City of New York v. Rapgal Associates

• Decision Date: 10 January 1989
• Docket Number: No. 84 Civ. 7526 (JMW).,84 Civ. 7526 (JMW).
• Parties: The CITY OF NEW YORK, Plaintiff, v. RAPGAL ASSOCIATES, The St. Nicholas Manor Associates, and Norman Rappaport, Defendants.
• Court: U.S. District Court — Southern District of New York

703 F. Supp. 284

The CITY OF NEW YORK, Plaintiff, v. RAPGAL ASSOCIATES, The St. Nicholas Manor Associates, and Norman Rappaport, Defendants.

No. 84 Civ. 7526 (JMW).

United States District Court, S.D. New York.

January 10, 1989.

Alexandra S. Bowie, Asst. Corp. Counsel, New York City, for plaintiff.

Gilbert Wallach, Steven Rosen, New York City, for defendants.

MEMORANDUM AND ORDER

WALKER, District Judge:

By a Memorandum and Order dated December 23, 1986, this Court granted plaintiff's motion for summary judgment on its claim that the defendants owed the City of New York $156,211. Now, for the first time, defendants argue that the Court lacks subject matter jurisdiction, and, as a result, must dismiss plaintiff's complaint and vacate its earlier decision. For its part, plaintiff seeks an order, pursuant to Rule 60(b) of the Fed.R.Civ.P., amending the judgment entered on January 27, 1987, which, plaintiff claims, failed to dispose of its claim for pre- and post-judgment interest.¹ The Court denies defendants' motion and grants plaintiff's motion in part.

BACKGROUND

The Court will summarize the facts as it found them in its 1986 opinion. The defendants are real estate developers who participated in the federally funded and locally administered Neighborhood Strategy Area program ("NSA program") for the Hamilton Heights area of Manhattan. The NSA program was created as part of the Section 8 subsidized housing program by the Department of Housing and Urban Development ("HUD") in regulations found at 24 C.F.R. § 881.701 et seq. Designed by HUD to coordinate local housing and development planning with federal funding for low income housing, the program permits a local government to request HUD to designate a local Neighborhood Strategy Area ("NSA"). If HUD makes such a designation, then the local government may solicit and screen proposals for Section 8 housing submitted by private developers. As explained in the Court's earlier opinion, the Section 8 housing program was established by legislation codified at 42 U.S.C. §§ 1437-40 and 12 U.S.C. § 1715z-1.

HUD requires local governments to establish a plan to correct neighborhood deficiencies and to specify funding sources. See 24 C.F.R. § 881.703(c)(4). Federal regulations also require that a developer's proposal meet local regulations and ordinances. See 24 C.F.R. § 881.707(b)(4). After a city determines that a project satisfies its local development plans and codes, it then forwards the project to HUD for approval. If approval is granted, then the developer becomes eligible for federal subsidies and local tax abatements. Under the program, the federal government grants rent subsidies to qualified low income families in order to help them procure safe and sanitary homes. The federal government then pays the landlord the excess between 30 percent of the tenant's income and the fair rental value of the apartment.

In May of 1979, the City—through its Department of Housing Preservation and Development ("HPD")—published a Notice of Funds Available, which invited Section 8 proposals from local developers. As the Court concluded in its first opinion, this Notice indicated that, as a prerequisite to participation in the program, a developer would have to agree to donate a certain amount of the profits from the Section 8 development to a local community organization. Before submitting their proposal to the City, the defendants agreed to donate $50,000 to the Hudson Piers Redevelopment Counsel ("Hudson Piers"), a local community group. The defendants then submitted an application to the City, which was accepted by the City and then HUD. HPD had approved the defendants' proposal subject to the defendants' reaching a satisfactory agreement with a qualified community organization. HPD never approved the defendants' contract with Hudson Piers and thus never indicated whether or not it satisfied the City's requirement.

In May and July of 1980, after the City and HUD had already approved the defendants' project, HPD issued a set of regulations that required each Section 8 developer to donate to a community organization, or to an escrow fund designed with qualified community organizations in mind, an amount equal to at least 2.75 percent of the low interest mortgage on the project. In the case of this project, that percentage translated into a sum of $156,211.

In its December 23, 1986, Memorandum and Order, 649 F.Supp. 1504, this Court rejected defendants' attempts to cast their relationship with the City as contractual. Consequently, the Court also rejected defendants' contentions that the City, by enforcing its July regulation, had deprived them of the expectation of their bargain— namely, that their agreement to donate $50,000 to Hudson Piers satisfied all their obligations under the Section 8 program. Rather, the Court concluded that "the defendants entered into the program with knowledge ... that the City intended to return some of the developers' profits back to the community through a qualified community organization," and that the regulations in question presented a "rational method of achieving the City's objective ..." Opinion at 1509-10.

DISCUSSION

A. Subject Matter Jurisdiction:

There is no statute of limitations that bars challenges to a court's subject matter jurisdiction; such motions can be made at any time. See Fed.R.Civ.P. 12(h)(3). The parties agree that diversity jurisdiction does not exist in this case. Thus, the Court must decide whether federal question jurisdiction exists.

Under 28 U.S.C. § 1331, jurisdiction lies in the federal courts for civil actions "arising under" federal law. The Second Circuit recently reviewed the standards a court must employ in its determination of whether or not a case "arises under" federal law, and thus whether a court has federal question jurisdiction:

There are two tests under which an action may present a federal question. The first asks whether federal law creates the cause of action. If so, federal question jurisdiction exists ... If state law creates the cause of action, the second test asks whether that cause of action poses a substantial federal question ... Examining only those allegations which are properly raised in a well-pleaded complaint, the court must then determine whether the substance of those allegations raises a federal question.... "The mere presence of a federal issue in a state cause of action does not automatically confer federal question jurisdiction." To determine when the federal element is deemed sufficiently substantial we must look to the nature of the federal interest at stake ... In summary, to determine whether the court has federal question jurisdiction to decide the case, the complaint must contain either a federal cause of action or a state cause of action embodying a substantial federal question.

West 14th Street Commercial Corp. v. 5 West 14th Owners Corp., 815 F.2d 188, 192-193 (2d Cir.) (citations omitted), cert. denied, ___ U.S. ___, 108 S.Ct. 151, 98 L.Ed.2d 107 (1987).

It is unnecessary to determine whether the City based its suit on a federal or state cause of action. Instead, it is sufficient for this Court to find that a substantial federal question exists in this case. Federal law created HUD's NSA program and delineated the City's ministerial role. In this action, the City alleged that the defendants' participation in the federal NSA program obligated the defendants to comply with its regulations—regulations adopted by the City specifically in response to the federal program and federal regulations. As is clear from the face of the statute, Congress envisioned a partnership between federal and local entities:

It is the policy of the United States to promote the general welfare of the Nation by employing its funds and credit, as provided in this chapter, to assist the several States and their political subdivisions to remedy the unsafe and unsanitary housing conditions and the acute shortage of decent, safe, and sanitary dwellings for families of lower income and, consistent with the objectives of this chapter, to vest in local public housing agencies the maximum amount of responsibility in the administration of their housing programs.

42 U.S.C. § 1437.² The federal government has a substantial interest in protecting the integrity of this partnership and in ensuring that local regulations designed both to implement federal policies and affect federal monies are respected. As in West 14th Street, supra, "the vindication of rights and definition of relationships created by federal law depends" on the construction and interpretation of a federal Act. Id. at 196 (emphasis in original). Without the federal statute and federal regulations, the right asserted by the City in this suit would never have existed. Apparently, the defendants at the same time hope to reap the benefits of the federal government's participation in the NSA program —namely, the tax exemptions, mortgage guarantees and rent subsidies made available—and to avoid being held accountable in a federal court.

Indeed, the defendants themselves at one time—if not now—recognized the federal issues and interests implicated by the City's suit. In their original brief before this Court, filed on November 20, 1985, the defendants described "this essentially Federal program ..." See Def.Mem. at 5, 8. The defendants described the original Notice of Funds, published by HPD, which explained that, "in return for certain federal and local financial assistance, developers would agree to provide a portion of their profits to a community group." Id. at 5 (emphasis added). They described as well their interest in a federally guaranteed mortgage and how they "requested Defendant City of New York to agree to their Section 8 proposal under this Federal program and provide local tax abatement." Id. As defendants knew in 1985, the federal interests and responsibilities in this area are broader and more comprehensive than def...