Real Estate & Property Law

Second Circuit: State Court Statute Of Limitations Dismissal No Bar To Federal Claim

By Robert Thomas (inversecondemnation.com)

In Cloverleaf Realty of New York, Inc. v. Town of Wawayanda, No. 07-3405-cv (July 15, 2009), the Second Circuit held that a dismissal by a state court on statute of limitations ground does not preclude the plaintiff from bringing the same claim in a federal court which has a longer statute of limitations.

Needing to fund water and sewer improvements, the town approved an improvement district which included Cloverleaf's two parcels. The taxes were assessed ad valorem (on the assessed values of the properties). Notice of the hearing regarding objections was published in the newspaper. After Cloverleaf paid the taxes under protest, it brought an action in New York state court seeking to declare the town's assessments of Cloverleaf's property illegal on two grounds. First, that the assessments should have been made on a "benefit basis" -- taxation based on each parcel's proportional share of the benefits -- and second, that the newspaper notice deprived Cloverleaf of procedural due process. The New York state court dismissed the complaint because it was filed past the four month statute of limitations under state law.

Cloverleaf then instituted a federal civil rights action in U.S. District Court on the procedural due process claim under 42 U.S.C. § 1983. New York federal courts use a different statute of limitations in section 1983 claims, and apply New York's personal injury limitations period of three years. The district court dismissed, however, concluding the federal action was precluded by the state court's dismissal of the identical procedural due process claim.

The Second Circuit vacated, and held the district court was not bound to give the state court determination "full faith and credit" because the state court action was not a judgment on the merits. Recall that the U.S. Constitution's full faith and credit clause (article IV, section 1), and the full faith and credit statute (28 U.S.C. § 1738) require a federal court to give the same effect to a state judgment that a state court would give it, including the determination of whether a dismissal is "on the merits." The Second Circuit looked to New York's case law to determine whether a statute of limitations dismissal is considered "on the merits" or merely procedural. If the latter, the claim could be brought:

Stated differently, unless a state's claim-preclusion law departs from the traditional rule and treats a dismissal for timeliness as a ruling on the merits of the claim, courts in another jurisdiction need not give claim-preclusive effect to a dismissal on timeliness grounds. A federal court, exercising its federal question jurisdiction, is plainly a jurisdiction separate from that of the State of New York.

Slip op. at 6. The New York courts clarified that a dismissal on statute of limitations grounds was not "on the merits" (earlier case law suggested that perhaps a dismissal for lack of timeliness was on the merits), and the Second Circuit concluded that the dismissal on statute of limitations grounds did not extinguish the federal procedural due process claim -- it merely barred a state court remedy -- so the plaintiff was free to seek another forum in which the substantive claim may still be brought. See slip op. at 6 (citing Semtak Int'l, Inc. v. Lockheed Martin Corp., 531 U.S. 497, 504 (2001).

Full post as published by inversecondemnation on July 30, 2009 (boomark / email).