Federal Court: New York City COVID-19 Guaranty Law Unconstitutional

• Jurisdiction: United States,Federal,New York
• Law Firm: Seyfarth Shaw LLP
• Subject Matter: Corporate/Commercial Law, Real Estate and Construction, Contracts and Commercial Law, Landlord & Tenant - Leases
• Author: Mr Jeremy Cohen and Ori Weisz
• Published date: 08 May 2023

On March 31, 2023, U.S. District Judge Ronnie Abrams of the Southern District of New York issued her highly anticipated ruling in the latest iteration of Melendez et al v. The City of New York, et al. Judge Abrams granted Plaintiffs' motion for summary judgment and found that New York City's "Guaranty Law," a COVID-19 enactment that rendered certain personal guaranties of commercial leases unenforceable, was itself unenforceable because it violated the Contract Clause of the US Constitution (read the decision here). The closely watched decision comes five months after the U.S. Court of Appeals for the Second Circuit reversed Judge Abrams' dismissal of Plaintiffs' Contract Clause challenges to the Guaranty Law, and remanded the case for further development of the record concerning the reasonableness and appropriateness of the law.¹

Below, we introduce the Guaranty Law, then provide an overview of the issues and holdings in (i) Judge Abrams' decision on Defendants' motion to dismiss (Melendez I), (ii) the Second Circuit's reversal of Judge Abrams' dismissal of the Contract Clause challenge (Melendez Appeal) , and (iii) Judge Abrams' recent ruling on remand (Melendez II).

The Guaranty Law (NYC Administrative Code ' 22-1005)

March 2020 marked a pivotal turning point in the pandemic across the world, the United States, and New York. With nearly 100 reported cases of COVID-19, Governor Andrew Cuomo declared a state of emergency on March 7, 2020; on March 11, the WHO declared COVID-19 a pandemic; and on March 13, President Trump declared a national emergency. Two weeks later, Congress would pass the largest stimulus in history, the $2.2 trillion CARES act.

The "Guaranty Law" was part of New York City's local pandemic response. Announced April 21, 2020, and signed into law by Mayor DeBlasio on May 26, 2020, it was included in a "COVID-19 relief package that aim[ed] to protect tenants, help small businesses survive, and find creative ways to address the public health crisis brought on by the virus." Introducing the legislation, primary sponsor District 2 Council Member Carlina Rivera stated the provisions will:

"... ensure city business owners don't face the loss of their businesses and personal financial ruin or bankruptcy as a result of this state of emergency." [Hearing Transcript - Stated Meeting 4-22-20. New York City Council, April 22, 2020, pp. 51]

The Guaranty Law rendered unenforceable guaranty provisions for certain tenant obligations (such as rent) in rental agreements for real property within New York City if: (1) the guaranty was given by a natural person (i.e., a non-corporate entity) other than the tenant; (2) the tenant was (a) 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) 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) required to close to members of the public under executive order number 202.7 issued by the governor on March 19, 2020; and (3) the obligation arose between March 7, 2020 and (as extended by later legislation²) June 30, 2021.

Melendez I, 503 F. Supp. 3d 13...