The U.S. Court of Appeals for the Second Circuit revived a class action over New York City's use of settlement agreements through a no-fault eviction program Tuesday.

The appeals court reasoned that the Rooker-Feldman doctrine should not bar a federal court's jurisdiction when plaintiffs can show injuries that were merely ratified—but not caused—by a state court decision.

The panel—composed of Circuit Judges Peter Hall, Gerard Lynch, and Susan Carney—sent the suit back to the U.S. District Court for the Southern District of New York for further proceedings.

“Plaintiffs are attempting to remedy an alleged injury caused when, prior to any judicial action, they were coerced to settle, not an injury that flows from a state-court judgment,” the panel wrote. “By allowing an action such as this to go forward, we do not risk turning our federal district courts into quasi-appellate courts sitting in review of state-court decisions.”

The Second Circuit, applying a four-part test, focused on the second—a complaint of an injury cased by a state-court judgment—as the core requirement.

Before the court was the critical distinction when a state court simply allows a purported injury to occur, either by ratifying it, acquiescing to it, or allowing it to go unpunished.

The plaintiffs in the underlying suit alleged their rights were violated by the city's program, under a 1970s-era nuisance abatement law, which saw business owners and tenants evicted from property where crimes supposedly occurred. According to the members of the class, the program forced innocent people to waive their constitutional rights without being accused, much less convicted, of a crime.

Each of the plaintiffs argued the settlements they entered into with the city unknowingly waived their constitutional rights and were done involuntarily after being pressured into settling by city attorneys. Most importantly to the appeal, the agreements were “so-ordered” by state judges, dismissing the nuisance actions.

The parties appealed a dismissal of their lawsuit against the city by U.S. District Judge Andrew Carter, who claimed Rooker-Feldman deprived him of jurisdiction over the case. In remanding, the panel found the district court noted that the plaintiffs core argument was about the agreements themselves—not the state-court judgments.

In pointing to prior similar cases, the panel said the plaintiffs brought claims “alleging harm flowing from wrongful conduct leading to settlement terms and do not argue that the state courts committed an error in so-ordering the parties' agreements, the complaint attacks the conduct itself, and the claim does not function as a de facto appeal.”

“The instant case thus does not entail the evil Rooker-Feldman was designed to prevent,” the panel added.

In a statement, Institute of Justice senior attorney Darpana Sheth, who was part of the organization's appellate legal team for the plaintiffs, said the parties were glad the lawsuit will be allowed to proceed.

“The city needs to deliver justice to the hundreds of New Yorkers stripped of their constitutional rights,” Sheth said.

A spokesman said the city's law department was reviewing the decision.

The Rooker-Feldman doctrine developed from 1923's Rooker v. Fidelity Trust and 1983's District of Columbia Court of Appeals v. Feldman. The cases established the principle that federal district courts lack jurisdiction over so-called appeals from state court judgments. After the Supreme Court's 2005 decision in Exxon Mobil  v. Saudi Basic Industries, federal courts began limiting what the high court felt was an unintended extension of the Rooker-Feldman holdings. Federal courts were specifically barred from reviewing the consequences to a losing side of a state-court judgment.

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