Second Circuit Court Guaranty Law Challenge – Rosenberg & Estis, P.C. Amicus Brief Arguments Embraced By Appeals Court Judges

Second U.S. Circuit Court of Appeals
R&E Team: Jeffrey Turkel
Decided October 28, 2021

Rosenberg & Estis, P.C. hailed a new decision by the Second U.S. Circuit Court of Appeals in Manhattan that ordered a district court judge to reconsider the constitutionality of a New York City law releasing commercial lease guarantors from rent obligations during the pandemic.

Jeffrey Turkel, a member of Rosenberg & Estis, crafted an amicus curiae brief supporting the landlords, who were the plaintiffs/appellants in the case, Melendez et al. v. City of New York et al.

Turkel wrote the brief on behalf of the Rent Stabilization Association of N.Y.C. Inc. and the Community Housing Improvement Program. In a split decision, Judges Reena Raggi and José Cabranes ruled the district court should reexamine the landlords’ contention that the City’s 2020 Guaranty Law violates constitutional protections against government interference with private contracts.

The Second Circuit remanded the case to U.S. District Judge Ronnie Abrams, who originally upheld the Guaranty Law’s constitutionality in November 2020. Judges Raggi and Cabranes found that the landlords had raised “serious concerns” that the City’s legislation is not “reasonable and appropriate.”

“The New York City Council hastily passed the Guaranty Law without investigating its necessity or how it functioned, including who it helped and harmed,” Turkel said. “The Second Circuit rightly found that the District Court gave very short shrift to the landlords’ valid arguments regarding the law’s many serious issues, including its devastating and permanent overreach.”

The underlying case dates to July 2020, when a group of landlords and their affiliates sued the City, Mayor Bill de Blasio and other city officials in U.S. District Court for the Southern District of New York.

Signed by Mayor de Blasio in May 2020, the Guaranty Law aimed to promote the public good by mitigating the financial challenges faced by commercial tenants and their guarantors due to the pandemic.

The legislation covered (1) tenants that were required to stop serving food or beverages on their premises; (2) retailers subject to closure and in-person restrictions; and (3) those forced to cease operations entirely, including gyms, movie theaters and personal care businesses like barbershops.

Turkel’s amicus brief argued the City’s law was a drastic overreach because it completely absolved commercial guarantors from rent payments for the period between March 7, 2020 and June 30, 2021, regardless of their ability to pay.

The brief emphasized that individual guarantors are critical to financially backstop commercial leases, offering landlords legal means that can be swifter, simpler and more effective than suing the commercial tenant.

Turkel argued that eliminating personal liability substantially impaired landlords’ contractual bargain with guarantors. Judges Raggi and Cabranes agreed, finding the city’s argument that landlords could still seek unpaid rent by other means was neither practically nor legally persuasive.

The judges ordered Judge Abrams to apply a five-part test to gauge the Guaranty Law’s proportionality, including whether it was sufficiently limited, such as by being temporary, rather than being unnecessarily broad, such as by being permanent.

The judges also called for Judge Abrams to consider whether the City sufficiently studied the law’s appropriateness based on the City Council’s underlying assumptions, including that owner-guarantors are mostly individuals who would be financially ruined if required to pay rent arrears.

Additionally, Judges Raggi and Cabranes instructed Judge Abrams to weigh whether the law unduly saddled landlords with the pandemic’s financial burdens; if the law was narrowly tailored to those in financial trouble; and whether landlords also had a fair opportunity to receive financial relief.