Greater Chautauqua Federal Credit Union v. Quattrone

Background

New York’s Fair Consumer Judgment Interest Act reduced the default interest rate on state-court judgments involving consumer debts from nine percent to two percent. The law applied both to future interest and retroactively to unpaid interest that had accrued before April 30, 2022. It did not change the principal amounts of the judgments or affect amounts already paid before that date.

The three plaintiff credit unions alleged that they held hundreds of consumer judgments, with approximately $3.8 million owed as of April 21, 2022, including about $1.28 million in accrued interest. They claimed that the retroactive reduction deprived them of property without just compensation and violated substantive due process. They brought those claims under 42 U.S.C. § 1983, a statute that provides a way to seek relief for violations of federal rights by state actors.

The court had previously entered a preliminary injunction involving the county sheriffs. The Western New York Law Center and Bartel Miller later moved to intervene to seek a narrower injunction. Judge Marks, Attorney General Letitia James, and the sheriff defendants separately pursued dismissal motions.

Intervention

The court held that the proposed intervenors did not need to independently prove constitutional standing because they sought to participate as defendants and asked only to modify the existing preliminary injunction, rather than seeking a separate judgment, damages, or injunction.

The court nevertheless denied intervention. The proposed intervenors waited until after the preliminary injunction had been entered and filed their motion one day after the 28-day deadline for seeking to alter or amend that order. The court found that they had reasonable notice of the proceedings, that their delay would prejudice the plaintiffs by requiring already-decided issues to be litigated again, and that other parties adequately shared their interest in defending the Act.

Subject-Matter Jurisdiction and Proper Defendants

The court granted Judge Marks’s motion to dismiss. Under the exception allowing suits for prospective relief against officials who have a connection to enforcing allegedly unconstitutional laws, the official must have authority and a demonstrated willingness to enforce the challenged law. The court found that Judge Marks had no responsibility or authority to implement or enforce the Act and that the plaintiffs had not shown that their alleged injury was traceable to him or could be remedied by an order against him. The action against him was therefore dismissed.

The court rejected the Attorney General’s argument that she was not a proper defendant. New York law gave her authority to enforce debt-collection statutes, including by suing creditors who violated the Act. The court also found evidence of her willingness to enforce the law, including her public enforcement activity and her motion to defend the Act. The Attorney General therefore fell within the exception to state sovereign immunity and remained a proper party.

Takings Claim

The court allowed the plaintiffs’ takings claim to proceed. It first held that the plaintiffs plausibly alleged a protected property interest in accrued but uncollected post-judgment interest because, under New York law, interest is connected to and becomes part of the judgment.

The court rejected a categorical regulatory-taking theory because the retroactive reduction did not completely eliminate the economic value of the plaintiffs’ judgments. It then applied the fact-specific test for a non-categorical regulatory taking, which considers the economic impact, interference with reasonable investment-backed expectations, and character of the government action.

Although the economic-impact factor did not favor the plaintiffs because the Act did not cause a near-total loss, the court found that the plaintiffs plausibly alleged reasonable reliance on the nine-percent rate when making lending and enforcement decisions. The court also found that the retroactive reduction, which could require the return of some collected but not yet remitted funds, made the government action resemble a physical invasion of property. Considering the circumstances as a whole, the court concluded that the plaintiffs plausibly alleged a taking without just compensation. The court emphasized that its ruling concerned only the Act’s retroactive effect on accrued interest, not its prospective reduction of the rate.

Due-Process Claim

The court dismissed the substantive due-process claim. It reasoned first that the claim substantially duplicated the takings claim. It also held that the Legislature had a rational purpose for changing the interest rate: addressing the hardship caused by a statutory rate that had become disconnected from market rates and had been further affected by the COVID-19 pandemic. The court concluded that the retroactive application was not arbitrary, conscience-shocking, or oppressive under the governing standard.

Disposition

The court denied the Western New York Law Center and Bartel Miller’s motion to intervene. It granted Judge Marks’s motion to dismiss. It granted in part and denied in part the Attorney General’s motion to dismiss, joined by the sheriff defendants. The court also denied the Attorney General’s request for oral argument. The takings claim continued, while the due-process claim and the claims against Judge Marks did not.