Public Housing Authorities Directors Association v. United States ( 2017 )

In the United States Court of Federal Claims
Nos. 13-0006C, 13-6000C thru 13-6356C (Consolidated)
(Filed: January 18, 2017)
) Keywords: Breach of Contract; United
PUBLIC HOUSING AUTHORITIES ) States v. Winstar Corp.; Incorporation
DIRECTORS ASSOCIATION, et al. ) by Reference; Funds Subject to
) Availability; 24 C.F.R. § 990.210(c).
Plaintiffs, )
)
v. )
)
THE UNITED STATES OF AMERICA, )
)
Defendant. )
)
Carl A.S. Coan, III, Coan & Lyons, Washington, DC, for Plaintiffs. Raymond K. James,
Coan & Lyons, Of Counsel.
Eric J. Singley, Trial Counsel, Commercial Litigation Branch, Civil Division, U.S.
Department of Justice, Washington, DC, with whom were Steven J. Gillingham, Assistant
Director, Robert E. Kirschman, Jr., Director, and Benjamin C. Mizer, Principal Deputy
Assistant Attorney General, for Defendant.
OPINION AND ORDER
KAPLAN, Judge.
Plaintiffs in these consolidated cases are over three hundred public housing
authorities (PHAs) that have entered into Annual Contributions Contracts (ACCs) with
the Department of Housing and Urban Development (HUD), as well as two national PHA
trade associations. 1st Am. Compl. (Am. Compl.) ¶ 2, ECF No. 8. They allege, among
other things, that HUD breached the ACCs in 2012 when it did not comply with the rules
set forth at Title 24 of the Code of Federal Regulations that govern the allocation of
operating subsidies when funds are not available to pay them in full. Id. ¶¶ 101–05.
Plaintiffs request an aggregate amount of $135,836,467 in compensatory damages as well
as the costs and expenses of bringing this action. Id. at 60.
Currently pending before the Court are: 1) the government’s motion to dismiss the
complaints of the two PHA trade associations and sixteen of the individual PHA
plaintiffs for lack of standing; and 2) the parties’ cross-motions for partial summary
judgment as to Count I of the amended complaint. For the reasons set forth below: 1) the
government’s motion to dismiss is GRANTED-IN-PART and DENIED-IN-PART;
2) the plaintiffs’ motion for partial summary judgment is GRANTED; and 3) the
government’s motion for partial summary judgment is DENIED.
BACKGROUND1
I. Statutory and Regulatory Framework
The federal public housing program, authorized by the United States Housing Act
of 1937, 42 U.S.C. §§ 1437–40, exists “to assist States and political subdivisions of
States to remedy the unsafe housing conditions and the acute shortage of decent and safe
dwellings for low-income families” and “to address the shortage of housing affordable to
low-income families.” 42 U.S.C. § 1437(a)(1).
The federal government does not own, manage, or maintain public housing;
rather, the statute vests the responsibility for program administration in public housing
authorities, see id. § 1437a(a)(1)(C), defined as “State, county, municipality, or other
governmental entit[ies] or public bod[ies] . . . authorized to engage in or assist in the
development or operation of public housing,” id. § 1437a(b)(6)(A). Pursuant to statute,
HUD “may make annual contributions to public housing agencies to assist in achieving
and maintaining the lower income character of their projects.” Id. § 1437c(a)(1). To that
end, Congress has established two sources of funds: (1) the capital fund, which provides
funds “to carry out capital and management activities,” id. § 1437g(d); and (2) the
operating fund, which supplies funding “for the operation and management of public
housing,” id. § 1437g(e). Plaintiffs’ claims in this case involve disbursements from the
operating fund.
Congress has specified that HUD must “establish a formula for determining the
amount of assistance provided to public housing agencies from the Operating Fund for
[each] fiscal year.” Id. § 1437g(e)(2)(A). The formula may take into account a number of
factors, including, among others, costs of operations; the number of public housing
dwelling units owned, assisted, or operated by the public housing agency; and “any other
factors that the Secretary determines to be appropriate.” Id. § 1437g(e)(2)(A)(i)-(iii),
(vii).
HUD has implemented this statutory authority through regulations codified at 24
C.F.R. Part 990. These regulations define an “operating subsidy” as “the amount of
annual contributions for operations a PHA receives each funding period under section 9
of the 1937 Act as determined by the Operating Fund Formula.” 24 C.F.R. § 990.115.
Under the Operating Fund Formula set forth in the regulations, PHAs are eligible for an
operating subsidy (or annual contribution) equal to “the difference between formula
expense and formula income.” Id. § 990.110(a)(2); see also id. § 990.200. Formula
income consists of an estimate of a PHA’s non-operating-subsidy revenue, which is
calculated by dividing the amount of rent charged to tenants by the respective months the
1
The facts set forth in this section are not in dispute and are based on the parties’
pleadings and the exhibits that they submitted in support of their cross-motions for
summary judgment.
2
property was leased. Id. § 990.195(a) (2005).2 Formula expense is an estimate of a PHA’s
operating expenses, determined by adding together (1) the PHA’s project expense level
(PEL), which represents the normal expenses of operating public housing projects (such
as costs of administration, management, and leasing, see id. at § 990.165(a)); (2) its
utility expense level (UEL); and (3) several other formula expenses (or “add-ons”). Id.
§ 990.110(a)(3).
Further, the regulations contain a provision for adjusting the amount of each
PHA’s operating subsidy payment in circumstances where Congress fails to appropriate
sufficient funds to pay the aggregate amount due to PHAs under the Operating Fund
Formula. That provision, 24 C.F.R. § 990.210(c), states that “[i]n the event that
insufficient funds are available, HUD shall have discretion to revise, on a pro rata basis,
the amounts of operating subsidy to be paid to PHAs.” Id.; see also id. § 990.110(b)(3)
(stating that the payment of operating subsidies “will be limited to the availability of
funds as described in § 990.210(c)”).3
II. The Annual Contributions Contracts
The Housing Act requires that “the provisions for [] annual contributions” made
to PHAs be embodied “in a contract guaranteeing their payment.” 42 U.S.C.
§ 1437c(a)(1); see also 24 C.F.R. § 990.115 (defining an ACC as “a contract prescribed
by HUD for loans and contributions, which may be in the form of [an] operating subsidy,
whereby HUD agrees to provide financial assistance and the PHA agrees to comply with
HUD requirements for the development and operation of its public housing projects”).
Accordingly, each of the PHA plaintiffs in this case is a party to an ACC with HUD that
2
This regulation was amended in 2016, but the amendment has no effect on the outcome
of this case.
3
This version of 24 C.F.R. § 990.210(c) was issued in 2005. Before 2005, if Congress
failed to appropriate sufficient funds to cover the aggregate amount of operating subsidies
for which all PHAs were eligible, HUD’s regulations gave it “complete discretion to
revise, on a pro rata basis or other basis,” the amount of operating subsidy to be paid to
PHAs. See Allocation of Operating Subsidies Under the Operating Fund Formula, 66
Fed. Reg. 17276, 17297 (Mar. 29, 2001). On May 11, 2005, during the negotiated
rulemaking process that is mandated by 42 U.S.C. § 1437g(f), HUD and the stakeholders
who were members of the negotiated rulemaking committee reached consensus to cabin
HUD’s discretion so that its only option in the event of a budget shortfall was to reduce
operating subsidies on a prorated basis. See Pls.’ Mot. for Summ. J. (Pls.’ Mot.) App. at
A49–51. HUD incorporated this change into its proposed and final rules. See Revisions
to the Public Housing Operating Fund Program, 70 Fed. Reg. 19858, 19871 (Apr. 14,
2005) (proposed rule); Revisions to the Public Housing Operating Fund Program, 70 Fed.
Reg. 54984, 55004 (Sept. 19, 2005) (final rule).
3
outlines the terms and conditions pursuant to which they are entitled to receive operating
subsidies.4
As pertinent to the issues presented in this case, the ACCs between the PHA
Plaintiffs and HUD specify that the PHAs shall “develop and operate all projects covered
by this ACC in compliance with . . . all applicable statutes, executive orders, and
regulations issued by HUD, as they shall be amended from time to time.” Pls.’ Mot. App.
at A65 § 5. In particular, the PHAs agree to comply with “those regulations promulgated
by HUD at Title 24 of the Code of Federal Regulations, which are hereby incorporated
into this ACC by reference as if fully set forth herein, and as such regulations shall be
amended from time to time.” Id. The contracts further require HUD to provide annual
contributions to the PHAs “in accordance with all applicable statutes, executive orders,
regulations, and this ACC.” Id. at A64 § 3.
Section 11 of the ACCs sets forth the procedure by which PHAs must prepare
their annual budgets and submit their requests for operating subsidies for the upcoming
fiscal year. It requires PHAs to “submit a calculation of operating subsidy eligibility in
the manner prescribed by HUD in regulations in Title 24 of the Code of Federal
Regulations.” Id. at A67 § 11. The ACCs provide that “HUD shall review the calculation
and, if correct, and subject to the availability of funds, take action within 45 days of
submission to obligate the funds and approve a payment schedule,” subject to exceptions
not relevant here. Id. HUD may also “revise or amend the subsidy calculation to bring it
into conformity with regulatory requirements,” in which case the PHA “shall submit
revised calculations in support of mandatory or other adjustments based on procedures
and deadlines prescribed by HUD.” Id.
III. The 2012 Appropriations Act
Plaintiffs’ breach of contract claims in this case arise out of changes to the
calculation and allocation of operating subsidies that HUD implemented for 2012 on the
basis of the Consolidated and Further Continuing Appropriations Act [of] 2012 (2012
Appropriations Act), Pub. L. 112-55, 125 Stat. 552, 680.
The pertinent provisions of the 2012 Appropriations Act had their genesis in the
President’s proposed budget for 2012. See Pls.’ Mot. App. at A54–55. Thus, the
President’s proposal (which included a proposed appropriation of $3,961,850,000 to
HUD to pay operating subsidies in FY 2012) contained a proviso stating that “in
determining [PHAs’] . . . calendar year 2012 funding allocations . . . the Secretary shall
take into account PHAs’ excess operating reserves, as determined by the Secretary.” Id.
4
The current version of the standard ACC was issued by HUD in June 1995. See Dep’t
of Housing and Urban Dev., Notice PIH 95-44 (June 23, 1995),
https://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/noti
ces/pih/95pihnotices. The ACC was written by HUD and its terms were not the subject of
negotiation by the PHAs.
4
at A54. According to the proposal, the $3,961,850,000 requested, when “coupled with $1
billion from [PHAs’] operating reserves, will fund 100 percent of PHAs’ estimated
eligibility for operating subsidies under the Operating Fund formula ($4.962 billion).”
Id.5
On September 26, 2011, in anticipation of Congress’s approval of the President’s
proposal, HUD issued PIH Notice 2011-055, Public Housing Operating Subsidy
Calculations for Calendar Year 2012 (PIH Notice). See Pls.’ Mot. App. at A75–78. That
Notice provided public housing agencies with “instructions for operating subsidy
calculation submissions in Calendar Year (CY) 2012 as funded from Federal Fiscal Year
(FFY) 2012 appropriations.” Id. at A75.
In the PIH Notice, HUD announced that, consistent with the President’s proposal,
after it determined the 2012 Operating Fund Formula eligibility for each PHA, it would
make an allocation adjustment based on the PHA’s excess operating reserves—i.e., the
amount of the PHA’s operating reserves above a specified “minimum level.” Id. at A76.
The PIH Notice defined operating reserves to include unspent operating subsidies and
tenant rents, based upon four prior financial submissions (June 30, 2010, September 30,
2010, December 31, 2010, and March 31, 2011). Id. at A76–77. And it defined the
minimum level of reserves as four months of PHAs’ estimated formula operating
expenses for most PHAs, and six months of estimated expenses for small PHAs. Id. at
A76.
In November 2011, approximately two months after HUD issued the PIH Notice,
the 2012 Appropriations Act was enacted. The relevant provision of the Act stated, in
pertinent part, that it appropriated $3,961,850,000, “[f]or 2012 payments to public
housing agencies for the operation and management of public housing, as authorized by
section 9(e) of the United States Housing Act of 1937 . . . [p]rovided, [t]hat in
determining public housing agencies’ . . . calendar year 2012 funding allocations under
this heading, the Secretary shall take into account public housing agencies’ excess
operating fund reserves, as determined by the Secretary.” 125 Stat. at 680 (emphasis in
original).
The Act thus adopted the President’s proposed budget amount for operating
subsidies, as well as his proposal that the Secretary be given the authority to “offset
[PHAs’] allocations of operating funds in fiscal year 2012 based on excess reserves they
have available to meet their operating needs.” See Pls.’ Mot. App. at A57–58 (report by
the Senate Committee on Appropriations regarding the 2012 Appropriations Act, S. Rep.
5
In the Administration’s view, many PHAs were “holding significant operating reserves
accumulated primarily from prior-year appropriations for the Operating Fund program.”
Pls.’ Mot. App. at A55. These reserves, according to the explanatory section in the
President’s proposed budget, “represent cash available to PHAs for operating expenses
and other eligible activities under the program.” Id. The President thus proposed “to
reduce funding allocations to PHAs that have more than sufficient (i.e., excess) operating
reserve levels.” Id.
5
No. 112-83 (2011)). In addition, Congress imposed certain restrictions on the amount of
the offset, which were not included in the President’s proposal, to ensure that no PHA
would see its reserves reduced below $100,000. 125 Stat. at 680. It also limited the
aggregate amount of reserves that HUD could use as an offset to $750 million, rather than
the $1 billion the President had proposed. Id.
HUD’s implementation of the authority it was given under the 2012
Appropriations Act changed the methodology used for calculating the amount of
operating subsidies to be paid to the PHAs. In prior years, pursuant to its regulations,
HUD had reduced each PHA’s operating subsidy payment by a uniform percentage that
reflected the shortfall between the total amount Congress had appropriated and the total
amount payable under the Operating Formula. Because of the changes HUD made to
comply with the 2012 Act, however, the reduction of the PHAs’ payments to account for
the budget shortfall were not made on a pro rata basis.
The process HUD employed to implement the reduction was as follows. First,
employing the Operating Formula set forth in its regulations to each PHA, HUD
determined that the aggregate formula amount to which the PHAs were entitled was
$4,888,046,046. See id. at A17. Then, in accordance with the methodology set forth in
the PIH Notice, it determined each PHA’s excess operating reserves. The aggregate
amount of excess operating reserves so determined was $738,316,329. Id.; see also id. at
A77. HUD then subtracted the aggregate amount of the PHAs’ excess operating reserves
($738,316,329) from the aggregate Operating Formula amount ($4,888,046,046). Id. at
A17. Finally, it took the difference ($4,149,983,999) and compared it to the total amount
Congress had appropriated for operating subsidies ($3,961,850,000). Id. It then arrived at
the percentage (94.97%) which would be used to adjust the amount of the PHAs’ subsidy
payments so that HUD would remain within the $3,961,850,000 that Congress had
appropriated to pay operating subsidies. Id.
With that analysis complete, HUD went on to determine the operating subsidy
payment each individual PHA would receive. As in previous years, the starting point for
this determination was each PHA’s eligibility amount under the Operating Formula. See
Def.’s Mot. to Dismiss and Cross-Mot. for Summ. J. (Def.’s Mot.) App. at 13. But unlike
in previous years, HUD then made an “allocation adjustment” by offsetting each
individual PHA’s excess operating reserves against its Operating Formula eligibility
amount. See id. Finally, HUD then multiplied the adjusted amount by 94.97% to
determine the payment each PHA would actually receive (thus ensuring that HUD did not
exceed the Congressional appropriation). See id.; see also Pls.’ Opp’n to Def.’s Mot. to
Dismiss and Cross-Mot. for Summ. J. (Pls.’ Opp’n) App. at A18–21 (providing examples
of the results of these calculations).
Because the amount of excess operating reserves varied from PHA to PHA, so did
the percentage reduction in their Operating Formula eligibility amounts. PHAs without
excess operating reserves received 94.97% of their formula eligibility amount while,
according to Plaintiffs (Pls.’ Mot. at 20), many PHAs experienced as much as a 100%
reduction in their operating subsidies below the amount derived from application of the
Operating Formula.
6
IV. These Actions
These actions were originally brought in a single complaint filed on behalf of 359
separate plaintiffs on January 3, 2013. ECF No. 1. An amended complaint was filed on
March 1, 2013. ECF No. 8. Thereafter, by Order of July 3, 2013, the Court severed the
claims of each of the 358 plaintiffs listed on the Amended Complaint after the Public
Housing Authorities Directors Association; directed the Clerk to assign separate docket
numbers to each claim; directed each plaintiff to pay the court’s filing fee; and consolidated
the now-severed cases for all purposes pursuant to Rule 42 of the Rules of the Court of
Federal Claims (RCFC). ECF No. 15.
In Count I of the amended complaint, Plaintiffs alleged that HUD breached the
ACCs in question because, by taking their excess reserves into account when determining
their operating subsidy payments, HUD in fact reduced their operating subsidy payments
on a non-pro rata basis, in conflict with the Title 24 regulations incorporated into the
ACCs. Id. ¶¶ 88–106.6 Plaintiffs seek compensatory damages in the aggregate amount of
at least $135,836,467, as well as an award for the costs and expenses of bringing this
action. Id. at 60.
On May 2, 2013, before any discovery had taken place, the government filed a
motion for partial summary judgment as to Counts I and III of the amended complaint.
ECF No. 10. On August 20, 2013, Judge Allegra, who was then presiding over the case,
denied the government’s motion for partial summary judgment as premature. See Order
Denying Mot. for Partial Summ. J. (Aug. 20, 2013). On December 4, 2015, after a period
of discovery, during which the case was transferred to the undersigned, Plaintiffs filed a
motion for summary judgment as to Count I of their amended complaint. ECF No. 36. On
February 12, 2016, the government in turn filed a cross-motion for summary judgment as
to Count I as well as a motion to dismiss certain Plaintiffs whom the government claims
lack standing to pursue their claims. ECF No. 41.
Oral argument was held on the cross-motions on July 20, 2016. After argument,
the Court requested that the parties file supplemental briefs concerning the proper
interpretation and application of § 11(A) of the ACCs, which states that HUD’s duty to
pay operating subsidies is “subject to the availability of funds.” ECF No. 54.
Supplemental briefing was completed on December 7, 2016. ECF Nos. 57, 64–65.
6
Counts II and III of the amended complaint are not before the Court on the cross-
motions for partial summary judgment. In those Counts, Plaintiffs allege that HUD
violated its regulations when, as a basis for reducing their operating subsidy payments, it
considered their non-rental income as well as extra income they earned from the rental
income incentive HUD provided them for the years 2007 through 2009. See Am. Compl.
¶¶ 107–20.
7
DISCUSSION
I. Jurisdiction
The Court of Federal Claims has jurisdiction under the Tucker Act to hear “any
claim against the United States founded either upon the Constitution, or any Act of
Congress or any regulation of an executive department, or upon any express or implied
contract with the United States, or for liquidated or unliquidated damages in cases not
sounding in tort.” 28 U.S.C. § 1491(a)(1) (2006). Claims for damages arising out of a
breach of contract by the United States are squarely within the express terms of the
Tucker Act.
The government contends, however, that the Court lacks jurisdiction over the
claims of sixteen of the public housing agency plaintiffs, as well as the two PHA trade
associations, because they lack standing. Def.’s Mot. to Dismiss at 8–9. Specifically, it
argues that these sixteen PHA plaintiffs did not suffer any injury-in-fact because they did
not have excess operating reserves and therefore were not subject to the offset about
which they complain. Id. at 13. It further contends that because the two association
plaintiffs were not parties to any contract with HUD, they also did not suffer any injury-
in-fact. Id. at 9.
“Standing is a threshold jurisdictional issue that implicates Article III of the
Constitution.” First Annapolis Bancorp, Inc. v. United States, 644 F.3d 1367, 1373 (Fed.
Cir. 2011) (citing Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 102 (1998)).
Although this Court is an Article I court, it applies the same standing requirements as do
Article III courts. See Glass v. United States, 258 F.3d 1349, 1355–56 (Fed. Cir.),
amended on reh’g, 273 F.3d 1072 (Fed. Cir. 2001). To satisfy those requirements, “a
plaintiff must show that (1) it suffered an injury-in-fact that is (2) fairly traceable to the
challenged conduct of the defendant and (3) likely redressable by a favorable judicial
decision.” Salmon Spawning & Recovery All. v. U.S. Customs & Border Prot., 550 F.3d
1121, 1130 (Fed. Cir. 2008) (citing Figueroa v. United States, 466 F.3d 1023, 1029 (Fed.
Cir. 2006)).
Plaintiffs do not dispute that thirteen of the sixteen PHA plaintiffs whose
complaints the government seeks to dismiss were not subject to the offset and did not
suffer any monetary damages from the alleged breach of the ACCs at issue in these
cases.7 Pls.’ Opp’n at 8. Because these thirteen plaintiffs acknowledge that they did not
7
These thirteen plaintiffs are: Housing Authority of the City of Warner Robins (No. 13-
6058); Housing Authority of the City of Slidell (No. 13-6115); Brunswick Housing
Authority (No. 13-6121); Housing and Redevelopment Authority of Jackson, Minnesota
(No. 13-6150); Washington County Housing and Redevelopment Authority (No. 13-
6153); Housing Authority of the City of Joplin, Missouri (No. 13-6168); Housing
Authority of the City of Raleigh (No. 13-6245); Housing Authority of the City of
Greenville (No. 13-6244); Statesville Housing Authority (No. 13-6247); Rahway
Housing Authority (No. 13-6214); East Orange Housing Authority (No. 13-6222); Akron
8
suffer any injury-in-fact as a result of the breach, they lack standing to bring an action for
breach of contract and their complaints must be dismissed for lack of jurisdiction.8
Further, neither of the two PHA association plaintiffs was itself a party to an
ACC. In order to sue the government on a contract claim, a plaintiff must be in privity
with the United States. First Annapolis Bancorp, Inc., 644 F.3d at 1373 (citing Anderson
v. United States, 344 F.3d 1343, 1351 (Fed. Cir. 2003)). “Not only is privity a
fundamental requirement of contract law, but it takes on even greater significance in
cases such as this, because the ‘government consents to be sued only by those with whom
it has privity of contract.’” S. Cal. Fed. Sav. & Loan Ass’n v. United States, 422 F.3d
1319, 1328 (Fed. Cir. 2005) (quoting Erickson Air Crane Co. of Wash. v. United States,
731 F.2d 810, 813 (Fed. Cir. 1984)).
Plaintiffs argue nonetheless that while the two trade associations—the Public
Housing Authorities Directors Association (PHADA) and the National Association of
Housing and Redevelopment Officials (NAHRO)—may not have standing in their own
right under Article III, they may sue on behalf of their members under principles of
associational standing. Pls.’ Opp’n at 5. They observe that, in fact, 270 of the 355 public
housing agency plaintiffs are members of the lead plaintiff, PHADA, and that “[t]he
remaining 85 PHA Plaintiffs are either members only of NAHRO or not members of
PHADA or NAHRO.” Id.
“To establish standing based upon harm to one or more of its members . . . an
association must establish ‘(a) [that] its members would otherwise have standing to sue in
their own right; (b) [that] the interests it seeks to protect are germane to the
organization’s purpose; and (c) [that] neither the claim asserted nor the relief requested
requires the participation of individual members in the lawsuit.’” Disabled Am. Veterans
v. Gober, 234 F.3d 682, 689 (Fed. Cir. 2000) (quoting Hunt v. Wash. State Apple Advert.
Comm’n, 432 U.S. 333, 343 (1977)). Leaving aside whether PHADA and NAHRO have
met the first two criteria for establishing standing based on harm to their membership,
they cannot meet the third prong of the Hunt test because the damages claims of their
members require individualized proof. See United Food & Commercial Workers Union
Local 751 v. Brown Grp., Inc., 517 U.S. 544, 554 (1996) (observing that Warth v. Seldin,
422 U.S. 490 (1975), and other precedents “have been understood to preclude
Metropolitan Housing Authority (No. 13-6263); and Chester Housing Authority (No. 13-
6284). Def.’s Mot. at 8–9; Pls.’ Opp’n at 8.
8
Three of the plaintiffs challenge the government’s assertion that they did not have any
excess operating reserves and therefore were not injured by the breach of contract that
they allege. Pls.’ Opp’n at 8. In its reply brief, the government states that—to the extent
that these plaintiffs can establish such damages, it will not contest jurisdiction. Def.’s
Reply in Supp. of Def.’s Mot. to Dismiss and Cross-Mot. for Summ. J. (Def.’s Reply) at
2. The Court concludes that given this factual dispute, it would be improper to dismiss
these three plaintiffs from the suit on the basis of the government’s current motion.
9
associational standing when an organization seeks damages on behalf of its members”).
Accordingly, PHADA and NAHRO lack standing as associations to bring suit on behalf
of their members.9
Finally, the Court is not persuaded by Plaintiffs’ citation of Bowsher v. Synar,
478 U.S. 714, 721 (1986) for the proposition that—given that the standing of the majority
of the plaintiffs is clear—it should maintain jurisdiction over the complaints of the
plaintiffs who lack standing. Pls.’ Opp’n at 6–7. In Bowsher, the Court chose not to
address the difficult question of whether members of Congress had standing to challenge
the constitutionality of the Balanced Budget Act, because at least one of the other
plaintiffs in the case did possess standing. 478 U.S. at 721. The dismissal of the
Congressional plaintiffs on standing grounds would have had no practical effect on the
Supreme Court’s disposition of the case on the merits, and the Supreme Court’s decision
would mark the end of the litigation. In this case, however, the standing issues are not
difficult; indeed, Plaintiffs concede that the thirteen individual plaintiffs lack standing.
Moreover, at this stage in the case, it serves the interests of judicial economy and
efficiency to dismiss from these consolidated cases those complaints that are not within
the Court’s jurisdiction.
For these reasons, the government’s motion to dismiss Nos. 13-6121, 13-6115,
13-6153, 13-6245, 13-6247, 13-6214, 13-6263, 13-6284, 13-6058, 13-6168, 13-6150, 13-
6222, 13-6244, 13-0006, and 13-6000 is GRANTED.
II. Summary Judgment Standards
In accordance with RCFC 56(a), summary judgment may be granted “if the
movant shows that there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” See Celotex Corp. v. Catrett, 477 U.S. 317, 322
(1986). A fact is material if it “might affect the outcome of the suit under the governing
law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). An issue is genuine if
it “may reasonably be resolved in favor of either party.” Id. at 250.
The material facts in this case are not in dispute. Further, Plaintiffs’ breach of
contract claims depend upon the resolution of questions of law—the interpretation of the
ACCs and whether HUD breached the ACCs when it took operating reserves into
consideration in determining Plaintiffs’ operating subsidies. Therefore, Plaintiffs’ breach
of contract claims are appropriate for resolution by summary judgment. Gov’t Sys.
Advisors, Inc. v. United States, 847 F.2d 811, 812 n.1 (Fed. Cir. 1988) (observing that
9
The fact that a number of the organizations’ members are also plaintiffs in this case
does not establish—as Plaintiffs argue—that every member of the organizations that
might claim an injury is a party to the suit and therefore can provide the individualized
proof required to fashion an award of damages to the organizational plaintiffs on their
behalves. See Pls.’ Opp’n at 6. And to the extent that the injured members of the
organizations are also plaintiffs in the suit as individuals, the participation of the
associations as proxies seems, in any event, superfluous.
10
claims alleging breach of contract that rise or fall with the interpretation of the contract
are generally “amenable to decision on summary judgment”); see also Varilease Tech.
Grp. v. United States, 289 F.3d 795, 798 (Fed. Cir. 2002) (same).
III. Merits
Plaintiffs argue that the ACCs incorporated by reference HUD’s regulations at
Title 24 of the Code of Federal Regulations, including § 990.210(c), which provides that
“[i]n the event that insufficient funds are available, HUD shall have discretion to revise,
on a pro rata basis, the amounts of operating subsidy to be paid to PHAs.” According to
Plaintiffs, HUD breached the ACCs in 2012 when, rather than reducing their subsidy
payments by a uniform percentage (i.e., on a pro rata basis), it first offset each PHA’s
payment by a figure that varied from one PHA to another—the amount of its excess
operating reserves.
The government’s central argument in response is that HUD’s methodology was
compelled by the requirements of the 2012 Appropriations Act, and that compliance with
that Act was required by the ACCs themselves. In addition, the government contends that
Plaintiffs’ arguments are foreclosed by provisions in the ACCs and HUD’s regulations
which state that operating subsidy payments are subject to or limited by the availability of
funds.
For the reasons set forth below, the Court concludes that Plaintiffs’ arguments are
the more persuasive ones. Accordingly, Plaintiffs’ motion for partial summary judgement
is GRANTED and the government’s cross-motion is DENIED.
A. Incorporation of Title 24 Regulations, as Amended, into the ACCs
It is well established that “[t]o incorporate material by reference, a contract must
use clear and express language of incorporation, which unambiguously communicates
that the purpose is to incorporate the referenced material, rather than merely acknowledge
that the referenced material is relevant to the contract.” Precision Pine & Timber, Inc. v.
United States, 596 F.3d 817, 826 (Fed. Cir. 2010); see also Northrop Grumman Info.
Tech., Inc. v. United States, 535 F.3d 1339, 1344 (Fed. Cir. 2008) (observing that “the
incorporating contract must use language that is express and clear, so as to leave no
ambiguity about the identity of the document being referenced, nor any reasonable doubt
about the fact that the referenced document is being incorporated” (emphasis in
original)). The Court of Appeals “has been reluctant to find that statutory or regulatory
provisions are incorporated into a contract with the government unless the contract
explicitly provides for their incorporation.” Northrop Grumman Info. Tech., 535 F.3d at
1344 (quoting St. Christopher Assocs., L.P. v. United States, 511 F.3d 1376, 1384 (Fed.
Cir. 2008) (emphasis in original)).
In this case, the ACCs contain language expressly incorporating HUD’s
regulations at Title 24 into the contracts. Thus, section 5 of the ACCs specifies that the
parties must comply with the regulations “promulgated by HUD at Title 24 of the Code
of Federal Regulations, which are hereby incorporated into this ACC by reference as if
11
fully set forth herein, and as such regulations shall be amended from time to time.” Pls.’
Mot. App. at A65 (emphasis supplied). This language “unambiguously communicates
that the purpose” of section 5 “is to incorporate the referenced material,” i.e., Title 24,
including any amendments made to Title 24 after the contracts’ executions. See Precision
Pine, 596 F.3d at 826; see also S. Cal. Edison Co. v. United States, 226 F.3d 1349, 1353
(Fed. Cir. 2000) (holding that the contracts at issue incorporated the terms and conditions
of certain regulations by specifically referring to the regulations (the text of which was
attached to the contract as an exhibit) as being part of the contract “as fully and
completely as though set forth herein [i.e., in the contract] in length”).
Further, the intent to incorporate the provisions of Title 24 (as they may be
amended from time to time) into the contracts is also reflected in the preamble to the
ACCs. It states that each ACC “incorporates by reference into this ACC those regulations
issued by HUD for the development, modernization, and operation of public and Indian
housing projects contained in Title 24 of the Code of Federal Regulations, as said Title
shall be amended from time to time.” Pls.’ Mot. App. at A63.
These express statements of intent that HUD’s Title 24 regulations, as amended,
are incorporated into the contract, are sufficient to establish that the parties undertook a
contractual obligation to comply with the terms of those regulations. Indeed, the
government does not argue otherwise. The Court turns, therefore, to the question of
whether HUD violated that contractual obligation in its allocation of operating subsidies
to Plaintiffs in 2012.
B. Breach of Contract Claims
1. HUD’s Contractual Commitment
It is well established that the “rights and duties” contained in a Government
contract “are governed generally by the law applicable to contracts between private
individuals.” United States v. Winstar Corp., 518 U.S. 839, 912 (1996) (quoting Lynch v.
United States, 292 U.S. 571, 579 (1934)); see also Mobil Oil Expl. & Producing Se., Inc.
v. United States, 530 U.S. 604, 607–08 (2000). Further, a breach of the government’s
contractual obligations may be effected through legislation that requires the government
to take actions that are inconsistent “with the promises that . . . earlier contracts
contain[].” Mobil Oil, 530 U.S. at 624. In such instances, where a subsequent statute
makes the government unable to fulfill its contractual promises, it may be liable to pay
damages for breach of contract. See Winstar, 518 U.S. at 870.
Notwithstanding the foregoing, the government argues that the principles set forth
in Winstar and Mobil Oil do not apply to Plaintiffs’ claims. It contends that —unlike the
plaintiffs in those cases—the PHAs did not bargain for the right they claim here, which
the government characterizes as the right to have their 2012 formula subsidies reduced on
a pro rata basis. Indeed, the government notes, “the claimed right is based entirely upon a
2005 language change in the Title 24 regulations, which occurred ten years after the
contracts were written and signed.” Def.’s Reply at 5 (emphasis in original).
12
The government’s arguments miss the mark. The government is correct that the
PHAs did not bargain for the right to have HUD employ a particular methodology for
determining their operating subsidy payments in the event of a budget shortfall. But they
did bargain for the right to require HUD to use whatever methodology was set forth in the
regulations at Title 24 of the C.F.R., as amended from time to time. And the content of
those regulations would be determined with their participation and input, through the
negotiated rulemaking process.10 Indeed, the record shows that it was upon the initiative
of public housing stakeholders on the rulemaking committee that the regulation upon
which Plaintiffs rely in this case was amended in 2005 to preclude HUD from reducing
operating subsidy payments on anything other than a pro rata basis in the event of
insufficient appropriations. Because Plaintiffs argue that the 2012 Act deprived them of
their important contractual right to have their operating subsidy payments determined
consistent with the applicable provisions of Title 24, their claims fall squarely within the
rationale of Winstar and Mobil Oil.
2. The Alleged Breach
As described in greater detail above, HUD’s regulations provide that a PHA is
entitled to an operating subsidy determined on the basis of a specified Operating Fund
Formula, and that, in the event that “insufficient funds are available,” “amounts of [the]
operating subsidy to be paid” shall be revised “on a pro rata basis.” 24 C.F.R.
§ 990.210(c). In 2012, HUD did not revise the amounts to be paid to each PHA under the
Operating Formula on a pro rata basis—i.e., by a uniform percentage. Instead, it made an
initial reduction in each Plaintiff’s subsidy by offsetting that particular PHA’s “excess
operating reserves” against its formula eligibility amount. Thus, the PHAs’ formula
eligibility amounts were reduced on a non-pro rata basis, contrary to the provisions of
Title 24. It was only after that offset was applied that HUD applied a uniform percentage
(94.97%) to make a second reduction.11
10
Congress mandated that HUD employ the negotiated rulemaking procedures set forth
at 5 U.S.C. §§ 561–70a when issuing regulations concerning the operating subsidy
formula. See 42 U.S.C. § 1437g(f). Those procedures provide for collaboration and
greater stakeholder participation in the rulemaking process than exists under the
traditional notice-and-comment procedures prescribed in the Administrative Procedure
Act. In a negotiated rulemaking, a committee consisting of stakeholders and agency
representatives meets publicly to negotiate the content of new regulations before they are
issued in proposed form. See 5 U.S.C. §§ 565–66. Because of the enhanced opportunities
for stakeholder input, “[p]roponents of negotiated rulemaking claim that these
procedures—which encourage affected parties to reach an agreement at the outset—will
decrease the amount of time it takes to develop regulations and, more notably, reduce or
eliminate subsequent judicial challenges.” Cary Coglianese, Assessing Consensus: The
Promise and Performance of Negotiated Rulemaking, 46 Duke L.J. 1255, 1257 (1997).
11
The Court notes that 24 C.F.R. § 990.110(c) states that “this part does not codify
certain secondary elements that will be used in the revised Operating Fund Formula,” and
13
Notwithstanding the foregoing, the government contends that HUD’s failure to
comply with Title 24 did not constitute a breach of contract because the ACCs
contemplated that their terms were subject to both existing and future applicable laws,
including the 2012 Appropriations Act. See Def.’s Mot. at 14–16. This argument is
unpersuasive.
First, the government’s argument collides with the principles, set forth above,
which demand “clear and express language of incorporation” to make material outside
the contract a part of the contract. Precision Pine, 596 F.3d at 826. The ACCs contain no
express statement of intent to incorporate by reference into the contract any statutory
provisions that might be enacted in the future, or even any statute in existence at the time
of the contracts’ executions. See id.
For example, the preamble to the ACC (upon which the government relies) does
not even reference the government’s obligations, nor does it contain express language of
incorporation. It merely states that “[n]othing herein shall release the HA [Housing
Authority] from compliance with all applicable laws, executive orders, and regulations
that are not specifically incorporated herein by reference.” Pls.’ Mot. App. at A63.
Similarly, while section 3 of the ACC at least refers to HUD’s obligations, it simply
recites a truism, stating that “HUD shall provide annual contributions to the HA in
accordance with all applicable statutes, executive orders, regulations, and this ACC.” See
id. at A64.
The relevant precedent confirms that contract language stating that a party’s
obligations shall be governed by or subject to “applicable statutes” is not sufficient to
evince the incorporation of any particular statute into the contract by reference (either as
then in existence or as might be subsequently enacted). See Mobil Oil, 530 U.S. at 615–
16 (lease contracts stating that they were subject to specific statutory provisions and
regulations, as well as “all other applicable statutes and regulations,” incorporated
specific statutes and regulations existing at the time of the contract’s formation and
referenced therein, but not other subsequently enacted statutes and regulations); Smithson
v. United States, 847 F.2d 791, 794 (Fed. Cir. 1988) (rejecting plaintiff’s argument that
entire body of regulations promulgated by the Farmers Home Administration was
that “HUD will more appropriately provide this information in non-codified guidance
such as a Handbook, Federal Register notice, or other non-regulatory means that HUD
determines appropriate.” Although the government referenced this provision in its
opening brief, see Def.’s Mot. at 3–4, it has never argued that consideration of a PHA’s
excess operating reserves in determining its subsidy could be characterized as the use of a
“secondary element” in the Operating Fund Formula. Nor could it. As HUD explained in
the preamble to its regulations, this language was intended to refer to situations in which
“HUD has determined that clarification of existing regulatory requirements is needed”
and so “will issue such guidance through non-regulatory means.” Revisions to the Public
Housing Operating Fund Program, 70 Fed. Reg. 54984, 54989 (Sept. 19, 2005). Imposing
an excess operating reserve offset was a new regulatory requirement, not a clarification of
existing ones.
14
incorporated by reference into plaintiff’s contract, based on a provision stating that the
contract was “subject to” such regulations, noting among other things that “if that were
the parties’ purpose, they would have explicitly so provided”); Earman v. United States,
114 Fed. Cl. 81, 103–04 (2013) (provision stating that the contract “shall be carried out in
accordance with all applicable Federal statutes and regulations” “does not refer to any
particular statutory or regulatory provision,” and therefore “cannot reasonably be read as
incorporating the entire corpus of the [relevant] statute into plaintiff’s contract”), aff’d,
589 F. App’x 991 (Fed. Cir. 2015).
Further, it is illuminating to compare the language that the ACCs employ when
describing the relationship between the Title 24 regulations and the contract to the
language the ACCs use when referencing either statutes or other potentially applicable
regulations. Thus, in the very same sentence of § 5 stating that “[t]he HA shall develop
and operate all projects covered by this ACC in compliance with all the provisions of this
ACC and all applicable statutes, executive orders, and regulations issued by HUD, as
they shall be amended from time to time,” the ACCs explicitly and specifically
“incorporate[] . . . by reference as if fully set forth herein” only “those regulations
promulgated by HUD at Title 24 of the Code of Federal Regulations. . . as such
regulations shall be amended from time to time.” Pls.’ Mot. App. at A65. This
demonstrates that where the ACC was intended to incorporate external legal requirements
(as with the Title 24 regulations), the contract employs the kind of express language of
incorporation that Precision Pine and Northrop Grumman require. By contrast, the ACCs
do not use the language of incorporation in reference to any statutes (whether then-
existing or subsequently enacted), which further supports the conclusion that the 2012
Act is not incorporated by reference into the ACC.
Nor does the language in § 11 of the ACC stating that “HUD may revise or amend
the subsidy calculation to bring it into conformity with regulatory requirements” assist
the government’s argument. See id. at A67. First, the language refers to “regulatory”
requirements, not statutory requirements. And the government does not argue that the
PIH Notice contains “regulatory requirements”; nor could it, as such Notices are not
promulgated in accordance with the negotiated rulemaking procedures required by the
statute.
Further, and in any event, the “regulatory requirements” to which § 11 refers are
those set forth in Title 24. Thus, the language appears within a clause that lays out the
administrative process by which HUD will determine a PHA’s annual operating subsidy
eligibility. See id. It requires the PHA to submit to HUD an annual “calculation of
operating subsidy eligibility in the manner prescribed by HUD in regulations in Title 24
of the Code of Federal Regulations.” Id. It then specifies that HUD will review the
submission and that, if it is not in conformity with the regulations, HUD may “revise or
amend” it. Id. Read in context, it is unreasonable to construe the reference to the revision
or amendment of a subsidy eligibility calculation “to bring it into conformity with
regulatory requirements” as reflecting anything other than a description of the actions
HUD may take in response to a submission that does not comply with Title 24.
15
In short, the government’s argument that compliance with the 2012 Act was itself
a contractual obligation lacks merit. The Court turns therefore to the government’s final
argument—that Plaintiffs’ breach of contract claims are foreclosed by provisions in the
ACCs and HUD’s regulations that make the PHAs’ entitlements to operating subsidies
“subject to” or “limited by” the availability of funds.
3. Availability of Funds
The government’s final argument is that language at 24 C.F.R. § 990.110(b)(3),
which states that “[o]perating subsidy payments will be limited to the availability of
funds as described in § 990.210(c),” “serves as an independent bar to plaintiffs’ claims
because it limits the Government’s liability to the amount appropriated by Congress.”
Def.’s Reply at 7. This argument lacks merit because it ignores § 990.110(b)(3)’s cross-
reference to § 990.210(c), which “describe[s]” how the payments will be limited in the
event of a shortfall in appropriations. Section 990.210(c)—stating that “[i]n the event that
insufficient funds are available, HUD shall have discretion to revise, on a pro rata basis,
the amounts of operating subsidy to be paid to PHAs”—is the very provision Plaintiffs
seek to enforce in this case. Plaintiffs do not seek an award of subsidies in excess of the
amount appropriated by Congress for such subsidies. Instead, their claims concern the
methodology for allocating the amounts Congress has appropriated.
For similar reasons, the Court also rejects the government’s reliance upon § 11(A)
of the ACCs, which states that HUD “shall review [the PHA’s calculation of operating
subsidy eligibility under Title 24] and, if correct, and subject to the availability of funds,”
take action within 45 days to obligate the funds and approve a payment schedule. As the
Supreme Court explained in Cherokee Nation of Oklahoma v. Leavitt, 543 U.S. 631
(2005), language stating that the government’s provision of funds is “subject to the
availability of appropriations” “is often used with respect to Government contracts.” Id.
at 643 (citations omitted). “This kind of language normally makes clear that an agency
and a contracting party can negotiate a contract prior to the beginning of a fiscal year but
that the contract will not become binding unless and until Congress appropriates funds
for that year.” Id. “It also makes clear that a Government contracting officer lacks any
special statutory authority needed to bind the Government without regard to the
availability of appropriations.” Id. (citations omitted).
Further, “[w]hether appropriated funds are legally available for something
depends on three things: 1) the purpose of the obligation or expenditure must be
authorized; 2) the obligation must occur within the time limits applicable to the
appropriation; and 3) the obligation and expenditure must be within the amounts
Congress has established.” U.S. Gov’t Accountability Off., GAO-04-261SP, GAO
General Principles of Federal Appropriations Law—Vol. I, ch. 4, 4-6 (3d ed. 2004). In
this case, under the 2012 Appropriations Act, funds were available for the purpose of
providing subsidies to PHAs for the operation and management of public housing.
Further, the obligation to pay Plaintiffs’ operating subsidies was within the time limits of
the Act (FY 2012). And compliance with Title 24’s rules for allocating operating
subsidies did not require HUD to spend more than $3,961,850,000, the amount Congress
had established. Accordingly, inclusion of the standard proviso in the ACCs, making
16
payment of operating subsidies “subject to the availability of funds” does not preclude
Plaintiffs from claiming their contractual right to have those funds allocated consistent
with the requirements of Title 24.
* * * * * * * * * * *
In short, the language of the ACCs reflects an intent to incorporate by reference
into the contract the provisions of Title 24 of the C.F.R., but no intent to incorporate by
reference future statutory provisions like the 2012 Appropriations Act. Further, the
language in the regulations (and in the ACCs) that makes the government’s obligation to
pay operating subsidies “subject to the availability of funds” does not excuse HUD’s
failure to apply the methodology set forth in the regulations for determining the amount
of the operating subsidy payments based on the availability of funds. Therefore, the Court
concludes that the government breached its obligations under the ACCs when it applied
the operating expense offset in response to the 2012 Appropriations Act, rather than the
pro rata reduction rule prescribed by Title 24.12
CONCLUSION
For the foregoing reasons:
1) The government’s motion to dismiss is GRANTED-IN-PART and DENIED-
IN-PART;
2) Nos. 13-6121, 13-6115, 13-6153, 13-6245, 13-6247, 13-6214, 13-6263, 13-
6284, 13-6058, 13-6168, 13-6150, 13-6222, 13-6244, 13-0006, and 13-6000
are DISMISSED without prejudice;
3) Plaintiffs’ motion for partial summary judgment is GRANTED; and
4) The government’s motion for partial summary judgment is DENIED.
The Clerk is directed to enter judgment accordingly in Nos. 13-6121, 13-6115,
13-6153, 13-6245, 13-6247, 13-6214, 13-6263, 13-6284, 13-6058, 13-6168, 13-6150, 13-
12
The government’s motion for partial summary judgment includes a brief argument that
it is entitled to summary judgment on the ground that Plaintiffs’ damages claims are
“inherently speculative” because they “appear[] to be based upon its belief that Congress
would have appropriated the same amount of operating subsidy funds in fiscal year 2012
even without the direction to the Secretary to take into account PHAs[’] excess operating
reserves.” Def.’s Mot. at 16 (citing San Carlos Irr. & Drainage Dist. v. United States, 111
F.3d 1557, 1563 (Fed Cir. 1997)). This contention is unpersuasive. Plaintiffs’ claims are
not based on speculation about how much money Congress would have appropriated had
it not decided to require HUD to consider the PHAs’ excess operating reserves. Their
claims are based on HUD’s failure to follow its Title 24 regulations (which were
incorporated into their contracts) in allocating the $3,961,850,000 that Congress in fact
did appropriate.
17
6222, 13-6244, 13-0006, and 13-6000. Further, the Clerk is directed to make No. 13-
6040, Clearwater Housing Authority v. United States, the lead case in this consolidated
action. The parties shall amend the captions of all future filings accordingly.
The parties shall file a joint status report within 30 days, proposing a schedule to
govern further proceedings in these cases.
IT IS SO ORDERED.
s/ Elaine D. Kaplan
ELAINE D. KAPLAN
Judge
18