Manocherian v. Lenox Hill Hosp.

Decision Date20 October 1994
Citation84 N.Y.2d 385,643 N.E.2d 479,618 N.Y.S.2d 857
Parties, 643 N.E.2d 479 Amir MANOCHERIAN et al., Doing Business as Fame Company, Appellants, v. LENOX HILL HOSPITAL et al., Respondents, et al., Defendants.
CourtNew York Court of Appeals Court of Appeals
OPINION OF THE COURT

BELLACOSA, Judge.

Plaintiffs, owners of several New York City rent-stabilized apartments at issue here seek summary judgment to declare chapter 940 of the Laws of 1984 unconstitutional and related relief. That enactment requires the owners to offer renewal leases to defendant-respondent, Lenox Hill Hospital, a not-for-profit hospital enterprise on the Upper East Side of Manhattan, for apartments occupied by some of the hospital's employees. Supreme Court and the Appellate Division upheld the validity of the statute and plaintiffs appeal as of right on constitutional grounds and a two-Justice dissent.

The precise issue for us to decide is whether chapter 940 of the Laws of 1984 substantially advances a legitimate State interest, justifying the State's imposition of distinctive encumbrances and obligations on plaintiffs' private property rights. The statute purports to justify and accomplish its objective through an amendment tied to the general purposes of the Rent Stabilization Law (RSL) and Emergency Tenant Protection Act (ETPA). While these twin enactments coexist to remedy a persisting emergency housing shortage, the particular statute under review perpetuates a small, privileged housing stock. In terms, actuality, and functional impact, the statute does not protect and benefit specific occupant subtenants, but rather erects a subsidized housing regime for Lenox Hill Hospital's preferential allotment.

We conclude that this legislation suffers a fatal defect by not substantially advancing a closely and legitimately connected State interest (see, Seawall Assocs. v. City of New York, 74 N.Y.2d 92, 107, 544 N.Y.S.2d 542, 542 N.E.2d 1059, cert. denied sub nom. Wilkerson v. Seawall Assocs., 493 U.S. 976, 110 S.Ct. 500, 107 L.Ed.2d 503; Rent Stabilization Assn. v. Higgins, 83 N.Y.2d 156, 174, 608 N.Y.S.2d 930, 630 N.E.2d 626, cert. denied --- U.S. ----, 114 S.Ct. 2693, 129 L.Ed.2d 823; see also, Nollan v. California Coastal Commn., 483 U.S. 825, 107 S.Ct. 3141, 97 L.Ed.2d 677). Thus, we reverse the order of the Appellate Division.

I.

This long-standing dispute cannot be understood or resolved without some historical background and context (see, 520 E. 81st St. Assocs. v. Lenox Hill Hosp., 157 A.D.2d 138, 555 N.Y.S.2d 697, rev'g. 142 Misc.2d 723, 538 N.Y.S.2d 129, rev'd. on other grounds 77 N.Y.2d 944, 570 N.Y.S.2d 479, 573 N.E.2d 567). The rent stabilization system began in 1969 to ameliorate, over time, the intractable housing emergency in the City of New York. The housing shortage was ascribed to "continued high demand, attributable in part to new household formation and decreasing supply" (ETPA [L.1974, ch. 574 § 4] § 2; see, Local Laws, 1969, No. 16 of City of New York § 1, now codified as Administrative Code of City of N.Y. § 26-501). By regulating rents and providing occupants with statutory rights to tenancy renewals under rent stabilization--a "less onerous form of [rent] regulation"--the State intended to protect dwellers who could not compete in an overheated rental market, through no fault of their own (Sullivan v. Brevard Assocs., 66 N.Y.2d 489, 494, 498 N.Y.S.2d 96, 488 N.E.2d 1208; see, Braschi v. Stahl Assocs. Co., 74 N.Y.2d 201, 214, 544 N.Y.S.2d 784, 543 N.E.2d 49 [concurring opn]. The regulation of this field has been maintained "to prevent uncertainty, hardship and dislocation," and to "forestall profiteering, speculation and other disruptive practices" (see, e.g., Administrative Code § Y51-1.0 [renum § 26-4501].

Unlike rent control, which places stricter price controls on owners and leaves many dwellings only marginally profitable, the State, in enacting rent stabilization, seeks to insure more balanced terms under which owners may apply for regulated rent increases and to protect primary occupants. Thus, in 1971, the Legislature exempted from rent stabilization regulation all housing accommodations not "occupied by the tenant in possession as his [or her] primary residence" (L.1971, ch. 373). Similar language was incorporated into section 5(a)(11) of the ETPA of 1974 (see, L.1974, ch. 576, § 4). The phrase "tenant in possession" included both the tenant of record and any subtenant residing in the regulated apartment. In 1983, however, the Omnibus Housing Act (OHA) amended Rent Stabilization Law § YY51-3.0(a)(1)(f) (now § 26-504[a][1][f] to exempt from the RSL dwelling units "not occupied by the tenant, not including subtenants or occupants, as his [or her] primary residence" (L.1983, ch. 403, § 41 [emphasis added]. Thus, under OHA, the named leaseholder had to occupy the apartment as a primary residence in order to qualify for a renewal lease. While the subletting of apartments was still permitted, Administrative Code § YY51-6.0(c)(14) (now § 26-511[c][12] added that such tenants could not sublet units for more than a total of two years out of a four-year period, and only on the establishment of primary residency.

Next came chapter 940 of the Laws of 1984 (L.1984, ch. 940, codified at Administrative Code of City of N.Y. § YY51-3.0 [renum. § 26-504]. It was enacted 13 months after the passage of chapter 403 and exclusively exalts the renewal rights of not-for-profit hospitals, which had formerly subleased rent-stabilized apartments to qualified hospital employees. Section 1 of chapter 940 amended the nonprimary RSL § YY51-3.0(a)(1)(f) (renum. § 26-504[a][1][f], providing "[w]here a housing accommodation is rented to a not-for-profit hospital for residential use, affiliated subtenants authorized to use such accommodations by such hospital shall be deemed to be tenants." Thus, under chapter 940, subtenants of the primary tenant, a nonoccupying, not-for-profit hospital, were deemed qualified tenants in specific contradiction of the general purport of the 1983 OHA reforms. Chapter 940 further grants not-for-profit hospitals the right to sublet apartments to affiliated employees without first obtaining an owner's consent and without requiring the hospital itself to maintain these apartments as a primary residence. Indeed, unlike any other regulated tenants, all of whom are authorized to sublet for only two out of every four years, the sublets by the not-for-profit hospital to its selected and variable employees is durationally unrestricted and open-ended. This is a unique and additional preference accorded no one else similarly situated. Moreover, the hospital's special privileges last for as long as its unilaterally controlled corporate existence.

The legislative history of chapter 940 reveals that Lenox Hill Hospital was the principal agent in urging the amendment (see, Senate Debates, NY Senate Bill S 9983, June 28, 1984 ["(t)his bill has been introduced at the request of Lenox Hill Hospital in New York City * * * (and i)ts purpose is to enable Lenox Hill to have the right to renewal leases"]. The salutary motivation was the preservation of safe, convenient, affordable housing for hospital staff (see, Letter from Lenox Hill Hospital, dated July 27, 1984, Bill Jacket, L.1984, ch. 940, at 29). The primary and real beneficiary of this legislation, however, is Lenox Hill Hospital, not actual dwellers. The latter are only incidentally benefitted and may be evicted under the exclusive control or at the whim of their employer, Lenox Hill Hospital, to which the Legislature transferred significant, distinctive, apartment ownership prerogatives without its having to endure the burdens and costs of ownership.

The affected apartment owners sued, believing that chapter 940 could not constitutionally mandate that they provide Lenox Hill Hospital with these benefits under perpetual renewal leases. Supreme Court, in the phase of the litigation with which we are now dealing, dismissed the complaint. It held that chapter 940 did not constitute a physical taking since the owners had previously and voluntarily opened their premises to the hospital's prime tenancy. Supreme Court also found no regulatory taking and concluded that chapter 940 advanced the principal goal of the RSL (154 Misc.2d 982, 586 N.Y.S.2d 726). The Appellate Division (196 A.D.2d 728, 602 N.Y.S.2d 93), with two Justices dissenting, affirmed for the reasons stated by Supreme Court.

II.

Elementary and strong constitutional principles protect private property rights and govern takings of property for public use without just compensation. They evolved " 'to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole' " (Penn Cent. Transp. Co. v. New York City, 438 U.S. 104, 123, 98 S.Ct. 2646, 2659, 57 L.Ed.2d 631, quoting Armstrong v. United States, 364 U.S. 40, 49, 80 S.Ct. 1563, 1569, 4 L.Ed.2d 1554; Seawall Assocs. v. City of New York, 74 N.Y.2d 92, 101, 544 N.Y.S.2d 542, 542 N.E.2d 1059, cert denied sub nom. Wilkerson v. Seawall Assocs., 493 U.S. 976, 110 S.Ct. 500, 107 L.Ed.2d 503, supra ).

While there is no "precise mathematical...

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