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IPPOLITO-LUTZ, INC. v. HARRIS

July 10, 1979

IPPOLITO-LUTZ, INC., Plaintiff,
v.
Patricia Roberts HARRIS, Secretary of United States Department of Housing and Urban Development, Defendant



The opinion of the court was delivered by: POLLACK

DECISION

The defendant, Secretary of the Department of Housing and Urban Development ("HUD"), has moved for judgment in her favor on the pleadings, Fed.R.Civ.P. 12(c), and plaintiff, Ippolito-Lutz, Inc., has cross-moved for summary judgment in its favor, Fed.R.Civ.P. 56.

 This action by a building contractor seeks to recover from the defendant Secretary the amount of a judgment rendered in 1967 in favor of plaintiff and against the publicly subsidized owner of a public housing project. For the reasons set forth below, the Secretary's motion must be granted and the plaintiff's motion is to be correspondingly denied.

 On December 9, 1958, the Public Housing Administration ("PHA"), the predecessor of HUD, and the Cohoes Housing Authority entered into an agreement denominated an Annual Contributions Contract ("ACC"). The PHA entered into that contract in pursuance of its functions under the United States Housing Act of 1937, as amended, 42 U.S.C. §§ 1401-1440. Pursuant to the ACC, PHA agreed to make a loan and subsequent annual contributions to finance Cohoes' construction and operation of a low-income housing project in Cohoes, New York. The project was further financed by the issuance of $ 1.9 million worth of bonds of the Cohoes Housing Authority, the principal and interest of which were to be gradually retired through the annual contributions from PHA.

 Under the terms of the ACC, PHA agreed to loan Cohoes an amount of money equal to the Maximum or Actual Development Cost of the housing project, less specified amounts (ACC § 410), but only to the extent such Development Cost was approved by the PHA (ACC §§ 8, 404, 405). PHA further agreed to make actual advances of money to Cohoes under an approved Development Cost Budget "upon a showing satisfactory to the PHA that there is then need for such monies for the development of the Projects." (ACC § 408(A)). However, PHA did not agree in the ACC to insure the Cohoes project against all financial difficulties nor did it agree to guarantee the obligations that Cohoes might incur to all third parties. Indeed, the ACC itself provided that no third party, with the exception of Cohoes bondholders, was an intended beneficiary of PHA's promises to Cohoes under the contract. Section 510 of the ACC provided:

 
Sec. 510. Rights of Third Parties
 
(A) The PHA covenants and agrees with and for the benefit of the holders from time to time of the bonds and of the interest claims thereunder, that it will pay the annual contributions pledged as security for such Bonds and interests pursuant to this Contract. To enforce the performance by the PHA of this covenant such holders, as well as the Local Authority (Cohoes), shall have the right to proceed against the PHA by action at law or suit in equity.
 
(B) Nothing in this Contract contained shall be construed as creating or justifying any claim against the PHA by any third party other than as provided in subsection (A) of this Sec. 510.

 On May 27, 1960, Cohoes awarded the construction contract for the housing project to plaintiff as general contractor. During construction, unforeseen design and engineering problems arose which caused plaintiff to incur substantial additional costs for changes and delays. Plaintiff contends that the necessity of redesign of the project led the PHA to assume effective control of the construction, in derogation of Cohoes' authority over the project. In spite of the problems encountered, plaintiff completed the project to the satisfaction of Cohoes and the PHA and Cohoes took possession of the two segments of the project in December 1961 and September 1962.

 Plaintiff filed a claim with Cohoes for payment of the additional costs arising from the construction changes, but Cohoes refused to pay the claim. On April 5, 1963, plaintiff commenced an action against Cohoes in New York State Supreme Court for the additional costs ($ 250,695.06) and for retainages owed under the original construction contract ($ 78,124.95). On July 18, 1967, Cohoes' answer in that action was stricken for failure to comply with several discovery orders of the Court, and judgment for plaintiff was entered in the amount of $ 371,512.51 (the above sums plus interest). The entry of the default judgment has been upheld on appeal. Ippolito-Lutz, Inc. v. Cohoes Housing Authority, 48 A.D.2d 1018, 373 N.Y.S.2d 335 (3d Dep't 1975), Leave to appeal denied, 38 N.Y.2d 705, 381 N.Y.S.2d 1025, 343 N.E.2d 774 (1975), Cert. denied, 425 U.S. 913, 96 S. Ct. 1510, 47 L. Ed. 2d 763 (1976).

 Plaintiff has been unable to collect its judgment against Cohoes, because the latter's real property is exempt from execution under state law and its rents, other income, and other assets are subject to a prior lien in favor of the bondholders. After several years of negotiations with HUD and Cohoes about payment of its claim, plaintiff commenced this action against the Secretary on December 21, 1977.

 Cohoes has not submitted, and consequently HUD has not approved, a final Actual Development Cost budget under the ACC. The last Development Cost Budget submitted and approved was in the amount of $ 2,135,132, of which $ 2,062,000 has been advanced to Cohoes. Thus, a balance of $ 73,132 remains approved but unadvanced, and HUD will advance this sum to Cohoes upon application showing a need for it to pay approved costs of the project. Although Cohoes has neither applied for a final advance under the last approved budget nor submitted a final budget seeking funds necessary to pay plaintiff's claims, plaintiff contends that HUD has informally indicated that it would refuse to approve and to advance funds sufficient to pay plaintiff's claims in full, even if such application were made by Cohoes.

 In this action, plaintiff purports to state two causes of action against the Secretary. In the first, plaintiff alleges that Cohoes was merely the alter ego of HUD, used by HUD to effect its social and political purposes. It further alleges that the failure to pay plaintiff either the balance due on the construction contract and the additional costs incurred in construction, or the amount of the judgment entered in the prior suit for such sums, has resulted in the unjust enrichment of both Cohoes and HUD. For its second purported cause of action, plaintiff alleges that it is a creditor third-party beneficiary of the ACC entered into by Cohoes and PHA, and specifically of PHA's promise therein to loan funds sufficient to pay the total development cost of the Cohoes project. It further alleges that its judgment against Cohoes is a part of the project's cost that HUD is obligated to fund. On both causes of action, plaintiff demands judgment against the Secretary in the amount of the earlier judgment, $ 371,512.51, plus interest.

 The Secretary has moved for judgment in her favor on three grounds. First, she contends that this Court lacks subject matter jurisdiction, because the government has not waived its immunity to suit, because the plaintiff's claims do not arise under federal law, and because the requirements of mandamus jurisdiction have not been met. Second, she argues that the action is barred by the statute of limitations. Third, she argues that plaintiff's claims are within the exclusive jurisdiction of the Court of Claims. On its cross-motion, plaintiff contends that, on the undisputed facts, it is entitled to recover the amount of its judgment against Cohoes from HUD under the equitable ...


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