Melendez v. City of N.Y.

16 F.4th 992

Marcia MELENDEZ, Jarican Realty Inc., 1025 Pacific LLC, Ling Yang, Top East Realty LLC, Haight Trade LLC, Elias Bochner, 287 7th Avenue Realty LLC, Plaintiffs-Appellants,

v.CITY OF NEW YORK, a municipal entity, Mayor Bill De Blasio, as Mayor of the City of New York, Commissioner Louise Carroll, Commissioner of New York City Department of Housing Preservation & Development, Commissioner Jonnel Doris, Commissioner of New York City Department of Small Business Services, Defendants-Appellees.

No. 20-4238-cv

August Term 2020

United States Court of Appeals, Second Circuit.

Argued: May 3, 2021

Decided: October 28, 2021

Claude G. Szyfer, Stroock & Stroock & Lavan LLP, New York, New York, for Plaintiffs-Appellants.

Jamison Davies, Assistant Corporation Counsel (Richard Dearing, Devin Slack, on the brief), for James E. Johnson, Corporation Counsel of the City of New York, New York, New York, for Defendants-Appellees.

Deborah E. Riegel, Rosenberg & Estis, P.C., New York, New York, for amici curiae Rent Stabilization Association of N.Y.C., Inc. and Community Housing Improvement Program.

Michael J. Harris, Jonathan A. Herstoff, Haug Partners LLP, New York, New York; Arthur Kats, Volunteers of Legal Service, New York, New York, for amicus curiae Volunteers of Legal Service.

LiJia Gong, Public Rights Project, Brooklyn, New York, for amici curiae the Cities of Chicago, Santa Monica, and 17 Additional Local Governments.

Joshua A. Matz, Raymond P. Tolentino, Molly Webster, Kaplan Hecker & Fink LLP, New York, New York, for amici curiae Constitutional Law Scholars.

Before: Cabranes, Raggi, and Carney, Circuit Judges.

Judge Carney concurs in the result in part and dissents in part in a separate opinion.

Reena Raggi, Circuit Judge:

In response to the COVID-19 pandemic, governments at all levels—federal, state, and local—enacted laws to address health, safety, and economic concerns. Some of these laws have operated affirmatively, with the federal government in particular appropriating trillions of dollars to fund vaccine development and distribution, to enhance unemployment benefits, to stimulate the economy, etc. Other laws have operated negatively to proscribe communal conduct, to limit or excuse financial obligations, to preclude or limit certain legal remedies, etc. At issue in this appeal are certain laws falling into the second category and enacted by New York City ("City") in May 2020, at the height of the pandemic, specifically, (1) amendments to the City's existing Residential and Non-Residential (i.e. , "Commercial") Harassment Laws, see N.Y.C. Admin. Code §§ 22-901 et seq. , 27-2004 et seq. (together the "Harassment Amendments"), which prohibit "threatening" residential or commercial tenants based on their COVID-19 status; and (2) N.Y.C. Admin. Code § 22-1005 (the "Guaranty Law"), which renders permanently unenforceable personal liability guaranties of commercial lease obligations arising between March 7, 2020, and June 30, 2021.

In this action, filed in the United States District Court for the Southern District of New York (Ronnie Abrams, J. ), plaintiffs, Marcia Melendez, Ling Yang, Elias Bochner, and the corporate landlords in which they own interests, sue the City and various named City officials under 42 U.S.C. § 1983 for a judgment declaring the challenged laws unconstitutional and for an injunction permanently enjoining their enforcement. They allege that the Harassment Amendments violate the Free Speech and Due Process Clauses of the United States and New York State Constitutions by impermissibly restricting commercial speech in the ordinary collection of rents and by failing to provide fair notice of what constitutes threatening conduct. See U.S. Const. amends. I & XIV ; N.Y. Const., art. I § 8. Plaintiffs further allege that the Guaranty Law violates the United States Constitution's Contracts Clause, which prohibits "State ... Law[s] impairing the Obligation of Contracts," U.S. Const. art. I, § 10, cl. 1.¹ Plaintiffs now appeal from a judgment of the district court entered on November 30, 2020, (1) granting defendants’ motion to dismiss plaintiffs’ amended complaint in its entirety for failure to state a claim, see Fed. R. Civ. P. 12(b)(6) ; and (2) denying plaintiffs’ motion for preliminary injunctive and declaratory relief without review. See Melendez v. City of New York , 503 F. Supp. 3d 13 (S.D.N.Y. 2020).

Upon de novo review of the challenged judgment, we conclude, as the district court did, that plaintiffs fail to allege plausible free speech and due process claims. As to their Contracts Clause challenge to the Guaranty Law, however, we conclude that the amended complaint, viewed most favorably to plaintiffs, does not permit a court to dismiss this claim pursuant to Rule 12(b)(6). Accordingly, we affirm the dismissal of plaintiffs’ challenges to the Harassment Amendments, but we reverse the dismissal of their Contracts Clause challenge to the Guaranty Law, vacate the denial of preliminary injunctive and declaratory relief, and remand the case to the district court for further proceedings consistent with this opinion.

BACKGROUND

In recounting the background to this case, we follow the standard applicable to judicial review of motions to dismiss, i.e. , we accept all factual allegations in the plaintiffs’ amended complaint as true, and we consider that pleading, together with all documents appended thereto or incorporated by reference, as well as all matters of proper judicial notice and public record, in the light most favorable to plaintiffs. See Blue Tree Hotels Inv. (Can.), Ltd. v. Starwood Hotels Resorts Worldwide, Inc. , 369 F.3d 212, 217 (2d Cir. 2004) ; Automated Salvage Transp., Inc. v. Wheelabrator Env't Sys., Inc. , 155 F.3d 59, 67 (2d Cir. 1998).²

I. COVID-19 Pandemic

The challenged Harassment Amendments and Guaranty Law were enacted in response to the COVID-19 pandemic. The severity of that pandemic is not disputed by the parties and, thus, requires little elaboration here. It suffices to note that to date the United States has identified 45,468,434 cases of coronavirus infection, resulting in 736,048 deaths.³

It is also undisputed that New York State was hit early and hard by the pandemic. By the end of March 2020, the state had become the nation's pandemic epicenter, reporting approximately one third of infection cases nationwide, with New York City alone then accounting for one quarter of the country's virus-related deaths.⁴

In addition to causing a nationwide public health emergency, the pandemic fomented an economic crisis as government-mandated mitigation measures limited personal interactions and forced businesses to suspend or reduce operations. A few statistics make the point. In the spring of 2020, the United States experienced its sharpest economic contraction since World War II, with April 2020 unemployment numbers climbing to a record 14.4%.⁵ In New York, between February and June 2020, the unemployment rate climbed higher still, to 20.3%, with over 1.4 million people filing for benefits.⁶ To address the issues on this appeal, it is useful to summarize at the outset how government, at various levels, responded and/or contributed to the economic challenges of the COVID-19 pandemic.⁷

A. The Federal Response

Between March 2020 and March 2021, Congress appropriated an unprecedented five trillion dollars to address various aspects of the pandemic emergency. On March 25, 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), a $2.2 trillion stimulus package—the largest in American history—which, among other things, appropriated $293.5 billion for one-time cash payments (usually $1,200/person) to qualifying individuals; $268 billion to increase unemployment benefits; $150 billion to aid state and local governments; and $349 billion to fund the new Paycheck Protection Program ("PPP"), which provided potentially forgivable loans to small businesses for use meeting payroll and, to a lesser extent, rent and other operating costs. See Pub. L. No. 116-136, §§ 601(a), 1102(a), 1107(a)(1), 2102(d), 2201(a), (f).⁸ The CARES Act also increased funding for existing Small Business Administration ("SBA") loan programs, including for Economic Injury Disaster Loan grants, and imposed a 120-day eviction moratorium for certain residential properties. See id. §§ 1107(a)(6), 1110, 4024(a), (b).

At the end of 2020, Congress made another $900 billion in pandemic relief available through the Consolidated Appropriations Act, see generally Pub. L. No. 116-260, with $25 billion directed to an Emergency Rental Assistance Program ("ERA") for residential tenants, see id. § 501. In doing so, Congress also extended by one month a residential eviction moratorium previously imposed by the Centers for Disease Control and Prevention ("CDC") and discussed in the next paragraph. See id. § 502. Three months later, on March 11, 2021, Congress appropriated another $1.9 trillion in relief through the American Rescue Plan. See Pub. L. No. 117-2. Of this amount, $21.55 billion was earmarked as additional ERA funding, see id. § 3201,⁹ and $28.6 billion was directed to the new Restaurant Revitalization Fund to help small restaurant businesses meet payroll, mortgage, rent, and other operating expenses, see id. § 5003(b)(2)(A), (c)(5).

Meanwhile, federal agencies also pronounced economic policies in response to the pandemic. Notably, in September 2020, after the first congressional residential eviction moratorium expired, the CDC declared a temporary nationwide halt in residential evictions for persons submitting sworn declarations that they had been adversely affected by the pandemic. See 85 Fed. Reg. 55,292 (Sept. 1, 2020). The CDC extended this moratorium in various forms, most recently through October 3, 2021. See 86 Fed. Reg. 43,244 (Aug. 4, 2021).¹⁰

B. New York State's Response

1. Gubernatorial Orders

In an effort to control the pandemic within New York, the state legislature, on March 3,...