REENA RAGGI, Circuit Judge.
In response to the COVID-19 pandemic, governments at all levels—federal, state, and local—enacted laws to address health, safety, and economic concerns. Some of these laws have operated affirmatively, with the federal government in particular appropriating trillions of dollars to fund vaccine development and distribution, to enhance unemployment benefits, to stimulate the economy, etc. Other laws have operated negatively to proscribe communal conduct, to limit or excuse financial obligations, to preclude or limit certain legal remedies, etc. At issue in this appeal are certain laws falling into the second category and enacted by New York City ("City") in May 2020, at the height of the pandemic, specifically, (1) amendments to the City's existing Residential and Non-Residential
In this action, filed in the United States District Court for the Southern District of New York (Ronnie Abrams, J.), plaintiffs, Marcia Melendez, Ling Yang, Elias Bochner, and the corporate landlords in which they own interests, sue the City and various named City officials under 42 U.S.C. § 1983 for a judgment declaring the challenged laws unconstitutional and for an injunction permanently enjoining their enforcement. They allege that the Harassment Amendments violate the Free Speech and Due Process Clauses of the United States and New York State Constitutions by impermissibly restricting commercial speech in the ordinary collection of rents and by failing to provide fair notice of what constitutes threatening conduct. See U.S. Const. amends. I & XIV; N.Y. Const., art. I § 8. Plaintiffs further allege that the Guaranty Law violates the United States Constitution's Contracts Clause, which prohibits "State ... Law[s] impairing the Obligation of Contracts," U.S. Const. art. I, § 10, cl. 1.
Upon de novo review of the challenged judgment, we conclude, as the district court did, that plaintiffs fail to allege plausible free speech and due process claims. As to their Contracts Clause challenge to the Guaranty Law, however, we conclude that the amended complaint, viewed most favorably to plaintiffs, does not permit a court to dismiss this claim pursuant to Rule 12(b)(6). Accordingly, we affirm the dismissal of plaintiffs' challenges to the Harassment Amendments, but we reverse the dismissal of their Contracts Clause challenge to the Guaranty Law, vacate the denial of preliminary injunctive and declaratory relief, and remand the case to the district court for further proceedings consistent with this opinion.
In recounting the background to this case, we follow the standard applicable to judicial review of motions to dismiss, i.e., we accept all factual allegations in the plaintiffs' amended complaint as true, and we consider that pleading, together with all documents appended thereto or incorporated by reference, as well as all matters of proper judicial notice and public record, in the light most favorable to plaintiffs. See Blue Tree Hotels Inv. (Can.), Ltd. v. Starwood Hotels Resorts Worldwide, Inc., 369 F.3d 212, 217 (2d Cir. 2004);
I. COVID-19 Pandemic
The challenged Harassment Amendments and Guaranty Law were enacted in response to the COVID-19 pandemic. The severity of that pandemic is not disputed by the parties and, thus, requires little elaboration here. It suffices to note that to date the United States has identified 45,468,434 cases of coronavirus infection, resulting in 736,048 deaths.
It is also undisputed that New York State was hit early and hard by the pandemic. By the end of March 2020, the state had become the nation's pandemic epicenter, reporting approximately one third of infection cases nationwide, with New York City alone then accounting for one quarter of the country's virus-related deaths.
In addition to causing a nationwide public health emergency, the pandemic fomented an economic crisis as government-mandated mitigation measures limited personal interactions and forced businesses to suspend or reduce operations. A few statistics make the point. In the spring of 2020, the United States experienced its sharpest economic contraction since World War II, with April 2020 unemployment numbers climbing to a record 14.4%.
A. The Federal Response
Between March 2020 and March 2021, Congress appropriated an unprecedented five trillion dollars to address various aspects of the pandemic emergency. On March 25, 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), a $2.2 trillion stimulus package—the largest in American history—which, among other things, appropriated $293.5 billion for one-time cash payments (usually $1,200/person) to qualifying individuals; $268 billion to increase unemployment benefits; $150 billion to aid state and local governments; and $349 billion to fund the new Paycheck Protection Program ("PPP"), which provided potentially forgivable loans to small businesses for use meeting payroll and, to a lesser extent, rent and other operating costs. See Pub. L. No. 116-136, §§ 601(a), 1102(a), 1107(a)(1), 2102(d), 2201(a), (f).
At the end of 2020, Congress made another $900 billion in pandemic relief available through the Consolidated Appropriations Act, see generally Pub. L. No. 116-260, with $25 billion directed to an Emergency Rental Assistance Program ("ERA") for residential tenants, see id. § 501. In doing so, Congress also extended by one month a residential eviction moratorium previously imposed by the Centers for Disease Control and Prevention ("CDC") and discussed in the next paragraph. See id. § 502. Three months later, on March 11, 2021, Congress appropriated another $1.9 trillion in relief through the American Rescue Plan. See Pub. L. No. 117-2. Of this amount, $21.55 billion was earmarked as additional ERA funding, see id. § 3201,
Meanwhile, federal agencies also pronounced economic policies in response to the pandemic. Notably, in September 2020, after the first congressional residential eviction moratorium expired, the CDC declared a temporary nationwide halt in residential evictions for persons submitting sworn declarations that they had been adversely affected by the pandemic. See 85 Fed. Reg. 55,292 (Sept. 1, 2020). The CDC extended this moratorium in various forms, most recently through October 3, 2021. See 86 Fed. Reg. 43,244 (Aug. 4, 2021).
B. New York State's Response
1. Gubernatorial Orders
In an effort to control the pandemic within New York, the state legislature, on March 3, 2020, granted then-Governor Andrew
Certain orders issued between March 16 and 19, 2020, closed or severely limited the in-person operation of large numbers of New York businesses.
Starting in the late spring of 2020, the Governor allowed some New York businesses slowly to reopen, varying operating restrictions based on industry and regional COVID-19 case counts.
A number of other executive orders pertained to commercial and residential real estate. Notably, Executive Order 202.8, effective March 20, 2020, imposed a ninety-day moratorium on residential and commercial evictions and foreclosures.
2. Legislative Enactments
The New York State legislature enacted various laws addressing pandemic-related real estate concerns. On June 17, 2020, it passed the Emergency Rent Relief Act of 2020, see 2020 N.Y. Sess. Laws Ch. 125 (McKinney), which provided for residential rent subsidies (in the form of vouchers) to be paid directly to landlords on behalf of tenants with the greatest need. Id. §§ 2.4, 2.7. That same day, the legislature amended the State Banking Law to require regulated entities to grant up to 180 days' forbearance of mortgage payments. See N.Y. Banking L. § 9-x (2020).
On June 30, 2020, the legislature passed the Tenant Safe Harbor Act ("TSHA"), 2020 N.Y. Sess. Laws Ch. 127 (McKinney), prohibiting eviction warrants and possession judgments against residential tenants suffering financial hardship for debts accrued from "March 7, 2020 until the date on which none of the ... Executive Order[s] issued in response to the COVID-19 pandemic continue to apply in the county of the tenant's or lawful occupant's residence." Id. §§ 1, 2.1.
II. The Challenged New York City Actions
It is against this backdrop of extensive federal and state action in response to the pandemic that we consider the challenged New York City laws. On April 21, 2020, the New York City Council ("Council") announced its intent to consider a COVID-19 relief package "to protect tenants, help small businesses survive, and find creative ways to address the public health crisis brought on by the virus." App'x at 517. None of the proposed laws appropriated funds for financial relief. Rather, of thirteen acts considered, most regulated the food service industry's use of outdoor dining and food delivery as means to continue operating despite indoor shutdown orders.
A. The Harassment Amendments
The proposed harassment laws were actually amendments to the City's existing Residential and Commercial Harassment Laws. To discuss plaintiffs' First and Fourteenth Amendment challenges to these Harassment Amendments, it is useful to place them in their larger textual contexts.
1. Pre-Pandemic Harassment Laws
Enacted in 2008, the Residential Harassment Law states, as pertinent here, that "[t]he owner of a dwelling shall not harass any tenants or persons lawfully entitled to occupancy of such dwelling as set forth in [section 27-2004(a)(48)] of this chapter." N.Y.C. Admin. Code § 27-2005(d). Subject
N.Y.C. Admin. Code § 27-2004(a)(48). Among the many enumerated "acts or omissions" that can support a claim of harassment are certain proscribed "threats." See, e.g., id. § 27-2004(a)(48)(a) (identifying "implied threats that force will be used against" any lawful tenant as act of harassment); § 27-2004(f-3)(1) (identifying use of "threatening" language in "offering money or other valuable consideration" to induce lawful tenant "to vacate" premises "or to surrender or waive any rights" of occupancy as harassment).
The Commercial Harassment Law, which took effect in 2016, affords commercial tenants similar, if not quite identical, protection from landlord harassment. See One Wythe LLC v. Elevations Urb. Landscape Design Inc., 67 Misc.3d 1207(A), at *8 n.18, 126 N.Y.S.3d 622 (N.Y. Civ. Ct. 2020). In pertinent part, that law states that "[a] landlord shall not engage in commercial tenant harassment," which it defines as
N.Y.C. Admin. Code § 22-902(a). Like its residential counterpart, the Commercial Harassment Law identifies the implied threat of force among its list of harassing acts. See id. § 22-902(a)(1). At the same time, in a so-called "savings clause," the law states that "[a] landlord's lawful termination of a tenancy, lawful refusal to renew or extend a lease or other rental agreement, or lawful reentry and repossession of the covered property shall not constitute commercial tenant harassment for purposes of this chapter." Id. § 22-902(b) (emphasis added).
In 2018, the Council amended the Residential Harassment Law to add to its enumerated acts of harassment "threatening" a lawful occupant of a residential premises based on certain protected grounds, specifically, the occupant's
Id. § 27-2004(a)(48)(f-5).
In 2019, the Council similarly amended the Commercial Harassment Law to add as an enumerated act of harassment "threatening" a lawful commercial tenant
Id. at § 22-902(a)(11)(i).
2. The Pandemic Amendments to the Harassment Laws
Effective May 26, 2020, the challenged Harassment Amendments added threatening a lawful tenant based on COVID-19 status to both laws' lists of protected classes. Thus, the Residential Harassment Law now prohibits "threatening" any lawful residential occupant "based on such person's actual or perceived status as an essential employee, status as a person impacted by COVID-19, or receipt of a rent concession or forbearance for any rent owed during the COVID-19 period," with violators facing fines of $2,000 to $10,000. Id. §§ 27-2004(a)(48)(f-7), 27-2115(m)(2). The amended Commercial Harassment Law prohibits "threatening" a lawful commercial tenant based on such tenant's "status as a person or business impacted by COVID-19, or ... receipt of a rent concession or forbearance for any rent owed during the COVID-19 period," with violators facing fines of $10,000 to $50,000. Id. §§ 22-902a(11)(ii), 22-903(a). The Harassment Amendments define many of their key terms.
B. The Guaranty Law
The "Personal Liability Provisions in Commercial Leases" law, commonly referred to as the "Guaranty Law," took effect on May 26, 2020. See N.Y.C. Admin. Code § 22-1005. This law, the subject of plaintiffs' Contracts Clause challenge, renders permanently unenforceable personal liability guaranties on certain commercial leases for any rent obligations arising during a specified pandemic period. As the statutory text makes plain, the law pertains to leases held by commercial tenants who were required to cease or limit operations under Executive Orders 202.3, 202.6, or 202.7.
Because plaintiffs' Contracts Clause challenge will require us to consider the Guaranty Law's "purpose," some discussion of its legislative history here is helpful to that task. The Guaranty Law was jointly sponsored by Council Speaker Corey Johnson and Council Member Carlina Rivera. In introducing the legislation on April 22, 2020, Member Rivera stated that its purpose was to "ensure [that] city business owners"—the presumed guarantors— "don't face the loss of their businesses and personal financial ruin or bankruptcy as a result of this state of emergency." App'x at 1571. She stated that the law was necessary because, as a result of the state's closure and reduced capacity orders, "businesses are closing and losing weeks of income through no fault of their own and allowing small business owners to keep their spaces will be integral to the city's ability to recover after the virus." Id.
A few days later, on April 29, 2020, the Council's Committees on Small Business and on Consumer Affairs and Business Licensing issued a report entitled, "OVERSIGHT: The Impact of COVID-19 on Small Businesses in New York City."
Id. at 1001-02.
On the same day that this report issued, its authoring committees held a virtual hearing on the relief package, with numerous witnesses testifying remotely and with hundreds of others filing written submissions. With respect to the Guaranty Law, Member Rivera stated that she was sponsoring that legislation
Id. at 699. She stated that constituents had reported some landlords using lease guaranties to "go after small business owner[s'] life savings and personal assets," with one restaurant owner "getting rent due notices and threats from his landlord that the personal liability clause in his lease will soon be acted upon." Id.
In looking through the record of written submissions to the Council, the court sees that hundreds of persons identifying themselves as "operator[s]" of "restaurant and nightlife" businesses submitted brief, identically worded letters supporting the Guaranty Law as "critical" to giving them "a fighting chance to survive" the pandemic. See, e.g., id. at 2528-3334.
Id. at 2489-90. Other writers echoed these themes,
Still other individuals and groups opposed the legislation, with one landlord urging the Council to "take into account the health and financial well-being of both landlords and tenants in crafting legislation," and, at least, to "make it incumbent on tenants to show that they are unable to pay their rent due to COVID-19," and to "make arrangements for them to catch up when the economic situation improves." Id. at 2411.
In questioning witnesses testifying in person at the hearing, Council members did not identify any specific instances where personal guaranties had been enforced during the pandemic against the owners of shuttered businesses. When
Of further note here, when Member Rivera asked Commissioner Bishop for the SBS's position on the Guaranty Law, he demurred, stating that, while SBS generally supported "anything" that "provide[s] some relief to small businesses," the Guaranty Law raised "some legal questions" warranting review by the City's Law Department. Id. at 741-42.
On May 13, 2020, by a vote of 44 to 6, the Council passed the Guaranty Law.
III. The Instant Action
On July 10, 2020, plaintiffs brought this action for declaratory and injunctive relief, alleging that the Harassment Amendments and Guaranty Law were unconstitutional or, in the alternative, preempted by state law.
A. Plaintiffs' Claims
1. Marcia Melendez, Jarican Realty Inc., and 1025 Pacific LLC
Plaintiff Marcia Melendez is a resident of Brooklyn who, together with her husband, operated various small businesses until their retirement in 2017. Through plaintiff companies, Jarican Realty Inc. and 1025 Pacific LLC, the Melendezes own two small, primarily residential Brooklyn rental buildings. The amended complaint asserts that the Melendezes depend on rent from these properties for their livelihood. It further asserts that multiple tenants are in arrears on their rent, which has jeopardized the landlords' ability to meet tax and mortgage obligations for the properties. Ms. Melendez submits that she has not sent tenants rent demand notices for fear that she would be accused of violating the Harassment Amendments.
2. Ling Yang, Haight Trade LLC, and Top East Realty LLC
Plaintiff Ling Yang is a resident of Queens who started a number of small businesses, one of which she presently operates from the sole commercial space at 4118 Haight Street in Queens, a six-unit residential property owned by Ms. Yang and her son through plaintiff Haight Trade LLC. Through plaintiff Top East Realty
3. Elias Bochner and 287 7th Avenue Realty LLC
Plaintiff Elias Bochner is a Brooklyn resident who, with family members, owns 287 7th Avenue Realty LLC, which in turn owns the building located at that Manhattan address. A Bochner family business occupied the commercial space at that site before it was leased to Sunburger 1 LLC. The amended complaint alleges that the Sunburger lease is subject to a "good-guy" guaranty, an agreement that allows a personal guarantor of a corporate tenant to limit his rent-arrears liability through a specified advance notice period—in this case, six months—upon the tenant's timely surrender of the property. Mr. Bochner asserts that such guaranties are "critical" to commercial lease agreements and that he "would not have entered into" commercial leases on behalf of his real estate company without one. App'x at 4312.
The amended complaint further alleges that, starting in December 2019, Sunburger failed fully to meet its rent obligations and, on March 20, 2020, provided the six-months' notice of surrender required by the good-guy guaranty. This obligated Sunburger's principal, as personal guarantor of the lease, to pay approximately $110,000 in rent outstanding from December 2019 through September 20, 2020. But because the guarantor made no such payment, Mr. Bochner had to use personal funds to meet the landlord's July 2020 $35,000 tax obligation. The amended complaint asserts that there are no practical means to collect the unpaid rent because commercial tenant Sunburger has little-to-no assets, and the Guaranty Law permanently absolves the personal guarantor of responsibility for rent outstanding from March 7, 2020 through September 20, 2020. Thus, the amended complaint maintains, the Guaranty Law renders the good-guy guaranty relied on by plaintiffs "virtually valueless." Id.
B. The District Court's Dismissal of the Amended Complaint
On November 25, 2020, the district court granted defendants' motion to dismiss plaintiffs' amended complaint for failure to state a claim on which relief could be granted. See Fed. R. Civ. P. 12(b)(6).
As to the Harassment Amendments, the district court concluded that plaintiffs failed to state a plausible First Amendment claim because nothing in the laws prevented landlords from "communicating with delinquent tenants about past-due rent and pursuing available remedies to either collect that rent or to repossess their property." Melendez v. City of New York, 503 F. Supp. 3d at 27. The court reasoned that the Commercial Harassment Law's savings clause, which expressly exempts lawful terminations and repossessions from the definition of proscribed harassment, by extension, permits the collection of rent and communications incident thereto. See id. at 28. As for the Residential Harassment Law, the district court concluded that New York caselaw distinguishing "improper threats" from "permissible warnings of adverse but legitimate consequences" for non-payment of
As for the Guaranty Law, the district court concluded that plaintiff Bochner and his company, the only plaintiffs pursuing a Contracts Clause challenge, plausibly alleged a substantial impairment of their contract rights. Nevertheless, the district court concluded that dismissal was warranted because it found that the Guaranty Law advanced a legitimate public purpose and was a reasonable and necessary response to a "real emergency." Id. at 32-34.
Upon further determining that neither the Harassment Amendments nor the Guaranty Law were preempted by state law, declining to exercise supplemental jurisdiction over plaintiffs' state constitutional challenges, and denying plaintiffs' motion for preliminary injunctive and declaratory relief without review, the district court dismissed the amended complaint pursuant to Rule 12(b)(6) and entered judgment in favor of defendants.
Plaintiffs timely filed a notice of appeal, challenging only the district court's rejection of their federal constitutional challenges to the Harassment Amendments and Guaranty Law.
I. Standard of Review
Because a judgment of dismissal pursuant to Fed. R. Civ. P. 12(b)(6) can only be entered if a court determines that, as a matter of law, a plaintiff failed to state a claim upon which relief can be granted, we review that legal determination de novo. See Biocad JSC v. F. Hoffmann-La Roche, 942 F.3d 88, 93 (2d Cir. 2019); see also Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). In determining if a claim is sufficiently "plausible" to withstand dismissal, see Ashcroft v. Iqbal, 556 U.S. at 678, 129 S.Ct. 1937, "we accept all factual allegations as true[,]... draw all reasonable inferences in favor of the plaintiff[s]," and we will not dismiss as long as the pleadings support "more than a sheer possibility that a defendant has acted unlawfully," Montero v. City of Yonkers, 890 F.3d 386, 391, 394 (2d Cir. 2018) (internal quotation marks and alterations omitted).
II. Challenges to the Harassment Amendments
A. First Amendment Challenge
Plaintiffs dispute the dismissal of their First Amendment challenge to the Harassment Amendments, arguing that the laws, as now added to the City's Residential and Commercial Harassment Laws, violate their right to engage in non-misleading commercial speech. See Cent. Hudson Gas & Elec. Corp. v. Pub. Serv., 447 U.S. 557, 561, 100 S.Ct. 2343, 65 L.Ed.2d 341 (1980) (recognizing First Amendment to protect commercial speech). Specifically, plaintiffs assert that the laws' prohibitions of threatening conduct based on a tenant's COVID-19 status can be understood to bar landlords from making even routine rent demands of delinquent tenants.
In reaching that conclusion, we note at the outset that plaintiffs' First Amendment challenge is not to the Harassment Amendments on their face. Specifically, plaintiffs do not argue that the laws' prohibitions of "threatening" conduct lack any legitimate application. Certainly, they do not argue that the prohibition of threatening conduct is unconstitutional as applied to threats of violent force or other illegal means. Nor do they argue that a "substantial number" of the laws' applications are unconstitutional. See Washington State Grange v. Washington State Republican Party, 552 U.S. 442, 449 n.6, 128 S.Ct. 1184, 170 L.Ed.2d 151 (2008) (discussing two kinds of First Amendment facial challenges). Rather, plaintiffs challenge these amendments as applied to a narrow area of conduct in which they would like to engage: making routine rent demands of delinquent tenants. We reject this as-applied challenge.
As always, in construing a challenged statute, we start with its text. See, e.g., Babb v. Wilkie, ___ U.S. ___, 140 S.Ct. 1168, 1172, 206 L.Ed.2d 432 (2020). The Harassment Amendments prohibit "threatening" residential or commercial tenants based on their COVID-19 status. N.Y.C. Admin. Code §§ 22-902(a)(11)(ii), 27-2004(a)(48)(f-7). While these amendments define the particular COVID-19 status protected by the Harassment Amendments, see id. §§ 22-902(a)(11), 27-2004(a)(48)(f-7), they do not define the word "threatening."
In such circumstances, we ascertain the word's intended meaning by looking to (1) the word's "ordinary, contemporary, common meaning," e.g., United
For the common, ordinary meaning of the word "threatening," we look to its dictionary definition. See, e.g., Gross v. FBL Fin. Servs., Inc., 557 U.S. 167, 176, 129 S.Ct. 2343, 174 L.Ed.2d 119 (2009). In defining "threaten" and "threatening" together, the dictionary refers to the "utter[ance]" or "promise" of a "threat." Webster's Third New Int'l Dictionary (Unabridged) 2382 (2002). The primary dictionary definition of the word "threat" is in two parts:
Id. (emphasis added).
A routine rent demand would not qualify as a threat under the second part of this definition because such a demand is not an "illegal means" for seeking payment of delinquent rent. Id. Nor would a lawful, routine rent demand qualify under the seemingly more-expansive first part of the definition because such a demand, by itself, does not signal an intent "to inflict... injury or damage." Id. Rather, it signals a desire for the tenant to pay past-due rent, to which the landlord is legally entitled.
Thus, to infer an injurious intent under the first part of the definition, a routine rent demand would have to be accompanied by something more. To the extent that "more" might be an expressed intent to evict upon non-payment of owed rent, we do not understand plaintiffs—who profess a wish to reference only lawful remedies —to be asserting a First Amendment right to express any such intent as long as eviction is proscribed by law. See supra at 998-99, 999-1001 (discussing federal and state eviction moratoria). Indeed, to the extent eviction is unlawful, such a reference could support the second dictionary definition of "threat," without regard to the first.
Where eviction is, or becomes, a lawfully available remedy for landlords, plaintiffs point to no case in which simply referencing a legal remedy has ever been treated as "threatening" under applicable law. Rather, the law has long distinguished between communications putting someone wrongfully in fear of injury and those simply apprising of legal consequences. See, e.g., People v. Lee, 58 N.Y.2d 773, 775, 459 N.Y.S.2d 19, 445 N.E.2d 195 (1982) (holding witness not "threaten[ed]" by trial judge who "did no more than advise" of possible consequences of self-incrimination); see also Headley v. Church of Scientology Int'l, 687 F.3d 1173, 1180 (9th Cir.
Context only reinforces the conclusion that the Harassment Amendments do not apply to lawful, routine rent demands. The amendments add "threatening" a tenant based on COVID-19 status to already existing lists of acts or omissions. Those lists inform the second parts of the Residential and Commercial Harassment Laws' definitions of proscribed harassment. The Residential Law defines "harassment" as
N.Y.C. Admin. Code § 27-2004(a)(48). The Commercial Law defines "harassment" as
Id. § 22-902(a). From this context, it is evident that the two parts of each definition are linked, with the second part identifying acts constituting harassment to the extent they cause, are intended to cause, or (in the case of commercial harassment) would reasonably cause tenants "to vacate" lawfully occupied premises or "to surrender or waive" legal rights. Id. §§ 22-902(a), 27-2004(a)(48).
When the word "threatening," as used in the challenged Harassment Amendments, is viewed in this definitional context, it is not reasonably construed to reach otherwise lawful, routine rent demands. Such demands, by themselves, are not likely to cause tenants to vacate premises or surrender rights. Nor are they likely made with the intent to cause such results. Rather, they are made to get tenants to pay past-due rent. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 567, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (finding claim implausible where "obvious alternative explanation" for challenged conduct existed). Thus, context as well as ordinary meaning weigh heavily against plaintiffs' assertion that the Harassment Amendments' prohibitions of "threatening" conduct prevent landlords from making routine rent demands in violation of their First Amendment right of commercial speech.
In the case of the Harassment Amendment to the Commercial Harassment Law, that conclusion is further supported by the law's savings clause, which expressly states that various lawful actions that landlords might take against tenants—all more serious than a routine rent demand—do "not constitute commercial tenant harassment." N.Y.C. Admin. Code § 22-902(b) (excluding "lawful termination of a tenancy, lawful refusal to renew or extend a lease ..., or lawful reentry and repossession of the covered property"). Moreover, in reporting on this amendment, the Council's Committee on Small Business stated that nothing therein "is intended to limit any of the rights or obligations of landlords or commercial tenants under the existing harassment law ..., including, but not limited to (1) the right of a landlord to
As for New York precedent, neither the New York Court of Appeals nor the state's intermediate appellate courts have considered whether the Residential or Commercial Harassment Laws' proscription of "threatening" conduct applies to routine rent-collection activities. But the state's lower courts have done so, and their rulings offer no support for plaintiffs' claim. Notably, the New York City Civil Court, which hears large numbers of private actions brought pursuant to the Housing Maintenance Code, has held that lawful, routine rent demands do not constitute proscribed harassment, at least not where rent is due and owing. See Dunn v. 583 Riverside Dr LP, 66 Misc.3d 667, 669, 117 N.Y.S.3d 524, 525 (N.Y. Civ. Ct. 2019) ("[T]he Court does not find that respondent's service of a rent demand on petitioner is ... conduct that constitutes harassment.").
Plaintiffs did not address Dunn in their appellate briefs, but at oral argument they attempted to distinguish the case as involving not a "routine rent request" but, rather, a notice of termination and/or notice to cure. Tr. May 3, 2021, at 33:16-17. We are not persuaded. What the Dunn landlord communicated was a demand for the payment of outstanding rent. To be sure, the communication was served pursuant to Real Property Actions and Proceedings Law § 711(2), the first statutory step to obtain a "non-possessory money judgment." Dunn v. 583 Riverside Dr LP, 117 N.Y.S.3d at 525; see also 2626 Equities LLC v. Morillo, 66 Misc.3d 1211(A), at *2, 120 N.Y.S.3d 719 (N.Y. Civ. Ct. 2020) (describing Dunn as involving "statutory rent demand"). But nothing in Dunn suggests that rent demands must be made in pursuit of statutory relief to avoid being found "threatening." Rather, the critical factor appears to be that the rent demand was lawfully made, which comports with the precedent discussed supra at 1012-13. See also 138-77 Queens Blvd. LLC v. QB Wash LLC, Index No. 715071/2020, slip op. at 2-3 (N.Y. Sup. Ct. Jan. 15, 2021) (holding notice to cure not "harassment" under Commercial Harassment Law where part of landlord's "lawful termination" of lease). Certainly, plaintiffs point to no case in which New York courts have ruled otherwise.
We need not here decide whether otherwise lawful conduct might ever constitute a threat. And we recognize that lawful conduct in particular circumstances can constitute harassment under other enumerated acts of the Residential and Commercial Harassment Laws not here at issue. In this case, we conclude simply that the word "threatening" as used in the challenged Harassment Amendments, when considered according to its ordinary meaning, in context, and in light of New York precedents, does not, as a matter of law, proscribe the otherwise lawful, routine rent demands that plaintiffs wish to communicate. Accordingly, plaintiffs fail to state a plausible claim for violation of their First Amendment rights of commercial speech, and we affirm the district court's dismissal of that claim.
B. Due Process Challenge
The same conclusion obtains with respect to plaintiffs' due process challenge to the Harassment Amendments. Plaintiffs argue that the undefined word "threatening" is unconstitutionally vague because it fails to provide landlords with adequate notice of the conduct prohibited and thus, chills their exercise of free speech.
The vagueness doctrine, derived from the Due Process Clause, ensures that persons need not "speculate" as to the
Hill v. Colorado, 530 U.S. 703, 732, 120 S.Ct. 2480, 147 L.Ed.2d 597 (2000). The Court further cautions that "[t]he degree of vagueness that the Constitution tolerates —as well as the relative importance of fair notice and fair enforcement—depends in part on the nature of the enactment." Village of Hoffman Ests. v. Flipside, Hoffman Ests., Inc., 455 U.S. 489, 498, 102 S.Ct. 1186, 71 L.Ed.2d 362 (1982). Thus, laws imposing civil penalties generally require less demanding scrutiny than those with criminal consequences, see id. at 498-99, 102 S.Ct. 1186, or those implicating constitutional rights, see Advance Pharm., Inc. v. United States, 391 F.3d 377, 397 (2d Cir. 2004).
The Harassment Amendments here at issue subject violators to civil penalties and, in the case of the Residential Law, possible criminal sanctions. Moreover, plaintiffs claim that the amendments' vagueness chills speech protected by the First Amendment, specifically, routine demands for the payment of overdue rent. If the Harassment Amendments are, indeed, "capable of reaching expression sheltered by the First Amendment, the vagueness doctrine [would] demand a greater degree of specificity than in other contexts." Commack Self-Serv. Kosher Meats, Inc. v. Hooker, 680 F.3d 194, 213 (2d Cir. 2012) (internal quotation marks and brackets omitted). Plaintiffs, however, cannot plausibly plead that the Amendments lack sufficient specificity to support their as-applied challenge.
As we have already explained in rejecting plaintiffs' First Amendment claim, the challenged amendments' prohibition on "threatening" conduct cannot reasonably be understood—or misunderstood —to prohibit routine rent demands. This is evident from the plain meaning of the word "threat," particularly when viewed in context. Further, to the extent that, "in evaluating a vagueness claim, we consider not only the text of the statute but also any judicial constructions," Copeland v. Vance, 893 F.3d 101, 115 (2d Cir. 2018), the New York lower courts that have considered the matter thus far have ruled that the Residential and Commercial Harassment Laws do not prohibit otherwise lawful, routine rent demands. See Dunn v. 583 Riverside Dr LP, 117 N.Y.S. 3d at 525; 138-77 Queens Blvd. LLC v. QB Wash LLC, Index No. 715071/2020, slip op. at 3. Also, defendants represent that they do not understand the challenged laws to prohibit routine rent demands and would not seek to enforce them in such circumstances. See Ward v. Rock Against Racism, 491 U.S. 781, 795-96, 109 S.Ct. 2746, 105 L.Ed.2d 661 (1989) (recognizing as "highly relevant" "any limiting construction that a state court or enforcement agency has proffered").
Plaintiffs nonetheless submit that the challenged amendments should be deemed vague because tenants might think that they can file harassment claims based only on routine rent demands. We are not persuaded. While due process protects against laws whose vagueness admits arbitrary law enforcement by public officials, see Grayned v. City of Rockford, 408 U.S. 104,
In sum, because plaintiffs' challenge to the Harassment Amendments fails to plead either a plausible First Amendment or Due Process Clause claim, we affirm the district court's judgment dismissing both claims.
III. Challenge to the Guaranty Law
Plaintiffs appeal the dismissal of their Contracts Clause challenge to the Guaranty Law, arguing that the district court misapplied that constitutional protection in concluding that they failed to state a plausible claim. When we view all factual allegations and draw all reasonable inference in favor of plaintiffs, as we must at this stage of the case, we agree that this claim cannot be dismissed as a matter of law under Rule 12(b)(6).
In granting dismissal, the district court applied a three-part balancing test derived from the Supreme Court's recent Contracts Clause jurisprudence. See Sveen v. Melin, ___ U.S. ___, 138 S.Ct. 1815, 1821-22, 201 L.Ed.2d 180 (2018); Energy Rsrvs. Grp., Inc. v. Kan. Power & Light Co., 459 U.S. 400, 411-12, 103 S.Ct. 697, 74 L.Ed.2d 569 (1983); Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 244-45, 98 S.Ct. 2716, 57 L.Ed.2d 727 (1978). At the first step, the district court concluded that the challenged law did substantially impair plaintiffs' commercial leases. Nevertheless, at the second step, it concluded that the impairment served a significant and legitimate public purpose and, at the third step, that the challenged law was appropriate and reasonable to advance that purpose. We are bound by the same precedent, but we do not reach the same conclusion at the last step. Plaintiffs pleaded sufficient facts to preclude a court now finding as a matter of law that the Guaranty Law is a reasonable and appropriate means to serve the City's proffered public purpose.
A. The Contracts Clause's Evolving Jurisprudence
To explain, we observe at the outset that the three-step standard for evaluating Contracts Clause claims is of relatively
1. Textual Construction
The Contracts Clause states: "No State shall ... pass any ... Law impairing the Obligation of Contracts." U.S. Const. art. I, § 10, cl. 1. No comparable limitation is placed on the federal government which, in fact, has the ability to impair debt obligations through its bankruptcy authority. See id. art. I, § 8, cl. 4. The Contracts Clause was prompted, in large part, by a post-Revolutionary War economic crisis. Certain states, in trying to afford relief to beleaguered small debtors, enacted legislation repudiating pre-existing debt obligations, thereby bringing credit markets to the brink of collapse. See generally Sveen v. Melin, 138 S. Ct. at 1821; Home Bldg. & Loan Ass'n v. Blaisdell, 290 U.S. 398, 427-28, 54 S.Ct. 231, 78 L.Ed. 413 (1934). The Clause, however, was not framed to address only that emergency. Rather, its language is unqualified and, in the words of Chief Justice Marshall, "establish[es] a great principle, that contracts should be inviolable." Sturges v. Crowninshield, 17 U.S. (4 Wheat.) 122, 206, 4 L.Ed. 529 (1819).
This construction derives not only from the Clause's text but also from its context within Article 1, Section 10, the constitutional provision described by Chief Justice Marshall as "a bill of rights for the people of each state." Fletcher v. Peck, 10 U.S. (6 Cranch) 87, 138, 3 L.Ed. 162 (1810).
Chief Justice Marshall championed this strict textual view of the Clause in a series of early Supreme Court decisions construing its "general" words as "applicable to contracts of every description," public as well as private. Fletcher v. Peck, 10 U.S. at 137 (holding Georgia law rescinding state's Yazoo land sales void under the Contracts Clause); see also Trustees of Dartmouth Coll. v. Woodward, 17 U.S. (4 Wheat.) 518, 590-91 & n.11, 4 L.Ed. 629 (1819) (holding that Clause precluded legislature from changing college charter granted prior to independence).
Id. at 92. Further, the prohibition reached impairments of any sort, without regard to degree or type:
Id. at 84.
This strict view persisted for almost one hundred years, making the Contracts Clause "perhaps the strongest single constitutional check on state legislation during our early years as a Nation." Allied Structural Steel Co. v. Spannaus, 438 U.S. at 241, 98 S.Ct. 2716.
Id. at 23.
Thus, under this initial strict textual understanding of the Contracts Clause, the challenged Guaranty Law would have to be deemed unconstitutional as an impairment of preexisting debt obligations.
2. Police Power — Public Contracts
At the same time that the Supreme Court regularly invalidated state laws affording relief from private debt obligations, it also signaled hesitancy to construe rights conferred by the states in public charters as overriding a state's police powers. At issue in Proprietors of Charles River Bridge v. Proprietors of Warren Bridge, 36 U.S. (11 Pet.) 420, 9 L.Ed. 773 (1837), was a Contracts Clause challenge to a state's grant of a second bridge charter on the ground that it impaired the first bridge charter's implicit promise of exclusivity. Rejecting the challenge, Chief Justice Taney stated, "[w]hile the rights of private property are sacredly guarded, we must not forget, that the community also have rights, and that the happiness and well-being of every citizen depends on their faithful preservation." Id. at 548.
Not until the last quarter of the Nineteenth Century, however, did the Supreme Court come to view police powers as inalienable by state legislatures entering into public contracts. In Boyd v. Alabama, 94 U.S. 645, 24 L.Ed. 302 (1876), which held a state's repeal of a lottery privilege not to constitute an unconstitutional impairment of contract, the Court stated,
We need not discuss this line of cases further. The Guaranty Law acts on private, not public, contracts and, thus, these early police power precedents do not shield the law from constitutional attack. That possibility arose only with the next century's approved extension of police power to private contracts.
3. Police Power — Private Contracts
Can state police power support the impairment of private contracts? In Chicago, Burlington & Quincy R.R. Co. v. Nebraska, 170 U.S. 57, 18 S.Ct. 513, 42 L.Ed. 948 (1898), a unanimous Supreme Court seemed to answer that question in the negative. The Court explained that,
Id. at 72, 18 S.Ct. 513. Only when persons' or corporations' "rights and powers were created for public purposes, by legislative acts," can such contracts be
Id. (upholding impairment of public contract).
The distinction, however, was soon ignored. In Manigault v. Springs, 199 U.S. 473, 26 S.Ct. 127, 50 L.Ed. 274 (1905), a private contract between adjoining riparian owners required each to keep a navigable creek free of obstructions. When the state, seeking to promote land drainage, authorized one of the owners to erect a
Id. at 480, 26 S.Ct. 127.
Manigault might have been cabined to its facts given the involvement of a public waterway. Certainly, the state's sovereign dominion over natural resources within its boundaries was emphasized in Hudson County Water Co. v. McCarter, 209 U.S. 349, 357, 28 S.Ct. 529, 52 L.Ed. 828 (1908) (rejecting Contracts Clause challenge to state law prohibiting transportation of water from any river or lake into other jurisdictions). As Justice Holmes there stated, "[o]ne whose rights, such as they are, are subject to state restriction, cannot remove them from the power of the state by making a contract about them." Id. But this did not, in fact, become a limiting principle for police power impairments of private contracts.
When World War I catalyzed urban housing shortages and accompanying rent hikes, a sharply divided Court rejected a Contracts Clause challenge to a state rent control law, stating, "contracts are made subject to this exercise of the [police] power of the State when otherwise justified, as we have held this to be." Marcus Brown Holding Co. v. Feldman, 256 U.S. 170, 198, 41 S.Ct. 465, 65 L.Ed. 877 (1921). Not insignificantly, what Justice Holmes was referencing in this allusion to what "we have held this to be" was his opinion in a companion case, Block v. Hirsh, 256 U.S. 135, 41 S.Ct. 458, 65 L.Ed. 865 (1921), upholding a District of Columbia rent control law enacted in response to the same housing shortage. That law, however, was enacted by Congress and, thus, raised no Contracts Clause issue.
It was a decade later, in Home Building & Loan Association v. Blaisdell, that the Supreme Court provided a full rationale for police power impairment of private contracts, replacing a strict textual view of the Contracts Clause with one that relied on a balancing principle. In a five-four decision—with forceful opinions by both Chief Justice Hughes for the majority and Justice Sutherland for the dissent—the Supreme Court upheld a state mortgage moratorium that, in response to another economic emergency, the Great Depression of 1929, delayed mortgagees' ability to procure deficiency judgments and afforded mortgagors extended protection from foreclosure.
The majority opinion begins with a seeming caveat: "Emergency does not create power," and "does not increase granted power." Home Bldg. & Loan Ass'n v. Blaisdell, 290 U.S. at 425, 54 S.Ct. 231 (acknowledging that "Constitution was adopted in period of grave emergency"). The majority nevertheless observed that "emergency may afford a reason for the exertion of a living power already enjoyed." Id. at 426, 54 S.Ct. 231 (internal quotation marks omitted). Thus, for Chief Justice Hughes, "[t]he constitutional question presented in the light of an emergency is whether the power possessed" by a state "embraces the particular exercise of it in response to particular conditions." Id. In answering that question in favor of the state law, the majority (1) renounced any strict obligation to construe the Contracts
In concluding that the state mortgage moratorium law achieved this compromise, the Blaisdell majority identified five relevant factors. First, a genuine economic "emergency existed in Minnesota which furnished a proper occasion for the exercise of the reserved power of the state to protect the vital interests of the community." Id. at 444, 54 S.Ct. 231. Second, the challenged legislation protected "a basic interest of society" and "was not for the mere advantage of particular individuals." Id. at 445, 54 S.Ct. 231. Third, the relief afforded was "appropriate" to the emergency. Id. Fourth, the relief was granted "upon reasonable conditions." Id. Fifth, the law was "temporary in operation." Id. at 447, 54 S.Ct. 231. Moreover, the time period within which the law operated could be reduced by a court based on changed circumstances, thus ensuring that it was "limited to the exigency which called it forth." Id.
As to factors three and four in particular, the majority emphasized that extending the mortgage redemption period did not impair "the integrity of the mortgage indebtedness"; if the mortgagor failed to redeem within the extended period, the mortgagee's right "to title or to ... a deficiency judgment" remained. Id. at 445, 54 S.Ct. 231. And while the mortgagor was "not ousted from possession" during the extension period, he was obliged to compensate the mortgagee by paying "the rental value of the premises." Id. Thus, the Blaisdell majority concluded that the relief afforded paid due "regard to the interest of mortgagees as well as mortgagors[,] ... prevent[ing] the impending ruin of both." Id. at 446, 54 S.Ct. 231.
The Blaisdell dissenters faulted almost everything about the majority decision, starting with its approach to constitutional construction: "The whole aim of construction, as applied to a provision of the Constitution, is to discover the meaning, to ascertain and give effect to the intent of its framers and the people who adopted it." Id. at 453, 54 S.Ct. 231 (Sutherland, J., dissenting). Reviewing the Contracts Clause's enactment history in some detail, see id. at 453-65, 54 S.Ct. 231, the dissent observed that the Clause was specifically "meant to foreclose state action impairing the obligation of contracts primarily and especially in respect of such action aimed at giving relief to debtors in time of emergency," id. at 465, 54 S.Ct. 231.
Indeed, critics—judicial and academic— have faulted this balancing approach to the Contracts Clause.
These limitations animated the Court's holdings in a trio of cases decided soon after Blaisdell, which upheld Contracts Clause challenges to state laws lacking one or more of the Blaisdell factors. See W.B. Worthen Co. v. Thomas, 292 U.S. 426, 434, 54 S.Ct. 816, 78 L.Ed. 1344 (1934) (invalidating state law exempting life insurance proceeds from levy because exemption was not cabined by either amount or emergency); W.B. Worthen Co. v. Kavanaugh, 295 U.S. 56, 63, 55 S.Ct. 555, 79 L.Ed. 1298 (1935) (holding unconstitutional law significantly postponing mortgagee's right to foreclose in absence of conditions requiring debtor to pay interest, taxes, or rent, or even to demonstrate inability to pay); Treigle v. Acme Homestead Ass'n, 297 U.S. 189, 195-96, 56 S.Ct. 408, 80 L.Ed. 575 (1936) (holding state law restricting withdrawals by savings and loan shareholders violative of Contracts Clause, noting that law did not purport to deal with existing emergency and restrictions were neither temporary nor conditional). In Kavanaugh in particular, Justice Cardozo, writing for the Court, was unsparing in his criticism of the legislature's actions, observing that "[w]ith studied indifference to the interests of the mortgagee or to his appropriate protection they have taken from the mortgage the quality of an acceptable investment for a rational investor." 295 U.S. at 60, 55 S.Ct. 555.
Even when rejecting Contracts Clause claims, the Court frequently emphasized that the challenged laws did not completely deprive the complaining party of that for which he had bargained. See, e.g., Richmond Mortg. & Loan Corp. v. Wachovia Bank & Tr. Co., 300 U.S. 124, 130, 57 S.Ct. 338, 81 L.Ed. 552 (1937) (stating that challenged law recognized party's right to "full enforcement" of his contract "but limits that right so as to prevent his obtaining more than his due"); Honeyman v. Jacobs, 306 U.S. 539, 542, 59 S.Ct. 702, 83 L.Ed. 972 (1939) (rejecting challenge to law that allowed "mortgagee [to] make himself whole" but prevented him from being "enriched at the expense of the debtor or realize more than what would repay the debt"); Gelfert v. Nat'l City Bank of N.Y., 313 U.S. 221, 233, 61 S.Ct. 898, 85 L.Ed. 1299 (1941) (observing, in rejecting challenge to state deficiency law, that "[m]ortgagees are constitutionally entitled to no more than payment in full"). At the same time, however, the Court demonstrated a willingness to uphold the exercise of state police power impairing contracts—at least in areas of long-standing regulation—even in the absence of the emergency and temporality factors emphasized in Blaisdell. See Veix v. Sixth Ward Bldg. & Loan Ass'n of Newark, 310 U.S. 32, 39-41, 60 S.Ct. 792, 84 L.Ed. 1061 (1940) (rejecting Contracts Clause challenge to state law limiting withdrawals by shareholders in savings and loan associations).
The contraction of Contracts Clause protection appears to have reached its high-water mark in East New York Savings Bank v. Hahn, 326 U.S. 230, 66 S.Ct. 69, 90 L.Ed. 34 (1945), a case upholding the tenth extension of a state mortgage moratorium first enacted in response to the Great Depression. Writing for a unanimous Court, Justice Frankfurter professed to derive from Blaisdell and its progeny a "governing constitutional principle":
Id. at 232, 66 S.Ct. 69 (internal quotation marks omitted). On this principle, the Court further pronounced that a state's authority to exercise its police power "may be treated as an implied condition of every contract and, as such, as much part of the contract as though it were written into it." Id. And with that understanding, it concluded that "the State's exercise of its power enforces, and does not impair, a contract." Id.
Commentators have observed that such a highly deferential standard is more suited to the Due Process Clause than to the Contracts Clause and that East New York Savings Bank's reasoning seems to leave the latter with little independent force.
4. The Contracts Clause's Continued Vitality
At the outset, we note that the Court's recent professions of the Contracts
At issue in United States Trust was a public contract, specifically, a public bond agreement, a provision of which prohibited the use of revenues to subsidize passenger rail service. In the midst of an oil crisis, the state repealed that prohibition, resulting in bondholder losses. In identifying a Contracts Clause violation, the Supreme Court reiterated that deference is generally owed to legislative judgments regarding the need for and reasonableness of social and economic legislation. See id. at 25-26, 97 S.Ct. 1505. At the same time, however, Justice Blackmun, writing for a four-member majority, emphasized that such deference is not limitless. Particularly when a state "modifi[ies] ... [its] own financial obligations ... [,] complete deference to a legislative assessment of reasonableness and necessity is not appropriate because the State's self-interest is at stake." Id. at 25-26, 97 S.Ct. 1505.
The analytical standard articulated in United States Trust presents some challenges because "reasonableness" generally signifies a relaxed standard of judicial inquiry, by contrast to "necessity," which informs the most penetrating constitutional review.
At issue in Allied Structural Steel was a Minnesota law that imposed funding requirements on employers' pension plans. Writing for the Court, Justice Stewart adhered to precedent abandoning a literal construction of the Clause, lest it "obliterate the police power." Id. at 241, 98 S.Ct. 2716. But at the same time, he stated that "[i]f the Contract Clause is to retain any meaning at all, ... it must be understood to impose some limits upon the power of a State to abridge existing contractual relationships, even in the exercise of its otherwise legitimate police power." Id. at 242, 98 S.Ct. 2716 (emphasis in original). The Court located those limits in the five factors identified in Blaisdell (and in the absence of one or more of those factors in the trio of cases that followed it). See id. at 242-43, 98 S.Ct. 2716. It derived from these cases and United States Trust a two-part test that asked whether the challenged state law, "in fact, operated as a substantial impairment of a contractual relationship" and, if it did, whether the legislation
In distinguishing between minimal and substantial contract impairments, the Court—for the first time in several decades —approvingly referenced "the Framers" in identifying how to assess a contract impairment:
Proceeding to the second step of analysis, the Court observed that "[t]he severity of the impairment measures the height of the hurdle the state legislation must clear." Id. at 245, 98 S.Ct. 2716. While an impairment causing only "[m]inimal alteration of contractual obligations may end the inquiry at its first stage," i.e., without consideration of purpose or means, "[s]evere impairment ... will push the inquiry to a careful examination of the nature and purpose of the state legislation." Id.
In the years following United States Trust and Allied Structural Steel, the Supreme Court has sometimes indicated that Contracts Clause challenges should be reviewed in three steps and sometimes in two. Compare Energy Rsrvs. Grp., Inc. v. Kan. Power & Light Co., 459 U.S. at 411-12, 103 S.Ct. 697 (identifying three-part test: (1) "substantial impairment," (2) "significant and legitimate public purpose," and (3) "reasonable" and "appropriate" means), with Sveen v. Melin, 138 S. Ct. at 1821-22 (referencing two-part test: (1) "substantial impairment," and (2) "whether the state law is drawn in an appropriate and reasonable way to advance a significant and legitimate public purpose" (internal quotation marks omitted)). No matter. The substance of the inquiry has remained the same
Applying those principles here, as well as those that apply to Rule 12(b)(6) motions, we conclude that, on the existing record, plaintiffs state a sufficiently plausible Contracts Clause challenge to the Guaranty Law to withstand dismissal.
B. Applying the Contracts Clause to the Guaranty Law
To determine whether plaintiffs plead a plausible Contracts Clause
The Guaranty Law applies to the commercial leases of tenants who were subject to pandemic shut-down orders or other restrictions on their businesses' abilities to operate. The law renders unenforceable any personal guaranties of rent obligations arising under such leases from March 7, 2020, through June 30, 2021. While the relevant obligation period is thus temporally limited to approximately sixteen months, the unenforceability of the guaranty for rent arrears arising during that period is permanent. This contrasts with the impairment in Blaisdell, which temporarily extended a mortgage's foreclosure redemption period but left the "integrity of the mortgage indebtedness" and "conditions of redemption" unaltered once the extension expired. 290 U.S. at 445, 54 S.Ct. 231. Under the Guaranty Law, if a tenant fails to pay rent owed for any time between March 7, 2020, and June 30, 2021, the landlord can never seek to recover those amounts from the guarantor. Not during the pandemic period. Not after the emergency declaration is withdrawn. Not ever. This substantially undermines the landlord's contractual bargain, interferes with his reasonable expectations, and prevents him from safeguarding or ever reinstating rights to which he was entitled during a sixteen-month period. See Sveen v. Melin, 138 S. Ct. at 1822.
In urging otherwise, defendants argue that the rent obligation of commercial leases is not severely diminished by the Guaranty Law because the landlord may continue to seek unpaid rent from the tenant. The argument does not persuade, either practically or legally.
First, the practical likelihood of landlords such as plaintiff Bochner recovering rent arrears from delinquent small business tenants appears speculative at best. After all, a landlord invokes his guaranty rights only when a tenant is not paying rent. Meanwhile state laws and regulations have limited landlords' ability to use eviction to minimize their rent losses. As for the possibility of collecting rent from delinquent tenants after the economic crisis abates, there is no guaranty that such entities will reopen or remain going concerns. Indeed, commercial tenants, including Mr. Bochner's, are frequently corporate entities, which can dissolve and/or use bankruptcy to avoid accumulated rent indebtedness. To the extent defendants think otherwise, they will have the opportunity to develop supporting evidence on remand. But viewing the pleadings record in the light most favorable to plaintiffs as we are required to do on review of a judgment of dismissal under Rule 12(b)(6), we are not now persuaded that, as a matter of law, tenants' continued obligations for unpaid rent compels a conclusion that the Guaranty Law's permanent impairment
Second, the law recognizes a secured obligation to establish effectively two contractual bargains, one between the principals and the other between a principal and the guarantor. So here, there is one contractual bargain between landlord and tenant and another contractual bargain between landlord and guarantor. See Park Towers S. Co., LLC v. 57 W. Operating Co., 96 A.D.3d 443, at *1, 945 N.Y.S.2d 554 (1st Dep't 2012) ("[T]he guarantees and the leases are entirely separate documents, the former imposing obligations on the guarantors and the latter imposing obligations on landlord and tenant."); Hyman v. Golio, 134 A.D.3d 992, 992, 24 N.Y.S.3d 84 (2d Dep't 2015) ("The guaranty executed by the defendant is a separate undertaking and a self-standing document...."). The fact that the Guaranty Law does not invalidate the first bargain cannot gainsay its destruction of the second for guarantor obligations arising between March 7, 2020, and June 30, 2021. The law effectively repudiates those guarantor debts, rendering them permanently and completely unenforceable. This is certainly a substantial impairment of contract. See Home Bldg. & Loan Ass'n v. Blaisdell, 290 U.S. at 439, 54 S.Ct. 231 (observing that state may afford "temporary relief" from contract obligations, but cannot "adopt as its policy the repudiation of debts or the destruction of contracts or the denial of means to enforce them"); see also Hawthorne v. Calef, 69 U.S. at 10 (holding law repealing personal liability obligation in corporate charter to violate Contracts Clause by "not merely modif[ying]" security to creditor's prejudice, but "altogether abolish[ing]" it).
Such a "permanent" and "irrevocabl[e]" repudiation of guaranty obligations seriously upsets landlords' reasonable expectations, Allied Structural Steel Co. v. Spannaus, 438 U.S. at 250, 98 S.Ct. 2716, and "undermines the contractual bargain," Sveen v. Melin, 138 S. Ct. at 1822. As the pleadings record indicates, commercial landlords generally, and plaintiffs Bochner and 287 7th Avenue Realty LLC in particular, will not rent commercial space to small businesses without the security of a personal guaranty. See App'x at 759 (Council Member Yeger explaining that personal guaranties are critical to inducing landlords to rent to new, small businesses lacking established revenues); id. at 4307-08 (amended complaint stating that, for landlords like Mr. Bochner, personal guaranties are "critical inducement[s] ... to enter into leases with commercial tenants," without which "underlying leases would be rendered virtually worthless" due to small businesses' limited assets). Here again, on a motion to dismiss, we must accept as true plaintiffs' assertion that personal guaranties play this indispensable role in commercial leases and infer therefrom that landlords reasonably rely on the protection of such guaranties when leasing to small businesses. By rendering personal guaranties completely unenforceable, the Guaranty Law seriously upsets this reliance and, thus, substantially impairs the guaranty agreement.
Nor is a contrary conclusion compelled by the fact that New York has sometimes, and to varying degrees, regulated its commercial real estate market. See, e.g., Twentieth Century Assocs. v. Waldman, 294 N.Y. 571, 577-78, 582, 63 N.E.2d 177 (1945) (rejecting due process and equal protection challenges to commercial rent stabilization law during World War II). Nothing in the pleadings record suggests that such regulation has ever pertained to personal guaranties so as to alert New York commercial landlords, prior to the pandemic, to the possibility of state action in that regard. See Veix v. Sixth Ward
Thus, because the Guaranty Law appears permanently and unexpectedly to repudiate commercial lease guaranties for arrears arising over a sixteen-month period, we conclude that plaintiffs have plausibly alleged a significant impairment of contract.
Before proceeding to the next two steps of analysis, however, we consider plaintiffs' argument, based on Allied Structural Steel, that the severity of the identified impairment in this case requires us strictly to scrutinize defendants' stated purpose and the means employed to serve it. See 438 U.S. at 245, 98 S.Ct. 2716 ("The severity of the impairment measures the height of the hurdle the state must clear."). Defendants, on the other hand, argue that the "customary deference" that we must accord to legislative judgments dictates only rational-basis review. Id. at 244, 98 S.Ct. 2716.
We here clarify that when we read Allied Structural Steel's quoted language in context, we do not understand the Supreme Court to be mandating a particular standard of review. Rather, we understand the Court to instruct that, under its present balancing approach to Contracts Clause claims—which controls us here—the weight any purpose and means showing must bear to avoid unconstitutionality can vary with the degree of contract impairment. As the Court itself stated, an impairment effecting only "[m]inimal alteration of contractual obligations" may bear so little weight as to "end the [Contracts Clause] inquiry at its first stage." Id. at 245, 98 S.Ct. 2716; see Sveen v. Melin, 138 S. Ct. at 1822 ("stop[ping inquiry] after step one because... statute does not substantially impair pre-existing contractual arrangements"). On the other hand, "[s]evere impairment... will push the inquiry to a careful examination of the nature and purpose" of the challenged state legislation. Allied Structural Steel Co. v. Spannaus, 438 U.S. at 245, 98 S.Ct. 2716. Implicit in a "careful examination," is recognition that factors can bear different weights in different circumstances. Id. A purpose and means showing sufficient to support one contract impairment may be insufficient to support another coming closer to "the repudiation of debts or the destruction of contracts or the denial of means to enforce them." Home Bldg. & Loan Ass'n v. Blaisdell, 290 U.S. at 439, 54 S.Ct. 231. Such a variable standard may raise the unpredictability concerns noted by critics, but until the Supreme Court instructs otherwise, we must endeavor faithfully to apply it in conducting the "careful examination" of a substantial contract impairment that is required "[d]espite the customary deference courts give to state laws directed to social and economic problems." Allied Structural Steel Co. v. Spannaus, 438 U.S. at 244-45, 98 S.Ct. 2716.
2. Significant and Legitimate Public Interest
The district court concluded that the Guaranty Law serves a significant and legitimate purpose to mitigate the economic emergency experienced in New York City as a result of the COVID-19 pandemic. Defendants submit that the law does this by permitting individual guarantors of commercial leases—usually the owners of the tenant-businesses—to escape personal liability for rent that their shuttered businesses could not pay during sixteen months of the pandemic. They argue that such guarantor liability not only would be personally devastating to small business owners, but also would make it more likely that they would permanently close their businesses, leading to increased unemployment and a reduction in services to City residents.
That this was in fact the law's purpose finds some record support in Council Member Rivera's April 29, 2020 statement explaining that she was sponsoring the Guaranty Law,
App'x at 699 (emphasis added). It also finds support in the text of extending legislation, which states that the Guaranty Law serves to minimize "economic and social damage caused to the city" by the pandemic, which "will be greatly exacerbated and will be significantly worse than if these businesses are able to temporarily close and return or, failing that, to close later, gradually, and not all at once." N.Y.C. Local L. 2020/98 § 1.6 (emphasis added).
Plaintiffs do not dispute that the COVID-19 pandemic has prompted a serious economic, as well as health, emergency in New York City. Nor do plaintiffs deny that—the Contracts Clause's origins in economic crisis notwithstanding—controlling precedent recognizes the mitigation of economic emergencies as a public purpose that can support contract impairment. See, e.g., Home Bldg. & Loan Ass'n v. Blaisdell, 290 U.S. at 444; 54 S.Ct. 231; accord Energy Rsrvs. Grp., Inc. v. Kan. Power & Light Co., 459 U.S. at 411-12, 103 S.Ct. 697; Buffalo Tchrs. Fed'n v. Tobe, 464 F.3d 362, 369 (2d Cir. 2006). Thus, even if emergency is not required to support every impairment of contract, see Veix v. Sixth Ward Bldg. & Loan Ass'n of Newark, 310 U.S. at 39-40, 60 S.Ct. 792,
Plaintiffs nevertheless argue that the second Blaisdell factor precludes this conclusion because the Guaranty Law does not "protect a basic societal interest," but benefits only "a favored group": commercial-lease guarantors. Allied Structural Steel Co. v. Spannaus, 438 U.S. at 242, 248-50, 98 S.Ct. 2716 (quoting Home Bldg. & Loan Ass'n v. Blaisdell, 290 U.S. at 445, 54 S.Ct. 231, and concluding that state law benefitting only certain employers violated Contracts Clause). The argument is not wholly devoid of support in the pleadings record. Various Council hearing statements might be understood to support relieving guarantors of personal liability for unpaid rents regardless of whether they ever reopen their businesses. See supra at 1005-07. Still others might suggest a certain hostility to landlords and sympathy for small business owners. See, e.g., App'x at 468, 699 (describing landlord enforcement of guaranty clauses against small business owners as "moral and ethical failure"). But, this indicates only that the question of legitimate public purpose cannot now be decided as a matter of law for either party and would benefit from further record development.
Moreover, this case is not analogous to Allied Structural Steel. The Supreme Court there identified the challenged law to serve no public interest because it was "not even purportedly enacted to deal with a broad, generalized economic or social problem," and the record suggested the target was a single employer. Allied Structural Steel Co. v. Spannaus, 438 U.S. at 247-50, 98 S.Ct. 2716. By contrast, the legislative history referenced supra at 1005-07, indicates that City Council members may have thought shielding guarantors from liability for lease arrears would serve not simply those individuals, but society's larger interest in maintaining the small businesses necessary for functioning neighborhoods. As at least one New York court has observed,
40 X Owner LLC v. Masi, No. 156181/2020, 2020 WL 65431, at *3-4 (N.Y. Sup. Ct. Jan. 7, 2021) (emphasis added). Whether the Guaranty Law is a reasonable and appropriate means to serve this larger public purpose is another question, which we consider in the next section of this opinion. Here, we conclude only that because the City asserts a legitimate public purpose that appears at least plausible on the pleadings record, we are obliged to conduct that further means inquiry.
Thus, because the record before us plausibly suggests a significant and legitimate purpose for the Guaranty Law, we proceed to consider whether plaintiffs plausibly plead that the means employed by the City were not reasonable and appropriate to its professed public purpose.
3. Reasonable and Appropriate Means
Upon careful consideration, we conclude that the means question cannot now be decided in defendants' favor as a matter of law and, therefore, that plaintiffs' Contracts Clause claim cannot be dismissed under Rule 12(b)(6). Applying the principles identified in Blaisdell and its progeny, five features of the Guaranty Law inform that conclusion. While we discuss them individually, it is the totality that precludes dismissal of the Contracts Clause claim.
First, the Guaranty Law is not a "temporary" or "limited" impairment of contract, a factor critical to the Supreme Court's conclusion in Blaisdell that a state moratorium law was a reasonable means to afford economic relief during the Great Depression. See 290 U.S. at 439, 54 S.Ct. 231 (contrasting repudiation of debt, destruction of contract, or denial of enforcement, which could not be justified by police power, with "limited and temporary interpositions," which "may be consistent with the spirit and purpose" of Contracts Clause).
By contrast, although the Guaranty Law pertains only to rent arrears arising between March 7, 2020, and June 30, 2021, it does not simply defer guaranty obligations until the conclusion of that period. Rather, it permanently and entirely extinguishes them. Thus, far from affording temporary relief that leaves the "integrity" of commercial lease guaranties unimpaired, id., the City destroys the guaranties by rendering them forever unenforceable for up to sixteen months of rent obligations.
In urging otherwise, defendants point to cases in which this court rejected Contracts Clause challenges to laws permanently impairing contracts. See Buffalo Tchrs. Fed'n v. Tobe, 464 F.3d at 367, 372; Sullivan v. Nassau Cnty. Interim Fin. Auth., 959 F.3d 54, 69 (2d Cir. 2020). This
In Buffalo Teachers and Sullivan, temporary freezes of bargained-for wage increases were permanent impairments of contracts in the sense that the increases, when they finally did take effect, were not made retroactive for the freeze periods. See Buffalo Tchrs. Fed'n v. Tobe, 464 F.3d at 367; Sullivan v. Nassau Cnty. Interim Fin. Auth., 959 F.3d at 59. Nevertheless, employees continued to be paid for their services rendered, albeit at the frozen rates, and they remained free to seek better-paying employment elsewhere. Thus, the impairments, although permanent, do not weigh as heavily against reasonableness as the Guaranty Law. That law does not simply freeze, or even reduce, the amount a landlord can recoup from a guarantor for rent arrears arising from March 7, 2020, to June 30, 2021. Instead, it forever denies the landlord the full guarantied amount for that sixteen-month period. Moreover, it does so in a legal context that effectively precludes the landlord from terminating a delinquent tenant's lease or reclaiming his premises. In these circumstances, Buffalo Teachers and Sullivan do not compel a conclusion that the Guaranty Law is a reasonable impairment of commercial lease agreements. Rather, the fact that the law is neither temporary nor limited raises reasonableness concerns precluding dismissal of plaintiffs' Contracts Clause claim as a matter of law.
Second, that conclusion is reinforced by the fact that, on the pleadings record, we cannot conclude as a matter of law that the Guaranty Law is an appropriate means for achieving its professed public purpose: to help shuttered small businesses survive the pandemic so that they can reopen after the emergency, ensuring functioning neighborhoods throughout the City. To explain, we note three assumptions informing the City's enactment of the Guaranty Law: (a) that shuttered small businesses are usually owned by the individuals guaranteeing their leases, (b) that these owner-guarantors would be financially ruined if required to pay their businesses' rent arrears, and (c) that financially ruined owners would be unlikely to reopen shuttered businesses. It is to mitigate the last concern
The problem with concluding that the Guaranty Law is an appropriate means to serve this public purpose is that the law does not condition the relief it affords on guarantors owning shuttered businesses or, even if they do, on their ever reopening those businesses. Rather, guarantors receive the full relief afforded by the Guaranty Law even if they never reopen (or intend to reopen) their businesses. In short, the Guaranty Law permanently excuses guarantors from pandemic-accrued rent liability even in circumstances where they do nothing to serve the public interest in generally ensuring functioning neighborhoods. While we defer to legislative judgments about the means reasonable and appropriate to address a public emergency, such deference is not warranted in the absence of some record basis to link purpose and means that, otherwise, appears missing.
The record of City Council proceedings leading to the enactment of the Guaranty Law does little to assuage this concern. Small business owners subject to shut-down orders submitted that guaranty enforcement would cause them personal hardships. See supra at 1006-07. Even assuming arguendo that these statements might be accepted for their truth, in none did an owner promise to reopen a shuttered business if afforded Guaranty Law relief. Rather, some owners urged that they be granted guaranty relief to minimize personal loss so that they can "move on" if they "cannot reopen," predicting that "many small businesses will ultimately close our doors forever once aid runs out." Supra at 1007 & n.32.
The omission of a reopening condition in the Guaranty Law is curious given that other pandemic relief serving a similar public purpose is specifically conditioned on a business's continued operation. For example, forgiveness of low-interest PPP loans to small businesses is conditioned on maintenance of workforce and compensation levels.
Thus, concerns about the appropriateness of the Guaranty Law's impairment to its professed public purpose further caution against dismissal.
Here too, the City did not afford Guaranty Law relief by appropriating existing funds or raising taxes so as to place the burden of preserving neighborhoods on the citizenry that would benefit therefrom. Instead, it transferred the burden to the "few shoulders" of commercial landlords. Id. Moreover, the City did so by upsetting lawfully contracted-for expectations between landlords and guarantors, eliminating the former's rights and the latter's responsibilities with respect to tenants' rent defaults within the prescribed period. We recognize that Association of Surrogates is a public contract case. But even assuming that less deference was due the legislative judgment there than in this case, reasonableness and appropriateness concerns are raised by a legislative decision to provide financial relief to certain persons not through public funds but by destroying the contract expectations of other persons, particularly persons not responsible for the circumstances warranting relief.
Two other "permanent" impairment cases cited by defendants do not support such contract impairment. See Keystone Bituminous Coal Ass'n v. DeBenedictis, 480 U.S. at 504-06, 107 S.Ct. 1232 (rejecting Contracts Clause challenge to regulation invalidating contractual liability waivers for mine operators to prevent and remedy workers' damage to protected land); Sanitation & Recycling Indus., Inc. v. City of New York, 107 F.3d at 990, 994 (rejecting Contracts Clause challenge to license provision for early contract terminations to address industry infiltration by organized crime). In both cases, the burden of contractual impairment was tailored to the party causing the public harm that the state sought to mitigate. By contrast, defendants here do not argue that landlords are in any way responsible for the economic problem that the Guaranty Law seeks to address.
Thus, in the circumstances of this case, the City's allocation of the full economic burden of the Guaranty Law to landlords raises further concerns about its impairment of contracts being a reasonable and appropriate means to serve its neighborhood-preserving purpose.
To be sure, the Guaranty Law only affords relief to natural-person guarantors of businesses forced to shutter or reduce operations during the pandemic. But that, by itself, does not mean that a particular guarantor cannot pay rent arrears, particularly when temporally cabined by a good-guy provision. See supra at 1009-10. Nor does it necessarily mean that a particular landlord is better able than a particular guarantor to bear the financial burden of a tenant's inability to pay rent. Cf. Alabama Ass'n of Realtors v. Dep't of Health & Hum. Servs., ___ U.S. ___, 141 S.Ct. 2485, 2489, 210 L.Ed.2d 856 (2021) (recognizing that "[d]espite the CDC's determination that [residential] landlords should bear a significant financial cost of the pandemic, many landlords have modest means").
Many forms of pandemic financial relief are conditioned on individual applicants demonstrating need or hardship. For example, the CARES Act tied stimulus payments to individuals' adjusted gross incomes, see CARES Act § 2201(a); the American Rescue Plan's Restaurant Revitalization Fund provided financial assistance based on eligible businesses' pandemic-related revenue losses;
Certainly, legislatures may act based on "the general or typical situation," even if "there are, or may be, individual cases of another aspect." Home Bldg. & Loan Ass'n v. Blaisdell, 290 U.S. at 446, 54 S.Ct. 231. But in Blaisdell, record evidence supported a conclusion that, generally, mortgagees were large investors better able than individual mortgagors to bear the burden of a temporary and limited moratorium. See id. at 445-46, 54 S.Ct. 231. Here, the Guaranty Law is not temporary nor limited, and defendants point to nothing in the record to compel a conclusion that commercial landlords are better positioned financially than guarantors to absorb the economic blows of the pandemic on commercial real estate.
Instead, the present record contains only anecdotal or conclusory statements by Council members that, even if properly considered on Rule 12(b)(6) review, are more indicative of shared hardships than of a singular burden on guarantors or even tenants.
To the extent defendants think they can adduce such evidence, they will have the opportunity to do so on remand. We here conclude only that, on the record before us, the failure to condition relief on guarantor need is a further reason why the Guaranty Law cannot be deemed reasonable and appropriate to its public purpose as a matter of law.
Fifth, the reasonableness of the Guaranty Law as a means to serve the City's stated public purpose is also called into question by the law's failure to provide for landlords or their principals to be compensated for damages or losses sustained as a result of their guaranties' impairment. On the present record, we must assume that such damages can be extensive. The amended complaint alleges that when an inability to collect rent or to enforce rent guaranties left landlord 287 7th Avenue Realty LLC unable to pay tax obligations, the LLC's principal, Mr. Bochner, drew on $35,000 of his own funds to make the payments. The Guaranty Law provides for no compensation of these losses, whether by the guarantor, the tenant, or even the government.
A compensation condition was an important factor in identifying the mortgage moratorium in Blaisdell as a reasonable means to provide temporary and limited economic relief to mortgagors. The moratorium allowed a delinquent mortgagor to remain in possession of premises on the
This is not to suggest that compensation is always necessary to defeat a Contracts Clause challenge.
On remand, the parties may, of course, identify still other circumstances relevant to determining whether the Guaranty Law is a reasonable and appropriate means to serve the City's professed public purpose.
To the extent plaintiffs urge this court not only to vacate the dismissal of their Contracts Clause claim but also to declare the Guaranty Law unconstitutional as a matter of law, we think such action premature. Insofar as that argument was advanced in plaintiffs' motion for preliminary injunctive and declaratory relief, the district court did not rule on the question of
Thus, we reverse the dismissal of plaintiffs' Contracts Clause challenge and remand the case to the district court for it to allow the parties to develop the record further on issues identified in this opinion as well as any other matters relevant to the claim.
Accordingly, the judgment of the district court is
Carney, Circuit Judge, concurring in the result in part and dissenting in part:
In the spring of 2020, New York State and New York City lay at the front lines of the global COVID-19 pandemic. It is undisputed that "New York State was hit early and hard by the pandemic," with
In the context of this public health and economic emergency, over the course of that spring, the New York City Council introduced, debated, and enacted several pieces of legislation to address related economic, housing, and health and safety issues. Among those that the City Council enacted are three laws affecting the rights and obligations of the City's commercial and residential tenants and landlords that are challenged in this lawsuit, which is brought against Defendants-Appellees the City of New York and certain City officers (together, the "City"). Two of the laws, together known as the "Harassment Laws," prohibit landlords from threatening commercial and residential tenants based on their status as persons or businesses affected by COVID-19. The third law, known as the "Guaranty Law," makes certain personal guarantees of commercial lease obligations unenforceable if three conditions apply: the guarantor is a natural person; the business was subject to certain shutdown orders or capacity restrictions; and the relevant sums became due between March 7, 2020, and June 30, 2021, and went unpaid. The guarantor in such agreements is typically an owner or other principal of the business that has signed a commercial lease with the landlord.
I concur with the Majority that the District Court's judgment dismissing the challenge to the Harassment Laws should be affirmed. But I respectfully disagree with the Majority's decision to reverse the District Court's judgment rejecting the Contracts Clause challenge brought by Plaintiffs-Appellants Elias Bochner and his company (together, "Bochner") against the Guaranty Law.
Since the 1980s, the Supreme Court and our Court have articulated and applied a strongly deferential standard to legislation facing Contracts Clause challenges, particularly when—as here—the legislation does not involve public contracts or the government's financial self-interest. The Supreme Court has "repeatedly held that unless the State is itself a contracting party, courts should properly defer to legislative judgment as to the necessity and reasonableness of a particular measure."
In its decision to reverse and remand this portion of the District Court's decision, the Majority resists a
For these reasons and others discussed below, I respectfully dissent from the Majority's decision to reverse the District Court's judgment as to Bochner's Contracts Clause challenge to the Guaranty Law.
I. Contracts Clause standard of review
The Contracts Clause provides that "[n]o State shall ... pass any ... Law impairing the Obligation of Contracts." U.S. Const. Art. I, § 10, cl. 1. Notwithstanding that the Contracts Clause is "facially absolute, its prohibition must be accommodated to the inherent police power of the State to safeguard the vital interests of its people." Energy Rsrvs. Grp., Inc. v. Kansas Power & Light Co., 459 U.S. 400, 410, 103 S.Ct. 697, 74 L.Ed.2d 569 (1983). It is well established that the Contracts Clause "does not trump the police power of a state to protect the general welfare of its citizens, a power which is paramount to any rights under contracts between individuals." Buffalo Tchrs. Fed'n v. Tobe, 464 F.3d 362, 367 (2d Cir. 2006).
Contracts Clause challenges, as the Majority correctly describes, are now evaluated using a three-part test. See Energy Rsrvs. Grp., 459 U.S. at 411-13, 103 S.Ct. 697; Buffalo Tchrs. Fed'n, 464 F.3d at 368. Under the modern test, we must first determine whether the law at issue has "operated as a substantial impairment of a contractual relationship." Energy Rsrvs. Grp., 459 U.S. at 411, 103 S.Ct. 697. At the second step, the inquiry turns to whether the legislation has "a significant and legitimate public purpose ..., such as the remedying of a broad and general social or economic problem." Id. at 411-12, 103 S.Ct. 697. Third, and finally, "[o]nce a legitimate public purpose has been identified, the next inquiry is whether the adjustment of the rights and responsibilities of contracting parties is based upon reasonable conditions and is of a character appropriate to the public purpose justifying the legislation's adoption."
Under the modern Contracts Clause analysis, substantial deference is owed to the legislative judgment of whether a law is a reasonable and appropriate means to address a legitimate public purpose
In Energy Reserves, the Supreme Court explained that "[u]nless the State itself is a contracting party, as is customary in reviewing economic and social regulation, courts properly defer to legislative judgment as to the necessity and reasonableness of a particular measure." Id. at 412-13, 103 S.Ct. 697. A few years later, in Keystone Bituminous Coal, the Supreme Court emphasized that it had "repeatedly held" that, when private contracts are at issue, courts "properly defer to legislative judgment" at the third step. 480 U.S. at 505, 107 S.Ct. 1232. In upholding the law at issue there, the Court "refuse[d] to second-guess the Commonwealth's determinations" that the legislative choices were "the most appropriate ways of dealing with the problem." Id. at 506, 107 S.Ct. 1232.
Building on the Supreme Court cases handed down in the past forty years, our Court has consistently held that "[w]hen a law impairs a private contract, substantial deference is accorded to the legislature's judgments as to the necessity and reasonableness of a particular measure." Buffalo Tchrs. Fed'n, 464 F.3d at 369; see Sal Tinnerello & Sons, Inc. v. Town of Stonington, 141 F.3d 46, 54 (2d Cir. 1998) ("We must accord substantial deference to the Town's conclusion that its approach reasonably promotes the public purposes for which the ordinance was enacted."); see also CFCU Cmty. Credit Union v. Hayward, 552 F.3d 253, 266 (2d Cir. 2009) ("Unless the state is a party to the contract, courts generally should defer to legislative judgment as to the necessity and reasonableness of a particular measure."); Sanitation & Recycling Indus., Inc. v. City of New York, 107 F.3d 985, 994 (2d Cir. 1997) ("When reviewing a law that purports to remedy a pervasive economic or social problem, our analysis is carried out with a healthy degree of deference to the legislative body that enacted the measure."). The deference that the judiciary owes to the legislative judgment of whether a measure is reasonable and necessary is especially strong when evaluating legislative action during an emergency. See, e.g., United States Trust Co. of New York v. New Jersey, 431 U.S. 1, 22-23 n.19, 97 S.Ct. 1505, 52 L.Ed.2d 92 (1977); Home Bldg. & Loan Ass'n v. Blaisdell, 290 U.S. 398, 426, 54 S.Ct. 231, 78 L.Ed. 413 (1934); Buffalo Tchrs. Fed'n, 464 F.3d at 373; see also Constitutional Law Scholars' Amicus Brief at 6 ("The Judiciary's deferential approach in this field has encompassed a special solicitude for state authority to respond to emergency situations.").
Our Circuit precedents have not explained in great detail what it means to "properly defer" or accord "substantial deference" to the legislative judgment. To some extent, this reticence may follow from our recognition of the Supreme Court's caution that "[e]very case must be
On one end, the level of deference that is owed the legislative judgment in cases involving private contracts must be more deferential than so-called "less deference" scrutiny, which we apply when evaluating legislation that involves public contracts or is otherwise "self-serving" to the government's direct financial interest.
To survive a Contracts Clause challenge at step three under less-deference scrutiny, "it must be shown that the [legislature] did not (1) consider impairing the contracts on par with other policy alternatives or (2) impose a drastic impairment when an evident and more moderate course would serve its purpose equally well, nor (3) act unreasonably in light of the surrounding circumstances." Id.; accord Sullivan, 959 F.3d at 65. Less-deference scrutiny does not, however, "require courts to reexamine all of the factors underlying the legislation at issue and to make a de novo determination whether another alternative would have constituted a better statutory solution to a given problem." Buffalo Tchrs. Fed'n, 464 F.3d at 370. Less deference "does not imply no deference," and it is not to be confused with strict scrutiny. Id. at 370-71.
At the other end, the substantial-deference standard is not so entirely deferential as to constitute rational basis review.
Even so, it is telling that the modern standard of review for Contracts Clause challenges when private contracts are at issue is so deferential as to bear a resemblance to rational basis review. See, e.g., Constitutional Law Scholars' Amicus Brief at 15 ("Analysis under the Contracts Clause is most closely analogous to deferential rational basis review."); Erwin Chemerinsky, Constitutional Law: Principles & Policies 689 (6th ed. 2019) ("As to the second and third prongs of the test, state and local laws are upheld, even if they interfere with contractual rights, so long as they meet a rational basis test."); James W. Ely, The Contract Clause: A Constitutional History 242 (2016) (The Supreme Court's "test is little different than rational basis review of economic legislation under the due process norm."); Geoffrey R. Stone, et al., Constitutional Law 986 (7th ed. 2013) (explaining that "[m]odern review under the contract clause is substantially identical to modern rationality review under the due process and equal protection clauses" and that, under this standard, "the fit between the legitimate interest and the measure under review need not be close."). As these comparisons suggest, our inquiry into the legislature's chosen means must be carefully limited under the substantial-deference standard. Rational basis review therefore represents the outermost boundary on the deference that we may accord the legislative judgment at step three.
We have also circumscribed our review at the third step in other important ways, particularly related to potential policy disagreements with legislative action. We have "emphasize[d] that whether the legislation is wise or unwise as a matter of policy is a question with which we are not concerned" if the "governmental action [was] intended to serve the public good, as the government saw it." Sullivan, 959 F.3d at 69; see also Colon de Mejias v. Lamont, 963 F.3d 196, 202 (2d Cir. 2020) ("[W]e must respect the wide discretion on the part of the legislature in determining what is and what is not necessary to safeguard the welfare of its citizens."). Furthermore, our precedents are clear that "it is not the province of this Court to substitute its judgement for that of ... a legislative body" in Contracts Clause cases. Sal Tinnerello & Sons, 141 F.3d at 54.
The Majority makes an unwarranted departure from the substantial-deference standard
The Majority departs from these precedents without citing any Supreme Court or Second Circuit case that has repudiated the deferential approach to legislation established in these authorities. In doing so, it relies too heavily, in my view, on certain phrases drawn from the Supreme Court's 1978 decision in Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 98 S.Ct. 2716. The Majority describes Allied Structural Steel as pronouncing a standard intended "to ensure the continued vitality of the Contracts Clause" in the context of private contracts. Maj. Op. at 1028. In particular, the Majority emphasizes the Supreme Court's statements there that "[t]he severity of the impairment measures the height of the hurdle the state legislation must
This language provides the foundation for the Majority's sliding-scale approach to the level of scrutiny to apply at the third step based on the severity of the Guaranty Law's impairment. But it is far from clear that the Supreme Court intended it to have any such effect. In my view, the Supreme Court's statements are better read as simply confirming the straightforward and established proposition that "[m]inimal alteration of contractual obligations may end the inquiry at its first stage," id., while more severe impairments must then satisfy the second and third prongs to survive a Contracts Clause challenge. See Sveen v. Melin, ___ U.S. ___, 138 S.Ct. 1815, 1822, 201 L.Ed.2d 180 (2018) (stopping the inquiry after step one because the challenged statute did "not substantially impair pre-existing contractual arrangements"); Castellano v. Bd. of Trustees of Police Officers' Variable Supplements Fund, 937 F.2d 752, 757 (2d Cir. 1991) ("[S]ince we find absolutely no impairment of the city's obligations ..., there is no contract clause `hurdle' to leap, and our inquiry ends.").
The sliding-scale approach to the level of scrutiny that the Majority derives from Allied Structural Steel is absent from more recent Supreme Court decisions involving private contracts. Contrary to the Majority's claim that the "substance of the [Contracts Clause] inquiry has remained the same" as what it draws from Allied Structural Steel, Maj. Op. at 1031, in neither Energy Reserves (1983) nor Keystone Bituminous Coal (1987) did the Court renew the "careful examination" or "height of the hurdle" language referenced in Allied Structural Steel and relied on as foundational by the Majority. True, the Supreme Court stated in those cases that the "severity of the impairment" affects the "level of scrutiny," Energy Reserves, 459 U.S. at 411, 103 S.Ct. 697, Keystone Bituminous Coal, 480 U.S. at 504 n.31, 107 S.Ct. 1232, but upon examination, those statements do not support the Majority's sliding-scale approach, which applies exacting scrutiny at the third step. In Energy Reserves, when introducing the "threshold inquiry" into "whether the state law has, in fact, operated as a substantial impairment," the Supreme Court stated that "[t]he severity of the impairment is said to increase the level of scrutiny to which the legislation will be subjected." 459 U.S. at 411, 103 S.Ct. 697. It then explained factors relevant to determining at the first step whether a private contract has been substantially impaired—that is, whether it clears the "threshold inquiry." Id. If there is a substantial contractual impairment, then the state law receives further scrutiny through the application of the second and third steps: "the State, in justification, must have a significant and legitimate public purpose behind the regulation." Id.
Likewise, in Keystone Bituminous Coal, the Supreme Court explained that the record did not provide a basis "to determine the severity of the impairment, which in turn affects the level of scrutiny to which the legislation will be affected." 480 U.S. at 504 n.31, 107 S.Ct. 1232. It then explained that "[w]hile these dearths in the record might be critical in some cases, they are not essential to our discussion here because the Subsidence Act withstands scrutiny even if it is assumed that it constitutes a total impairment." Id. Under the Majority's sliding-scale approach, a "total impairment" would have necessarily led to the most exacting analysis at the third step. But that is not how the Supreme Court analyzed the challenged legislative action. Instead, the Court reiterated that, at the
Thus, regardless of whether the "extent of impairment" is a "relevant factor in determining [the legislation's] reasonableness" in cases involving public contracts, United States Trust, 431 U.S. at 27, 97 S.Ct. 1505, the Supreme Court has not adopted that reasoning or applied sliding-scale scrutiny in its modern cases involving private contracts. In sum: the "sliding-scale approach mischaracterizes the law" because "[t]here is simply no authority for the proposition that laws alleged to impose an extra-substantial impairment receive extra-demanding scrutiny under the Contracts Clause."
Scholars—including several the Majority cites for their criticisms of modern Contracts Clause jurisprudence—recognize that instead of adopting the Majority's exacting approach, after Allied Structural Steel, the Supreme Court "soon retreated to a more permissive standard in reviewing claims under the clause." Ely, The Contract Clause: A Constitutional History 245; see also, e.g., Chemerinsky, Constitutional Law: Principles & Policies 691 (observing that, in Allied Structural Steel, "it seems that the Court was applying heightened scrutiny that is not usually used in evaluating government regulation of private contracts" and subsequent Supreme Court cases "have distinguished or ignored Allied Structural Steel"); Stone, Constitutional Law 984 ("United States Trust and Spannaus suggested that the Court might revive the contracts clause as a substantive constraint on legislation. But shortly thereafter the Court returned to its previous, more deferential approach."); Douglas W. Kmiec, Contracts Clause, in The Oxford Companion to the Supreme Court of the United States 224, 224 (2d ed. 2005) ("In modern times, the Court has all but forgotten the [contracts] clause as a consequence of its substantial deference to state legislative judgment in economic matters."); Douglas W. Kmiec & John O. McGinnis, The Contract Clause: A Return to the Original Understanding, 14 Hastings Const. L.Q. 525, 552 (1987) (concluding
Recognizing this shift in the Supreme Court's jurisprudence after Allied Structural Steel, our Court has cautioned, "our older cases may not apply with the same force today as they do not appear to fully employ current Contract Clause jurisprudence to the extent that they fail to accord sufficient deference to state legislative judgments concerning whether a statute advances a significant and legitimate public purpose." CFCU Cmty. Credit Union, 552 F.3d at 268; see also Apartment Ass'n of Los Angeles Cty., Inc. v. City of Los Angeles, 10 F.4th 905, 912, 916 (9th Cir. 2021) (describing Energy Reserves as representing a "shift in the law" in which "the Court clarified the modern approach to the Contracts Clause post-Blaisdell, articulating the flexible considerations courts must consider in a Contracts Clause case"); State of Nev. Emps. Ass'n, Inc. v. Keating, 903 F.2d 1223, 1226 (9th Cir. 1990) (explaining that the Supreme Court's decision in Energy Reserves only five years later represented a "retreat from its holding in [Allied Structural Steel v.] Spannaus" because it "indicated a renewed willingness to defer to the decisions of state legislatures regarding the impairment of private contracts").
Although the Majority acknowledges that the Supreme Court and this Court have held that review of private contract impairments should be deferential to the legislative judgment, it nonetheless consistently downplays the deference owed to the legislative judgment—often by way of reference to the purported limits of any such deference. See, e.g., Maj. Op. at 1026 & n.52 (highlighting scholars critical of a "highly deferential standard" for the Contracts Clause); id. at 1028 n.57 (making brief mention of Energy Reserves, Keystone Bituminous Coal, and Buffalo Teachers before understating the importance that deference played in those cases).
Similarly, to the extent that the Majority discusses the more recent Second Circuit cases, it does so mainly in the context of the first, "substantial impairment" prong, or in attempting to distinguish the cases' topline holdings, with little acknowledgement of the deferential standard actually articulated and applied in these cases. For example, the Majority's discussion of Buffalo Teachers does not directly refer to or discuss the substantial-deference standard for impairments of private contracts articulated in that decision. Likewise, when discussing Association of Surrogates and Supreme Court Reporters, the Majority focuses on one consideration that weighed against a finding that the legislature acted reasonably in that case involving impairment of public contracts, without acknowledging that the Court there distinguished its "more searching analysis" from the highly deferential standard properly applied in the context of private contracts. Ass'n of Surrogates & Supreme Ct. Reps. Within City of New York v. New York, 940 F.2d 766, 771 (2d Cir. 1991).
The Majority's departure from the well-established substantial-deference standard is all the more disquieting, in my view, because of the considerable space that it
I would not take the Majority's exacting approach. Instead, I would follow Energy Reserves, Keystone Bituminous Coal, and this Court's precedents, and accord substantial deference to the legislative judgment at step three of the Contracts Clause test—assessing whether the measure is reasonable and appropriate—when evaluating the Guaranty Law.
II. Application to the Guaranty Law
To determine whether the District Court correctly dismissed Bochner's Contracts Clause claim, I apply the three-step test described above and the well-established standard of review for evaluating a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). I accept as true the nonconclusory allegations in the complaint, draw reasonable inferences in Bochner's favor, and also consider materials incorporated into the complaint or properly subject to judicial notice. See Kaplan v. Lebanese Canadian Bank, SAL, 999 F.3d 842, 854 (2d Cir. 2021). To survive dismissal, Bochner must allege "sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Id.
Applying these principles, I agree with the Majority and the District Court that Bochner has plausibly alleged that the Guaranty Law imposes a substantial impairment on his contract, and so I will proceed to the second and third steps of the Contracts Clause analysis without further
The second step: The Guaranty Law has a significant and legitimate public purpose
I agree with the Majority that the City has professed a legitimate public purpose, although I would define it somewhat more broadly than "society's larger interest in maintaining the small businesses necessary for functioning neighborhoods." Maj. Op. at 1037.
The record reflects that the City Council was squarely focused on mitigating the economic crisis in New York City, and for its small businesses in particular, when it enacted the Guaranty Law. Many of those businesses were experiencing sharp declines in revenue as continued operations were prohibited by the Governor's shutdown orders, which had been in effect for about one month, starting between March 16 and March 22, 2020. Specifically, the Governor's executive orders required restaurants and bars to cease in-person sales; nonessential businesses to cease in-person work; and gyms, fitness centers, movie theatres, barbershops, hair salons, tattoo or piercing parlors, and similar personal care-services businesses to close completely to the public.
The Guaranty Law was introduced as part of a package of proposed legislation intended to support these small businesses, their owners, their employees, and the City's economy. Over a period of several weeks, the City Council considered the Guaranty Law at two full City Council hearings as well as two committee hearings.
When announcing the introduction of the Guaranty Law on April 21, 2020, the City Council announced that, "while the state of emergency is in effect," the law would "ensur[e] that City business owners don't face the loss of their businesses and personal financial ruin or bankruptcy." Id. at 521. Member Rivera reiterated that purpose when introducing the legislation on April 22. She also explained that "businesses are closing and losing weeks of income through no fault of their own and allowing small business owners to keep their spaces will be integral to the city's ability to recover after the virus." Id. at 1571.
A week later, on April 29, the City Council's Committee on Small Business and Committee on Consumer Affairs and Business Licensing held a more than five-hour joint public hearing on the legislation. See id. at 2092. When introducing the Guaranty Law, Member Rivera explained:
Id. at 2120-21.
Other City Council Members emphasized similar themes when speaking about the legislative package that included the proposed Guaranty Law. City Council Speaker Corey Johnson, also a co-sponsor of the Guaranty Law, explained, "[W]e have no choice but to make sure [small businesses] are able to [weather] this unbelievably painful storm." App'x at 2101. If they are unable to, he warned:
Speaker Johnson further expressed doubt that the federal Paycheck Protection
Council Member Mark Gjonaj, the Chair of the Small Business Committee, explained that the committee was acting because the "COVID-19 crisis perhaps presents the greatest threat to our economy and small businesses in modern history." Id. at 2104. Businesses that were shut down "must now decide whether they can continue paying their staff rent, debt, real estate taxes, sewer and water charges throughout the duration of this crisis," and the legislative package was designed accordingly to "prevent mass retail vacancies," "save mom and pop shops," and "ensure small businesses are protected." Id. at 2104, 2108. Similarly, Council Member Andrew Cohen, the Chair of the Consumer Affairs and Business Licensing Committee, described the legislation as "geared toward reducing the burden on small business to help you maintain your operation and get through this crisis." Id. at 2110.
Council Members reiterated these points when the City Council voted to enact the Guaranty Law and other small business-related legislation on May 13, 2020. See, e.g., id. at 3487 (Member Rivera explaining her vote for the Guaranty Law because "we all know that our small businesses have taken a major hit" and "we have to do everything in our power to make sure
When the City Council extended the Guaranty Law in September 2020 and
Based on all of these statements, it is fair to conclude that the City Council's purpose in enacting the Guaranty Law was to address the dire circumstances for small businesses and to support their owners, employees, and the City's economy overall, both during and after the pandemic. That purpose is certainly related to society's "interest in maintaining the small businesses necessary for functioning neighborhoods," as the Majority characterizes the City Council's purpose. Maj. Op. at 1037-38. But it also reflects the City's broader short-term and long-term interests in keeping small businesses operating because of their substantial contribution to the City's economy more generally, including the economic growth they bring to the City, the tax revenue they generate, and the jobs they provide to City residents—as articulated in the Council Members' statements.
These interests that the City Council sought to advance by enacting the Guaranty Law in the face of an economic emergency are undoubtedly "a significant and legitimate public purpose ..., such as the remedying of a broad and general social or economic problem." Energy Rsrvs. Grp., 459 U.S. at 411-12, 103 S.Ct. 697. The City's professed fundamental economic interest in promoting the survival of its small businesses by passing the Guaranty Law is sufficient to satisfy this, the second step of the modern Contracts Clause analysis. See Sal Tinnerello & Sons, 141 F.3d at 54 ("The Supreme Court has held that the economic interest of the state alone may be sufficient to provide the necessary public purpose under the Contract Clause.").
The third step: The Guaranty Law is a reasonable and appropriate measure to serve a legitimate public purpose
The Guaranty Law is a reasonable and appropriate measure to address the City's significant and legitimate public purpose of improving the dire circumstances of small businesses in order to support their owners, their employees, and the City's economy overall, both during and after the pandemic.
To start, it is undisputed that Bochner's Contracts Clause challenge involves private contracts; it does not relate to a public contract with the City. It is also uncontested that the City's purpose in enacting the Guaranty Law was not financially self-serving.
Under these circumstances, the legislature's "police power ... to protect the general welfare of its citizens, a power which is paramount to any rights under contracts between individuals," is at its apex. Buffalo Tchrs. Fed'n, 464 F.3d at 367. We therefore must accord "substantial deference" to the "legislature's judgments as to the necessity and reasonableness of a particular measure." Id. at 369.
1. The City Council's legislative record
Here, the City Council enacted the Guaranty Law during the early days of an unprecedented emergency. Amid a burgeoning death count, sharp economic contraction, spiking unemployment, and the particularly dire circumstances for small businesses described above, the City Council began considering a package of proposed legislation—including the Guaranty Law—intended to support small businesses, their owners, and the City's economy. Despite the City Council's recognition of the urgency of the situation, it solicited public input and revised the Guaranty Law over a three-week period before enactment. The legislative record is replete with support from small business owners and other stakeholders describing how the Guaranty Law would serve those purposes.
Numerous small business owners wrote to the City Council or made remarks at the Small Business Committee's public hearing about how the Guaranty Law would enable them to survive the pandemic and continue to employ workers.
These sentiments were echoed by hundreds of other small business operators who wrote to the City Council to convey that the Guaranty Law was "critical legislation" to give them "a fighting chance to survive." Id. at 2528. The concerns of these operators about their businesses' ability "to survive" conveyed their views that they would face an increased risk of permanent closure—and the workers they employ would lose their jobs—if the Guaranty Law was not enacted.
Other supporters detailed the urgent need for the City Council to enact the Guaranty Law and other legislation to support small businesses and prevent wider economic damage to the City. Robert Bookman, counsel to the NYC Hospitality Alliance, explained that "the small business community ... is in historic trouble," with a risk of "an unprecedented closing of thousands of neighborhood businesses forever." Id. at 2451. He urged the City Council that it "[m]ust act now" because "May rent is coming due and business owners are deciding should they give the keys back and permanently go out of business or risk another month of personal liability." Id. at 2452; see also id. at 224-45
Andrew Riggie, Vice Chair of Community Board 7, a citizen advisory board in Manhattan, emphasized that "businesses are in crisis," owners "are going to lose their livelihood," and they are "laying off all of their employees." Id. at 2229. When asked how many of his members had been impacted by the personal liability clauses, he stated that he did not know the precise number, but estimated that "we're talking about numbers in the thousands." Id. at 2231-32. He stated that the Guaranty Law and other legislation would be a "great step" toward addressing the small business crisis and cautioned that "every minute we waste, we're losing more businesses and more jobs." Id. at 2234.
The nonprofit Volunteers of Legal Service ("VOLS") reported that, based on a survey of small business clients it conducted, 57 percent "reported that their businesses were completely closed as a result of government orders" and 88 percent reported decreased revenue as a result of the pandemic. Id. at 2503. Of those with commercial leases, 40 percent indicated they had already missed commercial rent payments, and 89 percent anticipated that they would in the future. Id. Yet, nine out of ten of clients who had "initiated conversations with their commercial landlords about the possibility of receiving a rent abatement, deferment, or cancellation for the period of the pandemic were either still negotiating, received no response, or received a negative response." Id. VOLS cautioned that, without support including the Guaranty Law, "we have no doubt that many of New York City's small businesses will face permanent closure." Id. at 2504.
Several organizations, while supportive of the Guaranty Law, urged the City Council to extend the law's provisions to cover a longer period of time, expand the definition of personal liability provisions, or provide funding for rent forgiveness. See, e.g., id. at 2422-23 (United for Small Business NYC); id. at 2504 (VOLS); id. at 2299-2300 (ANHD).
Over the course of its deliberations, the City Council also heard opposition to the proposed Guaranty Law from landlords, trade groups, and others. See, e.g., id. at 1810-11, 2402, 2411-12 (landlords opposed to Guaranty Law); id. at 2413 (building manager); id. at 1866-67, 2374-76 (Queens and Bronx Building Association and Building Industry Association of New York City); id. at 2309-10, 2397 (Real Estate Board of New York); id. at 2334 (New York City Bid Association); id. at 2478-79 (Building Owners and Managers Association of Greater New York). One Council Member, Kalman Yeger, expressed his opposition and his view that the proposed Guaranty Law was unconstitutional. Id. at 2180-82, 3496.
2. The Guaranty Law is a reasonable and appropriate measure under the substantial-deference standard
Ultimately, the City Council passed legislation that was most responsive to the concerns raised by the small business owners directly affected by the Governor's shutdown orders and the economic crisis. As enacted, the Guaranty Law is tailored to protect guarantors who are natural persons and whose businesses "were impacted by mandated closures and service limitations in the Governor's executive orders"
The numerous written submissions and public statements offered by owners and operators of these types of small businesses —and other supporters—about the importance of the Guaranty Law to their ability to survive the pandemic, to continue to employ workers, and to contribute to the City's overall economic well-being supports the City Council's decision to make personal guarantees unenforceable for obligations arising during the public health and related economic crisis. The supporters described how the Guaranty Law in particular would help to keep small businesses open, and how important the provision is despite the potential availability of other assistance such as PPP. The extensive statements of support in the record therefore weigh heavily in favor of a finding that, in enacting the Guaranty Law, the City Council adopted a reasonable and appropriate means to serve its stated public purposes.
The Guaranty Law is also closely tied to the time periods during which the Governor's shutdown orders and capacity restrictions were in place. The Guaranty Law initially applied to personal liabilities arising from March 7, 2020, through September 30, 2020. With the pandemic persisting and the Governor's shutdown orders extending past September, the City Council twice extended the Guaranty Law, first through March 31, 2021, and then through June 30, 2021. See N.Y.C. Local L. 2020/98; N.Y.C. Local L. 2021/50. Each time the City Council extended the law, it made specific findings as to how the "operational limitations" have "contributed to the severe economic damage suffered by the City," and included job-loss statistics in sectors affected by the capacity restrictions. N.Y.C. Local L. 2020/98; N.Y.C. Local L. 2021/50. After the Governor's capacity restrictions were fully lifted on June 15, 2021, the City Council allowed the Guaranty Law to expire on June 30, 2021.
This calibration to the ongoing crisis— rather than enacting the Guaranty Law without a sunset provision, for example— suggests that the City Council was closely monitoring the City's needs as the crisis evolved and that it determined on two occasions that extending the Guaranty Law for six- and three-month periods, respectively, would continue to provide vital support for the City's small businesses and its economic recovery. Likewise, the Guaranty Law does not permanently repudiate contracts between landlords and guarantors, but instead applies to guarantors' obligations that arose during a fixed period. This temporal limitation weighs in favor of a finding that the law is a reasonable and necessary measure to achieve its purpose. See Energy Rsrvs. Grp., 459 U.S. at 418, 103 S.Ct. 697 (reasoning that the legislation challenged there is reasonable and appropriate in part because it "is a temporary measure that expires when federal price regulation of certain categories of gas terminates").
Other circumstances further support a finding that the Guaranty Law is a reasonable and appropriate measure. The City Council treated the Guaranty Law as part
Under the totality of the circumstances, I conclude that the Guaranty Law passes the low threshold posed by step three of the modern Contracts Clause analysis for laws impairing private contracts. Because the record amply demonstrates that, under our precedents, the Guaranty Law is a reasonable and appropriate means to serve a legitimate public purpose, Bochner has not stated a plausible Contracts Clause claim.
The Majority fails to accord the requisite deference to the City Council's judgment
The Majority takes a different approach that does not "properly defer to legislative judgment." Energy Rsrvs. Grp., 459 U.S. at 413, 103 S.Ct. 697. Because it adopts a searching, sliding-scale standard for Contracts Clause challenges, as discussed above, its evaluation of whether the Guaranty Law is a reasonable and appropriate measure in Section III.B.3 is exacting and skeptical. The Majority suggests the City Council was insufficiently focused on guarantors' needs, despite the expansive record support showing small business owners' needs, as described above, and the understanding —acknowledged by Bochner— that these business owners or other principals are often the guarantors. See Appellants' Br. at 15. It faults the City Council for failing to use "empirical evidence," Maj. Op. at 1044, and engaging in insufficiently "intensive study," id. at 1045, even when acting rapidly to respond to a public health and economic emergency.
Much of the Majority's analysis of whether the Guaranty Law is reasonable and appropriate focuses on policy concerns with the City Council's chosen means. The Majority criticizes the City Council's decision to permanently exempt, rather than defer, guarantors' obligations to the extent they arose during the period from March 7, 2020, until June 30, 2021.
To be sure, the policy concerns that the Majority highlights may be legitimate. The legislature's choice to permanently excuse guarantors from liability on commercial lease defaults accrued during a defined period may reasonably be questioned. As the District Court acknowledged, the Guaranty Law may lead to a harsh outcome for some commercial landlords because, if their tenants have few to no assets, "the money may prove impossible to collect" without an enforceable guaranty. Melendez v. City of New York, 503 F.Supp.3d 13, 36 (S.D.N.Y. 2020). And the Majority's suggestions now for how the City Council could have more effectively targeted relief when it acted in response to the public health and economic emergency might indeed have improved the law.
Ultimately, however, "whether the legislation is wise or unwise as a matter of policy is a question with which we are not concerned." Sullivan, 959 F.3d at 69. We are bound to "refuse to second-guess the [City's] determinations that these are the most appropriate ways of dealing with the problem." Keystone Bituminous Coal, 480 U.S. at 506, 107 S.Ct. 1232; see also Apartment Ass'n of Los Angeles Cty., 10 F.4th at 914 ("Under current doctrine, we must refuse to second-guess the City's determination that the eviction moratorium constitutes the most appropriate way of dealing with the problems identified. That is particularly so, based on modern Contracts Clause cases, in the face of a public health situation like COVID-19."). It is simply "not the province of this Court to substitute its judgement for that of ... a legislative body," Sal Tinnerello & Sons, 141 F.3d at 54, even if we question the policy path the legislature chose to follow.
The City Council enacted the Guaranty Law during an unprecedented economic and health emergency that was devastating to the City's small business community. The City Council's stated purpose was to support the owners and employees of small businesses impacted by pandemic-related shutdown orders, as well as the City's economy overall, both during and after the pandemic. It enacted the Guaranty Law after holding several hearings related to the legislation and after receiving input from hundreds of stakeholders—supporters and opponents alike.
Under our precedents, the City Council's action deserves substantial deference. It is not our role to second-guess the City Council's policy decisions; rather, we must conduct a carefully limited inquiry into whether the Guaranty Law is a reasonable and appropriate measure to serve a substantial and legitimate public purpose. In light of the considerable support for the Guaranty Law's design in the record, the ongoing economic and public health emergency in the City when it was enacted, and the substantial deference we owe the legislative judgment, I conclude that the Guaranty Law was a reasonable and appropriate measure to serve the City Council's stated purpose. I therefore would affirm the District Court's dismissal of the Contracts Clause challenge to the Guaranty Law.
I am concerned that the Majority's opinion strays from our precedents by articulating a far less deferential standard of review for Contracts Clause challenges involving private contracts. In my view, its analysis of whether the Guaranty Law is reasonable and appropriate takes an exacting approach that more closely resembles
In the aspects discussed above, I respectfully dissent from the Majority's decision.
Id. § 27-2004(a)(f-7).
The Commercial Harassment Law amendment states,
Id. § 22-902(a)(11).
N.Y.C. Admin. Code § 22-1005.
While the Guaranty Law applies to all tenants forced to cease on-premises food or drink service or cease operations under Executive Orders 202.3 and 202.7, it is more circumscribed as to tenants subject to Executive Order 202.6. Rather than applying to all non-essential businesses forced to reduce capacity under that order, it only applies to "non-essential retail establishment[s]." N.Y.C. Admin. Code § 22-1005(1)(b) (emphasis added); see 40 X Owner LLC v. Masi, No. 156181/2020, 2021 WL 65431, at *2 (N.Y. Sup. Ct. Jan. 7, 2021) (finding Guaranty Law inapplicable to tenant that leased office space).
U.S. Const. art. I, § 10. (emphasis added).
Sveen v. Melin, 138 S. Ct. at 1826-27 (Gorsuch, J., dissenting) (first quoting U.S. Const. art. I, § 10, cls. 2-3; and then quoting Sturges v. Crowninshield, 17 U.S. at 206).
438 U.S. at 243-44, 98 S.Ct. 2716 (emphasis added). The highlighted words "again" and "private contracts" in the first quoted sentence signal that United States Trust is consistent with past precedent in recognizing "some limits" on state police power to impair even private contracts. In this context, the second quoted sentence is properly understood to summarize a limiting principle applicable as much to private as to public contract impairments. Indeed, that conclusion is reinforced by the fact that language quoted in the second sentence derives from a paragraph in United States Trust discussing private—not public— contracts. See 431 U.S. at 22, 97 S.Ct. 1505. Further, when, after that second sentence, the Court in Allied Structural Steel notes that the Contracts Clause challenge in United States Trust pertained to a public contract, see id. at 244, 98 S.Ct. 2716 ("Evaluating with particular scrutiny a modification of a contract to which the State itself was a party, the Court in that case held that legislative alteration of the rights and remedies of Port Authority bondholders violated the Contract Clause because the legislation was neither necessary nor reasonable"), it quickly emphasizes that the more stringent review applied to a public contract impairment does "not" mean that private contracts are "subject to unlimited modification," id. at 244 n.15, 98 S.Ct. 2716 (quoting United States Trust, 431 U.S. at 22, 97 S.Ct. 1505). For all these reasons, then, we construe the language quoted in text from Allied Structural Steel to state a general principle applicable to private, as well as public, contract impairments.
Allied Structural Steel, 438 U.S. at 243-44, 98 S.Ct. 2716; see also id. at 244 n.15, 98 S.Ct. 2716 ("The [United States Trust] Court indicated that impairments of a State's own contracts would face more stringent examination under the Contract Clause than would laws regulating contractual relationships between private parties, 431 U.S. at 22-23, 97 S.Ct. 1505, although it was careful to add that `private contracts are not subject to unlimited modification under the police power.' Id., at 22, 97 S.Ct. 1505.").
Stakeholders also made similar statements in hearing testimony and written submissions to the City Council. See, e.g., id. at 2298 (Karen Narefski of the nonprofit Association for Neighborhood and Housing Development stating that, "[a]s the Speaker noted at the beginning of the meeting, 26 percent of all jobs in New York City are at [a] business with 20 or fewer employees. So, the result in closures and layoffs ripple through the community and have a broad economic impact."); id. at 2503 (Volunteers of Legal Service statement that "[i]t is beyond dispute that small businesses are the backbone of the American economy, and yet, existing relief does not go nearly far enough to save New York City small businesses from the detrimental effects of the COVID-19 pandemic").
The Guaranty Law's legislative history is composed of materials that are properly subject to judicial notice. See, e.g., Territory of Alaska v. Am. Can Co., 358 U.S. 224, 226-27, 79 S.Ct. 274, 3 L.Ed.2d 257 (1959). Moreover, the parties cite the legislative record extensively and urge us to examine it closely to determine the Guaranty Law's purpose. See, e.g., Appellants' Br. at 28 (submitting that the district court "should have engaged [in] a closer analysis [of the law's purpose] aided by the record"); Appellees' Br. at 7, 20-21, 26-28 (citing legislative history materials in the appellate record); Appellants' Reply Br. at 7-10 (arguing that the record support for the law's public purpose is insufficient to have warranted the law's enactment but not arguing that the record itself is insufficient to evaluate the Guaranty Law's purpose or is not properly before this Court). The parties have not raised any doubts as to the authenticity of the legislative record or any objections to considering the materials submitted in their joint appendix as reflective of what the Council considered in enacting the Guaranty Law.
Nor is there any question that Bochner had ample notice of the materials in the legislative record: the complaint refers to the City Council proceedings in at least two places, and plaintiffs themselves offered many of the legislative materials in the record—including hearing transcripts and committee reports— in their motion for a preliminary injunction, which was filed before the City's motion to dismiss. See App'x at 516-1113, 4308, 4319; cf. Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 48 (2d Cir. 1991) ("A finding that plaintiff has had notice of documents used by defendant in a 12(b)(6) motion is significant since ... the problem that arises when a court reviews statements extraneous to a complaint generally is the lack of notice to the plaintiff that they may be so considered; it is for that reason—requiring notice so that the party against whom the motion to dismiss is made may respond—that Rule 12(b)(6) motions are ordinarily converted into summary judgment motions."). Under these circumstances, it is appropriate for the Court to consider the legislative history to ascertain the City Council's purpose when enacting the Guaranty Law. Unlike the Majority, however, I see no obligation to end that inquiry after reaching a "limited determination of purpose on this appeal." Maj. Op. at 1037 n.66.