On April 28, U.S. District for the Southern District of New York Judge Mary Kay Vyskocil issued an order, enjoining three named sheriffs in New York from enforcing the recently enacted New York Fair Consumer Judgment Interest Act (Act) on a retroactive basis and directs the plaintiffs to deliver notice of the same to all 62 sheriffs located within the state. The Act, which went into effect on April 30, lowered the statutory rate of interest accrued on a money judgment for consumer debt from 9% to 2% per year, and applies the reduced rate both retroactively and prospectively for existing judgments on consumer debts. The 9% post-judgment interest rate has been law in New York for over 40 years.

The preliminary injunction order entered by Judge Vyskocil originated out of a putative class action filed by three credit unions — the Greater Chautauqua Federal Credit Union, the Boulevard Federal Credit Union, and the Greater Niagara Federal Credit Union — on April 4 against Chief Administrative Judge Lawrence K. Marks of the New York State Unified Court System and the sheriffs for Chautauqua, Erie, and Niagara counties. The New York attorney general was later added as a defendant on April 21 in an amended complaint. The plaintiffs seek to represent a class of similarly situated holders of unpaid judgments arising from consumer debt.

The amended complaint challenges retroactive application of the Fair Consumer Judgment Interest Act to existing judgments on consumer debts as violating the plaintiffs’ constitutional rights under the Fifth and Fourteenth amendments. Specifically, plaintiffs argue that applying the Act retroactively constitutes an unconstitutional taking in violation of the Fifth Amendment and a violation of the plaintiffs’ substantive due process rights under the Fourteenth Amendment.

The Act also requires judgment creditors to issue an amended execution of judgment for outstanding consumer judgments that includes a recalculated amount of interest using the new 2% rate to the appropriate sheriff within 60 days of the effective date of the Act. The plaintiffs claim they stand to lose out on a significant portion of the over $1 million in post-judgment and accrued interest on hundreds of outstanding consumer judgments. The plaintiffs also allege that the Act poses an undue hardship because it does not provide any guidance on how to apply the retroactive recalculation of interest or the consequences of failing to issue an amended execution.

On the same day the amended complaint was filed, the plaintiffs moved to enjoin the effective date of the Act. The sheriff defendants originally opposed the injunction but later clarified at oral argument that they do not oppose the injunction and would actually benefit from an injunction because it would indemnify them. In its opinion, the court first addressed whether sovereign immunity barred the motion against the defendants, as well as whether the plaintiffs had Article III standing. Under the ex parte Young doctrine, the court concluded that the motion could proceed against the sheriff defendants because they had a duty to enforce the Act — and therefore, had a nexus to the challenged violation of the federal law. The court further held that the plaintiffs had standing to sue the sheriff defendants because the alleged harm was fairly traceable to the sheriffs. However, the court held that the plaintiffs’ motion could not proceed against Judge Marks because Judge Marks had neither the authority, responsibility, or willingness to enforce the Act.

After establishing it had jurisdiction to hear the motion, the court evaluated the preliminary injunction elements and concluded that the plaintiffs were entitled to an injunction against the sheriff defendants. First, the court held that there was a likelihood of success for the plaintiffs’ claims under the Fifth and Fourteenth amendments. Specifically, the court held that post-judgment interest is a constitutionally protected property interest because New York law categorizes such interest as a property right. Further, the court determined existing Supreme Court precedent establishes that the Constitution protects the plaintiffs’ asserted property rights in accrued post-judgment interest.

Next, the court held that the retroactive application of the Act would constitute a regulatory taking. Citing the factors set forth by the U.S. Supreme Court in Penn Central Transportation Company, the court held that two of the factors — the economic impact of the regulation and the extent to which the regulation interceded with distinct investment-backed expectations — weighed in favor of the plaintiffs. As such, the plaintiffs established a likelihood of success on the merits with respect to the Fifth Amendment claim. Turning to the Fourteenth Amendment claim, the court held that “the legal standards governing [the] [p]laintiffs’ substantive due process claims pose[d] difficult burdens to establish a clear likelihood of success on the merits.” However, since the court had already determined there to be a likelihood of success on the plaintiffs’ Fifth Amendment claim and the relief sought under both claims was the same, it was not necessary for the plaintiffs to establish a clear likelihood of success on their Fourteenth Amendment claim.

Finally, the court held the plaintiffs clearly established irreparable harm because enforcement of the Act would constitute an unconstitutional deprivation of the plaintiff’s accrued post-judgment interest that could not be compensated through money damages. The court determined that money damages were not available because the plaintiffs substantive due process claims do not allow for money damages, and it is likely that the Eleventh Amendment would bar the plaintiffs from obtaining compensation on their Fifth Amendment claim. The court also considered the balance of equities and the public interest and concluded that the serious constitutional concerns raised by the retroactive application of the Act weighed in favor of granting the injunction.

After consideration of the preliminary injunction elements, the court enjoined the defendant sheriffs from enforcing the retroactive portion of the Act to existing judgments on consumer debts. The court also directed the plaintiffs to notify the sheriffs of all 62 counties in New York of the order, suggesting that the practical impact of the order is intended to apply statewide by placing all New York sheriffs on notice.