On July 5, the Ninth Circuit dismissed with prejudice an appeal by Front Street Affordable Housing Partners, confirming that the developer may not unilaterally end rent restrictions.
Mike Tuttle, a Front Street resident and a plaintiff in the case, said in a statement on behalf of the tenants of the 142-unit complex on the island of Maui: "The incredible stress for so many people, not knowing if they would lose their home, has really taken its toll. It's hard to put into words the level of joy and relief we all feel now that it's over, but it's extremely sad that it had to come to this."
Hogan Lovells became involved in the project nearly five years ago, when the Hawaiʻi Appleseed Center for Law & Economic Justice asked the firm if anyone there had any interest in helping a group of Maui residents who were in danger of being priced out of their homes due to a developer's attempt to exit an affordable housing agreement over 30 years ahead of schedule.
Joseph Lambert, a Hogan Lovells litigator in Colorado Springs, Colorado, agreed to represent the Lahaina Front Street Apartments tenants pro bono in a 2018 lawsuit against the developer and the state housing agency as lead counsel due to his ties to the state of Hawaii.
"We lived in Hawaii for six years when I was younger, ages 10 to 16, when my dad was stationed there in the Air Force," Lambert told Law360. "The interesting connection to this case is I went on a field trip when I lived there to that courthouse. This case was ultimately heard before the district court in the District of Hawaii, so I thought it was kind of cool that things came full circle like that."
Located in Lahaina, the Front Street Apartments project was built in 2001. In return for $15 million in state-funded tax credits, the developer agreed to keep the apartments affordable for 50 years.
However, after 15 years, Front Street asked the state's financing agency, Hawaii Housing Finance & Development Corp., for permission to end the restrictions 36 years early. The agency agreed, which could have led to doubling or tripling of rents and the eviction of low-income tenants who were unable to pay.
In their suit, the tenants said the agency's approval violated applicable law. In August 2020, U.S. District Judge Jill Otake ruled that Front Street was obligated to honor its commitment to keep rents affordable through 2051, and that an attempted "release" of the low-income restrictions was unenforceable.
The developer appealed Judge Otake's decision in favor of the tenants in 2020. The case was scheduled for oral argument before the Ninth Circuit on July 8.
Lambert said he was surprised Front Street dropped the appeal so close to the date of the scheduled oral argument, and wasn't sure why it did so.
Meanwhile, Front Street and the state housing agency have apparently reached an agreement to extend the affordability restrictions beyond even the 50 years in the declaration, Hogan Lovells said. The new lease will last for 75 years and took effect July 1, Natalie Mesa, an attorney with Settle Meyer Law, which represented Front Street, told The Maui News.
"We were confident in our position, and prepared to argue this case on appeal before the Ninth Circuit," Lambert said. "However, I am very pleased that after many years of litigation, the developer opted instead to drop its appeal and reached an agreement that not only keeps Front Street Apartments affordable through the initially agreed upon 50-year period, but extends its affordable housing commitment for an additional 25 years.
"Given the crisis of affordable housing in Maui, this agreement provides much-needed relief for the tenants of these apartments."
Representatives for Front Street and the Hawaii Attorney General's Department did not respond to requests for comment.
Lambert said developers typically agree to 30-year deals in affordable housing agreements for tax credits.
"In this particular case, the developer agreed to 50 years, and actually obtained additional points on an application to construct this project by making that commitment," he said. "So presumptively, the project should have been left affordable for the full 50-year period. What happened is, the statute provides essentially an opt-out after 15 years."
The residents, however, argued that part of the low-income housing credit statute, Title 26 of the U.S. Code, Section 42, states the 15-year opt-out doesn't apply if the parties agreed to more restrictive provisions for the individual project.
"That's essentially what our argument was," Lambert said. "If you look at the agreement that this developer signed with the state, in our view, they essentially agreed to waive that ability to opt out after the 15-year period, and instead agreed to maintain the affordability requirements for the full 50-year period. The developer came back and said, 'No, we never agreed to waive that.' And so ultimately, it was a legal interpretation over this agreement."
The biggest challenge during the legal fight was the fact that this was a novel question of law, he added.
"This was really the first case that addressed these issues," Lambert said. "So I think it was challenging, because oftentimes you have pretty good precedent to look back on and you can argue about what that precedent means. But in this particular case, we really didn't."
Last year, the Alaska superior court cited the Hawaii case in Creekside LP v. Alaska Housing Finance Corp.
, which involved a project developer that used state-allocated federal tax credits for a low-income housing project suing the state housing authority. The developer sought to eliminate a contractual obligation to maintain the project as low-income housing for 15 years beyond the initial 15-year qualifying period.The superior court granted summary judgment in favor of the housing authority, and the developer appealed several aspects of the court's ruling. The Alaska Supreme Court concluded the superior court correctly determined there were no material disputed facts about how the parties formed the agreements.
However, in the Hawaii litigation, given the lack of precedent, Lambert noted that "it was almost just a question of pure statutory interpretation and trying to define Congress' intent and how it relates to these individual projects and what the developer agrees to on an individual basis."
Lambert received assistance on the case from Hogan Lovells partner Cate Stetson, associate Cory Wroblewski, paralegal Heather Briggs and others. The tenants were also represented by Victor Geminiani, Ray Kong of the Honolulu nonprofit Lawyers for Equal Justice and Maui attorney Lance D. Collins.
"This case is an important reminder about the dire need for affordable housing in Hawaii," Kong said in a statement. "We need to ensure that projects like Front Street remain affordable, not only through the promised dates, but we need to think ahead about how to keep these units affordable when the restrictions expire. We need to plan ahead and take action now."
Lambert, who is Hogan Lovells' liaison on pro bono matters, said such work is extremely important to the firm.
"It's something that our firm emphasizes very significantly — that all attorneys need to give back to the community by devoting their own time to meaningful pro bono work," he said. "It's also something that I personally have a very strong commitment to and believe in."
--Editing by Marygrace Anderson and Nicole Bleier.