Opinion
Index No. EF2022-0558
06-27-2023
PEOPLE of the State of New York BY Letitia JAMES, Attorney General of the State of New York, Petitioner, v. COMMONS WEST, LLC, Collegetown Plaza, LLC, Cityview, LLC, Collegetown Center, LLC, Collegetown Court, LLC, Fane Enterprises, Inc. and Jason H. Fane individually and d/b/a Ithaca Renting Company, and as the sole member of Commons West, LLC, Collegetown Plaza, LLC, Cityview, LLC, Collegetown Center, LLC and Collegetown Court, LLC, and as president, director and shareholder of Fane Enterprises, Inc., Respondents.
Attorney General of the State of New York, By: Stephanie M. Milks, Assistant Attorney General, Petitioner, Binghamton Regional Office, 44 Hawley Street, 17th Floor, Binghamton, New York 13901, Via NYSCEF BOND, SCHOENECK & KING, PLLC, By: Curtis A. Johnson, Esq., Attorneys for Respondents 350 Linden Oaks, Third Floor, Rochester, New York 14625
Attorney General of the State of New York, By: Stephanie M. Milks, Assistant Attorney General, Petitioner, Binghamton Regional Office, 44 Hawley Street, 17th Floor, Binghamton, New York 13901, Via NYSCEF
BOND, SCHOENECK & KING, PLLC, By: Curtis A. Johnson, Esq., Attorneys for Respondents 350 Linden Oaks, Third Floor, Rochester, New York 14625
Mark G. Masler, J. The Human Rights Law (Executive Law article 15) was amended in April 2019 to make it an unlawful discriminatory practice to refuse to rent or lease housing accommodations to any person, or group of persons, based on their "lawful source of income" ( Executive Law § 296 [5] [a] [1] [the source of income antidiscrimination statute]). As defined in the Human Rights Law, "lawful source of income" specifically includes "any form of federal, state, or local public assistance or housing assistance including ... section 8 vouchers ... whether or not such income or credit is paid or attributed directly to a landlord" ( Executive Law § 292 [36] ). Pursuant to section 8 of the United States Housing Act of 1937, the federal government operates the Housing Choice Voucher Program that provides housing assistance to eligible low-income families by giving subsidies to landlords who rent apartments to them (see 42 U.S.C. § 1437f ).
Respondents own and operate numerous residential rental properties in the City of Ithaca, but do not participate in Section 8. Petitioner commenced this proceeding pursuant to Executive Law § 63 (12), asserting that respondents’ refusal to participate in Section 8 constitutes impermissible source of income discrimination in violation of the Human Rights Law, and seeking (1) a permanent injunction enjoining respondents from refusing to rent or lease apartments to recipients of Section 8 housing assistance; (2) restitution for consumers injured by respondents’ conduct; and (3) the imposition of penalties and costs (see Executive Law §§ 63, 297 [4] [c] [vi] ; CPLR 8303 [a] [6] ). Respondents move to dismiss the petition pursuant to CPLR 3211 or, alternatively, for an order granting discovery pursuant to CPLR 408 and converting this proceeding to an action pursuant to CPLR 103.
Jason Fane admitted that he owns and operates rental properties in his individual capacity, that he is the sole member of each of the limited liability company respondents, a director and shareholder of the corporate respondent, and that he is involved in the management and business of each respondent which is a business entity (see NY St Cts Elec Filing [NYSCEF] Doc No. 1, verified petition, ¶¶ 4, 11; NYSCEF Doc No. 51, verified answer, ¶¶ 4, 11).
Respondents first contend that the source of income antidiscrimination statute is unconstitutional because it compels landlords to participate in Section 8 — which is a voluntary program under federal law — thereby impermissibly requiring landlords to waive their rights under the Fourth Amendment of the US Constitution. A landlord cannot accept a Section 8 housing voucher as payment for rent without agreeing to participate in Section 8 by entering into a Housing Assistance Payment (HAP) contract with a Public Housing Agency (PHA) (see Rosario v. Diagonal Realty, LLC , 8 N.Y.3d 755, 761, 840 N.Y.S.2d 748, 872 N.E.2d 860 [2007], cert denied 552 U.S. 1141, 128 S.Ct. 1069, 169 L.Ed.2d 808 [2008] ; see also NY St Cts Elec Filing [NYSCEF] Doc No. 32, Lyman aff, exhibit D, HAP contract). The HAP contract must be in the form required by the Department of Housing and Urban Development (see 24 CFR § 982.451 [a] [1]). The HAP contract requires a participating landlord to consent to inspection of "the contract unit and premises at such times as the PHA determines necessary ," and to provide the PHA, the Department of Housing and Urban Development, and the Comptroller General of the United States "full and free access to the contract unit and the premises, and to all accounts and other records of the owner that are relevant to the HAP contract," which includes access to "any computers, equipment or facilities containing such records" (HAP contract, Part B §§ 3 [e], 11 [emphasis added]; see 24 CFR § 982.405 ). The "premises" are "[t]he building or complex in which the contract unit is located, including common areas and grounds" (HAP contract, Part C, § 17). Respondents contend, therefore, that the source of income antidiscrimination statute violates a property owner's Fourth Amendment rights by giving the owner no choice but to consent to these inspections by entering into a HAP contract. Petitioner agrees that Section 8 is a voluntary program, but contends that the Human Rights Law does not mandate participation in Section 8 because the law "merely prohibits [respondents] from denying an applicant for an apartment based on their source of income, which includes Section 8 vouchers" (NYSCEF Doc No. 57, reply memorandum of law at 4). Petitioner's argument is fundamentally flawed for the simple reason that, as set forth above, a landlord cannot accept a Section 8 housing voucher as payment for rent without agreeing to participate in Section 8, which, in turn, requires that the landlord authorize warrantless searches of the rental property and the landlord's records. Indeed, the Appellate Division has expressly held that similar source of income antidiscrimination statutes adopted by municipalities prior to the April 2019 amendment of the Human Rights Law required a landlord to accept Section 8 vouchers, effectively compelling the landlord's participation in the otherwise voluntary program (see Matter of People v. Ivybrooke Equity Enters., LLC , 175 A.D.3d 1000, 1003, 107 N.Y.S.3d 248 [2019] ; Kosoglyadov v. 3130 Brighton Seventh, LLC , 54 A.D.3d 822, 824, 863 N.Y.S.2d 777 [2008] ). Thus, although Section 8 is a voluntary program at the federal level, the source of income protections provided by the Human Rights Law would necessarily compel a landlord to participate in Section 8 to obtain reasonable rent for an apartment rented or leased to a person who is eligible to receive Section 8 assistance.
The Fourth Amendment recognizes the "right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures" (US Constitution, Fourth Amendment). It was made applicable to the states by incorporation in the Due Process Clause of the Fourteenth Amendment (see Camara v. Municipal Court of City and County of San Francisco , 387 U.S. 523, 528, 87 S.Ct. 1727, 18 L.Ed.2d 930 [1967] ). The New York Constitution also recognizes this right (NY Const, art I, § 12 ). For the sake of simplicity, reference will be made only to the Fourth Amendment of the US Constitution.
Although it has been determined that Section 8 does not preempt state laws which provide tenants with additional protections (see Rosario v. Diagonal Realty, LLC , 8 N.Y.3d at 762-764, 840 N.Y.S.2d 748, 872 N.E.2d 860 ; Matter of People v. Ivybrooke Equity Enters., LLC , 175 A.D.3d at 1002, 107 N.Y.S.3d 248 ), respondents’ argument that the source of income antidiscrimination statute is unconstitutional because it compels landlords to waive their Fourth Amendment rights presents an issue of first impression. In 1967, the United States Supreme Court established the principle that administrative searches of buildings to ensure compliance with a municipal housing code are significant intrusions upon the interests protected by the Fourth Amendment (see Camara v. Municipal Court of City and County of San Francisco , 387 U.S. 523, 540, 87 S.Ct. 1727, 18 L.Ed.2d 930 [1967] ["except in certain carefully defined classes of cases, a search of private property without proper consent is ‘unreasonable’ unless it has been authorized by a valid search warrant"]). The New York Court of Appeals, relying largely on Camara , specifically held that laws which authorize inspections of residential rental properties without either the consent of the owner or a valid search warrant violate the Fourth Amendment, and specifically noted that a property owner cannot be indirectly compelled to consent to a search (see Sokolov v. Village of Freeport , 52 N.Y.2d 431, 345-347, 438 N.Y.S.2d 257, 420 N.E.2d 55 (1981) ). Stated another way, Sokolov stands for the proposition that a law may not coerce property owners into consenting to warrantless inspections in derogation of their constitutional rights by conditioning their ability to rent real property on providing such consent, which is precisely the effect of the source of income antidiscrimination statute. Thus, by requiring landlords to accept Section 8 vouchers, the source of income antidiscrimination statute necessarily compels landlords to consent to warrantless searches of their properties, in violation of the Fourth Amendment.
Camara was argued and decided concurrently with See v. Seattle , 387 U.S. 541, 87 S.Ct. 1737, 18 L.Ed.2d 943 (1967), which held that the protection against unreasonable searches extends to administrative inspections of private commercial enterprises.
Sokolov is a leading case that has been widely followed (see Pashcow v. Town of Babylon , 53 N.Y.2d 687, 688, 439 N.Y.S.2d 103, 421 N.E.2d 498 [1981] ; Wisoff v. City of Schenectady , 116 A.D.3d 1187, 1188, 984 N.Y.S.2d 207 [2014], appeal dismissed 23 N.Y.3d 1012, 992 N.Y.S.2d 773, 16 N.E.3d 1252 [2014], lv denied 24 N.Y.3d 908, 2014 WL 5394047 [2014] ; ATM One, LLC v. Incorporated Vil. of Hempstead , 91 A.D.3d 585, 587, 936 N.Y.S.2d 263 [2012] ; McLean v. City of Kingston , 57 A.D.3d 1269, 1271-1272, 869 N.Y.S.2d 685 [2008], lv dismissed 12 N.Y.3d 848, 881 N.Y.S.2d 392, 909 N.E.2d 85 [2009] ; Stender v. City of Albany , 188 A.D.2d 986, 987, 592 N.Y.S.2d 70 [1992], appeal dismissed 81 N.Y.2d 1006, 599 N.Y.S.2d 805, 616 N.E.2d 160 [1993] ; Town of Brookhaven v. Ronkoma Realty Corp. , 154 A.D.2d 665, 666, 547 N.Y.S.2d 68 [1989] ; Mamakos v. Town of Huntington , 715 Fed.Appx. 77, 79 [2d Cir. 2018], cert denied ––– U.S. ––––, 139 S.Ct. 171, 202 L.Ed.2d 38 [2018] ).
Similarly, the source of income antidiscrimination statute further violates the Fourth Amendment by compelling landlords to consent to warrantless searches of their records. Petitioner's argument that "there is no violation of the Fourth Amendment regarding the inspection of [respondents’] records when entering into a HAP contract " is unavailing (NYSCEF Doc No. 57, reply memorandum of law at 20 [emphasis added]). This argument assumes the conclusion — that consent to such searches is given when entering into a HAP contract — and overlooks the determinative factor — that the source of income antidiscrimination statute improperly compels landlords to waive their Fourth Amendment rights by requiring them to accept the HAP contract's terms. Also unavailing is petitioner's argument that landlords have no reasonable expectation to privacy in their business records. There is no reasonable expectation of privacy in records maintained by closely regulated industries, especially records specifically prepared in compliance with regulatory requirements (see Matter of Glenwood TV, Inc. v. Ratner , 103 A.D.2d 322, 328-329, 480 N.Y.S.2d 98 [1984], affd on opinion below 65 N.Y.2d 642, 491 N.Y.S.2d 620, 481 N.E.2d 252 [1985], appeal dismissed 474 U.S. 916, 106 S.Ct. 241, 88 L.Ed.2d 250 [1985] ). However, this exception to the reasonable expectation of privacy in business records applies only to businesses in industries which "have such a history of government oversight that no reasonable expectation of privacy could exist," such as liquor sales, firearms dealing, mining, or operating an automobile junkyard ( Los Angeles v. Patel , 576 U.S. 409, 424, 135 S.Ct. 2443, 192 L.Ed.2d 435 [2015] [internal quotation marks, ellipsis, and citation omitted]; see Matter of Glenwood TV v. Ratner , 103 A.D.2d at 328-329, 480 N.Y.S.2d 98 [listing numerous other examples where there is "little or no" expectation of privacy in records that are required to be maintained by law or regulation]). Other than Section 8, petitioner has not identified any law or regulation requiring respondents to maintain specific business records, and renting residential apartment units is not a closely regulated industry (see e.g. Los Angeles v. Patel , 576 U.S. 409, 135 S.Ct. 2443, 192 L.Ed.2d 435 [holding that hotels are not closely regulated industry and that a law requiring hotels to provide guest registry records to police for inspection violated the Fourth Amendment because it did not provide any opportunity for precompliance review]).
Accordingly, Executive Law § 296 (5) (a) (1) is unconstitutional to the extent that it makes it an unlawful discriminatory practice to refuse to rent or lease housing accommodations to any person, or group of persons, because their source of income includes Section 8 vouchers. This determination renders academic the parties’ remaining contentions. Based on the foregoing, respondents’ motion is granted, and the petition is dismissed, with prejudice.
This decision constitutes the order and judgment of the court.