HENRY HOUSING LIMITED PARTNERSHIP v. United States
1:10-cv-00226
| Fed. Cl. | Jun 4, 2015Background
- Fifty-six closely related limited‑partnership plaintiffs (same general partners and counsel) sued the United States in the Court of Federal Claims for breach of contract and for just compensation under the Fifth Amendment arising from alleged repudiation of prepayment rights under Post‑1979 FmHA Rural Development loan contracts.
- The 56 actions were assigned to a single judge and four bellwether cases were selected; settlement discussions produced near‑term settlements for the bellwethers while other cases remain pending.
- Plaintiffs created the Weaver Rural Housing Qualified Settlement Trust (the Weaver Trust) to receive and hold recoveries from the individual cases, allocate shared litigation expenses, and manage distributions only after all claims are resolved.
- Plaintiffs sought court approval to treat the Trust as a qualified settlement fund under I.R.C. § 468B (and Treasury Reg. § 1.468B‑1) to avoid immediate tax consequences for individual partners when settlements are paid into the Trust but distributions occur in later tax years.
- The Government did not object to establishment of the Trust but took no position on its specific terms; the Trust was executed under North Carolina law and an independent trustee was appointed to administer it.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Weaver Trust satisfies Treas. Reg. § 1.468B‑1(c)(2) — i.e., is established to resolve claims "resulting from an event (or related series of events)" giving rise to breach of contract/violation claims | The 56 suits arise from closely related facts and identical statutory/contract frameworks (Post‑1979 FmHA loans and the same alleged legislative repudiation); pooling proceeds in one QSF is efficient and appropriate | Government did not oppose creation of a QSF and took no position on the Trust's specific terms | Court held claims are sufficiently related to satisfy § 1.468B‑1(c)(2); approval granted |
| Whether the Trust meets the regulatory and state‑law formalities (order/approval, continuing jurisdiction, and being a trust under state law or asset segregation) | The Trust was created conditioned on court approval, is governed by a North Carolina trust agreement, and will be subject to court jurisdiction | Government raised no objection to formalities | Court found the Trust complies with § 1.468B‑1(c)(1) and (3) and will retain jurisdiction |
| Whether separate transactions for each plaintiff (precluding joinder) prevent use of a single QSF for aggregated recoveries | Plaintiffs argued that despite separate contracts, the claims are closely related and judicial assignment to one judge and bellwether process justify a collective settlement vehicle | Government did not contest use of a collective trust; no contrary argument persisted | Court acknowledged separate transactions but concluded the relatedness of claims satisfied the QSF requirement despite lack of joinder under RCFC 20(a) |
| Oversight and administration requirements for the Trust once approved | Plaintiffs proposed an independent trustee, annual reporting, and court retention of jurisdiction to handle successor trustee appointments, litigation notices, tax issues, and termination petitions | Government had no objection to the proposed oversight requirements | Court approved the administrative structure, required annual financial reports (first due May 15, 2016), and retained jurisdiction until termination |
Key Cases Cited
- Franconia Assocs. v. United States, 61 Fed. Cl. 335 (court recognized limits on permissive joinder under RCFC 20(a) while noting related common issues)
- United States v. Brown, 348 F.3d 1200 (10th Cir.) (upheld Treasury authority under I.R.C. § 468B(g) and recognized scope of regulations governing settlement funds)