Cline v. Bethpage Federal Credit Union

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

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In re MEMORANDUM & ORDER

19-CV-2010(JS)

JOE’S FRIENDLY SERVICE & SON INC.,

d/b/a THATCHED COTTAGE AT THE BAY, Chapter 7

14-BK-70001(REG)

Debtor.

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In re

THATCHED COTTAGE LP, Chapter 7

14-BK-70002(REG)

Debtor.

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BETHPAGE FEDERAL CREDIT UNION and

BUSINESS SERVICES GROUP, LLC,

Plaintiffs/ Adversary Proceeding

Appellees 16-AP-8035(REG)

-against–

THE TOWN OF HUNTINGTON,

JOSEPH F. CLINE, INDIVIDUALLY,

RICHARD VACCHIO, INDIVIDUALLY, and

TERENCE “TERRY” MCNALLY, INDIVIDUALLY

Defendants/

Appellants.

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APPEARANCES

For Plaintiffs/

Appellees: Richard J. McCord, Esq.

John M. Wagner, Esq.

Certilman Balin Adler & Hyman, LLP

90 Merrick Avenue

East Meadow, New York 11554

For Defendants/

Appellants: Gerard DiConza, Esq.

Lance Aaron Schildkraut, Esq.

Archer & Greiner, P.C.

630 Third Avenue, Seventh Floor

New York, New York 10017

SEYBERT, District Judge:

On April 4, 2019, Appellants Joseph F. Cline (“Cline”),

Richard Vacchio (“Vacchio”), and Terence “Terry” McNally

(“McNally”) (collectively, “Appellants”)! filed an appeal from

Judge Robert E. Grossman’s March 21, 2019 decision denying

Appellants summary judgment based on the defense of qualified

immunity (the “Appeal”) in Bethpage Federal Credit Union et al. v.

Town of Huntington et al., No. 16-AP-8035, (Bankr. E.D.N.Y.)

(Grossman, Bankr. J.), an adversary proceeding removed to the

United States Bankruptcy Court for the Eastern District of New

York (the “Bankruptcy Court”) (the “Adversary Proceeding”).

(Appeal, D.E. 1.2) Currently pending before the Court is a motion

to dismiss the Appeal filed by Appellees Bethpage Federal Credit

Union (“BFCU”) and Business Services Group, LLC (“BSG”) (together,

“Appellees”) on the basis that this Court lacks jurisdiction to

hear the Appeal and that Appellants waived the defense of qualified

immunity (the “Motion to Dismiss”). (Mot., D.E. 4.) Also before

the Court is Appellants’ motion to stay the Adversary Proceeding

and trial, scheduled for December 9, 2019, pending the outcome of

this Appeal (the “Stay Motion.”) (Stay Mot., D.E. 18.)

1 The Town of Huntington (the “Town”) is a co-defendant in the

Adversary Proceeding but does not take part in this Appeal.

2 The first time the Court cites to a document, the location

(docket entry) will be provided, thereafter, only the document

title and page numbers/paragraph numbers will be provided.

For the following reasons, the Bankruptcy Court’s

decision denying Appellants summary judgment on qualified immunity

with respect to Appellees’ procedural due process claim is AFFIRMED

as stated below (Appeal, D.E. 1), the Bankruptcy Court’s denial of

summary judgment (and thus qualified immunity) to Appellants on

Appellees’ substantive due process and equal protection claims is

DISMISSED for lack of jurisdiction (Mot., D.E. 4), and Appellants’

Stay Motion (D.E. 18) is DENIED as moot.

BACKGROUND

This Memorandum and Order incorporates by reference the

detailed factual and procedural background provided by Judge

Grossman in his Decision denying Appellants’ motion for summary

judgment.* (See Bankr. Decision, Suppl. Ex. 2, D.E. 16-2.) The

Court presumes the parties’ familiarity with the facts.

I. The Bankruptcy Proceedings

On or about January 2, 2014, Thatched Cottage LP

(“Cottage LP”) and Joe’s Friendly Service & Son Inc. d/b/a Thatched

Cottage at the Bay (“Joe’s Friendly”) (together, “Debtors”) filed

separate voluntary petitions pursuant to Chapter 11 of the

Bankruptcy Code. (In re Joe’s Friendly, No. 14-BK-70001 (Bankr.

E.D.N.Y.) (Grossman, Bankr. J.) and In re Thatched Cottage LP, No.

3 Judge Grossman presided over the Debtors’ bankruptcy

proceedings, and all related proceedings, and therefore has

extensive familiarity with the facts giving rise to the instant

Appeal.

14-BK-70002 (Bankr. E.D.N.Y.) (Grossman, Bankr. J.) (the

“Bankruptcy Proceedings”). The Bankruptcy Proceedings were

jointly administered.

II. Procedural and Factual Background

Non-party Ralph Colamussi (“Colamussi”), the principal

of both Debtors, had an interest in property and an adjacent lot

located at 445 East Main Street, Centerport, New York (the

“Property”). (Appellants’ 56.1 Stmt., Suppl. Ex. 8, D.E. 16-8,

¶¶ 3, 18; Appellees’ 56.1 Stmt., Suppl. Ex. 10, D.E. 16-10, at ECF

pp. 2-23, ¶ 3.) Joe’s Friendly, through Colamussi, owned real

property located on the Property called the “Thatched Cottage”.

(Appellants’ 56.1 Stmt., D.E. 16-8, ¶ 5; Appellees’ 56.1 Stmt.,

D.E. 16-10, ¶ 5.) Colamussi, through Cottage LP, owned and

operated the Thatched Cottage for many years. (Appellees’ Counter-

Stmt., Suppl. Ex. 10, D.E. 16-10, at ECF pp. 24-29, at 26-27; Am.

Compl., Suppl. Ex. 1, D.E. 16-1, ¶ 14.)

Prior to the Bankruptcy Proceedings, Debtors obtained a

loan from BFCU which was secured by a mortgage on the Thatched

Cottage and personally guaranteed by Colamussi. (Appellees’

Counter-Stmt., at ECF p. 27.) Debtors defaulted on the loan and

on September 6, 2013, BFCU commenced a foreclosure action against

the Thatched Cottage. (Appellees’ Counter-Stmt., at ECF pp. 28-

29.) On January 2, 2014, Debtors commenced the Bankruptcy

Proceedings.

Colamussi continued to manage the Thatched Cottage until

April 2014, when at Debtors’ request, the Bankruptcy Court approved

the retention of Hospitality Credit, LLC, managed by Gino Scotto

(“Scotto”), to run the operations at the Thatched Cottage.

(Appellees’ Counter-Stmt., at ECF p. 29.) At that time,

Colamussi’s mental health was “called into question.” (Bankr.

Decision, at 5.) The Thatched Cottage continued to operate as a

debtor-in-possession, serving as a wedding venue and accepting

deposits for future events through October 2014. (Bankr. Decision,

at 4-5; Appellees’ Counter-Stmt., at ECF p. 30.)

On June 3, 2014, the Town inspected the Thatched Cottage

and on August 18, 2014, the Town issued the Thatched Cottage an

occupancy and assembly permit, signed by Appellants McNally (the

Town’s Chief Fire Marshal) and Cline (the Town’s Director of the

Department of Engineering Services). (Permit and Inspection,

Suppl. Ex. 34, D.E. 28-7.) On July 3, 2014, the Bankruptcy Court

appointed a trustee (the “Trustee”) who, on July 24, 2014, sought

authorization for the sale of the Property at an auction. (No. 14-

BK-70001, Bankr. D.E. 165 and 192.) According to Appellees,

Colamussi, through the Town and Town officials, sought to impede

any sale of the Thatched Cottage to a third-party purchaser.

Colamussi expressed that no one, other than himself or Scotto,

should own or operate the Thatched Cottage and blamed the

Bankruptcy Trustee and BFCU for “ruining his life.” (Appellees’

Counter-Stmt., at ECF pp. at 35-36.) Colamussi testified that he

would have been “happy” if Scotto purchased the property because

they had an “agreement that [they] were going to combine [a

neighboring restaurant], that [Colamussi] owned, with the Thatched

Cottage. . . . [i]t was going to be one complex, all run altogether”

and Colamussi and Scotto would be “50/50 partners.” (Colamussi

Dep., No. 16-AP-8035, McCord Decl., Ex. 2, Bankr. D.E. 78-6,

115:24-116:15; Appellees’ Counter-Stmt., at ECF p. 30.)

On August 11, 2014, the Bankruptcy Court approved the

terms and conditions of the sale for the Property (“Terms and

Conditions”). (Aug. 11, 2014 Order, No. 14-BK-70001, Bankr. D.E.

210.) A public auction took place on September 24, 2014 and Yama

Raj (“Raj”) was the highest bidder and BFCU was the second highest

bidder. (Appellees’ Counter-Stmt., at ECF p. 31.) Thereafter, on

October 6, 2014, the Thatched Cottage closed business and

operations. (Appellees’ Counter-Stmt., at ECF p. 32.) At that

time, Town officials were aware that the Thatched Cottage was

closed and no longer operational. (Appellees’ Counter-Stmt., at

ECF p. 31.)

On October 15, 2014, the Bankruptcy Court confirmed the

Trustee’s sale to Raj and the Trustee consented to extend the

closing date to November 24, 2014. (Oct. 16, 2014 Order, No. 14-

BK-70001, Bankr. D.E. 247; Appellees’ Counter-Stmt., at ECF

p. 32.) The record indicates that Raj, Raj’s attorneys and

representatives, and Town officials were in contact with the Town

to discuss the sale of the Property and necessary improvements.

Around the time that Raj was approved to purchase the Property,

the Town, for the first time in many years, raised an objection to

the encroachment of Property onto land owned by the Town and noted

that a “multitude of violations” must be “resolved before any other

permits can be issued.” (Oct. 9-14, 2014 Email Chain, No. 16-AP-

8035, DiConza Decl., Ex. 24, Bankr. D.E. 70-18.)

On October 16, 2014, Steve Haber (“Haber”), a Town

Planning Committee employee, met with Raj’s representatives to

discuss “minor renovations” to the Property. (Oct. 9-14, 2014

Email Chain, No. 16-AP-8035.) Another meeting took place on

October 28, 2014 with Raj, Raj’s representatives, and Town

officials, including Deputy Town Supervisor Patricia Del Col (“Del

Col”). (See Oct. 16 & 24, 2014 Emails, No. 16-AP-8035, DiConza

Decl., Ex. 26 and 27, Bankr. D.E. 70-18.) The day before the

October 28, 2014 meeting, Betty Walsh (“Walsh”), an employee at

the Town Supervisor’s Office, provided Raj’s representatives with

a memorandum listing discussion items that were to be addressed at

the meeting. (Oct. 27, 2014 Email, No. 16-AP-8035, McCord Decl.,

Ex. 40, Bankr. D.E. 79-5; Oct. 24, 20144 Memo., No. 16-AP-8035,

McCord Decl., Ex. 52, Bankr. D.E. 79-17.)

4 At his deposition, Thomas Glascock, the Deputy Town Attorney,

testified the document should be dated October 24, 2014 and not

The memorandum detailed various issues at the Property

but did not address any concerns regarding the structure or safety

of the Thatched Cottage. (Oct. 24, 2014 Memo., No. 16-AP-8035,

McCord Decl., Ex. 52, Bankr. D.E. 79-17.) In response, Raj’s

representative expressed Raj’s desire to form an agreement to

“reopen the previously operating facility,” that it was not

economically feasible to keep the Thatched Cottage closed for an

“extended time,” and that “[c]lertainly except for [Colamussi’s]

financial problems, [Colamussi] would still be operating there.”

(Oct. 27, 2014 Email, No. 16-AP-8035.) Appellant Cline testified

that the parties did not discuss structural or safety concerns of

the Thatched Cottage at the October 24, 2014 meeting. (June 1,

2017 Cline Dep. Part 1, No. 16-AP-8035, DiConza Decl., Ex. 4,

Bankr. D.BE. 70-3, 37:10-38:10.)

Thereafter, many news articles were published and

“Concerned Citizens of Centerport” wrote letters to the Town

regarding the safety and alleged hazardous conditions at the

Property. (Bankr. Decision, at 7-9; Concerned Citizens Letters,

No. 16-AP-8035, McCord Decl., EX. 64, Bankr. D.E. 79-29.)

Appellant Cline testified that “nothing was done” to investigate

the claims alleged by the “Concerned Citizens.” (Feb. 4, 2016

Cline Dep., Suppl. Ex. 3, D.E. 16-3, 37:16-21.)

November 24, 2014. (Glascock Dep., Suppl. Ex. 16, D.E. 16-16,

57:17-58:5.)

On November 13, 2014, Colamussi stopped by the Town Fire

Marshal’s office and spoke with Appellant McNally regarding “a

structural defect” at the Thatched Cottage. (June 9, 2017 McNally

Dep., No. 16-AP-8035, McCord Decl., Ex. 10, Bankr. D.E. 78-30,

44:13-45:20.) Colamussi brought certain documents that reflected

alleged unsafe conditions at the Thatched Cottage, including three

engineering reports (the “Colamussi Reports”),° letters from

architects, Colamussi’s personal emails with the Trustee and

auctioneer, newspaper articles, and copies of the “Concerned

Citizens” letters. (June 9, 2017 McNally Dep., No. 16-AP-8035,

McCord Decl., 47:10-22; Dec 3, 2014 Town Memo., Suppl. Ex. 36,

D.E. 79-21.) Appellant Cline overheard the conversation between

Colamussi and McNally and took the Colamussi Reports. (June 9,

2017 McNally Dep., No. 16-AP-8035, 45:21-24, 48:15-49:6.)

On November 14, 2014, Town employees circulated the

Colamussi Reports. (Nov. 14-17, 2014 Town Email Chain, No. 16-

AP-8035, McCord Decl., Ex. 43, Bankr. D.E. 79-8.) In a letter

dated November 17, 2014, Raj’s attorney, John Breslin (“Breslin”),

° There is evidence that Scotto commissioned Galli Engineering,

P.C. to prepare at least two of the Colamussi Reports (the

“Galli Reports”). (Appellees’ Counter-Stmt., at ECF p. 49.)

Scotto reviewed drafts of the Galli Reports and asked Galli

Engineering to include “strong” language with respect to “safety

concerns” at the Property. (Appellees’ Counter-Stmt., at ECF

p-. 50.) The Galli Reports included a sentence that “possible

loss of life is a concern.” (Appellees’ Counter-Stmt., at ECF

p. 50.)

informed Raj that the Town received an engineering report that

indicated structural deficiencies at the Property and that the

Town could not allow Raj to “re-open [the Thatched Cottage] until

[the Town] [was] sure that the building is structurally sound”

which could be accomplished by proof from another engineer or by

“inspections made by the Town inspectors.” (Nov. 17, 2014 Letter,

Suppl. Ex. 7, D.E. 16-7.) Breslin also wrote that the report

“overstates the issues and may be even worse but the Town will

need to cover itself to make sure it is safe.” (See Nov. 17, 2014

Letter.)

On November 17, 2014, Town employee Betty Walsh emailed

Haber that she “[j]ust got off the phone with [Cline and t]he

building is to be placarded. You know there has been so much

hearsay back and forth about this place and [Colamussi] and the

community and the damn hurricane,” that “the report does shed a

credible light,” and that she wonders if Raj will “find a company

that will come in and prepare a mitigation plan or walk away.”

(See Nov. 14-17, 2014 Town Email Chain, No. 16-AP-8035.) On

November 17, 2014, Raj commissioned and acquired two reports from

Tauscher Cronacher Professional Engineers (“Tauscher”) that

indicated in substantial part that “there are no indications of

structural movement or instability caused by . . . [Hurricane]

Sandy or other storms” (the “Tauscher Reports”). (Tauscher

Inspection Report, No. 16-AP-8035, McCord Letter, Ex. A, Bankr.

D.E. 88-1.) The parties dispute whether the Town had notice of

the Tauscher Reports that “negate the findings of the Colamussi

Reports” or whether the Town received and disregarded the findings

in the Tauscher Reports. (See Bankr. Decision, at 15.)

In a redacted email chain dated November 18, 2014,°

Breslin emailed Thomas Glascock (the Deputy Town Attorney) noting

that Breslin and Raj “believe th[e] items in the ([Colamussi

Reports] are greatly overstated but we share the [T]lown’s concern

in making sure there are no deficiencies [at the Thatched

Cottage] .” (Nov. 18, 2014 Town Email, No. 16-AP-8035, McCord

Decl., Ex. 47, D.E. 79-12.) Seven minutes later, Walsh forwarded

the email to Del Col and wrote “I am almost afraid to ask. What

does [Colamussi] want?” (See Nov. 18, 2014 Town Email, No. 16-

AP-8035.) In response, Del Col wrote, “[s]aid we should be doing

something about Thatched Cottage. I told [an assistant] to tell

him we were taking care of it.” (See Nov. 18, 2014 Town Email,

No. 16-AP-8035.) Both Walsh and Del Col do not recall any of the

circumstances surrounding the November 18, 2014 email. (June 12,

2017 Walsh Dep., No. 16-AP-8035, McCord Decl., Ex. 11, Bankr. D.E.

6 On November 5, 2019, the Bankruptcy Court granted Appellees’

motion filed by order to show cause for an order compelling

Appellants to produce all iterations and data of the

November 18, 2014 email chain. (Nov. 5, 2019 Order, No. 16-AP-

8035, Bankr. D.E. 158.)

11

78-35, 101:19-104:5; Apr. 27, 2017 Del Col Dep., Suppl. Ex. 35,

D.E. 28-8, 85:7-19.)

On November 20, 2014, Appellant Vacchio, the Town’s

Senior Building Inspector, posted a placard on the Thatched

Cottage, which states, in substantial part:

This Building is hereby declared unsafe and

unfit for human habitation pursuant to the

Code of the Town of Huntington.

The Occupancy of this dwelling or any part

thereof is unlawful.

(Placard, Suppl. Ex. 33, D.E. 29.)7

Appellants never provided Appellees with notice of their

intent to placard the Property. Appellant Cline testified that

the Town has never posted a placard without first conducting an

inspection. (June 1, 2017 Cline Dep. Part 2, No. 16-AP-8035,

Bankr. D.E. 70-4, 83:12-20.) Cline also testified that the placard

posted at the Thatched Cottage was the only instance where the

Town posted a placard on a property without first conducting its

own inspection. (Feb. 4. 2016 Cline Dep., 16:10-21.) Cline

7 The Placard explicitly states it was posted “pursuant to the

Code of the Town of Huntington” (the “Town Code”). (See

Placard.) However, there are conflicting emails, documents,

testimony, and arguments as to whether the Placard was posted

pursuant to the Town Code, the New York State Property

Maintenance Code (“NYPMC”) (see e.g., Dec. 3, 2014 Town Memo.,

Suppl. Ex. 36, D.E. 28-9,), the New York State Building Code

(see Apr. 27, 2017 Del Col Dep., 71:15-72:9), or based on a

general Town “duty” anytime there is a “structural defect” ora

building that is not “fit for habitation” (Feb. 4, 2016 Cline

Dep., 88:17-24).

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testified that he determined to placard the Thatched Cottage in

consultation with co-Appellants Vacchio and McNally although it

was not “typical for [Cline] to be involved with placarding.”

(June 1, 2017 Cline Dep. Part 1, No. 16-AP-8035, Bankr. D.E. 70-

3, 50:12-13, 52:4-13.) When pressed for details regarding the

Town’s placarding procedures, Del Col, the Deputy Town Supervisor

who has worked for the Town in various capacities for over 30

years, testified she “could not recall” the number of placards

placed on buildings “due to threats of public safety” but that “25

per year” seemed “high.” (Apr. 27, 2017 Del Col Dep., 7:5-25,

63:16-65:22.)

Cline also testified that the “assessment concerning the

[Property’s] structural integrity” came only from the Colamussi

Reports. (Feb. 4, 2016 Cline Dep., 85:8-17.) Cline further

testified that Appellants’ decision to post the placard was based

upon a review of the Colamussi Reports, photographs, statements,

and in consideration of the Appellants’ obligations to protect the

public. (June 1, 2017 Cline Dep. Part 1, No. 16-AP-8035, 53:3-

21.) According to Cline, “there were very little ramifications”

to posting the placard and that, even though the building was

already “abandoned,” if they did nothing, it would be “devastating”

if someone was injured at the Property, especially in light of the

Colamussi Reports which stated the Property posed a “risk to the

public.” (June 1, 2017 Cline Dep. Part 1, No. 16-AP-8035, 43:7-

23, 53:22-54:15.) Indeed, at the time of placarding, Cline

testified that he understood that the Thatched Cottage had been

“closed for weeks or months.” (Feb. 4, 2016 Cline Dep., 88:11-

16.)

Further, prior to posting the placard, Cline called Del

Col even though it was not “in the course of normal business” to

report placarding to Del Col and even though he “never made a phone

call before [placarding] other than the Thatched Cottage.” (June

1, 2017 Cline Dep. Part 1, No. 16-AP-8035, 50:14-20.) Cline also

testified that the Town never sought to verify the Colamussi

Reports and did not communicate with the authors of the Colamussi

Reports until after the decision was made to placard the Property.

(June 1, 2017 Cline Dep. Part 2, No. 16-AP-8035, 77:6-78:23.)

After the placard was posted, Cline drafted an internal

memorandum, dated December 3, 2014, in response to a request from

Councilman Mark Cuthberston to “prepare a summary of events leading

up to the placarding of the Thatched Cottage.” (Feb. 4, 2016 Cline

Dep., 81:9-82:5.) The December 3, 2014 memorandum provided a

timeline that incorrectly noted November 18, 2014 as the date

Colamussi “dropped off a package” to the Fire Marshal’s office

which contained, among other things, the Galli Reports. (See

Dec. 3, 2014 Town Memo.) Citing to the Galli Reports, Cline wrote

that the “Town had a duty to act quickly to safeguard the occupants

of [the Property]” pursuant to Section 107 of the New York Property

Maintenance Code (the “NYPMC”).8 (See Dec. 3, 2014 Town Memo.)

Cline testified that after sharing a draft of the December 3, 2014

memorandum with the Fire Marshal, McNally, it was recommended that

Cline “include the section of . . . the property maintenance code.”

(Feb. 4, 2016 Cline Dep., 83:13-22.)

Raj, the highest bidder, refused to close and defaulted

on the sale “because the property was not a waterfront facility”

as a result of an encroachment on Town property, an issue that the

Town previously ignored, and because Raj was “unaware of the total

uselessness of the building” prior to placarding. (See Vacate and

Turnover Mot. Att’y Affirmation, No. 14-BK-70001, Bankr. D.E. 273-

1, Ex. 1, II 3-4, 14.)% Pursuant to the Terms and Conditions of

sale, after Raj’s default, BFCU was required to take title to the

Thatched Cottage. (Sale Order, DiConza Decl., Ex. 19, No. 16-AP-

8035, Bankr. D.E. 70-16.)

The Town and Appellees remained in contact between

January 2015 and April 2016. After posting the placard, the Town

® The NYPMC is part of the State Uniform Fire Prevention and

Building Code. (Appeal Br., D.E. 15, at 28.)

° On January 15, 2015, the Bankruptcy Court denied Raj’s Deposit

Turnover Motion which asked the Bankruptcy Court to vacate the

sale and return his deposit. (Jan. 15, 2015 Order, No. 17-BK-

70001, Bankr. D.E. 291.) Raj appealed to the District Court and

on August 21, 2015, the District Court affirmed the Bankruptcy

Court’s denial of the Deposit Turnover Motion. See Raj v.

Barnard (In re Joe’s Friendly Serv. & Son), 538 B.R. 618

(E.D.N.Y. 2015) (Spatt, J.).

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issued a stop work order and suspended demolition activities at

the Property. (June 1, 2017 Cline Dep. Part 2, No. 16-AP-8035,

89:21-90:22.) The Town permitted Appellees to perform “limited

work” pursuant to the Town Code. (Jan. 6-7, 2015 Email Chain, No.

16-AP-8035, DiConza Decl., Ex. 53, Bankr. D.E. 70-39, at ECF pp.

5-7.) Appellants assert that Appellees “had access to the

[P]roperty to show it to potential buyers” (Appeal Br., D.E. 15,

at 24) however there is evidence that Appellees were not permitted

to show the Property to prospective purchasers until the placard

was removed (see Apr. 15-19, 2016 Email Chain and Apr. 19, 2016

Town Letter, No. 16-AP-8035, McCord Decl., Ex. 66, Bankr. D.E. 79-

31). In the Fall of 2015, Appellees contracted to sell the

Thatched Cottage but the sale did not go through. (Jan. 4-5, 2015

Email Chain, No. 16-AP-8035, DiConza Decl., Ex. 58, Bankr. D.E.

70-39, at ECF pp. 29-32.)

On March 10, 2016, the Town’s lawyer emailed Appellees’

counsel that “no one should be inside the [Thatched Cottage] or on

top of the roof” unless structural defects are addressed by “[a]

Professional Engineer or Architect saying it is safe in writing,”

or “[p]ermit plans submitted to department, permit issued,

permitted work performed and CO’ed.” (Mar. 10, 2016 Email Chain,

No. 16-AP-8035, DiConza Decl., Ex. 59, Bankr. D.E. 70-39, at ECF

pp. 33-36.) As such, on April 15, 2016, Appellees submitted an

engineering report that “confirms that the building is in fact

structurally sound and poses no threat of collapse.” (Apr. 15,

2016 Email, No. 16-AP-8035, DiConza Decl., Ex. 59, Bankr. D.E. 70-

39, at ECF pp. 37-38; Report, No. 16-AP-8035, DiConza Decl.,

Ex. 60, Bankr. D.E. 70-39, at ECF pp. 39-62.) The Town removed

the placard on April 19, 2016 (Apr. 19, 2016 Town Letter, No. 16-

AP-8035, McCord Decl., Ex. 66, Bankr. D.E. 79-31, at ECF p. 12)

and on July 5, 2016, Appellees entered into a contract to sell the

Property, which closed on September 13, 2016. (July 5, 2016

Purchase and Sale Agreement, No. 16-AP-8035, McCord Decl., Ex. 67,

Bankr. D.E. 79-32.)

III. The Adversary Proceeding

Appellees commenced the Adversary Proceeding in New York

State Supreme Court, Suffolk County, on February 11, 2016, which

Appellants removed to the Bankruptcy Court. (Notice of Removal,

No. 16-AP-8035, Bankr. D.E. 1.) On August 12, 2016, Appellees

filed an Amended Complaint (see generally Am. Compl.) alleging

that (1) the Town, Appellants, Colamussi, and others orchestrated

a plan to interfere with the sale of the Property including by,

among other things, posting the placard (on an already closed

building) and keeping the placard posted for approximately

seventeen months, which effectively condemned the Property and

prevented Appellees from entering the Property to perform

necessary repairs and from showing the Property to real estate

brokers and prospective purchasers (Appellees’ Counter-Stmt., at

ECF p. 58); (2) Appellants failed to follow proper procedures in

posting the placard (see generally Appellees’ Counter-Stmt.; and

(3) Appellants gave Colamussi preferential treatment to Appellees

detriment (Appellees’ Counter-Stmt., at ECF pp. 27-30, 32-48) .!°

IV. The Adversary Proceeding Procedural History

On October 19, 2016, Appellants filed a motion to dismiss

the Amended Complaint in the Bankruptcy Court arguing, among other

things, that Appellants were entitled to absolute immunity.

(Appellants’ Mot. to Dismiss, No. 16-AP-8035, Bankr. D.E. 24., at

20.) On December 5, 2016, the Bankruptcy Court issued an oral

ruling denying Appellants’ motion to dismiss in its entirety.

(Dec. 5, 2019 Tr., No. 16-AP-8035, Bankr. D.E. 35; Dec. 12, 2019

Order, No. 16-AP-8035, Bankr. D.E. 34.) On August 12, 2016,

Appellees filed an Amended Complaint. On December 27, 2016,

Appellants filed an answer to the Amended Complaint, again

asserting as an affirmative defense that “[Appellants] have no

liability for the claims asserted in the Amended Complaint based

10 The Thatched Cottage is a well-known establishment that has

hosted Town events and functions. (Appellees’ Counter-Stmt., at

ECF p. 33.) Moreover, Colamussi has personal and professional

connections with various Town officials, including his sister,

sister-in-law, and father who have all worked in various Town

positions. (Appellees’ Counter-Stmt., at ECF pp. 32-33.) The

record reflects that Colamussi often sought assistance from Town

officials for structural, developmental, and rebuilding projects

at the Thatched Cottage, FEMA issues after Hurricane Sandy, and

with Colamussi’s inability to pay bills. (Appellees’ Counter-

Stmt., at ECF pp. 33-35).

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upon the doctrine of absolute immunity.” (Answer to Am. Compl.,

Suppl. Ex. 31, D.E. 28-4, at 22, 4 7; see also Aug. 5, 2016 Answer,

No. 16-AP-8035, Bankr. D.E. 13, at 16.)

On January 23, 2017, Appellants filed a motion to

withdraw the reference to the Bankruptcy Court (the “Motion to

Withdraw”), which this Court denied on November 25, 2019.1! (Order,

No. 17-MC-0190, D.E. 14.) While the Motion to Withdraw was

pending, the parties continued to litigate the Adversary

Proceeding and engaged in extensive discovery. On July 31, 2017,

Appellants filed their motion for summary judgment (Mot. Summ. J.,

No. 16-AP-8035, Bankr. D.E. 66), which Appellees opposed (Summ. J.

Opp., No. 16-AP-8035, Bankr. D.E. 81). On January 29, 2018, the

Bankruptcy Court reopened discovery for the parties to explore

facts surrounding the Tauscher Reports.!2 (Order, No. 16-AP-8035,

Bankr. D.E. 93.) The parties submitted supplemental briefs on

April 13, 2018. (No. 16-AP-8035, Bankr. D.E. 100-106.)

Although the placard specifically reads to be posted

“[Tpjursuant to the Code of the Town of Huntington,” Appellants

argued below, and here, that the placard was posted pursuant to

11 Defendants’ Motion to Withdraw was initially assigned to Judge

Arthur D. Spatt, who issued a recusal order on April 11, 2018.

(D.E. 10.)

12 The Tauscher Reports were not produced in discovery. Rather,

Appellees discovered the existence of the Tauscher Reports

during a deposition in a separate but related action. (See

Bankr. Decision, D.E. 16-2 at 13-15.)

19

the NYPMC. (Mot. Summ. J., D.E. 16-9, at 30-31.) Appellants

argued that the NYPMC permitted the Town to “placard property that

it considered ‘unsafe’ or ‘unfit for human occupancy’” without

notice. (Summ. J. Br., No. 16-AP-8035, Bankr. D.E. 68, at 30-31.)

According to Appellants, “[l]icensed engineers’ reports,” i.e.,

the Colamussi Reports, “indicated that the Thatched Cottage was

unsafe” and therefore the decision to post the placard did not

violate Appellees’ constitutional rights because the NYPMC does

not require notice. (Summ. J. Br., No. 16-AP-8035, at 31.)

On March 21, 2019, the Bankruptcy Court denied

Appellants’ motion for summary judgment in its entirety. (Bankr.

Decision.) As relevant here, the Bankruptcy Court found

Appellants’ reliance on the NYPMC “misplaced” and held that “the

process here should be measured under the Town Code” for purposes

of the Bankruptcy Court’s decision. (Bankr. Decision, at 18-19.)

The Bankruptcy Court further articulated that the

“clearly established right” was to have the “Town employees adhere

to the procedures established by the Town Code, and if [Appellants]

believed that an ‘emergency’ existed, i.e., by virtue of the

Colamussi Reports, then to follow the Town Code procedures for

emergency circumstances.” (Bankr. Decision, at 41.) The

Bankruptcy Court concluded that issue of fact existed as to whether

it was reasonable for the Town to “placard an already shuttered

business based on unverified engineering reports, that procedures

pursuant to the Town Code were not followed because [Appellant

Cline] was ‘not aware of specifics of the Town Code,’ and that

[Appellants] maintained the placard for 17-months for reasons not

apparent to [the] Court.” (Bankr. Decision, at 42.) Thus, the

Bankruptcy Court denied Appellants summary judgment on qualified

immunity. (Bankr. Decision, at 42.)

On April 4, 2019, Appellants filed this Appeal solely

arguing that Appellants are entitled to summary judgment on the

ground of qualified immunity. On May 20, 2019, Appellees filed

the Motion to Dismiss. On August 1, 2019, the Bankruptcy Court

scheduled trial to start on December 9, 2019. (Pre-Trial Order,

No. 16-AP-8035, Bankr. D.E. 140.) On June 3, 2019, Appellants

opposed Appellees’ Motion to Dismiss (Appellants’ Opp., D.E. 5)

and on September 20, 2019 filed the Stay Motion requesting that

this Court stay the Adversary Proceeding and trial pending a

determination of this Appeal (Stay Mot., D.E. 18).

DISCUSSION

Appellees argue that the Appeal should be dismissed

because (1) Appellants waived the defense of qualified immunity

and (2) the Court lacks subject matter jurisdiction to hear this

Appeal because “the Bankruptcy Court determined that the

Individual [Appellants] immunity claim so clearly depends on

resolution of material facts in dispute that it cannot be decided

as a matter of law.” (Appellees’ Mem. of Law, D.E. 4-1, at 2-4.)

Appellants oppose the Motion to Dismiss and argue that

they did not waive the qualified immunity defense because it was

asserted in their first motion for summary judgment and did not

result in prejudice or unfair surprise to Appellees. (Appellants’

Opp., ¶¶ 19-21.) Appellants further argue that the Court has

jurisdiction over the Appeal because the Court has jurisdiction to

hear appeals relating to whether: (1) Appellees were not deprived

of any constitutionally protected property interests or rights,

(2) Appellants did not violate any clearly established rights, and

(3) the Town’s and Appellants’ conduct was reasonable. (See

generally Appellants’ Opp.)

I. Waiver

Appellees argue that Appellants waived the defense of

qualified immunity because Appellants did not specifically assert

the defense prior to summary judgment. (See Appellees’ Mem. of

Law, at 6-7; see also Answer to Am. Compl., at 22, ¶ 7 (asserting

absolute immunity, and not qualified immunity, as an affirmative

defense).) Appellants respond that they did not waive the

qualified immunity defense because it was asserted in their first

motion for summary judgment and did not prejudice or unfairly

surprise Appellees. (Appellants’ Opp., ¶¶ 19-21.)

The Court is not persuaded that Appellants waived their

qualified immunity defense. Here, although Appellants did not

assert the qualified immunity defense in their Answer or Answer to

the Amended Complaint, Appellants asserted the defense of

qualified immunity in their first motion for summary judgment.

(Summ. J. Br., at 37-39.)

The cases cited by Appellees are easily distinguishable.

In Blissett v. Coughlin, 66 F.3d 531, 538-39 (2d Cir. 1995), the

qualified immunity defense had been waived where defendants,

although having “raised a general immunity defense” in an answer,

“did not raise the issue of qualified immunity during the

subsequent five years of pre-trial proceedings” or at trial. In

McCardle v. Haddad, 131 F.3d 43, 52 (2d Cir. 1997), qualified

immunity was waived where the defendant improperly raised the

defense after the close of his case at trial, even though the

defense was affirmatively asserted in an answer.

Here, Appellants raised the defense of qualified

immunity during pre-trial proceedings, in their first motion for

summary judgment before the Bankruptcy Court. Cf. McCardle, 131

F.3d at 52; Blisset, 66 F.3d at 538. The parties fully briefed

and argued Appellants’ qualified immunity defense. See Brown v.

City of N.Y., 862 F.3d 182, 188 (2d Cir. 2017). Therefore, the

Court does not find that Appellants waived qualified immunity as

a defense.

II. Qualified Immunity

A. Standard

When determining whether a defendant is entitled to

qualified immunity, the Court must decide whether “the facts that

a plaintiff has alleged [ ] or shown [ ] make out a violation of

a constitutional right.” Pearson v. Callahan, 555 U.S. 223, 232,

129 S. Ct. 808, 815–16, 172 L. Ed. 2d 565 (2009) (citing Saucier

v. Katz, 533 U.S. 194, 201, 121 S. Ct. 2151, 150 L. Ed. 2d 272

(2001)). The Court must also decide whether “the right at issue

was ‘clearly established’ at the time of defendant’s alleged

misconduct.” Id. (internal quotation marks and citation omitted).

The Court is “permitted to exercise [its] sound discretion in

deciding which of the two prongs of the qualified immunity analysis

should be addressed first in light of the circumstances in the

particular case at hand.” Id. at 236, 129 S. Ct. at 818.

“A right is clearly established if (1) the law is defined

with reasonable clarity, (2) the Supreme Court or the Second

Circuit has recognized the right, and (3) a reasonable defendant

[would] have understood from the existing law that [his or her]

conduct was unlawful.” Anderson v. Recore, 317 F.3d 194, 197 (2d

Cir. 2003) (internal quotation marks and citation omitted; first

alteration in original). “Although a conclusion that the [ ]

official’s conduct was objectively reasonable as a matter of law

may be appropriate where there is no dispute as to the material

historical facts, if there is such a dispute, the factual question

must be resolved by the factfinder.” Taravella v. Town of Wolcott,

599 F.3d 129, 135 (2d Cir. 2010) (internal quotation marks and

citation omitted).

B. Jurisdiction

This Court has jurisdiction to review an interlocutory

appeal of a denial of qualified immunity “‘when the underlying

issues raise only questions of law.’” Tooly v. Schwaller, 919

F.3d 165, 172 (2d Cir. 2019) (quoting Bryant v. Egan, 890 F.3d

382, 386 (2d Cir. 2018)). As outlined by the Second Circuit, “when

a [ ] court rejects a defendant’s assertion of qualified immunity

on a motion for summary judgment because it concludes that the law

the defendant allegedly violated was ‘clearly established,’ that

order may be appealed immediately” and is subject to de novo

review. Raspardo v. Carlone, 770 F.3d 97, 111–12 (2d Cir. 2014)

(citing Salim v. Proulx, 93 F.3d 86, 89 (2d Cir. 1996)); Betances

v. Fischer, 140 F. Supp. 3d 294, 301 (S.D.N.Y. 2015), aff’d, 837

F.3d 162 (2d Cir. 2016) (“Appealable matters involve ‘disputes

about the substance and clarity of pre-existing law,’ not about

‘what occurred or why an action was taken or omitted.’”) (citation

omitted); cf. Johnson v. Jones, 515 U.S. 304, 313–18, 115 S. Ct.

2151, 132 L. Ed. 2d 238 (1995) (holding that there is no appellate

jurisdiction over a district court’s denial of a defendant’s motion

for summary judgment where the defendant challenges whether the

plaintiffs have set forth sufficient evidence to create genuine

issues of material fact).

If “a factual determination is a necessary predicate to

the resolution of whether . . . immunity is a bar, review is

postponed and” the appeal is dismissed. Tooly, 919 F.3d at 172

(internal quotation marks and citation omitted; ellipsis in

original). Thus, an interlocutory appeal is only appropriate to

determine whether the defendant is entitled to qualified immunity

as a matter of law “‘on stipulated facts, or on the facts that the

plaintiff alleges are true, or on the facts favorable to the

plaintiff that the trial judge concluded the jury might find.’”

Id. (quoting Bolmer v. Oliveira, 594 F.3d 134, 141 (2d Cir. 2010)).

“[W]here the district court denied immunity on summary judgment

because genuine issues of material fact remained,” jurisdiction

exists to “determine whether the issue is material, but not whether

it is genuine.” Id. (quoting Bolmer, 594 F.3d at 140-41) (emphasis

in original).

The crux of Appellants’ argument is that they are

entitled to the qualified immunity defense because Appellees

cannot satisfy the first Saucier element: Appellees fail to

establish a constitutional violation of due process (procedural

and substantive) and equal protection. Appellants are effectively

asking the Court to determine whether the Bankruptcy Court erred

in denying Appellants summary judgment on the merits of Appellees’

underlying federal claims as a matter of law. (Appeal Br., at 20-

42.) Although Appellants argue the Appeal is rooted in the

Bankruptcy Court’s denial of summary judgment based on qualified

immunity, the Appeal reads more like an appeal of the denial of

summary judgment, which is an interlocutory order, and not

“immediately appealable because such a decision is not a final

judgment.” Cowan ex rel. Estate of Cooper v. Breen, 352 F.3d 756,

760 (2d Cir. 2003) (internal quotation marks and citation omitted).

Nonetheless, Appellants allege at least some qualified

immunity issues that present pure issue[s] of law over which this

Court may properly exercise jurisdiction: that Appellees were not

deprived of any constitutionally protected property interests and

that the relevant law was not clearly established. Cowan, 352

F.3d at 760; see also Terebesi v. Torreso, 764 F.3d 217, 229-30

(2d Cir. 2014). However, by accepting Appellees’ version of the

facts, Appellants are not entitled to summary judgment as a matter

of law because resolution of these issues turn on conflicting

facts. Cowan, 352 F.3d at 764.

Appellants’ remaining arguments depend on Appellants’

“versions of contested facts, or on the district court’s

determinations of evidentiary sufficiency--questions over which”

this Court has no jurisdiction. Terebesi, 764 F.3d at 230.

III. The Merits of Appellants’ Appeal

The scope of this Appeal is limited to the Bankruptcy

Court’s denial of summary judgment to the Appellants on the ground

of qualified immunity.!° In support, Appellants argue that they

are entitled to qualified immunity because (1) Appellants did not

deprive Appellees’ of any constitutionally protected property

right (Appeal Br. at 20-24); (2) Appellants did not deprive

Appellees of substantive due process because their conduct was not

“arbitrary or irrational” or “Intentional” (Appeal Br. at 34-37);

(3) Appellants did not violate Appellees’ equal protection rights

because there was no one “similarly situated” and the decision to

post the placard was not based on “impermissible considerations”

(Appeal Br. at 37-42); (4) Appellants did not violate any “clearly

established” rights (Appeal Br. at 42-47); and (5) the

determination to post the placard was objectively reasonable

(Appeal Br. at 47-51).

13 The Court will disregard Appellants’ complaints of error

regarding the Bankruptcy Court’s finding that Appellees lack

standing to assert their claims (Appeal Br., at 24-27), and any

other issues beyond the scope of this appeal. See e.g., Selig

v. Druckman Law Grp. PLLC, No. 17-CV-4510, 2018 WL 3973013, at

*4 (E.D.N.Y. Aug. 20, 2018). Further, Appellants do not argue

that their standing argument is “inextricably intertwined” or

that resolution of the standing issue is “necessary to ensure

meaningful review” of the Bankruptcy Court’s ruling on qualified

immunity thus, the Court has no jurisdiction over this portion

of the Appeal. Jones v. Parmley, 465 F.3d 46, 64-65 (2d Cir.

2006) (internal quotation marks and citation omitted).

28

Appellees oppose the Appeal primarily arguing that this

Court lacks jurisdiction to hear the Appeal and that, among other

things, (1) federal due process requirements cannot be “avoided

merely because a state code or municipal statute does not expressly

spell out such requirements” (Appeal Opp., D.E. 30, at 33);

(2) “due process reguires that a mortgagee be put on notice

whenever the value of its security interest is ‘severely

diminished’ by a deprivation (Appeal Opp., at 38-39 (citations

omitted)); and (3) “even under the [Appellees’] version of the

facts” Appellants would not be entitled to qualified immunity.

(Appeal Opp., at 26-28.)

In addressing the merits of Appellants’ appeal, the

Court “continue[s the] jurisdictional inquiry.” Terebesi, 764

F.3d at 230.

A. Procedural Due Process

1. Deprivation of a Protected Property Interest

Appellants argue that Appellees’ procedural due process

claim!* fails and they are entitled to qualified immunity, because

14 In arguing that Appellees were not deprived a constitutionally

protected property interest, Appellants cite Mennonite v. Board

Missions v. Adams, 462 U.S. 791, 103 S. Ct. 2706, 77 L. Ed. 2d

180 (1993), First Nat’l Acceptance Co. v. City of Utica, 26 F.

Supp. 3d 185, 193-95 (N.D.N.Y. 2014), Fusco v. State of

Connecticut, 815 F.2d 201, 206 (2d Cir. 1987), and Zipperer v.

City of Fort Myers, 41 F.3d 619, 623 (11th Cir. 1995). (See

Appeal Br., at 20-24.) Appellants’ citations direct the Court

to discussions on whether state actors violated the Fourteenth

Amendment by failing to provide proper notice and due process.

29

“Appellees were not denied any constitutionally protected property

interest or right as a result of any actions taken by Appellants

in posting and maintaining the Placard.” (Appeal Br., at 20-24.)

The Bankruptcy Court found “[a] mortgagee has a legally

protected property interest in the mortgaged premises for due

process purposes” and that “the process [| ] should be measured

under the Town Code.” See Bankr. Decision, D.E. 16-2, at 19, 25-

26 (citing Mennonite, 462 U.S. 791, 103 S. Ct. 2706 and First

National Acceptance, 26 F. Supp. 3d 185. Appellants do not

specifically contest that a mortgagee has a constitutionally

protected property interest in a mortgaged property. However, in

a somewhat unclear fashion, Appellants argue that the Bankruptcy

Court erred in finding that Appellees were deprived a

constitutionally protected property interest because Appellants’

conduct did not lead to “(1) the complete extinguishment or

nullification of a mortgagee’s security interest, or (2) an

immediate, severe and utter diminishment of the value of the

security interest.” (Appeal Br., at 23.) Appellees respond that

relevant authority recognizes that “due process requires that a

mortgagee be put on notice whenever the value of its security

It is not entirely clear whether Appellants intend their

arguments to also apply to a property interest protected by

substantive due process. Thus, the Court limits its inguiry to

whether Appellees were deprived a property interest entitling

Appellees to procedural due process.

30

interest is ‘severely diminishe[d]’ by a deprivation.”!° (Appeal

Opp., at 38-39.)

According to Appellants, Mennonite and First National,

relied on by the Bankruptcy Court, stand for the proposition that

a mortgagee is not deprived a constitutionally protected property

interest unless “the placarding of the [Property] . . . caused the

utter and complete destruction or extinguishment of BFCU’s secured

interest in the [Property].” (Appeal Br., at 22.) Appellants

argue, therefore, that because Appellees’ secured interest was not

“complete[ly]” extinguished, Appellees were not deprived of a

constitutionally protected property interest. (Appeal Br., at

23.)

The Court does not find that Mennonite and its progeny

reguire the “utter and complete destruction or extinguishment of

[Appellees’] secured interest in the [Property]” to establish the

deprivation of constitutionally protected rights. (Appeal Br.,

15, at 22.) Rather, the Supreme Court held that “a mortgagee

clearly has a legally protected property interest” and is “entitled

to notice” where an action “severely diminishes the value of the

15 In their brief below, Appellees argued, without citation, that

“TijJt is incontrovertible that [Appellees] had a cognizable,

constitutionally-protected, property interest in the [Property],

as both the holder of the first mortgage on the [Property] and

as the holder of a first priority lien on substantially all the

assets of the catering business operated at the [Property] by

Joe’s Friendly.” (Summ. J. Opp., 16-AP-8035, at 21.)

31

mortgaged property.” Mennonite, 462 U.S. at 798; First Nat’l, 26

F. Supp. 3d at 196. The question, therefore, is whether the

decision to post the placard “severely diminish[ed]” the value of

the Property. If the answer is “yes,” then Appellees were entitled

to notice and an opportunity to be heard.

While Appellants appear to argue a “temporary”

deprivation cannot establish a deprivation of a constitutionally

protected property interest, (See Appeal Br., at 23-24), the

Supreme Court has held that “a temporary deprivation of property

is sufficient for due process purposes.” Bray v. City of N.Y.,

346 F. Supp. 2d 480, 489 (S.D.N.Y. 2004) (citing Connecticut v.

Doehr, 501 U.S. 1, 12, 111 S. Ct. 2105, 2113, 115 L. Ed. 2d 1

(1991)); Fuentes v. Shevin, 407 U.S. 67, 85, 92 S. Ct. 1983, 1996,

32 L. Ed. 2d 556 (1972) (it is “well settled that a temporary,

nonfinal deprivation of property is nonetheless a ‘deprivation’ in

the terms of the Fourteenth Amendment”) (citations omitted);

Krimstock v. Kelly, 306 F.3d 40, 51-52 (2d Cir. 2002); United

States v. Monsanto, 924 F.2d 1186, 1192 (2d Cir. 1991) (holding

that a “temporary and nonfinal . . . removal is, nonetheless, a

‘deprivation of property’ subject to the constraints of due

process”) (citations omitted); cf. Ceara v. Gilboy, No. 13-CV-

6673, 2016 WL 5661740, at *2 (W.D.N.Y. Spt. 30, 2016) (analyzing

de minimis deprivation of property interest in physical property).

Appellants do not stipulate to any facts, thus review is

limited to facts “that the [Appellees] allege[ ] are true, or on

the facts favorable” to the Appellees. Bolmer, 594 F.3d at 141.

The Court cannot, based on the record favorable to Appellees,

determine whether Appellees were deprived of a constitutionally

protected property interest as a matter of law. Rather, there are

questions of material fact as to whether the decision to post the

placard “severely diminished” the value of the Property and whether

Appellees’ “use of [the Property was] so drastically regulated [by

the Town and Appellants] as to destroy its value.” BAM Historic

Dist. Ass’n, 723 F.2d 233, 237 (2d Cir. 1983). Moreover, there

are material issues of fact as to whether the Property was

“effectively condemned” for a period of time thereby “severely

diminish[ing]” the value of the mortgaged Property.!® (See Bankr.

Decision, at 2.)

16 While Appellants correctly point out that a “mere decline in

property value” does not support a Fourteenth Amendment

deprivation claim, (Appeal Br., at 21), Appellees do not only

argue a “mere decline in property value.” Cf. BAM Historic, 723

F.2d at 237 (a “decline in property values has not been

recognized as implicating the Fourteenth Amendment’s due process

clause.”) Appellees also argue that the placard, which was

posted for approximately seventeen months, effectively condemned

the Property and prevented Appellees from entering the Property

to perform necessary repairs and from showing the Property to

real estate brokers and prospective purchasers. (Appellees’

Counter-Stmt., at ECF p. 57.)

33

Accordingly, Appellants are “not entitled to judgment as

a matter of law on the [| ] issue of whether a [procedural due

process] constitutional violation occurred,” making “summary

judgment inappropriate.” Cowan, 352 F.3d at 763.1’

2. Clearly Established Law

a. Was the Law Clearly Established?

The Bankruptcy Court denied Appellants summary judgment

on the basis of qualified immunity because it could not “find at

this stage of the proceedings that the Individual [Appellants’ ]

actions did not violate a ‘clearly established’ right, or that

their actions were ‘objectively reasonable.’” (Bankr. Decision,

at 42.)

Appellants argue that the Bankruptcy Court erred in

applying the Town Code, and not the NYPMC, when determining whether

Appellants violated a “clearly established” right. (Appeal Br.,

at 42, 44-47.) Appellants argue that in posting the placard, they

relied on the NYPMC which permits the Town to placard a property

17 Appellants also argue that Appellees’ procedural due process

claims fail as a matter of law because Appellees failed to

exhaust post-deprivation remedies. (Appeal Br., at 30-33.)

Appellants do not directly appeal the denial of summary judgment

on the basis that Appellees failed to exhaust post-deprivation

remedies. However, the Court lacks jurisdiction to decide this

portion of the Appeal because Appellants argue the sufficiency

of the evidence favors summary judgment on this issue (see e.g.,

Appeal Br., at 32) and because the Bankruptcy Court found that

material facts are “very much” in dispute, including whether

Appellants’ conduct was “random and/or unauthorized” (Bankr.

Decision, at 33-34).

34

without notice when the subject property is deemed “unsafe” or

“unfit for human occupancy.” (Appeal Br., at 28-29, 43-47.)

According to Appellants, the decision to post the placard without

notice comports with the NYPMC because it was made “after [ ]

receiv[ing] [ ] engineering reports calling into question the

structural integrity of the Thatched Cottage seven days before it

was posted.” (Appeal Br., at 44.)

The Second Circuit has “repeatedly held” that “a state

statute does not serve as ‘clearly established law’ for purposes

of qualified immunity” because “a violation of state law does not

per se result in a violation of the Due Process Clause.” Tooly,

919 F.3d at 172-73 (citing Brown v. City of N.Y., 798 F.3d 94, 100

(2d Cir. 2015)). “To determine whether a violation of state law

overcomes federal qualified immunity, then, the court must

determine whether the conduct that violated the state statute also

violates clearly established federal law, and this is a distinct

and separate inquiry.” Id. at 173. Consequently, a party that

violates the Town Code, or the NYPMC, does not necessarily violate

clearly established federal law. Thus, reliance solely on the

Town Code or the NYPMC as the relevant “clearly established right”

is legal error.!® See id.

18 The Bankruptcy Court’s reliance on the Town Code was harmless

to the extent that the Bankruptcy Court determined that

Appellees were deprived a constitutionally protected property

interest and that the Town Code comported with Due Process

35

Appellants incorrectly argue that there is no “clearly

established” law because the Supreme Court and Second Circuit have

never addressed whether “[A]ppellants would violate a mortgagee’s

rights if they placarded an already closed and vacant ‘unsafe’

building based on licensed engineers’ reports stating that the

building was unsafe without conducting a prior inspection.”

(Appeal Br., D.E. 15, at 43.) To the contrary, the “clearly

established” law here is a mortgagee’s right to notice prior to

state conduct that “severely diminish[es]” the value of the

mortgaged property. See discussion, supra. It necessarily follows

that if Appellees’ were deprived a constitutionally protected

property interest, which the Court does not now decide, Appellees

were entitled to procedural due process. Accordingly, the Court

finds the import of Mennonite, decided in 1993, and its progeny

“clearly established” at the time of the alleged violation in 2014.

b. Were Appellants Objectively Reasonable?

The determination of whether Appellants violated

“clearly established” law therefore turns on whether it was

“objectively reasonable” for Appellants to believe that their

conduct did not violate Appellees’ clearly established rights.

The Court agrees with the Bankruptcy Court and finds that questions

of material fact exist as to whether it was reasonable for the

requirements and provided the proper “process” to follow prior

to posting the placard. (Bankr. Decision, at 19.)

36

individually-named Appellants to conclude, in light of then

existing law, that their conduct was lawful.!9 (See Bankr.

Decision, at 41-42.)

As such, summary judgment to Appellants on qualified

immunity cannot be decided as a matter of law. It follows that

the Bankruptcy Court’s denial of summary judgment to Appellants on

the basis of qualified immunity is AFFIRMED.

B. Substantive Due Process

The Bankruptcy Court denied Appellants summary judgment

on Appellees’ substantive due process claim because “there are

material facts in dispute as to whether [Appellants’ conduct] were

arbitrary or irrational or motivated by bad faith.” (Bankr.

Decision, at 35-36.) The Bankruptcy Court relied on Cine SK8 v.

Town of Henrietta, 507 F.3d 778 (2d Cir. 2007) to conclude that

“[t]he multitude of alleged procedural irregularities (i.e.,

failing to give notice to anyone with a legal interest in the

property, failing to schedule a hearing, relying upon unverified

reports, failing to inspect, etc.), and the record . . . suggests

that [Appellants] may have been motivated more by a desire to

19 For example, whether Appellants relied on the NYPMC, the Town

Code, or any other law, and whether that reliance was

reasonable, prevents the Court from deciding “objective

reasonableness” as a matter of law. These examples, of course,

are not intended as an exclusive list of all relevant and

material factual disputes.

37

address Colamussi’s agenda than concern for public safety.”

(Bankr. Decision, at 35.)

Appellants argue that the Bankruptcy Court erred in

denying summary judgment on qualified immunity grounds with

respect to substantive due process because (1) Appellants had

authority “to placard the Thatched Cottage,” rendering the

Bankruptcy Court’s reliance on Cline inapplicable (Appeal Br.,

36); (2) “Appellants cannot show” that there was “anything

arbitrary or irrational about placarding the [Property]” and there

is no evidence that “any of the Appellants intentionally deprived

Appellees of their rights by placarding the [Property]” (Appeal

Br., at 34); and (3) the “placarding was not even arguably

‘outrageous’ or a ‘gross abuse’” (Appeal Br., at 37).

Despite Appellants’ attempt to couch this portion of the

Appeal as only involving “questions of law,” these arguments

“really pertain to the [Bankruptcy Court’s] finding that there

exists a material dispute of fact,” which precludes a grant of

qualified immunity on summary judgment. See Marrero for Estate of

Morales v. Cote, 756 F. App’x 79, 80 (2d Cir. 2019) (citing Salim

v. Proulx, 93 F.3d 86, 91 (2d Cir. 1996)). Indeed, the Court finds

that there are material issue of fact as to (1) whether Appellees

were deprived a property right; (2) whether the determination to

post the placard was “tainted” by either (a) preferential

treatment to Colamussi or (b) “fundamental procedural

irregularity--each of which independently, or in combination,

would be sufficient to demonstrate” that Appellants’ “actions were

arbitrary or irrational” (see Cine, 507 F.3d at 790); and

(3) whether the facts show that Appellants were merely negligent,

which, according to Appellants, is insufficient to sustain a claim

based on a violation of substantive due process (Appeal Br., at

37). Thus, disputed facts bar this Court from determining whether

Appellants are entitled to a qualified immunity defense with

respect to Appellees’ substantive due process claim. Accordingly,

this portion of the Appeal is DISMISSED for lack of jurisdiction.

C. Equal Protection

Appellants also argue that the Bankruptcy Court erred in

denying Appellants summary judgment on qualified immunity grounds

with respect to Appellees’ equal protection claim because the

undisputed facts show that the Property “was the only property the

[Appellants] had ever placarded for which they had licensed

engineers’ reports [ ] stating that the [P]roperty was unsafe.”

(Appeal Br., at 38-39) (emphasis in original).

The Bankruptcy Court rejected Appellants’ arguments

finding the “‘similarly situated’ standard need not be established

by proof that the Town had in the past placarded a building based

on third party engineering reports--a situation created and

defined solely by the [Appellants].” (Bankr. Decision, at 37.)

The Bankruptcy Court observed that “[d]efining the class so

narrowly virtually ensures that there will be no others similarly

situated.” (Bankr. Decision, at 37.) Appellants do not explain

how the Bankruptcy Court’s determination regarding the “similarly

situated” standard was “erroneous” nor do they point to undisputed

facts to support this conclusion. (Bankr. Decision, D.E. 16-2, at

37.) Nonetheless, based on the record before the Court, summary

judgment is inappropriate because it cannot be decided as a matter

of law that that there was no one individual, or no entity, that

was “similarly situated.” See Harlen Assoc. v. Inc. Vill. of

Mineola, 273 F.3d 494, 499 n.2 (2d Cir. 2001) (noting that as a

general rule the “similarly situated” determination is “a factual

issue that should be submitted to the jury”).

Appellants also argue that the facts do not show that

the Property was “placarded because of ‘impermissible

considerations.’” (Appeal Br., D.E. 15, at 40.) In support,

Appellants cite “undisputed” facts to show that “there is no issue

of material fact concerning [Appellants’] reasons for [P]lacarding

the [Property].” (Appeal Br., at 42.) However, the Court finds

that Appellants arguments turn on a review of Appellants’ “versions

of contested facts, or on the district court’s determinations of

evidentiary sufficiency--questions over which [there is] no

jurisdiction.” Terebesi, 764 F.3d at 229-30.

Therefore, “the availability of qualified immunity

cannot now be determined as a matter of law” and the Court lacks

jurisdiction over this portion of the Appeal. Cohn v. New Paltz

Cent. Sch. Dist., 171 F. App’x 877, 880 (2d Cir. 2006).

CONCLUSION

For the foregoing reasons, the Bankruptcy Court’s

decision denying Appellants summary judgment on the basis of

qualified immunity is AFFIRMED, the Bankruptcy Court’s decision

denying Appellants summary judgment on Appellees’ substantive due

process and equal protection claims are DISMISSED for lack of

jurisdiction, and Appellants’ Stay Motion is DENIED as MOOT.

SO ORDERED.

/s/ JOANNA SEYBERT______

Joanna Seybert, U.S.D.J.

Dated: November 25 , 2019

Central Islip, New York