Lead Opinion
These cases involve takings claims resulting from the enactment of the Emergency Low Income Housing Preservation Act of 1987, Pub.L. No. 100-242, § 202,
BACKGROUND
These consolidated cases return to us after remands in Cienega Gardens v. United States,
I
In 1934 Congress, concerned with the declining national stock of affordable housing, enacted the National Housing Act.
First, the programs provided below-market-rate mortgages. Under section 221(d)(3), the owners of low-income housing projects entered into mortgage contracts with private lenders at the market rate. Once the project was completed, the mortgages were purchased by the Federal National Mortgage Association (“FNMA”). The FNMA, using government subsidies, then reduced the original rate, charging below-market rates to the owners. See Pub.L. No. 87-70, § 101(c), 75 Stat. 149, 153 (1961). Under section 236, the owners also contracted for mortgages with private lenders, but the government directly subsidized the interest payments to the lender. See Pub.L. No. 90-448, § 201, 82 Stat. 476, 498-501 (1968). The programs permitted the owners to borrow ninety percent of the overall cost of the project. The mortgage contracts were for forty-year mortgages and included an option to prepay the mortgage without HUD approval after twenty years. The regulations under the statute were consistent with these contracts, including providing for prepayment without HUD approval after twenty years. 24 C.F.R. §§ 221.524, 236.30 (1970); see Cienega Gardens v. United States,
Second, to encourage lending both sections 221(d)(3) and 236 authorized the
Finally, the owners were entitled to a “Builder’s and Sponsor’s Profit and Risk Allowance” (“BSPRA”), which was a payment from HUD to the owner toward the owner’s down payment. The BSPRA was calculated as ten percent of the “actual cost” of construction.
In addition to the direct incentives provided under sections 221(d)(3) and 236, entities who entered into these programs received substantial tax benefits. At that time, the tax laws permitted accelerated depreciation for real estate projects over the real economic life of the property, allowing the general and limited partners to take large income tax deductions in the earlier years of the investment. While these tax benefits were not particular to section 221(d)(3) and section 236 properties, the benefits were particularly significant under these programs because the properties were highly leveraged so that the tax benefits the partners received were substantial in comparison to their limited investment.
To ensure that the housing created by the programs would continue to be used for low-income families, Congress provided that the Department of Housing and Urban Development (“HUD”) would regulate the operation of the low-income housing projects. Under both programs, the owner and HUD entered into a regulatory agreement where any important management decisions, including increases in rents, had to be approved by HUD. See Pub.L. No. 90-448, § 201, 82 Stat. 476, 498-501 (1968). The agreements, under which HUD provided mortgage insurance and various subsidy payments, restricted the owners’ annual return to six percent of their initial equity investment in the property. This six percent dividend was not limited to the owners’ net cash investment in the property, which was only 1.8 to 3 percent of the value of the property, but was six percent of the initial equity investment. See Cienega IX,
The restrictions of the regulatory agreements were effective for as long as HUD insured the mortgage on the property, i.e., until the mortgage was paid off. The exercise of the prepayment right under the mortgage agreement with the mortgage lender would thus have the effect of terminating the regulatory agreement. For example, the Chancellor Manor regulatory agreement stated that “[i]n consideration of the endorsement for insurance ... Owners agree [to the restrictions set forth in the agreement] ... so long as the contract of mortgage insurance continues in effect ... or during any time the Commissioner is obligated to insure a mortgage on the mortgaged property.” Chancellor Manor J.A. 500165. As discussed below, there is a question whether prepayment rights, as opposed to the other benefits of the transactions, played a significant role in the owners’ decision to invest in the property.
The owners of these projects were typically limited partnerships. This allowed the owners to “pass through” the entity’s tax losses primarily to the limited part
II
In the 1980s, Congress became concerned that as prepayment dates arrived the limited partnerships would prepay the mortgages; that the restrictions imposed during the mortgage period would expire; and that the housing stock represented by these projects would be withdrawn from the low-income market and converted to traditional apartment units, rented at market rates. Congress reacted with a carrot-and-stick approach, first enacting ELIHPA in 1988 (a temporary measure), and then superseding this statute by LIHPRHA in 1990 (initially planned as a permanent measure). In enacting these statutes, Congress sought to “balance the public policy need to preserve housing for low income families with the perceived contractual rights of the owners.” H.R.Rep. No. 101-559, at 75 (1990).
LIHPRHA was enacted on November 28, 1990, and is the most pertinent legislation. Under LIHPRHA, Congress restricted the rights of owners by requiring them as a condition of exiting the program to offer their property for sale to owners that would preserve the rent restrictions and barring the owners from exiting the programs (by effectively barring prepayment of the mortgages) while the properties were offered for sale. See 12 U.S.C. § 4110 (2000).
Congress also provided a carrot to those owners willing to stay in the program. Owners could elect to receive financial incentives by signing a “use agreement” with HUD. Id. § 4109. These incentives included limited increases in rents, increased access to residual receipts accounts, repair and capital improvement loans from HUD, HUD-insured loans that enabled owners to access equity in their properties through a second mortgage, and an increased allowed rate of return. Id. § 4109(b); see Cienega IX,
Ill
None of the plaintiffs here elected to pursue the sale option, and only four of the plaintiffs entered into use agreements after ELIHPA expired but during the period that LIHPRHA was in effect.
On March 28, 1996, after the Cienega Gardens lawsuit was filed but before the Chancellor Manor lawsuit was filed, and after the four plaintiffs had signed use agreements, Congress enacted the Housing Opportunity Program Extension Act of 1996, Pub.L. No. 104-120, 110 Stat. 834 (1996) (“HOPE”), which restored prepayment rights. Id. § 2(b). Congress enacted the appropriations statute for HUD one month later, on April 29, 1996, which included an express provision allowing an owner to prepay. Pub.L. No. 104-134, 110 Stat. 1321-265 to 1321-293 (1996).
Thus, as of April 29, 1996, the statute provided that the plaintiffs that had not entered into use agreements with HUD were free to prepay then* mortgages and exit the program, although HOPE provided that owners that prepaid could not raise rents for an additional two months after prepayment. See § 2(b),
IV
In the course of the two litigations we established that the government, by limiting the prepayment rights, did not incur liability to the owners for breach of contract because HUD was not a party to the mortgage agreements. Chancellor Manor,
On appeal, we reversed, based on a partial record and limited arguments made by the government, finding that the four model plaintiffs had suffered a compensable temporary regulatory taking and remanding with respect to the others. See Cienega Gardens v. United States,
First, regarding the character of the government action, we held that to constitute a compensable taking the statute need not “appropriate the owners’ titles or dispossess them in any way,” id. at 1339, nor does the restriction have to be permanent. Id.
Second, we disagreed that the plaintiffs needed to establish “that the prepayment restrictions denied them all economically beneficial use of them property in order for the takings to be compensable.” Id. at 1343. We stated that “it is clearly not the law that only such 100% value regulatory takings are compensable.” Id.
Third, we rejected the government’s argument that the plaintiffs reasonably should have expected that the prepayment right would be eliminated because “plain
In other respects, the holdings of Cienega VIII were unique to the four model plaintiffs and based on the particular arguments that the government made. Thus, for example, the trial court assumed that the appropriate approach was to consider the taking on a year-to-year basis by comparing lost income under the regulations to a market rate of return. Id. at 1343 n. 38. We stated that “the government neither argues error in the trial court’s adoption of the plaintiffs’ expert’s calculation of rate of return value, nor error in the trial court’s repeated rejection of the government’s data.” Id. at 1343 n. 40. Based on this assumption, we calculated that the model plaintiffs earned a return on their equity investment in the property that was about ninety-six percent less than what they could have earned by investing their money elsewhere. Id. at 1343. Thus we found that “the Model Plaintiffs’ expert’s calculations ... proved sufficient financial loss on the part of the Model Plaintiffs ..., especially in view of the lack of any specific challenge by the government of the trial court’s findings or of the Model Plaintiffs’ methods and data.” Id. at 1345.
The court in Cienega VIII did not resolve the takings issue with respect to the non-model Cienega Gardens plaintiffs, and we remanded for consideration of the other plaintiffs’ takings claims. We expressly stated that the resolution of these aspects of the model plaintiffs’ case did not preclude a different result for the non-model plaintiffs based on different arguments and a different record:
The government has essentially waived any right to assert any errors in the Model Plaintiffs’ arguments. Therefore, to the extent that the government can demonstrate affirmative errors through reference to additional evidence and flaws in the arguments in future cases in which plaintiffs make the same arguments, this opinion should not be understood to bar future courts from also considering that evidence and those arguments.
Cienega VIII,
We agreed with the Cienega VIII analysis in our decision in Chancellor Manor,
[i]n rejecting the plaintiffs’ and defendants arguments based on this record and by remanding for a more searching factual inquiry, we have not predetermined the question of whether the plaintiffs will be able to establish the existence of a regulatory taking under the Penn Central standards.... At this stage we have done no more than reject the arguments of both the United States*1277 and the Owners that this matter can be properly decided on the present record.
Id. at 906-07.
On remand, the Court of Federal Claims consolidated the suits of the five remaining Cienega Gardens plaintiffs with the three Chancellor Manor plaintiffs. Cienega IX,
For present purposes, four aspects of the Court of Federal Claims decision are particularly pertinent. First, the court did not consider the impact of the regulation on the value of the property as a whole. The question the court asked was, for each year that the restriction was in effect, whether there was a compensable taking of income from the property. In determining the effect of the statute on the owners, the court applied a “return on equity approach,” which compared the return the owner received on its investment for a one-year period under the regulations to a hypothetical return on its investment without the regulations. In other words, the court compared the owners’ actual return under LIHPRHA, which was limited to a six percent return on the initial equity investment, to the return that the owner could have received on the total equity in its property without the restriction (twenty years of mortgage payments having increased the owner’s equity). Id. at 475. The Court of Federal Claims found that this restriction of income during a discrete annual period was a significant financial detriment to the owners. Thus the return on equity approach treated the income from the property for each individual year as a separate property interest from the value of the property as a whole.
Second, the Court of Federal Claims did not factor into the takings analysis the offsetting benefits afforded under ELIHPA and LIHPRHA. The Court of Federal Claims noted that ELIHPA and LIHPHRA provide two options that operate in lieu of the contractual prepayment right: (1) selling the property at the fair market value to a HUD-approved purchaser or prepaying the mortgage in the absence of a sale, or (2) signing a use agreement. Cienega IX,
Finally, the court considered the reasonable investment-backed expectations of the property owners. Id. at 471. The court first addressed the plaintiffs’ subjective expectations in entering into the programs. Id. at 471-72. The court concluded that both groups of plaintiffs “expected to prepay when they invested in their properties.” Id. The court then found that the owners’ expectations of prepayment were reasonable “given the deed of trust notes, the existing regulations, the type of properties involved, the location of the properties, and the importance of an exit strategy in entering such a program.” Id. at 474. The court did not consider whether there was a nexus between the owners’ expectations and their investment in the property.
The government timely appealed. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(3) (2000).
DISCUSSION
We review the Court of Federal Claims’ legal determinations without deference and its findings of fact for clear error. Bass Enters. Prod. Co. v. United States,
We deal here with an alleged regulatory taking rather than a physical taking. The focus of the regulatory takings analysis is on fundamental fairness— is it fair for the government to impose the cost of a regulation on private parties rather than on the public as a whole through public spending? See Palazzolo v. Rhode Island,
In addressing these questions, we must direct ourselves to the practical realities of the situation. That assessment can be difficult where there is a complex legislative scheme that, as here, is not a model of draftsmanship. But the fact that the legislative scheme is complex and confusing makes it all the more important to consider carefully the actual impact of the legislation on the claimants. Notwithstanding the Court of Federal Claims’ careful opinion, the court has in several respects committed error.
I ELIHPA
As an initial matter, we consider whether ELIHPA constituted a taking. The owners do not separately argue that ELIHPA constitutes a taking, and there is no basis for treating ELIHPA and LIHPRHA the same. ELIHPA was a temporary restriction that was enacted on February 5, 1988, and was only in effect until LIHPRHA was enacted on November 28, 1990. None of the owners’ twenty-year prepayment deadlines expired during the period that ELIHPA was in effect, and the owners that entered into use agreements all signed the agreements well after LIHPRHA was enacted.
II LIHPRHA
The more serious question is whether the enactment of LIHPRHA constituted a taking. During the period that LIHPRHA was in effect (from November 28, 1990, until the HUD appropriations statute implementing HOPE was enacted on April 29, 1996) the plaintiff owners’ twenty-year prepayment deadline expired and some of the owners, in view of the regulatory regime imposed by LIHPRHA, entered into use agreements. The question is whether these restrictions imposed by LIHPRHA resulted in a taking. In our view, in concluding that they did, the Court of Federal Claims erred as a matter of law in certain respects.
We think the Court of Federal Claims erred in not considering the impact of the restriction on the property as a whole. Rather, the Court of Federal Claims compared the rate of the return that the owner would receive on its investment with and without the restriction of a single year. This error impacted the court’s Penn Central analysis.
The Court of Federal Claims applied a “retum-on-equity” approach, considering the income from the project for each individual year as a separate property interest. Ciénega IX,
We believe that, in adopting this approach, the Court of Federal Claims erred. The Supreme Court, in cases like Penn Central, Concrete Pipe and Products of California, Inc. v. Construction Laborers Pension Trust for Southern California,
Penn Central,
“Taking” jurisprudence does not divide a single parcel into discrete segments and attempt to determine whether rights in a particular segment have been entirely abrogated. In deciding whether a particular governmental action has effected a taking, this Court focuses rather both on the character of the action and on the nature and extent of the interference with rights in the parcel as a whole— here, the city tax block designated as the “landmark site.”
Id. at 130-31,
The Supreme Court reaffirmed that the correct approach is to consider the “parcel as a whole” in Concrete Pipe,
[A] claimant’s parcel of property could not first be divided into what was taken and what was left for the purpose of*1281 demonstrating the taking of the former to be complete and hence compensable. To the extent that any portion of property is taken, that portion is always taken in its entirety; the relevant question, however, is whether the property taken is all, or only a portion of, the parcel in question.
Id. at 644,
In Tahoe-Sierra, the necessity of considering of the overall value of the property was explicitly confirmed in the temporary regulatory takings context.
Of course, defining the property interest taken in terms of the very regulation being challenged is circular. With property so divided, every delay would become a total ban; the moratorium and the normal permit process alike would constitute categorical takings. Petitioners’ “conceptual severance” argument is unavailing because it ignores Penn Central’s admonition that in regulatory takings cases we must focus on “the parcel as a whole.”
Id. The Court thus concluded that “the District Court erred when it disaggregated petitioners’ property into temporal segments corresponding to the regulations at issue and then analyzed whether petitioners were deprived of all economically viable use during each period.” Id. Justice Thomas’s dissent specifically complained that the majority had improperly compared the reduction in value resulting from the regulation to the value of the parcel as a whole, i.e., the “land’s infinite life.” Id. at 355,
The plaintiffs justify the return-on-equity approach by relying on the Supreme Court’s decision in Kimball Laundry Co. v. United States,
Consideration of the property as a whole is particularly important because our cases have established that a regulatory taking does not occur unless there are serious financial consequences. In Ciénega VIII, we stated that “[wjhat has evolved in the case law is a threshold requirement that plaintiffs show ‘serious financial loss’ from the regulatory imposition in order to merit compensation.”
We note that in a temporary taking situation, there appear to be at least two ways to compare the value of the restriction to the value of the property as a whole so as to determine if there has been severe economic loss. See Rose Acre Farms,
B. Need To Consider the Offsetting Benefits
The second error committed by the Court of Federal Claims lies in its failure
The Supreme Court in Penn Central,
The Court of Federal Claims did not take into account this aspect of the Penn Central decision, finding support for its holding instead in our decisions in Whitney Benefits, Inc. v. United States,
This case does not involve a transfer of new property to the owner as in Whitney Benefits, but rather an amelioration of the restrictions imposed on the existing property. There can be no claim here that the government compensated the owner by providing substitute property. The bene
The Court of Federal Claims, we think, overstated the effect of the statute when it concluded that “[n]one of the options available to plaintiffs permitted them to exercise them right to transfer their property to a purchaser of their choice.” Cienega IX,
With respect to the first option, the owners here do not dispute that the opportunity for a fair market value sale would eliminate any takings claim. See Florida Rock Indus., Inc. v. United States,
Moreover, the sale process was not as time consuming as the plaintiffs assert. To reduce any administrative delays, LIHPRHA permitted the owners to begin the sale process by filing a notice of intent up to two years before their prepayment eligibility date. 12 U.S.C. § 4119(1)(B) (2000). The owners and HUD would then appraise the property to determine “the fair market value of the housing based on the highest and best use of the property.” Id. § 4103(b)(2). Upon HUD’s approval of the sale, the owner would file a second notice of intent with HUD.
The duration of these restrictions is an important factor in the takings analysis. The Supreme Court in Tahoe-Sierm concluded that “the duration of the restriction is one of the important factors that a court must consider in the appraisal of a regulatory takings claim.”
Alternatively, an owner could enter into a use agreement. The owner was required to file a “plan of action.”
The sale and use agreement options thus conferred considerable benefits on the owners. The major effect of the statute on an owner who did not elect to enter into a use agreement and wished to prepay was to keep the restrictions in place during the sale period which might expire near the prepayment date; to compel the owner to offer the property for sale at a fair market value; and, if there was no sale (and the owner prepaid the mortgage), to restrict rent increases for a three-year period. This sale option was plainly an available alternative because many owners in fact elected to sell their property. See Cienega IX,
The benefits to the owners electing to enter into use agreements were also considerable, as confirmed by the legislative history to LIHPRHA. “The bill authorize[d] an array of financial incentives” that “[t]he Committee believe[d] .... [would] provide sufficient economic incentive for the vast majority of owners of eligible low income housing to retain the current use and occupancy restrictions on their projects.” H.R.Rep. No. 101-559, at 76 (1990); see also 136 Cong. Rec. H6053-01 (July 31, 1990) (statement of Rep. Conte) (“The provision offers a package of incentives for owners to maintain their projects as low-income housing.”). When signing LIHPRHA, President Bush expressed concern that the incentives were in fact too generous:
One important preservation strategy is to provide project owners with economic incentives to maintain their properties for low-income use. I am concerned, however, that the incentives in S. 566 are more generous than are necessary, providing excessive benefits over the long term that will be paid by all taxpayers.
Statement on Signing the Cranston-Gonzalez Nation Affordable Housing Act, 26
In summary, we think the Court of Federal Claims erred in not considering offsetting benefits with respect to those owners who entered into use agreements and those that did not. In considering whether the owners that elected to enter into use agreements suffered a taking, available offsetting benefits must be taken into account generally, along with the particular benefits that actually were offered to the plaintiffs.
C. Need To Consider the Duration of the Legislation
In its decision, the Court of Federal Claims did not consider the duration of the legislation. We believe existing takings law requires consideration of the duration of the legislation as part of the takings analysis. See Tahoe-Sierra,
Four of the owners elected to enter into use agreements after the enactment of LIHPRHA but before the HOPE enactment: Cienega Gardens, Del Amo Gardens, Las Lomas Gardens, and Chancellor Manor. The temporary nature of the legislation is irrelevant with respect to those who had use agreements in place when HOPE was enacted since those owners acted reasonably on the assumption that the restrictions were permanent.
D. Need To Consider the Nexus Between the Investment and the Expectation
Finally, the Court of Federal Claims erred in its treatment of the investment-backed expectations prong of the Penn Central analysis. See
We find no error in the Court of Federal Claims’ conclusion that the owners subjectively expected to have the option to prepay their mortgages after twenty years. However, we do think the Court of Federal Claims erred in part in its analysis of the reasonableness of the plaintiffs’ expectations.
One important aspect of investment-backed expectations is whether, in the regulatory environment, it would be expected that the law might change to impose liability. The test in this respect was set forth at length in Commonwealth Edison Co. v. United States,
However, the reasonable expectations prong also requires that the expectations be investment backed, and in this regard further analysis is required. The first step of the analysis is to determine the actual investment that the general and limited partners made in the property. The second step is to determine the benefits that the owners reasonably could have expected at the time they entered into the investment. The third step is to determine what expected benefits were denied or restricted by the government action. (The latter two have been discussed earlier in this opinion.) In other words, it is impossible to determine whether the owners’ expectations were reasonable without knowing the total value of the investment; its relationship to the benefits available to the owners, including any tax benefits; and the anticipated benefits that were denied or restricted by the government action.
In addressing this question on remand, it is particularly important that the Court of Federal Claims first determine the precise scope of the benefits denied. The owners were not, as discussed earlier, entirely denied the right to prepay; rather that right was denied for a short period, and rents were frozen for a period after prepayment. The Court of Federal Claims must determine on remand whether the rights thus denied were the primary or “but for” cause of the investment. At this stage, the plaintiffs have not established that a reasonable owner’s expectation of an unrestricted right of prepayment after twenty years would have satisfied either standard. The substantial benefits that the owners received, other than the absolute prepayment right, may well have been such that the absolute prepayment right might not have been either the primary or “but for” reason that a reasonable owner would have invested in the property. Indeed, it is not even clear that a reasonable owner would rely on any aspect of the prepayment right in making the investment, much less that a reasonable owner would rely on an unrestricted right to prepayment.
In determining whether expectations of prepayment were reasonably investment backed, it is necessary to inquire as to the expectations of the industry as a whole. Here the expert testimony on this issue was conflicting and, unfortunately, was limited to the expectations as to the general prepayment right rather than the expectations as to the limited restrictions actually imposed by the statute. On one hand, at trial the government presented the expert testimony of Kenneth Malek, an expert in tax accounting and tax-advantaged investments. He testified that “neither the general partners nor the limited partners considered residual value [of the property] to be a significant motivation.” Chancellor Manor J.A. 102633. This was because “[t]he dividends that could be paid as operating cash flow distributions to the investors were limited, and so the benefits that made a material impact on the project from the standpoint of the present value of those benefits were the tax benefits and the ... front end cash flow to the developers.” Id. at 102637. He concluded that the twenty-year prepayment right “was not a material incentive.” Id. at 102806. On the other hand, William Dockser, Deputy Assistant Secretary of HUD and FHA Commissioner from 1969 to 1972, testified that “the ability to discuss an exit strategy in 20 years ... was a reason why people would undertake to do these programs and a reason why people would invest in the programs.” Id. at 500105.
The plaintiffs argue that the prospectus only described the expectations of the limited partners and not the partnership as a whole. This argument is unavailing. Under the securities laws the prospectuses were required to be truthful. See 15 U.S.C. § 77i(a)(2). In this respect, the prospectuses are particularly reliable. Under the securities laws, the prospectus cannot contain any “untrue statement of a material fact or omit[ ] ... a material fact.” Id. This includes misstatements and omissions about the general partner’s interest in the properties. See Currie v. Cayman Res. Corp.,
On remand, it is important that the parties provide the Court of Federal Claims with sufficient contemporaneous documents for the court to determine the actual investment and the expectations of the industry at the time that LIHPRHA was enacted.
CONCLUSION
For the foregoing reasons, we vacate and remand for a new Penn Central analysis under the correct legal standard. In view of our clarification of the legal standard, we conclude that on remand the Court of Federal Claims should allow both sides to supplement the record with additional relevant evidence if they wish to do so.
VACATED AND REMANDED.
COSTS
No costs.
Notes
. The National Housing Act established the Federal Housing Administration (FHA). In 1965 the Federal Housing Administration was subsumed into the then newly established Department of Housing and Urban Development. See 24 C.F.R. §§ 200.1, 200.2 (1994).
. LIHPRHA provided that owners could immediately prepay (without offering the properties for sale) with HUD approval. However, HUD was only permitted to approve immediate prepayment upon finding that the effect of prepayment would not "materially increase economic hardship for current tenants,” including a finding that alternative housing was available for current tenants and that the supply of vacant, comparable housing would not be affected. 12 U.S.C. § 4108(a). The Court of Federal Claims found that this was not a viable alternative for the markets involved here because "HUD could not make the factual findings that were a necessary predicate for prepayment approval.” Cienega IX,
. The parties dispute precisely how long it would take to complete the sale process. The Court of Federal Claims did not make explicit factual findings regarding the duration of the sales period, but it stated that “[a] sale would take two years or more to complete.” Cienega IX,
The two-year timeframe is supported by the deadlines set forth in the regulations. LIHPRHA permitted owners to file a notice of intent to sell the property twenty-four months before their original twenty-year prepayment eligibility date. 12 U.S.C. § 4119(1)(B) (2000). The owner’s and HUD’s appraisals were due within four months of the date that the owner filed the notice of intent. 24 C.F.R. § 248. Ill (i). If the owner and HUD did not agree on the appraisal value, they selected a third appraiser whose appraisal was due four months later. Id. § 248.11 l(j). Within one more month, HUD informed the owner whether it would approve the sale. Id. § 248.131(b). HUD then directed the owner to submit a second notice of intent. Id. § 248.131(b)(6). The owner submitted the second notice of intent within a month, which triggered the fifteen-month offer period. Id. § 248.133(b). Thus, according to the timeline set forth in the regulations, the process should take approximately twenty-five months.
. Under LIHPRHA’s transition provisions, any owner of housing that became eligible for low-income housing before January 1, 1991, who, before such date, filed a notice of intent under section 222 of ELIHPA could elect to proceed under either ELIHPA or LIHPRHA. Pub.L. No. 101-625, § 604 (codified as amended at 12 U.S.C. § 4101 note (Transition Provisions) (2000)). Any owner that elected to enter into a use agreement under the terms of ELIHPA was required to maintain the restrictions until the end of the forty-year mortgage. Pub.L. No. 100-242, § 224.
. These owners are Cienega Gardens, Del Amo Gardens, Las Lomas Gardens, and Chancellor Manor.
The government argues on appeal that these plaintiffs waived the right to bring a takings claim by entering into use agreements. We find no error in the Court of Federal Claims finding that there was no waiver, and therefore reject the government's argument. See also Independence Park Apartments v. United States,
. Cienega Gardens, Del Amo Gardens, Las Lomas Gardens, Blossom Hill Apartments, and Syline View Gardens.
. Chancellor Manor, Gateway Investors, Ltd., and Oak Grove Towers Associates.
. Later appropriations statutes reiterated the prepayment right. See Departments of Veterans Affairs and Housing and Urban Development, and Independent Agencies Appropriations Act, Pub.L. No. 105-276, § 219, 112 Stat. 2461, 2487-88 (1998); Departments of Veterans Affairs and Housing and Urban Development, and Independent Agencies Appropriations Act, Pub.L. No. 104-204, 110 Stat. 2874, 2884 (1996) (codified at 12 U.S.C. § 4101 note (2000)). The 1998 appropriations statute added the condition that owners must provide 150 days’ notice before prepaying under HOPE.
. After the initial remand, the Court of Federal Claims granted summary judgment in favor of the government on the takings claims on the ground that the model plaintiffs’ claims were not ripe because the owners did not exhaust their administrative remedies by requesting permission from HUD to prepay the mortgages before bringing suit. Cienega Gardens v. United States,
Here the government again argues that the plaintiffs' claims are not ripe. The government argues that: (1) plaintiffs did not petition HUD for prepayment approval, and (2) they did not pursue the sale option. We reject these arguments. In light of our holding in Cienega VI and the factual findings made by the Court of Federal Claims, see Cienega IX,
. The court calculated damages up until the end of the takings period or until the date of the judgment, whichever was earlier. Accordingly, the court awarded the following damages:
Plaintiff End of Takings Period or September 30, 2005 Amount of Just (date of judgment) Compensation Awarded
Cienega Gardens Oct. 10, 2002 $ 7,219,000
Del Amo Gardens Sept. 30, 2005 $ 5,008,814
Las Lomas Gardens Sept. 30, 2005 $13,017,377
Blossom Hill Apartments Feb. 17, 1997 $ 2,801,347
Skyline View Gardens Feb. 17, 1997 $ 2,228,032
Chancellor Manor Sept. 30, 2005 $10,510,121
Oak Grove Towers Mar. 1, 1997 $ 1,464,761
Gateway Investors (Rivergate) Mar. 1, 1997 $ 1,697,241
. Given the interrelation between the two cases and because two separate panels heard the prior appeals, we heard this appeal as a seven-judge panel pursuant to our statutory authority under 28 U.S.C. § 46(b), which provides that the “Federal Circuit ... may determine by rule the number of judges, not less than three, who constitute a panel." See also Fed. Cir. R. 47.2(a) ("Cases and controversies will be heard and determined by a panel consisting of an odd number of at least three judges, two of whom may be senior judges of the court.").
. Cienega Gardens and Del Amo Gardens entered into use agreements on May 26, 1995. Las Lomas Gardens entered into its use agreement on May 16, 1995. Chancellor Manor entered into its use agreement on February 14, 1995.
. We note, however, that the Court of Federal Claims awarded Chancellor Manor $10.5 million in damages — significantly more than the property’s appraised value of $7 million. See Ciénega IX,
. Such benefits, of course, would be pertinent as well to a just compensation analysis if a taking had occurred. In Cienega VIII, we held that a taking had occurred with respect to the model plaintiffs (two of which had entered into use agreements under LIHPRHA — Sherman Park and St. Andrews), and directed the Court of Federal Claims to enter the damages awarded in Cienega III,
. The requirement for HUD approval of the sale did not substantially affect the process. If HUD approval was not forthcoming, the various options were still largely available. In effect, the owner could still offer the property for sale and prepay if the sale did not
. The owner was required to file the plan of action within six months of HUD's determination that the preservation rents were within the federal cost limit. 12 U.S.C. § 4107(a) (2000).
. Specifically, LIHPRHA authorized HUD to provide the following incentives: increased access to residual receipts accounts; an increase in the rents permitted under an existing contract under section 1437f of Title 42, or additional assistance under section 1437f of title 42 or an extension of any project-based assistance attached to the housing (subject to the availability of amounts provided in appropriations Acts); an increase in the rents on units occupied by current tenants as permitted under section 4112 of LIHPRHA; financing of capital improvements under section 201 of the Housing and Community Development Amendments of 1978; financing of
. The Court of Federal Claims found that, after the enactment of HOPE, HUD "exerted strenuous efforts” to extend LIHPRHA's prepayment restriction by issuing preservation letters that refused to permit prepayment without HUD approval.
. These owners are Blossom Hill, Skyline View Gardens, Gateway Investors (Rivergate), and Oak Grove. Both Blossom Hill and Skyline View Gardens filed notices of intent to sign use agreements, but HUD never funded those agreements. If the incentives had remained unfunded for fifteen months, Blossom Hill and Skyline View would have been permitted to prepay their mortgages. However, HOPE was enacted before Blossom Hill and Skyline View prepaid under LIHPRHA. See Ciénega IX,
. The HOPE appropriation was enacted on April 26, 1996, and HOPE provided that owners could not raise rents for two months following prepayment. Pub.L. No. 104-120, § 2(b), 110 Stat. 834-35. Accordingly, Blossom Hill’s twenty-year prepayment period expired on October 31, 1994, meaning that the restriction period lasted roughly 20 months. Skyline View’s twenty-year prepayment peri
. While Commonwealth Edison was a due process case, we have recognized that it governs in the closely related takings area as well. See Cienega VIII,
. In conducting this analysis, the court should consider any reduction in the return that would be the result of phantom income resulting in tax liability without the receipt of actual income. In determining the return for the general partners, the court should make allowance for any nonmonetary contributions, such as the performance of services without compensation.
Dissenting Opinion
dissenting.
I respectfully dissent, for this panel has no authority to revoke our prior decision in Cienega Gardens v. United States, 331
24 C.F.R. § 236.30 (1970). A mortgage indebtedness may be prepaid in full and the Commissioner’s controls terminated without the prior consent of the Commissioner where ... the prepayment occurs after the expiration of 20 years from the date of final insurance endorsement of the mortgage....
As the Court of Federal Claims observed, the right to leave the program after twenty years was an “incentive [that] enabled property owners to provide low-income housing for twenty years, and then terminate the low-income housing restrictions and make a long-term profit by charging market rates for rentals at the properties.” Cienega Gardens v. United States,
As twenty years approached, the owners invoked the right to prepay the mortgage and leave the plan. Congress then enacted the ELIHPA (the Emergency Low Income Housing Preservation Act of 1987), which prohibited leaving the plan, and then in 1990 the LIHPRHA (Low Income Housing Preservation and Resident Home-ownership Act), which provided a partially mitigating arrangement after twenty years. The statutes are complex. This and related litigation followed; for these plaintiffs, the first Cienega Gardens case was filed in 1994. Prepayment rights were eventually restored by the Housing Opportunity Program Extension Act of 1996 (HOPE). The question of whether a constitutional “taking” occurred during the interim period was fully discussed and finally decided in (Cienega VIII). That decision is the law of this case, as to the four “model plaintiffs” whose facts were the premises of the takings analysis, and as to the other similarly situated plaintiffs. The Cienega VIII decision and remand to the Court of Federal Claims was with instructions to apply that law to determine whether a taking occurred on the specific facts of each plaintiff, and to assess damages. In the case now on appeal there are eight plaintiffs for eight properties, including Cienega Gardens. The trial court visited the sites, conducted twenty-two days of trial, and assessed damages. Cienega IX,
This court in Cienega VIII resolved that the legislative enactments that forbade removing this privately-owned housing from the low-income low-rent market after twenty years, and then restored that right, were a temporary taking of property within the purview of constitutional protection. That aspect was reached and decided. This court so recognized in Independence Park Apartments v. United States,
[In Cienega VIII] we held — based on the factual findings made in Cienega*1293 III — that the plaintiffs had suffered a “serious financial loss” by being deprived of the opportunity to prepay their mortgages. See Cienega VIII,331 F.3d at 1340-45 . Based on our analysis of the Penn Central factors and the extensive record already developed in the case, we ruled in favor of the plaintiffs on their regulatory takings claims.
Id. at 1239-40.
In Cienega VIII this court reviewed the “Use Agreements” that were made available by the LIHPRHA, and explored the various mechanisms whereby owners responded to the legislative changes until Congress reversed itself via the legislation enacted in HOPE. The remand to the Court of Federal Claims was with instructions to consider these individual differences and assess damages accordingly. This court ruled that the prepayment right was “the critical inducement” to enter the program, and that “they would not have participated in the programs otherwise.” Cienega VIII,
My colleagues acknowledge that this court in Cienega VIII ruled that “the four model plaintiffs had suffered a compensable temporary regulatory taking,” maj. op. at 1275, but state that this court acted “on a partial record and limited arguments made by the government,” apparently impeaching the parties, the trial court, and ourselves. This is as unwarranted as it is incorrect. In Independence Park Apartments, 449 F.3d at 1240, another panel of this court remarked on “the extensive record already developed in the [Cienega ] case.” If there indeed were inadequate arguments by the government and an incomplete record at trial, the concern should have been raised by the panel in that appeal, not four years later when the trial court has acted on and fulfilled the remand instructions, conducted lengthy proceedings, and completed a thorough application of this court’s decision in accordance with its terms. See Icicle Seafoods, Inc. v. Worthington,
On this appeal, the government repeats the arguments it presented in Cienega VIII, shifting its emphasis to the argument that the congressional goal of protecting low-income tenants served an “important public interest.” In Cienega VIII this court agreed: “Unquestionably, Congress acted for a public purpose (to benefit a certain group of people in need of low-cost housing), but just as clearly, the expense was placed disproportionately on a few private property owners.”
The issues on this appeal are limited to the application by the Court of Federal Claims of the remand instructions of Ciénega VIII. Instead, this court proposes that the trial court redecide the basic question of whether a taking occurred at all.
The issue of this appeal, the appropriate measure of damages, is barely touched. The trial court received extensive briefing and argument and evidence, including expert testimony from all sides. The court gave weight to the partial mitigation by those owners who accepted the “Use Agreements,” and evaluated the issues of the owners who sold their properties while the law was in effect. A serious flaw in the majority’s analysis is its blurring of the distinction between liability and damages, resulting in its skewed approach to the takings analysis. The panel majority’s new requirement that the owners must prove that the right to leave the program after twenty years was “the primary incentive” for their initial participation in the program is contrary to all of the rules of evaluating integrated contractual arrangements, for each provision and obligation is deemed significant to the whole. Whatever weight a party may have given to each of the complex restrictions and benefits, this absolute prepayment right was included in all of the arrangements. The prepayment right has been demonstrated, by the experience of this litigation, to be of large economic significance. The prepay-
My colleagues apply another incorrect premise, for the value of property is measured when it is taken. See First English Evangelical Lutheran Church of Glendale v. Los Angeles County,
The creative theories propounded by my colleagues for redetermining whether a taking occurred ignore the law of this case, as well as the constitutional authority that holds the government to its obligations. I must, respectfully, dissent.
. The court is not here acting en banc; we simply consolidated the two appeals and enlarged the panel. En banc action is required to overturn prior final decisions.