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Date: 11-26-2021
Case Style:
MARCIA MELENDEZ, et al v. CITY OF NEW YORK et al.
Case Number: 20-4238
Judge: REENA RAGGI
Court: In the United States Court of Appeals for the Second Circuit
On appeal from The United States District Court
for the Southern District of New York
Plaintiff's Attorney:
Defendant's Attorney: JAMISON DAVIES, Assistant Corporation
Counsel (Richard Dearing, Devin Slack, on
the brief), for James E. Johnson, Corporation
Counsel of the City of New York
Description:
New York, NY - Constitutional law lawyer represented Plaintiffs who sued the City and various named City officials seeking a judgment declaring the challenged laws unconstitutional and for an injunction permanently enjoining their enforcement.
In response to the COVID-19 pandemic, governments at all
levels—federal, state, and local—enacted laws to address health,
safety, and economic concerns. Some of these laws have operated
affirmatively, with the federal government in particular
appropriating trillions of dollars to fund vaccine development and
distribution, to enhance unemployment benefits, to stimulate the
economy, etc. Other laws have operated negatively to proscribe
communal conduct, to limit or excuse financial obligations, to
preclude or limit certain legal remedies, etc. At issue in this appeal
are certain laws falling into the second category and enacted by New
York City (“City”) in May 2020, at the height of the pandemic,
specifically, (1) amendments to the City’s existing Residential and
Non-Residential (i.e., “Commercial”) Harassment Laws, see N.Y.C.
Admin. Code §§ 22-901 et seq., 27-2004 et seq. (together the
“Harassment Amendments”), which prohibit “threatening”
residential or commercial tenants based on their COVID-19 status;
and (2) N.Y.C. Admin. Code § 22-1005 (the “Guaranty Law”), which
renders permanently unenforceable personal liability guaranties of
commercial lease obligations arising between March 7, 2020, and June
30, 2021.
In this action, filed in the United States District Court for the
Southern District of New York (Ronnie Abrams, J.), plaintiffs, Marcia
Melendez, Ling Yang, Elias Bochner, and the corporate landlords in
which they own interests, sue the City and various named City
officials under 42 U.S.C. § 1983 for a judgment declaring the
challenged laws unconstitutional and for an injunction permanently
5
enjoining their enforcement. They allege that the Harassment
Amendments violate the Free Speech and Due Process Clauses of the
United States and New York State Constitutions by impermissibly
restricting commercial speech in the ordinary collection of rents and
by failing to provide fair notice of what constitutes threatening
conduct. See U.S. Const. amends. I & XIV; N.Y. Const., art. I § 8.
Plaintiffs further allege that the Guaranty Law violates the United
States Constitution’s Contracts Clause, which prohibits “State . . .
Law[s] impairing the Obligation of Contracts,” U.S. Const. art. I, § 10,
cl. 1.1 Plaintiffs now appeal from a judgment of the district court
entered on November 30, 2020, (1) granting defendants’ motion to
dismiss plaintiffs’ amended complaint in its entirety for failure to
state a claim, see Fed. R. Civ. P. 12(b)(6); and (2) denying plaintiffs’
motion for preliminary injunctive and declaratory relief without
review. See Melendez v. City of New York, 503 F. Supp. 3d 13 (S.D.N.Y.
2020).
Upon de novo review of the challenged judgment, we conclude,
as the district court did, that plaintiffs fail to allege plausible free
speech and due process claims. As to their Contracts Clause challenge
to the Guaranty Law, however, we conclude that the amended
complaint, viewed most favorably to plaintiffs, does not permit a
court to dismiss this claim pursuant to Rule 12(b)(6). Accordingly, we
affirm the dismissal of plaintiffs’ challenges to the Harassment
Amendments, but we reverse the dismissal of their Contracts Clause
1 The Supreme Court has variously referred to this constitutional proscription as
the “Contract Clause,” see, e.g., United States Tr. Co. v. New Jersey, 431 U.S. 1, 14
(1977), and the “Contracts Clause,” see, e.g., Sveen v. Melin, 138 S. Ct. 1815, 1821
(2018). In this opinion, we employ the latter, most recent appellation, except when
quoted text does otherwise.
6
challenge to the Guaranty Law, vacate the denial of preliminary
injunctive and declaratory relief, and remand the case to the district
court for further proceedings consistent with this opinion.
BACKGROUND
In recounting the background to this case, we follow the
standard applicable to judicial review of motions to dismiss, i.e., we
accept all factual allegations in the plaintiffs’ amended complaint as
true, and we consider that pleading, together with all documents
appended thereto or incorporated by reference, as well as all matters
of proper judicial notice and public record, in the light most favorable
to plaintiffs. See Blue Tree Hotels Inv. (Can.), Ltd. v. Starwood Hotels
Resorts Worldwide, Inc., 369 F.3d 212, 217 (2d Cir. 2004); Automated
Salvage Transp., Inc. v. Wheelabrator Env’t Sys., Inc., 155 F.3d 59, 67 (2d
Cir. 1998).2
I. COVID-19 Pandemic
The challenged Harassment Amendments and Guaranty Law
were enacted in response to the COVID-19 pandemic. The severity of
that pandemic is not disputed by the parties and, thus, requires little
elaboration here. It suffices to note that to date the United States has
2 To the extent that facts of which we might otherwise take judicial notice are
disputed, we decline to consider them. See Fed. R. Evid. 201(b) (providing for
judicial notice of facts outside record that are “not subject to reasonable dispute”);
United States v. Strock, 982 F.3d 51, 63 (2d Cir. 2020) (cautioning that, on Rule
12(b)(6) motion, district should have taken judicial notice of report only to
determine what statements it contained, not for truth of matters asserted therein);
Oneida Indian Nation v. New York, 691 F.2d 1070, 1086 (2d Cir. 1982) (observing that
judicial notice of disputed fact should not ordinarily be taken as basis for dismissal
of complaint on its face).
7
identified 45,468,434 cases of coronavirus infection, resulting in
736,048 deaths.3
It is also undisputed that New York State was hit early and hard
by the pandemic. By the end of March 2020, the state had become the
nation’s pandemic epicenter, reporting approximately one third of
infection cases nationwide, with New York City alone then
accounting for one quarter of the country’s virus-related deaths.4
In addition to causing a nationwide public health emergency,
the pandemic fomented an economic crisis as government-mandated
mitigation measures limited personal interactions and forced
businesses to suspend or reduce operations. A few statistics make the
point. In the spring of 2020, the United States experienced its sharpest
economic contraction since World War II, with April 2020
unemployment numbers climbing to a record 14.4%.5 In New York,
between February and June 2020, the unemployment rate climbed
3 See Covid Data Tracker, C.D.C. (last accessed Oct. 27, 2021),
https://covid.cdc.gov/covid-datatracker/?cdc_aa_refval=https%3a%2f%2fwww.cdc.gov%2fcoronavirus%2f2019-
ncov%2fcases-updates%2fcases-in-us.html#global-counts-rates.
4 See Aylin Woodward, One chart shows how quickly New York City became the
epicenter of the US's coronavirus outbreak, Bus. Insider (Mar. 30, 2020, 3:59 PM),
https://www.businessinsider.com/new-york-city-coronavirus-cases-over-timechart-2020-3.
5 See Rakesh Kochhar, Unemployment rose higher in three months of COVID-19 than it
did in two years of the Great Recession, Pew Rsch. Ctr. (June 11, 2020),
https://www.pewresearch.org/fact-tank/2020/06/11/unemployment-rose-higherin-three-months-of-covid-19-than-it-did-in-two-years-of-the-great-recession/.
8
higher still, to 20.3%, with over 1.4 million people filing for benefits.6
To address the issues on this appeal, it is useful to summarize at the
outset how government, at various levels, responded and/or
contributed to the economic challenges of the COVID-19 pandemic.7
The Federal Response
Between March 2020 and March 2021, Congress appropriated
an unprecedented five trillion dollars to address various aspects of the
pandemic emergency. On March 25, 2020, Congress enacted the
Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”),
a $2.2 trillion stimulus package—the largest in American history—
which, among other things, appropriated $293.5 billion for one-time
cash payments (usually $1,200/person) to qualifying individuals; $268
billion to increase unemployment benefits; $150 billion to aid state
and local governments; and $349 billion to fund the new Paycheck
Protection Program (“PPP”), which provided potentially forgivable
loans to small businesses for use meeting payroll and, to a lesser
extent, rent and other operating costs. See Pub. L. No. 116-136,
6 Popular Annual Financial Report (PAFR), N.Y.C. Comptroller (Nov. 30, 2020),
https://comptroller.nyc.gov/reports/popular-annual-financial-reports/. Plaintiffs
report that, as of the date of their amended complaint, New York State had “paid
over $10 billion in unemployment benefits, approximately 400% more than the
State paid” the prior year. App’x at 4296.
7 While plaintiffs have, correctly, urged the court to consider their constitutional
challenges in the context of the broader relief accorded by various actors during
the pandemic, they have not provided this court with a comprehensive account of
the COVID-19 relief available to New Yorkers during the pandemic. We endeavor
ourselves to summarize key government action in this area.
9
§§ 601(a), 1102(a), 1107(a)(1), 2102(d), 2201(a), (f).8 The CARES Act
also increased funding for existing Small Business Administration
(“SBA”) loan programs, including for Economic Injury Disaster Loan
grants, and imposed a 120-day eviction moratorium for certain
residential properties. See id. §§ 1107(a)(6), 1110, 4024(a), (b).
At the end of 2020, Congress made another $900 billion in
pandemic relief available through the Consolidated Appropriations
Act, see generally Pub. L. No. 116-260, with $25 billion directed to an
Emergency Rental Assistance Program (“ERA”) for residential
tenants, see id. § 501. In doing so, Congress also extended by one
month a residential eviction moratorium previously imposed by the
Centers for Disease Control and Prevention (“CDC”) and discussed
in the next paragraph. See id. § 502. Three months later, on March 11,
2021, Congress appropriated another $1.9 trillion in relief through the
American Rescue Plan. See Pub. L. No. 117-2. Of this amount, $21.55
billion was earmarked as additional ERA funding, see id. § 3201,9 and
$28.6 billion was directed to the new Restaurant Revitalization Fund
to help small restaurant businesses meet payroll, mortgage, rent, and
other operating expenses, see id. § 5003(b)(2)(A), (c)(5).
Meanwhile, federal agencies also pronounced economic
policies in response to the pandemic. Notably, in September 2020,
8 See also What’s in the $2 Trillion Coronavirus Relief Package?, Comm. for a Resp. Fed.
Budget (Mar. 25, 2020), https://www.crfb.org/blogs/whats-2-trillion-coronavirusrelief-package.
9 Delays in state distribution of ERA funds have been reported. See, e.g., Glenn
Thrush & Alan Rappeport, About 89% of Rental Assistance Funds Have Not Been
Distributed, Figures Show, N.Y. Times (Aug. 25, 2021, 10:38 AM),
https://www.nytimes.com/2021/08/25/us/politics/eviction-rental-assistance.html.
10
after the first congressional residential eviction moratorium expired,
the CDC declared a temporary nationwide halt in residential
evictions for persons submitting sworn declarations that they had
been adversely affected by the pandemic. See 85 Fed. Reg. 55,292
(Sept. 1, 2020). The CDC extended this moratorium in various forms,
most recently through October 3, 2021. See 86 Fed. Reg. 43,244 (Aug.
4, 2021).10
New York State’s Response
1. Gubernatorial Orders
In an effort to control the pandemic within New York, the state
legislature, on March 3, 2020, granted then-Governor Andrew M.
Cuomo broad authority to “issue any directive during a state disaster
emergency” that he deemed “necessary to cope with the disaster,”
and expanded his existing authority temporarily to suspend “any
statute, local law, ordinance, or orders, rules or regulations.” N.Y.
Exec. Law art. 2-B, § 29-a (2020); 2020 N.Y. Sess. Law Ch. 23
(McKinney).11 Four days later, the Governor declared the COVID-19
pandemic a state disaster emergency, see Exec. Ord. 202, and
proceeded, over the next weeks and months, to issue more than
seventy executive orders to address the crisis.
10 The CDC’s eviction moratorium was enjoined after the Supreme Court deemed
plaintiffs “virtually certain to succeed on the merits of their argument that the
CDC has exceeded its authority.” Alabama Ass'n of Realtors v. Dep't of Health &
Hum. Servs., 141 S. Ct. 2485, 2486 (2021).
11 The former authority was revoked in March 2021. See 2021 N.Y. Sess. Law Ch.
71 (McKinney).
11
Certain orders issued between March 16 and 19, 2020, closed or
severely limited the in-person operation of large numbers of New
York businesses.12 These shut-down orders were repeatedly
extended and modified over the following months.13
Starting in the late spring of 2020, the Governor allowed some
New York businesses slowly to reopen, varying operating restrictions
based on industry and regional COVID-19 case counts.14 Not until
the following summer, however, did the Governor lift most
pandemic-related restrictions, making state capacity limits and social
12 See Exec. Ords. 202.3 (mandating closure of all “gym[s], fitness centers or classes,
and movie theaters,” and permitting restaurants and bars “only [to] serve food or
beverage for off-premises consumption”), 202.7 (closing all “barbershops, hair
salons, tattoo or piercing parlors and related personal care services . . . includ[ing]
nail technicians, cosmetologists and estheticians” and businesses providing
“electrolysis, [and] laser hair removal services”); see also Exec. Ords. 202.6
(requiring all non-essential businesses to reduce in-person workforces by 50%),
202.7 (raising in-person workforce reduction to 75%), 202.8 (mandating 100% inperson workforce reduction).
13 See, e.g., Exec. Ords. 202.13, 202.14, 202.18, 202.38, 202.48, 202.55.
14 See Amid Ongoing COVID-19 Pandemic, Governor Cuomo Outlines Phased Plan to
Re-open New York Starting with Construction and Manufacturing, N.Y. State (Apr. 26,
2020), https://www.governor.ny.gov/news/amid-ongoing-covid-19-pandemicgovernor-cuomo-outlines-phased-plan-re-open-new-york-starting; Governor
Cuomo Announces Gyms and Fitness Centers Can Reopen Starting August 24, N.Y.
State (Aug. 17, 2020), https://www.governor.ny.gov/news/governor-cuomoannounces-gyms-and-fitness-centers-can-reopen-starting-august-24; Governor
Cuomo Announces Indoor Dining in New York City Allowed to Resume Beginning
September 30 with 25 Percent Occupancy Limit, N.Y. State (Sept. 9, 2020),
https://www.governor.ny.gov/news/governor-cuomo-announces-indoor-diningnew-york-city-allowed-resume-beginning-september-30-25; Governor Cuomo
Announces New Cluster Action Initiative, N.Y. State (Oct. 6, 2020),
https://www.governor.ny.gov/news/governor-cuomo-announces-new-clusteraction-initiative.
12
distancing guidelines optional for offices, retail establishments, and
nearly all businesses.15
A number of other executive orders pertained to commercial
and residential real estate. Notably, Executive Order 202.8, effective
March 20, 2020, imposed a ninety-day moratorium on residential and
commercial evictions and foreclosures.16 Executive Order 202.9,
effective March 21, 2020, provided for the forbearance of mortgage
payments by “any person or entity facing a financial hardship due to
the COVID-19 pandemic.” Subsequent executive orders extended
and expanded these protections until they were superseded by
statute. Meanwhile, Executive Order 202.28, issued on May 7, 2020,
required landlords to allow residential tenants affected by the
pandemic to use security deposits to pay rent, and prohibited late-fee
demands for rent arrears.17 Executive Order 202.32, issued on May 1,
15 See Governor Cuomo Announces COVID-19 Restrictions Lifted as 70% of Adult New
Yorkers Have Received First Dose of COVID-19 Vaccine, N.Y. State (June 15, 2021),
https://www.governor.ny.gov/news/governor-cuomo-announces-covid-19-
restrictions-lifted-70-adult-new-yorkers-have-received-first; Governor Cuomo
Announces New York Ending COVID-19 State Disaster Emergency on June 24, N.Y.
State (June 23, 2021), https://www.governor.ny.gov/news/governor-cuomoannounces-new-york-ending-covid-19-state-disaster-emergency-june-24.
16 Starting that same month, the State’s Chief Administrative Judge issued a series
of orders suspending commercial and residential evictions, see, e.g., N.Y. Admin.
Ords. Nos. 68/20 (Mar. 16, 2020), 160A/20 (Aug. 13, 2020), and limiting foreclosure
proceedings on commercial properties, see, e.g., N.Y. Admin. Ord. No. 157/20 (July
23, 2020).
17 This court recently dismissed as moot a constitutionality challenge to nowexpired Executive Order 202.28. See 36 Apartment Assocs., LLC v. Cuomo, No. 20-
2565-CV, 2021 WL 3009153, at *2 (2d Cir. July 16, 2021).
13
2020, permitted localities temporarily to extend deadlines for paying
property taxes.
2. Legislative Enactments
The New York State legislature enacted various laws
addressing pandemic-related real estate concerns. On June 17, 2020,
it passed the Emergency Rent Relief Act of 2020, see 2020 N.Y. Sess.
Laws Ch. 125 (McKinney), which provided for residential rent
subsidies (in the form of vouchers) to be paid directly to landlords on
behalf of tenants with the greatest need. Id. §§ 2.4, 2.7. That same day,
the legislature amended the State Banking Law to require regulated
entities to grant up to 180 days’ forbearance of mortgage payments.
See N.Y. Banking L. § 9-x (2020).
On June 30, 2020, the legislature passed the Tenant Safe Harbor
Act (“TSHA”), 2020 N.Y. Sess. Laws Ch. 127 (McKinney), prohibiting
eviction warrants and possession judgments against residential
tenants suffering financial hardship for debts accrued from “March 7,
2020 until the date on which none of the . . . Executive Order[s] issued
in response to the COVID-19 pandemic continue to apply in the
county of the tenant’s or lawful occupant’s residence.” Id. §§ 1, 2.1.18
Thereafter, the COVID-19 Emergency Eviction and Foreclosure
Prevention Act of 2020 (“CEEFPA”), enacted in December 2020, see
2020 N.Y. Sess. Laws Ch. 381 (McKinney), and the COVID-19
Emergency Protect Our Small Businesses Act of 2021 (“CEPOSBA”),
enacted in March 2021, see 2021 N.Y. Sess. Laws Ch. 73 (McKinney),
18 In September 2021, the legislature extended the TSHA’s coverage period through
January 15, 2022. See 2021 N.Y. Sess. Law Ch. 417 (McKinney), pt. D, § 1.
14
provided relief from eviction for delinquent residential and
commercial (specifically, small-business) tenants who submitted
financial hardship declarations. See CEEFPA pt. A §§ 4, 6; CEPOSBA
pt. A §§ 5, 7. The statutes also provided temporary protections from
mortgage and tax foreclosures where certain hardship criteria are
met. See CEEFPA pt. B, subpart A, §§ 5, 7, subpart B, § 3; CEPOSBA
pt. B, subpart A, §§ 5, 7, subpart B, § 3.19 More recently, the legislature
appropriated $800 million to fund COVID-19 relief grants of $5,000 to
$50,000 for “socially and economically disadvantaged” small
businesses to meet payroll, rent, mortgage, and other operating
costs.20 Businesses receiving federal Restaurant Revitalization Fund
grants are not eligible, nor are landlords.21
19 Although CEEFPA and CEPOSBA were extended through August 31, 2021, see
Act of May 4, 2021, 2021 N.Y. Sess. Laws Ch. 104 (McKinney), the Supreme Court
preliminarily enjoined CEEFPA’s residential eviction moratorium on due process
grounds, see Chrysafis v. Marks, 141 S. Ct. 2482 (2021) (discussed infra at 101 n.76).
On September 2, 2021, the New York State legislature extended foreclosure and
eviction protections through January 15, 2022, and, in an apparent attempt to
address the due process concerns identified in Chrysafis, created a mechanism for
landlords to contest tenants’ declarations of financial hardship. See 2021 N.Y. Sess.
Law Ch. 417 (McKinney), § 2; pt. B, subparts A–C; pt. C, subparts A–C. This court
has since dismissed the due process challenge to CEEFPA’s residential eviction
moratorium as moot and remanded the case to the district court with leave for the
parties to amend their pleadings and for reconsideration in light of the intervening
changes in New York law. See Chrysafis v. Marks, 15 F.4th 208 (2d Cir. 2021).
20 Governor Cuomo Announces Applications Now Open for $800 Million COVID-19
Pandemic Small Business Recovery Grant Program, N.Y. State (June 10, 2021),
https://www.governor.ny.gov/news/governor-cuomo-announces-applicationsnow-open-800-million-covid-19-pandemic-small-business.
21 See New York State COVID-19 Pandemic Small Business Recovery Grant Program,
N.Y. State (last accessed Aug. 19, 2021), https://nysmallbusinessrecovery.com/.
15
II. The Challenged New York City Actions
It is against this backdrop of extensive federal and state action
in response to the pandemic that we consider the challenged New
York City laws. On April 21, 2020, the New York City Council
(“Council”) announced its intent to consider a COVID-19 relief
package “to protect tenants, help small businesses survive, and find
creative ways to address the public health crisis brought on by the
virus.” App’x at 517. None of the proposed laws appropriated funds
for financial relief. Rather, of thirteen acts considered, most regulated
the food service industry’s use of outdoor dining and food delivery
as means to continue operating despite indoor shutdown orders.22
The focus of this case, however, is on a trio of laws prohibiting the
harassment of residential and commercial tenants based on their
“status as a Covid-19 impacted business or person,” id. at 521; see also
N.Y.C. Admin. Code §§ 27-2004 et seq., 22-901 et seq., and making
commercial lease guaranties permanently unenforceable for rent
arrears arising between March 7, 2020, and June 30, 2021, see N.Y.C.
Admin. Code § 22-1005.
22 See App’x at 974–77; Int. No. 1846-2020 (requiring accurate disclosure of delivery
services’ gratuity policies); Int. No. 1895-2020 (requiring food to be delivered in
tamper-evident packaging); Int. No. 1896-2020 (regulating disclosure of thirdparty delivery service fees); Int. No. 1897-2020 (requiring third-party delivery
services to be licensed); Int. No. 1898-2020 (prohibiting third-party delivery
services from charging for telephone orders not resulting in actual transaction);
Int. No. 1907-2020 (prohibiting third-party delivery services from imposing limits
on restaurant prices); Int. No. 1908-2020 (limiting third-party food delivery
charges); Int. No. 1916-2020 (waiving sidewalk café fees); Int. No. 1921-2020
(requiring food delivery services to display sanitation inspection letter grades
online); Int. No. 1940-2020 (requiring city agencies to publish information about
license and permit renewal extensions).
16
The Harassment Amendments
The proposed harassment laws were actually amendments to
the City’s existing Residential and Commercial Harassment Laws. To
discuss plaintiffs’ First and Fourteenth Amendment challenges to
these Harassment Amendments, it is useful to place them in their
larger textual contexts.
1. Pre-Pandemic Harassment Laws
Enacted in 2008, the Residential Harassment Law states, as
pertinent here, that “[t]he owner of a dwelling shall not harass any
tenants or persons lawfully entitled to occupancy of such dwelling as
set forth in [section 27-2004(a)(48)] of this chapter.” N.Y.C. Admin.
Code § 27-2005(d). Subject to exceptions not here relevant, the
referenced section defines “harassment” to mean
any act or omission by or on behalf of an owner that
(i) causes or is intended to cause any person lawfully
entitled to occupancy of a dwelling unit to vacate such
dwelling unit or to surrender or waive any rights in
relation to such occupancy, and (ii) includes one or more
of the following acts or omissions, provided that there
shall be a rebuttable presumption that such acts or
omissions were intended to cause such person to vacate
such dwelling unit or to surrender or waive any rights in
relation to such occupancy.
N.Y.C. Admin. Code § 27-2004(a)(48). Among the many enumerated
“acts or omissions” that can support a claim of harassment are certain
proscribed “threats.” See, e.g., id. § 27-2004(a)(48)(a) (identifying
“implied threats that force will be used against” any lawful tenant as
act of harassment); § 27-2004(f-3)(1) (identifying use of “threatening”
17
language in “offering money or other valuable consideration” to
induce lawful tenant “to vacate” premises “or to surrender or waive
any rights” of occupancy as harassment).23
The Commercial Harassment Law, which took effect in 2016,
affords commercial tenants similar, if not quite identical, protection
from landlord harassment. See One Wythe LLC v. Elevations Urb.
Landscape Design Inc., 67 Misc. 3d 1207(A), at *8 n.18, 126 N.Y.S. 3d 622
(N.Y. Civ. Ct. 2020). In pertinent part, that law states that “[a]
landlord shall not engage in commercial tenant harassment,” which
it defines as
[a]ny act or omission by or on behalf of a landlord that
(i) would reasonably cause a commercial tenant to vacate
covered property, or to surrender or waive any rights
under a lease or other rental agreement or under
applicable law in relation to such covered property, and
(ii) includes one or more of the following [enumerated
acts or omissions].
N.Y.C. Admin. Code § 22-902(a). Like its residential counterpart, the
Commercial Harassment Law identifies the implied threat of force
among its list of harassing acts. See id. § 22-902(a)(1). At the same
time, in a so-called “savings clause,” the law states that “[a] landlord’s
lawful termination of a tenancy, lawful refusal to renew or extend a
23 A residential tenant who proves landlord harassment can obtain a court order
restraining the offending conduct, requiring the posting of a violation notice on
the subject premises, and/or imposing civil penalties payable to the City. See
N.Y.C. Admin. Code §§ 27-2110(b), 27-2115(m)(2). Willful or reckless violations
can result in criminal penalties. See id. § 27-2118(a). At the same time, a tenant
who files a frivolous harassment action can be sanctioned and/or ordered to pay
the landlord’s attorney’s fees. See id. § 27-2115(m)(3)–(4).
18
lease or other rental agreement, or lawful reentry and repossession of
the covered property shall not constitute commercial tenant
harassment for purposes of this chapter.” Id. § 22-902(b) (emphasis
added).24
In 2018, the Council amended the Residential Harassment Law
to add to its enumerated acts of harassment “threatening” a lawful
occupant of a residential premises based on certain protected
grounds, specifically, the occupant’s
actual or perceived age, race, creed, color, national
origin, gender, disability, marital status, partnership
status, caregiver status, uniformed service, sexual
orientation, alienage or citizenship status, status as a
victim of domestic violence, . . . sex offenses or stalking,
lawful source of income, or because children are, may be
or would be residing in such dwelling unit.
Id. § 27-2004(a)(48)(f-5).
In 2019, the Council similarly amended the Commercial
Harassment Law to add as an enumerated act of harassment
“threatening” a lawful commercial tenant
based on . . . such person’s actual or perceived age, race,
creed, color, national origin, gender, disability, marital
status, partnership status, caregiver status, uniformed
service, sexual orientation, alienage or citizenship status,
24 A tenant who proves a violation of the Commercial Harassment Law may obtain
a court order restraining further harassment, limiting the landlord’s ability to
secure City construction approval and permits, and/or imposing a civil penalty of
$10,000 to $50,000. See id. § 22-903(a).
19
status as a victim of domestic violence, . . . sex offenses
or stalking.
Id. at § 22-902(a)(11)(i).
2. The Pandemic Amendments to the
Harassment Laws
Effective May 26, 2020, the challenged Harassment
Amendments added threatening a lawful tenant based on COVID-19
status to both laws’ lists of protected classes. Thus, the Residential
Harassment Law now prohibits “threatening” any lawful residential
occupant “based on such person’s actual or perceived status as an
essential employee, status as a person impacted by COVID-19, or
receipt of a rent concession or forbearance for any rent owed during
the COVID-19 period,” with violators facing fines of $2,000 to $10,000.
Id. §§ 27-2004(a)(48)(f-7), 27-2115(m)(2). The amended Commercial
Harassment Law prohibits “threatening” a lawful commercial tenant
based on such tenant’s “status as a person or business impacted by
COVID-19, or . . . receipt of a rent concession or forbearance for any
rent owed during the COVID-19 period,” with violators facing fines
of $10,000 to $50,000. Id. §§ 22-902a(11)(ii), 22-903(a). The Harassment
Amendments define many of their key terms.25 But neither of these
25 The Residential Harassment Law amendment states,
(1) the term “COVID-19” means the 2019 novel coronavirus or
2019-nCoV;
(2) the term “COVID-19 period” means March 7, 2020 through the
later of (i) the end of the first month that commences after the
expiration of the moratorium on enforcement of evictions of any
tenant residential or commercial set forth in executive order
20
number 202.8, as issued by the governor on March 20, 2020 and
extended thereafter or (ii) September 30, 2020, inclusive;
(3) the term “essential employee” means a person employed or
permitted to work at or for a business classified as an essential
business by the New York state department of economic
development in accordance with executive order number 202.6, as
issued by the governor on March 18, 2020 and extended thereafter;
and
(4) the term “person impacted by COVID-19” means a person who
has experienced one or more of the following:
(i) such person was diagnosed with COVID-19 or is
experiencing symptoms of COVID-19 and seeking a
medical diagnosis;
(ii) a member of such person’s household was diagnosed
with COVID-19;
(iii) such person was providing care for a family member or
a member of such person’s household who was diagnosed
with COVID-19;
(iv) such person became unemployed, partially
unemployed, or could not commence employment as a
direct result of COVID-19 or the state disaster emergency
declared in executive order number 202, as issued by the
governor on March 7, 2020; or
(v) such person became primarily responsible for providing
financial support for the household of such person because
the previous head of the household died as a direct result of
COVID-19.
Id. § 27-2004(a)(f-7).
The Commercial Harassment Law amendment states,
(a) the term “COVID-19 period” means March 7, 2020 through the
later of (i) the end of the first month that commences after the
expiration of the moratorium on enforcement of evictions of any
21
tenant, residential or commercial, set forth in executive order
number 202.8, as issued by the governor on March 20, 2020, and
extended thereafter, (ii) the end of the first month that commences
after the expiration of the moratorium on certain residential
evictions set forth in section 4024 of the [CARES Act] and any
subsequent amendments to such section or (iii) September 30, 2020,
inclusive;
(b) the term “impacted by COVID-19” means a person who has
experienced one or more of the following situations:
(1) such person was diagnosed with COVID-19 or is
experiencing symptoms of COVID-19 and seeking a
medical diagnosis; provided that for the purposes of this
subparagraph, the term “COVID-19” means the 2019 novel
coronavirus or 2019-nCoV;
(2) a member of such person’s household was diagnosed
with COVID-19;
(3) such person was providing care for a family member or
a member of such person’s household who was diagnosed
with COVID-19;
(4) a member of such person’s household for whom such
person had primary caregiving responsibility was unable to
attend school or another facility that was closed as a direct
result of the COVID-19 state disaster emergency and such
school or facility care was required for the person to work;
provided that for the purposes of this subparagraph, the
term “COVID-19 state disaster emergency” means the state
disaster emergency declared by the governor in executive
order number 202 issued on March 7, 2020;
(5) such person was unable to reach their place of business
because of a quarantine imposed as a direct result of the
COVID-19 state disaster emergency or because such person
was advised by a health care provider to self-quarantine
due to concerns related to COVID-19;
22
most recent amendments, nor any other provision of the Residential
or Commercial Harassment Laws, defines “threatening.”
The Guaranty Law
The “Personal Liability Provisions in Commercial Leases” law,
commonly referred to as the “Guaranty Law,” took effect on May 26,
2020. See N.Y.C. Admin. Code § 22-1005. This law, the subject of
plaintiffs’ Contracts Clause challenge, renders permanently
unenforceable personal liability guaranties on certain commercial
leases for any rent obligations arising during a specified pandemic
period. As the statutory text makes plain, the law pertains to leases
held by commercial tenants who were required to cease or limit
(6) such person became primarily responsible for providing
financial support for the household of such person because
the previous head of the household died as a direct result of
COVID-19;
(7) such person’s business is closed as a direct result of the
COVID-19 state disaster emergency; and
(c) a business is “impacted by COVID-19” if (i) it was subject to
seating, occupancy or on-premises service limitations pursuant to
an executive order issue[d] by the governor or mayor during the
COVID-19 period or (ii) its revenues during any three-month
period within the COVID-19 period were less than 50 percent of its
revenues for the same three-month period in 2019 or less than 50
percent of its aggregate revenues for the months of December 2019,
January 2020, and February 2020 and such revenue loss was the
direct result of the COVID-19 state disaster emergency. A revenue
loss shall be deemed to be the direct result of the COVID-19 state
disaster emergency when such disaster emergency was the
proximate cause of such revenue loss.
Id. § 22-902(a)(11).
23
operations under Executive Orders 202.3, 202.6, or 202.7.26 As to those
leases, the law applies retroactively to rent arrears dating from March
26 The law states in pertinent part:
A provision in a commercial lease or other rental agreement
involving real property located within the city, or relating to such
a lease or other rental agreement, that provides for one or more
natural persons who are not the tenant under such agreement to
become, upon the occurrence of a default or other event, wholly or
partially personally liable for payment of rent, utility expenses or
taxes owed by the tenant under such agreement, or fees and charges
relating to routine building maintenance owed by the tenant under
such agreement, shall not be enforceable against such natural
persons if the conditions of paragraph[s] 1 and 2 are satisfied:
1. The tenant satisfies the conditions of subparagraph (a), (b) or (c):
(a) The tenant was required to cease serving patrons food or
beverage for on-premises consumption or to cease
operation under executive order number 202.3 issued by the
governor on March 16, 2020;
(b) The tenant was a non-essential retail establishment
subject to in-person limitations under guidance issued by
the New York state department of economic development
pursuant to executive order number 202.6 issued by the
governor on March 18, 2020; or
(c) The tenant was required to close to members of the
public under executive order number 202.7 issued by the
governor on March 19, 2020.
2. The default or other event causing such natural persons to
become wholly or partially personally liable for such obligation
occurred between March 7, 2020 and June 30, 2021, inclusive.
N.Y.C. Admin. Code § 22-1005.
While the Guaranty Law applies to all tenants forced to cease on-premises
food or drink service or cease operations under Executive Orders 202.3 and 202.7,
24
7, 2020, as well as prospectively through June 30, 2021, without regard
to the financial circumstances of the tenant, the guarantor, or the
landlord.27 In sum, for rent arrears arising during that almost sixteenmonth period, the Guaranty Law does not simply defer a landlord’s
ability to enforce a personal guaranty; it forever extinguishes it.28
Because plaintiffs’ Contracts Clause challenge will require us to
consider the Guaranty Law’s “purpose,” some discussion of its
legislative history here is helpful to that task. The Guaranty Law was
jointly sponsored by Council Speaker Corey Johnson and Council
Member Carlina Rivera. In introducing the legislation on April 22,
2020, Member Rivera stated that its purpose was to “ensure [that] city
business owners”—the presumed guarantors—“don’t face the loss of
their businesses and personal financial ruin or bankruptcy as a result
of this state of emergency.” App’x at 1571. She stated that the law
was necessary because, as a result of the state’s closure and reduced
it is more circumscribed as to tenants subject to Executive Order 202.6. Rather than
applying to all non-essential businesses forced to reduce capacity under that order,
it only applies to “non-essential retail establishment[s].” N.Y.C. Admin. Code § 22-
1005(1)(b) (emphasis added); see 40 X Owner LLC v. Masi, No. 156181/2020, 2021
WL 65431, at *2 (N.Y. Sup. Ct. Jan. 7, 2021) (finding Guaranty Law inapplicable to
tenant that leased office space).
27 Although originally set to expire on September 30, 2020, the law was twice
extended so as to preclude the enforcement of qualifying commercial guaranties
for debts accrued through June 30, 2021. See N.Y.C. Local L. 2020/55 (setting end
date as September 30, 2020); N.Y.C. Local L. 2020/98 (extending end date through
March 31, 2021); N.Y.C. Local L. 2021/50 (extending end date through June 30,
2021).
28 Thus, because the injury allegedly caused to plaintiffs by the Guaranty Law
continues to this day, defendants do not—and could not—argue that plaintiffs’
Contracts Clause challenge to that law is mooted by its June 30, 2021 expiration.
25
capacity orders, “businesses are closing and losing weeks of income
through no fault of their own and allowing small business owners to
keep their spaces will be integral to the city’s ability to recover[] after
the virus.” Id.
A few days later, on April 29, 2020, the Council’s Committees
on Small Business and on Consumer Affairs and Business Licensing
issued a report entitled, “OVERSIGHT: The Impact of COVID-19 on
Small Businesses in New York City.”29 As to the proposed Guaranty
Law, the report’s statement was brief:
Businesses [that] experience a drop in revenue due to
COVID-19 may face added legal pressure to meet
financial obligations. Commercial leases may contain
provisions imposing personal liability on the tenant for
non-payment of rent. These personal guarantees can
make the business, which may otherwise shield the
owner from liability due to its corporate structure,
answerable in a court of law for any unpaid debts or
damages.
29 The report was largely devoted to outlining the spread of the coronavirus in the
state and the detrimental economic effects of the Governor’s closure orders on
small businesses. While acknowledging the availability of federal assistance for
such businesses and their employees, the report questioned the adequacy and
accessibility of such relief and noted the limited availability of City resources to
provide financial assistance. The report further noted that state moratoria on
residential and commercial property evictions were then scheduled to expire after
ninety days. As earlier indicated, these moratoria were repeatedly extended and
eventually codified.
26
Id. at 1001–02.30
On the same day that this report issued, its authoring
committees held a virtual hearing on the relief package, with
numerous witnesses testifying remotely and with hundreds of others
filing written submissions. With respect to the Guaranty Law,
Member Rivera stated that she was sponsoring that legislation
[to] ensure that business owners, should they be forced
to walk away or temporarily shutter their stores, through
no fault of their own[,] can do so without facing personal
liability, ensuring that one day they may be able to return
and relaunch or create a new thriving business in our
neighborhoods.
Id. at 699. She stated that constituents had reported some landlords
using lease guaranties to “go[] after small business owner[s’] life
savings and personal assets,” with one restaurant owner “getting rent
due notices and threats from his landlord that the personal liability
clause in his lease will soon be acted upon.” Id.
In looking through the record of written submissions to the
Council, the court sees that hundreds of persons identifying
themselves as “operator[s]” of “restaurant and nightlife” businesses
submitted brief, identically worded letters supporting the Guaranty
30 The last quoted sentence is somewhat inaccurate insofar as personal guaranties
do not make “the business” answerable at law for unpaid rent obligations. A
business’s rent obligation generally derives from other provisions in a lease. We
assume that what the report intended to convey was that personal guaranties can
make business owners, otherwise shielded from liability by the corporate structure
of the business, “answerable in a court of law for any unpaid [business] debts” to
the extent those owners are personal guarantors. Id. at 1002.
27
Law as “critical” to giving them “a fighting chance to survive” the
pandemic. See, e.g., id. at 2528–3334.31 A few persons, writing
separately, were more specific in their support for the law. One
restaurant operator submitted that a law “[s]uspending lease
guarantees is the only way to force” landlords to renegotiate small
business leases “based on the market conditions of today” or to allow
tenants “to accept a calculable loss and move on.” Id. at 2475.
Another, who reported closing his eight Manhattan restaurants and
laying off approximately 265 workers, stated that he supported the
Guaranty Law because restauranteurs should not be held to personal
guaranties in what were “NOT normal circumstances,” i.e., when “the
reason for our failures and closures can be precisely attributed to the
COVID-19 pandemic and subsequent government mandated
closures.” Id. at 2487–88 (emphasis in original). He urged passage of
the Guaranty Law
[to] give me and all of my peers the comfort that if we fail
and cannot reopen, or if we reopen and can’t sustain our
businesses, at least the failure of our business will be
punishment enough—we won’t also lose our personal
31 Thousands of pages of written materials were submitted to this court wholesale,
with no attempt to distinguish those pertaining primarily to the Guaranty Law
and those pertaining to any of the other laws that were part of the City’s relief
package, many of which generated considerable public comment. This presents
the court with the task of looking through the proverbial “haystack” to identify
those public comments relevant to the challenged law. While the court has indeed
conducted such a review, it reminds defendants that where, as on this appeal, the
court’s obligation is to view the allegations—including any information of which
the court may properly take judicial notice—in the light most favorable to the
plaintiffs, defendants might well be advised to highlight portions of the record
they deem favorable to their arguments.
28
livelihoods, our life-savings and the protection we’ve
afforded our families.
Id. at 2489–90. Other writers echoed these themes,32 with support
from various industry and advocacy groups.33
Still other individuals and groups opposed the legislation, with
one landlord urging the Council to “take into account the health and
financial well-being of both landlords and tenants in crafting
legislation,” and, at least, to “make it incumbent on tenants to show
that they are unable to pay their rent due to COVID-19,” and to “make
32 See id. at 2492 (“Because of personal guarantees in our leases I not only have to
deal with a potentially failing business, I too have to think about personal financial
ruin and bankruptcy.”); id. at 2526 (“[I]t is undisputed that many small businesses
will ultimately close our doors forever once aid runs out through no fault of our
own”; Guaranty Law “provides vital protection for individual owners who have
personally guaranteed . . . commercial leases that are no longer viable.”); id. at 2527
(stating that businesses “will NOT survive if we cannot completely renegotiate our
leases . . . . Suspending our personal liability for our commercial leases will go a
long way towards persuading landlords to take us small business owners
seriously” (emphasis in original)).
33 See id. at 2244–45 (NYC Hospitality Alliance stating that “no one ever
contemplated this situation where [small business owners] are technically in
possession [of leased premises,] but the government says we cannot operate . . . or
only minimally operate,” and characterizing it as “unconscionable” in these
circumstances for landlords to file civil actions jeopardizing savings, assets, and
homes of small business owners); see also id. at 2423, 2503–04 (United for Business
NYC and Volunteers of Legal Service Microenterprise Project Team urging
suspension of guaranties beyond COVID-19 period and rent forgiveness
legislation).
29
arrangements for them to catch up when the economic situation
improves.” Id. at 2411.34
In questioning witnesses testifying in person at the hearing,
Council members did not identify any specific instances where
personal guaranties had been enforced during the pandemic against
the owners of shuttered businesses. When Member Rivera asked
Greg Bishop, Commissioner of the City Department of Small Business
Services (“SBS”), whether the department had heard from small
business owners “regarding personal liability concerns,” Bishop
responded, “[w]e have not.” Id. at 741. Similarly, when Andrew
Riggie, Vice Chair of Community Board 7 and a supporter of the
Guaranty Law, was asked “how many” of his members had been
affected by personal guaranties during the pandemic, he stated that
he did not have “the data.” Id. at 809 (estimating “thousands”).
Of further note here, when Member Rivera asked
Commissioner Bishop for the SBS’s position on the Guaranty Law, he
34 This individual expressed concern that the Guaranty Law would, as a practical
matter, encourage tenants “to withhold their rents and eventually to walk away
from their leases when grace periods expire,” while leaving building owners with
“no way to enforce the collection of rent from anyone claiming, without any
evidence, to have been negatively impacted by the COVID-19 crisis.” Id. He
cautioned against the Council making landlords “the city’s safety net, with no
discussion of how landlords”—not receiving rent—“are supposed to keep up with
taxes, insurance, utilities, maintenance and so on.” Id. (expressing concern about
“losing [his] buildings” in those circumstances); see also id. at 2479 (Building
Owners and Managers Association stating that, to date, “landlords and tenants
have had to come together to reach agreements where everyone has the best
opportunity to financially manage this pandemic,” and urging Council not to
“force one particular strategy on landlords and tenants [that] will only impede . . .
discussions . . . that take into account specific aspects of each situation”).
30
demurred, stating that, while SBS generally supported “anything”
that “provide[s] some relief to small businesses,” the Guaranty Law
raised “some legal questions” warranting review by the City’s Law
Department. Id. at 741–42.35 Thereafter, Member Kalman Yeger
voiced specific concern that the Guaranty Law might violate “Article
I, Section 10” of the Constitution because “[t]he city cannot
retroactively adjust, [or] amend a contract that was entered into by
two parties at arm’s length.” Id. at 758; cf. id. at 814–15 (Member
Andrew Cohen voicing reservations, in discussing other bills under
consideration, “about changing the nature of contractual
relationships” and suggesting that “better approach” might be for
City itself “to be offering guarantees”). Member Rivera, however,
submitted that the Guaranty Law raised no legal concern because
“this is not an amendment to a contract[;] it’s a temporary suspension
and contract law does allow for broad changes based on emergency
situations and . . . this is certainly an emergency.” Id. at 808–09.
On May 13, 2020, by a vote of 44 to 6, the Council passed the
Guaranty Law.
III. The Instant Action
On July 10, 2020, plaintiffs brought this action for declaratory
and injunctive relief, alleging that the Harassment Amendments and
Guaranty Law were unconstitutional or, in the alternative, preempted
by state law.
35 Because nothing in the record indicates that the Council sought a legal opinion
about the Guaranty Law, we assume that none was obtained.
31
Plaintiffs’ Claims
1. Marcia Melendez, Jarican Realty Inc., and
1025 Pacific LLC
Plaintiff Marcia Melendez is a resident of Brooklyn who,
together with her husband, operated various small businesses until
their retirement in 2017. Through plaintiff companies, Jarican Realty
Inc. and 1025 Pacific LLC, the Melendezes own two small, primarily
residential Brooklyn rental buildings. The amended complaint
asserts that the Melendezes depend on rent from these properties for
their livelihood. It further asserts that multiple tenants are in arrears
on their rent, which has jeopardized the landlords’ ability to meet tax
and mortgage obligations for the properties. Ms. Melendez submits
that she has not sent tenants rent demand notices for fear that she
would be accused of violating the Harassment Amendments.
2. Ling Yang, Haight Trade LLC, and Top East
Realty LLC
Plaintiff Ling Yang is a resident of Queens who started a
number of small businesses, one of which she presently operates from
the sole commercial space at 4118 Haight Street in Queens, a six-unit
residential property owned by Ms. Yang and her son through plaintiff
Haight Trade LLC. Through plaintiff Top East Realty LLC, Ms. Yang
and her son also own a condominium property with three commercial
spaces at 4059 College Point Boulevard in Queens. The amended
complaint alleges that during the pandemic, many of Ms. Yang’s
tenants have not paid rent, which may affect the landlords’ ability to
meet tax, mortgage, and maintenance obligations. It further pleads
that although it had been Ms. Yang’s pre-pandemic practice to send
32
tenants late-rent notices, she has stopped doing so for fear of being
charged with violating the Harassment Amendments.
3. Elias Bochner and 287 7th Avenue Realty LLC
Plaintiff Elias Bochner is a Brooklyn resident who, with family
members, owns 287 7th Avenue Realty LLC, which in turn owns the
building located at that Manhattan address. A Bochner family
business occupied the commercial space at that site before it was
leased to Sunburger 1 LLC. The amended complaint alleges that the
Sunburger lease is subject to a “good-guy” guaranty, an agreement
that allows a personal guarantor of a corporate tenant to limit his rentarrears liability through a specified advance notice period—in this
case, six months—upon the tenant’s timely surrender of the property.
Mr. Bochner asserts that such guaranties are “critical” to commercial
lease agreements and that he “would not have entered into”
commercial leases on behalf of his real estate company without one.
App’x at 4312.
The amended complaint further alleges that, starting in
December 2019, Sunburger failed fully to meet its rent obligations
and, on March 20, 2020, provided the six-months’ notice of surrender
required by the good-guy guaranty. This obligated Sunburger’s
principal, as personal guarantor of the lease, to pay approximately
$110,000 in rent outstanding from December 2019 through September
20, 2020. But because the guarantor made no such payment, Mr.
Bochner had to use personal funds to meet the landlord’s July 2020
$35,000 tax obligation. The amended complaint asserts that there are
no practical means to collect the unpaid rent because commercial
tenant Sunburger has little-to-no assets, and the Guaranty Law
33
permanently absolves the personal guarantor of responsibility for
rent outstanding from March 7, 2020 through September 20, 2020.
Thus, the amended complaint maintains, the Guaranty Law renders
the good-guy guaranty relied on by plaintiffs “virtually valueless.”
Id.
The District Court’s Dismissal of the Amended
Complaint
On November 25, 2020, the district court granted defendants’
motion to dismiss plaintiffs’ amended complaint for failure to state a
claim on which relief could be granted. See Fed. R. Civ. P. 12(b)(6).
As to the Harassment Amendments, the district court
concluded that plaintiffs failed to state a plausible First Amendment
claim because nothing in the laws prevented landlords from
“communicating with delinquent tenants about past-due rent and
pursuing available remedies to either collect that rent or to repossess
their property.” Melendez v. City of New York, 503 F. Supp. 3d at 27.
The court reasoned that the Commercial Harassment Law’s savings
clause, which expressly exempts lawful terminations and
repossessions from the definition of proscribed harassment, by
extension, permits the collection of rent and communications incident
thereto. See id. at 28. As for the Residential Harassment Law, the
district court concluded that New York caselaw distinguishing
“improper threats” from “permissible warnings of adverse but
legitimate consequences” for non-payment of past-due rent signaled
that routine rent demands were not proscribed. Id. at 29 (internal
quotation marks omitted). Indeed, in the absence of any citation to a
case in which New York had ever applied the long-standing threat
34
prohibitions of the Commercial and Residential Harassment Laws to
a routine rent demand, the court concluded that plaintiffs could not
plausibly allege constitutional vagueness. See id. at 31.
As for the Guaranty Law, the district court concluded that
plaintiff Bochner and his company, the only plaintiffs pursuing a
Contracts Clause challenge, plausibly alleged a substantial
impairment of their contract rights. Nevertheless, the district court
concluded that dismissal was warranted because it found that the
Guaranty Law advanced a legitimate public purpose and was a
reasonable and necessary response to a “real emergency.” Id. at 32–
34.
Upon further determining that neither the Harassment
Amendments nor the Guaranty Law were preempted by state law,
declining to exercise supplemental jurisdiction over plaintiffs’ state
constitutional challenges, and denying plaintiffs’ motion for
preliminary injunctive and declaratory relief without review, the
district court dismissed the amended complaint pursuant to Rule
12(b)(6) and entered judgment in favor of defendants.
Plaintiffs timely filed a notice of appeal, challenging only the
district court’s rejection of their federal constitutional challenges to
the Harassment Amendments and Guaranty Law.
DISCUSSION
I. Standard of Review
Because a judgment of dismissal pursuant to Fed. R. Civ. P.
12(b)(6) can only be entered if a court determines that, as a matter of
law, a plaintiff failed to state a claim upon which relief can be granted,
35
we review that legal determination de novo. See Biocad JSC v. F.
Hoffmann-La Roche, 942 F.3d 88, 93 (2d Cir. 2019); see also Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009). In determining if a claim is sufficiently
“plausible” to withstand dismissal, see Ashcroft v. Iqbal, 556 U.S. at 678,
“we accept all factual allegations as true[,] . . . draw all reasonable
inferences in favor of the plaintiff[s],”and we will not dismiss as long
as the pleadings support “more than a sheer possibility that a
defendant has acted unlawfully,” Montero v. City of Yonkers, 890 F.3d
386, 391, 394 (2d Cir. 2018) (internal quotation marks and alterations
omitted).
II. Challenges to the Harassment Amendments
First Amendment Challenge
Plaintiffs dispute the dismissal of their First Amendment
challenge to the Harassment Amendments, arguing that the laws, as
now added to the City’s Residential and Commercial Harassment
Laws, violate their right to engage in non-misleading commercial
speech. See Cent. Hudson Gas & Elec. Corp. v. Pub. Serv., 447 U.S. 557,
561 (1980) (recognizing First Amendment to protect commercial
speech). Specifically, plaintiffs assert that the laws’ prohibitions of
threatening conduct based on a tenant’s COVID-19 status can be
understood to bar landlords from making even routine rent demands
of delinquent tenants.36 In granting dismissal, the district court
36 When plaintiffs reference routine rent demands, we understand them to mean
reasonable, lawful conduct presenting none of the time, manner, and place
concerns that could constitute acts of harassment under provisions of the
Residential and Commercial Harassment Laws not challenged here. See N.Y.
Admin. Code § 27-2004(a)(48)(g); Hilltop 161 LLC v. Philbert, 62 Misc. 3d 1212(A),
36
concluded that because the laws do not support that construction,
plaintiffs did not plausibly plead that their lawful commercial speech
was infringed. We agree. The relevant statutory text, viewed in
context and as construed by New York courts, indicates that the
prohibitions of “threatening” conduct do not apply to reasonable,
lawful demands for the payment of past-due rent.
In reaching that conclusion, we note at the outset that plaintiffs’
First Amendment challenge is not to the Harassment Amendments
on their face. Specifically, plaintiffs do not argue that the laws’
prohibitions of “threatening” conduct lack any legitimate application.
Certainly, they do not argue that the prohibition of threatening
conduct is unconstitutional as applied to threats of violent force or
other illegal means. Nor do they argue that a “substantial number”
of the laws’ applications are unconstitutional. See Washington State
Grange v. Washington State Republican Party, 552 U.S. 442, 449 n.6 (2008)
(discussing two kinds of First Amendment facial challenges). Rather,
plaintiffs challenge these amendments as applied to a narrow area of
conduct in which they would like to engage: making routine rent
demands of delinquent tenants. We reject this as-applied challenge.37
at *2, 113 N.Y.S. 3d 479 (N.Y. Civ. Ct. 2019) (finding harassment under § 27-
2004(a)(48)(g) where landlord taped twenty-two letters and nine handwritten
notes on tenant’s door over eight-month period and repeatedly threatened to
report tenant to police for filing multiple complaints).
37 Insofar as plaintiffs’ requests for (1) a declaration that the challenged laws are
overbroad, and (2) an injunction barring their enforcement might suggest a facial
challenge, we reach no such conclusion in light of still-controlling precedent
instructing that “the overbreadth doctrine does not apply to commercial speech.”
Village of Hoffman Ests. v. Flipside, Hoffman Ests., Inc., 455 U.S. 489, 497 (1982). To
37
As always, in construing a challenged statute, we start with its
text. See, e.g., Babb v. Wilkie, 140 S. Ct. 1168, 1172 (2020). The
Harassment Amendments prohibit “threatening” residential or
commercial tenants based on their COVID-19 status. N.Y.C. Admin.
Code §§ 22-902(a)(11)(ii), 27-2004(a)(48)(f-7). While these
amendments define the particular COVID-19 status protected by the
Harassment Amendments, see id. §§ 22-902(a)(11), 27-2004(a)(48)(f-7),
they do not define the word “threatening.”
In such circumstances, we ascertain the word’s intended
meaning by looking to (1) the word’s “ordinary, contemporary,
common meaning,” e.g., United States v. Davila, 461 F.3d 298, 302 (2d
Cir. 2006) (construing “threat” as used in 18 U.S.C. §§ 2332a, 876(c));
(2) the context in which it is used, see, e.g., Saks v. Franklin Covey Co.,
316 F.3d 337, 345 (2d Cir. 2003) (assessing “plain meaning” by
“placing the particular provision within the context of that statute”);
and (3) relevant state court decisions, even if not controlling, see C.I.R.
be sure, this court, “in an abundance of caution,” has sometimes assumed arguendo
that the overbreadth doctrine might apply even to commercial-speech claims.
Expressions Hair Design v. Schneiderman, 808 F.3d 118, 136 (2d Cir. 2015), rev’d on
other grounds, 137 S. Ct. 1144 (2017). If we were to do so here, plaintiffs would still
not have stated a viable First Amendment claim. That is because they fail to plead
facts or to cite law indicating that New York courts have given, or would be likely
to give, the challenged laws’ prohibition on threatening conduct such “an
expansive and arguably problematic reading” as to indicate facial
unconstitutionality. Id. at 139 (noting reluctance to “hold a duly enacted state law
unconstitutional based entirely on speculation that the New York courts might
give it an expansive and arguably problematic reading that its text does not
require”); see Erznoznik v. City of Jacksonville, 422 U.S. 205, 216 (1975) (instructing
that “state statute should not be deemed facially invalid unless it is not readily
subject to a narrowing construction by the state courts, and its deterrent effect on
legitimate expression is both real and substantial” (internal citation omitted)).
38
v. Bosch’s Est., 387 U.S. 456, 465 (1967) (instructing that “decrees of
lower state courts should be attributed some weight” in interpreting
state law (internal quotation marks omitted)); Schoenefeld v. New York,
748 F.3d 464, 469 (2d Cir. 2014) (observing that absence of controlling
authority from state’s highest court does not afford federal court
“license to disregard lower court rulings nor to analyze the question
as though we were presented with a blank slate”).
For the common, ordinary meaning of the word “threatening,”
we look to its dictionary definition. See, e.g., Gross v. FBL Fin. Servs.,
Inc., 557 U.S. 167, 176 (2009). In defining “threaten” and “threatening”
together, the dictionary refers to the “utter[ance]” or “promise” of a
“threat.” Webster’s Third New Int’l Dictionary (Unabridged) 2382
(2002). The primary dictionary definition of the word “threat” is in
two parts:
an indication of something impending and usu.
undesirable or unpleasant . . . as a: an expression of an
intention to inflict evil, injury, or damage on another usu.
as retribution or punishment for something done or left
undone . . . [or] b: expression of an intention to inflict loss
or harm on another by illegal means and esp. by means
involving coercion or duress of the person threatened.
Id. (emphasis added).
A routine rent demand would not qualify as a threat under the
second part of this definition because such a demand is not an “illegal
means” for seeking payment of delinquent rent. Id. Nor would a
lawful, routine rent demand qualify under the seemingly moreexpansive first part of the definition because such a demand, by itself,
does not signal an intent “to inflict . . . injury[] or damage.” Id. Rather,
39
it signals a desire for the tenant to pay past-due rent, to which the
landlord is legally entitled.
Thus, to infer an injurious intent under the first part of the
definition, a routine rent demand would have to be accompanied by
something more. To the extent that “more” might be an expressed
intent to evict upon non-payment of owed rent, we do not understand
plaintiffs—who profess a wish to reference only lawful remedies—to
be asserting a First Amendment right to express any such intent as
long as eviction is proscribed by law. See supra at 9–10, 12–14
(discussing federal and state eviction moratoria). Indeed, to the
extent eviction is unlawful, such a reference could support the second
dictionary definition of “threat,” without regard to the first.
Where eviction is, or becomes, a lawfully available remedy for
landlords, plaintiffs point to no case in which simply referencing a
legal remedy has ever been treated as “threatening” under applicable
law. Rather, the law has long distinguished between communications
putting someone wrongfully in fear of injury and those simply
apprising of legal consequences. See, e.g., People v. Lee, 58 N.Y.2d 773,
775 (1982) (holding witness not “threaten[ed]” by trial judge who “did
no more than advise” of possible consequences of self-incrimination);
see also Headley v. Church of Scientology Int’l, 687 F.3d 1173, 1180 (9th
Cir. 2012) (distinguishing between “improper threats or coercion and
permissible warnings of adverse but legitimate consequences” in
discussing Trafficking Victims Protection Act (internal quotation
marks omitted)); NLRB v. Dahlstrom Metallic Door Co., 112 F.2d 756,
758 (2d Cir. 1940) (holding that union organizers who simply
40
explained “legitimate consequences” of joining or not joining union
did not “threat[en]” employees).
Context only reinforces the conclusion that the Harassment
Amendments do not apply to lawful, routine rent demands. The
amendments add “threatening” a tenant based on COVID-19 status
to already existing lists of acts or omissions. Those lists inform the
second parts of the Residential and Commercial Harassment Laws’
definitions of proscribed harassment. The Residential Law defines
“harassment” as
any act or omission by or on behalf of an owner that
(i) causes or is intended to cause any person lawfully
entitled to occupancy of a dwelling unit to vacate such
dwelling unit or to surrender or waive any rights in
relation to such occupancy, and (ii) includes one or more
of the [enumerated acts or omissions].
N.Y.C. Admin. Code § 27-2004(a)(48). The Commercial Law defines
“harassment” as
any act or omission by or on behalf of a landlord that
(i) would reasonably cause a commercial tenant to vacate
covered property, or to surrender or waive any rights
under a lease or other rental agreement or under
applicable law in relation to such covered property, and
(ii) includes one or more of the following [acts or
omissions].
Id. § 22-902(a). From this context, it is evident that the two parts of
each definition are linked, with the second part identifying acts
constituting harassment to the extent they cause, are intended to
cause, or (in the case of commercial harassment) would reasonably
41
cause tenants “to vacate” lawfully occupied premises or “to surrender
or waive” legal rights. Id. §§ 22-902(a), 27-2004(a)(48).
When the word “threatening,” as used in the challenged
Harassment Amendments, is viewed in this definitional context, it is
not reasonably construed to reach otherwise lawful, routine rent
demands. Such demands, by themselves, are not likely to cause
tenants to vacate premises or surrender rights. Nor are they likely
made with the intent to cause such results. Rather, they are made to
get tenants to pay past-due rent. See Bell Atl. Corp. v. Twombly, 550
U.S. 544, 567 (2007) (finding claim implausible where “obvious
alternative explanation” for challenged conduct existed). Thus,
context as well as ordinary meaning weigh heavily against plaintiffs’
assertion that the Harassment Amendments’ prohibitions of
“threatening” conduct prevent landlords from making routine rent
demands in violation of their First Amendment right of commercial
speech.
In the case of the Harassment Amendment to the Commercial
Harassment Law, that conclusion is further supported by the law’s
savings clause, which expressly states that various lawful actions that
landlords might take against tenants—all more serious than a routine
rent demand—do “not constitute commercial tenant harassment.”
N.Y.C. Admin. Code § 22-902(b) (excluding “lawful termination of a
tenancy, lawful refusal to renew or extend a lease . . . , or lawful
reentry and repossession of the covered property”). Moreover, in
reporting on this amendment, the Council’s Committee on Small
Business stated that nothing therein “is intended to limit any of the
rights or obligations of landlords or commercial tenants under the
42
existing harassment law . . . , including, but not limited to (1) the right
of a landlord to terminate a tenancy . . . and (2) the obligation of a
commercial tenant to continue paying rent owed.” App’x at 3403.
As for New York precedent, neither the New York Court of
Appeals nor the state’s intermediate appellate courts have considered
whether the Residential or Commercial Harassment Laws’
proscription of “threatening” conduct applies to routine rentcollection activities. But the state’s lower courts have done so, and
their rulings offer no support for plaintiffs’ claim. Notably, the New
York City Civil Court, which hears large numbers of private actions
brought pursuant to the Housing Maintenance Code, has held that
lawful, routine rent demands do not constitute proscribed
harassment, at least not where rent is due and owing. See Dunn v. 583
Riverside Dr LP, 66 Misc. 3d 667, 669, 117 N.Y.S.3d 524, 525 (N.Y. Civ.
Ct. 2019) (“[T]he Court does not find that respondent’s service of a
rent demand on petitioner is . . . conduct that constitutes
harassment.”).
Plaintiffs did not address Dunn in their appellate briefs, but at
oral argument they attempted to distinguish the case as involving not
a “routine rent request[]” but, rather, a notice of termination and/or
notice to cure. Tr. May 3, 2021, at 33:16–17. We are not persuaded.
What the Dunn landlord communicated was a demand for the
payment of outstanding rent. To be sure, the communication was
served pursuant to Real Property Actions and Proceedings Law
§ 711(2), the first statutory step to obtain a “non-possessory money
judgment.” Dunn v. 583 Riverside Dr LP, 117 N.Y.S.3d at 525; see also
2626 Equities LLC v. Morillo, 66 Misc. 3d 1211, at *2, 120 N.Y.S.3d 719
43
(N.Y. Civ. Ct. 2020) (describing Dunn as involving “statutory rent
demand”). But nothing in Dunn suggests that rent demands must be
made in pursuit of statutory relief to avoid being found
“threatening.” Rather, the critical factor appears to be that the rent
demand was lawfully made, which comports with the precedent
discussed supra at 39–40. See also 138-77 Queens Blvd. LLC v. QB Wash
LLC, Index No. 715071/2020, slip op. at 2–3 (N.Y. Sup. Ct. Jan. 15, 2021)
(holding notice to cure not “harassment” under Commercial
Harassment Law where part of landlord’s “lawful termination” of
lease). Certainly, plaintiffs point to no case in which New York courts
have ruled otherwise.
We need not here decide whether otherwise lawful conduct
might ever constitute a threat. And we recognize that lawful conduct
in particular circumstances can constitute harassment under other
enumerated acts of the Residential and Commercial Harassment
Laws not here at issue. In this case, we conclude simply that the word
“threatening” as used in the challenged Harassment Amendments,
when considered according to its ordinary meaning, in context, and
in light of New York precedents, does not, as a matter of law,
proscribe the otherwise lawful, routine rent demands that plaintiffs
wish to communicate. Accordingly, plaintiffs fail to state a plausible
claim for violation of their First Amendment rights of commercial
speech, and we affirm the district court’s dismissal of that claim.
Due Process Challenge
The same conclusion obtains with respect to plaintiffs’ due
process challenge to the Harassment Amendments. Plaintiffs argue
that the undefined word “threatening” is unconstitutionally vague
44
because it fails to provide landlords with adequate notice of the
conduct prohibited and thus, chills their exercise of free speech.
The vagueness doctrine, derived from the Due Process Clause,
ensures that persons need not “speculate” as to the meaning of
statutes, but rather are “informed as to what the State commands or
forbids.” Thibodeau v. Portuondo, 486 F.3d 61, 65 (2d Cir. 2007)
(quoting Lanzetta v. New Jersey, 306 U.S. 451, 453 (1939)). The Supreme
Court instructs that
[a] statute can be impermissibly vague for either of two
independent reasons. First, if it fails to provide people of
ordinary intelligence a reasonable opportunity to
understand what conduct it prohibits. Second, if it
authorizes or even encourages arbitrary and
discriminatory enforcement.
Hill v. Colorado, 530 U.S. 703, 732 (2000). The Court further cautions
that “[t]he degree of vagueness that the Constitution tolerates—as
well as the relative importance of fair notice and fair enforcement—
depends in part on the nature of the enactment.” Village of Hoffman
Ests. v. Flipside, Hoffman Ests., Inc., 455 U.S. 489, 498 (1982). Thus, laws
imposing civil penalties generally require less demanding scrutiny
than those with criminal consequences, see id. at 498–99, or those
implicating constitutional rights, see Advance Pharm., Inc. v. United
States, 391 F.3d 377, 397 (2d Cir. 2004).
The Harassment Amendments here at issue subject violators to
civil penalties and, in the case of the Residential Law, possible
criminal sanctions. Moreover, plaintiffs claim that the amendments’
vagueness chills speech protected by the First Amendment,
specifically, routine demands for the payment of overdue rent. If the
45
Harassment Amendments are, indeed, “capable of reaching
expression sheltered by the First Amendment, the vagueness doctrine
[would] demand[] a greater degree of specificity than in other
contexts.” Commack Self-Serv. Kosher Meats, Inc. v. Hooker, 680 F.3d
194, 213 (2d Cir. 2012) (internal quotation marks and brackets
omitted). Plaintiffs, however, cannot plausibly plead that the
Amendments lack sufficient specificity to support their as-applied
challenge.
As we have already explained in rejecting plaintiffs’ First
Amendment claim, the challenged amendments’ prohibition on
“threatening” conduct cannot reasonably be understood—or
misunderstood—to prohibit routine rent demands. This is evident
from the plain meaning of the word “threat,” particularly when
viewed in context. Further, to the extent that, “in evaluating a
vagueness claim, we consider not only the text of the statute but also
any judicial constructions,” Copeland v. Vance, 893 F.3d 101, 115 (2d
Cir. 2018), the New York lower courts that have considered the matter
thus far have ruled that the Residential and Commercial Harassment
Laws do not prohibit otherwise lawful, routine rent demands. See
Dunn v. 583 Riverside Dr LP, 117 N.Y.S. 3d at 525; 138-77 Queens Blvd.
LLC v. QB Wash LLC, Index No. 715071/2020, slip op. at 3. Also,
defendants represent that they do not understand the challenged laws
to prohibit routine rent demands and would not seek to enforce them
in such circumstances. See Ward v. Rock Against Racism, 491 U.S. 781,
795–96 (1989) (recognizing as “highly relevant” “any limiting
construction that a state court or enforcement agency has proffered”).
46
Plaintiffs nonetheless submit that the challenged amendments
should be deemed vague because tenants might think that they can
file harassment claims based only on routine rent demands. We are
not persuaded. While due process protects against laws whose
vagueness admits arbitrary law enforcement by public officials, see
Grayned v. City of Rockford, 408 U.S. 104, 108–09 (1972), plaintiffs point
to no precedent indicating that due process demands laws incapable
of misconstruction by civil litigants. In any event, where, as here, text,
context, and precedent all indicate that the Harassment Amendments
do not apply to routine rent demands, the hypothesized possibility of
a civil litigant misconstruing the statutes and filing a meritless claim
is insufficient to state a plausible claim for vagueness. See Yamashita
v. Scholastic Inc., 936 F.3d 98, 104 (2d Cir. 2019) (stating that
complaint’s factual allegations must rise “above the speculative level”
(internal quotation marks and alteration omitted)). That conclusion
is reinforced by the amendments’ scienter requirement. A defendant
charged with “threatening” a tenant can be found to violate the
challenged Residential and Commercial Harassment Laws only if he
acted because of the tenant’s protected status and, in the case of the
Residential Harassment Law, with the intent to cause the tenant to
vacate or to surrender legal rights. See Village of Hoffman Ests. v.
Flipside, Hoffman Ests., Inc., 455 U.S. at 499 (observing that scienter
requirement generally “mitigate[s]” vagueness); accord Hill v.
Colorado, 530 U.S. at 732; Advance Pharm., Inc. v. United States, 391 F.3d
at 398. Also, the Residential Harassment Law allows a landlord to
recover attorney’s fees when tenants file frivolous harassment claims,
see N.Y. Admin. Code § 27-2115(m)(4), a deterrent to tenants filing
harassment claims for threatening conduct on grounds lacking a
47
foundation in the statutory text and already rejected by New York
courts.
In sum, because plaintiffs’ challenge to the Harassment
Amendments fails to plead either a plausible First Amendment or
Due Process Clause claim, we affirm the district court’s judgment
dismissing both claims.
III. Challenge to the Guaranty Law
Plaintiffs appeal the dismissal of their Contracts Clause
challenge to the Guaranty Law, arguing that the district court
misapplied that constitutional protection in concluding that they
failed to state a plausible claim. When we view all factual allegations
and draw all reasonable inference in favor of plaintiffs, as we must at
this stage of the case, we agree that this claim cannot be dismissed as
a matter of law under Rule 12(b)(6).
In granting dismissal, the district court applied a three-part
balancing test derived from the Supreme Court’s recent Contracts
Clause jurisprudence. See Sveen v. Melin, 138 S. Ct. 1815, 1821–22
(2018); Energy Rsrvs. Grp., Inc. v. Kan. Power & Light Co., 459 U.S. 400,
411–12 (1983); Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 244–
45 (1978). At the first step, the district court concluded that the
challenged law did substantially impair plaintiffs’ commercial leases.
Nevertheless, at the second step, it concluded that the impairment
served a significant and legitimate public purpose and, at the third
step, that the challenged law was appropriate and reasonable to
advance that purpose. We are bound by the same precedent, but we
do not reach the same conclusion at the last step. Plaintiffs pleaded
sufficient facts to preclude a court now finding as a matter of law that
48
the Guaranty Law is a reasonable and appropriate means to serve the
City’s proffered public purpose.
The Contracts Clause’s Evolving Jurisprudence
To explain, we observe at the outset that the three-step
standard for evaluating Contracts Clause claims is of relatively recent
vintage and represents a departure from both the Clause’s strict
textual construction in the Nineteenth Century and its near demise by
the mid-Twentieth Century. Nevertheless, because the standard
draws, to varying extents, on both traditions, a review of its evolution
is useful to ensuring proper application. The review is necessarily
lengthy because the jurisprudential route traveled has not been direct
and, even now, some uncertainty attends the arrived-at destination.38
We focus on four stages of Contracts Clause jurisprudence: (1) the
initial textual construction of the Clause; (2) subsequent recognition
that states entering into public contracts, particularly those granting
public licenses, do not surrender police powers; (3) use of “balancing”
to extend the police power rationale to impairments of private
contracts; and (4) recent modifications to the balancing approach to
ensure Contracts Clause vitality.39
38 Cf. Mathis v. United States, 136 S. Ct. 2243, 2266–67 (2016) (Alito, J., dissenting)
(drawing analogy—in discussing legal developments in another area—to planned
one-hour trip to Brussels, Belgium that, two days later, left traveler in Zagreb,
Croatia).
39 Our dissenting colleague, Judge Carney, dismisses this discussion as
“unnecessary.” Dissenting Op. at 2, 15. But only by ignoring this evolution can
Judge Carney construe modern Contracts Clause cases to compel judicial
deference to virtually any impairments of private contracts except those that are
49
1. Textual Construction
The Contracts Clause states: “No State shall . . . pass any . . .
Law impairing the Obligation of Contracts.” U.S. Const. art. I, § 10,
cl. 1. No comparable limitation is placed on the federal government
which, in fact, has the ability to impair debt obligations through its
bankruptcy authority. See id. art. I, § 8, cl. 4. The Contracts Clause
was prompted, in large part, by a post-Revolutionary War economic
crisis. Certain states, in trying to afford relief to beleaguered small
debtors, enacted legislation repudiating pre-existing debt obligations,
thereby bringing credit markets to the brink of collapse. See generally
Sveen v. Melin, 138 S. Ct. at 1821; Home Bldg. & Loan Ass’n v. Blaisdell,
290 U.S. 398, 427–28 (1934). The Clause, however, was not framed to
address only that emergency. Rather, its language is unqualified and,
in the words of Chief Justice Marshall, “establish[es] a great principle,
that contracts should be inviolable.” Sturges v. Crowninshield, 17 U.S.
(4 Wheat.) 122, 206 (1819).40
This construction derives not only from the Clause’s text but
also from its context within Article 1, Section 10, the constitutional
provision described by Chief Justice Marshall as “a bill of rights for
irrational. As the following discussion shows, neither text, history, nor precedent
supports that conclusion.
40 In holding a state insolvency law unconstitutional insofar as it discharged debts
owed on contracts made before the law’s enactment, the Court in Sturges appears
to have rejected the debtor’s argument that the challenged law should be upheld
as an exercise of the state’s “natural, inherent and indispensable power of
discharging poverty, distress, and absolute indigence and inability from
payment.” Id. at 156–57 (summarizing argument). This is noteworthy insofar as
police power would become the linchpin for the balancing principle that now
cabins the Contracts Clause’s impairment prohibition. See infra at 55–67.
50
the people of each state.” Fletcher v. Peck, 10 U.S. (6 Cranch) 87, 138
(1810).41 While the Constitution generally establishes the federal
government as one of limited and express powers, Article I, Section 10
limits the sovereign powers of states joining the new republic. Some
of these limitations are qualified. For example, although a state
generally may not impose import or export duties, it may do so when
“absolutely necessary for executing its inspection Laws.” U.S. Const.
art. I, § 10, cl. 2. Similarly, although a state is prohibited from waging
war, it may do even that if it is “actually invaded” or facing
“imminent Danger” not admitting delay. Id. art. I, § 10, cl. 3. But no
41 In its entirety, § 10 states as follows:
No State shall enter into any Treaty, Alliance, or Confederation;
grant Letters of Marque and Reprisal; coin Money; emit Bills of
Credit; make any Thing but gold and silver Coin a Tender in
Payment of Debts; pass any Bill of Attainder, ex post facto Law, or
Law impairing the Obligation of Contracts, or grant any Title of
Nobility.
No State shall, without the Consent of the Congress, lay any
Imposts or Duties on Imports or Exports, except what may be
absolutely necessary for executing it’s inspection Laws: and the net
Produce of all Duties and Imposts, laid by any State on Imports or
Exports, shall be for the Use of the Treasury of the United States;
and all such Laws shall be subject to the Revision and Controul of
the Congress.
No State shall, without the Consent of Congress, lay any Duty of
Tonnage, keep Troops, or Ships of War in time of Peace, enter into
any Agreement or Compact with another State, or with a foreign
Power, or engage in War, unless actually invaded, or in such
imminent Danger as will not admit of delay.
U.S. Const. art. I, § 10. (emphasis added).
51
qualifier tempers the Contracts Clause; its proscriptive language is
absolute.42
Chief Justice Marshall championed this strict textual view of
the Clause in a series of early Supreme Court decisions construing its
“general” words as “applicable to contracts of every description,”
public as well as private. Fletcher v. Peck, 10 U.S. at 137 (holding
Georgia law rescinding state’s Yazoo land sales void under the
Contracts Clause); see also Trustees of Dartmouth Coll. v. Woodward, 17
U.S. (4 Wheat.) 518, 590–91 & n.11 (1819) (holding that Clause
precluded legislature from changing college charter granted prior to
independence).43
42 Justice Gorsuch recently highlighted this fact:
Of course, the framers knew how to impose more nuanced limits
on state power. The very section of the Constitution where the
Contracts Clause is found permits states to take otherwise
unconstitutional action when “absolutely necessary,” if “actually
invaded,” or “wit[h] the Consent of Congress.” But in the Contracts
Clause the framers were absolute. They took the view that treating
existing contracts as “inviolable” would benefit society by ensuring
that all persons could count on the ability to enforce promises
lawfully made to them—even if they or their agreements later
proved unpopular with some passing majority.
Sveen v. Melin, 138 S. Ct. at 1826–27 (Gorsuch, J., dissenting) (first quoting U.S.
Const. art. I, § 10, cls. 2–3; and then quoting Sturges v. Crowninshield, 17 U.S. at 206).
43 There was never any question that the Framers intended for the Contracts Clause
to protect private contracts. In this respect, it is noteworthy that the Clause had
an antecedent in the Confederation Congress’s enactment of the Northwest
Ordinance, which stated: “[N]o law ought ever to be made or have force in the
said territory, that shall, in any manner whatever, interfere with or affect private
contract, or engagements, bona fide, and without fraud previously formed.” An
52
The original view of the Contracts Clause was perhaps best
summarized in Green v. Biddle, 21 U.S. (8 Wheat.) 1 (1823)
(invalidating Kentucky laws at odds with land interest protections
afforded in compact effecting Kentucky’s separation from Virginia).
Justice Washington there stated:
[T]he constitution of the United States embraces all
contracts, executed or executory, whether between
individuals, or between a State and individuals; and that
a State has no more power to impair an obligation into
which she herself has entered, than she can the contracts
of individuals.
Id. at 92. Further, the prohibition reached impairments of any sort,
without regard to degree or type:
The objection to a law, on the ground of its impairing the
obligation of a contract, can never depend upon the
extent of the change which the law effects in it. Any
deviation from its terms, by postponing, or accelerating,
the period of performance which it prescribes, imposing
Ordinance for the Government of the Territory of the United States, North-West
of the River Ohio (1787) (emphasis added) (quoted in James W. Ely, Jr., THE
CONTRACT CLAUSE: A CONSTITUTIONAL HISTORY 11 (2016) (hereinafter, “Ely, THE
CONTRACT CLAUSE”). At the Constitutional Convention, Massachusetts delegate
Rufus King proposed a provision that would, “in the words used in the
[Northwest] Ordinance,” impose “a prohibition on the States to interfere in private
contracts.” See Ely, THE CONTRACT CLAUSE, at 12 (quoting 2 THE RECORDS OF THE
FEDERAL CONVENTION OF 1787, at 439 (Max Farrand ed., Yale University Press
1937)). It was the Convention’s Committee on Style and Arrangements that,
without debate, inserted into Article I the provision barring states from impairing
contracts generally, see id. at 13, giving rise to the public contracts question
resolved by Chief Justice Marshall in the above-cited decisions. This history
signals caution in construing modern Contracts Clause cases to compel strong
judicial deference to any legislative impairments of private contracts. See
Dissenting Op. at 2.
53
conditions not expressed in the contract, or dispensing
with the performance of those which are, however
minute, or apparently immaterial, in their effect upon the
contract of the parties, impairs its obligation.
Id. at 84.
This strict view persisted for almost one hundred years, making
the Contracts Clause “perhaps the strongest single constitutional
check on state legislation during our early years as a Nation.” Allied
Structural Steel Co. v. Spannaus, 438 U.S. at 241.44 Consistent with this
view, the Supreme Court repeatedly struck down state debt relief
legislation throughout the Nineteenth Century, notwithstanding
various economic and political crises. See, e.g., Bronson v. Kinzie, 42
U.S. (1 How.) 311, 320 (1843) (invalidating debt-relief statutes enacted
in response to financial Panic of 1837); Gunn v. Barry, 82 U.S. (15 Wall.)
610, 622–23 (1872) (declaring homestead exception law
unconstitutional as applied to antecedent debt); Delmas v. Ins. Co., 81
U.S. (14 Wall.) 661, 667, 669 (1871) (holding that Louisiana
constitution’s invalidation of agreements payable in Confederate
money unconstitutionally “destroy[ed]” obligation of contract);
Walker v. Whitehead, 83 U.S. (16 Wall.) 314, 317–18 (1872) (holding that
Georgia declaration voiding contracts made in support of
Confederacy violated Contracts Clause because it sought to “bar the
44 See also Barnitz v. Beverly, 163 U.S. 118, 121 (1896) (observing that “[n]o provision
of the constitution . . . has received more frequent consideration by” Supreme
Court than Contracts Clause); Murray v. Charleston, 96 U.S. 432, 448 (1877) (stating
“there is no more important provision in the federal Constitution than the one
which prohibits States from passing laws impairing the obligation of contracts”);
Washington Univ. v. Rouse, 75 U.S. (8 Wall.) 439, 442 (1869) (describing Contracts
Clause as “one of the most beneficial provisions of the Federal Constitution”).
54
debt and discharge the debtor” and, thus, impaired “validity,
construction, discharge, and enforcement” of contract); Barintz v.
Beverly, 163 U.S. 118, 131–32 (1896) (holding statute, enacted in wake
of Depression of 1893 authorizing redemption of foreclosed property,
substantially impaired rights under original mortgage contract).
Noteworthy here only because it bears some factual similarity
to the guaranty scenario before us is Hawthorne v. Calef, 69 U.S.
(2 Wall.) 10 (1864). There, the charter of a public corporation
obligated shareholders for the company’s debts to the extent of their
stock holdings. After the debt at issue was incurred, the legislature
repealed the charter’s personal liability provision. In holding the
repealing law unconstitutional, the Supreme Court explained that,
by the clause in the charter subjecting the property of the
stockholder, he becomes liable to the creditor, in case of
the inability or insolvency of the company for its debts,
to the extent of his stock. The creditor had this security
when the debt was contracted with the company over
and above its responsibility. This remedy the repealing
act has not merely modified to the prejudice of the
creditor, but has altogether abolished, and thereby
impaired the obligation of his contract with the
company.
Id. at 23.
Thus, under this initial strict textual understanding of the
Contracts Clause, the challenged Guaranty Law would have to be
deemed unconstitutional as an impairment of preexisting debt
obligations.
55
2. Police Power – Public Contracts
At the same time that the Supreme Court regularly invalidated
state laws affording relief from private debt obligations, it also
signaled hesitancy to construe rights conferred by the states in public
charters as overriding a state’s police powers. At issue in Proprietors
of Charles River Bridge v. Proprietors of Warren Bridge, 36 U.S. (11 Pet.)
420 (1837), was a Contracts Clause challenge to a state’s grant of a
second bridge charter on the ground that it impaired the first bridge
charter’s implicit promise of exclusivity. Rejecting the challenge,
Chief Justice Taney stated, “[w]hile the rights of private property are
sacredly guarded, we must not forget, that the community also have
rights, and that the happiness and well-being of every citizen depends
on their faithful preservation.” Id. at 548.45
Not until the last quarter of the Nineteenth Century, however,
did the Supreme Court come to view police powers as inalienable by
state legislatures entering into public contracts. In Boyd v. Alabama, 94
U.S. 645 (1876), which held a state’s repeal of a lottery privilege not to
45 In dissent, Justice Story unsuccessfully maintained that just as the Contracts
Clause prevented the legislature from revoking the first bridge charter, so it also
prevented the legislature from effectively destroying the first charter’s value by
granting a second bridge charter. See id. at 614–15 (Story, J., dissenting). He
submitted that if there were a public need for a new bridge, the grant of a second
charter should be viewed, under the Massachusetts constitution, as a taking of
property from the Charles River Bridge Company, warranting compensation. See
id. at 638. This recognition of some overlap in the protections afforded to private
property by takings clauses and the Contracts Clause may explain how
compensation came to figure in a subsequent balancing approach to the Contracts
Clause. See, e.g., Home Bldg. & Loan Ass’n v. Blaisdell, 290 U.S. at 441 (emphasizing
required payment of rent during period of foreclosure moratorium in rejecting
Contracts Clause challenge) (discussed further infra at 59–64, 101–05).
56
constitute an unconstitutional impairment of contract, the Court
stated,
[w]e are not prepared to admit that it is competent for
one legislature, by any contract with an individual, to
restrain the power of a subsequent legislature to legislate
for the public welfare, and to that end to suppress any
and all practices tending to corrupt the public morals.
Id. at 650. Similarly, in upholding a state’s revocation of a lottery
license on the ground that the license was not a contract but a
“privilege” and, thus, received with “the implied understanding”
that it could be withdrawn, the Supreme Court stated that “[n]o
legislature can bargain away the public health or the public morals.”
Stone v. Mississippi, 101 U.S. 814, 819 (1879); see also Northwestern
Fertilizing Co. v. Vill. of Hyde Park, 97 U.S. 659, 670 (1878) (upholding
exercise of police power to abate public nuisance caused by publicly
chartered company).46
46 Insofar as these Nineteenth Century cases appear more tolerant of state
impairments of public than private contracts, they strike an opposite balance from
that which our dissenting colleague derives from modern jurisprudence. See
Dissenting Op. at 2. It has been suggested that these Nineteenth Century cases
might be viewed as a correction to the Court’s earlier, “overly expansive reading
of what constitutes a public contract,” which “confuse[d] the state’s prerogative as
sovereign to establish the structures that are appropriate for doing business in its
territory with its proprietary powers to contract, like any other entity, for goods or
services from private individuals.” Douglas W. Kmiec & John O. McGinnis, The
Contract Clause: A Return to the Original Understanding, 14 Hastings Const. L.Q. 525,
539, 541 (1987) (hereinafter “Kmiec & McGinnis, The Contract Clause”) (submitting
that Contracts Clause “should apply only to the latter situation”). Our own
colleague, Judge Calabresi, recently emphasized the distinction as important to
understanding modern Contracts Clause jurisprudence pertaining to public
contracts. See Sullivan v. Nassau Co. Interim Fin. Auth., 959 F.3d 54, 65 (2d Cir. 2020)
57
We need not discuss this line of cases further. The Guaranty
Law acts on private, not public, contracts and, thus, these early police
power precedents do not shield the law from constitutional attack.
That possibility arose only with the next century’s approved
extension of police power to private contracts.
3. Police Power – Private Contracts
Can state police power support the impairment of private
contracts? In Chicago, Burlington & Quincy R.R. Co. v. Nebraska, 170
U.S. 57 (1898), a unanimous Supreme Court seemed to answer that
question in the negative. The Court explained that,
where a [private] contract, not contrary to public policy,
has been entered into between parties competent to
contract, it is not within the power of either party to
withdraw from its terms, without the consent of the
other; and the obligation of such a contract is
constitutionally protected from hostile legislation.
Id. at 72. Only when persons’ or corporations’ “rights and powers
were created for public purposes, by legislative acts,” can such
contracts be
held to be within the supervising power and control of
the legislature when exercised to protect the public
safety, health, and morals, and that clause of the Federal
(“The key to all this . . . is to determine whether the state in breaching a [public]
contract is acting like a private party who reneges to get out of a bad deal, or is
governing, which justifies its impairing the plaintiffs’ contracts in the public
interest,” suggesting that modern “less deference” standard was developed to
address former situation).
58
Constitution which protects contracts from legislative
action cannot in every case be successfully invoked.
Id. (upholding impairment of public contract).
The distinction, however, was soon ignored. In Manigault v.
Springs, 199 U.S. 473 (1905), a private contract between adjoining
riparian owners required each to keep a navigable creek free of
obstructions. When the state, seeking to promote land drainage,
authorized one of the owners to erect a dam, compensating other
owners for resulting injuries, another owner sued, arguing that the
law impaired his contract rights. Rejecting the challenge, a
unanimous Supreme Court concluded—with no mention of Chicago,
Burlington—that the Contracts Clause,
does not prevent the State from exercising such powers
as are vested in it for the promotion of the common weal,
or are necessary for the general good of the public,
though contracts previously entered into between
individuals may thereby be affected. This power . . . is
paramount to any rights under contracts between
individuals.
Id. at 480.
Manigault might have been cabined to its facts given the
involvement of a public waterway. Certainly, the state’s sovereign
dominion over natural resources within its boundaries was
emphasized in Hudson County Water Co. v. McCarter, 209 U.S. 349, 357
(1908) (rejecting Contracts Clause challenge to state law prohibiting
transportation of water from any river or lake into other jurisdictions).
As Justice Holmes there stated, “[o]ne whose rights, such as they are,
are subject to state restriction, cannot remove them from the power of
59
the state by making a contract about them.” Id. But this did not, in
fact, become a limiting principle for police power impairments of
private contracts.
When World War I catalyzed urban housing shortages and
accompanying rent hikes, a sharply divided Court rejected a
Contracts Clause challenge to a state rent control law, stating,
“contracts are made subject to this exercise of the [police] power of
the State when otherwise justified, as we have held this to be.” Marcus
Brown Holding Co. v. Feldman, 256 U.S. 170, 198 (1921). Not
insignificantly, what Justice Holmes was referencing in this allusion
to what “we have held this to be” was his opinion in a companion
case, Block v. Hirsh, 256 U.S. 135 (1921), upholding a District of
Columbia rent control law enacted in response to the same housing
shortage. That law, however, was enacted by Congress and, thus,
raised no Contracts Clause issue.
It was a decade later, in Home Building & Loan Association v.
Blaisdell, that the Supreme Court provided a full rationale for police
power impairment of private contracts, replacing a strict textual view
of the Contracts Clause with one that relied on a balancing principle.
In a five-four decision—with forceful opinions by both Chief Justice
Hughes for the majority and Justice Sutherland for the dissent—the
Supreme Court upheld a state mortgage moratorium that, in response
to another economic emergency, the Great Depression of 1929,
delayed mortgagees’ ability to procure deficiency judgments and
afforded mortgagors extended protection from foreclosure.
The majority opinion begins with a seeming caveat:
“Emergency does not create power,” and “does not increase granted
60
power.” Home Bldg. & Loan Ass’n v. Blaisdell, 290 U.S. at 425
(acknowledging that “Constitution was adopted in period of grave
emergency”). The majority nevertheless observed that “emergency
may afford a reason for the exertion of a living power already
enjoyed.” Id. at 426 (internal quotation marks omitted). Thus, for
Chief Justice Hughes, “[t]he constitutional question presented in the
light of an emergency is whether the power possessed” by a state
“embraces the particular exercise of it in response to particular
conditions.” Id. In answering that question in favor of the state law,
the majority (1) renounced any strict obligation to construe the
Contracts Clause as understood by the Framers, see id. at 443,
(2) pronounced it “beyond question that the [Clause’s] prohibition is
not an absolute one and is not to be read with literal exactness,” id. at
428, and (3) announced that “the reservation of the reasonable
exercise of the protective power of the state is read into all contracts,”
id. at 444. This laid a new foundation for Contracts Clause analysis
based on what Chief Justice Hughes described as the necessary
location of a “rational compromise between individual rights and
public welfare.” Id. at 442.
In concluding that the state mortgage moratorium law
achieved this compromise, the Blaisdell majority identified five
relevant factors. First, a genuine economic “emergency existed in
Minnesota which furnished a proper occasion for the exercise of the
reserved power of the state to protect the vital interests of the
community.” Id. at 444. Second, the challenged legislation protected
“a basic interest of society” and “was not for the mere advantage of
particular individuals.” Id. at 445. Third, the relief afforded was
“appropriate” to the emergency. Id. Fourth, the relief was granted
61
“upon reasonable conditions.” Id. Fifth, the law was “temporary in
operation.” Id. at 447. Moreover, the time period within which the
law operated could be reduced by a court based on changed
circumstances, thus ensuring that it was “limited to the exigency
which called it forth.” Id.
As to factors three and four in particular, the majority
emphasized that extending the mortgage redemption period did not
impair “the integrity of the mortgage indebtedness”; if the mortgagor
failed to redeem within the extended period, the mortgagee’s right
“to title or to . . . a deficiency judgment” remained. Id. at 445. And
while the mortgagor was “not ousted from possession” during the
extension period, he was obliged to compensate the mortgagee by
paying “the rental value of the premises.” Id. Thus, the Blaisdell
majority concluded that the relief afforded paid due “regard to the
interest of mortgagees as well as mortgagors[,] . . . prevent[ing] the
impending ruin of both.” Id. at 446.
The Blaisdell dissenters faulted almost everything about the
majority decision, starting with its approach to constitutional
construction: “The whole aim of construction, as applied to a
provision of the Constitution, is to discover the meaning, to ascertain
and give effect to the intent of its framers and the people who adopted
it.” Id. at 453 (Sutherland, J., dissenting). Reviewing the Contracts
Clause’s enactment history in some detail, see id. at 453–65, the dissent
observed that the Clause was specifically “meant to foreclose state
action impairing the obligation of contracts primarily and especially
in respect of such action aimed at giving relief to debtors in time of
62
emergency,” id. at 465.47 Thus, for the dissent, the question presented
in Blaisdell was “not whether an emergency furnishes the occasion for
the exercise of . . . state [police] power, but whether an emergency
furnishes an occasion for the relaxation of the restrictions upon the
power imposed by the contract impairment clause.” Id. at 473. Justice
Sutherland maintained that the “difficulty” with answering that
question in the affirmative, as the majority did, is that the Clause,
forbids state action under any circumstances, if it have
the effect of impairing the obligation of contracts. . . . It
does not contemplate that an emergency shall furnish an
occasion for softening the restriction or making it any the
less a restriction upon state action in that contingency
than it is under strictly normal conditions.
Id.48 He warned that the majority, in taking a contrary view, opened
the door for “future gradual but ever-advancing encroachments upon
the sanctity of private and public contracts.” Id. at 448.
47 Justice Sutherland observed that not only had the Contracts Clause been
prompted by debt-relief legislation responding to an economic emergency, but
also, that it had been adopted over opposition arguments (at both the
constitutional and state ratifying conventions) that unforeseen future emergencies
might warrant such state relief. See id. at 459–62 (referencing positions taken by
Gouverneur Morris, George Mason, and Luther Martin).
48 Viewing the Minnesota law through this prism, Justice Sutherland observed that
if it “had been unconditional,” it would undoubtedly have constituted an
impairment of contract under Bronson v. Kinzie, which the Blaisdell majority did
not overrule. Id. at 480–81; see id. at 482 (“A statute which materially delays
enforcement of the mortgagee’s contractual right of ownership and possession
does not modify the remedy merely; it destroys, for the period of delay, all remedy
so far as the enforcement of that right is concerned.”). No different conclusion was
warranted because Minnesota’s mortgage relief was conditioned on rent payment
63
Indeed, critics—judicial and academic—have faulted this
balancing approach to the Contracts Clause.49 But to the extent we
are obliged to employ it on this appeal, it is important to note that the
Blaisdell majority recognized limits to what a balancing principle
could support: “This principle precludes a construction [of the
Contracts Clause] which would permit the state to adopt as its policy
as, in the dissent’s view, rent was not “even the approximate equivalent of
immediate ownership and possession.” Id. at 481.
49 See, e.g., Sveen v. Melin, 138 S. Ct. at 1828 (Gorsuch, J., dissenting) (observing that
balancing test for Contracts Clause fails to tell “people . . . today whether their
lawful contracts will be enforced tomorrow, or instead [be] undone by a legislative
majority with different sympathies”); City of El Paso v. Simmons, 379 U.S. 497, 522,
528–29 (1965) (Black, J., dissenting) (professing concern that balancing test subjects
Contracts Clause to court’s judgment as to “reasonableness” of challenged
legislation; “men should not have to act at their peril, fearing always that the State
might change its mind and alter the legal consequences of their past acts so as to
take away their lives, their liberty or their property”); Ely, THE CONTRACT CLAUSE,
at 222 (observing that Blaisdell “cut the contract clause loose from the constitutional
text as well as the views of the framers . . . open[ing] the door to virtually reading
the contract clause out of the Constitution”); Richard A. Epstein, Toward a
Revitalization of the Contract Clause, 51 U. Chi. L. Rev. 703, 738 (1984) (submitting
that “Blaisdell trumpeted a false liberation from the constitutional text that has”
allowed “the police power exception . . . to eviscerate the contracts clause”); see
also Kmiec & McGinnis, The Contract Clause, at 544 (faulting Court for reading
Clause as if it stated: “No state shall pass any law unreasonably impairing the
obligation of contracts,” when the text “is phrased in absolute terms and is
grouped with other absolute prohibitions,” and Framers elsewhere showed that
they “knew how to phrase prohibitions in terms of reasonableness”). Justices
Barrett and Kavanaugh made a point similar to the last one when, albeit in a
different context, they questioned whether “[a]s a matter of text and structure,”
one constitutional clause could be read to offer less protection than others of which
it is a group. See Fulton v. City of Philadelphia, 141 S. Ct. 1868, 1882 (2021) (Barrett,
J., concurring in part) (“As a matter of text and structure, it is difficult to see why
the Free Exercise Clause—lone among the First Amendment freedoms—offers
nothing more than protection from discrimination.”).
64
the repudiation of debts or the destruction of contracts or the denial
of means to enforce them.” Id. at 439.50
These limitations animated the Court’s holdings in a trio of
cases decided soon after Blaisdell, which upheld Contracts Clause
challenges to state laws lacking one or more of the Blaisdell factors.
See W.B. Worthen Co. v. Thomas, 292 U.S. 426, 434 (1934) (invalidating
state law exempting life insurance proceeds from levy because
exemption was not cabined by either amount or emergency); W.B.
Worthen Co. v. Kavanaugh, 295 U.S. 56, 63 (1935) (holding
unconstitutional law significantly postponing mortgagee’s right to
foreclose in absence of conditions requiring debtor to pay interest,
taxes, or rent, or even to demonstrate inability to pay); Treigle v. Acme
Homestead Ass’n, 297 U.S. 189, 195–96 (1936) (holding state law
restricting withdrawals by savings and loan shareholders violative of
Contracts Clause, noting that law did not purport to deal with
existing emergency and restrictions were neither temporary nor
conditional). In Kavanaugh in particular, Justice Cardozo, writing for
the Court, was unsparing in his criticism of the legislature’s actions,
observing that “[w]ith studied indifference to the interests of the
mortgagee or to his appropriate protection they have taken from the
mortgage the quality of an acceptable investment for a rational
investor.” 295 U.S. at 60.
50 By reading Sturgis v. Crowninshield, Green v. Biddle, and Bronson v. Kinzie to
support this conclusion, Chief Justice Hughes avoided the need to overrule these
cases. See id. at 431–34. Therefore, as construed in Blaisdell, these cases continue
to control.
65
Even when rejecting Contracts Clause claims, the Court
frequently emphasized that the challenged laws did not completely
deprive the complaining party of that for which he had bargained.
See, e.g., Richmond Mortg. & Loan Corp. v. Wachovia Bank & Tr. Co., 300
U.S. 124, 130 (1937) (stating that challenged law recognized party’s
right to “full enforcement” of his contract “but limits that right so as
to prevent his obtaining more than his due”); Honeyman v. Jacobs, 306
U.S. 539, 542 (1939) (rejecting challenge to law that allowed
“mortgagee [to] make himself whole” but prevented him from being
“enriched at the expense of the debtor or realize more than what
would repay the debt”); Gelfert v. Nat’l City Bank of N.Y., 313 U.S. 221,
233 (1941) (observing, in rejecting challenge to state deficiency law,
that “[m]ortgagees are constitutionally entitled to no more than
payment in full”). At the same time, however, the Court
demonstrated a willingness to uphold the exercise of state police
power impairing contracts—at least in areas of long-standing
regulation—even in the absence of the emergency and temporality
factors emphasized in Blaisdell. See Veix v. Sixth Ward Bldg. & Loan
Ass’n of Newark, 310 U.S. 32, 39–41 (1940) (rejecting Contracts Clause
challenge to state law limiting withdrawals by shareholders in
savings and loan associations).
The contraction of Contracts Clause protection appears to have
reached its high-water mark in East New York Savings Bank v. Hahn,
326 U.S. 230 (1945), a case upholding the tenth extension of a state
mortgage moratorium first enacted in response to the Great
Depression. Writing for a unanimous Court, Justice Frankfurter
professed to derive from Blaisdell and its progeny a “governing
constitutional principle”:
66
[W]hen a widely diffused public interest has become
enmeshed in a network of multitudinous private
arrangements, the authority of the State to safeguard the
vital interests of its people is not to be gainsaid by
abstracting one such arrangement from its public context
and treating it as though it were an isolated private
contract constitutionally immune from impairment.
Id. at 232 (internal quotation marks omitted). On this principle, the
Court further pronounced that a state’s authority to exercise its police
power “may be treated as an implied condition of every contract and,
as such, as much part of the contract as though it were written into
it.” Id. And with that understanding, it concluded that “the State’s
exercise of its power enforces, and does not impair, a contract.” Id.51
Thus transforming impairment into enforcement, the Court went on
severely to narrow judicial review of state exercises of police power
affecting contracts: “Once we are in this domain of the reserve power
of a State,” courts “must respect the wide discretion on the part of the
legislature in determining what is and what is not necessary.” Id. at
233 (internal quotation marks omitted).
51 A century earlier, Justice Story had disavowed both the premise and conclusion
in East New York Savings Bank. See Joseph Story, 3 COMMENTARIES ON THE
CONSTITUTION OF THE UNITED STATES 248 (1833) (“Although the law of the place
acts upon a contract, and governs its construction, validity, and obligation, it
constitutes no part of it.”); Green v. Biddle, 21 U.S. 1, 16–17 (1821) (Story, J.)
(expansively construing Contracts Clause protection), rehearing granted, 21 U.S. at
18, 92–93 (1823) (Washington, J.) (holding similarly, see supra at 52). But the Court
was now of a different mind. See, e.g., Gelfert v. Nat’l City Bank of N.Y., 313 U.S. at
235 (Douglas, J.) (“We cannot permit the broad language” of the Court’s early
Contract Clause decisions “to force legislatures to be blind to the lessons which
another century has taught.”).
67
Commentators have observed that such a highly deferential
standard is more suited to the Due Process Clause than to the
Contracts Clause and that East New York Savings Bank’s reasoning
seems to leave the latter with little independent force.52 More
recently, however, the Supreme Court has disavowed that
conclusion, see Pension Benefit Guar. Corp. v. R.A. Gray & Co., 467 U.S.
717, 733 (1984) (stating that Supreme Court has “never held . . . that
the principles embodied in the Fifth Amendment’s Due Process
Clause are coextensive with prohibitions existing against state
impairments of pre-existing contracts”), insisting that the Contracts
Clause retains independent constitutional vitality, see Allied Structural
Steel Co. v. Spannaus, 438 U.S. 234; United States Tr. Co. v. New Jersey,
431 U.S. 1 (1977). We proceed to consider these cases, which dictate
the analytical framework we must apply here.53
52 See Robert L. Hale, The Supreme Court and the Contract Clause: III, 57 Harv. L. Rev.
852, 890–91 (1944) (observing “tendency for the contract clause and the due process
clause to coalesce” with same result as if “contract clause were dropped out of the
Constitution”); see also Ely, THE CONTRACT CLAUSE, at 233 (observing with respect
to standard identified in East New York Savings Bank that “if the police power is
implied in every contract, and the courts simply defer to legislative judgments
about the exercise of that power, the contract clause affords virtually no protection
for agreements”).
53 While Judge Carney cites academic commentary suggesting that modern
Contracts Clause jurisprudence remains analogous to rational basis review, see
Dissenting Op. at 7–8, the above-cited precedents preclude this court from
reaching that conclusion. Indeed, to accord unquestioning deference to all but
irrational contract impairments would effectively eliminate the “balancing” that,
since Blaisdell, is at the core of modern Contracts Clause jurisprudence.
68
4. The Contracts Clause’s Continued Vitality
At the outset, we note that the Court’s recent professions of the
Contracts Clause’s vitality have not always been full throated or
consistent. Nevertheless, one thing is clear: the Court has specifically
rejected the idea that the Clause is “without meaning in modern
constitutional jurisprudence, or that its limitation on state power [is]
illusory.” United States Tr. Co. v. New Jersey, 431 U.S. at 16.
At issue in United States Trust was a public contract, specifically,
a public bond agreement, a provision of which prohibited the use of
revenues to subsidize passenger rail service. In the midst of an oil
crisis, the state repealed that prohibition, resulting in bondholder
losses. In identifying a Contracts Clause violation, the Supreme Court
reiterated that deference is generally owed to legislative judgments
regarding the need for and reasonableness of social and economic
legislation. See id. at 25–26. At the same time, however, Justice
Blackmun, writing for a four-member majority, emphasized that such
deference is not limitless. Particularly when a state “modifi[ies] . . .
[its] own financial obligations . . . [,] complete deference to a
legislative assessment of reasonableness and necessity is not
appropriate because the State’s self-interest is at stake.” Id. at 25–26.54
The Court explained that “[i]f a State could reduce its financial
obligation whenever it wanted to spend the money for what it
regarded as an important public purpose, the Contract Clause would
54 While reiterating the Nineteenth Century view that “the Contract Clause does
not require a State to adhere to a contract that surrenders an essential attribute of
its sovereignty,” id. at 23, the Court noted that it had regularly held states “bound
by their debt contracts,” id. at 24.
69
provide no protection at all.” Id. at 26. To avoid that result, the Court
concluded that a less deferential standard of review should apply in
assessing whether a state’s impairment of its own contract is
“reasonable and necessary to serve an important public purpose.” Id.
at 25–26.
The analytical standard articulated in United States Trust
presents some challenges because “reasonableness” generally
signifies a relaxed standard of judicial inquiry, by contrast to
“necessity,” which informs the most penetrating constitutional
review.55 Also, some courts and scholars have criticized the idea of a
less deferential standard of review for impairments of public
contracts, as a matter of both practical application and constitutional
grounding.56 We need not here enter into these debates. For purposes
55 See id. at 54 n.17 (Brennan, J., dissenting) (highlighting purported inconsistency).
56 See Buffalo Tchrs. Fed’n v. Tobe, 464 F.3d 362, 370 (2d Cir. 2006) (questioning what
“giving less deference to the legislature actually mean[s]”); Troy, Ltd. v. Renna, 727
F.2d 287, 295 (3dCir. 1984) (observing that “laws alleged to impair the obligations
of contracts between private parties were for many years scrutinized far more
rigorously” than those with public parties); Ely, THE CONTRACT CLAUSE, at 243
(observing that Supreme Court’s “abandonment of a unitary standard of judicial
review . . . was a sharp departure from long-standing contract clause
jurisprudence,” which had long been “more vigilant to police infringements of
private agreements and . . . more deferential to state power over public contracts);
Michael W. McConnell, Contract Rights and Property Rights: A Case Study in the
Relationship Between Individual Liberties and Constitutional Structure, 76 Calif. L. Rev.
267, 293–94 (1988) (“The modern thrust of contracts clause jurisprudence is
precisely backwards. . . . [I]t is interference with private contracts that lies at the
heart of the clause.”); Thomas W. Merrill, Public Contracts, Private Contracts, and the
Transformation of the Constitutional Order, 37 Case W. Rsrv. L. Rev. 597, 609 (1987)
(stating that long-held “understanding was that private contracts were protected
from state interference with more rigor than public contracts” (emphasis in
70
of this appeal, it suffices for us to recognize that the underlying
purpose of the standard pronounced in United States Trust was to
ensure the continued vitality of the Contracts Clause, there in the
context of public contracts. The following year, the Court would do
the same for Contracts Clause claims involving private contracts. See
Allied Structural Steel Co. v. Spannaus, 438 U.S. 234.57
original)); Kmiec & McGinnis, The Contracts Clause, at 547 (observing that “Court’s
earlier jurisprudence ha[d] been more, not less, deferential to public contracts
insofar as the contracts were more likely to implicate the police power or reserved
authority,” and urging that where state invokes police power to justify modifying
public or private contract, modification “should be reviewed under the same
standard”). The scholarly criticism finds support in the framing history referenced
briefly supra at 51–52 n.43, which demonstrates a clear intent from the outset to
protect private contracts from state impairment, and provides no indication that
the Clause more easily allows states to impair private than public contracts.
57 Before turning to Allied Structural Steel, we note that our dissenting colleague
emphasizes cases since United States Trust reiterating that “[u]nless the State itself
is a contracting party, as is customary in reviewing economic and social regulation,
courts properly defer to legislative judgment as to the necessity and
reasonableness of a particular measure,” Energy Rsvs. Grp., Inc. v. Kans. Power &
Light Co., 459 U.S. at 410; see Keystone Bituminous Coal Ass’n v. DeBenedictis, 480 U.S.
at 505; Buffalo Tchrs. Fed’n v. Tobe, 464 F.3d 362, 369 (2d Cir. 2006). In doing so,
however, none expands on United States Trust’s state-self-interest rationale for the
distinction. Thus, the principle we derive from United States Trust and its progeny
is that, in conducting Blaisdell balancing of a public contract, a court properly
recognizes that one factor—self-interest—can tilt the starting balance against the
challenged impairment, such that “the presumption that a passed law is valid and
done in the public interest does not immediately apply.” Sullivan v. Nassau Co.
Interim Fin. Auth., 959 F.3d at 65–66 (stating that, if contract is public, court asks
“whether there is some indicia that the state impaired the contract out of its own
self-interest,” in which case “less deference scrutiny applies”). By contrast, in
cases of private contracts, a presumption in favor of social and economic
legislation sets the starting balance, but it does not end the inquiry. See generally
Fed. R. Evid. 301 (“In all civil actions and proceedings not otherwise provided for
71
At issue in Allied Structural Steel was a Minnesota law that
imposed funding requirements on employers’ pension plans. Writing
for the Court, Justice Stewart adhered to precedent abandoning a
literal construction of the Clause, lest it “obliterate the police power.”
Id. at 241. But at the same time, he stated that “[i]f the Contract Clause
is to retain any meaning at all, . . . it must be understood to impose
some limits upon the power of a State to abridge existing contractual
relationships, even in the exercise of its otherwise legitimate police
power.” Id. at 242 (emphasis in original). The Court located those
limits in the five factors identified in Blaisdell (and in the absence of
one or more of those factors in the trio of cases that followed it). See
id. at 242–43. It derived from these cases and United States Trust a twopart test that asked whether the challenged state law, “in fact,
operated as a substantial impairment of a contractual relationship”
and, if it did, whether the legislation did so upon “reasonable
conditions . . . of a character appropriate to the public purpose
justifying its adoption.” Id. at 244 (quoting United States Tr. Co. v. New
Jersey, 431 U.S. at 22).
In distinguishing between minimal and substantial contract
impairments, the Court—for the first time in several decades—
by Act of Congress or these rules, a presumption imposes on the party against
whom it is directed the burden of going forward with evidence to rebut or to meet
the presumption. . . .”). Rather, Blaisdell balancing is conducted to determine if the
totality of relevant factors, nevertheless, outweighs the deference customarily
accorded legislative judgments. See United States Tr. Co. v. New Jersey, 431 U.S. at
21–22 (observing that “existence of an important public interest is not always
sufficient to overcome [Contracts Clause] limitation,” and “private contracts are
not subject to unlimited modification under the police power”). Allied Structural
Steel informs this inquiry.
72
approvingly referenced “the Framers” in identifying how to assess a
contract impairment:
The severity of an impairment of contractual obligations
can be measured by the factors that reflect the high value
the Framers placed on the protection of private contracts.
Contracts enable individuals to order their personal and
business affairs according to their particular needs and
interests. Once arranged those rights and obligations are
binding under the law, and the parties are entitled to rely
on them.
Id.58 On this basis, the Court concluded that the challenged law
worked a severe impairment on the pension provisions of the
company’s employment contracts because, “in an area where the
element of reliance was vital—the funding of a pension plan”—the
state had “impose[d] a completely unexpected liability in potentially
disabling amounts.” Id. at 246–47.
Proceeding to the second step of analysis, the Court observed
that “[t]he severity of the impairment measures the height of the
hurdle the state legislation must clear.” Id. at 245. While an
impairment causing only “[m]inimal alteration of contractual
obligations may end the inquiry at its first stage,” i.e., without
consideration of purpose or means, “[s]evere impairment . . . will
push the inquiry to a careful examination of the nature and purpose
58 Last term, in identifying a Takings Clause violation, the Supreme Court also
favorably referenced the “Founders[’]” view “of private property [as]
indispensable to the promotion of individual freedom.” Cedar Point Nursery v.
Hassid, 141 S. Ct. 2063, 2071 (2021).
73
of the state legislation.” Id.59 This represents a step back—even if a
small one—from the seemingly limitless deference to legislative
judgments impairing contracts approved in East New York Savings
Bank. Indeed, Allied Structural Steel instructs that “[d]espite the
customary deference courts give to state laws directed to social and
economic problems,” the Contracts Clause requires that “[l]egislation
adjusting the rights and responsibilities of contracting parties must be
upon reasonable conditions and of a character appropriate to the
public purpose justifying its adoption.” Id. at 244 (emphasis added
and internal quotation marks omitted).60
59 Judge Carney’s suggestion that we afford these statements too much weight, see
Dissenting Op. at 9, is unwarranted because (1) they express no novel idea, see
United States Tr. Co. v. New Jersey, 431 U.S. at 27 (“The extent of impairment is
certainly a relevant factor in determining its reasonableness.”); and (2) the
Supreme Court and this court have reiterated the point made in text, even in cases
drawing a distinction between public and private contract impairment claims, see
Energy Rsvs. Grp., Inc. v. Kan. Power & Light Co., 459 U.S. at 511 (citing Allied
Structural Steel in stating that “severity of the impairment is said to increase the
level of scrutiny to which the legislation will be subjected”); see also Keystone
Bituminous Coal Ass’n v. DeBenedictis, 480 U.S. at 504 n.31 (citing Energy Rsvs. Grp.
in observing that “severity of the impairment . . . in turn affects the level of scrutiny
to which legislation will be [subjected]”); Buffalo Tchrs. Fed’n v. Tobe, 464 F.3d at
371 (“The Supreme Court instructs that the extent of the impairment is a relevant
factor in determining its reasonableness.” (internal quotation marks omitted)).
60 Judge Carney submits that this quoted language, when read in context,
references only “the standard for analyzing impairments of public contracts set
forth in United States Trust.” Dissenting Op. at 14. Not so. What context shows is
that the quoted language states a general principle, applicable to private as much
as to public contracts. This is evident from the fact that Allied Structural Steel’s
discussion of United States Trust concludes a larger discussion recognizing “some”
limits on a state’s police power to impair even private contracts. 438 U.S. at 242
(emphasis in original). At the outset of the discussion, the Supreme Court
observes that “the existence and nature of those limits were clearly indicated in a
74
series of cases” starting with Blaisdell, and continuing through W.B. Worthen Co. v.
Thomas, W.B. Worthen v. Kavanaugh, and Treigle v. Acme Homestead Ass’n. See Allied
Structural Steel Co. v. Spannaus, 438 U.S. at 242–43; see also supra at 59–64 (discussing
these cases). It is after summarizing this quartet of private contract cases that the
Court references its “most recent Contract Clause case,” United States Trust. Id. at
243. With no initial mention of the fact that United States Trust involved a public
contract, Allied Structural Steel states:
In that case the court again recognized that although the absolute language
of the Clause must leave room for “the ‘essential attributes of sovereign
power,’ necessarily reserved by the States to safeguard the welfare of their
citizens,” [United States Tr. Co. v. New Jersey, 431 U.S.] at 21, that power has
limits when its exercise effects substantial modifications of private contracts.
Despite the customary deference courts give to state laws directed to social
and economic problems, “[l]egislation adjusting the rights and
responsibilities of contracting parties must be upon reasonable conditions
and of a character appropriate to the public purpose justifying its
adoption.” Id. at 22.
438 U.S. at 243–44 (emphasis added). The highlighted words “again” and “private
contracts” in the first quoted sentence signal that United States Trust is consistent
with past precedent in recognizing “some limits” on state police power to impair
even private contracts. In this context, the second quoted sentence is properly
understood to summarize a limiting principle applicable as much to private as to
public contract impairments. Indeed, that conclusion is reinforced by the fact that
language quoted in the second sentence derives from a paragraph in United States
Trust discussing private—not public—contracts. See 431 U.S. at 22. Further, when,
after that second sentence, the Court in Allied Structural Steel notes that the
Contracts Clause challenge in United States Trust pertained to a public contract, see
id. at 244 (“Evaluating with particular scrutiny a modification of a contract to
which the State itself was a party, the Court in that case held that legislative
alteration of the rights and remedies of Port Authority bondholders violated the
Contract Clause because the legislation was neither necessary nor reasonable”), it
quickly emphasizes that the more stringent review applied to a public contract
impairment does “not” mean that private contracts are “subject to unlimited
modification,” id. at 244 n.15 (quoting United States Trust, 431 U.S. at 422). For all
these reasons, then, we construe the language quoted in text from Allied Structural
Steel to state a general principle applicable to private, as well as public, contract
impairments.
75
Upon such examination of the challenged pension law in Allied
Structural Steel, the Supreme Court concluded that the resulting
substantial impairment of contract was not “necessary” for several
reasons. Id. at 247. Specifically, the challenged law (1) was not
enacted in response to any emergency, as in Blaisdell61; (2) did not
operate in an area already subject to state regulation, as in Veix; (3)
did not effect a temporary alteration in the contract but, rather,
“irrevocably and retroactively” “worked a severe, permanent, and
immediate change” in the parties’ relationship; and (4) was aimed not
at every state employer, but only at those who had been “sufficiently
enlightened as voluntarily . . . to establish [employee] pension plans.”
Id. at 250.
In the years following United States Trust and Allied Structural
Steel, the Supreme Court has sometimes indicated that Contracts
Clause challenges should be reviewed in three steps and sometimes
in two. Compare Energy Rsrvs. Grp., Inc. v. Kan. Power & Light Co., 459
U.S. at 411–12 (identifying three-part test: (1) “substantial
impairment,” (2) “significant and legitimate public purpose,” and
(3) “reasonable” and “appropriate” means), with Sveen v. Melin, 138 S.
Ct. at 1821–22 (referencing two-part test: (1) “substantial
impairment,” and (2) “whether the state law is drawn in an
appropriate and reasonable way to advance a significant and
legitimate public purpose” (internal quotation marks omitted)). No
61 The dissenters in Allied Structural Steel disputed this view, submitting that the
challenged law “was designed to remedy a serious social problem arising from the
[underfunding] of private pension plans.” Id. at 252 (Brennan, J., dissenting).
76
matter. The substance of the inquiry has remained the same62 even if
the results have not always been predictable or consistent. See, e.g.,
Energy Rsrvs. Grp. v. Kan. Power & Light, 459 U.S. at 413–19 (holding
that state law regulating intrastate price of natural gas did not
substantially impair private party’s contract rights because industry
was heavily regulated and company had no reasonable expectation of
receiving windfall from deregulated prices); Keystone Bituminous Coal
Ass’n v. DeBenedictis, 480 U.S. 470, 500–06 (1987) (rejecting both
Takings Clause and Contracts Clause challenges to state law
overriding damages waivers in mining contracts, holding, as to latter,
that although contract impairment was substantial, state’s strong
public interest in both deterrence and restoration of environment
made it reasonable to impose liability as well as restrictions); Sveen v.
Melin, 138 S. Ct. at 1822 (holding that default revocation-on-divorce
rule for beneficiary designation did not impair obligation of contract
because its aim was to reflect policyholder’s intent, it was not likely
62 In his opinions in both Energy Reserves Group and United States Trust, Justice
Blackmun appears to use “appropriate” and “necessary” interchangeably to
identify the relevant standard of review. See Energy Rsrvs. Grp., Inc. v. Kan. Power
& Light Co., at 412–13 (referring to “reasonable” and “appropriate” standard and
“necessity and reasonableness” in same paragraph (internal quotation marks
omitted)); United States Tr. Co. v. New Jersey, 421 U.S. at 22, 25 (stating, first, that
“[l]egislation adjusting the rights and responsibilities of contracting parties must
be upon reasonable conditions and of a character appropriate to the public
purpose justifying its adoption” and, later, that “[a]s with laws impairing the
obligations of private contracts, an impairment [of a public contract] may be
constitutional if it is reasonable and necessary to serve an important public
purpose”). Thus, when the Court in Sveen v. Melin articulates the standard as
“appropriate” and “reasonable,” we do not assume it was pronouncing any
different standard of review from that identified in United States Trust and Allied
Structural Steel, particularly as Sveen was resolved at the substantial impairment
step of analysis.
77
to disturb expectations, and it could easily be undone by
policyholder).63
63 As our dissenting colleague observes, the Ninth Circuit and some commentators
have construed Energy Reserves Group and Keystone Bituminous Coal as a “retreat”
from the careful review standard for substantial contract impairments identified
in Allied Structural Steel. Dissenting Op. at 12–13 n.7 (quoting CFCU Cmty. Credit
Union v. Hayward, 552 F.3d 253, 268–69 & n.16 (2d Cir. 2009) (quoting In re Seltzer,
104 F.3d 234, 236 (9th Cir. 1996))). To be sure, in rejecting Contracts Clause
challenges, these cases mark no expansion of the constitutional protections
recognized in United States Trust and Allied Structural Steel, but in neither Energy
Reserves Group nor Keystone Bituminous Coal does the Supreme Court distinguish,
much less reverse, its earlier cases so as to sound retreat. Indeed, in Energy Reserves
Group, the Contracts Clause claim failed at the first, substantial impairment step
of analysis, making further consideration of purpose and means unnecessary. See
459 U.S. at 413–16; see also id. at 421 (Powell, J., joined by Rehnquist, C.J.,
concurring). The Contracts Clause claim in CFCU Community Credit Union also
failed at the first step. See 552 F.3d at 268. As for Keystone Bituminous Coal, the
Court there assumed a substantial impairment after noting “dearths in the record”
at the first step of analysis. 480 U.S. at 504 n.31. In any event, and as already noted
supra at 73 n.59, Energy Reserves Group and Keystone Bituminous Coal both
acknowledge what Allied Structural Steel instructs: that “[t]he severity of the
impairment is said to increase the level of scrutiny to which the legislation will be
subjected.” Energy Rsvs. Grp. v. Kan. Power & Light Co., 459 U.S. at 411; see Keystone
Bituminous Coal v. DeBenedictis, 480 U.S. at 504 n.31 (stating that severity of
impairment “affects the level of scrutiny,” and can “be critical in some cases”).
And while both cases emphasize the importance of judicial deference to legislative
judgment, both cases nevertheless identify Blaisdell factors that convincingly
demonstrate the reasonableness and appropriateness of the challenged legislation.
See Energy Rsvs. Grp. v. Kan. Power & Light Co., 459 U.S. at 417–18 (e.g., no
impairment of reasonable contract expectations; public interest, in context of
highly regulated industry, in denying windfall at expense of consumers;
reasonable exemptions; temporary measure); see also Keystone Bituminous Coal v.
DeBenedictis, 480 U.S. at 505–06 (e.g., “strong public interest” in remedying and
deterring environmental harm by very persons who caused it).
78
Critics have suggested that unpredictability is inherent in a
Contracts Clause standard that relies on balancing.64 Whether or not
such criticism is warranted, we have reviewed the evolution of the
Court’s Contracts Clause jurisprudence in such detail in order
faithfully to apply here the constitutional limits as presently
recognized by the Supreme Court. That review indicates that the
Clause’s limits may no longer be defined with the firmness and clarity
pronounced in Green v. Biddle and cases of that era. Rather, the
Clause’s textual prohibition is now understood to demand some
flexibility to allow states to protect the public welfare as explained in
Blaisdell. Nevertheless, the Clause’s limits are not illusory or nonexistent. As recognized in Allied Structural Steel, the Clause continues
to afford individuals the right to use contracts to order their affairs
and to rely thereon except as warranted by a significant and
legitimate public purpose pursued through reasonable and
appropriate means. That standard is more demanding than the
rational basis review that applies when legislation is challenged
under the Due Process Clause. But it is more deferential to legislative
judgment than strict scrutiny, particularly when the impaired
contract at issue is private and state self-interest is not an obvious
concern. It is a standard that depends on balancing to ensure that
Contracts Clause limitations both “do not destroy the reserved
power” of the states “in its essential aspects,” and that the reserved
power of the states does not “destroy the limitations” of the Contracts
Clause. Home Bldg & Loan Ass’n v. Blaisdell, 290 U.S. at 437; see id. at
64 See, e.g., Ely, THE CONTRACT CLAUSE, at 271 (submitting that “prevailing
multifactor test for ascertaining contract clause violations” can be used “to reach
almost any result”).
79
442 (stating that Contracts Clause must be construed to permit
“ground for a rational compromise between individual rights and
public welfare”).
Applying those principles here, as well as those that apply to
Rule 12(b)(6) motions, we conclude that, on the existing record,
plaintiffs state a sufficiently plausible Contracts Clause challenge to
the Guaranty Law to withstand dismissal.
Applying the Contracts Clause to the Guaranty Law
1. Impairment
To determine whether plaintiffs plead a plausible Contracts
Clause claim, we ask first whether the Guaranty Law substantially
impairs the contract rights of landlords, such as plaintiff Bochner,
whose commercial lease agreements are secured by personal
guaranties. See Allied Structural Steel Co. v. Spannaus, 438 U.S. at 244.
In conducting that inquiry, we follow the Supreme Court’s most
recent Contracts Clause decision, which instructs us to consider “the
extent to which the law undermines the contractual bargain,
interferes with a party’s reasonable expectations, and prevents the
party from safeguarding or reinstating his rights.” Sveen v. Melin, 138
S. Ct. at 1822; see also Sanitation & Recycling Indus., Inc. v. City of New
York, 107 F.3d 985, 993 (2d Cir. 1997) (“The primary consideration in
determining whether the impairment is substantial is the extent to
which reasonable expectations under the contract have been
disrupted.”). When we do that here, we conclude, as the district court
did, that the Guaranty Law imposes a substantial impairment.
80
The Guaranty Law applies to the commercial leases of tenants
who were subject to pandemic shut-down orders or other restrictions
on their businesses’ abilities to operate. The law renders
unenforceable any personal guaranties of rent obligations arising
under such leases from March 7, 2020, through June 30, 2021. While
the relevant obligation period is thus temporally limited to
approximately sixteen months, the unenforceability of the guaranty
for rent arrears arising during that period is permanent. This
contrasts with the impairment in Blaisdell, which temporarily
extended a mortgage’s foreclosure redemption period but left the
“integrity of the mortgage indebtedness” and “conditions of
redemption” unaltered once the extension expired. 290 U.S. at 445.
Under the Guaranty Law, if a tenant fails to pay rent owed for any
time between March 7, 2020, and June 30, 2021, the landlord can never
seek to recover those amounts from the guarantor. Not during the
pandemic period. Not after the emergency declaration is withdrawn.
Not ever. This substantially undermines the landlord’s contractual
bargain, interferes with his reasonable expectations, and prevents him
from safeguarding or ever reinstating rights to which he was entitled
during a sixteen-month period. See Sveen v. Melin, 138 S. Ct. at 1822.
In urging otherwise, defendants argue that the rent obligation
of commercial leases is not severely diminished by the Guaranty Law
because the landlord may continue to seek unpaid rent from the
tenant. The argument does not persuade, either practically or legally.
First, the practical likelihood of landlords such as plaintiff
Bochner recovering rent arrears from delinquent small business
tenants appears speculative at best. After all, a landlord invokes his
81
guaranty rights only when a tenant is not paying rent. Meanwhile
state laws and regulations have limited landlords’ ability to use
eviction to minimize their rent losses. As for the possibility of
collecting rent from delinquent tenants after the economic crisis
abates, there is no guaranty that such entities will reopen or remain
going concerns. Indeed, commercial tenants, including Mr.
Bochner’s, are frequently corporate entities, which can dissolve
and/or use bankruptcy to avoid accumulated rent indebtedness. To
the extent defendants think otherwise, they will have the opportunity
to develop supporting evidence on remand. But viewing the
pleadings record in the light most favorable to plaintiffs as we are
required to do on review of a judgment of dismissal under Rule
12(b)(6), we are not now persuaded that, as a matter of law, tenants’
continued obligations for unpaid rent compels a conclusion that the
Guaranty Law’s permanent impairment of guaranty obligations is not
substantial.
Second, the law recognizes a secured obligation to establish
effectively two contractual bargains, one between the principals and
the other between a principal and the guarantor. So here, there is one
contractual bargain between landlord and tenant and another
contractual bargain between landlord and guarantor. See Park Towers
S. Co., LLC v. 57 W. Operating Co., 96 A.D.3d 443, at *1 (1st Dep’t 2012)
(“[T]he guarantees and the leases are entirely separate documents, the
former imposing obligations on the guarantors and the latter
imposing obligations on landlord and tenant.”); Hyman v. Golio, 134
A.D.3d 992, 992 (2d Dep’t 2015) (“The guaranty executed by the
defendant is a separate undertaking and a self-standing document
. . . .”). The fact that the Guaranty Law does not invalidate the first
82
bargain cannot gainsay its destruction of the second for guarantor
obligations arising between March 7, 2020, and June 30, 2021. The law
effectively repudiates those guarantor debts, rendering them
permanently and completely unenforceable. This is certainly a
substantial impairment of contract. See Home Bldg. & Loan Ass’n v.
Blaisdell, 290 U.S. at 439 (observing that state may afford “temporary
relief” from contract obligations, but cannot “adopt as its policy the
repudiation of debts or the destruction of contracts or the denial of
means to enforce them”); see also Hawthorne v. Calef, 69 U.S. at 10
(holding law repealing personal liability obligation in corporate
charter to violate Contracts Clause by “not merely modif[ying]”
security to creditor’s prejudice, but “altogether abolish[ing]” it).
Such a “permanent” and “irrevocabl[e]” repudiation of
guaranty obligations seriously upsets landlords’ reasonable
expectations, Allied Structural Steel Co. v. Spannaus, 438 U.S. at 250, and
“undermines the contractual bargain,” Sveen v. Melin, 138 S. Ct. at
1822. As the pleadings record indicates, commercial landlords
generally, and plaintiffs Bochner and 287 7th Avenue Realty LLC in
particular, will not rent commercial space to small businesses without
the security of a personal guaranty. See App’x at 759 (Council
Member Yeger explaining that personal guaranties are critical to
inducing landlords to rent to new, small businesses lacking
established revenues); id. at 4307–08 (amended complaint stating that,
for landlords like Mr. Bochner, personal guaranties are “critical
inducement[s] . . . to enter into leases with commercial tenants,”
without which “underlying leases would be rendered virtually
worthless” due to small businesses’ limited assets). Here again, on a
motion to dismiss, we must accept as true plaintiffs’ assertion that
83
personal guaranties play this indispensable role in commercial leases
and infer therefrom that landlords reasonably rely on the protection
of such guaranties when leasing to small businesses. By rendering
personal guaranties completely unenforceable, the Guaranty Law
seriously upsets this reliance and, thus, substantially impairs the
guaranty agreement.
Nor is a contrary conclusion compelled by the fact that New
York has sometimes, and to varying degrees, regulated its commercial
real estate market. See, e.g., Twentieth Century Assocs. v. Waldman, 294
N.Y. 571, 577–78, 582 (1945) (rejecting due process and equal
protection challenges to commercial rent stabilization law during
World War II). Nothing in the pleadings record suggests that such
regulation has ever pertained to personal guaranties so as to alert
New York commercial landlords, prior to the pandemic, to the
possibility of state action in that regard. See Veix v. Sixth Ward Bldg. &
Loan Ass’n of Newark, 310 U.S. at 38 (reasoning that plaintiff who
“purchased into an enterprise already regulated in the particular to
which he now objects . . . purchased subject to further legislation upon
the same topic”). Compare Allied Structural Steel Co. v. Spannaus, 438
U.S. at 250 (observing that challenged law “did not operate in an area
already subject to state regulation at the time the company’s
contractual obligations were originally undertaken but invaded an
area never before subject to regulation by the State”), with Energy
Rsrvs. Grp., Inc. v. Kan. Power & Light Co., 459 U.S. at 416 (stating that
where price regulation already existed and contract specifically
contemplated such regulation, it was “foreseeable as the type of law
that would alter contract obligations” in natural gas industry).
84
Thus, because the Guaranty Law appears permanently and
unexpectedly to repudiate commercial lease guaranties for arrears
arising over a sixteen-month period, we conclude that plaintiffs have
plausibly alleged a significant impairment of contract.
Before proceeding to the next two steps of analysis, however,
we consider plaintiffs’ argument, based on Allied Structural Steel, that
the severity of the identified impairment in this case requires us
strictly to scrutinize defendants’ stated purpose and the means
employed to serve it. See 438 U.S. at 245 (“The severity of the
impairment measures the height of the hurdle the state must clear.”).
Defendants, on the other hand, argue that the “customary deference”
that we must accord to legislative judgments dictates only rationalbasis review. Id. at 244.
We here clarify that when we read Allied Structural Steel’s
quoted language in context, we do not understand the Supreme Court
to be mandating a particular standard of review. Rather, we
understand the Court to instruct that, under its present balancing
approach to Contracts Clause claims—which controls us here—the
weight any purpose and means showing must bear to avoid
unconstitutionality can vary with the degree of contract impairment.
As the Court itself stated, an impairment effecting only “[m]inimal
alteration of contractual obligations” may bear so little weight as to
“end the [Contracts Clause] inquiry at its first stage.” Id. at 245; see
Sveen v. Melin, 138 S. Ct. at 1822 (“stop[ping inquiry] after step one
because . . . statute does not substantially impair pre-existing
contractual arrangements”). On the other hand, “[s]evere
impairment . . . will push the inquiry to a careful examination of the
85
nature and purpose” of the challenged state legislation. Allied
Structural Steel Co. v. Spannaus, 438 U.S. at 245. Implicit in a “careful
examination,” is recognition that factors can bear different weights in
different circumstances. Id. A purpose and means showing sufficient
to support one contract impairment may be insufficient to support
another coming closer to “the repudiation of debts or the destruction
of contracts or the denial of means to enforce them.” Home Bldg. &
Loan Ass'n v. Blaisdell, 290 U.S. at 439. Such a variable standard may
raise the unpredictability concerns noted by critics, but until the
Supreme Court instructs otherwise, we must endeavor faithfully to
apply it in conducting the “careful examination” of a substantial
contract impairment that is required “[d]espite the customary
deference courts give to state laws directed to social and economic
problems.” Allied Structural Steel Co. v. Spannaus, 438 U.S. at 244–45.65
65 Judge Carney submits that the law requires a distinction only between minimal
and severe impairments, without regard to degrees of severity in the latter group.
See Dissenting Op. at 9–11. We reject this approach as contrary not only to express
language in Allied Structural Steel (which we have already discussed at length) but
also to common sense. An example makes the point. A law that renders a contract
permanently unenforceable for all obligations arising during a sixteen-month
period and a law that renders the same contract unenforceable during a sixteenmonth period, but fully enforceable thereafter for all outstanding obligations, may
both substantially impair reasonable contract expectations, but the severity of the
first impairment is greater than the second. The customary deference accorded
legislative judgments does not require a court to blink this reality. Rather, the
relative severity of an impairment is a factor that properly weighs in the Blaisdell
balance when determining whether a law is an appropriate and reasonable way to
advance a significant public purpose. See Allied Structural Steel Co. v. Spannaus, 438
U.S. at 245; see also Energy Rsvs. Grp., Inc. v. Kan. Power & Light Co., 459 U.S. at 511;
Keystone Bituminous Coal Ass’n v. DeBenedictis, 480 U.S. at 504 n.31; United States Tr.
Co. v. New Jersey, 431 U.S. at 27.
86
2. Significant and Legitimate Public Interest
The district court concluded that the Guaranty Law serves a
significant and legitimate purpose to mitigate the economic
emergency experienced in New York City as a result of the COVID19 pandemic. Defendants submit that the law does this by permitting
individual guarantors of commercial leases—usually the owners of
the tenant-businesses—to escape personal liability for rent that their
shuttered businesses could not pay during sixteen months of the
pandemic. They argue that such guarantor liability not only would
be personally devastating to small business owners, but also would
make it more likely that they would permanently close their
businesses, leading to increased unemployment and a reduction in
services to City residents.
That this was in fact the law’s purpose finds some record
support in Council Member Rivera’s April 29, 2020 statement
explaining that she was sponsoring the Guaranty Law,
[to] ensure that business owners, should they be forced
to walk away or temporarily shutter their stores, through
no fault of their own[,] can do so without facing personal
liability, ensuring that one day they may be able to return and
relaunch or create a new thriving business in our
neighborhoods.
App’x at 699 (emphasis added). It also finds support in the text of
extending legislation, which states that the Guaranty Law serves to
minimize “economic and social damage caused to the city” by the
pandemic, which “will be greatly exacerbated and will be
significantly worse than if these businesses are able to temporarily close
87
and return or, failing that, to close later, gradually, and not all at once.”
N.Y.C. Local L. 2020/98 § 1.6 (emphasis added).
Plaintiffs do not dispute that the COVID-19 pandemic has
prompted a serious economic, as well as health, emergency in New
York City. Nor do plaintiffs deny that—the Contracts Clause’s
origins in economic crisis notwithstanding—controlling precedent
recognizes the mitigation of economic emergencies as a public
purpose that can support contract impairment. See, e.g., Home Bldg. &
Loan Ass’n v. Blaisdell, 290 U.S. at 444; accord Energy Rsrvs. Grp., Inc. v.
Kan. Power & Light Co., 459 U.S. at 411–12; Buffalo Tchrs. Fed’n v. Tobe,
464 F.3d 362, 369 (2d Cir. 2006). Thus, even if emergency is not
required to support every impairment of contract, see Veix v. Sixth
Ward Bldg. & Loan Ass’n of Newark, 310 U.S. at 39–40, its presence here
weighs in favor of the City’s pursuit of a legitimate public purpose
under the first Blaisdell factor.66
66 While Judge Carney reports still more record support for this purpose
conclusion, see Dissenting Op. at 17–24, we are not as convinced as our colleague
that the quoted excerpts all speak clearly to the point. We do not pursue the point
because, to the extent voluminous Council records were submitted by the City in
opposing plaintiffs’ motion for a preliminary injunction, our ability to consider
them on review of a Rule 12(b)(6) dismissal is narrowly circumscribed. See supra
at 6 (citing cases instructing that, on review of a motion to dismiss, court may
consider only pleadings, together with documents appended thereto or
incorporated by reference, as well as matters of judicial notice and public record).
Plaintiffs’ complaint neither appends nor incorporates the Council records, and
while judicial notice and matters of public record allow us to recognize that certain
statements were made on a public record, it is more questionable whether we can
accept such statements as true when they pertain to matters in dispute or are not
cast in the light most favorable to plaintiffs. See supra at 6 n.2. Thus, we here take
judicial notice only of the fact that Council Member Rivera ascribed a particular
88
Plaintiffs nevertheless argue that the second Blaisdell factor
precludes this conclusion because the Guaranty Law does not
“protect a basic societal interest,” but benefits only “a favored group”:
commercial-lease guarantors. Allied Structural Steel Co. v. Spannaus,
438 U.S. at 242, 248–50 (quoting Home Bldg. & Loan Ass’n v. Blaisdell,
290 U.S. at 445, and concluding that state law benefitting only certain
employers violated Contracts Clause). The argument is not wholly
devoid of support in the pleadings record. Various Council hearing
statements might be understood to support relieving guarantors of
personal liability for unpaid rents regardless of whether they ever
reopen their businesses. See supra at 24–28. Still others might suggest
a certain hostility to landlords and sympathy for small business
owners. See, e.g., App’x at 468, 699 (describing landlord enforcement
of guaranty clauses against small business owners as “moral and
ethical failure”). But, this indicates only that the question of
legitimate public purpose cannot now be decided as a matter of law
for either party and would benefit from further record development.
Moreover, this case is not analogous to Allied Structural Steel.
The Supreme Court there identified the challenged law to serve no
public interest because it was “not even purportedly enacted to deal
with a broad, generalized economic or social problem,” and the
record suggested the target was a single employer. Allied Structural
Steel Co. v. Spannaus, 438 U.S. at 247–50. By contrast, the legislative
history referenced supra at 24–28, indicates that City Council
purpose to the Guaranty Law when proposing that legislation, and that a similar
purpose is part of the text of subsequent legislation extending the Guaranty Law
because that suffices to our limited determination of purpose on this appeal.
89
members may have thought shielding guarantors from liability for
lease arrears would serve not simply those individuals, but society’s
larger interest in maintaining the small businesses necessary for
functioning neighborhoods. As at least one New York court has
observed,
The Council wanted to avoid having business owners
(who are often guarantors in commercial leases) close up
shop to minimize their personal exposure. The Council
clearly chose to try to protect the businesses that serve
the local community—stores, restaurants, gyms—so that
when the [shut-down] restrictions are lifted, the stores
and restaurants would (hopefully) reopen and some
semblance of community would return. The Council
obviously wanted to avoid a situation where
owners/guarantors, to protect their personal assets, had
to turn in the keys and walk away from their restaurant
or store; if that happened, the neighborhoods would almost
certainly be ghost towns with closed storefronts everywhere
long after restrictions are lifted.
40 X Owner LLC v. Masi, No. 156181/2020, 2020 WL 65431, at *3–4 (N.Y.
Sup. Ct. Jan. 7, 2021) (emphasis added). Whether the Guaranty Law
is a reasonable and appropriate means to serve this larger public
purpose is another question, which we consider in the next section of
this opinion. Here, we conclude only that because the City asserts a
legitimate public purpose that appears at least plausible on the
90
pleadings record, we are obliged to conduct that further means
inquiry.67
Thus, because the record before us plausibly suggests a
significant and legitimate purpose for the Guaranty Law, we proceed
to consider whether plaintiffs plausibly plead that the means
employed by the City were not reasonable and appropriate to its
professed public purpose.
67 Out-of-circuit cases cited by plaintiffs do not compel a different conclusion here.
At issue in Association of Equipment Manufacturers v. Burgum, 932 F.3d 737 (8th Cir.
2019), was a state law prohibiting manufacturers from imposing certain contract
obligations on farm-equipment dealers. While defendants professed that the law’s
public purpose was to serve farmers and rural communities, the court of appeals
ruled that the conclusion lacked any support in the law’s text or history, which
focused exclusively on restricting manufacturers to the benefit of dealers. Id. at
731–34. Similarly, in In re Workers’ Compensation Refund, 46 F.3d 813 (8th Cir. 1995),
the state professed that a law redirecting certain surplus insurance premium
payments served the public purpose of lowering employers’ costs and avoiding a
windfall to insurance companies. But the court of appeals ruled that these
purposes lacked record support, because premiums amassed between 1979 and
1992 were only being directed to a narrow category of employers and payment of
the monies to insurance companies as provided by contract was no windfall. See
id. at 817, 821. This case is distinguishable from both because, as already discussed,
the pleadings record here indicates that the Guaranty Law focuses on guarantors
in order to serve the larger public interest in preserving neighborhood businesses
through an economic emergency.
Moreover, the posture of these cases is different, with Burgum reviewing the grant
of a preliminary injunction and In re Workers’ Compensation Refund reviewing an
award of summary judgment. In both situations, therefore, the Eighth Circuit had
the benefit of a more robust record in assessing the challenged laws’ public
purposes.
91
3. Reasonable and Appropriate Means
Upon careful consideration, we conclude that the means
question cannot now be decided in defendants’ favor as a matter of
law and, therefore, that plaintiffs’ Contracts Clause claim cannot be
dismissed under Rule 12(b)(6). Applying the principles identified in
Blaisdell and its progeny, five features of the Guaranty Law inform
that conclusion. While we discuss them individually, it is the totality
that precludes dismissal of the Contracts Clause claim.
First, the Guaranty Law is not a “temporary” or “limited”
impairment of contract, a factor critical to the Supreme Court’s
conclusion in Blaisdell that a state moratorium law was a reasonable
means to afford economic relief during the Great Depression. See 290
U.S. at 439 (contrasting repudiation of debt, destruction of contract,
or denial of enforcement, which could not be justified by police
power, with “limited and temporary interpositions,” which “may be
consistent with the spirit and purpose” of Contracts Clause).68 The
68 Our dissenting colleague cites the above parenthetical in attributing to the
majority the “suggest[ion] that the repudiation of debt, destruction of contract, or
denial of enforcement could not—as a categorical matter—be justified by police
power.” Dissenting Op. at 34–35 n.22. In fact, we reach no categorical conclusion
here. See infra at 93. In the parenthetical, we simply note a point made by the
Supreme Court, which comes directly from Blaisdell. In there rejecting a literal
reading of the Contracts Clause, the Court held that a balance had to be struck
between a state’s reserved police power and Contracts Clause limitations. See
Home Bldg. & Loan Ass’n v. Blaisdell, 290 U.S. at 439 (“The reserved power cannot
be construed so as to destroy the limitation nor is the limitation to be construed to
destroy the reserved power in its essential aspects. They must be construed in
harmony with each other.”). It was in that context that, in the next sentence, the
Court stated: “This principle precludes a construction which would permit the
state to adopt as its policy the repudiation of debts or the destruction of contracts
92
Blaisdell moratorium law was not permanent or unlimited. It deferred
a mortgagor’s obligations and a mortgagee’s remedies, but it did not
abolish them. Thus, when the moratorium period expired, the
underlying “integrity of the mortgage indebtedness [was] not
impaired” and the parties’ remedies were “maintained.” Id. at 445.
By contrast, although the Guaranty Law pertains only to rent
arrears arising between March 7, 2020, and June 30, 2021, it does not
simply defer guaranty obligations until the conclusion of that period.
Rather, it permanently and entirely extinguishes them. Thus, far from
affording temporary relief that leaves the “integrity” of commercial
lease guaranties unimpaired, id., the City destroys the guaranties by
rendering them forever unenforceable for up to sixteen months of rent
obligations.69 This not only demonstrates a significant impairment of
or the denial of means to enforce them,” id., followed by another sentence
explaining that such preclusion does not mean “that conditions may not arise in
which a temporary restraint of enforcement may be consistent with the spirit and
purpose of the constitutional provision and thus be found to be within the range
of the reserved power of the state to protect the vital interests of the community,”
id. (emphasis added). Nothing in Keystone Bituminous Coal repudiates Blaisdell’s
quoted admonition. See Dissenting Op. at 34–35 n.22. In there emphasizing that
modern jurisprudence did not read the Contracts Clause “literally,” the Court
observed that this pertained even in cases that were the “primary focus” of the
Contracts Clause, i.e., those challenging legislation “designed to repudiate or
adjust pre-existing debtor-creditor relationships that obligors were unable to
satisfy.” Keystone Bituminous Coal Ass’n v. DeBenedictis, 480 U.S. at 503. This
represents no departure from Blaisdell, which Keystone, in fact, cites to support its
point. See id. (referencing Blaisdell upholding temporary foreclosure moratorium).
69 Insofar as the Guaranty Law’s sponsor characterized the legislation as a
“temporary suspension” of guaranty obligations, supra at 30, the statutory text
belies the assertion. The deference we owe exercises of police power does not
extend to a legislature’s characterizations of law at odds with text. See also supra
93
contract, but also weighs heavily against a legal determination at the
pleadings stage that means so destructive of contract rights are
reasonable to address the City’s professed public interest. See id. at
445–47; accord Allied Structural Steel Co. v. Spannaus, 438 U.S. at 250
(identifying unreasonable impairment of contract where law, among
other things, permanently changed parties’ relationship); W.B.
Worthen v. Kavanaugh, 295 U.S. at 62.
In urging otherwise, defendants point to cases in which this
court rejected Contracts Clause challenges to laws permanently
impairing contracts. See Buffalo Tchrs. Fed’n v. Tobe, 464 F.3d at 367,
372; Sullivan v. Nassau Cnty. Interim Fin. Auth., 959 F.3d 54, 69 (2d Cir.
2020). This misses the point. We do not here hold that, under the
balancing test dictated by Blaisdell and its progeny, a permanent
impairment of contract can never be deemed reasonable or
appropriate. Rather, we understand those cases to instruct that a
permanent and complete impairment of contract, by contrast to a
temporary and limited one, will weigh heavily against a finding of
reasonableness, particularly at the pleadings stage. See Allied
Structural Steel Co. v. Spannaus, 438 U.S. at 245, 250; see also United
States Tr. Co. v. New Jersey, 431 U.S. at 27 (“The extent of impairment
is certainly a relevant factor in determining its reasonableness.”);
Buffalo Tchrs. Fed’n v. Tobe, 464 F.3d at 371 (stating that extent of
impairment is “relevant factor in determining [] reasonableness” at
step 3).
at 26 & n.30 (noting further inaccuracy of Council’s suggestion that personal
guaranties make businesses answerable in court for unpaid debts, when, in fact,
they make individual guarantors answerable).
94
In Buffalo Teachers and Sullivan, temporary freezes of bargainedfor wage increases were permanent impairments of contracts in the
sense that the increases, when they finally did take effect, were not
made retroactive for the freeze periods. See Buffalo Tchrs. Fed’n v. Tobe,
464 F.3d at 367; Sullivan v. Nassau Cnty. Interim Fin. Auth., 959 F.3d at
59. Nevertheless, employees continued to be paid for their services
rendered, albeit at the frozen rates, and they remained free to seek
better-paying employment elsewhere. Thus, the impairments,
although permanent, do not weigh as heavily against reasonableness
as the Guaranty Law. That law does not simply freeze, or even
reduce, the amount a landlord can recoup from a guarantor for rent
arrears arising from March 7, 2020, to June 30, 2021. Instead, it forever
denies the landlord the full guarantied amount for that sixteen-month
period. Moreover, it does so in a legal context that effectively
precludes the landlord from terminating a delinquent tenant’s lease
or reclaiming his premises. In these circumstances, Buffalo Teachers
and Sullivan do not compel a conclusion that the Guaranty Law is a
reasonable impairment of commercial lease agreements. Rather, the
fact that the law is neither temporary nor limited raises
reasonableness concerns precluding dismissal of plaintiffs’ Contracts
Clause claim as a matter of law.70
70 The Ninth Circuit’s recent rejection of a Contracts Clause claim in Apartment
Ass’n of Los Angeles County v. City of Los Angeles, 10 F.4th 905 (9th Cir. 2021), is not
to the contrary. The challenged eviction moratorium there did not destroy the
integrity of the parties’ underlying rent agreement but, rather, deferred payment
of rent arrears for “up to 12 months” after the end of the mayor’s declared
pandemic emergency. Id. at 910. Further distinguishing that case from this one is
the fact that the issue on appeal was plaintiff’s entitlement to a preliminary
95
Second, that conclusion is reinforced by the fact that, on the
pleadings record, we cannot conclude as a matter of law that the
Guaranty Law is an appropriate means for achieving its professed
public purpose: to help shuttered small businesses survive the
pandemic so that they can reopen after the emergency, ensuring
functioning neighborhoods throughout the City. To explain, we note
three assumptions informing the City’s enactment of the Guaranty
Law: (a) that shuttered small businesses are usually owned by the
individuals guaranteeing their leases, (b) that these owner-guarantors
would be financially ruined if required to pay their businesses’ rent
arrears, and (c) that financially ruined owners would be unlikely to
reopen shuttered businesses. It is to mitigate the last concern that the
Guaranty Law absolves commercial-lease guarantors of their
obligations for rent arrears arising between March 7, 2020, and June
30, 2021.
The problem with concluding that the Guaranty Law is an
appropriate means to serve this public purpose is that the law does
not condition the relief it affords on guarantors owning shuttered
businesses or, even if they do, on their ever reopening those
businesses. Rather, guarantors receive the full relief afforded by the
Guaranty Law even if they never reopen (or intend to reopen) their
businesses. In short, the Guaranty Law permanently excuses
guarantors from pandemic-accrued rent liability even in
injunction on which it bore the burden of demonstrating likely success on its
Contracts Clause claim, not simply its plausibility, as necessary here to withstand
dismissal. See id. at 911; see also New Hope Fam. Servs., Inc. v. Poole, 966 F.3d 145,
165 (2d Cir. 2020) (discussing different review standards for motions to dismiss
and preliminary injunctions).
96
circumstances where they do nothing to serve the public interest in
generally ensuring functioning neighborhoods. While we defer to
legislative judgments about the means reasonable and appropriate to
address a public emergency, such deference is not warranted in the
absence of some record basis to link purpose and means that,
otherwise, appears missing.71 Defendant may be able to offer
evidence on remand demonstrating the missing link. We note only
that it is lacking in the record we review on this challenge to dismissal
pursuant to Rule 12(b)(6).
The record of City Council proceedings leading to the
enactment of the Guaranty Law does little to assuage this concern.
Small business owners subject to shut-down orders submitted that
guaranty enforcement would cause them personal hardships. See
supra at 26–28. Even assuming arguendo that these statements might
be accepted for their truth, in none did an owner promise to reopen a
shuttered business if afforded Guaranty Law relief. Rather, some
owners urged that they be granted guaranty relief to minimize
personal loss so that they can “move on” if they “cannot reopen,”
predicting that “many small businesses will ultimately close our
doors forever once aid runs out.” Supra at 26–28 & n.32.
The omission of a reopening condition in the Guaranty Law is
curious given that other pandemic relief serving a similar public
purpose is specifically conditioned on a business’s continued
operation. For example, forgiveness of low-interest PPP loans to
71 See Dissenting Op. at 7 (observing that, on review of Contracts Clause challenge,
“record must support a finding that the legislature’s chosen means are reasonable
and appropriate” to its stated purpose).
97
small businesses is conditioned on maintenance of workforce and
compensation levels.72 Similarly, the Restaurant Revitalization Fund
will not provide benefits to restaurants that are “permanently closed”
or that cannot certify in good faith that the relief funds are “necessary
to support . . . ongoing or anticipated operations.”73 We express no
view on how these continuing operation conditions might inform
challenges to these laws. We conclude only that the absence of any
such condition from the Guaranty Law calls into question the
appropriateness of its permanently destructive contract impairment
as a means for pursuing its professed public purpose.
Thus, concerns about the appropriateness of the Guaranty
Law’s impairment to its professed public purpose further caution
against dismissal.
Third, these concerns are heightened by the Guaranty Law’s
allocation of its economic burden. Permanently excusing guarantors
from pandemic-accrued rent liabilities comes not at City expense (or,
more precisely, that of the public that benefits from functioning
neighborhoods) but, rather, at the expense of a discrete group of
private persons: commercial landlords. This raises Contracts Clause
concerns similar to those identified in Association of Surrogates and
Supreme Court Reporters v. New York, 940 F.2d 766 (2d Cir. 1991).
72 See PPP loan forgiveness, U.S. Small Bus. Admin. (last accessed Aug. 17, 2021),
https://www.sba.gov/funding-programs/loans/covid-19-relief-options/paycheckprotection-program/ppp-loan-forgiveness.
73 Restaurant Revitalization Funding Program, U.S. Small Bus. Admin. 3, 6 (Apr.
28, 2021), https://www.sba.gov/sites/default/files/2021-
04/Restaurant%20Revitalization%20Fund%20Program%20Guide%20as%20of%20
4.28.21-508_0.pdf.
98
There, a state payroll lag deprived judicial employees of ten days’ pay
over a twenty-week period, purportedly to be paid back upon
termination of employment. See id. at 772. In holding the action
violative of the Contracts Clause, we faulted the state for funding the
expansion of the court system—its public purpose—by placing costs
“on the few shoulders of judiciary employees instead of the many
shoulders of the citizens of the state.” Id. at 773 (referencing state’s
ability to cover costs by means of “raised taxes” or “another
governmental program”).
Here too, the City did not afford Guaranty Law relief by
appropriating existing funds or raising taxes so as to place the burden
of preserving neighborhoods on the citizenry that would benefit
therefrom. Instead, it transferred the burden to the “few shoulders”
of commercial landlords. Id. Moreover, the City did so by upsetting
lawfully contracted-for expectations between landlords and
guarantors, eliminating the former’s rights and the latter’s
responsibilities with respect to tenants’ rent defaults within the
prescribed period. We recognize that Association of Surrogates is a
public contract case. But even assuming that less deference was due
the legislative judgment there than in this case, reasonableness and
appropriateness concerns are raised by a legislative decision to
provide financial relief to certain persons not through public funds
but by destroying the contract expectations of other persons,
particularly persons not responsible for the circumstances warranting
relief.
Two other “permanent” impairment cases cited by defendants
do not support such contract impairment. See Keystone Bituminous
99
Coal Ass'n v. DeBenedictis, 480 U.S. at 504–06 (rejecting Contracts
Clause challenge to regulation invalidating contractual liability
waivers for mine operators to prevent and remedy workers’ damage
to protected land); Sanitation & Recycling Indus., Inc. v. City of New
York, 107 F.3d at 990, 994 (rejecting Contracts Clause challenge to
license provision for early contract terminations to address industry
infiltration by organized crime). In both cases, the burden of
contractual impairment was tailored to the party causing the public
harm that the state sought to mitigate. By contrast, defendants here
do not argue that landlords are in any way responsible for the
economic problem that the Guaranty Law seeks to address.
Thus, in the circumstances of this case, the City’s allocation of
the full economic burden of the Guaranty Law to landlords raises
further concerns about its impairment of contracts being a reasonable
and appropriate means to serve its neighborhood-preserving
purpose.74
74 Judge Carney submits that strong deference to the City Council’s judgment in
enacting the Guaranty Law is further compelled by the Council’s consideration of
“alternative policies and policy designs,” and “narrowed eligibility.” Dissenting
Op. at 32. None of these factors so assuage the concern raised by the identified
burden and the other factors noted in the opinion as to compel dismissal. As noted
supra at 15 n.22, most of the laws included in the package of which the Guaranty
Law was a part regulated the outdoor service or delivery of food. None of these
laws, nor the Harassment Amendments (which were also part of the package)
provided economic relief to certain persons at the expense of others not
responsible for the injury. And while it is not entirely clear what alternatives to
the Guaranty Law Judge Carney is referencing beside one that determined
eligibility by reference to diminished revenues rather than closure orders, see
Dissenting Op. at 32 n.19, nothing in the record indicates consideration of
alternatives that would not have impaired guaranty obligations (or would not
100
Fourth, adding to that reasonableness concern is the fact that the
Guaranty Law relief is not conditioned on need. Instead, the law
permanently absolves all small-business lease guarantors of any
responsibility for up to sixteen months of rent arrears regardless of
their ability to pay. The omission of any need condition weighed
against the reasonableness of mortgage moratorium relief in
Kavanaugh. See 295 U.S. at 61 (holding impairment of contract
unreasonable where law did “not even” require debtor to satisfy court
“of his inability to pay” rent); see also W.B. Worthen Co. v. Thomas, 292
U.S. at 434 (identifying Contracts Clause violation where law lacked
“limitations as to time, amount, circumstances or need”). It does so
here as well.
To be sure, the Guaranty Law only affords relief to naturalperson guarantors of businesses forced to shutter or reduce
operations during the pandemic. But that, by itself, does not mean
that a particular guarantor cannot pay rent arrears, particularly when
temporally cabined by a good-guy provision. See supra at 32–33. Nor
does it necessarily mean that a particular landlord is better able than
a particular guarantor to bear the financial burden of a tenant’s
inability to pay rent. Cf. Alabama Ass'n of Realtors v. Dep't of Health &
Hum. Servs., 141 S. Ct. 2485, 2489 (2021) (recognizing that “[d]espite
the CDC’s determination that [residential] landlords should bear a
significant financial cost of the pandemic, many landlords have
modest means”).
have done so permanently) or that would have placed the relief burden on society
generally.
101
Many forms of pandemic financial relief are conditioned on
individual applicants demonstrating need or hardship. For example,
the CARES Act tied stimulus payments to individuals’ adjusted gross
incomes, see CARES Act § 2201(a); the American Rescue Plan’s
Restaurant Revitalization Fund provided financial assistance based
on eligible businesses’ pandemic-related revenue losses;75 and even
New York’s statutory eviction moratoria apply only to those claiming
pandemic-related hardship, see TSHA § 2.2; CEEFPA pt. A; CEPOSBA
pt. A.76 The rationale for doing so—to make sure public benefits are
responsibly distributed to serve their public purpose—is no less
applicable when the benefits derive from the state’s impairment of
private contract expectations as when they derive from the public fisc.
See generally Exxon Corp. v. Eagerton, 462 U.S. 176, 191–92 (1983). The
record indicates little Council discussion on the subject of guarantor
need, much less a stated reason for not including such a condition in
the challenged law. Compare Home Bldg. & Loan Ass'n v. Blaisdell, 290
U.S. at 446 (rejecting Contracts Clause challenge to moratorium law
that had “regard to the interest of mortgagees as well as to the interest
of mortgagors” and sought “to prevent the impending ruin of both”),
75 See Restaurant Revitalization Fund, U.S. Small Bus. Admin. (last accessed Aug. 17,
2021), https://www.sba.gov/funding-programs/loans/covid-19-reliefoptions/restaurant-revitalization-fund.
76 In temporarily enjoining New York’s CEEFPA residential eviction moratorium,
the Supreme Court identified a likely due process violation in the law’s failure to
afford landlords an opportunity to contest a tenant’s hardship declaration. See
Chrysafis v. Marks, 141 S. Ct. 2482. While the Contracts Clause was not at issue in
Chrysafis, if the economic relief there afforded is likely unreasonable without an
opportunity to challenge professed hardship, we can hardly conclude as a matter
of law that the Guaranty Law’s contract impairment is a reasonable means for
providing economic relief in the absence of any hardship condition at all.
102
with W.B. Worthen Co. v. Kavanaugh, 295 U.S. at 60 (upholding
Contracts Clause challenge where legislature showed “studied
indifference” to mortgagee’s interests in enacting moratorium that
took from mortgage its “quality of an acceptable investment for a
rational investor”).
Certainly, legislatures may act based on “the general or typical
situation,” even if “there are, or may be, individual cases of another
aspect.” Home Bldg. & Loan Ass’n v. Blaisdell, 290 U.S. at 446. But in
Blaisdell, record evidence supported a conclusion that, generally,
mortgagees were large investors better able than individual
mortgagors to bear the burden of a temporary and limited
moratorium. See id. at 445–46. Here, the Guaranty Law is not
temporary nor limited, and defendants point to nothing in the record
to compel a conclusion that commercial landlords are better
positioned financially than guarantors to absorb the economic blows
of the pandemic on commercial real estate.77 Certainly, nothing in the
record indicates City Council review of any empirical evidence on this
point either when first enacting the Guaranty Law in May 2020, or
when renewing it in September 2020 and April 2021. Even if the first
omission might be excused by the evolving pandemic emergency,
77 In vetoing a proposed Maryland Guaranty Law that afforded only temporary
relief from small business lease guaranties, see H.B. 719 (Md. 2021), the Governor
voiced concern that the bill failed to account for the fact that many of the state’s
“commercial landlords are small businesses themselves,” or to consider
“circumstances where the commercial tenant is a larger entity and has more capital
than their landlord.” Letter from Lawrence J. Hogan, Jr., Governor, Md., to Bill
Ferguson, President, Md. S., and Adrienne A. Jones, Speaker, Md. H.D. (May 28,
2021), https://governor.maryland.gov/wp-content/uploads/2021/05/HB719-
Commercial-Tenants-VETO.pdf.
103
that conclusion does not easily obtain for the latter omissions given
that between the summer of 2020 and the summer of 2021, businesses
were slowly allowed to reopen,78 and between March 2020 and March
2021, trillions of dollars in pandemic financial assistance were
appropriated, including hundreds of billions to assist small
businesses. See supra at 8–9, 11–14. The relative availability of such
assistance—to tenants, guarantor-owners, and landlords—would
bear not only on whether it was reasonable and appropriate for the
City Council to place the Guaranty Law’s financial burden on
landlords without regard to guarantor need, but also on whether it
was reasonable and appropriate to do so permanently, rather than
temporarily, and for an extended sixteen-month period. See Home
Bldg. & Loan Ass’n v. Blaisdell, 290 U.S. at 447 (finding temporary
mortgage moratorium reasonable where, among other things, law
provided for moratorium period to be reduced as warranted by a
“change in circumstances”); cf. Alabama Ass'n of Realtors v. Dep't of
Health & Hum. Servs., 141 S. Ct. at 2489 (observing, with respect to
CDC revival of federal residential eviction moratorium, that
distribution of federal rental assistance “diminished” government
interest in maintaining moratorium).
Instead, the present record contains only anecdotal or
conclusory statements by Council members that, even if properly
considered on Rule 12(b)(6) review, are more indicative of shared
78 These events preclude a conclusion at the dismissal stage that the Guaranty Law
is “closely tied” to state shut-down orders. Dissenting Op. at 31.
104
hardships than of a singular burden on guarantors or even tenants.79
Even in East New York Savings Bank—which, as we observe supra at
65, signaled the high-water mark of judicial deference to a
legislature’s exercise of police power to impair private contracts—the
Supreme Court emphasized that the legislature had not relied
“merely upon the pooled general knowledge of its members,” 326
U.S. at 234. Rather, the “whole course” of legislation there showed
“the empiric process of legislation at its fairest: frequent
reconsideration, intensive study of the consequences of what has been
done, readjustment to changing conditions, and safeguarding the
future on the basis of responsible forecasts.” Id. at 234–35. The record
here provides no similar showing.
To the extent defendants think they can adduce such evidence,
they will have the opportunity to do so on remand. We here conclude
only that, on the record before us, the failure to condition relief on
guarantor need is a further reason why the Guaranty Law cannot be
deemed reasonable and appropriate to its public purpose as a matter
of law.
79 See App’x at 699 (Council Member Rivera: “[S]ome landlords who I understand
may be suffering as well are going after small business owners[’] life savings and
personal assets during this national pandemic.”); id. at 759–60 (Council Member
Yeger: “[I]t’s not that the landlord’s wrong. . . . [W]e are in tough times and
everybody is hurting and it can’t just be that the tenant is not going to pay rent
because the tenant doesn’t have income. We have to find a way . . . to reduce the
burden on all New Yorkers that are trying to come out of this.”); id. at 468 (Council
Member Rivera: “[L]andlords are also facing struggles and the small and
nonprofit landlords need further financial support, but I also find it . . . a moral
and ethical failure that anyone would seek to take every last bit of someone[’s]
savings in the middle of a disaster, even after they have taken their businesses to
the point of [bankruptcy].”).
105
Fifth, the reasonableness of the Guaranty Law as a means to
serve the City’s stated public purpose is also called into question by
the law’s failure to provide for landlords or their principals to be
compensated for damages or losses sustained as a result of their
guaranties’ impairment. On the present record, we must assume that
such damages can be extensive. The amended complaint alleges that
when an inability to collect rent or to enforce rent guaranties left
landlord 287 7th Avenue Realty LLC unable to pay tax obligations,
the LLC’s principal, Mr. Bochner, drew on $35,000 of his own funds
to make the payments. The Guaranty Law provides for no
compensation of these losses, whether by the guarantor, the tenant,
or even the government.80
A compensation condition was an important factor in
identifying the mortgage moratorium in Blaisdell as a reasonable
means to provide temporary and limited economic relief to
mortgagors. The moratorium allowed a delinquent mortgagor to
remain in possession of premises on the condition that he pay the
mortgagee reasonable rent throughout the moratorium period. See
Home Bldg. & Loan Ass'n v. Blaisdell, 290 U.S. at 445 (observing that
rent condition ensured mortgagee “not left without compensation for
the withholding of possession”); see also Manigault v. Springs, 199 U.S.
at 481–83 (rejecting Contracts Clause challenge to law authorizing
80 The tax relief referenced by Judge Carney, see Dissenting Op. at 32, appears to
authorize no tax forgiveness but only a 7.5% interest rate for unpaid taxes on
certain qualifying properties between July 1, 2020, and October 15, 2020, for
owners who document an adverse effect from the COVID-19 pandemic. See
N.Y.C. Local L. 2020/62. On the existing record, we cannot conclude, as a matter
of law, that this reasonably compensates for or mitigates a contract impairment
that permanently repudiates up to sixteen months of guaranty obligations.
106
landowner to erect dam where conditioned on payment of damages
to landowners). Similarly, the absence of a compensation
requirement informed the identification of a Contracts Clause
violation in Kavanaugh. See 295 U.S. at 61 (faulting law for affording
debtor “undisturbed possession” of property with no condition that
he pay “interest and taxes or the rental value of the premises”).
This is not to suggest that compensation is always necessary to
defeat a Contracts Clause challenge.81 But where, as here, a law
permanently deprives a landlord of the protection of a lease guaranty
for up to sixteen months of rent arrears and without regard to
guarantor need, the failure to condition such relief on some
compensation for, or mitigation of, tax and other obligations that the
landlord (or his principal) is required to satisfy, is a further reason to
question the reasonableness and appropriateness of the Guaranty
Law.
On remand, the parties may, of course, identify still other
circumstances relevant to determining whether the Guaranty Law is
a reasonable and appropriate means to serve the City’s professed
81 Compensation is a factor in Contracts Clause analysis; it is a requirement under
the Takings Clause. See generally Apartment Ass’n of L.A. Cnty. v. City of Los Angeles,
10 F.4th at 915 (acknowledging that reasonable rent has been a “relevant
consideration” in Contracts Clause challenges to eviction moratoria, but not a
“constitutional floor”). While plaintiffs have not here pleaded a Takings Clause
claim, nothing in this opinion is intended to preclude the parties or the district
court from considering how these two constitutional protections might overlap in
the circumstances of this case.
107
public purpose.82 We here conclude only that with five features of the
law weighing heavily against that conclusion, the matter cannot be
decided in favor of defendants as a matter of law on a motion to
dismiss. Thus, while we agree with the district court that the
Guaranty Law significantly impairs guaranty agreements for what
appears to be the plausible public purpose of ensuring functioning
neighborhoods, we cannot conclude as a matter of law that the
Guaranty Law is a reasonable and appropriate means to serve that
purpose so as to warrant dismissal. Rather, the case must proceed to
discovery.83
To the extent plaintiffs urge this court not only to vacate the
dismissal of their Contracts Clause claim but also to declare the
Guaranty Law unconstitutional as a matter of law, we think such
action premature. Insofar as that argument was advanced in
plaintiffs’ motion for preliminary injunctive and declaratory relief,
the district court did not rule on the question of whether plaintiffs
would likely succeed. It should do so in the first instance. See
Schonfeld v. Hilliard, 218 F.3d 164, 184 (2d Cir. 2000) (stating that “it is
82 The availability of other pandemic-related financial assistance to contracting
parties may bear on the reasonableness of impairment without compensation, and
the parties may wish to develop the record on this point further on remand.
83 Judge Carney submits that plaintiffs “did not argue to the District Court that
additional factual development was needed.” Dissenting Op. at 33 n.20. But
plaintiffs’ concession disavowing the need for discovery pertained not to the case
as a whole, but only to plaintiffs’ motion for a preliminary injunction and
declaratory relief. See Letter at 1, Melendez v. City of New York, No. 20-CV-5301
(RA) (S.D.N.Y. Sept. 9, 2020), ECF No. 64. In any event, defendants too are entitled
to an opportunity to develop the record with respect to some of the points of
concern identified in this opinion.
108
our distinctly preferred practice to remand” issues briefed but not
decided below “for consideration by the district court in the first
instance”); see also New Hope Fam. Servs., Inc. v. Poole, 966 F.3d 145,
180–81 (2d Cir. 2020) (reversing dismissal of plaintiff’s constitutional
claim, but “leav[ing] it to the district court in the first instance to
decide if [requested] equitable relief is warranted and its exact
scope”).
Thus, we reverse the dismissal of plaintiffs’ Contracts Clause
challenge and remand the case to the district court for it to allow the
parties to develop the record further on issues identified in this
opinion as well as any other matters relevant to the claim.
CONCLUSION
To summarize,
1. Plaintiffs fail plausibly to plead that amendments to the
City’s Residential and Commercial Harassment Laws, see
N.Y.C. Admin. Code §§ 22-901 et seq., 27-2004 et seq., which
prohibit “threatening” residential or commercial tenants
based on their COVID-19 status, violate either:
a. the First Amendment by restricting commercial
speech in the ordinary collection of rent, or
b. the Fourteenth Amendment’s Due Process Clause by
failing to provide fair notice of what constitutes
proscribed threatening conduct.
2. Plaintiffs state a plausible Contracts Clause challenge to
N.Y.C. Admin. Code § 22-1005, which renders permanently
109
unenforceable certain personal guaranties of commercial
lease obligations. Reviewing that claim by reference to
balancing principles identified in the Supreme Court’s most
recent Contracts Clause jurisprudence, this court concludes
that:
a. the challenged Guaranty Law significantly impairs
personal guaranty agreements;
b. the record thus far demonstrates a plausible
significant public purpose for the impairment; but
c. the same record raises at least five serious concerns
about that law being a reasonable and appropriate
means to pursue the professed public purpose, and,
thus, that determination cannot now be made in favor
of defendants as a matter of law.
Accordingly, the judgment of the district court is AFFIRMED
IN PART, insofar as it dismissed plaintiffs’ First Amendment and
Fourteenth Amendment challenges to the Harassment Amendments;
REVERSED IN PART, insofar as it dismissed plaintiffs’ Contracts
Clause challenge to the Guaranty Law; VACATED IN PART, insofar
as it denied plaintiffs’ motion for preliminary injunctive and
declaratory relief without review; and the case is REMANDED for
further proceedings consistent with this opinion, including prompt
consideration of the merits of the reinstated preliminary
injunction/declaratory judgment motion. The Clerk of Court is
instructed that any appeals from further rulings by the district court
in this case shall return to this panel.
No. 20-4238
Melendez v. City of New York
CARNEY, Circuit Judge, concurring in the result in part and dissenting in part:
In the spring of 2020, New York State and New York City lay at the front lines of
the global COVID-19 pandemic. It is undisputed that “New York State was hit early
and hard by the pandemic,” with New York City alone accounting for one quarter of
the nation’s COVID-19-related deaths in the early days of the pandemic. Maj. Op. at 7.
The public health emergency sparked a severe economic contraction as citizens ceased
their typical activities and governments required businesses to suspend or drastically
reduce their operations. In New York, the Governor issued shutdown orders that closed
or severely limited capacity for large numbers of New York businesses beginning in
March 2020. As the pandemic continued, the Governor’s shutdown orders were
extended, in various forms, until June 15, 2021.
In the context of this public health and economic emergency, over the course of
that spring, the New York City Council introduced, debated, and enacted several pieces
of legislation to address related economic, housing, and health and safety issues.
Among those that the City Council enacted are three laws affecting the rights and
obligations of the City’s commercial and residential tenants and landlords that are
challenged in this lawsuit, which is brought against Defendants-Appellees the City of
New York and certain City officers (together, the “City”). Two of the laws, together
known as the “Harassment Laws,” prohibit landlords from threatening commercial and
residential tenants based on their status as persons or businesses affected by COVID-19.
The third law, known as the “Guaranty Law,” makes certain personal guarantees of
commercial lease obligations unenforceable if three conditions apply: the guarantor is a
natural person; the business was subject to certain shutdown orders or capacity
restrictions; and the relevant sums became due between March 7, 2020, and June 30,
2021, and went unpaid. The guarantor in such agreements is typically an owner or other
principal of the business that has signed a commercial lease with the landlord.
2
I concur with the Majority that the District Court’s judgment dismissing the
challenge to the Harassment Laws should be affirmed. But I respectfully disagree with
the Majority’s decision to reverse the District Court’s judgment rejecting the Contracts
Clause challenge brought by Plaintiffs-Appellants Elias Bochner and his company
(together, “Bochner”) against the Guaranty Law.
Since the 1980s, the Supreme Court and our Court have articulated and applied a
strongly deferential standard to legislation facing Contracts Clause challenges,
particularly when—as here—the legislation does not involve public contracts or the
government’s financial self-interest. The Supreme Court has “repeatedly held that
unless the State is itself a contracting party, courts should properly defer to legislative
judgment as to the necessity and reasonableness of a particular measure.”1 Keystone
Bituminous Coal Ass’n v. DeBenedictis, 480 U.S. 470, 505 (1987). We have “emphasize[d]
that whether the legislation is wise or unwise as a matter of policy is a question with
which we are not concerned” if the “governmental action [was] intended to serve the
public good, as the government saw it.” Sullivan v. Nassau Cty. Interim Fin. Auth., 959
F.3d 54, 69 (2d Cir. 2020). Applying this deferential standard to the City Council’s
judgment in enacting the Guaranty Law, I would affirm the District Court’s dismissal of
Bochner’s Contracts Clause challenge to the law.
In its decision to reverse and remand this portion of the District Court’s decision,
the Majority resists a straightforward application of our precedents. Instead, it
undertakes a lengthy and unnecessary review of superseded case law and highlights
one perspective that is critical of modern Contracts Clause jurisprudence. On this basis,
it articulates an exacting standard of review for assessing the legislature’s judgment—a
1 Unless otherwise noted, in text quoted from caselaw, this dissent omits all alterations,
citations, footnotes, and internal quotation marks.
3
standard that is consistent with its emphasis on viewpoints critical of the modern
approach to Contracts Clause challenges, but inconsistent with the approach the
Supreme Court and our Court have actually adopted and applied. As a result, the
Majority’s analysis of whether the Guaranty Law is a reasonable and appropriate
measure bears a greater resemblance to an application of strict scrutiny than to the
substantial deference that case law instructs us to accord the legislative judgment.
For these reasons and others discussed below, I respectfully dissent from the
Majority’s decision to reverse the District Court’s judgment as to Bochner’s Contracts
Clause challenge to the Guaranty Law.
I. Contracts Clause standard of review
The Contracts Clause provides that “[n]o State shall . . . pass any . . . Law
impairing the Obligation of Contracts.” U.S. Const. Art. I, § 10, cl. 1. Notwithstanding
that the Contracts Clause is “facially absolute, its prohibition must be accommodated to
the inherent police power of the State to safeguard the vital interests of its people.”
Energy Rsrvs. Grp., Inc. v. Kansas Power & Light Co., 459 U.S. 400, 410 (1983). It is well
established that the Contracts Clause “does not trump the police power of a state to
protect the general welfare of its citizens, a power which is paramount to any rights
under contracts between individuals.” Buffalo Tchrs. Fed’n v. Tobe, 464 F.3d 362, 367 (2d
Cir. 2006).
Contracts Clause challenges, as the Majority correctly describes, are now
evaluated using a three-part test. See Energy Rsrvs. Grp., 459 U.S. at 411–13; Buffalo Tchrs.
Fed'n, 464 F.3d at 368. Under the modern test, we must first determine whether the law
at issue has “operated as a substantial impairment of a contractual relationship.” Energy
Rsrvs. Grp., 459 U.S. at 411. At the second step, the inquiry turns to whether the
legislation has “a significant and legitimate public purpose . . . , such as the remedying
of a broad and general social or economic problem.” Id. at 411–12. Third, and finally,
4
“[o]nce a legitimate public purpose has been identified, the next inquiry is whether the
adjustment of the rights and responsibilities of contracting parties is based upon
reasonable conditions and is of a character appropriate to the public purpose justifying
the legislation’s adoption.”2 Id. at 412.
I part ways with the Majority with respect to the level of scrutiny to be applied at
the third step of this analysis, when determining whether the legislation is a reasonable
and appropriate means for serving the identified public purpose. In my view, the
standard articulated by the Majority is too exacting and is not in keeping with the
weight of recent authority establishing that the legislative judgment should receive
substantial deference at the third step.
Under the modern Contracts Clause analysis, substantial deference is
owed to the legislative judgment of whether a law is a reasonable and
appropriate means to address a legitimate public purpose
In Energy Reserves, the Supreme Court explained that “[u]nless the State itself is a
contracting party, as is customary in reviewing economic and social regulation, courts
properly defer to legislative judgment as to the necessity and reasonableness of a
particular measure.” Id. at 412–13. A few years later, in Keystone Bituminous Coal, the
Supreme Court emphasized that it had “repeatedly held” that, when private contracts
2 The Supreme Court recently described this approach as a “two-step test” in which the
court first determines if there is a “substantial impairment of a contractual relationship,” and, if
so, then asks “whether the state law is drawn in an appropriate and reasonable way to advance
a significant and legitimate public purpose.” Sveen v. Melin, 138 S. Ct. 1815, 1821–22 (2018). I
agree with the Majority when it explains that the Supreme Court’s varying characterization of
the number of steps in the test does not affect the substance of the inquiry. I use the three-step
analysis derived from Energy Reserves in this dissent to mirror how the Majority evaluates the
Contracts Clause challenge to the Guaranty Law in three parts, with separate sections
addressing whether the law (1) substantially impairs a contract; (2) serves a significant and
legitimate public purpose; and (3) is a reasonable and appropriate means of serving that public
purpose.
5
are at issue, courts “properly defer to legislative judgment” at the third step. 480 U.S. at
505. In upholding the law at issue there, the Court “refuse[d] to second-guess the
Commonwealth’s determinations” that the legislative choices were “the most
appropriate ways of dealing with the problem.” Id. at 506.
Building on the Supreme Court cases handed down in the past forty years, our
Court has consistently held that “[w]hen a law impairs a private contract, substantial
deference is accorded to the legislature’s judgments as to the necessity and
reasonableness of a particular measure.” Buffalo Tchrs. Fed’n, 464 F.3d at 369; see Sal
Tinnerello & Sons, Inc. v. Town of Stonington, 141 F.3d 46, 54 (2d Cir. 1998) (“We must
accord substantial deference to the Town’s conclusion that its approach reasonably
promotes the public purposes for which the ordinance was enacted.”); see also CFCU
Cmty. Credit Union v. Hayward, 552 F.3d 253, 266 (2d Cir. 2009) (“Unless the state is a
party to the contract, courts generally should defer to legislative judgment as to the
necessity and reasonableness of a particular measure.”); Sanitation & Recycling Indus.,
Inc. v. City of New York, 107 F.3d 985, 994 (2d Cir. 1997) (“When reviewing a law that
purports to remedy a pervasive economic or social problem, our analysis is carried out
with a healthy degree of deference to the legislative body that enacted the measure.”).
The deference that the judiciary owes to the legislative judgment of whether a measure
is reasonable and necessary is especially strong when evaluating legislative action
during an emergency. See, e.g., United States Trust Co. of New York v. New Jersey, 431 U.S.
1, 22–23 n.19 (1977); Home Bldg. & Loan Ass’n v. Blaisdell, 290 U.S. 398, 426 (1934); Buffalo
Tchrs. Fed’n, 464 F.3d at 373; see also Constitutional Law Scholars’ Amicus Brief at 6
(“The Judiciary’s deferential approach in this field has encompassed a special solicitude
for state authority to respond to emergency situations.”).3
3 The law professors who signed this amicus brief are Nikolas Bowie, Erwin Chemerinsky,
Leah Litman, Bernadette Meyler, Laurence H. Tribe, and Laura Weinrib.
6
Our Circuit precedents have not explained in great detail what it means to
“properly defer” or accord “substantial deference” to the legislative judgment. To some
extent, this reticence may follow from our recognition of the Supreme Court’s caution
that “[e]very case must be determined upon its own circumstances.” Buffalo Tchrs. Fed’n,
464 F.3d at 373 (quoting Blaisdell, 290 U.S. at 430). Still, we have established boundaries.
On one end, the level of deference that is owed the legislative judgment in cases
involving private contracts must be more deferential than so-called “less deference”
scrutiny, which we apply when evaluating legislation that involves public contracts or
is otherwise “self-serving” to the government’s direct financial interest.4 See Buffalo
Tchrs. Fed’n, 464 F.3d at 370 (“[A]ssuming the state’s legislation was self-serving to the
state, we are less deferential to the state’s assessment of reasonableness and necessity
than we would be in a situation involving purely private contracts[.]”).
To survive a Contracts Clause challenge at step three under less-deference
scrutiny, “it must be shown that the [legislature] did not (1) consider impairing the
contracts on par with other policy alternatives or (2) impose a drastic impairment when
an evident and more moderate course would serve its purpose equally well, nor (3) act
4 The difference in the level of deference owed to the legislative judgment in Contracts
Clause cases involving private contracts, as opposed to public contracts, is an important and
enduring theme in the Supreme Court’s and this Court’s modern case law. As the Supreme
Court has explained, when a State modifies its own financial obligations, “complete deference
to a legislative assessment of reasonableness and necessity is not appropriate because the State’s
self-interest is at stake.” United States Trust, 431 U.S. at 26. Because “[a] governmental entity can
always find a use for extra money, especially when taxes do not have to be raised,” the
“Contract Clause would provide no protection at all” if “a State could reduce its financial
obligations whenever it wanted to spend the money for what it regarded as an important public
purpose.” Id.; see also Buffalo Tchrs. Fed'n, 464 F.3d at 369 (“Public contracts are examined
through a more discerning lens.”). We have extended that rationale for applying less-deference
scrutiny to situations in which legislation impairs a contract to which the State is not a direct
party, but the legislation is nonetheless “self-serving” to the State because it “welches on [the
State’s] obligations as a matter of political expediency.” Id. at 370.
7
unreasonably in light of the surrounding circumstances.” Id.; accord Sullivan, 959 F.3d at
65. Less-deference scrutiny does not, however, “require courts to reexamine all of the
factors underlying the legislation at issue and to make a de novo determination whether
another alternative would have constituted a better statutory solution to a given
problem.” Buffalo Tchrs. Fed’n, 464 F.3d at 370. Less deference “does not imply no
deference,” and it is not to be confused with strict scrutiny. Id. at 370–71.
At the other end, the substantial-deference standard is not so entirely deferential
as to constitute rational basis review.5 Under rational basis review, a legislature “need
not actually articulate at any time the purpose or rationale supporting its classification,”
and “the burden is on the one attacking the legislative arrangement to negative every
conceivable basis which might support it, whether or not the basis has a foundation in
the record.” Heller v. Doe by Doe, 509 U.S. 312, 320–21 (1993). Unlike rational basis
review, for a law to survive a Contracts Clause challenge under the substantialdeference standard, the legislature must actually articulate a significant and legitimate
public purpose and the public record must support a finding that the legislature’s
chosen means are reasonable and appropriate.
Even so, it is telling that the modern standard of review for Contracts Clause
challenges when private contracts are at issue is so deferential as to bear a resemblance
5 In one instance, our Court explicitly equated the third step of Contracts Clause challenges
to rational basis review. See Ass’n of Surrogates & Supreme Ct. Reps. Within City of New York v.
New York, 940 F.2d 766, 771 (2d Cir. 1991) (“Generally, legislation which impairs the obligations
of private contracts is tested under the contract clause by reference to a rational-basis test; that
is, whether the legislation is a reasonable means to a legitimate public purpose.”). But we have
not equated the two standards in our more recent Contracts Clause cases, and doing so would
appear to run counter to the Supreme Court’s statements that it has “never held . . . that the
principles embodied in the Fifth Amendment’s Due Process Clause are coextensive with
prohibitions existing against state impairments of pre-existing contracts” and that the due
process standard is “less searching.” Pension Benefit Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717,
733 (1984).
8
to rational basis review. See, e.g., Constitutional Law Scholars’ Amicus Brief at 15
(“Analysis under the Contracts Clause is most closely analogous to deferential rational
basis review.”); Erwin Chemerinsky, Constitutional Law: Principles & Policies 689 (6th ed.
2019) (“As to the second and third prongs of the test, state and local laws are upheld,
even if they interfere with contractual rights, so long as they meet a rational basis test.”);
James W. Ely, The Contract Clause: A Constitutional History 242 (2016) (The Supreme
Court’s “test is little different than rational basis review of economic legislation under
the due process norm.”); Geoffrey R. Stone, et al., Constitutional Law 986 (7th ed. 2013)
(explaining that “[m]odern review under the contract clause is substantially identical to
modern rationality review under the due process and equal protection clauses” and
that, under this standard, “the fit between the legitimate interest and the measure under
review need not be close.”). As these comparisons suggest, our inquiry into the
legislature’s chosen means must be carefully limited under the substantial-deference
standard. Rational basis review therefore represents the outermost boundary on the
deference that we may accord the legislative judgment at step three.
We have also circumscribed our review at the third step in other important ways,
particularly related to potential policy disagreements with legislative action. We have
“emphasize[d] that whether the legislation is wise or unwise as a matter of policy is a
question with which we are not concerned” if the “governmental action [was] intended
to serve the public good, as the government saw it.” Sullivan, 959 F.3d at 69; see also
Colon de Mejias v. Lamont, 963 F.3d 196, 202 (2d Cir. 2020) (“[W]e must respect the wide
discretion on the part of the legislature in determining what is and what is not
necessary to safeguard the welfare of its citizens.”). Furthermore, our precedents are
clear that “it is not the province of this Court to substitute its judgement for that of . . . a
legislative body” in Contracts Clause cases. Sal Tinnerello & Sons, 141 F.3d at 54.
9
The Majority makes an unwarranted departure from the substantialdeference standard
The Majority departs from these precedents without citing any Supreme Court or
Second Circuit case that has repudiated the deferential approach to legislation
established in these authorities. In doing so, it relies too heavily, in my view, on certain
phrases drawn from the Supreme Court’s 1978 decision in Allied Structural Steel Co. v.
Spannaus, 438 U.S. 234. The Majority describes Allied Structural Steel as pronouncing a
standard intended “to ensure the continued vitality of the Contracts Clause” in the
context of private contracts. Maj. Op. at 70. In particular, the Majority emphasizes the
Supreme Court’s statements there that “[t]he severity of the impairment measures the
height of the hurdle the state legislation must clear” and that “[s]evere impairment . . .
will push the inquiry to a careful examination of the nature and purpose of the state
legislation.” Allied Structural Steel, 438 U.S. at 245.
This language provides the foundation for the Majority’s sliding-scale approach
to the level of scrutiny to apply at the third step based on the severity of the Guaranty
Law’s impairment. But it is far from clear that the Supreme Court intended it to have
any such effect. In my view, the Supreme Court’s statements are better read as simply
confirming the straightforward and established proposition that “[m]inimal alteration
of contractual obligations may end the inquiry at its first stage,” id., while more severe
impairments must then satisfy the second and third prongs to survive a Contracts
Clause challenge. See Sveen v. Melin, 138 S. Ct. 1815, 1822 (2018) (stopping the inquiry
after step one because the challenged statute did “not substantially impair pre-existing
contractual arrangements”); Castellano v. Bd. of Trustees of Police Officers' Variable
Supplements Fund, 937 F.2d 752, 757 (2d Cir. 1991) (“[S]ince we find absolutely no
impairment of the city’s obligations . . . , there is no contract clause ‘hurdle’ to leap, and
our inquiry ends.”).
10
The sliding-scale approach to the level of scrutiny that the Majority derives from
Allied Structural Steel is absent from more recent Supreme Court decisions involving
private contracts. Contrary to the Majority’s claim that the “substance of the [Contracts
Clause] inquiry has remained the same” as what it draws from Allied Structural Steel,
Maj. Op. at 76, in neither Energy Reserves (1983) nor Keystone Bituminous Coal (1987) did
the Court renew the “careful examination” or “height of the hurdle” language
referenced in Allied Structural Steel and relied on as foundational by the Majority. True,
the Supreme Court stated in those cases that the “severity of the impairment” affects the
“level of scrutiny,” Energy Reserves, 459 U.S. at 411, Keystone Bituminous Coal, 480 U.S. at
504 n.31, but upon examination, those statements do not support the Majority’s slidingscale approach, which applies exacting scrutiny at the third step. In Energy Reserves,
when introducing the “threshold inquiry” into “whether the state law has, in fact,
operated as a substantial impairment,” the Supreme Court stated that “[t]he severity of
the impairment is said to increase the level of scrutiny to which the legislation will be
subjected.” 459 U.S. at 411. It then explained factors relevant to determining at the first
step whether a private contract has been substantially impaired—that is, whether it
clears the “threshold inquiry.” Id. If there is a substantial contractual impairment, then
the state law receives further scrutiny through the application of the second and third
steps: “the State, in justification, must have a significant and legitimate public purpose
behind the regulation.” Id.
Likewise, in Keystone Bituminous Coal, the Supreme Court explained that the
record did not provide a basis “to determine the severity of the impairment, which in
turn affects the level of scrutiny to which the legislation will be affected.” 480 U.S. at 504
n.31. It then explained that “[w]hile these dearths in the record might be critical in some
cases, they are not essential to our discussion here because the Subsidence Act
withstands scrutiny even if it is assumed that it constitutes a total impairment.” Id.
Under the Majority’s sliding-scale approach, a “total impairment” would have
11
necessarily led to the most exacting analysis at the third step. But that is not how the
Supreme Court analyzed the challenged legislative action. Instead, the Court reiterated
that, at the third step, it should “properly defer to legislative judgment” and “refuse to
second-guess” that judgment. Id. at 505–06. After providing no more than a short
paragraph of analysis, it concluded that the challenged law was reasonable and
appropriate. See id. at 506. In my view, it is difficult to reconcile this approach with the
exacting analysis that the Majority submits is required by Allied Structural Steel.
Thus, regardless of whether the “extent of impairment” is a “relevant factor in
determining [the legislation’s] reasonableness” in cases involving public contracts,
United States Trust, 431 U.S. at 27, the Supreme Court has not adopted that reasoning or
applied sliding-scale scrutiny in its modern cases involving private contracts. In sum:
the “sliding-scale approach mischaracterizes the law” because “[t]here is simply no
authority for the proposition that laws alleged to impose an extra-substantial
impairment receive extra-demanding scrutiny under the Contracts Clause.”6
Constitutional Law Scholars’ Br. at 9.
6 The Majority declares that such an interpretation is, in its view, “contrary . . . to common
sense.” Maj. Op. at 85 n.65. But there are good reasons for the Supreme Court to have not
adopted the Majority’s approach for Contracts Clause challenges involving private contracts—
not least of which is that the sliding-scale approach is inherently in tension with the Court’s
repeated instruction that courts “properly defer to legislative judgment” at the third step.
Keystone Bituminous Coal, 480 U.S. at 505. Varying the intensity of the inquiry at the third step
invites second-guessing the legislature’s policy decisions, which the Supreme Court has
explained is inappropriate in private contracts cases, even when “assum[ing] that [a
government action] constitutes a total [contractual] impairment.” Id. at 504 n.31, 506; cf. Donohue
v. Cuomo, 980 F.3d 53, 84 (2d Cir. 2020) (certifying question because “[a]n inquiry—even a
deferential one—into whether a state legislature’s potential impairment of its own contracts
violated the U.S. Constitution is a delicate matter for a federal court to undertake and risks
second-guessing, with the security of hindsight, difficult choices made by the legislature under
demanding circumstances”), certified question accepted, 36 N.Y.3d 935 (2020). Indeed, the risk of
second-guessing the legislative judgment under a sliding-scale approach materializes in the
Majority’s exacting analysis of the Guaranty Law as discussed infra at 33–36.
12
Scholars—including several the Majority cites for their criticisms of modern
Contracts Clause jurisprudence—recognize that instead of adopting the Majority’s
exacting approach, after Allied Structural Steel, the Supreme Court “soon retreated to a
more permissive standard in reviewing claims under the clause.” Ely, The Contract
Clause: A Constitutional History 245; see also, e.g., Chemerinsky, Constitutional Law:
Principles & Policies 691 (observing that, in Allied Structural Steel, “it seems that the Court
was applying heightened scrutiny that is not usually used in evaluating government
regulation of private contracts” and subsequent Supreme Court cases “have
distinguished or ignored Allied Structural Steel”); Stone, Constitutional Law 984 (“United
States Trust and Spannaus suggested that the Court might revive the contracts clause as
a substantive constraint on legislation. But shortly thereafter the Court returned to its
previous, more deferential approach.”); Douglas W. Kmiec, Contracts Clause, in The
Oxford Companion to the Supreme Court of the United States 224, 224 (2d ed. 2005) (“In
modern times, the Court has all but forgotten the [contracts] clause as a consequence of
its substantial deference to state legislative judgment in economic matters.”); Douglas
W. Kmiec & John O. McGinnis, The Contract Clause: A Return to the Original
Understanding, 14 Hastings Const. L.Q. 525, 552 (1987) (concluding that, after Keystone
Bituminous Coal, “the revival of the Contract Clause, which began with United States
Trust and Allied Steel, appears to have ended”).
Recognizing this shift in the Supreme Court’s jurisprudence after Allied Structural
Steel, our Court has cautioned, “our older cases may not apply with the same force
today as they do not appear to fully employ current Contract Clause jurisprudence to
the extent that they fail to accord sufficient deference to state legislative judgments
concerning whether a statute advances a significant and legitimate public purpose.”
CFCU Cmty. Credit Union, 552 F.3d at 268; see also Apartment Ass’n of Los Angeles Cty., Inc.
v. City of Los Angeles, 10 F.4th 905, 912, 916 (9th Cir. 2021) (describing Energy Reserves as
representing a “shift in the law” in which “the Court clarified the modern approach to
13
the Contracts Clause post-Blaisdell, articulating the flexible considerations courts must
consider in a Contracts Clause case”); State of Nev. Emps. Ass’n, Inc. v. Keating, 903 F.2d
1223, 1226 (9th Cir. 1990) (explaining that the Supreme Court’s decision in Energy
Reserves only five years later represented a “retreat[] from its holding in [Allied
Structural Steel v.] Spannaus” because it “indicated a renewed willingness to defer to the
decisions of state legislatures regarding the impairment of private contracts”).7
Although the Majority acknowledges that the Supreme Court and this Court
have held that review of private contract impairments should be deferential to the
legislative judgment, it nonetheless consistently downplays the deference owed to the
legislative judgment—often by way of reference to the purported limits of any such
deference. See, e.g., Maj. Op. at 67 & n.52 (highlighting scholars critical of a “highly
deferential standard” for the Contracts Clause); id. at 70 n.57 (making brief mention of
Energy Reserves, Keystone Bituminous Coal, and Buffalo Teachers before understating the
importance that deference played in those cases).8 The Majority emphasizes the Allied
7 The Majority questions whether the Supreme Court has “retreat[ed]” from Allied Structural
Steel, see Maj. Op. at 77 n.63, but as the authorities above establish, the characterization reflects
an understanding that is shared by scholars and courts alike. Indeed, our Court has approvingly
cited State of Nevada Employees Association, Inc. v. Keating and In re Seltzer, 104 F.3d 234 (9th Cir.
1996), two cases that recognized the “shift in the law created by Energy Reserves,” for this very
proposition. See CFCU Cmty. Credit Union, 552 F.3d at 268–69 & n.16 (citing Seltzer, 104 F.3d at
236, and Keating, 903 F.2d at 1226). In doing so, our Court highlighted the Seltzer court’s point
that “the Supreme Court has ‘retreated from its prior case law, and has indicated a renewed
willingness to defer to the decisions of state legislatures regarding the impairment of private
contracts.’” CFCU Cmty. Credit Union, 552 F.3d at 269 n.16 (quoting Seltzer, 104 F.3d at 236). Our
Court also noted that the Seltzer court distinguished a 1980 Ninth Circuit case addressing the
same issue on the ground that it “was ‘decided before’ the Supreme Court’s decision in ‘Energy
Reserves, and thus did not give appropriate deference to legislative judgments.’” CFCU Cmty.
Credit Union, 552 F.3d at 269 n.16 (quoting Seltzer, 104 F.3d at 236).
8 The Majority argues that the deference owed to the legislative judgment in cases involving
private contracts simply creates “a presumption in favor of social and economic legislation
[that] sets the starting balance, but . . . does not end the inquiry.” Maj. Op. at 70 n.57. I agree, of
course, with the Majority that to accord substantial deference is not to end the inquiry. See supra
14
Structural Steel Court’s statement that the multi-pronged Contracts Clause analysis is
conducted “[d]espite the customary deference courts give to state laws directed to social
and economic problems.” 438 U.S. at 244; see Maj. Op. at 73–74 & n.60, 85. But, in my
view, read in context, this language references the standard for analyzing impairment
of public contracts set forth in United States Trust Co. v. New Jersey, 431 U.S. 1 (1977).9 In
at 6–8. But the difference between applying a substantial-deference and less-deference standard
does not lie simply in a presumption that precedes an otherwise identical inquiry; rather, the
difference informs the deference that should infuse the entire third-step analysis. See Buffalo
Tchrs. Fed’n, 464 F.3d at 369 (explaining that “[p]ublic contracts are examined through a more
discerning lens” and “[w]hen a state’s legislation is self-serving and impairs the obligations of
its own contracts, courts are less deferential to the state’s assessment of reasonableness and
necessity”). Sullivan does not hold to the contrary: it explains that “when the state impairs a
public contract the presumption that a passed law is valid and done in the public interest does
not immediately apply,” so “we must examine the record for indicia of self-serving, privately
motivated[] action” to determine what level of deference to accord the legislative judgment. 959
F.3d at 66.
9 The referenced quote appears in the following section of the Supreme Court’s opinion:
The most recent Contract Clause case in this Court was United States Trust Co. v.
New Jersey, 431 U.S. 1. In that case the Court again recognized that although the
absolute language of the Clause must leave room for “the ‘essential attributes of
sovereign power,’ necessarily reserved by the States to safeguard the welfare of
their citizens,” id., at 21, that power has limits when its exercise effects substantial
modifications of private contracts. Despite the customary deference courts give to
state laws directed to social and economic problems, “[l]egislation adjusting the
rights and responsibilities of contracting parties must be upon reasonable
conditions and of a character appropriate to the public purpose justifying its
adoption.” Id., at 22. Evaluating with particular scrutiny a modification of a
contract to which the State itself was a party, the Court in that case held that
legislative alteration of the rights and remedies of Port Authority bondholders
violated the Contract Clause because the legislation was neither necessary nor
reasonable.
Allied Structural Steel, 438 U.S. at 243–44; see also id. at 244 n.15 (“The [United States Trust] Court
indicated that impairments of a State’s own contracts would face more stringent examination
under the Contract Clause than would laws regulating contractual relationships between
private parties, 431 U.S., at 22–23, although it was careful to add that ‘private contracts are not
subject to unlimited modification under the police power.’ Id., at 22.”).
15
any event, the Supreme Court’s subsequent decisions in Energy Reserves and Keystone
Bituminous Coal leave no doubt that, at step three, the customary deference is warranted
when private contracts are at stake.
Similarly, to the extent that the Majority discusses the more recent Second Circuit
cases, it does so mainly in the context of the first, “substantial impairment” prong, or in
attempting to distinguish the cases’ topline holdings, with little acknowledgement of
the deferential standard actually articulated and applied in these cases. For example,
the Majority’s discussion of Buffalo Teachers does not directly refer to or discuss the
substantial-deference standard for impairments of private contracts articulated in that
decision. Likewise, when discussing Association of Surrogates and Supreme Court
Reporters, the Majority focuses on one consideration that weighed against a finding that
the legislature acted reasonably in that case involving impairment of public contracts,
without acknowledging that the Court there distinguished its “more searching
analysis” from the highly deferential standard properly applied in the context of private
contracts. Ass’n of Surrogates & Supreme Ct. Reps. Within City of New York v. New York,
940 F.2d 766, 771 (2d Cir. 1991).
The Majority’s departure from the well-established substantial-deference
standard is all the more disquieting, in my view, because of the considerable space that
it devotes to and emphasis that it places on centuries-old case law that is unnecessary to
resolve this appeal. In the same way, the Majority highlights one distinct school of
judicial and scholarly criticism of modern Contracts Clause jurisprudence, while largely
choosing to ignore countervailing (and, so far as our cases reflect, currently
predominating) views.10 See, e.g., Buffalo Tchrs. Fed’n, 464 F.3d at 371 (suggesting that
10 Several of the dissenting opinions and academic articles that the Majority cites—while
critical of modern Contracts Clause jurisprudence and supportive of a change of course—at the
same time recognize that the Supreme Court’s current doctrine does not reflect the level of
increased scrutiny they advocate for and that the Majority appears to adopt here. See, e.g., Sveen,
16
“heightened scrutiny under the Contracts Clause [is a] backdoor to Lochner-type
jurisprudence” that “has long since been discarded”) (citing Laurence H.
Tribe, Constitutional Choices 182 (1985)); Constitutional Law Scholars’ Amicus Brief.
I would not take the Majority’s exacting approach. Instead, I would follow
Energy Reserves, Keystone Bituminous Coal, and this Court’s precedents, and accord
substantial deference to the legislative judgment at step three of the Contracts Clause
test—assessing whether the measure is reasonable and appropriate—when evaluating
the Guaranty Law.
II. Application to the Guaranty Law
To determine whether the District Court correctly dismissed Bochner’s Contracts
Clause claim, I apply the three-step test described above and the well-established
standard of review for evaluating a motion to dismiss under Federal Rule of Civil
138 S. Ct. at 1827 (Gorsuch, J., dissenting) (recognizing that “the Court has charted a different
course” in its modern cases than its prior interpretation of the Contracts Clause as a categorical
prohibition on laws “destroy[ing] substantive contract rights”); Ely, The Contract Clause: A
Constitutional History 247 (After Keystone Bituminous Coal, “any judicial inquiry on [the third
prong] is evidently to be purely nominal.”); Thomas W. Merrill, Public Contracts, Private
Contracts, and the Transformation of the Constitutional Order, 37 Case W. Rsrv. L. Rev. 597, 598
(1987) (“Today, the contract clause is but a pale shadow of its former self. . . . Although the
Court has never formally equated contract clause analysis with the ‘rationality review’ it applies
to economic legislation under the due process and equal protection clauses, the tone of recent
contract clause decisions approaches this same degree of extreme deference.”); Kmiec &
McGinnis, The Contract Clause: A Return to the Original Understanding, 14 Hastings Const. L.Q. at
549, 552 (suggesting that, after Allied Structural Steel, “the Court relaxed its standard of review”
and lamenting that “Keystone demonstrates that the Court believes it can now dispose of a
serious contract clause claim in a few conclusory paragraphs”); Richard A. Epstein, Toward a
Revitalization of the Contract Clause, 51 U. Chi. L. Rev. 703, 750 (1984) (arguing that “we can be
certain that the Supreme Court’s present interpretation is both wrong and indefensible” because
it “reduces the clause to yet another emaciated form of substantive due process,” but
recognizing that “[i]t would take a major change in constitutional doctrine to adopt the
[author’s] views” and that “[n]o court could be expected to adopt the [author’s] position . . .
within the compass of a single decision”).
17
Procedure 12(b)(6). I accept as true the nonconclusory allegations in the complaint,
draw reasonable inferences in Bochner’s favor, and also consider materials incorporated
into the complaint or properly subject to judicial notice. See Kaplan v. Lebanese Canadian
Bank, SAL, 999 F.3d 842, 854 (2d Cir. 2021). To survive dismissal, Bochner must allege
“sufficient factual matter, accepted as true, to state a claim to relief that is plausible on
its face.” Id.
Applying these principles, I agree with the Majority and the District Court that
Bochner has plausibly alleged that the Guaranty Law imposes a substantial impairment
on his contract, and so I will proceed to the second and third steps of the Contracts
Clause analysis without further elaboration. At the second step, I also agree with the
Majority that the Guaranty Law advances a legitimate public purpose, although I
believe the record fairly supports a more expansive rendering of the public purpose that
the legislature aimed to serve than the one suggested by the Majority. My main
disagreement with the Majority, however, comes at the third step: in my view, the
record adequately establishes, even at the motion to dismiss stage, that the Guaranty
Law is a reasonable and appropriate measure to serve its public purpose, and Bochner
has therefore failed to state a plausible Contracts Clause claim.
The second step: The Guaranty Law has a significant and legitimate public
purpose
I agree with the Majority that the City has professed a legitimate public purpose,
although I would define it somewhat more broadly than “society’s larger interest in
maintaining the small businesses necessary for functioning neighborhoods.” Maj. Op. at
88–89.
The record reflects that the City Council was squarely focused on mitigating the
economic crisis in New York City, and for its small businesses in particular, when it
enacted the Guaranty Law. Many of those businesses were experiencing sharp declines
18
in revenue as continued operations were prohibited by the Governor’s shutdown
orders, which had been in effect for about one month, starting between March 16 and
March 22, 2020. Specifically, the Governor’s executive orders required restaurants and
bars to cease in-person sales; nonessential businesses to cease in-person work; and
gyms, fitness centers, movie theatres, barbershops, hair salons, tattoo or piercing
parlors, and similar personal care–services businesses to close completely to the
public.11
The Guaranty Law was introduced as part of a package of proposed legislation
intended to support these small businesses, their owners, their employees, and the
City’s economy. Over a period of several weeks, the City Council considered the
Guaranty Law at two full City Council hearings as well as two committee hearings.12
The City Council also produced reports on the impact of the public health and
economic crisis on the City’s small businesses and the proposed legislation.13 It received
11 Under Executive Order 202.3, beginning March 16, 2020, at 8:00 p.m., restaurants and bars
were required to cease serving patrons food or beverages on premises, and gyms, fitness
centers, and movie theaters were required to close completely. App’x at 1375–76. Under
Executive Order 202.6, all nonessential businesses were required to reduce their in-person
workforce by 50% by March 20 at 8:00 p.m. Id. at 1383. The in-person workforce reduction was
soon increased to 100% for these nonessential businesses, effective March 22 at 8:00 p.m., under
Executive Order 202.8. Id. at 1389. Under Executive Order 202.7, beginning March 21 at 8:00
p.m., barbershops, hair salons, tattoo or piercing parlors, and related personal care–services
businesses were required to close completely to the public. Id. at 1386.
12 The Guaranty Law was introduced at a City Council hearing on April 22, 2020. See App’x
at 1521, 1570–71. On April 29, the City Council’s Committee on Small Business and Committee
on Consumer Affairs and Business Licensing held a joint hearing on the proposed legislation
related to small businesses, including the Guaranty Law. See id. at 2092–2380. The Committee on
Small Business unanimously voted to approve a revised version of Guaranty Law at a hearing
on May 13. See id. at 3435–36. At a hearing later that day, the full City Council voted to enact the
Guaranty Law by a vote of 44 to 6. See id. at 3498. The New York City Mayor signed the
Guaranty Law on May 26. See id. at 3517–18.
13 On April 29, 2020, as the City Council began consideration of the proposed Guaranty Law
and other small business legislation, its Governmental Affairs Division published a briefing
19
written input from hundreds of stakeholders, including “countless small business
owners” affected by personal guaranty provisions, according to Guaranty Law cosponsor Council Member Carlina Rivera. App’x at 3467. The hearing transcripts, written
submissions, and reports constitute a substantial part of the 16-volume joint appendix
before us on appeal.
When announcing the introduction of the Guaranty Law on April 21, 2020, the
City Council announced that, “while the state of emergency is in effect,” the law would
“ensur[e] that City business owners don’t face the loss of their businesses and personal
financial ruin or bankruptcy.” Id. at 521. Member Rivera reiterated that purpose when
introducing the legislation on April 22. She also explained that “businesses are closing
and losing weeks of income through no fault of their own and allowing small business
owners to keep their spaces will be integral to the city’s ability to recover[] after the
virus.” Id. at 1571.
A week later, on April 29, the City Council’s Committee on Small Business and
Committee on Consumer Affairs and Business Licensing held a more than five-hour
joint public hearing on the legislation. See id. at 2092. When introducing the Guaranty
Law, Member Rivera explained:
This pandemic has already left a profound impact on our city. One
that will be felt for years if not decades. No where will this long term
effect be felt more than in our small business community where
countless owners are facing the very real possibility that their stores
may never return.
We must do everything in our power through legislation and
advocacy to help these pillars of our communities and the thousands
of New Yorkers they employ. My bill will ensure that business
paper and Committee report entitled “OVERSIGHT: The Impact of COVID-19 on Small
Businesses in New York City” (the “April 29 report”). See App’x at 1907–84. On May 13, the
Governmental Affairs Division published an updated report in conjunction with the Small
Business Committee’s vote on the legislation (the “May 13 report”). See id. at 3369–3424.
20
owners, should they be forced to walk away or temporarily shutter
their stores, through no fault of their own[,] can do so without facing
personal liability, ensuring that one day they may be able to return
and relaunch or create a new thriving business in our
neighborhoods.
Id. at 2120–21.
Other City Council Members emphasized similar themes when speaking about
the legislative package that included the proposed Guaranty Law. City Council Speaker
Corey Johnson, also a co-sponsor of the Guaranty Law, explained, “[W]e have no choice
but to make sure [small businesses] are able to [weather] this unbelievably painful
storm.” App’x at 2101. If they are unable to, he warned:
[H]undreds of thousands of workers will permanently lose their jobs
and the city loses out on billions of dollars in sales tax, property tax
and income tax revenue. Our economy runs on small businesses and
now they are facing unprecedented losses. This could be the worst
economic disaster that New York City has seen since the great
depression.
Many businesses will be forced to shut down for good if they don’t
get more help. That won’t just devastate business owners and their
workers, it will further destabilize our economy, our neighborhoods,
and the lives of so many New Yorkers.
Id.14
14 Council Members’ statements regarding the scope and magnitude of the economic crisis
and small businesses’ importance to the City’s overall economy were corroborated by research
the City Council published in conjunction with hearings on the Guaranty Law as well as public
statements by stakeholders. The Governmental Affairs Division’s April 29 report stated that
businesses were having to “severely reduce their capacities,” with City restaurant sales
“expected to drop by a staggering 80 percent” and hotels “projected to only maintain an
occupancy rate of 20 percent.” App’x at 1915–16. The report detailed the “massive reduction in
the number of small businesses operating.” Id. at 1916. It highlighted research by the National
Bureau of Economic Research, which found that, in the Mid-Atlantic region including New
York, over half of small businesses were closed, and staff employment had decreased by 47
percent since January 2020. Id. Both figures were more severe than the national average. Id.
Among restaurant workers in New York State, 80 percent had lost their jobs. Id.
21
Speaker Johnson further expressed doubt that the federal Paycheck Protection
Program (“PPP”) would “end up helping the vast majority of New York City small
businesses” because it was “too hard to access.”15 Id. at 2102. He declared, “We
absolutely need more federal support here but there are some things that the city can
do,” including enact the Guaranty Law. Id.
Council Member Mark Gjonaj, the Chair of the Small Business Committee,
explained that the committee was acting because the “COVID-19 crisis perhaps presents
the greatest threat to our economy and small businesses in modern history.” Id. at 2104.
Businesses that were shut down “must now decide whether they can continue paying
their staff rent, debt, real estate taxes, sewer and water charges throughout the duration
of this crisis,” and the legislative package was designed accordingly to “prevent mass
retail vacancies,” “save mom and pop shops,” and “ensure small businesses are
Stakeholders also made similar statements in hearing testimony and written submissions to
the City Council. See, e.g., id. at 2298 (Karen Narefski of the nonprofit Association for
Neighborhood and Housing Development stating that, “[a]s the Speaker noted at the beginning
of the meeting, 26 percent of all jobs in New York City are at [a] business with 20 or fewer
employees. So, the result in closures and layoffs ripple through the community and have a
broad economic impact.”); id. at 2503 (Volunteers of Legal Service statement that “[i]t is beyond
dispute that small businesses are the backbone of the American economy, and yet, existing
relief does not go nearly far enough to save New York City small businesses from the
detrimental effects of the COVID-19 pandemic”).
15 The Governmental Affairs Division’s April 29 report also emphasized shortcomings of
federal relief efforts like PPP. The report explained that “[t]he manner in which PPP was offered
to the public and the complexity of its terms and conditions may have contributed to a lack of
success for many small business owners.” App’x at 1922. It further explained that PPP was
poorly suited to small businesses in the City because it required 75 percent of funds to be spent
on payroll expenses to qualify for forgiveness as grants rather than loans, leaving “less for
businesses to spend on obligations such as rent and utilities, which may be disproportionately
higher in our City.” Id. at 1925; see also id. at 3809 (article in The Wall Street Journal on May 1,
2020, explaining that PPP’s 25-percent cap on non-payroll expenses was “proving to be a deal
breaker for many small businesses with modest payrolls and high rent costs, such as
restaurants, salons and shops in urban areas including New York”).
22
protected.” Id. at 2104, 2108. Similarly, Council Member Andrew Cohen, the Chair of
the Consumer Affairs and Business Licensing Committee, described the legislation as
“geared toward reducing the burden on small business to help you maintain your
operation and get through this crisis.” Id. at 2110.
Council Members reiterated these points when the City Council voted to enact
the Guaranty Law and other small business–related legislation on May 13, 2020. See,
e.g., id. at 3487 (Member Rivera explaining her vote for the Guaranty Law because “we
all know that our small businesses have taken a major hit” and “we have to do
everything in our power to make sure that they survive[] this virus and that they
continue to provide for their own families. I know that they desperately want to bring
their workers back on to the payroll and they want to be there with that extended
family of all of their employees.”); id. at 3454–55 (Speaker Johnson elucidating that “we
are voting on bills to help small businesses and restaurants survive this crisis” and that
the Guaranty Law “will benefit all kinds of business owners in our city”); id. at 3430
(Chair Gjonaj stating the legislation will “protect[] our small businesses during this
pandemic” and enable them to “re-emerge strong after stay at home orders are lifted
and the city begins to reopen”).16
16 The Majority suggests that it is “questionable” whether some unspecified portions of the
legislative record discussed in this section can be taken as true at this stage of the litigation. Maj.
Op. at 87 n.66. As do the Majority and the parties, when evaluating the Guaranty Law’s public
purpose, I consider the documents and transcripts drawn from the legislative record materials
that were submitted by the parties to the Court in their joint appendix. The Majority cites the
legislative record from the joint appendix (and materials outside the record), including by
drawing from the same record materials that I cite in this dissent. See, e.g., Maj. Op. at 6–14
(describing COVID-19 pandemic and state and federal response); id. at 22–30 (reviewing the
Guaranty Law’s legislative history); id. at 86–89 (referencing legislative history when evaluating
the law’s public purpose). A review of the legislative record is necessary, as the Majority
recognizes, because determining whether Bochner states a plausible Contracts Clause claim
“require[s] us to consider the Guaranty Law’s ‘purpose’” at the second step. Id. at 24. And the
legislative record provides the appropriate materials from which to ascertain that purpose; as
our Court has explained, “the record of what and why the state has acted is laid out in
23
When the City Council extended the Guaranty Law in September 2020 and
March 2021, the legislative text reaffirmed that the City’s goal by extending the law was
to prevent the widespread closure of small businesses and the economic harm to the
City that it would cause: “If these individual owners and natural persons are forced to
close their businesses permanently now or to suffer grave personal economic losses like
the loss of a home, the economic and social damage caused to the city will be greatly
committee hearings, public reports, and legislation, making what motivated the state not
difficult to discern.” Buffalo Tchrs. Fed’n, 464 F.3d at 365.
The Guaranty Law’s legislative history is composed of materials that are properly subject to
judicial notice. See, e.g., Territory of Alaska v. Am. Can Co., 358 U.S. 224, 226–27 (1959). Moreover,
the parties cite the legislative record extensively and urge us to examine it closely to determine
the Guaranty Law’s purpose. See, e.g., Appellants’ Br. at 28 (submitting that the district court
“should have engaged [in] a closer analysis [of the law’s purpose] aided by the record”);
Appellees’ Br. at 7, 20–21, 26–28 (citing legislative history materials in the appellate record);
Appellants’ Reply Br. at 7–10 (arguing that the record support for the law’s public purpose is
insufficient to have warranted the law’s enactment but not arguing that the record itself is
insufficient to evaluate the Guaranty Law’s purpose or is not properly before this Court). The
parties have not raised any doubts as to the authenticity of the legislative record or any
objections to considering the materials submitted in their joint appendix as reflective of what
the Council considered in enacting the Guaranty Law.
Nor is there any question that Bochner had ample notice of the materials in the legislative
record: the complaint refers to the City Council proceedings in at least two places, and plaintiffs
themselves offered many of the legislative materials in the record—including hearing
transcripts and committee reports—in their motion for a preliminary injunction, which was
filed before the City’s motion to dismiss. See App’x at 516–1113, 4308, 4319; cf. Cortec Indus., Inc.
v. Sum Holding L.P., 949 F.2d 42, 48 (2d Cir. 1991) (“A finding that plaintiff has had notice of
documents used by defendant in a 12(b)(6) motion is significant since . . . the problem that arises
when a court reviews statements extraneous to a complaint generally is the lack of notice to the
plaintiff that they may be so considered; it is for that reason—requiring notice so that the party
against whom the motion to dismiss is made may respond—that Rule 12(b)(6) motions are
ordinarily converted into summary judgment motions.”). Under these circumstances, it is
appropriate for the Court to consider the legislative history to ascertain the City Council’s
purpose when enacting the Guaranty Law. Unlike the Majority, however, I see no obligation to
end that inquiry after reaching a “limited determination of purpose on this appeal.” Maj. Op. at
87 n.66.
24
exacerbated and will be significantly worse than if these businesses are able to
temporarily close and return or, failing that, to close later, gradually, and not all at
once.” N.Y.C. Local L. 2020/98; N.Y.C. Local L. 2021/50. Furthermore, the City Council
explained that the extensions were designed to provide the businesses “with an
opportunity to not only survive but also to generate sufficient revenues to defray owed
financial obligations.” N.Y.C. Local L. 2020/98; N.Y.C. Local L. 2021/50.
Based on all of these statements, it is fair to conclude that the City Council’s
purpose in enacting the Guaranty Law was to address the dire circumstances for small
businesses and to support their owners, employees, and the City’s economy overall,
both during and after the pandemic. That purpose is certainly related to society’s
“interest in maintaining the small businesses necessary for functioning neighborhoods,”
as the Majority characterizes the City Council’s purpose. Maj. Op. at 88–89. But it also
reflects the City’s broader short-term and long-term interests in keeping small
businesses operating because of their substantial contribution to the City’s economy
more generally, including the economic growth they bring to the City, the tax revenue
they generate, and the jobs they provide to City residents—as articulated in the Council
Members’ statements.
These interests that the City Council sought to advance by enacting the Guaranty
Law in the face of an economic emergency are undoubtedly “a significant and
legitimate public purpose . . . , such as the remedying of a broad and general social or
economic problem.” Energy Rsrvs. Grp., 459 U.S. at 411–12. The City’s professed
fundamental economic interest in promoting the survival of its small businesses by
passing the Guaranty Law is sufficient to satisfy this, the second step of the modern
Contracts Clause analysis. See Sal Tinnerello & Sons, 141 F.3d at 54 (“The Supreme Court
has held that the economic interest of the state alone may be sufficient to provide the
necessary public purpose under the Contract Clause.”).
25
The third step: The Guaranty Law is a reasonable and appropriate
measure to serve a legitimate public purpose
The Guaranty Law is a reasonable and appropriate measure to address the City’s
significant and legitimate public purpose of improving the dire circumstances of small
businesses in order to support their owners, their employees, and the City’s economy
overall, both during and after the pandemic.
To start, it is undisputed that Bochner’s Contracts Clause challenge involves
private contracts; it does not relate to a public contract with the City. It is also
uncontested that the City’s purpose in enacting the Guaranty Law was not financially
self-serving.17 Finally, it is not contested that the City enacted the Guaranty Law in the
context of an extraordinary health and economic emergency.
Under these circumstances, the legislature’s “police power . . . to protect the
general welfare of its citizens, a power which is paramount to any rights under
contracts between individuals,” is at its apex. Buffalo Tchrs. Fed’n, 464 F.3d at 367. We
therefore must accord “substantial deference” to the “legislature’s judgments as to the
necessity and reasonableness of a particular measure.” Id. at 369.
17 Bochner suggests that the Guaranty Law is self-interested insofar as it is a political act by
the City Council, but he does not point to any case holding that political interest can affect the
deference properly accorded to the legislative judgment. Instead, as he concedes, the type of
self-interest that influences the level of deference owed to the challenged legislative judgment is
one in which the “legislature welches on its [own] obligations as a matter of political
expediency,” such as in cases involving impairments to public contracts. Buffalo Tchrs. Fed'n, 464
F.3d at 370. Likewise, regardless of whether Bochner believes “there is no need for the
distinction” between public and private contracts and “scholarship supports putting them on
equal footing,” Appellants’ Reply Br. at 20 n.9, the distinction is a well-established and wellfounded aspect of the Supreme Court’s and this Court’s case law. See, e.g., Energy Rsrvs. Grp.,
459 U.S. at 412–13 & n.13; United States Trust, 431 U.S. at 25–26; Buffalo Tchrs. Fed'n, 464 F.3d at
369–70.
26
1. The City Council’s legislative record
Here, the City Council enacted the Guaranty Law during the early days of an
unprecedented emergency. Amid a burgeoning death count, sharp economic
contraction, spiking unemployment, and the particularly dire circumstances for small
businesses described above, the City Council began considering a package of proposed
legislation—including the Guaranty Law—intended to support small businesses, their
owners, and the City’s economy. Despite the City Council’s recognition of the urgency
of the situation, it solicited public input and revised the Guaranty Law over a threeweek period before enactment. The legislative record is replete with support from small
business owners and other stakeholders describing how the Guaranty Law would serve
those purposes.
Numerous small business owners wrote to the City Council or made remarks at
the Small Business Committee’s public hearing about how the Guaranty Law would
enable them to survive the pandemic and continue to employ workers.18 For example:
• The owner of a food hall wrote, “I very much hope to re-open the food
hall when the COVID dust settles, but uncertainty about my rent
obligations is a huge barrier to my business’s ability to survive.” App’x at
2406. In the owner’s view, the Guaranty Law would facilitate
renegotiating leases with landlords; without it, “a large swath of us will
go out of business for sure.” Id.; see also id. at 2527 (same owner stating “I
can guarantee that my business, along with so many other independentlyowned hospitality and retail businesses in NYC, will NOT survive if we
cannot completely renegotiate our leases post-COVID”).
18 I take these statements not for their truth—although I see no reason to question their
veracity—but rather for the fact that they were offered to the City Council when it was
considering whether to enact the Guaranty Law. The statements therefore represent an
important part of the legislative record on the Guaranty Law’s potential impact and are
appropriate to consider when evaluating at the third step whether the law is a reasonable and
appropriate measure.
27
• The owner of eight restaurants employing 270 people before the pandemic
predicted that the Guaranty Law would make the difference between
keeping his restaurants open and permanently closing them. According to
this owner, each of his businesses was tens of thousands of dollars “in the
red,” and he had “done everything in [his] power to mitigate these
circumstances directly with my landlords,” but “most of [his] landlords
remain unmoved.” Id. at 2487–88. While he would reopen under almost
any circumstance, he stated, still, “[i]f I am still personally liable for a
failed business to my landlord – that I can’t justify and I can’t give a go.”
Id. at 2490. That would even be the case if he received PPP support
because, although 75 percent of funding would keep his workers
employed by covering payroll expenses, the remaining 25 percent would
not be enough to cover rent expenses. See id. at 2489; see also id. at 3401
(Government Affairs Division’s May 13 report highlighting this business
owner’s concern about the “hopelessness of relief efforts such as PPP”). As
a result, the owner argued, the proposed Guaranty Law “is instrumental
to [his] existence and that of most small businesses in this City.” Id. at
2488.
• Another restaurant owner described how the Guaranty Law “would mean
the difference between survival and bankruptcy for my small business
specifically, a tried and true NYC restaurant company” that employed 80
workers before COVID. Id. at 2399. The owner expressed his view that
“[s]uspending guarantees is the only way to force [a] fair and earnest
[negotiation]” with landlords and is “absolutely essential to the survival
of small businesses in our city.” Id. at 2400.
• The owner of two stores told the City Council that she had “decided to
give up and move out by April 31st” because her landlord demanded rent
and refused to negotiate, and she would not be able to cover the more
than $10,000 rent she would owe if she stayed open. Id. at 2368–69. She
had applied for PPP and emergency loans but not received that support.
Id. at 2368. This business owner implored the City Council to “pass a bill
to protect tenants from the landlord” as soon as possible to help her
“survive as a business owner.” Id. at 2369.
• Another small business owner wrote, “The measures you have proposed
with regard to tenants having large commercial rents would be very
helpful to us and may have the effect of saving our business.” Id. at 2418.
28
These sentiments were echoed by hundreds of other small business operators
who wrote to the City Council to convey that the Guaranty Law was “critical
legislation” to give them “a fighting chance to survive.” Id. at 2528. The concerns of
these operators about their businesses’ ability “to survive” conveyed their views that
they would face an increased risk of permanent closure—and the workers they employ
would lose their jobs—if the Guaranty Law was not enacted.
Other supporters detailed the urgent need for the City Council to enact the
Guaranty Law and other legislation to support small businesses and prevent wider
economic damage to the City. Robert Bookman, counsel to the NYC Hospitality
Alliance, explained that “the small business community . . . is in historic trouble,” with
a risk of “an unprecedented closing of thousands of neighborhood businesses forever.”
Id. at 2451. He urged the City Council that it “[m]ust act now” because “May rent is
coming due and business owners are deciding should they give the keys back and
permanently go out of business or risk another month of personal liability.” Id. at 2452;
see also id. at 224–45 (Bookman’s hearing testimony). Similarly, Karen Narefski, a senior
organizer at the nonprofit Association for Neighborhood and Housing Development
(“ANHD”), stressed that “closures and layoffs ripple through the community and have
a broad economic impact.” Id. at 2298. She stated that “we really need swift and
comprehensive action to protect commercial tenants from displacement and permanent
closure.” Id. at 2299.
Andrew Riggie, Vice Chair of Community Board 7, a citizen advisory board in
Manhattan, emphasized that “businesses are in crisis,” owners “are going to lose their
livelihood,” and they are “laying off all of their employees.” Id. at 2229. When asked
how many of his members had been impacted by the personal liability clauses, he
stated that he did not know the precise number, but estimated that “we’re talking about
numbers in the thousands.” Id. at 2231–32. He stated that the Guaranty Law and other
legislation would be a “great step” toward addressing the small business crisis and
29
cautioned that “every minute we waste, we’re losing more businesses and more jobs.”
Id. at 2234.
The nonprofit Volunteers of Legal Service (“VOLS”) reported that, based on a
survey of small business clients it conducted, 57 percent “reported that their businesses
were completely closed as a result of government orders” and 88 percent reported
decreased revenue as a result of the pandemic. Id. at 2503. Of those with commercial
leases, 40 percent indicated they had already missed commercial rent payments, and 89
percent anticipated that they would in the future. Id. Yet, nine out of ten of clients who
had “initiated conversations with their commercial landlords about the possibility of
receiving a rent abatement, deferment, or cancellation for the period of the pandemic
were either still negotiating, received no response, or received a negative response.” Id.
VOLS cautioned that, without support including the Guaranty Law, “we have no doubt
that many of New York City’s small businesses will face permanent closure.” Id. at 2504.
Several organizations, while supportive of the Guaranty Law, urged the City
Council to extend the law’s provisions to cover a longer period of time, expand the
definition of personal liability provisions, or provide funding for rent forgiveness. See,
e.g., id. at 2422–23 (United for Small Business NYC); id. at 2504 (VOLS); id. at 2299–2300
(ANHD).
Over the course of its deliberations, the City Council also heard opposition to the
proposed Guaranty Law from landlords, trade groups, and others. See, e.g., id. at 1810–
11, 2402, 2411–12 (landlords opposed to Guaranty Law); id. at 2413 (building manager);
id. at 1866–67, 2374–76 (Queens and Bronx Building Association and Building Industry
Association of New York City); id. at 2309–10, 2397 (Real Estate Board of New York); id.
at 2334 (New York City Bid Association); id. at 2478–79 (Building Owners and Managers
Association of Greater New York). One Council Member, Kalman Yeger, expressed his
opposition and his view that the proposed Guaranty Law was unconstitutional. Id. at
2180–82, 3496.
30
2. The Guaranty Law is a reasonable and appropriate measure under the
substantial-deference standard
Ultimately, the City Council passed legislation that was most responsive to the
concerns raised by the small business owners directly affected by the Governor’s
shutdown orders and the economic crisis. As enacted, the Guaranty Law is tailored to
protect guarantors who are natural persons and whose businesses “were impacted by
mandated closures and service limitations in the Governor’s executive orders” that
became effective between March 16 and March 22, 2020. Id. at 3351 (City Council’s
“plain language summary” of Guaranty Law). These businesses included
“(1) businesses that were required to stop serving food or beverages on-premises
(restaurants and bars); (2) businesses that were required to cease operations altogether
(gyms, fitness centers, movie theaters); (3) retail businesses that were required to close
and/or subject to in-person restrictions; and (4) businesses that were required to close to
the public (barbershops, hair salons, tattoo or piercing parlors and related personal care
services).” Id.
The numerous written submissions and public statements offered by owners and
operators of these types of small businesses—and other supporters—about the
importance of the Guaranty Law to their ability to survive the pandemic, to continue to
employ workers, and to contribute to the City’s overall economic well-being supports
the City Council’s decision to make personal guarantees unenforceable for obligations
arising during the public health and related economic crisis. The supporters described
how the Guaranty Law in particular would help to keep small businesses open, and
how important the provision is despite the potential availability of other assistance such
as PPP. The extensive statements of support in the record therefore weigh heavily in
favor of a finding that, in enacting the Guaranty Law, the City Council adopted a
reasonable and appropriate means to serve its stated public purposes.
31
The Guaranty Law is also closely tied to the time periods during which the
Governor’s shutdown orders and capacity restrictions were in place. The Guaranty Law
initially applied to personal liabilities arising from March 7, 2020, through September
30, 2020. With the pandemic persisting and the Governor’s shutdown orders extending
past September, the City Council twice extended the Guaranty Law, first through
March 31, 2021, and then through June 30, 2021. See N.Y.C. Local L. 2020/98; N.Y.C.
Local L. 2021/50. Each time the City Council extended the law, it made specific findings
as to how the “operational limitations” have “contributed to the severe economic
damage suffered by the City,” and included job-loss statistics in sectors affected by the
capacity restrictions. N.Y.C. Local L. 2020/98; N.Y.C. Local L. 2021/50. After the
Governor’s capacity restrictions were fully lifted on June 15, 2021, the City Council
allowed the Guaranty Law to expire on June 30, 2021.
This calibration to the ongoing crisis—rather than enacting the Guaranty Law
without a sunset provision, for example—suggests that the City Council was closely
monitoring the City’s needs as the crisis evolved and that it determined on two
occasions that extending the Guaranty Law for six- and three-month periods,
respectively, would continue to provide vital support for the City’s small businesses
and its economic recovery. Likewise, the Guaranty Law does not permanently
repudiate contracts between landlords and guarantors, but instead applies to
guarantors’ obligations that arose during a fixed period. This temporal limitation
weighs in favor of a finding that the law is a reasonable and necessary measure to
achieve its purpose. See Energy Rsrvs. Grp., 459 U.S. at 418 (reasoning that the legislation
challenged there is reasonable and appropriate in part because it “is a temporary
measure that expires when federal price regulation of certain categories of gas
terminates”).
Other circumstances further support a finding that the Guaranty Law is a
reasonable and appropriate measure. The City Council treated the Guaranty Law as
32
part of an overall package to support small businesses impacted by the pandemic. In
addition to the policies it eventually enacted, including the Guaranty Law, the City
Council considered alternative policies and policy designs. After public hearings and
debate, the City Council narrowed eligibility for the law’s relief from the initial
proposal so that the enacted law shielded only guarantors whose businesses were
directly impacted by the Governor’s capacity restrictions.19 See App’x at 3492–93
(Council Member Paul Vallone announcing his vote in favor of the Guaranty Law by
thanking Member Rivera “for listening to both sides of the story with her legislation”
and “making some changes” to it). While the City Council ultimately did not adopt the
position of the landlords and others who opposed the Guaranty Law, it did not limit
landlords’ other remedies to enforce commercial tenants’ obligations through the
Guaranty Law, and it later passed legislation to provide tax relief to certain property
owners adversely impacted by COVID-19. See App’x at 3534–35 (reproducing NYC
Local L. 2020/62). The City Council’s consideration of alternative policy designs and
other possible legislative provisions further weighs in favor of a finding that the
Guaranty Law is reasonable and appropriate, even if it were to be evaluated under the
19 As initially proposed, the law would have prohibited enforcement of guaranty provisions
against guarantors whose businesses were “impacted by COVID-19,” a group that the proposal
defined to include businesses for which “revenues during any three-month period within the
COVID-19 period were less than 50 percent of its revenues for the same period in 2019 or less
than 50 percent of its aggregate revenues for the months of December 2019, January 2019, and
February 2020.” App’x at 1041–43. The enacted Guaranty Law does not include that provision
and instead provides relief only to guarantors whose businesses were (1) “required to cease
serving patrons food or beverage for on-premises consumption or to cease operation under
executive order number 202.3 issued by the governor on March 16, 2020”; (2) “a non-essential
retail establishment subject to in person limitations under guidance issued by the New York
state department of economic development pursuant to executive order number 202.6 issued by
the governor on March 18, 2020”; or (3) “required to close to members of the public under
executive order number 202.7 issued by the governor on March 19, 2020.” Id. at 3872–73.
33
less-deference scrutiny that applies to public contracts. See Buffalo Tchrs. Fed'n, 464 F.3d
at 370–71; Sullivan, 959 F.3d at 65.
Under the totality of the circumstances, I conclude that the Guaranty Law passes
the low threshold posed by step three of the modern Contracts Clause analysis for laws
impairing private contracts. Because the record amply demonstrates that, under our
precedents, the Guaranty Law is a reasonable and appropriate means to serve a
legitimate public purpose, Bochner has not stated a plausible Contracts Clause claim.20
Accordingly, I would affirm the District Court’s dismissal of Bochner’s challenge to the
Guaranty Law.
The Majority fails to accord the requisite deference to the City Council’s
judgment
The Majority takes a different approach that does not “properly defer to
legislative judgment.” Energy Rsrvs. Grp., 459 U.S. at 413. Because it adopts a searching,
sliding-scale standard for Contracts Clause challenges, as discussed above, its
evaluation of whether the Guaranty Law is a reasonable and appropriate measure in
Section III.B.3 is exacting and skeptical. The Majority suggests the City Council was
20 Although in some cases remand might be appropriate for further factual development,
that is not necessary here, where the “record of what and why the [City] has acted is laid out in
committee hearings, public reports, and legislation.” Buffalo Tchrs. Fed'n, 464 F.3d at 365.
Because the parties do not dispute that such a record is properly before us, and because we can
conclude based on that record that the Guaranty Law is a reasonable and appropriate means to
serve a legitimate public purpose, dismissal is appropriate at this stage. Cf. United Auto.,
Aerospace, Agr. Implement Workers of Am. Int’l Union v. Fortuño, 633 F.3d 37, 45 (1st Cir. 2011).
That is particularly true here, where the briefing of the City’s motion to dismiss before the
District Court was done in tandem with plaintiffs’ motion for a preliminary injunction,
generating the voluminous record in the parties’ joint appendix before us on appeal. Plaintiffs
did not argue to the District Court that additional factual development was needed to
determine whether the Guaranty Law was reasonable and appropriate at the third step. Nor do
plaintiffs argue before this Court that any further development of the record is necessary for a
fair and complete adjudication of their claims.
34
insufficiently focused on guarantors’ needs, despite the expansive record support
showing small business owners’ needs, as described above, and the understanding—
acknowledged by Bochner—that these business owners or other principals are often the
guarantors. See Appellants’ Br. at 15. It faults the City Council for failing to use
“empirical evidence,” Maj. Op. at 102, and engaging in insufficiently “intensive study,”
id. at 104, even when acting rapidly to respond to a public health and economic
emergency.21 This approach is at odds with the “substantial deference” we must accord
the legislative judgment. Buffalo Tchrs. Fed'n, 464 F.3d at 369. Indeed, the Majority
engages in a much more demanding review at step three than our Court has explained
is appropriate even for public contracts subject to less-deference scrutiny. Id. at 371.
Much of the Majority’s analysis of whether the Guaranty Law is reasonable and
appropriate focuses on policy concerns with the City Council’s chosen means. The
Majority criticizes the City Council’s decision to permanently exempt, rather than defer,
guarantors’ obligations to the extent they arose during the period from March 7, 2020,
until June 30, 2021.22 It emphasizes what the law does not do, including that it does not
21 To the extent that the Majority suggests that such requirements are implied by East New
York Savings Bank v. Hahn, 326 U.S. 230, 234–35 (1945), I disagree. As the Majority recognizes
elsewhere, the East New York Savings Bank court articulated a “governing constitutional
principle” that “when a widely diffused public interest has become enmeshed in a network of
multitudinous private arrangements, the authority of the State to safeguard the vital interests of
its people is not to be gainsaid by abstracting one such arrangement from its public context and
treating it as though it were an isolated private contract constitutionally immune from
impairment.” Id. at 232. The Supreme Court elaborated on this principle as follows: “Once we
are in this domain of the reserve power of a State we must respect the wide discretion on the
part of the legislature in determining what is and what is not necessary.” Id. at 233. The
Majority’s suggestion that the legislature must engage in certain types of analysis is inconsistent
with the Supreme Court’s conclusion that, “[s]o far as the constitutional issue is concerned, the
power of the State when otherwise justified is not diminished because a private contract may be
affected.” Id.
22 To the extent that the Majority might be read to suggest that the repudiation of debt,
destruction of contract, or denial of enforcement could not—as a categorical matter—be justified
by police power, see Maj. Op. at 91, the Supreme Court has explained—long after Blaisdell—that,
35
require that guarantors reopen their businesses, does not condition relief on
demonstrated need, and does not provide compensation to affected landlords—even
though the City Council went on to enact separate legislation to provide tax relief to
certain property owners affected by COVID-19. And the Majority questions the
legislature’s policy decisions by drawing comparisons to the design features of other
pandemic-related relief enacted at the federal and state levels.
To be sure, the policy concerns that the Majority highlights may be legitimate.
The legislature’s choice to permanently excuse guarantors from liability on commercial
lease defaults accrued during a defined period may reasonably be questioned. As the
District Court acknowledged, the Guaranty Law may lead to a harsh outcome for some
commercial landlords because, if their tenants have few to no assets, “the money may
prove impossible to collect” without an enforceable guaranty. Melendez v. City of New
York, 503 F. Supp. 3d 13, 36 (S.D.N.Y. 2020). And the Majority’s suggestions now for
how the City Council could have more effectively targeted relief when it acted in
response to the public health and economic emergency might indeed have improved
the law.
Ultimately, however, “whether the legislation is wise or unwise as a matter of
policy is a question with which we are not concerned.” Sullivan, 959 F.3d at 69. We are
bound to “refuse to second-guess the [City’s] determinations that these are the most
appropriate ways of dealing with the problem.” Keystone Bituminous Coal, 480 U.S. at
506; see also Apartment Ass’n of Los Angeles Cty., 10 F.4th at 914 (“Under current doctrine,
we must refuse to second-guess the City’s determination that the eviction moratorium
constitutes the most appropriate way of dealing with the problems identified. That is
“even in such cases” involving legislation “designed to repudiate or adjust pre-existing debtorcreditor relationships that obligors were unable to satisfy,” the Court has “refused to give the
[Contracts] Clause a literal reading,” Keystone Bituminous Coal, 480 U.S. at 503.
36
particularly so, based on modern Contracts Clause cases, in the face of a public health
situation like COVID-19.”). It is simply “not the province of this Court to substitute its
judgement for that of . . . a legislative body,” Sal Tinnerello & Sons, 141 F.3d at 54, even if
we question the policy path the legislature chose to follow.
Outcome: The City Council enacted the Guaranty Law during an unprecedented economic
and health emergency that was devastating to the City’s small business community.
The City Council’s stated purpose was to support the owners and employees of small
businesses impacted by pandemic-related shutdown orders, as well as the City’s
economy overall, both during and after the pandemic. It enacted the Guaranty Law
after holding several hearings related to the legislation and after receiving input from hundreds of stakeholders—supporters and opponents alike.
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