Haddon Housing Associates, LLC v. United StatesHaddon Housing Associates, LLC v. United States
OPINION AND ORDER
This contract case is before the court on plaintiffs’ motion for summary judgment and defendant’s cross-motion for summary judgment. The case concerns the Rohrer Towers II Apartments, a low-income rental housing project for elderly residents located in Had-don Township, Camden County, New Jersey. Plaintiff Haddon Housing Associates, Ltd. (“Haddon Associates”), the owner of Rohrer Towers II Apartments, leased the property to plaintiff Housing Authority of the Township of Haddon, New Jersey (“Housing Authority”), who then entered into a housing assistance payments contract (“HAP Contract”) with the United States Department of Housing and Urban Development (“HUD”) to provide low-income housing under an amendment enacted in 1974 to the Housing Act of 1937 (also known as the Wagner-Steagall Housing Act). See Housing and Community Development Act of 1974, Pub.L. No. 93-383, 88 Stat. 633, 662-66 (1974) (adding Section 8 to the Housing Act of 1937, codified as amended at
This ease previously was consolidated with an earlier-filed action, Pennsauken Senior Towers Urban Renewal Assocs., LLC v. United States,
FACTS
A. The Section 8 Housing Program
The Section 8 housing program, adopted by Congress in 1974, established a new federal program for subsidizing low-income housing. Pursuant to the new program, HUD entered into contracts with private landlords that established an agreed “maximum monthly rent,” which would be supplemented by HUD’s making “assistance payments” to the landlord. See
B. Rohrer Towers II Apaitments Project
On January 1, 1980, Haddon Associates leased the Rohrer Towers II property to Housing Authority for a 30-year term. See Joint Stipulations of Fact ¶ 4 (“Stip.”); Stip. Ex. B (Lease Agreement (Jan. 1, 1980)). The terms of the lease were tailored to the Section 8 program. Among other things, the recitals in the lease state that “the Lessee [Housing Authority] has heretofore entered into an Agreement to Enter Into [a] Housing Assistance Payments Contract (‘HAP Agreement’) with the United States of America acting through the Department of Housing and Urban Development (‘HUD’) pursuant to the provisions and requirements of Section 8 of the United States Housing Act of 1937, as amended and supplemented.” Stip. Ex B at 00032 (Lease Agreement).
Subsequently, effective March 17, 1981, Housing Authority entered into a HAP Contract with HUD for the Rohrer Towers II
C. 1989 Amendment to the Housing Act
In the early 1980s, HUD began to conduct “comparability studies” in those markets in which it believed automatic adjustments to assisted units had resulted in materially higher rents than those for comparable unassisted units. See Cisneros v. Alpine Ridge Group,
D. 1994 Amendments to the Housing Act
In 1994, Congress further amended the Housing Act to place on owners the obligation to provide comparability studies, thereby in effect requiring owners to shoulder the burden of proving that the adjusted rent for their units would not exceed the rent for comparable unassisted units. See Departments of Veterans Affairs and Housing and Urban Development, and Independent Agencies Appropriations Act of 1995, Pub.L. No. 103-327, 108 Stat. 2298, 2315 (1994) (amending
As part of its effort to implement the 1994 amendments, HUD issued guidance in the form of “Notice 95-12” on March 7, 1995. See Stip. Ex. C at 00060 (HUD Directive 95-
E. Rent Calculations for Rohrer Towers and Requests for Rent Increases
At the time that the HAP Contract for Rohrer Towers II Apartments was executed, the monthly contract rent was $493 for each one-bedroom apartment unit and included an initial difference of $74 between that rent and rent for comparable unassisted units, to compensate for the costs of complying with administrative and regulatory requirements of the program. Stip. ¶ 8. By 1995, the contract rent approved by HUD had increased to $860. Stip. ¶ 12. After 1995, the contract rent remained at $860 until an adjustment was approved for anniversary year 2007 to bring the contract rent to $889 per unit. Id. Since 2001, Haddon Associates, on behalf of itself and Housing Authority, regularly submitted to HUD vouchers for payments and received monthly housing assistance payments, payments from tenants, and other revenue from the property. Stip. ¶ 6. However, between 2001 and 2006, Haddon Associates did not submit to HUD any request for adjustments to the housing assistance payments. Stip. ¶ 13.
Haddon Associates and Housing Authority filed the complaint on September 4, 2007, Compl. at 1, and thus the period covered by their claim extends back to September 4, 2001. See Pennsauken,
STANDARDS FOR DECISION
Summary judgment is appropriate if the record demonstrates that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Rule 56(c) of the Rules of the Court of Federal Claims (“RCFC”); Anderson v. Liberty Lobby, Inc.,
ANALYSIS
A. Jurisdiction Over Haddon Associates’ Claim
The government asserts that this court lacks jurisdiction over Haddon Associates’
Plaintiffs concede that there is no privity between HUD and Haddon Associates, but they note that privity exists between Housing Authority and HUD and they argue that Haddon Associates is properly joined as a necessary plaintiff under RCFC 19. PL’s Opp’n to Defs Cross-Mot. at 1. In that connection, plaintiffs contend that Haddon Associates is a real party in interest under RCFC 17. Id. at 2-3. Alternatively, Haddon Associates may be an entity that could join the action under RCFC 20 which provides for permissive joinder.
Under Rule 19, a person must be joined as a party if:
(B) that person claims an interest relating to the subject of the action and is so situated that disposing of the action in the person’s absence may:
(i) as a practical matter impair or impede the person’s ability to protect the interest; or
(ii) leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest.
RCFC 19(a)(1)(B). According to plaintiffs, Haddon Associates must be joined because under the lease it has a direct interest in any breach of the HAP Contract, an interest which it will have difficulty protecting if it is not a party to the action. PL’s Opp’n to Defs Cross-Mot. at 2; RCFC 19(a)(B)(i). Haddon Associates leased the Rohrer Towers property to the Housing Authority in 1980 for a 30-year term, Stip. ¶ 4, Ex. B (Lease Agreement), which term is nearing its expiration. Under the lease, Haddon Associates covenants to operate and maintain the property in compliance with all of HUD’s rules and regulations. Stip. Ex. B at 00040 (Lease Agreement §§ 4.01, 4.02). In exchange, the Housing Authority covenants to pay to Had-don Associates a rent equal to all income in connection with the operation of the apartments, “including but not limited to HAP Payments.” Id. at 00038 (§ 3.03). Plaintiffs consider that failing to join Haddon Associates could subject Housing Authority to “inconsistent obligations,” RCFC 19(a)(l)(B)(ii), largely but not entirely because Haddon Associates would be faced with pursuing its financial interests independently, perhaps in tension with Housing Authority, just as the lease is nearing its end. Plaintiffs indicate that this might open Housing Authority to the risk of inconsistent obligations. Pl.’s Opp’n to Def.’s Cross-Mot. at 2-3.
Correlatively, Rule 17 requires the joinder of the real party in interest, RCFC 17(a)(1) (“An action must be prosecuted in the name of the real party in interest.”), and RCFC 17(a)(3) requires the joinder or substitution of the real party in interest. RCFC 17(a)(3) (“The court may not dismiss an action for failure to prosecute in the name of the real party in interest until, after an objection, a reasonable time has been allowed for the real party in interest to ratify, join, or be substituted into the action.”). The Federal Circuit has instructed that Rule 17 is guided by a “general principle that actions should be brought in the name of the real party in interest and that courts should be lenient in permitting ratification, joinder, or substitution of that party.” First Hartford Corp. Pension Plan & Trust v. United States,
*15 [t]he real party in interest is one who has a “real, actual, material or substantial interest in the subject matter of the action.” 59 Am.Jur.2d Parties § 36 [1986]. The general rule that only a party to the contract can enforce the contract has been modified by the real party in interest statutes and rules. 59 Am.Jur.2d Parties § 28 [1986]. One of the purposes of this modification is to relax the strict common law rules “to enable those who are directly interested but not parties to the contract to maintain an action for its breach.”
Edward Kraemer & Sons, Inc. v. City of Kansas,
In tension with these principles, the government argues that as a matter of law, neither
The government reaches too far in its position. First, the contracting party in this case, Housing Authority, concededly is a proper plaintiff and has standing to bring its breach-of-contract claim. Notably, there is no dispute that the court has jurisdiction over Housing Authority’s contract claim. The resulting question is purely one of join-der, and the permissive joinder provisions of Rule 20 also become relevant. Rule 20 states that “[p]ersons may join in one action as plaintiffs if: (A) they assert any right to relief jointly, severally, or in the alternative with respect to or arising out of the same transaction, occurrence, or series of transactions or occurrences; and (B) any questions of law or fact common to all plaintiffs will arise in the action.” RCFC 20(a)(1).
In First Hartford, upon which the government relies, shareholders brought a Winstar-related breach-of-contract suit on behalf of a corporation that was unable or unwilling to bring suit.
A close analog here is found in System Fuels, in which a service company, System Fuels, contracted with the Department of Energy on behalf of, and as an agent for, Entergy Arkansas, the owner of a nuclear power plant, for disposal of spent nuclear fuel.
Somewhat similar reasoning was applied respecting interrelated entities in the case of Montana v. United States,
While the proposition that the “government consents to be sued only by those with whom it has privity of contract” is generally true, see Erickson Air Crane,
Nonetheless, factually, whether Haddon Associates is a necessary party, a real party in interest, or a permissive party is not fully ascertainable from the documentary record before the court because some ambiguity exists as to the interrelationship of Haddon Associates with Housing Authority. The joint stipulations of fact, along with the HAP Contract and lease agreement, provide an indication of the working arrangements between Haddon Associates and Housing Authority insofar as the government is concerned, but relatively few details are available. For example, there is an indication from the facts that Haddon Associates may have been operating as the managing agent for Housing Authority. Section 4.09 of the lease requires that either “the Lessee or the Management Agent on the Lessee’s behalf’ should submit requests to HUD for housing assistance payments. Stip. Ex. B at 00041 (Lease Agreement § 4.09); see also id. at 00039 (§ 3.07) (indicating that the managing agent prepares the annual budget on behalf of the Lessee). The parties’ joint stipulations do not identify the managing agent but they do state that “[s]ince 2001, Haddon Associates, on behalf of itself and Housing Authority, regularly submitted to HUD vouchers for payments and received monthly housing assistance payments, payments from tenants [,] and other revenue from the property.” Stip. ¶ 6. In this same vein, the lease provides that “[t]he Lessor [Haddon Associates] will operate the Project so that Lessee [Housing Authority] may comply with all rules and regulations of HUD which are or may become applicable to the Project.” Stip. Ex. B at 00040 (Lease Agreement § 4.01). Correlatively, under the lease, Haddon Associates is responsible for the maintenance of the Project. Id. (§ 4.02) (“The Lessor [Haddon Associates] will maintain or cause to be maintained each dwelling unit constituting a part of the Project in decent, safe and sanitary condition.”). This constellation of provisions suggests that Haddon Associates not only owns the Project but that it also in effect is responsible for its day-to-day operation, compliance with HUD’s regulatory requirements, and for the HUD rental-assistance matters. However, the record does not disclose the manner in which rental increases were sought from the outset of the Project through 1995, who made decisions not to seek rental increases after 1995 until 2007, or who submitted monthly invoices to HUD for rental-assistance payments.
B. Plaintiffs’ Obligation to Request Rent Increases
Much of the government’s argument in its cross-motion for summary judgment rests on language in the HAP Contract that differs from that used in contracts at issue in prior cases of this type decided by the courts. Section 2.7(b) of the Rohrer Towers HAP Contract provides: “Upon request from the Oivner to the C[ontract] A[dministrator], Contract Rents will be adjusted on the anniversary date of the Contact in accordance with 24 C.F.R. 888 and this Contract....
Automatic Annual Adjustments.
(1) Automatic Annual Adjustment Factors will be determined by the Government at least annually; interim revisions may be made as market conditions warrant. Such Factors and the basis for their determination will be published in the Federal Register....
(2) On 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. Contract Rents may be adjusted upward or downward, as may be appropriate; however, in no case shall the adjusted Contract Rents be less than the Contract Rents on the effective date of the Contract.
Cisneros,
In their cross-motions for summary judgment, the parties extensively debate the import of the “[u]pon request from the owner” contractual language of the lease. The government argues that the HAP Contract in this case, applied in accord with its plain meaning, “place[s] the responsibility of requesting annual adjustments upon the owner as a condition precedent” to receiving rent adjustments. Def.’s Cross-Mot. at 11-12. As the government would have it, HUD could not have breached the contract by requiring a comparability study because plaintiffs did not request annual rent adjustments until August 13, 2007. See Stip. ¶ 13. HUD Notice 95-12, issued to implement the 1994 Amendments, specifies that if an owner fails to request an adjustment before the anniversary date, HUD will only permit the rent adjustment to take place if the owner submits the necessary information and then the adjustment will take place sixty days after the submission. Stip. Ex. C at 00061-62 (Notice 95-12).
In contrast, plaintiffs contend that the contract at issue here is substantively indistinguishable from the contracts in prior cases and that the regulations governing rent adjustments in effect prior to the 1994 amendments indicate that the rent adjustments were to be automatic. PL’s Opp’n to Def.’s Cross-Mot. at 4-5.
“In contract interpretation, the plain and unambiguous meaning of a written agreement controls. The contract must be construed to effectuate its spirit and purpose giving reasonable meaning to all parts of the contract.” Arko Exec. Servs., Inc. v. United States,
On its face, the HAP Contract appears to require plaintiffs to request rent increases. Nor is such a requirement necessarily inconsistent with the regulations which refer to “Automatic Annual Adjustment Factors.” See
The stipulated facts indicate that HUD granted plaintiffs rent increases between 1980 and 1994. See Stip. ¶¶ 8, 12 (specifying that the contract rent was $493 in 1980 and $860 in 1995). However, nothing in the stipulations or the accompanying documentary exhibits indicates who requested such rent increases or how they were implemented. Indeed, there is no showing whether Housing Authority, or Haddon Associates, or any third party actually requested rent increases from HUD during that time period. In short, there is no evidence regarding whether HUD required formal requests before granting rent increases. This evidence is important to determine whether or not the parties established a pattern of conduct that pragmatically interpreted and applied the requirement that plaintiffs request rent increases. See Brooklyn Life Ins. Co. v. Dutcher,
Also lacking is evidence in the stipulations and documentary attachments regarding whether, after the 1994 Amendments, it would have been futile for plaintiffs to request rent increases without submitting comparability studies. In related respect, the factual record is insufficiently developed to determine whether plaintiffs, had they submitted comparability studies, would have waived any claim they might have had that the contract was breached because of the 1994 Amendments. The following hypothetical put forth by Judge Allegra raises these futility and waiver issues:
Suppose that A agrees to sell Blackacre to B at a date certain, for an amount corresponding to a base price adjusted to the*20 date of the transfer by some recognized inflation index — that is, unless B demonstrates, before the transfer date, that the purchase price so adjusted overstates the market value of Blackacre. Suppose further that, after the agreement is executed, B repudiates the pricing mechanism therein and instead indicates that it will pay only the unadjusted base price, unless A demonstrates that the inflation-adjusted figure corresponds to the actual market value of Blackacre. Despite the fact that the parties cannot agree on the price, the transfer occurs. A refuses to comply with B’s new pricing mechanism, fearful, inter alia, that doing so might be viewed as waiving any breach claim it might have. Yet, A, nonetheless, insists that B owes it the higher purchase price established by the original contract, independent of the limitations clause, which, of course, was never invoked by B. B, for its part, asserts, that it owes only the unadjusted base price because A failed to demonstrate that it was entitled to the inflation-adjusted price. B makes its payment on this basis. A sues B.
Park Props. II,
ask first whether the condition originally imposed on the inflation-adjusted price survived the repudiation [.] If it did not, then B would be obliged to pay the inflation-adjusted price whether the clause was invoked or should have been, and no matter what the market value of the property was at the time of the transfer. This result has the advantage, of course, of preventing B from benefitLtjing from its own repudiation — in seeking to limit its exposure, it can rely neither on the assumption that it would have invoked the original limitations clause, nor A’s failure to invoke the new limitations clause unilaterally imposed by B, nor even subsequent proof at trial that, had the limitations clause been invoked, the market value of Blackacre would have been lower than the inflation-adjusted price.
Id. at 169. While this particular hypothetical was examined in determining the applicability of the overall limitation clause, see id., it is also relevant in determining whether the “upon request” clause in this HAP Contract survived the changes introduced by the 1994 amendments, which allegedly breached the HAP Contract, or whether the futility of making such a request after the 1994 amendments should lead the court to deem the clause to be without effect.
Because the particular circumstances of this case raise issues of contemporaneous construction by the parties as to the “upon request” clause, as well as of waiver and futility, and because the factual record is insufficient to decide the cross-motions for summary judgment, they must be denied and the case remitted for trial.
CONCLUSION
For the reasons stated, the extensive stipulations of fact filed by the parties are insufficient to resolve issues material to a disposition of this case. Accordingly, plaintiffs’ motion for summary judgment and the government’s cross-motion for summary judgment are DENIED. The parties are requested to file a joint status report on or before April 2, 2010, addressing the matters encompassed by RCFC Appendix A, ¶¶ 5 and 12 (last sentence), with respect to preparations for a trial of the material issues in dispute.
It is so ORDERED.
Notes
. The recitations that follow do not constitute findings of fact. Instead, the recited factual elements are taken from the parties' stipulations of fact and other filings and are undisputed except where a contrary indication is noted.
. The documentary attachments to the Joint Stipulations are sequentially paginated, and the pages of the attachments will be cited to that pagination rather than to the document-specific pagination.
. Both of these 1994 amendments to Section 8(c)(2)(A) stated that "[t]he immediately foregoing sentence shall be effective only during fiscal year 1995.”
. HUD reinstated and extended the terms of Notice 95-12 through subsequent notices. See Stip. Ex. C at 00082 (HUD Notice 97-14 (Mar. 17, 1997)); id. at 00100 (HUD Notice 98-3 (Jan. 23, 1998)); id. at 00102 (HUD Notice 99-17 (July 8, 1999)); id. at 00103 (HUD Notice 00-14 (Aug. 9, 2000)); id. at 00104 (HUD Notice 02-10 (May 17, 2002)).
. The Joint Stipulations do not address whether rent adjustments were sought from 1995 through 2001.
. In United States v. Winstar Corp.,
. Also, the government must have known of Housing Authority’s relationship with Haddon Associates earlier than January 1980, well before the HAP Contract was executed, because recitals in the lease dated January 1, 1980, state that "the Lessee [Housing Authority] has heretofore entered into an Agreement to Enter Into [a] Housing Assistance Payments Contract ('HAP Agreement') with the United States.” Stip. Ex. B at 00032 (Lease Agreement) (quoted more fully supra, at 3).
. The HAP Contract in this case states that the contract rent is to be adjusted "in accordance with 24 C.F.R. 888.” Stip. Ex. A at 00016 (HAP Contract § 2.7(b)). Section 888 of the regulations referred repeatedly to "Automatic Annual Adjustment Factors.” See