Opinion
01 Civ. 390 (JOK)
May 7, 2001
Opinion and Order
The United States Department of Housing and Urban Development ("HUD") brings this action pursuant to 42 U.S.C. § 1437 and the Court's equitable jurisdiction to prevent federal funds from being used to satisfy a judgment in a defamation action brought by defendants K. Capolino Construction Corp. ("Capolino Construction") and Kenneth Capolino ("Capolino") (collectively the "Capolino defendants"), against the White Plains Housing Authority ("WPHA") and two of the WPHA's individual employees. The Court has jurisdiction over this action pursuant to 28 U.S.C. § 1345. HUD seeks a preliminary injunction enjoining the Capolino defendants from collecting the defamation judgment from federal funds and enjoining defendants Chase Manhattan Bank a/k/a J.P. Morgan Chase ("Chase Manhattan Bank"), and The Bank of New York ("Bank of New York") from turning over any funds from WPHA accounts to satisfy the defamation judgment. The Capolino defendants have moved to dismiss the action pursuant to Fed.R.Civ.P. 12(b)(6).
On February 7, 2001, upon consent of the parties, this Court granted HUD's motion for a temporary restraining order. Upon consent of the parties, the temporary restraining order is effective until this decision on HUD's motion for a preliminary injunction and the Capolino defendants' motion to dismiss. For the reasons that follow, HUD's motion for a preliminary injunction is granted and the Capolino defendants' motion to dismiss is denied.
I.
The following facts are undisputed for purposes of the pending motions. Defendant Capolino Construction is a New York corporation with offices in White Plains, New York. (Compl. ¶ 5.) Defendant Capolino is the President of Capolino Construction. (Compl. ¶ 6.) Defendant Bank of New York is a licensed New York bank with a branch at 285 Maple Drive, White Plains, New York. (Compl. ¶ 7.) Defendant Chase Manhattan Bank, a/k/a J.P. Morgan Chase is a licensed New York bank with a branch at 106 Corporate Park Boulevard, White Plains, New York. (Compl. ¶ 8.)
The WPHA is a public corporation pursuant to New York Public Housing Law § 422 located in White Plains, New York, which receives funding (the "Federal Funds") from HUD pursuant to an Annual Contributions Contract ("ACC"). (Compl. ¶¶ 9-10; Exs. A-D to Declaration of Jed Abrams dated January 18, 2001 ("Abrams Decl.").) WPHA and HUD enter into annual amendments to the ACC, under which HUD agrees to provide WPHA with funding specifically for the operation, maintenance, and rehabilitation of low-income housing. (Compl. ¶ 14.) Under the most recent annual amendment to the ACC dated September 8, 2000, WPHA received $1,654,844 designated for the operation, maintenance, and rehabilitation of low-income housing in White Plains, New York. (Compl. ¶ 11.) A portion of the Federal Funds received from HUD are deposited in WPHA accounts with defendants Bank of New York and Chase Manhattan Bank (the "Funds"). (Compl. ¶¶ 16-17(1).)
Pursuant to the ACC and Office of Management and Budget Circular A-87, the Federal Funds the WPHA receives from HUD are earmarked solely for the operation, maintenance, and rehabilitation of low-income housing and are not to be used for any other purpose without the advance, written permission of HUD. (Compl. ¶ 12.) Under the ACC, the WPHA "shall at all times operate each Project solely for the purpose of providing decent, safe, and sanitary dwellings" to low-income families. (Compl. ¶ 15; Ex. C to Abrams Decl., ACC, Pt. II, § 201(A).) The ACC precludes the WPHA from incurring any operating costs except pursuant to an approved budget. (Compl. ¶ 15; Ex. C to Abrams Decl., ACC, Pt. II, § 407(D).)
Through its funding of projects under the ACC, HUD obtains authority and control over "all personal property, tangible or intangible, of interest therein which is acquired and held in connection with such Project." (Compl. ¶ 13; Ex. C to Abrams Decl., ACC, Pt. II, § 313.) Until the WPHA has fully paid its indebtedness to HUD arising out of the project and has sufficient funds to pay any other indebtedness from the project, the ACC restricts the transfer of WPHA's assets and prohibits conveyance or encumbrance of every project asset, including "any rent, revenues, income or receipts therefrom or in connection therewith, or any of the benefits or contributions granted to it by or pursuant to this Contract, or any interest in any of the same . . ." (Compl. ¶ 13; Ex. C to Abrams Decl., ACC, Pt. II, § 314.)
On April 23, 1999, a judgment (the "Capolino Judgment") was entered in the lawsuit captioned K. Capolino Construction Corp. and Kenneth L. Capolino v. White Plains Housing Authority, Anthony Tascione, Myron C. Simon, and Gilbert A. Galli, Index No. 93-09777 (the "Capolino Action") in the New York State Supreme Court, Westchester County, awarding the Capolino defendants damages for defamation by WPHA and two individual WPHA employee defendants, Anthony Tascione ("Tascione") and Gilbert Galli ("Galli") based on certain statements they made in communications to HUD. (Compl. ¶ 17(2); Ex. B to Declaration of David J. Kennedy dated January 18, 2001 ("Kennedy Decl.").) WPHA was found to be liable to Capolino Construction for defamation and ordered to pay $800,000.00 in compensatory damages, plus interest in the amount of $72,197.27 for a total of $872,197.27. (Compl. ¶ 19; Ex. B to Kennedy Decl. at 3.) WPHA was found to be liable to Capolino for defamation and ordered to pay $200,000.00 in compensatory damages, plus interest in the amount of $18,049.32, for a total of $218,049.32. (Compl. ¶ 20; Ex. B to Kennedy Decl. at 3-4.) Tascione was found to be liable to Capolino for defamation and ordered to pay $75,000.00 in punitive damages, plus interest in the amount of $6,768.50 for a total of $81,768.50. (Compl. ¶ 21; Ex. B to Kennedy Decl. at 4.) Galli was found to be liable to Capolino for defamation and ordered to pay $50,000.00 in punitive damages, plus interest in the amount of $4,512.33 for a total of $54,512.33. (Compl. ¶ 22; Ex. B to Kennedy Decl. at 4-S.)
On May 3, 1999, Tascione and Galli posted a surety bond with Fidelity and Deposit Company of Maryland pending appeal. (Compl. ¶ 23.) WPHA used federal funds to secure the bond for Tascione and Galli without HUD's prior written authorization. (Compl. ¶ 24.) The funds securing the bond were held in the escrow account of Calotta Levine Samuel, LLP, counsel for WPHA, Tascione, and Galli. (Compl. ¶ 25.) The escrow account was the subject of an interpleader action before this Court,Calotta Levine Samuel LLP v. U.S. Department of Housing and Urban Development, et al., 01 Civ. 0067, which has since been resolved.
On August 14, 2000, the Appellate Division affirmed the Capolino Judgment but changed its apportionment of damages. (Compl. ¶ 28; Ex. F to Kennedy Decl.) An amended judgment was entered on October 12, 2000. (Compl. ¶ 30; Ex. H to Kennedy Decl.) The damages assessed against the WPHA remained the same, although the interest had increased. (Compl. ¶¶ 31-32; Ex. H to Kennedy Decl. at 3.) Tascione was found to be liable to both Capolino Construction and Capolino for defamation and ordered to pay each defendant $37,500.00 in punitive damages, plus interest in the amount of $8,371.44 for a total of $45,871.44 to each defendant. (Compl. ¶¶ 33-34; Ex. H to Kennedy Decl. at 4.) Galli was found to be liable to both Capolino Construction and Capolino for defamation and ordered to pay each defendant $25,000.00 in punitive damages, plus interest in the amount of $5,580.96 for a total of $30,580.96 to each defendant. (Compl. ¶¶ 35-36; Ex. H to Kennedy Decl. at 5-6.) On December 14, 2000, the New York Court of Appeals denied leave to appeal and the judgment became final. (Compl. ¶ 37; Ex. I to Kennedy Decl.)
By letter dated December 22, 2000, HUD informed defendants Chase Manhattan Bank and Bank of New York that the Funds deposited with the defendant banks could not be used to satisfy the Capolino Judgment. (Compl. ¶¶ 38; Ex. J to Kennedy Decl.) On December 28, 2000, the Capolino defendants issued restraining notices to defendants Chase Manhattan Bank and Bank of New York, seeking to garnish the bank accounts of WPHA in the amounts of $978,717.56 and $244,674.86. (Compl. ¶ 39; Ex. L to Kennedy Decl.) The Capolino defendants have served information subpoenas on the WPHA seeking to locate additional assets of the WPHA. (Compl. ¶ 42; Ex. N to Kennedy Decl.)
The Capolino defendants are prepared to execute upon the Capolino Judgment and to require the turnover of the Funds deposited at defendants Chase Manhattan Bank and Bank of New York. (Compl. ¶ 43.) Defendant Bank of New York has advised counsel for HUD that absent a court order, it will allow Capolino to execute on the Capolino Judgment. (Compl. ¶ 44.) HUD alleges that if the Funds are paid to the Capolino defendants, they will immediately be distributed to creditors of the Capolino defendants. (Compl. ¶ 48.) HUD also claims that neither of the Capolino defendants are in a financial position to satisfy any future judgment requiring them to repay the Funds to WPHA or HUD. (Compl. ¶ 48.)
HUD seeks a preliminary injunction against the Capolino defendants restraining any effort to collect on the Capolino Judgment against Federal Funds, including the Funds deposited with the defendant banks, and a preliminary injunction against defendants Chase Manhattan Bank and Bank of New York from disbursing the Funds to satisfy the Capolino Judgment. The Capolino defendants have opposed the motion and moved to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(6).
II.
The standards governing the issuance of a preliminary injunction are well established. "[A] party seeking a preliminary injunction must demonstrate (1) the likelihood of irreparable injury in the absence of such an injunction, and (2) either (a) likelihood of success on the merits or (b) sufficiently serious questions going to the merits to make them a fair ground for litigation plus a balance of hardships tipping decidedly toward the party requesting the preliminary relief." Federal Express Corp. v. Federal Espresso. Inc., 201 F.3d 168, 173 (2d Cir. 2000)
A.
While the possibility of monetary injury is usually not considered to be irreparable injury, a plaintiff can demonstrate that it will suffer irreparable injury by showing that "but for the grant of equitable relief, there is a substantial chance that upon final resolution of the action the parties cannot be returned to the positions they previously occupied." Brenntag Int'l Chemicals Inc. v. Bank of India, 175 F.3d 245, 249 (2d Cir. 1999) (citation omitted). A monetary injury involving an obligation owed by an insolvent party constitutes irreparable injury.Id. The possibility that an injunction will be ineffectual because the funds that are the subject of an action will be disbursed to multiple transferees is also irreparable injury. See. e.g., Lynch Corp. v. Omaha Nat'l Bank, 666 F.2d 1208, 1212 (8th Cir. 1981); see also United States v. William Savran Assoc. Inc., 755 F. Supp. 1165, 1180 (E.D.N.Y. 1991).
HUD claims that the Capolino defendants are in financial trouble and without a preliminary injunction would execute on the Funds and disburse them to their creditors. The Capolino defendants do not respond to this argument and have conceded that they are "hurting." (Calotta Levine Samuel, LLP v. HUD et al., 01 Civ. 67, Tr. of Jan. 5, 2001 at 8.) HUD has met its burden of demonstrating irreparable injury based on the likelihood that the Capolino defendants would disburse the Funds unless a preliminary injunction is issued.
Because HUD has demonstrated that it will suffer irreparable injury without a preliminary injunction, the Court need not reach HUD's alternative argument that it does not need to demonstrate irreparable injury because the object of the requested injunction is to enforce a federal statute.
B.
HUD has also demonstrated a likelihood of success on the merits. HUD argues that it is entitled to an injunction enjoining the disbursement and collection of Federal Funds because Federal Funds may not be used to satisfy the Capolino judgment. The Supreme Court held in Buchanan v. Alexander, 45 U.S. (4 How.) 20-21, (1846), that federal funds in the hands of a grantee remain the property of the federal government unless and until expended in accordance with the terms of the grant and are not subject to attachment or garnishment. That decision, despite its age, remains the law today. See In re Joliet-Will County Community Action Agency, 847 F.2d 430, 432 (7th Cir. 1988); City of New York v. Sullivan, No. 91 Civ. 2959, 1993 WL 8184, at *11 (S.D.N.Y. Jan. 4, 1993); Sobol v. Haitian Academy, No. 88 Civ. 1372, 1990 WL 37901, at *1 (N.D.N.Y. March 23, 1990). Unless the federal government consents, sovereign immunity prevents federal funds from being subject to attachment or garnishment proceedings. See e.g., Neukirchen v. Wood County Head Start Inc., 53 F.3d 809, 812-14 (7th Cir. 1995). The United States has an interest in federal funds disbursed to a non-governmental entity for a federal purpose and such interest is not subject to state judicial process without the consent of the United States. See Palmiter v. Action Inc., 733 F.2d 1244, 1247-48 (7th Cir. 1984); Henry v. First Nat'l Bank of Clarksdale, 595 F.2d 291, 308-09 (5th Cir. 1979). In determining whether the United States has an interest in particular funds, that have been disbursed to a grantee, courts have considered whether the funds were dispensed according to conditions, whether the United States retains a reversionary interest in the funds, and whether the United States employs accountability procedures to ensure that the grants are being spent as directed. See. e.g., Henry, 595 F.2d at 308-09.HUD alleges in its complaint that the Federal Funds at issue in this lawsuit are either grants the WPHA received directly from HUD or funds that HUD controls pursuant to the ACC. The WPHA has confirmed that a portion of the Funds came directly from HUD. (Ex. R to Kennedy Decl.) The defendants do not deny that HUD dispensed grants to the WPHA according to certain conditions, that HUD retains a reversionary interest in its grants to the WPHA, and that HUD employs accountability procedures to ensure that its grants to the WPHA are being spent as directed.
The defendants argue that the WPHA's account with Chase Manhattan Bank does not contain any HUD grants. They argue that the account only contains excess rents that are not Federal Funds. HUD responds that its control extends to rents received from public housing tenants because section 314 of the ACC prohibits the WPHA from transferring "any rent, revenues, income or receipts therefrom or in connection therewith, or any of the benefits or contributions granted to it by or pursuant to this Contract, or any interest in any of the same . . . ." (Ex. C to Abrams Decl., ACC, Pt. II, § 314.) The defendants reply that this prohibition of transfer only lasts "until all Project Notes, Project Loan Notes, Permanent Notes . . . and all other indebtedness of the [WPHA] to HUD arising under this Contract . . . have been fully paid, and all Bonds issued in connection with such Project have been fully paid and retired . . . ." (Id.) However, HUD has established its interest in the Funds and there is no evidence that all the indebtedness of the WPHA has been paid. HUD has shown a likelihood of success on the merits because a portion of the Funds are grants from HUD.
The defendants argue that HUD has waived its sovereign immunity through the "sue or be sued" clause contained in HUD's enabling act, 42 U.S.C. § 1404a. In Federal Housing Admin. v. Burr, 309 U.S. 242 (1940), the Supreme Court held that a "sue or be sued" clause waived the Federal Housing Administration's sovereign immunity against a garnishment proceeding. However, the waiver defined in Burr is "limited to a garnishment action against a governmental agency and is predicated on the Court's finding that `no grave interference with the federal function' would result." Chilean Line Inc. v. United States, 344 F.2d 757, 762 (2d Cir. 1965) (citing Burr, 309 U.S. at 245 (1940)). The effort to collect the Capolino Judgment is not a garnishment proceeding against HUD. The defendants also have not established that there would be no grave interference with federal functions if the Capolino defendants were able to execute upon Federal Funds. HUD argues persuasively that permitting those funds to be used to pay a defamatory judgment would interfere with the provision of low-income housing for which the funds were intended to be used. HUD has not consented to the institution of state court attachment proceedings against third parties in an effort to obtain Federal Funds.
HUD has established that a portion of the Funds held by the defendant banks are direct federal grants and that it has an interest in the remaining funds. Therefore, HUD has established a likelihood of success on the merits because Federal Funds are not subject to state attachment proceedings without HUD's consent. Moreover, HUD has shown that the Funds in the defendant banks are Federal Funds. HUD has satisfied the requirements for a preliminary injunction, and HUD's motion for a preliminary injunction is therefore granted.
III.
The Capolino defendants move to dismiss this action based on the Anti-Injunction Act, 28 U.S.C. § 2283, and the doctrines of judicial estoppel, equitable estoppel, and res judicata. None of these arguments are a basis for dismissing the complaint and none of these arguments undermine the likelihood that HUD will succeed on the merits.
On a motion to dismiss, the allegations in the complaint are accepted as true. See Grandon v. Merrill Lynch Co., 147 F.3d 184, 188 (2d Cir. 1998). In deciding a motion to dismiss, all reasonable inferences must be drawn in the plaintiff's favor. See Gant v. Wallingford Bd. of Educ., 69 F.3d 669, 673 (2d Cir. 1995); Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989). The court's function on a motion to dismiss is "not to weigh the evidence that might be presented at trial but merely to determine whether the complaint itself is legally sufficient." Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985). Therefore, the defendants' present motion should only be granted if it appears that the plaintiff can prove no set of facts in support of its claim that would entitle it to relief.See Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Grandon, 147 F.3d at 188; see also Goldman, 754 F.2d at 1065.
In deciding the motion, the court may consider documents referenced in the complaint and documents that are in the plaintiff's possession or that the plaintiff knew of and relied on in bringing suit. See Brass v. American Film Technologies, Inc., 987 F.2d 142, 150 (2d Cir. 1993);Cortec Indus. Inc. v. Sum Holding L.P., 949 F.2d 42, 47-48 (2d Cir. 1991); I. Meyer Pincus Assoc. P.C. v. Oppenheimer Co. Inc., 936 F.2d 759, 762 (2d Cir. 1991); Skeete v. IVF America Inc., 972 F. Supp. 206, 208 (S.D.N.Y. 1997).
A.
The Capolino defendants move to dismiss the action on the ground that the Anti-Injunction Act, 28 U.S.C. § 2283, prevents this Court from enjoining a state court proceeding. The Anti-Injunction Act provides:
A court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments.28 U.S.C. § 2283. However, it is well-established that the Anti-Injunction Act does not apply when the United States or a federal agency such as HUD seeks to stay a proceeding in state court. See Arkansas v. Farm Credit Svcs., 520 U.S. 821, 829 (1997); NLRB v. Nash-Finch Co., 404 U.S. 138, 145-46 (1971); Leiter Minerals Inc. v. United States, 352 U.S. 220, 225-26 (1957); Securities and Exchange Commission v. Wencke, 577 F.2d 619, 623 (9th Cir. 1978); Marshall v. Chase Manhattan Bank, 558 F.2d 680, 683 (2d Cir. 1977). "The purpose of s 2283 was to avoid unseemly conflict between the state and the federal courts where the litigants were private persons, not to hamstring the Federal Government and its agencies in the use of federal courts to protect federal rights." Nash-Finch Co., 404 U.S. at 146. In this action, HUD seeks to enforce federal law requiring that federal funds be used for their intended federal purpose. Therefore, the Anti-Injunction Act is not a bar to this action.
B.
The Capolino defendants argue that HUD is judicially estopped from arguing that the Federal Funds cannot be used to pay the Capolino Judgment. They argue that HUD's position contradicts the WPHA's representation to the Appellate Division that it should not be required to post a bond because there was no factual basis indicating that it could not satisfy the Capolino Judgment if the judgment was affirmed. (Ex. C to Declaration of J. Edward Meyer dated January 26, 2001 at 9.) "A party invoking judicial estoppel must show that: (1) his adversary advanced an inconsistent factual position in a prior proceeding, and (2) the prior inconsistent position was adopted by the first court in some manner." Wight v. Bankamerica Corp., 219 F.3d 79, 90 (2d Cir. 2000) (internal quotations and citation omitted). "[T] here must be a true inconsistency between the statements in the two proceedings. If the statements can be reconciled there is no occasion to apply an estoppel."Id. (internal quotations and citations omitted).
The Capolino defendants have not shown that the WPHA's position was adopted by a court. The statement the Capolino defendants refer to is one sentence at the end of a memorandum of law. The Appellate Division did not decide the issue of whether the WPHA would be able to satisfy the judgment and only held that it was an "agency of the state" entitled to an automatic stay pursuant to CPLR § 5519(a)(1). (Ex. E to Kennedy Decl.) The ability of the WPHA to pay the judgment is not relevant to whether it is an "agency of the state" and nothing in the decision of the Appellate Division indicates that the Appellate Division adopted the implied argument that the WPHA could satisfy the Capolino Judgment.
Moreover, it was the WPHA and not HUD that made the representation to the Appellate Division. The Capolino defendants argue that HUD is an alter-ego or in privity with the WPHA, but this is an issue of fact that cannot be decided on this motion to dismiss. Therefore, the Capolino defendants' motion to dismiss the complaint based on judicial estoppel is denied.
C.
The Capolino defendants next argue that the action should be dismissed on the ground of equitable estoppel. However, estoppel is applied "to the Government only in those limited cases where the party can establish both that the Government made a misrepresentation upon which the party reasonably and detrimentally relied and that the Government engaged in affirmative misconduct." City of New York v. Shalala, 34 F.3d 1161, 1168 (2d Cir. 1994) (citations omitted). "A plaintiff must establish more than mere negligence or that an agency mistakenly gave incorrect advice." Cruz v. Apfel, 48 F. Supp.2d 375, 378 (S.D.N.Y. 1999) (citation omitted). The Capolino defendants argue that they pursued the Capolino Action based on HUD's funding of the WPHA's legal defense in the Capolino case and HUD's failure to indicate that it would not permit WPHA to pay the judgment. The Capolino defendants also claim that the WPHA represented that it would be able to pay the judgment.
None of these allegations support a claim of equitable estoppel against HUD. There is no allegation of an affirmative misrepresentation by HUD. The Capolino defendants could have researched the law with respect to the availability of federal funds to satisfy a judgment against the WPHA. HUD had no obligation to intervene to provide the Capolino defendants with information on established case law. Furthermore, there is no allegation that HUD did anything other than fail to inform the Capolino defendants that federal funds could not be used to satisfy the judgment. A failure to act is not affirmative misconduct that can establish estoppel against the Government. See e.g., Benson v. Department of Health and Human Serv., 948 F. Supp. 213, 217 (E.D.N.Y. 1996). The Capolino defendants' motion to dismiss on the ground of equitable estoppel is denied.
The Capolino defendants also argue that HUD has "unclean hands" because it waited too long to bring this action. However, the Capolino Judgment only became final on December 14, 2000 and HUD acted soon thereafter.
D.
Finally, the Capolino defendants argue that this action is barred by the doctrine of res judicata because the WPHA could have interposed a defense in the Capolino Action that any judgment against the WPHA was unpayable, and HUD is allegedly in privity with the WPHA and should be bound by the failure to raise that defense.A federal court must give the same preclusive effect to a state court decision as a state would give it. See Brooks v. Giuliani 84 F.3d 1454, 1463 (2d Cir. 1996); Schulz v. Williams, 44 F.3d 48, 53 (2d Cir. 1994) (citing Micra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75, 81 (1984)); Mcdonough v. City of New York, No. 99 Civ. 12307, 2000 WL 1804137, at *5 (S.D.N Y Dec. 8, 2000); Hennessy v. Cement and Concrete Worker's Union Local 18A, 963 F. Supp. 334, 337-38 (S.D.N.Y. 1997). Thus, the binding effect of the state court Capolino Judgment is governed by New York res judicata doctrine. In New York, "Res judicata gives binding effect to the judgment of a court of competent jurisdiction and prevents the parties to an action, and those in privity with them, from subsequently relitigating any questions that were necessarily decided therein." Ferris v. Cuevas, 118 F.3d 122, 126 (2d Cir. 1997) (internal quotations and citations omitted); Hoey v. Kuchler, 671 N.Y.S.2d 487, 488 (App.Div. 1998) (collecting cases). Res judicata can apply to a defense that was or could have been raised in the prior proceeding. See, e.g., Beckford v. Citibank N.A., No. 00 Civ. 205, 2000 WL 1585684, at *3 (S.D.N.Y. Oct. 24, 2000); Santiago v. Lalani, 681 N.Y.S.2d 577, 578 (App.Div. 1998)
Res judicata does not preclude HUD from bringing this action because the issue of whether Federal Funds can be used to satisfy the Capolino Judgment has not yet been decided by any state court. There is nothing indicating that the New York courts have decided or even considered whether the Capolino Judgment can be satisfied with Federal Funds. In fact, the issue of whether Federal Funds can be used to satisfy the Capolino Judgment only arose when the Capolino Action concluded in December 2000 when the Capolino Judgment became final.
The Capolino defendants attempt to argue that the impermissibility of satisfying the Capolino Judgment with Federal Funds is a defense that could have been raised by the WPHA during the course of the Capolino Action. However, the ability of the WPHA to pay a defamation judgment with particular funds is not a defense to the liability of the WPHA, Tascione, and Galli for defamation. The WPHA, Tascione, and Galli are liable for defamation regardless of whether any judgment can be paid with Federal Funds. This action does not involve an issue that was decided or a defense that could have been raised in the Capolino Action. Therefore, the doctrine of res judicata does not preclude this action.
Moreover, HUD could not have asserted a defense in the Capolino Action because HUD was not and could not have been a defendant in a state court defamation action. A tort action against HUD could not have been brought in state court. Common law tort claims against a federal agency must be filed against the United States pursuant to the Federal Tort Claims Act, 28 U.S.C. § 2671 et seq. ("FTCA"). See. e.g., Rivera v. United States, 928 F.2d 592, 609 (2d Cir. 1991); John Street Leasehold, LLC v. Capital Mgmt. Resources L.P., No. 98 Civ. 1965, 2001 WL 310629, at *18 (S.D.N.Y. March 29, 2001). The federal courts have exclusive jurisdiction over FTCA claims. 28 U.S.C. § 1346 (b). Additionally, HUD could not have been a defendant in any defamation action because the FTCA does not waive sovereign immunity for claims for libel or slander. 28 U.S.C. § 2680(h). Furthermore, there is no evidence or allegation that there was a basis for a lawsuit against HUD in state court or any other court.
Finally, the Capolino defendants have not established at this stage of the proceedings that HUD and the WPHA were in privity. The concept of privity in the res judicata context "includes those who are successors to a property interest, those who control an action although not formal parties to it, those whose interests are represented by a party to the action, and possibly coparties to a prior action." Ferris v. Cuevas, 118 F.3d at 126 (internal quotations and citation omitted). The issue of whether HUD and the WPHA were in privity is a question of fact that cannot be resolved on this motion to dismiss.
CONCLUSION
For the reasons explained above: 1. The plaintiff's motion for a preliminary injunction is granted. 2. The Capolino defendants' motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) is denied in its entirety.
SO ORDERED.
Dated: New York, New York April 4, 2001.