SR 04-13-2021 3C
City Council Report
City Council Meeting: April 13, 2021
Agenda Item: 3.C
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To: Mayor and City Council
From: George Cardona, Interim City Attorney, City Attorney's Office, Municipal Law
Subject: Authorization to Join in Amicus Brief In Support of the City of New York in
Community Housing Improvement Program, et al. v. City of New York, et al.,
United States Court of Appeals for the Second Circuit, Case No. 20-3366.
Recommended Action
Staff recommends that City Council authorize the City to sign on to an amicus brief to
be filed by the City of Los Angeles in support of the City of New York’s position in
Community Housing Improvement Program, et al. v. City of New York, et al., United
States Court of Appeals for the Second Circuit, Case No. 20-3366.
Discussion
The City of Los Angeles is preparing an amicus brief in support of the City of New York
in a case currently pending before the United States Court of Appeals for the Second
Circuit. The appellants in this case—a group of landlords and two landlord advocacy
groups—assert facial challenges to the City and State of New York’s rent stabilization
law (“RSL”), arguing that the RSL implements a regulatory taking and violates due
process.
The RSL is a combinaton of New York State and City laws that together seek to
stabilize rents to permit long-term tenants to remain in their apartments. The RSL was
significantly amended on June 14, 2019. Following those amendments, the RSL was
challenged in two cases filed in the United States District Court for the Eastern District
of New York. In one case, various landlords and two landlord-advocacy groups asserted
facial challenges to the RSL, asserting that it violated the Takings Clause of the United
States Constitution (by implementing both a physical and regulatory taking) and their
due process rights. In the other case, a group of landlords asserted claims that, as
applied to them and their specific properties, the RSL violated the Takings Clause (by
implementing both a physical and resulatory taking) and the Contracts Clause of the
United States Constitution.
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The State and City of New York moved to dismiss the claims. The district court ruled on
the motion to dismiss in an opinion issued on September 30,2020. (Attachment A) The
district court dismissed all of the plaintiffs’ claims against the State on sovereign
immunity grounds. Turning to the substance of the claims against the non-State
deendants, the court dismissed the physical takings claims—both facial and as-
applied—based on its holding that under binding Second Circuit precedent, “the RSL
regulates land use rather than effecting a physical occupation” because it leaves
owners in possession of their properties and free to dispose of them by selling. The
court also dismissed the facial regulatory takings claims. The court noted that under
Penn Central Transportation Co. v. City of New York, 438 U.S. 104, 124 (1978),
regulatory-takings analyses pose “essentially ad hoc, factual inquiries” not generally
amenable to facial challenges. Examining the particular Penn Central factors, the court
found no basis to depart from this general rule, holding that “simply to apply these ‘ad
hoc’ factors to the instant facial challenge is to recognize why the RSL is not generally
susceptible to such review.” The court similarly rejected the due process claims,
applying rational basis review and finding no basis for holding, as plaintiffs asserted,
that the RSL was not rationally related to its asserted legislative goals, which include
“increasing the supply of affordable housing, helping low-income New Yorkers, or
promoting socio-economic diversity” and allowing “people of low and moderate income
to remain in residence in New York City – and specific neighborhoods within – when
they otherwise might not be able to.” With respect to the as-applied claims, the court
dismissed the Contracts Clause claims, but allowed the regulatory takings claims to
proceed because discovery was needed to determine “the precise effects of the RSL”
on the plaintiffs asserting the as-applied claims.
Plaintiffs appealed the district court’s dismissal of their facial challenges to the RSL.
(Attachment B -- Appellants’ Brief filed January 15, 2021) On appeal, plaintiffs argue:
• the RSL effects a physical taking because it eliminates owners’ right to
exclude by requiring them to renew the leases of tenants and a class of
tenants’ successors in perpetuity and also restricts the ability of owners
to change the use of their properties;
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• the RSL effects a regulatory taking because it requires the board that
sets rents to consider factors related to the tenants’ ability to pay in
setting maximum rent levels, thus singling out RSL owners to alone bear
what should be a public burden in remedying tenants’ inability to cover
market rents;
• the RSL effects a regulatory taking because each of the relevant Penn
Central factors, as applied generally, weighs in favor of finding a taking;
and
• the RSL violates due process because, even under rational basis review,
the RSL does not promote housing for low- and middle-income families
and does not alleviate but rather exacerbates a housing shortage.
In support of the positions taken by the appellants, a number of entities have filed
amicus briefs, including: the Cato Institute, the Institute for Justice, the Pacific Legal
Foundation, the New York State Associaton of Realtors, the National Associatoin of
Home Builders, and the National Apartment Association and National Multifamily
Housing Council. The San Francisco Apartment Association and the California
Apartment Association have also filed an amicus brier in support of the appellants.
(Attachment C – Amicus Brief filed January 22, 2021) Their brief discusses San
Francisco’s rent control ordinance and regulations, arguing that these laws, like the New
York RSL, constitute overreaching by City governments to “gradually but effectively
assume control of the residential properties in question, while shifting the costs of doing
so to a politically unpopular minority [landlords]” resulting in violation of the Takings
Clause.
New York City and the other defendants/appellees are scheduled to file their answering
brief on April 16, 2021. The City of Los Angeles is preparing an amicus brief in support
of their positions; the deadline for filing is April 23, 2021. This brief, in which the City
would join, is expected to emphasize: (1) the important purposes served by rent control
ordinances (as recognized by the district court), namely, to ensure adequate housing for
community members, stabilize housing stock, preserve local neighborhoods and
communities, and fight the displacement and the resulting dramatic increase in the
percentage of community members who are unhoused; and (2) the lengthy body of
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case-law, including Supreme Court rulings, recognizing the general validity of rent
control ordinances and rejecting facial takings challenges (both physical and regulatory)
to those ordinances.
The arguments made by plaintiffs/appellants and their supporting amici are wide
ranging and would work a significant change in the application of Takings Clause
doctrine to rent control ordinances and regulations. Given the potential significant
change to takings law, and the potentially wide-ranging effects such a change would
have on the City’s rent control ordinances and regulations, we recommend that the City
join in the amicus brief to be filed by the City of Los Angeles.
Prepared By: George Cardona, Interim City Attorney
Approved
Forwarded to Council
Attachments:
A. EXA-CHIPvNYC-DistrictCourtOp.20200930
B. EXB-CHIPvNYC.AppellantsBrief.20210115
C. EXC-CHIPvNYC.AmicusBriefCAAandSFAA.20210122
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COMMUNITY HOUSING IMPROVEMENT PROGRAM, RENT STABILIZATION
ASSOCIATION OF N.Y.C., INC., CONSTANCE NUGENT-MILLER, et al., Plaintiffs,
v.
CITY OF NEW YORK, RENT GUIDELINES BOARD, DAVID REISS, CECILIA JOZA,
ALEX SCHWARZ, GERMAN TEJEDA, MAY YU, et al., Defendants.
74 PINEHURST LLC, 141 WADSWORTH LLC, WADSWORTH LLC, DINO
PANAGOULIAS, DIMOS PANAGOULIAS, et al., Plaintiffs,
v.
STATE OF NEW YORK, NEW YORK DIVISION OF HOUSING AND COMMUNITY
RENEWAL, RUTHANNE VISNAUSKAS, et al., Defendants.
Nos. 19-cv-4087 (EK) (RLM), 19-cv-6447 (EK) (RLM)
September 30, 2020.
United States District Court, E.D. New York.
MEMORANDUM AND ORDER
ERIC KOMITEE, District Judge.
Rent regulations have now been the subject of almost a hundred years of case law, going back to Justice
Holmes. That case law supports a broad conception of government power to regulate rents, including in
ways that may diminish — even significantly — the value of landlords' property.
In 2019, the New York State legislature amended the state's rent-stabilization laws (RSL). As amended, the
RSL now goes beyond previous incarnations of the New York statute in its limitations on rent increases,
deregulation of units, and eviction of tenants in breach of lease agreements, among other subjects.
Plaintiffs claim that in light of the 2019 amendments, the RSL (in its cumulative effect) is now
unconstitutional.
This opinion concerns two cases. Plaintiffs in Community Housing Improvement Program v. City of New
York (19-cv-4087) are various landlords and two landlord-advocacy groups, the Community Housing
Improvement Program and the Rent Stabilization Association (the "CHIP Plaintiffs"). Plaintiffs in 74
Pinehurst LLC v. State of New York (19-cv-6447) are landlords 74 Pinehurst LLC, Eighty Mulberry Realty
Corporation, 141 Wadsworth LLC and 177 Wadsworth LLC, and members of the Panagoulias family (the
"Pinehurst Plaintiffs"). Because of the significantly overlapping claims and issues of law in the two cases,
the Court addresses them here in a single opinion.[1]
Pursuant to 42 U.S.C. § 1983, Plaintiffs assert (a) a facial claim that the RSL violates the Takings Clause
(as both a physical and a regulatory taking); (b) in the case of certain Pinehurst Plaintiffs, a claim that the
RSL, as applied to them, violates the Takings Clause (as both a physical and a regulatory taking); (c) a
facial claim that the RSL violates their due-process rights; and (d) a claim that the RSL violates the
Contracts Clause, as applied to each Pinehurst Plaintiff.[2] They seek an order enjoining the continued
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enforcement of the RSL, as amended; a declaration that the amended law is unconstitutional (both on its
face and as-applied); and monetary relief for the as-applied Plaintiffs' Takings and Contracts Clause claims.
Supreme Court and Second Circuit cases foreclose most of these challenges. No precedent binding on this
Court has ever found any provision of a rent-stabilization statute to violate the Constitution, and even if the
2019 amendments go beyond prior regulations, "it is not for a lower court to reverse this tide," Fed. Home
Loan Mortg. Corp. v. N.Y. State Div. of Hous. & Cmty. Renewal, 83 F.3d 45, 47 (2d Cir. 1996) (FHLMC) —
at least in response to the instant facial challenges. Accordingly, the Court grants Defendants' motions to
dismiss the facial challenges under the Takings Clause, the as-applied claims alleging physical takings, the
due-process claims, and the Contracts Clause claims — as to all Plaintiffs. The Court denies, at this stage,
the motions to dismiss the as-applied regulatory-takings claims brought by certain Pinehurst Plaintiffs only.
Those claims may face a "heavy burden," see Keystone Bituminous Coal Ass'n v. DeBenedictis, 480 U.S.
470, 493 (1987), but given their fact-intensive nature, it is a burden those Plaintiffs should be afforded an
opportunity to carry, at least to the summary-judgment stage.
I. Background
New York City has been subject to rent regulation, in some form, since World War I. But the RSL is of more
recent vintage. It traces its roots to 1969, when New York City passed the law that created the Rent
Guidelines Board (RGB) — the body that, to this day, continues to set rents in New York City. Five years
later, New York State passed its own statute, which amended the 1969 law. Together, these laws formed
the blueprint for today's RSL. The State and City have amended the RSL repeatedly since its initial
enactment, culminating with the amendments at issue here.
The 2019 amendments, enacted on June 14, 2019, made significant changes. Most notably, they:
• Cap the number of units landlords can recover for personal use at one unit per building (and
only upon a showing of immediate and compelling necessity). N.Y. Reg. Sess. § 6458, Part I
(2019).
• Repeal the "luxury decontrol" provisions, which allowed landlords, in certain circumstances,
to decontrol a unit when the rent reached a specified value. Id. at Part D, § 5.
• Repeal the "vacancy" and "longevity" increase provisions, which allowed landlords to charge
higher rents when certain units became vacant. Id. at Part B, §§ 1, 2.
• Repeal the "preferential rate" provisions, which allowed landlords who had been charging
rates below the legal maximum to increase those rates when a lease ended. Id. at Part E.
• Reduce the value of capital improvements — called "individual apartment improvements"
(IAI) and "major capital improvements" (MCI) — that landlords may pass on to tenants through
rent increases. Id. at Part K, §§ 1, 2, 4, 11.
• Increase the fraction of tenant consent needed to convert a building to cooperative or
condominium use. Id. at Part N.
• Extend, from six to twelve months, the period in which state housing courts may stay the
eviction of breaching tenants. Id. at Part M, § 21.
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II. Discussion
A. State Defendants' Eleventh Amendment Immunity
Before turning to Plaintiffs' constitutional claims, the Court must address certain defendants' assertion of
immunity from suit. The "State Defendants" — the State of New York, the New York Division of Housing and
Community Renewal (DHCR),[3] and DHCR Commissioner RuthAnne Visnauskas — argue that the
Eleventh Amendment bars certain claims against them.[4] State Defendants' Motion to Dismiss for Lack of
Jurisdiction in Part, ECF No. 67. The State Defendants did not raise the Eleventh Amendment defense until
oral argument on their motion to dismiss for failure to state a claim — after the 12(b)(6) motions had been
fully briefed. This omission is difficult to understand, to say the least; nevertheless, the Court must resolve
these arguments, as they implicate its subject-matter jurisdiction. See Dube v. State Univ. of N.Y., 900 F.2d
587, 594 (2d Cir. 1990); see also Fed. R. Civ. P. 12(h)(3).
The parties agree that sovereign immunity bars Plaintiffs' Due Process and Contracts Clause claims (with
certain exceptions). Plaintiffs' Response to State Defendants' Motion to Dismiss for Lack of Jurisdiction in
Part at 1, ECF No. 71. Therefore these claims cannot proceed against the State Defendants, except to the
extent they seek declaratory relief against DHCR Commissioner Visnauskas (as explained below). The
parties dispute, though, whether the Eleventh Amendment immunizes states against takings claims. Id.
There is an obvious tension between the Takings Clause and the Eleventh Amendment. The Eleventh
Amendment provides the states with immunity against suit in federal court. Plaintiffs contend, however, that
the Takings Clause's "self-executing" nature (meaning, its built-in provision of the "just compensation"
remedy) overrides the states' immunity. In support, they cite several cases that have reached that
conclusion (or related conclusions). See, e.g., Manning v. N.M Energy, Minerals & Nat. Res. Dep't, 144 P.3d
87, 97-98 (N.M. 2006) (holding that the State of New Mexico could not claim immunity from regulatory-
takings claims because the "`just compensation' remedy found in the Takings Clause . . . abrogates state
sovereign immunity"); see also Hair v. United States, 350 F.3d 1253, 1257 (Fed. Cir. 2003) (holding that the
federal government cannot claim immunity from takings claims because the Takings Clause is "self-
executing"); Leistiko v. Sec'y of Army, 922 F.Supp. 66, 73 (N.D. Ohio 1996) (same).
Despite the fact that the Eleventh Amendment and Takings Clause date back so long, neither the Supreme
Court nor the Second Circuit has decisively resolved the conflict. The Second Circuit recently affirmed a
decision that held the Eleventh Amendment to bar a takings claim, but in a non-precedential summary
order that did not analyze the question in detail. Morabito v. New York, 803 F. App'x 463, 464-65 (2d Cir.
2020) (summary order) (affirming because the Eleventh Amendment "generally bars suits in federal courts
by private individuals against non-consenting states"), aff'g No. 6:17-cv-6853, 2018 WL 3023380 (W.D.N.Y.
June 18, 2018). Thus the Court must reach the question squarely.
The overwhelming weight of authority among the circuits contradicts the cases cited by Plaintiffs, supra.
These cases hold that sovereign immunity trumps the Takings Clause — at least where, as here, the state
provides a remedy of its own for an alleged violation.[5] The reasoning of one such case, Seven Up Pete
Venture v. Schweitzer, 523 F.3d 948 (9th Cir. 2008), is instructive. In that case, the Ninth Circuit analogized
the question of Takings Clause immunity to the Supreme Court's holding in Reich v. Collins, which
concerned a tax-refund due-process claim. 513 U.S. 106 (1994). In Reich, the plaintiff sued the Georgia
Department of Revenue and its commissioner in federal court to recover payments he had made pursuant
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to a tax provision later found unconstitutional. Id. at 108. The Supreme Court held that when states require
payment of contested taxes up front, the Due Process Clause requires them to provide, in their own courts,
a forum to recover those payments if the revenue provision in question is later held invalid — even if the
Eleventh Amendment would bar the due-process claim in federal court. Id. at 109.
The Ninth Circuit in Seven Up reasoned that the Takings Clause, like the Due Process Clause, "can
comfortably co-exist with the Eleventh Amendment immunity of the States," provided state courts make a
"constitutionally enforced remedy" available. Seven Up, 523 F.3d at 954-55. Seven Up's conclusion is
consistent with the weight of circuit authority. See Bay Point Props., Inc. v. Miss. Transp. Comm'n, 937 F.3d
454, 456-57 (5th Cir. 2019) (holding that Eleventh Amendment barred takings claim in federal court, where
plaintiff had already sued in state court but received less compensation than he sought); Williams v. Utah
Dep't of Corr., 928 F.3d 1209, 1213-14 (10th Cir. 2019) (holding that the Eleventh Amendment barred a
federal takings claim against the State of Utah, after confirming that Utah offered a forum for the claim);
Hutto v. S.C. Ret. Sys., 773 F.3d 536, 552 (4th Cir. 2014) (concluding "that the Eleventh Amendment bars
Fifth Amendment taking claims against States in federal court when the State's courts remain open to
adjudicate such claims"); Jachetta v. United States, 653 F.3d 898, 909-10 (9th Cir. 2011) (holding that the
Eleventh Amendment barred claims brought against the state in federal court under the federal Takings
Clause, but that the plaintiff could seek Supreme Court review if the state court declined to hear the claim);
DLX, Inc. v. Kentucky, 381 F.3d 511, 526-28 (6th Cir. 2004) (holding that Eleventh Amendment immunity
barred federal takings claim, but that state court "would have had to hear that federal claim"), overruled on
other grounds San Remo Hotel, L.P. v. City & Cnty. of San Francisco, 545 U.S. 323 (2005).
These cases give effect to the Supreme Court's admonition that:
[T]he sovereign immunity of the States neither derives from, nor is limited by, the terms of the
Eleventh Amendment. Rather, as the Constitution's structure, its history, and the authoritative
interpretations by this Court make clear, the States' immunity from suit is a fundamental aspect
of the sovereignty which the States enjoyed before the ratification of the Constitution, and
which they retain today. . . .
Alden v. Maine, 527 U.S. 706, 713 (1999).
There are fleeting suggestions to the contrary in Supreme Court authority, but none of them compel the
opposite conclusion. Most recently, in Knick v. Twp. of Scott, 139 S. Ct. at 2162 (2019), the Supreme Court
cast doubt on the notion that the availability of state-law relief should determine whether federal courts may
hear takings claims. Id. at 2169-71 (stating that the existence of a state-law remedy "cannot infringe or
restrict the property owner's federal constitutional claim," and that to hold otherwise would "hand[] authority
over federal takings claims to state courts") (internal quotations omitted). Similarly, in First English
Evangelical Lutheran Church of Glendale v. Cnty. of Los Angeles, 482 U.S. 304 (1987), the Supreme Court
rejected an argument that, based on the "prohibitory nature of the Fifth Amendment, . . . combined with
principles of sovereign immunity," the Takings Clause is merely a "limitation on the power of the
Government to act," rather than a "remedial provision" that requires compensation. Id. at 316 n.9.[6]
But these cases do not control here. They establish, at most, that the Takings Clause can overcome court-
imposed — rather than constitutional — restrictions on takings claims. See Knick, 139 S. Ct. 2167-68
(overruling Williamson Cnty. Reg'l Planning Comm'n v. Hamilton Bank of Johnson City, 473 U.S. 172
(1985), which had established court-imposed rule requiring plaintiffs to exhaust state remedies before
bringing a takings claim in federal court); First English, 482 U.S. at 310-11 (invalidating state precedent that
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prevented plaintiffs from recovering compensation for damages incurred before a state court found there
was a taking). Neither case had occasion to decide whether the Takings Clause overrides other
constitutional provisions like the Eleventh Amendment. Knick and First English, therefore, do not compel
the conclusion that the Takings Clause trumps sovereign immunity.
Accordingly, New York State, the DHCR,[7] and Commissioner Visnauskas (to the extent Plaintiffs seek
monetary relief in her official capacity) will be dismissed from this litigation.
This holding may not have the profound impact that one might initially surmise. Plaintiffs may continue to
seek prospective remedies — like an injunction — against state officials under Ex Parte Young, 209 U.S.
123 (1908), and New York State remains obligated (via its own consent) to pay just compensation for
takings under the New York State Constitution. Moreover, the Eleventh Amendment does not affect
Plaintiffs' claims for money damages against the City of New York, the RGB, or the members of the RGB.
Sovereign immunity also does not bar the remaining damages claims (for just compensation) against
Commissioner Visnauskas in her individual capacity.[8] But to establish individual liability, Plaintiffs must
allege that Commissioner Visnauskas was "personal[ly] involve[d]" in the alleged regulatory takings. Grullon
v. City of New Haven, 720 F.3d 133, 138 (2d Cir. 2013). Although Plaintiffs allege that Commissioner
Visnauskas is personally responsible for enforcing and implementing particular aspects of the RSL,[9] the
core of their claims is that the enactment of the 2019 amendments, as a whole, violates the Constitution.
Because they do not allege that Commissioner Visnauskas had any involvement at that broader stage,
these claims must be dismissed under Rule 12(b)(6). See Morabito, 803 F. App'x at 466 (allegation that
state official could "modify or abolish" the challenged regulation was inadequate); Nassau & Suffolk Cnty.
Taxi Owners Ass'n, Inc. v. New York, 336 F. Supp. 3d 50, 70 (E.D.N.Y. 2018) (dismissing claim because
plaintiffs did not allege that the officials were "involved in the creation or passage" of the challenged
regulation). Commissioner Visnauskas is not completely dismissed from this action, however, because
Plaintiffs' surviving claims against her for declaratory relief may proceed under Ex Parte Young.
* * * * *
The Court turns next to Plaintiffs' substantive claims. Plaintiffs bring two types of challenge under the
Takings Clause — they allege physical and regulatory takings. The CHIP Plaintiffs allege only facial
challenges under both theories (i.e., they claim that the face of the statute effectuates a physical and
regulatory taking in all applications). Certain Pinehurst Plaintiffs also bring as-applied takings challenges
with respect to specific properties under both theories.
B. Physical Taking: Facial and As-Applied Challenges
When a government authorizes "a permanent physical occupation" of property, a taking occurs. Loretto v.
Teleprompter Manhattan CATV Corp., 458 U.S. 419, 426 (1982). Physical takings are characterized by a
deprivation of the "entire bundle of property rights" in the affected property interest — "the rights to
possess, use and dispose of" it. See Horne v. Dep't of Agric., 576 U.S. 350, 361-62 (2015) (quoting Loretto,
458 U.S. at 435) (internal quotations omitted). Examples include the installation of physical items on
buildings, Loretto, 458 U.S. at 438, and the seizure of control over private property, Horne, 576 U.S. at 361-
62 (crops); United States v. Pewee Coal Co., 341 U.S. 114, 115-17 (1951) (mines).
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In this case, all Plaintiffs retain the first and third strands in Horne's bundle of rights, supra: they continue to
possess the property (in that they retain title), and they can dispose of it (by selling). See Andrus v. Allard,
444 U.S. 51, 65-66 (1979) ("[W]here an owner possesses a full `bundle' of property rights, the destruction
of one `strand' of the bundle is not a taking, because the aggregate must be viewed in its entirety."). The
restrictions on their right to use the property as they see fit may be significant, but that is insufficient under
the standards set forth by the Supreme Court and Second Circuit to make out a physical taking.
Recognizing as much in prior cases, the Second Circuit has held that "the RSL regulates land use rather
than effecting a physical occupation." W. 95 Hous. Corp. v. N.Y.C. Dep't of Hous. Pres. & Dev., 31 F. App'x
19, 21 (2d Cir. 2002) (summary order) (citing Yee v. City of Escondido, 503 U.S. 519, 523 (1992)). The
Circuit has rejected physical-takings claims against the RSL on multiple occasions. See Harmon v. Markus,
412 F. App'x 420 (2d Cir. 2011) (summary order); Greystone Hotel Co. v. City of New York, 98-9116, 1999
U.S. App. LEXIS 14960 (2d Cir. June 23, 1999) (summary order); FHLMC, 83 F.3d at 47-48. The
incremental effect of the 2019 amendments, while significant to investment value, personal use, unit
deregulation, and eviction rights, is not so qualitatively different from what came before as to permit a
different outcome.
Plaintiffs attempt to overcome these Second Circuit cases by arguing that they rest in part on reasoning
that the Supreme Court has since disparaged in Horne. In Harmon and FHLMC, the Second Circuit had
invoked what Plaintiffs here call the "acquiescence theory" — the notion that the landlords chose,
voluntarily, to enter the rental real estate business, and that they can exit it if they choose. In Horne,
decided subsequently, this strain of reasoning came under criticism. See Horne, 576 U.S. at 365 (rejecting
argument that "raisin growers voluntarily choose to participate in the raisin market" and could leave the
industry to escape regulation); see also Loretto, 458 U.S. at 439 n.17 (noting that "a landlord's ability to rent
his property may not be conditioned on forfeiting the right to compensation for a physical occupation"). But
Horne's rejection of "acquiescence" theory does not save Plaintiffs' physical-takings claim. Plaintiffs'
argument fails not because they have acquiesced in the taking of their property, but because under cases
like Loretto, Horne, Yee, and others, no physical taking has occurred in the first place.
The Pinehurst Plaintiffs' as-applied physical challenges fail for the same reasons (to the extent they make
them, which 177 Wadsworth LLC does not). No Plaintiff alleges that they have been deprived of title to their
property, or that they have been deprived of the ability to sell the property if they choose. At most, these
Plaintiffs allege that the manner in which they can remove apartments from stabilization — the so-called "off
ramps" from the RSL regime — have been significantly limited.
Accordingly, the Court finds that Plaintiffs fail to state physical-taking allegations upon which relief can be
granted, and dismisses these claims — both facial and as-applied — pursuant to Rule 12(b)(6).
C. Regulatory Taking — Facial Challenge
Like the physical-takings challenges, every regulatory-takings challenge to the RSL has been rejected by
the Second Circuit. See W. 95 Hous. Corp., 31 F. App'x 19 (summary order); Greystone Hotel Co., 1999
U.S. App. LEXIS 14960 (summary order); FHLMC, 93 F.3d 45; see also Rent Stabilization Ass'n v. Dinkins,
5 F.3d 591, 595 (2d Cir. 1993) (construing plaintiff's facial attacks as as-applied challenges and dismissing
them for lack of standing). Of course, it cannot be said that there is no such thing as a regulatory taking in
the world of rent stabilization, and it remains eminently possible that at some point, the legislature will apply
the proverbial straw that breaks the camel's back.[10] If they do, however, it is unlikely that the straw in
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question will be identified in the context of a facial challenge. In Pennell v. City of San Jose, 485 U.S. 1
(1988), for example, the Supreme Court rejected a regulatory-takings claim, noting that "we have found it
particularly important in takings cases to adhere to our admonition that `the constitutionality of statutes
ought not be decided except in an actual factual setting that makes such a decision necessary.'" Id. at 10
(quoting Hodel v. Virginia Surface Mining & Reclamation Ass'n, Inc., 452 U.S. 264, 294-95 (1981)); see also
Penn Cent. Transp. Co. v. City of New York, 438 U.S. 104, 124 (1978) (regulatory-takings analyses are
"essentially ad hoc, factual inquiries"). The Second Circuit has repeatedly disparaged facial challenges to
the RSL. See W. 95 Hous. Corp., 31 F. App'x at 21 (the difficulty of regulatory-takings analysis "suggests
that a widely applicable rent control regulation such as the RSL is not susceptible to facial constitutional
analysis under the Takings Clause"); Dinkins, 5 F.3d at 595 (trade association's challenge was "simply not
facial," despite plaintiff's having characterized it as such, and "the proper recourse is for the aggrieved
individuals themselves to bring suit" on an as-applied basis). This is consistent with limitations on facial
challenges generally. See FW/PBS, Inc. v. City of Dallas, 493 U.S. 215, 223 (1990) (noting that outside of
the First Amendment context, "facial challenges to legislation are generally disfavored").
In a facial challenge, Plaintiffs must demonstrate that "no set of circumstances exists under which [the RSL]
would be valid." United States v. Salerno, 481 U.S. 739, 745 (1987). Put differently, such a claim fails if
Defendants can identify any "possible set of . . . conditions" under which the RSL could be validly applied.
See Cal. Coastal Comm'n v. Granite Rock Co., 480 U.S. 572, 593 (1987).
The Supreme Court has identified two distinct strains of regulatory-takings analysis. The first applies in the
case of a regulation that "denies all economically beneficial or productive use of land." Palazzolo v. Rhode
Island, 533 U.S. 606, 617 (2001); see also Lucas, 505 U.S. at 1026 (applying the "categorical rule that total
regulatory takings must be compensated"). This analysis is inapplicable here: Plaintiffs do not allege that
they have been deprived of all economically viable use of their property.[11]
Even without rendering property worthless, a regulatory scheme may still effectuate a taking if it "goes too
far," in Justice Holmes's words. Mahon, 260 U.S. at 415. In the current era, courts apply the three-factor
test of Penn Central to determine whether a regulation that works a less-than-total destruction of value has
gone too far. The factors are: (1) the economic impact of the regulation on the claimant; (2) the extent to
which the regulation has interfered with reasonable investment-backed expectations; and (3) the character
of the governmental action in question. See Penn Central, 438 U.S. at 124. In applying these factors, the
ultimate question is "whether justice and fairness require that economic injuries caused by public action be
compensated by the government, rather than remain disproportionately concentrated on a few persons."
Kaiser Aetna v. United States, 444 U.S. 164, 175 (1979) (internal quotations omitted). The Court considers
the Penn Central factors as they apply, first, to Plaintiffs' facial challenge, and then to the as-applied
regulatory challenges, which are discussed in a separate section, infra.
Simply to apply these "ad hoc" factors to the instant facial challenge is to recognize why the RSL is not
generally susceptible to such review. The first factor — economic impact — obviously needs to be
calculated on an owner-by-owner basis, and those calculations will vary significantly depending on when a
property was purchased, what fraction of its units are rent-stabilized, what improvements the landlord has
made, and many other metrics. At best, Plaintiffs can make vague allegations about the average diminution
in value across regulated properties. See, e.g., Transcript dated June 23, 2020 at 59:19-24, Community
Housing Improvement Program v. City of New York, 19-cv-4087, ECF No. 86 ("[CHIP Plaintiffs' counsel]: . .
. . At the complaint stage, we don't have to have developed all of our evidence, even our own evidence,
with respect to the economic impact.").[12] This lack of clarity surely arises because the diminution in value
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will vary significantly from property to property — making it virtually impossible to show there is "no set of
circumstances," Salerno, 481 U.S. at 745, in which the RSL applies constitutionally.
The second Penn Central factor is the extent to which the regulation interferes with reasonable investment-
backed expectations. "The purpose of the investment-backed expectation requirement is to limit recovery to
owners who could demonstrate that they bought their property in reliance on a state of affairs that did not
include the challenged regulatory regime." Allen v. Cuomo, 100 F.3d 253, 262 (2d Cir. 1996) (internal
quotations omitted). Accordingly, the nature of each landlord's investment-backed expectations depends on
when they invested in the property and what they expected at that time. Meridien Tr. & Safe Deposit Co. v.
FDIC, 62 F.3d 449, 454 (2d Cir. 1995) ("[T]he critical time for considering investment-backed expectations
is the time a property is acquired, not the time the challenged regulation is enacted."). And the
reasonableness of these expectations will of course vary based on the state of the law when the property
was purchased, among other things. See Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1005 (1984) (the
expectation must be "reasonable," which means it "must be more than a unilateral expectation or an
abstract need") (internal quotations omitted); see also Philip Morris, Inc. v. Reilly, 312 F.3d 24, 36-37 (1st
Cir. 2002) (courts "should recognize that not every investment deserves protection and that some investors
inevitably will be disappointed").
Plaintiffs cannot make broadly applicable allegations about the investment-backed expectations of
landlords state- or city-wide. Different landlords bought at different times, and their "reliance," such as it
was, would have been on different incarnations of the RSL. See Ark. Game & Fish Comm'n v. United
States, 568 U.S. 23, 38 (2012) (noting that the reasonable investment-backed expectations analysis is
"often informed by the law in force" at the time). Even those who bought at the same time would have done
so with different expectations, including some the law still allows. Given this range of expectations — some
reasonable, others not — Plaintiffs cannot allege that the RSL frustrates the reasonable investment-backed
expectations of every landlord it affects.
Finally, Penn Central's third factor considers the "character of the taking." See Penn Central, 438 U.S. at
124 ("A taking may more readily be found when the interference with property can be characterized as a
physical invasion by government, than when interference arises from some public program adjusting the
benefits and burdens of economic life to promote the common good.") (internal citations omitted). But
Plaintiffs cannot prevail without alleging the other two Penn Central factors at the facial level. See Lingle v.
Chevron U.S.A. Inc., 544 U.S. 528, 540 (2005) ("[T]he Penn Central inquiry turns in large part, albeit not
exclusively, upon the magnitude of a regulation's economic impact and the degree to which it interferes with
legitimate property interests."). Accordingly, Plaintiffs' facial regulatory-takings claim is dismissed.
D. Post-Breach Relief Provisions
The RSL provisions that provide the most substantial basis for a facial challenge, in this Court's estimation,
are contained in New York's Real Property Actions and Proceedings Law (RPAPL) Sections 749 and 753.
As amended in 2019, these provisions dictate that even after the RSL has operated to eliminate "unjust,
unreasonable and oppressive rents," N.Y.C. Admin. Code § 26-501, the state housing courts may still stay
(for up to twelve months) the eviction of a tenant who fails to pay the reduced rent, if eviction would cause
the tenant "extreme hardship." RPAPL § 753. In making the hardship determination, "the [housing] court
shall consider serious ill health, significant exacerbation of an ongoing condition, a child's enrollment in a
local school, and any other extenuating life circumstances affecting the ability of the applicant or the
applicant's family to relocate and maintain quality of life." Id.
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These "post-breach relief" provisions are aimed at requiring particular property owners to alleviate the
hardships of particular tenants — including hardships that may arise from circumstances separate and
distinct from the dynamics of supply and demand in New York's rental housing market. That aim, while
indisputably noble, nevertheless carries a "heightened risk that private property is being pressed into some
form of public service," Lucas, 505 U.S. at 1018, and correspondingly puts more pressure on the "usual
assumption that the legislature is simply adjusting the benefits and burdens of economic life" in a way that
requires no recompense. Id. at 1017 (internal quotations omitted). Stated in terms of the current case, it can
be argued that in Sections 749 and 753, the New York State legislature is not "adjusting" the terms of a
contract between landlord and tenant in a regulated market, but rather drafting a landlord who is no longer
subject to any enforceable contract at all (because the tenant is in breach) to provide an additional benefit
— of up to one year's housing — because of the specific tenant's life circumstances.
Neither the Supreme Court nor the Second Circuit has squarely considered a regulation like the post-
breach relief provisions here, but the Supreme Court came closest in Pennell, which also involved a statute
that called on landlords to provide additional benefits on the basis of tenant "hardship." 485 U.S. 1. The City
of San Jose had adopted a rent-control ordinance listing seven factors that a "hearing officer" was required
to consider in determining the rent that a particular landlord could charge. Id. at 9. The Court described the
argument that the seventh factor — the "hardship" factor — worked a taking:
[T]he Ordinance establishes the seven factors that a hearing officer is to take into account in
determining the reasonable rent increase. The first six of these factors are all objective, and
are related either to the landlord's costs of providing an adequate rental unit, or to the
condition of the rental market. Application of these six standards results in a rent that is
"reasonable" by reference to what appellants contend is the only legitimate purpose of rent
control: the elimination of "excessive" rents caused by San Jose's housing shortage. When the
hearing officer then takes into account "hardship to a tenant" pursuant to [the seventh factor]
and reduces the rent below the objectively "reasonable" amount established by the first six
factors, this additional reduction in the rent increase constitutes a "taking." This taking is
impermissible because it does not serve the purpose of eliminating excessive rents — that
objective has already been accomplished by considering the first six factors — instead, it
serves only the purpose of providing assistance to "hardship tenants."
Id.
In response to this argument, Justice Scalia would have held that a facial taking occurred. He concluded
that in any application of the "hardship" provision, the city would not be "`regulating' rents in the relevant
sense of preventing rents that are excessive; rather, it [would be] using the occasion of rent regulation
(accomplished by the rest of the Ordinance) to establish a welfare program privately funded by those
landlords who happen to have `hardship' tenants." Id. at 22 (Scalia, J., concurring in part and dissenting in
part).
A broad majority of the Court, however, declined to reach the facial-takings question, on the basis that it
would have been "premature" to do so without record evidence that the hardship provision had ever
actually been relied on to reduce a proposed rent increase. Id. at 9-10. The majority noted that there was
nothing in the law requiring the hearing officer to reduce rents on the basis of tenant hardship, and that the
Court therefore lacked a "sufficiently concrete factual setting for the adjudication of the takings claim"
presented. Id.
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Applying Pennell's reasoning, the facial challenge to the post-breach relief provisions here, too, must be
deemed premature. Though Plaintiffs allege that application of the post-breach relief provisions is "far from
uncommon," CHIP Plaintiffs' Supplemental Memorandum of Law in Opposition to Defendants' and
Intervenors' Motions to Dismiss at 11, ECF No. 87 (quoting Elmsford Apartment Assocs. v. Cuomo, 20-cv-
4062, 2020 WL 3498456, at *4 (S.D.N.Y. June 29, 2020)), they do not argue that any named Plaintiff in this
case has been harmed by application of these provisions.
And the parties do not agree on how the provisions are likely to work in practice. Plaintiffs contend that the
statutory provision conditioning stays on the tenant depositing rent payments is illusory because the statute
provides no "enforcement mechanism" to force tenants to pay, see Pinehurst Plaintiffs' Supplemental Brief
in Opposition to Defendants' Motions to Dismiss at 3, ECF No. 65 ("Although the statute purports to require
a deposit of one year's rent as a condition of the tenant's post-breach occupancy, the statute contains no
enforcement mechanism through which a property owner can require the tenant to make that deposit.").
Defendants argue, however, that state courts do, in fact, enforce this requirement in practice, see, e.g.,
Pinehurst City Defendants' Supplemental Brief in Further Support of Their Motion to Dismiss the Complaint
at 3, 5-7, ECF No. 68. Given these factual disputes, the Court must heed the Pennell majority's admonition
to avoid decision until the provision is challenged in a "factual setting that makes such a decision
necessary." 485 U.S. at 10 (quoting Hodel, 452 U.S. at 294-95).
E. Regulatory Taking — As-Applied Challenge
Even in bringing their as-applied challenges, the Pinehurst Plaintiffs (except 177 Wadsworth LLC) must
"satisfy the heavy burden placed upon one alleging a regulatory taking." Keystone Bituminous Coal Ass'n,
480 U.S. at 493. But taking their allegations as true, certain as-applied Plaintiffs have alleged enough to
survive a motion to dismiss. Indeed, there are unanswered questions about virtually every aspect of their
claims.
Applying the first Penn Central factor, each as-applied Plaintiff alleges that the 2019 amendments
significantly diminished the value of their properties. While the extent of this diminution remains to be
determined with precision, Plaintiffs 74 Pinehurst LLC and 141 Wadsworth LLC allege that the 2019
amendments reduced the value of their regulated properties by twenty to forty percent beyond the
diminution already occasioned by the pre-2019 RSL. Pinehurst Compl. at ¶ 97. And Eighty Mulberry Realty
Corporation and the Panagouliases allege that the 2019 amendments "significantly reduced the value" of
their rent-stabilized apartments, id. at ¶ 96, which now rent for roughly half the rate of unregulated
apartments in the same building (or less), id. at ¶ 106. These alleged economic impacts, though insufficient
on their own,[13] are not so minimal to compel dismissal of the complaint at this stage.
But only two Plaintiffs (Eighty Mulberry Realty Corporation and the Panagouliases) adequately allege that
the RSL violates their reasonable investment-backed expectations in its current cumulative effect. These
Plaintiffs bought their properties at the dawn of the rent-stabilized era — either before the RSL was first
enacted (Eighty Mulberry Realty Corporation, before 1950, id. at ¶ 17) or not long thereafter (the
Panagouliases, in 1974, id. at ¶ 13). And they allege that the 2019 amendments not only frustrate their
expectation to a reasonable rate of return, but also their expectation that some units would not be (or
remain) regulated at all. Id. at ¶¶ 108-09.[14] The Panagouliases contend that the DHCR rejected their
attempt to reclaim units for personal use, which effectively prevents them from using the property for other
purposes. Id. at ¶¶ 63-64.[15] Although questions remain as to the nature and reasonableness of these
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expectations, it cannot be said, at this stage, that these allegations are inadequate. Discovery is needed to
assess these claims.
The same is not true for the other as-applied Plaintiffs, 74 Pinehurst LLC and 141 Wadsworth LLC. Unlike
Eighty Mulberry Realty Corporation and the Panagouliases, these Plaintiffs bought their properties under a
different, and more mature, version of the RSL (as in effect in 2003 and 2008, respectively, see id. at ¶¶ 14-
15).[16] By that point, the RSL had taken its basic shape and become a fixture of New York law.[17] Cf. CHIP
Compl. at ¶ 303 (the RSL was "nominally established as a temporary measure").
74 Pinehurst LLC and 141 Wadsworth LLC argue that they did not reasonably expect operating costs to
outpace rate increases. Pinehurst Compl. at ¶¶ 98, 101, 237. Nor, these Plaintiffs claim, did they expect the
repeal of luxury decontrol or vacancy, longevity, and preferential-rate increases, id. at ¶¶ 102, 104, 114,
120, 124, or the reduction of recoverable IAIs and MCIs, id. at ¶¶ 138-42.
But by the time these Plaintiffs invested, the RSL had been amended multiple times, and a reasonable
investor would have understood it could change again. Under the Second Circuit's case law, it would not
have been reasonable, at that point, to expect that the regulated rate would track a given figure, or that the
criteria for decontrol and rate increases would remain static. See, e.g., id. at ¶¶ 22, 99-100 (RGB sets
permissible rates annually based on the rent set under the RSL in 1974); id. at ¶ 38 (luxury-decontrol
introduced in 1993); CHIP Compl. at ¶ 59 (vacancy and longevity increases introduced in 1997);
Memorandum of Law in Support of Pinehurst State Defendants' Motion to Dismiss at 8, ECF No. 53 (luxury-
decontrol amended in 1997). Because these Plaintiffs made their investments "against a backdrop of New
York law" that suggested the RSL could change, see 1236 Hertel Ave., 761 F.3d at 266-67, they cannot
allege that the 2019 amendments violated their reasonable investment-backed expectations.
Finally, analysis of the RSL's "character" should be determined after discovery, when the precise effects of
the RSL on these Plaintiffs becomes clearer.
The claims brought by 74 Pinehurst LLC and 141 Wadsworth LLC are therefore dismissed, while the claims
brought by Eighty Mulberry Realty Corporation and the Panagouliases may proceed.
F. Due Process
Nor do the 2019 amendments violate the Due Process Clause of the Fourteenth Amendment. Plaintiffs
argue that the RSL is not "rationally related" to increasing the supply of affordable housing, helping low-
income New Yorkers, or promoting socio-economic diversity. Instead, they claim the law is
counterproductive: it perpetuates New York's housing crisis, and fails to target the people it claims to serve.
See CHIP Compl. at ¶¶ 70-155; Pinehurst Compl. at ¶¶ 159-88. The CHIP Plaintiffs also argue that New
York City's triennial declaration of a "housing emergency" (which triggers the RSL) itself violates due
process, because that decision is arbitrary and irrational. CHIP Compl. at ¶¶ 167-92.
In support, Plaintiffs allege that economists broadly agree that laws like the RSL do not work for their
intended purpose, and indeed may do substantially more harm than good. As one Nobel Prize-winning
economist, cited in the Pinehurst Plaintiffs' complaint, put it in discussing San Francisco's rent-stabilization
scheme:
The analysis of rent control is among the best-understood issues in all of economics, and —
among economists, anyway — one of the least controversial. In 1992 a poll of the American
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Economic Association found 93 percent of its members agreeing that "a ceiling on rents
reduces the quality and quantity of housing." Almost every freshman-level textbook contains a
case study on rent control, using its known adverse side effects to illustrate the principles of
supply and demand. Sky-high rents on uncontrolled apartments, because desperate renters
have nowhere to go — and the absence of new apartment construction, despite those high
rents, because landlords fear that controls will be extended? Predictable. . . . [S]urely it is
worth knowing that the pathologies of San Francisco's housing market are right out of the
textbook, that they are exactly what supply-and-demand analysis predicts.
Paul Krugman, Reckonings; A Rent Affair, N.Y. TIMES (June 7, 2000); see also Pinehurst Compl. at ¶ 160
(citing Krugman article).
But the Court is engaged in rational-basis review here, not strict scrutiny. See Pennell, 485 U.S. at 11-12
(considering whether a rent-control statute was "arbitrary, discriminatory, or demonstrably irrelevant to the
policy the legislature is free to adopt"); see also Lingle, 544 U.S. at 545 ("[W]e have long eschewed . . .
heightened scrutiny when addressing substantive due process challenges to government regulation"). And
in that context, the Court is bound to defer to legislative judgments, even if economists would disagree.
See, e.g., Lingle, 544 U.S. at 544-45 (disapproving of district court's assessment of competing expert
testimony on the benefits of Hawaii's rent-control statute, and stating: "The reasons for deference to
legislative judgments about the need for, and likely effectiveness of, regulatory actions are by now well
established. . . .").
Moreover, alleviating New York City's housing shortage is not the only justification of the RSL that the
legislature offered. The RSL was also intended to allow people of low and moderate income to remain in
residence in New York City — and specific neighborhoods within — when they otherwise might not be able
to. See N.Y.C. Admin. Code § 26-501 (extending the RSL to prevent "uprooting long-time city residents
from their communities"). The Supreme Court has recognized neighborhood stability and continuity as a
valid basis for government regulation. See Nordlinger v. Hahn, 505 U.S. 1, 12 (1992) ("[T]he State has a
legitimate interest in local neighborhood preservation, continuity, and stability.") (citing Village of Euclid, 272
U.S. 365). And where, as here, there are multiple justifications offered for regulation, the statute in question
must be upheld so long as any one is valid. See Preseault v. I.C.C., 494 U.S. 1, 18 (1990) ("There is no
requirement that a law serve more than one legitimate purpose."); Thomas v. Sullivan, 922 F.2d 132, 136
(2d Cir. 1990) (on rational-basis review, "we consider not only contemporaneous articulations of legislative
purpose but also any legitimate policy concerns on which the legislature might conceivably have relied").
Accordingly, the due-process challenge is dismissed.
G. Contracts Clause
The Pinehurst Plaintiffs also claim that the 2019 amendments, as applied to each of them, violate the
Contracts Clause of Article I by repealing the RSL's so-called "preferential rates" provision.[18] This
provision allowed landlords to raise rents on an expiring lease to the maximum rate that would otherwise
apply to the unit. While the preferential-rates provision existed, many landlords, including each of the
Plaintiffs here, Pinehurst Compl. at ¶ 120, allegedly offered "preferential" leases to tenants (i.e., leasing
rates discounted below even what the RGB would permit). These landlords expected, prior to repeal, that
they could raise rates significantly when a preferential lease term ended. The 2019 amendments, however,
prevent Plaintiffs from doing so by limiting future rates to the amount charged at the time the 2019
amendments were enacted (plus annual increases). See N.Y. Reg. Sess. § 6458, Part E, § 2 (2019).
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Plaintiffs claim this violates the Contracts Clause in two ways. First, they claim that it extends the duration
of all Plaintiffs' expiring, preferential leases (since now they must not only renew the lease, but also at the
same preferential rates). Second, 74 Pinehurst LLC claims that, as to it, the 2019 amendments also
required the retroactive reduction of rent — the most important term in the lease — in two particular lease
agreements that it had executed before the amendment passed.
Plaintiffs' first claim — that the 2019 amendments revise the duration of their expiring leases — is
unavailing. As applied to future renewals, "[a] contract . . . cannot be impaired by a law in effect at the time
the contract was made." Harmon, 412 F. App'x at 423. Future leases will be subject to the 2019
amendments from the onset. See 2 Tudor City Place Assocs. v. 2 Tudor City Tenants Corp., 924 F.2d 1247,
1254 (2d Cir. 1991) ("Laws and statutes in existence at the time a contract is executed are considered a
part of the contract, as though they were expressly incorporated therein.").
74 Pinehurst LLC, however, also alleges that the 2019 amendments revised the terms of two of its already
executed leases. In resolving this claim, the Court must ask three questions: "(1) is the contractual
impairment substantial and, if so, (2) does the law serve a legitimate public purpose such as remedy a
general social or economic problem and, if such purpose is demonstrated, (3) are the means chosen to
accomplish this purpose reasonable and necessary[?]" Buffalo Teachers Fed'n v. Tobe, 464 F.3d 362, 368
(2d Cir. 2006). As explained below, 74 Pinehurst LLC's claim falters at stages two and three.
74 Pinehurst LLC adequately alleges that the 2019 amendments "substantially impair" its executed leases
by affecting a critical term of their executed lease agreements — the monthly rent. Cf. id. at 368 (wage
freeze substantially impaired unions' labor contracts because compensation is "the most important
element[] of a labor contract"). But 74 Pinehurst LLC cannot surmount the second and third steps of the
Contracts Clause analysis. The legislative purposes behind the RSL are valid (as explained above). See
Sal Tinnerello & Sons, Inc. v. Town of Stonington, 141 F.3d 46, 54 (2d Cir. 1998); see also Marcus Brown
Holding Co v. Feldman, 256 U.S. 170, 198-99 (1921); Brontel, Ltd. v. City of New York, 571 F.Supp. 1065,
1072 (S.D.N.Y. 1983). And where, as here, the affected contract is between private parties, courts must
"accord substantial deference" to the legislature's conclusions about how to effectuate those purposes.
Buffalo Teachers, 464 F.3d at 369; see also Sanitation & Recycling Indus., Inc. v. City of New York, 107
F.3d 985, 994 (2d Cir. 1997). For the reasons articulated above in Section F (Due Process), the RSL
passes muster under this deferential standard. 74 Pinehurst LLC's Contracts Clause claims are, therefore,
dismissed.
III. Conclusion
For the reasons explained above, the Court grants Defendants' motions to dismiss all claims in Community
Housing Improvement Program v. City of New York (19-cv-4087). The Court also grants Defendants'
motions to dismiss all claims in 74 Pinehurst LLC v. State of New York (19-cv-6447) except the as-applied
regulatory-takings claims brought by Eighty Mulberry Realty Corporation and the Panagouliases. The
Pinehurst Plaintiffs' claims against the State of New York and the DHCR are dismissed for lack of subject-
matter jurisdiction, as are their claims for damages against DHCR Commissioner Visnauskas in her official
capacity. The Clerk of Court is respectfully directed to enter judgment and close the action in CHIP (19-cv-
4087), given that that action is now dismissed in its entirety.
SO ORDERED.
[1] The Court does not, however, consolidate the cases. Accordingly, the Court issues a separate judgment in CHIP, as directed below.
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[2] Each Pinehurst Plaintiff brings as-applied challenges under the Takings Clause and Contracts Clause except for 177 Wadsworth LLC,
which only brings an as-applied claim under the Contracts Clause.
[3] The DHCR is the New York State agency charged with overseeing and administering the RSL.
[4] The Eleventh Amendment provides: "The Judicial power of the United States shall not be construed to extend to any suit in law or
equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any
Foreign State." U.S. Const. amend. XI. Though the text does not speak to suits against states by their own residents, the Supreme Court
held in Hans v. Louisiana, 134 U.S. 1 (1890), that the amendment also generally precludes such actions in federal court.
[5] See N.Y. Const. art. I, § 7(a) ("Private property shall not be taken for public use without compensation."). No court has reached the
ultimate question of whether the Takings Clause usurps the Eleventh Amendment when no remedy is available in the state courts. Given
New York's express remedy, this Court need not reach that issue.
[6] Some have argued that this footnote proves the Takings Clause trumps sovereign immunity, insofar as it suggests sovereign immunity
does not strip the Takings Clause of its remedial nature. See, e.g., Eric Berger, The Collision of the Takings and State Sovereign
Immunity Doctrines, 63 WASH. & LEE L. REV. 493 (2006). But that reading is far from obvious, and it would, in any event, be dictum
(because the defendant in First English was a county, which cannot invoke sovereign immunity).
[7] Sovereign immunity extends to state agencies like the DHCR as well, because they are an arm of the state. See, e.g., Schiavone v.
N.Y. State Office of Rent Admin., No. 18-cv-130, 2018 WL 5777029, at *3-*4 (S.D.N.Y. Nov. 2, 2018) (Eleventh Amendment bars suit
against DHCR); Helgason v. Certain State of N.Y. Emps., No. 10-cv-5116, 2011 WL 4089913, at *7 (S.D.N.Y. June 24, 2011) (same)
report and recommendation adopted sub nom. Helgason v. Doe, 2011 WL 4089943 (S.D.N.Y. Sept. 13, 2011); Gray v. Internal Affairs
Bureau, 292 F. Supp. 2d 475, 476 (S.D.N.Y. 2003) (same).
[8] Moreover, the Eleventh Amendment does not bar Plaintiffs' Contracts Clause claims against Commissioner Visnauskas for
declaratory relief (in her official capacity) or for damages (in her personal capacity). As explained below, those claims are dismissed on
the merits, as are Plaintiffs' due-process claims against Commissioner Visnauskas for facial declaratory and injunctive relief.
[9] Plaintiffs allege that Commissioner Visnauskas was personally "charged with implementing and enforcing" certain provisions of the
RSL, including the personal-use restrictions and the MCI and IAI provisions. Pinehurst Complaint at ¶¶ 68, 127, ECF No. 1 (Pinehurst
Compl.) (citing N.Y.C. Admin. Code § 26-511(b) ("[N]o such amendments shall be promulgated except by action of the commissioner of
the division of housing and community renewal").
[10] The Supreme Court has spoken about the need for takings jurisprudence to redress this kind of incremental deprivation of property
rights. See, e.g., Lucas v. S.C. Coastal Council, 505 U.S. 1003, 1014 (1992) ("If . . . the uses of private property were subject to
unbridled, uncompensated qualification under the police power, `the natural tendency of human nature would be to extend the
qualification more and more until at last private property disappeared.'") (quoting Pa. Coal Co. v. Mahon, 260 U.S. 393, 415 (1922)).
[11] Pinehurst Compl. at ¶ 216 ("The RSL thus results in a decrease of 50 percent or more of a unit's value. The 2019 Amendments
exacerbate this decrease in value and have caused rent-stabilized apartments to lose 20 to 40 percent (or more) of their value prior to
enactment of the 2019 Amendments."); id. at ¶ 97 (the 2019 amendments "have reduced the value of the rent-stabilized buildings owned
by Plaintiffs 74 Pinehurst LLC, 141 Wadsworth LLC, [and] 177 Wadsworth LLC . . . by 20 to 40 percent"); id. at ¶ 232 (the RSL has
"decreas[ed] the resale value of Plaintiffs' properties"); CHIP Complaint at ¶ 274, ECF No. 1 (CHIP Compl.) ("The RSL's regulatory
burdens have dramatically reduced the market value of regulated properties, in some cases by over 50%"); id. at ¶ 298 ("[B]uildings
where rent stabilized units account for almost 100% of the units can expect a price per square foot . . . of two-thirds less" than buildings
where "0-20% of the units" are regulated).
[12] See also Pinehurst Compl. at ¶ 94 (comparing the average "value per square foot" of regulated and unregulated buildings); id. at ¶
101 (comparing landlords' average "operating costs" and "permitted [rate] increases"); CHIP Compl. at ¶ 273 (regulated units charge "on
average 40% lower than market-rate rents, and in some units 80% lower"); id. at ¶ 274 ("unregulated properties are typically worth 20%
to 40% more" than regulated ones), id. at ¶ 284 ("the income from non-regulated units can be as much as 60-90% higher than regulated
units").
[13] See Penn Central, 438 U.S. at 131 (citing Village of Euclid v. Ambler Realty Co., 272 U.S. 365 (1926) (75% diminution in value not a
taking); Hadacheck v. Sebastian, 239 U.S. 394 (1915) (87.5% diminution; same conclusion)); see also Concrete Pipe & Prods. of Cal.,
Inc. v. Constr. Laborers Pension Tr., 508 U.S. 602, 645 (1993) ("[M]ere diminution in the value of property, however serious, is insufficient
to demonstrate a taking.").
[14] "The 2019 Amendments further undermine the investment-backed expectations of property owners, including Plaintiffs [the
Panagouliases] and Plaintiff Eighty Mulberry [Realty] Corporation, by repealing the luxury- and high-income decontrol provisions
described above. . . . Many property owners, including Plaintiffs [the Panagoluiases] and Plaintiff Eighty Mulberry Realty Corporation,
undertook significant capital improvements, improving the quality of their units, with the expectation that the apartments could be
converted to market-rate rentals under the luxury- and high-income decontrol provisions. Repeal of the luxury- and high-income
decontrol provisions eliminated the only mechanisms to transition a rent-stabilized apartment into a market-rate rental unit. . . . The
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luxury and high-income decontrol provisions had been the law for over 25 years, and formed the backbone of property owners'
reasonable investment-backed expectations that they could eventually charge market rents for their units." Pinehurst Compl. at ¶¶ 108-
09.
[15] Cf. Yee, 503 U.S. at 528 (noting that those plaintiffs, unlike the Panagouliases, had failed to run the "gauntlet" of statutory
procedures for changing the use of their property prior to bringing their takings claim). The Panagouliases also allege that they cannot
put the property to commercial use due to zoning laws. See Pinehurst Compl. at ¶ 87.
[16] Whether the time of acquisition matters to the Penn Central inquiry appears to be subject to some debate among the Justices. See
Palazzolo, 533 U.S. at 630 (Penn Central claims are "not barred by the mere fact that title was acquired after the effective date of the
state-imposed restriction"); id. at 637 (Scalia, J., concurring) ("In my view, the fact that a restriction existed at the time the purchaser took
title . . . should have no bearing upon the determination of whether the restriction is so substantial as to constitute a taking."). But for the
moment, at least, the timing of purchase — even if not dispositive, in and of itself — remains at least significant, and the as-applied
Plaintiffs here have very different purchase profiles in that regard. See id. at 633, 635 (O'Connor, J., concurring) (the Palazzolo majority's
holding "does not mean that the timing of the regulation's enactment relative to the acquisition of title is immaterial to the Penn Central
analysis," and "does not remove the regulatory backdrop against which an owner takes title to property from the purview of the Penn
Central inquiry"); 1236 Hertel Ave. v. Calloway, 761 F.3d 252, 266-67 (2d Cir. 2014) (dismissing, despite Palazzolo, a Penn Central claim
because plaintiff acquired title after the challenged law became a "background principle of the State's law of property," which made his
expectation that the law would not change unreasonable).
[17] There were some background rent-regulation laws when Eighty Mulberry Realty Corporation and the Panagouliases bought their
properties as well. As stated above, some form of rent regulation has existed in New York City since World War I. But these were very
different regimes, and it is unclear whether and to what extent they applied to the properties at issue here.
[18] The Contracts Clause prohibits states from "pass[ing] any . . . Law impairing the Obligation of Contracts." U.S. Const. art. I, § 10, cl.
1.
Save trees - read court opinions online on Google Scholar.
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20-3366
IN THE
United States Court of Appeals
FOR THE SECOND CIRCUIT
COMMUNITY HOUSING IMPROVEMENT PROGRAM, RENT STABILIZATION
ASSOCIATION OF N.Y.C., INC., CONSTANCE NUGENT-MILLER, MYCAK
ASSOCIATES LLC, VERMYCK LLC, M&G MYCAK LLC, CINDY REALTY LLC,
DANIELLE REALTY LLC, FOREST REALTY, LLC,
Plaintiffs-Appellants,
(Caption continued on inside cover)
ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NEW YORK
BRIEF AND SPECIAL APPENDIX FOR PLAINTIFFS-APPELLANTS
d
ANDREW J. PINCUS
REGINALD R. GOEKE
MAYER BROWN LLP
1999 K Street, NW
Washington, DC 20006
(202) 263-3000
TIMOTHY S. BISHOP
MAYER BROWN LLP
71 South Wacker Drive
Chicago, Illinois 60606
(312) 782-0600
ROBERT W. HAMBURG
MAYER BROWN LLP
1221 Avenue of the Americas
New York, New York 10020
(212) 506-2500
Attorneys for Plaintiffs-Appellants
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—against—
CITY OF NEW YORK, RENT GUIDELINES BOARD, DAVID REISS, CECILIA JOZA,
ALEX SCHWARZ, GERMAN TEJEDA, MAY YU, PATTI STONE, J. SCOTT WALSH,
LEAH GOODRIDGE, SHEILA GARCIA, RUTHANNE VISNAUSKAS,
Defendants-Appellees,
N.Y. TENANTS AND NEIGHBORS (T&N), COMMUNITY
VOICES HEARD (CVH), COALITION FOR THE HOMELESS,
Intervenors.
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CORPORATE DISCLOSURE STATEMENT
Pursuant to Federal Rule of Appellate Procedure 26.1, counsel for
Plaintiffs-Appellants state that nongovernmental corporate entities
Community Housing Improvement Program, Rent Stabilization Associa-
tion of N.Y.C., Inc., Mycak Associates LLC, Vermyck LLC, M&G Mycak
LLC, Cindy Realty LLC, Danielle Realty LLC, and Forest Realty, LLC
have no parent corporation and no publicly held corporation owns 10% or
more of the stock of any of these entities.
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TABLE OF CONTENTS
Page
-i-
JURISDICTIONAL STATEMENT .......................................................... 1
STATEMENT OF THE ISSUES .............................................................. 1
STATEMENT OF THE CASE ................................................................. 1
A. The Rent Stabilization Law ................................................... 5
B. The Parties ............................................................................. 9
C. Plaintiffs’ Allegations ........................................................... 10
D. The District Court’s Decision ............................................... 13
SUMMARY OF THE ARGUMENT ....................................................... 15
STANDARD OF REVIEW...................................................................... 19
ARGUMENT .......................................................................................... 20
I. The Complaint Plausibly Alleges That The RSL Effects A
Physical Taking. ............................................................................ 20
A. The RSL Dramatically Limits Property Owners’ Rights
To Exclude Others, To Use Their Property Themselves,
To Determine The Use Of Their Property, And To
Dispose Of The Property. ..................................................... 22
B. The RSL’s Restriction Of Property Owners’ Rights
Constitutes A Physical Taking. ........................................... 26
1. Supreme Court Precedent Confirms That The
RSL Effects A Physical Taking. .................................. 27
2. The District Court Erred In Concluding That
Plaintiffs Retain Sufficient Rights To Preclude A
Physical Takings Claim .............................................. 30
C. Plaintiffs Properly Assert A Facial Challenge. ................... 34
II. Plaintiffs Plausibly Allege That The RSL Effects A
Regulatory Taking. ........................................................................ 36
A. The RSL Improperly Imposes On A Select Group A
Public Burden That Should be Borne by Society As A
Whole. ................................................................................... 37
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B. The RSL Effects A Taking Under the Multi-Factor
Regulatory Taking Standard. .............................................. 44
1. Character Of The Government Action........................ 46
2. Noxious Use ................................................................. 48
3. Direct And Substantial Economic Impact .................. 49
4. Interference With Investment-Backed
Expectations ................................................................ 51
5. Reciprocity Of Advantage ........................................... 53
C. Plaintiffs Properly Assert A Facial Challenge To The
RSL. ...................................................................................... 55
III. Plaintiffs Have Plausibly Alleged A Due Process Claim .............. 59
A. The City Council’s Rote, Triennial Conclusion That A
Housing “Emergency” Exists Exposes The RSL’s
Arbitrariness. ....................................................................... 60
B. The RSL Works Counter To Its Stated Purposes ................ 61
1. The RSL Does Not Alleviate Any Housing
Shortage ...................................................................... 61
2. The RSL Does Not Secure Housing For Low-
Income Residents ........................................................ 62
3. The RSL Does Not Address “Rent Profiteering” ........ 63
4. The RSL’s Purported Goal Of Promoting
Neighborhood Stability Cannot Withstand Due
Process Review ............................................................ 64
CONCLUSION AND RELIEF REQUESTED ....................................... 65
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iii
TABLE OF AUTHORITIES
Cases
74 Pinehurst LLC, et al. v. State of New York,
Case No. 1:19-cv-6447-EK (E.D.N.Y.) .......................................... 13, 14
Ashcroft v. Iqbal,
556 U.S. 662 (2009) ............................................................................. 19
Bell Atl. Corp. v. Twombly,
550 U.S. 544 (2007) ............................................................................. 19
Cablevision Systems Corp. v. FCC,
570 F.3d 83 (2d Cir. 2009) .................................................................. 20
Cedar Point Nursery v. Hassid,
No. 20-107 (cert. granted Nov. 13, 2020) ............................................ 21
Cienega Gardens v. United States,
331 F.3d 1319 (Fed. Cir. 2003) ............................................... 39, 40, 48
City of Los Angeles v. Patel,
576 U.S. 409 (2015) ........................................................... 34, 35, 55, 58
Dolan v. City of Tigard,
512 U.S. 374 (1994) ............................................................................. 21
Eastern Enter. v. Apel,
524 U.S. 498 (1998) ............................................................................. 59
FCC v. Florida Power Corp.,
480 U.S. 245 (1987) ....................................................................... 20, 30
Federal Home Loan Mortg. Corp. v. N.Y. State Div. of Hous.
& Cmty. Renewal,
83 F.3d 45 (2d Cir. 1996) .................................................. 31, 32, 33, 58
Goldblatt v. Hempstead,
369 U.S. 590 (1962) ............................................................................. 48
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Greystone Hotel Co. v. City of New York,
98-9116, 1999 U.S. App. LEXIS 14960 (2d Cir. June 23,
1999) ........................................................................................ 31, 32, 58
Hadacheck v. Sebastian,
239 U.S. 394 (1915) ............................................................................. 48
Harmon v. Markus,
412 F. App’x 420 (2d Cir. 2011) .............................................. 31, 32, 33
Hodel v. Irving,
481 U.S. 704 (1987) ....................................................................... 51, 55
Horne v. Department of Agriculture,
576 U.S. 350 (2015) ................................................................. 32, 33, 52
Kaiser Aetna v. United States,
444 U.S. 164 (1979) ........................................................... 16, 21, 27, 31
Keystone Bituminous Coal Ass’n v. DeBenedictis,
480 U.S. 470 (1987) ............................................................................. 47
Knick v. Township of Scott,
139 S. Ct. 2162 (2019) ......................................................................... 34
Lingle v. Chevron U.S.A., Inc.,
544 U.S. 528 (2005) ................................................................. 44, 45, 46
Loretto v. Teleprompter Manhattan CATV Corp.,
458 U.S. 419 (1982) ..................................................................... passim
Lucas v. S.C. Coastal Council,
505 U.S. 1003 (1992) ........................................................................... 44
Monongahela Navigation Co. v. United States,
148 U.S. 312 (1893) ............................................................................. 54
Murr v. Wisconsin,
137 S. Ct. 1933 (2017) ................................................................... 37, 44
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Page(s)
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Nollan v. California Coastal Comm’n,
483 U.S. 825 (1987) ............................................................................. 21
Palazzolo v. Rhode Island,
533 U.S. 606 (2001) ..................................................................... passim
Palin v. N.Y. Times Co.,
940 F.3d 804 (2d Cir. 2019) ................................................................ 19
Penn Central Transportation Co. v. New York City,
438 U.S. 104 (1978) ..................................................................... passim
Pennell v. City of San Jose,
485 U.S. 1 (1988) ......................................................................... passim
Pennsylvania Coal Co. v. Mahon,
260 U.S. 393 (1922) ..................................................................... passim
Rent Stabilization Association v. Dinkins,
5 F.3d 591 (2d Cir. 1993) .................................................................... 58
In re Santiago-Monteverde,
24 N.Y.3d 283 (2014) ...................................................................... 4, 42
Seawall Assocs. v. City of New York,
542 N.E.2d 1059 (N.Y. 1989) .............................................................. 31
United States v. Causby,
328 U.S. 256 (1946) ................................................................. 21, 28, 31
United States v. Salerno,
481 U.S. 739 (1987) ....................................................................... 34, 35
United States v. Stevens,
559 U.S. 460 (2010) ............................................................................. 35
Village of Euclid v. Ambler Realty Co.,
272 U.S. 365 (1926) ............................................................................. 48
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(continued)
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W. 95 Hous. Corp. v. N.Y.C. Dep’t of Hous. Pres. & Dev.,
31 F. App’x 19 (2d Cir. 2002) .................................................. 31, 32, 58
Washington v. Glucksberg,
521 U.S. 702 (1997) ............................................................................. 59
Windsor v. United States,
699 F.3d 169 (2d Cir. 2012) ................................................................ 60
Yee v. City of Escondido,
503 U.S. 519 (1992) ..................................................................... passim
Statutes, Rules and Regulations
9 NYCRR §2524.3 ...................................................................................... 7
9 NYCRR §2524.5 .................................................................................... 25
28 U.S.C. §1291 ......................................................................................... 1
28 U.S.C. §1331 ......................................................................................... 1
28 U.S.C. §1343(a)(3) ................................................................................. 1
Fed. R. Civ. P. 8(a) ................................................................................... 57
Fed. R. Civ. P. 12(b)(6) ............................................................................ 19
N.Y.C. Admin. Code §26-504(a)(1) .......................................................... 50
N.Y.C. Admin. Code §26-511(c)(12)(f) ..................................................... 24
N.Y.C. Admin Code §26-513 .................................................................... 51
N.Y. Real Prop. Law §339-g .................................................................... 51
N.Y. Real Prop. Law §339-h .................................................................... 51
N.Y. Real Prop. Law §339-y(1)(a) ........................................................... 51
N.Y. UNCONSOL.LAW tit. 23 §8622 ......................................................... 52
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N.Y. UNCONSOL.LAW tit. 23 §26-501 et seq. ............................................. 5
N.Y. UNCONSOL.LAW tit. 23 §§8621 et seq. .............................................. 6
N.Y. UNCONSOL.LAW tit. 23 §8623.a ......................................................... 6
N.Y. UNCONSOL.LAW tit. 23 §8625 ......................................................... 51
N.Y.UNCONSOL.LAW tit. 23 §8626 .......................................................... 51
N.Y. UNCONSOL. Law tit. 23 §26-510(b) ............................................ 40, 41
N.Y.UNCONSOL.LAW tit. 23 §26-512(b) .................................................. 51
NYCRR §2520.6(o) .................................................................................. 23
NYCRR §2523.5(b)(1) ............................................................................. 23
Second Circuit Local Rule 32.1.1(a) ........................................................ 32
Other Authorities
NYC Rent Guidelines Board, 2020 Income and Affordability
Study 12 (Apr. 30, 2020),
https://rentguidelinesboard.cityofnewyork.us/wp-
content/uploads/2020/04/2020-IA.pdf ................................................. 41
Thomas W. Merrill, The Character of the Governmental
Action, 36 Vt. L. Rev. 649 (2012) ........................................................ 47
Thomas W. Merrill, Property and the Right to Exclude, 77
Neb. L. Rev. 730 (1998) ....................................................................... 27
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JURISDICTIONAL STATEMENT
The District Court had subject-matter jurisdiction over this action
pursuant to the Supremacy Clause of the United States Constitution,
Art. VI, Clause 2, and 28 U.S.C. §§1331 and 1343(a)(3). The District
Court issued a decision granting Defendants-Appellees’ (“Defendants”)
motions to dismiss on September 30, 2020, and entered final judgment in
favor of Defendants on the same day. Plaintiffs-Appellants (“Plaintiffs”)
timely filed a notice of appeal on October 2, 2020. This Court has appel-
late jurisdiction under 28 U.S.C. §1291.
STATEMENT OF THE ISSUES
1.Whether the District Court erred in concluding that Plaintiffs failed
to plausibly allege that the RSL effects a physical taking.
2.Whether the District Court erred in concluding that Plaintiffs failed
to plausibly allege that the RSL effects a regulatory taking.
3.Whether the District Court erred in concluding that Plaintiffs failed
to plausibly allege that the RSL violates due process.
STATEMENT OF THE CASE
This action challenges the constitutionality of the New York Rent
Stabilization Law (“RSL”), which has been described by state legislators
as the most stringent rent regulation scheme “in history.” JA-50 ¶65.
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The RSL governs nearly one million apartments in New York City.
These apartments are not designated for low- or middle-income families,
but rather are available to any tenant lucky enough to find one—the res-
idential equivalent of a winning lottery ticket. The RSL transfers from
the property owner to the tenant a de facto ownership interest in that
property.
The tenant is entitled to lease renewals in perpetuity, with rent in-
creases capped at levels that fail to cover owners’ cost increases—because
the rate-setting board is required to take account of factors related to the
tenants’ ability to pay. The tenant can be ousted only for failing to pay
rent, materially breaching a lease, or engaging in unlawful or harmful
conduct. And the tenant’s property right to perpetual renewals can be
transferred to “successors,” such as family members, caregivers, or room-
mates. A property owner’s right to deny lease renewals in order to recover
the property for herself is severely limited: it is available for only one
stabilized unit per building, and then only if that unit is to be used as the
owner’s primary residence and upon showing immediate and compelling
need.
Moreover, owners are barred from converting their property to
rentals used for commercial purposes; cannot demolish the building and
replace it with a new structure without overcoming substantial barriers,
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including significant payments to existing tenants; cannot refuse to re-
new leases in order to leave the building vacant, unless it is already in
disrepair and uninhabitable; and cannot convert the building to a condo-
minium or cooperative unless a majority of the tenants agree.
Formerly, the RSL contained mechanisms for de-regulating units,
for example, where a tenant’s income reached high levels. It also permit-
ted conversions to condominium or cooperative without majority consent
of tenants. The legislature removed those mechanisms in 2019, in its
words “to serve the public interest” by preventing “the loss of vital and
irreplaceable affordable housing.”
The RSL’s very substantial intrusion on owners’ property rights
takes private property for public use without just compensation, in viola-
tion of the Takings Clause of the Fifth Amendment, because it “forc[es]
some people alone to bear public burdens which, in all fairness and jus-
tice, should be borne by the public as a whole.” Palazzolo v. Rhode Island,
533 U.S. 606, 617-18 (2001). That is true for three independent reasons.
First, the RSL effects a physical taking of regulated owners’ prop-
erty by depriving owners of multiple fundamental property rights: the
right to determine who may occupy the property and who is excluded, the
right to occupy the property themselves, and the right to determine the
use of the property.
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4
Second, the RSL imposes upon owners of regulated property a bur-
den that “in all fairness and justice, should be borne by the public as a
whole” by requiring rent adjustments to be based not only on objectively
determined increases in operating costs, but also on RSL tenants’ ability
to pay. Id. As New York’s highest court put it, “[r]ent stabilization pro-
vides assistance to a specific segment of the population that could not
afford to live in New York City without a rent regulatory scheme.” In re
Santiago-Monteverde, 24 N.Y.3d 283, 290 (2014). And Justices Scalia and
O’Connor determined that a law setting maximum rent levels based on
tenant hardship effects a taking. See Pennell v. City of San Jose, 485 U.S.
1, 22 (1988) (concurring in part and dissenting in part).
Third, the RSL effects a regulatory taking under the applicable
multi-factor balancing test. The law (1) authorizes a physical invasion of
owners’ property and deprives owners of multiple property rights to use
and dispose of the property; (2) does not address a noxious use; (3) does
not create a reciprocity of advantage for the owners burdened by the reg-
ulations; and (4) imposes a substantial economic burden on property own-
ers—a burden that interferes with owners’ investment-backed expecta-
tions.
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Finally, the RSL is arbitrary and irrational in violation of the Four-
teenth Amendment’s Due Process Clause, because its “means” (the as-
signment of property benefits to random New Yorkers) is not related in
any rational way to a legitimate government interest. Because the RSL’s
benefits are not targeted to low-income tenants and incentivize tenants
to remain in and strategically “bequeath” regulated units, it decreases,
rather than increases, the housing supply in New York City and does not
further any interest in providing housing to low- or middle-income New
Yorkers.
A.The Rent Stabilization Law
Plaintiffs’ complaint (the “Complaint”) explains the relevant provi-
sions, history, and application of the RSL. JA-41-53; 92-113; 126-32 ¶¶40-
69, 202-272, 308-331. Plaintiffs do not repeat that entire discussion here,
but rather identify the key features of the RSL scheme.1
1 The RSL, first enacted in 1969, has been amended on multiple occa-
sions, culminating in the recent amendments in the Housing Stability
and Tenant Protection Act in June 2019 (the “HSTPA” or “2019 Amend-
ments”). The RSL is codified in several places, including the administra-
tive code for the City of New York §26-501 et seq. (also published as N.Y.
UNCONSOL.LAW tit. 23 §26-501 et seq. (McKinney) (constituting the Rent
Stabilization Law of 1969), and section 4 of chapter 576 of the laws of
1974 (constituting the Emergency Tenant Protection Act of 1974),
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The RSL permits a city to find a “public emergency requiring the
regulation of residential rents” if the city’s vacancy rate is 5% or less.
N.Y. UNCONSOL.LAW tit. 23 §8623.a (McKinney). The statute requires a
city to make that determination based on the “supply” and “condition” of
housing accommodations within the city, and “the need for regulating
and controlling residential rents within such city.” Id.
Without identifying or applying any standard other than the 5%
vacancy threshold (which authorizes the City to declare an emergency if
that determination is warranted by other articulated factors), New York
City has reflexively declared an emergency every three years for the past
50 years. JA-80-88 ¶¶167-192.2
Upon declaration of emergency, the RSL severely restricts property
owners’ rights to use, occupy, and dispose of rent-stabilized property.
which is found in Chapter 249-B of the Unconsolidated Laws (also pub-
lished in N.Y. UNCONSOL.LAW tit. 23 §§8621 et seq. (McKinney)). These
laws are referred to, collectively, as the RSL.
2 The RSL applies to buildings constructed before January 1, 1974, and
containing more than five apartments—Plaintiffs are owners (and asso-
ciations comprised of owners) of such buildings. JA-34-36 ¶¶16-24. Build-
ings can be subject to the RSL for other reasons not at issue here, includ-
ing those constructed under certain tax-benefit programs.
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The RSL mandates renewal of a rent-stabilized tenant’s lease ex-
cept in circumstances solely within the tenant’s control, such as the ten-
ant’s failure to pay rent or use of a unit for an illegal purpose. 9 NYCRR
§§2524.3. When a new lease term begins, the RSL forbids the property
owner from increasing rent beyond the percentage set by the Rent Guide-
lines Board (“RGB”). By the RGB’s own estimates, over the last 20 years,
property owners’ operating costs have increased at twice the rate of
RGB-allowed rent increases. See JA-119-20 ¶291-92.
The RSL, as amended in 2019 by the HSTPA, also deprives owners
of the right to refuse a lease renewal in order to occupy a stabilized unit
for their own use. Under the new law, an owner can recover possession of
one tenant-occupied unit in their own building for such purposes. JA-98
¶223. Even then, the owner must prove an “immediate and compelling
necessity for the unit,” a standard that has proven exceedingly difficult
to satisfy in practice. JA-98; 104 ¶¶223 & 241-43. And if the tenant has
lived in the unit for 15 years or more, recovering possession of that unit
requires the owner to find the tenant an equivalent accommodation at
the same stabilized rent in a nearby neighborhood, a near-impossible
feat. JA-98-102 ¶¶224-35
The RSL imposes additional restrictions on the owners’ use of their
property. For instance, owners cannot recover regulated units where the
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tenant or her spouse is sixty-two years of age or older or has physical or
psychological impairments. JA-103 ¶238-39. Owners cannot withdraw
their buildings from the rental market to rent those buildings for non-
residential purposes, nor can they withdraw their property entirely from
the rental market, unless the cost of making it habitable exceeds its value
or they seek to use the building for their own (non-rental) business. JA-
106-09 ¶¶248-56. An owner who wishes to demolish a property must pay
to relocate regulated tenants. Id.
The 2019 HSTPA made permanent a property’s rent-stabilized sta-
tus, repealing the law’s “sunset” provision and the few avenues through
which a property owner might remove a stabilized unit from the RSL’s
restrictions. JA-50-52 ¶68. It repealed Luxury Decontrol, which excluded
a vacant unit from stabilization if the rent exceeded a specified amount
($2,000 in 1993, $2,500 in 2011, and $2,700 in 2015). JA-44 ¶50. The
HSTPA also repealed High-Income Decontrol, which excluded an occu-
pied unit from stabilization if the rent exceeded the Luxury Decontrol
amount and the tenants earned $250,000 (later reduced to $200,000) an-
nually. JA-44 ¶51.
The HSTPA also effectively precludes the conversion of a stabilized
building into a cooperative or condominium: A conversion may proceed
only if a majority of tenants commit in writing to purchase a unit, which
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almost certainly would never happen because the RSL guarantees ten-
ants subsidized, below-market rents in perpetuity. JA-51-52 ¶68(d).
B.The Parties
Plaintiffs Community Housing Improvement Program (“CHIP”)
and Rent Stabilization Association of N.Y.C., Inc. (“RSA”) are not-for-
profit trade associations whose members include more than 25,000 man-
aging agents and property owners of both rent-stabilized and non-rent-
stabilized properties in New York. JA-34-35 ¶¶16-17.
Plaintiffs Constance Nugent-Miller, Mycak Associates LLC, Ver-
myck, LLC, M&G Mycak LLC, Cindy Realty LLC, and Danielle Realty
LLC, are individual owners of New York City residential apartment
buildings subject to the RSL. JA-35-36 ¶¶18-24.
The RSL is authorized by State law—the Emergency Tenant Pro-
tection Act of 1974—which enables New York City to declare an “emer-
gency” requiring the continued regulation of residential rents through
the RSL. Ruthanne Visnauskas is the Commissioner of the New York
State Division of Housing and Community Renewal (“DHCR”). DHCR
(through its Office of Rent Administration-ORA) oversees the admin-
istration of the rent stabilization regime in the City of New York. JA-36-
37 ¶29.
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The New York City RGB is the government agency that determines
the adjustment, if any, to stabilized rents upon lease renewal or vacancy.
David Reiss is a member and chair of the RGB, and the Board’s other
members are Cecilia Joza, Alex Schwarz, German Tejada, May Yu, Patti
Stone, J. Scott Walsh, Leah Goodridge, and Sheila Garcia. JA-36
¶¶26-28.
N.Y. Tenants and Neighbors (T&N), and Community Voices Heard
(CVH) are tenant groups that have intervened as defendants. Coalition
for the Homeless is an advocacy group that has likewise intervened.
C.Plaintiffs’ Allegations
Plaintiffs filed this action on July 15, 2019, asserting a facial con-
stitutional challenge to the RSL on three grounds: the RSL (1) effects a
physical taking, (2) effects a regulatory taking, and (3) violates substan-
tive due process.
The Complaint sets forth detailed allegations explaining that the
RSL was originally predicated upon a housing “emergency” created by
soldiers returning from World War II, and subsequently on an “acute
shortage of housing accommodations” that is not attributed to any par-
ticular cause. JA-56 ¶¶77-78. The “emergency” justifying the continued
existence of the RSL is tied (arbitrarily) to a vacancy rate of 5% or less,
and its proponents credit the scheme for providing housing to low-income
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New Yorkers, reducing homelessness, and maintaining cultural, racial,
and socio-economic diversity in the City. JA-56-57 ¶79.
But data show that the RSL does not target its benefits to tenants
in need of a rent subsidy or prevent high-income tenants from taking ad-
vantage of them (JA-58-64 ¶84-109), or promote diversity (JA-64-65
¶¶110-13), or increase the stock of affordable housing (JA-65-73 ¶¶114-
41). In fact, it does the opposite, by depressing the vacancy rate (id.), de-
terring the development of additional housing (JA-66-70 ¶¶118-30), cre-
ating higher rents in the unregulated market (JA-75 ¶151), and reducing
property tax revenue for the City (JA-75 ¶153)—revenue that might be
used for alternative government programs that actually address afforda-
ble housing, like direct subsidies to low-income tenants, tax abatements,
or construction projects (JA-76-80 ¶¶156-66).
The Complaint further alleges that the RSL eviscerates property
owners’ right to exclude individuals from their property—often complete
strangers to the owners who have been afforded tenancy through “suc-
ceeding” to a former tenant’s rights. JA-92-95 ¶¶202-212. Owners have
no meaningful avenues for relief from this physical occupation: the few
exceptions to an owners’ obligation to renew the leases of regulated ten-
ants, such as recovery of units for personal use, removal of property from
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the rental market, conversion of buildings to other uses, demolition, and
eviction are so limited as to be illusory. JA-95-97 ¶¶214-20.
The Complaint also alleges that the RSL provides a public assis-
tance benefit that is paid for by a subset of private property owners in
New York, for whom annual rent increases (if any) permitted by the RGB
fail to keep pace with increased operating costs. JA-119 ¶¶290-91; Chart
1 (illustrating cost increases from 1999-2018 as compared with allowable
rent increases).
The RSL’s web of restrictions severely diminishes the value of sta-
bilized properties: An analysis of properties sold in 2016 shows that prop-
erties with predominantly stabilized units were worth half as much as
those with predominantly non-regulated units. JA-121 ¶297. In fact, the
data show a linear relationship between per-square foot value of a build-
ing based on the percent of the building’s units that are rent-stabilized.
JA-121-22 ¶298 & Chart 2. At the extremes, the data show that buildings
where rent-stabilized units account for almost 100% of the units can ex-
pect a price per square foot ($200-300/square foot) that is two-thirds less
than the price per square foot of buildings where rent-stabilized units
account for 0-20% of the units ($800-900/square foot). Id.
The New York City Department of Finance’s own assessment of
property values confirms the reduced value of stabilized properties. JA-
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122-24 ¶¶299-301. As just one example, the Finance Department’s As-
sessment Guidelines for assessing property values acknowledge that sta-
bilized properties in Manhattan are worth half that of unregulated prop-
erties. JA-123-24 ¶301. (As a result, the New York Department of Fi-
nance estimates that in Manhattan, the property tax receipts from
non-regulated units can be as much as 60-90% higher than regulated
units built before 1973. JA-118 ¶284.)
And these diminutions in value preceded the 2019 HSTPA, which
further reduced the value of stabilized properties by, inter alia, effec-
tively preventing deregulation and reclamation stabilized units by own-
ers, and by removing the few avenues to secure a rent increase greater
than the minimal increase permitted by the RGB.
Plaintiffs seek only declaratory and injunctive relief; they do not
assert a claim for damages. JA-66-67 at 119-20.
D.The District Court’s Decision
Defendants and Intervenors moved to dismiss the Complaint for
failure to state a claim.
On September 30, 2020, the District Court issued an opinion grant-
ing the motions.3 The court first observed that “[n]o precedent binding on
3 The opinion below also resolved motions to dismiss in another case, 74
Pinehurst LLC, et al. v. State of New York, Case No. 1:19-cv-6447-EK.
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this Court has ever found any provision of a rent-stabilization statute to
violate the Constitution, and even if the 2019 amendments go beyond
prior regulations, it is not for a lower court to reverse this tide.” JA-512
(quotation omitted).
The court dismissed Plaintiffs’ physical takings claims principally
on the ground that, because Plaintiffs “continue to possess the property
(in that they retain title), and they can dispose of it (by selling),” Plaintiffs
could not establish a physical taking. JA-524.
In dismissing Plaintiffs’ regulatory takings claim, the District
Court focused primarily on the facial nature of the challenge. It stated
that “[s]imply to apply these ‘ad hoc’ factors to the instant facial challenge
is to recognize why the RSL is not generally susceptible to such review.”
JA-530. The court recognized that the “character of the taking” applied
similarly to all RSL properties. JA-532. But it went on to state that, “at
best, Plaintiffs can make vague allegations about the average diminution
That action remains pending below because the District Court denied the
74 Pinehurst defendants’ motion to dismiss an as-applied takings claim.
The 74 Pinehurst plaintiffs moved for entry of final judgment as to the
other claims in that action, and on November 19, 2020, the district court
denied the 74 Pinehurst plaintiffs’ motion. ECF No. 96 in Case No. 1:19-
cv-6447. (The sovereign immunity issue addressed by the district court is
relevant only to the 74 Pinehurst action.)
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in value across regulated properties” (JA-530-31) and that “Plaintiffs can-
not make broadly applicable allegations about the investment-backed ex-
pectations of landlords state- or city-wide” (JA-532).
With respect to Plaintiffs’ due process claim, the District Court
acknowledged Plaintiffs’ arguments that the RSL does nothing to in-
crease the housing supply, and instead contributes to deteriorating hous-
ing stock and increased rental prices across swaths of New York apart-
ments. JA-544. But it stated that it was “engaged in rational-basis review
here, not strict scrutiny,” and therefore, “the Court is bound to defer to
legislative judgments, even if economists would disagree.” Id.
SUMMARY OF THE ARGUMENT
The Complaint’s allegations support four independent claims that
the RSL violates the federal Constitution. The District Court therefore
erred in granting dismissal.
To begin with, the RSL effects a physical taking. The Supreme
Court has made clear that when the government compels the non-con-
sensual occupation of private property it has engaged in a per se taking.
That is because a property owner’s right to exclude others is “one of the
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most essential sticks in the bundle of rights that are commonly charac-
terized as property.” Kaiser Aetna v. United States, 444 U.S. 164, 176
(1979).
The RSL largely eliminates owners’ right to exclude. It requires
owners to renew the leases of tenants, and a class of tenants’ “successors,”
in perpetuity. The RSL also restricts the ability of owners to change the
use of their property, demolish an existing structure to—for example—
construct a larger building with more apartments, occupy the property
themselves, withdraw their property from the rental market, or dispose
of it altogether. That very substantial interference with the owner’s phys-
ical control of her property constitutes a per se taking.
Yee v. City of Escondido, 503 U.S. 519 (1992), confirms that conclu-
sion. Yee involved a physical takings challenge to a law that set maxi-
mum rent levels in mobile home parks and also prohibited owners from
terminating tenancies where the initial tenant transferred her rights to
another individual. The Court held that the law did not effect a physical
taking because a property owner “who wishes to change the use of his
land may evict his tenants albeit with 6 or 12 months’ notice”—and that
“[a] different case would be presented” if a law compelled the owner to
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continue renting the property. Id. at 527-28. The RSL presents that “dif-
ferent case,” because it makes it virtually impossible for an owner to
change the property’s use. Indeed, the HSTPA was enacted expressly to
“ensure that rent stabilized apartments remain rent stabilized,” and to
“protect [the] regulated housing stock.” JA-50 ¶¶65-66.
Second, the RSL effects a regulatory taking because it requires the
RGB to consider factors related to the tenants’ ability to pay in setting
maximum rent levels. That singles out RSL owners “alone to bear [a]
public burden[] which, in all fairness and justice, should be borne by the
public as a whole” (Palazzolo, 533 U.S. at 617-18).
Justices Scalia and O’Connor reached that conclusion in Pennell.
They explained that “traditional land use regulation” is permissible “be-
cause there is a cause-and-effect relationship between the property use
restricted by the regulation and the social evil that the regulation seeks
to remedy.” 485 U.S. at 19-20. By contrast, setting rates based on tenants’
ability to pay “meet[s] a quite different social problem: the existence of
some renters who are too poor to afford even reasonably priced hous-
ing”—and “that problem is no more caused or exploited by landlords than
it is by the grocers who sell needy renters their food, or the department
stores that sell them their clothes.” Id. at 21.
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Third, the RSL also effects a regulatory taking under the multi-fac-
tor test recognized by the Supreme Court in a number of cases, including
Penn Central Transportation Co. v. New York City, 438 U.S. 104, 124
(1978). Each relevant factor weighs in favor of finding a taking: the gov-
ernment action (1) compels an unconsented physical intrusion on the
property and eliminates other property rights; (2) does not address a nox-
ious or inappropriate use; (3) provides no reciprocal advantage to RSL
property owners; (4) significantly reduces the value of RSL-regulated
properties; and (5) interferes with owners’ investment-backed expecta-
tions.
The District Court concluded that the regulatory takings claims
could not be asserted on a facial basis. But the Supreme Court has upheld
facial regulatory takings claims, and here the majority of the factors (na-
ture of the intrusion, lack of noxious use, absence of a reciprocal ad-
vantage) apply across the board. While the precise amount of diminution
in value may vary among the properties, the Complaint alleges that all
properties have suffered a diminution in value that is sufficient to estab-
lish a taking, given that the other factors weigh heavily in favor of a tak-
ing.
Finally, the RSL violates due process. Even under rational basis
review, the means employed in the RSL are not rationally related to a
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legitimate government interest. Regulated apartments are rented to ten-
ants without regard to income or wealth and therefore the RSL does not
promote housing for low- and middle-income families. And the RSL pre-
vents construction of additional apartments on regulated properties and
does not alleviate—but rather exacerbates—a housing shortage, in-
creases rents for non-regulated properties and thus does not prevent un-
justifiably high rents, and any claimed enhancement of “neighborhood
stability” rings hollow in light of tenants’ ability to pass along their rights
to successors.
STANDARD OF REVIEW
This Court reviews de novo the District Court’s dismissal for failure
to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6),
accepting all well-pleaded factual allegations as true and drawing all
inferences in favor of Plaintiffs. Palin v. N.Y. Times Co., 940 F.3d 804,
809 (2d Cir. 2019). “To survive a motion to dismiss, a complaint must
contain sufficient factual matter, accepted as true, to ‘state a claim to
relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
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ARGUMENT
I.The Complaint Plausibly Alleges That The RSL Effects A
Physical Taking.
A government-authorized physical, non-consensual occupation of
private property, even if minor, constitutes a compensable taking. Loretto
v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 421 (1982); see
also Cablevision Systems Corp. v. FCC, 570 F.3d 83, 98 (2d Cir. 2009)
(“required acquiescence” by property owner to invasion by “interloper
with a government license” is the “touchstone” of physical taking) (quot-
ing FCC v. Florida Power Corp., 480 U.S. 245, 252-53 (1987)).
The Loretto Court held that a New York City law authorizing the
installation of cable wiring and equipment on apartment buildings with-
out the consent of the building owners constituted a per se physical tak-
ing. 458 U.S. 421-23. Though the intrusion in Loretto was minor, and the
law that authorized it served a “legitimate public purpose,” the Court
found a physical taking because the law “effectively destro[yed]” owners’
rights “to possess, use, and dispose of” their property—including by deny-
ing owners the “power to exclude the occupier from possession and use of
the space.” Id. at 427, 435.
Loretto involved a permanent occupation of the property, but the
Supreme Court has made clear that that a government regulation can
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effect a physical taking even though it does not authorize a permanent
occupation. In United States v. Causby, 328 U.S. 256, 262 (1946), the
Court held that plane flights at low altitudes effected a physical taking
even though the owner remained in possession of the property and “en-
joyment and use of the land are not completely destroyed.” Similarly,
easements granting a right of public access to private property constitute
a physical taking, because they deprive the property owner of “one of the
most essential sticks in the bundle of rights that are commonly charac-
terized as property—the right to exclude others.” Kaiser Aetna, 444 U.S.
at 176; accord, Dolan v. City of Tigard, 512 U.S. 374, 393 (1994); Nollan
v. California Coastal Comm’n, 483 U.S. 825, 831 (1987).4
The physical intrusion authorized by the RSL constitutes a per se
physical taking under these precedents.
4 The Supreme Court recently granted certiorari in Cedar Point Nursery
v. Hassid, No. 20-107 (cert. granted Nov. 13, 2020), to review the Ninth
Circuit’s holding that an access easement cannot constitute a per se phys-
ical taking. The court of appeals determined that the per se rule applies
only if the property is continuously occupied by the government-author-
ized intruder.
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A.The RSL Dramatically Limits Property Owners’ Rights
To Exclude Others, To Use Their Property Themselves,
To Determine The Use Of Their Property, And To Dis-
pose Of The Property.
The RSL’s limitation of property rights is far more substantial and
invasive than many of the government-authorized intrusions held to con-
stitute physical takings. Put simply, once a tenant enters a term lease,
he or she can stay for a lifetime—and the tenancy can be passed on to
successors who are strangers to the owner, even after the tenant’s death.
The RSL thus effectively precludes property owners from controlling who
occupies their property. It also effectively bars them from occupying the
property themselves, and from changing the use of their property, and
significantly limits the owner’s ability to dispose of the property. That
very significant interference with the owner’s physical control of his or
her property constitutes a per se taking.
First, the RSL effectively eliminates an owner’s right to determine
who may occupy the property after it is first rented. Owners are almost
always obligated to offer renewal leases to regulated tenants. An owner
may terminate a regulated tenancy only in the narrowest of circum-
stances: when the tenant fails to pay rent, violates a material term of a
lease agreement, creates a nuisance, or uses the apartment for unlawful
purposes. Even if one of these termination events occurs, an owner is still
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precluded from regaining control of the unit if another person occupying
the apartment—even an individual not on the lease—wishes to remain
in the unit (in those instances, the remaining party is entitled to a new
lease in their own name). JA-48-49; 90; 92 ¶¶61; 197; 202-203;
pages 7-18, 11-12, supra.5
Moreover, complete strangers to the property owner can “succeed”
to an RSL tenant’s right to occupy the property if the tenant vacates the
property. Successors may include “any member” of the “tenant’s family”
who has lived in the apartment for at least two years (one year in the
case of senior citizens or disabled persons), a group that extends well be-
yond the tenant’s immediate family to grandparents, grandchildren, and
in-laws. NYCRR §§2523.5(b)(1), 2520.6(o). The RSL also grants succes-
sorship rights to “[a]ny other person residing with the tenant as a pri-
mary or principal residence” so long as there is “emotional and financial
interdependence” between the tenant and the person—determined ac-
cording to a pliable standard involving eight non-exclusive factors. Id.
§2520.6(o)(2); see also JA-92-93 ¶¶204-07; pages 7-8, 11-12, supra.
5 Moreover, pursuant to the HSTPA, even an evictable tenant may now
remain in their unit up to one year after a court determines that the
tenant breached the lease—a finding that often comes months after the
violation. JA-96 ¶218.
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Once a successor takes over a regulated unit, she may pass on the
renewal right to any other successor—such that an unlimited number of
persons with no relationship to the original tenant (and who are
strangers to the owner) enjoy the right to occupy a rent-stabilized apart-
ment once it has been rented. See JA-93-94 ¶¶207-09.6
Second, the RSL prevents an owner from possessing and using her
own property. An owner’s right to refuse to renew a lease to reclaim a
unit for personal use is limited to only a single unit, regardless of the
number of apartments in a building. Even that right is severely limited.
It can only be invoked if the unit will be used as the owner’s a primary
residence, and if the owner proves that he or she has an “immediate and
compelling necessity”—a demanding standard. And, if the unit is occu-
pied by a tenant who has lived in the unit for at least 15 years, the owner
must find equivalent or superior housing for the tenant in a nearby
neighborhood at the same stabilized price. Moreover, if two or more
individuals own a building, only one owner can recover the single unit.
And persons who own regulated apartments through business entities—
6 Compounding this interference with the owner’s right to exclude, the
original tenant and each successor tenant has the right to sublet the
apartment to third parties for two out of any four years. See N.Y.C. Ad-
min. Code §26-511(c)(12)(f); JA-94 ¶¶210-11.
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which is the case for a most apartments—are categorically ineligible to
recover units for personal use. JA-97-99; 102-04 ¶¶221-26 & 237-44.
These restrictions effectively prohibit an owner from gaining possession
of her own property.
Third, owners lack practical options to remove their property from
RSL regulation—once an apartment is rented, it almost always will re-
main subject to the RSL in perpetuity. Indeed, a stated “goal” of the re-
cently-enacted HSTPA was to “protect [the government’s] regulated
housing stock,” to “help prevent the loss of thousands of units of
affordable housing by making it harder to deregulate rent-stabilized
units,” and to “ensure that rent stabilized apartments remain rent
stabilized.” JA-50 ¶¶65, 66.
Thus, the RSL prohibits owners from converting regulated residen-
tial units to commercial rentals: a building may be withdrawn from RSL
regulation only if the owner proves that he or she “seeks in good faith to
withdraw any or all housing accommodations from both the housing and
nonhousing rental market without any intent to rent or sell any part of
the land or structure.” NYCRR §2524.5 (emphasis added). In other words,
the RSL is inapplicable only if the owner will use the entire building for
his or her own purposes. Moreover, owners cannot:
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demolish their buildings without finding every regulated
tenant suitable housing (i.e., in the same area at the same or
lower rent) and paying relocation expenses and $5,000
stipend (JA-107-09 ¶¶253-55);7 or
refuse to renew a lease in order to withdraw their units from
the rental market and leave them vacant, unless the cost of
making the building habitable exceeds the building’s value.
JA-106-07 ¶¶250-51.
Finally, prior to 2019, an owner could convert an RSL-regulated
building to a co-operative or condominium upon obtaining purchase
agreements from 15% of the tenants or from other purchasers agreeing
to live in the building. But the RSL now requires consent of 51% of ten-
ants—granting tenants a veto right over conversion of the building—even
though they could continue to rent and would retain the RSL’s protec-
tions if the building were converted. JA-109-10 ¶¶257-59.
B.The RSL’s Restriction Of Property Owners’ Rights Con-
stitutes A Physical Taking.
Taken together, the above-described provisions of the RSL effec-
tively eviscerate owners’ right to control who occupies their property,
7 If the rent at the new location is greater, the owner must pay the
difference for six years. JA-107-08 ¶254.
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their own ability to use the property, or determine the use of the prop-
erty—all of which are key “sticks” in the property owner’s bundle of
rights. The District Court’s contrary conclusion rested on an erroneous
reading of the governing Supreme Court decisions and this Court’s prec-
edents.
1.Supreme Court Precedent Confirms That The
RSL Effects A Physical Taking.
The Supreme Court has held that “the right to exclude, so univer-
sally held to be a fundamental element of the property right, falls within
the category of interests that the Government cannot take without com-
pensation.” Kaiser Aetna, 444 U.S. at 179-80; see also Thomas W. Merrill,
Property and the Right to Exclude, 77 Neb. L. Rev. 730 at 752 (1998)
(“property means the right to exclude others from valued resources, no
more and no less.”).
The RSL eliminates property owners’ right to exclude in multiple
ways: existing tenants virtually always must be offered the opportunity
to renew their leases; the tenancy right may be transferred to successors
who are strangers to the owner; and tenants have the right to sub-lease
the property to individuals who are strangers to the owner. Importantly,
a property owner “suffers a special kind of injury when a stranger in-
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vades and occupies the owner’s property. Such an invasion is qualita-
tively more severe than a regulation of the use of property, since the
owner may have no control over the timing, extent, or nature of the inva-
sion.” Loretto, 458 U.S. at 420 (emphasis in original).
But the RSL’s elimination of owners’ rights goes beyond its eviscer-
ation of the right to exclude. The law drastically limits a property owner’s
ability to gain possession of that property; to change the use of the prop-
erty to commercial rental; to convert the building to a condominium or
cooperative; or to demolish an existing structure—even if the property
owner plans to replace it with a structure containing more apartments.
The combined effect of the RSL on owners’ rights to exclude others
from, occupy, use, and convert their property is much more substantial
than that of regulations the Supreme Court has held to effect a physical
taking. In Causby, for example, the Court found a physical taking be-
cause periodic plane overflights limited the owner’s “use and enjoyment”
of the property. 328 U.S. at 262. Other cases have found physical takings
based on easements giving the public a right of access to the property.
In those cases, the interference with owners’ rights was episodic
and limited. Under the RSL, the owners’ right to exclude is effectively
eliminated for the entire period that the tenant and any successors oc-
cupy the property, and the right to determine the use of the property is
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dramatically limited in perpetuity. That multifaceted limitation of a
number of the key “sticks” in the owner’s “bundle of rights” plainly effects
a physical taking.
The Supreme Court’s decision in Yee confirms that conclusion. Yee
addressed a physical takings challenge to statutes that set maximum
rent levels for mobile home parks and, in addition, prohibited the park
owner from terminating a tenancy in the event that the mobile home was
sold during the term of the lease. 503 U.S. at 524-26.
The Court explained that a physical taking occurs when “the gov-
ernment authorizes a compelled physical invasion of property.” 503 U.S.
at 527. It concluded that the challenged statutes did not impose the req-
uisite government coercion, because “[a]t least on the face of the regula-
tory scheme, neither the city nor the State compels [mobile park owners],
once they have rented their property to tenants, to continue to do so. To
the contrary, the [state law] provides that a park owner who wishes to
change the use of his land may evict his tenants albeit with 6 or 12
months’ notice.” Id. at 527-28.
Importantly, the Court stated that “[a] different case would be pre-
sented were the statute, on its face or as applied, to compel a landowner
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over objection to rent his property or to refrain in perpetuity from termi-
nating a tenancy.” 503 U.S. at 528.8
The RSL presents that “different case.” By compelling owners to
continually offer renewal leases to regulated tenants and their successors
in perpetuity, and preventing owners from changing the use of their prop-
erties (in the name of “protecting” the City’s regulated housing stock), the
RSL engages in the very government compulsion identified by the Yee
Court.
2.The District Court Erred In Concluding That
Plaintiffs Retain Sufficient Rights To Preclude A
Physical Takings Claim
The District Court’s rejection of Plaintiffs’ physical takings claims
rested on its observation that although “the restrictions on their right to
use the property as they see fit may be significant,” Plaintiffs “continue
to possess the property (in that they retain title), and they can dispose of
it (by selling).” JA-524.
8 The Supreme Court drew the same distinction in Florida Power,480
U.S. at 251-52, n.6. There, the Court considered a takings challenge to a
law allowing the FCC to change the rates that utility companies could
charge cable television systems for using utility poles as the physical me-
dium for stringing television cable. The Court rejected the takings claim
based on the fact that the pole leases in question were voluntarily en-
tered, but made clear that its decision did not apply where the utility
company was precluded from terminating a pole lease. Id.
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The Supreme Court has repeatedly found physical takings even
though the property owner retained title and the ability to sell the prop-
erty—which makes clear that the District Court’s analysis is wrong. That
was true in Causby,328 U.S. at 262 (the airplane overflight case), and
in Kaiser Aetna, 444 U.S. at 176, where the government required public
access to a pond that remained privately owned. And in Loretto, the Su-
preme Court found a physical taking “even though the owner may retain
the bare legal right to dispose of the occupied space by transfer or sale.”
458 U.S. at 436; see also Seawall Assocs. v. City of New York, 542 N.E.2d
1059, 1065 (N.Y. 1989) (“minimal authority retained by the owners over
their own properties” did not preclude a takings claim). The District
Court thus erred in holding that the RSL’s dramatic evisceration of key
property rights could be ignored because property owners’ retain title and
the ability to sell.
The District Court also erred in pointing to precedent from this
Court to justify its rejection of Plaintiffs’ physical takings claims. JA-524-
25 (citing W. 95 Hous. Corp. v. N.Y.C. Dep’t of Hous. Pres. & Dev., 31 F.
App’x 19, 21 (2d Cir. 2002); Harmon v. Markus, 412 F. App’x 420 (2d Cir.
2011); Greystone Hotel Co. v. City of New York, 98-9116, 1999 U.S. App.
LEXIS 14960 (2d Cir. June 23, 1999); Federal Home Loan Mortg. Corp.
v. N.Y. State Div. of Hous. & Cmty. Renewal, 83 F.3d 45 (2d Cir. 1996)).
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To begin with, three of these decisions are summary orders that
lack precedential effect under this Court’s Rule 32.1.1(a). W. 95 Hous.
Corp., supra; Harmon, supra; Greystone Hotel Co., supra.
The remaining ruling—Federal Home Loan, supra—lacks force be-
cause it has been undermined by intervening Supreme Court precedent.
The Federal Home Loan Court relied upon the concept of acquiescence—
that the owner knowingly and voluntarily chose to participate in a regu-
lated housing market—to reject the physical takings claim asserted in
that case. See 83 F.3d at 48 (“FMLMC purchased an occupied building
and acquiesced in its continued use as rental housing”). That reasoning
was expressly rejected in the Supreme Court’s subsequent decision in
Horne v. Department of Agriculture, 576 U.S. 350 (2015),which held that
acquiescence is not a defense to a physical takings claim.
In Horne, raisin growers challenged an order that required them to
remit part of their 2002 crop to the government without any guarantee
of just compensation. The government asserted as a defense that the
growers “voluntarily choose to participate in the raisin market.” 576 U.S.
at 365. Relying on Loretto, 458 U.S. at 439 & n.17, Horne held that the
plaintiffs’ voluntary participation in the market could not excuse or ab-
solve the government of liability for a taking. 576 U.S. at 365. The Court
stated: “In Loretto,we rejected the argument that the New York law was
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not a taking because the landlord could avoid the requirement by ceasing
to be a landlord. We held instead that a landlord’s ability to rent his prop-
erty may not be conditioned on his forfeiting the right to compensation
for a physical occupation.” Id. (citation omitted). Horne thus confirms
that a participant who knowingly enters a regulated market neither ac-
quiesces to an unconstitutional taking nor waives a takings claim.9
That conclusion is particularly applicable when, as here, the gov-
ernment has placed very substantial limitations on the property owner’s
right to devote the property to a different use. The property owner in
Federal Home Loan does not appear to have argued that the RSL’s limi-
tations on changing the use of the property distinguished the RSL from
9 Horne also rejected the notion—advanced by the government there—
that a physical taking had not occurred because the farmers could simply
use their property for another purpose, such as growing a different crop.
The Court made clear that the government cannot immunize itself from
a physical takings claim by imposing the challenged regulation as a
precondition to participating in a market and then claiming that the
market participant’s claim should be rejected because she entered the
market with knowledge of the challenged regulation. 576 U.S. at 365. The
unpublished decision in Harmon rested on that argument subsequently
rejected by the Horne Court. See 412 F. App’x at 422 (“the Harmons
concede that they acquired their property in 2005 with full knowledge
that it was subject to the RSL [and thus] they have ‘acquiesced in its
continued use as rental housing.’” (citing Federal Home Loan, 83 F.3d at
48)).
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the statutes considered by the Supreme Court in Yee. As discussed above,
Yee recognized its holding would not apply to a law limiting the owner’s
right to change the property’s use—such as those in the RSL.
C.Plaintiffs Properly Assert A Facial Challenge.
Defendants and Intervenors argued below that Plaintiffs could not
challenge the RSL on a facial basis for two reasons. They contended that
a facial challenge cannot be based on a takings claim and that a facial
challenge requires that “no set of circumstances exist” under which the
RSL could be constitutionally applied (e.g., ECF No. 76-1 at 7), relying on
dicta from United States v. Salerno, 481 U.S. 739, 745 (1987). Both asser-
tions are meritless.
The Supreme Court has squarely rejected the argument that facial
challenges are limited to a subset of constitutional rights. Rather, a facial
challenge may be based on any constitutional right. City of Los Angeles
v. Patel, 576 U.S. 409, 415 (2015) (“the Court has never held that [facial]
claims cannot be brought under any otherwise enforceable provision of
the Constitution.”).
Certainly takings claims do not have second-class status. Cf. Knick
v. Township of Scott, 139 S. Ct. 2162 (2019). They accordingly may be
asserted on a facial basis.
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Neither does a facial challenge to the RSL require proof that every
owner is unconstitutionally burdened by the law. Rather, “[t]he proper
focus of the constitutional inquiry is the group for whom the law is a re-
striction, not the group for whom the law is irrelevant.” Patel, 576 U.S.
at 418. Applied here, the focus of the physical takings inquiry is the im-
pact on property owners whose ability to change the use of their property
is restricted by the RSL. For that group of property owners, the RSL ef-
fects a physical taking for the reasons discussed above.
Separately, the Supreme Court has recognized that “[t]o succeed in
a typical facial attack, [a plaintiff] would have to establish that no set of
circumstances exists under which [the statute] would be valid, or that the
statute lacks any plainly legitimate sweep.” United States v. Stevens, 559
U.S. 460, 472 (2010) (emphasis omitted)). The latter standard therefore
provides a separate basis for rejecting the Salerno standard. And here,
as applied to property owners whose ability to change the use of their
property is limited by the RSL, the RSL plainly lacks a legitimate sweep.
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II.Plaintiffs Plausibly Allege That The RSL Effects A Regula-
tory Taking.
“[T]he purpose of the Takings Clause” is “to prevent the government
from forcing some people alone to bear public burdens which, in all fair-
ness and justice, should be borne by the public as a whole.” Palazzolo,
533 U.S. at 617-18.
For over a century, courts have grappled with giving effect to that
constitutional guarantee—how to distinguish between the lawful regula-
tion of private property and the unlawful taking of private property. In
Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 415 (1922), Justice
Holmes explained that a taking occurs when government restriction of
property rights “goes too far.”
That can occur, first, when a government regulation forces a prop-
erty owner to bear a burden that should be borne by the public at large—
as Justice Scalia explained in the dissent in Pennell, supra. Second,
courts find a taking when an “ad hoc, factual inquir[y]” into the nature
and impact of a challenged property regulation determines that regula-
tion has gone too far. Penn Central, 438 U.S. at 124 (1978). The RSL con-
stitutes a taking under both of these independent inquiries.
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A.The RSL Improperly Imposes On A Select Group A Pub-
lic Burden That Should be Borne by Society As A
Whole.
The Supreme Court explained in Murr v. Wisconsin that the analy-
sis of regulatory takings claims requires consideration of two competing
interests: “the individual’s right to retain the interests and exercise the
freedoms at the core of private property ownership” on the one hand, and
the government’s power to “adjust rights for the public good” on the other.
137 S. Ct. 1933, 1943 (2017). “In all instances, the [regulatory takings]
analysis must be driven by the purpose of the Takings Clause, which is
to prevent the 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.’” Id. (quoting Palazzolo, 533 U.S. at 617-18).
The Supreme Court in Pennell considered whether a San Jose rent
regulation ordinance failed this test. The law specified a number of fac-
tors to be considered in determining whether a proposed rent increase
was permissible. Six of the factors were objective and “related either to
the landlord’s costs of providing an adequate rental unit, or to the condi-
tion of the rental market”; a seventh factor permitted consideration of
“the hardship to the tenant.” 485 U.S. at 9, 21.
The parties challenging the law argued that consideration of the six
factors produced “a rent that is ‘reasonable’ by reference to what [they]
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contend[ed] was the only legitimate purpose of rent control: the elimina-
tion of ‘excessive’ rents caused by San Jose’s housing shortage.” Id. at 9.
They asserted that using the “hardship to the tenant” factor to reduce the
permissible rent below the amount established by the other six factors
constituted a taking. Relying on the hardship factor was impermissible,
they contended, “because it [would] not serve the purpose of eliminating
excessive rents—that objective [had] already been accomplished by con-
sidering the first six factors—instead it serves only the purpose of provid-
ing assistance to ‘hardship tenants’” which would “force[] private individ-
uals to shoulder the ‘public’ burden of subsidizing their poor tenants’
housing.” Id.
The Pennell majority declined to address this issue, stating that
there was “no evidence that the ‘tenant hardship clause’ has in fact ever
been relied upon . . . to reduce a rent below” the amount determined on
the basis of the other factors. Id. at 9-10.
But Justices Scalia and O’Connor dissented. In their view, the pro-
vision permitting consideration of tenant hardship effected a taking.
Pointing to the principle that the Takings Clause bars government from
forcing some individuals to “bear public burdens [that] . . . should be
borne by the public as a whole,” they stated:
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Traditional land-use regulation . . . does not violate
this principle [of preventing some alone from bear-
ing the public burden] because there is a cause-
and-effect relationship between the property use
restricted by the regulation and the social evil that
the regulation seeks to remedy. Since the owner’s
use of the property is (or, but for the regulation,
would be) the source of the social problem, it can-
not be said that he has been singled out unfairly.
Id. at 19-20.
They concluded that the hardship provision “is invoked to meet a
quite different social problem: the existence of some renters who are too
poor to afford even reasonably priced housing”—and “that problem is no
more caused or exploited by landlords than it is by the grocers who sell
needy renters their food, or the department stores that sell them their
clothes.” Id. at 21. The provision effected a taking because “the city is not
‘regulating’ rents in the relevant sense of preventing rents that are ex-
cessive; rather, it is using the occasion of rent regulation . . . to establish
a welfare program privately funded by those landlords who happen to
have ‘hardship’ tenants.” Id. at 22.10
10 In Cienega Gardens v. United States, 331 F.3d 1319 (Fed. Cir. 2003),
applied the same rationale to a law preventing owners of low-income
apartments from pre-paying federally subsidized mortgages to constitute
a taking, which it held to effect a taking. The court stated that, “[u]nques-
tionably, Congress acted for a public purpose (to benefit a certain group
of people in need of low-cost housing), but just as clearly, the expense was
placed disproportionately on a few private property owners.” Id. at 1338-
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Here, Plaintiffs plausibly allege that the RSL effects a taking be-
cause it forces a small set of private landowners to bear that very same
public burden.
The RSL provides that the RGB, in setting the maximum permissi-
ble rent increase in New York City, “shall” consider:
(1) the economic condition of the residential real
estate industry in the affected area including such
factors as the prevailing and projected (i) real es-
tate taxes and sewer and water rates, (ii) gross op-
erating maintenance costs (including insurance
rates, governmental fees, cost of fuel and labor
costs), (iii) costs and availability of financing (in-
cluding effective rates of interest), (iv) over-all sup-
ply of housing accommodations and over-all va-
cancy rates, (2) relevant data from the current and
projected cost of living indices for the affected area,
(3) such other data as may be made available to
it.11
The RSL thus mirrors the ordinance challenged in Pennell: para-
graph (1) requires consideration of the “objective” factors relating to
landlords’ costs and the state of the housing market, while paragraph (2)
39. “Congress’ objective in passing [the challenged laws]—preserving
low-income housing—and method—forcing some owners to keep accept-
ing below-market rents—is the kind of expense-shifting to a few persons
that amounts to a taking. This is especially clear where, as here, the al-
ternative was for all taxpayers to shoulder the burden.” Id.
11 Section 26-510(b)(1)-(3).
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requires consideration of wholly unrelated factors such as the general
cost of living. Indeed, the RGB produces an annual “Income and Afforda-
bility Study,” which it describes the paragraph (2) factors as follows:
Section 26-510(b) of the Rent Stabilization Law re-
quires the Rent Guidelines Board (RGB) to con-
sider “relevant data from the current and projected
cost of living indices” and permits consideration of
other measures of housing affordability in its de-
liberations. To assist the Board in meeting this ob-
ligation, the RGB research staff produces an an-
nual Income and Affordability Study, which re-
ports on housing affordability and tenant income
in the New York City (NYC) rental market.12
Thus the RGB itself makes clear that it interprets the law to require con-
sideration of tenant income and “affordability” in setting maximum rent
increases.
And that is exactly what has happened. As the Complaint explains,
the RGB tracks “‘the commensurate rent adjustment,’ which it describes
as ‘a single measure to determine how much rents would have to change
for net operating income (NOI) in rent stabilized buildings to remain con-
stant” and creates an index based on that adjustment that is adjusted for
inflation. JA-120 ¶292. “That inflation-adjusted index shows that rents
12 NYC Rent Guidelines Board, 2020 Income and Affordability Study 12
(Apr. 30, 2020), https://rentguidelinesboard.cityofnewyork.us/wp-con-
tent/uploads/2020/04/2020-IA.pdf.
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should have increased on average 5.6% per year from 1999 through 2018
in order for owner net operating income to remain constant. Instead, [the]
RGB has approved rent increases of only 2.7% on average during that
period.” Id.
It is therefore crystal clear that the RGB has significantly reduced
the increases required by the paragraph (1) “objective” factors in order to
prevent tenant hardship.
Indeed, the New York Court of Appeals has recognized that tenants’
rights under the RSL are a “local public assistance benefit”—“[r]ent sta-
bilization provides assistance to a specific segment of the population that
could not afford to live in New York City without a rent regulatory
scheme.” In re Santiago-Monteverde, 24 N.Y. 3d at 290; decision on certi-
fied question accepted and incorporated, 780 F.3d 126 (2d Cir. 2015).
The RSL thus effects a taking for the reasons set forth in the Pen-
nell dissent. As in Pennell, “[o]nce [the RSL’s paragraph (1) factors] have
been applied . . . so that [property owners are] receiving [] a reasonable
return, [they] can no longer be regarded as a ‘cause’ of exorbitantly priced
housing, nor [are they] reaping distinctively high profits from the hous-
ing shortage.” 485 U.S. at 21. The application of paragraph (2) is designed
to address a different problem—“the existence of some renters who are
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too poor to afford even reasonably priced housing.” Id. Because that prob-
lem “is not caused or exploited by landlords,” the burden of addressing it
may not be imposed on a select group of property owners:
The traditional manner in which American gov-
ernment has met the problem of those who cannot
pay reasonable prices for privately sold necessi-
ties—a problem caused by the society at large—
has been the distribution to such persons of funds
raised from the public at large through taxes, ei-
ther in cash (welfare payments) or in goods (public
housing, publicly subsidized housing, and food
stamps). Unless we are to abandon the guiding
principle of the Takings Clause that ‘public bur-
dens . . . should be borne by the public as a whole,’
this is the only manner that our Constitution per-
mits.
Id. at 21-22. “The politically attractive feature of regulation is not that it
permits wealth transfers to be achieved that could not be achieved other-
wise; but rather that it permits them to be achieved ‘off budget,’ with
relative invisibility and thus relative immunity from normal democratic
processes. . . . Subsidies for these groups may well be a good idea, but the
Takings Clause requires them to be funded through the process of taxing
and spending, where both economic effects and competing priorities are
more evident.” Id. at 22-23.13
13 Indeed, New York has funded various housing subsidies using public
monies. For example, private housing for more than 100,000 tenants is
already subsidized using Section 8 vouchers. JA-77 ¶158. New York City
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B.The RSL Effects A Taking Under the Multi-Factor Reg-
ulatory Taking Standard.
Courts also determine whether a law effects a regulatory taking by
engaging in “ad hoc, factual inquiries” focused on “several factors that
have particular significance.” Penn Central, 438 U.S. at 124. There is no
set formula for determining whether a regulatory taking has occurred.
As the Supreme Court stated in Murr, the analysis is “designed to allow
careful examination and weighing of all the relevant circumstances” and
“[a] central dynamic of the Court’s regulatory takings jurisprudence” is
“its flexibility.” 137 S. Ct. at 1943.14
subsidizes the rent for seniors and disabled individuals through the
SCRIE and DRIE programs. JA-77-78 ¶160. And New York offers
renter’s tax credits to help finance housing for renters earning $200,000
or less. JA-78 ¶162. The existence of those publicly funded plans confirms
that subsidized housing is a benefit that can and should be borne by the
public as a whole and not by a discrete set of private property owners.
14 A law that destroys all economically beneficial use of property consti-
tutes a per se taking. See Lucas v. S.C. Coastal Council, 505 U.S. 1003,
1019 (1992); Lingle v. Chevron U.S.A., Inc., 544 U.S. 528, 538 (2005). But
a complete loss of value is not needed to prevail on a regulatory takings
claim—Lingle makes clear that such regulatory takings are a separate,
third, category of claims. Id. at 539. “A taking does not become a noncom-
pensable exercise of police power simply because the government in its
grace allows the owner to make some ‘reasonable’ use of his property. ‘[I]t
is the character of the invasion, not the amount of damage resulting from
it, so long as the damage is substantial, that determines the question
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Factors that courts consider in regulatory takings cases include, but
are not limited to: (1) the character of the government action; (2) whether
the regulation addresses a noxious use; (3) whether there is a direct and
substantial economic impact on regulated properties; (4) the degree to
which the regulation interferes with the reasonably investment-backed
expectations of property owners; and (5) whether the regulation provides
a reciprocity of advantage. See Penn Central, 438 U.S. at 124; Pennsylva-
nia Coal, 260 U.S. at 417.
These factors are not considered in isolation. Rather, they are
viewed holistically—a stronger showing in one factor may compensate for
a lesser showing in another. The inquiry “aims to identify regulatory ac-
tions that are functionally equivalent to the classic taking in which gov-
ernment directly appropriates private property or ousts the owner from
his domain. Accordingly, each of these tests focuses directly upon the se-
verity of the burden that government imposes upon private property
rights.” Lingle, 544 U.S. at 539.
whether it is a taking.’” Penn Central, 438 U.S. at 149-50 (Rehnquist, J.,
dissenting).
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In other words, cases in which non-economic factors weigh heavily
against finding a taking (i.e., noxious use cases, zoning cases) may re-
quire a very substantial diminution of value. But when the non-economic
factors militate strongly in favor of finding that a taking has occurred—
such as where the regulation authorizes the physical occupation of pri-
vate property in the absence of a noxious or inappropriate use—a lesser
diminution in value suffices to establish a taking.
As discussed, the RSL authorizes the perpetual physical occupation
of regulated units by tenants and their successors, and removes from
owners all practical options to regain possession, control, and use of their
property (see supra. at 22-26). The law effectively grants the regulated
tenant and her successors a property interest in the regulated unit and
takes from property owners many of the most important “sticks” in the
bundle of property rights.
The RSL thus effects the “functional[] equivalent to the classic
taking” (Lingle, 544 U.S. at 539) for which just compensation is required.
A review of the factors that courts commonly consider in regulatory tak-
ings cases compels that conclusion.
1.Character Of The Government Action
The Supreme Court in Penn Central identified “the character of the
governmental action” as the key factor in a regulatory takings analysis.
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438 U.S. at 124; see also Keystone Bituminous Coal Ass’n v. DeBenedictis,
480 U.S. 470, 488 (1987) (“Many cases before and since Pennsylvania
Coal have recognized that the nature of the State’s action is critical in
takings analysis.”). Here, that element weighs overwhelmingly in favor
of finding a taking.
First, the RSL results in a physical invasion by saddling owners
with non-removable tenants and substantially eliminating owners’ rights
to determine the use of their property and even to use it themselves. A
regulatory taking “may more readily be found when the interference with
property can be characterized as a physical invasion by the government.”
Penn Central, 438 U.S. at 124; see also, Thomas W. Merrill, The Charac-
ter of the Governmental Action, 36 Vt. L. Rev. 649, 658 (2012) (“Very little
in property law is ‘permanent’ in the sense of lasting forever. What
Loretto seems to have had in mind by a permanent occupation, with the
benefit of later clarifying decisions, is governmental action that amounts
to the imposition of an easement of indefinite duration[.] Loretto pushes
us toward a broader understanding of the character factor in order to
avoid trivializing it.”).
Second, the RSL confers a “local public assistance benefit” on ten-
ants that is “not paid for by the government” but by a small subset of New
York City building owners. See pages 37-42, supra. That fact too weighs
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heavily in favor of finding a taking. See Cienega Gardens, 331 F.3d at
1338-39 (finding a taking where law prevented the pre-payment of feder-
ally subsidized mortgages on low income apartments, holding that the
“character of the government’s action is that of a taking of a property
interest, albeit temporarily, and not an example of government regula-
tion under common law nuisance or other similar doctrines, which we
would treat differently”).
2.Noxious Use
Regulations that preclude a noxious use of property or address a
public nuisance typically do not constitute takings. See Penn Central, 478
U.S. at 125-127; id. at 144-46 (Rehnquist, J. dissenting). Indeed, regula-
tory takings claims typically involve laws addressing noxious uses or uses
inappropriate to the location (such as zoning laws)—and the fact that the
laws involve the prohibition of noxious or out of place uses generally is
the basis for rejecting the takings claim. See, e.g., Village of Euclid v.
Ambler Realty Co., 272 U.S. 365, 388-89 (1926); Hadacheck v. Sebastian,
239 U.S. 394, 405 (1915); Goldblatt v. Hempstead, 369 U.S. 590 (1962).
The RSL, by contrast, does not address a safety issue, noxious in-
terference with neighboring properties or the community at large, or a
use inappropriate to the property’s location. The weighty interests in pre-
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serving the government’s ability to exercise its police powers are there-
fore irrelevant. Rather, the absence of such a police power justification
supports the conclusion that the RSL effects a taking.
3.Direct And Substantial Economic Impact
The economic impact of the regulation is a “relevant considera-
tion[].” Penn Central, 478 U.S. at 124. No court has fixed a precise mag-
nitude of economic impact required under the regulatory takings test be-
cause the test itself is inherently ad hoc.
The Complaint alleges that the RSL has a substantial economic im-
pact on rent-stabilized properties across New York City. Rents charged
in stabilized units are, on average, 25% lower than market rents and, in
some cases, up to 70-80% lower. JA-118 ¶¶285-286. Allowable rent in-
creases determined by the RGB are dramatically outpaced by increases
in operating costs (as calculated by the government), resulting in sub-
stantial reductions in—and potential elimination of—net operating in-
come. JA-118-20 ¶¶289-292.
Moreover, the law imposes draconian limits on property owners’
ability to recoup the costs of improvements to individual units (Individual
Apartment Improvements, or “IAIs”) or building-wide (Major Capital Im-
provements, or “MCIs”)—which puts property owners to the choice of
making investments that they cannot recover or letting their properties
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deteriorate, making them less valuable.15 And the law effectively bars
demolition of existing structures to construct larger, more valuable build-
ings. JA-67-70 ¶¶121-30.
Not surprisingly, rent-stabilized properties are worth 25% to 50%
less than similar properties with market-rate units (and sometimes even
more), and these diminished values result directly from the RSL. JA-120-
23 ¶¶295-299. The 2019 HSTPA reduced those property values by an-
other 15% or more. JA-132 ¶329.16
15 Even though the cost of updating kitchens, bathrooms, electrical sys-
tems, and other items in the pre-1974 buildings covered by the RSL often
totals tens or hundreds of thousands of dollars, the new IAI restrictions
caps the recoverable improvement cost to $15,000 per unit every fifteen
years. They greatly delay the owner’s ability to recoup even that inade-
quate amount, permitting the owner to raise rent by only 1/168th of the
improvement cost (for buildings with 35 or fewer units) or 1/180th of the
improvement cost (for buildings with more than 35 units). JA-129 ¶¶319-
320. And even that slight increase must be removed after 30 years. Id.
Similarly, MCIs no longer make financial sense under the HSTPA,
which caps the permissible rent increase for an MCI at 2% (one-third of
the rent increase formerly allowed) and requires removal of that slight
increase after 30 years. JA-131 ¶¶326-27.
16 Defendants and Intervenors argued below that the Court should con-
sider the value of the building as a whole (i.e., including any non-regu-
lated units) rather that looking at the value of the apartment units that
are actually regulated. E.g., ECF No. 90 at 11. This argument fails for
several reasons. New York law generally, and the RSL specifically, treats
apartments as separate units of property. See N.Y.C. Admin. Code §26-
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Plaintiffs have thus plausibly alleged that the RSL inflicts a direct
and substantial economic impact on regulated properties.
4.Interference With Investment-Backed Expecta-
tions
Courts also assess the impact of the regulation on investment-
backed expectations. Importantly, such an impact is not required to es-
tablish a regulatory taking. The Supreme Court found a taking in Hodel
v. Irving, 481 U.S. 704, 715 (1987), even though “[t]he extent to which
any of [the property owners] had ‘investment-backed expectations’” un-
dermined by the challenged regulation was “dubious.”
Moreover, the RSL’s interference with property owners’ invest-
ment-backed expectations is not based on whether property was acquired
before or after the RSL took effect. The Supreme Court has repeatedly
rejected the contention that a property owner can “acquiesce” to an un-
lawful taking. “[A] regulation that otherwise would be unconstitutional
504(a)(1) (defining units to which rent stabilization applies); N.Y. UNCON-
SOL.LAW tit. 23 §8625 (same). Moreover, the universe of apartments reg-
ulated by the RSL are themselves treated individually—regulated rent
levels are set unit-by-unit, based upon the rental history of that unit. See
N.Y. UNCONSOL.LAW tit. §§26-512(b), 8626; N.Y.C. Admin Code §26-513.
Units within the same building can have different owners and be subject
to separate tax treatment. See N.Y. Real Prop. Law §§339-g, 339-h, 339-
y(1)(a). The proper “denominator” when considering diminution in value
is the apartment, not the entire building.
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absent compensation is not transformed into a background principle of
the State’s law by mere virtue of the passage of title.” Palazzolo, 533 U.S.
at 629-30; see also id. at 637 (Scalia, J., concurring) (“[t]he ‘investment-
backed expectations’ that the law will take into account do not include
the assumed validity of a restriction that in fact deprives property of so
much of its value as to be unconstitutional.” A “Penn Central taking . . .
no less than a total taking, is not absolved by the transfer of title”);
Horne, 576 U.S. at 365-67; supra at 31-34.
For that reason, all of the economic impacts just discussed also con-
stitute interference with investment-backed expectations.
Moreover, when the RSL was first enacted, it stated that “the ulti-
mate objective of state policy” is “the transition from regulation to a nor-
mal market of free bargaining between landlord and tenant.” JA-124
¶304; N.Y. UNCONSOL.LAW tit. §8622. Having promoted the RSL as a
temporary means to return to free market conditions, Defendants cannot
argue that property owners acted unreasonably in relying on that goal in
forming their investment-backed expectations.
The 2019 HSTPA further interfered with owners’ expectations by
eliminating sunset provisions, statutory vacancy and longevity rent in-
creases, eliminating preferential rent increases, eliminating Luxury and
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High-Income Decontrols, and drastically limiting rent increases for IAIs
and MCIs. JA-126-32 ¶¶308-331.
5.Reciprocity Of Advantage
Restrictions on the use of land that “secure[] an average reciprocity
of advantage” are unlikely to constitute a taking. Pennsylvania Coal, 260
U.S. at 415. For example, zoning restrictions are typically a reasonable
exercise of the government’s police power because their “prohibition ap-
plies over a broad cross section of land and thereby secure[s] an average
reciprocity of advantage” to those within the zoned area—restrictions on
landowners apply across the board, providing benefits along with bur-
dens. Penn Central, 438 U.S. at 147 (Rehnquist, J., dissenting) (internal
quote omitted).
Unlike zoning restrictions, the RSL singles out a discrete subset of
property owners for very substantial burdens without conferring any re-
ciprocal advantage. Owners of buildings subject to RSL restrictions must
by themselves bear the entire cost of New York’s rent subsidy program,
yet they receive no benefits from the program—other than the amor-
phous generalized benefits that could possibly accrue to all citizens of
New York, including those who do not bear the burden.
As then-Justice Rehnquist explained, “[t]he Fifth Amendment ‘pre-
vents the public from loading upon one individual more than his just
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share of the burdens of government, and says that when he surrenders
to the public something more and different from that which is exacted
from other members of the public, a full and just equivalent shall be re-
turned to him.’” Penn Central, 438 U.S. at 147 (Rehnquist, J., dissenting)
(quoting Monongahela Navigation Co. v. United States, 148 U.S. 312, 325
(1893)). Virtually all of the benefits of the RSL go to subsidized tenants;
to the extent that there are some that might “accrue to all the citizens of
New York City,” “[t]here is no reason to believe that [owners] will enjoy
a substantially greater share of those benefits” to reciprocate for bearing
all of its burdens. Id.
Nor can indirect generalized societal benefits, such as decreasing
homelessness, creating a more diverse neighborhood, or housing individ-
uals who provide critical services to the public, provide the “average rec-
iprocity of advantage” necessary to justify the substantial burdens im-
posed on Plaintiffs. As the Supreme Court recognized in Pennsylvania
Coal, “[w]e are in danger of forgetting that a strong public desire to im-
prove the public condition is not enough to warrant achieving the desire
by a shorter cut than the constitutional way of paying for the change.”
260 U.S. at 416 (declining to consider generalized societal benefits as re-
ciprocal advantage to mine owners, and instead looking to particularized
benefits involving neighboring coal company).
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This factor therefore strongly supports the conclusion that the RSL
effects a regulatory taking.
C.Plaintiffs Properly Assert A Facial Challenge To The
RSL.
The District Court rested its rejection of the regulatory takings
claims on its determination that the RSL is not susceptible to facial chal-
lenge and that Plaintiffs have not plausibly alleged such a claim here.
JA-526-33. That holding was wrong.
As explained above (at pages 34-35), the Supreme Court has made
clear that facial challenges are not limited to some subset of constitu-
tional claims, but are available for claims invoking all constitutional
rights. Indeed, the Supreme Court has upheld a facial challenge on reg-
ulatory takings grounds. See Hodel, 452 U.S. at 295 (acknowledging that
a facial claim will lie when “the ‘mere enactment’ of the [challenged
statute] constitutes a taking.”).In addition, a court evaluating such a
claim does not focus on every individual subject to the challenged law,
but only “the group for whom the law is a restriction.” City of L.A.,
576 U.S. at 418.
Plaintiffs’ facial claim is proper because the Complaint plausibly
alleges that (1) the RSL is unconstitutional with respect to the set of own-
ers that are prohibited from using their property as they wish (i.e., the
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group for whom the law is a restriction); and (2) with respect to these
individuals, the RSL is unconstitutional “in a large fraction of cases” or
“lacks a plainly legitimate sweep.” See pages 34-35, supra.
The Complaint states that every property owner burdened by the
RSL is being forced to bear a burden that “in all fairness and justice,
should be borne by the public as a whole” (Palazzolo, 533 U.S. at 617-
18)—coerced, permanent, physical occupation by tenants at below-mar-
ket rents set a levels that do not even permit recovery of increased costs;
and effective elimination of the rights to exclude, possess, use, enjoy, and
dispose of their property—and have suffered a taking upon consideration
of the ad hoc factors emanating from Penn Central and Pennsylvania
Coal.
Moreover, the RSL affects each burdened property in the same way.
The District Court did not dispute that the most significant regulatory
taking factors meet that test: the nature of the taking (a physical occu-
pation and other very substantial limits on property rights); the absence
of any noxious use; and the lack of any reciprocity of advantage.
The District Court instead rested its critique of the facial challenge
on its view that the different properties would suffer different reductions
in value as a result of the RSL. JA-531. Although the precise financial
impact that the RSL has on regulated properties may differ, the existence
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of a financial impact does not. And as demonstrated above, the diminu-
tion in value attributable to the RSL need not be the same for each bur-
dened property in order to sustain a facial regulatory takings claim; it
need only be significant.17
That is what the Complaint alleges—a substantial reduction in
value resulting from the RSL’s regulatory burdens. JA-117-24 ¶¶283-
302. Federal Rule of Civil Procedure 8(a) does not require Plaintiffs to
include in the Complaint a description of the methodology they will use
to prove that fact—allegation of the fact is sufficient. Plaintiffs are enti-
tled to an opportunity to prove their claims.
The same argument applies with respect to the assessment of prop-
erty owners’ investment-backed expectations. As discussed, this factor
largely parallels the diminution of value inquiry, because post-RSL pur-
chasers must be assessed in the same way as pre-RSL purchasers. Be-
cause the Complaint alleges the relevant facts (JA-124-32 ¶¶303-31),
here too Plaintiffs are entitled to an opportunity to prove them.
17 Precluding a facial challenge due to differences in precise economic im-
pact would preclude all manner of facial regulatory takings challenges
(something that no court has done) and lead to absurd results: a law could
be unconstitutional as to one property suffering a 70% diminution in
value, but not with respect to a neighboring suffering only a 60% diminu-
tion due to fewer regulated units.
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Finally, the District Court erred in concluding that this Court’s
precedent bars a facial claim. See JA-526-27. None of the cases cited by
the court holds facial regulatory takings claims impermissible.
In Rent Stabilization Association v. Dinkins, 5 F.3d 591, 594 (2d
Cir. 1993), plaintiffs did not present a facial claim, explicitly stating that
“the RSA’s complaint alleges only ‘as applied’ objections to the law.” The
court did state in dicta that “a facial challenge must establish that no set
of circumstances exists under which the [challenged a]ct would be valid”;
but that was before the Supreme Court made clear in City of Los Angeles,
576 U.S. 409, that the relevant question is whether the law is constitu-
tional as applied to those burdened by its terms. See page 35, supra.
Both Greystone Hotel Co. v. City of New York, 1999 U.S. App. LEXIS
14960 (2d Cir. 1999), and Federal Home Loan, 93 F. 3d 45, also involved
only as applied claims. And West 95 Housing Corp. v. New York City
Department of Housing Preservation & Development, 31 F. App’x 19, 21
(2d Cir. 2002),is a non-binding summary decision that merely “suggests”
that the RSL is not susceptible to a facial challenge—its holding rested
on the conclusion that the plaintiffs had failed to plead facts supporting
the claim.
In short, nothing in this Court’s prior decisions precludes Plaintiffs’
facial challenge to the RSL. Because Plaintiffs have plausibly alleged
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that those burdened by the RSL have suffered a regulatory taking, the
District Court’s dismissal order should be reversed.
III.Plaintiffs Have Plausibly Alleged A Due Process Claim
Property rights are, and were when the Bill of Rights was drafted
and the Fourteenth Amendment adopted, fundamental rights. The RSL’s
impingement on property rights, therefore, should be reviewed under
strict scrutiny—i.e., whether the RSL is narrowly tailored to achieve a
compelling state interest.18 The RSL cannot meet this standard, and nei-
ther Defendants nor Intervenors argued as much below. Rather, they ar-
gued for, and the District Court applied, rational basis review.
Even under Defendants’ preferred rational basis standard, Plain-
tiffs have pleaded a due process claim by plausibly alleging that the RSL
is arbitrary, capricious, and bears no rational relationship to the objec-
tives it is supposed to achieve. When government action is “arbitrary and
irrational,” it fails even rational basis review. Eastern Enter. v. Apel, 524
U.S. 498, 537 (1998).
18 The Due Process Clause “provides heightened protection against gov-
ernment interference with certain fundamental rights and liberty inter-
ests.” Washington v. Glucksberg, 521 U.S. 702, 720 (1997). The Clause
“specially protects those fundamental rights and liberties which are, ob-
jectively deeply rooted in this Nation’s history and tradition.” Id. That is
true of rights in real property.
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A.The City Council’s Rote, Triennial Conclusion That A
Housing “Emergency” Exists Exposes The RSL’s Arbi-
trariness.
The RSL is premised on the continued existence of a housing “emer-
gency,” but nothing in the RSL explains what the emergency is, why it
exists, or how it is measured. The “emergency” once referred to managing
demand for housing as soldiers returned from service in World War II;
only in 2019 was this vestige removed from the statute.
JA-56-57 ¶¶77, 82.
Although a vacancy rate below 5% is a necessary precondition for
any city to declare a housing emergency, the RSL makes clear that the
vacancy triggers the City Council’s obligation to consider the facts and
then exercise its judgment—based on established criteria—whether an
emergency actually exists. JA-45-46; 64 ¶¶54-55, 108. But neither the
law nor the City Council has specified a standard.
A law whose application is premised on an undefined standard is
the epitome of an arbitrary law. If any and all housing conditions can
qualify as a “crisis” or “emergency,” then the courts would lack any bench-
mark against which to measure the City Council’s triennial determina-
tion, leaving the legislature free to deploy the RSL at its whim and leav-
ing the protections of due process toothless. See Windsor v. United States,
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699 F.3d 169, 180 (2d Cir. 2012) (while rational basis review is “indulgent
and respectful, it is not meant to be ‘toothless’”).
This rote exercise of declaring an unexamined “emergency” every
three years based on an unclear standard is inadequate to justify the
RSL’s substantial damage to property rights.
B.The RSL Works Counter To Its Stated Purposes
The RSL violates due process for the additional reason that the reg-
ulations it imposes are not rationally related to achieving its supposed
goals. Indeed, economists agree almost uniformly that rent controls re-
duce the quality and quantity of housing. JA-66-67 ¶119. In other words,
the RSL creates and perpetuates the very “emergency” it is meant to
abate.
1.The RSL Does Not Alleviate Any Housing Short-
age
The RSL does nothing to address a housing shortage; indeed, the
Complaint plausibly alleges that the RSL reduces housing supply. JA-65-
73 ¶¶114-141. Key features of the RSL—including mandatory lease re-
newals, succession rights, and limitations on an owner’s ability to recover
or stop letting units—lead to longer tenancies and to tenants remaining
in units that have become too small, too large, or geographically distant
from their jobs (and accordingly to fewer vacancies).
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The law also prevents owners from redeveloping existing proper-
ties, despite zoning capacity to build more apartments. JA-65; 67-70
¶¶115, 121-130. Indeed, lots occupied by rent-stabilized buildings are of-
ten under-developed by as much as 20% (or more) of their zoning capacity
compared to market rate buildings, and Plaintiffs have alleged that, but
for the barriers to redevelopment erected by the RSL, New Yorkers might
well benefit from over 100,000 additional units. JA-68-69 ¶¶123-26.
2.The RSL Does Not Secure Housing For Low-In-
come Residents
The RSL does not contain any mechanism to target its benefits to
low-income, homeless, or otherwise needy individuals.
Plaintiffs allege facts demonstrating that the RSL’s subsidies are
randomly distributed without regard for the income or wealth of the ten-
ants. JA-58-64 ¶¶84-109. And the Complaint cites data showing that a
substantial number of renters in rent-stabilized units earn more than
$200,000 a year. Id.
Indeed, prior to 2019, the RSL included a High-Income Decontrol
provision, which permitted removal of an apartment from the stabiliza-
tion regime if the tenant’s income exceeded $200,000 (and the rent ex-
ceeded $2,774). JA-51-52; 110-11 ¶¶68(d), 262. The HSTPA eliminated
that provision. Id.
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That the RSL results in the provision of low-rent housing for the
wealthy demonstrates the utter irrationality of the scheme.
3.The RSL Does Not Address “Rent Profiteering”
Another proffered justification for the RSL’s restrictions is to pre-
vent “rent profiteering.” E.g., ECF No. 75-1 at 3 (State’s Motion). That
the RSL is not reasonably related to curbing “rent profiteering” is appar-
ent from the fact that neither the RSL nor the DHCR is able to define
“rent profiteering.” Nor is there a credible argument that rents willingly
paid for nearly a million units in New York City on the free market are
unjust or oppressive.
In any event, there is no “free rent.” The forced reduction of rent in
the stabilized market causes a rent increase of 22-25% in uncontrolled
units. JA-75 ¶152. Without the RSL, “lower rents in the uncontrolled
market would provide tenants in regulated units with more options, and
options that better suited their needs than the regulated units.” JA-75
¶151. The RSL thus subsidizes prices for the lucky few who live in a sta-
bilized property—regardless of need—while increasing rents for everyone
else.
The RSL is neither designed nor intended to address rent “profi-
teering.” Numerous RSL provisions are wholly unrelated to rent levels.
Others limit rent increases for units that offer “preferential” rents—
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which, by definition, are below the supposedly “reasonable” rent thresh-
olds set by the RGB. JA-127-28 ¶¶312-15. Defendants cannot suggest
that the rates they themselves set are unreasonable—and the RSL still
limits property owners’ ability to raise rents to those levels when the ten-
ant previously paid lower than the maximum permitted under the RSL.
JA-53 ¶69(e).
4.The RSL’s Purported Goal Of Promoting Neigh-
borhood Stability Cannot Withstand Due Process
Review
Defendants asserted below that the mandated lease renewal re-
quirement that physically invades owners’ property is a means of “avoid-
ing disruptions to neighborhoods,” “promoting stability,” and “maintain-
ing neighborhood cohesion.” Their view is that the tenant, rather than
the owner, is deemed the relevant “neighbor” whose “stability” is pro-
moted—and that giving those tenants lifetime possessory interests in
owners’ property consequently will improve neighborhood cohesion more
than if the owner lived in the unit or rented it to varying tenants over
time. E.g., ECF No. 75-1 at 3 (State’s Motion). Aside from Defendants’
ipse dixit, no evidence or reasoning suggests that a rent-stabilized tenant
makes a better neighbor than a market-rate tenant or an owner.
The proffered justification of “neighborhood stability” also exposes
the RSL’s discriminatory effects. It discriminates in favor of long-term
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tenants, who tend to be disproportionately older. The RSL also prefers
tenants over owners, who are not only prevented from inhabiting their
own property but must also subsidize the tenancy of the current tenant
to “avoid disrupting” the neighborhood. JA-61; 99-105 ¶¶97, 227-46. And
the successors of rent-stabilized tenants are given preference over New
Yorkers who lack those connections to a rent-stabilized unit. JA-92-95
¶¶202-13. Rent stabilization also encourages tenants to remain in prop-
erties that are no longer suited to their needs, thereby denying their unit
to tenants for whom it is more appropriate in size or location. JA-73-75
¶¶142-49.
CONCLUSION AND RELIEF REQUESTED
The Court should reverse the judgment of the District Court and
remand the case for further proceedings.
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Dated: January 15, 2021
Respectfully submitted,
/s/ Andrew J. Pincus
Andrew J. Pincus
Reginald R. Goeke
MAYER BROWN LLP
1999 K Street, NW
Washington DC 20006
(202) 263-3000
Timothy S. Bishop
MAYER BROWN LLP
71 South Wacker Drive
Chicago, IL 60606
(312) 782-0600
Robert W. Hamburg
MAYER BROWN LLP
1221 Avenue of the Americas
New York, NY 10020
(212) 506-2500
Counsel for Plaintiffs-Appellants
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CERTIFICATE OF COMPLIANCE
Pursuant to Federal Rule of Appellate Procedure 32(g), the under-
signed counsel for Plaintiffs-Appellants Petitioner certifies that this
brief:
(i) complies with the type-volume limitation of Federal Rule of
Appellate Procedure 32(a)(7)(B) because it contains 14,000 words, includ-
ing footnotes and excluding the parts of the brief exempted by Federal
Rules of Appellate Procedure 32(a)(7)(B)(iii); and
(ii) complies with the typeface and style requirements of Federal
Rules of Appellate Procedure 32(a)(5) and 32(a)(6) because this document
has been prepared using Microsoft Office Word 2016 and is set in Century
Schoolbook font in a size equivalent to 14 points or larger.
Dated: January 15, 2021 /s/ Andrew J. Pincus
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SPECIAL APPENDIX
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TABLE OF CONTENTS
PAGE
Memorandum and Order on Motions to Dismiss,
dated September 30, 2020 (ECF No. 93) ......................... SPA-1
Judgment, dated September 30, 2020 (ECF No. 94) .................. SPA-41
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UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
-------------------------------------------x
-------------------------------------------x
-------------------------------------------x
ERIC KOMITEE, United States District Judge:
Rent regulations have now been the subject of almost a
hundred years of case law, going back to Justice Holmes. That
case law supports a broad conception of government power to
19-cv-4087(EK)(RLM)
COMMUNITY HOUSING IMPROVEMENT PROGRAM,
RENT STABILIZATION ASSOCIATION OF N.Y.C.,
INC., CONSTANCE NUGENT-MILLER, et al.,
Plaintiffs,
-against-
CITY OF NEW YORK, RENT GUIDELINES BOARD,
DAVID REISS, CECILIA JOZA, ALEX SCHWARZ,
GERMAN TEJEDA, MAY YU, et al.,
Defendants.
19-cv-6447(EK)(RLM)
74 PINEHURST LLC, 141 WADSWORTH LLC, 177
WADSWORTH LLC, DINO PANAGOULIAS, DIMOS
PANAGOULIAS, et al.,
Plaintiffs,
-against-
STATE OF NEW YORK, NEW YORK DIVISION OF
HOUSING AND COMMUNITY RENEWAL, RUTHANNE
VISNAUSKAS, et al.,
Defendants.
MEMORANDUM AND ORDER
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regulate rents, including in ways that may diminish — even
significantly — the value of landlords’ property.
In 2019, the New York State legislature amended the
state’s rent-stabilization laws (RSL). As amended, the RSL now
goes beyond previous incarnations of the New York statute in its
limitations on rent increases, deregulation of units, and
eviction of tenants in breach of lease agreements, among other
subjects. Plaintiffs claim that in light of the 2019
amendments, the RSL (in its cumulative effect) is now
unconstitutional.
This opinion concerns two cases. Plaintiffs in
Community Housing Improvement Program v. City of New York (19-
cv-4087) are various landlords and two landlord-advocacy groups,
the Community Housing Improvement Program and the Rent
Stabilization Association (the “CHIP Plaintiffs”). Plaintiffs
in 74 Pinehurst LLC v. State of New York (19-cv-6447) are
landlords 74 Pinehurst LLC, Eighty Mulberry Realty Corporation,
141 Wadsworth LLC and 177 Wadsworth LLC, and members of the
Panagoulias family (the “Pinehurst Plaintiffs”). Because of the
significantly overlapping claims and issues of law in the two
cases, the Court addresses them here in a single opinion.1
1 The Court does not, however, consolidate the cases. Accordingly, the
Court issues a separate judgment in CHIP, as directed below.
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Pursuant to 42 U.S.C. § 1983, Plaintiffs assert (a) a
facial claim that the RSL violates the Takings Clause (as both a
physical and a regulatory taking); (b) in the case of certain
Pinehurst Plaintiffs, a claim that the RSL, as applied to them,
violates the Takings Clause (as both a physical and a regulatory
taking); (c) a facial claim that the RSL violates their due-
process rights; and (d) a claim that the RSL violates the
Contracts Clause, as applied to each Pinehurst Plaintiff.2 They
seek an order enjoining the continued enforcement of the RSL, as
amended; a declaration that the amended law is unconstitutional
(both on its face and as-applied); and monetary relief for the
as-applied Plaintiffs’ Takings and Contracts Clause claims.
Supreme Court and Second Circuit cases foreclose most
of these challenges. No precedent binding on this Court has
ever found any provision of a rent-stabilization statute to
violate the Constitution, and even if the 2019 amendments go
beyond prior regulations, “it is not for a lower court to
reverse this tide,” Fed. Home Loan Mortg. Corp. v. N.Y. State
Div. of Hous. & Cmty. Renewal, 83 F.3d 45, 47 (2d Cir. 1996)
(FHLMC) — at least in response to the instant facial challenges.
Accordingly, the Court grants Defendants’ motions to dismiss the
2 Each Pinehurst Plaintiff brings as-applied challenges under the
Takings Clause and Contracts Clause except for 177 Wadsworth LLC, which only
brings an as-applied claim under the Contracts Clause.
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facial challenges under the Takings Clause, the as-applied
claims alleging physical takings, the due-process claims, and
the Contracts Clause claims — as to all Plaintiffs. The Court
denies, at this stage, the motions to dismiss the as-applied
regulatory-takings claims brought by certain Pinehurst
Plaintiffs only. Those claims may face a “heavy burden,” see
Keystone Bituminous Coal Ass’n v. DeBenedictis, 480 U.S. 470,
493 (1987), but given their fact-intensive nature, it is a
burden those Plaintiffs should be afforded an opportunity to
carry, at least to the summary-judgment stage.
I. Background
New York City has been subject to rent regulation, in
some form, since World War I. But the RSL is of more recent
vintage. It traces its roots to 1969, when New York City passed
the law that created the Rent Guidelines Board (RGB) — the body
that, to this day, continues to set rents in New York City.
Five years later, New York State passed its own statute, which
amended the 1969 law. Together, these laws formed the blueprint
for today’s RSL. The State and City have amended the RSL
repeatedly since its initial enactment, culminating with the
amendments at issue here.
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The 2019 amendments, enacted on June 14, 2019, made
significant changes. Most notably, they:
x Cap the number of units landlords can recover for
personal use at one unit per building (and only upon a
showing of immediate and compelling necessity). N.Y.
Reg. Sess. § 6458, Part I (2019).
x Repeal the “luxury decontrol” provisions, which
allowed landlords, in certain circumstances, to
decontrol a unit when the rent reached a specified
value. Id. at Part D, § 5.
x Repeal the “vacancy” and “longevity” increase
provisions, which allowed landlords to charge higher
rents when certain units became vacant. Id. at Part
B, §§ 1, 2.
x Repeal the “preferential rate” provisions, which
allowed landlords who had been charging rates below
the legal maximum to increase those rates when a lease
ended. Id. at Part E.
x Reduce the value of capital improvements — called
“individual apartment improvements” (IAI) and “major
capital improvements” (MCI) — that landlords may pass
on to tenants through rent increases. Id. at Part K,
§§ 1, 2, 4, 11.
x Increase the fraction of tenant consent needed to
convert a building to cooperative or condominium use.
Id. at Part N.
x Extend, from six to twelve months, the period in which
state housing courts may stay the eviction of
breaching tenants. Id. at Part M, § 21.
II. Discussion
A. State Defendants’ Eleventh Amendment Immunity
Before turning to Plaintiffs’ constitutional claims,
the Court must address certain defendants’ assertion of immunity
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from suit. The “State Defendants” — the State of New York, the
New York Division of Housing and Community Renewal (DHCR),3 and
DHCR Commissioner RuthAnne Visnauskas — argue that the Eleventh
Amendment bars certain claims against them.4 State Defendants’
Motion to Dismiss for Lack of Jurisdiction in Part, ECF No. 67.
The State Defendants did not raise the Eleventh Amendment
defense until oral argument on their motion to dismiss for
failure to state a claim — after the 12(b)(6) motions had been
fully briefed. This omission is difficult to understand, to say
the least; nevertheless, the Court must resolve these arguments,
as they implicate its subject-matter jurisdiction. See Dube v.
State Univ. of N.Y., 900 F.2d 587, 594 (2d Cir. 1990); see also
Fed. R. Civ. P. 12(h)(3).
The parties agree that sovereign immunity bars
Plaintiffs’ Due Process and Contracts Clause claims (with
certain exceptions). Plaintiffs’ Response to State Defendants’
Motion to Dismiss for Lack of Jurisdiction in Part at 1, ECF No.
3 The DHCR is the New York State agency charged with overseeing and
administering the RSL.
4 The Eleventh Amendment provides: “The Judicial power of the United
States shall not be construed to extend to any suit in law or equity,
commenced or prosecuted against one of the United States by Citizens of
another State, or by Citizens or Subjects of any Foreign State.” U.S. Const.
amend. XI. Though the text does not speak to suits against states by their
own residents, the Supreme Court held in Hans v. Louisiana, 134 U.S. 1
(1890), that the amendment also generally precludes such actions in federal
court.
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71. Therefore these claims cannot proceed against the State
Defendants, except to the extent they seek declaratory relief
against DHCR Commissioner Visnauskas (as explained below). The
parties dispute, though, whether the Eleventh Amendment
immunizes states against takings claims. Id.
There is an obvious tension between the Takings Clause
and the Eleventh Amendment. The Eleventh Amendment provides the
states with immunity against suit in federal court. Plaintiffs
contend, however, that the Takings Clause’s “self-executing”
nature (meaning, its built-in provision of the “just
compensation” remedy) overrides the states’ immunity. In
support, they cite several cases that have reached that
conclusion (or related conclusions). See, e.g., Manning v. N.M
Energy, Minerals & Nat. Res. Dep’t, 144 P.3d 87, 97-98 (N.M.
2006) (holding that the State of New Mexico could not claim
immunity from regulatory-takings claims because the “‘just
compensation’ remedy found in the Takings Clause . . . abrogates
state sovereign immunity”); see also Hair v. United States, 350
F.3d 1253, 1257 (Fed. Cir. 2003) (holding that the federal
government cannot claim immunity from takings claims because the
Takings Clause is “self-executing”); Leistiko v. Sec’y of Army,
922 F.Supp. 66, 73 (N.D. Ohio 1996) (same).
Despite the fact that the Eleventh Amendment and
Takings Clause date back so long, neither the Supreme Court nor
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the Second Circuit has decisively resolved the conflict. The
Second Circuit recently affirmed a decision that held the
Eleventh Amendment to bar a takings claim, but in a non-
precedential summary order that did not analyze the question in
detail. Morabito v. New York, 803 F. App’x 463, 464-65 (2d Cir.
2020) (summary order) (affirming because the Eleventh Amendment
“generally bars suits in federal courts by private individuals
against non-consenting states”), aff’g No. 6:17-cv-6853, 2018 WL
3023380 (W.D.N.Y. June 18, 2018). Thus the Court must reach the
question squarely.
The overwhelming weight of authority among the
circuits contradicts the cases cited by Plaintiffs, supra.
These cases hold that sovereign immunity trumps the Takings
Clause — at least where, as here, the state provides a remedy of
its own for an alleged violation.5 The reasoning of one such
case, Seven Up Pete Venture v. Schweitzer, 523 F.3d 948 (9th
Cir. 2008), is instructive. In that case, the Ninth Circuit
analogized the question of Takings Clause immunity to the
Supreme Court’s holding in Reich v. Collins, which concerned a
tax-refund due-process claim. 513 U.S. 106 (1994). In Reich,
5 See N.Y. Const. art. I, § 7(a) (“Private property shall not be taken
for public use without compensation.”). No court has reached the ultimate
question of whether the Takings Clause usurps the Eleventh Amendment when no
remedy is available in the state courts. Given New York’s express remedy,
this Court need not reach that issue.
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the plaintiff sued the Georgia Department of Revenue and its
commissioner in federal court to recover payments he had made
pursuant to a tax provision later found unconstitutional. Id.
at 108. The Supreme Court held that when states require payment
of contested taxes up front, the Due Process Clause requires
them to provide, in their own courts, a forum to recover those
payments if the revenue provision in question is later held
invalid — even if the Eleventh Amendment would bar the due-
process claim in federal court. Id. at 109.
The Ninth Circuit in Seven Up reasoned that the
Takings Clause, like the Due Process Clause, “can comfortably
co-exist with the Eleventh Amendment immunity of the States,”
provided state courts make a “constitutionally enforced remedy”
available. Seven Up, 523 F.3d at 954-55. Seven Up’s conclusion
is consistent with the weight of circuit authority. See Bay
Point Props., Inc. v. Miss. Transp. Comm’n, 937 F.3d 454, 456-57
(5th Cir. 2019) (holding that Eleventh Amendment barred takings
claim in federal court, where plaintiff had already sued in
state court but received less compensation than he sought);
Williams v. Utah Dep’t of Corr., 928 F.3d 1209, 1213-14 (10th
Cir. 2019) (holding that the Eleventh Amendment barred a federal
takings claim against the State of Utah, after confirming that
Utah offered a forum for the claim); Hutto v. S.C. Ret. Sys.,
773 F.3d 536, 552 (4th Cir. 2014) (concluding “that the Eleventh
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Amendment bars Fifth Amendment taking claims against States in
federal court when the State’s courts remain open to adjudicate
such claims”); Jachetta v. United States, 653 F.3d 898, 909-10
(9th Cir. 2011) (holding that the Eleventh Amendment barred
claims brought against the state in federal court under the
federal Takings Clause, but that the plaintiff could seek
Supreme Court review if the state court declined to hear the
claim); DLX, Inc. v. Kentucky, 381 F.3d 511, 526-28 (6th Cir.
2004) (holding that Eleventh Amendment immunity barred federal
takings claim, but that state court “would have had to hear that
federal claim”), overruled on other grounds San Remo Hotel, L.P.
v. City & Cnty. of San Francisco, 545 U.S. 323 (2005).
These cases give effect to the Supreme Court’s
admonition that:
[T]he sovereign immunity of the States neither derives
from, nor is limited by, the terms of the Eleventh
Amendment. Rather, as the Constitution’s structure, its
history, and the authoritative interpretations by this
Court make clear, the States’ immunity from suit is a
fundamental aspect of the sovereignty which the States
enjoyed before the ratification of the Constitution, and
which they retain today . . . .
Alden v. Maine, 527 U.S. 706, 713 (1999).
There are fleeting suggestions to the contrary in
Supreme Court authority, but none of them compel the opposite
conclusion. Most recently, in Knick v. Twp. of Scott, 139 S.
Ct. at 2162 (2019), the Supreme Court cast doubt on the notion
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that the availability of state-law relief should determine
whether federal courts may hear takings claims. Id. at 2169-71
(stating that the existence of a state-law remedy “cannot
infringe or restrict the property owner’s federal constitutional
claim,” and that to hold otherwise would “hand[] authority over
federal takings claims to state courts”) (internal quotations
omitted). Similarly, in First English Evangelical Lutheran
Church of Glendale v. Cnty. of Los Angeles, 482 U.S. 304 (1987),
the Supreme Court rejected an argument that, based on the
“prohibitory nature of the Fifth Amendment, . . . combined with
principles of sovereign immunity,” the Takings Clause is merely
a “limitation on the power of the Government to act,” rather
than a “remedial provision” that requires compensation. Id. at
316 n.9.6
But these cases do not control here. They establish,
at most, that the Takings Clause can overcome court-imposed —
rather than constitutional — restrictions on takings claims.
See Knick, 139 S. Ct. 2167-68 (overruling Williamson Cnty. Reg’l
Planning Comm’n v. Hamilton Bank of Johnson City, 473 U.S. 172
6 Some have argued that this footnote proves the Takings Clause trumps
sovereign immunity, insofar as it suggests sovereign immunity does not strip
the Takings Clause of its remedial nature. See, e.g., Eric Berger, The
Collision of the Takings and State Sovereign Immunity Doctrines, 63 WASH. & LEE
L. REV. 493 (2006). But that reading is far from obvious, and it would, in
any event, be dictum (because the defendant in First English was a county,
which cannot invoke sovereign immunity).
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(1985), which had established court-imposed rule requiring
plaintiffs to exhaust state remedies before bringing a takings
claim in federal court); First English, 482 U.S. at 310-11
(invalidating state precedent that prevented plaintiffs from
recovering compensation for damages incurred before a state
court found there was a taking). Neither case had occasion to
decide whether the Takings Clause overrides other constitutional
provisions like the Eleventh Amendment. Knick and First
English, therefore, do not compel the conclusion that the
Takings Clause trumps sovereign immunity.
Accordingly, New York State, the DHCR,7 and
Commissioner Visnauskas (to the extent Plaintiffs seek monetary
relief in her official capacity) will be dismissed from this
litigation.
This holding may not have the profound impact that one
might initially surmise. Plaintiffs may continue to seek
prospective remedies — like an injunction — against state
officials under Ex Parte Young, 209 U.S. 123 (1908), and New
York State remains obligated (via its own consent) to pay just
7 Sovereign immunity extends to state agencies like the DHCR as well,
because they are an arm of the state. See, e.g., Schiavone v. N.Y. State
Office of Rent Admin., No. 18-cv-130, 2018 WL 5777029, at *3-*4 (S.D.N.Y.
Nov. 2, 2018) (Eleventh Amendment bars suit against DHCR); Helgason v.
Certain State of N.Y. Emps., No. 10-cv-5116, 2011 WL 4089913, at *7 (S.D.N.Y.
June 24, 2011) (same) report and recommendation adopted sub nom. Helgason v.
Doe, 2011 WL 4089943 (S.D.N.Y. Sept. 13, 2011); Gray v. Internal Affairs
Bureau, 292 F. Supp. 2d 475, 476 (S.D.N.Y. 2003) (same).
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compensation for takings under the New York State Constitution.
Moreover, the Eleventh Amendment does not affect Plaintiffs’
claims for money damages against the City of New York, the RGB,
or the members of the RGB.
Sovereign immunity also does not bar the remaining
damages claims (for just compensation) against Commissioner
Visnauskas in her individual capacity.8 But to establish
individual liability, Plaintiffs must allege that Commissioner
Visnauskas was “personal[ly] involve[d]” in the alleged
regulatory takings. Grullon v. City of New Haven, 720 F.3d 133,
138 (2d Cir. 2013). Although Plaintiffs allege that
Commissioner Visnauskas is personally responsible for enforcing
and implementing particular aspects of the RSL,9 the core of
their claims is that the enactment of the 2019 amendments, as a
whole, violates the Constitution. Because they do not allege
that Commissioner Visnauskas had any involvement at that broader
stage, these claims must be dismissed under Rule 12(b)(6). See
8 Moreover, the Eleventh Amendment does not bar Plaintiffs’ Contracts
Clause claims against Commissioner Visnauskas for declaratory relief (in her
official capacity) or for damages (in her personal capacity). As explained
below, those claims are dismissed on the merits, as are Plaintiffs’ due-
process claims against Commissioner Visnauskas for facial declaratory and
injunctive relief.
9 Plaintiffs allege that Commissioner Visnauskas was personally “charged
with implementing and enforcing” certain provisions of the RSL, including the
personal-use restrictions and the MCI and IAI provisions. Pinehurst
Complaint at ¶¶ 68, 127, ECF No. 1 (Pinehurst Compl.) (citing N.Y.C. Admin.
Code § 26-511(b) (“[N]o such amendments shall be promulgated except by action
of the commissioner of the division of housing and community renewal”).
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Morabito, 803 F. App’x at 466 (allegation that state official
could “modify or abolish” the challenged regulation was
inadequate); Nassau & Suffolk Cnty. Taxi Owners Ass’n, Inc. v.
New York, 336 F. Supp. 3d 50, 70 (E.D.N.Y. 2018) (dismissing
claim because plaintiffs did not allege that the officials were
“involved in the creation or passage” of the challenged
regulation). Commissioner Visnauskas is not completely
dismissed from this action, however, because Plaintiffs’
surviving claims against her for declaratory relief may proceed
under Ex Parte Young.
* * * * *
The Court turns next to Plaintiffs’ substantive
claims. Plaintiffs bring two types of challenge under the
Takings Clause — they allege physical and regulatory takings.
The CHIP Plaintiffs allege only facial challenges under both
theories (i.e., they claim that the face of the statute
effectuates a physical and regulatory taking in all
applications). Certain Pinehurst Plaintiffs also bring as-
applied takings challenges with respect to specific properties
under both theories.
B. Physical Taking: Facial and As-Applied Challenges
When a government authorizes “a permanent physical
occupation” of property, a taking occurs. Loretto v.
Teleprompter Manhattan CATV Corp., 458 U.S. 419, 426 (1982).
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Physical takings are characterized by a deprivation of the
“entire bundle of property rights” in the affected property
interest — “the rights to possess, use and dispose of” it. See
Horne v. Dep’t of Agric., 576 U.S. 350, 361-62 (2015) (quoting
Loretto, 458 U.S. at 435) (internal quotations omitted).
Examples include the installation of physical items on
buildings, Loretto, 458 U.S. at 438, and the seizure of control
over private property, Horne, 576 U.S. at 361-62 (crops); United
States v. Pewee Coal Co., 341 U.S. 114, 115-17 (1951) (mines).
In this case, all Plaintiffs retain the first and
third strands in Horne’s bundle of rights, supra: they continue
to possess the property (in that they retain title), and they
can dispose of it (by selling). See Andrus v. Allard, 444 U.S.
51, 65-66 (1979) (“[W]here an owner possesses a full ‘bundle’ of
property rights, the destruction of one ‘strand’ of the bundle
is not a taking, because the aggregate must be viewed in its
entirety.”). The restrictions on their right to use the
property as they see fit may be significant, but that is
insufficient under the standards set forth by the Supreme Court
and Second Circuit to make out a physical taking.
Recognizing as much in prior cases, the Second Circuit
has held that “the RSL regulates land use rather than effecting
a physical occupation.” W. 95 Hous. Corp. v. N.Y.C. Dep’t of
Hous. Pres. & Dev., 31 F. App’x 19, 21 (2d Cir. 2002) (summary
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order) (citing Yee v. City of Escondido, 503 U.S. 519, 523
(1992)). The Circuit has rejected physical-takings claims
against the RSL on multiple occasions. See Harmon v. Markus,
412 F. App’x 420 (2d Cir. 2011) (summary order); Greystone Hotel
Co. v. City of New York, 98-9116, 1999 U.S. App. LEXIS 14960 (2d
Cir. June 23, 1999) (summary order); FHLMC, 83 F.3d at 47-48.
The incremental effect of the 2019 amendments, while significant
to investment value, personal use, unit deregulation, and
eviction rights, is not so qualitatively different from what
came before as to permit a different outcome.
Plaintiffs attempt to overcome these Second Circuit
cases by arguing that they rest in part on reasoning that the
Supreme Court has since disparaged in Horne. In Harmon and
FHLMC, the Second Circuit had invoked what Plaintiffs here call
the “acquiescence theory” — the notion that the landlords chose,
voluntarily, to enter the rental real estate business, and that
they can exit it if they choose. In Horne, decided
subsequently, this strain of reasoning came under criticism.
See Horne, 576 U.S. at 365 (rejecting argument that “raisin
growers voluntarily choose to participate in the raisin market”
and could leave the industry to escape regulation); see also
Loretto, 458 U.S. at 439 n.17 (noting that “a landlord’s ability
to rent his property may not be conditioned on forfeiting the
right to compensation for a physical occupation”). But Horne’s
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rejection of “acquiescence” theory does not save Plaintiffs’
physical-takings claim. Plaintiffs’ argument fails not because
they have acquiesced in the taking of their property, but
because under cases like Loretto, Horne, Yee, and others, no
physical taking has occurred in the first place.
The Pinehurst Plaintiffs’ as-applied physical
challenges fail for the same reasons (to the extent they make
them, which 177 Wadsworth LLC does not). No Plaintiff alleges
that they have been deprived of title to their property, or that
they have been deprived of the ability to sell the property if
they choose. At most, these Plaintiffs allege that the manner
in which they can remove apartments from stabilization — the so-
called “off ramps” from the RSL regime — have been significantly
limited.
Accordingly, the Court finds that Plaintiffs fail to
state physical-taking allegations upon which relief can be
granted, and dismisses these claims — both facial and as-applied
— pursuant to Rule 12(b)(6).
C. Regulatory Taking – Facial Challenge
Like the physical-takings challenges, every
regulatory-takings challenge to the RSL has been rejected by the
Second Circuit. See W. 95 Hous. Corp., 31 F. App’x 19 (summary
order); Greystone Hotel Co., 1999 U.S. App. LEXIS 14960 (summary
order); FHLMC, 93 F.3d 45; see also Rent Stabilization Ass’n v.
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Dinkins, 5 F.3d 591, 595 (2d Cir. 1993) (construing plaintiff’s
facial attacks as as-applied challenges and dismissing them for
lack of standing). Of course, it cannot be said that there is
no such thing as a regulatory taking in the world of rent
stabilization, and it remains eminently possible that at some
point, the legislature will apply the proverbial straw that
breaks the camel’s back.10 If they do, however, it is unlikely
that the straw in question will be identified in the context of
a facial challenge. In Pennell v. City of San Jose, 485 U.S. 1
(1988), for example, the Supreme Court rejected a regulatory-
takings claim, noting that “we have found it particularly
important in takings cases to adhere to our admonition that ‘the
constitutionality of statutes ought not be decided except in an
actual factual setting that makes such a decision necessary.’”
Id. at 10 (quoting Hodel v. Virginia Surface Mining &
Reclamation Ass’n, Inc., 452 U.S. 264, 294-95 (1981)); see also
Penn Cent. Transp. Co. v. City of New York, 438 U.S. 104, 124
(1978) (regulatory-takings analyses are “essentially ad hoc,
factual inquiries”). The Second Circuit has repeatedly
10 The Supreme Court has spoken about the need for takings jurisprudence
to redress this kind of incremental deprivation of property rights. See,
e.g., Lucas v. S.C. Coastal Council, 505 U.S. 1003, 1014 (1992) (“If . . .
the uses of private property were subject to unbridled, uncompensated
qualification under the police power, ‘the natural tendency of human nature
would be to extend the qualification more and more until at last private
property disappeared.’”) (quoting Pa. Coal Co. v. Mahon, 260 U.S. 393, 415
(1922)).
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disparaged facial challenges to the RSL. See W. 95 Hous. Corp.,
31 F. App’x at 21 (the difficulty of regulatory-takings analysis
“suggests that a widely applicable rent control regulation such
as the RSL is not susceptible to facial constitutional analysis
under the Takings Clause”); Dinkins, 5 F.3d at 595 (trade
association’s challenge was “simply not facial,” despite
plaintiff’s having characterized it as such, and “the proper
recourse is for the aggrieved individuals themselves to bring
suit” on an as-applied basis). This is consistent with
limitations on facial challenges generally. See FW/PBS, Inc. v.
City of Dallas, 493 U.S. 215, 223 (1990) (noting that outside of
the First Amendment context, “facial challenges to legislation
are generally disfavored”).
In a facial challenge, Plaintiffs must demonstrate
that “no set of circumstances exists under which [the RSL] would
be valid.” United States v. Salerno, 481 U.S. 739, 745 (1987).
Put differently, such a claim fails if Defendants can identify
any “possible set of . . . conditions” under which the RSL could
be validly applied. See Cal. Coastal Comm’n v. Granite Rock
Co., 480 U.S. 572, 593 (1987).
The Supreme Court has identified two distinct strains
of regulatory-takings analysis. The first applies in the case
of a regulation that “denies all economically beneficial or
productive use of land.” Palazzolo v. Rhode Island, 533 U.S.
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606, 617 (2001); see also Lucas, 505 U.S. at 1026 (applying the
“categorical rule that total regulatory takings must be
compensated”). This analysis is inapplicable here: Plaintiffs
do not allege that they have been deprived of all economically
viable use of their property.11
Even without rendering property worthless, a
regulatory scheme may still effectuate a taking if it “goes too
far,” in Justice Holmes’s words. Mahon, 260 U.S. at 415. In
the current era, courts apply the three-factor test of Penn
Central to determine whether a regulation that works a less-
than-total destruction of value has gone too far. The factors
are: (1) the economic impact of the regulation on the claimant;
(2) the extent to which the regulation has interfered with
reasonable investment-backed expectations; and (3) the character
of the governmental action in question. See Penn Central, 438
U.S. at 124. In applying these factors, the ultimate question
is “whether justice and fairness require that economic injuries
11 Pinehurst Compl. at ¶ 216 (“The RSL thus results in a decrease of 50
percent or more of a unit’s value. The 2019 Amendments exacerbate this
decrease in value and have caused rent-stabilized apartments to lose 20 to 40
percent (or more) of their value prior to enactment of the 2019
Amendments.”); id. at ¶ 97 (the 2019 amendments “have reduced the value of
the rent-stabilized buildings owned by Plaintiffs 74 Pinehurst LLC, 141
Wadsworth LLC, [and] 177 Wadsworth LLC . . . by 20 to 40 percent”); id. at
¶ 232 (the RSL has “decreas[ed] the resale value of Plaintiffs’ properties”);
CHIP Complaint at ¶ 274, ECF No. 1 (CHIP Compl.) (“The RSL’s regulatory
burdens have dramatically reduced the market value of regulated properties,
in some cases by over 50%”); id. at ¶ 298 (“[B]uildings where rent stabilized
units account for almost 100% of the units can expect a price per square foot
. . . of two-thirds less” than buildings where “0-20% of the units” are
regulated).
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caused by public action be compensated by the government, rather
than remain disproportionately concentrated on a few persons.”
Kaiser Aetna v. United States, 444 U.S. 164, 175 (1979)
(internal quotations omitted). The Court considers the Penn
Central factors as they apply, first, to Plaintiffs’ facial
challenge, and then to the as-applied regulatory challenges,
which are discussed in a separate section, infra.
Simply to apply these “ad hoc” factors to the instant
facial challenge is to recognize why the RSL is not generally
susceptible to such review. The first factor — economic impact
— obviously needs to be calculated on an owner-by-owner basis,
and those calculations will vary significantly depending on when
a property was purchased, what fraction of its units are rent-
stabilized, what improvements the landlord has made, and many
other metrics. At best, Plaintiffs can make vague allegations
about the average diminution in value across regulated
properties. See, e.g., Transcript dated June 23, 2020 at 59:19-
24, Community Housing Improvement Program v. City of New York,
19-cv-4087, ECF No. 86 (“[CHIP Plaintiffs’ counsel]: . . . .
At the complaint stage, we don’t have to have developed all of
our evidence, even our own evidence, with respect to the
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economic impact.”).12 This lack of clarity surely arises because
the diminution in value will vary significantly from property to
property — making it virtually impossible to show there is “no
set of circumstances,” Salerno, 481 U.S. at 745, in which the
RSL applies constitutionally.
The second Penn Central factor is the extent to which
the regulation interferes with reasonable investment-backed
expectations. “The purpose of the investment-backed expectation
requirement is to limit recovery to owners who could demonstrate
that they bought their property in reliance on a state of
affairs that did not include the challenged regulatory regime.”
Allen v. Cuomo, 100 F.3d 253, 262 (2d Cir. 1996) (internal
quotations omitted). Accordingly, the nature of each landlord’s
investment-backed expectations depends on when they invested in
the property and what they expected at that time. Meridien Tr.
& Safe Deposit Co. v. FDIC, 62 F.3d 449, 454 (2d Cir. 1995)
(“[T]he critical time for considering investment-backed
expectations is the time a property is acquired, not the time
the challenged regulation is enacted.”). And the reasonableness
12 See also Pinehurst Compl. at ¶ 94 (comparing the average “value per
square foot” of regulated and unregulated buildings); id. at ¶ 101 (comparing
landlords’ average “operating costs” and “permitted [rate] increases”); CHIP
Compl. at ¶ 273 (regulated units charge “on average 40% lower than market-
rate rents, and in some units 80% lower”); id. at ¶ 274 (“unregulated
properties are typically worth 20% to 40% more” than regulated ones), id. at
¶ 284 (“the income from non-regulated units can be as much as 60-90% higher
than regulated units”).
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of these expectations will of course vary based on the state of
the law when the property was purchased, among other things.
See Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1005 (1984) (the
expectation must be “reasonable,” which means it “must be more
than a unilateral expectation or an abstract need”) (internal
quotations omitted); see also Philip Morris, Inc. v. Reilly, 312
F.3d 24, 36-37 (1st Cir. 2002) (courts “should recognize that
not every investment deserves protection and that some investors
inevitably will be disappointed”).
Plaintiffs cannot make broadly applicable allegations
about the investment-backed expectations of landlords state- or
city-wide. Different landlords bought at different times, and
their “reliance,” such as it was, would have been on different
incarnations of the RSL. See Ark. Game & Fish Comm’n v. United
States, 568 U.S. 23, 38 (2012) (noting that the reasonable
investment-backed expectations analysis is “often informed by
the law in force” at the time). Even those who bought at the
same time would have done so with different expectations,
including some the law still allows. Given this range of
expectations — some reasonable, others not — Plaintiffs cannot
allege that the RSL frustrates the reasonable investment-backed
expectations of every landlord it affects.
Finally, Penn Central’s third factor considers the
“character of the taking.” See Penn Central, 438 U.S. at 124
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(“A taking may more readily be found when the interference with
property can be characterized as a physical invasion by
government, than when interference arises from some public
program adjusting the benefits and burdens of economic life to
promote the common good.”) (internal citations omitted). But
Plaintiffs cannot prevail without alleging the other two Penn
Central factors at the facial level. See Lingle v. Chevron
U.S.A. Inc., 544 U.S. 528, 540 (2005) (“[T]he Penn Central
inquiry turns in large part, albeit not exclusively, upon the
magnitude of a regulation’s economic impact and the degree to
which it interferes with legitimate property interests.”).
Accordingly, Plaintiffs’ facial regulatory-takings claim is
dismissed.
D. Post-Breach Relief Provisions
The RSL provisions that provide the most substantial
basis for a facial challenge, in this Court’s estimation, are
contained in New York’s Real Property Actions and Proceedings
Law (RPAPL) Sections 749 and 753. As amended in 2019, these
provisions dictate that even after the RSL has operated to
eliminate “unjust, unreasonable and oppressive rents,” N.Y.C.
Admin. Code § 26-501, the state housing courts may still stay
(for up to twelve months) the eviction of a tenant who fails to
pay the reduced rent, if eviction would cause the tenant
“extreme hardship.” RPAPL § 753. In making the hardship
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determination, “the [housing] court shall consider serious ill
health, significant exacerbation of an ongoing condition, a
child’s enrollment in a local school, and any other extenuating
life circumstances affecting the ability of the applicant or the
applicant’s family to relocate and maintain quality of life.”
Id.
These “post-breach relief” provisions are aimed at
requiring particular property owners to alleviate the hardships
of particular tenants — including hardships that may arise from
circumstances separate and distinct from the dynamics of supply
and demand in New York’s rental housing market. That aim, while
indisputably noble, nevertheless carries a “heightened risk that
private property is being pressed into some form of public
service,” Lucas, 505 U.S. at 1018, and correspondingly puts more
pressure on the “usual assumption that the legislature is simply
adjusting the benefits and burdens of economic life” in a way
that requires no recompense. Id. at 1017 (internal quotations
omitted). Stated in terms of the current case, it can be argued
that in Sections 749 and 753, the New York State legislature is
not “adjusting” the terms of a contract between landlord and
tenant in a regulated market, but rather drafting a landlord who
is no longer subject to any enforceable contract at all (because
the tenant is in breach) to provide an additional benefit — of
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up to one year’s housing — because of the specific tenant’s life
circumstances.
Neither the Supreme Court nor the Second Circuit has
squarely considered a regulation like the post-breach relief
provisions here, but the Supreme Court came closest in Pennell,
which also involved a statute that called on landlords to
provide additional benefits on the basis of tenant “hardship.”
485 U.S. 1. The City of San Jose had adopted a rent-control
ordinance listing seven factors that a “hearing officer” was
required to consider in determining the rent that a particular
landlord could charge. Id. at 9. The Court described the
argument that the seventh factor — the “hardship” factor —
worked a taking:
[T]he Ordinance establishes the seven factors that a
hearing officer is to take into account in determining the
reasonable rent increase. The first six of these factors
are all objective, and are related either to the landlord's
costs of providing an adequate rental unit, or to the
condition of the rental market. Application of these six
standards results in a rent that is “reasonable” by
reference to what appellants contend is the only legitimate
purpose of rent control: the elimination of “excessive”
rents caused by San Jose's housing shortage. When the
hearing officer then takes into account “hardship to a
tenant” pursuant to [the seventh factor] and reduces the
rent below the objectively “reasonable” amount established
by the first six factors, this additional reduction in the
rent increase constitutes a “taking.” This taking is
impermissible because it does not serve the purpose of
eliminating excessive rents — that objective has already
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been accomplished by considering the first six factors —
instead, it serves only the purpose of providing assistance
to “hardship tenants.”
Id.
In response to this argument, Justice Scalia would
have held that a facial taking occurred. He concluded that in
any application of the “hardship” provision, the city would not
be “‘regulating’ rents in the relevant sense of preventing rents
that are excessive; rather, it [would be] using the occasion of
rent regulation (accomplished by the rest of the Ordinance) to
establish a welfare program privately funded by those landlords
who happen to have ‘hardship’ tenants.” Id. at 22 (Scalia, J.,
concurring in part and dissenting in part).
A broad majority of the Court, however, declined to
reach the facial-takings question, on the basis that it would
have been “premature” to do so without record evidence that the
hardship provision had ever actually been relied on to reduce a
proposed rent increase. Id. at 9-10. The majority noted that
there was nothing in the law requiring the hearing officer to
reduce rents on the basis of tenant hardship, and that the Court
therefore lacked a “sufficiently concrete factual setting for
the adjudication of the takings claim” presented. Id.
Applying Pennell’s reasoning, the facial challenge to
the post-breach relief provisions here, too, must be deemed
premature. Though Plaintiffs allege that application of the
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post-breach relief provisions is “far from uncommon,” CHIP
Plaintiffs’ Supplemental Memorandum of Law in Opposition to
Defendants’ and Intervenors’ Motions to Dismiss at 11, ECF No.
87 (quoting Elmsford Apartment Assocs. v. Cuomo, 20-cv-4062,
2020 WL 3498456, at *4 (S.D.N.Y. June 29, 2020)), they do not
argue that any named Plaintiff in this case has been harmed by
application of these provisions.
And the parties do not agree on how the provisions are
likely to work in practice. Plaintiffs contend that the
statutory provision conditioning stays on the tenant depositing
rent payments is illusory because the statute provides no
“enforcement mechanism” to force tenants to pay, see Pinehurst
Plaintiffs’ Supplemental Brief in Opposition to Defendants’
Motions to Dismiss at 3, ECF No. 65 (“Although the statute
purports to require a deposit of one year’s rent as a condition
of the tenant’s post-breach occupancy, the statute contains no
enforcement mechanism through which a property owner can require
the tenant to make that deposit.”). Defendants argue, however,
that state courts do, in fact, enforce this requirement in
practice, see, e.g., Pinehurst City Defendants’ Supplemental
Brief in Further Support of Their Motion to Dismiss the
Complaint at 3, 5-7, ECF No. 68. Given these factual disputes,
the Court must heed the Pennell majority’s admonition to avoid
decision until the provision is challenged in a “factual setting
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that makes such a decision necessary.” 485 U.S. at 10 (quoting
Hodel, 452 U.S. at 294-95).
E. Regulatory Taking – As-Applied Challenge
Even in bringing their as-applied challenges, the
Pinehurst Plaintiffs (except 177 Wadsworth LLC) must “satisfy
the heavy burden placed upon one alleging a regulatory taking.”
Keystone Bituminous Coal Ass’n, 480 U.S. at 493. But taking
their allegations as true, certain as-applied Plaintiffs have
alleged enough to survive a motion to dismiss. Indeed, there
are unanswered questions about virtually every aspect of their
claims.
Applying the first Penn Central factor, each as-
applied Plaintiff alleges that the 2019 amendments significantly
diminished the value of their properties. While the extent of
this diminution remains to be determined with precision,
Plaintiffs 74 Pinehurst LLC and 141 Wadsworth LLC allege that
the 2019 amendments reduced the value of their regulated
properties by twenty to forty percent beyond the diminution
already occasioned by the pre-2019 RSL. Pinehurst Compl. at
¶ 97. And Eighty Mulberry Realty Corporation and the
Panagouliases allege that the 2019 amendments “significantly
reduced the value” of their rent-stabilized apartments, id. at
¶ 96, which now rent for roughly half the rate of unregulated
apartments in the same building (or less), id. at ¶ 106. These
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alleged economic impacts, though insufficient on their own,13 are
not so minimal to compel dismissal of the complaint at this
stage.
But only two Plaintiffs (Eighty Mulberry Realty
Corporation and the Panagouliases) adequately allege that the
RSL violates their reasonable investment-backed expectations in
its current cumulative effect. These Plaintiffs bought their
properties at the dawn of the rent-stabilized era — either
before the RSL was first enacted (Eighty Mulberry Realty
Corporation, before 1950, id. at ¶ 17) or not long thereafter
(the Panagouliases, in 1974, id. at ¶ 13). And they allege that
the 2019 amendments not only frustrate their expectation to a
reasonable rate of return, but also their expectation that some
units would not be (or remain) regulated at all. Id. at
¶¶ 108-09.14 The Panagouliases contend that the DHCR rejected
13 See Penn Central, 438 U.S. at 131 (citing Village of Euclid v. Ambler
Realty Co., 272 U.S. 365 (1926) (75% diminution in value not a taking);
Hadacheck v. Sebastian, 239 U.S. 394 (1915) (87.5% diminution; same
conclusion)); see also Concrete Pipe & Prods. of Cal., Inc. v. Constr.
Laborers Pension Tr., 508 U.S. 602, 645 (1993) (“[M]ere diminution in the
value of property, however serious, is insufficient to demonstrate a
taking.”).
14 “The 2019 Amendments further undermine the investment-backed
expectations of property owners, including Plaintiffs [the Panagouliases] and
Plaintiff Eighty Mulberry [Realty] Corporation, by repealing the luxury- and
high-income decontrol provisions described above . . . . Many property
owners, including Plaintiffs [the Panagoluiases] and Plaintiff Eighty
Mulberry Realty Corporation, undertook significant capital improvements,
improving the quality of their units, with the expectation that the
apartments could be converted to market-rate rentals under the luxury- and
high-income decontrol provisions. Repeal of the luxury- and high-income
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their attempt to reclaim units for personal use, which
effectively prevents them from using the property for other
purposes. Id. at ¶¶ 63-64.15 Although questions remain as to
the nature and reasonableness of these expectations, it cannot
be said, at this stage, that these allegations are inadequate.
Discovery is needed to assess these claims.
The same is not true for the other as-applied
Plaintiffs, 74 Pinehurst LLC and 141 Wadsworth LLC. Unlike
Eighty Mulberry Realty Corporation and the Panagouliases, these
Plaintiffs bought their properties under a different, and more
mature, version of the RSL (as in effect in 2003 and 2008,
respectively, see id. at ¶¶ 14-15).16 By that point, the RSL had
decontrol provisions eliminated the only mechanisms to transition a rent-
stabilized apartment into a market-rate rental unit. . . . The luxury and
high-income decontrol provisions had been the law for over 25 years, and
formed the backbone of property owners’ reasonable investment-backed
expectations that they could eventually charge market rents for their units.”
Pinehurst Compl. at ¶¶ 108-09.
15 Cf. Yee, 503 U.S. at 528 (noting that those plaintiffs, unlike the
Panagouliases, had failed to run the “gauntlet” of statutory procedures for
changing the use of their property prior to bringing their takings claim).
The Panagouliases also allege that they cannot put the property to commercial
use due to zoning laws. See Pinehurst Compl. at ¶ 87.
16 Whether the time of acquisition matters to the Penn Central inquiry
appears to be subject to some debate among the Justices. See Palazzolo, 533
U.S. at 630 (Penn Central claims are “not barred by the mere fact that title
was acquired after the effective date of the state-imposed restriction”); id.
at 637 (Scalia, J., concurring) (“In my view, the fact that a restriction
existed at the time the purchaser took title . . . should have no bearing
upon the determination of whether the restriction is so substantial as to
constitute a taking.”). But for the moment, at least, the timing of purchase
— even if not dispositive, in and of itself — remains at least significant,
and the as-applied Plaintiffs here have very different purchase profiles in
that regard. See id. at 633, 635 (O’Connor, J., concurring) (the Palazzolo
majority’s holding “does not mean that the timing of the regulation’s
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taken its basic shape and become a fixture of New York law.17
Cf. CHIP Compl. at ¶ 303 (the RSL was “nominally established as
a temporary measure”).
74 Pinehurst LLC and 141 Wadsworth LLC argue that they
did not reasonably expect operating costs to outpace rate
increases. Pinehurst Compl. at ¶¶ 98, 101, 237. Nor, these
Plaintiffs claim, did they expect the repeal of luxury decontrol
or vacancy, longevity, and preferential-rate increases, id. at
¶¶ 102, 104, 114, 120, 124, or the reduction of recoverable IAIs
and MCIs, id. at ¶¶ 138-42.
But by the time these Plaintiffs invested, the RSL had
been amended multiple times, and a reasonable investor would
have understood it could change again. Under the Second
Circuit’s case law, it would not have been reasonable, at that
point, to expect that the regulated rate would track a given
figure, or that the criteria for decontrol and rate increases
would remain static. See, e.g., id. at ¶¶ 22, 99-100 (RGB sets
enactment relative to the acquisition of title is immaterial to the Penn
Central analysis,” and “does not remove the regulatory backdrop against which
an owner takes title to property from the purview of the Penn Central
inquiry”); 1236 Hertel Ave. v. Calloway, 761 F.3d 252, 266-67 (2d Cir. 2014)
(dismissing, despite Palazzolo, a Penn Central claim because plaintiff
acquired title after the challenged law became a “background principle of the
State’s law of property,” which made his expectation that the law would not
change unreasonable).
17 There were some background rent-regulation laws when Eighty Mulberry
Realty Corporation and the Panagouliases bought their properties as well. As
stated above, some form of rent regulation has existed in New York City since
World War I. But these were very different regimes, and it is unclear
whether and to what extent they applied to the properties at issue here.
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permissible rates annually based on the rent set under the RSL
in 1974); id. at ¶ 38 (luxury-decontrol introduced in 1993);
CHIP Compl. at ¶ 59 (vacancy and longevity increases introduced
in 1997); Memorandum of Law in Support of Pinehurst State
Defendants’ Motion to Dismiss at 8, ECF No. 53 (luxury-decontrol
amended in 1997). Because these Plaintiffs made their
investments “against a backdrop of New York law” that suggested
the RSL could change, see 1236 Hertel Ave., 761 F.3d at 266-67,
they cannot allege that the 2019 amendments violated their
reasonable investment-backed expectations.
Finally, analysis of the RSL’s “character” should be
determined after discovery, when the precise effects of the RSL
on these Plaintiffs becomes clearer.
The claims brought by 74 Pinehurst LLC and 141
Wadsworth LLC are therefore dismissed, while the claims brought
by Eighty Mulberry Realty Corporation and the Panagouliases may
proceed.
F. Due Process
Nor do the 2019 amendments violate the Due Process
Clause of the Fourteenth Amendment. Plaintiffs argue that the
RSL is not “rationally related” to increasing the supply of
affordable housing, helping low-income New Yorkers, or promoting
socio-economic diversity. Instead, they claim the law is
counterproductive: it perpetuates New York’s housing crisis,
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and fails to target the people it claims to serve. See CHIP
Compl. at ¶¶ 70-155; Pinehurst Compl. at ¶¶ 159-88. The CHIP
Plaintiffs also argue that New York City’s triennial declaration
of a “housing emergency” (which triggers the RSL) itself
violates due process, because that decision is arbitrary and
irrational. CHIP Compl. at ¶¶ 167-92.
In support, Plaintiffs allege that economists broadly
agree that laws like the RSL do not work for their intended
purpose, and indeed may do substantially more harm than good.
As one Nobel Prize-winning economist, cited in the Pinehurst
Plaintiffs’ complaint, put it in discussing San Francisco’s
rent-stabilization scheme:
The analysis of rent control is among the best-understood
issues in all of economics, and — among economists, anyway
— one of the least controversial. In 1992 a poll of the
American Economic Association found 93 percent of its
members agreeing that “a ceiling on rents reduces the
quality and quantity of housing.” Almost every freshman-
level textbook contains a case study on rent control, using
its known adverse side effects to illustrate the principles
of supply and demand. Sky-high rents on uncontrolled
apartments, because desperate renters have nowhere to go —
and the absence of new apartment construction, despite
those high rents, because landlords fear that controls will
be extended? Predictable. . . . [S]urely it is worth
knowing that the pathologies of San Francisco's housing
market are right out of the textbook, that they are exactly
what supply-and-demand analysis predicts.
Paul Krugman, Reckonings; A Rent Affair, N.Y. TIMES (June 7,
2000); see also Pinehurst Compl. at ¶ 160 (citing Krugman
article).
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But the Court is engaged in rational-basis review
here, not strict scrutiny. See Pennell, 485 U.S. at 11-12
(considering whether a rent-control statute was “arbitrary,
discriminatory, or demonstrably irrelevant to the policy the
legislature is free to adopt”); see also Lingle, 544 U.S. at 545
(“[W]e have long eschewed . . . heightened scrutiny when
addressing substantive due process challenges to government
regulation”). And in that context, the Court is bound to defer
to legislative judgments, even if economists would disagree.
See, e.g., Lingle, 544 U.S. at 544-45 (disapproving of district
court’s assessment of competing expert testimony on the benefits
of Hawaii’s rent-control statute, and stating: “The reasons for
deference to legislative judgments about the need for, and
likely effectiveness of, regulatory actions are by now well
established . . . .”).
Moreover, alleviating New York City’s housing shortage
is not the only justification of the RSL that the legislature
offered. The RSL was also intended to allow people of low and
moderate income to remain in residence in New York City — and
specific neighborhoods within — when they otherwise might not be
able to. See N.Y.C. Admin. Code § 26-501 (extending the RSL to
prevent “uprooting long-time city residents from their
communities”). The Supreme Court has recognized neighborhood
stability and continuity as a valid basis for government
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regulation. See Nordlinger v. Hahn, 505 U.S. 1, 12 (1992)
(“[T]he State has a legitimate interest in local neighborhood
preservation, continuity, and stability.”) (citing Village of
Euclid, 272 U.S. 365). And where, as here, there are multiple
justifications offered for regulation, the statute in question
must be upheld so long as any one is valid. See Preseault v.
I.C.C., 494 U.S. 1, 18 (1990) (“There is no requirement that a
law serve more than one legitimate purpose.”); Thomas v.
Sullivan, 922 F.2d 132, 136 (2d Cir. 1990) (on rational-basis
review, “we consider not only contemporaneous articulations of
legislative purpose but also any legitimate policy concerns on
which the legislature might conceivably have relied”).
Accordingly, the due-process challenge is dismissed.
G. Contracts Clause
The Pinehurst Plaintiffs also claim that the 2019
amendments, as applied to each of them, violate the Contracts
Clause of Article I by repealing the RSL’s so-called
“preferential rates” provision.18 This provision allowed
landlords to raise rents on an expiring lease to the maximum
rate that would otherwise apply to the unit. While the
preferential-rates provision existed, many landlords, including
each of the Plaintiffs here, Pinehurst Compl. at ¶ 120,
18 The Contracts Clause prohibits states from “pass[ing] any . . . Law
impairing the Obligation of Contracts.” U.S. Const. art. I, § 10, cl. 1.
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allegedly offered “preferential” leases to tenants (i.e.,
leasing rates discounted below even what the RGB would permit).
These landlords expected, prior to repeal, that they could raise
rates significantly when a preferential lease term ended. The
2019 amendments, however, prevent Plaintiffs from doing so by
limiting future rates to the amount charged at the time the 2019
amendments were enacted (plus annual increases). See N.Y. Reg.
Sess. § 6458, Part E, § 2 (2019).
Plaintiffs claim this violates the Contracts Clause in
two ways. First, they claim that it extends the duration of all
Plaintiffs’ expiring, preferential leases (since now they must
not only renew the lease, but also at the same preferential
rates). Second, 74 Pinehurst LLC claims that, as to it, the
2019 amendments also required the retroactive reduction of rent
— the most important term in the lease — in two particular lease
agreements that it had executed before the amendment passed.
Plaintiffs’ first claim — that the 2019 amendments
revise the duration of their expiring leases — is unavailing.
As applied to future renewals, “[a] contract . . . cannot be
impaired by a law in effect at the time the contract was made.”
Harmon, 412 F. App’x at 423. Future leases will be subject to
the 2019 amendments from the onset. See 2 Tudor City Place
Assocs. v. 2 Tudor City Tenants Corp., 924 F.2d 1247, 1254 (2d
Cir. 1991) (“Laws and statutes in existence at the time a
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contract is executed are considered a part of the contract, as
though they were expressly incorporated therein.”).
74 Pinehurst LLC, however, also alleges that the 2019
amendments revised the terms of two of its already executed
leases. In resolving this claim, the Court must ask three
questions: “(1) is the contractual impairment substantial and,
if so, (2) does the law serve a legitimate public purpose such
as remedy a general social or economic problem and, if such
purpose is demonstrated, (3) are the means chosen to accomplish
this purpose reasonable and necessary[?]” Buffalo Teachers
Fed’n v. Tobe, 464 F.3d 362, 368 (2d Cir. 2006). As explained
below, 74 Pinehurst LLC’s claim falters at stages two and three.
74 Pinehurst LLC adequately alleges that the 2019
amendments “substantially impair” its executed leases by
affecting a critical term of their executed lease agreements —
the monthly rent. Cf. id. at 368 (wage freeze substantially
impaired unions’ labor contracts because compensation is “the
most important element[] of a labor contract”). But 74
Pinehurst LLC cannot surmount the second and third steps of the
Contracts Clause analysis. The legislative purposes behind the
RSL are valid (as explained above). See Sal Tinnerello & Sons,
Inc. v. Town of Stonington, 141 F.3d 46, 54 (2d Cir. 1998); see
also Marcus Brown Holding Co v. Feldman, 256 U.S. 170, 198-99
(1921); Brontel, Ltd. v. City of New York, 571 F.Supp. 1065,
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1072 (S.D.N.Y. 1983). And where, as here, the affected contract
is between private parties, courts must “accord substantial
deference” to the legislature’s conclusions about how to
effectuate those purposes. Buffalo Teachers, 464 F.3d at 369;
see also Sanitation & Recycling Indus., Inc. v. City of New
York, 107 F.3d 985, 994 (2d Cir. 1997). For the reasons
articulated above in Section F (Due Process), the RSL passes
muster under this deferential standard. 74 Pinehurst LLC’s
Contracts Clause claims are, therefore, dismissed.
III. Conclusion
For the reasons explained above, the Court grants
Defendants’ motions to dismiss all claims in Community Housing
Improvement Program v. City of New York (19-cv-4087). The Court
also grants Defendants’ motions to dismiss all claims in 74
Pinehurst LLC v. State of New York (19-cv-6447) except the as-
applied regulatory-takings claims brought by Eighty Mulberry
Realty Corporation and the Panagouliases. The Pinehurst
Plaintiffs’ claims against the State of New York and the DHCR
are dismissed for lack of subject-matter jurisdiction, as are
their claims for damages against DHCR Commissioner Visnauskas in
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her official capacity. The Clerk of Court is respectfully
directed to enter judgment and close the action in CHIP (19-cv-
4087), given that that action is now dismissed in its entirety.
SO ORDERED.
_____/s Eric Komitee_________
ERIC KOMITEE
United States District Judge
Dated: Brooklyn, New York
September 30, 2020
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UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
----------------------------------------------------------- X
COMMUNITY HOUSING IMPROVEMENT
PROGRAM, RENT STABILIZATION ASSOCIATION OF
N.Y.C., INC., CONSTANCE NUGENT-MILLER, et al.,
Plaintiffs,
JUDGMENT
19-cv-4087(EK)(RLM)
-against-
CITY OF NEW YORK, RENT GUIDELINES BOARD,
DAVID REISS, CECILIA JOZA, ALEX SCHWARZ,
GERMAN TEJEDA, MAY YU, et al.,
Defendants.
----------------------------------------------------------- X
74 PINEHURST LLC, 141 WADSWORTH LLC, 177
WADSWORTH LLC, DINO PANAGOULIAS, DIMOS
PANAGOULIAS, et al.,
Plaintiffs, 19-cv-6447(EK)(RLM)
-against-
STATE OF NEW YORK, NEW YORK DIVISION OF
HOUSING AND COMMUNITY RENEWAL, RUTHANNE
VISNAUSKAS, et al.,
Defendants.
----------------------------------------------------------- X
A Memorandum and Order of Honorable Eric Komitee, United States District Judge,
having been filed on September 30, 2020, granting Defendants’ motions to dismiss all claims in
Community Housing Improvement Program v. City of New York (19-cv-4087); granting
Defendants’ motions to dismiss all claims in 74 Pinehurst LLC v. State of New York (19-cv-
6447) except the asapplied regulatory-takings claims brought by Eighty Mulberry Realty
Corporation and the Panagouliases; dismissing The Pinehurst Plaintiffs’ claims against the State
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of New York and the DHCR for lack of subject-matter jurisdiction, as are their claims for
damages against DHCR Commissioner Visnauskas in her official capacity; it is
ORDERED and ADJUDGED that Defendants’ motions to dismiss all claims in
Community Housing Improvement Program v. City of New York (19-cv-4087) is granted; that
Defendants’ motions to dismiss all claims in 74 Pinehurst LLC v. State of New York (19-cv-
6447) is granted except the as-applied regulatory-takings claims brought by Eighty Mulberry
Realty Corporation and the Panagouliases; and that the Pinehurst Plaintiffs’ claims against the
State of New York and the DHCR are dismissed for lack of subject-matter jurisdiction, as are
their claims for damages against DHCR Commissioner Visnauskas in her official capacity.
Dated: Brooklyn, NY Douglas C. Palmer
September 30, 2020 Clerk of Court
By: /s/Jalitza Poveda
Deputy Clerk
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No. 20-3366
In the United States Court of Appeals
For the Second Circuit
COMMUNITY HOUSING IMPROVEMENT PROGRAM, INC., et al., Plaintiffs and Appellants,
v.
CITY OF NEW YORK, et al., Defendants and Appellees, _________________________ BRIEF OF THE SAN FRANCISCO APARTMENT ASSOCIATION & CALIFORNIA APARTMENT ASSOCIATION AS AMICI CURIAE IN SUPPORT OF PLAINTIFFS/APPELLANTS AND REVERSAL __________________________ On Appeal from the United States District Court for the Eastern District of New York The Honorable Eric Komitee, Presiding District Court No. 19-cv-4087-EK-RLM __________________________ NIELSEN MERKSAMER PARRINELLO GROSS & LEONI LLP Christopher E. Skinnell, CA SBN 227093 2350 Kerner Boulevard, Suite 250 San Rafael, California 94901 Tel: (415) 389-6800 Fax: (415) 388-6874
Attorneys for Amici Curiae SAN FRANCISCO APARTMENT ASSOCIATION & CALIFORNIA APARTMENT ASSOCIATION
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CORPORATE DISCLOSURE STATEMENT FED. R. APP. PROC. 26.1
Pursuant to Federal Rule of Appellate Procedure 26.1,
the undersigned, counsel of record for amici curiae SAN
FRANCISCO APARTMENT ASSOCIATION (“SFAA”) and
CALIFORNIA APARTMENT ASSOCIATION (“CAA”),
certifies that neither SFAA nor CAA has “any parent
corporation [or] any publicly held corporation owning 10% or
more of its stock.” Fed. R. App. Proc. 26.1(a).
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TABLE OF CONTENTS Page
CORPORATE DISCLOSURE STATEMENT ......................... 2
TABLE OF AUTHORITIES .................................................... 4
INTEREST OF AMICI CURIAE .......................................... 11
BACKGROUND & SUMMARY OF ARGUMENT ............... 13
ARGUMENT ......................................................................... 18
A. Summary of Stringent Restrictions Imposed on San Francisco Property-Ownership Rights ............................................... 18
B. Boiling the Frog: Past Invasions of Property Rights Cannot Perpetually Justify New Ones ................................................ 30
C. New York (and San Francisco’s) Strict Rent Control Regimes Impose Burdens on a Subset of Landlords That, in All Fairness, Should be Borne by the Public as a Whole ........................................................... 36
CONCLUSION ...................................................................... 41
CERTIFICATE OF COMPLIANCE ...................................... 43
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TABLE OF AUTHORITIES
Page(s)
Cases
200 Arguello Assocs., LLC v. Dyas, 2017 Cal. App. Unpub. LEXIS 3295 (Cal. Ct. App. May 12, 2017) ........................................................... 38
Armstrong v. United States, 364 U.S. 40 (1960) ............................................................. 36
Block v. Hirsch, 256 U.S. 135 (1921) ........................................................... 34
Cmty. Hous. Improvement Program v. City of N.Y., No. 19-cv-4087(EK)(RLM), 2020 U.S. Dist. LEXIS 181189 (E.D.N.Y. Sep. 30, 2020) .......................................................... 17, 31, 32, 33
Danekas v. S.F. Residential Rent Stabilization & Arbitration Bd., 95 Cal. App. 4th 638 (2001) ........................................ 15, 32
Edward A. Levy Leasing Co., Inc., v. Siegel, 258 U.S. 242 (1922) ........................................................... 34
Green v. Superior Court, 10 Cal. 3d 616 (1974) ........................................................ 35
Horne v. Dep’t of Agric., 576 U.S. 351 (2015) ......................................... 17, 25, 29, 34
Interstate Marina Development Co. v. County of
Los Angeles, 155 Cal. App. 3d 435 (1984) .............................................. 32
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Levin v. City & Cty. of S.F., 71 F. Supp. 3d 1072 (N.D. Cal. 2014), appeal dismissed as moot, 680 Fed. Appx. 610 (9th Cir. 2017) .................................................................... 14, 37
Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982) ..................................................... 25, 34
Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992) ................................................... 17, 33
Luna v. Cty. of Kern, 2017 U.S. Dist. LEXIS 144352 (E.D. Cal. Sep. 5, 2017) .............................................................................. 30
Marcus Brown Holding Co. v. Feldman, 256 U.S. 170 (1921) ........................................................... 34
Murr v. Wisconsin, 137 S. Ct. 1933 (2017) ....................................................... 36
Nash v. City of Santa Monica, 37 Cal. 3d 97 (1984) .......................................................... 25
Pa. Coal Co. v. Mahon, 260 U.S. 393 (1922) ........................................................... 33 S.F. Apartment Ass’n v. City & Cty. of S.F., 3 Cal. App. 5th 463 (2016) ................................................ 26
S.F. Apartment Ass’n v. City & Cty. of S.F., 20 Cal. App. 5th 510 (2018) .............................................. 14
S.F. Apartment Ass'n v. City & Cty. of S.F., 881 F.3d 1169 (9th Cir. 2018) ..................................... 14, 27
San Remo Hotel v. City & Cty. of S.F., 145 F.3d 1095 (9th Cir. 1998) ........................................... 14
Small Prop. Owners of S.F. v. City & Cty. of S.F., 141 Cal. App. 4th 1388 (2006) .......................................... 15
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Tom v. City & Cty. of S.F., 120 Cal. App. 4th 674 (2004) ............................................ 14
Statutes
Assembly Bill 1482, Cal. Stats. 2019, ch. 597 ............ 12, 33
Cal. Civ. Code § 1941 et seq. ............................................. 35
Ellis Act, Cal. Gov. Code § 7060 et seq. ............................ 24
New York Rent Stabilization Law .................................... 18
San Francisco Rent Ordinance ................................... 16, 18
S.F. Admin. Code, ch. 37A ................................................ 16
S.F. Admin. Code, ch. 41B ................................................ 28
S.F. Admin. Code, ch. 49 .................................................. 16
S.F. Admin. Code, ch. 49A ................................................ 16
S.F. Admin. Code § 37.3(a)(1) ........................................... 19
S.F. Admin. Code § 37.7(c)(5)(B)(i) ................................... 20
S.F. Admin. Code § 37.8(e)(4)(A)(ii).................................. 20
S.F. Admin. Code § 37.9(a)(2) ........................................... 19
S.F. Admin. Code § 37.9E ................................................. 27
S.F. Housing Code, ch. 13 ................................................. 35
S.F. Housing Code § 204(a) .............................................. 35
Other Authorities
2 Cal. Code Regs. § 12179 ................................................. 35
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24 C.F.R. § 100.203 ........................................................... 36
24 C.F.R. § 100.204 ........................................................... 35
Autor, et al., “Housing Market Spillovers: Evidence from the End of Rent Control in Cambridge, Massachusetts,” 122 J. OF POL. ECON. 661 (June 2014), available online at https://economics.mit.edu/files/9760 (last visited Jan. 18, 2021) ................................................... 40
Broady, Edelberg & Moss, “An eviction moratorium without rental assistance hurts smaller landlords, too,” BROOKINGS INSTITUTION (Sept. 21, 2020) (last visited Dec. 21, 2020), available online at https://www.brookings.edu/blog/up-front/2020/09/21/an-eviction-moratorium-without-rental-assistance-hurts-smaller-landlords-too/ (last visited Jan. 21, 2021) .................... 39
Cal. State Bd. of Equalization, “Publication 29: California Property Tax: An Overview” (Dec. 2018) ............................................................................. 21
C.W. Nevius, “On San Francisco: In some rent-control apartment beefs, it’s the tenant who games the landlord,” S.F. CHRON. (Oct. 30, 2014), p. A1 ................................................................... 38
Housing Finance Policy Center, “Small Multifamily Units,” URBAN INSTITUTE (May 2020), p. 4 (last visited Dec. 21, 2020) ......................... 39
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James, “How the Rich Get Richer, Rental Edition,” N.Y. TIMES (Feb. 17, 2012), available online at https://www.nytimes.com/2012/02/17/us/san-francisco-rent-control-and-unintended-consequences.html (last visited Jan. 15, 2021) ............................................................................. 29
Joint Statement of the Dept. of Housing and Urban Development and the Dept. of Justice, Reasonable Accommodations Under the Fair Housing Act (May 17, 2004) ......................................... 36
Joint Statement of the Dept. of Housing and Urban Development and the Dept. of Justice, Reasonable Modifications Under the Fair Housing Act (Mar. 5, 2008) .......................................... 36
Pender, “Should S.F. tax empty homes and buildings?,” S.F. CHRON. (July 22, 2017), available online at https://www.sfchronicle.com/business/networth/article/Should-SF-tax-empty-homes-and-buildings-11306541.php (last visited Jan. 15, 2021) ............................................................... 30
Reid & Heisler, “The Ongoing Housing Crisis: California Renters Still Struggle to Pay Rent Even as Counties Re-Open,” TERNER CENTER
FOR HOUSING INNOVATION, U.C. BERKELEY (Oct. 2, 2020), https://ternercenter.berkeley.edu/research-and-policy/ongoing-housing-crisis/ (last visited Dec. 21, 2020) ................................................... 39
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Schuetz, “Halting evictions during the coronavirus crisis isn’t as good as it sounds,” BROOKINGS INST. (Mar. 25, 2020), https://www.brookings.edu/blog/the-avenue/2020/03/25/halting-evictions-during-the-coronavirus-crisis-isnt-as-good-as-it-sounds/ (last visited Dec. 21, 2020) .............................. 40
S.F. Rent Board, “Relocation Payments for Evictions Based on Owner/Relative Move-in OR Demolition/Permanent Removal of Unit from Housing Use OR Temporary Capital Improvement Work OR Substantial Rehabilitation” (Jan. 29, 2020), online at https://sfrb.org/sites/default/files/Document/Form/579%20Multilingual%20Relocation%20Payments%2037.9C%2020-21.pdf (last visited Jan. 15, 2021) ................................................... 24
S.F. Rent Board, “Relocation Payments for Tenants Evicted Under the Ellis Act” (Jan 29, 2020), online at https://sfrb.org/sites/default/files/Document/Form/578%20Multilingual%20Relocation%20Payments%2037.9A%2020-21.pdf (last visited Jan. 15, 2021) ................................................... 26
S.F. Rent Board, “Topic No. 051: This Year’s Annual Allowable Increase” (Nov. 2020), online at https://sfrb.org/topic-no-051-years-annual-allowable-increase (last visited Jan 15, 2021) ....................................................................... 18
S.F. Rent Board, “Topic No. 151: Subletting and Replacement of Roommates” (Sept. 2018),
online at https://sfrb.org/topic-no-151-subletting-and-replacement-roommates (last visited Jan. 21, 2021) ................................................... 19
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S.F. Rent Board, “Topic No. 204: Evictions Based on Owner or Relative Move-In” (Oct. 2018), online at https://sfrb.org/topic-no-204-evictions-based-owner-or-relative-move (last visited Jan. 15, 2021) ....................................... 22, 23, 24
S.F. Rent Board, “Topic No. 205: Evictions Pursuant to the Ellis Act” (Feb. 2020), online
at https://sfrb.org/TOPIC-no-205-evictions-pursuant-ellis-act (last visited Jan. 15, 2021) ...................................................................................... 26
S.F. Rent Board, “Topic No. 263: Buyout Agreements” (Dec. 2020), online at https://sfrb.org/topic-no-263-buyout-agreements (last visited Jan. 15, 2021) ....................... 27
Takings Clause ......................................................... passim
U.S. Census Bureau, 2019 American Community Survey 1-Year Estimates, Table DP04, online at https://data.census.gov/cedsci/table?text=DP04&g=0500000US06075&tid=ACSDP1Y2019.DP04&hidePreview=false (last visited Jan. 15, 2021) ....................................................................... 13
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INTEREST OF AMICI CURIAE1
The San Francisco Apartment Association (“SFAA”) is a
full-service, non-profit trade association founded in 1917 of
persons and entities who own residential rental properties in
San Francisco. SFAA currently has more than 2,800 active
members. The association is dedicated to educating,
advocating for, and supporting the rental housing community,
and preserving the property rights of all residential rental
property providers in San Francisco. SFAA and its members
have a strong interest in a preserving their ability to
purchase, sell, manage, and otherwise control real property
and to exercise their constitutional and statutory rights with
respect to real property they own or manage in San Francisco.
The California Apartment Association (“CAA”) is the
largest statewide rental housing trade association in the
country, representing more than 50,000 rental property
1 SFAA and CAA’s counsel authored this brief in whole. No party, party’s counsel, or other person besides SFAA and CAA contributed money that was intended to fund preparing or submitting this brief.
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owners and operators who are responsible for nearly two
million rental housing units throughout California. CAA’s
mission is to promote fairness and equality in the rental of
residential housing, and to promote and aid in the availability
of high-quality rental housing in California. CAA represents
its members in legislative, regulatory, judicial, and other
state and local fora. Many of its members are located in local
jurisdictions that are subject to rent control laws, including
San Francisco, obviously, but also Los Angeles, San Jose,
Oakland, Santa Monica, Berkeley, and others. Moreover, in
2019 Governor Newsom signed Assembly Bill 1482, Cal.
Stats. 2019, ch. 597, which is a new statewide rent control bill.
SFAA’s members and CAA’s members have a strong
interest—just like landlords in New York—in the standards
applicable to the alleged taking of private property for public
use. Amici write to emphasize two key points: (1) this court
should reject the mode of analysis adopted by the district
court in which past invasions of property rights are used to
justify new invasions; and (2) strict rent control regimes like
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those in New York and San Francisco are essentially designed
to shift the cost of public subsidies to private actors,
mandating that a subset of property owners bear the cost of a
public benefit that, under our Constitution, should be borne
by the public as a whole.
BACKGROUND & SUMMARY OF ARGUMENT
San Francisco, like New York, has one of the most
stringent rent control regimes in the country, dating back
decades. Tenants dominate the electorate in San Francisco
and elected officials are well aware of this political reality.2
The political dominance of renters in San Francisco has
resulted in an increasingly hostile atmosphere where pro-
2 According to the Census Bureau, tenants substantially outnumber landlords in San Francisco. Of the 365,851 occupied residential units in the City, 229,999 (62.9%) are tenant-occupied. See U.S. Census Bureau, 2019 American Community Survey 1-Year Estimates, Table DP04, online at https://data.census.gov/cedsci/table?text=DP04&g=0500000US06075&tid=ACSDP1Y2019.DP04&hidePreview=false (last visited Jan. 15, 2021). And of course, not all of the remaining 37.1% are landlords—many are people who own their own homes.
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tenant regulations proliferate and rental property owners are
pilloried for the lack of low cost rental units, even though the
causes of these problems more accurately lie in restrictive and
burdensome land use policies and a booming tech economy
that has brought tens of thousands of new workers (i.e.,
renters) to the City. The City’s history of anti-landlord
legislation is well-documented in numerous reported cases.3
3 See, e.g., S.F. Apartment Ass’n v. City & Cty. of S.F., 881 F.3d 1169 (9th Cir. 2018) (ordinance placing stringent restrictions on landlords’ ability to negotiate a voluntary “buyout” of tenants’ leases); S.F. Apartment Ass’n v. City & Cty. of S.F., 20 Cal. App. 5th 510, 229 Cal. Rptr. 3d 124 (2018) (ordinance prohibiting no-fault evictions of families with children and educators during the school year); Levin v. City & Cty. of S.F., 71 F. Supp. 3d 1072 (N.D. Cal. 2014) (ordinance imposing requirement that landlords pay lawfully evicted tenants “amounts that range to hundreds of thousands of dollars per unit”), appeal dismissed as moot, 680 Fed. Appx. 610 (9th Cir. 2017); San Remo Hotel v. City & Cty.
of S.F., 145 F.3d 1095 (9th Cir. 1998) (San Francisco ordinance that required owners of residential hotels to obtain special permits from the City before converting residential hotels to tourist hotels, and providing such a permit would only be granted if the landlord promised to make a “one-for-one replacement” of the rental units being lost, either by constructing a similar quantity of units or paying a substantial fee); Tom v. City & Cty. of S.F., 120 Cal. App. 4th 674 (2004) (striking down ordinance that sought to discourage Ellis Act evictions by prohibiting tenants-in-common from agreeing to occupy separate units in the property under
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Other California localities like Oakland, Los Angeles,
Berkeley, Santa Monica, Richmond, Mountain View, East
Palo Alto, West Hollywood, and others, are similarly strict,
and every election cycle there are proposals for new local rent
control laws, such as recent measures in Sacramento, Santa
Rosa, and National City.
And, as in New York, local officials in California’s rent-
control jurisdictions are constantly on the lookout for ways to
further constrain landlords’ property rights. Every year, new
legislation is proposed and passed to further restrict the
ability of landlords to use their real property. San Francisco
landlords are not subject only to limits on the rents they may
charge. They are also subject to: strict limits on their ability
to occupy their own properties for their own or immediate
exclusive right of occupancy agreements); Small Prop. Owners of S.F. v. City & Cty. of S.F., 141 Cal. App. 4th 1388 (2006) (ordinance compelling landlords to pay tenants five percent interest on security deposits, regardless of market conditions); Danekas v. S.F. Residential Rent Stabilization & Arbitration Bd., 95 Cal. App. 4th 638 (2001) (ordinance restricting the ability of a landlord to evict a tenant who replaces a departing cotenant, in violation of a lease clause prohibiting sublet and assignment)
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family members’ use; limits on their ability to negotiate with
tenants to voluntarily leave a rent-controlled unit; limits on
the sale of multi-unit buildings; stringent conditions on their
ability to remove a building from the rental business; and
tight restrictions on the alternative uses to which a building
can be put in rare event that it is removed from the rental
market. The San Francisco Rent Ordinance now runs to 133
excruciatingly detailed pages, supplemented by an additional
124 of regulations adopted by the Rent Board, as well as other
ordinances regulating fees charged by the Rent Board, S.F.
Admin. Code, ch. 37A; security deposits, S.F. Admin. Code, ch.
49; and landlords’ communications with tenants, S.F. Admin.
Code, ch. 49A.
And each new encroachment becomes part of a vast web
of regulations that is used to justify the next encroachment
and the next, just as happened to New York landlords in this
case. A major premise of the district court’s opinion is that
landlords that “come to the nuisance” in a manner of
speaking—who purchase property that is already subject to
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rent control regulations—cannot then complain about further
regulations, because their reasonable, investment-backed
expectations must be evaluated against the likelihood the
legislature will act again. Cmty. Hous. Improvement Program
v. City of N.Y., No. 19-cv-4087(EK)(RLM), 2020 U.S. Dist.
LEXIS 181189, at *33 (E.D.N.Y. Sep. 30, 2020). This is a
prescription for the gradual erosion of virtually all
landowners’ property rights over time, sanctioning death by a
thousand cuts, and it is inconsistent with Supreme Court case
law, notably cases cited by the district court itself, Horne v.
Dep’t of Agric., 576 U.S. 351 (2015), and Lucas v. South
Carolina Coastal Council, 505 U.S. 1003 (1992).
It also gives judicial blessing to the ongoing effort by
public officials in these cities to shift the costs of public policy
goals that should rightly be borne by the public onto a small,
politically unpopular minority, which is exactly what the
Takings Clause is designed to prevent. These regimes compel
a dedication of property rights to the public, and in all fairness
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the public should have to pay for these rights, just as a private
party would.
The district court’s order granting the motion to dismiss
should be REVERSED, and the case should be remanded for
further proceedings.
ARGUMENT
A. Summary of Stringent Restrictions Imposed on San Francisco Property-Ownership Rights.
In San Francisco, most residential tenants are covered
by the San Francisco Rent Ordinance which—like the New
York Rent Stabilization Law—provides rent control and
limits the bases for eviction. This means rents can only be
raised by certain amounts per year, tied to inflation. in 2021
that increase is just 0.7%4—and tenants can reside in the
rental unit indefinitely, unless the landlord can establish one
4 S.F. Rent Board, “Topic No. 051: This Year’s Annual Allowable Increase” (Nov. 2020), online at https://sfrb.org/topic-no-051-years-annual-allowable-increase (last visited Jan 15, 2021).
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of 16 “just causes.”5 In other words, tenants are given a nearly
absolute right to physically occupy a landlords’ premises
indefinitely, with very limited exceptions.
As to the annual rental increases, San Francisco law
requires that each March 1 the Rent Board must publish the
increase in the Consumer Price Index for the preceding 12
months, as made available by the U.S. Department of Labor,
and then limits landlords’ ability to increase rents to only 60%
of that CPI increase. In other words, it is purposely designed
to prohibit landlords from keeping rents up with the cost of
inflation. S.F. Admin. Code § 37.3(a)(1).
Moreover, while there is an option for landlords to file a
petition with the Rent Board seeking additional increases for
5 Most of these just causes are for nonpayment of rent, nuisance, illegal use of the unit, or material violations of the lease, though San Francisco keeps incrementally restricting the ability to even evict for lease violations; for example, eviction is prohibited even where a rental agreement or lease otherwise limits the number of occupants, or limits or prohibits subletting. See S.F. Admin. Code § 37.9(a)(2); S.F. Rent Board, “Topic No. 151: Subletting and Replacement of Roommates” (Sept. 2018), online at https://sfrb.org/topic-no-151-subletting-and-replacement-roommates (last visited Jan. 21, 2021).
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things like capital improvements, the process is expensive
and time-consuming, and in many cases the landlord may not
obtain a rent increase sufficient to cover the cost of the
improvement in any event. As one example, for properties of
six or more residential units, in general, only 50% of the
certified capital improvement costs may be passed through to
the tenants, and the amount of the passthrough may not
exceed the greater of $30.00 or 10% of a tenant’s petition base
rent in any 12-month period. S.F. Admin. Code §
37.7(c)(5)(B)(i).
In similar vein, increased debt service costs or property
taxes resulting from a change in ownership may not form the
basis of an increase above the default 60% of CPI. See S.F.
Admin. Code § 37.8(e)(4)(A)(ii). Especially for a building that
has been under the same ownership for a long time—perhaps
decades—this restriction may be a significant burden to a new
purchaser. A long-time owner may have not any debt service
remaining; or that owner may have very low property taxes,
particularly when one considers the effect that California’s
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Proposition 13 has on limiting annual tax increases in the
absence of a change of ownership.6
As to the bases of eviction, in theory the San Francisco
rent ordinance permits several types of “no-fault” eviction,
like owner move-in or an eviction for the purpose of leaving
the rental market altogether. But these bases are so heavily
regulated that they are all but impossible for most landlords
to pursue. For example, a landlord may recover possession of
a rental unit for the occupancy of the owner or certain close
relatives of the owner for use as their principal residence for
a period of at least 36 continuous months.7 However:
6 Proposition 13 generally limits property taxes to 1% of the assessed value of the property and limits annual increases in the assessed value of real property to no more than 2 percent a year, except when property changes ownership or undergoes new construction. “Essentially, Proposition 13 converted the market value-based property tax system to an acquisition value-based system.” Cal. State Bd. of Equalization, “Publication 29: California Property Tax: An Overview” (Dec. 2018), p. 5. This means that a property purchased after decades of unchanged ownership may experience significant property tax increases relative to the amounts charged to the prior owner.
7 A relative move-in eviction is only permitted for certain close relatives of the owner, including a child, parent, grandparent, grandchild, sibling or the owner’s spouse or
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• Owners who evict for relatives to move in must
already live in the building or be moving into the
building at the same time as the relative;8
• If a comparable unit in the building is vacant or
becomes vacant during the period of the notice
terminating tenancy, then the notice to vacate must
be rescinded. A vacant, non-comparable unit owned
in San Francisco must be offered to the tenant being
evicted.9
• Certain tenants—disabled or catastrophically ill
tenants who meet certain minimum residency
requirements cannot generally be evicted, nor can
any tenant who has resided in a unit for 12 months
or more be evicted for an owner or relative to move in
during the school year for the San Francisco Unified
spouses of such relations. The term “spouse” includes domestic partners. See S.F. Rent Board, “Topic No. 204: Evictions Based on Owner or Relative Move-In” (Oct. 2018), online at https://sfrb.org/topic-no-204-evictions-based-owner-or-relative-move (last visited Jan. 15, 2021).
8 Id.
9 Id.
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School District, if a child under 18 or a person who
works at a school in San Francisco resides in the
rental unit, is a tenant in the unit or has a custodial
or family relationship with a tenant in the unit;10
• Landlords are required to pay relocation expenses to
tenants who are being evicted for owner or relative
move-in. Each authorized occupant, regardless of
age, who has resided in the unit for at least one year,
is entitled to a relocation payment of $4,500.00, with
a maximum payment of $13,500.00 per unit. In
addition, each elderly tenant who is 60 years or older,
and each disabled tenant, and each household with
one or more minor children, is entitled to an
additional payment of $3,000.00. Each year
commencing March 1, 2007, the amount of these
relocation payments, including the maximum
10 Id.
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relocation expenses per unit, is adjusted for
inflation;11
• If the unit is subsequently re-rented within a
specified number of years, it must be reoffered to the
original tenant at the original rent;12 and
• If it is concluded that the landlord did not seek to
recover possession of a unit for an owner or relative
to move in, “in good faith, without ulterior motive and
with honest intent,” that landlord can be subject to
substantial fines and even criminal penalties.13
The other various types of “no-fault” evictions are
subject to similarly high hurdles. For example, in 1985 the
California Legislature passed the Ellis Act, Cal. Gov. Code §
11 Id. See also S.F. Rent Board, “Relocation Payments for Evictions Based on Owner/Relative Move-in OR Demolition/Permanent Removal of Unit from Housing Use OR Temporary Capital Improvement Work OR Substantial Rehabilitation” (Jan. 29, 2020), online at https://sfrb.org/sites/default/files/Document/Form/579%20Multilingual%20Relocation%20Payments%2037.9C%2020-21.pdf (last visited Jan. 15, 2021).
12 Id.
13 Id.
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7060 et seq., purporting to overturn Nash v. City of Santa
Monica, 37 Cal. 3d 97 (1984), and giving landlords the right
to exit the rental industry. But under the guise of enacting
“procedural protections” for tenants, San Francisco has
repeatedly sought to so significantly burden a landlord’s
ability to exercise its nominal state law rights as to render it
illusory.14
Landlords seeking to exercise their rights under the
Ellis Act must comply with elaborate notice requirements;
certain categories of tenants—those who are elderly or
disabled—can extend the time of the eviction for up to a year;
the tenants retain reoccupancy rights for up to ten years;
regardless of who obtains a new lease, the unit must be rented
14 Of course, even if this were not true, the Supreme Court made clear in several cases that the ability to exit the market entirely, to avoid regulation, does not obviate a takings claim. See Horne, 576 U.S. at 365 (“In [Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 437 n.17 (1982)], we rejected the argument that the New York law was not a taking because a landlord could avoid the requirement by ceasing to be a landlord. We held instead that “a landlord’s ability to rent his property may not be conditioned on his forfeiting the right to compensation for a physical occupation.”).
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at the old rent-controlled rate if it is re-leased during the first
five years; and here, too, the City has imposed a requirement
that the landlord pay a tenant tens of thousands of dollars for
the “privilege” of regaining possession of the landlord’s
property.15
Other no-fault evictions, such as condominium
conversions, demolition of the unit, and substantial
rehabilitation are subject to relocation payments and other
restrictions as well, including a ten-year ban on merging a
unit removed from the rental market with another unit for the
purpose of residing in or selling the merged units. S.F.
Apartment Ass’n v. City & Cty. of S.F., 3 Cal. App. 5th 463,
479 n.8 (2016).
15 See S.F. Rent Board, “Topic No. 205: Evictions Pursuant to the Ellis Act” (Feb. 2020), online at https://sfrb.org/TOPIC-no-205-evictions-pursuant-ellis-act (last visited Jan. 15, 2021); S.F. Rent Board, “Relocation Payments for Tenants Evicted Under the Ellis Act” (Jan 29, 2020), online at https://sfrb.org/sites/default/files/Document/Form/578%20Multilingual%20Relocation%20Payments%2037.9A%2020-21.pdf (last visited Jan. 15, 2021).
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In the past, many landlords sought to avoid the
headaches of these regulations by directly negotiating with
tenants to voluntarily vacate a rent-controlled unit in
exchange for agreed-upon compensation. San Francisco has
sought to restrict that option as well, imposing stringent
restrictions on such negotiations: tenants and the Rent Board
now must be given notice before a landlord can even approach
the tenant about a voluntary buyout; a buyout agreement may
be executed no sooner than 30 days after buyout discussions
commence, and the tenant has a 45-day recission period; a
copy of the entire agreement must be lodged with the Rent
Board, which is then made publicly available (the personal
information of tenants—but not landlords—is redacted); and
the city has deputized various tenants’ rights organizations to
file lawsuits against landlords alleged to have violated these
requirements, seeking fees and awarding attorneys’ fees.16
16 See S.F. Admin. Code § 37.9E; S.F. Rent Board, “Topic No. 263: Buyout Agreements” (Dec. 2020), online at https://sfrb.org/topic-no-263-buyout-agreements (last visited Jan. 15, 2021); San Francisco Apartment Ass’n v. City & Cty. of S.F., 881 F.3d at 1169.
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As the ever-expanding regulations to which owners of
rental property in San Francisco are subject grow ever more
complicated and burdensome, it is small wonder that some
would wish to stop being landlords. As Ellis Act evictions are
tightly limited, as discussed above, another option is to sell a
rental property. Here, too, San Francisco has intervened. Any
building with three or more residential units—or vacant land
that could be developed into three or more residential units—
is now subject to the Community Opportunity to Purchase Act
(“COPA”), S.F. Admin. Code, ch. 41B.
COPA provides that before marketing a covered
property to prospective sellers, the owner must first give
certain “qualified” non-profit organizations (“QNPs”) a right
of first offer and then wait up to 30 days for such an offer to
be made. The owner need not accept an offer from a QNP and
may instead choose to market the property to private
purchasers. However, once an agreement is reached, the
owner must give the QNPs a second bite at the apple—a right
of first refusal. And that right must be renewed if the terms
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of the agreement materially change after the QNP declined.
The law is subject to enforcement by damages, stiff penalty
provisions for willful or knowing violations (10% of the sale
price first time, 20% the second time, and 30% each additional
time), and other “consistent” remedies, and attorneys’ fees.
As a practical matter, landlords in San Francisco are
subject to strict limits on the amount they can rent their units
for; when they can gain repossession; their ability to sell the
property in many cases; and their ability to exit the rental
market altogether. Of the three main rights in the “bundle of
sticks” identified by Horne—“the rights to possess, use and
dispose of” their property, see 576 U.S. at 361-62—only the
first is not presently limited to a substantial degree, and even
that right of possession is limited to possession on paper—
retention of title—rather than actual, physical possession in
most cases.17
17 Soon, landlords may even be penalized for letting a residential unit sit vacant. It has been estimated that anywhere between 10,000 and 25,000 rental units sit vacant in San Francisco due to the burdens of its rigorous rent control regime. See James, “How the Rich Get Richer, Rental
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B. Boiling the Frog: Past Invasions of Property Rights Cannot Perpetually Justify New Ones.
As the district court opinion amply demonstrates,
takings jurisprudence in the rent control context suffers from
a “boiling frog” problem. “In the parable, the frog cannot be
dropped into a pot of boiling water because it will leap out and
save itself. However, if it is placed in a cool pot of water and
the temperature is raised one degree at a time, the frog will
fail to appreciate the danger and will not jump out, resulting
in it being boiled alive.” Luna v. Cty. of Kern, 2017 U.S. Dist.
LEXIS 144352, at *5 n.1 (E.D. Cal. Sep. 5, 2017). In a similar
Edition,” N.Y. TIMES (Feb. 17, 2012), available online at https://www.nytimes.com/2012/02/17/us/san-francisco-rent-control-and-unintended-consequences.html (last visited Jan. 15, 2021). But in March 2020 the voters of San Francisco approved Proposition D, which imposes a substantial new tax on owners of retail properties who let those properties sit vacant for a given period of time. A similar tax on vacant residential properties was adopted in nearby Oakland in 2018 as Measure W and has been proposed in San Francisco by members of the Board of Supervisors. See Pender, “Should S.F. tax empty homes and buildings?,” S.F. CHRON. (July 22, 2017), available on Lexis-Nexis and online at https://www.sfchronicle.com/business/networth/article/Should-SF-tax-empty-homes-and-buildings-11306541.php (last visited Jan. 15, 2021).
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vein, under the mode of analysis employed by the district
court, each encroachment on landlords’ property rights can
then be used to justify the next and the next and the next,
until little remains.
For example, much of the district court’s analysis
focuses centrally on the fact that some of the plaintiff
landlords had purchased properties when some form of rent
control was already in effect in New York. 2020 U.S. Dist.
LEXIS 181189, at *33 (“these Plaintiffs bought their
properties under a different, and more mature, version of the
RSL (as in effect in 2003 and 2008, respectively…)”).
Accordingly, the district court concluded, the landlords’
takings claims could not succeed, because their reasonable,
investment-backed expectations must be evaluated against
the likelihood the legislature will act again. And again. And
again.
California’s courts have similarly justified new, ever-
expanding encroachments on landlords’ property rights by
reference to past encroachments in this manner. See, e.g.,
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Danekas v. S.F. Residential Rent Stabilization & Arbitration
Bd., 95 Cal. App. 4th 638, 651 (2001) (argument that a rent
control ordinance was an unconstitutional impairment of
contracts rejected, in part because the rental industry is
routinely regulated); Interstate Marina Development Co. v.
County of Los Angeles, 155 Cal. App. 3d 435, 447 (1984) (“Rent
control, like the imposition of a new tax, is simply one of the
usual hazards of the business enterprise.”).
But there is no obvious limit to this principle; it merely
counsels governments to deprive property owners of their
property rights in slow motion, rather than all at once—to
turn up the heat on the frog one degree at a time. The district
court makes a passing nod to this problem, acknowledging
that “it cannot be said that there is no such thing as a
regulatory taking in the world of rent stabilization, and it
remains, and it remains eminently possible that at some
point, the legislature will apply the proverbial straw that
breaks the camel’s back,” 2020 U.S. Dist. LEXIS 181189, at
*19 (E.D.N.Y. Sep. 30, 2020). And the district court even
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acknowledges that “[t]he Supreme Court has spoken about
the need for takings jurisprudence to redress this kind of
incremental deprivation of property rights.” Id. at n.10 (citing
Lucas, 505 U.S. at 1014).
Specifically, the Court noted in Lucas, “If . . . the uses of
private property were subject to unbridled, uncompensated
qualification under the police power, ‘the natural tendency of
human nature would be to extend the qualification more and
more until at last private property disappeared.’” 505 U.S. at
1014 (quoting Pa. Coal Co. v. Mahon, 260 U.S. 393, 415
(1922)).
But despite the district court’s recognition of this slow-
motion deprivation, its ruling continues to abet the gradual
erosion of New York landlords’ property rights. At some point,
the courts must take Lucas’s admonition to heart, lest the
Takings Clause slowly be rendered dead letter.18
18 The district court’s approach counsels property owners to vigorously resist even modest actions lest those become a justification for later, more draconian ones. For example, amici noted above that California recently enacted Assembly Bill 1482, California’s first statewide rent control
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Nor is the district court’s approach consistent with
Horne and Loretto, which rejected the principle that the
decision to voluntarily participate in a given industry (raisin-
growing in Horne; property rental in Loretto) signals the
property-owners’ acquiescence to having that property
forcibly occupied by another party at the government’s
insistence, and to the exclusion of the property-owner him- or
herself. See Horne, 576 U.S. at 365; Loretto, 458 U.S. at 439
n.17.
What started out as comparatively modest, emergency
measures during World War I19 have, over the course of
decades (and especially the last few decades), metastasized
into all-encompassing regulatory regimes that give property
owners little choice but to continue renting their property
law. Though considerably less restrictive than the rent control laws in place in many localities like San Francisco, many property owners understandably view that law as the camel’s nose under the tent, particularly in jurisdictions where rent control did not previously exist.
19 See Edward A. Levy Leasing Co., Inc., v. Siegel, 258 U.S. 242 (1922); Marcus Brown Holding Co. v. Feldman, 256 U.S. 170 (1921); Block v. Hirsch, 256 U.S. 135 (1921).
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while imposing ever-stricter—and more expensive—
obligations on the maintenance of the property20 and tightly
constraining the rent that they can charge.
20 The burdens are not slight, to say the least. Under California law, landlords have an implied duty to maintain the “habitability” of a rental unit. See Green v. Superior Court, 10 Cal. 3d 616 (1974). The Legislature has elaborated upon this duty in considerable detail; it includes the responsibility to maintain the structure of the unit—roof, walls, floors, ceilings, stairways, and railings—in good repair; to ensure that the plumbing—including hot and cold water—sewage, gas, heating, electric, and lighting, are in good working order; to ensure clean and sanitary buildings, grounds, and appurtenances, free from debris, filth, rubbish, garbage, rodents, and vermin; it requires the provision of adequate trash receptacles in good repair; it requires the provision of suitable deadbolts and other locks on doors and windows; working smoke detectors; natural lighting in every room, etc. Cal. Civ. Code § 1941 et seq. San Francisco has imposed its own, additional requirements. See S.F. Housing Code, ch. 13. The characterization of real estate as a “passive” investment is far from a literal description. Moreover, significant penalties can attach to the failure to comply with these obligations, up to and including criminal misdemeanor prosecution. See S.F. Housing Code § 204(a). Moreover, under federal and state fair housing laws, landlords must often bear significant costs to provide reasonable accommodations and modifications to their buildings to accommodate a tenant’s disability, rather than being based on general health and safety conditions. The costs of reasonable accommodations must be borne by the landlord. See 24 C.F.R. § 100.204 (HUD regulation re reasonable accommodations); 2 Cal. Code Regs. § 12179 (California regulation re reasonable accommodations); Joint Statement of the Dept. of Housing
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C. New York (and San Francisco’s) Strict Rent Control Regimes Impose Burdens on a Subset of Landlords That, in All Fairness, Should be Borne by the Public as a Whole.
The Supreme Court has repeatedly recognized that the
purpose of the Takings Clause is to prevent the “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.” Armstrong v. United States, 364 U.S. 40, 49 (1960).
See also Murr v. Wisconsin, 137 S. Ct. 1933, 1943 (2017).
For example, it is widely recognized that in San
Francisco “there are ‘deep structural problems in the housing
market,’ in which increasing demand has met a supply limited
and Urban Development and the Dept. of Justice, Reasonable Accommodations Under the Fair Housing Act (May 17, 2004), pp. 8-10 (see Questions 9 and 11 re costs associated with accommodation). And while the cost to install reasonable modifications must initially be borne by the tenant, modifications made to common areas, or those that don’t interfere with the use of the property by subsequent tenants, become the responsibility of the landlord to either remove or maintain. See 24 C.F.R. § 100.203 (HUD regulation re reasonable modifications); Joint Statement of the Dept. of Housing and Urban Development and the Dept. of Justice, Reasonable Modifications Under the Fair Housing Act (Mar. 5, 2008), pp. 8 and 12 (see Questions 13 and 24 regarding costs of maintaining and restoring modifications).
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by a City that has ‘not produc[ed] housing as [its] population
has grown.’ [Citation.] ‘Increased employment and population’
has clashed with ‘minimal increases in new housing’ to put
‘upward pressure on rental rates’ and downward pressure on
the citywide rental vacancy rate…” Levin, 71 F. Supp. 3d at
1075. “The limited supply—and correspondingly high price—
of rental units in San Francisco is, on the City’s own evidence,
caused by entrenched market forces and structural decisions
made by the City long ago in the management of its housing
stock.” Id. at 1084. Yet rather than address these structural
issues, the City prefers instead to compel a subset of
landlords—those who own multi-unit buildings built prior to
1979—to bear the burden of mitigating the City’s own
counterproductive housing policies, by subsidizing tenants,
effectively using the landlords’ property as the City’s own.
This approach is especially burdensome in many cases
because there has never been any form of means testing in
San Francisco, and, of course, in New York the 2019
amendments to the RSL eliminated the exceptions for high-
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income and luxury apartments. Though, politically, the
theory of rent control seeks to trade on the premise that the
tenant is the “little guy” who has no financial resources, and
the landlord is the “big guy” with money to burn, there is no
basis for assuming that this is universally—or even
generally—true. For example, stories abound of wealthy,
white-collar tenants in San Francisco—hedge-fund managers,
lawyers, stockbrokers, tech executives—reaping the benefits
of rent control, sometimes even subletting rent-controlled
units and making significant money in the process. See, e.g.,
C.W. Nevius, “On San Francisco: In some rent-control
apartment beefs, it’s the tenant who games the landlord,” S.F.
CHRON. (Oct. 30, 2014), p. A1, available on Lexis; 200 Arguello
Assocs., LLC v. Dyas, 2017 Cal. App. Unpub. LEXIS 3295
(Cal. Ct. App. May 12, 2017) (executives who used rent-
controlled unit to house domestic employees).
Conversely, the image of the fat-cat landlord is not borne
out by the facts. According to Census Bureau data collected
by the Urban Institute, more than 22 million rental units—
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approximately half of the country’s rental units—are found in
small buildings with between one and four units.21 The real
estate market in California trends even more towards such
lower density small buildings than the nation as a whole due
to the nature of the region’s housing stock.22 Most of the units
are owned by mom-and-pop landlords, many of whom invested
in property to save for retirement. Among those owning
residential investment property, roughly a third are from low-
to moderate-income households; property income constitutes
up to 20 percent of their total household income.23 Even in
normal circumstances, the owners of these smaller buildings
spend at least half of their rental income on mortgage
21 See Housing Finance Policy Center, “Small Multifamily Units,” URBAN INSTITUTE (May 2020), p. 4 (last visited Dec. 21, 2020).
22 Reid & Heisler, “The Ongoing Housing Crisis: California Renters Still Struggle to Pay Rent Even as Counties Re-Open,” TERNER CENTER FOR HOUSING INNOVATION, U.C. BERKELEY (Oct. 2, 2020), https://ternercenter.berkeley.edu/research-and-policy/ongoing-housing-crisis/ (last visited Dec. 21, 2020).
23 See Broady, Edelberg & Moss, “An eviction moratorium without rental assistance hurts smaller landlords, too,” BROOKINGS INSTITUTION (Sept. 21, 2020) (last visited Dec. 21, 2020).
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payments, property taxes, and insurance for their
properties.24 Studies show that rent control devalues these
landlords’ property by as much as 25% relative to uncontrolled
units.25
Amici recognize that courts are not in the business of
imposing sound economic principles on political bodies, and if
public bodies wish to subsidize tenants—low-income or
otherwise—that is their prerogative. And amici further
understand why public officials would find it more politically
palatable to impose those costs on a disfavored political
minority, rather than on the broader public. But that is
exactly why the Takings Clause exists. The Cities of San
Francisco and New York should not, in all fairness, shift the
24 Schuetz, “Halting evictions during the coronavirus crisis isn’t as good as it sounds,” BROOKINGS INST. (Mar. 25, 2020), https://www.brookings.edu/blog/the-avenue/2020/03/25/halting-evictions-during-the-coronavirus-crisis-isnt-as-good-as-it-sounds/ (last visited Dec. 21, 2020).
25 See, e.g., Autor, et al., “Housing Market Spillovers: Evidence from the End of Rent Control in Cambridge, Massachusetts,” 122 J. OF POL. ECON. 661 (June 2014), available online at https://economics.mit.edu/files/9760 (last visited Jan. 18, 2021).
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burden of their public policy purposes to a subset of landlords,
using private property to achieve their goals.
CONCLUSION
Over the past few decades, cities like New York and San
Francisco have engaged in a self-perpetuating cycle to the
substantial detriment of private property rights: those cities
prevent the construction of sufficient housing, thereby driving
up the cost of the limited stock that exists. They then seek to
mitigate those costs by forcing landlords to permit the
indefinite physical occupation of their properties by third
parties at suppressed rental rates and place near-
insuperable—and ever higher—hurdles in front of those
property owners’ ability to use the property for other
purposes, with each new constraint building on, and justified
by, those that came before. In this manner, these cities
gradually but effectively assume control of the residential
properties in question, while shifting the costs of doing so to a
politically unpopular minority. This is exactly the situation
that the Takings Clause is designed to prevent.
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42
For the foregoing reasons, the order dismissing
Appellants’ claims should REVERSED.
Respectfully submitted,
January 22, 2021 NIELSEN MERKSAMER PARRINELLO GROSS & LEONI LLP By: /s/ Christopher E. Skinnell. James R. Parrinello Christopher E. Skinnell Attorneys for Amici Curiae SAN FRANCISCO APARTMENT ASSOCIATION & CALIFORNIA APARTMENT ASSOCIATION
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43
CERTIFICATE OF COMPLIANCE
Pursuant to Federal Rule of Appellate Procedure 32(g),
the under-signed counsel for Amici Curiae SAN FRANCISCO
APARTMENT ASSOCIATION and CALIFORNIA
APARTMENT ASSOCIATION certifies that this brief:
(i) complies with the type-volume limitation of Local
Rule 29.1(c) because it contains 5,889 words, including
footnotes and excluding the parts of the brief exempted by
Federal Rules of Appellate Procedure 32(f); and
(ii) complies with the typeface and style requirements
of Federal Rules of Appellate Procedure 32(a)(5) and 32(a)(6)
because this document has been prepared using Microsoft
Office Word for Microsoft 365 and is set in Century
Schoolbook font in a size equivalent to 14 points or larger.
Dated: January 22, 2021 /s/ Christopher E. Skinnell
Case 20-3366, Document 103-2, 01/22/2021, 3019067, Page43 of 43 3.C.c
Packet Pg. 275 Attachment: EXC-CHIPvNYC.AmicusBriefCAAandSFAA.20210122 (4520 : Amicus Request - Housing Improvement Program v. NYC)