U.S. v. Livecchi

• Decision Date: 31 March 2009
• Docket Number: No. 03-CV-6451P.,03-CV-6451P.
• Citation: 605 F.Supp.2d 437
• Parties: UNITED STATES of America, Plaintiff, v. Charles R. LIVECCHI and C.R.L. Management, Inc., Defendants.
• Court: U.S. District Court — Western District of New York

605 F.Supp.2d 437

UNITED STATES of America, Plaintiff, v. Charles R. LIVECCHI and C.R.L. Management, Inc., Defendants.

No. 03-CV-6451P.

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

March 31, 2009.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Robert G. Trusiak, U.S. Attorney's Office, Buffalo, NY, for Plaintiff.

Charles R. Livecchi, Rochester, NY, pro se.

Richard A. Dollinger, Barrett Greisberger Dollinger Fletcher Peartree & Tallon LLP, Pittsford, NY, for Defendants.

DECISION & ORDER

MARIAN W. PAYSON, United States Magistrate Judge.

The United States has brought suit against Charles Livecchi ("Livecchi") and his real estate management company, C.R.L. Management, Inc. ("CRL"), under 12 U.S.C. § 1715z-4a(a)(1)(B). Under that statute, the federal government may sue any owner or operator of a multifamily project financed through a mortgage insured by the United States Department of Housing and Urban Development ("HUD") "to recover any assets or income used ... in violation of a regulatory agreement that applies to [such] project." 12 U.S.C. § 1715z-4a(a)(1)(B). Pursuant to 28 U.S.C. § 636(c), the parties have consented to the disposition of this case by a magistrate judge.

From 1992 through 1998, Livecchi owned and, together with CRL, managed a multifamily project known as Cambridge Court Apartments (the "Project") that was financed through a HUD-insured mortgage. The Project was located on Dodge Street in Rochester, New York (the "Property"). In return for HUD's agreement to insure Livecchi's mortgage, Livecchi executed a regulatory agreement with HUD, dated August 20, 1992, (the "Regulatory Agreement" or "Agreement") governing the operation of the Project. In November 1998, HUD foreclosed on the Property due to Livecchi's failure to make the required mortgage payments, and it was sold to a third party. Five years later, in 2003, the United States initiated this civil action against defendants under 12 U.S.C. § 1715z-4a(a)(1)(B).

Summary judgment has already been awarded to the government on its statutory claim. By Decision and Order dated September 30, 2005, 2005 WL 2420350, this Court determined that Livecchi had retained income in the amount of $481,438 in violation of the Regulatory Agreement during the period of Livecchi's mortgage default (March 1997 through December 1998). (Docket # 40). As explained more fully in that decision, familiarity with which is assumed, the Court concluded that Livecchi's retention of that income constituted a violation of 12 U.S.C. § 1715z-4a(a)(1)(B). The Court reserved decision on the government's application for double damages under the statute. The Court also dismissed defendants' then pending counterclaims, but granted defendants' motion to add counterclaims for recoupment.

A bench trial was thereafter conducted limited to the following issues: (1) whether the United States should be awarded double damages under 12 U.S.C. § 1715z-4a(c); (2) whether the United States should be awarded prejudgment interest and, if so, what methodology should be utilized to calculate it; and (3) whether Livecchi has proved his counterclaim of recoupment, thus entitling him to a reduction in the amount of the judgment. At trial, the government called two witnesses: Rosalinda Lamberty, the Director of Multifamily Housing for HUD's Buffalo Regional Office, and Thomas Egloff, formerly employed by HUD's Office of Inspector General as an agent and auditor. The defense called Livecchi as its sole witness.¹

The following constitutes this Court's decision on the pending issues.

FACTUAL BACKGROUND

A. Livecchi's HUD-Insured Mortgage and the Parties' Regulatory Agreement

Livecchi purchased the Property in 1982 and refinanced it in 1992 by obtaining a HUD-insured mortgage from Continental Securities Corporation ("Continental") in the amount of $2,390,000. (Docket # 40 at 2). At the time of the refinancing, Livecchi had approximately $700,000 of equity in the Property. (Tr. 409).² In consideration for HUD's agreement to insure the mortgage and relieve Livecchi of any personal liability in the event of a mortgage default, Livecchi signed the Regulatory Agreement with HUD.³ (Docket # 40 at 2-3).

The Agreement obligated Livecchi, inter alia, to make "all payments due under the note and mortgage," to establish and maintain a capital reserve fund and to provide HUD with annual financial statements "prepared in accordance with the requirements of [HUD]." (G. Ex. 4 at ¶¶ 1, 2, 9(e)). The Agreement also restricted Livecchi's use of income derived from the Property by prohibiting him from retaining any rental income in excess of reasonable operating and maintenance expenses during any period in which the mortgage was in arrears. (G. Ex. 4; Docket # 40 at 3). By the terms of the Agreement, any violation by the owner of his obligations thereunder authorized HUD to declare a default under the Agreement, accelerate the loan and proceed to foreclosure of the Property. (G. Ex. 4 at ¶ 11(a); Tr. 42-43).

The capital reserve fund, which was referred to in the Agreement as the "reserve fund for replacements" (the "RFR"), functioned as an escrow account from which payments could be made for replacement of capital components of the property. (Docket # 40 at 3). Director Lamberty ("Lamberty") testified that the purpose of the RFR was to ensure that sufficient funds were available to finance capital replacements for the Project, thus protecting the condition of the Property for its residents. (Tr. 26-27). The Agreement required Livecchi to fund the RFR with an initial deposit of $200,000, and thereafter to make monthly payments of $2,013 into the fund.⁴ (G. Ex. 4 at ¶ 2; Docket # 40 at 3). According to the terms of the Agreement:

Disbursements from the [RFR], whether for the purpose of effecting replacement of structural elements and mechanical equipment of the project or for any other purpose, may be made only after receiving the consent in writing of the Secretary [of HUD].⁵

(G. Ex. 4 at ¶ 2). The Agreement further provided that in the event of a mortgage default for which the loan was accelerated, HUD was authorized to apply the balance in the RFR to reduce the amount of the mortgage indebtedness. (Id.).

B. The Disputes that Led to the Parties' September 1994 Settlement Agreement

Within several months of their execution of the Regulatory Agreement, the parties began to dispute their obligations thereunder. Those disputes related principally to Livecchi's obligation to provide HUD with annual financial statements relating to the Property and HUD's obligation to reimburse Livecchi from the RFR for capital expenditures relating to the Property. (G. Exs. 6, 7, 8, 48, 62; Defendants' Exhibits ("D. Exs. ") C, E). As to the former, HUD maintained that Livecchi was required by HUD policy to provide accrual-based, rather than cash-based, financial statements; Livecchi contended that the Regulatory Agreement contained no requirement as to the form of the statements. As to the latter, HUD refused to release funds from the RFR to reimburse Livecchi for his expenditures until he submitted accrual-based statements; Livecchi objected to HUD's withholding of RFR payments on that basis. (Tr. 49-50).

These disputes eventually culminated in a 1994 administrative proceeding by HUD seeking to impose sanctions against Livecchi in the form of a "Limited Denial of Participation" ("LDP"). (G. Ex. 49). Specifically, HUD sought to prohibit Livecchi from conducting any new business with HUD for a twelve-month period. (Tr. 57-61, 415-18; G. Exs. 10, 11). Livecchi opposed HUD's application for the LDP, and the matter was assigned to an administrative law judge for determination. Prior to a hearing, the parties reached a resolution, which was memorialized in a written settlement agreement executed on or about September 12, 1994 (the "Settlement Agreement"). (G. Ex. 12; Tr. 61-64, 418-19).

Pursuant to the terms of the Settlement Agreement, Livecchi agreed "to comply fully with all rules, regulations and other requirements of HUD, and specifically with respect to HUD's requirement of accrual based financial statements." (G. Ex. 12 at ¶ 1; Tr. 62). Livecchi further agreed to provide accrual-based statements for the year 1994 on or before March 1, 1995. (G. Ex. 12 at ¶ 1; Tr. 63). HUD, in turn, agreed to "process" within ten days of the Agreement all of Livecchi's currently outstanding requests for reimbursement from the RFR. (G. Ex. 12 at ¶ 2). By the express terms of the Agreement, HUD did not agree "to approve" such requests "unless in HUD's sole determination [Livecchi] has satisfied HUD's requirements for such approval." (Id.). The final provision of the Agreement stated, "HUD shall have the exclusive right to determine [Livecchi's] compliance with HUD's rules, regulations and requirements." (G. Ex. 12 at ¶ 6; Tr. 64).

C. The Parties' Continued Disputes Following the Settlement Agreement

Nine days after the execution of the Settlement Agreement, HUD approved a release to Livecchi from the RFR in the amount of $48,755.25. (G. Ex. 13; Tr. 65). That amount represented the full amount of Livecchi's outstanding RFR requests minus $161.22 for items that HUD determined were normal operating expenses, and adjusted to account for duplicate requests. (G. Exs. 13, 13a, 14; Tr. 66).

In November 1994, Livecchi made his next request for reimbursement from the RFR, this time in the amount of $28,096.27. (G. Ex. 51; Tr. 143). Later that month, HUD approved a release from the RFR in the amount of $27,609.22. (G. Ex. 52; Tr. 143-45). The majority of the $487 disallowance related to a key machine purchased by Livecchi for $371.25.⁶ (G. Ex. 52; Tr. 145). Livecchi requested HUD to reconsider the disallowance for the key machine. (G. Ex. 16; Tr. 145). Approximately three weeks later, HUD wrote to Livecchi reaffirming the disallowance, noting that "[t]he key machine is not a legitimate replacement item" and enclosing a HUD form listing...