761 F.3d 252
2d Cir.2014Background
- In July 2003 Hertel obtained a $4,682 judgment and perfected a judgment lien on Calloway’s Buffalo home; Calloway later filed Chapter 7 in May 2009.
- New York amended its homestead exemption in 2005, raising the exemption from $10,000 to $50,000 (effective immediately); 2010 later raised it again.
- Calloway claimed the $50,000 exemption in bankruptcy and moved to avoid Hertel’s lien under New York law; Hertel argued the $10,000 allowance at the time its lien was perfected should govern.
- Bankruptcy and district courts applied CFCU Community Credit Union v. Hayward to allow the 2005 increase to reach pre-enactment debts and avoided the lien; they also rejected Hertel’s Takings Clause challenge.
- On appeal, the Second Circuit considered (1) whether the 2005 Amendment applies to judgment liens perfected before its effective date and (2) whether application to pre-enactment liens effects an unconstitutional taking.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the 2005 Amendment’s $50,000 homestead exemption apply to debts reduced to judgment and liens perfected before the amendment? | Hertel: statute should not apply retroactively to pre-existing judgment liens; retroactivity disfavored. | Calloway: Hayward controls; exemption is determined by date of bankruptcy filing, so 2005 law applies. | The 2005 Amendment applies to pre-enactment judgment liens; debtors who file after the amendment may invoke the $50,000 exemption. |
| Should the canon of constitutional avoidance alter statutory interpretation to avoid retroactivity as to judgment liens? | Hertel: adopt non-retroactive reading to avoid serious Takings Clause doubt. | Calloway: no serious likelihood of unconstitutionality; statute best read to apply retroactively. | Canon of avoidance not triggered—no serious likelihood statute would be held unconstitutional; retroactive reading stands. |
| Does application of the 2005 Amendment to Hertel’s lien constitute a per se taking (total deprivation) under Lucas? | Hertel: statute deprives the lien of all economic value, so Lucas total-taking rule applies. | Calloway: homestead exemption is a long-standing background principle; lienholder’s expectations included such adjustments. | No per se taking; Lucas doesn't yield relief. |
| Does the 2005 Amendment effect a regulatory taking under Penn Central factors? | Hertel: economic impact and disruption of investment-backed expectations weigh for a taking. | Calloway: no evidence Hertel’s lien had value pre-amendment; homestead exemption is a background limitation informing expectations. | No regulatory taking: (1) no physical appropriation; (2) no demonstrable upset to reasonable investment-backed expectations. |
Key Cases Cited
- CFCU Community Credit Union v. Hayward, 552 F.3d 253 (2d Cir. 2009) (held 2005 Amendment applies to pre-enactment unsecured debts; exemption determined by bankruptcy filing date)
- Ford Motor Credit Co. v. N.Y.C. Police Dep’t, 503 F.3d 186 (2d Cir. 2007) (security interests can be constitutionally protected property interests)
- Watson v. N.Y. Cent. R.R. Co., 47 N.Y. 157 (N.Y. 1872) (under state law lienholder’s rights are statutory and do not constitute full title to land)
- Lucas v. S.C. Coastal Council, 505 U.S. 1003 (1992) (per se taking where regulation deprives land of all economically beneficial use)
- Penn Central Transp. Co. v. City of N.Y., 438 U.S. 104 (1978) (multi-factor test for regulatory takings focusing on economic impact and investment-backed expectations)
- United States v. Security Industrial Bank, 459 U.S. 70 (1982) (retroactive statutory destruction of liens raised serious Fifth Amendment concerns)
- Armstrong v. United States, 364 U.S. 40 (1960) (mechanic’s lien treated as constitutionally protected property interest)