MARCIA MELENDEZ, et al v. CITY OF NEW YORK et al.

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

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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.

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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.

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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).

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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.

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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.