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April 30, 1998

OMEGA HOMES, INC., Plaintiff, -vs- CITY OF BUFFALO, NEW YORK; ANTHONY M. MASIELLO, individually and as Mayor of Defendant City of Buffalo; and ALAN DeLISLE, individually and as Commissioner, Department of Community Redevelopment of Defendant City of Buffalo; MJ PETERSON/FORBES HOUSING CO., DENNIS J. PENMAN, President of Defendant MJ PETERSON/FORBES HOUSING CO.; JAMES MANAGEMENT CORP. and JAMES ANDERSON, President of Defendant JAMES MANAGEMENT CORP., Defendants.

JOHN T. CURTIN, United States District Judge.

The opinion of the court was delivered by: CURTIN


CURTIN, District Judge


 Before the court are defendants' motions to dismiss plaintiff's complaint pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure and 28 U.S.C. § 1367 (Items 11, 14, 16). Plaintiff responded with an affidavit and a memorandum of law (Items 25 and 26), and defendants filed reply briefs (Items 27, 28, 29). The parties appeared before the court on December 22, 1997, for oral argument.


 Plaintiff Omega Homes, Inc. ("Omega"), commenced this action on September 2, 1997, with the filing of a summons and complaint (Item 1). Plaintiff alleges that defendants City of Buffalo ("City"), Mayor Anthony Masiello, and Commissioner of Community Development Alan DeLisle (the "City defendants") violated the Sherman Antitrust Act, 15 U.S.C. §§ 1 and 2 et seq., the Donnelly Act, New York General Business Law § 340, and the New York State Constitution, Articles 1 and 3, when they granted exclusive development rights for the Willert Park neighborhood in the City of Buffalo to defendants M.J. Peterson/Forbes Housing Co. ("Peterson"), Dennis J. Penman (President of Peterson), James Management Corp. ("James"), and James Anderson (President of James) (the "private sector defendants") (Id.).

 On October 17, 1997, plaintiff filed a motion for an Order granting a preliminary injunction pursuant to Rule 65 of the Federal Rules of Civil Procedure because plaintiff claims it is threatened with irreparable injury (Item 3). In response, defendants filed motions to disqualify plaintiff's attorney (Items 7, 8, 10). After the court denied defendants' motion to disqualify (Item 24), defendants filed motions to dismiss (Items 11, 14, 16). The parties agreed that the court should address defendants' motions to dismiss (Items 11, 14, 16) before addressing plaintiff's motion for a preliminary injunction (Item 3).


 Plaintiff is in the business of developing and constructing affordable and subsidized residential housing. Since its formation in 1980, plaintiff has been involved in the development and building of approximately 1,000 residential units in Buffalo and Albany, New York. A number of these projects have been funded by the United States Department of Housing and Urban Development ("HUD") and plaintiff has been selected as a "HUD Demonstration Developer" (Item 1, P 2).

 Plaintiff claims that the City defendants created an exclusive development arrangement when they gave the private sector defendants the exclusive right to develop, build, and sell all of the 344 new residential housing units in the Willert Park Neighborhood redevelopment project. Plaintiff asserts that these acts are per se unlawful and constitute a restraint of trade, commerce, and competition (Item 1, P 41).

 Defendants explain that this project began after HUD issued a "Notice of Funding Availability" ("NOFA") for grants under section 108(q) of the Housing and Community Development Act of 1974 on July 16, 1996, in the Federal Register. 61 Fed. Reg. 37,132-41. HUD solicited proposals "to undertake large-scale projects that would create Homeownership Zones--proposals designed to reclaim hard-pressed neighborhoods by creating homeownership opportunities for hardworking low- and moderate-income families and serving as a catalyst for private investment, business creation and neighborhood revitalization." Id. at 37,132. "Homeownership Zones are intended to make a major impact in distressed neighborhoods by converting vacant, abandoned land and buildings into thriving, vibrant neighborhoods by using single-family homeownership as a catalyst for revitalization." Id. at 37,134. The NOFA further stated that "offering these home ownership opportunities to low- and moderate-income residents in designated neighborhoods will provide the foundation for needed commercial and economic development." Id.

 HUD's NOFA stated that "construction should be ready to proceed promptly" and "particular attention will be paid to applications that can begin significant construction activities within 60 days of the award of the EDI grant." Id. The NOFA explained that "it is expected that applicants will donate land, commit to construct site improvements and public facilities, waive fees, expedite approvals of permits and plans, and otherwise act to remove impediments to the development of affordable housing." Id. The NOFA further stated that "it is further expected that the applicant will establish extensive partnerships with the private and nonprofit sectors, such as businesses, lending institutions, real estate professionals, builders, educational institutions, nonprofit organizations, religious entities, and other city-wide and community-based organizations." Id. Applicants initially were required to postmark their applications by September 16, 1996, id. at 37,132, but on September 9, 1996, this date was extended until October 8, 1996, in the Federal Register. Id. at 47, 523-24.

 The City of Buffalo applied to establish a Homeownership Zone ("HOZO") in the Willert Park neighborhood. Willert Park is within a New York State Economic Development Zone, pursuant to New York General Municipal Law Article 18-B and City Charter § 281 (subzone 1), and is within the City's Federal Enterprise Community ("FEC"). Willert Park qualified as an Economic Development Zone under New York General Municipal Law § 958 because it is an area of pervasive poverty, high unemployment, and economic distress. Forty-seven percent of the population in this area lives below the poverty level, the unemployment rate is twenty-seven percent, and the owner-occupancy rate is five percent, as compared to fifty-eight percent nationwide (Item 11, Exh. A. (HOZO Application)).

 On September 11, 1996, there was a public hearing on the proposal before the Economic Development Committee of the Common Council of the City of Buffalo. At this meeting, Council Member at Large Beverly Gray questioned why there were only two developers, Peterson and James, to work on the project. The Buffalo News, 9/29/96. After debate, a compromise by Council President James Pitts was approved that requires community development officials to devise a plan to include other qualified developers if the city is awarded the federal grant. Id.

 The City of Buffalo submitted its application on October 7, 1996, and proposed that a HUD Economic Development Initiative ("EDI") grant and Section 108 loan funds would be used to redevelop the Willert Park neighborhood by subsidizing low- and moderate-income housing. The City's HOZO application indicated that the redevelopment of the Willert Park neighborhood is a continuation of the City's Ellicott Urban Renewal Plan, adopted pursuant to Article 15 of the General Municipal Law. The City also noted that previous development by Peterson and James in the Pratt-Willert project was nationally recognized, and extolled by HUD as an example for HOZO development in HUD's publication "New American Neighborhoods" (Item 19, pgs. 18-19).

 In formulating its HOZO application, the City put together a private/public partnership including the City, the New York State Affordable Housing Corporation, M & T Bank, the Ellicott District Community Development Corporation, the Buffalo Urban Renewal Agency, and the Buffalo Neighborhood Revitalization Corporation. The City planned to utilize $ 7,675,000 in Section 108 loan funds, $ 5,000,000 in EDI funds, $ 1,000,000 in New York State Affordable Housing Corporation funds, $ 400,000 in FEC funds, $ 1,200,000 from a Community Development Block Grant ("CDBG"), $ 1,000,000 in City Funds, $ 540,000 in Buffalo Enterprise Development Corporation ("BEDC") funds, $ 1,461,600 in home buyer down payment, and approximately $ 27,770,000 in permanent mortgage financing to provide for funding of land assembly, demolition, site preparation, public improvements, park improvements, and homeownership assistance (Id.).

 On April 8, 1997, a press release issued by HUD announced that Buffalo was one of six cities nationwide chosen to receive HOZO EDI grants and Section 108 loan funds. On or about July 22, 1997, HUD formally approved the City's application. According to defendant DeLisle, "the City's application was the highest scoring application among the 97 reviewed by HUD and the City's application was the only one granted in full." (Item 11, P 31).

 Based on the foregoing facts, the City defendants and the private sector defendants filed motions to ...

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