Franconia Associates v. United States
536 U.S. 129, 2002 U.S. LEXIS 4204, 153 L. Ed. 2d 132 (2002)
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Rule of Law:
A congressional enactment that unilaterally modifies the government's future contractual obligations constitutes a repudiation, not an immediate breach of contract, allowing the promisee to elect to await the time for performance before the six-year statute of limitations for Tucker Act claims begins to run.
Facts:
- Petitioners, property owners, entered into loan agreements with the Farmers Home Administration (FmHA) under federal programs to develop affordable rural housing, receiving low-interest mortgage loans.
- As part of these agreements, petitioners dedicated their properties to low- and middle-income housing and agreed to abide by related restrictions for the life of the loans.
- The promissory notes executed by petitioners included a provision stating, 'Prepayments of scheduled installments, or any portion thereof, may be made at any time at the option of Borrower,' which petitioners understood as an unfettered right to prepay and be released from program restrictions.
- By 1987, Congress became concerned that mortgage prepayments by program participants were threatening the continued availability of affordable rural housing.
- On February 5, 1988, Congress enacted the Emergency Low Income Housing Preservation Act of 1987 (ELIHPA), which imposed new, permanent restrictions upon prepayment of FmHA § 515 mortgages entered into before December 21, 1979, requiring efforts to extend low-income use or offer to sell to a non-profit.
- Some petitioners later attempted to prepay their mortgages, but the Government refused to accept these tenders under the new ELIHPA regulations.
Procedural Posture:
- Franconia Associates and other petitioners filed an action in the United States Court of Federal Claims alleging breach of contract and a Fifth Amendment taking.
- The Court of Federal Claims granted the Government’s motion to dismiss petitioners’ contract claims as time-barred, holding they accrued on the effective date of ELIHPA regulations (May 23, 1988), and sua sponte dismissed the takings claims as untimely for the same reason.
- The Grass Valley petitioners filed a virtually identical action in the Court of Federal Claims, which also dismissed their contract claims for the same reasons.
- The Federal Circuit affirmed the dismissal of the Franconia petitioners’ claims, ruling that the breach occurred immediately upon ELIHPA’s enactment (February 5, 1988), thus the claims, filed over nine years later, were time-barred. The Federal Circuit also affirmed the dismissal of the Grass Valley petitioners' claims without opinion.
- The Supreme Court of the United States granted certiorari to review the two judgments of the Federal Circuit.
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Issue:
Is a congressional enactment that modifies the government's future contractual obligations considered an immediate breach of contract, thereby triggering the six-year statute of limitations for Tucker Act claims upon enactment, or is it a repudiation that allows the injured party to await the time for performance before the claim accrues?
Opinions:
Majority - Justice Ginsburg
No, a congressional enactment that modifies the government's future contractual obligations is considered a repudiation, not an immediate breach of contract, meaning the six-year statute of limitations for Tucker Act claims begins when the promisee elects to treat the repudiation as a breach, typically by tendering performance that is then refused. The Court reasoned that the government's obligation under the promissory notes was to accept prepayment, not merely to 'allow' it. ELIHPA's enactment, by announcing that the government would not perform its original promise to accept unfettered prepayment in the future, constituted a 'repudiation' of the contract. A repudiation occurs when a promisor communicates an intent not to perform before the time for performance is due, whereas a 'present breach' occurs when performance is due and not rendered. Under general contract law, a promisee faced with a repudiation has the option to either treat it as an immediate breach and sue, or to await the time for performance. If the promisee awaits performance, the cause of action accrues when performance becomes due and is then refused. The Court rejected the government's argument that 28 U.S.C. § 2501's 'first accrues' language created a special, earlier accrual rule for suits against the United States, affirming that limitations principles generally apply to the government as they do to private parties. The Court also noted that allowing the government to use its own legislative repudiation to force immediate litigation would pervert the repudiation doctrine and likely lead to a proliferation of speculative lawsuits. Furthermore, Congress can retract a repudiation, as it had done before ELIHPA, demonstrating that an Act of Congress can indeed be a repudiation. The Court also concluded that the takings claims hinged on the same timing of breach and thus were similarly not time-barred upon ELIHPA's enactment.
Analysis:
This case significantly clarifies the application of the anticipatory repudiation doctrine against the federal government in the context of the Tucker Act's statute of limitations. By distinguishing between legislative repudiation and immediate breach, the Court ensures that parties contracting with the government are not prematurely forced into litigation due to statutory changes affecting future performance. The decision reinforces the principle that the government, when acting in a contractual capacity, is largely subject to the same common law contract principles as private parties, promoting equitable treatment and potentially reducing the burden of speculative lawsuits.
