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December 23, 1986

The City of New York, Plaintiff,
Rapgal Associates, The St. Nicholas Manor Associates, and Norman Rappaport, Defendants

The opinion of the court was delivered by: WALKER


WALKER, District Judge:


 The City of New York commenced this action to compel defendants Rapgal Associates, The St. Nicholas Manor Associates and Norman Rappaport to donate $ 156,211 to a community organization. The defendants are real estate developers who participated in the federally funded and locally administered Neighborhood Strategy Area program ("NSA program") for the Hamilton Heights area of Manhattan. Six months after the defendants entered the NSA program, the City promulgated a regulation requiring participating developers to contribute a specified portion of their profits to a local community organization. The defendants have refused to obey the regulation claiming that it does not apply to them. The City, in turn, has denied defendants the opportunity to participate in further local housing development projects. The defendants have counterclaimed against the City, alleging that this denial violates the defendants' rights as a matter of tort, contract, and constitutional law.

 The City has moved for summary judgment on its claims, pursuant to Fed. R. Civ. P. 56, and to dismiss defendants' counterclaim under Fed. R. Civ. P. 12 on the grounds that the defendants, first, have failed to state a claim upon which relief can be granted and, second, did not notify the City of their claim within the time required by local law.

 The parties do not dispute the material facts which gave rise to this case, although they hotly contest the legal conclusions to be drawn from the facts. The defendants oppose the motion for summary judgment by arguing that, under their reading of the law, there are additional factual issues which require a trial on the merits.


 I. The NSA Program

 The case involves the City's administration of the NSA program, designed by the United States Department of Housing and Urban Development ("HUD") to coordinate local housing and development planning with federal funding for low income housing. Under the program, the local government requests HUD to designate a discrete area a Neighborhood Strategy Area ("NSA"). Once HUD does so, the local government may solicit and screen proposals for Section 8 housing submitted by private developers. *fn1" The City, thus, has the means to ensure that Section 8 housing projects are consistent with its local development plans and associated codes, regulations and orders. Once the City determines that a project is in accord with its plans and appears to meet the federal Section 8 program requirements, the City forwards the proposal to HUD for approval. After HUD approval is obtained, the developer becomes eligible for a federally subsidized and guaranteed mortgage and local real estate tax abatements.

 II. The Events

 In May 1978, the City of New York applied to HUD for NSA designation of the Hamilton Heights section of Manhattan. After a conditional approval of the City's application in September 1978, HUD granted final approval for Hamilton Heights in September 1979. On May 21, 1979, during the interim between conditional and final approval, the City's Department of Housing Preservation and Development ("HPD"), charged with administering the NSA program, published a "Request for Housing Proposals" to solicit plans from prospective Section 8 developers. The published notice specified a requirement that every developer under the NSA program enter an agreement with a local community organization to donate some amount of the profits from the real estate venture to the organization. The notice also stated that both the organization chosen to receive the funds and the form of the agreement were subject to HPD approval.

 On May 23, 1979, the defendants submitted an NSA program proposal to develop "St. Nicholas Manor" in the Hamilton Heights area of Manhattan. Before submitting the proposal the the defendants reached an agreement to donate $ 50,000 to the Hudson Piers Redevelopment Counsel, a local community group, should HPD and HUD approve the St. Nicholas Manor project. The defendants submitted to HPD a detailed analysis of their estimated costs for the project, predicated on their donation of $ 50,000 to the Hudson Piers Redevelopment Council. By letter dated September 12, 1979, HPD approved the defendants' proposal to develop St. Nicholas Manor and enclosed therewith that portion of the previously published "Request for Housing Proposals" referring to donations to community organizations. The letter stated that the defendants must tender an agreement with a qualified community organization to HPD within six weeks of the date of the letter. HUD granted federal approval for the project on September 21, 1979.

 On November 28, 1979 the defendants forwarded to HPD a written contract with the Hudson Piers Redevelopment Council that obligated the defendants to pay $ 50,000 to the group over a five year period. HPD never formally approved the contract nor conveyed any approval to defendants. However, an internal memorandum, dated April 22, 1980, states that the Hudson Piers Redevelopment Council "appeared" to have an agreement that met the City's standards.

 On May 7, 1980, HPD issued a complex set of regulations to implement its goal of returning some portion of the developers' profits back to the community. These regulations detailed the method for computing the minimum amount of money each developer must agree to contribute to a community organization, established guidelines for use ...

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