Dorce v. City of N.Y.

• Decision Date: 23 June 2021
• Docket Number: Docket No. 20-1809-cv,August Term, 2020
• Citation: 2 F.4th 82
• Parties: McConnell DORCE, individually and on behalf of all others similarly situated, Cecilia Jones, individually and on behalf of all others similarly situated, Sherlivia Thomas-Murchison, individually and on behalf of all others similarly situated, Plaintiffs-Appellants, v. CITY OF NEW YORK, Neighborhood Restore Housing Development Fund Co. Inc., Bsdc Kings Covenant Housing Development Fund Company, Inc., Maria Torres-springer, Commissioner of the New York City Department of Housing Preservation and Development, Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

2 F.4th 82

McConnell DORCE, individually and on behalf of all others similarly situated, Cecilia Jones, individually and on behalf of all others similarly situated, Sherlivia Thomas-Murchison, individually and on behalf of all others similarly situated, Plaintiffs-Appellants,

v.CITY OF NEW YORK, Neighborhood Restore Housing Development Fund Co. Inc., Bsdc Kings Covenant Housing Development Fund Company, Inc., Maria Torres-springer, Commissioner of the New York City Department of Housing Preservation and Development, Defendants-Appellees.^*

Docket No. 20-1809-cv

August Term, 2020

United States Court of Appeals, Second Circuit.

Argued: January 27, 2021

Decided: June 23, 2021

Douglas Hallward-Driemeier, Ropes & Gray LLP, Washington, DC (Keith H. Wofford, Gregg L. Weiner, Alexander B. Simkin, New York, NY, on the brief),for Plaintiffs-Appellants McConnell Dorce and Sherlivia Thomas-Murchison.

Robert J. Valli, Jr., Matthew Berman, Valli Kane & Vagnini, Garden City, NY, for Plaintiffs-Appellants McConnell Dorce, Cecilia Jones, and Sherlivia Thomas-Murchison.

Melanie T. West, Assistant Corporation Counsel (Richard Dearing, Kate Fletcher, Kevin Osowski, Of Counsel, on the brief), for James E. Johnson, Corporation Counsel of New York, NY, for Defendants-Appellees City of New York and Maria Torres-Springer, Commissioner of the New York City Department of Housing Preservation and Development.

Brian J. Markowitz, Goldstein Hall PLLC, New York, NY, for Defendants-Appellees Neighborhood Restore Housing Development Fund Co. Inc. and BSDC Kings Covenant Housing Development Fund Company, Inc.

Mahogane D. Reed, NAACP Legal Defense and Educational Fund, Inc., Washington, DC (Coty Montag, Washington, DC, Samuel Spital, Rachel M. Kleinman, Kristen A. Johnson, New York, NY, on the brief), for Amicus Curiae NAACP Legal Defense and Educational Fund, Inc.

Christina M. Martin, Kathryn D. Valois, Pacific Legal Foundation, Palm Beach Gardens, FL, for Amicus Curiae Pacific Legal Foundation.

Before: Livingston, Chief Judge, Cabranes and Lynch, Circuit Judges.

Gerard E. Lynch, Circuit Judge:

New York City's Third Party Transfer ("TPT") Program authorizes the City to foreclose on properties with overdue taxes and transfer ownership of those properties free of charge to designated partners, who develop and manage the properties. The property rights of the original owners are extinguished, and there is no mechanism for them to receive compensation for any value of their property in excess of their tax liability once the transfer is complete.

Plaintiffs-Appellants McConnell Dorce, Cecilia Jones and Sherlivia Thomas-Murchison, former property-owners whose properties were transferred via the program, allege that under current practices the TPT Program operates to transfer properties to chosen partners to advance housing policy goals and to reward political allies, even when the properties are not distressed and owe relatively little in taxes compared to the value of the property. They further allege that the program violates their Fifth and Fourteenth Amendment rights because the program effects an unconstitutional taking without just compensation; the properties selected for the program are located primarily in communities of color,¹ denying property owners in those communities equal protection; and properties transferred through the program are foreclosed on without affording the owners notice and due process. They assert claims against Defendants-Appellees New York City and Maria Torres-Springer, Commissioner of the Department of Housing Preservation and Development ("HPD") (collectively, the "City Defendants"), who operate the program, and the third-party partners who received title to their properties through the program, Neighborhood Restore Housing Development Fund Co. Inc. ("Neighborhood Restore") and BSDC Kings Covenant Housing Development Fund Company ("Bridge Street") (collectively, "the Transferee Defendants," and collectively with the City Defendants, "Defendants"). The District Court for the Southern District of New York (John G. Koeltl, J .) dismissed the complaint for lack of subject matter jurisdiction, concluding that a number of claims were barred by the Rooker - Feldman doctrine, that Plaintiffs lacked standing to seek prospective injunctive and declaratory relief, and that all of the claims were barred by the Tax Injunction Act ("TIA"), 28 U.S.C. § 1341, and the doctrine of comity.

This appeal requires us to decide whether the district court has subject matter jurisdiction over any of Plaintiffs’ claims. We conclude that, as to some of their claims, it does. While we affirm the district court's conclusion that Plaintiffs lack standing to seek prospective injunctive and declaratory relief, we reverse its conclusion that the TIA and comity bar their claims for monetary compensation. We further conclude that only some of Plaintiffs’ claims are barred by the Rooker - Feldman doctrine. As explained in detail below, we remand the case so that the surviving claims may proceed.

BACKGROUND²

I. The City's Third Party Transfer Program

The TPT Program was enacted in 1996 by Local Law 37 and is based on state law granting the City in rem foreclosure authority over tax-delinquent properties. Under state law, unpaid property taxes become tax liens, on which tax districts – such as New York City – may collect via in rem foreclosure. See N.Y. Real Prop. Tax Law § 1120. New York City has exercised that authority by enacting in rem foreclosure provisions allowing the City to collect tax liens. Prior to the passage of Local Law 37, the City often managed foreclosed buildings directly.³ However, a rise in the number of distressed buildings in the 1970s and 1980s rendered direct management prohibitively expensive. The City developed the TPT Program to shift the costs and challenges of management and rehabilitation of the buildings to private parties. The intent of Local Law 37, according to testimony given by the then-Commissioner of HPD before the New York City Council at the time the law was passed, was to "improve tax collection and to more effectively address the risk of abandonment of New York City's housing stock." J.A. 21 (internal quotation marks and emphasis omitted).

Local Law 37 was implemented through the City's Administrative Code. Today, the City includes in the program both properties that meet the statutory definition of "distressed" – a property with a lien to value ratio of fifteen percent or more, and either an average of five serious housing violations per dwelling unit or $1000 or more in emergency repair liens⁴ – and properties that are located near distressed properties and are tax-delinquent but not distressed. The City contends that the Administrative Code requires it to identify a list of all tax-delinquent properties in a geographic area when commencing an in rem foreclosure proceeding pursuant to the TPT Program whether or not those properties meet the statutory definition of distressed, and therefore that some properties subject to the program are tax-delinquent but not distressed. City Appellees’ Br. 9, citing N.Y.C. Admin Code § 11-405(a).⁵ Accordingly, the City contends that it has the authority to foreclose on all (1) non-cooperative and non-condominium residential properties with a tax lien outstanding for at least one year, and (2) cooperative and condominium properties with a tax lien outstanding for at least three years, regardless of whether those properties are distressed. Id. , citing N.Y.C. Admin. Code § 11-404. According to Plaintiffs’ brief, more than half of the properties selected in the most recent round of TPT Program foreclosures were not distressed and had an average tax lien to value ratio of only three percent (as opposed to fifteen percent or more for distressed properties).

Plaintiffs argue that the City's practice of commencing in rem foreclosure proceedings against properties that do not meet the statutory definition of distressed is contrary to the requirements of the Administrative Code and exceeds the City's authority under state law. They argue that a property must meet the statutory definition of distressed, and that the City must follow the "[p]rocedures for distressed property" in § 11-404.1, before it can initiate a foreclosure action under § 11-404. Appellants’ Br. 11-12; J.A. 27-28, citing N.Y.C. Admin. Code §§ 11-401(4), 11-401.1, and 11-404(a).

Once a list of properties has been identified for foreclosure, the Administrative Code requires that the City provide notice of the pending foreclosure to interested parties by: (1) publishing a notice of foreclosure in the City Record and two newspapers; (2) mailing notice to those owners and other interested parties who have requested notice and specified an address, or to the name and address, if any, listed on the latest annual record of assessed valuations; and (3) posting a notice at the Commissioner of Finance's office and in other locations. N.Y.C. Admin. Code § 11-406. Owners and interested parties then have an opportunity to redeem the property by paying delinquent taxes or establishing a payment plan, up until preparation of the judgment of foreclosure has commenced. Id. § 11-407(a)-(c).

Once the proceeding has commenced, the Administrative Code provides that an interested party can assert defenses to foreclosure, or assert that it has substantial equity in the property over the value of the lien and demand that the property be sold with any surplus value paid to the interested party. Id. § 11-409(a)-(b), (d). If the property is not redeemed and no answer is asserted, the court must enter a final judgment of foreclosure. Id. § 11-412. After judgment has been entered, a four-month period commences in which an interested party may redeem the property by paying the taxes owed or entering an installment plan. Id. § 11-412.1(d). After the four months have passed, and within eight months of entry of judgment, "the commissioner of finance [may] prep...