We're certainly not going to delve in detail into the 109 single-spaced pages of the majority and dissenting opinions in the New York Court of Appeals' ruling in Regina Metro. Co., LLC v. N.Y. State Div. of Housing and Community Renewal, Nos. 1-4 (Apr. 3, 2020). New York's rent control law is infamously labyrinthine, and we're by no means learned in its nuances (and have no desire to become so). But there's a lot to digest in the opinion, and it might be worth your time to dig into certain parts.
For our purposes, here is the short version. While an appeal was pending in these cases, the legislature amended the statute ("sweeping changes") and extended the statute of limitations and "the nature and scope of owner liability in rent overcharge cases." The question before the court was whether the new requirements govern the case. In other words, whether the recent amendments are to be applied retroactively, or whether the cases are governed by the law in effect at the time of the lawsuit (i.e., the old law).
The court concluded the legislature "evinced a sufficiently clear intent to apply [the new statute of limitations and changes in the law] to timely pending claims[.]" Slip op. at 38. Thus, the court had to grapple with the question of whether applying the law retroactively violated due process.
As you know, due process means rational basis review (especially for so-called "economic" regulations), aka "aliens might have done it." But when the regulations are meant to apply retrospectively, judicial review is with a slightly more skeptical eye. Not that much, but a bit more: "there must be a 'persuasive reason' for the 'potentially harsh' impacts of retroactivity." Slip op. at 39-40 (citations omitted).
We suggest you read the next few pages, because there, the court walks through all the reasons why applying the new rules retroactively to cases in the pipeline would be unfair and unconstitutional. The new provisions would "more severely impact substantive rights[,]" and the lookback period is "vast" and therefore "upends owners' expectations of repose relating to conduct that may have occurred many years prior to the recovery period." Slip op. at 45.
Unlike cases where retroactive application rationally furthered a legislative goal, such as closing a state-administered fund benefitting insurers that imposed unsustainable costs on employers (see American Economy, 30 NY3d 136) or preventing legislation from being undermined by those seeking to escape its impact before enactment (see R.A. Gray & Co., 467 US 717) – there is no indication here that the Legislature considered the harsh and destabilizing effect on owners’ settled expectations, much less had a rational justification for that result. While prospective application of Part F to overcharges occurring after the effective date may serve legitimate and laudable policy goals, no explanation has been offered, much less a rational one, for retroactive application of the amendments to increase or create liability for rent overcharges that occurred years – even decades – in the past.
Slip op. at 50.
The court concluded, "[t]here can be no doubt here that ... the amendments represent a clear rejection of prior rent stabilization enforcement policy and effectuate a significant readjustment of substantive rights relating to overcharge recovery[.]" Slip op. at 46. The court applied what it called "meaningful" rational basis review (not quite the "aliens" theory), noting that a court isn't merely a rubber stamp, but is there to protect infringements on "fundamental principles as they have been understood by the traditions of our people and our law" (in other words, our old friend "the law of the land") -
In this regard, the rational basis test – although extremely deferential – must be meaningfully applied to ensure basic principles of fairness and substantial justice, lest we abdicate our responsibility to the citizens of this State. As Justice Holmes wrote when dissenting in Lochner – espousing a view that later prevailed in the Supreme Court – “the word ‘liberty,’ in the 14th Amendment, is perverted when it is held to prevent the natural outcome of a dominant opinion, unless it can be said that a rational and fair [person] necessarily would admit that the statute proposed would infringe fundamental principles as they have been understood by the traditions of our people and our law” (Lochner, 198 US at 76 [Holmes, J., dissenting] [emphasis added]). The modern rejection of Lochner has never been understood to require courts to abandon “fundamental principles” of fairness – not even when reviewing economic legislation. There are few principles as fundamental or, in the words of the Supreme Court, as “elementary” or “deeply rooted” as the notion that government may not irrationally impose or expand liability for past conduct (Landgraf, 511 US at 265).
Slip op. at 55.
The dissent, as you might expect, raised the usual judicial kryptonite (Lochner), asserting that the majority overstepped its bounds, even though Lochner presented prospective, not retrospective, legislation restricting liberty of contract.
But by taking a slightly harder look at the backwards application of rent control and voiding the statute on due process grounds, however, the New York Court of Appeals avoided the takings question lurking the background. There's a pretty good case that if the majority had upheld the retroactive law, that it would be subject to a serious takings challenge as in Eastern Enterprises v Apfel, 524 U.S. 498 (1998).
If New York seeks further review, might this case be the one in which the U.S. Supreme Court revisits that fractured decision? Stay tuned.
Regina Metro. Co., LLC v. N.Y. State Div. of Hous. and Comm. Renewal, Nos. 1-4 (N.Y. Apr. 2, 2020)
