ANAHEIM GARDENS v. United States

In the United States Court of Federal Claims

Nos. 93-655C, 93-6568, 93-6578, 93-6582, 97-5837, 97-5845 1

Filed: January 24, 2025

ANAHEIM GARDENS, et al.,

Plaintiffs,

v.

THE UNITED STATES,

Defendant.

Harry J. Kelly, III, Nixon Peabody LLP, Washington, DC, for the Plaintiffs.

Amanda L. Tantum, Senior Litigation Counsel, A. Bondurant Eley, Senior Litigation Counsel,

Emma E. Bond, Tate N. Walker, Brittney M. Welch, and Joshua W. Moore, Trial Attorneys,

Franklin E. White, Jr. Assistant Director, Patricia M. McCarthy, Director, and Brian M.

Boynton, Acting Assistant Attorney General, Commercial Litigation Branch, Civil Division,

United States Department of Justice, Washington, DC, for the Defendant.

1

This case has been combined under No. 93-655. The corresponding case numbers are: 93-6568

(Cedar Gardens Associates); 93-6578 (Rock Creek Terrace, L.P.); 93-6582 (3740 Silverlake

Village, L.P.); 97-5837 (Buckman Gardens, L.P., et al.); and 97-5845 (Chauncy House

Company). Buckman Gardens, L.P. filed along with its individual general and limited partners

and thus Case No. 97-5837 contains additional named Plaintiffs. For purposes of efficiency, this

Opinion refers to Buckman Gardens, L.P. and its individual general and limited partners as

“Buckman Gardens, L.P.” This judgment applies to each, and the Clerk is directed to enter

judgment accordingly.

POST-TRIAL OPINION AND ORDER

TAPP, Judge. 2

In this regulatory takings case, First Wave Plaintiffs’ (“FWPs”) expert testimony suffers

from irredeemable flaws. Absent Excel columns, inconsistent use of formulaic inputs, and murky

explanations are only a few of the problems plaguing un-replicable expert testimony by FWPs on

the economic impact of the colloquially-known Preservation Statutes. 3 Applying Penn Central

and the damages metrics established by the Federal Circuit and the U.S. Supreme Court, the

Court determines that FWPs have not carried their burden to establish entitlement for a

regulatory taking.

I. Procedural History

This case began in a year marking the nation’s first female Attorney General, the

inauguration of Bill Clinton, and the World Trade Center bombing. (See ECF No. 1). The FWPs

here are a subgroup of the original Plaintiffs, some of whom have been dismissed or whose

claims have been adjudicated over the years. Only now, following innumerable fits-and-starts,

are these FWPs’ claims ripe. The thirty-one-year delay, without resolution of FWPs’ claims, has

engendered expected results—the loss and compromise of important evidence. (See Hearing

Transcript (“Hr’g Tr.”) 16:1–3, Oct. 15, 2024, ECF No. 790 (FWPs’ counsel noting the loss of

witnesses)).

Most of the procedural history has been previously summarized. See Anaheim Gardens,

L.P. v. United States, 953 F.3d 1344 (2020) (“Anaheim Gardens, L.P.”); Anaheim Gardens v.

United States, 140 Fed. Cl. 72 (2018) (“Anaheim Gardens (2018)”); Anaheim Gardens v. United

States, 125 Fed. Cl. 88 (2016). This case follows the most recent appeal in Anaheim Gardens,

L.P., after the Court of Federal Claims granted summary judgment to the government on all six

of the FWPs’ claims. 953 F.3d at 1347; see Anaheim Gardens (2018), 140 Fed. Cl. at 95. Only

the directly relevant portions of the procedural history are encapsulated here.

2

This case was originally assigned to and tried by Judge Patricia Campbell-Smith, and following

her retirement, was transferred to the undersigned on October 25, 2023. (See ECF No. 724).

Judge Campbell-Smith presided over the trial but did not issue a post-trial opinion. (See ECF

Nos. 641, 643, 645, 650, 653, 655, 658, 666, 670, 672, 674, 691, 693, 695). To ensure clarity, the

trial transcript is cited fully throughout this Opinion using volume number, speaker, and date. For

example, pages 1118:15–23 of the transcript correspond to January 17, 2023, are located in

volume six of the transcript, and are cited as “Trial Tr. vol. 6, Trout, 1118:15–23, Jan. 17, 2023.”

The first citation to the transcript in the Opinion will also contain the ECF number. Transcripts

for other proceedings are cited using the same pattern.

3

The Preservation Statutes are formally known as the Low-Income Housing Preservation and

Resident Homeownership Act (“LIHPRHA”) and the Emergency Low-Income Housing

Preservation Act of 1987 (“ELIHPA”).

2

In Anaheim Gardens, L.P., the Federal Circuit upheld the decision granting judgment

against one of the FWPs (620 Su Casa Por Cortez) but remanded the remaining five FWPs. 953

F.3d at 1347. Earlier, the trial court determined that the FWPs did not provide sufficient evidence

under the economic impact factor of the Penn Central test. See Anaheim Gardens (2018), 140

Fed. Cl. at 89–94; Penn Central Transportation Co. v. City of New York, 438 U.S. 104 (1978).

This was based on a finding that the FWPs’ expert witness, Dr. William Wade (“Dr. Wade”)

presented a nonprobative analysis of the Preservation Statutes’ economic impact. Anaheim

Gardens (2018), 140 Fed. Cl. at 89–94. The Federal Circuit observed that the trial court

determined that Dr. Wade’s “lost income analysis was nonprobative because he was required to

analyze and compare fair market values” and failed to do so. Anaheim Gardens, L.P., 953 F.3d at

1352 (citing Anaheim Gardens (2018), 140 Fed. Cl. at 89). This Court’s predecessor judge also

took issue with Dr. Wade’s methodology “because it [was] inconsistent with binding precedent”

particularly related to “the parcel as a whole concept” and “economic loss severity measures.”

Anaheim Gardens (2018), 140 Fed. Cl. at 89–91. The Federal Circuit rejected the Court of

Federal Claims’ analysis regarding Dr. Wade, which provides the basis for the issues addressed in

this decision.

Prior to Anaheim Gardens (2018), cases involving the Emergency Low-Income Housing

Preservation Act (“ELIHPA”), Pub. L. No. 100–242, 101 Stat. 1877 (1988) and the Low-Income

Housing Preservation and Resident Homeownership Act (“LIHPRHA”), Pub. L. No. 101–625,

104 Stat. 4249 (1990), 12 U.S.C. §§ 4101–4147, bounced back and forth between the Court of

Federal Claims and the Federal Circuit for decades. The two most relevant of these cases are

Cienega X and CCA Associates. Cienega Gardens v. United States, 503 F.3d 1266 (Fed. Cir.

2007) (“Cienega X”); CCA Associates v. United States, 667 F.3d 1239 (Fed. Cir. 2011). Cienega

X established additional parameters for measuring economic impact and investment-backed

expectations in ELIHPA and LIHPRHA takings cases, and CCA Associates applied the precedent

set forth in Cienega X. See Cienega X, 503 F.3d at 1280–90; CCA Assocs., 667 F.3d at 1244–48.

In Cienega X, the Federal Circuit delineated two possible approaches for measuring

economic impact: (1) compare “the market value of the property with and without the restrictions

on the date that the restriction began (the change in value approach)[;]” and (2) “compare the lost

net income due to the restriction (discounted to the present value at the date the restriction was

imposed) with the total net income without the restriction over the entire useful life of the

property (again discounted to present value).” Cienega X, 503 F.3d at 1282. The Cienega X Court

also noted that neither approach “appears to be inherently better.” Id. at 1282. In Anaheim

Gardens, L.P., the Federal Circuit also confirmed that neither of these approaches are “inherently

better” and that Dr. Wade’s use of the second approach “was in accordance, at least broadly

speaking, with a method for measuring economic impact that this court has expressly endorsed.”

Anaheim Gardens, L.P., 953 F.3d at 1354 (citing Cienega X, 503 F.3d at 1282). The Federal

Circuit stated that the FWPs “may attempt to prove the economic impact of the Preservation

Statutes on their property interests by demonstrating their lost opportunity to earn market-rate

rental income after prepaying their mortgage” which “is what Dr. Wade did in his expert report.”

Anaheim Gardens, L.P., 953 F.3d at 1354.

In Anaheim Gardens (2018), the Court of Federal Claims was concerned that Dr. Wade’s

methodology “substitute[d] the owner’s equity portion of the entire property for the parcel as a

3

whole.” Anaheim Gardens (2018), 140 Fed. Cl. at 91. However, the Federal Circuit found this to

be false, and that “Dr. Wade used a net present value as the denominator of his equation, with

‘net present value’ representing ‘present value’ of future cash flows subtracted by ‘equity.’”

Anaheim Gardens, L.P., 953 F.3d at 1355 (emphasis in original). Therefore, Dr. Wade did not

substitute the equity for the parcel as a whole in the denominator, he substituted equity out of the

denominator. Id. The trial court was concerned with Dr. Wade’s reduction of the denominator in

his equation, which increased the economic impact. Anaheim Gardens (2018), 140 Fed. Cl. at 91.

However, the Federal Circuit noted that “every choice by an expert to use one input over another

will necessarily increase or decrease the final number.” Anaheim Gardens, L.P., 953 F.3d at 1355.

The Federal Circuit ultimately noted that “questions remain as to whether Dr. Wade’s

methodology was consistent with principles of economics and whether his explanation for using

that approach is credible” and directed the Court of Federal Claims to “evaluate [Dr. Wade’s]

credibility and persuasiveness when he explains why he used net present values.” Anaheim

Gardens, L.P., 953 F.3d at 1355–56.

The Federal Circuit disagreed with the trial court’s conclusion that Dr. Wade’s opinions

were illogical primarily because they resulted in calculated losses that were larger than the

appraisal values that determined the sale price under the LIHPRHA, but noted that “there are

unresolved fact questions regarding the accuracy of the appraisals and the proper measure of the

FWPs’ losses . . . .” Id. at 1356. Finally, the Federal Circuit discussed the issue of ex ante versus

ex post data, explaining that while the trial court did not reach the issue and that the Federal

Circuit could not decide it in the first instance, there is no law indicating a preference for ex ante

or ex post data, but that ex ante data “may be preferable in some cases for policy reasons” like

“to avoid post hoc fluctuations . . . .” Id. at 1357 (internal emphasis and citation omitted). On

remand, the Federal Circuit tasked this Court with deciding the “unresolved fact questions”

related to the FWPs methodology and credibility. See id. at 1355–57. Following remand but

before trial, Dr. Wade died. The Court tried FWPs’ claims before Judge Campbell-Smith, and at

that trial, FWPs relied on Dr. Robert Trout as their economic expert. Despite making post-trial

evidentiary rulings, Judge Campbell-Smith did not issue a post-trial opinion regarding the merits.

Shortly after the case was transferred to the undersigned, FWPs sought admission of

demonstratives and associated charts and tables from their experts’ reports, each of which had

been excluded by Judge Campbell-Smith. (FWPs’ Mot. for Admis., ECF No. 730; Evidentiary

Rulings Order at 26–27, ECF No. 709; see also Order Denying Admission, ECF No. 750). Judge

Campbell-Smith previously determined that any conditionally admitted exhibits were “not

admitted into evidence” until they were ruled admissible during or after trial. (Revised Virtual

Trial Mgmt. Order at 6, ECF No. 623). Following trial, Judge Campbell-Smith excluded the

demonstratives. However, FWPs argued that reassignment of the case to the undersigned

constituted “new circumstances” and admission of the demonstratives would help the Court

evaluate the testimony of the FWPs’ new expert, Dr. Trout, who replaced Dr. Wade. (FWPs’ Mot.

for Admis. at 7–12; see also Order Denying Admis.). FWPs also argued the demonstratives were

not inadmissible hearsay because they were “visual summaries” of Dr. Trout’s detailed trial

testimony. (FWPs’ Mot. for Admis. at 10). Finally, FWPs argued that even if the demonstratives

were hearsay, the residual hearsay exception applied, and the United States would not be

prejudiced by the admission. (Id. at 11–12).

4

Despite the FWPs’ earlier assurances that the Court could appropriately assess the

credibility of all witnesses based on the transcript of the trial conducted before Judge Campbell-

Smith, the FWPs moved to recall Dr. Trout pursuant to RCFC 63. 4 (FWPs’ Rule 63 Mot., ECF

No. 743). The FWPs explained that if the Court let their previously excluded exhibits in, the new

testimony from Dr. Trout would not be necessary.

The Court: So we’re right back to the issue of you want me to reconsider the

issue. If we have the charts and demonstratives, it sounds like you’re saying,

well, we don’t need to recall Dr. Trout, then.

FWPs’ Counsel: We’ve said that all along, Your Honor.

[. . .]

The Court: So if I stun the United States and say, well, yeah, it’d be more

convenient for me just to look at the demonstratives, you guys are going to

pack up and you’re going to go back and say, well, we don’t need a Rule 63

new trial date for Dr. Trout.

FWPs’ Counsel: That’s absolutely correct.

(Hr’g Tr. 22:22–23:6–11, Jan. 24, 2024, ECF No. 749). Ultimately, the Court denied FWPs’

Motion for Admission of the demonstratives at issue because the FWPs failed to establish either

element of FRE 807 and the residual hearsay exception did not apply. 5 (Order Denying Admis. at

3–5).

4

RCFC 63 states:

If a judge conducting a hearing or trial is unable to proceed, any other judge

may proceed upon certifying familiarity with the record and determining that

the case may be completed without prejudice to the parties. In a hearing or a

trial, the successor judge must, at a party’s request, recall any witness whose

testimony is material and disputed and who is available to testify again

without undue burden. The successor judge may also recall any other witness.

5

The following exhibits constitute the excluded demonstratives: PDM B, PDM C, PDM D, PDM

E, PDM F, PDM G, PDM H, PDM I, PDM J, PDM K, PDM L, PDM M, PDM N, PDM O, PDM

P, PDM Q, PDM R, PDM S, PDM T, PDM U, PDM V, PDM W, PDM X, PDM Y, PDM Z, PDM

AA, and PDM BB, PDM CC and slide 12 of PDM DD. The Court finds, however, that even if

these exhibits were admitted, it would not affect the Court’s credibility determination herein, and

thus, the final decision would remain unchanged. Curiously, though the Court declined to reverse

the evidentiary admissibility course plotted for these demonstratives by Judge Campbell-Smith,

the Court did not preclude their use as demonstrative aides during the Rule 63 hearing. Yet FWPs

did not utilize them as such. From the Court’s perspective, that failure undercuts any claim of

prejudice arising from their exclusion from evidence. If those proposed exhibits were not valued

5

As a result, the FWPs then resumed their argument that a Rule 63 hearing was necessary

“to provide testimony about two material and disputed issues, the severity of FWPs’ injury and

the economic losses suffered by FWPs.” (FWPs’ Rule 63 Mot. at 1). FWPs were concerned

about the Court’s ability to evaluate Dr. Trout’s testimony without also “examining the expert

charts and tables, and related demonstratives . . . .” (Id. at 3). FWPs argued that “deciding this

30-year-old case, based on the trial transcript, but without the benefit of looking at the charts and

demonstratives, would make the Court’s job more difficult and would prejudice FWPs.” (Id.

(citing FWPs’ Mot. for Admis. at 5–6)). In response, the United States noted that prior to the

Rule 63 Motion, FWPs had previously “resist[ed] the presentation of additional live testimony”

and that FWPs’ Motion was an “attempt to persuade the Court to reconsider a correct ruling from

the previous trial judge excluding [FWPs’] expert reports as hearsay . . . .” (Def.’s Resp. to

FWPs’ Rule 63 Mot. at 7, ECF No. 746).

The Court acquiesced to FWPs’ Rule 63 Motion; the parties re-presented their expert

testimony, (ECF Nos. 777, 779), and submitted post-hearing briefs, (ECF Nos. 781–82). 6

However, this supplemental testimony demanded by FWPs, failed to enhance Dr. Trout’s

credibility, instead highlighting inconsistencies from earlier explanations of Dr. Wade’s

methodology, and exposing, for the first time, that one of Dr. Wade’s graphics utilized by Dr.

Trout at trial, omitted data necessary to complete the mathematical calculation of damages.

Against thirty-one years of litigation, the Court now makes the following findings of fact and

conclusions of law. 7

II. Findings of Fact

Much of the background of this extended litigation is undisputed. (See Joint Stipulations

of Facts (“JSOF”), ECF No. 546). FWPs Buckman Gardens, L.P. (“Buckman Gardens

Partnership”), Chauncy House Company (“CHC”), Cedar Gardens Associates (“CGA”), Rock

Creek Terrace, L.P. (“Rock Creek Partnership”), and 3740 Silverlake Village, L.P. (“3740

Silverlake”), are designated as the FWPs to distinguish them from the remaining Second-Wave

Plaintiffs (“SWPs”). Each alleges a constitutional takings claim against the United States

Department of Housing and Urban Development (“HUD”) based on the enactment of ELIHPA

and LIHPRHA. Additional findings may be set forth in the remaining portion of the Opinion as

necessary to develop the conclusions of law.

The history of ELIHPA and LIHPRHA have been previously summarized by this Court

and the Federal Circuit. Anaheim Gardens v. United States, 125 Fed. Cl. at 93; Anaheim

Gardens, L.P., 953 F.3d at 1344–49; CCA Assocs., 667 F.3d at 1239–43; Cienega X, 503 F.3d at

1270–76. Congress first enacted the National Housing Act in 1934, in response to concerns about

as demonstratives, it is difficult to understand their probative, non-hearsay, value as admitted

exhibits.

6

The Court certifies its familiarity with the record and determines that this case may be

completed without prejudice to the parties given the additional expert testimony and briefing.

RCFC 63.

7

Two of these FWPs are comparatively young at a mere twenty-seven years since filing.

6

the declining stock of affordable housing. (JSOF at ¶ 1); see also Eric J. Buescher, Home

Robbery: Congress and HUD’s Taking of Private Property in Affordable Housing, 7 GEO. J.L. &

PUB. POL’Y 571–95 (Summer 2009). The National Housing Act established the Federal Housing

Administration which became part of HUD. (JSOF at ¶ 1 (citing Cienega X, 503 F.3d at 1266,

1269, 1270 n.1)). In 1961, Congress amended the National Housing Act to create incentives for

private investors to participate in the affordable housing market. (JSOF at ¶ 2–3, citing Cienega

X, 503 F.3d at 1270). These regulatory and incentive programs became known as the Section

221(d)(3) and Section 236 programs. (JSOF at ¶ 2). The Section 221(d)(3) and 236 programs

incentivized private investors to develop and maintain affordable housing by providing them

with below-market rate subsidized interest rates, mortgage insurance, and tax benefits. (Id. at ¶ 3;

see Cienega X, 503 F.3d at 1270–71, 1270 n.1). The HUD mortgages were for forty-year terms

and included an option for the investors to prepay the mortgage and exit the program after twenty

years. (JSOF at ¶ 3 (citing Cienega X, 503 F.3d at 1270)). The prepayment option was a

particularly attractive enticement; early prepayment of the mortgages and conversion of rent-

controlled properties to market rate rentals permitted far greater economic returns on initial

investments. Not surprisingly, numerous investors relied on the government’s promises. 8 As

years passed, this particular pledge by the United States proved illusory.

Congress became concerned that Section 221(d)(3) and 236 investors would prepay their

mortgages and withdraw from the affordable housing programs. (JSOF at ¶ 5 (citing Cienega X,

503 F.3d at 1266)). Therefore, Congress enacted ELIHPA in 1988 and LIHPRHA in 1990. (JSOF

at ¶¶ 6–8). ELIHPA was designed as a temporary measure, whereas LIHPRHA was planned as a

“permanent measure.” (Id. at ¶¶ 7–8). In enacting these statutes, Congress sought to “balance the

public policy need to preserve housing for low-income families with the perceived contractual

rights of owners.” (Id. at ¶ 8 (citing Cienega X, 503 F.3d at 1266)). ELIHPA and LIHPRHA

retained the incentives of the Section 221(d)(3) and 236 programs but created additional

restrictions on the sale of the properties. (JSOF at ¶¶ 9–10). Congress enacted the final act in the

relevant affordable housing regime in 1996, the Housing Opportunity Program Extension

(“HOPE”) Act. (Id. at ¶ 11); Pub. L. No. 104–120, 110 Stat. 834 (1996). The HOPE Act included

an express provision allowing an owner to repay, but this provision had no bearing on the

previously executed use or purchase agreements pursuant to LIHRPHA. (JSOF at ¶ 11 (citing

Anaheim Gardens (2018), 140 Fed. Cl. at 83); Pub. L. No. 104–120, 110 Stat. 834 (1996)).

The incentives for investors were significant. For example, because HUD insured the

mortgages, owners could borrow up to ninety percent of the cost of the project, which was a

higher leverage ratio than the seventy to eighty percent financing available for conventional

housing. Cienega X, 503 F.3d at 1270–71; (see also Trial Tr. vol. 9, Malek, 1766:22–1767:1, Jan.

20, 2023, ECF No. 670). After borrowing ninety percent of the project’s cost, the remaining ten

percent was further reduced by the “Builder’s and Sponsor’s Profit and Risk Allowance”

8

Ultimately, “approximately 200 similar cases” were filed alleging contractual and takings

claims relating to the abrogation of the prepayment option and the loss of market rate income.

Eric J. Buescher, Home Robbery: Congress and HUD’s Taking of Private Property in Affordable

Housing, 7 GEO. J.L. & PUB. POL’Y 571, 574 n.22 (Summer 2009) (citing Pet. for Writ of Cert.

Cienega Gardens v. United States, 2008 WL 515859).

7

(“BSPRA”) which was a “noncash item” that HUD credited to the developer. See Cienega X, 503

F.3d at 1271; (Trial Tr. vol. 9, Malek, 1774:6–18, Jan. 20, 2023). Therefore, owners’ actual

upfront equity could be reduced significantly. Furthermore, the forty-year mortgages were longer

than what was typically commercially available, which was an advantage for investors. (Trial Tr.

vol. 5, 960:21–25, Wall, Jan. 13, 2023, ECF No. 653). In addition, the low upfront equity and

leveraged structure of the mortgage meant that the property owners were eligible for significant

tax benefits: “[a]t the time, the tax laws permitted accelerated depreciation for real estate projects

over the real economic life of the property, allowing the general and limited partners to take large

income tax deductions in the early years of the investment.” Cienega X, 503 F.3d at 1271; (Trial

Tr. vol. 9, Malek, 1746:3–1747:2, Jan. 20, 2023). Owners could claim this depreciation on the

full value of the property, despite their relatively limited equity investment. (Trial Tr. vol. 9,

Malek, 1741:5–23, Jan. 20, 2023).

While there were substantial benefits to joining the program, HUD also imposed

restrictions on participating owners and developers that affected management decisions, annual

returns, tenant income, and allowable rental rates. (JSOF at ¶ 4). For example, important

management decisions like increasing rent had to be approved by HUD, and an owner’s annual

return was limited to six percent of their initial equity investment in the property. (Id.). During

the construction phase of a Section 236 project, HUD also capped fees that could be paid to

architects, engineers, or the builder-contractor. (Trial Tr. vol. 4, Wall, 712:8–13, Jan. 12, 2023,

ECF No. 650). Property owners also had to pay for additional administrative expenses to comply

with HUD’s regulatory agreements, like annual income certifications, audit expenses, and

oversight staffing expenses. (Id., 766:14–19). These restrictions would lift when the mortgage on

the property was paid off. (JSOF at ¶ 4 (citing Cienega X, 503 F.3d at 1271)).

A. The Preservation Statutes and the FWPs

The FWPs were investors in affordable housing projects during the ELIHPA and

LIHPRHA statutory regimes. (See JSOF at ¶¶ 16–122). LIHPRHA effectively barred prepayment

of the HUD-insured mortgages. (Id. at ¶ 9). Instead, property owners could choose whether to:

(1) sell to a qualified purchaser; or (2) retain the property and sign a use agreement with HUD.

(Id. at ¶¶ 9–10). Under the first option, the property could only be sold to new owners that met

certain criteria, like status as a nonprofit that would preserve the rent restrictions. (Id. at ¶ 9). To

complete the sale process, property owners would submit a Notice of Intent (“NOI”) for approval

to HUD indicating their intent to sell the property to a qualified purchaser. (See e.g., id. at ¶¶ 92,

109). Once HUD approved the NOI and a qualified purchaser was secured, the owner and

purchaser submitted a joint Plan of Action (“POA”) to HUD detailing the specifics of the sale.

(See e.g., id. at ¶ 60).

The property owner and HUD would each hire an appraiser to value the property, and if

the appraisal values were within five percent of each other, HUD would accept the owners’

appraisal. (Trial Tr. vol. 1, Spieker, 205:16–21, Jan. 9, 2023, ECF No. 641). If the appraisals

were not within five percent of each other, HUD and the property owner would negotiate a final

sale price or hire a third appraiser to value the property. (Id., 63:3–6; see Rule 63 Hr’g Tr. vol. 2,

Riddiough, 245:16–22, July 9, 2024, ECF No. 779). When appraising the value of the properties,

appraisers calculated the extension preservation value (“EPV”); the transfer preservation value

8

(“TPV”) was calculated during a reconciliation process of the appraisals. (Id.) EPV is “the fair

market value of the [property] based on the highest and best use of the [property] as multifamily

market-rate rental housing.” (Trial Tr. vol. 8, East, 1560:14–16, Jan. 19, 2023, ECF No. 666).

TPV is the value of “the highest and best use of the property . . . .” (Id., 1560:17–19). In other

words, TPV is determined based on “the cash flows associated, or the anticipated cash flows

associated” with each property. (Rule 63 Hr’g Tr. vol. 2, Riddiough, at 245:7–11, 246:1–6, July

9, 2024). The appraised value was “the fair market value of the housing based on the highest and

best use of the property.” (Rule 63 Hr’g Tr. vol. 1, Trout, 146:8–13, July 8, 2024, ECF No. 777).

The difference between EPV and TPV is that EPV is premised on the restriction that the property

remains multifamily rental housing, and TPV is the unrestricted value of the property, potentially

as something other than market-rate rental housing. (Trial Tr. vol. 8, East, 1560:20–25, Jan. 19,

2023).

If HUD approved the sale to a new owner, it would provide the new owner with financial

assistance including HUD-insured loans and grants. (JSOF at ¶ 9). If HUD approved the sale but

could not obtain financing, HUD allowed the owner to prepay the mortgage and exit the program

with the property. 9 (See e.g., id. at ¶¶ 61–63). Four of the five FWPs in this case pursued the sale

option. 10 Alternatively, owners could elect the second option under LIHPRHA, remaining in the

program by signing a “use agreement” with HUD that maintained restrictions on the property,

but provided additional incentives like HUD-insured equity takeout loans and increased revenues

from the project through higher rents and increased payments for Section 8 housing, 11 among

other assistance. (Id. at ¶ 10; Trial Tr. vol. 8, East, 1553:6–1555:16, Jan. 19, 2023).

1. Buckman

Buckman Gardens, L.P. (“Buckman Gardens Partnership”) developed the Buckman Road

Garden Apartments (“Buckman”) located in Fairfax County, Virginia. (JSOF at ¶ 16). Buckman

is an apartment complex consisting of 204 units. (Id.). Buckman was a Section 236 project, and

the final endorsement date between Buckman and the United States was April 9, 1975. (Id. at ¶

21). Buckman Gardens Partnership obtained an initial mortgage on the property for $3,045,700

and an additional $226,400 through a Deed of Trust note. (Id. at ¶ 23). These notes were

consolidated and merged for a total of $3,272,100. (Id.). On April 12, 1993, Buckman Gardens

Partnership submitted an initial Notice of Intent to HUD seeking incentives in exchange for their

9

This was not the case for any of the FWPs. HUD initially could not find the funds to complete

the sale of Cienega Gardens, but eventually managed to. (JSOF at ¶¶ 62–63).

10

Buckman, Cedar Gardens, Chauncy House, and Silverlake pursued the sale option under

LIHPRHA. Rock Creek chose to stay in the program and signed a new use agreement with HUD.

(JSOF at ¶¶ 39, 65, 81, 99, 121).

11

Section 8 refers to a HUD voucher program to assist qualifying applicants to obtain affordable

housing. Section 8 housing, USA.GOV, https://www.usa.gov/housing-voucher-section-

8#:~:text=The%20Section%208%20housing%20choice,public%20housing%20agency%20(PHA

) (last visited Jan. 17, 2025).

9

agreement to extend the affordability restrictions on their property (Option 2 under LIHPRHA).

(Id. at ¶ 29). As part of the LIHPRHA process, Buckman Gardens Partnership hired an appraiser

to value Buckman. (Id. at ¶¶ 30–31). This appraiser calculated the EPV and the TPV for

Buckman at $6,610,000. (Id.). The HUD-appointed appraiser calculated the EPV for Buckman as

$6,900,000. (JSOF at ¶ 32). The final negotiated EPV and TPV for Buckman was $6,608,000.

(Id. at ¶ 33). Buckman Gardens Partnership ultimately decided to pursue a sale of the property to

a non-profit purchaser (Option 1 under LIHPRHA) and Buckman was purchased by the

Community Preservation and Development Corporation for $6,608,000. (Id. at ¶¶ 34, 38–39).

2. Cedar Gardens

Cedar Gardens Apartments (“Cedar Gardens”), located in Fresno, California, was

developed by Cedar Gardens Associates (“CGA”) in 1970 under the Section 221(d)(3) program.

(Id. at ¶¶ 40–41). Cedar Gardens has a final endorsement date of April 22, 1971. (Id. at ¶ 46).

CGA obtained a mortgage on the property for $1,882,800. (Id. at ¶ 47). Prior to the enactment of

the Preservation Statutes, and pursuant to the terms of its mortgage and HUD regulations, CGA

could have prepaid the mortgage any time after April 22, 1991. (Id. at ¶ 49). CGA expressed an

interest to prepay on February 22, 1991, but HUD rejected their request. (Id. at ¶¶ 51–52). In

October of 1992, CGA notified HUD of their intent to sell Cedar Gardens under LIHPRHA. (Id.

at ¶ 53).

The CGA-appointed appraiser proposed an EPV and TPV of $4,089,550, and the HUD-

appointed appraiser proposed an EPV and TPV of $2,930,000. (Id. at ¶¶ 54–55). The final

negotiated TPV was $3,918,200. (Id. at ¶ 57). CGA submitted a second NOI to HUD on January

13, 1994, indicating that it intended to sell Cedar Gardens to a qualified purchaser. (Id. at ¶ 59).

CGA then submitted a joint POA, which HUD approved. (Id. at ¶ 60). However, in June 1995

HUD informed CGA that LIHPRHA funds were not available for the approved sale and

explained that if those funds were still unavailable by November 12, 1995, then CGA could

prepay the mortgage. (Id. at ¶ 61). CGA notified HUD of their intent to prepay the mortgage, but

HUD then informed CGA that Cedar Gardens was not located in a low-vacancy area and

therefore CGA would have to conform to other requirements in order to be eligible for

prepayment. (Id. at ¶¶ 62–63). Ultimately, CGA sold Cedar Gardens to Asociacion Campesina

Lazaro Cardenas, Inc., for $3,980,200. (Id. at ¶ 65).

3. Chauncy House

The Chauncy House Company (“CHC”) developed Chauncy House in 1973 as a Section

236 project. (JSOF at ¶¶ 66–67). Chauncy House is located in Boston, Massachusetts. (Id.) The

final endorsement date between CHC and the United States was October 14, 1975. (Id. at ¶ 70).

CHC obtained a mortgage on the property for $2,002,400. (Id.). Prior to the enactment of the

Preservation Statutes, and pursuant to the terms of its mortgage and HUD regulations, CHC

could have prepaid the mortgage any time after October 14, 1995. (Id. at ¶ 71). On October 19,

1993, CHC submitted a NOI to HUD seeking incentives in exchange for extending the

affordability restrictions on the property. (Id. at ¶ 73). However, CHC ultimately decided to

pursue a sale of the property under LIHPRHA. (Id. at ¶ 74). The Chauncy-appointed appraiser

valued the property at $3,550,000, and the HUD-appointed appraiser gave Chauncy an EPV of

10

$3,020,000 on April 1, 1994. (Id. at ¶ 75). Chauncy was appraised again on January 15, 1997,

and received an EPV of $5,150,000. (Id. at ¶ 80). CHC ultimately sold Chauncy to Chauncy

House Community Corporation for $3,550,000. (Id. at ¶ 81).

In February 1974, Chauncy issued a prospectus or Private Placement Memorandum

(“PPM”) that listed “economic incentives for investment in the Partnership” that included: (1) an

annual cash distribution if funds were available, (2) the ability to access net proceeds from a

refinancing, sale, or other distribution of partnership assets, and (3) federal tax benefits. (JSOF at

¶¶ 68, 69; see also Trial Tr. vol. 3, Reagan, 509:10–510:1, Jan. 11, 2023, ECF No. 645). The

prospectus did not present a plan for conversion to market-rate housing at the twenty-year date.

(See Trial Tr. vol. 3, Reagan, 506:19–507:10, Jan. 11, 2023 (citing CHC’s PPM, JX 65)). The

investor limited partners were to “receive 95% of the profits and losses and cash distributions

from the normal operations of [CHC]” and the general partners and limited partners were to

“receive the remaining 5% of such profits and losses and cash distributions.” (Trial Tr. vol. 3,

Reagan, 506:19–507:10, Jan. 11, 2023 (citing CHC’s PPM)).

4. Rock Creek

Rock Creek Terrace Limited Partnership (“Rock Creek Partnership”) developed Rock

Creek Terrace (“Rock Creek”) as a Section 236 property. (JSOF at ¶¶ 82, 86). Rock Creek is

located in Montgomery County, Maryland. (Id. at ¶ 83). The final endorsement date between

Rock Creek Partnership and the United States was December 29, 1972. (Id. at ¶ 86). Rock Creek

Partnership obtained a $9,388,500 mortgage on the property. (Id.). Prior to the enactment of the

Preservation Statutes, and pursuant to the terms of its mortgage and HUD regulations, Rock

Creek Partnership could have prepaid the mortgage any time after December 29, 1992, without

HUD consent. (Id. at ¶ 89). In August 1988, Rock Creek Partnership renewed a Section 8

Housing Assistance Payment (“HAP”) contract for 105 of the property’s 526 units until July

1993, then renewed the HAP for an additional five years. (Id. at ¶¶ 90–91). In June of 1992,

Rock Creek Partnership submitted a NOI to HUD seeking incentives in exchange for extending

the affordability restrictions on the property. (Id. at ¶ 92). The Rock Creek Partnership-appointed

appraiser proposed an EPV and TPV of $20,275,000 in August 1992, while the HUD-appointed

appraiser assessed an EPV of $18,000,000. (Id. at ¶¶ 93–94). On February 11, 1994, HUD

memorialized the property’s preservation value at an EPV and TPV of $20,270,000. (Id. at ¶ 95).

Rock Creek Partnership filed a second NOI indicating an intent to sell the property; it later

rescinded the proposal and submitted a POA to retain the property and seek an equity takeout

loan pursuant to Section 241. (Id. at ¶¶ 96–97). In January 1995, HUD approved the POA, and

Rock Creek Partnership executed a third Deed of Trust note reflecting a Section 241(f) loan in

the amount of $9,416,500. (Id. at ¶¶ 98–99). Rock Creek’s use agreement was filed on May 1,

1995, enabling the project to receive LIHPRHA incentives. (Id. at ¶ 99).

5. Silverlake

Silverlake Village Apartments (“Silverlake”) is located in Los Angeles, California and

was originally developed by Silverlake Village, L.P. (JSOF at ¶ 100). The final endorsement date

between Silverlake Village, L.P. and the United States was September 13, 1973. (Id.). Silverlake

Village, L.P. obtained a mortgage on the property for $1,210,000. (Id.). Silverlake Village, L.P.

11

sold Silverlake to 3740 Silverlake Village, L.P. (“3740 Silverlake”) on December 1, 1986, for

$1,700,000. (Id. at ¶¶ 106–107). 3740 Silverlake signed a regulatory agreement with HUD under

Section 236 on the date of the sale. (Id. at ¶ 108). On May 8, 1992, 3740 Silverlake submitted a

NOI to HUD indicating its intent to sell the property. The 3740 Silverlake-appointed appraiser

proposed both an EPV and TPV of $5,770,000, while the HUD-appointed appraiser identified a

stabilized market value of $6,000,000 and an EPV of $5,575,000. (Id. at ¶¶ 112–113). HUD

agreed to an EPV and TPV of $5,745,000. (Id. at ¶ 114). HUD initially struggled to find funding

to complete the sale, so 3740 Silverlake sent a letter to Fannie Mae indicating intent to prepay

the mortgage. (Id. at ¶¶ 118–19). Fannie Mae responded that “the request to pay the mortgage in

full is not approved . . . .” (Id. at ¶ 119) (emphasis in original). 3740 Silverlake ultimately

executed a grant deed on October 19, 1995, which conveyed Silverlake to Metro West Heritage

Housing, Inc. (“Metro West”). (Id. at ¶ 120). Metro West eventually purchased Silverlake on or

about November 1, 1995, for $5,770,030. (Id. at ¶ 121).

B. Calculating Economic Impact

As of the trial date, four of the five FWPs sold their properties, and one retained

ownership. (Trial Tr. vol. 7, Trout, 1317:3–6, Jan. 18, 2023, ECF No. 658). The parties used

experts to calculate the alleged economic impact of the Preservation Statutes on their properties.

FWPs initial expert was Dr. William W. Wade, an economist with a Ph.D. in resource and applied

economics. (See Wade Dep. 18:3–21:4, JX 201). Dr. Wade provided an analysis of the economic

impact of the Preservation Statutes on the FWPs’ properties and FWPs’ alleged investment-

backed expectations. (Wade Dep. 51:1–52:1). Dr. Wade died in May of 2020; FWPs

subsequently engaged Dr. Robert Trout (“Dr. Trout”) as their expert. (Trial Tr. vol. 6, Trout,

1117:25–1119:20, Jan. 17, 2023, ECF No. 655). Dr. Trout has experience as an economist and

chartered financial analyst. (Trial Tr. vol. 6, Trout, 1089:1–1092:10, Jan. 17, 2023). Dr. Trout

agreed with the overall approach Dr. Wade employed and adopted Dr. Wade’s opinions as his

own. (See id., 1111:23–1112:22, 1119:11–20, 1121:4–23).

The degree of Dr. Trout’s involvement in Dr. Wade’s work on behalf of the FWPs is

somewhat muddied. Beginning in 2013, Dr. Trout consulted with his former colleague and

reviewed Dr. Wade’s final report and the reports of assorted government witnesses. (Trial Tr. vol.

6, Trout, 1109:25–1110:12, Jan. 17, 2023). Most recently, Dr. Trout described a significant level

of involvement in Dr. Wade’s analysis of FWPs’ damages; according to Dr. Trout, they jointly

discussed methods to calculate FWPs’ damages, that Dr. Wade sent him “a lot” of materials and

two, possibly three, iterations of a draft initial report, the United States’ reports, and rebuttal

reports. (Rule 63 Hr’g Tr. vol. 1, Trout, 12:4–13:14, July 8, 2024; Trial Tr. vol. 6, Trout, 1112:1–

15; 1118:5–11, Jan. 17, 2023). Dr. Trout’s estimation of his involvement in Dr. Wade’s

preparations starkly contrasts Dr. Wade’s proffer regarding the same issue. When asked about

others that Dr. Wade may have consulted in developing his report, Dr. Wade identified one of his

employees but did not identify Dr. Trout. (Wade Dep. 15:17–20). The Court cannot resolve this

conflict regarding the relationship between Dr. Trout and Dr. Wade for the years 2013–2017. 12

12

In 2020, Dr. Wade contacted Dr. Trout to garner assistance in preparing for trial. At that point,

however, Dr. Trout was unsure if he had previously reviewed Dr. Wade’s report. (Trial Tr. vol. 6,

Trout, 1118:15–23, Jan. 17, 2023, ECF No. 655). Again, this inconsistency is troubling.

12

Crucially, Dr. Trout did not offer his own opinions regarding losses suffered by FWPs.

(Trial Tr. vol. 6, Counsel, 1115:6–1117:20, Jan. 17, 2023; Trial Tr. vol. 7, Trout, 1306:21–23,

1307:7–9, Jan. 18, 2023). Instead, Dr. Trout adopted Dr. Wade’s opinions entirely, and his

testimony was limited to his review of Dr. Wade’s methodology and opinions. (Rule 63 Hr’g Tr.

vol. 1, Trout, 11:16–16:14, July 8, 2024; see Trial Tr. vol. 7, Trout, 1307:7–9, 1307:25–1308:3,

1343:1–4, Jan. 18, 2023). Coupled with the unique procedural posture of these cases described

above, the Court finds itself in an odd position—assessing the credibility of a non-testifying

expert as well as the credibility of a testifying, but largely non-opinion offering, expert.

Independent of Dr. Wade’s opinions, Dr. Trout did perform a sensitivity analysis regarding Dr.

Wade’s conclusions. (Trial Tr. vol. 6, Trout, 1217:18–1219:11, Jan. 17, 2023). This analysis

involved changing certain inputs in Dr. Wade’s formulas that generated what Dr. Trout

characterized as “severe economic injury” though the sums generated varied by “a few million

dollars.” (Id., 1219:1–11). In one instance, the difference between Dr. Wade’s computations and

Dr. Trout’s, using different inputs, resulted in $2 million less for a single FWP. (Trial Tr. vol. 7,

Trout, 1349:3–1354:13, Jan. 18, 2023). The import of this “sensitivity analysis” is unclear;

nothing within Dr. Trout’s manipulation of Dr. Wade’s inputs suggests that Dr. Wade’s

conclusions are worthy of greater credence. Dr. Trout further opined that Dr. Wade’s calculations

were “reasonable assessments of the economic damages sustained by the FWPs.” (Id., 1284:16–

17). Though adopting Dr. Wade’s report, Dr. Trout’s review calculated “adjustments” to Dr.

Wade’s damages conclusions based upon his own sensitivity analysis. (Id., 1307:10–23).

The United States’ expert was Dr. Timothy Riddiough (“Dr. Riddiough”), a professor and

former department chair in the Department of Real Estate and Urban Land Economics at the

University of Wisconsin-Madison. (Trial Tr. vol. 11, Riddiough, 2251:22–2253:18, Jan. 24, 2023,

ECF No. 674). Dr. Riddiough has worked “in the field of real estate and urban economics” for

over thirty years. (Id., 2256:20–23).

1. FWPs’ Calculation of Economic Impact

Dr. Wade calculated the economic impact of the Preservation Statutes on the FWPs’

properties between 92% and (more than) 100%. 13 (Rule 63 Hr’g Tr. vol. 1, Trout, 204:16–205:4,

July 8, 2024). In dollars, FWPs assert this economic impact is: $4,653,695 for Cedar Gardens,

$8,014,386 for Rock Creek, $5,724,904 for Silverlake, $9,814,429 for Buckman, and $5,106,883

for Chauncy House. (Id., 28:7–11, 37:3–38:1). 14 To measure the economic impact of the

Preservation Statutes on the FWPs, “Dr. Wade . . . ‘compar[ed] the lost net income due to the

restriction . . . with the total net income without the restriction’ . . . by dividing the lost net

income by the net present value of the future rental income.” Anaheim Gardens, L.P., 953 F.3d at

13

Specifically, Dr. Wade calculated the percentages of economic impact for the FWPs’ properties

as: 98% for Buckman; greater than 100% for Silverlake; 93% for Chauncy House; greater than

100% for Cedar Gardens; and greater than 100% for Rock Creek. (Trial Tr. vol. 6, Trout, 1191:9–

11, Jan. 17, 2023; see Trial Tr. vol. 14, Trout, 2793:23–2795:11, Jan. 30, 2023, ECF No. 695).

14

Cedar Gardens sold for $3,980,200, (JSOF at ¶ 65), Silverlake sold for $5,770,030, (id. at ¶

121), Buckman sold for $6,608,000, (id. at ¶¶ 34, 39), and Chauncy House sold for $3,550,000,

(id. at ¶ 81). HUD designated Rock Creek’s EPV and TPV at $20,270,000. (Id. at ¶ 95).

13

1354 (citing Cienega X, 503 F.3d at 1282); (see Trial Tr. vol. 6, Trout, 1170:23–1171:19, Jan. 17,

2023; Rule 63 Hr’g Tr. vol. 1, Trout, 116:2–10, July 8, 2024). In other words, “[t]o calculate the

percentage reduction in net present value, Dr. Wade divided the calculated economic loss by the

net present value of the lost market conversion opportunity.” Anaheim Gardens, L.P., 953 F.3d at

1352. FWPs define present value as “the value of some stream of income in the future

discounted to the present.” (Rule 63 Hr’g Tr. vol. 1, Trout, 38:16–19, July 8, 2024). Dr. Wade

used a discounted cash flow analysis in his methodology. Anaheim Gardens, L.P., 953 F.3d at

1354; (Trial Tr. vol. 6, Trout, 1137:15–28, Jan. 17, 2023). FWPs presented the following

equation as one of Dr. Wade’s formulas to calculate economic loss:

Economic Loss = PV [(total net income without the restriction over the entire useful life

of the property) less (actual net income with the restriction)]

Where: PV = Discounted to present value at the date the restriction was imposed.

(Rule 63 Hr’g Tr. vol. 1, Trout, 38:8–12, July 8, 2024; PDM DD at 4; Trial Tr. vol. 14, Trout,

2761:17–2762:10, Jan. 30, 2023, ECF No. 695).

Dr. Trout explained that this formula is “an estimate of what happened . . . without the

restriction, and you compare it with what they actually got.” (Trial Tr. vol. 14, Trout, 2762:1–10,

Jan. 30, 2023). In this formula, PV(total net income without the restriction over the entire useful

life of the property), which FWPs also call “PV market conversion,” is the present value of the

future stream of income (discounted back to the prepayment date) FWPs would have received for

twenty years after prepaying their mortgages and exiting the 221(d)(3) or 236 program. (See

Trial Tr. vol. 6, Trout, 1160:12–1161:16, Jan. 17, 2023). “PV(actual net income with the

restriction),” which the FWPs also call “PV(actual outcome),” stands for the present value of the

money the respective FWPs received under LIHPRHA. (Id., 1161:5–16). In calculating the

PV(total net income without restriction over the useful life of the property), Dr. Wade “estimated

what the cash flows would be during the next [twenty] years, based on rental rates in each of the

property’s areas, and then subtracted out applicable costs. And then [he] took those future net

income values and discounted them to the prepayment date.” (Trial Tr. vol. 14, Trout, 2763:10–

18, Jan. 30, 2023). For the second half of the formula, for four out of the five properties, “[Dr.

Wade] looked at the value of the property when it was sold a couple of years after the

prepayment date, typically, and then discounted that back to the prepayment date. (Id., 2763:19–

2764:2).

FWPs also use the formula Economic Loss = NPV(expected net operating income from

conversion to market less TPE) minus NPV(actual cash distributions of outcome less TPE).

(Rule 63 Hr’g Tr. vol. 1, Trout, 42:13–43:5, July 8, 2024; see DDM DD at 32; see also Trial Tr.

vol. 6, Trout, 1160:12–1164:7). In this second formula, TPE stands for “Transfer Preservation

Equity” and refers to the estimate of the owner’s equity as of the appraisal date of their

14

properties. (Trial Tr. vol. 6, Trout, 1162:9–1163:3, Jan. 17, 2023). 15 Net Present Value (“NPV”) is

described in more detail below.

2. FWPs’ Calculation of Net Present Value of Future Lost Income

The first step in Dr. Wade’s methodology was to determine an event date, or the

prepayment eligibility date for each FWP. 16 (Trial Tr. vol. 6, Trout, 1122:1–1123:25, Jan. 17,

2023). Dr. Wade then used a “buildup process” to form his opinion about the FWPs’ economic

losses. (Rule 63 Hr’g Tr. vol. 1, Trout, 13:25–14:8, 42:1–8, July 8, 2024). Dr. Trout testified that

he “looked at some of the background data” provided by Dr. Wade and “traced through the sort

of [ten] steps that he used to get to a final . . . loss number.” (Id., 15:12–16). Dr. Wade’s “buildup

process” began with a series of charts that showed “basic information” and he then incorporated

those inputs into charts for each property. (Id., 15:19–16:4; Trial Tr. vol. 6, Trout, 1137:22–

1151:18, Jan. 17, 2023; PDM DD at 5).

15

When asked about the differences between the terms “[Percent] Reduction [Equals] NPV

Projected Outcome” versus “Projected Outcome with Prepayment” and “NPV Market

Conversion,” Dr. Trout stated that the terms were “all the same.” (Rule 63 Hearing Tr. vol. 1,

Trout, 131:17–132:12, July 8, 2024, ECF No. 777 (The Court: “So why use different terms?

Again, when you’ve got a la[y] [sic] person like me, who’s supposed to make sense of this, how

am I supposed to know that those things mean the same within the field of economics?” Dr.

Trout: “I don’t think there’s sort of a unanimity of agreement of economics that those terms mean

the same thing, but they do with respect to this case as they use it. And [Dr. Wade] likes to write

things and he’s a bit wordy, so he’s using different ways to express the same thing.”)). In other

words, the economic terminology used by Dr. Wade and Dr. Trout is not derived from industry or

academic norms but constructed for use during this litigation.

16

Dr. Trout later stated that the first step in Dr. Wade’s economic loss analysis was to calculate

the net present value (“NPV”) of the properties. (Rule 63 Hearing Tr. vol. 1, Trout, 120:6–11,

July 8, 2024).

15

(PDM DD at 5).

These 9A charts represent Dr. Wade’s opinion (testified to by Dr. Trout) as to the net

operating income, less mortgage payments, that FWPs would have earned if they had prepaid

their mortgages and converted their properties to market-rate housing. (Trial Tr. vol. 6, Trout,

1171:11–1190:20, Jan. 17, 2023). Dr. Wade calculated twenty years of lost market income

because it was “the remaining life of the original agreement between HUD, the lender and the

property owner.” (Rule 63 Hr’g Tr. vol. 1, Trout, 40:9–13, July 8, 2024). Dr. Wade then

discounted the net operating income “to present value as of the [FWPs’] prepayment date,”

which created the number Dr. Wade called the “net present value of the projected outcome with

prepayment . . .” or his calculation of economic loss. (Trial Tr. vol 6, Trout, 1141:6–13, 1223:18–

21, Jan. 17, 2023; see PDM DD at 5). Dr. Wade used a discount rate of 9.55 percent for the first

10 years after prepayment eligibility and then a rate of 6.9 percent for the following 10 years.

(Wade Dep. 157:6–11). Dr. Wade then added in the present value of a cash distribution from a

refinance he assumed would occur, which created a total NPV number for each property as of the

respective prepayment dates. 17 (See Trial Tr. vol. 6, Trout, 1181:11–21, 1202:22–1205:3, Jan 17,

2023; Wade Dep. 130:15–131:2).

Prior to trial, the Federal Circuit described Dr. Wade’s NPV as “representing ‘present

value’ of future cash flows subtracted by ‘equity.’” Anaheim Gardens, L.P., 953 F.3d at 1355.

17

The “total NPV as of the respective prepayment date” for each property was: $14,040,246 for

Buckman, $6,958,942 for Silverlake, $4,081,400 for Cedar Gardens, $6,267,332 for Chauncy

House, and $5,026,524 for Rock Creek. (Trial Tr. vol. 6, Trout, 1149, 1194–1196, 1197:1–

1199:1–8, 1192:5–25–1194:1:16, Jan. 17, 2023; Trial Tr. vol. 14, Trout, 2770:9–16, Jan. 30,

2023; see PDM DD at 5).

16

NPV is “the net present value of the cash flows that the owners would have received had they

been able to” prepay their mortgages and convert their properties to market-based rentals. (Rule

63 Hr’g Tr. vol. 1, Trout, 120:4–8, July 8, 2024). In other words, the NPV measured the cash

flows FWPs would have received in an unrestricted world had the Preservation Statutes not

existed. (Id., 120:4–11). FWPs also explain NPV as “the PV future cash flows less the TPE at the

prepayment eligibility date.” (Trial Tr. vol. 6, Trout, 1161:19–1162:6, Jan. 17, 2023).

In the Rule 63 Hearing, Dr. Trout attempted to explain Dr. Wade’s calculations of twenty

years of lost rental income using charts pertaining to Silverlake as an example. (Rule 63 Hr’g Tr.

vol. 1, Trout, 75:1–100:13, July 8, 2024 (citing PDM DD at 5)). Dr. Wade combined numbers

from different sources to estimate the “Rental Index 1995 = 100” column. (Id., 47:18–23). Dr.

Wade pulled the first three years of “effective income stabilized” from the appraisal reports. (Id.,

49:22–25). “Each value for effective gross income stabilized, as you move through time, is the

product of the starting point effective gross income $775,920, multiplied by the rental index for

that particular year.” (Id., 52:15–23). Dr. Wade also incorporated “laundry income” in his

calculations of lost market income, which come from the LIHPRHA appraisal reports from

1993–1995. (Id., 53:13–23). Dr. Wade took a percentage of the ratio of laundry income in 1995,

which was $6,336, and divided it by $775,920, which gave him the laundry income as a

percentage of effective gross income stabilized, which is .8%. (Id.). He then multiplied .8% by

the effective gross income for 1996–2013. (Id.). Dr. Wade also subtracted a consistent five

percent vacancy rate, which was in the HUD appraisal reports as an industry standard. (Id.,

54:13–25). One of these charts was SL.9B (Silverlake Present Value Net Operating Income)

which was missing a column of numbers called the “interest factor.”

The Court: So tell me how Dr. Wade arrived at the number of $219,258, and

why does . . . the number in the third column always exactly match the

number in the fourth column?

Dr. Trout: So for 2002, that interest factor, which is in his computer and it just

didn’t print out. It’s either in a hidden column or it’s over to the right

somewhere, but that number is 0.439 and would be the interest factor for that

year for 6.9 percent discount rate.

(Rule 63 Hr’g Tr. vol. 1, 88:21–94:25, July 8, 2024).

Dr. Trout could not clearly explain the interest factor or how the Court could verify the

total numbers presented in Dr. Wade’s lost income analysis. (Id., 92:1–2 (Dr. Trout: “It’s 0.4392

or something.”); id., 92:15–20 (Dr. Trout: “In that Excel file, in that row for 2002 . . . there is a

value of 0.439, it just doesn’t show, and [Dr. Wade] might have hidden it for some strange reason

or it might be over a couple of columns, but it’s there, because that 0.439 is in the program itself .

. .”); id., 94:16–18 (The Court: “I’m not sure how we’re getting to these numbers and there being

17

no explanation of hidden columns.”)). 18 The Court was unable to reproduce the outcomes offered

by Dr. Trout as to the NPVs of the lost rental incomes.

3. FWPs’ Calculation of Actual Outcomes Under LIHPRHA

Next, to determine what the FWPs actually received through the LIHPRHA process, Dr.

Wade used FWPs’ appraisals. (Wade Dep. 41:7–17). Dr. Wade subtracted what he called Transfer

Preservation Equity (“TPE”) discounted to the present value as of the properties’ prepayment

date, from the appraised value of the property. (Id., 53:13–15, 54:12–55:2; Trial Tr. vol. 6, Trout,

1150:14–23, 1162:9–1163:9, Jan. 17, 2023; PDM DD at 6). Mr. Levy defined TPE as “the

amount [of money] that [the purchasers] would put into the purchase agreement.” (Trial Tr. vol.

2, Levy, 324:25–325:1, Jan. 10, 2023, ECF No. 643). Dr. Trout explained TPE as “the owners’

equity in the property at prepayment date, and it’s a term that’s used in the LIHPRHA process to

provide an estimate of the owners’ equity as of the date of the appraisal.” (Trial Tr. vol. 6, Trout,

1162:9–16, Jan. 17, 2023). Dr. Trout testified that the actual amount received by each FWP was:

$231,000 for Buckman, (id., 1189:15), $3,904,029 for Silverlake, (id., 1200:2–6), $2,321,412 for

Chauncy House, (id., 1195:11–15), and $2,987,862 for Rock Creek, (see id., 1198:15–1199:8). 19

FWPs rely on Dr. Wade’s deposition for the actual amount received by Cedar Gardens, which

was $572,295. (Wade Dep. 58:15; see Rule 63 Hr’g Tr. vol. 1, FWPs’ Counsel, 34:22–35:5, July

8, 2024). For multiple FWPs, Dr. Wade calculated that the TPE was greater than the actual cash

outcome received through the LIHPRHA process. (Trial Tr. vol. 6, Trout, 1198:8–1199:1, Jan.

17, 2023).

Finally, Dr. Wade calculated “the percentage reduction of NPV” for each of the FWPs

properties. (See Wade Dep. 59:8–60:7, 61:2–20, 62:16–22, 63:8–20, 65:13–66:4, 66:19–67:6).

18

Dr. Trout seems to have relied entirely on Dr. Wade’s computations and charts. (Trial Tr. vol. 6,

Trout, 1112:19–22, Jan. 17, 2023 (Dr. Trout: “I didn't prepare any tables. I probably talked to [Dr.

Wade] about some of the calculations in some of his exhibits and tables, but I can't say for

certain any particular ones.”)). As noted above, these unique facts create the unenviable situation

wherein the Court is asked to determine the believability of an expert based predominantly on

the testimony of a separate expert retained by the same parties, all-the-while deprived of the

ability to hear an explanation for deficiencies within those computations.

19

In their briefing, FWPs assert that “the actual amounts received by FWPs, after subtraction of

the TPE for each FWP, discounted to PV as of the prepayment date are as follows: $572,295 for

Cedar Gardens, $2,987,862 for Rock Creek Terrace, $884,554 for Silverlake, $231,291 for

Buckman and $446,267 for Chauncy House.” (FWPs’ Post-Trial Br. at 18, ECF No. 753). The

Court cannot find a record of the $446,267 amount for Chauncy House in testimony. (See Rule

63 Hr’g Tr. vol. 1, FWPs’ Counsel, 36:5–12, July 8, 2024 (FWPs’ counsel noting the United

States’ contention that this number is not mentioned in the record)). As far as the Court can tell,

Plaintiffs took their numbers directly from Dr. Wade’s expert report, but Dr. Trout rounded

Buckman’s number down and misstated Silverlake’s.

18

He agreed that “the percentage reduction of NPV represent[ed] [his] conclusion regarding the

interference with distinct investment-backed expectations.” (Id., 61:13–17).

C. Defendant’s Calculation of Economic Impact

Dr. Riddiough determined that the economic impacts on the FWPs from the Preservation

Statutes ranged from 5.9% to 27.4% and correlated just compensation ranged from $744,795 to

$7,941,811. (Trial Tr. vol. 11, Riddiough, 2296:24–2297:9, Jan. 24, 2023; Rule 63 Hr’g Tr. vol.

2, Riddiough, 342:15–18, July 9, 2024). Dr. Riddiough calculated economic impact in

accordance with the change-in-value approach endorsed by the Federal Circuit in Cienega X. 503

F.3d at 1282; (Rule 63 Hr’g Tr. vol. 2, Riddiough, 344:16–24, July 9, 2024). In his calculation,

“economic impact is expressed as a percentage or a ratio” comparing the change in value caused

by the regulation restrictions with the property value as a whole. (Trial Tr. vol. 11, Riddiough,

2294:1–2295:2, Jan. 24, 2023). Dr. Riddiough’s economic impact formula is:

(Id., 2293:17–2295:16) (discussing DDM D at 3)).

In this formula, the “unrestricted” value reflects the FWPs’ property values as a whole

with no Preservation Statutes, and the “restricted” value reflects the FWPs’ property values as a

whole subject to the Preservation Statutes, including the offsetting benefits available under those

statutes. (Trial Tr. vol. 11, Riddiough, 2294:9–19 (discussing DDM D at 3), 2331:4–2332:16,

Jan. 24, 2023; see Rule 63 Hr’g Tr. vol. 2, Riddiough, 243:16–244:22, July 9, 2024). The

numerator is the difference between the unrestricted value of the property as a whole, and the

restricted value of the property as a whole. (Trial Tr. vol. 11, Riddiough, 2293:20–2295:16, Jan.

24, 2023; see Trial Tr. vol. 12, Riddiough, 2428:4–12, Jan. 25, 2023, ECF No. 691). Dr.

Riddiough divided the numerator by the unrestricted property value as a whole. (Trial Tr. vol. 11,

Riddiough, 2294:20–2295:2, Jan 24, 2023) (discussing DDM D at 3); Trial Tr. vol. 12,

Riddiough, 2428:10–12, Jan. 25, 2023). Each of the “PropVal” inputs in Dr. Riddiough’s

equation reflects the property value as a whole, meaning the “equity value plus debt value” of the

property. (Trial Tr. vol. 11, Riddiough, 2314:15–17, 2325:2–4, Jan. 24, 2023). In calculating

economic impact, Dr. Riddiough used ex ante data, which is information that was known or

knowable as of the prepayment eligibility date for each property. (Id., 2286:25–2287:15, 2304:4–

6, 2330:7–17; see e.g., Trial Tr. vol. 12, Riddiough, 2561:7–13, Jan. 25, 2023).

1. Defendant’s Calculation of Unrestricted Property Value

Dr. Riddiough used two inputs to calculate the unrestricted ex ante property values as of

the prepayment eligibility dates for each property. (Trial Tr. vol. 11, Riddiough, 2326:8–25, Jan.

24, 2023). The first input was the appraised values for each property based on the assumption

that FWPs would immediately convert to market-rate housing on their prepayment eligibility

date, and the second was the release of reserves. (See id.). For the first input, Dr. Riddiough

relied on appraisals conducted by Ms. Konikoff, who determined the value of each FWPs’

19

property as of the prepayment eligibility date based on the assumption that the property could be

converted immediately to market-rate housing. (Id., 2326:15–17; Trial Tr. vol. 10, Konikoff,

1970:25–1971:6, Jan. 23, 2023, ECF No. 672). Ms. Konikoff used the prepayment eligibility

date as the date of value for each of the properties. (Trial Tr. vol. 10, Konikoff, 2084:5–14, Jan.

23, 2023; Trial Tr. vol. 11, Riddiough, 2326:8–18, Jan. 24, 2023). Ms. Konikoff found the

following values:

Interim Income

Expected Sale Between Date of

Property Date of Value Value

Date Value and Expected

Sale Date

Buckman April 9, 1995 $7,300,000 June 9, 1996 $345,836

Cedar Gardens April 22, 1991 $3,650,000 July 28, 1995 $717,632

Chauncy House Oct. 14, 1995 $3,670,000 Dec. 14, 1996 $383,707

Rock Creek Dec. 29, 1992 $22,450,000 July 8, 1995 $2,510,431

Silverlake Sept. 13, 1993 $5,700,000 July 8, 1995 $340,722

(Trial Tr. vol. 10, Konikoff, 2012:1–2013:4, Jan. 23, 2023 (discussing DDM C at 22)).

For the second input, the properties accumulated reserves that owners were restricted

from accessing while operating the properties as affordable housing. (Trial Tr. vol. 11,

Riddiough, 2328:17–2329:10, Jan. 24, 2023 (discussing DDM D at 10)). Dr. Riddiough

consulted the FWPs’ year-end financial statements to determine the balance of restricted reserves

that would be accessible after converting the properties to market-rate housing. (Id., 2329:11–

17). He then calculated the unrestricted property values by “add[ing] one to the other” to “get a

total value.” (Id., 2329:24–2330:6). Dr. Riddiough’s unrestricted property values are:

Property Unrestricted Property Value

Buckman $7,707,535

Cedar Gardens $3,835,368

Chauncy House $4,305,406

Rock Creek $22,767,308

Silverlake $5,958,402

(Id., 2330:18–2331:2) (discussing DDM D at 10)). Dr. Riddiough then inserted these values in

both the numerator and denominator of his equation. (Id., 2326:8–18).

2. Defendant’s Calculation of Restricted Property Value

To determine the restricted property value, Dr. Riddiough applied the discount rate for

each property to the LIHPRHA sales proceeds, restricted reserves, and income from operating

the property as an affordable property prior to sale. (Trial Tr. vol. 11, Riddiough, 2357:9–16, Jan.

24, 2023). Dr. Riddiough calculated the following restricted ex ante values for the FWPs’

properties:

20

Property Restricted Ex Ante Property Value

Buckman $6,388,479

Cedar Gardens $2,784,072

Chauncy House $4,050,461

Rock Creek $17,261,470

Silverlake $5,177,075

(Id.)

Dr. Riddiough included three components in his calculation of restricted property value:

(1) the expected proceeds from the sales option under LIHPRHA; (2) “the release of the

restricted reserves coming as of the sale date”; and (3) “the expected income received running

the properties as affordable over [the] interval from the eligibility date through the sales date.”

(Trial Tr. vol. 11, Riddiough, 2331:4–2332:16, Jan. 24, 2023; Rule 63 Hr’g Tr. vol. 2, Riddiough,

243:11–244:23, July 9, 2024). These inputs were calculated using ex ante information. (Trial Tr.

vol. 11, Riddiough, 2305:21–2306:3, 2307:16–20, 2331:4–2332:16, Jan. 24, 2023). Dr.

Riddiough then discounted each input back to the prepayment eligibility date (see below for a

discussion of Dr. Riddiough’s discount rates). (Id., 2332:2–16). The largest element of the

restricted property value was the proceeds from the expected sale under LIHPRHA. (See

generally, id., 2331:14–2332:16). All FWPs except Rock Creek took the sale option under

LIHPRHA, but Dr. Riddiough “analyzed Rock Creek under an assumption . . . that it was a sale

option.” (Id., 2331:14–21).

The anticipated sale amounts for Chauncy House, Buckman, and Silverlake were based

on the agreed-upon transfer preservation value as of the prepayment eligibility date. (Id.,

2332:17–2333:6). Cedar Gardens had a prepayment eligibility date in 1991, which predated the

completion of the transfer preservation process regulations, so the LIHPRHA appraisals were not

yet available. (Id., 2334:8–20). Therefore, Dr. Riddiough used “Ms. Konikoff’s estimate of the

conversion value.” (Id., 2334:8–2335:10). Ms. Konikoff assumed “that the property is converted

to market rate.” (Id.). The anticipated sale amount for Rock Creek was determined using the

owner’s LIHPRHA appraisal, though Rock Creek ultimately entered into a use agreement instead

of selling the property. (Id., 2333:7–2334:7).

Dr. Riddiough also included an amount lost by each FWP due to the length of time

required to complete the LIHPRHA sale process, which Dr. Riddiough estimated at thirty-eight

months. (Id., 2336:16–24, 2338:6–2339:10 (discussing DDM D at 13)). Additionally, on top of

that thirty-eight months for most FWP properties, Dr. Riddiough estimated that the earliest date

each property owner could have submitted a NOI as of May 8, 1992, the date that the interim

LIHPRHA rule took effect. (Id., 2339:14–2340:18, 2343:2–18 (discussing DDM D at 14); see

generally Trial Tr. vol. 8, East, 1556:8–14, Jan. 19, 2023)). Dr. Riddiough applied this estimate

to Rock Creek, Silverlake, Buckman, and Chauncy House. (Trial Tr. vol. 11, Riddiough, 2341:3–

2344:3, Jan. 24, 2023). For Cedar Gardens, the prepayment eligibility date in 1991 was before

the issuance of LIHPRHA interim regulations, so Dr. Riddiough followed counsel’s “instruction

to assume that it would have been reasonable for the Cedar Gardens owners to expect” to wait

“[eighteen] months before they could start the process.” (Id., 2344:14–2345:18). Therefore, the

21

Cedar Gardens delay estimate was eighteen months plus the thirty-eight months, for a total of

fifty-six months. (Id., 2345:14–18).

Dr. Riddiough then used the unrestricted and restricted ex ante property values in his

economic impact formula. (Id., 2357:20–2359:14 (discussing DDM D at 18)). At trial, Dr.

Riddiough noted that “[w]here a higher percentage indicates more severe impact, you can’t go

bigger than 100 percent under the assumption that the property owners have limited liability,

meaning you can’t lose more than what you have.” (Id., 2358:4–10). Dr. Riddiough did not

assume that the property owners would refinance. (See Rule 63 Hr’g Tr. vol. 2, Riddiough,

287:18–25, July 9, 2024).

Dr. Riddiough used the Gordon growth model to calculate discount rates for the FWP

properties. (Trial Tr. vol. 11, Riddiough, 2347:7–2349:4, Jan. 24, 2023). The Gordon growth

model “us[es] the link that exists between capitalization rates for commercial real estate projects

and . . . property discount rates.” (Id., 2348:20–2349:4). Dr. Riddiough used different rates

tailored to the geographic markets of each property. (Id., 2354:20–2356:3) (discussing DDM D at

16)). Dr. Riddiough used a 13.25% discount rate for Cedar Gardens, a 12.75% discount rate for

Rock Creek, a 12% discount rate for Silverlake, a 13% discount rate for Buckman, and an 11%

discount rate for Chauncy House. (Id., 2355:24–2356:3). Ultimately, Dr. Riddiough found an

economic impact of 27.4% for Cedar Gardens, 24.2% for Rock Creek, 13.1% for Silverlake,

17.1% for Buckman, and 5.9% for Chauncy House. (Id., 2359:12–14; see also Rule 63 Hr’g Tr.

vol. 2, Riddiough, 254:3–256:15 (discussing DDM D at 18)).

III. Conclusions of Law

The law governing regulatory takings is subject to frequent criticism and is generally

considered “a muddle.” See Dave Owen, The Realities of Takings Litigation, 47 B.Y.U. L. REV.

577, 594 (2022). As Penn Central noted, regulatory takings require “essentially ad hoc, factual

inquiries,” but three factors are particularly relevant in determining whether a taking has

occurred. Penn Central, 438 U.S. at 124. The Penn Central factors are: (1) the economic impact

of the regulation on the claimant; (2) the extent to which the regulation has interfered with

reasonable distinct investment-backed expectations; and (3) the character of the governmental

actions. Id. Whether these factors constitute a balancing test, a “one strike and you’re out” test,

or something in between is the path the Court attempts to plow today. 20 The Penn Central Court

20

The Court has turned to academia to shed some light on the Penn Central test. See Adam R.

Pomeroy, Penn Central After 35 Years: A Three Part Balancing Test or a One Strike Rule?, 22

FED. CIR. B.J. 677 (July 2013). Ironically, one of the more vocal critics of Penn Central and its

progeny was FWPs’ first expert. See William W. Wade, Federal Circuit’s Economic Failings

Undo the Penn Central Test, 40 ENVTL. L. REP. NEWS & ANALYSIS 10914 (September 2010).

Two of Dr. Wade’s previous academic articles were admitted as evidence by this Court’s

predecessor judge: William W. Wade, Economic Backbone of the Penn Central Test after Florida

Rock V, K&K, and Palazzolo, 32 ENVTL. L. REP. NEWS & ANALYSIS 11221 (October 2002)

(admitted as DX 613); and William W. Wade, Sources of Regulatory Takings Economic

Confusion Subsequent to Penn Central, 41 ENVTL. L. REP. NEWS & ANALYSIS 10936 (October

2011) (admitted as DX 678). (See Evidentiary Rulings and Status Report Order, ECF No. 709).

22

also noted that “[a] ‘taking’ may more readily be found when the interference with property can

be characterized as a physical invasion by government . . . than when interference arises from

some public program adjusting the benefits and burdens of economic life to promote the

common good.” Id. at 124 (internal citations omitted). In other words, it depends. Determining

when a regulation goes too far, or otherwise equates to a physical invasion, offers no readily

determinable standard. As recently as 2021, Justice Thomas has urged a fresh look at the

“standardless standard” of the Penn Central test for determining when regulation of property

constitutes a compensable taking under the Fifth Amendment. Bridge Aina Le’a, LLC v. Hawaii

Land Use Comm’n, 141 S.Ct. 731, 731–32 (2021) (Thomas, J. dissenting from denial of

certiorari). Currently, courts must conduct an intensive factual inquiry with little predictability

regarding outcomes. Here, the Court has done just that.

The Court is aided in this wide-ranging inquiry by guidance provided in the most recent

Federal Circuit precedent established in Cienega X and CCA Associates. Cienega X, 503 F.3d at

1282; CCA Assocs., 667 F.3d at 1246. In Cienega X, the Federal Circuit elaborated on the

framework for economic impact analysis. See Cienega X, 503 F.3d at 1275–82. There, the

Federal Circuit held that trial courts were required to consider the impact of the Preservation

Statutes on the property as a whole, offsetting benefits to the property owners, and the duration

of the legislation. Id. at 1277–78. Cienega X also detailed two possible approaches for measuring

economic impact on property owners but declined to endorse one approach over the other. Id. at

1282. Four years after Cienega X, the Federal Circuit reluctantly applied this framework in CCA

Associates. CCA Assocs., 667 F.3d at 1244 (“Even if we are sympathetic to the arguments

challenging the propriety of the economic analysis required by Cienega X . . . we cannot consider

these arguments at the panel stage. Panels are bound by the law of prior panels.”) (citation

omitted). The CCA Associates Court further refined the analysis of the economic impact and

reasonable investment-backed expectations elements of Penn Central. See id. at 1244–48. There,

the Court held that an economic impact of eighteen percent was not sufficient to establish a

regulatory taking and that multiple objectively reasonable investment strategies can coexist—but

plaintiffs need to demonstrate that it was objectively reasonable for them to view the twenty-year

prepayment clause as a “but for” reason for investment. Id. at 1246–48. The guidance established

in Cienega X and CCA Associates is particularly relevant for the Court’s analysis of the first two

elements of Penn Central: economic impact and reasonable investment-backed expectations.

The third prong of Penn Central concerns the character of the government action. The

Federal Circuit has repeatedly affirmed its holding that “the government’s actions in enacting

ELIHPA and LIHPRHA, insofar as they abrogated the [plaintiffs’] . . . contractual rights to

prepay their mortgages and thereby exit the housing programs, had a character that supports a

Until his engagement in this litigation, Dr. Wade harshly criticized the developing jurisprudence

of regulatory takings in the context of low-income housing investments: “Cienega X is a radical

back step in the understanding of Penn Central’s economic prong for incoming producing

properties.” (Wade Dep. 245:1–6). Notably, in his deposition, Dr. Wade was asked about one of

his articles (Economic Backbone of Penn Central Test After Florida Rock V, K&K, and

Palazzolo) and stated that he no longer stood by the conclusions therein and that it represents “a

place on the continuum of my life and learning, and I find problems with each of those sentences

today.” (Wade Dep. 166:11–168:9, JX 201).

23

holding of a compensable taking.” CCA Assocs., 667 F.3d at 1248 (citing Cienega Gardens v.

United States, 331 F.3d 1319, 1340 (Fed. Cir. 2003) (“Cienega VIII”)). The Court agrees with the

FWPs that the issue of whether the Preservation Statutes have the character of a taking has

already been resolved in the affirmative as a matter of law. See Anaheim Gardens (2018), 140

Fed. Cl. at 86 (“[T]he character of the governmental action factor weighs in favor of finding that

a taking was effected by the Preservation Statutes vis-à-vis the FWPs”) (citing Cienega VIII, 331

F.3d at 1340); see also CCA Assocs., 667 F.3d at 1248. However, “[w]hile the character of the

government’s action supports finding a taking, it is not dispositive of this issue.” CCA Assocs.,

667 F.3d at 1248.

The Federal Circuit has determined that the existence of a single Penn Central factor is

not dispositive, though whether all three must be established in order to find that a taking

occurred remains unsettled. See CCA Assocs., 667 F.3d at 1248 (“[T]he Court of Federal Claims

correctly 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.’”) (citing CCA Assocs. v. United States, 91 Fed. Cl. 580, 602 (2010)). Additionally, the

Penn Central analysis is not necessarily limited to the three enumerated factors. See Penn

Central, 438 U.S. at 123–28. Here, however, absent a convincing basis from the trial testimony

regarding some other consideration, the Court focuses its inquiry on the two unresolved factors

of the Penn Central test—the economic impact of the government regulation and the reasonable

investment-backed expectations of the property owners. The Court first turns to the investment-

backed expectations of the FWPs, then to the alleged economic impact.

A. Investment-Backed Expectations

Cienega X lays the foundation for testing whether a property owner had a reasonable

investment-backed expectation of prepayment. Cienega X, 503 F.3d at 1289. “By comparing the

individual’s expectations with the ‘expectations of the industry as a whole,’ we aim[] to separate

unreasonable, though subjectively believed, investment[-]backed expectations from objectively

reasonable expectations.” CCA Assocs., 667 F.3d 1247 (quoting Cienega X, 503 F.3d at 1290).

Under this prong, “[t]he burden is on the owners to establish a reasonable investment-backed

expectation in the property at the time [they] made the investment.” Cienega X, 503 F.3d at 1288

(citation omitted). The CCA Associates Court held that “there can potentially be multiple

objectively reasonable investment strategies dictated by geography, economics, or other factors.”

CCA Assocs., 667 F.3d at 1247.

The CCA Associates Court also held that the plaintiff “has the burden to present sufficient

evidence of these other strategies to establish that it was objectively reasonable for it to view the

[twenty]-year prepayment clause as the primary or ‘but for’ reason for investment.” Id. This

investment-backed expectations prong “requires a multistep analysis.” Id. (citing Cienega X, 503

F.3d at 1289). As the Court understands the relevant precedent, the first step is to establish

whether FWPs sufficiently demonstrated that the ability to prepay their mortgage after twenty

years was the primary reason for their investment. CCA Assocs., 667 F.3d at 1247. If so, the

second step is to then determine whether this expectation was objectively reasonable given

industry practice as a whole. Id. at 1248. The first step of this test is subjective, and the second is

objective. Id. at 1247–48.

24

Precedent for evaluating the second, objective component of the reasonable investment-

backed expectations element is sparse. In CCA Associates, the Court noted that the only evidence

offered to support the objective reasonability of the investment-backed expectations was “a quote

from a 1972 guide which indicated that a project located ‘in a growing suburban or exurban area

. . . may increase in value over the years, thus creating substantial residual profits to the investors

upon sale or disruption’” which was not enough to “support the ultimate conclusion that it was

objectively reasonable to view the [twenty]-year prepayment as either the principle or but for

cause of investment.” Id. at 1247–48 (quoting CCA Assocs., 91 Fed. Cl. at 608 (emphasis in

original)). The Court there also examined prospectuses for some of the property developers but

held that they “described the potential benefits for investing in the projects as being primarily tax

benefits and secondarily cash distributions.” CCA Assocs., 667 F.3d at 1248 (quoting CCA

Assocs., 91 Fed. Cl. at 608 (emphasis in original)).

Here, the FWPs proffered testimony, prospectuses, mortgage notes, and emails in their

attempt to establish reasonable investment-backed expectations. This Court has previously held

that fact witness testimony could be used to establish the reasonableness of FWPs’ expectations,

“measured objectively, by industry standards, at the time the investments were made.” Anaheim

Gardens (2018), 140 Fed. Cl. at 88; accord CCA Assocs., 667 F.3d at 1248. The Court agrees that

many of the FWPs’ fact witnesses “have broad experience in the real estate market and have

participated in a number of organizations which broadly represent the real estate investment

sector of the American economy.” Anaheim Gardens (2018), 140 Fed. Cl. at 88.

As explained below, the Court ultimately finds that Chauncy House, Buckman, and Rock

Creek failed on the first step; these property owners did not establish that the expectation to

prepay was the primary reason for their investment. The Court also finds that Cedar Gardens and

Silverlake sufficiently established reasonable investment-backed expectations to satisfy the

second Penn Central factor. This, however, does not change the Court’s overall opinion that no

taking occurred. 21 The Court turns to each FWP individually.

1. Buckman

Buckman did not demonstrate subjective investment-backed expectations. Three

individuals testified on behalf of the investment-backed expectations of the Buckman Gardens

Partnership: Barry Gosnell, Murray Haber, and John Wall. Two of the three had limited direct

knowledge of the property. The first, Mr. Barry Gosnell, was born in 1955, (B. Gosnell Dep.

22:21–23, JX 202), and was “15, [or] 16” in 1971 when his father and uncle invested in

Buckman. (B. Gosnell Dep. 48:3). Mr. Gosnell’s testimony was speculative. The parties engaged

in a series of arguments regarding the admissibility of Mr. Gosnell’s testimony, which was

21

But for the economic impact precedent set in Cienega X and CCA Associates, the Court would

award Cedar Gardens and Silverlake damages in accordance with Dr. Riddiough’s economic loss

figures. See Cienega Gardens v. United States, 503 F.3d 1266 (Fed. Cir. 2007); CCA Associates

v. United States, 667 F.3d 1239 (Fed. Cir. 2011). However, try as it might, the Court cannot

logically avoid using the economic impact element of Penn Central as a threshold inquiry as

applied in CCA Associates. See CCA Assocs., 503 F.3d at 1242; see also Penn Cent. Transp. Co.

v. City of New York, 438 U.S. 104 (1978).

25

resolved in an Opinion and Order issued by the Court’s predecessor judge. (Order Denying in

Part, ECF No. 716). Mr. Gosnell was not particularly involved in the partnership and could not

speak to the motivations of the investors:

Q: Did you personally have any involvement in the original setting up of the

partnership or in obtaining limited partner investors?

A: No.

Q: Do you know what role your father had in obtaining limited partner

investors?

A: Other than being the general partner, no . . . .

Q: Do you know what roll your uncle had, Mr. Clarence Gosnell, in obtaining

other investors or limited partner investors?

A: Same answer.

(B. Gosnell Dep. 44:10–24, 47:9–13 (Q: “Why was it that they chose to develop the Buckman

Road project as a Section 236 project as opposed to as a conventional project?” A: “I’d have to

speculate. I’m not sure the exact reasoning behind it.”)). When questioned, FWPs’ counsel

agreed that Mr. Gosnell was not “involved firsthand . . . because he was 16 years old.” (Hr’g Tr.,

FWPs’ Counsel, 17:6–9, Oct. 15, 2024, ECF No. 790).

The second witness, Mr. Wall, was not involved with Buckman until his firm was

retained to assist with the LIHPRHA process. (See Trial Tr. vol. 4, Wall, 759:16–760:13, Jan. 12,

2023). Mr. Wall’s testimony was limited by this Court’s predecessor judge “to the properties that

he’s identified that are parties in this particular action or that he’s discussed . . . .” (Trial Tr. vol.

5, Court, 958:3–12, Jan. 13, 2023). Even though Mr. Wall’s testimony was limited in its scope,

the Court still finds much of it attenuated. (See id., 944:16–19 (“It is my opinion that most

owners I knew and associated with had a reasonable expectation to prepay their mortgages after

[twenty] years.”)). The expectations of such investors is a subjective inquiry, not readily

reduceable to generalized statements about “most owners.” 22 The Court finds that the testimony

of Mr. Gosnell and Mr. Wall is insufficient to establish actual expectations to prepay.

22

Were it sufficient, the reasonable expectations of uncounted low-income property investors

would require no more than a single witness to proudly proclaim “of course they did” when

asked if the prepayment option was the primary, or but for, justification for investment.

Satisfaction of this requirement, crafted by the U.S. Supreme Court and the Federal Circuit, is

not a de minimus box which can be checked by anyone with some familiarity with low-income

housing investments. The Court requires more, and given the other advantages offered by such

investments, rejects Mr. Wall’s bold but unsupported declaration. Without doubt, the unusual

delay between inception and trial hinders potential plaintiffs in meeting this subjective element

as memories fade, witnesses pass, and documents are lost to passing decades, affirming yet again

the crucial importance of adhering to the goals of RCFC 1 seeking the inexpensive, speedy, and

26

However, Buckman also presented Mr. Murray Haber, a Class A limited partner in

Buckman Gardens Partnership. (JSOF at ¶ 19; PX 475). Mr. Haber was an experienced real

estate investor, including in Section 221(d)(3) and 236 projects. (Haber Dep. 13:2–21, JX 186).

He invested in Buckman and similar properties, expecting that they would increase in value over

time. (Haber Dep. 70:25–71:4). Many years later, Mr. Haber expressed disappointment with the

Preservation Statutes in a draft letter to the investor limited partners dated April 7, 1993. (Id.,

73:2–74:10; JX 45 at IRH 0039729 (“unfortunately, the government reneged on that promise [to

allow owners to prepay]”)). However, the Court is not persuaded that Mr. Haber primarily relied

on the twenty-year prepayment provision when considering whether to invest. In fact, when

asked about his criteria for determining whether to “syndicate” a property, Mr. Haber did not

refer to the ability to prepay and convert to market-rate housing. (Haber Dep. 79:25–80:15

(stating that he considered “the financial strength of the general partner, the location of the

project, what I think the project might be down the line, well, the neighborhood, the quality of

the general partner . . . .”)). While more compelling than the testimony of Mr. Gosnell and Mr.

Wall, Mr. Haber’s testimony—considered individually and collectively—falls short to establish

that the prepayment and conversion to market rate rentals was the primary reason, or even a

primary reason for the investment in Buckman. Accordingly, Buckman’s proof of this element

fails.

2. Chauncy House

Like Buckman, Chauncy House also did not meet its burden to demonstrate that its

investors had objectively reasonable expectations at the time of the original investment of being

able to prepay and convert to market-rate housing after twenty years. See Cienega X, 503 F.3d at

1290. In February of 1974, Chauncy House issued a prospectus (or PPM) that stated:

The economic incentives for investment in the Partnership are (1) an annual

cash distribution if funds are available therefore, (2) the availability of [fifty

percent] of the net proceeds from the refinancing, sale, or other disposition

of the assets of the Partnership, and (3) federal tax benefits due to the

Partnership’s ability to use accelerated depreciation methods and a [sixty]

month amortization method for qualified rehabilitation expenses.

(JX 65 at IRH0048530; JSOF at ¶¶ 68, 69; see also Trial Tr. vol. 3, Reagan, 509:10–510:13, Jan.

11, 2023).

Significantly, the prospectus did not present a plan for conversion to market-rate housing

at the twenty-year date. (JSOF at ¶¶ 68, 69; JX 65 at IRH0048530, IRH48538). The investor

limited partners were to “receive [ninety-five percent] of the profits and losses and cash

distributions from the normal operations of [CHC]” and the general partners and limited partners

were to receive “the remaining [five percent] of such profits and losses and cash distributions.”

(JX 65 at IRH 0048506; Trial Tr. vol. 3, Reagan, 506:19–507:14, Jan. 11, 2023). The language in

just resolution of every action. (See Hearing Tr., 16:1–3, Oct. 15, 2024 (FWPs’ counsel

acknowledging loss of witnesses)).

27

the prospectus is insufficient to establish the existence of prepayment expectations for the

investors of Chauncy House.

Chauncy House also relied on the testimony of John R. Gallagher III, Jr., (Gallagher

Dep., JX 184), and James Reagan, (Reagan Dep., JX 194), to support their assertion of

reasonable investment-backed expectations. (Trial Tr. vol. 2, Reagan, 420:1–12, Jan. 10, 2023).

Mr. Gallagher was one of two general partners who created the CHC. (JSOF at ¶ 66). Mr.

Gallagher testified that CHC never would have invested money or developed it under the Section

236 program if CHC did not have the right to prepay after twenty years. (Gallagher Dep. 69:18–

70:11). Mr. Reagan was a Certified Public Accountant at State Street Development Company of

Boston, the developer of Chauncy House. (Trial Tr. vol. 2, Reagan, 421:10–422:1, Jan. 10, 2023;

Reagan Dep. 12:20–23). During his deposition, Mr. Reagan also testified in support of the

partners’ investment-backed expectations, explaining that the partners’ “general expectation was

that real estate values would continue to increase during the [twenty]-year period as they had

during the prior [thirty] years before the development of [Chauncy House] and that there would

be an opportunity after [twenty] years to do a refinancing or a sale of the property . . . .” (Reagan

Dep. 50:17–51:4).

Mr. Reagan also testified generally about “phantom income” being a concern for owners

of Section 221(d)(3) and 236 projects if they could not prepay their mortgages. (Trial Tr. vol. 3,

Reagan, 518:13–519:11, Jan. 11, 2023). 23 This testimony was offered at trial, decades after

Chauncy House made its investment decision. This testimony conflicts with a contemporary

written prospectus documenting the advantages of investment and omitting any mention of

prepayment and conversion to market-rate rentals. (See DX 85). Even if this testimony were

sufficiently persuasive to overcome the weight of the conflicting prospectus, any reasonable

investment-backed expectations that might have existed were frustrated by the existence of a

regulatory agreement with the Boston Redevelopment Authority (“BRA”) which precluded

prepayment.

In 1975, the CHC entered into a forty-year regulatory agreement with the BRA, that

provided that the CHC partners would not “receive or accept, while this Regulatory Agreement is

in force, as net income from the Project any sum in the excess of six percent (6%) of the amount

invested by them in the Project for each year in which they own or have owned the Project . . . .”

(DX 85 at 3–4). The limit on this annual distribution was $13,352. (Trial Tr. vol. 3, Reagan,

617:3–618:5, Jan. 11, 2023). Mr. Maurice Barry, who worked at HUD, testified that the city of

23

Specifically, Mr. Reagan testified that “[p]hantom income relates to investors having to write

out checks to pay taxes when there’s no funds available from the project that generated those

taxes to give them the cash, so therefore they have to out-of-pocket make those payments every

year that they have the phantom income. (Trial Tr. vol. 3, Reagan, 518:13–519:5, Jan. 11, 2023).

Mr. Reagan also stated that if the investors didn’t prepay the mortgage loan on the project,

“[t]here wouldn’t be sufficient funds because the amount of the taxes owed [would increase]

since there is more principal and amortization on the mortgage loan than there is in interest

payments.” (Id., 518:25–519:3). He explained that “[i]nterest payments reduce your taxable

income, but if you’re paying down the debt[,] . . . you’re not getting any deduction for that.” (Id.,

519:3–5).

28

Boston “put [the regulatory agreement in] place for [forty] years for the owner to provide low

and moderate income housing” and “had a right . . . to enforce” it. (Trial Tr. vol. 9, Barry,

1726:12–1727:11, Jan. 20, 2023). Mr. Gallagher was one of the signatories of the BRA

agreement. (DX 85 at 8; Trial Tr. vol. 3, Reagan, 607:22–608:23 Jan. 11, 2023). In a letter dated

April 15, 1992, addressed to “Investor Limited Partner” of Chauncy House, Mr. Gallagher wrote:

Although the Chauncy House development will not reach the end of the

restrictive period required by the mortgage documents until October 1995,

and is not affected by the legislation above at this time, the manner in which

the government deals with those projects reaching the end of their restrictive

periods over the next several years will have a direct impact on the future

uses available to our development.

In addition, any change in the use of the property after October 1995 and

before April 2015 would require the approval of the [BRA]. Because the

property is located adjacent to the Chinese residential community which has

experienced a serious housing shortage, there may be some opposition to

granting such approval. Accordingly, it is likely the project will continue to

provide housing for those income groups for which the housing was

originally developed.

(JX 69 at IRH48558). Trial did not adduce evidence that BRA approval for use as market-rate

housing was sought or granted. The Court finds it illogical that CHC investors could reasonably

expect the ability to prepay and convert to market-rate housing when they were bound by a

separate regulatory agreement that expressly prohibited these actions, even after the supposed

prepayment date under the Preservation Statutes.

In response, Chauncy House points to Mr. Reagan’s suggestion that prepayment and

conversion to market-rate housing were not changes that needed to be approved by the BRA.

Q: Is there any evidence that the partnership intended at the time of its initial

investment to convert the property to market rate apartments?

A: I’m not aware of any documentation. I think no decisions were made as to

what to do with it during that [twenty-]year period because you couldn’t do

anything at that time and you could consider what your options were at the

time when you had the option to do something . . . .

(Reagan Dep. 38:24–39:18). The United States also argues that “the general partners knew that

the Boston Redevelopment Authority approval of a change in use away from low-income

housing was necessary prior to 40 years and that it was unlikely to be granted.” (Hr’g Tr. Def.’s

Counsel, 31:21–32:6, 81:1–6, Oct. 15, 2024). The Court is persuaded by the United States’

argument. Considering the prospectus, Mr. Reagan’s testimony, and the BRA Agreement, the

Court determines that the Chauncy House investors did not view prepayment as the primary or

“but for” reason for investment in Chauncy House. Not only is there no contemporary evidence,

but the BRA Agreement also expressly eliminated that possibility.

29

3. Rock Creek

Rock Creek also failed to meet their burden. Rock Creek presented testimony from

Nicholas Billings, (Billings NCHP Dep., JX 196; Billings NHP Dep., JX 197), and John Wall,

(Wall Dep., JX 198), to establish reasonable investment-backed expectations. Mr. Billings

testified on behalf of the National Corporation of Housing Partnerships (“NCHP”), (Billings

NCHP Dep.), and for the National Housing Partnership (“NHP”), (Billings NHP Dep.), as their

Rule 30(b)(6) witness. Mr. Billings could not “quantify” NCHP’s primary motivation for

investing in Rock Creek. (Billings NCHP Dep. 39:8–40:19 (“I don’t know that there was a

primary benefit. I do know that in projects of this type and during this time period, there were a

handful of benefits . . . .”)). When asked about NHP’s choice to invest in Rock Creek, Mr.

Billings answered: “[f]or the same reasons that National Corporation for Housing Partnerships

decided to be a general partner in the same partnership. Both NHP and NCHP were created for

the purpose of acquiring, developing, managing affordable housing.” (Billings NHP Dep. 13:13–

23).

Mr. Billings did reference tax benefits and property value appreciation as “presumably”

being other benefits, in addition to “the ability to realize the property appreciation at sale or

refinance and eventually convert it to an alternative use.” (Billings NCHP Dep. 39:8–22; see also

Billings NHP Dep. 13:13–14:7). However, Mr. Billings noted that, of those benefits, he could

not “responsibly . . . quantify which [was] the primary motivation.” (Billings NCHP Dep. 39:8–

15; see Billings NHP Dep. 13:13–23 (adopting same testimony for NHP)). Similarly, although

Mr. Billings offered some conjecture about NCHP’s and NHP’s “expectations regarding the

prepayment of the mortgage,” based solely on the language of the limited partnership agreement,

(Billings NCHP Dep. 31:18–32:12, 32:24–33:5; Billings NHP Dep. 21:10–16), when asked if

NHP “would . . . have invested in the project if it could not have prepaid after [twenty] years[,]”

Mr. Billings stated: “I don’t know.” (Billings NHP Dep. 25:25–26:3). This candid testimony is

convincing.

In addition to Buckman, Mr. Wall also testified on behalf of Rock Creek. Mr. Wall

worked for Mid-City Developers, Inc. (“Mid-City”), another developer of Rock Creek. (Wall

Rock Creek Dep. 19:10–20:20, 21:8–20; PX 297). Mr. Wall also testified on behalf of Mid-City,

(Wall Mid-City Dep., JX 195). According to Mr. Wall, Rock Creek filed a NOI in March 1994

indicating an intent to seek a sale of the property, which was “[t]rying to make lemonade out of

lemons” under the LIHPRHA restrictions. (Wall Mid-City Dep. 68:8–13, 81:10–13). He also

asserted that “prior to LIHPRHA,” Rock Creek’s general and limited partners wanted to prepay

and convert the property to market-rate rentals. (Trial Tr. vol. 5, Wall, 923:10–17, Jan. 13, 2023).

However, Mr. Wall was not directly involved in Rock Creek investors’ decision-making process.

(See Wall Mid-City Dep. 18:10–16 (stating that he had “no firsthand knowledge” of any

projections Mid-City would have made regarding its expectations for a return on its investment);

id. at 22:17–18 (stating that he “cannot speak to . . . [w]hether or not” tax incentives were a

primary factor in a decision to invest in Rock Creek); id. at 43:3–22 (responding “I can’t answer”

when asked how long the partnership expected to hold the property)). Based on the evidence

provided, the Court cannot find that the expectation to prepay was the “primary” or “but for”

reason for investment in Rock Creek. In fact, testimony from Mr. Billings would seem to point in

the opposite direction—that maintaining Rock Creek as affordable housing was the intended

purpose of NHCP all along. (See Billings NCHP Dep. 15:7–15).

30

4. Silverlake

Unlike Buckman, Chauncy House, and Rock Creek, Silverlake established a reasonable

investment-backed expectation in the ability to prepay after twenty years. The FWPs presented

testimony from Mr. Todd Spieker to support the assertion that investors held reasonable

investment-backed expectations about their right to prepay the mortgage. (Spieker Dep. JX 188).

Mr. Spieker is highly experienced in the sale, development, and management of multifamily

rental housing, including both market rate and affordable housing participating in the 221(d)(3)

and 236 programs. (Trial Tr. vol. 1, Spieker, 33:3–34:1, Jan. 9, 2023). Mr. Spieker owned or had

ownership interests in multiple Section 221(d)(3) and Section 236 properties, including

Silverlake. (Id., 47:7–48:1, 67:10–68:6, 70:1–5).

Mr. Spieker and his wife were the general partners of 3740 Silverlake and purchased

Silverlake on December 1, 1986. (JSOF at ¶¶ 102, 106). 3740 Silverlake acquired Silverlake by

assuming the original mortgage and executing a purchase money note, the terms of which were

linked to the right to prepay the original mortgage on Silverlake as of the prepayment eligibility

date. (See Trial Tr. vol. 2, Levy, 308:24–309:7, Jan. 10, 2023; JX 122). Prior to purchasing

Silverlake, Mr. Spieker owned more than ten other multifamily properties. (Spieker Dep. 23:16–

24:2). Mr. Spieker testified that he purchased Silverlake intending to prepay and convert the

properties to market rentals. (Id., 13:8–17, 15:12–16; Trial Tr. vol. 1, Spieker, 71:25–72:14, Jan.

9, 2023). The “only reason” Mr. Spieker “bought the property was the . . . right to prepay the

mortgage in September of 1993” and that he expected to retain Silverlake after prepayment to

take advantage of income from market rentals. (Trial Tr. vol. 1, Spieker, 72:12–14, 95:21–96:6,

Jan. 9, 2023; Spieker Dep. 18:10–19:3). Mr. Spieker further asserted that he did not purchase

Section 221(d)(3) or Section 236 projects for the tax benefits. (See Trial Tr. vol. 1, Spieker,

52:23–53:6, Jan. 9, 2023 (“that was not important to me, and there was no special treatment

being low-income property, it was the same treatment as any other property I buy, market rate or

otherwise.”). The Court is persuaded by Mr. Spieker’s testimony asserting that he purchased

Silverlake primarily for the ability to prepay and convert to market-rate rentals after twenty years

and therefore agrees that Mr. Spieker established an actual and subjective expectation of

prepayment. See Cienega X, 503 F.3d at 1288; CCA Assocs., 667 F.3d at 1247.

The Court also finds that Silverlake’s “expectations were objectively reasonable in light

of industry practice as a whole.” CCA Assocs., 667 F.3d at 1248. Silverlake’s purchase money

note incorporates the HUD Regulatory Agreement and contains the following language:

Principal and interest on the Note shall be paid in equal monthly installments

of Twelve Thousand Four Hundred Thirty-Five Dollars and Ninety-nine

Cents ($12,435.99), less the interest reduction payment made by HUD, until

September 14, 1993. Thereafter, Buyer shall have ninety (90) days to pay the

remaining principal and interest which shall all be due and payable in one

lump sum payment.

(JX 122 at IRH0062955). The HUD Regulatory Agreement is extremely restrictive and clearly

limits the income available to Mr. Spieker while participating in the program. (JX 123 at IRH

0002069 (“Owners shall not without the prior written approval of the Commissioner . . . [m]ake,

or receive and retain, any distribution of assets or any income of any kind of the project, except

31

from surplus cash and except on the following conditions . . . .”)). The Court is convinced that

the option to prepay was Mr. Spieker’s primary reason for investing in Silverlake and that this

expectation was objectively reasonable given industry standards.

The Court in CCA Associates found that “factors associated with the location and

character of projects” can influence the reasonable expectation of the owners, which should be

“judged on an objective and not a subjective basis.” CCA Assocs., 667 F.3d at 1247 (citing CCA

Assocs., 91 Fed. Cl. at 609). Silverlake is located in Los Angeles, and when 3740 Silverlake

purchased the property, it was in an area with property values that were, and still are,

appreciating. (JSOF at ¶ 104; Spieker Dep. 20:4–12). Mr. Spieker was familiar with the real

estate market in Los Angeles and acquired Silverlake because the community was attractive. (See

Trial Tr. vol. 1, Spieker, 67:20–69:15, Jan. 9, 2023). These are all indications that Mr. Spieker

held a reasonable expectation of the ability to prepay Silverlake’s mortgage and exit the

program. Mr. Spieker’s objective expectation was also reasonable given industry standards, as

discussed below. Therefore, Silverlake satisfies the reasonable investment-backed expectations

element of the Penn Central analysis.

5. Cedar Gardens

Like Silverlake, Cedar Gardens also established a reasonable investment-backed

expectation in the ability to prepay after twenty years. CGA presented testimony from James

Bancroft and Lawrence Levy to support its claim of investment-backed expectations. (Bancroft

Dep. (Aug. 28, 2013), JX 182; Bancroft Dep. (Aug. 29, 2013), JX 183; Trial Tr. vol. 2, Levy,

283:5–284:1, 285:21–286:6; 306:20–307:16, 363:10–364:6, 365:16–366:13, 369:3–14, Jan. 10,

2023). Mr. Bancroft was one of the initial three partners of CGA. (JSOF at ¶ 43; see also

Bancroft Dep. (Aug. 28, 2013), 10:16–241). Mr. Bancroft testified by deposition that CGA built

Cedar Gardens with single-family units and semi-private patios, which FWPs argue indicated a

reasonable expectation of their investors to prepay under LIHPRHA and convert to market-rate

rentals. 24 (Bancroft Dep. (Aug. 28, 2013), 18:13–19:6, 20:14–21:20). CGA believed that the

development of the California State University, Fresno nearby “would create a whole new

neighborhood in that part of Fresno, a prime residential neighborhood” presumably for market-

rate rentals. (See id., 38:8–40:1). In his deposition, Mr. Bancroft testified that he knew the

university was in the planning stages before CGA “even thought about building Cedar Gardens”

and would “completely change[] the character of that part of town and encourage[] residential

development . . . .” (Id., 38:8–19). Mr. Bancroft and another initial investor in Cedar Gardens

also purchased an adjacent property to improve the entryway into Cedar Gardens and to add

more units to Cedar Gardens after prepayment. (Id., 22:11–15, 24:11–14; Bancroft Dep. (Aug.

29, 2013), 84:20–85:20).

24

Mr. Bancroft died prior to trial (JSOF at ¶ 44). FWPs moved to designate his deposition

testimony, along with the testimony of John R. Gallagher, III. (ECF No. 508). The United States

did not oppose the designation of either testimony, (ECF No. 519), and the Court granted FWPs’

motion in relevant part, (ECF No. 560). FWPs designations and counter-designations of Mr.

Bancroft’s August 28, 2013, and August 29, 2013, deposition testimony were admitted by this

Court’s predecessor judge. (ECF No. 709).

32

In his deposition, Mr. Bancroft testified that he “expected to own [Cedar Gardens] until

[CGA] carried out [its] long-range plan to convert it to a market rate project and do whatever

upgrade [CGA] needed to do and take advantage of the location.” (Bancroft Dep. (Aug. 29,

2013), 65:1–5). Tellingly, Mr. Bancroft “wouldn’t have touched the project with a [ten]-foot pole

if [he] didn’t have the right to prepay in [twenty] years.” (Bancroft Dep. (Aug. 28, 2013), 66:6–

8). Mr. Bancroft also understood that “we had an absolute right to pre-pay after [twenty] years . .

. .” (Id., 15:13–14). The Court finds that Mr. Bancroft had an actual expectation to prepay and

that this was the primary reason for the partners’ investment in Cedar Gardens.

CGA also presented Mr. Levy, a lawyer specializing in HUD-insured housing

transactions and representing both CGA and 3740 Silverlake. (See Trial Tr. vol. 2, Levy, 283:5–

284:1, 285:21–286:6; 306:20–307:16, 363:10–364:6, 365:16–366:13, 369:3–14, Jan. 10, 2023).

During a visit to Cedar Gardens in October 1992, he saw “an adjacent parcel that was going to be

connected to Cedar Gardens” which “was purchased so that when the owner prepaid they could

then consolidate the parcels and create a new . . . entryway, into the property.” (Id., 373:24–

376:1–24, 377:4–21). Mr. Levy’s testimony unequivocally demonstrates that Cedar Gardens

investors harbored an expectation of prepayment, an expectation that was ultimately obstructed

by the Preservation Statutes.

Trial testimony confirms that the Cedar Gardens investors relied on the twenty-year

prepayment provision as a primary reason for investment. See Cienega X, 503 F.3d at 1288.

Therefore, the investors’ subjective investment-backed expectations have been established.

Furthermore, Cedar Gardens’ Secured Note uses language supporting the investors’ expectations

of their right to prepay. (See PX 92).

While the subjective expectations to prepay vary greatly depending on the group of

investors and the property, it would be nonsensical for the Court to find that one group of FWP

investors had established expectations that were “objectively reasonable in light of industry

practice as a whole” and another had not. CCA Assocs., 667 F.3d at 1248. Testimony from former

HUD employees support the assertion that it was objectively reasonable for the FWPs to view

the twenty-year prepayment as the principal or but for reason for their investment. Both Jane

Hulbert, who started working for HUD in 1967, and Frank Malone, who started working for

HUD in or around 1974, “understood that owners with 221(d)(3) and 236 projects with notes

containing prepayment provisions would have been allowed to prepay [twenty] years after the

final endorsement of their mortgage notes but for the Preservation Statutes.” (JSOF at ¶¶ 12–13).

To refute the reasonableness of FWPs’ objective investment-backed expectations, the

United States presented expert testimony from Kenneth Malek. Mr. Malek has been a certified

public accountant for over forty years (Trial Tr. vol. 9, Malek, 1733:25–1734:4, Jan. 20, 2023),

and helped investors structure their investments in low-income housing developments from 1978

through 1985, (id., 1745:24–1753:13). Mr. Malek testified that the tax benefits, not prepayment,

were the primary economic return for the FWPs. (Id., 1763:20–1764:6, 1788:4–6 (“the tax

benefits predominated the transactions on its own and the residual was of limited to

inconsequential value depending upon the return rate.”)). In other words, Mr. Malek determined

that the early tax benefits were more valuable than a hypothetical residual twenty years later. (Id.,

1839:9–1840:3, 1764:25–1765:2 (“it is clear numerically . . . that the residual expectation cannot

be the primary or but-for investment motivation.”)). Mr. Malek also acknowledged the problem

33

of “phantom income” for partnerships that owned Section 221(d)(3) or 236 projects if they could

not prepay their mortgage loans. (Id., 1900:6–1901:1).

However, the Court finds that Mr. Malek’s expertise was attenuated and that he made

unfounded assumptions about the affordable housing industry and what the FWPs planned to do

with their properties upon repayment. (Id., 1863:13–1865:2 (Mr. Malek did not know when the

programs started or ended), 1865:9–1867:12, 1868:8–24 (Mr. Malek never met or talked to any

of the FWPs or their partners), 1870:22–1872:15 (Mr. Malek struggled to recall material

information about the FWPs properties), 1877:4–19). Mr. Malek specifically admitted that the

programs “[weren’t] part of the tax shelter industry that [he] dealt with.” (Id., 1885:18–23). The

Court does not find Mr. Malek persuasive.

Ultimately, the Court determines the FWPs had objectively reasonable expectations to

prepay their mortgages that align with industry expectations as a whole. However, only

Silverlake and Cedar Gardens were also able to sufficiently demonstrate that their investors had

subjective expectations to prepay. Even so, the inquiry does not end there.

B. Economic Impact

Broadly, measuring economic impact under the Preservation Statutes requires a

comparison of “the value of the restriction to the value of the property as a whole . . . .” Cienega

X, 503 F.3d at 1282. As discussed above, in Cienega X, the Federal Circuit detailed two possible

approaches for measuring the economic impact on property owners who were unable to prepay.

Cienega X, 503 F.3d at 1282. First, “a comparison could be made between the market value of

the property with and without the restrictions on the date that the restriction began (the change in

value approach).” Id. In the second approach, courts would “compare the lost net income due to

the restriction (discounted to present value at the date the restriction was imposed) with the total

net income without the restriction over the entire useful life of the property (again discounted to

present value).” Id. However, neither of these approaches is “inherently better” than the other. Id.

The Federal Circuit instructs that the value of the property is derived from “the property’s ability

to generate a future stream of rental income as of the prepayment date” rather than an “objective

‘fair market value’” valuation. Anaheim Gardens, L.P., 953 F.3d at 1354 (citations omitted).

The Federal Circuit has “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.” CCA Assocs., 667 F.3d at 1244 (citing Cienega X, 503 F.3d at 1280). Furthermore,

economic impact on plaintiffs must be weighed against offsetting benefits received. Id. at 1245.

The Federal Circuit has also held that “[a]lthough 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.” Id. Here, the FWPs restricted their proof to meet the latter

“lost net income” approach. See Cienega X, 503 F.3d at 1282.

Law regarding just how much economic impact is enough to effectuate a compensable

taking is not readily ascertainable. In CCA Associates, the Court noted that “[w]hile there is no

per say rule, the economic impact must be more than a mere diminution.” CCA Assocs., 667 F.3d

at 1246 (citing Cienega VIII, 331 F.3d at 1319). The CCA Associates Court was “aware of no

34

case in which a court has found a taking where diminution in value was less than [fifty] percent.”

CCA Assocs., 667 F.3d at 1246 (citation omitted). Such a high threshold makes it “virtually

impossible” for low-income housing investors affected by the Preservation Statutes “to establish

the severe economic impact necessary for a takings.” CCA Assocs., 667 F.3d at 1246. The CCA

Associates Court emphasized that “[r]ather than consider the impact the regulation had on the

property during the time it was in effect . . . Cienega X requires that the impact be measured

against the total value over the remaining life of the property.” CCA Assocs., 667 F.3d at 1246

(citing Cienega X, 503 F.3d at 1281–82 (elaborating that the test for a regulatory taking must

“compare the value that has been taken from the property with the value that remains in the

property . . . .”) (internal citations omitted)). Additionally, the CCA Associates Court noted that:

[T]he denominator for the takings analysis in [ELIHPA and LIHPRHA] cases

is the total net income over the entire remaining useful life of the property

(the net income over the rest of the mortgage—generally [twenty] 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%) . . . would amount to severe economic deprivation when compared to

our prior regulatory takings jurisprudence.

CCA Assocs., 667 F.3d at 1246–47.

Though the Cienega X guidance on establishing economic impact structures the

analytical framework, the Supreme Court has encouraged flexibility. See Hodel v. Virginia

Surface Min. and Reclamation Ass'n, Inc., 452 U.S. 264, 295 (1981) (“These ‘ad hoc, factual

inquiries’ must be conducted with respect to specific property, and the particular estimates of

economic impact and ultimate valuation relevant in the unique circumstances.”) (quoting Kaiser

Aetna v. United States, 444 U.S. 164, 175 (1979)).

To determine the economic impact of the Preservation Statutes on the FWPs, the Court

must rely on the testimony of the parties’ experts, who offer wildly different measurements of the

FWPs’ economic losses. Dr. Wade calculated the percentages of economic impact for the FWPs’

properties between 92% and more than 100%. (Rule 63 Hr’g Tr. vol. 1, Trout, 204:16–205:4,

July 8, 2024). Dr. Riddiough calculated the percentages of economic impact between 5.9% and

27.4%. (Trial Tr. vol. 11, Riddiough, 2296:24–2297:9, Jan. 24, 2023). In order to begin the

application of the first prong of Penn Central to this case, the Court has no choice but to make a

credibility determination of each expert. After weighing the abundance of evidence presented at

trial, oral argument, and throughout the enormous record, the Court finds Dr. Trout’s

explanations of Dr. Wade’s methodology and conclusions not credible. In contradistinction, the

Court finds Dr. Riddiough’s methodology and conclusions to be credible.

In Anaheim Gardens, L.P., the Federal Circuit found that Dr. Wade “attempt[ed] to prove

the economic impact of the Preservation Statutes” consistent with the second approach in

Cienega X. Anaheim Gardens, L.P., 953 F.3d at 1354 (citing Cienega X, 503 F.3d at 1282).

However, the Circuit went on to instruct this Court to assess the credibility of Dr. Wade’s

explanations. Id. at 1355 (“[Q]uestions remain as to whether Dr. Wade’s methodology was

consistent with principles of economics and whether his explanation for using that approach is

credible.”). In other words, the devil is in the details. Unfortunately, the Court cannot directly

35

assess the credibility of Dr. Wade and must instead make this determination based on the

explanations provided by Dr. Trout. This assessment aligns with FWPs’ insistence that the Court,

newly assigned this action, hear anew Dr. Trout’s testimony. (FWPs’ Rule 63 Mot. at 1)

(rehearing necessary “to provide testimony about two material and disputed issues, the severity

of FWPs’ injury and the economic losses suffered by FWPs.”). The replay of that testimony,

rather than aiding the FWPs, was to their detriment.

The “superiority of the trial judge’s position” provides the adeptness necessary to make

crucial credibility determinations. RCFC 52(a)(6); Anderson v. City of Bessemer City, N.C., 470

U.S. 564, 575 (1985). In this instance, in addition to substantial pre-trial and post-trial briefing,

the Court had the benefit of Dr. Wade’s deposition, Dr. Trout’s prior trial testimony, and the

opportunity to assess Dr. Trout’s earlier testimony by personally hearing his account of Dr.

Wade’s methodology. Thus, the Court had the unique opportunity to be made “aware of the

variations in demeanor and tone of voice” that bear so heavily on the Court’s understanding of

what was said, as well as the admitted exhibits and those demonstratives used but not admitted.

Anderson, 470 U.S. at 575; see Wainwright v. Witt, 469 U.S. 412 (1985) (citing Marshall v.

Lonberger, 459 U.S. 422, 434 (1983) (“the exercise of [the] power of observation often proves

the most accurate method of ascertaining the truth . . . . To the sophistication and sagacity of the

trial judge the law confides the duty of appraisal.”) (citation omitted)).

Moreover, when making such a credibility determination, there is no definitive list of

factors a court must or should consider. In addition to the nearly unlimited factors commonly

used to assess the probative value of lay witness testimony, consideration of the same factors

involved in admissibility determinations can be useful in gauging expert testimony. See FED. R.

EVID. 702; Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993); Kumho Tire Co., Ltd. v.

Carmichael, 526 U.S. 137 (1999). In applying Rule 702, courts have found numerous factors

relevant in the evaluation of whether expert testimony is sufficiently reliable for admission,

including “too great an analytical gap between the data and the opinion proffered.” Gen. Elec.

Co. v. Joiner, 522 U.S. 136, 146 (1997). As the Third Circuit held in In re Paoli R.R. Yard PCB

Litigation, “any step that renders the analysis unreliable under the Daubert factors renders the

expert's testimony inadmissible. This is true whether the step completely changes a reliable

methodology or merely misapplies that methodology.” 35 F.3d 717, 745 (3d Cir. 1994)

(discussing admissibility of expert testimony) (internal emphases omitted). Courts have held that

“when an expert purports to apply principles and methods in accordance with professional

standards, and yet reaches a conclusion that other experts in the field would not reach, the trial

court may fairly suspect that the principles and methods have not been faithfully applied.” FED.

R. EVID. 702 (2000 Amendments Advisory Committee Notes); see Lust v. Merrell Dow Pharm.,

Inc., 89 F.3d 594, 598 (9th Cir. 1996); see also Standards and Procedures for Determining the

Admissibility of Expert Testimony after Daubert, 157 F.R.D. 571, 579 (1994) (“[W]hether the

testimony concerns economic principles, accounting standards, property valuation or other non-

scientific subjects, it should be evaluated by reference to the ‘knowledge and experience’ of that

particular field.”). In this instance, the admissibility of Dr. Wade’s methodology was resolved

long before trial, leaving the Court to evaluate the credibility of Dr. Wade’s explanations, as

explained by Dr. Trout, in the crucible of trial. Anaheim Gardens, L.P., 953 F.3d at 1355; (Trial

Tr. vol. 6, Trout, 1088:11–1270:11, Jan. 17, 2023; Trial Tr. vol. 7, Trout, 1282:4–1480:18, Jan.

18, 2023; Trial Tr. vol. 8, Trout, 1492:22–1534:22, Jan. 19, 2023; Trial Tr. vol. 14, Trout,

36

2754:22–2878:1, Jan. 30, 2023, Rule 63 Hr’g Tr. vol. 1, Trout, 6:10–217:3, July 8, 2024). The

Court ultimately finds that Dr. Wade’s methodology, as promulgated by Dr. Trout, was, at times,

nearly incomprehensible and internally inconsistent. His mathematical contortions rendered

inflated damages estimates which the Court does not credit.

The Court’s overarching concern with Dr. Wade’s methodology is the inconsistency of

Dr. Trout’s explanation of the inputs in FWPs’ economic loss equation. Dr. Trout was unable to

provide the Court with clear insight into the calculations made by Dr. Wade to arrive at his

economic loss conclusions, and the Court is not persuaded that Dr. Wade’s methods are

consistent with principles of economics. FWPs argue that they used the formula supported by

Cienega X, but in reality, their methodology is “highly inconsistent” and a “highly unreliable

measure of economic impact.” (Trial Tr. vol. 12, Riddiough, 2429:7–11, Jan. 25, 2023). Dr. Wade

appeared to use multiple formulas, and a clear articulation of which formula was primarily

utilized to calculate economic impact was neither identified by the FWPs nor independently

found by the Court. Dr. Trout was asked about the difference between the two formulas. He first

testified that the “meaning” of Dr. Wade’s two formulas is “the same” but that the “words are a

little different.” (Trial Tr. vol. 7, Trout, 1328:19–1329:2, Jan. 18, 2023). Dr. Trout further

testified that the two formulas “produce[] the same number in terms of the economic damages.”

(Id., 1335:17–20). However, Dr. Trout later seemed to articulate that there was a difference

between the two formulas, and struggled through an explanation:

Def.’s Counsel: Dr. Trout, it was my understanding that you testified that both

1 and 1A both field the same result. Is that correct?

Dr. Trout: They . . . produce the same result in terms . . . of an estimate of

economic damages, but the values are different because in one case, you are

subtracting . . . from the present value a fixed amount, the TPE, and that’s

called NPV. And in this . . . exhibit, PC.5, he is comparing . . . he is using,

I’m sorry, equation number [one], he’s looking at the NPV of the operating

income less the TPE . . . well, no, that’s not . . . let’s see. I’m sorry. Let me

rephrase that. He’s taking the NPV of the operating income, less TPE, which

is the NPV of the market conversion scenario, and then he’s taking . . . he’s

subtracting out the NPV of the actual cash distributions less TPE. And so

when he’s looking at doing this reduction of NPV, he is comparing the NPVs,

not the PVs. So there’s a difference there. So the reduction of NPV is the NPV

market conversion less the NPV actual outcome, divided by the NPV market

conversion. That’s the equation.

(Id., 1336:2–23). Dr. Trout’s explanation is not straightforward. (See also Rule 63 Hr’g Tr. vol. 2,

Riddiough, 277:3–11, July 9, 2023 (Def.’s Counsel: “Did you find anywhere that Dr. Wade

directly expresses the exact formula he was using to calculate economic impact or severity?” Dr.

Riddiough: “Not the entire formula. There were some bits and pieces in various places, but never

pulled together. I looked high and low and I couldn’t find anything.”)).

Furthermore, despite direct questioning from the Court, FWPs’ counsel also failed to

address Dr. Wade’s apparent use of two separate formulas to calculate economic loss:

37

The Court: Here is another one in [sic] his formulas, economic loss equals

present value, which is the total net income, without the restriction over the

entire useful life of the property, less the actual net income with the

restriction, where PV equals discounted to present value at the date the

restriction was imposed. That’s one formula. The next formula, economic loss

equals NPV (expected operating net income from conversion of market) less

TPV minus NPV (actual cast [sic] distributions of outcome) less TPE. You-

all didn’t address the use of these different terms anywhere I could find in

your briefing. How am I supposed to just accept . . . Dr. Trout saying that they

mean all the same thing?

[. . . ]

FWPs’ Counsel: Well, I would submit, Your Honor, that part of the way to do

that is to make an overall assessment, which I’m sure the Court will do, of its

view of Dr. Trout’s credibility.

(Hr’g Tr. 60:7–61:22, Oct. 15, 2024). Such an assessment does not relieve the substantial doubt

created by Dr. Trout’s testimony, Dr. Wade’s deposition, and the attendant exhibits.

It is no wonder that Dr. Trout’s explanation for using Dr. Wade’s methodology contained

irreconcilable gaps. At key points throughout his testimony, Dr. Trout was unable to explain

certain numbers and formulaic inputs used throughout Dr. Wade’s economic loss analysis. This

was deeply frustrating and concerning for the Court, which was left unable to replicate or verify

the economic loss numbers presented by Dr. Trout. (Trial Tr. vol. 7, Trout, 1378:20–1380:18,

Jan. 18, 2023 (Dr. Trout was asked whether Dr. Wade’s present value analysis offered “the value

of the properties as of the prepayment date” and responded: “I don’t believe [Dr. Wade] ever said

that[,] which was later shown to be incorrect.)).

Dr. Trout was not able to adequately justify why Dr. Wade’s formula subtracted TPE in

the denominator of his economic loss equation. (See id., 1426:24–1427:24). When questioned,

Dr. Trout provided vague and contradictory answers. (Id., 1421:23–1422:6 (When asked about

his “independent opinion” about deleting TPE, Dr. Trout offered that it was necessary for the

value to be “net of something,” and that TPE represented the “starting point.”); id., 1422:7–

1423:4 (Dr. Trout also testified that he did not “have an independent opinion” on why it makes

sense to delete TPE from the denominator)). In other words, Dr. Wade’s methodology, while

ostensibly affirmed in principle by Dr. Trout, could not withstand cursory inquiry.

Furthermore, in his calculation of unrestricted present value, Dr. Wade subtracted only

some debt payments from the overall property value. (Id., 1405:19–25). Dr. Trout’s equation

deleted “all of the principal debt” but none of the interest debt, (id., 1406:1–2), which Dr.

Riddiough credibly testified resulted in a “weird hybrid value between a property and an equity

value . . . .” (Trial Tr. vol. 12, Riddiough, 2424:22–2425:4, Jan. 25, 2023). Dr. Trout testified that

Dr. Wade’s choice to delete only the debt principle is not an industry-standard practice:

38

Def.’s Counsel: Have you ever seen before the method of removing mortgage

principal payments but leaving in interest payments?

Dr. Trout: I have not . . .

Def.’s Counsel: And you are not aware of anything in the economic or finance

literature that supports Dr. Wade’s approach of subtracting mortgage

principal but not interest. Is that right?

Dr. Trout: I’m not aware of any, that is correct.

(Trial Tr. vol. 7, Trout, 1406:7–1407:1, Jan. 18, 2023; see Rule 63 Hr’g Tr. vol. 1, Trout, 191:22–

192:1, July 8, 2024).

Dr. Trout did not inspire confidence that subtracting debt in calculations of economic loss

was methodologically correct, let alone subtracting only partial debt amounts. Dr. Trout noted

that generally in his economic loss calculations he “would not subtract either interest or

principal.” (Trial Tr. vol. 7, Trout, 1407:11–17, Jan. 18, 2023). He also characterized debt as “an

issue of how the property is financed, not about its operations.” (Id., 1409:1–4). When asked

about subtracting debt from an economic impact analysis, Dr. Riddiough noted that “[t]he

amount that’s borrowed is really a side issue.” (Trial Tr. vol 12, Riddiough, 2398:18–2399:15,

Jan. 25, 2023). The Court cannot say with certainty whether subtracting debt when performing

economic impact analysis is methodologically sound, but the Court is certainly not convinced by

Dr. Trout’s reasoning. The Court found Dr. Riddiough’s testimony persuasive, concluding that

even if Dr. Wade had consistently employed equity values in his equation, it still would not have

accurately reflected the regulation’s economic impact on the property. (Rule 63 Hr’g Tr. vol. 2,

Riddiough, 270:1–277:1, July 9, 2024; see also DDM D at 30).

Additionally, Dr. Wade inconsistently utilized ex post and ex ante data in the same

equation, which was not reasonably supported by Dr. Trout’s testimony or general economic

principles, especially in light of the other inconsistencies in Dr. Wade’s formula inputs. Dr.

Wade’s general use of ex post data is not necessarily a problem. In fact, the Federal Circuit did

not specifically “favor the use of outdated ex ante forecasts or projections over verifiable real-

world ex post data.” Anaheim Gardens, L.P., 953 F.3d at 1357. FWPs properly point out that the

Court of Claims and the Federal Circuit have previously approved the use of ex post data in other

cases. (FWPs’ Post-Trial Br. at 24 n.16, ECF No. 753 (citations omitted)). However, it is Dr.

Wade’s combination of ex ante and ex post data in the same equation that continues to trouble the

Court. Dr. Wade incorporated ex post rental data from years after the prepayment eligibility date

when calculating the unrestricted value of the FWPs’ properties, (Trial Tr. vol. 7, Trout, 1356:10–

14, 1356:19–1357:11, Jan. 18, 2023), but relied on ex ante data to calculate the restricted present

value of the properties, (see id., 1397:6–15; Trial Tr. vol. 12, Riddiough, 2382:12–16, Jan. 25,

2023).

Using the ex post data to include years of rapid rental growth appears to vastly overstate

Dr. Wade’s unrestricted present value for each of the FWPs. (See, e.g., Trial Tr. vol. 12,

Riddiough, 2431:21–2432:8, 2481:11–23, 2482:8–13, Jan. 25, 2023). In fact, Dr. Trout testified

that Dr. Wade’s use of ex post data reflected “a hypothetical scenario” that the Court cannot help

39

but find conveniently advantageous to the FWPs. 25 (Trial Tr. vol. 7, Trout, 1363:15–1364:23,

Jan. 18, 2023). The use of ex post data allowed Dr. Wade to make assumptions about the rents,

refinancing, and FWPs’ hypothetical market conversions. (Trial Tr. vol. 11, Riddiough, 2309:4–

13, Jan. 24, 2023 (Dr. Riddiough explaining that “what actually happened with these properties

is not the same” as the regional ex post rental data incorporated in Dr. Wade and Dr. Trout’s

calculation)). Simultaneously, Dr. Wade used ex ante data to calculate restricted present value;

specifically, the sums received by FWPs as part of the LIHPRHA process. (Trial Tr. vol. 7,

Trout, 1398:24–1399:12, Jan. 18, 2023). Dr. Trout did not provide a credible explanation for Dr.

Wade’s mixed use of ex ante and ex post data:

FWPs’ Counsel: Now, you’ve testified already about ex post/ex ante data.

What sort of data did you and Dr. Wade use in developing your opinions

about the economic losses suffered by these plaintiffs?

Dr. Trout: Both ex ante and ex post.

FWPs’ Counsel: And . . . why was it both ex ante and ex post?

Dr. Trout: Because that’s what they are.

(Rule 63 Hr’g Tr. vol. 1, Trout, 125:10–17, July 8, 2024; see also Trial Tr. vol. 14, Trout,

2844:25–22, Jan. 30, 2023 (Def.’s Counsel: “So, in fact, you and Dr. Wade mixed ex ante and ex

post in the same analysis, right?” Dr. Trout: “Yeah . . . I do it in every case . . . .”)).

The Court is also dissatisfied with Dr. Trout’s explanation of how Dr. Wade arrived at the

“discount rates” used throughout his economic loss analysis. Dr. Wade applied a “discount rate

of 9.55[%] until 2001” and “6.9[%] after 2001 . . . .” (Trial Tr. vol. 7, Trout, 1342:6–1343:4, Jan.

18, 2023). Even though Dr. Trout adopted Dr. Wade’s discount rates, Dr. Trout previously

testified that a 9.47% discount rate was the “best” discount rate to use. (Id., 1347:17–1348:3). In

addition, the Court is not persuaded of the accuracy of Dr. Wade’s calculations of “offsetting

benefits” of the FWPs. FWPs’ counsel confirmed that the only offsetting benefit incorporated

into Dr. Wade’s analysis was what the FWPs actually received from the LIHPRHA process.

(Hr’g Tr. 63:16–25, Oct. 15, 2024). This is a far cry from the actual offsetting benefits

received—FWPs did not cohesively articulate how the below market-rate interest, extended

mortgage terms, and tax incentives factor in to the economic impact of the Preservation Statutes

on the FWPs. It is not also clear to the Court whether Dr. Wade accounted for the rent FWPs

received during the period at issue or the “reserves” that were incorporated by Dr. Riddiough.

25

Even the use of the term, ex post data distorts the actual inputs Dr. Wade used. For example,

while Dr. Wade purported to use ex post data because it was more accurate than ex ante data, he

actually used multiple hypothetical inputs including Buckman’s rental income (Trial Tr. vol. 7,

Trout, 1374:2–24, Jan. 18, 2023), laundry income, (id., 1375:1–9), and total potential gross

income after market conversion, (id., 1375:10–21). Dr. Wade applied similar conjecture to each

of the FWPs. (Id., 1375:22–1376:9). These inputs, which FWPs suggest are preferred over ex

ante data because they rest on post-conversion data, are really another projection and it is

difficult for the Court to formulate a preference for one set of suppositions over the other.

40

Notably, Dr. Wade included “laundry income” in his calculations of lost future income for

each of the properties. (See Rule 63 Hr’g Tr. vol. 1, Trout, 53:13–12, July 8, 2024). However, the

Court cannot discern whether this laundry income was incorporated as an offsetting benefit

during the years that FWPs continued to own the properties after the enactment of the

Preservation Statutes but before their respective sales or agreement with HUD. (See e.g., id.,

53:12–17). Including laundry income, a relatively modest sum, while excluding rental income,

proportionately a much more significant sum, is irreconcilable. It may be that Dr. Wade

accounted for both, but trial testimony does not establish that he did so. If not, exclusion of rental

income offends Cienega X, in which the Court noted that “[t]he benefits to the owners electing to

enter into use agreements were also considerable . . . .” Cienega X, 503 F.3d at 1286. These were

not the only issues with Dr. Wade’s methodology that Dr. Trout struggled with. Dr. Trout frankly

noted that while Dr. Wade consistently maintained that he did not value the properties

themselves, his report stated otherwise: “it’s contrary to what he said multiple times is that he

never did a valuation of the properties.” (Trial Tr. vol. 7, Trout, 1380:3–18, Jan. 18, 2023).

FWPs’ counsel also struggled to correlate terms used by Dr. Wade throughout his

economic impact analysis. (Hr’g Tr., 58:24–61:16, Oct. 15, 2024). Specifically, when asked to

compare “percent reduction equals NPV projected outcome,” “projected outcome with

prepayment,” and “NPV market conversion,” FWPs’ counsel responded only that “they do have

an NPV component.” (Id.). However, Dr. Trout told the Court that the terms “mean the same

thing . . . with respect to this case.” (See Rule 63 Hr’g Tr. vol. 1, Trout, 131:17–132:12, July 8,

2024). Throughout this case, the Court has tried again and again to dig through the complex

economic-esque terms proffered by Dr. Trout. Rather than using these terms consistently,

different variations of the same concepts are sprinkled throughout Dr. Trout’s testimony and

analysis. The Court is expected to take Dr. Trout’s word that certain phrases are synonyms, but

even FWPs’ counsel is unable to articulate their meaning or even how they relate to one another.

(See Hr’g Tr. 60:7–61:22, Oct. 15, 2024). On the surface, Dr. Trout’s mélange of economic

terminology appears to be a master class in obfuscation.

Significantly, during the Rule 63 Hearing, FWPs presented the Court with Chart SL.9B

(Silverlake Present Value Net Operating Income) which was missing a column of numbers called

the “interest factor.” (Rule 63 Hr’g Tr. vol. 1, Trout, 88:21–94:25, July 8, 2024 (discussing PDM

DD at 5)). 26 The flaw within this exhibit was immediately apparent. Dr. Trout could not clearly

explain what the interest factor was or how the Court could verify the total numbers presented in

Dr. Wade’s lost income analysis. (Id., 88:21–92:2 (“It’s 0.4392 or something”), 92:15–20 (“there

is a value of 0.439, it just doesn’t show, and [Dr. Wade] might have hidden it for some strange

reason or it might be over a couple of columns, but it’s there, because that 0.439 is in the

program itself . . . .”), 94:16–18 (The Court: “I’m not sure how we’re getting to these numbers

and there being no explanation of hidden columns.”); Hr’g Tr. 61:15–16, Oct. 15, 2024 (FWPs’

counsel noted that “[Dr. Trout] had the one exchange with the Court with regard to that one

column that is odd.”)).

When asked about this hidden column of information again at a separate hearing, FWPs’

counsel encouraged the Court to find Dr. Trout credible based on his “forthright and frank

26

The Chart SL.9B is reproduced on page 16 above.

41

testimony about the numbers[,]” but did not elaborate on the hidden column or how the Court

could verify Dr. Wade’s ultimate conclusions. (Hr’g Tr. 61:21–62:15, Oct. 15, 2024). Counsel’s

declaration that FWPs’ expert is credible stands in stark contrast to the Court’s assessment. Even

if the Court determined that Dr. Trout’s explanation of the deficiency in this exhibit was candid,

that is not the issue. The issue critical to the resolution of damages is Dr. Wade’s methodology as

illuminated by his deposition testimony, and exhibits utilized by FWPs at trial. When the

secondary expert, Dr. Trout, cannot understand or explain the primary expert’s calculations, the

Court’s apprehension is validated.

The Court has considerable leeway in making a credibility determination regarding

witness testimony. That is, after all, the purpose of trial and in accordance with the explicit

instruction of the Federal Circuit. Anaheim Gardens, L.P., 953 F.3d at 1355 (noting that

“questions remain as to whether Dr. Wade’s methodology was consistent with principles of

economics and whether his explanation for using that approach is credible” which are subject to

the trial court’s evaluation of Dr. Wade’s “credibility and persuasiveness”). Ultimately, the Court

finds both Dr. Trout and Dr. Wade’s methodology and testimony inconsistent and the results

unreliable.

On the other hand, Dr. Riddiough’s methodology for calculating economic loss was

readily understandable and consistent with principles of economics. Dr. Riddiough clearly

explained his methodology and the inputs he used to determine the economic losses for each of

the FWPs’ properties. Dr. Riddiough calculated economic impact using the change-in-value

approach referenced in Cienega X. (Rule 63 Hr’g Tr. vol. 2, Riddiough, 344:16–24, July 9,

2024); see Cienega X, 503 F.3d at 1282. In his formula, Dr. Riddiough compared “the property

value without the regulation” in the unrestricted world with “the property value under the

restriction” of LIHPRHA using property value as the common unit of measurement throughout

the numerator and denominator. (Rule 63 Hr’g Tr. vol. 2, Riddiough, 232:16–233:14, July 9,

2024). The resulting economic loss was then “scaled by the property value as a whole” in the

unrestricted world. (Id., 233:8–14). The unrestricted property value was driven by the appraisal

value of the property, which was calculated according to the income approach by the United

States’ appraiser, Paula Konikoff. (Id., 235:18–236:9, 239:5–10). 27 The unrestricted property

27

FWPs characterize Ms. Konikoff’s appraisals and the LIHPRHA appraisals as “outdated ex

ante forecasts or projections.” (FWPs’ Post-Trial Br. at 24 (citing Anaheim Gardens, L.P., 953

F.3d at 1357)). FWPs also attack Ms. Konikoff’s credibility as an appraiser. (Pls.’ Post-Trial Br.

at ¶ 156). Those attacks are unavailing. As convincingly established at trial, she is a highly

qualified expert in the field of appraisals. (See Trial Tr. vol. 10, Konikoff, 1956:4–1958:5,

1963:12–1964:20, 1977:20–1978:5, Jan. 23, 2023, ECF No. 672). FWPs argue that the

LIHPRHA appraisals “were at odds with the essential assumptions of a standard appraisal for a

variety of reasons” including: “(i) LIHPRHA sellers were not typically motivated; (ii) LIHPRHA

sellers were well-informed or well-advised that they were not acting in their own best interest . . .

and (iii) LIHPRHA property appraisals set by then-current supply and demand conditions are

irrelevant where future use of the property is lost . . . .” (Pls.’ Post-Trial Brief at 23, See Pls.’

Post-Trial Proposed Finding of Fact at ¶¶ 88, 110). However, Ms. Konikoff testified extensively

about retrospective appraisals and that they are generally restricted “to ex ante data” with a

“limited exception” allowing use of ex post data “that would have been known by investors in

42

value also included the value of the capital expenditure reserves that would be released upon

prepayment. (Id., 236:10–23).

Unlike Dr. Trout, Dr. Riddiough clearly explained the offsetting benefits he incorporated

into his analysis: the restricted property value also included the amount of previously restricted

reserves that would be released upon sale, (id., 252:22), and the income that property owners

would receive while operating the property as affordable pending a sale, (id., 252:23–253:2), all

discounted back to the prepayment eligibility date, (id., 253:3–8). However, below market-rate

interest, extended mortgage terms, and tax benefits were not obviously included in Dr.

Riddiough’s analysis of offsetting benefits. Still, Dr. Riddiough’s restricted property values

reflect “the offsetting benefits that came to the property owners as a result of participating in the

transfer preservation process, where the [FWPs] either chose the sale option or the use agreement

option[,]” and were primarily based on the proceeds an owner would expect for the property with

the LIHPRHA restriction. (Id., 243:16–248:13). Furthermore, Dr. Riddiough consistently used ex

ante information in his calculations of values in both the restricted and unrestricted world. (See

id., 240:6–243:9). Ultimately, Dr. Riddiough’s methodology was consistent, replicable, and

reliable.

Because the Court finds Dr. Riddiough’s methodology credible, it accepts his

measurements of economic loss for each of the FWPs. Dr. Riddiough determined just

compensation of $1,396,410 for Cedar Gardens, $7,941,812 for Rock Creek, $1,055,982 for

Silverlake, $1,225,617 for Buckman, and $744,795 for Chauncy House. (Id., 342:15–18). As the

Federal Circuit held in Cienega X, “our cases have established that a regulatory taking does not

occur unless there are serious financial consequences.” Cienega X, 503 F.3d at 1282. The Court

has likened the “severe economic deprivation” standard to the standard of an actual taking,

whereby “in essence, a claim that ‘a taking has occurred because a law or regulation imposes

restrictions so severe that they are tantamount to a condemnation or appropriation.’” Id. (citing

Rose Acre Farms, Inc. v. United States, 373 F.3d 1177, 1195 (Fed. Cir. 2004)).

There is no exact threshold for establishing whether an economic impact is severe enough

to warrant finding a regulatory taking. For example, in CCA Associates, the Court held that an

economic impact of eighteen percent was not sufficient to establish a regulatory taking. CCA

Assocs., 667 F.3d at 1246–48. Conversely, in Cienega VIII, the Federal Circuit held that a

seventy-seven percent loss of the value of the property was a compensable taking. Cienega VIII,

331 F.3d at 1343. Like the Federal Circuit, the Court here is unable to cite any cases that have

found a taking where the economic impact was less than fifty percent. See CCA Assocs., 667 F.3d

at 1246. Dr. Riddiough calculated the percentage of economic impact on the FWPs to be between

5.9% and 27.4%. (Trial Tr. vol. 11, Riddiough, 2296:24–2297:9, Jan. 24, 2023). Even the high

end of Dr. Riddiough’s range does not approach the accepted diminution in value threshold to

find that a taking occurred. Therefore, as constraining as the Cienega X and CCA Associates

the market prior to or at the date of the appraisal . . . .” (Trial Tr. vol. 11, Konikoff, 2209:7–10,

2209:22–2210:15, 2213:5–9, Jan. 24, 2023, ECF No. 674). In fact, Dr. Wade used the LIHPRHA

appraisals for FWPs’ properties to identify “what the plaintiffs received” through LIHPRHA.

(Wade Dep. 41:15–17; Pls.’ Post-Trial Proposed Finding of Fact at ¶ 146).

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analyses are on the ability to recover in takings cases generally, the Court finds the FWPs were

not able to tip the scales of the economic impact element of Penn Central in their favor.

Importantly, FWPs do not directly challenge that the severity requirement is a threshold

issue. FWPs tiptoe on both sides of the severity line, encouraging the Court to “weigh all

relevant considerations” but also that “the economic impact on FWPs was severe.” (FWPs’ Post-

Trial Br. at 17). Nowhere in FWPs’ Post-Trial Brief, (id.), Post-Rule 63 Hearing Brief, (ECF No.

781), or at Oral Argument, (see ECF Nos. 641, 643, 645, 650, 653, 655, 658, 666, 670, 672, 674,

691, 693, 695, 777, 779, 790), do FWPs clearly articulate the law in such a way as to convince

the Court that an economic impact of less than fifty percent is sufficient to establish a regulatory

taking. If the FWPs will not attempt to articulate that a lower threshold might be appropriate, the

Court will not do so on its own initiative.

IV. Conclusion

Much of the difficulty with the FWPs’ approach could perhaps be attributed to the

undeniable and unnecessary delay in reaching trial. While there is no precise standard to

determine how much delay is too much, common sense suggests that avoidable delay is fraught

with peril. Here, thirty-one years from Complaint to verdict has resulted in multiple judges, with

each transition resulting in more delay, as well as understandably diminished witness

recollection, and the loss of more than one desirable witness. Perhaps if Dr. Wade himself could

explain the inconsistencies and gaps now evident in his methodology and conclusions, a different

result would be warranted. Perhaps had some of the original investors survived to proffer their

own testimony regarding their investment-based expectations, each FWP might have shouldered

their burden. As it stands, both situations are speculative. The weight of the evidence, following

decades of litigation, dictates otherwise.

Only two of the five FWPs (Cedar Gardens and Silverlake) demonstrated that their

investment-backed expectations to prepay and convert their properties were reasonable and

aligned with industry expectations as a whole. The remaining three (Chauncy House, Buckman,

and Rock Creek) were not able to show that their investors had subjective expectations to prepay.

None of the FWPs were able to demonstrate economic impact of ELIHPA and LIHPRHA with

sufficient severity for the Court to find a compensable taking in this case. Dr. Wade’s

methodology for calculating economic impact contained myriad gaps. Dr. Trout was unable to

explain these deficiencies. Because the Court found Dr. Riddiough credible and his methodology

sound, the Court adopts his findings of economic impact. While no single element of the Penn

Central test is dispositive, the Court finds that the lack of a substantial economic impact tips the

scales against FWPs’ claims. Therefore, the Court finds no taking.

Pursuant to RCFC 58, the Clerk is DIRECTED to enter final judgment in favor of the

United States.

IT IS SO ORDERED.

s/ David A. Tapp

DAVID A. TAPP, Judge

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