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NYC Tells 2nd Circ. No Sanctions In COVID Rent Law Suit

By Grace Dixon · 2024-06-10 20:18:41 -0400 ·

New York City told the Second Circuit that its late-in-the-game jurisdictional arguments don't warrant sanctions amid litigation over pandemic protection for commercial real estate tenants, arguing that it raised the claims as soon as possible.

Though city counsel didn't bring up New York's jurisdictional concerns when the district court first ruled on motions for dismissal and summary judgment, or later, during the city's initial Second Circuit appeal, New York didn't knowingly omit its claims, the city argued in a Friday letter.

"The city first became aware of the jurisdictional issues raised in this appeal after the prior appeal was decided and en banc rehearing denied, following internal discussion about how to proceed following remand, and upon further consideration, research and review of contemporaneous Supreme Court decisions presenting similar circumstances," city counsel said in the letter.

"We would never withhold such an issue deliberately, and we did not do so here," the letter added.

Commercial landlord Elias Bochner and his business 297 Seventh Ave. Realty LLC had filed suit challenging the city's so-called "guaranty law," which freed commercial lease guarantors from rent obligations if a tenant was closed due to the governor's emergency orders imposed at the outset of the pandemic.

Though a district court had first tossed the landlord's claims, a split Second Circuit panel revived Bochner's suit claiming that the regulation violated the U.S. Constitution's Contracts Clause, which prohibits laws impairing contractual obligations. And the district court determined that the regulation did violate the contracts clause, adding that the law was a blunt instrument, poorly tailored to aid the struggling small businesses and employees that city lawmakers said they intended to help.

On their second appeal, the city had argued that the courts lack jurisdiction to consider Bochner's claims because his alleged injuries would not be redressed by a favorable ruling.

"Plaintiffs secured their requested relief but remain in precisely the same legal position that they were in before filing suit," the city had argued in an August brief. "To enforce a guaranty, they would still need to sue the guarantor, and the guarantor could still raise the guaranty law as a defense — the exact circumstances that obtained before plaintiffs commenced this litigation."

A spate of recent U.S. Supreme Court rulings — notably the high court's June 2023 decision in Haaland v. Brackeen — brought renewed attention to "the problem that arises when a declaratory judgment cannot bind relevant actors," the city said Friday.

New York doesn't enforce the law in question, the brief said, only private parties and courts considering cases in which guarantors raise the clause as a defense. And Bochner has not yet sued his tenants' guarantor, rendering the regulation an impermissible "advisory opinion," the city had argued.

Bochner had countered the city's argument in a November brief, calling the second appeal a "last-gasp" effort to save the statute. Even though the city is well aware that he was unable to collect $116,000 in unpaid rent from a tenant and guarantor after the law's passage, the case challenges the facial constitutionality of the legislation, he said. 

"There is nothing conjectural, abstract or speculative about the permanent impairment of appellees' contractual rights caused by the passage of the law," Bochner said. "The moment it was passed, the guaranty law invalidated appellees' bargained-for contract rights because it rendered unenforceable personal guaranties in commercial leases for defaults occurring between March 2020 and June 2021."

A representative for the city declined to comment on Monday, and counsel for Bochner didn't immediately respond to a request for comment.

Bochner and 287 Seventh Ave. are represented by Claude Szyfer of Hogan Lovells.

The city is represented in-house by Sylvia O. HInds-Radix, Michelle Goldberg-Cahn, Mark Muschenheim, Pamela A. Koplik and Scali Riggs.

The case is Melendez et al. v. The City of New York et al., case number 20-CV-5301, in the U.S. District Court for the Southern District of New York.

--Additional reporting by Charlie Innis. Editing by Melissa Treolo.

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