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Quandel Group, Inc. v. Beacon Hill Mortgage Corp.

March 24, 2008

THE QUANDEL GROUP, INC., PLAINTIFF
v.
BEACON HILL MORTGAGE CORP. AND ALPHONSO JACKSON, SECRETARY OF THE UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, DEFENDANT



The opinion of the court was delivered by: Judge Munley

MEMORANDUM

Before the court for disposition are motions for summary judgment filed by each of the parties in this action. The matters have been briefed and are ripe for disposition.

Background

Plaintiff Quandel Group, Inc., contracted with CNH, Inc. to provide management services with regard to the construction of a nursing home in Carbondale, Pennsylvania. (Doc. 1, Complaint at ¶ 5). This contract (hereinafter "construction contract") provides that the work was to be financed by a building loan secured by a mortgage and insured by Defendant Alphonso Jackson, Secretary of the United States Department of Housing and Urban Development (hereinafter "HUD"). (Id. at ¶ 10). The terms of the loan are set forth in a building loan agreement between Quandel and Defendant Beacon Hill Mortgage Corp. (hereinafter "Beacon Hill"). (Id.).

Plaintiff Quandel asserts that in consideration of executing the construction contract with CNH, it received assurances from CNH and Beacon Hill that sufficient funds would be held in trust with Beacon Hill to pay for the labor and materials to be provided by Plaintiff Quandel. (Id. at 11). Plaintiff then entered into subcontracts with regard to various aspects of work on the project. (Id. at 12). Quandel contends that it fully completed the terms of the contract, but Beacon Hill has refused to release payment of the funds to it for services rendered in connection with the project. (Id. 13).

The funds held by Beacon were specifically held in trust for the labor and materials supplied to the project by Quandel according to the plaintiff. (Id. at 15). Plaintiff further avers that Beacon wrongfully released project operating funds to CNH to cover extension fees, in violation of the mortgage agreement. (Id. at 14).

Based upon these facts, plaintiff instituted a four-count complaint against Beacon Hill. The complaint asserts causes of action for breach of contract as third-party beneficiary, constructive trust, detrimental reliance, and unjust enrichment. (Doc. 1, Complaint).

After a somewhat circuitous procedural history, discovery was finally commenced and summary judgment motions were filed by both Quandel and Beacon.

Plaintiff Quandel filed a separate action against Defendant HUD. In that case, plaintiff asserts that the building loan agreement was endorsed for insurance by HUD. (United States District Court for the Middle District of Pennsylvania Docket 3:03cv1743, Doc. 1, Complaint (hereinafter "Complaint 2") at ¶ 10). The insurance provided that if CNH defaulted, Beacon could obtain payment of the outstanding unpaid balance on the mortgage from HUD. (Id. at ¶ 14). The total amount of insurance was $5,473,300.00. (Id. at ¶ 12).

As a condition for issuing the insurance, Defendant HUD took control of the project, inspecting and approving plans and specifications as well as approving requests for construction changes. (Id. at ¶¶ 22-24). Loan payments could not be made to Plaintiff Quandel until HUD approved the request. (Id. at 26). HUD also assumed the right to interpret the contract documents and determine compliance therewith. (Id. at ¶ 31). HUD was required to determine the date of substantial completion of the project. (Id. at ¶ 30). Plaintiff Quandel asserts that it relied upon the fact that HUD guaranteed payment for the work and that money would thus be paid for the labor, materials and services it provided. (Id. at ¶ 37).

Quandel asserts that it completed the project in 1999 and submitted its final pay application on March 11, 1999 seeking the final payment of $222,333.00. (Id. at ¶¶ 39-40). HUD had to approve this payment for it to be made. (Id. at ¶ 42). HUD would not authorize the release of the payment, asserting defects in the floor slab installation. (Id. at 46). Plaintiff Quandel asserts that the work was properly finished and that HUD would not release the final payment because they were concerned about CNH's ability to pay its mortgage. (Id. at ¶ 44, ¶ 47). In fact, on February 8, 2002, CNH filed for bankruptcy. On November 22, 2002, Beacon assigned the mortgage to HUD, and collected the insurance proceeds from HUD. (Id. at ¶ 51). HUD still refuses to release the funds requested by Plaintiff Quandel. Pursuant to these allegations, Plaintiff filed suit to recover on the basis of quantum meruit, third-party beneficiary, constructive trust and detrimental reliance.

The second complaint was consolidated with the initial complaint on January 11, 2007. Subsequently, Defendant HUD filed a motion to dismiss/summary judgment, and both the plaintiff and Defendant Beacon Hill filed motions for summary judgment. The motions have been fully briefed and are ripe for disposition.

Jurisdiction

We have jurisdiction over the Beacon Hill claims under the diversity jurisdiction statute as plaintiff is a citizen of Pennsylvania and Defendant Beacon Hill is a citizen of Ohio. See 28 U.S.C. § 1332. Because we are sitting in diversity, the substantive law of Pennsylvania shall apply to the instant case. Chamberlain v. Giampapa, 210 F.3d 154, 158 (3d Cir. 2000) (citing Erie R.R. v. Tompkins, 304 U.S. 64, 78 (1938)). Plaintiff asserts that this court has jurisdiction of the HUD action based upon diversity of citizenship as the Secretary of HUD is deemed to reside in Washington, D.C. HUD challenges this court's jurisdiction, and we will discuss its arguments below.

Standard of Review

Granting summary judgment is proper 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. See Knabe v. Boury, 114 F.3d 407, 410 n.4 (3d Cir. 1997) (citing FED. R. CIV. P. 56(c)). "[T]his standard provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986) (emphasis in original).

In considering a motion for summary judgment, the court must examine the facts in the light most favorable to the party opposing the motion. International Raw Materials, Ltd. v. Stauffer Chemical Co., 898 F.2d 946, 949 (3d Cir. 1990). The burden is on the moving party to demonstrate that the evidence is such that a reasonable jury could not return a verdict for the non-moving party. Anderson, 477 U.S. at 248 (1986). A fact is material when it might affect the outcome of the suit under the governing law. Id. Where the non-moving party will bear the burden of proof at trial, the party moving for summary judgment may meet its burden by showing that the evidentiary materials of record, if reduced to admissible evidence, would be insufficient to carry the non-movant's burden of proof at trial. Celotex v. Catrett, 477 U.S. 317, 322 (1986). Once the moving party satisfies its burden, the burden shifts to the nonmoving party, who must go beyond its pleadings, and designate specific facts by the use of affidavits, depositions, admissions, or answers to interrogatories showing that there is a genuine issue for trial. Id. at 324. Discussion

I. Beacon Hill's Motion For Summary Judgment

First we will discuss Defendant Beacon Hill's motion for summary judgment. Beacon Hill raises several different issues. We will address them in seriatim.

A. Assignment of the Contract

Beacon Hill first argues that it has assigned all right, title and interest in the building loan agreement to HUD. Thus, it no longer owes any duty to the plaintiff, who should rather seek relief solely from HUD. After a careful review, we disagree.

First we note that it is uncontested that Beacon Hill has assigned the mortgage at issue to HUD. (Doc. 70, Beacon Hill's Statement of Undisputed Facts, ΒΆ 10; Doc. 90, Plaintiff's response thereto admitting the assignment of the building loan agreement). We must ...


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