Litigation Update: New York's "Rent Stabilization Act" Part III

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Sam Fendler:  Hello everyone, and welcome to this Federalist Society virtual event. My name is Sam Fendler, and I'm an assistant director of practice groups with The Federalist Society. Today, we're excited to host a litigation update on New York City's Rent Stabilization Act. We're joined today by Andy Pincus. Andy is a partner at Mayer Brown. There, his practice focuses on Supreme Court and appellate litigation. Andy has argued 29 cases before the Supreme Court. He is a former assistant to the Solicitor General of the United States and formerly General Counsel of the U.S. Department of Commerce. Andy is also co-founder and co-director of the Yale Law School's Supreme Court Advocacy Clinic. If you'd like to learn more about Andy, his full bio can be viewed on our website, fedsoc.org.

 

After Andy gives his opening remarks, we will turn to you, the audience, for questions. If you have a question, please enter it into the Q&A function at the bottom of your Zoom window and we'll do our best to answer as many questions as we can. Finally, I'll note that, as always, all expressions of opinion today are those of our guest speaker and not The Federalist Society. With that, Andy, thank you very much for being here today and the floor is yours. 

 

Andrew J. Pincus:  Thanks, Sam. And thanks to you and The Federal Society for this opportunity to give an update on our case, which is now -- as of today, we filed our reply brief in support of cert in the Supreme Court. And so the case is fully briefed and ready for the Court's consideration at its conference at the end of September. And we're obviously very much hoping for cert grant. But let me start with some background and then update folks who have heard about the case before on where things now stand.

 

I think everyone agrees, even the proponents of New York's rent stabilization law, that it's the most draconian rent regulation law in the country. Although, as I'll discuss, other jurisdictions are catching up. Just to level set, the law does not apply to all rental housing in New York. It targets pre-1974 buildings with six or more units and it ends up regulating about half of the rental apartments in New York. So half subject to regulation, half not. And I know when people think here rent regulation, they think, "Oh, regulation of rent levels." That's part of the law. But it's not the most intrusive part actually. This law imposes a web of restrictions that together have the effect of commandeering covered apartments for their use in perpetuity as rental housing subject to regulation. And our first question presented in our cert petition argues that those restrictions are physical takings that violate the Takings Clause.

 

Let me just quickly tick through the restrictions that we're challenging. All of these restrictions apply once the lease expires. So obviously, while the apartment is under lease, the landlord is obligated to comply with the lease. The question is, what happens when the lease expires and all of these restrictions kick in to impose further limitations -- we would argue dramatic limitations -- on the property owner's right to exclude third parties, which the Court has said is the most fundamental real property right. So first of all, restrictions, when the lease ends to recover the apartment for the owner's own use. Many of these buildings are small. Owners live in them. They may want their children to be able to move in. They may have elderly parents that they would like to move in. But the law basically says, "You can't refuse to renew the lease in order to occupy a unit for your own use, except in very limited circumstances."

 

First, it's one per building, so that's a draconian limit. If the owner is there and wants another family member to move in, can't do it. And then there are further restrictions that even that one may not be recoverable. Second restrictions, the right to change the property's use or ownership. Owners can't withdraw buildings from the rental market and use them for nonresidential purposes. It prevents the owners from withdrawing the property entirely from the rental market. It prevents them from demolishing a property, again if there are tenants there, even if their leases have expired, without paying to relocate tenants in regulated units. And as our complaint explains, that's a requirement that has led to really outlandish and huge payments to hold out tenants that are standing in the way of redevelopments. And finally, it prohibits owners from converting a building into cooperative or condominium apartments without the consent of a majority of the tenants, even if the conversion plan is a non-eviction plan and would allow them all to remain. So another huge bundle of rights transferred from the owner to the tenants. And then finally, it requires the owner to offer a lease renewal to the incumbent tenant absent a violation of the lease or violation of law, and extends those rights not just to the incumbent tenant, but to relatives or caregivers who happen to have moved in.

 

My example of this, and I apologize -- people who have heard prior podcasts will have heard this before. Remember Monica's apartment in Friends? She was in her grandmother's apartment. She took over the rent stabilized right to be in that apartment. And that, I thought, was apocryphal, but it actually is something the law requires. So those bundle of restrictions together basically make it impossible or at the minimum, extremely difficult for a landlord who owns a property to change its use or even to determine who occupies it.

 

This audience is going to be very familiar with the Supreme Court's decision in Cedar Point involving the per se physical takings principle that was involved, the California law that granted union organizers a right to enter the property of agricultural employers for a limited number of hours, a fixed number of days a year. The Supreme Court said that violates the right to exclude. It is therefore a per se physical taking. Our argument is pretty simple. If that violated the Takings Clause because it limited the right to exclude, all of the restrictions I just named, which, upon the expiration of the lease, dramatically limit a property owner's ability to exclude the incumbent tenant 24 hours a day, seven days a week in perpetuity, that clearly should violate the right to exclude.

 

Nonetheless, the Second Circuit held to the contrary, and its rationale was simple but sort of shocking. What the Second Circuit said is, "Because owners of rental property have invited tenants onto the property by offering the very first lease, the government has very broad authority to impose restrictions on the owner's ability to regain control of their property." And somewhat amazingly, the Second Circuit and the defendants in this case, the city and the state of New York and some tenants' organizations, rely on an analogy that the Supreme Court talked about but ultimately rejected in Cedar Point. In Cedar Point, California argued that the access law wasn't a taking, and it cited the Supreme Court's Pruneyard case, which had rejected a takings challenge to a California law that permitted leafleting in a shopping center.  And the Cedar Point Court rejected that argument and said, "That shopping center was open to the public, welcoming 25,000 patrons a day. And so limitations on property open to the public don't apply when the question is whether the government has unconstitutionally granted a right to invade property that's closed to the public."

 

So the argument here that the Second Circuit accepted and that the defendants are espousing is, "Well, you've opened your property to the public, therefore the government has a broad right to put limitations on your ability to close it again." But of course, it was really only open to one or two specific tenants or maybe a family, not the public at large. And so our argument is, that can't be right. That can't be what Cedar Point meant, and this is not open to the public. And in any event, even -- in Pruneyard, if the owners of the mall had decided to change the use of the property to turn it into a warehouse, surely, they had the right to do that and then to exclude the leafleters. Here, the owners of these rental properties can't do that.

 

The other thing that's interesting is that, in their briefs in opposition to cert, one of the defendants cites an old case involving a Massachusetts statute where the Court dismissed a federal challenge on takings grounds for want of a substantial federal question. That was in the days where there was a potential right of appeal from state courts on cases presenting federal questions. Of course, that predated Cedar Point. So not really on point, but what's really on point in that case is then Justice Rehnquist's dissent which anticipated Cedar Point and argues that the restrictions that that Massachusetts law imposed really affected a physical taking.

 

So we think we have some very strong arguments based on precedent that this is a physical taking and that the Court should take the case and reverse. Let me talk for a minute about the second question presented, which does involve regulation of rent levels. One of the things the statute does is every year, it requires the New York City Rent Guidelines Board to set the maximum percentage increase of rents in regulated properties. You may know, typically government price regulation works on a reasonable costs plus reasonable rate of return on capital standard.

 

But the RSL does consider those factors but also requires consideration of tenant ability to pay. And that has a pretty dramatic effect on the permissible rent increases if you look at rent increases compared to the RGB's own index of owner costs, which actually doesn't include all costs. But the Rent Guidelines Board's own index between 1999 and 2019 went up 169 percent. Rent increases allowed 66 percent. In 2023, the very recent decision, RGB index of costs up 8.1 percent. Taking account of the big inflation that we've had over the last year, rent increase permitted three percent. So our argument in this question presented is based on a dissent written by Justice Scalia on behalf of himself and Justice O'Connor in a case called Pennell, which involved a San Jose rent regulation ordinance that specified consideration of factors relating to costs and return on capital, but also said on a tenant-by-tenant basis, there can be consideration of hardship to the tenant in setting rent levels. And the parties challenging the law argued that it was impermissible to allow consideration of tenant hardship because that forced private individuals, the particular property owners, to shoulder what they termed the public burden of subsidizing lower income people's inability to afford housing. Now, the Pennell majority didn't address that issue. It found that there was no evidence and no argument that the tenant standard had been taken into account.

 

But Justices Scalia and O'Connor dissented, and they started their dissent by talking about the basic Takings Clause principle that what the clause was designed to do was to prevent government from forcing some individuals to bear a public burden that should be borne by the public as a whole. And they said traditional land use regulation -- think about zoning -- is permissible because, "There's a cause-and-effect relationship between the property use restricted by the regulation and the social evil that the regulation seeks to remedy." In other words, if you zone a neighborhood as residential only, what you're doing is protecting people's homes against the possibility that an asphalt plant will be built next door.

 

But what they said in the dissent is the hardship provision, "Is invoked to meet a quite different social problem, the existence of some renters who are too poor to afford even reasonably priced housing." But they said that problem is no more caused or exploited by landlords than it is by the grocers who sell their food or the department stores that sell clothes. So the provision effect is a taking in their view, because the city wasn't regulating rents in the source of preventing an evil that stemmed from the property owner's action, but it was using rent regulation to establish a welfare program privately funded by landlords who happen to have tenants.

 

So our argument is the New York City statute does exactly that by requiring consideration in this across-the-board rent level setting exercise of tenant ability to pay. What the New York City statute does is impose on not just targeted landlords on a case-by-case basis, as in the San Jose example, but on an across-the-board basis. Everyone subject to the rent stabilization law bears this burden for something, a hardship that they didn't cause. So Justice Scalia recognized, and this is how we frame the question in our petition, that there's a threshold requirement for government property regulation to avoid being categorized as a taking. The burden has to be related to harm caused by the property. This is the causation requirement that's applied in the context of conditions on development. Think of the Supreme Court's decision in Nollan and Dolan. And we have a fabulous amicus brief by Professor Laitos, who's a distinguished property rights scholar, who explains that applying that causation principle is essential to prevent government from singling out property owners for burdens that should be borne by taxpayers as a whole.

 

It's worth mentioning just because it's an additional flavor to this case that New York's highest court in a decision -- not a takings case, but a decision characterizing the rent stabilization law -- squarely held that it is a, "Local public assistance benefit that is not paid for by the government but, 'a unique regulatory scheme applied to private owners of real property.' And they're the ones who pay the bills." So really confirming that in New York's own view, this law is exactly the kind of law that Justice Scalia was talking about in Pennell.  And one of the things we talk about is the reason why it's so important for the Court to recognize this threshold question when it's evaluating regulatory takings is really what has become the relatively toothless nature of the Penn Central multifactor regulatory takings test. I'm sure a lot of people who are watching and listening are very familiar with the fact that it is extremely difficult for any property owner to win a regulatory takings challenge because it's one of these multi factor tests that require balancing of lots of different factors.

 

And in fact, we quote in our reply brief then Justice Rehnquist's dissent from the Penn Central case where he talks about the fact that that is exactly the evil that the majority opinion rejecting the takings challenge doesn't get at. But between Penn Central and also Kelo, there's been a lot of contracting of the protection that this regulatory takings standard gives. And this causation requirement -- recognizing it as a separate threshold requirement, will provide the protection that we think is essential to make the regulatory takings standard a real protection against illegitimate imposition of government burdens.

 

So that's a brief discussion, maybe not so brief, of the law. Let me talk about the other critical question at the cert stage, which is, is this issue -- are these two issues sufficiently important for the Supreme Court to grant review? We obviously say, "Yes." Let me just tick through a couple of reasons. On the physical takings issue, we actually have a conflict with an Eighth Circuit decision that evaluated one of these pandemic related eviction moratoriums. Now, it's true, we're not challenging an eviction moratorium, but the critical thing is that the Eighth Circuit didn't say, "Well, Cedar Point doesn't apply because there's a different and much more lenient standard for regulation of rental housing based on this -- it's equivalent to a mall theory." Rather, the Eighth Circuit said, "Cedar Point applies, and here there is a restriction on the right to exclude." Therefore, the complaint challenging this eviction moratorium states a claim. If our issues had arisen in the Eighth Circuit, that standard would have resulted in our complaint being upheld. So we think a pretty clear conflict.

 

The other thing that was interesting in our case is during the oral argument in the Second Circuit, Judge Calabresi was on our panel. And although the panel ruled unanimously against us at the end of the day, one of the things Judge Calabresi said was, "Even if the Supreme Court is moving in a different direction, and a direction that makes the physical takings standard clearer than perhaps had been, don't I have to wait for them to give the signal as to how that applies to rental housing?" So another reason why it's clear that lower courts need Supreme Court guidance in order to begin to apply takings standards properly in this rental housing context.

 

With respect to the rent level regulation, the Pennell issue, we obviously have two justices in Pennell who thought this was an important issue. The rest of the Court did not address it one way or the other. The Second Circuit basically said, "We're not addressing this because the Supreme Court hasn't adopted it." Another reason why we really need the Supreme Court to step in and adopt this threshold cause and effect standard. But the most important, I think, factor weighing in favor of Supreme Court review is that at the third stage, we have 13 separate amicus briefs. In my experience, a very large number. 18 organizations signed them, and then one from Professor Laitos, as I mentioned, a prominent property rights professor. And just to give you an idea of the sort of range of those briefs, let me tick through them quickly and then I know we want to get to questions. So a number are from property owners, not New York. There are some from New York property owners but also property owners in California, Minnesota and Westchester explaining how the issues that we've raised are also highly relevant to regulations that either have been enacted or are being considered in their jurisdictions.

 

And importantly, we have a number of organizations representing individual and family owners. I think these issues are often caricatured as gigantic companies versus individuals or families who are renters. But many of the regulated buildings in New York are owned by individuals and families and we have actually a brief filed by the small property owners of New York that illustrates that and another brief filed by small property owners in California. So these burdens are not in many, many cases being imposed on large corporations or large corporate owners. They're being imposed on families who either themselves or perhaps their parents or grandparents made some money and invested in property and are now being required to shoulder these very, very significant burdens. So in addition to property owners, we have national organizations representing the whole rental housing ecosystem, builders, owners, realtors, mortgage bankers, and others explaining how there really is a tidal wave of onerous rental housing regulation across the nation either being enacted or being considered and really underlining the need for guidance from the Supreme Court.

 

They also explain why this really is the paradigmatic situation that the framers thought about when they included the takings clause, which is this risk that property owners would be singled out because they almost certainly were going to be outnumbered by the number of citizens who would be favored by imposing unjustified burdens on the smaller class property owners. Exactly what's going on here. We also have the broader business community represented. The U.S. Chamber and the California Business Roundtable explaining the broader, not just the implication for the rental housing and property owner world, but also for the larger economy and then defenders of property rights. The Institute for Justice, Cato, and the Manhattan Institute, Professor Laitos, as I mentioned, New York owners explaining the evolution of the New York law and the very recent cutting off of off ramps from regulation. So that just gives you an idea of the very, very broad support that we have, broad support that we think more than justifies the Supreme Court using one of its merit slots to address these issues.

 

The issue before the Court is of course constitutional but I think before I wrap up, I just want to take a minute to talk about the policy and its rationality. I think economists don't agree on much but virtually all economists agree that rental -- regulation of rent levels is the worst possible strategy for solving the problem of housing which is there isn't enough housing. The big issue in New York and across America is the lack of supply. We need more housing and we need to make it easier to build. But NIMBYism is a big obstacle. That's not just unfair to people who, if there were more supply, would benefit from reduced cost. It's also unfair to young people, new families, new arrivals in a community, because rent regulation favors incumbents. Just an example of how the New York law is counterproductive, one of the studies that we did for our complaint was to compare two sets of properties, rent stabilization regulated properties and properties not regulated by rent stabilization, and to compare the extent of the zoning envelope, the extent to which all of the available zoning square footage was used in each. And we found, not surprisingly, given the limits on the ability of RSL regulated owners to take back their properties and renovate them or demolish them and build good buildings, that the gap would produce 100,000 more units in New York.

 

In addition, and I should say this at the beginning, but it's remarkable, of course, the New York law doesn't limit these apartments to those who it is claiming to help -- lower or more moderate-income people. They're available to anyone. And so our complaint describes a number of studies that show that many wealthy people live in these apartments. Indeed, one of the things the New York legislature did in 2019 was to eliminate decontrol based on high tenant income or high rent levels. So even more than before, this is a program that really, although it's claimed to benefit lower income people and some lower income people may benefit, it's a lottery ticket. If you win it, you get this benefit regardless of your situation. And finally, I think if you look at the big picture, what the New York law does provide is a distraction. Officials can claim that they're promoting affordable housing by protecting the rent stabilization law, but because the real issue is supply, they're really not moving the ball on solving the problem, which is probably best shown by the fact that this law has been in effect for 50 years and the New York rental housing situation certainly hasn't gotten better. And I think most observers would say that it's gotten worse. So, Sam, why don't I stop there and we turn to questions that you and our viewers and listeners may have.

 

Sam Fendler:  That's perfect. Thank you so much, Andy, for delivering those opening remarks and for kind of getting us on track for the discussion to follow. So we will now turn to our audience question and answer portion. I'll say again, if you have a question, please enter it into the Q&A function at the bottom of your Zoom window. We have a couple good questions here that I think we could knock out pretty quickly, Andy. So the first one, and this is something that you and I discussed before we hopped on the program, but we have a question from the audience that says, "If I want to download the case materials, what is the docket number and can you post links?" And you actually have a very convenient website for that.

 

Andrew J. Pincus:  We do.  We have a very convenient website, which is unlawfulrentregs.com, which has the filings in the case, as well as some other information about the issue. If you prefer to get your information straight from the Supreme Court, the docket number is 221095.

 

Sam Fendler:  Perfect. That's great. And I haven't been in this racket very long, certainly not as long as you all. But like I was saying, I think it's just a brilliant idea to have all of that stuff easily accessible to people because certainly, our members are interested in this stuff. A lot of us want to read the complaints at the district level, the circuit level. So I think that's brilliant and I think it's worth mentioning one more time that it's unlawfulrentregs.com. So the next question -- I think this one is probably best suited for me, Andy, so I'll take this one really quick. The question is, "Is there a transcript of this presentation?" So we are recording this Zoom webinar and the recording will be available on our website, fedsoc.org. In the coming days, it'll be available as a YouTube video. So for that reason, it'll be available directly on our YouTube channel and it will also be available as a podcast on anywhere that you get your podcasts. So Spotify, Google, Apple, all these places, and that will be available in the coming days. So thank you very much to our audience member for that question. Now, Andy, I want to ask you a question. This law was passed in 1974; is that correct?

 

Andrew J. Pincus:  Yeah. There was a little bit of a predecessor in '69, but the basic outlines, yes, in '74.

 

Sam Fendler:  Okay. And the legislation rests on a state of emergency; is that correct?

 

Andrew J. Pincus:  Yes. Initially, the law was an emergency law that had to be renewed. In the latest amendments, the 2019 amendments, that emergency status of the state law was taken away. But for the law to be effective in New York City, the New York City Council has to make a finding that the vacancy rate is less than five percent and also that there are other factors that warrant the sort of declaration of an emergency necessitating the law. One of the things to say about -- just to say about not something we're challenging at this stage of the litigation, but one of the ways that that five percent standard has been met is to apply it citywide. And obviously, there are greatly disparate vacancy rates between Manhattan and the outer boroughs and different areas. But because of the politics, there's sort of never been a question that the city council, at the end of the day, was going to find that standard satisfied so that the restrictions of the law could remain in effect.

 

Sam Fendler:  So do those 2019 amendments -- does that make it so that a state of emergency does not need to be declared? So now that is replaced by this less than five percent?

 

Andrew J. Pincus:  No, there was always -- the emergency nature was something that -- there's a state law, and then it's applied in New York City through some New York City laws and regulations. So the state law had to be renewed initially. It was sort of enacted on a limited emergency basis. 2019 basically put the state law on a permanent basis but left in place the requirement that the New York City Council make this finding about vacancy rates and other factors warranting the continuation of regulation. So that remains in effect.

 

Sam Fendler:  Certainly.  So is there -- obviously, this case has been being litigated for quite some time. Have you either in the recent circuit court stage or perhaps as we move forward to the Supreme Court, is there any eye towards the kind of shifting landscape, the shifting view on emergency powers in a post COVID world? Is that part of your theory here at all?

 

Andrew J. Pincus:  No, we haven't focused on that because this law so -- predates COVID. So we've really just been focused on the restrictions and the reality of what they impose. Reality, but also, since this is a facial challenge, what the statutes on their face impose in terms of the restrictions on the right to exclude and then the reality in terms of this tenant hardship factor and what it does to depress permissible rent levels.

 

Sam Fendler:  Andy, I'm going to pivot to our audience. One viewer asks, "What can we read into the fact that SCOTUS distributed the related Kagan v. Los Angeles case, which was then rescheduled?

 

Andrew J. Pincus:  So the Kagan case raises a physical takings challenge in the context of California law to restrictions on -- one of the restrictions that we also challenged -- the restrictions on the ability of a property owner at the end of a lease to reoccupy an apartment for his or her own use. That case initially was ripe for decision in the spring. We actually filed an amicus brief at the cert stage in that case suggesting to the Court explaining that we were about to file in a month or two our cert petition which raised that issue and other issues and that the Court might want to consider the Kagan case together with our case because they raised sort of analogous physical takings issues. So after that happened, and I'm not at all attributing cause and effect, the Court took the Kagan case off of the calendar and rescheduled it. And actually today, because today is the day for circulation of our case, the Court also circulated the Kagan case for consideration at the September 26 Conference. So right now they seem paired.

 

Sam Fendler:  Okay. I think that dovetails very nicely into our next audience question. So this viewer asks, "I know of at least three other rent stabilization law cases that will likely be fully briefed by the time the Supreme Court reconvenes. Are these cases on your radar? If so, how do they compare and contrast to each other and to your case? And how do you think the Supreme Court will handle them? Is there a chance that they're consolidated?"

 

Andrew J. Pincus:  Yeah. I guess I know of two of them. I'm not sure I know of the third, but maybe I do. So there are some overlapping claims and there are some different claims. One of the cases I know of has -- so our claims -- none of the other cases raise the Pennell claim that I talked about -- the sort of regulatory taking challenge based on the lack of cause and effect between the burden on the property owner and the alleged wrong -- problem that's being alleviated, being tenant inability to pay. I think we're the only people raising that issue. We have framed our physical takings challenges as facial challenges because we think it's clear that every time those laws apply to prevent the owner from exercising the right to exclude by not renewing the lease or by changing the use of the property or the other things that the owner wants to do, that constitutes a physical taking.

 

So our challenges are facial challenges because frankly, we think we're right, based on the Court's Patel decision, that you don't consider situations where the law doesn't apply, you consider only those situations where the law does apply to validate government authority. And in every one of those situations, we think it's quite clear, based on Cedar Point, that there is a per se physical taking. We did that for two reasons. One, as I said, a lot of owners are small individuals or families. They can't bring one of these lawsuits and we want to try and get as much relief as we can. Our clients include the two associations that represent just about everyone who owns a rent stabilized property. And our goal is to get as much relief as we can for those members and not force them to run the gauntlet of litigation, which obviously is what the city and state would prefer because many of them won't be able to do it. And so by default, they'll be able to keep those properties regulated. We also were worried that as applied claims could get tied up in the lower courts and we were hoping, of course, to win in the district Court in the Second Circuit. But we also thought that perhaps this was a case that was going to have to go to the Supreme Court as it eventually has had to. One of the other RSL cases has some facial claims in it. So that could give the Court an opportunity -- has applied claims in it, rather -- so that could give the Court the opportunity to consider both facial and as applied claims.

 

So I don't know exactly, obviously what the Court will do, but one option it obviously has is to grant several of the cases and maybe frame the issues in the way it would like to address them. So it would have a variety of possible decision routes. It could grant one of the cases -- I obviously hope it's ours -- and hold the rest and then see how its decision in the case that it grants applies to the rest of them. So I think there are a variety of possibilities and we'll just have to see as the cases evolve. We're the first one. I don't think the briefing in the next case will become final until right around the end of September, beginning -- the end of August, beginning of September. So I think we'll see how things develop as those cases move forward.

 

Sam Fendler:  Certainly. I can't help Andy, I'm imagining one of these lower cases reviving the Third Amendment, making a Third Amendment claim that some preferred group is being quartered here. But to your point that you were just making, you talked about the Second Circuit, and I want to ask you, you said that the Court found that because the owners invited in that first tenant, that opens the door to broad authority for the government to not only regulate, but to prevent owners from recovering their property. I'm wondering if you could elaborate a bit on that stance that the Court took, because when I hear just that little bit, it's kind of hard for me to wrap my head around that.

 

Andrew J. Pincus:  You know, it's hard for me too. I thought the analogy to the -- as I said, just stepping back for a minute -- in Cedar Point, obviously you had a very targeted regulation.  California came up with this argument by analogy to the Pruneyard case, which involved the mall and leafleting. The Court said, "Well, that doesn't make any sense. The mall is open to the public. This is not open to the public. Whatever was going on in Pruneyard obviously doesn't apply here." It seemed to me that the analogy was really off. But both the Second Circuit and the defendants in their briefs in opposition, have sort of said rental housing is open to the public in the same way. Maybe not in exactly the same way, but in enough of the same way as a mall. So that the mall analogy sort of gives the government a lot more leeway to allow the government to impose restrictions on the right to exclude. As I said, I don't really understand that. What these people have done is rent the apartment for a fixed term to a fixed group of people. That seems very different than going to the mall -- 25,000 people a day. But that is the analogy that gets made and it really doesn't apply, it seems to me, in the change of use context where nobody would say that the Pruneyard mall had to be a mall in perpetuity and that the government could sort of force you to keep allowing leafleting there even if you turned it into an office building or a warehouse.

 

So I find the analogy very bizarre. It's sort of bizarre for another reason, and we talk about this in our cert petition. If you think about the Horne case, the raisin takings case that the Court decided a few years ago, one of the arguments -- that was the case where there were sort of raisin price supports and the price support program required raisin growers to basically turn over or allowed the government to confiscate part of the harvest in order to support the prices. And the Court, probably not surprisingly, found that that was a taking. One of the arguments there was -- by the government was, "Well, these people don't have to grow raisins. They can use the grapes for other purposes, or they can grow another crop and you've chosen raisins. So too bad for you." And the Court made sort of quick hash of that argument. But it seems to me that's sort of the similar argument that's being made here. You made a decision to enter into a lease with tenant number one, and that means you're sort of locked in in perpetuity to all of these restrictions. It seems to me to conflict squarely with the reasoning of the Chief Justice's opinion for the Court in Horne.

 

Sam Fendler:  I was going to ask you about that raisin case next because it does sound remarkably similar. So another thing, Andy, you mentioned you're talking about getting some relief for your clients, for your organizations, the people that are affected here. There's one question I wanted to ask you about the implementation of this law. So you're talking about how once the lease ends, all of these sort of parade of horribles comes on and hits either landlords or the owners for how they can dispense with their property. One of the things you mentioned is that they can't pull the property off the market unless they pay for those tenants to relocate, and it winds up in exorbitant costs for that person. I'm wondering if you could maybe give an example of how that relocation works. Could a tenant say, "Well, I'm paying $500 a month now for an apartment that should be $7,000 a month on the market, so therefore you need to move me and put me into some analogous place?" I mean, how does that work?

 

Andrew J. Pincus:  Yeah. I mean, somewhat surprisingly. So let's talk about demolition. The owner says, "I would like to not renew people's leases because I would like to actually build a new building or maybe do a huge gut renovation and put some more floors onto the building because there are floors left in the zoning envelope." How great is that? We'll have more housing. So if you want to demolish and I'm just looking at the -- I want to be accurate. So they have to relocate regulated tenants to comparable rent stabilized properties or pay them a stipend for six years. So in your $500 example, you'd have to relocate the tenant to a comparable property that is also rent stabilized at a comparable rent. So not surprisingly, that is a huge burden. And we talked in the complaint about some of the press stories that have been written about the hundreds of thousands of dollars that holdout tenants have been able to get because they're the second to last or last people in the building. There's going to be a project and the law gives them a lot of leverage. And of course, that leverage is leverage that means increased housing units aren't going to happen because the burden of making it possible to demolish a building and build something new is just too great.

 

Sam Fendler:  Really something, Andy. Can you -- here's another question from the audience.  What do you think -- and this may require a crystal ball. I don't know if you can answer this or not. Maybe you have a beat on it. What do you think the New York state legislature's response would be if this turned out to be a favorable decision for you?

 

Andrew J. Pincus:  Well, I think the politics -- and my clients have said this from the beginning. It's pretty unlikely that there will not be a substitute law enacted in New York given the number of people who are affected and the political interest here. My hope is that the Court's decision will set forth guidelines that are pretty clear so that it will be possible to explain to the New York legislature that there are lines beyond which they cannot cross. I mean, for example, if the Court is clear on the Pennell issue that tenant ability to pay can't be considered, it seems pretty easy to say, "Well, rent levels can be set based on the kind of price control standard that has been used in other industries and sectors -- reasonable costs plus reasonable return on capital -- but you can't impose on these property owners the burden of providing housing for people who are low income." You can give people vouchers. You can create government owned housing. Although, in New York that's been sort of a disaster. There are lots of other ways to do it. But that economic burden has to be shouldered by the taxpayers. And similarly, on the physical taking side, you can't impose these draconian restrictions on property by sort of creating a web that effectively commandeers these units for perpetuity as regulated housing.

 

Sam Fendler:  To continue pulling this thread, Andy, we have a viewer that asks, "If the case is successful and the law is modified and still limits significantly the rights of owners, will you have to relitigate?"

 

Andrew J. Pincus:  I think that's possible. Again, I certainly hope that there would be a good faith discussion and good faith action by legislators and the governor and the city officials to say, here's what the standards are. We have to comply with them. Let's come up with something. And also, frankly, to use it as an opportunity to take a look at the basic problem. How do we increase housing stock supply in New York? New York went through an interesting debate in the last legislative session. The governor put forward a pretty imaginative program to try and encourage, eliminate some of the NIMBY-like restrictions and provide incentives for the building of new housing in the cities and in the suburbs and that was defeated in the legislature. But perhaps if the Court limits what can be done in terms of regulation of existing housing, that will open the door to a debate about solving the real problem, which is let's get more housing built and let's create programs, whether it's vouchers or otherwise, that target low-income people.

 

I mean, one of the bizarre things -- you and I talked about it earlier -- about this program is -- I talked about Friends. To me it's also Charlie and the Chocolate Factory. You unwrap your chocolate bar and you've got the golden ticket. You happen to have won a rent stabilized apartment. Doesn't matter what your income is, doesn't matter what your income gets to be, doesn't matter how big your family is, you get that apartment essentially forever and your kids can move in with you and then they can take over and have it forever. And that's a program that doesn't have anything to do with providing affordable housing for the people who really need it.

 

Sam Fendler:  Certainly. And Andy, it just seems like this case is emblematic of a lot of New York politics. And so forgive me if this question gets a little bit too high in scope, too macro in scope, but I'm curious -- we're talking about the legislature. We're talking about the law. This law seems to be principally aimed at Manhattan and like you mentioned, there's other -- of pulling boroughs in in order to hit certain numbers like the vacancy rate and such. What are the dynamics here, the push and pull between New York City, maybe somebody like Mayor Adams and the legislators in Albany? What's the back and forth here to get something on the books that will actually serve Manhattan?

 

Andrew J. Pincus:  I mean, this law, I think it targets -- it's New York City. But a lot of the housing that's regulated -- and I don't have the numbers -- is outside of Manhattan. If you look -- if you think about Manhattan, clearly there's some RSL regulated apartments there, but there's been a lot of new building, there's been a lot of co-op and condo conversion before some of the limits were opposed that I've talked about. There was a time when there was decontrol based on either tenant income levels or rent levels. That obviously probably had a disproportionate impact on Manhattan. So there are -- a lot of regulated units are in the other four boroughs.

 

So this is a law and a lot of them -- again, you think of New York, you think of skyscrapers. These are six or more apartments. A lot of these are small buildings, the owner lives in them, which is why it's so personal in terms of the ability to move in an elderly relative or another family member. So I think the problem in New York, and there has been a few brave New York public officials who have started to talk about it, is we need to find ways to make the building of more housing less of an incredibly difficult process so that we can get more housing built. And we need to sort of think about vouchers and other kinds of targeted aid in order to get the assistance to the people who really need it.

 

So I think my hope is that if we have a victory here that this will help. But I think the political dynamic still has a lot of incumbent tenants in these units. And I think the other side has sometimes tried to say, "Oh, if you win, everyone's going to be evicted. This will cause a housing crisis in New York." Property owners don't want to displace tenants -- good tenants who are paying their rent because the process of changeover means there'll be a vacancy, no assurance that the new tenant will be as good as the old tenant. So I think the reality is there will be a new law and hopefully a law that complies with -- in good faith with what the Court lays down and that does try to address some of these problems in a real way.

 

Sam Fendler:  And correct me if I'm wrong, Andy --

 

Andrew J. Pincus:  And I think Mayor Adams is someone who actually does -- again, I'm an ex New Yorker, just know what I read -- but does seem to be someone who tries to take a realistic view to solving the city's problems. The prior mayors put a lot of pressure on the Rent Guidelines Board to consistently vote to allow zero or one percent increases. The board, although as I said earlier, there's still a huge differential between the owner cost increase and the permissible increase in rent levels, at least it's not zero.

 

Sam Fendler:  And it doesn't seem that there's a major supply pinch in the luxury market that would create some kind of overflow into these newly vacant, potentially apartments; is that right?

 

Andrew J. Pincus:  I don't know. I don't know what the current situation is in the city in terms of housing. Obviously, the pandemic had a dramatic effect and I don't know how much that's settled out. I mean, one thing that's certainly true, and economists will tell you, is that if you have half of the housing levels drastically regulated, the consequence of that is the people who are in the unregulated housing are paying a premium. Often even in the same building, there can be regulated and unregulated units. And so one of the very unfortunate consequences of this law is you have some New Yorkers, maybe a significant number, who are sort of -- they're the ones who are having to subsidize their neighbors. And that seems terribly unfair.

 

Sam Fendler: Certainly. Quick question from our audience here. Did the National Apartment Association submit a brief?

 

Andrew J. Pincus:  They did. They joined together in a brief with the builders and the national realtors and the mortgage bankers and maybe even one other organization, and really talked about what was going on nationwide in terms of this very significant trend toward increased draconian rent regulation and making clear to the Court that although this case arises in New York and approximately a million apartments in New York is certainly a very significant impact, that the legal issues really are ones that are relevant nationwide. And that's why the need for the Court to sort of set these guidelines is so great.

 

Sam Fendler:  And to get back onto the legal portion here, we have a viewer who is asking about the Yee case and they point to a line in the Yee case that says, "A different case would be presented if a case as applied or on its face prevented an owner from terminating a lease." And the question is, how did the Second Circuit and or the defendants get around that?

 

Andrew J. Pincus:  Well, this is a very astute observer because we rely on Yee. Yee was a case that involved another California law, a law that regulated mobile home pads. And it was challenged on physical takings grounds. And the Court there said, "Well, here the California law allows the owner to reclaim the property in six to nine months. And in that situation, we're not going to find a physical taking." The taking argument was based on the fact that the incumbent tenant could sort of convey that tenancy and whether that constituted a physical taking because the successor tenant wouldn't have been someone that the property owner chose. So what the viewer has focused on is language that we think is critical and actually shows that Yee supports our challenges to the restrictions on taking back apartments for own use, changing use, demolition.

 

But the Second Circuit basically put to one side that discussion and said, "Well, Yee rejected a physical takings claim, so we're rejecting this physical takings claim. Yee didn't really address that situation." And then the defendants sort of try to make an argument that there are some situations where the property owner under the RSL, can reclaim the property in six to nine months for non-payment of rent or something like that. But as we pointed out in our brief, and we emphasize in our reply brief, the fact that there are other ways to avoid a physical taking doesn't mean that when the statute bites and prevents the owner when the lease expires from taking back the property, that's exactly the situation that Yee was talking about. So we think Yee favors us. Hopefully the Court will agree. And a number of our amici, the Chamber, the California Business Roundtable, others of our amici, the New York Realtors really focused in on expanding even on the argument that we make about Yee.

 

Sam Fendler:  Perfect segue, Andy, because we have another viewer that is asking if you could elaborate a bit about the concerns raised by the California Business Roundtable?

 

Andrew J. Pincus:  You know, the roundtable supports us on both of our questions presented. They're focused on both the current range of regulations in California, but also the fact that there have been lots of proposals to impose more draconian regulations and the fact that although in this context, we're talking about -- on the rent regulation side, we're talking about regulation of real property. The arguments that the Second Circuit accepted and the need for the Pennell like restrictions apply across the board. And so both the Chamber and the California Business Roundtable explain that, A, there are huge consequences to the economy at large from these kinds of restrictions as applied to real property, but also that these kinds of issues arise in other sectors of the economy and that's another reason why getting the Court -- granting review and providing some guidance is critically important.

 

Sam Fendler:  Another question from a viewer joining us from California. They say that they've been following the Kagan v. LA case very closely and it seems similar to this New York City case and other cases and the viewer is wondering if you have thoughts on which of these petitions SCOTUS might accept.

 

Andrew J. Pincus:  You know, as I said earlier, we sort of flagged the Kagan case early on as one raising a similar physical takings challenge in terms of the property owner's ability at the expiration of a lease to take back the property for her own use or for her family's use. So to that extent, Kagan has one of the issues -- one of the physical takings issues we raise. We obviously raise a bunch of other physical takings challenge and we have our Pennell challenge based on rent levels. So I don't want to predict what the Court may do. I mean, it will have options in terms of which cases to take, which questions to focus on and I'm just hopeful that they will take our questions and if others petitions get granted, the more the merrier.

 

Sam Fendler:  Certainly. Well, Andy, this hour has flown by and we're coming to the end of it. So I'm wondering if you have any last-minute thoughts to share with the audience.

 

Andrew J. Pincus: No. Just again, just want to thank you and The Federalist Society for the opportunity to sort of highlight what we think are some very important issues and as I say, confirmed by the amicus support that we've gotten that are really arising in New York, but also arising around the country.

 

Sam Fendler:  Absolutely.  Well Andy, I want to thank you and on behalf of The Federalist Society, I want to thank you for the benefit of your time and your expertise today. I also want to thank our audience for joining us. We greatly appreciate your participation. Please check out our website, fedsoc.org, or you can follow us on all major social media platforms @Fedsoc to stay up to date with announcements and upcoming webinars. Thank you all once more for tuning in.  Thank you, Andy, again, and we are adjourned.