547 F.3d 88 (2nd Cir. 2008), 05-2685, Diaz v. Paterson

Docket Nº:05-2685-cv, 06-3942-cv(L), 06-3992-cv(con).
Citation:547 F.3d 88
Party Name:Oscar DIAZ, Plaintiff-Appellant, v. David PATERSON,[*] individually and in his official capacity as Governor of the State of New York, Andrew Cuomo, individually and in his official capacity as Attorney General of the State of New York, Thomas P. Di Napoli, individually and in his official capacity as Comptroller of the State of New York, Hector Di
Case Date:October 17, 2008
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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547 F.3d 88 (2nd Cir. 2008)

Oscar DIAZ, Plaintiff-Appellant,

v.

David PATERSON, [*] individually and in his official capacity as Governor of the State of New York, Andrew Cuomo, individually and in his official capacity as Attorney General of the State of New York, Thomas P. Di Napoli, individually and in his official capacity as Comptroller of the State of New York, Hector Diaz, individually and in his official capacity as Clerk of the County of the Bronx, and on behalf of a defendant class of New York County Clerks and Churchill Mortgage Investment Corporation, Defendants-Appellees.

Jehed Diamond and Joseph Betesh, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants,

v.

David Paterson, individually and in his official capacity as Governor of the State of New York, Andrew Cuomo, individually and in his official capacity as Attorney General of the State of New York, Thomas P. Di Napoli, individually and in his official capacity as Comptroller of the State of New York, Gloria D'Amico and Sharon A. O'Dell, individually and in their official capacity as Clerk of the County of Queens and as Clerk of Delaware County respectively, and on behalf of a defendant class of New York County Clerks, Christopher Jones and Abraham Betesh, Defendants-Appellees.

Nos. 05-2685-cv, 06-3942-cv(L), 06-3992-cv(con).

United States Court of Appeals, Second Circuit.

October 17, 2008

Argued: April 1, 2008.

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Janet Benshoof (Toby Golick, Cardozo Bet Tzedek Legal Services, on the brief), New York, NY, for Plaintiffs-Appellants.

Benjamin Rosenberg, Chief Trial Counsel (Barbara D. Underwood, Solicitor General, Michael S. Belohlavek, Senior Counsel, on the brief), for Andrew M. Cuomo, Attorney General of the State of New York, New York, NY, for Defendants-Appellees.

Before: JACOBS, Chief Judge, KEARSE and POOLER, Circuit Judges.

DENNIS JACOBS, Chief Judge:

These putative class actions challenge the constitutionality of the New York law, codified at N.Y. Civil Practice Law & Rules 6501-6516 (“ Article 65" ), that allows a plaintiff who brings a lawsuit claiming interest in real property to file a lis pendens with respect to the property. The lis pendens (also called a “ notice of pendency" ) alerts future buyers or interest holders of a prior claim. Plaintiffs argue, under Connecticut v. Doehr, 501 U.S. 1, 111 S.Ct. 2105, 115 L.Ed.2d 1 (1991), that because the law does not give the property owner prior notice or opportunity to be heard, it violates the Fourteenth Amendment's

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Due Process Clause. Plaintiffs also challenge the law under the Equal Protection Clause.

These appeals are taken from final judgments, entered on April 28, 2005 and February 14, 2007, in the United States District Court for the Southern District of New York (Stein, J. ), dismissing the actions for failure to state a claim. Appeal is also taken from the denial of class certification. We affirm because New York's lis pendens law as applied to plaintiffs does not offend the Constitution, as construed by Doehr.

I

Under the common law, the pendency of a lawsuit (a lis pendens) claiming an interest in real property constituted constructive notice of the claim to the world. Whether or not good faith purchasers had actual notice, they took the property subject to the outcome of the action if they acquired the property while the suit was pending. See generally 13 Jack B. Weinstein, et al., New York Civil Practice: CPLR ¶ 6501.01, at 65-4-4.1 (2008). This “ prevent[ed] a defendant from destroying the value of a judgment in the plaintiff's favor by conveying the disputed property during the suit," id. at 65-5, and “ assure [d] that a court retained its ability to effect justice by preserving its power over the property," 5303 Realty Corp. v. O & Y Equity Corp., 64 N.Y.2d 313, 319, 486 N.Y.S.2d 877, 476 N.E.2d 276, 280 (1984), quoted in In re Sakow, 97 N.Y.2d 436, 440, 741 N.Y.S.2d 175, 767 N.E.2d 666, 669 (2002). Common law lis pendens attached immediately upon service of process; no separate notice or filing was required. “ A potential purchaser of real property was required to search all of the court records to determine whether the land to be purchased or encumbered was the subject of pending litigation." 13 Weinstein, New York Civil Practice: CPLR ¶ 6501.01, at 65-5.

To mitigate the burden imposed by the common law, New York, like most states, replaced it by statute. The New York lis pendens statute was first enacted in 1823. The current version, codified in Article 65, provides that a plaintiff in an action “ in which the judgment demanded would affect the title to, or the possession, use or enjoyment of real property," may file a notice of pendency with respect to the real property that is the subject of the action. See N.Y. C.P.L.R. 6501. Filing of the notice of pendency effects constructive notice of the action: “ A person whose conveyance or incumbrance is recorded after the filing of the notice is bound by all proceedings taken in the action after such filing to the same extent as a party." Id.

A notice of pendency must be filed “ in the office of the clerk of any county where property affected is situated." Id. 6511(a). A complaint that states a legally sufficient claim affecting the real property must be filed with the notice of pendency, unless the complaint was filed previously. Id. 6501, 6511(a). Effectiveness of the notice is conditional on the service of a summons on the defendant property owner within 30 days. Id. 6512.The notice is valid for three years, and may be extended for an additional three years upon a showing of good cause prior to expiration of the initial term. Id. 6513. As at common law, “ [t]he notice of pendency does not itself actually restrain transfer of the property, as an incumbrance or a lien: it merely provides notice that an action is pending that may affect title to the property." 13 Weinstein, New York Civil Practice: CPLR ¶ 6501.11, at 65-24.

Cancellation of a notice of pendency is available under two sections of the statute. Upon motion of “ any person aggrieved," section 6514 provides for discretionary

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cancellation “ if the plaintiff has not commenced or prosecuted the action in good faith," and for mandatory cancellation for specified failures to advance the underlying action, pursuant to a stipulation, or upon final disposition of the underlying lawsuit. N.Y. C.P.L.R. 6514(a), (b), (d). An order cancelling a notice of pendency may direct the party who filed the notice “ to pay any costs and expenses occasioned by the filing and cancellation, in addition to any costs of the action." Id. 6514.1 Section 6515 provides that in all actions (except those seeking mortgage foreclosures, partition, or dower), a property owner may move to substitute a bond for the notice of pendency if “ adequate relief can be secured to the plaintiff." Id. 6515(1).

New York's notice of pendency has been described as an “ extraordinary privilege," Israelson v. Bradley, 308 N.Y. 511, 516, 127 N.E.2d 313, 315 (1955), and a “ unique provisional remedy," In re Sakow, 97 N.Y.2d at 441, 741 N.Y.S.2d 175, 767 N.E.2d at 670, principally because it may be filed without advance notice or prior judicial review, and does not depend upon a showing that the plaintiff is likely to prevail on the merits. See id. Accordingly, Article 65 is narrowly interpreted by New York courts, both as to its procedural requirements and as to its substantive application. See 5303 Realty Corp., 64 N.Y.2d at 320-21, 486 N.Y.S.2d 877, 476 N.E.2d at 281. The many uses of the notice are set forth in the margin.2 Although a court must uphold a notice of pendency if the underlying complaint sets forth a claim within the scope of C.P.L.R. 6501, the court may evaluate the claim's legal sufficiency and, if facially insufficient, the court should cancel the notice. See 13 Weinstein, New York Civil Practice: CPLR ¶ 6501.05, at 65-11; Gallagher Removal Serv., Inc. v. Duchnowski, 179 A.D.2d 622, 623, 578 N.Y.S.2d 584, 585 (1992) (cancelling notice of pendency based on an expired option to purchase property).

II

Jehed Diamond, Oscar Diaz and Joseph Betesh each brought an action challenging New York's notice of pendency statute principally on due process grounds. The Diamond and Betesh lawsuits were consolidated in the district court, and their appeal from the dismissal of the consolidated action was heard in tandem with the appeal from the dismissal of the Diaz action. Unless otherwise indicated, the following facts are taken from the three complaints and supporting documents, which we assume to be true in reviewing a Federal Rule of Civil Procedure 12(b)(6) dismissal.

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Reddington v. Staten Island Univ. Hosp., 511 F.3d 126, 128 (2d Cir.2007).

Diamond. Jehed Diamond and her husband together purchased a home in Delaware County, New York. Although title was in the husband's name, the couple intended to hold the property jointly as marital property pursuant to New York's domestic relations laws. In May 2002, Diamond learned that her husband had secretly dissipated marital assets to fuel a gambling addiction. Diamond immediately demanded that her husband yield title to the marital home, which was the only asset remaining from the marriage. On May 17, 2002, her husband conveyed the deed to Diamond, who was a bona fide purchaser for fair consideration.

Diamond contracted with a buyer for the property in July 2002. Around the same time, Diamond learned that her husband had obtained a series of personal loans from several individuals, including their neighbor Christopher Jones. On October 1, 2002, approximately six weeks before the scheduled closing, Jones filed a lawsuit and a notice of pendency in Delaware County pursuant to N.Y. C.P.L.R. 6501, alleging that over the prior year he had loaned $90,000 to Diamond's husband in reliance on his verbal promise to repay out...

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