Housing Authority of the County of Santa Clara v. United States

In the United States Court of Federal Claims
No. 12-209C
Filed: February 25, 2016

**************************************** 28 U.S.C. § 1491(b)(1)
* (Tucker Act Jurisdiction);
HOUSING AUTHORITY OF THE COUNTY * 42 U.S.C. § 1437f
OF SANTA CLARA, * (“Section 8”);
* Consolidated Appropriations Act, 2008,
and * Pub. L. No. 110-161, 121 Stat. 1844,
* 2410–2440 (2007);
HOUSING AUTHORITY OF THE CITY OF * Omnibus Appropriations Act, 2009,
SAN JOSE, * Pub. L. No. 111-8, 123 Stat. 524,
* 952–958 (2009);
Plaintiffs, * Omnibus Consolidation Rescissions &
* Appropriations Act of 1996, Pub. L.
v. * No. 104-134, 110 Stat. 1321 (1996);
* RESTATEMENT (SECOND) OF CONTRACTS
THE UNITED STATES, * §§ 23 cmt. b, 153(b), 154, 178, 204,
* 214 cmt. d (1981);
Defendant. * Rules of the United States Court of
* Federal Claims (“RCFC”)
**************************************** 56(c) (Summary Judgment).

Carl A. S. Coan, III, Coan & Lyons, Washington, D.C., Counsel for Plaintiffs.

Jeffrey D. Klingman, United States Department of Justice, Civil Division, Washington, D.C.,
Counsel for the Government.

MEMORANDUM OPINION AND ORDER GRANTING PLAINTIFFS’ MOTION FOR
SUMMARY JUDGMENT

BRADEN, Judge.

I. RELEVANT FACTUAL BACKGROUND.1

In 1937, Congress authorized public housing agencies (“PHAs”) to administer public
tenant-based housing programs under Section 8 of the United States Housing Act of 1937

1
The relevant facts were derived from: Plaintiffs’ March 30, 2012 Complaint (“Compl.”)
and attached Exhibits (“Compl. Exs. 1–2”); the September 2, 2014 Declaration of Carl A.S. Coan,
III (“9/2/14 Coan Dec.”) and attached Exhibits 1–15 (“9/2/14 Coan Dec. Exs. 1–15”); the
September 2, 2014 Declaration of Alex Sanchez (“9/2/14 Sanchez Dec.”) and attached Exhibits
A–E (“9/2/14 Sanchez Dec. Exs. A–E”); the Government’s December 1, 2014 Response Appendix
(“Section 8”). See 42 U.S.C. § 1437f(b)(1) (“The Secretary [of The United States Department of
Housing and Urban Development (“HUD”)] is authorized to enter into annual contributions
contracts with [PHAs,] pursuant to which such agencies may enter into contracts to make
assistance payments to owners of existing dwelling units in accordance with this section.”).
Section 8 also authorizes PHAs to distribute funds through the Housing Choice Voucher Program
(“HCVP”). See 42 U.S.C. § 1437f(o) (discussing the HCVP).2

Since at least 1976, the Housing Authority of the County of Santa Clara (“Santa Clara”)
and the Housing Authority of the City of San Jose (“San Jose”) have been PHAs and administered
Section 8 public housing rental assistance to low-income families in Northern California. See 42
U.S.C. § 1437a(b)(6)(A);3 see also About HACSC, HOUSING AUTHORITY OF THE COUNTY OF
SANTA CLARA, www.hacsc.org/about-hacsc (last visited Feb. 24, 2016).

In 1996, Congress authorized HUD to implement the Moving To Work (“MTW”)
Program4 to afford PHAs “the flexibility to design and test various approaches for providing and

(“Gov’t App. A1–A340”); Plaintiffs’ January 26, 2015 Reply Appendix (“Pls. App. A1–A106”);
and the September 29, 2015 Oral Argument (“9/29/15 TR 1–72”).
2
HUD’s website states that “[t]he housing choice voucher program is the federal
[G]overnment’s major program for assisting very low-income families, the elderly, and the
disabled to afford decent, safe, and sanitary housing in the private market.” Housing Choice
Vouchers Fact Sheet, HUD.GOV, http://portal.hud.gov/hudportal/HUD?src=/program_offices/
public _indian_housing /programs/hcv/about/fact_sheet (last visited Feb. 24, 2016).
3
Section 1437a(b)(6)(A) of the United States Housing Act of 1937 provides:

Except as provided in subparagraph (B), the term “public housing agency” means
any State, county, municipality, or other governmental entity or public body (or
agency or instrumentality thereof) which is authorized to engage in or assist in the
development or operation of public housing, or a consortium of such entities or
bodies as approved by the Secretary.

42 U.S.C. § 1437a(b)(6)(A).
4
HUD’s website states:

[MTW] is a demonstration program for [PHAs] that provides them the opportunity
to design and test innovative, locally-designed strategies that use Federal dollars
more efficiently, help residents find employment and become self-sufficient, and
increase housing choices for low-income families. MTW gives PHAs exemptions
from many existing public housing and voucher rules and more flexibility with how
they use their Federal funds. MTW PHAs are expected to use the opportunities
presented by MTW to inform HUD about ways to better address local community
needs.

Moving to Work (MTW), HUD.GOV, http://portal.hud.gov/hudportal/HUD?src=/program_ offices
/public_indian_housing/programs/ph/mtw (last visited Feb. 24, 2016).

2
administering housing assistance that[] reduce cost and achieve greater cost effectiveness in
Federal expenditures[.]” See Omnibus Consolidated Rescissions & Appropriations Act of 1996,
Pub. L. No. 104-134, 110 Stat. 1321, 1321-281 (1996).

In 2003, Congress enacted legislation requiring that PHA funding be calculated annually
by a formula that has two components: (1) leasing & cost data; and (2) a rent and utility inflation
factor, known as the Annual Adjustment Factor (“AAF”).5 See Consolidated Appropriations
Resolution, 2003, Pub. L. No. 108-7, 117 Stat. 11, 484 (2003).

In 2005, however, Congress enacted new legislation, adding a “proration factor” to the
funding formula, requiring HUD to adjust each PHA’s eligibility amount to comply with, but not
exceed, annual congressional appropriations.6 See Consolidated Appropriations Act, 2005, Pub.
L. No. 108-447, 118 Stat. 2809, 3295 (2004) (“2005 Act”).7 Therefore, from 2005 to the present,
HUD’s general funding formula has been: (leasing & cost data) x AAF x the “applicable proration
factor.” But, the 2005 Act exempted PHAs participating in the MTW program from this funding
formula. Instead, “[PHAs] participating in the [MTW] demonstration shall be funded pursuant to
their [MTW] agreements and shall be subject to the same pro rata adjustments under the previous
proviso[.]” 118 Stat. at 3295 (emphasis and bold added).

In late 2007, Santa Clara and San Jose engaged in discussions with HUD about entering
into MTW Agreements. 9/2/14 Sanchez Dec. Ex. B, at 2. The formula for calculating their
subsidies was to be set forth in an attachment. HUD forwarded Santa Clara and San Jose the
Attachment A to the MTW agreement executed by a PHA in Charlotte, North Carolina in 2007
(the “Charlotte Model”).

5
HUD annually determines the AAF for geographical areas and publishes it in the Federal
Register. See 42 U.S.C. § 1437f(c)(1)–(2); see also Annual Adjustment Factors, HUD.GOV,
www.huduser.org/portal/datasets/aaf.html (last visited Feb. 24, 2016).
6
For example, if annual congressional appropriations would exceed total eligibility, the
“proration factor” is positive (over 100 percent), so that a PHA receives a HAP subsidy in an
amount that exceeds its eligibility amount. Gov’t App. A268. But, if congressional appropriations
are less than total eligibility, the “proration factor” is negative (under 100 percent), so that a PHA
would receive a HAP subsidy in an amount below its eligibility. Gov’t App. A267. To date, the
only years where the “proration factor” was positive were 2007 and 2008. Gov’t App. A290.
7
The 2005 Act, in relevant part, also provides that “the Secretary shall, to the extent
necessary to stay within the amount provided under this paragraph, pro rate each public housing
agency’s allocation otherwise established pursuant to this paragraph[.]” 118 Stat. at 3295.

3
 Paragraph C3 of Attachment A to the Charlotte Model provided:

3. Initial year (CY 2007) subsidy will be based on the HCVP subsidy received by
the Agency in the Base Year (CY 2006). In the Base Year (CY 2006), the HCVP
funding eligibility for Housing Assistance Payment (HAP), prior to proration,8
totaled $34,742,786.

Gov’t App. A240 (emphasis added).

On December 26, 2007, Santa Clara and San Jose rejected the Charlotte Model Attachment
A, because their HAP subsidy would be based on “eligibility,” which was a lesser amount,9 and
sent HUD an alternative Paragraph C3 that read:

3. Initial year (CY 2008) HCVP subsidy will be based on the HCVP subsidy
received by the Agency in the Base Year (CY 2007). In the Base Year (CY 2007),
the HCVP totaled $129,091,872.

Gov’t App. A31; see also Gov’t App. A67 (same re. San Jose).

This proposal reflected that Santa Clara and San Jose wanted to base their initial year HAP
subsidy on the amount they “received” from HUD in 2007, so that the 2008 HAP subsidy would
not be determined by “eligibility.” When Santa Clara and San Jose forwarded their December 26,
2007 proposal to HUD, they pointed out: “As you discussed with our representatives, the enclosed
[MTW] Agreements follow the HUD template exactly. . . . As generally instructed by your staff,
Attachment A (the funding exhibit) follows the Charlotte [M]odel we were provided, with some
refinements.” Gov’t App. A16 (emphasis added).

8
HUD defined “proration” as the percentage of the Total Eligibility that would be funded
for and paid to the PHA for CY 2007 renewal needs. The percentage is identical for all PHAs and
is the result of dividing the total renewal funding available . . . by the sum of the Total Eligibility
amounts for all PHAs. For 2007, the pro-ration factor is 105.017 percent, which means that each
PHA will receive funding equal to 105.017 percent of its Total Eligibility. 9/2/14 Coan Dec. Ex.
13, at 10 (emphasis added).
9
This is because “eligibility” is determined prior to HUD applying the proration factor.
9/2/14 Coan Dec. Ex. 13, at 2–4 (HUD letter to all PHA Executive Directors and attached
worksheet for Santa Clara); see also Court Exhibits A and B.

4
 On January 15, 2008, HUD proposed an alternative Paragraph C3 of Attachment A that
read:

3. Initial Year (CY 2008) HCVP housing assistance payments (HAP) subsidy will
be based on the actual HAP expenses incurred by the Agency in the base period
(FFY2007).

Gov’t App. A131. Santa Clara and San Jose also rejected this proposal.10

On February 12, 2008, HUD forwarded a third alternative Paragraph C3 that read:

3. Initial Year (CY 2008) HCVP subsidy will be based on the greater of actual
HAP expenses incurred by the Agency as reported in the Voucher Management
System (VMS) in the base period (FFY 2007) or what the Agency received in
calendar year 2007.

Pls. App. A61–62 (emphasis and bold added). Santa Clara and San Jose accepted this version of
Paragraph C3.

On February 26, 2008, Santa Clara and San Jose executed the MTW Agreements with
HUD that included the February 12, 2008 version of Paragraph C3 of Attachment A. Compl. Exs.
1, 2.11

But, on June 10, 2008, HUD informed Santa Clara and San Jose that their 2008 HAP
subsidy would be “based on [their] 2007 eligibility, rather than on re-benchmarking.” 9/2/14 Coan
Dec. Ex. 5, at 2. Santa Clara’s 2007 “eligibility” was determined to be $122,924,735, as adjusted
by the AAF). Gov’t App. A14. San Jose’s 2007 “eligibility” was $82,860,836, as adjusted by the
AAF. Gov’t App. A15. These eligibility amounts were significantly lower than the HAP subsidy
that Santa Clara and San Jose actually received from HUD in 2007, i.e., $129,091,869 for Santa
Clara and $87,017,964 for San Jose. Gov’t App. A14, A15.

On June 17, 2008, Santa Clara and San Jose sent an email to HUD objecting. 9/2/14 Coan
Dec. Ex. 9, at 3. That same day, HUD advised Santa Clara that “legal determination” had been
made, concluding that the February 12, 2008 version of Paragraph C3 of Attachment A contained
a “drafting error.” 9/2/14 Sanchez Dec. Ex. E, at 3.

10
Because Santa Clara did not spend the entire amount of its 2007 HAP subsidy, it rejected
HUD’s proposal to use “actual HAP expenses” as the basis for determining the HAP subsidy for
the initial year. Gov’t App. A332–33.
11
The Executive Director of Santa Clara signed one MTW Agreement for Santa Clara and
a separate, but identically worded MTW Agreement on behalf of San Jose. Compl. Ex. 1, at 15;
Compl. Ex. 2, at 15. The Assistant Secretary of HUD signed both of these MTW Agreements, but
backdated his signature to January 4, 2008. Compl. Ex. 1, at 15; Compl. Ex. 2, at 15.

5
II. RELEVANT PROCEDURAL HISTORY.

On March 30, 2012, Santa Clara and San Jose (collectively, hereinafter “Plaintiffs”) filed
a Complaint in the United States Court of Federal Claims alleging two counts of breach of contract.
Count One alleges a breach of contract in 2008. Count Two concerns a breach of contract in 2009
through 2012. This case was assigned to the Honorable Lawrence Margolis. On July 31, 2012,
the Government filed an Answer. On October 18, 2012, the court entered a Discovery Scheduling
Order.

On August 29, 2013, the case was reassigned to the undersigned judge. On September 30,
2013, the court convened a telephone status conference with the parties and entered a revised
Discovery Scheduling Order on October 2, 2013. On May 5, 2014, the parties submitted a Joint
Status Report and the court entered another Scheduling Order. On September 2, 2014, Plaintiffs
filed a Motion For Summary Judgment (“Pls. SJ Mot.”).12 On December 1, 2014, the Government
filed a Response (“Gov’t Resp.”). On January 26, 2015, Plaintiffs filed a Reply (“Pls. Reply”).
On September 29, 2015, the court held Oral Argument at the United States Court of Federal Claims
(“9/29/15 TR 1–72”). On December 4, 2015, Plaintiffs submitted a supplemental brief requested
by the court (“Pls. Supp. Br.”). The Government also filed a supplemental brief that same day
(“Gov’t Supp. Br.”).

III. DISCUSSION.

A. Jurisdiction.

The United States Court of Federal Claims has jurisdiction under the Tucker Act, 28 U.S.C.
§ 1491, “to render judgment upon 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). The Tucker Act, however, is “a jurisdictional
statute; it does not create any substantive right enforceable against the United States for money
damages. . . . [T]he Act merely confers jurisdiction upon [the United States Court of Federal
Claims] whenever the substantive right exists.” United States v. Testan, 424 U.S. 392, 398 (1976).

To pursue a substantive right under the Tucker Act, Plaintiffs must identify and plead a
constitutional provision, federal statute, executive agency regulation and/or an independent
contractual relationship that provides a substantive right to money damages. Todd v. United States,
386 F.3d 1091, 1094 (Fed. Cir. 2004) (“[J]urisdiction under the Tucker Act requires the litigant to
identify a substantive right for money damages against the United States separate from the Tucker
Act[.]”); see also Fisher v. United States, 402 F.3d 1167, 1172 (Fed. Cir. 2005) (en banc) (“The
Tucker Act . . . does not create a substantive cause of action; . . . a plaintiff must identify a separate

12
In the September 2, 2014 Motion For Summary Judgment, Plaintiffs seek leave to amend
the March 30, 2012 Complaint to include breach of contract claims for 2013 and 2014. Pursuant
to Rule 15(a)(2) of the Rules of the United States Court of Federal Claims (“RCFC”), the court
grants Plaintiffs leave to amend the March 30, 2012 Complaint. As such, this Memorandum
Opinion adjudicates Plaintiffs’ breach of contract claims for the years 2008 through 2014.

6
source of substantive law that creates the right to money damages. . . . [T]hat source must be
‘money-mandating.’”). Specifically, Plaintiffs must demonstrate that the source of substantive law
upon which they rely “can fairly be interpreted as mandating compensation by the Federal
Government[.]” Testan, 424 U.S. at 400 (quoting Eastport S.S. Corp. v. United States, 178 Ct. Cl.
599, 607 (1967)).

The gravamen of the March 30, 2012 Complaint is summarized as follows:
HUD’s failure to provide HAP to Plaintiffs based on the 2007 prorated amount in
2008 was a breach of the [MTW] Agreements.
HUD has also breached the [MTW] Agreements every year since 2008.
This is because the HAP funding after 2008 is based on the previous year’s HAP
eligibility. Therefore, the effect of HUD’s underfunding in 2008 has been
perpetuated annually since 2008 and reduced the HAP to which Plaintiffs have been
entitled in each year since 2008.
Pls. SJ Mot. at 18.

Therefore, the court has jurisdiction to adjudicate the breach of contract claims alleged in
the March 30, 2012 Complaint.

B. Standard Of Review.

On a motion for summary judgment, the moving party must establish that there is no
genuine issue of material fact and that the moving party is entitled to judgment as a matter of law.
See Amergen Energy Co. v. United States, 779 F.3d 1368, 1372 (Fed. Cir. 2015) (“Summary
judgment is appropriate when, drawing all justifiable inferences in the nonmovant’s favor, ‘there
is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of
law.’” (quoting RCFC 56(a))). Only genuine disputes of material fact that might affect the
outcome of the suit preclude entry of summary judgment. See Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248 (1986) (“As to materiality, the substantive law will identify which facts are
material. Only disputes over facts that might affect the outcome of the suit under the governing
law will properly preclude the entry of summary judgment. Factual disputes that are irrelevant or
unnecessary will not be counted.”). The “existence of some alleged factual dispute between the
parties will not defeat an otherwise properly supported motion for summary judgment[.]” Id. at
247–48 (emphasis in original). “[C]ourts are required to view the facts and draw reasonable
inferences ‘in the light most favorable to the party opposing the [summary judgment] motion.’”
Scott v. Harris, 550 U.S. 372, 378 (2007) (quoting United States v. Diebold, Inc., 369 U.S. 654,
655 (1962)). Because the Government is “a party opposing a properly supported motion for
summary judgment, [it] . . . must set forth specific facts showing that there is a genuine issue for
trial.” Anderson, 477 U.S. at 248 (citation omitted).

C. Whether Plaintiffs Are Entitled To Summary Judgment As To Count I.

Count I of the March 30, 2012 Complaint alleges that HUD breached the February 26,
2008 MTW Agreements by incorrectly calculating the amount of HAP subsidies to which
Plaintiffs were entitled to receive in 2008.

7
 1. Plaintiffs’ Argument.

Plaintiffs argue that they are entitled to summary judgment as to Count I, because
Paragraph C3 of Attachment A to the MTW Agreements provides that the initial year of the HAP
subsidy, i.e., 2008 can be based on either “actual HAP expenses” incurred in 2007 or the amount
that Santa Clara and San Jose “received” in calendar year 2007, whichever is greater. Pls. SJ Mot.
at 18.
Plaintiffs emphasize that the word “received” in Paragraph C3 of Attachment A to the
MTW Agreements is not ambiguous, because the plain meaning of the word “received” “could not
be clearer and neither creative semantical arguments nor evidence of practice, custom, and usage
can alter the unequivocal import of this word.” Pls. SJ Mot. at 18.
In the alternative, if “the [c]ourt determines that the word ‘received’ . . . is ambiguous, this
ambiguity was latent, not patent . . . [so that] the [c]ourt should construe the language . . . against
HUD” under the doctrine of contra proferentem. Pls. SJ Mot. at 18–19.

2. The Government’s Response.

The Government responds that Plaintiffs are not entitled to summary judgment as to Count
I, because Paragraph C3 of Attachment A to the MTW Agreements is “susceptible to more than
one reasonable meaning.” Gov’t Resp. at 25–26. First, the parties did not discuss whether “what
the [Plaintiffs] received in calendar year 2007 could refer to a pre-proration or post-proration
amount.” Gov’t Resp. at 26 (emphasis added) (internal quotations omitted); see also 9/25/15 TR
at 7. Second, the parties’ intent regarding the meaning of “what the [Plaintiffs] received in calendar
year 2007” differed. Gov’t Resp. at 26–27. Third, Plaintiffs concede that the term “received” is
ambiguous, because Paragraph C3 did not specify a dollar amount. Gov’t Resp. at 27–28.

To resolve this ambiguity, the court must determine whether “[P]laintiffs knew or should
have known of HUD’s interpretation of the [MTW] [A]greements.” Gov’t Resp. at 28. “It is ‘an
unassailable rule of contract law’ that ‘a party that enters without objection into a contract with
knowledge of the other party’s reasonable interpretation is bound by that interpretation.’” Gov’t
Resp. at 28 (quoting HPI/GSA-3C, LLC v. Perry, 364 F.3d 1327, 1335 (Fed. Cir. 2004)). Plaintiffs
were “aware that HUD would be adopting an interpretation that did not include the proration in
the base year. If that is the case, then HUD’s interpretation must prevail.” Gov’t Resp. at 29.

In addition, because Paragraph C3 is ambiguous, the court must consider extrinsic
evidence, precluding summary judgment. Gov’t Resp. at 29 (quoting Beta Sys., Inc. v. United
States, 838 F.2d 1179, 1183 (Fed. Cir. 1988) (“To the extent that the contract terms are ambiguous,
requiring weighing of external evidence, the matter is not amenable to summary resolution.”)).
And, even if any ambiguity is latent, summary judgment is still inappropriate, because the court
may adopt Plaintiffs’ interpretation “only if [Plaintiffs’] interpretation is reasonable.” Gov’t Resp.
at 29 (citing BPLW Architects & Eng’rs, Inc. v. United States, 106 Fed. Cl. 521, 537 (2012) (“If . . .
a party makes an arguable claim that a contract provision contains a latent ambiguity, courts may
resort to extrinsic evidence to determine whether a latent ambiguity actually exists.”)).

Finally, the doctrine of contra proferentem is inapplicable, because the MTW Agreements
were “the product of significant negotiation between the parties, and formulation using the word

8
‘received’ came in the initial draft written by the [P]laintiffs.” Gov’t Resp. at 30–31 (citing Cray
Research, Inc. v. United States, 44 Fed. Cl. 327, 330 (1999) (“[W]hen the contract terms are
negotiated, contra proferentem is inapplicable.”)).

In the alternative, the Government argues that, even if the MTW Agreements are
unambiguous, there is a genuine issue of material fact as to whether there was a unilateral mistake,
because HUD “never would have entered into a contract[,] building in a proration into the base
year.” Gov’t Resp. at 34 (citing RESTATEMENT (SECOND) CONTRACTS § 214 cmt. d (1981))
(“RESTATEMENT”).13 In addition, “[i]t would be unconscionable to award the [P]laintiffs the
windfall they seek through building a proration into their base year.” Gov’t Resp. at 35.

3. Plaintiffs’ Reply.

Plaintiffs reply that evidence of the parties’ intent prior to the execution of the February
28, 2008 MTW Agreements is inadmissible, because the text of the MTW Agreements is
unambiguous. Pls. Reply at 10 (“Plaintiffs and [the Government] may have different perspectives
on the events leading up to the execution of the [MTW] Agreements. However, . . . it doesn’t
matter who said what or who heard what. The [MTW] Agreements are unambiguous on their
face.”). In the alternative, if the court finds that the MTW Agreements are ambiguous, any
ambiguity is latent and must be construed against HUD. Pls. Reply at 16–18.

Plaintiffs add that they had no knowledge of the Government’s “alleged mistake.” Pls.
Reply at 19. Moreover, “unconscionability is usually between the contracting parties. There’s no
unconscionability as to HUD . . . [and] third party unconscionability . . . [has] never been
recognized by any court decision.” 9/29/15 TR at 58; see also Pls. Reply at 19–20. Therefore, the
doctrine of unilateral mistake does not apply in this case. Pls. Reply at 19.

4. The Court’s Resolution.

a. Whether Paragraph C3 Of Attachment A To The February
26, 2008 Moving To Work Agreements Is Ambiguous.

In Massie v. United States, 166 F.3d 1184, 1189 (Fed. Cir. 1999), the United States Court
of Appeals for the Federal Circuit held that the court should interpret a contract:

13
Comment d of Section 214 of the RESTATEMENT provides:

Remedies. A contract which is fully enforceable in an action for damages may be
subject to equitable remedies such as rescission or reformation by reason of fraud,
mistake or the like. Specific performance may be denied by reason of oppression
or unfairness, or other remedies may be withheld or limited where the contract or a
term is unconscionable. Evidence of the circumstances in which the contract was
made may be relevant to such remedial issues, even though it also shows an
agreement or proposal superseded by a later integrated contract.

RESTATEMENT § 214 cmt. d (citation omitted).

9
 begin[ning] with the plain language . . . [and] giv[ing] the words of the agreement
their ordinary meaning unless the parties mutually intended and agreed to an
alternative meaning. In addition, [the court] must interpret the contract in a manner
that gives meaning to all of its provisions and makes sense. If terms are susceptible
to more than one reasonable interpretation, then they are ambiguous.

Id. at 1189 (citation omitted).

The court’s analysis begins by examining Paragraph C3 of Attachment A to the MTW
Agreements:

3. Initial year (CY 2008) [HAP] subsidy will be based on the greater of actual
HAP expenses incurred by the Agency…in the base period (FFY 2007) or what the
Agency received in calendar year 2007.

Compl. Ex. 1, at 16–17 (emphasis added); Compl. Ex. 2, at 16.

The plain and ordinary meaning of Paragraph C3 is that in 2008 HUD was required to pay
Plaintiffs a HAP subsidy based on either their HAP expenses or what they “received”14 in 2007—
whichever amount was greater. If the court were to construe the phrase, “what the agency received
in 2007,” as referring either to a pre-prorated or prorated amount, as the Government asks, there
would be no certain metric by which the 2008 HAP subsidy could be determined and it would
render Paragraph C3 meaningless. See McAbee Constr., Inc. v. United States, 97 F.3d 1431, 1435
(Fed. Cir. 1996) (“[The court] must interpret the contract in a manner that gives meaning to all of
its provisions and makes sense.”). Moreover, it would defeat the additional purpose of Paragraph
C3, which was to fix a starting point by which Plaintiffs’ post 2008 HAP subsidies could be
calculated. Therefore, in the context of Paragraph C3 of Attachment A to the MTW Agreements,
the plain and ordinary meaning of the word “received” is the amount of HAP that HUD paid
Plaintiffs in 2007, which was a prorated amount. Compl. ¶¶ 37, 49. This interpretation is also
consistent with the worksheet attached to HUD’s June 22, 2007 letter stating that the amount of
HAP subsidy that Santa Clara would “receive” in 2007 was $129,091,869, which is a prorated
amount. 9/2/14 Coan Dec. Ex. 13, at 4, 9.

As for the Government’s argument that the court should look to HUD’s “subjective intent”
at the time the MTW Agreements were executed to determine whether Paragraph C3 is ambiguous,
as a matter of law, subjective intent is prohibited by the parol evidence rule and cannot create a
genuine issue of material fact. See TEG-Paradigm Envtl., Inc. v. United States, 465 F.3d 1329,
1338 (Fed. Cir. 2006) (“When the contract’s language is unambiguous it must be given its ‘plain
and ordinary’ meaning and the court may not look to extrinsic evidence to interpret its
provisions.”); see also Banknote Corp. v. United States, 365 F.3d 1345, 1353 (Fed. Cir. 2004) (“If
the provisions of the solicitation are clear and unambiguous, they must be given their plain and

14
“Received” means “be given, presented with, or paid.” NEW OXFORD AMERICAN
DICTIONARY 1456 (3d ed. 2010); see also BLACK’S LAW DICTIONARY 1460 (10th ed. 2014)
(defining “receive” as “[t]o take (something offered, given, sent, etc.); to come into possession of
or get from some outside source[.]”).

10
ordinary meaning; we may not resort to extrinsic evidence to interpret them.”); 2 E. ALLEN
FARNSWORTH, FARNSWORTH ON CONTRACTS § 7.2 (3d ed. 2004) (explaining that the parol
evidence rule “may bar” the use of extrinsic evidence “to contradict” the terms of a contract).

The Government also argues that Paragraph C3 is ambiguous, because it does not provide
a specific dollar amount. Gov’t Resp. at 24. This argument is unpersuasive, because the plain and
ordinary meaning of the word “received” in Paragraph C3 refers to the actual HAP subsidy that
HUD paid Plaintiffs in 2007. For Santa Clara that amount is $129,091,869; for San Jose that
amount is $87,017,964. Gov’t App. A14, A15. Therefore, Paragraph C3 is not ambiguous. See
Grumman Data Sys. Corp. v. Dalton, 88 F.3d 990, 997 (Fed. Cir. 1996) (“A contract term is
unambiguous when there is only one reasonable interpretation.” (citation omitted)).

In addition, the Government suggests that Paragraph C3 is ambiguous, because the phrase
“based on” is imprecise in contrast with Paragraph C4 that uses the “more specific” phrase, “equal
to.” Gov’t Resp. at 32–33; see also 9/29/15 TR at 11. The Government misses the point that
Paragraph C3 determines the basis or starting point for calculating the post 2008 HAP subsidies,
whereas Paragraph C4 provides the actual formula to determine the specific amount of post 2008
HAP subsidies due Plaintiffs. Compl. Ex. 1, at 16–17; Compl. Ex. 2, at 16–17. Therefore, the
term “based on” does not render Paragraph C3 ambiguous.

For these reasons, the court has determined that Paragraph C3 of Attachment A to the MTW
Agreements is not ambiguous.15

b. Whether There Was A Unilateral Mistake.

Recognizing the weakness of its ambiguity arguments, the Government submits that
“[P]aragraph C3 [is the] likely . . . product of careless draftsmanship.” Gov’t Resp. at 32.

The common law doctrine of unilateral mistake provides:

Where a mistake of one party at the time a contract was made as to a basic
assumption on which he made the contract has a material effect on the agreed
exchange of performances that is adverse to him, the contract is voidable by him if
he does not bear the risk of the mistake under the rule stated in § 154, and
(a) the effect of the mistake is such that enforcement of the contract would
be unconscionable, or
(b) the other party had reason to know of the mistake or his fault caused the
mistake.
RESTATEMENT § 153.

15
As such, the court does not need to determine the application of the doctrine of contra
proferentem. See ITT Arctic Servs., Inc. v. United States, 207 Ct. Cl. 743, 767 (1975) (“The
necessary precursor for resort to the rule of contra proferentem is the determination that a contract
clause is ambiguous, i.e., susceptible of more than one reasonable interpretation.”).

11
 A party bears the risk of a mistake when
(a) the risk is allocated to him by agreement of the parties, or
(b) he is aware, at the time the contract is made, that he has only limited
knowledge with respect to the facts to which the mistake relates but treats
his limited knowledge as sufficient, or
(c) the risk is allocated to him by the court on the ground that it is reasonable
in the circumstances to do so.

RESTATEMENT § 154.

The Government recognizes that Paragraph C3 of Attachment A to the MTW Agreements
contains the word “received,” the effect of which was to require Plaintiffs’ 2008 HAP subsidies
be based on the amount each received in 2007, which was prorated. Gov’t Resp. at 14. In light of
the extensive negotiations about whether the amount of 2008 HAP subsidy would be based on a
prorated amount, it certainly was reasonable for Plaintiffs to conclude that HUD agreed to calculate
their 2008 HAP subsidies based on the amount Plaintiffs received in 2007, if it was greater than
their actual HAP expenses. Moreover, the Government’s bald assertion that Plaintiffs misled HUD
into including the term “received” is simply not substantiated in the record. Therefore, the
Government has not established either that Plaintiffs “had reason to know of the mistake or . . .
caused the mistake.” RESTATEMENT § 153(b).

As to which party should bear the risk of any mistake, in this case, the dispositive factors
are that HUD regularly enters into contracts with PHAs and the MTW Agreements at issue were
the product of months of professional negotiations, in which HUD was actively involved. See,
e.g., Gov’t App. A338–40 (May 1, 2014 Vargas Deposition describing negotiations); see also
Upton v. Tribilcock, 91 U.S. 45, 50 (1875) (“A party cannot generally enter into a contract and
later avoid its obligations by pleading ignorance of the terms.”); RESTATEMENT § 23 cmt. b
(“[W]here an offer is contained in a writing either the offeror or the offeree may, without reading
the writing, manifest assent to it and bind himself without knowing its terms.”). Therefore, “the
risk [of a mistake] is allocated to [HUD, because] it is reasonable in the circumstances to do so.”
RESTATEMENT § 154(c).

For these reasons, the court has determined that the Government has failed to establish the
elements of a unilateral mistake and the Government should bear the risk of any unilateral mistake.

***

For these reasons, the court has determined that Plaintiffs are entitled to summary judgment
as to Count I.

12
 D. Whether Plaintiffs Are Entitled To Summary Judgment As To Count II.

Count II of the March 30, 2012 Complaint alleges that HUD breached the February 26,
2008 MTW Agreements by incorrectly calculating the amount of HAP subsidies to which
Plaintiffs were entitled to receive in 2009 through 2014.16

1. Whether Paragraph C4 Of Attachment A To The February 26, 2008
Moving To Work Agreements Is Ambiguous.

a. Plaintiffs’ Argument.

Plaintiffs argue that they are entitled to summary judgment as to Count II, because “[t]he
effect of HUD’s underfunding in 2008 has been perpetuated annually . . . and reduced the HAP to
which Plaintiffs have been entitled[.]” Pls. SJ Mot. at 18 (emphasis added).

b. The Government’s Response.

The Government responds that Paragraph C4 of Attachment A to the February 26, 2008
MTW Agreements does not support an award of damages for 2009 through 2014. Gov’t Resp. at
39–40. Specifically, “the contract[s] [are] clear that the previous year’s ‘eligibility’ [for a HAP
subsidy] is to be multiplied by the current AAF and proration factor[.]” Gov’t Resp. at 40. As the
Government’s Counsel argued:

The original formula provided by Congress and calculated by HUD was that
Plaintiffs were entitled to [approximately $122 million] for Santa Clara. . . . The
only reason that they received an additional 5 percent was because proration in that
particular year, CY 2007, gave them and all other PHAs an additional 5 percent of
funding but only for that year. . . . In fact . . . there has never been a year since
Congress began proration in 2005 that the amount appropriated has equaled the
amount calculated pursuant to the [c]ongressional formula for all PHAs. It has
always come in either lower or higher. In 2008, it was fairly close. It was about a
1 percent difference. Most years it ranges between 1 and 5 percent. . . . [T]he fact
is that the amount Congress appropriates . . . has never been exactly equal to the
amount that has been calculated . . . for each [PHA], that each [PHA is] eligible for.

9/29/15 TR at 37–38. Because “‘eligibility’ can never include prorations from preceding years,
the [P]laintiffs cannot recover any damages for 2009 to the present[.]” Gov’t Resp. at 40.

c. Plaintiffs’ Reply.

Plaintiffs reply that Paragraph C4 of Attachment A “unambiguously required that the HAP
subsidy provided by HUD to Plaintiffs [after] the Initial Year [2008] be based on the correctly
calculated Initial Year HAP subsidy eligibility amount.” Pls. Reply at 26.

16
As previously stated, the court grants leave to Plaintiffs to amend the March 30, 2012
Complaint to include breach of contract claims for 2013 and 2014.

13
 d. Court’s Resolution.

The relevant part of Paragraph C4 of Attachment A that speaks to how the HAP subsidies
will be calculated after 2008 reads:

4. . . . For subsequent years, the HAP subsidy will be equal to the previous year’s
HAP subsidy eligibility adjusted by the current year’s AAF and applicable
proration factor percentage.

Compl. Ex 1, at 17; Compl. Ex. 2, at 16.

The MTW Agreements do not define “subsidy eligibility” so the court again looks to the
plain and ordinary meaning.17 Read in the context of Paragraph C4, the phrase “the previous year’s
HAP subsidy eligibility” refers to the amount of “money” that Plaintiffs were eligible to receive
in the year prior to any subsequent year, which is based on the HAP subsidy received in 2007, as
required by Paragraph C3, i.e., $129,091,869 for Santa Clara and $87,617,964 for San Jose. Gov’t
App. A14, A15.

For these reasons, the court has determined that Paragraph C4 of Attachment A to the MTW
Agreements is not ambiguous.18 See Court Exhibit C.

2. Whether Plaintiffs’ Interpretation Of Paragraph C4 Of Attachment A
To The Moving To Work Agreements Violates The Relevant
Appropriations Acts And Public Policy.

a. The Government’s Argument.

In the Government’s opposition, it contends that Plaintiffs’ interpretation of Paragraph C4
does not comply with the applicable Appropriations Acts, that state: “‘[PHAs] participating in the

17
“Subsidy” is defined as “a sum of money granted by the government or a public body to
assist an industry[.]” NEW OXFORD AMERICAN DICTIONARY at 1735; see also BLACK’S LAW
DICTIONARY at 1656 (defining “subsidy” as “[a] grant usu[ally] made by the government, to any
enterprise whose promotion is considered to be in the public interest”). “Eligibility” is a derivative
of “eligible,” which is defined as “having the right to do or obtain something[.]” NEW OXFORD
AMERICAN DICTIONARY at 562; see also BLACK’S LAW DICTIONARY at 634 (defining “eligible” as
“[f]it and proper to be selected or to receive a benefit”).
18
At the September 29, 2015 Oral Argument, the Government’s Counsel also argued that
Paragraph C4 of Attachment A to the MTW Agreements is ambiguous, because the phrases
“eligibility,” “annual adjustment factor,” and “applicable proration factor,” are not defined therein.
9/29/15 TR at 17–18. The Government, however, conceded that it failed to raise these arguments
previously or in briefing. 9/29/15 TR at 18–19; see also 9/29/15 TR at 49 (the court observing
that the Government’s Counsel appears to have “found more ambiguity in the last few weeks”). It
is well established that arguments not raised in the briefs are deemed waived. See Novosteel SA v.
United States, 284 F.3d 1261, 1274 (Fed. Cir. 2002) (holding that a claim not raised in an opening
brief is waived).

14
[MTW] demonstration shall be funded pursuant to their [MTW] agreements and shall be subject
to the same pro rata adjustments’ as PHAs not participating in the MTW Program.” Gov’t Resp.
at 29–30 (quoting Consolidated Appropriations Act, 2008, Pub. L. No. 110-161, 121 Stat. 1844,
2414 (2007) (“2008 Act”) (authorizing appropriations for the fiscal year ending September 2008).
Under Plaintiffs’ interpretation they would receive a “compound proration[,] which is something
not occurring for PHAs outside of the MTW program[.]” Gov’t Resp. at 30 (quoting Hobbs v.
McLean, 117 U.S. 567, 576 (1886) (“Where a contract is fairly open to two constructions, by one
of which it would be lawful and the other unlawful, the former must be adopted.”)). In sum, “[i]f
[P]laintiffs are able to carry forward the 2007 proration of 105.017 percent, then they will be
achieving a ‘double proration’ in any given year, with the 2007 proration being compounded by
the proration for that particular year.” Gov’t Resp. at 37. Therefore, Plaintiffs’ interpretation
violates the law, because PHAs not participating in the MTW program would not receive this
“double proration.” Gov’t Resp. at 37.

b. Plaintiffs’ Reply.

Plaintiffs reply that their interpretation of the MTW Agreements does not violate the
relevant Appropriations Acts. Pls. Reply at 21. When Plaintiffs joined the MTW program and
executed the MTW Agreements in 2008, they were not barred from receiving a HAP subsidy that
was greater than the amount received by PHAs that did not participate in the MTW program. Pls.
Reply at 21–22. Any subsequent legislation requiring that PHAs be treated equally can only be
applied prospectively. Pls. Reply at 22.

As Plaintiffs’ Counsel argued, “the Appropriation[s] [Act] says that MTW PHAs ‘shall be
funded pursuant to the Moving to Work Agreements’” and “[be] subject to the same adjustments
made to all other PHA annual budgets based on funding availability. The first step . . . is to
calculate the subsidies to which the Plaintiffs . . . [are] entitled . . . pursuant to their MTW
[A]greement . . . and then . . . apply the proration factor to that amount.” 9/29/15 TR at 61–62.
Therefore, Plaintiffs are “being funded just like everyone else.” 9/29/15 TR at 62; see also Pls.
Reply at 22–23.

c. The Court’s Resolution.

In 2008, Plaintiffs were designated as MTW agencies. See 2008 Act, 121 Stat. at 2438
(“The Secretary of [HUD] shall increase, pursuant to this section, the number of [MTW]
agencies . . . by making . . . the housing authorities of the count[y] of . . . Santa Clara and the city
of San Jose, California, a [MTW] Agency[.]”). This also was the year they entered into the MTW
Agreements. Compl. Exs. 1, 2. The 2008 Act governing the February 26, 2008 MTW Agreements
provides: “[PHAs] participating in the [MTW] demonstration shall be funded pursuant to their
[MTW] agreements and shall be subject to the same pro rata adjustments under the previous
proviso.” 121 Stat. at 2414. The requirements of the 2008 Act are met, because the February 26,
2008 MTW Agreements provide: (1) the initial year HAP subsidy is determined and each
subsequent year; and (2) for adjustments to be made by the “applicable proration factor” for each
year’s calculation. Therefore, Plaintiffs are “subject to the same pro rata adjustments” as PHAs
not participating in the MTW program. See 121 Stat. at 2414; see also Compl. Ex. 1, at 17 (“For
subsequent years, the HAP subsidy will be equal to the previous year’s HAP subsidy eligibility
adjusted by the current year’s AAF and applicable proration factor percentage.”); Compl. Ex. 2, at

15
16 (same). As such, Plaintiffs’ interpretation of Paragraph C4 of Attachment A to the MTW
Agreements does not violate the 2008 Act.

It is true that, in 2009, Congress enacted additional legislation that prohibited MTW PHAs
from receiving greater funding than PHAs not participating in the MTW program: “No PHA
granted this [MTW] designation through this section shall receive more funding than they
otherwise would have received absent this designation.” Omnibus Appropriations Act, 2009, Pub.
L. No. 111-8, 123 Stat. 524, 981 (2009) (“2009 Act”) (emphasis added). But the 2009 Act and
subsequent acts cannot prohibit Plaintiffs from receiving a higher amount of HAP subsidy than
non-MTW program PHAs, because that requirement applies prospectively. See Landgraf v. USI
Film Prods., 511 U.S. 244, 286 (1994) (“The presumption against statutory retroactivity is founded
upon sound considerations of general policy and practice, and accords with long held and widely
shared expectations about the usual operation of legislation.”).

In the alternative, the Government argues that, even if Plaintiffs’ interpretation of
Paragraphs C3 and C4 of Attachment A to the MTW Agreements does not violate the
Appropriations Acts, it violates public policy. Gov’t Resp. at 36 (citing RESTATEMENT § 178 (“A
promise or other term of an agreement is unenforceable on grounds of public policy if legislation
provides that it is unenforceable or the interest in its enforcement is clearly outweighed
in the circumstances by a public policy against the enforcement of such terms.”)). Under the
Appropriations Acts, “proration is an annual adjustment applicable to all housing authorities
equally. The fact that the [P]laintiffs are attempting to give themselves special treatment, and
reduce other housing authorities’ allocations at the same time, should not be countenanced.” Gov’t
Resp. at 37.

In Oral Argument, the Government admitted that HUD is currently honoring a similar
contract with a Minneapolis PHA. 9/29/15 TR at 41–42 (Government’s Counsel: “HUD has
provided funding pursuant to [a prorated] dollar amount carried into future years according to the
calculation provided for in the agreement.”). Moreover, enforcement of the February 26, 2008
MTW Agreements does not prejudice other PHAs, because they have received their HAP subsidies
for 2008 to date under the terms of the MTW agreements they negotiated. 9/29/15 TR at 45.
Finally, in 28 months, Plaintiffs’ MTW Agreements will expire.19 And, the Government cites no
public policy against enforcing a government contract, pursuant to terms negotiated by
knowledgeable parties. Moreover, enforcement of the MTW Agreements, as executed by HUD,
is not a windfall to Plaintiffs, because the damages sought for HUD’s breach of the MTW
Agreements will be used to provide low-income housing to the residents of Santa Clara and San
Jose. 9/29/15 TR at 58–59.

For these reasons, the court has determined that Plaintiffs are entitled to summary judgment
as to Count II.

19
The term of the February 26, 2008 MTW Agreements is ten years, i.e., from February
26, 2008 through June 30, 2018. Compl. Ex. 1, at 2; Compl. Ex. 2, at 2.

16
IV. CONCLUSION.

For the reasons discussed herein, Plaintiffs’ September 2, 2014 Motion For Summary
Judgment is granted as to Count I and Count II. See RCFC 56(c). The parties will file a Joint
Status Report on damages as to Count I and Count II within sixty days.

IT IS SO ORDERED.

s/ Susan G. Braden
SUSAN G. BRADEN
Judge

17