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RESOLUTION TRUST CORP. v. DIAMOND

August 21, 1992

RESOLUTION TRUST CORPORATION, as receiver of Nassau Savings and Loan Association, F.A., Plaintiff, against SELMA DIAMOND, IRA KAUFMAN, JEROME LEDERER, PEGGY LEHMAN, SUSAN SOLOMON PATTULLO, LLOYD RIBNER, as executor of the estate of Muriel Ribner, deceased, HORACE SOLOMON, LILLIAN SOLOMON, DENISE TUCKER, ANGELO APONTE, Commissioner of the Division of Housing and Community Renewal of the State of New York, and ROBERT ABRAMS, Attorney General of the State of New York, Defendants. ROBERT ABRAMS, Attorney General of the State of New York, and NEW YORK STATE DIVISION OF HOUSING AND COMMUNITY RENEWAL, Plaintiffs, - against - RESOLUTION TRUST CORPORATION, NASSAU SAVINGS AND LOAN ASSOCIATION, F.A., JEROME MARON, and ANTHONY T.S. CONRAD, Defendants.

Carter


The opinion of the court was delivered by: ROBERT L. CARTER

CARTER, District Judge

At issue in these consolidated actions is whether the Resolution Trust Corporation ("RTC") is empowered by federal statute to evict tenants in RTC-controlled apartments in violation of state rent control, rent stabilization, and securities laws. The RTC contends that its enabling statute contains such authorization, and that contrary state laws are preempted under the Supremacy Clause of the United States Constitution. The Attorney General of the State of New York and the New York State Division of Housing and Community Renewal ("DHCR") (collectively the "State") argue that the RTC has no such power, and that state laws regulating rent and evictions are not preempted and must be obeyed by the RTC. Both the RTC and the State have moved separately for summary judgment.

 The first of the consolidated cases is a declaratory judgment action, No. 91 Civ. 1361 (RLC), brought by the RTC as receiver of Nassau Savings and Loan Association, F.A. ("Nassau Savings"), against Angelo Aponte, the Commissioner of DHCR; Robert Abrams, the Attorney General of the State of New York; and the individual lessees of nine condominium units located at 444 East 57th Street, New York, New York (the "East 57th Street units") that the RTC acquired as a result of the failure of Nassau Federal Savings and Loan Association ("Nassau Federal"). The RTC has sought to evict rent-regulated tenants in the East 57th Street units and has adopted a policy statement which sets out its intention to take similar action against rent-regulated tenants in all other cooperative and condominium units under its control. *fn1"

 In the second of the consolidated actions, No. 91 Civ. 1683 (RLC), the State challenges the RTC's authority to disregard New York State's comprehensive statutory scheme regulating the offer and sale of cooperative and condominium apartments and the rights of rental tenants. The State seeks declaratory and injunctive relief enjoining the RTC from taking any action in violation of the state rent and securities laws.

 I.

 (e) Provisions relating to contracts entered into before appointment of conservator or receiver.

 (1) Authority to repudiate contracts.

 In addition to any other rights a conservator or receiver may have, the conservator or receiver for any insured depository institution may disaffirm or repudiate any contract or lease --

 (A) to which such institution is a party;

 (B) the performance of which the conservator or receiver, in the conservator's or receiver's discretion, determines to be burdensome; and

 (C) the disaffirmance or repudiation of which the conservator or receiver determines, in the conservator's or receiver's discretion, will promote the orderly administration of the institution's affairs.

 12 U.S.C. § 1821(e)(1) (emphasis added). The RTC argues that state rent and securities laws that regulate allowable rents and provide tenants with protection from eviction frustrate the accomplishment of the RTC's mandate under FIRREA to maximize the net present value of the assets of failed thrift institutions. The RTC therefore asserts that it may, pursuant to its discretionary powers under section 1821(e)(1), repudiate and disaffirm the leases of tenants in rent-regulated housing under its control in New York State, and thereby exercise control over the apartments free from the constraints of the state rent and securities laws.

 The State responds that FIRREA does not give the RTC the power to disregard the requirements of state rent and securities laws. The State argues that the occupancy rights of tenants in New York's rent-regulated housing do not stem from leases or contracts, but instead from statutory tenancies created by the state rent control and rent stabilization laws. The State contends that section 1821(e)(1) gives the RTC power to repudiate or disaffirm contracts and leases but not statutory tenancies, and that the RTC therefore does not have the power to evict the East 57th Street tenants, or any other tenants of rent-regulated housing under RTC control in New York State.

 The RTC replies to the State's argument by asserting that FIRREA has preempted whatever rights tenants in rent-regulated housing may have under New York statutory law, thereby leaving only a lease relationship between the tenants and the RTC as landlord. The RTC would then be free to repudiate the leases under section 1821(e)(1). The issue of whether the state rent and securities laws are preempted by FIRREA is complicated, however, and will require extensive discussion.

 Under the Supremacy Clause of the United States Constitution, laws passed by Congress become the law of the land, "any Thing in the Constitution or Laws of any State to the Contrary notwithstanding." U.S. Const., Art. IV, Cl. 2. However, "preemption of state law by federal statute is not favored 'in the absence of persuasive reasons -- either that the nature of the regulated subject matter permits no other conclusion, or that the Congress has unmistakably so ordained.'" Chicago & N.W. Transp. Co. v. Kalo Brick & Tile Co., 450 U.S. 311, 317, 67 L. Ed. 2d 258, 101 S. Ct. 1124 (1981) (quoting Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142, 10 L. Ed. 2d 248, 83 S. Ct. 1210 (1963)). This presumption against preemption applies especially where the state law said to be preempted is within the traditional police powers of the states. See Ray v. Atlantic Richfield Co., 435 U.S. 151, 157, 55 L. Ed. 2d 179, 98 S. Ct. 988 (1978); Rogers v. Consolidated Rail Corp., 948 F.2d 858, 859 (2d Cir. 1991). In such cases, the party arguing for preemption carries a heavy burden of showing that preemption was the "clear and manifest purpose of Congress." Pacific Gas & Elec. Co. v. State Energy Resources Conservation & Dev. Corp., 461 U.S. 190, 206, 75 L. Ed. 2d 752, 103 S. Ct. 1713 (1983); see also General Motors Corp. v. Abrams, 897 F.2d 34, 41-42 (2d Cir. 1990) ("compelling evidence" of an intent to preempt must be shown where the area is traditionally regulated by the states).

 The state laws that the RTC claims are preempted by FIRREA deal with rent and real estate securities regulation, which are areas within the traditional police powers of the states. See Rowe v. Pierce, 622 F. Supp. 1030, 1033 (D.D.C. 1985). Accordingly, there is a presumption against preemption of the state laws by FIRREA. *fn2"

 Federal statutes can preempt state laws in three ways: expressly, through implication, or where there is a conflict between the state and federal laws. Schneidewind v. ANR Pipeline Co., 485 U.S. 293, 300, 99 L. Ed. 2d 316, 108 S. Ct. 1145 (1988); California Fed. Sav. & Loan Ass'n v. Guerra, 479 U.S. 272, 280, 93 L. Ed. 2d 613, 107 S. Ct. 683 (1987). Express preemption is found where the federal legislation contains an express statement of a clear and manifest intent to preempt state laws. Jones v. Rath Packing Co., 430 U.S. 519, 525, 51 L. Ed. 2d 604, 97 S. Ct. 1305 (1977). Implied preemption occurs where there is a clear indication that Congress intended to occupy the entire regulatory field. Guerra, supra, 479 U.S. at 280-81. The third type of federal displacement of state law, "conflict preemption," occurs either where there is a conflict between the federal and state laws which makes compliance with both laws physically impossible, or where there is a conflict in which application of the state law will create an obstacle to the accomplishment of the full objectives of Congress. California v. ARC America Corp., 490 U.S. 93, 100-101, 104 L. Ed. 2d 86, 109 S. Ct. 1661 (1989); Silkwood v. Kerr-McGee Corp., 464 U.S. 238, 248, 78 L. Ed. 2d 443, 104 S. Ct. 615 (1984); Medical Soc. of State of New York v. Cuomo, 777 F. Supp. 1157, 1161 (S.D.N.Y. 1991) (Haight, J.). The RTC contends that the state rent and securities laws are preempted on the basis of express provisions of FIRREA and because of a conflict between the state laws and FIRREA.

 II. Express Preemption

 The RTC argues first that FIRREA expressly preempts the state rent and securities regulations. The RTC relies on 12 U.S.C. § 1821(c)(2)(C), which reads: "When acting as conservator or receiver . . . the [RTC] shall not be subject to the direction or supervision of any . . . State in the exercise of the [RTC]'s rights, powers and privileges." The RTC asserts that the state rent and securities laws subject the RTC to the direction of the state in the exercise of the RTC's rights, powers and privileges, and that the state provisions are therefore expressly preempted by section 1821(c)(2)(C). However, the State challenges the RTC's apparent assumption that its "rights, powers and privileges" include the power to repudiate a statutory tenancy. If, as the State argues, the tenants in the East 57th Street units occupy their apartments by virtue of statutory tenancies rather than leases, and if the RTC does not have the power ...


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