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Jasmine Zheng, et al v. the City of New York

June 26, 2012


The opinion of the court was delivered by: Read, J.:

This opinion is uncorrected and subject to revision before publication in the New York Reports.

Plaintiffs claim that the City of New York is contractually obligated to pay rent subsidies to their landlords under the Advantage New York program until expiration of their leases. State and Federal reimbursement for two-thirds of the Advantage program's costs ended on April 1, 2011, causing the City to discontinue it as of that date. Both lower courts found that the City did not intend to enter into enforceable contracts with plaintiffs or their landlords under the Advantage program, and the record supports this affirmed finding of fact (see Brown Bros. Elec. Contrs. v Beam Constr. Corp., 41 NY2d 397, 400 [1977]). Accordingly, we affirm dismissal of the lawsuit.


The City created the Advantage rental assistance program in 2007 to help homeless single adults and families achieve independent living. The Advantage program replaced and was designed to fix unanticipated problems thought to compromise the effectiveness of a predecessor program called Housing Stability Plus (HSP). HSP provided a five-year rent subsidy that was reduced automatically each year by 20%. Participants in HSP were required to remain eligible for public assistance (PA) and to comply with all PA requirements. Two problems became apparent over time as a result. First, some tenants limited the hours they worked because a higher income would render them ineligible for PA and, consequently, the HSP rent supplement. Second, landlords grew reluctant to participate in this program because subsidies were cut off whenever a tenant's PA case was sanctioned or closed, thus interrupting the flow of rental revenue.*fn1 Under the Advantage program, by contrast, landlords were assured that changes in a tenant's PA status would not disrupt payment of the rent subsidy over the course of the lease.

There were various versions of the Advantage program, with differing eligibility requirements. For example, the program made rent subsidies payable to landlords for households where at least one adult worked 20 hours or more weekly at minimum wage or above (Work Advantage), received a fixed income benefit such as Supplemental Security Income or Social Security Disability Insurance (Fixed Income Advantage) or had an active case with the City's Administration for Children's Services while in shelter (Children's Advantage). In general, the family or single adult had to have resided in shelter for a certain number of days, and have an active PA case and a gross household income not exceeding a specified percentage of the Federal poverty level.

The Advantage program was carried out through a lease between landlord and tenant to which the City was not a party, and four documents drafted by the City: a certification letter, participant statement of understanding, landlord statement of understanding and lease rider. These four documents differed depending on the program type and participant (family or single adult), vintage or agency, but contained the same basic provisions. The Advantage program was approved by the State's Office of Temporary and Disability Assistance (OTDA), as required by State regulation (see 18 NYCRR 352.3 [a] [3] [ii] [a social services district may, with OTDA's prior approval, provide an additional shelter supplement for PA recipients to reside in private housing, provided OTDA "determines that there are sufficient funds available to provide such reimbursement"]).

The City's Department of Homeless Services (DHS) and Human Resources Administration (HRA) jointly administered the Advantage program. To begin with, the City provided eligible individuals or families with a certification letter on DHS or HRA letterhead, which was routinely signed by City workers from these agencies, sometimes by facsimile rather than original signature. Several versions of this letter included the following subject line in boldface type: "Re: Advantage Program (Guaranteed Rent Not Tied to PA)."

The certification letter generally informed recipients that they were "now eligible for the Advantage rental assistance program"; and set out the certification and expiration dates, the length of time that the certification would be valid, the total maximum rent allowed, the monthly tenant contribution (based on total gross household income as of the certification date) and the maximum subsidy amount. The letter also stated that "[t]he Advantage program guarantees that the subsidy portion of the rent will be paid directly to your landlord for one year," and that a "second year of rental assistance under Advantage" was available if the tenant met the eligibility criteria. Recipients were encouraged to show the letter to prospective landlords and brokers when searching for apartments.

At lease signing, the tenant subscribed a participant statement of understanding, which indicated that "[u]nder the Advantage Program, [the City] will pay a portion of my monthly rent (over and above [the tenant's] monthly rent contribution) directly to my Landlord." As a "condition" of "participation" in the program, the tenant made 22 "commitments," which included understandings and agreements to file for work supports and tax credits, notify HRA of a change in address, seek appropriate services to maintain the tenancy, repay the security deposit and certain other payments if failing to move into the apartment after signing the lease, cooperate with the City in its administration of the program and take part in program surveys and publicity. The participant statement was signed by adult household members, who represented that they had "read and under[stood their] obligations under [the participant statement]"; and by a City case manager and/or housing specialist, who "confirm[ed] that all present adult household members have verbalized their understanding of the agreements outlined in this document, and that all adult household members have signed and received a copy of this agreement."

Also at lease signing, the landlord (or an authorized representative) subscribed a landlord statement of understanding, which specified that the City "will issue" or "will pay" rent subsidies directly to the landlord on behalf of the tenant, who remained "responsible for paying directly to . . . the Landlord, a monthly rent contribution" in a specified amount "to cover the remaining portion of the rent under the Lease and Rider." Further, as a "condition" to "participation" in the program, the landlord made 12 "commitments," which included understandings and agreements not to charge an Advantage tenant "any amount" beyond the agreed-upon rent; and to offer the apartment at the same level of rent for a second year, pay for heat and water and, in the event an Advantage tenant vacated the premises "due to an eviction or move," return any prepaid rent to the City or, at the City's option, allow another program participant to reside in the apartment for the remainder of the lease's term.

Lastly, at lease signing the tenant and landlord both signed a rider to the landlord's standard lease. In the rider, the tenant "agree[d] [to] authorize[]" the City to pay "rental assistance directly to the Landlord."*fn2 The rider also generally reiterated the landlord's obligations set out in the landlord statement. Additionally, the landlord "acknowledge[d] that . . . the amount and duration" of subsidies was "subject to all applicable rules and requirements" of the Advantage program, and agreed to make the apartment available for inspection. If the landlord "materially violate[d]" any of terms of the lease or rider, the tenant could terminate the lease, and the landlord was barred from participation in the program. A City worker signed the lease rider as either a DHS or HRA witness.

The Advantage program was funded in equal parts by the City, State and Federal governments. But the Governor's executive budget for fiscal year 2011-2012, submitted to the Legislature on February 1, 2011, did not include an appropriation for the program. Although the City aggressively lobbied the State for the Advantage program's continuation, funding was not restored in the subsequently enacted State budget; once State financial support was withdrawn, Federal moneys were also no longer available. Faced with the imminent loss of two-thirds of the program's funding, the City closed the Advantage program to entrants in mid-March 2011, and informed participants that their rental subsidies would end on April 1, 2011, the beginning of the State's fiscal year.

On March 28, 2011, plaintiffs Jasmine Zheng and A. T.,*fn3 on behalf of themselves and all others similarly situated, brought this lawsuit against the City as well as DHS and HRA and their respective Commissioners (collectively, the City). Plaintiffs alleged that they were "Advantage recipients, now Advantage tenants," suing on behalf of themselves and a class consisting of "approximately 15,000 current Advantage Tenants," and claimed that the City was contractually obligated to continue to pay the rent subsidies provided for under the Advantage program. They sought specific performance of this alleged contract; a declaratory judgment that the City was "contractually obligated to continue to make Advantage subsidy payments to Advantage Tenants' landlords for the remainder of [the alleged contracts] and for a second year if the Advantage Tenants [met the City's] eligibility criteria"; injunctive relief to prevent the City from discontinuing rent subsidy payments to landlords before expiration of the alleged contracts; and "injunctive relief to prevent [the City] from taking Advantage Tenants' property interests without due process of law." Basically, plaintiffs were looking for the City to subsidize their leases for a full two years, notwithstanding the loss in the interim of State and Federal funding for this purpose. Supreme Court signed the accompanying order to show cause, thereby directing a hearing on plaintiffs' request for injunctive relief and class certification, and temporarily restraining the City from discontinuing the rent subsidies.

On May 2, 2011, Supreme Court entered a decision and order denying plaintiffs' motion for a preliminary injunction and the City's cross motion to dismiss the complaint (2011 NY Misc LEXIS 2039 [NY County 2011]). Based on her review of the "program documents" (i.e., the certification letter, participant and landlord statements of understanding and the lease rider), the judge concluded that the complaint "survive[d]" the City's motion to dismiss, but that plaintiffs had not shown "a likelihood of success on their claims that the program documents constitute enforceable contracts" (id. at *37).*fn4 Supreme Court, however, continued the temporary restraining order for 10 days to permit plaintiffs the opportunity to seek a stay from the Appellate Division.

Plaintiffs filed a notice of appeal with the Appellate Division on May 10, 2011, and on May 12, 2011, they moved for injunctive relief. On June 2, 2011, the Appellate Division granted plaintiffs' motion "to the extent of directing that the [Advantage program] payments be maintained pending hearing and determination of the appeal."

Following an expedited, five-day non-jury trial in June and July and the completion of posttrial submissions on August 11, Supreme Court issued a decision dated September 13, 2011 in which she held that "the Advantage program, no matter how laudable its goals, is nothing more than a social benefit program, which [the City] had the right to terminate based upon the lack of funding available for its continuation. [The City has] no ongoing obligation, contractual or otherwise, to continue the Advantage Program."

The judge observed that "[w]hile a social services program can be structured in such a way as to be operated and implemented through enforceable contracts," plaintiffs were required to prove by a fair preponderance of the evidence that, in this instance, enforceable contracts did, in fact, exist between tenants and the City or landlords and the City. She listed the elements required for contract formation and pointed out that the parties did not dispute "capacity to contract" or that "if the court were to find that [the City had] entered into enforceable contracts with the Advantage Landlords, the Advantage Tenants [would] have standing to enforce them as third party beneficiaries." She then turned to the two elements of contract formation disputed by the parties -- mutual assent and consideration.

With respect to mutual assent, Supreme Court remarked that "[w]hile a formally executed document is not always necessary," the proponent of the existence of a contract -- here, plaintiffs -- "must still prove an intent of the parties to be bound." Citing our decision in Brown Bros., the judge stated that "[i]n finding [intent to be bound], the court does not depend on the subjective intent of the parties, [but] rather . . . looks to the objective manifestations of the intent of the parties as gathered by their expressed words and deeds." In undertaking this analysis, "[t]he parties' communicated expressions are interpreted objectively to give effect to the reasonable expectations of the parties, not necessarily their actual expectations." Further, "[t]he factfinder should not put disproportionate emphasis on any single act, phrase or other expression, but instead, should consider the totality of the circumstances, the situation of the parties and the objectives they were trying to attain."

After "viewing the evidence as a whole" in light of these principles, Supreme Court "conclude[d] that [the City] did not manifest an intent to be contractually bound to provide the benefits associated with the Advantage program." While the judge also expressed her belief that "neither the tenants nor the landlords manifested an intent to be contractually bound," she added that "it would not matter even if they did" because "the requirement of intent must be mutual." She then reviewed the proof that supported her finding that the City lacked the intent to be bound.

First, there were "no formal contracts" between the City and tenants or the City and landlords. As a result, plaintiffs relied on the four "program documents" (the certification letter, participant and landlord statements of understanding and lease rider) to argue that the City intended to be contractually obligated to fund plaintiffs' rent subsidies under the Advantage program. With respect to these documents, the judge addressed the parties' disputes over the importance of the presence of the signatures of City workers on certain of them. She determined that the "confirmation" signed by a City caseworker on the bottom of the participant statement "[did] not manifest any intent by [the City] to enter into a contractual relationship"; and neither did the signature of a City caseworker as a witness to the lease rider. She noted that the certification letter was "signed by NYC representatives," sometimes by facsimile, but, contrary to the City's arguments, "the fact that each signature was not original [was] not legally significant." Supreme Court added that "[w]hile [the City could not] rely on the lack of a signature on the certification letter to disprove its intention to be bound, the court still [would] need[] to look at the content of the documents and the circumstances of their making in determining mutual assent."

The judge described "language used in the program documents" as "[m]ost important" in ascertaining whether there was contractual intent, followed by "evidence in the form of collateral writings (e.g. promotional materials) and what the parties said and did at the time the program was implemented"; and "[t]he historical context of the formation of the relationships." She added that "the unexpressed subjective thinking of the parties at the time the program was implemented and/or the documents signed or generated" was "[n]ot relevant." Supreme Court then reviewed the program documents in detail.

The judge stressed the absence of such "traditional contract phrases" as "'the parties agree'" or "the parties covenant.'" Instead, these documents consistently referred to Advantage as a "program." And while "[t]he documents [had] program 'conditions' for tenants and landlords . . . [t]he language [did] not expressly impose any mutuality of obligation on [the City]." Additionally, "representation[s] that [the City] will pay or will issue checks" merely "set[] out the program benefits" and were "entirely consistent with the administration of the Advantage program," rather than "prov[ing] contractual obligations."

Supreme Court then considered the word "guarantee," which was "more problematic" for the City "because 'guarantee' is a contractual term, which generally refers to an obligation to be responsible for the debt of another." She added, however, that "there are times when, depending on the context of the use of the word, no binding obligation is created," so "[i]t is important . . . to understand the context in which [the City] used . . . the term guarantee in program or other documents." Here, the certification letter was the only program document to use the word "guarantee." Specifically, these letters typically included this word in the subject line --i.e., "Re: Advantage Program (Guaranteed Rent Not Tied to PA) -- ...

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