Guertin v. United States

• Decision Date: 21 December 2012
• Docket Number: Case No. 11–CV–4661 (KMK).
• Citation: 913 F.Supp.2d 1
• Parties: Richard GUERTIN, Plaintiff, v. UNITED STATES of America, Department of Housing and Urban Development, Defendants.
• Court: U.S. District Court — Southern District of New York

913 F.Supp.2d 1

Richard GUERTIN, Plaintiff,

v.UNITED STATES of America, Department of Housing and Urban Development, Defendants.

Case No. 11–CV–4661 (KMK).

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

Dec. 21, 2012.

Robert N. Isseks, Esq., Middletown, NY, for Plaintiff.

Michael J. Byars, Esq., Office of the United States Attorney, Southern District of New York, New York, NY, for Defendants.

OPINION AND ORDER

KENNETH M. KARAS, District Judge.

In 2004, Plaintiff Richard Guertin (“Plaintiff”) was the Corporation Counsel for the City of Middletown, New York. AR 126–49.¹ On August 30 of that year, Plaintiff was indicted—along with Middletown Mayor Joseph DeStefano (“DeStefano”) and Middletown Community Development Director Neil Novesky (“Novesky”)—for allegedly committing a variety of offenses prohibiting official misconduct. AR 126–49. The charges stemmed from a series of transactions involving Middletown's use of funds it received from Defendant Department of Housing and Urban Development (“HUD”) as part of a Community Development Block Grant (“CDBG”). AR 126–49. Plaintiff was charged in eight of the counts contained in the 55–count indictment. AR 126–49.

Ultimately, Plaintiff and his co-conspirators were found not guilty on all counts.² Novesky's attorney then asked HUD if federal regulations allowed Middletown to reimburse Novesky for the substantial legal fees he accrued in defending against the criminal charges. AR 42–45; 54–55. A HUD official replied that the reimbursement was permitted. AR 38–39.

Naturally, Plaintiff and Mayor DeStefano then asked HUD the very same question regarding reimbursement from HUD funds for their legal fees. AR 34–36. But, to their apparent surprise, HUD denied their request. AR 25–27. According to HUD, the actions that led to the state criminal prosecution of Plaintiff and Mayor DeStefano were “of a personal nature,” whereas Novesky's actions had been “undertaken in the ordinary course of the employee's position.” AR 25–26. Reimbursement for legal expenses was available in the latter case but not the former; hence, the different determinations by HUD. AR 25. After being stymied in his later attempts to get HUD to reconsider its decision, Plaintiff filed an action in this Court alleging, among other things, that HUD's determination to deny reimbursement was impermissibly arbitrary. (Compl. ¶ 24.) Both Parties have moved for summary judgment based on the administrative record.

I. Background

A. The CDBG Program

The CDBG program originated under the Housing and Community Development Act of 1974, which Congress enacted to promote “the development of viable urban communities, by providing decent housing and a suitable living environment and expanding economic opportunities, principally for persons of low and moderate income.” 42 U.S.C. § 5301(c). HUD is authorized to provide grants under the CDBG program to states, tribes, and local governments to carry out activities in accordance with the statute. Id. § 5301 et seq. After the federal government makes a CDBG grant, “the day-to-day administration of the federal program, including the actual expenditure of federal funds, is delegated to State and local authorities.” Dixson v. United States, 465 U.S. 482, 486, 104 S.Ct. 1172, 79 L.Ed.2d 458 (1984).

By regulation, HUD has imposed specific criteria for determining whether a particular activity is eligible for assistance through CDBG funds. See24 C.F.R. § 570.200(a). As relevant here, the regulationsstate that all costs incurred must conform with OMB Circular A–87, which is called “Cost Principles for State, Local, and Indian Tribal Governments” (“OMB Circular”). Id. § 570.200(a)(5). The OMB Circular “establishes principles and standards for determining costs for Federal awards carried out through grants, cost reimbursement contracts, and other agreements with State and local governments.” See Office of Management and Budget, “OMB Circular A–87 Revised,” May 10, 2004, http:// www. whitehouse. gov/ omb/ circulars)_ a 087_ 2004 (last visited Dec. 17, 2012). HUD has authority to review a grant recipient's use of its CDBG funds to ensure compliance with federal law. See42 U.S.C. § 5304(e).

B. The Prosecution of Plaintiff, DeStefano, and Novesky

From 1997 until at least August 2004, Plaintiff was the Corporation Counsel, or “City Counsel,” for Middletown, New York; DeStefano was the Mayor of Middletown; and Novesky was Middletown's Community Development Director. See AR 100. On August 30, 2004, all three men were indicted in New York County Court, Orange County, on various public corruption charges in a 55–count indictment. See AR 126–149. Mayor DeStefano was named in 53 of the counts; Novesky in 23; Plaintiff in eight. See AR 126–49.

In particular, the indictment charged with Plaintiff with:

1. Defrauding the government by acting individually and in concert with DeStefano and Novesky, “to obtain property from the state or a political subdivision of the state or a governmental instrumentality within the state by false or fraudulent pretenses, representations or promises” (Count 1, in violation of N.Y. Penal Law § 195.20);

2. Engaging in prohibited conflicts of interest, by acting in concert with DeStefano, who “knowingly and willfully ha[d] an interest in a contract with the municipality of which [DeStefano] was an officer or employee, when [DeStefano] ... had the power or duty to negotiate, prepare, authorize or approve the contract or authorize or approve payment thereunder, audit bills or claims under the contract, or appoint an officer or employee who has any of the powers or duties set forth above” (Counts 37, 40, in violation of N.Y. Gen. Mun. Law §§ 801, 805);

3. Engaging in official misconduct, by acting individually and in concert with DeStefano and Novesky, with “intent to obtain a benefit or deprive another person of a benefit, [by] commit[ting] an act relating to their offices but which constitute an unauthorized exercise of their official functions, knowing that such act was unauthorized” (Counts 38, 41, in violation of N.Y. Penal Law § 195.00);

4. Engaging in a prohibited conflict of interest by “knowingly and willfully hav[ing] an interest in a contract with the municipality of which he was an officer or employee, when he ... had the power or duty to negotiate, prepare, authorize or approve the contract or authorize or approve payment [thereunder], audit bills or claims under the contract, or appoint an officer or employee who has any of the powers or duties set forth above” (Counts 39, 42, in violation of N.Y. Gen. Mun. Law §§ 801, 805); and

5. Engaging in a conspiracy with DeStefano and Novesky with the objective of causing DeStefano “illegally [to] receive an interest in the proceeds of various [HUD] loans administered through the City of Middletown, [none of which was] taken out in ... DeStefano's name.” The charge went on to state that it was Plaintiff's “role in the conspiracy to draft agreements between Mayor DeStefano, his corporation, and the named recipients of loans administered through the City of Middletown, and to prepare legal papers associated with the loans, such as mortgages and UCC Security Chattel Agreements in [Plaintiff's] capacity as Corporation Counsel for the City of Middletown” (Count 55, in violation of N.Y. Penal Law § 105.05). See AR 127, 139–49.

The case proceeded to a bench trial in New York County Court, Orange County. Following trial, the judge issued an oral verdict, in which he described his reasoning in finding Plaintiff not guilty on all counts. AR 91–125. The judge also found Novesky not guilty on all counts, and he found DeStefano guilty on only two minor counts, both of which were later reversed on appeal. Id.; see also DeStefano, 846 N.Y.S.2d at 375.

Though the trial judge's oral verdict does not fully explain the nature of the case, and the trial transcript is not in the record, what is clear is that the prosecution arose from a series of loans involving the three defendants. AR 97–98. Following a brief legal analysis, the trial judge's verdict stated that “every single loan under every one of these counts ... [was] properly considered, and [was] properly granted.” AR 97–98. Next, the trial judge stated that he was “urged to accept the proposition that this nefarious cabal existed in the City of Middletown that made all this possible,” but “if these defendants are presumed innocent, which they all must be, then the ability to see or fathom a conspiracy is not so clear.” AR 98–99.

Turning first to Novesky in particular, the trial judge found that there was “no credible evidence that [Novesky] was involved in any illegal scheme to aid or abet anyone else to obtain any benefits that they were not otherwise entitled to.” AR 100. Instead, as best the court could tell, Novesky “did his job,” and nothing more. AR 100.

Next, the trial judge described one “troubling transaction in this case.” AR 102. The details of that transaction are not entirely clear from the limited administrative record,³ but the trial judge stated this was a loan which “ostensibly was for the building 5–11 North Main Street for the purpose of making it saleable.” AR 103. The third party involved in the loan “was aware of and intended to use the services of the [Office of] Economic Development [ i.e., the Middletown entity receiving federal CDBG funds], and then came the negotiations with DeStefano.” AR 103. Then, crucially, the trial judge said that those “negotiations involved attorney Guertin ostensibly in his private capacity.” AR 103 (emphasis added). The court stated that the evidence showed that “DeStefano, with the advice of his attorney [i.e., Plaintiff], entered into a proposed lease and a proposed option to purchase that building at 5–11 North Main Street.” AR 105. Given DeStefano's position as mayor, the court found that, under the circumstances of that transaction, DeStefano “engaged in a prohibited conflict.” AR 107. In other words, because...