A rare decision finding that plaintiffs have alleged a Section 1983 conspiracy with private actors

This is an unusual case arising from a multi-million dollar financial loan that plaintiffs made to one of the defendants to purchase real property in New York City, including a penthouse condominium. These were private actors. But things went awry along the way, and the case became a Section 1983 conspiracy case that the district court dismissed and the Second Circuit has now reinstated. How did this private loan agreement among private actors become a Section 1983 conspiracy, which must necessarily involve a public actor?

The case is Knopf v. Esposito, a summary order issued on February 25. The entities to whom plaintiffs made the loan -- Sanford and his company, Pursuit Holdings, LLP -- did not repay the loan. When plaintiffs sued them in state court, the Appellate Division ultimately ruled in plaintiffs' favor on their summary judgment motion on their breach of contract claim. Plaintiffs then sought a stay preventing defendants from selling the condominium and to secure the proceeds from any such sale. The Appellate Division ordered that any proceeds from the sale be placed in escrow, but the court allowed defendants to sell the unit. Although the Appellate Division next prohibited defendants from selling the other properties, defendants had by then disposed of the bulk of the proceeds from sale of the condominium and the Appellate Division denied plaintiffs' contempt motion.

All of this is complex, I know. What makes the case interesting is what happened next. At some point in the timeline, Sanford hired an attorney knowing that the new attorney was married to a lawyer, Ringel, who worked for the Appellate Division as an assistant deputy chief attorney. On Sanford's behalf, Ringel agreed to advise the attorneys who were adverse to plaintiffs that the effect of the Appellate Division orders in the contract dispute was to eliminate any restraints on Sanford's sale of the condominium or on the proceeds from any such sale. Sanford had his attorneys call the Appellate Division to request "clarification" on the orders' effect, and they attorneys spoke with Ringel by phone. Ringel agreed that any restraints that the Appellate Division had placed on the sale and proceeds had been removed. This allowed Sanford to sell the property. Plaintiffs' attorneys were not aware of this behind-the-scenes activity with Ringel. The Office of Court Administration ultimately investigated this sequence of events and found that Sanford's attorneys (Ackerman and Feldman) "called Ringel’s direct line at the Appellate Division, despite the fact that her phone number was not available on the court’s website. They accepted her opinion as an authoritative clarification, notwithstanding that she was a mediation attorney, not an attorney in the Clerk’s Office, and that the Knopfs and their attorneys were not present." The Appellate Division's report found that Ringel should have terminated the phone call once she realized the attorneys were representing Sanford, and that her explanations for not knowing to whom to forward the call were not credible.

This evidence supports a Section 1983 conspiracy claim. Ringel's ex parte involvement makes this a public conspiracy, not a private one. In reinstating the case, the Court of Appeals (Winter, Carney and Bianco) notes that district courts cannot accept an alternative narrative advanced by defendants on a Rule 12 motion:

the call made by Akerman and Feldman, seeking “clarification,” was transferred to and handled by Ringel—a mediation attorney whose role did not involve giving procedural (or substantive) advice on pending appeals, and who had no apparent connection to the case except for her marriage to one of Sanford’s lawyers—at least made it plausible that Akerman and Feldman had knowingly and specifically sought to speak to her, with the expectation that she would advise as she did, as the complaint alleged. On a motion to dismiss, district courts may not simply disregard allegations in the complaint and credit instead an alternative narrative advanced by defendants. The Knopfs’ allegations were specific enough and, as was later borne out, all too plausible.

At oral argument, the parties seemed to agree that the ex parte advice that Ringel had given was actually correct. This was a potential due process violation, however, because plaintiff's lawyers had no notice of the call and had no opportunity to be heard on this issue.