Big landlords are funding small ones’ rent-law challenge

Suits against New York’s tenant-friendly changes are piling up

TRD New York /
Nov.November 27, 2019 01:30 PM
The lawsuit alleges that the rent law violates aspects of the Fifth and 14th Amendments to the U.S. Constitution. (Credit: iStock)

The lawsuit alleges that the rent law violates aspects of the Fifth and 14th Amendments to the U.S. Constitution. (Credit: iStock)

Though small landlords are the face of a federal lawsuit challenging New York’s rent law, large ones are quietly bankrolling it.

Small owners Dino, Dimos and Vasiliki Panagoulias as well as entities tied to Michael Vinocur and Jack Moy, filed a complaint this month challenging the constitutionality of the new rent law — the second suit of its kind.

However, the plaintiffs’ law firm, Covington & Burling, acknowledged that “a coalition of owners” is backing the lawsuit. It would not identify them, but a source familiar with the case said Clipper Equity, which owns more than 3,000 residential units in Manhattan and Brooklyn, is in the coalition.

A spokesperson for the law firm did not deny that Clipper was part of the coalition but said no single entity is providing the funding.

“Dino Panagoulias, his family, and the other plaintiffs in this lawsuit are small property owners who have been harmed by this new legislation, and don’t have the means on their own to vindicate their rights,” the spokesperson said.

The founder and principal of Clipper Equity, David Bistricer, would not comment.

The lawsuit alleges that the rent law violates aspects of the Fifth and 14th Amendments to the U.S. Constitution. That complaint mirrors one filed in July by the Rent Stabilization Association and the Community Housing Improvement Program, which challenges rent stabilization as a concept — alleging illegal taking of private property and violation of due process rights. That lawsuit is receiving financial aid from national trade groups.

During an investor presentation in 2017, the same year it went public, Clipper detailed a plan to deregulate several of its buildings and boost rents — options that were killed by the new rent law. In its most recent public filing, the Brooklyn-based real estate investment trust listed “changes in rent stabilization regulations” and tenants’ claims of overcharges among future risks and uncertainties.

Bistricer’s firm initially won an appeal against tenants who alleged the firm illegally deregulated units while receiving benefits from 421-g, a tax abatement designed to spur residential growth in Lower Manhattan. But that decision was reversed in June by the state’s Court of Appeals, which found that the apartments should have been rent-stabilized.

Clipper is now trying to get New York rent regulation before the U.S. Supreme Court. The petition, filed by Covington, raises arguments similar to those in the CHIP/RSA and the Panagoulias lawsuits: that rent regulation violates the Fifth Amendment’s takings clause and the Fourteenth Amendment’s due-process clause.

When reached Monday, Dino Panagoulias indicated he had never heard of Clipper and didn’t know who was financing the lawsuit. He said he “rather not discuss” if his family is paying for any portion of it.

In the four months since the rent law’s passage, institutional players have taken up the mantle of fighting it as part of a broader effort to curb rent control across the country. Also, industry experts expect more legal challenges to New York’s rent law will emerge in the coming months. With that comes the question of whether apartment building owners should put on a united front or wage their battles separately.

Panagoulias’ case was recently transferred to the same judge overseeing RSA and CHIP’s lawsuit. Prior to that a notice was filed alerting the parties involved in each case that the two complaints are similar. Robert Thomas, a land-use and appellate attorney for Damon Key Leong Kupchak Hastert, said that doesn’t necessarily mean the court will merge the cases.

“Oftentimes, that’s enough,” he said of the notice. “There’s no need to formally consolidate them.”

But attorneys for CHIP and RSA have made clear that they don’t want the cases combined. In a letter submitted to the court Tuesday, Brown Mayer’s Andrew Pincus indicated that if Panagoulias files a motion to merge the cases, his firm will fight it. He stated that the cases have “fundamental” differences, most crucially that the CHIP lawsuit challenges rent stabilization itself, not just the amendments made to the law in June. The letter said the cases should remain separate because “consolidation is more likely to result in delay, confusion, and prejudice than efficiency and cost saving.”

The law firm told TRD that the CHIP/RSA suit seeks “to have the rent laws declared unconstitutional in their entirety because of their failures.”

“In contrast, the new complaint raises ‘as applied’ claims based on the law’s effect on property owners and seeks monetary relief,” representatives for the law firm state. “While we fully expected others would file lawsuits, because of the broader and more fundamental claims raised in the CHIP/RSA lawsuit, we think they should be evaluated on their own.”


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