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Greenleaf Limited Partnership v. Illinois Housing Development Authority

September 30, 2010

GREENLEAF LIMITED PARTNERSHIP AND SANDBURG VILLAGE APARTMENTS, PLAINTIFFS,
v.
ILLINOIS HOUSING DEVELOPMENT AUTHORITY, DEFENDANT.



The opinion of the court was delivered by: Virginia M. Kendall, United States District Judge

Judge Virginia M. Kendall

MEMORANDUM OPINION AND ORDER

Greenleaf Limited Partnership and Sandburg Village Apartments (collectively, "Plaintiffs") filed suit against the Illinois Housing Development Authority ("IHDA") alleging that IHDA breached their Housing Assistance Payments Contracts ("HAP Contracts) by: (1) failing to increase contract rents or by increasing contract rents by less than the amount called for in the HAP contract; (2) reducing the annual adjustment factor by .01 for units occupied by the same family in consecutive years; and (3) requiring the plaintiffs to submit rent comparability studies. Pursuant to Federal Rule of Civil Procedure 56 and Local Rule 56.1, Plaintiffs and IHDA have filed cross-motions for partial summary judgment on the issue of whether IHDA may invoke the HAP Contracts' Overall Limitation Provision to limit its damages for breach of contract. For the reasons stated herein, Plaintiffs' Motion for Partial Summary Judgment is granted and IHDA's Motion for Partial Summary Judgment is denied.

STATEMENT OF UNDISPUTED FACTS*fn1

Plaintiff Greenleaf Limited Partnership ("Greenleaf") is an Illinois Limited Partnership that owns Greenleaf Apartments, a 321-unit multifamily housing rental project located in Bolingbrook, Illinois. (IHDA 56.1 Resp. ¶¶ 1-2.) Plaintiff Sandburg Village Apartments ("Sandburg") is also an Illinois Limited Partnership that owns a 128-unit multifamily rental housing project named Sandburg Village Apartments in Galesburg, Illinois. (IHDA 56.1 Resp. ¶¶ 3-4.) Defendant IHDA is a Public Housing Agency as defined by the United States Housing Act of 1937, 42 U.S.C. § 1437(a), and a State Agency, as defined by 24 C.F.R. § 883.302 (2007). (IHDA 56.1 Resp. ¶ 5.) This Court has federal question jurisdiction in this case pursuant to 28 U.S.C. § 1331 because the case arises under Section 8 of the United States Housing Act of 1937, 42 U.S.C. § 1437(f) ("Section 8"). (IHDA 56.1 Resp. ¶ 6.)

Greenleaf Apartments is a complex built pursuant to the United States Department of Housing and Urban Development's ("HUD") Section 8 Program for State Housing Agencies. (IHDA 56.1 Resp. ¶ 7.) Greenleaf Apartments' original owner entered into a HAP Contract with IHDA in five stages between October 1, 1981 and June 1, 1982 ("the Greenleaf Contract"). (IHDA 56.1 Resp. ¶ 8-9; GS 56.1 Resp. ¶ 11.) HAP Contracts like this provide a means of subsidizing the rent of low-income tenants under Section 8. (GS 56.1 Reply ¶ 23.) In 2002, IHDA approved the assignment of the Greenleaf Contract from the original owner to Greenleaf. (IHDA 56.1 Resp. ¶ 12.)

Sandburg Village Apartments was also built pursuant to HUD's Section 8 Program. (IHDA 56.1 Resp. ¶ 17.) Section 8 has subsidized rents at Sandburg Village Apartments since IHDA entered into a HAP Contract with Sandburg in six stages between October 1, 1981 and March 1, 1981 ("the Sandburg Contract"). (GS 56.1 Resp. ¶¶ 6, 10.)

Both the Greenleaf and the Sandburg Contracts establish rent amounts ("Contract Rents") and obligate IHDA to make assistance payments to the Plaintiffs in amounts equal to the difference between the Contract Rents and the payments made by tenants. (GS 56.1 Resp. ¶ 12.) Section 2.7(b)(1) of the Greenleaf Contract provides that "[u]pon request from the Owner to the HFA Contract Rents will be adjusted on the anniversary date of the Contract in accordance with 24 CFR Part 88 and this contract." (IHDA 56.1 Exhibit B, Part II at p. 10.) Section 1.9(b)(2) of the Sandburg Contract contains similar language: "[o]n each anniversary date of the Contract, the Contract Rents shall be adjusted by applying the applicable Automatic Annual Adjustment Factor most recently published by the Government." (IHDA 56.1 Exhibit A at p. 7.) Both Contracts state that the annual adjustment may be "upward or downward, as may be appropriate." (GS 56.1 Resp. ¶¶ 14-15.)

Section 2.7(d) of Greenleaf Contract and Section 1.9(d) of the Sandburg Contract also contain Overall Limitation Clauses providing that "[n]otwithstanding any other provision of this Contract, adjustments after Contract execution or cost certification, where applicable, shall not result in material differences between the rents charged for assisted and comparable assisted units, as determined by the HFA." (GS 56.1 Reply ¶ 24.) An HFA is a "housing finance agency"-in this case, the relevant HFA is Defendant IHDA. (IHDA 56.1 Exhibit A at p.1.) These Overall Limitation Clauses are mandated by Section 8. (GS 56.1 Resp. ¶ 17.)

In 1987, Congress amended Section 8 to ratify the use of comparability studies to enforce the Overall Limitation Clauses ("1987 Amendments"). (GS 56.1 Reply ¶ 25.) Those Amendments have not been repealed and provide, in relevant part, that "[i]f the Secretary or appropriate state agency does not complete and submit to the owner a comparability study not later than 60 days before the anniversary date of the assistance contract under this section, the automatic annual adjustment factor shall be applied." (GS 56.1 Resp. ¶ 19.) Congress again altered Section 8 in 1994 to reduce the adjustment factor for Non-Turnover Units (those occupied by the same tenant during the previous year) by .01 ("1994 Amendments"). (GS 56.1 Reply ¶ 26.) The 1994 Amendments also state that "where the maximum monthly rent . . . to be adjusted using an annual adjustment factor exceeds the fair market rental for an existing dwelling unit in the market area, the Secretary shall adjust the rent only to the extent that the owner demonstrates that the adjusted rent would not exceed the rent for an unassisted unit of similar quality, type, and age in the same market area, as determined by the Secretary." (See 42 U.S.C. 1437f(c)(2)(A); GS 56.1 Reply ¶ 26.)

Following the adoption of the 1994 Amendments, HUD issued Notice H 95-12 to implement the Amendments and impose additional requirements. (GS 56.1 Resp. ¶ 21.) Notice H 95-12 stipulated that rent increases "would only be allowed if owners submitted comparability studies prior to the HAP contract anniversary dates." (GS 56.1 Resp. ¶ 21.) Prior to the issuance of Notice H 95-12, rents at Greenleaf Apartments and Sandburg Village Apartments increased annually. (GS 56.1 Resp. ¶ 22.) Since March 7, 1995, IHDA has only approved one rent increase at Greenleaf Apartments, effective October 1, 2002. (IHDA 56.1 Resp. ¶ 14.) With respect to Sandburg Village Apartments, IHDA approved rent increases in 1998, 2000, 2001 and 2002, but has not approved any other increases since 1994. (IHDA 56.1 Resp. ¶ 20.) IHDA has not performed a rent comparability study or made any determination of the rents charged for units comparable to those at Greenleaf Apartments since at least 2002, and has not performed any such study or made such a determination with respect to Sandburg Village Apartments since 1991. (IHDA 56.1 Resp. ¶¶ 16, 22.)

STANDARD OF REVIEW

On cross-motions for summary judgment, each movant must satisfy Federal Rule of Civil Procedure 56's requirements. See Cont'l Cos. Co. v. Northwestern Nat'l Ins. Co., 427 F.3d 1038, 1041 (7th Cir. 2005). Summary judgment is proper when "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c). In determining whether a genuine issue of fact exists, the Court must view the evidence and draw all reasonable inferences in favor of the party opposing the motion. See Bennington v. Caterpillar Inc., 275 F.3d 654, 658 (7th Cir. 2001); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). However, the Court will "limit its analysis of the facts on summary judgment to evidence that is properly identified and supported in the parties' [Local Rule 56.1] statement." Bordelon v. Chicago Sch. Reform Bd. of Trustees, 233 F.3d 524, 529 (7th Cir. 2000). Where a proposed statement of fact is supported by the record and not adequately rebutted, the court will accept that statement as true for purposes of summary judgment. An adequate rebuttal requires a citation to specific support in the record; an unsubstantiated denial is not adequate. See Albiero v. City of Kankakee, 246 F.3d ...


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