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Appeals Court Rules in Favor of HAs in Second Operating Reserves Case

On April 16, the U.S. Court of Appeals for the Federal Circuit ruled 3-0 in favor of the more than 500 HAs in their lawsuit against HUD challenging the Department’s implementation of the 2012 operating subsidy offset. The case, brought by the Washington, D.C. law firm Coan & Lyons, stems from earlier successful litigation in which more than 300 HAs obtained approximately $136 million in damages. The first lawsuit, PHADA v. United States, was initiated by PHADA and was joined by NAHRO and a few state housing agencies.

The President’s FY 2012 budget proposal included an Operating Fund of $3.96 billion, which was about $1 billion less than the amount needed to pay the estimated subsidy amount for all HAs at that time. Misleadingly characterizing some HAs’ operating reserves as “excess,” HUD devised an “allocation adjustment” based on those reserves. Because of this “allocation adjustment,” many HAs received operating subsidies that were less than they would have received otherwise. This had the harmful effect of requiring many agencies to use their reserves that were needed for operations and other priorities.

After a few years of litigation, the U.S. Court of Federal Claims (“Claims Court”) ruled in PHADA v. United States that HUD breached its contractual obligations under its Annual Contributions Contracts (ACCs) with HAs under its “allocation adjustment” instead of reducing each HA’s operating subsidy on a pro rata basis as required by HUD regulations. 

The second lawsuit was based on the same issue and includes 553 HAs. Collectively, as determined by the Claims Court, these agencies are entitled to approximately $132.6 million in damages.

In the second lawsuit, the Government did not contest the merits of the HAs’ claims. Rather, the Government argued that the Claims Court did not have jurisdiction over the claims. Both the Claims Court and the Court of Appeals soundly rejected the Government’s arguments.

At this stage, the Government has three appeal options. It can ask the three judges that made the decision to reconsider their decision. The Government can also ask that all of the judges of the Court of Appeals review the decision. This is called an en banc appeal. Lastly, the Government can ask the U.S. Supreme Court to review the decision.

Based on the standards for any such appeals, Coan & Lyons think that it is unlikely that the Government will pursue any of these appeal options. However, there is no way to know for certain.

A fourth option available to the Government is to notify the Court of Appeals that it won’t be pursuing any appeals. This would permit the payment process to begin since, ordinarily, the process cannot begin until the deadline for asking the Supreme Court to review the decision has expired.

PHADA very much appreciates the successful efforts of Coan & Lyons and the strong support the Court of Appeals showed for the plaintiffs’ legal position. The association will continue to report on this important matter as developments warrant. 

PHADA has made available PDFs of the Appeals Court’s opinion and favorable judgment.

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