SONOMA APARTMENT ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP, Plaintiff-Appellee
UNITED STATES, Defendant-Appellant
from the United States Court of Federal Claims in No.
1:13-cv-00940-MMS, Chief Judge Margaret M. Sweeney.
Deborah S. Bull, Perry, Johnson, Anderson, Miller &
Moskowitz LLP, Santa Rosa, CA, argued for plaintiff-appellee.
Matthew Paul Roche, Commercial Litigation Branch, Civil
Division, United States Department of Justice, Washington,
DC, argued for defendant-appellant. Also represented by
Joseph H. Hunt, Robert Edward Kirschman, Jr., Franklin E.
Newman, Chen, and Hughes, Circuit Judges.
HUGHES, CIRCUIT JUDGE.
Apartment Associates contracted with the Government to
construct low-income housing in exchange for a $1, 261, 080
loan under Section 515 of the Housing Act of 1949. In 2010,
Sonoma submitted a written request to prepay the balance of
its loan. The Government denied the request, and Sonoma filed
for breach of contract. The Court of Federal Claims awarded
Sonoma expectancy damages of $4, 223, 328 and a tax gross-up
award of $3, 171, 990. The Government appeals the tax
gross-up award. Because the Court of Federal Claims clearly
erred in using income from a single tax year to predict the
future rates at which each partner would pay taxes, we vacate
the tax gross-up award and remand for entry of judgment
consistent with this opinion.
515 of the Housing Act of 1949, 42 U.S.C. § 1485,
authorizes the Department of Agriculture, Farmers Home
Administration to loan money to nonprofit entities to
provide rental housing for elderly and low-and
moderate-income individuals and families. See Fran-conia
Assocs. v. United States, 536 U.S. 129, 134 (2002). To
participate in the Section 515 program, borrowers must enter
into a loan agreement with the Government specifying, among
other things, the length of the loan and any rights to make
prepayments. See id. at 134–35.
about the number of Section 515 borrowers choosing to prepay
their loans, Congress amended the Housing Act in 1979 and
1980 by imposing prepayment limitations. These amendments
prohibited the Farmers Home Administration from accepting
prepayments for 15 to 20 years from the date of the loan.
See Housing and Community Development Amendments of
1979, Pub. L. No. 96-153, 93 Stat. 1101, 1134–35
(1979); Housing and Community Development Act of 1980, Pub.
L. No. 96-399, 94 Stat. 1614, 1671–72 (1980); see
also Franconia Assocs., 536 U.S. at 135. These
amendments, however, did not adequately reduce prepayment
rates. Congress therefore enacted the Emergency Low Income
Housing Preservation Act of 1987 (ELIHPA), Pub. L. No.
100-242, 101 Stat. 1877, and the Housing and Community
Development Act of 1992 (HCDA), Pub. L. No. 102-550, 106
Stat. 3672, to further limit the circumstances under which
borrowers could prepay their loans. See Franconia
Assocs., 536 U.S. at 136–37 & n.3.
Franconia Associates, the Supreme Court determined
that the ELIHPA and HCDA anticipatorily repudiated existing
Section 515 contracts because they applied retroactively.
Id. at 148. This anticipatory repudiation ripens
into breach when the Government denies a given borrower's
request to prepay the balance of its loan. Id.
is a limited partnership formed by Richard Gullotta and
Richard Parasol to manage housing properties. At the time of
formation, each partner owned a 2.5% general partnership
interest and a 47.5% limited partnership interest. Mr.
Parasol later sold his 47.5% limited partnership interest to
a married couple. In 2009, the surviving spouse sold that
interest in equal shares to the living trusts for each of
Richard Gullotta's three children for $40, 000.
September 4, 1984, Sonoma entered into a Section 515 loan
agreement with the Farmers Home Administration. The
Government agreed to loan Sonoma $1, 261, 080 to construct
low-income apartment housing, and Sonoma agreed to pay back
the loan in installments over a fifty-year period ending on
October 27, 2035. As part of the agreement, Sonoma executed
two promissory notes for the balance of the loan. The
promissory notes provided that "[p]repayments of
scheduled installments, or any portion thereof, may be made
at any time at the option of Borrower providing the loan is
in a current status." Sonoma secured the promissory
notes with a deed of trust requiring it to use the building
for low-income apartment housing for 20 years. The 20-year
term ended on October 27, 2005.
submitted a written request to prepay the balance of its loan
on November 5, 2010. The Government denied the request on
January 3, 2011. Sonoma filed a complaint for breach of
contract at the Court of Federal Claims on November 27,
2013. Because the ...