The New York Standard for Awarding 42 USC § 1983 Monetary Damages
In the consolidated appeal, Bower Associates v Town of Pleasant Valley and Home Depot, U.S.A., Inc. v Dunn (May 13, 2004), the Court of Appeals ruled that a judicial finding of “arbitrary and capricious” action by local officials in an Article 78 proceeding is not the same standard as “arbitrary and capricious”action for the award of monetary damages in a civil rights action under 42 USC §1983. Chief Judge Judith Kaye wrote the opinion for the unanimous court.
In both cases, the municipal officials wrongly refused consent to land-use permit applications. Although the projects ultimately proceeded to completion, appellants sought monetary damages under 42 USC § 1983 for the delays occasioned by the wrongdoing. In each case, the Court of Appeals concluded that there was no constitutional violation.
In Bower, a developer that owned 91 acres in the Town of Poughkeepsie and three adjoining acres in the Town of Pleasant Valley proposed a large subdivision called Stratford Valley. The developer brought an Article 78 proceeding against the Pleasant Valley Planning Board after the board denied its application to subdivide 3 acres to create three residential homes and an access roads to service its connected subdivision project in the adjoining town of Poughkeepsie. The Pleasant Valley Planning Board denied the application based on environmental concerns. In Bower's Article 78 challenge, Supreme Court directed approval of the subdivision plan, concluding that the Planning Board's actions were arbitrary in that its determination was not based on environmental concerns but was driven largely by community pressure. The Appellate Division affirmed, agreeing that Bower "met all the conditions needed for approval of its subdivision application..”
Bower later commenced a civil rights action pursuant to 42 USC § 1983 against the Town of Pleasant Valley for $2 million in damages alleging, among other things, a denial of procedural and substantive due process. The Appellate Division dismissed the due process claims, both because the Board had discretion in granting subdivision approval and because defendants violated no rights protected by the United States Constitution.
In Home Depot, U.S.A., Home Depot obtained site plan approval from the Village of Port Chester to develop a large retail establishment on land at the border between Port Chester and the City of Rye. The City of Rye refused to provide the necessary consent for a County road-widening permit. Without Rye's go-ahead, Home Depot could not proceed. Home Depot commenced two suits - an Article 78 proceeding to compel Rye to sign the county permit, and a civil rights action pursuant to 42 USC § 1983 against the City seeking $50 million in compensatory damages and punitive damages - for delaying construction by more than two years.
In Home Depot's Article 78 proceeding, Supreme Court held and the Appellate Division affirmed that Rye's refusal to approve the county permit was arbitrary and capricious. The facility opened in February 2000. In Home Depot’s § 1983 action, the Appellate Division dismissed it's complaint, concluding that Home Depot had failed to prove a due process violation.
In the land-use context, 42 USC § 1983 protects against municipal actions that violate a property owner's rights to substantive due process. It is not just another vehicle for reviewing municipal land use decisions. The Court emphasized: “The point is simply that denial of a permit—even an arbitrary denial redressable by an Article 78 or other state law proceeding—is not tantamount to a constitutional violation under 42 USC § 1983; significantly more is required.”
The Court of Appeals discussed its decision in Town of Orangetown v Magee, 88 NY2d 41 (1996), a case where it affirmed an award a developer of damages in excess of $5 million plus costs and attorneys' fees after the Town improperly revoked the developer’s building permit and amended its Zoning Code to halt the project. The Court agreed that the Town's action violated 42 USC § 1983, and affirmed an order reinstating the building permit. In Magee, the Court set out a two-part test for establishing substantive due process violations.
→ First, claimants must possess a vested property interest, under State or local law, entitling them to continue construction. A vested property right can arise from substantial expenditures and construction pursuant to a lawful permit or where there is a "certainty or a very strong likelihood" that an application for approval would have been granted.
→ Second, claimants must show that the governmental action was wholly without legal justification. The Court said "only the most egregious official conduct can be said to be arbitrary in the constitutional sense".
The Court held that neither appellant in Bower or Home Depot established a cognizable property interest or arbitrary conduct of a constitutional dimension.
Bower argued that the planning board exceeded its discretion because the Article 78 proceeding found that Bower "met all the conditions needed for approval of its subdivision application in both this and the related Stratford Valley subdivision". Bower argued that victory in an Article 78 proceeding—a finding that conduct was arbitrary and capricious or that action was beyond or outside a board's discretion—establishes a constitutionally protected property interest. The Court of Appeals disagreed and simply responded: “The law is otherwise”. While municipal discretion does not alone defeat the existence of a property interest in a permit applicant, that discretion must be so narrowly circumscribed that approval is virtually assured. The process must be sufficiently advanced that the municipality has no discretion to deny the permit. The Court simply said: “That is not the case here.”
The Court reached the same conclusion as to Home Depot’s claim. The actions Home Depot sought to compel were discretionary in nature and there was no clear entitlement to the City of Rye's signature on the County's permit. Moreover, Home Depot at the time of Rye's refusal to consent to the road-widening permit was a contract vendee and had only conditional site plan approval.
While the municipal actions were found to be arbitrary in the Article 78 context, the Court of Appeals said that neither action was arbitrary in the constitutional context, “[W]hat is lacking is the egregious conduct that implicates federal constitutional law.” Neither appellant stated a cause of action for a due process violation.