Melendez v. The City of New York
| Decision Date | 31 March 2023 |
| Docket Number | 20-CV-5301 (RA) |
| Parties | MELENDEZ, et al., Plaintiffs, v. THE CITY OF NEW YORK, et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
The COVID-19 pandemic presented an extraordinary set of challenges, impacting nearly every aspect of life across the globe, in some ways that we are only now beginning to understand. Managing the devastation wrought by the pandemic required a response from government at all levels, and federal, state, and local actors moved swiftly to enact legislation aimed at addressing widespread health and economic concerns. New York City found itself in a particularly vulnerable position in the early days of the pandemic, as cases of the virus soared and local businesses faced ruin seemingly overnight. As part of its pandemic response, the New York City Council considered and adopted a package of legislation aimed at alleviating the financial burdens facing small businesses. At issue in the present action is one law, N.Y.C. Local L. No. 55 of 2020 (the “Guaranty Law” or “Law”), rapidly adopted in that well-intentioned effort.
Plaintiffs Elias Bochner and his business, 2877th Avenue Realty LLC commercial landlords, brought this action alleging, as relevant here, that the Guaranty Law violates the Contracts Clause of the United States Constitution, as it renders so-called “guaranty clauses” in commercial leases in the City unenforceable for any unpaid rent between March 7, 2020 and June 30, 2021. In so doing, Plaintiffs argue, the Law permanently reallocated substantial financial burdens exclusively upon commercial landlords, leaving them without legal recourse or compensation, even as the pandemic's effects subside, and even without requiring that guarantors demonstrate any financial hardship or need justifying nonpayment.
While recognizing the “burden [the] law puts on landlords” and expressly declining to “minimize the Guaranty Law's harm to Plaintiff[s],” this Court previously granted the City's motion to dismiss the Complaint, reasoning that Contracts Clause caselaw required “substantial deference” to “policymakers making good-faith efforts to act in the public interest.” Melendez v. City of New York, 503 F.Supp.3d 13, 32, 36 (S.D.N.Y. 2020). The Second Circuit reversed in part, identifying “five serious concerns” about the Law being a “reasonable and appropriate means” for the City to achieve its professed public purpose, as the Contracts Clause requires. Melendez v. City of New York, 16 F.4th 992, 1038-47 (2d Cir. 2021). The Circuit thus directed the City to develop the record to “identify . . . circumstances relevant to determining whether the Guaranty Law is [] reasonable and appropriate.” Id. at 1046.
Now before the Court are cross-motions for summary judgment filed by Plaintiffs and the City. Guided by the Second Circuit's specific and thorough instruction, the Court finds that the City has been unable to adduce record evidence demonstrating that the Guaranty Law is reasonably tailored to accomplish its legitimate policy goals. Accordingly, for the reasons that follow, the Court concludes that the Guaranty Law violates the Contracts Clause; Plaintiffs' motion for summary judgment is therefore granted, and the City's motion denied.
The Court described the facts giving rise to this action at length in its prior opinion dismissing the Complaint. See Melendez, 503 F.Supp.3d at 19-27. For the sake of completeness, however, factual background related to the COVID-19 pandemic response at the time of the Guaranty Law's passage is reiterated again below together with the evidence presented following remand.
The New York State Legislature, together with the Chief Judge of the New York Administrative Courts and the Governor, responded to the COVID-19 crisis with numerous regulations aimed at protecting the health, safety, and economic wellbeing of the people of New York. On March 3, 2020, the New York State Legislature amended section 29-a of the New York Executive Law, granting the Governor the power to “issue any directive during a state disaster emergency” that the Governor deemed “necessary to cope with the disaster.” See SB S7919; N.Y. Exec. Law Art. 2-B § 29-a. The amendment also expanded the Governor's existing authority to temporarily suspend “any statute, local law, ordinance, or orders, rules or regulations,” as necessary to aid with coping with the disaster. Id.
Following this expansion in authority, the Governor passed a series of executive orders. On March 7, 2020, the Governor issued EO 202, which declared a state of emergency in New York until September 7, 2020. N.Y. Exec. Order No. 202 (Mar. 7, 2020), Dkt. 38, Ex. B. The order “authorize[d] all necessary State agencies to take appropriate action to assist local governments and individuals in containing, preparing for, responding to and recovering from this state disaster emergency.” The Governor subsequently filed a series of executive orders mandating the closure of the vast majority of businesses in the state. See, e.g., N.Y. Exec. Order No. 202.3 (Mar. 16, 2020), Dkt. 29, Ex. 18 (); N.Y. Exec. Order No. 202.5 (Mar. 18, 2020), Dkt. 38, Ex. D (closing indoor malls, amusement parks, aquariums, zoos, and arcades); N.Y. Exec. Order No. 202.6 (Mar. 18, 2020), Dkt. 38, Ex. E (closing all non-essential businesses); N.Y. Exec. Order No. 202.7 (Mar. 19, 2020), Dkt. 29, Ex. 20 ().
The Governor also issued a series of executive orders regulating matters of housing. For example, Executive Order 202.8 announced a ninety-day moratorium on commercial and residential evictions and foreclosures. N.Y. Exec. Order No. 202.8 (Mar. 20, 2020), Dkt. 29, Ex. 21. Executive Order 202.9 instructed the Superintendent of the Department of Financial Services to ensure that “any person or entity facing a financial hardship due to the COVID-19 pandemic” be given the opportunity for a forbearance of mortgage payments. N.Y. Exec. Order No. 202.9 (Mar. 21, 2020), Dkt. 38, Ex. H. Executive Order 202.28 mandated that residential landlords allow tenants facing financial hardships due to the pandemic to use their security deposits to pay past-due rent, and prohibited landlords from demanding late payment fees for rent due and owing from March to August. N.Y. Exec. Order No. 202.28 (May 7, 2020), Dkt. 29, Ex. 23.
In June 2020, the state legislature passed a series of laws further regulating matters of housing. On June 17, it passed the Emergency Rent Relief Act (“ERRA”), which was initially to remain in effect until July 2021. 2020 Sess. Law News of N.Y. Ch. 125 (S. 8419) § 3, Dkt. 29, Ex. 26. Section 2.2 of the act authorized the state housing commissioner to establish a residential rent relief program for those affected by COVID-19. Id. § 2.2. Section 2.4 provided for rental subsidies, capped at 125 percent fair market rent, to be paid directly to landlords in the form of a rent-voucher. Id. § 2.4. Priority for these vouchers was to be given to those with greatest social and economic need. Id. § 2.7. That same date, the legislature amended the State Banking Law, adding § 9-x, which required all entities regulated by the New York Department of Financial Services to grant forbearance on all monthly mortgage payments for up to 180 days, subject to certain restrictions. N.Y. C.L.S. Bank § 9-x (2020), Dkt. 39. Ex. EE. And on June 30, the legislature passed the Tenant Safe Harbor Act (“TSHA”). 2020 Sess. Law News of N.Y. Ch. 125 (S. 8192-B), Dkt. 29, Ex. 27. The TSHA prohibits courts from issuing warrants of eviction against those residential tenants who have suffered financial hardship during the COVID-19 period for rent due and owing during that period. Id. § 2.1. The TSHA instructed courts to consider factors such as change in income and liquid assets in determining whether a tenant suffered “financial hardship.” Id. § 2.2(b). Section 3 of the law provided that-notwithstanding the other restrictions it imposed-courts may still award a judgment for rent due and owing in a summary proceeding. Id § 3.
The Chief Administrative Judge of the NY Courts also issued a series of administrative orders, some of which prohibited the initiation of foreclosures on commercial properties and suspended commercial and residential evictions. See, e.g., N.Y. Admin. Order No. 68/20 (Mar. 16, 2020), Dkt. 38, Ex. AA (suspending all eviction proceedings until further notice); N.Y. Admin. Order No. 157/20 (July 23, 2020), Dkt. 56, Ex. C (prohibiting the initiation of foreclosures on commercial mortgages for non-payment if the property owner is facing financial hardships due to COVID-19); N.Y. Admin. Order No. 160A/20 (Aug. 13, 2020), Dkt. 56, Ex. D (continuing to prohibit the initiation of eviction proceedings for commercial tenants if the tenant is facing financial hardships due to COVID-19 and suspending all residential eviction proceedings commenced after March 1).
New York City's City Council also passed a slate of local ordinances to combat the pandemic's economic impact. Of relevance on remand is one of those laws, first passed on May 26, 2020, Local Law No. 55-2020, known as the “Guaranty Law.” It provides:
To continue reading
Request your trial