COVID-19: Federal Court Upholds Constitutionality of New York's Foreclosure and Eviction Moratoriums | Practical Law

COVID-19: Federal Court Upholds Constitutionality of New York's Foreclosure and Eviction Moratoriums | Practical Law

A Federal District Court Judge has granted summary judgment upholding the constitutionality of New York Governor Andrew Cuomo's executive orders imposing, among other things, moratoriums on residential and commercial evictions and foreclosures due to the COVID-19 pandemic.

COVID-19: Federal Court Upholds Constitutionality of New York's Foreclosure and Eviction Moratoriums

by Practical Law Real Estate
Published on 07 Jul 2020 • New York
A Federal District Court Judge has granted summary judgment upholding the constitutionality of New York Governor Andrew Cuomo's executive orders imposing, among other things, moratoriums on residential and commercial evictions and foreclosures due to the COVID-19 pandemic.
On June 29, 2020, the United States District Court for the Southern District of New York granted summary judgment against three residential landlords who challenged the constitutionality of several executive orders issued by New York's Governor Andrew Cuomo (Elmsford Apt. Assocs., LLC, et al. v. Andrew Cuomo, (S.D.N.Y. June 29, 2020)). The decision is another recent example of the significance that courts are placing on the societal impact of the COVID-19 pandemic and the deference being given to government actions designed to protect the public health and welfare (see Legal Update, COVID-19 A Factor in Assessing the Commercial Reasonableness of New York UCC Foreclosure).

Background

In response to the COVID-19 pandemic, on March 20, 2020, New York Governor Andrew Cuomo issued Executive Order 202.8 which barred residential and commercial evictions or foreclosures for a period of 90 days.
On May 7, 2020 Governor Cuomo issued Executive Order 202.28 (EO 202.28) which:
  • Extended the residential and commercial foreclosure ban through August 19, 2020.
  • Prohibited landlords from initiating eviction proceedings or enforcing evictions through August 19, 2020.
  • Permitted tenants to apply their security deposits to their current or past-due rental obligations through June 6, 2020.
The rights and protections provided under EO 202.28 apply only to property owners and tenants who:
  • Qualify for state or federal unemployment insurance or benefits.
  • Face financial hardship from the COVID-19 pandemic.
On June 6, 2020, Governor Cuomo issued Executive Order 202.38 which extended the right of tenants to apply their security deposits to their rental obligations through July 6, 2020.
On May 27, 2020, three New York residential landlords (collectively, Landlords) filed a complaint against Governor Cuomo (Cuomo) with the United States District Court for the Southern District of New York seeking to nullify EO 202.28 as violative of the United States Constitution.
The Landlords argued, among other things, that EO 202.28 and its related executive orders:
  • Violated their rights under the Contracts Clause (Article I, Section 10 of the U.S. Constitution) by effectively changing the terms of their leases by allowing tenants to apply their security deposits to their rental obligations.
  • Violated their rights under the Contracts Clause as well as the Landlords' due process rights by prohibiting them from initiating eviction proceedings or enforcing evictions.
  • Constituted an improper taking of their property by forcing them to provide their property for housing without fair compensation.
On June 29, 2020, the court denied the Landlords' motion for summary judgment and granted Cuomo's summary judgment motion dismissing each of the claims.

Outcome

In denying the Landlords' motion, the court held that EO 202.28 did not:
  • Violate the Landlords' rights under the Contracts Clause by allowing tenants to apply their security deposits to their rental obligations. The court noted that:
    • the Contracts Clause does not trump the power of the state to protect the general welfare of its citizens;
    • EO 202.28 is not a substantial impairment of the Landlords' contract rights since the tenants are required to replenish their security deposits;
    • the Landlords retain their civil remedies to pursue their tenants for any damage to the rental units or for any other obligations of the tenants under their leases; and
    • rental units in New York have long been subject to regulation and modifications to those regulations, especially when temporary, should be expected by landlords and factored into the economic terms of their leases.
  • Deny the Landlords' rights under the Contracts Clause by prohibiting them from initiating or enforcing eviction proceedings, as expressly provided in their leases. The court noted that EO 202.28 delays, but does not eliminate, the Landlords' rights to pursue evictions. In addition, the court held that the eviction moratorium does not deny the Landlords their due process rights under the First Amendment since:
    • it is temporary;
    • the Landlords have other remedies available to them (such as an action for breach of contract); and
    • the temporary closure of the New York courts was not mandated by EO 202.28 but was instead ordered by the Chief Administrative Judge in response to the pandemic.
  • Constitute an improper taking of the Landlords' property by forcing them to provide their properties for housing without fair compensation. The court noted that:
    • EO 202.28 does not involve a physical taking of any of the Landlords' property.
    • EO 202.20 does not involve a regulatory taking since it: (i) does not result in a complete loss of value; (ii) does not prevent the Landlords from making any economic use of their properties; (iii) is temporary in nature; (iv) is merely an adjustment to an existing regulatory scheme to which the Landlords were already subject; and (iv) is consistent with a state government's right to reallocate economic impacts in times of emergency.

Practical Implications

Perhaps more significant than the court's individual holdings is the extent to which the court's decision was influenced by the unprecedented nature of the COVID-19 pandemic and the need to accord the government wide latitude to use its police power to protect public health and safety. From the outset, the court frames its decision squarely in this context.
"The world is navigating the deadliest pandemic in over a century. Presently, the United States has suffered more than any other country, reporting over two million cases of the novel coronavirus known as COVID-19, and over one hundred and twenty thousand deaths as a result. Among the fifty states, New York has experienced the highest number of cases, with nearly four hundred thousand cases and twenty-five thousand dead.
The New York State Legislature and the Governor, Defendant Andrew Cuomo, have worked together to respond to this evolving crisis and its effects on the health, safety, and economic wellbeing of New Yorkers."
While this case addresses executive orders issued in New York, this federal court decision may influence courts deciding similar challenges in other states. The decision shows a willingness for courts to give federal, state, and local governments increased latitude to impose measures designed to protect public health and safety. Owners of real property and their counsel should take note of this new environment and adjust their objectives, strategies, risk assessments, and assumptions accordingly.
For a collection of resources related to the global coronavirus and general crisis management guidance in real estate and construction matters, see Real Estate Global Coronavirus Toolkit.