North Sea Associates, Inc. v. Payton Lane NH, Inc.
Filing
29
MEMORANDUM AND ORDER granting 8 Motion to Dismiss. For the foregoing reasons, HUD's motion to dismiss is GRANTED, and Payton's motion to amend the Third-Party Complaint is DENIED. The Clerk of the Court is directed to terminate HUD as a Third-Party Defendant in this matter. Party United States Department of Housing and Urban Development terminated. So Ordered by Judge Joanna Seybert on 12/6/11. C/ECF (Valle, Christine)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
--------------------------------------X
NORTH SEA ASSOCIATES, INC.,
Plaintiff,
MEMORANDUM AND ORDER
11-CV-0048(JS)(GRB)
-againstPAYTON LANE NH, INC.,
Defendant,
--------------------------------------X
PAYTON LANE NH, INC.,
Third-Party Plaintiff,
-againstPFC CORPORATION and the UNITED
STATES DEPARTMENT OF HOUSING
AND URBAN DEVELOPMENT,
Third-Party Defendants.
--------------------------------------X
APPEARANCES:
For North Sea:
Sanford Strenger, Esq.
Salamon, Gruber, Blaymore & Strenger, P.C.
97 Powerhouse Road, Suite 102
Roslyn Heights, NY 11577
For Payton:
Stuart S. Zisholtz, Esq.
Meng Cheng, Esq.
Zisholtz & Zisholtz
170 Old Country Road, Suite 300
Mineola, NY 11501
PFC Corp.:
John Raymond Ehrhart, Esq.
John R. Ehrhart
150 Broadhollow Road, Suite 355
Melville, NY 11747
HUD:
Robert W. Schumacher, II, Esq.
U.S. Attorney’s Office
Eastern District of New York
610 Federal Plaza
Central Islip, NY 11722
SEYBERT, District Judge:
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
contractual obligations to North Sea, HUD and PFC.
all
HUD, after
removing the case to federal court, filed the instant motion to
dismiss the Third-Party Complaint for lack of subject matter
jurisdiction.
seeks
leave
following
Payton opposes the motion, and in the alternative
to
amend
reasons,
the
HUD’s
Third-Party
motion
to
Complaint.
dismiss
is
For
the
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
2
(“Note”) that Payton executed in favor of PFC and a building
loan agreement (together with the Mortgage and the Note, the
“Loan”)
between
residential
nursing
(“Facility”).
and
PFC
facility
for
in
the
or
construction
Southampton,
(Third-Party Compl. ¶¶ 5-6.)
insured by HUD.
On
Payton
of
New
a
York
The Mortgage was
(Id. ¶ 9.)
about
September
21,
2005,
Payton
Facility to North Sea for a thirty-three year term.
leased
the
(Id. ¶ 7.)
The lease required North Sea to pay the “Certified Debt Service”1
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.
13; Third-Party Compl. ¶ 11.)
(Compl. ¶¶ 6, 12-
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
1
The Certified Debt Service, as defined in the lease, is “the
payment of principal and interest and reimbursable costs,
including without limitation the reserve fund for replacements,
real state tax escrows, property insurance escrows and mortgage
insurance premiums” on the Mortgage. (Compl. ¶ 9.)
3
Supreme Court, New York County, in July 2008 for, inter alia,
reimbursement of the alleged overpayments.
¶¶ 11, 13.)
(Third-Party Compl.
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.)
Payton
the
that
recasting
Excess Funds Escrow.
Note
HUD and PFC explained to
as
(Id. ¶ 20.)
such
would
liquidate
the
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.
On
action
July
against
21,
Payton
2010,
in
North
the
Sea
(Id. ¶ 17.)
commenced
Supreme
Court,
the
Nassau
present
County
seeking to recover any overpayments of Certified Debt Service
that it believed it made under the lease.
60.)
(Compl. ¶¶ 49, 54,
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
4
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).
resolving
a
motion
jurisdiction,
materials
to
the
Court
beyond
questions.
the
dismiss
may
for
lack
consider
pleadings
to
of
subject
affidavits
resolve
In
matter
and
other
jurisdictional
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,
5
140
F.3d
129,
Plaintiff,
131
bears
(2d
the
Cir.
burden
1998).
of
Payton,
as
establishing
Third-Party
subject
jurisdiction by a preponderance of the evidence.
matter
Morrison, 547
F.3d at 170; see also Chayoon v. Chao, 355 F.3d 141, 143 (2d
Cir. 2004).
HUD
argues
that
the
Court
lacks
subject
matter
jurisdiction because (1) HUD did not waive sovereign immunity
and (2) there is no case or controversy between Payton and HUD.
The Court will address each argument separately.
B.
Sovereign Immunity
1.
Legal Standard
In any suit in which the United States is a defendant,
the Government’s waiver of sovereign immunity is a prerequisite
to the Court’s subject matter jurisdiction.
See Presidential
Gardens Assocs. v. United States, 175 F.3d 132, 139 (2d Cir.
1999) (citing United States v. Mitchell, 463 U.S. 206, 212, 103
S. Ct. 2961, 77 L. Ed. 2d 580 (1983)).
jurisdiction
alone
is
insufficient
for
In other words, proving
the
suit
to
proceed;
Payton must also show a “specific waiver of sovereign immunity.”
Id.
The United States may waive sovereign immunity only by
federal
United
statute,
States,
id.
137
(citing
F.3d
715,
Millares
Guiraldes
719
Cir.
(2d
de
1998)),
Tineo
and
v.
that
waiver must be unequivocally expressed, see Lane v. Pena, 518
6
U.S. 187, 192, 116 S. Ct. 2092, 135 L. Ed. 486 (1996).
Court
strictly
including
States.
any
construes
ambiguities
any
waiver
therein,
of
in
sovereign
favor
of
The
immunity,
the
United
Id.; see also Kielczynksi v. Does 1-2, 56 F. App’x 540,
541 (2d Cir. 2003).
In
the
present
case,
Payton
asserts
that
the
government waived its sovereign immunity under § 1702 of the
National
Housing
Act,
12
U.S.C.
§§ 1701,
et
seq.
(“NHA”).
Section 1702 authorizes HUD “to sue and be sued” for carrying
out certain enumerated provisions of the NHA.
Id. § 1702.
2
Thus, the NHA “waive[s] sovereign immunity for claims alleging
direct violations by HUD of the substantive provisions of the
[NHA].”
United States v. Yonkers Bd. of Educ., 594 F. Supp.
466, 470 (S.D.N.Y. 1984).
The waiver only applies to HUD’s
actions taken pursuant to the specific subchapters enumerated
therein.
See Dickson v. Pierce, No. 86-CV-1727, 1988 WL 26107,
at *4 (E.D.N.Y. Mar. 9, 1988) (citing Modular Technics Corp. v.
S. Haven Houses Hous. Dev. Fund Co., 403 F. Supp. 204, 206
(E.D.N.Y.
1975),
aff’d,
538
F.2d
311
(2d
Cir.
2
Section 1702 provides, in pertinent part:
The Secretary shall, in carrying out the
provisions
of
this
subchapter
and
subchapters II, III, V, VI, VIII, IX-A, IXB, and X of this chapter, be authorized, in
his official capacity, to sue and be sued in
any court of competent jurisdiction, State
or Federal.
7
1976)).
Accordingly, the Government does not waive sovereign immunity as
to other actions not enumerated in § 1702.
Therefore, the question in this case is whether the
actions alleged to be taken by HUD in the Third-Party Complaint
are authorized by one of the provisions enumerated in § 1702.
See id. (citing Modular, 403 F. Supp. at 207).
2.
Waiver Under § 1702
Payton
asserts
that
HUD
was
carrying
out
the
provisions of the NHA “dealing with the insuring of mortgages”
when HUD:
into
the
(1) insured the Loan, (2) directed Payton to enter
Recast
Note,
Excess Funds Escrow.
and
(3)
directed
(Payton Opp’n 5.)3
disbursement
of
the
The Court disagrees.
In deciding whether HUD’s actions here fall within the
provisions of the NHA “dealing with the insuring of mortgages,”
the Court finds the district court’s decision in Modular to be
particularly
instructive.
In
Modular,
a
building
contractor
sued HUD and the Federal Housing Authority (“FHA”) for, inter
alia, misrepresentations related to a building contract between
the
plaintiff-contractor
and
a
low-income
housing
developer.
3
The Court notes that the Third-Party Complaint alleges that HUD
also took the following actions: HUD approved the Mortgage and
Loan which Payton entered into with PFC; HUD informed Payton
that Payton would face default under the Loan if Payton did not
enter into the Recast Note; and HUD required Payton to evidence
that certain vendors and payees of Payton were paid prior to
authorizing the final endorsement of the Recast Note. (ThirdParty Compl. ¶¶ 9, 16-20.)
8
403 F. Supp. at 205.
Specifically, the plaintiff-contractor
asserted that HUD and FHA made certain representations regarding
the ways in which the plaintiff could successfully perform under
its
contract
with
the
developer,
“that
these
representations
were false; and that as a consequence of the misrepresentations
plaintiff suffered injury.”
Id.
Notwithstanding the fact that
HUD insured the loan that the developer received to pay the
plaintiff-contractor, the court held that the Government in that
case did not waive sovereign immunity under the NHA’s provisions
regarding the insuring of mortgages:
“[T]he simple fact is that
they were not authorized so to act, and Congress has not waived
immunity against suits for damages arising from such actions.”
Id. at 206.4
Almost identical to the claims in Modular, the claims
in the Third-Party Complaint against HUD arise out of alleged
warranties made by HUD concerning Payton’s performance under the
Loan with PFC.
Although HUD insured the Loan, the section of
the NHA “dealing with the insuring of mortgages” (Payton Opp’n ¶
5) does not authorize the actions allegedly taken by HUD in this
case.
Since
the
government
was
not
authorized
to
so
act,
“Congress has not waived immunity for suits arising from such
4
The court also held that the Federal Tort Claims Act, under
which the government waives immunity against some tort claims,
did not apply because it exempts from coverage any claim arising
out of misrepresentation, deceit, or interference with a
contract. Id.
9
actions.”
Id.; cf. S.S. Silberblatt, Inc. v. E. Harlem Pilot
Block Bldg. 1 Hous. Devel. Fund Co., 608 F.2d 28, 35-36 (2d Cir.
1979) (holding that HUD did waive sovereign immunity for a claim
brought by an unpaid general contractor for contractual damages
arising out of a low income housing construction project because
HUD’s actions that gave rise to liability--being assigned the
mortgage
on
insurance,
the
and
uncompleted
taking
project,
possession
paying
of
the
the
mortgage
property--were
specifically authorized under § 1715z of the NHA).
Thus, the Court finds that Payton has failed to meet
its burden of establishing a waiver of sovereign immunity by a
preponderance
of
the
evidence,
and
accordingly,
all
claims
against HUD must be dismissed.
C.
Case or Controversy
Although
claims
against
sovereign
the
HUD
immunity,
Court
must
the
be
has
already
dismissed
Court
will
determined
under
briefly
the
that
doctrine
address
all
of
HUD’s
argument that Payton’s declaratory judgment action against HUD
does not present a justiciable case or controversy.
1.
Legal Standard
Under the Declaratory Judgment Act (“DJA”), the Court
may only issue a declaratory judgment “[i]n a case of actual
controversy.”
28 U.S.C. § 2201(a); MedImmune, Inc. v. Genetech,
Inc., 549 U.S. 118, 126, 127 S. Ct. 764, 166 L. Ed. 2d 604
10
(2007)
(citing
28
U.S.C.
§ 2201(a)).
“The
phrase
‘case
of
actual controversy’ in the [DJA] refers to the type of ‘Cases’
and
‘Controversies’
MedImmune,
549
that
U.S.
at
are
127
justiciable
(citing
under
Aetna
Article
Life
Ins.
III.”
Co.
v.
Haworth, 300 U.S. 227, 240, 57 S. Ct. 461, 81 L. Ed. 2d 617
(1937)); accord Viña Casa Tamaya S.A. v. Oakville Hills Cellar,
Inc., 784 F. Supp. 2d 391, 394 (S.D.N.Y. 2011).
The
Supreme
Court
has
stated
that
whether
a
justiciable case or controversy exists in an action seeking a
declaratory
judgment
depends
on
“whether
the
facts
alleged,
under all the circumstances, show that there is a substantial
controversy, between parties having adverse legal interests, of
sufficient immediacy and reality to warrant the issuance of a
declaratory judgment.”
MedImmune, 459 U.S. at 127 (quoting Md.
Casualty Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273, 61 S.
Ct. 510, 85 L. Ed. 826 (1941)); see also Sheet Metal Div. of
Capitol
Dist.
Contractors
Sheet
Ass’n
v.
Metal,
Local
Roofing
38
of
Sheet
Ass’n, 208 F.3d 18, 23-26 (2d Cir. 2000).
&
Air
Metal
Conditioning
Workers
Int’l
“Whether a real and
immediate controversy exists in a particular case is a matter of
degree and must be determined on a case-by-case basis.”
11
Kidder,
Peabody & Co., Inc. v. Maxus Energy Corp., 925 F.2d 556, 562 (2d
Cir. 1991).5
2.
No Justiciable Case or Controversy
HUD
argues
that
there
is
no
case
or
controversy
between HUD and Payton here because “the Third-Party Complaint
does not allege the existence of an immediate dispute between
Payton Lane and HUD.”
(HUD Mot. 6.)
The Court agrees.
There
is no indication that HUD’s and Payton’s interest are adverse at
this time:
HUD does not have any pending claim against Payton
and there are no allegations that HUD plans to take any action
against Payton in the future.
“The absence of any action by
HUD, even of the most preliminary nature, renders this matter
into the realm of future possibilities that this Court cannot
adjudicate.”
Dev.
Auth.,
N. Jefferson Square Assocs., L.P. v. Va. Hous.
94
F.
Supp.
2d
709,
716-17
(E.D.
Va.
2000)
(dismissing a third-party declaratory judgment claim against HUD
because
its
position
was
not
adverse
to
the
third-party
5
The Court notes that the DJA does not require federal courts to
entertain declaratory actions, but rather confers “unique and
substantial discretion” to the federal courts in deciding
whether to declare the rights of litigants. MedImmune, 549 U.S.
at 136 (emphasizing DJA’s language that court “may declare
rights and other legal relations of any interested parties”
(quoting 28 U.S.C. § 2201(a)); see also Broadview Chem. Corp. v.
Loctite Corp., 417 F.2d 998, 1000 (2d Cir. 1969). Accordingly,
even when a case presents a justiciable controversy the Court
“possesses statutory latitude to deny declaratory judgment where
it finds that granting relief would serve no useful purpose.”
Dow Jones & Co. v. Harrods, Ltd., 237 F. Supp. 2d 394, 431
(S.D.N.Y. 2002).
12
plaintiff’s--“HUD ha[d] no legal position at all and HUD ha[d]
not made any administrative decision to take action”); see also
U.S. Underwriters Ins. Co. v. Kum Gang, Inc., 443 F. Supp. 2d
348, 352 (E.D.N.Y. 2006) (“A court cannot adjudicate conjectural
or hypothetical cases or controversies.
A controversy cannot be
a mere possibility or probability that a person may be adversely
affected
in
the
future.”
(citations
omitted));
Bellefonte
Reinsurance Co. v. Aetna Cas. & Sur. Co., 590 F. Supp. 187, 191
n.7 (S.D.N.Y. 1984) (“A person merely apprehending or fearing
the assertion of rights against him by another cannot bring him
into court and compel him to litigate.”
marks
and
controversy,
citation
the
omitted)).
claims
against
Since
HUD
(internal quotation
there
is
are
not
no
actual
ripe
for
adjudication and must be dismissed.
II.
Proposed Amended Third-Party Complaint
Also pending is Payton’s proposed Amended Third-Party
Complaint.
The only difference between the original Third-Party
Complaint and the proposed Amended Third-Party Complaint is the
assertion that the Court has jurisdiction pursuant to 28 U.S.C.
§§ 1332(a)(1) and 1442(a).
freely
granted,
a
Court
has
amendment would be futile.
Although leave to amend should be
discretion
to
deny
leave
if
an
See McCarthy v. Dun & Bradstreet
Corp, 482 F.3d 184, 200 (2d Cir. 2007).
Here, amendment would
be futile, as Payton’s proposed Amended Third-Party Complaint
13
fails
asserts
to
correct
neither
a
for
the
specific
shortcomings
waiver
of
described
sovereign
above--it
immunity
nor
facts establishing an actual controversy between Payton and HUD.
Accordingly, Payton’s motion to amend the Third-Party Complaint
is DENIED.
CONCLUSION
For the foregoing reasons, HUD’s motion to dismiss is
GRANTED, and Payton’s motion to amend the Third-Party Complaint
is DENIED.
The Clerk of the Court is directed to terminate HUD
as a Third-Party Defendant in this matter.
SO ORDERED.
/s/ JOANNA SEYBERT______
Joanna Seybert, U.S.D.J.
Dated:
December
6 , 2011
Central Islip, New York
14
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