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FORD MOTOR CREDIT COMPANY v. NEW YORK CITY POLICE DEPT.

October 11, 2005.

FORD MOTOR CREDIT COMPANY, Plaintiff,
v.
NEW YORK CITY POLICE DEPARTMENT, PROPERTY CLERK, NEW YORK CITY POLICE DEPARTMENT and CITY OF NEW YORK, Defendants.



The opinion of the court was delivered by: SIDNEY STEIN, District Judge

OPINION & ORDER

Ford Motor Credit ("Ford Credit"), a lender to individual purchasers of motor vehicles, brings this action to challenge the legality of the New York City Police Department's procedures for retaining and disposing of seized automobiles. Claiming that it is routinely deprived of its property interests in liens it possesses on seized vehicles without due process of law, Ford Credit has moved for summary judgment. Defendants (the "City") have cross-moved for summary judgment, contending that their procedures satisfy relevant statutory and constitutional standards. The respective motions are each granted in part and denied in part, as certain elements of the City's procedures are legally or constitutionally infirm and others are not. I. Background

This litigation represents yet another chapter in the decades-long legal saga relating to the procedures that the New York City Police Department ("NYPD") employs when seizing, retaining and disposing of vehicles. See, e.g., Property Clerk of the Police Dep't of the City of New York v. Harris, 7 Misc. 3d 1032(A), 2005 WL 1355148 (S. Ct. N.Y. Co. May 9, 2005); Property Clerk, New York City Police Dep't v. Aquino, 6 Misc. 3d 1031(A), 800 N.Y.S.2d 355, 2004 WL 3217800 (S. Ct. N.Y. Co. Nov 3, 2004); Jones v. Kelly, 378 F.3d 198 (2d Cir. 2004); Krimstock v. Kelly, 306 F.3d 40 (2d Cir. 2002); Property Clerk, New York City Police Dep't v. Foley, 282 A.D.2d 221, 724 N.Y.S.2d 580 (1st Dep't 2001); Property Clerk, New York City Police Dep't v. Lee, 183 Misc. 2d 360, 702 N.Y.S.2d 792 (S. Ct. N.Y. Co. 2000); Alexandre v. Cortes, 140 F.3d 406 (2d Cir. 1998); Property Clerk of New York City Police Dep't v. Molomo, 81 N.Y.2d 936, 597 N.Y.S.2d 661, 613 N.E.2d 567 (1993); City of New York v. Salamon, 161 A.D.2d 470, 555 N.Y.S.2d 380 (1st Dep't 1990); Frank Santora Equip. Corp. v. City of New York, 138 Misc. 2d 631, 524 N.Y.S.2d 663 (S. Ct. N.Y. Co. 1988); McClendon v. Rosetti, 460 F.2d 111 (2d Cir. 1972). This latest installment calls upon the Court to review the impact of the NYPD's procedures on the security interests of lienholders.

  A. The Parties

  1. Ford Credit

  Ford Credit lends money to purchasers of automobiles. It takes security interests in vehicles that are acquired with the funds it loans to debtors. Ford Credit operates under its own name, as well as under the names Primus Automotive Financial Services, Inc. and Mazda American Credit, Inc. (Pl.'s Local Rule 56.1 Statement of Undisputed Facts ("Pl.'s 56.1") ¶ 1).*fn1 2. The Property Clerk

  The Property Clerk of the NYPD is empowered by section 14-140(b) of the New York City Administrative Code to maintain custody of "[a]ll property or money taken from the person or possession of a prisoner," as well as "all property or money suspected of having been used as a means of committing crime or employed in aid or furtherance of a crime."

  B. The Property Clerk's Procedures

  When NYPD officers seize a vehicle in connection with an arrest, they issue a voucher to the arrestee. (See Decl. of Robert Messner in Supp. of Defs.' Mot. for Summ. J. and in Opp. to Pl.'s Mot. for Summ. J. ("Messner Decl.") ¶ 6); see also 38 R.C.N.Y. § 12-32(a).*fn2 The Property Clerk sends notice of the seizure to the titled owner, the registrant and any lienholder to inform them of the seizure. (See Messner Decl. ¶ 6; Pl.'s 56.1 ¶ 20). Within 120 days of the termination of a criminal proceeding related to the seized vehicle, a proper claimant may bring a demand to recover the vehicle. (See Messner Decl. ¶ 7); see also 38 R.C.N.Y. § 12-35(c).*fn3 The procedure for making a demand is contained on the back of the voucher provided to the arrestee and the back of the notice that the Property Clerk sends to the titled owner, registrant and lienholder. (See Messner Decl. ¶ 7).

  1. Claimed Vehicle

  When a claimant makes a demand for a vehicle, the Property Clerk may either release the vehicle or institute forfeiture proceedings within twenty-five days of the claim. See 38 R.C.N.Y. § 12-36; N.Y.C. Admin. Code § 14-140(e). If the Property Clerk pursues forfeiture, it does not notify any lienholders and does not include lienholders as defendants in the relevant proceedings. (See Pl.'s 56.1 ¶¶ 28-29). When forfeiture is successful, the Property Clerk may sell the forfeited vehicle. The Property Clerk publishes general notice of an auction sale date — that does not include any specific information regarding which vehicles are to be sold — in the City Record and on the Police Department's website. (See Pl.'s 56.1 ¶ 92; Defendants' Statement of Undisputed Facts Pursuant to Local Rule 56.1 ("Defs.' 56.1") ¶¶ 29-31). A lienholder is not specifically notified in advance of a sale, nor provided information concerning the amount realized in the sale after the fact. (See Pl.'s 56.1 ¶ 113). Nevertheless, the lienholder's security interest is extinguished upon sale, as the purchaser takes the vehicle free and clear of any lien. (Id. ¶ 67; Defs.' Opp. to Pl.'s Statement Pursuant to Local Rule 56.1 ("Defs.' Opp.") ¶ 34).

  The Property Clerk permits the lienholder on a vehicle whose lien has been extinguished to seek up to 90% of the proceeds of the sale of that vehicle in satisfaction of the related debt within one year of the sale by submitting an Auction Proceeds Claim Form, as well as an executed General Release with Indemnification Agreement, which broadly indemnifies the Property Clerk and the NYPD. (See Pl.'s 56.1 ¶¶ 115-16; Defs.' 56.1 ¶¶ 35, 40). The Property Clerk retains 10% of the auction proceeds purportedly to cover the administrative costs it incurs in storing and selling vehicles. (See Pl.'s 56.1 ¶¶ 110-13; Defs.' 56.1 ¶ 34).

  2. Abandoned Vehicle

  If no valid claim for a given vehicle is made, the Property Clerk deems the vehicle abandoned and sells it pursuant to section 14-140(e) of the New York City Administrative Code. (See Pl.'s 56.1 ¶ 66; Defs.' 56.1 ¶¶ 26, 28). No statutory provision obligates the Property Clerk to act within a specified time frame when disposing of abandoned vehicles. See N.Y.C. Admin Code § 14-140(e); N.Y.V.T.L. § 1224. When the Property Clerk sells abandoned vehicles, it permits lienholders — who are not afforded specific notice of the designation of the vehicle as abandoned or of the resulting sale — to claim the proceeds pursuant to the same terms discussed above in the context of forfeitures. (See Messner Decl. ¶ 16; Defs.' 56.1 ¶¶ 32-33).

  3. Who is a Claimant?

  The Property Clerk will only entertain a demand for a vehicle made by a valid claimant, i.e., "the person from whose person or possession property, other than contraband, was taken or obtained. . . ." 38 R.C.N.Y. § 12-31. According to the Property Clerk, "In the case of a vehicle seized by the Police Department because of the conduct of the operator of a vehicle who is not the titled or registered owner, this means that either the owner, or the operator from whom the vehicle was taken, may make a demand for the return of the vehicle." (Messner Decl. ¶ 8). The Property Clerk refuses to recognize a lienholder as a valid claimant, because "[l]ienholders are not owners, and therefore not proper claimants." (Id. ¶ 9). Pursuant to the Property Clerk's policy, a lienholder's demand for a vehicle will not trigger the commencement of forfeiture proceedings nor occasion release of the vehicle. (See Pl.'s 56.1 ¶¶ 26-27; Defs.' Opp. ¶¶ 9-10). A lienholder may, however, register a valid claim if it demonstrates that it has obtained either lawful title or permission to act on behalf of the titled owner. (See Messner Decl. ¶ 9). The Property Clerk will release a vehicle to a lienholder that has secured title only if the lienholder pays $1,000.00 to the Property Clerk, executes a release and agrees not to turn the vehicle over to the criminal defendant. (Id. ¶ 11).

  The parties dispute whether New York law provides a mechanism whereby a lienholder can obtain title to a vehicle that secures a defaulted debt and that has been seized by the police. The City has submitted evidence suggesting that some lienholders have brought declaratory judgment actions pursuant to New York Uniform Commercial Code section 9-619 and obtained orders transferring title. (See Reply Decl. of Robert Messner in Further Supp. Of Defs.' Mot. For Summ. J. and in Further Opp. to Pl.'s Mot. for Summ. J. ("Messner Reply") ¶ 6). Ford Credit's attorney submitted a declaration that included the assertion that "[n]o . . . procedure exists in New York by which a lienholder can commence an action in a court for the purpose of divesting the owner of title." (Tillem Decl. in Further Supp. of Ford Credit's Mot. for Summ. J. and in Opp. to Defs.' Cross-Mot. for Summ. J. ("Tillem Decl. Further Supp.") ¶ 7).*fn4

  C. The Specific Vehicles at Issue

  The NYPD seized each of the vehicles at issue because of suspected illegal conduct in which the owner and/or operator had engaged. (Pl.'s 56.1 ¶ 16). Following the seizure of each vehicle, its owner or owners no longer made payments pursuant to the relevant installment contract. (Id. ¶ 18). The seizure of the vehicles and the cessation of payments constituted events of default pursuant to the relevant financing contracts. (Id. ¶ 19). The specific facts in the record relating to each vehicle are discussed below.

  1. The Benn Vehicle

  Pursuant to an assigned retail sales contract, Ford Credit has a security interest in Natasha V. Benn's 2000 Kia Sephia (the "Benn Vehicle"). (Pl.'s 56.1 ¶ 5). The NYPD seized the Benn Vehicle and the Office of the District Attorney of Richmond County issued a release for it on March 7, 2001. (Id. ¶ 30). On April 18, 2001, the Property Clerk brought a forfeiture action against Natasha Benn and Koby Mangin, the operator of the Benn Vehicle at the time it was seized. (Id. ¶ 31). Ford Credit was not a party to the forfeiture action, nor did it receive notice of the action, despite having made a demand for the vehicle on March 20, 2001. (Id. ¶ 32). The Property Clerk never obtained a judgment in the forfeiture action and released the Benn Vehicle to Benn on December 10, 2003. (Id. ¶¶ 33-34). 2. Paskalov Vehicle

  Pursuant to an assigned retail sales contract, Ford Credit has a security interest in Aleksandr Paskalov's 2000 Mazda MPV (the "Paskalov Vehicle"). (Id. ¶ 6). The NYPD seized the Paskalov Vehicle and the Property Clerk began forfeiture proceedings against Paskalov on March 2, 2001. (Id. ¶ 35). Ford Credit was not a party to the forfeiture action, nor was it given notice of the action, even though the Property Clerk had actual notice of Ford Credit's lienholder status. (Id. ¶ 36). The Property Clerk never obtained a judgment against Paskalov and notified him on January 5, 2004 that he could retake possession of his vehicle. (Id. ¶¶ 37-39).

  3. Mueller Vehicle

  Pursuant to an assigned retail sales contract, Ford Credit has a security interest in Diane C. Mueller's 2000 Hyundai Elantra (the "Mueller Vehicle"). (Id. ¶ 7). The NYPD seized the Mueller Vehicle and the Property Clerk began forfeiture proceedings against Mueller on April 16, 2001. (Id. ¶ 40). Ford Credit was not a party to the forfeiture action, nor was it given notice of the action, even though the Property Clerk had actual notice of Ford Credit's lienholder status. (Id. ¶ 41). The Property Clerk failed to realize a judgment against Mueller, and it authorized the release of the Mueller Vehicle to Mueller on January 7, 2004. (Id. ¶¶ 42-43).

  4. Ryan Vehicle

  Pursuant to an assigned retail sales contract, Ford had a security interest in Mindy and Michael Ryan's 2001 Hyundai Sonata (the "Ryan Vehicle"). (Id. ¶ 8). The NYPD seized the Ryan Vehicle and brought a forfeiture action in November of 2001 against Mr. Ryan. (Id. ¶ 44). Ford Credit was not a party to the forfeiture action, nor was it given notice of the action, even though the Property Clerk had actual notice of Ford Credit's lienholder status. (Id. ¶ 45). On July 1, 2003, while the forfeiture action was pending, Ryan surrendered the Ryan Vehicle's title to the NYPD. (Id. ¶ 47). Without specifically notifying Ford Credit, the Property Clerk sold the Ryan Vehicle for $5,700 plus tax of $491.62 on August 19, 2003. (Id. ¶¶ 48, 90-91, 120). The only notice the Property Clerk provided of the sale was a general published announcement of the auction date. (Id. ¶ 92). The sale extinguished Ford Credit's lien. (Id. ¶¶ 94, 144). Pursuant to their contract with ...


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