Bond v. Dentzer

• Decision Date: 13 March 1974
• Docket Number: Docket 73-2377.,No. 609,609
• Citation: 494 F.2d 302
• Parties: Dorcas BOND and Barbara Baldwin, Plaintiffs-Appellees, v. William H. DENTZER, Individually and as Superintendent of the Banking Department of the State of New York, Defendant-Appellee, Beneficial Finance Company of New York, Inc., and Protective Loan Corporation, Defendants-Appellants.
• Court: U.S. Court of Appeals — Second Circuit

494 F.2d 302 (1974)

Dorcas BOND and Barbara Baldwin, Plaintiffs-Appellees, v. William H. DENTZER, Individually and as Superintendent of the Banking Department of the State of New York, Defendant-Appellee Beneficial Finance Company of New York, Inc., and Protective Loan Corporation, Defendants-Appellants.

No. 609, Docket 73-2377.

United States Court of Appeals, Second Circuit.

Argued December 10, 1973.

Decided March 13, 1974.

COPYRIGHT MATERIAL OMITTED

Philip G. Schrag, New York City (Joel F. Spitzer, The Legal Aid Society of Albany, Inc., Albany, N.Y., of counsel), for plaintiffs-appellees.

John T. DeGraff, Albany, N.Y. (William H. Allen, Eugene D. Gulland, Washington, D. C., for Beneficial Finance Co. of New York, Inc.; Harvey M. Lifset, Albany, N.Y., for Protective Loan Corp., on the brief) (DeGraff, Foy, Conway & Holt-Harris; Albany, N. Y., Covington & Burling, Washington, D. C., of counsel), for defendants-appellants.

Jack Greenberg and Eric Schnapper, NAACP Legal Defense & Education Fund, Inc., New York City, for amicus curiae.

Bernstein, Seawell, Kaplan & Block, New York City (Frederick H. Block, Harvey N. Goldstein, New York City, of counsel), for Household Finance Corp., amicus curiae.

Before KAUFMAN, Chief Judge, MANSFIELD and MULLIGAN, Circuit Judges.

MULLIGAN, Circuit Judge:

On October 12, 1970, the plaintiffs brought an action in the United States District Court for the Northern District of New York against Beneficial Finance Company of New York, Inc. and Protective Loan Corporation, as well as the Superintendent of the Banking Department of the State of New York, seeking inter alia, a declaration that the N.Y. Personal Property Law Art. 3-A (McKinney's Consol.Laws, c. 41 1962), as amended, (McKinney Supp.1973), and the N.Y. Banking Law Art. 9 (McKinney's Consol.Laws, c. 2 1971) are unconstitutional. The corporate defendants are loan companies licensed by the Banking Department pursuant to Article 9 of the Banking Law, to engage in the business of making small loans.

The plaintiff Dorcas Bond executed a wage assignment as security for a loan of money from the defendant Beneficial. She used the money to purchase a washing machine from a third party. Since the machine proved defective, she decided that she was no longer bound to make loan repayments. On or about September 1, 1970, Beneficial determined that she was in default and a copy of her wage assignment was filed with her employer. The plaintiff claims that she received no prior notice of the creditor's intent to enforce the assignment. The employer took no action since Bond was no longer in its employ. Beneficial agreed not to seek enforcement of the assignment pending resolution of this suit.

The plaintiff Barbara Baldwin also executed an assignment of wages as security for a loan of money from the defendant Protective. On or about September 1, 1970, Protective determined that she was in default and caused a copy of the wage assignment to be served upon her employer. Baldwin makes the claim that she did not receive prior notice of the assignment and further claims that she has good and sufficient defenses, including fraud and deceit, to bar the enforcement of the assignment. Baldwin's employer did deduct 10 percent of her gross weekly income and paid it to Protective until November 2, 1970, when Protective agreed not to enforce the assignment pending a final judgment in this case.

In the action below, plaintiff moved for the convening of a three-judge court under 28 U.S.C. §§ 2281 & 2284, and also sought permission to prosecute the suit as a class action. On April 19, 1971, the Hon. James T. Foley, United States District Court Judge, Northern District of New York, in an opinion reported at 325 F.Supp. 1343, denied the motion for the convening of the three-judge court, finding that the Superintendent of Banking had no responsibility for the enforcement of Article 3-A of the Personal Property Law, which is the basic codification of the law of wage assignments in New York. He found no interrelationship between that statute and Article 9 of the Banking Law under which the corporate defendants were licensed. He also denied the request for class action status on the ground that there were numerous institutions using wage assignments in addition to the two named defendants, and also because there could be a wide factual variance in the claims of debtors. Plaintiffs then sought a writ of mandamus from this court to compel the district court to convene a three-judge court and to permit the case to proceed as a class action. This court denied the petition by order dated May 14, 1971. (Docket No. 71-1467).

On July 25, 1973, the district court granted the plaintiffs' motion for summary judgment and denied the defendants' motion to dismiss. 362 F.Supp. 1373. In addition to finding state action within the meaning of 28 U.S.C. § 1343 and 42 U.S.C. § 1983, the court determined that sections 46-49 of Article 3-A of the Personal Property Law were unconstitutional on their face and as applied insofar as they provided for execution against wages by service of a wage assignment upon an employer without meaningful notice to the assignor and without an opportunity for him to be heard. They were deemed to be violative of the Due Process Clause of the Fourteenth Amendment. Finding no state action, we reverse.

It is not and cannot be disputed that the Fourteenth Amendment applies only to action by the State and not to action which is private. The "action" found offensive below is the filing of the wage assignment by the defendants with the employers of the plaintiffs, which they claim gives creditors the power to unilaterally decide when a debt exists and default occurs, thus precluding the debtor from effectively and realistically challenging the determination before the creditor takes the wages. If this action is private, we need not reach the merits of the due process question.

Concededly, there is no participation here by any state officer or agent, which serves to distinguish this case from both Sniadach v. Family Finance Corp., 395 U.S. 337, 89 S.Ct. 1820, 23 L.Ed.2d 349 (1969) (ex parte issuance of a summons by a court clerk pursuant to a Wisconsin statute authorizing prejudgment wage garnishment), and Fuentes v. Shevin, 407 U.S. 67, 92 S.Ct. 1983, 32 L.Ed.2d 556 (1972) (replevin by summary writs issued by state courts and executed by state officials). The only state officer sought to be joined here, the Superintendent of Banks, was properly dismissed as a defendant by the court below in its order of April 19, 1971, since he plays no role whatever in the implementation of the wage assignment provisions of Article 3-A of the Personal Property Law.

The district court, however, found that "state action" could be bottomed on three principles which we will examine.

1) PARTNERSHIP

The court below, relying upon Burton v. Wilmington Parking Authority, 365 U.S. 715, 81 S.Ct. 856, 6 L.Ed.2d 45 (1961), found that state action exists here because the State has become a partner or a joint venturer with the creditor finance companies. In Burton, a restaurant, privately owned but open to the public, refused to serve a Negro only because of his color. The restaurant was located in a building owned by a state-created parking authority and leased from the authority. Aside from the offensiveness of the conduct involved, the State had provided the property where it occurred. This type of state participation is not present here. The loan companies are not the recipients of state aid by grant or loan and their facilities are privately owned. The "entwinement" cases, of which Burton is the prototype, represent generally cases of direct government subsidization, by grant or loan, of otherwise private institutions. They represent factual patterns so much at variance with the facts in this case that any further discussion of them is not fruitful here.¹

The court below also found a partnership to exist, apparently on the basis of the state licensing regulation which, it opined, gives "private interests . . . such economic advantages that they become business partners with the state in the regulation." 362 F.Supp. at 1378. While the district court found no inconsistency between this view and Moose Lodge No. 107 v. Irvis, 407 U.S. 163, 92 S.Ct. 1965, 32 L.Ed.2d 627 (1972), our recent opinion in Wahba v. New York University, 492 F.2d 96, 100 (1974) indicates otherwise. Judge Friendly there noted:

The Court in Moose Lodge could not have meant the reference to partners or joint venturers to be satisfied with some commonalty of economic interests simpliciter, since as a comment has pointed out, The Supreme Court 1971 Term, 86 Harv.L.Rev. 1, 73-74 (1972), such interests existed in a substantial degree in that case itself. The lodge received from the state permission to operate a lucrative business and obtained a valuable property right in the liquor license itself; the state, operating a monopoly system, was provided with a distributor that produced substantial revenue.

The State here does not receive any revenue from the licensing of lenders, and the finance companies, in any event, do not enjoy any monopoly in the lending of money on the security of wage assignments. Banks, trust companies and credit unions are authorized to loan money on such security and in fact are not required to comply with all the restrictions on wage assignments imposed by Article 3-A of the Personal Property Law. See N.Y.Pers.Prop.Law § 49 (McKinney 1962). Judge Mansfield's decision in Seidenberg v. McSorleys' Old Ale House, Inc., 317 F. Supp. 593 (S.D.N.Y.1970), also relied upon below, dealt with a restaurant which engaged in discriminatory practices and was dispensing liquor to the public, a business which could only be conducted by obtaining a liquor license from the State and the control of which by the State was found to be pervasive. Moreover, the sale of liquor produced tax revenue...