OPINION
“[N]o man may take advantage of his own wrong.”
This contract case is before the court on the parties’ cross-motions for partial summary judgment. Plaintiffs entered into rent subsidy agreements with the United States Department of Housing and Urban Development (HUD), known as “Housing Assistance Payment” (HAP) contracts. Relying on Cuyahoga Metro. Hous. Auth. v. United States,
I. BACKGROUND
A detailed recitation of this case may be found in this court’s prior opinion. Park Properties I,
In 1974, Congress amended the Housing Act of 1937 (Housing Act) to create what is known as the Section 8 housing program. See 42 U.S.C. § 1437f. Under the program, tenants make rental payments based upon their income and ability to pay; HUD makes “assistance payments” to the private landlords to make up the difference between the tenant’s contribution and a “contract rent” agreed upon by the landlord and HUD. 42 U.S.C. §§ 1437a(a), 1437f(c)(3); see also Nat’l Leased Hous. Ass’n v. United States,
• On September 27, 1978, Jerome Z. Ginsburg d/b/a “Park Property Associates” and HUD entered into a HAP Contract for Lamartine Terrace (the Lamartine HAP Contract). The effective date of the Lamartine HAP Contract is June 1, 1979. On July 1, 1996, Park Property Associates’ interest in this contract was transferred to Park Properties Associates, L.P., a plaintiff in this case.
• On September 27, 1978, Jerome Z. Ginsburg d/b/a “Valentine Property Associates” and HUD entered into a HAP contract for Valentine’s Lane Hill Apartments (the Lane Hill HAP Contract). The Lane Hill HAP contract was executed in two stages: (i) stage 1 became effective on January 2, 1980; and (ii) stage 2 became effective on February 19, 1980. On July 1, 1996, Valentine Property Associates’ interest in this contract was transferred to Valentine Associates, L.P., a plaintiff in this case.
• On September 29, 1980, St. John’s I Associates, L.P. (St. John’s), also a plaintiff herein, and HUD entered into a HAP contract for St. John’s Phase I (the St. John’s HAP Contract). The St. John’s HAP Contract was executed in three stages: (i) stage 1 became effective on July 1,1982; (ii) stage 2 became effective on September 22, 1982; and (iii) stage 3 became effective on December 15, 1982.
The framework for these contracts is governed, in part, by 42 U.S.C. § 1437f(c)(1), under which an initial, maximum monthly contract rent was established for each dwelling unit.
(A) The assistance contract shall provide for adjustment annually or more frequently in the maximum monthly rents for units covered by the contract to reflect changes in the fair market rentals established in the housing area for similar types and sizes of dwelling units or, if the Secretary determines, on the basis of a reasonable formula.
(C) Adjustments in the maximum rents under subparagraphs (A) and (B) shall not result in material differences between the rents charged for assisted units and comparable unassisted units, ... as determined by the Secretary.
42 U.S.C. § 1437f(c)(2)(A) and (C) (1982). The HAP contracts in question implemented these provisions by providing that adjustment of rents would be made annually on the
The annual adjustment was implemented through Section 1.8b (“Automatic Annual Adjustments”) of the HAP contracts, which, with minor irrelevant variations in the subject contracts, provided, in pertinent part—
(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 Regis-ter____
(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.
Consistent with 42 U.S.C. § 1437f(c)(2)(C), the HAP contracts also contained, in Section 1.8d, an “Overall Limitation,” that stated:
Notwithstanding any other provisions of this Contract, adjustments as provided in this Section shall not result in material differences between the rents charged for assisted and comparable unassisted units, as determined by the Government; provided, that this limitation shall not be construed to prohibit differences in rents between assisted and comparable unassisted units to the extent that such differences may have existed with respect to the initial Contract Rents.
HUD regulations in effect at the time the contracts in question were executed mirrored these requirements. See 24 C.F.R. § 881.110(d) (1979).
In the early 1980s, HUD began using “comparability studies”—surveys of rents at comparable unassisted buildings—to enforce the “overall limitation” in its various HAP contracts. This practice was challenged in court as violating the contracts. Attempting to resolve this controversy, Congress, in 1987, added the following sentence to section 1437f(c)(2)(C): “If the Secretary ... does not complete and submit to the project owner a comparability study not later than 60 days before the anniversary date of the assistance contract under this section, the automatic annual adjustment factor shall be applied.” Housing and Community Development Act of 1987, Pub.L. No. 100-242, § 142(c)(2)(B), 101 Stat. 1815, 1850 (1988), codified, at 42 U.S.C. 1437f(c)(2)(C). But, litigation over the rent adjustment method continued to brew, prompting Congress, in 1989, to enact Section 801 of the Department of Housing and Urban Development Reform Act of 1989 (the Reform Act), Pub.L. No. 101-235, 103 Stat. 1987, 2057-2059 (codified at 42 U.S.C. 1437f(c)(2)(C) (Supp. II 1990) and 42 U.S.C. 1437f note (Supp. II 1990)), which prescribed new procedures for calculating rent adjustments. Retrospectively, it required HUD to pay landlords an increased amount, above what the studies required HUD to pay under its interpretation of the contracts; prospectively, it established a limited role, under defined criteria, for HUD’s future use of comparability studies.
The Reform Act required HUD to promulgate “regulations for conducting comparability studies for projects where the Secretary has reason to believe that the application of the formula adjustments ... would result in such material differences” between assisted and unassisted units, and to use those studies to establish a “modified annual adjustment factor” for a geographically smaller area. Pub.L. No. 101-235 § 801(c), 103 Stat. 1987, 2058 (1989). The statute described, in detail, the methodology the Secretary was to use in conducting these studies. It also stated that if a modified adjustment factor could not be established or failed to eliminate material differences between rents at comparable assisted and unassisted units, the Secretary could employ another methodology “for conducting comparability studies in order to establish rents that are not materially different from rents charged for comparable unassisted units.” Id. In keeping with those provisions, HUD promulgated regulations to govern the conduct and use of comparability
In 1993, the Supreme Court, in Cisneros v. Alpine Ridge Group,
However, where the maximum monthly rent, for a unit in a new construction, substantial rehabilitation, or moderate rehabilitation project, to be adjusted using an annual adjustment factor exceeds the fair market rental for an existing dwelling unit in the market area, the Secretary shall adjust the rent only to the extent that the owner demonstrates that the adjusted rent would not exceed the rent for an unassisted unit of similar quality, type, and age in the same market area, as determined by the Secretary. The immediately foregoing sentence shall be effective only during fiscal year 1995.
Departments of Veterans Affairs and Housing and Urban Development, and Independent Agencies Appropriations Act, 1995, Pub.L. No. 103-327, 108 Stat. 2298, 2315 (1994) (“the 1994 Act” or “1994 amendments”). The 1994 Act provided that the amendment “shall apply to all contracts for new construction, substantial rehabilitation, and moderate rehabilitation projects under which rents are adjusted under section 8(c)(2)(A) of [the United States Housing Act of 1937] by applying an annual adjustment factor.” Id. Subsequent amendments cumulatively made the provision applicable to “fiscal year 1996 prior to April 26, 1996, and fiscal year 1997,” “fiscal years 1997 and 1998,” and “during fiscal year 1999 and thereafter.”
On March 7, 1995, HUD issued Notice 95-12, by its terms designed “[t]o effect all applicable contracts with HAP anniversary dates from [March 7, 1995] to the end of Federal [fiscal year] 1995 (through September 30, 1995).” This directive prescribed, with exceptions not herein relevant—
If current project rents on a ... contract (before the application of the AAF) are above the published [fair market rent] for the area then in order to receive a rent increase, the owner must submit, at least 60 days prior to the HAP contract anniversary date, form HUD 92273, Estimates of Market Rent by Comparison, ... completed by a non-identity of interest, state certified, general appraiser, FOR EACH UNIT TYPE (e.g.1 BR, 2 BR, etc.). This form must contain at least three examples of unassisted housing in the same market area of similar age, type and quality.
Regarding the consequences of not filing a comparability study, it indicated—
If the owner fails to submit the information required by this Notice at least 60 days before the contract anniversary date, then the rent levels will not be adjusted on the contract anniversary date, rather the new rent levels will go into effect 60 days after receipt of the required information. However, if the owner fails to submit this information by the date of the FY 1996 HAP contract anniversary, then no increase will be granted for the FY 1995 contract year.
At several other points, the notice reiterated the consequences of not filing a timely request for an increase.
Pursuant to the application of the published AAAFs, the contract rent for the St. John’s HAP contract increased from its initial contract rents in 1979 of $496, $598, $713, and $830 for no-bedroom, one-bedroom, two-bedroom and three-bedroom units, respectively, to $812, $950, $1,082 and $1,257 in 1994. According to plaintiffs, Park Properties has not received annual rent increases for the LaMartine Terrace Property for the years 1995 through 2000; defendant asserts that a rent increase, in fact, was received for 2000. Plaintiffs also state that Valentine Properties has not received annual rent increases for the Lane Hill Property for the years 1996 through 2000, and did not receive a rent increase for two-bedroom units at the Lane Hill Property in 2003. Additionally, plaintiffs allege that the St. John’s Property has not received annual rent increases for the years 1996 through 2001. Defendant admits that St. John’s did not receive annual rent increases for St. John’s Phase I under the St. John’s HAP Contract for the years 1997 through 2001, but denies that St. John’s did not receive a rent increase for St. John’s Phase I in 1996. Effective on July 1, 1996, HUD adjusted the contract rents under the St. John’s HAP Contract based upon the application of published AAAFs, to $831 per month for the no-bedroom units, $973 per month for the one-bedroom units, $1,108 per month for the two-bedroom units, and $1,287 per month for the three-bedroom units.
On December 10, 2004, plaintiffs filed their complaint seeking contract damages of $2.75 million against the United States, alleging breach of that portion of the HAP contracts which plaintiffs claim entitles them to automatic annual rent adjustments. On November 17, 2006, this court held that defendant had repudiated the HAP contracts when Congress amended the Housing Act to require that owners provide HUD with rent comparability studies in order to receive an annual rent adjustment and in issuing the 1995 direction which imposed additional requirements not envisioned by the contracts or the 1994 amendments. Park Properties I,
II. DISCUSSION
We begin with the general rule that “[wjhen the United States enters into contract relations, its rights and duties therein are governed generally by the law applicable to contracts between private individuals.” Lynch v. United States,
The question here is how, if at all, the so-called “overall limitation” contained in plaintiffs’ HAP contracts impacts the amount of expectancy damages recoverable for the contract breaches that occurred in this case.
To help sort this out, consider the following hypothetical. Suppose that A agrees to sell Blackacre to B at a date certain, for an amount corresponding to a base price adjusted to the 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.
At first blush, one approaching this hypothetical might be inclined to focus upon foreseeability, the core requirement for awarding expectancy damages. If invocation of the limitations clause was foreseeable at the time the contract was executed, some might say, then that limitation should apply in calculating any damages owed by B to A. But, this result is not easily reconciled with the fact that the price limitations clause in the hypothetical is not self-triggering—it did not apply automatically if the inflation-adjusted price overstated the market value of Black-acre, but only applied if it was properly invoked by B. Because the clause had to be invoked, it would seem wrong to treat the market value of Blackacre as an absolute limit on any damages owed—that result, in many ways, would reward B, giving it the very result it sought when it repudiated the contract. Logic and common-sense both suggest that one ought not blithely assume that the difference between the inflation-adjusted price and the market value of the property would have been enough to prompt B to invoke the clause or even that B had the financial wherewithal to muster the necessary proof. What if, for example, B was unsure whether the benefit of capturing the differential between the inflation-adjusted price and market valuation was worth the cost of determining and demonstrating that differential? But, as hinted above, more is lurking here than a debate over whether B might have invoked the clause. Indeed, initially focusing on whether vel non the limitations clause would have been invoked skitters past a more fundamental question, to wit, whether that clause could be invoked.
So how similar is the hypothetical to the present case? In large part, that depends upon how similar the limitations clause in the hypothetical is to the original overall limitation clause. Not coincidentally, they are very similar. Like the clause in the hypothetical, the original overall limitation clause in the HAP contracts was not self-executing. Rather, it required HUD to take affirmative steps to invoke the clause by determining that there was a material difference between the rents adjusted under the inflation adjustment clause and those being paid on comparable unassisted housing. If HUD did not take this action, the increased rents, derived using the AAAFs, automatically took effect.
Accordingly, in calculating the damages owed for the breaches that arose from the repudiation here, the court must preliminarily determine whether the overall limitation in the HAP contracts survived the repudiation. If it did not, then, this court need not resolve questions concerning how expectancy damages are limited by that clause.
A. Did the Overall Limitation Survive Defendant’s Repudiation?
For reasons that will become increasingly obvious, it is helpful to proceed by further defining the nature of the overall limitation clause. It requires little to conclude that the clause presents a condition—defendant is liable to pay the rents associated with the AAAFs unless it determines that market rents are lower. But, what sort of condition is this?
Traditionally, the law has spoken of conditions precedent and subsequent. “A condition precedent is either an act of a party that must be performed or a certain event that must happen before a contractual right accrues or contractual duty arises.” 13 Richard A. Lord, Williston on Contracts § 38:7 (4th ed.2000). By comparison, a “condition subsequent” is “an event which occurs subsequent to a duty of immediate performance, that is, a condition which divests a duty of
It is well-settled that a party to a contract cannot escape or minimize its liability on the ground that the other party has failed to perform a condition precedent to the establishment of such liability, where the breaching party has caused that failure. This doctrine, often described as the “doctrine of prevention,” has been summarized in Williston thusly:
Where a promisor prevents, hinders, or renders impossible the occurrence of a condition precedent to his or her promise to perform, or to the performance of a return promise, the promisor is not relieved of the obligation to perform----[I]n such a case, the promisor may not invoke the other party’s nonperformance as a defense when sued upon the contract.
13 Williston on Contracts, supra, at § 39:3; see also id. at 39:4 (“In effect, where one improperly prevents the performance or the happening of a condition of his or her own promissory duty, the offending party thereby eliminates it as a condition or, viewed another way, the condition is considered as waived or fulfilled.”).
“Cases illustrating the prevention principle ‘are legion.’ ” Shear v. Nat’l Rifle Ass’n of America,
If the defendant’s contention is right, that breach made it impossible for the plaintiff to entitle itself to the payment promised in the policy according to its terms. But the defendant could not set itself free by so simple a device. In general, when one party, by his fault, prevents the other party to a contract from entitling himself to a benefit under it according to its terms, the former is liable for the value of that benefit, less the value or cost of what the plaintiff would have had to do to get it.
Id. at 180-81,
Looking at the substance of the matter, it makes no practical difference, no difference in the amount of the defendant’s liability, whether we say that the defendant, by its conduct, made performance of the conditions by the plaintiff impossible, and therefore was chargeable for the sum which it would have had to pay if those conditions had been performed, or answer, ... that the performance of the conditions was waived.
Id. at 181,
Drawing on precedents such as these, later eases in the Court of Claims and this court have applied the prevention doctrine in cases involving the United States. A prime example is David J. Joseph Co. v. United States,
While the pedigree and wisdom of the prevention doctrine are unquestionable, it remains to determine whether that doctrine applies here. As noted, the overall limitation clause in the original HAP contracts incorporates a condition precedent that, if properly triggered, limited HUD’s obligation to pay the rent increases that otherwise would be generated under the AAAFs formula. The United States, through Congress’ passage of the 1994 amendments, effectively prevented HUD from invoking that clause on behalf of the United States. Via this repudiation of the original HAP contracts, defendant prevented a condition precedent from occurring that might or might not have limited its liability in this breach action. Under the prevention doctrine, that action may be viewed as either waiving or eliminating the original overall limitation, thereby preventing defendant from invoking that clause now to limit plaintiffs damages, and leaving it liable for the rent increases generated by the application of the AAAFs. In so concluding, the court need not dwell on whether the legislation made it impossible or impracticable for HUD to invoke the original clause, or merely substantially hindered it from invoking that clause. While defendant, to be sure, has essentially argued that the legislation left it unable to invoke the original clause, it is sufficient that the passage of that legislation contributed materially to the nonoccurrence of the overall limitation being invoked.
Application of the prevention doctrine here fulfills the twin rationales underlying the doctrine. That doctrine first is based upon the “long-established principle of law that one should not be able to take advantage of his or her own wrongful act.” 18 Williston, supra, at § 39:6.
In sum, based on the foregoing, the court finds that defendant’s repudiation of the original overall limitation clause prevents it from relying on that clause in seeking to limit its liability for increased rents. The court thus need not consider whether that clause would or should have been invoked.
On brief, defendant contends that the Supreme Court, in Alpine Ridge, held that the overall limitation clause caps the rent adjustments irrespective of whether it was invoked by HUD. It points to the Court’s statement that “we think it clear beyond peradventure that [the overall limitation] provides that contract rents ‘shall not’ be adjusted so as to exceed materially the rents charged for ‘comparable unassisted units’ on the private rental market—even if other provisions of the contracts might seem to require such result.”
Such, indeed, was the holding rendered in the first opinion in Statesman II,
In the HAP contracts at issue in the instant case, Section 1.8 plainly manifests the parties’ intent that HUD would automatically adjust the contract rents on the contracts’ anniversary dates absent a determination by the government that such adjustments would result in rental amounts materially different from those for comparable unassisted units.
To be sure, defendant correctly notes that, in a second opinion, the Statesman II court held that the overall limitation should be applied to limit the expectancy damages recoverable upon the breach effectuated by the 1994 amendments.
There is undeniably some tension between the result reached here and that in the second opinion in Statesman II. Yet, contrary to defendant’s claims, that second opinion is more conspicuous for what it does not say. First, the court in that opinion did not consider whether the repudiation waived or eliminated the limitation clause under the prevention of conditions doctrine. There is, indeed, no indication that the court was alerted to this issue. Second, while the court in Statesman II analyzed what would have happened had HUD invoked the overall limitation, it did not consider whether it was foreseeable that the clause actually would have been invoked had Congress not repudiated the original HAP contract provisions. In the court’s view, the latter inquiry was a precondition to applying the overall limitation clause again because that clause was not an absolute limitation, but had to be invoked by HUD. Yet, the Statesman II court—again perhaps because the issue was not raised— moved immediately to a construction of the “material difference” language in the clause, presuming, for whatever reasons, that the clause would have been invoked. Certainly, nothing in this second Statesman II opinion can be read as negating the same judge’s views, expressed repeatedly in the first opinion in Statesman II, that the overall limitation clause was not self-effectuating and was to be invoked “only in those presumably exceptional cases where the Secretary [of HUD] has reason to suspect that the adjustment factors are resulting in materially inflated rents that a comparability study would
ill. CONCLUSION
Defendant cannot squash its contractual cake and eat it too. That is to say, it cannot repudiate the rent adjustment provisions in the HAP contracts via legislation that significantly modified them in its favor and then, later, seek to cap its damages via a limitation that, for all intents and purposes, effectuates the breaching modification. To hold otherwise would be to reward defendant for its repudiation in a way that the law simply does not permit. Instead, the court holds that, having repudiated the overall limitation provision in the original HAP contracts, defendant may not rely upon that clause in limiting its damages. Based on the foregoing, the court GRANTS, in part, plaintiffs motion for partial summary judgment and DENIES defendant’s cross-motion for partial summary judgment.
IT IS SO ORDERED.
Notes
. Glus v. Brooklyn Eastern Terminal,
. In that opinion, the court deemed certain facts established for purposes of future proceedings in this case. See Park Properties I,
. For a more extensive discussion of the statutory and regulatory framework underlying the HAP contracts, see Cuyahoga I,
. See Pub.L. No. 105-33, § 2004, 111 Stat. 251, 257 (1997); Pub.L. No. 105-65, § 201(C)(1), 111 Stat. 1344, 1364 (1997); Pub.L. No. 104-204, § 201(g), 110 Stat. 2874, 2893 (1996).
. For example, it stated that—"[i]f an owner does not request an increase or fails to submit a request based on the guidelines in this chapter, then the rents will remain the same as the current contract rents, unmodified by HUD or the Contract Administrator.”
. Similar views are expressed in the Restatement (Second) of Contracts, § 347, cmt. a (1981): "Contract damages are ordinarily based on the injured party’s expectation interest and are intended to give him the benefit of his bargain by awarding him a sum of money that will, to the extent possible, put him in as good a position as he would have been in had the contract been performed.”
. This view of the contract was pivotal in the opinions concluding that requiring project owners to bring forth documentation in support of rent increases repudiated the HAP contract. See Park Properties I,
. As noted in several treatises, bonds often contain conditions framed in subsequent terms that are actually conditions precedent. 13 Williston, supra, at §§ 2:19, 38:10; 18 Ohio Jur.3d § 155 (2008). Under most bonds, the obligor promises absolutely to pay the sum of the bond, but is excused from liability if certain conditions occur. See State Farm Mut. Auto. Ins. Co. v. Palmer,
. Indeed, the Restatement (Second) of Contracts has shunned the labels "conditions precedent” and "condition subsequent" in favor of dealing simply with a “condition." The latter it defines as "an event, not certain to occur, which must occur, unless its nonoccurrence is excused, before performance under a contract becomes due.” Restatement (Second) of Contracts § 224; see also id. at cmt. e; Heritage Bank & Trust Co. v. Abdnor,
. See also Northeast Drilling, Inc. v. Inner Space Servs., Inc.,
. See also, e.g., Willbros Engineers, Inc. v. Mas-tec North America, Inc.,
. Similarly to this effect see Apalucci v. Agora Syndicate, Inc.,
. See Restatement (Second) of Contracts § 245; see also 13 Williston, supra, at § 39:9 ("Under the doctrine of prevention, interference by one party to a contract need not make performance
. See also Apalucci,
. See also Glus,
. See also Dohanyos v. Prudential Ins. Co.,
. In contending otherwise, defendant also cites National Leased Housing Ass’n v. United States,
. As plaintiff notes, this court did not reach the issue of the applicability of the overall limitation in the damages opinion in Cuyahoga II, supra, because the plaintiff there stipulated that "the overall limitation should apply even though HUD did not prepare comparability studies during any of the relevant years and plaintiff supplied such studies later.”
. The court declines to direct entry of damages for the plaintiffs on the basis of the AAAF-adjust-ed rents based on the existence of genuine issues of material fact.