Property Clerk, NY City Police Dept. v Aquino

[*1] Property Clerk, NY City Police Dept. v Aquino 2004 NY Slip Op 51848(U) Decided on November 3, 2004 Supreme Court, New York County Shulman, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on November 3, 2004
Supreme Court, New York County

PROPERTY CLERK, NEW YORK CITY POLICE DEPARTMENT, Plaintiff,

against

ANN L. AQUINO and CHRYSLER FINANCIAL COMPANY, L.L.C, as successor by merger to CHRYSLER FINANCIAL CORPORATION, Defendants.



403570/99

Martin Shulman, J.

Defendant Chrysler Financial Company, L.L.C., ("Chrysler") as successor by merger to Chrysler Financial Corporation, moves, inter alia, for the return of the total proceeds received by plaintiff Property Clerk, New York City Police Department ("plaintiff" or "Property Clerk") from the auction of a vehicle in which Chrysler maintained a security interest. The vehicle, a 1998 Jeep Grand Cherokee ("Jeep" or "vehicle"), was seized from defendant Ann L. Aquino ("Aquino"), following her arrest on charges of Driving While Intoxicated (Vehicle and Traffic Law §§ 1192.2 and 1192.3) and forfeited pursuant to New York City Administrative Code §14-140. The Property Clerk opposes this motion to the extent that it seeks to retain a ten percent (10%) "administrative fee" from the sale proceeds. It is undisputed that Chrysler is entitled to ninety percent (90%) of the auction proceeds [FN1].

Background

Aquino purchased the Jeep from Speed Auto Sales ("Speed") and entered into a retail installment contract ("contract") to finance $24,290.01 of the purchase price. In accordance with its terms, Speed assigned the contract to Chrysler's predecessor by merger and Chrysler perfected its security interest in the Jeep in accordance with [*2]Vehicle and Traffic Law §2118 [FN2]. Aquino failed to make payments as required under the contract leaving a balance due of $19,206.82. (Jurban Aff. annexed to Motion). This non-payment and the Property Clerk's seizure of the vehicle constituted a default under the terms of the contract. Upon such default, the contract allows Chrysler to repossess the Jeep, sell it and utilize the proceeds, less allowed expenses to pay off the balance, if any, due under the contract.[FN3]

Following Aquino's arrest and subsequent demand for the return of the Jeep, the Property Clerk commenced this action against her. Chrysler successfully moved to intervene in this action, was added as a co-defendant, and the court issued an order enjoining the Property Clerk from releasing the vehicle to Aquino. (Decision and Order of the Hon. W. McCooe, J.S.C., dated February 16, 2000).[FN4] [*3]

Chrysler, asserting that New York City Administrative Code §14-140 was constitutionally infirm, moved for: (1) summary judgement directing the return of the vehicle; (2) a declaratory judgment that any administrative fee imposed by the Property Clerk is a disguised forfeiture which violates its rights to due process and abrogates the protections afforded by the Takings and Excessive Fines Clauses; (3) a judgment declaring Chrysler's right to the vehicle superior to that of Aquino; (4) or, in the alternative, an order directing the Property Clerk to immediately auction the Jeep and allow Chrysler to "credit bid" up to the full amount of its lien.

In a Decision and Order dated September 18, 2000, (Property Clerk v. Aquino, NYLJ, October 2, 2000, at 26, col 1 ([Sup Ct, NY County, McCooe J.]), the court reiterated the Appellate Division, First Department's holding in Property Clerk v. Molomo, 179 AD2d 210, 583 NYS2d 251 (1st Dept., 1992) affd 81 NY2d 936,

597 NYS2d 661 (1993) that Chrysler's sole remedy was to receive the proceeds of the forfeiture action and obtain a deficiency judgment, if necessary, against Aquino. Concerning the 10% administrative fee, Justice McCooe logically concluded "Chrysler will not suffer any loss unless the deficiency cannot be recovered from Aquino. Therefore any opinion by this Court as to the 10% administrative fee would be advisory since the event may never take place. Nor would Chrysler suffer a loss unless the 10% administrative fee exceeded its contractual repossession expenses which are not to exceed 15% of the sale proceeds. The point is that since neither event may occur, any opinion would be advisory." (Decision and Order of the Hon. W. McCooe, J.S.C., dated September 18, 2000 at p. 3). Parenthetically, in an Order dated May 22, 2000, Justice McCooe granted the Property Clerk a default judgment as to Aquino.

The Property Clerk and Chrysler entered into a stipulation whereby the Property Clerk agreed to release the Jeep to Chrysler in exchange, inter alia, for a One Thousand Dollar ($1,000.00) payment, a duly executed "hold harmless" agreement and an agreement not to re-lease the Jeep to Aquino (Stipulation annexed as Exhibit E to Motion). When Chrysler attempted to retrieve the Jeep, it learned that approximately six months before the date of the stipulation, the vehicle had been sold at auction for $10,700.00 (Bill of Sale annexed as Exhibit G to Motion).

Administrative Fees

In Property Clerk v. Molomo, supra , the Appellate Division, First Department established that a lienholder is "merely entitled to satisfy its lien from the proceeds of the property after the forfeiture has been adjudicated against the guilty party." [FN5] [*4]

179 AD2d at 212, 583 NYS2d at 252. Simply put, the issue to be determined is whether the term "proceeds" refers to the gross proceeds received from the auction up to the full amount of the lien, or to net proceeds, the gross amount of the proceeds received less expenses incurred, or in this instance, the deduction of a 10% administrative fee.[FN6]

In detailing the circumstance surrounding the forfeiture action in Molomo, the Appellate Division, First Department noted that "[t]he Property Clerk plans to sell the vehicle at auction and retain 10% of the proceeds for its administrative expenses and remit the remainder to [the lienholder]." Molomo at 212. The First Department, sub silentio, ratified the Property Clerk's practice of retaining a 10% administrative fee from the auction proceeds of a seized vehicle.

Chrysler asserts that because the Property Clerk has auctioned off the vehicle and seeks to retain an administrative fee, any ruling on the validity of such a fee would no longer be an advisory opinion. Chrysler has already obtained a judgment against Aquino for the full value of its lien, allowable costs and interest.[FN7] Even at this late juncture, Chrysler has not demonstrated that it is unable to enforce its judgement against Aquino.

Significantly, Justice McCooe noted, albeit in dicta, that "Chrysler as a lienholder has no legal right to object to any administrative fee imposed by the Property Clerk and that is the sole right of the owner of the vehicle." (Decision and Order of the Hon. W. McCooe, J.S.C. dated September 18, 2000 at p. 3).

In Molomo at 214, the Appellate Division, First Department also noted that lienholders are not without the means to protect against the risks associated with the civil forfeiture of vehicle in which they maintain a security interest:

Whatever other steps a lienor might take to protect its

interests from loss, e.g., the retail installment contract herein

required the buyer to insure the vehicle and gave him the [*5]

option of credit life and credit disability insurance, [a lienor]

could conceivably insure itself for any loss it might sustain

in the event the buyer violated a law thus triggering the

seizure and forfeiture provisions of the Administrative Code.

***

[H]arsh as forfeiture may seem, the risks inherent in

[the lienholder's] position as a secured creditor are no greater

in this instance, where the value of its lien is diminished by

the unlawful conduct of its debtor, then they would be in the event

its debtor violated the retail installment agreement by failing to

obtain the required insurance and the vehicle was stolen or

destroyed. Moreover, in practical terms, the only real difference

in effect in the present matter is the 10% administrative fee.

Storage Fees

Chrysler asserts that there is no lawful basis that would allow the Property Clerk to impose a storage fee for vehicles seized for forfeiture. Although New York City Administrative Code §14-140 is silent on the issue of storage fees, analogous provisions of the Administrative Code allow for the imposition of such fees. For example, Administrative Code §20-468, in relevant part, permits the City to seize and seek forfeiture of vehicles utilized for unlicensed vending. "If a forfeiture proceeding is not commenced the owner or other person lawfully entitled to the possession of such . . . vehicle . . . may be charged with the reasonable cost for removal and storage payable prior to the release of . . . [the] vehicle." (Administrative Code §20-468[c]).

In Bennis v. Michigan, 516 US 442, 116 S Ct 994 (1996), the US Supreme Court put its imprimatur on the widespread government practice of deducting expenses from the auction proceeds of a forfeited vehicle. The underlying facts are fairly straightforward. A vehicle jointly owned by a husband and wife was used by the husband to engage in sex with a prostitute. Although there was no allegation that the wife consented to her husband's illicit use of the seized vehicle, the US Supreme Court upheld the forfeiture of the wife's entire interest in the seized vehicle. The Supreme Court rejected constitutional challenges based on the Fifth, Eighth and Fourteenth Amendments and found that under the Michigan statute, the lack of culpability on the part of an owner of a seized vehicle used as the instrumentality of a crime did not serve as a bar to forfeiture. In an amicus curiae brief filed in support of Bennis, the American Bankers Association argued that the Michigan statute violated the due process and takings protections of the Fifth and Fourteenth Amendments, despite provisions of the Michigan statute allowing liens to be satisfied from the net proceeds (full proceeds less expenses) of an auction. (American Bankers Association Brief in Bennis v. Michigan, 1995 WL 782837 [US]).

At oral argument, counsel for plaintiff wife argued that she was entitled to be compensated for her entire interest in the seized vehicle and that "so-called administrative expense, attorney's fees, prosecutorial attorney fees and court costs, [and] police costs, are not properly assessable against her interest, [and] that [ ] as a [*6]matter of constitutional law that it is improper to assess those costs against her." (Transcript of Oral Argument in Bennis v. Michigan, 1995 WL 712350 at p.7 [US]). Implicit in the Bennis decision allowing complete forfeiture of the wife's interest in the vehicle is the U.S. Supreme Court's recognition that the imposition of administrative fees and expenses on "innocent owners" and leinholders does not run afoul of federal constitutional protections.

Chrysler has failed to demonstrate that the Property Clerk's turnover of the proceeds of the auction less the 10% administrative fee is constitutionally impermissible.

This Court has examined Chrysler's remaining contentions and finds them to be without merit.

Accordingly, it is hereby

ORDERED that Chrysler's motion for the return of the entire auction proceeds from the sale of the seized Jeep is denied; and it is further

ORDERED that the Property Clerk shall pay Chrysler Nine Thousand Six Hundred and Thirty Dollars ($9,630.00), representing ninety-percent (90%) of the auction proceeds of Ten Thousand Seven Hundred Dollars ($10, 700.00) within ten (10) days of service of this Decision and Order with notice of entry; and it is further

ORDERED that this action is dismissed in its entirety.

This constitutes the Decision and Order of this Court. Courtesy copies of this decision and order have been forwarded to counsel for the parties.

Dated: New York, New York ______________________

November 3, 2004 Hon. Martin Shulman, J.S.C. Footnotes

Footnote 1:Although the parties agree that Chrysler is minimally entitled to ninety percent (90%) of the auction proceeds, i.e., $9,630.00, the Property Clerk has purportedly withheld payment of same pending Chrysler's execution of a "General Release with Indemnification." See Zalantis Letter, dated August 2, 2004 and exhibits annexed thereto. There is simply no justification for plaintiff's self-imposed "stay" of the payment of the undisputed share of the auction proceeds to Chrysler.

Footnote 2:A security interest in a motor vehicle is perfected by delivery of the existing certificate of title ('title"), if one exists, together with the name and address of the lienholder to the Department of Motor Vehicles ("DMV"). The DMV then either endorses the title or issues a new title with the name and address of the lienholder.

Footnote 3:As set forth in the contract, allowed expenses are defined as: "those reasonable expenses incurred as a direct result of retaking the Vehicle, holding it, preparing it for sale and selling it. In addition, if [Chrysler] hires an attorney who is not a salaried employee of [Chrysler] to collect what [Aquino] owes, you agree to pay reasonable attorney's fees including, without limitation, on appeal and in bankruptcy proceedings, not to exceed fifteen percent (15%) of the unpaid balance of this contract after such default. *** If the proceeds of the sale, less allowed expenses, are not sufficient to pay the net amount still owed on this contract, [Chrysler] may recover the deficiency with interest . . . [I]f there is money left over it will be paid to [Aquino]." (Bracketed matter added) (See ¶ G of Contract annexed as Exhibit P to Motion).

Footnote 4:Although the Property Clerk consented to Chrysler's intervention in this action in 2000, nonetheless, in a subsequent decision, in Property Clerk v. Foley et al., 282 AD2d 221 (1st Dept, 2001), the Appellate Division, First Department unanimously affirmed lower court decisions denying motions by vehicle finance companies, including Chrysler, for leave to intervene in forfeiture actions and for preliminary injunctions prohibiting the Property Clerk from releasing these vehicles to defendants. The First Department found that: [a]ppellants' security interest in the subject vehicles will not be adversely affected by any judgments to be entered in these actions . . . .[a]ppellants have no present possessory right in the vehicles (Property Clerk of NY City Police Dept. v. Molomo, 81 NY2d 936). Their remedy, in the event of forfeiture, is to receive the proceeds from the City's forfeiture sale and to seek any deficiency from the defendant vehicle owners (id.), and in the event of nonforfeiture, to sue defendants for return of the vehicles or for such other relief as might be provided in their contracts with defendants.

Footnote 5:In Molomo, The First Department emphasized that a lienholder is not an owner of a vehicle: "[n]or should Ford's status as a lienholder, not an owner, be glossed over." Id. at 213. Vehicle and Traffic Law §128 defines an owner as "a person, other than a lienholder, having the property in or title to a vehicle or vessel." Obviously, the difference between a lienholder and an owner is not merely one of semantics and different rights and liabilities attach to each. For example, although in civil forfeiture actions an owner must be a defendant in the action and a lienholder has no such right, an owner can be held vicariously liable for the negligent actions of a driver of its vehicle, while a lienholder bears no such liability. See, Vehicle and Traffic Law § 388.

Footnote 6: In Property Clerk v. Bauman, 146 Misc2d 874 (Sup Ct, NY County, 1990, Nardelli, J.) the court directed the Property Clerk to turn over the "net proceeds" to the lienholder.

Footnote 7:Pursuant to an Order dated March 13, 2002, this Court granted summary judgement in Chrysler's favor as to its first and second cross-claims against Aquino (Decision and Order annexed as Exh. K to Motion). On April 5, 2002, Chrysler was granted a judgment against Aquino in the amount of $26,994.57 representing the $19,206.82 deficiency amount due under the contract, $4,631.73 in interest, $275.00 in costs and disbursements and $2881.02 in attorneys' fees. (Judgment annexed as Exhibit L to Motion).