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July 15, 2020 Articles

A “Facial Challenge”: New York Residential Landlords’ First Constitutional Complaint against COVID-19 Laws

The U.S. District Court for the S.D.N.Y. rejected the argument that Gov. Cuomo's second eviction moratorium violated the Contracts Clause, Takings Clause, Due Process Clause, and Petition Clause.

By Ali Dehghan

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New York’s first eviction moratorium, which placed a 90-day pause on all evictions in the state, whether commenced for reason of nonpayment of rent or otherwise, expired on June 20. Although New York landlords remain barred, pursuant to the second moratorium, from initiating new summary proceedings “for nonpayment of rent” against a commercial tenant who faces a financial hardship until August 20, they may seek eviction of any tenant for any reason other than nonpayment of rent. Three residential landlords filed a complaint with the federal court to enjoin the second eviction moratorium on the grounds that it violates their rights under the U.S. Constitution’s Contracts Clause, Takings Clause, Due Process Clause, and Petition Clause.

The court labeled the landlords’ action as a facial challenge, which is generally disfavored, as it did not allege imminent or actual harm to any particular property interest or contractual relationship as a result of the moratorium. After hearing and without even engaging in discovery, the plaintiffs’ motion for summary judgment was denied, and the defendant’s motion for summary judgment dismissing the action was granted.

Federalism and State Sovereign Immunity

Before reaching the constitutional issues, the court first made clear that it lacks the jurisdiction necessary to reach the merits of the state-law questions raised in the plaintiffs’ filings. The court ruled that federal courts do not have the power to address claims that Governor Cuomo has violated state law based on the doctrine of state sovereign immunity and principles of federalism embodied in the Eleventh Amendment.

Takings Clause and the Procedural Due Process

The landlords claimed that the moratorium violates both the Takings Clause and the procedural due process protections of the Fourteenth Amendment, because the temporary suspension of evictions forces landlords to provide their property for use as housing without just compensation. “The law recognizes two species of takings: physical takings and regulatory takings.” Buffalo Teachers Fed’n v. Tobe, 464 F.3d 362, 374 (2d Cir. 2006).

Physical Taking

The court stated that that Supreme Court has ruled that a state does not commit a physical taking when it restricts the circumstances in which tenants may be evicted. See Yee v. City of Escondido, Cal., 503 U.S. 519, 527 (1992). The court further stated that physical takings occur only when the government “requires the landowner to submit to the physical occupation of his land.” Id.

In rejecting the landlords’ argument, the court held that there is no physical taking because the moratorium lacked the element of permanency (Second Moratorium will expire on August 19), and that it would still allow property owners to either obtain a warrant of eviction or sue their tenant for back rent. Third, the moratorium does not forgive the obligation to pay rent, nor does it reduce the same. It is noteworthy that the court’s analysis was made prior to the passage of Tenant Safe Harbor Act (TSHA), which bars issuance of a warrant of eviction for residential tenants who have experienced financial hardship due to the pandemic.

Regulatory Taking: Penn Central

The landlords also claimed a regulatory taking that is not comprised of a physical invasion of their property by the government; which claim, if involving anything short of a total elimination of value or complete loss, is to be analyzed under the standard set forth in Penn Central Transportation Co. v. New York City, 438 U.S. 104, 98 S. Ct. 2646, 57 L.Ed.2d 631 (1978). Under Penn Central, courts must weigh three factors to determine whether a regulation amounts to a taking, or in Justice Holmes’s famous words in Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 415 (1922), “has gone too far”: (1) the economic impact of the regulation on the claimant; (2) the extent to which the regulation has interfered with distinct investment-backed expectations; and (3) the character of the governmental action.

The court basically did not analyze the economic impact of the executive order as the plaintiffs did not want to engage in discovery to provide financial data. Furthermore, the court stated that, for the same reason that New York rent regulation laws withstood Constitutional challenge, so does the second eviction moratorium. “The extent to which Plaintiffs’ can realize a profit from their rental properties is not the relevant measure of their investment-backed expectations for the purposes of Takings Clause analysis,” the court stated. Again, the court was not examining the recently enacted TSHA, which will most likely have a distinct negative financial impact on residential landlords.

Contracts Clause

Landlords further asserted that EO 202.28 violates their rights under the Contracts Clause by allowing security deposit funds to be disposed contrary to the terms of the parties’ leases, as well as by denying the landlords a forum in which to commence (or, presumably, prosecute) eviction proceedings for non-payment of rent; a remedy to which they claim at least an implied contractual right. Because the challenged law only impairs private contracts, and not those to which the state is a party, the court accorded substantial deference to the state’s conclusion that its approach reasonably promotes the public purposes for which it was enacted. As such, the landlords’ claim for breach of contract clause was denied.

Petition Clause

Plaintiffs finally also argued that Governor Cuomo’s denial of access to Housing Court for the prosecution of summary nonpayment proceedings violates their rights under Petition Clause of the First Amendment. To prevail on such a denial of access claim, the plaintiff must show “that the defendant took or was responsible for actions that hindered [a plaintiff's] efforts to pursue a legal claim,” Davis v. Goord, 320 F.3d 346, 351 (2d Cir. 2003), quoting Lewis v. Casey, 518 U.S. 343, 349, 351, 116 S.Ct. 2174, 135 L.Ed.2d 606 (1996) (alteration in original).

The court simply stated that the governor’s order was not the reason for not filing evictions after June 20, 2020; rather, the proceedings were suspended pursuant to the order of the chief administrative judge. Although the New York landlord’s first Constitutional plea was unsuccessful, the vague standards and deadlines set by the TSHA and a bar on issuing warrants of eviction for an unknown period of time, may change the way the Penn Central test will be applied if a new challenge is brought by New York residential landlords in the future. Time will tell.

Ali Dehghan is an associate with James G. Dibbini & Associates in New York City, New York.

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