By Roberta Kaplan, Alexander Rodney, and Louis Fisher, Kaplan Hecker & Fink LLP
Last month, the New York Court of Appeals struck down a portion of the Housing Stability and Tenant Protection Act of 2019 on the grounds that its retroactive application violated the due process clause of the U.S. Constitution. The groundbreaking case was Matter of Regina Metropolitan Co. v. New York State Division of Housing & Community Renewal.[1]
In a split decision spilling over 100 pages, the judges outlined a sharp disagreement. The majority held per curiam that the offending provisions of the HSTPA retroactively impacted landlords' substantive contract and property rights without legitimate justification. But the majority's opinion drew a particularly blistering dissent authored by Judge Rowan Wilson.
The dissent noted that the decision marked the first time the court has invalidated regulatory legislation on the grounds that such legislation violates substantive due process and lamented that the disgraced era of Lochner — the U.S. Supreme Court's notorious and long-vilified decision,[2] which struck down labor regulations as inconsistent with the due process clause of the U.S. Constitution, and was overruled nearly a century ago — had made its tragic return home.[3]
Regina has potentially wide-reaching ramifications for the regulation of individuals and companies worldwide with operations in New York state. Most significantly, the decision subjects New York regulations with retroactive effects to increased risk of successful legal challenge.[4] Indeed, over the past few decades prior to Regina, challenges to New York regulation with retroactive effects have generally failed.
For example, in 1989, the Court of Appeals upheld a statute that revived for one year tort claims arising from harm caused by a drug later shown to have toxic effects.[5] In 2001, as part of its revised Son of Sam Law,[6] which was originally intended to prevent infamous killers from "profit[ing] from [their] notoriety while [their] victims and their families remained uncompensated,"[7] the New York Legislature also revived the statute of limitations for victims' tort claims.
That claims-revival provision likewise survived a due process challenge.[8] More recently, in 2009, New York's revival of certain time-barred claims relating to the World Trade Center rescue and cleanup (known as Jimmy Nolan's Law) survived a legal challenge as well.[9] After Regina, such challenges may stand a greater likelihood of success.
Nor are the consequences limited to regulation at the state level. Just last month, for example, New York City Councilmember Brad Lander introduced a bill, as part of the city's COVID-19 pandemic relief package, expanding worker coverage under the Earned Safe and Sick Time Act that would apply retroactively to Jan. 1 of this year.[10] The council's committee on civil service and labor is presently considering the bill and held a hearing on it last week. Such retroactive regulation in New York City may now face greater vulnerability to legal challenge as well.
In addition to affecting the regulation of businesses and individuals within New York, the decision also may influence how courts in other states apply key U.S. Supreme Court precedents in evaluating legislation with potentially retroactive effects. As the New York Court of Appeals recognized, the U.S. Supreme Court's seminal decision in Landgraf v. USI Film Products sets forth the principles for analyzing retroactive legislation under both federal and New York state law.[11]
Just as in New York, the highest courts in Maryland, Connecticut, Florida, California and Washington, D.C., have all applied Landgraf to evaluate the legality of potentially retroactive legislation.[12] The New York Court of Appeals' stringent application of Landgraf's anti-retroactivity principle here may persuade other states' high courts to follow suit.
The HSTPA implicated these retroactivity principles by changing the rules for calculating owner liability in rent overcharge cases under the state's Rent Stabilization Law.
More specifically, the HSTPA enacted three key changes to the RSL: (1) it extended the period for which overcharge damages could be recovered from four years to six years; (2) it empowered courts, in calculating the amount by which a tenant had been overcharged, to look back at the unit's rent history over six or more years, rather than four years;[13] and (3) it lengthened the period for which landlords are obliged to retain records of their rental history from four to six years, and permitted regulators and courts to examine "all available rent history which is reasonably necessary" to investigate overcharge claims, regardless of how old the history is and whether it is drawn from records belonging to landlords, tenants, other others.[14]
In Regina, the Court of Appeals consolidated four separate appeals for review, which were all already pending when the Legislature passed the HSTPA. In each case, tenants sued their landlords for rent overcharge and sought to apply the HSTPA's new overcharge calculation provisions to their cases.
Accordingly, the Court of Appeals was faced with a different and novel question — namely, what set of rules governed the calculation of these tenants' overcharge claims? Should the tenants be subject to either (1) the rules that were in place prior to HSTPA or (2) the HSTPA rules, which expanded landlord's damages liability and were passed during the pendency of the appeals — years after the relevant overcharges occurred?
In a 4-3 decision, the Court of Appeals held, as a matter of statutory interpretation and federal constitutional law, that the HSTPA rules could not apply retroactively to the tenants' pending claims for overcharges that occurred prior to the HSTPA's enactment. The court's reasoning was twofold.
First, it held that the HSTPA's text does not demonstrate a sufficiently clear legislative intent that the new six-year statute of limitations should apply retroactively. In so holding, the court applied a particularly strong presumption against retroactively reviving time-barred claims and ruled that the HSTPA's application to any claim pending upon enactment was not sufficiently clear to overcome that presumption.[15]
Second, the court concluded that the Legislature clearly intended the new six-year lookback for calculating damages and the six-year record retention provision to apply retroactively. But it invalidated that retroactive application under the due process clause of the U.S. Constitution, to the extent those provisions were intended to apply retroactively to claims pending before the HSTPA was enacted.
The court concluded that the Legislature had failed to put forth a rational justification for retroactivity, holding that there was no indication that "the Legislature considered the harsh and destabilizing effect on owners' settled expectations, much less had a rational justification for that result.[16]
Moreover, the court noted its particular concern for the unfairness and potentially harsh impacts of applying such new rules retroactively, thereby eliminating the repose enjoyed by landlords who raised rents years ago in reliance on the previous regulatory regime.[17] And the court expressed a marked concern for the landlords' "contractual or property rights, matters in which," it reasoned, "predictability and stability are of prime importance."[18]
The majority opinion drew a particularly biting dissent from Judge Wilson, joined by two colleagues, which characterized the majority decision as radical in its willingness to declare unconstitutional a duly enacted piece of economic legislation. In particular, the dissent derided the majority's claim that HSTPA retroactivity would be irrational. To the contrary, the dissent set forth its own justifications for each of the challenged HSTPA provisions and explained why the legislature may have had legitimate policy reasons for applying each of them retroactively.
Prior to the court's decision, a constitutional challenge to an economic regulation, even one with retroactive effect, faced little chance of success. Going forward, however, the decision imposes a rigorous requirement upon the New York Legislature to justify any retroactive effect for future regulatory legislation across industries.
To be sure, given the recent, complex and trailblazing nature of the court's decision, uncertainty remains about how it will be applied in the future. In the meantime, however, businesses facing regulation may take some greater comfort that their reliance interests arising out of vested contractual or property rights may not permissibly be altered by legislation with retroactive effect, unless the Legislature clearly states an intention to do so and backs it up with good reasons.
Roberta A. Kaplan is a partner, Alexander J. Rodney is counsel and Louis W. Fisher is an associate, at Kaplan Hecker & Fink LLP.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] --- N.E.3d ---, 2020 NY Slip Op. 02127 (Apr. 2, 2020).
[2] 198 U.S. 45 (1905).
[3] See id. at 2 (Wilson, J., dissenting).
[4] See id. at 34 ("When the Legislature has intended to revive time-barred claims, it has typically said so unambiguously, providing a limited window when stale claims may be pursued.").
[5] Hymowitz v. Eli Lilly & Co. , 73 N.Y.2d 487, 513-14 (1989) (reviving toxic certain tort claims).
[6] N.Y. Exec. Law § 620, et seq.
[7] Simon & Schuster, Inc. v. Members of New York State Crime Victims Bd. , 502 U.S. 105, 108 (1991).
[8] Snuszki v. Wright , 193 Misc. 2d 490, 493 (N.Y. Sup. Ct. 2002),aff'd,1 A.D.3d 879 (4th Dep't 2003).
[9] In re World Trade Ctr. Lower Manhattan Disaster Site Litig. , 30 N.Y.3d 377 (2017) (answering certified question about retroactivity; In re World Trade Ctr. Lower Manhattan Disaster Site Litig., 892 F.3d 108, 112 (2d Cir. 2018) (vacating, on other grounds, district court's decision holding claim revival unconstitutional).
[10] See COVID-19 Relief Package - Earned Safe and Sick Time Act, https://legistar.council.nyc.gov/LegislationDetail.aspx?ID=4425096&GUID=E2F925C2-84A1-4B6D-9B72-25BE954DDD48&Options=ID|Text|&Search=int.+1926.
[11] See Landgraf v. USI Film Prod. , 511 U.S. 244, 270 (1994); Am. Econ. Ins. Co. v. State , Am. Econ. Ins. Co. v. State , 87 N.E.3d 126 (N.Y. 2017).
[12] State v. Goldberg , 85 A.3d 231, 240 (Md. 2014)(noting that Landgraf governs retroactivity analysis under Maryland law); Shannon v. Comm'r of Hous. , 140 A.3d 903, 911 (Conn. 2016) ("[T]he United States Supreme Court's decision in Landgraf . . . , furnishes the leading articulation of when a new law has been applied retroactively."); Metro. Dade Cty. v. Chase Fed. Hous. Corp. , 737 So. 2d 494, 499 (Fla. 1999) (applying Landgraf); McClung v. Employment Dev. Dep't , 99 P.3d 1015, 1019 (Cal. 2004) (same); D.C. v. Beretta U.S.A. Corp. , 940 A.2d 163, 179–80 (D.C. App. 2008) (overruling prior D.C. precedent on due process in light of Landgraf); see also Perry v. Dep't of Fin. & Prof'l Regulation , N.E.3d 1016, 1026 (Ill. 2018) (adopting Landgraf analysis in part).
[13] Moreover, treble damages, which were previously only available for two years upon a finding of willfulness, are now recoverable for the entire six-year limitations period under the HTSPA. Matter of Regina, Slip Op. at 24.
[14] See RSL § § 26-516(a)(i) & (h).
[15] Id. at 36
[16] See id. at 39-40, 50.
[17] Id. at 31 ("[A]pplying these amendments to past conduct is not related to legislative decisions about proper division of economic burdens going forward, and it does not simply upset expectations about the continuing future availability of a favorable regulatory mechanism. Rather, by increasing overcharge exposure relating to owners' past acts, retroactive application of the provisions would undermine considerable reliance interests concerning income owners already derived from rents collected on real property years – if not decades – before.").
[18] Id. at 49.
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