Easthampton Savings Bank v. City of Springfield ( 2013 )

United States Court of Appeals
For the First Circuit
No. 12-1917
EASTHAMPTON SAVINGS BANK; CHICOPEE SAVINGS BANK;
HAMPDEN BANK; UNITED BANK; MONSON SAVINGS BANK;
COUNTRY BANK FOR SAVINGS,
Plaintiffs, Appellants,
v.
CITY OF SPRINGFIELD,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Michael A. Ponsor, U.S. District Judge]
Before
Lynch, Chief Judge,
Stahl and Howard, Circuit Judges.
Tani E. Sapirstein, with whom Sapirstein & Sapirstein, P.C.
was on brief, for appellants.
Brenda R. Sharton, Thomas M. Hefferon, William F. Sheehan, and
Goodwin Procter LLP on brief for Massachusetts Bankers Association,
Inc., amicus curiae.
Thomas D. Moore, with whom Edward Pikula, Anthony Wilson, and
City of Springfield Law Department were on brief, for appellee.
Lee D. Goldstein on brief for Harvard Legal Aid Bureau,
National Consumer Law Center, National Community Reinvestment
Coalition, Massachusetts Law Reform Institute, and Massachusetts
Alliance Against Predatory Lending, amici curiae.
November 22, 2013
LYNCH, Chief Judge. This case presents facial challenges
under both state and federal law to two local Ordinances enacted by
the City of Springfield. In broad terms, the Ordinances impose new
legal duties on (1) property "owner[s]" to maintain property during
the foreclosure process and provide a $10,000 cash bond per
foreclosure to the City and (2) on mortgagees to attempt a
settlement through a new particular system of negotiations before
foreclosing. As to the first Ordinance, the central point of
contention is that its definition of "owner" includes mortgagees
who are not in possession and have begun the foreclosure process,
and it appears to impose these duties on foreclosing mortgagees
regardless of whether the mortgagors are still in possession.
Objecting to the imposition of these new duties, six
banks brought this suit in state court, seeking to have the
Ordinances invalidated as inconsistent with and preempted, under
both field and conflict preemption principles, by the comprehensive
state laws governing foreclosure and property maintenance, and as
inconsistent with federal and state constitutional guarantees. The
plaintiff banks seek declaratory and injunctive relief preventing
the City from enforcing the Ordinances. The City removed the case
to federal court on the grounds of federal question jurisdiction.1
1
The complaint recited various federal constitutional
claims, including procedural and substantive due process,
vagueness, and unlawful takings. These miscellaneous claims
quickly fell away and are no longer at issue in this case. The
only federal claim remaining is a Contracts Clause claim.
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The banks filed a motion for judgment as a matter of law, which the
City opposed and countered with a cross-motion to dismiss or for
summary judgment. The district court decided that the Ordinances
were valid and granted the City's motion. See Easthampton Sav.
Bank v. City of Springfield, 874 F. Supp. 2d 25 (D. Mass. 2012).
The banks now appeal, seeking reversal and entry of judgment in
their favor. Because the outcome of this case turns on unresolved
questions of Massachusetts law and raises significant policy
concerns better suited for resolution by the Massachusetts Supreme
Judicial Court, we certify the dispositive state law questions to
that court. See Mass. S.J.C. R. 1:03.
I.
The housing market collapse of 2008 led to a significant
increase in the number of mortgage foreclosures, both nationally
and in Massachusetts. The City of Springfield was particularly
hard-pressed by foreclosures and concluded that properties left
vacant during or after foreclosure can threaten the public safety
by, among other things, attracting criminal activity or drawing
squatters who, without any available utilities, may cause fires.
These harms can in turn lower the values of neighboring properties,
causing more foreclosures and creating a vicious circle.
In response, the City enacted the two Ordinances relating
to foreclosures. The first, the "Foreclosure Ordinance," requires
"owner[s]" of properties in the foreclosure process to provide
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24-hour on-site security personnel or else secure all doors and
windows, remove hazardous materials, turn off utilities, clear any
trash or standing water, and maintain liability insurance, among
other things.2 See Springfield, Mass. Ordinances ch. 285-8 et seq.
(2011). It also defines the term "owner" to include mortgagees who
have begun the foreclosure process, regardless of whether the
mortgagee is in possession. Id. ch. 285-9. We set forth the
Ordinance's full definition of "owner" in the Appendix. The
Ordinance also requires owners to provide to the Springfield
Building Commissioner a cash bond of at least $10,000 within thirty
days of the property becoming vacant or within fifteen days of
initiating the foreclosure process. If the owner fails to comply
2
Among the Ordinance's many requirements, in its own terms,
are the obligations for owners to: "file one set of space
utilization floor plans for any buildings on [vacant or
foreclosing] property with the Fire Chief and one set of said plans
with the Commissioner" and "certify space utilization plans as
accurate twice annually"; "[r]emove from the property, to the
satisfaction of the Fire Commissioner, hazardous material as that
term is defined in MGL c. 21K"; "secure all windows and door
openings and ensure that the building is secured from all
unauthorized entry continuously . . . or provide twenty-four-hour
on-site security personnel"; "post 'No Trespassing' signs" if the
property is vacant; "[m]aintain the property . . . free of
overgrowth, trash and debris, and pools of stagnant water, and
ensure that structures are maintained in a structurally sound
condition"; "drain all water from the plumbing and turn off all
electricity between September 15 and June 15 of each calendar year"
if the property is vacant; "[m]aintain the property in accordance
with the Massachusetts State Sanitary Code, the Massachusetts State
Building Code . . . and any Springfield ordinances concerning the
maintenance of property [or zoning]"; and "[m]aintain liability
insurance on the property and furnish the Director with a copy of
said certificate of insurance." Springfield, Mass. Ordinances ch.
285-10 (2011).
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with the Ordinance's terms, the cash bond will be used to defray
the City's cost of maintaining the property. If the owner does
comply, the bond is later returned, less some portion kept by the
City to cover its administrative expenses.3 The portion retained
by the City may be used to fund the City's expenses on other
properties, including properties in which the owner has no
interest. See id. ch. 285-10(A)(11).
The second Ordinance, the "Mediation Ordinance," requires
mortgagors and mortgagees involved in a foreclosure of an
owner-occupied residential property to participate in good faith in
an "approved" mediation program. The mortgagee is subject to
paying about 85% of the cost of the mediation program. The
Ordinance says, inter alia, that a mortgagee must give good faith
consideration to loan restructuring or forgiveness. The Mediation
Ordinance inhibits a mortgagee from moving forward with a
foreclosure otherwise authorized by state law without presenting a
certificate from the mediator confirming that the mortgagee has
participated in the mediation in good faith. It provides strong
incentives to participate during the right to cure period
3
The Foreclosure Ordinance does not state a specific amount
that will be retained, instead providing only that "[a] portion of
said bond shall be retained by the City as an administrative fee."
Springfield, Mass. Ordinances ch. 285-10(A)(11) (2011). At a
hearing in the district court, counsel for the City represented to
the district court that the amount would likely be between $200 and
$500. At oral argument before this court, the City represented
that the amount would be between $500 and $1000.
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established by state law. The penalty for noncompliance is a $300
per day fine for the duration of the right to cure period. See
Springfield, Mass. Ordinances ch. 182 (2011). Both Ordinances
apply retroactively to mortgages that existed on their effective
date of December 13, 2011.
The banks brought suit for declaratory and injunctive
relief. In its present posture, their case rests on three primary
arguments: (1) the Ordinances violate the Contracts Clause of the
U.S. Constitution; (2) under the Massachusetts Constitution, the
Ordinances are preempted by Massachusetts state law; and (3) the
Ordinances violate the Massachusetts Constitution by imposing an
illegal tax. This opinion concerns certification of the last two
claims raised by the banks.
II.
The Massachusetts Supreme Judicial Court (SJC) permits a
federal court to certify a question to it "if there are involved in
any proceeding before it questions of law of this State which may
be determinative of the cause then pending in the certifying court
and as to which it appears to the certifying court there is no
controlling precedent in the decisions of this court." Mass.
S.J.C. R. 1:03.4 This case meets those requirements. And this
4
Although neither party requested certification, we have the
discretion to certify questions to the SJC sua sponte. See Ropes
& Gray LLP v. Jalbert (In re Engage, Inc.), 544 F.3d 50, 57 n.10
(1st Cir. 2008). We advised the parties at oral argument that we
were considering certification and gave them an opportunity to
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court has a long history of certifying appropriate questions to the
SJC. See, e.g., Real Estate Bar Ass'n for Mass., Inc. v. Nat'l
Real Estate Info. Servs., 608 F.3d 110, 119-20 (1st Cir. 2010);
Ropes & Gray LLP v. Jalbert (In re Engage, Inc.), 544 F.3d 50, 57-
58 (1st Cir. 2008); Bos. Gas Co. v. Century Indem. Co., 529 F.3d 8,
23-24 (1st Cir. 2008); Globe Newspaper Co. v. Beacon Hill
Architectural Comm'n, 40 F.3d 18, 24-25 (1st Cir. 1994). The SJC
has affirmatively responded to those certified questions.
A. "Which may be determinative"
The issues of state law will be determinative in this
case. The banks have raised two state claims as well as a claim
under the Contracts Clause of the U.S. Constitution. Regardless of
whether the Ordinances violate the Contracts Clause as applied to
pre-Ordinance contracts, only a decision based on state law or the
Massachusetts Constitution will give the banks the full measure of
present arguments and to propose questions to certify.
Neither party objected to certification as to the preemption
question. However, both parties objected to certification of the
illegal tax question, arguing that Massachusetts law is
sufficiently clear that judgment should be entered in their favor.
We disagree with the notion that this issue is clear.
The SJC has previously answered questions certified even over
the objections of both parties. See Knapp Shoes, Inc. v. Sylvania
Shoe Mfg. Corp., 640 N.E.2d 1101, 1102 (Mass. 1994) (answering
certified question); Knapp Shoes, Inc. v. Sylvania Shoe Mfg. Corp.,
15 F.3d 1222, 1224 (1st Cir. 1994) (noting objections to
certification). In any event, the SJC may not need to address the
illegal tax claim if the Foreclosure Ordinance is preempted by
state law.
The banks also opposed certification of the Contracts Clause
issue. Because that issue is one of federal law, we do not certify
it.
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relief they seek. As the Ordinances are applied prospectively, the
only outcome-determinative issues are those of state law.5 This
satisfies the SJC's requirement that the state law issues "may be
determinative" of the case. Mass. S.J.C. R. 1:03. As a result, we
need not now reach the banks' Contracts Clause argument because the
state law issues, which will be determinative with respect to
mortgages created after the enactment date of the Ordinances, will
also be determinative as to those existing before the enactment
date.
B. "No controlling precedent"
We have interpreted the SJC's requirement that there be
"no controlling precedent" to prevent certification in cases when
"the course [the] state court[] would take is reasonably clear."
In re Engage, Inc., 544 F.3d at 53 (quoting Nieves v. Univ. of
P.R., 7 F.3d 270, 275 (1st Cir. 1993) (alterations in original))
(internal quotation marks omitted). The course that the state
court would take is not reasonably clear when a case "presents a
5
The Contracts Clause provides: "No state shall . . . pass
any . . . Law impairing the Obligation of Contracts . . . ." U.S.
Const. art. I, § 10. We apply a two-pronged test to determine
whether a state law violates this provision, asking: (1) whether
the state law substantially impairs a contractual relationship, and
(2) if so, whether the impairment was reasonable and necessary to
serve an important government purpose. See, e.g., United Auto.,
Aerospace, Agric. Implement Workers of Am. Int'l Union v. Fortuño,
633 F.3d 37, 41 (1st Cir. 2011). Ordinarily, based on the first
prong of that test, a state law with only prospective effect will
not violate the Contracts Clause because it will not impair an
existing contractual relationship.
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close and difficult legal issue." Id. This case presents close
and difficult legal issues, and we cannot say that the course that
the SJC would take is reasonably clear.
To be sure, the legal standards to apply are relatively
apparent with respect to the banks' field and conflict preemption
claims. See St. George Greek Orthodox Cathedral of W. Mass., Inc.
v. Fire Dep't of Springfield, 967 N.E.2d 127, 132 (Mass. 2012)
("[L]ocal action is precluded either where the 'Legislature has
made an explicit indication of its intention in this respect,' or
'the purpose of State legislation would be frustrated . . . so as
to warrant an inference that the Legislature intended to preempt
the field.'" (quoting Town of Wendell v. Att'y Gen., 476 N.E.2d
585, 589 (Mass. 1985))); Tri-Nel Mgmt., Inc. v. Bd. of Health of
Barnstable, 741 N.E.2d 37, 43 (Mass. 2001) (providing for
preemption if there is a "sharp conflict" between local ordinance
and state law (quoting Take Five Vending, Ltd. v. Provincetown, 615
N.E.2d 576, 579 (Mass. 1993))); Fafard v. Conservation Comm'n of
Barnstable, 733 N.E.2d 66, 71-74 (Mass. 2000). But the application
of those standards is difficult, and the outcome far from certain
in this case.
As to field preemption, Massachusetts has an extensive
network of mortgage foreclosure laws, embodied in Massachusetts
General Laws Chapter 244 and its numerous sections and subsections,
and there is no doubt statewide uniformity is an important goal.
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Cf. St. George Greek Orthodox Cathedral, 967 N.E.2d at 134 & n.14
(finding preemption of local ordinance based on state building
code, while emphasizing the state law's purpose of "having
centralized, Statewide standards in this area"); Town of Dartmouth
v. Greater New Bedford Reg'l Vocational Technical High Sch. Dist.,
961 N.E.2d 83, 92 (Mass. 2012) (finding preemption of local school
funding agreement based on state education law "designed to deal
uniformly with a Statewide problem" (quoting Bos. Teachers Union,
Local 66 v. City of Boston, 416 N.E.2d 1363, 1370 (Mass. 1981))).
And Springfield's problems with the effects of the mortgage
foreclosure crisis, while serious, are far from unique in
Massachusetts.
As to conflict preemption, the banks and their amicus
point to specific state laws with which they say the Ordinances are
in direct conflict or at least inconsistent.6 Cf. Town of Wendell,
476 N.E.2d at 589-90 (discussing considerations behind determining
whether local ordinance is "inconsistent" with state laws).
On the other hand, the state's mortgage laws may have
been designed with an intent to allow a limited amount of
regulation by municipalities to meet local concerns, even if those
concerns are not unique. Cf. Fafard, 733 N.E.2d at 74 (declining
6
To the banks' list of preemptive state laws, amicus
Massachusetts Bankers Association adds the state's trespass law and
a 2012 revision to the state's mortgage laws requiring certain
efforts to avoid foreclosure, see Mass. Gen. Laws ch. 244, § 35B.
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to find preemption of local permitting regime relating to state
tidelands protection law). The SJC is also better situated to
determine whether there is field preemption or conflict or
inconsistency between these Ordinances and the state's own efforts
to respond to the 2008 mortgage crisis in its various communities,
and whether the Ordinances are in tension with the state's
mortgage, sanitary, or hazardous materials laws. As the City
notes, the SJC has not yet interpreted the state statutes relevant
to the answers to the specific questions raised by this case.
Similar reasons support certification of the banks' state
constitutional claim that the Foreclosure Ordinance imposes an
illegal tax. While we can identify the standard that the SJC would
use, we do not see a "reasonably clear" path that the SJC would
take to resolve the issue. A proper regulatory fee, as opposed to
an improper tax, would be one providing particularized benefits to
the payors -- that is, the mortgagees -- and would be designed to
compensate the City rather than raise revenue for it. See Silva v.
City of Attleboro, 908 N.E.2d 722, 725 (Mass. 2009). We do not
find it reasonably clear, however, whether the benefits here are
particularized to the affected mortgagees. On one hand, the banks
may receive the benefit of a locally regulated mortgage foreclosure
system under the Ordinance, and the SJC has recognized the
existence of a regulatory system as a particularized benefit. See
id. at 727. On the other hand, the stated purpose of the
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Ordinances is "to promote the health, safety and welfare of the
public, to protect and preserve the quiet enjoyment of occupants,
abutters and neighborhoods, and to minimize hazards to public
safety personnel inspecting or entering such properties."
Springfield, Mass. Ordinances chs. 182-1, 285-8. Especially given
that existing state laws already establish a regulated system of
mortgage foreclosures, it is possible that, as noted by the
Ordinances' statements of purpose, the true beneficiaries of the
Ordinances are mortgagors and the public at large.
C. Additional considerations
"That a legal issue is close or difficult is not normally
enough to warrant certification, or else diversity cases would
regularly require appellate proceedings in two courts." Bos. Gas
Co., 529 F.3d at 15. We consider additional factors -- including
the dollar amounts involved, the likely effects of a decision on
future cases, and federalism interests -- in deciding whether to
certify questions to the SJC. See id. Those and other additional
considerations support certification here.
First, the outcome of this case has the potential to
impact thousands of outstanding and future mortgages in
Springfield. We are told other municipalities have followed or are
considering following Springfield's example by enacting their own
foreclosure-related ordinances. The resolution of these issues
will have ramifications for thousands more mortgages throughout the
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Commonwealth. Cf. Real Estate Bar Ass'n for Mass., Inc., 608 F.3d
at 119 ("[I]t is especially appropriate to certify this question to
the SJC because [the question presented] raises serious policy
concerns . . . that will certainly impact future cases.").
We also note that "[t]his is also not a case in which the
'policy arguments line up solely behind one solution.'" In re
Engage, Inc., 544 F.3d at 57 (quoting Bos. Gas Co., 529 F.3d at
14). The Ordinances deal with significant problems that arise out
of foreclosures and could arguably help individuals keep their
homes. On the other hand, the banks assert that the Ordinances
could have serious economic effects by making the state's mortgage
lending market more difficult and expensive for lenders to navigate
(possibly to the point of causing banks to cease lending in certain
areas altogether), and that the benefits of a single statewide
mortgage foreclosure system are considerable. And deciding between
these competing policy interests depends in part on identifying the
intent of the Massachusetts legislature in enacting its mortgage
statutes and other relevant laws. "[T]hose judgments are best made
by the SJC." Id.
This case also involves an area of traditional state
authority, coupled with purely state law issues of home rule and
internal state governmental organization. We are mindful that
"[h]ome rule is a matter of peculiarly state and local concern.
Where possible, state courts should rule in the first instance on
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the scope of local governmental authority." Globe Newspaper Co.,
40 F.3d at 24. Certifying questions about those issues promotes
"strong federalism interests." Real Estate Bar Ass'n for Mass.,
Inc., 608 F.3d at 119.
III.
We therefore certify the following questions to the SJC:
1. Are Springfield's municipal ordinances
Chapter 285, Article II, "Vacant or
Foreclosing Residential Property" (the
Foreclosure Ordinance) or Chapter 182, Article
I, "Mediation of Foreclosures of
Owner-Occupied Residential Properties" (the
Mediation Ordinance) preempted, in part or in
whole, by those state laws and regulations
identified by the plaintiffs?
2. Does the Foreclosure Ordinance impose
an unlawful tax in violation of the
Constitution of the Commonwealth of
Massachusetts?
We would also welcome any other comments that the SJC may
wish to offer on any relevant points of Massachusetts law.
The Clerk of this court is directed to forward to the
Massachusetts Supreme Judicial Court, under the official seal of
this court, a copy of the certified questions and our opinion in
this case, along with copies of the briefs and appendix filed by
the parties and amici curiae. We retain jurisdiction over this
appeal, and the Contracts Clause question, pending resolution of
the certified questions.
So ordered.
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Appendix
Springfield, Mass. Ordinances ch. 285-9 (2011):
The following words and phrases, when used in this article, shall
have the following meanings: . . .
OWNER
Every person, entity, service company, property manager or real
estate broker, who or which, alone or severally with others:
A. Has legal title to any real property, including but
not limited to a dwelling, dwelling unit, mobile dwelling
unit, or parcel of land, vacant or otherwise, including
a mobile home park; or
B. Has care, charge or control of real property,
including but not limited to any dwelling, dwelling unit,
mobile dwelling unit, or parcel of land, vacant or
otherwise, including a mobile home park, or any
administrator, administratrix, executor, trustee or
guardian of the estate of the holder of legal title; or
C. Is a mortgagee of any such property who has initiated
the foreclosure process as defined in this article; or
D. Is an agent, trustee or other person appointed by the
courts and vested with possession or control of any such
property; or
E. Is an officer or trustee of the association of unit
owners of a condominium. Each such person is bound to
comply with the provisions of these minimum standards as
if he were the owner. However, "owner" shall not mean a
condominium association created pursuant to MGL c. 183A
to the extent that such association forecloses on or
initiates the foreclosure process for unpaid assessments
due or owing to the association; or
F. Every person who operates a rooming house; or
G. Is a trustee who holds, owns or controls mortgage
loans for mortgage-backed securities transactions and has
initiated the foreclosure process.
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