336 F. Supp. 3d 300
S.D. Ill.2018Background
- Sisters of the Blessed Sacrament (a religious nonprofit) owns a 6.7-acre convent parcel in Greenburgh, NY; S & R Development (private developer) purchased adjacent land and proposed multi-unit housing.
- The subdivision containing both properties was created by a 1912 deed containing restrictive covenants that the Sisters contend bar apartment construction; Sisters claim those covenants affected their purchase decision and religious use of the land.
- S & R sought permits and announced apartment plans (market-rate then affordable); Town zoning and variance proceedings, and litigation between the parties over the covenant, followed; Sisters reserved rights under the covenant and sued to enforce it in state court (pending).
- S & R sued the Sisters in federal court alleging selective enforcement of the covenant in violation of the Fair Housing Act (FHA). In response the Sisters asserted a counterclaim under N.Y. Real Prop. Acts. Law § 1951(2) seeking damages if the covenant is extinguished as unenforceable.
- S & R moved to dismiss the counterclaim on preemption grounds, arguing state-law damages to a covenant-holder would conflict with the FHA’s remedial scheme and deterrent purpose; Sisters argued preemption would effect an uncompensated taking and that preemption should be narrowly applied.
- The district court accepted the Sisters’ factual allegations as true for purposes of the motion but held that any § 1951(2) claim seeking compensation for a covenant extinguishment that results from an FHA violation is preempted and dismissed the counterclaim with prejudice as futile to replead.
Issues
| Issue | Plaintiff's Argument (S & R) | Defendant's Argument (Sisters) | Held |
|---|---|---|---|
| Whether RPAPL § 1951(2) damages claim is preempted by the FHA | § 1951(2) would let covenant-holder recover from an FHA violator, undermining FHA's deterrent and remedial scheme; therefore preempted | FHA should not preempt a state property-law remedy; allowance of § 1951(2) damages would be a state-law remedy for property loss and not inconsistent with FHA; preemption is disfavored in traditional state domains | Court: § 1951(2) claim is preempted because compensating a violator would obstruct FHA purposes and deterrence; dismissal granted |
| Whether allowing § 1951(2) recovery would conflict with FHA remedies (indemnity/contribution principles) | State recovery would functionally indemnify or shift costs to victims, undermining Congress’s chosen remedial scheme | Recovery is for property diminution, not indemnity; different in kind from contribution claims | Court: Even if framed as property-value loss, recovery would reimburse a party only if it violated FHA and thus would be contrary to FHA’s regulatory design; preempted |
| Whether a presumption against preemption for state property law defeats S & R’s argument | FHA’s manifest purpose and broad remedial scheme overcome the presumption where state law would frustrate FHA objectives | State police powers and property law traditionally preclude preemption absent clear congressional intent | Court: Presumption does not save § 1951(2) here because allowing recovery would frustrate Congress’s intent in FHA |
| Whether dismissal should be with leave to amend | Dismissal proper because counterclaim is preempted as a matter of law; futility of amendment | Sisters asked that preemption not apply or that amendment be allowed | Court: Denied leave to amend because repleading could not cure preemption defect; dismissal with prejudice |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard; plausibility requirement)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (pleading standard; requires more than labels and conclusions)
- Texas Dep't of Hous. & Cmty. Affairs v. Inclusive Communities Project, Inc., 576 U.S. 519 (FHA construed to reach disparate impact; results-oriented focus on availability of housing)
- Wyeth v. Levine, 555 U.S. 555 (preemption analysis focuses on congressional intent)
- Arizona v. United States, 567 U.S. 387 (framework for preemption inquiry)
- Equal Rights Ctr. v. Niles Bolton Assocs., 602 F.3d 597 (4th Cir.) (state-law indemnity/contribution claims may be preempted where they undermine federal anti-discrimination statutes)
- Lingle v. Chevron U.S.A. Inc., 544 U.S. 528 (Takings Clause test; regulatory action may give rise to takings only in certain circumstances)
- Medtronic, Inc. v. Lohr, 518 U.S. 470 (recognition that property law is traditionally a state domain but not dispositive in preemption analysis)