St. Marks Place Housing Company, Inc. v. United States Department of Housing and Urban Development

District Court, District of Columbia·Decided June 3, 2009·No. Civil Action No. 2008-0193·Published

Opinion

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

ST. MARK’S PLACE HOUSING : COMPANY, INC.; ST. MARK’S PLACE : ASSOCIATES; STELLAR CP LP; and : CASTLETON GP LLC, :

:

Plaintiffs, :

:

v. : Case No. 1:08-cv-00193-RBW :

UNITED STATES DEPARTMENT OF : HOUSING AND URBAN : DEVELOPMENT and ROY BERNARDI, : AS ACTING SECRETARY OF THE : UNITED STATES DEPARTMENT OF : HOUSING AND URBAN : DEVELOPMENT :

:

Defendants. :

__________________________________ :

Memorandum Opinion

The plaintiffs bring this case pursuant to the Administrative Procedure Act (“APA”), 5 U.S.C. §§ 701-06 (2006), seeking a declaratory judgment, Complaint (“Compl.”) ¶¶ 48-56, injunctive relief, id. ¶¶ 57-58, and an order of mandamus, id. ¶¶ 59-64. Currently before the Court is the Defendants’ Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Defendants’ Motion to Dismiss.1 For the reasons set forth below, the Court will grant the defendant’s motion.

1 The following papers have been submitted in connection with this motion: (1) a Memorandum in Support of Defendants’ Motion to Dismiss (“Defs.’ Mem.”) and (2) the Plaintiffs’ Memorandum in Opposition to Defendant’s Motion to Dismiss (“Pls.’ Opp’n”).

I. Background

A. Underlying Facts The plaintiffs in this lawsuit are the intended buyer and seller on a contract to transfer ownership interest in a multifamily housing project in Staten Island, New York, known as the Castleton Park Apartments (the “Apartments”). Compl. ¶¶ 4, 11. The intended sellers, St. Marks Place Housing Co. (“The Housing Company”) and St. Marks Place Associates, are respectively a limited profit housing company organized under the Private Housing Finance Law of the State of New York, id. ¶ 4, and a limited partnership organized under the laws of the State of New York, id. ¶ 5. The Housing Company is the nominal owner of the Apartments and currently holds title to the Apartments for the benefit of St. Marks Place Associates. Id. ¶ 4.

The Housing Company purchased the Apartments in 1974 with a non-insured mortgage loan of $19,715,000 made by the New York State Housing Finance Agency (“NY Finance Agency”). Id. ¶ 16. On October 13, 1977, the mortgage was refinanced and divided into a “HUD-insured Section 236-assisted” senior mortgage of $17,629,100 (“Mortgage Note”), and a “non-insured Section 236-assisted” junior mortgage of $3,360,900, under the authority of Section 207 of the National Housing Act (“NHA”), 12 U.S.C. 1713 (2006), and pursuant to Section 223(f) of the NHA, 12 U.S.C. 1715n(f) and 24 CFR § 207.32(a)(k) (1977). Id. ¶¶ 18-19; Pls.’ Opp’n, Exhibit (“Ex.”) B (“Mortgage Note” or “Note”). The first page of the Mortgage Note contains the following paragraph:

Privilege is reserved to pay the debt in whole or in an amount equal to one or more monthly payments on principal next due, on the first day or any month prior to maturity upon at least thirty (30) days’ prior written notice to the holder.** If this debt is paid in full prior to maturity and while insured under the National Housing Act, all parties liable for payment of this debt hereby agree to be jointly and severally bound to pay to the holder hereof any adjusted premium

charge required by the applicable Regulations.

Id. The double asterisk at the end of the first sentence references a footnote that reads: “**Subject to the prior approval of the Secretary of Housing and Urban Development.” Id.2 In May 2006, the shareholders of the Housing Company and St. Marks Associates (identified collectively in the parties’ filings as the “St. Marks Plaintiffs”), jointly as the intended sellers, entered into a contract with Stellar CP LP and Stellar Castleton GP LLC (identified collectively in the parties’ filings as the “Stellar Plaintiffs”), jointly as the intended buyers, in which the St. Marks Plaintiffs agreed to sell their beneficial interest in the Apartments and all of the outstanding stock in the Housing Company to the Stellar Plaintiffs. Compl. ¶ 11.

The contract was drafted so the Apartments could be withdrawn from the “Mitchell-

Lama” Program, a program authorized under Article II of the New York State Private Housing Finance Law (the “PHF Law”). Id. ¶ 12. The PHF Law “encourage[s] [private enterprises] to invest in companies regulated by law . . . and engaged in providing . . . housing facilities . . . for families or persons of low income.” N.Y. Priv. Hous. Fin. Law § 11 (McKinney 1987). To withdraw from the Mitchell-Lama program, a participant must extinguish any government subsidized or assisted mortgage debts and dissolve or reconstitute the limited profit housing company that owns the housing development. Id. § 35(2)-(3); Compl. ¶ 15.

In four separate letters dated December 1, 2006, March 30, 2007, July 31, 2007, and November 30, 2007, the plaintiffs attempted to notify the defendants of their intention to prepay the Mortgage Note. Compl. ¶ 32. At the request of the defendants, the plaintiffs provided a written summary explaining why they believed the defendants’ consent to prepayment was not

2 Following the word “Regulations”, which appears at the end of the second sentence of the same paragraph, is the following language: “See ‘Attachment A’, Paragraph 2 incorporated herein by reference and made a part hereof.” Compl. ¶¶ 18-19; Pls.’ Opp’n, Exhibit (“Ex.”) B (“Mortgage Note”).

required. Id. ¶ 33. According to the plaintiffs, in June 2007, HUD’s Office of the General Counsel advised HUD’s Secretary’s office that Section 250(a) of the NHA, which subjects mortgage prepayment to restrictions determined by the defendants,3 did not apply to the prepayment restriction contained in the Mortgage Note. Id. ¶ 34. In September 2007, the plaintiffs’ counsel met with HUD’s General Counsel to discuss the plaintiffs’ intent to prepay the Mortgage Note and argue why Section 250(a) did not apply to their Note. Id. ¶ 35. On October 11, 2007, HUD’s Office of the General Counsel again allegedly advised HUD’s Secretary’s office that it had concluded that Section 250(a) was not applicable to the plaintiffs’ Mortgage Note. Id. ¶ 36; Pls.’ Opp’n at 8 & Ex. C (Memorandum from Millicent B. Potts to Beverly J. Miller). After HUD’s Office of the General Counsel allegedly advised the Secretary’s office for the second time about the inapplicability of the prepayment requirement, the Secretary met with New York Senator Charles Schumer, who purportedly conveyed to the Secretary his belief that the Secretary’s approval was required and that Section 250(a) applied to the plaintiffs’ Mortgage

3 Section 250(a) of the NHA, codified as amended at 12 U.S.C. § 1715z-15(a), states in pertinent part:

During any period in which an owner of a multifamily rental housing project is required to obtain the approval of the Secretary for prepayment of the mortgage, the Secretary shall not accept an offer to prepay the mortgage on such project . . . unless--

(1) the Secretary has determined that such project is no longer meeting a need for rental housing for lower income families in the area;

(2) the Secretary (A) has determined that the tenants have been notified by the owner’s request for approval of a prepayment, (B) has provided the tenants with an opportunity to comment on the owner’s request; and (C) has taken such comments into consideration; and

(3) the Secretary has ensured that there is a plan for providing relocation assistance for adequate, comparable housing for any lower income tenant who will be displaced as a result of the prepayment and withdrawal of the project from the program.

Note. Compl. ¶ 37; Pls.’ Opp’n at 8-9 & Ex. D (Press Release from the Office of Senator Charles Schumer (D-NY)) at 1.

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