Filed: Jul. 17, 2003
Latest Update: Mar. 02, 2020
Summary: United States Court of Appeals FOR THE EIGHTH CIRCUIT _ No. 02-2445 _ Forest Park II, a Minnesota Limited * Partnership, * * Plaintiff/Appellant, * * v. * * Katherine Hadley, in her capacity as * Commissioner of the Minnesota * Housing Finance Agency; * City of Forest Lake, Minnesota; * Minnesota Metropolitan Council; * Forest Part II Tenants Association; * Appeals from the United States Richard Psyck; Jeremy Cahill; * District Court for the Cassandra Johnson; Tara Wood; * District of Minnesota.
Summary: United States Court of Appeals FOR THE EIGHTH CIRCUIT _ No. 02-2445 _ Forest Park II, a Minnesota Limited * Partnership, * * Plaintiff/Appellant, * * v. * * Katherine Hadley, in her capacity as * Commissioner of the Minnesota * Housing Finance Agency; * City of Forest Lake, Minnesota; * Minnesota Metropolitan Council; * Forest Part II Tenants Association; * Appeals from the United States Richard Psyck; Jeremy Cahill; * District Court for the Cassandra Johnson; Tara Wood; * District of Minnesota. ..
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United States Court of Appeals
FOR THE EIGHTH CIRCUIT
_______________
No. 02-2445
_______________
Forest Park II, a Minnesota Limited *
Partnership, *
*
Plaintiff/Appellant, *
*
v. *
*
Katherine Hadley, in her capacity as *
Commissioner of the Minnesota *
Housing Finance Agency; *
City of Forest Lake, Minnesota; *
Minnesota Metropolitan Council; *
Forest Part II Tenants Association; * Appeals from the United States
Richard Psyck; Jeremy Cahill; * District Court for the
Cassandra Johnson; Tara Wood; * District of Minnesota.
Dawn Byland; Nicole Cook; John *
Hill; Teressa Barnett; Jennifer Rauito; * [PUBLISHED]
Margie Barnett; Carolyn Brown; *
Anthony Wallin; Gwen Beto; *
Christine Green; Andrew Clover; *
Diana Dehn, Debra Renollet; Jesse *
Rose; Nathan Malchow; Loann *
Matheson; Crystal Olson; Tammy *
Breidel; Tamara Boyer; Travis *
Wiosky; Andrew Schneider, Jason *
Wilkinson; Susan Eidet; Deana *
Schwefel; Jon Hatanpa; Linnea Cook; *
Patricia Thompson; Aleeta *
Gelbmann; Derek Sagerer; Cheryl *
Mitchell; Alyce Reed; Kimberly *
Turcotte; Rachael Nelson; Constance *
Letourneau; Teresa White; Mary *
Bartel; Lindsay Stumm; Anthony *
Minwegen; Janson Rossell; Orenna *
Powell; Antoinett Smith; Nicole *
Kichler; Paul Henry; Petranell *
Berggren; Craig Metcalf; Tammy *
Russ; Susan Trudeau; Joseph Greene; *
Tammy Sanz; Nicholas Theis; Megan *
Theis, *
*
Defendants/Appellees. *
*
Family Housing Fund, *
*
Intervenor/Appellee. *
*
--------------------------------------------- *
*
California Coalition for Rural *
Housing, *
*
Amicus on Behalf *
Of Appellees. *
*
*
_______________
No. 02-2609
_______________
Troy Durant; Jeannette Forga, *
*
Defendants/Appellants *
*
v. *
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*
Katherine Hadley, in her capacity as *
Commissioner of the Minnesota *
Housing Finance Agency; *
City of Forest Lake, Minnesota; *
Minnesota Metropolitan Council; *
Forest Part II Tenants Association; *
Richard Psyck; Jeremy Cahill; *
Cassandra Johnson; Tara Wood; *
Dawn Byland; Nicole Cook; John *
Hill; Teressa Barnett; Jennifer Rauito; *
Margie Barnett; Carolyn Brown; *
Anthony Wallin; Gwen Beto; *
Christine Green; Andrew Clover; *
Diana Dehn, Debra Renollet; Jesse *
Rose; Nathan Malchow; Loann *
Matheson; Crystal Olson; Tammy *
Breidel; Tamara Boyer; Travis *
Wiosky; Andrew Schneider, Jason *
Wilkinson; Susan Eidet; Deana *
Schwefel; Jon Hatanpa; Linnea Cook; *
Patricia Thompson; Aleeta *
Gelbmann; Derek Sagerer; Cheryl *
Mitchell; Alyce Reed; Kimberly *
Turcotte; Rachael Nelson; Constance *
Letourneau; Teresa White; Mary *
Bartel; Lindsay Stumm; Anthony *
Minwegen; Janson Rossell; Orenna *
Powell; Antoinett Smith; Nicole *
Kichler; Paul Henry; Petranell *
Berggren; Craig Metcalf; Tammy *
Russ; Susan Trudeau; Joseph Greene; *
Tammy Sanz; Nicholas Theis; Megan *
Theis, *
*
Defendants/Appellees. *
*
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Family Housing Fund, *
*
Intervenor/Appellee. *
*
--------------------------------------------- *
*
California Coalition for Rural *
Housing, *
*
Amicus on Behalf *
Of Appellees. *
*
____________________
Submitted: February 13, 2003
Filed: July 17, 2003
_____________________
Before HANSEN,1 Chief Judge, RICHARD S. ARNOLD and BYE, Circuit Judges.
_____________________
HANSEN, Circuit Judge.
Appellants Forest Park II (Forest Park), Troy Durant, and Jeannette Forga
appeal the district court's grant of summary judgment and its issuance of a permanent
injunction requiring Forest Park to comply with various Minnesota state statutes
before prepaying its federally subsidized mortgage. Because we hold that the state
statutes are preempted, we reverse.
1
The Honorable David R. Hansen stepped down as Chief Judge of the United
States Court of Appeals for the Eighth Circuit at the close of business on March 31,
2003. He has been succeeded by the Honorable James B. Loken.
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I. Facts & Background
Forest Park owns an apartment building that was financed with a federally
subsidized mortgage and has operated it for 25 years providing low-income housing.
Forest Park sought to prepay its mortgage and withdraw from the federal program
pursuant to the provisions of federal law. After receiving advice from a tenants'
rights group, a number of tenants insisted that Forest Park comply with two
Minnesota statutes before withdrawing from the federal program.
Forest Park then commenced this declaratory judgment action seeking a
declaration that the two Minnesota statutes are preempted by federal law, and that
they violate the Contracts Clause of the federal Constitution. Forest Park named a
number of individual tenants as well as the Minnesota Housing Finance Agency and
the Metropolitan Council as defendants. The district court also allowed a nonprofit
tenants' rights organization, the Family Housing Fund, to intervene. The defendants
brought an immediate motion for summary judgment and requested an injunction
prohibiting Forest Park from prepaying its mortgage without first complying with the
state statutes.
The district court granted the defendants' motion for summary judgment,
finding that federal law does not preempt the Minnesota statutes, and it issued a
permanent injunction prohibiting Forest Park from prepaying the mortgage until it
fully complies with the state statutes. See Forest Park II v. Hadley, 203 F. Supp. 2d
1071, 1077-78 (D. Minn. 2002). Forest Park appeals, joined by two individual
tenants who apparently stand to benefit from other federal programs if Forest Park
can prepay its mortgage.
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II. The Federal Housing Programs2
In the 1960s, Congress established a number of programs whereby the federal
government enticed private developers to build inexpensive, affordable housing for
low-income citizens to occupy by offering the developers loans with below-market
interest rates. Forest Park participated in the "Section 236" program created in 1968.
See Housing and Urban Development Act of 1968, Pub. L. No. 90-448, §§ 201(a),
236(a)-(g), 82 Stat. 476, 498 (codified as amended at 12 U.S.C. § 1715z-1 (2000)).
The Section 236 program ended in 1973. See Pa. v. Lynn, 501 F.2d 848, 850-51
(D.C. Cir. 1974) (explaining the suspension). Under this program, the federal
Department of Housing and Urban Development (HUD) both insured and subsidized
the interest payments on mortgages for multifamily housing projects. Project owners
executed 40-year mortgages with interest rates of 1 to 3 percent; however, the
mortgage and the related regulatory agreement entered into with HUD expressly
granted the mortgagor the right to prepay the outstanding mortgage balance after 20
years without the prior consent of HUD. With the incentives of low interest rates and
early prepayment opportunities, hundreds of thousands of housing units were built
under these programs in the 1960s and early 1970s.
Because the owners had an absolute right of prepayment after twenty years, in
the 1980s Congress began to fear that a flood of repayments would overburden the
existing housing shortage. In 1987, it enacted the Emergency Low Income Housing
Preservation Act of 1987 (ELIHPA), Pub. L. No. 100-242, §§ 201 et seq., 101 Stat.
1815, 1877-78 (previously codified at 12 U.S.C. § 1715l note (1988)). ELIHPA
authorized HUD to offer additional incentives to mortgagors to discourage
prepayment and to set strict conditions of prepayment for those who chose to forego
2
See Cienega Gardens v. United States, 194 F.3d 1231, 1234-35 (Fed. Cir.
1998), cert. denied,
528 U.S. 820 (1999), for a basic overview of the relevant federal
housing programs.
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the incentives – specifically, Congress required owners to file a "plan of action"
demonstrating to HUD that prepayment would not unduly burden low-income
tenants. Essentially, ELIHPA imposed a moratorium on all prepayments.3
In 1990, Congress replaced ELIHPA with the Cranston-Gonzalez National
Affordable Housing Act (NAHA), Pub. L. No. 101-625, 104 Stat. 4079 (1990)
(codified at 42 U.S.C. §§ 12701-898 (2000)). One portion of NAHA, the Low-
Income Housing Preservation and Resident Homeownership Act of 1990
(LIHPRHA), Pub. L. No. 101-625, tit. VI, 104 Stat. 4249 (codified at 12 U.S.C. §§
4101 et seq. (2000)), was enacted for the purpose of preserving the nation's supply
of low-income housing. Under LIHPRHA, an owner had to notify the federal and
local governments and the tenants of its intent to prepay. HUD then had authority to
offer a package of incentives to the owners in an attempt to keep their developments
in the program. An owner who rejected these incentives still had to meet stringent
conditions before receiving HUD's permission to prepay the federally subsidized
mortgage and privatize the property.
LIHPRHA contains an express preemption provision that prohibits state laws
that "restrict or inhibit" prepayment:
3
Congress announced in § 202(b) that the purpose for ELIHPA was:
(1) to preserve and retain to the maximum extent practicable as housing
affordable to low income families or persons those privately owned
dwelling units that were produced for such purpose with federal
assistance;
(2) to minimize the involuntary displacement of tenants currently
residing in such housing; and
(3) to continue the partnership between all levels of government and the
private sector in the production and operation of housing that is
affordable to low income Americans.
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No State or political subdivision of a State may establish,
continue in effect, or enforce any law or regulation that –
(1) restricts or inhibits the prepayment of any mortgage described
in section 4119(1) of this title (or the voluntary termination of any
insurance contract pursuant to section 1715t of this title) on eligible low
income housing;
....
(3) is inconsistent with any provision of this subchapter, including
any law, regulation, or other restriction that limits or impairs the ability
of any owner of eligible low income housing to receive incentives
authorized under this subchapter (including authorization to increase
rental rates, transfer the housing, obtain secondary financing, or use the
proceeds of any such incentives); or
(4) in its applicability to low-income housing is limited only to
eligible low-income housing for which the owner has prepaid the
mortgage or terminated the insurance contract.
Any law, regulation, or restriction described under paragraph (1), (2),
(3), or (4) shall be ineffective and any eligible low-income housing
exempt from the law, regulation, or restriction, only to the extent that it
violates the provisions of this subsection.
12 U.S.C. § 4122(a). Forest Park's mortgage is described in 12 U.S.C. § 4119(1) and
the insurance is eligible for termination under 12 U.S.C. § 1715t; however, Appellees
argue that this provision is not applicable to Forest Park's Section 236 mortgage
because of Congress's subsequent actions.
In the later 1990s, Congress realized that the LIHPRHA incentive programs
were too costly. It began to cut back on funding for LIHPRHA,4 and, beginning in
4
Congress has not funded LIHPRHA at all since FY 1998; therefore, no new
applications for the incentive programs are being accepted or reviewed by HUD.
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1996, Congress adopted a series of new programs to deal with the low-income
housing shortage and to protect tenants threatened with displacement from current
federally subsidized properties. Congress passed the Housing Opportunity Program
Extension Act of 1996 (HOPE), Pub. L. No. 104-120, 110 Stat. 834, which allowed
for prepayment of the mortgages "notwithstanding the requirements of" the previous
LIHPRHA provision prohibiting prepayment without a plan of action. Congress
made this provision permanent in 1999 with Section 219 of the 1999 Appropriations
Act, Pub. L. No. 105-276, § 219(b)(3), 112 Stat. 2461.5
After removing many of the restrictions on repayment, Congress recognized
that the money HUD had been spending on Section 236 subsidies would now be
5
Sec. 219. (a) Prepayment Right.--Notwithstanding [prior acts]
(1) the owner of the project may prepay, and the mortgagee may accept
prepayment of, the mortgage on the project, and
(2) the owner may request voluntary termination of a mortgage
insurance contract with respect to such project and the contract may be
terminated notwithstanding any requirements under sections 229 and
250 of the National Housing Act.
(b) Conditions.--Any prepayment of a mortgage or termination of an insurance
contract authorized under subsection (a) may be made--
(1) only to the extent that such prepayment or termination is consistent
with the terms and conditions of the mortgage on or mortgage insurance
contract for the project;
(2) only if the owner of the project involved agrees not to increase the
rent charges for any dwelling unit in the project during the 60-day
period beginning upon such prepayment or termination; and
(3) only if the owner of the project provides notice of intent to prepay or
terminate, in such form as the Secretary of Housing and Urban
Development may prescribe, to each tenant of the housing, the
Secretary, and the chief executive officer of the appropriate State or
local government for the jurisdiction within which the housing is
located, not less than 150 days, but not more than 270 days, before such
prepayment or termination . . . .
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available for other uses. In all of the appropriations acts since 1996, Congress has
created new methods for rerouting those funds into other programs that help to retain
low-income housing, including refinancing options and rehabilitation grants.
Congress has also directed some of these recaptured funds into "enhanced" Section
8 vouchers. See 42 U.S.C. § 1437f (2000). The voucher program allows residents
to remain in formerly subsidized housing even after rents go up when a mortgage is
prepaid and rental rates are governed by free market forces. Although the vouchers
often provide an immediate solution to these tenants' housing problems, many
families are apparently unable to use them or to receive their full benefit.
III. The Minnesota Statutes
The Minnesota statutes at issue in this case require that owners of federally
subsidized low-income housing follow additional requirements and different time
schedules for prepayment than those contained in the federal statute and regulations.
One statute provides that:
The landlord of federally subsidized rental housing must give residential
tenants of federally subsidized rental housing a one-year written notice
under the following conditions:
(1) a federal section 8 contract will expire;
(2) the landlord will exercise the option to terminate or not renew
a federal section 8 contract and mortgage;
(3) the landlord will prepay a mortgage and the prepayment will
result in the termination of any federal use restrictions that apply
to the housing; or
(4) the landlord will terminate a housing subsidy program.
Minn. Stat. Ann. § 504B.255 (West 2002). The other statute requires that the owner
submit a "tenant impact statement" to the tenants, the state housing finance agency,
and the metropolitan council at least 12 months before termination of participation
in a federally assisted rental housing program. The statement must include specific
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information about the effect of termination. Minn. Stat. Ann. § 471.9997 (West
2001).
Essentially, the purpose of these state statutes is to give state agencies and
nonprofit organizations enough time to propose alternatives to the owner and to offer
the owner financial incentives for maintaining the low-income, federally subsidized
housing, or for transferring it to someone who will preserve it as low-income housing.
Additionally, the state statutory scheme provides the tenants enough time to make
other housing arrangements, apply for Section 8 vouchers, or seek assistance in
securing alternative housing. Indeed, the second statute was passed as part of a
biannual appropriation of $20 million in state funds to be used to finance the creation,
acquisition, rehabilitation, debt restructuring, or preservation of federally assisted
rental properties that are otherwise eligible for withdrawal from the federal program.
IV. Analysis
This appeal is from the district court's grant of summary judgment declaring
that the state statutes are not preempted and its issuance of a permanent injunction
requiring compliance with the state statutes as a precondition of prepayment.
Appellees originally petitioned the district court for a preliminary injunction, but after
the court ruled that only legal issues were involved and that those legal issues were
resolved with the grant of summary judgment, the court issued a permanent
injunction. Cf. Bank One v. Guttau, 190 F.3d 844, 847 (8th Cir. 1999) (reviewing a
preliminary injunction as a permanent injunction where only legal issues were
disputed), cert. denied,
529 U.S. 1087 (2000). The summary judgment decision is
reviewed de novo. Eddings v. City of Hot Springs,
323 F.3d 596, 600 (8th Cir.
2003). The district court's issuance of a permanent injunction is reviewed for an
abuse of discretion. Randolph v. Rodgers,
170 F.3d 850, 856 (8th Cir. 1999).
"Abuse of discretion occurs if the district court reaches its conclusion by applying
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erroneous legal principles or relying on clearly erroneous factual findings." Id.
(citation omitted).
A court must consider the following factors in determining whether to issue a
permanent injunction: (1) the threat of irreparable harm to the movant; (2) the state
of balance between this harm and the injury that granting the injunction will inflict
on other parties; (3) whether the movant proves actual success on the merits; and (4)
the public interest. See Guttau, 190 F.3d at 847 (adapting the preliminary injunction
factors announced in Dataphase Sys., Inc. v. C.L. Sys., Inc.
640 F.2d 109, 113 (8th
Cir. 1981), to a review of a permanent injunction). Because an injunction would be
legally unwarranted if the state statutes are preempted, cf.
Guttau, 190 F.3d at 847-48
(noting that other factors are irrelevant if the statutes at issue are preempted), we turn
first to the merits of the preemption claim.
Forest Park asserts that the Minnesota statutes are preempted by the federal
laws establishing low-income housing programs. Forest Park argues that one section
of LIHPRHA expressly preempts the state statutes, and, alternatively, that the state
statutes are impliedly preempted because they conflict with federal law. In arguing
the merits of these claims, the parties engage in a battle of legislative history. While
this is the traditional way to litigate a preemption claim, see Gade v. Nat'l Solid
Wastes Mgmt. Ass'n, 505 U.S. 88, 96 (1992) (noting that the "ultimate touchstone"
of a preemption analysis is congressional intent), the unique federal laws and
programs involved in this case make it difficult to apply a traditional preemption
analysis. Furthermore, unlike cases involving a field traditionally regulated by the
states, there is no presumption against preemption in this case. See Buckman Co. v.
Plaintiffs' Legal Comm.,
531 U.S. 341, 347 (2001) ("[T]he relationship between a
federal agency and the entity it regulates is inherently federal in character because the
relationship originates from, is governed by, and terminates according to federal
law.").
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The facts of the case boil down to this: A private participant in a federal
housing program who seeks to withdraw from participation pursuant to the provisions
of that program permitting withdrawal is being prohibited by a state law from taking
the action that the federal government has otherwise authorized. The effect is that the
state law forces the federal government to continue to provide financial assistance to
the participant when both the federal government and the participant have chosen to
end their relationship. In this way, the state law not only regulates the conduct of the
citizen-owner, requiring him to take additional actions in order to withdraw, but also
regulates or restricts the actions of the federal government under its own federal
program.
Appellees focus on the "front-end" of the state statutes, arguing that it is not
impossible to comply with both the federal and state requirements because Forest
Park could give 365 days notice to the state and 250 days notice to HUD. They also
argue that the state statutes do not impede the goal of federal law because both the
state and federal statutes have the same underlying purpose of providing low-income
housing. While we recognize that these statements may be true, these arguments do
not address the principal problem with these state statutes – they fly in the face of the
Constitution's Supremacy Clause. Consider the case of a Minnesota developer who
had already met the federal requirements and chose to go ahead with prepayment
without complying with the state requirements. It is very doubtful that the state of
Minnesota or a private tenants' association relying on the Minnesota statutes could
prevent HUD from accepting prepayment pursuant to the federal statutes and
releasing the owner from the requirements of the program. This situation presents the
quintessential case of the Supremacy Clause in action. See U.S. Const. art. VI, cl. 2.
Simply, state statutes may not interfere with the implementation of a federal program
by a federal agency. Federal law is supreme. Under this analysis, legislative history
is irrelevant. Minnesota law is preempted because it is inconsistent with the
supremacy of the federal law made pursuant to the Constitution.
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We also agree with Forest Park that the state statutes are expressly and
impliedly preempted by the applicable federal statutes. Appellees do not dispute that,
by its language, the express preemption provision contained in 12 U.S.C. § 4122
(LIHPRHA) applies to Forest Park's mortgage. However, Appellees contend that
because Forest Park did not participate in the LIHPRHA incentive program ("work
out plans"), and because that program is essentially "moribund" because it has
received no funding since 1998, § 4122 does not preempt Minnesota law as it applies
to Forest Park's mortgage. Appellees argue that § 4122 only preempts state statutes
that "restrict or inhibit" the prepayment of mortgages subject to LIHPRHA's work out
plans or those receiving LIHPRHA assistance.
After reviewing the language of the statute and its legislative history, we do not
find Appellees' argument persuasive.6 Congress used very broad language in defining
the types of mortgages covered by the preemption provision. To the extent that it
intended preemption to apply only to laws affecting mortgages subject to LIHPRHA,
it could have stated as much. The fact that Congress no longer funds the incentive
programs established by LIHPRHA does not mean that the prepayment provisions
contained therein are irrelevant or that the statute is no longer the law.
Applying § 4122, we next turn to whether the Minnesota statutes "restrict or
inhibit" the prepayment of mortgages. To the extent that owners comply with the
6
Citing Kenneth Arms Tenant Assoc. v. Martinez, Civ. No. S-01-832, 2001
U.S. Dist. LEXIS 11470 (E.D. Cal. July 3, 2001), the district court concluded that
HUD has adopted Appellees' position.
See 203 F. Supp. 2d at 1075-76. However,
this conclusion was based solely on a letter written by a HUD attorney in the Kenneth
Arms litigation purporting to interpret the applicability of the preemption provision.
Although courts often extend deference to an agency's interpretation of an ambiguous
statute, see Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc.,
467 U.S. 837,
844-45 (1984), we owe no deference to an opinion letter purporting to interpret a
statute that is not the result of the agency's rulemaking procedures. See Christensen
v. Harris County,
529 U.S. 576, 587 (2000).
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notice and reporting requirements, nothing in the state statutes may be read to give
the state authority to preclude an owner's attempt to prepay. The requirements in the
state statutes were created to give the state additional time to offer incentives or other
options to owners seeking to prepay, not to serve as an "application" for permission
to prepay. The statutes do not, on their face, directly "restrict or inhibit" the
prepayment of mortgages; however, to the extent that compliance with additional
state regulations is required, the statutes have the direct effect of impeding,
burdening, and inhibiting the prepayment of federal mortgages even if the additional
requirements may be minimal. Because the statutes, as enforced through an
injunction in this case, allow the state to prohibit prepayment when an owner has
otherwise complied with the federal notice requirements, the practical effect of these
statutes is to "restrict or inhibit" prepayment, and the state laws fall well within the
range of those the federal statute expressly preempts.
We also believe that the federal statutes and regulatory scheme impliedly
preempt the state statutes because the state statutes conflict with the federal law. This
court may find implied conflict preemption "where state law stands as an obstacle to
the accomplishment and execution of the full purposes and objectives of Congress."
Nordgren v. Burlington N. R.R. Co., 101 F.3d 1246, 1248 (8th Cir. 1996) (quoting
Freightliner Corp. v. Myrick,
514 U.S. 280, 287 (1995) (internal citations omitted)).
In determining whether state law "stands as an obstacle" to the full implementation
of a federal law, "it is not enough to say that the ultimate goal of both federal and
state law" is the same. Int'l Paper Co. v. Ouellette,
479 U.S. 481, 494 (1987). "A
state law also is pre-empted if it interferes with the methods by which the federal
statute was designed to reach th[at] goal."
Id. Thus, "[w]here a state statute conflicts
with, or frustrates, federal law, the former must give way." CSX Transp., Inc. v.
Easterwood,
507 U.S. 658, 663 (1993).
Forest Park argues that the state statutes interfere with the federal method of
implementing the housing programs. It agrees that the purpose and objective of
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Congress in creating housing subsidy programs was to provide low-income housing,
but that within that goal was the desire to involve private developers in the process.
Congress's objective in allowing for prepayment of the federally subsidized
mortgages was to further the goal of encouraging private participation in the federal
programs. Although Congress has taken various steps since 1968 to restrict a
participant's right to prepay, the current state of the law is that a participant need only
give between 150 and 270 days notice, without further permission by HUD, to prepay
and withdraw from the program. A further requirement imposed by a state statute
would directly interfere with Congress's original intent of offering prepayment as an
incentive. Any state statute that forces owners to remain in a federally subsidized
program from which Congress has authorized withdrawal would eviscerate the
method Congress chose to implement the federal low-income housing scheme. Even
though the state requirements – providing additional notice and a "tenant impact
statement" – do not appear to preclude a participant's right to prepay, in cases where
owners do not comply with state law or where compliance is somehow inadequate,
the state, by enforcing its own statutes, is the sole entity standing in the way of an
owner's exercise of its federally granted right to prepay and withdraw from the
program. Despite the fact that the federal statute and the state statute may share the
same objective, the state procedures interfere with the framework created by
Congress.
We do not suggest that all state attempts at preserving existing federally
subsidized, low-income housing are preempted. Nothing in the federal statutes, their
legislative history, or their stated objectives indicates that states are prohibited from
instituting their own incentive plans or other programs to preserve low-income
housing within the framework of the federal prepayment scheme. When, however,
these state programs place additional requirements on federal program participants,
restrict the exercise of the participants' federally granted prepayment rights, or create
delays in the prepayment process, they are preempted.
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We reject Forest Park's argument that the district court erred because it did not
require Appellees to post a bond when it issued the permanent injunction. Federal
Rule of Civil Procedure 65(c) provides that "[n]o restraining order or preliminary
injunction shall issue except upon the giving of security by the applicant." Rule 65(c)
applies only to temporary restraining orders or preliminary injunctions. Here, the
court entered a permanent injunction; therefore Rule 65(c) does not apply. See Ty,
Inc. v. Publ'ns Int'l Ltd., 292 F.3d 512, 516 (7th Cir. 2002) (holding that an injunction
bond is required only for a temporary restraining order or a preliminary injunction,
not for a permanent injunction), cert. denied,
123 S. Ct. 892 (2003).
Because we hold that the Minnesota statutes are preempted and that Appellees
cannot prevail on the merits of their claim, we need not address the parties' remaining
arguments. Accordingly, we reverse the district court's judgment, we vacate the
permanent injunction, and we remand with directions for the district court to enter
judgment in favor of Appellant Forest Park.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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