Onondaga Hilltop Homes, Inc. et al v. Syracuse Housing Authority et al

Filing 39

MEMORANDUM DECISION AND ORDER third-party deft Shaun Donovan's 28 Motion for partial dismissal is granted to the extent of striking the jury demand in the third-party complaint and dismissing any claim for a declaration re Housing Assistance Payment contracts other than the contract which is the subject of the complaint, and is otherwise denied. Third-party deft Shaun Donovan is directed to answer the third-party complaint in accordance with the Federal Rules of Civil Prodedure. Deft, NYS Housing Finance Agency's 19 Motion to Dismiss for Failure to State a Claim is denied. Signed by Judge Norman A. Mordue on 3/13/13. (sfp, )

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
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Onondaga Hilltop Homes, Inc. and Parkside Commons
Preservation, L.P.,
Plaintiffs,
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5:12-CV-626 (NAM/ATB)

Syracuse Housing Authority and New York State Housing
Finance Agency,
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Defendants.
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Syracuse Housing Authority,
Third-Party Plaintiff and Cross-Claimant,
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Shaun Donovan, Secretary, United States Department of Housing
and Urban Development,
Third-Party Defendant,
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APPEARANCES:

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McMahon, Kublick & Smith, PC
Jan S. Kublick, Esq., of counsel
500 South Salina Street, Suite 816
Syracuse, New York 13202
and
Coan & Lyons
Carl A.S. Coan , III, Esq., of counsel
1100 Connecticut Avenue NW, Suite 1000
Washington, DC 20036
Attorneys for Plaintiffs
Mackenzie, Hughes LLP
Jennifer Ploetz Williams, Esq., of counsel
Neil J. Smith, Esq., of counsel
101 South Salina Street
Syracuse, New York 13221
Attorneys for Defendant/Third-Party Plaintiff/Cross-Claimant Syracuse Housing Authority

Hoguet, Newman Regal & Kenney, LLP
Joshua D. Rievman, Esq., of counsel
10 East 40th Street
New York, New York 10016
Attorney for Defendant/Cross-Defendant New York State Housing Finance Agency

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United States Department of Justice
Kyle A. Forsyth, Esq.
1100 L Street, P.O. Box 875
Washington, DC 20044-0875
and
Office of United States Attorney
Thomas Spina , Jr., Esq.
218 James T. Foley U.S. Courthouse, 445 Broadway
Albany, New York 12207-2924
Attorneys for Third-Party Defendant Shaun Donovan, Secretary, United States Department of Housing and
Urban Development

Hon. Norman A. Mordue, U.S. District Judge:
MEMORANDUM-DECISION AND ORDER
INTRODUCTION
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Plaintiffs, private owners of a multifamily rental housing project known as Parkside
Commons, receive rent subsidies under Section 8 of the United States Housing Act, 42 U.S.C. §
1437f (“Section 8”). Defendants Syracuse Housing Authority (“SHA”) and New York State
Housing Finance Agency (“NYSHFA”) are public housing authorities within the meaning of
Section 8. Pursuant to a 1981 Housing Assistance Payments Contract (“HAP Contract”) with
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SHA (which was replaced by NYSHFA as contract administrator in 1993), plaintiffs receive
rental subsidies in the form of housing assistance payments on behalf of low-income families
residing in Parkside Commons. In this action, plaintiffs claim that defendants breached the HAP
Contract by failing to make the appropriate payments.
NYSHFA moves (Dkt. No. 19) to dismiss the complaint for failure to state a claim.
Fed.R.Civ.P. 12(b)(6). Third-party defendant Shaun Donovan, Secretary of the United States
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Department of Housing and Urban Development (“HUD”), moves (Dkt. No. 28) for partial
dismissal of the third-party complaint on grounds of lack of subject-matter jurisdiction and failure
to state a claim. Fed.R.Civ.P. 12(b)(1), (6). The Court denies NYSHFA’s motion in its entirety.
The Court grants HUD’s motion in part and denies it in part.
COMPLAINT
This case involves one of the mechanisms by which HUD provides rent subsidies under
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Section 8. HUD makes rental assistance payments, called annual contributions, to a public
housing authority such as SHA or NYSHFA in accordance with an Annual Contributions
Contract between HUD and the public housing authority. In turn, the public housing authority
pays a portion of the annual contributions it receives from HUD to an owner of rental housing,
such as plaintiffs, in the form of housing assistance payments pursuant to a HAP Contract

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between the public housing authority and the owner. The HAP Contract establishes a monthly
rental amount (“contract rent”) for each covered unit. The public housing authority pays to the
property owner a monthly housing assistance payment, which is the difference between the
contract rent for each unit and the amount of rent that the tenant is required by law to pay.
Plaintiffs claim that under the HAP Contract between plaintiff Onondaga Hilltop Homes,
Inc. and NYSHFA’s predecessor SHA, plaintiffs are entitled to an annual increase in the contract

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rents and a resulting increase in the housing assistance payments.1 Thus, plaintiffs claim,
NYSHFA has breached the HAP Contract by failing to increase the contract rents. Plaintiffs
further claim that NYSHFA is improperly applying a HUD-promulgated schedule in calculating

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A page is missing from the copy of the HAP Contract attached to the complaint. A complete
copy is attached to NYSHFA’s motion to dismiss.
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the contract rent due to plaintiffs for “non-turnover” units, that is, units occupied by the same
tenants for consecutive years. In addition, plaintiffs claim that, without authorization, NYSHFA
has required plaintiffs to submit a rent comparability study as a prerequisite to receiving a rent
increase. Plaintiffs seek compensatory and declaratory relief.
NYSHFA’S MOTION TO DISMISS
To survive a dismissal motion, “a complaint must plead ‘enough facts to state a claim to
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relief that is plausible on its face.’” Ruotolo v. City of N.Y., 514 F.3d 184, 188 (2d Cir. 2008)
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). The plaintiff “must provide the
grounds upon which his claim rests through factual allegations sufficient ‘to raise a right to relief
above the speculative level.’” ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir.
2007) (quoting Bell, 550 U.S. at 555). The Court must accept as true all factual allegations in the

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complaint and draw all reasonable inferences in plaintiff’s favor. See ATSI, 493 F.3d at 98.
In moving to dismiss, NYSHFA argues that it did not breach any provision of the HAP
Contract. Rather, it contends, it merely paid the amount of housing assistance payments due to
plaintiffs in accordance with the HAP Contract and the schedules and criteria established by
HUD. NYSHFA avers that it correctly denied automatic rental increases, correctly applied the
non-turnover deduction, and properly required plaintiffs to submit rent comparability studies as a

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prerequisite to a rent increase.
The Court finds that the complaint pleads sufficient facts to make out a plausible claim
that NYSHFA breached its contractual obligation to plaintiffs by failing to pay plaintiffs the sums
to which they are entitled. For example, in challenging NYSHFA’s administration of the HAP
Contract, plaintiffs allege that NYSHFA lacked authority to require a rent comparability study

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prior to receiving a rent increase. Plaintiffs also claim that NYSHFA’s use of the non-turnover
adjustment table is improper. The Court cannot determine on the face of the complaint, the HAP
Contract, and the HUD documents whether NYSHFA has correctly carried out its obligations to
plaintiffs. Thus, NYSHFA has not demonstrated that plaintiffs have failed to state a claim.
NYSHFA’s motion to dismiss is denied.
THIRD-PARTY COMPLAINT
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SHA interposed a third-party complaint against HUD, seeking injunctive and declaratory
relief, as well as indemnification in the event that it is found liable to plaintiffs for breach of
contract. Count I alleges that if HUD has caused SHA to breach the contract with plaintiffs,
HUD’s actions are arbitrary and capricious and otherwise violate the Administrative Procedure
Act (“APA”), 5 U.S.C. § 706. Count II sounds in breach of contract, and claims that if HUD has

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caused SHA to breach the HAP Contract with plaintiffs, HUD has also breached the related
Annual Contributions Contract with SHA. Count III seeks a declaration of SHA’s rights and
responsibilities regarding future adjustments of contract rents.
HUD’S MOTION FOR PARTIAL DISMISSAL
The third-party complaint pleads facts that make out plausible claims against HUD.

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HUD’s motion for partial dismissal raises numerous issues that cannot be determined at this stage
of the action. To the extent SHA seeks a declaration regarding HAP Contracts other than the
contract which is the subject of the complaint, those contracts are not before the Court and cannot
be addressed in this action. In any event, upon review of SHA’s opposition to HUD’s motion, the
Court deems SHA to have abandoned any such claim. Nor does SHA oppose HUD’s request to
strike the jury demand in the third-party complaint. See Lehman v. Nakshian, 453 U.S. 156, 168

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(1981) (“[T]he plaintiff in an action against the United States has a right to trial by jury only
where Congress has affirmatively and unambiguously granted that right by statute.”).
Accordingly, HUD’s motion is granted to the extent of striking the jury demand in the third-party
complaint and dismissing any claim for a declaration regarding HAP Contracts other than the
contract which is the subject of the complaint, and is otherwise denied.
CONCLUSION
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It is therefore
ORDERED that the motion to dismiss by defendant New York State Housing Finance
Agency (Dkt. No. 19) is denied; and it is further
ORDERED that the motion for partial dismissal by third-party defendant Shaun Donovan,
Secretary of Housing and Urban Development (Dkt. No. 28) is granted to the extent of striking

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the jury demand in the third-party complaint and dismissing any claim for a declaration regarding
Housing Assistance Payment contracts other than the contract which is the subject of the
complaint, and is otherwise denied; and it is further
ORDERED that third-party defendant Shaun Donovan, Secretary of Housing and Urban
Development is directed to answer the third-party complaint in accordance with the Federal Rules

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of Civil Procedure.
IT IS SO ORDERED.
March 13, 2013
Syracuse, New York

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