ELAINE D. 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.
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
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,
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."
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."
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."
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);
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."
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."
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.
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).
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."
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 . . .
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."
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.
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.
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.
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.
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.
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.
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.
"Standing is a threshold jurisdictional issue that implicates Article III of the Constitution."
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.
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.
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."
"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.'"
Finally, the Court is not persuaded by Plaintiffs' citation of
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
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."
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.
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
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."
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,
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.
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."
Notwithstanding the foregoing, the government argues that the principles set forth in
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.
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.
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.
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.
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."
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).
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
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.
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.
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.
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
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,
* * * * * * * * * * *
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.
For the foregoing reasons:
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, 13-6222, 13-6244, 13-0006, and 13-6000. Further, the Clerk is directed to make No. 13-6040,
The parties shall file a joint status report within 30 days, proposing a schedule to govern further proceedings in these cases.
