Before Mayer, Chief Judge, Archer, Senior Circuit Judge, and Schall, Circuit Judge.
The opinion of the court was delivered by: Schall, Circuit Judge.
Appealed from: United States Court of Federal Claims
Dissenting opinion filed by Senior Circuit Judge ARCHER.
The United States appeals from the judgment of the United States Court of Federal Claims in a case arising out of contracts for the construction, financing, and regulation of low-income housing. Cienega Gardens v. United States, No. 94-1 C (Fed. Cl. June 18, 1997). The court ruled, on summary judgment, that the enactment of the Emergency Low Income Housing Preservation Act of 1987, Pub. L. No. 100-242, 101 Stat. 1877 (1987) (pertinent parts reprinted in 12 U.S.C. § 1715l note (1989) (Preservation of Low Income Housing)) (hereinafter "ELIHPA"), and the enactment of the Low-Income Housing Preservation and Resident Homeownership Act of 1990, Pub. L. No. 101-625, 104 Stat. 4249 (1990) (codified at 12 U.S.C. § 4101 et seq.) (hereinafter "LIHPRHA"), breached contracts between the plaintiffs, owners of low-income housing, and the Department of Housing and Urban Development ("HUD"). See Cienega Gardens v. United States, 33 Fed. Cl. 196, 202, 210 (1995); Cienega Gardens v. United States, 37 Fed. Cl. 79, 80, 84 (1996). Specifically, the court determined that the enactment of ELIHPA and LIHPRHA breached the contracts by prohibiting the prepayment of the plaintiffs' mortgage loans after twenty years without HUD's approval. Following a trial on damages, the court awarded damages in the total amount of $3,061,107 to plaintiffs/cross-appellants, Sherman Park Apartments, Independence Park Apartments, Pico Plaza Apartments, and St. Andrews Gardens. See Cienega Gardens v. United States, 38 Fed. Cl. 64, 66 (1997). *fn1 Because we conclude that the requisite privity of contract did not exist between the Owners and HUD with respect to prepayment of the mortgage loans, so as to make HUD liable to the Owners for breach of contract, we vacate and remand, with the instruction that the breach of contract claims be dismissed.
In the 1950s and 1960s, in an attempt to encourage private developers to construct, own, and manage low- and moderate-income housing, Congress enacted legislation that allowed the Federal Housing Administration, and later HUD, *fn2 to provide mortgage insurance. This insurance enabled private lending institutions to provide low-interest mortgages to project developers. See Cienega Gardens, 33 Fed. Cl. at 202. Under two programs instituted under the National Housing Act of 1934, along with the mortgage insurance, developers also received certain financial incentives. See id.
Prior to 1968, owners/developers received below-market mortgage interest rates through a program referred to as "Section 221(d)(3)," 12 U.S.C. § 1715l(d)(3). See Cienega Gardens, 33 Fed. Cl. at 202 (citing Pub. L. No. 83-560, 68 Stat. 590, 597 (1954), amended by, Pub. L. No. 87-70, 75 Stat. 149 (1961)). Owners obtaining mortgages after 1968 received market-rate mortgages with an interest subsidy through a program referred to as "Section 236," 12 U.S.C. § 1715z-1. See Cienega Gardens, 33 Fed. Cl. at 202 (citing Pub. L. No. 90-448, § 201(a), 82 Stat. 476, 498, 499 (1968)). Owners were expected to pass the benefits of the program in which they participated on to their tenants in the form of lower rents. See id. at 202-03.
Generally, when obtaining a HUD-insured mortgage under either of the above programs, an owner executed a deed of trust note payable to a private lending institution. See id. at 203. The note evidenced a loan made to the owner pursuant to a loan agreement between the owner and the lending institution that contemplated advances to the owner. Payment of the indebtedness evidenced by the note was secured by a deed of trust, or a mortgage, on the subject property. The note and deed of trust were printed on forms approved by HUD, and HUD endorsed the note as part of its mortgage insurance. See id. The repayment term of the loan was generally forty years. See id. Simultaneously, in exchange for HUD's endorsement for insurance (pursuant to a commitment for insurance), the owner entered into a "regulatory agreement" with HUD, under which the owner agreed, among other things, to certain "affordability restrictions," including restrictions on the income levels of tenants, restrictions on allowable rental rates, and restrictions on the rate of return the owner could receive from the housing project. See id. The regulatory agreement and the mortgage insurance provided by HUD were to remain in effect so long as the loan remained outstanding. See id.
While the regulatory agreement made no mention of the right to prepay the outstanding loan, a rider to the deed of trust note permitted the owner to prepay the loan in full, without HUD approval, after twenty years. See id. Developers could not prepay their loans prior to twenty years, except under certain conditions, including HUD approval. See id. The prepayment rules in the riders reflected contemporaneous HUD regulations, see 24 C.F.R. §§ 221.524(a)(ii), 236.30(a)(i) (1970), governing the Section 221(d)(3) and Section 236 programs. See Cienega Gardens, 33 Fed. Cl. at 203. By prepaying the outstanding loan, an owner could terminate HUD's affordability restrictions on the property. The owner then could convert the property into a conventional rental property and charge market rental rates, thereby obtaining a greater return on the investment.
In the late 1980s, concerned that a large number of owners might shortly exercise their prepayment options, thereby reducing the supply of low-income rental housing, Congress enacted ELIHPA. See id. ELIHPA took effect on February 5, 1988. See 12 U.S.C. § 1715l note (1989) (Preservation of Low Income Housing, § 234). It placed a two-year moratorium on mortgage prepayments to allow Congress time to devise a permanent solution to the possible shortage of low-income housing, see 12 U.S.C. § 1715l note (1994) (Preservation of Low Income Housing, § 221(b)). See Cienega Gardens, 33 Fed. Cl. at 203-04. ELIHPA did not prohibit prepayments altogether, however. Rather, it required HUD approval prior to prepayment, even after twenty years. See 12 U.S.C. § 1715l note (1994) (Preservation of Low Income Housing, §§ 221(a), 222, 225); Cienega Gardens, 33 Fed. Cl. at 204.
In 1990, ELIHPA was replaced by LIHPRHA, which took effect on November 28, 1990. See 12 U.S.C. § 4101 note (1994) (Historical and Statutory Notes: Effective Dates). LIHPRHA made the moratorium on prepayment, contained in ELIHPA, permanent and authorized HUD to provide incentives to owners to encourage them to maintain the affordability restrictions on their properties and not prepay their mortgage loans. See Cienega Gardens, 33 Fed. Cl. at 204-05 (detailing the limited prepayment scheme left open under LIHPRHA). The key change caused by the enactment of ELIHPA and LIHPRHA was that owners could not prepay their mortgage loans after twenty years without HUD approval, as had been permitted under the riders to deed of trust notes and 24 C.F.R. §§ 221.524 and 236.30 (1970). This change made it more difficult for owners to convert their properties into conventional rental properties and thereafter charge market-rate rents.
In 1996, Congress enacted the Housing Opportunity Program Extension Act of 1996 ("HOPE"), Pub. L. No. 104-120, 110 Stat. 834 (March 28, 1996). HOPE allows owners to prepay their mortgages without prior HUD approval, so long as the owners agree not to raise rents for 60 days. See Cienega Gardens, 38 Fed. Cl. at 70; H.R. Rep. No. 104-34 at 4, 47 (1995) (effecting H.R. 2099, 104th Cong. (1995)). HOPE is not before us in this case. The Owners' claims all arose as a result of ELIHPA and LIHPRHA.
Each of the Owners is a general or limited partnership that owns a low-income housing project in California and that participates in the Section 221(d)(3) or Section 236 program. See Cienega Gardens, 33 Fed. Cl. at 205. On January 3, 1994, a first set of Owners filed suit against the government in the Court of Federal Claims, seeking damages for breach of contract, just compensation under the Fifth Amendment for alleged takings of property, and additional compensation based on alleged unlawful administrative actions. *fn3 See id. at 202. In their breach of contract claims, the Owners alleged that the enactment of ELIHPA and LIHPRHA breached contracts with HUD which they claimed allowed them to prepay their mortgage loans after twenty years without HUD approval. See id. at 205. On March 8, 1994, the government moved to dismiss; on the following day, the Owners moved for summary judgment. Considering matters outside the pleadings, the court treated the government's motion to dismiss as a motion for summary judgment, in accordance with Rule 12(b) of the Court of Federal Claims ("RCFC"). See id. at 202.
In a March 27, 1995 opinion, the Court of Federal Claims denied the government's motion and granted the Owners' motion for summary judgment on the breach of contract claims. *fn4 First, the court addressed the government's argument that there was no privity of contract between HUD and the Owners. See id. The government argued that the Owners' claims were based on prepayment provisions contained in the deed of trust notes between the Owners and their lenders, not on provisions in the regulatory agreements between HUD and the Owners. See id. The government claimed that there was no privity of contract between HUD and the Owners with respect to prepayment because HUD was not a party to the deed of trust notes, which contained the prepayment provisions that allegedly had been breached. See id. Accordingly, the government could not be liable to the Owners for breach of contract. The court determined, however, that the fact that HUD was not a named party to the deed of trust notes, except as an endorser with respect to insurance, was not dispositive of the privity of contract issue. See id. at 210. The court held that all of the documents at issue had to be analyzed together in determining whether privity of contract existed:
"Thus, contrary to the defendant's assumptions, the '"express contract"' upon which plaintiffs base their claim is not to be found solely in either the deed of trust note or the regulatory agreement. The two documents, which were signed contemporaneously, must be read together in order to determine the full intentions of the parties when they initially entered into their relationship." Id.
The court determined that "when the parties [i.e., HUD and the Owners] . . . entered into the regulatory agreement they also intended to be mutually bound by the prepayment rules set forth in the rider to the contemporaneous deed of trust note," and, therefore, privity of contract existed. Id.
The court then concluded that the Owners had established a breach of contract:
"By signing the regulatory agreement and the deed of trust note to which the regulatory agreement referred, plaintiffs promised to construct and maintain housing in accordance with the HUD's specifications, to accept only low- or moderate-income persons as tenants, to charge no higher rents than those permitted by HUD, to distribute profits to shareholders in accordance with specified limitations, to make timely payments on their mortgages and to maintain cash reserves to self-insure against mortgage default. These promises were made expressly to and for the benefit of the government, not third parties. In exchange, the government agreed to endorse and insure the mortgages (allowing plaintiffs to obtain either subsidized commercial loans or loans at favorable interest rates) and to allow plaintiffs to free themselves of HUD's regulatory strictures after the first 20 years. Accordingly, the court finds that Congress, by enacting ELIHPA and LIHPRHA, breached the government's contracts with plaintiffs with respect to their prepayment rights." Id.
The court rejected the government's arguments that the sovereign acts doctrine, *fn5 the doctrine of unmistakability, *fn6 and lack of contracting authority *fn7 prevented liability. See id. at 211-13. Given its decision that HUD had breached its contracts with the Owners and the lack of evidence concerning damages, the court stated that a damages trial would be necessary. See id. at 213.
On April 10, 1995, the government moved for reconsideration of the breach of contract issue. See Cienega Gardens v. United States, No. 94-1C, slip op. at 1 (Fed. Cl. Apr. 13, 1995). The government argued that the riders to the deed of trust notes could be interpreted as establishing prepayment terms between the private lending institution and the Owners rather than establishing prepayment terms between HUD and the Owners, as the court had determined. See id. The government argued that summary judgment was inappropriate given these two possible interpretations, which it asserted created an ambiguity. See id. The court rejected the argument and denied the motion for reconsideration. See id. at 2, 4.
In an April 1, 1996 order, the Court of Federal Claims joined twenty-one "new plaintiffs" to the suit. See Cienega Gardens, 37 Fed. Cl. at 80. *fn8 The new plaintiffs' complaint raised the same three claims that had been presented by the original plaintiffs. See id. The government moved for summary judgment on the breach of contract and alleged unlawful administrative action claims, while the new plaintiffs moved for summary judgment on the breach of contract claims. See id. Based on its previous decision, the court granted the new plaintiffs' motion for summary judgment on the breach of contract claims. *fn9 See id. at 80-81, 84.
On November 18-21, 1996, the Court of Federal Claims held a trial to quantify damages. See Cienega Gardens, 38 Fed. Cl. at 66. As noted in footnote 1 above, the parties selected four "model plaintiffs" for purposes of litigating the damages issue. See id. at 67 n.3. The model plaintiffs were (1) Sherman Park Apartments, owned by the Sherman partnership, (2) Independence Park Apartments, owned by the Independence partnership, (3) St. Andrews Gardens, owned by the St. Andrews partnership, and (4) Pico Plaza Apartments, owned by the Pico partnership. See id. Each of these projects is located in Los Angeles. See id. at 69. The court held that the model plaintiffs were entitled to breach of contract damages in the total amount of $3,061,107. See id. at 66, 89. In so holding, the court ruled that the Los Angeles Rent Stabilization Ordinance ("LARSO"), Ordinance No. 152,120 (codified at Ch. XV, Los Angeles Municipal Code), was preempted by LIHPRHA because LARSO conflicted with the federal scheme enacted through LIHPRHA. See Cienega Gardens, 38 Fed. Cl. at 82-85. The court thus determined that LARSO, which limits rental rates on certain covered properties, did not bar or limit recovery for the government's breach of contract. See id. at 85.
On May 15, 1997, the court ordered entry of judgment based on its decisions and stayed all proceedings on the claims of the remaining plaintiffs pending appeal. See Cienega Gardens v. United States, No. 94-1 C (Fed. Cl. May 15, 1997). Judgment was entered accordingly on June 18, 1997. See Cienega Gardens, No. 94-1 C (Fed. Cl. June 18, 1997). The government appealed on August 20, 1997. On September 8, 1997, Sherman Park Apartments, Independence Park Apartments, Pico Plaza Apartments, and St. Andrews Gardens, the four model plaintiffs, cross-appealed, challenging the court's dismissal of their claims for damages based on alleged unlawful administrative actions. *fn10 We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(3).
Summary judgment is appropriate if "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." RCFC 56(c). We review a grant of summary judgment by the Court of Federal Claims de novo to determine whether the summary judgment standard has been correctly applied. See Winstar Corp. v. United States, 64 F.3d 1531, 1539 (Fed. Cir. 1995) (en banc), aff'd, 518 U.S. 839 (1996) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986)); Southfork Sys., Inc. v. United States, 141 F.3d 1124, 1131 (Fed. Cir. 1998).
On appeal, the government raises three challenges to the decision of the Court of Federal Claims. First, it asserts that the court erred in holding that the enactment of ELIHPA and LIHPRHA breached contracts between HUD and the Owners *fn11 under which the Owners enjoyed an unrestricted right to prepay their HUD-insured mortgage loans twenty years after HUD's final endorsement of the loans for insurance. The government argues that HUD was not a party to any agreement that granted the Owners an unrestricted prepayment right and that therefore it was not in privity with the Owners. It contends that the twenty-year unrestricted prepayment right appeared in the deed of trust notes, which HUD endorsed but to which it was not a party, and that neither the insurance commitments issued by HUD nor the regulatory agreements between HUD and the Owners contained or referenced any prepayment terms or conditions. The government argues that, because there was no privity of contract between HUD and the Owners, HUD could not be liable to the Owners for beach of contract. Second, the government challenges several aspects of the damages award. Third, it argues that the court erred in holding that LARSO was preempted by ELIHPA and LIHPRHA. Accordingly, the government urges, LARSO would have limited the rents that the Owners could have charged after prepayment, thereby reducing the amount of lost profits suffered as a result of any breach of contract. Because we resolve this appeal in favor of the government based on the issue of contractual liability, we do not address the government's second and third arguments.
Under the Tucker Act, the Court of Federal Claims has jurisdiction over claims based on "any express or implied contract with the United States." 28 U.S.C. § 1491(a)(1) (1994). We have stated that "[t]o maintain a cause of action pursuant to the Tucker Act that is based on a contract, the contract must be between the plaintiff and the government . . . ." Ransom v. United States, 900 F.2d 242, 244 (Fed. Cir. 1990). In other words, there must be privity of contract between the plaintiff and the United States. See Erickson Air Crane Co. v. United States, 731 F.2d 810, 813 (Fed. Cir. 1984) ("The government consents to be sued only by those with whom it has privity of contract."). The effect of finding privity of contract between a party and the United States is to find a waiver of sovereign immunity. See National Leased Hous. Ass'n v. United States, 105 F.3d 1423, 1436 (Fed. Cir. 1997) (National Leased Housing). Whether a contract exists is a mixed question of law and fact. See Ransom, 900 F.2d at 244. Since the parties do not dispute the relevant facts, the ...