The Court resolved four appeals with this decision, all of which presented roughly the same question: What is the proper method for calculating the recoverable rent overcharge for apartments that were improperly removed from rent stabilization during receipt of J-51 benefits prior to Roberts v. Tishman Speyer Properties, 13 N.Y.3d 270 (2009). That question would have been complicated to answer in its own right, but it was made even more complicated by the post-briefing enactment of the Housing Stability and Tenant Protection Act of 2019 (HSTPA), legislation that significantly altered the relevant rent regulation provisions. The Court ordered additional submissions on what effect, if any, the HSTPA should have on these pending cases. In a divided decision (per curiam), the court held that the HSTPA could not constitutionally be applied to these cases, and that the overcharge amount should be based on the rent charged four years before an overcharge action was commenced.
A fair amount of background is needed to understand the decision. On a very basic level, the rent regulation laws dictate how much a landlord can charge in rent, and an overcharge action is where a tenant claims that his landlord is charging more than the legal rent. These cases all involved a particular species of overcharge action. Specifically, there was a tax incentive program for real estate developers (called the J-51 program); if an apartment benefited from the program, it became subject to rent regulation and could not be deregulated through so-called luxury deregulation (basically, where an apartment can be removed from rent regulation after a landlord spends enough money on renovations).
But what to do about apartments that benefited from the J-51 program but were already subject to rent regulation for other reasons: were those apartments also not allowed to be deregulated through luxury deregulation? For years, the New York State Department of Housing and Community Renewal (DHCR) interpreted the law to mean that such apartments could be luxury deregulated, and unsurprisingly a bunch of them were. But in 2009, the Court of Appeals in Roberts disagreed with DHCR’s interpretation and held that luxury deregulation was not available for any J-51 apartment, regardless of whether the apartment would have been subject to rent regulation without the J-51 program.
The Roberts decision, once it was applied retroactively, created a group of overcharge claims that were sometimes very old: a defendant in 2010 could claim, for instance, that his apartment should not have been luxury deregulated in 1995 and that the rent he was being charged in 2010 was therefore inflated above the legal rent. For these types of claims, an obviously central question was how to calculate the legal rent, called the “base date rent,” in order to measure any overcharge.
Owners of rent regulated apartments were required to file registrations statements with DHCR listing the regulated rent. For apartments with registration statements, the rent regulation laws provided that the base date rent was the rent reflected in the registration statement filed four years before the overcharge action was commenced. For apartments that did not have registration statements on file with DHCR, regulations provided that the base date rent was the rent actually charged four years before the overcharge action was commenced. These rules mirrored other provisions of the rent regulation laws that created a four-year window for overcharge actions, including: (i) a four-year statute of limitations that prohibited tenants from recovering overcharges more than four years before an overcharge action was commenced; (ii) a provision that precluded the examination of an apartment’s rental history before the four-year period; and (iii) a provision stating that landlords were required to maintain documents for only four years.
What about cases where the base date rent was itself an illegally inflated rent? This was allegedly true in many of the Roberts overcharge cases: if an action commenced in 2010 alleged that the tenant’s apartment had been illegally deregulated in 1995, the rent charged or registration statement filed four years before the action was commenced (i.e., in 2006) could well reflect over a decade of illegal rent increases. Surely, tenants argued, the base date rent in that case should be adjusted to approximate what would have been the actual legal rent on the date four years before the overcharge action was commenced.
This was the question that the Court of Appeals was set to resolve when the Legislature enacted the HSTPA. In doing so, the Legislature undeniably sided with tenants in reforming the rules governing overcharge actions. Among other things, the HSTPA stated that the base date rent was now the rent reflected in the most recent “reliable” registration statement filed six years “or more” before the commencement of an overcharge action. The HSTPA extended the statute of limitations and record-retention period from four years to six years. And it eliminated the provision precluding the examination of documents more than four years old, replacing it with a provision that would require courts to examine “all available rent history which is reasonably necessary” to resolve a claim.
In tackling these appeals, the majority started with the law as it existed before the HSTPA and held that the base date rent was the rent charged on the date four years before the overcharge action was commenced, even if a tenant alleged that the rent on that date was illegally inflated. The majority concluded that the collection of pre-HSTPA provisions described above compelled this result. A tenant could avoid this four-year rule, the majority observed, if he credibly alleged that the base date rent was the product of fraud. But the majority explained that this option would not be available in most Roberts overcharge cases: fraud required a showing of willfulness, and the typical landlord in a Roberts overcharge case would have been charging allegedly inflated rents because he thought he was permitted to do so by DHCR’s subsequently overruled interpretative guidance.
Having thus settled the overcharge calculation question, the majority concluded that the new rules contained in the HSTPA could not constitutionally be applied retroactively to these cases. The majority noted that, if the HSTPA were applied in these cases, it would create a significant new liability for past events. The majority required a clear statement that this was the Legislature’s intent, and found one in language stating that the HSTPA’s relevant changes would apply to “any claims pending or filed on and after” the act’s effective date. Thus unable to avoid applying the provisions of the HSTPA retroactively, the majority held that doing so would be unconstitutional.
The majority’s constitutional retroactivity holding was premised on the Due Process clause of the Fourteenth Amendment. To comply with that provision, retroactive state legislation must survive “rational basis” review: it must be supported by “a legitimate legislative purpose furthered by rational means.” The majority emphasized the scope of the retroactive liability imposed by the HSTPA, calling the “destabilizing effect” of the act “especially severe.” Despite these significant consequences, the majority found “no explanation” from the Legislature as to why retroactive application of the HSTPA was necessary, even if its prospective application was supported by “legitimate and laudable policy goals.” The majority concluded by explaining that, of course, the Legislature was “entitled to impose new burdens and grant new rights in order to address societal issues.” But the majority explained that doing so through legislation that “reaches particularly far into the past and that imposes liability of a high magnitude relative to impacted parties’ conduct” raised “substantial questions of fairness” requiring a justification “commensurate with the degree of disruption to settled, substantial rights.” That standard was not met in this case, and the relevant provisions of the HSTPA could not constitutionally be applied retroactively.
Judge Wilson dissented, joined by Judges Rivera and Fahey. In Judge Wilson’s view, the majority should not have reached the constitutional question, for two reasons. First, he believed that the Court lacked jurisdiction to consider the question. The appeals reached the Court of Appeals on certified questions from the Appellate Division. And because the HSTPA was enacted after the Appellate Division certified its questions, those questions did not make any reference to the HSTPA’s constitutionality. Under Court of Appeals case law, Judge Wilson wrote, the Court of Appeals could not go beyond the questions the Appellate Division certified. Second, even if the Court had jurisdiction, Judge Wilson believed that as a prudential matter, it should have remanded the cases to where they originated (Supreme Court or DHCR) for additional fact-finding. In his view, that is the appropriate course when a substantive due process question arises for the first time on appeal. Such a remand would allow for the development of a record from which the parties could argue, and the Court could assess, whether the HSTPA so burdened the landlords as to deny them due process.
Judge Wilson also disagreed with the majority on the merits. He disagreed at the threshold that the HSTPA was a retroactive claim-revival statute. As Judge Wilson explained, the HSTPA did not create a new cause of action or revive time-barred claims. Instead, it changed what damages could be recovered (six years, rather than four years, worth of rent) and what evidence could be used to prove those damages (records from any time, rather than records from four years before the action was filed). Indeed, Judge Wilson observed, the HSTPA, by its own terms, applies to “claims pending.” And the U.S. Supreme Court, in a string of cases, held that courts could properly apply new legislation to already pending claims.
Regardless of its characterization as retroactive, the HSTPA, in Judge Wilson’s view, should have survived the landlords’ substantive due process challenge. Judge Wilson explained that neither the Court of Appeals nor the U.S. Supreme Court had invalidated economic social-welfare legislation on substantive due process grounds since 1937. He contended that the majority’s decision signaled a return to the days of Lochner v. New York, 198 U.S. 45 (1905), when the Supreme Court began striking down social welfare legislation in the name of due process. Such a return, Judge Wilson opined, would threaten the constitutionally mandated separation of powers by allowing unelected judges to undo the social policy choices of duly elected legislators. Because of this separation-of-powers concern, social welfare legislation is typically subject to “meager” rational basis review. Judge Wilson believed that all of the challenged HSTPA provisions cleared the low rational basis bar: they served a legitimate legislative purpose of allowing tenants to recover a greater portion of the rent that they were illegally overcharged and allowing courts and litigants to establish damages based on the best available information they could find. The only provision that Judge Wilson found constitutionally questionable was the allowance of treble damages for willful infringement. Such damages, if applied to punish past conduct, could violate the Federal Constitution’s Ex Post Facto Clause if they were severe enough. But because the case did not present an Ex Post Facto challenge, Judge Wilson did not say how he would decide the issue in the abstract.
Return to the case page for Matter of Regina v. New York State Division of Housing and Community Renewal, Raden v. W 7879, LLC, Taylor v. 72A Realty Associates, L.P., or Reich v. Belnord Partners.