Rehearing Denied; Suggestion for Rehearing En Banc Declined December 27, 1999.
Opinion of the court filed by Circuit Judge LOURIE. Concurring opinion filed by Circuit Judge RADER.
LOURIE, Circuit Judge.
Greenbrier et al. (the "Owners") appeal from the decisions of the United States Court of Federal Claims denying them class certification, see Greenbrier (Lake County Trust Co. No. 1391) v. United States, No. 96-326C (Mar. 7, 1997) and granting summary judgment in favor of the United States on the Owners' breach of contract and takings claims, see Greenbrier (Lake County Trust Co. No. 1391) v. United States, 40 Fed. Cl. 689 (Fed.Cl. 1998). Because the trial court correctly determined that the United States was not in privity of contract with the Owners and therefore could not be held liable for breach of such contracts, and correctly determined that the Owners' takings claim is not ripe for review, we affirm its grant of summary judgment against the Owners and its dismissal of their complaint. In light of these holdings, the petition for class certification is moot.
Greenbrier et al. are 249 low-income housing Owners who allege that they each secured the contractual right from the United States to prepay without its approval their government-insured mortgage loans after 20 years and that Congress's enactment of the Emergency Low Income Housing Preservation Act of 1987 ("ELIHPA")
The breach of contract claim asserted by the Owners in this case is identical to that asserted by the low-income housing owners in Cienega Gardens v. United States, 162 F.3d 1123 (Fed.Cir.1998). The only difference between this case and Cienega Gardens is that this case also presents takings and class certification issues. Because the background facts relating to the issues in this case are indistinguishable from those involved in Cienega Gardens, only a simplified description of the parties' agreements and the regulatory scheme is set forth herein, a more exhaustive description being set forth in that opinion.
In the 1960s and 1970s, pursuant to two National Housing Act programs referred to as "Section 221(d)(3)"
Each of the Owners executed substantially similar sets of contracts with the United States and the lenders. First, a lender and an Owner submitted to HUD an application for insurance of a mortgage loan for a property on which a low— or moderate-income housing project would be constructed. The application had to comply with certain eligibility requirements, terms, and conditions prescribed by HUD. See 12 U.S.C. §§ 1715l(b), 1715z-1(j) (1994). The Federal Housing Commissioner, acting on behalf of the Secretary of HUD, thereafter gave the lender and Owner a "Commitment for Insurance of Advances" wherein it promised to endorse for insurance a 40-year mortgage note in a specified amount, "subject to compliance with the requirements of the Regulations, the terms and conditions set forth below, and the attached specified conditions, if any." The commitment specified certain mortgage loan payment terms and stated that certain documents relating to the construction project and its financing, including the mortgage and note, were to be submitted to HUD for approval. The commitment did not specify any prepayment terms, but it did state that "[a]ll forms, certificates, documents and agreements called for by this commitment shall be upon forms approved or prescribed by the Commissioner and shall be completed, executed and filed ... in such manner as he shall prescribe."
After receiving commitments for insurance, the Owners and lenders executed substantially similar 40-year mortgage notes and mortgages on the subject properties. Although some Owners executed notes that did not permit prepayment at any time without the Commissioner's consent, the notes (or riders thereto) generally allowed prepayments without prior HUD approval "after 20 years from the date of final endorsement of this note by the Federal Housing Commissioner," provided the Owner was a "limited distribution entity."
The agreements can thus be summarized as follows: Each Owner agreed with HUD to submit to its regulation for as long as HUD insured the Owner's 40-year note. In return for the lender's financing, the Owner promised the lender not to prepay its mortgage loan for at least 20 years without HUD's approval, and also agreed to comply with the Regulatory Agreement that it had entered into with HUD. Each of the Owners thereby bound itself to HUD's regulation (and therefore limited investment returns) for the duration of the loan.
In 1987, Congress became concerned that a large number of housing project Owners would prepay their mortgage loans, leave the housing programs to earn more money from their properties, and thereby reduce the supply of low-income rental housing. It therefore enacted ELIHPA, which placed a two-year moratorium on unconditional, unilateral prepayments of HUD-insured mortgage loans and required that an Owner obtain HUD approval before any prepayment, even after 20 years.
In 1990, Congress replaced ELIHPA with LIHPRHA, which continued ELIHPA's prepayment regulations and authorized HUD to grant the Owners numerous financial incentives in order to encourage them not to prepay their mortgage loans and to remain in the programs. See 12 U.S.C. § 4101-47. Thus, the Owners could not prepay their mortgage loans after 20 years without HUD approval, even though their notes permitted such prepayments. As a consequence of ELIHPA and LIHPRHA, the Owners had to overcome yet another hurdle in order to leave the federal housing program, convert their properties into conventional rental or other properties, and earn higher returns on their investments.
In 1996, Congress enacted the Housing Opportunity Program Extension Act of 1996 ("HOPE").
None of the 249 Owners in this case ever sought permission to prepay their mortgage loans during the period when
Greenbrier filed suit against the United States in the Court of Federal Claims shortly after HOPE's enactment in 1996. The case was consolidated with three others
The trial court subsequently granted summary judgment in favor of the United States on both the breach of contract and the takings claims and dismissed the Owners' complaint. See Greenbrier, 40 Fed. Cl. at 689. The court held that the United States could not be liable for breach of contract because neither the documents nor the context of the transactions indicated that HUD and the Owners were in privity of contract with respect to the prepayment terms found in the mortgage notes. See id. at 691, 700. The court also held that since the Owners did not secure such a contractual right from HUD, they could not state a takings claim premised on the theory that the government took such a right. See id. at 692, 701. The court stated that inasmuch as the Owners claimed that the government's enactment of legislation imposing restrictions on the use of their property gave rise to takings, their claim was not ripe for review. It reasoned that the legislation provided procedures for the Owners to apply to have the restrictions removed or modified, that none of the Owners claimed that they made such applications, and that a final decision by the government on such an application was necessary. See id. at 701-02.
The Owners timely appealed to this court. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(3) (1994).
A. Breach of Contract Claim
In Cienega Gardens we outlined our standard of review with respect to the breach of contract claim:
Cienega Gardens, 162 F.3d at 1129-30 (internal citations omitted).
In Cienega Gardens we held that the United States and the owners were not in privity of contract with respect to the notes' prepayment terms because (1) the Regulatory Agreements contained no provisions relating to prepayment and did not incorporate any such provision by reference; (2) HUD's endorsements for insurance of the mortgage notes did not make it a party to the prepayment terms contained in the notes or the riders thereto; and (3) the incorporation by reference of the notes and the Regulatory Agreements into the mortgages did not make HUD a party to those mortgages. See Cienega Gardens, 162 F.3d at 1132-33. After determining that the documents unambiguously evidenced separate agreements between distinct parties, we concluded that "the contract documents simply do not show privity of contract between the owners and HUD with respect to a right to prepay the mortgage loans after twenty years without HUD approval." Id. at 1133. We noted that the applicable regulations, which mirrored the prepayment terms found in the notes, further supported the conclusion that there was no privity of contract because they expressly stated that they were subject to amendment:
Id. at 1134 (emphasis added). Lastly, we stated that the fact that HUD was intimately involved in the contracts between the private lending institutions and the owners did not create a contractual relationship with respect to the prepayment rights. See id. Because we found no privity of contract, we held that the United States could not be liable to the owners for breach of contract by enacting ELIHPA and LIHPRHA. See id. at 1136.
Our holding in Cienega Gardens is dispositive of the issue concerning whether the Owners in this case were in privity of contract with the government with respect to the prepayment terms found in their mortgage notes. The facts in this case are indistinguishable. Each of the Owners here executed the same series of contracts with HUD and a lender, under the same National Housing Act programs, as the owners in that case. There are no material differences between the terms of the notes, Regulatory Agreements, and mortgages to which the Owners in this case were a party and the terms of the documents to which the Cienega Gardens owners were a party. Since we are bound by the Cienega Gardens holding, we affirm the trial court's determination that the United States was not in privity of contract with the Owners with respect to the prepayment terms found in their mortgage notes and it is therefore not liable for breach of such contracts.
B. Takings Claim
The Owners also appeal the trial court's dismissal of their takings claim on ripeness grounds. We review the question of ripeness de novo. See Howard W. Heck & Assocs., Inc. v. United States, 134 F.3d 1468 (Fed.Cir.1998).
The Owners argue that their "unfettered rights to prepay their mortgages" were "vested property rights," that by enacting ELIHPA and LIHPRHA Congress made a final decision to take such "unfettered rights," and that their takings claim was therefore ripe for adjudication. The Owners argue that it is irrelevant that the statutes provided procedures for obtaining permission to prepay their mortgage loans because "[s]ubjecting appellants to such an administrative process itself deprives the Owners of their unfettered option to exit the regulatory program. There is no requirement that administrative remedies be exhausted...." The Owners cite Suitum v. Tahoe Regional Planning Agency, 520 U.S. 725, 117 S.Ct. 1659, 137 L.Ed.2d 980 (1997), to support their argument that the takings issue was ripe. The Owners state that they do not challenge the validity of the statutes and only argue that the statutes deprived them of property rights. We thus only consider whether their claim that the legislation deprived them of their property is ripe for adjudication when they never sought HUD's approval to prepay their mortgage loans or were denied the right to do so.
The government responds that the Owners' takings claim is not ripe until HUD issues a final decision denying them prepayment, because ELIHPA and LIHPRHA did not prohibit mortgage loan prepayments altogether, but rather required Owners to apply to HUD for permission to prepay. The government argues that the Owners have not even alleged that they sought such permission, let alone that they were denied it.
As a preliminary matter, we understand the Owners to argue that they have suffered regulatory rather than physical takings, since they do not allege that the government physically occupied or destroyed their properties,
The Fifth Amendment provides in relevant part: "nor shall private property be taken for public use, without just compensation." U.S. Const. amend. V, cl. 4. Although the Supreme Court has stated that "[c]ontract rights are a form of property and as such may be taken for a public purpose provided that just compensation is paid," United States Trust Co. of N.Y. v. N.J., 431 U.S. 1, 19 n. 16, 97 S.Ct. 1505, 52 L.Ed.2d 92 (1977), it has also emphasized that a government's interference with contractual rights does not necessarily constitute a taking of their property:
Connolly v. Pension Benefit Guar. Corp., 475 U.S. 211, 223-24, 106 S.Ct. 1018, 89 L.Ed.2d 166 (1986) (internal quotation marks and citations omitted); see also Eastern Enterprises v. Apfel, 524 U.S. 498, 118 S.Ct. 2131, 141 L.Ed.2d 451 (1998). For purposes of this appeal we thus accept, but do not decide, that the prepayment terms in the Owners' notes may constitute "property." Even if the Owners' mortgage note prepayment terms are property rights and were affected by the government's actions, a taking need not have occurred.
"[W]hile property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking." Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 415, 43 S.Ct. 158, 67 L.Ed. 322 (1922). In order to successfully assert a regulatory takings claim, the Owners must establish two components: that the regulation has in substance "taken" their property by going "too far," and that any proffered compensation is not "just." See MacDonald, Sommer & Frates v. Yolo County, 477 U.S. 340, 348, 106 S.Ct. 2561, 91 L.Ed.2d 285 (1986); Suitum, 520 U.S. at 734, 117 S.Ct. 1659. Governmental regulation does not effect a taking if it "substantially advance[s] legitimate state interests" and does not "den[y] an owner economically viable use of his property." Dolan v. City of Tigard, 512 U.S. 374, 385, 114 S.Ct. 2309, 129 L.Ed.2d 304 (1994) (quoting Agins v. City of Tiburon, 447 U.S. 255, 260, 100 S.Ct. 2138, 65 L.Ed.2d 106 (1980)). A regulation goes "too far" for purposes of the Fifth Amendment when it denies all economically beneficial or productive use of land. See Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1015-16, 112 S.Ct. 2886, 120 L.Ed.2d 798 (1992). However, "a court cannot determine whether a regulation has gone `too far' unless it knows how far the regulation goes." MacDonald, 477 U.S. at 348, 106 S.Ct. 2561; Suitum, 520 U.S. at 734, 117 S.Ct. 1659. "[T]his is a question of degree—and therefore cannot be disposed of by general propositions." MacDonald, 477 U.S. at 348, 106 S.Ct. 2561 (citing Pennsylvania Coal, 260 U.S. at 416, 43 S.Ct. at 160). The Supreme Court has not provided any "set formula to determine where regulation ends and taking begins," but rather requires "essentially ad hoc, factual inquiries" as to the economic impact of the regulation, its interference with reasonable investment-backed expectations, and the character of the governmental action. See id. at 348-49, 106 S.Ct. 2561.
The Supreme Court "ha[s] ma[d]e it quite clear that the mere assertion of regulatory jurisdiction does not constitute a regulatory taking." United States v. Riverside Bayview Homes, Inc., 474 U.S. 121, 126, 106 S.Ct. 455, 88 L.Ed.2d 419 (1985).
Id. at 126-27, 106 S.Ct. 455. See also Hodel v. Virginia Surface Mining & Reclamation Ass'n, Inc., 452 U.S. 264, 296-97, 101 S.Ct. 2352, 69 L.Ed.2d 1 (1981). In Hodel the Court had earlier stated that the Surface Mining Act did not "categorically prohibit surface coal mining, it merely regulate[d] the conditions under which such operations may be conducted." It noted that "[t]here is no reason to suppose that `mere enactment' of the Surface Mining Act has deprived appellees of economically viable use of their property." Hodel, 452 U.S. at 296-97, 101 S.Ct. 2352. The Supreme Court subsequently held in Pennell v. City of San Jose, 485 U.S. 1, 108 S.Ct. 849, 99 L.Ed.2d 1 (1988), that a property owner's facial challenge to a city rent control ordinance provision requiring a hearing officer to take into account the "hardship to a tenant" was not ripe for
Before we can determine whether the Owners' takings claim in this case is ripe, we thus must examine the particular provisions of the statutes we are faced with in order to determine whether or not they necessarily foreclose economically viable use by the Owners or whether they provide for a discretionary decision permitting such use. The most relevant provisions in the statutes before us read as follows:
12 U.S.C. § 1715l note (1994) (ELIHPA).
12 U.S.C. § 4101(a) (Supp.1997) (LIHPRHA). Examination of these statutes shows that neither statute denies an owner the ability to prepay its mortgage loan; rather, both statutes provide that an owner may prepay, albeit only in accordance with a plan of action approved by the Secretary. The clear implication is, therefore, that permission to prepay may be granted. ELIHPA and LIHPRHA both outline procedures and criteria for HUD to use in order to determine whether prepayment should be allowed. See id. §§ 1715l note, 4107-47; 24 C.F.R. §§ 248.101-248.183. HUD is expressly granted the authority to approve prepayment proposals. See 12 U.S.C. §§ 4108, 4114. In fact, HUD has approved prepayment proposals on three of the eight occasions on which such approval was sought. ELIHPA and LIHPRHA thus set up a scheme for regulating how and when mortgage notes may be prepaid. As such, both ELIHPA and LIHPRHA "merely assert regulatory jurisdiction" over the Owners' ability to prepay their mortgage loans. Their enactment cannot therefore constitute a taking of any property rights.
We next must consider whether the Owners' claim that the statutes, as applied, took their property rights is ripe for adjudication. The Supreme Court has stated that for an "as applied" takings challenge to become ripe, the government entity charged with implementing the statute, regulation, or ordinance at issue must have reached a "final decision" regarding its application to the property at issue. See Suitum, 520 U.S. at 734, 117 S.Ct. 1659; MacDonald, 477 U.S. at 348-49, 106 S.Ct. 2561; Williamson County Regional Planning Comm'n v. Hamilton Bank of Johnson City, 473 U.S. 172, 186, 105 S.Ct. 3108, 87 L.Ed.2d 126 (1985). This rule is "compelled by the very nature of the inquiry
This means that where a government entity provides procedures for obtaining such a final decision, a takings claim will not be ripe until the property Owner complies with those procedures.
None of the Owners in this case have alleged that they followed the procedures provided for obtaining HUD permission to prepay their mortgage loans, much less that they have received final decisions from HUD denying them such permission.
The Owners cite Suitum to support their argument that their takings claim is ripe. Suitum does not help the Owners, however. In that case, as the Supreme Court pointed out, there was no question about how the regulations at issue applied to the land in question. See Suitum, 520 U.S. at 739, 117 S.Ct. 1659. Moreover, the Court stated that the agency had no discretion to exercise over Suitum's right to use her land. See id. at 739-40, 117 S.Ct. 1659. The facts of this case are quite different.
C. Class Certification
The Owners lastly appeal the trial court's order denying the certification of a class defined as all persons and entities who are entitled to exercise contractually bargained-for rights to prepay their HUD-insured mortgage loans, excepting those similarly situated owners with cases currently pending. This issue is moot in light of our holdings that the government is not liable to the Owners for breach of contract and that their takings claim is not ripe for review. We therefore need not consider the correctness of that order.
The trial court correctly determined that the United States was not in privity of contract with the Owners and therefore could not be held liable for breach of such contracts; we therefore affirm its grant of summary judgment against the Owners on its breach of contract claim. The trial court also correctly determined that the Owners' takings claim is not ripe for review; we affirm its grant of summary judgment against the Owners and its dismissal of their complaint. In light of our holdings that the government is not liable to the Owners for breach of contract and that their takings claim is not ripe for review, the petition for class certification is moot.
RADER, Circuit Judge, concurring.
Relying on Cienega Gardens v. United States, 162 F.3d 1123 (Fed.Cir.1998), this court determines that the United States was not in privity of contract with the low-income housing owners. As in Cienega Gardens, this court detects no privity because the prepayment rights, which Congress unilaterally withdrew, appeared in mortgage agreements but not in regulatory agreements with the United States. During the present case, this court learned that the United States had argued before the United States District Court for the Eastern District of Pennsylvania that the regulatory agreements with the owners and the mortgage notes were a single transaction. See United States' Memorandum in Opposition to the Defendants' Motion for Summary Judgment, United States v. David, No. 94-7191, 1995 WL 57502 (E.D.Pa.1995). In my judgment, this revelation undermines this court's reliance on Cienega Gardens, which itself looks suspect in the context of the arguments the United States made in the Pennsylvania District Court.
In David, the United States claims that the defendant property owner violated the NHA regulations and the regulatory agreement between HUD and the owner by withdrawing funds from HUD-insured projects. In response to defendant's motion for summary judgment, the United States reveals its position on the NHA mortgage documents:
These statements in David cast a very different light on the United States' arguments that HUD did not intend to be