By: Andrew Victor
In Park Properties Associates, L.P. v. United States, decided February 19, the Federal Circuit analyzed the fundamentals of what type of privity allows direct action against the government for breach of contract. The Federal Circuit ultimately held that none existed between landlords and the government despite both having signed the contract at issue. The court looked to the terms of the documents—different portions of which the government and the landlords had both signed—and found that the parties had not entered into any agreements with each other, but that the landlords had entered into agreements with the documents’ third signatory, a state public housing agency (PHA). Key components of the court’s reasoning were that the documents did not identify the government as a “party” and that the government retained discretion to act without the imposition of binding legal duties.
The agreements at the heart of the case were Housing Assistance Payments (HAP) renewal contracts, a mechanism of HUD to disburse funds for Section 8 housing. In finding privity below, Senior Judge Smith noted that the contracts (i) had three signature blocks on the signature page, one each for the PHA, the government, and the landlord; (ii) identified the parties to renewal contract as the PHA and the landlords; and (iii) provided that HUD could step into the shoes of the PHA if the PHA defaulted on its obligations.
Judge Stall for the Federal Circuit rejected this approach based on the terms of the HAP renewal contracts that identified the parties as the landlords and the PHA. The contracts simply did not identify HUD or the government as a party, notwithstanding the government’s signature on the signature page. Further, HUD’s oversight, such as the ability to step into the shoes of the PHA in case of default, merely demonstrated its governmental role and was insufficient to create privity with the landlords, according to the court. In reaching this conclusion, the court reviewed its precedent and found that this case provided another variation of how privity does not arise. The court canvassed several cases, the earliest of which dated back to 1967. In all the cases, the HUD regulatory scheme provided the government discretion and flexibility and did not compel the government to take any particular action regarding PHAs or HAP renewal contracts. For the court, this discretion underscored the lack of privity between HUD and the landlords.
Typically, a person that signs a contract is considered to be a party to that contract. Such is not always the case just because the government signs the contract, however. Park Properties teaches that identifying whether the government is party to a contract turns on whether the document explicitly identifies the government as a party. The government’s conferring of benefits, such as Section 8 subsidies, and oversight role, although substantive, are insufficient to create privity, the gateway to contract rights and remedies.