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Luria Brothers & Co. v. Allen

decided: March 15, 1982.

LURIA BROTHERS & COMPANY, INC., A CORPORATION
v.
THOMAS R. ALLEN, JR. AND MORTON J. GREENE, TRADING AS ECONOMY INDUSTRIAL PROPERTIES, A PARTNERSHIP APPELLANTS



APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA (D.C. Civil No. 77-0137)

Before Seitz, Chief Judge, and Aldisert and Rosenn, Circuit Judges.

Author: Aldisert

Opinion OF THE COURT

Two major federal questions are presented in this appeal from the judgment of a district court in a diversity case: (1) under the teachings of Flagg Bros., Inc. v. Brooks, 436 U.S. 149, 98 S. Ct. 1729, 56 L. Ed. 2d 185 (1978), and Parks v. "Mr. Ford", 556 F.2d 132 (3d Cir. 1977) (in banc), does a private landlord's posting of a notice of distraint under the Pennsylvania Landlord and Tenant Act constitute state action? and (2) may the losing party in an action brought under 42 U.S.C. § 1983 recover attorney's fees under 42 U.S.C. § 1988 if it prevails on a related state claim? A landlord appeals from a judgment entered on a jury verdict awarding compensatory and punitive damages, and the district court's subsequent award of attorney's fees, to a former subtenant who brought an action to recover possession of personal property and damages for the landlord's refusal to release that property. The plaintiff succeeded under the theories that defendants violated both federal constitutional law and the distraint provisions of the Pennsylvania Landlord and Tenant Act of 1951. We reverse as to the constitutional claim, affirm the judgment on the state claim, and reverse the award of attorney's fees.

I.

Economy Industrial Properties, a partnership of appellants Thomas R. Allen, Jr. and Morton J. Greene, owned two parcels of industrial property in Ambridge, Pennsylvania. On June 13, 1975, Economy leased the parcels to Bollinger Corporation for a term of 10 years. At the time of the lease Allen was president of Bollinger and a member of its board of directors; Greene was chairman of the board of directors. Allen and his wife owned three per cent of the stock in Bollinger; Greene owned no Bollinger stock, but he was trustee of a pension trust owning 31% of Bollinger's shares and he was custodian of another 23% of the stock on behalf of his children. On July 7, 1975, Bollinger sublet a portion of this property to Luria Brothers & Co., an Ohio-based scrap metal company having no corporate ties to either Economy or Bollinger.*fn1 Luria used the subleased premises as a warehouse and fabricating plant.

On March 31, 1976, Bollinger filed a petition for an arrangement under Chapter XI of the Bankruptcy Act, and on the same day Carl L. Bigler was appointed receiver. Bollinger continued operations in the portion of the leased premises not sublet to Luria. The receiver initially continued the employment of Greene and Allen, but released both of them by mid-October 1976. Thus, the two principals of the landlord actively participated in the business of the tenant both before and after the tenant went into receivership. In late October 1976, the receiver terminated Bollinger's operations at the leased premises, and by November 5, 1976, he had removed Bollinger's inventory and equipment.

There is no suggestion that Luria failed to pay rent to Bollinger under the sublease; indeed, it paid the entire amount in advance. Bollinger was delinquent in its rent payments to Economy, however, and after the Chapter XI petition was filed, the receiver also failed to submit to Economy the full amount of the use and occupancy rent he was required to pay for the months of April through October, 1976. On November 16, 1976, the receiver and his counsel, Robert Sable, met with Greene and Allen to discuss certain unresolved matters incident to the cessation of operations on the leased premises, including the payment of use and occupancy rent. In a letter dated November 23, 1976, Sable summarized what he believed the parties had agreed upon at the meeting. According to this letter, drafted for the signatures of the receiver, Allen, and Greene, the receiver was to pay use and occupancy rent of $7,945.70 for the period through October 31, 1976, and $500.00 for the period from November 1 through November 5, 1976.

Greene responded on November 26, enclosing a revised draft of Sable's letter. Among the changes which appeared in this draft was a reference to November 5, 1976, as the "date Receiver surrendered the premises to Economy." App. at 889. Allen also responded and in his suggested changes, he too noted: "Receiver will formally terminate (and) abandon lease on Nov. 5." App. at 892.*fn2

On December 6, 1976, pursuant to the Pennsylvania Landlord and Tenant Act, Allen posted a notice of distraint, signed "Economy Industrial Properties By Thomas R. Allen, Jr., Partner," on the office door of the subleased premises. Economy claimed that as of that date there was $293,145.70 rent due.*fn3 At the time of distraint, Luria had stored approximately 300 tons of steel plate on the premises; Greene padlocked the gates, preventing Luria from removing it. When Economy refused to allow Luria to remove the steel plate from the premises, Luria was forced to post a $90,000 bond to release it. Luria subsequently sued Economy on two theories: (1) that Economy's use of the distraint procedure offended the due process clause of the fourteenth amendment and therefore gave rise to a claim under 42 U.S.C. § 1983, and (2) that it violated Pennsylvania law because the distraint had occurred at a time when the lease between Economy and Bollinger was no longer in effect. Economy counterclaimed for a decree that the distraint was proper and that the steel plate properly belonged to it.

Trial in the district court was bifurcated: Economy was found liable in a non-jury trial, see Luria Brothers & Co. v. Allen, 452 F. Supp. 732 (W.D.Pa.1978), and a jury subsequently fixed the amount of damages. In the verdict, Luria was awarded compensatory damages of $26,858.52, and punitive damages of $15,000 on the § 1983 claim and $15,000 on the state claim.*fn4 The court subsequently awarded Luria $52,660 attorney's fees pursuant to 42 U.S.C. § 1988. 512 F. Supp. 596. The district court rejected Economy's counterclaim and denied its motions for judgment n.o.v. and new trial.

On appeal, Economy argues that the § 1983 claim must fail because there was no state action; that the lease between Economy and Bollinger was still intact on the day of the distraint, and therefore that the procedure conformed to state law; and that because the federal action under § 1983 falls, the right to attorney's fees under § 1988 falls with it.

II.

In attacking the § 1983 judgment, Economy relies on Flagg Bros., Inc. v. Brooks, 436 U.S. 149, 98 S. Ct. 1729, 56 L. Ed. 2d 185 (1978), and Parks v. "Mr. Ford", 556 F.2d 132 (3d Cir. 1977) (en banc), for its argument that no state action was present in the distraint.*fn5 It argues that no public official was involved in the distraint and that the conduct complained of is not the exclusive prerogative of the state.

Luria responds that state action existed by virtue of the distraint procedure under which Economy seized Luria's steel plate, and further that "(b)y resorting to the courts (in their counterclaim) and asking the courts to ratify their seizure of Luria's goods and to decree that Defendants were the rightful owner of these goods, ... the Defendants significantly involved the state in their conduct." Brief for Appellee at 9. Luria also contends that the statute delegates to private persons a power traditionally reserved to the state. In Luria's view, in acting under the distraint statute Economy did something that only the state can do: it seized property in which it had no interest and which was unrelated to any debt owing. Moreover, Flagg Bros. is distinguishable, Luria argues, because a debtor-creditor relationship existed in Flagg Bros. whereas Luria and Economy had no such relationship.

The district court in this case found a constitutional violation in Economy's resort to the distraint provisions of Article III of the Pennsylvania Landlord and Tenant Act of 1951,*fn6 which had been declared unconstitutional in Ragin v. Schwartz, 393 F. Supp. 152 (W.D.Pa.1975) (three-judge court).*fn7 It found state action by interpreting the teachings of Parks, discerning therein a distinction between rights conferred by statute and rights conferred by common law. The district court relied on the following passage from the plurality opinion in Parks:

In contrast to our view that state action is not present when a vehicle is retained under the common law lien, we believe that state action is present when a garageman sells a customer's vehicle under the statutory scheme just described. First, the garageman's power to sell property retained under his common law lien, unlike the lien itself, was not authorized prior to the enactment of the statute in 1925 and arises solely from that legislation. Parks, supra at 141. (emphasis added)

452 F. Supp. at 737. The district court interpreted Parks to mean that state action is not present where the defendant's claim of right is based on statutory codification of common law, and concluded that, by contrast, Economy's distraint rights arose solely from the Landlord and Tenant Act.

As we noted in Magill v. Avonworth Baseball Conference, 516 F.2d 1328, 1331 (3d Cir. 1975), the Supreme Court has "pierced the seemingly impenetrable veil of private, individual conduct to find state action. "*fn8 Flagg Bros., decided after the district court's liability phase opinion was written, provides guidance that we may apply to the question of state action in this § 1983 case. Luria must show both that it has been deprived of a right "secured by the Constitution and the laws" of the United States and that Economy deprived it of this right acting "under color of any statute" of the Commonwealth of Pennsylvania. "It is clear that these two elements denote two separate areas of inquiry." 436 U.S. at 155-56, 98 S. Ct. at 1732-33 (citing Adickes v. S. H. Kress & Co., 398 U.S. 144, 150, 90 S. Ct. 1598, 1604, 26 L. Ed. 2d 142 (1970)). As we observed in Magill, 516 F.2d at 1331-32, some rights established either by the Constitution or by other federal law are protected from both governmental and private deprivation. Although most rights secured by the Constitution are protected only against infringement by governments, a private person may cause such a deprivation and be held liable under § 1983, but only when he does so under color of state law. See Flagg Bros., 436 U.S. at 156, 98 S. Ct. at 1733. Thus, in this case Luria had the burden of establishing that Economy's actions are properly attributable to the Commonwealth of Pennsylvania.

This court in Parks was called upon to determine if a private person's actions pursuant to state law constituted state action. The question presented was the constitutionality of both a Pennsylvania common law rule giving an automobile repairman a possessory lien for payment on vehicles he repairs, and a statute that permits him to sell those vehicles to satisfy the lien. A plurality of the court in banc held that the assertion of the lien was not state action, 556 F.2d at 134-40, but the full court held that the sale to satisfy the lien did constitute state action because the statute delegated to the garageman powers traditionally reserved to state officials, id. at 141.

Subsequent to our decision in Parks, the Supreme Court in Flagg Bros. held that a warehouseman's proposed sale under the Uniform Commercial Code of goods entrusted to him for storage was not state action because the statute did not delegate a traditional state power to a private individual. The Court held that settlement of creditor-debtor disputes was not traditionally an exclusive state function, 436 U.S. at 161-64, 98 S. Ct. at 1736-37; that a distinction between common law remedies and statutory authorization would not be dispositive, id. at 162-63, 98 S. Ct. at 1736-37; and that a state's acquiescence in a private action, i.e., its decision not to intervene if a creditor follows mandated procedures, is not state action, id. at 164-66, 98 S. Ct. at 1737-38.

The district court erred in its interpretation of our decision in Parks. The important distinction drawn in Parks was not between common law and statutory rights,*fn9 but between the act of asserting a lien-which the plurality did not regard as state action-and the act of selling-which the court unanimously held did implicate state action.*fn10 The district court's holding that state action was present in the distraint is also erroneous in light of Flagg Bros. As in Flagg Bros., the plaintiff has named no public officials as defendants in its complaint. See 436 U.S. at 157, 98 S. Ct. at 1734. The total absence of overt official involvement clearly distinguishes this case from several Supreme Court decisions imposing restrictions on creditors' remedies.*fn11 "While as a factual matter any person with sufficient physical power may deprive a person of his property, only a State or a private person whose action "may be fairly treated as that of the State itself,' (Jackson v. Metropolitan Edison Co., 419 U.S. 345, 351, 95 S. Ct. 449, 453, 42 L. Ed. 2d 477 (1974)) may deprive him of "an interest encompassed within the Fourteenth Amendment's protection.' (Fuentes v. ...


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