C.D. Barnes Associates v. Grand Haven Hideaway, 1:04-CV-850.

• Citation: 406 F.Supp.2d 801
• Decision Date: 23 December 2005
• Docket Number: No. 1:04-CV-850.,1:04-CV-850.
• Parties: C.D. BARNES ASSOCIATES, INC. Plaintiff/Counter-Defendant, v. GRAND HAVEN HIDEAWAY LIMITED PARTNERSHIP, et al., Defendants/Cross-Defendants. and Stock Building Supply, LLC, et al., Defendants/Cross/Counter/Third-Party Plaintiffs, and Jedco Delcon Corporation, et al., Third-Party Defendants, and Cherry Valley Concrete, Inc., Counter/Third-Party Plaintiff.
• Court: U.S. District Court — Western District of Michigan

406 F.Supp.2d 801

C.D. BARNES ASSOCIATES, INC. Plaintiff/Counter-Defendant, v. GRAND HAVEN HIDEAWAY LIMITED PARTNERSHIP, et al., Defendants/Cross-Defendants. and Stock Building Supply, LLC, et al., Defendants/Cross/Counter/Third-Party Plaintiffs, and Jedco Delcon Corporation, et al., Third-Party Defendants, and Cherry Valley Concrete, Inc., Counter/Third-Party Plaintiff.

No. 1:04-CV-850.

United States District Court, W.D. Michigan, Southern Division.

December 23, 2005.

Aileen M. Leipprandt, T. J. Ackert, Smith Haughey Rice & Roegge, PC, Grand Rapids, MI, Robert W. Parker, Smith Haughey Rice & Roegge, PC, Traverse City, MI, for Plaintiff and Defendants.

Michael C. Walton, Paul A. McCarthy, Anthony A. Pearson, Rhoades McKee, Jennifer L. McManus, U.S. Attorney, William C. Reens, George E. Pawlowski, Pawlowski Flakne & Reens PLC, Scott H. Hogan, Foster Swift Collins & Smith PC, Curtis D. Rypma, Schenk Boncher & Rypma, Stacey Ann George, Charron & Hanisch, PLC, Jon R. Muth, Miller Johnson Snell & Cummiskey PLC, Richard C. Gould, Grand Rapids, MI, John D. Ladue, Boveri Murphy Rice & Ladue LLP, South Bend, IN, Scott R. Sewick, Parmenter O'Toole, Brianna Tremaine Scott, Williams Hughes & Stapleton, Thomas H. Thornhill, Lague Newman & Irish, Muskegon, MI, Erin L. Abrahams, Jason D. Menges, Foley & Lardner LLP, John T. Below, Rudrick Edward Boucher, Kotz Sangster Wysocki & Berg PC, Detroit, MI, Randall Allen White, Scholten Fant, Grand Haven, MI, Ronald P. Strote, May Simpson & Strote PC, Bloomfield Hills, MI, for Defendants.

OPINION

QUIST, District Judge.

This case arises out of the construction of a multi-family housing project known as Grand Haven Hideaway at Lakeshore Drive (the "Project"). Defendant/Cross-Defendant Grand Haven Hideaway Limited Partnership ("GHHLP") was the owner and developer of the Project, and Plaintiff/Counter-Defendant C.D. Barnes Associates, Inc. ("C.D.Barnes") was the general contractor on the Project. Centennial Mortgage, Inc. ("Centennial") provided construction financing for the Project. The United States Department of Housing and Urban Development ("HUD") insured the mortgage. After GHHLP defaulted on the loan, C.D. Barnes filed an action in the Ottawa County Circuit Court alleging various state law claims, including a claim for foreclosure of its construction lien. On November 2, 2004, C.D. Barnes filed a Second Amended Complaint naming Alphonso Jackson (the "Secretary" or HUD), the Acting Secretary of HUD, as a defendant after Centennial assigned the note and mortgage to HUD. The Secretary removed the case to this Court pursuant to 28 U.S.C. § 1442(a). HUD eventually foreclosed on the mortgage and deposited the foreclosure proceeds, in the approximate amount of $9.1 million, with the Clerk of the Court.

Pursuant to the initial Case Management Order issued on July 25, 2005, the Secretary has filed a motion in which it requests: (1) that the Court apply the federal first-in-time rule, grant him summary judgment with respect to C.D. Barnes' foreclosure claim and various other parties' foreclosure cross-claims, and direct the Clerk to release the foreclosure proceeds to HUD; and (2) dismiss C.D. Barnes' remaining claims for lack of subject matter jurisdiction or, in the alternative, transfer all of those claims, except for the misrepresentation claim, to the Court of Federal Claims. C.D. Barnes and Defendant/Cross, Counter, and Third Party Plaintiff Stock Building Supply, LLC ("Stock") have filed briefs opposing HUD's motion, and various other parties have filed briefs concurring in C.D. Barnes' and/or Stock's responses.¹ For the reasons set forth below, the Court will grant summary judgment to the Secretary with regard to the foreclosure claim and cross-claims but, with the exception of the misrepresentation claim against the Secretary, will deny the Secretary's motion to dismiss the remaining claims for lack of subject matter jurisdiction and his request for an order directing the Clerk to disburse the foreclosure proceeds to the Secretary.

I. Facts and Procedural History

GHHLP is a limited partnership formed specifically for the purpose of owning and developing the Project. QTC Company is the current general partner, and M.J. Benzer Company was the former general partner of GHHLP. The limited partners include, among others, Richard George, Carey Boote, and C.D. Barnes. The Project consists of a 190-unit luxury apartment complex located on an 18-acre site in Grand Haven Township.

In early 2002, GHHLP sought construction financing through Centennial, a mortgage lender. GHHLP worked with Centennial to obtain mortgage insurance on the loan from HUD under Section 221(d)(4) of the National Housing Act, 12 U.S.C. § 1715l(d)(4) ("Section 221(d)(4)"). The purpose of that program is "to assist private industry in providing housing for low and moderate income families and displaced families." 12 U.S.C. § 1715l(a). The program provides for a private lender to extend permanent financing for construction of a housing project, and the Secretary insures the mortgage and agrees to buy it out in the event of a default. See 12 U.S.C. §§ 1751l(b) and (g); Indus. Indem., Inc. v. Landrieu, 615 F.2d 644, 645 (5th Cir.1980) (per curiam). Mortgage insurance is funded from the General Insurance Fund ("GIF"), which is financed in part through mortgage insurance premiums, appraisal fees, and other fees. See 12 U.S.C. § 1735c(d). Unlike some other HUD programs, the § 221(d)(4) program is available to private, for-profit mortgagors and is not restricted to low and moderate-income persons. To minimize its risk of default and to ensure that the loan does not exceed the value of the property, HUD exercises a significant degree of control over the lending relationship between the mortgagor and the mortgagee. For example, HUD analyzes the economic viability of the particular construction project based upon market demand prior to issuing a commitment; requires the mortgagor and mortgagee to enter into various agreements specifying the terms and conditions for disbursement of the construction funds, as well as the terms, conditions, and standards for operating the project, see 24 C.F.R. §§ 200.50, 200.105(a); inspects the project at various stages during construction to ensure that the work for which payment requests are made has been performed; requires the general contractor to provide adequate assurance of completion of the work and payment of subcontractors and suppliers, such as corporate performance and payment bonds; and prevents the filing of liens against the property by requiring covenants and restrictions in the mortgage and the construction contract against the creation of liens by the mortgagor or the filing of liens by the general contractor or subcontractor, see 200 C.F.R. § 200.85.

HUD eventually issued a commitment to insure the construction loan on the Project in the amount of $14.8 million under the Section 221(d)(4) program.² GHHLP and Centennial entered into the various loan documents, and Centennial recorded the mortgage in the Ottawa County Register of Deeds on October 18, 2002. At or about the same time, GHHLP and C.D. Barnes entered into a construction contract, pursuant to which C.D. Barnes posted a payment bond to ensure that subcontractors and suppliers would be paid for the work they performed and the materials they purchased.

In early March 2004, when the Project was approximately 70% complete, GHHLP defaulted on the mortgage note by failing to pay required interest payments. The default occurred when GHHLP failed to obtain funding for a change order for work that deviated from the original plan. Prior to that time, C.D. Barnes' requests for payment had been paid on a timely basis. As of the default, Centennial had advanced approximately $10 million under the mortgage loan. Shortly after the default, C.D. Barnes and several of the subcontractors and suppliers filed construction liens on the Project.

On May 13, 2004, C.D. Barnes filed a complaint in the Ottawa County Circuit Court to foreclose its construction lien. On October 22, 2004, Centennial assigned the mortgage to HUD and filed an insurance claim seeking payment of $10 million. HUD paid the claim, and on or about November 8, 2004, became the mortgagee-in-possession. Thereafter, HUD made arrangements to conduct a nonjudicial foreclosure on the Project under the Multifamily Mortgage Foreclosure Act, 12 U.S.C. §§ 3701-17 ("MMFA"). On or about November 23, 2004, C.D. Barnes served a Second Amended Complaint on the Secretary, which set forth the following claims pertaining to HUD: foreclosure of construction lien (Count I); equitable lien/constructive trust (Count III); third party beneficiary (Count IV); unjust enrichment (Count V); quantum meruit (Count VI); promissory estoppel/equitable estoppel (Count VII); negligent and/or innocent misrepresentation (Count VIII); and quantum valebant (Count XIII). The Secretary removed the case to this Court on December 16, 2004.

After some delay caused, in part, by the efforts of two subcontractors to enjoin the sale, HUD completed the foreclosure on April 4, 2005.³ The highest bidder purchased the Project for $9.1 million. HUD is owed a total of $10,744,916.82, consisting of the unpaid balance of the construction loan and additional costs relating to the loan and the foreclosure. Pursuant to § 3712 of the MMFA, HUD deposited the foreclosure proceeds into a registry account with the Court pending the Court's determination of the proper disposition of the funds.

II. Discussion

The Secretary raises several issues in his instant motion. First, the Secretary argues that he is entitled to summary judgment with respect to the foreclosure claim in Count I of C.D. Barnes' Second Amended Complaint and with respect to the foreclosure counts in the cross-claims asserted by the following subcontractors and suppliers: Fredericks Company, Inc., Engineered Heating & Cooling, Inc., Stock Building...