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The Guaranty Law Continues to Divide Opinion
In our article in the October 2022 issue, we discussed NYC Administrative Code §22-1005 (the Guaranty Law), which, under certain conditions, cancelled the obligations of guarantors of commercial leases. This article discusses the recent developments surrounding the constitutionality of the statute. In particular, we address the Southern District's view that the Guaranty Law is unconstitutional and the splintered view of the statute's constitutionality expressed by New York State courts.
The Southern District Holds Guaranty Law Unconstitutional
In Melendez v. City of New York, 503 F.Supp.3d 13 (S.D.N.Y. 2020), a group of landlords sued the City of New York in the United States District Court for the Southern District of New York for a declaration that the Guaranty Law was unconstitutional under the Contracts Clause of the Federal Constitution. On Nov. 25, 2020, the District Court issued a decision upholding the Guaranty Law against constitutional challenges. See, id. The District Court's decision was appealed to the Second Circuit. On appeal, the Second Circuit identified serious concerns about the Guaranty Law being a "reasonable and appropriate" means to serve the City of New York's proffered purpose — to help shuttered businesses survive the pandemic. Melendez v. City of New York, 16 F.4th 99, 1038–47 (2d Cir. 2021). Accordingly, the Second Circuit vacated the dismissal and remanded the action back to the District Court for further proceedings.
On remand, the District Court evaluated the constitutionality of the Guaranty Law according to the guidelines set forth in Sullivan v. Nassau Cty. Interim Fin. Auth., 959 F.3d 54 (2d Cir. 2020), asking: "(1) whether the contractual impairment is substantial and, if so, (2) whether the law serves a legitimate public purpose such as remedying a general social or economic problem and, if such purpose is demonstrated, (3) whether the means chosen to accomplish this purpose are reasonable and necessary." Melendez v. City of New York, 668 F.Supp.3d 184, 187 (S.D.N.Y. 2023).
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