SMI Industries, Inc. v. Lanard & Axilbund, Inc.

• Decision Date: 11 December 1979
• Docket Number: Civ. A. No. 79-830.
• Parties: SMI INDUSTRIES, INC. v. LANARD & AXILBUND, INC.
• Court: U.S. District Court — Eastern District of Pennsylvania

481 F. Supp. 459

SMI INDUSTRIES, INC. v. LANARD & AXILBUND, INC.

Civ. A. No. 79-830.

United States District Court, E. D. Pennsylvania.

December 11, 1979.

COPYRIGHT MATERIAL OMITTED

Paul R. Rosen, Edward M. Dunham, Jr., Philadelphia, Pa., for plaintiff.

Michael Minkin, Philadelphia, Pa., for defendant.

MEMORANDUM AND ORDER

DITTER, District Judge.

Lanard & Axilbund, Inc. (L & A) and the corporate predecessor of SMI Industries, Inc. (SMI) entered into a commercial lease. The lease was later assigned to SMI which used the rented area as a clothing factory. SMI defaulted in its rent, and L & A distrained and confessed judgment under the lease. A sheriff's levy and writ of possession were issued, but no distress sale was held. Plaintiff then filed a petition in state court to open the judgment. Although the petition was granted, levies, attachments, and executions remain intact under Pennsylvania law until the validity of the judgment is adjudicated and the judgment is stricken. Instead of proceeding with the state court hearing on the judgment's validity, SMI filed this suit in federal court seeking declaratory and injunctive relief. Plaintiff alleges that the distraint on plaintiff's equipment and goods is unconstitutional; the lockout and confessions of judgment violate due process; and the Pennsylvania law which leaves levies, attachments, and executions in effect after judgments upon which they are based have been opened is unconstitutional. SMI also prays for damages based on interference with its constitutional and contractual rights.

Presently before me is defendant's motion to dismiss the complaint for lack of subject matter jurisdiction and for failure to state a claim upon which relief can be granted.¹ For the reasons expressed in this memorandum, I will grant defendant's motion.

THE CONSTITUTIONALITY OF DISTRAINT — COUNT I

Count I of the complaint avers that the distraint of plaintiff's property, the value of which exceeds the rent arrearage, violates the due process clause of the fifth and fourteenth amendments. Plaintiff was behind in its rent when defendant without notice locked plaintiff out and took possession of the building which housed all of its inventory, equipment, furniture, fixtures, records, and other assets. Defendant then distrained upon plaintiff's goods by tacking a notice on the door of the premises. It is evident from the allegations of the complaint, viewed in the light most favorable to plaintiff, that the distraint involved only private parties; no sheriff or local official was needed to make or enforce the distraint and no distress sale was held. Defendant argues that under these circumstances no state action exists to vest jurisdiction in this court. I agree.

Sections 8(a) and 15 of the lease authorize the defendant-landlord to distrain upon the plaintiff-tenant's goods. This is a commercial lease and nowhere is unconscionability or inequality of bargaining power alleged. Consequently, the parties are bound by the clear contract language which allows the landlord the right to distrain for unpaid rent. A remedy devised by private parties and executed without the help of public officials does not constitute state action. It is "well-settled that the fourteenth amendment applies only to actions of the `States' and not to actions which are `private'." Gibbs v. Titelman, 502 F.2d 1107, 1110 (3d Cir.), cert. denied, 419 U.S. 1039, 95 S.Ct. 526, 42 L.Ed.2d 316 (1974).

State action can be categorized into cases: "(1) where state courts enforced an agreement affecting private parties; (2) where the state `significantly' involved itself with the private party; and (3) where there was a private performance of a government function." (footnote omitted) Magill v. Avonworth Baseball Conference, 516 F.2d 1328, 1331 (3d Cir. 1975).

In the instant case, the distraint merely consisted of the posting of a notice by a private party. Since no enforcement by state officials or courts was needed for this distraint notice, it does not fall within the first category of state action.

Similarly, the state has not "`significantly' involved itself with the private party." Defendant's possession of plaintiff's goods was not compelled or coerced by the state, nor was the defendant participating in a joint activity with the state. See Parks v. Mr. Ford, 556 F.2d 132 (3d Cir. 1977).<sup>2</sup> This second category of state action is typically found "when state officials in an extensively regulated industry participate and `put their weight' behind the challenged private act." Fitzgerald v. Mountain Laurel Racing, Inc., 607 F.2d 589, 600 n.15 (3d Cir. 1979).³ That is not the case here.

The third type of state action involves "the exercise by a private entity of powers traditionally exclusively reserved to the State" or "traditionally associated with sovereignty." Jackson v. Metropolitan Edison Co., 419 U.S. 345, 352-53, 95 S.Ct. 449, 454, 42 L.Ed.2d 477 (1975). Distraint was a remedy available to private parties under the common law.⁴ In Pennsylvania, the common law has been codified into Article III, Section 302 et seq. of the Pennsylvania Landlord and Tenant Act of 1951, 68 P.S. § 250.302 et seq.⁵

The Court of Appeals for the Third Circuit found the origin of a challenged activity important in determining whether the power is one "traditionally exclusively reserved to the State." Since distraint was a common law remedy long before the enactment of the Fourteenth Amendment, Pennsylvania's passage of the Landlord and Tenant Act was not a delegation to a private party of powers traditionally reserved to the sovereign. Rather, the Act merely regulates how those powers are to be used. See Parks v. Mr. Ford, supra 556 F.2d at 138-39.

The distraint procedure used in the instant case involved plaintiff's being deprived of its goods by the posting of a notice. No sale was attempted. This case is like others dealing with private remedies which courts have repeatedly held do not involve state action. For example, the Third Circuit found that self-help repossession of automobiles under the Uniform Commercial Code lacked state action, Gibbs v. Titelman, supra, and that the exercise of a common law garageman's lien did not involve state action. Parks v. Mr. Ford, supra.

Most recently, the Supreme Court in Flagg Brothers, Inc. v. Brooks, 436 U.S. 149, 98 S.Ct. 1729, 56 L.Ed.2d 185 (1978), ruled that a self-help provision of the Uniform Commercial Code authorizing the sale of goods detained in storage by a warehouseman because his bill was unpaid did not constitute state action. The Court did not rely on the distinction between common law and statutory origins found in Parks. Instead, the Court noted that in the commercial world, various remedies, such as a warehouseman's lien, have been developed as a means to settle disputes. Such matters are not traditionally a function of the sovereign and only the sovereign as is, for example, the conduct of an election. Flagg Brothers, supra, 98 S.Ct. at 1734-37. Similarly, the settlement of disputes between the commercial landlord and tenant traditionally has not been the exclusive province of the state. Parties to a commercial lease frequently bargain about its terms and may waive rights, such as distraint, which the law otherwise allows. They may avail themselves or agree not to avail themselves of a variety of statutory remedies (see for example those set forth in 68 P.S. §§ 250.306-307 and 250.311-313) when either party has been abused. Where historically there have been so many rights and remedies in such profuse variety, it can hardly be said that the defendant here has exercised a power which has always been the exclusive prerogative of the state.

Plaintiff alleges that the distraint provisions have been declared unconstitutional. I am aware of the fact that the constitutionality of Pennsylvania's distraint statute has been questioned in this district; however those cases involved a seizure by a public official, a circumstance not present in this case. See, e. g. Litton Business Systems, Inc. v. Paul L'Esperance, Inc., 387 F.Supp. 1265 (E.D.Pa.1975); Gross v. Fox, 349 F.Supp. 1164 (E.D.Pa.1972), vacated and remanded, 496 F.2d 1153 (3d Cir. 1974); Sellers v. Contino, 327 F.Supp. 230 (E.D.Pa. 1970); Santiago v. McElroy, 319 F.Supp. 284 (E.D.Pa.1970). In view of the fact that none of these cases have found state action in the mere posting of a distraint notice by a private party, absent any subsequent seizure by a state official, I will follow the suggested policy of the Court of Appeals for the Third Circuit in Gross v. Fox, 496 F.2d 1153 (3d Cir. 1974): "Courts generally try to avoid reaching constitutional issues, especially where, as here, a federal court is asked to pass on a state statute, and the question is not free from doubt."

Id. at 1154. In Gross, the court vacated the three-judge court's pronouncement that the Pennsylvania distraint statute was unconstitutional per se.

Paragraph 27(b) of the complaint alleges that the Pennsylvania distraint procedures are unconstitutional citing Litton Business Systems, supra. That case relied upon Stots v. Media Real Estate Co., 355 F.Supp. 240 (E.D.Pa.1973), which was based upon the lower court decision in Gross. The Third Circuit's subsequently vacating this opinion in Gross casts serious doubt on plaintiff's assertion that the distraint statute is unconstitutional on its face. Furthermore, the Supreme Court's restrictive view of state action as expressed in Flagg Brothers may change this Circuit's view of distraint.

CONSTITUTIONALITY OF THE CONFESSED JUDGMENT — COUNT II

The commercial lease between L & A and SMI's corporate predecessor contains a confession of judgment clause for failure to pay rent. When SMI defaulted in its rent, L & A filed a complaint in confession of judgment pursuant to Rule 2951(b) of the Pennsylvania Rules of Civil Procedure. The prothonotary entered judgment based on the warrant of...