Ford Motor Credit Co. v. Nyc Police Dept.

• Decision Date: 24 September 2007
• Docket Number: Docket No. 06-4600-cv(L).,Docket No. 06-4861-cv(XAP).
• Citation: 503 F.3d 186
• Parties: FORD MOTOR CREDIT CO., Plaintiff-Appellee-Cross-Appellant, v. NYC POLICE DEPARTMENT, Property Clerk, City of New York, Defendants-Appellants-Cross-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

503 F.3d 186

FORD MOTOR CREDIT CO., Plaintiff-Appellee-Cross-Appellant, v. NYC POLICE DEPARTMENT, Property Clerk, City of New York, Defendants-Appellants-Cross-Appellees.

Docket No. 06-4600-cv(L).

Docket No. 06-4861-cv(XAP).

United States Court of Appeals, Second Circuit.

Argued: February 12, 2007.

Decided: September 24, 2007.

Janet L. Zaleon, Assistant Corporation Counsel (Michael A. Cardozo, Corporation Counsel of the City of New York, Kristen M. Helmers, Sheryl R. Neufeld, of counsel, on the brief), New York, NY, for Defendants-Appellants-Cross-Appellees.

David L. Tillem and Kathleen Daly, Wilson, Elser, Moskowitz, Edelman & Dicker LLP, White Plains, NY, for Plaintiff-Appellee-Cross-Appellant.

Before: WALKER and HALL, Circuit Judges, and COTE, District Judge.^*

JOHN M. WALKER, JR., Circuit Judge:

The state has long had the power to forfeit property used for criminal purposes, but the power's pedigree does not excuse the City of New York's continued use of antiquated rules to govern its exercise. Where the federal government once sought to seize tax-delinquent distilleries without a hearing because its need for funds was urgent, Springer v. United States, 102 U.S. 586, 593-94, 26 L.Ed. 253 (1880), the City now seeks to preclude Ford Motor Credit Company ("Ford Motor Credit") from participating in forfeiture proceedings because the City is in no hurry. This it may not do. We therefore affirm the district court's considered judgment in all respects.

BACKGROUND

Defendant-Appellant City of New York¹ has authorized its police department to seize any motor vehicle that is "suspected of having been used as a means of committing crime or employed in aid or furtherance of crime," N.Y. City Admin. Code § 14-140(b), as the first step toward obtaining title to the vehicle through civil forfeiture, Krimstock v. Kelly (Krimstock I), 306 F.3d 40, 44 (2d Cir.2002). Shortly after the City seizes a vehicle, and after affording notice of the seizure to various interested parties, including in many cases the holder of a security interest in the vehicle, the vehicle's owner or driver is "given an opportunity to test the probable validity of the City's deprivation of [the] vehicle[]" pending adjudication of the City's forfeiture case. Krimstock I, 306 F.3d at 70. If the City also wishes to retain the vehicle as "arrest evidence" or "trial evidence" pending conclusion of a criminal proceeding, see 38 R.C.N.Y. § 12-31; Krimstock v. Kelly (Krimstock III),² 464 F.3d 246 (2d Cir.2006), it may do so, see Krimstock III, 464 F.3d at 255; N.Y. City Admin. Code § 14-140(g); 38 R.C.N.Y. § 12-36(a).

After what is now termed a "Krimstock" hearing, if the City can justify the continued retention of a seized vehicle, either because it is likely to prevail in the eventual forfeiture action or because it wishes to retain the vehicle as evidence against the owner or driver, it generally does not press further for forfeiture until the district attorney's office notifies the City that a criminal case against the vehicle's owner or driver will not be brought or has been concluded.³ 38 R.C.N.Y. § 12-35(d) (providing a method for obtaining a district attorney's release); cf. County of Nassau v. Canavan, 1 N.Y.3d 134, 770 N.Y.S.2d 277, 802 N.E.2d 616, 623 (2003) (discussing a similar Nassau County ordinance and noting that "the [forfeiture] action may not be finally resolved for many months or years, particularly because upon motion of . . . the County, the action must be stayed during the pendency of the underlying criminal case"). At that point, a "claimant" may demand a seized vehicle's return. See 38 R.C.N.Y. § 12-31. The "term `claimant' shall mean [only] the person from whose person or possession [the vehicle] . . . was taken or obtained." Id. If no "claimant" demands the vehicle's return within 120 days of the conclusion of the criminal case, "[t]he [vehicle] may be disposed of by the police property clerk" at his leisure. Id. § 12-32(e)(ii); cf. id. § 12-35(c) (providing that a demand is only "timely if made within 120 days after the termination of criminal proceedings").

If, on the other hand, a claimant demands the vehicle's return, the City must institute a forfeiture action within twenty-five days. Id. § 12-36(a).⁴ While only the vehicle's owner and/or driver is a claimant, see id. § 12-31, any party, including a lienholder, is "not [a] lawful claimant" if associated with criminal conduct involving use of the vehicle and thereby precluded from recovering the vehicle, see N.Y. City Admin. Code § 14-140(e) (one who "suffered [his vehicle] to be used" in committing a crime is not a lawful claimant); id. (one who "derives his or her claim in any manner" from someone who is not a lawful claimant is also not a lawful claimant); Krimstock I, 306 F.3d at 56 & nn. 16-17. The City must afford all claimants and "any other interested persons" notice of and an opportunity to be heard in the forfeiture proceeding. See 38 R.C.N.Y. § 12-36(b). However, only a "lawful claimant" is entitled to the return of a vehicle seized by the police.⁵

If the City can show by a preponderance of the evidence that it is entitled to forfeit the vehicle, see id.—because it is connected with criminal activity, thus precluding the existence of a "lawful claimant" to the vehicle—it may sell the vehicle at auction. If a third party has a security interest in the vehicle, the City will remit ninety percent of the auction proceeds to that party. Ford Motor Credit Co. v. N.Y. City Police Dep't, 394 F.Supp.2d 600, 604 (S.D.N.Y. 2005). However, in order to obtain these funds, that person must submit an "Auction Proceeds Claim Form" and execute a "General Release with Indemnification Agreement."⁶ Id.

The forfeiture process—from seizure to auction—takes considerable time. See id. at 613 ("In [some] instances, the Property Clerk held vehicles for extended periods of time without instituting forfeiture proceedings or selling vehicles as abandoned . . . ."); see also Prop. Clerk v. Duck Jae Lee, 183 Misc.2d 360, 702 N.Y.S.2d 792, 795 (2000). During that time, the value of a seized vehicle often decreases considerably. Cf. Krimstock I, 306 F.3d at 64 ("[L]oss is felt . . . [as] a vehicle . . . continues to depreciate in value as it stands idle in the police lot.").

Plaintiff-Appellee Ford Motor Credit levies a barrage of challenges to the rules governing forfeiture proceedings. Ford Motor Credit principally complains (1) that the City has refused to consider secured creditors as "claimants" (or their analogue)—although they are in many cases "not lawful claimants"—thus precluding them from triggering the City's duty to initiate a forfeiture action within twenty-five days and (2) that the City has refused to consider secured creditors as "interested persons" entitled to notice of and an opportunity to be heard in forfeiture proceedings. Citing Mathews v. Eldridge, 424 U.S. 319, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976), Ford Motor Credit argues that by refusing to permit it to expedite and participate in the forfeiture process, the City has deprived it of property without due process in violation of the Fourteenth Amendment. The District Court for the Southern District of New York (Sidney H. Stein, Judge) entered summary judgment in Ford Motor Credit's favor on these claims.⁷ It held that "(i) Ford Credit is entitled to notice and an opportunity to be heard in any forfeiture action commenced by the City concerning a vehicle in which Ford Credit holds a valid security interest; [and] (ii) the City must commence a forfeiture action within a reasonable time upon a demand for a seized vehicle from Ford Credit when Ford Credit holds a valid security interest in that vehicle." Ford Motor Credit, 394 F.Supp.2d at 620. The City appealed, and we now affirm.

ANALYSIS

I. Application of the Due Process Clause

In adjudicating due process claims, "we consider two distinct issues: 1) whether plaintiffs possess a liberty or property interest protected by the Due Process Clause; and, if so, 2) whether existing state procedures are constitutionally adequate." Kapps v. Wing, 404 F.3d 105, 112 (2d Cir.2005). The City relies on several state-court cases to argue that Ford Motor Credit lacks a property interest in a seized vehicle distinct from its interest in ninety percent of the proceeds from its eventual, post-forfeiture sale (supplemented, to be sure, by any deficiency judgment Ford Motor Credit may obtain against the vehicle's owner). See, e.g., Prop. Clerk v. Molomo, 81 N.Y.2d 936, 597 N.Y.S.2d 661, 613 N.E.2d 567, 567 (1993) ("Ford ha[s] no present possessory right in the vehicle, and its remedy . . . is to receive the proceeds from the City's forfeiture sale and to seek any deficiency against the debtor."); Prop. Clerk v. Foley, 282 A.D.2d 221, 724 N.Y.S.2d 580 (2001) (same); Prop. Clerk v. Aquino, 800 N.Y.S.2d 355 (2004).⁸ We disagree that Ford Motor Credit's only cognizable property interest is in a vehicle's sale proceeds. For the three reasons that follow, we conclude that Ford Motor Credit also has a property interest in the present value of a seized vehicle.

First, a security interest is indisputably a property interest protected by the Fourteenth Amendment. See, e.g., Mennonite Bd. of Missions v. Adams, 462 U.S. 791, 798, 103 S.Ct. 2706, 77 L.Ed.2d 180 (1983); United States v. 41741 Nat'l Trails Way, 989 F.2d 1089, 1092 (9th Cir. 1993); United States v. 1 St. A-1, 865 F.2d 427, 430 (1st Cir.1989). A secured creditor has two rights: the contractual right to repayment of the debt owed and the property right to the collateral that secures the debt in the event of non-payment. See Armstrong v. United States, 364 U.S. 40, 46, 80 S.Ct. 1563, 4 L.Ed.2d 1554 (1960). Thus, while Ford Motor Credit may (conceivably) protect its contractual right to repayment by seeking ninety percent of the proceeds from a vehicle's sale, the City's delays impair Ford Motor Credit's property right, which is in...