09-2327-cv
Chase Group Alliance v. City of New York Department of Finance
1 UNITED STATES COURT OF APPEALS
2 FOR THE SECOND CIRCUIT
3 AUGUST TERM, 2009
4 (Argued: January 20, 2010 Decided: September 14, 2010)
5 Docket No. 09-2327-cv
6 -----------------------------------------------------------------
7 CHASE GROUP ALLIANCE LLC, ESQUIRE GROUP ESTATES LLC, VINTAGE
8 VENTURES LLC,
9
10 Plaintiffs-Appellants,
11 v.
12 CITY OF NEW YORK DEPARTMENT OF FINANCE, MARTHA E. STARK, Finance
13 Commissioner of New York, CITY OF NEW YORK, DEPARTMENT OF HOUSING
14 PRESERVATION AND DEVELOPMENT, RAFAEL CESTERO, Commissioner of New
15 York City Department of Housing Preservation and Development,
16 DEBRA A. THOMAS, Director of Article 7A Programs at the New York
17 City Department of Housing Preservation and Development,
18
19 Defendants-Appellees.
20 -----------------------------------------------------------------
21 B e f o r e: WINTER, WALKER, and POOLER, Circuit Judges.
22 Appeal from a dismissal of a complaint pursuant to Rule
23 12(b)(6) in the United States District Court for the Southern
24 District of New York (William H. Pauley III, Judge). Appellants
25 claim their right to due process was violated by liens placed
26 upon their properties by the City. Because the complaint alleges
27 that New York law afforded appellants a right to notice and
28 access to a tribunal to assert their objections before the liens
1
1 were imposed, appellants’ right to due process was not violated.
2 We therefore affirm.
3 ROBERT J. TOLCHIN (Oleg Rivkin, Fox
4 Horan & Camerini, LLP, New York,
5 New York, on the brief), The
6 Berkman Law Office, LLC, Brooklyn,
7 New York, for Appellants.
8
9 JULIAN L. KALKSTEIN, Assistant
10 Corporation Counsel of the City of
11 New York (Michael Cardozo,
12 Corporation Counsel of the City of
13 New York; Larry A. Sonnenshein, of
14 counsel), New York, New York, for
15 Appellees.
16
17 WINTER, Circuit Judge:
18 Appellants are owners of three apartment buildings in New
19 York City. They sued the City of New York and various City
20 agencies and officials, claiming that the City defendants imposed
21 liens on the properties without giving appellants prior notice of
22 the liens or securing the approval of the New York Housing Court,
23 as required by an order of that court. Judge Pauley dismissed
24 their complaint. We affirm because the complaint itself alleges
25 that the Housing Court order afforded appellants a right to
26 notice and access to New York courts before the imposition of
27 valid liens. The availability of this process satisfied due
28 process.
29 BACKGROUND
30 Because this is an appeal from a dismissal under Fed. R.
31 Civ. P. 12(b)(6), we view the facts alleged in the complaint in
2
1 the light most favorable to the appellants. Chambers v. Time
2 Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002).
3 The complaint alleged the following. Tenants of three
4 apartment buildings in New York City commenced an action in the
5 New York City Civil Court, Housing Part under Article 7A of the
6 New York Real Property Actions and Proceedings Law. The tenants
7 sought the appointment of a “7A Administrator” to oversee the
8 properties and to remedy housing code violations. The Housing
9 Court issued an order appointing Peter Nakos as the 7A
10 Administrator for the properties.
11 The Housing Court’s order gave the 7A Administrator
12 authority to collect and use rents, “subject to the Court’s
13 direction, to remedy the conditions alleged in the Petition, any
14 violations of record issued by [the New York City Housing
15 Preservation Department (“HPD”)] . . . and to undertake work as
16 authorized by the Real Property Actions and Proceedings Law §
17 778(1) . . . .” The order authorized the 7A Administrator to use
18 rent monies to “[o]rder the necessary materials, labor and
19 services to remove or remedy the conditions alleged in the
20 Petition, and to remedy all violations currently on record with
21 HPD . . . .” The 7A Administrator was also given authority to
22 borrow money when necessary. In this respect, the Housing
23 Court’s order provided that the 7A Administrator could:
24 Borrow funds from HPD or other governmental entity
25 for repairs at the Premises that are necessary to
3
1 implement the objectives of this Judgment and
2 enter into an agreement with HPD or other
3 governmental entity for the repayment of such
4 monies. . . . The Administrator may apply for any
5 loan from a bank or lending institution or grant
6 available for the purposes of repair and
7 rehabilitation of the Premises or which are
8 otherwise made available through any
9 governmentally administered or subsidized program.
10
11 However, the order limited the 7A Administrator’s authority to
12 accept loans that would result in liens against the properties:
13 [A]ny loan which would result in a lien on the Premises
14 may not be accepted without approval of the Court,
15 which approval shall be sought upon notice to the
16 Premises’ owner or attorney for the owner and all other
17 parties to this proceeding. Said approval may be
18 sought without formal motion procedure so long as at
19 least eight days’ written notice of such approval is
20 given to the owner or attorney thereof, and any other
21 interested parties. The Court may set such procedures
22 as are reasonable to hear any objections to such
23 application, and if any party objects to its proposal
24 loan they may bring an order to show cause or seek such
25 other remedy as may be appropriate.
26
27 The Housing Court’s order also set forth record-keeping and
28 reporting requirements. Within thirty days of the order’s
29 issuance, the 7A Administrator was required to file with the HPD
30 and with all relevant parties a plan for the provision of
31 rehabilitative services. The order further required that the 7A
32 Administrator submit to both the Housing Court and to HPD monthly
33 financial statements of all receipts and expenditures.
34 The provisions of the Housing Court’s order mirror statutory
35 provisions in Article 7A that lay out the scope of authority
36 given to a 7A administrator. That law provides in relevant part:
4
1 “Any administrator is authorized and empowered in accordance with
2 the direction of the court, to order the necessary materials,
3 labor and services to remove or remedy the conditions specified
4 in the judgment, and to make disbursements in payment thereof;
5 and to demand, collect and receive the rents from the tenants
6 . . . .” N.Y. Real Prop. Acts. § 778(1) (emphasis added). As to
7 a 7A administrator’s authority to encumber properties placed in
8 its care, Article 7A provides:
9 In addition, such administrator is authorized and
10 empowered in accordance with the direction of the court
11 to accept and repay such moneys as may be received from
12 the department charged with enforcement of the housing
13 maintenance code of the city of New York for the
14 purpose of replacing or substantially rehabilitating
15 systems or making other repairs or capital improvements
16 authorized by the court. All moneys expended by the
17 department pursuant to the foregoing shall constitute a
18 debt recoverable from the owner and a lien upon the
19 building and lot, and upon the rents and other income
20 thereof.
21
22 Id. (emphasis added). Article 7A also sets out similar reporting
23 requirements. For example, it requires that the administrator
24 submit work plans and make publicly available all receipts and
25 expenditures. Id. at §§ 778, 779.
26 At some point after the appointment of Nakos as the 7A
27 Administrator, appellants purchased the properties in question.
28 They allege that the 7A Administrator subsequently accepted
29 $712,567.55 in loans from HPD, all of which the New York City
30 Department of Finance has “purported to deem . . . to be liens”
31 against the properties and has so filed them. It further alleges
5
1 that HPD granted, and the 7A Administrator accepted, these loans
2 without prior notice to appellants or court approval. The
3 complaint asserts that this conduct not only deprived appellants
4 of “rights that the plaintiffs plainly were entitled to under the
5 Housing Court Order[]” but also of their due process rights under
6 the Fourteenth Amendment.1 In this respect, the complaint
7 asserts that the 7A Administrator’s unilateral decision to
8 encumber the properties deprived appellants of any “opportunity
9 to contest the amount of the loans, or the necessity or
10 appropriateness of the work which the 7A administrator planned to
11 carry out with the proceeds of such loans.”
12 The complaint requests that the district court issue an
13 order: (i) enjoining the City from placing any additional liens
14 on the properties; (ii) prohibiting the City from either selling
15 or transferring the existing liens to a third party; and (iii)
16 directing that the City remove the existing $712,567.55 in liens
17 from the properties immediately.
18 Applying the Mathews v. Eldridge, 424 U.S. 319 (1976),
19 balancing test, the district court granted the City’s motion to
20 dismiss for failure to state a claim. The district court
21 concluded that pre-deprivation process would: (i) “impede the 7A
22 Administrator's ability to carry out his functions in a timely
1
The complaint also alleges a violation of due process under the New
York Constitution.
6
1 manner”; (ii) “impose a costly burden on Defendants”; and (iii)
2 "endanger the safety of those living at the Properties by
3 impeding the 7A Administrator’s actions." Given these
4 considerations and the fact that appellants already “were given
5 adequate notice of the pendency of the 7A Proceeding and ample
6 opportunity to respond and protect their interests,” it found
7 that appellants had failed to state a due process claim.
8 This appeal followed. We affirm but on different grounds.
9 DISCUSSION
10 As noted, we review the grant of a Rule 12(b)(6) motion to
11 dismiss de novo, "construing the complaint liberally, accepting
12 all factual allegations in the complaint as true, and drawing all
13 reasonable inferences in the plaintiff's favor." Chambers, 282
14 F.3d at 152. Because our review is de novo, “we are free to
15 affirm the decision below on dispositive but different grounds.”
16 Primetime 24 Joint Venture v. Nat’l Broad. Co., 219 F.3d 92, 103
17 (2d Cir. 2000). We will affirm “only if the plaintiff fails to
18 provide factual allegations sufficient to raise a right to relief
19 above the speculative level.” Burch v. Pioneer Credit Recovery,
20 Inc., 551 F.3d 122, 124 (2d Cir. 2008) (internal quotation marks
21 omitted).
22 Appellants claim that the imposition of liens on the
23 properties by the City violated their Fourteenth Amendment due
24 process rights. “An essential principle of due process is that a
7
1 deprivation of life, liberty, or property be preceded by notice
2 and opportunity for hearing appropriate to the nature of the
3 case.” Cleveland Bd. of Educ. v. Loudermill, 470 U.S. 532, 542
4 (1985) (internal quotation marks omitted). The requisite notice
5 must be “reasonably calculated, under all the circumstances, to
6 apprise interested parties of the pendency of the action and
7 afford them an opportunity to present their objections.” Mullane
8 v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950).
9 With respect to determining the need to provide an opportunity to
10 be heard, Mathews identified three relevant factors: (i) the
11 private interest affected by official action; (ii) the risk of
12 erroneous deprivation under existing procedures and probable
13 value of additional or substitute safeguards; and (iii) the
14 interest of the government. 424 U.S. at 335.
15 The parties dispute whether Mathews entitles appellants to a
16 process affording a pre-deprivation hearing. The district court
17 held that it does not, because of the need for expedition, the
18 cost to the defendants, and the danger to tenants of continuing
19 violations. We disagree.
20 Absent exigent or emergency circumstances, the property
21 interest here was sufficiently significant, and the risk of
22 erroneous deprivation sufficiently great, that some pre-
23 deprivation procedural protection was required. See Connecticut
24 v. Doehr, 501 U.S. 1, 12, 18 (1991) (“[E]ven the temporary or
8
1 partial impairments to property rights that attachments, liens,
2 and similar encumbrances entail are sufficient to merit due
3 process protection. . . . [T]he [state] provision before us, by
4 failing to provide a preattachment hearing without at least
5 requiring a showing of some exigent circumstances, clearly falls
6 short of the demands of due process.”); Burtnieks v. City of New
7 York, 716 F.2d 982, 987 (2d Cir. 1983) (“Where a deprivation of
8 property is involved, the aggrieved individual must be given ‘an
9 opportunity for a hearing before he is deprived of any
10 significant property interest, except for extraordinary
11 situations where some valid governmental interest is at stake
12 that justifies postponing the hearing until after the event.’”
13 (quoting Boddie v. Connecticut, 401 U.S. 371, 379 (1971)).
14 However, the kind of pre-deprivation hearing required by due
15 process depends upon the nature of the issues and the relative
16 weight of the Mathews factors. Monserrate v. New York State
17 Senate, 599 F.3d 148, 158 (2d Cir. 2010); Spinelli v. City of New
18 York, 579 F.3d 160, 169-70 (2d Cir. 2009). In the present matter,
19 we believe that due process requires no more than notice and an
20 opportunity for the owner to contest the overall legitimacy of
9
1 the need for the proposed repairs and renovations and the
2 reasonableness of the amounts to be borrowed.2
3 As for the need for expedition, the hearing can be tailored
4 in the discretion of the pre-deprivation-hearing court to meet
5 whatever exigencies exist in a particular case. Karpova v. Snow,
6 497 F.3d 262, 270-71 (2d Cir. 2007); Interboro Inst., Inc. v.
7 Foley, 985 F.2d 90, 93 (2d. Cir. 1993); Oberlander v. Perales,
8 740 F.2d 116, 120-21 (2d Cir. 1984) (superceded by statute on
9 other grounds, as stated by Senape v. Constantino, 936 F.2d 687,
10 690 n.4 (2d Cir. 1991)). The prior hearing held with regard to
11 the appointment of a 7A administrator should have resulted in
12 findings sufficient to constitute an adjudication of many of the
13 needed repairs and renovations. The Housing Court order and
14 statute also require the submission of plans for repairs and
15 renovations. Likewise, obtaining a loan will typically require a
16 repair and renovation plan of some detail, including likely
17 costs, which justifies the amount to be borrowed.
18 Thus, the requirements of due process can be satisfied if
19 lien or loan approval is largely based on papers already in
2
An owner of property for which an administrator has been appointed may
be presumed to be informed of the property’s deficiencies at the time of the
appointment or at any later time when the owner had access to the property.
An owner who purchases the property after the appointment of an administrator,
thereby knowing of the existence of deficiencies that may result in loans that
become liens, may be given some access in the discretion of the court but,
having voluntarily accepted the obvious risks, is in no position to delay
matters unreasonably by demanding to learn more about the property purchased.
10
1 existence (and usually in the record of proceedings of the
2 Housing Court); the hearing can be limited to the reasonableness
3 of the overall plan and its costs, avoiding quibbles over every
4 length of pipe or sheet of wallboard. Moreover, nothing in due
5 process requires that separate applications be made for each loan
6 rather than an application for the total amount to be borrowed
7 for particular aspects of the project.
8 As for the cost to the 7A administrator of seeking approval
9 for loans, there is nothing before us to suggest that such costs
10 will be exorbitant given the prior hearing leading to the
11 Administrator’s appointment, the 7A administrator’s need to
12 establish a plan before obtaining loans, and a hearing that
13 focuses on overall legitimacy of need and reasonableness of the
14 amount to be borrowed.
15 Moreover, the costs of seeking approval may benefit the
16 tenants, the intended beneficiaries of the statutory scheme,
17 because approval of the borrowing increases both the oversight
18 and accountability of the Administrator. Authorizing borrowing
19 without oversight or accountability is no more in the tenants’
20 interest than an owner’s use of a pre-deprivation hearing to
21 increase the cost of the imposition of a lien.
22 Any ongoing danger to tenants is a vital consideration, but
23 there is absolutely nothing before us to suggest that this was a
24 factor in the present matter. For example, the dates of the
11
1 Housing Court orders indicate that relevant events took place
2 over months and years.
3 We turn now to the question of whether appellants were
4 denied an appropriate pre-deprivation hearing. While appellants
5 may have adequately alleged that liens invalid under state law
6 were imposed on their properties, that allegation does not
7 suffice to state a claim under Section 1983 for relief based on a
8 procedural due process violation. Due process requires only that
9 the state afford a party threatened with a deprivation of
10 property a process involving pre-deprivation notice and access to
11 a tribunal in which the merits of the deprivation may be fairly
12 challenged. See Loudermill, 470 U.S. at 542; Rivera-Powell v.
13 New York City Bd. of Elections, 470 F.3d 458, 466-67 (2d Cir.
14 2006); Interboro, 985 F.2d at 93; Oberlander, 740 F.2d at 120.
15 No particular kind of tribunal is required so long as the one
16 provided is appropriate in light of issues at stake. Interboro,
17 985 F.2d at 93; Oberlander, 740 F.2d at 120-21. If such a
12
1 process is in place, due process is satisfied.3 Interboro, 985
2 F.2d at 93-94; Oberlander, 740 F.2d at 120-21.
3 The problem with appellants’ claim is that the complaint
4 itself alleges that New York afforded them pre-deprivation
5 protection by means of court orders. According to the complaint,
6 the Housing Court orders required notice and a court hearing, at
7 which appellants could contest proposed loans that might result
8 in liens. It is hard to conceive of a remedy more attuned to
9 appellants’ claim than a court order preventing the imposition of
10 a lien without a notice, hearing, and court approval. Indeed,
11 such an order is much of the relief they seek in the present
3
Appellants’ arguments seek to gain some superficial appeal by
conflating the governmental character of the party seeking to impose the
liens, the City, with the governmental action challenged, the imposition of
the liens. However, whether the party purporting to impose the liens is a
public or private entity is irrelevant here because the constitutional harms
claimed are the liens, the validity of which depends entirely on the Housing
Court’s authority. The appropriate constitutional analysis, therefore,
focuses on the Housing Court’s processes and does not turn in any way on
whether the lien is asserted by the City or a private bank.
Even if the pertinent constitutional harm was the City’s “purport[ing]
to deem” to have a lien, appellants would have difficulty surmounting the
argument that no pre-deprivation notice and hearing was required because the
deprivation was random and unauthorized. See Rivera-Powell v. New York City
Bd. of Elections, 470 F.3d 458, 465 (2d Cir. 2006) (“When the state conduct in
question is random and unauthorized, the state satisfies procedural due
process requirements so long as it provides meaningful post-deprivation
remedy.”). The complaint alleges nothing to suggest that any violation of the
Housing Court’s order was pursuant to a statute, code, regulation, or custom,
see, e.g., Hellenic Am. Neighborhood Action Comm. v. City of New York, 101
F.3d 877, 880 (2d Cir. 1996) (noting that post-deprivation procedures will not
necessarily satisfy due process “[w]hen the deprivation occurs in the more
structured environment of established State procedures, rather than random
acts”), or made by a final decisionmaker, see e.g., Velez v. Levy, 401 F.3d
75, 91-92 & n.14 (2d Cir. 2005) (stating that “post-deprivation remedies do
not suffice where the government actor in question is a high ranking official
with final authority over significant matters”) (internal quotation marks
omitted). To the contrary, the complaint is at pains to emphasize that the
purported imposition of a lien violated a Housing Court order.
13
1 action. The Housing Court order, therefore, provided all the
2 process that was constitutionally due at pertinent times.
3 The complaint does not allege what, if any, action was taken
4 by appellants or the Housing Court to enforce the Housing Court
5 order. Appellants suggested at oral argument that an
6 unsatisfactory ruling had emanated from the Housing Court, from
7 which they had taken an appeal, which is still pending. However,
8 even if the Housing Court erred, such an error does not itself
9 become a due process violation to be remedied in a Section 1983
10 action. See, e.g., McDarby v. Dinkins, 907 F.2d 1334, 1337 (2d
11 Cir. 1990) (“A breach of procedural requirements does not create
12 a due process violation unless an individual was denied a fair
13 forum for protecting his state rights.”) (internal quotation
14 marks omitted). The fact that a state proceeding is required by
15 due process does not mean that Section 1983 provides a remedy for
16 every error committed in the state proceeding. So long as state
17 appellate remedies are available, a Section 1983 action is not an
18 available vehicle for relief.4 See, e.g., New York State Nat’l
19 Org. for Women v. Pataki, 261 F.3d 156, 168 (2d Cir. 2001)
20 (holding that even if the New York State Division of Human Rights
4
Similarly, we have recognized that a party cannot bring a Section 1983
claim for violation of the Takings Clause when no effort was made to seek
compensation from the state, provided it has a “‘reasonable certain and
adequate provision for obtaining compensation.’” Villager Pond, Inc. v. Town
of Darien, 56 F.3d 375, 379-80 (2d Cir. 1995) (quoting Williamson Cnty. Reg’l
Planning Comm’n v. Hamilton Bank, 473 U.S. 172, 194 (1985)).
14
1 subjected discrimination claims to unreasonable delay in
2 processing, the plaintiffs “could have brought an Article 78
3 proceeding to mandamus Division officials to perform certain
4 acts” and therefore had adequate process).
5 This is not by any means to say that valid Section 1983
6 claims based on due process violations require exhaustion of
7 state remedies. But “[w]hen § 1983 claims allege procedural due
8 process violations, we nonetheless evaluate whether state
9 remedies exist because that inquiry goes to whether a
10 constitutional violation has occurred at all.” Rivera-Powell,
11 470 F.3d at 468 n.12; see also N.Y. State Nat’l Org. for Women,
12 261 F.3d at 169 (“Exhaustion simpliciter is analytically distinct
13 from the requirement that the harm alleged has occurred. Under
14 the jurisprudence, a procedural due process violation cannot have
15 occurred when the governmental actor provides apparently adequate
16 procedural remedies and the plaintiff has not availed himself of
17 those remedies.”) (internal quotation marks and alteration
18 omitted).
19 CONCLUSION
20 We therefore affirm.
21
15