Free Post Trial Brief - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS ************************************ CCA ASSOCIATES, Plaintiff, v. THE UNITED STATES, Defendant. ************************************ ) ) ) ) ) ) ) ) ) ) )

No. 97-334C Judge Lettow

PLAINTIFF'S POST-TRIAL MEMORANDUM

Elliot E. Polebaum Albert S. Iarossi FRIED, FRANK, HARRIS, SHRIVER & JACOBSON LLP 1001 Pennsylvania Avenue, N.W., Suite 800 Washington, D.C. 20004-2505 Tel: (202) 639-7000/Fax: (202) 639-7003 November 9, 2006

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TABLE OF CONTENTS PAGE I. II. INTRODUCTION ...............................................................................................................1 PROPOSED FINDINGS OF FACT....................................................................................5 A. B. C. The Norman Brothers' Entry Into HUD's Low Income Housing Program ............5 The 1985 Transfer..................................................................................................10 The Preservation Statutes ......................................................................................12 1. 2. D. E. F. III. Plan of Action for Prepayment ..................................................................13 Preservation Benefits .................................................................................16

The HOPE Act And CCA's Prepayment ...............................................................20 Economic Impact ...................................................................................................22 Just Compensation.................................................................................................26

PROPOSED CONCLUSIONS OF LAW..........................................................................34 A. B. Plaintiff's Claim Is Ripe For Review ....................................................................34 ELIHPA And LIHPRHA Effected A Taking Of Plaintiff's Right To Prepay Its HUD-Insured Mortgage On The 20-Year Prepayment Date ................38 1. 2. Enactment Of ELIHPA And LIHPRHA Has The Character Of A Taking ........................................................................................................38 ELIHPA And LIHPHRA Frustrated Plaintiff's Distinct And Reasonable Investment-Backed Expectations ...........................................44 a. The Norman Brothers In 1969 And CCA In 1985 Relied On And Expected To Exercise The Prepayment Right On The Eligibility Date .......................................................................44 The Owners' Expectations To Prepay Were Reasonable ..............46

b. 3.

ELIHPA And LIHPRHA Caused CCA To Suffer A Severe Economic Impact .......................................................................................49

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C.

CCA Is Entitled To Just Compensation For The Taking Of Its Property..............54 1. 2. CCA Is Entitled To Just Compensation For The Damages It Suffered During The Period Of The Taking..............................................54 Plaintiff Is Entitled To Interest As An Element Of Just Compensation ............................................................................................58

IV.

CONCLUSION..................................................................................................................60

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TABLE OF AUTHORITIES PAGE CASES American Pelagic Fishing Co., L.P. v. United States, 55 Fed. Cl. 575 (2003), vacated on other grounds, 379 F.3d 1363 (Fed. Cir. 2004) ..............................................56 Armstrong v. United States, 364 U.S. 40 (1960).............................................................................................................38 Cienega Gardens v. United States, 67 Fed. Cl. 434 (2005) ................................................................................................passim Cienega Gardens v. United States, 331 F.3d 1319 (Fed. Cir. 2003) ..................................................................................passim Cienega Gardens v. United States, 265 F.3d 1237 (Fed. Cir. 2001) ...........................................................................1, 2, 34, 36 City Line Joint Venture v. United States, 71 Fed. Cl. 486 (2006) .........................................................................................................1 Hodel v. Irving, 481 U.S. 704 (1987)...........................................................................................................41 Independence Park Apartments v. United States, 449 F.3d 1235 (Fed. Cir. 2006) ...........................................................................................1 Independence Park Apartments v. United States, 61 Fed. Cl. 692 (2004) ................................................................................................passim Kimball Laundry Co. v. United States, 338 U.S. 1 (1949).........................................................................................................54, 55 Kirby Forest Indus. Inc. v. United States, 467 U.S. 1 (1994)...............................................................................................................58 Loveladies Harbor, Inc. v. United States, 28 F.3d 1171 (Fed. Cir. 1994) ......................................................................... 38-39, 44, 49 Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992).........................................................................................................38 Nollan v. California Coastal Comm'n, 483 U.S. 825 (1987)...........................................................................................................40

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Pennsylvania Coal Co. v. Mahon, 260 U.S. 393 (1922)...........................................................................................................38 Penn Cent. Transp. Co. v. City of New York, 438 U.S. 104 (1978).....................................................................................................38, 40 Pennell v. City of San Jose, 485 U.S. 1 (1988)...............................................................................................................40 Prudential Ins. Co. of Am. v. United States, 801 F.2d 1295 (Fed. Cir. 1986) .........................................................................................41 Rose Acre Farms, Inc. v. United States, 373 F.3d 1177 (Fed. Cir. 2004) .........................................................................................51 Seiber v. United States, 364 F.3d 1356 (Fed. Cir.), cert. denied, 543 U.S. 873 (2004).......................................................................... 51, 52-53 Shelden v. United States, 34 Fed. Cl. 355 (1995) .......................................................................................................58 Suitum v. Tahoe Reg'l Planning Agency, 520 U.S. 725 (1997)..................................................................................................... 53-54 Tahoe-Sierra Pres. Council, Inc. v. Tahoe Reg'l Planning Agency, 535 U.S. 302 (2002)...........................................................................................................52 United States v. General Motors Corp., 323 U.S. 373 (1945).....................................................................................................54, 55 United States v. Miller, 317 U.S. 369 (1943)...............................................................................................38, 54, 58 United States v. Petty Motor Co., 327 U.S. 372 (1946)..................................................................................................... 54-55 Vaizburd v. United States, 67 Fed. Cl. 499 (2005) .......................................................................................................29 Whitney Benefits, Inc. v. United States, 30 Fed. Cl. 411 (1994) .......................................................................................................59 Yancey v. United States, 915 F.2d 1534 (Fed. Cir. 1990) .........................................................................................49

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STATUTES Emergency Low Income Housing Preservation Act of 1987, Pub. L. No. 100-242, 101 Stat. 1877 (1988), codified at 12 U.S.C. § 1715l ........................................................................................1, 14 12 U.S.C. § 1715l note.....................................................................................12, 16, 17, 40 ELIHPA § 202(b)(1) ..........................................................................................................40 ELIHPA § 221(a)...............................................................................................................12 ELIHPA § 222 ...................................................................................................................16 ELIHPA § 224 ...................................................................................................................17 ELIHPA § 225 ...................................................................................................................17 ELIHPA § 225(a).........................................................................................................14, 42 ELIHPA § 225(a)(1) ..........................................................................................................14 ELIHPA § 225(b) ..............................................................................................................17 Housing Opportunity Program Extension Act of 1996, Pub. L. No. 104-120, 110 Stat. 834 (1996)........................................................................20 Low Income Housing Preservation and Residential Homeownership Act of 1990, Pub. L. No. 101-625, 104 Stat. 4249 (1990), codified at 12 U.S.C. § 4101 et seq. ........................................................................1, 37, 41 12 U.S.C. § 4108.............................................................................................. 13-14, 34, 42 12 U.S.C. § 4112(a)(2)(A) .................................................................................................18 12 U.S.C. § 4112(c)(3) ......................................................................................................18 12 U.S.C. § 4121................................................................................................................19 REGULATIONS 24 C.F.R. § 207.253(a)(2) (1970) ....................................................................................................7 24 C.F.R. § 221.524(a)(1)(ii) (1970) .....................................................................................6, 7, 47 24 C.F.R. § 236.30 (1970) .....................................................................................................6, 7, 47 24 C.F.R. § 248.141(a)(1) (1991) ................................................................................13, 14, 34, 42

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24 C.F.R. § 248.213(b) (1991) ......................................................................................................17 24 C.F.R. § 248.213(b)(10) (1991) ................................................................................................17

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I. 1.

INTRODUCTION

With the enactment of the Emergency Low Income Housing Preservation Act

("ELIHPA" or "Title II") 1 and the Low Income Housing Preservation and Resident Homeownership Act ("LIHPRHA" or "Title VI"), 2 Congress confiscated the right of Plaintiff CCA Associates ("CCA" or "Plaintiff") to prepay its mortgage, to leave the Department of Housing and Urban Development's ("HUD") l w income housing program, and to operate its o property on a conventional basis. For nearly ten years, the government has waged a seemingly interminable battle in the courts against CCA, denying liability at every point -- despite decisions by this Court and the United States Court of Appeals for the Federal Circuit addressing comparable claims and holding against the Government on the critical issues. In all respects material to this case, CCA's position is no different from that of the plaintiffs whose claims have been previously addressed by this Court and the Court of Appeals. 2. These prior decisions, particularly the decisions in Cienega Gardens v. United

States, 331 F.3d 1319 (Fed. Cir. 2003) ("Cienega VIII"); 3 Cienega Gardens v. United States, 265 F.3d 1237 (Fed Cir. 2001) ("Cienega VI"); Cienega Gardens v. United States, 67 Fed. Cl. 434 (2005) ("Cienega IX"); and Independence Park Apartments v. United States, 61 Fed. Cl. 692 (2004) ("Independence Park"),4 establish the legal framework applicable to CCA's claim. The

1 2 3

Pub. L. No. 100-242 § 202(a)(1), 101 Stat. 1877 (1988), 12 U.S.C. § 1715l. Pub. L. No. 101-625, 104 Stat. 4249 (1990), 12 U.S.C. § 4101 et seq.

The recent decision in City Line Joint Venture v. United States, 71 Fed. C1. 486 (2006), is inconsistent with the Court of Appeals decision in Cienega VIII.
4

The Court of Appeals decision in Independence Park Apartments v. United States, 449 F.3d 1235 (Fed. Cir. 2006), did not disturb any aspects of this Court's Independence Park decision which are relevant to this case. All references to this Court's decision in Independence Park are to those parts of the decision that are unaffected by the decision of the Court of Appeals.

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evidence presented at trial overwhelmingly establishes CCA's entitlement to relief and the quantum of its damages. 3. We discuss the relevant legal framework in detail below. At this point, we note

the following legal rules from prior decisions: · There was no requirement for CCA to make a futile request to HUD for permission to prepay. Cienega VI, 265 F.3d at 1244-48; Cienega IX, 67 Fed. Cl. at 460-61. · There was no requirement for CCA "separately to seek incentives and receive a determination of whether those incentives would be funded." Cienega IX, 67 Fed. Cl. at 461. · The enactment of ELIHPA and LIHPRHA has the character of a taking. Cienega VIII, 331 F.3d at 1337-40; Cienega IX, 67 Fed. Cl. at 466-71. · The prepayment right specified in the Chateau Cleary transaction documentation and the prevailing HUD regulations presumptively created reasonable investment backed expectations. Cienega VIII, 331 F.3d at 1348. · Economic impact is properly measured by the diminution in return on equity effected by ELIHPA and LIHPRHA. Cienega VIII, 331 F.3d at 1342-43; Cienega IX, 67 Fed C1. at 475. · The percentage reduction in return on equity in the decided cases is, "even under the most conservative view, a `serious financial loss,'" Cienega VIII, 331 F.3d at 1343, and is "the kind of expense shifting to a few persons that amounts to a taking," id. at 1338-39. · Just compensation is appropriately measured first by determining the net cash flows of which the property owner was deprived. Cienega IX, 67 Fed. Cl. at 484. · The net cash flows must be then adjusted forward to the end of the takings period by a factor that reflects what could have been earned in a reasonably prudent alternative investment. From the end of the takings period, the loss must be further adjusted to present value on a compound basis through the date of final judgment. Id. at 492-93. 4. In line with these precedents, it is beyond dispute that the enactment of ELIHPA

and LIHPRHA has the character of a taking and frustrated CCA's distinct and reasonable investment-backed expectations. Also based on these precedents, it is beyond dispute that the government's actions caused Plaintiff to suffer a diminution in return on equity of between 80% and 85%, which is a severe adverse economic impact by any reasonable measure. 5. In response, the government ignored the decisions of this Court and of the Federal 2

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Circuit and instead proffered a self-described principled, economic analysis showing what it considered to be an insufficient economic impact. Not only was the government's analysis inconsistent with this Court's and the Federal Circuit's prior rulings but also its analysis was anything but principled and consistent. Rather, the analysis, while claiming to be ex ante in character, actually cherry-picked the critical ex post fact -- that it was somehow known in 1991 that the HOPE legislation would be enacted in 1996 -- in order to reduce economic impact within the framework of its own model. Just as an ex post analysis may not disregard inconvenient actual facts in the real world, so too an ex ante analysis may not reach for helpful facts that were unknown and unknowable as of the valuation date. 6. Plaintiff also presented convincing evidence of the reasonable, investment-backed

expectations both of the original developers in 1969 and of CCA in 1985 when it purchased the 50% equity interest of one of the original developers, J. Robert Norman. The government made no effort to dispute the expectations of the original developers in 1969 and of CCA in 1985. Mr. Norman's testimony went unchallenged in this respect. Moreover, the Federal Circuit has previously ruled that inclusion of the prepayment right in the transaction documentation and in the contemporaneous HUD regulations (both in 1969 and 1985) makes the investor's expectations presumptively reasonable. The government sought to rebut this presumption

through the testimony of Mr. Malek, but failed miserably. Mr. Malek's analysis dealt with the supposed expectations of the owners of a "typical" project carried out through a syndication of limited partnership interests, without regard to what happened in the Chateau Cleary development. Even more stunning, Mr. Malek presented a mathematical analysis that was

designed to show that the residual value of the property was a small portion of the total return the Chateau Cleary investors must have expected to achieve. To reach his pre-ordained conclusion,

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however, Mr. Malek had to assume away the owners' actual equity contribution to the project at the outset by stripping out the Builder's & Sponsor's Profit and Risk Allowance. Once this flaw in Mr. Malek's analysis was exposed in Plaintiff's rebuttal case, Mr. Malek's analysis, for whatever it was worth on its own terms, collapsed. 7. Finally, Plaintiff established conclusively the damages that it suffered. The lost

profits model presented by Dr. Ragas was compelling, followed this Court's and the Federal Circuit's prior guidance, and established the substantial losses that CCA suffered. While the government quibbled that CCA did not raise rents as high as it could have in the late 1980s while still a HUD property (presuming a level of precision that is not required as a matter of law), Dr. Ragas in any event debunked this assertion by explaining the constraining effect of actual market conditions both in the 1986-1990 time frame and again in 1999 and thereafter following CCA's prepayment on September 30, 1998. The reasonableness of Dr. Ragas' analysis was actually confirmed by Mr. Derbes' second report, DX 173 at 9, in which Mr. Derbes calculated CCA's lost profits during the period May 1, 1991 through May 31, 1996, as a result of continuing HUD restrictions. Mr. Derbes estimated the loss at $528,971, as compared to the $607,757 loss that Dr. Ragas found in the comparable period. 8. When the damages amount Dr. Ragas determined is adjusted forward, in

accordance with the methodology approved in prior precedents, CCA's damages through September 30, 2006 amount to $1,361,298 using an assumed end-of-takings date of May 31, 1996. If the taking instead is found to have ended on February 28, 1997, as the evidence supports, then the amount due Plaintiff through September 30, 2006 is $1,528,629. Accordingly, Plaintiff is entitled to judgment in the amount of $1,528,629 as of September 30, 2006.

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II. A.

PROPOSED FINDINGS OF FACT

The Norman Brothers' Entry Into HUD's Low Income Housing Program 9. The developers of the Chateau Cleary apartment complex were Ernest B.

Norman, Jr. and J. Robert Norman (the "Norman Brothers"). The Norman Brothers agreed to develop and operate the Chateau Cleary property under the HUD Section 221(d)(3) program and entered into a series of contemporaneous and interlocking contracts, which memorialized the transaction. Plaintiff's Exhibit ("PX") 1; Defendant's Exhibit ("DX") 1; PX 3-6. 10. The transaction documents included a Regulatory Agreement between HUD and

the Norman Brothers, DX l, a mortgage between the Norman Brothers and the lender, PX 4 & 6, and a first Note between the Norman Brothers and the lender and a superseding second Note, both of which were endorsed by HUD, 5 PX 3 & 5.6 11. The Regulatory Agreement required the Norman Brothers, among other things, to

construct and maintain the property in accordance with HUD specifications, to rent only to tenants meeting HUD eligibility standards, and to charge only HUD-approved rents. DX 1 ¶¶ 2 & 4. The Regulatory Agreement also limited the Norman Brothers to an annual return of 6% on their original equity investment. Id. ¶ 6(e)(1). 12. The Note made by the Norman Brothers and endorsed by HUD evidenced HUD's

commitment to insure the mortgage. The Note had a 40- year term but expressly included the unrestricted right to prepay the mortgage and exit the HUD program after 20 years without government or lender approval. PX 5. The prepayment right guaranteed in the Note mirrored

5

The Notes were endorsed by the Federal Housing Administration which is now part of HUD. The FHA and HUD are referred to interchangeably herein.
6

The superseding second Note is hereinafter referred to as the "Note."

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the prepayment right embodied in HUD regulations. Id.; 24 C.F.R. § 236.30 (1970); 24 C.F.R. § 221.524(a)(l)(ii) (1970); Cienega VIII, 331 F.3d at 1326. 13. The details of the Norman Brothers' entry into the HUD program are as follows.

On October 6, 1969, the Norman Brothers acquired title to the land on which Chateau Cleary would be built. PX 1. The Norman Brothers purchased the land, and also importantly the plans for the development of Chateau Cleary, from the Tomeny Group which had begun development of the project at least a year earlier, but which did not have the financial means to complete the transaction. Trial Transcript ("Tr.") 54:1-6; 58:16-21 (Norman) (trial transcript references are in the appendix submitted herewith). 14. HUD was keen to have the Norman Brothers take over the development because

they had a track record with, and an excellent reputation at, HUD from their earlier work with HUD in single- family home development. Tr. 54:7-14; 55:2-11 (Norman). Because the project had been languishing while the Tomeny Group was involved, HUD was anxious to move ahead quickly. Tr. 55:15-21; 62:1-17 (Norman). During the discussions with HUD, HUD

representatives emphasized the availability and value of the right to prepay the mortgage without their prior approval after no more than 20 years. Tr. 57:18-58:3 (Norman). 15. On November 7, 1969, the Norman Brothers signed a note in the amount of

$1,601,100. The note evidenced a loan that was secured by a mortgage on the Chateau Cleary property. On May 17, 1971, the lender increased the amount of the loan to $1,699,500, and a new note was made reflecting the increased loan amount (the "Note"). Additional funds were needed because the price of construction had increased during the period that the project languished while the Tomeny Group was trying to obtain financing, and HUD failed to take expected increased costs into account when the project finally went ahead. When the loan

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amount increased, the Norman Brothers signed a new mortgage and a new note reflecting the higher loan amount. PX 1, 3, 4, 5 & 6; Tr. 85:4-86:24 (Norman). 16. Both the note signed in 1969 and the new Note signed in 1971 were printed on

FHA Form 1734, a form prescribed by HUD. HUD reviewed and approved both notes. PX 3 & 5; Tr. 79:6-11 (Norman). Both notes included express language guaranteeing the Norman

Brothers' right to prepay as follows: "The debt evidenced by this note may not be prepaid either in whole or in part, prio r to the final maturity date hereof without the prior written approval of the Federal Housing Commissioner except a maker which is a limited dividend corporation may prepay without such approval after 20 years from the date of final endorsement of this note by the Federal Housing Commissioner." PX 3 & 5. 17. The same prepayment right was embodied in HUD's regulations: The "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; accord 24 C.F.R. § 221.524(a)(1)(ii); Cienega VIII, 331 F.3d at 1326 18. In consideration of HUD's endorsement of the first note, the Norman Brothers

also entered into a Regulatory Agreement with HUD. DX 1. This document, also prepared on the basis of a form prescribed by HUD, incorporated by reference HUD's then-existing regulations providing for prepayment after 20 years and sharply restricted the owners' use of the property. DX 1; Tr. 68:20-23 (Norman). These restrictions bound the Norman Brothers for as long as HUD insured the mortgage. Upon prepayment, HUD's insurance obligation would terminate and the owners' multifarious obligations under the Regulatory Agreement would end. See 24 C.F.R. § 207.253(a)(2) (1970); Cienega VIII, 331 F.3d at 1325-36.

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19.

The transaction documents between the Norman Brothers and HUD also set forth

HUD's determination of the owners' original equity, which HUD calculated at $215,867. PX 106; DX 1. The maximum annual limited dividend was 6% of original equity, or $12,952. Id. 20. The 20-year prepayment right reflected on the Note was one of the primary

inducements that HUD representatives highlighted to convince the Norman Brothers to participate in the program. "Every person involved on the other side of the entity, the Tomeny group, the mortgagees, the HUD personnel sold very hard, tried to sell my father and uncle and me very hard to get into the project." Tr. 55:2-6 (Norman). HUD representatives stressed the prepayment right. Tr. 58:1-3 (Norman). 21. The ability to prepay the mortgage and exit the HUD program was a critical, sine

qua non, element for the Norman Brothers to deve lop the project. Although the absence of personal liability on the permanent financing was an important defensive element in deciding to proceed, the prepayment right was the critical strategic element in the decision to proceed. The Norman Brothers "wouldn't have done [the deal] without it," and they would not have gone forward with the project. Tr. 56:9-18; 57:18-23; 59:9-14; 91:18-23 (Norman). 22. The prepayment right was the essential strategic right because the Norman

Brothers knew from the outset that they would be building in a fast-growing area of New Orleans. It is undisputed that the location of the property was in the path of expected future development, Tr. 1475:2-14 (Derbes), an assessment that the Norman Brothers not only made based on their own experience but also confirmed with other builders and consultants before deciding to proceed with the transaction, Tr. 60:3-62:21 (Norman). 23. In the late 1960s and early 1970s, the expectation in the marketplace was that

West Metairie, where Chateau Cleary is located, was in the path of future development. The

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government's own valuation expert acknowledged that Metairie was going to be "the major growth section of the city during that time." Tr. 1475:12-14 (Derbes). 24. In fact, the development toward (and beyond) Chateau Cleary occurred just as the

Norman Brothers had expected. HUD's director of the Division of Housing Management in New Orleans pointed out that, by the 1990s, Metairie had the benefit of two large, popular shopping malls, one of the area's premier medical complexes, good public schools, a new regional library, easy access to Interstate 10, and close proximity to downtown New Orleans. DX 140; Tr. 562:13-563:7 (Alexander). HUD's current director of the Multi-Family Program Center in New Orleans stated that, by the mid-1990s when she first arrived in New Orleans, Metairie was an attractive location in the New Orleans area due to its higher income, better schools, low crime rate, and "great shopping." Tr. 1122:20-1123:11 (Kizzier). 25. Part and parcel of the Norman Brothers' strategy was to build a quality project

that would be well maintained and then be ideally suited for conversion to market-rate apartments upon prepayment. Tr. 60:3-23; 61:12-17; 67:15-22 (Norman). The decision to

develop the project in a middle class neighborhood and to operate a well-built and well- maintained property was made with the expectation that Chateau Cleary would increase in value and attract the higher rental rates and rate of return of a conventional apartment complex upon prepayment of the Note. Tr. 57:10-17 (Norman). 26. In line with this strategy, the Norman Brothers developed a well-built property

and maintained it in fine condition. Chateau Cleary consistently received superior ratings during HUD-required inspections and was praised as being "a model complex" by HUD's own inspectors. PX 54 at G-CCA 5323; Tr. 153:18-154:15 (Norman). Well into its fourth decade of operation, Chateau Cleary sustained minimal physical damage from Hurricane Katrina in the fall

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of 2005 -- a testament to the quality of its construction and maintenance. Tr. 52:5-13 (Norman). 27. That the Norman Brothers' strategy looked ahead to achieve substantial economic

gains after 20 years is further confirmed by their decision not to syndicate the ownership of Chateau Cleary. Syndication would have meant relinquishing most of the ownership in the property and sacrificing the upside benefit they expected to achieve upon prepayment. While syndication may perhaps have been suitable for the "typical" low- income housing project, Tr. 1266:4-19 (Malek), the Norman Brothers had a different approach that depended on realizing the value of the investment upon the twentieth anniversary, Tr. 92:9-22 (Norman). 28. The Norman Brothers' expectation that they would be able to prepay the HUD

mortgage in 20 years and convert Chateau Cleary to a conventional market rate apartment complex was based upon specific language in the Note. That language was approved and authorized by HUD and embodied in HUD's then-existing regulations which were explicitly referenced in the Regulatory Agreement that the Norman Brothers signed. DX 1; PX 3-6;

Tr. 80:5-14; 91:22-92:8 (Norman) ("[T]hese documents, in our mind, obligated us to do certain things for the 20 years into the 40 year mortgage, and also obligated HUD to allow us to do certain things at the end of the 20 year period."). 29. In view of the express language in the Note and HUD's then-existing regulations,

the Norman Brothers had no reason to believe that the government would eliminate the unconditional right to prepay the mortgage. Tr. 74:25-75:7 (Norman). B. The 1985 Transfer 30. In 1985, in connection with personal succession planning, J. Robert Norman sold

his 50% interest in Chateau Cleary to CCA. PX 28-28A & 30; Tr. 160:23-161:23 (Norman). The CCA partnership, a family partnership of Ernest B. Norman Jr. and his children and grandchildren, was established on March 27, 1985, and Ernest B. Norman III was named 10

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Managing Partner in the partnership agreement. PX 30. The date of the sale by J. Robert Norman to CCA was April 12, 1985. PX 28A. The sale transaction was carried out with the full knowledge and approval of HUD. Tr. 168:11-22 (Norman). As part of the sale of J. Robert Norman's interest to CCA, HUD required CCA to execute a Regulatory Agreement. PX 29. Like the one executed in 1969, the Regulatory Agreement executed in 1985 incorporated by reference HUD's regulations, which continued to recognize the right to prepay on the 20-year anniversary of the final endorsement of the Note, and sharply restricted use of the property until prepayment. PX 29; Tr. 172:2-173:10 (Norman). In 1986, also with HUD's approval, Ernest B. Norman, Jr. transferred his 50% interest in Chateau Cleary to CCA. PX 33. 31. CCA purchased J. Robert Norman's interest for $677,550, reflecting an equity

value of approximately $1,350,000 and a market value for Chateau Cleary in the range of $2,600,000. PX 28A; Tr. 163:7-164:21 (Norman). At the time of the 1985 purchase by CCA, the right to prepay was only six years away. The price paid reflected the value that was accumulating in the property as the prepayment date neared. Tr. 163:7-20 (Norman). In 1985, CCA fully expected that it would be able to pay off the mortgage in 1991, convert Chateau Cleary into a conventional complex, raise rents, and operate free of HUD restrictions. Tr. 174:21­175:25 (Norman). CCA's expectations were identical to those of the Norman

Brothers in 1969, except the realization of those expectations was now only a few years away. 32. Had Congress already abrogated the prepayment right, CCA would not have paid

a price even remotely close to $677,500 or indeed anything at all. If CCA had known in 1985 that it would be forced to continue operating under the HUD regulations until the 40th anniversary of the mortgage, the transfer to CCA in all likelihood would not have happened at any price because "there would have been nothing to buy." Tr. 175:17-25 (Norman).

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33.

Given the express language in the Note and Regulatory Agreement, HUD's

then-existing regulations, and the proximity in time to Chateau Cleary's prepayment date, CCA had no reason to suspect that the government would eliminate CCA's unfettered right to prepay the mortgage only a few years later. Tr. 175:3-16 (Norman). C. The Preservation Statutes 34. In 1987, Congress realized that "in the next 15 years, more than 330,000 low

income housing units insured 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, 12 U.S.C. § 1715l note. In response, Congress temporarily barred owners from prepaying their mortgages. ELIHPA § 221(a); Tr. 182:1-18 (Norman). 35. In 1990, Congress enacted LIHPRHA, which "made permanent ELIHPA's

temporary ban on prepayment without HUD approval." Cienega IX, 67 Fed Cl. at 440. As a result, LIHPRHA permanently prevented CCA from exercising its right to prepay its HUD-insured mortgage without HUD approval. Id.; Tr. 185:13-22 (Norman). 36. By enacting ELIHPA and LIHPRHA, Congress shifted the burden of the

low- income housing crisis from all taxpayers to the owners of properties in HUD's programs, including CCA. Tr. 594:8-595:2 (Alexander); Cienega IX, 67 Fed Cl. at 467. Congress also substantially interfered with CCA's right to use, transfer, and exclude others from its property. Tr. 185:23-186:6 (Norman). These statutes compelled the physical occupation of Chateau

Cleary by government-approved tenants at government-dictated rents. 37. The Preservation Statutes and regulations promulgated thereunder presented an

owner with three theoretical alternative courses of action, all of which required an owner to run the gauntlet of a multi- year bureaucratic process with no assurance of a specific outcome, except that the owner w ould certainly be far worse off than if the Preservation Statutes had not been 12

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enacted. These theoretical options were to: (a) request permission to prepay the mortgage, by demonstrating that prepayment would not have an adverse effect on the existing tenant population or the supply of decent, safe, and affordable housing; (b) agree to maintain the property as affordable housing in exchange for certain financial incentives; or (c) sell the property through an artificial process at a below market, HUD-approved price to HUD-approved purchasers willing to maintain the low- income affordability restrictions. 12 U.S.C. § 4108; 24 C.F.R. § 248.141(a)(1) (1991); Tr. 587:18-589:6 (Alexander). 38. None of these options reimbursed owners for cash flows lost as a result of being

prohibited from prepaying and converting to market rents on the original prepayment dates. 12 U.S.C. § 4108; 24 C.F.R. § 248.141(a)(1); Tr. 636:6-9(Alexander). 39. One other option that the owners retained was to abide their confiscation and do

nothing. Tr. 1081:6-8 (Kizzier) ("They could choose not to come into the [Title 2 or Title 6] program."). In this case, an owner would be forced to continue to operate under the Regulatory Agreement and receive, at most, a 6% annual return on original equity for the remainder of the 40-year mortgage. 12 U.S.C. § 4108; 24 C.F.R. § 248.141(a)(1). 1. 40. Plan of Action for Prepayment To request and obtain permission from HUD to prepay under the Preservation

Statutes, an owner was required to file a Plan of Action that would enable HUD to make written findings that, among other things: (a) (1) (A) [I]mplementation of the plan of action will not-- materially increase economic hardship for current tenants, and will not in any event result in (i) a monthly rental payment by any current tenant that exceeds thirty percent of the monthly adjusted income of the tenant or an increase in the monthly rental payment

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in any year that exceeds 10 percent . . .; or7 (B) involuntarily displace current tenants (except for good cause) where comparable and affordable housing is not readily available, determined without regard to the availability of Federal housing assistance that would address any such hardship or involuntary displacement; and The supply of vacant, comparable housing is sufficient to ensure that such prepayment will not materially affect-- the availability of decent, safe, and sanitary housing affordable to low- income and very low- income families or persons in the area that the housing could reasonably be expected to serve . . . .

(2) (A)

12 U.S.C. § 4108; see also 24 C.F.R. § 248.141(a)(1); Tr. 587:18-589:6 (Alexander); 1100:20-1101:2 (Kizzier). 41. ELIHPA and LIHPRHA prohibited HUD from approving a request for

prepayment unless the owner could show that prepayment would satisfy all of these criteria. See 12 U.S.C. § 4108; ELIHPA § 225(a); Tr. 587:18-589:6 (Alexander). In fact, CCA could not satisfy any of these criteria for prepayment under the Preservation Statutes, let alone all of them. As a result, HUD was statutorily prohibited from granting a prepayment exception to CCA. HUD had no discretion to allow CCA to prepay. Tr. 587:18-589:6 (Alexander). 42. Conversion of Chateau Cleary to a market rent complex would have caused the Mr. Norman's opinion, after having

current tenants' rents to increase by more than 10%.

managed the property for more than thirty years, was that Chateau Cleary's HUD­regulated rents were more than 20% below market rents in 1991. Tr. 190:9-21 (Norman).

7

At trial, the Government erroneously asserted that the 10% rental increase criterion did not apply to properties subject to ELIHPA. Tr. 24:16-25 (Woodrow). While that was true for a brief period immediately after the enactment of ELIHPA, within nine months of enactment, ELIHPA was amended to reflect the 10% criterion, with which CCA would have had to comply. ELIHPA § 225(a)(1), 12 U.S.C. § 1715l. Because the government was mistaken as to the applicable criteria, it presented no evidence controverting CCA's convincing evidence that its HUD rents were more than 10% below market rents.

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43.

As of CCA's prepayment date, May 17, 1991, HUD rates at Chateau Cleary were

$264 for 1-bedroom units, between $303 and $310 for 2-bedroom units, and $335 for 3-bedroom units. PX 106. Dr. Ragas determined that the market rates for these units would have been $368, between $404 and $420, and $433, respectively. PX 106. The market rents for 1-, 2-, and 3-bedroom apartments at Chateau Cleary were thus 39%, 33% to 35%, and 29% higher, respectively, than the HUD- mandated rates at Chateau Cleary. PX 106; Tr. 841:3-16 (Ragas). 44. The suggested market rental rates for Chateau Cleary proffered by the

government's own expert ($330 for 1-bedroom units, between $360 and $399 for 2-bedroom units, and $430 for 3-bedroom units) were between 16% and 28% (with an average of 22.5%) higher than Chateau Cleary's HUD­mandated rates. PX 100; Tr. 1492:17-1493:13 (Derbes). 45. CCA also could not satisfy statutory requirements for prepayment for the further

reason that CCA's then tenants could not have afforded to pay the market rents charged by conventional properties without paying more than 30% of their adjusted income for rent. Tr. 610:7-611:11 (Alexander) (Chateau Cleary tenants could not have afforded rents charged by conventional properties without paying more than 30% of their adjusted income for rent). 46. In addition, if CCA prepaid its mortgage, the supply of low- income housing

would have been materially affected and current CCA tenants would have been involuntarily displaced. It is undisputed that the New Orleans area had large numbers of low- income people in need of affordable housing in the early 1990s. There were three- to four-year waiting lists to get into HUD properties. Tr. 590:25-591:4 (Alexander); 1104:11-1105:9 (Kizzier). Chateau Cleary maintained its own waiting list. Tr. 193:2-4 (Norman). 47. Had Chateau Cleary been converted to a market rate complex, the housing stock

itself would not change, but the availability of Chateau Cleary's units to poor people would

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change. Tr. 591:5-15 (Alexander). Displaced tenants could not have found comparable housing in the same area because none existed and, instead, would have been forced to look about eight miles away for comparable housing, wholly apart from whether units were even available. Tr. 191:18-192:8; 196:17-22 (Norman). Given the large number of poor people in the New Orleans area and the long waiting lists to get into low income housing, Chateau Cleary could never have carried its burden of establishing that alternative housing would have been available. 48. HUD officials recognized that authority to approve prepayment applications

under the Preservation Statutes was very limited. Prepayment in the New Orleans area was particularly difficult to accomplish. Tr. 1106:6-1107:1 (Kizzier). HUD did not approve a single prepayment request in the New Orleans area or the entire state of Louisiana. Tr. 1102:23-1103:1 (Kizzier); 596:3-9 (Alexander). PX 124A;

In fact, owners undoubtedly knew they

could not satisfy HUD criteria and did not even bother to request HUD's permission. PX 124A; Tr. 1102:23-1103:1 (Kizzier); 596:3-9 (Alexander). The New Orleans situation reflected that across the country -- there were extremely few, if any, prepayments throughout the entire United States. Tr. 1697:20-1698:3 (Dickey). 49. HUD had no legal authority to allow CCA to prepay its mortgage, unless CCA

carried its burden of showing that prepayment would satisfy all of the statutory criteria, but CCA could not satisfy any of the criteria. CCA did not seek HUD's permission to prepay its mortgage because it understood that such a request could not, and would not, have been granted and that making the request would have been an exercise in futility. Tr. 187:2-9 (Norman). 2. 50. Preservation Benefits An owner who decided to go through HUD's "secondary permitting scheme" to

seek incentives or a sale to a qualified purchaser was required to file a Notice of Intent with the Secretary of HUD describing the intended action. ELIHPA § 222, 12 U.S.C. § 1715l note; 16

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Tr. 1085:8-11 (Kizzier).

HUD would subsequently send the owner information about the

relevant market area and a description of authorized options. ELIHPA §§ 224 & 225. 51. The owner then had to submit a detailed Plan of Action containing information

about the property and the relevant housing market. The Plan of Action had to describe the state assistance that might be available to the owner, detail the proposed changes to the low- income affordability restrictions, describe any proposed changes in ownership, state the effect of the proposed changes on existing tenants, and provide an appraisal. 24 C.F.R. § 248.213(b) (1991). The owner was required to make affirmative representations in the Plan of Action "which would enable the owner to meet the criteria for approval of the proposed plan of action." 24 C.F.R. § 248.213(b)(10) (1991); Tr. 615:21-616:4 (Alexander). 52. LIHPRHA's transition provisions permitted owners whose properties would be

eligible for prepayment before January 1, 1993 to submit a Notice of Intent prior to January 1, 1991. Submission of this notice allowed owners to proceed under either Title II or Title VI. CCA filed a Notice of Intent to preserve its options. PX 42; Tr. 197:4-199:17 (Norman). 53. To receive preservation benefits under Title II, owners were required to enter into

Title II Use Agreements, which would extend the affordability restrictions for the remaining term of the owners' HUD-endorsed mortgages. ELIHPA § 225(b); 12 U.S.C. § 1715l note;

Cienega IX, 67 Fed. Cl. at 441. Extension of the affordability restrictions was a non- negotiable term of the Use Agreements and was required to be included. Tr. 627:23-628:18 (Alexander). 54. The negotiation and processing of Title II Use Agreements was a laborious

process, and, while a property owner was going through the process, the property continued to be subject to the 6% limited dividend provided in the Regulatory Agreement. Approval of a Plan of Action for incentives involved negotiations between the owner and HUD, which could take three

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years to complete. Tr. 614:4-617:7 (Alexander); Tr. 1119:8-14 (Kizzier). 55. process. Each plan of action took HUD personnel approximately 600 staff hours to PX 96; Tr. 620:16-621:4 (Alexander). Throughout the early to mid-1990s, HUD

operated under a hiring freeze that began as far back as 1981. As a result of the freeze, the New Orleans HUD office found it progressively more difficult to process Plans of Action as they were submitted. Tr. 621:24-622:7; 624:16-21 (Alexander). By 1994, on a nationwide basis, HUD would have needed 425 staff years to process the then-current pipeline of Notices of Intent. PX 96. 56. Title VI was similar in effect to Title II, but generally the incentives and

restrictions were even less favorable to owners. Financial incentives were available but owners were required to agree to retain affordable housing for the remaining useful life of such housing. 12 U.S.C. § 4112(a)(2)(A). Petitions for the Secretary of HUD to determine that the useful life of the property had expired were not permitted until 50 years after the approval of a plan of action. 12 U.S.C. § 4112(c)(3); Tr. 658:17-24 (Alexander). In any event, Congress failed to allocate monies sufficient to fund owners whose plans of action were approved by HUD. Tr. 630:10-23 (Alexander); 1108:12-25 (Kizzier). In New Orleans, there were six properties that requested and received HUD approval for plans of actions with incentives. However, Congress funded none of these approved plans. PX 97; Tr. 630:10-23 (Alexander). 57. Because the receipt of incentives through funding by Congress was determined by

position in a funding queue, Tr. 616:15-617:1; 627:5-10 (Alexander), even if CCA had applied for incentives, received approval from HUD, and found itself, among the New Orleans properties, in the number two position in the queue, it would not have received incentives in any event. Under the circumstances, a timely request for incentives, had it resulted in CCA's

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occupying the second, or a lower, position in the New Orleans queue, would have been futile. 58. In addition, the so-called incentive options would have had the perverse effect of

exacerbating CCA's losses. If CCA had applied for and obtained incentives, it would have been required to remain in the HUD program until at least the 40th anniversary of its mortgage. The analysis of the government's own experts and the analysis of Mr. Alexander show that remaining in the HUD program was a value-destroying, loss-enhancing proposition. 1545:3-1548:19 (Derbes); 1733:15-1734:9 (Dickey); 581:20-582:23 (Alexander). 59. In any event, the incentive option represented a "secondary permitting scheme" Tr. 1457:15-21;

that an owner was not required to navigate. Cienega IX, 67 Fed. Cl. at 461. 60. Prior to the enactment of Title II and Title VI, CCA, like all property owners,

possessed the right, upon prepayment, to sell its property to the highest bidder. Although CCA always intended to hold Chateau Cleary for the long term and operate the property conventionally after 20 years, the unrestricted ability to sell the property in a free market after 20 years is a valuable property right. Thus, the "sale option" offered under Title II and Title VI was a serious limitation on CCA's property rights. Tr. 640:13-18 (Alexander) (the sales option under the Preservation Statutes did not fit the definition of a fair market process); 1873:11-1874:1 (Stillman) (as a matter of economics, the sales option is not a fair market transaction). 61. Title II and Title VI permitted owners to sell their properties only to "qualified

purchasers" at an artificially low price determined by HUD through a valuation process set by the statutes and regulations and ultimately subject to HUD approval. "Qualified purchasers," as defined in the statutes, had to agree to maintain the property as affordable housing, and HUD could not approve a sale to a non-qualified purchaser. 12 U.S.C. § 4121. 62. The sale option also represented a "secondary permitting scheme" that an owner

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was not required to navigate. Cienega IX, 67 Fed. Cl. at 461. D. The HOPE Act And CCA's Prepayment 63. On March 28, 1996, Congress enacted the Housing Opportunity Program

Extension Act of 1996, Pub. L. No. 104-120, 110 Stat. 834 (1996) ("HOPE"). HOPE permitted owners to prepay their HUD-endorsed mortgages. However, owners were required to wait 60 days before raising rents. Id. This restoration of the prepayment right did not restore to CCA the income that it had lost in the prior five years as a result of being prohibited from prepaying and converting to market rents on its original prepayment date. 64. Notwithstanding the passage of HOPE, HUD attempted to extend ELIHPA and

LIHPRHA administratively through the issuance of so-called preservation letters, which, among other things, informed owners that they still required HUD approval prior to prepayment and that HUD had imposed a three-year moratorium on rent increases on tenants in low-vacancy areas. PX 63, 65, 67 & 72. See Cienega IX, 67 Fed. Cl. at 480. 65. In its initial letters, HUD required that owners receive HUD approval prior to

prepayment. PX 63; Tr. 217:10-218:9 (Norman). By the time of Preservation Letter #4, dated May 3, 1996, HUD had abandoned the approval requirement, but HUD still required notification. PX 65; Tr. 219:22-221:8. HUD also announced a three- year moratorium on rent increases for tenants in low-vacancy areas. PX 67; Tr. 223:19-224:19 (Norman). Because of the constantly changing prepayment guidelines, the prepayment process was in a state of flux. It was only in Preservation Letter #97-1, dated December 16, 1996, PX 75, that HUD gave up on its efforts to deflect administratively the full implementation of Congressional intent. Under these

circumstances, CCA could have prepaid and operated conventionally as of February 28, 1997. 66. In the meantime and notwithstanding the confusion sowed by HUD, Mr. Norman

began to prepare for prepayment. He contacted Eustis Mortgage Company to explore financing 20

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options. PX 73; Tr. 236:3-20 (Norman). He also engaged an appraiser to conduct an appraisal of the property, which was completed in November 1996. PX 74; Tr. 237:7-25 (Norman). 67. In November 1996, James Alexander of the New Orleans HUD office, in

fulfillment of a HUD-sponsored and approved course of study, commenced a detailed analysis of CCA's options. DX 140; PX 75A; Tr. 242:10-244:16 (Norman); 557:22-558:1 (Alexander). In discussing the scenarios to be studied, Mr. Norman told Mr. Alexander that CCA intended, "as soon as possible," to prepay the mortgage and exit the HUD program. PX 75A; Tr. 243:20244:5 (Norman). Mr. Alexander understood that Mr. Norman was going to wait for the report before deciding how to proceed, and the two men remained in contact during the following months while Mr. Alexander prepared the report. Tr. 552:18-21; 557:22-558:19 (Alexander). 68. Mr. Alexander delivered his report to Mr. Norman on or about April 1, 1997.

DX 140. The study was lengthy and detailed and presented four options for Mr. Norman to consider. Id.; Tr. 577:3-13 (Alexander). These options included remaining in the HUD program and then three variations on prepayment with differing degrees of investment in, and upgrade of, the property. DX 140 at G-CCA 6378; Tr. 726:15-24 (Alexander). 69. The status quo option -- remaining a HUD property for the next seven years,

which was akin to what CCA had just gone through involuntarily as a result of enactment of the Preservation Statutes -- showed horribly negative rates of return and substantial value destruction. DX 140; Tr. 581:12-582:23 (Alexander). The three other options -- each of which involved rapid prepayment in tandem with varying degrees of expenditure to cure deferred maintenance and to upgrade the property -- all showed substantial positive rates of return and value enhancement. DX 140; Tr. 582:24-583:12 (Alexander). 70. Mr. Norman took several weeks to review and digest Mr. Alexander's study. The

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two men met at least once to discuss it, some time in April or May 1997 and otherwise talked on the telephone. Tr. 558:2-19 (Alexander). Following his study of the plan and his discussions with Mr. Alexander, Mr. Norman determined that the best course of action for him was to fashion a hybrid of Mr. Alexander's second and third options, entailing a moderate level of expenditure to prepare the property for prepayment. Tr. 270:13-21 (Norman). Mr. Norman reached this decision in about June or July 1997. During the next six or seven months,

Mr. Norman had the repairs made in furtherance of this plan. Tr. 272:22-273:13 (Norman). 71. In about February 1998, as the repairs were being completed, Mr. Norman was in

contact with Hampstead Partners, a consulting firm. Tr. 279:7-280:22 (Norman). In April 1998, Mr. Norman signed a contract with Hampstead Partners to guide CCA through the prepayment process. PX 83; Tr. 279:7-280:8 (Norman). With the assistance of Hampstead Partners, CCA delivered the required prepayment notifications in May 1998. (Norman). PX 85-86; Tr. 280:23-282:8

Because the New Orleans office of HUD was inexperienced in dealing with

prepayments and needed to consult "HUD Central" to determine what to do, CCA's ability to complete the prepayment process was delayed by several months. CCA ultimately acquired private financing and prepaid its HUD-endorsed mortgage on September 30, 1998. Tr. 1776:19-1777:4; 1780:4-1782:15; 1792:19-1793:12 (Root). E. Economic Impact 72. CCA suffered a serious financial loss as a result of the Preservation Statutes. Dr.

Ragas accurately measures the economic impact of these statutes as the percentage diminution in expected investment return. Dr. Ragas follows the methodology approved in Cienega VIII and Cienega IX and compares CCA's return on investment allowed as of the original prepayment eligibility date with the expected return under a market scenario. 73. Dr. Ragas properly did not consider the "value" of the so-called "incentives" 22

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under ELIHPA and LIHPRHA. While Dr. Dickey testified that the incentives have "value," this is true only in the most theoretical sense and indeed Dr. Dickey did not attempt to quantify any value, which would be next to impossible. Tr. 1699:2-18; 1701:5-12 (Dickey). If the

government could avoid paying just compensation by offering a percentage of the value of the property taken in partial compensation, such an outcome would perversely incentivize the government to accomplish its purposes through such actions. Tr. 1754:10-19 (Dickey). 74. For the period of the taking, Dr. Ragas used the maximum allowable dividend of

$12,952 and the government's calculated equity figure for Chateau Cleary in 1991 of $746,300 to determine that the Preservation Statutes limited CCA to a 1.74% return on equity. PX 125; Tr. 794:7-798:21 (Ragas). Comparing this return to a risk-free return of 8.5% results in a diminution of 79.6%. PX 125; Tr. 794:7-798:21 (Ragas). The diminution is higher if one compares the maximum allowable dividend to the equity in the property that Dr. Ragas calculated or to a 10% rate of return (a conservative market rate available at that time), or to both. In all events, the diminution in return on equity is at least 79.6%, which is, "even under the most conservative view, a `serious financial loss.'" Cienega VIII, 331 F.3d at 1343. 75. In response to Dr. Dickey's criticism that measuring the return on equity as of

May 1991 presents only a "snapshot" at one point in time, Dr. Ragas also presented an analysis comparing the maximum allowable dividend to the equity at multiple points in time throughout the period of the taking. PX 125; Tr. 801:19-802:6 (Ragas). In this analysis, the diminution increased because each year the amount invested in the property increased as a result of principal repayments. The average diminution throughout the 5-year period of the taking was 82.5%. PX 125; Tr. 801:21-802:3 (Ragas). 76. Dr. Ragas also presented other indicia of economic impact, all of which

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demonstrated that Chateau Cleary was very adversely affected.

PX 125; Tr. 811:12-812:5

(Ragas). Moreover, Dr. Ragas' calculation of the damages suffered by CCA -- the amount of just compensation that is due -- is further confirmation that CCA was grievously harmed. The government mocks these multiple indicia as being "all over the map." Tr. 36:21-37:2

(Woodrow). Au contraire, the analyses demonstrate that, from every angle, CCA was seriously impacted by the loss of its prepayment right, an intuition to which common sense would bring the neutral observer in any event. 77. The government's assertion that CCA has not suffered a serious financial loss is

not credible. Dr. Dickey attempts to obscure the adverse impact on CCA by measuring the economic impact of the regulations on the value of the property as a whole. Under this

approach, a hypothetical owner who loses 100% of his $10 million per year income on a $100 million building for a four-and-a-half- year period of its 10-year useful life as a result of a legislative enactment, and thus suffers a loss of $45 million as a result of the legislation, would be deemed to have suffered a 45% diminution in expected returns. Tr. 1752:11-1753:10

(Dickey). Using Dr. Dickey's analysis, the government could purposefully take 100% of an owner's income or real property for several years without the owner being able to demonstrate sufficient economic injury to prove a compensable taking. 78. The government's model is fundamentally flawed. Purporting to be a principled

economic analysis that examines the taking from an ex ante perspective, Dr. Dickey's analysis in fact mixes helpful ex post information into its purportedly ex ante analysis. Tr. 1718:25-1721:23 (Dickey); 1441:9-12; 1444:9-25; 1445:8-15; 1447:7-21; 1451:2-7 (Derbes). 79. Dr. Dickey's report repeatedly trumpets the advantages of an ex ante analysis

using a diminution in value approach to damages and criticizes use of an ex post analysis. DX

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160 at 4-5, 11, 19. But Dr. Dickey does not use only ex ante information. Rather, Dr. Dickey incorporates Mr. Derbes' two valuations into his analysis, but, in his second valuation, Mr. Derbes assumed that, as of May 1, 1991, it was known with 100% certainty that HOPE would be passed in 1996. Tr. 1723:3-10 (Dickey). In other words, Dr. Dickey takes Mr. Derbes' two valuations -- both done as of May 1, 1991, one of which values Chateau Cleary without HUD restrictions, the second of which values Chateau Cleary with HUD restrictions lasting until May 1996 only -- and then calculates impact by subtracting the second from the first. Of course, if the second valuation were done on the basis of what was known at the time, i.e., that LIHPRHA was permanent, the economic impact would materially increase. Tr. 1733:15-25 (Dickey). 80. Mr. Derbes admits that the use of a date certain for the passage of HOPE serves to

prop up the amount of the second valuation with the result that the economic impact found by Dr. Dickey is reduced. Tr. 1453:25-1455:1 (Derbes). As Dr. Stillman demonstrated on the stand, if one assumed as of 1991 that HOPE would be passed in ten years instead of five, the resulting impact doubles in magnitude. Tr. 1859:5-1860:24 (Stillman). In reality, there was no information, as of May 1991, that HOPE would be passed in 1996, in 2001, or indeed at any time. Quite the contrary, LIHPRHA had recently been passed, and by its terms was permanent. Tr. 1450:7-16 (Derbes). Dr. Dickey's analysis depends on the worst sort of selective use of information in an unprincipled fashion. 8 81. In all events, Dr. Dickey's analysis is fundamentally different from, and

inconsistent with, the method upheld by the Federal Circuit in Cienega VIII and by this Court in Cienega IX.
8

Dr. Dickey testified in rebuttal that he has seen a litigation manual that approves use of ex post information in an ex ante analysis -- cherry-picking to call it what it truly is. Dr. Dickey's reference to this manual means only that one can usually find some expert who will say anything. Tr. 2011:9-2012:9 (Dickey).

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F.

Just Compensation 82. As a result of the enactment of ELIHPA and LIHPRHA and of CCA's resulting

inability to prepay its mortgage and convert to conventional market-rent units upon its original prepayment date, CCA has suffered $1,528,629 in damages as of September 30, 2006, based on an end-of-taking date of February 28, 1997. PX 125. If the end-of-taking date were held to be May 31, 1996, then CCA's damages amount to $1,361,298 through September 30, 1996. Id. 83. Dr. Ragas' analysis seeks to put CCA in the position it would have been in had its Dr. Ragas appropriately recognizes that the

property not been taken by the government.

government took CCA's right to prepay its mortgage, causing it to lose a stream of income that was not reinstated when the prepayment right was restored. 84. Dr. Ragas measures CCA's damages as the difference between the cash flow

CCA would have received had it been allowed to prepay its mortgage and operate the property as a conventional apartment complex ("the Market Scenario") and the cash flow CCA actually received from operating the property as a HUD-restricted property (the "HUD Scenario"). PX 106 & 125. Dr. Ragas' ana lysis takes into account rental income, other operating income, operating expenses, vacancy and credit cos