U.S. v. Schlesinger, Civ. AMD 98-891.

Decision Date10 March 2000
Docket NumberNo. Civ. AMD 98-891.,Civ. AMD 98-891.
PartiesUNITED STATES of America, Plaintiff, v. Richard M. SCHLESINGER, et al., Defendants.
CourtU.S. District Court — District of Maryland

Lynne A. Battaglia, United States Attorney, Perry F. Sekus, Assistant United States Attorney, Baltimore, MD, for plaintiff.

Gregg L. Bernstein, Gerard P. Martin, Steven F. Wrobel, Martin, Snyder & Bernstein, P.A., Baltimore, MD, for defendants.

MEMORANDUM

DAVIS, District Judge.

I. INTRODUCTION

Acting at the behest of the Secretary of the federal department of Housing and Urban Development ("the Secretary" or "HUD"), the United States instituted this civil action for damages against the former operator of an affordable housing project known as Riverdale Village Apartments (the "Project"), located in Baltimore County, Maryland, Richard M. Schlesinger, and several companies he owns or controls (hereafter "Schlesinger"). The Government generally alleges that over the ten years Schlesinger operated the Project with the benefit of HUD mortgage insurance, between 1985 and 1995, Schlesinger violated the express terms of his contractual undertakings ("the Regulatory Agreement" or "RA") and/or applicable HUD regulations.1

As his principal defense to the Government's claims, Schlesinger challenges the enforceability of the RA. In addition, he asserts the following general defenses: (1) that the Government's statutory claims fail because they are barred by the applicable statute of limitations, and its equitable claims are barred by the equitable defense of laches;2 and that, in any event, (2) he acted reasonably and fully within the spirit of his contractual undertakings in the manner in which he operated the Project.

Discovery has concluded and the parties have filed cross motions for summary judgment. A hearing has been held. For the reasons set forth below, I shall enter an order granting in part and denying in part each party's motion for summary judgment. In particular, consistent with the following determinations made herein, the accompanying order: (1) declares the Regulatory Agreement valid and enforceable against Schlesinger; (2) dismisses all claims against defendants DBD Contracting, Topside Roofing Corporation, and Down-to-Earth Landscaping; (3) enters judgment in favor of the Government on claim 2 of Count II (the $125,000 Stamford loan transaction claim); (4) enters judgment in favor of the Government on claim 3 of Count II (the $17,858 in miscellaneous expenditures claim); (5) enters judgment in favor of the Government on claim 1 of Count II (the $42,335.19 Topside transaction respecting expenditures made to repair a shopping center roof); (6) enters judgment in favor of Schlesinger on that portion of claim 3 of Count II related to an expenditure of $3500 for a tax audit; (7) declares that Schlesinger may not defend the Government's claims on the basis that his use of "Identity-of-Interest" firms was justified; (8) declares that Schlesinger violated his contractual undertakings by failing to maintain the Project in good repair; (9) dismisses the Government's unjust enrichment claim; (10) declares that the Government's Priority Statute claim is limited to payments made by Schlesinger after February 13, 1995.

II. SUMMARY JUDGMENT STANDARDS

Pursuant to Fed.R.Civ.P. 56(c), summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A fact is material for purposes of summary judgment, if when applied to the substantive law, it affects the outcome of the litigation. Id. at 248, 106 S.Ct. 2505. Summary judgment is also appropriate when a party "fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

A party opposing a properly supported motion for summary judgment bears the burden of establishing the existence of a genuine issue of material fact. Anderson, 477 U.S. at 248-49, 106 S.Ct. 2505. "When a motion for summary judgment is made and supported as provided in [Rule 56], an adverse party may not rest upon the mere allegations or denials of the adverse party's pleading, but the adverse party's response, by affidavit or as otherwise provided in [Rule 56] must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). See Celotex Corp., 477 U.S. at 324, 106 S.Ct. 2548; Anderson, 477 U.S. at 252, 106 S.Ct. 2505; Shealy v. Winston, 929 F.2d 1009, 1012 (4th Cir.1991). Of course, the facts, as well as the justifiable inferences to be drawn therefrom, must be viewed in the light most favorable to the nonmoving party. See Matsushita Elec. Indust. Co. v. Zenith Radio Corp., 475 U.S. 574, 587-88, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The court, however, has an affirmative obligation to prevent factually unsupported claims and defenses from proceeding to trial. See Felty v. Graves-Humphreys Co., 818 F.2d 1126, 1128 (4th Cir.1987).

When both parties file motions for summary judgment, as here, the court applies the same standards of review. Taft Broadcasting Co. v. United States, 929 F.2d 240, 248 (6th Cir.1991); ITCO Corp. v. Michelin Tire Corp., 722 F.2d 42, 45 n. 3 (4th Cir.1983) ("The court is not permitted to resolve genuine issues of material facts on a motion for summary judgment — even where ... both parties have filed cross motions for summary judgment.") (emphasis omitted), cert. denied, 469 U.S. 1215, 105 S.Ct. 1191, 84 L.Ed.2d 337 (1985).

The role of the court is to "rule on each party's motion on an individual and separate basis, determining, in each case, whether a judgment may be entered in accordance with the Rule 56 standard." Towne Mgmt. Corp. v. Hartford Acc. & Indem. Co., 627 F.Supp. 170, 172 (D.Md. 1985) (quoting Charles A. Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure: Civil 2d § 2720). See also Federal Sav. & Loan Ins. Corp. v. Heidrick, 774 F.Supp. 352, 356 (D.Md. 1991). "[C]ross-motions for summary judgment do not automatically empower the court to dispense with the determination whether questions of material fact exist." Lac Courte Oreilles Band of Lake Superior Chippewa Indians v. Voigt, 700 F.2d 341, 349 (7th Cir.), cert. denied, 464 U.S. 805, 104 S.Ct. 53, 78 L.Ed.2d 72 (1983). "Rather, the court must evaluate each party's motion on its own merits, taking care in each instance to draw all reasonable inferences against the party whose motion is under consideration." Mingus Constructors, Inc. v. United States, 812 F.2d 1387, 1391 (Fed.Cir.1987). Both motions may be denied. See Shook v. United States, 713 F.2d 662, 665 (11th Cir.1983).

"[B]y the filing of a motion [for summary judgment] a party concedes that no issue of fact exists under the theory he is advancing, but he does not thereby so concede that no issues remain in the event his adversary's theory is adopted." Nafco Oil & Gas, Inc. v. Appleman, 380 F.2d 323, 325 (10th Cir.1967). See also McKenzie v. Sawyer, 684 F.2d 62, 68 n. 3 (D.C.Cir.1982) (stating that "neither party waives the right to a full trial on the merits by filing its own motion"). However, when cross-motions for summary judgment demonstrate a basic agreement concerning what legal theories and material facts are dispositive, they "may be probative of the non-existence of a factual dispute." Shook, 713 F.2d at 665.

III. THE 1985 HUD-INSURED REFINANCING

Schlesinger was a real estate developer and the general partner of Riverdale Village Company ("Riverdale"). Riverdale was the owner of the now-demolished Project.3 Schlesinger, through Riverdale, acquired the Project in the 1970s.

On December 17, 1985, Riverdale secured refinancing of the Project through a private mortgage loan from DRG Funding Corporation ("DRG") in the amount of $5,683,900. Pursuant to the HUD mortgage coinsurance program for multifamily rental housing units in operation at the time, HUD endorsed the mortgage, providing mortgage insurance. Thus, in exchange for its agreement to provide mortgage insurance for the Project, HUD required Riverdale and DRG to execute a standard Regulatory Agreement (the "RA"), the principal instrument of HUD's regulatory control over mortgagors and lenders participating in HUD mortgage insurance programs.4 The RA was executed contemporaneously with the Note and Mortgage (the "Project Mortgage") and its terms were incorporated into the deed of trust.

The parties do not dispute that over the relevant ten-year span, between 1985 and 1995, the Project was greatly in need of significant maintenance and repair. They do dispute the bona fides of Schlesinger's efforts to make repairs and otherwise maintain the Project as he was required to do under the terms of the RA. It is undisputed that, in attempting to meet his repair and maintenance obligations, Schlesinger contracted for services provided by firms in which he held an interest, so called Identity-of-Interest Firms ("IOIFs").5 In large measure, it is the lack of documentation required by the RA evidencing the reasonableness of the payments made by Schlesinger to the IOIFs, and the Government's consequent effort to recover the value of those undocumented payments, that lie at the heart of this case.

There is no dispute that the Project Mortgage fell into default as of December 1992; Schlesinger made no mortgage payments thereafter. Following a series of assignments of the Project Mortgage, HUD became the ultimate assignee in January 1995.6 In June 1995, HUD settled insurance claims of approximately...

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