     In the United States Court of Federal Claims
                 Nos. 14-332C, 14-333C, 14-334C, 14-335C
                         (Filed: February 28, 2018)

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CALLAWAY MANOR APARTMENTS,
LTD, et al.,
                                                   Contracts; takings; 42
                      Plaintiffs,                  U.S.C. §§ 1485, 1490a;
v.                                                 effect of assignment clause;
                                                   standing to bring breach of
THE UNITED STATES,                                 contract claim.

                      Defendant.

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        Jeff H. Eckland, Minneapolis, MN, with whom was Mark J. Blando, for
plaintiffs.

    Geoffrey M. Long, United States Department of Justice, Civil Division,
Commercial Litigation Branch, Washington, DC, for defendant.


                                    OPINION

BRUGGINK, Judge.

       This is an action for breach of contract, or, in the alternative, for a Fifth
Amendment taking arising from the government’s repudiation of the
prepayment provision of loan agreements made under sections 515 and 521 of
the Housing Act of 1949, 42 U.S.C. §§ 1485, 1490a (2012). Pending before
the court is defendant’s motion for summary judgment under Rule 56 of the
Rules of the United States Court of Federal Claims, filed on February 21,
2017, as a motion to dismiss and converted by the court to a motion for
summary judgment on August 8, 2017. The motion is fully briefed, and we
held oral argument on February 9, 2018. Because plaintiffs assigned their
contract rights to the government and the takings claim also arises out of those
same contracts with the government, we grant defendant’s motion for
summary judgment.

                             BACKGROUND1

        The Farmers Home Administration (“FmHA”) of the United States
Department of Agriculture (“USDA”) issued plaintiffs mortgage loans in
exchange for plaintiffs providing housing for low-income tenants during the
life of the loan under section 515 of the Housing Act of 1949, 42 U.S.C. §§
1485, 1490a. FmHA required plaintiffs, Callaway Manor Apartments Limited
Partnership (“Callaway Manor”), Fox Garden Apartments Limited Partnership
(“Fox Garden”), Fox Manor Apartments Limited Partnership (“Fox Manor”),
and Lake Garden Apartments Limited Partnership (“Lake Garden”), to use
their property in accordance with the section 515 program for twenty years.
After the restrictive use period, plaintiffs would be free to prepay their
mortgages, releasing their property from the restrictive use covenants. The
following background describes the relevant provisions of the loan obligations
entered into by the four plaintiffs and the United States.

Callaway Manor Apartments, Ltd.

       Callaway Manor and FmHA entered into a loan agreement on May 18,
1984, for the construction of a low-income rental housing complex. The
parties contemporaneously executed three documents: a loan agreement,
promissory note, and mortgage.2 FmHA was a party to each of the three
documents.

       The loan agreement recited that FmHA would provide a loan in
exchange for Callaway Manor abiding by certain restrictions on its use of the
property under section 515 of the Housing Act of 1949. The loan agreement
incorporated both the promissory note and the mortgage, stating that “[t]he
indebtedness and other obligations of the Partnership under the note


1
  These facts are drawn from defendant’s proposed findings of fact and
plaintiffs’ responses to those proposed findings of fact. Although plaintiffs
dispute some of defendant’s proposed findings, we are satisfied that the
disputed facts do not preclude summary judgment.
2
  The terms of the loan agreements, promissory notes, and mortgages are
identical among the four properties.

                                      2
evidencing the loan, the related security instrument and related agreement are
herein called the ‘loan obligation’.” Def.’s App. 1.

        FmHA also issued a 50-year term promissory note and mortgage to
Callaway Manor. The promissory note recited the amount of the debt and
terms of payment. It provided that “[p]repayments of scheduled installments,
or any portion thereof, may be made at any time at the option of Borrower.” Id.
at 10. The mortgage included the additional use restriction that required the
property to be used as low-income housing for twenty years, which imposed
a restriction on the ability to prepay and exit the Section 515 program prior to
the end of the twenty-year period. Id. at 8 (Mortgage Ex. A cl. 27). The
mortgage expressly referenced the note it secured in several sections,
providing that the “Borrower is justly indebted to the Government as
evidenced by one or more certain promissory note(s) . . . . And it is the purpose
and intent of this instrument that . . . this instrument shall secure payment of
the note . . . .” Id. at 4. The mortgage expressly incorporated the loan
agreement by reference, stating, “This instrument also secures the obligations
and covenants of Borrower set forth in Borrower’s Loan Agreement which is
hereby incorporated herein by reference.” Id. at 8 (Mortgage Ex. A cl. 26).
Furthermore, the mortgage stated that the loan must be used in compliance
with section 515 of Title V of the Housing Act of 1949 and is subject to the
FmHA regulations.

Fox Garden Apartments, Ltd.

       On January 21, 1983, Fox Garden and FmHA likewise executed a loan
agreement, promissory note, and mortgage for the construction of a low-
income rental housing complex. Fox Garden was subject to the requirements
of section 515, as stated in the loan agreement and mortgage. FmHA issued
Fox Garden a 50-year term mortgage and a promissory note. The loan
agreement stated that the three documents together constituted the loan
obligation, the mortgage incorporated the loan agreement by reference and
referred to the promissory note, and the promissory note stated that the
borrower could make prepayments of the scheduled installments at any time.

Fox Manor Apartments, Ltd.

      Fox Manor and FmHA executed a loan agreement, promissory note, and
mortgage on October 22, 1984, for the construction of a low-income rental
housing complex. As with Callaway Manor and Fox Garden, Fox Manor was

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subject to the requirements of section 515 in its operation of the apartment
complex, as stated in the loan agreement and mortgage. FmHA issued Fox
Manor a promissory note and mortgage with a 50-year term. The loan
agreement stated that the three documents together constituted the loan
obligation, the mortgage incorporated the loan agreement by reference and
referred to the promissory note, and the promissory note stated that the
borrower could make prepayments of the scheduled installments at any time.

Lake Garden Apartments, Ltd.

        On February 24, 1984, Lake Garden executed a loan agreement,
promissory note, and mortgage with FmHA for the construction of a low-
income rental housing complex. Lake Garden was subject to the requirements
of section 515 in its operation of the apartment complex, as stated in the loan
agreement and mortgage. FmHA also issued Lake Garden a promissory note
and mortgage with a 50-year term. The loan agreement stated that the three
documents together constituted the loan obligation, the mortgage incorporated
the loan agreement by reference and referred to the promissory note, and the
promissory note stated that the borrower could make prepayments of the
scheduled installments at any time.

Enactment of ELIHPA and HCDA

       Before the 20-year restrictive use period had expired, Congress enacted
the Emergency Low Income Housing Preservation Act of 1987, Pub. L. No.
100-242, 101 Stat. 1877 (1988) (“ELIHPA”) and the Housing and Community
Development Act of 1992, Pub. L. No. 102-550, 106 Stat. 3672 (1992)
(“HCDA”). ELIHPA and HCDA provide that the government would no longer
automatically accept prepayment of the Section 515 program loans at the close
of the 20-year restrictive use period, thereby repudiating the prepayment
provision of the loan obligations. Franconia Assocs. v. United States, 536 U.S.
129, 142-43 (2002).

       Instead of an unfettered right to prepay loan installments at any time
after the restrictive use period ended, the statutes require USDA Rural
Development, and its agency Rural Housing Service (the successor to FmHA),
to respond to notices of intent to prepay by offering incentives to remain in the
low-income housing program. 42 U.S.C. § 1472(c)(4)(A)-(B) (2012).
Furthermore, if the borrower rejects the offered incentives, Rural Housing
Service must require the borrower to attempt to sell the property at fair market

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value to either a nonprofit organization or a public agency. Id. §
1472(c)(5)(A)(I). Only if the property does not sell within 180 days is the
borrower free to prepay the loan. Id. § 1472(c)(5)(A)(ii).

Properties Conveyed to Rural Development

       Each property’s 20-year restrictive use period ended in 2003 or 2004.
On February 28, 2008, Rural Development sent written notice to each plaintiff
expressing concern about the economic viability of the properties. The twenty
years in the Section 515 program saw the properties deteriorate. Def.’s App.
28-31 (Rural Development Feb. 28, 2008 Letter and Resp. To Rural
Development Letter). The rents mandated by the Section 515 program were
insufficient to pay for the required capital improvements and increased
operating costs. Id. The properties had delinquent property taxes, deferred
maintenance, and a high vacancy rate. Id.

       Plaintiffs’ response did not challenge RD’s observations about the
condition of the properties. As part of its response, the common general
partner among plaintiffs sent a letter to Rural Development on March 18,
2008, stating that it intended to file prepayment requests for the four properties
in order to exit the Section 515 program. Plaintiffs requested approval to
prepay their respective promissory notes on April 28, 2008. The proposed
deadline for prepayment was December 1, 2008.

        As required by ELIHPA and HCDA, Rural Development offered
plaintiffs various incentives to remain in the Section 515 program, but
plaintiffs rejected the incentives. In 2009 and into 2010, plaintiffs marketed the
properties to nonprofit organizations and public agencies for the required 180-
day period. Although parties expressed interest in the properties, plaintiffs
were unable to sell the properties.

       With the statutory requirements satisfied, plaintiffs had the option to
prepay the loans. Plaintiffs also retained the option to sue for breach of the
contracts. See Franconia, 536 U.S. at 142-43. Plaintiffs did not renew their
request to prepay the loans, however, nor did plaintiffs bring a claim for breach
of contract at this time. Instead, in September 2010, plaintiffs requested that
Rural Development allow plaintiffs to offer deeds in lieu of foreclosure.

      In February 2011, Rural Development informed plaintiffs that their debt
to the government would be accelerated. Plaintiffs each offered Rural

                                        5
Development a deed in lieu of foreclosure on May 18, 2011. Rural
Development accepted the offers in November 2011. Plaintiffs transferred the
deeds to Rural Development on August 1, 2012.

      The offers plaintiffs sent to Rural Development on May 18, which
Rural Development later accepted, included Form Rural Development 3560-
22, “Offer to Convey Security.” The form stated:

               I. We hereby offer to convey to the United States of
       America, acting through the Rural Housing Service . . . our
       property covered by mortgages, deeds of trust, or other security
       instruments held or insured by the agency in full satisfaction of
       debt. . . .

               IV. At closing the following will be assigned to the
       Agency: . . . (4) all our rights, title, and interest in all contract
       rights, inventories, equipment, furnishings, accounts, general
       intangibles, gross receipts, gifts, pledges, income, and revenue
       as described in security instruments held or insured by the
       agency. . . .

            V. We agree to deliver possession of the property to the
       Agency when the conveyance to the Agency closes.

Def.’s App. 59.

       On April 22, 2014, plaintiffs commenced this action for breach of
contract, or, in the alternative, a taking in violation of the Fifth Amendment.

                                 DISCUSSION

        Plaintiffs pled a breach of contract claim based on the government’s
failure on the date its performance was due to permit plaintiffs to prepay their
debt. In the alternative, plaintiffs pled a takings claim, asserting that, as of the
date the government was required to accept prepayment but failed to do so, the
government breached the prepayment right, thereby taking plaintiffs’ real and
intangible property interests. The government now moves for summary
judgment on both claims. Defendant contends that plaintiffs lack standing to
assert the breach of contract claim because when plaintiffs executed the deeds


                                         6
in lieu of foreclosure for each property, they assigned the right to sue for
breach of the prepayment right to the government, in effect extinguishing any
potential breach of contract claims. With respect to the taking claims,
defendant argues that, when a taking claim arises from the actions taken by the
government contracting in its proprietary capacity, interference with plaintiffs’
contract rights do not constitute a taking.
I. BREACH OF CONTRACT CLAIM
        We begin with plaintiffs’ breach of contract claim. The government
argues that plaintiffs assigned their right to sue for breach of contract by the
plain language of the offer to convey security: “At closing the following will
be assigned to the Agency: . . . (4) all our rights, title, and interest in all
contract rights, inventories, equipment, furnishings, accounts, general
intangibles, gross receipts, gifts, pledges, income, and revenue as described in
security instruments held or insured by the agency.” Def.’s App. 59. The
government argues that the language used to convey the contract rights, “all
our rights . . in all contract rights,” was sufficient to assign the right to bring
a claim for breach of contract, relying on Dominion Res., Inc. v. United States,
641 F.3d 1359, 1362-63 (Fed. Cir. 2011) (holding that the Nuclear Waste
Policy Act’s language, “the rights and duties of a party to a contract,”
permitted the assignment of a damages claim for breach). No particular
language is necessary to effectively agree to assign one’s rights under a
contract, the government contends, as long as the language is sufficient to
demonstrate that the parties intended to assign such rights. The government
looks to the mortgage as the relevant security instrument, but reads the loan
agreement, mortgage, and promissory note together as a single loan obligation.
It argues that the mortgage describing the promissory note itself was sufficient
to include the contract rights therein in the assignment.
       Plaintiffs respond that the offer to convey security does not convey the
breach of contract claim. Plaintiffs “intended to simply convey property
ownership to the Government and to extinguish each mortgage debt.” Pls.’
Resp. Mot. Summ. J. 30. Plaintiffs argue that the government seeks to convert
an assignment of assets into a release, despite the lack of release, waiver, or
settlement language. They also argue that the only security instrument involved
is the mortgage, and thus the prepayment right must be described in the
mortgage itself. Reading the mortgage in isolation, plaintiffs contend that it
does not describe the promissory note or the prepayment right contained in the

                                        7
promissory note.
        When interpreting contract language to determine the intent of the
parties, we begin with the plain language. The contract must be read as a
whole, giving meaning to all of its terms. Alvin Ltd. v. U.S. Postal Serv., 816
F.2d 1562, 1565 (Fed. Cir. 1987). An assignment occurs when a party to a
contract transfers a right to another, extinguishing the transferring party’s right
to performance. See Restatement (Second) of Contracts § 317(1) (Am. Law
Inst. 1981). An assignment may be effective to transfer “the right to bring a
claim for damages resulting from breach” of a contract, because the rights of
a party to a contract “encompass not just the party’s continuing rights and
duties under the contract, but also the party’s existing right to enforce the
contract for an ongoing breach and to collect damages that have been
incurred.” Dominion Res., 641 F.3d at 1363. An assignment does not require
particular language, but the language used must be sufficient to demonstrate
that the assignor intended to assign the right at issue to the assignee. Id.
        The parties do not dispute that the prepayment clause in the promissory
note is a contract right, as is plaintiffs’ right to bring a claim for breach of the
prepayment right. They dispute, however, whether the right to sue for breach
is one of the contract rights that was effectively assigned to the government
through the assignment clause in the offer to convey security. To decide what
contract rights the assignment clause includes, we turn to a general principle:
when multiple documents are executed contemporaneously and relate to the
same transaction, those documents will be read together. See Joy v. City of St.
Louis, 138 U.S. 1, 38 (1891) (Two agreements and a deed “constituted a single
transaction, relating to the same subject-matter, and should be construed
together in such a way as to carry into effect the intention of the parties, in
view of their situation at the time and of the subject-matter of the
instruments.”); Restatement (Second) of Contracts § 202(2) (Am. Law Inst.
1981) (“[A]ll writings that are part of the same transaction are interpreted
together.”); cf. CCA Assocs. v. United States, 667 F.3d 1239, 1249-50 (Fed.
Cir. 2011) (acknowledging that related documents are generally read together,
but holding that the agreements were not sufficiently related when the
documents were signed by distinct parties and HUD was a named party to only
one of the agreements).
        Here, all three documents were executed between the government and
plaintiffs, were executed contemporaneously, and all relate to the same

                                         8
concern: repayment of the Section 515 program loan. The mortgage expressly
incorporates the terms of the loan agreement. The loan agreement recites that
the note evidencing the loan, the loan agreement, and the security instrument
together are a single loan obligation. The mortgage also provides that securing
the payment of the note is the very purpose of executing the mortgage. The
mortgage states that it is subject to the present and future regulations of the
FmHA and those regulations provide that loans made under section 515 are to
be repaid according to the provisions of the promissory note, loan agreement,
and mortgage. 7 C.F.R. § 3560.401 (2017).
        Plaintiffs are correct that the mortgage does not expressly reference the
prepayment right, but the terms of repayment of a debt would naturally be
located in a document evidencing the debt rather than in the document
securing the debt. Plaintiffs also conclude that, because the terms surrounding
“contract rights” in the offer to convey security all refer to a conveyance of
secured property rather than rights associated with paying the debt,“contract
rights” must only refer to property-related contract rights. Such a reading
artificially restricts the ordinary meaning of “contract rights” and also neglects
the fact that the agreement separately provides for the transfer of the properties
and all the other rights plaintiff held relating to the properties.
        Plaintiffs also contend that the contemporaneous circumstances support
reading any contract rights located in the mortgage separately. Plaintiffs argue
that they had no other viable financial option available other than to quickly
rid themselves of the properties while retaining the right to sue for breach of
contract later.3 The government replies that, despite their financial hardship,
plaintiffs had other legal options available than merely deeds in lieu of
foreclosure. Those options included suing the government for breach of
contract, defending against the foreclosure action, negotiating a different
incentive package to remain in the program, or prepaying the loans which




3
 We do not find Lindsey Rupp’s declaration that Mr. Rupp did not intend to
assign the breach of contract claim to the government persuasive. Her
husband’s actions at the time the deeds in lieu of foreclosure were executed
plainly demonstrate the contrary and the intent she attributed to him went
unexpressed at the time.

                                        9
plaintiffs had the right to do after the unsuccessful sale period.4
        Plaintiffs may be correct that they were experiencing financial
difficulties due to the limitations the Section 515 program placed on the
properties since entering the loan program, prompting them to seek an
expeditious exit from their entanglement in government financing. The
particular circumstances motivating the assignments, however, do not vitiate
their effect. The contemporaneous evidence demonstrates that plaintiffs sought
a clean exit from the program, and that they did so without carving out the
right to later bring a breach of contract claim.
        We agree with the United States that the loan agreement, note, and
mortgage were all of one piece. Due to the documents being executed as a
single loan obligation between the government and plaintiffs and each
containing contract rights, including the promissory note prepayment right, the
reference to “all our rights . . . in all contract rights . . . described in the
security instruments” clearly incorporates the contract rights set out in the note.
By assigning all their contract rights to the government, the prepayment right
was no longer enforceable by plaintiffs. Because the plain language of the
offer to convey security read in light of the loan obligation and
contemporaneous circumstances supports the conclusion that the breach of
prepayment right claim was assigned to the government, we hold that plaintiffs
lack standing now to bring the breach of contract claim and grant defendant’s
motion for summary judgment on the contract claim.
II. TAKINGS CLAIM



4
  Plaintiffs also argue that Rural Development did not notify plaintiffs of
permission to prepay after the ELIHPA requirements had been satisfied, as
stated in the Rural Development handbook. Def.’s Suppl. App. 6. That lack of
a notification, which was not required by ELIHPA, HCDA, the accompanying
regulations, or the four loan obligations, did not prevent plaintiffs from
pursuing prepayment, however. During the period after plaintiffs’ request to
prepay, Rural Development wrote to plaintiffs explaining that, if the properties
did not sell, Rural Development may accept payment with no further
restrictions. Pls.’ Resp. Mot. to Dismiss Ex. I. The missing notification thus is
not relevant to whether plaintiffs assigned their claim through the deeds in lieu
of foreclosure.

                                        10
        In addition to the breach of contract claim, plaintiffs alternatively pled
a takings claim. See Stockton East Water Dist. v. United States, 583 F.3d 1344,
1368 (Fed. Cir. 2009). Plaintiffs advance two theories of how the government
took their property for public use without just compensation. Plaintiffs argue
that the repudiation of the prepayment right itself constituted a taking of a
contract right. Plaintiffs also assert, however, that the regulatory burden placed
on the properties as a result of the refusal to allow prepayment in a timely
manner constituted a taking of real property. They contend that the significant
restrictions imposed by ELIHPA and HCDA forced plaintiffs to give up their
property to the government.
       Defendant argues that FmHA acted in the government’s commercial or
proprietary capacity in entering the contracts with plaintiffs and in repudiating
the prepayment right. Thus, plaintiffs’ remedies arise, if anywhere, from its
contract rights. Defendant argues that plaintiffs “have not articulated a
property-based taking that is distinct from the breach of contractual right.”
Def.’s Reply Mot. Summ. J. 13. Any “devastating impact” plaintiffs’
properties experienced is indelibly tied to the “right rooted in plaintiffs’
contracts.” Id.
        We agree. Regarding the alleged taking of the contractual prepayment
right, plaintiffs cannot assert more contract rights in a takings claim than they
possess in a breach of contract claim. As we explained above, plaintiffs
effectively assigned the prepayment right to the government in the deeds in
lieu of foreclosure, leaving no contract right to be asserted as a takings claim.
        Furthermore, “when the government itself breaches a contract, a party
must seek compensation from the government in contract rather than under a
takings claim.” Piszel v. United States, 833 F.3d 1366, 1376 (Fed. Cir. 2016)
(citing Hughes Commc’ns Galaxy, Inc. v. United States, 271 F.3d 1060, 1070
(Fed. Cir. 2001) (“Taking claims rarely arise under government contracts
because the Government acts in its commercial or proprietary capacity in
entering contracts, rather than its sovereign capacity. Accordingly, remedies
arise from the contracts themselves, rather than from the constitutional
protection of private property rights.”)). To cause the taking of a contractual
right, the government most not only prevent performance of the contract, but
also “must substantially take away the right to damages in the event of a
breach.” Id. at 1377. ELIHPA and HCDA prevented plaintiffs from exercising
the unfettered right to prepay, but the government did not deprive plaintiffs of

                                       11
the right to sue for breach of contract at the time the legislation was adopted
or after plaintiffs’ request to prepay. Plaintiffs were permitted to assert their
contract rights in a claim until plaintiffs assigned those rights to the
government in exchange for full satisfaction of their debt. The fact that
plaintiffs chose to transfer the properties and associated contract rights to the
government after they placed the government in breach does not create a
taking.
        Plaintiffs’ regulatory taking theory also arises from breach of the
prepayment right and the right to bring a claim for that breach, which was
assigned to the government. Plaintiffs contend that ELIHPA and HCDA
placed an additional regulatory burden on the properties by repudiating the
unfettered right to prepay at the end of the 20-year restrictive use period, thus
extending the properties’ tenure in the Section 515 program. The additional
regulatory burden, however, was the result of the government breaching
plaintiffs’ contractual right to prepay by failing to accept its prepayment
request after the restricted use period had ended. Since both takings theories
are tied to the breach of the contractual prepayment right, the takings claim for
the contractual prepayment right and for the regulatory taking must fail. Thus,
we grant summary judgment to the government on the takings claim.
                               CONCLUSION

        Because plaintiffs lack standing to pursue the breach of contract claim
and because the takings claim arises exclusively out of the contract rights that
plaintiffs assigned, we grant defendant’s motion for summary judgment. The
Clerk is directed to enter judgment accordingly. No costs.


                                            s/Eric G. Bruggink
                                            ERIC G. BRUGGINK
                                            Senior Judge




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