Matthew Johnson, et al. v. Governor of New Jersey, et al.

CASE SUMMARY

NCLA filed the complaint against Governor Murphy in the U.S. District Court for the District of New Jersey, challenging Executive Order No. 128. The order, which violates federal constitutional law, state constitutional law, state contract law and state landlord-tenant law, purports to allow tenants to use their security deposits to offset rent or back rent. Regardless of the governor’s good intentions, the order unlawfully singles out residential landlords and cancels the major security measure they use to protect their property.

NCLA represents Mr. Johnson, the owner of a small rental property in Cherry Hill, New Jersey. Like many other New Jersey landlords, he has fallen victim to the governor’s unconstitutional order and risks losing the security deposit for which he rightfully contracted. Without a security deposit to insure against damage caused to the property during the tenancy, he will be forced to cover the cost of such damage out of his own pocket, or he could be forced to bring a costly and time-consuming small-claims action against his tenant. If Mr. Johnson should try to adhere to the terms of the voluntarily signed leasehold contract, under the new rules, he would be subject to criminal penalties.

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CASE STATUS: Active

CASE START DATE: June 2, 2020

DECIDING COURT: U.S. Court of Appeals for the Third Circuit

ORIGINAL COURT: U.S. District Court for the District of New Jersey

CASE DOCUMENTS

July 22, 2021 | Filed 28(j) Letter Asking the Court to Deny Appellees’ Motion to Dismiss and Decide This Case on the Merits
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July 20, 2021 | Governor Murphy’s 28(j) Letter re: Kravitz v. Murphy
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July 6, 2021 | Appellees’ Reply in Support of Motion to Dismiss the Appeal as Moot
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June 28, 2021 | Opposition to Appellees' Motion to Dismiss
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June 16, 2021 | Governor Murphy’s Motion to Dismiss
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June 16, 2021 | Appellants’ Opening Brief & Appendices in the U.S. Court of Appeals for the Third Circuit
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May 7, 2021 | Briefing and Scheduling Order
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March 22, 2021 | Opinion Granting Defendants’ Motion to Dismiss
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November 18, 2020 | Plaintiffs’ Response in Opposition to Defendants’ Motion to Dismiss
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June 30, 2020 | Amended Verified Complaint for Declaratory Judgment and Injunctive Relief
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June 30, 2020 | Plaintiff’s Unopposed Motion for Leave to File an Amended Verified Complaint for Declaratory Judgment and Injunctive Relief
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June 2, 2020 | Complaint for Declaratory Judgment and Injunctive Relief
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PRESS RELEASES

June 16, 2021 | NCLA Files Third Circuit Appeal to Stop Gov. Murphy’s Rental Security Deposits Executive Order

Washington, DC (June 16, 2021) – New Jersey Governor Phil Murphy chose economic winners and losers with Executive Order No. 128 (EO 128), an unconstitutional mandate that forces residential housing providers to credit tenants’ security deposits toward rent payments. The New Civil Liberties Alliance, a nonpartisan, nonprofit civil rights group, filed its opening brief today in the U.S. Court of Appeals for the Third Circuit, seeking a reversal of the trial court’s decision to grant the Governor’s motion to dismiss. NCLA urges the Third Circuit to restore the rule of law for all New Jerseyans by ruling that EO 128 violates the Contracts Clause of the U.S. Constitution.

EO 128 nullifies the rights and obligations of housing providers and tenants who had mutually and voluntarily entered into contracts that explicitly prohibited the use of security deposits to pay rent. By waiving nonwaivable provisions of the Rent Security Deposit Act, a law governing security deposits for residential leases in New Jersey, the Governor violated the Contracts Clause of the U.S. Constitution. If the Contracts Clause is to retain any meaning at all, it must prevent state actions like EO 128 that significantly alter contractual terms.

NCLA argues that the U.S. District Court for the District of New Jersey erred in its decision when it forbid itself from considering the unconstitutional process through which Governor Murphy adopted EO 128 and by granting “substantial deference” to Governor Murphy’s unilateral decision to issue the order. Under Supreme Court precedent, federal courts should defer to a state’s decision to impair private contracts only if that decision is based on the considered and empirical judgment of a state legislature. The trial court erred by granting “substantial deference” to Governor Murphy’s ill-considered decision to circumvent the legislative process based on his own unsubstantiated conclusion that EO 128 was “plainly in the public interest.”

The Governor’s order has altered the express terms of housing providers’ contracts, changed the incentive structure that those contracts put in place, lessened the value of the contracts, and diminished housing providers’ rights. On behalf of Margarita Johnson and its other clients, NCLA asks the Court of Appeals to reverse the damage the trial court inflicted on the Contracts Clause and on the federal judiciary’s role in protecting private contracts against undue state influence. Despite New Jersey’s claim, this case is not moot. Housing providers are still suffering under this EO, and they need to know whether this kind of order might happen again.

NCLA released the following statements:

“The trial court’s decision set a dangerous precedent that would allow states to nullify basically any private contract in any industry that has been subject to any regulation (so, basically every industry). Unless federal courts fulfill their constitutional duty and enforce the Contracts Clause, everyone will suffer. The result of EO 128 and the trial court’s decision is that rents will go up and more people will struggle to make ends meet.”
— Jared McClain, Litigation Counsel, NCLA

“Both contractual and private property rights have been under attack by the Murphy administration since early in the pandemic. It is imperative for the Court to step in to reinstate the rule of law and constitutional order.”
— Harriet Hageman, Senior Litigation Counsel, NCLA

For more information visit the case page here.

ABOUT NCLA

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

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March 24, 2021 | NCLA to Appeal NJ District Judge’s Refusal to Apply Contracts Clause to Protect Housing Providers

Washington, DC (March 24, 2021) –  The U.S. District Court for the District of New Jersey dismissed a complaint this week in Matthew Johnson, et al. v. Philip D. Murphy, challenging Governor Murphy’s Executive Order No. 128 (EO 128), which allows residential tenants to use their security deposits to offset their unpaid rent. Monday’s ruling, by U.S. District Judge Noel L. Hillman, declared that there was no substantial impairment of the Plaintiffs’ contracts because residential leases and security deposits are already heavily regulated, and ruled that the housing providers should have anticipated that the state might invalidate security deposits altogether.

The New Civil Liberties Alliance, a nonpartisan, nonprofit civil rights group, represents New Jersey housing providers who own one or two rental properties in South Jersey that they rent out to make a living. In no way could they have anticipated the global pandemic or the sweeping actions of Governor Murphy, who unilaterally rewrote every residential lease in the State of New Jersey overnight. The Contracts Clause of the U.S. Constitution was specifically designed by the Framers to prohibit this type of one-sided action, and the Supreme Court has historically struck down such contractual interference.

NCLA argued the order violates the U.S. Constitution, New Jersey’s Constitution, and picks winners and losers in duly established contractual relations between tenants and landlords. The decision largely ignored two centuries of precedent that NCLA laid out in its briefing, relying instead on recent decisions issued by the U.S. District Court for the District of Connecticut and District Court for the Southern District of New York in similar challenges to gubernatorial abuse of executive orders.

The district judge also shrugged off the Plaintiffs’ Due Process Clause claim, refusing to consider that these homeowners have a “property right” separate from the rights secured by their contracts—which the court oddly ruled were not protected by the Contracts Clause. This decision contradicts the Fourteenth Amendment’s guarantee of procedural due process when the state, as here, diverges from established procedures in a way that deprives an individual of a property right.

Executive Order 128 targeted residential housing providers, many of whom relied on security deposits to keep their property undamaged during the remainder of the tenancy. Without that deposit, a tenant no longer has a financial incentive to keep the property in good condition. Governor Murphy created law outside the democratic process and invalidated plaintiffs’ property interest in their contracts without an opportunity to be heard. Therefore, in issuing EO 128, Governor Murphy both unconstitutionally impaired the obligation of contracts and denied the housing providers due process of law.

NCLA has filed a similar complaint against Governor Murphy challenging Executive Order No. 128 in another case, Chuck Kravitz, et al. v. Philip D. Murphy, et al., which is currently pending before the Appellate Division of the New Jersey Superior Court on additional legal theories.

NCLA released the following statement: 

“Today’s decision effectively ruled that the Contracts Clause no longer protects residential housing providers. The court seemed to say that whenever the state regulates an industry, a governor becomes free to tear up all the contracts in that industry. But allowing the state to pick political winners and rewrite contracts is exactly what the Contracts Clause forbids. NCLA plans to appeal the erroneous decision to the U.S. Court of Appeals for the Third Circuit.”

— Jared McClain, Litigation Counsel, NCLA 

For more information about this case visit here. 

ABOUT NCLA 

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

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November 18, 2020 | NCLA Keeps Fighting Against Gov. Murphy’s Unlawful Effort to Rewrite Every Residential Lease in NJ

Washington, DC (November 18, 2020) – The New Civil Liberties Alliance, a nonpartisan, nonprofit civil rights group, today filed a response to the State’s motion to dismiss in the U.S. District Court for the District of New Jersey in the case of Matthew Johnson, et al. v. Governor Philip D. Murphy, et al. The lawsuit challenges Executive Order No. 128 (EO 128), which violates the Contracts Clause of the U.S. Constitution, as well as New Jersey’s Constitution and statutory laws, by interfering with freely negotiated contracts between tenants and housing providers. 

NCLA clients like Mr. Johnson, who owns a small rental property in Cherry Hill, New Jersey, are property owners who rent out their homes to make a living. Most of them own only a single rental unit. The governor’s unconstitutional order victimizes them by allowing tenants to apply their security deposits to cover rent or back rent. The problem is that once a tenant uses up the security deposit in this way, that tenant no longer has a financial incentive to keep the property nice during the remainder of the tenancy, and it leaves the housing provider without any security against damage by the tenant.

Without statutory authority to do so, Governor Murphy purported to rewrite every residential lease in the State of New Jersey unilaterally. On its face EO 128 claims to waive numerous state laws governing security deposits that were adopted by proper, constitutional legislative process. Targeting a single group (i.e., residential tenants) for relief in this manner undermines freedom of contract, due process, and equal protection of the laws. It also ignores the governor’s limited role and disregards the separation of powers among branches of government.

The state’s move to dismiss the complaint for failure to state a claim is a feeble attempt to convince the court that the Contracts Clause, which prohibits states from adopting laws that interfere with contractual obligations, is a dead letter. New Jersey contends that once a state regulates an industry, it can then retroactively nullify any contractual provisions in that sector. Regulated businesses, even individuals who only rent out a single unit, the State argues, have no legitimate expectation against government intervention in their private contracts.

NCLA’s response refutes the State’s absurd argument. EO 128 rewrites the terms of NCLA’s clients’ contracts, impairs the housing providers’ rights, and far exceeds any limited and temporary contractual interference that the Constitution might tolerate. EO 128 is precisely the type of state action the Framers designed the Contracts Clause to prohibit and is the kind that the Supreme Court has historically struck down. The security deposits for which the Plaintiffs contracted created an incentive for the tenants to comply with the terms of their leases and to maintain the condition of the housing providers’ properties. EO 128 created “every incentive” for the tenants to apply their deposit toward their rent and eliminate the security for which NCLA’s clients had contracted.

NCLA is asking the court to deny the State’s motion to dismiss and allow these New Jersey housing providers to continue pursuing their claims for declaratory and injunctive relief against Gov. Murphy.

NCLA released the following statements: 

“It’s clear from the State’s motion to dismiss that Governor Murphy would like nothing more than to avoid judicial scrutiny of his unlawful executive order. And with good reason. EO 128 is a direct affront to the federal Contracts Clause, which exists to invalidate this sort of state interference with private contracts.”

Jared McClain, Litigation Counsel, NCLA 

“With one stroke of his pen, Governor Murphy single-handedly rewrote not only our clients’ lease agreements, but every existing residential lease in New Jersey. Governors are not dictators. He does not have the power to do this, and the U.S. Constitution specifically forbids him from doing this. Our clients are simply asking that their private contracts be respected and restored.”

Kara Rollins, Litigation Counsel, NCLA 

For more information visit case summary page here

ABOUT NCLA 

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

Download the full document

June 2, 2020 | NCLA Asks U.S. District Court for New Jersey to Stop Governor’s Abuse of Emergency Powers

Washington, DC (June 2, 2020) – The New Civil Liberties Alliance, a nonpartisan, nonprofit civil rights group filed the complaint, Matthew Johnson v. Philip D. Murphy, et al., today against Governor Murphy in the U.S. District Court for the District of New Jersey, challenging Executive Order No. 128. The order, which violates federal constitutional law, state constitutional law, state contract law and state landlord-tenant law, purports to allow tenants to use their security deposits to offset rent or back rent. Regardless of the governor’s good intentions, the order unlawfully singles out residential landlords and cancels the major security measure they use to protect their property.

NCLA represents Mr. Johnson, the owner of a small rental property in Cherry Hill, New Jersey. Like many other New Jersey landlords, he has fallen victim to the governor’s unconstitutional order and risks losing the security deposit for which he rightfully contracted. Without a security deposit to insure against damage caused to the property during the tenancy, he will be forced to cover the cost of such damage out of his own pocket, or he could be forced to bring a costly and time-consuming small-claims action against his tenant. If Mr. Johnson should try to adhere to the terms of the voluntarily signed leasehold contract, under the new rules, he would be subject to criminal penalties.

None of the “certain emergency powers” invoked by Governor Murphy grants him the authority to alter the terms of residential leases. Even during the state of emergency, duly enacted laws and private contracts cannot be nullified by unilateral executive actions. Moreover, Executive Order No. 128, in a time of nationwide economic insecurity, undermines the very purpose of the recently enacted Civilian Defense and Disaster Control Act, which is to prevent damage and destruction of citizens’ property, including Mr. Johnson’s condominium.

In violation of the U.S. Constitution, New Jersey’s Constitution, and statutory laws, the order is clearly picking winners and losers in duly established contractual relations between tenants and landlords. NCLA is asking the court to declare the order void and to vindicate Mr. Johnson’s right to freedom of contract, due process, and equal protection of the laws.

NCLA released the following statements:

“Rightly or wrongly, federal courts often defer to state legislative actions that seem to interfere with freedom of contract. But here we have a governor invoking laws that do not apply to the situation to justify violating contracts that are completely lawful. There is no basis for any court to defer to this unconstitutional executive order.”

—Kara Rollins, Litigation Counsel, NCLA

“This is a straightforward case of administrative overreach. New Jersey law gives the Governor specific emergency powers that have to do with things like vaccines, hospitals, and the State militia. Residential lease contracts have nothing to do with the powers Governor Murphy invoked here.”

 Jared McClain, Staff Counsel, NCLA

“Private property rights are enshrined in the Federal and New Jersey Constitutions for a reason—because they are foundational to a free society. Governor Murphy does not have the power to nullify those rights, nor to rewrite contracts at his whim.”

—Harriet Hageman, Senior Litigation Counsel, NCLA

ABOUT NCLA

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

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OPINION