513 W. 26th Realty LLC v. George Billis Galleries, Inc.

513 W. 26th Realty LLC v George Billis Galleries, Inc.

2026 NY Slip Op 06058 October 20, 2026 Appellate Division, First Department Rosado, J.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This decision is uncorrected and subject to revision before publication in the Official Reports.

513 West 26th Realty LLC, Plaintiff-Respondent, v

George Billis Galleries, Inc. et al., Defendants-Appellants. Supreme Court, Appellate Division, First Judicial Department Decided and Entered: October 20, 2026

Index No. 160266/20|Appeal No. 5735|Case No. 2025-00996| Peter H. Moulton

David Friedman John R. Higgitt Llinét M. Rosado Kelly O'Neill Levy James G. Marsh, P.C., Mineola (James G. Marsh of counsel), for George Billis Galleries, Inc., and George Billis, appellants.

Muriel Goode-Trufant, Corporation Counsel, New York (Jamison Davies, Richard Dearing and Devin Slack of counsel), for City of New York, appellant.

Smith & Shapiro, New York (Harry Shapiro of counsel), for respondent.

Defendants appeal from an order of the Supreme Court, New York County (Paul A. Goetz, J.), entered on or about December 31, 2024, which declared that New York City Administrative Code § 22-1005 violates the Contracts Clause of article I, section 10 of the United States Constitution, reinstated plaintiff 513 West 26th Realty, LLC's second and third causes of action against defendant George Billis, and denied defendants George Billis and the City of New York's respective motions to dismiss the complaint.

Rosado, J. [*1]

This case calls on us to determine the constitutionality of New York City Administrative Code § 22-1005, commonly referred to as the "guaranty law." Enacted by the New York City Council in the early stages of the COVID-19 pandemic, the guaranty law precluded the enforcement of personal liability guaranties of certain commercial leases for a statutorily prescribed 16-month period. Principally, we are asked to decide whether this law, which the City Council passed as a means of mitigating the economic fallout of the public health crisis and to help small business owners avoid personal bankruptcy, impermissibly impairs existing contractual obligations in violation of the Contracts Clause of article I, section 10 of the United States Constitution. For the reasons that follow, we conclude that the guaranty law does not violate the Contracts Clause. In doing so, we make no judgment as to the wisdom of the guaranty law; rather, applying the principles applicable to any Contracts Clause challenge, we find that the law passes constitutional muster.

Introduction

In this commercial guaranty action, plaintiff-landlord 513 West 26th Realty, LLC (the landlord) alleges that defendant- tenant George Billis Galleries, Inc. (the tenant), which operates an art exhibition space, breached its lease with the landlord and that defendant-guarantor George Billis (the guarantor) breached his guaranty after the tenant failed to make rent payments during the pandemic. Supreme Court initially granted partial summary judgment to the guarantor, dismissing the causes of action as against him as barred by the guaranty law. This Court reversed and remanded the case (513 W. 26th Realty LLC v George Billis Galleries, Inc., 220 AD3d 525, 525-526 [1st Dept 2023]), to allow the record to be further developed and a determination made as to the law's constitutionality in light of the Southern District of New York's decision in Melendez v City of New York (668 F Supp 3d 184 [SD NY 2023], vacated and remanded for dismissal by Bochner v City of New York, 118 F4th 505 [2d Cir 2024]) (hereinafter Melendez III). Before it was vacated, the Southern District's decision found the guaranty law violated the Contracts Clause. Our decision also directed plaintiff to serve notice on the City of New York to allow it to intervene as a defendant (id.). The tenant, the guarantor, and the City now appeal from the decision of Supreme Court after this Court's remand. In light of Melendez III and in consideration of concerns about the guaranty law raised by the Second Circuit in Melendez v City of New York (16 F4th 992 [2d Cir 2021]), Supreme Court declared that the law violates the Contracts Clause, reinstated the causes of action as against the guarantor, and denied defendants' respective motions to dismiss. [*2]

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With a sufficiently developed record now before us and only pure questions of law left to resolve, we hold that when analyzing the instant Contracts Clause challenge under the three-part test articulated by the United States Supreme Court (see Energy Reserves Group, Inc. v Kansas Power & Light Co., 459 US 400, 411-413 [1983]), the guaranty law is constitutional. Accordingly, we reverse Supreme Court's decision. We reach this determination in view of "the strong presumption of constitutionality that attaches to every statute" (Local Govt. Assistance Corp. v Sales Tax Asset Receivable Corp., 2 NY3d 524, 535 [2004]) and the substantial deference owed to the City Council's legislative judgment (see Keystone Bituminous Coal Assn. v DeBenedictis, 480 US 470, 505 [1987] ["unless the State is itself a contracting party, courts should properly defer to legislative judgment as to the necessity and reasonableness of a particular measure"] [internal quotation marks omitted], quoting Energy Reserves, 459 US at 413; Buffalo Teachers Fedn. v Tobe, 464 F3d 362, 369 [2d Cir 2006] [same], cert denied 550 US 918 [2007]). Such deference is particularly appropriate in light of the declared emergency in New York State at the time the law was enacted (see United States Trust Co. of New York v New Jersey, 431 US 1, 22 n 19 [1977]; Home Bldg. & Loan Assn. v Blaisdell (290 US 398, 426 [1934]; Buffalo Teachers Fedn., 464 F3d at 373).

Factual and Procedural History The COVID-19 Pandemic and Economic Fallout

On January 31, 2020, the federal government declared a public health emergency to assist the country's health care community in responding to COVID-19. On March 7, 2020, the Governor, empowered by the New York State Legislature's amendment of Executive Law § 29-a to authorize him to issue any directive necessary to cope with a state disaster emergency (2020 McKinney's Sess Law News of NY [L 2020, ch 23, § 2]), declared such an emergency in response to the growing threat that the virus posed to New York State (Executive Order [A. Cuomo] No. 202 [9 NYCRR 8.202]). The Governor enacted stringent emergency measures, including, among others, a series of executive orders banning events and gatherings of more than 50 people, prohibiting restaurants and bars from serving patrons on their premises, and directing the closure of all nonessential retail establishments and businesses, as well as personal care services, such as barbershops, hair salons, and tattoo parlors (Executive Order [A. Cuomo] Nos. 202.3 [9 NYCRR 8.202.3]; 202.6 [9 NYCRR 8.202.6]; and 202.7 [9 NYCRR 8.202.7]).

[*3]

Although such measures were viewed as necessary to combat the spread of the virus, they were also expected to have a profound economic impact on the City, in particular to its small businesses. On March 16, 2020, bracing for the economic fallout of the public health crisis, the City Comptroller conservatively estimated that the City could lose $3.2 billion in tax revenue from downturns in the entertainment, hotel, real estate, restaurant, retail, travel, and tourism sectors over the next six months (Comptroller Stringer: City Must Take Immediate Action to Prepare For Economic Impacts of COVID-19 and Protect Vital Services for Most Vulnerable New Yorkers, Office of the New York City Comptroller [Press Release, Mar. 16, 2020], available at https://comptroller.nyc.gov/newsroom/comptroller-stringer- city-must-take-immediate-action-to-prepare-for-economic-impacts-of-covid-19-and-protect-vital-services-for-most- vulnerable-new-yorkers [last accessed May 8, 2026]). He warned of "significant projected losses," with restaurant sales estimated to plummet by 80% and real estate and retail sales by 20% (id.). A prolonged recession was anticipated (id.). In the following weeks and months, the economic devastation of the pandemic on the City and State became clear. Nearly 144,000 unemployment claims were filed in the City during the week of March 22, 2020, an increase of 2,637% from the year before (Corina Knoll et al., 11 Numbers That Show How the Coronavirus Has Changed N.Y.C., NY Times, Apr. 20, 2020, updated Mar. 27, 2024, available at https://www.nytimes.com/2020/04/20/nyregion/coronavirus-nyc- numbers-unemployment.html [last accessed May 8, 2026]). According to an April 29, 2020 report (the April 29 report) of the City Council Committee on Consumer Affairs and Business Licensing and Committee on Small Business, entitled,

"OVERSIGHT: The Impact of COVID-19 on Small Businesses in New York City," sales for the State's restaurant industry alone were estimated to have declined by 79% by April 2020. A loss of $3.6 billion in sales revenue was forecast for just that month, and 80% of workers were reported to have lost their jobs, the April 29 report noted, citing an April 2020 survey conducted by the New York State Restaurant Association. Close to 10 months into the pandemic, citywide unemployment remained at 12% (Federal Reserve Bank of New York, New York City Economic Indicators [Mar. 13, 2021], cached at https://perma.cc/Q9NU-W3QJ, formerly available at https://www.newyorkfed.org/ medialibrary/media/research/regional_economy/charts/Regional_NYC). The result was that many of the smaller businesses contributing to the City's inimitable character could not operate, or could not operate in a manner permitting them to generate the income they relied on to pay their formidable rent costs, leading to rampant lease defaults and the threatened closures of these businesses.

The Guaranty Law

[*4] Amidst the twin public health and economic crises, the City Council on April 22, 2020 introduced a package of 13 bills

"to help small businesses in the City weather the negative impacts of the COVID-19 outbreak" (April 29 report at 5). The legislative package included Int. No. 1932, the early version of the guaranty law, which, as proposed, would have barred the enforcement of personal guaranties against commercial tenants "impacted by COVID-19" for defaults occurring during the "COVID-19 period."^FN1 City Council Member Carlina Rivera, a cosponsor of the bill, stated it would "ensure city business owners don't face the loss of their businesses and personal financial ruin or bankruptcy as a result of this state of emergency" (Transcript of Proceedings, Stated Meeting of the New York City Council [Apr. 22, 2020]). She further noted that small businesses were "closing and losing weeks of income through no fault of their own and allowing small business owners to keep their spaces will be integral to the city's ability to recovery after the virus"

(id.).

In the period leading up to the guaranty law's enactment, the City Council issued the April 29 report detailing the

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impact of the pandemic on small businesses in the City and State. The report cited, among a multitude of sources, the March 16, 2020 City Comptroller press release, an April 2020 New York State Restaurant Association survey, and an April 2020 National Bureau of Economic Research survey finding that the current and expected impacts of the pandemic on small businesses were "particularly sharp" in the Mid-Atlantic region, with 54% of small businesses in the region reportedly closing due to COVID-19 and employment falling by an average of 47% (Alexander W. Bartik et al., How Are Small Businesses Adjusting to COVID-19? Early Evidence from a Survey, National Bureau of Economic Research, available at https://www.nber.org/

system/files/working_papers/w26989/w26989.pdf [last accessed May 8, 2026]).

[*5]

The April 29 report also discussed the Federal Paycheck Protection Program (PPP) and CARES Act and relief from the US Small Business Association. The report noted, however, that assistance generally was going to large business chains, while many small business owners reported struggling to receive aid through the federal programs.^FN2 The report described how New York City's immigrant communities in particular faced difficulties applying for and obtaining federal assistance, despite immigrants making up 45% of the City's workforce and owning half of its businesses. Ahyoung Kim, the small business project manager of the Asian American Federation later testified that "Asian American unemployment claims in the week of April 11th rose by 10,210 percent" (Transcript of Proceedings, Hearing of the New York City Council Committee on Small Business Jointly with the Committee on Consumer Affairs and Business Licensing [Apr. 29, 2020] [the April 29 hearing]). Kim described how many Asian American small business owners "worry that they are ineligible for federal assistance or hesitate to even apply because of the overwhelming documentation requirements or the lack of a social security number, even if they have been paying their taxes" (id.). The April 29 report further found that beyond the 90-day commercial eviction moratorium, New York State had yet to administer any specific programs providing aid to small businesses. The report noted that the City, for its part, had launched the Employee Retention Grant Program and Small Business Continuity Loan Fund. Through these programs, the New York City Department of Small Business Services (SBS) provided certain payroll assistance of up to $27,000 and zero-interest loans of up to $75,000. This relief, however, had limited effect. On April 8, 2020, the SBS paused application intake for the Loan Fund due to an overwhelming number of applications. Concerns were also raised about access to the funds and flaws in the rollout of the programs.

[*6]

Two City Council committees also held the April 29 hearing, where they received testimony from numerous small business owners, advocates, business groups, City agency representatives, and others. In discussing the need for the legislative package, City Council Speaker Corey Johnson, another cosponsor of the bill, noted that if small businesses, which at the time employed 26% of New Yorkers, closed down, "hundreds of thousands of workers will permanently lose their jobs and the city loses out on billions of dollars in . . . tax revenue" (Transcript of April 29 Hearing). He emphasized, "This could be the worst economic disaster that New York City has seen since the great depression."

Council Member Mark Gjonaj echoed this concern, noting, "I fear after we open back up this city and life begins to return to a new normal, we will see our commercial corridors decimated and empty." Detailing the guaranty law specifically, Council Member Rivera said that through the law, she sought to ensure that business owners forced to close their businesses due to the pandemic "can do so without facing personal liability, ensuring that one day they may be able to return and relaunch or create a new thriving business in our neighborhoods."

Robert Bookman, general counsel at the NYC Hospitality Alliance, a nonprofit representing the City's restaurant and nightlife industry, testified that "[n]othing is keeping small business owners awake at night more than [personal guaranties on commercial leases]." As Bookman explained, no one ever contemplated the circumstances they were in, in which small businesses would remain in possession of their leases but could not operate due to government mandate. He emphasized the unprecedented nature of the pandemic, the "historic trouble" the hospitality industry was in, and the possibility of "thousands of neighborhood businesses [closing] forever." The NYC Hospitality Alliance supported the measure to prevent the enforcement of personal guaranties from "compound[ing] the devastation" caused by the pandemic.

The City Council also heard testimony from, among others, Julian Hill, supervising attorney at TakeRoot Justice, a nonprofit that, through the City-funded Worker Cooperative Business Development Initiative and Commercial Lease Assistance Program, advised worker cooperatives and small businesses. Hill explained that, despite TakeRoot's efforts, landlords refused to provide relief to his clients, who he explained "are mostly low income, mostly people of color, mostly women, often non-English speaking, often immigrant business owners currently being devastated by COVID-19."

[*7]

Echoing Hill's testimony, multiple small business owners testified about their experiences unsuccessfully trying to negotiate with their landlords. The owner of a tattoo studio in Greenpoint, Brooklyn testified that he and dozens of other commercial tenants in his building who could not pay rent tried to negotiate with their landlord, to no avail. He stated, "[O]ur families and our livelihoods are on the line here and we're desperate." Another small business owner, of stores in Greenpoint and Williamsburg, similarly testified about unsuccessfully trying to negotiate with his landlord. After closing his stores in March 2020, he applied for PPP funds but had "no luck." He said that he told his landlord that his stores were not making any money due to the closures, but she insisted he either pay his full rent or leave the space. He ultimately "decided to give up and move out by April 31."

The City Council received significant written testimony from small business owners and guarantors as well. Owner after owner described the imminent risk of losing their assets and life savings if personal guaranties were to be enforced against them. Others wrote about the "very aggressive stance[s]" their landlords were taking, even against commercial tenants who had stayed current with their rent payments up until the pandemic and had operated in their spaces for

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years. A number of small business owners also expressed a desire to reopen when the pandemic ended but noted uncertainty due to the barriers posed by their significant rent obligations. The City Council received written testimony in opposition to the guaranty law as well. The Real Estate Board of New York (REBNY) opposed the law in favor of "organic solutions that businesses and property owners are engaging in." The Building Owners & Managers Association of Greater New York (BOMA New York) stated that commercial real estate had been "devastated" by the pandemic and similarly called for landlords and tenants to negotiate individual agreements "in an open and unconstrained fashion." One resident of a Manhattan cooperative building stated in a written submission that the coop relied on rent from its commercial retail stores and argued the guaranty law would

"transfer[ ] the loss from [guarantors] to [landlords]," noting that not all landlords are "cash rich corporate entities." He further proposed lowering property taxes for landlords that forgave rent. Council Member Kalman Yeger, expressing his opposition to the guaranty law, similarly testified that the City must use its resources to "alleviate the burdens" on landlords too (Transcript of April 29 Hearing).

On May 13, 2020, the City Council passed the guaranty law, and on May 26, 2020, the Mayor signed it into law. The law states:

[*8]

"A provision in a commercial lease or other rental agreement involving real property located within the city, or relating to such a lease or other rental agreement, that provides for one or more natural persons who are not the tenant under such agreement to become, upon the occurrence of a default or other event, wholly or partially personally liable for payment of rent, utility expenses or taxes owed by the tenant under such agreement, or fees and charges relating to routine building maintenance owed by the tenant under such agreement, shall not be enforceable against such natural persons if the conditions of paragraph 1 and 2 are satisfied:

"1. The tenant satisfies the conditions of subparagraph (a), (b) or (c):

"(a) The tenant was required to cease serving patrons food or beverage for on-premises consumption or to cease operation under executive order number 202.3 issued by the governor on March 16, 2020;

"(b) The tenant was a non-essential retail establishment subject to in-person limitations under guidance issued by the New York state department of economic development pursuant to executive order number 202.6 issued by the governor on March 18, 2020; or

"(c) The tenant was required to close to members of the public under executive order number 202.7 issued by the governor on March 19, 2020.

"2. The default or other event causing such natural persons to become wholly or partially personally liable for such obligation occurred between March 7, 2020 and June 30, 2021, inclusive" (Administrative Code § 22-1005). The guaranty law was originally set to expire on September 30, 2020, but the City Council twice amended it to extend the statutory period, through June 2021 (Local Law No. 98 [2020] of City of NY § 1; Local Law No. 50 [2021] of City of NY § 2).

During a hearing of the City Council's Committee on Small Business held on September 14, 2020 (the September 14 hearing), in consideration of the first extension of the guaranty law, the continuing effects of the pandemic were cited as the cause of at least 2,800 small businesses in the City permanently closing from March 1, 2020 to July 10, 2020. Committee Chairperson Gjonaj highlighted a City Comptroller report finding that small business revenue dropped by 25% since January 2020 and that small businesses experienced a revenue drop greater than 60% in early April 2020. As many as one third of the City's roughly 230,000 small businesses, amounting to around 75,000 small businesses, were expected to never reopen. Council Member Gjonaj stated, "[M]any landlords in this city hopefully are renegotiating their leases with their tenants in good faith. Some small owners may feel, however, that their inability to pay rent may lead their landlord to go after their assets or personal property" (Transcript of Proceedings, Hearing of the New York City Council Committee on Small Business [Sept. 14, 2020]).

[*9]

Council Member Rivera noted at the September 14 hearing the gratitude the City had received since May 2020 from

"countless" small business owners for enacting the guaranty law, "giving them a lifeline when our state and federal government had failed to do so." The Council Member stated that "businesses teetering on the edge can continue to focus on paying workers and supporting their communities without this threat looming over them." She added that one restaurant owner stated, "It would be a fatal blow to the restaurant industry if they don't extend [the protections of the guaranty law]." She continued, "While I hoped in May that our federal government would have been able to bring us back to a point where most businesses could fully reopen safely, today that just isn't the case."

In the same vein, Andrew Rigie, the executive director of the NYC Hospitality Alliance, testified that the law "saved countless small business owners." He noted the results of a survey that the organization conducted which showed that over 83% of respondents, amounting to hundreds of commercial tenants, were unable to pay their rent in full and only 1 in 10 was able to renegotiate their leases with their landlords. He stated that "not doing anything" posed hazards to the public given that many commercial tenants' leases required them to pay some portion of the landlord's property taxes. Bookman again testified, asserting that the guaranty law was well targeted because "small business owners [are] the ones most likely to have personal guarantees." Bookman stated that such guaranties were also "never intended to apply to this unprecedented situation of government shutting down businesses for months on end." He further testified that it was imperative for the City to intervene to protect small businesses owners who "protect our city and our commercial corridors from becoming blighted and ghost towns, which would negatively impact our quality of life, public safety, sanitation, et cetera."

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[*10] SBS Commissioner Jonnel Doris also testified about the "enormous pressure" that commercial tenants continued to experience from rent challenges. Commissioner Doris stated that an extension would allow commercial tenants impacted by COVID-19 to further make plans about whether to remain open and "generate additional income in the absence of federal and state aid." He stated that the SBS was also working with small business owners to keep workers employed, citing the Open Sidewalks program, which more than 10,000 restaurants participated in and which brought back roughly 90,000 jobs, as well as the Commercial Lease Assistance Program. He added that the SBS was seeking more support for its loan programs, which Council Member Gjonaj described as "crumbs, at best" and previously "not evenly distributed to the outer boroughs." Commissioner Doris stated that despite the measures taken by the City, there was evidence that around one third of small businesses were unlikely to reopen, which the SBS was "extremely alarmed" about. He emphasized the need for additional state and federal support.

In enacting the first extension of the guaranty law, the City Council found that individual business owners and personal guarantors of businesses, particularly small businesses, "face a different and more substantial risk than losing revenue and profit," as they "risk losing their personal assets, including their possessions and even their own homes, transforming a business loss into a devastating personal loss" (Local Law No. 98 [2020] of City of NY § 1[a][5]). The City Council stated that from February 2020 to July 2020, the City lost 151,100 jobs in the food service sector, 34,700 jobs in the retail sector, and 22,800 jobs in the personal care and laundry services sector (Local Law No. 98 [2020] of City of NY § 1[a][4]). Along with noting the personal financial devastation that small business owners faced, the City Council also found, "If these individual owners and natural persons are forced to close their businesses permanently now or to suffer grave personal economic losses like the loss of a home, the economic and social damage caused to the city will be greatly exacerbated" (Local Law No. 98 [2020] of City of NY § 1[a][6]).

[*11]

In enacting the second and final extension of the guaranty law, the 2021 declaration of legislative intent and findings cited profound unemployment rates across various business sectors, with reported losses of more than 131,300 food service jobs, 25,200 retail jobs, and 19,900 personal care and laundry services jobs (Local Law No. 50 [2021] of City of NY § 1[a][4]). The City Council found that extending the personal liability protections of the guaranty law for three months would provide business affected by substantial occupancy limitations "a reasonable recovery period with a duration that is comparable to the period of time that these businesses were forced to close or operate with significant limitations on indoor occupancy and thereby to provide them with an opportunity to not only survive but also to generate sufficient revenues to defray owed financial obligations" (Local Law No. 50 [2021] of City of NY § 1[a][9]). Further, the City Council stated the extension did not "limit any other lawful remedies that a landlord may be able to seek against a commercial tenant itself, such as bringing suit against that tenant for damages; collecting or offsetting financial obligations by using the revenues, inventory, equipment, or other assets of that tenant; or evicting or declining to renew the lease or rental agreement of that tenant" (Local Law No. 50 [2021] of City of NY § 1[a][10]).

Melendez v City of New York

On July 10, 2020, three New York City landlords brought an action in the United States District Court for Southern District of New York alleging that the guaranty law and other pandemic-related statutes were unconstitutional. On November 25, 2020, the Southern District determined that, to the extent one of the plaintiffs argued that the guaranty law violates the Contracts Clause of article I, section 10 of the US Constitution, the law was a reasonable and necessary exercise of the City Council's authority to advance a legitimate public interest and therefore dismissed the complaint on that and other constitutional grounds (Melendez v City of New York, 503 F Supp 3d 13, 31-36 [SD NY 2020] [hereinafter Melendez I], affd in part, vacated in part, revd in part 16 F4th 992 [2d Cir 2021]). The landlords appealed, and the Second Circuit reversed the dismissal of the complaint to the extent it challenged the guaranty law under the Contracts Clause (Melendez v City of New York, 16 F4th 992 [2d Cir 2021] [Melendez II]). The Second Circuit remanded to the District Court to develop the record, reasoning, "While we defer to legislative judgments about the means reasonable and appropriate to address a public emergency, such deference is not warranted in the absence of some record basis to link purpose and means that, otherwise, appears missing" (id. at

1041).

[*12] Underpinning this directive were five concerns about the guaranty law for which the Second Circuit sought development of the record: (1) that the impairment posed by the law was not temporary or limited; (2) that the pleadings record was insufficient to support three assumptions upon which the law was based, that is, "(a) that shuttered small businesses are usually owned by the individuals guaranteeing their leases, (b) that these owner- guarantors would be financially ruined if required to pay their businesses' rent arrears, and (c) that financially ruined owners would be unlikely to reopen shuttered businesses"; (3) that the City "allocat[ed] the full economic burden" of the law to commercial landlords; (4) that the City did not condition guaranty law relief on need; and (5) that the law "fail[s] to provide for landlords or their principals to be compensated for damages or losses sustained as a result of their guaranties' impairment" (id. at 1038-1045).

Upon remand, the Southern District in Melendez III, assessing the five concerns about the guaranty law raised in Melendez II, determined that the City had not created a record that supported the means and ends of the law and that the law therefore violated the Contracts Clause (668 F Supp 3d at 189).

The City appealed, and the Second Circuit determined that although the plaintiffs had shown sufficient standing at the pleading stage to render the Second Circuit's order in Melendez II proper, "we must vacate the District Court's award of summary judgment to the Bochner Plaintiffs in Melendez III and remand the case with instructions to dismiss the action for lack of subject matter jurisdiction" (Bochner v City of New York, 118 F4th 505, 517 [2d Cir 2024]). The

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Second Circuit concluded that the plaintiffs failed to demonstrate standing at the summary judgment stage through evidence that the City actually intended to enforce the guaranty law against them (id. at 526).

The Instant Litigation

On July 24, 2015, the landlord entered into a lease agreement with the tenant to rent the lower level of its building at

527 West 26th Street in Manhattan for a 10-year term expiring on August 31, 2025. As principal of the tenant, a gallery that conducts shows for artists and sells artwork, the guarantor signed a "good guy" guaranty, agreeing to personally guaranty the tenant's obligations under the lease. In September 2018, the tenant sought to modify the lease to end on September 30, 2018 and to be converted to a month-to-month tenancy, although the proposed modification was never signed by the landlord.

In March 2020, the tenant stopped paying rent, and by email dated November 1, 2020, the guarantor informed the landlord that the tenant intended to surrender the space back to the landlord on November 30, 2020. The tenant agreed to forfeit the security deposit to "settle up," and by email dated December 7, 2020, the guarantor informed the landlord that the tenant had closed the gallery and returned the keys that day.

[*13]

The landlord commenced this action against the tenant and the guarantor, asserting causes of action for (1) breach of lease, (2) breach of guaranty, (3) attorneys' fees under the guaranty, and (4) attorneys' fees under the lease. The landlord sought to enforce the lease and personal guaranty, which it alleged were breached starting in September

2017.

After Melendez I but before Melendez II, Supreme Court granted the guarantor's motion for partial summary judgment dismissing the second and third causes of action against him as barred by the guaranty law, and on October 19, 2023, after Melendez III, this Court reversed "[i]n view of the recent decision in Melendez [III]finding the guaranty law unconstitutional" (513 W. 26th Realty LLC v George Billis Galleries, Inc., 220 AD3d 525, 525 [1st Dept 2023]). We remanded the constitutional question so that the record could be further developed in the trial court for the purpose of applying the Contracts Clause test, and we directed plaintiff to serve notice on the City and file proof of service to allow the City to intervene (id.). We also declined to revive the second and third causes of action for amounts due outside the application of the guaranty law, a request made for the first time in plaintiff's reply brief (id. at 526). Upon remand, by stipulation dated February 21, 2024, the City was permitted to intervene as a defendant in the action and the landlord's complaint was deemed to have raised the issue of the guaranty law's constitutionality under the Contracts Clause. The landlord did not file a notice of motion but rather submitted a memorandum of law, arguing that the guaranty law violated the Contracts Clause and requesting reinstatement of the second and third causes of action in the complaint and judgment against the guarantor. The City and, separately, the tenant and guarantor moved to dismiss the complaint.

Supreme Court declared the guaranty law unconstitutional, as violative of the Contracts Clause, reinstated the second and third causes of action against the guarantor, and denied defendants' motions to dismiss. As a preliminary issue, the court determined that the Melendez decisions were persuasive but not binding on it. The court next concluded that, contrary to plaintiff's assertions, collateral estoppel did not preclude the City from litigating the issue of the guaranty law's constitutionality.

[*14]

Turning to its constitutional analysis, the court found that the guaranty law imposed a substantial impairment on contractual relationships because landlords were permanently and unexpectedly deprived of the right to seek payment under their bargained-for guaranties. As to the means and ends of the legislation, the court determined that in view of the five concerns raised by the Second Circuit in Melendez II, the City failed to point to record evidence linking the stated purpose of the guaranty law to its means. The court concluded that the City did not adequately address Melendez II's concerns about the guaranty law's permanence as an impairment, the fairness of allocating the economic burden to commercial landlords, the absence of a requirement that the guarantor demonstrate need, and the law's failure to provide compensation for landlords. The court also addressed whether the record supported the three assumptions, identified in Melendez II, that purportedly informed the City's enactment of the guaranty law. The court determined that although the record supported the City's assumptions that "affected owner-guarantors would be financially ruined if required to pay their businesses' rent arrears" and "financially ruined owners would be unlikely to reopen shuttered businesses," the City failed to provide adequate support for its other assumption that "shuttered small businesses are usually owned by the individuals guaranteeing their leases."

Finally, the court rejected the City's arguments that Melendez II and Melendez III incorrectly applied strict scrutiny to the City Council's judgment when it should have applied a "substantial deference" standard. Finding that the correct level of scrutiny was applied, the court noted that "U.S. Supreme Court cases suggest that a substantial impairment is unreasonable when an evident and more moderate course would serve the state's purposes equally well" (quoting Sveen v Melin, 584 US 811, 831 [2018] [Gorsuch, J., dissenting] [internal quotation marks and brackets omitted]). The court concluded that there were more moderate courses the City could have taken. The court also found that even "affording substantial deference to the City Council's judgment," the guaranty law was not "reasonably tailored to suit its legitimate public purposes."

Discussion Collateral Estoppel

[*15]

6

As a preliminary matter, we find, contrary to the landlord's arguments, that the City is not collaterally estopped from relitigating the issue of the guaranty law's constitutionality based on the Southern District's grant of summary judgment against it in Melendez III. The decision in Melendez III was vacated by the Second Circuit because the plaintiffs there failed to demonstrate standing (Bochner, 118 F4th at 526), and the case was remanded to the District Court with instructions to dismiss due to lack of subject matter jurisdiction (id. at 517). Under such circumstances, where no order or final judgment was entered on the merits, collateral estoppel is inapplicable (see City of New York v State of New York, 284 AD2d 255, 255 [1st Dept 2001]; Stone v Williams, 970 F2d 1043, 1054 [2d Cir 1992], cert denied 508 US 906 [1993]). In any event, Supreme Court correctly determined that collateral estoppel does not apply where, as here, the issues being litigated are purely questions of law (see American Home Assur. Co. v International Ins. Co., 90 NY2d 433,

440 [1997]).

Contracts Clause Analysis

The Contracts Clause of article I, section 10 of the Constitutes states, "No State shall . . . pass any . . . Law impairing the Obligation of Contracts" (US Const, art I, § 10). Although "[t]he language of the Contract[s] Clause appears unambiguously absolute . . . [,] [it] is not, however, the Draconian provision that its words might seem to imply" (Allied Structural Steel Co. v Spannaus, 438 US 234, 240 [1978]). As the Supreme Court has repeatedly recognized, "literalism in the construction of the contract clause would make it destructive of the public interest by depriving the State of its prerogative of self-protection" (id. [alterations omitted]). Accordingly, the Contracts Clause's "prohibition must be accommodated to the inherent police power of the State to safeguard the vital interests of its people" (Energy Reserves Group, Inc. v Kansas Power & Light Co., 459 US 400, 410 [1983] [internal quotation marks omitted]), which is

"paramount to any rights under contracts between individuals" (Allied Structural Steel, 438 US at 241 [internal quotation marks omitted]). "Thus, state laws that impair an obligation under a contract do not necessarily give rise to a viable Contracts Clause claim" (Buffalo Teachers Fedn. v Tobe, 464 F3d 362, 368 [2d Cir 2006], cert denied 550 US 918

[2007]).

[*16]

When analyzing a Contracts Clause challenge, courts employ a three-part test, which considers: "(1) whether the contractual impairment is in fact substantial; if so, (2) whether the law serves a significant public purpose, such as remedying a general social or economic problem; and, if such a public purpose is demonstrated, (3) whether the means chosen to accomplish this purpose are reasonable and appropriate" (Sanitation and Recycling Indus., Inc. v City of New York, 107 F3d 985, 993 [2d Cir 1997], citing Energy Reserves Group, 459 US at 411-413, Allied Structural Steel, 438 US at 242-244, and United States Trust Co. of New York v New Jersey, 431 US 1, 22-23 [1977]). "We also consider the level of deference to give to a legislature's determination that a law was reasonable and necessary" (Buffalo Teachers Fedn., 464 F3d at 368). As the Second Circuit recognized in Melendez II, "in cases of private contracts, a presumption in favor of social and economic legislation sets the starting balance, but it does not end the inquiry" (16 F4th at 1028 n

57).

Initially, we find that Supreme Court's analysis improperly placed the burden on the City, as the guaranty law's proponent, to defend the constitutionality of the law, rather than properly placing the burden on the landlord, as the law's proponent, to establish the elements of its Contracts Clause challenge (see Sanitation and Recycling Indus., 107 F3d at 992 [on Contracts Clause challenges, plaintiffs "bear a heavy burden"]; see also Buffalo Teachers Fedn., 464 F3d at 365). Our dissenting colleague contends that the court made no such error and "did . . . [not] even discuss the burden of proof," but rather "simply analyzed the evidence" before it to reach its conclusion that the guaranty law violates the Contracts Clause. However, such a contention ignores much of the reasoning behind the court's decision, in which it implicitly placed the burden on the City to establish that the guaranty law was the best possible means of achieving its ends, which is not in its purview (see Buffalo Teachers Fedn., 464 F3d at 370). The court's analysis repeatedly determined (although without explicitly discussing the burden of proof) that the City failed to meet its burden, rather than analyzing whether the landlord put forth evidence to overcome the strong presumption in favor of the guaranty law's constitutionality (see Local Govt. Assistance Corp. v Sales Tax Asset Receivable Corp., 2 NY3d 524, 535 [2004]). For instance, the court found, among other things, that the City failed to establish through record evidence the "missing link" between the guaranty law's purpose and means. In doing so, the court absolved the landlord of having to prove the absence of a rational relationship between the guaranty law's ends and its means (see Sal Tinnerello & Sons, Inc. v. Town of Stonington, 141 F3d 46, 55 [2d Cir 1998], cert denied 525 US 923 [1998]). [*17]

Regardless, even putting aside the burden-shifting error, given that the record before us is sufficiently developed to leave only purely legal questions to resolve with respect to constitutionality, we address each of the three parts of the Contracts Clause test in relation to the guaranty law. Based on our own analysis, we determine that the law is constitutional and reversal is required on that basis.

Substantial Impairment

Regarding the first step in the Supreme Court's Contracts Clause test, "[t]he threshold inquiry is whether the [challenged] law has, in fact, operated as a substantial impairment of a contractual relationship" (Energy Reserves Group, 459 US at 411 [internal quotation marks omitted]). To determine whether a law acts as a substantial impairment, courts "consider[ ] the extent to which the law undermines the contractual bargain, interferes with a party's reasonable expectations, and prevents the party from safeguarding or reinstating his rights" (Sveen, 584 US at

819). Decreased profitability of a contract does not constitute an impairment, however (see American Economy Ins. Co. v State of New York, 30 NY3d 136, 154 [2017], cert denied 584 US 1013 [2018]).

Supreme Court properly concluded that the guaranty law imposes a substantial impairment on the affected contractual relationships. Initially, however, we agree with defendants that the landlord's characterization of the guaranty law as a permanent repudiation of debts under personal guaranties is not entirely accurate, nor is the landlord's assertion that

7

the law leaves a property owner with no recourse to ever collect rent. The debt remains entirely intact with respect to the tenant, and it is only the specific natural person guarantor who is temporarily relieved from liability for the statute's 16-month protection period. Nevertheless, a guaranty is a separate obligation from a lease, and although the disruption of the contractual bargain posed by the guaranty law is relatively brief temporally and leaves at least one payor still responsible, the law substantially impairs the enforceability of the affected guaranties during the statutory period. Thus, the landlord established, and Supreme Court properly determined, that its contract with defendant guarantor was substantially impaired to warrant consideration of the next prongs of the Contracts Clause test. Legitimate Public Purpose

[*18]

"Even if a contract has in fact been impaired, the State may avoid a finding of unconstitutional impairment by demonstrating the existence of 'a significant and legitimate public purpose such as the remedying of a broad and general social or economic problem' " (19th St. Assoc. v State of New York, 79 NY2d 434, 443 [1992] [alterations omitted], quoting Energy Reserves Group, 459 US at 411-412). "The requirement of a legitimate public purpose guarantees that the State is exercising its police power, rather than providing a benefit to special interests" (Energy Reserves Group, 459 US at 412). "[C]ourts have often held that the legislative interest in addressing a fiscal emergency is a legitimate public interest" (Buffalo Teachers Fedn., 464 F3d at 369).

We find that the developed record here amply supports the guaranty law's legitimate public purpose of staving off the cascading effects of the unprecedented-in-our-times pandemic. It is clear that through the guaranty law, the City sought to "remedy[ ] an important general social or economic problem" â​​ namely, the disastrous economic consequences of the public health crisis in New York, for its small businesses in particular â​​ and was "not providing a benefit to special interests" (Sanitation and Recycling Indus., 107 F3d at 993 [internal quotation marks omitted]). The landlord's argument that the guaranty law benefits only commercial tenants and not the general public is flatly incorrect and belied by the record, which firmly establishes that in enacting and later extending the guaranty law, significant weight was given to the fact that small businesses employ a substantial percentage of New Yorkers and that the closures of such businesses would have broad negative effects on the Cfity (see Local Law No. 98 [2020] of City of NY § 1[a][6] [predicting that if "individual owners and natural persons are forced to close their businesses permanently

. . . , the economic and social damage caused to the city will be greatly exacerbated"]). Council Speaker Johnson testified at the April 29 hearing that small businesses employ 26% of New Yorkers and that hundreds of thousands of workers would lose their jobs if these businesses were forced to shutter, which in turn would cost the City billions in income, property, and sales tax revenue. Such predictions, to some degree, were borne out, with the City Council noting, when first extending the guaranty law, the closures of at least 2,800 small businesses during the early months of the pandemic and the loss of more than 200,000 jobs in the sectors most affected by the Governor's executive orders issued in response to the public health crisis (see Local Law No. 98 [2020] of City of NY § 1[a][4]).Thus, the guaranty law's benefits devolved not only to natural person guarantors but also to those workers whose livelihoods depended on the survival of those small businesses and to the citizens who relied on them more in light of the pandemic's effects on daily life.

[*19]

The developed record further reflects that in the dire economic conditions caused by the pandemic, the guaranty law did not merely protect small businesses and their employees, but also commercial landlords from the harsh reality that the widespread ruin of commercial tenancies would yield negative outcomes for them (see Melendez II at 1038, quoting

40 X Owner LLC v Masi, Sup Ct, NY County, Jan. 7, 2021, index No. 156181/20 [prediction that without the law,

"neighborhoods would almost certainly be ghost towns with closed storefronts everywhere long after restrictions are lifted"]). As Bookman, the NYC Hospitality Alliance's general counsel, testified at the September 14 hearing, as reiterated by City Council members and others, failing to protect small businesses would lead to the City's "commercial corridors . . . becoming blighted," in turn negatively affecting "quality of life, public safety, [and] sanitation." The landlord's arguments do not acknowledge that in many instances, the natural person guarantors were not going to be able to pay the tenants' commercial rent during the worst of the pandemic, irrespective of the guaranty law's enactment, leaving commercial landlords in no better position had the law not been enacted, while placing the guarantors and the hundreds of thousands of workers in their employ in a much worse one. Accordingly, on this developed record, we conclude that the City Council acted with a legitimate public purpose when choosing to pass the guaranty law and that Supreme Court should have expressly made this finding. Reasonable and Appropriate to Advance its Goal

[*20]

If the legislature's public purpose is found to be legitimate, the final inquiry is whether the means chosen to achieve that goal are reasonable and appropriate (see Sanitation and Recycling Indus., 107 F3d at 993, citing United States Trust Co., 431 US at 22-23). The Supreme Court has "repeatedly held that unless the State is itself a contracting party, courts should properly defer to legislative judgment as to the necessity and reasonableness of a particular measure"

(Keystone Bituminous Coal Assn. v DeBenedictis, 480 US 470, 505 [1987] [internal quotation marks omitted]). Thus, "

[w]hen a law impairs a private contract, substantial deference is accorded to the legislature's judgments as to the necessity and reasonableness of a particular measure" (Buffalo Teachers Fedn., 464 F3d at 369 [internal quotation marks, citations, and brackets omitted]; see Sal Tinnerello & Sons, 141 F3d at 54). By contrast, when a law impairs a public contract that the state is a party to, "a more discerning lens" is used (Buffalo Teachers Fedn., 464 F3d at 369), and "complete deference . . . is not appropriate because the State's self-interest is at stake" (United States Trust Co.,

431 US at 26). Still, however, "less deference does not imply no deference" (Buffalo Teachers Fedn., 464 F3d at 370), and courts afford legislatures "a healthy degree of deference" when the challenged law "purports to remedy a pervasive

8

economic or social problem" (Sanitation and Recycling Indus., 107 F3d at 994). The deference afforded to the state is particularly strong when examining a law enacted in response to an emergency (see United States Trust Co., 431 US at 22-23 n 19; Home Bldg. & Loan Assn. v Blaisdell, 290 US 398, 426 [1934]; Sullivan v Nassau County Interim Fin. Auth.,

959 F3d 54, 68 [2020], cert denied 141 S Ct 1063 [2021]; Buffalo Teachers Fedn., 464 F3d at 373). None of these principles relating to deference are acknowledged by the dissent.

[*21]

According the City Council the substantial deference it is indisputably owed and with the above standard in mind, we hold that the guaranty law was a reasonable and appropriate means of addressing the City's legitimate public purpose in acting to stem at least some of the economic devastation resulting from the pandemic. As is made clear by the extensive record before us, the City Council's judgment in crafting the guaranty was considered and well informed, and ample support was provided for the City's finding that "the economic and social damage caused to the city will be greatly exacerbated and will be significantly worse than if these businesses are able to temporarily close and return or, failing that, to close later, gradually, and not all at once" (Local Law No. 98 [2020] of City of NY § 1[a][6]). Indeed, the immense legislative record here, much of which informed the City Council's decision to enact the guaranty law and to subsequently twice extend it, includes, among other items, transcripts of City Council members discussing the various reasons for which the legislation was needed, as well as the April 29 report, which detailed, through a slew of data and reporting, the financial toll that the pandemic was taking on small businesses in particular, the failures of federal and municipal programs to adequately aid these businesses (and the absence of State assistance for small businesses at that time), and the alarming economic predictions for the months ahead.

The City Council further received significant oral and written testimony from small business owners and personal guarantors, as well as advocates, business groups, City agency representatives, and others, a substantial portion of whom supported the legislation and stressed the dire need for relief to avoid personal financial devastation as well as more widespread economic turmoil. This record reflects that the City Council did not determine that the guaranty law was the most effective among the available solutions on a whim, but rather through extensive consultation with experts, the collection of unemployment and business closure data, and numerous public hearings and testimony. Such robust evidence, both data-driven and anecdotal, showing broad support for the legislation and widespread need for it, supports the conclusion that the guaranty law was reasonable and appropriate. This is particularly true given the ongoing "emergency [and] dire need justifying the impairment" when the law was enacted (Buffalo Teachers Fedn., 464 F3d at 373; see Sanitation and Recycling Indus., 107 F3d at 994).

[*22]

We agree with the City that the limitations built into the guaranty law further support the conclusion that it was a reasonable and appropriate means of serving its legitimate public purpose. The guaranty law's application is limited in four notable respects: (1) the law impacts only those guaranties signed by "natural persons," thus excluding corporate guarantors; (2) it does not prevent landlords from seeking other remedies under their leases beyond the enforcement of guaranties; (3) it applies only to commercial tenants who were forced to close or reduce capacity under a subset of the Governor's executive orders; and (4) it is limited in duration (Administrative Code § 22-1005). As to the third factor, the guaranty law did not prevent commercial landlords from collecting their tenants' rent payments during the statutory period or enforcing the tenants' rent obligations. Nor did the law prohibit landlords from applying security deposit funds, which the record reflects amounted to several months' rent and more than $100,000 for certain tenants, toward unpaid rent. Indeed, the City Council itself expressly noted that the guaranty law did not limit landlords from seeking these "other lawful remedies" (Local Law No. 50 [2021] of City of NY § 1[a][10]). As to the fourth factor, the federal courts have recognized the temporary nature of a challenged law â​​ in this case, the limitation of the guaranty law's application to a 16-month statutory period of protection â​​ as a factor suggesting reasonableness and appropriateness (see Energy Reserves Group, 459 US at 418 [finding the challenged law reasonable and appropriate, "particularly in light of the deference to which the [legislature's] judgment is entitled" and given that the law was "a temporary measure"]; Blaisdell, 290 US at 447 [the challenged law was "temporary in operation" and "limited to the exigency which called it forth"]; Sullivan, 959 F3d at 69 [the challenged law was "clearly reasonable" in part because "[i]t lasted for one year only, and so was of limited duration"]; Buffalo Teachers Fedn., 464 F3d at 371 ["The temporary and prospective nature of the [challenged law] underscores further its reasonableness"]). [*23]

This Contracts Clause challenge bears several comparable characteristics to that at issue in Buffalo Teachers Fedn.. There, even when using the "less deference" standard that is applied when analyzing laws that impair public contracts, the Second Circuit found that depriving public school teachers of their contracted-for pay raises to address the City of Buffalo's financial crisis did not violate the Contracts Clause (464 F3d at 371).^FN3 Although the temporary wage freeze was permanent, in that the pay raises were not made retroactive when they eventually took effect (as later acknowledged by the Second Circuit in Melendez II [16 F4th at 1040]), the Second Circuit in Buffalo Teachers Fedn. still found the wage free reasonable and necessary, as the alternatives were more drastic, the wage freeze was required to be reevaluated to determine its continued necessity, and the impairment did not apply to amounts earned before the law's enactment (464 F3d at 371). The Second Circuit also acknowledged in Melendez II that under Buffalo Teachers Fedn., although the permanency of the contractual impairment weighs against the law's constitutionality, this factor alone is not dispositive (16 F4th at 1040 ["We do not here hold that . . . a permanent impairment of contract can never be deemed reasonable or appropriate"]).

Here, the guaranty law, in similar fashion to the wage freeze at issue in Buffalo Teachers Fedn., permanently precludes the enforcement of the affected guaranties during a temporary, 16-month statutory period. Additionally, the record shows that the City Council continued to reevaluate the necessity of the law prior to extending it. The City Council initially enacted the law through September 2020, assuming, as many did, that the worst effects of the pandemic would have receded by that point (Local Law No. 55 [2020] of City of NY). As Council Member Rivera testified at the September 14 hearing, "While I hoped in May that our federal government would have been able to bring us back to a

9

point where most businesses could fully reopen safely, today that just isn't the case." That the law was twice extended based on extensive additional findings of fact by the City Council supports its reasonableness as a well-considered policy determination (see Local Law No. 98 [2020] of City of NY § 1[a] [citing the deaths of more than 24,000 New York City residents as of September 2020; the profound unemployment rate; and reasoning that in addition to preventing the personal financial devastation of thousands of small business owners, "the economic and social damage caused to the city will be greatly exacerbated"]).

[*24]

The record before us also makes clear that the guaranty law was not passed without the City Council considering other options, further supporting the conclusion of the law's reasonableness and appropriateness (see Sullivan, 959 F3d at 65; Buffalo Teachers Fedn., 464 F3d at 371; Sal Tinnerello & Sons, 141 F3d at 55). Indeed, the guaranty law was introduced as one of 13 bills that sought in various ways to mitigate the economic harm of the pandemic on small businesses. City Council members discussed this legislative package, including the guaranty law, at length, and at least one City Council member vocalized his concerns about the law. The legislative package appeared to evolve following the City Council's receipt of reports and testimony. For instance, the version of the guaranty law as introduced was broader than the version that the City Council ultimately enacted. The guaranty law initially would have applied to a wider swath of businesses generally "impacted by COVID-19," but its application was subsequently limited to businesses forced to close or reduce capacity under a subset of the Governor's executive orders. Certainly, the record makes clear that doing nothing in response to the dual public health and economic emergencies was not an option for the City Council. For instance, although REBNY and BOMA New York voiced their opposition to the guaranty law in favor of "organic solutions" permitting individual landlords and tenants to negotiate their way out of the pandemic's fallout â​​ which, notably, was an approach that the law did not preclude them from pursuing â​​ many others testified about how critical it was that the City Council do something to protect small businesses. As Rigie, the NYC Hospitality Alliance's executive director, testified, only 1 in 10 tenants was able to negotiate with their landlords. The live testimony and written submissions of numerous small business owners and personal guarantors attesting to their landlords' refusal to negotiate with them also reflect that "organic solutions" were insufficient. [*25]

In any event, the City was not required to show that the guaranty law was the objectively best option available to address its stated public purpose. Even under less deference scrutiny, it is not in the purview of the courts "to reexamine all of the factors underlying the legislation at issue and to make a de novo determination whether another alternative would have constituted a better statutory solution to a given problem" (Buffalo Teachers Fedn., 464 F3d at 370; see Local Div. 589, Amalgamated Transit Union, AFL-CIO, CLC v Commonwealth of Massachusetts, 666 F2d 618, 642 [1st Cir 1981] [same], cert denied 457 US 1117 [1982]). Nor is it in our purview to "second-guess" the City Council's determination that the guaranty law was "the most appropriate way[ ] of dealing with the problem" (Keystone Bituminous Coal Assn., 480 US at 506) and substitute our judgment for that of the City Council (see Sal Tinnerello & Sons, 141 F3d at 46). "Whether the legislation is wise or unwise as a matter of policy is a question with which we are not concerned" (Blaisdell, 290 US at 447-448; see Sullivan, 959 F3d at 69). Contrary to Supreme Court's analysis and the landlord's assertions, the City "need not prove its choice the best among the available alternatives" because it was the landlord who "must prove that there is no rational relationship between [the City's] ends and its means" (Sal Tinnerello & Sons, 141 F3d at 55). The landlord cannot meet its burden by "[m]erely contending that there was a better way" (id.). As already emphasized, "[t]he City has broad (though not unlimited) power to enact a law like [the guaranty law] to achieve [its] legitimate ends without worrying that in so doing private contracts may be impaired or even destroyed" (Sanitation and Recycling Indus., 107 F3d at 994).

[*26]

Determining whether a law "violated the U.S. Constitution is a delicate matter for [the courts] to undertake and risks second-guessing, with the security of hindsight, difficult choices made by the legislature under demanding circumstances" (Donohue v Cuomo, 980 F3d 53, 84 [2d Cir 2020], certified question accepted, 36 NY3d 935 [2020], certified question answered, 38 NY3d 1 [2022]). The dissent's focus on what the City Council could have done to better tailor the law engages in such second-guessing, making short shrift of the difficult decisions that the City Council had to undergo and the speed in which it had to act amid the urgent conditions of the pandemic. Such heightened scrutiny is not warranted (see Buffalo Teachers Fedn., 464 F3d at 371 ["a high level of judicial scrutiny of the legislature's actions would harken to a dangerous return to the days of Lochner v New York (198 US 45 [1905]), in which courts would act as superlegislatures, overturning laws . . . when they believed the legislature acted unwisely"] [internal brackets, citations, and quotation marks omitted]). Additionally, the dissent's reliance on United States Trust Co. (431 US 1) for the proposition that the City "may not 'impose a drastic impairment when an evident and more moderate course would serve its purpose equally well' " (quoting 431 US at 31) is misplaced, as such a showing is only required when analyzing a Contracts Clause challenge under less deference scrutiny, not substantial deference, the standard that is to be applied here (see Buffalo Teachers Fedn., 464 F3d at 371 ["under less deference scrutiny, it must be shown that the state did not . . . impose a drastic impairment when an evident and more moderate course would serve its purpose equally well"]; Sullivan, 959 F3d at 65 [same]). Accordingly, "we find no need to second-guess the wisdom of picking the [guaranty law] over other policy alternatives" (Buffalo Teachers Fedn., 464 F3d at 372, citing Blaisdell, 290 US at 447- 448, Local Div. 589, 666 F2d at 643 ["noting that the court could have balanced alternatives to impairment, but [quoting it as] concluding that '[a]nswering these sorts of questions . . . is a task far better suited to legislators than to judges' "], and Sal Tinnerello & Sons, 141 F3d at 54).

[*27]

Supreme Court in its analysis failed to afford substantial deference to the City Council's judgment and to the evidence collected by the City in the form of testimony, reports, and data while acting with the swiftness warranted by the pandemic. The landlord too fails to address the substantial deference standard that is to be employed here and

10

noticeably falls short of refuting or even engaging with the voluminous legislative record provided by the City. Instead, the landlord centers much of its argument on the claim that the Supreme Court has held that "in no event may the state 'adopt as its policy the repudiation of debts or the destruction of contracts or the denial of means to enforce them' "

(quoting Blaisdell, 290 USat 439). Even accepting as true the landlord's assertion that the guaranty law permanently repudiates the affected debts (a characterization that we, in disagreement with the dissent, previously noted is not entirely accurate), we agree with the City that Supreme Court cases after Blaisdell have clarified that governments have "broad power" to adopt laws even if private contracts are "destroyed . . . as a result" (United States Trust Co., 431 US at 22). Indeed, even the majority opinion in Melendez II rejected that case's dissent's statement that the majority had held, "as a categorical matter," "the repudiation of debt, destruction of contract, or denial of enforcement could not

. . . be justified by police power" (16 F4th at 1038 n 68; see also Keystone Bituminous Coal Assn., 480 US at 502-503 [explaining that "the prohibition against impairing the obligation of contracts is not to be read literally" and that the Supreme Court has upheld laws even where they were "designed to repudiate or adjust pre-existing debtor-creditor relationships that obligors were unable to satisfy"]).

[*28]

The landlord, as well as the dissent, also relies almost exclusively on the five factors identified by the Second Circuit in Melendez II, as well as the Southern District's since-vacated decision in Melendez III, to argue that the guaranty law was insufficiently tailored to avoid unfairly placing the economic fallout of the pandemic solely on the shoulders of commercial landlords. However, although the Melendez II courtarticulated that the five concerns that it identified weighed against the conclusion that the law was "a reasonable and appropriate means to serve the City's professed public purpose" (16 F4th at 1046), it merely concluded that the matter could not "be decided in favor of defendants as a matter of law" at the pleadings stage and did not ultimately reach the issue on the merits (id.). Nevertheless, as the court below rightly recognized, and the dissent notes as well, although the Second Circuit's decision may serve as useful persuasive authority in interpreting the federal constitutional question before us, Melendez II is not binding on this Court (see People v Kin Kan, 78 NY2d 54, 60 [1991]). We are therefore free to reach our own holdings based on the specific record before us.^FN4

Even considering the factors set forth in Melendez II as applied to the developed record before us here, we find the guaranty law reasonable and appropriate and conclude that there is in fact evidence "link[ing] purpose and means,"

which the Second Circuit found lacking from the record before it (16 F4th at 1041). As we already addressed the Second Circuit's concern about the guaranty law's purported permanence in our analysis of the substantial impairment prong of the Contracts Clause test, we turn to its questioning of the City's "assumptions" on which the law was based. Indeed, the term "assumptions" is inapt. The Guaranty Law was not constructed on assumptions, but on extensive testimony and evidence. The landlord fails to establish as a matter of law that any of these assumptions were incorrect, nor does it identify any facts to dispute "(a) that shuttered small businesses are usually owned by the individuals guaranteeing their leases, (b) that these owner-guarantors would be financially ruined if required to pay their businesses' rent arrears, and (c) that financially ruined owners would be unlikely to reopen shuttered businesses" (16 F4th at 1040). Rather, the record amply supports these findings, as the City Council did not solely hear testimony, but also collected numerous reports and data when it crafted and later extended the guaranty law. [*29]

Supreme Court properly concluded that assumptions (b) and (c) had support in the record based on the abundance of testimony from small business owners and guarantors about how they feared not only losing their businesses, but also facing personal financial ruin, including, in some instances, the loss of life savings and bankruptcy. The City Council also received testimony from this same constituency about the desire to reopen their businesses, but uncertainty in being able to do so given personal financial obligations to their landlords. The court improperly determined, however, that the City failed to identify "any evidence supporting assumption (a)â​​that shuttered small businesses are usually owned by the individuals guaranteeing their leases," given Bookman's testimony, among others, that small businesses are most likely to have personal guaranties, as well as the written testimony, as already mentioned, from numerous individuals about their financial concerns as both small business owners and personal guarantors on their leases. The City Council received testimony from landlords and trade groups, such as BOMA New York and REBNY, among numerous others. Yet notably absent from the record is any evidence suggesting that many, if any, commercial leases were personally guaranteed by someone other than small business owners. It is also illogical to assume that a stranger would personally guarantee a small business owner's commercial lease given the risks involved. Since the landlord offered no evidence to counter these assumptions, the court should not have determined that the landlord prevailed here.

With respect to the Second Circuit's third inquiry, as to why commercial landlords were expected to bear the economic burden, Supreme Court should not have found that it was the City's burden to show that it was reasonable (Sal Tinnerello & Sons, 141 F3d at 55 ["Merely contending that there was a better way" does not satisfy plaintiff's burden]). This is particularly so given the evidence the court failed to credit regarding the extent to which property owners had greater avenues of federal relief available to them that were not available to, or harder to access for, small business owners and tenants. Additionally, the record shows that the economic burden on commercial landlords could be mitigated, including through recovery from the tenant, for whom the debt remained intact, and through recouping on the often significant security deposits that tenants had put down. Further, as already noted in our discussion of the public purpose behind the guaranty law, the landlord's assertion that only commercial tenants benefitted from the law, to the detriment of their landlords, is flatly refuted by the testimony from all quarters that unemployment was of paramount concern, which required providing relief to employers, many of which were small businesses with personal lease guaranties.

[*30]

The City also correctly observes that commercial landlords generally operate as corporations or limited liability companies, which protects their principals from personal financial ruin, unlike the natural person guarantors protected

11

by the law here. As the City Council noted in its declaration of legislative intent and findings, "While businesses may be willing to weather the economic hardships imposed upon them by governmental measures to combat COVID-19 . . . individual owners . . . who personally guarantee the financial obligations of these businesses face a different and more substantial risk than losing revenue and profit. They risk losing their personal assets, including their possessions and even their own homes, transforming a business loss into a devastating personal loss" (Local Law No. 98 [2020] of City of NY § 1[a][5]). By contrast, commercial landlords, as is the case here, are generally protected by the shield of limited liability.

Further, as Buffalo Teachers Fedn. reflects, in a state of emergency, some parties may be more burdened than others, and it is the City's province to determine how to balance these burdens fairly "in light of the surrounding circumstances" (464 F3d at 371). Contrary to Supreme Court's analysis, whether the contracting party is at fault is not part of the calculus, as in that case Buffalo's teachers unquestionably were not responsible for Buffalo's fiscal crisis (id.). Given that a burden to the contract is inherent in a Contracts Clause challenge, there is no basis to weigh this factor twice.

[*31]

As to the fourth and fifth inquiries in Melendez II, that (4) the City did not condition the guaranty law on need and (5) the guaranty law does not compensate landlords, we find that the absence of such legislative requirements does not does not make the law unreasonable or inappropriate, especially in light of the record support showing the challenges posed by the emergency circumstances of the pandemic and the numerous other ways in which the City Council tailored the law. We agree with the City that the City Council appropriately judged that in limiting the protections of the guaranty law to natural person guarantors who were forced to close due to a subset of the Governor's executive orders, an additional requirement demonstrating need, which would have to be defined and adjudicated, was not necessary and the omission of such a requirement does not make the law unreasonable. This is particularly so given that many small business owners were not receiving adequate aid, or were not receiving aid at all, from other COVID-19 relief programs, such as PPP, due to the time it took to adjudicate individual applications, as shown by the April 29 report and testimony that the City Council received. The record also shows that the City Council appropriately omitted a compensation requirement. Supreme Court's conclusion that the City failed to "identify any circumstances that might allow commercial landlords to recoup any part of their losses for those 16 months of unpaid rent" is belied by the record, which makes clear that the landlord could still seek rent owed from the tenant, including by applying security deposit funds or by suing. In sum, given that relief under the guaranty law was only made available to natural person guarantors, not corporate guarantors, affected by the executive orders limiting their operations, not those businesses still able to profit, and only for the 16-month statutory period during the worst of the pandemic, while the debt remained entirely valid as against the tenant, the party that incurred the debt, the landlord did not carry its burden to show that there was "no rational relationship between [the City's] ends and its means" (Sal Tinnerello & Sons, 141 F3d at 55).

For the foregoing reasons, we find that not only did the landlord fail to carry its burden to demonstrate that the guaranty law was not reasonable and appropriate, but that this record amply establishes that the City made every effort to craft a law that would meet the unprecedented moment fairly and for a limited period. Thus, in according the City Council the substantial deference it is owed, we conclude that the guaranty law was an appropriate and reasonable means of advancing the legitimate public purpose of mitigating the catastrophic economic effects of the pandemic on small businesses, as well as the City more generally. As a result, we hold that the guaranty law does not violate the Contracts Clause.

Amounts Due Outside the Statutory Period

[*32] Lastly, the tenant and guarantor correctly argue that irrespective of the application of the guaranty law, this Court's 2023 order precludes the revival of those branches of the landlord's second and third causes of actions seeking amounts due outside the statutory period of the guaranty law. We observe that our prior order dismissed those branches of the claims because the landlord raised them for the first time in its reply brief and they were therefore not properly before us (513 W. 26th Realty LLC, 220 AD3d at 526, citing Matter of Erdey v City of New York, 129 AD3d 546, 546-547 [1st Dept 2015]). Because we previously dismissed these claims and the landlord could have taken steps to reargue this branch of the order but did not, and this Court's 2023 order solely revived the claims within the guaranty law's window (id. at 525-526), those were the only extant branches of the second and third causes of action. The landlord does not address the tenant and guarantor's arguments on this issue, and it fails to identify any basis for departing from that branch of our prior order.

Accordingly, the order of the Supreme Court, New York County (Paul A. Goetz, J.), entered on or about December 31, 2024, which declared that New York City Administrative Code § 22-1005 violates the Contracts Clause of article I, section 10 of the United States Constitution, reinstated plaintiff 513 West 26th Realty, LLC's second and third causes of action against defendant George Billis, and denied defendants George Billis and the City of New York's respective motions to dismiss the complaint, should be reversed, on the law, without costs, the declaration vacated, and defendants' motions granted, upon our holding that the guaranty law does not violate the Contracts Clause of the United States Constitution.

All concur except Friedman J. who dissents

in a separate Opinion.

Friedman, J. (Dissenting)

In response to the business closures required by the COVID-19 pandemic, the New York City Council enacted New York

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City Administrative Code § 22-1005 (Local Law No. 55 [2020] of City of New York, § 1, as amended by Local Law No. 98 [2020] of City of New York, § 1, and Local Law No. 50 [2021] of City of New York, § 2) (the guaranty law). The guaranty law, as amended, declares unenforceable guarantees by natural persons of rent and other expenses owed to the landlord by a commercial tenant falling within specified categories for defaults under the lease that occurred between March 7, 2020, and June 30, 2021. The guaranty law provides:

[*33]

"A provision in a commercial lease or other rental agreement involving real property located within the city, or relating to such a lease or other rental agreement, that provides for one or more natural persons who are not the tenant under such agreement to become, upon the occurrence of a default or other event, wholly or partially personally liable for payment of rent, utility expenses or taxes owed by the tenant under such agreement, or fees and charges relating to routine building maintenance owed by the tenant under such agreement, shall not be enforceable against such natural persons if the conditions of paragraph 1 and 2 are satisfied:

"1. The tenant satisfies the conditions of subparagraph (a), (b) or (c):

"(a) The tenant was required to cease serving patrons food or beverage for on-premises consumption or to cease operation under executive order number 202.3 issued by the governor on March 16, 2020;

"(b) The tenant was a non-essential retail establishment subject to in-person limitations under guidance issued by the New York state department of economic development pursuant to executive order number 202.6 issued by the governor on March 18, 2020; or

"(c) The tenant was required to close to members of the public under executive order number 202.7 issued by the governor on March 19, 2020.

"2. The default or other event causing such natural persons to become wholly or partially personally liable for such obligation occurred between March 7, 2020 and June 30, 2021, inclusive."

In this action, which was commenced in November 2020, plaintiff, the owner of the building located at 527 West 26th Street in Manhattan, seeks to recover rental arrears and attorneys' fees under the lease of certain premises within the aforementioned building from the lessee, defendant George Billis Galleries, Inc. (GBG), and from defendant George Billis, the principal of GBG and the guarantor of GBG's lease obligations pursuant to a "good guy" guarantee executed at or about the same time as the lease. It is undisputed that a substantial portion of the rental arrears that plaintiff seeks to recover accrued during the period (March 7, 2020, through June 30, 2021) covered by paragraph (2) of the guaranty law (the statutory period). It is also undisputed that GBG satisfies one or more of the conditions for applicability of the guaranty law set forth in paragraph (1) thereof.

[*34]

By order entered July 20, 2021, Supreme Court granted Billis's motion for partial summary judgment dismissing the claims against him under the guaranty (the second cause of action, for rental arrears, and the third cause of action, for attorney's fees) as barred by the guaranty law. Upon plaintiff's appeal from that order, this Court, by order dated October 19, 2023, reversed, reinstated the causes of action against Billis, and remanded the matter for further development of the record to determine the constitutionality of the guaranty law under the Contracts Clause of the United State Constitution (US Const, art I, § 10) "[i]n view of the recent decision in Melendez v City of New York . . . finding the guaranty law . . . unconstitutional" (513 W. 26th Realty LLC v George Billis Galleries, Inc., 220 AD3d 525, 525 [1st Dept 2023]).^FN5

Upon remand, the City of New York intervened as a defendant and the complaint was deemed amended (by stipulation) to raise the issue of the constitutionality of the guaranty law. The City and Billis then separately moved to dismiss the amended complaint. In opposition, plaintiff submitted a memorandum of law in which it requested that the guaranty law be declared unconstitutional. After receiving the parties' evidentiary and argumentative submissions addressing the constitutional issue, the court issued an order, entered December 31, 2024, declaring the guaranty law unconstitutional and denying the motions to dismiss the amended complaint as against the City and Billis. The present appeals by Billis and the City ensued. For the reasons set forth below, I would affirm and therefore respectfully dissent from the majority's reversal of Supreme Court's decision.

Initially, I address the majority's contention that Supreme Court erred by "improperly plac[ing] the burden on the City .

. . to defend the constitutionality of the law, rather than properly placing the burden on the landlord . . . to establish the elements of its Contracts Clause challenge." Contrary to this assertion, nowhere in its decision did Supreme Court even discuss the burden of proof. Rather, the court simply analyzed the evidence in the record before it and, like the district court in Melendez III, concluded that such evidence established that the guaranty law runs afoul of the Contracts Clause. While, in Contracts Clause jurisprudence, there is "a presumption in favor of social and economic legislation"

(Melendez II, 16 F4th at 1028 n 57), that presumption "sets the starting balance, but it does not end the inquiry" (id.). In this case, I believe that a clear preponderance of the evidence in the record supports Supreme Court's determination that "the totality of the relevant factors . . . outweighs the deference customarily accorded legislative judgments" (id.). Stated otherwise, I would find that plaintiff has met its burden of proof on this issue. [*35]

The majority takes me to task for "ignor[ing] much of the reasoning behind [Supreme] [C]ourt's decision, in which it implicitly placed the burden on the City to establish that the guaranty law was the best possible means of achieving its ends, which is not in its purview." This characterization is unfair. Far from undertaking to determine whether the law in question "was the best possible means of achieving its ends," Supreme Court merely determined whether the preponderance of the evidence placed before it by both parties supported plaintiff's contention that the guaranty law's

13

abrogation of its contractual rights was so severe, and so tenuously connected to the law's legitimate purpose, as to constitute a violation of plaintiff's constitutional rights under modern Contracts Clause jurisprudence. In opining that the City had not presented sufficient evidence to overcome the conclusion of unconstitutionality compelled by the existing record, Supreme Court in no way imposed on the City the burden of proving the law's constitutionality in the first instance.

Determining whether a law violates the Contracts Clause requires a court to ask the following three questions: "(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 III, 668 F Supp 3d at 197 [internal quotation marks omitted], quoting Sullivan v Nassau County Interim Fin. Auth., 959 F3d 54, 64 [2d Cir 2020], cert denied 141 S Ct 1063 [2021]). I agree with Supreme Court that, with respect to the guaranty law, the answers to the each of the first two questions is "yes," but the answer to the third question is "no," meaning that the law is an unconstitutional impairment of contract.

Turning to the first question of the Contracts Clause inquiry, Supreme Court properly concluded that the guaranty law substantially impairs the contract in question, namely, Billis's guarantee of GBG's obligations to plaintiff under the lease (see Sveen v Melin, 584 US 811, 819 [2018] [determining whether a law substantially impairs a contract involves

"consider(ing) the extent to which the law undermines the contractual bargain, interferes with a party's reasonable expectations, and prevents the party from safeguarding or reinstating his rights"]). Specifically, the guaranty law renders the guaranty permanently unenforceable with respect to any amount for which GBG became liable under the lease during the 16-month statutory period.

[*36]

While the majority concedes the guaranty law substantially impairs plaintiff's contractual rights, it does so grudgingly, inaccurately asserting that the law only "temporarily relieve[s]" a guarantor of liability and that the "disruption of the contractual bargain . . . is relatively brief temporally." On the contrary, for all increments of debt incurred under the lease during the statutory period, the law abrogates the guaranty permanently. Stated otherwise, while it is true that the law affects only liabilities arising under the lease during a limited period, the period of the unenforceability of the guaranty with respect to those liabilities is unlimited. Thus, contrary to the majority's assertion, it is "entirely accurate"

to characterize the guaranty law as "a permanent repudiation of debts arising from qualifying guaranties within the statutory period." Similarly without merit is the majority's attempt to minimize the impairment by pointing out that "

[t]he debt remains entirely intact with respect to the tenant," since (as the majority admits) the guaranty and the lease are separate contracts. Moreover, the purpose of the guaranty is to enable the landlord to recover amounts owed under the lease that cannot be recovered from the entity to which the premises are leased (which in many cases does not retain its earnings from the use of the premises). Needless to say, if recovery from the tenant were possible, the landlord would have no reason to seek recovery under the guaranty.

As to the second question, I agree with the conclusion of the district court in Melendez, and the implicit conclusion of Supreme Court in the order appealed from, that the City adopted the guaranty law to serve a legitimate public interest. That interest was "mitigating the economic emergency experienced in New York City as the result of the COVID-19 pandemic . . . [by] prevent[ing] New York's small business owners from being pushed into both business and personal bankruptcy, which would have eliminated their ability to remain in or return to business, thereby exacerbating the economic crisis within the City" (Melendez III, 668 F Supp 3d at 198 [internal quotation marks omitted]; see also id. at 199 ["the City's policy goals in passing the guaranty law advanced a legitimate general interest of mitigating a staggering economic crisis brought about by a once-in-a-lifetime pandemic"]).

[*37]

This brings us to the third question in the Contracts Clause analysis, namely, whether the law in question adjusted preexisting contractual obligations "upon reasonable conditions of a character appropriate to the public purpose justifying its adoption" (Melendez II, 16 F4th at 1029 [internal quotation marks and ellipsis omitted], quoting United States Trust Co. of N.Y. v New Jersey, 431 US 1, 22 [1977]). Stated otherwise, the question is whether there is "some record basis to link purpose and means" (Melendez II, 16 F4th at 1041). In answering this question, I, like Supreme Court and the district court in Melendez III, would find that the record does not resolve the five concerns identified by the Second Circuit in Melendez II (see 16 F4th at 1038-1046) so as to demonstrate a "link" between the professed purpose of the guaranty law and the means chosen by the City Council, so as to render the means "reasonable and necessary" to the achievement of the purpose (Sullivan, 959 F3d at 64).

First, as previously noted, the guaranty law is not a temporary impairment of contract but a permanent abrogation of Billis's guaranty for all arrears accrued under the lease within the statutory period. Under the guaranty law, while the guaranty goes back into effect with respect to new liabilities as they accrue after the end of the statutory period, plaintiff remains forever precluded from obtaining a recovery under the guaranty for the liabilities that accrued during the statutory period (cf. Home Bldg. & Loan Assn. v Blaisdell, 290 US 398, 445 [1934] [upholding a law deferring but not extinguishing mortgagors' obligations, as "the integrity of the mortgage indebtedness is not impaired"]). While there are cases in which laws permanently impairing contracts have been validated, as the Second Circuit observed in Melendez II, the point is not that a permanent impairment can never be deemed reasonable or appropriate, but that permanency of the impairment "will weigh heavily against a finding of reasonableness" (Melendez II, 16 F4th at 1040). The City points to nothing in the record explaining why the goals of the guaranty law could not have been achieved by a deferral of the enforceability of guaranties rather than making the guaranties permanently unenforceable as to liabilities incurred during the statutory period.

[*38]

Second, the record also fails to support at least one assumption identified by the Second Circuit as underlying the

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guaranty law's enactment for the purpose of "help[ing] shuttered small businesses survive the pandemic so that they can reopen after the emergency, ensuring functioning neighborhoods throughout the City" (id.). Specifically, the unsupported assumption is that "shuttered small businesses are usually owned by the individuals guaranteeing their leases" (id.). This assumption was crucial to the supposition that the guaranty law was likely to promote the reopening of the shuttered businesses after the pandemic. After all, a guarantor who does not own the business he or she guarantees cannot reopen it. Nonetheless, the guaranty law does not condition its applicability on the guarantor being the owner of the business in question. That the City Council heard testimony from business owners who personally guaranteed their business's debts under their leases does nothing to show that, in most cases, the guarantor is the owner of the business. The City could have conditioned relief under the guaranty law on ownership of the business but did not do so, and points to nothing in the record explaining the failure to choose such a course. Nor, for that matter, do the City or Billis identify any evidence in the record explaining why the City Council did not condition relief under the legislation upon use of the aid â​​ in effect, a subsidy the landlord is mandated by law to provide to the guarantor â​​ to re- open the closed business (see Melendez III, 668 F Supp3d at 202). Contrary to the majority's implication, I do not

"illogical[ly] . . . assume that a stranger" would be the guarantor; in many cases, the nonowner guarantor may be a person having a relationship with the owner of the business.

[*39]

The third concern about the fit between the guaranty law's means and purpose identified by the Second Circuit was the law's allocation of the economic burden of the loss of business revenue caused by the pandemic solely to commercial landlords â​​ "a discrete group of private persons" (Melendez II, 16 F4th at 1042) â​​ thereby "upsetting lawfully contracted-for expectations between landlords and guarantors, eliminating the former's rights and the latter's responsibilities with respect to tenants' rent defaults within the prescribed period" (id.). Contrary to the City's contention, the concern about allocation of the burden arises in the context of impairment of private contracts, not just public contracts (see id.). The City identifies nothing in the record supporting its conclusion that commercial landlords â​​ which are also frequently small businesses or small not-for-profit property owners â​​ were in a better position to sustain the economic burden of their tenants' inability to pay rent than the tenants' guarantors. While the City points to difficulties commercial tenants claim to have had in accessing government assistance programs (such as loans from the Paycheck Protection Program), there is nothing in the record to indicate that commercial landlords would not have experienced the same difficulties. In sum, it weighs against validation of the guaranty law that this law constitutes "a legislative decision to provide financial relief to certain persons not through public funds but by destroying the contract expectations of other persons, particularly persons not responsible for the circumstances warranting relief" (id.). The fourth concern identified by the Second Circuit is that relief under the guaranty law is not conditioned on need (see id. at 1043) â​​ a sharp contrast to the moratorium on evictions for residential tenants, who "were required to demonstrate financial hardship in order to be shielded from eviction and remain in their homes" (Melendez III, 668 F Supp3d at 205). That relief under the guaranty law is limited to guarantors who are natural persons does not address this concern, since there is no reason to assume that "a particular [individual] guarantor cannot pay rent arrears" or that "a particular landlord is better able than a particular guarantor to bear the financial burden of a tenant's ability to pay rent" (Melendez II, 16 F4th at 1043). The record does not reflect that the City's rejection of proposals to include a hardship requirement in the legislation was based on "any investigative or empirical process whatsoever" (Melendez III,

668 F Supp3d at 206). Given that the United States Supreme Court has held that a state or municipality may not

"impose a drastic impairment when an evident and more moderate course would serve its purposes equally well"

(United States Trust Co., 431 US at 31), the lack of a need requirement also weighs against the validation of the guaranty law.

[*40]

Finally, like Supreme Court and the district court in Melendez III, I find that the fifth concern identified by the Second Circuit â​​ the failure of the guaranty law "to provide for landlords or their principals to be compensated for damages or losses sustained as a result of their guaranties' impairment" (Melendez II, 16 F4th at 1045) â​​ weighs against validation of the law. In identifying this concern, the Second Circuit noted that an "important factor" in the United States Supreme Court's validation of a foreclosure moratorium law in the seminal decision of Blaisdell was the law's provision for some form of compensation to the mortgagee by conditioning the delinquent mortgagor's remaining in possession of the premises on the payment of reasonable rent through the moratorium period (id. at 1045-1046). The City points to nothing in the record to mitigate the concern engendered by the guaranty law's lack of a provision for compensation of affected landlords.

In sum, all of the Second Circuit's concerns relating to the fit between the guaranty law's means and the purpose it was supposed to serve, considered in light of the present record, lead me to conclude that the guaranty law does not pass muster under the Contracts Clause of the United States Constitution. In concluding otherwise, the majority relies primarily on the deference generally accorded to the choices made by legislatures in addressing pressing economic and social problems, such as were presented to the City of New York by the COVID-19 pandemic. What the majority overlooks is that the Contracts Clause places significant limits on such deference. As the United States Supreme Court has explained:

"[A]lthough the absolute language of the [Contracts] Clause must leave room for the essential attributes of sovereign power, necessarily reserved to the States to safeguard the welfare of their citizens, that power has limits when its exercise effects substantial modifications of private contracts. Despite the customary deference courts give to state laws directed to social and economic problems, legislation adjusting the rights and responsibilities of contracting parties must be upon reasonable conditions and of a character appropriate to the public purpose justifying its adoption"

(Allied Structural Steel Co. v Spannaus, 438 US 234, 244 [1978] [citations, internal quotation marks, ellipsis and brackets omitted]).

[*41]

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