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American Tax Funding, LLC v. City of Syracuse

United States District Court, N.D. New York

August 29, 2014

AMERICAN TAX FUNDING, LLC, Plaintiff,
v.
CITY OF SYRACUSE, Defendant

Page 189

For Plaintiff: JOSEPH A. CAMARDO, JR., ESQ., JUSTIN T. HUFFMAN, ESQ., OF COUNSEL, CAMARDO LAW FIRM P.C., Auburn, NY.

For Defendant: BRENDAN M. PALFREYMAN, ESQ., LAUREN H. SEITER, ESQ., DAVID M. CAPRIOTTI, ESQ., OF COUNSEL, HARRIS BEACH PLLC, Syracuse, NY.

For Defendant: SHANNON M. JONES, ESQ., OF COUNSEL, CITY OF SYRACUSE LAW DEPARTMENT, Syracuse, NY.

Page 190

MEMORANDUM--DECISION and ORDER

DAVID N. HURD, United States District Judge.

I. INTRODUCTION

On February 16, 2012, plaintiff American Tax Funding, LLC (" ATF" ), a Florida corporation authorized to do business in New York, filed this diversity action against the defendant City of Syracuse (" the City" ). This matter relates to two contracts that the parties entered into for

Page 191

the purchase and sale of delinquent tax liens in the City. ATF brings claims pursuant to New York state law for breach of contract, indemnification, and unjust enrichment. It also seeks a declaratory judgment and an accounting of all payments received by the City for unsatisfied tax liens and/or subsequent liens on related properties. ATF alleges damages in excess of six million dollars.

The City filed an answer on March 15, 2012. The City also asserts a counterclaim against ATF for breach of contract, alleging damages of over one million dollars. ATF answered the City's counterclaim on March 29, 2012. Thereafter, the parties engaged in discovery and settlement discussions.

On December 3, 2013, the City filed a motion for judgment on the pleadings and for partial summary judgment. Specifically, the City seeks dismissal of ATF's indemnification claim (to the extent it seeks attorneys' fees) and the unjust enrichment claim pursuant to Federal Rule of Civil Procedure 12(c) (" Rule " ). The City also seeks partial summary judgment on certain aspects of ATF's breach of contract claim pursuant to Rule 56. ATF has responded in opposition and filed a cross-motion for partial summary judgment on certain aspects of its breach of contract claim. Both motions have been fully briefed. Oral argument was heard on January 31, 2014, in Utica, New York. Decision was reserved.

II. FACTUAL BACKGROUND

ATF is a private company that specializes in purchasing liens from municipalities across the nation. It then seeks to collect on and profit from the outstanding liens. ATF and the City entered into two contracts, dated August 2, 2006, and January 31, 2008. Compl., Ex. A, ECF No. 1-1, 32-59[1] (" 2006 Contract" ), 61-87 (" 2008 Contract" ).[2] Pursuant to these contracts, the City agreed to sell certain delinquent tax liens to ATF at a discount. In turn, ATF secured the right to collect and, if necessary, foreclose on property associated with those liens as well as purchase subsequent liens. Combined, the contracts contemplate over twelve million dollars in tax liens. Each contract contains a reciprocal indemnification clause.

If a sold tax lien qualifies as a " removed lien" as that term is defined in the contracts, that lien is removed from the list of liens purchased by ATF, and the City must compensate ATF with a refund or replacement lien(s). As pertinent here, a lien qualifies as a removed lien if the property " becomes subject to a condemnation action or demolition lien filed by the City, that materially impairs market value at any time prior to, on, or six months after" ATF purchased the lien relative to that property. 2006 Contract 36; 2008 Contract 65.

ATF alleges that many of the tax liens it purchased turned out to be flawed and/or constitute removed liens, thereby triggering the City's obligation to compensate ATF. It further claims that the City has impaired its ability to collect on liens, elevated the City's interest in unpaid water

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bills on certain properties to a " super-priority" status over ATF's interest in the tax liens on those properties, diverted lien payments away from ATF, and prevented ATF from purchasing subsequent liens. On December 30, 2010, ATF served a verified claim upon the City seeking payment for alleged breach of the contracts. See Compl., Ex. A, ECF No. 1-1, 1-30. The City served ATF with a notice of default on January 3, 2011, similarly alleging breach of the contracts.

III. DISCUSSION

The City seeks dismissal of ATF's indemnification and unjust enrichment claims pursuant to Rule 12(c). The City's Rule 56 motion for partial summary judgment, and ATF's cross-motion for partial summary judgment, pertains to the breach of contract claims only.

A. The City's Motion for Judgment on the Pleadings

1. Legal Standard

When analyzing a Rule 12(c) motion, a court applies the same standard as that applicable to a motion brought pursuant to Rule 12(b)(6). Sheppard v. Beerman, 18 F.3d 147, 150 (2d Cir. 1994); Wynn v. Uhler, 941 F.Supp. 28, 29 (N.D.N.Y. 1996) (Pooler, J.). To survive a Rule 12(b)(6) motion to dismiss, the " [f]actual allegations must be enough to raise a right to relief above the speculative level." Bell A. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Although a pleading need only contain " a short and plain statement of the claim showing that the pleader is entitled to relief," Fed.R.Civ.P. 8(a)(2), more than mere conclusions are required. Indeed, " [w]hile legal conclusions can provide the framework of a complaint, they must be supported by factual allegations." Ashcroft v. Iqbal, 556 U.S. 662, 679, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). Dismissal is appropriate only where a party has failed to provide some basis for the allegations that support the elements of its claims. See Twombly, 550 U.S. at 570 (requiring " only enough facts to state a claim to relief that is plausible on its face" ).

When considering a motion to dismiss, the pleading is to be construed liberally, all factual allegations are to be deemed true, and all reasonable inferences must be drawn in the pleader's favor. Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002). Finally, a district court may consider documents attached to the pleading as exhibits or incorporated by reference therein. DiFolco v. MSNBC Cable L.L.C., 622 F.3d 104, 111 (2d Cir. 2010).

2. Indemnification and Attorneys' Fees

The City argues that ATF may not seek reimbursement for attorneys' fees incurred in the prosecution of this action because the indemnification clause in the contracts does not specifically authorize such fees. The indemnification clause states, in pertinent part:

The City agrees, to indemnify and hold harmless [ATF] . . . from and against any and all claims, losses, deficiencies, liabilities, obligations, damages, penalties, punitive damages, costs and expenses, whether or not resulting from third party claims, suffered by [ATF] which arise out of or result from: (i) any proven unlawful acts of the City (including its agents and assigns) to collect amounts secured by tax liens on Related Properties, (ii) the institution of foreclosure of any liens secured by Related Properties or any other collection action taken by the City in violation of applicable law or of any provisions of this Agreement and (iii) any material inaccuracy

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or misrepresentation in or breach of any of the representations, warranties, covenants or agreements made by the City in this Agreement . . . .

2006 Contract 52; 2008 Contract 81.

The parties dispute the meaning and impact of this provision vis-a-vis the availability of attorneys' fees. When the interpretation and proper application of an indemnification clause is disputed, the intent of the parties--gleaned from the chosen contract language and conduct of the parties--guides. See Valley Disposal, Inc. v. Cent. Vt. Solid Waste Mgmt., 71 F.3d 1053, 1058-59 (2d Cir. 1995); Alland v. Consumers Credit Corp., 476 F.2d 951, 954 (2d Cir. 1973); Perez v. Reade, No. 07-CV-5072, 2011 WL 96837, at *3 (E.D.N.Y. Jan. 11, 2011) (" A party is entitled to full contractual indemnification provided that the intention to indemnify can ...


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