At 82, attorney Gerson B. Kramer is still working on a lawsuit filed 11 years ago over an apartment project started in 1968. His clients are his age or close to it, and although he recently won an appeal, the case is far from over. He dryly calls it “a labor of love.”
Kramer’s case, City Line Joint Venture v. U.S., is one of three long-running legal disputes that had major federal court decisions handed down this September, all focused on landlords’ efforts to convert older Sec. 8 apartments to market-rate rents. The U.S. Federal Circuit appeals court gave a victory to landlords in City Line. In Barrientos v. 1801-1825 Morton, LLC, a Los Angeles federal judge sided with the Sec. 8 tenants of Morton Gardens, who have been fighting evictions and rent increases for 20 years. And the Federal Circuit dealt a procedural blow to landlords in the latest installment (“Cienega IX”) of a much-watched 13-year-old case, Cienega Gardens v. U.S.
It’s not over. The City Line and Cienega IX courts ordered parties back to the lower federal Court of Claims. The Cienega IX plaintiffs planned to seek review from the Supreme Court. (Fittingly, “Ciénega” is a version of the Spanish for “quagmire.”) The successful plaintiffs in Barrientos were facing a defense motion to amend the decision. How long will this go on? Kramer said his case would last “until one of us drops dead.”
In City Line and Cienega IX, building owners are fighting the Department of Housing and Urban Development (HUD) over a congressionally imposed freeze that prevented many Sec. 8 buildings from converting to market-rate rents from 1988 into the late 1990s. The freeze trapped landlords in HUD-insured Sec. 221(d)(3) and Sec. 236 mortgages that were subject to income and rent restrictions. That effectively blocked their contracted rights to prepay the mortgages and leave the program after 20 years. The buildings have since been converted to market rate, but the landlords want compensation for those extra years of low rents.
An odd-sized panel of seven Federal Circuit judges (two three-judge panels and a tiebreaker) heard Cienega IX alongside a related case. Its majority decision sent the plaintiffs back to district courts to re-analyze their claims under a less favorable standard.
Latham & Watkins partner Richard Bress, who has worked on Cienega for 10 years, preferred the dissenting opinion by Judge Pauline Newman. Newman argued the majority was partly contradicting the previous Cienega VIII decision, which in 2003 appeared to create a process for deciding who deserved compensation. Cienega IX limited much of that ruling to four “model” plaintiffs, telling the others to start over.
Bress said the decision “makes it awfully difficult for anyone to succeed in a temporary regulatory takings case, even in egregious circumstances like these.” He said the court’s view unfairly shrugged off differences between partial and full compensation, and tended to minimize losses from the freeze years as a proportion of a building’s total value over time.
In Kramer’s parallel City Line case, the court said investors in a freeze-affected Maryland project could allege breach of contract, not just “temporary takings” as in Cienega Gardens. That’s because, unlike in Cienega Gardens, where the courts ruled that HUD was not a direct party in the case, HUD took over the City Line project’s mortgage after a default, entering the contract directly.
In Barrientos, 22 tenants were still hanging on to Sec. 8 contracts at a building of similar vintage. Judge Audrey B. Collins found that Los Angeles rent control blocked a landlord from evicting six ordinary Sec. 8 voucher holders and 18 tenants who received “enhanced vouchers” when their building’s Sec. 236 mortgage was prepaid in 1998. (A previous Morton Gardens owner lost a similar case in 2003, TOPA Equities v. City of Los Angeles.) James Grow of the National Housing Law Project, who helped represent the tenants, was concerned because Collins found that HUD’s regulations pre-empted local rent control on ending Sec. 8 tenancies. The tenants still won because the court also found HUD violated congressional intent when it wrote a rule letting landlords evict simply to raise rents.