In contrast, the black population of the Nassau County Consortium was 9.5% and that of Long Beach, a specific target area for the program, was 9.6%. The undisputed facts indicate that no blacks received any of the Section 235 houses in the Village. Pl's 3(g) St. P 49.
Even a cursory review of these statistics indicates that the Section 235 program provided significantly disparate housing opportunities for blacks and whites in the Village. The conclusion that this disparity was the predictable result of the specific practices of the Village in administering the program is similarly readily apparent.
Scully pre-selected the purchasers of Section 235 houses from Village residents who were "his special friends and family" or friends and relatives of Village trustees. Pl's 3(g) St. P P 24, 28, 36, 39, 46. The Village had a black population of less than 0.5%, and by further limiting benefits to those who were "connected" to Village officials, Scully assured that the opportunities for blacks to benefit from the program were nil. This result was further guaranteed by additional aspects of the pre-selection process. The pre-selected Phase I and Phase II purchasers were given advance notice of when the program was to be advertised and were advised to deliver their letters to Village Hall prior to 9:00 a.m. on the day in question. Pl's 3(g) St. P P 22-23, 32-34. Individuals from outside the Village who inquired about the Section 235 program were advised that they were not eligible. Pl's 3(g) St. P 29. The minority outreach program required under the Phase II AFHMP was conducted to practically insure its failure. The advertisement in El Diario was never published and the advertisement in the Amsterdam News was not published until December 3, 1981, more than two weeks after the program was officially announced. Pl's 3(g) St. P 40. Notices about the program were not sent to minority organizations until December 3, 1981, more than two weeks after Scully began informing people orally that the twenty-two houses had already been distributed. Id.
The conduct of Phase III of the Section 235 program was no less egregious and the disparate effects of that conduct were just as predictable. Phase III was never advertised. purchasers were selected, initially, from the Phase II list, but only from among Phase II applicants who were also Village residents. Pl's 3(g) St. P P 41-43. The availability of Section 235 houses in Phase III was advertised solely through word-of-mouth by Village officials, thereby closing off the possibility of any black applicants. Pl's 3(g) St. P 44.
It is clear that the specific procedures for allocating Section 235 houses in the Village were designed to limit program beneficiaries -- preferably to friends and relatives of Village officials and otherwise to Village residents. The inevitable result of those allocation procedures was to remove all blacks from the pool of applicants for benefits.
To complete the Wards Cove analysis, it is necessary to compare that population with the pool from which potential beneficiaries of the Section 235 program should have been chosen pursuant to the County AFHMP, the Phase I and II AFHMPs filed with respect to the Village's program, and HUD's affirmative fair market housing regulations. The black population of the targeted market, however it is defined, was considerably greater than that of the Village: as noted previously, according to 1980 census figures the Nassau County Consortium had a black population of 9.5%, Nassau County had a black population of 6.8%, and Long Beach, a specific target market under the Village's AFHMP, had a black population of 9.6%. Pl's Analysis, at 6, fn 3. The contrast between the racial composition of these communities and that of the Village is stark and leads to the inevitable conclusion that the pre-selection procedures used by the Village were a perversion of the first-come first-served requirements for the program and present a prima facie case of a disparate impact violation under the Fair Housing Act.
That these practices also perpetuated segregation in the Village is evident from a review of the 1990 census figures. The Village's black population increased from 23 in 1980 to 30 in 1990. Pl's 3(g) St. P 1. Although that does represent an increase of 30% as noted by the Village Defendants, the Village's black population was still only 0.6%, a proportion that can hardly characterize a racially integrated population -- particularly when contrasted with the black population of the Nassau County Consortium in general or the adjoining city of Long Beach. See Pl's Analysis at 6; Village Def's Counter-3(g) St., at 4.
Once the government has established its prima facie case, the defendant may be able to avoid liability under the Fair Housing Act by proving "that its actions furthered, in theory and in practice, a legitimate, bona fide governmental interest and that no alternative would serve that interest with less discriminatory effect." Huntington, 844 F.2d at 936 (citing Rizzo, 564 F.2d 126 at 148-49.)
The Village Defendants have not even attempted to justify their practices as serving a bona fide governmental interest. Instead, those defendants argue that the government has not established discriminatory impact because the Village is not segregated. The Village Defendants make this argument based on an analysis of census statistics that includes the Hispanic population as part of the Village's "minority" population. Village Def's Memo in Opposition, pp. 25-26. These statistics are irrelevant to the Fair Housing Act violation alleged by the government. The government's disparate impact case turns on the discriminatory effects of the Village Defendants' practices on blacks
The Fair Housing Act protects specific classes of people from discrimination. It prohibits discrimination in housing because of "race, color, . . . or national origin." 42 U.S.C. § 3604 (emphasis added). Whether or not the Village's policies violated the rights of other protected groups, such as Hispanics, is irrelevant to whether the government has established the disparate impact of the Village's policies on blacks. See Rich v. Martin Marietta Corp., 522 F.2d 333, 346 (10th Cir. 1975).
The Village Defendants also argue that the Fair Housing Act could not have been violated because the goal of the Section 235 program -- to provide houses to qualified low-income families -- were met inasmuch as all the recipients of houses met the economic guidelines for the program. This argument is without merit. Under 42 U.S.C. § 3608(e)(5), HUD is required to administer its housing and urban development programs to further the policies of the Fair Housing Act. The Village's pre-selection scheme, whether or not it was violative of HUD regulations or an AFHMP, clearly manipulated the program to limit beneficiaries to Village residents. The fact that the beneficiaries were economically qualified does not alter the effect of this manipulation on the racial composition of the pool from which purchasers were selected. The disparate impact of the Village's policy has been demonstrated. The Village Defendants have not demonstrated that the goals of the Section 235 program would not have been met equally as well if the Village had followed the non-discriminatory first-come first-served selection process required by HUD and the Village's own guidelines.
The government's claim for declaratory and injunctive relief under the Fair Housing Act is premised on 42 U.S.C. § 3614(a). This court has previously held that no statute of limitations applies to a suit for injunctive relief under this provision. Island Park, 791 F. Supp. at 368. The statutory provision reads as follows:
Whenever the Attorney General has reasonable cause to believe that any person or group of persons is engaged in a pattern or practice of resistance to the full enjoyment of any of the rights granted by this subchapter, or that any group of persons has been denied any of the rights granted by this subchapter and such denial raises an issue of general public importance, the Attorney General may commence a civil action in any appropriate United States district court.
42 U.S.C. § 3614(a) (emphasis added).
The Village Defendants argue that the government's claim is not ripe for summary judgment because it has not established a "pattern or practice" of intentional discrimination. Village Defs' Memo in Opposition, at 30-32. The Village Defendants note that in United States v. Yonkers Board of Education, 624 F. Supp. 1276 (S.D.N.Y. 1985), aff'd 837 F.2d 1181 (2d Cir. 1987), cert. denied, 486 U.S. 1055, 100 L. Ed. 2d 922, 108 S. Ct. 2821 (1988), the pattern and practice claim was determined only after a prolonged trial during which the court heard the testimony of numerous witnesses and reviewed thousands of documents. Village Defs' Memo in Opposition, at 30.
The fact that a trial was needed to establish a violation of the Fair Housing Act in Yonkers can hardly be grounds for the general proposition that the Village Defendants seem to be urging, i.e., that a pattern and practice claim is not appropriately addressed by motion for summary judgment. A nonmovant defeats a motion for summary judgment by showing that there exists a genuine factual issue with respect to which there is sufficient evidence such that a jury could return a verdict in its favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). In Yonkers, the court tried genuine factual issues primarily related to discriminatory intent. In the instant case, this court finds no such issue of fact for trial. The inquiry into intent is unnecessary in this case inasmuch as the court has found that the Village's administration of the Section 235 program constituted a disparate impact violation, and the Village Defendants have offered no justification for those practices. Nor is it necessary for this court to find that the pattern or practice alleged by the government in this case is of the dimensions which justified injunctive relief in Yonkers in order to find a violation of the Fair Housing Act, See Village Defs' Memo in Opposition, at 31.
The only appropriate inquiry for this court in determining whether the undisputed facts entitle the government to relief under 42 U.S.C. § 3614(a) is whether the government has established either a "pattern or practice" violation or a violation that involves the denial of fair housing rights to a group of people and that such denial raises an issue of general "public importance." United States v. City of Parma, Ohio, 494 F. Supp. 1049, 1094-95 (N.D. Ohio 1980), aff'd in part and rev'd in part, 661 F.2d 562 (6th Cir. 1981), cert. denied, 456 U.S. 926, reh'g denied, 456 U.S. 1012 (1982); United States v. Hunter, 459 F.2d 205, 217 (4th Cir. 1972), cert. denied, 409 U.S. 934, 34 L. Ed. 2d 189, 93 S. Ct. 235, reh'g denied, 413 U.S. 923, 37 L. Ed. 2d 1045, 93 S. Ct. 3046 (1973). The government has established both.
The Village's pre-selection scheme discriminated against the group of all black residents in the Nassau County Consortium by denying them the opportunity to apply for Section 235 houses, a right protected by the Fair Housing Act. The Attorney General's determination that this denial of rights raises an issue of general public importance, see Amended Complaint P 120, is not reviewable by the court. Yonkers, 624 F. Supp. at 1291 n.9; United States v. City of Parma, 494 F. Supp. at 1095 n.64. Thus, the government has established its right to bring this suit under § 3614(a). In addition, the government has established a pattern or practice violation. The practices which are the basis of the government's Fair Housing Act claims were more than an "isolated incident of unlawful discrimination." City of Parma, 494 F. Supp. at 1095; see also United States v. Mintzes, 304 F. Supp. 1305, 1314 (D.Md. 1969); United States v. Mayton, 335 F.2d 153, 159 (5th Cir. 1964). The practices endured over the selection process for all three phases of the Section 235 program in the Village, from March 1980 through 1983. Forty-four homes were built in the Village under the Section 235 program, and purchasers for all of those homes were selected pursuant to the Village's discriminatory pre-selection scheme.
The government is accordingly entitled to summary judgment holding the Village Defendants liable under the Fair Housing Act claim.
The government has requested that this court enter declaratory judgment and order an inquest to determine the full range of relief to which it is entitled. Declaratory judgment is a form of relief sanctioned by the statute. The statute provides for the award of "such preventive relief, including a permanent or temporary injunction, restraining order, or other order against the person responsible for a violation . . . as is necessary to assure the full enjoyment of the rights granted by this subchapter. . . " 42 U.S.C. § 3614(d)(1)(a); Hunter, 459 F.2d at 219, n. 19. The government notes that declaratory judgment would serve an important remedial function because it would establish a predicate for increased penalties with respect to any additional violations, 42 U.S.C. § 3614(d)(1)(C), as well as for additional coercive relief, Hunter, id.; Heights Community Congress v. Hilltop Realty Inc., 774 F.2d 135, 144 (6th Cir. 1985), cert. denied, 475 U.S. 1019, 89 L. Ed. 2d 318, 106 S. Ct. 1206 (1986). The court finds that declaratory judgment is an appropriate remedy and grants the government's request for an inquest to determine whether it is entitled to any additional relief.
C. Fair Housing Act Violations: Brady and Parente
The government's assertion that Brady and Parente have violated the Fair Housing Act appear to be based in part on the conspiracy theory it advanced with respect to the False Claims Act violations. See Pl's Reply Memo, at 36 fn 14. As discussed with respect to the False Claims Act (at II.C., supra), the government has not shown an explicit or implied agreement among the alleged co-conspirators. Although the government has established that Parente and Brady participated in the pre-select on scheme by requesting the allocation of Section 235 houses to specific parties, see Pl's 3(g) St. P P 36, 39, these isolated incidents do not establish the meeting of minds necessary for a conspiracy.
To the extent the government relies on the acts of Brady and Parente as constituting separate violations of the Fair Housing Act, distinct from a conspiracy theory, this court is not convinced that a disparate impact analysis would be appropriate, see Huntington, 844 F.2d at 934, nor has the government attempted to link Brady and Parente's acts with the disparate effect of the 235 program. Furthermore, the government has failed to establish intentional discrimination. See discussion, supra.
Accordingly, the government's motion for summary judgment against Brady and Parente is denied.
D. Defendants' Cross-motion for Additional Discovery
The Village Defendants, Brady and Parente cross-move pursuant to Federal Rule of Civil Procedure 56(f), requesting that this court defer ruling on the government's motion for summary judgment on the Fair Housing Act claim to allow them to conduct additional discovery.
Under Rule 56(f), a court may, inter alia, order a continuance to permit a party opposing a summary judgment motion to conduct discovery to ascertain "facts essential to justify the party's opposition. . . " Fed. R. Civ. P. 56(f). "[A] party seeking such discovery must file an affidavit explaining (1) what facts are sought and how they are to be obtained, (2) how those facts are reasonably expected to create a genuine issue of material fact, (3) what effort the affiant has made to obtain them, and (4) why the affiant was unsuccessful in those efforts." Hudson River Sloop Clearwater, Inc. v. Dep't of Navy, 891 F.2d 414, 422 (2d Cir. 1989) (citing Burlington Coat Factory Warehouse Corp. v. Esprit De Corp., 769 F.2d 919, 926 (2d Cir. 1985)).
The Village Defendants support their motion by submitting an affidavit of counsel, William H. Pauley III, requesting additional time to depose certain defendants as well as non-party witnesses with respect to the question of intent. The Village Defendants also request time to conduct discovery with respect to the racial and ethnic background of individuals who submitted letters of interest to the Village in connection with the Section 235 program. Because the court finds the Village Defendants liable under a disparate impact theory, neither of these issues are relevant to the court's disposition.
Because the court denies the government's motion for summary judgment against Brady and Parente, their request for a continuance to conduct further discovery is moot.
IV. Erroneous Payment of Funds
The government's eighth cause of action is for erroneous payment of funds with respect to CDBG payments and Section 235 mortgage subsidies made after March 22, 1984. The government asserts joint and several liability for this claim against the Village Defendants, Brady, Parente and the Homeowner Defendants (other than the Ruoccos).
This claim is based on the United States' common law right to recover funds wrongfully or erroneously paid from the federal treasury. United States v. Wurts, 303 U.S. 414, 82 L. Ed. 932, 58 S. Ct. 637 (1938). It has also been characterized as a claim for diversion of money paid under a grant program. See Island Park, 791 F. Supp. at 370. Under 28 U.S.C. § 2415(b), this action must be brought "within six years after the right of action accrues." This court has previously held that this cause of action is time-barred except for "possible causes of action that may have accrued after March 22, 1984." Island Park, 791 F. Supp. at 370 (emphasis in original).
Thus, as an initial matter, this court must determine whether any cause of action for erroneous payment of funds accrued after March 22, 1984. The government takes the position a new cause of action for erroneous payment of funds accrues with each payment made by HUD, arguing that a cause of action to recover any particular payment cannot possibly accrue until those funds are actually paid. Although the legal authority relating to this issue is sparse, the cases cited by the government support this result. In Wurts, the Court held that the statute of limitations on the government's suit to recover an erroneous refund of taxes began to run when that payment was made, rather than when the refund was allowed by the Commissioner of Internal Revenue. 303 U.S. at 417. See also United States v. DeKalb County, 729 F.2d 738, 739 (11th Cir. 1984) (suit to recover tax funds erroneously paid over a seventeen year period because of the same mistake was timely under 28 U.S.C. § 2415(a) with respect to refunds paid less than six years before suit was filed, but not with respect to those paid more than six years prior thereto).
In United States v. Batson, 706 F.2d 657 (5th Cir. 1983), cert. denied, 477 U.S. 906, 91 L. Ed. 2d 567, 106 S. Ct. 3277 (1986), the government sued to recover excess federal crop subsidies paid to defendants by the Commodity Credit Corporation. A six-year statute of limitations applied
and defendants had completed all acts related to their scheme more than six years before the government filed for recovery. Because the cause of action was found to accrue when the crop subsidies were actually paid, the action was time-barred only with respect to payments made more than six years before suit was filed, not those made within the six year period. Batson, 706 F.2d at 672, 673. Thus, to the extent the government has a cause of action for recovery of erroneously paid Section 235 mortgage subsidies or CDBG funds, that action would be timely with respect to any such funds paid after March 22, 1984.
The Village Defendants argue that, in any case, the government may not assert a claim for erroneous payment of funds against them because they were not the recipients of the funds. Generally, the right to recover funds wrongfully paid must be asserted against the recipient of those funds or a third party into whose hands the mistaken payments flowed "where that party participated in and benefited from the tainted process." LTV Educ. Systems, Inc. v. Bell, 862 F.2d 1168, 1175 (5th Cir. 1989) (citing United States v. Mead, 426 F.2d 118 (9th Cir. 1970)); see also United States v. Blue Cross and Blue Shield of Michigan, 726 F. Supp. 1517, 1521 (E.D.Mich. 1989).
The Village Defendants contend that no CDBG funds were paid to the Village after March 22, 1984. However, the government has submitted a report which indicates at least some CDBG funds were paid after that date. See Pl's Analysis, Exh. 18. The government argues that the Village Defendants are liable for the Section 235 mortgage subsidies that were paid to the innocent mortgagee, as well as for the CDBG funds, because the Village enjoyed benefits as a result of the program. Pl's Reply Memo, at 83 - 84. The government's argument is not compelling. In LTV Educ. Systems, supra, the defendant was held liable for the amount of the loans erroneously paid to students, where those amounts were then paid to the defendant in the form of tuition. 862 F.2d at 1175. The only case cited by the government in which defendants were found liable for the repayment of funds they never received involved erroneous payments for "farmer's conservation practices" which were made by the government to a third party contractor for work performed in defendants' behalf. United States v. Mead, 426 F.2d at 124. Thus, although the defendant farmers never received the erroneously paid funds, they directly benefited in that they received the completed conservation projects for which those funds paid. Id at 125.
The benefit to the Village Defendants in this case were much more amorphous and indirect. For example, the government points to the fact that the Section 235 program benefited the Village by providing subsidies to Village residents and expanding its tax base. See Pl's Reply Memo, at 83. The leap that is required to allow a cause of action for erroneous payment of funds to lie against the Village Defendants based on their receipt of these indirect and unquantifiable benefits is one that this court is not willing to make.
Alternatively, the government would impose liability on the Village Defendants based on the existence of a conspiracy among the Village Defendants, Brady, Parente and the Homeowner Defendants. Under that theory, the government argues, if any of the co-conspirators was liable for the erroneous payment of funds, all of the co-conspirators would share joint and several liability for those damages. Thus, if the Homeowner Defendants were co-conspirators and were liable under an erroneous payment of funds theory for the mortgage subsidy payments made on their behalf, all co-conspirators would be liable for repayment of those funds as well.
As discussed previously, the government has not established the existence of a conspiracy between the Village Defendants, Brady and Parente. See Discussion, at II.C., supra. Neither has the government set forth facts to establish the necessary meeting of minds for a conspiracy between the Village Defendants and the Homeowner Defendants. See Discussion, infra. Thus, regardless of whether the Homeowner Defendants are liable for repayment of the Section 235 mortgage subsidies paid in their behalf, the court will grant summary judgment holding the Village Defendants liable under this claim only with respect to the CDBG funds it received after March 22, 1984.
HUD's continued payment of the CDBG benefits despite its knowledge of the fraudulent scheme does not give rise to a defense of estoppel. In Office of Personnel Management v. Richmond, 496 U.S. 414, 110 L. Ed. 2d 387, 110 S. Ct. 2465 (1990), the Court held that, because the Appropriations Clause of the Constitution, Art. I, § 9, cl. 7, limits the payment of funds from the Treasury to that authorized by statute, estoppel could not be upheld against the government in a case involving payment of public funds. Although in Office of Personnel Management, the issue of estoppel was raised in the context of a claim against the government for benefits, the same result would necessarily follow in an action for return of funds wrongfully paid from the federal treasury. See, e.g., United States v. Fowler, 913 F.2d 1382 (9th Cir. 1990). The government has established that the CDBG funds that were paid to the Village were paid in violation of the Fair Housing Act and HUD regulations and accordingly should not have been paid. In the language of the Court, it is clear that "in this context there can be no estoppel, for courts cannot estop the Constitution." Office of Personnel Management v. Richmond, 496 U.S. at 434.
Unlike the Village Defendants, the Homeowner Defendants received a direct benefit from HUD's payment of Section 235 mortgage subsidies. The government has a right to recover payments made under an erroneous belief which was material to its decision to pay those funds, regardless of whether the recipient of those funds was innocent of any wrongdoing. See, e.g., Mt. Vernon Cooperative Bank v. Gleason, 367 F.2d 289 (1st Cir. 1966) (government had a right to recover from a bank amounts it paid pursuant to guarantee of veteran's loan when it discovered that the veteran's loan application was a forgery); see also, Weiss v. United States, 296 F.2d 648 (5th Cir. 1961).
The Homeowner Defendants contend that, because they were economically qualified to receive the Section 235 houses and mortgage subsidies, the funds were not "erroneously" paid to them. However, as developed at great length above, the government has established that the Section 235 mortgage subsidies were allocated to, and paid on behalf of, purchasers who were pre-selected by the Village Defendants, in violation of numerous federal statutes and regulations. Had the Section 235 program been administered as it was meant to be, the mortgage subsidies would not have been paid for the benefit of the Homeowner Defendants who received their houses under the pre-selection scheme, but for the benefit of those who would have been selected on a first-come, first-served basis, pursuant to HUD regulations, the County AFHMP, the AFHMP's filed with respect to the program in the Village and the Fair Housing Act.
As discussed above with respect to the Village Defendants, HUD's continued payment of mortgage subsidies does not estop the government from asserting its right to recovery against the Homeowner Defendants. Thus, each of the Homeowner Defendants is liable for the repayment of any Section 235 mortgage subsidies paid in its behalf since March 24, 1984. Although there is some case law supporting an imposition of joint and several liability for return of federal funds on all those participating in actions which caused their wrongful payment, LTV Educ. Systems, Inc. v. Bell, 862 F.2d at 1175; United States v. Mead, 426 F.2d at 124-5, the imposition of joint and several liability appears to be limited to knowing participants in the tainted transaction.
Although the government has established that each of the Homeowner Defendants against whom it seeks summary judgment was pre-selected, it has not established either that there was the meeting of minds needed to show a conspiracy or that the Homeowner Defendants' participation was knowing. It has, however, established the existence of a genuine material issue of fact as to each of the Homeowner Defendant's knowledge of his participation in the pre-selection scheme:
(1) the Ciccimarros have not refuted the government's assertions (based on Scully's testimony) that they were called prior to the appearance of the newspaper ad with respect to Phase I of the Section 235 program and that they delivered their letter to Village Hall before 9 a.m. on the day the ad was to appear. Pl's 3(g) St. P P 22-27. Thus, the government has established that the Ciccimarros were preselected. The Ciccimarros' denial of knowledge of the scheme is carefully limited to lack of knowledge of "purpose or intent . . . to manipulate availability of housing to defraud the United States and HUD of money . . . to exclude Blacks and Hispanics from housing in Island Park." Aff. of J. Ciccimarro P 3A.
In addition, the government has submitted Michael DeLessio's testimony that he was told by Anthony Ciccimarro in the fall of 1979 that he would get a Section 235 house. Pl's 3(g) in Opp. P 7. Thus, the government has established at least a question as to whether Anthony Ciccimarro was aware that he was participating in some sort of pre-selection scheme.
(2) Scully's testimony establishes that the Guerins, DiDomenicos and Moores were preselected for participation in the Section 235 Program. Scully testified that the Guerins were put on the list of preselected Phase II purchasers at Brady's request and that the DiDomenicos and Moores were also on the list. Scully also testified that these purchasers were notified in advance of the appearance of the newspaper ad announcing Phase II. The Guerins, DiDomenicos and Moore have not denied that they were informed of the newspaper ad relating to Phase II prior to its appearance and that they delivered their letter applications to Village Mall prior to 9 a.m. on the date it was to appear. Instead, each of those defendants carefully deny knowing in advance that they "would receive" or "would be selected to receive" a Section 235 house prior to November 19, 1981, the date the ad was to appear. Furthermore although these defendants deny knowledge of the Village's manipulation "of the availability of Section 235 Housing," the government has submitted independent testimony which raises a question of fact as to the extent of their knowledge: DeLessio attests to (a) the Guerins' visit to the site of their house prior to November 1981, (b) conversations with Donna Moore's father, Joseph DiGiacomo, in which DeLessio's wife advised DiGiacomo to ask Masone for a house, and (c) conversations with Joseph DiDomenico and Masone in which Masone told them he was giving them houses and advised them about how the process would work. DeLessio also asserts that he and DiDomenico were informed of the newspaper ad before it appeared and delivered their application letters together to Village Hall at 6:00 a.m. on the appointed day.
(3) Daniel McGann received a Phase III house despite the fact that he never applied for a Phase II house and despite the fact that many unsuccessful Phase II applicants were not informed of the availability of houses under Phase III. Scully testified that Mrs. McGann reviewed and approved the list of Phase III purchasers which included her son. Pl's 3(g) St. in Opp. P 16. Daniel McGann invoked his Fifth Amendment privilege when questioned about his mother's role in the selection process and his knowledge of that role. (The court has precluded Daniel McGann's affidavit in opposition because of abuse of the discovery process. See discussion, supra. In any case, even the stricken affidavit fails to deny either Geraldine McGann's use of influence to get her son a house or Daniel McGann's knowledge of her role.) In addition, Geraldine McGann asserted her Fifth Amendment privilege when asked whether she discussed the Section 235 program with her son. Pl's 3(g) St. in Opp. P 17. Although this clearly does not establish that McGann knew that his mother used her influence, it creates a material issue of fact as to whether the McGanns knowingly participated in the pre-selection scheme.
(4) DeLessio's declaration includes assertions which create a material issue of fact as to the Ruoccos (who have moved for summary judgment dismissing the complaint but against whom the government has not moved). DeLessio testifies that he told Ruocco to talk to Masone about a Section 235 house for himself in the fall of 1979 and that, soon thereafter, Ruocco told him he was going to get a Section 235 house. Pl's 3(g) St. in Opp. P 22. Although the Ruoccos were not on the original list of Phase I purchasers, the government asserts they received a Phase I house after two of the originally selected purchasers dropped out. Ruocco submitted a letter of interest on March 26, 1980, after Phase I was advertised. Ruocco asserts that he was not advised prior to March 26, 1980 that "we would receive Phase 1 Section 235 housing." Ruocco Aff. P 5. However Ruocco does not deny being told that he would receive Section 235 housing, thus creating at least a material issue of fact as to whether the Ruoccos were preselected and the extent of their knowledge of the scheme.
Because the government has not established either the existence of a conspiracy or the Homeowner Defendants' knowing participation in the pre-selection scheme, this court will not impose joint and several liability against the Homeowner Defendants for all payments made pursuant to the scheme. Accordingly, the government is entitled to summary judgment against each of the Homeowner Defendants for erroneous payment of federal funds only to the extent mortgage subsidy payments have been made in their behalf after March 22, 1984.
As noted below, see V., the Ciccimarros and the DiDomenicos are the only Homeowner Defendants who received mortgage subsidies which have not been repaid since March 22, 1984. Summary judgment is accordingly granted against the Ciccimarros and the DiDomenicos for erroneous payment of funds.
In addition, the government is entitled to an order directing that the Homeowner Defendants pay the full amount of their monthly mortgage payments in the future to prevent wrongful payment of federal funds in the future.
V. Unjust Enrichment
The government has moved for summary judgment against the Homeowner Defendants on its claim for unjust enrichment. This court has held that the six year statute of limitations set forth in 28 U.S.C. § 2415(a) is applicable to a claim for unjust enrichment as a claim based on a species of implied contract. Thus, this claim applies only with respect to any incidents of unjust enrichment that occurred since March 22, 1984. Island Park, 791 F. Supp. at 369.
A claim for unjust enrichment is established by showing that "there was enrichment at the plaintiff's expense, and that the circumstances dictate that, in equity and good conscience, the defendant should be required to turn over its money to the plaintiff." United States v. Nagelberg, 772 F. Supp. 120, 122 (E.D.N.Y. 1991) (quoting United States v. Rivieccio, 661 F. Supp. 281, 293 (E.D.N.Y. 1987)). No proof of wrongdoing is necessary. An innocent party may be unjustly enriched if he holds "property 'under circumstances that in equity and good conscience he ought not to retain . . .'" Nagelberg, 772 F. Supp. at 123 (quoting Rivieccio, 661 F. Supp. 281 at 292).
As demonstrated in the discussion of the claim for erroneous payment of funds, the Homeowner Defendants were unjustly enriched each month that they received a Section 235 mortgage subsidy that was intended to benefit another participant in the program -- one chosen on the first-come first-served basis consistent with HUD regulations, the AFHMPs filed by the County and the Fair Housing Act. Furthermore, the Homeowner Defendants' enrichment was clearly at the expense of plaintiff -- the United States government.
The Homeowner Defendants assert in opposition to the government's motion (and in support of their motions for summary judgment dismissing this claim against them) that they were economically qualified to receive the Section 235 housing and were approved by HUD for the same. As discussed above, the Homeowner Defendants' economic qualifications do not affect the conclusion that these were benefits that they received erroneously and unjustly. Furthermore, the fact that HUD continued to make mortgage subsidy payments despite its knowledge of the pre-selection scheme does not change the fact that these defendants were unjustly enriched and does not estop the government from making this claim. See Discussion at IV, supra.
Thus, the government is entitled to summary judgment on its unjust enrichment claim against the Ciccimarros and DiDomenicos, concededly the only Homeowner Defendants who received mortgage subsidy payments, which they have not repaid, after March 22, 1984. Because its claims for unjust enrichment against the other Homeowner Defendants rely on the existence of a conspiracy, summary judgment will not be granted. Those Homeowner Defendants' (the Guerins, Moores, Ruoccos and DiDomenicos) motion for summary judgment dismissing the unjust enrichment claims will be granted.
VI. Constructive Trust
In its seventh claim for relief, the government seeks to impose a constructive trust on the Section 235 homes of the Homeowner Defendants and on any profits realized by Homeowner Defendants who sold their houses. This court has determined that no statute of limitations applies to the action for a constructive trust and that, accordingly, it is timely in its entirety. Island Park, 791 F. Supp. at 370.
The Second Circuit's summary of the New York law on constructive trusts in Republic of Philippines v. Marcos, 806 F.2d 344 (2d Cir. 1986), cert. dismissed, 480 U.S. 942 (1987), is helpful in analyzing the government's claim under a constructive trust theory:
As Judge Cardozo put it when he was on the New York Court of Appeals, "A constructive trust is the formula through which the conscience of equity finds expression. When property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee." Beatty v. Guggenheim Exploration Co., 225 N.Y. 380, 386, 122 N.E. 378, 380 (1919). The court "'reserves freedom to apply this remedy to whatever knavery human ingenuity can invent.'" Simonds v. Simonds, 45 N.Y.2d 233, 241, 380 N.E.2d 189, 194, 408 N.Y.S.2d 359, 363 (1978) (quoting Bogert, Trusts and Trustees § 471 at 29 (2d ed. rev. 1978)). And, "'[a] constructive trust will be erected wherever necessary to satisfy the demands of justice . . . . Its application is limited only by the inventiveness of men who find new ways to enrich themselves unjustly by grasping what should not belong to them.'" Id. at 241, 380 N.E.2d at 194, 408 N.Y.S.2d at 363 (quoting Latham v. Father Divine, 299 N.Y.22, 27, 85 N.E.2d 168, 170 (1949)). See also Restatement of Restitution § 160 comment a (1937) (constructive trust is simply a remedy to prevent unjust enrichment and may or may not involve a fiduciary relationship); id. § 160 comment g (stating that where property is held by one person upon a constructive trust for another and the former transfers the property to a third person who is not a bona fide purchaser, the interest of the beneficiary is not cut off); id. § 168 (same).
Id. at 355.
The elements of a constructive trust under New York law are (1) a confidential or fiduciary relationship; (2) a promise, express or implied; (3) a transfer made in reliance on that promise; and (4) unjust enrichment. Brand v. Brand, 811 F.2d 74, 77 (2d Cir. 1987); United States v. Rivieccio, 661 F. Supp. at 292; Simonds v. Simonds, 45 N.Y.2d 233, 242, 408 N.Y.S.2d 359, 380 N.E.2d 189 (1978). However, because of its equitable nature, a constructive trust has been imposed in cases where not all of those elements are present. See, e.g., Lines v. Bank of America Nat. Trust & Sav. Assn., 743 F. Supp. 176, 180 (S.D.N.Y. 1990) (constructive trust imposed in absence of a fiduciary relationship or promise); Simonds, supra, 45 N.Y.2d at 241 (constructive trust in the absence of a confidential or fiduciary relationship); Coco v. Coco, 107 A.D.2d 21, 24, 485 N.Y.S.2d 286 (2d Dep't), appeal dismissed, 65 N.Y.2d 637 (1985) (constructive trust in the absence of unjust enrichment).
In proposing its constructive trust theory, the government argues that federally-funded homes that should have been awarded on first-come first-served basis to a mix of applicants that included blacks, Hispanics and whites were instead diverted to the pre-selected white purchasers. Accordingly, a constructive trust should be imposed on these homes, which the government proposes to provide to black families, as part of the Fair Housing Act remedy in the Village. Pl's Further Memo in Support of Summary Judgment against Homeowners, at 34 - 35. (The government also proposes as an alternative remedy disgorgement of the Homeowner Defendants' as yet unrealized profits which would then be applied toward a fair housing remedy for the Village. Id., fn 9.)
In its attempt to fit the facts of this case into the constructive trust analysis, the government relies on Scully's (and by virtue of his apparent and actual authority, the Village's) fiduciary duty to the United States to administer the CDBG funds and Section 235 program in accordance with the Fair Housing Act and HUD regulations. The government argues, first, that under an aiding and abetting or conspiracy analysis, the Homeowner Defendants owed the government a fiduciary duty. However, in view of the court's finding that the government has not established a conspiracy and its dismissal of the aiding and abetting cause of action, the fiduciary duty element cannot be based on this theory.
The government then urges the court to impose a constructive trust even absent a fiduciary relationship between the Homeowner Defendants and the United States government. In Simonds, a decedent failed to maintain life insurance policies for the benefit of plaintiff, his first wife, as required by his separation agreement and divorce decree. The court upheld the imposition of a constructive trust for the benefit of plaintiff on the proceeds of the policies which had been distributed to the second wife, even though she had done nothing wrong and had no fiduciary relationship with plaintiff. The court in Simonds noted that the fiduciary relationship between decedent and his first wife created a constructive trust which followed the funds into the hands of the second wife. So, the government argues, the constructive trust in this case attached to the CDBG funds (used in purchasing and improving land and marketing the Section 235 homes) as a result of the fiduciary duties owed by the Village and Scully to the government and followed the property into the hands of the Homeowner Defendants. Pl's Further Memo in Support of Summary Judgment against Homeowner Defs, p. 37.
The government then identifies the second element of the constructive trust - the promise (express and implied in the Cooperation Agreements and in its undertaking to market the houses) to distribute the houses on a first-come first-served basis to the AFHMP pool and in compliance with the Fair Housing Act, the HUD regulations and the various AFHMPs involved. The government also notes that the Village promised not to discriminate based on race. In reliance on these promises, the government argues, CDBG money, mortgage subsidies and the Section 235 houses were transferred and the Homeowner Defendants were unjustly enriched by receiving houses at substantially below market value.
Despite the government's skillful manipulation of the facts to fit into a constructive trust analysis, and the latitude afforded in applying the remedy of constructive trust, see Simonds, supra, 45 N.Y.2d at 241, the imposition of a constructive trust to undo the admittedly undesirable effects of the Village's administration of the Section 235 program would be a novel use of that remedy. Furthermore, the government has failed to demonstrate how the constructive trust ultimately resides in the Section 235 houses. It is useful for these purposes to follow the flow of funds and/or property on which the government seeks to impose the constructive trust, an exercise which neither the government nor the Homeowner Defendants undertook.
Approximately $ 650,000 in CDBG funds were used by the Village to purchase or improve the land which it then sold to the private developers from whom the Homeowner Defendants purchased their Section 235 houses.
Under the constructive trust analysis proposed by the government, a constructive trust attached to the CDBG funds which the Village had a fiduciary duty to administer lawfully. Generally, a constructive trust follows property despite changes in form. See Frier v. J. W. Sales Corp., 261 A.D. 388, 25 N.Y.S.2d 576, 581 (1st Dep't 1941). The land that the Village purchased or improved with the CDBG funds was therefore also subject to a constructive trust. However, that land was sold to private developers. The law is clear that a constructive trust is cut off when the property is transferred to a bona fide purchaser. Simonds, 45 N.Y.2d at 242; Restatement, Restitution §§ 170 comment g, 172.
Although the government argues at length that the Homeowner Defendants' are not bona fide purchasers, they make no such contention with respect to either Halandia Construction or Ocean Park Properties, the developers of the Section 235 housing. Thus, upon transfer of the property to Ocean Park and Halandia, any constructive trust which may have resided therein was cut off, and the trust attached to the proceeds realized by the Village on the sale. See Caballero v. Anselmo, 759 F. Supp. 144, 146 (S.D.N.Y. 1991) (quoting Bogert, Law of Trusts and Trustees). Accordingly, the government's constructive trust theory appears to fail at this juncture.
Because under a constructive trust analysis, the trust that was imposed on the CDBG funds did not follow the property upon its sale, it is difficult to discern how it would attach to the houses that were purchased by the Homeowner Defendants from the private developers.
It is therefore unnecessary to determine whether the Homeowner Defendants were bona fide purchasers or whether they were under actual or constructive notice of the existence of conflicting rights with respect to their Section 235 houses. See Pl's Further Memo in Opp. at 40 - 42.
The government's motion for summary judgment on the constructive trust claim is, accordingly, denied and Homeowner Defendants' motion for summary judgment dismissing this claim is granted.
For the reasons set forth above, the government's motion for summary judgment is granted in part and denied in part. Summary judgment on (i) the government's claims under the False Claims Act for payments made after March 22, 1984, (ii) its Fair Housing Act claim, and (iii) its claim for erroneous payment of CDBG funds after March 22, 1984 is granted with respect to the Village Defendants and denied with respect to Brady and Parente. The government's motion for a declaratory judgment that the Village Defendants violated the Fair Housing Act is granted. The Village Defendants' motion for additional time to conduct discovery with respect to the Fair Housing Act claim is denied. Brady and Parente's motions for summary judgment dismissing the False Claims Act and erroneous payment of funds claim against them is denied. Their request for additional time to conduct discovery with respect to the Fair Housing Act claim is moot because the government's motion for summary judgment against them on this claim is denied.
The government is granted summary judgment against Homeowner Defendants, the Ciccimarros and DiDomenicos, for erroneous payment of funds and unjust enrichment in the amount of the mortgage subsidies paid after March 22, 1984. An order directing those defendants to pay the full amount of their monthly mortgage payments hereafter is hereby entered.
The unjust enrichment claims against the Guerins, Moores, McGanns and Ruoccos and the constructive trust claim against all the Homeowner Defendants are dismissed. The Homeowner Defendants' motion to dismiss the erroneous payment of funds claim is denied.
Pursuant to 28 U.S.C. § 636(b)(1)(B), this matter is referred to Magistrate Judge Gold to conduct hearings and submit findings of facts and recommendations with respect to (i) the amount of any money damages and penalties due from the Village Defendants, the Ciccimarros and the DiDomenicos, and (ii) any further relief to which the government may be entitled under the Fair Housing Act.
Dated: Brooklyn, New York
May 17th, 1995
I. Leo Glasser, U.S. D. J.