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Grand Manor Health Related Facility, Inc v. Hamilton Equities Inc

April 23, 2013

GRAND MANOR HEALTH RELATED FACILITY, INC., PLAINTIFF,
v.
HAMILTON EQUITIES INC., HAMILTON EQUITIES COMPANY, ROBERT NOVA, AND SUZAN CHAIT-GRANDT, DEFENDANTS. HAMILTON EQUITIES INC., HAMILTON EQUITIES COMPANY, ROBERT NOVA, SUZAN CHAIT-GRANDT, MACRON & COWHEY, P.C., AND JOHN MACRON, INTERPLEADER PLAINTIFFS,
v.
THE UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT AND BERKADIA COMMERCIAL MORTGAGE, LLC, INTERPLEADER DEFENDANTS.
HAMILTON EQUITIES INC. AND HAMILTON EQUITIES COMPANY, THIRD PARTY PLAINTIFFS,
v.
THE UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT AND BERKADIA COMMERCIAL MORTGAGE, LLC, THIRD PARTY DEFENDANTS.



The opinion of the court was delivered by: John G. Koeltl, District Judge:*fn1

OPINION AND ORDER

The parties have brought five separate motions relating to: first, a lease between the plaintiff-lessee Grand Manor Health Related Facility, Inc. ("Grand Manor") and defendants-property owners Hamilton Equities Company, Hamilton Equities Inc., Robert Nova, and Suzan Chait-Grandt (collectively "Hamilton Equities"); and, second, two regulatory agreements, one between the United States Department of Housing and Urban Development ("HUD") and Grand Manor, and another between HUD and Hamilton Equities Company. The issues in this case revolve around funds that were disbursed, allegedly improperly, to Hamilton Equities by Berkadia Commercial Mortgage, LLC ("Berkadia"), Hamilton Equities' mortgagee, at the direction of HUD, and the parties' respective obligations under the lease and the regulatory agreements.

Grand Manor argues that it is entitled to the funds for the improvement of a fire and sprinkler system for the nursing home that it operates on the property. Hamilton Equities claims that it is entitled to the funds under the lease. While the case originated in state court, it was removed to this Court after HUD was added as a party. As a result of the current motions, it is clear that HUD must be dismissed as a party and that there is no longer a basis for federal subject matter jurisdiction. The original state law claims must therefore be remanded to state court.

I.

The following facts are undisputed, unless otherwise noted.

A.

Hamilton Equities is the owner of the property at 700 White Plains Road, Bronx, New York. (HUD R. 56.1 Stmt. ¶ 1; Hamilton Equities' Resp. R. 56.1 Stmt. ("HE Resp.") ¶ 1.)*fn2 On July 30, 1974, Hamilton Equities, Inc., entered into a lease agreement with Saul Liebman and Bert Liebman,*fn3 doing business as Grand Manor, whereby Grand Manor would lease and operate a New York state licensed nursing facility on the premises. (See HUD Mem. Supp. Mot. Dismiss Interpleader Compl. Ex. A ("Lease"); HUD R. 56.1 Stmt. ¶ 1; HE Resp. ¶ 1; Liebman Decl. ¶ 8*fn4 .)

Hamilton Equities financed the construction of the project through the Federal Housing Administration's loan guarantee program. (Liebman Decl. ¶ 12.) That program is now administered by HUD. (Liebman Decl. ¶ 14.) On October 4, 1978, HUD and Hamilton Equities entered into a regulatory agreement (the "Hamilton Regulatory Agreement") in consideration of HUD's insurance of the mortgage obtained by Hamilton on the leased property. (See HUD Mem. Supp. Mot. Dismiss Interpleader Compl. Ex. B ("Hamilton Reg. Agmt."); HUD R. 56.1 Stmt. ¶ 3; HE Resp. ¶ 3.) Under section 2(a) of the Hamilton Regulatory Agreement, Hamilton Equities is required to make frequent payments into an escrow fund known as the "Reserve For Replacement Fund" ("the Reserve Fund" or "the Fund"):

[Hamilton Equities] shall establish or continue to maintain a reserve fund for replacements by the allocation to such reserve fund in a separate account with the mortgagee or in a safe and responsible depository designated by the mortgagee . . . Such funds . . . shall at all times be under the control of the mortgagee. Disbursements from such fund, whether for the purpose of effecting replacement of structural elements, and mechanical equipment of the project or for any other purpose, may be made only after receiving the consent in writing of the [HUD] Secretary. In the event of a default in the terms of the mortgage, pursuant to which the loan has been accelerated, the Secretary may apply or authorize the application of the balance in such fund to the amount due on the mortgage debt as accelerated. (Hamilton Reg. Agmt. § 2(a); Liebman Decl. ¶¶ 14-15.)

On the same day that HUD and Hamilton Equities entered into the Hamilton Regulatory Agreement, HUD also entered into a regulatory agreement with Grand Manor (the "Grand Manor Regulatory Agreement"). (HUD Mem. Supp. Mot. Dismiss Interpleader Compl. Ex. C ("Grand Manor Reg. Agmt.").) Grand Manor entered into the agreement "[i]n consideration of the consent of the Commissioner to the leasing of the aforesaid project by Hamilton Equities Company [to Grand Manor] . . . ." (Grand Manor Reg. Agmt. at 1.) Section 2 of the Grand Manor Regulatory Agreement provides that "[Grand Manor] shall make payments under lease when due." (Grand Manor Reg. Agmt. § 2.) Section 3 of the Agreement provides that under certain circumstances, HUD can require Hamilton Equities and Grand Manor to renegotiate the amounts due under the lease:

Payments by the lessee to the lessor shall be sufficient to pay all mortgage payments including payments to reserves for taxes, insurance, etc., payments to the Reserve for Replacements, and to take care of necessary maintenance. If at the end of any calendar year, or any fiscal year . . . payments under the lease have not been sufficient to take care of the above items, [Hamilton Equities] and [Grand Manor] upon request in writing from the Commissioner shall renegotiate the amounts due under the lease so that such amounts shall be sufficient to take care of such items . . . ." (Grand Manor Reg. Agmt. § 3.) Section 4 further provides that Grand Manor "shall not sublease the project . . . without consent of [HUD]." (Grand Manor Reg. Agmt. § 4.) Section 10 of the Grand Manor Regulatory Agreement provides that "[t]he lease may be cancelled upon thirty days written notice by the Commissioner given to the lessor and the lessee for a violation of any of the above provisions unless the violation is corrected . . . within said thirty day period." (Grand Manor Reg. Agmt. § 10.) Hamilton Equities is not a signatory to the Grand Manor Regulatory Agreement.

On August 28, 1978, Hamilton Equities and Grand Manor executed an amendment to the lease. (HUD Mem. Supp. Mot. Dismiss Interpleader Compl. Ex. D ("Lease Am.").) The Lease Amendment provides that contributions to the Reserve Fund are to be split between Grand Manor and Hamilton Equities:

[T]he parties hereto agree that so long as an escrow fund is required . . . [the lessor and lessee] will contribute to the fund on a monthly basis as follows:

(i) Two-thirds of such required monthly payments shall be paid by [Grand Manor]; and (ii) One-third of such monthly payment shall be paid by [Hamilton Equities]. (See Lease Am. § 25.1.) The agreement vests the right to withdraw money from the Fund with Grand Manor "for the purposes for which such fund is established" but provides that "at the time [Grand Manor] shall withdraw any amount from [the Reserve Fund] . . . it shall pay over to [Hamilton Equities] within ten days from such withdrawal one-third of the amount withdrawn." (Lease Am. § 25.2.) Furthermore, the Lease Amendment provides that "[i]n the event of any inconsistency with respect to the terms, provisions and conditions of this Agreement and the . . . HUD regulatory agreements, the . . . HUD regulatory agreements will prevail and govern the rights of the parties." (Lease Am. § 27.1.)

Berkadia is the successor mortgagee to the mortgage with Hamilton Equities and holder of the Reserve Fund. (HUD R. 56.1

Stmt. ¶ 10; HE Resp. ¶ 10.) Section 3 of the mortgage between Berkadia and Hamilton Equities provides that "the Regulatory Agreement . . . executed by [Hamilton Equities] and [HUD] . . . is incorporated in and made a part of this Mortgage. Upon default under the Regulatory Agreement and upon the request of [HUD], the mortgagee, at its option, may declare the whole of the indebtedness secured hereby to be due and payable." (Liebman Decl. Ex. 2 ("Mortgage") § 3.) Section 5 of the mortgage further provides that "upon default hereunder, Mortgagee shall be entitled to the appointment of a receiver by any court having jurisdiction, without notice, to take possession and protect the property described herein and operate same and collect the rents, profits and income therefrom . . . ." (Mortgage § 5.)

B.

In October 2009, the Centers for Medicare and Medicaid Services issued regulations requiring all nursing facilities participating in Medicare and Medicaid programs, including Grand Manor, to improve their fire alarm and sprinkler systems by August 2013. (See Liebman Decl. Ex. 4.) Grand Manor informed Hamilton Equities of the need to undertake a fire alarm and sprinkler improvement project ("the Fire/Sprinkler Project") and put the project out for bidding. (See Liebman Decl. ¶ 27.) The approved winning bidder was G. Fazio Construction Company, Inc. ("G. Fazio"), with a bid of $1,298,837. (See Liebman Decl. ¶ 27.) On or about October 4, 2010, Grand Manor applied to HUD to authorize the release of funds from the Reserve Fund to cover the costs of the Fire/Sprinkler Project. (See Liebman Decl. Ex. 5; HUD R. 56.1 Stmt. ¶ 11; HE Resp. ¶ 11.)

On December 3, 2010, a representative of HUD, Suechen Smith, emailed a representative of Grand Manor and authorized the release of $640,000 from the Reserve Fund. (Liebman Decl. Ex. 6.) Ms. Smith indicated that HUD had "agreed to release the [Reserve Funds] requested to upgrade the fire alarm and sprinkler systems to comply with Federal and State Regulations." (Liebman Decl. Ex. 6.) Ms. Smith explained that HUD planned to authorize Berkadia, the mortgagee and holder of the Reserve Fund, to release $213,334 to Hamilton Equities and $426,666 to Grand Manor "in accordance with the executed 1978 lease, Section 25.2." (Liebman Decl. Ex. 6.) Her email to Grand Manor indicated that HUD had instructed Berkadia to release the authorized funds to G. Fazio "upon receipt of an approved invoice from [Grand Manor]." (Liebman Decl. Ex. 6.)

On December 6, 2010, Ms. Smith informed Berkadia of the authorization to release the Reserve Funds. (Liebman Decl. Ex. 7 at 2.) She indicated that "Mr. Robert Nova [of Hamilton Equities] has agreed to release the [Reserve] [F]unds to [Grand Manor] in accordance with the 1978 lease." (Liebman Decl. Ex. 7 at 2.) Ms. Smith asked Berkadia to issue two checks, one to Hamilton Equities for $213,334 and another to G. Fazio for $426,666 "after [HUD] provide[s] you a copy of the approved invoice upon receipt from [Grand Manor]." (Liebman Decl. Ex. 7 at 1.) A representative of Berkadia replied that it would only issue one check, to Mr. Nova, and that Hamilton Equities would "have to issue the other check directly to G. Fazio construction." (Liebman Decl. Ex. 7 at 1.) Ms. Smith replied, "[p]lease release [$426,666 to G. Fazio Construction Co., Inc.] after I provide you a copy of the approved invoice upon receipt from [Grand Manor]." (Liebman Decl. Ex. 7 at 1.) Subsequently, Berkadia released the full amount, $640,000, to Hamilton Equities. (HUD R. 56.1 Stmt. ¶ 14; HE Resp. ¶ 14.) Hamilton Equities kept $213,334 of the released funds and gave the other $426,666 to its attorney to hold in escrow. (Liebman Decl. ¶ 34; Liebman Decl. Ex. 8.)

Grand Manor did not initially receive any of the released funds. From 2011 through 2012, while the Fire/Sprinkler Project was underway, Grand Manor made several alleged attempts to collect the funds from Hamilton Equities and HUD. (Liebman Decl. ΒΆ 37.) On April 19, 2012, Grand Manor submitted invoices to HUD and requested that HUD instruct Hamilton Equities to release the funds to Grand Manor for use towards the Fire/Sprinkler Project. (Liebman Decl. Ex. 10.) By letter dated June 14, 2012, HUD sent the invoices to Hamilton Equities and instructed Hamilton Equities to turn over the entire $640,000 to Grand Manor within 5 days. (Liebman Decl. Ex. 11.) After an exchange between HUD and Hamilton Equities, HUD issued an amended letter in which it reiterated that all of the released funds were to be paid to Grand Manor within 5 days, or, "[i]f they are not used for the [Fire/Sprinkler Project], they need to be returned to Berkadia to be placed back into the Reserve for Replacement Account within the 5 days." (Liebman Decl. Ex. ...


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