BLS Library Blog

The near unanimous 6-1 ruling by the NY Court of Appeals upholding the Atlantic Yards Brooklyn condemnation in Goldstein vs. New York State Urban Development Corporation comes on the same day that the prospective major tenant at the complex, the New Jersey Nets, extended its losing streak to 14 to begin the 2009 to 2010 season. The petition alleged two essential claims: that the proposed taking was not for a “public use” but for the benefit of a private party in violation of NY law and that the condemnation proceeding was illegal as the project it sought to advance was not limited in occupancy to persons of low income, despite begin financed with state loans or subsidies. The respondent sought dismissal of the petition on the grounds it was time barred. In May of 2009, the Second Department of the Appellate Division issued a ruling, reported at 64 AD3d at 168, in favor of respondent on the merits. 

Chief Judge Jonathan Lippman’s majority opinion upheld the condemnation on the grounds that the area containing the private parcels was “blighted” and subject to condemnation under the state Constitution, acknowledging that the need to redefine the definition of urban blight. Judges Susan P. Read and Eugene F. Pigott Jr. issued a concurring opinion upholding the dismissal of the petition on the grounds that it was filed too late.

Last year, this site had a post about the 2nd Circuit Court of Appeals affirming the dismissal of a complaint challenging eminent domain action on the grounds that it violated the Public Use Clause of the Fifth Amendment. This latest case may end legal challenges to the proposed development by opponents from the surrounding Brooklyn neighborhood although activists like Develop Don’t Destroy Brooklyn say otherwise. A Volokh Conspiracy post suggests that the Goldstein case may lead to more backlash against unfettered public takings with restrictive definitions of “public use” economic development takings of the kind upheld in Kelo v. City of New London, 545 U.S. 469 (2005).

A recent WSJ article reports that, four years after the Kelo case, Pfizer Inc., the private developer, announced that it has abandoned its plans for a hotel and offices and will close its research and development headquarters in New London, Connecticut. For further reading on the Kelo case, the Brooklyn Law School Library has Little Pink House: a True Story of Defiance and Courage by Jeff Benedict (Call #KF229.K45 B46 2009) telling the story of how Susette Kelo and fourteen neighbors fought the corporate giant and the city government to save their homes as the city decided to exercise its power of eminent domain to condemn them.

An interesting paper on the history and future of the mortgage interest deduction (MID) is now available on SSRN thanks to University of California Davis School of Law Professor Dennis J. Ventry, Jr. This past summer, Prof. Ventry spoke at Brooklyn Law School’s Fourth Annual Jr. Tax Scholars Workshop on The American Nightmare: Tax Subsidies for Home Ownership. His new article, The Accidental Deduction: A History and Critique of the Tax Subsidy for Mortgage Interest, tells the history of the MID from the first federal income tax law, the Revenue Act of 1913 (38 Stat. 114) which while not explicitly providing for an MID contained a general offset for “all interest paid within the year by a taxable person on indebtedness”. Prof. Ventry tells of several unsuccessful reform efforts that sought to eliminate the MID including the Tax Reform Act of 1969 (83 Stat. 487) and the Tax Reform Act of 1986 (100 Stat. 2085). The 1986 statute ended the deductibility of interest on credit card and other consumer loans but left the mortgage interest deduction in place.

The article also includes criticisms of the subsidy from two generations of tax reformers and tax policymakers that are more applicable today than at any time during the deduction’s nearly 100-year history including The Hidden Welfare State: Tax Expenditures And Social Policy in the United States by Christopher Howard (Call # HJ2381 .H684 1997) where the author identifies the MID, Social Security and Medicare as the three members of the “Holy Trinity of U.S. social programs”.

Prof. Ventry appeared on All Things Considered this past weekend to discuss the paper in a segment Is Tax Deduction For Home Mortgages A Bad Idea? A transcript of the interview is available at the site along with an audio file for the interview. Any effort to eliminate or even modify the deduction for mortgage interest is likely to generate strong opposition from real estate interests, like the National Association of Realtors and the National Association of Home Builders. History shows that with President Reagan and the Tax Reform Act of 1986 and with President Bush when his tax-reform advisory panel unsuccessfully urged restricting the MID. The issue will likely remain the “third rail” of tax reform as President Obama attempts to cap mortgage interest deductions on “higher income” households in his proposed budget. The Congressional Budget Office in its Overview of Federal Support for Housing estimates that the MID accounts for an estimated revenue loss of $80 billion in 2009. Members of Congress have already introduced bills and resolutions expressing opposition to efforts to modify the MID: Rep Leonard Lance (NJ-7) introduced H. Con. Res.130 expressing support for the current standards of the Federal mortgage interest tax deduction and Rep. Zach Wamp (TN-3) introduced H.R. 1805 to make the deduction for mortgage interest a permanent part of the tax code.

A NY Times article, Ohio Sues Rating Firms for Losses in Funds, reports that the Ohio attorney general has filed suit against the three major rating agencies, Moody’s Investors Service, Standard & Poor’s and Fitch, to recoup losses on its state retirement fund. The state’s complaint is that the agencies gave inflated ratings to mortgage-backed securities to boost profits and that their bad ratings cost the state $457 million when securities it purchased lost value. This type of litigation is now part of a growing trend of challenges to the actions of credit rating agencies which have successfully defended their actions on First Amendment grounds claiming their ratings of securities were constitutionally protected opinion.

That defense may no longer work especially when the complaint against the credit rating agency sounds in fraud or negligence. Consider the October 2009 ruling in Abu Dhabi Commercial Bank and King County, Washington v. Morgan Stanley by Judge Shira Scheindlin of the Southern District of New York. That decision forced the defendants, which included rating giants S&P and Moody’s to respond to fraud charges in a class-action by investors claiming the raters hid the risks of securities linked to subprime mortgages. Judge Scheindlin’s ruling, dismissing all but one of the eleven claims against Moody’s, stated that the First Amendment does not provide a defense where the rating agency comments were distributed privately to a select group of investors and not to the general public and “if the speaker does not genuinely and reasonably believe it or if it is without basis in fact.”

Brooklyn Law School Library’s catalog, SARA, , has reading on the topic. In addition to BLS Professor of Law David J. Reiss’ article Subprime Standardization: How Rating Agencies Allow Predatory Lending to Flourish in the Secondary Mortgage Market in 33 Fla. St. U. L. Rev. 985 (2006), there is Special Issue: Causes of the Financial Crisis (Call # HB3722 .S73 2009) with a series of articles on the financial crisis including one by Lawrence J. White titled Credit Rating Agencies and the Subprime Debacle. The abstract for that article reads:

By means of the high ratings that they awarded to subprime mortgagebacked bonds, the three major rating agencies—Moody’s, Standard & Poor’s, and Fitch—played a central role in the current financial crisis. Without these ratings, it is doubtful that subprime mortgages would have been issued in such huge amounts, since a major reason for the subprime lending boom was investor demand for high-rated bonds—much of it generated by regulations that made such bonds mandatory for large institutional investors. And it is even less likely that such bonds would have become concentrated on the balance sheets of the banks, for which they were rewarded by capital regulations that tilted toward high-rated securities. Why, then, were the agencies excessively optimistic in their ratings of subprime mortgage-backed securities? A combination of their fee structure, the complexity of the bonds that they were rating, insufficient historical data, some carelessness, and market pressures proved to be a potent brew. This combination was enabled, however, by seven decades of financial regulation that, beginning in the 1930s, had conferred the force of law upon these agencies’ judgments about the creditworthiness of bonds and that, since 1975, had protected the three agencies from competition.

On Friday, November 13th, Brooklyn Law School Library learned from several users that the proxy server which provides you with access to many of our subscription services (such as Hein, BNA, JSTOR) was not working properly with the new BLS web site.

A website response team quickly moved into action.

Phil Allred, BLS’ Chief Information Officer, has created a work around until the web site developers can address this issue.

Maria Okonska, BLS Library’s Manager of Bibliographic Operations, developed easy-to-follow instructions to assist you in enabling the proxy server.

Thanks Phil and Maria!

To enable the proxy server, you need to make some adjustments to your web browser. BLS Library has posted detailed instruction for accessing the proxy server and they are located on our web site here.

BLS Library apologizes for your inconvenience.

BLS Library reminds its users to let us know about any problems you may be having  access our resources.  Contact us at refdesk@brooklaw.edu

An article in the LA Times reports that Judge Stephen Reinhardt of the Ninth Circuit US Court of Appeals issued an Order in the Matter of Brad Levenson that seems to declare unconstitutional that part of the 1996 Defense of Marriage Act (DOMA) that declares that a same-sex marriage cannot be a marriage under federal law or for purposes of granting federal benefits. The plaintiff in the case is a deputy federal public defender who has had a same-sex partner for 15 years. After legally marrying in California in 2008 prior to passage of Proposition 8, the plaintiff tried to add his spouse to his health insurance, but was turned down by his employer, the Office of the Federal Public Defender, citing DOMA. The plaintiff then took the matter up for resolution by a circuit judge.

In an earlier ruling, Judge Reinhardt concluded that the plaintiff and his spouse were entitled to their benefits, but the federal government still refused. Judge Reinhardt’s recent Order awards the plaintiff money to compensate him for the cost of the additional insurance. The Order, in dicta, states that marriage, traditionally regulated by state law, is a fundamental right and for the case at hand, the judge “need determine only whether same-sex spouses who have been legally married under the laws of the relevant state may, because of the sex or sexual orientation of the couple, be denied federal benefits that are afforded to other spouses legally married under such laws.” The conclusion on page 16 of the order speaks in broad terms:

 

In sum, to the extent that the application of DOMA serves to preclude the provision of health insurance coverage to a same-sex spouse of a legally married federal employee because of the employee’s and his or her spouse’s sex or sexual orientation, DOMA, as applied, contravenes the Fifth Amendment to the United States Constitution and is therefore unconstitutional.

In addition, the Ninth Circuits Chief Judge Alex Kozinski entered a similar Order in the Matter of Karen Golinski on behalf of another federal employee who had legally married her same-sex partner but denied benefits given to opposite-sex married couples. He also ordered published his previous Order, from January 2009, which initially ordered that her spouse be granted federal benefits.

In New York, the Court of Appeals on Thursday dismissed a complaint in Godfrey v. Spano by taxpayer plaintiffs challenging directives by county officials that recognized out-of-state same-sex marriages for purposes of public employee health insurance coverage stating on page 4 of the opinion “Although the federal Defense of Marriage Act (DOMA) authorizes the states to pass so-called “mini-DOMAs” . . . New York has not, and the Legislature has enacted no other law expressly forbidding the recognition of same-sex marriages performed in other jurisdictions or expressing any legislative intent that such marriages be voided.”

The Brooklyn Law School Library has a number of related items in its collection. See What’s the Harm?: Does Legalizing Same-Sex Marriage Really Harm Individuals, Families, or Society? edited by Lynn D. Wardle (Call # KF539 .W53 2008).

 

 

 

Listen to this episode on BrooklynWorks.