NYS Law Passed to “Put an End to Airbnb” in NYC; Airbnb has Rushed to Sue for a Preliminary Injunction

–by Carlie Roman

Citations: https://www.nysenate.gov/legislation/bills/2015/S6340/amendment/A; http://www.wsj.com/articles/airbnb-in-talks-to-settle-new-york-lawsuit-1477959169 ; http://www.nytimes.com/2016/10/22/technology/new-york-passes-law-airbnb.html?_r=0 ; http://www.nydailynews.com/new-york/nyc-marathon-runners-race-airbnb-new-state-law-article-1.2859787

Abstract: Last month, Governor Andrew Cuomo signed a law that can impose up to $7,500 in fines for advertising illegal short-term apartment rentals in New York City (“NYC”). One common example is rentals listed on Airbnb. Before the law could be enforced, Airbnb filed a lawsuit seeking a preliminary injunction.

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In June, the New York State (“NYS”) Senate passed a bill (Senate Bill S6340A) to prohibit advertising of illegal-short term rentals in NYC. Governor Cuomo signed the bill into law in October. Apartment rentals in multiunit buildings within NYC for fewer than 30-days had been a violation since 2010, but this new law will make enforcement more effective by targeting the advertising of said rentals. The NYS Senate says that the purpose of the bill is “[t]o make unlawful advertising for the use or occupancy of dwelling units in class A multiple dwellings for purposes other than permanent residence, to create civil penalties for violations of this prohibition, and to define the term ‘advertise’ in such context.”

The Senate justified the passage of this bill by explaining that, despite the fact that it had been illegal to rent for less than 30-days in NYC since 2010, people were still advertising over the Internet. The Senate explained that this type of advertising was contrary to the public interest because it promoted illegal activity, it aided the business of illegal hotels, and it implicated concerns regarding building safety codes. Advocates of the new regulation also argued that preventing these short-term rental schemes —that take long-term rental options off the market, driving up housing prices— will help to promote more affordable housing.

Airbnb, a company that facilities online short-term rentals, has opposed the new legislation from the start, asserting their belief that it was passed in response to pressure from hotel lobbyists. The same day this new law was signed into effect, Airbnb brought a federal suit against State Attorney General Eric T. Schneiderman, Mayor Bill de Blasio, and the City of New York (“The State”), seeking to enjoin the act from being enforced. Airbnb argues that the language of the statute is broad and vague in such a way that it may be construed to allow fines against Airbnb for third-party listings on their website that are in violation of the statute. Airbnb contends that if they were fined under this new statute it would violate the Federal Communication Decency Act, which protects websites from sanctions relating to third-party content posted to their websites. Furthermore, Airbnb contends that banning these advertisements for short-term rentals violates the First Amendment Freedom of Speech protection. The litigation process is currently at a standstill while the parties negotiate for a settlement.

The State maintains, however, that their goal is not to go after individuals renting their apartments while they go out of town for the weekend, but rather to target the big players. According to the Attorney General’s Office, the State plans to enforce the statute against the illegal hotel operators and the landlords who are taking their units off the market and using their buildings exclusively for things likes Airbnb rentals. Furthermore, the State explains that they are not looking to fine Airbnb itself, but the individuals who are hosts on the site.

As a result of this lawsuit, enforcement of the statute has been delayed for several weeks. Enforcement of this new regulation is entrusted to the Mayor’s Office of Special Enforcement and they have confirmed that they will not enforce the new regulations until Federal District Court Judge Katherine Forrest issues a decision regarding the preliminary injunction. Melissa Grace, spokeswoman for the Mayor did, however, urge, “We are taking the steps necessary to enable us to enforce the State law. Our focus has and will continue to be operators of illegal hotels who put people in unsafe conditions and take affordable homes off the market. We will continue to apply current State law to hold bad actors accountable.”

In the meantime, Airbnb usage is still soaring and the company reported that for the NYC Marathon, over 34,000 visitors used Airbnb during their stay, generating over $25 million dollars in revenue for the company and their hosts.

New York Court of Appeals Finds State Thruway Authority not Responsible in Slip-and-Fall Outside Precinct

—by Adam Kuhn

Sherman v. N.Y. State Thruway Auth., No. 56, 2016 N.Y. LEXIS 1061 (May 5, 2016).

Abstract:

The New York Court of Appeals granted summary judgment for the defendant in a personal injury claim for a slip-and-fall. Applying the “storm in progress” doctrine, the Court concluded that the storm had not ended at the time of plaintiff’s fall, and therefore the defendant was not responsible.

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Rodney Sherman, a New York State Trooper, brought a personal injury claim against the New York State Thruway Authority after falling on an icy sidewalk outside the precinct. Sherman argued that the Authority was negligent for failing to keep the sidewalk clear of ice. The Authority argued that it was entitled to summary judgment on the “storm in progress” doctrine. The Appellate Division, Second Department, granted summary judgment for the Authority, and Sherman appealed. The New York Court of Appeals affirmed the appellate division.

The storm in progress doctrine says that a landowner is not responsible for injuries occurring on his or her property if the injuries result from an icy condition “during an ongoing storm or for a reasonable time thereafter.” The Authority established that there was an ongoing storm at the time of Sherman’s fall. An ice storm occurred the night before the fall, and a weather report showed it was raining at near freezing temperatures when Sherman fell. Since the storm was still ongoing, the Authority’s responsibility of reducing the icy condition did not yet arise. Sherman was unable to raise a triable issue of fact.

In a dissenting opinion, Judge Rivera argued there were issues of fact about whether the storm had ended, and if it did, whether a reasonable time had passed for the Authority to manage the icy sidewalk.

Rigano v. Vibar Const., Inc.

The issue decided in the case is whether a notice of mechanic’s lien can be amended nunc pro tunc to reflect the name of the true owner of the property or whether the misnomer invalidates the lien.

George Vigogna (sole shareholder of Vibar Constructions Corp.) and Nick Rigano (sole shareholder of Fawn Builders, Inc.) were business partners for over 35 years up until the dispute at question arose in 2007. Both parties often worked together, split their profits and rarely put their business agreements in writing.

During the project at issue, Vigogna’s company constructed a driveway to access a property and claims that Rigano’s company failed to compensate them for the construction of the road. Vigogna’s company filed a notice of a mechanic’s lien on the property in order to recover costs for construction of the road. Rigano sought to have the lien discharged on the grounds that he, and not his company owned the property, and that the lien was invalid. Vigogna sought to amend the lien. The Supreme Court granted Rigano’s petition and discharged the lien and the Appellate Division affirmed holding that “a misidentification of the true owner is a jurisdictional defect which cannot be cured by an amendment nunc pro tunc.”

The Court of Appeals reversed the Appellate Division’s holding. They referenced Matter of Niagara Venture v. Sicoli & Massaro, where they stated in that case that, “Substantial compliance . . . shall be sufficient for the validity of a lien and to give jurisdiction to the courts to enforce the same . . .  and a failure to state the name of the true owner . . . or a misdescription of the true owner, shall not affect the validity of the lien.” The Court also referenced Article 2 of the Lien Law which says they are to be construed liberally.

Combining these principles, the Court said in these particular circumstances, that the amendment sought was authorized and the defect in the lien was a misdescription, which allowed the amendment, and not a misidentification.

998 N.Y.S. 2d 748 (N.Y. 2014)

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Liberty Affordable Housing Inc. v. Maple Court Apartments

In this appeal, the Fourth Department examined whether the Court of Appeals decision in Rovello v. Orofino Reality Co., which held that under New York Civil Practice Law and Rules 3211(a)(7) “‘summary dismissal is appropriate . . . when the defendant’s evidentiary submissions establish conclusively that plaintiff has no cause of action,’” survived the Court of Appeals subsequent decision in Miglino v. Bally Total Fitness of Greater New York, Inc.

In 2006, the Plaintiff, Maple Court Apartments, contracted with the Defendant, Liberty Affordable Housing, Inc., for the sale of real property. The Plaintiff was unable to secure funding by the closing date, or by the December 31, 2007, extension to the closing date. In April 2009, the Defendant sent the Plaintiff a letter in which the Defendant made clear that the purchase agreement was terminated and that the Defendant would market the property to other buyers. Two years later, in 2011, the Plaintiff secured funding and made another offer on the property. In a September, 2011, letter to the Defendant, the Plaintiff indicated the need for a new purchase agreement. The Defendant rejected the Plaintiff’s offer and accepted a higher offer from a third party.

The Plaintiff then commenced a suit for specific performance on the original 2006 contract. The Defendant moved for dismissal under N.Y. C.P.L.R. 3211(a)(7), which authorizes a court to dismiss a complaint when the opposing party fails to state a cause of action. In order to show the 2006 purchase agreement was invalid and therefore the Plaintiff had no cause of action, the Defendant submitted the 2009 letter and the 2011 letter to the court. The trial court dismissed the Plaintiff’s suit, finding it was clear that the original 2006 purchase agreement was invalid. The Plaintiff then appealed, arguing “that Miglino fundamentally changed the parameters of 3211(a)(7) and effectively barred the consideration of any evidentiary submissions outside the four corners of the complaint.”

The Plaintiff’s argument was based on the language in Miglino where “the Court cited Rovello for the proposition that ‘3211(a)(7) . . . limits [courts] to an examination of the pleadings to determine whether they state a cause of action’” and therefore found “‘the case is not currently in a posture to be resolved as a matter of law on the basis of the parties’ affidavits.’” The Plaintiff argued that this language from Miglino prohibits a court from considering evidentiary submissions when ruling on a 3211(a)(7) motion.

The court held for the Defendant, finding that Miglino did not change Rovello, but simply applied its framework. The court reasoned that “Miglino was ‘not currently in a posture to be resolved as a matter of law on the basis of the parties’ affidavits’ because the evidentiary submissions were insufficiently conclusive, not because they were categorically inadmissible in the context of a 3211(a)(7) motion.” This reading of Miglino was in line with similar decisions in the First and Second Departments. Therefore, the court found it was proper for the supreme court to consider the documents the Defendant submitted in support of its motion to dismiss. Turning to the substantive question, the court found the Defendant’s evidentiary submissions conclusively showed the Plaintiff was not willing and able to perform its end of the contract by the contract’s closing date or a reasonable time afterward. Therefore, the Plaintiff had no cause of action for specific performance and the supreme court properly dismissed the suit under 3211(a)(7).

998 N.Y.S.2d 543 (4th Dep’t. 2015)

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Jones v. Town of Carroll

This appeal addressed the application of Town laws to Plaintiff’s land. In 1984, Plaintiff, Carol Jones (“Jones”), obtained a special use permit from Defendant, the Town of Carroll, allowing her to develop a construction and demolition landfill (“C & D landfill”) on her land. The Town’s Local Law No. I of 2005 (“2005 Law”) bars zoning ordinances being given retroactive effect against vested property rights. Town Local Law No. One of 2007 (“2007 Law”) is a health and safety regulation, prohibiting the construction of a solid waste management facility within the Town. The Court of Appeals found the 2007 Law not to be a retroactive zoning ordinance.

In Supreme Court, Plaintiff moved for summary judgment, alleging that the 2007 Law was arbitrary and capricious and that the law took her property without just compensation. Defendant responded that collateral estoppel applied, alleging that Jones I, also brought by Plaintiff against Defendant, was an action regarding the same issue. The Appellate Court reviewed whether collateral estoppel was appropriate.

In Jones I, the Court of Appeals determined whether the 2005 Law unconstitutionally deprived Jones of legal use of her land for a C & D landfill. It was held that the Law did not apply to the plaintiff since she had a vested right to use the land as a landfill before the zoning law was enacted. The Court of Appeals concluded that since the case from which this appeal stems, Jones II, involves the 2007 Law and not the 2005 Law, a different piece of legislation is at issue than in Jones I (57 A.D.3d 1379 (4th Dep’t 2008); 32 A.D.3d 1216 (4th Dep’t 2006). Therefore, the doctrine of collateral estoppel did not apply.

Addressing the merits of Plaintiff’s claim, the Supreme Court denied Plaintiff’s motion for summary judgment under the assertion that the 2007 Law was arbitrary and capricious. Plaintiff was found to have failed to demonstrate to the court that the Defendant’s actions were without legal justification. Plaintiff’s allegation that the 2007 Law took her property without just compensation was also rejected by the court, as she failed to show that a regulatory taking resulted from the law. It was noted that even if the 2007 Law had resulted in such a taking, declaring the law invalid, as Plaintiff sought, would not have been appropriate relief. Instead, a hearing to determine just compensation for the taking would have been proper.

The Supreme Court did not address Plaintiffs allegation that the 2007 Law was enacted in violation of the State Environmental Quality Review Act (“SEQRA”) after finding the law void as applied to Plaintiff. Because the issue was not addressed, the Appellate Court remanded the issue.

996 N.Y.S.2d 804 (4th Dep’t. 2014)

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Kimso v Ghandi

This appeal addresses a party’s ability to amend a pleading following trial and the full presentation of proof by both parties. Counterclaim plaintiff, Mahesh Gandhi and his two associates formed and held equal one-third interests in three corporations. The corporations were given a twenty million dollar loan from the U.S. Dept. of Housing and Urban Development (“HUD”), nine million dollars of that loan was loaned to the three associates as a shareholder loan—each associate made regular interest payments on that loan. Gandhi was removed as the corporations’ manager due to suspected misappropriation of funds. Gandhi filed a state action seeking to compel arbitration and the corporations filed a federal claim alleging multiple counts. Eventually, the parties reached a Settlement Agreement (“Agreement”) agreeing to end all actions and Gandhi sold his one-third interest, but no provision explicitly rid of Gandhi’s shareholder loan obligation.

The corporations stopped making payments to Gandhi after making twenty-three monthly payments during which Gandhi did not pay shareholder loan payments. The corporations filed an action seeking declaratory judgment to “offset the remaining amount they owed Gandhi under the Settlement Agreement against the money Gandhi owed the corporations on the shareholder loan notes.” Litigation continued, but both parties’ amended their pleadings. In the corporations’ amendment, they admitted they were “’joint and severally liable for the amounts due’. . .and ‘if Plaintiffs fail to make the full payments to Defendant as specified under Settlement Agreement, Defendant may allege that Plaintiffs are in default of the Settlement Agreement and that Defendant would be entitled to all his remedies.’” One month prior to trial, corporations filed motions to preclude Gandhi from presenting evidence/claiming payments due to him. The trial court deferred, but at trial allowed evidence about the agreement and back payments owed. Gandhi moved to conform the pleadings to align to the proof at trial, seeking to assert a counterclaim. The supreme court granted his motion, the corporations appealed and the appellate division reversed the trial court’s ruling—finding, the late amendment prejudiced the corporations. Gandhi appealed.

Here, the Court found that pursuant to N.Y. C.P.L.R. 3025, a party is permitted to amend a pleading “‘at any time by leave of court . . . before or after judgment to conform [the pleading] to the evidence.’” Furthermore, the Court found that where there is no prejudice to the party opposing the amendment, the court should grant leave to amend. The court has great latitude in exercising discretion over applications to amend pleadings and may only be reversed where there is an abuse of discretion. Here, the court found the appellate division did abuse its discretion because there was no prejudice to the corporations that would support a denial of Gandhi’s request to amend. The Court found that because the corporations had stated in their amended complaint that the sum of money they owed should be reduced by the money Gandhi owed them—explicitly addressing potential back payments—they were not permitted to allege prejudice from Gandhi’s demand for payments due to him. This is because “facts admitted in a party’s pleadings constitute . . .admission, and are conclusive . . .” Furthermore, the Court found that the corporations had elicited evidence that was the basis of Gandhi’s claim.

The Court reversed and remitted the case to the appellate division.

998 N.Y.S.2d 740 (N.Y. 2014)

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New York Court of Appeals: Schron v. Troutman Saunders, LLP

The matter before the Court was the result of a number of consolidated cases, but the parties immediately on appeal were SVCare Holdings, LLC and Cammeby’s Equity Holdings, LLC (“Cam Equity”).  The issue centered on two written agreements entered into as part of a plan by Schron, a real estate investor who controlled Cam Equity, Grunstein (Schron’s attorney), Forman (Schron’s investment banker), and managers and owners of SVCare.  As part of a plan to acquire a publicly-held nursing home company, the parties drafted two agreements.  The first gave Cam Equity an option to acquire 99.99% of SVCare.  The second provided that another of Schron’s entities (“Cam III”) would lend SVCare $100 million for capitalization of its subsidiary. The agreements were later amended while refinancing the nursing home company transaction.

After a period of litigation, the only claim now relevant before the Court was whether Cam Equity’s option was enforceable, where SVCare argued that it was contingent upon the $100 million loan.  SVCare also claimed that the $100 million loan was never paid and sought to introduce parol evidence to prove both of its claims. Related to the previous litigation, Schron and Cam Equity sought specific performance of the option agreement.  In that litigation, Cam Equity moved to exclude the parol evidence by SVCare that might be offered to prove that the “other good and valuable consideration” (from the option agreement) was intended to reference the $100 million loan agreement. Schron v. Troutman Saunders, LLC, 20 N.Y.3d 430, 433 (2013).

Upon SVCare’s motion to introduce parol evidence, Cam Equity argued that the other “mutual covenants” referenced by the option agreement were sufficient consideration for the option and objected to the attempt to insert the $100 million loan as part of the original agreement.  The Court held that Cam Equity’s interpretation of the option agreement comported with the precedential understanding of contract law for several reasons: (1) a writing that is clear, unambiguous and complete on its face must be enforced; (2) the simple inclusion of “other good and valuable consideration” did not create any ambiguity in the agreement; and (3) the business entities here were sophisticated enough to have included language relating to the $100 million loan had they intended it to be part of their agreement. Schron, 20 N.Y.3d at 433.   The Court affirmed the appellate division and held that Cam Equity was free to exercise its option.

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20 N.Y.3d 430 (2013)