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GUITY v. MARTINEZ

United States District Court, S.D. New York


May 19, 2004.

KATHY GUITY, et al., Plaintiffs, -against- MEL MARTINEZ, as Secretary for the U.S. Department of Housing & Urban Development, et al., Defendants

The opinion of the court was delivered by: LORETTA PRESKA, District Judge

MEMORANDUM OPINION AND ORDER

Plaintiffs are residents of Pueblo de Mayaguez, a development: located at 942, 950 and 960 Avenue St. John, Bronx, New York "Property") and an association formed by the residents of Pueblo de Mayaguez ("Association")(residents and the Association collectively referred to as "Plaintiffs").

On August 20, 2003, Plaintiffs brought this action seeking to enjoin defendants, the United States Department of Housing and Urban Development ("HUD") and its Secretary, Mel Martinez ("Secretary"), (HUD and the Secretary collectively referred to as "Defendants") from foreclosing on and selling the Property. Plaintiffs allege that the Defendants failed properly to conduct the foreclosure sale of the Property (Amended Complaint ¶¶ 69-72, 74-75, "Complaint" or "Compl."); acted arbitrarily and capricously in the manner in which they foreclosed and sold the Property, Compl. ¶¶ 69-71, 74-74; breached a contract that existed between HUD and the City of New York in selling the Property to GURU Holdings Co., LLC. ("GURU"), Compl. ¶ 73; and violated Plaintiffs' right to Due Process. Compl. ¶ 72. Plaintiffs' request for a temporary restraining order was denied, and Plaintiffs thereafter withdrew their request for a preliminary injunction because the Property had been sold.*fn1 Defendants now move to dismiss the Complaint as moot and because it fails to state a claim.

  BACKGROUND

  The following facts are taken from the Complaint and are assumed to be true for purposes of this motion. Pueblo de Mayaguez's residents are primarily low income families whose rent payments are subsidized by HUD. Compl. ¶ 21. In addition to subsidizing the residents' rent payments, HUD insured the forty year mortgage on the Property ("Mortgage") that was held by Banker's Trust Company of California ("Banker's Trust") until it was assigned to HUD in or about October 2000. Compl. ¶ 23. Approximately eight months later, in June 2001, HUD notified the Mayor of New York City and the New York City Housing Authority ("NYCHA") that it intended to foreclose on the Mortgage and sell the Property. Compl. ¶ 37. According to a letter referenced by Plaintiffs in the Complaint, after first requesting additional information, NYCHA advised HUD that it had no interest in the Property. Compl. ¶ 37 (referencing Davidson Declaration ("D.Dec."), Ex. C). On or about November 2001, HUD became the mortgagee in possession of the Property and managed it until it was sold on July 22, 2003. See Compl. ¶ 23.

  Over a year later, in December 2002, Plaintiffs discovered a notice posted in their building that informed them of HUD's intention to foreclose on the Mortgage and sell the Property at auction. Compl. ¶ 24. The notice included the date and place of the scheduled auction. Compl. ¶ 24. On December 20, 2002, the property was sold at auction, but the two highest bidders ultimately failed to purchase it. Compl. ¶ 25. It was apparently the impending sale of the Property that led residents to form the Association that is a party to this action. Compl. ¶ 26.

  Shortly after the first auction, Plaintiffs' newly formed Association began pursuing a proposal, in cooperation with the Urban Homesteaders Assistance Board ("UHAB"), to convert the Property into a low income cooperative. Compl. ¶ 26. Toward this end, UHAB met with the Commissioner of the New York City Department of Housing and Preservation Development ("HPD"), who Plaintiffs claim became interested in acquiring the property from HUD. Compl. ¶ 27.

  On or about June 19, 2003, UHAB became aware that a second auction was scheduled for July 22, 2003. Compl. ¶ 29. Shortly thereafter, on or about June 27, 2003, UHAB was informed by HUD that HUD would "look" at a proposal from UHAB if it was submitted by July 2, 2003. Compl. ¶ 31. According to Plaintiffs, on July 2, 2003, UHAB sent HUD "the requested information" and a letter from Harold Shultz, Special Counsel to HPD, informing HUD that HPD was willing to become the contract vendee of the Property, but that HPD would thereafter assign the contract to UHAB or another appropriate entity. Compl. ¶ 32. According to Plaintiffs, UHAB learned on July 1, 2003, that HUD intended to reject its proposal because it included the assignment from HPD to UHAB. HUD informed UHAB that such an assignment was against HUD policy. Compl. ¶ 33. Separately, the residents became aware of the second auction sometime during the "first week of July" by way of a notice posted in the lobby of Pueblo de Mayaguez. The notice included the date, time and place of the second auction. Compl. ¶ 30.

  On Friday, July 18, 2003, two business days before the scheduled auction, Harold Schultz and Douglas Apple, General Manager of NYCHA, faxed a letter to a Commissioner at HUD requesting a three week adjournment of the second auction and claiming that HPD and NYCHA were in the process of creating a structure that would allow them to take control of the Property. Compl. ¶ 35. On July 22, 2003, HUD auctioned Pueblo de Mayaguez to GURU, for $4.75 million. Compl. ¶ 36. The contract of sale requires the new owner to maintain Pueblo de Mayaguez as affordable housing for the next twenty years.*fn2 Compl. ¶ 40. A week after the second auction, HUD sent UHAB a letter informing it that HUD had denied its request to adjourn the second auction. Compl. ¶ 37.

  Plaintiffs bring this action claiming that HUD was required to comply with provisions of 12 U.S.C. § 1701-11z et seq. in auctioning the Property, but did not. HUD argues that it has the option of proceeding under 12 U.S.C. § 1701-11z et seq. or the Multifamily Mortgage Foreclosure Act, codified at 12 U.S.C. § 3701 et seq. ("MMFA"), and that it chose to proceed under the MMFA, with which it complied.

  DISCUSSION

  I. Standard under Rule 12(b)(6)

  In deciding a motion to dismiss, I must view the Complaint in the light most favorable to the Plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 237 (1974); Yoder v. Orthomolecular Nutrition Inst., Inc., 751 F.2d 555, 562 (2d Cir. 1985). I must accept as true the factual allegations stated in the complaint, Zinermon v. Burch, 494 U.S. 113, 118 (1990), and draw all reasonable inferences in favor of the plaintiff. Scheuer, 416 U.S. at 236; Hertz Corp. v. City of New York, 1 F.3d 121, 125 (2d Cir. 1993). A motion to dismiss can only be granted if it appears beyond doubt that the plaintiff can prove no set of facts in support of its claim which would entitle plaintiff to relief. Conley v. Gibson, 355 U.S. 41, 45-46 (1957). "`[T]he complaint is deemed to include any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference.'" Int'l Audiotext Network, Inc. v. Am. Tel. & Tel. Co., 62 F.3d 69, 72 (2d Cir. 1995) (quoting Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 47 (2d Cir. 1991)). In order to avoid dismissal, plaintiffs must do more than plead mere "[c]onclusory allegations or legal conclusions masquerading as factual conclusions." Gebhardt v. Allspect, Inc., 96 F. Supp.2d 331, 333 (S.D.N.Y. 2000) (quoting 2 James Wm. Moore, Moore's Federal Practice ¶ 12.34 [a] [b] (3d ed. 1997)).

  II. Foreclosure Proceeding

  Eight of Plaintiffs' nine claims rely on their allegation that HUD was bound to proceed to foreclosure on the Property under the provisions of 12 U.S.C. § 1701z-11 et seq.*fn3 Five of them allege that HUD was also bound to comply with the provisions of 24 C.F.R. § 290.11. Counts One through Five and count Nine allege that the Defendants violated specific provisions of section 1701z-11 et seq., and counts Six and Eight allege that these violations amount to a violation of Plaintiffs' due process rights and of government policy. Compl. ¶¶ 61-12, 75. All except counts Six and Seven also allege that HUD's conduct was arbitrary and capricious in violation of 5 U.S.C. § 706.

  The six claims that allege violations of specific provisions of section 1701z-11 et seq., allege that Defendants (i) failed to provide the residents with proper notice of the foreclosure proceeding, Compl. ¶ 67; (ii) failed to develop a disposition recommendation and analysis, Compl. ¶ 68; (iii) failed co consult with residents, tenant organizations, local government officials and others, Compl. ¶ 69; (iv) failed to transfer ownership of Pueblo de Mayaguez to NYCHA, Compl. ¶ 70; (v) failed to give the City of New York proper notice of the foreclosure proceeding, Compl. ¶ 71; and (vi) unlawfully approved the ultimate purchaser, GURU Holding LLC. Compl. ¶ 75. The three remaining claims allege that (i) HUD's conduct amounts to a violation of the Due Process Clause of the Fifth Amendment, Compl. ¶ 72; (ii) HUD breached a contract between the City of New York and HUD, to which Plaintiffs were third party beneficiaries, Compl. ¶ 73; and (iii) HUD violated 12 U.S.C. § 3601 by acting arbitrarily and capriciously, Compl. ¶ 74. It is undisputed that the Mortgage was insured pursuant to Title II of the National Housing Act, 12 U.S.C. § 1707, et seq. and that it is within the definition of a "Multi-family Mortgage" found in 12 U.S.C. § 3702(2)(A),*fn4 to which the MMFA provisions apply. However, Plaintiffs contend that the other provisions, such as the notice provision, do not apply. They contend that the MMFA applies only to HUD's choice of which foreclosure procedures it uses, that is, only to whether HUD. proceeds with a non-judicial procedure, a federal judicial procedure, or an individual state's procedure. Pl. Mem. at 8. They contend that HUD must otherwise comply with the foreclosure procedures set out in 12 U.S.C. § 1701z-11, et seq., even if such provisions conflict with the directives of the MMFA provisions. Compl. ¶ 11. I disagree.

  Section 3703 of the MMFA is entitled "Applicability" and provides, in relevant part:

  Multifamily mortgages held by the Secretary . . . may be foreclosed by the Secretary in accordance with this chapter, or pursuant to other foreclosure procedures available, at the option of the Secretary. If the Secretary forecloses on any such mortgage pursuant to such other foreclosure procedures available, the provisions of section 3706(b) of this title may be applied at the discretion of the Secretary. 12 U.S.C. § 3703. Section 3706, entitled "Notice of default and foreclosure sale; condition and term of sale" sets out the manner in which the Secretary may give notice of default and foreclosure sale, and specifically directs that the Secretary must comply with section 1701z-11, et seq. when the Secretary is the purchaser of a multifamily project:

 

In any case where the Secretary is the purchaser of a multifamily project, the Secretary shall manage and dispose of such project in accordance with the provisions of section 203 of the Housing and Community Development Amendments of 1978.*fn5
12 U.S.C. § 3706 (b)(2)(B). This statute too, recognizes the Secreatary's broad discretion in choosing under which statute he proceeds by carving out those for which the Secretary must proceed under 1701z-11 et seq.

  Further, section 1715z-11a(a), entitled "Disposition of HUD-owned properties," also confirms the Secretary's broad discretion in determining the manner in which HUD disposes of properties:

During fiscal year 1997 and fiscal years thereafter, the Secretary may manage and dispose of multifamily properties owned by the Secretary, including, for fiscal years 1997, 1998, 1999, 2000, and thereafter the provision of grants and loans from the General Insurance Fund (12 U.S.C. § 1735c) for the necessary costs of rehabilitation, demolition, or construction on the properties (which shall be eligible whether vacant or occupied), and multifamily mortgages held by the Secretary on such terms and conditions as the Secretary may determine, notwithstanding any other provision of law.
12 U.S.C. § 1715z-11a (a). The MMFA was enacted to eliminate the conditions that seriously impair the Secretary's ability to protect the Federal financial interest by providing a more expeditious procedure for the Secretary's foreclosure of mortgages. It sets out the procedure for selecting a commissioner and designating his or her duties, the prerequisites to foreclosure, and the specific notice of default that is to be given. For example, it requires that notice to residents be posted in a prominent place at or on the Property at least seven days prior the sale of the Property, Id. at 3708(3), and that the notice identify the Property and include, inter alia, the date and place of the foreclosure sale. Id. at § 3706. Plaintiffs do not dispute that Defendants complied with the requirements of the MMFA.*fn6

  As I found in my order of August 20, 2003, the section plainly states that the Secretary has the option of proceeding under the MMFA which, as set forth in 12 U.S.C. § 3701, was intended by Congress to remedy the long periods required to complete foreclosure proceedings. The Defendants had the choice of proceeding under Section 1701z-11 et seq. or proceeding under section 12 U.S.C. § 3701 et seq. in foreclosing the mortgage and selling the Property. Nothing presented in Plaintiffs' amendments to their complaint alters my previous conclusion.

  Accordingly, Defendants' motion to dismiss claims one through five and claim nine is granted.

  III. Contract

  Plaintiffs allege that HUD breached a federal contract grounded upon the City's supposedly having exercised a right of first refusal to the property which, Plaintiffs assert, created a contract between the Secretary and the City of which Plaintiffs are the third-party beneficiaries. Compl. ¶ 73. Defendants argue that Plaintiffs' breach of contract claim should be dismissed because there is no valid, binding contract between the City of New York and HUD. (Memorandum of Law in Opposition to Plaintiffs' Motion for Preliminary Injunction and in Support of HUD's Cross-Motion to Dismiss ("Def. Mem.") at 14). Plaintiffs simply assert that a contract was "created when the City of New York properly accepted HUD's offer to transfer the building to the City,' Compl. ¶ 73, and that "[i]n it[s] acceptance letter, the City explicitly states that it is requesting the transfer in order no transfer the building to the tenants." Pl. Mem. at 19.

  To form a contract under New York law (which the parties do not dispute applies here), there must be an offer, acceptance, and consideration, in addition to a showing of a meeting of the minds, which demonstrates the parties' mutual assent and mutual intent to be bound. Brodie v. New York City Transit Auth., No. 96 Civ. 6813 (LMM), 2000 WL 557313, at *3 (S.D.N.Y. May 5, 2000) (citing Renner v. Chase Manhattan Bank, No. 98 Civ. 926 (CSH), 1999 WL 47239, at *15 (S.D.N.Y. Feb. 3, 1999)). Each element of the claim need not be pled separately; the "essential elements to pleading a breach of contract under New York law are the making of an agreement, performance by the plaintiff, breach by the defendant, and damages suffered by the plaintiff." Startech, Inc. v. VSA Arts, 126 F. Supp.2d 234, 236 (S.D.N.Y. 2000) (citations omitted).

  Although the Complaint does not specifically identify the offer or the acceptance that Plaintiffs contend form the basis of the alleged contract, there were only a handful communications between the City and HUD to which Plaintiffs could possibly be referring.

  With regard to an "offer," the only possible communications to which Plaintiffs could be referring are HUD's letters to NYCHA in June, August and October 2001 informing NYCHA of HUD's intention to initiate foreclosure proceedings against the Property and inquiring into its intentions, Compl. ¶ 37, or the telephone call Assistant Deputy Secretary Tombar had with UHAB informing it that HUD would "look" at a proposal if received by July 2, 2003. See Compl. ¶ 31. Although the 2001 letters were not provided by Plaintiffs, Plaintiffs did provide and reference a copy of the letter from HUD to Mssrs. Schultz and Apple of July 22, 2003, in which HUD reiterated NYCHA's disinterest, as expressed by NYCHA in its letter of October 17, 2001 to HUD. Compl. ¶ 37 (referencing D.Dec, Ex. C.). The October 17, 2004 letter was the last letter in that series, and, as such, rejected any offer that had been previously made to NYCHA. With regard to Mr. Tombar's telephone call, Plaintiffs assert that Mr. Tombar informed UHAB that HUD would look at a proposal. Compl. ¶ 31. Such language does not amount to an offer; rather, it is at most an invitation to make an offer.

  Even assuming that HUD offered to convey the Property to the City, there was no legally cognizable acceptance by the City. Plaintiffs assert that a contract was "created when the City of New York properly accepted HUD's offer to transfer the building to the City,' Compl. ¶ 73, and that "[i]n it[s] acceptance letter, the City explicitly states that it is requesting the transfer in order to transfer the building to the tenants." Pl. Mem. at 19. The only letter to which Plaintiffs could possibly refer is the July 2, 2003 letter, signed by Harold Shultz, that was sent to HUD by UHAB, along with the requested "information." Compl. ¶ 32. That letter informs that "in order to facilitate the transfer of the property HPD would be willing to become the contract vendee of the property, and would be willing to assign such a contract to UHAB or another appropriate entity controlled by UHAB and the tenants." D. Dec., Ex. A. The plain language of the letter makes clear that HPD wished to discuss a possible contract between the two.

  The July 18, 2003 letter that Harold Schultz and Douglas Apple sent to Dr. Weicher, commissioner of HUD, "requested an extension of the auction so that NYCHA and HPD could create a structure that would . . . satisfy [] HUD's legal and administrative criteria." Compl. ¶ 35. Such language cannot be construed as an acceptance; rather, it is a request to negotiate a possible transaction.

  Lastly, even if Plaintiffs' assertion of an oral offer and acceptance were assumed, New York's Statute of Frauds bars Plaintiffs' contract claim. Although "federal law governs questions involving the rights of the United States arising under nationwide federal programs," United States v. Kimbell Foods, Inc., 440 U.S. 715, 726 (1979), courts have long held that "[a]bsent controlling federal legislation or rule of law, questions involving real property rights are determined under state law, even when the United States is a party." United States v. Epstein, 27 F. Supp.2d 404, 412 (S.D.N.Y. 1998) (citations omitted). In New York, a contract for the sale of real property "is void unless the contract or some note or memorandum thereof, expressing the consideration, is in writing, subscribed by the party to be charged, or by his lawful agent thereunto authorized in writing." N.Y. Gen. Oblig. Law § 5-703(2); see also Simone v. N.V. Floresta, Inc., Nos. 98 Civ. 0268 (CLB), 98 Civ. 1970 (CLB), 1999 WL 428504, at *7 S.D.N.Y. June 18, 1999).

  Plaintiffs do not allege that HUD committed the alleged offer to writing. To the contrary, Plaintiffs expressly allege that the "offer" was verbal. See Compl. ¶ 28. In addition, the writings described by Plaintiffs were not signed by HUD or any of its lawful agents. See Compl. ¶¶ 29, 32. Even if HUD had intended to enter into a contract to convey the property to NYCHA, such a contract would be void pursuant to New York's Statute of Frauds. Thus, based on the allegations in the Complaint, the documents referenced in the Complaint and the law set out above, I find that no contract was formed. Accordingly, Defendants' motion to dismiss Plaintiffs' claim for breach of contract is granted.

  IV. Count VIII — 3601

  Finally, Plaintiffs argue that the Secretary has violated his duty to further fair housing pursuant to 42 U.S.C. § 3601 and 5 U.S.C. § 706, by acting arbitrarily and capriciously in that he failed to give the residents notice and an opportunity to purchase the building themselves. That policy, however, is insufficient to allow Plaintiffs to prevail.

  Although it is the policy of the United States to provide, within constitutional limitations, for fair housing throughout the United States, 42 U.S.C. § 3601, that policy does not subject HUD to lawsuits intended to force HUD to take specific action, particularly where HUD acted in accordance with the applicable statute. The statute cited by Plaintiffs is a "Declaration of policy" enacted as part of the Fair Housing Act. A declaration of policy does not create a private right of action. The purpose of the Fair Housing Act is to prohibit discrimination in the sale or rental of housing. See United States v. Starrett City Assocs., 660 F. Supp. 668, 677 (E.D.N.Y. 1987). The source of the prohibition is the Fourteenth Amendment, which in its Equal Protection Clause forbids a State to deny any person within its jurisdiction the equal protection of the laws. See id.

  In addition, the conclusory allegation contained in the eighth cause of action, that HUD failed to give the residents notice and an opportunity to purchase the building, is belied by other allegations in the Complaint. For example, the Complaint alleges that the residents were aware of HUD's intention to foreclose on the mortgage as early as December 2002, see Compl. ¶ 22, and they received notice of the July 22, 2003 foreclosure sale in compliance with the MMFA. See Compl. ¶ 27. Moreover, the Complaint alleges that the first auction was public, see Compl. ¶ 22, the residents formed an association which sought to convert Pueblo de Mayaguez into a low income cooperative, see Compl. ¶¶ 24-25, and the residents apparently were present at the second auction. See Compl. ¶ 33. In short, the Complaint's specific allegations rebut Plaintiffs' conclusory assertion that they did not receive notice of the auction and were denied an opportunity to participate in it.

  Notably, the Complaint does not allege that Plaintiffs were prevented from bidding at the auction. Nor does it allege that Plaintiffs were denied notice and an opportunity to purchase the Property as a result of discrimination. Even if Plaintiffs had relied on a specific provision of the Fair Housing Act, rather than a broad policy statement, such omissions would be fatal to their claims. Accordingly, the Eighth cause of action fails to state a claim, and Defendants' motion to dismiss count Eight of Plaintiffs' Complaint is granted.

  VI. Due Process

  Plaintiffs claim that HUD failed to give them notice of the foreclosure and thus violated the Due Process Clause of the Fifth Amendment. See Compl. ¶ 67. A court analyzing a procedural due process claim first must determine whether the plaintiff has a protected interest. See Kentucky Dep't of Corrections v. Thompson, 490 U.S. 454, 460 (1989). To have a property interest in a benefit that implicates due process, a person must have more than an abstract need or desire for it. McMenemy v. City of Rochester, 241 F.3d 279, 286 (2d Cir. 2001) (quoting Board of Regents v. Roth, 408 U.S. 564, 577 (1972)). A person's interest in a benefit is a "property" interest for due process purposes only if there are rules or mutually explicit understandings that support her claim of entitlement to the benefit. See id.

  Here, no rule or mutually explicit understanding supports Plaintiffs' claim of entitlement to notice of the foreclosure beyond the notice required by the MMFA. See 12 U.S.C. § 3708(3). Plaintiffs do not allege that HUD failed to provide them with notice in compliance with the MMFA which requires that notice to residents be posted at least seven days prior to foreclosure action. Compare Compl. ¶ 27 with 12 U.S.C. § 3708(3). Accordingly, Plaintiffs fail to state a due process claim, and thus the Sixth cause of action is dismissed.

  CONCLUSION

  The Secretary had the discretion to choose under which statute to proceed to foreclose the Mortgage that was in default. He chose the MMFA and complied with it. His actions did not violate any applicable statute or the Plaintiffs' constitutional rights, and his actions were neither arbitrary nor capricious. Further, no contract existed between the City of New York and HUD, so there was no breach of such a contract. Accordingly, the Defendants' cross-motion to dismiss (Docket No. 7) is granted, and Plaintiffs' Complaint is dismissed.

  The Clerk of the Court shall mark this action closed and all pending motions denied as moot.

  SO ORDERED.


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