New York State

The landlords' improbable lawsuit against rent regulations should fail

The lawsuit against New York City and New York state, filed by a collection of real estate interests, to overturn the new rent regulations should be laughed out of court, but it might find a sympathetic audience among conservative jurists, writes the University of Washington’s Scott Lemieux.

NYC apartments

NYC apartments Ryan DeBerardinis/Shutterstock

In a remarkable show of the increased influence of resurgent progressives in Albany at the end of the most recent legislative session, the Assembly triumphed over some of the powerful real estate lobby and passed an ambitious law aimed at protecting tenants. Landlords are now fighting back the way they often have: using the courts. Their arguments against the law are very bad ones that should be laughed out of court. But as ultra-conservative Republican nominees increase their hold on the federal bench, we may be nearing a point when business-led attacks on democratic outcomes find a receptive audience in the judicial branch.

The lawsuit against New York City and New York state, filed by a collection of real estate interests, is asking the court to hold the entire new rent regulation statute unconstitutional and alleges two constitutional violations. First, the plaintiffs argue that the law deprives them of the “due process of law” guaranteed by the 14th Amendment. And second, the plaintiffs argue that the law represents a de facto expropriation of their property without compensation in violation of the “takings” clause of the Fifth Amendment. Both of these arguments would, in a rational legal universe, be considered frivolous.

In the late 19th and early 20th centuries, the federal courts read the due process clause as preventing states from passing many regulations on businesses that violated a judicially invented “liberty of contract.” The most famous of these cases, Lochner v. New York, struck down a state law that capped the maximum number of hours bakers could work. However, the courts have long since abandoned the Lochner doctrine, holding instead that economic regulations are presumptively constitutional unless there is no rational relationship between the regulation and a legitimate state interest.

The lawsuit asserts that the tenant protection law is unconstitutional under the “rational basis” standard, asserting it is an “irrational, arbitrary, and demonstrably irrelevant means to address its stated policy ends.” But this argument is silly. High rents, illegal evictions and other related problems that the bill intended to address are certainly legitimate state interests. And rent stabilization regulations, additional legal protections for tenants and other similar measures in the law are certainly a rational means of addressing the problem. (It is worth emphasizing that under this “rational basis” test, lawmakers do not have to show that measures are optimal or even effective, merely that there is some kind of reasonable relationship between the means and the ends, so one’s views about the policy merits of rent regulations are irrelevant.) Indeed, even in 1921, when the U.S. Supreme Court was much more sympathetic to legal claims like these, it rejected the theory that rent control measures were a violation of due process.

The argument that the law constitutes an illegal taking isn’t much more plausible. At the time the Fifth Amendment was ratified, only a literal physical expropriation of property was considered a “taking.” But starting in the 20th century, the Supreme Court developed the concept of a “regulatory taking,” holding that in certain extreme cases a regulation could render property so economically unviable as to effectively have been taken by the state. But the New York law’s effects do not come close to meeting this stringent standard. The plaintiffs have not shown that the regulations will effectively destroy the value of their real estate, as opposed to marginally reducing their profits. If a regulation having a mere adverse marginal impact on profits constitutes a “taking,” a great deal of the contemporary regulatory state is unconstitutional.

The scary thing, however, is that to an increasing number of American conservatives, this would be more of a feature than a bug. Prominent conservative legal academics have published arguments that Lochner has been unfairly maligned and that most of the contemporary welfare and regulatory state violates the takings clause. And these arguments are beginning to find some traction among the staunchly conservative judges appointed by George W. Bush and Donald Trump. Indeed, last term the conservatives on the Supreme Court strongly indicated that they would revive the “nondelegation” doctrine – holding that some delegation of powers to the executive branch are unconstitutional because they give “legislative” power to the executive branch – that had laid dormant for more than eight decades.

This is not to say that this lawsuit has a high likelihood of succeeding. The arguments it is making are genuinely extreme, and rent regulation is not a major issue for the national Republican Party. The most likely scenario is that the legal challenge will fail. But most mainstream legal scholars thought the legal challenge to the Affordable Care Act was a farce when it was launched, and it came shockingly close to succeeding. Conservative lawyers have every incentive to keep throwing lawsuits – including the one against New York’s rent stabilization program – out there to see which ones might find an audience. And it’s becoming increasingly unwise to assume that any of these lawsuits have no chance of success.

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