cuyahoga, 57 Fed. Cl. at 776; Centex Corp. v. United States, 49 Fed. Cl. 691, 710-11 (2002). In the court's view, such a shifting--as in Winstar and Cuyahoga, accomplished by targeting preexisting contracts--is exactly what occurred here. [FN27] *14 Under these circumstances, defendant's assertion that its actions were protected by the unmistakability doctrine does not bear scrutiny. Defendant plainly has rendered its performance under the section 515 contracts impossible and, accordingly, the court finds that the United States is liable to the owners for breach of those contracts. "Understandable as Congress' desire to save money may be," this court previously observed, "the rule for it, like private parties, sometimes is pacta sunt servanda-colloquially, 'a deal is a deal." ' Cuyahoga, 57 Fed. Cl. at 779 . [FN28] 2. Takings. Plaintiffs alternatively claim that the various amendments to the Housing Act constituted a taking of their property, by regulatory imposition. To be sure, plaintiffs' situation implicates the underlying purpose of the Fifth Amendment, which, in the oftrepeated words of Armstrong v. United States, 364 U.S. 40, 49, 80 S.Ct. 1563, 4 L.Ed.2d 1554 (1960), is "to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole." Moreover, it is well-established that "[r]ights against the United States arising out of a contract with it are protected by the Fifth Amendment." Lynch v. United States, 292 U.S. 571, 579, 54 S.Ct. 840, 78 L.Ed. 1434 (1934). [FN29] Nonetheless, by dint of the following analysis, the court must reject plaintiffs' takings claim.

The Federal Circuit "has cautioned against commingling takings compensation and contract damages." Hughes Communications, 271 F.3d at 1070; see also J.J. Henry Co. v. United States, 188 Ct.Cl. 39, 411 F.2d 1246, 1249 (Ct.Cl.1969); Detroit Edison Co. v. United States, 56 Fed. Cl. 299, 301 (2003) ("[a] takings claim has limited application when a claimant has a viable breach remedy"); Home Sav. of Am., F.S.B. v. United States, 51 Fed. Cl. 487, 494 (2002) (same). In the Winstar context, the refusal to invoke takings principles has been explained as directly resulting from the availability of contract remedies. As Justice Scalia wrote in his concurrence in Winstar, "[v]irtually every contract operates, not as a guarantee of particular future conduct, but as an assumption of liability in the event of nonperformance: 'The duty to keep a contract at common law means a prediction that you must pay damages if you do not keep it,--and nothing else." ' Winstar, 518 U.S. at 919 (Scalia, J., concurring) (citations omitted) (emphasis in original); see also Glendale Fed. Bank, FSB v. United States, 239 F.3d 1374, 1379-80 (Fed.Cir.2001). More recently, in Castle v. United States, 301 F.3d 1328 (Fed.Cir.2002), the Federal Circuit opined that "despite breaching the contract, the government did not take the plaintiffs' property because they retained 'the range of remedies associated with the vindication of a contract." ' Id. at 1342 (quoting Castle v. United States, 48 Fed. Cl. 187, 219 (2000)). Instead of conferring a right protected from a taking, "the contract promised to either regulate [plaintiffs] consistently with the contract's terms, or to pay damages for breach." Id; see also Baggett Transp. Co. v. United States, 969 F.2d 1028, 1034 (Fed.Cir.1992); Fifth Third Bank of West. Ohio v. United States, 57 Fed. Cl. 586, 588-89 (2003); McNabb v. United States, 54 Fed. Cl. 759, 778-79 (2002). *15 Yet, other cases analyzing takings claims in analogous breach scenarios have focused not on the nature of the property impacted, but on the nature of the governmental action giving rise to the alleged taking. These decisions spring from the proposition that, in order to effectuate a taking, the government must invoke its sovereign powers for certain purposes. Under this approach, a taking does not arise where the government acts only in a commercial or proprietary capacity or seeks simply to enforce its property rights in court. For instance, in its seminal opinion in Sun Oil Co., 572 F.2d at 818, the Court of Claims held that the denial of permit to install a drilling platform with respect to preexisting

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lease did not effectuate a partial taking of the lease because the appropriate remedy "must be directed at defendant in its proprietary capacity and not in its sovereign capacity." [FN30] Other cases confronting this issue have followed the lead of Omnia Commercial Co., Inc. v. United States, 261 U.S. 502, 510, 43 S.Ct. 437, 67 L.Ed. 773 (1923), in which the Supreme Court held that if the government does not appropriate property for "public use," no taking, in the constitutional sense, occurs. These cases have opined that a variety of actions that affirmatively constituted the breach of a government contract did not meet this "public use" or "public good" requirement, so as to trigger the protections of the Fifth Amendment. [FN31] Invoking the latter two lines of authority, sometimes interchangeably, courts have readily concluded that passage of legislation targeting the government's obligations under preexisting contracts does not effectuate a taking. In the most compelling example of this, Home Savings, supra, this court rejected a claim that FIRREA effectuated a taking of plaintiffs' contract rights, as well as other underlying property interests, reasoning: Plaintiffs are correct that the Fifth Amendment affords protection to private property, including contract rights.... But it is clear that what was missing in cases such as Sun Oil, Castle, and Coast is the same thing that is missing here--an authorized exercise of the government's power of eminent domain. As the Supreme Court explained in Omnia Commercial Co. v. United States, 261 U.S. 502, 510, 43 S.Ct. 437, 67 L.Ed. 773 (1923), the government is only liable for a taking if it uses its power to appropriate a contract for public use-i.e., if it steps into the shoes of one of the contracting parties. That is not what occurred here. 51 Fed. Cl. at 494-95. Notably, while Winstar-type cases typically involve situations in which the breach of a contract effectuated by FIRREA resulted not only in the loss of contract rights, but the substantial devaluation (in some cases, total loss) of previouslyowned property, none of the decided cases have treated the loss of such independent property as either a categorical or regulatory taking. See, e.g., AG Route Seven P'ship v. United States, 57 Fed. Cl. 521, 535 (2003); First Fed. Savings Bank of Hegewisch v. United States, 57 Fed. Cl. 316, 318-19 (2003) (citing cases). A contrary ruling, indeed, would have no logical limits and mean that "nearly all Government contract breaches would give rise to compensation under the Fifth Amendment." Hughes Communications, 271 F.3d at 1070. [FN32]

*16 The foregoing analysis resonates in the case sub judice, in which the central hypothesis is that the government acted in a proprietary capacity in passing legislation that abridged plaintiffs' prepayment rights. If this is true--and the court holds it is--it follows, a fortiori, that defendant, while repudiating its contracts, did not effectuate a taking. [FN33] Because this conclusion stems from the nature of the power invoked by Congress in impacting plaintiffs' property, rather than the nature of the property itself, it applies, with equal force, to plaintiffs' contract rights and the complexes they acquired under the program. As to the former, it remains that when a contract between a private party and the Government creates the property right subject to a Fifth Amendment claim, the proper remedy for infringement lies in a contract claim, not one for a taking. [FN34] See Allegre Villa, 60 Fed. Cl. at 1819; Detroit Edison Co., 56 Fed. Cl. at 303. The same holds true as to the complexes themselves--no regulatory taking occurred because the Congress did not appropriate those properties in its sovereign capacity for public use. [FN35] Accordingly, the court holds that plaintiffs' takings claims are not welltaken. 3. Redux. Based on the foregoing, the court concludes that, in passing ELIHPA and the HCDA, defendant repudiated the FmHA contracts it had with plaintiffs. That repudiation blossomed into a full blown breach of contract upon the later of a specific request for prepayment (a demand for performance) or the filing of this lawsuit. Although, and perhaps because, such breaches occurred, the passage of ELIHPA and HCDA did not effectuate a taking either of plaintiffs' contract rights or the associated properties. The court must next determine the damages plaintiffs are owed. B. Damages. Attempting to quantify their breach damages, plaintiffs, at trial, presented expert testimony concerning the loss of cash flow they attribute to being precluded from prepaying their loans without restriction during the duration of those loans. Essentially, these analyses projected the cash flows likely to be generated by converting the properties to commercial use, compared them to what would be realized if the properties remained in the program, and treated the difference as expectation damages. Although defendant disputes various aspects of these

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calculations, its overarching arguments are that plaintiffs failed to mitigate their damages and inadequately demonstrated that the damages claimed were caused by defendant. 1. Mitigation. Defendant's centerpiece contention with respect to damages, which it repeats in several tactical variations, is that the provisions passed by Congress in eliminating the absolute prepayment right significantly mitigate any damages owed plaintiffs here. For the reasons that follow, this court disagrees. We begin with common ground--"a non-breaching party generally may not recover damages attributable to that party's failure to take reasonable, nonburdensome steps to avoid its loss." Koby v. United States, 53 Fed. Cl. 493, 496-97 (2002). Damages that the plaintiffs might have "avoided without undue risk, burden or humiliation" are hence not recoverable. Restatement § 350; see also Middleton v. United States, 175 Ct.Cl. 786, 792 (1966); Sun Cal, Inc. v. United States, 25 Cl.Ct. 426, 432 (1992). "Application of this principle," this court has stated, "requires the court to consider whether a reasonable person, acting in light of the known facts and circumstances, would have taken steps to avoid certain damages." Koby, 53 Fed. Cl. at 497. As stated by the Third Circuit: *17 Whether or not the buyer's obligation to mitigate damages has been discharged depends on the reasonableness of its conduct. In this connection, reasonable conduct is to be determined from all the facts and circumstances of each case, and must be judged in the light of one viewing the situation at the time the problem was presented. Where a choice has been required between two reasonable courses, the person whose wrong forced the choice cannot complain that one rather than the other was chosen. In re Kellett Aircraft Corp., 186 F.2d 197, 198 (3rd Cir.1950); see also Beckman Cotton Co. v. First Nat'l Bank of Atlanta, 666 F.2d 181, 184 (5th Cir.1982); First Nationwide Bank v. United States, 56 Fed. Cl. 438, 444 (2003); Tampa Elec. Co. v. Nashville Coal Co., 214 F.Supp. 647, 652 (M.D.Tenn.1963). "The rule of mitigation of damages may not be invoked by a contract breaker as a basis for hypercritical examination of the conduct of the injured party, or merely for the purpose of showing that the injured person might have taken steps which seemed wiser or would have been more advantageous to the defaulter." In re Kellett Aircraft, 186 F.2d at 198-99; see also Apex Min. Co. v.

Chicago Copper & Chem. Co., 306 F.2d 725, 731 (8th Cir.1962). Rather, the burden is on the breaching party to show that reasonable possibilities for mitigation existed and were ignored. See T.C. Bateson Construction Co. v. United States, 162 Ct.Cl. 145, 319 F.2d 135, 160 (Ct.Cl.1963); Home Sav. of Am., FSB v. United States, 57 Fed. Cl. at 729; Westfed Holdings, Inc. v. United States, 55 Fed. Cl. 544, 561-62 (2003); Robinson v. United States, 50 Fed. Cl. 368, 370 (2001). Burnishing this "undue risk and expense" standard, Williston on Contracts provides that "almost any risk of considerable loss to the injured person if he attempts to mitigate damages should be considered undue." 11 Samuel Williston, A Treatise on the Law of Contracts § 1353 (3d ed.1968); see also Brazos Electric Power Coop., Inc. v. United States, 52 Fed. Cl. 121, 129 (2002). While reasonable cost-avoiding steps include affirmative efforts to make substitute arrangements compensating for the lack of contract performance, such arrangements need not be entered into if they would expose the party to undue risk or significantly compromise its interests. See Restatement, § 350 cmts. c & g; see also Westamerica Mortgage Co. v. First Nationwide Bank, 1988 WL 76377 at *5 (D.Colo. Jul.15, 1988). Thus, an injured party is not expected to " 'exalt the interests of the defaulter to his own probable detriment." ' Koby, 53 Fed. Cl. at 497 (quoting In re Kellett Aircraft, 186 F.2d at 199); see also Contempo Design, Inc. v. Chicago and N.E. Ill. Dist. Council of Carpenters, 226 F.3d 535, 554-55 (7th Cir.2000), cert. denied, 531 U.S. 1078, 121 S.Ct. 776, 148 L.Ed.2d 674 (2001); John Calamari & Joseph Perillo, The Law of Contracts § 14-15 (3d ed.1987). Accordingly, courts have been reluctant to require parties, under the duty to mitigate, to deal further with the breaching party, especially if the breacher's alternative terms differ substantially from those of the original contract. Stanspec Corp. v. Jelco, Inc., 464 F.2d 1184, 11