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GUITY v. MARTINEZ

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, ...


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