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BROWNSVILLE COMMUNITY COUNCIL, INC. v. DE PONCE

June 20, 1983

BROWNSVILLE COMMUNITY COUNCIL, INC., Plaintiff, against BANCO DE PONCE, Defendant and Third-Party Plaintiff, against HUMAN RESOURCES ADMINISTRATION OF THE CITY OF NEW YORK, THE COMMUNITY DEVELOPMENT AGENCY, STANLEY BREZENOFF, as the Administrator-Commissioner of the Human Resources Administration of The City of New York, ROGER ALVAREZ, as the Commissioner of the Community Development Agency and THE CITY OF NEW YORK, Third-Party Defendants.


The opinion of the court was delivered by: HAIGHT

MEMORANDUM OPINION AND ORDER

HAIGHT, District Judge:

 Plaintiff Brownsville Community Council, Inc. ("BCC") brings this action to recover $97,730.30 remitted to the City of New York by defendant Banco de Ponce ("the Bank") allegedly in violation of the Bank's implied contractual obligation to BCC as depositor of the funds. The Bank has brought a third-party action against the Human Resources Administration of the City of New York ("HRA"), the Community Development Agency ("CDA"), their respective commissioners, and the City of New York (hereinafter collectively referred to as "the City") on a theory of indemnification and money had and received. The case is presently before the Court on (1) plaintiff's motion for summary judgment; (2) defendant's motion for summary judgment against third-party defendants; (3) third-party defendants' motion to dismiss the complaint or, in the alternative, to dismiss defendant's third-party complaint against the City; and (4) third-party defendants' motion for leave to amend its answer.

 With regard to the latter motion, the City's request to amend its answer is granted insofar as it seeks to specifically assert against plaintiff the various defenses initially asserted against third-party plaintiff. Further, in light of the numerous affidavits and documentation submitted to the Court with these motions, the City's motion to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(6) will be treated as one for summary judgment pursuant to Fed.R.Civ.P. 56.

 I.

 Factual Background

 Essential to an understanding of the issues now before the Court is a review of the lengthy and at times acrimonious history of the parties to this action.

 The Community Development Agency is an administrative agency of the City of New York under the jurisdiction of the Human Resources Administration. CDA is responsible for administering the Community Action Program in New York City, a neighborhood assistance program established in 1972 pursuant to the Economic Opportunity Act of 1964, as amended, 42 U.S.C. § 2781 et seq., repealed Pub.L. 97-35, Title VI, § 683(a), 95 Stat. 519 (Aug. 13, 1981), and Mayor Executive Order Number 28 (1966), as amended by Executive Orders 84 (1968) and 34 (1975). To manage the federal and municipal funds thus allocated for community assistance activities, CDA initially designated twenty-five community corporations as umbrella organizations for their respective communities. In October of 1972, CDA entered into a one-year contract with plaintiff Brownsville Community Council for the term October 1, 1972 to September 30, 1973, whereby BCC became the community corporation for the Brownsville area of Brooklyn. Pursuant to its prime contract with CDA, BCC subcontracted with approximately eighteen delegate agencies deemed by BCC to meet the service needs of the Brownsville area. BCC supervised the fiscal and administrative operations of these various delegate agencies and, as a conduit of anti-poverty funds, was directly accountable to CDA for all Brownsville program activities. (Chow-Menzer Aff., PP2-3). During the contract period, BCC opened numerous accounts with defendant Banco de Ponce for the deposit of individual program funds.

 In August of 1972, as then required by federal regulation, 42 U.S.C. § 2791(b); 45 C.F.R. § 1062.200-3(a), BCC conducted a board of directors election. As set forth in the affidavit of David Murray, Director of Programming and Reporting of the Community Development Agency, CDA discovered subsequent to the election that BCC's by-laws, unlike those of the other community corporations, did not conform to the election policy approved by CDA, a policy specifically intended to ensure an ethnic balance on the community corporation's board (Murray Aff., PP2-3). *fn1" As a result of continuing disputes relating to the BCC board of directors election, *fn2" the New York City Council Against Poverty ("CAP") voted on August 13, 1973, to withdraw recognition of BCC pursuant to CAP's oversight authority. *fn3" In a letter dated August 15, 1973, to William Fred Wilson of the BCC, the Commissioner of the Community Development Agency notified BCC as follows:

 "The Brownsville Community Council, Inc. is being terminated in accordance with Article VIII of the Direct Program Grant Contract and Article X of the Prime Contract, Section B, Part (1) (iv) and Part 3, which state:

 'B. CDA's Right to Terminate.

 (1) CDA shall have the right to terminate agreement under the following conditions:

 (iv) Other circumstances which cause CDA to deem that it is in the best interest of CDA to terminate this agreement.

 (3) CDA may terminate this agreement without cause, subject to the conditions of the applicable federal grant, by giving two (2) weeks written notice to the Community Corporation.'

 During the interim thirty (30) days, August 31, 1973 to September 30, 1973, the Brownsville Community Council, Inc. will comply with all close-out procedures, as stated in the Prime Contract.Article X, Termination of Agreement, Section D, Procedure Upon Termination, Section E, Liability for Breach: Set-off, and Article XII, Continuing Programs Subsequent to Termination." (Beckey Aff., Exh. C).

 Attached to the Commissioner's letter was a notice of termination and a detailed listing of close-out procedures to be followed by BCC (Beckey Aff., Exh. C). As set forth in Article VIII of the prime contract, these procedures included BCC's obligation to:

 "[1] Account for and refund to the Agency, within thirty [30] days, any unexpended funds which have been paid to the Contractor pursuant to this agreement.

 "[2] Furnish within thirty [30] days an inventory to the Agency of all equipment, appurtenances and property purchased for the program and carry out any Agency directives concerning the disposition thereof.

 "[3] Not incur or pay any further obligations pursuant to this agreement beyond the termination date except ...


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