Opinion
HP 12367/2017
12-21-2020
In the Matter of the Application of Jorge ARAUJO, Alexis Bonilla, Irene Cedeno, Moises Hernandez, Marvin James And Maria Rodriguez, Petitioners, for a Judgment pursuant to Article 7A of the Real Property Actions and Proceedings Law appointing a court designated Administrator for the premises known as 524 West 134 Street, New York, New York 10031 v. CUNDEL REALTY CO. INC., Eugene Cundelan and New York City Department of Housing Preservation and Development., Respondents.
Romer Debbas, LLP, Steven Kirkpatrick, Esq., 275 Madison Avenue, Suite 801, New York, NY 10016, (212) 888-3100, Counsel for current owner Department of Housing Preservation & Development, Housing Litigation Unit, Lynette Parker, Esq., 100 Gold Street, sixth floor, New York, NY 10038, (212) 863-8263, Counsel for HPD Burton & Burton, P.C., David Burton, Esq., 300 Merrick Road, Suite 205 Lynbrook, NY 11563, (516) 536-2342, Counsel for 7A Administrator Manhattan Legal Services, Jerome Frierson, Esq., 1 West 125th Street, 2nd floor, New York, NY 10027, (212) 348-7449, Counsel for Petitioners
Romer Debbas, LLP, Steven Kirkpatrick, Esq., 275 Madison Avenue, Suite 801, New York, NY 10016, (212) 888-3100, Counsel for current owner
Department of Housing Preservation & Development, Housing Litigation Unit, Lynette Parker, Esq., 100 Gold Street, sixth floor, New York, NY 10038, (212) 863-8263, Counsel for HPD
Burton & Burton, P.C., David Burton, Esq., 300 Merrick Road, Suite 205 Lynbrook, NY 11563, (516) 536-2342, Counsel for 7A Administrator
Manhattan Legal Services, Jerome Frierson, Esq., 1 West 125th Street, 2nd floor, New York, NY 10027, (212) 348-7449, Counsel for Petitioners
Frances A. Ortiz, J.
Review of 524 West 134th LLC's (current owner's) motion to be joined as a co-respondent and to discharge the Article 7A Administrator.
The Decision/Order of this Court on this Order to Show Cause is as follows:
This is an Article 7A proceeding with a petition dated March 16, 2017 brought by five petitioners/tenants. The subject building is located at 524 West 134 Street, New York, NY 10031.
Under RPAPL § 770 (1),
One-third or more of the tenants occupying a dwelling located in the city of New York or the commissioner of the department of the city of New York charged with enforcement of the housing maintenance code of such city .may maintain a special proceeding as provided in this article, upon the ground that there exists in such dwellings or in any part thereof a lack of heat or of running water or of light or of electricity or of adequate sewage disposal facilities, or any other condition dangerous to life, health or safety, which has existed for five days, or an infestation by rodents, or any combination of such conditions; or course of conduct by the
owner or the owner's agents of harassment, illegal eviction, continued deprivation of services or other acts dangerous to life, health or safety
Specifically, paragraph seven (7) of the petition described conditions dangerous to life, health and safety including repeated lack of heat and hot water, missing and/or broken fire alarms, an infestation of mice and roaches, eroded brick on the exterior of the building, missing fire alarms and much more. When the proceeding was commenced, there were two hundred (200) Department of Housing Preservation and Development ("HPD") code violations. The petition claimed that the owner Cundel Realty and head officer, Eugene Cundelan abandoned the property and left the premises without a "functioning landlord." As such, the petitioners asked the court to appoint an administrator under Article 7A of the RPAPL to effectively manage the subject premises.
The role of a 7A Administrator may include the following duties: to receive and administer the rent monies and security deposits, order necessary materials, labor and services, remedy open HPD code violations as required by law, rent or lease empty units in the building, hire a superintendent and borrow funds from HPD for repairs. RPAPL § 778 . However, the first duty of a 7A Administrator is to remove housing code violations on the building. § 19:47, Article 7A administrator—Powers and duties of administrator, Residential Landlord Tenant L. in NY § 19:47.
Judge Peter Wendt on December 5, 2017 issued an "Order Appointing a 7A Administrator" for the subject building. The Order appointed Allan Heussinger of West Realty Group as the 7A Administrator to manage and make repairs to the building, and the Order also contained other decrees. More than two years later, Cundel Realty sold the subject building to the movant, 524 West 134th LLC, ("current owner") pursuant to a Bargain and Sale Deed dated January 2, 2020.
THE MOTION
Now, the current owner moves by Order to Show Cause seeking multiple relief. First, the current owner moves to join the proceeding as a co-respondent. Second, the current owner asks the court to discharge the Article 7A Administrator of his duties. Third, the owner asks that the Administrator file with the court and serve upon counsel for all parties a full accounting of all receipts and expenses, during the 7A's appointment, pursuant to RPAPL § 779 and paragraph 10 (h) of the 7A Order. Fourth, the movant seeks to have the 7A Administrator disburse all remaining funds in its bank account to the owner.
THE OPPOSITION
The 7A Administrator opposes the motion indicating that he has dutifully performed his obligations under the Order. For example, he states that there have been significant repairs to the subject building since he was appointed, including the installation of doors and windows throughout the building, façade repairs, roof repairs, and repairs to the heating plant. (Heussinger Aff'd ¶7). Mr. Heussinger explains that there are currently fourteen (14) vacant units in the building and admits that many of the HPD violations are in those units. The Administrator further argues that the current owner's application to remove him is premature because he can only be discharged after all conditions giving rise to his appointment are corrected. Additionally, the Administrator argues that the movant/current owner has not submitted a plan for the continued maintenance and operation of the building, as is required before the building can be entrusted to the owner.
Mr. Heussinger offers no reason why those violations have not been corrected, after three years from the December 2017 Order.
HPD, also opposes the motion. HPD argues that the current owner has not met the necessary requirements to discharge the 7A Administrator for several reasons. First, per Swallow v. Schnipper, NYLJ, Sept. 21, 1984, at 14, col. 4 (AT 2nd & 11th Dep't 1984) the party moving for the removal of a 7-A Administrator must show (1) that all necessary repairs have been made or essential services provided and (2) that there is an ongoing plan for the maintenance of the building. According to HPD, no such showing can be made, since there currently are two hundred and six (206) open HPD violations for the subject building. These open violations include paint and plaster, defective wood floors, electrical work and vermin extermination. (Parker Affirm. ¶ 5). Second, HPD argues that the current owner has not set forth a plan for the continued maintenance of the building (i.e. financial plans, payment of real estate taxes, water charges, fuel cost or unforeseen expenses that may arise). HPD also argues that the current owner must complete and submit a sponsor review to HPD to determine, if the owner has the financial means to maintain and operate the building. According to HPD, the current owner's failure to submit the sponsor review compliance packet raises questions as to whether it can financially maintain the building going forward.
Additionally, HPD indicates that $536,000 is owed in city real estate taxes for the building. Under RPAPL § 778 (11),
The court may only discharge an administrator if the owner has paid in full or entered into a payment agreement to pay in full all outstanding real property tax liens claimed by the city of New York, all outstanding emergency repair liens filed ..
As such, HPD argues that the discharge of the Administrator can not occur until the taxes are paid.
Lastly, HPD opposes the request that the monies in the Administrator's possession be turned over to the current owner. According to HPD, paragraph 7 of the 7-A Order sets forth a priority list detailing the order of preference for the disbursements of the funds collected by the 7-A Administrator. These funds must first be used to pay for all work specified in the petition and payment for the services of the Administrator. The second disbursement priority is payment of outstanding property tax liens. Here, there is $536,000 in outstanding real estate taxes for the subject building that needs to be paid.
However, HPD does not oppose the current owner's request for accounting of receipts and expenditures of the 7A Administrator. Paragraph 10 of the Order requires the Administrator to keep written accounts itemizing the receipts and expenditures of the building and to keep it open at any reasonable time for inspection by the owner as also enumerated in RPAPL § 779 . HPD asks that the current owner only be provided with accounting records from the time of its purchased and thereafter.
Counsel for the petitioners did not submit written or oral opposition to the motion.
THE REPLY
Mr. Obstfeldt, the managing agent of the current owner, argues in reply that the subject building is in worse condition now than when the 7-A Administrator was appointed. (Obstfeld Aff'd ¶ 2). For instance, he submits that now there are more HPD violations in the subject building. Mr. Obstfeld argues that he has provided a strong plan to make repairs to the subject building and has established a verifiable record with HPD regarding two other neighboring buildings it owns. This indicates that he would be better suited than the 7A Administrator to correct the violations in the building. (Id ¶3). Mr. Obstfeldt attaches a copy of the owner's insurance policy showing that the owner added the 7A Administrator as an additional insured on its insurance policy as an act of good faith. (Id ¶5). (Exhibit D to the Reply -copy of Certificate of Liability expires January 3, 2021).
Regarding the current owner's ability to pay real estate taxes, water charges, fuel cost or unforeseen expenses, Mr. Obstfeld attaches a copy of the current owner's primary operating bank account showing a balance of $663,679.60. (Exhibit E to the Reply). He estimates that the subject building's HPD violations can be corrected at a cost of less than $100,000. (Id ¶7). Based on the bank account balance and estimated costs of repairs, Mr. Obstfeld states that the current owner has established its ability to financially maintain the building. Lastly, Mr. Obstfeld indicates that his attorney submitted to HPD a completed sponsor review or compliance package, even though he believes that the owner is not legally obligated to complete such a package. (Id ¶9). According to Mr. Obstfeldt, those types of packages are contemplated for companies or individuals developing buildings in partnership with the City and therefore are not applicable to applications to relieve 7-A Administrators. The current owner argues in reply that the appointment of a 7A Administrator is not intended to be punitive to an owner. Instead, a 7A Administrator is appointed to allow for tenants to use their rent money for the expeditious repair of emergency conditions in the building. Matter of Brodie v. Alam, 62 Misc. 3d 1214(A), 2018 WL 7142208 (Civ. Ct. Kings Cty. 2018). As such, counsel argues that HPD and the 7A Administrator's opposition to the motion equates to punitive behavior because paragraph thirteen (13) of the Order prohibits the owner from interfering with the Administrator's management, operation and control of the premises. At minimum, the current owner asks this Court to modify the Order to allow it to begin making repairs. DISCUSSION
When this Court at oral argument specifically asked counsel for HPD to cite statutory or common law precedent requiring an owner to complete and participate in a sponsor review compliance packet, counsel could not provide such authority except that it is an inter-agency practice.
Under NY City Civ. Ct. Act § 110 (d), the court, on its own motion, may join any person as a party in order to effectuate proper housing maintenance standards and to promote the public interest in actions or proceedings involving the enforcement of state and local laws for the establishment and maintenance of housing standards. Here, 524 West 134th LLC is the current deed owner of the subject building. (Exhibit B, Bargain and Sale Deed). As such, it is a necessary party to this proceeding for enforcement of maintenance of housing standards, and this Court under NY City Civ. Ct. Act § 110 (d), joins 524 West 134th LLC as a co-respondent to this proceeding. The non- party motion to join the current owner as a co-respondent is granted on this court's own motion, under Civil Court Act § 110 (d). Accordingly, 524 West 134th LLC is added as co-respondent.
Technically, the current owner should have moved to intervene, since it is not a party. However, this Court sua sponte joins the current owner under NY City Civ. Ct. Act § 110 (d).
Moreover, the current owner moves to discharge the Article 7A Administrator. The RPAPL is explicit and detailed about the appointment and duties of a 7A Administrator. It is less detailed about the criteria for the removal of an Administrator. Given the lack of statutory guidance, appellate and lower courts have developed a legal framework for deciding whether it is proper to relieve a 7-A Administrator. This common law precedent details a two-step showing that must be made before the 7A Administrator can be relieved. The movant must first show that all necessary building repairs have been made or essential services provided. Once that benchmark is established, the movant must then show that there is an ongoing plan for the maintenance of the building. If either of these two showings are not made, then "..a court would be remiss in granting a motion seeking the discharge of the Administrator ." (Swallow v. Schnipper, supra.) because it would risk placing the building in a state of abandonment to the detriment of the tenants. Mercer v. 944 Marcy Ave. Holding Corp. et. al., 92 Misc. 2d 564, 400 N.Y.S.2d 991 (Civ. Ct. Kings Cty. 1977).
Here, the current owner has not been able to show that the necessary building repairs have been made or essential services provided. There are over two hundred (200) open HPD violations that have not been corrected which is the primary duty of a 7A Administrator. Similarly, the owner has not shown nor presented an ongoing plan for the maintenance of the subject building.
Department of Housing Preservation and Development v. 333 West 16 Street Associates, NYLJ, June 7, 1989 at 21, col 1 (A.T. 1st Dep't 1989). Nathan Obstfeld merely states," owner has provided a strong plan to make repairs and improvements to the Premises .and has established a verifiable track record in making repairs and improvements in the two other buildings that it purchased from the same seller." (Obstfeld Aff'd ¶ 3). The owner must be able to show more than good intentions to remedy the violations before an Administrator is relieved. Nicholas Avenue Tenants Association v. Dixon, NYLJ, May 20, 1985 at 13 col. 5 (A.T. 1st Dep't 1985) . The fact that Mr. Obstfeld attaches a copy of a primary operating bank account showing a balance of $663,679.60 is not enough to support a strong ongoing plan for the maintenance of the building. (Exhibit E to the Reply).
Additionally, this Court is mindful that there is $536,000 in outstanding real estate taxes for the subject building that needs to be paid. This tax payment is required by RPAPL § 778 (11), otherwise, the administrator can not be discharged. The $536,000 tax payment would leave a balance of $127,679.60 to correct the open two hundred (200) code violations and to maintain the subject building. Mr. Obstfeld did not submit any contractor estimates to confirm that the $127,679.60 balance would be enough to correct the violations nor has he been qualified as an construction expert to provide such estimates. He merely states that based on his experience in clearing similar violations, he believes the cost would be less than $100,000. (Obstfeld Aff'd ¶ 7). In sum, this Court is not satisfied that the current owner in this motion has submitted an operating plan and financial information that sufficiently shows it can pay outstanding taxes, clear violations of record and manage the property. Snow v. 131 West 122 Street Corp., No. 99527/95, 2001 WL 36404983, at *2 (N.Y. City Civ. Ct. Sept. 17, 2001). Therefore, this Court would be remiss and place the building in a state of abandonment to the detriment of the tenants, if at this juncture, it would grant the owner the motion to discharge the 7A Administrator. Mercer v. 944 Marcy Ave. Holding Corp. et. al., supra .
Accordingly, the motion to discharge the 7A Administrator is denied without prejudice to resubmit upon a showing that the 7A Administrator has corrected all open violations and current owner has specific ongoing plan for the maintenance of the building. However, if the owner can show that the 7-A Administrator has taken an unreasonable amount of time to perform his first duty as building Administrator to remove all housing code violations, then owner may resubmit a motion to discharge the 7A Administrator detailing why such a delay is unreasonable and submit a detailed showing of their contractor plans, estimates for the cost of repairs, financials, proof of payment of outstanding real estate taxes on the subject building and ongoing plan for the maintenance of the building.
OTHER RELIEF
The owner moves to have the Administrator file with the court and serve upon counsel for all parties a full accounting of all receipts and expenses, during the 7A's appointment, pursuant to RPAPL § 779 and paragraph 10 (h) of the "Order Appointing a 7A Administrator" dated December 5, 2017. This relief is denied for the reasons discussed below. Paragraph 10 (h) of the Order is not applicable to these current factual circumstances because it relates to the Administrator submitting to HPD and the court a full accounting of all receipts and expenditures, upon completion of the work prescribed in the petition. Here, the work in the petition has not yet been completed, and those types of receipts are for submission only to HPD and the court. As such, the owner can not seek such relief, under paragraph 10 (h) of the 7A Order.
The Court notes that the owner should not confuse paragraph 10 (h) with paragraph 10 (g) of the Order which requires the Administrator to submit only to HPD and the court monthly financial statements of all receipts and expenditures made concerning the Administrator's management and operation of the subject building. HPD and the court must receive these financial reports by the last business day of the month.
However, paragraph 10 (a) of the 7A Order indicates that the Administrator shall keep written accounts itemizing the receipts and expenditures made in conformity with the Judgment pursuant to RPAPL § 779. The accounting records shall be open at any reasonable time for inspection by the owner. The relief requested is clearly authorized under RPAPL § 779 and Paragraph 10 (a) of the 7A Order. Accordingly, the 7A Administrator within thirty days of the date of this decision/order, through its counsel shall schedule with the owner's counsel a reasonable time to have the owner inspect all written accounting records itemizing the receipts and expenditures so far made in conformity with the Judgment.
Lastly, the movant seeks that the 7A Administrator disburse all remaining funds in its bank account to the owner. This request is denied. Paragraph 7 (a-d) of the 7-A Order sets forth a priority list detailing the order of preference for the disbursements of the funds collected by the 7-A Administrator. These funds must first be used to pay for all work specified in the petition and payment for the services of the Administrator. Until all work specified in the petition is completed, and payment of such work is made, no other disbursements shall be permitted. The second payment will consist of outstanding real property tax liens. The third payment will be for repayment of outstanding emergency expenses and liens. Then, the fourth payment will be to the owner of any surplus remaining, after disbursement is made of the first three payments discussed above. Here, the movant has not made a showing that the first three priority payments have been fully disbursed, thereby entitling it to a remaining surplus. As such, the movant's request to have the 7A Administrator disburse all remaining funds in its bank account to the owner is denied.
Any other relief sought to have the owner access the subject building for inspection and repairs, prohibit the Administrator from entering into any agreements with contractors for repairs, and staying the Administrator from entering into leases for vacant units in the building is denied. Paragraph 13 of the 7-A Order clearly states that the owner is enjoined and restrained from entering the subject premises without the prior knowledge of the Administrator and interfering with the Administrator's management, operation and control of the premises.
This matter is adjourned to February 4, 2021 at 2:30 p.m. via Microsoft Teams for follow up conference.
ORDERED: The clerk is to add "524 West 134th LLC" to the caption as a co-respondent
And Further
ORDERED: Co- Respondent, 524 West 134th LLC's motion to discharge Article 7A Administrator is denied without prejudice to re-submit upon a showing of conditions discussed above.
And Further
ORDERED: Co-Respondent, 524 West 134th LLC's motion to have Administrator file with the court and serve upon counsel for all parties a full accounting of all receipts and expenses during the 7A's administration is denied but granted in part as modified in the decision.
And Further ORDERED: Co-Respondent, 524 West 134th LLC's motion to have the 7A Administrator disburse all remaining funds in its bank account to the owner is denied.
This is the decision and order of this court.