11-1802-cv
Dexter 345 Inc. v. Cuomo
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term 2010
Heard: June 22, 2011 Decided: December 5, 2011
Docket No. 11-1802-cv
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DEXTER 345 INC., DEXTER PROPERTIES, LLC,
and ESPLANADE 94 LLC,
Plaintiffs-Appellants,
v.
ANDREW CUOMO, as Governor of the
State of New York, and STATE OF NEW YORK,
Defendants-Appellees,
CITY OF NEW YORK,
Intervenor-Defendant-Appellee.
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Before: NEWMAN, LEVAL, and POOLER, Circuit Judges.
Appeal from the May 2, 2011, order of the United States District
Court for the Southern District of New York (Richard J. Sullivan,
District Judge), denying hotel owners’ motion for a preliminary
injunction to prevent enforcement of state law prohibiting rental of
hotel rooms in certain types of buildings for less than 30 days.
Affirmed.
Richard G. Leland, New York, N.Y. (Michael
B. de Leeuw, Fried, Frank, Harris,
Shriver & Jacobson LLP, New York, N.Y.,
on the brief), for Plaintiffs-
Appellants.
Monica Wagner, Asst. Solicitor General,
New York, N.Y. (Eric T. Schneiderman,
N.Y. State Atty. General, Barbara D.
Underwood, Solicitor General, Benjamin
N. Gutman, Deputy Solicitor General,
Office of the N.Y. State Attorney
General, New York, N.Y., on the brief),
for Defendants-Appellees.
Marta S. Ross, Asst. Corporation Counsel,
New York, N.Y. (Michael A. Cardozo,
City of N.Y. Corporation Counsel,
Edward F.X. Hart, Sheryl R. Neufeld,
Office of the Corporation Counsel of
the City of New York, New York, N.Y.),
on the brief, for Intervenor-Defendant-
Appellee.
JON O. NEWMAN, Circuit Judge.
This appeal from the denial of a preliminary injunction
challenges a provision of New York’s Multiple Dwelling Law on the
ground that it amounts to an unconstitutional regulatory taking of
property. Dexter 345, Inc., Dexter Properties, LLC, and Esplanade 94
LLC (collectively “the Appellants”) appeal from the May 2, 2011, order
of the United States District Court for the Southern District of New
York (Richard J. Sullivan, District Judge), denying their motion for
a preliminary injunction to enjoin enforcement of Chapter 225 of the
Laws of New York State of 2010 (“Chapter 225”). Chapter 225, which
went into effect on May 1, 2011, prohibits renting any unit in Class
A buildings under the New York Multiple Dwelling Law (“MDL”) for less
than 30 days. The Appellants alleged that Chapter 225 will destroy
their budget hotel businesses, under which they rent out a large
number of the units in their buildings on a temporary basis to
tourists. The District Court denied relief for lack of a sufficient
showing of irreparable injury. See Dexter 345 Inc. v. Cuomo , No. 11
Civ. 1319, 2011 WL 1795824 (S.D.N.Y. May 3, 2011). We agree that the
Appellants have failed to make a sufficient showing of irreparable
injury and therefore affirm.
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Background
Before July 2010, New York’s MDL provided that Class A multiple
dwellings be “occupied, as a rule, for permanent residence purposes.”
N.Y. Mult. Dwell. Law § 4(8) (McKinney 2009). In contrast, Class B
multiple dwellings are “occupied, as a rule transiently, as the more
or less temporary abode of individuals or families.” N.Y. Mult.
Dwell. Law § 4(9) (McKinney 2009). Class B accommodations “include
hotels, lodging houses, rooming houses, boarding schools, furnished
room houses, lodgings, club houses, college and school dormitories and
dwellings designed as private dwellings but occupied by one or two
families with five or more transient boarders, roomers or lodgers in
one household.” Id. Class B dwelling units were required to comply
with more stringent egress and fire safety requirements. At issue in
this case are “single room occupancy” (SRO”) buildings. The MDL
defines an SRO as the “occupancy by one or two persons of a single
room, or of two or more rooms which are joined together, separated
from all other rooms within an apartment in a multiple dwelling, so
that the occupant or occupants thereof reside separately and
independently of the other occupant or occupants of the same
apartment. N.Y. Mult. Dwell. Law § 4(16) (McKinney 2011). It further
provides that “when a class A multiple dwelling is used wholly or in
part for single room occupancy, it remains a class A multiple
dwelling.” Id. Many owners of Class A SRO buildings interpreted the
“as a rule” provisions to allow them to rent some portion of their
buildings as “budget” hotel rooms, which would more typically be typed
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Class B accommodations. In January 2009, a state appellate court
interpreted “as a rule” to mean that owners of Class A buildings could
rent up to half of their rooms for “nonpermanent or transient
occupancy,” so long as the majority of the rooms were rented for
longer than 30 days. See City of N.Y. v. 330 Continental LLC, 60
A.D.3d 226, 230-31, 873 N.Y.S.2d 9, 12-13 (1st Dept. 2009).
In July 2010, in response to this decision, Chapter 225 amended
the MDL to prohibit the rental of any unit in a Class A building for
less than 30 days. 2010 N.Y. Sess. Laws Ch. 225, § 1 (McKinney).
After a subsequent amendment, Chapter 225 became effective May 1,
2011. N.Y. Mult. Dwell. Law § 4(8) (McKinney 2011). The stated
purposes of Chapter 225 were to (1) prevent building owners from
circumventing the strict fire safety standards applicable to hotels;
(2) prevent “unfair competition to legitimate hotels that have made
substantial investments to comply” with building codes; (3) protect
the rights of permanent occupants who “must endure the inconvenience
of hotel occupancy in their buildings;” and (4) preserve the supply of
affordable permanent housing. See New York State Assembly Memorandum
in Support of Legislation (S. 6873-B, 233rd Leg. (N.Y. 2010 (Sponsor’s
Memo)Bill No. A10008).
The Dexter Appellants own and manage a 270-room Class A single-
room occupancy (“SRO”) building, Dexter House, at 345 West 86th Street
in Manhattan. Before Chapter 225 became effective, they rented
approximately 170 of their units to permanent residents and
approximately 100 units to “[b]udget [h]otel” guests. The Complaint
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alleged that, when Dexter House was purchased in 1957, it “already
operated” as a budget hotel, and Dexter Properties, LLC purchased it
“with the expectation that it would continue to be operated as a
[b]udget [h]otel.” Appellant Esplanade 94 LLC (“Esplanade”) owns a
240-room Class A SRO building, Hotel Alexander, at 306 and 308 West
94th Street in Manhattan. The Complaint alleged that Esplanade
purchased Hotel Alexander in 2007 “with the expectation that it would
continue to be operated as a [b]udget [h]otel.” The building contains
127 long-term rental units and 112 budget hotel units.
In February 2011, the Appellants initiated this lawsuit asserting
that Chapter 225 violated the Takings Clause of the Fifth Amendment,
the Due Process Clauses of the Fifth and Fourteenth Amendments, the
Equal Protection Clause of the Fourteenth Amendment, and equivalent
clauses of the New York State Constitution. In April 2011, the
Appellants filed their motion for a preliminary injunction, based
solely on their claims under the federal and state Takings Clauses.
Later that month, the District Court denied the motion in an order
entered on May 2 and the next day issued a memorandum rejecting the
claim that Chapter 225 subjected the Appellants to irreparable harm on
the theory that it would deprive them of the right to make “productive
use” of their properties.
Discussion
This Court reviews a district court’s denial of a preliminary
injunction for “abuse of discretion.” Federal Express Corp. v. Federal
Espresso, Inc., 201 F.3d 168, 173 (2d Cir. 2000). A court abuses or
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exceeds its discretion “when (1) its decision rests on an error of law
(such as application of the wrong legal principle) or a clearly
erroneous factual finding, or (2) its decision--though not necessarily
the product of a legal error or a clearly erroneous factual finding--
cannot be located within the range of permissible decisions.”
Mastrovincenzo v. City of New York, 435 F.3d 78, 88-89 (2d Cir. 2006)
(internal quotation marks omitted). A district court may enter a
preliminary injunction staying “governmental action taken in the
public interest pursuant to a statutory or regulatory scheme” only
when the moving party has demonstrated that it will suffer irreparable
injury, and there is “a likelihood that [it] will succeed on the
merits of [its] claim.” Plaza Health Labs., Inc. v. Perales, 878 F.2d
577, 580 (2d Cir. 1989). We confine our consideration to the
Appellants’ claim of irreparable injury.
It is well established that an irreparable injury is “an injury
that is not remote or speculative but actual and imminent, and ‘for
which a monetary award cannot be adequate compensation.’” Tom Doherty
Assocs. v. Saban Entertainment, Inc. , 60 F.3d 27, 37 (2d Cir. 1995)
(quoting Jackson Dairy, Inc. v. H. P. Hood & Sons, Inc., 596 F.2d 70,
72 (2d Cir. 1979)). As the District Court noted, Dexter House has
been operating since 1957 and Hotel Alexander since 2007, operations
that will enable the Plaintiffs to calculate any money damages to
which they might be entitled, including lost profits, based on
previous rent figures. The Appellants’ argument that the loss of
goodwill will be irreparable fails in light of this long history. The
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District Court correctly found that any loss of goodwill would result
from the Appellants’ inability to continue operating their budget
hotel business as they had in the past. The long history of operation
by both Appellants ensures that they will be able to calculate money
damages for any loss of goodwill they may have suffered if a taking is
found.
The Appellants also contend that irreparable injury is shown by
the threat to the continued existence of their budget hotel business.
The District Court acknowledged that in some circumstances threat to
the continued existence of a business can constitute irreparable
injury, as occurred in Nemer Jeep-Eagle, Inc. v. Jeep-Eagle Sales
Corp., 992 F.2d 430 (2d Cir. 1993). But the District Court properly
distinguished Nemer on the ground that the lack of a track record for
the Nemer plaintiff’s recently established business precluded a basis
from which to extrapolate damages.
The District Court also properly rejected the Appellants’ claim
of irreparable injury based on “reputational damage” allegedly arising
from the legislative declaration that budget hotels like theirs are
unsafe and unwanted in the community. As the Court pointed out, any
reputational damage occurred when Chapter 225 was enacted, and is not
imminent injury, see Tom Doherty Assocs., 60 F.3d at 37, that could be
remedied by a preliminary injunction.
The Appellants have also failed to make the required showing of
irreparable injury with respect to their claims that they will be
unable to obtain new customers or reestablish relationships with
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travel promoters. They have adduced nothing more than conclusory
assertions in support of these claims. In addition, as noted by
Appellee State of New York, the Appellants themselves are responsible
for some of these purported injuries, because they apparently
continued to accept reservations and payments for the period after May
1, 2011, even though Chapter 225 had been enacted nine months earlier.
The District Court did not exceed its discretion in concluding
that the Appellants had not made a sufficient showing of irreparable
injury that would justify preliminary injunctive relief.
Conclusion
The order of the District Court is affirmed.
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