The opinion of the court was delivered by: Richard Mills, District Judge:
Should a provision in a HUD Manual be given the force of law?
I. FACTS ALLEGED IN AMENDED COMPLAINT
On or about December 1, 1981, the United States Department of
Housing and Urban Development ("HUD") insured a first mortgage
for St. Nicholas Apartments under Section 221(d)(4) of the
National Housing Act, 12 U.S.C. § 1715 et seq., on a
multifamily housing project located at 400 E. Jefferson Street,
Springfield, Illinois. St. Nicholas Apartments is a California
limited partnership whose general partner, at the time, was
Ranbir S. Sahni ("Sahni"). St. Nicholas Apartments' only
substantial asset is the multifamily housing project located in
During the mid 1980s, Sahni bought a Savings and Loan and
transferred his interest in St. Nicholas Apartments to American
Diversified Savings Bank ("ADSB") which was a service corporation
of Sahni's Savings and Loan. Thereafter, the general partnership
interest in St. Nicholas Apartments was owned by American
Diversified Partnership ("ADP"), a California limited partnership
of which American Diversified Investment Corporation ("ADIC") was
the general partner. A few years later, ADSB, like so many other
Savings and Loan during the 1980s, folded. When the Federal
Savings and Loan Insurance Corporation failed, the Federal
Deposit Insurance Corporation ("FDIC"), in effect, inherited the
general partnership interest in St. Nicholas Apartments along
On or about October 27, 1988, the FDIC assigned St. Nicholas
Apartments' mortgage to HUD because of a default in payments. The
housing project had severe financial problems and was physically
deteriorated. Therefore, the FDIC and ADP wanted to transfer the
general partnership interest in St. Nicholas Apartments to
another party. Plaintiffs state that in exchange for Plaintiff T.
Michael Wiley's ("Wiley") agreement to become St. Nicholas
Apartments' general partner, the FDIC and ADP proposed to assign
to him a claim for $1,600,000.00 in advances owed to the general
partner of St. Nicholas Apartments. However, those advances could
not be paid to the general partner until the St. Nicholas
Apartments achieved some measure of financial stability.
On December 16, 1988, Wiley, through "Group B.W. Holdings,
Inc.", agreed to acquire the general partnership interest in St.
Nicholas Apartments. Plaintiffs claim that the agreement stated
that HUD's approval of the proposed transaction and HUD's
acceptance of a workout arrangement were mandatory conditions
precedent of the transfer of the general partnership interest.
Plaintiffs claim, but HUD denies, that HUD accepted a final
workout agreement with Wiley. Plaintiffs claim that despite
having entered into this agreement, HUD has announced its
intentions to foreclose on St. Nicholas Apartments' mortgage.
Plaintiffs argue that had HUD lived up to its agreement and
followed its own rules and regulations, HUD would not be in a
position to foreclose on the mortgage. For purposes of the
present motion, Plaintiffs argue in Counts IV and V of their
amended complaint that if the Court finds that the final workout
agreement is not binding on HUD, the Court should rescind the
transfer of St. Nicholas Apartments' general partnership interest
from the FDIC and ADP to Wiley and should unwind all other
transactions from January 18, 1990 to the present.
Accordingly, Plaintiffs ask the Court (1) to declare that
Plaintiff Charles A. Yates may represent the class of limited
partners and to certify the class, (2) to determine whether HUD
is bound to comply with the terms of the final workout agreement,
(3) to determine who owns the general partnership interest in St.
Nicholas Apartments, (4) to rescind Wiley's general partnership
interest and transfer it back to the FDIC and ADP, if necessary,
(5) to order an accounting, if necessary, (6) to issue an
injunction preventing HUD from foreclosing on St. Nicholas
Apartments, and (7) to award attorneys' fees.
II. LEGAL STANDARD FOR MOTIONS TO DISMISS
In ruling on a motion to dismiss, the Court "must accept well
pleaded allegations of the complaint as true. In addition, the
Court must view these allegations in the light most favorable to
the plaintiff." Gomez v. Illinois State Board of Education,
811 F.2d 1030, 1039 (7th Cir. 1987). Although a complaint is not
required to contain a detailed outline of the claim's basis, it
nevertheless "must contain either direct or inferential
allegations respecting all the material elements necessary to
sustain a recovery under some viable legal theory." Car
Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1106 (7th Cir.
1984), cert. denied, 470 U.S. 1054, 105 S.Ct. 1758, 84 L.Ed.2d
821 (1985). Mere conclusions, without supporting factual
allegations, are insufficient to support a claim for relief.
Cohen v. Illinois Institute of Technology, 581 F.2d 658, 663
(7th Cir. 1978), cert. denied, 439 U.S. 1135, 99 S.Ct. 1058, 59
L.Ed.2d 97 (1979). Dismissal is not granted "unless it appears
beyond doubt that the plaintiff can prove no set of facts in
support of his claim that would entitle him to relief." Conley
v. Gibson, 355 U.S. 41, 45, 78 S.Ct. 99, 102, 2 L.Ed.2d 80
Defendants' first argument is that rescission is an
extraordinary equitable remedy which is not available absent
substantial nonperformance or breach by a party to the agreement.
Defendants claim that because Plaintiffs have not pled fraud
and/or mistake specifically pursuant to Federal Rule of Civil
Procedure 9(b), Plaintiffs' claim must be based upon a claim of
substantial nonperformance or breach of contract. As such,
Defendants argue that rescission is not appropriate because the
contract which was allegedly breached was between HUD and
Plaintiffs. Defendants ...