Tuesday, January 10, 2012

Budget hotels denied injunction for lack of irreparable harm

The State of New York passed a law that makes it harder for property owners to rent hotel rooms for less than 30 days at a time. The idea was that building owners were circumventing strict fire safety standards applicable to hotels by renting out rooms for shorter periods of time under a loophole in the Multiple Dwellings Law. The state also wanted to prevent unfair competition to legitimate hotels and also to protect the rights of permanent occupants who have to live with short-term residents. A building owner challenged the law under the Takings Clause and sought an injunction. The district court denied the injunction, and the Court of Appeals agrees that the plaintiffs have not shown irreparable harm.

The case is Dexter 345, Inc. v. Cuomo, decided on December 5. Who knows if the plaintiffs have a legitimate Takings claim on the merits? The Court of Appeals does not address the merits. It finds that under the strict "irreparable harm" standard governing preliminary injunctions, the plaintiffs really only have monetary damages, which can be recouped at the end of the case. That's not irreparable harm. As the courts see it, monetary loss is not irreparable.

Plaintiff says it will suffer irreparable harm because it will lose goodwill with its customer base. The Second Circuit (Newman, Leval and Pooler) disagrees. The Dexter House has been operating since 1957 and Hotel Alexander since 2007. This is long enough for plaintiffs to calculate lost profits, based on previous rent figures. "The District Court correctly found that any loss of goodwill would result from the Appellants' inability to continue operating their budget hotel business as they had in the past. The long history of operation by both Appellants ensures that they will be able to calculate money damages for any loss of goodwill they may have suffered if a taking is found." This reasoning contrasts this case with those brought by less-established businesses who claim that calculating damages is too difficult and that the challenged regulation will destroy the business.

Plaintiffs also say that the new law will harm their reputation, as the law suggests that short-term budget hotels are unsafe and unwanted. But this kind of reputational harm is not irreparable, the Court of Appeals says. If plaintiffs are to get any damages, they have to endure discovery and a trial on the merits.

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