Cmty. Hous. Improvement Program v. City of N.Y.

492 F.Supp.3d 33

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 Schwartz, German Tejeda, May Yu, et al., Defendants.

74 Pinehurst LLC, 141 Wadsworth LLC, 177 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.

19-cv-4087(EK)(RLM)

19-cv-6447(EK)(RLM)

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

Signed September 30, 2020

Ivano Michael Ventresca, Pro Hac Vice, Mark W. Mosier, Pro Hac Vice, Michael M. Maya, Pro Hac Vice, Covington & Burling LLP, Kevin King, Pro Hac Vice, One CityCenter, Washington, DC, Jordan S. Joachim, Jonathan M. Sperling, Covington & Burling LLP, New York, NY, for Plaintiffs.

Michael A. Berg, Shi-Shi Wang, State of New York Office of the Attorney General, New York, NY, for Defendants State Of New York, New York Division of Housing and Community Renewal, RuthAnne Visnauskas.

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, David Reiss, Cecilia Joza, Alex Schwartz, German Tejeda, May Yu, Patti Stone, J. Scott Walsh, Leah Goodridge, Sheila Garcia.

MEMORANDUM AND ORDER

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 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 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, 107 S.Ct. 1232, 94 L.Ed.2d 472 (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.

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 , 140 N.M. 528, 144 P.3d 87, 97-98 (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...