335-7 LLC v. City of New York

524 F.Supp.3d 316

335-7 LLC, FGP 309 LLC, 226 LLC, 431 Holding LLC, and 699 Venture Corp., Plaintiffs,and312 West 93rd Street Associates, Proposed Plaintiff-Intervenor,

v. CITY OF NEW YORK, New York City Rent Guidelines Board, and Ruthanne Visnauskas (in her official capacity as commissioner of the New York State Division of Homes and Community Renewal), Defendants,andNew York Tenants & Neighbors, and Community Voices Heard, Defendant-Intervenors.

20 Civ. 1053 (ER)

United States District Court, S.D. New York.

Signed March 8, 2021

Brian W. Barnes, David H. Thompson, Peter A. Patterson, Charles J. Cooper, Cooper & Kirk, PLLC, Washington, DC, for Plaintiffs.

Rachel Kane Moston, Claudia Brodsky, New York City Law Department, New York, NY, for Defendants City of New York, New York City Rent Guidelines Board.

Michael Adam Berg, Shi-Shi Wang, NYS Office of the Attorney General, New York, NY, for Defendant Ruthanne Visnauskas.

Caitlin Joan Halligan, Sean Patrick Baldwin, Babak Ghafarzade, Michael Duke, Thaddeus C. Eagles, Selendy & Gay PLLC, New York, NY, for Defendant-Intervenor NY Tenants & Neighbors (T&N).

OPINION AND ORDER

Ramos, D.J.:

Landlords 335-7 LLC, FGP 309 LLC, 226 LLC, 431 Holding LLC, and 699 Venture Corp. bring this action, pursuant to 42 U.S.C. § 1983, against the City of New York, the New York City Rent Guidelines Board, and Commissioner Ruthanne Visnauskas of the New York State Division of Homes and Community Renewal, challenging New York's rent stabilization laws in general, and in particular amendments made in 2019 thereto, under the Fifth and Fourteenth Amendments to the United States Constitution. Tenant advocacy groups New York Tenants & Neighbors and Community Voices Heard subsequently intervened as defendants. Now pending before this Court are Defendants’ motions to dismiss the complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Also before this Court is the motion of landlord 312 West 93 Street Associates to intervene as a plaintiff pursuant to Rules 24(a)(2) and 24(b)(1)(B). For the reasons set forth below, the motions to dismiss are granted, and the motion to intervene is denied as moot.

I. Factual Background

A. The Rent Regulation Framework

During World War II, as labor was diverted to the war effort and the housing supply decreased, the federal government froze rents. Doc. 1 at ¶ 29; Regina Metro. Co., LLC v. New York State Div. of Hous. and Cmty. Renewal , 35 N.Y.3d 332, 395, 130 N.Y.S.3d 759, 154 N.E.3d 972 (N.Y. 2020) (Wilson, J., dissenting). In the wake of the war, federal rent regulation was repealed, but New York City (the "City") continued to experience a significant housing shortage. Id. The State Legislature responded by passing the Emergency Housing Rent Control Law in 1946, which was meant to "to prevent speculative, unwarranted and abnormal increases in rents ... [and] disruptive practices ... [that] will produce serious threats to public health, safety and general welfare." Black v. State of N.Y. , 13 F. Supp. 2d 538, 539 (S.D.N.Y. 1998) ; N.Y. Unconsol. Law § 8581 et seq. In 1962, the State Legislature passed the Local Emergency Housing Rent Control Act ("LEHRCA"), which transferred authority over rent regulation from the State to the City. Black , 13 F. Supp. 2d at 540 ; N.Y. Unconsol. Law § 8601 et seq. LEHRCA mandated that the local legislature conduct a housing and vacancy survey every three years to determine whether a public emergency exists requiring rent and eviction regulation. § 8603.

In the ensuing years, enabled by LEHRCA, two systems of rent regulation arose in the City: rent control and rent stabilization. Rent control limits the rent that landlords can charge to tenants or their successors who (1) have lived in an apartment since 1971 (2) within a building pre-dating February 1, 1947. Doc. 1 at ¶ 27; N.Y. Unconsol. Law § 8601 et seq. ; N.Y. Unconsol. Law § 26-401 et seq. ; N.Y. Rent. & Evict. § 2100.1 et seq.

Rent stabilization was then enacted in 1969 when the City's "housing crisis was once again dire" during the Vietnam War. Regina Metro. , 35 N.Y.3d at 395, 130 N.Y.S.3d 759, 154 N.E.3d 972 (Wilson, J., dissenting); N.Y. Unconsol. Law § 26-501 et seq. In passing rent stabilization, the New York City Council found that "unless residential rents and evictions continue to be regulated and controlled, disruptive practices and abnormal conditions will produce serious threats to the public health, safety and general welfare." § 26-501.

Rent stabilization covers "rental housing accommodations ... that were not already governed by rent control, including buildings constructed after February 1, 1947 containing six or more dwelling units." Black , 13 F. Supp. 2d at 540 ; § 26-504; Doc. 1 at ¶ 31. In addition, some property owners may opt into rent stabilization for tax benefits. See, e.g. , N.Y. Real Prop. Tax Law § 421-a. Rent stabilization also covers considerably more units. Today, there are approximately 22,000 rent controlled apartments, as compared to approximately one million rent-stabilized apartments, across the City. Doc. 1 at ¶¶ 1, 27. The New York Court of Appeals has repeatedly acknowledged that rent stabilization places "a less onerous burden on the property owner" than rent control. Braschi v. Stahl Assocs. Co. , 74 N.Y.2d 201, 210, 544 N.Y.S.2d 784, 543 N.E.2d 49 (N.Y. 1989).

B. Relevant Rent Stabilization Legislative History

The Rent Stabilization Law of 1969 establishing rent stabilization, N.Y. Unconsol. Law § 26-501 et seq. , was quickly followed by the Vacancy Decontrol Act of 1971, which allowed for decontrol as rent-stabilized units became vacant. Roberts v. Tishman Speyer Props., L.P. , 62 A.D.3d 71, 76 n.4, 874 N.Y.S.2d 97 (1st Dep't 2009). The 1971 law was seen as an "experiment in free-market controls[,]" and was itself short-lived when, in 1974, the State Legislature passed the Emergency Tenant Protection Act (the "ETPA"), N.Y. Unconsol. Law § 8621 et seq.

Again recognizing "a serious public emergency" requiring regulation to prevent abusive rent, the ETPA recaptured apartments deregulated by the 1971 decontrol law. § 8622; KSLM-Columbus Apartments, Inc. v. N.Y. State Div. of Hous. & Cmty. Renewal , 6 A.D.3d 28, 32, 772 N.Y.S.2d 665 (1st Dep't 2004). Together with LEHRCA, the ETPA empowered the City to extend rent stabilization by declaring an emergency housing shortage every three years when the vacancy rate was not more than 5%. Roberts , 62 A.D.3d at 76 n.4, 874 N.Y.S.2d 97 ; KSLM , 6 A.D.3d at 32, 772 N.Y.S.2d 665 ; § 8623.

The State Legislature again relaxed rent-stabilization through the Rent Reform Acts of 1993 and 1997. The 1993 reforms included luxury decontrol, which exempted apartments that rented for over $2,000 per month that became vacant from rent-stabilization, as well as high-income decontrol, which exempted units that were occupied by people earning more than $250,000. The 1993 reforms also allowed for permanent rent increases for individual apartment improvements, which are renovations to individual apartments. Docs. 1 at ¶ 39, 65 at 5. The 1997 reforms provided vacancy and longevity allowances permitting rent increases when certain apartments were vacated, limited succession rights to family members with a close relationship to the original tenant, and modified the vacancy and high-income decontrol thresholds. Docs. 1 at ¶ 39, 65 at 5.

The State Legislature further amended rent regulation, in relevant part, three times from 2003 until 2015. In 2003, the State Legislature allowed landlords to engage in preferential rent, which is leasing at a rental rate below the permitted rate so that they could then raise the rent to the highest possible amount upon renewal of the lease. Docs. 1 at ¶ 49d, 65 at 5. In 2011, the State Legislature limited the frequency of rent increases, decreased the amount recoverable for individual apartment improvements, and increased decontrol thresholds. Doc. 65 at 5. In 2015, the State Legislature again revised the decontrol thresholds, and changed the amounts recoverable for major capital improvements, which are building-wide renovations. Id.

In 2017, pursuant to LEHRCA and the ETPA, and at the request of the City, the United States Census Bureau conducted the latest housing and vacancy survey.¹ The survey determined that the vacancy rate in the City was 3.63%, well below the statutory emergency threshold of 5% triggering the extension of rent-stabilization. 2017 Survey.

The latest changes to the rent stabilization scheme came with the State Legislature's passage of the Housing Stability and Tenant Protection Act of 2019 (the "2019 Amendments"). Kuzmich v. 50 Murray St. Acquisition , 187 A.D.3d 670, 670, 135 N.Y.S.3d 368 (1st Dep't 2020). The 2019 Amendments eliminated luxury decontrol, high-income decontrol, preferential rent, and vacancy allowances, capped landlords’ recovery of units, reduced recovery for major capital and individual apartment improvements, lengthened the time to evict tenants, and increased the threshold of tenant consent that landlords needed to meet to convert rent-stabilized units to cooperatives or condominiums. Doc. 1 at ¶¶ 46a-c, 49a-f; Cmty. Hous. Improvement Prog. ("CHIP") v. City of New York, 492 F.Supp.3d 33, 39 (E.D.N.Y. 2020).

C. The Current Statutory Framework

Today, rent stabilization law is governed by the surviving provisions of the Rent Stabilization Law of 1969, the ETPA, the 2019 Amendments, and the regulations promulgated thereunder (together, these laws will be referred to as the "RSL"). The RSL is administered through the New York State Division of Housing and Community Renewal ("DHCR"), which promulgates regulations under the RSL and adjudicates complaints. Doc. 1 at ¶ 16.

The RSL established the Rent Guidelines Board. § 26-510(a). Annual guidelines for rent adjustments are set by the Rent Guidelines Board after consideration of several factors, including the economic condition of the housing market, the overhead costs of renting, housing...