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

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS

FRANCONIA ASSOCIATES, a Limited Partnership, et al., Plaintiffs, v. THE UNITED STATES, Defendant. File No. 97-381C Judge Francis M. Allegra

PLAINTIFFS POST-TRIAL REPLY BRIEF
_________________________________________________________________________

Jeff H. Eckland Attorney For Plaintiffs FAEGRE & BENSON LLP 2200 Wells Fargo Center 90 South Seventh Street Minneapolis, Minnesota 55402-3901 Telephone: (612) 766-7000 Telecopy: (612) 766-1600 Of Counsel: William L. Roberts Mark J. Blando FAEGRE & BENSON LLP 2200 Wells Fargo Center 90 South Seventh Street Minneapolis, Minnesota 55402-3901 Telephone: (612) 766-7000 Telecopy: (612) 766-1600

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TABLE OF CONTENTS INTRODUCTION .......................................................................................................... 1 BACKGROUND ............................................................................................................ 2 ARGUMENT................................................................................................................ 19 I. DEFENDANT S ATTEMPTS TO DISCLAIM LIABILITY FOR BREACH OF CONTRACT FAIL. .................................................................... 19 A. The Court s Recent Decision In Cuyahoga Extinguishes Any Doubt As To The Applicability Of The Unmistakability Doctrine In This Case............................................................................. 19 The Government s Newly-Devised No Breach Argument Fails. ...................................................................................................... 22 1. Having Repudiated Plaintiffs Contracts, Defendant Has No Room To Deny That It Breached Plaintiffs Contracts. ................................................................................... 22 Defendant s No Breach Argument Cannot Be Squared With Basic Contract Law. ............................................. 24 The Government s Power Of Eminent Domain Is Not A License To Breach Its Contracts....................................... 25

B.

2. 3. C. II.

The Government Severely Mischaracterizes What A Forced Sale Actually Entails. .............................................................. 28

DEFENDANT COMMITTED A TAKING OF PLAINTIFFS PROPERTIES. .................................................................................................. 37 A. B. C. Plaintiffs Takings Claims Are Independent From Their Contract Claims. .................................................................................... 37 The Evidence Presented By Plaintiffs Establishes That Their Properties Were Taken. .......................................................................... 38 All Of Plaintiffs Takings Claims Are Ripe For Review. ........................ 38

III.

PLAINTIFFS PROVED THEIR DAMAGES. ................................................... 39 A. Defendant s Assertion That Its Actions Were Not The Cause Of Plaintiffs Damages Ignores The Evidence And The Law.................. 39 1. Defendant s Assertion That It Did Not Cause Plaintiffs Damages Is A Failed Mitigation Argument In Disguise................................................................. 39 i

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2. 3.

Despite Defendant s Speculation To The Contrary, Plaintiffs Are Unable To Leave The 515 Program....................... 40 Defendant Has Not Met Its Burden To Prove Any Offsets To Plaintiffs Damages Beyond Those Already Incorporated By Plaintiffs. ............................................ 42

B.

Defendant s Critique Of The Assumptions Supporting Plaintiffs Damages Claims Falls Far Short. ........................................... 44 1. Contrary To The Skepticism Of Defendant s Expert, Plaintiffs Would Have Prepaid And Would Have Realized Significant Profits By Doing So. .................................. 45 Defendant s Temporal Perspective Argument Lacks Any Legal Foundation...................................................... 47 Plaintiffs Assumptions Regarding The Revenues They Would Have Realized After Prepayment Are Reasonable And Conservative. ................................................... 51 Plaintiffs Assumptions Regarding The Risks and Burdens of Remaining In The 515 Program Are Reasonable And Conservative. ................................................... 63 Plaintiffs Diligent Efforts To Perfect The SeventyFour Damages Analyses Presented At Trial Are No Basis For Discrediting Their Conclusions. .................................. 65

2. 3.

4.

5.

CONCLUSION............................................................................................................. 66

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TABLE OF AUTHORITIES Federal Cases Adams v. United States, 42 Fed. Cl. 463 (Fed. Cl. 1998) ........................................................19 Associated Enterprises, Inc. v. Toltec Wastershed Improvement District, 410 U.S. 743 (1973).................................................................................................................54 Beatty v. United States, 168 F. Supp. 204 (Ct. Cl. 1958) ........................................................27 Bluebonnet Savings Bank, FSB v. United States, 266 F.3d 1348 (Fed. Cir. 2001) ........................................................................................................................................39 Chancellor Manor v. United States, 331 F.3d 891 (Fed. Cir. 2003) .......................................36 Christina Investment Corp. v. United States, 40 Fed. Cl. 571 (1998) .....................................41 Christina Investment Corp., 40 Fed. Cl. 571 (1998) ...............................................................41 Cienega Gardens, 331 F.3d 1192 (Fed. Cir. 2003) ...........................................................26, 36 Cienega Gardens v. United States, 265 F.3d 1237 (Fed. Cir. 2001) .......................................37 Cienega Gardens v. United States, 33 Fed. Cl. 196 (1995).....................................................41 Cienega Gardens v. United States, 38 Fed. Cl. 64 (1997).......................................................31 Cuyahoga Metropolitan Housing Authority v. United States, Nos. 01-46C, 01-251C, 01-416C (Fed. Cl. Sept. 22, 2003)...........................................................................20 Devon Energy Corp. v. United States, 45 Fed. Cl. 519 (1999)................................................41 Energy Capital Corp. v. United States, 47 Fed. Cl. 382 (2000)............................41, 46, 48, 49 Franconia Associates v. United States, 536 U.S. at 129 (2002)..................................21, 22, 23 Georgia-Pacific Corp. v. United States, 640 F.2d 328 (Ct. Cl. 1980).....................................49 Grass Valley Terrace v. United States, 51 Fed. Cl. 436 (Fed. Cl. 2002) ................................20 Home Savings, FSB v. United States, 2003 WL 22357732 (Fed. Cl. 2003) ........................................................................................................................................39

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Kimberly Associates. v. United States, 261 F.3d 864 (9th Cir. 2001) ....................................19 Koby v. United States, 53 Fed. Cl. 493 (2002) ........................................................................38 LaSalle Talman Bank, F.S.B. v. United States, 317 F.3d 1363 (Fed. Cir. 2003) ........................................................................................................................................42 LaSalle Talman Bank, F.S.B. v. United States, 45 Fed. Cl. 64 (1999) ....................................47 Mobil v. United States, 530 U.S.604 (2000)............................................................................22 Neely v. United States, 285 F.2d 438 (Ct. Cl. 1961)................................................................49 Parkridge Investors v. FmHA, 13 F.3d 1192 (8th Cir. 1994) ..................................................26 Ramsey v. United States, 101 F. Supp. 353 (Ct. Cl. 1951) ......................................................39 Roehm v. Horst, 178 U.S. 1 (1900)..........................................................................................23 Sinclair Refining Co. v. Jenkins Petroleum Processing Co., 289 U.S. 689 (1933).......................................................................................................................................48 Southern Cal. Federal Savings & Loan Association v. United States, 57 Fed. Cl. 598 (2003) ..................................................................................................................41 Southern Cal. Federal Savings & Loan Associate v. United States, No. 93-52C (Fed. Cl. Aug. 7, 2003) ...............................................................................................42 Wells Fargo Bank, NA, v. United States, 88 F.3d 1012 (Fed. Cir. 1996)................................39 Westfed Holdings, Inc. v. United States, 55 Fed. Cl. 544 (2003) ............................................50 United States v. Winstar Corp., 518 U.S. 839 (1996)........................................................21, 24 Federal Statutes 7 U.S.C. § 6994 (2003) ............................................................................................................41 12 U.S.C. § 4301(a)(1).............................................................................................................27 26 U.S.C. § 42..........................................................................................................................63 42 U.S.C. § 1472(c)(4)(A) .......................................................................................................28
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42 U.S.C. § 1472(c)(5)(A)(i) .............................................................................................31, 35 42 U.S.C. § 1472(c)(5)(A)(ii) ............................................................................................32, 35 7 C.F.R. § 1965.204.................................................................................................................28 7 C.F.R. § 1965.205(c) ............................................................................................................28 7 C.F.R. § 1965.206(a) ............................................................................................................29 7 C.F.R. § 1965.215(d)(1)........................................................................................................39 7 C.F.R. § 1965.215(f)(2) ........................................................................................................30 7 C.F.R. § 1965.216.................................................................................................................30 7 C.F.R. § 1965.216(a) ......................................................................................................31, 35 7 C.F.R. § 1965.216(b) ............................................................................................................32 7 C.F.R. § 1965.217.................................................................................................................33 7 C.F.R. § 1965.218(a)(4)........................................................................................................33 24 C.F.R. § 248.111(h) ............................................................................................................27 24 C.F.R. § 248.157.................................................................................................................27 Legislative Materials H.R. Rep. No. 96-154, 96th Cong., 1st Sess. at 43 (1979), reprinted in 1979 U.S.C.C.A.N. at 2359 ..............................................................................................................46 Books and Articles Corbin on Contracts (1964).....................................................................................................24 Murray on Contracts (3d ed. 1990) .........................................................................................23 Krugman, Peddling Prosperity: Economic Sense and Nonsense in the Age of Diminished Expectations 211-213 (W.W. Norton & Co. 1994) ............................54

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Restatement (Second) of Contracts (1981)........................................................................22, 24 Williston on Contracts § 1337 (3d ed. 1968).....................................................................23, 24

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INTRODUCTION The tenor of defendant s post-trial brief can be summarized as follows: even though defendant did not live up to its end of the deal, it should not be held liable to plaintiffs. In fact, defendant goes so far in attempting to deflect responsibility for its actions that it actually places the blame on plaintiffs for their losses. Defendant s view of this case, however, cannot be squared with the compelling evidence presented at trial in this matter. The evidence establishes that: (1) plaintiffs entered into mutual and binding contracts with the government containing a valuable option; (2) plaintiffs always intended to exercise that option, which was the very quid pro quo for the deal; (3) defendant repudiated the contracts by disabling itself from permitting plaintiffs to exercise that option; and (4) plaintiffs suffered substantial damages, in amounts proven at trial, as a result of defendant s repudiation and subsequent breach. In its attempts to avoid liability, defendant misperceives what it means to hold a contract and what it means to breach a contract. Even apart from its alleged immunity under the unmistakability doctrine, defendant posits that it never actually breached plaintiffs contracts because its repudiation was accompanied by certain alternatives that plaintiffs could have exercised in lieu of their original contract rights. Defendant further asserts that it cannot be held liable for breach because it could have achieved a de facto breach by exercising its power of eminent domain to confiscate plaintiffs properties. The law of contracts, however, does not provide defendant the exemptions from liability that it seeks. Put simply, defendant failed to perform its contractual obligations and therefore is liable for the damages caused thereby. Defendant s attempts to discredit plaintiffs takings claims are similarly flawed. In fact, the two major themes that defendant presents in opposition to plaintiffs takings claims are rehashed versions of plaintiffs primary contract arguments. First, defendant argues that it

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cannot be held liable for a taking because it proactively satisfied the Fifth Amendment by providing certain statutory alternatives to the full realization of plaintiffs property rights. Second, similar to its unmistakability argument, defendant asserts that plaintiffs should have expected that defendant might redefine their property rights, because that is the type of thing that parties who do business with the government ought to expect. As with defendant s contract arguments, however, the law of takings does not provide defendant the refuge it seeks. BACKGROUND Defendant includes in its post-trial brief a series of vignettes addressed to each of the properties at issue. See Def. Br. at 8-18.1 These vignettes appear to be intended to suggest that the owners in this case might not be in the predicament they are faced with today had they participated more fully in the process created through the government s repudiation or had they challenged various agency decisions by initiating appeals. The evidence, however, stands in sharp contrast to defendant s portrayals, as detailed below. Timberbrook The government chides Mr. Stordahl because he did not challenge the opinions of the referenced FmHA officials (i.e., Messrs. Martin Hoesing and Randy Hammerline) that acceptance of prepayment was unlikely . . . . Def. Br. at 10. However, these officials

specifically told Mr. Stordahl that prepayment by Timberbrook Properties (II/532) was impossible, not simply unlikely. II/552; 554; 565. Moreover, Mr. Stordahl had no basis

whatsoever to disagree with the agency officials

his property was, in fact, the only show in

1

Citations herein are to Defendant s Post-Trial Brief ( Def. Br. ); Plaintiffs Post-Trial Brief Pl. Br. ); Defendant s Memorandum of Contentions of Fact and Law ( Def. Mem ); Plaintiffs Memorandum of Contentions of Fact and Law ( Pl. Mem. ); the parties Joint Stipulation of Facts ( JSF ); the parties joint exhibits ( JX ); plaintiffs exhibits ( PX ); defendant s exhibits DX ); and the trial transcript, referenced by volume and page number (e.g., II/555 ).

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town (II/552) and therefore was needed by the agency. II/547; 554-55; PX 705 at 3. Instead of filing a futile administrative appeal, he decided to pursue his contractual right to damages in this civil action. II/561. Thus, no evidence whatsoever exists that the agency might otherwise have granted the partnership s prepayment request if it had included an actual loan commitment letter from a bank. Indeed, the evidence shows exactly the contrary, i.e., Mr. Stordahl did not finalize his outside financing (II/549) from Norwest Bank precisely because of the fact that his partnership would not be permitted to prepay. II/552. With regard to potential incentives, Mr. Stordahl is not interested because it is not consistent with his retirement plans to accept incentives in exchange for another 20 years in the program he wants to prepay and privatize the project to use as retirement income. II/557.

Moreover, Mr. Stordahl has absolutely no interest in an equity loan because the cost of the required statutory submission alone can be prohibitively expensive: appraisers are costly

(approximately $3,000 in 1991) and, along with other fees, can amount to significant investments of money up front. II/556. In addition, he was told by FmHA officials that there was a long

waiting period of probably five to ten years for loan funding. II/558. In short, an equity loan was . . . really dumb. It s an absolute joke. II/558. Moreover, Mr. Stordahl never pursued alternative avenues for getting out of the program because they were adverse to the interests of himself and his partner. For example, he was absolutely not interested in the forced sale proceeding because, among other things, any sale of the property would subject Mr. Stordahl and his partner to recapture taxes due to accelerated depreciation. II/557. He wants to keep the property, prepay the FmHA mortgage, and use the property s increase in rents on the conventional market to help fund his retirement. II/557.

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With regard to the G-4 restricted form of prepayment, Mr. Stordahl would never consider such a prepayment because he believes that he has a valid contract . . . which does not require me to jump through any hoop in order to take this project private. II/572. He firmly believes

that, given his contract, he is not obligated to assume such risks as obtaining HUD supplied vouchers in order to make a G-4 restricted prepayment work. HUD program, and I have no reason to do that. [I] m doing a crap shoot on the

II/581. In any event, Mr. Stordahl understood

that his project would not qualify for vouchers. II/563. Even if Mr. Stordahl qualified for the G-4 restriction, and vouchers were available at some level close to full market rate rents, and all of his tenants applied for and received such vouchers, he still would not accept the option for the simple reason that he does not want to jeopardize his ability to enforce his contractual right to full compensation in this civil action: . . . I believe that the government has a responsibility to make one whole again, and I believe that so firmly that I m willing to forego 15 cents on the dollar because I think the government owes me a dollar on the dollar, sir, I m sorry. II/561; II/563-64; II/581-82. R.C. Getty, R.C. Mo, R.C. Pierre, R.C. Springs Contrary to defendant s brief, Mr. Daniel Costello attempted to prepay all four projects, R.C. Getty, R.C. Mo, R.C. Pierre, and R.C. Springs, in the summer of 1992. IV/1023.

According to Mr. Costello, [i]t seemed to be prudent to prepay and get out, and we determined that we could get higher rents, and with the balance of the mortgage and so forth, that it was attractive to do so. IV/1024. During or about June 1992, Mr. Costello met with Mr. Mark

Taylor, FmHA s District Director, South Dakota (IV/1026), who informed him that his partnerships could no longer even attempt to prepay unless they complied with the requirements of the Legislation. IV/1027-31. During that meeting, Mr. Taylor told Mr. Costello that the

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agency could not permit prepayment without restriction because the properties were needed in the Section 515 program. IV/1026-27. Mr. Costello checked with the agency over the years regarding its determination of need and was informed that the agency still needed his

properties in the Section 515 program. IV/1027; 1031. Mr. Costello did not see any basis to disagree with the agency s determinations that sufficient alternative subsidized housing did not exist in the communities where his properties are located. IV/1034. He also learned that other owners in South Dakota had unsuccessfully attempted to prepay without restrictions. IV/1031. Mr. Costello believed that he was stuck in the Section 515 program. IV/1057. Because his projects were compelled to remain within the program, Mr. Costello began to experience higher vacancy rates than if he had been able to convert to conventional market housing; he therefore decided to enhance his properties in order to make them more attractive. IV/1053-56. Since no bank would provide private financing for improvements while in the program (IV/1060), Mr. Costello was compelled to accept rehabilitation loans from the agency and he used them primarily for cosmetic enhancements. IV/1037. Mr. Costello testified that he was not interested in an equity loan because we had prepayment rights. IV/1028. Further, in light of its breach, Mr. Costello no longer trusted the

government and was unwilling to accept an equity loan since it would entail locking . . . into the program for a definite amount of time. IV/1029. The increased rate of return option was not

perceived by Mr. Costello as being equitable (IV/1030-31), and he is not interested in any sale of the properties (IV/1030), least of which a forced sale to a nonprofit which would be a bad deal. IV/1061-02. In short, Mr. Costello no longer trusted doing business with the government

because it had refused to honor its contractual obligations. IV/1058-59. He chose to pursue this

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civil action instead of submitting any requests pursuant to the Legislation. IV/1031; 1035; 105051. Fox Ridge II and Dublin Plaza The Government concedes that a letter was sent by Fox Ridge II expressing a tentative interest in prepayment, but asserts that no formal prepayment request was submitted. Def. s Br. at 8. The agency, however, indicated during many conversations with Mr. Ronald Powers, beginning in 1992, that no prepayment without restriction could be accepted on Fox Ridge II. V/1167-68. Mr. Powers approached FmHA in 1992 to see if he could prepay without

restrictions. V/1165-68. At that time, he was advised that pursuant to applicable rules and circumstances (V/1165), Fox Ridge II would not be able to prepay without restrictions.

PX 664; V/1140; 1167. Mr. Powers submitted a written request to prepay Fox Ridge II in August 1998. PX 690; V/1168. Mr. Powers was planning to take the project into the

commercial market.

V/1138. By submitting that letter, Mr. Powers sought to prepay [f]ree V/1169. In response, the agency requested additional

and clear, without restrictions.

information. PX 692. The agency also stated that prepayment requests require that certain actions be taken to ensure the affordability of housing for specified tenants for a guaranteed period of time. PX 692; V/1172. After discussions with the agency regarding its September 2, 1998 letter, Mr. Powers understood that the agency would only permit Fox Ridge II to prepay subject to a G-4 restriction which (as the agency letter indicated) would protect specific tenants for a guaranteed period of time. V/1171-72. Mr. Powers thus understood that, because the agency would permit

prepayment only with restrictions, he would not be able to prepay without restrictions. V/1174. Mr. Powers considered the G-4 very risky, and we didn t know if we could depend upon it in

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political times and from year to year.

V/1173. Mr. Powers also understood that the G-4 would

create cash flow problems since rents might not be enough to pay a conventional mortgage, and as he pointed out, [b]anks don t like that. V/1174. Mr. Powers was not interested in any

alternative other than unrestricted prepayment and believed them too risky. V/1172. In the case of Dublin Plaza, it was very appealing for Mr. Powers to be able to acquire ownership in the property and take it in the direction of building up equity with an eye toward prepayment and conversion to market-rate housing. V/1133. On November 26, 1986, the

president of Dublin Plaza, Inc. advised the FmHA of the desire of the Board of Directors to pay off the agency s loan. PX 663. As was the case with Fox Ridge II, the agency stated that, pursuant to applicable rules and circumstances (V/1165), the owners would not be able to prepay without restrictions. PX 664; V/1140; 1167. Following Dublin Plaza, Inc. s receipt of the agency s denial, Mr. Powers and his colleagues were in shock that a contract entered into with the United States Government would not be honored. We were amazed that that contract could be changed without our knowledge and without our input and without our consideration. V/1141. Riverfront, Rolling Hills, Scenic Valley and Sunrise River Ms. Marge Alden and Mr. George Vitalis knew from their closing documents that they had the right to prepay without restriction and planned to do so when they decided to retire, and certainly when 20 years were up . . . IV/945. Thus, in 1992, Ms. Alden and Mr. Vitalis decided to exercise their right to prepay and started asking for a way out of the program. IV/948; PX 8. They wanted to prepay in 1992 because our intention properties] into conventional apartments. over the years was to turn [the

III/945. To that end, Ms. Alden attended a FmHA

conference in 1992 where the prepayment application procedure was discussed. IV/949. At that

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conference, Ms. Alden learned from an FmHA official, Mr. Randy Hammerline, that you could no longer get out according to your contract. IV/950-51. Rather, Ms. Alden was told that a

new prepayment process existed under the Legislation. IV/950-51. Although Ms. Alden was not at the time interested in any alternative but prepayment without restriction, the prepayment submissions for Riverfront and Sunrise River Apartments indicated a willingness to consider other options available under the Legislation. PX 9; PX 59. The requests were drafted in this manner at the Agency s suggestion. IV/950. However, two years later, on August 9, 1996, Ms. Alden expressly notified the Agency with regard to both properties that [w]e wish to prepay immediately in accordance with our loan agreement. Our understanding is that a request to prepay is within our rights and any delays or restrictions constitute a breach of contract. PX 12; PX 64. Ms. Alden and Mr. Vitalis also learned from

FmHA officials that Franconia Associates would not be permitted to prepay without restrictions on either Riverfront or Sunrise River Apartments. IV/949-50. By letters dated February 5, 2001, they confirmed this with the agency. PX 19; PX 69. In July 1994, Lynn Slattengren, Mr. Vitalis partner in Scenic Valley Associates (owner of Scenic Valley Apartments) learned from Ms. Sherri Engel, the FmHA s Chief Multi-Family Housing Coordinator, State of Wisconsin, that Scenic Valley would not be able to prepay without restrictions. IV/1005. Also during July 1994, Mr. Vitalis learned from FmHA

Minnesota State Director, Randy Hammerline, that they would not be permitted to prepay without restrictions on Rolling Hills. IV/1009. Ms. Alden and Mr. Vitalis were concerned that accepting incentives would jeopardize their underlying contractual rights. IV/946. For example, when they decided to accept the agency s incentive offer for Riverfront Apartments, they notified the government that [o]ur

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acceptance of your incentives offer is of course without prejudice to our rights to recover damages . . . [pursuant to] our original contract rights. PX 19. Ms. Alden also testified, there

is no one [at the agency] we can turn to have anybody deal with us on a level playing field . . . so we have a lack of trust in the system. accept incentives. Id. Although Ms. Alden and Mr. Vitalis initially accepted an equity loan for Riverfront, they later changed their minds because they did not believe that by charging only low-income rents for another period of 20 years the property would be capable of funding the agency s loan. IV/947; 954; PX 19. The risks associated with the incentive options were all the more IV/963. This lack of trust impacted any willingness to

significant given the fact that the incentives, in any event, will provide little or no financial benefit to the partnerships, especially in comparison to the right to prepay without restrictions . . . PX 19; IV/961. Given these risks and lack of benefits, Mr. Vitalis changed the partnership s acceptance of the incentive for Riverside Apartments to a prepayment as soon as possible . . . We . . . cannot trust that we will have anything but abuse in the future. PX 20; PX 21. The

agency initially refused to permit the partnership to change its acceptance, but later permitted it to do so by handling the prepayment application as if the incentives had been rejected.2 Quite obviously, the partnership was not interested in appealing this determination because that is the ultimate result it actually wanted. IV/965-66. The agency letter offering a G-4 restricted prepayment for Sunrise River as the only means of prepaying the property s loan, appeared to reject the request of Ms. Alden and

2

In addition to being wholly without foundation, the government s allegation that favorable action could not be taken on their requests for assistance because of several instances of borrower non-compliance with regulatory requirements (Def. Br. at 13), the issue is moot because plaintiffs would have prepaid in 1992 years before any of the alleged non-compliance took place. IV/966-69. 9

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Mr. Vitalis to prepay without restrictions. PX 77. Due to her lack of trust in the agency (IV/981), Ms. Alden wrote to the agency on December 11, 2002 and requested that it provide to her in writing the agency s No Need Determination, i.e., the agency s explicit

determination that prepayment pursuant to a G-4 restriction was the only prepayment option available because the agency could not make the finding of no need required to permit prepayment without restrictions. PX 826. By letter dated December 13, 2002, the agency informed the partners that they already had been sent a letter rejecting the possibility of any no need determination for Sunrise River and, therefore, any prepayment without restrictions: a letter was sent out to you dated June 6,

2002, that stated Rural Development [FmHA] would be able to accept your prepayment with restrictions to protect current residents (emphasis added). PX 827. The partnership naturally

concluded that this was in fact a definitive denial of their request to prepay without restrictions. The partnerships did not consider appealing this or any other denial because they do not disagree with the agency s determinations that the projects are needed by the agency. See, e.g., IV/95758; 966; 976; 1006; 1010; PX 72. Palmyra Park I and Palmyra Park II On November 10, 1993, Ms. Phoebe Perri submitted a prepayment request for Palmyra I by letter to the FmHA in Madison, Wisconsin (PX 612 at 3; II/592) explaining her intention [was] to pre-pay without restrictive use provision in the release documents. Contrary to the

government s brief, Ms. Perri was told by the agency as early as April 1994 that she could not prepay without restrictions. II/594-95; 610. By letter dated May 23, 1995, the agency formally rejected her request to prepay without restrictions by offering her no alternative other than those specifically listed, which did not include free and clear prepayment. PX 620; II/596-97; 605;

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609. On November 10, 1993, Ms. Perri also submitted a request to prepay without restriction on Palmyra II. PX 645; PX 646; II/602-03. Ms. Perri was told that FmHA wanted to keep her property within the Section 515 program. PX 616. By letter dated March 17, 1995, the agency formally denied her request to prepay without restrictions on Palmyra II. PX 650; II/603-04; 605. It was only after these events that Ms. Perri indicated to the agency that she would be receptive to an incentive offer on both properties. PX 617; PX 649. The agency has informed Ms. Perri that prepayment without restrictions will never be available for either property. As she testified regarding Palmyra II: I was told that there was nothing else that you re ever going to

get out of the project (II/603-04); and regarding Palmyra Park I: . . . I was basically told, if you don t accept it [the incentive offer], you will be stuck with a dead project project II/610-11. Pine Needle Mr. Morosani learned that unrestricted prepayment was not being allowed and he had to go through a procedure for prepayment. I/227-28. He was told by various agency staff they called it a dead II/596;

and you will be in this program, and there is nothing you can do about it.

members that prepayment without restrictions under the agency s procedure was not in the cards. I/244. Each time Mr. Morosani discussed prepayment with the agency, he was told

you re going to get restrictions. I/230. After submitting a prepayment request, pursuant to the 1988 Legislation, in December 1993, the FmHA confirmed in writing what it had been telling Mr. Morosani since the fall of 1991: Per Terry Stole, no one will be allowed to prepay without having some type of restriction placed upon the release deed. PX 587; I/229. Mr. Morosani

had no reason to appeal from the denial of his unrestricted prepayment request because he

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concedes that the agency s fact determinations regarding the existence of minorities, both within his partnership s property and in its market area, are not subject to dispute. Consequently, he would not have any reason to appeal as it would be useless. I/291-92. Mr. Morosani concluded that he had no other option but to accept incentives because the agency needed his property. Thus, Mr. Morosani accepted the one-time incentive offer despite its risk in part because he wanted to avoid the forced-sale proceeding without having

to withdraw or otherwise void his pending prepayment request. I/243. To this day, despite the passage of nearly nine (9) years, the partnership has not received any of the agency s promised incentives. I/290. Fall River I Defendant asserts that incentives were offered and accepted not to prepay on this project. Def. s Br. at 12 In 1992, the owner of Fall River I, Mr. Brian Wells, began considering prepayment to convert to market-rate rents and to use the equity to finance another building. IV/913. During September 1994, Mr. Wells submitted a written prepayment request. IV/897. Mr. Wells requested prepayment without restriction. Around the time Mr. Wells learned he would not be permitted to prepay without restrictions by letter dated April 3, 1995, Mr. Wells was offered incentives. PX 744; IV/903-04. The letter stated that the incentive offer must be accepted or rejected in writing within 30 days or the prepayment request will be voided. PX 744. Since Mr. Wells understood that, if he

rejected the offer, prepayment without restriction would not be an available alternative (IV/90405; IV/921; IV/930), he accepted the incentives in a letter dated April 6, 1995. PX 745.

Although the agency determined that the maximum equity loan to which Mr. Wells was entitled was $273,635 (PX 819 at 12) he actually received only $176,515 of it. PX 749. Although

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extremely disappointed, Mr. Wells accepted this amount because [a]t that point, that was all I could get. IV/924; PX 749 at 3. Iowa Properties Defendant erroneously asserts that all of the prepayment requests submitted prior to 2000 only sought to obtain incentives rather than unrestricted prepayment. Def. s Br. at 14.

Defendant s suggestion that the owners of the Iowa properties did not wish to prepay without restrictions is patently ridiculous. Indeed, no prepayment requests were filed on behalf of any Iowa project until after all Iowa projects commenced this civil action, which was filed precisely because of their inability to prepay without restrictions. Also contrary to the government s brief, the written prepayment requests submitted before 2000 did in fact include information regarding each alternative on the menu, including data regarding the impact that a prepayment without restrictions would have on the tenants. E.g., PX 309 at 6; IV/834. The request for Evergreen Manor of Waukee, for example, also included an appraisal of the property as if operated under a conventional housing concept without restrictions . . . . PX 309 at 12 (emphasis added).

Moreover, all requests included a clause stating that they included a proforma operating budget indicating the project will be economically feasible at projected conventional rents with conventional financing. IV/834; PX 309 at 2. The cover letters to the prepayment requests also stated that when appropriate incentives in adequate amounts are offered, they will be accepted, and prepayment will not occur. PX

309; 419; III/732; IV/845. This language, drafted by a consultant retained by the owners, was intended to make a good impression upon the agency by not foreclosing incentives, a wellknown agency goal. III/733; 845-46; IV/833. By the same token, the letters by no means

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committed the partners to accept incentives, because they said only that appropriate incentives in adequate amounts would be accepted. PX 309. It was shortly after the submission of these prepayment requests (five days in the cases of Evergreen Manor and Prairie Village of Grimes) that Mr. Roseliep informed the FmHA that the partnerships in fact wanted to prepay without restrictions and therefore had no interest in incentives. III/734-35; 802; IV/836; PX 311; PX 314. Contrary to the government s brief, the owners ultimate requests to prepay subject to restrictions (i.e., pursuant to the G-4 restricted prepayment) came only after they learned that their requests to prepay without restrictions had been denied on the basis that the properties were needed in the Section 515 program. For example, with respect to Evergreen Manor, the agency formally determined (on July 20, 1998) that adequate housing was not available and the agency therefore needed the project. PX 310; IV/841-42. The very next day (July 21, 1998), the agency informed the partnership that it would not be permitted to prepay without restrictions. III/734-35; 802-03; 805; IV/840. Given the unavailability of unrestricted prepayment, Mr. Roseliep told the agency that the partnerships would probably proceed with prepayment and deal with the G-4 restriction by means of affordable housing vouchers. IV/837; PX 314; III/801-02. Similarly, with regard to other properties, the agency told the owners that prepayment without restrictions was not available (III/761; 766; PX 370) and the owners told the agency that it was not their intent to accept any incentives. III/762. Also, as with the other properties, the only available prepayment option was the G-4 restriction. PX 321; PX 394; PX 427. The owners stopped utilizing the G-4 restricted prepayment when they failed to obtain needed voucher funding for Greenway of Newton. III/770; VI/1291. After failing to obtain this G-4 restricted prepayment and experiencing other problems first-hand, the partnerships reassessed the

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feasibility of accepting G-4 restricted prepayments on the remaining properties (VI/1291) and concluded [t]hat the G-4 option was too risky to continue. III/778. With regard to other alternatives under the Legislation, the general partners never expressed an interest in obtaining any of them. III/719. They understood that any incentive equity loans, increased returns on investment, and/or additional rental assistance would

commit us to remaining in the program for another 20 years, and that was not part of our strategy. III/727; VI/1287; VI/1302-03. In addition, Mr. Levy was concerned that by signing original prepayment right.

another 20-year covenant, he might weaken the partnerships

VI/1287. Moreover, regarding equity loans, the partners were concerned that funding for the loans simply was not authorized. III/790. Indeed, the FmHA informed the partnerships as early as July 1995 that funding was not available to owners for seven to eight years . . . PX 293;

III/727. Regarding the increased return to owner, Mr. Levy and Mr. Malone also believed that would be a very small number that was just not attractive to us. VI/1287. Finally, increased

rental assistance also was not attractive to the partnerships; they had all of the rental assistance the properties required to meet tenant needs. VI/1287-88. Eastwood Apartments Mr. Robert Baker planned to prepay on the expiration of the 20-year restrictive use provision; as he testified, there was no question about it, if the economics were right, that we would try our best to pay on the twentieth-year anniversary. IV/865. However, in a letter dated

January 12, 2000, the agency stated that existing tenants must be protected as long as they desire. PX 101; IV/872-73. Mr. Baker understood this to mean that he could not prepay

without restrictions. IV/874. In a letter dated February 17, 2000, Mr. Baker responded by

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stating that he desired to prepay without restrictions, but that it seemed to him that the agency had already denied that. PX 102. The agency wrote back on February 25, 2000 and confirmed that Mr. Baker s interpretation of the agency s January 12, 2000 letter was correct, i.e., the agency could offer only prepayment with restrictions (in the form of a G-4 prepayment). PX 103; IV/874. The

only way that our current regulations allows [sic] prepayment without some type of restrictive use provisions in the deed of release is if the agency can determine that housing opportunities for minorities will not be materially affected and there is no longer a need for the housing. From the information that was furnished and or available in the Mexico market, we do not believe that we can make such a determination. Thus, contrary to the government s brief, market information was furnished to the agency. Moreover, Mr. Baker clarified that he agreed with the agency s finding of need for his property (because there was not an oversupply (IV/880)) and knew there were many minorities living in his property. IV/883. As a result, there was no reason for Mr. Baker to reply to the agency s February 25, 2000 letter; his prepayment request already had been rejected twice. Finally, Mr. Baker decided to pursue his rights in this civil action (IV/883) instead of in an administrative appeal because he knows that prepayment would create an adverse impact on minorities and that his project is needed. IV/873; 875; 885. Valley View Village and Dogwood Glen Mr. David Tucker, owner of Valley View Village and Dogwood Glen, intended to prepay on the 20-year anniversaries of his properties, i.e., around 2000, 2001, because that was when he planned to retire. II/640. In 1995, however, Mr. Tucker learned that prepayments were not being accepted from an FmHA official, Gary Shoemaker. II/639-40. Despite Mr. Shoemaker s

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statement that nothing could be done to prepay his loans (II/640-41), Mr. Tucker nonetheless submitted prepayment applications for both properties in October 1999. PX 719; PX 731. Mr. Tucker requested in those applications prepayment without restrictions (PX 719 at 3; PX 731 at 3) upon their respective 20-year anniversaries (II/641), i.e., January 2000 and April 2002. PX 727 at 2 n.2; PX 717 at 2 n.2. Contrary to the government s brief, Tucker re-sent copies of his original prepayment requests to the agency on two separate occasions. PX 715 at 1 and 13. The agency finally wrote back (as it had done with Mr. Powers) and stated that actions must be taken to ensure the affordability of housing for specified tenants for a guaranteed period of time. PX 715 at 2. Like Mr. Powers, Mr. Tucker interprets this to mean that he will never be permitted to prepay without restrictions. II/644. Mr. Tucker testified that he is not interested in any other alternative under the Legislation: for example, he would never offer the properties for sale to a non-profit because he intends to keep them (II/633) and he is not interested in the G-4 restricted form of prepayment because in Osage County, where both of his properties are located, there is a ridiculously low number of vouchers, I think seven or eight for the entire county. . . III/698. Rather than

pursuing these alternatives, or any unwanted incentive (which would require that he agree to additional 20-year restrictive use periods), Mr. Tucker pursued this civil action. II/644-45. Beechwood, Deer Run, and Pine Tree Mr. David Hodges viewed the Section 515 program as means to support his retirement and according to the deal (V/1196) he made with the District Director, Mr. Hodges intended to prepay his three properties on their respective 20-year anniversaries. By letters dated December 3, 2001, the agency informed Mr. Hodges that he would not be permitted to prepay any of the three properties without restrictions. PX 237 at 2; PX 247 at 2; PX 263 at 2. Thus, any criticism

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that Mr. Hodges prepayment requests were in some respect incomplete is moot, because even if he had addressed them he still would not have been eligible for unrestricted prepayment since he did not qualify for unrestricted prepayments. In any event, the government s criticisms that Mr. Hodges bank was unaware that existing tenants would be unable to pay higher rents in the absence of rental assistance simply misses the mark because private bank proformas are based upon projected market-rate rents paid by tenants who move into the properties after prepayment. With regard to other alternatives under the Legislation, such as incentives, Mr. Hodges was never interested in them because I really wanted to prepay . . . (V/1209) and further testified, I had no interest in them. V/1211. Mr. Hodges also is not interested in the forced-

sale proceeding because he wants to keep the properties after prepayment and eventually raise the rents. V/1217. Nor would Mr. Hodges have qualified for a G-4 because, as he testified, there were no vouchers available, as confirmed by FmHA official James Fowler. V/1219. Casa Grande I, Casa Grande II, and Rancho Verde In June 1993, Mrs. Marilyn Graham met with FmHA official Tony Humbach to discuss prepayment. V/1099-100. During that meeting, Mr. Humbach told her that prepayment would not be allowed. Id. His main reason [was that] the government won t allow you to do that V/1101-02. Following a request for prepayment, Mrs. Graham if at all only pursuant to new FmHA regulations.

because we need that housing.

learned that prepayment could be made

IV/1101-02. Mrs. Graham prepared prepayment packages in 1997, but never submitted them. V/1110-11. She was concerned that to do so would be futile, in light of what she had been told by the agency, and she feared that any prepayment request might jeopardize her underlying contract rights. V/1114-15; V/1121-22. Mrs. Graham eventually submitted prepayment requests on February 2, 2003, which were denied on April 23, 2003. PX 179. Mrs. Graham has no

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interest in pursuing any administrative appeal of these denials. Instead of pursuing a futile appeal, she decided to enforce her existing contractual rights in this civil action: rather than to fight with [them] on another level, I decided to fight in federal court. V/1121. Mrs. Graham testified that she was never interested in incentives because she viewed them as a very poor business deal. V/1106; 1107-08. Due to the agency s refusal to honor the

original terms of her contract, Mrs. Graham lost trust in the agency and this impacted her decision not to accept incentives; as she stated, they lied to me once. Why am I going to believe them now. . . [t]hey changed the rules so I m not listening to anymore rules they might have. V/1122. Mrs. Graham also testified that she was not interested in the forced-sale

proceeding because she would never enter into a real estate contract without knowing the absolute price that [she] wanted to put on [her] building for sale. the forced-sale proceeding to be just risk taking. V/1108. She also considered

Id. She also was concerned that she would

get stuck in the forced-sale proceeding if she submitted her prepayment request package. V/1110. This fear was underscored for her in a letter dated April 23, 2003, wherein she learned, you are required to offer to sell the project to a non-profit. PX 179. ARGUMENT I. DEFENDANT S ATTEMPTS TO DISCLAIM LIABILITY FOR BREACH OF CONTRACT FAIL. A. The Court s Recent Decision In Cuyahoga Extinguishes Any Doubt As To The Applicability Of The Unmistakability Doctrine In This Case. as it has been throughout this

The government s lead argument in its post-trial brief litigation

is that regardless of whether it breached plaintiffs contracts, it is immune from

liability thanks to the unmistakability doctrine. As plaintiffs explained in detail in their prior briefing, however, that doctrine simply is not available to the government under the facts of this

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case. The government does not deny that its actions do not qualify as sovereign acts for purposes of the sovereign acts defense. See Adams v. United States, 42 Fed. Cl. 463, 479-80 (Fed. Cl. 1998); accord Kimberly Associates. v. United States, 261 F.3d 864, 869-70 (9th Cir. 2001); Grass Valley Terrace v. United States, 51 Fed. Cl. 436, 441-43 (Fed. Cl. 2002). As a result, the law is clear that the unmistakability doctrine is not available as a defense to the government either. See Pl. Bf., Part IV; Pl. Mem. at 21-27. Plaintiffs prior arguments regarding the unmistakability doctrine are resoundingly confirmed by the Court s recent decision in Cuyahoga Metro. Hous. Auth. v. United States, Nos. 01-46C, 01-251C, 01-416C (Fed. Cl. Sept. 22, 2003) ( Cuyahoga ). In that case, the Court traced the roots of the doctrine to its Constitutional underpinnings and analyzed nearly every decision ever issued under the unmistakability doctrine and the sovereign acts defense going back to the early 1800s. Based on this extensive review, the Court concluded that the

unmistakability doctrine applies only when the Congress invokes one of the sovereign powers protected by the doctrine. Cuyahoga, slip op. at 31; see also id. at 24 ( [W]here, for example, the challenged legislation represents a bald repudiation of a contractual obligation prompted by Congress desire to correct what it perceives to be an overly generous deal doctrine will avail the government naught. ). In reaching this holding, the Court found that there was no logical limit to the the unmistakability

government s desired interpretation of the doctrine, which would transform the unmistakability doctrine from a shield to a meat axe that would allow the Congress to reserve the choicest portions of the government s contracts and discard the rest. Id. at 33. As one example directly

relevant to this case, the Court noted that if those willing to offer goods or services under a given program were . . . eligible to leave the program, Congress cold simply extend the

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agreements already in force . . . . Id. at 34. The Court also observed the dire consequences that could result if the government s view of the doctrine were to prevail: . . . private parties should not have to guard against the possibility that the government would target essential provisions of their contract for later unilateral revision, thereby obtaining a second promise from the government not to do what it should not do in the first instance. . . . One can only speculate what would happen in the marketplace if prominently displayed in every contract were a provision explicitly indicating that the government reserved the right to change unilaterally any provision subsequently deemed by the Congress or executive agency to be unduly expensive or otherwise ill-advised. Id. at 34 n.35. The impact of Cuyahoga on this case is clear. As noted above and in plaintiffs prior briefing, the courts have unanimously held that the government action at issue in this case does not qualify as a sovereign act. Pl. Mem. at 19-21. The government does not assert otherwise. As a result, there is no exercise of sovereign power for the unmistakability doctrine to protect here. See Cuyahoga, slip op. at 31 n.33 (concluding that the unmistakability doctrine protects only certain forms of legislation, to wit, those truly invoking sovereign powers ). Accordingly, the government s liability for breach must be adjudged according to the same standard contract principles that apply in disputes between private parties. See Winstar, 518 U.S. at 895;

Franconia Assoc., 536 U.S. at 141; see also Cuyahoga, slip op. at 31 ( neither [the unmistakability doctrine or the sovereign acts defense] applies when the Congress instead targets the government s contractual obligations in an effort to get a better deal ).3 B.
3

The Government s Newly-Devised No Breach Argument Fails.

Given the analysis in Cuyahoga, it is unnecessary, in order to find the government liable for breach, for the Court to delve into issues such as the materiality of the prepayment right and the context of the parties contractual arrangement. See Pl. Br., Part I. Those facts would be relevant to contract liability only if the unmistakability doctrine did apply in this case. However, those same facts still are relevant to plaintiffs takings claims (and the reasonableness of their investment-backed expectations in particular) and, to some extent, plaintiffs damages. See Part II(B)(2); Part III(B), infra.

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Defendant presents in its brief, for the first time in this litigation, an alternative no breach argument. Defendant asserts that, regardless of whether the unmistakability doctrine applies, plaintiffs contracts were not breached because the prepayment restrictions set forth in the repudiating legislation presented plaintiffs with a set of options which, taken as a whole, were consistent with the prepayment clause contained in the promissory notes. Def. Br. at 22.

Thus, the government now argues that even under standard contract law, its actions do not constitute a breach.4 1. Having Repudiated Plaintiffs Contracts, Defendant Has No Room To Deny That It Breached Plaintiffs Contracts.

Defendant concedes that the prepayment restrictions set forth in the repudiating legislation constitute a repudiation of plaintiffs contracts. The Supreme Court so held and the government has not disputed the Court s holding. See Franconia Assoc., 536 U.S. at 143

(holding that the 1988 legislation effected a repudiation of the FmHA loan contracts because it 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 ) (emphasis added). But defendant nonetheless argues that the very same prepayment restrictions that repudiated plaintiffs contracts could not have effected a breach.

4

It is telling that the government is raising this argument for the very first time after trial. As plaintiffs noted in their Post-Trial Brief, defendant gave no indication, in its Contentions of Fact and Law, its prior briefing, or its discovery responses, that it would raise any defense to contract liability other than the unmistakability doctrine. Pl. Br. at 42 n.30; see also Rules of the U.S. Court of Federal Claims, App. A, ¶ 14 (requiring parties to set forth in their Memorandum of Contentions of Fact and Law a statement of the issues of fact and law to be resolved by the court and a discussion of the legal principles [defendant] contends are applicable ). Defendant s newly devised argument should be seen for what it is: a last-ditch effort to avoid contract liability in the face of its weakening arguments regarding the unmistakability doctrine.

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A repudiation is defined as a statement by the obligor to the obligee indicating that the obligor will commit a breach that would of itself give the obligee a claim for damages for total breach. Restatement (Second) of Contracts § 250 (emphasis added); quoted in Franconia, 536

U.S. at 143; Mobil, 530 U.S. at 608; see also Black s Law Dictionary 1306 (7th ed. 1999) repudiation defined as words or actions that indicate an intention not to perform the contract in the future; a threatened breach of contract ); Murray on Contracts § 109(C) (3d ed. 1990) (statement of intention not to perform except on conditions going beyond the contract constitutes a repudiation). Thus, once a repudiation occurs, it is generally only a matter of time before that repudiation ripens into a breach. In particular, a repudiating party becomes liable for breach when the non-repudiating party either (1) files suit, or (2) demands performance under the contract. Pl. Br. at 19; Franconia, 536 U.S. at 143; Roehm v. Horst, 178 U.S. 1, 10 (1900) (finding it reasonable to allow an option to the injured party, either to sue immediately, or to wait till the time when the act was to be done ); Williston on Contracts § 1337 (3d ed. 1968). In this case, all plaintiffs brought suit on June 25, 1997, and many demanded performance from the government prior to that date. Pl. Br. at 19. Defendant did not by June 1997, nor at any time thereafter, retract its repudiation. As a result, defendant now stands liable for breach of contract. Indeed, if the prepayment restrictions set forth in the repudiating

legislation did not amount to a breach of contract, as defendant argues, then those same restrictions would not have amounted to a repudiation. But the Supreme Court clearly held otherwise. Accordingly, it is incongruous for defendant to concede that it repudiated plaintiffs contracts but then deny that any breach occurred. 2. Defendant s No Breach Contract Law. Argument Cannot Be Squared With Basic

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Defendant s newly-devised argument also attempts to redefine the meaning of a breach of contract. The crux of defendant s argument is that the prepayment restrictions imposed by the repudiating legislation are not sufficiently egregious to amount to a breach of contract due to the various options to unrestricted prepayment set forth in the repudiating legislation. A breach of contract, however, is a failure to perform as promised. Restatement (Second) of Contracts § 237 cmt. a (breach of contract defined as a failure of performance ); see also Williston on Contracts § 2027B; Corbin on Contracts 923 (1964); Gifis, LAW DICTIONARY 54 (3d ed. 1991) (defining breach as a party s failure to perform some contracted-for or agreed-upon act ). Thus, it is not a defense to contract liability to state that the breaching party, in failing to perform, gave the victim of the breach certain options in place of the promised performance.5 Plaintiffs contracts granted them the right to prepay without any restrictions. Under the repudiating legislation, the government was disabled from honoring this option. Thus, under common law of contracts, this case becomes one of impossibility of performance. Winstar, 518 U.S. at 920-21 Generally, contract law imposes upon a party to a contract liability for any

impossibility of performance that is attributable to that party s own actions . . . . ) (Scalia, J. concurring). As this Court held in Cuyahoga, slip op. at 33, where the government targets particular contracts, the general rule regarding impossibility of performance applies and, to the extent the government renders its own performance impossible, it is liable. Here, too, the

government s actions in making its performance impossible renders it liable for breach. While the government suggests that prepayment is still permitted under the repudiating legislation, that is a misnomer. The only prepayment that is possible under the current regime

5

To the extent that defendant asserts that plaintiffs could have minimized their damages by accepting one of the lesser alternatives provided by the repudiating legislation, that goes to

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is either (1) prepayment subject to severe restrictions on the use of the property (the G-4 option), (2) prepayment under a narrow exception that none of the plaintiffs can satisfy (the no need exception), or (3) the possibility of prepayment following the agency s forced sale process. Apart from the defects and risks that these paltry options present (see Pl. Br. at 26-34), they differ markedly from the prepayment option set forth in plaintiffs contracts. Indeed, the agency itself refers to its prepayment regime as Prepayment Prevention. 1965, Subpart E; see also VII/1584; PX 13. Thus, no matter what the result of the agency s procedures may be, the fact remains that performance under the original contract is simply not a possibility for any of the plaintiffs. Accordingly, defendant cannot avoid liability for breach by pointing to its proposed substitute performance. Just as a deal is a deal, a breach is a breach. As this Court has recently observed, pacta sunt servanda. 3. See Cuyahoga, slip op. at 38. The Government s Power Of Eminent Domain Is Not A License To Breach Its Contracts. See 7 C.F.R. Part

As an ancillary to its newly-devised no breach argument, the government introduces another novel and unprecedented theory: what may be termed the we could have confiscated your property so you should be glad that all we did was breach your contract defense. The government asserts that because it could have exercised its power of eminent domain to condemn plaintiffs properties, the fact that it did provide plaintiffs with additional options should not make it more liable than it would have been otherwise. Def. Br. at 24. The government points

to no authority, in the law of contracts, the law of takings, or otherwise, to support this unprecedented theory. Indeed, there is none.

mitigation of damages (which was fully addressed in Part III of plaintiffs post-trial brief), not to whether there was a breach in the first instance. 25

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The government s argument also muddles the requirements for establishing a breach of contract with th