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Friarton Estates Corp. v. City of New York

June 7, 1982

FRIARTON ESTATES CORP., BWIT FIFTY-FIFTH STREET, INC., AND MID-CENTRAL PROPERTIES, LTD., PLAINTIFFS-APPELLEES,
v.
THE CITY OF NEW YORK, PHILIP R. MICHAEL, AS COMMISSIONER OF FINANCE OF THE CITY OF NEW YORK, AND TAX COMMISSION OF THE CITY OF NEW YORK, DEFENDANTS-APPELLANTS.



Appeal from an order of the District Court for the Southern District of New York, Charles L. Brieant, Judge, 525 F.Supp. 1250 (1981), granting a preliminary injunction against the defendants' taking title to or possession of properties pursuant to a New York state court judgment of foreclosure and sale for nonpayment of sewer rents, water charges and real estate taxes. Reversed and remanded with instructions to dismiss the complaint.

Author: Friendly

Before:

FRIENDLY and NEWMAN, Circuit Judges, and CURTIN, District Judge.*fn*

FRIENDLY, Circuit Judge:

The City of New York, its Commissioner of Finance, and the Tax Commission of the City of New York (sometimes hereafter referred to collectively as "the City") appeal pursuant to 28 U.S.C. § 1292 (a) (1) from an order in this action under 42 U.S.C. § 1983 granting a preliminary injunction against the City's taking title to properties pursuant to a New York state court judgment based on plaintiffs' failure to pay sewer rents, water charges and real estate taxes for the tax years 1973/74 through 1976/77. We reverse, with instructions to dismiss the complaint, primarily on the ground that plaintiffs' claims of violation of their constitutional rights are barred by reason of prior state court litigation of the claims here advanced.

I.

Plaintiff Friarton Estates Corporation (Friarton) is the owner of properties known as Block 735, Lot 30, and Block 1042, Lots 2, 3, 4, 5, 6, 7, and 64 on the tax map of the City of New York (the properties). Friarton acquired Block 735, Lot 30, from plaintiff BWIT Fifty-Fifth Street, Inc. (BWIT) in June 1977 for $10,000 at a time when the property was subject to over $200,000 in outstanding claims by the City for sewer rents, water charges and real estate taxes. Friarton acquired the lots in Block 1042 from plaintiff Mid-Central Properties, Ltd. (Mid-Central) in June 1977 for approximately the same sum; these properties were then subject to over $150,000 in similar claims by the City. The properties, along with many others, were included in two foreclosure proceedings brought by the City, In Rem Action Nos. 29 and 30, commenced on July 6, 1977 and August 28, 1978, respectively, in the Supreme Court of New York for New York County. The history of this litigation will be recounted in Part II below. It suffices here to say that on May 6, 1981, the Supreme Court for New York County entered a judgment reinstating an earlier judgment entered May 20, 1980, which permitted the City to take title to the properties.

Plaintiffs then commenced this action in the District Court for the Southern District of New York, seeking an injunction against enforcement of the state court foreclosure judgments until state court proceedings challenging the tax assessments had been determined, and damages "to redress violations of rights secured to plaintiffs by the Constitution of the United States and 42 U.S.C. § 1983" (Complaint P1); federal jurisdiction was claimed under 28 U.S.C. §§ 1331 and 1343(3). Plaintiffs' basic contention was that the City would be denying them due process of law and taking their property without just compensation in violation of the Fourteenth Amendment by taking the properties for nonpayment of taxes while denying them a speedy determination of certiorari proceedings which they had brought to challenge the assessments of the properties. The district court reviewed the state court record in the proceedings mentioned above and in certain related proceedings and held three hearings at which no testimony was taken.

After reference to and report by a magistrate, the district court, on October 2, 1981, rendered an elaborate opinion in which it rejected the City's contentions with respect to the preclusive effect of the previous proceedings, the Tax Injunction Act, 28 U.S.C. § 1341,*fn1 and the merits, and concluded that plaintiffs had satisfied the first branch of what it characterized as "the rule of this Circuit as expressed in Sonesta International Hotels Corp. v. Wellington Associates, " 483 F.2d 247, 250 (2 Cir. 1973), with respect to entitlement to a preliminary injunction.*fn2 However, the court thought it would be inappropriate to undertake the trial of plaintiffs' tax claims. Accordingly it entered an order preliminarily enjoining defendants from taking title to or possession of the properties or from causing a deed or deeds of such properties to be executed, delivered or recorded.This injunction might be dissolved on notice of the occurrence of events described in the margin.*fn3 Plaintiffs were to deposit all rents and operating income with a receiver, who was to pay all reasonable and necessary operating costs including current sewer and water charged, but not mortgage payments or current property taxes. As will be seen, the effect of the injunction was to deny the City the benefit of the judgment in the state court foreclosure actions, won after many years of effort against the very contentions made here, and to deprive it of payments currently due for sewage, water and taxes until the conclusion of the certiorari proceedings.

II.

Before going further it will be well to describe the New York procedures for review of real estate tax assessments.

New York City Charter § 163 provides that during the six week period February 1 through March 15:

the books of annual record of the assessed valuation of real estate are open for public inspection, any person or corporation claiming to be aggrieved by the assessed valuation of real estate may apply for correction of such assessment,

specifying the grounds of any claimed illegality, and the extent of any claimed overvaluation or inequality. Section 164 provides that any such applicant may have a hearing before the Tax Commission, which is empowered to

compel the attendance of witnesses, administer oaths or affirmations and examine applicants and other witnesses under oath. It shall make rules of practice for proceedings before the tax commission, and such rules and regulations as may be appropriate and expedient to the end that the taxpayers may have a hearing in the borough in which they reside or in which their property is located.

Under §§ 165, 166, the Tax Commission is required to render its determination by the 25th of May, and a further proceeding "to review and correct on the merits any final determination of the tax commission" may be brought by October 25th of that year. Plaintiffs had the benefit of this procedure but they assert that review by the Tax Commissioner is generally unproductive and the City does not seriously dispute this.

New York City Administrative Code § 166-1.0(b) provides that the judicial review mentioned above shall be by a Special Term of the Supreme Court in the appropriate county and shall be based "on one or more of the following grounds, which must be specified in such petition:"

1. That the assessment is illegal, and stating the particulars of the ...


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