Free Published Opinion - District Court of Federal Claims - federal

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In the United States Court of Federal Claims
Nos. 97-381C & 97-3812C through 97-38129C (Filed: August 30, 2004) __________

FRANCONIA ASSOCIATES, ET AL, Plaintiffs, v. THE UNITED STATES, Defendant.

* Rural housing program under section 515 of * the Housing Act of 1949; Prepayment right; * ELIHPA and the HCDA; Breach of * contract; Unmistakability doctrine; Law of * the case doctrine; Takings; Expectancy * damages; Lost profits; Mitigation; * Proximate result; Forseeability; Reasonable * certainty; Time of breach; Discounted cash * flow; Speculation vs. reasonable * approximation. ___________ OPINION __________

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. ALLEGRA, Judge: "The United States are as much bound by their contracts as are individuals."1 "You can check in any time you like, but you can never leave."2 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 moderateincome 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

1

The Sinking Fund Cases, 99 U.S. 700, 719 (1879).

The Eagles (Don Felder, Glenn Frey & Don Henley), Hotel California (Asylum Records 1976).

2

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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. TABLE OF CONTENTS I. Findings of Fact................................................................................................................03 A. General Facts Regarding the Plaintiffs, the Section 515 Program and Congress' Modifications Thereof ......................................................................... 03 B. Application of the Legislation to the Plaintiffs..................................................... 07 C. The Options Available under ELIHPA................................................................. 08 D. Procedural History of this Case............................................................................. 12 Discussion......................................................................................................................... 13 A. Liability................................................................................................................. 13 1. Breach of Contract.................................................................................... 14 a. Prima facie liability...................................................................... 14 b. The unmistakability doctrine........................................................ 20 2. Takings................................................................................................... . 24 3. Redux........................................................................................................ 29 B. Damages................................................................................................................ 29 1. Mitigation.................................................................................................. 29 2. Expectation Damages - Restitutio in Integrum......................................... 37 a. Proximate result - Causa Proxima non Remota Spectatur............ 38 b. Forseeability - Providentia............................................................ 44 c. Reasonable certainty ­ Certum Probabiliter Scire........................ 46 i. The calculation period....................................................... 48 ii. Projected revenue...............................................................52 iii. Expenses............................................................................ 59 iv. Discount factor.................................................................. 60 d. Other potential adjustments........................................................... 66 3. Determination of the Amount of Damages................................................ 69 Conclusion........................................................................................................................ 69 Fact Appendix A................................................................................................................ 73 Fact Appendix B................................................................................................................ 82 .

II.

III

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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. 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 low- or middle-income individuals and families.3 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.4 Other restrictions defined eligible tenants and the rents plaintiffs could charge, as well as requirements regarding the maintenance and financial

Since 1994, the program has been entrusted to the Rural Housing Service, known between 1994 and 1996 as the Rural Housing and Community Development Service. That agency was created by the Secretary of Agriculture under authority provided by the Department of Agriculture Reorganization Act of 1994, Pub. L. No. 103-354, Tit. II, § 233, 108 Stat. 3219, as amended by the Act of Apr. 4, 1996, Pub. L. No. 104-127, Tit. VII, §§ 747(b)(3), 753(b)(2), 110 Stat. 1128, 1131; see also 7 C.F.R. § 2003.18 (2003) (describing the functional organization of the Rural Housing Service). For convenience, references herein to the FmHA should be understood to include these successor agencies. For example, an owner who made a $100,000 down payment on a project with a $1,000,000 mortgage, would earn only a maximum of $8,000 per year as long as it remained in the program ­ regardless of how much equity the owner accumulated over time and how the property's market value increased. -34

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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.5 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).6 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 515 participants prepaying their mortgages threatened the continued availability of rural low- and moderate-income housing and amended the National Housing Act

FmHA regulations, in existence when plaintiff entered into their contracts and later promulgated, detailed the procedure for submitting and processing prepayment requests. Inter alia, owners were subject to a waiting period and were permitted to prepay only if the agency determined that they were able to obtain adequate commercial financing. See, e.g., 7 C.F.R. § 1965.211 (1994) (adequacy of commercial financing); 7 C.F.R. § 1965.90(a) (1989) (180-day waiting period); 7 C.F.R. § 1965.90(a) (1983) (60-day waiting period). If all applicable requirements were met, the agency was required to approve the request, execute the necessary releases, and return the security (i.e., the property) to the owner. 7 C.F.R. § 1866.2 (1978).
6

5

Typically, these clauses provided ­

If at any time it shall appear to the Government that Borrower may be able to obtain a loan from a responsible cooperative or private credit source at reasonable rates and terms for loans for similar purposes and periods of time, Borrower will, at Government's request, apply for and accept a loan in sufficient amount to pay this note in full. Tracking this language, one FmHA promotional brochure proclaimed: "When the financial position of the borrower reaches the point that he can repay or refinance through a commercial lender, the loan contract provides that he shall do so." -4-

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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. 96-153, 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 lowincome 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. 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 515.7 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
7

In 1986, Congress had passed a temporary moratorium that precluded section 515 prepayments in most cases. The moratorium originally was to expire in 1987, but was extended into 1988 by another temporary measure. See 42 U.S.C. § 1437 note. -5-

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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. 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 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.

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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").8 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. 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

In accordance with the 1979 legislation discussed above, either the mortgage or loan agreement for these "post-1979" complexes contained a restrictive use provision that generally reads as follows: The Borrower and any successors in interest agree to use the housing for the purpose of housing people eligible for occupancy as provided in section 515 of Title V of the Housing Act of 1949 and FmHA regulations then extant during this [15 or 20] year period beginning [on the date of the loan]. No person occupying the housing shall be required to vacate prior to the close of such [15 or 20] year period because of early prepayment. The borrower will be released during such period from these obligations only when the Government determines that there is no longer a need for such housing or that Federal or other financial assistance provided to residents of such housing will no longer be provided. A tenant may seek enforcement of this provision as well as the Government. -7-

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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 lowincome housing 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.9 Indeed, no assurances were At trial, Mr. Laurence Anderson, Director of the Office of Rental Housing Preservation for the Rural Housing Service, admitted that, since fiscal year (FY) 1995, the waiting period for equity loans has been long due to "dramatic cuts" in funding for this part of the section 515 program, as illustrated by the follow chart:
Fiscal Year Appropriation (in millions) $11 $20 $23.2 $24.9 $24.9 $27.6 $4.3 Fiscal Year Appropriation (in millions) $5.03 $2.5 $5.0 $5.05 $5.4 $5.3
9

1989 1990 1991 1992 1993 1994 1995

1996 1997 1998 1999 2000 2001

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made to the owners as to when those incentives would actually be received.10 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

The appropriations for years beginning with FY 1995 was far less than the accumulated, let alone current, demand. To get a better sense of this: in 1999, the average equity loan was for $370,164, suggesting that for $5 million per year, only a dozen or so loans could be made annually. Demand for such loans far exceeded their availability ­ in 1999, there were over 50 loan requests pending, with the potential for such loans being offered as incentives in an additional 150 or so other pending prepayment requests. While Mr. Anderson testified that the backlog has eased somewhat since 1998 due to changes instituted by the Office of Rental Housing Preservation, created that year, the record suggests that this backlog was reduced not by making loans, but when individuals became frustrated with the delay and either withdrew their prepayment requests or accepted lesser incentives. Certainly, there is no indication that equity loans could be funded if a significant portion of the approximately 4,000 properties eligible for prepayment actually requested them. One of the plaintiffs, Mr. Roseliep, was advised by FmHA officials that funding for incentives offered to the owners of the 13 properties he managed in Iowa would not be available until seven to eight years after the time of the offer. Indeed, standard language in the letters sent by FmHA offering incentives to owners warned that "[a]ppropriate limitations may restrict available incentives each year. The actual receipt of the preceding incentives may not be forthcoming in the near future . . . . Acceptance of the incentive offer by the borrower will cause the request to be maintained on the waiting list for funding until obligated." -910

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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. 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 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 ­ -10-

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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. 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 hold-over, 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.11 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.

The following properties were prepaid under the G-4 prepayment option: Sunrise River, Evergreen Manor of Waukee I & II, Greenway of Altoona I, Prairie Village of Altoona I & II, Prairie Village of Grimes I & II, Prairie Village of Huxley I & II, Prairie Village of Slater I & II and Prairie Village of State Center. -11-

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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 (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 133.12 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,

12

By way of further exegesis, the Court opined ­

ELIHPA effected a repudiation of the FmHA loan contracts, not an immediate breach. The Act 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. . . . Unless petitioners treated ELIHPA as a present breach by filing suit prior to the date indicated for performance, breach would occur when a borrower attempted to prepay, for only at that time would the Government's responsive performance become due. 536 U.S. at 143. The Court indicated that if a property owner elected to place the United States, as a repudiator, in breach before the performance date, the accrual date for its cause of action would be the date of that election, but that if the property owner opted to await performance, its cause action would accrue as of the time fixed for performance. Id. at 144. -12-

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remanded the case to this court. See Franconia Assocs. v. United States, 47 Fed. Appx. 565 (Fed. Cir. 2002). 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 socalled "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.

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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, 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).
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).13 Reasonably
13

See also Parkridge, 13 F.3d at 1195 ("`Prior to the enactment of [ELIHPA], borrowers of Section 515 loans . . . had the option of prepaying their mortgages at any time and removing their project from the program without restriction.'") (quoting Lifgren v. Yeutter, 767 F. Supp. 1473, 1478 (D. Minn. 1991)); Albany Apartments Tenants' Ass'n v. Veneman, 2003 WL 1571576 at *9 (D. Minn. Mar. 11 2003) ("Until 1979, borrowers enjoyed an unfettered right to prepay Section 515 loans."). Brushing aside these and other judicial constructions of this language, defendant persists that while the cited provision allowed the plaintiffs to prepay their loan "at any time," nothing in the language precluded the FmHA from imposing substantial conditions upon that prepayment, including those enacted in ELIHPA and the HCDA. In the court's view, this contention not only applies a wooden construction to what is meant by prepaying "at any time," but entirely ignores the fact that the notes also provide that the prepayment may be made "at the option of the Borrower." In the court's view, for the latter phrase to have meaning, the prepayment could not be subject to anything more than perhaps simple procedural requirements (e.g., filing an application and allowing for processing time), and otherwise was without restriction. See, e .g., Cowden v. Broderick & Calvert, 114 S.W.2d 1166, 1171 (Tex. 1938) ("at the option of" means "at the discretion of" or subject to the "uncontrolled will" of the optionholder). -14-

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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 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.14 Moreover, that the notes allowed prepayment at any time, without significant restriction, is confirmed by other contract provisions,15 and was prominently highlighted by the FmHA in promoting the program.16

This observation was central to the Supreme Court's ratio dicendi in Franconia that the statute of limitations was triggered not by the passage of ELIHPA, but rather by the government's failure to honor a prepayment request. 536 U.S. at 142-43. "Viewed in this light," the Court stated, "ELIHPA effected a repudiation of the FmHA loan contracts, not an immediate breach," requiring a plaintiff to file suit only after the Government failed to honor a prepayment request. Id. at 143. For example, the loan agreements at issue made clear that the various covenants restricting the use of the property were effective only "[s]o long as the loan obligations remain unsatisfied." Further, a twenty-year covenant found in every contract made afer 1979 required owners to stay in the program for a period of twenty years ­ a promise that would have been superfluous had the ability to prepay already been limited as defendant contends. From 1970 through 1986, Dean Greenwalt held various position with the FmHA, including being Chief of the Multi-Family Housing Services Branch from 1980 to 1985. Mr. Greenwalt and other agency officials made presentations to prospective borrowers at public seminars throughout the country. Regarding the content of these presentations, Mr. Greenwalt recounted ­ Q: . . . The question is, to help you, what did you and other FmHA officials tell prospective borrowers about the prepayment right? What we explained to them was that Farmers Home Administration was essentially considered a lender of last resort, meaning that there wasn't other financing opportunities available to develop this type of program. We explained to them that we didn't intend for them to be a borrower for 50 years. We expected the loans to be prepaid when other credit would be available. We explained to them that at that point in time the understanding, the concept, was that loans were made out of the Rural Housing Insurance Fund. At such time in -1516 15

14

A:

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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 (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. 89365, 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.17 Legislative history thereby confirms what the plain language

the future as these loans could be prepaid, the money would be coming back to the Agency to be relent to other borrowers. Q: And with respect to the idea of prepayment as an expectation of the Agency, what was the expectation as to whether that property would remain at restricted rent levels at prepayment, or would it become conventional market rate housing after prepayment. At that point in time, it was intended that it would be out in the private sector and operate as a conventional project.

A:

Numerous plaintiffs recalled FmHA officials making similar representations. Regarding what the agency thought would happen to tenants if such a conversion occurred, Mr. Greenwalt indicated that the initial belief was "there would have been either additional units built in the community with newer standards, or the income of the population that was being served had increased to the point where they would no longer need the subsidized loans." See S. Rep. No.101-249I, at 299 (1990) ("many owners have a contractual right to prepay their loan (without requiring permission)"); H. Rep. No.100-122I, at 53 (1987) ("owners -1617

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of the notes manifests ­ that the FmHA was required to accept unconditionally any prepayments made by property owners. 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.18 Contrary to defendant's

of FmHA's Sec. 515 low income and elderly rental housing projects may prepay their loan without restrictions"); id. at 54 ("Under current law, prepayments of FmHA rental projects that received commitments prior to December 1979, are permitted without condition . . ."). The legislative record also reveals that the FmHA shared this view of the law and the terms of the loan agreements. See H. Rep. No. 96-154, at 43 (1979) (the FmHA "believes it must honor requests to prepay or refinance these loans even though the result would be that much needed housing would be lost to the rural low and moderate income housing inventory"); Hearings before the Subcomm. on Housing and Community Development, House Comm. on Banking, Finance and Urban Affairs, 100th Cong., 1st Sess. 364 (1987) (hereinafter "1987 Hearings") (testimony of Vance Clark, Administrator FmHA) (under original agreements, "a borrower could repay that loan after 60 days notice to Farmers Home and then was free to operate that project without regard to any previous conditions that may have been agreed with FMHA in that loan agreement"); id. at 372 ("there was no statutory restriction on prepayment of FMHA 515 rural rental housing loans made before December 21, 1979"). For its part, defendant repeatedly quotes that portion of H. Rep. No. 96-154, at 43, which stated that "[i]t was the clear intent of Congress that these projects be available to low and moderate income families for the entire original terms of the loan." But, this isolated assertion, reported in support of the 1979 legislation that originally repudiated the prepayment right, is flatly contradicted by the statutory language and the remainder of the extensive legislative history surrounding ELIHPA and the HCDA. It thus is unequal to the revisionist task for which it is offered. During the debate on the 1980 act that repealed the 1979 legislation's restrictions on prepayment, Congressman Butler stated: "[I]n legal terms this is called . . . an impairment of the obligations of a contract. In layman terms it is called . . . welching. Whatever it is, it is basically unfair." 126 Cong. Rec. H 22650 (1980). In similar vein, during the debate on the 1988 amendment, Senator Heflin stated: "It is the obligation of the U.S. Government to fulfill contractual agreements into which it enters, or, at a minimum, to justly compensate those parties whose contractual rights it abrogates." 136 Cong. Rec. S 26372 (1990). This legislative history was highlighted in Adams v. United States, 42 Fed. Cl. 463, 480 (1998); see also Allegre Villa, 60 Fed. Cl. at 16-17; Grass Valley Terrace, 51 Fed. Cl. at 442. Similar views were expressed by other members of Congress and by FmHA officials in advance of the passage of ELIHPA. See, e.g., 1987 Hearings, supra, at 392 (statement of Cong. McKinney) ("It would be easy enough for me to be a demagogue and sit up here and say you can't prepay but that is not the way we do things in America. We signed a contract."); Hearings before the Subcomm. on Housing and Community Development, House Comm. on Banking, Finance and Urban Affairs, 99th Cong., 2d -1718

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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.19 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") § 250, Comment b (1981) ("[A] statement of intention not to perform except on

Sess. (hereinafter "1986 Hearings") 62 (statement of Eric P. Thor, Assoc. Administrator, FmHA) ("we feel that we cannot overturn the lawful structure of the loans made in good faith by us, and accepted by our borrowers"). See Mobil Oil Exploration & Producing SE, Inc. v. United States, 530 U.S. 604, 61617 (2000) (reference in lease that it was "subject" to certain "future regulations" makes "clear" that catchall provision referring to "all other applicable . . . regulations," must include only statutes and regulations already existing at the time of the contract); Marathon Oil Co. v. United States, 177 F.3d 1331, 1337 (Fed. Cir. 1999) ("To read the original contract between the parties as incorporating all future actions, whether by statute or regulation, by one of the parties would raise serious questions about illusory contracts, and perhaps questions of due process and other constitutional concerns."); see also Winstar, 518 U.S. at 868. -1819

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conditions which go beyond the contract constitutes a repudiation").20 "[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 . . . ."21 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 (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.

Defendant suggests that the Supreme Court's extensive comments on this subject in Franconia were obiter dicta, because the issue presented involved only the statute of limitations. To be sure, the Court, in deciding the latter issue, assumed that the loan agreements contained an unrestricted prepayment right. 536 U.S. at 141. This court, however, finds that assumption now to be borne out by the record and, therefore, gives full effect to the Court's repudiation and breach analyses. See also Allegre Villa, 60 Fed. Cl. at 17; Albany Apartments, 2003 WL 1571576 at *9. Defendant also blithely contends that ELIHPA and the HCDA did not abrogate the prepayment right in the original agreements because they did not expressly state so. But, that most certainly was their effect, which is enough. See Restatement, § 250(b) (a repudiation is "a voluntary affirmative act which renders the obligor unable or apparently unable to perform without such a breach"). Seizing upon the "six month" reference in Parkridge, supra, defendant attempts to portray the prepayment procedures under ELIHPA as merely elongating somewhat the process for prepaying a loan. Not so. As described in this court's factual findings, under the new procedures adopted under ELIHPA and the HCDA, the FmHA must first determine whether a prepayment without restriction is allowed; if it is not, the agency must develop a set of incentives to offer the owner in exchange for extending the housing agreement; if those incentives are rejected, the agency may require, or the owner may seek, a sale to a non-profit; and, if that does not work, the FmHA must consider a range of additional options. Each of these steps involves multiple subtasks that can include obtaining comparable rent studies and appraisals, internal agency reviews and even awaiting funding or appropriations. Plaintiff presented evidence that the entire process could take several years and the court finds that estimate to be more consistent with the record than defendant's alternative of six months. Indeed, Mr. Anderson admitted that the prepayment process is "burdensome," "difficult to go through" and "not the easiest thing in the world." And, it should not be overlooked that the end result of this cumbersome process, far more often than not, is that the prepayment request is rejected. -1921

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b.

The unmistakability doctrine.

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 (1996) (citing Merrion v. Jicarilla Apache Tribe, 455 U.S. 130, 148 (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 (1988) (quoting Arizona v. California, 460 U.S. 605, 618 (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 (1984).22 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
22

See also Hughes Aircraft Co. v. United States, 86 F.3d 1566, 1578 (Fed. Cir. 1996) (Bryson, J., concurring); Centr. Soya Co., Inc. v. Geo. A. Hormel & Co., 723 F.2d 1573, 1580 (Fed. Cir. 1983). -20-

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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 . . . 57 Fed. Cl. at 769 (citations omitted). 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 774.23 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 con