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F. W. EVERSLEY & CO. v. EAST NEW YORK NON-PROFIT H

February 4, 1976

F. W. EVERSLEY & CO., INC., on behalf of itself and all other persons entitled to share in funds allocated for the improvement of real property owned by the East New York Non-Profit HDFC, Inc., Plaintiffs,
v.
The EAST NEW YORK NON-PROFIT HDFC, INC., et al., Defendants. F. W. EVERSLEY & CO., INC., on behalf of itself and all other persons entitled to share in funds allocated for the improvement of real property owned by Brownsville Housing Development Fund Corporation, Plaintiffs, v. BROWNSVILLE HOUSING DEVELOPMENT FUND CORPORATION et al., Defendants


Werker, District Judge.


The opinion of the court was delivered by: WERKER

WERKER, District Judge.

These are two related causes of action for amounts due to a general contractor under construction contracts for the construction of two low-income housing developments. For convenience, 75 Civ. 84 will be referred to as East New York, and 75 Civ. 85 will be referred to as Brownsville.

 Plaintiff has moved for summary judgment in each case under the Federal Rules of Civil Procedure, Rule 56. The Secretary of Housing and Urban Development, now Carla Hills, (the "Secretary" or the "government") has cross-moved for summary judgment. The East New York Savings Bank ("ENYSB") has asserted a cross-claim against the Secretary and cross-moves for summary judgment. Manufacturers Hanover Trust Co. ("Manufacturers") opposes plaintiff's motion and seeks summary judgment in its favor in its response papers although no formal notice of motion to that effect was ever filed. Neither housing development fund corporation has appeared in the action.

 This action was removed from state court to this court under 28 U.S.C. § 1442(a)(1) (1970). *fn1" The complaints in both these actions seek damages from the Secretary on account of action he has or may take in his official capacity. In East New York injunctive relief is sought against the Secretary. Haggard v. Lancaster, 320 F. Supp. 1252 (N.D.Miss. 1970); 514 Citizens and Taxpayers of the Town of Epping v. Fecteau, 269 F. Supp. 769 (D.N.H.1966); Sarner v. Mason, 128 F. Supp. 165 (D.N.J.1955).

 The two non-profit organizations, Brownsville Housing Development & Fund Corporation ("Brownsville") and The East New York non-profit HDFC, Inc. ("East New York") entered into building loan agreements with Manufacturers and ENYSB, respectively. These loans were to provide mortgage funds for the construction of low-income housing projects. The Secretary, acting through the Commissioner of the Federal Housing Administration, agreed to insure the building loan agreements under section 236 of the National Housing Act, 12 U.S.C. § 1715z-1 (Supp. IV, 1975), amending 12 U.S.C. § 1715z-1 (1970). In Brownsville, Manufacturers agreed to loan Brownsville $10,096,000.00 to be advanced in stages during construction. Of that amount, $7,697,266.00 was to be made available for the improvement of property. In East New York, the ENYSB agreed to loan East New York $3,626,400.00, to be advanced in stages, $2,829,087.00 of which was to be for improvement of the property. Building Loan Agreement, Exhibit B.

 F. W. Eversley & Co., Inc. ("Eversley"), a black construction company, executed a contract with Brownsville in one instance and with East New York in the other, for the general and off-site construction of each project. In East New York, the owner agreed to pay plaintiff the actual costs of construction plus a fee of $118,755.00 up to a maximum of $2,829,087.00. Change orders amounting to $12,067.00 were approved as being covered by the mortgage. *fn2" In connection with off-site construction, East New York deposited $23,400.00 with the bank to be held in escrow, pending plaintiff's performance of the work. On or about March 15, 1972, upon the bank's demand, Eversley deposited $7,500.00 with the bank to be held as collateral against East New York's open real estate taxes. In addition, the owner apparently escrowed an additional $18,824.00 to cover various sums due the bank which has already been expended.

 In Brownsville, Brownsville agreed to pay plaintiff the cost of construction plus a fee of $284,521.00 up to an amount of $7,697,226.00 except as increased or decreased by approved changes. A change order of $100,050.00 was agreed to at the time of execution of the construction contract because of changes required by the New York City Building Department. Construction Contract, Rider A; Addendum to Closing Drawings and Specifications. Eversley also alleges that changes costing $29,359.20 were also required and approved by Brownsville and the Secretary. However, the documents submitted by the Secretary consisting of copies of all the change orders approved by HUD indicate that only changes in the amount of $110,297.00 were approved, and nothing is submitted by plaintiff to controvert this.

 In each case, the cost of improvement was to be paid totally by advances under the building loan agreement and neither owner was required to make any financial investment in the developments. Monies were advanced in each case by the Banks to the owners and progress payments were then made to plaintiff pursuant to the building loan agreements.

 In each case, plaintiff has completed all work required by the construction contracts and related documents. *fn3" In each case, the owners are in default of their obligations under the building loan agreements and in their obligations to Eversley. In East New York, where the mortgage has been assigned to the Secretary, the government has declined to make further advances of additional monies under the building loan agreement. In Brownsville, where the mortgage has not been assigned, Manufacturers refuses to make any more advances under the building loan agreement.

 Subsequent to the submission of the motion papers in this case, the plaintiff filed a voluntary petition in bankruptcy.

 In Brownsville, plaintiff claims an amount due it of $461,807.00 on account of retained percentages under the general construction contract and a balance due for approved change orders of $129,409.20 for a total of $591,216.20, plus interest from February 18, 1973. In East New York, the plaintiff seeks damages in the amount of $219,938.00, plus interest from December 17, 1972. This sum represents holdbacks in the amount of $176,971.00, *fn4" escrow deposits on account of off-site construction in the amount of $23,400.00, approved change orders in the amount of $12,067.00, and a tax escrow in the amount of $7,500.00.

 In its first cause of action in each case, plaintiff alleges that a fund for the payment of its claim exists, that each fund constitutes a trust fund under the New York State Lien Law and that the plaintiff is a third-party beneficiary of these funds. In Eversley's second cause of action in Brownsville and third cause of action in East New York, it asserts that it and its subcontractors are statutory beneficiaries of funds consisting of retained percentages and escrow deposits under § 77 of the New York State Lien Law (McKinneys 1966). In the second cause of action in East New York, Eversley seeks to prevent the ENYSB from assigning its rights under the mortgage to the Secretary (although this issue is now moot, the assignment having already taken place) and to prevent the Secretary from thereafter foreclosing on the mortgage.

 By way of defense, the government alleges that under the terms of the building loan agreements between the owners and the banks, that the banks were not obligated to make advances if the owners defaulted and that the Secretary was not obliged to approve further advances of loan proceeds under these circumstances. The government also asserts that the complaint fails to state a claim upon which relief may be granted. The Secretary cross-claims against the owners in the event that the Secretary is held liable to the plaintiff in either action.

 The government had previously been given leave to amend its answer to assert the defense that plaintiff's lien law cause of action was time-barred. Aside from the statute of limitations defense, the ENYSB also asserts as a defense that liens existed against the premises which would have had priority over the Bank's advances under the loan agreement and that where the loan agreement provided that the bank need not make any advances unless they constituted a first lien on the premises, that the bank was not obliged to make additional advances. ENYSB in its amended answer also cross-claims for judgment over against the Secretary in the event that plaintiff recovers against ENYSB. Manufacturers, aside from asserting the time bar in its amended answer, alleges that the complaint fails to state a claim upon which relief may be granted, that the bank made all advances which were approved by the Federal Housing Commissioner, and finally ...


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