Easthampton Savings Bank et al v. City of Springfield

Filing 25

Judge Michael A. Ponsor: MEMORANDUM AND ORDER entered. As follows: Forthe reasons stated in the attached memo and order, Plaintiffs Motion for Judgment as a Matter of Law (Dkt. No. 18 ) is hereby DENIED and DefendantsMotion to Dismiss or, in the Alternative, Motion for Summary Judgment (Dkt. No. 20 ) is hereby ALLOWED. The clerk may enter judgment for Defendant. This case may now be closed. It is So Ordered. See the attached memo and order for complete details. (Lindsay, Maurice)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS

EASTHAMPTON SAVINGS BANK,
ET AL.,
Plaintiffs
v.
CITY OF SPRINGFIELD,
Defendant

)
)
)
)
) C.A. NO. 11-cv-30280-MAP
)
)
)

MEMORANDUM AND ORDER REGARDING
PLAINTIFFS’ MOTION FOR JUDGMENT AS A MATTER OF LAW AND
DEFENDANT’S CROSS MOTION TO DISMISS
OR, IN THE ALTERNATIVE, FOR SUMMARY JUDGMENT
(Dkt. Nos. 18 & 20)
July 3, 2012
PONSOR, U.S.D.J.
I. INTRODUCTION
This action challenges two municipal ordinances that
Defendant the City of Springfield passed in 2011.

One

ordinance requires the maintenance of residential properties
that are vacant or in the process of foreclosure; the second
mandates a mediation program for foreclosures of owneroccupied residential properties.

Plaintiffs, a group of

banks who own mortgages in the City of Springfield, seek a
declaratory judgment and equitable relief against the City,
arguing that the ordinances are invalid under the U.S.

Constitution and state law.

They have filed a motion for

judgment as a matter of law, asking the court to declare the
ordinances invalid.

(Dkt. No. 18.)

Defendant opposes

Plaintiffs’ motion and has filed a cross-motion to dismiss
or, in the alternative, for summary judgment.
20.)

(Dkt. No.

For the reasons stated below, the court will deny

Plaintiffs’ motion and allow Defendant’s motion.
II. BACKGROUND
In 2011, the City of Springfield enacted two municipal
ordinances relating to mortgage foreclosures: Chapter 7.50,
entitled “Regulating the Maintenance of Vacant and/or
Foreclosing Residential Properties and Foreclosures of Owner
Occupied Residential Properties” (“Foreclosure Ordinance”),
and Chapter 7.60, entitled “Facilitating Mediation of
Mortgage Foreclosures of Owner Occupied Residential
Properties” (“Mediation Ordinance”).
The Foreclosure Ordinance regulates the maintenance of
vacant properties and properties that are in the process of
foreclosure.

It requires owners of such properties to

fulfill certain maintenance requirements, including
maintaining the property in accordance with all relevant
2

state and local laws, removing hazardous material from the
property, posting no-trespassing signs, securing all windows
and doors, ensuring that the property is free from overflow
trash, debris, and pools of stagnant water, and maintaining
liability insurance on the property.

It also requires

owners to provide contact information and other
documentation regarding the property for inclusion in a
regulatory database.

Finally, the owner must provide the

Springfield Building Commissioner with a cash bond of no
less than $10,000 to ensure continued compliance with the
ordinance and to reimburse the city for any expenses it
incurs in maintaining the property.

The City will retain a

portion of each bond as an administrative fee to fund an
account for expenses the City incurs in inspecting and
maintaining properties that are not in compliance with the
ordinance.

The ordinance does not specify how much of the

bond the City will retain, but counsel for the City
represented during a hearing on the motions that the amount
was likely to be between $200 and $500.

The Foreclosure

Ordinance defines “owner” broadly and includes in the
definition all mortgagees who have initiated the foreclosure
3

process.
The Mediation Ordinance requires any mortgagee who
attempts to foreclose on an owner-occupied residential
property to participate in a city-approved mediation
program.

Both parties must make a good faith effort during

mediation to “negotiate and agree upon a commercially
reasonable alternative to foreclosure . . . .”

(Dkt. No. 4,

Ex. 2, Meditation Ordinance, Chapter 7.60.020(B).)

If the

mediator determines that the parties are unable to reach an
agreement, the mediator will issue a certificate confirming
the parties’ good faith participation in the program and the
mortgagee may proceed with foreclosure.
The ordinances went into effect on December 13, 2011
and apply to all mortgages that existed as of that date.
All of the Plaintiffs had existing residential mortgages in
the City as of December 13, 2011.

Failure to comply with

either ordinance may result in civil penalties and, in the
case of the Foreclosure Ordinance, criminal penalties.
However, the City has not yet developed any enforcement
mechanism and has stayed enforcement pending the adoption of
implementation procedures and the court’s decision on
4

Plaintiffs’ challenge.
Plaintiffs brought this action in state court on
December 8, 2011, and Defendant removed it to this court.
On April 4, 2012, Plaintiffs filed a motion for a
preliminary injunction.

The court denied Plaintiffs’ motion

without prejudice on the basis of the City’s representation
that the ordinances would not be implemented until this
litigation was resolved.

Before the court now are the

parties’ cross motions for judgment.
III. DISCUSSION
Although Plaintiffs allege that both ordinances are
invalid under state and federal law, the primary focus of
their arguments is on the Foreclosure Ordinance only.
Plaintiffs argue that: (1) both ordinances are preempted by
Massachusetts state law; (2) the Foreclosure Ordinance
violates the Contracts Clause of the U.S. Constitution; and
(3) the provision in the Foreclosure Ordinance that requires
a cash bond constitutes an unlawful tax in violation of
state law.

Plaintiffs include a number of other

constitutional claims in the Complaint but have not

5

developed them in the motion currently before the court.1
A. Preemption.
Under the Massachusetts Home Rule Procedures Act, a
municipality may adopt local ordinances as long as they are
“not inconsistent with the constitution or laws enacted by
the general court in conformity with powers reserved to the
general court . . . .”

Mass. Gen. Laws ch. 43B, § 13.

In

determining whether a local ordinance is inconsistent with
state law, Massachusetts courts give “considerable latitude”
to the municipality and will only invalidate the law if
there is a “sharp conflict” between the ordinance and a
state statute.
154 (1973).

Bloom v. City of Worcester, 363 Mass. 136,

A “sharp conflict” exists “when either the

legislative intent to preclude local action is clear, or,
1

In its opposition to Plaintiffs’ motion for judgment
as a matter of law, Defendant raised a question regarding
ripeness, noting that the ordinances have not yet been
implemented or enforced. See Verizon New Eng., Inc. v.
Int’l Broth. of Elec. Workers, Local No. 2322, 651 F.3d 176,
188 (1st Cir. 2011) (noting that a court may only enter
declaratory judgment in an actual controversy that is “ripe”
for adjudication). The court finds that this case is ripe
for adjudication. Although the City has yet to determine
the exact method of enforcement and implementation, the
questions before the court are purely legal and based
entirely on the text of the ordinances. As such, actual
implementation is unlikely to have any impact on the court’s
analysis.
6

absent plain expression of such intent, the purpose of the
statute cannot be achieved in the face of the local by-law.”
Grace v. Town of Brookline, 379 Mass. 43, 54 (1979).
Neither situation is present in this case.
Plaintiffs argue, first, that both ordinances are
implicitly preempted by the state’s comprehensive statutory
scheme regulating foreclosures, as set forth in Chapter 244
of the Massachusetts General Laws.

This statute, Plaintiffs

contend, demonstrates a legislative intent to exclusively
regulate the foreclosure process in the state.

However, the

state foreclosure statute contains no express language
forbidding municipalities from regulating mortgage
foreclosures, and it is well-established that the mere
existence of a state law on a certain subject matter does
not bar the enactment of local ordinances regarding that
same subject matter.

Bloom, 363 Mass. at 157.

The court must then determine whether the purpose of
the state statute would be frustrated by the enactment of
the two ordinances.

An examination of the ordinances

reveals no conflict, let alone a “sharp” one.
state has established rules and regulations for
7

While the

foreclosures, neither ordinance significantly alters the
foreclosure process or the general relationship between
mortgagee and mortgagor.
The Mediation Ordinance, for example, does not prohibit
mortgagees from completing foreclosure proceedings as
outlined by the state statute, but merely requires
mortgagees to attempt mediation as a preliminary step.
Plaintiffs suggested during the hearing on these motions
that the Mediation Ordinance may extend the time line set
forth for the foreclosure process by Chapter 244, but the
ordinance specifically states that the mediation “shall in
no way constitute an extension of the foreclosure process,
nor an extension of the right to cure period.”

(Dkt. No. 4,

Ex. 2, Mediation Ordinance, Chapter 7.60.070.)
Likewise, the Foreclosure Ordinance imposes relatively
modest duties on mortgagees to maintain properties during
foreclosure and does not alter the foreclosure process
itself.

Plaintiffs suggest that, because the Foreclosure

Ordinance imposes maintenance duties on mortgagees who are
not in possession of the property, it somehow obliterates
the distinction between foreclosure “by entry” and
8

foreclosure “by action” as established by state law.
Gen. Laws ch. 244, § 1.

Mass.

However, the imposition of

additional duties on a mortgagee has no effect on this
distinction.

A mortgagee may comply with the duties imposed

by the Foreclosure Ordinance while still choosing to
foreclose either by entry or by action as prescribed by
state law.
Plaintiffs next argue that the Foreclosure Ordinance is
inconsistent with the state sanitary code, Mass. Gen. Laws
ch. 111, and the Massachusetts Oil and Hazardous Material
Release Prevention Act, Mass. Gen. Laws ch. 21E.

This

inconsistency, according to Plaintiffs, stems from the
ordinance’s broad definition of “owner,” which includes “a
mortgagee of any such property who has initiated the
foreclosure process,” regardless of whether the mortgagee is
in possession of the property.

(Dkt. No. 4, Ex. 1,

Foreclosure Ordinance, Chapter 7.50.020(J).)

The

regulations implementing the state sanitary code, on the
other hand, only include “a mortgagee in possession of [the]
property” in the definition of owner.
§ 410.020.

105 Mass. Code Regs.

Similarly, Chapter 21E does not include a
9

mortgagee not in possession of the property in its
definition of owner and specifically exempts secured lenders
from the definition if certain requirements are met.

Mass.

Gen. Laws ch. 21E, § 2.
Because of the different definitions of owner, the
Foreclosure Ordinance admittedly imposes maintenance duties
upon mortgagees not in possession of the property that are
not present under either the hazardous material statute or
the sanitary code.

However, the imposition of additional

duties by the ordinance does not create the degree of “sharp
conflict” -- or, indeed, any conflict -- between state and
local law that is required to justify invalidation of a
municipal ordinance.

Plaintiffs can simultaneously comply

with all of the requirements of the state laws and the
Foreclosure Ordinance without conflict.

If any conflict did

arise, the ordinance expressly states that an owner need not
comply with its requirements if that owner is “exempt from
such actions by Massachusetts General Laws . . . .” (Dkt.
No. 4, Ex. 1, Foreclosure Ordinance, Chapter 7.50.030.)2
2

Plaintiffs have provided the court with two copies of
the Foreclosure Ordinance -- one as an exhibit attached to
the Complaint (Dkt. No. 4, Ex. 1) and another as an exhibit
attached to their motion for judgment as a matter of law
10

In sum, the court finds that there is simply no
conflict between the two ordinances and any Massachusetts
state law that would support the conclusion that the
ordinances are preempted.
B. Contracts Clause.
Plaintiffs next argue that the Foreclosure Ordinance
violates the Contracts Clause of the U.S. Constitution.3
The Contracts Clause provides that “[n]o State shall . . .
pass any . . . Law impairing the Obligation of Contracts . .
. .”

U.S. Const. art. I, § 10, cl. 1.

The Clause, however,

“does not make unlawful every state law that conflicts with
any contract . . . .”

Local Div. 589, Amalgamated Transit

(Dkt. No. 19, Ex. 1). The first copy includes the language
allowing a state law exemption, while the second omits it.
The court will rely on the copy of the ordinance that is
attached to the Complaint, which includes the exemption
provision. However, even if the ordinance did not contain
this provision, the court would still find that it is not
inconsistent with state law for the reasons discussed in
this memorandum.
3

While Plaintiffs state in their memorandum that both
ordinances violate the Contracts Clause, they limit the
substance of their argument to the Foreclosure Ordinance
only. The court will also limit its discussion to the
Foreclosure Ordinance. However, the court is convinced that
the Mediation Ordinance, which imposes similarly modest
requirements on Plaintiffs as the Foreclosure Ordinance and
has the same stated purpose, does not violate the Contracts
Clause for the same reasons as the Foreclosure Ordinance.
11

Union, AFL-CIO, CLC v. Massachusetts, 666 F.2d 618, 638 (1st
Cir. 1981).

To determine whether a law violates the

Contracts Clause, the court must first determine whether the
law “operate[s] as a substantial impairment of a contractual
relationship.”

United Auto., Aerospace, Agric. Implement

Workers of Am. Int’l Union v. Fortuno, 633 F.3d 37, 41 (1st
Cir. 2011) (internal citation omitted).

If it does, the

court must then determine whether the impairment is
“reasonable and necessary to serve an important government
purpose.”

Id.

Turning to the first prong of the analysis, Plaintiffs
argue that the ordinance presents a substantial impairment
to Plaintiffs’ existing contracts with mortgagors because it
shifts to mortgagees the maintenance responsibilities that
mortgagors assumed under the contracts.
When determining whether an impairment is substantial,
the court must focus on the parties’ reasonable
expectations, including whether the parties were operating
in a heavily regulated industry.

Alliance of Auto. Mfrs. v.

Gwadosky, 430 F.3d 30, 42 (1st Cir. 2005).

The mortgage

industry has historically been heavily regulated, and
12

Plaintiffs must have reasonably expected that some of the
terms of their mortgages could be impaired by future changes
in regulation.

Plaintiffs argue that they could not have

expected that a municipality would issue such regulations,
because the mortgage industry is typically regulated only by
the federal and state governments.

However, that these

regulations were issued by a municipality and not by the
state does not change the fact that Plaintiffs should have
reasonably expected the possibility of changes similar to
those contained in the ordinances when entering into the
mortgage contracts.
Additionally, the impairment at issue in this case is
minor and does not affect any of the key aspects of
Plaintiffs’ contracts with mortgagors, such as the value of
the property underlying the mortgage or Plaintiffs’ ability
to foreclose on the property.

While the Foreclosure

Ordinance does impose additional financial burdens on
Plaintiffs by forcing them to post a cash bond and take on
new maintenance responsibilities, this burden does not rise
to the level of a substantial impairment.
Even if the impairment were substantial, Plaintiffs’
13

Contracts Clause claim would still fail under the second
prong of the analysis.

When determining whether a

substantial impairment is “reasonable and necessary to serve
an important government purpose,” a court may consider
whether the ordinance:
(1) was an emergency measure; (2) was one to
protect a basic societal interest, rather than
particular individuals; (3) was tailored
appropriately to its purpose; (4) imposed
reasonable conditions; and (5) was limited to the
duration of the emergency.
Fortuno, 633 F.3d at 41, 46.

For economic and social

regulation, “courts properly defer to legislative judgment
as to the necessity and reasonableness of a particular
measure.”

U.S. Trust Co. of N.Y. v. New Jersey, 431 U.S. 1,

22-23 (1977).
In this case, Defendant has made a sufficient showing
that the Foreclosure Ordinance was necessary to protect a
basic societal interest, was tailored appropriately to that
purpose, and imposed reasonable conditions.
According to the ordinance’s stated purpose,
[u]nsecured and un-maintained vacant properties
and foreclosing properties present a danger to the
safety and welfare of public safety officers, the
public, occupants, abutters and neighbors, and as
such, constitute a public nuisance. This section
14

is enacted 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.
(Dkt. No. 4, Ex. 1, Foreclosure Ordinance, Chapter
7.50.010.)

Protecting the health and safety of the

community has long been recognized as an important
governmental objective that falls squarely within the City’s
police powers.4
The court is also convinced that the Foreclosure
Ordinance is reasonably tailored to meet this objective.

It

allocates the responsibilities for maintenance of properties
pending foreclosure, helps fund the City’s efforts in the
foreclosure crisis through the cash bond requirement, and
increases the information in the City’s regulatory database
to make enforcing mortgage regulations more efficient, all
while imposing relatively minor burdens on Plaintiffs that

4

Defendant has included additional data on the
negative effects of foreclosures on public health and safety
in its memorandum in support of the motion to dismiss.
(Dkt. No. 23.) In light of the fact that the motion is, in
part, a motion to dismiss, the court will not consider this
information. However, even without the additional data, it
is abundantly clear that the ordinance serves an important
public interest.
15

do not affect Plaintiffs’ ultimate right to foreclose.

In

sum, the Foreclosure Ordinance falls far short of risking
any violation of the Contracts Clause.
C. Unlawful Tax.
Next, Plaintiffs argue that the Foreclosure Ordinance’s
requirement of a cash bond constitutes an unlawful tax.
Under Massachusetts law, a municipality does not have the
power to collect taxes unless that power is expressly
granted by the Legislature.
Mass. 165, 168 (2009).
collect regulatory fees.

Silva v. City of Attleboro, 454

The municipality may, however,
To distinguish between taxes and

fees, courts look to the characteristics of the charge:
[Fees] are charged in exchange for a particular
governmental service which benefits the party
paying the fee in a manner “not shared by other
members of society,”. . . and the charges are
collected not to raise revenues but to compensate
the governmental entity providing the services for
its expenses.5
Emerson College v. City of Boston, 391 Mass. 415, 424-25
5

The original test for distinguishing fees from taxes
included the requirement that fees be “paid by choice, in
that the party paying the fee has the option of not
utilizing the governmental service and thereby avoiding the
charge . . . .” Emerson College, 391 Mass. at 424.
However, the Massachusetts Supreme Judicial Court later
rejected the voluntariness factor as irrelevant in the
regulatory fee context. Silva, 454 Mass. at 172.
16

(1984).
Plaintiffs argue that, under this standard, the cash
bond imposed by the Foreclosure Ordinance is an unlawful
tax, because some portion of the bond is intended to be used
for the City’s general efforts to combat the foreclosure
crisis.

(See Dkt. No. 4, Ex. 1, Foreclosure Ordinance,

Chapter 7.50.030(A)(11) (explaining that a portion of the
bond will be used to fund “an account for expenses incurred
in inspecting, securing, and marking said building and other
such buildings that are not in compliance with this Section”
(emphasis added).)

Thus, Plaintiffs argue, the charge does

not benefit the bond-payer in a manner not shared by other
members of the community.
Plaintiffs’ argument is unconvincing.

The

Massachusetts Supreme Judicial Court has explained that “the
particularized benefit provided in exchange for [regulatory
fees] is the existence of the regulatory scheme whose costs
the fee serves to defray.”

Silva, 454 Mass. at 170.

The

City’s retention of a portion of the bond under the
Foreclosure Ordinance is directly tied to defraying its
costs of regulating foreclosures in the City.
17

Consequently,

Plaintiffs do receive a particularized benefit from the cash
bond in the form of a well-regulated industry.

Because the

portion of the bond that the City retains is “‘reasonably
designed to compensate’ the [City] for its anticipated
regulation-related expenses,” the charge constitutes a
regulatory fee, not a tax.

Id. at 173 (internal citation

omitted).
D. Remaining Constitutional Claims.
Finally, Plaintiffs present a series of constitutional
claims in the Complaint, including that (1) the ordinances
impose arbitrary, unreasonable, vague or indefinite
standards on Plaintiffs, (2) the ordinances result in an
unconstitutional taking in violation of the Fifth Amendment,
and (3) the ordinances violate procedural and substantive
due process.

Plaintiffs have not made any arguments in

support of these claims and the court will consider each
only briefly.
Turning to the first claim, Plaintiffs’ counsel
cursorily argued during the hearing that the Foreclosure
Ordinance is unconstitutionally vague because it provides
that owners who are “exempt from such actions by
18

Massachusetts General Laws” are not required to comply with
the ordinance.6

(Dkt. No. 4, Ex. 1, Foreclosure Ordinance,

Chapter 7.50.030.)

Any potential ambiguity created by this

provision does not rise to the level of a constitutional
violation, especially since Plaintiffs are operating in an
already heavily regulated industry that requires them to be
familiar with various local and state regulations regarding
housing, mortgages, and foreclosures.

See United States v.

Lachman, 387 F.3d 42, 56-57 (1st Cir. 2004) (“The mere fact
that a statute or regulation requires interpretation does
not render it unconstitutionally vague. . . . This is
particularly the case where, as here, the statute deals with
economic regulation and is addressed to sophisticated
businessmen and corporations which, because of the
complexity of the regulatory regime, necessarily consult
counsel in planning their activities . . . .”).
Plaintiffs’ Takings Clause claim is equally without
merit.

6

A statute constitutes a regulatory taking requiring

Only one of the copies of the ordinance that
Plaintiffs provided to the court includes this exemption
provision. (See Dkt. No. 4, Ex. 1; Dkt. No. 19, Ex. 1.) If
the ordinance does not contain the provision, Plaintiffs’
vagueness challenge is completely without merit.
19

just compensation under the Fifth Amendment only if it
deprives a plaintiff of “all economically beneficial or
productive use” of his or her property.

Lucas v. S.C.

Coastal Council, 505 U.S. 1003, 1015 (1992).

There is

nothing in the pleadings to support such a claim.
Plaintiffs have also failed to plead any claim for a
violation of due process.

An ordinance of the type at issue

here violates substantive due process if it is “clearly
arbitrary and unreasonable, having no substantial relation
to the public health, safety, morals, or general welfare.”
Village of Euclid, Ohio v. Amber Realty Co., 272 U.S. 365,
395 (1926).

The stated purpose of both ordinances is to

protect public health and safety from the problems caused by
the foreclosure crisis and, for the reasons discussed
earlier in this memorandum, the court is convinced that they
are reasonably tailored to that goal.
Consequently, the court will deny all of Plaintiffs’
constitutional claims.
IV. CONCLUSION
Widespread mortgage foreclosures undisputably are an
issue of serious public concern to municipalities like
20

Springfield.

The modest effort made by the city to soften

this crisis through the promulgation of the two ordinances
violates no Constitutional provision or state statute.

For

the foregoing reasons, Plaintiffs’ Motion for Judgment as a
Matter of Law (Dkt. No. 18) is hereby DENIED and Defendant’s
Motion to Dismiss or, in the Alternative, Motion for Summary
Judgment (Dkt. No. 20) is hereby ALLOWED.
enter judgment for Defendant.

The clerk may

This case may now be closed.

It is So Ordered.
/s/ Michael A. Ponsor
MICHAEL A. PONSOR
U. S. District Judge

21