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MASON v. KAVY

September 30, 1955

Norman P. MASON, as and in his official capacity as Federal Housing Commissioner, and Farragut Gardens No. 1, Inc., Farragut Gardens No. 2, Inc., Farragut Gardens No. 3, Inc., Farragut Gardens No. 4, Inc. and Farragut Gardens No. 5, Inc., Plaintiffs,
v.
Bertram KAVY, Morris Kavy and John Doe, Richard Roe and John Smith (meaning thereby those persons who were the Vice-President, Secretary and Treasurer of Plaintiff Corporations prior to September 12, 1955), their agents, servants, employees and attorneys and those persons in active concert or participation with them, Defendants



The opinion of the court was delivered by: GALSTON

The plaintiffs have moved for a preliminary injunction, but since the issues are the same as those that are to be presented at the trial, and since also the plaintiffs urged that the trial be set as a preferred action at the head of the October term, and the court having so directed, the plaintiffs have temporarily withdrawn their motion.

There is, however, a counter-motion for determination made by the defendants to dismiss the complaint. The defendants assert two grounds for their motion: (1) that the court is without jurisdiction over the subject matter and (2) that the complaint fails to state a claim upon which relief can be granted.

The matter is one of considerable importance and calls for a prompt decision.

 The complaint alleges that Norman P. Mason is the duly appointed Federal Housing Commissioner (hereinafter referred to as the Commissioner), authorized by act of Congress to exercise the powers of the Federal Housing Administration and to sue in his official capacity. The co-plaintiffs, the Farragut Gardens corporations, are corporations existing under the laws of the State of New York. It is alleged that the action arises under the National Housing Act as amended, Title 12 U.S.C.A. § 1701 et seq., and pursuant to sections 1331 and 1345 of Title 28 U.S.C.

 The complaint alleges that the Congress conferred upon the Commissioner power to insure up to 90% of the estimated cost of completed properties, and up to $ 5,000,000 mortgage loans by private lenders to prospective builders. The Farragut corporations have the right, as appears from their certificates of incorporation,

 'to apply for and obtain * * * from the Federal Housing Commissioner * * * a contract or contracts of mortgage insurance pursuant to the provisions of the National Housing Act as amended * * *'

 and covering

 'any indenture of mortgage * * * securing the same.'

 It is also alleged that these certificates of incorporation provide that

 'so long as any property of this corporation is encumbered by a mortgage * * * of trust insured by the Commissioner, it shall engage in no business other than the construction and operation of a Rental Housing Project or Projects.'

 Likewise included in the complaint are allegations that these corporations obtained from the Commissioner contracts of mortgage insurance in the amounts of $ 4,411,200; $ 4,381,700;.$ 4,404,000; $ 3,672,400, and $ 4,850,000 respectively, covering mortgage loans for the construction and operation of a rental housing project or projects in Brooklyn.

 It was provided that the certificates of incorporation had to contain provisions required by the Commissioner to regulate or restrict mortgages 'as to * * * capital structure, rate of return, and methods of operation', section 608 of the National Housing Act, Title 12 U.S.C.A. § 1743.

 The Commissioner had promulgated regulations providing as follows:

 'A corporate mortgagor shall be regulated through the ownership by the Commissioner of certain shares of special stock * * * which stock or interest will acquire majority voting rights in the event of default under the mortgage or violation of provisions of the charter of the mortgagor * * *. The shares of stock or beneficial interest issued to the Commissioner * * * and/or the Federal Housing Administration shall be in sufficient amount to constitute * * * a valid special class stock * * *. Such stock shall be represented by certificates issued in the name of the Commissioner and/or in the name of the Federal Housing Administration * * *. Such regulation and the additional regulation or restriction provided in sections 280.30 to 280.32, inclusive, shall be made ...


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