Evergreen Square of Cudahy, et al v. Wisconsin Housing and Economic, et al

Filing

Filed opinion of the court by Judge Rovner. AFFIRMED. William J. Bauer, Circuit Judge; Ilana Diamond Rovner, Circuit Judge and David F. Hamilton, Circuit Judge. [6819857-1] [6819857] [16-1475]

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In the

United States Court of Appeals
For the Seventh Circuit
No. 16-1475
EVERGREEN SQUARE OF CUDAHY, et al.,
Plaintiffs-Appellants,
v.
WISCONSN HOUSING & ECONOMIC
DEVELOPMENT AUTHORITY,
Defendant/Third Party
Plaintiff-Appellee.
and
CRAIG T. CLEMMENSEN, Acting Secretary of the
United States Department of Housing &
Urban Development,
Third Party Defendant-Appellee.
Appeal from the United States District Court for the
Eastern District of Wisconsin.
No. 2:13-cv-00743-JPS — J. P. Stadtmueller, Judge.

ARGUED SEPTEMBER 27, 2016 — DECIDED FEBRUARY 17, 2017

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Before BAUER, ROVNER, and HAMILTON, Circuit Judges.
ROVNER, Circuit Judge. Evergreen Square of Cudahy
(“Evergreen Square”), Grant Park Square Apartments Company (“Grant Park”), and Washington Square Apartments
Company (“Washington Square”) are property owners
(collectively, “Owners”) who participated in the federal rental
assistance program commonly known as “Section 8.” They
sued the Wisconsin Housing and Economic Development
Authority (“Wisconsin Housing” or the “Authority”) for
allegedly breaching the contracts that governed payments to
the Owners under the program. Because Wisconsin Housing
receives all of its Section 8 funding from the United States
Department of Housing and Urban Development (“HUD”), the
Authority filed a third-party breach of contract claim against
HUD. The district court granted summary judgment in favor
of Wisconsin Housing and dismissed the claims against HUD
as moot. The Owners appeal and we affirm.
I.
The Section 8 program provides housing assistance
payments “[f]or the purpose of aiding low-income families in
obtaining a decent place to live and of promoting economically
mixed housing[.]” 42 U.S.C. § 1437f(a). See also Cisneros v.
Alpine Ridge Group, 508 U.S. 10, 12–14 (1993) (explaining basic
features of the Section 8 program). The program is administered by HUD in conjunction with public housing agencies.
HUD enters into annual contribution contracts with public
housing agencies, which in turn enter into contracts with
property owners to make housing assistance payments that

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subsidize rentals for qualified tenants. Under these contracts,
the tenants are required to pay a percentage of their income to
the property owners, the housing agencies pay the remaining
rent, and HUD reimburses the housing agencies. In areas
where there are no public housing agencies, HUD enters into
contracts directly with property owners in order to provide
housing assistance payments. In this case, HUD contracted
with Wisconsin Housing, which in turn entered into agreements with each of the Owners. The parties call the agreements
between the state housing agencies and property owners
“housing assistance payment contracts” or “HAP contracts”
and we will follow that convention as well.
Section 8 provides that the HAP contracts will establish the
maximum monthly rent which property owners are entitled to
receive for each dwelling unit. 42 U.S.C. § 1437f(c)(1)(A). In
addition to setting standards for the initial rent for subsidized
units, Section 8 also dictates how rents may be adjusted in
order to reflect changes in fair market rental values over time.
The statute provides that a HAP 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.”
42 U.S.C. § 1437f(c)(2)(A). But Congress also imposed an
overall limit on any increases, providing that rent adjustments
“shall not result in material differences between the rents
charged for assisted units and unassisted units of similar
quality, type, and age in the same market area, as determined
by the Secretary.” 42 U.S.C. § 1437f(c)(2)(C).

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Even with these measures in place, the automatic rent
increase system sometimes pushed rents well above market
rates for comparable unsubsidized housing units. See One &
Ken Valley Housing Group v. Maine State Housing Auth., 716 F.3d
218, 221 (1st Cir. 2013). When HUD tried to rein in the excess
increases, lawsuits followed. In response to this litigation over
HAP contracts, Congress amended Section 8, first in 1988 and
again in 1994. As a result of the 1988 amendments, HUD or a
public housing agency could deny an automatic annual rent
adjustment at a Section 8 site by submitting a comparability
study to the property owner at least sixty days before the
adjustment was to take effect. One & Ken Valley, 716 F.3d at
221–22. This change led to more litigation by property owners
who asserted that their HAP contracts entitled them to
automatic annual adjustments without regard to comparability
studies. The Supreme Court concluded that, under the overall
limitations clause of the HAP contracts, property owners were
not entitled to formula-based rent adjustments that materially
exceed market rents for comparable units. Alpine Ridge,
508 U.S. at 21. The Court also found that the overall limitation
clause of the HAP contracts “affords the Secretary sufficient
discretion to design and implement comparability studies as a
reasonable means of effectuating its mandate.” Alpine Ridge,
508 U.S. at 21; One & Ken Valley, 716 F.3d at 222.
In 1994, one year after the Alpine Ridge decision, Congress
amended Section 8 again:
[W]here the maximum monthly rent … to be
adjusted using an annual adjustment factor
exceeds the fair market rental for an existing
dwelling unit in the market area, the Secre-

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tary 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.
42 U.S.C. § 1437f(c)(2)(A). Under the 1988 provision, HUD had
the burden of producing a comparability study whenever it
sought to withhold an automatic adjustment. The 1994 amendment shifted to the property owners the burden of demonstrating that adjusted rents would not exceed the market rent for
comparable unassisted units. One & Ken Valley, 716 F.3d at 222.
In 1995, HUD issued Notice H 95-12 (“1995 Notice”) in
order to provide housing authorities with guidelines for
implementing the statutory changes. The 1995 Notice directed
public housing authorities to consult HUD’s annual fair market
rent charts for different unit types1 in different geographic
regions. Where the automatic increase would result in a rent
higher than the corresponding fair market value listed in
HUD-published tables, the 1995 Notice directed public housing
authorities to assume that the contract rent is above-market.
But HUD also accounted for the fact that, under the overall
limitation clause, landlords were entitled to receive abovemarket rents to the extent that those differences existed at the
outset of their contracts:

1

“Unit type” refers to the size of the housing unit. Unit types include
efficiency, one-bedroom, two-bedroom, three-bedroom and four-bedroom
units.

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HUD adopted an assumption that, from the outset, public
housing agencies were paying Section 8 landlords 10 percent
more than the fair market rents for comparable units.
As long as the difference between the adjusted rent and the fair market rent is less
than this “initial difference,” Notice H 95–12
allows state and local housing agencies to
continue to grant rent increases based on the
automatic annual adjustment factors. However, if the difference between the adjusted
rent and the HUD-published fair market rate
rises to more than 10 percent of the initial
contract rent, Notice H 95–12 instructs housing authorities to deny further upward adjustments to Section 8 landlords. A Section 8
landlord can only escape from under this
ceiling by submitting its own rent comparability study showing that, despite the discrepancy with HUD’s published fair market
rents, the Section 8 unit is actually underpriced relative to comparable unsubsidized
units in the area.
One & Ken Valley, 716 F.3d at 223.2
As part of the Section 8 program, each year, HUD publishes
“annual adjustment factors” for specific geographic areas that

2

Since 1995, successive HUD publications have carried forward the
implementation of these policies. As of the time the district court ruled,
Notice H 2002-10 (“2002 Notice”) was the most recent of the notices.

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reflect changes in the Consumer Price Index for rents and
utilities over the prior year. See 24 C.F.R. §§ 888.201–204 (2012).
Prior to the 1994 amendments, HUD published a single table
to apply to all housing stock. After the 1994 amendments,
HUD began publishing two tables each year, one for “turnover
units,” and one for “non-turnover units.” The turnover rates
apply to units occupied by a new tenant since the last annual
contract anniversary date. The non-turnover rates apply to
units occupied by the same tenant as the last contract anniversary date. The tables presume that the costs to landlords are
lower when the same tenant stays in the unit, and so the nonturnover rates are one percent (.01) lower than the turnover
rates.
To this point, we have described the general provisions at
play in all Section 8 HAP contracts, and we now turn to the
facts specific to this case. Evergreen Square owns a 105-unit
housing project in Cudahy, Wisconsin. Evergreen Square’s
HAP contract term began with a five-year term on April 1,
1977. The contract has been renewed seven times (in five year
increments) and is set to expire on March 31, 2017. Grant Park
owns a 153-unit project in South Milwaukee, Wisconsin. Grant
Park’s initial five-year contract commenced on July 1, 1980 and
was then renewed for five additional five-year terms, expiring
on June 30, 2010. Washington Square owns an 88-unit project
in Cudahy, Wisconsin. Washington Square’s initial twentyyear HAP contract went into effect on December 1, 1982, was
renewed twice for five-year terms, and expired on November
30, 2012. Both the Evergreen Square and Grant Park HAP
contracts provide that, on the anniversary date, the contract
rents “shall be adjusted by applying the applicable Automatic

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Annual Adjustment Factor most recently published by the
Government.” Washington Square’s contract is slightly
different. It provides that, “[u]pon request from the Owner to
[Wisconsin Housing], Contract Rents will be adjusted on the
anniversary date” of the HAP Contract “in accordance with
24 CFR Part 888 and this Contract. See, however, paragraph
(d).” Paragraph (d) implemented the overall limitation
provision of the statute. A similar overall limitation paragraph
appears in the contracts for Evergreen Square and Grant Park,
but only Washington Square was required to ask for the
automatic annual increase. From 2006 until the contract
expired in 2012, Wisconsin Housing approved adjustments to
Washington Square’s rents only when Washington Square
submitted a rent adjustment request.
The Owners sued Wisconsin Housing in federal court for
breaching the HAP contracts by failing to approve automatic
rent increases for certain years, by requiring the Owners to
submit comparability studies in order to receive increases, and
by arbitrarily reducing the increases for non-turnover units by
one percent. Wisconsin Housing filed a third-party suit against
HUD, which provides all of the funding for the program. After
the district court dismissed the suit for lack of federal jurisdiction, we reversed and remanded with instructions to reinstate
the plaintiffs’ complaint. See Evergreen Square of Cudahy v.
Wisconsin Housing & Econ. Dev. Auth., 776 F.3d 463 (7th Cir.
2015). We concluded that, although the breach of contract
claims found their origins in state rather than federal law, the
claims belonged in federal court under the “special and small
category of cases in which arising under jurisdiction still lies.”

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Evergreen Square, 776 F.3d at 465–66 (quoting Gunn v. Minton,
133 S. Ct. 1059, 1064 (2013)).
On remand, the plaintiffs proceeded with three primary
claims against Wisconsin Housing: (1) breach of Washington
Square’s HAP contract for failing to automatically adjust
contract rents on an annual basis; (2) breach of all the Owners’
HAP contracts for employing a one percent reduction on the
rent adjustments for non-turnover units; and (3) declaratory
judgment to determine whether Wisconsin Housing could
require, under Evergreen Square’s HAP contract, rent comparability studies as a prerequisite to receiving rent adjustments
or employ a one percent reduction for rent adjustments on
non-turnover units. For the third-party claims against HUD,
the court allowed Wisconsin Housing to proceed on claims for
breach of the annual contributions contracts and declaratory
judgment to determine Wisconsin Housing’s rights and
obligations under the 1994 amendments. After all parties
moved for summary judgment, the district court granted
judgment in favor of Wisconsin Housing on all of the Owners’
claims, and dismissed the third party claims against HUD as
moot. The Owners appeal.
II.
On appeal, the Owners contend that Washington Square
should not be held to the contract provision requiring it to
request an annual adjustment before receiving one. They
contend that Washington Square should be excused from
complying with this contract term because: (1) enforcing the
provision would result in a disproportionate forfeiture; and (2)
Wisconsin Housing breached the Washington Square HAP

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contract by requiring a rent comparability study as a prerequisite to receiving an increase. The Owners also argue that the
district court erred in upholding the one percent reduction for
rent increases in non-turnover units, maintaining that the
adjustments must be made on a reasonable basis and the one
percent reduction is arbitrary. Our review of the district court’s
grant of summary judgment is de novo. Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 255 (1986); Yahnke v. Kane County, Ill.,
823 F.3d 1066, 1070 (7th Cir. 2016). Summary judgment is
appropriate when there are no genuine disputes of material
fact and the movant is entitled to judgment as a matter of law.
Fed.R.Civ.P. 56(a); Anderson, 477 U.S. at 255; Yahnke, 823 F.3d
at 1070.
A.
The district court noted that “[t]he parties do not dispute
the application of Wisconsin law to the parties’ state-law
breach of contract claim.” Evergreen Square of Cudahy v. Wisconsin Housing & Econ. Dev. Auth., 2016 WL 53871, *8 n.19 (E.D.
Wis. Jan. 4, 2016). The court cited Grable & Sons Metal Products,
Inc. v. Darue Eng’g & Mfg., 545 U.S. 308, 320 (2005), for the
proposition that the Supreme Court expressly contemplated
the application of state law in these circumstances.3 In their

3

Specifically, the district court cited Justice Thomas’s concurrence, where
he stated, “[t]he Court faithfully applies our precedents interpreting
28 U.S.C. § 1331 to authorize federal-court jurisdiction over some cases in
which state law creates the cause of action but requires determination of an
issue of federal law[.]” Grable & Sons, 545 U.S. at 320 (Thomas, J., concurring). The court may have over read the import of the concurrence, which
(continued...)

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opening brief, the Owners assumed (without arguing) that
Wisconsin law would apply to the contract-based claims.
Wisconsin Housing also assumed in its response brief that
Wisconsin law would apply to any state-law breach-of-contract
claim, citing our earlier opinion regarding jurisdiction. See
Evergreen Square, 776 F.3d at 465 (where we referred to the
plaintiffs’ claims as “state-law breach-of-contract claims”).4
But HUD took another view. In its response brief, HUD
asserts that the enforcement of Section 8 HAP contracts is a
question of nationwide applicability that must be governed by
federal common law. In a footnote, HUD cited United States v.
Kimbell Foods, Inc., 440 U.S. 715, 728 (1979), and Price v. Pierce,
823 F.2d 1114, 1120 (7th Cir. 1987), in support. Kimbell Foods
noted that “federal law governs questions involving the rights
of the United States arising under nationwide federal programs.” 440 U.S. at 726. However:
Controversies directly affecting the operations of federal programs, although governed
by federal law, do not inevitably require
resort to uniform federal rules. Whether to
3

(...continued)
does not seem to “expressly” contemplate application of state law in these
circumstances. The decision focuses on whether federal jurisdiction exists
in a case requiring the court to interpret a federal tax provision in the
context of a state court suit to quiet title. The Court did not directly answer
the question presented here.
4

Although we characterized the plaintiffs’ complaint as presenting “statelaw breach-of-contract claims,” we did not address whether Wisconsin law
should be applied.

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adopt state law or to fashion a nationwide
federal rule is a matter of judicial policy
dependent upon a variety of considerations
always relevant to the nature of the specific
governmental interests and to the effects
upon them of applying state law.

Kimbell Foods, 440 U.S. at 727–28 (omitting internal citations
and quotation marks). In determining whether state or federal
law should apply in such circumstances, the Court considered
whether the federal program at issue should be, by its nature,
uniform in character throughout the nation; whether the
application of state law would frustrate specific objectives of
the federal program; and whether the application of a federal
rule would disrupt commercial relationships predicated on
state law. Kimbell Foods, 440 U.S. at 728–29.
In Price, we considered a suit brought by prospective
tenants of Section 8 housing against a property owner that had
a contract with the Illinois Housing Development Authority.
The would-be tenants were turned away by the property
owner, allegedly in violation of a contract between the owner
and the housing authority to reserve a percentage of units for
low-income tenants in exchange for mortgage subsidies the
owner received. The question was “what remedies shall be
available for breach of a contract designed to effectuate the
program of economically mixed housing.” Price, 823 F.2d at
1120. We decided ultimately that federal law should apply:
The argument for a federal rule is particularly strong in these housing cases; as we
suggested earlier, it would be odd to think

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that a suit by tenants and applicants for
federally subsidized housing against developers of such housing for breach of contracts
approved by HUD and fundamental to the
achievement of HUD’s objectives under
section 1437f would have to be brought in
state court and decided in accordance with
state contract law.
Price, 823 F.2d at 1120. See also Holbrook v. Pitt, 643 F.2d 1261,
1270 n.16 (7th Cir. 1981) (concluding in a suit interpreting HUD
contracts that “[f]ederal common law applies to plaintiffs’
third-party beneficiary claims since a federal agency is a party
to the action and since the outcome of this case will directly
affect substantial financial obligations of the United States.”).
Although HUD clearly relied on Kimbell Foods and Price,
two arguably controlling cases, in their reply, the Owners
chastise HUD for “[c]iting no authority for its position.” Reply
Brief at 3 n.2. In this undeveloped, footnoted argument, the
Owners turn to Texas Industries, Inc. v. Radcliff Materials, Inc.,
451 U.S. 630, 641 (1981), in support of a bald claim that federal
common law is applied only in exceptional circumstances and
that this case is not one of them. In fact, in Texas Industries, the
Court opined that:
federal common law exists only in such
narrow areas as those concerned with the
rights and obligations of the United States,
interstate and international disputes implicating the conflicting rights of States or our
relations with foreign nations, and admiralty

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cases. In these instances, our federal system
does not permit the controversy to be resolved under state law, either because the
authority and duties of the United States as
sovereign are intimately involved or because
the interstate or international nature of the
controversy makes it inappropriate for state
law to control.

451 U.S. at 641. Given that the United States would be obligated to reimburse the state housing authority for rent increases, and given that a federal statute controls much of the
language of HAP contracts, this passage arguably supports the
application of federal common law. As we noted in Price, it
would be peculiar to construe contracts that are approved by
HUD, and that are fundamental to the success of HUD’s
objectives under Section 8, in accordance with state contract
law. Application of state law to the standardized language of
the HAP contracts and resort to state law defenses to breaches
of HUD contracts could lead to a lack of uniformity in this
nation-wide program that is largely dependent on federal
funding.
So after the district court thought the choice-of-law matter
resolved, we are left on appeal with a war waged in footnotes
on a complex issue. A party may waive an argument by
presenting it only in an undeveloped footnote. United States v.
Warner, 792 F.3d 847, 856 (7th Cir. 2015); Harmon v. Gordon,
712 F.3d 1044, 1053 (7th Cir. 2013). Moreover, none of the
parties briefed the question of whether there is a difference
between federal common law and Wisconsin law that would
affect the outcome here. As we conclude below, however, the

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choice of law applicable to the breach of contract claims does
not affect the outcome here. See also Eriem Surgical, Inc. v.
United States, 843 F.3d 1160, 1161 (7th Cir. 2016) (noting that
one might infer from Kimbell Foods that, in determining which
law governs corporate successorship when the dispute
concerns debts to the national government, federal law
controls but generally absorbs state law unless it is hostile to
national interests, but also noting that the Supreme Court has
reserved the issue).
B.
We begin with Washington Square’s claim that it should
not be held to the language in its HAP contract providing that
rents would be adjusted annually “upon request from the
Owner.” From 2006 to 2012, Wisconsin Housing adjusted
Washington Square’s rents only when Washington Square
submitted a rent adjustment request to the Authority. Washington Square contends that it should be excused from the
requirement of requesting the annual adjustment because
holding it to this term would result in a “disproportionate
forfeiture.” Washington Square cites Restatement (Second) of
Contracts § 229 (Excuse of a Condition to Avoid Forfeiture) in
support of this argument:
To the extent that the non-occurrence of a
condition would cause disproportionate
forfeiture, a court may excuse the
non-occurrence of that condition unless its
occurrence was a material part of the agreed
exchange.

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Washington Square asserts that if the court holds it to the
contract term requiring it to ask for a rent adjustment before
receiving one, it will lose some $400,000 in revenue, a result it
characterizes as a “disproportionate forfeiture.” Washington
Square argues that adherence to this term of the contract may
be excused because it is not a material term of the agreement
and it provides no pecuniary benefit to Wisconsin Housing.
In making this argument, the Owners (who insist that
Wisconsin law applies) concede that the “doctrine of disproportionate forfeiture is not well-developed in Wisconsin.” That
is an understatement: none of the parties were able to find a
case where a Wisconsin court relied on section 229 to decide an
issue. Nor is there any indication in the case law that this
section of the Restatement has been adopted into the federal
common law of contracts. In any case, as the district court
explained, section 229 of the Restatement does not apply here,
and cannot be used to excuse Washington Square’s failure to
perform under the HAP contract.
First, application of section 229 is discretionary and so
Washington Square would have to demonstrate on appeal that
the court abused its discretion in refusing to apply the doctrine. See Restatement (Second) of Contracts § 229, cmt. b
(noting that the rule is a flexible one and stating that “its
application is within the sound discretion of the court.”). The
district court declined to apply section 229 here because the
court concluded that the HAP contract’s “request” provision
was a material term. The court noted that the language of the
contract requiring Washington Square to request an adjustment was an unambiguous condition precedent, and Washington Square failed to fulfill this requirement in the pertinent

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years. See Haddon Housing Assocs., L.P. v. United States, 711 F.3d
1330, 1336–40 (Fed. Cir. 2013) (treating the HAP contract
provision requiring an owner to request an increase before
receiving one as a clear and enforceable condition precedent).
In fact, the Owners conceded that Wisconsin Housing did not
deny any of Washington Square’s requests for a rent adjustment, and the only years in which Washington Square did not
receive an adjustment were those in which it did not submit a
request. As the district court noted, rent requests set into
motion a time and labor intensive process, and so this was not
a mere technical term. See 2002 Notice (describing the process
for adjustment of contract rents).5 In short, the parties treated
the requirement as a material term, it was a material term, and

5

Washington Square asserts that the procedures set forth in the 2002 Notice
could not fairly apply to a contract executed in 1982. But Washington
Square fails to note that the original term of the contract was twenty years,
expiring in 2002. The agreement was then renewed twice for two additional
five year terms, until its expiration in 2012. Washington Square is suing for
rent increases during the extended term, when the 2002 Notice was in effect.
Moreover, Washington Square’s claims for damages are cabined by the
statute of limitations. The date of the earliest breach for which Washington
Square may recover is December 1, 2007, which is well after the 2002
contract renewal. Norfolk & Western Ry. Co. v. American Train Dispatchers
Ass’n, 499 U.S. 117, 130 (1991) (“Laws which subsist at the time and place of
the making of a contract, and where it is to be performed, enter into and
form a part of it, as fully as if they had been expressly referred to or
incorporated in its terms. This principle embraces alike those laws which
affect its construction and those which affect its enforcement or discharge.”); Farmers’ & Merchants’ Bank of Monroe, N.C. v. Federal Reserve Bank
of Richmond, Va., 262 U.S. 649, 660 (1923) (same); Dairyland Greyhound Park,
Inc. v. Doyle, 719 N.W.2d 408, 432 (Wis. 2006).

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section 229 of the Restatement cannot, therefore, be applied to
excuse it. There was no abuse of discretion in that decision.
Section 229 also does not apply because there is no forfeiture in play here. “‘[F]orfeiture’ is used to refer to the denial of
compensation that results when the obligee loses his right to
the agreed exchange after he has relied substantially, as by
preparation or performance on the expectation of that exchange.” Restatement (Second) of Contracts, § 229, cmt. b.
Washington Square does not point to any evidence that it took
any action in substantial reliance on the expectation of rent
increases. As is apparent from the consistent practice of the
parties, Washington Square knew it would not receive an
increase unless, as required by the HAP contract, it requested
one. Reliance on an unrequested increase would not have been
reasonable under the circumstances.
Washington Square also asserts that it was excused from
the condition precedent of requesting an increase because
Wisconsin Housing breached the contract by requiring rent
comparability studies prior to receiving an increase. Relying on
the Federal Circuit’s opinion in Haddon, Washington Square
asserts that Wisconsin Housing’s implementation of the 1994
amendments is a breach of the HAP contract. But the HAP
contract in Haddon was executed in 1981 with a thirty-year
term. 711 F.3d at 1334.6 The 1994 amendments came in the
midst of that term and the implementation of those amend6

In Haddon, the Federal Circuit characterized the length of the HAP
contract as “for a maximum term of 30 years.” See also Haddon Housing
Assocs., LLC v. United States, 99 Fed. Cl. 311, 316 (2011) (noting that Haddon
leased its property to the housing authority for a thirty-year term).

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ments in the middle of the term arguably breached the HAP
contract as it was originally written. Washington Square fails
to acknowledge that its original HAP contract expired in 2002,
and that the 1994 amendments became a part of the HAP
contract when it was renewed that year. See Norfolk & Western,
499 U.S. at 130 (noting that laws in existence at the time and
place of the making of a contract are incorporated into the
terms of the contract); Dairyland Greyhound Park, 719 N.W.2d at
432 (same). Haddon is thus distinguishable on the facts because
the 1994 amendments were applied in that case to a contract
that pre-dated the passage of the law.7
But assuming for the sake of argument that the implementation of the 1994 amendments was a breach of Washington
Square’s HAP contract, even Haddon does not support Washington Square’s contention that the breach excused it from
complying with the condition precedent. Haddon, 711 F.3d at
1338 (“We find, however, that HUD’s insistence on comparability studies, though a breach of the HAP contract, does not
operate to excuse Haddon’s failure to make the requests for
adjustments required under § 2.7(b) of the HAP Contract.”).

7

The Federal Circuit concluded that HUD’s implementation of the 1994
amendments constituted a breach of the Haddon HAP contract. 711 F.3d at
1336. Haddon is distinguishable from the instant case because the changes
effected by the 1994 amendments came in the middle of the contract term,
and because Haddon sued HUD directly rather than the local housing
authority. We do not decide today whether the 1994 amendments would
breach a HAP contract if the changes were implemented in the middle of
a contract term or if an owner sued HUD directly. That is simply not the
situation here, and so our decision is not in conflict with that of the Federal
Circuit.

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The Haddon court rejected any claim that performance of the
condition precedent was excused by HUD’s alleged breach
because the property owner failed to demonstrate that HUD
took any action that prevented or hindered the owner’s ability
to make a request for a rent adjustment. The same rationale
applies here. Wisconsin Housing did nothing to prevent
Washington Square from making the request for an increase.
As in Haddon, there was no allegation that Wisconsin Housing
refused to process requests or threatened to penalize Washington Square for making requests unsupported by a rent comparability study. To the contrary, in years where Washington
Square made the request for an adjustment, Wisconsin Housing granted those requests without requiring a rent comparability study.
Finally, the district court found it unnecessary to decide
Washington Square’s argument that the Authority repudiated
the HAP contract by requiring rent comparability studies. The
court concluded that the argument was unsupported by the
record because Washington Square had conceded that it did
not submit any rent comparability studies to Wisconsin
Housing during the limitations period, and yet received certain
rent adjustments nonetheless. Washington Square’s argument
was thus reduced to a claim that, if it had submitted a request
for a rent increase, it may have been denied the increase absent
a rent comparability study, if gross rents exceeded fair market
value. The district court, noting the many uncertainties and
gaps in the record, characterized this as a skeletal argument
that need not be decided. See United States v. Dunkel, 927 F.2d
955, 956 (7th Cir. 1991) (finding that an undeveloped claim is
not preserved). We agree. But for the sake of completeness, we

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also note that, having elected to continue with the contract in
the face of Wisconsin Housing’s alleged breach, Washington
Square was still bound by the terms of the deal, including the
condition precedent. Haddon, 711 F.3d at 1339 (where the
owner elected to pursue a claim for partial breach and the
government continued performing, the owner cannot then
refuse to perform its obligations under the contract). If a party
to a contract breaks it, the other party can abandon the contract
(unless the breach is very minor) and sue for damages, or it can
continue with the contract and sue for damages. But if it makes
the latter election, it is bound to the obligations that the
contract imposes on it. Emerald Invs. Ltd. P’ship v. Allmerica Fin.
Life Ins. & Annuity Co., 516 F.3d 612, 618 (7th Cir. 2008).
Because Washington Square continued with the contract in the
face of Wisconsin Housing’s alleged breach, Washington
Square was bound by the obligations of the contract, including
the requirement that it request an adjustment of rent.
C.
Finally, all of the Owners challenge the district court’s
determination that Wisconsin Housing did not breach any
HAP contracts by applying a one percent reduction for nonturnover units when calculating rent adjustments. The Evergreen Square and Grant Park HAP contracts provide that
contract rents “shall be adjusted by applying the applicable
Automatic Annual Adjustment Factor most recently published
by the Government.” The Washington Square HAP contract
specifies that rents will be adjusted “in accordance with
24 C.F.R. Part 888 and this Contract.” Prior to 1995, HUD
published one table each year in the Federal Register, listing
adjustment factors used to determine rent increases. The same

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rate was applied to turnover and non-turnover units. But with
the 1994 amendments, Congress implemented a mandatory
one percent reduction in the annual adjustment factor for nonturnover units:
for any unit occupied by the same family at
the time of the last annual rental adjustment,
where the assistance contract provides for the
adjustment of the maximum monthly rent by
applying an annual adjustment factor and
where the rent for a unit is otherwise eligible
for an adjustment based on the full amount of
the factor, 0.01 shall be subtracted from the
amount of the factor, except that the factor
shall not be reduced to less than 1.0.
42 U.S.C. § 1437f(c)(2)(A). At the time each Owners’ HAP
contract was initially executed, the statute provided only that
the adjustments reflect fair market rents in the housing area for
similar types and sizes of dwelling units, or that the new rents
be calculated on the basis of a reasonable formula. The Owners
assert that the later-implemented one percent reduction for
non-turnover units is not based on fair market rents and is not
calculated on the basis of a reasonable formula. Rather, they
characterize the reduction as arbitrary and in breach of the
HAP contracts.
As with the other arguments regarding breach of contract,
the Owners do not take into account that, although a different
version of the statute was in place at the time the HAP contracts were originally executed, all of the original contracts
expired and were renewed before the time period for which

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they are now claiming damages. In particular, Evergreen
Square entered into its first HAP contract on April 1, 1977 for
a term of five years. The contract was then renewed for seven
additional five-year terms, with an expiration date of March 31,
2017. Grant Park’s initial HAP contract became effective July
1, 1980, with an initial contract term of five years. It was
subsequently renewed for five additional five-year terms. And
Washington Square’s HAP initial contract became effective
December 1, 1982, with a term of twenty years. It was then
renewed for two additional five year terms. The Owners filed
suit in June 2013, and the statute of limitations is six years. The
1994 amendments went into effect in 1995, and therefore each
owner renewed its HAP contract after the 1994 amendments
and before the first date for damages under the statute of
limitations. Because laws which exist at the time of the making
of a contract enter into and form a part of it as fully as if they
had been expressly referred to or incorporated in its terms, the
1994 amendments became part of each contract that was
renewed after the 1994 amendments became effective. Norfolk
& Western Ry. Co., 499 U.S. at 130; Farmers’ & Merchants’ Bank,
262 U.S. at 660; Dairyland Greyhound Park, 719 N.W.2d at 432.
This means that Wisconsin Housing did nothing more than
apply the law that was in effect when the HAP contracts were
renewed. Because that law was incorporated into the contracts,
the Authority’s implementation of the statute’s one percent
reduction for non-turnover units could not breach any of the
contracts.
The district court rejected the Owners’ challenge to the one
percent reduction for a slightly different reason. The district
court found that Wisconsin Housing was required by the HAP

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contracts and by law to use the tables published by HUD. It
was HUD, not Wisconsin Housing, that published the table
reflecting the one percent reduction for non-turnover units.
The HAP contracts for Evergreen Square and Grant Park stated
that annual rent adjustments must be calculated “by applying
the applicable Automatic Annual Adjustment Factor most
recently published by the Government.” The HAP contracts
make clear that it is HUD’s responsibility to determine the
applicable adjustment factors. For Washington Square, the
HAP contract provided that rents would be adjusted “in
accordance with 24 C.F.R. Part 888 and this Contract.” Under
24 C.F.R. Part 888, HUD is charged with the duty of creating
and publishing the applicable adjustment factors. Wisconsin
Housing had no role in setting the adjustment rates and no
discretion to override HUD’s published numbers. The district
court concluded that Wisconsin Housing’s reliance on HUD’s
published table for non-turnover units was not only permissible, it was obligatory under the language of the contracts.
District courts deciding whether a state housing agency
breached a HAP contract by applying the one percent reduction for non-turnover units have uniformly rejected the
property owners’ claims. Cathedral Square Partners Ltd. P’ship v.
South Dakota Housing Dev. Auth., 2011 WL 43019, *14–*18
(D.S.D. Jan. 5, 2011); Greenleaf L.P. v. Illinois Housing Dev. Auth.,
2010 WL 3894126, *6–*8 (N. D. Ill. Sept. 30, 2010). The only
courts to hold to the contrary involved HUD as the defendant
in the breach of contract case. Haddon, 711 F.3d at 1336;8

8

We note again that Haddon is further distinguishable because the HAP
(continued...)

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Statesman II Apartments, Inc. v. United States, 66 Fed. Cl. 608, 625
(2005). In essence, the district court concluded that the Owners
sued the wrong party when they took aim against Wisconsin
Housing rather than HUD. Wisconsin Housing could not be
held liable for breach because the Authority was simply
complying with federal mandates enacted by HUD. In any
case, though, because the Owners’ HAP contracts were
renewed after Congress amended Section 8 to reflect the one
percent reduction, the amendments became part of the
contracts. Enforcement of the one percent statutory mandate
could not constitute a breach of contract under those circumstances.
III.
In sum, Washington Square was not excused from complying with the HAP contract condition precedent requiring it to
request a rent increase. The doctrine of disproportionate
forfeiture simply does not apply under these facts. Moreover,
Wisconsin Housing did not breach any HAP contracts by
requiring rent comparability studies in certain circumstances
or by applying a one percent reduction for non-turnover units.
In each instance, the Owners’ contracts were renewed after
Congress amended Section 8 to include these provisions, and

8

(...continued)
contract was executed in 1981 for a thirty-year term. Congress amended
Section 8 during the term of the contract to require the one percent
reduction for non-turnover units, changing the terms of the deal in the
middle of the contract term. In the instant case, the contracts were renewed
after Congress amended the statute, and the amendments were thereby
swept into the contracts.

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the provisions became part of the new contracts. Because the
Owners’ primary claims fail, we agree with the district court
that the third-party claims against HUD are moot.
AFFIRMED.