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United States District Court, S.D. New York

June 11, 2004.

MEL MARTINEZ, in his official capacity as Secretary of the United States Department of Housing and Urban Development, TOMMY THOMPSON, in his official capacity as Secretary of the United States Department of Health and Human Services, UPPER MANHATTAN EMPOWERMENT ZONE CORPORATION, NEW YORK EMPOWERMENT ZONE CORPORATION and TIAGO HOLDINGS, LLC, Defendants.

The opinion of the court was delivered by: JOHN KEENAN, Senior District Judge



  This application for a preliminary injunction and cross-motion to dismiss relate to construction of a shopping center in the East Harlem area of Manhattan along FDR Drive between 116th and 119th Streets. The development is known as the East River Plaza Project ("the Project").

  Plaintiffs are an unincorporated association of East Harlem residents and a group of local residents and property owners. Plaintiffs' Memorandum of Law ("Pl.") at 2. Defendants are the U.S. Department of Housing and Urban Development ("HUD"), the U.S. Department of Health and Human Services ("HHS") (collectively "the Federal Defendants"), the Upper Manhattan Empowerment Zone Corporation ("UMEZ"), the New York Empowerment Zone Corporation ("NYEZC") (collectively "the State Defendants"), and Tiago Holdings, LLC ("Tiago" or private defendant). Pl. at 2. The State Defendants are New York corporations whose function is to foster development in the area near the proposed project. Federal Defendants' Memorandum of Law ("Def.") at 8. Tiago is the owner of the site of the Project, formerly the site of the Washburn Wire Factory ("the Factory"). Pl. at 2, 4.

  Beginning in July 2003, plaintiffs moved by Order to Show Cause for a preliminary injunction preventing demolition of the Factory until the Federal Defendants had conducted a review of the impact of the Project on historical resources as required by Section 106 of the National Historic Preservation Act ("NHPA"). Def. at 13. On August 19, 2003, this Court denied the motion and instructed plaintiffs to submit additional statements outlining the remaining relief requested. Def. at 13-14. Defendants were likewise given opportunity to respond to plaintiffs' statements. The Federal Defendants did respond; the State Defendants and Tiago rested on their earlier submissions. The results of plaintiffs' statements and Federal Defendants' response are the instant motions.

  Plaintiffs seek a preliminary injunction halting construction at the factory site until the Federal Defendants have conducted a review pursuant to Section 106 of the NHPA. Def. at 14. Plaintiffs argue that proximity of the Project to one historic resource listed on the National Register of Historic Places, the Thomas Jefferson Play Center, and three potential historic resources, the Manhattan Center for Science and Mathematics, a warehouse at 2138-2152 First Avenue, and a building at 204 East 116th Street, warrant Section 106 review. Def. at 14-15. The Federal Defendants contend that Section 106 review is unnecessary because the Project is controlled and implemented by state and local entities, and that therefore the claim should be dismissed and a preliminary injunction denied. The State Defendants and Tiago, in their August 2003 submissions, similarly raised the issue of lack of federal control. Throughout the course of this litigation, all parties have submitted and relied upon voluminous affidavits and declarations.*fn1

  For the reasons given below, the application for a preliminary injunction is denied, and summary judgment is granted in favor of defendants.


  The Federal Defendants offer a lengthy statement of facts in support of their contention that review under Section 106 of the NHPA is not required in the instant action. The Court summarizes those factual assertions here.

  This case revolves around New York City's "Empowerment Zones" ("EZs"): those urban areas designated by the Secretary of HUD as eligible for tax incentives and special consideration for programs of federal assistance. See 24 C.F.R. § 597.3 (2004). The nominating bodies develop a "Strategic Plan" ("SP") for each EZ that sets forth the goals and vision for the EZ. Id.; see Def. at 4. After designation, HUD's role is simply to periodically review the actions and measure the progress of the EZ to ensure compliance with the SP. Def. at 4-5. Should an EZ fail to meet the goals set forth in the SP, HUD may revoke the area's EZ designation. Def. at 5.

  EZs receive federal funding not from HUD, but from HHS in the form of Social Services Block Grants ("Block Grants"). Def. at 6. These grants are given to state agencies for specific purposes in accordance with the SP. Def. at 6. HHS has no role in the specific disbursement of Block Grant funds. Def. at 7. Instead, the state grantees remove, or "draw down" funds from their accounts as needed, subject to certain regulations. Def. at 7. HUD also has no control or approval power concerning the Block Grant funds. Def. at 8.

  In New York City, HUD designated an EZ, including the Upper Manhattan neighborhood that encompasses the former site of the Factory. Def. at 6. HHS allocated $100 million in Block Grants to the Empire State Development Corporation ("ESDC"), a state agency. Def. at 7, 8. ESDC, in turn, created the New York Empowerment Zone Corporation ("NYEZC") to monitor New York City's EZs. Def. at 8. NYEZC selects EZ projects, including the East River Plaza Project as issue here, in accordance with procedures outlined in a Memorandum of Understanding ("MOU") to which the state, the city, the Upper Manhattan Empowerment Zone Corporation ("UMEZ"), and another constituent organization are parties. Def. at 8-9. Although HUD served as a non-voting director of NYEZC through 2002, neither HUD nor HHS are parties to the MOU. Def. at 8 n. 3, 9.

  HUD is a party, however, to a Memorandum of Agreement with the city and the state, which calls for periodic reporting and findings on continued EZ eligibility. Def. at 11. Again, HUD may revoke EZ designation but has no power to select specific projects or to set budgets for projects. Def. at 11.

  Funding of specific projects within New York City's EZ is determined by local entities, which, under the MOU, involves requesting funding from state agencies, reviewing for compliance with SPs, selecting service providers and vendors, and monitoring performance of those providers. Def. at 10. NYEZC has approved, but not yet obligated or released, $15 million for the East River Plaza Project, of which $5 million is potentially traceable to federal sources. Def. at 10-11. The total Project costs are estimated at $160 million. Def. at 11.

  The Federal Defendants contend, in light of the foregoing, that neither HUD nor HHS exercised sufficient control over the East River Plaza Project to subject the Project to Section 106 review. Plaintiffs do not dispute any of the Federal Defendants' factual assertions. Rather, plaintiffs dispute only the legal implications of those assertions. Plaintiffs argue that the potential $5 million traceable to Social Services Block Grant funding is an automatic trigger for Section 106 review, and that HUD's continuing supervision of the EZ constitutes sufficient control to warrant review. Def. at 8, 13-14.


  In deciding a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a court relies only on the facts alleged in the complaint. However, if the parties present matters outside the pleading, and the court does not exclude them, the court must convert the motion to dismiss to a motion for summary judgment under Federal Rule of Civil Procedure 56:

[If] matters outside the pleading are presented to and not excluded by the court, the motion [to dismiss under Rule 12(b)(6)] shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56.
Fed.R.Civ.P. 12(b).

  A district court's conversion of a motion to dismiss to a motion for summary judgment is "governed by principles of substance rather than form." In re G.A. Books, Inc., 770 F.2d 288, 295 (2d Cir. 1985). A party will be deemed to have received sufficient notice of conversion if the party "should reasonably have recognized the possibility that the motion might be converted into one for summary judgment." Id. The moving party's submission of exhibits, affidavits and the like gives the non-moving party notice of possible conversion. Id. In addition, the non-moving party must not be "taken by surprise and deprived of a reasonable opportunity to meet facts outside the pleadings." Id. However, the non-moving party's failure to submit material outside the pleading does not necessarily indicate that the non-moving party was taken by surprise: the non-moving party may choose not to submit responsive material. Id.; see, e.g., Groden v. Random House, Inc., 61 F.3d 1045, 1053 (2d Cir. 1995) (noting that even if movant had not explicitly asked for summary judgment, non-movant had opportunity to present evidence outside the pleading and did so), Kennedy v. Empire Blue Cross and Blue Shield, 989 F.2d 588, 592 (2d Cir. 1993) (concluding that court's sua sponte conversion to motion for summary judgment was not error because plaintiffs were on clear notice and were not taken by surprise). In this case, all parties have submitted and relied upon extensive affidavits and declarations, therefore conversion of the Federal Defendants' motion to dismiss under Rule 12(b)(6) to a motion for summary judgment is warranted.

  A motion for summary judgment may be granted under Rule 56 of the Federal Rules of Civil Procedure if the entire record demonstrates that "there is no genuine issue as to any material fact and . . . the moving party is entitled to judgment as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). When viewing the evidence, the Court must "assess the record in the light most favorable to the non-movant and . . . draw all reasonable inferences in its favor." Delaware & Hudson Ry. Co. v. Consol. Rail Corp., 902 F.2d 174, 177 (2d Cir. 1990); see McLee v. Chrysler Corp., 109 F.3d 130, 134 (2d Cir. 1997); see also Anderson, 477 U.S. at 255. Having converted the Federal Defendants' motion to dismiss under Rule 12(b)(6) to a motion for summary judgment under Rule 56, the Court will address the relevant issues below.


  Under Section 106 of the NHPA, the head of a federal agency having jurisdiction over a "[f]ederal or federally assisted undertaking" must "take into account the effect of the undertaking on any district, site, building, structure, or object that is included in or eligible for inclusion in the National Register." 16 U.S.C. § 470 (f) (U.S.C.A. 2000). However, "federal financial assistance alone is insufficient" to trigger review under Section 106. Woodham v. Fed. Transit Admin., 125 F. Supp.2d 1106, 1110 (N.D. Ga. 2000). "There must, in addition, be some form of federal approval, supervision, control, or at least a certain level of consultation, over the spending of the federal funds in order to subject [an organization] to the requirements of the National Historic Preservation Act." Maxwell Street Historic Preservation Coalition v. Bd. of Trs. of the Univ. of Ill., No. 00 C 4779, 2000 WL 1141439 at *4 (N.D. Ill. Aug. 11, 2000); see Ringsred v. City of Duluth, 828 F.2d 1305, 1309 (8th Cir. 1987) (concluding that, because of "the lack of federal involvement," a project was "outside the scope of NHPA"); Gettysburg Battlefield Preservation Assoc. v. Gettysburg College, 799 F. Supp. 1571, 1581-82 (M.D. Pa. 1992) ("[I]n the absence of ongoing federal involvement and control there is no jurisdiction for a federal court to order a federal agency to undertake NHPA review. . . .").

  Furthermore, as courts have held that the triggers for Section 106 review are similar to the triggers for review under the National Environmental Protection Act ("NEPA"), another statute that requires a review of the impact of certain federal projects on environmental resources, Sugarloaf Citizens Assoc. v. Fed. Energy Regulatory Comm'n, 959 F.2d 508, 515 (4th Cir. 1992); see Sac and Fox Nation of Mo. v. Norton, 240 F.3d 1250, 1263 (10th Cir. 2001) ("Because of the operational similarity between the two statutes, courts generally treat `major federal actions' under the NEPA as closely analogous to `federal undertakings' under the NHPA."); Woodham, 125 F. Supp.2d at 1110 ("[T]he scope of jurisdiction under the NHPA has been held to be co-extensive with jurisdiction under the NEPA."), the Court finds guidance in cases addressing the level of federal involvement necessary to trigger NEPA review. In Ringsred, the court considered federal financial aid just one of three factors used to determine whether NEPA review is required. See 828 F.2d at 1308. Similarly, the court in South Bronx Coalition for Clean Air, Inc. v. Conroy considered federal "influence or control" more important than the presence of federal dollars: If the federal government lacks discretion over substantial portions of a project, especially where state and local agencies have exclusive control of the content and implementation of the plan, the project is not "federal" and failure to adhere to the requirements of the NEPA will not be grounds for enjoining the project. 20 F. Supp.2d 565, 570-71 (S.D.N.Y. 1998).

  HUD's and HHS's involvement does not rise to the level of control necessary to trigger Section 106 review under the NHPA. Neither HUD nor HHS selected, approved, or supervised the Project, or consulted with local agencies concerning the Project. The possible expenditure of $5 million attributable to HHS block grant funding, out of a total of $160 million in state, local, and private funds planned to be invested in the project, is not in itself sufficient to warrant Section 106 review, absent additional federal involvement, exercise of decision making authority, or discretion. Plaintiffs have therefore failed to prove that a genuine issue of material fact exists, and Defendants are entitled to judgment as a matter of law.*fn2 The cases plaintiffs cite in support of their argument are not applicable. Two deserve the Court's particular attention. In WATCH v. Harris, a local government received federal funds under a loan and capital grant contract. 603 F.2d 310, 312 (2d Cir. 1979). Under the contract, each phase of the project required HUD's permission. Id. at 313. This alone differentiates WATCH from the case before this Court, where such step-by-step federal approval is not required. Moreover, the core issue of the case was whether Section 106 review applied to each phase of a multi-phase project once preliminary approval had been granted, see id. at 319, an issue not before this Court.

  Similarly, Old Town Neighborhood Ass'n v. Kauffman, 333 F.3d 732 (7th Cir. 2003), addresses an issue distinct from the one presented here. Old Town involved a scheme whereby the Federal Highway Administration, the Indiana Department of Transportation, and the City of Goshen, Indiana ("Goshen"), agreed that Goshen would construct a road and then "swap" a portion of that road — which portion would become part of a federal highway — for federal reimbursement, thus circumventing the requirements of Section 106. Id. at 734, 736. The Seventh Circuit called this move a "two-step [that] would subvert the federal laws," and therefore enjoined Goshen from either accepting any federal funding whatsoever for the project, or, if Goshen did accept federal funding, from continuing construction of the project until a Section 106 review had been performed. Id. at 736. The court did not, however, address the issue of federal control as a requirement for NHPA review.


  Plaintiff's motion for a preliminary injunction is denied. The Federal Defendants' motion to dismiss, duly converted to a motion for summary judgment, is granted. The case is hereby closed and the Clerk of the Court is instructed to remove the case from the active docket.


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