Federal Appeals Court Upholds NYC COVID Harassment Laws

In May 2020, NYC amended its residential and nonresidential harassment laws, to prohibit "threatening" tenants based on their "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." The statutory amendments also added a "Guaranty Law," which rendered permanently unenforceable personal liability guarantees of commercial lease obligations for businesses that were required to cease or limit operations pursuant to a government order. For rent arrears arising between March 7, 2020, and June 30, 2021, the Guaranty Law extinguished a landlord's ability to enforce a personal guaranty.

Landlords sued the city in federal court and argued that, under 42 U.S.C. 1983, the "Harassment Amendments" violated the Free Speech and Due Process Clauses of the U.S. and N.Y. 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. Landlords also claimed that the Guaranty Law violated the U.S. Constitution's Contracts Clause, which prohibits "State . . . Law(s) impairing the Obligation of Contracts." The Southern District of New York dismissed the lawsuit in November 2020.

Landlords appealed and won, in part. In a lengthy decision, the Second Circuit appeals court upheld the law prohibiting landlords from threatening tenants based on COVID-19 status, finding that the law didn't violate landlords' free speech or due process rights. The Court held that the term "threatening" wasn't vague, and that the law didn't unconstitutionally limit commercial speech since landlords still were able to communicate with tenants regarding past due rent in a routine manner.

But the Court also reviewed the landlords' claim that city law prohibiting enforcement of personal guarantees in certain commercial leases violated the Constitution's Contracts Clause. The challenged law prohibits a landlord from trying to collect unpaid rent from March 2020 to June 2021 from an individual who personally guaranteed a lease for a business if the business was required to cease or limit operations during the pandemic. That aspect of the case was sent back to the lower court for trial. The Second Circuit found that the Guaranty Law significantly impaired personal guaranty agreements, and raised at least five serious concerns about that law being a reasonable and appropriate way to pursue its professed public purpose. 

Melendez v. City of New York: Index No. 20-4238, ___ F.4th ___, 2021 U.S. App. LEXIS 32327, 2021 WL 4997666 (Ct App. 2d Cir.; 10/28/21; Cabranes, Raggi, Carney [dissenting in part], JJs)