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North Sea Associates, Inc v. Payton Lane Nh

December 6, 2011

NORTH SEA ASSOCIATES, INC., PLAINTIFF,
v.
PAYTON LANE NH, INC., DEFENDANT,
PAYTON LANE NH, INC., THIRD-PARTY PLAINTIFF,
v.
PFC CORPORATION AND THE UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, THIRD-PARTY DEFENDANTS.



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

MEMORANDUM AND ORDER

Plaintiff North Sea Associates, Inc. ("North Sea") commenced this action in New York State Supreme Court, Suffolk County, against Defendant Payton Lane NH, Inc. ("Payton") to recover damages for breach of contract, misrepresentation, and conversion. Payton then commenced a third-party action against Third-Party Defendants PFC Corporation ("PFC") and the United States Department of Housing and Urban Development ("HUD") seeking a declaratory judgment that: (1) Payton has no liability to HUD, PFC or North Sea and (2) Payton has satisfied all contractual obligations to North Sea, HUD and PFC. HUD, after removing the case to federal court, filed the instant motion to dismiss the Third-Party Complaint for lack of subject matter jurisdiction. Payton opposes the motion, and in the alternative seeks leave to amend the Third-Party Complaint. For the following reasons, HUD's motion to dismiss is GRANTED, and Payton's motion to amend is DENIED.

BACKGROUND

The allegations in the Third-Party Complaint arise out of a December 13, 2001 mortgage ("Mortgage") and mortgage note ("Note") that Payton executed in favor of PFC and a building loan agreement (together with the Mortgage and the Note, the "Loan") between Payton and PFC for the construction of a residential nursing facility in Southampton, New York ("Facility"). (Third-Party Compl. ¶¶ 5-6.) The Mortgage was insured by HUD. (Id. ¶ 9.)

On or about September 21, 2005, Payton leased the Facility to North Sea for a thirty-three year term. (Id. ¶ 7.) The lease required North Sea to pay the "Certified Debt Service"*fn1

on Payton's Mortgage directly to PFC. (Third-Party Compl. ¶ 8.) North Sea began making payments in February 2006. (Id.)

The Mortgage provided for a loan of $37,523,000, but as a result of a delay in the final endorsement of the Loan, only $34,102,169.14 was ultimately disbursed. (Compl. ¶¶ 6, 12-13; Third-Party Compl. ¶ 11.) According to Payton, however, PFC was still demanding monthly principal and interest based on the initial loan amount. (Compl. ¶ 13; Payton Opp'n Mem. 3.)

Payton believed that this resulted in payments being made to PFC (including the payments made by North Sea pursuant to the lease agreement) in excess of the amounts due under the Loan and commenced an action against PFC in the New York State Supreme Court, New York County, in July 2008 for, inter alia, reimbursement of the alleged overpayments. (Third-Party Compl. ¶¶ 11, 13.) PFC, although asserting that all payments were proper, collected and maintained the alleged overpayments in an escrow account ("Excess Funds Escrow"). (Id. ¶¶ 12, 14.)

At the conclusion of the litigation, on or about July 16, 2009, Payton and PFC entered into a modification of the Note ("Recast Note"). (Id. ¶ 16.) The Recast Note, at HUD's insistence and direction, "retroactively folded the purported overpayments in the Excess Funds Escrow into the original Note and directed payment of the remaining vendors and payees from the funds otherwise applied to the Note then sitting in the Excess Funds Escrow." (Id. ¶ 19.) HUD and PFC explained to Payton that recasting the Note as such would liquidate the Excess Funds Escrow. (Id. ¶ 20.) Additionally, Payton alleges that HUD and PFC informed Payton that Payton would default under the Loan if it did not enter into the Recast Note. (Id. ¶ 17.)

On July 21, 2010, North Sea commenced the present action against Payton in the Supreme Court, Nassau County seeking to recover any overpayments of Certified Debt Service that it believed it made under the lease. (Compl. ¶¶ 49, 54, 60.) Payton subsequently filed a Third-Party Complaint against PFC and HUD seeking a declaratory judgment that: (1) Payton has no liability to HUD, PFC or North Sea and (2) Payton has satisfied all contractual obligations to North Sea, HUD and PFC. (Third-Party Compl. ¶ 29.)

HUD, after removing the action to federal court, moved to dismiss the Third-Party Complaint under Federal Rule of Civil Procedure 12(b)(1) arguing that the Court lacks subject matter jurisdiction.

DISCUSSION

I. Motion to Dismiss

A. Standard of Review under Rule 12(b)(1) "A case is properly dismissed for lack of subject matter jurisdiction under Rule 12(b)(1) when the district court lacks the statutory or constitutional power to adjudicate it." Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000). In resolving a motion to dismiss for lack of subject matter jurisdiction, the Court may consider affidavits and other materials beyond the pleadings to resolve jurisdictional questions. See Morrison v. Nat'l Austl. Bank Ltd., 547 F.3d 167, 170 (2d Cir. 2008), aff'd, 130 S. Ct. 2869, 177 L. Ed. 2d 535 (2010). The Court must accept as true the factual allegations contained in the Complaint, but it will not draw argumentative inferences in favor of a plaintiff because subject matter jurisdiction must be shown affirmatively. See id.; Atlanta Mut. Ins. Co. v. Balfour Maclaine Int'l Ltd., 968 F.2d 196, 198 (2d Cir. 1998); Shipping Fin. Servs. Corp. v. Drakos, 140 F.3d ...


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