Santiago-Monteverde v. Pereira, No. 12-4131 (2d Cir. 2015)

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Justia Opinion Summary

Debtor, a New York City tenant, filed for Chapter 7 bankruptcy and listed the value of her apartment lease on Schedule B as personal property exempt from the bankruptcy estate as a "local public assistance benefit." At issue was whether the value inherent in debtor's rent-stabilized lease as a consequence of the protections afforded by New York's Rent Stabilization Code, N.Y. Comp. Code R. & Regs. tit. 9, 2520.1, made the lease, or some portion of its value, exempt from debtor's bankruptcy estate as a "local public assistance benefit" within the meaning of New York Debtor and Creditor Law 282(2). The court certified this unsettled issue to the New York Court of Appeals, which held that a rent‐stabilized lease qualified as a local public assistance benefit. Rejecting the Trustee’s argument that “benefits” should be limited to cash payments, the court noted that the rent‐stabilization program had “all of the characteristics of a local 10 public assistance benefit” under the statute and that an exemption was consistent with the purpose of protecting a debtor’s essential needs, including housing. The Second Circuit then reversed and remanded to allow Debtor to claim the exemption from her bankruptcy estate.

This opinion or order relates to an opinion or order originally issued on March 31, 2014.

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12 4131 bk Santiago Monteverde v. Pereira 1 In the 2 United States Court of Appeals 3 For the Second Circuit 4 ________ 5 6 August Term 2013 7 8 No. 12 4131 bk 9 10 11 IN RE: MARY VERONICA SANTIAGO MONTEVERDE, Debtor. 12 13 14 MARY VERONICA SANTIAGO MONTEVERDE, Debtor Appellant, 15 16 v. 17 18 19 20 JOHN S. PEREIRA, CHAPTER 7 TRUSTEE, Trustee Appellee. ________ 21 22 23 24 25 Appeal from the United States District Court for the Southern District of New York. No. 12 CV 4238 P. Kevin Castel, Judge. ________ 26 27 28 29 ARGUED: SEPTEMBER 23, 2013 DECIDED: MARCH 2, 2015 ________ 30 31 32 Before: SACK, PARKER, and RAGGI, Circuit Judges. ________ 1 Appeal from a decision of the United States District Court for the Southern 2 District of New York (P. Kevin Castel, J.) affirming the bankruptcy court’s order 3 striking the debtor’s claim that the value of her rent stabilized lease was exempt 4 from her bankruptcy estate as a “local public assistance benefit” within the 5 meaning of New York Debtor and Creditor Law § 282(2). We previously 6 concluded that the application of section 282(2) to New York’s rent stabilization 7 laws raised an unresolved question of New York law and certified the question 8 to the New York Court of Appeals. The Court of Appeals has now responded 9 that the value of a rent stabilized lease is a “local public assistance benefit” under 10 New York law. We therefore reverse the decision of the district court and remand 11 for further proceedings consistent with this opinion. ________ 12 13 RONALD J. MANN, Columbia University School of Law, New 14 York, NY, (Kathleen G. Cully, Kathleen G. Cully PLLC, New 15 York, NY, on the brief), for Debtor Appellant. 16 J. DAVID DANTZLER, JR. (John P. Campo, Eric L. Unis, on the 17 brief) Troutman Sanders LLP, New York, NY, for Trustee 18 Appellee. 19 Ira L. Herman, Thompson & Knight LLP, New York, NY, for 20 Amicus Curiae, New York City Bankruptcy Assistance Project, 21 supporting Debtor Appellant. 22 Carolyn E. Coffey (of counsel to Jeanette Zelhof), MFY Legal 23 Service, Inc., New York, NY, for Amicus Curiae, MFY Legal 24 Services, Inc., supporting Debtor Appellant. 25 26 27 ________ 1 2 PER CURIAM: Debtor Appellant Mary Santiago Monteverde appealed to this Court from 3 a decision of the district court affirming the bankruptcy court’s ruling that her 4 residential lease, rent stabilized under New York’s Rent Stabilization Code, N.Y. 5 Comp. Codes R. & Regs. tit. 9, §§ 2520 et seq., was not exempt from her 6 bankruptcy estate as a “local public assistance benefit” within the meaning of 7 New York Debtor and Creditor Law (“DCL”) § 282(2). We concluded that this 8 question was an important one of unsettled New York law and certified it to the 9 New York Court of Appeals, which accepted the certification. In re Santiago 10 Monteverde, 747 F.3d 153 (2d Cir. 2014), certified question accepted, 23 N.Y.3d 958 11 (2014). After considering the question, the Court of Appeals concluded that a 12 debtor’s interest in a rent stabilized lease is a local public assistance benefit under 13 the DCL. See In re Santiago Monteverde, 24 N.Y.3d 283 (2014). We assume the 14 parties’ familiarity with the underlying facts, procedural history, and issues on 15 appeal, which we briefly summarize below. I. 16 17 Santiago Monteverde has lived in a rent stabilized apartment in Lower 18 Manhattan for over forty years. After her husband’s death, she experienced 19 financial difficulties and, in November 2011, filed for Bankruptcy protection 20 under Chapter 7. On Schedule G of her petition, she listed her apartment simply 21 as an “unexpired lease.” The Bankruptcy Trustee, John S. Pereira, determined 22 that she had no assets. Shortly after he did so, Santiago Monteverde’s landlord, 23 East 7th Street Development Corporation, approached the Trustee and offered to 24 buy the lease to Santiago Monteverde’s apartment under terms that would 25 permit her to remain in the apartment but would cause the apartment to lose its 26 rent stabilized status. 27 Upon learning that the Trustee planned to accept the offer, Santiago 28 Monteverde amended her filing, treating the value of her rent stabilized lease as 1 personal property and claiming an exemption for the property as a “local public 2 assistance benefit” under 11 U.S.C. § 522(b)(3) and DCL § 282(2). 3 The Trustee moved to strike this claim of exemption. The bankruptcy court 4 granted the motion on the ground that a rent stabilized lease did not qualify as a 5 “local public assistance benefit,” but was instead “a quirk of the regulatory 6 scheme in the New York housing market.” In re Santiago–Monteverde, 466 B.R. 7 621, 624 25 (Bankr. S.D.N.Y. 2012). Santiago Monteverde appealed to the district 8 court. The district court affirmed, concluding that the rent stabilized lease was 9 “the collateral consequence of a regulatory scheme” rather than a local public 10 assistance benefit. In re Santiago–Monteverde, Nos. 12 CV 4238 (PKC), 11 15494 11 (JMP), 2012 WL 3966335 *2 (S.D.N.Y. Sept. 10, 2012). 12 Santiago Monteverde appealed to this Court contending that her rent 13 stabilized lease does qualify as such a benefit when one takes into account the 14 protections afforded by the rent stabilization program and the value they create 15 in a lease. The Trustee, who had obtained permission from the bankruptcy court 16 to purchase and assign the lease, argued that the legislature had never intended 17 that “local public assistance benefit” be read so broadly. 18 II. 19 In our prior opinion, we noted that, although New York courts had 20 addressed related questions, none had decided whether a debtor can prevent the 21 assumption and assignment of a rent stabilized lease on the ground that it is a 22 “local public assistance benefit” within the meaning of DCL § 282(2). Because 23 resolution of that issue determines the outcome of this appeal and because the 24 issue is a matter of significant public importance, we certified the following 25 question to the New York Court of Appeals: 26 Whether a debtor tenant possesses a property interest in the protected 27 value of her rent stabilized lease that may be exempted from her 28 bankruptcy estate pursuant to New York State Debtor and Creditor Law 29 Section 282(2) as a “local public assistance benefit”? 1 The New York Court of Appeals accepted the certification and held that a 2 rent stabilized lease qualified as a local public assistance benefit. In re Santiago 3 Monteverde, 24 N.Y.3d 283 (2014). In the Court of Appeals’ view, “[w]hen the 4 rent stabilization regulatory scheme is considered against the backdrop of the 5 crucial role that it plays in the lives of New York residents, and the purpose and 6 effect of the program, it is evident that a tenant s rights under a rent stabilized 7 lease are a local public assistance benefit.” Id. at 289. Rejecting the Trustee’s 8 argument that “benefits” should be limited to cash payments, the court further 9 noted that the rent stabilization program had “all of the characteristics of a local 10 public assistance benefit” under the statute. Id. at 290. Finally, the Court of 11 Appeals explained that its interpretation was consistent with the purpose of 12 creating exemptions in section 282(2), which involve the protection of a debtor’s 13 essential needs, including housing. Id. at 292. 14 In light of the New York Court of Appeals’ opinion, we hold that Santiago 15 Monteverde’s interest in her rent stabilized lease is a local public assistance 16 benefit within the meaning of DCL § 282(a). As a result, she is allowed to claim it 17 as an exemption from her bankruptcy estate. 18 19 20 21 CONCLUSION We REVERSE the decision of the district court and REMAND for further proceedings consistent with this opinion.