CHARLES KRAVITZ VS. PHILIP D. MURPHY (L-0774-20, CUMBERLAND COUNTY AND STATEWIDE)

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-1584-20
CHARLES KRAVITZ, DAWN
JOHANSON-KRAVITZ,
LITTLE HARRY'S LLC,
MARGARITA JOHNSON, JOHN
JOHNSON, TWO BEARS
PROPERTY MANAGEMENT,
ANDREW VAN HOOK, and UNION
LAKE ENTERPRISES, LLC,
Plaintiffs-Appellants, APPROVED FOR PUBLICATION
July 20, 2021
v.
APPELLATE DIVISION
PHILIP D. MURPHY, in his
official capacity as Governor of New
Jersey, GURBIR S. GREWAL,
in his official capacity as New Jersey
Attorney General, and JUDITH M.
PERSICHILLI, in her official
capacity as Commissioner of the
New Jersey Department of Health,
Defendants-Respondents.
________________________________
Argued June 1, 2021 – Decided July 20, 2021
Before Judges Messano, Hoffman and Smith.
On appeal from Executive Order No. 128, pursuant to
a transfer from the Superior Court of New Jersey, Law
Division, Cumberland County, Docket No. L-0774-20.
Jared McClain (New Civil Liberties Alliance) of the
Maryland bar, admitted pro hac vice, argued the cause
for appellants (Zimolong, LLC, Jared McClain, and
Harriet Hageman (New Civil Liberties Alliance) of the
Wyoming, Colorado and Nebraska bars, admitted pro
hac vice, attorneys; Jared McClain, Harriet Hageman,
Kara Rollins and Walter S. Zimolong, on the briefs).
Stuart M. Feinblatt, Assistant Attorney General,
argued the cause for respondents (Gurbir S. Grewal,
Attorney General, attorney; Jeremy M. Feigenbaum,
State Solicitor, Alec Schierenbeck, Deputy State
Solicitor, and Melissa Raksa, Assistant Attorney
General, of counsel; Stuart M. Feinblatt, of counsel
and on the brief; Tim Sheehan, Deputy Attorney
General, on the brief).
Joseph C. O'Keefe (Proskauer Rose LLP), Lindsey
Olsen Collins (Proskauer Rose LLP) of the New York
bar, admitted pro hac vice, and Michelle M.
Ovanesian (Proskauer Rose LLP), of the California,
Delaware and District of Columbia bars, admitted pro
hac vice, attorneys for amici curiae Fair Share
Housing Center, Lawyers' Committee for Civil Rights
Under Law, Housing & Community Development
Network of New Jersey, National Association for the
Advancement of Colored People – New Jersey State
Conference, and the New Jersey Latino Action
Network (Joseph C. O'Keefe, Lindsey Olsen Collins
and Michelle M. Ovanesian, on the brief).
The opinion of the court was delivered by
HOFFMAN, J.A.D.
Appellants – five individuals and three businesses – own or manage New
Jersey properties leased to residential tenants. Appellants' tenants all paid
security deposits of varying amounts in connection with their leases. As a
A-1584-20
2
result of COVID-19, on April 24, 2020, Governor Philip D. Murphy issued
Executive Order 128 (EO 128) that permitted New Jersey residential tenants to
use their security deposits to pay rent. N.J. Exec. Order No. 128 (April 24,
2020).
Appellants argue that EO 128 exceeded the Governor's powers under the
Emergency Health Powers Act, N.J.S.A. 26:13-1 to -31 (the EHPA), and the
New Jersey Civil Defense and Disaster Control Act, N.J.S.A. App. A:9-30 to -
63 (the Disaster Control Act); in addition, they contend EO 128 violated their
rights under the contracts and due process clauses of the New Jersey
Constitution.1 For the reasons that follow, we conclude the Governor was
authorized to enact EO 128 pursuant to emergency powers the Legislature
delegated to the Governor under the Disaster Control Act. We further
conclude that EO 128 does not violate appellants' rights under the New Jersey
Constitution.
1
After oral argument, pursuant to Rule 2:6-11(d), respondents brought to our
attention that on June 4, 2021, Governor Murphy signed into law A5820,
which terminates most of the Governor's COVID-19 executive orders,
including EO 128, the order at issue in this appeal, effective July 4, 2021. T he
Governor simultaneously issued Executive Order 244 formally terminating the
Public Health Emergency declared in Executive Order 103. According to
respondents, "the expiration of EO 128 on July 4 will moot this appeal."
Substantially for the reasons expressed by appellants in their June 17, 2021
letter brief, including the fact that "the terms of EO 128 explicitly keep the
order's effects in place for at least six months after the expiration of EO 128,"
we decline to dismiss this appeal on mootness grounds.
A-1584-20
3
Appellants' Tenancies
Appellants Charles Kravitz and Dawn Johanson-Kravitz, residents of
Mullica Hill, own and operate appellant Little Harry's LLC, which leases a
residential property owned by the Kravitzes in Glassboro, near Rowan
University (the Glassboro Property). On August 3, 2019, the Kravitzes rented
the Glassboro Property to four Rowan University students (the Rowan
Tenants), pursuant to a residential lease agreement. The Rowan Tenants
agreed to lease the Glassboro Property from August 15, 2019 through June 1,
2020, for $2,000 per month in rent; in their lease, the parties agreed that the
Rowan Tenants would pay a security deposit of $2,000, which the Kravitzes
would "hold . . . in an interest bearing account." The lease specified that the
Kravitzes could "make deductions from the [s]ecurity [d]eposit" to cover ten
enumerated costs, and that the Rowan Tenants "may not use the [s]ecurity
[d]eposit as payment for [r]ent"; in addition, the Kravitzes would return the
security deposit "less any proper deductions" after termination of the lease.
Appellants Margarita Johnson and John Johnson, residents of Vineland,
own and operate Two Bears Property Management and serve as co-trustees of
the Johnson Trust, which owns a residential duplex in Vineland (the Vineland
Property). The Johnson Trust agreed to lease the Vineland Property to a tenant
A-1584-20
4
from August 1, 2017, through July 31, 2019, for $820 per month, pursuant to a
lease that required the tenant to pay a security deposit of $1,230.
Appellant Andrew Van Hook, a Millville resident, serves as the
managing member of Union Lake Enterprises, LLC (Union Lake), which owns
a residential property in Millville (the Millville Property). Union Lake agreed
to rent the Millville Property to a tenant, pursuant to a lease that required the
tenant to pay rent of $1,450 per month from August 1, 2018, to June 30, 2020,
with a security deposit of $2,175; later, the parties agreed to extend the lease
to June 30, 2021. The lease further provided that, within thirty days of the
termination of the lease, Union Lake "shall return the [s]ecurity [d]eposit . . .
less any charges expended by [Union Lake] for damages . . . resulting from the
[t]enant's occupancy." In addition, the lease stated that the tenant could not
use the security deposit "for the payment of rent without the written consent of
the [l]andlord."
New Jersey's Economic Response to COVID-19
In response to the economic and public health crises caused by COVID-
19, the State took multiple steps to address the risk of housing insecurity
across the State. For homeowners, in March 2020, the Governor announced a
statewide residential mortgage relief program, in which over 175 financial
institutions agreed to provide a ninety-day grace period for mortgage
A-1584-20
5
payments, waive mortgage-related late fees, and start no new foreclosures for
sixty days. See N.J. Dep't of Banking & Ins., COVID-19 & Residential
Mortgage Relief, https://www.state.nj.us/dobi/covid/mortgagerelief.html (last
visited July 14, 2021). For landlords, the Governor announced the Small
Landlord Emergency Grant Program (SLEG), a twenty-five-million-dollar
program established to reimburse small residential property owners for lost
rent revenue due to COVID-19 between April and July 2020. See N.J.
Housing & Mortgage Finance Agency, "Small Landlord Emergency Grant
Program (SLEG) – Round 1," https://www.state.nj.us/dca/hmfa
/covid19/sleground1 (last visited July 14, 2021). SLEG
provides financial support for small rental property
owners (and, indirectly, to renters) who are struggling
due to the COVID-19 emergency in the State of New
Jersey. The Program will reimburse small landlords
for rent payments that were missed or reduced in
April, May, June, and/or July 2020. Only properties
with low-to-moderate rent levels are eligible.
[Ibid.]
What constitutes low to moderate rent levels depends upon the rental
property's county and number of bedrooms. Ibid. Glassboro is in Gloucester
County; Vineland and Millville are in Cumberland County. The record does
not indicate the number of units owned by each appellant or the number of
bedrooms in the properties under discussion here. On March 22, 2021, the
A-1584-20
6
New Jersey Department of Community Affairs announced Phase II of the
rental relief fund for renters unable to make rent payments due to COVID -19.
Ibid. These rental relief payments will be made directly to landlords. 2
For tenants, the Governor issued two Executive Orders to address the
challenges many renters faced in making rent payments, given the sharp loss of
jobs and income caused by COVID-19. First, on March 19, 2020, the
Governor issued Executive Order 106 (EO 106), which placed a temporary
emergency moratorium on evictions, with the moratorium expiring two months
after the ongoing public-health emergency ends. N.J. Exec. Order No. 106
(March 19, 2020). Governor Murphy explained that "many New Jerseyans are
or will be experiencing substantial loss of income as a result of business
closures, reductions in hours, or layoffs related to COVID-19, impeding their
ability to keep current on rent and mortgage payments . . . ." Ibid. He further
stated that the "removal of residents pursuant to evictions or foreclosure
proceedings can increase the risk to those residents of contracting COVID -19,
which in turn increases the risks to the rest of society and endangers public
health . . . ." Ibid.
2
N.J. Dep't of Cmty. Affairs, COVID-19 Emergency Rental Assistance
Program, https://njdca.onlinepha.com (last visited July 14, 2021).
A-1584-20
7
Importantly, the Governor qualified the reach of EO 106 in two ways.
The order first made clear that it "does not affect any schedule of rent that is
due." Ibid. In addition, although the EO 106 temporarily paused actual
evictions, "eviction and foreclosure proceedings may be initiated or continued
during the time this [o]rder is in effect . . . ." Ibid. State courts resumed
processing landlord/tenant matters on June 15, 2020. See N.J. Supreme Court,
Notice & Order – COVID-19 – Fourth Omnibus Order ¶ 4 (June 11, 2020),
https://njcourts.gov/notices/2020/n200612a.pdf.
With the crisis worsening in New Jersey, on April 24, 2020, the
Governor issued EO 128, the order under review, to assist renters, who
continued to struggle, despite EO 106. Explaining the need for this measure,
the Governor stated that "tenants may be suffering from one or more financial
hardships that are caused by or related to the COVID-19 pandemic, including
but not limited to a substantial loss of or drop in income, and additional
expenses such as those relating to necessary health care . . . ." Ibid. The
Governor noted that these tenants, while largely protected from removal,
would still be subject to eviction proceedings, such that there was an
"increased risk" of mass evictions when EO 106's temporary moratorium
lapses. Ibid. In addition, the Governor explained that renters "may face other
consequences from a late payment of rent, including interest and late fees,
A-1584-20
8
which they may be unable to satisfy in light of their substantial loss of income,
as well as negative credit reports that may affect their ability to find housing
options in the future . . . ." Ibid.
The Governor then identified a temporary way to help tenants continue
to make rent payments owed to landlords. As he explained, under New Jersey
law "a security deposit and the accumulated interest and earnings on the
investment of such deposit remain the property of the tenant . . . ." Ibid.
(citing N.J.S.A. 46:8-19). The Governor concluded that "enabling individuals
to pay portions of their rent with the security deposit they own will allow those
individuals to mitigate the consequences regarding evictions and accumulation
of interest and late fees upon termination of [EO 106] . . . ." Ibid. The
Governor's order thus allowed New Jersey tenants to use "a security deposit
governed by the provisions of N.J.S.A. 46:8-19 et seq., as well as the tenant's
portion of the interest and/or earnings accumulated thereon . . . towards rent
payments due . . . ." Ibid.
In an effort to minimize any adverse impact upon landlords resulting
from this temporary change, the Governor qualified EO 128 in three important
ways. First, EO 128 states that, where a tenant applies a security deposit to
unpaid rent, "[t]he landlord may recoup from the tenant any monies the
landlord expended that would have been reimbursable by the security deposit
A-1584-20
9
and interest or earnings thereon, at the time that such reimbursement from the
deposit and interest or earnings thereon would have taken place . . . ."
Restated, the landlord remains legally entitled to precisely the same money
from the tenant as before. Second, EO 128 established that tenants "shall be
obligated to replenish the security deposit in full" if they renew the lease. Ibid.
And third, EO 128 was time-limited to address the need for continued rent
payments during and right after the public-health emergency; it only applies to
payments "due to become due from the tenant during the Public Health
Emergency . . . or up to [sixty] days after the Public Health Emergency
terminates." Ibid.
In June 2020, appellants filed an action in New Jersey federal district
court seeking declaratory and injunctive relief regarding EO 128. Johnson v.
Murphy (Johnson), No. 20-cv-6750-NLH, 2021 WL 1085744 (D.N.J. Mar. 22,
2021). Appellants alleged that EO 128 violated the federal Contracts Clause,
federal substantive and procedural due process, federal equal protection, and
the federal Privileges and Immunities Clause. Id. at *12-13. Appellants also
asserted causes of action under state law. 3
3
After respondents declined to waive sovereign immunity over the state-law
claims, appellants dismissed those claims without prejudice; on December 15,
2020, appellants refiled the claims in the Law Division. Because we maintain
exclusive jurisdiction to hear challenges to Executive Orders, on January 26,
A-1584-20
10
On March 22, 2021, the district court rejected all of appellants' claims,
granting the State's Rule 12(b)(6) 4 motion to dismiss and dismissing appellants'
complaint in its entirety. As part of its ruling on the State's motion, the court
set forth the following facts surrounding the issuance of EO 128:
As of today, over twenty-nine million Americans are
known to have contracted COVID-19 and five
hundred thirty-six thousand seven hundred thirty-four
Americans have died from the disease. These
numbers are steadily increasing, and they have
increased significantly since the filing of this lawsuit
on June 2, 2020. New Jersey alone, as of today, has
recorded more than seven hundred fifty-eight thousand
confirmed cases and twenty-one thousand five
hundred eighty-eight confirmed deaths. . . .
....
In response to the COVID-19 pandemic,
Governor Murphy declared a public health emergency
and state of emergency on March 9, 2020. The stated
purpose of Executive Order 103 was "to protect the
health, safety and welfare of the people of the State of
New Jersey." N.J. Exec. Order 103. Governor
Murphy explained he was exercising certain
emergency powers of the Governor provided under
"the Constitution and statutes of the State of New
Jersey . . . ."
____________________
2021, the Law Division signed a consent order transferring the case to us. On
February 18, 2021, we ordered the appeal accelerated.
4
Federal Rule of Civil Procedure 12(b)(6) provides for the dismissal of a
complaint for "failure to state a claim upon which relief can be granted."
A-1584-20
11
Following Executive Order 103, Governor
Murphy issued several executive orders with the
purpose of attempting to monitor, plan for and
mitigate the spread of COVID-19. To reduce the
spread of COVID-19, on March 16, 2020, Governor
Murphy ordered gatherings in New Jersey limited to
no more than [fifty] persons and mandated the closure
of schools, casinos, racetracks, gyms and fitness
centers, entertainment centers, bars, and restaurants
(except for takeout and delivery). N.J. Exec. Order
104. On March 15, 2020, the national Centers for
Disease Control and Prevention ("CDC")
recommended that gatherings of [fifty] or more people
should be cancelled or at least postponed throughout
the United States for the following eight weeks.
Governor Murphy implemented that recommendation
in Executive Order 104. Governor Murphy further
explained that the "CDC has advised that COVID-19
spreads most frequently through person-to-person
contact when individuals are within six feet or less of
one another" and that for this reason, the CDC has
recommended individuals through the United State[s]
to practice social distancing. Governor Murphy
ordered that any violator of Executive 104 may be
subjected to criminal penalties.
Five days later on March 21, 2020, Governor
Murphy issued Executive Order 107, which mandated
the closure of non-essential businesses to the public
and required that New Jersey residents, with limited
exceptions, remain at their residence. N.J. Exec.
Order 107. In doing so, Governor Murphy explained
that "to mitigate community spread of COVID-19, it is
necessary to limit the unnecessary movement of
individuals in and around their communities and
person-to-person interactions in accordance with CDC
and DOH guidance." N.J. Exec. Order 107. Governor
Murphy ordered that any violator of Executive 107
may be subjected to criminal penalties.
A-1584-20
12
....
In April 2020, New Jersey was one of the eight
jurisdictions accounting for two-thirds of COVID-19
cases identified in the United States and one of the
three jurisdictions accounting for approximately half
of all deaths related to COVID-19.
[Id. 2021 WL 1085744 at *1-3.]
Regarding the Glassboro Property, on June 1, 2020, three of the Rowan
Tenants submitted letters requesting to use their portions of the security
deposit ($500 each) to pay rent. After the Rowan Tenants vacated the property
at the conclusion of their lease, the Kravitzes claim they discovered $1,854.94
in damage. As for the Vineland Property, the tenant made only one partial rent
payment after April 2020; as of April 1, 2021, the tenant owed $13,999 .50.
Regarding the Millville Property, the record does not indicate whether the
tenant used the security deposit to pay rent or caused damage to the leased
premises.
In their brief, appellants present the following points of argument:
I. Governor Murphy Exceeded His Emergency
Statutory Powers.
II. EO-128 Violates the Separation of Powers.
III. EO-128 Violates the Contracts Clause.
IV. EO-128 Violates Due Process.
A-1584-20
13
After carefully considering each argument, we conclude that none of them
warrant setting aside EO-128. We analyze each argument in turn.
I.
Appellants argue that EO 128 exceeds the Governor's emergency
powers. We reject this argument, finding that EO 128 constitutes a valid use
of the Governor's emergency powers.
The Governor is authorized to issue executive orders, "a well-accepted
tool of gubernatorial action." Perth Amboy Bd. of Educ. v. Christie, 413 N.J.
Super. 590, 598-99 (App. Div. 2010). An executive order is only valid if
authorized by statute. Worthington v. Fauver, 88 N.J. 183, 197-98 (1982).
The Security Deposit Act (SDA) provides certain safeguards for
residential tenants' security deposits. For example, a security deposit remains
the property of the tenant, "shall not be mingled with the personal property of
the [landlord]," and shall be deposited in an interest bearing account. N.J.S.A.
46:8-19. The SDA also provides instruction as to: what happens to the
tenant's security deposit when the property is conveyed to another person,
N.J.S.A. 46:8-20 and -21; when and how the security deposit should be
returned to the tenant minus any charges, N.J.S.A. 46:8-21.1; the amount that a
landlord may demand for a security deposit, N.J.S.A. 46:8-21.2; and that
landlords and tenants may not waive any provision of the law, N.J.S.A. 46:8 -
A-1584-20
14
24. The landlord must provide the tenant with itemized deductions
establishing what was deducted from the security deposit. N.J.S.A. 46:8-21.1.
The SDA provides double recovery to tenants when a landlord wrongfully
withholds a security deposit. Ibid.; MD Assocs. v. Alvarado, 302 N.J. Super.
583, 586 (App. Div. 1997). The SDA permits a landlord to deduct from the
security deposit for unpaid rent. Truesdell v. Carr, 351 N.J. Super. 317, 321
(Law Div. 2002). In fact,
[t]he purpose of a security deposit is to afford
protection to the landlord in the event that the
tenant defaults in the payment of rent, causes
damage to the premises, or breaches any
covenants in the lease. Where the lease
provides, . . . that the landlord shall retain the
deposit until the end of the term of the lease, he
may not be compelled to apply it to any earlier
default. If this were not the case the landlord
would be without protection for the remainder
of the term.
[Brownstone Arms v. Asher, 121 N.J. Super.
401, 403-04 (Cnty. D. Ct. 1972) (citations
omitted).]
Appellants argue that the EHPA and the Disaster Control Act, as cited
by the Governor in the executive order, do not authorize the actions he took
regarding rental security deposits in EO 128. 5 We address each statute in turn.
5
EO 128 also cited N.J.S.A. 38A:3-6.1 (authorizing the Governor to order to
active duty the New Jersey National Guard), and N.J.S.A. 38A:2-4
A-1584-20
15
A. Emergency Health Powers Act
Appellants argue that the EHPA specifically lists the powers given to the
Governor and the Commissioner of Health, with no other powers authorized.
According to appellants, authorizing tenants to use security deposits to pay
rent is not a power envisioned by the EHPA and is not related to the other
powers given by that statute, which pertain to addressing consequences of a
public health emergency. Significantly, respondents' brief advances no
arguments pertaining to the EHPA.
The EHPA grants the Governor authority to "declare a public health
emergency." N.J.S.A. 26:13-3(a). The statute provides in pertinent part:
a. The Governor, in consultation with the
commissioner [of health] and the Director of the
State Office of Emergency Management, may
declare a public health emergency. In declaring a
public health emergency, the Governor shall issue
an order that specifies:
1) the nature of the public health emergency;
2) the geographic area subject to the declaration;
3) the conditions that have brought about the
public health emergency to the extent known;
and
____________________
(authorizing the Governor to "order to active duty all or any part of the militia
that he may deem necessary"). Since these statutes clearly do not apply to the
actions the Governor took in EO 128, the parties' briefs did not address either
statute.
A-1584-20
16
4) the expected duration of the state of public
health emergency, if less than [thirty] days.
Such order may also prescribe necessary actions
or countermeasures to protect the public's
health.
[N.J.S.A. 26:13-3.]
Although the Governor is charged with declaring the state of emergency,
the EPHA primarily empowers the Commissioner of Health to protect the
wellbeing of New Jersey citizens. For example, under the EHPA, the
Commissioner may: investigate any incident or imminent threat of a human
disease or health condition; identify exposed individuals; establish a registry of
health care workers; provide for the safe disposition of human remains;
evacuate facilities; dispose of infectious waste; and control the supply and
distribution of vaccines. N.J.S.A. 26:13-4 to 11. In addition, the
Commissioner may vaccinate, decontaminate, and provide medical treatment
to address the public health emergency. N.J.S.A. 26:13-14.
We agree with appellants that the EHPA addresses public health
emergencies and that most powers authorized by that statute are directed
toward the Commissioner of Health, not the Governor. According to the plain
meaning of the EHPA, the executive branch may take certain acts to address a
public health emergency and to "prescribe necessary actions or
countermeasures to protect the public's health." N.J.S.A. 26:13-3. By
A-1584-20
17
permitting tenants to use their security deposits to pay rent, EO 128 does not
directly protect the community's health, but instead creates an economic
safeguard. We therefore conclude that the EHPA does not provide authority
for the Governor's issuance EO 128 because it was not directly related to the
public health.
B. Disaster Control Act
Appellants argue that EO 128 is not authorized by the Disaster Control
Act, asserting that the statute imposes definite limits on the Governor's
authority to take actions in a public emergency, and the actions taken in EO
128 are not within those limits. We reject this argument.
The Disaster Control Act authorizes the Governor
to render to the Government of the United States, in
the present crisis, and to provide for the public safety,
any assistance within the power of the State, and to
that end he is authorized to organize and employ any
and all resources within the State, whether of men,
properties or instrumentalities, and to exercise any and
all power convenient or necessary in his judgment to
render such assistance.
[N.J.S.A. App. A:9-30.]
A disaster is defined under the Disaster Control Act as
any unusual incident resulting from natural or
unnatural causes which endangers the health, safety or
resources of the residents of one or more
municipalities of the State, and which is or may
become too large in scope or unusual in type to be
A-1584-20
18
handled in its entirety by regular municipal operating
services.
[N.J.S.A. App. A:9-33.1(1).]
The purpose of the Disaster Control Act
is to provide for the health, safety and welfare of the
people of the State of New Jersey and to aid in the
prevention of damage to and the destruction of
property during any emergency as herein defined by
prescribing a course of conduct for the civilian
population of this State during such emergency and by
centralizing control of all civilian activities having to
do with such emergency under the Governor and for
that purpose to give to the Governor control over such
resources of the State Government and of each and
every political subdivision thereof as may be
necessary to cope with any condition that shall arise
out of such emergency and to invest the Governor
with all other power convenient or necessary to
effectuate such purpose.
[N.J.S.A. App. A:9-33.]
Pursuant to the Disaster Control Act,
[t]he Governor is authorized to utilize and employ all
the available resources of the State Government and of
each and every political subdivision of this State,
whether of men, properties or instrumentalities, and to
commandeer and utilize any personal services and any
privately owned property necessary to avoid or protect
against any emergency subject to the future payment
of the reasonable value of such services and privately
owned property as hereinafter in this act provided.
[N.J.S.A. App. A:9-34.]
A-1584-20
19
Originally, under the Disaster Control Act, the Legislature only gave the
Governor powers to address war emergencies. Worthington v. Fauver, 88 N.J.
183, 200 (1982); however, the Legislature eventually expanded the Governor's
powers to address any unusual incident which endangers the public health,
safety, or welfare. Ibid. The Governor is also not required to wait for a
catastrophe to occur before taking action. Ibid. However, the Governor's
power under the Disaster Control Act
is not without limit. While a situation of impending
disaster may sometimes fall within the statutory
definition of "emergency," the statute does not grant
the executive the power to label any situation
an "emergency" merely because there is a chance that
some kind of disruption will occur in the foreseeable
future. There must be a substantial likelihood of
occurrence within the immediate future.
[Id. at 196-97.]
Notwithstanding this limitation, "the Governor's power under the Disaster
Control Act must be liberally construed to accomplish its crucial legislative
purpose." Id. at 199.
N.J.S.A. App. A:9-45 provides:
In order to accomplish the purposes of this act, the
Governor is empowered to make such orders, rules
and regulations as may be necessary adequately to
meet the various problems presented by any
emergency and from time to time to amend or rescind
such orders, rules and regulations, including among
others the following subjects: . . . .
A-1584-20
20
N.J.S.A. App. A:9-45 then lists some of the subjects the Governor may address
in an emergency, including: blackouts; air raid warnings; recruitment of
volunteers including air raid wardens, police and firemen; designation of
vehicles and persons who can move during an air raid or any emergency;
conduct of civilian population during an emergency; air raid protocol for
schools; counteracting threatened sabotage; and evacuating residents.
The last two sections of N.J.S.A. App. A:9-45 give the Governor
powers:
i. On any matter that may be necessary to protect the
health, safety and welfare of the people or that will
aid in the prevention of loss to and destruction of
property.
j. Such other matters whatsoever as are or may
become necessary in the fair, impartial, stringent
and comprehensive administration of this act.
Appellants correctly cite Worthington, 88 N.J. at 187-98, and Cnty. of
Gloucester v. State, 132 N.J. 141, 146-52 (1993), for the proposition that in
determining whether the actions were authorized by the Disaster Control Act,
the court must first determine whether the governor's action is "rationally
related" to the legislative goal of protecting the public, and second, whether it
is "closely tailored to the magnitude of the emergency." Appellants argue that
EO 128 fails both prongs in that it is neither rationally related to protecting the
A-1584-20
21
public from damage related to COVID-19, nor is it closely tailored to the
magnitude of the emergency. We disagree, finding both prongs satisfied.
1. Rationally related (prong one)
Appellants contend that EO 128 is not rationally related to the legislative
goal of protecting the public from the damage created by COVID-19 because it
does not protect residential tenants from eviction, given that EO 106 already
accomplished that goal.
According to appellants, unlike EO 106, which protects New Jersey
residential tenants from evictions until two months after the end of the public
health emergency, EO 128 protects tenants from challenges in finding housing
rentals that might arise after the end of the pandemic. Appellants argue that
EO 128, therefore, is not rationally related to protecting the public from
damage caused by the public health emergency because it addresses future
consequences that might arise for New Jersey tenants after the end of the
pandemic, such as interest and late fees and negative credit reports. In
particular, appellants point to the highlighted language in the following two
paragraphs of EO 128:
[F]amilies struggling to pay rent due to financial
hardship during the ongoing Public Health Emergency
and the State of Emergency may also remain at
increased risk for eviction upon the termination of [EO
106] which under the terms of the Order must happen
A-1584-20
22
no later than two months after the end of the Public
Health Emergency or State of Emergency . . . .
WHEREAS, in addition to eviction proceedings
being initiated and the continued risk of eviction upon
termination of the Order, individuals may face other
consequences from a late payment of rent, including
interest and late fees, which they may be unable to
satisfy in light of their substantial loss of income, as
well as negative credit reports that may affect their
ability to find housing options in the future . . . .
[(emphasis added)].
Based on this language, appellants contend that EO 128 is intended to
protect tenants from the continued risk of eviction after the end of the
pandemic; however, the Disaster Control Act is meant to "provide for the
health, safety and welfare of the people of the State of New Jersey and to aid
in the prevention of damage to and the destruction of property during any
emergency." N.J.S.A. App. A:9-33 (emphasis added). In addition, by
removing any incentive for tenants to maintain their rental properties,
appellants contend that EO 128 will actually make "damage to and the
destruction of property" more likely, not less.
Respondents counter that EO 128 is, in fact, rationally related to the
public emergency because COVID-19 has created a fiscal and economic crisis,
in addition to a public health emergency. In support, respondents cite N.J.
Republican State Comm. v. Murphy (NJRSC), 243 N.J. 574, 580-81 (2020)
A-1584-20
23
where the Court found, "[l]aypeople, scientists, and legal scholars alike would
agree that COVID-19 is a true disaster with widespread consequences. The
pandemic has caused a health emergency, a broad based economic one that has
devastated many individuals and families, and a fiscal crisis for the State."
The Court in NJRSC further expressed that:
The virus has also triggered staggering
economic consequences for the nation and the State.
As states and cities imposed restrictions to slow the
spread of the virus, business closures led to mass
layoffs and furloughs. Gross Domestic Product fell
32.9% on an annualized basis during the second
quarter of this year, marking one of the steepest
declines in the country's history. The nation's
unemployment rate rose from 3.5% in February 2020
to 14.7% in mid-April. In May, the number of people
seeking unemployment benefits peaked at nearly 25
million nationwide. By June, New Jersey's
unemployment rate had reached 16.6%. Nearly 1.4
million New Jersey residents filed unemployment
claims between mid-March and mid-July. Even as
workers returned to their jobs, the number of
continuing claims remained close to 500,000 in mid-
July.
[Id. at 583-84.]
Thus, respondents argue that EO 128 is rationally related to the COVID-
19 pandemic, inasmuch as it addresses the State's fiscal and economic
emergencies. Also, respondents point out that EO 128 addresses the many
tenants who experienced a loss of income resulting in an impaired ability to
pay for health care.
A-1584-20
24
In support of their position that COVID-19 has caused an economic
crisis, respondents cite federal cases, including Bauer v. Elrich, 463 F. Supp.
3d 606, 614 (D. Md. 2020) ("The COVID-19 pandemic is a genuine public
health crisis that poses dire health risks" and has "brought on a severe
economic crisis."), and Washington v. DeVos, 466 F. Supp. 3d 1151, 1171
(E.D. Wash. 2020) ("[T]he COVID-19 pandemic has had devastating economic
consequences.").
Because of the serious economic crisis affecting New Jersey,
respondents argue that EO 128 is rationally related to the COVID-19 pandemic
by permitting tenants to use their security deposits to pay rent, thereby
contributing additional funds to the tenants who lost income and suffered
corresponding hardship in paying for their household expenses, including
medical care.
In determining whether a statute is rationally related, a court's inquiry is
limited to whether the law "rationally furthers any legitimate state objective."
Am. Express Travel Related Servs., Inc. v. Sidamon-Eristoff, 669 F.3d 359,
367 (3d Cir. 2012) (quoting Malmed v. Thornburgh, 621 F.2d 565, 569 (3d
Cir. 1980)). "[T]he rationality standard is a low threshold; to be va lid, the
Ordinance need only 'find some footing in the realities of the subject addressed
by the legislation.'" Greater Houston Small Taxicab Co. Owners Ass'n v. City
A-1584-20
25
of Hous., 660 F.3d 235, 240 (5th Cir. 2011) (quoting Heller v. Doe, 509 U.S.
312, 321 (1993)). A statute will be upheld if it "reasonably relates to a
legitimate legislative purpose and is not arbitrary or discriminatory."
Greenberg v. Kimmelman, 99 N.J. 552, 563 (1985) (citing Nebbia v. N.Y., 291
U.S. 502, 537 (1934)).
Applying this relatively low threshold standard, EO 128 clearly bears a
rational relationship to the health and economic crises created by COVID -19.
EO 128 permits tenants to use security deposits to pay rent so as to permit
access to additional funds to pay for health care during the pandemic. Also, it
seeks to prevent evictions for nonpayment of rent that might occur after the
pandemic and could create additional homelessness. Despite appellants'
argument that EO 106 was intended to prevent homelessness, EO 128 also
addresses that concern, albeit, using a different strategy. Thus, we agree with
respondents that EO 128 meets the first part of the Supreme Court's test for a
valid executive order because it is rationally related to the emergency.
2. Closely tailored (prong two)
Appellants next argue that EO 128 does not meet the second part of the
New Jersey Supreme Court's test, contending that it is not "closely tailored" to
the emergency. Appellants assert that increasing the rights of tenants, while
simultaneously decreasing the rights of landlords, amounts to favoring the
A-1584-20
26
economic situation of one group of New Jersey citizens at the expense of
another.
To bolster their argument that EO 128 is not closely tailored to meet the
needs of the public emergency, appellants cite N.J.S.A. App. A:9-45. As
noted, that statute lists ten subjects that may be addressed by executive orders,
with most relating to actions the Governor might take during wartime,
including black outs and air raid warnings. We are not persuaded by this
argument since N.J.S.A. App. A:9-45(i) also provides a more comprehensive
authorization to the Governor to issue executive orders "[o]n any matter that
may be necessary to protect the health, safety and welfare of the people or that
will aid in the prevention of loss to and destruction of property."
In considering the meaning of N.J.S.A. App. A:9-45(i), appellants cite
two canons of statutory construction, ejusdem generis (of the same kind) and
noscitur a sociis (words are interpreted based on the company they keep). For
example,
[W]hen general words follow specific words in a
statutory enumeration, the general words are construed
to embrace only the objects similar in nature to those
objects enumerated by the preceding specific words.
This technique saves the legislature from spelling out
in advance every contingency in which the statute
could apply.
[State v. Hoffman, 149 N.J. 564, 584 (1997) (quoting
Hovbilt, Inc. v. Twp. of Howell, 263 N.J. Super. 567,
A-1584-20
27
571 (App. Div. 1993)).]
Also, in Germann v. Matriss, 55 N.J. 193, 220-21 (1970) (citations
omitted), the Court explained:
It is an ancient maxim of statutory construction that
the meaning of words may be indicated or controlled
by those with which they are associated. . . . The rule
is not absolute, but it does serve as a helpful guide in
ascertaining the intended scope of associated words or
phrases in a statute where a particular word is
followed by more general words, and the legislative
purpose is unclear in such situations.
Appellants argue that the first eight subdivisions of N.J.S.A. App. A:9 -
45 describe very specific steps the Governor may take in an emergency;
therefore, the court should interpret the more comprehensive power given to
the Governor in N.J.S.A. App. A:9-45(i) (to address "any matter that may be
necessary to protect the health, safety and welfare of the people or that will aid
in the prevention of loss to and destruction of property") as limited to actions
directly responding to dangers created by the emergency. Appellants contend
that N.J.S.A. App. A:9-45(i) does not authorize the Governor to act on "any"
matter that might protect the health, safety, and welfare of a discrete portion of
the citizenry, without regard to the degree of connection between that matter
and the danger created by the declared emergency.
Appellants further argue that the appropriateness of reading a limitation
into the scope of N.J.S.A. App. A:9-45(i) is reinforced by N.J.S.A. App. A:9-
A-1584-20
28
45(j), which gives the Governor authority to address "[s]uch other matters
whatsoever as are or may become necessary in the fair, impartial, stringent and
comprehensive administration of this act." Appellants contend that EO 128
violates the "fair" and "impartial" requirements by altering statutory law and
private contracts to increase tenants' rights at the expense of landlords' rights.
Respondents counter that the list in N.J.S.A. App. A:9-45 is not
comprehensive, but instead explicitly permits additional gubernatorial acts
because of the following language: "[i]n order to accomplish the purposes of
this act, the Governor is empowered to make such orders, rules and regulations
as may be necessary adequately to meet the various problems presented by any
emergency . . . , including among others the following subjects . . . ." N.J.S.A.
App. A:9-45 (emphasis added). Also, the more general authorization in
N.J.S.A. App. A:9-45(i) is meant to permit the Governor to take any act in the
public welfare, so long as it is rationally related and closely tailored to the
emergency.
Respondents further assert that EO 128 is closely tailored to the
emergency because it "directly targets tenants' inability to pay rent without
significant collateral consequences" and security deposits are the property of
tenants, pursuant to N.J.S.A. 46:8-19. Moreover, respondents point out that
EO 128 does not relieve the tenant of the responsibilities to pay rent or to
A-1584-20
29
compensate the landlord for damage to property. Rather, landlords may obtain
a judgment against a tenant for damages, just as they could have done
previously, and in the real world, tenants often use their security deposits in
place of their final rent payment. See Elmsford Apartment Assocs., LLC v.
Cuomo, 469 F. Supp. 3d 148, 171 (S.D.N.Y. 2020) ("The whole scheme is no
different than what actually happens in the real world, where tenants routinely
forfeit their security deposit by allowing it to 'cover the last month's rent' on a
lease."). Respondents also point out that EO 128 expires two months after the
end of the pandemic, making it closely tailored to the COVID-19 emergency.
Regarding fairness, respondents contend that EO 128 represents one of
many measures taken by the State to help individuals in the pandemic. Some
of those measures assist landlords, including mortgage forbearance 6 and the
SLEG.
In their reply brief, appellants state they do not qualify for the SLEG,
because, apparently, they own less than three rental units. Also, appellants
contend that EO 128 does not require tenants to replenish their security
deposits, even after the pandemic ends. This argument lacks merit as the
6
On March 28, 2020, the Governor announced that more than forty banks,
credit unions, and servicers had committed to providing mortgage forbearance
for New Jersey homeowners. N.J. Dep't of Banking & Ins., COVID-19 and
Residential Mortgage Relief, https://www.state.nj.us/dobi/covid
/mortgagerelief.html (last visited July 14, 2021).
A-1584-20
30
executive order does, in fact, require tenants to replenish their security
deposits six months after the conclusion of the pandemic, or when renewing
their lease, whichever is later. N.J. Exec. Order No. 128.
We conclude that EO 128 meets the Court's test for being closely
tailored to meet the needs of the public health and economic emergency
because: it gives tenants an opportunity to pay rent using their own funds held
by landlords as security deposits; it does not hinder landlords' ability to obtain
judgments for unpaid rent or damages; and it is time limited, inasmuch as it
terminates two months after the end of the pandemic. Moreover, it is one of
many measures meant to aid both landlords and tenants to financially survive
the pandemic.
II.
Appellants argue that EO 128 violates the separation of powers between
the three branches of government. This argument lacks merit.
Article III, Paragraph 1 of the New Jersey Constitution provides that
"[t]he powers of the government shall be divided among three distinct
branches, the legislative, executive, and judicial. No person or persons
belonging to or constituting one branch shall exercise any of the powers
properly belonging to either of the others, except as expressly provided in this
Constitution."
A-1584-20
31
"[T]he purpose of the separation of powers is to create a system of
checks and balances among the three branches of government." State v. Bond,
365 N.J. Super. 430, 441 (App. Div. 2003). However, it is not intended "to
create an absolute division of powers among the three branches of government,
thereby preventing cooperative action among them." Ibid."[W]hen the Governor is acting consistently with express or implied
authority from the Legislature, his or her action should be given the widest
latitude of judicial interpretation, and the burden of persuasion . . . rest[s]
heavily upon any who might attack it." Perth Amboy, 413 N.J. Super. at 601(citations and internal quotation marks omitted). "Only when the challenged
action impairs 'the essential integrity' of another branch will a court step in to
enforce the constitutional boundaries." Bullet Hole, Inc. v. Dunbar, 335 N.J.
Super. 562, 574 (App. Div. 2000) (quoting Cupano v. Gluck, 133 N.J. 225, 233
(1993)).
The sharing of constitutional power among the three branches of
government ordinarily will be upheld. Commc'ns Workers of Am. v. Christie,
413 N.J. Super. 229, 257 (App. Div. 2010). "That is particularly true in
situations where . . . the executive order flows out of the Governor's
legislatively-delegated emergency powers to act on behalf of the safety and
welfare of the people of New Jersey under the Disaster Control Act . . . ." Id.A-1584-20
32
at 259. Executive orders are generally upheld, even when they are challenged
on separation of power grounds. Ibid. In reviewing an executive order, courts
should give the executive action "the strongest of presumptions and the widest
latitude of judicial interpretation, and the burden of persuasion would rest
heavily upon any who might attack it." Worthington, 88 N.J. at 208 (citation
omitted).
Appellants argue that EO 128 violates the New Jersey Constitution's
fundamental separation of powers requirements by usurping the Legislature's
lawmaking powers. According to appellants, only the Legislature may make
or suspend laws. In fact, appellants argue that the Constitution only permits
laws to be suspended in the context of habeas corpus: "The privilege of the
writ of habeas corpus shall not be suspended, unless in case of rebellion or
invasion the public safety may require it." N.J. Const. art. I, ¶ 14. Appellants
argue that this explicit exception of habeas corpus means that the Governor
possesses no implicit constitutional authority to suspend other laws.
Appellants further argue that EO 128 directly undermines the SDA,
which authorizes landlords to take a security deposit from a tenant and hold it
until the end of the lease. Moreover, EO 128 creates new criminal sanctions, a
purely legislative function. Appellants contend that EO 128 thus violates the
Constitution's separation of powers requirements.
A-1584-20
33
In a related argument, appellants contend the Disaster Control Act would
violate the nondelegation doctrine if interpreted to authorize EO 128. The
nondelegation doctrine provides that the Legislature may only delegate its
power to legislate under very limited circumstances. In Roe v. Kervick, 42
N.J. 191, 232 (1964), the Court stated that the executive cannot be given
"unbridled" powers that constitute an "abdication of the duty of the Legislature
. . . ." Instead, a statute that confers on the executive the power to legislate
"must impose basic standards, guidelines and a reasonably definite policy to be
followed in its administration." Id. at 232. Here, appellants argue that if the
Disaster Control Act authorizes EO 128, this would, in effect, empower the
Governor to take virtually any action to address the COVID-19 pandemic, and
essentially this would mean that no standards exist to limit the Governor's
executive orders. Rather, appellants contend that the Disaster Control Act
explicitly requires the Governor to focus solely on public health, safety, and
welfare at the time of the emergency, and bars adoption of measures unrelated
to problems directly created by the pandemic.
Respondents counter this argument by citing NJRSC, 243 N.J. at 580-81,
where the Court recognized that the COVID-19 pandemic resulted in an
economic crisis in addition to a public health emergency; for this reason, they
assert that EO 128 is authorized by the Disaster Control Act.
A-1584-20
34
Because of the widespread economic emergency, we conclude that EO
128 did not violate the nondelegation doctrine. Instead, the Governor used his
emergency powers to protect the health and welfare of the public, which
includes the public economic crisis, and the executive order is a valid exercise
of the Governor's powers pursuant to the Disaster Control Act.
In sum, we conclude EO 128 does not violate the doctrine of separation
of powers. The Legislature expressly authorized the Governor, pursuant to the
Disaster Control Act, to take the actions he took in EO 128.
III.
Appellants further contend that EO 128 violates the contracts clause of
the New Jersey Constitution. This argument also lacks merit.
The New Jersey Constitution provides: "The Legislature shall not pass
any . . . law impairing the obligation of contracts, or depriving a party of any
remedy for enforcing a contract which existed when the contract was made."
N.J. Const. art. IV, § 7, ¶ 3. The New Jersey contracts clause is interpreted
similarly to its federal counterpart. In re Recycling & Salvage Corp., 246 N.J.
Super. 79, 100-01 (App. Div. 1991). "The contract clause does not deprive the
states of their power to adopt general regulatory measures even if those
regulatory measures result in the impairment or destruction of private
contracts." Ibid. A statute does not violate the contracts clause "simply
A-1584-20
35
because it has the effect of restricting, or even barring altogether, the
performance of duties created by contracts prior to [the statute's] enactment."
Ibid. (alteration in original) (quoting Exxon Corp. v. Eagerton, 462 U.S. 176,
190 (1983)).
Every contract is subordinate to the laws of nature and of the
community, and the State may make laws for the common welfare even if
those laws conflict with or affect individual contracts. Home Bldg. & Loan
Ass'n v. Blaisdell, 290 U.S. 398, 435-36 (1934). In fact, a temporary restraint
on private contracts may become necessary when the State is addressing "a
great public calamity." Ibid.Contract impairment claims involves "three inquiries: (1) whether a
contractual right exists in the first instance; (2) whether a change in the law
impairs that right; and (3) whether the defined impairment is substantial."
Berg v. Christie, 225 N.J. 245, 259 (2016). The first two inquiries are
typically resolved easily, and courts focus on the severity of the impairment.
Gen. Motors Corp. v. Romein, 503 U.S. 181, 186 (1992). To determine
whether the government action has created a severe impairment of a private
contract requires "a careful examination of the nature and purpose of the state
legislation." Allied Structural Steel Co. v. Vill. of Schaumburg, 438 U.S. 234,
245 (1978).
A-1584-20
36
In analyzing whether the state law operates as a substantial impairment,
courts consider "the extent to which the law undermines the contractual
bargain, interferes with a party's reasonable expectations, and prevents the
party from safeguarding or reinstating his rights." Sveen v. Melin, 138 S. Ct.
1815, 1822 (2018). Whether the parties were operating in a regulated indu stry
is "[a]n important factor in determining the substantiality of any contractual
impairment . . . ." Am. Express Travel Related Servs., 669 F.3d at 369 (citing
Energy Rsrvs. Grp., Inc. v. Kan. Power & Light Co., 459 U.S. 400, 411
(1983)). "When a party enters an industry that is regulated in a particular
manner, it is entering subject to further legislation in the area, and changes in
the regulation that may affect its contractual relationships are foreseeable."
Ibid.If a court finds that a law substantially impairs a private contract, it must
then continue to the second part of the contracts clause analysis and that is
whether the State established "a significant and legitimate public purpose"
underlying the challenged statute and whether the adjustment in contractual
rights is sufficiently related to the governmental objective. Edgewater Inv.
Assocs. v. Borough of Edgewater, 201 N.J. Super. 267, 278 (App. Div. 1985)
(citing Energy Rsrvs. Grp., 459 U.S. at 411-12).
A-1584-20
37
"States have broad power to regulate housing conditions in general and
the landlord-tenant relationship in particular . . . ." Loretto v. Teleprompter
Manhattan CATV Corp., 458 U.S. 419, 440 (1982).
Because past regulation puts industry
participants on notice that they may face further
government intervention in the future, a later-in-time
regulation is less likely to violate the contracts clause
where it "covers the same topic [as the prior
regulation] and shares the same overt legislative intent
to the [sic] protect [the parties protected by the prior
regulation]."
[Elmsford, 469 F. Supp. 3d at 169-70 (first and third
alteration in original) (quoting All. of Auto. Mfrs.,
Inc. v. Currey, 984 F. Supp. 2d 32, 55 (D. Conn.
2013)).]
New Jersey has a long history of regulating the residential rental
industry, as discussed in Edgewater Inv. Assocs., 201 N.J. Super. at 278(finding "the State's long history of regulation pertaining to the housing
industry" meant that law rendering certain senior citizens immune from
eviction for forty years did not substantially impair property owners'
contractual rights); Chase Manhattan Bank v. Josephson, 135 N.J. 209, 234-35
(1994) (law extending eviction restrictions to landlord's successors in
ownership did not substantially impair contractual rights); and Troy, Ltd. v.
Renna, 727 F.2d 287, 297-98 (3d Cir. 1984) (retroactive application of New
A-1584-20
38
Jersey's anti-eviction law did not substantially impair landlords' preexisting
contractual rights).
Residential security deposits are also heavily regulated and include
requirements as to how a security deposit is paid, maintained, and returned,
N.J.S.A. 46:8-19 and -21.1; how much of a security deposit a landlord may
require, N.J.S.A. 46:8-21.2; and what happens to the security deposit when the
property is conveyed to another person, N.J.S.A. 46:8-20 and -21.
In light of the COVID-19 pandemic, other jurisdictions have recently
considered contracts clause challenges to executive orders similar to EO 128.
For example, in Elmsford, the court held:
Again, there is no question that residential leases are
subject to a number of regulations that do not
implicate the Contracts Clause. For example, "It is
well established that [New York] City's rent control
laws do not unconstitutionally impair contract rights."
Therefore, EO 202.28 – which modifies aspects of the
statutory scheme relating to permissible uses of
security deposits – should have come as a no surprise
to the landlord [p]laintiffs, and thus could not amount
to a substantial impairment of their rights under their
rental agreements.
[Elmsford, 469 F. Supp. 3d at 170 (internal citations
omitted) (quoting Brontel, Ltd. v. City of N.Y., 571 F.
Supp. 1065, 1072 (S.D.N.Y. 1983)).]
Similarly, in Auracle Homes, LLC v. Lamont, 478 F. Supp. 3d 199, 224 (D.
Conn. 2020), the federal district court found that Connecticut Governor
A-1584-20
39
Lamont's executive order, similar to EO 128, did not substantially impair the
plaintiffs' contracts because the housing industry is heavily regulated.
In Johnson, the court provided the following explanation for rejecting
appellants' contracts clause argument:
Similar to the executive order in Elmsford,
Executive Order 128 "does not displace the civil
remedies always available to landlords seeking to
recover the costs of repairs or unpaid rents still owed
at the end of a lease term." Just as in Elmsford,
nothing in Executive Order 128 "diminishes the
tenant's rental obligation by even a nickel" and the
changes in Executive Order 128 are temporary. . . . In
Elmsford, the court noted, although it was true that a
landlord might have to "obtain a judgment for the
amount expended in repairs," this "whole scheme is no
different than what actually happens in the real world,
where tenants routinely forfeit their security deposit
by allowing it to 'cover the last month's rent' on a
lease." The court further explained "[t]he landlord can
collect all he is owed at the end of the day by the
simple expedient of going to some court when the
courts are fully reopened. The fact that landlords
would prefer not to avail themselves of their legal
remedies -- because it is often not worth the trouble to
pursue a deadbeat tenant -- does not mean that the
state has impaired their contractual rights."
[Johnson, 2021 WL 1085744 at *10 (internal citations
omitted) (quoting Elmsford, 469 F. Supp. 3d at 171).]
Appellants argue that EO 128 violates the contracts clause by
substantially impairing their leases, claiming they explicitly contracted for the
payment and maintenance of security deposits to ensure their tenants met their
A-1584-20
40
obligations. Moreover, the Glassboro and Millville leases specifically
precluded using security deposits to pay rent.
The test for whether a state law substantially impairs a private contract is
the extent to which it undermines the contractual bargain, interferes with a
party's reasonable expectations, and prevents the party from safeguarding or
reinstating his [or her] rights." Sveen, 138 S. Ct. at 1822.
A. Undermining appellants' contractual bargain
Here, according to appellants, the State fundamentally altered the
parties' obligations under their leases, because their security deposits secure
the value of their real property and ensure the tenants' compliance with their
contractual obligations. Appellants argue that that EO 128 substantially
impaired their private contracts when it removed the incentive for tenants to
comply with the terms of their leases and maintain the condition of appellants'
properties.
We reject this argument. As the court in Johnson found, EO 128 did not
alter the tenants' obligations to pay rent or compensate landlords for damages
they caused. Instead, the Johnson court found:
Executive Order 128 sufficiently safeguards
[p]laintiffs' ability to realize the benefit of their
bargain. In Executive Order 128, Governor Murphy
explicitly allows a landlord to "to recoup from the
tenant any monies the landlord expended that would
have been reimbursable by the security deposit and
A-1584-20
41
interest or earnings thereon, at the time that such
reimbursement from the deposit and interest or
earnings thereon would have taken place." Moreover,
Executive Order 106 explains that Governor Murphy’s
actions do not "affect any schedule of rent that is due."
[Johnson, 2021 WL 1085744, at *10 (citing Elmsford,
469 F. Supp. 3d at 171).]
Appellants also cite the dissent in Sveen, 138 S. Ct. at 1830 (Gorsuch, J.,
dissenting), where Justice Gorsuch distinguished between laws that merely
alter the means of enforcing a contract from those that actually interfere with
contractual obligations. In this regard, Justice Gorsuch expressed that cases
relying on Blaisdell to find that there was no substantial impairment of
contracts had involved contractual remedies and not contractual obligations.
138 S. Ct. at 1830-31. Justice Gorsuch stated:
Although the Constitution allows legislatures some
flexibility to address changing social conditions
through retroactive remedial legislation, it does not
permit upsetting settled expectations in contractual
obligations. We must respect that line found in the
text of the Constitution, not elide it. Indeed, our
precedent teaches that if remedial changes are just
disguised efforts at impairing obligations they will
violate the Constitution too.
[Ibid. (citations omitted).]
We reject the contention that EO128 materially altered appellants'
ultimate contractual remedies, as tenants' obligations regarding rent and
A-1584-20
42
damages were not impaired by EO 128. Thus, we do not find relevant the
distinction advanced by Justice Gorsuch.
B. Interfering with a party's reasonable expectations
According to appellants, the Legislature passed the SDA in 1968 and
since that time, New Jersey's security deposit legislation has remained mostly
static; therefore, they argue that their reasonable expectations were that it
would remain so. Appellants argue they were not put on notice that the
Governor might nullify their ability to maintain a security deposit.
This claim lacks merit. A party's reasonable expectations directly relate
to whether they operate in a heavily regulated industry; here, appellants
operate in the heavily regulated residential rental industry. Thus, appellants'
reasonable expectations should have been that in a pandemic, rental contracts
might be impacted by the State regulating the use of tenants' security deposits.
See Am. Express Travel Related Servs., 669 F.3d at 369 (holding that changes
to regulations in a heavily regulated industry are foreseeable).
C. Preventing the party from safeguarding or reinstating his or her rights
As the court in Johnson found, appellants will be able to enforce their
rights by obtaining a judgment against any tenants who default on rent or
cause damages; tenants' rental obligations are not diminished by "even a
nickel"; in addition, "in the real world, . . . tenants routinely forfeit their
A-1584-20
43
security deposit by allowing it to 'cover the last month's rent' on a lease."
Johnson, 2021 WL 1085744, at *10 (quoting Elmsford, 469 F. Supp. 3d at
171).
We conclude that EO 128 did not substantially impair appellants'
contracts because: it did not undermine their contractual bargains given that
they are still able to recover unpaid rent and the cost of damages; it did not
prevent them from safeguarding their rights because they are still able to
obtain a judgment against tenants who do not meet their obligations; and it did
not interfere with their reasonable expectations since they operate in a heavily
regulated industry.
Because EO 128 has not substantially impaired appellants' contractual
rights, we need not reach the next part of the analysis – whether the State
established "a significant and legitimate public purpose" and whether the
adjustment in the parties' contractual rights is sufficiently related to the
governmental objective. Edgewater Inv. Assocs., 201 N.J. Super. at 278
(citing Energy Rsrvs. Grp., 459 U.S. at 411).
IV.
Lastly, appellants argue that EO 128 violates the due process clause of
the New Jersey Constitution. We disagree.
A-1584-20
44
Courts should not reach constitutional questions unless necessary to
resolve the appeal. Comm. to Recall Robert Menendez v. Wells, 204 N.J. 79,
95 (2010). The Fourteenth Amendment to the United States Constitution
provides that no state may "deprive any person of life, liberty, or property,
without due process of law . . . ." U.S. Const. amend. XIV, § 1. The New
Jersey Constitution guarantees that all persons "have certain natural and
unalienable rights" including the fundamental right of "acquiring, possessing,
and protecting property. . . ." N.J. Const. art. I, ¶ 1. Substantive due process
claims are recognized under the New Jersey Constitution. State in Interest of
C.K., 233 N.J. 44, 73 (2018).
Our courts apply the same standard as applied under the federal
constitution. Roman Check Cashing, Inc. v. N.J. Dep't of Banking & Ins., 169
N.J. 105, 110 (2001). In analyzing due process violations, New Jersey courts
consider "the nature of the affected right, the extent to which the governmental
restriction intrudes upon it, and the public need for the restriction."
Greenberg, 99 N.J. at 567.
"[A] statute is invalid on substantive due process grounds if it 'seeks to
promote [a] state interest by impermissible means . . . .'" Caviglia v. Royal
Tours of Am., 178 N.J. 460, 472 (2004) (second alteration in original) (quoting
Greenberg, 99 N.J. at 562).
A-1584-20
45
The substantive due process doctrine "does not
protect individuals from all governmental actions that
infringe liberty or injure property in violation of some
law." Rather, substantive due process is reserved for
the most egregious governmental abuses against
liberty or property rights, abuses that 'shock the
conscience or otherwise offend . . . judicial notions of
fairness . . . [and that are] offensive to human
dignity."
[Rivkin v. Dover Twp. Rent Leveling Bd., 143 N.J.
352, 366 (1996) (alterations in original) (citations
omitted).]
The federal court in Johnson rejected appellants' due process arguments,
explaining that "'[i]t is elementary that procedural due process is implicated
only where someone has claimed that there has been a taking or deprivation of
a legally protected liberty or property interest,' and that 'possessory interests in
property invoke procedural due process protections.'" Johnson, 2021 WL
1085744, at *30 (quoting Abbott v. Latshaw, 164 F.3d 141, 146 (3d Cir.
1998)). "Because Plaintiffs have failed to demonstrate a substantial
impairment of their property rights, they 'ha[ve] pointed to no specific
constitutional guarantee safeguarding the interest [they] assert ha[ve] been
invaded." Ibid. (alterations in original) (quoting Auracle, 478 F. Supp. 3d at
226-27).
Here appellants have not identified a property interest independent of the
interests addressed by their Contracts Claims. This is fatal to their due process
A-1584-20
46
claims. As the Supreme Court has held, when "a particular Amendment
provides an explicit textual source of constitutional protection against a
particular sort of government behavior, that Amendment, not the more
generalized notion of substantive due process, must be the guide for analyzing
these claims." Stop the Beach Renourishment, Inc. v. Fla. Dep't of Env't Prot.,
560 U.S. 702, 721 (2010) (citations and internal quotation marks omitted).
Nonetheless, appellants cite Montville Twp. v. Block 69, 74 N.J. 1, 7
(1977), in support of their argument that EO 128 deprives them of the
substantive right to protect their real property. We disagree. The security
deposits are the property of appellants' tenants. Nothing in EO 128 prevents
appellants from protecting their properties by seeking judgments against t heir
tenants for violations of their leases.
Also, appellants claim that the criminal penalties in EO 128 violate their
procedural due process rights, citing Band's Refuse Removal, Inc. v. Borough
of Fair Lawn, 62 N.J. Super. 522, 553 (App. Div. 1960) ("Established
procedures lie at the heart of due process and are as important to the
attainment of ultimate justice as the factual merits of a cause."). This claim
lacks merit as the Disaster Control Act permits the Governor to criminalize
actions that contravene the Governor's emergency orders. Appellants'
A-1584-20
47
remaining arguments asserting due process claims lack sufficient merit to
warrant discussion in a written opinion. R. 2:11-3(e)(1)E.
In sum, we conclude that EO 128 constitutes a valid exercise of
gubernatorial power pursuant to the Disaster Control Act.
Affirmed.
A-1584-20
48