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FHM CONSTRUCTORS, INC. v. VILLAGE OF CANTON HOUS.

January 6, 1992

FHM CONSTRUCTORS, INC. and HOOT OWL EXPRESS ENTERPRISES, INC., Plaintiffs,
v.
VILLAGE OF CANTON HOUSING AUTHORITY, THOMAS F. HARNETT, as Commissioner of Labor of the State of New York, and JACK F. KEMP, as Secretary of the United States Department of Housing and Urban Development, Defendants.


McCurn


The opinion of the court was delivered by: NEAL P. MCCURN

MEMORANDUM-DECISION AND ORDER

 INTRODUCTION

 In their amended complaint plaintiffs assert four causes of action. Their first and second causes of action seek a declaratory judgment that federal housing and community development laws governing the construction of low income housing, 42 U.S.C. § 1437 et seq., federal prevailing wage rate legislation, 40 U.S.C. § 276a et seq., and regulations promulgated thereunder, 24 C.F.R. § 941.208(d) and 24 C.F.R. § 941.503(d), preempt New York State Labor Law section 220 as it pertains to work done on the project at issue. Their third cause of action seeks to enjoin the Commissioner of the State of New York Department of Labor from proceeding with an administrative proceeding concerning this project which is currently pending before a state hearing officer. Finally, their fourth cause of action seeks a declaration that plaintiffs will be entitled to a money judgment against HUD for any amount that they ultimately may be determined to owe in the state administrative proceeding. *fn1"

 Defendant, Jack Kemp as Secretary of the United States Department of Housing and Urban Development ("HUD"), moves to dismiss the amended complaint for lack of subject matter jurisdiction pursuant to Fed. R. Civ. P. 12(b)(1) or, in the alternative, for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6). Plaintiffs oppose this motion to dismiss as to their first three causes of action on the grounds that HUD is an indispensable party and as to their fourth cause of action on the grounds that this court has subject matter jurisdiction, that HUD has waived its sovereign immunity, and that plaintiffs have stated a claim under the doctrine of equitable estoppel. In addition, plaintiffs cross-move to file a second amended complaint pursuant to Fed. A. Civ. P. 15.

 Plaintiff, FHM Constructors, Inc. ("FHM"), is a construction company which entered into a contract with defendant, Village of Canton Housing Authority ("Housing Authority"), to build a low income housing project funded by HUD. See Plaintiffs' Amended Complaint at paras. 8, 9. Plaintiff, Hoot Owl Express Enterprises, Inc. ("Hoot Owl"), was a subcontractor of FHM on this project. See Plaintiffs' Amended Complaint at para. 12. HUD approved the specifications for the project, and these specifications formed part of the construction contract. See Plaintiffs' Amended Complaint at paras. 8, 10. The construction contract specifically required the contractor to pay "not less than the salaries or wages prevailing in the locality of the project, as predetermined by the Secretary of Labor of the United States pursuant to the Davis-Bacon Act (Title 40, U.S.C. §§ 276a-276a-5)." See Plaintiffs' Amended Complaint at para. 11 (emphasis added). Plaintiffs paid their employees according to the federal prevailing wage rate schedule which was included in the contract specifications. See Plaintiffs' Amended Complaint at para. 14.

 Some ten months after plaintiffs had completed work on the project and had paid their employees, the New York Department of Labor issued the Housing Authority a prevailing wage rate schedule for the occupations involved in the work which had been performed on the project. See Plaintiffs' Amended Complaint at para. 15. After plaintiffs refused to pay, the New York Department of Labor commenced a state administrative proceeding in which it contends that the higher state wage rates are applicable to the project and that plaintiffs owe more than $ 118,000 in additional wages to certain individuals they employed on the project. *fn3" See Plaintiffs' Amended Complaint at para. 17. Based on these facts, plaintiffs seek to enjoin the administrative proceeding. They also seek a judgment declaring that the federal prevailing wage rate legislation preempts New York law. Finally, they seek monetary relief from HUD should the state proceeding result in plaintiffs being required to pay their workers the prevailing state wage rate.

 DISCUSSION

 In its memorandum of law in support of its motion to dismiss, HUD, unsure of which legal theory plaintiffs are relying on to support their claims, argues that plaintiffs have failed to state a claim under either the doctrine of equitable estoppel, tort, or contract. In the alternative, HUD alleges that even if plaintiffs have stated a claim, this court lacks subject matter jurisdiction over such a claim and that HUD has not waived its sovereign immunity.

 In an attempt to remedy these perceived failings in their amended complaint, plaintiffs oppose this motion and cross-move to file a second amended complaint. Although plaintiffs strongly urge this court to permit them to amend their complaint, they maintain that even without such an amendment they have stated a claim against HUD with regard to their fourth cause of action pursuant to the doctrine of equitable estoppel. As to this cause of action, plaintiffs claim that HUD has waived its sovereign immunity under 42 U.S.C. section 1404(a) and that this court's jurisdiction is founded on 28 U.S.C. section 1331. Finally, they contend that HUD's motion to dismiss their first three causes of action should be denied because HUD is an indispensable party. Since its determination of this motion with regard to plaintiffs' fourth cause of action may render a discussion of HUD's indispensability to plaintiffs' first three causes of action academic, the court will discuss this latter cause of action first.

 A. Subject Matter Jurisdiction

 Before it can reach the merits of plaintiffs' claim, this court must determine whether or not it has subject matter jurisdiction over plaintiffs' fourth cause of action. Plaintiffs contend that this court has jurisdiction over this matter pursuant to 28 U.S.C. section 1331 (federal question jurisdiction) and 28 U.S.C. section 1337(a) (Commerce and Anti-trust Regulations). Additionally, in their proposed second amended complaint, plaintiffs allege that 28 U.S.C. section 2201 (Declaratory Judgment Act), 42 U.S.C. section 1404(a) (Federal Housing Act), 5 U.S.C. section 702 (Administrative Procedures Act), and 28 U.S.C. section 1346(a)(2) (Tucker Act) provide bases for this court's jurisdiction.

 Recently, the Second Circuit has held that "an action against the sovereign is properly before the district court only if there [is] both a grant of subject matter jurisdiction and a valid waiver of sovereign immunity." C.H. Sanders Co. v. BHAP Housing Dev. Fund Co., 904 F.2d 114, 117 (2d Cir. 1990) (citations omitted). The relationship among the parties in Sanders is somewhat similar to that present here. BHAP, a non-profit asset-less organization formed specifically to construct a federally funded housing project obtained funding from HUD pursuant to which HUD agreed to provide a low-cost mortgage. BHAP, in turn, entered into a construction contract with Sanders as general contractor. This contract, prepared by HUD, required that all claims and disputes be resolved by arbitration. Although HUD was not a party to the construction contract, HUD maintained substantial control over the project, including the right to interpret the construction contract and to determine compliance therewith. Id. at 116-17.

 After several years of work on the project, Sanders requested arbitration because it claimed that BHAP had breached the construction contract. Sanders sought to recover $ 1,848,010 which it claimed it was due under the contract. Id. at 117. Although plaintiff could not compel HUD to submit to arbitration because it was not a party to the construction contract, Sanders did request that HUD participate in the hearings. In addition, Sanders informed HUD that HUD could be held liable for any arbitration award rendered against BHAP. Id. HUD declined to participate stating that it considered the arbitration to be "essentially a private dispute between BHAP and Sanders." Id. Sanders was successful in the arbitration proceeding and subsequently sought a monetary award from HUD in the amount of the state court judgment. Sanders claimed that because HUD was liable for BHAP's debts it was bound by the award rendered in the arbitration proceeding between BHAP and Sanders. Sanders, 903 F.2d at 118. In addition, Sanders claimed that under federal common law, it had "equitable rights generated by HUD's course of activities pursuant to federal statutes, including the contracts it has sponsored, and prescribed for others, as a condition of federal aid." Id. (quoting Trans-Bay Eng'rs and Builders, Inc. v. Hills, 179 App. D.C. 184, 551 F.2d 370, 377 (D.C. Cir. 1976)). The Second Circuit agreed with Sanders and held that the federal district court had federal question jurisdiction over Sanders' claim, arising under federal common law and the statute authorizing the loan, 12 U.S.C. section 1701q. Id.

 In their amended complaint, as well as in their proposed second amended complaint, plaintiffs allege that their claims against HUD arise under 42 U.S.C. section 1437 et seq. (Federal Housing Act); 40 U.S.C. section 276(a) et seq. (Davis-Bacon Act) and Article VI of the United States Constitution. See Plaintiffs' Amended Complaint at para. 7. Assuming for purposes of this discussion that plaintiffs' fourth cause of action is not "patently frivolous on its face," their allegation that this cause of action arises under a federal statute is sufficient to sustain subject matter jurisdiction in the district court. See C. H. Sanders Co., 903 F.2d at 118 (quoting Falls Riverway Realty v. City of Niagara Falls, 754 F.2d 49, 54 (2d Cir. 1985)). Accordingly, since plaintiffs ...


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