In the Matter of Mary Veronica Santiago-Monteverde. Mary Veronica Santiago-Monteverde, Appellant,v.John S. Pereira,, Respondent.BriefN.Y.October 14, 2014Appeal No. CTQ-2014-00004 To be argued by: ANISHA S. DASGUPTA 10 minutes requested State of New York Court of Appeals In the Matter of MARY VERONICA SANTIAGO-MONTEVERDE, Debtor. __________________________ MARY VERONICA SANTIAGO-MONTEVERDE, Appellant, -against- JOHN S. PEREIRA, Chapter 7 Trustee, Respondent. BRIEF FOR THE STATE OF NEW YORK AND THE CITY OF NEW YORK AS AMICI CURIAE IN SUPPORT OF APPELLANT ZACHARY W. CARTER Corporation Counsel of the City of New York 100 Church Street New York, New York 10007 (212) 356-2484 (212) 356-2509 (facsimile) RICHARD DEARING Chief, Appeals Division SUSAN P. GREENBERG Senior Counsel Dated: September 15, 2014 ERIC T. SCHNEIDERMAN Attorney General of the State of New York 120 Broadway New York, New York 10271 (212) 416-8018 (212) 416-8962 (facsimile) BARBARA D. UNDERWOOD Solicitor General ANISHA S. DASGUPTA Deputy Solicitor General ANDREW KENT Senior Counsel of Counsel i TABLE OF CONTENTS Page TABLE OF AUTHORITIES ............................................................ iii INTEREST OF AMICI CURIAE ...................................................... 1 QUESTION CERTIFIED TO THIS COURT ................................... 4 STATEMENT OF THE CASE .......................................................... 5 STATEMENT OF THE CASE .......................................................... 9 A. Bankruptcy Procedure .................................................... 9 B. The Agreement Between the Bankruptcy Trustee and Landlord to Sell and Eliminate Santiago- Monteverde’s Rent Stabilization Rights ...................... 11 C. New York’s Rent Stabilization Laws ........................... 16 1. The Rent-Stabilization Rights and Protections Provided by New York State and New York City ....................................................... 16 2. The State and City’s Efforts to Preserve Affordable Housing By Retaining Control of Deregulation .......................................................... 20 ARGUMENT .................................................................................. 25 POINT I - STATE LAW PLAYS AN IMPORTANT ROLE IN THE BANKRUPTCY PROCESS ....................... 25 POINT II - STATE LAW DOES NOT CREATE ANY MONETIZABLE PROPERTY INTEREST IN THE CIRCUMVENTION OF RENT STABILIZATION LAWS ......................................... 28 ii TABLE OF CONTENTS (cont’d) Page A. State Law Does Not Make the Succession Rights of Santiago-Monteverde’s Son the Property of Her Estate. ....................................... 30 B. State Law Does Not Treat Santiago- Monteverde’s Rent Stabilization Rights as a Monetizable Property Interest. .......................... 32 POINT III - RENT STABILIZATION RIGHTS QUALIFY FOR EXEMPTION FROM THE BANKRUPTCY ESTATE UNDER DCL § 282(2) ........................................................................ 37 A. Rent Stabilization Rights Meet the Conditions for Exemption as a “Local Public Assistance Benefit” ............................................. 38 B. Like Other Public Assistance Benefits, the Rent Stabilization Laws Seek to Aid a Financially Vulnerable Population. ................... 46 POINT IV - SANTIAGO-MONTEVERDE’S SENIOR CITIZEN RENT INCREASE EXEMPTION BENEFITS ARE PLAINLY EXEMPT UNDER DCL § 282(2) ............................................................. 51 CONCLUSION ................................................................................ 53 iii TABLE OF AUTHORITIES Cases Page(s) A. E. F.’s Inc., v. City of N.Y., 295 N.Y. 381 (1946) .................................................................... 48 Aliessa ex rel. Fayad v. Novello, 96 N.Y.2d 418 (2001) .................................................................. 47 Barnhill v. Johnson, 503 U.S. 393 (1992) ..................................................................... 28 Braschi v. Stahl Assocs. 74 N.Y. 2d 201 (1989) ................................................................. 34 Brooklyn Union Gas Co. v. N.Y. State Human Rights Appeal Bd., 41 N.Y.2d 84 (1976) .................................................................... 45 Butner v. United States, 440 U.S. 48 (1979) ..................................................... 25, 26, 28, 36 Cent. Va. Cmty. Coll. v. Katz, 546 U.S. 356 (2006) ..................................................................... 25 Clark v. Cuomo, 66 N.Y.2d 185 (1985) .................................................................. 45 Clark v. Rameker, 134 S. Ct. 2242 (2014) ................................................................. 41 Draper v. Georgia Properties, Inc., 94 N.Y.2d 809 (1999) .................................................................. 33 Genesee Valley Trust Co. v. Glazer, 295 N.Y. 219 (1946) .................................................................... 40 In re Barnes, 276 F.3d 927 (7th Cir. 2002)....................................................... 29 iv TABLE OF AUTHORITIES (cont’d) Cases Page(s) In re The Ground Round, Inc., 482 F.3d 15 (1st Cir. 2007) ......................................................... 29 In re Nejberger, 934 F.2d 1300 (3d Cir. 1991) ...................................................... 29 In re Sanders, 969 F.2d 591 (7th Cir. 1992) ....................................................... 30 In re Santiago-Monteverde-Monteverde, 747 F.3d 153 (2d Cir. 2014) ................................................ passim In re Stein, 281 B.R. 845 (Bankr. S.D.N.Y. 2002) ......................................... 27 Jazilek v. Abart Holdings LLC, 10 N.Y.3d 943 (2008) ............................................................. 20, 34 Law v. Siegel, 134 S. Ct. 1188 (2014) ................................................................... 9 Manocherian v. Lenox Hill Hosp., 84 N.Y.2d 385 (1994) ................................................................... 16 Matter of Badem Bldgs. v. Abrams, 70 N.Y.2d 45 (1987) ..................................................................... 46 Matter of Tonis v. Bd. of Regents of Univ. of State of N.Y., 295 N.Y. 286 (1946) ..................................................................... 39 Murphy v. N.Y. State Div. of Hous. & Cmty. Renewal, 21 N.Y.3d 649 (2013) ................................................................... 30 Nunez v. Giuliani, 91 N.Y.2d 935 (1998) ............................................................. 50, 51 Pierson v City of N.Y., 56 N.Y.2d 950 (1982) ................................................................... 45 v TABLE OF AUTHORITIES (cont’d) Cases Page(s) Riverside Syndicate Inc. v. Munroe, 10 N.Y.3d 18 (2008) .............................................................. 20, 33 Surace v. Danna, 248 N.Y. 18 (1928) (Cardozo, C.J.) ............................................. 40 Thornton v. Baron, 5 N.Y.3d 175 (2005) ........................................................ 20, 33, 34 Tierney v J.C. Dowd & Co., 238 N.Y. 282 (1924) .................................................................... 45 Tillotson v Wolcott, 48 N.Y. 188 (1872) ...................................................................... 40 Toledano v. Kittay, 299 B.R. 284 (Bankr. S.D.N.Y. 2003) ......................................... 27 Yates County Nat’l Bank v. Carpenter, 119 N.Y. 550 (1890) .................................................................... 40 Constitutions N.Y. Const. art. XVII, § 1 ................................................................ 48 U.S. Const. art. I, § 8, cl. 4 .............................................................. 25 Statutes State Ch. 568, McKinney’s 2010 N.Y. Laws 1461 ................................... 10 C.P.L.R. 5206 ................................................................................... 43 vi TABLE OF AUTHORITIES (cont’d) Statutes Page(s) Debtor & Creditor Law § 282 ..................................................................................... passim § 283 ............................................................................................. 26 § 285 ............................................................................................. 10 General Business Law § 352-eeee ................................................... 11 Real Property Law § 226-b(1) ......................................................... 35 Real Property Tax Law § 467-b........................................... 13, 18, 50 Social Services Law § 2(18) (1982) ............................................................................... 40 § 137 ............................................................................................. 39 § 143-b ......................................................................................... 40 Unconsol. L. (McKinney) § 8621 et seq. ............................................................................... 17 § 8622 ............................................................................... 16, 18, 38 § 8623 ........................................................................................... 19 § 8624 ........................................................................................... 17 § 8625 ........................................................................................... 21 § 8626 ..................................................................................... 17, 49 § 8628 ........................................................................................... 17 § 8631 ........................................................................................... 20 § 8632 ........................................................................................... 17 Federal 11 U.S.C. § 323 ............................................................................................... 9 § 363 ................................................................................... 9, 27, 34 § 364 ............................................................................................... 9 § 365 ............................................................................. 9, 27, 34, 35 § 522 ................................................................................. 10, 26, 37 § 541 ................................................................................. 25, 28, 30 vii TABLE OF AUTHORITIES (cont’d) Statutes Page(s) 11 U.S.C. (cont’d) § 704 ........................................................................................ 9, 34 § 721 .............................................................................................. 9 § 724 .............................................................................................. 9 § 725 .............................................................................................. 9 § 726 .............................................................................................. 9 § 727 .............................................................................................. 9 Regulations 9 N.Y.C.R.R. § 2202.20 ............................................................................... 13, 18 § 2520.1 et seq. ........................................................................... 17 § 2520.6 ....................................................................................... 18 § 2520.11 ............................................................................... 21, 23 § 2521.1 ....................................................................................... 17 §§ 2522.2–2522.4 ......................................................................... 17 § 2522.4 ....................................................................................... 22 § 2522.5 ................................................................................. 17, 43 § 2522.8 ....................................................................................... 17 § 2523.2 ................................................................................. 18, 22 § 2523.3 ....................................................................................... 14 § 2523.4 ....................................................................................... 18 § 2523.5 ............................................................................... passim § 2524.1 ..................................................................... 14, 17, 42, 43 § 2524.3 ........................................................................... 17, 22, 24 § 2524.4 ................................................................................. 21, 24 § 2525.5 ........................................................................... 14, 18, 36 § 2526.1 ....................................................................................... 22 viii TABLE OF AUTHORITIES (cont’d) Regulations Page(s) N.Y.C. Admin. Code § 26-501 et seq. ........................................................................... 17 § 26-502 ....................................................................................... 19 § 26-504.1 .............................................................................. 21, 24 § 26-504.2 ............................................................................... 21-23 § 26–509 ........................................................................... 13, 18, 50 § 26-511 ........................................................................... 22, 24, 49 § 26-516(a) ................................................................................... 22 Miscellaneous Authorities Assembly Sponsor’s Mem.in Support of Legislation, reprinted in Bill Jacket Jacket for ch. 540 (1982) ..................... 41 David U. Himmelstein et al., Medical Bankruptcy in the United States, 2007: Results of a National Study, 122 Am. J. of Med. 741 (2009) ................................................................... 41 DHCR, Fact Sheet # 21 Special Rights of Senior Citizens, www.nyshcr.org/Rent/factsheets/orafac21.htm. ........................ 50 DHCR, Fact Sheet #1: Rent Stabilization and Rent Control, www.nyshcr.org/Rent/factsheets/orafac1.htm. .................... 16, 23 DHCR, Fact Sheet #26: Guide to Rent Increases for Rent Stabilized Apartments in New York City, www.nyshcr.org/Rent/factsheets/orafac26.htm. .................. 22, 23 Gov.’s Approval Mem., reprinted in Bill Jacket for ch. 540 (1982) ........................................................................................... 41 Josh Barbanel, Bankruptcy Case Tests Tenants’ Protections, Wall St. J., May 23, 2014 ............................................................ 13 ix TABLE OF AUTHORITIES (cont’d) Miscellaneous Authorities Page(s) Letter from C. von Bruen to J. McGoldrick, Counsel to the Governor (July 2, 1982), reprinted in Bill Jacket for ch. 540 (1982) .................................................................................... 44 N.Y.C. Office of the Mayor, The CEO Poverty Measure, 2005– 2012: An Annual Report (Apr. 2014), www.nyc.gov/html/ceo/downloads/pdf/ceo_poverty_measur e_2005_ 2012.pdf. ........................................................................ 47 N.Y. City Dep’t of Hous. Pres. & Dev., Senior Citizen Rent Increase Exemption (SCRIE) Program Information for Tenants, http://www.nyc.gov/html/hpd/html/tenants/scrie.shtml ..... 13, 51 N.Y. City Dep’t of Finance, Senior Citizen Rent Increase Exemption (SCRIE) Program Information for Tenants, www.nyc.gov/html/dof/html/property/property_tax_reduc_ drie_sc_ te.shtml. ........................................................................ 51 N.Y. City Rent Guidelines Bd., 421a and J-51 FAQ, www.nycrgb.org/html/resources/faq/421a-J51.html. ................ 24 N.Y. City Rent Guidelines Bd., Changes to the Rent Stabilized Housing Stock in New York City in 2013, www.nycrgb.org/downloads/research/pdf_reports/changes 2014.pdf. ...................................................................................... 52 N.Y. City Rent Guidelines Bd., Co-ops and Condos FAQ, www.nycrgb.org/html/resources/faq/co-ops.html....................... 12 N.Y. City Rent Guidelines Bd., Housing NYC: Rents, Markets & Trends 2012, http://www.nycrgb.org/html/research/cresearch.html19, 20, 46, 47 Statutes § 291, 1 McKinney’s Cons. Laws of N.Y. ......................... 40 Statutes § 231, 1 McKinney’s Cons. Laws of N.Y. ......................... 39 x TABLE OF AUTHORITIES (cont’d) Miscellaneous Authorities Page(s) Statutes § 236, 1 McKinney’s Cons. Laws of N.Y. ......................... 39 INTEREST OF AMICI CURIAE This case presents the important question whether a federal bankruptcy trustee may compel a bankrupt rent-stabilized tenant to relinquish the protections of rent stabilization in exchange for a payment from her landlord to the bankruptcy estate. The State of New York and City of New York as amici curiae submit this brief to explain that the trustee may do no such thing, both because under New York law the protections of rent stabilization are not property that may be transferred for value and included as part of the bankruptcy estate, and because, assuming those protections constitute property, they can be exempted from the bankruptcy estate under New York law as a local public assistance benefit. The rent stabilization laws at issue in this case were enacted by the State of New York and City of New York. The State’s Division of Housing and Community Renewal (DHCR) enforces the rent stabilization laws, and the City’s Department of Housing Preservation and Development (HPD) administers a range of programs in which owners may be required to make dwelling 2 units subject to the rent stabilization laws as a condition of receiving tax incentives and other benefits. In order to preserve access to affordable housing and prevent dislocation of long term residents, the state and city rent stabilization laws regulate the rents that can be charged for certain apartments, confer protections on the tenants in those apartments, provide succession rights to family members co- residing in those apartments with the chief tenant, and establish exclusive criteria and procedures for removing an apartment from the rent-stabilization program. Rent stabilization laws also provide housing security to the City’s vulnerable low-income, senior-citizen, and disabled tenants, by giving them additional rights and benefits aimed at preventing their dislocation, eviction, harassment, and homelessness. The State and City have a strong interest in protecting that regulatory program and preventing the violation of its requirements. In New York City, rent stabilization plays a critical role in maintaining socioeconomic diversity and neighborhood cohesion and continuity. Over two-thirds of city residents are 3 renters rather than homeowners, and they must compete for housing in a market characterized by high average rents and very low vacancy rates. Without the benefits and protections of rent regulation programs such as rent stabilization, many lower- and middle-income New Yorkers would be priced out of the city altogether. The result would be a metropolis largely consisting of the very rich and very poor, and lacking in the social glue that working class, middle class, and long-term residents tend to provide. True to its name, rent stabilization thus stabilizes not only individual tenancies but also the city’s neighborhoods, families and communities. In this case, the bankruptcy trustee, purporting to exercise the rights of the bankrupt tenant, has entered into an agreement with a landlord that seeks to strip the debtor of her rights under the rent-stabilization program, eliminate the succession right of her co-resident son, and end the rent-stabilized status of the debtor’s apartment in contravention of the rent stabilization laws. Amici New York State and New York City have an important interest in ensuring that rent stabilization rights are not treated 4 as property to be disposed of by a bankruptcy trustee, because the contrary outcome would undermine the provisions and public policies of the rent stabilization scheme. QUESTION CERTIFIED TO THIS COURT The Second Circuit certified the following question: “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.’” In re Santiago-Monteverde-Monteverde, 747 F.3d 153, 159 (2d Cir. 2014). By Order dated May 13, 2014, this Court accepted certification of the question pursuant to § 500.27 of this Court’s Rules. The certified question has two parts: (a) whether a debtor- tenant’s rent stabilization rights have the attributes of property includable in a bankruptcy estate, and, if so, (b) whether any such property may be exempted from the debtor-tenant’s bankruptcy 5 estate as a local public assistance benefit. Amici address each of those questions in turn. First, the protected value of a rent- stabilized lease—i.e., the value of the protections of the rent stabilization laws—is not monetizeable property under New York law. And second, even if rent stabilization protections were somehow monetizable property, they would nonetheless be exempt from the bankruptcy estate as a local public assistance benefit. STATEMENT OF THE CASE This case arises out of the Chapter 7 bankruptcy proceeding of Mary Veronica Santiago-Monteverde, a low-income, elderly widow living in a rent-stabilized apartment in New York City. After Santiago-Monteverde filed her bankruptcy petition, her landlord arranged with the bankruptcy trustee to purchase Santiago-Monteverde’s interests in her rent-stabilized lease and associated rights under the rent stabilization laws of New York State and New York City, for the stated purpose of terminating rent stabilization of her apartment. 6 Santiago-Monteverde then tried to designate the rent stabilization rights associated with her lease as property exempted from her bankruptcy estate. She invoked New York’s exemption statute which, by its interaction with federal bankruptcy law, allows New York debtors to protect from creditors and bankruptcy trustees their “local public assistance benefit[s].” Debtor & Creditor Law (DCL) § 282(2). The lower federal courts approved the trustee’s motion to strike her exemption.1 On appeal, the Second Circuit certified to this Court a two part question: first, whether the protected value of Santiago- Monteverde’s rent stabilization rights is considered property under state law; and second, if she possessed such an interest, whether that interest was exempted from her bankruptcy estate by DCL § 282(2). Under federal bankruptcy law, a right cannot be part of the debtor’s bankruptcy estate unless state law creates a 1 The bankruptcy court subsequently approved the sale of Santiago-Monteverde’s rent stabilization rights, in a separate order that is not part of the appeal from which this certified question arises. The sale is stayed pending the resolution of the proceedings in this Court and the Second Circuit. (Appendix for Appellant (“A.”) 369.) 7 monetizable property interest in that right. This Court, however, has repeatedly held that state law does not create such an interest in a tenant’s rent stabilization rights. The Court has made clear that agreements to evade rent stabilization laws—including agreements to treat an apartment as having been deregulated when neither the substantive conditions nor procedural requirements for deregulation have been met— violate the important state policies served by those laws and are thus legally invalid, regardless of whether the tenant is a party to the agreement, and regardless of whether the tenant obtains any benefit. And an attempt to circumvent or defeat rent stabilization is clearly the substance of the agreement at issue here. What Santiago-Monteverde’s landlord is attempting to purchase from the bankruptcy trustee is the ability to terminate rent stabilization of Santiago-Monteverde’s unit, eliminate the special protections and benefits that Santiago-Monteverde receives in connection with rent-stabilized tenancy, and cut off the succession rights that her son has under the rent stabilization laws. 8 Moreover, even if rent stabilization rights were regarded as property for bankruptcy purposes, those rights have all the characteristics needed to qualify for exemption under DCL § 282(2). As this Court has repeatedly recognized, the Legislature enacted the rent stabilization laws to help vulnerable New Yorkers secure affordable housing. The rights and protections conferred by those laws are thus properly understood as “assistance” provided to a “local” population by a “public” authority. If DCL § 282(2) were meant to cover only streams of payments, as the trustee suggests, the Legislature could easily have used the specific word “payment,” as it did elsewhere in § 282. The Legislature’s choice of the broader term “benefit” should not be disregarded, particularly in light of this Court’s longstanding view that exemption statutes benefitting debtors should be liberally construed. 9 STATEMENT OF THE CASE A. Bankruptcy Procedure Chapter 7 of the federal bankruptcy code establishes procedures under which an insolvent debtor like Santiago- Monteverde may discharge her debts by liquidating her assets and using any available funds to pay creditors. See 11 U.S.C. §§ 704(a)(1), 726, 727. “The filing of a bankruptcy petition under Chapter 7 creates a bankruptcy ‘estate’ generally comprising all of the debtor’s property.” Law v. Siegel, 134 S. Ct. 1188, 1192 (2014) (citing 11 U.S.C. § 541(a)(1)). A trustee is appointed in a Chapter 7 bankruptcy to be “the representative of the estate.” 11 U.S.C. § 323(a). The trustee must reduce the debtor’s property to money, distribute funds to creditors, and close up the estate. See id. § 704(a); see also id. §§ 363, 364, 365, 704, 721, 724, 725 (authority of trustee). The bankruptcy code authorizes the debtor to “exempt” certain kinds of property from the estate, enabling the debtor to keep that property out of the control of the trustee and to retain such property postbankruptcy. See Law, 134 S. Ct. at 1192 (citing 10 11 U.S.C. § 522(b)(1)). Exempt property generally “is not liable” for the payment of “any [prepetition] debt” or “any administrative expense.” 11 U.S.C. § 522(c), (k). Federal law permits States to enact their own exemption statutes to replace the federal provision. Id. § 522(b). New York has chosen to provide its own set of permissible exemptions for debtors domiciled in the State, in §§ 282 and 283 of New York’s Debtor and Creditor Law. Debtors domiciled in New York have the option of choosing either the federal exemptions or New York exemptions.2 See DCL § 285. Santiago-Monteverde chose to claim the exemptions under New York law. 2 Before 2010, New York debtors did not have a choice between federal and state exemptions, but were restricted to using DCL § 282 and § 283. See Ch. 568, § 5, McKinney’s 2010 N.Y. Laws 1461, 1464. 11 B. The Agreement Between the Bankruptcy Trustee and Landlord to Sell and Eliminate Santiago-Monteverde’s Rent Stabilization Rights Santiago-Monteverde’s bankruptcy petition seeks to discharge slightly over $23,000 that she owes in consumer debt, primarily to credit card companies. (A. 34.) She owes her landlord nothing, and apparently has remained current on her monthly rent for her rent-stabilized apartment. See Santiago-Monteverde, 747 F.3d at 155. When Santiago-Monteverde and her husband originally rented the apartment, it was a rental building; several decades later, in about 1987, the building converted to cooperative ownership status, and the shares pertaining to Santiago- Monteverde’s apartment were purchased by an investor. (A. 109- 10.) Santiago-Monteverde and her husband remained as nonpur- chasing rent-stabilized tenants pursuant to the terms of a noneviction plan and state law, General Business Law § 352-eeee. (A. 109.) Under state law, after a co-op conversion, apartments occupied by rent stabilized tenants become deregulated upon 12 vacancy.3 Prior to Santiago-Monteverde’s bankruptcy, the landlord had made several unsuccessful attempts to evict her and thereby terminate the rent-stabilized status of her apartment.4 (Debtor’s Obj. to Proposed Order Approving Sale, Exhs. B-H, Bankr. ECF No. 101.) During proceedings in the bankruptcy court, Santiago- Monteverde’s landlord approached the bankruptcy trustee with an offer to purchase Santiago-Monteverde’s interests in her rent- stabilized lease for slightly over $140,000.5 (A. 75-76, 94-95.) Josh 3 See N.Y. City Rent Guidelines Bd., Co-ops and Condos FAQ. 4 The landlord first asserted that Santiago-Monteverde could not remain in the apartment after her husband’s death, claiming that she was not an ordinary rent-stabilized tenant but occupied the unit only as a benefit of employment as the building superintendent. Next, the landlord sought to evict Santiago- Monteverde for nonpayment of rent. It appears that both eviction attempts by the landlord were discontinued when their lack of factual foundation was demonstrated. 5 After payment of the approximately $23,000 that Santiago- Monteverde owes to her creditors (A. 34, 40), the remainder of that amount is slated for the bankruptcy trustee’s compensation and attorney’s fees (A. 374). (Hr’g Tr. at 11, 54 (Jan. 9, 2014), Bankr. ECF No. 126.) 13 Barbanel, Bankruptcy Case Tests Tenants’ Protections, Wall St. J., May 23, 2014, at A17 (reporting sale price). The trustee and landlord agreed to replace Santiago-Monteverde’s rent stabilized lease with a non-rent-stabilized lease under which she could have a life tenancy at her existing rate but would be ineligible for the public benefits associated with residence in a rent stabilized apartment, such as the rental subsidies she receives through the Senior Citizen Rent Increase Exemption (SCRIE) program.6 (A. 110, 119, 167). See also Real Property Tax Law § 467-b; 9 N.Y.C.R.R. § 2202.20; N.Y.C. Admin. Code § 26–509. The lease substitution would also render Santiago-Monteverde ineligible for the special protections against harassment and eviction conferred upon rent-stabilized tenants by the rent stabilization laws.7 See 9 N.Y.C.R.R. §§ 2524.1, 2523.3, 2525.5. (A. 358, 368.) 6 “Senior citizens who lease apartments that are not rent regulated are not eligible for SCRIE benefits.” N.Y. City Dep’t of Finance, Senior Citizen Rent Increase Exemption (SCRIE) Program Information for Tenants. 7 For example, the lease substitution would leave Santiago- Monteverde vulnerable to eviction if a creditor of her landlord foreclosed on the landlord’s co-op shares, including those (continued on next page) 14 The trustee and landlord further agreed, as an express term of the sale, that no relative of Santiago-Monteverde’s would be able to exercise the succession rights conferred by the rent stabilization laws, which permit certain co-residing family mem- bers to accede to a rent-stabilized lease when the original tenant vacates. (A. 358, 368.) See also 9 N.Y.C.R.R. § 2523.5(b)(1). That term aims to eliminate the succession rights of Santiago- Monteverde’s adult son, who has lived with her since 2006. (Hr’g Tr. at 67-68, 73 (Nov. 12, 2013), Bankr. ECF No. 118.) Santiago-Monteverde objected to this arrangement and sought to amend her bankruptcy filings to exempt the value of her rent-stabilization rights, by designating these a “local public pertaining to Santiago-Monteverde’s apartment. (A. 127, 267-68.) The board of her building apparently has an outstanding money judgment against the landlord for nonpayment of maintenance fees. (A. 267-68.) The board has represented that it does not presently have any intent to foreclose on the shares and evict Santiago-Monteverde. (A. 356.) But that representation is not legally binding, and even if the co-op does not seek foreclosure and eviction, another current or future judgment creditor of the landlord could do so. 15 assistance benefit” protected by DCL § 282(2). (A.73, 95.) The bankruptcy trustee moved to strike the exemption. The bankruptcy court agreed with the trustee that an exemption under DCL § 282(2) was not available. (A93-101.) The district court affirmed. (A. 154-57.) On appeal, the Second Circuit noted that the question in dispute implicated several unsettled issues about the state law attributes of a debtor-tenant’s rent-stabilization rights— specifically, (1) whether rent-stabilization rights have the characteristics of property includable in a bankruptcy estate and, if so, (2) whether state law permits a debtor to exempt that property from the bankruptcy estate as a local public assistance benefit. See 747 F.3d at 157-58. Because no New York court had directly addressed these issues, the Second Circuit certified the question to this Court. The Second Circuit invited this Court to “reformulate or expand the certified question as it deems appropriate.” Id. at 159. 16 C. New York’s Rent Stabilization Laws The central aim of rent stabilization is to protect the many New Yorkers who struggle to afford suitable housing and thereby promote public health, safety and welfare.8 Unconsol. L. § 8622 (McKinney) (legislative findings); Manocherian v. Lenox Hill Hosp., 84 N.Y.2d 385, 389 (1994) (rent stabilization laws seek “to protect dwellers who could not compete in an overheated rental market, through no fault of their own”). 1. The Rent-Stabilization Rights and Protections Provided by New York State and New York City In New York City, the rent stabilization scheme is a product of state and city laws, and is administered by DHCR. State law incorporates by reference the city’s Rent Stabilization Law (RSL) 8 Most rent stabilized units in the State are in New York City, but the program also applies in some parts of Nassau, Westchester and Rockland counties. See DHCR, Fact Sheet #1: Rent Stabilization and Rent Control. 17 of 1969, as amended.9 And state law directs DHCR to enforce rent stabilization in New York City as “provided in” the RSL. Unconsol. L. §§ 8628(c), 8632(b) (McKinney). Additional regula- tions governing rents and other aspects of tenancies are set forth in the Rent Stabilization Code (RSC), 9 N.Y.C.R.R. § 2520.1 et seq. The RSL and RSC provide procedures for establishing the legal maximum rent for each unit and for calculating permissible rent increases. Id. §§ 2521.1, 2522.2–2522.4, 2522.8. They give an occupying tenant the right to renew a rent-stabilized lease. Id. §§ 2522.5(b), 2523.5(a) & (c)(1), 2524.1(a). And they protect tenants against eviction, id. §§ 2524.1, 2524.3, diminution in services by the landlord, id. §§ 2520.6(r), 2523.2, 2523.4, and harassment, id. § 2525.5. As relevant here, the RSC also gives certain family members the right to succeed a vacating tenant under a new rent-stabilized lease. Id. § 2523.5(b)(1). In these ways, rent stabilization fulfills the Legislature’s aims of 9 See Unconsol. L. § 8621 et seq. (McKinney’s) (Emergency Tenant Protection Act of 1974, as amended); id. §§ 8624(c), 8626(b)-(c); see also N.Y.C. Admin. Code § 26-501 et seq. (codifying the RSL). 18 preventing “uncertainty, hardship and dislocation” for New Yorkers and “forestall[ing] profiteering, speculation and other disruptive practices.” Unconsol. L. § 8622 (McKinney’s). The rent stabilization laws give a number of additional rights and benefits to lower-income elderly or disabled tenants residing in rent-stabilized apartments. (See infra at 48-52.) Santiago-Monteverde, for example, participates in the Senior Citizen Rent Increase Exemption (SCRIE) program. (A. 110, 119, 167.) SCRIE buffers its beneficiaries against rent increases by covering a portion of their rent. See Real Property Tax Law 467– b; 9 N.Y.C.R.R. § 2202.20; N.Y.C. Admin. Code § 26–509. The Legislature has provided that rent stabilization may be implemented in a given locality only if the local legislative body determines that there is currently “a public emergency requiring the regulation of residential rents.” Unconsol. L. § 8623 (McKinney’s). The City Council has examined the state of the residential rental market every three years starting in 1974, and has on each occasion reaffirmed that New York City faces a housing emergency. See N.Y.C. Admin. Code § 26-502. 19 At the time of the City Council’s most recent determination, in 2012, over two-thirds of the housing units in New York City were rentals—double the national average—and the rental market was characterized by high average rents and low vacancy rates. See N.Y. City Rent Guidelines Bd., Housing NYC: Rents, Markets & Trends 2012, at 60, 71 (hereinafter Housing NYC ). A large percentage of the City’s residents had incomes below the poverty line (20.1 percent in 2010, about one-third higher than the national average), id. at 59—far more than could be helped by public housing and federal housing subsidies.10 And over half of rental households in the City had unaffordable rent-to-income ratios, as measured by the federal Department of Housing and Urban Development’s benchmark for housing affordability. Id. at 61. 10 In 2014, for example, the waiting lists for these programs were in the hundreds of thousands. See Corrected Br. for Amici Curiae New York State Legislators at 9 & n.18. 20 2. The State and City’s Efforts to Preserve Affordable Housing By Retaining Control of Deregulation To help effectuate the rent stabilization scheme’s aims of preserving affordable housing and preventing dislocation, the Legislature has provided that “[a]ny provision of a lease or other rental agreement which purports to waive a tenant’s rights under [the rent stabilization laws] or regulations promulgated pursuant thereto shall be void as contrary to public policy.” Unconsol. L. § 8631 (McKinney’s). This Court’s cases have recognized and given effect to the Legislature’s intent to make the scheme’s deregulation rules and procedures the exclusive means for transitioning a rent-stabilized unit into the regular residential rental market. Thornton v. Baron, 5 N.Y.3d 175, 182 (2005); see also Riverside Syndicate Inc. v. Munroe, 10 N.Y.3d 18, 23 (2008); Jazilek v. Abart Holdings LLC, 10 N.Y.3d 943 (2008). DHCR supervises the deregulation of rent-stabilized apartments. Its preapproval or the approval of a court is required in many instances. 21 Occupied units can be transitioned out of rent stabilization through “high rent/high income” deregulation. The landlord must file a petition and DHCR must certify—after an administrative proceeding and a review by the New York State Department of Taxation and Finance—that the legal regulated rent is over $2,500 per month and the tenant’s income has been over $200,000 for the two preceding calendar years. See 9 N.Y.C.R.R. § 2520.11(s)(2); N.Y.C. Admin. Code §§ 26-504.1, 26-504.2. Alternatively, a landlord may prove to a court that the tenant no longer occupies the unit as a primary residence. In that event, the rent-stabilized lease need not be renewed and the tenant may be subject to eviction, which could then lead to deregulation under provisions relating to vacant units. See Unconsol. L. § 8625(a)(11) (McKinney’s); 9 N.Y.C.R.R. § 2524.4(c). A rent-stabilized tenant may also be evicted—and vacancy deregulation procedures made available—in the event of wrongful acts of a tenant, see 9 N.Y.C.R.R. § 2524.3, or withdrawal of the unit from the rental market through demolition or occupancy by the owner, see id. §§ 2524.4, 2524.5. 22 Vacant units can be deregulated in several ways. As relevant to this case, after a co-op conversion, apartments occupied by rent-stabilized tenants become deregulated upon vacancy. The most common way that a vacant unit becomes deregulated is so-called “high rent deregulation.” N.Y.C. Admin. Code § 26-26-504.2(a). A landlord who has improved the individual unit or the building during the vacancy may raise the legal regulated rent by specified amounts.11 See 9 N.Y.C.R.R. §§ 2522.4(a), 2522.8; N.Y.C. Admin. Code § 26-511(c)(5-a), (c)(6)(b), (c)(13). And landlords with a vacant rent-stabilized unit are also entitled to specified vacancy rent increases.12 If one or more of these approved methods of rent increase brings the legal regulated 11 A rent increase based on building improvements requires DHCR’s approval. See DHCR, Fact Sheet #26: Guide to Rent Increases for Rent Stabilized Apartments in New York City. DHCR determines the appropriateness of rent increases based on unit improvements when and if the increases are challenged by the incoming tenant through an “overcharge complaint.” See 9 N.Y.C.R.R. § 2526.1; N.Y.C. Admin. Code § 26- 516(a). 12 See DHCR, Fact Sheet #26: Guide to Rent Increases for Rent Stabilized Apartments in New York City, supra. 23 rent above $2,500 per month during a vacancy, the unit is deregulated. See 9 N.Y.C.R.R. § 2520.11(r); N.Y.C. Admin. Code § 26-504.2. The incoming tenant and DHCR must be given notice of such deregulation. See 9 N.Y.C.R.R. § 2520.11; N.Y.C. Admin. Code § 26-504.2(b). DHCR may then review the deregulation in an overcharge proceeding initiated by the tenant or on DHCR’s own initiative. Special rules apply to the deregulation of apartments that are rent-stabilized as a condition of the owner’s or developer’s participation in a New York City tax abatement program.13 If the tax abatement ends when the unit is vacant, the unit becomes deregulated. If the unit is occupied when the tax abatement ends, the landlord may deregulate it at the end of the rent-stabilized 13 Participation in tax abatement programs is one way that units can be subject to rent stabilization. Other units are rent stabilized as a result of being built after 1947 and before 1974, or because they transitioned out of rent control. See DHCR, Fact Sheet #1: Rent Stabilization and Rent Control, supra. 24 lease term the unit providing certain notices were included in the tenant’s lease.14 If there are no grounds for deregulating, the unit remains subject to rent stabilization. If a tenant is in occupancy and has not committed misconduct such as nonpayment of rent, the landlord must offer a renewal rent-stabilized lease. See 9 N.Y.C.R.R. §§ 2524.3, 2524.4; N.Y.C Admin. Code § 26-511(c)(9). If a unit is rented to a new tenant after a vacancy, the new tenant is entitled to a rent stabilized lease unless the apartment has been deregulated through one of the pathways described above. These rules and procedures and their exclusivity seek to conserve the stock of affordable housing, protect tenants against illegal rent increases or harassment, and allow appropriate agencies and courts to oversee the deregulation process. 14 N.Y.C. Admin Code § 26-504.1. See N.Y. City Rent Guidelines Bd., 421a and J-51 FAQ. 25 ARGUMENT POINT I STATE LAW PLAYS AN IMPORTANT ROLE IN THE BANKRUPTCY PROCESS The U.S. Constitution gives Congress the power to make nationally uniform law regarding bankruptcy, see U.S. Const. art. I, § 8, cl. 4, and Congress has responded with a detailed statutory framework that gives federal courts exclusive jurisdiction over the bankrupt’s estate, which the code defines to include “all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a)(1); see Cent. Va. Cmty. Coll. v. Katz, 546 U.S. 356, 363-64 (2006). Nevertheless, States and state law have a critically important role in determining the rights and duties of debtors, creditors, and trustees in bankruptcy proceedings. As relevant to Santiago-Monteverde’s case, state law is significant in three principal areas. First, state law is the primary source for determining what constitutes the property of the debtor that becomes part of the bankruptcy estate. Butner v. United States, 440 U.S. 48, 54-55 (1979). As the U.S. Supreme Court has 26 observed, “[p]roperty interests are created and defined by state law [and] [u]nless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding.” Id. at 55. Second, state law may determine what property the debtor can exempt from the estate and thus protect from creditors. Federal law provides that the States may enact exemption provisions, 11 U.S.C. § 522(b), and New York has chosen to do so, DCL §§ 282, 283. Federal bankruptcy law gives debtors domiciled in such states the option of choosing either the federal exemptions or their State’s exemptions, see 11 U.S.C. § 522(b), and Santiago- Monteverde chose to claim the exemptions allowed under New York law. Third, after all property that is part of the debtor’s estate is identified, and any exempted property is put to the side, state law helps determine whether and how the trustee may deal with the remaining property and property interests of the debtor in order to repay creditors. For example, state law may function to block 27 certain sales of property by the trustee, see 11 U.S.C. § 363(f), and state law helps determine whether the trustee may “assume or assign any executory contract or unexpired lease of the debtor,” id. § 365(c)(1). See, e.g., Santiago-Monteverde, 747 F.3d at 157 (noting an unresolved question as to whether New York rent stabilization laws may limit the bankruptcy trustee’s power to assume, assign, or sell a debtor’s rent-stabilized lease and associated rights). In recent years, some federal bankruptcy trustees have sought to monetize the rent-regulated leases and rent regulation rights of bankrupt New York tenants in order to pay creditors and their own administrative fees. See Toledano v. Kittay, 299 B.R. 284 (Bankr. S.D.N.Y. 2003); In re Stein, 281 B.R. 845 (Bankr. S.D.N.Y. 2002). Those federal bankruptcy proceedings were not appealed to the Second Circuit—the only court with the power to certify issues of state law to this Court. Accordingly, this Court has not yet had the opportunity to consider whether state law permits rent stabilization to be defeated by bankruptcy proceedings. 28 POINT II STATE LAW DOES NOT CREATE ANY MONETIZABLE PROPERTY INTEREST IN THE CIRCUMVENTION OF RENT STABILIZATION LAWS The first part of the certified question concerns whether the rent stabilization rights and interests that the trustee seeks to sell are monetizable interests of the debtor under state law. If not, the trustee seeks to sell something that is not properly treated as part of the bankruptcy estate, and the second part of the certified question—concerning the availability of an exemption under DCL § 282(2)—is never presented. The bankruptcy estate that the trustee is authorized to manage includes “all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a)(1). Unless a federal statute or policy requires otherwise, state law defines property and property interests for the purposes of the federal bankruptcy code. See Barnhill v. Johnson, 503 U.S. 393, 398 (1992); Butner, 440 U.S. at 54-55. Federal appellate courts treat interests created by state law as “property” for purposes of 11 U.S.C. § 541(a) if the interest 29 potentially has monetary value. See In re The Ground Round, Inc., 482 F.3d 15, 18 (1st Cir. 2007); In re Nejberger, 934 F.2d 1300, 1302 (3d Cir. 1991); In re Barnes, 276 F.3d 927, 928 (7th Cir. 2002). Federal courts will not necessarily defer to “‘[t]he label . . . that state law affixes to a particular interest.’” 15 Ground Round, 482 F.3d at 17 (quoting Nejberger, 934 F.2d at 1302). “‘The principal question is whether the substance of the right or interest in question brings it within the scope of estate property under the Bankruptcy [Code].’” Id. at 17 (quoting Nejberger, 934 F.2d at 1302); see also Barnes, 276 F.3d at 928 (finding that a liquor license was property of the bankruptcy estate because it was a “marketable asset” despite state law and state cases explicitly providing “that liquor licenses are not ‘property’”). Here, the record shows that the contemplated sale has two components. The first component is the ability to cut off the rent 15 Thus, whether New York law denominates rent- stabilization rights “personal” and “statutory” as opposed to “property” rights (see Br. of Amici Curiae N.Y. City Bankruptcy Assistance Project and MYF Legal Services, Inc. at 12-16) may not affect whether those rights are part of the bankruptcy estate. 30 stabilization-based succession rights of Santiago-Montevede’s co- resident son. The second component is the ability to terminate Santiago-Monteverde’s rent-stabilized lease under circumstances where the rent stabilization laws would not authorize termination. Both components implicate rights and interests that state law does not treat as monetizable property of Santiago-Monteverde, the debtor. A. State Law Does Not Make the Succession Rights of Santiago-Monteverde’s Son the Property of Her Estate. One of the central precepts of bankruptcy law is that “a bankruptcy trustee succeeds only to the title and rights in property that the debtor had at the time she filed the bankruptcy petition.” In re Sanders, 969 F.2d 591, 593 (7th Cir. 1992) (emphasis added). But it is clear that an important part of what the trustee is trying to sell here is the right of Santiago- Monteverde’s son to succeed to her rent-stabilized lease. (A. 368 (“Terms of Sale”).) Under state law, that right is plainly not an “interest[] of the debtor” Santiago-Monteverde. 11 U.S.C. § 541(a)(1). Cf. Murphy v. N.Y. State Div. of Hous. & Cmty. 31 Renewal, 21 N.Y.3d 649, 653 (2013) (noting that rent-regulation succession rights serve “the important remedial purpose of preventing dislocation of long-term residents due to the vacatur of the head of household”). Undisputed testimony in the bankruptcy proceeding established that Santiago-Monteverde’s adult son has lived with his mother since 2006. (Hr’g Tr. at at 67-68, 73 (Nov. 12, 2013), Bankr. ECF No. 118.) And by law, when the occupying tenant vacates a rent-stabilized unit, a family member “who has resided with the tenant in the housing accommodation as a primary residence for a period of no less than two years . . . shall be entitled to be named as a tenant on the renewal lease.” 9 N.Y.C.C.R. § 2523.5(b)(1). Santiago-Monteverde’s son clearly qualifies as such a family member. See id. § 2520.6(o)(1) (defining “family member” to include “son . . . of the tenant”). Moreover, as these succession rules make clear, the succession right conferred belongs him—as a “member of [the original tenant’s] family”—not to Santiago-Monteverde, the original tenant, id. § 2523.5(b)(1). 32 B. State Law Does Not Treat Santiago- Monteverde’s Rent Stabilization Rights as a Monetizable Property Interest. The district court correctly understood the residual interest that Santiago-Monteverde’s landlord seeks to purchase from the bankruptcy trustee as “the value of terminating the rent- stabilization regime.” (A. 156.) To be clear, the landlord is not seeking to buy out the rent-stabilized lease itself, to rent to another tenant at a stabilized rate, for example. Rather, the landlord wishes to purchase the ability to terminate the rights that the rent stabilization laws confer on Santiago-Monteverde and her son, and to remove Santiago-Monteverde’s apartment from the rent stabilization program under circumstances where deregulation is not authorized by state law. (A. 358, 361, 368.) There cannot be any property interest in the ability to evade state law in this manner. Indeed, this Court’s cases provide exactly the opposite, holding that transactions seeking to circumvent rent stabilization or alter legally required terms of a rent-stabilized tenancy violate public policy and are therefore invalid. In Riverside Syndicate, the Court held that an agreement 33 that settled an eviction suit by permitting the landlord to charge excess rent to tenants who were using rent-stabilized apartments as nonprimary residences was, “on its face, one to ‘waive the benefit’ of rent stabilization, and is therefore void.” 10 N.Y.3d at 22. Similarly, in Thornton, the Court held that a lease provision under which tenants falsely stipulated that they were not using the apartments as their primary residences, thereby giving the landlord grounds to temporarily remove their apartments from rent stabilization, “[r]eflect[ed] an attempt to circumvent the Rent Stabilization Law in violation of the public policy of New York” and was therefore “void at its inception.” 5 N.Y.3d at 181. Likewise, in Draper v. Georgia Properties, Inc., this Court voided a lease provision that required a rent-stabilized tenant to refrain from using the apartment as her primary residence so that the apartment could be removed from rent stabilization. 94 N.Y.2d 809, 810-811 (1999), aff’g 230 A.D.2d 455, 456 (1st Dep’t 1997). This Court’s cases make clear that “[a]n agreement by the tenant to waive the benefit of any provision of the [rent stabilization laws] . . . is void” as a matter of state law. Draper, 94 34 N.Y.2d at 811 (quoting 9 N.Y.C.R.R. § 2520.13); see also Jazilek, 10 N.Y.3d at 944 (stipulation permitting an allegedly illegal sublessee to continue residing in a rent-stabilized apartment on condition that he waive the benefits of rent stabilization “violates the Rent Stabilization Code and is void as against public policy”). So too any such agreement by a bankruptcy trustee, whom federal bankruptcy law empowers to step into the shoes of the debtor for the purpose of certain decisions and transactions regarding the bankruptcy estate’s property. See, e.g., 11 U.S.C. §§ 363, 365, 704. As this Court has emphasized, any “attempt to circumvent the Rent Stabilization Law” and its rules about how units are deregulated violates the public policy of the state and “undermin[es] the statute’s very purpose of preserving a stock of affordable housing.” Thornton, 5 N.Y.3d at 181-82. In sum, state law does not treat the rights conferred by the rent stabilization scheme—or the ability to circumvent or alter those rights—as monetizeable assets. Cf. Braschi v. Stahl Assocs. 74 N.Y. 2d 201, 209 (1989) (noneviction provision of rent-control laws “does not create an alienable property right that could be 35 sold, assigned or otherwise disposed of”). Rather, it holds that attempts to evade such rights are legally invalid and contrary to public policy. 16 This Court’s cases thus leave no doubt that if there were no bankruptcy proceedings, the ostensible property interests that the landlord seeks to buy here would not exist because state law does not permit Santiago-Monteverde to sell the ability to alter the terms of her rent-stabilized tenancy.17 16 In providing that agreements to evade rent stabilization rights cannot be validly consented to, state law imposes an additional obstacle to the trustee’s sale of Santiago-Monteverde’s rent-stabilized lease and rent-stabilization rights. Under federal bankruptcy law, a trustee cannot take possession of a debtor’s unexpired residential lease unless the landlord consents. See 11 U.S.C. § 365(c)(1) (trustee cannot “assume” unexpired lease of the debtor without consent of third party whom state law excuses “from accepting performance from or rendering performance to an entity”); Real Property Law § 226-b(1) (excusing landlord from accepting tenant’s assignment of a residential lease). But where, as here, the object of the landlord’s consent is to enable a violation of rent stabilization laws, New York law provides that no valid consent may be given. The federal law conditions for the trustee’s assumption of the lease thus cannot be met. 17 This case does not present, and we do not address, whether state law would permit a tenant like Santiago- Monteverde to accept payment in exchange for surrendering her rent-stabilized tenancy by vacating her rent-stabilized apartment. But we note that any attempt to compel such a surrender— regardless of whether the tenant is offered a payment in (continued on next page) 36 An interest cannot be considered property of the estate if it comes into existence only as a result of a bankruptcy filing. As the U.S. Supreme Court has noted, in the absence of any federal requirement to the contrary, property interests are not “analyzed differently simply because an interested party is involved in a bankruptcy proceeding.” Butner, 440 U.S. at 55. Whatever label is given to the rights and interests that the trustee is purporting to sell here, they are entirely a creation of the federal bankruptcy process and do not exist in state law. exchange—would contravene the same public policies as other attempts to evade the rent stabilization laws and may also violate state law prohibitions on the harassment of rent-stabilized tenants. See 9 N.Y.C.R.R. § 2525.5. 37 POINT III RENT STABILIZATION RIGHTS QUALIFY FOR EXEMPTION FROM THE BANKRUPTCY ESTATE UNDER DCL § 282(2) If contrary to the argument above Santiago-Monteverde’s and her son’s rent stabilization rights are treated as monetizable property for bankruptcy purposes, that property would nonetheless be exempt from Santiago-Monteverde’s bankruptcy estate under DCL § 282(2), as a local public assistance benefit. By interaction of federal bankruptcy law and state law, debtors domiciled in New York may exempt from their estate, inter alia, interests in “a local public assistance benefit.” DCL § 282(2)(a); see also 11 U.S.C. § 522(b) (allowing States to define for their residents which property is exempt from the bankruptcy estate). Although neither the Debtor and Creditor Law nor the General Construction Law defines that phrase, the text, purpose, and legislative history of these laws and the rent stabilization laws confirm that rent stabilization rights qualify under DCL § 282(2)(a) as “assistance” provided to a “local” population by a “public” authority.. 38 A. Rent Stabilization Rights Meet the Conditions for Exemption as a “Local Public Assistance Benefit” Rent stabilization rights have all the characteristics necessary to qualify as an exempt “local public assistance benefit” under DCL § 282(2)(a). There can be no dispute that the Legislature enacted the rent stabilization laws to help vulnerable New Yorkers secure affordable housing and thereby to promote public welfare. See Unconsol. L. § 8622 (McKinney’s) (legislative findings). The rights and protections conferred by those laws are thus properly understood as “assistance” provided to a “local” population by a “public” entity acting under its authority to protect public welfare. The bankruptcy court held that the term “local public assistance benefit” covers only individualized cash “payments,” but that view is refuted by a careful examination of the statutory text. When the Legislature meant to refer only to “payments,” it used that term; for example, exempting in DCL § 282(2)(e) certain “payments” under pension and other plans. The Legislature’s use of the different and broader term “benefit” in DCL § 282(2)(a) 39 must therefore be understood to include benefits that are not payments, because it is a basic canon of statutory construction that the choice to use different words within a statute should be presumed meaningful. See Matter of Tonis v. Bd. of Regents of Univ. of State of N.Y., 295 N.Y. 286, 293 (1946); Statutes §§ 231, 236, 1 McKinney’s Cons. Laws of N.Y. A provision of the Social Services law in effect when DCL § 282 was enacted further confirms that where the Legislature intended to refer to only the cash component of a public assistance program, it knew how to do so. See Social Services Law § 137 (exempting from levy and execution “[a]ll moneys or orders granted to persons as public assistance”). The Social Services Law in effect when DCL § 282(2)(a) was enacted in 1982 provides additional evidence that the Legislature understood the general term “public assistance” to denote much more than just cash transfer payments. Specifically, the definitions section of the Social Services Law provided that “[p]ublic assistance and care includes home relief, veteran assistance, aid to dependent children, medical assistance for 40 needy persons, institutional care for adults and child care granted at public expense pursuant to this chapter.” Social Services Law § 2(18) (1982). Another provision of the Social Services Law, also in effect in 1982, likewise uses the term “public assistance” broadly—in that case, to include rent assistance remitted by the government directly to the landlord. See Social Services Law § 143-b(1). Even if the plain language of the statute left room for a different construction, it is well-established that statutes exempting property of a debtor from collection “are to be liberally construed” to protect the debtor. Yates County Nat’l Bank v. Carpenter, 119 N.Y. 550, 553 (1890); accord Surace v. Danna, 248 N.Y. 18, 20-21 (1928) (Cardozo, C.J.).18 Such a liberal construction 18 See also Genesee Valley Trust Co. v. Glazer, 295 N.Y. 219, 223 (1946) (exemption statute should be “liberally construed in order to effectuate the humane purpose embodied in the statute” (quotation marks omitted)); Tillotson v Wolcott, 48 N.Y. 188, 190 (1872) (“Public policy requires such a construction of the statute as will insure its full benefit to the debtor.”); Statutes § 291, 1 McKinney’s Cons. Laws of N.Y. (exemption laws “are to be liberally construed in favor of the beneficiary in order to carry out their apparent beneficent purpose”). 41 is warranted because the overriding purpose of a bankruptcy exemption statute, such as DCL § 282, is to preserve for debtors what is necessary to give them a reasonable chance to get a “fresh start.” Gov.’s Approval Mem. at 1, reprinted in Bill Jacket for ch. 540 (1982); Assembly Sponsor’s Mem.in Support of Legislation at 1, reprinted in Bill Jacket, supra; see also Clark v. Rameker, 134 S. Ct. 2242, 2244 (2014). If DCL § 282(2) does not provide an exemption here, rent stabilized households—of which there are nearly one million in New York City—will be forced to choose between housing security and the protections of bankruptcy in the event they fall into severe financial distress.19 Bankruptcy cannot provide a “fresh start” to New Yorkers in rent stabilized housing if it comes at the cost of potential homelessness. 19 A recent nationwide survey of bankruptcy filers found that a majority were educated and had solid employment histories, but had needed to seek bankruptcy protection because of illness, injury or medical bills. See David U. Himmelstein et al., Medical Bankruptcy in the United States, 2007: Results of a National Study, 122 Am. J. of Med. 741, 743 (2009). 42 The trustee is also mistaken in asserting that Santiago- Monteverde’s rent stabilization rights cannot be exempted under DCL § 282 unless that provision expressly references rent- stabilized or rent-regulated leases. See Br. for Resp. at 23-24. The Legislature enacted DCL § 282 with the background understanding that state law independently protected rent- stabilized leases from creditors, making it unnecessary for the Legislature to expressly mention such leases in the DCL’s bankruptcy exemptions. State law has long barred creditors from enforcing a money judgment against the value of a rent-stabilized lease. The rent stabilization laws provide that as long as the tenant of a rent stabilized apartment pays the legal regulated rent due, the tenant cannot be removed, except by order of an appropriate court and for grounds specified in the RSL, the RSC or the Real Property Actions and Proceedings Law. See 9 N.Y.C.R.R. § 2524.1(a), (c). Satisfaction of a money judgment is not among the listed grounds for removal. In addition, a rent-stabilized tenant is entitled to renew his or her lease on a rent-stabilized basis, unless certain 43 specified grounds exist for nonrenewal; those grounds do not include indebtedness to a judgment creditor. See id. §§ 2522.5(b), 2523.5(a) & (c)(1), 2524.1(a). Rent-stabilized leases have thus been long protected from direct action by judgment creditors and, when DCL § 282 was enacted in 1982, there were no reported cases in which a bankruptcy trustee sold a rent-regulated tenant’s rights for the benefit of the tenant’s creditors. (The few reported cases have occurred since the early 2000s. See supra at 27.) The Legislature that enacted DCL § 282 accordingly had no reason to believe that the protected value of a rent-stabilized lease could be reachable in bankruptcy.20 Indeed, as the legislative history of DCL § 282 shows, although the rights and interests of tenants were 20 The trustee argues that, because C.P.L.R. 5206, incorporated by reference into DCL § 282, caps a New York county homeowner’s homestead exemption at $150,000, “it defies reason to assume that the legislature intended to create an unlimited exemption for rent-regulated leaseholds via DCL § 282(2).” Br. for Resp. at 24. But no proper comparison can be made between the imposition of a limit on a homestead exemption and the sale of a tenant’s rights under the rent stabilization laws. Capping a homestead exemption does not change the legal status of the home so that it may be unavailable for future purchasers to reside in. 44 frequently discussed and debated during consideration of the statute, no suggestion was ever made that rent-regulated leases could be available to creditors in bankruptcy unless the Legislature took specific action to prohibit that practice.21 Respondent asserts that a bill that has been pending in the Legislature for several years, which would amend DCL § 282 to specifically exempt rent-regulated leases and associated rights up to $150,000, shows that the current version of the statute does not exempt them. But that argument fails for multiple reasons. First, the views and intentions of the current Legislature cannot be imputed to the Legislature that enacted DCL § 282 in 1982. Second, statutes are often amended to clarify rather than change 21 To the contrary, a private citizen who wrote to the Governor’s Counsel to comment on the bill observed that “you cannot deprive a renter of a leasehold but you can deprive a homeowner of his home in a bankruptcy proceeding and that is why the courts and the Congress set forth the homestead exemption.” Letter from C. von Bruen to J. McGoldrick, Counsel to the Governor (July 2, 1982), at 2, reprinted in Bill Jacket, supra. Senator Jay P. Rolison, the Senate bill’s sponsor, appears to have made much the same point during legislative debates. See Sen. Debate Tr. at 4054 (Bill No. S8841) (“A tenant can’t be evicted. . . .”) (see Addendum). 45 their meaning, see, e.g., Tierney v J.C. Dowd & Co., 238 N.Y. 282, 288 (1924), or to expressly overrule decisional law construing the statute in ways the Legislature did not intend, see, e.g., Pierson v City of N.Y., 56 N.Y.2d 950, 958 (1982) (Meyer, J., dissenting). Third, the pending bill has not even been enacted, so the current Legislature as a whole has not yet conveyed its views, if any. And this Court has repeatedly cautioned that no inference can properly be drawn from the failure to enact a bill, as inaction can result from a wide range of causes, including that the legislature may have regarded the bill as unnecessary, or regarded it as undesirable, or may not yet have given the bill its full attention and considered judgment. See, e.g., Clark v. Cuomo, 66 N.Y.2d 185, 190 (1985); Brooklyn Union Gas Co. v N.Y. State Human Rights Appeal Bd., 41 N.Y.2d 84, 89-90 (1976). 46 B. Like Other Public Assistance Benefits, the Rent Stabilization Laws Seek to Aid a Financially Vulnerable Population. Contrary to the bankruptcy court and trustee’s assertions, the rent stabilization laws serve purposes similar to those of the other public assistance benefits exempted by New York law from a bankruptcy estate. As this Court has recognized, the central purpose of rent stabilization is to protect New Yorkers who struggle to afford suitable housing. See, e.g., Matter of Badem Bldgs. v. Abrams, 70 N.Y.2d 45, 52-53 (1987). The bankruptcy court and the trustee are thus mistaken in assuming that rent stabilization laws are not aimed at persons in need and hence do not provide true public assistance benefits. (A. 98-99.) See also Br. for Resp. at 6, 13 n.3. Household income statistics for New York City further show the error of that assumption. In 2010, the median income for rent-stabilized households was $37,000. See Housing NYC 2012, supra, at 60. That figure was close to the City’s poverty threshold for a family of two adults and two children ($31,039, according to the City’s most 47 recent calculation22), and was appreciably lower than the median income for non-rent-regulated renting households ($52,260) and home-owning households ($75,000), id. The important public policies served by the rent stabilization program should not be disregarded simply because the Legislature has concluded that program’s purposes would be served by extending benefits to those who, though not impoverished, would not be able to live in high rent areas such as New York City without assistance. Without the benefits and protections of rent stabilization, many lower- and middle-income New Yorkers would be priced out of the City altogether, diminishing neighborhood cohesion and socioeconomic diversity. When establishing a social welfare program, the Legislature has “wide discretion in defining who is needy” and how to meet those needs. Aliessa ex rel. Fayad v. Novello, 96 N.Y.2d 418, 428 22 N.Y.C. Office of the Mayor, The CEO Poverty Measure, 2005 – 2012: An Annual Report v (Apr. 2014). The City’s measure of poverty takes into account the expenses (e.g., medical care, child care, commuting, and housing) associated with living in New York City, as well as the benefits and tax credits available to city residents. See id. at 1-5. 48 (2001); see also N.Y. Const. art. XVII, § 1 (“The aid, care and support of the needy are public concerns and shall be provided by the state and by such of its subdivisions, and in such manner and by such means, as the legislature may from time to time determine.” (emphasis added)). And the Legislature similarly has broad discretion when acting to regulate rents and other aspects of tenancy pursuant to its police power authority to safeguard the welfare of state residents. See generally A. E. F.’s Inc., v. City of N.Y., 295 N.Y. 381, 385 (1946) (the Legislature “has a wide discretion in determining the extent and nature of the regulations necessary” when invoking its police powers). The rent stabilization scheme’s deregulation procedures confirm the program’s focus on households with relatively lower incomes. Under the provisions for “high rent/high income deregulation,” an owner can apply to end the rent regulated status of a unit if the unit rents for above a certain amount and the tenants’ annual incomes in two successive years exceed a given threshold. (See supra at 21.) Similarly, under “high rent/vacancy” deregulation provisions, if a unit that rents for more than a 49 certain amount per month becomes vacant, the owner can apply to have it deregulated. (See supra at 22-23.) Other provisions of the rent stabilization laws confer special rights, protections, and benefits on low-income tenants who are also elderly or disabled. The amount that such tenants can be required to pay for a security deposit is limited by law, see Unconsol. L. § 8626(f) (McKinney’s), and they can establish succession rights more easily, see 9 N.Y.C.R.R. § 2523.5(b). And where a landlord seeks to displace such a tenant in order to recover a rent-regulated apartment for personal use, the landlord must offer the tenant “an equivalent or superior housing accommodation at the same or lower regulated rent in a closely proximate area.” Id. § 2524.4(a)(2); see also N.Y.C. Admin. Code § 26–511(c)(9)(b). Elderly or disabled low-income tenants of rent-stabilized (and rent-controlled) apartments are also eligible to participate in the SCRIE program. SCRIE buffers such tenants against rent increases by covering a portion of their rent. The covered amount, which represents the difference between the amount a tenant is 50 required to pay under the SCRIE program and the actual rent, is remitted to the tenant’s landlord through a property tax abatement credit. See Real Property Tax Law § 467–b; N.Y.C. Admin. Code § 26–509; see also Nunez v. Giuliani, 91 N.Y.2d 935, 937 (1998).23 Rent stabilization thus does in fact aid financially vulnerable populations, just as other public assistance benefits schemes do. The trustee’s hypothetical suggestion (Br. for Resp. 18) that a “billionaire” could conceivably occupy a rent stabilized apartment asks the Court to ignore how high income deregulation functions in the rent stabilization scheme. But even if the trustee’s suggestion had any basis, that would not make rent stabilization any less a public assistance benefit. Billionaires are eligible for Medicare, for example, and other paradigmatic schemes of public assistance. But the possible existence of some very wealthy outliers in the class of beneficiaries does not disqualify rent 23 Additional benefits for senior citizens under the rent stabilization laws are detailed in DHCR, Fact Sheet # 21 Special Rights of Senior Citizens. 51 stabilization benefits or any other benefits from the exemption for local public assistance benefits. POINT IV SANTIAGO-MONTEVERDE’S SENIOR CITIZEN RENT INCREASE EXEMPTION BENEFITS ARE PLAINLY EXEMPT UNDER DCL § 282(2) Even if the Court does not find that all rent stabilization rights of tenants are exempt local public assistance benefits, Santiago-Monteverde’s SCRIE benefits are plainly exempt. SCRIE has the type of income eligibility requirement that the bankruptcy court and trustee regard as the hallmark of a public assistance benefit exempted under DCL § 282(2). See Br. for Resp. at 6, 14-18; Nunez, 91 N.Y.2d at 937 (listing requirements for beneficiaries detailed in the Administrative Code).24 Moreover, it operates as a stream of payments in which the debtor has an interest, see Nunez, 91 N.Y.2d at 937, another feature of public 24 See also N.Y. City Dep’t of Finance, Senior Citizen Rent Increase Exemption (SCRIE) Program Information for Tenants. 52 assistance benefits exempt under DCL § 282(2) according to the trustee and bankruptcy court, see Br. for Resp. at 21.25 Santiago-Monteverde’s SCRIE rights thus qualify for exemption under DCL § 282(2)(a) even under the bankruptcy court’s and trustee’s view of the statute. Santiago-Monteverde cannot receive SCRIE benefits unless she resides in rent- regulated housing, however. That additionally shows why Santiago-Monteverde’s general rent stabilization rights must be understood to fall within the exemption at DCL § 282(2) as well. 25 Similar points would apply as to debtors who live in apartment units falling under programs where owners or developers elect to receive tax credits or other incentives in exchange for (1) making units subject to rent stabilization, and (2) in some cases, agreeing to devote them to low-income housing. See, e.g., N.Y. City Rent Guidelines Bd., Changes to the Rent Stabilized Housing Stock in New York City in 2013, at 9-12 (describing additions to rent stabilized housing stock through tax incentive and low-income housing programs). 53 CONCLUSION For the foregoing reasons, this Court should hold, in answer to the first part of the certified question, that (1) the succession rights that the rent stabilization laws confer on a tenant’s family are not property of the tenant and should not be put at issue if the tenant alone files for bankruptcy, and (2) state law does not create a monetizable property interest in the elimination by a third party of a tenant’s rent stabilization rights and circumvention of state- law deregulation procedures. In the alternative, if the Court reaches the second part of the certified question, the Court should hold that (3) DCL § 282(2) exempts both rent stabilization rights and SCRIE benefits from bankruptcy as a “local public assistance benefit.” 54 Dated: New York, NY September 15, 2014 BARBARA D. UNDERWOOD Solicitor General ANISHA DASGUPTA Deputy Solicitor General ANDREW KENT Senior Counsel to the Solicitor General Respectfully submitted, ERIC T. SCHNEIDERMAN Attorney General of the State of New York By: ____________________________ ANDREW KENT Senior Counsel to the Solicitor General 120 Broadway New York, NY 10271 (212) 416-8018 RICHARD DEARING Chief, Appeals Division SUSAN P. GREENBERG Senior Counsel of Counsel ZACHARY W. CARTER Corporation Counsel of the City of New York 100 Church Street New York, New York 10007 (212) 356-2484 Reproduced on Recycled Paper ADDENDUM Pages from Senate Debate on L. 1982, ch. 540. 4053 obviously not, I think certainly owe them that . . obligation, and I am going to oppose this. I ·don't know who negotiated this bill. And, Senator Rolison, your expertise on this subject is far gre~ter than mine. But I want you to .understand my vote is based upon what I . understand to be very candid . and hone.st answers on your part; but, unquestionably, this bill does a disservice to my constituents, as I understand it; and I would vote in the negative. SENATOR ROLISON: Mr. President, may I just -- ACTING PRESIDENT AUER: Senator Rolison. SENATOR ROLISON: May I respond just to that for the moment. While I understand what you are saying, Senator Gold, I don't think if you look at the entire statut~ that that's totally accurate, in the sense that we have increased the automobile exemptions, for an example, . from 1200, whi·ch was under the federal statute, to 2400. That is a benefit. PAULINE E . WlLLlMAN CF.RTIJl'IED SHORTHAND REP01'TER That's a 1. 4054 benefit that would help anyone, for example. A tenant can't be evicted, back rent ls not collectable. There is a number of things which I think mitigate against the argument that you are making, I think, in rather stark terms. While ~here may be some differences, yes, but I don't think that it is nearly as dramatic as in those terms as you pointed it out. SENATOR LEICHTER: Mr. President. ACTING PRESIDENT AUER: Senator Leichter. SENATOR LEICHTER: Yes, on the bill, please. I don't think it's only a matter of Senator Gold's constituents. I think it is a matter of tHe people of the State of New York bein~ injured by this bill. It's not a surprise that the banks and that the Business Counci l is actively push! n g for th i s bill , because- it is definitely going to place persons who have the misfortune of going into bankruptcy in these economic times more and more people are going into bankruptcy. They will have less assets, PAU LINE E . W1LLlMAN CERTIFIED S HORTHAND REPORT ER