Opinion
155154/15
11-29-2017
Allyson Cooper and Leslie Holland, Plaintiffs, v. 85th Estates Company and Charles H. Greenthal Management Corp., Defendants.
Attorney for Plaintiffs: Himmelstein, McConnell, Gribben, Donoghue & Joseph LLP 15 Maiden Ln., Fl. 17 New York, NY 10038 By: Ronald S. Languedoc Attorney for Defendants: Seyfarth Shaw LLP 620 8th Ave New York, NY 10018 By: Jerry A. Montag
Attorney for Plaintiffs: Himmelstein, McConnell, Gribben, Donoghue & Joseph LLP 15 Maiden Ln., Fl. 17 New York, NY 10038 By: Ronald S. Languedoc Attorney for Defendants: Seyfarth Shaw LLP 620 8th Ave New York, NY 10018 By: Jerry A. Montag Robert R. Reed, J.
In this civil action relating to the residential apartments of plaintiffs Allyson Cooper (Cooper) and Leslie Holland (Holland), plaintiffs seek an order: a) pursuant to CPLR 3211 (b) and 3212 (a), dismissing the affirmative defenses and counterclaims of defendants 85th Estates Company (Landlord) and Charles H. Greenthal Management Corp. (Greenthal); b) pursuant to CPLR 3212 (a), granting plaintiffs summary judgment on all of their causes of action; c) pursuant to CPLR 2307 and 3120 (4), issuing a subpoena upon the New York State Division of Housing and Community Renewal (DHCR); and d) pursuant to CPLR 3124 and 3126, directing defendants to submit adequate responses to plaintiffs' interrogatories and plaintiffs' notice for discovery and inspection.
Plaintiffs Cooper and Holland are tenants in a building owned by Landlord located at 185 East 85th Street, New York, NY (the Building). Cooper, who resides in Apartment 18E, entered into possession of her apartment on or about August 15, 2008, pursuant to a non-rent-stabilized lease. Holland, who resides in Apartment 18F, entered into possession of her apartment on or about May 13, 1999, pursuant to a non-rent-stabilized lease.
The Landlord received tax benefits for the Building, pursuant to New York City Administrative Code § 11-243, also known as J-51 Benefits, beginning on or about July 1, 1998 through at least June 30, 2010.
Apartment 18E (Cooper)
Cooper's initial lease covered the period from August 15, 2008 to August 31, 2009 at a monthly rent of $3,800. The lease contained a rider stating "THIS APARTMENT IS NOT RENT STABILIZED AND IS NOT SUBJECT TO ANY RENT GUIDELINES." Amended affirmation of Ronald S. Languedoc, dated December 9, 2016, exhibit H at 224, ¶ 40. The rider did not contain any information about the rent history of the apartment or how the rent was calculated.After her initial lease, Cooper paid the following rent pursuant to subsequent leases:
$3,600 per month from September 1, 2009 to August 31, 2010;
$3,555 per month from September 1, 2010 to August 31, 2012;
$3,650 per month from September 1, 2012 to August 31, 2013;
$3,750 per month from September 1, 2013 to July 31, 2014.
By letter of April 29, 2014, Cooper was notified that the Landlord had elected not to renew her lease and asked her to vacate her apartment on August 31, 2014. After receiving the Landlord's letter, Cooper retained counsel, Ronald S. Languedoc (Languedoc), who wrote to counsel for the Landlord on July 1, 2014, noting that the Building was receiving J-51 Benefits, that the rent registration information filed with DHCR indicated that the last legal regulated rent in 2008 was $1327.78, with a rent of $1,323.43 paid, due to a rent reduction order; demanding that Cooper be recognized as a rent-stabilized tenant; and stating that Cooper is entitled to specified rent overcharges, with interest and treble damages.
On July 29, 2014, Greenthal wrote directly to Cooper indicating that they had reviewed her attorney's letter and the rental history of her apartment, and concluded that her apartment was subject to rent stabilization. Greenthal's letter attached a chart, which purported to calculate her proper rent based upon the following calculations: Prior legal regulated rent$1,327.78 Longevity allowance (31 years) @ 18.6%$246.97 Vacancy Allowance @16%$212.44 Individual Apartment Improvements (IAIs)$1,022.72 First collectible rent for Cooper$2,809.91The letter enclosed a proposed rent-stabilized renewal lease offering a one-year lease at $3,289.94 per month, or a two-year lease at $3,380.41 per month. A check, in the amount of $24,176.28 was also enclosed, representing the amount of overcharge plus interest, based on the above calculations, less the unpaid balance on Cooper's July 2014 rent.
The $1,022.72 amount was based upon the purported expenditure of $40,908.68 for IAIs.
On August 1, 2014, Cooper's attorney returned the check to defendants, indicating that Cooper rejected the amount offered for rent overcharges, and requested copies of records relating to the alleged IAIs, including, but not limited to, signed contracts, invoices marked paid, canceled checks and contractors' affidavits.
On August 6, 2014, counsel for Cooper and the Landlord signed a standstill agreement to enable them to attempt to settle the matter.
On August 21, 2014, the Landlord provided Cooper with an invoice from Nikmar Painting & Renovation, Inc. (Nikmar), dated July 7, 2008, listing work purportedly carried out in Cooper's apartment in 2008, as well as a cancelled check for $40,908.84 issued to Nikmar on December 9, 2008.
At some point, defendants filed Annual Apartment Registration forms for the apartment with DHCR, listing Apartment 18E as a rent-stabilized apartment with the following rent-regulated rents for the years from 2009 through 2014:
| Year | Rent per month |
| 2009 | $2,824.77 |
| 2010 | $2,951.88 |
| 2011 | $3,040.44 |
| 2012 | $3,108.85 |
| 2013 | $3,225.43 |
| 2014 | $3,289.94 |
On August 29, 2014, reserving her rights, Cooper signed a two-year rent-stabilized lease at the rent of $3,322.83 per month for year one, and $3,380.41 per month for year two, terminating on August 31, 2016.
On February 5, 2015, Languedoc wrote to counsel for the Landlord regarding the alleged IAIs, indicating that, in the opinion of an independent contractor hired by Cooper, the cost of work related to improvements actually observed, plus the industry standard for the contractor's general conditions, as well as overhead and profits, was, at most, $23,500.00, rather than the $40,908.00 claimed by the Landlord. In his letter, Languedoc provided details regarding the alleged discrepancies between the work purportedly done by Nikmar in 2008 and the assessment of that work by Cooper's expert. Languedoc amended affirmation, exhibit S.
According to Languedoc, based on the analysis of Cooper's consultant, the IAI allowance would have been only $587.50, not $1,022.71, as claimed by the Landlord, and Cooper's rent should have been only $2,389.56, not the $2,824.77 revised rent claimed by the Landlord. Id.
In response, on April 30, 2015, Barry H. Mandel (Mandel), counsel for defendants, wrote to Languedoc enclosing the letters of two contractors hired by defendants to inspect the work allegedly performed by Nikmar in 2008, and to review Nikmar's invoices. Those letters disputed the conclusions of Languedoc's contractor, and generally concluded that the work listed on the Nikmar invoice was done and the amounts charged were fair. Aff of William West (West aff), exhibit F, letters of Michael J. Fahey, AIA, of Fahey Design Build and A.j.'s Custom Home Improvement.
Cooper and the Landlord were not able to reach a settlement, and this litigation was filed on May 21, 2015.
Apartment 18F (Holland)
Holland entered into possession of Apartment 18F, in or about May 1999, pursuant to a non-rent-stabilized lease for a term from May 13, 1999 to May 31, 2000, at a rent of $2800. The lease contained a rider which stated, among other things, "THIS APARTMENT IS NOT RENT STABILIZED AND IS NOT SUBJECT TO ANY RENT GUIDELINES." Languedoc amended affirmation, exhibit V at 97, ¶ 40. The rider did not contain any information about the rent history of the apartment or how the rent was calculated.
After her initial lease, Holland paid the following amounts of rent pursuant to subsequent leases:
$2,950.00 per month from June 1, 2000-May 31, 2001;
$3,100.00 per month from June 1, 2001-May 31, 2002;
$3,100.00 per month from June 1, 2002-May 31, 2003;
$2,950.00 per month from June 1, 2003-May 31, 2004;
$2,850.00 per month from June 1, 2004-May 31, 2005;
$2,915.00 per month from June 1, 2005-May 31, 2006;
$2,915.00 per month from June 1, 2006-May 31, 2007;
$3,100.00 per month from June 1, 2007-May 31, 2008;
$3,300.00 per month from June 1, 2008-May 31, 2009;
$3,125.00 per month from June 1, 2009-May 31, 2010;
On March 23, 2010, after receiving her renewal lease, Holland sent an email to Greenthal, expressing her appreciation for the decrease in rent, asking whether Management would consider a more substantial decrease in light of the current economic climate, and specifically asking "what Management's plans are, if any, with respect to market rent apartments taken out of rent stabilization under J51, in light of the Roberts v Tishman Speyer decision." Languedoc amended affirmation, exhibit X, email from Leslie Holland to dpenson@greenthal.com; Holland aff, ¶ 5. Holland never received a response to her inquiry.
$3,125.00 per month from June 1, 2010-May 31, 2011;
$3,125.00 per month from June 1, 2011-May 31, 2012;
$3,300.00 per month from June 1, 2012-May 31, 2013;
$3,500.00 per month from June 1, 2013-May 31, 2014;
$3,600.00 per month from June 1, 2014-May 31, 2015.
In 2015, Holland received a new lease for a one-year term, at a rent of $3,900.00 per month.
At some point, Holland consulted Languedoc, who, on April 2, 2015, wrote to counsel for the Landlord, stating that Holland had been receiving market leases from the beginning of her tenancy despite the fact that the building had been receiving J-51 tax abatements from the time that Holland entered into occupancy, and that, therefore, she is a rent-stabilized tenant. Languedoc further stated that Holland had been, and continued to be, overcharged for her rent, and that, there were numerous irregularities in the rent history for the apartment. Languedoc noted that, when the apartment was registered with DHCR in 1998, the regulated rent was $908.56 per month, and that, when it was registered in 1999, the apartment was registered as permanently exempt by reason of high rent vacancy deregulation. The letter stated that Holland's 1999 lease did not contain information about the rent history or explain how her 1999 rent was calculated, as required by the Rent Stabilization Code § 26-504.2 (b).
The court notes that, according to the DHCR Registration Apartment Information for Apartment 18F, the $908.56 legal regulated rent was for the period of June 01, 1996 to May 31, 1998, and that the Landlord registered the apartment as permanently exempt, as of July 3, 1998, as a high rent vacancy. The reason for the change in rent was listed as MCI. Languedoc amended affirmation, exhibit U.
Languedoc asserted, based on the last legal regulated rent, that for the period from April 1, 2011 to April 2, 2015, during her tenancy, Holland had been overcharged in the amount of $120,430.56, plus interest and treble damages, for a total amount of $263,063.30.
On April 29, 2015, counsel for the Landlord, Mandel, replied, indicating that though they had not located all of the documents relating to Apartment 18F, they had found documents, which they attached, including the 1998 registration rent roll report effective April 1, 1998; copies of the Landlord's history of the collection status for February 1998 through March 1999; an analysis of the calculation of legal collectible rents through April 2015, assuming one-year renewals; and an analysis assuming two-year renewals. That information indicated that, following the 1997 registration year at the rent of $908.56 per month, and prior to Holland's tenancy, which began in May 1999, the apartment was rented for a period from March 1998 to February 1999 at a rent of $2,700 per month, to a tenant named Joanne Blessinger (Blessinger). Based on that information, the Landlord's counsel concluded that, in May 1999, when Holland's tenancy begin, her monthly rent of $2800 was approximately $386.00 per month below the legal collectible rent. Languedoc amended affirmation, exhibit AA, letter of Barry H. Mandel and attachments.
Following the filing of this lawsuit, on December 24, 2015, Mandel wrote to Languedoc indicating that Greenthal had reviewed the calculations for the legal collectible rent, and, based on the revised calculations, determined that Holland was entitled to a refund of $7,291.96 plus interest of $1,114.58, and enclosed a check for that amount, as well as a proposed rent-stabilized lease at a monthly rent of $3,437.40, effective January 1, 2016. The letter included calculations of permissible increases based upon rent guidelines, which included:
| Last stabilized rent (A Schlesinger) | $908.56 |
| Longevity allowance-30 years@0.6% -18% | $163.54 |
| Improvement Allowance ($22,895) | $572.38 |
| Vacancy Allowance 18% | $163.38 |
| J Blessenger (collectible rent)(2/20/1998 - 4/30/1999) | $1,808.02 |
| Vacancy allowance (18%) | $325.44 |
| Holland first collectible rent | $2,133.46 |
On January 14, 2016, Languedoc responded, rejecting and returning the Landlord's refund check of $8,406.54, and noting an error in the Landlord's rent calculations with respect to the longevity increase of 18% (30 x 0.6%), raising the rent by $163.54 per month, claimed by the Landlord. Languedoc pointed out that the DHCR registration apartment information sheet indicated that the tenant preceding Blessenger, A. Schlesinger, had moved into the apartment in 1988 — that is, nine, rather than 30, years before Blessinger — thereby decreasing the longevity increase to only 5.4%, or $49.06 per month, rather than the $163.54 per month claimed by the Landlord. Languedoc requested that the Landlord revise the calculations based upon that information. Languedoc amended affirmation, exhibit DD.
Based upon a recalculation with the corrected and decreased longevity increase, the Landlord again recalculated Holland's first collectible rent as $1,998.37, which, of course, would have entitled Holland to a rent-stabilized lease, regardless of the J-51 tax abatement; sent Holland a new refund check in the amount of $11,959.03; and recalculated Holland's rent under a new rent-stabilized lease. Languedoc amended affirmation, exhibit EE. According to defendants, however, in recalculating Holland's rent, they found reference in Greenthal's records to expenditures for major capital improvements (MCIs), which would have brought Holland's rent above the $2000 threshold for luxury deregulation. The basis for those MCI increases were not, however, specified. See West aff, ¶ 17.
The court notes, however, that the back-up information provided by Mandel indicates that Holland's overpayment for 48 months was $17,427.11. Languedoc amended affirmation, exhibit EE.
On February 19, 2016, while reserving her rights, Holland signed the rent-stabilized lease at a rate of $3,437.50 per month for a one-year renewal or $3506.15 for a two-year renewal. Languedoc amended affirmation, exhibit FF. Again Holland rejected the proferred refund check. See aff of Leslie Holland, ¶ 12.
PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT
In addition to moving for summary judgment on all of their causes of action, plaintiffs move to dismiss defendants' affirmative defenses and counterclaims. Because the determination of that branch of plaintiffs' motion will depend on the court's analysis of plaintiffs' causes of action, plaintiffs' motion for summary judgment on their own causes of action will be considered first.
The complaint alleges four causes of action: 1) declaratory judgment that plaintiffs' apartments and tenancies are covered by the Rent Stabilization Law; 2) money judgment for rent overcharges plus treble damages, interest, costs and attorneys' fees; 3) money judgment for deceptive acts and/or conduct in violation of General Business Law § 349; and 4) money judgment for costs, expenses and reasonable attorneys' fees.
DECLARATORY JUDGMENT REGARDING RENT STABILIZATION LAW
Plaintiffs seek a declaratory judgment on their first cause of action asserting that the tenancies of both Cooper and Holland are governed by the Rent Stabilization Law, and that they are entitled to a declaration to that effect. Since both plaintiffs entered into their tenancies during the period that the Landlord was receiving J-51 tax benefits, the law is clear that their tenancies are subject to the Rent Stabilization Law, and that they were and are entitled to rent-stabilized leases throughout their tenancies. Roberts v Tishman Speyer Props., L.P., 13 NY3d 270 (2009); Gersten v 56 7th Ave. LLC, 88 AD3d 189, 198 (1st Dept 2011)(applying Roberts retroactively).
For some reason that is not clear, William West, the CEO and Chair of Greenthal, states in his affidavit that Cooper became a tenant before the Building received J-51 benefits. West aff, ¶ 3. Since it is undisputed that her tenancy began in August 2008, and that the J-51 benefits began on or about July 1, 1998 and continued through at least June 30, 2010, the court assumes that West's statement was an inadvertent error.
Defendants argue, however, that because they have acknowledged that plaintiffs' apartments are subject to rent-stabilization, offered plaintiffs rent-stabilized leases, registered the apartments with DHCR as rent-stabilized, and tendered rent refunds to plaintiffs, the cause of action should be dismissed as moot.
Although defendants belatedly conceded that plaintiffs' tenancies are governed by the Rent Stabilization Law, the dispute regarding the amount of rent overcharges, pursuant to the Rent Stabilization Law, is ongoing, and the tendered rent refunds were returned by plaintiffs as insufficient under the Rent Stabilization Law. This is far different, therefore, from a case where the entire dispute is moot. Furthermore, the court notes that defendants have failed to cite any authority suggesting that, in a situation like this, a cause of action for declaratory judgment should be dismissed as moot. Since the determination, that the respective apartments are rent-stabilized forms the basis for the second cause of action regarding rent overcharges and treble damages, the court concludes that it would be more appropriate to enter the declaratory judgment that plaintiffs seek.
RENT OVERCHARGES
The major question in this case, as in the majority of J-51 cases, is how to calculate the rent overcharges. Normally, in determining overcharges, an examination of the rent history is limited to the four years immediately before the filing of the complaint. However, as often occurs in J-51 cases since Roberts, "where a landlord has engaged in fraud in initially setting the rent or in removing an apartment from rent regulation, the court may examine the rental history for an apartment beyond the four-year statutory period allowed by CPLR 213-a." Taylor v 72A Realty Assoc., L.P., 151 AD3d 95, 102 (1st Dept 2017), citing Matter of Grimm v State of NY Div. of Hous. & Community Renewal Off. of Rent Admin., 15 NY3d 358, 367 (2010) (additional citation omitted).
Here, plaintiffs allege that fraud was committed by defendants in removing their apartments from rent stabilization, despite the receipt of J-51 benefits. Plaintiffs also allege fraud both in the manner in which the initial rent was set for each of their apartments, and in defendants' failure to provide each of them the notice, required by the Rent Stabilization Code, showing the last legal regulated rent for the apartment, how the new rent was calculated, and a statement indicating that the information may be verified with DHCR. See Administrative Code of City of NY (Administrative Code) § 26-504.2 (b); Rent Stabilization Code (9 NYCRR) § 2520.11 (u).
Cooper (Apt. 18E)
As in Grimm, Cooper was charged a rent that far exceeded that of the previous rent-stabilized tenant, but because she was never given the requisite notice, she was unable to challenge the validity of her rent. Based upon defendants' failure to produce any leases for the prior rent-stabilized tenants, Cooper now challenges the longevity allowance of 31 years, calculated at $246.97 per month. She also challenges the claimed IAIs in the amount of $40,908.84, which resulted in a claimed rent increase of $1022.72 per month.
With respect to the calculation of the longevity increase, defendants rely solely on the rent registration statement filed with the DHCR, contending that, because of the passage of time, they no longer have the leases of the prior tenants. Because the leases no longer are available, there is nothing to substantiate defendants' claim other than the information contained in DHCR's Registration Apartment Information provided to the agency by defendants. As indicated in the discussion of plaintiff Holland's apartment, however, the information contained in those DHCR records may contain inaccuracies. See e.g. Registration Apartment Information listing Apartment 18F as PE (Permanently Exempt) High Rent Vacancy for 1998, when defendants now assert that the apartment was occupied during that year by Blessinger, at a collectible rent of either $1,808.02 or $1,693.54, both of which were under the high income deregulation threshold.
With respect to the IAIs, defendants have submitted an invoice from their contractor, Nikmar, and a cancelled check in payment for the alleged IAIs in the amount of $40,908.84. While that normally would be sufficient to support a claim of IAIs, Cooper challenges the invoice, based upon the affidavit of her contractor, Christopher J. Leahy (Leahy), who inspected the apartment. Leahy states that the work that was allegedly done, plus the standard industry increase for overhead and profit, would have, at most, cost $23,500, and that the work merely constituted cosmetic improvements. In response to Leahy's affidavit, defendants offer unsworn statements of two other contractors, Michael J. Fahey AIA, of Fahey Design Build, and A.j.'s Custom Home Improvement, supporting the invoice of their contractor. West aff, exhibit F. The invoice, Leahy affidavit, and Fahey and A.j's Custom Home Improvement letters, at the least, raise questions of fact regarding whether specific work was done and whether the price quoted by Nikmar was fair and reasonable.
An additional problem exists, however, regarding whether the alleged work constitutes a valid basis for the claimed IAI increase that is not addressed by defendants. Plaintiffs' contractor, Leahy, concludes his affidavit stating that the work allegedly done by Nikmar "at most ... is a $23,500 cosmetic improvement, not a $40,908.84 major improvement to apartment 18E." Leahy aff, ¶ 21. Under the regulations governing IAIs, not all work can be used to justify a rent increase. When seeking a rent increase based upon IAIs, the owner of a building has the burden of proving not merely that improvements were made, but that "the improvements were beyond ordinary repairs." Ernest & Maryanna Jeremias Family Partnership, LP v Matas, 39 Misc 3d 1206(A), 2013 NY Slip Op 50505(U), *4 (Civ Ct, Kings County 2013); see also Matter of Graham Ct. Owners Corp. v Division of Hous. & Community Renewal, 71 AD3d 515, 515 (1st Dept 2010)("painting, plastering and floor maintenance, did not in any event constitute improvements"); Matter of Mayfair York Co. v New York State Div. of Hous. and Community Renewal, 240 AD2d 158, 158 (1st Dept 1997); see also Lirakis v 180 Seventh Ave. Assoc., LLC, 12 Misc 3d 1173(A), 2006 NY Slip Op 51211(U), *4 (Civ Ct, NY County 2006), affd 15 Misc 3d 128(A)(App Term, 1st Dept 2007)(work must constitute improvements and may not amount to "normal maintenance, ordinary repair and decorating"). Some of the work listed on Nikmar's invoice may well qualify as an IAI; other work, such as plastering and painting and cleaning the apartment, would appear to be little more than ordinary repairs, which may not be used to justify IAIs.
Pursuant to the Rent Stabilization Code, "1) An owner is entitled to a rent increase where there has been a substantial increase, other than an increase for which an adjustment may be claimed pursuant to paragraph (2) of this subdivision [governing major capital improvements], of dwelling space or an increase in the services, or installation of new equipment or improvements, or new furniture or furnishings." 9 NYCRR § 2522.4 (a) (1).
Holland (Apt. 18F)
With respect to plaintiff Holland, again, defendants provided no leases of prior tenants, but rely on the Registration Apartment Information that they provided to DHCR as a basis for establishing the rent of the last rent-regulated tenant, Schlesinger, whose lease allegedly expired in May 1998, one year before Holland began her tenancy. Nor do defendants submit the lease of Blessinger, who, allegedly, occupied the apartment immediately before Holland. Rather, they submit a Rent Registration Roll for rent effective April 1, 1998, with an entry of PE for Apt. 18F, and copies of barely legible documents identified as photocopies of the managing agent's history of the collection status for Apt. 18F, for the months of February 1998 through March 1999, to establish the Blessinger tenancy. See West aff, exhibit I. Furthermore, defendants repeatedly refer to Schlesinger's final rent of $908.56 as the last stabilized rent, despite the fact that, even according to their own calculations, Blessinger's last collectable rent was either $1,808.02 (see West aff, exhibit G, calculations annexed to Mandel letter) or $1,693.54 (see West aff, ¶ 19), both of which are below the threshold for high rent deregulation. Therefore, even had the building not been receiving J-51 tax abatements, Holland would either have been entitled to a rent-stabilized lease, or, at the very least, a notice informing her of the last regulated rent for her apartment, the manner in which her rent had been calculated, and that she could confirm that information with DHCR. See 9 NYCRR § 2520.11(u); Administrative Code § 26-504.2(b). She received neither. Furthermore, defendants' calculations of Holland's rent would appear to be a moving target, as it is far from clear on what some of the changes are based, since no leases of prior tenants or documentation of specific expenditures for IAIs or MCIs have been provided.
Calculation of Rent Overcharges
Plaintiffs and defendants urge different methods of calculating rent overcharges. Citing 72A Realty Assoc. v Lucas (28 Misc 3d 585 [Civ Ct, NY County 2010], affd as mod, 32 Misc 3d 47 [App Term, 1st Dept 2011], affd as mod, 101 AD3d 401 [1st Dept 2012]), defendants contend that the overcharges should be calculated based on the rent charged on the base date, plus subsequent lawful increases and adjustments. Plaintiffs argue in their reply brief that defendants improperly seek to use, as the base date rent, the rent that each plaintiff was in fact paying on that date. See plaintiffs' reply mem at 6. It would appear from defendants' brief, and from the refund checks offered to each plaintiff prior to, or in the early days of, this litigation, however, that defendants are recognizing that the base date rent would not be the rent actually paid by each of the plaintiffs on that date, but rather, the rent each would have paid had her apartment been treated as rent-stabilized throughout the tenancy — as a result of the receipt of the J-51 tax abatement. Nonetheless, that is not the method that plaintiffs urge.
Relying on Matter of Bondam Realty Assoc., L.P. v New York State Div. of Hous. & Community Renewal (71 AD3d 477 [1st Dept 2010]), among other cases, plaintiffs argue that because of defendants' failure to supply adequate rent records regarding the manner in which the rent for each plaintiff was, and is now being, calculated, the court should utilize the default formula established by DHCR, which is "designed to give the tenant every benefit of the doubt created by an owner's failure to provide complete records." Id. at 478 (internal quotation marks and citation omitted). Pursuant to that default formula, the rent would be calculated using "the lowest rent charged for a rent-stabilized apartment with the same number of rooms in the same building on the relevant base date." Thornton v Baron, 5 NY3d 175, 179-180 n 1 (2005).
Complete records of the relevant rent histories for both apartments have not been provided by defendants and defendants contend that many of those records no longer exist. Furthermore, the problems here result not merely from the Landlord's failure to comply with the requirement of the J-51 program that apartments in buildings receiving such tax abatement benefits be treated as rent-stabilized. The problems are compounded by the fact that neither of the plaintiffs was ever provided with a notice, as required by the Rent Stabilization Code, showing the last legal regulated rent for her apartment and how the new rent was calculated, with a statement indicating that the information may be verified with the DHCR. 9 NYCRR § 2520.11 (u); Administrative Code § 26-504.2 (b). It would appear from those documents that have been obtained by plaintiffs, that Cooper was the first non-regulated tenant and, therefore, clearly entitled to such a notice.
With respect to Holland, as noted above, both sets of calculations provided by defendants indicate that the rent for her apartment during the alleged tenancy of Blessinger, the tenant allegedly preceding Holland, was below the luxury deregulation threshold. Nonethless, defendants listed the apartment as permanently exempt from rent stabilization in the Apartment Registration Information. Therefore, even assuming that increases permitted by the rent-stabilization law would have properly brought Holland's rent above the luxury threshold, as defendants contend, based upon their belated reliance on unspecified MCI expenses, she, too, should have been given the required notice enabling her to verify her appropriate rent and challenge it, if she deemed it appropriate.
Given these facts, taken together with defendants' failure to treat the two apartments as rent-stabilized even after the decisions in Roberts and Gersten, and Holland's direct inquiry to Greenthal about the impact of Roberts on her apartment, the court concludes both that the claim of fraud has been demonstrated beyond genuine dispute, and that there are inadequate records to determine the actual rent history of plaintiffs' apartments. Therefore, use of the default formula is appropriate. This matter will, therefore, be referred to a Special Referee for the calculation of overcharges based upon the default formula.
Accordingly, plaintiffs' request for the issuance of a subpoena to DHCR to obtain records indicating "the lowest rent charged for a rent-stabilized apartment with the same number of rooms in the same building on the relevant base date," Thornton v Baron, 5 NY3d at 179-180 n1, is well-grounded. The court notes, however, that different base dates exist for the two plaintiffs. Because Cooper entered into a standstill agreement with defendants on August 6, 2014, her base date is four years before that date, or August 6, 2010. Holland, however, was not a party to that agreement, so her base date should be set four years before the filing of the complaint in this action, or May 21, 2011.
TREBLE DAMAGES
Plaintiffs argue that they are entitled to treble damages because defendants have provided no evidence that their overcharges were not willful. See Draper v Georgia Props., 230 AD2d 455, 460 (1st Dept 1997), affd 94 NY2d 809 (1999) (Administrative Code § 26-516 (a) "creates a presumption of willfulness in rent overcharge cases that the owner/landlord must rebut by a preponderance of the evidence").
Again citing 72 Realty Assoc. v Lucas, defendants contend that they should not be held liable for treble damages because many post-Roberts decisions have recognized that the Roberts court overturned a longstanding practice, including regulations promulgated by DHCR, and that, prior to the Court of Appeals decision, landlords who deregulated apartments, while receiving J-51 benefits, did so in good faith. However, in another more recent decision involving the same landlord, the court notes that "by March 2012 the law clearly required the retroactive return of apartments like these to rent regulation." Taylor v 72A Realty Assoc., L.P., 151 AD3d at 106.
Defendants also argue that DHCR Policy Statement 89-2, dated April 26, 2012, bars an award of treble damages to Cooper. The policy provides, in relevant part, as follows:
"the burden of proof in establishing lack of willfulness shall be deemed to have been met ... [w]here an owner adjusts the rent on his or her own within the time afforded to interpose an answer to the [administrative] proceeding and submits proof to the DHCR that he or she has tendered, in good faith, to the tenant a full refund of all excess rent collected, plus interest."Languedoc affirmation, exhibit NN. Defendants contend that because they tendered Cooper a refund for overcharges before this litigation began, they have met their burden of establishing a lack of willfulness.
As plaintiffs argue, however, that position was rejected by the court in Scott v Rockaway Pratt, LLC (24 Misc 3d 1231[A], 2009 NY Slip Op 51684(U), *6 [Sup Ct, NY County 2009], affd sub nom Rich v East 10th St. Assoc. LLC, 77 AD3d 60 [1st Dept 2010], revd on other grounds sub nom. Scott v Rockaway Pratt, LLC, 17 NY3d 739 [2011]), which stated, "[h]owever, this is only one criteria among many that the DHCR mentions in Policy Statement 89-2 as indicia of a lack of wilfulness. The Court is obligated to examine the totality of the evidence with respect to the owner's wilfulness and/or lack of good faith." Moreover, as noted above, plaintiffs do not concede that the refunds tendered by defendants actually constituted full refunds.
Defendants also submit a letter dated January 6, 2016, and a notice entitled J-51 Registration Initiative - FAQs from DHCR regarding the obligation of landlords receiving J-51 tax benefits to register apartments as rent regulated, and argue that, as late as 2015, there were unsettled issues regarding the impact of the receipt of J-51 benefits and that, therefore, they did not act unreasonably in failing to treat plaintiffs as rent-stabilized tenants.
As plaintiffs contend, however, even if defendants could have claimed lack of bad faith or willfulness prior to, and immediately after, the decision of the Court of Appeals in Roberts, after the decision of the Appellate Division, First Department in Gersten, it should have been clear to defendants that plaintiffs were entitled to rent-stabilized leases. Furthermore, defendants were put on notice of the entire question by Holland's email of March 23, 2010, asking them what their plans were with respect to market rent apartments in light of the Roberts decision. Defendants, however, never responded to Holland's inquiry. Furthermore, although, in July 2014, defendants recognized that Cooper was entitled to a rent-stabilized lease, in 2015, they still offered a non-rent-stabilized least to Holland. See Holland aff, ¶ 7; Languedoc amended affirmation, exhibit Y.
Nonetheless, until the rent overcharges, if any, are computed, the availability of treble damages will be held in abeyance. See Kreisler v B-U Realty Corp., 2017 WL 1650097, *5 (Sup Ct, NY County 2017).
GENERAL BUSINESS LAW § 349Plaintiffs contend that defendants' actions as alleged in the complaint constitute deceptive acts and/or practices in violation of GBL § 349, which provides that "[d]eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state are hereby declared unlawful." GBL § 349 (a).
Quoting Stutman v Chemical Bank (95 NY2d 24, 29 [2000]), plaintiffs set forth three elements of a cause of action under section 349: "first, that the challenged act or practice was consumer-oriented; second, that it was misleading in a material way; and third, that the plaintiff suffered injury as a result of the deceptive act."
Arguing that section 349 applies "to virtually all economic activity" (Karlin v IVF Am., 93 NY2d 282, 290 [1999]), they claim that defendants' actions were consumer-oriented because they constituted a standard or routine practice that was "consumer-oriented in the sense that they potentially affect similarly situated consumers." Oswego Laborers' Local 214 Pension Fund v Marine Midland Bank, 85 NY2d 20, 27 (1995).
Defendants argue that the majority of cases cited by plaintiffs are unrelated to landlord-tenant law, and contend that such disputes are not within the reach of GBL § 349, because they do not demonstrate "an impact on consumers at large" (Karlin, 93 NY2d at 294 and are "private in nature." Oswego Laborers' Local 214 Pension Fund, 85 NY2d at 26.
Plaintiffs do cite two cases for the proposition that tenants have been considered consumers for the purpose of consumer protection laws: 23 Realty Assoc. v Teigman (213 AD2d 306, 308 [1st Dept 1995]) and Myerson v Prime Realty Servs., LLC (7 Misc 3d 911 [Sup Ct, NY County 2005]). See also Frazier v Priest, 141 Misc 2d 775, 780 (Watertown City Ct, Jefferson County 1988)("General Business Law § 349 does apply to landlord-tenant relationships"). 23 Realty Assoc., which involved potential tenants, related to false advertising and misrepresentation of the nature of apartments in a converted hotel, as rent-stabilized, when the hotel designation had never been changed. The case was not, however, brought under the General Business Law. Rather, the case relied on the New York Consumer Protection Law, Administrative Code § 20-700, which specifically prohibits "any deceptive or unconscionable trade practice in the sale, lease, rental or loan or in the offering for sale, lease, rental, or loan of any consumer goods or services." 23 Realty Assoc., 213 AD2d at 308.
Myerson involved a challenge by a tenant to a form, used by the landlord, which demanded the tenant's social security number. The landlord argued that the plaintiff did not have a proper GBL § 349 claim because the landlord's activity was not directed to the public at large. The court did not formally rule on the landlord's argument, because it was belatedly raised in a reply brief. The court did observe, however, plaintiff's argument that the landlord owned and managed a number of residential apartments and used the same misleading form for all of their renewal leases.
Not all interactions between landlord and tenant, however, satisfy the elements of GBL § 349. "'[A] claim brought under this statute must be predicated on an act or practice which is "consumer-oriented," that is, an act having the potential to affect the public at large, as distinguished from merely a private contractual dispute...'" Aguaiza v Vantage Props., LLC, 2009 NY Slip Op 31144(U) (Sup Ct, NY County 2009), affd as mod 69 AD3d 422 (1st Dept 2010), quoting Elacqua v Physicians' Reciprocal Insurers, 52 AD3d 886, 888, (3d Dept 2008). Thus, the harassment claims of ten separate tenants against their landlord were deemed by the court to present only private disputes between landlords and tenants, which were not consumer-oriented or aimed at the public at large and, therefore, were not properly claims under section 349. Aguaiza, 69 AD3d at 423.
Although the court concludes that landlord-tenant claims may fall within GBL § 349, it is not entirely clear, from plaintiffs' papers, which of their claims they contend fall within the prohibitions of the GBL. For example, the allegations regarding how each plaintiff's initial rent was established would appear to be a private dispute between landlord and tenant, rather than a matter aimed at the general public. With respect to the Landlord's policy of treating each of their apartments as a market-rate apartment, despite the Landlord's receipt of J-51 tax abatements for the building, plaintiffs contend that defendants only registered approximately 200 apartments as rent-stabilized in a building of approximately 442 apartments, although luxury deregulation did not apply to any apartments in the building until July 2010, when the J-51 benefits expired.
Because of DHCR's administrative interpretation of the luxury decontrol laws, it was not clear, until the Roberts decision in 2009, that luxury deregulation did not apply in buildings receiving J-51 benefits. As the Court in Taylor v 72A Realty Assoc. LP (151 AD3d at 101) recently pointed out, the Roberts decision left open many issues, including, whether the decision would be applied retroactively. By 2011, the Appellate Division, First Department did, however, rule that Roberts was retroactive. Gersten v 56 7th Ave, LLC, 88 AD3d at 198. Thus, at least until 2011, it is difficult to conclude that defendants' provision of non-rent-stabilized leases to the two plaintiffs constituted a deceptive practice in violation of GBL § 349.
Even with respect to the period of time after the Gersten decision, based on the documents presently before the court, it is not clear, for the purposes of a summary judgment motion, whether the claims are sufficiently consumer-oriented, affecting the public at large, or are limited to private contractual claims concerning these plaintiffs.
Because of these questions, plaintiffs' motion for summary judgment on their claim under GBL § 349 is denied.
PLAINTIFFS' MOTION TO DISMISS DEFENDANTS' AFFIRMATIVE DEFENSES AND COUNTERCLAIMS
In their answer, defendants assert the following thirteen affirmative defenses and three counterclaims. Affirmative Defenses:
1. The complaint fails to state a cause of action.
Having concluded above that, at the very least, plaintiffs are entitled to a declaratory judgment that their leases are rent-stabilized, the first affirmative defense is dismissed.
2. Defense based upon documentary evidence.
Plaintiffs contend that, because defendants failed to specify any particular document or documents that form a basis for their defense, the defense must be dismissed. Defendants respond only that the documents annexed to the West affirmation support its defenses and, therefore, the second affirmative defense should not be stricken.
"It is well settled that a defense based on documentary evidence can succeed if the documents submitted resolve all of the factual issues as a matter of law." Gephardt v Morgan Guar. Trust Co. of NY, 191 AD2d 229, 229 (1st Dept 1993). Here, at best, some of the documents annexed to the West affirmation raise questions of fact, which must be resolved at a hearing before the Special Referee, and do not resolve the factual issues as a matter of law. Therefore the second affirmative defense is dismissed.
3. Estoppel, laches, unclean hands and waiver.
Plaintiffs contend that estoppel is inapplicable to this action, because plaintiffs cannot be estopped from asserting claims under the Rent Stabilization Code. Similarly, claims of rent overcharges cannot be waived under the Code. See Drucker v Mauro, 30 AD3d 3, 39 (1st Dept 2006)(Waiver of benefits under the Rent Stabilization Code void as against public policy); see also 9 NYCRR § 2520.13 (Waiver of benefit void).
As to unclean hands, defendants have not alleged any specific conduct by plaintiffs that relates to their claims against defendants.
Furthermore, defendants have not responded to plaintiffs' arguments regarding the third affirmative defense; therefore, the court concludes that it has been abandoned. The third affirmative defense is therefore dismissed.
4. Statute of limitations.
As plaintiffs argue, there is no statute of limitations as to plaintiffs' cause of action for declaratory and injunctive relief. With respect to the calculation of damages, as this court has indicated above, although there is normally a four year look-back period for the recovery of rent overcharges, the court is not restricted to that four year period in determining how to calculate the overcharges. Therefore defendants' fourth affirmative defense is dismissed.
5. No basis for treble damages as Landlord was acting consistent with Rent Stabilization Code and rulings of DHCR.
6. No basis for treble damages as refunds for any rent overcharges have been tendered and there was no willful conduct by defendants.
The matter of treble damages has been held in abeyance until after the calculation of overcharges has been considered by the Special Referee; therefore, plaintiffs' motion to dismiss the fifth and sixth affirmative defenses is denied at this time.
7. No lease or law authorizes attorneys' fees to plaintiffs.
As plaintiffs argue, they seek attorneys' fees, not pursuant to their respective leases, but rather, pursuant to Administrative Code § 26-516 (a) (4) and Rent Stabilization Code § 2526.1 (d), which provide for an award of attorneys' fees where a landlord is found to have overcharged. Since the amount of overcharge, if any, is being held in abeyance for a hearing and report of a Special Referee, plaintiffs' motion to dismiss the seventh affirmative defense is denied at this time.
8. There is no cause of action under GBL § 349 governing private landlord-tenant disputes such as this.
Although the court concludes that GBL § 349 can, in appropriate circumstances, apply to landlord-tenant relations, having declined to grant summary judgment on plaintiffs' motion for summary judgment based upon GBL § 349, plaintiffs' motion to dismiss this affirmative defense is denied.
9. No retroactive remedies if retroactive overcharge is found; defendants are entitled to relief pursuant to CPLR 5523.
As the Appellate Division, First Department has stated, at least since March 2012 and the withdrawal of the appeal from the decision in Gersten v 56 7th Ave. LLC (88 AD3d 189), it has been clear that the ruling of the Court of Appeals in Roberts v Tishman Speyer Props., L.P. (13 NY3d 270) is retroactive. See Taylor v 72A Realty Assoc., L.P., 151 AD3d at 101.
CPLR 5523, which applies to the availability of restitution where an order or judgment has been reversed, would appear to have no applicability here.
In any case, since defendants have not addressed this affirmative defense, the court concludes that it has been abandoned. Accordingly, the ninth affirmative defense is dismissed.
10. Defendants have not engaged in fraud or fraudulent scheme and an award of damages or other relief would result in a windfall to plaintiffs.
There is no affirmative defense of windfall. Dodd v 98 Riverside Drive, LLC, 2011 NY Slip Op 32708(U) (Sup Ct, NY County 2011). The tenth affirmative defense is, therefore, dismissed.
11. There is no justiciable controversy and plaintiffs are not entitled to declaratory relief because there is no dispute that the apartments are currently rent-stabilized.
Although defendants argue in their brief that plaintiffs' first cause of action for a declaratory judgment should be dismissed for mootness, they do not directly address plaintiffs' motion to dismiss their eleventh affirmative defense of lack of a justiciable controversy. Even assuming that there is no longer a dispute regarding the fact that the two apartments are entitled to the protections of rent stabilization, there is plainly a dispute about the calculation of rent overcharges and the availability of treble damages. The eleventh affirmative defense is, therefore, dismissed.
12. Pursuant to Rent Stabilization Code § 2528.4(a), failure to properly register an apartment does not result in a finding of rent overcharge, where the increases in the legal regulated rent were lawful except for the failure to file a timely registration.
In support of this defense, defendants argue that lack of such registration is completely curable; that lateness alone will not result in a finding of rent overcharge; and that, so long as the late registration accurately reflects the lawful increases in rent, no penalty will result. Those assertions, however, are unrelated to the wording of the affirmative defense itself. Moreover, plaintiffs do not argue that a rent overcharge results from the failure to register, but rather from the charging of free market rent to both tenants. Therefore, the court concludes that the affirmative defense is mere surplusage and is dismissed.
13. As managing agent for the building, Greenthal is not liable to plaintiffs for damages and therefore is not a proper party defendant.
Defendants contend that Greenthal is not a proper party defendant because it is merely the managing agent for the building. Quoting Crimmins v Handler & Co. (249 AD2d 89, 91-92 [1st Dept 1998][internal quotation marks and citations omitted]) defendants argue that it is well established that managing agents are not liable for rent overcharges unless "there is clear and explicit evidence of the agent's intention to substitute or superadd his personal liability for, or to, that of his principal".
Plaintiffs argue that section 2520.6 (i) of the Rent Stabilization Code defines the term "owner" to include "any other person or entity receiving or entitled to receive rent." However, section 2520.6 (i) goes on to state, "but such agent shall only commence a proceeding pursuant to section 2524.5 of this Title, in the name of such foregoing principals." Thus it is far from clear that the legislature intended to define a managing agent as an owner for the purposes of liability for rent overcharges.
Plaintiffs further argue that the courts have repeatedly held that a managing agent is an owner under the Rent Stabilization Law, citing Matter of Howard v New York State Div. of Hous. and Community Renewal, 2010 NY Slip Op 30241(U) (Sup Ct, NY County 2010) and 106 E. 116th St. LLC v Vergas, 2005 NY Misc LEXIS 3266 (Civ Ct, NY County 2005). Neither case, however, even considers the issue of whether a managing agent is liable in damages to a tenant as an "owner" pursuant to the Rent Stabilization Code, or undermines the ruling of the Appellate Division, First Department that
"the managing agent of the premises . . . is not liable for any portion of the [rent] overcharge. As stated by the Court of Appeals, an agent for a disclosed principal will not be personally bound unless there is clear and explicit evidence of the agent's intention to substitute or superadd his personal liability for, or to, that of his principal."Crimmins v Handler & Co., 249 AD2d at 91-92 (internal quotation marks and citations omitted); see also Paganuzzi v Primrose Mgt. Co., 181 Misc 2d 34, 36 (Sup Ct, NY County 1999), affd 268 AD2d 213 (1st Dept 2000).
The decision in Crimmins does not, however, foreclose the treatment of Greenthal as a party defendant for the purposes of declaratory and injunctive relief concerning the rent-stabilized status of plaintiffs' leases.
For these reasons, the thirteenth affirmative defense is dismissed only to the extent that it seeks to dismiss claims for damages for rent overcharges against Greenthal, and is otherwise denied. Counterclaims:
1. Attorneys' fees.
In their first counterclaim defense, defendants assert that they have been required to hire attorneys as a result of this litigation. However, "[u]nder the general rule, attorney's fees are incidents of litigation and a prevailing party may not collect them from the loser unless an award is authorized by agreement between the parties, statute or court rule." Hooper Assoc. v AGS Computers, 74 NY2d 487, 491 (1989). Unlike plaintiffs, defendants have not pointed to any part of the respective leases, or to any statute, which would entitle them to attorneys' fees. Therefore, defendants' first counterclaim is dismissed.
2. To the extent that the Landlord has undercharged plaintiffs, money judgment for unpaid rent and immediate possession of the apartments pursuant to Article 6 of the Real Property Actions and Proceedings Law.
The determination of the amount of overcharge (or undercharge) of rent by the Landlord has been held in abeyance pending the referral of that issue to a Special Referee. Plaintiffs' motion to dismiss the second counterclaim is, likewise, held in abeyance.
3. Money judgment for damages sustained as a result of plaintiffs' conduct.
For the reasons stated above with respect to the second counterclaim, plaintiffs' motion to dismiss the third counterclaim is held in abeyance.
Accordingly, it is hereby
ORDERED that plaintiffs' motion for summary judgment on their first cause of action seeking a declaratory judgment that their apartments and leases are rent-stabilized is granted, and it is hereby
ADJUDGED AND DECLARED that Apartment 18E of Allyson Cooper and Apartment 18F of Leslie Holland are rent-stabilized, and their respective leases and tenancies are governed by the Rent Stabilization Code; and it is further
ORDERED that the calculation of the proper rent for the leases of Allyson Cooper and Leslie Holland based upon the factors set forth in the Rent Stabilization Code, the calculation of rent overcharges, if any, and the issues of treble damages and attorneys' fees are referred to a Special Referee to hear and report with recommendations, except that, in the event of and upon the filing of a stipulation of the parties, as permitted by CPLR 4317, the Special Referee, or another person designated by the parties to serve as referee, shall determine the aforesaid issue; and it is further
ORDERED that counsel for the party seeking the reference or, absent such party, counsel for the plaintiff shall, within 30 days from the date of this order, serve a copy of this order with notice of entry, together with a completed Information Sheet, upon the Special Referee Clerk in the Motion Support Office in Rm. 119 at 60 Centre Street, who is directed to place this matter on the calendar of the Special Referee's Part (Part 50 R) for the earliest convenient date; and it is further
Copies are available in Rm. 119 at 60 Centre Street, and on the Court's website.
ORDERED that a Judicial Hearing Officer (JHO) or Special Referee shall be designated to hear and report to this Court within 45 days after completion of the said hearing; and it is further
ORDERED that the branch of plaintiffs' motion for summary judgment on their second cause of action, for rent overcharges, treble damages, and attorneys' fees, is held in abeyance pending receipt of the report and recommendations of the Special Referee and a motion pursuant to CPLR 4403, or receipt of the determination of the Special Referee or the designated referee; and it is further
ORDERED that the branch of plaintiffs' motion for summary judgment on their third cause of action, pursuant to GBL § 349, is denied; and it is further
ORDERED that the branch of plaintiffs' motion to dismiss defendants' affirmative defenses and counterclaims is disposed of as follows:
the motion is granted with respect to defendants' first, second, third, fourth, ninth, tenth, eleventh and twelfth affirmative defenses and defendants' first counterclaim; and
the motion is denied with respect to defendants' fifth, sixth, seventh and eighth affirmative defenses, and denied, in part, with respect to the thirteenth affirmative defense; and
the motion is held in abeyance with respect to defendants' second and third counterclaims; and it is further
ORDERED that plaintiffs' motion, pursuant to CPLR 2307, for the issuance of a subpoena duces tecum upon the New York State Division of Housing and Community Renewal for documents identifying the rents of apartments in the building located at 185 East 85th Street, New York, New York, with the same number of rooms as Apartment 18E, on the base date August 6, 2014, and the same number of rooms as Apartment 18F, on the base date of May 21, 2011, is hereby granted. Dated: November 29, 2017 Hon. Robert R. Reed J.S.C.