Cathedral Square Partners Limited Partnership et al v. South Dakota Housing Development Authority
Filing
129
ORDER denying without prejudice 116 Motion for prospective relief; granting 118 Motion for Reconsideration and the portion of the Summary Judgment Memorandum Opinion and Order granting summary judgment against West Park, Ltd. is vacated; granting 127 Motion for Reconsideration with regard to the breach of contract claim. Signed by U. S. District Judge Lawrence L. Piersol on 6/22/12. (SLW)
FILED
UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
SOUTHERN DIVISION
JUN 2 2 2012
~~
*****************************************************************************
CATHEDRALSQUAREPAR1~ERS
LIMITED PARTNERSHIP; WEST PARK
LTD.; 46 th STREET PARTNERS
LIMITED PARTNERSHIP; and
RIVERVIEW PARK, LTD.,
Plaintiffs,
vs.
SOUTH DAKOTA HOUSING
DEVELOPMENT AUTHORITY,
Defendant.
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
CIV 07-4001
MEMORANDUM OPINION
AND ORDER RE:
MOTIONS FOR RECONSIDERATION
AND
MOTION FOR PROSPECTIVE RELIEF
******************************************************************************
After the Court issued is Memorandum Opinion and Order regarding the parties' motions for
partial summary judgment and summary judgment (Doc. 106), the parties moved pursuant to Fed.
R. Civ. P. 53(c) for a declaratory judgment stating the parties' prospective rights and obligations
under their Housing Assistance Payments contracts in accordance with the Court's rulings in the
Summary Judgment Memorandum Opinion. Doc. 116. Plaintiff West Park, Ltd. then moved for
reconsideration of the Summary Judgment Memorandum Opinion (Doc. 118) and also submitted
a notice of supplemental authority regarding a United States Court of Federal Claims decision
addressing the same issues raised by Plaintiff West Park, Ltd. in its motion for reconsideration. Doc.
124. Defendant South Dakota Housing Authority then submitted a notice of supplemental authority
and motion for reconsideration regarding this Court's March 30, 2009 decision granting the motion
of the United States Department of Housing and Urban Development (HUD) to dismiss South
Dakota Housing Authority's third-party complaint in this action. Doc. 127. HUD responded to the
motion for reconsideration on the dismissal of South Dakota Housing Authority's third-party
complaint stating it does not oppose reconsideration of the Court's order dismissing the third-party
complaint with regard to the breach of contract claim, but opposes reconsideration ofthe dismissal
of the APA and Declaratory Judgment claims.
WEST PARK'S MOTION FOR RECONSIDERATION
In the Summary Judgment Memorandum Opinion this Court held that Plaintiffs Cathedral
Square Partners Limited Partnership, 46th Street Partners Limited Partnership, and Riverview Park,
Ltd. were entitled to summary judgment on the issue ofwhether their Housing Assistance Payments
Contracts were breached by the shifting of the burden to the landlord to prove entitlement to annual
rent increases. This Court in its Summary Judgment Memorandum Opinion notes, however, that the
Housing Assistance Payments Contract with Plaintiff West Park, differs from the contracts with the
other plaintiffs in that the rent adjustments provision in the West Park contract is not characterized
as "automatic," and provides that "[u]pon request from the Owner to [South Dakota Housing
Development Authority] Contract Rents will be adjusted on the anniversary date of the Contract in
accordance with 24 CFR Part 8884 and this Contract." This Court concluded in its Summary
Judgment Memorandum Opinion that the "upon request from the Owner" language in the West Park
contract operated as a condition precedent to receiving the rent increases.
This Court in its Summary Judgment Memorandum Opinion rejected West park's arguments
that strict compliance with the condition precedent was not required because the South Dakota
Housing Development repudiated the Housing Assistance Payments Contract and because it was
futile to submit a request for a rent increase for the years in issue based on the South Dakota Housing
Authority'S Procedures, the denial of West Park's requests in 1995 and 2000, and West Park's
General Partner's substantial experience with other Section 8 projects. In rejecting the futility
argument this Court stated:
While the General Partner may have determined that he did not want to spend
the $2,500 to $3,000 for a rent comparability study when the chances of
getting a rent increase appeared unlikely, he has not set forth facts which
support an inference of futility. In fact, the approval of West Park's 2006
request refutes such an inference.
Doc. 106 at p. 13: Cathedral Square Partners L.P. v. South Dakota Hous. Dev. Auth., 2011 WL
43019, at *9 (D.S.D. Jan. 5,2011).
Lewis F. Weinberg, the General Partner ofWest Park, provided an affidavit dated December
10, 2009, in which he stated in paragraph 7: "SDHDA did approve a rent increase at West Park
Apartments effective January 1, 2007. This is the only rent increase at West Park Apartment
approved by SDHDA since 1996." Doc. 80. Mr. Weinberg also provided a second declaration, dated
2
June 25, 2010, in which he stated, "In 2006, I submitted to SDHDA a budget-based request for a rent
increase at West Park. SDHDA approved this request effective January 1,2007. This is the only rent
increase approved by SDHDA at West Park since 2000." Doc. 97.
Although the pleadings submitted prior to the Court issuing its Summary Judgment
Memorandum Opinion did not elaborate on the significance that the 2006 request for a rent increase
was "budget-based,'" West Park's motion for reconsideration explains that "[a] budget-based rent
increase is completely different than, and is not a substitute for, annual rent increases using the
automatic annual adjustment factors ("AAAFs") published by the Department ofHousing and Urban
Development." West Park further explained that the budget-based rent increase was granted by South
Dakota Housing Authority as a one-time adjustment. Doc. 118.
After moving for reconsideration, West Park later gave notice of a United States Court of
Federal Claims decision, Haddon Hous. Assocs., LLC v. United States, 99 Fed. Cl. 311 (2011), to
supplement its motion for reconsideration. This decision was issued after West Park moved for
reconsideration. In this Court's memorandum opinion, this Court relied in part upon the earlier
summary jUdgment opinion in the Haddon Housing case in deciding that the "upon request from the
Owner" language in the West Park contract as well as the other facts surrounding that contract
precluded West Park from recovering adjustments of contract rents based on the failure to comply
with the condition precedent. In the memorandum opinion this Court relied as follows upon the
reasoning in the summary judgment opinion in the Haddon Housing case:
In Haddon Hous. Assocs.) LLC v. United States, 92 Fed.CI. 8, 19 (2010), Judge
Lettow in the Court of Federal Claims examined an argument similar to ones
advocated by Plaintiffs in a case involving contractual language similar to that found
in West Park's contract. Judge Lettow found, in applying the basic rules of contract
interpretation, that the plaintiff lessor of a low-income rental housing project was
required pursuant to the terms of its housing assistance payments contract to request
a rent increase as a condition precedent to receiving such increase. 92 Fed. Cl. at 19.
Judge Lettow found that "[o]n its face, the HAP Contract appears to require plaintiffs
to request rent increases." Id. Judge Lettow concluded that such a requirement was
IPlaintiffs' Statement of Undisputed Material Facts in support oftheir motion for
summary judgment merely states: "Defendant approved an increase in the rents at West Park
Apartments effective January 1, 2007. Weinberg Dec. ~l 6. This is the only rent increase at West
Park approved by Defendant since 1996. Jd." Doc. 92, par. 6.
3
not necessarily inconsistent with the regulations which refer to "Automatic Annual
Adjustment Factors." Id. In so concluding, Judge Lettowreasoned that "[a] contract
could require one party to request a rent adjustment that was then applied according
to automatic adjustment factors." !d. In the Haddon Housing case, however, the
defendant's motion for summary judgment was denied because questions ofmaterial
fact existed as to whether the plaintiff had made a request for the rent increases in
issue.ld.
Cathedral Square Partners, 2011 WL 43019 at *8. 2
After denying cross-motions for summary judgment and conducting a three-day trial, and
considering post-trial briefing and closing arguments from the parties in the Haddon Housing case,
Judge Lettow from the United States Court of Federal Claims issued a decision in which he held that
the owners of a rental housing facility's failure to fulfill the condition precedent of a Section 8
contract by submitting rent requests to HUD was excused under the doctrine of prevention. 99
Fed. Cl. 311 (2011). Judge Lettow advised in this decision that it was the first instance in which the
United States Court of Federal Claims had occasion to determine whether there had been a breach
of a new-form Housing Assistance Payment Contracts, "which differed in a significant respect from
the old-form" contract in that it included the provision that "upon request from the Owner to the
C[ontract] A[dministrator], Contract Rents will be adjusted on the anniversary date of the Contract
in accordance with 24 C.F.R. [Part] 888 and this Contract." 99 Fed. Cl. at 316-17, 327.
In the Haddon Housing case Judge Lettow had to determine whether the plaintiffs'
nonperformance of the condition precedent of requesting the rent adjustments was excused when
HUD had previously denied the plaintiffs' requests because rent comparability studies had not been
provided. The reason provided by the administrator of a rental housing facility for the
nonperformance was: "After asking for requests for three years and being denied for three years ...
I didn't feel as though if I sent a letter every day they would [grant an adjustment]-[rather] I would
receive the same response." 99 Fed.CI. at 319. Judge Lettow in the Haddon Housing case, after
conducting a three-day trial and finding that an owner had not submitted a request for the rent
increases between 1999 and 2003, determined that this failure was excused under the doctrine of
2This Court also relied upon Greenleaf L.P. v. Illinois Hous. Dev. Auth., 2010 WL
3894126 (N.D.llI. Sept. 30,2010), for its holding, but Greenleafalso acknowledges that a
condition precedent must be met unless prevented by the other contracting party. Greenleafat *5.
4
prevention.
In the case at hand, Lewis F. Weinberg, the General Partner of West Park provided the
following similar explanation for why he did not submit a request for an automatic annual
adjustment factor after his 2000 request for the same was denied:
I did not, on behalf of West Park, Ltd., submit any request for an AAAF rent increase
after my 2000 request was denied because I did not want to spend the time or incur
the cost of obtaining a rent comparability study, as required by SDHDA for every
AAAF rent increase request, for what I believed would have been an exercise in
futility. My belief that it would have been futile to request a rent increase for these
years is based on my knowledge of SDHDA's procedures, SDHDA's denial of my
1995 and 2000 requests for a rent increase at West Park and my substantial
experience with other Section 8 projects.
Doc. 97, par. 11 (filed June 29, 2010).
"[E]very order short of a final decree is subject to reopening at the discretion of the district
judge." Moses H Cone Memorial Hasp. v. Mercury Canst. Corp., 460 U.S. 1, 12 (l983)(citing Fed.
R. Civ. P. 54(b); 18 C. Wright, A Miller & E. Cooper, Federal Practice and Procedure § 4478, at
788-792 (1981 )). "'The district court has the inherent power to reconsider and modifY an
interlocutory order any time prior to the entry ofjudgment.'" K. C. J 986 Ltd. P'ship v. Reade Mfg.,
472 F.3d 1009, 1017 (8th Cir. 2007)(quoting Murr Plumbing, Inc. v. Scherer Bros. Fin. Servs. Co.,
48 F.3d 1066, 1070 (8th Cir.1995)).
In light of the fact that South Dakota Housing Authority does not dispute that the one-time
budget-based 2006 request for a rent increase is completely different from annual rent increases
using the automatic annual adjustment factors, the approval of West Park's one-time budget-based
2006 request does not refute a claim of futility in requesting annual rent increases. The Court must
determine if its earlier mistaken partial reliance upon the 2006 request and grant as well as
subsequent developments in the law require a modification of its conclusion in the Summary
Judgment Memorandum Opinion that the "upon request from the Owner" language in the West Park
contract operated as a condition precedent which could not be excused.
South Dakota Housing Authority argues that the Haddon Housing case is inapposite to the
issue presented in West Park's motion for reconsideration because Judge Lettow of the Court of
5
Federal Claims ruled that the plaintiff in that case was excused from submitting rent increase
requests based on the doctrine of prevention, not on the futility doctrine advocated by West Park.
South Dakota Housing Authority argues that since West Park never previously argued that the
doctrine of prevention excused it from requesting rent increases it cannot rely on the prevention
doctrine in a motion for reconsideration. South Dakota Housing Authority cites Capitol Indemnity
Corp. v. Russellville Steel Co., Inc., 367 F.3d 831, 834 (8th Cir. 2004), for the proposition that a
motion for reconsideration is not the occasion to tender new legal theories for the first time.
South Dakota Housing Authority'S argument overlooks the fact that the plaintiffs in the
Haddon Housing case never characterized their argument that their non-compliance with the request
requirement should be excused as a doctrine of prevention argument. As Judge Lettow observed:
Though plaintiffs do not invoke the canon by name, they rely essentially upon the
long-established "doctrine ofprevention" to excuse their non-performance. Described
aptly by Williston, the doctrine provides:
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 ofthe 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.
Haddon Hous. Assocs., LLC v. United States, 99 Fed.CL at 330-331.
Restatement (Second) of Contracts § 245 (1981) provides: "Where a party's breach by
non-performance contributes materially to the non-occurrence ofa condition ofone ofhis duties, the
non-occurrence is excused." See Baker Group, L. C. v. Burlington N. and Santa Fe Ry. Co., 451 F .3d
484, 490 (8th Cir. 2006) (performance of conditions precedent not excused when party offered no
evidence that the other party's breach contributed materially to the non-occurrence ofthe conditions
precedent). "In every contract there is an implied covenant of good faith and fair dealing." Bain v.
Champlin Petroleum Co., 692 F.2d 43,47 (8th Cir. 1982), quoted in Cambee's Furniture, Inc. v.
Doughboy Recreational, Inc., 825 F.2d 167, 174-75 (8th Cir.1987) (citing South Dakota cases
recognizing implied covenant of good faith and fair dealing).
In the Haddon Housing case Judge Lettow ofthe Court ofFederal Claims concluded that the
government violated its duty of good faith and fair dealing under the contract by unilaterally
imposing upon the plaintiffs in that case additional contractual duties not within the terms of the
6
new-form Housing Assistance Payment contract (Le., obtaining and presenting a rent comparability
study). 99 Fed.CI. at 332. Judge Lettow found after a trial in the Haddon Housing case that the
failure to fulfill the condition precedent of submitting rent adjustment requests was excused based
on the government's conduct except for one year in issue. In that year Judge Lettow found that the
plaintiffs' decision to forego a rent request would have occurred regardless ofHUD's prior refusal
to grant a rent increase in the absence of the plaintiffs providing a rent comparability study. That
being the case Judge Lettow could not find that the government's denials contributed materially to
the failure to request a rent increase for that particular year. 99 Fed.Cl. at 333.
In the case at hand, Lewis Weinberg the general partner of West Park has submitted an
affidavit stating that rent comparability studies cost approximately $2500-$3000 and that he did not
submit any request for an automatic annual adjustment factor because he did not want to spend the
time or incur the cost of obtaining a rent comparability study as required by South Dakota Housing
Authority for what he believed to be an exercise in futility. A genuine issue of material fact,
therefore, exists as to whether the South Dakota Housing Authority's prior refusals to grant a rent
increase in the absence of West Park providing a rent comparability study contributed materially to
West Park's failure to request a rent increase for the years in issue. For this reason West Park's
motion to reconsider will be granted to the extent that South Dakota Housing Authority is not
entitled to summary judgment against West Park on the issue of whether the new-form Housing
Assistance Payment Contract was breached for failure to provide annual rent adjustments when
West Park failed to fulfill the condition precedent of requesting the rent adjustments.
SOUTH DAKOTA HOUSING AUTHORITY'S MOTION FOR RECONSIDERATION
ON DISMISSAL OF ITS THIRD-PARTY COMPLAINT
The South Dakota Housing Authority in requesting that this Court reconsider its decision
ofMarch 30, 2009, granting HUD's motion to dismiss South Dakota Housing Authority's third-party
complaint in this action. 3 This motion to reconsider was based on the Government's briefbefore the
3The South Dakota Housing Authority'S motion to reconsider also attached the Court of
Appeals of Ohio's decision in Arlington Hous. Partners, Inc. v. Ohio Housi, Fin. Agency, 2012
WL 1078835 (Ohio Ct. App. March 30, 2012), "for whatever consideration the Court may
conclude [the decision] merits." The case held changes in federal law and HUD regulations
7
Seventh Circuit Court of Appeals in GreenleafLtd. P 'ship v. Illinois Hous. Dev. Auth. (7th Cir. No.
11-1753). In its brief in the Greenleaf appeal HUD, at the direction of the Solicitor General,
confessed error regarding its position before the district court in requesting dismissal of the third
party complaint against it. HUD contended on appeal that the sue-and-be-sued clause of 42 U.S.c.
§ 1404a waives sovereign immunity with respect to the third-party claims asserted by the Illinois
Housing Development Authority against HUD. In its position on appeal HUD maintained that case
law holding that 42 U .S.C. § 1404a and similar sue-and be-sued provisions do not apply unless there
is an identifiable source of funds within the exclusive control of the agency and severed from the
general funds of the Treasury from to satisfy any judgment is not supported by the language of 42
U.S.C. § 1404a and misconstrues the holding in FHA v. Burr, 309 U.S. 242 (1940).
In HUD's response to South Dakota Housing Authority'S motion for reconsideration ofthe
dismissal of South Dakota Housing Authority's third-party complaint in this action, HUD concedes
that its brief on appeal in the Greenleafcase accurately states its present position on the scope of 42
U.S.c. § 1404a and is contrary to its earlier position in moving to dismiss the breach of contract
claim in the third-party complaint in this action. 4 HUD further states, however, that it does not
support reconsideration of the dismi ssal of the third-party complaint claims concerning the
Administrative Procedure Act and the Declaratory Judgment Act. In its response HUD recognizes
that litigants cannot create subject matter jurisdiction by their consent, but asserts that if the Order
dismissing the third-party complaint were appealed to the Eighth Circuit HUD would ask the Eighth
Circuit to reconsider the holding in Weeks Constr., Inc. v. Oglala Sioux Hous. Auth., 797 F.2d 668,
675-76 (8th Cir. 1986), the case relied upon by this Court in granting HUD's motion to dismiss the
third-party complaint.
In the March 30, 2009 decision granting HUD's motion to dismiss South Dakota Housing
rendered the Ohio Housing Finance Agency's performance of its HUD-approved housing
assistance contract with private landlords regarding rent increases excused under the doctrine of
impossibility. This Court rejects the reasoning of the Court of Appeals of Ohio as it overlooks
the recourse a local housing authority has against HUD for liability incurred by a local housing
authority for which liability HUD is responsible.
4The docket entries for the Greenleaf appeal indicate that the Seventh Circuit has not yet
heard oral argument.
8
Authority's third-party complaint in this action this Court concluded that South Dakota Housing
Authority's claims fell outside the waivers of sovereign immunity under both the APA and the
United States Housing Act of 1937 and thus this Court lacked subject matter jurisdiction over all the
claims. Since with regard to the third-party complaint, HUD has changed its position only on the
scope of the sue-and-be-sued clause of 42 U.S.C. § 1404a, consideration of the South Dakota
Housing Authority's motion to reconsider will be restricted to examining the application of 42
U.S.C. § 1404a.
"The United States, as sovereign, is immune from suit save as it consents to be sued ... and
the terms of its consent to be sued in any court define that court's jurisdiction to entertain the suit."
United States v. Sherwood, 312 U.S. 584, 586 (l941)(internal citations omitted); see also United
States v. Navajo Nation, 537 U.S. 488,502 (2003) ( "It is axiomatic that the United States may not
be sued without its consent and that the existence of consent is a prerequisite to jurisdiction." )
(quoting United States v. Mitchell, 563 U.S. 205, 212 (1983)). The consent to be sued relevant to
whether this Court has jurisdiction over the third-party complaint in this case is contained in 42
U .S.C. § l404a. This statute provides in part that the "Secretary ofHousing and Urban Development
may sue and be sued only with respect to its functions under the United States Housing Act of 1937,
as amended [42 U.S.C.A. § 1437 et seq.]."s This Court has an independent obligation to assure itself
ofjurisdiction even if the parties fail to challenge it. See FW/PBS, Inc. v. City ofDallas, 493 U.S.
215, 230-231 (1990). In determining whether it has subject matter jurisdiction, this Court is not
limited to considering the pleadings, but may consider the complaint, other undisputed facts in the
record, and may make its own determination of disputed factual issues that bear on its jurisdiction.
Harris v. P.A.M Transport, Inc., 339 F.3d 635,637 n.4 (8th Cir. 2003).
In this Court's March 30, 2009 decision granting HUD's motion to dismiss South Dakota
Housing Development Authority's third-party complaint, this Court determined that any waiver of
sovereign immunity under 42 U.S.C. § 1404a would be found only for claims that are not considered
to be againstthe United States and relied upon language in Weeks Constr., Inc. v. Oglala Sioux Hous.
"[L limitations and conditions upon which the Government consents to be sued must be
strictly observed and exceptions thereto are not to be implied." Soriano v. United States, 352
U.S. 270, 276 (1957).
5
9
Auth., 797 F.2d 668,676 n.9 (8th Cir. 1986), for distinguishing between claims against the United
States which must be brought in the Claims Court under the Tucker Act and claims against federal
instrumentalities. The Eighth Circuit in Weeks stated, "Drawing this distinction [between a suit
against the United States and one against a federal agency] requires a determination whether any
recovery of damages may be had only from funds in the possession and control of the agency or
whetherrecovery may be had from public funds in the United States Treasury." 797 F.2d at 676 n.9.
This Court in determining that there was no waiver ofsovereign immunity under 42 U.S.C. § 1404a
that would allow jurisdiction in the district court relied upon a number ofcases, including Greenleaf
Ltd. P 'ship v. Illinois Hous. Dev. Auth., 2009 WL 449100 (N.D.IlI.2009), that held that funds for
recovery of damages for breach of the Annual Contribution Contracts would come from the public
treasury, not from funds within the control of HUD.
In HUD's brief before the Seventh Circuit Court of Appeals in Greenleaf Ltd. P 'ship v.
Illinois Hous. Dev. Auth. (7th Cir. No. 11-1753), HUD conceded error in its prior view that the sue
and-be sued clause of 42 U.S.c. § 1404a did not waive HUD's sovereign immunity in a breach of
contract case involving the administration ofthe Section 8 low-income housing assistance program.
In the Greenleafappellate briefHUD reasoned that the Supreme Court has explained that sue-and-be
sued clauses such as 42 U.S.C. § 1404a are to be liberally construed. See F.D.l.C. v. Meyer, 510
U.S. 471,480 (1994) ("In the past, we have recognized that such sue-and-be-sued waivers are to be
'liberally construed.'" ).6 HUD further took the position that courts erred in concluding that 42
U.S.C. § 1404a and similar sue-and be-sued provisions, in order to be applicable, require an
identifiable source of funds within the exclusive control of the agency and severed from general
Treasury funds from which to satisfY a judgment. This error, HUD now contends, is based on the
absence ofsuch a limitation in the language ofthe sue-and-be-sued waivers and a misunderstanding
ofthe Supreme Court's decision in Federal Hous. Admin. v. Burr, 309 U.S. 242 (1940).
The Burr case involved a garnishment action against the Federal Housing Administration.
6This Court notes, however, that in United States v. Sherwood, 312 U.S. 584, 590 (1941),
the Supreme Court in interpreting section 2 of the Tucker Act stated, "The section must be
interpreted in the light of its function in giving consent of the Government to be sued, which
consent, since it is a relinquishment of a sovereign immunity, must be strictly interpreted."
10
The Federal Housing Administration was created by the National Housing Act, which contained the
following provision: "The Administrator shall, in carrying out the provisions of this title and titles
II and III, be authorized, in his official capacity, to sue and be sued in any court of competent
jurisdiction, State or Federal." 12 U.S.C. § 1702. The Supreme Court in Burr observed that such "sue
and be sued" clauses are waivers by Congress of governmental immunity which should be liberally
construed. 309 U.S. at 245. The Supreme Court explained:
[W]hen Congress establishes such an agency, authorizes it to engage in commercial
and business transactions with the public, and permits it to 'sue and be sued', it
cannot be lightly assumed that restrictions on that authority are to be implied. Rather
ifthe general authority to 'sue and be sued' is to be delimited by implied exceptions,
it must be clearly shown that certain types of suits are not consistent with the
statutory or constitutional scheme, that an implied restriction ofthe general authority
is necessary to avoid grave interference with the performance of a governmental
function, or that for other reasons it was plainly the purpose of Congress to use the
'sue and be sued' clause in a narrow sense.
309 U.S. at 245.The Supreme Court held that the Federal Housing Administration was subject to a
state garnishment proceeding, but further explained:
[O]nly those funds which have been paid over to the Federal Housing Administration
in accordance with s 1 and which are in its possession, severed from Treasury funds
and Treasury control, are subject to execution. Since no consent to reach government
funds has been given, execution thereon would run counter to Buchanan v.
Alexander, [4 How. 20, 11 L.Ed. 857]. To conclude otherwise would be to allow
proceedings against the United States where it had not waived its immunity. This
restriction on execution may as a practical matter deprive it of utility, since funds of
petitioner appear to be deposited with the Treasurer of the United States and
payments and other obligations are made through the Chief Disbursing Officer ofthe
Treasury. But that is an inherent limitation, under this statutory scheme, on the legal
remedies which Congress has provided.
309 U.S. at 250-251.
HUD maintains that the above discussion in Burr regarding the statutory limits on execution
does not negate the Supreme Court's holding regarding the jurisdictional scope established by the
sue-and-be-sued clause, and that the jurisdictional determination in Burr was not based on the source
of funds that were available to satisfY ajudgment against an agency. HUD further maintains that the
Supreme Court's acknowledgment in Burr that the garnishor may be unable to execute on the
11
judgment is based on a statutory provision in the National Housing Act with is not present in the
United States Housing Act. Section 1 of National Housing Act provided that claims against the
Federal Housing Administration of the type involved in Burr "shall be paid out of funds made
available by this chapter." 12 U.S.C. § 1702. The United States Housing Act, however, does not
contain that limitation and provides that the "full faith and credit of the United States is solemnly
pledged to the payment ofall annual contributions contracted for pursuant to this section." 42 U.S.c.
§ 1437c(c)(3).
A number of courts likewise have maintained that Burr has been misconstrued to impose an
unwarranted and illogical treasury funds/agency funds test for the application of sue-and-be-sued
waivers ofimmunity. InAuction Co. ofAmerica v. Federal Dep. Ins. Corp., 132 FJd 746 (C.A.D.C.
1997), a case that involved a sue-and-be-sued clause in the Financial Institutions and Reform,
Recovery, and Enforcement Act of 1989, the Court of Appeals for the District of Columbia
examined the origins and validity ofthe distinction between suits against the United States and those
against an agency of the United States in determining whether there exists a separate waiver of
sovereign immunity and grant ofjurisdiction so that district courts had the authority to hear cases
over which, under the Tucker Act alone, would be under the exclusive jurisdiction of the Court of
Federal Claims. The court in Auction Co. ofAmerica observed that when the Supreme Court in Burr
noted that the statute authorizing suit against the Federal Housing Administration required that
claims could be paid only from funds made available to the Federal Housing Administration, the
Supreme Court "did no more than state the unexceptionable principle that Congress, in waiving
sovereign immunity for an agency, may limitthe terms of the waiver." 132 FJd at 752. The court
in Auction Co. ofAmerica further observed that later cases revised that stated principle and "restated
it as the principle that a suit is against an agency only if plaintiffs can point to agency monies to
satisfY a potential judgment." Id.
The court in Auction Co. ofAmerica discussed what it considered the practical weakness and
logical fallacy of basing jurisdiction on the treasury funds/agency funds test. The court in Auction
Co. ofAmerica pointed out that later cases relying on Burr, such as the Ninth Circuit's decision in
Marcus Garvey Square, Inc. v. Winston Burnett Cons!. Co. ofCa!., Inc., 595 F.2d 1126 (9th Cir.
1979), incorrectly extended the holding in Burr for the proposition that a suit is against an agency
12
only if the plaintiff can point to agency funds to satisfy a potential judgment, otherwise the suit is
against the United States and must be brought in the Court of Federal Claims under the Tucker Act's
general waiver of sovereign immunity.
The court in A uction Co. ofAmerica explained that the weakness ofthe revised principle was
exposed by the Fourth Circuit's acknowledgment in Portsmouth Redevelopment and Hous. Auth. v.
Pierce, 706 F.2d 471,473-474 (4th Cir. 1983), that public funds appropriated to HUD originate in
the public treasury and remain public funds. The court in Auction Co. ofAmerica further explained
that it made no sense to characterize a suit as either being against an agency or against the United
States because the test cited for that purpose, came from Dugan v. Rank, 372 U. S. 609, 620 (1963),
and was designed to distinguish between suits against private individuals and suits against the
sovereign. The court in Auction Co. ofAmerica concluded:
Federal agencies or instrumentalities performing federal functions always fall on the
"sovereign" side of that fault line; that is why they possess immunity that requires
waiver. To say that suits against agencies are not against the United States in that
sense is simply wrong; to say that they are against the United States and not the
agency is to make "sue-or-be-sued" clauses nullities. The idea that the Dugan test
may be used to draw two different lines-the line between suits against the United
States and ones against private persons, and the line between suits against the United
States and ones against its agencies-is confused at its core and we reject it. The
source of funds for any recovery in this case may become an issue, but it is not
jurisdictional ....
Auction Co. ofAmerica v. Federal Dep. Ins. Corp., 132 F.3d at 752. See also Village ofOakwood
v. State Bank and Trust Co., 539 F.3d 373,378-381 (6th Cir. 2008); CD. Barnes Assocs. Inc. v.
Grand Haven Hideaway Ltd. P 'ship, 406 F.Supp.2d 801, 818 (W.D.Mich. 2005) (rejecting treasury
funds/agency funds test "because, to hold that public monies appropriated to HUD or any other
governmental agency can never be used to satisfy a judgment obtained by a waiver under a sue and
be sued clause would render such clauses ineffectual").
In its Greenleaf appellate brief HUD acknowledged as follows the practical weakness of
requiring a waiver from sovereign immunity depend on the source of funds that would satisfy a
judgment:
Indeed, a rule requiring courts to determine, at the outset ofa suit, how a hypothetical
money judgment would be satisfied is not administrable. Federal accounting is
13
complex, and an agency may have myriad funding relationships to the Treasury
depending on the program at issue and the type of claim being raised .... Indeed, even
many nominally self-contained government corporations can sometimes borrow
money from the Treasury to fund their operations, in addition to using their own
funds. It would be extraordinarily difficult for a court to identify in advance the
funding source for a judgment in such circumstances. Indeed, the district court here
recognized that, under the rule proposed by the government, it had to "speculate as
to whether HUD would have funds on hand to satisfy the judgment. "It is doubtful
that Congress intended to make the threshold sovereign-immunity inquiry turn on
such speculation.
Doc. 127, attach. 1.
The Court finds HUD's reasoning and the analysis in Auction Co. of America v. Federal
Dep. Ins. Corp., 132 F.3d 746 (C.A.D.C. 1997), Village ofOakwoodv. State Bank and Trust Co.,
539 F.3d 373,378-381 (6th Cir. 2008), and CD. Barnes Assocs. Inc. v. Grand Haven Hideaway
Ltd P 'ship, 406 F.Supp.2d 801, 818 (W.D.Mich.2005), to be persuasive. The Court, however, must
also determine ifit is bound by Circuit precedent to follow Weeks Constr. Inc. v. Oglala Sioux Hous.
Auth., 797 F.2d 668, 675-76 (8th Cir. 1986), in applying the treasury funds/agency funds test. See
Hood v. United States, 342 F.3d 861, 864 (8th Cir.2003) (district courts in the Eighth Circuit are
bound to apply Eighth Circuit precedent). On the issue of applying the treasury funds/agency funds
test to determine if there has been a waiver of immunity, however, there is conflicting circuit
precedent. In the March 30, 2009 decision granting HUD's motion to dismiss South Dakota Housing
Authority'S third-party complaint in this action, this Court noted that in Bar-Son Bldg. Corp. v.
Heller, 572 F.2d 174 (8th Cir. 1978), the Eight Circuit held the Secretary of the Department of
Housing and Urban Development could be sued in federal district court for monies due on a
construction contract and that the analysis in Bar-Son did not involve identifying the source of funds
to satisfy any potential judgment.
The Bar-Son case involved the National Housing Act and its sue-and-be-sued clause of 12
U.S.c. § 1702 and whether Section 1702 waives sovereign immunity over claims against the
Secretary of HUD brought by a building contractor in connection with construction work on a
housing project that was insured by the Secretary ofHUD. Section 1702 provided: "The Secretary
shall. in carrying out the provisions of this subchapter (I) and subchapters II, III, V, VI, VII, VIII, X,
14
IX-A, and IX-B, of this chapter (13), be authorized in his (her) official capacity, to sue and be sued
in any court of competent jurisdiction, State or Federal." The panel of the Eighth Circuit in Bar-Son
recognized that Federal Housing Administration v. Burr, 309 U.S. 242, 245 (1940), had made it
clear that Section 1702's waiver ofsovereign immunity "should be liberally construed." 572 F.2d at
180. The panel ofthe Eighth Circuit in Bar-Son relied upon Burr's consideration ofthe "in carrying
out" clause of Section 1702. Bar-Son Bldg. Corp. v. Heller, 572 F.2d at 179. The Eight Circuit
stated, "In the language of Burr, the Secretary has been 'launched ... into the commercial world'
and, if her actions or the actions of those under her were such as would entail liability to Bor-Son
on general legal and equitable principles, she 'is not less amenable to judicial process than a private
enterprise under like circumstances would be.'" Bar-Son Bldg. Corp. v. Heller, 572 F.2d at 181
(quoting Burr, 309 U.S. at 245).
In Bar-Son, the Eighth Circuit held that in consideration ofthe waiver ofsovereign immunity
In
12 U.S.C. § 1702, the Tucker Act did not require that the Court of Claims have exclusive
jurisdiction over the matter. The analysis in Bar-Son did not include any discussion of the treasury
funds/agency funds. Instead, the Eighth Circuit explained:
Most claimants against the government rely on the Tucker Act for the waiver
of sovereign immunity that would otherwise preclude their suits. When such a
claimant attempts to sue in a district court for a sum that exceeds s 1331 's $10,000
jurisdictional minimum, he encounters the Tucker Act's $10,000 maximum, and his
claim therefore fails as an unconsented suit against the sovereign. Hence it is
commonly said that suits against the government for more than $10,000 are in the
exclusive jurisdiction of the Court of Claims. In fact, the jurisdiction of the Court of
Claims for suits claiming more than $10,000 is not exclusive; rather, there is rarely
any statute available that waives sovereign immunity for suits in the district court,
other than the Tucker Act with its $10,000 limit.
Bar-Son Bldg. Corp. v. Heller, 572 F.2d at 182 n.14 (citing Ghent v. Lynn, 392 F.Supp. 879, 881
(D.Conn.1975».
In a later case, V S Ltd. P 'ship v. Dep 'f ofHous. and Urban Dev., 235 F.3d 1109 (8th Cir.
2000), the Eight Circuit again addressed whether the National Housing Act's waiver of sovereign
immunity, 12 U.S.C.A. § 1702, allowed for jurisdiction in the district court. In V S Ltd. P 'ship, the
Eighth Circuit concluded that there was not a waiver ofsovereign immunity and no award of subject
matter jurisdiction in the district court in a claim for breach of an oral modification of a mortgage
15
agreement. This conclusion, however, was not based on the source of funds satisfying any potential
judgment, and the opinion did not cite to Weeks Constr. Inc. v. Oglala Sioux Hous. Auth., 797 F.2d
668 (8th Cir. 1986). The conclusion was based instead on the requirement in the National Housing
Act's waiver of sovereign immunity that an official be "carrying out the provisions" ofthe National
Housing Act. 235 F.3d at 1113. That requirement could not be met because the National Housing
Act prohibits the oral modification of mortgage agreements. The Eighth Circuit in V S Ltd. P'ship
cited to Bor-Son Building Corp. v. Heller, 572 F.2d 174, 178-81 (8th Cir.I978), and stated: "The
present situation must be distinguished from that where a party sues to enforce rights under a
contract validly entered into under the NHA, in which case jurisdiction would properly lie in the
district court." V S Ltd. P 'ship v. Dep '( ofHous.and Urban Dev., 235 F.3d at 1113 n.4.
Although Bor-Son Bldg. Corp. v. Heller, 572 F.2d 174 (8th Cir. 1978), and, V S Ltd. P'ship
v. Dep 't ofHous. and Urban Dev., 235 F.3d 1109 (8th Cir. 2000), dealt with the National Housing
Act as opposed to the United States Housing Act, which is involved in both the case at hand and in
Weeks Constr. Inc. v. Oglala Sioux Hous. Auth., 797 F.2d 668 (8th Cir. 1986), that distinction is of
little significance on the issue ofwhether to apply the treasury funds/agency funds test in determining
whether a sue-and-be-sued clause allows a district court to have jurisdiction to hear a case. In
determining which case controls on this jurisdiction issue, this Court follows the Eighth Circuit
position that when a court is confronted with conflicting circuit precedent, the better practice is to
follow the earliest opinion since that opinion should have controlled the subsequent panel that
created the conflict. See United States v. Bauer, 626 F.3d 406, 409 (8th Cir. 2010) (quoting T.L. ex
reI. Ingram v. United Stales, 443 F.3d 956, 960 (8th Cir. 2006».
Bor-Son Bldg. Corp. v. Heller, 572 F.2d 174 (8th Cir. 1978), was the earliest opinion
interpreting these sue-and-be sued clauses and their impact on district court jurisdiction. Bor-Son
was not addressed in the Weeks opinion when it addressed the treasury funds/agency funds test, and
the pane] in Weeks acknowledged, "The parties have not briefed this issue nor argued to this court
the question of the source of funds for any damages recovered by Weeks." Weeks, 797 F.2d at 675
n.9. This Court also believes it is significant that the later case of V S Ltd. P 'ship v. Dep'l ofHous.
and Urban Dev., 235 F.3d 1109 (8th Cir. 2000), cited to Bor-Son, not Weeks, and did not address
a treasury funds/agency funds test in determining jurisdiction. This Court has thus determined that
16
Eighth Circuit precedent does not prohibit it from adopting HUD's reasoning and the analysis in
Auction Co. ofAmerica v. Federal Dep. Ins. Corp., 132 F.3d 746 (C.A.D.C. 1997), Village of
Oakwood v. State Bank and Trust Co., 539 F.3d 373, 378-381 (6th Cir. 2008), and CD. Barnes
Assocs. Inc. v. Grand Haven Hideaway Ltd. P 'ship, 406 F.Supp.2d 801, 818 (W.D.Mich.2005), in
rejecting the treasury funds/agency funds test, and granting the motion to reconsider the March 30,
2009 decision granting HUD's motion to dismiss South Dakota Housing Development Authority's
third-party complaint with regard to the breach of contract claim.
REQUEST FOR DECLARATORY RELIEF ON PROSPECTIVE RIGHTS
In the parties' joint motion for prospective relief, the parties requested a declaratory judgment
stating the parties' prospective rights and obligations under their Housing Assistance Payments contracts
based on the breach of contract rulings in the Court's Memorandum Opinion and Order. The parties
stated, " The Court's Opinion did not state whether its rulings applied prospectively, because the
parties had not requested prospective reliefin their pleadings." Doc. 116, p. 2. The parties contended
that absent such a ruling, they may be forced to relitigate the same issues until the expiration of all
of their Housing Assistance Payment contracts.
The parties have not explained why the need for prospective relief would not be satisfied by
the res judicata effect of a judgment in the breach of contract claims. See Cathedral Square Partners
Ltd. P 'ship v. South Dakota, 679 F.Supp.2d 1034, 1044 (D.S.D. 2009). In addition, since the parties
had not requested prospective declaratory relief in their original pleadings and HUD has not taken
part in but may be affected by such declaratory relief, the Court is denying without prejudice the
parties' request for declaratory relief on prospective rights. See Diagnostic Unit Inmate Council v.
Motion Picture Ass'n ofAmerica, 953 F.2d 376 (8th Cir. 1992) (declaratory relief may properly be
withheld for nonjoinder of interested parties).
Accordingly,
IT IS ORDERED:
1. That Plaintiff West Park, Ltd.'s motion for reconsideration of the Summary Judgment
Memorandum Opinion, Doc. 118, is granted and the portion of the Summary Judgment
Memorandum Opinion and Order granting summary judgment against West Park, Ltd. Is
vacated;
2. That Defendant South Dakota Housing Authority's motion for reconsideration (Doc. 127)
regarding this Court's March 30, 2009 decision granting the HUD's motion to dismiss
17
SDHDA's third-party complaint in this action is granted with regard to the breach ofcontract
claim;
3. That the parties' joint motion for prospective relief (Doc. I 16)is denied without prejudice;
and
4. That the parties, including the United States Department of Housing and Urban
Development, shall file ajoint status report within 20 days ofthe date ofthis Memorandum
Opinion setting forth a proposed schedule and a summary ofhow the parties believe the case
should now proceed .
..4.
Dated this ~day of June, 2012.
BY THE COURT:
awrence L. Piersol
United States District Judge
ATTEST:
JOSEPH HAAS, CLERK
BY:~
wJ{JfJ
Deputy
18
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?