Headsup Penny, Inc. v. City of Newburgh

Background

Headsup Penny, Inc. sued the City of Newburgh and Wayne Vradenburgh under 42 U.S.C. § 1983, a federal law that allows claims against people acting under state law for violations of federal rights. Headsup Penny alleged that City Code provisions governing water-service termination violated the Fourteenth Amendment’s due-process and equal-protection protections.

Headsup Penny was a commercial tenant at property containing two warehouses. Domestic wells supplied water for drinking, sinks, and toilets, while City water supplied the warehouses’ fire-suppression systems. The City had previously sued Headsup Penny over unpaid water charges; that dispute was settled after Headsup Penny paid $23,518.88, and the City gave it a general release. In July 2021, the City posted notices stating that it intended to discontinue water service because of unpaid bills and alleged code violations. Headsup Penny paid the identified arrears, but the City later shut off the service because, according to a City letter, it had found deficiencies in the property’s water-supply systems that threatened the City’s water system.

Headsup Penny brought a state court proceeding seeking restoration of water service and a hearing. The state trial court dismissed that proceeding after finding that Headsup Penny lacked standing to request a hearing before termination. Headsup Penny appealed and sought additional relief, but the Appellate Division denied injunctive relief while the appeal was pending. The City again shut off the water on April 11, 2022, making the fire-suppression system inoperable. Headsup Penny hired fire-watch services and then asked this federal court for a preliminary and temporary restraining order requiring the City to keep the water service on while the federal case proceeded.

Legal standard

A preliminary injunction or temporary restraining order is an extraordinary remedy. The requesting party must show likely irreparable harm—harm that is actual and imminent and cannot be adequately repaired later—and either a likelihood of success on the merits or serious legal questions that warrant litigation together with a decisive balance of hardships in its favor.

Due process

Headsup Penny argued that it had a constitutionally protected property interest in the water service because it was the actual user, had an implied contract with the City, and was protected by the City Charter.

The court rejected the actual-user theory. The decisions Headsup Penny cited involved residential tenants, while Headsup Penny was a commercial tenant using City water only for fire suppression. The court also stated that the City was not required by state law to provide water service to tenants outside the City’s limits.

The court rejected the implied-contract theory because Headsup Penny did not have a direct contract with the City. The landlord had contracted with the City for water service, while Headsup Penny had a separate agreement with the landlord requiring it to pay for those services. The court also stated that Headsup Penny had not shown that it was an intended third-party beneficiary of the landlord’s agreement with the City.

Finally, the court rejected the City Charter theory. Although the Charter used the word “consumer,” the City Code specifically defined that term to include the party contracting for service, the owner, or the owner’s legally appointed agent. The court was not persuaded that the Charter’s use of “consumer” expanded the City Code’s definition. The court therefore held that Headsup Penny had not shown a property interest in water service for its fire-suppression system and was not likely to succeed on its due-process claims.

Equal protection

Headsup Penny argued that the City Code unlawfully treated landlords differently from commercial tenants and residential occupants differently from commercial occupants. Because these classifications did not involve a fundamental right or a legally recognized suspect class, the court applied rational-basis review, which generally upholds a classification if it has any rational connection to a legitimate government purpose.

The court held that Headsup Penny had not met its burden of showing that there was no rational basis for the City Code’s distinctions. It therefore concluded that Headsup Penny did not have a high likelihood of success on its equal-protection claims.

Irreparable harm

Headsup Penny argued that the inoperable fire-suppression system created a present danger to warehouse subtenants and their employees and could lead to irreplaceable property damage if a fire occurred. The court held that the possibility of a fire was not enough to establish likely irreparable harm.

Headsup Penny also argued that its insurance policy required a fully operational sprinkler system and that losing coverage could place it in default under its lease. The court found that Headsup Penny showed only the possibility of losing insurance coverage or facing lease problems, not actual and imminent harm. It held that Headsup Penny therefore had not established irreparable harm.

Disposition

The court denied Headsup Penny’s motion for a preliminary and temporary restraining order. The Clerk was directed to terminate the motion at ECF No. 15. The opinion does not state that the underlying lawsuit was dismissed.