Petition — Rouse SI Shopping Center, Inc. v. Morse/Diesel, Inc.

Supreme Court brief1983

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Office-Supfente Court, @Y

83-343 "FILED

No. 83- SFP 1 1983

ALEXANDER L STEVAS,

IN THE CLERK

——

Supreme Court of the United States

OCTOBER TERM, 1983

ROUSE SI SHOPPING CENTER, INC.,

Petitioner,

Vv.

Morse/Diesel, Inc., Den-Al Realty

Corp., Esposito Concrete Co., Inc.,

North Eastern Fabricators, Inc.,

Dominick Natale, d/b/a D. Natale

Plumbing & Heating Co., Sette &

Juliano Wrecking Corp. East

End Wrecking Corp. Respondents

ON WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SECOND CIRCUIT

PETITION FOR WRIT OF CERTIORARI

Lewis A. KAPLAN

Attorney for Petitioner

345 Park Avenue

New York, New York 10154

(212) 644-8000

CELIA GOLDWAG

WILLIAM P. FARLEY

PAUL, WEISS, RIFKIND, WHARTON

& GARRISON

A partnership including professional

corporations

345 Park Avenue

New York, New York 10154

Of Counsel

Question Presented

Does New York’s Lien Law—which permitted respon-

dents to obtain mechanic’s and materialman’s liens against

petitioner’s real property aggregating more than $1 million

without prior notice, without prior judicial review, without

the filing of security, without making any showing of the

merits of their claims and without affording petitioner any

pretrial hearing as to the substantive validity of respondents’

claims—violate the Fourteenth Amendment to the United

States Constitution where the effect of the liens is to impinge

on petitioner’s economic interest in the real property?

List of Parties in the Court of Appeals

The parties to the proceeding in the Court of Appeals for

the Second Circuit are those listed in the caption.*

* The parent companies, subsidiaries and affiliates of Rouse SI

Shopping Center, Inc. are:

Almeda Mall, Inc.; AM Management Corporation; American City

Corporation, The; AU Management Corporation; Augusta Mall, Inc.;

Austin Mall, Inc.; Austin North, Inc.

Baltimore Center, Inc.; Baltimore Inn, Inc.; Beachwood Place,

Inc.; Brittany Development Company; Bull Market, Inc.

Charlottetown, Inc.; Charlottetown North, Inc.; Cherry Hill Cen-

ter, Inc.; C.H.H. Homes, Inc.; Clover Square of New Jersey, Inc.;

Clover Square of Pennsylvania, Inc.; Columbia Center For Com-

munity Research, Inc., The; Columbia Hotel Leasing Corporation;

Community Research and Development, Inc.; Concord Place, Inc.;

Covina Homes, Inc.; Cross Keys Administration, Inc.; Cross Keys

Management Services, Inc.

Deerfield Homes, Inc.; DK Management Corporation; DK Shop-

ping Center, Inc.; DM Shopping Center, Inc.

Eastfield Mall, Incorporated; Echelon Mall, Inc.; Echelon Urban

Center, Inc. (formerly Echelon Community, Inc.); Echo Farms Golf

and Country Club, Inc.; Exton Square, Inc.

Faneuil Gallery, Inc.; Faneuil Hall Marketplace, Inc. (formerly

Rouse-Boston, Inc.) ; Faneuil Hall Marketplace Arcade, Inc.; Franklin

Park Mall, Inc.; Franklin Park Mall Management Corporation;

Franklin Properties, Inc.

Gallery Maintenance, Inc.; Governor’s Square, Inc.; Greengate

Mall, Inc.; Gwynns Falls Management Corporation; Gwynns Falls

Shopping Center, Inc.

Harborplace, Inc.; Harborplace Management Corporation; Harun-

dale Mall, Inc.; Hermes Incorporated.

James W. Rouse Securities Company, Inc. (closed corp.); Jeffers

Hill Development Company.

Louisville Shopping Center, Inc.

Marcal Builders, Inc.

(footnote continued on following page)

iii

(footnote continued from preceding page)

NC Management Corporation; NC Shopping Cetiter, Inc.; New

River Center, Inc.; Norbury Construction Company; North Hills Co.;

North Star Mall, Inc.; Northway Mall, Inc.; Northwest Mall, Inc.;

NS Management Corporation; NW Management Corporation.

Outlet Lending Company, Inc.; Outlet Square of Atlanta, Inc.;

Owen Brown B Development Company; Owen Brown Chapman

Development Company; Owen Brown D Development Company;

Owen Brown E Development Company; Owen Brown Prestbury

Development Company; Owen Brown Tacoma Development Com-

pany; Owen Brown Tatsfield Development Company.

Painters Mill Mall, Inc.; Paramus Park, Inc. (formerly Paramus

Mall, Inc.); Perimeter Center, Inc.; Perimeter Mall, Inc.; Perimeter

Mall Management Corporation; Plymouth Meeting Mall, Inc.

Quincy Market Corporation.

Roost, Inc., The; Rouse-Boston Development Company, Inc.;

Rouse-Burlington, Inc.; Rouse-Carillon Management Company, Inc.;

Rouse-Carillon Shopping Center, Inc.; Rouse Chapel Square, Inc.;

Rouse-Chicago, Inc.; Rouse Communications Company, Inc.; Rouse

Community Research & Development Company of New York, Inc.;

Rouse Company, The (formerly Community Research and Develop-

ment, Inc.) ; Rouse Company Foundation, Inc., The (formerly James

W. Rouse And Company Foundation, Inc.); Rouse Company of

Alabama, Inc., The; Rouse Company of Arkansas, Inc., The; Rouse

Company of California, Inc., The; Rouse Company of Colorado,

Inc., The; Rouse Company of Connecticut, Inc., The; Rouse Com-

pany of Florida, Inc., The; Rouse Company of Georgia, Inc., The;

Rouse Company of Illinois, Inc., The; Rouse Company of Kentucky,

Inc., The; Rouse Company of Louisiana, The; Rouse Company of

Massachusetts, Inc., The; Rouse Company of Missouri, Inc., The;

Rouse Company of New Hampshire, Inc., The; Rouse Company of

New Jersey, Inc., The; Rouse Company of North Carolina, Inc.,

The; Rouse Company of Ohio, Inc., The; Rouse Company of Okla-

homa, Inc., The; Rouse Company of Oregon, Inc., The; Rouse

Company of Pennsylvania, Inc., The; Rouse Company of South

Carolina, Inc., The; Rouse Company of St. Louis, Inc., The; Rouse

Company of Tennessee, Inc., The; Rouse Company of Texas, Inc.,

The; Rouse Company of Washington, Inc., The; Rouse Company

of Washington, D.C., Inc., The; Rouse Company of Wisconsin,

Inc., The; Rouse Connecticut Post Management Corporation; Rouse

(footnote continued on following page)

(footnote continued from preceding page)

Connecticut Post Shopping Center, Inc.; Rouse Credit Corporation;

Rouse Development Company of California, Inc., The; Rouse DM

Management Corporation; Rouse Fort Worth, Inc.; Rouse-Glen

Burnie, Inc.; Rouse Holding Company, The; Rouse Insurance, Inc.;

Rouse Insurance Agency of Va., Inc.; Rouse Investing Company;

Rouse Management Services Corporation; Rouse Management

Services Corporation of Arkansas, Inc.; Rouse Management Services

Corporation of Colorado, Inc.; Rouse Management Services Cor-

poration of Iowa, Inc.; Rouse Management Services Corporation

Two of Iowa, Inc.; Rouse Management Services Corporation of

Louisiana, Inc.; Rouse Management Services Corporation of Texas,

Inc.; Rouse-Metro Shopping Center, Inc.; Rouse-Milwaukee, Inc.;

Rouse-Milwaukee Concourse Management, Inc.; Rouse-Milwaukee

Garage Maintenance, Inc.; Rouse Missouri Holding Company; Rouse

Missouri Management Corporation; Rouse-Monmouth, Inc.; Rouse

New Haven Parking Management, Inc.; Rouse New Haven Shopping

Center, Inc.; Rouse-New Orleans, Inc.; Rouse-Oakwood Shopping

Center, Inc.; Rouse Office Buildings, Inc.; Rouse Philadelphia, Inc.;

Rouse Philadelphia Two, Inc.; Rouse Philadelphia III, Inc.; Rouse-

Plymouth, Inc.; Rouse-Portland, Inc.; Rouse-Portsmouth, Inc.;

Rouse-Randhurst Shopping Center, Inc.; Rouse Real Estate Finance,

Inc. (formerly James W. Rouse & Company, Incorporated); Rouse

Risk Management Incorporated (Sub of Rouse Insurance, Inc.);

Rouse Service (Canada) Limited; Rouse Service Company, The;

Rouse SI Shopping Management, Inc.; Rouse South Austin, Inc.;

Rouse South Beach, Inc.; Rouse-Tabor Center, Inc.; Rouse-Tampa,

Inc.; Rouse-Wates, Incorporated.

Salem Mall, Incorporated; Saratoga Equipment Corporation, The;

SCASCO, Inc.; Seaport Marketplace, Inc.; Seaport Marketplace

Theatre, Inc.; Seaport Theatre Management Corporation; Sherway

Mall Hotel Limited; SMPL Management, Inc.

Terrell Mill Homes, Inc.; Two Faneuil Hall Marketplace, Inc.;

306 Corporation.

Village of Cross Keys, Incorporated, The; Village of Cross Keys

Recreation Association, Inc., The; White Marsh Equities Corporation

(formerly The Foster Development Corporation); White Marsh Mall,

Inc.; Willowbrook Corporation, The; Willowbrook Management Cor-

poration; Wilmington Homes, Inc.; Woodbridge Center, Inc.

TABLE OF CONTENTS

PAGE

eens PND oes oek-aa oe 60a e cee eee a

List of Parties in the Court of Appeals ......... il

eee Oe BI | ss ha vew we Roe eane beans Vv

Ee HII . o-s.0' fo bis Oe ee ee vi

MPTP TEET TT eT Tere eee 1

EE arc, ics wh cok eu eaig we oie ae wae 1

Constitutional Provisions and Statutes ......... 1

EE: GE We SD 5 a osc oc ee abeees eneas 2

PPO RETETES CET OT Tree 2

ae Pee Woe Dies LA 2. ccs écccecncecan 2

PINES TN oc vce kckpiccencdunvages 4

ee Ce Be EO ik ik kook cece 5

Reasons for Granting the Writ ................ 6

I. There Is a Sharp Conflict as to the Constitu-

tionality of Nonpossessory Prejudgment Reme-

CD ik bia bdwicadehissweddehenere 6

II. The Decision Below Disregarded This Court’s

Teachings in Sniadach, Fuentes, Mitchell and

POE GE on nba kek dudininaa cee 10

A. The Lien Law Does Not Afford Due Proc-

O08 OE BOO oko davies KB as 11

B. The Lien Law Permits a Significant Im-

pairment of Property Interests .........

ee Ne aes Set

APPENDICES:

A—Order of the Court of Appeals, June 6, 1983

B—Memorandum Decision of the District Court,

DE ic Cn ga vecbeedoaheewa

C—Memorandum Decision of the District Court,

SES SUE a's 4.4 6 ob 6 0 4.00 006-68

D—Order of the District Court, January 11, 1983

E—Judgment of the District Court, January 17,

SHAG ala Sad be baa oe ee a hee os

F—United States Constitution, Amendment XIV

G—oiow Your Liem LOW on ccccccccccccecs

TABLE OF AUTHORITIES

Cases

B&P Development v. Walker, 420 F. Supp. 704

EE ns ado U a nade 4 0 hb Ok

Bankers Trust Co. v. El Paso Pre-Cast Co., 192

Colo. 468, 560 P.2d 457 (1977) (enbanc) ....

Barry Properties, Inc. v. Fick Brothers Roofing Co.,

277 Md. 15, 353 A.2d 222 (Md. 1975) ......

Bay State Harness Horse Racing and Breeding As-

sociation Vv. PPG Industries, 365 F. Supp. 1299

(D. Mass. 1973) (3-judge court) .......... y

Boddie v. Connecticut, 401 U.S. 371 (1971) ....

Briere v. Agway, Inc., 425 F. Supp. 654 (D. Vt.

og he errr rere

PAGE

Al6

A20

A22

A24

A25

vii

PAGE

Brook Hollow Associates v. J.E. Greene, Inc., 389

F. Supp. 1322 (D. Conn.), vacated without opin-

ion, 535 F.2d 1240 (2d Cir. 1975) .......... y

Bustell v. Bustell, 170 Mont. 457, 555 P.2d 722

(1976), appeal dismissed, 430 U.S. 925 (1977) 8

Carl A. Morse, Inc. v. Rentar Industrial Develop-

ment Corp., 56 A.D.2d 30, 391 N.Y.S.2d 425

(2d Dep’t 1977), aff'd mem., 43 N.Y.2d 952, 375

N.E.2d 409, 404 N.Y.S.2d 343, appeal dismissed,

ee aie OP RATE) 6s db accede abe Vee os 5, 8, 9, 10

Clement v. 4 North State Street Corp., 360 F. Supp.

933 (D.N.H. 1973) (3-judge court) ........ 1 Ae

Connolly Development Inc. v. Superior Court, 17

Cal. 3d 803, 553 P.2d 637, 132 Cal. Rptr. 477

(1976) (In Bank), appeal dismissed, 429 U.S.

UE Sow daa aes wa S Wendie cok ba 7, 8, 17

Cook v. Carlson, 364 F. Supp. 24 (D.S.D. 1973) 8

Dember Construction Corp. v. P & R Electric Corp.,

76 A.D.2d 540, 431 N.Y.S.2d 586 (2d Dep't

Ee SE RON er Rae, hg pee Net ay at 4

First Recreation Corp. v. Amoroso, 113 Ariz. 572,

558 P.2d 917 (1976) (en banc) ............ 8

Fuentes Vv. Shevin, 407 U.S. 67 (1972). ..6, 10, 11, 12, 14,

15, 16, 18, 19

Gunter v. Merchants Warren National Bank, 360

F. Supp. 1085 (D. Me. 1973) (3-judge court) .. 7,17

Hansen v. Weyerhaeuser Co. (In re Northwest

Homes of Chehalis Inc.), 526 F.2d 505 (9th Cir.

1975), cert. denied, 425 U.S. 907 (1976) ..... 6, 8

Hicks v. Miranda, 422 U.S. 332 (1975) ........ 10

Home Building Corp. v. Ventura Corp., 568 S.W.2d

769 (fo. 1978) (em Dane) ....ccccccccccce 8

Viii

Hutchison v. Bank of North Carolina, N.A., 392 F.

Supp. 888 (M.D.N.C. 1975) (3-judge court) ..

Keith Young and Sons Construction Co. v. Victor

Senior Citizens Housing Inc., 262 N.W.2d 554

SEE BOE (Ga he ceraken ciuckieeour eee

Mitchell v. W.T. Grant Co., 416 U.S. 600 (1974)..

PAGE

6, 10,

12, 13, 14, 15, 19

Mobile Components, Inc. v. Layon, 623 P.2d 591

(Okla. 1980), cert. denied, 454 U.S. 963 (1981)

MPI, Inc. v. McCullough, 463 F. Supp. 887 (N.D.

RE, - SEE obs hah ack deve eee neene

National Permanent Federal Savings & Loan Asso-

ciation V. Virginia Concrete Co. (In re Thomas

A. Cary, Inc.), 412 F. Supp. 667 (E.D. Va.

1976), aff'd mem., 562 F.2d 47, 562 F.2d 48

CO es Se hod owen aeen els ens reeens

Nelson-American Developers, Ltd. v. Enco En-

gineering Corp., 337 So. 2d 729 (Ala. 1976) ..

North Georgia Finishing, Inc. v. Di-Chem, Inc., 419

U.S. 601 (1975) ... cece. 6, 10, 13, 14, 16, 18, 19

Owens-Corning Fiberglass Corp. v. Lewis, 169

Conn. 76, 362 A.2d 968 (1975) ........405.

Roundhouse Construction Corp. v. Telesco Masons

Supplies Co., 168 Conn. 371, 362 A.2d 778,

judgment vacated, 423 U.S. 809 (1975), on

remand, 170 Conn. 155, 365 A.2d 393, cert.

denied, 429 U.S. 889 (1976) ........ eee ee. 7, 16, 17

Ruocco V. Brinker, 380 F. Supp. 432 (S.D. Fila.

1974) (Satige COUEt) 20 cc ccccccecescescs

Silverman v. Gossett, 553 $.W.2d 581 (Tenn. 1977)

Sniadach v. Family Finance Corp., 395 U.S. 337

CIP) cv ncecdedessecevscsnsewes 6, 10, 15, 16, 19

PAGE

South Central District of the Pentecostal Church of

God of America, Inc. Vv. Bruce-Rogers Co., 269

Ark. 130, 599 §.W.2d 702 (1980) ........... 9

Spielman-Fond, Inc. v. Hanson's Inc., 379 F. Supp.

997 (D. Ariz. 1973), aff'd mem., 417 U.S. 901

0 mp ces cewccecs 8,9, 10

Terranova V. Avco Financial Services of Barre, Inc.,

396 F. Supp. 1402 (D. Vt. 1975) (3-judge

DE w as eecicccccccceccs 7,17

Tucker Door & Trim Corp. v. 15th Street Co., 235

Se eee eS CADTD) co sccceccces 8

United States General, Inc. vy. Arndt, 417 F. Supp.

1300 (E.D. Wis. 1976) (3-judge court) ..... 7

Williams & Works, Inc. v. Springfield Corp., 81

Mich. App. 355, 265 N.W.2d 328 (1978), rev'd,

408 Mich. 732, 293 N.W.2d 304 (1980) ...... 9

Constitution and Statutes

EE 1,

CEE oes ccccsccsccccccccecs

MEMES Shops ccccegcccsseccecs

New York Lien Law §§ 1 ef seg. ...........

Tf cece sccccccccece

TE ED soc cece cesecccecs

OE > See

See l

EOE ccc eccc ccc ccccess

EC )

Se © IDLO) ow ccc cece cece

OD pce ccc cccccscccess

SP RAHA HRWWNK KK

Other Authorities

R. Stern & E. Gressman, Supreme Court Practice

CEN as or aaa patk tec sek ae aces

Comment, The Constitutional Validity of Mechanics’

Liens Under The Due Process Clause, 55 B.U. L.

i Se COOEE W066 see teh eee bie aeten

PAGE

Petition for a Writ of Certiorari

Petitioner Rouse SI Shopping Center, Inc. (“Rouse SI’),

respectfully asks that a writ of certiorari issue to review

the judgment of the United States Court of Appeals for the

Second Circuit, which affirmed a judgment of the United

States District Court for the Southern District of New York

dismissing this action.

Opinions Below

The order of the Court of Appeals for the Second Cir-

cuit, dated June 6, 1983, is not reported. It is reproduced

in the appendix at Al,

Memorandum opinions of the United States District

Court for the Southern District of New York appear at

A4 and Al6. An amendment to the second of these deci-

sions appears at A20. The judgment and order of the

District Court appear at A22.

Jurisdiction

The jurisdiction of this Court is invoked under 28 U.S.C.

§ 1254(1). The judgment sought to be reviewed was en-

tered on June 6, 1983.

Because this petition draws into question the constitu-

tionality of a state statute and neither the State nor any

agency, officer or employee thereof is a party, 28 U.S.C.

§ 2403(b) may be applicable. The courts below did not

certify to the State Attorney General that the constitu-

tionality of such State statute was drawn in question.

Constitutional Provisions and Statutes

This case involves the Fourteenth Amendment to the

United States Constitution and the New York Lien Law

§§ 1 et seq. (McKinney 1966 & Supp. 1982), which are

set out, in relevant part, in the appendix.

notice needed to be given to Rouse SI before the liens were

filed, and no such notice was given.* Lien Law § 11.

The notice of lien need contain only conclusory, pro

forma allegations such as the alleged value of the labor

allegedly performed and the materials allegedly furnished.**

Lien Law § 9. The notice of lien need not state, among

other things: (1) that the work was performed properly

or in timely fashion; (2) that the lienor has reason to doubt

the property owner’s willingness or ability to pay the amount

allegedly due; (3) that the lienor is likely to succeed on

the merits; (4) that the amount claimed by the lienor

exceeds all known counterclaims; or (5) that the lienor

is unaware of any defenses to his claim. While the notice

of lien must be verified, it may contain statements made on

information and belief.

Thus, the Lien Law allows a contractor to obtain a lien

against real property without prior notice to the owner,

without a hearing, without filing a complaint, without post-

ing a bond, and without prior judicial review. Indeed, the

Lien Law permits such a lien to be obtained even when

the lienor knows that the owner of the property has a com-

plete defense against his claim.

* Indeed, the lienor need not ever provide notice to the owner of

the property. The Lien Law provides that “[u]ntil service of the

notice has been made... an owner, without knowledge of the lien

shall be protected on any payment made in good faith to any con-

tractor or other person claiming a lien. A failure to serve the notice

does not otherwise affect the validity of such lien.” Lien Law § 11.

** The notice of lien need specify only the name and address of

the lienor and its attorney, the name and interest of the owner of

the real property, the name of the person who employed the lienor,

the labor allegedly performed and materials allegedly furnished, the

alleged price or value of the labor and materials, the amount unpaid,

the time when the first and last items of work were performed and

materials furnished, and a description of the real property against

which the lien is claimed. Lien Law § 9.

Once filed, it is virtually impossible for an owner to

obtain discharge of a lien prior to final judgment in a lien

foreclosure action—no matter how strong the owner’s de-

fense may be. While the lien terminates if the lienor fails

to commence an action to foreclose on the lien within one

year, the lienor may seek an unlimited number of one-year

extensions to file the foreclosure action. Lien Law § 17.

The owner may demand that the lienor commence the fore-

closure action within 30 days. Lien Law § 59. But the

foreclosure action does not provide an interim test of the

validity of the lien; it simply permits the owner to insist

that the case proceed to trial and judgment in the normal

manner which, realistically, may take many months or even

years. The lien remains in place throughout the foreclosure

proceeding. Unless the owner provides a bond or under-

taking in an amount at least equal to the amount claimed

in the notice of lien. Lien Law § 19(4).

The owner may seek summary discharge of the lien only

if the notice is facially invalid.* Summary discharge, how-

ever, is an extremely limited remedy confined to very few

errors. Lien Law § 19(6). And in many cases a facially

invalid notice can be amended. Lien Law § 12-a. Thus,

the statute offers no relief whatsoever against a facially

adequate, timely filed notice, apart from a trial on the merits

or posting a bond to discharge the lien.

Proceedings Below

This action was commenced on March 15, 1982. The

third cause of action sought a declaration that the New York

* Lien Law § 59 permits the owner to move for an order vacating

the lien. Such a motion may be granted, however, only if the notice

of lien is invalid on its face. See, e.g., Dember Construction Corp. v.

P & R Electric Corp., 76 A.D.2d 540, 544, 431 N.Y.S.2d 586, 589

(2d Dep’t 1980).

Lien Law violated the Fourteenth Amendment and that

respondents’ liens therefore were invalid.*

The District Court dismissed the third cause of action

for failure to state a claim upon which relief could be granted

(A15) and, after further proceedings, entered judgment dis-

missing the action (A22). It rejected the constitutional

claim on the ground that “the Supreme Court’s summary

dismissal of Carl A. Morse, Inc. [439 U.S. 804 (1978),]

requires us to dismiss the third claim. . .” (A9)

The Second Circuit affirmed, stating that Carl A. Morse

“holds that the challenged portion of the New York Lien

Law is constitutional.” (A2)

The Carl A. Morse Case

In Rentar Industrial Development Corp. Vv. Carl A. Morse,

Inc., 439 U.S. 804 (1978) (referred to hereinafter as

Carl A. Morse, Inc.), this Court dismissed for want of

a substantial federal question an appeal from an order

of the New York Court of Appeals which had affirmed the

denial of a motion for partial summary judgment invalidat-

ing a mechanic’s lien on the alternative grounds that the

nature of the lienor’s services did not give rise to a lien under

the New York Lien Law and that the Lien Law was uncon-

stitutional.

The courts below took this Court’s action as conclusively

determining the validity of the Lien Law.

* The other causes of action did not assert federal claims and are

not material to this petition.

Reasons for Granting the Writ

There Is a Sharp Conflict as to the Constitutionality

of Nonpossessory Prejudgment Remedies.

There is a substantial conflict among state and federal

courts as to the constitutionality of mechanic’s lien and

other statutes which afford creditors nonpossessory prejudg-

ment liens or attachments without the due process safeguards

that this Court has held essential with respect to possessory

remedies. *

1. The Second Circuit, in upholding the constitutionality

of the New York Lien Law, became the first federal court

of appeals to rule on the constitutionality of mechanic’s lien

statutes.** It joined a large number of federal and state

courts which have ruled on the issue. These courts, however,

have not spoken with one voice. Indeed, the wealth of such

cases eloquently testifies to a confusion which this Court

should resolve.

On the one hand, numerous courts, in conflict with the

Second Circuit, have struck down comparable statutes in

other states on the ground that such statutes violated the

Due Process Clause. In each case, the court necessarily

ruled that the statute (1) effected a taking or impairment

of property sufficient to implicate the Due Process Clause,

* See, e.g., North Georgia Finishing, Inc. v. Di-Chem, Inc., 419

U.S. 601 (1975); Mitchell v. W.T. Grant Co., 416 U.S. 600 (1974);

Fuentes Vv. Shevin, 407 U.S. 67 (1972); Sniadach v. Family Finance

Corp., 395 U.S. 337 (1969).

** The Ninth Circuit had previously upheld a Washington statute

which regulated prejudgment attachment of real estate. Hansen v.

Weyerhaeuser Co. (In re Northwest Homes of Chehalis Inc.), 526

F.2d 505 (9th Cir. 1975), cert. denied, 425 U.S. 907 (1976).

and (2) provided insufficient procedural safeguards to

satisfy its requirements.*

On the other hand, courts have upheld such statutes in

several states, albeit without developing a consistent ra-

tionale. The California Supreme Court, for example, has

held that its mechanic’s lien statute involves a taking of

property sufficient to require due process safeguards, but

that the statute’s procedural requirements are adequate.**

Other courts, however, have held that mechanic’s liens and

comparable prejudgment remedies involve no more than a

de minimis taking of property, undeserving of due process

* MPI, Inc. Vv. McCullough, 463 F. Supp. 887 (N.D. Miss.

1978) (Mississippi real estate attachment procedure); United States

General, Inc. v. Arndt, 417 F. Supp. 1300 (E.D. Wis. 1976) (3-judge

court) (Wisconsin real estate attachment statute); Terranova Vv.

Avco Financial Services of Barre, Inc., 396 F. Supp. 1402 (D. Vt.

1975) (3-judge court) (Vermont real estate attachment statute);

Bay State Harness Horse Racing and Breeding Association v. PPG

Industries, 365 F. Supp. 1299 (D. Mass. 1973) (3-judge court)

(Massachusetts mechanic’s lien statute); Clement v. 4 North State

Street Corp., 360 F. Supp. 933 (D.N.H. 1973) (3-judge court) (New

Hampshire real estate attachment statute); Gunter v. Merchants

Warren National Bank, 360 F. Supp. 1085 (D. Me. 1973) (3-judge

Court) (Maine real estate attachment law); Owens-Corning Fiber-

glass Corp. Vv. Lewis, 169 Conn. 76, 362 A.2d 968 (1975) (Con-

necticut mechanic’s lien statute); Roundhouse Construction Corp. V.

Telesco Masons Supplies Co., 168 Conn. 371, 362 A.2d 778, judg-

ment vacated, 423 U.S. 809 (1975), on remand, 170 Conn. 155,

365 A.2d 393, cert. denied, 429 U.S. 889 (1976) (Connecticut

mechanic’s lien statute); Barry Properties, Inc. v. Fick Brothers

Roofing Co., 353 A.2d 222 (Md. 1975) (Maryland mechanic’s lien

statute). Cf. Briere Vv. Agway, Inc., 425 F. Supp. 654 (D. Vt. 1977)

(3-judge court) (Vermont nile providing for nonpossessory pre-

judgment attachment of personal property held to violate Due

Process Clause).

** Connolly Development Inc. v. Superior Court, 17 Cal. 3d 803,

553 P.2d 637, 132 Cal. Rptr. 477 (1976) (In Bank), appeal dis-

(footnote continued on following page)

protection.* Even these cases do not exhaust all the possi-

bilities: there are some cases in which no clear, explicit

(footnote continued from preceding page)

missed, 429 U.S. 1056 (1977). See also Hutchison v. Bank of North

Carolina, N.A., 392 F. Supp. 888 (M.D.N.C. 1975) (3-judge court);

Ruocco V. Brinker, 380 F. Supp. 432 (S.D. Fla. 1974) (3-judge

court) (Florida mechanic’s lien statute); Keith Young and Sons

Construction Co. Vv. Victor Senior Citizens Housing Inc., 262 N.W.2d

554 (lowa 1978) (Iowa mechanic’s lien statute); Bustell v. Bustell,

170 Mont. 457, 555 P.2d 722 (1976), appeal dismissed, 430 U.S.

925 (1977) (Montana real estate attachment statute).

* Hansen Vv. Weyerhaeuser Co. (In re Northwest Homes of

Chehalis, Inc.), 526 F.2d 505 (9th Cir. 1975), cert. denied, 425

U.S. 907 (1976) (Washington real estate attachment statute); B&P

Development v. Walker, 420 F. Supp. 704 (W.D. Pa. 1976) (Penn-

sylvania mechanic’s lien statute); National Permanent Federal Sav-

ings & Loan Association Vv. Virginia Concrete Co. (In re Thomas A.

Cary, Inc.), 412 F. Supp. 667 (E.D. Va. 1976), aff'd mem., 562

F.2d 47, 562 F.2d 48 (4th Cir. 1977) (Virginia mechanic's lien

statute); Spielman-Fond, Inc. Vv. Hanson's, Inc., 379 F. Supp. 997

(D. Ariz. 1973), affd mem., 417 U.S. 901 (1974) (Arizona

mechanic’s lien statute); Cook v. Carlson, 364 F. Supp. 24 (D.S.D.

1973) (South Dakota mechanic’s lien statute); Nelson-American

Developers, Ltd. v. Enco Engineering Corp., 337 So. 2d 729 (Ala.

1976) (Alabama mechanic’s lien statute); First Recreation Corp. v.

Amoroso, 113 Ariz. 572, 558 P.2d 917 (1976) (en banc) (Arizona

real estate attachment statute); Bankers Trust Co. v. El Paso Pre-

Cast Co., 192 Colo. 468, 560 P.2d 457 (1977) (en banc) (Colorado

mechanic’s lien statute); Tucker Door & Trim Corp. v. 15th Street

Co., 235 Ga. 727, 221 S.E.2d 433 (1975) (Georgia materialman’s

lien statute); Home Building Corp. v. Ventura Corp., 568 S.W.2d

769 (Mo. 1978) (en banc) (Missouri mechanic’s lien statute); Carl

A. Morse, Inc. v. Rentar Industrial Development Corp., 56 A.D.2d

30, 391 N.Y.S.2d 425 (2d Dep't 1977), aff'd mem., 43 N.Y.2d 952,

375 N.E.2d 409, 404 N.Y.S.2d 343, appeal dismissed, 439 U.S. 804

(1978) (New York Lien Law); Mobile Components, Inc. v. Layon,

623 P.2d 591 (Okla. 1980), cert. denied, 454 U.S. 963 (1981)

(Oklahoma materialman’s lien statute); Silverman v. Gossett, 553

S.W.2d 581 (Tenn. 1977) (Tennessee mechanic’s lien statute).

ground emerges for the court’s upholding a state lien law

against an attack on due process grounds.*

This bewildering profusion of cases vividly demonstrates

that this issue cries out for review by this Court.

2. Certiorari should be granted here despite the fact

that the constitutionality of mechanic’s lien statutes was

before this Court in two cases that were disposed of sum-

marily. Carl A. Morse, Inc., supra, 439 U.S. 804 and

Spielman-Fond, Inc. v. Hanson's, Inc., 417 U.S. 901 (1974)

(summarily affirming decision upholding Arizona me-

chanic’s lien statute).

Those decisions have not resolved the conflicts as to the

constitutionality of non-possessory prejudgment remedies.

Lower courts remain sharply divided.

This confusion doubtless stems from the summary dis-

position of those cases by this Court and subsequent doc-

trinal developments. Carl A. Morse, Inc., supra, 439 U.S.

804, dismissed for want of a substantial federal question

an order affirming denial of a motion for partial summary

judgment where the courts below found that there were

issues of fact as to whether the lienor rendered services of

a type for which the challenged statute afforded a lien.

Hence, this Court’s action may be construed as a refusal to

* Spielman-Fond, Inc. v. Hanson's, Inc., 417 U.S. 901 (1974),

aff'g mem., 379 F. Supp. 997 (D. Ariz. 1973) (3-judge court)

(Arizona mechanic’s lien statute); Brook Hollow Associates v. J. E.

Greene, Inc., 389 F. Supp. 1322 (D. Conn. 1975), vacated without

opinion, 535 F.2d 1240 (2d Cir. 1975) (Connecticut mechanic’s lien

statute); South Central District of the Pentecostal Church of God of

America, Inc. Vv. Bruce-Rogers Co., 269 Ark. 130, 599 S.W.2d 702

(1980) (Arkansas mechanic’s lien statute); accord, Williams &

Works, Inc. Vv. Springfield Corp., 81 Mich. App. 355, 265 N.W.2d

328 (1978), rev’d on other grounds, 408 Mich. 732, 293 N.W.2d

304 (1980) (Michigan mechanic’s lien statute).

decide the constitutionality of the New York Lien Law

because the question was not inescapably presented until

the issue regarding the nature of the lienor’s services was

resolved. And while Spielman-Fond did affirm a ruling

upholding the Arizona mechanic’s lien statute, it antedated

North Georgia Finishing, supra, 419 U.S. 601, and therefore

is of questionable authority.* Indeed, neither of the courts

below relied on it in this case.

In sum, this Court should grant plenary review to resolve

the conflicts that persist despite the summary dispositions

in Carl A. Morse, Inc. and Spielman-Fond.

The Decision Below Disregarded This Court’s Teach-

ings in Sniadach, Fuentes, Mitchell and North Georgia.

In four landmark cases—Sniadach v. Family Finance

Corp., 395 U.S. 337 (1969), Fuentes v. Shevin, 407 U.S.

67 (1972), Mitchell v. W.T. Grant Co., 416 U.S. 600

(1974) and North Georgia Finishing, Inc. v. Di-Chem, Inc.,

419 U.S. 601 (1975)—this Court articulated the constitu-

tional standards that must be satisfied by state-authorized

prejudgment impairments of property interests. Such laws

must provide either prior notice and an opportunity to be

heard or a combination of alternative procedural protec-

tions designed to guard against the risk of initial error such

as: (1) an affidavit setting forth in detail the specific facts

justifying prejudgment relief; (2) judicial review before

prejudgment relief is granted; (3) the posting of a bond by

* Subsequent doctrinal developments deprive a summary disposi-

tion of binding effect. E.g., Hicks v. Miranda, 422 U.S. 332, 344

(1975); R. Stern & E. Gressman, Supreme Court Practice § 4.31, at

331 (Sth ed. 1978).

the party seeking relief; and (4) an opportunity to seek

immediate dissolution of the prejudgment remedy.

As we show below, the New York Lien Law significantly

impairs property interests without providing adequate safe-

guards. This Court should grant certiorari because the

decision below thus conflicts with applicable decisions of

this Court.

A. The Lien Law Does Not Afford Due Process of Law.

The procedures in the New York Lien Law are not

adequate to safeguard the owner’s interests. Not only

does the Lien Law fail to provide for prior notice to the

owner and an opportunity to be heard, but it also fails

to provide any of the other safeguards which this Court

has held may save a statute in the absence of prior notice

and a hearing. In upholding the New York Lien Law, the

courts below therefore deviated from this Court’s teaching

on what process is due.

Thus, in Fuentes v. Shevin, 407 U.S. 67 (1972), the

Supreme Court invalidated Florida and Pennsylvania laws

authorizing summary seizure of personal property under a

writ of replevin. Both statutes permitted summary seizure

on the ex parte application of a claimant who posted a

security bond. Neither provided for prior notice to the

possessor and an opportunity to be heard. The Florida

statute allowed a court clerk to issue the writ to a party

on the bare assertion that he was entitled to one, provided

he file a complaint initiating a court action for repossession.

The Pennsylvania statute did not even oblige the party

seeking the writ to initiate a court action for possession.

Both statutes permitted the party whose property had been

seized to regain it by posting a bond for double the value

of the property seized within three days. Jd. at 73-78.

Even though plaintiffs in Fuentes did not have full title

to the chattels seized, the Court concluded that these statutes

deprived plaintiffs of interests protected by the Fourteenth

Amendment. The Court held that, in these circumstances,

due process required prior notice and an opportunity to be

heard. It flatly rejected the minimal procedural safeguards

provided by the Florida and Pennsylvania statutes:

To be sure, the requirements that a party seeking a

writ must first post a bond, allege conclusorily that

he is entitled to specific goods, and open himself to

possible liability in damages if he is wrong, serve to

deter wholly unfounded applications for writ. But

those requirements are hardly a substitute for a prior

hearing, for they test no more than the strength of

the applicant’s own belief in his rights. Since his

private gain is at stake, the danger is all too great

that his confidence in his cause will be misplaced

. .» [A] court does not decide a dispute until it has

had an opportunity to hear both sides—and does not

generally take even tentative action until it has itself

examined the support for the plaintiff's position.

The Florida and Pennsylvania statutes do not even

require the official issuing a writ of replevin to do

that much.

Id. at 83.

By contrast, in Mitchell v. W.T. Grant Co., 416 U.S. 600

(1974), the Court sustained a Louisiana statute under

which a vendor who had sold personal property on the

installment plan and had retained a vendor’s lien was au-

thorized to seek sequestration of the property. The Louisiana

statute provided significant safeguards missing both in

Fuentes and from the New York Lien Law: First, a writ

of sequestration could not issue on “conclusory allegations

of ownership or possessory rights,” but only on a “clear

showing” of “specific facts” in a verified petition or affi-

davit. Second, this clear showing had to be made to a judge.

Third, the judge could issue the writ only after the creditor

had filed a bond to protect the debtor against all damages

in the event that sequestration was later shown to have

been improvident. Fourth, and most importantly, the statute

permitted the debtor to obtain an immediate hearing on the

question of dissolution.* Jd. at 605-06.

The importance of the Mitchell safeguards was under-

scored in North Georgia Finishing, Inc. v. Di-Chem, Inc.,

419 U.S. 601 (1975), in which the Court invalidated the

Georgia garnishment statute. That statute authorized the

clerk of any court of record to issue a garnishment order on

the plaintiff's affidav.t that he had reason to apprehend the

loss of some or all of the amount claimed unless garnishment

occurred. The statute required the garnishor to file a bond

for twice the amount sought. The garnishment could be

dissolved upon filing a bond for the payment of any judg-

ment that might be rendered on the garnishment. /d. at

602-03.

* Mitchell also relied on the special needs of sellers of consumer

goods on credit, considerations which do not apply in the context of

real property. The Court emphasized that while Mitchell technically

had title to the goods, his title was heavily encumbered by the lien

which the vendor had retained when the goods were sold. Sequestra-

tion thus preserved the value of the vendor’s security since consumers

customarily use the goods they purchase, thereby diminishing the

value of the merchandise. Moreover, Louisiana's law provided that

the vendor's lien expired upon a transfer of possession. As a result,

if notice and a pre-seizure hearing were required, the debtor would

be able to conceal, destroy, or transfer the personal property, thus

vitiating the vendor's lien interest. 416 U.S. 608-09.

None of these justifications for summary relief is present in the

context of this case: Rouse SI has title to the Mall, the Mall is likely

to appreciate in value rather than decrease, and, unlike personal

property, real property cannot be destroyed or concealed.

In holding the Georgia statute inconsistent with due

process, the Court focused on “the saving characteristics of

the Louisiana statute” that had been upheld in Mitchell.

Id, at 607. The Louisiana writ of sequestration was issuable

only on the filing of a detailed affidavit containing more

than conclusory allegations and only after review by a

neutral judicial officer. Moreover, Louisiana provided for

an immediate hearing after seizure.

Like the New York Lien Law, the Georgia statute lacked

those “saving characteristics.” The writ of garnishment was

issuable by a court clerk, without participation by a judge,

on an affidavit containing only conclusory allegations. The

most serious deficiency of the Georgia procedure, however,

was its failure to provide a prompt and adequate postgar-

nishment hearing at which the garnishor would be required

to demonstrate at least probable cause:

Here a sizable bank account was frozen, and the only

method discernable on the face of the statute to dis-

solve the garnishment was to file a bond to protect

the plaintiff creditor. There is no provision for an

early hearing at which the creditor would be re-

quired to demonstrate at least probable cause for the

garnishment.

Id. at 607. See also id. at 613 (Powell, J., concurring)

(“The most compelling deficiency in the Georgia procedure

is its failure to provide a prompt and adequate postgarnish-

ment hearing”).

The New York Lien Law does not meet these standards.

Like the statutes invalidated in Fuentes and North Georgia

Finishing, and unlike the Louisiana statute upheld in

Mitchell, a notice of lien may be filed with the clerk on

nothing more than conclusory allegations. Indeed, the New

York Lien Law provides even less protection for the owner

than did the Florida, Pennsylvania and Georgia statutes

because it does not require the lienor to post a bond to

secure the owner against damages. Even more importantly,

the Lien Law does not grant the owner an immediate hear-

ing on the question of dissolution. In short, unlike the

statute sustained in Mitchell, the New York Lien Law does

not provide for “judicial control of the process from be-

ginning to end.” Mitchell, supra, 416 U.S. at 616.*

B. The Lien Law Permits a Significant Impairment

of Property Interests.

Many of the cases which have upheld mechanic’s lien and

comparable statutes against due process attack have dis-

tinguished the Sniadach line of cases on the ground that

they involved interference with the debtor’s right to posses-

sion, whereas mechanic’s lien and real estate attachments

are non-possessory. Some have held that the owner’s in-

terest in such cases is not sufficient to warrant constitutional

protection. This, we submit, is inconsistent with this Court’s

decision and does not provide a sound basis for distinguish-

ing Sniadach and its progeny.

This Court has made clear that “[a]ny significant taking

of property by the State is within the purview of the Due

* To be sure, this Court has noted that “extraordinary situations”

may on occasion justify postponing notice and an opportunity to be

heard. However, such situations must be “truly unusual” and serve

some “important governmental or general public interest.” Fuentes,

supra, 407 U.S. at 90, 92. “[W]Jhen no more than private gain is

directly at stake,” summary seizure of property requires at least “‘a

showing of immediate danger that a debtor will destroy or conceal

disputed goods.” Jd. at 92-93. For this reason, this Court has

refused to find extraordinary circumstances where, as here, in

personam jurisdiction is readily obtainable. Sniadach, supra, 395

U.S. at 339. Furthermore, the New York Lien Law is not narrowly

tailored to apply only to “situation[s] requiring special protection to

a State or creditor interest.” Jd. at 339. It is therefore invalid.

in Terranova V. Avco Financial Services of Barre, Inc., 396

F, Supp. 1402 (D. Vt. 1975), a three-judge district court

invalidated Vermont's real estate attachment law. Noting

that a real estate attachment may adversely affect the land-

owner’s credit rating and make it difficult or impossible to

sell or mortgage the property, the court held that a real

estate attachment constitutes a “curtailment of economically

important property uses” which cannot be ignored. /d. at

1407.

The Maryland Court of Appeals reached the same con-

clusion in Barry Properties, Inc. v. Fick Bros Roofing Co.,

277 Md. 15, 23-24, 353 A.2d 222, 228 (1975), stating:

Although possession will not be wrested from the

owner until a purchaser acquires title through a fore-

closure sale and the owner can still legally alienate or

further encumber the property until that time, in

reality, since he no longer has unfettered title, not

only will it be extremely difficult for him to do so

but additionally his equity will be diminished to the

extent of the lien.

The court concluded that an owner is deprived of a “sig-

nificant property interest” and therefore invalidated por-

tions of Maryland’s mechanic’s lien law. 7d. at 31, 353

A.2d at 232.*

Thus, the non-possessory nature of a mechanic’s lien does

not place the real property owner beyond the pale of consti-

* Accord, Clement V. Four North State Street Corp., supra, 360

F. Supp. at 935; Roundhouse Construction Corp. v. Telesco Masons

Supplies Co., supra, 168 Conn. at 384, 362 A.2d at 784; Gunter v.

Merchants Warren National Bank, supra, 360 F. Supp. at 1090; Bay

State Harness Horse Racing and Breeding Association, Inc. v. PPG

Industries, Inc., 365 F. Supp. at 1304-05. See also, Connolly De-

velopment Inc. Vv. Superior Court, supra, 17 Cal. 3rd at 813-14, 553

P.2d at 644, 132 Cal. Rptr. at 484.

tutional protection. Indeed, the property interest of the

lienee arguably exceeds that of the plaintiffs in Fuentes

because the lienee owns the real estate subject to the lien

while the Feuntes plaintiffs had only a limited right to pos-

session under conditional sales contracts which reserved

title to the sellers until the debts were paid. As Mr. Justice

White said in North Georgia Finishing, supra, 419 U.S. at

608, due process applies not only to “[c]onsumers or victims

of contracts of adhesion and who might be irreparably

damaged by temporary deprivation of household necessities”

but extends to “the commercial setting .. . involving parties

of equal bargaining power.” Hence, a mechanic’s lien im-

pairs substantial property interests and may be imposed

only in accordance with due process of law.

CONCLUSION

We ask this Cou’: to grant certiorari to review the Court

of Appeals’ deviati 1 from the path set out by this Court’s

decisions in Sniadach, Fuentes, Mitchell and North Georgia

and to resolve the conflict among the lower courts regarding

the constitutionality of mechanic’s lien statutes. We further

request that, upon such grant, the Court reverse the judg-

ment of the Second Circuit and remand this case for further

proceeding consistent with its disposition.

Dated: August 29, 1983

Respectfully submitted,

Lewis A. KAPLAN

Attorney for Petitioner

345 Park Avenue

New York, New York 10154

(212) 644-8000

CELIA GOLDWAG

WILLIAM P. FARLEY

PAUL, WEISS, RIFKIND, WHARTON

& GARRISON

A partnership including professional

corporations

345 Park Avenue

New York, New York 10154

Of Counsel

APPENDIX

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Docket No. 83-7047

At a stated Term of the United States Court of Appeals

for the Second Circuit, held at the United States Courthouse

in the City of New York, on the 6th day of June, one

thousand nine hundred and eighty three.

Present:

HONORABLE JAMES L. OAKES, Circuit Judge

HONORABLE RICHARD J. CARDAMONE, Circuit Judge

HONORABLE LAWRENCE W. PIERCE, Circuit Judge

Rouse SI SHOPPING CENTER, INC.

Plaintiff-A ppellant,

—against—

MorsE DIESEL, INC., ef al.

Defendants-A ppellees.

NORTH EASTERN FABRICATORS, INC.

Plaintiff-A ppellee,

—against—

Rouse SI SHOPPING CENTER, INC.

Defendant-A ppellant,

and

Morse DIESEL, INC., eft al.

Defendants-A ppellees.

ORDER

N.B. Since this statement does not constitute a formal

opinion of this court and is not uniformly available to all

parties, it shall not be reported, cited or otherwise used in

unrelated cases before this or any other court.

Appendix A

Rouse SI Shopping Center, Inc. (Rouse SI) appeals from

an order of the United States District Court for the Southern

District of New York (Stewart, J.) dismissing Rouse SI’s

complaint in Rouse SI Shopping Center, Inc. v. Morse

Diesel, Inc. (Rouse II) for lack of diversity jurisdiction and

failure to state a claim upon which relief could be granted.

Rouse SI also appeals from the district court’s decision to

remand to state court another action, North Eastern Fabri-

cators, Inc. Vv. Rouse SI Shopping Center, Inc. (Rouse Ill),

that had previously been removed to federal court.

1. The district court correctly dismissed for failure to

state a cause of action upon which relief could be granted

appellant’s third claim in Rouse II, which challenged the

constitutionality of New York’s Lien Law. Carl A. Morse,

Inc. Vv. Rentar Industrial Development Corp., 439 U.S, 804

(1978) holds that the challenged portion of the New York

Lien Law is constitutional.

2. The district court properly held that it lacked diversity

jurisdiction over appellant’s remaining claims in Rouse Il

because both appellant and the defendants were citizens of

the same state, New York. Appellant’s assertion—that the

district court erred in finding its principal place of business

to be New York rather than Maryland—is unpersuasive.

Rouse SI's main public contacts are in New York, and the

“nerve center” analysis is inapplicable here, see R.G. Barry

Corp. V. Mushroom Makers, Inc., 612 F.2d 651, 655 (2d

Cir. 1979).

3. Given the lack of diversity or federal question juris-

diction, the district court properly dismissed appellant's

state law claims in Rouse Il.

4. The district court’s decision under 28 U.S.C. § 1447

(c)—remaining Rouse III to the New York State Supreme

Court—is unreviewable. See Thermtron Products, Inc. Vv.

Appendix A

Hermansdorfer, 423 U.S. 336, 346 (1976); 28 U.S.C.

§ 1447(d) (1976).

Accordingly, the order of the district court dismissing

Rouse I] is affirmed and appellant’s appeal from the remand

of Rouse III is dismissed.

/S/ JAMES L. OAKES

James L. Oakes, U.S.C.J.

/s/ RICHARD J. CARDAMONE

Richard J. Cardamone, U.S.C.J.

/Ss/ LAWRENCE W. PIERCE

Lawrence W. Pierce, U.S.C.J.

APPENDIX B

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

82 Civ. 1256 (CES)

Rouse SI SHOPPING CENTER, INC.

Plaintiff,

—against—

MorsE/DIESEL, INC.,

Defendant.

82 Civ. 1611 (CES)

Rouse SI SHOPPING CENTER, INC.

Plaintiff,

—against—

MorsE/DIESEL, INC., et al.,

Defendants.

MEMORANDUM DECISION

STEWART, District Judge:

These actions arise out of the renovation of the Staten

Island Mall (“the Mall”) in Richmond County, New York.

Plaintiff Rouse SI Shopping Center, Inc. (“Rouse”) owns

and operates the Mall. In May 1981, Rouse hired de-

fendant Morse/Diesel, Inc. (“Morse”) as its agent to

manage the construction project. Morse in turn hired

various contractors and suppliers of material. In March

1982, Rouse brought suit against Morse for breach of

Appendix B

fiduciary duty, breach of contract and negligence in connec-

tion with Morse’s performance in managing the renovation

(“Rouse I’). After Morse and five subcontractors filed

mechanics’ liens against the Mall, Rouse filed a second

action (“Rouse II”) seeking a declaration that the New

York Lien Law violated the due process clause of the

Fourteenth Amendment of the United States Constitution,

and other injunctive relief.

Defendant Morse moves to dismiss Rouse I for lack of

jurisdiction on the grounds that both parties are citizens ‘

of the State of New York. Defendants Morse, Den-Al

Realty Corp. (“Den-Al”) and North Eastern Fabricators,

Inc. (“North Eastern”) move to dismiss Rouse II for lack

of subject matter jurisdiction, or in the alternative, to dis-

miss the first and third' causes of action for failure to state

a claim upon which relief can be granted. We first consider

the motions addressed to Rouse II.

1. Rouse Il; Federal Question Jurisdiction

28 U.S.C. § 1331(a) (Supp. IV 1980) gives the federal

district court original jurisdiction of civil actions that

“arise[] under the Constitution, laws or treaties of the

United States.” To “arise under” the federal laws, how-

ever, a case must present a “substantial” question. Hagans

v. Lavine, 415 U.S. 528, 536-37 (1974). Thus, a federal

court must dismiss a case for lack of jurisdiction if the

federal claim that is the basis of jurisdiction is obviously

without merit or wholly frivolous. See 13 Wright, Miller &

1 Defendants’ motion states that they seek dismissal of the first

and third causes of action for failure to state a claim. However, they

provide legal arguments only as to the legal sufficiency of the third

cause of action (captioned “Violation of Civil Rights Act”). We

thus consider the legal sufficiency of the third cause of action only.

Appendix B

Cooper, Federal Practice and Procedure: Jurisdiction

§ 3564 at 427 (1975).

In this case, we find that plaintiffs have stated a suffi-

ciently substantial federal question in their challenge to

“the New York Lien Law. Although the United States

Supreme Court’s summary dismissal of Carl A. Morse, Inc.

v. Rentar Industrial Development Corp., 439 U.S. 804

(1978), dismissing for want of a substantial federal ques-

tion appeal from 43 N.Y.2d 952, 404 N.Y.S.2d 343, 375

N.E.2d 409 (1978) (finding New York Lien Law valid

under due process clause of the Fourteenth Amendment)

strongly suggests that plaintiff cannot prevail on the merits,

that conclusion is not entirely foregone. Rather, questions

such as the precise issues presented and necessarily decided

by the summary action must be considered. See Illinois

State Bd. of Elections v. Socialist Workers Party, 440 U.S.

173, 182-183 (1979). These questions, in themselves,

may “present issues of real substance.” Hicks v. Miranda,

422 U.S. 332, 345 n.14 (1975). Thus, plaintiff's claim

of unconstitutionality is not so insubstantial as to warrant

dismissal for lack of jurisdiction. The merits of this claim,

however, are properly addressed in the context of defend-

ants’ motion to dismiss for failure to state a claim.

2. Motion to Dismiss Third Claim of Rouse Il for Failure

to State a Claim

The third cause of action in Rouse II alleges that de-

fendants’ filing of notices of lien against the Mall violated

the Fourteenth Amendment to the United States Constitu-

tion and 42 U.S.C. § 1983 by depriving plainiff of its

property without due process of law. Defendants move

to dismiss this claim on the grounds that the New York

Lien Law is valid under the Due Process Clause of the

Fourteenth Amendment, and that defendants were not

Appendix B

acting “under color of state law” when they filed their lien

notices.

Our consideration of this matter begins with an examina-

tion of the Supreme Court’s summary dismissal of Carl

A. Morse, Inc. v. Rentar Industrial Development Corp.,

439 U.S. 804 (1978), dismissing for want of a substantial

federal question appeal of 43 N.Y.2d 952, 404 N.Y.S.2d

343 375 N.E.2d 409. Dismissals for want of substantial

federal question by the Supreme Court are dispositions on

the merits, and lower courts are bound by them. Hicks v.

Miranda, 422 U.S. 332, 334-335 (1975). But since “the

precedential effect of a summary [action] can extend no

farther than ‘the precise issues presented and necessarily

decided by those actions,’ ” J/linois State Bd. of Elections v.

Socialist Workers Party, 440 U.S. 173, 182-183 (1979),

the decision appealed from and the jurisdictional statement

submitted by the appellant must be scrutinized to deter-

mine what issues were properly presented to the Court

and declared to be without ment. See Bennett v. Kline,

486 F. Supp. 36, 38 (E.D. Pa.). aff'd, 633 F.2d 209 (3rd

Cir. 1980).

Appellants in Carl A. Morse, Inc. appealed an order

of the New York Court of Appeals that affirmed a decision

of the Appellate Division upholding the New York Lien

Law against constitutional challenge. See Carl A. Morse,

Inc. v. Rentar Industries Development Corp., 43 N.Y.2d

952, 404 N.Y.S.2d 343, 375 N.E.2d 409 (1978) aff’g

56 A.D.2d 30, 391 N.Y.S.2d 425 (1977). The Appellate

Division, with two justices dissenting, had upheld the

statute on the grounds that the filing of a mechanics’ lien

did “not result in the deprivation of any ‘significant property

interest’” and hence, due process did not require prior

notice or an opportunity to be heard. 56 A.D.2d at 36,

391 N.Y.S.2d at 430. The Appellate Division further noted

Appendix B

the various competing interests involved in the mechanics’

lien situation and concluded that “the procedural safeguards

incorporated with our present statute (Lien Law § 3,

et seq.) ‘[effect] a constitutional accommodation of the

conflicting interests of the several parties.” Jd. (quoting

Mitchell v. W.T. Grant Co., 416 U.S. 600, 607 (1974)).

The Court of Appeals affirmed on the opinion below,

adding that the dissenting opinion “confuse[{d] the impact

of a lien on property which does not dispossess the owner

with the line of cases in the Supreme Court of the United

States involving precisely such dispossession by seizure

without preliminary judicial determination.” 43 N.Y.2d

at 952, 404 N.Y.S.2d at 343, 375 N.E.2d at 409.

The Jurisdictional Statement filed by defendants-appel-

lants Rentar Industrial Development Corp. et al. (“Rentar”)

in their appeal to the United States Supreme Court stated

that their appeal presented the questions of whether the

filing of a mechanics’ lien was a deprivation of property

under the Fourteenth Amendment, and whether the New

York Lien Law provided sufficient process of law. Rentar

argued that these questions were substantial because the

filing of a lien “impinged” the cconomic interests of the

property owner, and because the Fourteenth Amendment

protects against such minimal deprivations. Appellants’

Jurisdictional Statement (“JS”) at 14-15, Carl A. Morse,

Inc. v. Rentar Industrial Development Corp., No. 77-1775.

Appellants argued that other courts had recognized that

the filing of a mechanics’ lien did impair constitutionally

significant interests, JS at 10, and that the United States

Supreme Court’s summary affirmance in Spielman-Ford,

Inc. v. Hanson's, Inc., 417 U.S. 901 (1973), affg without

opinion, 379 F. Supp. 997 (D. Ariz. 1973) (holding

Arizona’s mechanics’ lien law constitutional) did not re-

solve the issues in the case. JS at 11-12.

Appendix B

On this record, we conclude that the Supreme Court's

summary dismissal of Carl A. Morse, Inc. requires us to

dismiss the third claim of Rouse II for failure to state a

claim for which relief can be granted. The appeal of Carl

A. Morse, Inc., squarely presented the question of the con-

Stitutionality of the New York Lien Law under the Four-

teenth Amendment. We find no significant factual distinc-

tion between Carl A. Morse, ’nc., and the case at hand.?

Nor do we find any “doctrinal developments” subse-

quent to Carl A. Morse, Inc. that suggest that we are no

longer bound by the summary action. See Hicks v.

Miranda, 422 U.S. at 344-345. Plaintiff in this case urges

that Carl A. Morse, Inc. should not be viewed as legally dis-

positive because appellees in Carl A. Morse, Inc. argued in

their motion to dismiss or affirm that factual disputes in the

case precluded the conclusion that New York Mechanics’

Lien Law was unconstitutional. However, appellees in

Carl A. Morse, Inc. presented this argument only in con-

nection with their motion to affirm the decision below. See

Appellee’s Motion to Dismiss or Affirm at 8, Carl A. Morse,

Inc. Vv. Rentar Industrial Development Corp., No. 77-1775.

A motion to affirm is entirely distinct from a motion to

dismiss for failure to present a substantial federal question.

Compare Sup. Ct. R. 16.1(b) with Sup. Ct. R. 16.1(c).

2 If anything, the facts of the case at hand present less reason to

find the New York Lien Law deprives plaintiff of a constitutionally

significant property interest. In Carl A. Morse, Inc. appellants alleged

that the filing of liens “almost destroyed [appellants’] ability to enter

into a permanent mortgage on the premises”. JS at 5. Appellants

further alleged that as a result of the filing of the liens, all individual

appellants had been required to enter into a personal guarantee for

a letter of credit for a sum in excess of a million dollars, and had

sustained out-of-pocket costs in excess of $17,000 per year. /d. at 6.

We find no comparable allegations of harm in this case.

All

Appendix B

3. Diversity Jurisdiction

Under 28 U.S.C. § 1332(a)(1), federal district courts

have original jurisdiction of all civil actions where the

matter in controversy exceeds $10,000 and is between

“citizens of different states.” The citizenship of corpora-

tions is determined by 28 U.S.C. § 1332(c): they are

deemed citizens “of any State by which it has been incorpo-

rated and of the State where it has its principal place of

business.”

In both Rouse I and II, plaintiff Rouse alleges its own

Maryland citizenship by virtue of incorporation in the

State of Maryland and a principal place of business in Mary-

land. Rouse further alleges Delaware (state of incorpora-

tion) and Illinois (principal place of business) citizenship

on the part of Morse, and New York citizenship for all

defendants other than Morse in Rouse II. In its motion to

dismiss for lack of diversity jurisdiction, Morse contends

that neither Rouse I nor Rouse II is an action between

“citizens of different states” as its own principal place of

business is New York, not Illinois, and as Rouse’s principal

place-of business is also in New York rather than Maryland.

(footnote continued from preceding page)

ment. They have much more to lose in the event of default.

There must be some procedure for the interim protection of

contractors in this situation *** [Considering their vulner-

ability, a] contractor must have some protection against sub-

sequent bona fide purchasers between the time he completes

the work and the time [that] he gets a judgment.

56 A.D.2d at 37, 391 N.Y.S. at 430 (quoting Cook v. Carlson, 364

F. Supp. 24, 27 (D.S.D. 1973)). This account establishes that the

classification is based “upon a state of facts that reasonably can be

conceived to constitute a distinction, or difference in state policy

...". Dieffenbach v. Attorney Gen. of Vt., 604 F.2d at 195 (quoting

Allied Stores v. Bowers, 358 U.S. 522 (1959)).

Al2

Appendix B

The recent case of R.G. Barry Corp. v. Mushroom

Makers, 612 F.2d 651 (2d Cir. 1979) outlines the two

tests used in this circuit to determine principal place of

business for diversity purposes. The first, frequently re-

ferred to as the “nerve center” test (after Judge Weinfeld’s

language in Scot Typewriter Co. v. Underwood Corp., 170

F. Supp. 862, 865 (S.D.N.Y. 1959) ), applies “where cor-

porate operations are spread across numerous states.” This

test emphasizes “those factors that identify the place where

overall corporate policy originates.” R.G. Barry Corp. v.

Mushroom Makers, 612 F.2d at 655. The second test,

which may be called the “public contacts test”, applies

“when ... corporate operations are centralized.” This test

focuses “upon the state in which a corporation has its most

extensive contacts with, or greatest impact on the general

public.” Id.

In this case, we find the public contacts test the appro-

priate standard by which to determine Rouse’s principal

place of business, and under that test, we find that Rouse’s

principal place of business is New York.

The public contacts test rather than the nerve center test

is appropriate in this case because Rouse is not a company

“engaged in far-flung and varied activities which are car-

ried on in different states” as was the Underwood Corp.

in Scot Typewriter. Nor are plaintiff's operations so purely

managerial that its nerve center and its locus of corporate

operations can be viewed as one and the same. See Danbury

Bowlarama Corp. Vv. RCA Corp., 414 F. Supp. 354

(S.D.N.Y. 1976). Rather, Rouse, a Maryland corporation,

engages in a single activity located some distance from its

corporate headquarters: it manages and maintains a shop-

ping mall in Staten Island, New York. The corporate

operations of Rouse are thus most aptly described as “cen-

tralized.” While plaintiff cites language appearing in Phillip

Al3

Appendix B

Morris v. Sun Leasing Co., 371 F. Supp. 1233, 1234

(S.D.N.Y. 1979) to the effect that the “nerve center” test

is favored in this circuit, this language is contradicted by

both previous case law and subsequent decisions. See, e.g.,

R.G. Barry Corp. v. Mushroom Makers, 612 F.2d 651,

654-655 (2d Cir. 1979) (“two consistent lines of authority

. concerning the significance to be accorded different

aspects of corporate activity” in determining principal place

of business); Danbury Bowlarama v. R.C.A., 414 F. Supp.

357, 354 (S.D.N.Y. 1976) (applies nerve center test but

questions whether is to be favored in all cases); Inland

Rubber Corp. v. Triple A Tire Service, Inc., 220 F. Supp.

490, 496 (S.D.N.Y. 1963) (legislative history of section

1332(c) suggests dominant emphasis should be placed on

locus of corporate operations).

Applying the public contacts test, we conclude that

Rouse’s principal place of business is in New York. Rouse

owns and operates a shopping mall in Staten Island, New

York. All of its full time employees are in New York, and

the only significant property it owns is in New York. The

bulk of its daily operating decisions are made in New York.

While plaintiff is not in the business of selling consumer

goods to the general public, it does invite the general public

onto its property to patronize the concerns of its lessees.

On similar facts, the Southern District of Iowa concluded

that the site of a shopping center was its owner’s principal

place of business. Bullock v. Wiebe Construction Co., 241

F. Supp. 961 (S.D. Iowa 1965). We find plaintiff's at-

tempts to distinguish Bullock unpersuasive.‘

4 Plaintiff argues that Bullock should not be regarded as useful

authority because it does not discuss where the defendant’s corporate

services were furnished or where its corporate tax returns were filed.

(footnote continued on following page)

Al4

Appendix B

Plaintiff also argues that “the perception .. . that the

Mall is owned by an out-of-state company” is a reason to

declare its principal place of business is in Maryland. We

reject this argument. The only evidence of “local percep-

tions” that plaintiff has produced is an article from the

Staten Island Advance which incorrectly states that the

Mall is owned by the Rouse Company, the plaintiff's Mary-

land-based parent. We doubt that a single appositive in an

article from a newspaper of unspecified circulation or repu-

tation is likely to create widespread public opinion on the

issue of plaintiff's citizenship. Aside from this misstate-

ment, moreover, the article presents a fairly even-handed

account of this lawsuit. Thus, even assuming that the

concept of local prejudice is not “a relic of the past” as

Judge Kaufman has suggested, R.G. Barry Corp. v. Mush-

room Makers, 612 F.2d at 656, plaintiff has not established

its existence in this case.

As plaintiff is a citizen of New York and Maryland, no

diversity exists between it and the defendants other than

(footnote continued from preceding page)

As to the former, the opinion is clear that “.. . essentially all of the

management and administration of the corporation’s business is per-

formed at its office in Ralston, Nebraska.” 241 F. Supp. at 963.

As to the latter, the place of filing tax returns may be relevant, but

is by no means dispositive, particularly when the public contacts test

is being applied. See Uniroyal, Inc. v. Heller, 65 F.R.D. 83, 87

(S.D.N.Y. 1979) (citing Kelly v. United States Steel Corp., 284

F.2d 850 3d Cir. 1960)). Plaintiff also criticizes Bullock for failing

to discuss “the policies underlying diversity jurisdiction.” As we do

not find that plantiff has established that it is likely to suffer from

local prejudice, see p. 8-9, infra, we do not find Bullock’s failure in

this regard significant. Finally, while Bullock did not rely upon

authority specifically from the Southern District of New York or

the Second Circuit, it did vite Textron Electronics, Inc. v. Unholtz-

Dickie Corp., 193 F. Supp. 456, 458 (D. Conn. 1961), a case that

quotes from Scot Typewriter and cites other cases from this district.

Al5

Appendix B

Morse, as those defendants are also New York citizens.

Plaintiff maintains, however, that diversity still exists be-

tween it and defendant Morse, as it alleges Morse is a citizen

of Illinois and Delaware. Morse denies this allegation, con-

tending its citizenship is of New York and Delaware. On

the papers submitted thus far, we do not find that plaintiff

has sustained its burden of proving diversity exists between

it and Morse. However, since Rouse alleges it has not

completed discovery on the issue of Morse’s principal place

of business, we defer decision on this matter until discovery

is complete.

4. Conclusion

We dismiss the third cause of action of Rouse II for

failure to state a claim upon which relief can be granted.

We hold that plaintiff is a citizen of New York and Mary-

land, and therefore, that no diversity exists between plaintiff

and the defendants other than Morse. We defer decision on

the issue of Morse’s principal place of business until Rouse

completes its discovery on this issue. We also defer de-

cision on the issue of whether to dismiss Rouse II com-

pletely, or whether to retain jurisdiction over the pendent

state claims raised in that action, until such time as the

matter of Morse’s citizenship can be resolved.

So ORDERED.

/s/ CHARLES E. STEWART Jr.

United States District Judge

Dated: New York, New York

October 21, 1982

Al6

APPENDIX C

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

82 Civ. 1246 (CES)

Rouse SI SHOPPING CENTER, INC.

Plaintiff,

—against—

MorsE/DIESEL, INC.,

Defendant.

82 Civ. 1611 (CES)

Rouse SI SHOPPING CENTER, INC.

Plaintiff,

—against—

MorsE/DIESEL, INC., et al.,

Defendants.

MEMORANDUM DECISION

STEWART, District Judge:

In a Memorandum Decision dated October 21, 1982, we

held that the question of the constitutionality of the New

York Lien Law was sufficiently substantial to sustain federal

question jurisdiction in Rouse SI Shopping Center Inc. v.

Morse Diesel, Inc., et al., 82 Civ. 1611 (CES) (“Rouse

II”), but that, on the merits, plaintiff's challenge to the

Lien Law failed. We further held that as the plaintiff Rouse

and the defendants other than Morse were all citizens of

Al7

Appendix C

New York, no diversity jurisdiction existed in the case.

We nonetheless deferred decision on the issue of whether to

dismiss Rouse II completely or to retain the pendent state

claims pending resolution of the issue of defendant Morse’s

citizenship. The reason for this deferral was authority sug-

gesting that once federal question jurisdiction has attached,

a federal court has the power to hear pendent state claims

even though the federal claim may be dismissed before

trial. See 13 Wright, Miller & Cocper, Federal Practice and

Procedure: Jurisdiction § 3567 at 451-452 (1975) and

cites therein, including Ryan v. Walter Thompson Co., 453

F.2d 444, 446 (2d Cir. 1971), cert. denied, 406 U.S. 907

(1972). See also Jarvis v. Elerding, 504 F. Supp. 606,

609 (C.D. Cal. 1980).' It seemed to us that if it turned

out that diversity jurisdiction existed in Rouse SI Shopping

Center, Inc. v. Morse Diesel, Inc., 82 Civ. 1256 (CES)

(“Rouse I”), judicial economy might well be served by

hearing the pendent claims in Rouse II in the same forum.

We had not definitely decided that the state claims would be

retained, but assuming that the issue of Morse’s citizenship

could be resolved quickly, to leave the issue open seemed

the most prudent course.

1 Dictum in United Mine Workers v. Gibbs, 383 U.S. 715, 726

(1966) states that “if the federal claims are dismissed before trial,

even though not insubstantial in a jurisdictional sense, the state

claims should be dismissed as well.” This proposition, however was

questioned in Rosado v. Wyman, 397 U.S. 397, 404 (1970), a case

which held that the mooting of a federal claim did not divest the

federal court of jurisdiction over pendent claims. Rosado stressed

“the common sense policy of pendent jurisdiction—the conservation

of judicial energy and the avoidance of multiplicity of litigation. . .”.

397 U.S. at 405. Cases following Rosado have held that the question

of jurisdiction over pendent claims after dismissal of federal claims

is “one of discretion, not of power.” State of Arizona Vv. Cook Paint

& Varnish Co., 541 F.2d 226, 227 (9th Cir. 1976), cert. denied,

430 U.S. 915 (1977).

Al8

Appendix C

The issue of Morse’s citizenship, however, has not been

resolved quickly. The parties—although for different rea-

sons—now seek dismissal of the Rouse II action. We grant

these requests. The retention of pendent state claims follow-

ing dismissal of the federal claim that grounded federal

question jurisdiction is a matter for the discretion of the

district court. State of Arizona v. Cook Paint & Varnish

Co., 541 F.2d 226, 227 (9th Cir. 1976), cert. denied, 430

U.S. 915 (1977). Factors relevant to the exercise of a

court’s discretion include whether the litigants had expended

considerable time and effort on the state law issues before

the federal issues were dismissed, id., and whether the

state law issues implicate federal policy considerations. See

Jervis V. Elerding, 504 F. Supp. 606, 610 (C.D. Ca. 1980).

We find neither of these factors present here. Although we

had once thought that judicial economy might be served by

retaining the pendent claims, it now appears that dismissal

of this case will expedite its resolution. Accordingly, find-

ing no diversity between the plaintiff and the defendants

other than Morse, and finding the federal question that

grounded federal questions jurisdiction non-frivolous but

without merit, and finding that no substantial reasons sup-

port our retention of jurisdiction over pendent state claims,

we dismiss Rouse II as to all defendants.?

Our dismissal of Rouse II mandates our remand of North

Eastern Fabricators, Inc. v. Rouse SI Shopping Center, 82

Civ. 3197 (CES), to the state court of Richmond County.

This case was removed on diversity grounds by the plaintiff,

2In a letter dated December 16, 1982, plaintiff requests that

Rouse II be dismissed only as to defendants other than Morse. Given

the requirement of complete diversity for jurisdiction under 28 U.S.C.

§ 1332, however, see Strawbridge v. Curtiss, 3 Cranch 267 (1806),

dismissal as to Morse as well is appropriate.

Al9

Appendix C

and prosecution stayed by consent pending the outcome of

the motions directed to jurisdiction in Rouse I and II. The

jurisdictional issues in Rouse II having now been resolved,

remand under 28 U.S.C. § 1447(c) is appropriate.

In sum, therefore, Rouse II is dismissed as to all de-

fendants; North Eastern Fabricators Inc. is remanded to

the state court.

So ORDERED.

/s/ CHARLES E. STEWART, JR.

United States District Judge

Dated: New York, New York

December 29, 1982

A20

APPENDIX D

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

82 Civ. 1246 (CES)

Rouse SI SHOPPING CENTER, INC.

Plaintiff,

—against—

MorsE/DIESEL, INC.,

Defendant.

82 Civ. 1611 (CES)

Rouse SI SHOPPING CENTER, INC.

Plaintiff,

—against—

MorsE/DIESEL, INC., ef al.,

Defendants.

82 Civ. 3197 (CES)

NORTH EASTERN FABRICATORS, INC.,

Plaintiff,

—against—

Rouse SI SHOPPING CENTER, ef al.,

Defendants.

ORDER

STEWART, District Judge:

Due to a clerical error, our Memorandum Decision of

December 29, 1982 omitted North Eastern Fabricators, Inc.

A2l

Appendix D

v. Rouse SI Shopping Center, et al., 82 Civ. 3197 (CES)

from the caption on the first page. We accordingly amend

the caption of that decision to include this case, as indicated

above.

So ORDERED.

[Stamp]

[SIGNED BY CHARLES E, STEWART, JR. ]

United States District Judge

Dated: New York, New York

January 11, 1983

A22

APPENDIX E

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

82 Civil 1611 (CES)

Rouse SI SHOPPING CENTER, INC.

Plaintiff

—against—

MorsE/DIESEL, INC. ET AL

Defendants

82 Civil 3197 (CES)

NORTH EASTERN FABRICATORS, INC.

Plaintiff

—against—

Rouse SI SHIPPING CENTER, ET AL

Defendants

JUDGMENT

Defendant(s) having moved for an order dismissing the

complaint in 82 Civil 1611, and the said motion having

come before the Honorable Charles E. Stewart, United

States District Judge, and the Court thereafter on December

30, 1982, having handed down its memorandum decision,

granting the said motion, and remanding 82 Civil 3197 to

the State court, it is,

ORDERED, ADJUDGED AND DECREED: That the complaint

be and it is hereby dismissed in 82 Civil 1611, as to all

defendants, and it is further,

A23

Appendix E

ORDERED: That 82 Civil 3197, be and it is hereby re-

manded to the State Court.

/s/ RAYMOND F. BURGHARDT

Clerk

Dated: NEW YORK, N. Y.

January 17, 1983

A25

APPENDIX G

§ 3. Mechanic’s lien on real property

A contractor, subcontractor, laborer, materialman, land-

scape gardener, nurseryman or person or corporation sell-

ing fruit or ornamental trees, roses, shrubbery, vines and

small fruits, who performs labor or furnishes materials

for the improvement of real property with the consent or

at the request of the owner thereof, or of his agent, con-

tractor or subcontractor, shall have a lien for the principal

and interest, of the value, or the agreed price, of such

labor or materials upon the real property improved or to

be improved and upon such improvement, from the time

of filing a notice of such lien as prescribed in this chapter.

Where the contract for an improvement is made with a

husband or wife and the property belongs to the other or

both, the husband or wife contracting shall also be pre-

sumed to be the agent of the other, unless such other having

knowledge of the improvement shall, within ten days after

learning of the contract give the contractor written notice

of his or her refusal to consent to the improvement. Within

the meaning of the provisions of this chapter, materials

actually manufactured for but not delivered to the real

property, shall also be deemed to be materials furnished.

§ 9. Contents of notice of lien

The notice of lien shall state:

1. The name and residence of the lienor; and if the

lienor is a partnership or a corporation, the business address

of such firm, or corporation, the names of partners and

principal place of business, and if a foreign corporation,

its principal place of business within the state.

l-a. The name and address of the lienor’s attorney,

if any.

A26

Appendix G

2. The name of the owner of the real property against

whose interest therein a lien is claimed, and the interest

of the owner as far as known to the lienor.

3. The name of the person by whom the lienor was

employed, or to whom he furnished or is to furnish ma-

terials; or, if the lienor is a contractor or subcontractor,

the person with whom the contract was made.

4. The labor performed or materials furnished and the

agreed price or value thereof, or materials actually manu-

factured for but not delivered to the real property and

the agreed price or value thereof.

5. The amount unpaid to the lienor for such labor or

materials.

6. The time when the first and last items of work were

performed and materials were furnished.

7. The property subject to the lien, with a description

thereof sufficient for identification; and if in a city or vil-

lage, its location by street and number, if known. A failure

to state the name of the true owner or contractor, or a

validity of the lien. The notice must be verified by the

lienor or his agent, to the effect that the statements therein

contained are true to his knowledge except as to the mat-

ters therein stated to be alleged on information and belief,

and that as to those matters he believes it to be true.

§ 11. Service of copy of notice of lien

At any time after filing the notice of lien, the lienor may

serve a copy of such notice upon the owner, if a natural

person, by delivering the same to him personally, or if the

owner cannot be found, to his agent or attorney, or by

A27

Appendix G

leaving it at his last known place of residence in the city

or town in which the real property or some part thereof is

situated, with a person of suitable age and discretion, or

by registered or certified mail addressed to his last known

place of residence, or, if such owner has no such residence

in such city or town, or cannot be found, and he has no

agent or attorney, by affixing a copy thereof conspicuously

on such property, between the hours of nine o’clock in the

forenoon and four o’clock in the afternoon; if the owner

be a corporation, said service shall be made by delivering

such copy to and leaving the same with the president, vice-

president, secretary or clerk to the corporation, the cashier,

treasurer or a director or managing agent thereof, per-

sonally, within the state, or if such officer cannot be found

within the state by affixing a copy thereof conspicuously

on such property between the hours of nine o'clock in the

forenoon and four o'clock in the afternoon, or by registered

or certified mail addressed to its last known place of busi-

ness. Until service of the notice has been made, as above

provided, an owner, without knowledge of the lien, shall

be protected in any payment made in good faith to any

contractor or other person claiming a lien. A failure to

serve the notice does not otherwise affect the validity of

such lien.

§ 12-a. Amendment

1. Within sixty days after the original filing, a lienor may

amend his lien upon twenty days’ notice to existing lienors,

mortgagees and the owner, provided that no action or pro-

ceeding to enforce or cancel the mechanics’ lien has been

brought in the interim, where the purpose of the amend-

ment is to reduce the amount of the lien, except the ques-

tion of wilful exaggeration shall survive such amendment.

A28

Appendix G

2. In a proper case, the court may, upon five days’

notice to existing lienors, mortgagees and owner, make

an order amending a notice of lien upon a public or private

improvement, munc pro tunc. However, no amendment

shall be granted to the prejudice of an existing lienor, mort-

gagee or purchaser in good faith, as the case may be.

§ 13. Priority of liens

(1) A lien for materials furnished or labor performed

in the improvement of real property shall have priority

over a conveyance, mortgage, judgment or other claim

against such property not recorded, docketed or filed at

the time of the filing of the notice of such lien, except as

hereinafter in this chapter provided; over advances made

upon any mortgage or other encumbrance thereon after

such filing, except as hereinafter in this article provided;

and over the claim of a creditor who has not furnished

materials or performed labor upon such property, if such

property has been assigned by the owner by a general

assignment for the benefit of creditors, within thirty days

before the filing of either of such notices; and also over

an attachment hereafter issued or a money judgment here-

after recovered upon a claim, which, in whole or in part,

was not for materials furnished, labor performed or moneys

advanced for the improvement of such real property; and

over any claim or lien acquired in any proceedings upon

such judgment. Such liens shall also have priority over

advances made upon a contract by an owner for an im-

provement of real property which contains an option to

the contractor, his successor or assigns to purchase the

property, if such advances were made after the time when

the labor began or the first item of material was furnished,

as stated in the notice of lien. If several buildings are

A29

Appendix G

demolished, erected, altered or repaired, or several pieces

or parcels of real property are improved, under one con-

tract, and there are conflicting liens thereon, each lienor

shall have priority upon the particular part of the real

property or upon the particular building or premises where

his labor is performed or his materials are used. Persons

shall have priority on account of the time of filing their

respective notices of liens, but all liens shall be on a parity

except as hereinafter in section fifty-six of this chapter pro-

vided; and except that in all cases laborers for daily or

weekly wages shall have preference over all other claimants

under this article.

(l-a) Parties having assignments of moneys due or to

become due under a contract for the improvement of real

property, unless such assignments be set aside as diversions

of trust assets as provided in article three-a of this chapter,

shall have priority as follows:

An assignee of moneys or any part thereof, due or to

become due under a contract for the improvement of real

property, whose assignment is duly filed prior to the filing

of a notice of lien or assignment of every other party to

the action, shall have priority over those parties to the

extent of moneys advanced upon such assignment before

the filing of the notice of lien or assignment next subsequent

to his assignment, but as to moneys advanced subsequent

to a notice of lien or assignment filed and unsatisfied or not

discharged such assignee for the purpose of determining

his proportionate share of moneys available for distribution

as provided in subdivision one of this section shall be treated

as a lienor having a lien to the extent of moneys so

advanced.

A30

Appendix G

An assignee of moneys or any part thereof, due or to

became due under a contract for an improvement of real

property whose assignment is duly filed subsequent to the

filing of the notice of lien or assignment of any other party

shall for the purpose of determining his proportionate share

of moneys available for distribution, as provided in sub-

division one of this section be treated as a lienor having

a lien to the extent of moneys actually advanced upon

such assignment prior to the filing thereof.

(2) When a building loan mortgage is delivered and

recorded a lien shall have priority over advances made on

the building loan mortgage after the filing of the notice

of lien; but such building loan mortgage, whenever re-

corded, to the extent of advances made before the filing

of such notice of lien, shall have priority over the lien,

provided it or the building loan contract contains the

covenant required by subdivision three hereof, and pro-

vided the building loan contract is filed as required by

section twenty-one of this chapter. Every mortgage re-

corded subsequent to the commencement of the improve-

ment and before the expiration of four months after the

completion thereof shall, to the extent of advances made

before the filing of a notice of lien, have priority over liens

thereafter filed if it contains the covenant required by sub-

division three hereof. The lien of a vendee under an execu-

tory contract for the sale of land and the improvement

thereof by the construction of a building thereon shall,

to the extent of amounts paid thereunder to the vendor

before the filing of a notice of lien, have priority over liens

filed after the contract or memorandum thereof is recorded

as provided in section two hundred ninety-four of the real

property law if the recorded contract or memorandum

specifies the total amount of payments made by the vendee

A31

Appendix G

or required by the contract to be made by the vendee before

conveyance of title.

(3) Every such building loan mortgage and every mort-

gage recorded subsequent to the commencement of the

improvement and before the expiration of four months after

the completion of the improvement shall contain a covenant

by the mortgagor that he will receive the advances secured

thereby and will hold the right to receive such advances

as a trust fund to be applied first for the purpose of paying

the cost of improvement, and that he will apply the same

first to the payment of the cost of improvement before

using any part of the total of the same for any other pur-

pose, provided, however, that if the party executing the

building loan contract is not the owner of the fee but is

the party to whom such advances are to be made, a build-

ing loan contract executed and filed pursuant to section

twenty-two of this chapter shall contain the said covenant

by such party executing such building loan contract, in

place of the covenant by the mortgagor in the building

loan mortgage as hereinbefore provided. Nothing in this

subdivision shall be considered as imposing upon the lender

any obligation to see to the proper application of such ad-

vances by the owner; and nothing in this section, nor in

that portion of section two of this chapter, defining “cost

of improvement” shall be deemed to impair or subordinate

the lien of any mortgage containing the covenant required

by this subdivision. To the extent that the trust res consists

of the right to receive advances as distinct from advances

actually received, breach of the trust shall give rise to a

civil action only. The covenant provided for herein shall

be deemed to have been made and to be in full force and

effect if, in lien of the foregoing provisions, a statement

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in substantially the following form is contained in the mort-

gage or contract, “subject to the trust fund provisions of

section thirteen of the lien law.”

(4) Nothing in subdivision two or three of this section

shall apply to any mortgage given by a purchaser for value

from an owner making the improvement and recorded

prior to the filing of a lien pursuant to this chapter, pro-

vided the instrument of conveyance contains the provisions

mentioned in subdivision five herein.

(5) No instrument of conveyance recorded subsequent

to the commencement of the improvement, and before the

expiration of four months after the completion thereof,

shall be valid as against liens filed within four months

from the recording of such conveyance, unless the instru-

ment contains a covenant by the grantor that he will receive

the consideration for such conveyance and will hold the

right to receive such consideration as a trust fund to be

applied first for the purpose of paying the cost of the im-

provement and that he will apply the same first to the pay-

ment of the cost of the improvement before using any

part of the total of the same for any other purpose. Nothing

in this subdivision shall be construed as imposing upon the

grantee any obligation to see to the proper application of

such consideration by the grantor. Nothing in this sub-

division shall apply to a deed given by a referee or other

person appointed by the court for the sole purpose of sell-

ing real property. Nothing in this subdivision shall apply

to the consideration received by a grantor who, pursuant

to a written agreement entered into and duly recorded

prior to the commencement of the improvement, conveys to

the person making such improvement, the land upon which

such improvement is made. However, such a conveyance

shall be subject to liens filed prior thereto, as provided by

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Appendix G

this chapter. To the extent that the trust res consists of

the right to receive the consideration for such conveyance

as distinct from the consideration actually received, breach

of the trust shall give rise to a civil action only. The

covenant provided for herein shall be deemed to have been

made and to be in full force and effect if, in lieu of the

foregoing provisions, a statement in substantially the follow-

ing form is contained in the instrument of conveyance,

“subject to the trust fund provisions of section thirteen

of the lien law.”

Except that this section shall not apply to any mortgage

taken by the home owners’ loan corporation, a corporation

created under an act of congress, known as the “home

owners’ loan act of nineteen hundred thirty-three,” and the

“home owners’ loan act of nineteen hundred thirty-three

as amended,” and said mortgage shall have priority over

any and all liens filed subsequent to the date of the record-

ing of said mortgage whether or not the cash and/or bonds

for which said mortgage has been taken as security, shall

have been advanced at the time of the execution of such

mortgage or subsequent thereto, and it shall not be neces-

sary to execute and file any building loan contract or any

other contract, in compliance with this section or any part

thereof.

(6) Every assignment of moneys, or any part thereof,

due or to become due under a contract for the improvement

of real property shall contain a covenant by the assignor

that he will receive any moneys advanced thereunder by

the assignee and will hold the right to receive such moneys

as trust funds to be first applied to the payment of trust

claims as defined in section seventy-one of the lien law,

and that he will apply the same to such payments only,

before using any part of the moneys for any other purpose.

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Appendix G

§17. Duration of lien

No lien specified in this article shall be a lien for a longer

period than one year after the notice of lien has been

filed, unless within that time an action is commenced to

foreclose the lien, and a notice of the pendency of such

action, whether in a court of record or in a court note of

record, is filed with the county clerk of the county in which

the notice of lien is filed, containing the names of the

parties to the action, the object of the action, a brief descrip-

tion of the real property affected thereby, and the time of

filing the notice of lien; or unless an order be granted

within one year from the filing of such notice by a court

of record or a judge or justice thereof, continuing such lien,

and such lien shall be redocketed as of the date of granting

such order and a statement made that such lien is continued

by virtue of such order. No lien shall be continued by such

order for more than one year from the granting thereof,

but a new order and entry may be made in each successive

year. If the lienor is made a party defendant in an action

to enforce another lien, and the plaintiff or such defendant

has filed a notice of the pendency of the action within the

time prescribed in this section, the lien of such defendant

is thereby continued. Such action shall be deemed an

action to enforce the lien of such defendant lienor. The

failure to file a notice of pendency of action shall not abate

the action as to any person liable for the payment of the

debt specified in the notice of lien, and the action may be

prosecuted to judgment against such person. The provi-

sions of this section in regard to continuing liens shall apply

to liens discharged by deposit or by order on the filing of

an undertaking. Where a lien is discharged by deposit or

by order, a notice of pendency of action shall not be filed.

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Appendix G

A lien, the duration of which has been extended by the

filing of a notice of the pendency of an action as above

provided, shall nevertheless terminate as a lien after such

notice has been canceled as provided in section sixty-five

hundred fourteen of the civil practice law and rules or has

ceased to be effective as constructive notice as provided

in section sixty-five hundred thirteen of the civil practice

law and rules.

§ 19. Discharge of lien for private improvement

A lien other than a lien for labor performed or materials

furnished for a public improvement specified in this article,

may be discharged as follows:

(1) By the certificate of the lienor, duly acknowledged

or proved and filed in the office where the notice of lien

is filed, stating that the lien is satisfied or released as to

the whole or a portion of the real property affected thereby

and may be discharged in whole or in part, specifying the

part. Upon filing such certificate, the county clerk in the

office where the same is filed, shall note the fact of such

filing in the “lien docket” in the column headed “Proceed-

ings had” opposite the docket of such lien.

(2) By failure to begin an action to foreclose such lien

or to secure an order continuing it, within one year from

the time of filing the notice of lien, unless an action be

begun within the same period to foreclose a mortgage or

another mechanic’s lien upon the same property or any

part thereof and a notice of pendency of such action is filed

according to law, but a lien, the duration of which has been

extended by the filing of a notice of the pendency of an

action as herein provided, shall nevertheless terminate as

a lien after such notice has been canceled or has ceased

to be effective as constructive notice.

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Appendix G

(3) By order of the court vacating or cancelling such

lien of record, for neglect of the lienor to prosecute the

same, granted pursuant to section fifty-nine of this chapter.

(4) Either before or after the beginning of an action

by the owner or contractor executing an undertaking with

two or more sufficient sureties, who shall be free-holders,

to the clerk of the county where the premises are situated,

in such sums as the court or a judge or justice thereof may

direct, not less than the amount claimed in the notice of

lien conditioned for the payment of any judgment which

may be rendered against the property for the enforcement

of the lien. The sureties must together justify in at least

double the sum named in the undertaking. A copy of the

undertaking, with notice that the sureties will justify before

the court, or a judge or justice thereof, at the time and

place therein mentioned, must be served upon the lienor

or his attorney, not less than five days before such time.

Upon the approval of the undertaking by the court, judge

or justice an order shall be made by such court, judge or

justice discharging such lien. The execution of any such

bond or undertaking by any fidelity or surety company

authorized by the laws of this state to transact business,

shall be equivalent to the execution of said bond or under-

taking by two sureties; and where a certificate of qualifica-

tion has been issued by the superintendent of insurance

under the provisions of section three hundred and twenty-

seven of the insurance law, and has not been revoked, no

justification or notice thereof shall be necessary, and in

such case a copy of the undertaking and notice of the

application for an order to discharge the lien must be

served upon the lienor or his attorney not less than two

days before such application for such order is made. Any

such company may execute any such bond or undertaking

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Appendix G

as surety by the hand of its officers, or attorneys, duly

authorized thereto by resolution of its board of directors,

a certified copy of which resolution, under the seal of said

company, shall be filed with each bond or undertaking.

If the lienor cannot be found, or does not appear by at-

torney, such service may be made by leaving a copy of said

undertaking and notice at the lienor’s place of residence,

or if a corporation at its principal place of business within

the state as stated in the notice of lien, with a person of

suitable age and discretion therein, or if the house of his

abode or its place of business is not stated in said notice

of lien and is not known, then in such manner as the court

may direct. The premises, if any, described in the notice

of lien as the lienor’s residence or place of business shall

be deemed to be his said residence or its place of business

for the purposes of said service at the time thereof, unless

it is shown affirmatively that the person serving the papers

or directing the service had knowledge to the contrary.

Notwithstanding the other provisions of this subdivision

relating to service of notice, in any case where the mailing

address of the lienor is outside the state such service may

be made by registered or certified mail, return receipt re-

quested, to such lienor at the mailing address contained

in the notice of lien.

(5) Upon the filing in the office of the clerk of the

county where the property is situated, a transcript of a

judgment of a court of competent jurisdiction, together

with due proof of service of due notice of entry thereof,

showing a final determination of the action in favor of the

owner of the property against which the lien was claimed.

(6) Where it appears from the face of the notice of

lien that the claimant has no valid lien by reason of the

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Appendix G

the lienor. Such notice shall require the lienor to commence

an action to enforce the lien, within a time specified in the

notice, not less than thirty days from the time of service,

or show cause at a special term of a court of record, or at

a county court, in a county in which the property is situated,

at a time and place specified therein, why the notice of

lien filed or the bond given should not be vacated and

cancelled, or the deposit returned, as the case may be.

Proof of such service and that the lienor has not com-

menced the action to foreclose such lien, as directed in the

notice, shall be made by affidavit, at the time of applying

for such order.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.