Augustin v. City of Phila.

• Decision Date: 18 July 2018
• Docket Number: No. 17-1216,17-1216
• Parties: Lea AUGUSTIN; Gerard Augustin; Thomas McSorley; Donna McSorley; Richmond Waterfront Industrial Park, LLC v. CITY OF PHILADELPHIA, Appellant
• Court: U.S. Court of Appeals — Third Circuit

897 F.3d 142

Lea AUGUSTIN; Gerard Augustin; Thomas McSorley; Donna McSorley; Richmond Waterfront Industrial Park, LLC

v.CITY OF PHILADELPHIA, Appellant

No. 17-1216

United States Court of Appeals, Third Circuit.

Argued November 8, 2017

Filed: July 18, 2018

Craig R. Gottlieb [Argued], City of Philadelphia Law Department, 1515 Arch Street, 17th Floor, Philadelphia, PA 19102, John C. Connell, Archer & Greiner, One Centennial Square, 33 East Euclid Avenue, Haddonfield, NJ 08033, Jeffrey M. Scott, Archer & Greiner, Three Logan Square, 1717 Arch Street, Suite 3500, Philadelphia, PA 19103, Counsel for Appellant

Irv Ackelsberg [Argued], Edward Diver, John J. Grogan, Peter E. Leckman, Langer Grogan & Diver, The Bell Atlantic Tower, 1717 Arch Street, Suite 4130, Philadelphia, PA 19103, Seth F. Kreimer, University of Pennsylvania School of Law, 3400 Chestnut Street, Philadelphia, PA 19104, Counsel for Appellees

Before: SMITH, Chief Judge, HARDIMAN, Circuit Judge, and BRANN, District Judge.^*

OPINION OF THE COURT

HARDIMAN, Circuit Judge.

This case involves a group of landlords who object to the system of liens used by the City of Philadelphia to collect unpaid gas bills. The District Court certified a class and held that the City had violated the landlords’ rights under the Due Process Clause of the Fourteenth Amendment. The City filed this appeal, arguing that its procedures for collecting gas debts are constitutional. We agree with the City, so we will reverse the District Court’s summary judgment in favor of the landlords.

I

Before evaluating the City’s various arguments on appeal, we begin by describing Pennsylvania’s municipal lien system. We then discuss how the City ensures it is paid for gas service and the effect its methods have on the Plaintiffs and the class of landlords they seek to represent. We conclude these preliminaries with a review of the procedural history of the case.

A

Municipal liens in Pennsylvania are created and enforced in three steps as set out in the Pennsylvania Municipal Claim and Tax Lien Law (the Lien Law), 53 Pa. Stat. Ann. §§ 7101 – 7455. First, a lien is automatically created when a municipality acquires a claim against a property, since the Lien Law "declare[s]" that all such claims are "to be a lien on said property" with "priority to ... the proceeds of any judicial sale." 53 Pa. Stat. Ann. § 7106(a)(1). Such liens arise by operation of law, City of Philadelphia v. Manu , 76 A.3d 601, 604 (Pa. Commw. Ct. 2013), and "without any form of hearing," when a municipal claim is "lawfully ... assessed," Shapiro v. Center Township , 159 Pa.Cmwlth. 82, 632 A.2d 994, 997 (1993).

Second, the municipality perfects the lien by filing it with the appropriate local court, 53 Pa. Stat. Ann. § 7143, where it is publicly docketed by the Prothonotary, id. § 7106(b). Until filed, a municipal lien may not be enforced through a judicial sale of the property. See id. §§ 7185, 7282, 7283(a). The statute does not require municipalities to provide either notice or a hearing before filing a lien. City of Philadelphia v. Perfetti , 119 A.3d 396, 400 (Pa. Commw. Ct. 2015). Municipalities can delay filing a lien indefinitely, id. , but the lien is not enforceable against subsequent purchasers of the property until filed, 53 Pa. Stat. Ann. § 7432, and the failure to file a lien within 20 years after the claim accrues deprives the lien of priority over other encumbrances, see id. §§ 7183, 7432.

Third, the Lien Law establishes post-filing procedures for judicial sales. A municipality has two options if it wants to sell a property to satisfy a gas lien: (1) it can petition the court where the lien was filed for a rule requiring interested parties to show cause why the property should not be sold, id. § 7283(a), or (2) it may sue on the claim by a writ of scire facias , id. § 7185. Scire facias is meant to "warn the owner of the existence of a claim so that the owner may make any defenses known and show why the property should not be under judicial subjection of a municipal lien." North Coventry Township v. Tripodi , 64 A.3d 1128, 1133 (Pa. Commw. Ct. 2013). At the close of a scire facias proceeding, the municipality may obtain a judgment in rem and sell the property to satisfy it. See 53 Pa. Stat. Ann. §§ 7274, 7279, 7281.

Although a municipality may enforce a lien only after it is filed, the Lien Law empowers property owners to request a hearing on the legality of a lien at any time. There are two ways to get a hearing. First, a property owner may discharge the lien by paying the amount of the underlying claim into court and filing a petition setting out defenses. Id. § 7182. A jury then decides whether the municipality or the property owner is entitled to the deposited funds. Id. ; see also City of Philadelphia v. Merz , 28 Pa. Super. 227, 228 (1905) (citation omitted). Second, after a claim is filed, a property owner may serve the municipality with a notice to issue a writ of scire facias . If the municipality does not commence scire facias proceedings within fifteen days after receiving the notice, its lien is voidable and the property owner may move to strike it. 53 Pa. Stat. Ann. § 7184.

B

The City distributes natural gas to its residents through Philadelphia Gas Works (PGW or, for the sake of variety, the utility), a public utility owned by the City. As a "city natural gas distribution operation," PGW is "entitled to ... assess ... and file as liens of record [municipal] claims for unpaid natural gas distribution service" under the Lien Law. 66 Pa. Cons. Stat. § 1414(a).

The cornerstone of PGW’s lien operations is the "Lien Management System" (the System), which relies on computers to automatically file real-estate liens. The System scans PGW’s billing database for accounts that, according to the utility’s criteria, are "lien eligible." At least seven different criteria—termed "lien models"—may apply based on whether a property is commercial or residential, among other factors. A property will become lien eligible when it accumulates a large enough arrearage and has been delinquent for a long enough time, with "large enough" and "long enough" varying based on which model applies. For example, a typical residential account becomes lien eligible "once an arrearage reaches $300 and more than 91 days have elapsed since the last payment was made." Augustin v. City of Philadelphia , 2017 WL 56211, at *3 (E.D. Pa. Jan. 5, 2017).

In theory, once the System identifies an account as lien eligible, a pre-filing notification letter is sent to the property owner. Pre-filing notices do not contain much information. Pennsylvania’s Public Utility Code prohibits PGW from disclosing certain confidential information, and the utility generally refuses to tell landlords either the identity of the tenant whose delinquency led to the lien or when the debt accrued. The notices in the record state only the amount of money owed and a deadline for payment. Prior to November 2012, pre-filing notices afforded property owners 11 days to pay; today they afford 30 days. If that time passes without full payment, the System automatically files the lien with the Prothonotary, who dockets it. The System then sends a post-lien notice alerting the property owner that a lien has in fact been recorded.

In practice, however, the utility frequently interrupts the System’s otherwise-automatic process by making certain manual adjustments. These adjustments are grouped into two categories—"blockers" and "exceptions." If the System encounters a blocker or an exception, it won’t send notice and file a lien on its own. In those cases, notice and filing proceeds only if workers manually override the adjustment.

PGW’s procedures for addressing accounts that are subject to a blocker or exception, but are otherwise lien eligible, do not prevent arrearages from continuing to grow. Nor do they prevent a delinquent customer from continuing to receive service. Rather, they operate only to prevent the lien securing the delinquency from being filed with the Prothonotary. "Debt often accumulates over many years" as delinquent customers continue to use gas. Augustin , 2017 WL 56211, at *5. And unless they "are specifically authorized ... or are a third-party designee on the account," landlords are not apprised of those growing arrearages. Id.

Two blockers that play a significant role in this case are "name mismatches" and "address mismatches." If the name/address combination associated with a gas account does not match the City’s property tax records, the System will not automatically file a lien on the delinquent account. These "mismatch liens" often arise when a tenant maintains her own gas-service account. Nevertheless, at the time of the District Court’s decision "less than 50% of the mismatch liens on record at PGW [were] attributable to a landlord-tenant situation." Id. at *9. Thousands of mismatch liens are filed every year, and "it is not uncommon for this blocker to delay the pre-lien notices from being sent for years, all while the account arrearages continue to grow." Id at *4.

Unsurprisingly, property owners regularly contact PGW to ask how they may challenge a lien. When that happens, the owner is often told to "file a complaint with the Pennsylvania Public Utility Commission (‘PUC’), ... [which] has repeatedly taken the position that it has no jurisdiction to act in matters which arise under the [Lien Law]." Augustin v. City of Philadelphia , 171 F.Supp.3d 404, 414 (E.D. Pa. 2016). The record shows that the utility knew this and took advantage of it by continuing to steer customers in the PUC’s direction in spite of the fact that the PUC declined jurisdiction over such complaints. Indeed, when two of the named Plaintiffs here filed complaints with the PUC, PGW immediately turned around and successfully challenged the agency’s jurisdiction.

C

The landlords complain that the City’s lien procedures violate their due process rights. There are five named plaintiffs—two pairs of...