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CITY PTNRS. v. JAMAICA SAV. BANK

July 13, 1978

CITY PARTNERS, LTD. BMG, a Florida Limited Partnership, by its General Partner, City Equities Corp., a Florida Corporation, Plaintiff,
v.
JAMAICA SAVINGS BANK, Carol Management Company, Pasquale A. Simone, Louis J. Lefkowitz, as Attorney General of the State of New York, Adam A. Balzer and Ronald C. Spielberger, Defendants



The opinion of the court was delivered by: NICKERSON

MEMORANDUM AND ORDER

 NICKERSON, District Judge

 Plaintiff, a limited partnership, brought this action seeking damages and a declaratory judgment and alleging eleven causes of action said to arise out of events in connection with the bringing of a leasehold mortgage foreclosure action by defendant Jamaica Savings Bank ("the Bank"). Jurisdiction is allegedly based on 28 U.S.C. §§ 1331 (federal question), 1332 (diversity of citizenship), and 1343 (civil rights); 42 U.S.C. § 1983; and the Fifth and Fourteenth Amendment to the United States Constitution. Various defendants have moved pursuant to Rule 12(b)(6) and (1) of the Federal Rules of Civil Procedure to dismiss the causes of action either for failure to state a claim or for lack of subject matter jurisdiction.

 Plaintiff holds the tenant's interest in a ground lease of certain property in Queens, New York known as Heather Gardens. According to the complaint, Heather Gardens consists of four different apartment complexes. Plaintiff's leasehold interest in one of those complexes, Alley Apartments, is subject to a mortgage held by the Bank. The mortgage agreement, entered into by the Bank and plaintiff's predecessor in the leasehold interest, provided for acceleration by the Bank of the debt secured by the mortgage in the event of default, and further provided that in an action to foreclose the Bank would be entitled to appointment of a receiver.

 On October 31, 1977 the Bank commenced an action to foreclose on the mortgage in New York Supreme Court, Queens County. Plaintiff claims that it was not then in default. That same day one of the Bank's attorneys submitted ex parte an affirmation to the court alleging plaintiff's default and requesting appointment of a receiver. On November 2, 1977, Justice Joseph Calabretta appointed defendant Simone as receiver and authorized him to employ defendant Carol Management Co. ("Carol Management") to rent and collect rents of the mortgaged premises. Plaintiff claims that it received no notice of the Bank's application for a receiver, that Justice Calabretta's order made no provision for service upon plaintiff, and that plaintiff was never served with any process in the foreclosure action.

 Upon his appointment Simone retained the services of defendant Carol Management as agent. Plaintiff alleges that Simone and Carol Management have failed to confine their activities to the Alley Apartments and that they have entered other premises controlled by plaintiff not subject to the mortgage and ordered tenants of those premises to pay rent to them rather than to the plaintiff.

 After the filing of the instant motion the action was dismissed by stipulation as against defendants Lewis, Goldberg, Kaskel and Wentworth. The ninth cause of action was asserted solely against these four, and thus that cause of action is not before the court. Plaintiff's remaining ten claims seek the following relief: (1) a judgment declaring that the provisions of New York law authorizing ex parte applications for appointment or a receiver violate the Due Process clause of the Fourteenth Amendment; (2) damages pursuant to 42 U.S.C. § 1983 from the Bank for applying ex parte for the appointment of a receiver and for making false or inadequate assertions in support of that application; (3-6) damages from the Bank, Simone, and Carol Management for their alleged activities with respect to plaintiff's premises allegedly not subject to the mortgage; (7) damages from the Bank for breach of the mortgage agreement; (8) damages from defendants Balzer and Spielberger, officers and trustees of the Bank, for their alleged approval of commencement of the foreclosure action and for Spielberger's alleged failure to advise Simone and Carol Management of the limitations of their power with respect to plaintiff's other premises; (10) damages for an alleged conspiracy among all the defendants to deprive plaintiff of its rights; and (11) punitive damages.

 I

 Defendants urge the court to abstain from exercising jurisdiction over the claim for a declaratory judgment concerning the New York statutes authorizing ex parte appointment of a receiver.

 None of the agreements between plaintiff or its predecessor and the Bank explicitly authorizes it to make an ex parte application for appointment of a receiver. The agreements state only that the Bank "shall be entitled", in any action to foreclose, to the appointment of a receiver. However, § 254(10) of the New York Real Property Law recites that a covenant in a mortgage that the holder in any action to foreclose " 'shall be entitled to the appointment of a receiver,' must be construed as meaning" that the holder "shall be entitled, without notice and without regard to adequacy of any security of the debt, to the appointment" of a receiver.

 Defendants claim that by agreeing to a covenant providing for receivership the plaintiff had at least constructive notice of the applicability of § 254(10) and therefore waived notice of the motion for a receivership; alternatively, they claim that even absent such waiver the ex parte procedure established by § 254(10) is not unconstitutional.

 The judicially-created doctrine of abstention includes two parallel concepts addressed to different aspects of the relationship between the federal and state judiciary.

 
"The first, usually referred to as [Railroad Comm'n v.] Pullman [Co., 312 U.S. 496, 61 S. Ct. 643, 85 L. Ed. 971 (1941)] abstention, involves an inquiry focused on the possibility that the state courts may interpret a challenged state statute so as to eliminate or at least to alter materially, the constitutional question presented. The second type is Younger [v. Harris, 401 U.S. 37, 27 L. Ed. 2d 669, 91 S. Ct. 746 (1971)] abstention, in which the court is primarily concerned, in an equitable setting, with considerations of comity and federalism, both as they relate to the State's interest in pursuing an on-going state proceeding, and as they involve the ability of the state courts to consider federal constitutional claims in that context." Ohio Bureau of Employment Services v. Hodory, 431 U.S. 471, 477, 97 S. Ct. 1898, 1902-03, 52 L. Ed. 2d 513 (1977) (citations omitted).

 This court is of the opinion that Younger v. Harris, 401 U.S. 37, 27 L. Ed. 2d 669, 91 S. Ct. 746 (1971), should not apply in this case. There the Supreme Court reversed the order of a three-judge district court enjoining the District Attorney of Los Angeles County from prosecuting appellee Harris for violating California's Criminal Syndicalism Act, the district court having held the Act unconstitutionally vague and overbroad. The Supreme Court ruled that enjoining the pending criminal proceeding would offend

 
"the notion of 'comity', that is, a proper respect for state functions, a recognition of the fact that the entire country is made up of a Union of separate state governments, and a continuance of the belief that the National Government will fare best if the States and their institutions are left free to perform their separate functions in their separate ways. . . . . What the concept does represent is a system in which there is a sensitivity to the legitimate interests of both State and National Governments, and in which the National Government, anxious though it may be to vindicate and protect federal rights and federal interests, always endeavors to do so in ways that will not unduly interfere with the legitimate activities of the States." Id. at 44.

 The notions of federalism expressed in the Younger case have the effect of adding an extra dimension to "the two classic preconditions for the exercise of equity jurisdiction," i.e. an inadequate remedy at law and irreparable injury. Trainor v. Hernandez, 431 U.S. 434, 441, 97 S. Ct. 1911, 1917, 52 L. Ed. 2d 486 (1977). Absent "extraordinary circumstances", the Younger opinion requires that federal courts decline to ...


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