Posted by: Patricia Salkin | January 21, 2013

Fed. Dist. Court in NY Dismisses Pawn Shop Owners Claims of Due Process and Equal Protection Violations on Ripeness Grounds

The plaintiff, Quick Cash of Westchester Ave. LLC (“Quick Cash”) operated nineteen collateral loan broker (a.k.a. pawn shops) locations throughout the New York metropolitan area.  In order to operate these businesses, Quick Cash must obtain certain licenses. Plaintiff sought to open a pawn store in Port Chester, but first inquired into the discrepancies between the Village’s laws (“Code”) regarding pawn shops and New York state law concerning the same. While both bodies of law are substantially similar, the Code contains two specific provisions that are more stringent than New York’s: section 206-23 of the Code prohibits a pawn broker from charging an interest rate greater than 3% per month for the first six months, and 2% for each additional month, while state law prohibits charging an interest rate greater than 4% per month; and the Code requires a broker to hold an item in its possession for one year before selling it whereas the time period under N.Y. General Business Law is only four months.

Plaintiff sought to raise the issue with the Board of Trustees (“Board”) which waited about a month before deciding to refer the decision to the Village’s Planning Commission (“Commission”). In the meantime, a member of the Board suggested that Plaintiff attempt to obtain information relating to pawn shops in the zoning regulations. Plaintiff did so, and also scheduled a meeting with the Village manager, but that meeting was cancelled at the last minute. After a couple of months, the Board adopted a moratorium for pawn broker operations and a Village Trustee stated that the Board “agreed that we need to set the zoning for this use.” Despite this, Plaintiff continued to look for store locations and even entered into a lease in the commercial district. Several attempts seeking information about obtaining a pawn broker’s license went unanswered, and eventually Plaintiff learned that the Village passed a law restricting pawn shop locations to industrial districts.

Almost a year after initiating his inquiry, Plaintiff also learned that the Village does not maintain application forms for pawn broker licenses. In addition, after reviewing the new law’s zoning restrictions, Plaintiff asserted that there is no available location within the Village to open a Quick Cash besides a tiny store in a parking lot or in a building already in use for industrial purposes. Therefore, Plaintiff initiated this action pursuant to 42 U.S.C. section 1983 in New York Supreme Court but it was removed to federal court. Defendants filed a motion to dismiss.

The court first conducted a ripeness analysis on the Plaintiff’s substantive due process and equal protection claims. The court ruled that because the Plaintiff had not received a final decision relating to a grant or denial of a pawn broker’s license his claims were not ripe for adjudication. Although his communications with the Board and Village evinced an intent to obtain a license, it never actually submitted an application; the Plaintiff instead relied on the Village’s lack of an application process to excuse its inaction. Plaintiff’s characterizations of the Village’s behavior as “silence,” “stalling tactics,” or “being kept in the dark” do not amount to a denial of its request for a license, assuming a request even existed. Thus, while Plaintiff has demonstrated that the Village did not promptly address its inquiries about the necessary license, Plaintiff has not shown that it ever applied for or that the Village ever issued a final decision with respect to the license.

In order to invoke the futility exception, “a plaintiff must demonstrate: (1) the inevitability of refusal of their application, taking into consideration factors such as the defendants’ hostility, delay and obstruction; and (2) that plaintiff has filed at least one meaningful application.” Here, Plaintiff claimed the absence of an application and the Board’s underlying motive in passing the new law rendered the likelihood of being granted the license “non-existent.” Unfortunately for Plaintiff, this exception would only apply when the decision-maker “lacks discretion to grant variances or has dug in its heels and made clear that all such applications will be denied.” Plaintiff put forth no specific facts to indicate the Village’s hidden motive or any hostility towards pawn shops that would result in a futile application. Lastly, Plaintiff never alleged that it requested that the Board amend the zoning regulations or grant for pawn shops or grant a variance for Plaintiff, precluding the judge from finding the minimum requirement of “one meaningful application.”

In alternative holdings, the judge stated that even if Plaintiff’s equal protection and substantive due process claims were ripe for review, both would be denied for failure to state a claim. Plaintiff put forth a “class of one” equal protection claim, meaning he would have had to prove an extremely high degree of similarity between it and, in this case, other pawn brokers. But because no pawn shops existed in the Village, Plaintiff compared Quick Cash to other banks, and only in general terms. Therefore, the court determined that these comparisons were more a high degree of generality than similarity, and also that banks and Plaintiff were not similarly situated in any material aspects.

As for the substantive due process claim, Plaintiff would have had to demonstrate that “it had a constitutionally protected property interest, and then establish the deprivation of that interest was without due process of law.” Plaintiff alleged that the Village had no discretion under state law to deny a pawn broker’s license, but N.Y. General Business Law states otherwise: “The mayor or such local licensing authority may from time to time grant … to such citizens …as he shall deem proper and who shall produce to him satisfactory evidence of their good character, a license authorizing such person to carry on the business of a collateral loan broker ….” Thus as was the case here, because the Village did in fact have discretion to grant or deny a license, Plaintiff had no vested property right to issuance of the permit, and therefore could not allege a constitutionally protected property interest.

Quick Cash of Westchester Avenue LLC v. Village of Port Chester, 2013 WL 135216 (S.D.N.Y. 1/10/2013)


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