New York City’s Scofflaw Law Requires a Hearing to Meet 14th Amendment Due Process Concerns

City parking fines, red light camera violations and citations for toll violations has long caused owners, lessors and lienholders issues. The issues have become fairly acute when the government then seizes a vehicle for unpaid fines, violations and citations.

In a recent federal lawsuit, a lienholder challenged New York City’s “scofflaw” program when the city seized a vehicle that Mercedes-Benz Financial Services had a lien.

In Mercedes-Benz Financial Services USA, LLC v. City of New York, New York City was found to have violated fundamental constitutional protections by auctioning a seized vehicle without first providing a hearing to the secured creditor. Mercedes-Benz Financial Services (MBFS), which held a perfected lien on the vehicle, argued that the city’s conduct amounted to a denial of procedural due process under the Fourteenth Amendment. Although the City notified MBFS of the seizure and offered an opportunity to pay the fines, it failed to provide a “neutral” forum for challenging the seizure, imposed fines, tolls and violations and any resulting sale.

The United States District Court agreed and concluded that the absence of a “pre-auction hearing” deprived MBFS of its protected property interest without a meaningful opportunity to be heard. The ruling reinforces a core constitutional requirement: when the government takes action that may permanently affect property rights, it must do more than issue a notice—it must provide a “neutral hearing.” This case highlights the ongoing need for owners, lessors and lienholders to promptly address and timely contest any seizure by a governmental agency for unpaid fines, tolls or unpaid citations.

Understanding the NYC Scofflaw Program

New York City’s “Scofflaw program” targets vehicles with over $350 in unpaid parking tickets. Once that threshold is reached, the city is authorized to immobilize, tow, and eventually sell the vehicle at public auction. While this system is intended to encourage compliance and recover outstanding fines, its execution has violated the third-party interests—such as those of owners, lenders or lessors—without any meaningful hearing to challenge the seizure and potential forfeiture.

In this lawsuit, the City impounded Melende Chery’s vehicle that she financed through Mercedes-Benz Financial Services. After Chery accumulated more than $350 in unpaid parking ticket violations, the City acted and seized the vehicle. Although the City notified MBFS, the lienholder, and offered the option to reclaim the vehicle by settling the charges with MBFS, it then proceeded to sell the vehicle without holding any judicial or administrative hearing. The vehicle was auctioned for $14,000, subject to Mercedes’ lien, with the net proceeds—after costs and judgments—returned to Chery—and not to MBFS.

Due Process and the Fourteenth Amendment

The Fourteenth Amendment of the U.S. Constitution states that no state shall “deprive any person of life, liberty, or property, without due process of law.” This foundational principle ensures that government actions affecting individual or corporate rights must be accompanied by procedural fairness. In the context of property seizures—such as vehicle impoundments, seizures and forfeitures—due process requires more than just formal notice; it demands an opportunity to contest the government’s actions at a hearing before permanent deprivation occurs.

In this lawsuit, the court found that New York City failed to meet constitutional requirements when it auctioned a vehicle without providing a “Neutral hearing” to MBFS. Although the City sent notification of the impoundment, it did not afford MBFS any chance to appear before a neutral authority to challenge the seizure, the associated fines, parking citations, or the City’s decision to sell the car. This omission violated the core elements of procedural due process.

To comply with the Fourteenth Amendment, courts have long held that the following minimum safeguards must be present when property rights are at stake:

• Notice: Clear, timely, and specific information must be given to affected parties about the impending government action.
• Opportunity to Be Heard: A meaningful chance to contest the action must be offered before a final decision is made.
• Neutral Decision-Maker: The hearing must be conducted by an impartial party, separate from the enforcement body.
• Timing: The hearing must occur before the government permanently deprives someone of their interest in the property.
• Ability to Present Evidence: Parties must be allowed to challenge the legal and factual basis for the action (e.g., fines, seizure, auction).

The court emphasized that MBFS, as a secured creditor with a perfected financial interest, had a constitutional right to invoke these protections. Ignoring those rights not only violated the company’s due process guarantees—it exposed the City to legal liability and signaled to the City, as well as other municipalities, the need to reform its municipal seizures for enforcement of unpaid parking tickets, unpaid red light camera violations, as well as unpaid toll citations.

Why the Fifth and Fourth Amendments Did Not Apply

In addition to the due process violation under the Fourteenth Amendment, Mercedes-Benz Financial Services raised claims under the Fifth and Fourth Amendments. However, the court dismissed both arguments, finding that the city’s actions did not violate those constitutional protections.

Fifth Amendment – Takings Clause

The Fifth Amendment’s Takings Clause prohibits the government from taking private property for public use without just compensation. However, this case did not meet the legal criteria for a “taking.” The court discussed that a compensable taking typically occurs when the government either physically occupies property or enacts regulations that deprive the property owner of all economically beneficial uses.

In this case, the court found that the temporary impoundment of the vehicle did not qualify as a permanent taking. MBFS retained its lien on the proceeds from the auction, meaning it was not deprived of all value. The court reasoned that because the lienholder still had an interest in the sale proceeds, the impoundment was not considered a “taking” that required compensation under the Fifth Amendment.

Fourth Amendment – Unreasonable Seizures

The Fourth Amendment protects individuals against unreasonable searches and seizures by the government. In this case, MBFS argued that the vehicle’s seizure violated this protection. However, the court ruled that the seizure was lawful, as it was based on valid, adjudicated parking ticket “judgments.” Because the City of New York had a legal right to seize the vehicle due to unpaid fines, the court found that the seizure was reasonable and not in violation of the Fourth Amendment.

The court further clarified that government actions following judicial determinations, such as those resulting from unpaid tickets, are generally deemed reasonable. The fact that the city followed established procedures for enforcement meant that the seizure did not violate constitutional protections against unreasonable searches or seizures.

Risks for Secured Creditors

Secured creditors, like lenders with a perfected security interest in property, as well as lessors, face significant risks when municipal enforcement programs intervene. The “Scofflaw program,” which allows cities to seize and auction vehicles for unpaid fines, often bypasses key constitutional protections for creditors. When the government interferes with a secured party’s property without due process, the impact can be far-reaching.

For creditors, such as Mercedes-Benz Financial Services, this ruling underscores the importance of early intervention. Lenders must stay vigilant to avoid being caught off guard by the seizure of vehicles that serve as collateral. In this context, it’s crucial that creditors are granted an opportunity to challenge the seizure and auction process. Secured creditors need access to hearings that respect their property rights, especially when their financial interest is at risk.

This decision is a reminder that creditors must take proactive steps in safeguarding their interests, ensuring that the enforcement process adheres to constitutional protections. By doing so, they can avoid costly and lengthy legal battles over property that may be wrongfully seized or sold.

Legal Precedents and Municipal Enforcement

The court’s decision in the Mercedes-Benz Financial Services lawsuit aligns with growing legal precedent emphasizing the need for due process in municipal enforcement actions. Courts have consistently ruled that when the government seizes property—whether for unpaid fines, violations and citations—it must provide an opportunity for the property owner to contest the action before a neutral authority. This principle is particularly critical in vehicle impoundment and auction systems, like the “Scofflaw program.”

Numerous rulings have reinforced that due process under the Fourteenth Amendment requires a hearing before the final deprivation of property. When municipalities fail to provide these protections property owners, lessors and secured creditors must be given a meaningful chance to contest the seizure.

Implications for Municipalities and Lenders

The broader implications of this ruling extend beyond New York City’s Scofflaw program. Several American municipalities use similar enforcement models as New York City has. Municipalities should recognize that the enforcement of unpaid fines, violations and citations through impoundment and sale cannot ignore the constitutional protections afforded to property owners, lessors and secured creditors.

To comply with due process requirements, municipalities must ensure they incorporate safeguards that protect constitutional rights before taking any action that affects a person’s or institution’s property. This includes:

• Pre-Deprivation Hearings: Cities should establish formal hearing processes that allow property owners and lienholders to contest the seizure before the property is permanently taken. This ensures that a neutral third party, rather than an administrative official, makes the final decision about whether the seizure is justified.
• Clear Notification Procedures: Municipalities should improve their communication methods to ensure that all affected parties, especially creditors, are notified of potential seizures early enough to take legal action if necessary. Notice should include the opportunity for affected parties to provide evidence of their legal interests in the property before the sale.
• Independent Review: Municipalities should guarantee that any decision to impound or auction property is reviewed by a neutral decision-maker, not someone directly involved in the enforcement or collection process. This safeguard helps ensure the process is fair and objective.

For registered owners, lessors and lienholders, this lawsuit highlights the need for proactive measures when municipal enforcement programs are involved. These pro-active measures include:

• Contractual Protections: Registered owners, lessors and lienholders should include provisions in their contracts that require notice and a hearing to allow them to protect their secured interests in the event of vehicle seizure. The clause should also require the lessee or registered operator an additional requirement when the vehicle has been impounded or seized and treat the seizure as a breach of the finance or lease agreement and require municipalities to immediately notify the registered owner, lessor or lienholder of any seizure due to unpaid fines, violations and citations and give provide an opportunity to contest the seizure.
• Monitoring Municipal Actions: Registered owners, lessors and lienholders should monitor municipal impoundment programs and stay informed of any enforcement actions that might affect their vehicles. This helps lenders act quickly if their property is at risk of being seized.
• Partnerships with Municipalities: Registered owners, lessors and lienholders should also consider establishing formal agreements with municipalities to ensure that their property interests are recognized and protected during any enforcement action. By maintaining open lines of communication with local governments, registered owners, lessors and lienholders can stay ahead of potential issues and ensure their property rights are respected.

Conclusion

The ruling in Mercedes-Benz Financial Services USA, LLC v. City of New York sets a precedent for registered owners, lessors and lienholders as well as municipalities alike. It underscores the constitutional mandate that due process protections cannot be bypassed in the enforcement of municipal fines, especially when third-party interests are involved. The case highlights the need for municipalities to adopt procedural safeguards, ensuring that creditors have a fair opportunity to challenge property seizures and auctions before their interests are permanently affected.

For registered owners, lessors and lienholders, the opinion is a stark reminder of the importance of proactive legal action and staying informed about enforcement actions in municipalities with aggressive impoundment programs. The ruling emphasizes that registered owners, lessors and lienholders should take steps to protect their secured interests, whether through timely intervention, clear contractual provisions or agreements with municipalities that safeguard against governmental interference.

As enforcement programs evolve, this opinion serves as a critical call to action for municipalities to ensure that their practices comply with constitutional rights.

If you are dealing with issues related to municipal enforcement programs, wrongful vehicle seizures, or violations of your due process rights, contact FS CORPS immediately. Our experienced legal team is dedicated to protecting your rights, holding municipalities accountable, and ensuring that secured creditors are fairly represented in the enforcement process.