Breaking Update from Rosenberg & Estis, P.C.

Dear Clients,

As you may know, a number of cases are currently pending in federal court concerning the constitutionality of the Housing Stability and Tenant Protection Act of 2019 (HSTPA). Two of those cases -- CHIP/RSA et al v City of New York et al. and 74 Pinehurst LLC et al v. State of New York et al. -- were filed in the US District Court for the Eastern District of New York and assigned to Judge Eric Komitee, who was recently appointed to the federal bench. Our firm is involved in 74 Pinehurst, and you should know that we as a firm are doing all we can to overturn the draconian HSTPA, whether in whole or in part, and to ameliorate its profoundly negative impact on the New York real estate industry.

The actions seek to overturn the HSTPA on constitutional grounds, alleging, among other things, that the HSTPA violates the Takings Clause both facially and as applied, as well as the Due Process and Contracts Clauses. The defendants in both actions (both governmental and intervenor-tenants) filed motions to dismiss the two actions, which motions were orally argued in June.

On September 30, Judge Komitee issued his decision on the motions. Click here to read the decision.

The Court largely granted the motions and dismissed the complaints in both cases to the extent they asserted (1) facial challenges under the Takings Clause, (2) as-applied claims alleging physical takings, (3) Due Process claims, and (4) Contract Clause claims. However, as to certain as-applied regulatory claims asserted in 74 Pinehurst, the court denied the motion to dismiss and will permit the claims to proceed to discovery.

The rulings as to the facial challenges and physical takings claims were not unexpected, as Second Circuit and U.S. Supreme Court precedent essentially tied the District Court's hands. With that said, two factors bear mentioning as the dismissal inevitably goes up on appeal: (1) changes in the makeup of the Second Circuit and U.S. Supreme Court since the earlier cases were decided -- accompanied by what may be a more hostile view of government regulation than that of the courts issuing the earlier decisions -- could mean more receptive audiences to the owners' arguments; and (2) in deciding whether to overturn their prior precedents concerning the constitutionality of rent regulation, the appellate courts will have to grapple with the fact that the level of regulation in the HSTPA goes far beyond what any court has heretofore held constitutional. Indeed, the New York Court of Appeals -- which is certainly not ideologically hostile to Governor Cuomo and the Legislature -- held in Regina, less than a year after the HSTPA became law, that certain retrospective applications of the HSTPA were unconstitutional.

And, the fact that certain as-applied claims will proceed to discovery could give owners some measure of leverage in future negotiations over the HSTPA and rent regulation more generally. The Legislature must grapple with the possibility that certain of its members, as well as tenants' groups and others who shaped the HSTPA, could be deposed or otherwise have discovery taken of them as 74 Pinehurst moves forward.

Overturning the HSTPA or any portion thereof remains an uphill battle -- but, between the inevitable appeal and the prosecution of the claims that survived dismissal, pro-HSTPA forces certainly cannot rest easy.

Please feel free to contact me with questions about this decision.

Alexander Lycoyannis
Member
(212) 551-8416
[email protected]