Fair Hous. Justice Ctr. v. Pelican Mgmt., Inc.
| Decision Date | 24 July 2020 |
| Docket Number | 18 Civ. 1564 (ER) |
| Parties | FAIR HOUSING JUSTICE CENTER, INC., Plaintiff, v. PELICAN MANAGEMENT, INC., FORDHAM ONE COMPANY, LLC, and CEDAR TWO COMPANY, LLC., Defendants. PELICAN MANAGEMENT, INC., FORDHAM ONE COMPANY, LLC, and CEDAR TWO COMPANY, LLC., Counterclaimants, v. FAIR HOUSING JUSTICE CENTER, INC., Counterclaim-Defendant. |
| Court | U.S. District Court — Southern District of New York |
Ramos, D.J.:
The Fair Housing Justice Center, Inc. ("FHJC") brought this action in February 20181 alleging that Pelican Management, Inc., Fordham One Company, LLC, and Cedar Two Company, LLC (collectively "Defendants"), owners of rental buildings in New York City, had adopted a minimum income requirement in the fall of 2015 that was unlawful under both the Fair Housing Act (the "FHA") and New York City Human Rights Law ("NYCHRL"). Specifically, Defendants' minimum income policy at that time required that all prospective renters earn anannual income of at least 43 times their total monthly rent. According to FHJC, that policy virtually excluded all renters who received rental subsidies, a large percentage of whom have disabilities. In January of 2019, Defendants adopted a new minimum income policy and thereafter asserted a counterclaim in the instant action seeking a declaratory judgment that this new policy is lawful.2 Pending before the Court is FHJC's motion to dismiss Defendants' counterclaim pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons set forth below, FHJC's motion is DENIED.
In the fall of 2015, Defendants adopted a policy requiring that all prospective renters in their buildings earn an annual income of at least 43 times their total monthly rent (the "Old Policy"). Second Am. Compl. ("SAC"), Doc. 86, ¶¶ 45-52. This policy applied even if a subsidy paid a portion or the entirety of the rent. Id.
Spooner, an elderly low-income man with cancer and other physical disabilities, was a client of the Olmstead Housing Subsidy ("OHS") program—a state funded rental subsidy program for disabled low-income persons that guarantees the renter need only pay thirty percent of his monthly income towards rent with the remainder paid for by the state. Id. ¶¶ 20-28, 34. Spooner received an annual income of $9,246 from Social Security. Id. ¶ 69. Spooner's OHS subsidy allowed him to rent an apartment for up to $1,419 per month, for which he only neededto contribute 30 percent of his month income, $231.15. Id. ¶ 34. In March 2017, Defendants rejected Spooner's application to rent one of two apartments that were within his price range because he did not earn 43 times the monthly rent. Id. ¶¶ 38-42. Based on the advertised monthly rent of $1,384 and $1,300 respectively, Spooner would have had to earn an annual income of $59,512 and $55,900 to satisfy the Old Policy. Id. ¶ 80.
Upon receiving a complaint from Spooner, FHJC conducted telephone tests to investigate his claim. Id. ¶¶ 45-53. The testers posed as prospective renters who received rental subsidies from various government programs including OHS, HIV/AIDS Services Administration ("HASA"), or the Housing Choice Voucher Program (an income-based subsidy used by many low-income disabled renters) (hereinafter "Section 8"). Id. Defendants allegedly told all testers they would not qualify to rent in Defendants' buildings irrespective of their subsidies unless they earned 43 times the monthly rent in gross annual income. Id. FHJC claims that it is impossible to qualify for OHS or HASA, and nearly impossible to qualify for Section 8, while meeting the minimum income requirement of the Old Policy. Id. ¶¶ 75-88.
In January 2019, nearly eleven months after the instant action was filed, Defendants adopted a new minimum income policy called Application Criteria 2019 (the "New Policy"). See Doc. 94, ¶ 142. Among other changes, the New Policy now requires applicants who receiverent subsidies to earn a gross annual income 43 times of only the portion of the monthly rent he will be required to pay, rather than 43 times the total monthly rent.5 Id. ¶ 145.
Spooner and FHJC initiated the instant action against Cedar Two Company, LLC., Deegan Two Company, and Goldfarb Properties, Inc. (the "Original Defendants") on February 21, 2018. Doc. 1. The original complaint alleged that the Old Policy discriminated against Spooner and other recipients of rental subsidies in violation of the FHA and NYCHRL. See id. On April 23, 2018, the Original Defendants moved to dismiss the complaint. Doc. 25. On May 21, 2018, Judge Forrest, to whom the case was originally assigned, granted Spooner and FHJC leave to file an amended complaint without ruling on Defendants' motion.6 See Doc. 34. On June 4, 2018, Spooner and FHJC filed the amended complaint. Doc. 37. On June 15, 2018, the Original Defendants moved to dismiss the amended complaint. Doc. 37. At a telephonic conference on July 9, 2018, Judge Forrest denied the Original Defendants' motion to dismiss, concluding that there were sufficient facts pled to raise an inference that would support both a disparate impact claim and an intentional discrimination claim. See Doc. 42; see also Tr., Doc. 44, at 3:17-4:3. On July 26, 2018, the Original Defendants answered the amended complaint. Doc. 43. On July 2, 2019, the parties stipulated to the filing of a second amended complaint.7Doc. 85. On July 23, 2019, nine days after they were served with the second amended complaint, Defendants filed an answer and asserted the counterclaim at issue here, in which they sought a declaration that the New Policy is lawful. Doc. 94. On October 15, 2019, FHJC moved to dismiss that counterclaim. Doc. 107.
When ruling on a motion to dismiss pursuant to Rule 12(b)(6), the Court must accept all factual allegations in the counterclaim as true and draw all reasonable inferences in the counterclaimant's favor. See Wilson v. Merrill Lynch & Co., 671 F.3d 120, 128 (2d Cir. 2011). However, the Court is not required to credit legal conclusions, bare assertions, or conclusory allegations. Ashcroft v. Iqbal, 556 U.S. 662, 678, 681, 686 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). "To survive a motion to dismiss, a [counterclaim] must contain sufficient factual matter . . . to 'state a claim to relief that is plausible on its face.'" Id. at 678 (quoting Twombly, 550 U.S. at 570). A claim is facially plausible when the counterclaimant "pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly, 550 U.S. at 556). The counterclaimant must allege sufficient facts to show "more than a sheer possibility that a defendant has acted unlawfully." Id. If the counterclaimant has not "nudged [its] claims . . . across the line from conceivable to plausible," the counterclaim must be dismissed. Id. at 680 (quoting Twombly, 550 U.S. at 570).
FHJC contends that Defendants' counterclaim should be dismissed because: (1) it was improperly filed without court permission; (2) even if such leave were sought, Defendants' counterclaim unduly expands the litigation and prejudices FHJC; and (3) it fails to state a claim even if it is considered on its merits. The Court addresses each of FHJC's arguments below.
As a threshold matter, both parties agree that the Second Circuit Court of Appeals' decision in GEOMC Co. v. Calmare Therapeutics Inc. ("GEOMC") governs whether Defendants' counterclaim was properly filed. 918 F.3d 92 (2d Cir. 2019).
Preliminarily, FHJC challenges the filing of Defendants' counterclaim without prior leave of this Court as improper. FHJC points to the following passage in GEOMC:
As to procedure for presenting a new counterclaim, most attempts to amend an answer to include a new counterclaim require permission of the court or consent of the parties. See Fed. R. Civ. P. 15(a)(2). The only exceptions occur when a counterclaimant seeks to amend its within 21 days after serving its original answer, see Fed. R. Civ. P. 15(a)(1)(A), or within 21 days after service upon it of (1) a required responsive pleading, e.g., an answer to a counterclaim, or (2) a motion under Rule 12(b), (e), and (f), see Fed. R. Civ. P. 15(a)(1)(B).
918 F.3d at 100-01. Therefore, FHJC contends, the Second Circuit made clear that Defendants must, subject to the two exceptions spelled out in Rule 15, either receive consent from the plaintiff or seek leave from the Court to file a new counterclaim.
What FHJC fails to cite, however, is the statement immediately after, that—as in the instant case— "attempts to amend an answer to include a new counterclaim after an amended complaint that requires a response has been filed must be made within 14 days after service of the amended complaint." Id. The Second Circuit further clarified in footnote 14 that a defendant may elect to include in an amended answer a new counterclaim. Id. at 101, n. 14. ( that the 14-day limit under Rule 15(a)(3) governs the responsive pleading where "a defendant, responding as required to a plaintiff's amended complaint, elects to include in its amended answer a new counterclaim").
Accordingly, the counterclaim was properly and timely asserted in response to the amended complaint.
FHJC also contends that Defendants' attempt to introduce a new counterclaim at the close of fact discovery8 should be rejected because it unduly expands the litigation and prejudices FHJC. Specifically, FHJC contends that Defendants' counterclaim, based on the New Policy, raises issues beyond the scope of all the complaints, which only challenge the Old Policy. FHJC further contends that it would be prejudiced by the counterclaim because: (1) it would be forced to litigate Defendants' remedy before it has a chance to...
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