In a significant decision, Judge Colleen McMahon of the United States District Court for the Southern District of New York, in Elmsford Apartment Associates, LLC et al. v. Andrew Cuomo (Case No. 1:20-cv04062-CM) (the "Action"), upheld the constitutionality of Governor Cuomo's Executive Order 202.28 ("EO 202.28"), issued on May 7, 2020, which, among other things, extends the moratorium on eviction and foreclosure proceedings previously imposed by Executive Order 202.8 ("EO 202.8") until August 20, 2020 only against individuals or entities facing financial hardship as a result of the COVID-19 pandemic, and mandates that landlords apply security deposits to unpaid rent at the request of their tenants.

The Action was commenced by three residential landlords seeking to declare EO 202.28 unconstitutional on the grounds that it improperly interferes with plaintiffs' contractual and due process rights and constitutes an impermissible taking of plaintiffs' property under the United States Constitution. Although EO 202.28 applies to both residential and commercial landlords, the pleadings largely involved only residential evictions and foreclosures.

The landlords alleged that EO 202.28 violates the Takings Clause of the Fourteenth Amendment (the "Takings Clause") and the Contracts Clause in Article I of the U.S. Constitution (the "Contracts Clause") because, among other reasons, it prohibits landlords from commencing an eviction proceeding and deprives landlords of the full value of their property. As to EO 202.28's provisions relating to security deposits, the landlords alleged that EO 202.28 improperly restricts the landlords' right to replenish security deposits and violates the Contracts Clause by improperly vitiating the landlords' contractual rights to maintain security deposits for the purpose of compensating landlords for damages caused by tenants.

Although the Court did not address the state law questions raised in landlords' pleadings, the Court held that EO 202.28's restrictions on the circumstances in which a foreclosure or eviction can occur or the ability of tenants to continue occupying their units after their lease term expires do not amount to a physical or regulatory taking because, among other reasons, EO 202.28 does not eliminate tenants' rental obligations (particularly the obligation to pay rent). The Court also noted that the landlords' vague allegations in the Complaint, absent any concrete evidence, make it difficult to quantify the precise economic impact that the eviction moratorium has on landlords' property, as is required to prevail on a regulatory takings claim. In determining that EO 202.28 does not interfere with the landlords' investment backed expectations, the Court held that the right to collect rent is not absolute and is contingent on compliance with applicable state and local law. The Court also held that in times of emergency, such as during a global pandemic in which New York was the epicenter, state governments are entitled to temporarily reallocate economic hardships between private parties without violating the Takings Clause.

As to the Contracts Clause arguments, the Court found that EO 202.28 does not substantially impair the landlords' contractual rights because the landlords cannot reasonably expect to be free of further rent regulations. The Court noted that the security deposit provision allows landlords to collect deposit funds in lieu of missed rental payments without waiving their right to collect the remaining amount due at a later time. Similarly, EO 202.28 does not eliminate the contractual remedies available to the landlords and instead merely postpones the time period in which the landlords may commence summary proceedings. As the Court noted, EO 202.28 is scheduled to expire on August 19 and is only temporary. It remains to be seen whether the moratorium will be extended, and whether an extension would change the Court's analysis, based on its focus on the temporary nature of the Executive Order.

This decision illustrates the difficult nature of prevailing on the constitutional challenges that are available to private parties against government action in response to COVID-19.