In the Matter of Mary Veronica Santiago-Monteverde. Mary Veronica Santiago-Monteverde, Appellant,v.John S. Pereira,, Respondent.BriefN.Y.October 14, 2014 To Be Argued By: Ronald J. Mann Time Requested: 30 Minutes CTQ-2014-00004 Court of Appeals STATE OF NEW YORK ————————————►►◄◄———————————— IN THE MATTER OF MARY VERONICA SANTIAGO-MONTEVERDE, Debtor, MARY VERONICA SANTIAGO-MONTEVERDE, Appellant, v. JOHN S. PEREIRA, Chapter 7 Trustee, Respondent. On a Question Certified by the United States Court of Appeals for the Second Circuit (USCOA Docket No. 12-4131-bk) REPLY BRIEF FOR APPELLANT Ronald J. Mann Of the Texas bar, admitted pro hac vice 435 W. 116th Street New York, NY 10027 (212) 854-1570 Kathleen G. Cully PLLC 180 Cabrini Boulevard, #128 New York, NY 10033 Telephone: (212) 447-9882 Facsimile: (800) 979-0423 (Kathleen G. Cully of counsel) Date Completed: September 12, 2014 Table f Contents Argument ........................................................................................................ 1 I. A Proposed Amendment To Section 282 Sheds No Light On The Proper Interpretation Of The Existing Statute. ......................... 2 II. This Court Should Read Section 282 (2) In Light Of The Entire Body Of Enacted New York Law, Which Only Buttresses The Plain Meaning Of Its Text. ................................................................... 3 III. It Would Be Incongruous To Permit Creditors To Profit From The Interest In A Rent-Stabilized Lease Of A Tenant In Bankruptcy When They Cannot Reach That Interest Under State Law. ................... 7 IV. The Inability Of Creditors To Dislodge A Rent-Stabilized Tenant In State-Law Collection Process Supports The Protection Of The Same Tenants In The Bankruptcy Process. .............................. 13 Conclusion .................................................................................................... 14 Table Of Authorities Cases Hardy v. Fink (Matter of Hardy), 503 BR 722 (B.A.P. 8th Cir. 2013) ............................................................. 7 In re Koch, 299 B.R. 523 (Bankr. C.D. Ill. 2003) ........................................................ 7 In re Luke, No. 08-35623, 2009 WL 1617468 (Bankr. N.D. Ohio 2009) ............... 7 In re Wilson, 305 BR 4 (N.D. Iowa 2004) ....................................................................... 9 Matter of Tall Trees Constr. Corp. v. Zoning Bd. of Appeals of Town of Huntington, 97 NY2d 86 (2001) ..................................................................................... 4 People v. Russo, 131 Misc2d 677 (Cty. Ct. 1986) ............................................................... 3 State ex rel. Kalal v. Circuit Ct., 271 Wis 2d 633 (Wis. 2004) ..................................................................... 3 U.S. v. Estate of Romani, 523 US 517 (1998) ..................................................................................... 3 Statutes 11 USC § 522 (d) (10) (A) ............................................................................. 7 CPLR 5201 ...................................................................................................... 6 NY City Rent and Rehabilitation Law (Administrative Code of City of NY) § 26-509 ................................... 10 NY City Rent and Rehabilitation Law §§ 26-501—26-520 .................. 10 NYCRR part 5250 ........................................................................................ 10 Rent Act of 2011, as added by L 2011, ch 97, part B .......................... 10 RPTL 467-b ................................................................................................... 10 Other Authorities Bill Jacket, L 1982, ch 540 ........................................................................... 6 Mem from Robert Abrams, Attorney General, to the Governor .......... 5 ii Mem in Support of Legislation ................................................................... 5 State of New York Executive Chamber, Mem Filed with Assembly Bill A11207-A ..................................................................................................... 5 iii Argument The lone question in this case is whether the New York legislature’s adoption of a bankruptcy exemption for any “local public assistance benefit” grants creditors access to the rights of a bankrupt debtor as a tenant under a rent-stabilized lease.1 As we demonstrated in our principal brief, the overarching framework of rent-stabilization legislation in this State, buttressed by this Court’s steadfast course of interpretation, precludes any such reading of the statute. The plain language of the statute protects appellant’s interest in her statutory benefits under the rent stabilization laws applicable to her lease, and nothing should prevent this Court from reaching that conclusion. Respondent largely avoids our presentation on that question, offering a series of four arguments that are for the most part either irrelevant or demonstrably incorrect. We offer this brief reply to aid the Court in identifying the points on which the parties disagree. For convenience, we organize our reply around the four points that respondent presents. 1 For ease of reading, we use in this brief the same capitalized defined terms as we do in our principal brief. I. A Proposed Amendment To Section 282 Sheds No Light On The Proper Interpretation Of The Existing Statute. Respondent’s principal argument (brief for respondent at 8-10) is that the recent introduction of a bill in the New York State Legislature, proposing to create an explicit bankruptcy exemption for rent regulated tenancies, demonstrates that the existing statute does not exempt rent regulated tenancies. The problems with that argument are conspicuous. For one thing, it ignores the fact that the drafters of the bill are merely responding to the decisions of the bankruptcy and district courts in this matter, with the intention to overrule them. Assemblymember Linda S. Rosenthal, the sponsor of that bill (see supp appx for respondent at SA1), states that her purpose was “to clarify what members of the Legislature had . . . thought was obvious” – that a rent-stabilized lease cannot be reached in a bankruptcy proceeding (corrected brief for amici curiae New York State Legislators at18 [signed by Ms. Rosenthal]). More generally, it attributes the intention of a few legislators introducing a bill to the entire legislature’s adoption, decades ago, of the existing text of Section 282. But that use of the unenacted bill 2 is so plainly mistaken that it should not even warrant discussion. (See, e.g., U.S. v. Estate of Romani, 523 US 517, 535 [1998] [Scalia, J., concurring] [“If the enacted intent of a later Congress cannot change the meaning of an earlier statute, then it should go without saying that the later unenacted intent cannot possibly do so. It should go without saying, and it should go without arguing as well.”] [emphasis in original]; see also People v. Russo, 131 Misc2d 677, 682 [Cty. Ct. 1986] [“Legislative inaction, because of its inherent ambiguity, affords the most dubious foundation for drawing positive inferences.”] [citations and quotation marks omitted]; State ex rel. Kalal v. Circuit Ct., 271 Wis 2d 633, 662 [Wis. 2004] [“It is the enacted law, not the unenacted intent, that is binding on the public.”].) II. This Court Should Read Section 282 (2) In Light Of The Entire Body Of Enacted New York Law, Which Only Buttresses The Plain Meaning Of Its Text. Respondent’s second contention (brief for respondent at 10- 14) is that the persistently vigorous support for the rent- stabilization program found in the pronouncements of the New 3 York legislature and this Court is wholly irrelevant to this Court’s determination whether Section 282 protects the tenant’s interest in a rent-stabilized lease or instead exposes it to the grasp of creditors — and even landlords — in bankruptcy. But that point ignores both common sense and this Court’s long-standing practices of interpretation. This Court has emphasized that “statutes relating to the same subject matter must be construed together unless a contrary legislative intent is expressed, and courts must harmonize the related provisions in a way that renders them compatible” (Matter of Tall Trees Constr. Corp. v. Zoning Bd. of Appeals of Town of Huntington, 97 NY2d 86, 91 [2001]). In any event, respondent’s contention that the legislature’s intention in drafting Section 282 was to narrow the scope of the relevant exemption cannot withstand scrutiny. To be sure, chapter 540 of the 1982 Laws (in which Section 282 was enacted) was largely motivated by a desire to trim down the amount of the exemptions available to debtors under the federal bankruptcy law. As the drafters of the bill explained: 4 Exemptions provided in the federal law have been the source of abuse, and in some cases have resulted in a windfall for bankrupt individuals who have been able to shelter assets of considerable value. . . . . The proposed legislation will not deprive those legitimately entitled to the fresh start afforded by bankruptcy from liquidating their indebtedness. However, it will limit the availability of relief to those actually in need of relief . . . . (Supp comp at SC12 [Mem in Support of Legislation at 2].) But nothing in the legislative history suggests that the concern about “abuse” related to rent-stabilized leases; on the contrary, the legislative history demonstrates a general intention to align exemptions from the bankruptcy process with the exemptions from creditor process under state law. (See id. at SC16 [State of New York Executive Chamber, Mem Filed with Assembly Bill A11207-A] [explaining that the “thrust of the bill is to replace the federal bankruptcy exemptions with the personal property and homestead exemptions applicable to actions for the satisfaction of money judgments under sections 5205 and 5206 of the Civil Practice Law” and summarizing the relevant differences]; id. at SC21 [Mem from Robert Abrams, Attorney General, to the Governor] [“Section 282 5 would permit a debtor to exempt from the bankruptcy estate the personal and real property exempt under CPLR sections 5205 and 5206 . . . . ”].) Significantly, despite a debtor’s obvious need for a place to live, nowhere in the 266 pages of discussion of the legislation – including vigorous debate of the proposed homestead and related exemptions – is there any suggestion that enactment of Section 282 would result in a bankrupt tenant losing a lease simply by filing for bankruptcy.2 That is a natural result of the goal of aligning New York and federal exclusions from property available to creditors, as under CPLR 5201 rent-regulated leases are not subject to execution for money judgments (see brief for appellant at 28). It is also consistent with the customary treatment of rent-regulated leases in bankruptcy: the leases weren’t affected at all, but instead were rejected out of the estate and back to the tenant. In any event, the suggestion that the legislature’s purpose was to narrow exemptions related to rent-stabilized leasing cannot be reconciled with the legislature’s choice to add an exemption for “a 2 The complete legislative history is set forth in the supplemental compendium for respondent at SC1-266 (Bill Jacket, L 1982, ch 540). 6 local public assistance benefit” by bringing in the exact language of the Bankruptcy Code. (Cf. 11 USC § 522 (d) (10) (A) (exempting “[t]he debtor’s right to receive—(A) a social security benefit, unemployment compensation, or a local public assistance benefit”).) III. It Would Be Incongruous To Permit Creditors To Profit From The Interest In A Rent-Stabilized Lease Of A Tenant In Bankruptcy When They Cannot Reach That Interest Under State Law. Respondent at last turns to the language of the statute in its third point (brief for respondent at 14-24), but his arguments there take no account of the careful statutory analysis that our principal brief presents (brief for appellant 15-26). A. Rent Stabilization Provides “Public Assistance.” First, relying on an appellate bankruptcy decision under Missouri — not bankruptcy3 and obviously not New York — law (Hardy v. Fink (Matter of Hardy), 503 BR 722, 723-25 [B.A.P. 8th Cir. 2013]), respondent argues that the terms “public” and “assistance” 3 Indeed, bankruptcy courts have treated a refundable child tax credit (i.e., one that is not merely a credit against taxes owed but may generate a refund when taxes are less than the amount of the credit) as a “public assistance benefit.” (See, e.g., In re Koch, 299 B.R. 523, 527 [Bankr. C.D. Ill. 2003]; In re Luke, No. 08-35623, 2009 WL 1617468 [Bankr. N.D. Ohio 2009].) These cases rely neither on a dictionary definition of “public assistance” nor a court’s evaluation of “need.” 7 must be linked in a single phrase – “public assistance” – and that this phrase must be limited to cash payments. That court relied on a dictionary definition of “public assistance” as aid that is given “to the needy, usually in the form of cash or vouchers,” and reasoned that the federal child tax credit did not qualify. But neither that decision nor its reasoning has any relevance here. For one thing, even the definition of “public assistance” on which respondent relies acknowledges that public assistance is “usually,” and thus admittedly not always, provided in the form of cash or vouchers. As we explain in detail in the principal brief (brief for appellant at 23-24), any reading that limits “assistance” or “benefits” to redistributive cash payments ignores the modern reality of social welfare programs, which include a much wider variety of tools than the programs to which respondent would limit the statute. For another, the federal child tax credit is a very different benefit from the rent-stabilization régime involved here: it results in a credit against a cash obligation and. most importantly, is not intended to protect recipients, but only to reduce their financial burdens. The carefully restricted rent-stabilization program is intended to protect tenants against eviction and 8 homelessness, against becoming a charge on the public. (See generally brief for appellant at 8-14 and sources cited therein.) Respondent also relies on that same definition to support an assertion (brief for respondent at 16-18) that the rent-stabilization program is not “public assistance” because it is not limited to the needy. Putting to the side the obvious point that the argument inserts into the statute a “poverty” requirement that the legislature did not adopt (see In re Wilson, 305 BR 4, 29 & n7 [N.D. Iowa 2004] [“When the Iowa legislature exempted ‘any public assistance benefit’ without further elaboration it left the determination of which classes of people qualified as needy to the federal, state and local governments.”]), the argument ignores the significant criteria of (i) the explicit income and rent thresholds the legislature chose to establish, (ii) the reality that tenants benefiting from rent-stabilized leases by and large are impecunious and otherwise would face an increasingly desperate housing market, and (iii) appellant’s particular situation as a beneficiary of SCRIE due to her advanced 9 age.4 (See brief for appellant at 11-14; see also brief for amici curiae New York City Bankruptcy Assistance Project and MFY Legal Services, Inc., at 5-8; brief for amici curiae New York State Legislators at 8-13.) That SCRIE —unquestionably a “local public assistance benefit” — requires that applicants have rent-regulated tenancies (see RPTL 467-b; NY City Rent and Rehabilitation Law [Administrative Code of City of NY] § 26-509) strongly implies that such a tenancy is also a “local public assistance benefit.” Finally, the object of the rent-stabilization laws is to protect against eviction. Against that background, it is callous to argue that appellant should be excluded from protection based on the postulated affluence of some members of the group benefitting from the rent-stabilization regime. 4 The legislature’s careful restriction of rent stabilization benefits is further demonstrated by (i) the requirement that the leased apartment be the primary residence of the tenant; (ii) the comprehensive prohibitions on (including criminalization of) monetization of any value attributable to rent stabilization; and (iii) the requirement of frequent review and renewal of the rent-stabilization laws. (See generally NY City Rent and Rehabilitation Law §§ 26-501—26-520; NYCRR part 5250; Rent Act of 2011, as added by L 2011, ch 97, part B); see also Penal Law 180.54—180.57.) 10 B. The Context Of Section 282 Compels Inclusion Of Rent- Stabilization Benefits In The Exempted Class. Respondent next argues that the statutory references to social security benefits and unemployment compensation compel the conclusion that the legislature intended to exclude rent-stabilization benefits. (See brief for respondent at 19-22 [discussing the principles of noscitur a sociis and eiusdem generis].) Again, that argument is answered completely by the discussion in our principal brief (to which respondent makes no reference). (See brief for appellant at 24-26.) As we explain there, it makes no sense to apply that doctrine to interpret an item in the middle of a list as categorically more narrow than later items in the same list. Among other things, the reference to “veteran’s benefits” and “social security benefits” (which include Medicare and Medicaid benefits) that consist in large part of medical care precludes any sensible reading of the statute as limited to “payments.” If the legislature intended to limit Section 282 to “payments,” it could have used that word in the statute (as indeed it did in Section 282 (e)). Its use of the broader term “benefits” is an integral part of the statutory drafting to which respondent has no answer. 11 Similarly, respondent argues that the list of protected benefits is so detailed that the absence of an explicit reference to rent stabilization necessarily reflects an intention to exclude it. (See brief for respondent at 22-24 [discussing the principle of expressio unius est exclusio alterius].) But that argument ignores the structure of Section 282 (2) itself, in which the reference to “local public assistance benefits” plainly is a catchall intended to describe a variety of less widely adopted programs not captured by the specific references to social security, veterans, disability and unemployment benefits. Neither respondent nor the legislative history offers as much as a word to suggest that any party involved in the drafting of Section 282 considered its application to rent stabilized housing, which reduces his argument to rank speculation. And the decades-long practice of bankruptcy trustees – leaving those tenants undisturbed in bankruptcy so long as they continued to pay rent – explains why: until this case, it would not have occurred even to an informed observer that the bankruptcy process could interfere with the tenancy of a rent-paying rent-stabilized tenant. This is the first case in which any appellate court has ever 12 considered the propriety of such an action. The legislature’s failure to include an express protection to prevent an almost unheard-of intrusion on the rights of those tenants provides no support for a departure from the plain language of the statute that the legislature adopted. IV. The Inability Of Creditors To Dislodge A Rent-Stabilized Tenant In State-Law Collection Process Supports The Protection Of The Same Tenants In The Bankruptcy Process. Respondent’s final argument (brief for respondent at 24-30) is that the New York rules for exemptions from debt collection have no relevance to interpreting the New York statute for exemptions from bankruptcy process. Specifically, respondent argues that the Bankruptcy Code preempts those rules and that the trustee’s ability to reach assets under federal law renders the New York law irrelevant to the dispute at hand. Respondent’s argument, of course, entirely misses the point of our presentation. Of course we acknowledge that the Bankruptcy Code grants trustees specific powers that creditors would not have under state law. But the issue in this case is what authority New York intended to bestow. The New York legislature has had several occasions to specify the range of assets available, and not available, 13 to creditors seeking to collect unpaid debts. Our point is simply that the plain exemption of the rent-stabilized tenant's leasehold from the state law process supports reading the language that governs the federal law process to reach the same result. As summarized above, the scant legislative history of the provision suggests that parity of process was one of the central goals of those responsible for the legislation. (See supra at 5-6.) For this Court to introduce an incongruous disparity in response to the legislature's contrary efforts would fly in the face of this Court's conventional practices of statutory construction. Conclusion This Court should hold that Section 282 (2) of the Debtor and Creditor Law exempts the protected value of a tenant's right to receive benefits under New York's rent-stabilization regime. Dated: New York, New York September 12, 2014 Respectfully submitted, �� �· ·�, (>\� � JS. Tull. ��··""� RONALD J. MANN O Of the Texas bar, admitted pro hac vice 43 5 W. l l 6th Street New York, NY 10027 (212) 854-1570 14 KATHLEEN G. CULLY PLLC By: � ,d WU Kathleen G. Cully g 180 Cabrini Boulevard, #128 New York, NY 10033-1167 (212) 447-9882 Attorneys for Mary Veronica Santiago-Monteverde, Appellant 15