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CJE Bulletin: A Victory for Economic Liberty In New York

Rent control laws are constitutionally dubious. But even so, in the (thankfully) few states that have them they are generally considered necessary and beyond judicial questioning. One of the most prominent states with vast rent control and stabilization programs is New York. Rent control there is even a small plot point in shows like Friends and How I Met Your Mother.

This makes a recent New York Court of Appeals decision declaring part of New York’s newest rent stabilization program unconstitutional very surprising. The opinion was narrow and the victory for economic liberty was modest. But in a place often hostile to economic liberty any victory warrants acknowledgement.

This case stems from four consolidated appeals where tenants sued owners to recoup rent overcharges in improperly deregulated buildings. Appeals in each were pending when New York enacted the Housing Stability and Tenant Protection Act (HSTPA) which significantly amended New York’s Rent Stabilization Law.

The relevant amendments extended the statute of limitation, altered the way reviewers determine what the regulated rent should have been, and expanded the owner’s liability in cases of rent overcharges. The Court did not pass judgment on these changes as a whole. The only question here is whether these amendments could be retroactively applied without violating the owners’ due process rights.

The Court explained that the provisions could be applied retroactively in these cases if the legislation’s retroactive application was “supported by a legitimate purpose further[ed] by rational means.” While the rational basis test it applied is extremely deferential, the Court explained that the test still had to “be meaningfully applied to ensure basic principles of fairness and substantial justice, lest we abdicate our responsibility to the citizens of this State.”

In meaningfully applying this test, the Court found that the legislature had not met its burden. As courts generally disfavor retroactive application of legislation because of its constitutional problems, the legislature must make a clear statement showing that it considered the burdens and “potential unfairness of retroactive application” and still intended the statute to have retroactive application.

The Court found that the legislature did not even meet this limited burden. While the legislature intended the statute to apply retroactively, the Court found that there was no sign that the legislature considered and balanced the benefits of retroactive application against the harms and potential unfairness of retroactive application.

It was only the retroactive application that the Court found violated the Due Process Clause. The Court did not consider the provision’s validity in cases without pending appeals when the legislature approved HSTPA. Yet this narrow ruling prompted a fiery dissent.

The dissent argued that the legislation, as a duly enacted law, constituted the “will of the people.” It was thus the will of the people that tenants be able to recoup some of the owner’s ill-gotten gains received from overcharging rent on improperly deregulated properties. As a result, it was not the Court’s business to require the legislature to make a statement showing it considered the potential harms and unfairness.

For the dissenting judges, it was only an administrative misinterpretation which allowed the owners to deregulate their property. So, any harm done to the owners through retroactively applying this law was simply depriving them of money to which they were never entitled. For the dissenting judges this decision was a revival of the Lochner era.

The dissent’s invocation of Lochner mischaracterizes the reasoning of the majority opinion. But according to the dissent, this was the first time the New York Court of Appeals ever struck down a remedial provision enacted by the elected branches as violating substantive due process (which is odd, because the court has found economic regulations to violate the state’s due process clause numerous times, although most of the opinions are a few decades old now). The dissent again and again pointed to Lochner, explaining that it is part of the anti-canon and that the decision is in line with Lochner.

The majority did not take kindly to this and made clear how much they too reviled Lochner. The majority also argued that this case and decision was nothing like Lochner and that the decision was in line with Justice Holmes’ dissent in Lochner. The majority argued that even the present-day rejection of Lochner did not require courts to look the other way and allow the government to irrationally “impose or expand liability for past conduct.”

The dissent disagreed, arguing that Holmes would never have second guessed legislative decisions in such a way and pointed to a 1921 case in which Holmes wrote the majority opinion upholding rent control laws. But the dissent seemingly missed the fact that three years later Holmes wrote an opinion arguing that rent control laws violated due process and carving out a role for the judiciary in ensuring legislative declarations were accurate. But I digress.

For all the talk of Lochnerism, this decision was quite moderate and only requires that the legislature consider the harms of retroactive application before enacting the law. This is hardly radical.

Other lawsuits challenging this law are still pending in Federal court, so we have to wait and hope more economic liberty victories are on the way. But in the meantime, we can at least celebrate the fact that the New York Court of Appeals took a step in the right direction by concluding the Due Process Clause protects at least some economic liberties.

Adam Shelton is a fellow with IJ’s Center for Judicial Engagement.

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