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Liberty Community Associates v. City of Plainfield

United States District Court, D. New Jersey

October 10, 2017

LIBERTY COMMUNITY ASSOCIATES, Plaintiff,
v.
CITY OF PLAINFIELD, et al., Defendants.

          OPINION AND ORDER

          JAMES B. CLARK, III UNITED STATES MAGISTRATE JUDGE

         THIS MATTER comes before the Court on a motion by Defendant Bank of New York Mellon Corporation (“BNYM” or the “Trustee”) for leave to file an Amended Answer and Third Party Complaint [Dkt. No. 68]. Plaintiff Liberty Community Associates (“Plaintiff) opposes the portion of BNYM's motion which seeks to amend its Answer to assert an additional affirmative defense [Dkt. No. 71]. The portion of BNYM's motion seeking to file a Third Party Complaint naming additional parties is unopposed. For the reasons set forth below, BNYM's motion [Dkt. No. 68] is GRANTED.

         I. BACKGROUND AND PROCEDURAL HISTORY

         Plaintiffs Complaint in this matter arises out an arrangement between the parties regarding an apartment complex, referred to as Liberty Village Apartments, which is located in Plainfield, New Jersey (the “Complex”). The Complex consists of ninety-six units reserved exclusively as affordable housing available for rental to elderly, handicapped and/or low income individuals who satisfy the eligibility requirements established by the United States Department of Housing and Urban Developments (“HUD”) under Section 8 of the United States Housing Act of 1937, 42 U.S.C. § 1437f.

         In order to comply with various requirements imposed upon Plaintiff by virtue of its “public purpose” in developing the Complex, Plaintiff entered into a Lease and Management Agreement (the “Management Agreement”) with the Housing Authority of Plainfield (the “Housing Authority”), an instrumentality of Defendant City of Plainfield (“Plainfield” or the “City”). Compl. ¶ 10. Pursuant to the Management Agreement, the Housing Authority was to “enter into possession and control of the [Complex] . . . [and] use its best efforts in the management of the [Complex].” Id. at ¶ 14. In exchange for its management of the Complex, the Housing Authority was to be paid a “basic annual management fee” in the amount of 5% of the contract rents collected, as well as an “incentive fee” based upon the Housing Authority's fulfillment of certain conditions tied to its management of the Complex. Id. at 15. In connection with the execution of the Management Agreement, the Plainfield Housing Finance Corporation (“PHFC”) was organized. Id. at 16.

         Thereafter, Plaintiff and PHFC entered into various “lending arrangements” involving mortgage loans and the issuance of bonds. Id. at 17. In conjunction with the financing “arrangements” between Plaintiff and PHFC, PHFC entered into an Agreement of Trust (the “Trust Agreement”) with BNYM's predecessor, National Community Bank of New Jersey, on December 1, 1982. Id. at 18. According to Plaintiff, proceeds from the issuance of bonds used to fund Plaintiffs project were payable to the Trustee to be held in trust, and the Trustee became the assignee and/or obligee of mortgage loans and other debts incurred by Plaintiff. Id. at 19. Plaintiff “expressly approved, consented to and agreed to be bound by the Trust Agreement.” Id. at ¶ 20.

         As part of Plaintiff s development of the Complex, Plaintiff and the City entered into a “Payment in Lieu of Taxes Agreement” (the “PILOT Agreement”) on February 20, 1980. Id. at ¶ 21. The PILOT Agreement provided that rather than Plaintiff remitting traditional property taxes to the City, Plaintiff would make a payment to the City in the amount of 6.28% of the annual “gross shelter rents” received Plaintiff during the relevant time period. Id. at ¶ 24. In order to determine the amount of the PILOT payments, the Housing Authority was required to retain the services of a certified public accountant to prepare annual financial statements for submission to the City. Id. at ¶ 39. Upon receipt of the financial statements, the City would calculate the PILOT amount due and notify the Housing Authority of that amount. Id. at ¶ 40. The Housing Authority would then notify the Trustee of the PILOT amount to be remitted to the City. Id. at ¶ 40.

         Upon completion of the Complex, the Housing Authority began renting the apartment units. Pursuant to the Management Agreement, the Housing Authority was to remit all revenue from the Complex, including all rental proceeds, directly to the Trustee. Id. at ¶ 37. Upon receipt of the funds from the Complex, the Trustee was required to place the transferred proceeds into various “funds, ” including a “Tax Payment Fund” established, in part, to satisfy Plaintiffs payments to the City under the PILOT Agreement. Id. at ¶ 38.

         By virtue of the method by which the PILOT payments were calculated by the Housing Authority and the City and then remitted by the Trustee to the City at the direction of the Housing Authority, Plaintiff claims it had “absolutely no involvement in the PILOT payment process . . . [and] was essentially powerless to review and/or challenge the PILOT payment process. Id. at ¶ 41-42. In light of Plaintiff s lack of oversight and control over the PILOT payments, the Trust Agreement provided for “a macro-level, expenditure review mechanism” in the form of an annual budget that the Trustee was required to prepare and present to Plaintiff for approval on an annual basis (the “Budget Obligation”). Id. at ¶ 44. Unless and until the Budget Obligation was satisfied, the Trustee was “expressly prohibited from remitting any payment of any kind on behalf of Plaintiff.” Id. at ¶ 45.

         According to Plaintiff, despite its repeated requests, the Trustee failed to satisfy its Budget Obligation in most, if not all, years from the inception of the Complex through 2014. Id. at ¶ 46. Plaintiff claims that despite the Trustee's repeated failure to meets its Budget Obligation, the Trustee remitted numerous payments to various vendors on Plaintiffs behalf, including the annual PILOT payments. Id. at 48. Plaintiff further asserts that in addition to being improperly remitted by the Trustee, the PILOT payments were improperly calculated and collected by the City resulting in overpayment by Plaintiff of approximately $850, 000.00 in PILOT payments to the City. Id. at ¶ 50-53.

         In 2013, Plaintiff transferred its ownership of the Complex to a third party “better-suited” to own and operate the Complex. Id. at ¶ 55. Given the various regulations governing the Complex, numerous approvals were required before the transfer could be completed. Id. at ¶ 56. One of the approvals required was that of that City, and according to Plaintiff, the City conditioned its approval of the transfer upon Plaintiffs acquiescence to various modifications of the PILOT Agreement which would benefit the City. Id. at ¶ 60. The conditions imposed by the City in exchange for approval of the transfer included an increase in the PILOT Payment from the previous amount of 6.28%, to 10%, which resulted in a corresponding reduction in the purchase price previously negotiated by Plaintiff for the transfer of the Complex. Id. at ¶ 61-63.

         Based upon Defendants' purported violations of the PILOT Agreement and the Trust Agreement, Plaintiff filed its Complaint in this matter on May 8, 2015, stating causes of action for: (1) Breach of Contract; (2) violations of 28 U.S.C. § 1983; (3) violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961, et seq.; (4) Unjust Enrichment; (5) Fraud; (6) Breach of Fiduciary Duty; (7) Negligence; and (8) Breach of the Implied Covenant of Good Faith & Fair Dealing. See Dkt. No. 1. On July 1, 2015, BNYM filed an Answer to Plaintiffs Complaint and a Third Party Complaint against PHFC. See Dkt. No. 11. On March 22, 2017, BNYM voluntarily dismissed its claims against PHFC. See Dkt. No. 70.

         BNYM now seeks to file an Amended Answer and Third Party Complaint. First, BNYM seeks to amend its Answer to assert an additional affirmative defense. The proposed Twelfth Affirmative Defense seeks to plead the entry of a prior settlement agreement (the “Settlement Agreement” as a bar to Plaintiffs claims in this matter against BNYM. The Settlement Agreement is confidential and resulted from an action filed by Plaintiff in 2011 against the Housing Authority and PHFC in the Superior Court of New Jersey, Union County, regarding a dispute over the termination of the Management Agreement (the “State Action”). The Settlement Agreement contains certain releases between the parties in the State Action which BNYM claims bar Plaintiffs claims against it in this action.

         Secondly, BNYM seeks to file a Third Party Complaint against Simontacchi, Miller & DeAngelis, P.A., Simontacchi and Company, PA., Joseph Simontacchi, William B. O'Neill, Cohn Reznick, LLP, and BDO USA, LLP. The parties which BNYM seeks to include in its Third Party Complaint were accountants retained to audit Plaintiffs finances and were the individuals BNYM claims were responsible for providing the calculations and information utilized in determining the amount of Plaintiff s PILOT payments. ...


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