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19th Street Associates v. State

79 N.Y.2d 434 Court N.Y. Decision date 1992-05-07 English

Delivered by Chief Judge Wachtler.

Contents

Majority

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19th Street Associates et al., Respondents, v State of New York et al., Defendants, and Barbara Sommerfield et al., Appellants.
Argued March 26, 1992;
decided May 7, 1992
p. 435
POINTS OF COUNSEL
Jack L. Lester for Barbara Sommerfield and others, appellants. I.
Laws of 1989 (ch 473) does not deprive plaintiffs of due process by abrogating a fixed and unreviewable judgment. (Matter of Hodes v Axelrod, 70 NY2d 364 ; I. L. F. Y. Co. v Temporary State Hous. Rent Commn., 10 NY2d 263 ; Matter of Bueno Realty Corp. v Berman, 30 AD2d 860 ; Oriental Blvd. Co. v Heller, 58 Misc 2d 920 , 34 AD2d 811 , 27 NY2d 212 , 401 US 986 ; La Guardia v Cavanaugh, 53 NY2d 67 ; Tegreh Realty Corp. v Joyce, 88 AD2d 820 ; Gordon & Gordon v Madavin, Ltd., 108 Misc 2d 349 ; 465 Greenwich St. Assocs. v Schmidt, 116 Misc 2d 62 ; CPC Intl. v McKesson Corp., 70 NY2d 268 ; Green v Santa Fe Indus., 70 NY2d 244 .) II. The Act does not violate plaintiffs’ right to equal protection. (Eastlake v Forest City Enters., 426 US 668 ; Hadacheck v Los Angeles, 239 US 394 ; Nectow v Cambridge, 277 US 183 ; Exxon Corp. v Governor of Md., 437 US 117 ; Mourning v Family Publs. Serv., 411 US 356 ; Williamson v Lee Opt. Co., 348 US 483 ; Lighthouse Shores v Town of Islip, 41 NY2d 7 ; Vance v Bradley, 440 US 93 ; Dandridge v Williams, 397 US 471 ; Cleburne v Cleburne
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Living Center, 473 US 432 .) III. The Act does not violate New York State Constitution, article III, § 17. (Matter of Union Ferry Co., 98 NY 139 ; Blaikie v Lindsay, 49 Misc 2d 612 ; Hotel Dorset Co. v Trust for Cultural Resources, 46 NY2d 358 ; Matter of McAneny v Board of Estimate & Apportionment, 232 NY 377 ; Lighthouse Shores v Town of Islip, 41 NY2d 7 ; Wein v Beame, 43 NY2d 326 .) IV. The Act does not function as an improper regulatory taking without compensation. (United States v Causby, 328 US 256 ; Penn Cent. Transp. Co. v New York City, 438 US 104 ; Nectow v Cambridge, 277 US 183 ; Pennell v San Jose, 485 US 1 ; Bowles v Willingham, 321 US 503 ; Levy Leasing Co. v Siegel, 258 US 242 ; Block v Hirsh, 256 US 135 ; Seawall Assocs. v City of New York, 74 NY2d 92 , 493 US 976 ; Loretto v Teleprompter Manhattan CATV Corp., 458 US 419 ; Federal Communications Commn. v Florida Power Corp., 480 US 245 .) V. The Act does not unconstitutionally impair plaintiffs’ right to the consent judgment. (Matter of Subway-Surface Supervisors Assn. v New York City Tr. Auth., 44 NY2d 101 ; United States Trust Co. v New Jersey, 431 US 1 ; East N. Y. Bank v Hahn, 326 US 230 ; Matter of Freeport Randall Co. v Herman, 83 AD2d 812 , 56 NY2d 832 ; Matter of Farrell v Drew, 19 NY2d 486 ; Home Bldg. & Loan Assn. v Blaisdell, 290 US 398 ; Levy Leasing Co. v Siegel, 258 US 242 ; Block v Hirsh, 256 US 135 ; People ex rel. Durham Realty Corp. v La Fetra, 230 NY 429 ; Spring Realty Co. v New York City Loft Bd., 127 Misc 2d 1090 , 117 AD2d 1029 , 69 NY2d 657 , 482 US 911 .) VI. The IAS court improperly converted the State defendants’ motion to dismiss the complaint to a motion for summary judgment without giving adequate notice to the tenants defendants. (Guggenheimer v Ginzburg, 43 NY2d 268 ; Rovello v Orofino Realty Co., 40 NY2d 633 ; Four Seasons Hotels v Vinnik, 127 AD2d 310 .)
Arthur Silverman and another, appellants, pro se. I.
The IAS court improperly permitted the Attorney-General’s motion to dismiss to be converted to one for summary judgment at oral argument on January 26, 1990, with the consent of only respondents and Attorney-General as attorney for State defendants, and without giving adequate notice to appellants, or to their attorneys, and without giving them an appropriate opportunity to submit papers in opposition, in violation of CPLR 3211 (c) and in violation of appellants’ rights to due process and equal protection of the laws, as guaranteed by the 14th Amendment of the Federal Constitution. (Rich v Lefko
p. 437
vits, 56 NY2d 276 ; 211 W. 56th St. Assocs. v Department of Hous. Preservation & Dev., 78 AD2d 793 ; Best v City of New York, 101 AD2d 847 ; Mihlovan v Grozavu, 72 NY2d 506 .) II. In holding that the conversion was proper as to the non-State defendants-appellants, the court below erred in that there was never an appellate review of the facts, and where appellants pro se had set forth grounds (in their briefs to the court below) warranting equitable estoppel of the IAS court’s decision and sufficient to remand to the IAS court for fact-finding hearings for appellants. (Lazarus v Bowery Sav. Bank, 16 NY2d 793 ; Federal Deposit Ins. Corp. v Harrison, 735 F2d 408 ; Rose v Bowen, 710 F Supp 1357 ; Glus v Brooklyn E. Term., 359 US 231 ; Simcuski v Saeli, 44 NY2d 442 ; Robinson v City of New York, 24 AD2d 260 ; Beverage v Harvey, 456 F Supp 1044 , 602 F2d 657 ; USLIFE Corp. v U.S. Life Ins. Co., 560 F Supp 1302 .) III. The court below erred in determining that there were no issues of material fact while simultaneously excluding the applicability of CPLR 3211 (c) to appellants and by failing to provide an appellate review of the facts, sufficient to violate appellants’ rights to due process and equal protection of the laws, as guaranteed by the 14th Amendment of the Federal Constitution. (Four Seasons Hotels v Vinnik, 127 AD2d 310 .) IV. Laws of 1989 (ch 473) does not violate the due process guarantees of the State and Federal Constitutions. The IAS court erred by not examining the tenant defendants’ possessory rights, which have a statutory origin in rent-stabilization law. (CPC Intl. v McKesson Corp., 70 NY2d 268 ; Green v Santa Fe Indus., 70 NY2d 244 ; Loengard v Santa Fe Indus., 70 NY2d 262 ; I. L. F. Y. Co. v Temporary State Hous. Rent Commn., 10 NY2d 263 ; Matter of Bueno Realty Corp. v Berman, 30 AD2d 860 ; Matter of Hodes v Axelrod, 70 NY2d 364 ; Oriental Blvd. Co. v Heller, 58 Misc 2d 920 , 34 AD2d 811 , 27 NY2d 212 , 401 US 986 ; 465 Greenwich St. Assocs. v Schmidt, 116 Mise 2d 349; People ex rel. Durham Realty Corp. v La Fetra, 230 NY 429 .) V. Laws of 1989 (ch 473) does not constitute an unconstitutional taking of private property for public use without just compensation. (Federal Communications Commn. v Florida Power Corp., 480 US 245 ; de St. Aubin v Flacke, 68 NY2d 66 ; Penn Cent. Transp. Co. v New York City, 438 US 104 ; Pompa Constr. Corp. v City of Saratoga Springs, 706 F2d 418 ; Haas & Co. v City & County of San Francisco, 605 F2d 1117 , 445 US 928 ; French Investing Co. v City of New York, 39 NY2d 587 .) VI. Laws of 1989 (ch 473) did not grant an exclusive privilege to appellants in violation of article III, § 17 of the State
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Constitution. (Hotel Dorset Co. v Trust for Cultural Resources, 46 NY2d 358 ; American Consumers Indus, v City of New York, 28 AD2d 38 .) VII. The court below overlooked the strong presumption in favor of the constitutional validity of a State statute. (Hadacheck v Los Angeles, 239 US 394 ; Lighthouse Shores v Town of Islip, 41 NY2d 7 .) VIII. Laws of 1989 (ch 473) satisfies all of the requirements of equal protection. (Long Is. Oil Prods. Co. v Local 553 Pension Fund, 777 F2d 24 ; Matter of Engelsher v Jacobs, 5 NY2d 370 ; People ex rel. Durham Realty Corp. v La Fetra, 230 NY 429 ; New Orleans v Dukes, 427 US 297 ; Vance v Bradley, 440 US 93 ; Williamson v Lee Opt. Co., 348 US 483 ; Nollan v California Coastal Commn., 483 US 825 ; Pennell v San Jose, 485 US 1 ; American Consumers Indus. v City of New York, 28 AD2d 38 .) IX. Laws of 1989 (ch 473) does not violate article I, § 10 of the Federal Constitution, which prohibits laws impairing the obligations of contracts. (East N. Y. Bank v Hahn, 326 US 230 ; Matter of Freeport Randall Co. v Herman, 83 AD2d 812 , 56 NY2d 832 ; Matter of Farrell v Drew, 19 NY2d 486 ; Home Bldg. & Loan Assn. v Blaisdell, 290 US 398 ; Spring Realty Co. v New York City Loft Bd., 127 Misc 2d 1090 , 117 AD2d 1029 , 69 NY2d 657 , 482 US 911 ; People v Beakes Dairy Co., 222 NY 416 ; City of New York v Town of Colchester, 66 Misc 2d 83 ; United States Trust Co. v New Jersey, 431 US 1 .)
Jay R. Fialkoff, Charles G. Moerdler and Regan A. Shulman for respondents. I.
The court below properly held that the challenged statute violates the due process guarantees of the State and Federal Constitutions because it is arbitrary and retroactively impairs vested property rights and improperly interferes with a final judgment of the court. (French Investing Co. v City of New York, 39 NY2d 587 , 429 US 990 ; Matter of Board of Educ. v City of Buffalo, 57 Misc 2d 472 , 32 AD2d 98 ; Church v Church, 58 Misc 2d 753 ; Christian v County of Ontario, 92 Misc 2d 51 ; Periconi v State of New York, 91 Misc 2d 823 ; People ex rel. Reibman v Warden, 242 App Div 282 ; Gilman v Tucker, 128 NY 190 ; Matter of Slewett & Farber v Board of Assessors, 80 AD2d 186 , 54 NY2d 547 ; Phillips v Agway, Inc., 88 Misc 2d 1087 ; Canisius Coll. v United States, 799 F2d 18 , 481 US 1014 .) II. The court below properly held that the Act was unconstitutional in that it violates the equal protection guarantees of the Federal and State Constitutions. (Plyler v Doe, 457 US 202 , 458 US 1131 ; Schweiker v Wilson, 450 US 221 ; United States R. R. Retirement Bd. v Fritz, 449
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US 166 , 450 US 960 ; New Orleans v Dukes, 427 US 297 ; Reiner-Kaiser Assocs. v McConnachie, 104 Misc 2d 750 ; Budhu v Grosso, 125 Misc 2d 284 ; Walters v City of St. Louis, 347 US 231 ; People v Beakes Dairy Co., 222 NY 416 ; Cleburne v Cleburne Living Center, 473 US 432 .) III. The court below properly held that the Act was unconstitutional in that it violates article III, § 17 of the New York State Constitution. (Matter of Mayor of City of N. Y. [Elm St.], 246 NY 72 ; People ex rel. Clauson v Newburgh & Shawangunk Plank Rd. Co., 88 NY 1 ; Stapleton v Pinckney, 293 NY 330 ; Matter of Church, 92 NY 1 ; Matter of Henneberger, 155 NY 420 ; Matter of Decker v Pouvailsmith Corp., 252 NY 1 ; Fox v Mohawk & Hudson Riv. Humane Socy., 165 NY 517 ; Bush v New York Life Ins. Co., 135 App Div 447 ; Blaikie v Lindsay, 49 Misc 2d 612 .) IV. The court below properly held that the Act was unconstitutional in that it violates article I, § 10, clause (1) of the Federal Constitution. (Matter of Diamond v Temporary State Rent Commn., 24 Misc 2d 160 ; City of Yonkers v Yonkers R. R. Co., 169 Misc 102 , 257 App Div 964 , 282 NY 783 ; Preston Co. v Funkhouser, 261 NY 140 , 639, 290 US 163 ; Carder Realty Corp. v State of New York, 260 App Div 459 , 285 NY 803 ; United States Trust Co. v New Jersey, 431 US 1 , 975; Trustees of Dartmouth Coll. v Woodward, 4 Wheat [17 US] 518; Allied Structural Steel Co. v Spannaus, 438 US 234 ; Matter of Subway-Surface Supervisors Assn. v New York City Tr. Auth., 44 NY2d 101 .) V. The court below properly held that the Act was unconstitutional in that it violates the Takings Clauses of the 5th Amendment of the Federal Constitution and article I, § 7 (a) of the New York State Constitution. (Seawall Assocs. v City of New York, 74 NY2d 92 , 493 US 976 ; Armstrong v United States, 364 US 40 ; First Lutheran Church v Los Angeles County, 482 US 304 ; Forster v Scott, 136 NY 577 ; Lutheran Church v City of New York, 35 NY2d 121 ; City of Buffalo v Clement Co., 28 NY2d 241 ; Matter of Keystone Assocs. v Moerdler, 19 NY2d 78 ; Kaiser Aetna v United States, 444 US 164 ; Loretto v Teleprompter Manhattan CATV Corp., 458 US 419 .) VI. The Act is unconstitutional in that it violates article IX, § 2 of the New York State Constitution. (Pero v City of Batavia, 99 AD2d 668 , 63 NY2d 971 ; Adler v Deegan, 251 NY 467 ; Schieffelin v McLaughlin, 127 Misc 56 ; Matter of Henneberger, 155 NY 420 ; Matter of Kelley v McGee, 57 NY2d 522 .) VII. The Act is invalid as a bill of attainder. (Cummings v State of Missouri, 4 Wall [71 US] 277; Fletcher v Peck, 6 Cranch [10 US] 87; United States v Brown, 381 US 437 ; Nixon v Administrator of Gen.
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Servs., 433 US 425 ; Selective Serv. v Minnesota Pub. Interest Research Group, 468 US 841 ; Flemming v Nestor, 363 US 603 ; Kennedy v Mendoza-Martinez, 372 US 144 ; Long Is. Light. Co. v Cuomo, 666 F Supp 370 .) VIII. The court below correctly held that the LAS court properly converted the State defendants’ motion to dismiss the complaint to a motion for summary judgment. (Four Seasons Hotels v Vinnik, 127 AD2d 310 ; O’Hara v Del Bello, 47 NY2d 363 ; Kaswan v Aponte, 160 AD2d 324 ; Five Boro Elec. Contrs. Assn. v City of New York, 37 AD2d 807 , 33 NY2d 676 ; Schieffelin v McLaughlin, 127 Misc 56 .)

OPINION OF THE COURT

In this case, we consider the constitutionality of a statute that extends protection against eviction to the appellants, who are nonpurchasing tenants currently in occupancy of apartment units in the cooperative apartment building located at 205 Third Avenue in New York City. Respondents are the owners and holders of the unsold shares and related proprietary leases in 205 Third Avenue Owners Corporation.

The building in question underwent cooperative conversion in 1981. In 1982, the Attorney-General commenced an action against respondents alleging violations of the Martin Act (General Business Law art 23-A). The parties agreed to a settlement of this action, the terms of which settlement were contained in a consent judgment dated May 26, 1982. The consent judgment required respondents to rescind certain purchase agreements and to permit all nonpurchasing tenants to remain in their apartments through December 31, 1989. Further, the respondents were enjoined from transferring or conveying any interest in realty for the apartments of the nonpurchasing tenants until the nonpurchasing tenant ceased to occupy the apartment or until December 31, 1989, whichever came sooner. In return, the offering plan remained an eviction plan, provided that the nonpurchasing tenants were given all the rights of rent stabilized tenants.

Following the consent judgment, the Attorney-General filed two more suits arising out of the same set of facts. In State of New York v Rachmani Corp. ( 71 NY2d 718 ), this Court held that the selling agent for the cooperative had not committed actionable fraud. In State of New York v 19th St. Assocs. (index No. 6000/86), Supreme Court granted the respondents’

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motion to dismiss the Attorney-General’s complaint, again premised on Martin Act violations, on the grounds of res judicata.

In 1989, the Legislature passed Senate Bill 630 (Assembly Bill 1071), which was entitled "An Act to provide continued tenancy for certain non-purchasing tenants in the city of New York” (L 1989, ch 473). This measure granted protection from eviction to "non-purchasing tenants currently residing in multiple dwellings subject to a cooperative or condominium conversion eviction plan * * * who remain in occupancy of unsold units by virtue of a judgment entered in the supreme court prior to December thirty-first, nineteen hundred eighty-two.” (L 1989, ch 473, § 1.) In his memorandum to the Governor, the Attorney-General conceded that "[t]his bill would principally benefit a small number of non-purchasing tenants who reside in an apartment building located at 205 Third Avenue in New York City * * * who remain in occupancy of unsold units by virtue of a judgment in an action brought by my office which was entered in State Supreme Court prior to December 31,1982.”

By summons and complaint dated October 9, 1989, the respondents commenced this action for a declaratory judgment that the Act was an unconstitutional attempt to nullify the terms of the 1982 consent judgment. Supreme Court treated the Attorney-General’s subsequent motion to dismiss as a motion for summary judgment and granted summary judgment in the respondents’ favor. Specifically, the court found that the statute (1) deprived the respondents of due process in violation of article I, § 6 of the New York Constitution and the 5th and 14th Amendments of the United States Constitution; (2) violated respondents’ rights to equal protection of the laws as guaranteed by article I, § 11 of the New York Constitution and the 14th Amendment of the United States Constitution; (3) was a private or local law that granted the appellants "an exclusive privilege, immunity or franchise” in violation of article III, § 17 of the New York Constitution; (4) violated the Home Rule Amendment (art IX, § 2 [b]) of the New York Constitution; (5) constituted a taking of respondents’ property for a public use without just compensation, in violation of article I, § 7 of the New York Constitution and the 5th and 14th Amendments of the United States Constitution; (6) violated article I, § 10, clause (1) of the United States Constitution prohibiting laws impairing the obligations of contracts and bills of attainder; and (7) violated the principle

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of separation of powers contained in the New York Constitution. The nonpurchasing tenants appealed to the Appellate Division. The Attorney-General took no appeal.

The Appellate Division affirmed, concluding that the law deprived the respondents of due process and equal protection of the laws, granted the nonpurchasing tenants an exclusive privilege, functioned as an improper taking and impaired the respondents’ contractual rights. We agree with the Appellate Division that the respondents’ contractual rights have been unconstitutionally impaired and affirm on that ground. As a result, it is not necessary to reach the appellants’ other constitutional arguments.

Both lower courts found, and both sides apparently agree, that the consent judgment constitutes a contract. We too conclude that the consent judgment, which represents a settlement of the claims against the respondents, is in the nature of a contractual obligation since it contains a number of promises that are supported by valid consideration, and is legally enforceable according to its terms (see generally, Farnsworth, Contracts § 1.1; see also, Home Bldg. & Loan Assn. v Blaisdell, 290 US 398 , 429; Cook v City of Binghamton, 48 NY2d 323 , 329-330).

Having decided as a preliminary matter that the consent judgment is in the nature of a contract, we must next decide whether the statute at issue has unconstitutionally impaired this contract in violation of article I, § 10 of the United States Constitution, which states that "[n]o state shall * * * pass any * * * law impairing the obligation of contracts.” The Supreme Court has repeatedly held that this language should not be read literally and that the States retain the power "to safeguard the vital interests of [their] people” (Home Bldg. & Loan Assn. v Blaisdell, supra, at 434 ; see also, Keystone Bituminous Coal Assn. v DeBenedictis, 480 US 470 , 502; Energy Reserves Group v Kansas Power & Light, 459 US 400 , 410; Worthen Co. v Thomas, 292 US 426 , 433).

"The threshold inquiry is 'whether the state law has, in fact, operated as a substantial impairment of a contractual relationship’ ” (Energy Reserves Group v Kansas Power & Light, supra, at 411 , quoting Allied Structural Steel Co. v Spannaus, 438 US 234 , 244). In agreeing to the terms of the consent judgment, the respondents expected that after December 31, 1989, they would be permitted to evict the remaining nonpurchasing tenants and sell the shares allocated to their

p. 443
apartments. This expectancy has been substantially, if not completely destroyed by the 1989 statute. Thus, we conclude that the State law has certainly impaired a preexisting contractual relationship.

But the inquiry does not end there. Even if a contract has in fact been impaired, the State may avoid a finding of unconstitutional impairment by demonstrating the existence of "a significant and legitimate public purpose * * * such as the remedying of a broad and general social or economic problem” (Energy Reserves Group v Kansas Power & Light, supra, at 411-412 ; see also, Crane Neck Assn. v New York City/ Long Is. County Servs. Group, 61 NY2d 154 , 167). "The requirement of a legitimate public purpose guarantees that the State is exercising its police power, rather than providing a benefit to special interests” (Energy Reserves Group v Kansas Power & Light, supra, at 412 ). Once a legitimate public purpose is identified, the inquiry shifts to whether the legislation at issue is based " 'upon reasonable conditions and [is] of a character appropriate to the public purpose justifying [the legislation’s] adoption’ ” (id., at 412, quoting United States Trust Co. v New Jersey, 431 US 1 , 22). In other words, "an impairment may be constitutional if it is reasonable and necessary to serve an important public purpose” (United States Trust Co. v New Jersey, supra, at 25 ; see also, Matter of Subway-Surface Supervisors Assn. v New York City Tr. Auth., 44 NY2d 101 , 109-110; Patterson v Carey, 41 NY2d 714 , 722-723). Although courts ordinarily defer to legislative assessment of the reasonableness or necessity of a particular measure, where the State is a party to the underlying contract, "complete deference * * * is not appropriate because the State’s self-interest is at stake” (United States Trust Co. v New Jersey, supra, at 26 ; see also, Patterson v Carey, supra, at 722 ).

Applying these principles to the case now before us, we conclude that although the State has identified a legitimate and important public purpose, the statute was neither reasonable nor necessary to serve that purpose.

The statute was premised on a finding that "due to the housing emergency in the city of New York, a greater degree of care must be taken in preserving the homes of certain tenants threatened with eviction.” CL 1989, ch 473, § 1.) The sentiment that the State should act to alleviate New York City’s housing crisis and to protect tenants from its effects is certainly unobjectionable. This is an important public purpose.

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We conclude, however, that the legislation at issue here was not of a character appropriate to this important public purpose. This statute does not alleviate the housing crisis or afford any meaningful protection to the public or to New York City tenants at large. By its terms, it greatly circumscribes the class of tenants that is benefited; indeed, the respondents contend that only the nonpurchasing tenants in this particular building fall within the statute’s reach. This argument is borne out by the Attorney-General’s memorandum to the Governor, which states that "[t]his bill would protect those few tenants in the aforementioned building [205 Third Avenue] who — as a result of a court order in an action brought by the Attorney General against the sponsor of the conversion plan — have not yet been evicted.” As noted above, after execution of the consent judgment but before enactment of this law, the Attorney-General brought two additional actions to vindicate the rights of these tenants. This statute was passed a little more than two years after the second action was dismissed on the grounds of res judicata.

In the guise of protecting New York City tenants from the effects of a housing emergency, this statute is in reality drawn so restrictively as to benefit only a handful. Although the Legislature invoked the New York City housing crisis as justification for enacting the statute, there is only the most tenuous connection between that crisis and the not insubstantial protections afforded the nonpurchasing tenants in this case. In short, this statute has all the indicia of special interests legislation. As a result, we cannot conclude that the statute is either necessary or reasonable to serve the purpose identified in the statute. It is, therefore, an unconstitutional impairment of the contract between the respondents and the State of New York and must fall.

We have considered appellants’ remaining nonconstitutional arguments and we find them to be without merit. Accordingly, the order of the Appellate Division should be affirmed, with costs.

Judges Kaye, Titone, Hancock, Jr., Bellacosa and Yesawich, Jr.,[1] concur; Judge Simons taking no part.

Order affirmed, with costs.

* Designated pursuant to NY Constitution, article VI, § 2.

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