Opposition Brief — Cisneros v. Alpine Ridge Group

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FILED

No. 92-551 | OFFICE OF THE cuERK

+ Supreme Court, U.S.

———

In the

Supreme Court of the United States

October Term, 1992

JACK F. KEMP, SECRETARY OF THE UNITED STATES

DEPARTMENT OF HOUSING AND URBAN

DEVELOPMENT, ET AL.,

Petitioners,

Vv.

ALPINE RIDGE GROUP, ET AL..,

Respondents

OPPOSITION TO THE PETITION FOR A WRIT

OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE NINTH CIRCUIT

Respondent Acacia Villa’s Brief In Opposition

Milton Eisenberg, P.C.

Counsel of Record

Leonard A. Zax

John F. Coverdale

FRIED, FRANK, HARRIS,

SHRIVER & JACOBSON

(A Partnership Which Includes

Professional Corporations)

1001 Pennsylvania Avenue, N.W.

Suite 800

Washington, D.C. 20004

(202) 639-7000

Counsel for Respondent

Acacia Villa, et al.

Baimar Legal Publishing Services, Washington, D.C. (202) 682-9800

“BEST AVAILABLE COPY)

QUESTION PRESENTED

Whether Section 801 of the Department of Housing and

Urban Development Reform Act of 1989, Pub. L. No. 101-235,

103 Stat. 2057 (1989), is an unconstitutional attempt by Con-

gress to save money by legislatively abrogating express

provisions of contracts of the United States to which the United

States explicitly pledged its full faith and credit and for which

the private party paid independent consideration?

Parties to the Proceeding

Petitioners Jack F. Kemp, ef al., omitted from the list of

parties to the proceedings in the courts below the following:

Azusa Park Apartments, a California Limited Partnership;

Capitola Gardens, a California Limited Partnership; Carondelet

Apartments, a California Limited Partnership; Charter Oaks, a

California Limited Partnership; Civic Plaza, a California

Limited Partnership; Citrus Arms, a California General Partner-

ship; Clayton Gardens, a California Limited Partnership;

Columbus Terrace, a California General Partnership; Com-

merce Senior Citizens, a California Limited Partnership; Covina

Manor, a California Limited Partnership; Country Club Village,

a California Limited Partnership; E] Portal Gardens, a California

Limited Partnership; Fairvalley Villa, a California Limited

Partnership; Fairway Apartments, a California Limited Partner-

ship; Fallbrook Square Apartments, a California General

Partnership; Foothill Gardens, a California Limited Partnership;

Foothill Terrace, a California Limited Partnership; Frazier Park,

a California Limited Partnership; Grandview Homes, a Califor-

nia Limited Partnership; Hayward Villa, a California Limited

Partnership; Kern Villa, a California Limited Partnership; Lake

Merritt Apartments, a California General Partnership; Lindley

Manor, a California General Partnership; Little Tokyo, a

California Limited Parmership; Mayflower Arms, a California

Limited Partnership; Merced Gardens, a California Limited

Partnership; Millbrook Park Apartments, a California Limited

Partnership; Monterey Terrace, a California Limited Partner-

ship; New Hampshire, a California Limited Partnership; Olive

Tree Terrace, a California Limited Partnership; Palmdale East

Q., a California Limited Parmership; Panorama Park, a Califor-

nia Limited Partnership; Pendleton Arms, a California Limited

Partnership; Pleasant Hill Village, a California Limited Partner-

ship; Presidio Park Apartments, a California General Partner-

Ship; Primrose Villa, a California General Partnership;

Rosswood Villa, a California Limited Partnership; Runnymede

Gardens, a California Limited Partnership; San Gabriel Villa, a

California Limited Partnership; San Jose Greens, a California

Limited Partnership; Santa Teresa Apartments, a California

Limited Partnership; Seaside Villa, a California Limited

Partnership; Skypark Apartments, a California General Partner-

ship; Southbay Villa, a California Limited Partnership; Surfside

Villas, a California Limited Partnership; Terman Apartments, a

California Limited Parmership; Tujunga Gardens, a California

Limited Partnership; Tustin Gardens, a California Limited

Partnership; Valencia Villa, a California Limited Partnership:

Villa Del Comanche, a California Limited Partnership; Villa

Olive Oak, a California Limited Partnership; Villa San Dimas,

a California Lim#ted Partnership; Villa Topanga II, a California

Limited Partnership; Vista Park Chino, a California Limited

Partnership; and Wasco Arms, a California Limited Partnership.

TABLE OF CONTENTS

I. THECONTRACTISSUE .........

A. The Ninth Circuit Correctly

Interpreted the Contract ........

B. The Ninth Circuit’s Decision Does

Not Allow Owners to Reap Windfall

DTS Ware a eee

Vv vi

TABLE OF AUTHORITIES Seatetes and Rented

Cases Pages Department of Housing and Urban Development Reform

Acacia Villa v. Kemp, 774 F. Supp. 1240 Act of 1989, Pub. L. No. 101-235, 103 Stat. 1987

(C.D. Cal. 1990), aff d, 955 F.2d 1382 (1989):

(8h Cir. 1992) .............0... 3, 13 §801. 103 Stat.2057 .......... ;

Alpine Ridge Group v. Kemp, 955 F.2d 1382 ; :

(9th Cir.1992)................. 11, 12,14 vanes — Housing Act of 1937, as amended in 1974:

Boag v. MacDougall, 454 U.S. 364 (1982)... . 5 _ a Soaaee va tts eees 10

Bowen v. Public Agencies Opposed to Social as KE) IFS)... .'.. .

Security Entrapment, 477 U.S. 41 (1986) . . . 2, 10, 11 42 U.S.C. §1437f(c)(2)(A) (1976) 3

El Paso v. Simmons, 379 U.S. 497, reh’g denied, 42 U.S.C. $1437f(c)(2)(C) (1976)... 3

380 U.S.926 (1965) .............. 9 24 C.F.R. §880.102 (1976) ............. 6

Federal Housing Administration v. The Darlington. islative Hi

Inc., 358 U.S. 84 (1958), reh’ g denied, 358 peguemalenart: |

ee ee 1] 135 Cong. Rec. $16,607 (daily ed. Nov. 21, 1989)

tatement of Sen. Sasser) ........... 12-13

Lynch v. United States, 292 U.S. 571 (1934) .. . . 2, 10,12 “ eemeneimens

Perry v. United States, 294 U.S. 330 (1935) .... 2,10,12

Rainier View Associates v. United States Department

of Housing and Urban Development, 848 F.2d

988 (9th Cir. 1988), cert. denied, 490 U.S. 1066

NS su ws otha e ite ¢ bo 6 «os 1,2,4,5

Sinking Fund Cases, 99 U.S. 700 (1879) ......

United States Trust Co. v. New Jersey, 431 U.S. 1.

reh'g denied, 431 U.S.975 (1977) ...... 4

In the

Supreme Court of the United States

October Term, 1992

JACK F. KEMP, SECRETARY OF THE UNITED STATES

DEPARTMENT OF HOUSING AND URBAN

DEVELOPMENT, ET AL..,

Petitioners,

ALPINE RIDGE GROUP, ET AL..,

Respondents.

OPPOSITION TO THE PETITION FOR A WRIT

OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE NINTH CIRCUIT

Respondent Acacia Villa’s Brief In Opposition

INTRODUCTION

In the absence of any conflict among the federal courts of

appeal, the Department of Housing and Urban Development

(“HUD”) presents this contract dispute in inflated terms to make

it appear worthy of this Court’s attention. Once HUD’ rhetoric

is peeled away, the case presents only two issues, neither of

which justifies review by this Court.

The issue that occupies two-thirds of the argument in the

government's petition is a routine matter of contract interpreta-

tion. The government simply asserts that the Ninth Circuit erred

in interpreting the contract between HUD and the owners four

years ago in Rainier View Associates v. United States Depart-

ment of Housing and Urban Development, 848 F.2d 988 (9th

Cir. 1988), and that this Court erred in denying HUD’s petition

for a writ of certiorari in that case, 490 U.S. 1066 (1989),

Nothing has happened in the meantime to make this issue of

contract interpretation any more significant than it was when

this Court denied review in 1989.

The case also presents a constitutional issue, but it does not

involve, as HUD would have it, a revival of Lochner era prin-

ciples of substantive due process. On the contrary, the issue is

merely whether the Constitution permits legislation repudiating

HUD’s obligation to pay the contract price after performance by

a private party under a contract to whose fulfillment the United

States has explicitly pledged its full faith and credit.! For more

than a century, this Court has repeatedly answered that question

with a resounding “No.” See, e.g., Sinking Fund Cases, 99 U.S.

700 (1879); Lynch v. United States, 292 U.S. 571 (1934); Perry

v. United States, 294 U.S. 330 (1935); Bowen v. Public Agencies

Opposed to Social Security Entrapment, 477 U.S. 41, 55 (1986).

There is no need to grant review in this case to reaffirm that

principle again.

ARGUMENT

I. THE CONTRACT ISSUE

A. The Ninth Circuit Correctly Interpreted the

Contract.

HUD treats the contract issue raised by this case as if it

were an academic exercise in parsing contract language without

the benefit of any background facts. Whatever surface

plausibility HUD’s reading of the contract might have

evaporates when the contract is read in its real life context.

The contract dispute in this case involves the mechanism

for adjusting for inflation federally subsidized rents under the

| The specific provision at issue is Section 801 of the Department of

Housing and Urban Development Reform Act of 1989, Pub. L. No. 101-235,

103 Stat. 1987, 2057 (1989) (“Section 801”).

Section 8 housing program. The Section 8 housing program was

not the government’s first foray into the area of subsidized

housing. On the contrary, Congress designed the Section 8

program to cure some of the defects of its immediate predeces-

sors, the Section 221(d)(3) and the Section 236 low income

housing programs. Under those programs, HUD reviewed

developers’ requests for rent increases on a case-by-case basis.

The procedures HUD used were arbitrary, did not yield a fair

rate of return, cost owners large amounts of time and money,

and were open to subjective manipulation by HUD employees.

See Declaration of Jona Goldrich (May 30, 1990) 93, Exhibit

Cl to Memorandum of Points and Authorities in Support of

Plaintiffs’ Motion for Partial Summary Judgment, Acacia Villa

v. Kemp, 774 F. Supp. 1240 (C.D. Cal. 1990), aff'd, 955 F.2d

1382 (9th Cir. 1992) (“Goldrich Declaration’’).

In response to this situation, when Congress created the

Section 8 program in 1974, Congress gave the Secretary of HUD

the option of entering into contracts under which rent adjust-

ments would be based on “a reasonable formula.” Section

8(c)(2)(A) of the United States Housing Act of 1937, as

amended in 1974, 42 U.S.C. §1437f(c)(2)(A) (1976). Section

8 also authorized the Secretary to enter into contracts requiring

rent adjustments on a case-by-case basis, “to reflect changes in

the fair market rentals established in the housing area for similar

types and sizes of dwelling units.” /d. Under Section 8, whether

HUD chose contracts calling for adjustments based on a

reasonable formula or contracts calling for case-by-case adjust-

ments, the adjustments were not to cause material differences

between the rents charged for assisted and comparable unas-

sisted units. Section 8(c)(2)(C) of the United States Housing

Act of 1937, as amended in 1974, 42 U.S.C. §1437f(c)(2)(C)

(1976).

Itis undisputed in the Acacia Villa proceeding that because

of “negative experiences with the delays and extraordinary

administrative inconveniences associated with case-by-case ad-

justments, [the plaintiffs | participated in the Section 8 program

only because the Section 8 HAP contracts, unlike the Section

221(d)(3) and Section 236 program contracts, provided for rent

adjustments to be computed at least annually according to an

equitable, timely and simplified formula to be published in the

Federal Register.” Goldrich Declaration 43.

HUD was fully aware that the attitudes of the Acacia Villa

owners were shared by many other potential developers of

Section 8 housing. The majority of potential Section &

developers were unwilling to take part in the new program if it

involved the inconvenience, delays, and inequitable results

produced by HUD’s case-by-case adjustments of Section

221(d)(3) and Section 236 rents. For this reason, in the Section

8 program, HUD did not use contracts that called fur case-by-

case adjustments. HUD opted to offer all developers contracts

that explicitly called for rent to be adjusted “by applying the

applicable Automatic Annual Adjustment Factor most recently

published by the Government.”” HAP Contract §1.8(b)(2). As

the Ninth Circuit held:

Under the statute, HUD could choose either a market

survey method (described in the first clause of Section

8(c)(2)(A)) or a formula method (described in the

second clause of Section 8(c)(2)(A)). In the contract,

HUD elected the formula method.

Rainier View Associates, 848 F.2d at 991.

These background facts, which HUD completely ignores,

demonstrate the implausibility of HUD’s contention that the

parties intended to “permit HUD to abandon entirely the formula

method it chose and to adjust rents solely on the basis of a market

survey.” /d. They highlight the correctness of the Ninth

Circuit’ s interpretation of the contracts here at issue as requiring

rents to be adjusted by multiplying the previous year’s rent by

a published inflation factor. As a result of this background, this

Court denied review of the contract issue when HUD requested

it in 1989, 490 U.S. 1066 (1989), and should do so again today.

“(T]}his Court is not a forum for the correction of errors,” Boag

v. MacDougall, 454 U.S. 364, 368 (1982) (Rehnquist, J., dis-

senting), and should not grant review merely to correct a pur-

ported error in contract interpretation that raises no issues of

broader applicability.

B. The Ninth Circuit’s Decision Does Not Allow

Owners to Reap Windfall Profits.

Throughout its petition, HUD attempts to induce the Court

to grant review by portraying the owners as rapacious landlords

who have gulled the Ninth Circuit into permitting them to reap

enormous windfall profits by charging “excessive rents” beyond

those permitted by the statute and the contracts. See, e.g.,

Petition at 14. HUD stresses that the statute and the contracts

place a ceiling on rents, as if the owners had persuaded the Ninth

Circuit to ignore those obvious provisions. In fact, neither the

owners nor the Ninth Circuit have ever denied that “[t]he statute

requires the Secretary to ensure comparability.” /d. Neither the

owners nor the Ninth Circuit have contended that the statute or

the contracts permit the published “Adjustment Factors [to] be

mechanically applied when to do so would yield excessive

rents.” /d. The owners and the Ninth Circuit fully recognize

the Secretary’s statutory and contractual authority and obliga-

tion to see to it that rents paid under the program increase at the

same rate as rents for unassisted units. See Rainier View, 848

F.2d at 989. The owners contend and the Ninth Circuit held only

that the contracts which HUD drafted and signed were designed

to achieve and maintain comparability in rent adjustments

through a formula which HUD would modify as appropriate,

but which it could not abandon because it did not like the results.

See id. at 991.

HUD asserts that only case-by-case comparability studies

can take into account all the myriad small details that affect the

rental value of an apartment. Therefore, HUD claims that if it

adjusts rents simply by applying published inflation factors, it

will not be able to avoid violating the limitations on rent adjust-

ments imposed by the statute and the contract. According to

HUD, rent adjustment must be based on case-by-case com-

parisons to prevent the annual rent adjustment process from

causing material differences between rents for assisted and

unassisted units. HUD’s argument is unfounded and rests on a

confusion between what must be done to establish initial rents

and what must be done to adjust those rents for inflation.

HUD negotiated the initial rent for each apartment with the

owners. As aresult of HUD requirements, Section 8 apartments

were often located in neighborhoods where land values were

high. HUD frequently mandated costly features rarely found in

moderate-income apartments. Furthermore, HUD required

developers to pay Davis-Bacon Act wages and to incur addition-

al operating and administrative costs to comply with various

HUD regulations. Congress recognized that because of the

special features of Section 8 apartments and the special costs

associated with building and operating them, initial rents for

Section 8 apartments would often need to be up to 20 percent

higher than the levels established as “fair market rentals” by the

Secretary of HUD. See Section 8(c)(1) of the United States

Housing Act of 1937, as amended in 1974, 42 U.S.C.

1437f(c)(1) (1976). The statute does not define the term “fair

market rentals.” The original HUD regulations interpreting is

term defined it as “the rent, including utilities (except

telephone), ranges and refrigerators, parking, and all main-

tenance, management and other services, which, as determined

at least annually by HUD, would be required to be paid in order

to obtain privately developed and owned, newly constructed

rental housing of modest (non-luxury) nature with suitable

amenities and sound architectural design meeting the objectives

of the HUD Minimum Property Standards.” 24 C.F.R.

§880.102 (1976).

When HUD negotiated initial rents, it took into account all

the individual features of each apartment, including the many

special features required by HUD. The initial rent represented

HUD’s estimate of the appropriate rent for each apartment in

light of all the facts and the constraints imposed by the statute

and HUD’s own regulations. Detailed comparisons with other

apartments may have been appropriate as part of that process,

even though the most comparable apartments in the unassisted

market were often quite different from Section 8 apartments.

Such comparisons are neither necessary nor appropriate

parts of the process of adjusting rents for inflation. The annual

rent adjustments called for by the statute and by the contracts

focus only on the appropriate percentage change in the initial

rent. They are intended to account for the rate of inflation or

deflation of rents in whatever market area HUD deems ap-

propriate. They do not allow HUD, in the guise of insuring

comparability, to repudiate unilaterally the initial rents HUD

negotiated with the developers, and on which the developers

relied when the contracts were entered into and the apartments

built.

Neither logic nor experience suggests that the kinds of

differences between apartments that can be accounted for only

on a case-by-case basis affect the inflation rate for apartment

rents. Once the initial rent is determined, taking into account all

relevant features of the assisted apartment and the rents of

unassisted units, application of a factor that accurately repre-

sents inflation or deflation in the appropriate rental market for

apartments in the same price range, of the same general type,

and with the same number of bedrooms, will produce an ap-

propriate adjustment.

HUD can and should perform checks to insure that the

inflation rates it publishes produce accurate results, and should

modify the factors if they do not. If, for example, the market in

which an apartment is located has experienced a lower or higher

rate of inflation than the larger market of which it forms part,

HUD can and should publish adjusted inflation factors that

reflect conditions in that sub-market and that will apply to all

Section 8 units in the sub-market. None of this, however,

justifies abandoning use of the published factor and a return to

arbitrary case-by-case adjustments by untrained HUD clerks

under pressure from their superiors to reduce HUD’s obliga-

tions.

HUD assumes throughout its Petition that its comparability

studies constitute an accurate benchmark against which to

measure rentals. Nothing in the record supports this contention.

On the contrary, the district court in Rainier View held that HUD

performed its comparability studies so deficiently that they

violated procedural due process. Rainier View Associates v.

United States, No. C83-997R (W.D. Wash. Feb. 28, 1984),

Order re Cross Motions For Summary Judgment, reproduced in

Petition for a Writ of Certiorari to the United States Court of

Appeals for the Ninth Circuit, United States v. Rainier View

Associates, No. 88-1515, at 30a. Appraisals carried out by HUD

clerks without any “guidelines to ensure that the comparability

reviews are conducted pursuant to some consistent system or

methodology,” id., are much less accurate guides to fair rentals

than the rents determined by multiplying initial rents by the

inflation factors HUD’s Central Statistical Offices produce.

It is undisputed in Acacia Villa that “[c)ontinued failure to

receive the full amount of the rent adjustments required by the

HAP contracts may put some of the projects in precarious

financial conditions. Inadequate cashflow will make it difficult

or impossible to maintain the buildings properly and to take all

of the security measures which are becoming increasingly

necessary at certain complexes.” Goldrich Declaration 423.

The uncontroverted evidence, therefore, shows inadequate rents

rather than windfalls.

The owners do not ask for rent adjustments larger than the

Statute and the contracts permit. What the owners do ask is that

HUD honor its contracts and not attempt to use arbitrary case-

by-case adjustments to reduce rents below the levels called for

by the contracts. It is not a windfall to receive a rent set by

applying inflation factors published by HUD to the initial rent

negotiated by HUD and determined by HUD to fall within the

range permitted by the statute and by HUD’s regulations. The

contracts explicitly call for precisely that mechanism of rent

adjustment, and the owners would not have entered the program

if the contracts had called for case-by-case adjustments. As a

matter of law, “gains reasonably to be expected from [a] con-

tract” are not windfalls. United States Trust Co. v. New Jersey,

431 U.S. 1, 31, reh’g denied, 431 U.S. 975 (1977). Accord, El

Paso v. Simmons, 379 U.S. 497, 515, reh’ g denied, 380 U.S. 926

(1965). There is, therefore, no need for this Court to grant

review to avoid a purported windfall at the government’s ex-

pense.

fl. CONSTITUTIONALITY

The Ninth Circuit held that the Constitution does not permit

Congress to save money by repudiating its explicit contractual

commitments after accepting goods and services under a con-

tract with a private party to which the United States has pledged

its full faith and credit. The logic of the Ninth Circuit’s holding

is simple and non-controversial. The decision rests on

well-established principles of constitutional law that do not

require review by this Court. The Ninth Circuit reached its

conclusion on the following basis:

1. The owners’ contract right to rents deter-

mined by applying the published Auto-

matic Annual Adjustment Factor is a

vested right.

2. Section 801 substantially impairs those

rights.

3. The congressional purpose in passing Sec-

tion 801 is not sufficiently important to

permit abrogation of those nights.

This Court has repeatedly taught that contract rights sup-

ported by independent consideration are vested. See Lynch, 292

U.S. 571; Perry, 294 U.S. 330; Bowen v. Public Agencies, 477

U.S. at 55. The vested nature of the rights here at issue is

highlighted by the fact that in the statute and in the contracts the

United States explicitly pledged its full faith and credit. See 42

U.S.C. §1437¢c(c) (1976); Contract between HUD and Antelope

Valley Apartments §1.3(a). (Exhibit 2C to Goldrich Declara-

tion).

The principle that the government must honor contracts for

goods and services with private parties is fully compatible with

this Court’s decision in Bowen vy. Public Agencies. Indeed in

that case, this Court explicitly recognized that “the Federal

Government, as sovereign, has the power to enter contracts that

confer vested rights, and the concomitant duty to honor those

rights.” 477 U.S. at 52 (citations omitted). This Court explicitly

distinguished the rights at issue in Bowen v. Public Agencies

from those which had been held to constitute “property” within

the meaning of the Fifth Amendment. It pointed out that the

provision at issue in Bowen v. Public Agencies “constituted

neither a debt of the United States, see Perry v. United States,

supra, nor an obligation of the United States to provide benefits

under a contract for which the obligee paid a monetary premium,

see Lynch v. United States, supra.” 477 U.S. at 55.

HUD asserts that this case does not “repudiate a legisla-

tively promised benefit for which private parties paid considera-

tion as in Lynch,” Petition at 21, but the facts belie HUD’s

contention. The owners entered into contracts that stipulated an

initial rent which would be adjusted only under a formula set

forth in the contract. In consideration for HUD’s promise to pay

rent on that basis, the owners expended hundreds of millions of

dollars on the construction of apartment buildings, made the

apartments available to low-income tenants, and operated the

apartments in accordance with HUD’s rules and regulations

under the Section 8 housing program. This is exactly the sort

of bargained for right which this Court distinguished from the

Situation it confronted in Bowen v. Public Agencies. See 477

U.S. at 55.

Contrary to HUD’s contentions, the Ninth Circuit fully

recognized the power of Congress to pass “curative” legislation

to undo a judicial interpretation of a preexisting statute, even

when the curative legislation extinguishes claims against the

government. Alpine Ridge Group v. Kemp, 955 F.2d 1382, 1386

(9th Cir. 1992), Petition at 10a. The Ninth Circuit acknow-

ledged that Congress has authority to amend the laws and

thereby to extinguish claims to benefits gratuitously conferred

by statute, even after a court has interpreted the statute as

creating certain rights. The Ninth Circuit correctly held, how-

ever, that this power does not extend to extinguishing bargained

for contract rights supported by independent consideration. /d.

As the Ninth Circuit stated, the case the government relies upon,

Federal Housing Administration v. The Darlington, Inc., 358

U.S. 84 (1958), reh’g denied, 358 U.S. 937 (1959), involved a

refusal to interpret contracts as containing implied provisions

foreclosing the exercise of sovereign power by the government.

The Darlington does not suggest that an explicit contractual

right, for which independent consideration has been provided

and to which the full faith and credit of the United States has

been pledged, is not vested because Congress may abrogate it

at any time, for any reason, or no reason. The Ninth Circuit’s

conclusion that the owners’ rights are vested and constitute

property reflects the settled jurisprudence of this Court.

In the Ninth Circuit, HUD did not contest that Section 801

substantially impairs the owner’s exercise of their vested con-

tract rights. Alpine Ridge Group, 955 F.2d at 1387, Petition at

12a. In this Court, HUD argues, albeit only in a footnote, that

there is no substantial impairment because rent increases deter-

mined by using a properly adjusted inflation factor “could

presumably have produced the same financial result for Section

8 landlords as the approach HUD adopted...” Petition at 20

(emphasis added). Even if in a given case application of an

adjusted inflation factor did by chance lead to the same results

as the HUD comparability study, the owners would still be

damaged by having to submit to a cumbersome, arbitrary,

time-consuming, and expensive process not provided for in their

contract. HUD makes no effort to refute the owners’ evidence

that after their experience with previous programs, they would

not have entered the Section 8 program had they known that

HUD would attempt to make case-by-case rent adjustments in

the Section 8 program. Furthermore, that a properly adjusted

inflation factor could lead to the same dollar result as a com-

parability study in a given case, is no evidence that the owners

have not suffered serious financial harm through HUD’s use of

comparability studies to reduce its rent obligations.

Having held that Section 801 substantially impairs vested

contract rights that constitute property, the Ninth Circuit in-

quired whether the congressional purpose was sufficiently im-

portant to justify such impairment. Neither in the court below

nor in this Court does HUD contend that the government may

abrogate vested contractual rights of parties to a contract with

the government solely to save money. See Alpine Ridge Group,

955 F.2d at 1387, Petition at 13a; Petition at 21; cf. Lynch, 292

U.S. 571; Perry, 294 U.S. 330. Section 801 is on its face a

provision designed to reverse the Ninth Circuit’s Rainier View

interpretation of HUD’s obligations under the HAP contracts

and thereby to save the costs involved in complying with the

contracts. In the words of one of the bill’s principal sponsors,

Section 801 was a “fix” intended to “save the Government

hundreds of millions, if not more than a billion dollars.” 135

Cong. Rec. $16,607 (daily ed. Nov. 21, 1989) (statement of Sen.

Sasser).

Both in the courts below and in this Court, HUD attempts

to save Section 801 from invalidity by inventing other purposes

for the legislation. In this Court, HUD points to three purported

goals of Section 801 beyond saving money: 1) to put an end to

litigation with its resulting uncertainty; 2) to avoid excessive

rents; and 3) to correct flaws in HUD’s application of com-

parability studies in the past. Petition at 22. The courts below

fully considered and properly rejected each of these purported

justifications for the statute.

As the district court stated in Acacia Villa, 774 F. Supp. at

1250, Petition at 59a, the first justification, the resolution of the

dispute, “is little more than bootstrapping. The dispute is about

the fact that the contracts have been interpreted adversely to the

government by the Ninth Circuit; the government now wants to

avoid paying the project owners the amount that the contracts,

as SO interpreted, require. Again, the government is only con-

cerned with dollars.”

The government’s purported desire to “reinstate the

program's market-rent premise,” Petition at 22, is a thinly veiled

euphemism for paying less than the contracts require. The

purpose is simply to save money.

The purported objective of correcting flaws in HUD’s past

use of comparability studies is no justification at all. Since

application of comparability studies is a violation of the owners’

contract rights, the government cannot justify application of the

studies on the ground that it seeks to apply them more equitably

where the government had no right to apply them at all. Acacia

Villa, 744 F. Supp. at 1250, Petition at 58a-59a.

Because none of HUD’s purported objectives for passage

of Section 801 resist critical analysis, the Ninth Circuit con-

cluded that Congress enacted Section 801 solely to save money,

as is evident from the face of the statute and from its legislative

history. Alpine Ridge Group, 955 F.2d at 1387-88, Petition at

14a.

The Ninth Circuit’s decision that Congress could not

abrogate HUD’s contractual obligations and the United States’

pledge of its full faith and credit simply to save money rests on

well established principles and does not require review by this

Court.?

> Because the Ninth Circuit concluded that the legislation had been

passed solely to save money and therefore violated due process, it did not

reach the question of whether Section 801 would violate the due process

clause even if it had some purpose other than simply saving money. The

owners contend that even in that case Section 801 would violate due process.

The Ninth Circuit similarly did not reach the owners’ contention that Section

801 violates not only the due process clause, but also the taking clause of the

Fifth Amendment and the prohibition in the Fourteenth Amendment against

questioning the public debt. These remain viable alternative grounds for

holding the statute unconstitutional.

CONCLUSION

This case presents only a routine issue of contract inter-

pretation and a constitutional question that is fully resolved by

application of the undisputed principle that the United States

may not, in order to save money, refuse to honor its contractual

obligations to a private party that has fully performed its side of

the bargain when the United States has pledged its full faith and

credit to the fulfillment of those obligations. The case poses no

questions that require review by this Court.

Respectfully submitted,