Source: https://law.justia.com/cases/new-york/court-of-appeals/2014/180.html
Timestamp: 2019-08-25 15:17:37
Document Index: 781839162

Matched Legal Cases: ['§ 431', '§ 365', '§ 365', '§ 26', '§ 282', '§ 2', '§ 2']

Matter of Santiago-Monteverde :: 2014 :: New York Court of Appeals Decisions :: New York Case Law :: New York Law :: US Law :: Justia
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Debtor lived in a rent-stabilized apartment for over forty years. Debtor filed for Chapter 7 bankruptcy and listed the value of her unexpired rent-stabilized lease as personal property exempt from the bankruptcy estate under N.Y. Debt. & Cred. Law 282(2) as a “local public assistance benefit.” The bankruptcy court struck the claimed exemption, concluding that the value of the lease did not qualify as an exempt local public assistance benefit. The district court affirmed. Debtor appealed, arguing that the value of her lease was a local public assistance benefit that was exempted from her bankruptcy estate. The Second Circuit certified a question to the New York Court of Appeals regarding the issue. The Court of Appeals answered that section 282(2) exempts a debtor-tenant’s interest in a rent-stabilized lease.
Matter of Santiago-Monteverde 2014 NY Slip Op 08051 Decided on November 20, 2014 Court of Appeals Abdus-Salaam, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and subject to revision before publication in the Official Reports.
[*1]In the Matter of Mary Veronica Santiago-Monteverde.
Mary Veronica Santiago-Monteverde, Appellant,
John S. Pereira, & c., Respondent.
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 section 282 (2) as a "local public assistance benefit?" We hold that [*2]section 282 (2) of the Debtor and Creditor Law (DCL) exempts a debtor-tenant's interest in a rent-stabilized lease.
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 [Bankr. SD NY 2012]). The court noted that Santiago-Monteverde's counsel did not dispute "that a rent-stabilized lease is the 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(US Dist Ct, SD NY, 12 Civ 4238, Castel, J., 2012), 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'" (id .).
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 [DCL] Section 282 (2) as a 'local public assistance benefit'?" (id . at 158).
The Bankruptcy Code authorizes a bankruptcy trustee to "assume or reject any . . . [*3]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 Assocs. v Bunting , 175 Misc 2d 870 [Civ. Ct. 1997] and cases cited therein; see also In re Toldano , 299 BR 284, 292 [Bankr. SD NY 2003]; In re Stein , 282 BR 845 [Bankr. SD NY 2002]; In re Yasin , 179 BR 43, 49 [Bankr. 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 621, 622).
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 [*4]be regulated and controlled, disruptive practices and abnormal conditions will produce serious threats to the public health, safety and general welfare" (Administrative Code of City of New York § 26-501).
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 DCL § 282 (2). However, the rent-[*5]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.
Finally, as was recently noted by the United States Supreme Court, exemptions serve the important purpose of protecting the debtor's essential needs (Clark v Rameker , 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.
"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 [*6]adults and child care granted at public expense" (see majority op at 7). 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 6). 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."