Evergreen Square of Cudahy v. Wisconsin Housing & Economic Development Authority
2017 U.S. App. LEXIS 2845
7th Cir.2017Background
- Three Wisconsin property owners (Evergreen Square, Grant Park, Washington Square) participating in HUD Section 8 HAP contracts sued the Wisconsin Housing & Economic Development Authority ("Wisconsin Housing") for allegedly breaching HAP contracts by withholding automatic annual rent adjustments, requiring comparability studies, and applying a 1% reduction for non-turnover units. Wisconsin Housing brought third-party claims against HUD; district court granted summary judgment for Wisconsin Housing and dismissed HUD claims as moot. Plaintiffs appealed.
- Section 8 HAP contracts set maximum monthly rents and require annual (or more frequent) adjustments tied to HUD-published annual adjustment factors and fair market rents; Congress added comparability constraints in 1988 and shifted burdens in 1994.
- HUD publishes annual adjustment factor tables; after 1994 it published separate turnover and non-turnover tables, the latter being 1% lower as mandated by statute. HAP contracts at issue incorporated HUD factors or 24 C.F.R. Part 888.
- Washington Square’s contract expressly required the owner to request annual adjustments; Wisconsin Housing only approved adjustments when requests were submitted (2006–2012). Washington Square sometimes received increases when it requested them.
- Plaintiffs argued (1) Washington Square should be excused from the request condition because enforcement would cause disproportionate forfeiture or because Wisconsin Housing repudiated the contract by requiring comparability studies, and (2) the 1% non-turnover reduction is arbitrary and breaches the HAP contracts.
- The district court held (and the Seventh Circuit affirmed) that (a) the request condition was a material, enforceable condition precedent and was not excused, (b) Wisconsin Housing’s implementation of comparability requirements did not excuse performance, and (c) the 1% non-turnover reduction was lawful because the contracts incorporated the 1994 statutory changes or required using HUD-published tables (so Wisconsin Housing merely followed HUD).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability of contract condition requiring owner to request annual adjustment | Washington Square: requesting requirement should be excused to avoid "disproportionate forfeiture" (Restatement §229) | Wisconsin Housing: requirement is a material, enforceable condition precedent; owner failed to request increases | Condition precedent enforceable; no abuse of discretion in refusing to apply §229; plaintiff not excused |
| Disproportionate forfeiture doctrine applicability | Washington Square: strict enforcement would forfeit ~ $400,000; doctrine should excuse noncompliance | Wisconsin Housing: doctrine discretionary, condition is material, plaintiff knew practice | Doctrine inapplicable; no forfeiture because owner did not reasonably rely on unrequested increases |
| Repudiation / breach by requiring comparability studies | Owners: Wisconsin Housing required comparability studies and thus breached/repudiated, excusing condition | Wisconsin Housing: where contracts renewed after 1994 amendments, comparability rules were incorporated; also did not prevent requests | No repudiation excusing request; Haddon (similar) supports that breach doesn’t excuse condition absent prevention of performance; here requests were processed when made |
| 1% reduction for non-turnover units | Owners: 1% reduction is arbitrary, not tied to fair market rents, breaches contracts | Wisconsin Housing: contracts incorporate statute/require HUD-published factors; HUD sets the tables; WIHA had no discretion | Reduction lawful: contracts renewed after 1994 incorporated statutory change, and Authority was bound to use HUD-published factors; no breach |
Key Cases Cited
- Cisneros v. Alpine Ridge Group, 508 U.S. 10 (Sup. Ct. 1993) (interpreting limits on formula-based increases under Section 8 and Secretary’s discretion to use comparability studies)
- One & Ken Valley Hous. Group v. Maine State Hous. Auth., 716 F.3d 218 (1st Cir. 2013) (explaining HUD’s notice implementation and comparability assumptions)
- Haddon Hous. Assocs. v. United States, 711 F.3d 1330 (Fed. Cir. 2013) (holding HUD’s insistence on comparability studies breached older HAP contract but did not excuse owner’s obligation to request increases)
- Grable & Sons Metal Prods. v. Darue Eng’g & Mfg., 545 U.S. 308 (Sup. Ct. 2005) (federal-question jurisdiction where state-law claim requires resolution of substantial federal issue)
- United States v. Kimbell Foods, 440 U.S. 715 (Sup. Ct. 1979) (federal law governs rights involving nationwide federal programs; choice between state law and federal rule is a policy decision)
- Price v. Pierce, 823 F.2d 1114 (7th Cir. 1987) (applying federal common law to disputes over contracts integral to federally subsidized housing objectives)
- Norfolk & W. Ry. Co. v. Am. Train Dispatchers Ass’n, 499 U.S. 117 (Sup. Ct. 1991) (laws in existence at contract formation become part of the contract)
- Emerald Invs. Ltd. P’ship v. Allmerica Fin. Life Ins. & Annuity Co., 516 F.3d 612 (7th Cir. 2008) (party electing continued performance after breach remains bound to contract obligations)