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United States District Court, S.D. New York

November 22, 2004.

L.A.M. RECOVERY INC., Plaintiff,

The opinion of the court was delivered by: LEWIS KAPLAN, District Judge


Plaintiff, who operates an automobile repossession business, has been locked in combat with the City of New York for almost four years. The City contends that he engaged in "towing" with "tow trucks" and therefore required a license from the Department of Consumer Affairs ("DCA"). Plaintiff disputes this and, in the alternative, argues that the relevant legislation legislation is unconstitutional. Defendants move for judgment on the pleadings dismissing the complaint on principles of former adjudication.


  The Initial Confrontation

  On February 8, 2001, plaintiff was observed by a police officer in the process of repossessing an automobile in Brooklyn. The officer issued a DCA Notice of Violation charging plaintiff with unlicensed towing activity in violation of Section 20-496(a) of the Administrative Code.*fn1 At hearing on February 15, 2001, an administrative law judge ("ALJ"), after taking testimony from plaintiff's principal and the officer, found that plaintiff was operating a "tow truck" within the meaning of Section 20-495(d), that there was no applicable exemption, and that plaintiff's vehicle was used "in connection with engaging in an activity for which a license is required pursuant to Administrative Code § 20-496(a)" without a license. Plaintiff was fined $1,000 and directed to cease its unlicensed activity. The ALJ further directed the padlocking of plaintiff's premises if used primarily for unlicensed towing activity and the removal of trucks or vehicles used therein.

  The First State Court Litigation

  Plaintiff then commenced an action seeking a judgment vacating the ALJ's determination, declaring that plaintiff was engaged in lawful activity, and granting other relief.*fn2 It appears that a Kings County Supreme Court Justice temporarily stayed enforcement of the judgment, thus presumably protecting plaintiff for some period against the "padlocking" aspects of the DCA determination. Although the outcome of this proceeding is not material here, the defendants represent — and plaintiff does not deny — that plaintiff's motion for a preliminary injunction was denied and that the temporary restraining order previously entered was modified to allow plaintiff to pursue administrative remedies at DCA provided it applied for licenses for its business and drivers. On December 12, 2001, DCA's director of adjudication denied plaintiff's appeal.

  The Second State Court Litigation

  In April 2002, plaintiff commenced an Article 78 proceeding in New York Supreme Court, Kings County, against the City, the DCA, and the DCA commissioner. The supporting affirmation*fn3 asserted that (1) the DCA's February 2001 decision was arbitrary and capricious,*fn4 (2) DCA licensing would impose such an undue financial burden on plaintiff as to force it out of business,*fn5 (3) the DCA is preempted from regulating repossessors by 49 U.S.C. § 14501(c),*fn6 and (4) the City's towing regulations are unconstitutional as applied to plaintiff at least in part because they deprive it of equal protection of the laws.*fn7 Its memorandum of law asserted also that the application of the City regulations to plaintiff deprived it of due process of law and constituted a regulatory taking.*fn8

  The state court denied the petition. Insofar as is relevant here, it explicitly and flatly rejected plaintiff's

  • statutory argument, holding that

"a straight forward reading of the above-cited provisions of the Administrative Code makes clear that tow trucks must be licensed unless specifically exempted, and that repossessors are not included in any of the enumerated exemptions."*fn9
• regulatory taking claim, stating that:
"Although the petitioner claims that compliance with the licensing laws would cause it to sustain severe hardship, the licensing process is not onerous, and the petitioner has failed to demonstrate that it could not comply with the statute and maintain its respossession business."*fn10
  • preemption argument, stating "Nor has the petitioner demonstrated that the regulations are preempted by Federal law".*fn11 It held also that "petitioner's remaining contentions are without merit as well."*fn12

  No appeal was taken from the state court decision.

  This Action

  Plaintiff then brought this action. The complaint contains four counts:

• Count one challenges the City's regulations under the Commerce Clause.
• Count two makes precisely the preemption argument previously rejected by the state court.
• Count three makes the regulatory taking argument previously rejected by the state court.
• Count four seeks damages, presumably on the legal theories set out in the first three counts.
  Defendants moved for judgment on the pleadings on the grounds of res judicata (claim preclusion) and collateral estoppel (issue preclusion). As plaintiff objected to consideration of materials outside the complaint, the Court notified the parties that it would convert the motion into one for summary judgment dismissing the complaint on those grounds and invite the submission of any other evidence they wished to present.*fn13 Plaintiff subsequently submitted an affirmation with exhibits.*fn14 Discussion

  The application of issue and claim preclusion, and the intimately related Rooker-Feldman doctrine, by federal courts in the wake of prior New York State Article 78 proceedings has received a good deal of attention, especially of late.*fn15 The law may be summarized briefly. As this Court wrote in Latino Officers,*fn16


The Rooker-Feldman doctrine embodies the principle that "among federal courts, only the Supreme Court has subject matter jurisdiction to review state court judgments."*fn17 Thus, a federal district court lacks jurisdiction over any claim that "directly challenges, or is `inextricably intertwined' with, a prior state court decision."*fn18
There is debate over the contours and even the continued vitality of the Rooker-Feldman doctrine*fn19 where there is a federal statutory grant of jurisdiction.*fn20 The Second Circuit has held that where "the precise claims raised in a state court proceeding are raised in the subsequent federal proceeding, Rooker-Feldman plainly will bar the action. On the other hand, . . . where the claims were never presented in the state court proceedings and the plaintiff did not have an opportunity to present the claims in those proceedings, the claims are not `inextricably intertwined' and therefore not barred by Rooker-Feldman."*fn21 The situation is altogether different when a plaintiff had an opportunity to raise a claim in an earlier proceeding, but failed to do so. In those circumstances, the claim will be barred under the Rooker-Feldman doctrine if it would be barred under the principles of preclusion.*fn22
In this case, the Article 78 Plaintiffs properly could have raised before the Article 78 courts their statutory and constitutional claims that their terminations were discriminatory and retaliatory. Although Article 78 courts are courts of limited jurisdiction and may not hear a general constitutional challenge to a law or regulation,*fn23 they may entertain claims that the application of a rule is unconstitutional.*fn24 Indeed, the Article 78 courts could have upset the terminations of the Article 78 Plaintiffs if they had demonstrated that their terminations were discriminatory or retaliatory.*fn25 Thus, the Court must determine whether the Article 78 judgments are entitled to preclusive effect.
Under the Full Faith and Credit Clause's federal implementing statute, "judicial proceedings of any court of any ? State . . . shall have the same full faith and credit in every court within the United States . . . as they have by law or usage in the courts of such State . . . from which they are taken."*fn26 Accordingly, the Article 78 judgments command the same preclusive effect in this Court as would be given by the courts of New York.*fn27 A. Claim Preclusion
  Under New York law, the doctrine of claim preclusion bars litigation of claims or defenses that were or could have been raised in a prior proceeding where that prior proceeding resulted in a final judgment on the merits and arose out of the same factual grouping as the later claim, even where the later claim is based on different legal theories or seeks dissimilar or additional relief.*fn28 Plaintiff has alleged no claims here that the Article 78 court could not have heard. Nevertheless, there is a further consideration. The general rule of claim preclusion does not apply:

  "where the plaintiff `was unable to . . . seek a certain remedy or form of relief in the first action because of the limitations on the subject matter jurisdiction of the courts or restrictions on their authority to entertain . . . multiple remedies or forms of relief in a single action, and the plaintiff desires in the second action . . . to seek that remedy or form of relief.'"*fn29 In this case, the plaintiff seeks damages, which are not available to an Article 78 plaintiff except in circumstances not here relevant.*fn30 Accordingly, the doctrine of claim preclusion does not apply here.*fn31

  B. Issue Preclusion

  Under New York law, issue preclusion "precludes a party from relitigating in a subsequent action or proceeding an issue clearly raised in a prior action or proceeding and decided against that party or those in privity, whether or not the tribunals or causes of action are the same."*fn32 Furthermore, the party against whom the doctrine is asserted must have had a full and fair opportunity to litigate the issue in the first proceeding.*fn33

  Here, it is undisputed that plaintiff's regulatory taking and preemption arguments were made in the state court and necessarily and actually decided against plaintiff. There is no claim that the New York Supreme Court did not afford plaintiff a full and fair opportunity to litigate those contentions. Plaintiff nevertheless resists application of issue preclusion on two grounds. First, plaintiff argues that preclusive effect should not be given to the state court determinations because this federal court is "a forum of limited jurisdiction with a recognized competence in the adjudication of federal questions . . ."*fn34 The argument flattering but baseless. Our state court brethren also are sworn to uphold the United States Constitution, and Congress has determined that their judgments are to be given full faith and credit.*fn35

  Plaintiff next contends that preclusive effect should be denied because "the posture of the instant case is different."*fn36 This action, in plaintiff's submission, "challenges the constitutional validity, as applied to the plaintiff and others in his position, of the very law that was supposedly violated . . ."*fn37 But plaintiff ignores the fact that this is precisely the argument it made in the state court.*fn38

  The Commerce Clause challenge stands differently because it was not advanced in the state court action and therefore cannot be foreclosed strictly by issue preclusion. As the Second Circuit noted recently in Vargas, the fact that plaintiff failed to raise the issue in state court does not necessarily save it from issue preclusion under Rooker-Feldman.*fn39 If determination of plaintiff's Commerce Clause claim would "require the district court to decide an issue that was previously decided adversely to" plaintiff, then that claim too is barred by issue preclusion.*fn40 As the parties have not addressed this issue, however, it is premature to resolve it.


  For the foregoing reasons, defendants' motion for judgment on the pleadings dismissing the complaint is converted into a motion for summary judgment for that relief on the grounds of issue and claim preclusion. The motion is granted to the extent that counts two, three, and so much of count four as rest on those counts, are dismissed. It is denied in all other respects without prejudice to a renewed motion addressing the issue raised above.


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