Appendix — City of New York v. Seawall Associates

Ve / | Supreme Court, U.S.

89-3 48 nage

‘|| see 5 Bes

No. 88 p?

JOSmeE F. SPAWOL, JR.

l?

~eLERK

32 one

SUPREME COURT OF THE UNITE

OCTOBER TERM, 1989

THE CITY OF NEW YORK, et al.,

Petitioners,

-against-

SEAWALL ASSOCIATES, et al.,

Respondents.

APPENDIX TO PETITION FOR A WRIT OF

CERTIORARI TO THE NEW YORK STATE

COURT OF APPEALS

PETER L. ZIMROTH,

Corporation Counsel

of the City of New York,

Attorney for Petitioners,

100 Church Street,

New York, New York 10007

(212) 566-6037 or 4338

LEONARD J. KOERNER, *

ELIZABETH DVORKIN,

of Counsel.

*Counsel of Record

September 1, 1989

TABLE OF CONTENTS

Page

Decision of the New York

State Court of Appeals,

Dated July 6, 1989 ..... A-1

Decision of the Supreme

Court, Appellate Division,

First Department,

Dated December 1, 1989 ... A-107

Decision of the Supreme

Court, Dated November 23,

pe) ty eee ye a) A-165

Local Law No. 9 of 1987 .. A-253

Local Law No. 1 of 1987 .. A-315

DECISION OF THE NEW YORK STATE

COURT OF APPEALS, DATED JULY 6,

1989.

Seawall Associates, et al.,

Appellants,

Vv.

The City of New York, et al.,

Respondents,

Richard Wilkerson, et al.,

Intervenors-Respondents,

(and two other actions. )

OPINION

This opinion is uncorrected and

subject to revision before

publication in the New York

Reports.

Joseph § L. Forstadt, Nancy

Hirschman, Nathan Z. Dershowitz, NY

City, for appellant Seawall.

Philip H. Schaeffer, New York

City, for appellants 459 West 43rd

St. Be Gk.

Gary M. Rosenberg & Franklin

R. Kaiman, New York City, for

appellant Sutton East, et ano.

Marvin L. Schwartz, New York

City, for appellant Anbe Realty.

Peter L. Zimroth, N¥C

Corporation Counsel (Elizabeth

Dvorkin of counsel ) for

respondents.

Saralee E. Evans, Virginia

Shubert, Robert M. Hayes, Narman

Siegel, Wayne Hawley, Marvin

Wexler, for intervenorsrespondents.

Carol S. Keenan, Yonkers, &

Ronald A. Zumbrun, Sacramento, CA,

for Pacific, amicus curiae.

- Glen S. Goldstein, NYC, for

Rent Stabilization Comm., amicus

curiae. .

HANCOCK, JR., J.

Local Law No. 9 prohibits the

demolition, alteration, or

conversion of single room occupancy

(SRO) properties and obligates the

owners to restore all units’ to

habitable condition and lease them

at controlled rents for an

indefinite period. Plaintiffs,

real estate developers who own SRO

properties, challenge the law as an

unconstitutional taking of private

property without just compensation.

Defendants, the City of New York

A-2

and various officials, contend that

the law is a valid effort to help

prevent homelessness by preserving

the stock of low-rent SRO housing.

In our view. Local Law No. 9 is

facially invalid as both a physical

and regulatory taking in violation

of the federal and state

constitutions and we, therefore,

declare it null and void.

I

After years of encouraging the

demolition and redeveiopment of SRO

properties -- which the City of New

York considered substandard housing

-- the City abandoned its policy

when it found that the stock of

low-cost rental housing was

shrinking at an alarming rate (see,

Blackburn, Single Room Occupancy in

New York City at 1-4 to 1-7)/ on

“August 5, 1985, the City enacted

Local Law No. 59 which imposed an

18-month moratorium on the

demolition or conversion of

structures containing SRO units.

Thereafter, Local No. 22 was

enacted to extend the moratorium

through the end of 1986. Local Law

No. 22 added the requirement that

owners of SRO properties

rehabilitate all wacant units and

offer them for rent, and it

provided for substantial monetary

penalties for noncompliance.

local Law No. 59, a predecessor of Local

Law No. 9, mandated a study of SRO housing

in New York City by Urban Systems Research

and Company. The report, written by

Anthony Blackburn, was issued in February

1986 and recommended efforts by the City

to preserve SRO units.

A-4

Le

E Plaintiffs commenced separate

actions challenging Local Law No.

22 as violative of the “takings”

clauses of the federal and state

constitutions. Supreme Court

consolidated the actions and

declared the law invalid to the

extent that it imposed affirmative

obligations on property owners to

rehabilitate and then rent vacant

units (134 Misc 2d 187). The city

did not perfect an appeal; it did,

however, alter the provisions of

Local Law No. 22 by enacting Local

Law No. 1 on February 22 1987,

which, in turn, was amended and

reenacted as Local Law No. 9 on

March 5, 1987. Local Law No. 9

extended the prior moratorium for

an initial five-year period with

the possibility of unlimited

nn

renewals. The law retains most of

the features which were contained

in Local Law No. 22 but = also

provides for certain "exemptions"

for otherwise obligated property

owners.

The main provisions of Local

Law No. 9 are as follows:

Moratorium. The conversion,

alteration and demolition of SRO

multiple dwellings are prohibited

(§ 27-198.2); the moratorium

extends for five years and is

renewable for additional five-year

periods as the city council deems

necessary (§ 7).

Rehabilitation ws and

Anti-Warehousing. SRO property

owners must rehabilitate and make

habitable every SRO unit in their

buildings, and lease every unit to

a "bona fide" tenant ("rent-up”

obligation) at controlled rents

(§ 27-215l[a]); an owner is

presumed to have violated these

requirements if any unit remains

vacant for a period cf 30 dine

(§ 27-2152[d]).

Penalties. Noncompliance is

punishable by fines including

$150,000 for each dwelling

unlawfully altered, converted or

demolished, with an additional

$45,000 per unit for reducing the

total number of units

(§ 27-198.2[g][2][5]); a $500 per

unit penalty is provided for each

unit unrented to a bona fide tenant

(§ 27-2152[e]).

Buy-Out and Replacement

Exemptions. An owner may purchase

an exemption from the moratorium by

payment of $45,000 per unit (or

such other amount as the

Commissioner of the Department of

Housing Preservation and

Development determines would equal

the cost of a replacement unit) or

by providing an equal number of

replacement units approved by the

commissioner

(§ 27-198.2[d][4][a][i] and [ii].

Hardship Exemption. The

amount of payment or the number of

replacement units required for an

exemption may be reduced at _ the

discretion of the commissioner, in

whole or in part, if "there is no.

reasonable possibility that such

owner can make a reasonable rate of

return", defined as a net annual

return of 8 1/2% of the assessed

value of the property as an SRO

Te

multiple duel line

(§ 27-198.2[d][4][b]. |

Plaintiffs instituted the

present action challenging Local

Law No. 9 on the same grounds that

they had earlier challenged Local

Law No. 22. Supreme Court, in

another thorough opinion by Justice

David B. Saxe, held = that the

wo

so-called "buy-out, replacement,"

and "hardship" exemptions failed to

save Local Law No. 9 from the

infirmities of its predecessor, and

concluded that the law was invalid

as a taking without just

compensation in violation of both

the federal and state

constitutions. The Appellate

Division disagreed, declaring the

law constitutional in all respects.

-

For the following reasons, we now

reverse.

II

"The Fifth Amendment 's

guarantee that private property

shall not be taken for a public use

without just compensation was

designed to bar Government free

forcing some people alone to bear

public burdens which in all

fairness and justice should be :

borne by the public as a whole”

(Armstrong v. United States, 364 US

40, 49). The corollary to this

oft-quoted proposition is that

“government action that works a

taking of property rights

necessarily implicates the

"constitutional obligation to pay

ve

just compensation’ (First

English Evangelical Lutheran Church

v. County of Los Angeles, 482 US

304, 315, quoting Armstrong v.

United States, supra, at 49). The

question here, as in any case where

government action is challenged as

violative of the right to just

compensation, is whether the

uncompensated obligations and

restrictions imposed by the

governmental action force

individual property owners to bear

more than a just share of

obligations which are right fully

those of society at large.

In our opinion, the provisions

- of Local Law No. 9, which not only

prevent the SRO property owners

from developing their properties by

replacing the existing structures,

but also compel them to refurbish

the structures and keep them fully

A-1l

einen elie

rented, impose on the_- property

owners more than their just share

of such societal obligations.

Whether viewed as _ effecting a

physical or regulatory taking,

Local Law No. 9, we believe,

violates the "takings" clauses of

the Fifth Amendment of the Federal

Constitution“ and Article I, § 7 of

the New York State Constitution.

A

Plaintiffs contend that Local

Law No. 9 has’ resulted in a

physical occupation of their

properties and is, therefore, a per

se compensable taking (see, Loretto

v.. Teleprompter Manhattan CATV

2rhe Fifth Amendment "takings" clause

applies to the States through’ the

Fourteenth Amendment (see, Chicago, B. &

Q. R. Co. v. Chicago, 166 US 266).

Corp., 458 US 419, 427). We agree.

As emphasized by Professor

Michelman in his article quoted

with approval in Loretto, “the one

incontestable case for compensation

(short of formal expropriation)

seems to occur when the government

deliberately brings it about that

its agents, or the public at large,

'regularly' use, or ‘permanently’

occupy, space or ae thing which

theretofore was understood to be

under private ownership" emphasis

in original; footnotes omitted)

(Michelman, Property, Utility, and

Fairness: Comments on the Ethical

Foundations of Just Compensation”

Law, 80 Harv L Rev 1165, 1184

[1967]).

Whether the mandatory

"rent-up” obligations of the

|

anti-warehousing provision effect a

physical taking depends upon the

nature and extent of their

interference with certain essential

property rights. Here, the claimed

physical taking is the city's

forced control over the _ owners’

possessory interests in their

properties, including the denial of

the owners’ rights to exclude

others. Local Law No. 9 requires

the owners to rent their rooms or

be subject to severe penalties; it

compels them to admit persons as

tenants with all of the possessory

and other rights that that status

entails; it compels them to

surrender the most basic attributes

of private property, the rights of

possession and exclusion. This,

plaintiffs contend, constitutes a

physical occupation of private

property for public use, similar to

encroachments on structures or land

such as the mandated installation

of GATV cables and fixtures (see,

Loretto v. Teleprompter Manhattan

CATV Corp., supra), the permanent

flooding from the construction of a

dam (see, e.g., United States v.

Lynah, 188 US 445; Pumpelly v.

Green Bay Co., 80 US 577), or the

invasion of air space and resulting

interference with the land-use

below by continuous low altitude

airplane flights (see, United

States _v. Causby, 328 US 256).

Defendants argue that a physical

taking must entail the kind of

palpable invasion involved in those

cases and, therefore, that’ the

deprivation of intangible property

rights alone, such as that

resulting from coerced tenancies,

is not enough. We disagree.

Where, as here, owners are forced

to accept the occupation of their

properties by persons not already

in residence, the resulting

deprivation of rights in_ those

properties is sufficient to

constitute a physical taking for

which compensation is required.

Under the traditional

4 conception of property, the most

important of the various rights of

an owner is the right of possession

which includes the right to exclude

others from occupying or using the

space (see, Loretto v. Teleprompter

Manhattan CATV Corp., supra, at

435). Thus, in Loretto, the

Supreme Court relied upon this

A-16

|

S

J

classical view of property -- "the

rights to possess, use, and -

dispose” (458 US at 435, quoting

United States v. General Motors,

323 US 373, 378) -- to hold that

the required installation of the

CATV cables and equipment on

plaintiff's building was a per se

physical taking. This right to

exclude "has traditionally been

considered one of the most

treasured strands in an _ owner's

bundle of property rights"

(Loretto, supra, at 435-436,

quoting Kaiser Aetna, 444 US 164,

179-180; see also, Restatement of

Property § 7 [1936]; Radin, The

Liberal Conception of Property:

Cross Currents in the Jurisdiction

of Takings, 88 Colum L Rev 1667,

1671-1672). As the Court noted in

"

Loretto, an owner suffers a

special kind of injury when a

stranger directly invades and

occupies the owner's property", and

"property law has long protected an

owner's expectation that he will be

relatively undisturbed at least in

the possession of his property”

(see, Loretto, supra, at 436

[emphasis in orig]; see also,

Michelman, 80 Harv. L. Rev supra,

at 1165, 1228, and on 110).

Moreover, to constitute a physical

taking, the occupation need not be

by the government itself, but may

be by third parties under its

authority (Loretto, supra, at 432,

433 n 9).

Defendants argue,

nevertheless, that a physical

taxing requires something more than

an ouster of the owner's possessory

interest by the forced intrusion of

strangers, some actual displacement

of the owner's sadiaueaans through a

fixed encroachment like the TV

equipment in Loretto or an invasion

of property like the flooding in

Pumpelly. But the decisional law

is to the contrary. As the Supreme

Court explained in Nollan_v.

California Coastal Commn, (483 US

825), a physical occupation

requiring just compensation results

where individuals are given the

"right to pass to and fro, so that

the real property may continuously

be traversed, even though no

particular individual is permitted

to station himself permanently upon

the premises" (id., at _ [slip

opn at 6]). Likewise, in Kaiser

A-19

Aetna, in concluding’ that the

government's imposition of a

navigational servitude requiring

public access to a private pond and

marina would "result in an actual

physical invasion of the privately

'

owned marina," the court emphasized

that the right to exclude, thus

taken from the owner, is "one of

the most essential sticks in the

bundle of rights that are commonly

characterized as property” (444 US

at 176, 180).°

3The Loretto court in dictum -- referring

to the navigational easement of passage

permitting public access to plaintiff's

privately owned marina in Kaiser Aetna

stated that, although the easement

constituted a physical invasion of

plaintiff's property, it was not a per se

taking but "a government intrusion of an

unusually serious character" (458 US at

433). The court in Nollan apparently

adopted a different view and it would seem

(Footnote Continued)

Although the Supreme Court has

not passed on the specific tebe of

whether the loss of possessory

interests, including the right to

exclude, resulting from tenancies

coerced by the government would

constitute a per se_ physical

taking, we believe that it would.

Indeed, it is difficult to see how

such forced occupancy of one's

property could not do so. By any

ordinary standard, such

interference with an owner's rights

to possession and exclusion is far

(Footnote Continued)

that a physical taking of the type at

issue in Kaiser Aetna would now be

considered to be a per se taking to the

extent of the occupation (see, Nollan v.

California Coastal Commn., supra, at __

[slip opn at 6]; see, Note, Municipal

Development Exactions, the Rational Nexus

Test, and the Federal Constitution, 102

Harv L Rev 992).

os

more offensive and invasive than

the easements in Kaiser Aetna or

Nollan or the installation of the

CATV equipment in Loretto (see,

Michelman, Takings, 1987 88 Colum L

Rev 1600, 1609 n 46; see also, Hall

v. City Santa Barbara, 833 F2d 1270

[9th Cir], cert den 108 S Ct 1120

[an ordinance imposing mandatory

rental obligations on mobile home

operators could constitute a per se

physical taking under Loretto))."

4h should be noted that the Hall decision

preceded the Supreme Court's decisions in

Nollan, First Lutheran Church and Keystone

Bituminous Coal Assn v. DiBenedictus (480

US 470). Defendants’ efforts to

distinguish Hall upon the ground that the

forced leases there were of indefinite

duration and transferable are not

Persuasive. Here, the tenants will occupy

the SRO units with all of the _ legal

protection against eviction afforded by

applicable landlord-tenant statutes,

including those pertaining to rent

(Footnote Continued)

Contrary to defendants'

contentions, the decisions of the

Supreme Court and this court

upholding rent control and similar

regulations of housing conditions

and other aspects of the

landlord-tenant relationship (see

e.g., Bowles v. Willingham, 321 US

503, 517-518; Laub Estates vv.

Druhe, 300 NY 176, 180; see also,

cases cited in Loretto Vv.

Teleprompter Manhattan CATV Corp.,

supra, at 440) do not undermine

plaintiffs' claims of per se

.

physical takings. Indeed, those

ite

\

(Footnote Continued)

control, rent stabilization and

harassment. The significant point is that

in Hall, as in the case at bar, the owners

were deprived of their possessory

interests -- particularly the right to

exclude strangers -- the determinative

factor in Kaiser Aetna, Loretto, and

Nollan.

A-23

decisions have no bearing on the

question here -- whether forcing

plaintiffs to rent their properties

to strangers constitutes a physical

taking. It is the nature of the

intrusion which is determinative --

i.e., that it deprives the owners

of their rights to possession and

exclusion -- not the beneficial

purpose of the regulation or the

extent of the police power which

authorizes it. Thus, the Loretto

court, in referring to Bowles v.

Willingham and similar cases,

dispelled the notion that its

Physical-taking holding would

affect “the government's power to

adjust landlord-tenant

relationships"; the court was quick

to distinguish landlord-tenant

cases from those in which "the

A-24

government authorize[d] the

permanent occupation of the

landlord's property by a_ third

party” (458 US at 440).

The rent control and other

landlord-tenant regulations’ that

have been upheld by the Supreme

Court and this court mei

involved restrictions imposed on

existing tenancies where the

landlords had voluntarily put their

properties to use for residential

housing. Unlike Local Law No. 9,

however, those regulations did not

force the owners, in the first

instance, to subject their

properties to a use which they

neither planned nor desired. The

local law at issue in Loab Fstates,

for example, barred the eviction of

residential tenants unless

provisions had been made for their

relocation (300 NY at 179). And

the federal rent-control statute in

Bowles explicitly did not require

“any person . . . to offer any

accommodation for rent" (321 US at

517). By sharp contrast to the

statutes in Loab Estates and

Bowles, Local Law No. 9 compels

owners to be residential landlords;

it requires owners to rehabilitate

and offer their properties’ for

rent, as SRO units, to persons with

whom they have no existing

landlord-tenant relationship.

_ The City, however, . argues

that, although the owners” are

compelled to rent their units,

there can be no physical taking

here because they have not been

divested of all control over the

selection of tenants and the rental

terms. But this minimal authority

retained by the owners over their

own properties does not distinguish

the City's action here from other

physical takings. It is the forced

occupation by strangers under the

rent-up provisions of the law, not

the identities of the new tenants

or the terms of the leases, which

deprives the owners of their

possessory interests and results in

physical takings.”

Although not urged by the City, some

amici contend that a physical taking

should not be found because the

interference with the owners’ rights

resulting from Local Law No. 9 is not

permanent. There is no merit to the

argument for two reasons: (1) while not

specifically made permanent, Local Law No.

9 is, by its own terms, to remain in

effect indefinitely since its five-year

terms may be extended for additional terms

(Footnote Continued)

i i ee Sk ne

We conclude that Local Law No.

9 has effected a per se physical

taking because it "interfere[s] so

/

drastically" (Nollan v. California

Coastal Commn., supra, at [siip

opn at 10]) with the SRO property

owners ' fundamental rights to

possess and to exclude (see,

Loretto v. Teleprompter Manhattan

CATV Corp., supra, at 435-436).

The law requires nothing less of

the’ owners than "to suffer’ the

physical occupation of [their]

~

(Footnote Continued)

without limit; and (2) even if local law

be viewed as a temporary provision, it

results in a deprivation of the owners'

quintessential rights to possess’ and

exclude and, therefore, amounts to a4

physical taking. Under First Lutheran

Church, supra, where, as here, the

governmental action resulted in a per se

taking, the offending action constitutes a

taking for whatever time period it is in

effect.

building[s] by third part[ies]"

(Id. at 440; see also, Kaiser Aetna

Vv. United States, supra, at

179-180).

B

Even if Local Law No. 9 were

not held to effect a_ physical

taking, it would still be facially

invalid as a regulatory taking.

"Suffice it to say that government

regulation -- by definition ~--

involves the adjustment of rights

for the public good. Often this

adjustment curtails some potential

for the use or economic

exploitation of private property"

(Andrus v. Allard, 444 US 51, 65).

But the constitutional guarantee

against uncompensated takings is

violated when the adjustment of

rights for the public good becomes

A-29

so disproportionate that it can be

said that the governmental action

is “forcing some people alone to

bear public burdens which, in all

fairness and justice, should be

borne by the public as a whole”

at 49). There is no "set formula”

for determining in all cases when

an adjustment of rights has reached

the point when "justice and

fairness” require that compensation

be paid (see, Penn Central Trans.

Co. v. New York City, 438 US 104,

124). It is basic, however, that

such a burden-shifting regulation

of the use of private property

will, without more, constitute a

taking: (1) if it denies an owner

economically viable use of his

property, or (2) if it does not

substantially advance legitimat:

state interests (see, Nollan Vv.

California Coastal Commn., supra at

[slip opn at 8]; Keystone

Bituminous . Coal Assn. Vv.

DiBenedictus, 480 US 470, 485, 495;

Agins v. Tiburon, 447 US 255, 260:

~

Penn Central Trans. Co. v. New York

6

City, supra, atr 138 n_ 36).

Either would be sufficient to

invalidate a property-use

regulation. In our opinion, Local

6

The Supreme Court seems also to have

adopted the view that a regulation which

has the effect of substantially

frustrating “reasonable investment backed

expectations" likewise constitutes a per

se taking (see e.g., Kaiser Aetna v. U.S.,

supra, at 175; Keystone Bituminous Coal

Assn. v. DiBenedictus, supra, at 493, 499;

see also, Michelman, 88 Colum L Rev,

supra, at 1604 n 22, 1622). Such a

factor, however, would be relevant to a

challenge to the regulation as applied to

particular owners, not a facial

challenge.

we

Law No. 9 fails on both counts. We

turn first to whether the law

denies owners the economically

viable use of their properties.

A-32

: (1)

Putting aside for the moment a

discussion of the buy-out,

replacement, and related hardship

exemptions, the significant effects

of Local Law No. 9 on the_ SRO

property owners are: (1) to

prohibit them from altering or

demolishing their buildings or

converting them to any other use;

(2) to compel them to restore any

uninhabitable unit to “habitable

condition"; and (3) to require them

to keep all their units occupied as

SRO housing. Noncompliance with

any of these provisions subjects an

owner to heavy penalties. ’

"hs outlined supra, Local Law No. 9

provides for the imposition of a $150,000

civil fine for each room. altered,

(Footnote Continued)

A-33

If analyzed with respect to

its effect on property owners’

"

basic rights "to possess, use

and dispose’ " of their buildings

(Loretto v. Teleprompter Manhattan

CATV Corp., supra, at 435, quoting

_United States v. General Motors

Corp., supra, at 378; see also,

Restatement of Property, § 5

Comment E, p. 11; Nichols, § 5.01,

"What Constitutes Property"), it is

evident that Local Law WNo. 9

abrogates or substantially impairs

each of the three rights. As

previously discussed, the coerced

rental provisions deprive owners

(Footnote Continued)

converted or demolished in violation of

the ordinance and an additional $45,000

per room for any resulting reduction in

the total number of single room occupancy

units (see, § 27-198.2[d].4[g]. 2,[5]).

A-34 :

el

iG

,

——

Se

the fundamental right to possess

their properties (see, Part II A,

supra). Moreover, these mandatory

rental provisions -- together with

the prohibition against demolition,

alteration and conversion of the

properties to other uses, and the

requirement that uninhabitable

units be refurbished ---deny owners

of SRO buildings any right to _ use

their properties as they see fit.

Unquestionably, the effect of the

law is to strip owners of SRO ~

buildings -- who may have purchased

their properties solely to turn

them into profitable investments by

tearing down and replacing’ the

existing structures with new ones ‘

(as plaintiffs claim they have) --

of the very right to use their

properties for any such purpose.

A-35

Owners are forced to devote their

properties to another use _ which,

albeit one which might serve the

City's interests, bears no relation

to any economic purpose which could

be reasonably contemplated by a

private investor.

Finally, Local Law No. a.

particularly in those’ provisions

prohibiting redevelopment and

mandating rental, inevitably

impairs the ability of owners to

sell their properties for any sums

approaching their investments.

Thus, the local law must also

negatively affect the owners’ right

to dispose of their properties. By

any test, we think these

restrictions deny the owners

"economically viable use" of their

properties.

A-36

The effect of Local Law No. 9

is unlike that of the Landmark Law

in Penn Central, which denied the

owner of Grand Central neither the

continued full use of its property

nor a “reasonable return on its

investment .° Nor is the effect of

Local Law No. 9 comparable to that

of the Subsidence Act in Keystone,

which reduced the maximum amount of

coal that could be mined, but did

not interfere with the owners

rights to continue to mine coal

SMoreover, the court in Penn Central

pointed out that, while the landmark

commission had denied an application to

build more than 50 stories above the

terminal, there was no_ showing that

permission to build fewer would be denied.

Additionally, the court noted that Penn

Central had not been deprived of all

pre-existing air rights, since under the

law these rights were transferable (438 US

104, 136-137).

A-37

i j

profitably.” By contrast, Local

Law No. 9 totally prohibits the use

-- entirely permissible before the

enactment of the law and the sole

purpose for purchasing investment

properties -- commercial

development. As a substitute, it

decrees that the properties must be

used for SRO housing and that the

owners must be satisfied with the

diminished financial returns from

such use. A rough analogy might be

The majority in Keystone emphasized that,

under the statute there in question, the

property owners could continue to engage

profitably in the business for which they

had invested their capital (480 US at 485)

and that the statute ultimately prevented

the owners from mining only 2% of the

extractable coal (id., at 493). Not

surprisingly, then, the majority concluded

that the owners failed to demonstrate “any

deprivation significant enough" to

constitute a regulatory taking (id., at

493).

A-38

ieeaeeteaiatennniate iene

—————————— ee” rm—m—n—m——rwKrrwS-.-...reeaeaae SS!

telling the mine owners in Keystone

that they could no longer mine coal

and that they must instead put

their properties to some worthy,

but less remunerative, purpose --

say, storing nuclear waste.

There’ can be no question that

the development rights which have

been totally abrogated by the local

law are, standing alone, valuable

components of the “bundle of

rights" making up their fee

interests (see, Michelman, 80 Harv

L Rev supra, at 1233 [prospective

continuing use "is a discrete twig

out of [the owner's] fee simple

bundle" of rights]}). Indeed, in

French Invest. Co. v. City of NY

(39 NY2d 587), we recognized that

development rights are an

essential component of the value of

the underlying property" and that

"they are a potentially valuable

and even a transferable commodity

and may not be disregarded in

determining whether the ordinance

has destroyed the economic value of

the underlying property" (id., at

597; see also, Matter of Keystone

Assoc. v. Moerdler, 19 NY2d 78

[invalidating the imposition of an

uncompensated 180-day delay on the

right of the purchasers of the old

Metropolitan Opera House to

demolish and redevelop the

property]; Foster v. Scott, 136 NY

$77).

Defendants’ argument that

plaintiffs have not been deprived

of “economically viable use”

presupposes that the effect of

Local Law. No. 9 on their

A-40

Bilal aor a

properties should be assessed by

comparing the value of the rights

affected or abrogated with the

value of the total "bundle"

comprising the owners’ property

interests. But the permanent

abrogation of one of those rights,

without regard to its comparative

value in relation to the whole, may

well be sufficient to constitute a

taking. Thus, in Hodel v. Irving

(481 US 704), the Court held that

the total abolition of the "right

to pass on valuable property to

one's heirs" could, without more,

"be a taking” (id., at 715, 717).

And in Nollan, the court concluded

that an easement allowing persons

to pass across a private beach

could constitute a taking despite

the minimal impact on the total

A-41

value of the owners' property (483

US at _ [slip opn at 6]; see

also, various comments’ on_ the

theory of "conceptual severance”

[i.e., assessing only the value of

the rights taken without regard to

its relationship to the value of

the whole property], Radin, 88

Colum L Rev, supra, at 1674-1678;

Michelman, 88 Colum L Rev, supra,

at 1627-1628; Fischel,

Introduction: Utilitarian

Balancing and Formalism in Takings,

88 Colum L Rev 1581, 1592-1593;

Peterson, Land Use Regulatory

"Takings" Revisited: The New

Supreme Court Approaches, 39

Hastings L J 335, 356-357). Of

course, if the theory of

"conceptual severance” were applied

to the effect of Local Law No. 9 on

A-42

the rights of SRO property owners,

a taking would necessarily be

found. The rights to use and to

possess have been abolished and,

without regard to the value of the

owners’ remaining interests’. in

their buildings, that would be

sufficient.

As stated by Justice Saxe at

the nisi prius court, the

moratorium and anti-warehousing

provisions “place petitioners in a

business, force them to remain in

that business and refuse to allow

them to ever cease doing [that]

business" (Seawall Associates v.

City of New York, 134 Misc 2d 187,

197). By any criterion -- whether

the property rights abolished or

impaired are considered alone, as

in Hodel and Nollan, or the values

eerie ts hee O.

eo ete Maat APY ti 5

of these rights are compared with

the values of the properties as a

whole, as in Penn Central _ and

Keystone -- the conclusion is

inescapable that the effect of the

provisions is unconstitutionally to

deprive owners of economically

/

viable use of their properties.

(2) ;

We agree with plaintiffs,

moreover, that Local Law No. 9 does

not pass the other threshold test

for constitutional validity of

regulatory takings: that the

burdens imposed substantially

advance legitimate state interests

(see, Nollan v. California Coastal

Commn., supra; Agins v. Tiboron,

supra; Penn Central, supra).

Of course, the end sought to

be furthered by Local Law No. 9 is

A-44

een

+ ah ra

ate ie th ne £

Prva. Be

of the greatest societal importance

-- alleviating the critical

10 The

problems of homelessness.

question here, however, concerns

the means established by the local

law purportedly to achieve this

end. In other words, can it be

said that imposing the burdens of

the foreed refurbishing and rent-up

provisions on the owners of SRO

properties substantially advances

the aim of alleviating the

homelessness problem? (See, Nollan

Vv. California Coastal Commn. ,

supra, at . [slip opn, at 8,

10»

Preventing homelessness" is what the

City itself claims to be the public

purpose served by Local Law No. 9 (see,

Municipal Respondents’ Brief, pp. 31-33;

see also Local Law No. 1 of 1987, section

i). We need not, therefore, apply the

"close nexus" test to other, hypothetical

purposes possibly advanced by the law.

A-45

15]. ) Is there a_ sufficiently

close nexus between these burdens

and “the end advanced as_ the

justification for [them]"? (Id.,

at ___ ~—([[slip.opn, at 11]; see also,

for discussions of the “close

nexus” test which requires

“semi-strict or heightened judicial

scrutiny of regulatory means-ends

relationships" as articulated in

Nollan, Michelman, Colum L Rev,

supra, at 1607-1614; Peterson, 39

Hastings L Rev, supra, at 354-358;

Note, Trespass at High Tide: The

Supreme Court Gives Heightened

Scrutiny to a State Imposed

Easement Report, 54 Brooklyn L Rev

991, 1011-1020).

Defendants contend that _ by

increasing the availability of SRO

units the anti-warehousing and

A-46

moratorium measures will provide

more available low-cost housing

and, thereby, further the aim of

alleviating homelessness; this

relationship between means_ and

ends, they argue, supplies’ the

required "close nexus." The City's

own Blackburn study, however,

acknowledges that a ban on

converting, destroying and

warehousing SRO units would ~ do

little to resolve the _ homeless

crisis. Indeed, the SRO units are

not earmarked for the homeless or

for potentially homeless low-income

families, and there is simply no

assurance that the units will be

rented to members of either group

(see, Blackburn, Single Room

Occupancy In New York City, supra,

at 5-6). While, of course, any

A-47

increase in the supply of low-cost

housing would benefit some

prospective tenants, it is by no

means clear that it would actually

benefit the hemeless . !4

I1the dissenter's claim that our ruling

“authorizes the expulsion of 52,000

people" (see, slip dissenting opn, at 16)

is utterly without basis. As we have

already discussed, government has

considerable latitude in regulating

landlord-tenant relationships to preclude

eviction in hardship, emergency and

rent-control cases, and both this court

and the Supreme Court have upheld such

efforts (see, supra, at pp. 10-12). The

constitutional invalidity of Local Law No.

9 does not concern the protection it

affords to current tenants, but its

mandate that property owners rehabilitate

their buildings and accept -- as new

residents -- persons with whom they have

no existing relationship whatsoever.

Finally, the dissenter's argument that

Local Law No. 9 must be upheld to prevent

the disruption of tenancies | aie

"bootstrap." Local Law No. 9 cannot, of

course, be deemed constitutional on the

ground that it would preserve tenancies

which the law, in the first instance,

imposes on the property owners

unconstitutionally.

A-48

f ; Ba a ha fe fi eas = - = on

> ‘ ¢. . “ ; - o s ol a ee ee eee ie 23

POE et Ge ee ee ee ee ee ae ee yee ee ee eT re eee a fa ee

The heavy exactions imposed by

Local Law No. 9 must "substantially

advance" its putative purpose of

relieving homelessness. No — such

showing of -this required "close

nexus” has been made. Rather, the

nexus between the obligations

placed on SRO property owners and

the alleviation of the highly

complex social problem of

homelessness is indirect at best

and conjectural. Such a tenuous

connection between means and ends

cannot justify singling out this

group of property owners to bear

the costs required by the _ law

toward the cure of the _ homeless

problem. Indeed, by equating the

"cure"” with dollars -- ,

permitting “buy-out” payments of

$45,000 per SRO unit in lieu of

=

A-49

keeping the units available for

rent [see discussion of "buy-out"

exemption, infra] -- the terms of

Local Law No. 9 itself demonstrate

that the obligations placed on a

few property owners are just the

kind which could, and should, be

borne by the taxpayers as a whole.

Finally, the questionable

nexus between means and ends in

Local Law No. 9 cannot be compared

with the clearly defined means-ends

relationships in the statutes

upheld in Penn Central, Keystone

and Andrus -- the decisions on

which defendants rely. In Penn

Central, the Landmark Law had the

direct and immediate effect of

saving a historic landmark, Grand

Central Station, the law's very

purpose. Likewise, in Keystone,

A-50

the Subsidence Act prevented the

very hazards to public. health,

safety and the environment that it

was intended to address by

prohibiting -the mining operations

that caused _ them. Indeed, the

Court in upholding the act noted

that it fell within the "nuisance

exception” -- i.e., that "the state

has not ‘taken’ anything when it

asserts its power to enjoin the

nuisance-like activity" (480 US at

491, n 20; see, Michelman, 88 Colum

L Rev, supra, at 1601-1604). And

in Andrus, the Eagle Protection Act

protected endangered eagles by

prohibiting a direct cause of their

endangerment, the unrestricted sale

of their parts. No such connection

has been shown between the

restrictions imposed on SRO

A-51

property owners by Local Law No. 9

and the amelioration of the

homeless crisis in New York City.

The close relatedness between the

ends to be achieved and those who

are burdened, as existed im Penn

Central, Keystone and Andrus, is

just not present.

III

The question remains whether

the added features of Local Law.

No. 9 -- the buy-out, replacement

12

and hardship exemptions -- in

some way mitigate the invidious

Le see Section 27-198.2(d)(4)(a). The

so-called "buy-out" provisions, in effect,

permit the owners to “purchase” from the

City their freedom from the operation of

Local Law No. 9 by paying either $45,000

per unit (e.g., $9,720,000 for a 216 unit

building such as that owned by 459 West

43d Street Corp. ) or creating a

replacement unit for any unit taken off

the SRO housing rental market. A

replacement unit may be and mist be

approved by the commissioner. In effect,

the "buy-out" provisions permit the owners

to repurchase the basic property rights in

their buildings which the City has

appropriated under Local Law. No. 9. The

hardship provisions (section 27-198.2

[d](4][b]) permit a _ reduction in the

"buy-out" price, at the discretion of the

commissioner, when an owner's return on an

SRO property falls below 8 1/2% of

assessed value. As the provisions point

out, however, there are no standards or

guidelines for the exercise of the

commissioner's discretion.

A-53

ee ee See ee Se Tee ee ee ee Oe ie Pee, See m ah ek ia

effects of the law so that it

becomes constitutionally

acceptable. We agree with Justice

Saxe that they do not (Seawall

Assocs. v. New York, 134 Misc 2d

198). The reasons, we think, are

evident. |

If, as we hold, the effect of

the moratorium and anti-warehousing

measures is unconstitutionally to

deprive owners of their basic

rights to possess and to make

economically viable use of their

properties, merely allowing them to

purchase exemptions from the _ law

cannot alter this conclusion. In

effect, the city, in the buy-out

and replacement exemptions, is

saying no more to the owners than

that it will not do _ something

unconstitutional if they pay the

A-54

city not to do it. But if the

initial act amounts to an unlawful

taking, then permitting the owners

to avoid the illegal confiscation

by paying a "ransom" cannot make it

lawful. Indeed, the stark

alternatives offered by Local Law

No. 9 -- either submit to an

uncompensated and, therefore,

unconstitutional appro-priation of

your properties or pay the price

(in cash or in replacement units)

-- amount to just the sort of

exaction which could be classified,

not as "a valid regulation of land

use but, ‘an out-and-out plan of

extortion. ' (J.E.D. Associates,

i. eee 12) 0... 581,

584, 432 A. 2d 12, 14-15 [1981])"

(Nollan Vv. California Coastal

Commn., supra, at [slip opn, p.

A-55

11]; see also, Sterk, Nollan, Henry

George, and Exactions, 88 Colum L

Rev 1731, 1746-1751).

Nor can the hardship exemption

make a difference. It can do no

more than permit the commissioner

-- in the event that an owner could

ae : seas 13

ever come within its provisions

13See Section 27-198.2(d)(4)(b). As some

of the owners argue, it is unrealistic to

expect that the hardship exemption will

ever be of any appreciable value to an

investor in one of the Manhattan SRO

properties. The level of earnings below

which a given property must fall before

the owner can apply for hardship relief is

pegged at a mere 8 1/2% of the property's

assessed value. It is highly unlikely

that any of the properties, which must be

kept fully rented, will ever produce less

than 8 1/2% assessed value, even though

the properties are subject to rent control

and rent stabilization. The assessed

value generally represents only 45% of the

full value assigned to the property by the

city's appraiser. Moreover, plaintiffs

point out that the city's appraisal of the

property is based on their current use 4s

low-income SRO rental housing. Thus, the

(Footnote Continued)

A-56

-- to exercise his discretion and

lower the purchase price of escape

from the law. If Local Law No. 9

creates an illegal taking

notwithstanding the buy-out '= and

replacement options -- as we hold

it does -- it ‘certainly does not

become’ legal simply because an

owner may, in some cases, buy his

way out of the law by paying a

lesser sum.

Finally, defendants’ efforts

to uphold Local Law No. 9 miss a

key feature of the law here and the

one that distinguishes it from the

Landmark Law in Penn Central, the

(Footnote Continued)

city's appraised full value will typically

bear little relation to the property's

true market value for development purposes

or to the amount of the owner's purchase

price.

Subsidence Act in Keystone, and the

Eagle Protection Act in Andrus.

Unlike the regulatory actions in

those cases, which simply limited

the owner's conduct, Local Law No.

9 not only prohibits conduct but

affirmatively requires that the

owners dedicate their properties to

a public purpose. They must

maintain their properties as SROs,

they must rehabilitate them, and

they must keep them fully rented

(see, discussion of significant

distinction for purposes of takings

analysis between “affirmative

easements or servitudes" [as, for

example, in Kaiser Aetna] = and

"those that are negative" [as, for

example, in Penn Central], Radin,

88 Colum L Rev, supra, at 1667,

1678-1680). Like the property

A-58

owners in Loretto, Kaiser Aetna and

Nollan, who must’ subject’ their

properties to public’ use for

purposes of fixing CATV cables or

allowing public access to Ps private

marina cr across a private beach,

owners of SRO hadkheleas have had

the use of their properties

actually appropriated for the

benefit of the public.

In short, the city, by

affirmatively requiring the owners

to put their properties to a public

use, “is acting in its enterprise

capacity, where it takes unto

itself private resources in use for

the common good" (Lutheran Church

v. City of New York, 35 NY2d 121,

128-129; see, French Investing Co.

v. City of New York, supra at 593;

Saxe, Takings and the Police Pewer,

A-59

he lls

74 Yale L J 36, 62-63). No one

disputes the city’s authority,

under the police power, to require

the SRO owners to put their

properties to this use. As an

exercise of this authority,

however, the stringent obligations

imposed by Local Law No. 9 without

any offsetting provision for fair

payment -- like the governmental

actions at issue in Loretto, Kaiser

Aetna, and Nollan --. amount to an

unconstitutional confiscation of

the owners’ property.

IV

We believe it is evident from

an analysis of Local Law No. 9 that

the moratorium and anti-warehousing

provisions inevitably force

property owners "alone to bear

public burdens which in all

A-60

si.

fairness and justice should be

borne by the public as_ whole”

(Armstrong v. U.S., supra, at 49).

Because the owners are, by the

terms of the law, afforded no

compensation, Local Law No. 9, we

d

hold, is facially invalid!", under

l ‘contrary to assertions in the dissenting

opinion (see, slip dissenting opn at pp.

2-3, 6-9), the Supreme Court and this

court have long considered it entirely

appropriate to adjudge the facial validity

of a land use regulation when challenged

by a property owner claiming an

unconstitutional "taking" or other

deprivation of property rights. As the

Supreme Court held over 60 years ago in

Euclid v. Ambler Realty Co., (272 US 365),

a property owner is entitled to challenge

a local law regulating the use of his

realty on the ground that "the ordinance

of its own force operates greatly to

reduce the value of [the owner's] lands

and destroy their -marketability,

commercial and residential uses” (id., at

386 [emphasis added]). "Assuming [the

owner's] premises”, the court explained,

"the existence and maintenance of the

ordinance, in effect, constitutes a

present invasion of [the owner's] property

(Footnote Continued)

A-61

—= |

the "takings" clauses of both the

federal and state constitutions

(Footnote Continued)

rights and a threat to continue it. Under

these circumstances. . . jurisdiction is

clear" (id. [emphasis added]). The Court

further elaborated that the property owner

was not claiming specific injury from the

actual application of the local law, but

"that the mere existence and threatened

enforcement of the ordinance, by

materially and adversely affecting values

and curtailing the opportunities of the

market, constitute[d] a present and

irreparable injury” (id., at 395 [emphasis

added] ).

More recently in Hodel v. Virginia (supra)

and in Keystone (supra), the Supreme Court

repeated the distinction between a facial

challenge and one based on application. A

"facial challenge,” the Court’ noted,

"present[s] no concrete controversy

concerning either application of the [law]

to particular [activities] or its effect

on specific [properties] (Keystone,

supra, at 495, quoting Hodel v. Virginia,

supra, at 295). Numerous such facial

challenges have been sustained by both the

Supreme Court and our court (see e.g.,

(Footnote Continued)

A-62

(U.S. Const. Amends 5, 14; NY Const

Art 1, § 7).)°

One last point should be made.

The dissent's erroneous’ analogy

between this case and Lochner v.

New York (198 US 45) furnishes a

useful perspective on what is

really at issue here. In Lochner,

(Footnote Continued)

Nollan v. California Coastal Commn.,

euers, at _.» «.. {S8iip ope, at 6, 11};

Hodel _v. Irving, supra, at 716-717;

Loretto v. Teleprompter Manhattan CATV

Corp., supra, at 434-435; French

Investment Co. v. City of New York, supra,

at 590-591; Westwood Estates v. Vil. of S.

Nyack, 23 NY2d 424, 427; see also, Beacon

Hill Farm Assoc. v. London Cty Bd. of

Supervisors, __ F2d __, 1989 WL 54784).

1514 view of this holding, we need not

decide the extent to which, if at all, the

protections of the "takings clause" of the

New York State Constitution differ from

those under the Federal Constitution. Nor

is it mecessary to address plaintiff's

additional arguments, including’ their

contention- that the local law is also

unconstitutional under the due _ process

clause of the State Constitution (NY Const

Art 1, § 6).

A-63

the Supreme Court -- -applying a

laizzez faire jurisprudence of

"economic due process" --

overturned a law prescribing

maximum working hours, on the

ground that it violated the freedom

of contract rights of both employer

and employee; the Court held that

the Legislature was without power

to enact such a law. Here, by

contrast, no one disputes’~ the

City's power -- indeed its duty --

to fashion meaningful solutions to

address homelessness. No one

disputes that the City has’ the

power to prohibit the demolition of

SRO properties, or direct

restoration of SRO units to

habitable condition to be leased at

modest rents for indefinite

periods. The City clearly has that

A-64

aaa ii ial

power. The question is who is to

pay for this, and, more

particularly, whether the City --

in accordance with constitutional

mandate -- must compensate property

owners before it can "place [them]

in a business, force them to remain

in that business and refuse _ to

allow them to ever cease doing

[that] business." . (134 Misc 2d

187, 197.) The issue is not one of

"economic due process,” but

constitutional command.

No one minimizes the tragic

reality of homelessness. But the

City's response -- to foist its

responsibility on certain private

property owners, by requiring them

to remain in the SRO business or

ransom their property rights --

simply does not meet the

A-65

requirements of the federal and

state constitutions.

The order of the Appellate

Division should be reversed, with

costs, Local Law No. 9 declared to

be unconstitutional as stated in

this opinion, and defendants

enjoined from implementing the

law's provisions.

A-66

BELLACOSA, J. (dissenting):

I vote to affirm the

declaration of facial

constitutionality of New York

City's Local Law 9 -- the Single

_ Room Occupancy (SRO) Moratorium Law

(adubnier tative Code of City of New

York §27-198.2).

In 1904, Justice Holmes wrote

the quintessential dissenting

opinion in Lochner v. New York (198

US 45, 74), which presciently

warned against his own Court

declaring unconstitutional an act

of the New York State Legislature

attempting ‘i limit the working

hours of children. The historical,

economic, social, legal, policy and

constitutional parallels to’ the

facial jettisoning of New York

City's SRO law suggest that it

67

>

i

would be far better to harken to

that history instead of being

condemned to relive it.

Justice Holmes eloquently and

cogently sums up the relevancy:

[A] constitution is not

intended to embody a

particular economic’ [or

property] theory, whether

of paternalism and_ the

organic relation of the

citizen to the State or

of laissez faire. It is

made for people of

fundamentally differing

views.* * * General

propositions do not

decide concrete cases.

The decision will depend

on a judgment or

intuition more subtle

than any articulate major

premise. * * * [I think

that the word liberty in

the Fourteenth 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 man

necessarily would admit

that the statute proposed

would 4 infringe

fundamental principles as

they have been understood

by the traditions of our

A-68

ae ee een —— ee |

Ee ae eel

ae

people and our law. It

does not need research to

show that no such

sweeping condemnation can

be passed upon the

statute before us (id.,

at 75-76 [emphasis

added]).

Nor on the Local Law before us

either!

Eighty-five years after

Lochner, we observe property

rights, like the contract rights of

that bygone era, being exalted over

the Legislature's assessment of

social policy. Like the economic

theories underlying Lochner we, as

judges, should not inquire into the

wisdom or wholesomeness of SRO's as

shelter for potentially 52,000 new,

displaced homeless persons -- that

policy choice belongs to the

elected officials who enacted the

law (see, Lochner v. New York,

A-69.

supra, at 75; Boreali v. Axelrod,

71 We2d 1, 12).

It would seem fundamental that

a law that has no real impact upon

a person does not deprive that

person of a constitutional right.

The majority, however, ignores that

the SRO law will have varied

affects on different landowners.

Perhaps there are properties

subject to this law for which SRO

operation is the highest and best

use. for other SRO operations, 8

1/2% may be a generous rate of

return. It is likely that there

are SRO owners who have _ never

intended to further develop’ or

differently develop their property.

Of course, these persons are not

before the Court and, if they were,

their interests might well be

A-70

served by upholding the SRO law.

Yet, without a record or the means

to assess the differing impacts and

with no attempt to make this

assessment, the majority holds that

Local Law 9 facially results in a

‘regulatory taking with respect to

every SRO dwelling in the City of

New York. Resisting the blanket

approach and using the _ concrete

facts of an individual case is not

a novel approach, especially in

this area of constitutional law

(see also, Ward v. Rock Against

Racism, US ; S. Ct.

1989 WL 65720, at 19).

The legislation enjoys a

presumptive threshold of

constitutionality. Research

reveals no cases in which the

Supreme Court or our Court have

A-71

used the regulatory taking theory

to undo a legislative act on a

facial attack. Also, no precedents

in the orbit of this case have

previously ventured into the per se

physical taking universe to declare

a Lenieiative act facially

unconstitutional. It could well be

that, due to the need to assess the

real economic impact of this kind

of law upon different property

owners before a regulatory taking

is decreed, no such doctrine as a

facial challenge to a law as a

regulatory taking will be

recognized. But even if such a

proposition is possible, it

certainly has not been found to and

should not be allowed to be applied

against a law such as the

challenged one which inherently

A-72

impacts on widely diverse and

different property owners.

The ardently protected

economic liberties of property

owners to do with their property as

they wish, as long as that use does

not interfere with the liberty of

others to do the same --_ the

shibboleth upon which the dual

"taking" analysis is erected in

this case -- can cut both ways and

is therefore not dispositive of

this case at this. stage. This

Court has in recent years.

recognized and approved significant

encroachments on the ‘libertarian

ideal of property rights against

"takings" claims. Property rights

are acknowledged justly as_ not

absolute, "for government could not

exist if a citizen had the

A-73

diy

“unfettered right to “use property"

(Rochester Gas & Electric v. Public

Serv. Commn., 71 NY2d 313, 321;

see, 41 Kew Gardens Assoc. _v.

Tyburski, 70 NY2d 325; Jackson v.

NY Urban Development Corp., 67 NY2d

400; Benson Realty Corp. v. Beame,

50 NY2d 994; Penn Cent. Transp. Co.

v. New York City, 42 NY2d 324,

aff'd 438 US 104). These

illustrative contrary precedents

sink or at least submerge the logic

and absolutist constitutional

taking analysis advanced to support

a reversal in this case.

In the late 1960's, New York

City enacted a policy of utilizing

tax abatements to encourage the

destruction of SRO's as substandard

housing. When the staggering

impact on the homeless population

A-74

was realized, the City adjusted its

policy, recognizing SRO shelter to

be a significant component to the

preservation of an affordable

housing stock (see, Blackburn,

Single Room Occupancy in New York

CEey; Bt > B-7?. This Court only

recently upheld the 1982 repeal of

a tax abatement incentives against

a Fifth Amendment due process claim

by a property owner (Matter of

Replan Dev. v. Dept. of Housing

Preservation and Development of the

City of New York, 70 NY2d 451). We

noted, with pertinency here, that

"the amendment evidences the

Legislature's attempt to preserve

what had become recognized as an

important but rapidly disappearing

source of low-income housing by

eliminating the tax incentive to

A-75

convert SRO's" (id., at 454-5; s

also, Benson Realty Corp. v. Beame,

50 NY2d 994, supra).

The repeal of the tax

abatements could not alone stanch

the decline in the number of SRO

units. Responding to the continued

trend, the City passed the first

SRO moratorium law, a predecessor

to Local Law 9,.on City Council

findings "that a serious’ public

emergency exists * * * caused by

the loss of single room occupancy

dwelling units housing lower income

persons" (Local Law 59 of 1985,

§1). In extending the moratorium

in 1986, the City Council added

"that there has been widespread

withdrawal of single room occupancy

dwelling units from the~ rental

market, which has further reduced

an already inadequate supply of

such units, [ and } that this

“practice has contributed to the

increasing homeless population”

(Local Law 22 of 1986, §1). A year

later, the Council addressed the

SRO housing crisis in terms of the

increasing homeless population,

stating "that adequate housing

resources for such occupants do not

currently exist; [and] that there

is evidence to conclude that the

ordinary operation of the real

estate market in this city will

result in further reduction of such

units and that units which have

been lost will not be replaced"

(Local Law 1 of 1987, §1, amended

and re-enacted Local Law 9 of

1987).

A-77

Local Law 9 (Administrative

Code of the City of New York,

§27-198.2) builds on these

emergency legislative initiatives

and establishes a renewable

five-year moratorium on the

demolition or conversion of SRO

units. Owners must make SRO

dwelling units habitable, may not

warehouse them, and must rent them

to bona fide tenants

(Administrative Code §27-215lfa]).

Owners may avoid application of the

law by showing hardship, buying out

or replacing the units

(Administrative | Code

§27-198.2fd][4]). The replacement

provision étiews demolition or

conversion if new units are created

through construction,

rehabilitation or by buying = an

A-78

existing multiple dwelling. The

hardship exemption applies if the

property will not produce a

reasonable rate of return and the

replacement exemption would

substantially impair the

feasibility of redeveloping’ the

property. A reasonable rate of

return is defined as an annual

profit equal to 8 1/24 of the

assessed value of the property.

Another ultimate effort at

legislatively balancing the

respective rights of owners with

the critical public interest in low

and moderate housing needs allows

an owner to obtain an exemption

from the Local Law, by exercising a

buy out of units subject to the

moratorium. the $45,000 buy out

A-79

money must be used te provide

substitutive affordable housing.

The rebellion against’ this

careful legislative calibration,

and against the Supreme Court and

cour own Court's admonitions that

constitutional takings claims

should be resolved on a singularly

analyzed, as-applied basis with

concrete factual settings, is

untenable (see, Pennell v. City of

San Jose, 485 US l, 108 S Ct

849, 857; Rochester-Gas & Electric

v. Public Serv. Commn., 71 NY2d

313, 324, supra). The Court should

not sweepingly hold that the SRO

moratorium law produces both a

regulatory and a per se physical

taking, facially violative of the

United States Constitution.

A-80

wh

wd

Enactments of a local law

pursuant to New York Constitution

Article IX, §2[c],[10] and

Municipal Home Rule Law

§l10[1l}[ii]f[a][12}] enjoy a full

presumption of constitutionality.

A challenger must prove the

legislation unconstitutional beyond

a reasonable doubt (41 Kew Gardens

Assoc. v. Tyburski, 70 NY2d 325,

333, supra). Additionally, when

the challenge is to economic

legislation, “modern substantive

due process principles require that

the judiciary give great deference

to the [legislative body }"

(Rochester Gas and_Electric v.

Public Serv. Commn., 71 NY2d 313,

320, citing, Exxon Corp. Vv.

Governor of Md., 437 US 117, 124,

reh denied sub nom. Shell Oil Co.

A-81

~v. Governor of Md., 439 US 884;

see, Lincoln Federal Labor Union v.

Northwestern Iron and Metal Co.,

335 US 525; West Coast Hotel v.

Parrish, 300 US 379; Tribe,

American Constitutional Law [2d

ed], at 581).

Statutes undergoing

constitutional challenge as

facially invalid in a_ takings

context enjoy even greater

deference because there is "an

important distinction between a

claim that the mere enactment of a

statute constitutes a taking and a

claim that the particular impact of

government action on aé_e specific

piece of property requires’ the

payment of just compensation"

(Keystone Bituminous Coal Assn. v.

DeBenedictis, 480 US 470, 494).

A-82

The Supreme Court routinely rejects

preenforcement taking chailenges --

conceptually and functionally

equivalent to facial attacks -- to

the constitutionality of

legislative enactments. Relevantly

and bluntly, that Court recently

rejected a facial challenge to a

rent control law, stating: “we

have found it particularly

important in takings cases’ to

adhere to our admonition that ‘the

constitutionality of statutes ought

not be decided except in an actual

factual setting that makes such a

decision necessary’ (Pennell v.

City of San Jose, 485 US l, pti

108 S Ct 849, 856, supra, quoting .

Hodel v. Virginia Surface Mining & ~

Reclamation Assn, Inc., 452 US 264,

294-295; see also, Ruckelshaus_ v.

A-83

(ocerattienlineenas adits 0 selieeliatneanaaeeeneall

Mensanto, 467 US 986, 1005; Kaiser

Aetna v. United States, 444 US 164,

175, citing, Penn Cent. Transp. Co.

v. City of New York, 438 US 104,

124).

The Supreme Court's

"admonition" is particularly

pertinent in this case where the

declaration of facial

unconstitutionality is

overinclusive and rooted in a

record devoid of epentiite and

relevant facts. The conclusion

that the anti-warehousing and

rental provisions are a_e forced

occupation, effecting a per se

physical taking, contradicts’ the

way high courts have treated their

functionally and conceptually

equivalent rent control and

regulatory statutes -- by

A-84

repeatedly finding them

constitutional, at least facially

(see, Pennell v. City of San Jose,

485 US 1, 108 S Ct 849, supra;

Benson Realty Corp. v. Beame, 50

NY2d 994, supra; see also, Nollan ~

Vv. California Coastal Commn., 483

US 825; Loretto v. Teleprompter

Nes

Manhattan CATV Corp., 458 US 419).

This contrary holding negates an

as-applied analysis which could

support findings in appropriate

cases that some SRO's are currently

being operated at their highest and

best use, thus suffering no

economic disadvantage under the

law; or that, by reason of the

\ hardship provision, may never be

subject to the moratorium. There

is no way of knowing on this record

the extent to which landlords are

A-85

Bali PII rer - Hao ore ee Bie Bs RY erm e

economically affected or how

profitable the dwelling units might

be. Facial constitutional

annihilation in such circumstances

is a disproportionate remedy.

The majority's footnote 13

misinterprets what is traditionally

referred to as a "facial" challenge

and, as such, fails to contend with

a real deficiency in its analysis.

A facial challenge is an argument

that concludes that the law at

issue is a taking in all its

applications, as to every property

within the law's ambit. Of course

there have been pre-enforcement

challenges to laws as_ regulatory

takings as applied to a particular

owner's property, but the majerity

does not identify even ome case

that has held that a statute, in

A-86

all its applications, as to every

piece of property affected by the

law, works a regulatory taking

because it frustrates the planned

use for a piece of property. It

does not explain how it can hold

that the SRO law works a taking

wherever the law applies. Yet, the

majority concludes that the SRO law

is a taking because it subjects

properties to a use that owners

"neither planned or desired" (slip

opn at p. ll). Simply put, the

court is without any means in this

case to know what every SRO owner

"planned or desired.”

Ancther serious consequence

overlooked by the majority is that

its facial decree

disproportionately demolishes a

legislative structure designed to

protect those in dire need. It

thus legally positions the property

owners to seek proportionate "just

compensation" from the municipality

daring to take, even temporarily,

their properties and depriving them

of their preferred uses (First

English Evangelical Lutheran Church

v. County of Los Angeles, 482 US

304, 321; see, Loretto v.

Teleprompter Manhattan CATV, 58

NY2d 143, 149, 153, on remand from

458 US 419, supra; see _ also,

Peterson, Land Use __ Regulatory

"Takings" Revisited: The New York

Supreme Court Approaches, 39

Hastings Law Journal, 335, 337).

Thus, ironicaliy, instead of a tax

and services burden being shared

somewhat equally, one class of

property owners may reap a windfall

at the expense of all others by the

most plenary threshold mechanism.

The majority's decision compensates

those from whom nothing is taken at

the expense of those who have

nothing to give.

In substantive due _ process

inverse condemnation analysis, two

distinct tests have evolved; one

applicable to physical takings and

the other to regulatory types. "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 ‘end burdens of economic

life to promote the common good”

(Penn Cent. Transp. Co. v. New York

City, 438 US 104, 124, supra

A-89

RET COTE 9° SESH orm CREEPER

[citations omitted]). Physical

invasion cases are special because

of the nature and quality of the

governmental intrusion on a private

party's property rights. A simple

"

bright line rule applies: any

permanent physical occupation is a

taking" (Loretto v. Teleprompter

Manhattan CATV Corp., 458 US 419,

432, supra [emphasis added]).

"[W]hen~ the "character of the

government action’ is a permanent

physical occupation of property

[the Supreme Court's] cases

uniformly have found a taking to

the extent of the . occupation,

without regard to whether’ the

action achieves an important public

benefit or has only minimal

economic impact on the owner” (id.,

at 434-435 [emphasis added,

A-90

citations omitted]; Nollan _v.

California Coastal Commn., 483 US

825, 831, supra; Kaiser Aetna v.

United States, 444 US 164, 180,

supra).

The moratorium law at issue

does not effect a physical taking

because on its face it is not

permanent in its individual

application or in its limited five

year duration. As the Supreme

Court reminded in Pennell (485 US

aa: fF Sa oe |. oe ee

supra), "We stated in Loretto v.

Teleprompter Manhattan CATV Corp.,

458 US 419, 102 S. Ct. 3164, 73

L.Ed.2d 868 (1982), that we have

"consistently affirmed that States

have broad power’ to regulate

housing conditions in general and

the landlord-tenant relationship in

A-91

particular without paying

- compensation for all economic

injuries that such regulation

entails." Id., at 440, 102 S. Ct.,

at 3178 (citing, inter alia, Bowles

v. Willingham, 321 US 503, 517-518,

64 S. Ct. 641, 648-649, 88 L.Ed.

892 (1944)). And in FCC v. Florida

Power Corp., 480 US 107 S. Ct.

1107, 94 L.Ed.2d 282 (1987), we

stated that ‘statutes regulating

the economic relations of landlords

and : tenants are not per se

ee. cne., 2 ... 207 &. Ct.,

et Lithia

Equally inapplicable is’ the

regulatory taking approach. The

concept that "if regulation goes

too far it will be recognized as a

taking," now universally accepted

in light of modern principles of

A-92

substantive due process, was

accompanied, even in its embryonic

stage, with guidelines particularly

resonant here:

Government hardly could

go on if to some extent

values incident to

property could not_ be

diminished without paying

for every such change in

the general law. As long

recognized, some values

are enjoyed under an

implied limitation and

must yield to the police

power. But obviously the

implied limitation must

have its limits, or the

contract and due process

clauses are gone. One

fact for consideration in

determining such limits

is the extent of the

diminution. When it

reaches a certain

magnitude, in most if not

in all cases there must

be an exercise of eminent

domain and compensation

to sustain the act. So

the question depends upon

the narticular facts

(Pennsylvania Coal Co. v.

Mahon, 260 US 393, 413,

415 [Holmes, J.]).

A-93

Three important elements from this

passage have evolved to become

integral parts of regulatory taking

analysis: claims should be

resolved on concrete facts; the

property regulation should

substantially advance a legitimate

governmental interest; and the

owner should not be denied

economically viable use of the

regulated property (see, Nollan v.

California Coastal Commn., 483 US

825, 834, supra; Agins v. Tiburon,

447 US 255, 260; Penn Cent. Transp.

Co. v. New York City, 438 US 104,

124, 127, supra; see also,

Peterson, Land Use Regulatory

“Takings" Revisited: The New

Supreme Court Approaches, 39

Hastings Law Journal 335, 339-351,

supra).

A-94

No litmus test is available to

determine what constitutes a

legitimate state interest or what

type of nexus " "between the

regulation and the state interest

satisfies the requirement that the

former’ substantially advance the

latter,” but it is clear that "a

broad range of governmental

purposes and regulations satisfies

these requirements” (Nollan_v.

|

Pennell

825, 834-835, supra; see,

v. City of San Jose, 485 US 1, 108

S Ct 849 [affordable housing],

supra; Ruckelshaus v. Monsanto, 467

US 986, supra [pesticide research

and registration]; Andrus Vv.

Allard, 444 US 51 [vrotection of

endangered birds]; see also, Matter

Dept. of Housing

A-95

Preservation and Development, 70

NY2d 451, supra [preservation SRO

housing stock]; Benson Realty Corp.

v. Beame, 50 NY2d 994, supra

[stable stock of affordable

housing]).— As long as the law has

an identifiable public character,

the ‘means by which it is attained

is for the legislative body to

determine, not the Courts

(Ruckelshaus v. Monsanto, 467 US

986, 1014, supra).

There is no disagreement that

Local Law 9 is of the "greatest

societal purpose” because it cannot

be seriously disputed that

preserving SRO housing stock and

stanching the growing ranks of the

City's shelter-less population is a

legitimate governmental interest of

the highest, most critical order

A-96

(see, Matter of Replan Dev. v.

Dept. of Housing Preservation and

Development of the City of New

York, 70 NY2d 451, 454-455, supra).

The SRO moratorium applies a

tourniquet to the loss of this part

of the housing stock and

substantially advances the City

Council's expressed legislative

interest of preserving these

sheltering units and avoiding a

further spillage of homeless into

the City's street population.

When it is clear -- as in this

case -- that a law substantially

advances a self-evidently

legitimate governmental interest,

the test to be applied in

considering a facial challenge is

simplified: "Tal. statute

regulating the uses that can be

A-97

er ere a wre _-

~ en 19

made of property effects a taking

if it denies an owner economically

viable use of his land" (Hodel v.

Virginia Surface Mining, 452 US

264, 295-296, supra; see, Keystone

Bituminous Coal Assn. v.°

DeBenedictis, 480 US 470, 495,

supra; Agins v. Tiburon, 447 US

253, 260, supra). The SRO

moratorium law effects no_- such

deprivation. Indeed, it guarantees

a fair minimum return, among a

whole host of other economic

balancing features. Government

regulation almost always limits the

maximization of the economic

aggrandizement from private

property ownership. Local Law 9

concededly places substantial

restraints on the destruction or

redevelopment of SRO buildings.

A-98

But I would find dispositive of

this takings challenge that the law

leaves the owners in possession and

guarantees them a whole web of

economic concessions or

’

"sive-backs,' including the minimum

profit of 8 1/2 percent of the

assessed value of the property per

year (see, Andrus v. Allard, 444 US

51, 65-66, supra).

Appellant owners and some

amici argue nevertheless that

properties could be put to more

profitable uses if their

destruction or redevelopment

options were unimpeded. The simple

answer to that proposition is that

a property owner is not

constitutionally guaranteed the

most profitable use (Andrus_ vy.

Allard, supra; Penn Cent. Transp.

A-99 ‘

Co. v. New York City, 438 US 104,

125, supra). In determining

whether regulations over property

deprive the owner of the

economically viable use of the

land, we have required proof "by

‘dollars and cents' evidence that

under*® no use permitted by the

regulation under attack would the

properties be capable of producing

a reasonable return; the economic

value, or all but a bare residue of

economic value, of the parcels must

have been destroyed" (de St. Aubin

v. Flacke, 68 NY2d 66, 77; see,

Penn Cent. Transp. Co. v. City of

New York, 42 NY2d 324, 329-331,

aff'd 438 US 104, supra; French

Investing Co. v. City of New York,

39 NY2d 587, 596, appeal dismissed

429 US 990). That standard can be

A- 100

properly ventilated and applied

only in administrative and judicial

forums on an as-applied case record

development -- not in an aerie

perch on a facial review.

The loss of future profits

argument also "provides a slender

reed upon which to rest a takings

claim. Prediction of profitability

is essentially a matter of reasoned

speculation that courts are not

especially competent to perform.

Further, perhaps because of its

very uncertainty, the interest in

anticipated gains has traditionally

been viewed as less compelling than

other property related interests"

(Andrus v. Allard, 444 US 51, 66,

supra). Insofar as the case

presents a facial attack, there is

absolutely no record basis against

A-101

which tto determine whether’ the

moratorium law interferes with

distinct ‘investment -backed

expectations" (see, Penn Cent.

Transp. Co. v. New York City, 438

US 104, 124, supra).

Peripherally, the Court also

decides today that one particular

known person may not be ousted from

his habitation because that would

violate a legislated anti-eviction

policy in a rent control situation

(Braschi _v. Stahl Associates,

NY2d pa’ [slip opn, decided

today]). To be sure, the statutes

and the issues have some

differences, but they have one

essential feature im common: Local

Law 9's genesis and purpose are

founded in the identical social

policy as the anti-eviction

A-102

EE A Mg awe CN te

a

regulation -- securing shelter for

people -- only in the instant case

the statute tries to protect the

most disadvantaged members of our

society who truly have nowhere else

to go. The Court, contradictorily

in my view, authorizes =

expulsion of 52,000 people to

allow, in the main, for commercial

redeve lopment of their former

less-than-modest dwellings while

keeping one known individual in his

rent-controlled apartment. The

decisional compass seems to be

oscillating between opposite poles.

In sum, the Constitution, the

authorities and the policies do not

support the conclusion that the

legislated emergency moratorium

against the elimination of SRO

dwelling units, societally critical

A-103

to the temporary preservation of

some housing for low income

persons, is a facially

impermissible governmental taking,

i.e., an inverse condemnation of

property. The precedents of the

Supreme Court and of our Court,

properly applied and understood, do

not warrant the grave judicial

usurpation effected today in the

declaration of facial

unconstitutionality of an enactment

by a duly elected democratic body

-- a declaration which gives en

intonation to Judge Cardozo's

disquieting observation that:

"Judges march at times to pitiless

conclusion under the prod of a

remorseless logic which is supposed

to leave them no alternative. They

deplore the sacrificial rite. They

A-104

perform st. nonetheless, with

averted gaze, convinced as_ they

plunge the knife that they obey the

bidding of their office. The

victim is offered up to the gods of

jurisprudence on the alter of

regularity" (Cardozo, Growth of the

Law, at 66).

ee ff & & & €& eke et 2 2 = 2 2 EE FT 2

Order reversed, with costs, Local

Law No. 9 declared to be

unconstitutional and defendants

enjoined from implementing the

Local Law's provisions. Opinion by

Judge Hancock in which Judges

Simons, Kaye, Alexander and Titone

concur. Judge Bellacosa dissents

and votes to affirm in an opinion

in which Chief Judge Wachtler

concurs.

A-105

Decided July 6, 1989

A- 106

DECISION OF THE APPELLATE DIVESION,

FIRST DEPARTMENT, DATED DECEMBER 1,

1988

SEAWALL ASSOCIATES et Sl.

Respondents, and 459 WEST 43RD

STREET CORP. et |

Respondents-Appellants, v. CITY OF

NEW YORK et oo

Appellants-Respondents, and RICHARD

WILKERSON et rs.

Intervenors-Appellants. (Action No.

1)

EASTERN PORK PRODUCTS COMPANY et

Gi.s Respondents-Appellants, Vv.

CITY OF NEW YORK et Ghia.

Appellants-Respondents. (Action No.

y

TESTAMENTUM, Respondent, v CITY OF

NEW YORK et ek. ,

Defendants-Appellants. (Action No.

399 =

First Department, December 1, 1988

SUMMARY

CROSS APPEALS from three

orders and judgments (three papers)

of the Supreme Court (David B.

Saxe, J.), entered March 16, 1988

in New York County, which, in

actions Nos. 1 and 3, declared

invalid various provisions of Local

Laws, 1987, No. 9 of the City of

New York, and enjoined the city

from implementing or enforcing said

provisions, and, in action No. 2,

granted the cross-motion of the

A-107

municipal defendants to dismiss the

complaint.

Seawall Assocs. v. City of New

York; 138 Misc 2d 96, reversed.

Eastern Pork Prods. Co. v. City of

New York, 138 Misc 2d 96, affirmed.

Testamentum v. City of New York,

138 Misc 2d 96, reversed.

APPEARANCES OF COUNSEL

Nathan Dershowitz of counsel

(Sheldon D. Camhy and George G.

Nelson with him on _ the 0brief;

Dershowitz & Eiger, P.C., and Shea

& Gould, attorneys), for Seawall

Associates, respondent.

Marvin LL. Schwartz of counsel

(Shapiro & Schwartz, attorneys) for

Anbe Realty Co., respondent.

Philip H. Schaeffer of counsel

(Jane __iOD.z. Connolly and Steven

Mairella with him on the brief;

White & Case, attorneys), for 459

West 43rd Street Corp. and another,

respondents-appellants in actions

Nos. 1 and 2.

Gary M. Rosenberg of counsel

(Franklin R. Kaiman and Theresa J.

Hecker with him on the brief;

Rosenberg & Estis, weno

attorneys), for Sutton East

Associates -86 and another,

respondents-appellants.

A-108

Elizabeth Dvorkin (Leonard Koerner

with her on the brief; Peter L.

Zimroth, Corporation Counsel,

attorney), for City of New York,

appellants-respondents in actions

Nos. l and 2 and

defendants-appellants in action No.

.

Saralee E. Evans of counsel (Norman

Siegel, Wayne G. Hawley and Anne R.

Teicher with her on the brief), for

Richard Wilkerson and others,

intervenors-appellants.

Virginia Shubert of counsel (Robert

M. Hayes and Mitchell S. Bernard

with her on the brief), for

Coalition for the Homeless,

intervenor-appellant.

Edmund J. Burns of counsel (Maria

Scorcia with him on the brief;

Burns, Kennedy, Schilling & O'Shea,

attorneys), for Testamentum,

respondent.

Carol S. Keenan of counsel (Ruben

Klein, P.C., and Ronald A. Zumbrun,

Edward J. Connor, Jr., and Timothy

A. Bittle, attorneys), for Pacific

Legal Foundation, amicus curiae.

OPINION OF THE COURT

The issue in these

consolidated actions is whether

Local Laws, 1987, No. 9 of the City

A-109

of New York, which was approved

March 5, 1987 and which, inter

alia, provides for a five-year

moratorium on the demolition or

conversion. of single room occupancy

housing, is constitutional.

For more than 10 years, the

governmental officials of the City

of ave York have been wrestling

with the problems related to single

room occupancy (SRO) housing.

An SRO has been defined as a

living unit which shares a kitchen

and/or bathroom with one or more

other units (see, Blackburn, Single

Room Occupancy in New York City

[1986 report prepared for the City

of New York Department of Housing,

Preservation and Development ]).

SRO units are found in hotels,

apartment buildings, and even

A-110

private homes. We "judicially

notice” (Prink v. Rockefeller

Center, 48 NY2d 309, 316-317

[1979]), as a matter of common

knowledge, that for generations,

SRO units have served as a

relatively inexpensive form of.

shelter for persons of low and

moderate income.

Over the past decade, two

major factors have caused a

significant decline in the number

of SRO units available to the poor.

First’, upon the basis of adopting

the widespread opinion that SRO

units were "substandard" housing,

the City adopted a policy of

encouraging the démolition, - and

then redevelopment of the buildings

containing such units. Second, due

to the rapid rise in real estate

A-111

eat TS bo coms

values in New York City,

particularly in Manhattan, where

75% of the SRO units are located,

many SRO owners found it more

profitable to convert their

buildings to commercial and other

residential uses, rather than to

continue to operate them as SROs.

Mr. Paul A. Crotty,

Commissioner of the New York City

Department of Housing Preservation

and Development (HPD), in an

affidavit, dated April 13, 1987,

which was submitted in support of

the city's position in the instant

litigation, stated, in pertinent

part: "Significant hardships and

social costs have attended the

decline in the number of SRO units.

SRO residents have frequently been

pressured to vacate units through

A-112

the use of threats, violence,

reductions in essential services

and other forms of harassment. The

elderly, physically and mentally

disabled and non-English speaking

residents of SROs have been

especially vulnerable -to such

tactics. Because of a severe

shortage of lower cost housing in

New York City, displaced SRO

residents often find it difficult

or impossible to find new housing.

mete Moreover, there is

substantial evidence that the

displacement of SRO residents and

the loss of these units has

contributed to the City's growing

homeless population. Providing

shelter for the homeless has placed

a significant strain on the City’s

resources. The City provides

A-113

shelter for a far greater number of

homeless people than any other City

in the county. Indeed, New York

City currently houses as_~= many

homeless individuals in its

shelters as it did at the height of

the Geant Banvecsion.”

As soon as the City government

realized that SRO units were

disappearing at an alarming rate

from the city's housing stock, with

the result that the number of

affordable rental housing units for

the poor was shrinking, the city

abandoned its policy, mentioned

supra, of encouraging the

destruction and redevelopment of

SRO units, and took steps to stop

the decline in this form of

housing.

A-114

In 1982, the city signalled

its change in policy, by amending

Administrative Code of the City of

New York (Administrative Code)

J51-2.5(i)(6) (now §11-243[i][6]),

so as to eliminate the J51 property

tax abatements for the conversion

of SRO dwellings to other uses;

and, the Court of Appeals in Matter

of Replan Dev. v. Department of

Hous. Preservation & Dev. (70 NY2d

451 [1987], appeal dismissed ___ US

___, 108 S Ct 1207 [1988]), held

that legislation constitutional.

Subsequently, in an effort to

discourage the harassment of SRO

residents by owners, who were

seeking to empty their buildings in

order to make more profitable use

of them, the City Council in 1982,

enacted the Unlawful Eviction Law

A-115

hr Ror init ater a:

(see, Local Laws, 1982, No. 56, of

City of New York), and, funded the

Special Housing Unit in the New

York County District Attorney's

Office, which specialized in the

investigation and prosecution of

corrupt landlords, who used

unlawful means to drive SRO tenants

out.

Thereafter, in 1983, for the

purpose of slowing up efforts at

alteration or demolition of SRO

properties, the Council enacted

Local Laws, 1983, No. 19, of the

City of New York, which provided

that the City Department of

Buildings could not issue a permit

for the alteration or demolition of

an SRO building, unless the

Commissioner of HPD certified that

there had been no harassment of the

A-116

residents of such a building during

the previous 36 months.

Furthermore, this law states, if

HPD certification is denied, then

the Department of Buildings is

prohibited (see, Administrative

Code § 27-198) from issuing this

type of permit for a period of 36

months from the date of the denial

of the certification. This

regulatory scheme was’ sustained,

after a Federal constitutional

challenge, in Sadowsky v. City of

New York (732 YF2d 312 {2d Cir

1984]).

When the enactment of _ the

laws, discussed supra, did not*stem

the decline in the sieilbvaie of SRO

units, the Council enacted Local

Laws, 1985, No. 59, of the City of

New York. In enacting this law the

A-117

Council declared that it had found

"a serious public emergency exists

* * * created by the loss of single

room occupancy units housing lower

income persons" (see, Local Law No.

59, § 1). The purpose of this law

was to maintain the status quo,

while the city reformulated its

policy of dealing with the SRO

problem. Our examination of Local

Law No. 59 indicates that it, in

substance, placed an 18-month

moratorium, retroactive to January

9, 1985, on the demolition or

conversion of most categories of

SRO properties, and mandated a

study of SRO housing.

Mr. Anthony J. Blackburn, as

project director, conducted’ the

mandated study. In 1986, he issued

to the HPD a report, which was

A-118

Se ee ae ee

prepared by Urban System Research &

Engineering, ie. and entitled:

SINGLE ROOM OCCUPANCY IN NEW YORK

CITY.

Review of the Blackburn study

by us indicates it found that the

number of SROs was diminishing,

SROs house a_ predominantly poor

population, and for SRO tenants,

there are no housing alternatives.

Furthermore, in substance, the

study recommended a major effort by

the city to preserve SROs, owners

of SROs should be allowed _ to

demolish them, as long as_ they

replace the units in some _ other

location, and the needs of SRO

tenants would be better teva if

the landlords of SROs were

not-for-profit corporations.

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Before city officials had

finished evaluating the Blackburn

study, und formulating a new SRO

housing plan, the moratorium,

established by Local Law No. 59,

expired on July 9, 1986.

tisditere. the Council enacted

Local Laws, 1986, No. 22 of the

City of New York, which extended

the moratorium on demolition or

conversion of SROs to December 31,

1986. Local Law No. 22 also banned

“warehousing,” by requiring SRO

owners to maintain the units in

habitable condition and, to make a

good-faith effort to rent them.

Additionally, if an SRO unit was

not occupied by a bona fide tenant

for a period of 30 days or longer,

this law created a_-— rebuttable

presumption that the SRO landlord

A-120

2 mtr CE Nt teil th aril

was in violation and, for each such

unit, the landlord was subjected to

a statutory penalty of $500, plus a

daily fine of $250. Moreover, this

law exempted largely © vacant

buildings from the moratorium and

“ant iwarehousing” ' provisions,

either as of right, or by payment

to a housing fund.

The constitutionality of Local

Law No. 22 was challenged by

Seawall Associates (Seawall), 459

West 43rd Street Corporation (459

West), Eastern Pork Products

Company (Eastern), Sutton East

Associates-86 (Sutton East),

Channel Club and Anbe Realty Co.

(Anbe Realty).

Seawall is a partnership,

which is engaged in the business of

acquiring and holding real property

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ee ot ee

i ee ee oe

in midtown Manhattan for

development and sale. In October

1984, Seawall purchased several

contiguous lots, in the block

bounded by 33rd and 34th Streets

and Eighth and Ninth Avenues.

Included in this plot were old

structures in poor condition, which

had been operated by prior owners

as SRO residential hotels. One of

these buildings was half empty, a

second was nearly vacant, and a

third contained no tenants at all.

The intention of Seawall is to

demolish all of the buildings, and

erect a commercial office building.

459 West is in the business of

acquiring real estate for, inter

alia, development and sale. On or

about April 4, 1970, an affiliate

of 459 West acquired "The

A~taz

Diplomat," which was operated as a

residential hotel, containing 216

SRO units. The Diplomat is located

at 108 West 43rd Street, in New

York County. By 1986, according to

owner 459 West, 110 of the

Diplomat's SRO units were vacant

and uninhabitable. Unequivocally,

459 West states that it has_ no

intention of offering any vacant

SRO unit for occupancy, or _ to

continue the tenancy of any tenants

dwelling in the occupied SRO units,

except as required by law.

Eastern is a partnership and,

like 459 West, it is engaged in the

business of acquiring real estate

for the purposes of development and

sale. Pursuant to a contract, made

on or about May 1, 1986, Eastern

purchased an SRO building located

A-123

AE RE RI RR Ae

at 611 Ninth Avenue, New York

County. This multiple dwelling

contained 18 SRO units, of which 8

were occupied by tenants, 10 were

vacant and uninhabitable.

Unequivocally, Eastern, like 459

West, asserts that it has_ no

intention of offering any vacant

SRO unit for occupancy, or_ to

continue the tenancy of any tenants

dwelling in the occupied SRO units,

except as required by law.

Sutton East, in January 1985,

purchased the Gracie Square Hotel,

located at 451 East 86th Street, in

Manhattan. This hotel contained 31

SRO units, many of which had been

vacant for some time.

Approximately three months after it

purchased that hotel, Sutton East

purchased several parcels of

A-124

property, which were adjacent to

the hotel, and located at 455 East

86th Street. Thereafter, Sutton

East demolished the structures

existing on the aforementioned

parcels, and constructed a

residential condominium building

which is known as, and owned by,

Channel Club. Sutton East

complains that the SRO regulatory

legislation has compelled it to

maintain a dilapidated SRO hotel

adjacent to the new luxury

high-rise Channel Club,

notwithstanding the fact that

Sutton East allegedly has

negotiated, without harassment,

force or interruption of services,

with the tenants for the good-faith

surrender of possession of the SRO

units. Furthermore, Sutton East

A-~i25

claims its perchene,. for

substantial consideration, of the

hotel was part of an over-all plan

to redevelop the hotel, consistent

with the’ construction of the

Channel Club.

Anbe Realty is a partnership.

Since on or about 1969, Anbe Realty

has been the registered owner and

operator of a five-story building,

which contains 29 SRO units, and

which is located at 305 West 29th

Street, in New York County.

Subsequently, by the spring of

1985, before the enactment of Local

Laws, 1986, No. 22, but during the

Council’s consideration of Local

Laws, 1985, No. 59, which was the

18-month moratorium legislation,

discussed supra, Anbe Realty = had

succeeded in emptying that building

A-126

of its SRO tenants, asa result of

two years of legitimate

negotiations with the tenants,

attrition, and lawful dispossess

proceedings. As evidence of its

good-faith efforts, Anbe offered a

certificate of no harassment issued

by the HPD, which is dated mane

22, 1985. Following the receipt of

this certificate, Anbe Realty, at

substantial expense, engaged

architects, engineers and _ other

professionals. to prersare and file

building plans to convert the now

empty building into a class A

multiple dwelling with 11

self-contained units, and on July

19, 1985, the City Department of

Buildings issued a building permit

to Anbe_ Realty. Due to’ the

enactment of Local Laws, 1985, No.

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4 ae hee

59, which, as mentioned supra, made

the moratorium legislation

retroactive to January 9, 1985,

Anbe's conversion plans were

halted, and its building permit was

revoked.

Plaintiffs Seawall, Eastern,

459 West, Sutton East and Anbe

Realty, in 1986, separately

commenced actions, which were

consolidated under index number

20891 of 1986, against the city.

The complaints of these five

plaintiffs, in substance, sought to

permanently enjoin the city from

enforcing Local Laws, 1986, No. 22

against them, upon the grounds that

the law was uncorstitutional, since

it allegedly violated the "Taking"

Clauses of the US and NY

Constitutions, which prohibit the

A-128

taking of property without due

process and just compensation, the

Council exceeded its

constitutionally granted

legislative authority by enacting a

law, which conflicted with New York

State law, and the law did not

comply with the State Environmental

Quality Review Act (SEQRA),~ the

City Environmental Quality Review

(CEQR), and the Environmental

Conservation Law (ECL).

Thereafter, by order, Supreme

Court, New York County, filed

February 20, 1987, the IAS court,

in substance, declared invalid the

antiwarehousing part of Lecal Law

No. 22, which imposed the

affirmative obligations on

plaintiffs to rehabilitate all

their vacant SRC units and to rent

A-129

them to bona fide tenants, and

enjoined the city from enforcing

those provisions.

The City did not perfect an

appeal from the February 20, 1987

order of the IAS court, since Local

Laws, 1987, No. 1, which altered

the provisions of Local Laws, 1986,

No. 22 had already been enacted

into law, and, as a result, in the

city’s opinion that appeal _ had

become moot.

While Local Laws, 1986, No. 22

was in effect, the HPD finished its

review of the Blackburn study,

discussed supra, and the result was

the first comprehensive city SRO

legislation, which was Local Laws,

1987, No. 1, and that law was

subsequently amended, and reenacted

A-130

by the Council, on March 5, 1987,

as Local Law No. 9.

This law establishes a

five-year moratorium on conversion,

alteration and, demolition of SRO

units (see, Administrative Code

§ 27-198.2), and requires SRO

owners to maintain their units in a

habitable condition and make a

good-faith effort to rent them

(see, Administrative Code

§§27-2150--27-2152). If an _ SRO

‘owner violates the provisions,

mentioned supra, he or_ she _ is

subject to civil penalties (see,

Administrative Code §27-198.2[g];

§27-2152[e]).

Our examination of the _ law

indicates its intent is to preserve

and make available existing SRO

housing. Therefore, the law

A-131

exempts buildings, which do not

actually offer such housing, and an

example is a building that has been

vacant for some time (see,

Administrative Code § 27-198.2

[d]J[1][b]), and also exempted are

buildings which are not subject to

the market forces that encourage

the demolition and conversion of

SROs, such as government - owned

buildings, and buildings which are

part of an approved project for the

rehabilitation and preservation of

SRO dwellings (see, Administrative

Code § 27-198.2[b][1L][d],[g]).

Furthermore, the law allows

SRO owners the option of

withdrawing protected SRO units

from the housing’ market, upon

providing for the replacement of

those units (see, Administrative

A-132

Code § 27-198.2 [d][4][a]). A unit

may be exempted from the law

following payment te an SRO Housing

Development Fund Company (Fund) of

an amount equal to the cost, which

has been currently set at $45,000,

of creating a replacement unit.

The funds contributed are to be

used to preserve, acquire, and

develop housing affordable by low-

and moderate-income persons.

Alternatively, actual replacement

units may be provided by acquiring

an existing multiple dwelling,

constructing a new multiple

dwelling, or rehabilitating an

existing dwelling unit.

Replacement units are to be sold or

leased to a not-for-profit

organization for operation. Since

Fund contributions may not result

A-133

OR Oe erm oe

SN LI

De ee

in immediately availabie

alternative units, where 50% or

more of the SRO units in a building

are occupied, an owner may obtain

an exemption fer the occupied units

only by obtaining or developing

actual replacement units (see,

Administrative Code

§ 27-198.2[d][4][a]), and, where an

SRO building is less than 50%

occupied, an owner desiring to take

advantage of the replacement or

buy-out options will be responsible

for relocating the remaining

tenants in comparable housing, at

comparable rent, in the same

borough of the City (see,

Administrative Code § 27-198.3[a]).

Finally, the law permits an

SRO owner to seek an exemption from

the Commissioner of HPD, upon

A-134

hardship grounds (see,

§ 27-198.2[d][4][b]), if he or she

can show no possibility of earning

a reasonable rate of return, which

has been defined as 8 1/2% of the

building's assessed value, if he or

she is compelled to maintain the

property as an SRO, and that

utilization of the replacement

exemption would substantially

impair the feasibility of

redeveloping -the property for any

other use. When such hardship is

demonstrated, HPD may reduce in

whole or part the amount to be

contributed to the Fund or the

number of replacement units to be

provided by an owner, in order to

withdraw SRO units from the housing

market. However, the law does not

allow an owner to make use of this

A-135

Rn Ee we >

exemption, where his or her

inability to earn aé_e reasonable

return is the consequence of

intentional acts of mismanagement,

which are designed to destroy the

property's value as an SRO dwelling

(see, Administrative Code

§ 27-198.2[d][4][b]).

After Local Law No. 9 took

effect, the plaintiffs, in action

No. 1 © index number 20891/1986,

Seawall, 459 West, Eastern, Sutton

East, Channel Club and Anbe Realty .

amended their complaints, mentioned

supra, and contended, in substance,

Local Law No. 9 does not comply

with the environmental laws, such

as SEQRA, CEQR and ECL, it is an

unlawful tax, is arbitrary and

confiscatory, and in violation of

A-136

Te aroma tre -

the Due Process and Taking Clauses

of the US and NY Constitutions.

In addition to action No. l,

plaintiffs Eastern, 459 West, Durst

Partners, Jambod Enterprises, Inc.

(Jambod), Mygatt/Perry, Felix Ziade

and Rocco Imperial commenced action

No. 2, index number 04016 of 1987

against the City, and contended, in

their complaint, that Local Law No.

9 is invalid, since it allegedly

violates SEQRA, CEQR and ECL, which

is legislation intended to protect

the environment. Plaintiffs

Eastern and 459 West in this action

No. 2 are also plaintiffs in action

No. l. The other plaintiffs in

action No. 2 are the Durst

Partners, who own an SRO building,

at 147-51 West 43rd Street, New

York County, and that property

A-137

contains 30 SRO units, of which

allegedly only one is occupied, and

the remainder are vacant and

uninhabitable; Jambod operates a

nightclub, known as "Shout," at 124

West 43rd Street, New York County;

Mygatt/Perry, an architectural firm

at 102 West 43rd Street, New York

County; and Messrs. Ziade and

Imperial, who for more than _ 15

years, have resided in The

Diplomat.

Testamentum commenced action

No. 3, index number 7247 of 1987

against the city, on the ground

Local Law No. 9 is in violation of

the Due Process and Taking Clauses

of the US and NY Constitutions.

This plaintiff is a subsidiary of

Covenant House, which is a

not-for-profit corporation, with

A-138

aaa aia aa

offices located in Florida, New

York, Texas, Canada and Central

America. In October 1984,

Testamentum, also a not-for-profit

corporation, purchased the Times

Square Hotel at 43rd Street and

Eighth Avenue, New York County, to

upgrade ee and then apparently

sell the property at a profit, for

the purpose of obtaining funds to

support the charitable work. of

Covenant House. There are 735

rooms in phe hotel. At the time of

acquisition, Testamentum states

this building was operated mainly

as a hotel for transients, but it

also contained some units subject

to rent stabilization. Moreover,

in its complaint, Testamentum

contends that the income it derives

"from transient guests and other

A-139

a i ‘a vey F <tto ” es: i fe Sons

pe ts Rds hd ae ak a ies ate ey ee ee a

| :

—

x

Se ae eS ey Fie Phd Na Bate Be | cs

occupants is grossly insufficient

te provide the hotel an adequate

return for cost and upkeep."

The plaintiffs in the three

actions moved for preliminary

injunctive relief, upon the ground,

in substance, that they would

suffer irreparable harm if Local

Law No. 9 was made applicable to

them while the actions were pending

determination. In response, the

defendant City opposed the motions

for a preliminary injunction, and

cross-moved for summary jiudgment in

action No. 2.

Thereafter, the IAS court

consolidated the motions in the

three actions, converted the

plaintiffs' motions for injunctive

relief to motions for summary

judgment, granted the defendant

A-140

city's cross-motion for summary

judgment in action No. 2, which was

the action that sought invalidation

of Local Law No. 9, upon the basis

it violated the environmental laws,

and granted the plaintiffs summary

judgment in actions Nos. 1 and 3,

upon the ground that the

antiwarehousing, buy-out,

replacement, and hardship

provisions of Local Law No. 9

violated plaintiffs' due process

rights, and constitute a taking of

their property for public’ use

without just compensation, in

violation of the Fifth and

Fourteenth Amendments of the US

Constitution. Furthermore, the IAS

court held invalid those provisions

of Local Law No. 9, which imposed

affirmative obligations on

A-141

4 re eT ee SS eS FT > — — ae ae eh a ee ea ee A ee

- ae 7

x

plaintiffs to rehabilitate ali of

their vacant SRO units, and

compelled them to rent them to bona

fide tenants, on the grounds that

the provisions violated plaintiffs’

due process rights (138 Misc 2d

96).

We recognize that every law is

presumed constitutional, and only

when unconstitutionality is shown

to exist beyond a reasonable doubt,

is the presumption overcome

(Defiance Milk Prods. Co. v. Due

Mead, 309 WE S37, SM1 (1956);

Montgomery v. Daniels, 38 NY2d 41,

54 [1975]). This presumption of

constitutionality is not limited to

State statutes, since it “applies *

* * to ordinances of municipalities

as well" (Lighthouse Shores v. Town

of Islip, 41 NY2d 7, 11 [1976}).

A-142

When the Court of Appeals, in

Replan Dev. v. Department of Hous.

Preservation & Dev. (70 NY2d 451,-

supra) found constitutional the

city legislation, which eliminated

J51 tax abatement for the

conversion of SRO housing to other

uses, it stated in that_ case

(supra, at 457), forestalling "the

loss of SRO housing and to

discourage the precipitous eviction

of tenants -- are valid public

purposes." The United States

Supreme Court recently indicated

that a rent-control ordinance of

the City of San Jose, California,

was constitutional on its face, and

“during a housing shortage, the

social costs of the dislocation of

low-income tenants can be severe"

(Pennell v. City of San Jose, 485

A-143

I i i ol a i i i i ei i i i i i Bie

Te ee ee eee ° .* = - - na

:

US ; 108 S Ct 849, 859, n 8

[1988]).

The plaintiffs in this

litigation do not contest’ the

city's position (see, Local Laws,

1987, No. 1, § Ll, which is the

predecessor statute to Local Law

No. 9) that, if the city had not

acted to stop the extinction of SRO

units, the ranks of the homeless

would have increased, since the SRO

owners, if left to their own

devices, would have converted those

units to more profitable uses. In

fact, an affidavit, submitted in

support of the city's position,

stated that in 1987, before Local

Law No. 9 became effective, there

were only "approximately 52,000 SRO

units * * * [left] throughout New

York City”.

A-144

cen

wee ee eee

a ee

Two amendments to the United

States Constitution safeguard

property rights from governmental

interference. Those amendments are

the Due Process Clauses of the

Fifth and Fourteenth, andthe

"Taking" or Just Compensation

Clause of the Fifth. The Federal

constitutional requirement of due

process of law has been made

applicable to the States through

the Fourteenth Amendment. Further,

the United States Supreme Court in

Chicago, Burlington & Quincy R.R.

Co. v. Chicago (166 US 226 [1897])

made the "Taking" or Just

Compensation Clause of the Fifth

Amendment applicable to the States.

New York's Constitution

declares no person shall be

deprived of his property without

A-145

due process of law (see, NY Const,

Art I, § 6), and that. private

property may not be taken without

just compensation (NY Const, Art I,

§ 7[a]).

It cannot be seriously

contended by anyone that some

provisions of Local Law No. 9, such

as those that impose a five-year

moratorium on the conversion,

alteration, and demolition of SRO

units, and which prohibits’ the

warehousing of such units, will not

cause $RO owners to lose economic

benefits. However, on many

occasions, the United States

Supreme Court, as well as_ this

State's Court of Appeals, have held

Local Laws valid, which restricted

owners from making the most

profitable use of their property.

A-146

Cer See Sy a

— oa aor a

ed

For example, the United States

Supreme Court, in Penn Cent.

Transp. Co. v. New York City (438

US 104 [1978]), upheld the

constitutionality of New York

City's Landmarks Preservation Law,

which was enacted to protect

historic landmarks and

neighborhoods, and which requires

the owners to keep them in good

repair, and to seek government

approval before making any exterior

alteration; the Court of Appeals,

in Spring Realty Co. v. New York

City Loft Bd. (69 NY2d 657 [1986],

appeal dismissed - US | i *

Ct 3179 [1987]), held New York City

validly exercised its police power,

when it enacted the Loft Law, in

order to deal with a _ housing

crisis; and, the Court of Appeals,

A- 147

in Maldini v. Ambro (36 NY2d 481

[1975], appeal dismissed and cert

denied 423 US 993 [1975]), upheld

an amendment to a zoning ordinance

of the Town of Huntington, whose

purpose was to provide adequate

housing for the elderly.

In Matter of Golden ve.

Planning Bd. (30 NY2d 359, 377-378

[1972]), the Court of Appeals

significantly states: "It is the

nature of all land use - and

development regulations to

circumscribe the course of growth

within a particular town or

district and to that extent such

restrictions invariably impede the

forces of natural growth (Euclid v.

Ambler Co., 272 U.S. 265 * * *

National Land & Inv. Co. v.

Easttown Twp. Bd. of Adj., 419 Pa.

A-148

am ii ei

—,. 2. = +>). Where those

restrictions upon the beneficial

use and enjoyment of land are

necessary to promote the ultimate

good of the community and are

within the bounds of reason, they

have been sustained.”

The United States Supreme

Court has ruled that for a statute

not to constitute an

unconstitutional taking, it must

"substantially advance legitimate

’ w

state interests," and not deny "an

owner [an] economically viable use

of his [or her property]" (Agins v.

Tiburon, 447 US 255, 260 [1980]).

In other words, there must be a

relationship between the purpose of

the legislation and the methods

employed. Therefore, once a

genuinely valid purpose is

A-149

3 .

pS ee ee ee

established, a law can restrict the

use of property, "unless the denial

would interfere so drastically with

the * * * use of * * * property as

to constitute a taking" (Nollan v.

California Coastal Commn., 483 US

uidee li peta Mee ee | BERR. + BRS

[1987]).

Although one owner or class of

owners may bear a heavier economic

burden than another, that fact

alone does not automatically mean

that a property owner is being

singled out for an unconstitutional

taking (Keystone Bituminous Coal

Assn. v. DeBenedictis, 480 US 470,

491-492 [1987]). The United States

Supreme Court states, in pertinent

part, in Keystone Bituminous Coal

Assn. v. DeBenedictis (supra, at

491-492): "Under our system of

A-150

government, one of the State's

primary ways of preserving’ the

public weal is restricting the uses

individuals can make of their

property. * * * These restrictions

are ‘properly treated as part of

the burden of common citizenship.’

Kimball Laundry Co. _v. United

States, 338 U.S. 1, 5 (1949). Long

ago it was recognized that ‘all

property in this country is held

under the implied obligation that

the owner's use of it shall not be

injurious to the community,’ Mugler

v. Kansas, 123 U.S. at 665." In

Penn Cent. Transp. Co. v. New York

City (supra), the United States

Supreme Court ruled the city may

forbid, in the public interest, the

destruction or alteration of

buildings.

A-151

After reviewing the record

before us, we find that Local Law

No. 9, following years of study and

public hearings, was enacted by the

Council to cope with a = serious

public emergency, Since it is

undisputed that, unless SRO owners

were prohibited from converting,

altering, demolishing, and

warehousing their units, the City’s

homeless population would have

risen, by the influx of former SRO

tenants, who are frequently elderly

and mentally or physically

handicapped persons, with limited

incomes.

While Local Law No. 9 may

temporarily diminish the value of

an SRO property for the period of

the moratorium, it does not reduce

the value of that property to the

A-152

level where it would be an

unconstitutional taking. The Court

of AppeatTs in de St. Aubin v.

Flacke (68 NY2d 66, 77 [1986])

states that "a property owner does

not prove ae taking solely by

evidence that the value has been

reduced by the regulation, even if

it has been substantially reduced. *

* % To be successful [such owner]

must establish that the regulation

attacked so restricts his property

that he is precluded from using it

for any purpose for which it is

reasonably adapted (Levitt oF

Incorporated Vil. of Sands Point, 6

NY2d 269, 273; Arverne Bay Constr.

Co. v. Thatcher, 278 NY 222, 226)."

Measured by the standard of de St.

Aubin v. Flacke (supra) we find

that Local Law No. 9 does not

A-153

unconstitutionally deprive an SRO

owner of economic benefit from his

or her property, since it permits

them to earn a return of 8 1/2% of

the assessed value of the property,

and this figure of 8 1/2% of the

assessed value was derived from the

hardship provisions under the rent

control laws (see, Administrative

Code § 26-408[b][5][a]), and rent

control laws have been held

constitutional in this. State

(Benson Realty Corp. v. Beame, 50.

NY2d 994 [1980], appeal dismissed

449 US 1119 [1981]).

The city concedes, at page 32

of its main brief, that "the

anti-warehousing component of the

legislation is new to New York

Al

law.

A-154

Almost 40 years ago, the Court

of Appeals held that a "local law

cannot be held to operate as a

"taking' of * * * property without

due process of law", if it is

"designed to meet an immediate and

pressing exigency," even if a

property owner is required to

remain in the housing business,

when he or she would prefer to

erect a commercial structure (Loab

Estates v. Druhe, 300 NY 176, 180

[1949]). Incidentally,

antiwarehousing legislation has

been sustained against a "taking”

challenge by a Federal District

Court, located in a sister State

(Help Hoboken Hous. v. City of

Hoboken, 650 F Supp 793, 798 [DNJ

1986]).

A-155 :

We disagree with the

plaintiff's contention that’ the

replacement and buy-out options of

Local Law No. 9 are exorbitant, or

that they are, in reality, a tax,

which merely goes into the city

coffers. :

Our examination of the record

indicates the city set the buy-out

figure at $45,000 since that was

the estimated cost of the

acquisition and rehabilitation of

an SRO unit, and the plaintiffs

offer no persuasive evidence which

indicates that said sum is

arbitrary or capricious.

Based upon our examination of

the record, we find that’ these

moneys, when received, rather than

being used for general government

purposes, will go directly into a

\

\

A-156

special fund, which is managed by

the SRO Housing Development Fund

Company , to pay for the

acquisition, deve lopment and

preservation of substitute low- and

moderate-income housing. The

requirement that property owners

contribute to such a special fund

has been held not to constitute an

unconstitutional “taking.” For

example, the Court of Appeals in

Jenad, Inc v. Village of Scarsdale,

(18 NY2d 78, 84 [1966]) upheld a

local law that required a cash

payment from a landowner to be used

for public recreation as the only

way in which said owner could avoid

allotting part of his or her land

for such purpose, and the court, in

that case, noted that the required

payment was "not a tax at all but a

A-157

reasonable form of [community]

planning for the general * * *

good."

Based upon our analysis of the

law and the facts supra, we find

that Local Law No. 9 is

constitutional in all_ respects,

since it does not either constitute

an unconstitutional taking of

property or violate due process, in

view of the fact that the

provisions of that law are intended

to accomplish the legitimate

governmental goal of preventing

homelessness, and do not deny the

plaintiffs the opportunity to earn

a reasonable rate of return 0on

their property (see, Agains v.

Tiburon, supra). -

We further find that this law

is constitutional, in that there

A-158

can be no unconstitutional taking

of property where the law provides

for, not necessarily the highest

economic use, but does provides for

an economically viable use.

Further, as set forth supra, Local

Law No. 9 contains ae hardship

provision (see, Administrative Code

§ 27-198.2[d][4]), which permits an

SRO owner to seek exemption from

this law, upon application to the

Commissioner of HPD, who is given

the power to grant such relief.

In fact, it would seem that at

least some of the plaintiffs appear

to have a meritorious argument for

such relief and we urge they

consider applying for such

exemption. | f

Some of the plaintiffs in

these consolidated actions contend

A-159

| italian ara oe eee ee A

that Local Law No. 9 allegedly

violates the State and city

environmental laws, such as SEQRA,

CEQR and ECL. This contention is

meritless, since we find that Local

Law No. 9 merely seeks the

maintenance and/or repair of

existing structures and facilities,

without substantially altering

them, and these plaintiffs have

presented no persuasive evidence to

the contrary. Therefore, since

SEQRA, CEQR and ECL only require an

environmental review when an action

is undertaken which involves

substantial changes’ in existing

structures or facilities, we find

that the action to be undertaken by

the city, pursuant to Local Law No.

9, is exempt from such review (See,

ECL 8-0105[5][iii]; CEOR § 4[f]).

A-160

We have reviewed the other

contentions of the parties in these

three consolidated actions, and

find them to be without merit.

Accordingly, order and

judgment (one paper), Supreme

Court, New York County (David B.

Saxe, J.), entered March 16, 1988,

which, inter alia, declared invalid

various provisions of Local Laws,

1987, No. 9 of the City of New

York, and enjoined the city from

implementing or enforcing them, is

unanimously reversed, on the law

and on the facts, the injunction is

vacated, and Local Law No. 9 in its

entirety is declared

constitutional, without costs

(action No. l, Index No.

20891/1986).

A-161

Order and judgment (one paper)

of the same court and Justice,

entered March 16, 1988, which

granted the cross motion of the

deféndants, City of New York et

> for summary judgment, to

dismiss the complaint, is affirmed,

without baie or disbursements

(action No. Zs Index No.

04016/1987).

Order and judgment (one paper)

of the same court and Justice,

entered March 16, 1988, which,

inter alia, declared various

provisions of Local Laws, 1987, No.

9 of the City of New York invalid,

and enjoined the city from

implementing or enforcing them, is

unanimously reversed, on the law

and on the facts, the injunction is

vacated, and Local Law No. 9 in its

A-162

entirety is declared

constitutional, without costs

(action No. iF Index No.

7247/1987).

CARRO, ASCH and ELLERIN, JJ.,

concur.

Orders and judgments (two

papers), Supreme Court, New York

County, both entered on March 16,

1988 (actions Nos. l1 and 3),

unanimously reversed, on the _ law

and on the facts, the injunction is

vacated, and Local Law No. 9 in its

entirety is declared

constitutional, without costs and

without disbursements.

Order and judgment (one

paper), Supreme Court, New York

County, entered on March 16, 1988

(action No. Zz), unanimously

A-163

affirmed, without costs and without

disbursements.

A-164

DECISION OF THe NEW YORK STATE

SUPREME COURT, DATED NOVEMBER 23,

1987

SEAWALL ASSOCIATES et *

Plaintiffs v. CITY OF NEW YORK et

al., Defendants. RICHARD WILKERSON

et al., Intervenors. (Action No.

APs :

EASTERN PORK PRODUCTS COMPANY et

al., Plaintiffs, v. CITY OF NEW

YORK et al., Defendants. (Action

No. 2).

TESTAMENTUM, Plaintiff v. CITY OF

NEW YORK et ) Defendants.

(Action No. 3.)

Supreme Court, New York County,

November 23, 1987

APPEARANCES OF COUNSEL

Shea & Gould (Sheldon D. Camhy,

Kevin B. McGrath, Claudia A. Wagner

and George G. Nelson of counsel),

Dershowitz & Eiger, P.C. (Nathan Z.

Dershowitz of counsel), Rosenberg &

Estis, P.C. (Franklin R. Kaiman of

counsel), Shapiro, Mortman,

Schwartz & Greene (Marvin L.

Schwartz of counsel), Paskus Gordon

& Mandel (Philip H. Schaeffer, Alan

M. Goldston and Jane D. Connolly of

counsel), and White & Case (Philip

H. Schaeffer and Jane D. Connolly

of counsel), for plaintiffs in

actions Nos. l1 and 2. Burns,

Kennedy, Schilling & O'Shea (Edmund

J. Burns and Maria Scorcia of

counsel), for plaintiff in action

A-165

No. : Peter ee Zimroth,

Corporation Counsel (Gabriel

Taussig and Albert Frederick of

counsel), for defendants. Mitchell

S. Bernard, Norman Siegel, Robert

M. Hayes, Saralee Evans and Wayne

Hawley for intervenors and amicus

curiae.

OPINION OF THE COURT

DAVID B. SAXE, J.

Once again, owners of

buildings containing single-room

occupancy (SRO) units, * challenge

legislation which attempts to

lessen the growth of the homeless

population in the City of New York

by prohibiting the conversion,

Man SRO is defined as a living unit which

shares a kitchen and/or bathroom with one

or more other units. (Blackburn, Single

Room Occupancy in New York City, 1986

Report - prepared for the City of New York

Department of Housing, Preservation and

Development. )

A- 166

en

alteration or demolition of

privately owned SRO buildings.

The issue that I must decide

is whether the buy-out, replacement

and hardship exemptions contained

in this new legislation (Local

Laws, 1987, No. 9 of City of New

~challenges of this sort have occurred

before (see, for example, Local Laws,

1985, No. 59 of City of New York,

Declaration of legislative findings and

intent ["The council hereby finds and

declares that a serious public emergency

exists in the housing of a considerable

number of persons which emergency has been

created by the loss of single room

occupancy units housing lower income

persons: that the loss of such housing

units has caused serious hardship for

occupants who have been forced to relocate

* * * that a considerable number of such

persons have become part of a growing

homeless population; that the intervention

of the city government is necessary to

protect such housing stock by imposing a

moratorium on conversions, alterations and

demolitions of single rovm occupancy

multiple dwellings"]).

A-167

York)? cure the constitutional

infirmities of its predecessor

(Local Laws, 1986, No. 22) which I

invalidated in Seawall Assocs. v.

City of New York (134 Misc2d 187)

(Seawall I).

A brief recounting of the

legislative history is necessary.

Since 1985 the New York City

Council has enacted several local

laws designed to halt the decline

of SRO housing. In July 1986, the

City Council by enacting Local

Laws, 1986, No. 22 of the City of

New York" extended the moratorium

initiated by Local Laws, 1985, No.

3 administrative Code of City of New York

§ 27-198.2.

“administrative Code of City of New York

§C26-118.10.

A-168

-

4

é

59 of the City of New York which

prevented the demolition or

slbecation of most SRO buildings.”

However, Local Law No. 22 in

addition to providing for a

moratorium on the alteration,

conversion or demolition of SRO

buildings also imposed an

affirmative obligation upon SRO

owners to rent these units® and to

maintain them in habitable

condition. In addition, if the

units were in disrepair, owners

would be required to renovate

administrative Code of City of New York

§ C26-118.10, as added by Local Law No. 59

of 1985.

erhis obligation is commonly referred to

as the "antiwarehousing" provision. (See,

Administrative Code of City of New York

§D26-58.02.)

A-169

_ aS aa er ee ne ne a

ee ee ee ee een ee ee a. ee ee ee en ee en ee

them. ’ Local Law No. 22 applied

only to privately owned buildings.

Those buildings owned in rem by the

City of New York were exempt from

the requirements of this law.®

When Local Law No. 22 was

enacted, certain SRO building

owners sought a preliminary

injunction staying the enforcement

of the law. The plaintiffs argued

that Local Law No. 22 violated

their constitutional right to due

process of law and sought to enjoin

its enforcement. In Seawall I

(supra) I held that the

antiwarehousing regulations

contained in Local Law No. 22 were

"See, n. 6.

“pentdistrative Code of City of New York

§C26-118.10(b)(1)(4).

A-170

"unreasonable and arbitrary”

frustrating "plaintiffs' property

rights without due process of law."

(Supra, at 197.) I also found that

Local Law No. 22 took away all

development rights of # property

owners by requiring that they

invest thousands of @ellere to

rehabilitate the SRO units.

Moreover, I noted that it was

constitutionally suspect to require

"owners to be in a business in

which they had _= ~»no intention,

expertise or expectation of being

involved in." (Supra, at 195).

Therefore, I granted a preliminary

injunction preventing enforcement

or implementation of those aspects

of the law which required SRO

owners to invest substantial

amounts of money to rehabilitate

A-171

their units and to rent them to

tenants. The granting of this

relief was premised upon a

violation of due process rights of

SRO owners amounting to irreparable

injury. |

On February 2, 1987 the City

Council enacted a new 1 Local

Laws, 1987, No. 1 of the City of

New York.”

Thereafter, several

amendments to that law were

approved and on March 5, 1987 the

provisions of Local Law No. l, as

amended, were enacted as_ Local

Laws, 1987, No. 9 of the City of

10

New York. Local Law No. l

continued the moratorium

administrative Code of City of New York

§ 27-198.2.

10 cee eS.

A-172

prohibiting conversions,

alterations or demolition of SRO

dwellings for a period of five

years with extensions of additional]

five-year terms. !! It also

contained a provision requiring, as

of May 1, 1987, all SRO owners to

make these units habitable and to

rent them to bona fide tenants. /?

An owner was presumed to be in

violation- of the antiwarehousing

provisions if the unit was not

occupied by a bona fide tenant for

a period of 30 days or longer. The

antiwarehousing provisions did not

apply to: (1) SRO units with 24 or

less units; (2) units which had

lls cal Laws, 1987, No. 1, § S.

12) administrative Code of the City of New

York § 27-2151(a)(1), (2).

A-173

been declared unsafe; (3) owners

who had obtained special permits;

(4) any hotel which during’ the

12-month period commencing January

1, 1984 Had 90% or -more of its

dwelling units occupied for less

than 30 consecutive days by- one

occupant and in which there were no

units subject to rent

stabilization; (5) SRO owners who

arranged for buyouts; or (6) SRO

owners who applied for a reduction

in the buy-out amount or took

advantage of the replacement .

provisions. !?

The differences between Local

Law No. 22 and the law _ under

challenge, Local Law No. 9, is

13 ,Gministrative Code of City of New York

§ 27-198.2(d).

A-174

primarily in three areas: (1) the

addition of a cash buy-out

provision; (2) the obligation of

SRO owners to create replacement

housing; and (3) a hardship

"escape" prdvision. The law still

contains the anti-warehousing

provisions which I previously held

to be unconstitutional.

THE BUY-OUT EXEMPTION

Local Law No. 9 currently

provides that an SRO owner has the

option of either paying $45,000 per

SRO unit or "such other = amount

which the commissioner of housing

preservation and development

determines by regulation would

equal the cost “a creating a

dwelling unit * * * to replace such

single room occupancy dwelling

unit,” in order to be exempt from

A-175

the moratorium. The funds are to

be collected and administered by a

newly created SRO Development Fund.

These moneys are to be used to

preserve, acquire and develop low -

and moderate income housing

throughout New York City. Local

Law No. 9 changes’ the buy-out —

exemption contained in Local Law

No. 1 by providing that where 50%

or more of SRO units are occupied

as of January 20, 1987 the owner

"shall _ be required to provide for

replacement units“ approved by the

14 (Emphasis added. )

Commissioner.

This mandatory replacement. plan

also requires “either for the sale

or net lease of the multiple

14 saministrative Code of the City of New

York § 27-198.2(d)(4)(a)(i).

A-176

dwelling containing such dwelling

units to a not-for-profit

organization or for such other form

of transfer of ownership,

management or possession of such

multiple dwelling approved by [the]

wL5

commissioner.

THE REPLACEMENT EXEMPTION

The replacement multiple

dwelling "shall include but not be

limited to a ‘single room occupancy

multiple dwelling. ' In the event

that an existing multiple dweiling

is acquired for the purpose of

providng replacement units, such

multiple dwelling shall be located

in the same or adjacent community

board in which the single room

13 pgministrative Code of the City of New

York § 27-198.2(d)(4)(a)(ii).

A-177

occupancy multiple dwelling which

is to be altered, converted or

demolished is located." 1®

Replacement may be achieved by the

acquisition of a multiple dwelling,

the substantial rehabilitation of

existing dwelling units or by the

creation of dwelling uuuits by

construction of new multiple

dwellings.

THE HARDSHIP EXEMPTION

The amount of the payment

required ($45,000 per unit) or the

number of dwelling units provided

may be reduced in whole or in part

by the Commissioner of Housing

Preservation and Development if the

owner shows that the _ property

16 ,aministrative Code of the City of New

York § 27-198.2(d)(4)(a)(ii).

A-178

yields a reasonable rate of

return. -” The SRO owner would have

to establish at an administrative

hearing that there is "no

reasonable possiblity" of making "a

reasonable rate of return".

(Administrative Code of the City of

New York § 198.2[d][4][b][i].)

Reasonable rate oof return is

defined as "a net annval ceturn of

eight and one-half percent of the

assessed value of the subject

property without recourse to the

alteration, conversion or

demolition prohibited by § [this

+18

law]. In order to claim this

17 haministrative Code of the City of New

York § 27-198.2(d)(4)(b)(i).

18 aministrative Code of City of New York

§ 27-198.2(d)(4)(b).

A-179

‘Bie 2 ota be ei hee. See oe Ee ae 4" a ew Ss eS ea, —oO, ce ee Pe a, a er, a. Towa, i ae

. le ns * 4 porary eso ¢ a ee ee, eee ey ee ae ee ~

exemption, the SRO owner must not

have intentionally mismanaged the

property thereby impairing its

ability to earn a reasonable rate

of return.

MOTIONS TO AMEND AND

FOR INJUNCTIVE RELIEF

The plaintiffs!’ seek leave to

file a Third Amended and First

Supplemental Complaint adding Durst

Partners as an additional party

plaintiff and alleging a cause of

19 astern Pork Products Co., 459 W. 43rd

Street Corp., Jambod Enterprises, Inc.

Myqatt/Perry, Felix Ziode, and Rocco

Imperial v. The City of New York, Edward

I. Koch, as Mayor, Paul C. Crotty as

Commissioner of Housing Preservation and

Deve lopment and Charles Smith as

Commissioner of Buildings, Index

#04016/87; Testamentum v. The City of New

York, et al. 7247/87; Seawall Associates,

et al. v. The City of New York, 20891/86.

A-180

* 9 rh Sages ree. rac “

E i, ae : Toe, nts ANA hs Sa a ‘ leas

jpieb g or ~~ go Bl ae re, ois —

> -—- —

~_

_ =

action challenging the validity of

Local Law 1 as amended by and

reenacted as Local Law 9. Leave to

amend pleadings shall be freely

given in the absence of prejudice

(CPLR 3025[b]; Rife v. Union

College, 30 AD2d 504). The

defendants have not demonstrated

any prejudice since the amendment

merely updates the facts which have

been known to them. Accordingly,

the complaints are deemed amended

and the arguments raised shall be

considered in evaluating Local Law

9. Preliminarily, since the three

related actions all present common

questions of law and fact, the

motions for injunctive relief and

the cross motion by the City of New

York for summary judgment on the

A-181

SEQRA claims are consolidated for

disposition.

In fact, since all the parties

seek dispositive legal relief, I

will treat the plaintiffs' motions

as seeking an order of summary

judgment.

The waderteten complaints

which form the basis for

declaratory and injunctive relief

all assert the same _ = arguments

regarding the alleged invalidity of

Local Law No. 9, Plaintiffs

contend that (1) the city failed to

consider the environmental impact

of Local Law No. 9 on existing

population concentrations and its

noncompliance with the State

Environmental Quality Review Act

(SEQRA), the City Environmental

Quality Review Act (CEQR) and the

A-182

Environmental Conservation Law

(ECL); and (2) Local Law No. 9 is

an unlawful tax and is arbitrary,

confiscatory and in violation of

the Due Process and Takings Clauses

of the US and NY Constitutions.

The plaintiffs seek to enjoin

the enforcement of Local Law No. 9

also on the ground that it has

unconstitutionaily deprived them of

developmental opportunities for

their property by preventing

demolition of existing buildings

thereby impeding opportunities

which would yield substantial

profits.

| THE ENVIRONMENTAL

(SEQRA/SEQRA/CEQR CHALLENGES )

In Seawall _ QI, I did not

consider the plaintiffs'

A-183

64...

environmental challenge on_ the

merits because I held that they

lacked standing to assert those

claims. The plaintiffs, 459 WwW.

43rd Street Corp. and Eastern Pork

Products Co., have now joined

additional plaintiffs, Jambod and

Perry, operators of businesses in a

neighborhood containing SRO

dwellings who would therefore be

directly affected by population

movement and pedestrian traffic so

as to establish standing.

Under the liberal definition

of standing in Glen Head v. Oyster

Bay, 88 AD2d 484, (2nd Dept. 1982),

the pladetifte aust show that the

environmental consequences of the

proposed project fall within the

zone of interest protected by

SEQRA. In Chinese Staff and

A-184

Workers Assn. v. The City of New

York, 68 NY2d 359 (1986) the

plaintiffs were members of the

Chinatown community who challenged

the issuance of a special zoning

permit authorizing construction of

a high-rise luxury tower in

Chinatown. The plaintiffs,

businessmen and workers who lived

and worked in Chinatown argued that

the proposed project could

ultimately displace—them and have

an environmental impact on their

lives. The Court of Appeals, in

finding these concerns legitimate,

implicitly found that the

plaintiffs had standing to. sue.

Here, the plaintiffs, who are

business owners in the affected

area have demonstrated that they

fail within the zone of interest

A-185

protected by SEQRA and CEQR. As

such, they are entitled to have

their contentions regarding’ the

City's failure to conduct’ an

environmental review prior to

passage of the SRO legisJation

considered on the merits.

“

In Eastern Pork Products Co.,

459 W. 43rd Street Corp.,. Jambod

Enterprise, Inc... Mygatt/Perry

Ziade and Imperial v. The City of

New York, et al. Index No. 04016/86

the City cross-moved for summary

judgment dismissing the entire

complaint based solely on

non-compliance with ("SEQRA"). In

the other two related actions, the

plaintiffs assert causes of action

seeking to invalidate Local Law 9

on the basis that the City failed

to conduct a proper environmental

A-186

review prior to enactment of the

SRO legislation as prescribed by

State and City environmental laws

(E.C.L. §8-0101 et seq; 6 NYCRR

§617; Mayor's Executive Order No.

91 of 1977 [CEQR]).

Pursuant to these laws, any

proposed "action" on the part of

New York City officials and

agencies having a "significant

effect on the environment" is

required to undergo an

environmental impact review. (6

NYCRR §617.2[b][1]). SEQRA defines

"action" to include projects,

policies and regulations (ECL

§8-0105[{4]). The state regulations

construe the term "action," inter

alia, as "projects or _ physical

activities, such as construction or

other activities which change the

A-187

use or appearance of any natural

resource or structures .. ." (6

NYCRR 617.2[b]). SEQRA also

authorizes agencies to promulgate

regulations specifying certain

types of actions having an impact

not reaching the level of

environmental significance thereby

warranting the preparation of an

environmental impact statement

("EIS"; ECL §8-0113[2][c][ii]).

These type II actions, like exempt

actions, require no review pursuant

to SEQRA, its regulations, or CEQR.

Type II actions include proposals

which contemplate "replacement of a

facility, in kind, on the same site

unless such facility meets any of

the thresholds for Type I actions.”

(6 NYCRR §617.13[d][1]).

A-188

Here, Local Law 9 is under

challenge precisely because it

prohibits tthe SRO owners’ from

making any change or alteration to

existing structures. Since the law

requires SRO owners to maintain

units in habitable condition it

falls within the exemption

concerning maintenance and repair

of existing structures or

facilities. So, an "EIS" is not

required. (ECL 8-0105-[5]fiii]; 6

NYCRR §§617.2[b][3] and

617.13[d][i]; CEQR §4[f]).

The major cases cited by the

plaintiffs in support of their

argument that an environmental

impact statement ("EIS") was

required to be prepared prior to

the enactment of Local Law 9, are

distinguishable from the facts of

A-189

this case. In Chinese Staff,

supra, the City evaluated’ the

environmental effects of the

proposed construction in accordance

with SEQRA. The co-lead agencies

issued a "conditional negative"

declaration asserting that the

project would not have a

significant effect on the

environment if certain

modifications were adopted by the

developer. Thus, ae full-scale

"EIS" was not required. The Court

of Appeals disagreed and declared

that the proposed erection of

luxury tower in Chinatown required:

a full scale "EIS" and that the

special permit was invalid. The

issue there, was not whether the

proposed project constituted a

government action requiring an

A-190

environmental review but, whether

the environmental review undertaken

by the City was adequate. The

Court held that SEQRA required that

an agency consider the potential

long-term secondary displacement of

residents and businesses and its

effect on population patterns,

community goals and neighborhood

character even where there was no

impact on the physical environment.

Here, the question is whether an

environmental review was required

in connection with the enactment of

Local Law 9 and whether the law

falls within certain exemptions to

the environmental review process.

In the other major case cited

by the plaintiffs Midtown South

Preservation and Development

Committee v. The City of New York,

A-191

_AD2d__, 515 NYS2d 248 (First

Dept. 1987) the Appellate Division

modified the New York County

Supreme Court's order which granted

a preliminary injunction and

mandated a review of the potential

environmental consequences of a

policy of "housing homeless

families in an area which cannot

provide adequate facilities for

social and recreational

activities." The Court held that a

preliminary injunction should not

have been granted because’ the

plaintiffs failed to demonstrate

that they were likely to prevail on

the ultimate merits. Moreover, the

Court stated, "Nor is it evident

that finding shelter for homeless

families is the sort of action

A-192

ee dhe joes aes

contemplated by SEQRA such that an

EIS is mandate." (supra at 250).

I find, therefore, that an

environmental review was not

required prior to the enactment of

Local Law No. 9 because’ the

legislation only contemplated the

continued use of existing

structures in a manner consistent

with current land use regulations.

The plaintiffs have failed to show

that, Local Law No. 9 is the sort of

"action" contemplated by the State

and City environmental laws.

THE CONSTITUTIONAL CHALLENGE

When | reviewing the

constitutionality of a statute, a

court starts with the proposition

that every law has a_— strong

presumption of constitutionality

which should be discarded only as a

last resort. (Defiance Milk Prods.

Co. v. Du Mond, 309 NY 537 [1956].)

However, it is established that

when the validity of a law is

challenged’ it is the duty of a

court to determine its

constitutionality and to set aside

any statute which violates the

provisions pf the Constitution.

(Colon v. Lisk, 153 NY 188 [1897].)

Property interests are

protected against governmental

interference by two provisions of

the United States Constitution:

(1) the Due Process Clause of the

_ Fifth and Fourteenth Amendments and

(2) the "Takings" or Just

Compensation Clause of the Fifth

Amendment . The constitutional

requirement of due process of law

is applicable to the States through

i A-194

the Fourteenth Amendment whereas

the Fifth Amendment is applicable

only to Federal actions. The Fifth

Amendment 's Just Compensation

Clause was made applicable to the

States through the Fourteenth

20 The New York State

Amendment.

Constitution declares that no

person shall be deprived of his

property without due process of law

(NY Const., Art I, § 6) and that

private property may not be taken

without just compensation (NY

Const., Art I, §7[a]). Moreover,

under a State's Due Process Clause

a court may impose aée higher

standard of constitutional

protection than that required of

20 teaso, Burlington & Quincy R.R. Co. v.

Chicago, 166 US 226, 236 (1897).

om A-195

the Federal Government. (People v.

Isaacson, 44 NY2d 511 [978].)

* State normally cannot

require an owner to use. his

property for the benefit of others

or for the public in general or to

restrain an owner from devoting it

to any legal purpose so long as

such use does not conflict with the

rights of others. (People v. New

York Carbonic Acid Gas Co., 196 NY

421.) However, under appropriate

circumstances a State may regulate

the use to which private property

is put for the health, safety and

welfare of the public.

Nevertheless, a regulation

ostensibly enacted under this

aspect of State authority, known as

the police power, may so severely

restrict the enjoyment of an

A-196

individual's property rights as to

amount to a taking for which

compensation must be paid.

The point at which the police

power interferes with property

rights and becomes a taking cannot

be precisely defined. That

examination necessarily requires a

weighing of private and_ public

interests. (Webb's Fabulous

Pharmacies v. Beckwith, 449 US 155

[1980]. ) While property may be

regulated to a certain extent, if

regulation goes too far it will be

considered a_ taking. (Lutheran

Church v. City of New York, 35 NY2d

121 [1974].) In Lutheran Church, a

religious corporation owned = and

used a former mansion for its own

offices. The building was. no

longer adequate for its needs so it

A-197

sought to demolish the building and

erect an office building oe. the

site. However, the Landmarks

Preservation Law prohibited its

demolition and replacement. No

compensation was provided for this

economic hardship to the religious

corporation. The Court of Appeals

granted a judgment declaring that

this ~- "landmark designation”

amounted to a void and

unconstitutional confiscation of

the corporation's property. (US

Const 5th, 14th Amends; NY Const,

Art I, §§6, 7.) The court quoted

its prior holding in Forster v.

Scott (136 NY 577) by stating that

" "Li]t is not necesary, in order

to render a statute obnoxious to

the restraints of the Constitution,

that it must in terms or in effect

A-198

authorize an actual physical taking

of the property or the thing

itself, so long as it affects its

free use and enjoyment or the power

of disposition at the will of the

owner’ (Lutheran Church v. City

of New York, supra, at 130.)

In French Investing Co. v.

City of New York, (39 NY2d 587,

cert denied, 429 US 990 [1976]) the

Court of Appeals analyzed a zoning

resolution which made once

privately owned parks located in

the mid-Manhattan residential

complex of Tudor City into public

parks. The landowner intended to

develop the park for real estate

projects, a right which existed

under law. The new zoning

resolution extinguished that right

by prohibiting building over these

A-199

eY af 2

parks. Instead, the law permitted

the transfer of developmental

rights to other lot locations. The

plaintiffs in French challenged the

rezoning as an_ unconstitutional

taking. Although the court denied

the takings claim it held that the

law frustrated the plaintiff's

legitimate property rights and

expectations for use and therefore

constituted a deprivation of due

process’ rights. As such, the

regulation was invalidated.

Therefore, according to the Court

of Appeals, a regulation may

violate due process and not

constitute a taking (French

Investing Co. v. City of New York,

supra) or it may constitute both.

(Lutheran Church v. City of New

A-200

A DUE PROCESS ANALYSIS

The plaintiffs' central

argument is that Local Law No. 9's

additional provisions and the

continuation of the invalid

antiwarehousing portions of the law

frustrate its property rights

without due process of law.

Defendants and intervenors argue

that Local Law No. 9, which

superseded Local Law No. yt

responds to the same issues as the

former law, namely, the continued

loss of SRO aan and the

concomitant increase in

homelessness of former’ tenants.

The defendants urge this court to

uphold the new law as

constitutionally proper, arguing

that Local Law No. 9 considers the

rights of property owners’ and

A-201

balances them with the needs of

tenants as well as_ providing

property owners with a means to

escape the acknowledged burdensome

aspects of the law.

Do the exemptions that have

been added to the law enable the

statute to comport with due process

standards? I find that the

exemptions do not alleviate the

constitutional difficulties found

in the prior law; they only enlarge

them. The statutory cash buyout,

in the amount of $45,000 per unit,

which would entitle the owner to

remove the unit from the market,

constitutes an excessive financial

burden. SRO owners must _ pay

$45,000 to the New York City SRO

Development Fund under two

circumstances: (1) when the owner

~ A-202

Se ee OL ee ee Re ee ee ae ee Ee

persuades a tenant to move! and

(2) when there is a vacant unit

which the owner seeks to recover

and remove from the market. This

statutory buyout is unrelated to

land value. The payment may be

adjusted downward in the

Commissioner's discretion and is

apparently related to the assumed

cost of building replacement units.

However, plaintiffs persuasively

argue that even assuming the

landowner can ultimately vacate an

entire building, the statutory

buyout and the privately negotiated

fee between tenant and property

21onis might not be the property owner's

only payment. It is common knowledge that

under these circumstances an owner would

have to offer an inducement or cash buyout

to the tenant in occupancy in order to

persuade him/her to move.

A-203

=) —_

*

owner would inintanen land costs to

such a degree that it would render

this statutory buy-out option

economically unfeasible and

illusory. Moreover, this buy-out

provision is limited to SRO

dwellings where less than 50% of

the SRO units were occupied as of

January 20, 1987; where a building

has 50% or more of the units

occupied, the statutory cash

buy-out option is foreclosed to the

owner.

Plaintiff Testamentum's

situation is a prime example of the

ironic aspects of the law.

Testamentum is a_ subsidiary of

Covenant House, a recognized

child-care agency which provides

shelter to homeless and neglected

children in New York City.

A-204

4

Testamentum's president, Reverend

Bruce Ritter, has submitted an

affidavit in support of the

application for a preliminary

injunction restraining the City

from enforcing Local Law No. 9. He

states that the Times Square Hotel

was acquired "in the hope of

providing the cornerstone of an

endowment to secure the financial

future of Covenant House.” In

acquiring the property, Reverend

Ritter asserts that the plaintiff

arranged for financing to upgrade

the hotel rooms to increase the

hotel's transient business until

disposition or redevelopment of the

site. Testamentum is one of the

plaintiffs which are foreclosed

from using the buy-out and instead

is relegated to the mandatory

A-205

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replacement plan unless’ hardship

can be shown. Ironically,

Testamentum itself, a

not-for-profit organization, may

ultimately be forced to sell or net

lease the building to another

not-for-profit corporation.

Moreover, Testamentum,

although sympathetic to . the

rationale behind the enactment of

this SRO legislation, contends that

its provisions are

unconstitutional. Testamentum also

persuasively argues that the only

available options for withdrawal of

the building from the moratorium

are so costly, burdensome and vague

as to violate due process’ and

constitute a taking.

Plaintiffs also argue that the

cost of the buy-out exemption is

tantamount to an illegal tax and

would constitute a due _ process

violation. Plaintiffs' argument

that the $45,000 per unit buy-out

exemption is an illegal tax is

without merit. Taxation is the

power by which a sovereign raises

revenue to defray necessary

expenses of government. Such

charges are exacted for public

purposes and are of an involuntary

nature. 22 However, here, the money

to be contributed to the SRO

Housing Deve lopment Fund Company is

in the nature of a regulatory fee

Since the money will not be used

for the general support of the

government, but will be earmarked

2268 NY Jur, Taxation, § J] (rev ed).

A-207

~~

ny

ros

to develop low-income housing to

replace those units altered or

demolished by SRO owners.

Moresver, the fee is a voluntary ©

means to escape the regulatory

scheme.

However, whether the $45,000

buy-out exemption is classified as

a tax or a regulatory fee, it

clearly extracts an exorbitant

price for recovery of an owner's

property. The record demonstrates

that such a cost per unit can be

prohibitive and realistically

prevent SRO owners from recovering

the use of their property.

Plaintiff Seawall submits an

affidavit stating that it spent

$5,810,000 to acquire its

assemblage before the effective

date of Local Law No. 22. Seawall

A-208

’

wa

claims that it expended thousands

of dollars in relocation expenses

to former tenants of its buildings

for the purpose of obtaining a

voluntary surrender of their units

so that it would be able _ to

construct a commercial office

building at that site.

The defendants claim that

Similar regulatory schemes_ have

been upheld in other States. They

contend that since the

antiwarehousing law enacted in

Hoboken, New Jersey, has_ been

upheld by a Federal court, this

court should similarly uphold Local

Law No. 9. Help Hoboken Hous. v.

City of Hoboken (650 F Supp 793 [D

NJ 1986]) concerned a city

ordinance which was enacted to ease

the housing shortage in Hoboken.

A-209

The ordinance required property

owners to rent their vacant units

within 60 days of the end of the

preceding tenancy as opposed to 30

days in the New York law. However,

this is where the similarity ends.

Unlike New York, New Jersey law

authorises the eviction of

statutory tenants where the owner

"seeks to retire permanently the

residential building * * * from

residential use". (NJ Stat Annot

§ 2A:18-61.1[h].) So, the ability

of Hoboken property oowners’- to

permanently retire their units from

residential use if authorized or to

to redevelop their property as

~

~~

cooperatives or condominiums. is

Ne o

left intact. Moreover, all

property owners are required to

shoulder this obligation unlike the

A-210 -

Situation existing as a result of

New York law where only SRO owners

are singled out.

The defendants in support of

this SRO legislation admit that the

provisions are burdensome but argue

that the hardship exemption

eliminates the difficulties. The

hardship exemption provider for a

total or partial reduction in the

amount of the cash buyout or the

number of dwelling units to be

replaced if the Commissioner

determines that . there is no

reasonable rate of return unless

the property is altered or

converted to another use.

A reasonable rate of return is

defined as 8.5% of the property's

assessed value as an SRO building.

This definition fails to take into

A-211

account an owner's initial

investment in the property. So, by

using this method of computation an

owner receiving an 8.5% return on

property valued as an SRO would not

necessarily receive a fair return

on his investment. Furthermore,

plaintiff Seawall argues that since

real property located in New York

City is assessed at 45% of market

value, the actual return offered to

Seawall and other SRO owners is not

8.5% of market value, but 8.5% of

45% of market value. The

defendants fail to dispute this

calculation and continue to

evaluate the property as if it had

no development potential. The

A-212

cases? cited by the City of New

York that found that 4% or 6% were

reasonable returns do not hold that

the rate of return is to be

assessed against the property's

current value as opposed to

examining an owner's initial

investment in the property.

In Northern Westchester

Professional Park Assocs. v. Town

of Bedford (60 NY2d 492 [1983]) the

Court of Appeals found that in

determining whether a certain

zoning regulation permitted a

reasonable rate of return, a

petitioner must show proof in

dollars and cents of the owner's

“> relner v. Office of Rent Control, 27

NY¥2d 692 (1970); Bucho Holding Co. vv.

Temporary State Hous. Rent Commn., 11 NY2d

469 (1962).

A-213

aw

—-

investment in the property as well

as the return that .the property

would produce from the various uses

permissible under the existing

classification. The court also

stated that taxes, expenses and

other carrying charges would be

considered as well as the cost of

many improvements made _ to~ the

property.

Here, in order to show

hardship, an owner would have to

demonstrate an inadequate return on

an investment based upon the value

of the property as if it had no

development potential. This total

disregard of reasonable "investment

backed" expectations on the part of

SRO owners violates due process

because it is inherently

confiscatory. In French Investing

A-214

Co. v. City of New York, (39 NY2d

587, 597, supra) the Court of

Appeals "recognized that the

‘value’ of property is not a

concrete or tangible attribute but

an abstraction derived from the

economic uses to which the property

may be put." In French, the court

held that the zoning amendment was

unreasonable and unconstitutional

because "without due process of

law, it deprives the owner of all

his property rights, except bare

title and a dubious future

reversion of full use" (supra, at

597).

The defendants and intervenors

argue that the City Council enacted

this regulatory scheme in

furtherance of the public interest.

In support of this argument’ the

A-215

defendants compare Local Law No. 9

with a landmarks preservation law.

This analogy is without merit. A

landmark is defined as a structure

or site which has certain historic,

architectural, aesthetic or

cultural significance. Landmark

preservation laws attempt to

protect these unique structures

from land-use decisions which might

fundamentally destroy or alter

their character. Here, SRO

buildings have no unique"

importance. In fact, Local Law No.

9 does not even require’ that

replacement buildings be SRO

buildings; the units may be removed

from the market so long as they are

_— Cent. Transp. Co. v. New York City,

438 US 104 (1978).

A-216

replaced with some form of low-cost

housing. Clearly, any owner of

residential property could be

enlisted in the effort to provide

housing for low-income people and

any residential building could be

used for that purpose. Moreover,

landmark preservation laws normally

prevent alteration or demolition of

existing structures’ unless the

owner can demonstrate hardship

(Penn Cent. Transp. Co. v. City of

New York, 42 NY2d 324, aff'd 438 US

104), but if they place an undue

and uncompensated burden on_ the

individual owner, they may be held

unconstitutional (Lutheran Church

v. City of New York, 35 NY2d 121,

129, supra) because such laws force

"the owner to assume the cost of

providing a benefit to the public

A-217

without recoupment" (French

Investing Co. v. City of New York,

39. NY2d 587, 596, supra, see also,

Dunham, A Legal and Economic Basis

for City Planning, 58 Colum L Rev

650, 665, cited in FGL & L Prop.

Corp. v. City of Rye, 66 NY2d lil,

120 [1985]). Here, Local Law No. 9

continues the moratorium on

altering or converting SRO units;

it continues to prohibit withdrawal

of SRO's from the rental market and

continues to place an affirmative

obligation on SRO owners to

25 These

renovate their buildings.

aspects of Local Law No. 9 are

identical to its predecessor Local

2> administrative Code of City of New York

§ 27-198.2.

A-218

Law No. 22 which I found violated

plaintiffs' due process rights.

The issue then is whether the

exemptions contained in Local Law

No. 9 remedy the due _ process

constitutional difficulties of the

SRO legislation. Upon examination

of the exemptions contained in

Local Law No. 9, I find that they

fail to alleviate the

constitutional infirmities which

existed in prior SRO legislation

and create additional ones. The

exemptions are tantamount to

extortion. While purportedly

allowing the SRO owners to one day

recover the use of the buildings,

the law extracts a very high price

for exercise of. property rights.

The regulatory scheme contained in

Local Law No. 9 places an unfair

A-219

and uncompensated andiei on one

class of property owners. The

legislation in effect forces

private individuals to subsidize a

low-income housing program

administered by the City of New

York. Such a regulatory scheme

severely interferes with

plaintiffs' property rights.

Accordingly, I find Local Law No. 9

was enacted in violation of

plaintiffs' due process rights .2°

26rhe claims of due process violations are

contained in Seawall Associates’ first

cause of action particularly paragraph 18;

Testamentum's first cause of action-

paragraph 13; Anbe Realty's paragraphs 16,

26, 27, 26.

A-220

TAKINGS<’

ANALYSIS

Having found Local Law No. 9

violates plaintiffs’ due process

rights the next issue is whether

Local Law No. 9's regulatory scheme

constitutes an unconstitutional

taking for which just compensation

must be made. In contrast to a due

process analysis, under the takings

doctrine, "the government's

justifications are essentially

irrelevant: compensation must be

27 there is some disparity in the

literature between the correct

nomenclature of the term "taking" and/or

"takings" doctrine or analysis. (See,

for example, Keystone Bituminous Coai v

DeBenedictis, 480 US 470 [ 1987]

["takings"]; see, Marcus, Mandatory

Development Rights Transfer

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