United Communities, LLC v. United States
20-1220
| Fed. Cl. | Jul 23, 2021Background
- The Military Housing Privatization Initiative (MHPI) enabled DoD to privatize military housing; the Air Force/Army issued a solicitation for Joint Base McGuire‑Dix and awarded a 50‑year lease/operating agreement to United Communities in 2006.
- Under the contract plaintiff renovates, owns, operates, and maintains privatized housing and must cap tenant rent at each service member’s Basic Allowance for Housing (BAH), a term defined by reference to 37 U.S.C. § 403 and DoD’s annual BAH rates.
- Congress amended § 403 in the 2015–2016 NDAAs to authorize percentage‑based reductions to BAH (1% in 2015 up to 5% after 2018); DoD implemented those reductions.
- United Communities submitted a certified claim in May 2020, alleging the statutory/DoD changes reduced allowable rents and asserting: breach of contract, breach of the implied covenant of good faith and fair dealing, and a Fifth Amendment takings claim.
- The government moved to dismiss under RCFC 12(b)(6). The Court granted the motion and entered final judgment for the United States, dismissing the complaint with prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Breach of contract: Did statutory/DoD changes to BAH method breach the parties’ contract? | Contract expected market‑based BAH; DoD’s discretionary percentage reductions were not part of the bargain, so the government breached by reducing BAH and plaintiff is owed the shortfall. | The contract expressly caps rent at whatever BAH DoD sets annually and disclaims any government obligation to pay rent or reimburse plaintiff; no contractual duty existed to preserve the prior BAH method. | Dismissed — no breach: contract incorporated BAH by reference to DoD/§403 and did not obligate the government to maintain the former calculation method or to pay shortfalls. |
| Breach of implied covenant: Did the Secretary’s reductions violate the covenant of good faith and fair dealing? | The reductions destroyed plaintiff’s reasonable contractual expectations and undermined the deal’s benefits. | The implied covenant cannot create duties beyond the express contract; here the express terms control and do not impose a duty to maintain BAH methodology. | Dismissed — implied covenant cannot expand the contract to impose the alleged duty. |
| Takings claim: Did the reductions effect a Fifth Amendment taking of a cognizable property interest? | Plaintiff alleges contractual expectations and tenant leases created a property/expectancy interest that was taken when BAH was reduced. | Plaintiff’s takings theory is rooted in the contract; because no contractual entitlement to amounts above DoD‑set BAH exists, there is no cognizable property interest to be taken. | Dismissed — plaintiff failed to plead a cognizable property interest independent of the contract’s unambiguous terms. |
Key Cases Cited
- Alaska Pulp Corp. v. United States, 48 Fed. Cl. 655 (2001) (legislative change to contract’s explicit pricing mechanism constituted breach)
- Cardiosom, L.L.C. v. United States, 117 Fed. Cl. 526 (2014) (government ‘‘risk of regulatory change’’ principles and limits on plaintiff assuming regulatory‑change risk)
- United States v. Winstar Corp., 518 U.S. 839 (1996) (recognition that sovereign acts altering contractual expectations can give rise to compensation claims)
- Precision Pine & Timber, Inc. v. United States, 596 F.3d 817 (2010) (the implied covenant of good faith cannot expand express contractual duties)
- Acceptance Ins. Cos., Inc. v. United States, 583 F.3d 849 (2009) (two‑part framework for evaluating Fifth Amendment takings claims)