Petition for Writ of Certiorari — 74 Pinehurst LLC, et al., Petitioners v. New York, et al.
Supreme Court briefMay 17, 2023
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No. _______
IN THE
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74 PINEHURST LLC ET AL.,
Petitioners,
v.
STATE OF NEW YORK ET AL.,
––––––––––––––––
Respondents.
On Petition for a Writ of Certiorari to the United
States Court of Appeals for the Second Circuit
––––––––––––––––
PETITION FOR A WRIT OF CERTIORARI
––––––––––––––––
Jonathan M. Sperling
S. Conrad Scott
COVINGTON & BURLING LLP
620 Eighth Avenue
New York, NY 10018
Mark W. Mosier
Counsel of Record
Kevin F. King
Emile Katz
MaKade Claypool
COVINGTON & BURLING LLP
850 Tenth Street, NW
Washington, DC 20001
(202) 662-6000
mmosier@cov.com
Counsel for Petitioners
i
QUESTIONS PRESENTED
Petitioners own small apartment buildings in New
York City that are subject to New York’s Rent Stabilization Law (“RSL”). Once an owner leases a unit for
a fixed term, the RSL grants the tenant and the tenant’s successors a perpetual right to renew the lease,
regardless of whether the owner consents. That renewal right strips owners of their right to exclude
others from their property and prevents them from
living in their own apartments. The Second Circuit
held that these facts failed to state a physical-takings
claim because Petitioners voluntarily entered the
rental market in the first instance and could, in some
circumstances, evict tenants who breach their leases.
Petitioners’ regulatory-takings claims likewise failed
because, among other reasons, the RSL serves an important purpose and does not deprive petitioners’
property of all value. In so holding, the Second Circuit
deepened or created circuit splits at each step of its
analysis. The questions presented are:
1. Whether a law that prohibits owners from
terminating a tenancy at the end of a fixed lease
term, except on grounds outside the owner’s
control, constitutes a physical taking.
2. Whether allegations that such a law conscripts
private property for use as public housing stock,
and thereby substantially reduces its value, state
a regulatory takings claim.
ii
PARTIES TO THE PROCEEDINGS BELOW
Petitioners Dino Panagoulias, Dimos Panagoulias,
Vasiliki Panagoulias, 74 Pinehurst LLC, 141
Wadsworth LLC, 177 Wadsworth LLC, and Eighty
Mulberry Realty Corporation, were appellants in the
Second Circuit.
The State of New York, New York Division of
Housing and Community Renewal, City of New York,
New York City Rent Guidelines Board, New York
State Division of Housing and Community Renewal
Commissioner Ruthanne Visnauskas, and Rent
Guidelines Board members David Reiss, Alex
Schwartz, Arpit Gupta, Christian Gonzalez-Rivera,
Christina DeRose, Robert Ehrlich, Christina Smyth,
Sheila Garcia, and Adán Soltren were appellees in the
Second Circuit.
New York Tenants and Neighbors, Community
Voices Heard, and Coalition for the Homeless appeared in the Second Circuit as intervenors
supporting the appellees.
CORPORATE DISCLOSURE STATEMENT
74 Pinehurst LLC, 141 Wadsworth LLC, 177
Wadsworth LLC, and Eighty Mulberry Realty Corporation have no parent corporations, and no publicly
held corporation owns 10% or more of the stock of any
of these entities.
iii
RELATED PROCEEDINGS
The following proceedings are directly related to
this petition under this Court’s Rule 14.1(b)(iii):
74 Pinehurst LLC v. State of New York, No. 19-cv6447, U.S. District Court for the Eastern District of
New York. Judgment entered Sept. 30, 2020.
74 Pinehurst LLC v. State of New York, Nos. 21467, 21-558. U.S. Court of Appeals for the Second Circuit. Judgment entered Feb. 6, 2023.
Although, under Rule 14.1(b)(iii), this petition is
not directly related to Community Housing Improvement Program v. City of New York, No. 19-cv-4087
(E.D.N.Y. judgment entered Sept. 30, 2020), aff’d,
No. 20-3366 (2d Cir. judgment entered Feb. 6, 2023),
pet. for cert. filed, No. 22-1095 (U.S. filed May 8, 2023),
the cases present related issues. Oral argument in the
two cases was heard together in both the District
Court and the Court of Appeals, and the two cases
were decided by the District Court in a single opinion
and by the Second Circuit in companion opinions issued on the same date.
iv
TABLE OF CONTENTS
PETITION FOR A WRIT OF CERTIORARI ............1
OPINION BELOW .....................................................1
JURISDICTION .........................................................1
RELEVANT PROVISIONS........................................1
INTRODUCTION .......................................................1
STATEMENT .............................................................4
A. New York’s Rent Stabilization Law ................4
B. The RSL’s Effect on Petitioners’ Property ......7
C. Procedural History ..........................................8
REASONS WHY THE PETITION SHOULD BE
GRANTED .....................................................11
I. This Case Presents an Important Question
Regarding Application of Physical-Takings
Principles to Rental Property, on which Lower
Courts Have Taken Conflicting Approaches......11
A. Lower Courts Have Split Regarding Whether
Forced Continuation of a Tenancy Constitutes
a Physical Taking. .........................................12
B. The Decision Below Is Incorrect. ..................18
II. The Second Circuit’s Regulatory-Takings
Holding Also Warrants Review. ........................ 24
A. The Decision Below Conflicts with Other
Circuit Court Decisions and Adds to the
Confusion Regarding the Penn Central
Test. ............................................................... 24
B. The Decision Below Is Incorrect. ..................29
v
III. This Case Is an Excellent Vehicle to Address
These Important Issues. .....................................34
CONCLUSION .........................................................36
vi
TABLE OF AUTHORITIES
Page(s)
Cases
307, 712, 2103 & 3151 LLC v. City of
Minneapolis, 27 F.4th 1377 (8th Cir. 2022) ........ 23
Air Pegasus of D.C., Inc. v. United States,
424 F.3d 1206 (Fed. Cir. 2005) ............................ 28
Ala. Ass’n of Realtors v. HHS,
141 S. Ct. 2485 (2021) .......................................... 21
Andrews, Tr. of Gloria M. Andrews Tr. v. City of
Mentor, Ohio,
11 F.4th 462 (6th Cir. 2021) ................................ 28
Armstrong v. United States,
364 U.S. 40 (1960) ................................................ 30
Ballinger v. City of Oakland,
24 F.4th 1287 (2022) ............................................ 16
Blackburn v. Dare County,
58 F.4th 807 (4th Cir. 2023) ................................ 25
Bridge Aina Le’a, LLC v. Haw. Land Use
Comm’n, 141 S. Ct. 731 (2021) ............ 3, 25, 26, 32
Cedar Point Nursery v. Hassid,
141 S. Ct. 2063 (2021) .............................. 2, 3, 9,12,
13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 36
Cienega Gardens v. United States,
331 F.3d 1319 (Fed. Cir. 2003) ............................ 28
vii
Colony Cove Props., LLC v. City of Carson,
888 F.3d 445 (9th Cir. 2018) .......................... 26, 27
Cwynar v. City & County of San Francisco,
90 Cal. App. 4th 637, 655-59 (2001) .................... 18
FCC v. Fla. Power Corp.,
480 U.S. 245 (1987) ........................................ 13, 22
Fresh Pond Shopping Ctr., Inc. v. Callahan,
464 U.S. 875 (1983) ........................................ 19, 21
Gallo v. District of Columbia,
610 F. Supp. 3d 73 (D.D.C. 2022) .................. 16, 23
Guggenheim v. City of Goleta,
638 F.3d 1111 (9th Cir. 2010) (en banc) .............. 29
Heights Apartments, LLC v. Walz,
30 F.4th 720 (8th Cir. 2022) .... 2, 17, 18, 26, 27, 28
Heights Apartments, LLC v. Walz,
510 F. Supp. 3d 789 (D. Minn. 2020) .................. 17
Horne v. Dep’t of Agric.,
576 U.S. 350 (2015) .................. 9, 12, 15, 19, 23, 24
Kagan v. City of Los Angeles,
No. 21-55233, 2022 WL 16849064 (9th Cir.
Nov. 10, 2022)....................................................... 16
Kennedy v. City of New York,
89 N.E. 360 (N.Y. 1909) ....................................... 19
Lingle v. Chevron U.S.A. Inc.,
544 U.S. 528 (2005) .............................................. 31
viii
Loretto v. Teleprompter Manhattan CATV Corp.,
458 U.S. 419 (1982) ............ 2, 12, 16, 18, 19, 21, 22
McCarthy v. Madigan,
503 U.S. 140 (1992) .............................................. 34
Monteverde v. Pereira,
22 N.E.3d 1012 (N.Y. 2014) ................................. 31
Murr v. Wisconsin,
582 U.S. 383 (2017) ........................................ 32, 33
Nekrilov v. City of Jersey City,
45 F.4th 662 (3d Cir. 2022) ............................ 24, 33
Pakdel v. City & County of San Francisco,
__ F. Supp. 3d __, 2022 WL 14813709 (N.D.
Cal. 2022) ............................................................. 16
Pakdel v. City & County of San Francisco,
141 S. Ct. 2226 (2021) (per curiam) .................... 34
Palazzolo v. Rhode Island,
533 U.S. 606 (2001) .............................................. 30
Penn Central Transportation Co. v. New York
City, 438 U.S. 104 (1978) ............... 2, 3, 10, 24, 25,
26, 29, 30, 31, 32, 36
Penn. Coal Co. v. Mahon,
260 U.S. 393 (1922) .............................................. 24
Pennell v. San Jose, 485 U.S. 1 (1988) ..................... 31
ix
Philip Morris, Inc. v. Reilly,
312 F.3d 24 (1st Cir. 2002) .................................. 28
PruneYard Shopping Ctr. v. Robins,
447 U.S. 74 (1980) ................................................ 20
Rent Stabilization Ass’n v. Higgins,
630 N.E.2d 626 (N.Y. 1993) ................................. 16
Rose Acre Farms, Inc. v. United States,
559 F.3d 1260 (Fed. Cir. 2009) ............................ 27
Ruckelshaus v. Monsanto Co.,
467 U.S. 986 (1984) .............................................. 30
Shalala v. Ill. Council on Long Term Care, Inc.,
529 U.S. 1 (2000) .................................................. 34
Tahoe-Sierra Pres. Council v. Tahoe Regional
Planning Agency, 535 U.S. 302 (2002) ................ 25
Transp. Co. v. Chicago,
99 U.S. 635 (1879) ................................................ 33
Williams v. Alameda County,
No. 3:22-cv-1274, 2022 WL 17169833 (N.D.
Cal. Nov. 22, 2022) ............................................... 16
Yancey v. United States,
915 F.2d 1534 (Fed. Cir. 1990) ............................ 27
Yee v. City of Escondido,
503 U.S. 519 (1992) ............................... 3, 9, 11, 12,
13, 14, 15, 16, 17, 18, 21, 22, 23, 24
x
Constitutional and Statutory Provisions
U.S. Const. amend. V .......................... 1, 30, 33, 34, 36
28 U.S.C. § 1254(1) ...................................................... 1
Cal. Civ. Code § 798.56 (1988) .................................. 22
Cal. Civ. Code § 1946.2 ............................................. 35
D.C. Code § 42-3505.01 ............................................. 35
Housing Stability and Tenant Protection Act,
2019 N.Y. Laws ch. 36 ................................... 5, 6, 8
N.Y. Real Prop. L. § 232-c ......................................... 19
N.Y. Real Prop. L. § 753 .............................................. 6
N.Y. Unconsol. L. § 8624 ............................................. 4
NYC Admin. Code § 26-504.1 ..................................... 5
NYC Admin. Code § 26-511(c)(9)(b) ............................ 6
Or. Stat. § 90.427....................................................... 35
Other Authorities
Fed. R. Civ. P. 12(b)(6) ................................................ 9
Fed. R. Civ. P. 54(b)..................................................... 9
9 NYCRR § 2424.4(a)(1) .............................................. 8
xi
9 NYCRR § 2520.6(o)................................................... 4
9 NYCRR § 2520.6(u) .................................................. 6
9 NYCRR § 2523.5(a) .................................................. 4
9 NYCRR § 2523.5(c)(1) .............................................. 4
9 NYCRR § 2524.4(a) .................................................. 5
9 NYCRR § 2524.5(a) .................................................. 6
H. No. 4216, 193d Gen. Ct. (Mass. 2023) ................. 35
S. 305, 2023-24 Leg. Sess. (N.Y. 2023) ..................... 35
Michael M. Berger, Whither Regulatory Takings,
51 Urb. Law. 171 (2021) ...................................... 25
Steven J. Eagle, The Four-Factor Penn Central
Regulatory Takings Test, 118 Penn. St. L.
Rev. 601, 602 (2014) ............................................. 25
Richard A. Epstein, Lucas v. South Carolina
Coastal Council: A Tangled Web of Expectations, 45 Stan. L. Rev. 1369 (1993)...................... 32
John E. Fee, The Takings Clause as a
Comparative Right, 76 S. Cal. L. Rev. 1003,
1034 (2003) ........................................................... 32
Will Parker, Rent-Control Measures Are Back as
Home Rents Reach New Highs, Wall St. J.
(Mar. 13, 2022) ..................................................... 35
White House, Blueprint for a Renters Bill of
Rights (2023) ........................................................ 35
1
PETITION FOR A WRIT OF CERTIORARI
OPINION BELOW
The decision of the District Court is reported at
492 F. Supp. 3d 33 (E.D.N.Y. 2020), and reprinted at
App. 21a-55a.
The decision of the Court of Appeals is reported at
59 F.4th 557 (2d Cir. 2023), and reprinted at App. 1a20a.
JURISDICTION
The Second Circuit entered judgment February 6,
2023. App. 1a. On May 4, 2023, Justice Sotomayor
extended the time for Petitioners to file this petition
to and including June 7, 2023. See No. 22A955. This
Court has jurisdiction under 28 U.S.C. § 1254(1).
RELEVANT PROVISIONS
The Takings Clause of the Fifth Amendment,
which applies to the States through the Fourteenth
Amendment, provides: “Nor shall private property be
taken for public use, without just compensation.”
Relevant provisions of the Rent Stabilization Law
are reprinted at App. 91a-162a.
INTRODUCTION
New York’s Rent Stabilization Law (“RSL”) governs nearly one million apartments in New York City
and does far more than regulate rents. It strips owners of their rights to use, possess, and exclude others
from their property—including by forcing owners to
2
continue renting to current tenants and their chosen
successors indefinitely, barring owners from using
their apartments as personal residences or housing
for family members, and making it impossible for
owners to use their property for purposes other than
rent-stabilized housing. The RSL thus transfers core
elements of property ownership from apartment owners to tenants, relegating owners to caretakers of
housing conscripted into the service of an off-budget
public-assistance program.
Petitioners own small apartment buildings subject
to the RSL. They contend that the RSL inflicts a physical taking of their property under Loretto v.
Teleprompter Manhattan CATV Corp., 458 U.S. 419
(1982), and Cedar Point Nursery v. Hassid, 141 S. Ct.
2063 (2021), which establish that a law “constitutes a
per se physical taking” when it “appropriates for the
enjoyment of third parties [a property] owner[’s] right
to exclude.” Id. at 2072. Petitioners also allege that
the RSL constitutes a regulatory taking under Penn
Central Transportation Co. v. New York City, 438 U.S.
104 (1978). The Second Circuit affirmed the dismissal
of Petitioners’ takings claims.
Petitioners’ physical-takings claims would have
been allowed to proceed if they were brought in the
Eighth Circuit. That is because the Eighth Circuit
has correctly held that property owners plead a physical taking under Cedar Point where a law prohibits
them from terminating a tenancy at the end of a lease
term. See Heights Apartments, LLC v. Walz, 30 F.4th
720, 733 (8th Cir. 2022), reh’g en banc denied, 30 F.4th
720. But the Second Circuit held here—as has the
Ninth Circuit—that the physical-takings principles
3
articulated in Cedar Point are not implicated when an
owner voluntarily offered housing for rent in the first
instance. These courts instead read Yee v. City of Escondido, 503 U.S. 519 (1992), as precluding physicaltakings claims so long as the property owner may
evict tenants in the event they breach the lease or engage in other forms of malfeasance—thus carving out
a special and particularly deferential landlord-tenant
exception to the general principles articulated in Cedar Point. Those courts misread Yee, which reserved
the question whether a taking would occur if a law
forced “a landowner over objection to rent his property
or to refrain in perpetuity from terminating a tenancy.” Id. at 528.
In affirming the dismissal of Petitioners’ regulatory-takings claims, the Second Circuit also split from
other circuits on every Penn Central factor. The court
deemed irrelevant the impact that the law would have
on Petitioners’ property rights, explaining that it was
“of no moment” that they are forced to bear burdens
that others are not. App. 16a. The court also viewed
the character of the governmental action—which
forces Petitioners to house tenants against their
will—as counting against Petitioners’ claims because
the law serves important public purposes and “courts
are not in the business of second-guessing legislative
determinations such as this one.” Id. The Second Circuit’s ruling confirms that this Court’s “current
regulatory takings jurisprudence leaves much to be
desired.” Bridge Aina Le’a, LLC v. Haw. Land Use
Comm’n, 141 S. Ct. 731, 731 (2021) (Thomas, J., dissenting from denial of certiorari).
4
The practical consequences of the Second Circuit’s
decision are substantial, as more and more jurisdictions consider and adopt laws that deny owners the
right to terminate a tenancy at the conclusion of a
fixed-term lease. And this case—which asserts both
facial and as-applied claims, involves a major legislative scheme governing the nation’s largest rentalhousing market, and was the subject of a lengthy, published opinion below—provides an ideal vehicle for the
Court to address these important constitutional
claims.
STATEMENT
A. New York’s Rent Stabilization Law
1. Originally enacted in 1969, the RSL governs approximately one million apartments in New York
City. App. 174a, 178a-79a. The RSL prescribes a
maximum rent for each apartment to which it applies.
N.Y. Unconsol. L. § 8624. Those rents are generally
well below market rates. App. 198a, 201a-02a.
The RSL also includes provisions that limit apartment owners’ ability to occupy, use, and exclude
others from their property. One of those restrictions
requires owners to continue renting indefinitely to existing tenants. Before a tenant’s lease expires, the
owner must offer to renew the lease for one or two
years. N.Y. Comp. Code R. & Regs., title 9 (hereinafter “9 NYCRR”), § 2523.5(a), (c)(1). A broad range of
successors are permitted to assume the tenancy—
with all the concomitant renewal rights—when the
tenant of record vacates. Id. § 2520.6(o) (granting successorship rights to relatives by blood or marriage, as
5
well as certain others not related by blood or marriage). These successor tenants, in turn, may convey
their occupancy and lease-renewal rights to their successors. As a result, so long as the tenant or the
tenant’s successors wish to occupy the apartment, the
owner must perpetually continue renewing the lease,
regardless of whether the owner would rather occupy
the apartment or use it for another purpose.
Until 2019, the RSL offered pathways through
which owners could regain control of their regulated
apartments. For example, an individual owner could
decline to renew a lease, and thus take possession of
the apartment after the lease expired, to use the
apartment as a primary residence for himself or an
immediate family member. 9 NYCRR § 2524.4(a)
(2018). Owners could exercise that right to reclaim
multiple units. An owner could also extricate apartments from rent stabilization altogether—regaining
the ability to rent them at market rates or put them
to other uses—when the rent exceeded a prescribed
amount per month and the unit either became vacant
or was occupied by a tenant whose income exceeded a
statutory threshold. NYC Admin. Code § 26-504.1
to .3 (2018).
2. In 2019, New York State enacted the Housing
Stability and Tenant Protection Act, 2019 N.Y. Laws
ch. 36 (the “2019 Amendments”), which adopted
sweeping changes to the RSL. Key provisions of the
2019 Amendments include:
Repeal of decontrol provisions. The 2019 Amendments repealed the statutes that allowed owners to
remove apartments from the RSL’s scope once the
6
monthly rent exceeded a prescribed threshold. The
Complaint alleges that this change, together with the
others adopted in 2019, results in a framework under
which Petitioners specifically (and other apartment
owners generally) cannot convert their rent-stabilized
apartments to other uses. App. 182a, 202a-04a. 1
Limits on personal and family use. Under the 2019
Amendments, an owner can recover, at most, a single
apartment for personal or family use. An owner who
occupies a recovered unit thus cannot recover a second
unit to house a growing family or take in an ailing parent. Even as to that single apartment, the owner may
reclaim possession only if, among other things, he
demonstrates an “immediate and compelling necessity” to use the unit as a primary residence. NYC
Admin. Code § 26-511(c)(9)(b); 9 NYCRR § 2520.6(u).
Eviction restrictions. An owner may evict a tenant
for breaching a material term in the lease. But the
amended RSL authorizes courts to stay the eviction
for a full year after determining that the tenant
breached. N.Y. Real Prop. L. § 753; see App. 215a-16a
1 The 2019 Amendments preserved rules that allow owners, in
narrow circumstances, to deregulate rent-stabilized apartments
by demolishing the building. 9 NYCRR §§ 2524.5(a). Even that
option is available only after the owner (i) pays each tenant’s
moving expenses plus a $5,000 stipend and (ii) secures equivalent housing for the tenants or pays them a stipend that can
exceed $300,000 per tenant. App. 194a-95a. The Complaint alleges that this demolition option and a similar provision
regarding business use are either unavailable to Petitioners or
themselves effect takings. Id. 194a-98a.
7
(describing this and other limitations on owners’ eviction rights).
The 2019 Amendments’ sponsors acknowledged
that these changes were designed to ensure that
“rent-stabilized apartments remain stabilized,” and
that the new law created “the strongest tenant protections in history.” App. 167a-70a. One sponsor argued
that the amendments were appropriate because property does not “truly belong to” those who “have the
monetary resources to purchase it and[] ... take it
away from ... the collective.” Id. 169a-70a.
B. The RSL’s Effect on Petitioners’ Property
Petitioners own small apartment buildings in New
York City.
Petitioners Dimos and Vasiliki
Panagoulias purchased their 10-unit building in Long
Island City shortly after immigrating from Greece in
1974. Id. 170a-71a. Their son, Petitioner Dino
Panagoulias, grew up in the building, lives there with
his family, and manages it in addition to his full-time
job. The other Petitioners are small businesses that
each own an apartment building in Manhattan.
Id. 171a-72a.
The Complaint alleges that the RSL, as amended
in 2019, transfers core property rights from Petitioners to their tenants. For example, Petitioners allege
that the RSL vitiates their right to exclude by forcing
them to renew leases even when they wish to use an
apartment for other purposes. Id. 189a-193a.
Petitioners allege similar effects on their rights to
occupy and use their property. The Panagoulias’s
8
daughter and sister, Maria, wishes to return to the
family’s apartment building, and the Panagouliases
wish to set aside an apartment for her use, but they
cannot do so because of the RSL’s restrictions.
Id. 187a-88a. Even before the 2019 Amendments, the
State denied Dino Panagoulias the ability to recover a
two-bedroom apartment, in the building his family
owns, for use as a family home, citing his failure to
occupy a one-bedroom unit that had become vacant in
the building but which did not suit his family’s needs.
Id. And because they own property through business
entities, the owners of 74 Pinehurst, 141 Wadsworth,
177 Wadsworth, and Eighty Mulberry cannot reclaim
any apartment for personal or family use. 9 NYCRR
§ 2424.4(a)(1). App. 188a.
The RSL has also caused Petitioners grievous financial harm. Before 2019, rent-stabilized apartment
buildings were worth only about half as much as unregulated buildings. Id. 234a. Their value fell by
another 20-40% after enactment of the 2019 Amendments—an aggregate reduction in value of 60-70%,
which now jeopardizes Petitioners’ ability to refinance
their mortgages. Id. 202a, 234a, 238a-39a.
C. Procedural History
1. Petitioners filed suit in the U.S. District Court
for the Eastern District of New York, alleging (among
other things) that the RSL, as amended in 2019, inflicts physical and regulatory takings, both on its face
and as applied to them. Unlike the contemporaneously-filed case Community Housing Improvement
Program v. City of New York, No. 19-cv-4087
(E.D.N.Y. 2020), aff’d, 59 F.4th 540 (2d Cir. 2023)
9
(“CHIP”), pet. for cert. filed No. 22-1095 (May 8, 2023),
Petitioners did not challenge the RSL as it existed before those amendments.
In a single opinion addressing both this case and
CHIP, the District Court dismissed Petitioners’ claims
under Rule 12(b)(6), with the exception of the as-applied regulatory-takings claims of 80 Mulberry and
the Panagouliases. App. 54a. Petitioners dismissed
those claims after the District Court denied their
Rule 54(b) motion to certify a partial final judgment
as to the remaining claims. Id. 59a.
2. The Second Circuit affirmed the dismissal of all
claims. The court heard this case together with CHIP
and resolved the cases in separate opinions issued on
the same day.
Physical Takings. The Second Circuit concluded
that the RSL does not effect a facial physical taking.
App. 5a; see also id. 78a-82a. The court first held that
the requirement that owners perpetually renew existing tenants’ leases does not give rise to a physical
appropriation under Cedar Point. That case distinguished between “regulations granting a right to
invade property closed to the public,” and restrictions
on “a business generally open to the public.” According to the Second Circuit, the RSL falls into the latter
category, because owners “voluntarily invite third
parties to use their properties” in the first instance.
Id. 6a; see also id. 78a-79a. The court further reasoned that the RSL “does not compel landlords ‘to
refrain in perpetuity from terminating a tenancy’” under Yee, because owners can evict tenants who fail to
pay rent or breach other material terms of their
10
leases. Id. 7a; see also id. 79a. The court ultimately
concluded that Loretto, Horne v. Dep’t of Agric., 576
U.S. 350 (2015), and Cedar Point all are inapplicable
because none of them “concerns a statute that regulates the landlord-tenant relationship.” App. 81a; see
id. 7a.
The Second Circuit likewise affirmed the dismissal
of Petitioners’ as-applied physical-takings claims, on
the grounds that Petitioners have not “exhausted all
the mechanisms contemplated by the RSL that would
allow a landlord to evict current tenants.” Id. 8a. The
court did not identify any such mechanisms available
to Petitioners, other than the possibility of eviction
based on a tenant’s breach.
Regulatory Takings. The Second Circuit also affirmed the District Court’s dismissal of Petitioners’
facial regulatory-takings claims. Id. 8a-9a, 82a-88a.
The court concluded that Petitioners’ as-applied
regulatory claims are unripe because Petitioners did
not apply for discretionary hardship exemptions. Id.
9a-11a. But see id. 216a-19a (alleging that the hardship exemptions are inapplicable). The court also held
that the claims “fail on the merits” under Penn Central. App. 11a. The court concluded that Petitioners
did not adequately plead economic impact because
(among other things) even a 90% diminution in value
does not support a regulatory taking. Id. 11a-12a.
Plaintiffs could not plead interference with investment-backed expectations, the court held, because
they took a “calculated risk” that the RSL could
change in ways that harm their property rights. Id.
15a. And the character of the regulation could not
11
support a takings challenge because the RSL serves
“important public interests.” Id. 16a.
REASONS WHY THE PETITION SHOULD BE
GRANTED
New York prohibits the owners of approximately
one million apartments from terminating a tenancy at
the conclusion of a lease. Jurisdictions across the
country are enacting similar laws. The federal courts
of appeals are split on whether such laws result in a
taking. This Court should grant the petition both to
clarify that laws requiring owners to continue tenancies over their objection can effect physical takings,
and to provide lower courts much-needed guidance
about how to assess regulatory-takings claims.
I.
This Case Presents an Important Question
Regarding Application of Physical-Takings
Principles to Rental Property, on which
Lower Courts Have Taken Conflicting Approaches.
The Second Circuit’s holding here—that, under
Yee, laws affecting a landlord-tenant relationship do
not inflict physical takings so long as the owner may
evict tenants for cause—is a serious and far-reaching
error that warrants this Court’s review. As other
courts have concluded, Yee does not displace the traditional rules that apply in all other physical-takings
cases, and thus does not justify the permissive framework applied by the Second Circuit here.
12
A. Lower Courts Have Split Regarding
Whether Forced Continuation of a Tenancy
Constitutes a Physical Taking.
The decision below squarely implicates a circuit
split over whether housing regulations inflict physical
takings by forcing a property owner to continue a tenancy, over the owner’s objection, after the expiration
of the parties’ lease agreement. The Eighth Circuit
and other courts have held that landlord-tenant cases
are not exempt from the general principles articulated
in Loretto, Horne, and Cedar Point, and that a law
works a physical taking when it converts a voluntary
fixed-term tenancy into an indefinite occupation terminable only at the tenant’s option. The Second and
Ninth Circuits have disagreed and held that Yee prescribes a special rule under which forced continuation
of a tenancy is not a physical taking, so long as the
owner retains a theoretical ability to recover the property based on the tenant’s malfeasance.
1. The split of authority concerns the proper application of this Court’s physical-takings precedents.
Those precedents vindicate the “right to exclude,”
“‘one of the most treasured’ rights of property ownership.” Cedar Point, 141 S. Ct. at 2072 (quoting
Loretto, 458 U.S. at 435). In keeping with that status,
the Court has repeatedly held that a law constitutes a
per se taking of property if it forces owners to submit
to physical occupation of their property. See id. at
2074; Loretto, 458 U.S. at 435. That bright-line rule
applies regardless of “whether the action achieves an
important public benefit or has only minimal economic impact on the owner.” Loretto, 458 U.S. at 435.
13
Yee considered those principles with respect to
laws that governed aspects of the landlord-tenant relationship. In Yee, mobile-home park owners asserted
physical-takings challenges to regulations that limited their ability to terminate existing tenancies. 503
U.S. at 524. The Court concluded that the challenged
regulations did not effect physical takings because the
plaintiffs not only had “voluntarily rented their land
to mobile home owners,” but could “change the use of
[their] land” by “evict[ing] [the] tenants” on “6 or 12
months’ notice.” Id. at 527-28. These characteristics
meant that the government had not “require[d] the
[plaintiffs] to submit to the physical occupation of
[their] land.” Id. at 527 (emphasis in original).
Yee warned, however, that a “different case would
be presented were the statute, on its face or as applied, to compel a landowner over objection to rent his
property or to refrain in perpetuity from terminating
a tenancy.” Id at 528. That conclusion echoed the
Court’s prior reservation in FCC v. Florida Power
Corp. regarding whether a law would work a physical
taking by forcing a property owner, “over objection, to
enter into, renew, or refrain from terminating” a lease
agreement. 480 U.S. 245, 251 n.6 (1987).
Since Yee, this Court has reinforced the impermissibility of any compelled deprivation of the right to
exclude without just compensation. In Cedar Point,
the Court held that a government-authorized appropriation of private property inflicts a physical taking
even if it does not involve a “permanent and continuous” occupation. 141 S. Ct. at 2074. The Court thus
concluded that a statute authorizing labor organizers
to enter private farms for limited periods, without the
14
owners’ consent, “constitute[d] a per se physical taking” because it “appropriate[d] for the enjoyment of
third parties the owners’ right to exclude.” Id. at
2072, 2073, 2077-78.
2. The lower courts are divided regarding how
those precedents apply to laws that grant tenants the
right to continue a tenancy, over the owner’s objection,
after a voluntary lease agreement expires.
a. Some courts have read Yee broadly to create a
special and particularly deferential rule for physicaltakings challenges to laws that regulate rental housing. Under that special rule, an owner’s voluntary
decision to rent to the tenant in the first instance justifies a broad range of restrictions, including stripping
the owner of the right to terminate the tenancy after
the lease agreement expires. So long as the owner retains a theoretical ability to regain possession—even
if the only means of doing is exclusively within the
tenant’s control—the government may require the
owner to suffer an indefinite occupation of the property. The result is a regime in which laws granting
tenure protections to tenants are immune from physical-takings challenges if there is any possibility, no
matter how narrow or remote, that the owner could
terminate the tenancy.
The Second Circuit’s decision in this case exemplifies this approach. Petitioners allege that the RSL
appropriates their right to exclude by requiring them
perpetually to renew leases with existing tenants or
those tenants’ successors. App. 192a-93a; supra pp. 48. The Second Circuit concluded that these allegations are insufficient to state a physical-takings claim.
15
App. 7a; see also id. 78a-82a. The court held that because Petitioners “voluntarily invite[d] third parties
to use their properties,” Cedar Point is inapplicable.
Id. 6a. More broadly, the court found Loretto, Horne,
and Cedar Point inapposite because “[n]one of them
concerns a statute that regulates the landlord-tenant
relationship.” App. 81a. Instead, according to the
court, under Yee, governments have “broad power to
regulate housing conditions in general and the landlord-tenant relationship in particular without paying
compensation.” Id. 6a; see also id. 79a.
Although the Second Circuit acknowledged that a
law requiring an owner “to refrain in perpetuity from
terminating a tenancy” could constitute a taking under Yee, the court concluded that the RSL does not
have that quality because owners may evict tenants
“for failing to pay rent, creating a nuisance, violating
provisions of the lease, or using the property for illegal
purposes.” Id. 79a. In other words, when the owner
initially rents out property voluntarily, the government may grant the tenant the right to remain in the
property indefinitely “so long as there is a possible
route to an eviction,” even if outside the owner’s control. Id. 79a.
Other federal and state courts have similarly read
Yee to foreclose takings challenges to laws that prevent owners from reclaiming possession of their
properties following expiration of a lease. For example, the Ninth Circuit has relied on Yee to hold that
laws prohibiting an owner from declining to continue
the month-to-month lease of a “protected status” tenant do not effect physical takings, so long as the initial
16
rental was voluntary and the owner retained the ability to evict the tenant for certain prescribed causes,
such as “for creating a nuisance, breaking the law, or
failing to pay rent.” Kagan v. City of Los Angeles, No.
21-55233, 2022 WL 16849064, at *1 (9th Cir. Nov. 10,
2022), pet. for cert. filed, No. 22-739 (U.S.). Indeed,
the Ninth Circuit has generally treated Yee as foreclosing physical-takings challenges to laws that
regulate “the landlord-tenant relationship.” Ballinger
v. City of Oakland, 24 F.4th 1287, 1293 n.2 (2022),
cert. denied, 142 S. Ct. 2777. The decision below also
closely tracks the reasoning New York State courts
have used to conclude that the RSL does not effect a
physical taking. See Rent Stabilization Ass’n v. Higgins, 630 N.E.2d 626, 632-33 (N.Y. 1993). 2
b. Those decisions conflict with rulings of other
courts that analyze landlord-tenant cases under ordinary physical-takings principles articulated in Loretto
and Cedar Point. These courts hold that regulations
2 Lower courts have applied a similar reading of Yee to a broad
range of housing laws. See, e.g., Pakdel v. City & County of San
Francisco, __ F. Supp. 3d __, 2022 WL 14813709, *5-6 (N.D. Cal.
2022) (law requiring owners to extend tenant lifetime lease as
condition of converting unit to condominium not a physical taking because owners “voluntarily invited [the] tenant to occupy
their” property); Williams v. Alameda County, No. 3:22-cv-1274,
2022 WL 17169833, at *9-12 (N.D. Cal. Nov. 22, 2022) (Under
Yee and Ballinger, “laws governing the landlord-tenant relationship are not subject to a categorical per se takings analysis”);
Gallo v. District of Columbia, 610 F. Supp. 3d 73, 87 (D.D.C.
2022) (Yee, rather than Cedar Point, governs because owner “invite[d]” holdover tenant onto the property in an initial, voluntary
lease).
17
that force owners to continue a tenancy after the tenant’s lease ends constitute physical takings. The fact
that the tenancy began with a voluntary lease agreement is irrelevant under this analysis, because the
taking occurs at the point of forced continuation of the
tenancy past the agreed term of the lease.
The Eighth Circuit’s recent decision in Heights illustrates this competing approach. There, the court
addressed a physical-takings challenge to housing
regulations that “forbade the nonrenewal and termination of ongoing leases.” 30 F.4th at 733. The
plaintiff, an owner of rental housing, alleged that the
regulations “precluded” the owner “from exercising its
right to exclude others and regain possession of its
premises” and forced the owner “to accept the physical
occupation of [its] property.” Id. at 729, 733. The district court dismissed the suit based on the broad
reading of Yee described above. See Heights Apartments, LLC v. Walz, 510 F. Supp. 3d 789, 812 (D.
Minn. 2020). The Eighth Circuit reversed, concluding
that Cedar Point “controlled” the analysis, and that
allegations that the regulations “turned every lease ...
into an indefinite lease, terminable only at the option
of the tenant,” were sufficient to plead a plausible
physical-takings claim thereunder. 30 F.4th at 733. 3
Heights is irreconcilable with the decision below
and the other cases that rely on a broad reading of Yee.
The Second Circuit treated Yee as controlling and distinguished Cedar Point and other physical-takings
3 The Eighth Circuit subsequently denied rehearing in Heights
over four judges’ dissent. See 39 F.4th 479 (Colloton, J., dissenting).
18
decisions as irrelevant. App. 7a, 81a. By contrast, the
Eighth Circuit treated Cedar Point as controlling,
while distinguishing Yee on the ground that the law
there did not “compe[l]” owners “to continue leasing
the property past the leases’ termination.” 30 F.4th
at 733; see also Cwynar v. City & County of San Francisco, 90 Cal. App. 4th 637, 655-59 (2001).
Moreover, each of the factors that led the Second
Circuit to conclude below that Petitioners have not
stated physical-takings claims was also present in
Heights: the law pertained to the “landlord-tenant relationship”; the owner had initially rented the
property out voluntarily; and the owner retained the
ability to evict tenants for certain causes. Id. But the
Eighth Circuit nevertheless held that the challengers
had stated a physical-takings claim, and did not suggest that any of these factors was even relevant to its
analysis.
This Court should grant certiorari to resolve that
conflict and clarify that housing laws are not exempt
from the traditional physical-takings principles set
forth in Loretto and Cedar Point.
B. The Decision Below Is Incorrect.
By affirming the dismissal of petitioners’ physicaltakings claims, the Second Circuit placed itself on the
wrong side of this split.
1. Under ordinary physical-takings doctrine, the
RSL’s lease-renewal provisions deprive owners of the
right to exclude and “appropriat[e]” that right “for the
enjoyment of third parties,” Cedar Point, 141 S. Ct.
19
at 2072, by compelling owners to enter into renewal
leases when they would rather use the property for
other purposes. This Court has repeatedly recognized
that laws that compel property owners to submit to
the physical occupation of their property by third parties effect per se takings. See, e.g., id. at 2074; Loretto,
458 U.S. at 426; see also Fresh Pond Shopping Ctr.,
Inc. v. Callahan, 464 U.S. 875, 876-77 (1983)
(Rehnquist, J., dissenting) (questioning how ordinance that imposed indefinite tenancy, terminable
only by tenant, could be reconciled with Loretto).
No one disputes that, without the RSL, owners
could terminate a tenancy at the conclusion of a fixedterm lease agreement. See, e.g., Kennedy v. City of
New York, 89 N.E. 360, 361 (N.Y. 1909) (tenant “who
holds over after the expiration of” lease “may be
treated … as a trespasser” and ejected on that basis);
N.Y. Real Prop. L. § 232-c (authorizing removal of
holdover tenants). And no one disputes that the RSL
takes that right from Petitioners. The merits analysis
here is thus just as straightforward as in Cedar Point.
See 141 S. Ct. at 2076.
The RSL’s forced-renewal provision would inflict
physical takings, moreover, regardless of whether
owners could escape the compelled occupation by using their property for purposes other than rentstabilized rental housing. See Horne, 576 U.S. at 36466 (rejecting argument that raisin growers could escape raisin-reserve expropriation by growing other
crops or selling their grapes as table grapes or for wine
production); Loretto, 458 U.S. at 439 n.17 (rejecting
the argument that “a landlord could avoid the requirements ... by ceasing to rent the building to tenants”
20
because “a landlord’s ability to rent his property may
not be conditioned on his forfeiting the right to compensation for a physical occupation”).
The Second Circuit compounded these errors by
seeking to justify the forced occupation of Petitioners’
property on the ground that rent-stabilized apartments are “generally open to the public.” App. 77a
(quoting Cedar Point, 141 S. Ct. at 2076-77). The
court distinguished New York’s law from the statute
in Cedar Point by contending that the latter involved
“‘property closed to the public,’” while the RSL governs property that “[l]andlords voluntarily invited
third parties to use.” Id. 78a (quoting Cedar Point,
141 S. Ct. at 2077). That contention distorts Cedar
Point’s reasoning beyond recognition. Cedar Point
carved out an exception for “business[es] generally
open to the public,” such as the shopping mall in
PruneYard Shopping Center v. Robins, 447 U.S. 74
(1980), which “welcom[ed] some 25,000 patrons a
day.” 141 S. Ct. at 2076-77. Privately owned apartments do not remotely resemble open-air shopping
malls; like the land in Cedar Point, they are closed to
everyone other than the owner or lessee. The Second
Circuit’s strained, incorrect invocation of the “open to
the public” exception underscores the need for this
Court’s review. 4
4 The Second Circuit’s reliance on the principle that owners who
voluntarily rent their property must “accept tenants [they] do[]
not like” was misplaced. App. 7a, 77a. Petitioners do not challenge that principle. They argue only that they voluntarily
rented their properties for a specific term and are now compelled
21
2. In concluding otherwise, the Second Circuit
read too much into Yee. The decision below interpreted Yee to mean that once an owner voluntarily
rents out property, the government can require the
owner to keep renting to that tenant (and a broad
range of successors) indefinitely without inflicting a
physical taking, because the government is only regulating the “landlord-tenant relationship[].” App. 7a.
But the renewal requirement does not “regulate” a
landlord-tenant relationship—it conjures one into being when it would not otherwise exist. See Cedar
Point, 141 S. Ct. at 2075 (rejecting similar defense of
California access regulation). That dynamic is particularly evident with respect to successor tenants, who
owners have not invited onto the property and with
whom owners have no prior contractual relationship.
See App. 189a-91a.
Loretto—which also arose from requirements New
York City imposed on owners of rental apartment
buildings—belies any suggestion that ordinary physical-takings principles are irrelevant or apply with
reduced force once a property is used for residential
rentals. See 458 U.S. at 439 n.17. As the Court recently underscored in Alabama Association of
Realtors v. HHS, 141 S. Ct. 2485, 2489 (2021), the fact
that an owner voluntary leases an apartment does not
abrogate the owner’s right to exclude.
to suffer occupancy by the tenant and the tenant’s successors indefinitely. That deprivation of Petitioners’ rights to occupy and
exclude has nothing to do with laws prohibiting discrimination
on the basis of protected characteristics.
22
The Second Circuit also disregarded key limits on
Yee’s holding. The premise that the mobile-home park
owners could terminate tenancies by changing the use
of their land was critical to the Court’s holding. 503
U.S. at 528. Indeed, the Court underscored that point
by citing Justice Rehnquist’s dissent in Fresh Pond,
464 U.S. at 877, and Florida Power, 480 U.S. at 251
n.6. Petitioners alleged that this is the “different
case” reserved by Yee and Florida Power because the
RSL prevents them from regaining possession and
control of their properties once a regulated tenancy is
in place. App. 182a-83a, 187a, 193a, 197a-98a. And
Cedar Point makes clear that the scenario described
in the Yee and Florida Power reservations constitutes
a physical taking. See 141 S. Ct. at 2072-74.
The Second Circuit avoided that issue by concluding that the RSL “does not compel landlords ‘to refrain
in perpetuity from terminating a tenancy’” because
owners retain the ability to evict tenants for malfeasance (such as breaching the lease or using the
property for illegal purposes). App. 7a (quoting Yee,
503 U.S. at 528). But Yee referred to the ease with
which an owner could choose to exit the rental market
by electing to use his land for another purpose, not
whether the owner might someday be able to evict
some tenants for reasons outside the owner’s control.
Indeed, the laws at issue in Yee also gave owners the
ability to evict tenants for certain specified causes,
Cal. Civ. Code § 798.56 (1988), but that fact rightly
played no part in the Court’s analysis. While the Second Circuit faulted Petitioners for not “exhaust[ing]
all the mechanisms contemplated by the RSL that
would allow [them] to evict current tenants,” App. 8a,
it did not identify any what “mechanisms” Petitioners
23
could have used—unsurprisingly, since Petitioners
have no control over any of the grounds cited in the
decision below.
3. Properly read, Yee neither requires nor supports
the decision below. If it did, Yee would be at odds with
this Court’s subsequent physical-takings cases.
As noted above, Horne rejected the argument that
the owner’s voluntary choice to “participate in the
[regulated] market” insulates a regulation from the
standard physical-takings analysis. 576 U.S. at 365.
The Horne dissent invoked Yee for the proposition that
“the Government may condition the ability to offer
goods in the market on the giving-up of certain property interests without effecting a per se taking,” id.
at 384 (Sotomayor, J., dissenting), but the majority
disagreed. The Eighth Circuit has thus properly questioned whether Yee’s “voluntariness rationale”
remains good law in light of Horne. 307, 712, 2103 &
3151 LLC v. City of Minneapolis, 27 F.4th 1377, 138183 (8th Cir. 2022).
A broad reading of Yee is likewise at odds with Cedar Point, which identified three scenarios that justify
a departure from ordinary physical-takings principles, but did not include the landlord-tenant
relationship on that list. See 141 S. Ct. at 2078-80;
Gallo, 610 F. Supp. 3d at 88 n.6 (noting that “portions
of Cedar Point appear to conflict with Yee”). Moreover, while Yee relied on the owners’ ability to “change
the use of [their] land” as a reason for concluding that
there was no physical taking, see 503 U.S. at 528, that
factor played no role in Cedar Point’s analysis. The
petitioner in Cedar Point could have prevented labor
24
organizers from entering its property by converting
the property to some other use not subject to California’s statute, but the Court nevertheless ruled in the
petitioner’s favor.
If Yee supported the decision below, which it does
not, it should be modified or overruled given the inconsistencies between its reasoning and the Court’s
subsequent rulings in Horne and Cedar Point.
II. The Second Circuit’s Regulatory-Takings
Holding Also Warrants Review.
The Second Circuit also affirmed the dismissal of
Petitioners’ facial and as-applied regulatory-takings
claims. That holding not only conflicts with decisions
of other circuits, but it confirms Judge Bibas’s recent
observation that “regulatory-takings doctrine is a
mess.” Nekrilov v. City of Jersey City, 45 F.4th 662,
681 (3d Cir. 2022) (Bibas, J., concurring). The Court
should review these claims to correct the Second Circuit’s errors and to provide guidance to lower courts.
A.
The Decision Below Conflicts with
Other Circuit Court Decisions and Adds to
the Confusion Regarding the Penn Central Test.
A regulatory taking occurs when a “regulation goes
too far,” Penn. Coal Co. v. Mahon, 260 U.S. 393, 415
(1922) and “forc[es] some people alone to bear public
burdens which, in all fairness and justice, should be
borne by the public as a whole,” Penn Central, 438
U.S. at 123-24 (quotation marks omitted). This Court
has instructed lower courts to determine whether a
25
regulation has gone too far by conducting “essentially
ad hoc, factual inquiries” involving consideration of at
least three factors. Id. But “nobody—not States, not
property owners, not courts, nor juries—has any idea
how to apply this standardless standard.” Bridge
Aina Le’a, 141 S. Ct. at 731 (Thomas, J., dissenting
from denial of certiorari).
1. Under Penn Central, courts consider “the economic impact of the regulation on the claimant,” “the
extent to which the regulation has interfered with distinct investment-backed expectations,” and “the
character of the governmental action.” Penn Central,
438 U.S. at 124. To further complicate matters, these
three factors are not exclusive. Courts must instead
consider “all of the relevant circumstances in particular cases.” Tahoe-Sierra Pres. Council v. Tahoe
Regional Planning Agency, 535 U.S. 302, 334 (2002).
The result has been a “veritable mess.” Blackburn
v. Dare County, 58 F.4th 807, 813 (4th Cir. 2023).
Penn Central’s shapeless “know-it-when-you-see it
test” generates “starkly different outcomes” across
cases and often leads to decisions upholding significant incursions on private property rights. Bridge
Aina Le’a, 141 S. Ct. at 731-32 (Thomas, J., dissenting
from denial of certiorari). “[S]cholars from all points
on the ideological spectrum have criticized Penn Central and its vaunted factors because the case offers
virtually no guidance to anyone” about when a taking
has occurred. Michael M. Berger, Whither Regulatory
Takings?, 51 Urb. Law. 171, 182 & n.66 (2021); Steven
J. Eagle, The Four-Factor Penn Central Regulatory
Takings Test, 118 Penn. St. L. Rev. 601, 602 (2014)
(Penn Central “doctrine has become a compilation of
26
moving parts that are neither individually coherent
nor collectively compatible”).
2. The decision below conflicts with the decisions
of other circuits on each of the three Penn Central factors, and demonstrates that Penn Central does “not
provid[e] courts with a ‘workable standard.’” Bridge
Aina Le’a, 141 S. Ct. at 731 (Thomas, J., dissenting
from denial of certiorari).
First, the Second Circuit’s holding that Petitioners
did not plead a sufficiently significant economic impact deepens an existing circuit split.
The Second Circuit held that Petitioners’ allegation of a 60-70% diminution in the value of their
property failed to adequately plead that the RSL had
an adverse economic impact, given “the legion of cases
that have upheld regulations” involving up to 90% reductions in value. App. 11a-12a. (cleaned up). The
Second Circuit’s insistence on a near-total destruction
of value aligns with the Ninth Circuit’s “observ[ation]
that diminution in property value … ranging from
75% to 92.5% does not constitute a taking.” Colony
Cove Props., LLC v. City of Carson, 888 F.3d 445, 450
(9th Cir. 2018).
But other circuits have eschewed such a rigid rule.
In Heights, the Eighth Circuit held that allegations
that an eviction moratorium deprived an owner of
rental income sufficed to plead the Penn Central economic-impact factor, without requiring any
allegations that quantified their losses in detail or
that the moratorium deprived their properties of
nearly all value. 30 F.4th at 734. Likewise, in the
27
Federal Circuit, there is no “automatic numerical barrier preventing compensation, as a matter of law, in
cases involving a smaller percentage diminution in
value.” Yancey v. United States, 915 F.2d 1534, 1541
(Fed. Cir. 1990). 5
Second, the Second Circuit’s holding that Petitioners
lacked
reasonable
investment-backed
expectations conflicts with decisions of the Sixth,
Eighth, and Federal Circuits.
The Second Circuit concluded that Petitioners
lacked reasonable investment-backed expectations
because the “City’s rental housing market ... has been
subject to an ever-evolving scheme of rent regulation,”
and “a reasonable investor would have understood it
could change again.” App. 9a. Indeed, the Court concluded,
“[g]iven
the
RSL’s
ever-changing
requirements no property owner could reasonably expect the continuation of any particular combination of
RSL provisions.” Id. at 85a (emphasis added); see also
id. at 9a.
That categorical rule conflicts with decisions of
other courts, which have held that although extensive
or unstable regulation may be relevant to investmentThe Second Circuit also faulted petitioners for not alleging with specificity the RSL’s impact on their revenue and
profit. App. 12a. In so doing, the court departed from the
“vast majority of takings jurisprudence,” which analyzes
Penn Central’s economic-impact prong not by looking to
“lost profits but [to] lost value of the taken property.” Rose
Acre Farms, Inc. v. United States, 559 F.3d 1260, 1268
(Fed. Cir. 2009); see also Colony Cove, 888 F.3d at 451.
5
28
backed expectations, “that does not mean that all regulatory changes are reasonably foreseeable or that
regulated businesses can have no reasonable investment-backed expectations whatsoever.” Cienega, 331
F.3d at 1350; see also Heights, 30 F.4th at 734; Andrews, Tr. of Gloria M. Andrews Tr. v. City of Mentor,
Ohio, 11 F.4th 462, 472 (6th Cir. 2021); Air Pegasus of
D.C., Inc. v. United States, 424 F.3d 1206, 1219 (Fed.
Cir. 2005). As these conflicting decisions demonstrate, lower courts have struggled to apply the
“reasonable investment-backed expectations” factor.
See Philip Morris, Inc. v. Reilly, 312 F.3d 24, 37 (1st
Cir. 2002) (noting the “paucity of clear landmarks that
can be used to navigate” this factor).
Third, the Second Circuit’s holding that the RSL
cannot effect takings, based on the character of the
law, is contrary to decisions of the Eighth and Federal
Circuits.
The Second Circuit focused on whether the law
was enacted to promote “public health, safety, and
general welfare,” while treating as immaterial that
the law seeks to achieve these goals by uniquely and
exclusively burdening owners of rental property.
App. 16a; see also id. at 86a-87a.
That analysis conflicts with decisions of other circuits, which have held that this is “the kind of
expense-shifting to a few persons that amounts to a
taking,” especially “where, as here, the alternative
was for all taxpayers to shoulder the burden.”
Cienega, 331 F.3d at 1338-39; Heights, 30 F.4th at
734-35 (discussing with approval arguments that eviction moratoria “were not ... broadly beneficial, and
29
they improperly imposed the public cost of fighting
homelessness on a subset of the population: rental
property owners”); Guggenheim v. City of Goleta, 638
F.3d 1111, 1132-33 (9th Cir. 2010) (en banc) (Bea, J.,
dissenting) (housing ordinance’s selective burdens on
park owners “weigh[ed] heavily in favor of finding a
regulatory taking”).
B. The Decision Below Is Incorrect.
The Court should grant the petition and hold that
Petitioners have stated regulatory takings claims. In
so doing, the Court could clarify how to apply the Penn
Central test, or it could replace that unworkable test
with one that hews more closely to the constitutional
text.
1. Petitioners have stated a claim under a proper
application of Penn Central.
First, Petitioners adequately plead economic impact. Petitioners allege that the RSL has diminished
the value of their property by a cumulative total of 6070%, and that other rent-stabilized housing has been
similarly affected. App. 198a, 234a, 236a, 238a.
Those allegations—which amount to billions of dollars
of reduced property values across New York City—
should not be treated as so insignificant that Petitioners’ claims fail as a matter of law at the pleading
stage.
Second, Petitioners sufficiently allege that the
RSL interferes with their reasonable investmentbacked expectations. The Second Circuit’s conclusion—that investors should have anticipated the
30
amendments to the RSL because they should have understood that the law could be changed at any time—
cannot be reconciled with this Court’s decision in
Palazzolo v. Rhode Island, 533 U.S. 606 (2001).
There, the Court permitted an owner who bought
property already subject to a restriction to challenge
that restriction under the Takings Clause. Id. at 62930; id. at 634 (O’Connor, J., concurring). This Court
has also recognized that even businesses in intensively regulated industries can form reasonable
investment-backed expectations about their property
rights. Ruckelshaus v. Monsanto Co., 467 U.S. 986,
1004-14 (1984).
Third, Petitioners adequately allege that the RSL
has the character of a taking. Penn Central explains
that a taking “may more readily be found when the
interference with property can be characterized as a
physical invasion by government, than when interference arises from some public program adjusting the
benefits and burdens of economic life to promote the
common good.” 436 U.S. at 124 (citation omitted). Petitioners plainly allege an interference with their
property that can be “characterized as a physical invasion” because they allege that the RSL requires
them to allow tenants to occupy their property indefinitely, even when Petitioners would rather put the
property to other uses. E.g., App. 192a-93a.
Petitioners also adequately allege that the RSL
“forc[es] [them] to bear public burdens which, in all
fairness and justice, should be borne by the public as
a whole.” Armstrong v. United States, 364 U.S. 40, 49
(1960). Indeed, the New York Court of Appeals has
described the RSL as providing “a public assistance
31
benefit” “conferred by the government” but “paid for”
by regulated “private owners of real property.” Monteverde v. Pereira, 22 N.E.3d 1012, 1016-17 (N.Y.
2014). Thus, like the “hardship tenant” provision in
Pennell v. San Jose, the RSL “singles out” and “disproportionately burden[s]” those individuals who happen
to own rent-stabilized apartments and selectively imposes on them the cost of funding what is effectively
an off-the-books public-housing program. 485 U.S. 1,
21-22 (1988) (Scalia, J., concurring in part and dissenting in part). While that arrangement may be
“politically attractive,” it is fundamentally unfair to
“mak[e] one citizen pay, in some fashion other than
taxes, to remedy a social problem that is none of his
creation.” Id. at 23.
The Second Circuit dismissed as irrelevant the
impact that the RSL has on Petitioners’ property
rights. App. 16a (“The fact that the RSL affects landlords unevenly is of no moment.”).
The court
considered it determinative that the law was enacted
to promote “public health, safety, and general welfare,” because “courts are not in the business of
second-guessing legislative determinations.” Id. But
in applying Penn Central, courts cannot consider only
whether a law “substantially advances a legitimate
state interest,” because that “reveals nothing about
the magnitude or character of the burden a particular
regulation imposes upon private property rights.”
Lingle v. Chevron U.S.A. Inc., 544 U.S. 528, 542-43
(2005).
2. If Petitioners’ claims cannot survive a motion to
dismiss under the Penn Central test, then that test
should be overhauled or discarded. The argument for
32
stare decisis is weak: Penn Central has “not provided
courts with a ‘workable standard.,” Bridge Aina Le’a,
141 S. Ct. at 731 (Thomas, J., dissenting from denial
of certiorari), and it is not grounded “in the Constitution as it was originally understood,” Murr v.
Wisconsin, 582 U.S. 383, 419 (2017) (Thomas, J., dissenting).
A regulatory-takings test grounded in the Constitution would not require a near-total diminution in
the value of the property because “the degree of economic impact should not affect whether a government
has taken private property. It should only affect the
amount of compensation due in the event of a taking.”
John E. Fee, The Takings Clause as a Comparative
Right, 76 S. Cal. L. Rev. 1003, 1034 (2003). Nor
should investment-backed expectations play such a
critical role in the analysis. Rather, “we should be
deeply suspicious of the phrase ‘investment-backed
expectations’ because it is not possible to identify even
the paradigmatic case of its use.” Richard A. Epstein,
Lucas v. South Carolina Coastal Council: A Tangled
Web of Expectations, 45 Stan. L. Rev. 1369, 1370
(1993). Neither of these Penn Central factors is
grounded in the Constitution. See Nekrilov, 45 F.4th
at 683-85 (Bibas, J., concurring) (noting that economic-impact and investment-backed-expectations
factors are “hard to square with the Constitution's
text and history”).
Under any test that is grounded in the Constitution, Petitioners’ allegations are sufficient to state a
claim. Petitioners plead how the RSL authorizes the
government to take private property by interfering
with property owners’ rights to exclude, occupy, and
33
control their property, and how it presses the property
into public use by allowing others to reside there. Petitioners thus adequately allege that the RSL is the
“functional equivalent of a ‘practical ouster of [the
owner’s] possession’” of their property. Murr, 582 U.S.
at 419 (Thomas, J., dissenting) (quoting Transp. Co.
v. Chicago, 99 U.S. 635, 642 (1879)). That is sufficient
to state a regulatory takings claim under the original
public meaning of the Takings Clause. See Nekrilov,
45 F.4th at 683-85 (Bibas, J., concurring).
3. The Second Circuit’s ripeness analysis was incorrect and thus does not prevent the Court from
reaching the merits of the regulatory-takings claim.
The Second Circuit faulted Petitioners for not seeking
“hardship exemptions” before filing suit. App. 9a-11a.
But Petitioners did not need to exhaust these administrative remedies because those remedies are
incapable of addressing Petitioners’ injuries.
Petitioners allege that they are categorically ineligible for one of the two hardship programs. Id. 217a.
As to the other program, the only relief available is a
rarely granted dispensation to increase modestly the
rent charged for a unit. Id. 216a, 219a. That limited
remedy does not address the most significant harms
that the RSL inflicts on Petitioners: it cannot affect
Petitioners’ obligation to renew tenancies they wish to
terminate, grant Petitioners the ability to reclaim
units for personal and family use, or allow Petitioners
to put regulated apartments to other uses. Id. 219a.
Exhaustion is thus futile and unnecessary. See
Shalala v. Ill. Council on Long Term Care, Inc., 529
U.S. 1, 13 (2000); McCarthy v. Madigan, 503 U.S. 140,
147-48 (1992). Regardless, Petitioners’ regulatory-
34
takings claims are ripe because it is clear how the RSL
applies to Petitioners’ properties. See Pakdel v. City
& County of San Francisco, 141 S. Ct. 2226 (2021) (per
curiam). There is no dispute that the RSL compels
Petitioners to renew tenants’ leases over objection and
burdens Petitioners’ property rights in the other ways
discussed above.
III. This Case Is an Excellent Vehicle to Address
These Important Issues.
The question of how the Takings Clause applies to
regulations like the RSL has enormous implications
not only for Petitioners, but for New York City, the
nation’s largest rental market. Because New York
City has approximately one million rent-stabilized
apartments, the RSL dispossesses countless owners of
their rights to occupy, use, and exclude others from
their properties. The RSL likewise inflicts comparably severe economic harms, slashing the value of rentstabilized properties and reducing the supply of—and
thus increasing rents for—market-rate apartments.
See App. 219a-23a.
Nor are these issues of purely local significance. In
misdirected reaction to concerns about housing affordability, lawmakers in multiple states and
municipalities have enacted new or tightened existing
regulations that effectively conscript privately owned
apartments to serve as affordable housing. See Will
35
Parker, Rent-Control Measures Are Back as Home
Rents Reach New Highs, Wall St. J. (Mar. 13, 2022). 6
Like the RSL, many of these laws go well beyond
regulating monthly rents and effectively grant tenants the right to occupy an apartment indefinitely,
over the owner’s objection. These so-called “goodcause” or “just-cause” eviction laws provide that once
an owner enters into an initial, voluntary lease agreement, the owner must continue to rent to that tenant
after the lease expires, subject to narrow exceptions.
See, e.g., Cal. Civ. Code § 1946.2; D.C. Code § 423505.01; Or. Stat. § 90.427; H. No. 4216, 193d Gen. Ct.
(Mass. 2023) (proposed Boston regulation). New York
is considering similar legislation that, by giving tenants the “basic right[] to renew an expiring lease” and
stringently capping the amount by which an owner
can increase the rent, would effectively extend the
RSL’s compelled occupancy and rent-cap mandates to
all rental apartments statewide. S. 305, 2023-24 Leg.
Sess. (N.Y. 2023). The White House has likewise advocated for national “just- or good-cause eviction
protections that require a justified cause to evict a tenant.” White House, Blueprint for a Renters Bill of
Rights 16 (2023). 7 Proponents of such measures will
surely justify them by pointing to the Second Circuit’s
conclusion that laws regulating the “landlord-tenant
relationship” are practically immune from takings
challenge, if the decision below is allowed to stand.
https://www.wsj.com/articles/rent-control-measures-are-backas-home-rents-reach-new-highs-11647180001.
6
https://www.whitehouse.gov/wp-content/uploads/2023/01/
White-House-Blueprint-for-a-Renters-Bill-of-Rights-1.pdf.
7
36
This case is an excellent vehicle for the Court to
consider how the Takings Clause applies to laws that
compel owners to continue renting out property
against their will. Petitioners’ physical- and regulatory-takings claims were pressed and passed on below
in reasoned opinions by both the District Court and
the Second Circuit. These issues arise from a final
judgment below. Petitioners have also raised as-applied (in addition to facial) challenges, thus providing
a concrete factual context for the Court’s review of
these constitutional issues and obviating the need to
address threshold questions about the standard of review for facial claims. Cf. App. 72a-75a.
CONCLUSION
Lower courts have adopted a series of special, atextual rules that eviscerate the Takings Clause’s
protections in the landlord-tenant context. The decision below exacerbates that problem and deepens
several circuit splits in the process. Although this
Court reaffirmed a bright-line rule for physical takings in Cedar Point, the decision below deems that
rule inapplicable to a vast range of housing regulations. And while Penn Central prescribes a flexible
test for regulatory-takings claims, the decision below
applies rigid principles that prevent such claims from
making it past a motion to dismiss. Only this Court’s
intervention can correct these recurring and highly
consequential errors. The Court should grant the petition.
37
Respectfully submitted,
Jonathan M. Sperling
S. Conrad Scott
COVINGTON & BURLING LLP
620 Eighth Avenue
New York, NY 10018
May 17, 2023
Mark W. Mosier
Counsel of Record
Kevin King
Emile Katz
MaKade Claypool
COVINGTON & BURLING LLP
850 Tenth Street, NW
Washington, DC 20001
(202) 662-6000
mmosier@cov.com
Counsel for Petitioners
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.