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This opinion is uncorrected and subject to revision before
publication in the New York Reports.
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No. 180
In the Matter of Mary Veronica
Santiago-Monteverde.
Mary Veronica
Santiago-Monteverde,
Appellant,
v.
John S. Pereira, &c.,
Respondent.
Ronald J. Mann, for appellant.
J. David Dantzler, Jr., for respondent.
City of New York; New York State Senator Brad Hoylman
et al.; New York City Bankruptcy Assistance Project et al., amici
curiae.
ABDUS-SALAAM, J.:
The United States Court of Appeals for the Second
Circuit has certified a question to this Court which requires us
to resolve the following issue: May a bankruptcy debtor's
interest in her rent-stabilized lease be exempted from her
bankruptcy estate pursuant to New York State Debtor and Creditor
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Law section 282 (2) as a "local public assistance benefit?" We
hold that section 282 (2) of the Debtor and Creditor Law (DCL)
exempts a debtor-tenant's interest in a rent-stabilized lease.
I.
The debtor Mary Santiago-Monteverde has lived in her
apartment at 199 E. 7th Street in Manhattan for over forty years.
The apartment is rent-stabilized. After her husband died in June
2011, Santiago-Monteverde was unable to pay her credit card
debts of approximately $23,000 and filed for Chapter 7
bankruptcy. During the pendency of the bankruptcy proceedings,
she remained current on her rent obligations. She initially
listed her apartment lease on Schedule G of her bankruptcy
petition as a standard unexpired lease. Shortly thereafter, the
owner of the apartment approached the bankruptcy trustee,
respondent John S. Pereira, and offered to buy Santiago-
Monteverde's interest in the lease. When the trustee advised her
that he planned to accept the offer, she amended her filing to
list the value of her lease on Schedule B as personal property
exempt from the bankruptcy estate under DCL § 282 (2) as a "local
public assistance benefit."
The Bankruptcy Court granted the trustee's motion to
strike the claimed exemption on the ground that the value of the
lease did not qualify as an exempt "local public assistance
benefit" (In re Santiago-Monteverde, 466 BR 621, 622 [Bankr. SD
NY 2012]). The court noted that Santiago-Monteverde's counsel
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did not dispute "that a rent-stabilized lease is the property of
the estate and that the Trustee 'may assume or reject any
executory contract or unexpired lease of the debtor'"(id., citing
11 USC § 365). The court reasoned that "the benefit of paying
below market rent [ ] is not a 'public assistance benefit' that
is entitled to any exemption in bankruptcy" and that the benefit
"is a quirk of the regulatory scheme in the New York housing
market, not an individual entitlement"(id. at 625).
The District Court affirmed the Bankruptcy Court(US
Dist Ct, SD NY, 12 Civ 4238, Castel, J., 2012), holding that "the
value in securing a lawful termination of the rent-stabilized
lease . . . is a collateral consequence of the regulatory scheme
and not a 'local public assistance benefit'" (id.).
On appeal to the Second Circuit, Santiago-Monteverde
argued that "the lease (or its value) is a 'local public
assistance benefit' because the value of the lease (in whole or
in part) is traceable to the protections afforded to her under
the [Rent Stabilization Code]" (747 F3d 153, 157 [2d Cir 2014]).
Recognizing that this argument raises an open issue of New York
law, the Second Circuit certified the following question to this
Court: "Whether a debtor-tenant possesses a property interest in
the protected value of her rent-stabilized lease that may be
exempted from her bankruptcy estate pursuant to New York State
[DCL] Section 282 (2) as a 'local public assistance benefit'?"
(id. at 158).
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II.
The Bankruptcy Code authorizes a bankruptcy trustee to
"assume or reject any . . . unexpired lease of the debtor" (11
USC § 365 [a]). As was noted by the Second Circuit, there is
limited case law from both New York courts and bankruptcy courts
holding that a trustee's authority under section 365 extends to
rent-stabilized leases (see 187 Concourse Assocs. v Bunting, 175
Misc 2d 870 [Civ. Ct. 1997] and cases cited therein; see also In
re Toldano, 299 BR 284, 292 [Bankr. SD NY 2003]; In re Stein, 282
BR 845 [Bankr. SD NY 2002]; In re Yasin, 179 BR 43, 49 [Bankr. SD
NY 1995]). In this case, the debtor's counsel acknowledged at
the hearing before the Bankruptcy Judge that a rent-stabilized
lease is property of the estate and that the Trustee had the
power to assume the lease pursuant to section 365 (466 BR 621,
622).
Section 522 (b) of the Bankruptcy Code permits the
debtor to exempt certain property from the bankruptcy estate, and
section 522 (d) provides a list of property that may be exempt.
However, the Code also permits states to create their own list of
exemptions, and New York has done so. DCL § 282 sets forth the
permissible exemptions in personal bankruptcy. Debtors domiciled
in New York have the option of choosing either the federal
exemptions or New York exemptions (11 USC § 522 (b); DCL § 285).
DCL § 282 (2), entitled "Bankruptcy exemption for right to
receive benefits" lists the following as exemptions:
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"The debtor's right to receive or the
debtor's interest in: (a) a social security
benefit, unemployment compensation or a local
public assistance benefit; (b) a veterans'
benefit; (c) a disability, illness, or
unemployment benefit; (d) alimony, support,
or separate maintenance, to the extent
reasonably necessary for the support of the
debtor and any dependent of the debtor; and
(e) all payments under a stock bonus,
pension, profit sharing, or similar plan or
contract on account of illness, disability,
death, age, or length of service . . . "
When the rent-stabilization regulatory scheme is considered
against the backdrop of the crucial role that it plays in the
lives of New York residents, and the purpose and effect of the
program, it is evident that a tenant's rights under a rent-
stabilized lease are a local public assistance benefit.
The Legislature has concluded that rent stabilization
is necessary to preserve affordable housing for low-income,
working poor and middle class residents in New York City. As we
said in Manocherian v Lenox Hill Hosp. (84 NY2d 385, 389 [1994]),
"[t]he rent stabilization system began in 1969 to ameliorate,
over time, the intractable housing emergency in the City of New
York" due to a housing shortage which was caused by continued
high demand and decreasing supply. We noted in Manocherian that
"[b]y regulating rents and providing occupants with statutory
rights to tenancy renewals under rent stabilization . . . the
State intended to protect dwellers who could not compete in an
overheated rental market, through no fault of their own" (id. at
389).
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The New York City Administrative Code provides that the
City Council "finds that a serious public emergency continues to
exist in the housing of a considerable number of persons within
the city of New York," and that "unless residential rents and
evictions continue to be regulated and controlled, disruptive
practices and abnormal conditions will produce serious threats to
the public health, safety and general welfare" (Administrative
Code of City of New York § 26-501).
The rent-stabilization program has all of the
characteristics of a local public assistance benefit. It is
plainly local in that it depends on periodic determinations by
local authorities as to the continuing existence of an emergency
in the particular jurisdiction. The program is public as it was
enacted by the New York Legislature and implemented by
legislative and administrative bodies at both the state and local
level. Rent stabilization provides assistance to a specific
segment of the population that could not afford to live in New
York City without a rent regulatory scheme. And the regulatory
framework provides benefits to a targeted group of tenants - it
protects them from rent increases, requires owners to offer
lease renewals and the right to continued occupancy, imposes
strict eviction procedures, and grants succession rights for
qualified family members.
The Trustee argues that the benefits of rent-
stabilization are unlike the other exemptions listed in DCL § 282
(2), such as social security benefits, unemployment compensation,
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and alimony, support, or separate maintenance because those
exemptions all involve periodic payments, while the rent-
stabilization program does not involve payments to tenants.
However, that argument ignores the reality of social programs
such as food stamps, vouchers, medical care, discounted
prescriptions, and the like, that do not involve payments to the
recipients of the benefit. While many public assistance benefits
are administered through programs that provide periodic cash
payments, such payments are not a prerequisite to a benefit being
in the nature of public assistance.
Furthermore, when the Legislature meant to refer only
to "payments" in the DCL, it used that term. For example, in
section 282 (2)(e), it exempted certain "payments" under pension
and other plans. But it used the broader term "benefit" in
section 282 (2)(a), indicating that benefits and payments are not
the same. Likewise, the Legislature has demonstrated that the
general term "public assistance" denotes more than cash payments.
For example, the Social Services Law in effect when DCL § 282
(2)(a) was enacted provided that "public assistance and care
includes home relief, veteran assistance, aid to dependent
children, medical assistance for needy persons, institutional
care for adults and child care granted at public expense" (Social
Services Law § 2(18) [1982]). The current definition of public
assistance is similar. Like other public assistance benefits
exempted by New York law from a bankruptcy estate, the Rent
Stabilization Law serves a select, defined group of New Yorkers
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who struggle, in this case, to afford suitable housing.
The Trustee also argues that the benefit of a rent-
stabilized tenancy cannot be a public assistance benefit because
it is not subsidized by the government, as are the other benefits
of social security and unemployment compensation listed in DCL §
282 (2). However, the rent-stabilization program is an
exceptional regulatory scheme that enables a specifically
targeted group of tenants to maintain housing in New York City.
This uncommon regulatory program reflects the legislative intent
to create a benefit for certain individuals who fall below
certain income or rent thresholds, based upon the Legislature's
conclusion that there is a continuing housing emergency.
While the rent-stabilization laws do not provide a
benefit paid for by the government, they do provide a benefit
conferred by the government through regulation aimed at a
population that the government deems in need of protection.
Among other things, the Rent Stabilization Law caps legal rents.
Although the population that benefits from rent-stabilization may
not meet the requirements for New York City public housing
programs or Section 8 assistance, the government, recognizing
that housing protection is necessary to benefit a specific group
of tenants, has created a public assistance benefit through a
unique regulatory scheme applied to private owners of real
property.
There are other public assistance benefits that are,
at least in part, regulatory in form. Medicare is an example of
a government program that is not solely the creature of a
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government subsidy. Although the government does, to some
extent, contribute to the cost of medical care for Medicare
recipients, it also sets the rates that can be charged by
doctors. Medicare, like the rent-stabilization program is not
strictly for the needy. It is a public assistance benefit that
regulates what doctors can charge for services, while rent-
stabilization is a public assistance benefit that regulates the
rents property owners can charge protected tenants. While the
classic examples of public assistance benefits may be solely
government subsidized, or a mixture of subsidy and regulation as
with Medicare, nothing prevents a targeted regulation from
qualifying as a public assistance benefit. The rare regulatory
scheme of rent-stabilization is such a benefit.
Finally, as was recently noted by the United States
Supreme Court, exemptions serve the important purpose of
protecting the debtor's essential needs (Clark v Rameker, 134 S
Ct. 2242, 2247 [2014][internal quotation marks and citation
omitted]). Affordable housing is an essential need. Mindful
that exemption statutes are to be construed liberally in favor of
debtors (In re Miller, 167 BR 782, 783 [SD NY 1994]), the
certified question should be answered in accordance with this
opinion.
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Mary Veronica Santiago-Monteverde v John S. Periera
No. 180
SMITH, J.(dissenting):
I dissent, because the majority grossly misreads Debtor
and Creditor Law § 282 (2).
"Public assistance" is a common synonym for "welfare."
It refers, in ordinary speech, to government subsidies for the
poor, whether paid in cash or in kind. The majority quotes a
list of examples from former Social Services Law § 2 (18): "home
relief, veteran assistance, aid to dependent children, medical
assistance for needy persons, institutional care for adults and
child care granted at public expense" (see majority op at 7).
The current version of the statute adds "safety net assistance"
(Social Services Law § 2 [18]). Neither list includes rent
control or rent stabilization, though they have long been and
still are prominent features of life in New York. Nor does the
statutory list include any other regulatory program not involving
a government subsidy. In fact, I do not think I have ever seen
or heard the words "public assistance" used to refer to such a
program before this case, and the majority cites no example of
such a use.
Ignoring the generally accepted meaning of "public
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assistance," the majority chooses to interpret "public assistance
benefits" in the Debtor and Creditor Law literally. The rent
stabilization program is public, in the way that all government
regulation is public; it "provides assistance to a specific
segment of the population" that is in economic need; and it
"provides benefits" to that same segment (majority op at 6). The
same could be said of a great many programs -- e.g., minimum wage
laws; antidiscrimination laws; workplace safety regulations --
that no one would think of calling "public assistance."
I would like to try asking every rent controlled or
rent stabilized tenant in New York: "Do you receive public
assistance?" I would be surprised to find even one (apart from
those receiving government subsidies from other programs) who
answered yes.
* * * * * * * * * * * * * * * * *
Following certification of a question by the United States Court
of Appeals for the Second Circuit and acceptance of the question
by this Court pursuant to section 500.27 of this Court's Rules of
Practice, and after hearing argument by counsel for the parties
and consideration of the briefs and the record submitted,
certified question answered in accordance with the opinion
herein. Opinion by Judge Abdus-Salaam. Chief Judge Lippman and
Judges Graffeo, Pigott and Rivera concur. Judge Smith dissents
and votes to answer the certified question in the negative in an
opinion in which Judge Read concurs.
Decided November 20, 2014
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