Eastway appeals from judgment entered on the order of the United States District Court for the Eastern District of New York (Weinstein, C.J.) granting defendants' motions for summary judgment, and dismissing Eastway's complaint, which alleged violations of the antitrust and civil rights laws. Municipal defendants below cross-appeal from the denial of their motion for attorneys' fees pursuant to Fed. R. Civ. P. 11. Affirmed in part, reversed in part and remanded.
Kaufman, Oakes and Meskill, Circuit Judges.
We are confronted today with an appeal by a general contracting firm which, frustrated by a series of setbacks, sought vindication and relief in the federal courts. Denied access to redevelopment projects sponsored or approved by the City of New York, it first sought to negotiate an amicable agreement with City officials. When the negotiations broke down, the contractor filed a petition in the courts of New York State challenging the City's refusal to do business with it. It did not prevail.
Somewhat desperately, perhaps, the contractor brought the instant action in the United States District Court for the Eastern District of New York, charging the City and others with violations of the antitrust and civil rights laws. The defendants below moved successfully for summary judgment, and unsuccessfully for attorneys' fees as a sanction for having brought a frivolous action. We are thus called upon to address the propriety of the district court's dismissal of the claims, as well as its denial of the motion for attorneys' fees. We pause to set forth the relevant facts before turning to the ultimate legal discussion.
a. Eastway's Dealings With the City
Eastway Construction Corporation ("Eastway") is a general contractor that, for many years, was engaged in the construction of publicly financed housing rehabilitation projects in New York City. The individual plaintiffs below are officers of the corporation.
Between 1966 and 1974, the city of New York ("City"), through its now defunct Municipal Loan Program, loaned a total of nearly twelve million dollars to limited partnerships controlled by various principals of Eastway.*fn1 The low-interest loans were given to enable the partnerships to rehabilitate thirty-four multiple dwellings in depressed neighborhoods. Eastway served as general contractor on most of the projects.
The majority of the loans were non-recourse, and were secured by mortgages on the buildings. Eastway was the general contractor on most of the projects. By 1981, the loans were in arrears in the total amount of nearly eight million dollars. And by March 1983, all but three of the buildings that had secured the loans had reverted to City ownership through mortgage foreclosure or in rem taking. The three remaining buildings had mortgage arrears totaling approximately three million dollars.
During the early 1970s, the Municipal Loan program was rocked by a well-publicized scandal. One City official was convicted of extortion and accepting bribes, and several developers were charged with fraud. Eastway's President, George Jaffee, admitted making payments to the official in charge of the Municipal Loan Program during this period in an attempt to expedite pending loan applications.
In the aftermath of the scandal, New York State revamped its Private Housing Finance Law ("PHFL"), and created the New York City Housing Development Corporation ("HDC"), see N.Y. Priv. Hous. Fin. Law §§ 650-670 (McKinney 1976). Pursuant to the statutory scheme in operation at the time, the City was given supervisory authority over certain redevelopment projects.
Specifically, it was empowered to regulate the creation and operation of redevelopment companies formed under Article V of the PHFL, see id. §§ 100-126. Moreover, the City was authorized to control the identities of the firms with which Article V redevelopment companies contracted, see id. § 112(3).
Still reeling from the Municipal Loan Program scandal, the City decided it would no longer enter into rehabilitation contracts with firms whose principal controlled companies that had defaulted on or were in arrears with respect to loans received from the City. In 1980, the policy was extended to forbid companies under City supervision from entering into contracts with firms that had defaulted or that were in arrears. Because Eastway's principals controlled entities that had defaulted on City loans, Eastway was precluded from contracting with companies that were engaged in City financed reconstruction projects. In effect, Eastway was put out of business.
In response, Eastway mounted a two-prong attack against the implementation of the City policy. First, it initiated an Article 78 proceeding in the New York State Supreme Court, seeking to have the policy declared arbitrary and capricious.*fn2 Simultaneously, it sought to negotiate a "work out" agreement with the city, pursuant to which it would restructure and reschedule its affiliated companies debt, in exchange for a promise by the City to approve its involvement in future redevelopment projects.
The legal challenge proved to be unsuccessful. After Eastway prevailed in the Supreme Court, the Appellate Division reversed and dismissed its petition, holding that the City's policy was a proper exercise of its discretion. See Eastway Constr. Corp. v. Gliedman, 86 A.D.2d 575, 446 N.Y.S.2d 306 (1st Dept. 1982). No appeal was perfected to the Court of Appeals,*fn3 see Eastway Constr. Corp. v. Gliedman, 58 N.Y.2d 972 (1983).
Negotiations on the "work out" agreement proved equally fruitless for Eastway. At one point, the firm and the City did indeed arrive at a tentative agreement, pursuant to which Eastway would pay the City a portion of monies expected to be received on new projects, and the City would not prevent Eastway from participating in City-supervised ventures. The tentative agreement was never expected by HPD, however, and never went into effect.
b. Eastway's Dealings With CPC
The Community Preservation Corporation ("CPC") is a private consortium of thirty-nine commercial and savings banks that conduct business in New York City. Founded in 1974 for the purpose of facilitating the redevelopment of multiple-family dwellings in depressed neighborhoods, CPC extends low-interest loans to private developers engaged in housing rehabilitation projects. Since its inception, CPC financing has resulted in the creation or rehabilitation of more than 11,000 apartments.
In June 1978, Michael Lappin then a neighborhood loan officer with CPC, received an application from Everett Jennings, on behalf of Orange Realty Co., for a loan of $575,000 to be used in the rehabilitation of a building located at 850 St. Marks Avenue in Brooklyn. The application did not name Eastway as general contractor. After consulting with CPC's President, Lappin rejected the application due to the developer's limited financial resources, as well as questions regarding the bona fides of the property's financial history. Specifically, CPC's internal investigation revealed a questionable relationship between the building's seller-mortgagor and buyer-mortgagee. In fact, George Jaffee's brother-in-law was a principal of each, and this identity of interests raised the spectre that the sale of 850 St. Marks Avenue may not have been an arm's-length transaction.
In July 1981, Jennings once more applied to CPC for financing of the rehabilitation of the St. Marks Avenue property. Again neither Eastway nor any of its principals was listed as a proposed ...