United States Court of Appeals
for the Federal Circuit
__________________________
CCA ASSOCIATES,
Plaintiff-Cross Appellant,
v.
UNITED STATES,
Defendant-Appellant.
__________________________
2010-5100, -5101
__________________________
Appeal from the United States Court of Federal
Claims in case no. 97-CV-334, Judge Charles F. Lettow.
__________________________
Decided: November 21, 2011
___________________________
ELLIOT E. POLEBAUM, Fried, Frank, Harris, Shriver &
Jacobson, LLP, of Washington, DC, argued for plaintiff-
cross appellant.
DAVID A. HARRINGTON, Senior Trial Counsel, Com-
mercial Litigation Branch, Civil Division, United States
Department of Justice, of Washington, DC, argued for
defendant-appellant. With him on the brief were TONY
WEST, Assistant Attorney General, JEANNE E. DAVIDSON,
Director, BRIAN M. SIMKIN, Assistant Director, ELIZABETH
SPECK and KENNETH D. WOODROW, Trial Attorneys.
__________________________
CCA ASSOCIATES v. US 2
Before DYK, MOORE, and O’MALLEY, Circuit Judges.
Opinion for the court filed by Circuit Judge Moore. Opin-
ion concurring in the judgments and dissenting-in-part
filed by Circuit Judge Dyk.
MOORE, Circuit Judge.
The United States appeals from the decision of the
Court of Federal Claims that the Emergency Low Income
Housing Preservation Act, Pub. L. No. 100-242, § 202, 101
Stat. 1877 (1988) (ELIHPA), and the Low-Income Hous-
ing Preservation and Resident Homeownership Act, Pub.
L. No. 101-625, 104 Stat. 4249 (1990) (LIHPRHA) re-
sulted in a temporary regulatory taking. CCA Associates
(CCA) cross-appeals, asserting that ELIHPA and
LIHPRHA resulted in a breach of the government’s con-
tractual obligations. Because we are bound to apply the
economic analysis outlined in Cienega X, we conclude that
the Court of Federal Claims determination on the tempo-
rary taking must be reversed. Because the Court of
Federal Claims correctly held that our Cienega IV prece-
dent forecloses CCA’s breach of contract claim, we affirm
the judgment against CCA on the breach of contract
claim.
BACKGROUND
The history of the statutes involved in ELIHPA and
LIHPRHA takings cases was summarized by this court on
several occasions. See, e.g., Cienega Gardens v. United
States, 503 F.3d 1266 (Fed. Cir. 2007) (Cienega X); Cie-
nega Gardens v. United States, 331 F.3d 1319 (Fed. Cir.
2003) (Cienega VIII); Cienega Gardens v. United States,
194 F.3d 1231 (Fed. Cir. 1998) (Cienega IV). A brief recap
of the legislative background leading up to ELIHPA and
LIHPRHA is necessary to understand the issues in this
case. In 1961, Congress amended the National Housing
3 CCA ASSOCIATES v. US
Act to allow private developers to meet the needs of
moderate income families. Cienega X, 503 F.3d at 1270.
Among other things, the amendment provided financial
incentives to private developers to build low income
housing. Id. These incentives included below-market
mortgages, which permitted the owners to borrow 90% of
the cost of the project. Id. While the term of the mort-
gage was 40 years, the contracts allowed the developer to
prepay the mortgage after 20 years. Id. Congress also
protected the lenders against default by authorizing the
Federal Housing Administration to insure the mortgages.
Id. at 1270-71. The tax laws at the time provided a
number of tax incentives, which allowed general and
limited partners to take large deductions in the earlier
years of the investment. Id. at 1271. The highly lever-
aged nature of the investment made the tax benefits large
in comparison to the small up-front investment. Id.
These development programs were regulated by the
Department of Housing and Urban Development (HUD),
and the developers were required to sign a regulatory
agreement binding them to get approval from HUD for
certain relevant decisions, for example increases in rent.
Id. The developer also signed a secured note and a mort-
gage. HUD, in turn, provided mortgage insurance for the
investment. Id. The restrictions in the regulatory agree-
ment were in effect as long as HUD insured the mortgage
on the property; for practical purposes this meant the
developers were subject to HUD regulation until the
mortgage was paid off. Id. The twenty year prepayment
option in the mortgage therefore gave the developers an
opportunity to cast off the regulatory burden and convert
their development to market rate housing.
While this plan induced developers to provide low in-
come housing, Congress ultimately grew worried that
participants would prepay their mortgages and exit the
CCA ASSOCIATES v. US 4
program en mass. Id. at 1272. In order to avoid the
resulting shortage of low income housing, Congress en-
acted ELIHPA and LIHPRHA. Id. The exact restrictions
placed on the developers are detailed in, e.g., Cienega X,
but the salient issue in this case is that an owner was no
longer free to prepay the mortgage after twenty years.
Instead, the owner either needed HUD approval to prepay
the mortgage (which was not a viable option, id. at 1272
n.2), or go through a series of regulatory hoops that would
delay prepayment and therefore extend the time the
landowner was subject to HUD regulation, id. at 1272-73.
Among other restrictions, while under HUD regulation
the landowner could not charge market rates for renting
the property. Eventually, Congress restored prepayment
rights to the program participants. Id. at 1274.
In order to enter the program, the developer signed
three documents: the regulatory agreement, the secured
note, and the mortgage. In this case, each of these three
documents were contemporaneously signed by Ernest B.
Norman and J. Robert Norman in a conference room at
HUD’s New Orleans office in 1969. CCA Assocs. v. United
States, 91 Fed. Cl. 580, 585-86 (2010). 1 Each document
was drafted by HUD, and these agreements were written
on either HUD or Federal Housing Authority forms. Id.
at 586. The secured note, which was endorsed by HUD,
included a term allowing prepayment after 20 years, and
also incorporated the mortgage by reference. Id. The
mortgage, in turn, incorporated the secured note and
regulatory agreement by reference, and was signed by the
Norman brothers and the Pringle-Associated Mortgage
Corporation (but not by HUD). Id. Finally, the regula-
1 HUD later approved an increase in the amount of
the mortgage, and the Norman brothers signed a second
secured note and second mortgage—once again on HUD
forms—in 1971. CCA, 91 Fed. Cl. at 586 n.7.
5 CCA ASSOCIATES v. US
tory agreement was signed by HUD and the Norman
brothers. In the regulatory agreement, the Norman
brothers agreed to charge HUD-approved rents to HUD-
approved tenants as long as the contract for mortgage
insurance continued in effect. The regulatory agreement
incorporated by reference legislation and regulations
related to the program. Id. In sum, HUD was a signatory
to only the regulatory agreement, which did not expressly
include the 20 year prepayment provision. The Norman
brothers later transferred their interest to CCA. Id. at
586-87.
Under the terms of the documents signed by the Nor-
man brothers, the 20 year prohibition on prepayment
expired in May 1991. Id. at 602. As a result of
LIHPRHA, however, CCA was not allowed to prepay the
mortgage and was forced to continue to operate the devel-
opment (Chateau Cleary) as low income housing. In 1996,
Congress lifted its prior restriction on prepayment with
the HOPE Act. The total time that CCA was prohibited
from prepayment was five years and ten days. Id.
This case involves two issues related to the restriction
on prepayment effectuated by ELIHPA and LIHPRHA
(the “preservation statutes”). First, does the restriction
on prepayment, which resulted in limitations on the
property owner’s use of its land due to the required con-
tinued participation in the HUD program, constitute a
temporary regulatory taking? The Court of Federal
Claims held that the statutory restriction of prepayment
rights constituted a taking. The United States appeals
this portion of the decision. Second, did Congress breach
the contract between HUD and CCA by abrogating the
prepayment right, thereby mandating the property con-
tinue to be subject to use and rent restrictions? The Court
of Federal Claims held that the statutory restriction of
prepayment rights did not constitute a breach of contract.
CCA ASSOCIATES v. US 6
CCA cross-appeals this portion of the decision. We have
jurisdiction pursuant to 28 U.S.C. § 1295(a)(3).
ANALYSIS
The issues presented in this case are not unique to
CCA. The ELIHPA and LIHPRHA statues spurred a
number of claims from parties similarly situated to CCA.
Much of our jurisprudence in the area stems from the
Cienega Gardens line of cases, which sets out a frame-
work that we are bound as a panel to apply to the case at
hand. Indeed, CCA’s claims in this case were previously
remanded for consideration and application of our deci-
sion in Cienega X, 503 F.3d 1266. CCA, 91 Fed. Cl. at
584.
Many of CCA’s arguments in this case are directed at
issues resolved by Cienega X and Cienega IV. Even if we
are sympathetic to the arguments challenging the propri-
ety of the economic analysis required by Cienega X and
the breach of contract law of Cienega IV, we cannot con-
sider these arguments at the panel stage. Panels are
bound by the law of prior panels. See Hometown Finan-
cial, Inc. v. United States, 409 F.3d 1360, 1365 (Fed. Cir.
2005) (“[W]e are bound to follow our own precedent as set
forth by prior panels.”).
I. CCA’S TAKINGS CLAIM
Typically, when considering whether government ac-
tion constitutes a regulatory taking, we apply factors set
forth in Penn Central: (1) “[t]he economic impact of the
regulation on the claimant”; (2) “the extent to which the
regulation has interfered with distinct investment-backed
expectations”; and (3) “the character of the governmental
action.” Penn Cent. Transp. Co. v. New York City, 438
U.S. 104, 124 (1978). We will consider each of these
7 CCA ASSOCIATES v. US
factors in light of the legal rules of Cienega X, by which
we are bound.
A. Economic Impact
The first factor in a takings analysis is the “economic
impact on the claimant.” Penn Cent., 438 U.S. at 124.
The economic impact of the five year delay in prepayment
has admittedly been a bit of a moving target. Applying an
analytical approach previously affirmed by this court in
Cienega VIII, the trial court initially found an 81.25%
diminution in return on equity as a result of the five years
that the preservation statutes prohibited prepayment.
CCA, 91 Fed. Cl. at 611. This return on equity approach
compared the return on equity under the preservation
statutes with the return on equity CCA would have
received but for the preservation statutes. Id. In Cienega
X, however, we held that any economic impact must be
evaluated with respect to the value of the property as a
whole, and not limited to the discrete time period that the
taking was in force. Cienega X, 503 F.3d at 1280. After
noting that “[i]n temporary takings cases, the courts
ordinarily have looked to rental value or other equivalent
measures of non-permanent use,” id., the Court of Federal
Claims applied our revised Cienega X approach to the
calculation of economic impact. Though CCA disagreed
with the approach required by Cienega X, the parties
stipulated that in light of Cienega X, “‘CCA suffered an
economic impact of 18 percent as a result of ELIHPA and
LIHPRHA,’” not accounting for any offsetting benefits.
CCA, 91 Fed. Cl. at 612 (quoting the Joint Stipulation of
Facts).
In Cienega X, however, we held that any economic
impact to the plaintiffs must be weighed against any
offsetting benefits that they received from the preserva-
tion statutes. Id. at 1282-83. We identified a number of
CCA ASSOCIATES v. US 8
possible benefits and reasoned that these benefits might
serve to offset any economic harm. Id. at 1284-87. When
these benefits are established, they “must be considered
as part of the takings analysis.” Id. at 1283-84.
The Court of Federal Claims correctly explained that
its offsetting benefits analysis “must consider facts as
they existed in New Orleans at the time, not merely what
the regulations indicate was possible.” Id. at 618. It then
analyzed different benefits, concluding, inter alia, that “a
fair-market sale under LIHPRHA before September 1996
is too speculative to offset the economic loss imposed on
CCA by the prepayment restrictions.” Id. As part of this
analysis, the court concluded that “the burden is on the
government to show that other statutory benefits should
offset” the economic impact. Id. at 613-14.
We see no error in this analysis and apportionment of
the respective burdens. Although the plaintiff has the
burden to prove a taking occurred, this ultimate burden
does not require the plaintiff to identify and come forward
with evidence rebutting economic harm. The plaintiff
must establish economic impact, but it need not establish
the absence of any mitigating factors. Offsetting benefits,
if there are any, must be established by the government
to rebut the plaintiff’s economic impact case. Cf. Rose
Acre Farms, Inc. v. United States, 559 F.3d 1260, 1275
(Fed. Cir. 2009) (refusing to apply offsetting benefits
when the “government points to no economic data in the
record to support its assertion of offsetting benefits”).
Once CCA came forward with evidence of an economic
impact, the government then had the burden to establish
any offsetting benefits which would mitigate or reduce the
impact. 2 Contrary to the government's argument, and the
2 The trial court correctly held that the government
must prove (1) the existence of offsetting benefits and (2)
9 CCA ASSOCIATES v. US
dissent’s claims, nothing in Cienega X requires the plain-
tiff to bear the burden of establishing the value of offset-
ting benefits. What Cienega X held is that, in assessing
whether a takings has occurred, “available offsetting
benefits must be taken into account generally, along with
the particular benefits that actually were offered to the
plaintiffs.” 503 F.3d at 1287. This is precisely what was
done here. The Court of Federal Claims conducted a
thorough analysis of the offsetting benefits evidence
proffered by the government, and concluded the potential
benefits were too speculative to mitigate CCA's proof of
economic harm. We see no error in this analysis and no
clear error in the extensive fact findings of the trial court
on the offsetting benefits.
Since the government failed to establish any offsetting
benefits, the economic impact, given the requirements of
Cienega X, is stipulated to be 18%. Although CCA lost
over $700,000 of net income (81.25% during the five
years), using the economic impact methodology of Cienega
X, the economic impact of 18% is not substantial enough
to favor a takings in this specific case. While there is no
per se rule, the economic impact must be more than a
mere diminution. Cienega VIII, 331 F.3d at 1343. For
the value of those benefits. A non-speculative valuation of
any potential benefits is necessary to accurately establish
whether they offset the economic impact on the land-
owner. The Court of Federal Claims found that the
government failed to prove by a preponderance of the
evidence that the proffered offsetting benefits in this case
had any non-speculative value. See, e.g., CCA, 91 Fed. Cl.
at 614 (discussing whether sale was “probable”); id. at 617
(while “possible” that a buyer could be identified, that
“possibility is uncertain” and a sale therefore too specula-
tive to offset harm); id. at 618 (possibility of sale “too
speculative to offset the economic loss” of prepayment
restriction). Preponderance of the evidence is the correct
standard, and we see no error in this analysis.
CCA ASSOCIATES v. US 10
example, we have previously held that a loss of 77% of the
value in the property is a compensable taking. Id. Like
the government, we are “aware of no case in which a court
has found a taking where diminution in value was less
than 50 percent.” Appellant Br. 19 (citing cases, all of
which have at least a 50 percent diminution in value). In
light of the facts of this case, we cannot conclude that an
18% economic impact qualifies as sufficiently substantial
to favor a taking. Because we are bound by the economic
impact methodology of Cienega X, we must conclude that
the Court of Federal Claims erred when it held that this
factor supported a taking.
Ultimately, the difference between the Cienega X and
Cienega VIII methodology is the difference between an
18% and 81% economic impact, a substantially different
result stemming solely from our change in the economic
analysis between the two cases. While the plaintiff stipu-
lated to the 18% economic impact, CCA continued to
dispute the propriety of the Cienega X methodology.
Cienega X makes it virtually impossible for any ELIHPA
or LIHPRHA plaintiff to establish the severe economic
impact necessary for a takings. Rather than consider the
impact the regulation had on the property during the time
it was in effect, such as the amount of money the plain-
tiffs actually lost in rents during that time period, Cie-
nega X requires that the impact be measured against the
total value over the remaining life of the property. See id.
at 1281-82 (stating the test for a regulatory taking must
“‘compare the value that has been taken from the prop-
erty with the value that remains in the property’” (quot-
ing Penn Central, 508 U.S. at 644)). 3
3 Cienega X bases this “life of the property” re-
quirement on the Supreme Court decision in Tahoe-Sierra
Preservation Council, Inc. v. Tahoe Regional Planning
11 CCA ASSOCIATES v. US
In the case of ELIHPA or LIHPRHA plaintiffs the
mortgage notes lasted 40 years with 20 year prepayment
options. ELIHPA and LIHPRHA prevented prepayment
for at most 8 years. Hence, HUD participants had to
maintain the property as low income housing for at most
8 years longer than they should have under the mortgage
contracts. This means the denominator for the takings
analysis in these cases is the total net income over the
entire remaining useful life of the property (the net in-
come over the rest of the mortgage – generally 20 years).
If the net income over the entire remaining life of the
mortgage is the denominator there is no way that even a
nearly complete deprivation (say 99%) for 8 years would
amount to severe economic deprivation when compared to
our prior regulatory takings jurisprudence. If this meth-
odology were to apply beyond ELIHPA and LIHPRHA
cases, for example to temporary regulatory restrictions on
fee simples, then all income earned over the entire re-
maining useful life of the real property would be the
denominator. This would virtually eliminate all regula-
Agency, 535 U.S. 302 (2002). Cienega VIII actually ad-
dressed the relevance of Tahoe Sierra expressly holding
that the impact to the property as a whole was employed
in Tahoe Sierra in order to determine whether the regula-
tory taking should be treated as a Lucas style per se
taking. 331 F.3d 1344-45. The Cienega VIII court ex-
plained that this “whole property” concept was not em-
ployed in the context of analyzing the economic impact
under the Penn Central regulatory taking factors. Id. In
fact, the relatively short timespan of the 32 month mora-
torium in Tahoe-Sierra, as compared to the entire life of
the property, did not cause the Supreme Court to dismiss
the possibility that “if petitioners had challenged the
application of the moratoria to their individual parcels,
instead of making a facial challenge, some of them might
have prevailed under a Penn Central analysis.” 535 U.S.
at 334.
CCA ASSOCIATES v. US 12
tory takings. Quite frankly, the selection of the denomi-
nator in these cases is going to determine the severity of
the economic impact. In Cienega X, we deviated from the
traditional lost rent or return on equity approach, and
instead required that the lost income be compared to all of
the money the property would earn over its remaining
life. We are bound by Cienega X, but note that its appli-
cation is limited to the ELIHPA and LIHPRHA cases.
While the parties may be correct that this economic
impact analysis required by Cienega X virtually forecloses
the finding of a takings in these cases, that there is con-
flict between Cienega VIII and Cienega X, and that this
analysis was not required by Tahoe-Sierra, it is clearly
required by Cienega X, and we are bound to follow that
case. Therefore, we conclude that the Court of Federal
Claims erred when it held that the 18% economic impact
weighed in favor of a taking.
B. Investment-Backed Expectations
In Cienega X, we explained that in LIHPRHA and
ELIHPA takings cases, the analysis of whether the land-
owner had a reasonable investment-backed expectation in
the pre-payment of the mortgage requires a multistep
analysis. Cienega X, 503 F.3d at 1289. By comparing the
individual’s expectations with the “expectations of the
industry as a whole,” we aimed to separate unreasonable,
though subjectively believed, investment backed expecta-
tions from objectively reasonable expectations. Id. at
1290. The government argues that CCA’s expectations of
prepayment are unreasonable since many developers
participated in the program primarily for the tax benefits.
Cienega X, however, does not suggest that there can
only be one objectively reasonable investment strategy for
the industry, and we hold that there can potentially be
multiple objectively reasonable investment strategies
13 CCA ASSOCIATES v. US
dictated by geography, economics, or other factors. While
the government’s evidence in this case suggests that one
class of investors was motivated primarily by the tax
benefits, this does not end the inquiry: the plaintiff can
offer proof that other investment strategies are also
objectively reasonable. CCA has the burden to present
sufficient evidence of these other strategies to establish
that it was objectively reasonable for it to view the 20
year prepayment clause as the primary or “but for” reason
for investment. Id.
We believe CCA failed to carry its burden. The Court
of Federal Claims explained that “factors associated with
the location and character of projects strongly influenced
the reasonable expectation of the owners, judged on an
objective and not a subjective basis.” CCA, 91 Fed. Cl. at
609. While this may be true, the only objective evidence
of the industry’s investment backed expectations is a
quote from a 1972 guide which indicated that a project
located “in a growing suburban or exurban area, it may
increase in value over the years, thus creating substantial
residual profits to the investors upon sale or other disposi-
tion.” Id. (quotations, citations omitted, emphasis added).
This hypothetical statement, however, does not support
the ultimate conclusion that it was objectively reasonable
to view the 20 year prepayment as either the principle or
but for cause of investment. In fact, the same guide
indicates that one of the principal benefits of the invest-
ment is the tax shelter. Id.
The Court of Federal Claims also cited evidence that
some developers (three out of the six considered) retained
residual proceeds from a sale or other disposition of a
project. Id. at 608. Again, however, the prospectuses for
these developers “described the potential benefits for
investing in the projects as being primarily tax benefits
and secondarily cash distributions.” Id. (emphasis added).
CCA ASSOCIATES v. US 14
While the trial court conducted a thoughtful analysis of
the disparate treatment of tax benefits, the fact that “the
general partners in three of the six instances were willing
to sell short-term tax benefits and dividends but wanted
to retain a significant portion of the long-term benefits
from property appreciation” is not enough to demonstrate
it was objectively reasonable to view the 20 year prepay-
ment clause as the but for or primary reason for invest-
ment. The fact that the prospectuses 4 in question “do not
assign any weight to the ability to prepay after 20 years
as a reason to invest, with most dismissing the possible
net proceeds from prepayment after 20 years at a nominal
value of one dollar,” id. at 608, further undercuts the
evidence that CCA’s subjectively believed investment
strategy was objectively reasonable. Because the evi-
dence in this case fails to demonstrate that CCA’s invest-
ment backed expectations were objectively reasonable in
light of industry practice as a whole, as required by
Cienega X, the Court of Federal Claims erred by holding
this factor weighed in favor of a taking.
C. Character of the Governmental Action
Cienega X did not disturb our prior precedent relating
to the character of the government action. As a result,
when we remanded this case to the Court of Federal
Claims, it was reasonable for the trial court to reinstate
its prior character analysis. CCA, 91 Fed. Cl. at 601-02.
Indeed, Cienega VIII explained that “as a matter of law,
that the government’s actions in enacting ELIHPA and
LIHPRHA, insofar as they abrogated the [plaintiffs’] . . .
4 Cienega X indicates that contemporaneous docu-
ments, such as prospectuses, may help prove the existence
of objectively reasonable investment strategies. 503 F.3d
at 1290-91. Cienega X, however, does not require the use
of prospectuses, and other kinds of evidence may be
equally enlightening.
15 CCA ASSOCIATES v. US
contractual rights to prepay their mortgages and thereby
exit the housing programs, had a character that supports
a holding of a compensable taking.” Cienega VIII, 331
F.3d at 1340. As such, the Court of Federal Claims cor-
rectly held that “the character of the government action is
not such as to deliver the dispositive blow that CCA has
hoped, [but] it nonetheless weighs in favor of a finding of
a regulatory taking.” CCA, 91 Fed. Cl. at 602.
D. Summary
While the character of the government’s action sup-
ports finding a taking, it is not dispositive of this issue.
Because we are bound by the analysis of Cienega X, and
the other factors weigh against a taking, we conclude that
CCA failed to establish that the denial of the prepayment
right constituted a regulatory taking.
II. CCA’S CONTRACT CLAIM
CCA cross-appeals the holding that there is no privity
of contract between HUD and CCA. 5 The Court of Fed-
eral Claims held CCA’s contract claim in this case is
foreclosed by Cienega Gardens v. United States, 194 F.3d
1231 (Fed. Cir. 1998) (Cienega IV). CCA, 91 Fed. Cl. at
598. Although CCA attempts to distinguish Cienega IV
on the facts, we agree with the trial court that these
distinctions are unavailing. Simply holding that Cienega
IV controls this issue, however, ignores the exceedingly
thoughtful and thorough analysis of this issue carried out
by the Court of Federal Claims in its opinion.
There are three relevant documents in this case: the
regulatory agreement, the secured note, and the mort-
5 The government argues CCA waived its contract
claim. We disagree: the Court of Federal Claims properly
allowed CCA to proceed on this issue in light of our previ-
ous remand. See CCA, 91 Fed. Cl. at 591 n.14.
CCA ASSOCIATES v. US 16
gage. CCA argued that these three documents constitute
one overall transaction. CCA, 91 Fed. Cl. at 592. The
three documents are pre-printed, standard HUD forms,
and were signed contemporaneously in a single room in
HUD’s New Orleans office. Id. HUD only signed one of
the three documents, the regulatory agreement, id. at
591, which did not mention the right to prepay the mort-
gage or incorporate the secured note (which did include
the right to prepay), id. at 592. The regulatory agreement
does, however, reference HUD’s regulations, which speci-
fied the prepayment right. Id. HUD also endorsed the
secured note, which explicitly articulated CCA’s right to
prepay the mortgage. Id. at 591.
Ultimately, all three documents are intended to reach
a single goal: to induce developers to provide low income
housing. Each of these three documents forms a critical
part of the overall transaction, and without any one of
these documents, the overall terms binding CCA would be
substantially different. Id. at 592. Faced with these
interrelated documents, the trial court asked: “Does the
failure of the regulatory agreement to expressly incorpo-
rate the other two instruments negate the general con-
tractual principle that interrelated instruments should be
considered together?” Id. at 594-95. While our opinion in
Cienega IV answers this question in the negative, the
Court of Federal Claims pointed out that reading the
three documents together “gives effect to the fact that the
20-year limit on prepayment contained in the secured
note was a provision drafted by HUD that replicated
HUD’s regulations on prepayment and was used by HUD
to induce participation in the program.” Id. at 595. The
Court of Federal Claims ultimately concluded that
“[c]onsidering that the documents at issue constitute an
integrated transaction, and in light of the other circum-
stances surrounding the transaction, this court, but for
17 CCA ASSOCIATES v. US
the precedent in Cienega IV, would hold that HUD and
CCA were in privity as to the 20-year prepayment provi-
sion.” Id. at 598.
The trial court is not alone in its criticism of Cienega
IV. In Aspenwood Investment Co. v. Martinez, 355 F.3d
1256 (10th Cir. 2004), the Tenth Circuit confronted an
analogous issue in the context of a declaratory judgment
action. While it noted that Cienega IV was the case “most
directly on point,” it nevertheless found “the analysis of
the dissent [in Cienega IV] . . . more persuasive than that
of the majority.” Id. at 1260. The Tenth Circuit reasoned
“that by executing the regulatory agreement, the note,
and related documents,” the landowner promised to
operate the housing project to effectuate the purpose of
the HUD regulations, and noted that the landowner’s
“promises were primarily for the benefit of HUD (and the
participants in the low income housing program), not for
the lender.” Id. In light of these circumstances, the
Tenth Circuit concluded that the three documents consti-
tuted “a single, overarching agreement,” and held that “it
was the demonstrated intent of HUD (and of plaintiff and
of the lender) to be bound by the terms of all of the parts
of the transaction.” Id.
Cienega IV turned on our conclusion that “there was
not privity of contract between HUD and the [landowners]
with respect to prepayment of the deed of trust notes.”
194 F.3d at 1246. In reaching this conclusion, we started
“from the premise that the United States, i.e., HUD, was
a named party to only one contract,” the regulatory
agreement. Id. at 1241-42. We acknowledged the Re-
statement (Second) of Contracts § 202(2) (1981) rule that
“‘all writings that are part of the same transaction are
interpreted together.’” Id. at 1243 (quoting the Restate-
ment). We also acknowledged that this rule “does ‘not
depend upon any determination that there is an ambigu-
CCA ASSOCIATES v. US 18
ity, but [is] used in determining what meanings are
reasonably possible as well as in choosing among possible
meanings.’” Id. (quoting the Restatement). We even
conceded that “the deed of trust note . . . and the regula-
tory agreement were part of the same transaction.” Id.
Thus, as highlighted by the dissent in Cienega IV, the
Tenth Circuit in Aspenwood, and the Court of Federal
Claims in this case, it is certainly possible that the three
agreements should be interpreted together. We neverthe-
less found that “each document stands alone and is un-
ambiguous on its face,” and that the “documents evidence
separate agreements between distinct parties.” Id.
The facts in this case do not distinguish it from Cie-
nega IV, which we must apply to the case at hand. We
therefore hold that the Court of Federal Claims correctly
determined that Cienega IV forecloses CCA’s contract
claims in this case. To the extent CCA believes either
Cienega IV or Cienega X was wrongly decided, en banc
review is its only course of action.
AFFIRMED-IN-PART and REVERSED-IN-PART
COSTS
No costs.
United States Court of Appeals
for the Federal Circuit
__________________________
CCA ASSOCIATES,
Plaintiff-Cross Appellant,
v.
UNITED STATES,
Defendant-Appellant.
__________________________
2010-5100, -5101
__________________________
Appeals from the United States Court of Federal
Claims in case no. 97-CV-334, Judge Charles F. Lettow.
__________________________
DYK, Circuit Judge, concurring in the judgment and
dissenting-in-part.
I agree with the majority’s decision to reverse the
Claims Court judgment finding a regulatory taking and
with the majority’s affirmance of the Claims Court’s
dismissal of the contract claim. I write separately be-
cause I disagree with the majority’s reasoning in signifi-
cant respects. In particular, I disagree with the majority’s
incorrect and wholly unnecessary dictum approving
aspects of the Claims Court’s takings analysis. In my
view, the majority’s decision refusing to consider offset-
ting benefits is directly contrary to our precedent, and its
treatment of the character of the government action fails
to recognize that the government’s action is a form of rent
CCA ASSOCIATES v. US 2
control that the Supreme Court and other circuits have
found to be legitimate.
I The Economic Impact Analysis
This case again presents the question whether the
rent-control restrictions of ELIHPA and LIHPRHA consti-
tuted a regulatory taking. In Cienega Gardens v. United
States (“Cienega X”), 503 F.3d 1266, 1282-87 (Fed. Cir.
2007), we held that an analysis of the economic impact
prong of the takings analysis required a consideration of
offsetting benefits during the period that the restrictions
of ELIHPA and LIHPRHA were in place, namely consid-
eration of the right to sell the property for fair market
value and, failing such a sale, the right to exit the pro-
gram and to be free of the rent control and other restric-
tions. The necessity of considering such benefits was not
merely a suggestion. It was a direct holding expressed
repeatedly in the language of the opinion. We held in
Cienega X that the “error committed by the [Claims
Court] lies in its failure to consider the offsetting benefits
that the statutory scheme afforded which where specifi-
cally designed to ameliorate the impact of the prepayment
restrictions.” Id. at 1282-83. “The [offsetting] benefits
must be considered as part of the takings analysis” itself,
not merely as part of a just compensation calculation. Id.
at 1283-84.
The Claims Court here, in direct contradiction of our
holding in Cienega X, refused to consider offsetting bene-
fits in the economic impact analysis, finding those bene-
fits to be “speculative.” CCA Assocs. v. United States, 91
Fed. Cl. 580, 618 (2010). While reversing the decision of
the Claims Court, the majority, without justification,
approves the Claims Court’s refusal to follow Cienega X.
The Claims Court’s justification for refusing to con-
sider offsetting benefits rests on two subordinate and
3 CCA ASSOCIATES v. US
incorrect propositions—first, that the burden of proof on
offsetting benefits rested with the government, and sec-
ond, that the government could not bear its burden of
proof unless it established that CCA, the owner of the
property, could actually have sold the property during the
period of the restrictions. I consider each of these in turn.
A The Burden of Proof
As I discuss in greater detail below, the design of
LIHPRHA was to impose a form of rent control on the
developers of low-income housing that received federal
financial assistance. 1 The impact of LIHPRHA was to
keep this rent control in place for an additional five years
subject to the ability of the owners to sell their property
for fair market value or to prepay the mortgage and exit
the program. The claim is that the developers here lost
money because they were forced to charge below-market
rents for this five-year period.
The economic impact analysis is, of course, part of the
three-part Penn Central test for regulatory takings. See
Penn Central Transp. Co. v. City of New York, 438 U.S.
104, 124 (1978). The object of the economic impact analy-
sis is to determine the economic impact of the regulatory
scheme as a whole on the affected parties. In order to
determine the economic impact, the overall nature of the
scheme must be evaluated, including any exceptions to
the regulation. For example, if a zoning regulation or
1 The majority analyzes both ELIHPA and
LIHPRHA. See Majority Op. at 11. However, only the
provisions of LIHPRHA impacted the plaintiffs. Congress
enacted ELIHPA on February 5, 1988. ELIHPA was then
superseded by LIHPRHA, which was enacted on Novem-
ber 28, 1990, before CCA’s predecessor became eligible to
prepay its mortgage on May 17, 1991.
CCA ASSOCIATES v. US 4
permitting scheme provides variances or exceptions, the
economic impact of those must be taken into account. See
id. at 137. Thus we held in Cienega X, 503 F.3d at 1282-
87, that simply treating LIHPRHA as extending rent
control for five years was not accurate. This was because
the developer had other options to escape the rent-control
regulation, options that we characterized as “offsetting
benefits,” that is, exceptions to the regulatory obligations.
Id. The owner could escape the rent controls by selling
the property for fair market value or prepaying the mort-
gage and exiting the program. If an owner wished to
prepay and exit the program, the owner was required to
first offer the property for sale to purchasers who would
pay fair market value to the seller and maintain the
property as low-income housing for its remaining useful
life. An appraisal process, involving two appraisers (one
selected by the Department of Housing and Urban Devel-
opment (“HUD”) and the other by the owner), determined
“the fair market value of the housing based on the highest
and best use of the property.” 12 U.S.C. § 4103(b)(2).
Then, HUD would provide financial incentives to the
purchasers to assist them in purchasing the property. Id.
§§ 4110(d), 4111(d). If HUD failed to provide financial
assistance or a willing buyer could not be found, owners
could prepay their mortgages and exit the program. Id.
§§ 4113(c)(1)–(3), 4114(a). While this process unfolded,
the prepayment restriction preserved the status quo and
kept the HUD rent control restrictions in place. 2
2 In addition to permitting the owner to escape the
regulation, the statute also offered incentives (so-called
use agreements) if an owner agreed to maintain the
property as low-income housing subject to rent control for
its remaining useful life. Congress viewed this as a “fair
and reasonable exchange” because the rates of return
provided for under these use agreements “compare[d] well
to rates of return expected . . . in market rate housing,”
5 CCA ASSOCIATES v. US
The Supreme Court has repeatedly held that the bur-
den of proof for takings claims lies with the plaintiff. In
Eastern Enterprises v. Apfel, the Court stated that “a
party challenging governmental action as an unconstitu-
tional taking bears a substantial burden.” 524 U.S. 498,
523 (1998). The Court also held in Keystone Bituminous
Coalition Ass’n v. DeBenedictis that there was no taking
because the plaintiffs had not satisfied their “heavy”
“burden of proving that they [had] been denied [an]
economically viable use of [their] property.” 480 U.S. 470,
493, 499 (1987).
Under the Supreme Court’s decision in Penn Central,
the economic impact analysis is a critical element of the
takings analysis. 438 U.S. at 124. The burden of proof on
economic impact, as with other elements of the Penn
Central test, rests with the claimant, as this court has
confirmed in Cienega X and other cases. As we said in
Cienega X, for each of the Penn Central factors, “the
burden is on the owners.” 503 F.3d at 1288. See also
Forest Props., Inc. v. United States, 177 F.3d 1360, 1367
(Fed. Cir. 1999). Both the Claims Court and the majority
agree that the burden of proof on economic impact rests
with the plaintiff. Majority Op. at 8 (“The plaintiff must
establish economic impact . . . .”); CCA Assocs., 91 Fed. Cl.
at 613 (“CCA undoubtedly ha[d] the burden of proof on
each of the Penn Central factors, including that of eco-
nomic impact.”).
The error of the Claims Court and the majority is in
viewing offsetting benefits as not part of the economic
taking into account the low risk of the government pro-
gram. S. Rep. No. 101-316, at 105 (1990).
CCA ASSOCIATES v. US 6
impact analysis. 3 In Cienega X, we directly held that
offsetting benefits are part of the economic impact analy-
sis, not a separate analysis relating to the calculation of
just compensation. 503 F.3d at 1283-84. Simply put, the
“offsetting benefits must be accounted for as part of the
takings analysis.” Id. at 1283 (citing Penn Central, 438
U.S. at 137). In Cienega X, moreover, we held that the
question of economic impact had to be determined taking
account of the regulatory scheme as a whole. Id. at 1282-
83. We specifically held that the Claims Court had erred
“in its failure to consider the offsetting benefits that the
statutory scheme afforded which were specifically de-
signed to ameliorate the impact of the prepayment re-
strictions.” Id. at 1282-83; see also id. at 1283
(distinguishing the statutory framework based on its
“amelioration of the restrictions imposed on the existing
property”). In assessing economic impact, it was not
permissible to treat the statute as though it simply im-
posed rent control for a five-year period; it was necessary
to consider the economic impact of the fact that opportu-
nities existed to eliminate the rent control restrictions.
Id. at 1283-85.
The Supreme Court has similarly held that the com-
plete nature of a challenged statute must be considered in
an economic impact analysis. For example, in Penn
Central, the offsetting benefits “undoubtedly mitigate[d]
whatever financial burdens the law [had] imposed on
3 See Majority Op. at 8 (“Offsetting benefits, if there
are any, must be established by the government to rebut
the plaintiff’s economic impact case.”); CCA Assocs., 91
Fed. Cl. at 613-14 (“Once CCA [had] established the
economic impact of the restriction in question, the burden
[was] on the government to show that other statutory
benefits should offset that impact.”).
7 CCA ASSOCIATES v. US
appellants and, for that reason, are to be taken into
account in considering the impact of the regulation.” 438
U.S. at 137. In Connolly v. Pension Benefit Guaranty
Corp., the Court held that the Multiemployer Pension
Plan Amendments Act of 1980 (“MPPAA”), requiring
employers to pay into a pension fund, was not on its face a
taking because of the lack of serious economic impact.
475 U.S. 211, 225-26, 228 (1986). “[A]s to the severity of
the economic impact of the MPPAA, there [was] no doubt
that the Act completely deprive[d] an employer of what-
ever amount of money it is obligated to pay to fulfill its
statutory liability.” Id. at 225. But there, as here, “there
[were] a significant number of provisions in the Act that
moderate[d] and mitigate[d] the economic impact of an
individual employer's liability.” Id. at 225-26. Such
offsets included “sections of the Act [that] moderate[d] the
impact . . . by exempting certain transactions” and other
“sections [that] reduce[d] the size of the financial liability
in various instances.” Id. at 226 n.8. These moderating
and ameliorating features were required to be taken into
account in the economic impact analysis.
Similarly, in Forest Properties, 177 F.3d at 1367, we
placed the burden of proving the entire economic impact,
including costs saved, on the plaintiff. Forest Properties
involved a tract of land, a portion of which could not be
developed as planned due to the denial of a permit. Id. at
1366. The plaintiff provided evidence of what the post-
development value of the restricted land would be, but did
not account for the development costs that the plaintiff
would incur to develop the land. Id. at 1367. The evi-
dence “reflect[ed] the development of the lots following the
denial of the permit,” but “[did] not necessarily reflect
[the] [fair market] value immediately after the permit
was denied.” Id. Accordingly, we held that “Forest had
CCA ASSOCIATES v. US 8
the burden of proof to establish a regulatory taking, and it
failed to carry that burden.” Id.
Furthermore, this is not a situation where the neces-
sary information regarding offsets was in possession of
the government but not the plaintiffs. The plaintiffs were
well aware of the scope of the regulatory scheme. Even if
this were a situation where the relevant information was
in possession of the government but not the plaintiffs,
that would suggest merely shifting the burden of produc-
tion, as we have done in recent government contract cases
with respect to avoided costs, while maintaining the
ultimate burden of proof on the plaintiffs. We held in
those contract cases that “a non-breaching plaintiff bears
the burden of persuasion to establish both the costs that it
incurred and the costs that it avoided as a result of a
breach of contract.” Boston Edison Co. v. United States,
658 F.3d 1361, 1369 (Fed. Cir. 2011). In such contexts,
“the breaching party may be responsible for affirmatively
pointing out costs that were avoided,” but ultimately “the
plaintiff must incorporate them into a plausible model of
[] damages.” Id. (citing S. Nuclear Operating Co. v.
United States, 637 F.3d 1298, 1304 (Fed. Cir. 2011);
Energy Nw. v. United States, 641 F.3d 1300, 1307-08 &
n.5 (Fed. Cir. 2011)).
In light of the Supreme Court’s and our own prece-
dents, there is simply no basis for shifting the burden of
proof from the plaintiffs to the government for offsetting
benefits or for separating those benefits from the overall
impact of the statutory scheme. The majority’s sole basis
for holding otherwise is a snippet of language in Rose Acre
Farms, Inc. v. United States, 559 F.3d 1260 (Fed. Cir.
2009), in which the government argued a plaintiff egg
producer “benefitted from operating in an environment
[created by the regulation] that protected the public from
the spread of salmonella” because, without government
9 CCA ASSOCIATES v. US
action, “the public’s confidence in th[e] market would have
deteriorated, reducing demand” for eggs. Brief of Defen-
dant-Appellant at 47-48, Rose Acre, 559 F.3d 1260 (No.
2007-5169). We rejected this claim, noting that the
government had “point[ed] to no economic data in the
record to support its assertion.” Rose Acre, 559 F.3d at
1275. However, Rose Acre involved indirect benefits
flowing from the solution to the regulatory problem,
rather than specific benefits provided to those affected by
government regulation which were “designed to amelio-
rate the impact of [the regulation].” Cienega X, 503 F.3d
at 1283. It provides no support for the Claims Court’s
impermissible shifting of the burden of proof concerning
the direct impact, or lack of impact, of the regulation
itself.
B The Failure to Consider Offsetting Benefits
as Part of the Economic Impact Analysis
I also disagree with the majority’s approval of the
Claims Court’s decision in another aspect of the economic
impact analysis: its characterization of the offsetting
benefits as “speculative.” See CCA Assocs., 91 Fed. Cl. at
618. While I agree with the majority that an 18% eco-
nomic impact (not considering offsetting benefits) is not
sufficient to establish a taking, the majority is entirely off
base in suggesting that the impact here was in the 18%
range. This analysis entirely ignores offsetting benefits.
In Cienega X, we held that these offsetting benefits must
be taken into account, id. at 1283-84, and even in this
case, the record establishes that the economic impact was
far less than the 18% figure assumed by the majority.
This is so regardless of whether the burden of proof on
economic impact rested with the plaintiffs or the govern-
ment.
CCA ASSOCIATES v. US 10
The parties here agreed that the economic impact
would be measured based on the diminution in value of
CCA’s property due to the rent control (i.e., the difference
between what a buyer would have paid in May 1991 for
Chateau Cleary unencumbered by HUD restrictions and
what a buyer would have paid in May 1991 encumbered
by the HUD restrictions). The parties stipulated that the
economic impact without considering offsetting benefits
was 18%. CCA introduced no evidence as to the impact of
offsetting benefits, i.e., the ability to sell the property or
to otherwise escape future rent control. Only the govern-
ment supplemented the record to provide further evidence
of the economic impact of offsetting benefits. The gov-
ernment submitted expert testimony that the potential to
sell the property for fair market value, or to exit the
program and raise rents to market rates, necessarily
would affect the value of the property. The government’s
expert report adjusted the stipulated value calculation to
account for offsetting benefits, concluding that continuing
the restrictions reduced the value of the property by only
5%.
However, the Claims Court held that offsetting bene-
fits could only be taken into account if there was “reason-
able certainty” that a sale would have occurred, and that
such a reasonable certainty did not exist. 4 CCA Assocs.,
91 Fed. Cl. at 618. The possibility that CCA could exit the
program was therefore “speculative.” Id. The finding
underlying this conclusion is based on a misunderstand-
4 Similarly, the Claims Court held that “to adopt
[the government expert’s] estimate [of a 5% economic
impact], this court must find that it was probable that
CCA could have pursued a sale and have successfully sold
the property under ELIHPA if it had sought to do so.”
CCA Assocs., 91 Fed. Cl. at 614.
11 CCA ASSOCIATES v. US
ing of the relevant statutes and, insofar as it represents a
finding of fact, is clearly erroneous. 5 But more impor-
tantly, the Claims Court’s approach reflects a fundamen-
tal misunderstanding of the valuation process, one that
CCA continues to urge on appeal. CCA argued that its
“position throughout has been that the value of these
statutory ‘options’ cannot be quantified because, inter
alia, CCA never availed itself of any options, and there-
fore to quantify the ‘value’ of the options would be an
5 The Claims Court concluded that it was uncertain
whether a sale would have occurred because there was no
notice of a sale option under ELIHPA, no reasonable
certainty that CCA could have found a willing buyer, and
a sale under LIHPRHA would have taken so much time
that HUD funding would have no longer been available.
The first of these findings is legally erroneous. As noted
above, the ELIHPA statute and regulations specifically
mentioned the possibility of a sale, and CCA itself filed a
notice of intent under ELIHPA which mentioned that it
might pursue a sale of the property. The second and third
findings are immaterial. If a buyer could not be found or
funding was not available, CCA could have exited the
program. 12 U.S.C. § 4114(a). Moreover, the second and
third findings are clearly erroneous. The owner of four
separate properties in the New Orleans area found a
buyer for his properties. Indeed, the government’s expert
testified that he was unaware of any owners who were
unable to find willing purchasers. And in November
1990, CCA itself was approached (through an executive of
the company servicing CCA’s mortgage) by a non-profit
buyer that was potentially interested in purchasing
Chateau Cleary. The evidence established that the
LIHPRHA sale process could be completed in two and a
half years or less, meaning that a LIHPRHA sale begun
in April 1992 could have been completed before 1995
when HUD began to encounter problems funding sales.
And the funding problems might not have been fatal to a
sale even after 1995, as four properties in the New Or-
leans area were still sold after the funding problems
arose.
CCA ASSOCIATES v. US 12
exercise in speculation.” Plaintiff-Cross Appellant’s Br.
51. The question is not whether CCA would have availed
itself of the offsetting benefits or whether a sale would
have occurred. The proper analysis is whether a prospec-
tive purchaser in May 1991 would have attributed value
to the opportunities offered by the statutory scheme to
exit the program and escape the rent control obligations.
Determining market value involves consideration of “[a]ll
facts which the owner would properly and naturally press
upon the attention of a buyer with whom he is negotiating
a sale, as well as those facts which would naturally influ-
ence a person of ordinary prudence desiring to purchase
the property.” 4 Nichols on Eminent Domain § 12.02
(2010). “[C]ourt[s] must consider any aspect of the prop-
erty that could have affected the amount a reasonable
buyer would be willing to pay.” A.A. Profiles, Inc. v. City
of Fort Lauderdale, 253 F.3d 576, 585 (11th Cir. 2001).
As discussed above, cases such as Penn Central and
Connolly require that ameliorating sections in the statu-
tory scheme be taken into account in the economic impact
analysis. The Supreme Court has also recognized that a
valuation analysis must take into account other possibili-
ties that could affect market value even when they are not
certain to occur. In Almota Farmers Elevator & Ware-
house Co. v. United States, 409 U.S. 470, 473 (1973), the
government condemned a lessee’s property interest (in-
cluding improvements the lessee had made to the land),
and the Ninth Circuit held that it was not necessary to
take into account the possibility that the lease might have
been renewed because that would be “speculati[ve].” The
Supreme Court rejected this argument, holding that “[b]y
failing to . . . tak[e] into account the possibility that the
lease might be renewed as well as the possibility that it
might not [the lower court] failed to recognize what a
willing buyer would have paid for the improvements.” Id.
13 CCA ASSOCIATES v. US
at 474. The Court explained that failing to account for
this possibility “is not how the market would have valued
[the] improvements” because a buyer would not have
assumed that “there [was] no possibility of” a lease re-
newal. Id. at 478.
Similarly, in Great Northern Nekoosa Corp. v. United
States, 711 F.2d 473 (1st Cir. 1983), the First Circuit
reiterated this principle in the context of a valuation for
tax purposes. The court held that the federal govern-
ment’s designation of a piece of plaintiff’s property as a
“possible part” of a national wildlife system had to be
considered in determining the property’s market value
even though the parcel would only become part of the
system if the state agreed. Id. at 475. Though such an
event was “uncertain,” the possibility “substantially
reduced its market value because it would necessarily
affect the price which would be paid by a willing seller.”
Id. 6 A leading appraisal guide also confirms that the
“right to sell an interest” in one’s property is an “individ-
ual right” in the property that “has some potential value.”
Appraisal Institute, The Appraisal of Real Estate 112
(13th ed. 2008).
In keeping with this standard approach, the govern-
ment’s appraisal expert, Dr. Dickey, testified that the
possibility of a sale, or the possibility of prepayment if a
sale did not occur, “provided potential avenues to realize
at least some value in the property” and that “accounting
6 See also State Highway Comm’n v. Stockhoff, 519
P.2d 1281, 1284 (Or. Ct. App. 1974) (noting that the
possibility Oregon might exercise its contractual option to
build a road over plaintiff’s right of way that would de-
crease the value of plaintiff’s property would affect mar-
ket value because “a prospective buyer would likely be
influenced by the existence of the option in determining
the purchase price”).
CCA ASSOCIATES v. US 14
for these options would lower the measure of economic
impact.” Transcript of Record at 1631, CCA Assocs. v.
United States, 75 Fed. Cl. 170 (2007) (No. 98-CV-334)
(“Transcript”). In fact, CCA itself filed a notice of intent
under ELIHPA to preserve these very options.
These opportunities were, moreover, hardly remote
possibilities. Sales of rent controlled properties occurred
nationwide under LIHPRHA, including four in the New
Orleans area where CCA’s property was located, and the
government’s expert testified that he was unaware of any
instance where an owner could not find a willing pur-
chaser. Hundreds of such transactions nationwide were
completed. The government’s expert also testified that the
process could be commenced a year before the prepayment
date and was usually completed in eighteen to twenty-
four months. See 12 U.S.C. § 4101 (2000). The Claims
Court here acknowledged that it was “possible” that CCA
could have “found a buyer and obtained the necessary
approval from HUD to complete a sale” before HOPE
lifted the prepayment restrictions. CCA Assocs., 91 Fed.
Cl. at 618.
Even in the unlikely event that a buyer could not be
found, LIHPRHA allowed owners to exit the program if
they could not consummate a sale because they did not
find a willing purchaser or did not receive HUD funding
for the sale. 12 U.S.C. § 4114(a)(1)–(2). Owners who
exited the program were allowed to raise their rents to
market rates unless their project was located in a “low
vacancy area” (defined by HUD as a less than 3% vacancy
rate), in which case owners could not raise rates on exist-
ing tenants for three years. 12 U.S.C. § 4113(c)(1)–(3).
Even if the three-year grace period applied here (a matter
in dispute), it applied only to tenants who occupied their
apartments when the owner filed his notice of intent. 12
15 CCA ASSOCIATES v. US
U.S.C. § 4113(c)(1). Owners could raise the rents on other
units.
Under standard valuation theory, it is particularly in-
appropriate to focus (as the Claims Court did here) on
whether CCA itself could have sold its property for mar-
ket value. “To establish market value, it is not necessary
to point out any designated person able and willing to buy
the property at the price alleged (or at any price), or to
show that the owner is in fact willing, or even has the
legal capacity, to sell it.” 4 Nichols on Eminent Domain
§ 12.02. “[T]he application of this concept [of market
value] involves, at best, a guess by informed persons.”
United States v. Miller, 317 U.S. 369, 375 (1943). Ap-
praisals are “based on market comparisons” to compara-
ble properties. Appraisal Institute, supra, at 297, 301–02,
377. Therefore, the fact that numerous other comparable
owners in the same program took advantage of the stat-
ute’s opportunities and consummated sales is clearly
relevant and indicates that the benefits had value. Sig-
nificantly, the Claims Court made no finding that the
possibility of a sale or other option was without value.
The government’s expert report showed that the pos-
sibility of a sale of the property would have resulted in
only a 5% diminution in value from the LIHPRHA rent
control. The report assumed that a sale could have oc-
curred by November 1992 and the fair market sale would
have effectively allowed CCA to realize market-rate
income for the period following November 1992.
Whether or not the 5% figure represented the defini-
tive measure of the economic impact in this case, the
evidence, at a minimum, indicates that the value of the
benefits was substantial. The economic impact was far
less severe than the 18% figure.
CCA ASSOCIATES v. US 16
II The Character of the Government Action
Finally, I dissent from one other aspect of the major-
ity’s decision—its approval of the Claims Court’s prior
analysis as to the character of the government action,
which it held to be “analogous to a physical invasion”
rather than a mere form of transitional rent control. CCA
Assocs., 75 Fed. Cl. at 190. Although in Cienega Gardens
v. United States (“Cienega VIII”), 331 F.3d 1319 (Fed. Cir.
2003), a panel of this court determined the government
action had the character of a taking because it was akin to
a physical invasion, id. at 1338, the panel also recognized
that a different result was possible based on different
arguments and a different record, id. at 1355. Here, in
contrast to Cienega VIII, the government urged that
LIHPRHA imposed a form of rent control, and therefore, a
form of permissible government action. Specifically, the
government argued that the “Preservation Statutes
merely limited the owner's ability to unilaterally raise
tenant rents,” and “[r]ent control statutes are not gener-
ally considered to have the character of a taking.” Defen-
dant-Appellant’s Br. at 38-39.
In its post-trial brief to the Claims Court, the gov-
ernment similarly urged that “the character of the Pres-
ervation Statutes [was] akin to standard rent control
statutes” because “the statutes merely limited the owner’s
ability to raise rents.” Defendant’s Post-Trial Memoran-
dum of Contentions of Fact and Law at 47, CCA Assocs.,
91 Fed. Cl. 580 (No. 97-CV-334). CCA also viewed the
preservation statutes as primarily imposing rent control,
urging that the preservation statutes effected a taking by
limiting CCA’s ability to charge market rents. 7 CCA
7 See Plaintiff’s Pre-Trial Memorandum of Conten-
tions of Fact and Law at 1, CCA Assocs., 75 Fed. Cl. 170
(No. 97-CV-334) (arguing that “[t]he government effected
17 CCA ASSOCIATES v. US
argued that LIHPRHA curtailed its “ability to prepay the
mortgage . . . and thereby to operate Chateau Cleary as a
market-rate property.” Plaintiff’s Post-Trial Memoran-
dum of Contentions of Fact and Law at 18, CCA Assocs.,
91 Fed. Cl. 580 (No. 97-CV-334). At trial, CCA’s manag-
ing partner testified that the regulatory agreement al-
lowed HUD to “control the rents,” which would have been
higher if CCA had been permitted to prepay in May 1991,
allowing for greater income and cash flow. J.A. 2. He
complained that CCA could have charged “at least 20, 25
percent higher” rents. J.A. 4. Similarly, in its brief to
this court, CCA stressed that it had to charge “HUD-
approved” rents and that it “lost the right to rent units at
market rates.” Plaintiff-Cross Appellant’s Br. at 4, 20.
Commentators have agreed that LIHPRHA imposed “a
type of rent regulation.” 8
The Congressional justification for the continuing rent
control after the prepayment date was clear enough. As
the first prepayment dates grew near during the 1980s,
Congress grew concerned that project owners would
eliminate rent control by exiting the program, severely
depleting the supply of affordable housing units. Con-
gress feared the loss of over 330,000 units due to mort-
gage prepayments and the elimination of rent control.
a regulatory taking of CCA’s right to exist HUD’s low-
income housing program and to convert its property to
conventional market rate rentals”).
8 Robert Meltz, et. al., The Takings Issue: Constitu-
tional Limits on Land Use Control and Environmental
Regulation 300 (1999); see also Daniel L. Siegel, et. al.,
Temporary Takings: Settled Principles and Unresolved
Questions, 11 Vt. J. Envtl. L. 479, 501 n.176 (2010) (de-
scribing preservation statutes as “provisions which re-
stricted the ability of [project owners] from . . . avoiding
rent control requirements”).
CCA ASSOCIATES v. US 18
Congress stressed that absent government action, tenants
whose landlords prepaid their mortgages would be forced
either to “stay in [the] project and pay substantial rent
increases or begin a search for housing in markets where
comparable affordable housing does not exist.” S. Rep.
No. 101-316, at 103 (1990). Congress feared “that elderly
and low income tenants [would] have no alternative but to
be thrown in the street without further action” by the
government to continue rent control. H. Rep. No. 100-
122, at 48 (1987) (Conf. Rep.), reprinted in 1987
U.S.C.C.A.N. 3317, 3370. The statute “protected low-
income tenants from evictions or sharp increases in rent.”
S. Rep. No. 101-316, at 98.
The “substantial public purpose” of a statute weighs
against the finding of a taking. Penn Central, 438 U.S. at
127. As this court said in Rose Acre, 559 F.3d at 1281,
“[t]here is little doubt that it is appropriate to consider
the harm-preventing purpose of a regulation in the con-
text of the character prong.” There is no doubt that rent
control has a significant harm-preventing purpose. In
Block v. Hirsch, 256 U.S. 135, 154, 156 (1921), the Su-
preme Court recognized that “[h]ousing is a necessary of
life,” and that rent-control statutes are designed to pre-
vent conditions “dangerous to the public health.”
Rent control and rent stabilization laws have been
almost invariably held to represent legitimate govern-
ment acts and not to support either physical or regulatory
takings challenges. See, e.g., Yee v. City of Escondido, 503
U.S. 519 (1992); Bowles v. Willingham, 321 U.S. 503
(1944); Block, 256 U.S. 135; Guggenheim v. City of Goleta,
638 F.3d 1111 (9th Cir. 2010) (en banc); Fed. Home Loan
Mortg. Corp. v. N.Y. State Div. of Hous. & Cmty. Renewal,
83 F.3d 45 (2d Cir. 1996); Kavanau v. Santa Monica Rent
Control Bd., 941 P.2d 851 (Cal. 1997); Rent Stabilization
Ass’n v. Higgins, 630 N.E.2d 626 (N.Y. 1993). The Su-
19 CCA ASSOCIATES v. US
preme Court in Yee recognized the legitimacy of rent
control and expressed concern with such regulations only
if the statute “compel[s] a landowner over objection to
rent his property or to refrain in perpetuity from termi-
nating a tenancy.” 503 U.S. at 528. However, this is not
such a case. LIHPRHA only restricted the landlord’s
rights for approximately five years, and owners had
opportunities to exit the program through sale or pre-
payment before that. 9
CCA does not contest that rent control statutes have a
vital public purpose, and that it retained the ability to
select tenants within the eligible group of low and moder-
ate income individuals, to evict tenants for cause, and
even to leave the units vacant. But, CCA contends that
the LIHPRHA rent control scheme is distinguishable from
the type of rent control approved in other cases because it
(1) restricted CCA’s ability to evict tenants and prevented
CCA from choosing tenants who did not fit HUD’s income
requirements, (2) prevented CCA from converting the
property to another use, and (3) prevented CCA from
selling the property without HUD approval. Rent control
schemes that impose restrictions, including some or all of
these features, have frequently been upheld.
First, many rent control regimes restrict a landlord’s
ability to evict tenants or to select tenants but have been
held not to result in takings. See, e.g., Yee, 503 U.S. at
524–27 (upholding a local rent-control ordinance that
9 In rejecting the Cienega plaintiffs’ physical tak-
ings claims, we recognized that Yee was “controlling”
because “the effect of the prepayment restrictions . . .
[was] merely to enhance an existing tenant’s possessory
interest” rather than authorize a permanent occupation.
Cienega Gardens v. United States (“Cienega VI”), 265 F.3d
1237, 1248 (Fed. Cir. 2001) (quoting Cienega Gardens v.
United States, 33 Fed. Cl. 196, 217 (1995)).
CCA ASSOCIATES v. US 20
prevented owners of mobile home parks from evicting
their tenants and from selecting their tenants); Block,
256 U.S. at 154 (upholding a District of Columbia rent
control statute that, inter alia, allowed a tenant to remain
in possession after expiration of his lease as long as he
continued to pay the rent fixed by a government commis-
sion); Troy Ltd. v. Renna, 727 F.2d 287, 290–91, 301–02
(3rd Cir. 1984) (sustaining a New Jersey statute that
prevented landlords who converted an apartment building
to a condominium from evicting senior citizens and dis-
abled tenants for forty years unless, inter alia, the ten-
ants’ income level was above a certain threshold).
Second, courts have upheld against takings challenges
regulatory schemes that put severe restrictions on a
property owner’s ability to convert rent regulated proper-
ties to new uses, such as condominiums. In fact, the
District of Columbia Circuit has recognized that “takings
clause challenges in th[e] context [of restrictions on con-
version of rental property] have not fared well.”
Silverman v. Barry, 727 F.2d 1121, 1126 (D.C. Cir. 1984);
see Fresh Pond Shopping Ctr., Inc. v. Callahan, 464 U.S.
875 (1983) (statute preventing removal of a rent con-
trolled property from the rental housing market absent a
permit from the rent control board); Gilbert v. City of
Cambridge, 932 F.2d 51, 54, 56–57 (1st Cir. 1991) (up-
holding ordinance which “prohibit[ed] an owner from
‘removing’ any [housing units offered for rent before
August 1979] from the rental market without first obtain-
ing a permit from the Rent Control Board”); Nash v. City
of Santa Monica, 688 P.2d 894, 896, 898 (Cal. 1984)
(upholding a rent control law that “prohibit[ed] removal of
rental units from the housing market by conversion or
demolition absent a removal permit”); see also Sadowsky
v. City of New York, 732 F.2d 312, 318-19 (2d Cir. 1984)
21 CCA ASSOCIATES v. US
(rejecting regulatory takings claim against ordinance
restricting conversion).
Third, the fact that CCA could sell its property only to
purchasers who promised to maintain the rent restric-
tions is a feature of many rent-control provisions and has
not been held to create a taking. See Fresh Pond, 464
U.S. 875 (statute requiring any purchasers of the rent
controlled property to abide by the rent control restric-
tions); Silverman v. Barry, 845 F.2d 1072, 1077 (D.C. Cir.
1988) (upholding conversion law requiring that owners
offer to sell their rent-controlled properties to tenant
cooperatives before other prospective purchasers).
Far from imposing unusual restrictions, the
LIHPRHA scheme, as discussed above, was less intrusive
than other rent control regimes by allowing owners to sell
their property and to exit the program.
LIHPRHA did not place the burdens solely on the
owners. Rather, there was a substantial sharing of the
burden between the program owners and the general
taxpayers at large, a feature that cuts against takings.
See Penn Central, 438 U.S. at 148 (describing the design
of the Takings Clause “to bar Government from forcing
some people alone to bear public burdens which, in all
fairness and justice, should be borne by the public as a
whole” (internal quotation marks omitted)). From the
outset, the section 221(d)(3) program involved a transfer
of substantial benefits from taxpayers as a whole to the
projects owners. Government subsidies provided the
owners with below-market interest rates, and the gov-
ernment also insured the owners’ nonrecourse loans and
provided substantial tax breaks. Under LIHPRHA, HUD
expended federal funds to entice non-profit organizations
or other buyers to purchase owners’ properties at fair
market value and to provide incentives for owners to
CCA ASSOCIATES v. US 22
enter into use agreements. Congress authorized HUD to
spend $638 million on these incentives during the 1993
fiscal year alone. 12 U.S.C. § 4124(a). Through the end
of 2006, the federal government spent about $1.2 billion to
preserve 751 projects containing about 19,000 units,
constituting an outlay of approximately $19,000 per unit.
Maggie McCarty, Congressional Research Service Report:
Preservation of HUD-Assisted Housing 23 (2010), avail-
able at
http://www.preserveoregonhousing.org/CRS_Pres_Report.
pdf. In fact, Congress wanted to end LIHPRHA’s prepay-
ment restrictions because it viewed the program as too
“costly” and the benefits as providing a “windfall” for
project owners. S. Rep. No. 104-140, at 37 (1995).
For these reasons, I conclude that the character of the
government action does not support CCA’s takings
claim. 10
10 I also note my disagreement with the majority
opinion to the extent that it seeks to cast doubt on our
decision in Cienega Gardens v. United States (“Cienega
IV”), 194 F.3d 1231 (Fed. Cir. 1998), rejecting a similar
contract claim.