S&R Development Estates, LLC et al v. Town of Greenburgh, New York et al

MEMORANDUM OF LAW in Opposition re: 140 MOTION to Dismiss Sisters' Counterclaim. . Document

S.D.N.Y.January 22, 2018

IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK S&R DEVELOPMENT ESTATES, LLC, et al Plaintiffs, v. No. 7:16-cv-08043-CS-PED TOWN OF GREENBURGH, NEW YORK, et al Defendants. COUNTERCLAIM-PLAINTIFF SISTERS OF THE BLESSED SACRAMENT’S MEMORANDUM IN OPPOSITION TO PLAINTIFF’S MOTION TO DISMISS COUNTERCLAIM January 22, 2018 Case 7:16-cv-08043-CS-PED Document 143 Filed 01/22/18 Page 1 of 26 TABLE OF CONTENTS TABLE OF AUTHORITIES ....................................................................................................... ii PRELIMINARY STATEMENT ................................................................................................. 1 STANDARD OF REVIEW ......................................................................................................... 2 STATEMENT OF FACTS .......................................................................................................... 2 ARGUMENT…………………………………………………………………………………….13 I. THE SISTERS’ COUNTERCLAIM IS NOT PREEMPTED BY THE FAIR HOUSING ACT. ............................................................................................................................. 13 A. Federal Preemption of State Law. ............................................................................ 14 B. The FHA Does Not Preempt Section 1951 of the RPAPL. ....................................... 17 CONCLUSION......................................................................................................................... 22 Case 7:16-cv-08043-CS-PED Document 143 Filed 01/22/18 Page 2 of 26 ii TABLE OF AUTHORITIES Cases Adesina v. Aladan Corp., 438 F. Supp. 2d 329 (S.D.N.Y. 2006) ................................................ 14 Arizona v. U.S., 567 U.S. 387 (2012) ........................................................................................ 18 Bedford Affiliates v. Sills, 156 F.3d 416 (2d Cir. 1998) .............................................................. 15 Board of Ed. of Central School Dist. No 1 of Towns of Walton et al, 15 N.Y.2d 364 (1965) ...... 17 Chamber of Commerce of U.S. v. Whiting, 563 U.S. 582 (2011) ................................................ 16 City of Los Angeles v. AECOM Svcs., Inc. 854 F.3d 114, cert denied, Tutor Perini Corp. v. City of Los Angeles, 138 S. Ct. 381 (Oct. 30, 2017) ...................................................................... 19 Crosby v. Nat’l Foreign Trade Council, 530 U.S. 363 (2000) .................................................... 16 Easton v. Sundram, 947 F.2d 1011 (2d Cir. 1991), cert denied. 504 U.S. 911 (1992)................... 2 English v. General Elec. Co., 496 U.S. 72 (1990) ...................................................................... 16 Equal Rights Ctr. v. Niles Bolton Assocs., 602 F.3d 597 (4th Cir. 2010) ..................................... 19 Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132 (1963) ....................................... 16 Frasier v. General Elec. Co., 930 F.2d 1004 (2d Cir. 1991) ........................................................ 2 Gade v. Nat’l Solid Wastes Mgmt Ass’n, 505 U.S. 88 (1992) ..................................................... 16 Hillsborough County Fla. v. Automated Med. Lab., 471 U.S. 707 (1985) ............................ 14, 15 Hines v. Davidowitz, 312 U.S. 52 (1941) ................................................................................... 16 Hishon v. King & Spalding, 467 U.S. 69 (1984) .......................................................................... 2 Louisiana Pub. Serv. Comm’n v. FCC, 476 U.S. 355 (1986) ............................................... 14, 15 Medtronic, Inc. v. Lohr, 518 U.S. 470 (1996) ............................................................................ 15 Metro Life Ins. Co. v. Mass., 471 U.S. 724 (1985) ..................................................................... 14 Miami Valley Fair Housing Center, Inc. v. Campus Village State, LLC, Civ. No. 10-00230, 2012 WL 4473236 (S.D. Ohio East. Div., Sept. 26, 2012) .............................................................. 19 Oconomowoc Residential Programs, Inc. v. City of Greenfield, 23 F. Supp. 2d 941 (E.D. Wisc. 1998) .................................................................................................................................... 17 Ray v. Atl. Richfield Co., 435 U.S. 151 (1978) ........................................................................... 15 Scheuer v. Rhodes, 416 U.S. 232 (1974)...................................................................................... 2 State of New York v. West Side Corp., 790 F. Supp. 2d 13 (E.D.N.Y. 2011) ............................. 14 United States v. Bryan Co., Civ. No. 11-302, 2012 WL 2051861 (S.D. Miss. June 6, 2012) ...... 19 United States v. Yale New Haven Hosp. 727 F. Supp. 784 (D. Conn. 1990) ................................. 2 Wyeth v. Levine, 555 U.S. 555 (2009) ....................................................................................... 15 Case 7:16-cv-08043-CS-PED Document 143 Filed 01/22/18 Page 3 of 26 iii Statutes Fair Housing Act, 42 U.S.C. § 3601, et seq. ....................................................................... passim GREENBURGH TOWN CODE § 285-29.1 ........................................................................................ 4 N.Y. CIVIL RIGHTS LAW § 18-a, et seq. ..................................................................................... 17 N.Y. REAL PROPERTY ACTIONS & PROCEDURES LAW § 1951 .............................................. passim Other Authorities J. Zasloff, The Secret History of the Fair Housing Act, 53 HARV. J. ON LEGIS. 247 (2016)......... 18 Rules Federal Rule of Civil Procedure 12 ......................................................................................... 1, 2 Constitutional Provisions U.S. CONST. amend. X .............................................................................................................. 14 Case 7:16-cv-08043-CS-PED Document 143 Filed 01/22/18 Page 4 of 26 COUNTERCLAIM-PLAINTIFF SISTERS OF THE BLESSED SACRAMENT’S MEMORANDUM IN OPPOSITION TO PLAINTIFF’S MOTION TO DISMISS COUNTERCLAIM Counterclaim-plaintiff Sisters of the Blessed Sacrament, Inc. (the “Sisters”), by their undersigned counsel, submit this memorandum of law in opposition to the motion by counterclaim-defendant S&R Development Estates, LLC, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, to dismiss the Sisters’ amended counterclaim in this action. PRELIMINARY STATEMENT In their counterclaim, the Sisters seek to enforce a right under New York state law to recover damages for the loss of a restrictive covenant that provides them with the privacy and quiet that they believe is important to accommodate their daily religious practices and that, if lost, would substantially burden their religious exercise. Specifically, the Sisters allege that plaintiff is seeking to profit handsomely at the Sisters’ expense by stripping them of a valuable property right to continued enjoyment of a restrictive covenant that bars construction of apartments on property adjacent to their convent that, if plaintiff succeeds, will result in plaintiff’s own property being worth more than ten times what plaintiff paid for it. Plaintiff seeks dismissal under Federal Rule of Civil Procedure 12(b)(6) on the ground that the counterclaim is “preempted” under the Fair Housing Act, 42 U.S.C. § 3601, et seq., for which they have asserted a $26 million damage claim against the Sisters. Specifically, plaintiff contends that preemption applies because the Sisters are supposedly seeking through their counterclaim to make plaintiff pay for the Sisters’ own intentional “wrongdoing.” The Sisters deny any wrongdoing, but even if their refusal in state court proceedings that S&R brought against them to waive enforcement of the covenant results in a violation of the FHA, they are not claiming in their Case 7:16-cv-08043-CS-PED Document 143 Filed 01/22/18 Page 5 of 26 2 counterclaim any right of indemnification for any damages plaintiff may seek. To the contrary, if plaintiff succeeds in establishing a right to build apartments on property adjoining theirs, the Sisters are only asking that plaintiff compensate them, as required under New York state law, for the loss of property rights. This claim is no different than any adjoining property owner in a subdivision subject to a restrictive covenant would have. Here, plaintiff would have had to pay the Sisters for their loss regardless of whether there had been any violation of the FHA. There is no basis for preemption here. STANDARD OF REVIEW When considering a Rule 12(b)(6) motion to dismiss, the Court is required to accept as true all factual allegations in the complaint and draw inferences from these allegations in the light most favorable to the plaintiff. See Scheuer v. Rhodes, 416 U.S. 232, 236 (1974); Easton v. Sundram, 947 F.2d 1011, 1014-15 (2d Cir. 1991), cert denied. 504 U.S. 911 (1992). Dismissal is warranted only if, under any set of facts that the plaintiff can prove consistent with the allegations, it is clear that no relief can be granted. See Hishon v. King & Spalding, 467 U.S. 69, 73 (1984); Frasier v. General Elec. Co., 930 F.2d 1004, 1007 (2d Cir. 1991). “The issue on a motion to dismiss is not whether the plaintiff will prevail, but whether the plaintiff is entitled to offer evidence to support his or her claims.” United States v. Yale New Haven Hosp. 727 F. Supp. 784, 786 (D. Conn. 1990), citing Scheuer, 416 U.S. at 232. STATEMENT OF FACTS The relevant facts as alleged by the Sisters are as follows. They are a contemplative order of Roman Catholic nuns who in 1996 purchased a 6.7-acre lot (Lot 6 in a 10-lot subdivision) for Case 7:16-cv-08043-CS-PED Document 143 Filed 01/22/18 Page 6 of 26 3 use as their convent (the “Property” or “Convent”). Amended Counterclaim (“AC”) ¶¶ 25-26. The Convent was zoned for single-family homes and was subject to a restrictive covenant that barred construction of “tenements and flat houses.” AC ¶¶ 26, 42. The covenant dated back to the early 1900s, when the 10-lot subdivision was originally created. AC ¶ 39. The Sisters were aware of the covenant when they purchased the Property in 1996. AC ¶¶ 34, 40-41. A copy of the covenant was disclosed in the title report that accompanied their title insurance policy. Id. The Sisters purchased the Property from the Paulist Fathers, a monastic order of Roman Catholic monks who had used it as a religious retreat since 1965. AC ¶ 28. The Sisters believed that the covenant guaranteed them privacy and quiet, and was one of the means by which their Property could continue to be used as a religious retreat. AC ¶¶ 2, 42-43, 125. Plaintiff S&R is a partnership of two brothers who are both lawyers and experienced real estate professionals. AC ¶ 19. The partnership was formed solely for the purpose of acquiring and developing the 2.3-acre lot adjoining the Convent (Lot 5). S&R has no other business. At the time of the purchase, the lot had been improved not with a “building,” as S&R states (P. Br. at 1), but with a single-family home. When S&R first learned of Lot 5 in 2004, the brother/partners obtained a title report and title insurance policy from the owner. AC ¶¶ 54, 56. The title report disclosed the covenant restricting Lot 5 to single family homes and a partial release given in 1979 and 1980 by property owners in the subdivision to allow for construction on three other lots (Lots 2, 3, and 4) of a 120-unit apartment complex that became known as Scarsdale Woods Condominiums. The brother/partners were also told that Lot 5 was zoned R-20, for single family homes on one-half acre lots. For example, in a March 8, 2004 fax, Richard Troy told a local architect that the lot is “in an R-20 zone and 2.37 acres” and wanted to know from him how many single-family homes could be built on it. A copy of the fax is attached hereto as Exhibit A. Case 7:16-cv-08043-CS-PED Document 143 Filed 01/22/18 Page 7 of 26 4 On or around June 30, 2004, S&R confirmed the existence of the covenant with its own title insurance company. AC ¶¶ 58-60. S&R also learned that, contrary to what the existing owner’s records showed, the Town of Greenburgh had published a zoning map which showed the 2.3-acre lot as being in the Central Avenue Mixed Use Impact Zone (the “CA Zone”). The Town had created the CA Zone in 1978 to provide a plan for the commercial development of property along either side of Central Park Avenue, a state road known as Route 100, which is a principal three-mile long thoroughfare through unincorporated Greenburgh that connects the City of Yonkers with the City of White Plains. Permitted uses in the CA zone included shopping centers, restaurants, cabarets, and multifamily housing. GREENBURGH TOWN CODE § 285-29.1. The zoning classification of Lot 5 on the Town’s zoning map was in error, the result of a mistake made by a draftsman in 1997. AC ¶ 84. The Town had never formally or informally ever adopted any legislation re-zoning Lot 5 to be in the CA Zone. In August 2004, S&R entered into a joint venture with the property’s owner to acquire and develop Lot 5. The original purchase price was $1.2 million. However, the property owner refused to deliver the deed to Lot 5, claiming that S&R had misled him into believing the property would be developed with three or four single family homes. AC ¶ 61. Instead, S&R intended to develop Lot 5 with multifamily luxury housing. Their dispute was litigated for 18 months in New York State Supreme Court in Manhattan, during which time S&R obtained an appraisal for its damage claim against the prior owner showing that, if Lot 5 could be developed for multifamily housing, it would be worth more than $10 million. AC ¶ 62. When the litigation was ultimately settled, and S&R acquired Lot 5 in May 2006, the purchase price was $1,410,000. AC ¶ 63. Even assuming Lot 5 was in the CA Zone, S&R knew that, because of the covenant, Lot 5 could not be developed with multifamily housing without first Case 7:16-cv-08043-CS-PED Document 143 Filed 01/22/18 Page 8 of 26 5 obtaining the consent of the Sisters. However, rather than ask for such consent, S&R embarked instead upon a scheme to donate 100% of Lot 5 to the Town in exchange for a tax write-off. This write-off was based on the inflated value of Lot 5 of more than $10 million assuming it could be developed with multifamily housing. And especially significant, the tax write-off was further based on the assumption that the covenant did not exist, which meant no consent from the Sisters, the owners of Lot 6, would be needed. AC ¶¶ 65-82. By early December 2006, before any public disclosure that multifamily housing was being proposed, S&R had enlisted the aid of the property appraiser that had valued Lot 5 in 2005, and again in 2006, for $10 million. S&R had him draw up written calculations regarding the amount of the tax write-off it could receive from the gift. The write-off was valued at $7.375 million. A copy of that memo is attached hereto as Exhibit B. In late December 2006, S&R disclosed its plans to develop multifamily housing on the site. Within a few weeks, though, S&R had invited personnel from the Town and the Greenburgh Nature Center to a meeting to unveil its previously prepared plans to donate the property. The “donation” had three catches: The first was that the Town and/or the Nature Center had until December 31, 2007 to reimburse S&R for the $1.4 million purchase price plus additional costs estimated to be $400,000, totaling $1.8 million. The second catch was that the Town and/or the Nature Center, as the recipient of the gift, had to certify to the IRS that the gift was worth the millions of dollars S&R had claimed it was worth. The third catch was that if the money was not raised by year end, S&R wanted Town officials to agree in advance that S&R would have the right to construct 10 luxury apartments instead of the 40 apartments it was planning. A copy of S&R’s written proposal to make the gift (referred to at AC ¶ 71) is attached hereto as Exhibit C. Case 7:16-cv-08043-CS-PED Document 143 Filed 01/22/18 Page 9 of 26 6 Besides the Town getting on board with S&R’s tax write-off scheme, S&R wanted buy-in from the Edgemont Community Council (“ECC”). Accordingly, S&R met together with Town officials and ECC representatives to inform them of the planned donation and the three conditions under which it would be made. S&R also offered the ECC the opportunity it had given the Town and the Nature Center to make the requested payments by year end to ensure the entire property would be donated, but it wanted the ECC to promise that, if the requested payments were not made by year end, it would not oppose S&R’s plans to build 10 luxury apartments on the property. AC ¶ 81. S&R also added one more catch: It wanted Town officials to exempt it from the Town’s affordable housing set-aside requirements in which a minimum of 10% of all new housing had to be set aside for persons or families earning 80% of the area median income and whose rents would be no more than 30% of their monthly income. Thus, if only 10 luxury apartments were to be built, S&R wanted to be exempt from having to make one of the apartments “affordable.” Because the ECC was a civic association, the ECC could not offer S&R any land use approvals; nor could the ECC exempt S&R from the Town’s affordable housing laws. After S&R disclosed its plans in January and early February 2007 to make the gift, there was no public opposition to S&R’s plans for multifamily housing. This was due to the critical fact that, as a result of S&R’s unilateral offer to donate the property to the Town in exchange for the tax write-off, no one expected any housing to be built. Accordingly, although their property adjoined that of the Sisters, S&R at no time notified the Sisters of any plans to build multifamily housing on the property; nor did S&R invite the Sisters to the meetings they held where discussion of the tax write-off took place. AC ¶ 82. There was no need to invite them because if the tax write-off scheme had worked, the property would have Case 7:16-cv-08043-CS-PED Document 143 Filed 01/22/18 Page 10 of 26 7 been donated, no waiver of the covenant would have been necessary, and S&R would have been reimbursed for its costs and received, in return, a multimillion dollar tax write-off. With everyone expecting the property to be donated, in early February 2007 S&R filed plans with the Town for the development of more than 40 luxury apartments. AC ¶ 83. The filing of these plans with the Town created a record for S&R to claim that, when the gift was eventually made, S&R had intended all along to build valuable luxury housing on the property which, in making the gift, it was willing to forego. Thus, even though S&R had already submitted a non- binding commitment in writing to Town officials to donate the property and not build anything at all, the filing allowed S&R to document for the IRS its intention to build multifamily housing on the site. In its application, S&R also disclosed-presumably to avoid any potential claim by the IRS that the Troys had concealed material information when making their “gift”-that there were restrictive covenants on the property. S&R included with the application a copy of the covenants, from a 1912 deed, along with a copy of the partial release that had been given in 1980. There was no public notice, however, of either the application to develop the 40 luxury apartments or the covenants. More importantly, the Sisters were never informed by anyone that any such disclosure had been made by S&R. S&R’s tax write-off plans collapsed, however, in late February 2007, when Town officials discovered that the zoning classification for Lot 5 of the subdivision had been mismarked on the Town’s zoning map. AC ¶ 84. Rather than disclose the error and give notice to all impacted property holders, including S&R and the Sisters, the Town instead unilaterally corrected the map without any prior notice or public hearing. After making the “correction,” the Town issued a press release announcing the change had been made. Case 7:16-cv-08043-CS-PED Document 143 Filed 01/22/18 Page 11 of 26 8 The Town’s unilateral correction of the zoning map was not caused by anything the Sisters are alleged to have said or done, as they had nothing to do with it, and S&R does not claim otherwise. Nor could the Town’s action have been the result of any “community pressure” from the Sisters because no members of the community, including the Sisters, knew in advance of the map error and the correction. Moreover, S&R had already announced its plans to donate the property in exchange for a tax write-off, and as a consequence of their “generosity” no one was expecting any housing whatsoever to be built on the property. The Sisters were not expecting any such housing to be built either, but for different reasons: they were never told of any plans to build housing and never knew about any such “gift.” The Town’s disclosure of the zoning map error cast doubt on whether multifamily housing could be built on Lot 5, which meant that the Town and the Nature Center could no longer certify in good faith to the IRS that the gift was still worth the millions of dollars S&R needed it to be worth for the tax write-off to be as valuable. The result was that if S&R wanted to monetize the value of Lot 5 based on its availability for multifamily housing, by either building such housing itself or, more likely, selling Lot 5 with such rights to a third party professional multifamily housing developer, it would have to get a court ruling that Lot 5’s zoning classification was CA. Of particular relevance, if S&R prevailed on the zoning battle to correct the zoning map error, it would then have to deal with the Sisters on the issue of the covenant. To address these issues, S&R hired the White Plains law firm Bleakley Platt & Schmidt, which represents the New York Roman Catholic Archdiocese and whose managing partner, William Harrington, is a member of Archdiocese’s Finance Committee. Harrington had been adverse to the Sisters once before- in 1996-which prompted the Sisters’ lawyer to demand that he withdraw as counsel because of a conflict of interest. AC ¶¶ 87-89. A copy of that letter is attached as Exhibit D. Case 7:16-cv-08043-CS-PED Document 143 Filed 01/22/18 Page 12 of 26 9 The sudden hiring of a law firm with close ties to the Archdiocese and who had been adverse to the Sisters once before was no coincidence. S&R hired that firm because it knew that if it was ever going to get the return it was looking for on its investment, it would have to get the Sisters not to invoke their rights under the covenant and thereby block their plans to market Lot 5 as available for multifamily housing-and to get the Sisters to give up their rights at no cost to S&R. Between 2007 and 2013, S&R litigated the zoning issues with the Town. Again, the Sisters took no action complained of by S&R, and were not involved in the litigation. In addition, during that period of time, S&R provided no notice to the Sisters of their plans for Lot 5, nor was any notice provided to the Sisters by the Town. AC ¶¶ 91-96. In late 2007, S&R filed a federal lawsuit against the Town claiming, among other things, violation of constitutional rights and the Fair Housing Act. After its federal suit was dismissed, S&R filed an Article 78 action against the Town challenging the zoning classification and in 2009 alleged that the zoning had been corrected as a result of “community pressure.” Even though the litigation S&R filed in state court directly affected their property rights as adjoining property owners, the Sisters were never notified or otherwise made a party to that proceeding, and thus took no action complained of by S&R. S&R obtained leave in state court to take discovery in aid of its allegation of “community pressure,” but the only discovery taken was limited to depositions of town officials. In seeking to hold the Town liable for bad faith, S&R argued that Town Supervisor Paul Feiner, who it said was the only elected town official in office in 1997 when the alleged error in the zoning map occurred, testified that his attorneys had specially instructed him not to prepare for his Court-ordered deposition and “thus intentionally frustrated the Court’s order to provide testimony to ‘explain and justify’ the Town’s Case 7:16-cv-08043-CS-PED Document 143 Filed 01/22/18 Page 13 of 26 10 conduct.” See Reply Affirmation of William P. Harrington In Further Support of the Petition, Oct. 21, 2011 ¶ 30. A copy of the relevant excerpts from that Affirmation is attached as Exhibit E. The Sisters, of course, had nothing to do with any such testimony and are not alleged to have had any involvement with it. The only evidence submitted of any political pressure came from Richard Troy, who argued in a reply affidavit that “no doubt political pressure played a role,” citing alleged threats by Mr. Feiner to take the property by eminent domain, the Town Board’s “threats of a zoning moratorium,” and “Edgemont residents’ threats of making S&R’s property a park or part of the Greenburgh Nature Center”-all of which he said “simply vanished after town officials corrected the map.” See Reply Affirmation of Rick Troy in Further Support of Petition, Oct. 21, 2011 ¶ 7. A copy of the relevant excerpts from that Affirmation is attached as Exhibit F. Mr. Troy made no allegation that the Sisters were involved in such “political pressures” and there is no mention of the Sisters at all in that litigation. While Town officials denied any such pressure, the Town presented no evidence to show that because S&R had planned all along to donate Lot 5 in order to take a tax write-off, and had informed the Town, the Nature Center and the ECC of its plans to do so, there was no opposition to S&R’s proposal, much less any evidence of any political pressure put on any Town officials to change the zoning map. On January 11, 2012, the Supreme Court, State of New York, ruled that Town officials had acted unlawfully in correcting the map without notice and a hearing, that their actions were the result of bad faith, and that the property’s zoning classification was restored to what it had been when plaintiff acquired the property in 2006. Even though the decision impacted their zoning rights as adjoining property owners, the Sisters were not mentioned in the ruling and were given no notice that it had been issued. Case 7:16-cv-08043-CS-PED Document 143 Filed 01/22/18 Page 14 of 26 11 In early February 2013, the Sisters learned from their cook that the Town’s planning board was holding a hearing on February 6 to discuss plans for the property. AC ¶¶ 97, 100. They immediately contacted their lawyer, Daniel Doran. Mr. Doran had also represented them in 1996 when they bought the Convent. Together they attended the hearing, and learned for the first time that S&R was seeking approval to build a 45-unit apartment house immediately facing their Convent. At a second hearing on February 20, they heard a statement from Robert Bernstein on behalf of the Edgemont Community Council indicating that certain properties in the subdivision were subject to restrictive covenants which might bar the construction of such apartments. AC ¶ 102. The Sisters had no advance knowledge that such statement would be made and there is no allegation by S&R that they did. Based on Mr. Bernstein’s statement, S&R immediately notified its title insurance carrier of a claim that it believed would have to be addressed in order to clear the cloud on its title. There is no allegation that the Sisters were involved in any action that led S&R to notify its title insurance carrier of a cloud on its title. A copy of that notice is attached hereto as Exhibit G. Mr. Doran returned to his office, checked his files, and discovered the title report and title insurance policy that was issued to the Sisters in connection with the purchase of the Convent in late 1996. Those documents confirmed that the Convent was subject to the same restrictive covenants that were in S&R’s deed and that the Sisters had rights to enforce the covenants and block the apartment building that S&R was seeking approval to build. On March 2, 2013, Sr. Mary Francis Blackmore notified S&R’s counsel in writing that the Convent intended to enforce its rights under the covenant and asked that S&R withdraw its plans. AC ¶ 106. The Sisters, however, took no legal action to enforce the covenant. Instead, in July 2013, a law firm retained by S&R’s title insurer brought an action on S&R’s behalf in Westchester Case 7:16-cv-08043-CS-PED Document 143 Filed 01/22/18 Page 15 of 26 12 County Supreme Court to clear the title by seeking a declaration under Section 1951 of the RPAPL that the covenant was not enforceable. Because it was an action to clear title, all property owners in the subdivision, including the Sisters, were made defendants in that proceeding. AC ¶ 107. The case was eventually dismissed on ripeness grounds because the zoning litigation discussed above was still pending, the court reasoning that if the Town were to prevail on the zoning claim, the litigation over the covenant would become moot. The Sisters again continued to play no role in any of the zoning litigation, and S&R, which never made the Sisters a party to any of these proceedings, does not allege that they did. In March 2016, once the zoning issues were finally decided in S&R’s favor, S&R’s title insurer again brought an action on S&R’s behalf, in Westchester County Supreme Court, to clear title, and again all property owners in the subdivision, including the Sisters, were named. AC ¶ 108. S&R argued that the covenant is no longer enforceable because of changed conditions, and should not be enforceable in any event because of arguments based on waiver, estoppel, and because it argues the covenant does not run with the land. The Sisters asserted a counterclaim under Section 1951 in that action for damages in the event the covenant is extinguished. S&R itself brought this action in federal court in October 2016, asserting claims for $26 million in damages against the Sisters for alleged violations of the Fair Housing Act. S&R claims that the Sisters’ decision to enforce their rights under the covenant constituted housing discrimination because they allege (i) the Sisters are biased against families with children; and (ii) even if there is no intentional bias, the Sisters are still liable because their decision has had a disparate impact on the availability of housing for families with children and African-Americans. AC ¶¶ 109-110. The Sisters have denied these allegations, raised a series of affirmative defenses, including defenses based on their federal statutory and constitutional rights as a religious order, Case 7:16-cv-08043-CS-PED Document 143 Filed 01/22/18 Page 16 of 26 13 and have asserted a counterclaim under Section 1951 for damages in the event the covenant is extinguished or otherwise not found to be enforceable under the FHA and, plaintiff thus achieves its decade-long objective of enhancing the value of its own property tenfold by stripping the Sisters of valuable rights they had to their own property. ARGUMENT II. THE SISTERS’ COUNTERCLAIM IS NOT PREEMPTED BY THE FAIR HOUSING ACT. Plaintiff argues that the Sisters’ claim for compensation under Section 1951 of the New York Real Property Actions and Procedures Law is preempted by the federal Fair Housing Act, 42 U.S.C. § 3601, et seq., because it “plainly conflicts with the FHA.” P. Br. at 3. However, as demonstrated below, there is no preemption here because (1) Congress did not expressly exempt states from the exercise of their police power when it enacted the FHA, and Section 1951 is unquestionably a valid exercise of New York’s police power to prevent fraud or oppression in business and commercial transactions; (2) Congress instead expressly made the FHA’s authority subject to constitutional limitations, one of which is the Sisters’ right under the Fifth Amendment to “just compensation” for the taking of property, which right would be taken away if Section 1951 were preempted; and (3) there is no conflict between Section 1951 and the FHA because (a) Section 1951 does not shift any non-delegable duties on the part of the Sisters to comply with the FHA, and (b) the damages available to the Sisters under Section 1951 are separate and distinct from the damages plaintiff is claiming against the Sisters under the FHA, and thus do not constitute indemnification for any alleged wrongdoing on the part of the Sisters. Therefore, the Sisters’ claim for damages under Section 1951 is based on the diminution in the value of their property as a religious retreat due to the future loss of privacy and quiet, while the $26 million in damages that Case 7:16-cv-08043-CS-PED Document 143 Filed 01/22/18 Page 17 of 26 14 plaintiff is claiming against the Sisters are for lost profits, interest on lost profits, and certain out- of-pocket expenses. A. Federal Preemption of State Law. The Supremacy Clause of Article VI of the Constitution grants Congress the authority to preempt state law. Louisiana Pub. Serv. Comm’n v. FCC, 476 U.S. 355, 368 (1986). The Tenth Amendment, however, reserves “powers not delegated to the United States by the Constitution . . . to the States, respectively, or to the people.” U.S. CONST. amend. X. Courts should be “reluctant to find preemption” when dealing with subjects “traditionally governed by state law . . . .” Adesina v. Aladan Corp., 438 F. Supp. 2d 329, 335 (S.D.N.Y. 2006) (quoting CSK Transp., Inc. v. Easterwood, 507 U.S. 658, 664 (1993). Further, Between the [Supremacy Clause and the Tenth Amendment] lies the land of the preemption doctrine, by which federal law does or does not take the place of the law of a state. On the one hand, the Supremacy Clause favors preemption in fields that are inherently federal in character, while on the other hand, the Tenth Amendment presumes that areas of law traditionally governed by the states, including common law torts and areas related to public health and safety, will not be displaced by a federal statute. Adesina, 438 F. Supp. 2d at 335 (state common law tort claims not preempted by federal drug laws) (citing Hillsborough County Fla. v. Automated Med. Lab., 471 U.S. 707, 713-15 (1985) (Federal rules did not preempt local ordinance based on either explicit or implicit grounds)); Metro Life Ins. Co. v. Mass., 471 U.S. 724, 756 (1985) (“States traditionally have had great latitude under their police powers to legislate as to the protection of the lives, limbs, health, comfort and quiet of all persons”); see also State of New York v. West Side Corp., 790 F. Supp. 2d 13, 19-24 (E.D.N.Y. 2011) (state law claims for restitution and indemnification not preempted by federal environmental cleanup law). Case 7:16-cv-08043-CS-PED Document 143 Filed 01/22/18 Page 18 of 26 15 The Supreme Court has set forth two principles to guide courts in applying the federal preemption principle embodied in these constitutional provisions. First, “[i]n all pre-emption cases, and particularly in those in which Congress has legislated . . . in a field which the States have traditionally occupied, . . . we start with the assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress.” Medtronic, Inc. v. Lohr, 518 U.S. 470, 485 (1996) (citation omitted); see also Wyeth v. Levine, 555 U.S. 555, 565 (2009). Second, “the purpose of Congress is the ultimate touchstone in every pre-emption case.” Medtronic, 518 U.S. at 485. The Congressional intent is “discerned from the language of the pre-emption statute and the ‘statutory framework’ surrounding it.” Id. There are three ways in which federal law may preempt state law: Express preemption, implied or field preemption, and conflict preemption. Express preemption exists where Congress declares in express terms “its intention to preclude state regulation in a given area.” Bedford Affiliates v. Sills, 156 F.3d 416, 426 (2d Cir. 1998). Simply put, “[p]re-emption occurs when Congress, in enacting a federal statute, expresses a clear intent to pre-empt state law.” Louisiana Pub. Serv. Comm’n, 476 U.S. at 368. On the other hand, implied or field preemption exists where “federal law is sufficiently comprehensive to make reasonable the inference that Congress left no room for supplementary state regulation.” Bedford Affiliates, 156 F.3d at 426 (quoting Hillsborough Cnty. v. Automated Med. Lab, Inc., 471 U.S. 707, 713 (1985)). Finally, under conflict preemption, “state law may be preempted to the extent that it actually conflicts with a valid federal statute.” Id. (quoting Ray v. Atl. Richfield Co., 435 U.S. 151, 158 (1978). Conflict preemption can occur either “when compliance with both federal and state regulations is a physical impossibility,” id. (quoting Florida Lime & Avocado Growers, Inc. v. Case 7:16-cv-08043-CS-PED Document 143 Filed 01/22/18 Page 19 of 26 16 Paul, 373 U.S. 132, 142-43 (1963)), or “where state law stands as an obstacle to the accomplishments and execution of the full purposes and objectives of Congress.” Id. (quoting Hines v. Davidowitz, 312 U.S. 52, 67 (1941)). What is a sufficient obstacle is a matter of judgment, to be informed by examining the federal statute as a whole and identifying its purpose and intended effects.” Crosby v. Nat’l Foreign Trade Council, 530 U.S. 363, 373 (2000). However, as the Supreme Court has repeatedly explained, this is a highly stringent standard. “Implied preemption analysis does not justify a ‘freewheeling judicial inquiry into whether a state statute is in tension with federal objectives’; such an endeavor ‘would undercut the principle that it is Congress rather than the courts that preempts state law.’” Chamber of Commerce of U.S. v. Whiting, 563 U.S. 582, 607 (2011). “[Supreme Court] precedents ‘establish that a high threshold must be met if a state law is to be preempted for conflicting with the purposes of a federal Act.’” Id. (emphasis added). “Any conflict must be ‘irreconcilable . . . . The existence of a hypothetical or potential conflict is insufficient to warrant the preemption of [state law].’” Gade v. Nat’l Solid Wastes Mgmt Ass’n, 505 U.S. 88, 110 (1992) (emphasis added) (Kennedy, J. concurring in part and concurring in judgment); accord, English v. General Elec. Co., 496 U.S. 72, 90 (1990) (conflict must be actual, not hypothetical or speculative). Courts must apply conflict preemption cautiously because they violate the Constitution if they impose their own policy conceptions. Wyeth, 555 U.S. at 583 (Thomas, J., concurring in the judgment) (“implied pre-emption doctrines that wander far from the statutory text are inconsistent with the Constitution”); Geier v. American Honda Motor Co., 529 U.S. 861, 911 (2000) (Stevens, J., dissenting) (“‘preemption analysis is, at least should be, a matter of precise statutory [or regulatory] construction rather than an exercise in free-form judicial policymaking’”). Case 7:16-cv-08043-CS-PED Document 143 Filed 01/22/18 Page 20 of 26 17 B. The FHA Does Not Preempt Section 1951 of the RPAPL. There is no express statement of preemption in the FHA that would apply here. Indeed, nowhere in 42 U.S.C § 3601, et seq., is the subject even mentioned and plaintiff does not contend otherwise.1 Consequently, in the absence of an express statement of preemption, the law presumes that there was no intention by Congress when it enacted the FHA to preempt the exercise of an individual state’s police powers. Here, Section 1951 of the RPAPL is an exercise of police powers by the State of New York, specifically to “prevent fraud or oppression in business or commercial transactions.” See Board of Ed. of Central School Dist. No 1 of Towns of Walton et al, 15 N.Y.2d 364, 369 (1965) (sections 1951 through 1955 of the RPAPL are among “[s]tatutes that may be enacted under the police power to prevent fraud or oppression in business or commercial transactions”). Accordingly, federal preemption law presumes that there was no intent on the part of Congress to preempt Section 1951 of the RPAPL when it enacted the FHA. There is no argument made that implied or field preemption exists here, as fair housing is an area in which the states and local governments frequently legislate. See, e.g., N.Y. CIVIL RIGHTS LAW § 18-a, et seq. (outlawing discrimination because of race, color, religion, national origin or ancestry in any publicly assisted housing accommodations). This is unlike, for example, the federal government’s “broad, undoubted power over immigration and alien status” which pre- 1 The only restriction in the FHA is that any law of a state that “purports to require or permit any action that would be a discriminatory housing practice under this subchapter shall to that extent be invalid.” 42 U.S.C. § 3615; see Oconomowoc Residential Programs, Inc. v. City of Greenfield, 23 F. Supp. 2d 941, 951-56 (E.D. Wisc. 1998) (state law imposing a 2500-foot spacing requirement on community living arrangements for the developmentally disabled held on summary judgment to “limit meaningful access to housing for the disabled” and thus invalid under the FHA). Plaintiff neither cites this provision of the FHA nor suggests that it applies here. Case 7:16-cv-08043-CS-PED Document 143 Filed 01/22/18 Page 21 of 26 18 empts states from adopting their own statutes regulating alien registration. See Arizona v. U.S., 567 U.S. 387, 400 (2012). Nor does plaintiff here meet the stringent standards required to show conflict preemption. Congress expressly stated that the purpose of the FHA is to “provide, within constitutional limitations, for fair housing throughout the United States.” 42 U.S.C. § 3601 (emphasis added). One such constitutional limitation is the Fifth Amendment, which prohibits the federal government from taking private property without due process and payment of just compensation. Here, Section 1951 of the RPAPL provides for the payment of compensation to property owners for the loss of certain property rights, i.e., the loss of a restrictive covenant. Accordingly, the FHA cannot be read as impliedly preempting a state law authorizing the payment to property owners of compensation for the loss of certain property rights without running afoul of the FHA’s express purpose to provide fair housing-but only “within constitutional limitations.”2 Plaintiff nevertheless argues that preemption is still warranted here because Section 1951 stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress when it enacted the FHA. Thus, plaintiff argues that awarding the Sisters damages under Section 1951 would be akin to “awarding the Sisters’ damages because of their own discrimination [which] would plainly ‘erode’ what Congress created in the FHA.” P. Br. at 4 (citing cases which hold that there is no express or implied state law right to indemnity under the FHA). P. Br. at 4- 6. However, the cases plaintiff cites meet the stringent standards for conflict preemption because 2 Indeed, protection of private property rights was one of the hallmarks of the Fair Housing Act. See J. Zasloff, The Secret History of the Fair Housing Act, 53 HARV. J. ON LEGIS. 247, 272 (2016) (“allowing homeowners to discriminate if they did not use a broker allowed Senators from conservative jurisdictions to argue that they had not deprived any property owners of rights,” citing Letter from Sen. Len B. Jordan (R-Idaho) to H. Lance Oberholtzer (Mar. 15, 1968) (“I do not agree that 71 Senators, representing the majority of both political parties, want to destroy property rights of any U.S. citizen”)). Case 7:16-cv-08043-CS-PED Document 143 Filed 01/22/18 Page 22 of 26 19 they are cases in which a defendant was seeking to shift his or her entire responsibility for wrongdoing under the FHA to a third party. See e.g., Equal Rights Ctr. v. Niles Bolton Assocs., 602 F.3d 597, 601-03 (4th Cir. 2010) (preempting state law claim for indemnification caused by FHA violation because it would undermine fair housing goal by allowing FHA defendant, with power to remedy the violation, to shift entire responsibility for his or her conduct to a third party); United States v. Bryan Co., Civ. No. 11-302, 2012 WL 2051861, at *5 (S.D. Miss. June 6, 2012) (preempting state law claim that if defendants were liable for an FHA violation for any reason, then certain other defendants are liable to them “for any and all of the Plaintiff’s claims for any and all types of relief in any and all such amounts”). However, consistent with the stringent standard that must be met to satisfy the burden required to demonstrate preemption, other courts have found certain state law claims not preempted by the FHA. See, e.g., City of Los Angeles v. AECOM Svcs., Inc. 854 F.3d 1149, 1155- 61 (FHA does not preempt state law claims for contribution arising out of third party defendant’s own negligence or wrongdoing), cert denied, Tutor Perini Corp. v. City of Los Angeles, 138 S. Ct. 381 (Oct. 30, 2017); Equal Rights Ctr. v. Niles Bolton Assocs., 602 F.3d at 602 (FHA does not preempt state law claims for contribution and negligence unless claims at issue are “de facto indemnification claims”); Miami Valley Fair Housing Center, Inc. v. Campus Village State, LLC, Civ. No. 10-00230, 2012 WL 4473236, at *9 (S.D. Ohio East. Div., Sept. 26, 2012) (FHA does not preempt state law contract claims “arising from breach of a duty imposed by the particular terms of a contract, rather than duties imposed by the FHA, or a state law negligence claim based on a standard of care not imposed by the FHA”). These cases essentially hold that state laws will be impliedly preempted by the FHA under theories of conflict preemption only where they seek to “allocate the full risk of loss” and/or Case 7:16-cv-08043-CS-PED Document 143 Filed 01/22/18 Page 23 of 26 20 provide a complete defense to an FHA violation by “allowing an owner to completely insulate itself from liability.” By contrast, state law claims that impose liability based on standards other than those imposed by the FHA will not be preempted. In its initial disclosures, plaintiff broke down its estimated $26 million in damages for the Sisters’ alleged violation of the FHA as follows: (1) $10 million in lost profits due to the Sisters’ “blocking” development and/or sale of the Property since plaintiff purchased it in 2006; (2) $7.5 million in interest on lost profits and/or lost investment opportunities due to such alleged obstruction; and (3) $8.5 million in expenses attributable to the same, including but not limited to legal fees, increased building costs, property taxes, engineering services, accounting services, architectural services, property insurance, landscaping, appraisal services, and labor expended by plaintiff’s principals. By contrast, the Sisters’ claim for damages under Section 1951 of the RPAPL is based on the diminution in value of their property as a religious retreat as a result of the loss of privacy and quiet that the covenant at issue here provided them. Accordingly, their claim for damages against plaintiff are not based in any way on the $26 million in damages that plaintiff intends to claim against the Sisters. Plaintiff further argues that “[a]t best, the Sisters’ counterclaim would reduce S&R’s recovery under the FHA” and “[a]t worst, the Sisters would recover money in this action if their damages under Section 1951 exceed S&R’s damages under the FHA.” P. Br at 4. While either scenario is possible, if the Sisters are entitled to recover anything at all, it will be because they proved the value of their property would be diminished as a result of the loss of the covenant- and not because of the quantum of damages, if any, that S&R may recover from the Sisters as a result of their alleged violation of the FHA. Case 7:16-cv-08043-CS-PED Document 143 Filed 01/22/18 Page 24 of 26 21 The Sisters have alleged that the covenant is of substantial value to them. They have also alleged that plaintiff has been waging a campaign against them for more than a decade-starting with the hiring in early 2007 of counsel representing the New York Archdiocese who had previously been adverse to the Sisters-because, unless the covenant is extinguished or otherwise waived, plaintiff will not be able to realize the ten-fold gain in the property’s value that appraisers told it in 2005 and 2006 it would see if the property could legally be developed for multifamily housing. Any damages recovered by the Sisters under Section 1951 of the RPAPL would be awarded under a statute enacted by the State of New York pursuant to its police powers to protect against fraud or oppression in business or commercial transactions. The Sisters now stand accused of violating the FHA based on theories of disparate intent, i.e., that their defense of the covenant is motivated by bias against families with children, or on disparate impact, i.e., that without regard to any intent to discriminate, their one-time defense of one covenant is somehow a “policy or practice” that will have a disparate impact on such families or on African-Americans. While the Sisters believe that they will prevail on either theory, it is possible they might not, and that plaintiff will get a ruling that the covenant is no longer enforceable. Were that to be the case, plaintiff will have achieved the objective that will allow for its financial windfall-a windfall that will be at the expense of the Sisters who will lose the protections they value under the covenant. Allowing the Sisters to be made whole for the loss of their property rights would not interfere with the FHA’s goal of providing fair housing. To the contrary, wholly apart from any FHA violation that might be proved, the compensation the Sisters seek under Section 1951 is money that plaintiff should have had to pay them anyway for the right to build multifamily housing on a site that plaintiff knew was burdened with a covenant that allowed no such thing. Case 7:16-cv-08043-CS-PED Document 143 Filed 01/22/18 Page 25 of 26 22 CONCLUSION For the foregoing reasons, counterclaim-plaintiff Sisters of the Blessed Sacrament, Inc. respectfully request that the motion of counterclaim defendant S&R Development Estates, LLC to dismiss the counterclaim be denied in its entirety. Dated: Scarsdale, New York January 22, 2018 BERNSTEIN & ASSOCIATES, PLLC By:____________________________ Robert B. Bernstein 2 Overhill Road, Suite 400 Scarsdale, New York 10583 (914) 529-6500 rbernstein@rbblegal.com STORZER & ASSOCIATES, P.C. Robert L. Greene John G. Stepanovich 1025 Connecticut Avenue, N.W., Suite 1000 Washington, D.C. 20036 (202) 857-9766 greene@storzerlaw.com Counsel for The Sisters of The Blessed Sacrament s/Robert B. Bernstein Case 7:16-cv-08043-CS-PED Document 143 Filed 01/22/18 Page 26 of 26