Case ID: ny3d_24/html/0283-01.html
Source: Caselaw Access Project
Author: {"author": "Abdus-Salaam, J. Smith, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

[22 NE3d 1012, 998 NYS2d 144]
    Matter of Mary Veronica Santiago-Monteverde, Debtor. Mary Veronica Santiago-Monteverde, Appellant, v John S. Pereira, Chapter 7 Trustee, Respondent.
    Argued October 14, 2014;
    decided November 20, 2014
    
      POINTS OF COUNSEL
    
      Ronald J. Mann, of the Texas bar, admitted pro hac vice, and Kathleen G. Cully PLLC, New York City (Kathleen G. Cully of counsel), for appellant.
    I. The rent-stabilization program implements crucial local policies to protect New York City residents. (Matter of Park W. Vil. v Lewis, 62 NY2d 431; Manocherian v Lenox Hill Hosp., 84 NY2d 385; Federal Home Loan Mtge. Corp. v New York State Div. of Hous. & Community Renewal, 87 NY2d 325; Braschi v Stahl Assoc. Co., 74 NY2d 201; Marigo Corp. v Lavian, 277 AD2d 148; Rima 106 v Alvarez, 257 AD2d 201; Matter of Viemeister, 179 NY 235.) II. The rent-stabilization program provides a “local public assistance benefit.” (Matter of State of New York v John S., 23 NY3d 326; Matter of Tall Trees Constr. Corp. v Zoning Bd. of Appeals of Town of Huntington, 97 NY2d 86; Chatham Phenix Natl. Bank v Crosney, 251 NY 189; Schwartz v Holzman, 69 F2d 814; In re Keil, 88 F2d 7; KLC, Inc. v Trayner, 426 F3d 172; Manocherian v Lenox Hill Hosp., 84 NY2d 385; Braschi v Stahl Assoc. Co., 74 NY2d 201; 
      People v Widmer, 137 AD2d 929.) III. It would be incongruous to permit creditors to profit from the interest in a rent-stabilized lease of a tenant in bankruptcy when they cannot reach that interest under state law. (Marigo Corp. v Lavian, 277 AD2d 148; Braschi v Stahl Assoc. Co., 74 NY2d 201; Kashi v Gratsos, 712 F Supp 23.)
    
      Troutman Sanders LLP, New York City (J. David Dantzler, Jr., John P. Campo and Matthew DeFrancesco of counsel), for respondent.
    I. A pending amendment to Debtor and Creditor Law § 282 seeks to exempt rent-stabilized leases from a debtor’s bankruptcy assets, illustrating that the New York State Legislature did not intend to exempt such assets under the current version of Debtor and Creditor Law § 282 (2). II. The only legislative intent that is relevant to interpreting the term “local public assistance benefit” is that of Debtor and Creditor Law § 282 (2), the statute containing the disputed term. (Manocherian v Lenox Hill Hosp., 84 NY2d 385; Fort Stewart Schools v FLRA, 495 US 641; Braschi v Stahl Assoc. Co., 74 NY2d 201; Riley v County of Broome, 95 NY2d 455.) III. Both the actual meaning of the phrase “public assistance,” as well as the application of the traditional canons of statutory construction support the lower court’s conclusion that a rent-regulated lease would not constitute a “local public assistance benefit.” (Matter of Kese Indus. v Roslyn Torah Found., 15 NY3d 485; National Football League v Vigilant Ins. Co., 36 AD3d 207; Matter of Howard v Wyman, 28 NY2d 434; People v Shapiro, 50 NY2d 747; Barsh v Town of Union, 126 AD2d 311; Miranda v Norstar Bldg. Corp., 79 AD3d 42; Team Mktg. USA Corp. v Power Pact, LLC, 41 AD3d 939; Uribe v Merchants Bank of N.Y., 91 NY2d 336; Matter of Hoerger v Spota, 109 AD3d 564, 21 NY3d 549; Matter of Calenzo v Shah, 112 AD3d 709.)
    
      Eric T. Schneiderman, Attorney General, New York City (Anisha S. Dasgupta, Barbara D. Underwood and Andrew Kent of counsel), and Zachary W. Carter, Corporation Counsel, New York City (Richard Hearing and Susan P. Greenberg of counsel), for State of New York and another, amici curiae.
    I. State law plays an important role in the bankruptcy process. (Central Va. Community College v Katz, 546 US 356; Butner v United States, 440 US 48.) II. State law does not create any monetizable property interest in the circumvention of rent stabilization laws. (Barnhill v Johnson, 503 US 393; Butner v United States, 440 US 48; In re Ground Round, Inc., 482 F3d 15; In re Nejberger, 934 F2d 1300; In re Barnes, 276 F3d 927; In re Sanders, 969 F2d 591; 
      Matter of Murphy v New York State Div. of Hous. & Community Renewal, 21 NY3d 649; Riverside Syndicate, Inc. v Munroe, 10 NY3d 18; Thornton v Baron, 5 NY3d 175; Draper v Georgia Props., 230 AD2d 455, 94 NY2d 809.) III. Rent stabilization rights qualify for exemption from the bankruptcy estate under Debtor and Creditor Law § 282 (2). (Matter of Tonis v Board of Regents of Univ. of State of N.Y., 295 NY 286; Yates County Natl. Bank v Carpenter, 119 NY 550; Surace v Danna, 248 NY 18; Matter of Genesee Val. Trust Co. v Glazer, 295 NY 219; Tillotson v Wolcott, 48 NY 188; Tierney v Dowd & Co., 238 NY 282; Pierson v City of New York, 56 NY2d 950; Clark v Cuomo, 66 NY2d 185; Brooklyn Union Gas Co. v New York State Human Rights Appeal Bd., 41 NY2d 84; Matter of Badem Bldgs. v Abrams, 70 NY2d 45.) IV Mary Santiago-Monteverde’s senior citizen rent increase exemption benefits are plainly exempt under Debtor and Creditor Law § 282 (2). (Nunez v Giuliani, 91 NY2d 935.)
    
      Latham & Watkins LLP, New York City {Christopher R. Harris and Jennifer Greenberg of counsel), for New York State Senator Brad Hoylman and others, amici curiae.
    I. Allowing Chapter 7 trustees to sell rent-stabilized leases would contradict the intent behind New York’s rent stabilization program by eliminating a critical protection for lower-income residents and exacerbating the shortage of affordable housing. (8200 Realty Corp. v Lindsay, 27 NY2d 124; Local Loan Co. v Hunt, 292 US 234.) II. If rent-stabilized rights are property, they are exempt under Debtor and Creditor Law § 282 (2) because they are not subject to execution under CPLR 5201. (Kashi v Gratsos, 712 F Supp 23; ABKCO Indus. v Apple Films, 39 NY2d 670; Butner v United States, 440 US 48; Marigo Corp. v Lavian, 277 AD2d 148; Rima 106 v Alvarez, 257 AD2d 201.) III. This Court should not permit bankruptcy trustees and creditors to sell consumer protections that the New York State Legislature has provided for affordable housing. (Butner v United States, 440 US 48; BFP v Resolution Trust Corporation, 511 US 531.)
    
      Thompson & Knight LLP, New York City {Ira L. Herman of counsel), for New York City Bankruptcy Assistance Project and another, amici curiae.
    The New York rent stabilization regime provides the lawful occupant(s) of an apartment with occupancy, renewal and succession rights that may not be monetized by a bankruptcy trustee. (Cudar v Cudar, 98 AD3d 27; Kashi v Gratsos, 712 F Supp 23; ABKCO Indus. v Apple Films, 39 NY2d 670; Resolution Trust Corp. v Diamond, 45 F3d 665; Evans v Schneider, 183 Misc 2d 114; Baginski v Lysiak, 154 Misc 2d 275; NLRB 
      
      v Bildisco & Bildisco, 465 US 513; Aguaiza v Vantage Props., LLC, 2009 NY Slip Op 31144[U]; Integrated Solutions, Inc. v Service Support Specialties, Inc., 124 F3d 487; Reid v DDEH 103 E. 102 LLC, 20 Misc 3d 1139[A], 2008 NY Slip Op 51798[U].)
   OPINION OF THE COURT

Abdus-Salaam, J.

The United States Court of Appeals for the Second Circuit has certified a question to this Court which requires us to resolve the following issue: May a bankruptcy debtor’s interest in her rent-stabilized lease be exempted from her bankruptcy estate pursuant to New York State Debtor and Creditor Law § 282 (2) as a “local public assistance benefit?” We hold that section 282 (2) of the Debtor and Creditor Law exempts a debtor-tenant’s interest in a rent-stabilized lease.

L

The debtor Mary Santiago-Monteverde has lived in her apartment at 199 E. 7th Street in Manhattan for over 40 years. The apartment is rent-stabilized. After her husband died in June 2011, Santiago-Monteverde was unable to pay her credit card debts of approximately $23,000 and filed for Chapter 7 bankruptcy. During the pendency of the bankruptcy proceedings, she remained current on her rent obligations. She initially listed her apartment lease on schedule G of her bankruptcy petition as a standard unexpired lease. Shortly thereafter, the owner of the apartment approached the bankruptcy trustee, respondent John S. Pereira, and offered to buy Santiago-Monteverde’s interest in the lease. When the trustee advised her that he planned to accept the offer, she amended her filing to list the value of her lease on schedule B as personal property exempt from the bankruptcy estate under Debtor and Creditor Law § 282 (2) as a “local public assistance benefit.”

The Bankruptcy Court granted the trustee’s motion to strike the claimed exemption on the ground that the value of the lease did not qualify as an exempt “local public assistance benefit” (In re Santiago-Monteverde, 466 BR 621, 622 [SD NY 2012]). The court noted that Santiago-Monteverde’s counsel did not dispute “that a rent-stabilized lease is property of the estate and that the Trustee may ‘assume or reject any executory contract or unexpired lease of the debtor’ ” (id., citing 11 USC § 365). The court reasoned that “[the] benefit of paying below market rent ... is not a ‘public assistance benefit’ that is entitled to any exemption in bankruptcy” and that the benefit “is a quirk of the regulatory scheme in the New York housing market, not an individual entitlement” (id. at 625).

The District Court affirmed the Bankruptcy Court (In re Santiago-Monteverde, 2012 WL 3966335, 2012 US Dist LEXIS 129481 [SD NY, Sept. 10, 2012, Castel, J., No. 12 Civ 4238(PKC)]), holding that “the value in securing a lawful termination of the rent-stabilized lease ... is a collateral consequence of the regulatory scheme and not a local public assistance benefit’ ” (2012 WL 3966335, *2, 2012 US Dist LEXIS 129481, *4).

On appeal to the Second Circuit, Santiago-Monteverde argued that “the lease (or its value) is a local public assistance benefit’ because the value of the lease (in whole or in part) is traceable to the protections afforded to her under the [Rent Stabilization Code]” (747 F3d 153, 157 [2d Cir 2014]). Recognizing that this argument raises an open issue of New York law, the Second Circuit certified the following question to this Court: “Whether a debtor-tenant possesses a property interest in the protected value of her rent-stabilized lease that may be exempted from her bankruptcy estate pursuant to New York State Debtor and Creditor Law Section 282(2) as a local public assistance benefit’?” (id. at 159).

IL

The Bankruptcy Code authorizes a bankruptcy trustee to “assume or reject any . . . unexpired lease of the debtor” (11 USC § 365 [a]). As was noted by the Second Circuit, there is limited case law from both New York courts and bankruptcy courts holding that a trustee’s authority under section 365 extends to rent-stabilized leases (see 187 Concourse Assoc. v Bunting, 175 Misc 2d 870 [Civ Ct, Bronx County 1997] and cases cited therein; see also In re Toledano, 299 BR 284, 292 [SD NY 2003]; In re Stein, 281 BR 845 [SD NY 2002]; In re Yasin, 179 BR 43, 49 [SD NY 1995]). In this case, the debtor’s counsel acknowledged at the hearing before the Bankruptcy Judge that a rent-stabilized lease is property of the estate and that the trustee had the power to assume the lease pursuant to section 365 (466 BR at 622).

Section 522 (b) of the Bankruptcy Code (11 USC) permits the debtor to exempt certain property from the bankruptcy estate, and section 522 (d) provides a list of property that may be exempt. However, the code also permits states to create their own list of exemptions, and New York has done so. Debtor and Creditor Law § 282 sets forth the permissible exemptions in personal bankruptcy. Debtors domiciled in New York have the option of choosing either the federal exemptions or New York exemptions (11 USC § 522 [b]; Debtor and Creditor Law § 285). Debtor and Creditor Law § 282 (2), entitled “Bankruptcy exemption for right to receive benefits,” lists the following as exemptions:

“The debtor’s right to receive or the debtor’s interest in: (a) a social security benefit, unemployment compensation or a local public assistance benefit; (b) a veterans’ benefit; (c) a disability, illness, or unemployment benefit; (d) alimony, support, or separate maintenance, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor; and (e) all payments under a stock bonus, pension, profit sharing, or similar plan or contract on account of illness, disability, death, age, or length of service.”

When the rent-stabilization regulatory scheme is considered against the backdrop of the crucial role that it plays in the lives of New York residents, and the purpose and effect of the program, it is evident that a tenant’s rights under a rent-stabilized lease are a local public assistance benefit.

The legislature has concluded that rent stabilization is necessary to preserve affordable housing for low-income, working poor and middle class residents in New York City. As we said in Manocherian v Lenox Hill Hosp. (84 NY2d 385, 389 [1994]), “[t]he rent stabilization system began in 1969 to ameliorate, over time, the intractable housing emergency in the City of New York” due to a housing shortage which was caused by continued high demand and decreasing supply. We noted in Manocherian that “[b]y regulating rents and providing occupants with statutory rights to tenancy renewals under rent stabilization . . . the State intended to protect dwellers who could not compete in an overheated rental market, through no fault of their own” (id. at 389).

The New York City Administrative Code provides that the City Council “finds that a serious public emergency continues to exist in the housing of a considerable number of persons within the city of New York,” and that “unless residential rents and evictions continue to be regulated and controlled, disruptive practices and abnormal conditions will produce serious threats to the public health, safety and general welfare” (Rent Stabilization Law of 1969 [Administrative Code of City of NY] § 26-501).

The rent-stabilization program has all of the characteristics of a local public assistance benefit. It is plainly local in that it depends on periodic determinations by local authorities as to the continuing existence of an emergency in the particular jurisdiction. The program is public as it was enacted by the New York Legislature and implemented by legislative and administrative bodies at both the state and local level. Rent stabilization provides assistance to a specific segment of the population that could not afford to live in New York City without a rent regulatory scheme. And the regulatory framework provides benefits to a targeted group of tenants — it protects them from rent increases, requires owners to offer lease renewals and the right to continued occupancy, imposes strict eviction procedures, and grants succession rights for qualified family members.

The trustee argues that the benefits of rent stabilization are unlike the other exemptions listed in Debtor and Creditor Law § 282 (2), such as Social Security benefits, unemployment compensation, and alimony, support, or separate maintenance because those exemptions all involve periodic payments, while the rent-stabilization program does not involve payments to tenants. However, that argument ignores the reality of social programs such as food stamps, vouchers, medical care, discounted prescriptions, and the like, that do not involve payments to the recipients of the benefit. While many public assistance benefits are administered through programs that provide periodic cash payments, such payments are not a prerequisite to a benefit being in the nature of public assistance.

Furthermore, when the legislature meant to refer only to “payments” in the Debtor and Creditor Law, it used that term. For example, in section 282 (2) (e), it exempted certain “payments” under pension and other plans. But it used the broader term “benefit” in section 282 (2) (a), indicating that benefits and payments are not the same. Likewise, the legislature has demonstrated that the general term “public assistance” denotes more than cash payments. For example, the Social Services Law in effect when Debtor and Creditor Law § 282 (2) (a) was enacted provided that “[p]ublic assistance and care includes home relief, veteran assistance, aid to dependent children, medical assistance for needy persons, institutional care for adults and child care granted at public expense” (former Social Services Law § 2 [18] [1982]). The current definition of public assistance is similar. Like other public assistance benefits exempted by New York law from a bankruptcy estate, the Rent Stabilization Law serves a select, defined group of New Yorkers who struggle, in this case, to afford suitable housing.

The trustee also argues that the benefit of a rent-stabilized tenancy cannot be a public assistance benefit because it is not subsidized by the government, as are the other benefits of Social Security and unemployment compensation listed in Debtor and Creditor Law § 282 (2). However, the rent-stabilization program is an exceptional regulatory scheme that enables a specifically targeted group of tenants to maintain housing in New York City. This uncommon regulatory program reflects the legislative intent to create a benefit for certain individuals who fall below certain income or rent thresholds, based upon the legislature’s conclusion that there is a continuing housing emergency.

While the rent-stabilization laws do not provide a benefit paid for by the government, they do provide a benefit conferred by the government through regulation aimed at a population that the government deems in need of protection. Among other things, the Rent Stabilization Law caps legal rents. Although the population that benefits from rent stabilization may not meet the requirements for New York City public housing programs or Section 8 assistance, the government, recognizing that housing protection is necessary to benefit a specific group of tenants, has created a public assistance benefit through a unique regulatory scheme applied to private owners of real property.

There are other public assistance benefits that are, at least in part, regulatory in form. Medicare is an example of a government program that is not solely the creature of a government subsidy. Although the government does, to some extent, contribute to the cost of medical care for Medicare recipients, it also sets the rates that can be charged by doctors. Medicare, like the rent-stabilization program, is not strictly for the needy. It is a public assistance benefit that regulates what doctors can charge for services, while rent stabilization is a public assistance benefit that regulates the rents property owners can charge protected tenants. While the classic examples of public assistance benefits may be solely government subsidized, or a mixture of subsidy and regulation as with Medicare, nothing prevents a targeted regulation from qualifying as a public assistance benefit. The rare regulatory scheme of rent stabilization is such a benefit.

Finally, as was recently noted by the United States Supreme Court, exemptions serve the important purpose of protect [ing] the debtor’s essential needs” (Clark v Rameker, 573 US —, —, 134 S Ct 2242, 2247 [2014] [internal quotation marks and citation omitted]). Affordable housing is an essential need. Mindful that exemption statutes are to be construed liberally in favor of debtors (In re Miller, 167 BR 782, 783 [SD NY 1994]), the certified question should be answered in accordance with this opinion.

Smith, J.

(dissenting). I dissent, because the majority grossly misreads Debtor and Creditor Law § 282 (2).

“Public assistance” is a common synonym for “welfare.” It refers, in ordinary speech, to government subsidies for the poor, whether paid in cash or in kind. The majority quotes a list of examples from former Social Services Law § 2 (18): “home relief, veteran assistance, aid to dependent children, medical assistance for needy persons, institutional care for adults and child care granted at public expense” (see majority op at 290). The current version of the statute adds “safety net assistance” (Social Services Law § 2 [18]). Neither list includes rent control or rent stabilization, though they have long been and still are prominent features of life in New York. Nor does the statutory list include any other regulatory program not involving a government subsidy. In fact, I do not think I have ever seen or heard the words “public assistance” used to refer to such a program before this case, and the majority cites no example of such a use.

Ignoring the generally accepted meaning of “public assistance,” the majority chooses to interpret “public assistance benefits” in the Debtor and Creditor Law literally. The rent stabilization program is public, in the way that all government regulation is public; it “provides assistance to a specific segment of the population” that is in economic need; and it “provides benefits” to that same segment (majority op at 290). The same could be said of a great many programs — e.g., minimum wage laws; antidiscrimination laws; workplace safety regulations — that no one would think of calling “public assistance.”

I would like to try asking every rent-controlled or rent-stabilized tenant in New York: “Do you receive public assistance?” I would be surprised to find even one (apart from those receiving government subsidies from other programs) who answered yes.

Chief Judge Lippman and Judges Graffeo, Pigott and Rivera concur; Judge Smith dissents and votes to answer the certified question in the negative in an opinion in which Judge Read concurs.

Following certification of a question by the United States Court of Appeals for the Second Circuit and acceptance of the question by this Court pursuant to section 500.27 of this Court’s Rules of Practice, and after hearing argument by counsel for the parties and consideration of the briefs and the record submitted, certified question answered in accordance with the opinion herein.