Dorce v. City of New York

Background

McConnell Dorce, Cecilia Jones, and Sherlivia Thomas-Murchison brought a proposed class action against the City of New York; Maria Torres-Springer, identified as Commissioner of the New York City Department of Housing Preservation and Development; Neighborhood Restore Housing Development Fund Co. Inc.; and BSDC Kings Covenant Housing Development Fund Company, Inc. The complaint also named Jacques Jiha and unidentified John and Jane Doe defendants, but the opinion states that Jiha was never served and the unidentified defendants were never identified.

The plaintiffs challenged New York City’s use of in rem tax-foreclosure proceedings and the Third Party Transfer Program. Under that program, after a foreclosure judgment, the City could transfer property ownership to authorized third-party organizations. The plaintiffs alleged that the City used the process against properties that were not distressed, transferred properties for nominal consideration, and deprived owners of substantial equity without compensation.

Dorce alleged that he owned a Brooklyn property and learned in 2018 that it had been transferred to a program partner after a foreclosure proceeding of which he was unaware. Jones and Thomas-Murchison alleged that they owned shares in housing development fund corporations and later learned that the corporations’ properties had been transferred to Bridge Street; each alleged that she was then treated as a renter. All three plaintiffs alleged that they lacked actual or constructive notice of the foreclosure proceedings, were denied an opportunity to redeem their properties, and received no compensation.

The plaintiffs asserted federal and state constitutional claims involving due process, takings, and equal protection. They also challenged the notice provisions of the City’s Administrative Code and asserted claims under New York’s Municipal Home Rule Law and General Business Law. They sought declaratory and injunctive relief and damages.

Motions and jurisdictional doctrines

The defendants moved under Federal Rule of Civil Procedure 12(b)(1) for dismissal for lack of subject-matter jurisdiction and under Rule 12(b)(6) for failure to state a claim. The City Defendants formally moved under Rule 12(b)(6), but also argued that the court lacked subject-matter jurisdiction; the court treated that jurisdictional argument under Rule 12(b)(1).

The court first considered jurisdiction. It applied the Rooker-Feldman doctrine, which prevents a federal district court from functioning as an appeal court reviewing a state-court judgment. The court held that the doctrine’s procedural requirements were met because the plaintiffs’ property interests had been affected by earlier state-court foreclosure judgments entered before this federal case began, even though the plaintiffs were not named parties in those state proceedings.

The court held that Rooker-Feldman barred claims seeking damages based on the value of property lost through the foreclosure judgments, as well as claims that would require the federal court to decide whether the foreclosure proceedings were properly initiated. The court held that claims seeking only nominal damages for denial of procedural protections were not barred by Rooker-Feldman because those alleged injuries arose from the City’s failure to provide notice rather than from the state judgments themselves.

The court also held that the takings claims based on the alleged failure to provide compensation were not barred by Rooker-Feldman because deciding whether the plaintiffs were entitled to compensation would not require rejecting the state foreclosure judgments. The court did not decide whether a taking had occurred. The court likewise held that the selective-enforcement equal-protection claims and the facial challenge to the notice provisions were not barred by Rooker-Feldman. However, it held that the plaintiffs lacked standing to seek prospective declaratory or injunctive relief because they had not alleged a sufficiently likely future foreclosure involving them.

Tax Injunction Act and comity

The court then held that all claims, including those not barred by Rooker-Feldman, were barred by the Tax Injunction Act and the related doctrine of comity. The Tax Injunction Act generally prevents federal courts from interfering with state tax assessment, collection, or enforcement when an adequate state-court remedy exists. Comity similarly counsels federal courts not to disrupt a state’s tax system and can bar damages claims challenging that system.

The court concluded that the City’s in rem foreclosure process was part of its tax-collection system, even if a transferred property was conveyed to a third-party program partner for nominal consideration and the partner did not pay the underlying tax lien. The court found that New York courts offered adequate remedies, including motions to vacate foreclosure judgments and actions to set aside deed transfers. Those state proceedings could also address constitutional challenges.

Because the court concluded that it lacked jurisdiction under the Tax Injunction Act and would not entertain the claims under comity, it declined to exercise supplemental jurisdiction over the New York-law claims. The court did not reach the defendants’ Rule 12(b)(6) arguments because it resolved the case on jurisdictional grounds.

Disposition

Judge John G. Koeltl granted the defendants’ motions to dismiss. The Clerk was directed to enter judgment dismissing the case without prejudice, close all pending motions, and close the case.