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Legal News: Are Self Storage Lien Sales Constitutional?

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Applying the Due Process Clause to Self Storage Auctions
By: Scott Zucker

 

It’s been said before that the right of a self storage operator to sell a tenant’s property after a rent default without court intervention is a unique and compelling power. Many might argue that the ability to enforce that power without first giving the tenant the opportunity to be heard by a judge or jury is a violation of due process guarantees provided under the Fourteenth Amendment to the United States Constitution. But over the years both Federal and State Courts have considered that argument and have found that the seizure and sale of a tenant’s property arising from that tenant’s default is not a violation of the tenant’s constitutional rights.

With more and more attention being given recently to a self storage operator’s rights to sell their tenant’s property after the non-payment of rent, it is timely and interesting to review those rights and to understand why, when compared to many other creditor-debtor relationships, the law upholds this self-help, non-judicial lien sale remedy for self storage operators.

One of the cornerstone cases to address the constitutionality of the non-judicial seizure and sale of a tenant’s property is found in the United States Supreme Court case of Flagg Brothers, Inc. v. Brooks (436 U.S. 149, 1978). In this case, Ms. Brooks and her family were evicted from their apartment and the City Marshall stored her property at a Flagg Brothers warehouse. When Ms. Brooks failed to pay the storage charges, Flagg Brothers gave notice of the impending sale of her property. Ms. Brooks filed suit in the United States District Court alleging that the sale would violate the Due Process and Equal Protection Clauses of the Fourteenth Amendment to the Constitution which provides “nor shall any State deprive any person of life, liberty, or property, without due process of law.” The District Court dismissed her complaint concluding that Ms. Brooks failed to show sufficient State involvement. The Federal Court of Appeals reversed the lower Court. The Court of Appeals concluded that State action was involved due to the statutory delegation of the right of sale. The case was granted review by the United States Supreme Court. Auctions

The Supreme Court addressed whether the State statute, which permitted the sale (in this case the Uniform Commercial Code §7-210), constituted State action. The Court held that the impending sale, which was permitted under the State law, was a private action not compelled by the State and therefore did not implicate due process guarantees. Further, the Court determined that the statute merely codified a procedure that the parties would traditionally have done by private arrangement.

The Flagg case has prevented constitutional due process challenges to similar self-help repossession provisions. In particular, the Supreme Court of Louisiana upheld their Self Service Storage Facility Act in the case of Price v. U-Haul Co. of Louisiana, 745 So. 2d 593 (1999) finding that “the Act, with its fair notice requirement and other safeguards, presents no fundamental unfairness in the creditor-debtor relationship to which the possessory lien applies.”

At the end of the day, the self-help remedy found in self storage lien statutes throughout the country is appropriate and reasonable in terms of its notice rights and cure opportunities for defaulting tenants. Moreover, many statutes provide a right for the defaulting tenant to “object” to the lien and require the operator to seek the enforcement of the lien through the courts. Overall, the right of a self storage operator to enforce its lien rights to recover its lost rent through the sale of its tenant’s stored property has been found to be a remedy that does not deprive the breaching tenant of any of its constitutional rights.

But with the privilege of enforcement comes the price of compliance. All self storage operators who seek to apply their State’s law to enforce their rights against their tenant’s property due to the tenant’s default must follow the requirements of the statute. Otherwise, the tenant’s rights are being impacted. Every operator who does sales must ensure that they are current on their State’s self storage laws and have adjusted their enforcement procedures to meet the law. The failure to comply subjects the facility operator to liability and the risk of recoverable damages.

BIO:
Scott ZuckerScott Zucker is a partner in the law firm of Weissmann Zucker Euster Morochnik, P.C. in Atlanta, Georgia. Scott specializes in business litigation with an emphasis on real estate, landlord-tenant and construction law. Scott is a frequent lecturer at national conventions and is the author of Legal Topics in Self Storage: A Sourcebook for Owners and Managers. He is also a partner in the Self Storage Legal Network, a subscription based legal services for self storage owners and managers. Scott can be reached at 404-364-4626 or at Scott@wzlegal.com.