Dbsi/Tri IV Ltd. Partnership v. U.S., 04-36066.

465 F.3d 1031

DBSI/TRI IV LIMITED PARTNERSHIP, an Idaho limited partnership; Forest Hills Investors of Coquille, Oregon Ltd., an Oregon limited partnership; Jadin Investments, Ltd., an Oregon limited partnership; Norseman Village, an Oregon limited partnership; Parkside Development, an Oregon limited partnership, Plaintiffs, and Sherry Goldammer; Donald Gerhard; Ron Veillon; Carmen Thomas; Diana Rhodes, Appellants, v. UNITED STATES of America, Defendant-Appellee.

Sherry Goldammer; Donald Gerhard; Ron Veillon; Carmen Thomas; Diana Rhodes, Plaintiffs-Appellants, v. Forest Hills Investors of Coquille, Oregon Ltd., an Oregon limited partnership; Jadin Investments, Ltd., an Oregon limited partnership; Norseman Village, an Oregon limited partnership, Defendants, and Ann Veneman, in her official capacity as secretary of the United States Department of Agriculture; DBSI/TRI IV Limited Partnership; DBSI Realty

Corp., an Idaho corporation; Northwest Real Estate Capital Corporation, an Idaho corporation; DBSI/TRI VII, Defendants-Appellees.

No. 04-36066.

No. 05-35748.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted September 13, 2006.

Filed October 3, 2006.

Arthur Schmidt, Oregon Law Center, Portland, OR, argued the cause for the appellant. Michelle Ryan, Oregon Law Center, was on the briefs.

Robert E. Bakes, Moffatt, Thomas, Barrett, Rock & Fields, Chartered, Boise, ID, argued the cause for appellee DBSI. Andrew R. Gardner, Stoel Rives, Portland, OR, was on the brief.

Kelly A. Zusman, Assistant United States Attorney, Portland, OR, argued the cause for appellee United States. John Muson, Special Assistant United States Attorney, Portland, OR, was on the brief.

Appeal from the United States District Court for the District of Oregon; Anna J. Brown, District Judge, Presiding. D.C. Nos. CV-98-01325-AJB, CV-03-01749-AJB.

Before HAWKINS, SILVERMAN, and GOULD, Circuit Judges.

SILVERMAN, Circuit Judge.

This consolidated appeal concerns the prepayment of a Section 515 loan by owners of low-income housing in Oregon contrary to the prepayment procedures required by the Emergency Low Income Housing Protection Act of 1987, 42 U.S.C. § 1472 ("ELIHPA"). Appellants are residents who presently live in this housing property.

First, they appeal the district court's denial of their motion to intervene in a quiet title lawsuit, DBSI/TRI IV Limited Partnership, et al. v. United States, No. 04-36066, between the property owners and the Rural Housing Service ("RHS"), an administrative division of the United States Department of Agriculture. Second, appellants appeal the district court's grant of summary judgment in favor of the owners and RHS in appellants' Administrative Procedure Act ("APA") claim, which alleged that RHS accepted prepayment on a Section 515 loan in violation of ELIHPA.

We affirm the district court's denial of appellants' motion to intervene in the quiet title lawsuit because their interests are sufficiently protected by their APA lawsuit. However, because the district court misconstrued our holding in Kimberly Associates v. United States, 261 F.3d 864 (9th Cir.2001), we reverse the grant of summary judgment and remand for further proceedings. Kimberly merely held that certain defenses were not available to the government in a quiet title action brought by Section 515 borrowers to enforce their contractual right to prepay their loans. However, ours is an APA case brought by residents challenging the agency's noncompliance with the Emergency Low Income Housing Protection Act. Kimberly did not hold that ELIHPA was invalid or that the Department of Agriculture was free to violate it. The district court therefore erred in granting summary judgment to the agency on the tenants' claim that the agency acted contrary to law.

I. Background

The facts are not disputed.

Section 515 of the National Housing Act of 1949 was enacted by Congress to encourage private investment in housing for elderly and low-income individuals in rural areas. See 42 U.S.C. § 1471 et seq. Section 515 authorized the Farmers Home Administration, which was later subsumed into RHS, to make direct loans to finance affordable housing. In exchange for favorable interest rates and operating subsidies, the housing owners agreed to rent to qualified low-income tenants at affordable rates for as long as the loans were outstanding.

Defendant-appellees DBSI/TRI IV, Forest Hills, Jadin, Norseman, and DBSI/TRI VII (hereinafter collectively "DBSI") entered into loan agreements with RHS in the mid- to late 1970s to finance six properties: Forest Village, Seacrest, Hillside Terrace, Vittoria Square, Norseman Village, and Meadowbrook I. The loan agreements gave DBSI the right to prepay the loans and exit the Section 515 program at any time, even before the 40- or 50-year terms of the loans expired, stating: "Prepayments of scheduled installments, or any portion thereof, may be made at any time at the option of Borrower." The loan agreements also provided: "This Note shall be subject to the present regulations of the Farmers Home Administration and to its future regulations not inconsistent with the express provisions hereof."

Plaintiff-appellants are six tenants currently residing in these properties. Sherry Goldammer, Donald Gerhard, Ron Veillon, and Carmen Thomas are elderly low-income residents of Seacrest; Diana Rhodes is a low-income resident of Meadowbrook.

In 1987, Congress enacted ELIHPA. Pub.L. No. 100-242, 101 Stat. 1877 (1988).¹ In passing this legislation, Congress was motivated by concerns that RHS loans were vulnerable to prepayment, which removed housing from Section 515 ahead of schedule, thus undermining the purpose of the program.

Thus, Congress imposed "elaborate requirements for prepayments" in order to "discourage project owners from prepaying their loans," despite the terms of the loan contracts. Kimberly, 261 F.3d at 867. ELIHPA provides, in pertinent part:

The Secretary may not accept an offer to prepay . . . any loan made or insured under [Section 515] . . . unless the Secretary takes appropriate action which will obligate the borrower (and successors in interest thereof) to utilize the assisted housing and related facilities for the purposes specified in [Section 515], as the case may be, for a period of [fifteen or twenty years, depending on the type of loan], or until the Secretary determines (prior to the end of such period) that there is no longer a need for such housing and related facilities to be so utilized or that Federal or other financial assistance provided to the residents of such housing will no longer be provided.

42 U.S.C. § 1472(c)(1)(A).

Specifically, ELIHPA requires an owner to give notice of its intent to prepay, 42 U.S.C. § 1472(c)(3), at which point the Secretary of Agriculture must offer the owner a series of financial incentives to remain in the program, id. § 1472(c)(4). If the owner insists on prepaying, the owner is obligated to offer the project for sale to any "qualified nonprofit organization or public agency at a fair market value" determined by independent appraisers. Id. § 1472(c)(5)(A)(I). If no such sale is made within 180 days, then and only then may RHS accept prepayment. Id. § 1472(c)(5)(A)(ii).² The prepayment process is subject to agency regulations now found at 7 C.F.R. Part 3560 et seq. (2005).

In 1998, DBSI submitted final payments on their loans on four Section 515 properties, including Seacrest. No prepayment was offered for Meadowbrook I. RHS, relying upon ELIHPA and the accompanying regulations, refused to accept the prepayment tenders and refused to reconvey the deeds of trust or issue satisfactions of the mortgages that encumbered the properties.

On October 27, 1998, DBSI filed a quiet title lawsuit against the United States in the District of Oregon. In its complaint, DBSI claimed that they were entitled to quiet title judgments because RHS wrongfully rejected the 1998 prepayment tenders.

On February 28, 2003, DBSI and RHS entered into an "Agreement in Principle" to settle the quiet title lawsuit. DBSI and RHS agreed to negotiate values for the four properties involved in the quiet title lawsuit, as well as for Meadowbrook I, and to offer the properties initially to non-profit entities that would keep the properties in Section 515. If no such sale occurred, however, the Agreement provided that RHS would accept DBSI's prepayment and release the properties from Section 515 "without regard to any prepayment restrictions, including but not limited to the restrictions contained in 42 U.S.C. § 1472(c) and 7 C.F.R.1965.201 et seq."

Although DBSI and RHS agreed to values for the four properties, the government did not agree to finance the sale of these properties to nonprofit entities. Therefore, pursuant to the Agreement, DBSI paid the balance of the loan for Seacrest on October 28, 2003 and the government accepted this prepayment on December 1, 2003. On December 15, 2003, RHS reconveyed the deed of trust for the Seacrest property and released Seacrest from the Section 515 program. On December 19, 2003, DBSI and RHS stipulated to a quiet title judgment pursuant to Fed.R.Civ.P. 54(b).³ Also on December 19, 2003, appellants — the tenants — brought suit against the Secretary of the Department of Agriculture and various other federal defendants under the Administrative Procedure Act, 5 U.S.C. § 702, alleging that the agency acted contrary to law in allowing DBSI to exit the Section 515 program without complying with ELIHPA.

It is undisputed that RHS accepted prepayment of the Seacrest loan without requiring DBSI to comply with the requirements of ELIHPA.

After prepaying the Seacrest loan, DBSI conveyed Seacrest to Northwest Real Estate Capital Corporation ("Northwest"), which had previously purchased Seacrest from DBSI. Northwest eventually procured United States HUD Section 8 housing vouchers for the Seacrest tenants from a local housing authority, allowing the...