Opinion
No. 101150/10.
11-04-2016
Paula GERARD, Sherri Lydell, Lisa Quitoni, and Laura Zingmond, On Behalf of Themselves and All Others Similarly Situated, Plaintiffs, v. CLERMONT YORK ASSOCIATES LLC, Defendant.
In a class action involving rent stabilization, plaintiffs move, pursuant to CPLR 3211, to dismiss defendant's affirmative defenses; additionally, plaintiffs move, pursuant to CPLR 3212, for declaratory judgment on the issue of regulatory status and determining which methodology should be used for calculating damages. Defendant Clermont York Associates, LLC (Clermont) cross-moves, for partial summary judgment for a declaratory judgment specifying its own preferred methodology for calculating damages, as well as a declaration that all apartments in their building are subject to possible deregulation.
BACKGROUND FACTS
Clermont owns an apartment building called "The Clermont," located on the upper east side of Manhattan at 444 East 82nd and 1533 York Avenue. The Clermont was constructed in the 1960s and has 34 floors, as well as 415 units. With the enactment of the Rent Stabilization Law of 1969(RSL) and the Emergency Tenant Protection Act of 1974, the building's apartments became subject to rent stabilization.
Plaintiffs are current and former tenants of the building who allege that, since July 1997, Clermont has improperly deregulated apartments in the building despite receiving tax benefits through Administrative Code of the City of New York § 11–243 (previously § J51–2.5), more commonly known as the J–51 Law.
J–51 is a program in New York City that allows the owners of multiple dwellings to qualify for tax exemptions and/or abatements if they perform certain projects. Qualifying projects include rehabilitations, major capital improvements, such as asbestos abatements, and residential conversions of non-residential buildings. In 1993, the Legislature passed the Rent Regulation Reform Act (RRRA), which, among other things, provided for luxury deregulation of certain rent-stabilized apartments. The RRRA carved out an exception providing that buildings receiving J–51 benefits are not subject to luxury deregulation (Rent Stabilization Law ["RSL"] §§ 26–504.1, 26–504.2).
For years, the Division of Housing & Community Renewal (DHCR) misinterpreted the RRRA's exception for buildings receiving J–51 benefits. Specifically, DHCR too narrowly applied this exception only to buildings where receipt of J–51 benefits was the sole reason for the building's subjection to rent stabilization laws. The Court of Appeals corrected this misinterpretation in Roberts v. Tishman Speyer Props., L.P. (13 NY3d 270 [2009] ), which upheld the First Department's holding that "building owners who receive J–51 benefits forfeit their rights under the luxury decontrol provisions even if their buildings were already subject to the RSL" (id. at 283 ).
This action flows out of the Roberts decision, as the subject building had long been subject to the RSL before the RRRA was passed. Thus, the J–51 benefits Clermont received were not the sole reason that it was subject to the RSL. On January 27, 2010, plaintiffs commenced this action by filing a complaint seeking declaratory judgment as to their rights as tenants and for monetary damages.
Clermont was first approved for J–51 tax benefits in 1997; these expired in 2007. Clermont was approved for another round of J–51 benefits for subsequent improvements in 2001; these benefits had not expired at the time that the complaint was filed, but expired on June 30, 2012.
More specifically, the first cause of action seeks an order: (1) declaring that plaintiffs' apartments are subject to rent stabilization and that Clermont is required to offer renewal leases on forms required by the RSL and approved by DHCR at regulated rents, and to otherwise continue the tenancies under the same terms and conditions as were provided at the inception of their tenancies; (2) declaring that any petitions for deregulation submitted to the DHCR by Clermont are invalid and should be withdrawn, and that any deregulation orders already issued by the DHCR are null and void; (3) permanently enjoining defendant from luxury deregulating any apartment at The Clermont; (4) directing defendant to revise all leases which incorrectly provide that the units are not subject to rent stabilization, and—to the extent that any plaintiffs have been denied the continuation of their tenancies on the same terms and conditions that were provided to them at the inception of their tenancies—restoring those terms and conditions that have been denied; (5) awarding plaintiffs damages for rent overcharges; (6) enjoining defendant from continuing to collect rent overcharges; and (7) awarding interest on rent overcharges, as well as reasonable costs and attorneys' fees pursuant to Rent Stabilization Code (RSC) § 2526.1(d). The second cause of action seeks a monetary judgment for plaintiffs' reasonable attorneys' fees, pursuant to Real Property Law § 234, the RSL and CPLR 909.
The case was initially before Judge Sherwood, who granted Clermont's motion to dismiss under the doctrine of primary jurisdiction, finding that DHCR should decide the issues presented by the complaint. The First Department reversed, reasoning that "[t]his action presents legal issues left open after the Court of Appeals' decision in Roberts ..., including whether that decision is to be applied retroactively or prospectively. It is the courts, not the [DHCR], that should address these issues in the first instance" (Gerard v. Clermont York Assoc., LLC, 81 AD3d 497, 497–498 [1st Dept 2011] ).
The action was then transferred to Judge Singh, who granted plaintiffs' motion to certify the class by a decision and order dated August 6, 2012. Plaintiffs filed the Note of Issue, certifying that discovery was complete on April 1, 2016. Ultimately, the case reached this Part.
DISCUSSION
I. Clermont's Affirmative Defenses
Plaintiffs seek to dismiss Clermont's affirmative defenses pursuant to CPLR 3211. When a court determines a motion to dismiss, the court must accept the facts as alleged by the non-moving party and give that party "the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory" (Goldman v. Metropolitan Life Ins. Co., 5 NY3d 561, 570–571 [2005] [internal quotation marks and citations omitted] ).
A. Good Faith Reliance
Defendant's first affirmative defense is that it relied in good faith on the DHCR's interpretation of the RSL, as well as uncertainty regarding the retroactive application of the Roberts decision. Plaintiffs argue that a defense based on good faith reliance does not present a cognizable defense to a statutory action for rent overcharge. Plaintiffs also argue that, while good faith would be a defense to a claim for treble damages, they withdrew those claims when they applied for class certification.
In Gersten v. 56 7th Ave. LLC (88 AD3d 189, 196–198 [1st Dept 2011] ), the First Department held that Roberts should be applied retroactively.
Clermont argues that if individual tenants decide to bring their own cases, then those tenants might seek treble damages, in which case a good faith defense might be applicable. Clearly, that has little to do with this action. Clermont also argues that good faith is relevant to calculating the proper rent for the building. Here, it is clear from the Roberts decision that good faith reliance is not a defense to a rent overcharge claim. To the extent that defendant's good faith reliance effects the methodology for evaluating damages, the court will evaluate defendant's arguments in analyzing that issue. As an affirmative defense against the claim of rent overcharge, however, it is dismissed.
B. Statute of Limitations
Under CPLR 213–a, the statute of limitations for rent overcharge claims is four years. Plaintiffs specifically acknowledge that, as they filed the complaint on January 26, 2010, they are only seeking damages for overcharges from January 26, 2006 until present. Clermont once again appeals to the treble damages that plaintiffs are no longer seeking. Again, this argument is not persuasive. Because plaintiffs are not seeking damages outside of the limitations period, Clermont's statute of limitations affirmative defense is dismissed.
C. Allegations That Predate the Statutory Period
While plaintiffs are not entitled to damages prior to January 26, 2006, Clermont also contends that plaintiffs are not allowed to make any allegations or refer to any facts prior to that date that might shed light on whether plaintiffs were being overcharged on that date. In other words, while this argument is styled as an affirmative defense, it is actually an argument that goes to what methodology should be used to evaluate damages. Accordingly, it is dismissed as an affirmative defense.
D. Laches
Initially, plaintiffs argue that the equitable defense of laches is unavailable for an action at law brought within the statute of limitations. Clermont responds that plaintiffs seek a declaratory judgment and an injunction in their first cause of action, both of which are equitable reliefs and susceptible to the defense of laches. Here, plaintiffs are correct, as a general matter, that the defense of laches is inapplicable to a timely action brought at law (Cadlerock, L.L.C. v. Renner, 72 AD3d 454, 454 [1st Dept 2010] ). However, Clermont is also correct that plaintiff also brings equitable claims for a declaratory judgment and an injunction. As such, plaintiffs are not entitled to dismissal of defendant's affirmative defense of laches.
II. Methodology For Determining Overcharges
The parties tacitly agree that Clermont improperly deregulated many of its apartments, but disagree as to the proper methodology for determining any overcharges, each seeking summary judgment declaring its preferred method the proper one.
"Summary judgment must be granted if the proponent makes ‘a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact,’ and the opponent fails to rebut that showing" (Brandy B. v. Eden Cent. School Dist., 15 NY3d 297, 302 [2010], quoting Alvarez v. Prospect Hosp., 68 N.Y.2d 320, 324 [1986] ). However, if the moving party fails to make a prima facie showing, the court must deny the motion, " ‘regardless of the sufficiency of the opposing papers ’ " (Smalls v. AJI Indus., Inc., 10 NY3d 733, 735 [2008], quoting Alvarez, 68 N.Y.2d at 324 ).
The First Department has already determined that Roberts applies retroactively (Gersten v. 56 7th Ave. LLC, 88 AD3d 189, 196–198 [1st Dept 2011] ). Typically, DHCR calculates rent overcharges using the "base date," which the RSL defines as "[t]he date four years prior to the date of the filing [with DHCR] of such [rent overcharge] appeal or complaint" (9 NYCRR § 2520.6 [f][1] ). The proper analysis here is simple for apartments that were improperly deregulated within four years of the commencement of this action. If an apartment was rent stabilized on January 27, 2006, the first day of the statutory period for which plaintiffs can recover damages, and then luxury deregulated the following day, then the base rate date for determining overcharges would be January 27, 2006.
However, the crux of the dispute between the parties is the overcharge formula for apartments that were luxury deregulated prior to the beginning of the statutory period. That is, plaintiffs contend that, for these apartments, the base rate should be measured from immediately prior to whenever a given apartment was first improperly deregulated, while Clermont argues that the base rate should be measured from the beginning of the statutory period, plus any legal rent increases.
The key issue is whether Clermont is correct that the court should not look at any factual allegation preceding the statutory period. CPLR 213–a addresses the statutory period of residential rent overcharge cases:
"An action on a residential rent overcharge shall be commenced within four years of the first overcharge alleged and no determination of an overcharge and no award or calculation of an award of the amount of any overcharge may be based upon an overcharge having occurred more than four years before the action is commenced. This section shall preclude examination of the rental history of the housing accommodation prior to the four-year period immediately preceding the commencement of the action."
The plain language of the statute would seem to preclude the kind of inquiry that plaintiffs support, as the Legislature explicitly prohibits examination of the rental history. The path of case law, however, has worked fissures into this preclusion. For example, both plaintiffs and Clermont acknowledge that courts look past the statutory period in cases involving fraud.
In Matter of Grimm v. State of N.Y. Div. of Hous. & Community Renewal Off. of Rent Admin. (15 NY3d 358, 367 [2010] ), the Court of Appeals held that "evidence of a landlord's fraudulent deregulation scheme to remove an apartment from the protections of rent stabilization" warrants looking back past the beginning of the statutory period. Specifically, Matter of Grimm held that "the rental history may be examined for the limited purpose of determining whether a fraudulent scheme to destabilize the apartment tainted the reliability of the rent on the base date" (id. ).
In Matter of Grimm, the Court of Appeals relied on two of its earlier holdings: Thornton v. Baron (5 NY3d 175 [2005] ) and Matter of Cintron v. Calogero (15 NY3d 347 [2010] ). In Thornton, faced with an owner's fraudulent scheme to escape rent stabilization, the Court instructed DHCR to calculate the rent overcharge using the "default formula," rather than using the rent in place four years prior to the filing of the action (5 NY3d at 180–181 ).
The default formula "uses the lowest rent charge for a rent-stabilized apartment with the same number of rooms in the same building on the relevant base date" (15 NY3d at 366 n. 1 ).
In Cintron, the Court of Appeals resolved a tension in the RSL in favor of tenants. The tension was between the four-year lookback period and RSL § 26–514, which provides that when owners are subject to a rent reduction order, they are barred from increasing rent until they remedy the failures to provide services that were the basis of the reduction (15 NY3d at 353–355 ). As the owner in Cintron failed to restore required services that were the subject of two rent reduction orders issued to a prior owner, the conflict in calculating the rent overcharge was between the four-year cutoff and the continuing obligation placed on the owner by the rent reduction orders issued prior to the statutory period (id. ). Cintron resolved the conflict by allowing DHCR to take the rent reduction orders into account while calculating the overcharge (id. at 355–356 ).
The RSL itself has a provision, RSL § 26–516(a)(2), mirroring the four-year cutoff articulated in CLPR 213–a.
In his dissent in Matter of Grimm, Judge Smith argued that what the majority found to be a sufficient allegation of fraud warranting an inspection of the rental history past the statutory period was simply an allegation of willful overcharge (15 NY3d at 368–369 ). Judge Smith worried that the Court's opinion would "simply nullify the four-year limit in every case where the overcharge was not a good faith error" or require "DHCR to undertake an inquiry that the majority leaves wholly undefined" (id. at 369 ). Thus, it would seem that both the majority and the dissent in Matter of Grimm agreed that, in the case of a good faith error by a landlord, CPLR 213–a precludes a court from looking at the rental history prior to the four-year limitation period.
Clermont argues that this is such a case, pointing to Judge Singh's decision and order certifying the class. Justice Singh, discussing the validity of plaintiffs' waiver of any claims for treble damages, found that:
"the landlord in the instant action was acting in good faith reliance upon the DHCR's own interpretation of the law. Accordingly, the facts alleged cannot support a finding that the landlord fraudulently or purposefully evaded the Rent Stabilization Law, so the treble damage provisions of the rent regulations simply do not apply under the facts alleged"
(Justice Singh's August 6, 2012 Decision and Order at page 10).
Plaintiffs have not, since Justice Singh's decision, added any allegations of fraud or willfulness. It would, then, seem that plaintiffs, under the reasoning of both the majority and the dissent in Matter of Grimm, are constrained by the limitations of CPLR 213–a and cannot ask the court to look back through the rental history prior to the statutory period. Plaintiffs contend, however, that the carve-out to CPLR 213–a is broader than suggested in Matter of Grimm.
In support of a broader exception, plaintiffs cite to Matter of H.O. Realty Corp. v. State of N.Y. Div. of Hous. & Community Renewal (46 AD3d 103 [1st Dept 2007] ), in which the Appellate Division, First Department, allowed a landlord to look back past the statutory period in order to provide evidence relating to whether a rent overcharge was done in good faith, relying on actual improvements to the apartment, or whether the overcharge was willful, and thus subject to treble damages. Matter of H.O. Realty held that "[t]he four-year limitation specifically refers to the period within which a rent may be challenged; it does not, by its terms, limit the period in which the owner can draw evidence to explain its actions to the four years immediately prior to the filing of the complaint" (id. at 108 ).
Given that CPLR 213–a specifically precludes examination of the rental history prior to the statutory period, the Court in Matter of H.O. Realty parsed the text of the statute narrowly, as it implicitly defined the statutory term "rental history" to exclude evidence explaining an owner's decisions regarding rental price. The Court reasoned that such a pinched construction was justified, as "the four-year rule has not been inviolate, and exceptions have been made ... where circumstances and policy considerations dictate" (id. at 109 ). For example, the Court cited a Second Department case that permitted DHCR to look beyond the statutory period to determine whether, in calculating the proper rent, an owner was entitled to a longevity increase and an earlier First Department case, East W. Renovating Co. v. New York State Div. of Hous. & Community Renewal (16 AD3d 166 [1st Dept 2005] ), that held that "DHCR's consideration of events beyond the four-year period is permissible if done not for the purpose of calculating an overcharge but rather to determine whether the apartment is regulated" (id. at 167 ).
Matter of Ador Realty, LLC v. Division of Hous. & Community Renewal, 25 AD3d 128 (2d Dept 2005).
Plaintiffs also point to Gordon v. 305 Riverside Corp., 93 AD3d 590 [1st Dept 2012] ), another post-Roberts case involving an apartment that was luxury deregulated while its owner received J–51 tax benefits. Unlike the present motion, the First Department in Gordon was reviewing the denial of a summary judgment motion brought before any discovery was conducted (id. at 593 ). In Gordon, a market-rate lease had been signed several days after the base date, and the owner attempted to close the difference by "confus(ing) the interposition of a claim, which determines its timeliness for statute of limitations purposes, with the commencement of an action" (Gordon, 93 AD3d at 592 ).
The Court rejected this argument, and the owner argued in the alternative that, under RSL § 2526.1(a)(3)(iii), the Court should impose the market-rate rent in place of the base rent since the apartment was vacant on the base date (id. at 592–593 ). At the time Gordon was decided, RSL § 2526.1(a)(3)(iii) provided that "[w]here a housing accommodation is vacant on the base date, the legal regulated rent shall be the rent agreed to by the owner and the first rent stabilized tenant taking occupancy after such vacancy ." The Court rejected the owner's argument based on this provision of the RSL, as the lease the owner sought to impose was explicitly not rent stabilized and thus did not provide "a rent agreed to by the owner and the first rent stabilized tenant" (id. at 593 ).
This section was amended, on January 8, 2014, and now provides:
"Where a housing accommodation is vacant or temporarily exempt from regulation pursuant to section 2520.11 of this Title on the base date, the legal regulated rent shall be the prior legal regulated rent for the housing accommodation, the appropriate increase under section 2522.8, and if vacated or temporarily exempt for more than one year, as further increased by successive two year guideline increases that could have otherwise been offered during the period of such vacancy or exemption and such other rental adjustments that would have been allowed under this Code."
Importantly, Gordon did not impose a method for measuring the rent overcharge. Instead the Court held "only" that RSL § 2526.1(a)(3)(iii)"cannot be used to set the base date rent" (id . ). As to how to determine the overcharge, the Court demurred, reasoning that "since the parties have not conducted any discovery, the record is not sufficiently developed to resolve that issue" (id. ). Defendants argue that, in any event, Gordon is distinguishable as the subject apartment was vacant four years prior to the filing of the complaint.
As to the issue of regulatory status, the Court was more determinative, holding that "no basis exists to dismiss plaintiffs' claims seeking a declaration that the apartment is rent-stabilized and an order directing plaintiffs be provided with a rent-stabilized lease" (93 AD3d at 592 ).
Plaintiffs argue that a subsequent First Department case, 72A Realty Assoc. v. Lucas (101 AD3d 401 [1st Dept 2012] ) is further weight behind its preferred method for determining overcharges in this case. In Lucas, another case emanating from Roberts, the Court, among other things, affirmed a civil court decision dismissing an owner's holdover proceeding, and "vacate[d] the base date rental rate determination" made by civil court, "reinstate[d] tenant's counterclaims for treble damages and attorneys' fees," and remanded for further inquiry into those issues (id. at 401 ).
While both Lucas and Gordon were decided in 2012, Gordon was decided in March, while Lucas was decided in December.
As to the issue of regulatory status, the Court held that the "tenant's challenge to the deregulated status of her apartment, which presents a ‘continuous circumstance’ is not barred by the six-year statute of limitations period set forth in CPLR 213(2)" (id. at 402, citing Gersten, 88 AD3d at 198–199 ).
As for the issue of calculating overcharges, without setting out a formula, Lucas held that the court below:
"erred in setting the base date rent for the overcharge counterclaim at the $2,250 per month rate based on the market rate in the lease effective for October 2004. While that date is correct under CPLR 213–a, in light of the improper deregulation of the apartment and given that the record does not clearly establish the validity of the rent increase that brought the rent-stabilized amount above $2,000, the free market lease amount should not be adopted, and the matter must be remanded for further review of rental history necessary to set the proper base date rate" (id. ).
The key phrase here, the one the parties argue over, is the one preceding and justifying the court's decision not to use the market rate rent: "in light of the improper deregulation of the apartment and given that the record does not clearly establish the validity of the rent increases that brought the rent-stabilized amount to above $2,000." Both Clermont and plaintiffs agree that the first part of the formulation is met: the apartments in The Clermont were improperly deregulated, given the fact that the building has been receiving J–51 benefits since 1997 and many apartments have been deregulated during that time. However, the parties differ on the second half of the formulation "given that the record does not clearly establish the validity of the rent increase."
There is no indication that the First Department intended, as plaintiffs argue, to interpret the phrase as presenting a disjunctive, either/or list of conditions, any one of which would justify looking back past the four-year period to determine overcharges.
Clermont first argues that this condition must be viewed through different procedural postures between the Lucas decision and this motion: Lucas resolved a motion to dismiss and cross motion for summary judgment in a summary proceeding, and allowed for discovery to go forward, while in the instant case, plaintiffs have already certified that discovery is complete. Second, Clermont argues that the Lucas Court only allowed for discovery with respect to rental history because tenants properly questioned the validity of the rent increase that brought the rent-stabilized amount over $2,000. This seems to suggest that the tenant in Lucas came forward with evidence suggesting willfulness or fraud. That is not the case. Instead, the Court said that the record did clearly establish the validity of the increases.
This reflects a key difference between the instant case and Lucas: in Lucas the plaintiff was seeking treble damages. Under the RSL, willful overcharges are subject to treble damages and the burden is on the owner to show that the overcharges were not willful (RSL § 26–516[a] ). Here, of course, plaintiffs have withdrawn any claim for willful overcharge when they moved for certification as a class. Thus, there is no burden on defendants to show a lack of willfulness. The importance of this difference is shown in the Lucas Court's investigation of the owner's insufficient showing as to the validity of the rent increase. It happens not in the discussion of the proper method for calculating rent overcharges, but in the Court's discussion of treble damages, where it held that the court below
"erred to the extent [it] dismissed, as a matter of law, tenant's counterclaim seeking treble damages. Landlord, in its affidavit, states that in 2001, $30,000 worth of renovations to the apartment were completed, bringing the monthly rent above the $2,000 threshold. However, the record does not contain anything to support landlord's renovation claim, including for example, bills from a contractor, an agreement or contract for work in the apartment, or records of payments for the renovations. A $1,491 monthly increase in rent is a substantial amount, and landlord did not provide sufficient information to validate the increase. Further inquiry upon remand is required to determine whether the overcharge was not willful, but rather the result of reasonable reliance on a Division of Housing and Community Renewal regulation" (101 AD3d at 402–403 ).
Lucas is thus distinguishable from the present case because it involved allegations of willful overcharge and a claim for treble damages based on those allegations. Defendants, in the context of Lucas, remind the court of Justice Singh's finding that Clermont "was acting in good faith reliance upon the DHCR's own interpretation of the law." While plaintiffs are correct that Justice Singh made this finding in the context of the discrete issue of whether or not to grant plaintiffs' motion for certification, the larger issue is that, after having certified that all discovery is complete, plaintiffs still make no allegations as to willfulness or fraud.
Lucas is noteworthy because it allows for an exception to CPLR 213–a where there is a question of fact as to fraud or willfulness, illustrating a concern articulated in the dissent in Matter of Grimm —that the majority in that case had allowed for an exception to CPLR 213–a not just for fraud, as it explicitly stated, but also for willfulness. Clermont cites three decisions that came down after Lucas which discussed fraud, but not any other exception to CPLR 213–a : Matter of Boyd v. New York State Div. of Hous. & Community Renewal (23 NY3d 999 [2014] ), Conason v. Megan Holding, LLC (25 NY3d 1 [2015] ), and Todres v.. W7879, LLC (137 AD3d 597 [1st Dept 2016] ). Clermont argues that these cases show that the exception to CPLR 213–a is narrower than plaintiffs insist.
Whether the difference between fraud and willfulness is, in this context, material is an open question.
Boyd was not a J–51 case. Instead, it involved an Article 78 proceeding challenging DHCR's denial of the tenant's overcharge complaint. Plaintiff claimed that the owner's rent increase prior to the lookback period was fraudulent, as the apartment was in an obviously unimproved condition (Matter of Boyd v. New York State Div. of Hous. & Community Renewal, 110 AD3d 594, 594–595 [1st Dept 2013] ). The First Department found that DHCR had acted arbitrarily and irrationally, and annulled its determination, reasoning that the DHCR "[f]inding that the owner ‘could have’ spent $39,000 [in improvements for the apartment], where the owner never submitted any evidence controverting petitioner's claims is not equivalent to finding that the owner actually made improvements costing that much" (id. at 595 ). The First Department remanded the case to the DHCR, "to give the parties the opportunity to present evidence in connection with the legality of the base rate rent" (id. ).
The Court of Appeals reversed and reinstated DHCR's determination, holding that it was not arbitrary or capricious, "as tenant failed to set forth sufficient indicia of fraud to warrant consideration of the rental history beyond the four-year statutory period" (23 NY3d at 1000–1001 ). As the First Department had done, the Court of Appeals cited to Matter of Grimm (id. ).
Conason, like Boyd, did not involve J–51 benefits or Roberts. Instead, Conason involved the owner's fraudulent scheme to destabilize an apartment prior to the lookback period. The Court held that:
"[b]ecause of the unrefuted proof of fraud in the record, we conclude that section 213–a merely limits tenants' recovery to those overcharges occurring during the four-year period immediately preceding Conason's rent challenge, and that the lawful rent on the base date must be determined by using the default formula devised by the [DHCR]"
(25 NY3d at 6 ] ).
Finally, in Todres, the First Department evaluated an apartment that was improperly deregulated while receiving J–51 benefits. Relying on Matter of Grimm and Boyd, the Court reduced a rent overcharge award from $131,043.94 to $2,618 (137 AD3d at 597–598). Todres held that the lower court had properly found that defendants had not engaged in a fraudulent scheme, and, accordingly, the court should not have looked past the four-year period described in CPLR–213–a and should not have granted treble damages (id. at 598 ). Plaintiff's attempt to distinguish Todres by arguing that the plaintiff there did not argue, as they do, that the base rent should be adjusted by determining the last rent stabilized rent amount, is unpersuasive.
Plaintiffs also contend that Lucas should be applied here, as DHCR itself has been applying its holding to subsequent administrative reviews. For example, plaintiffs submit Matter of Korn (DHCR Admin Rev, Docket No.CX410046RT [2015] ), in which DHCR determined that:
"[b]ased on the court's decision in [Lucas ], the legal regulated rent must be calculated based upon prior rent-stabilized rent before the owner wrongfully claimed that the apartment was deregulated" (id. at 2). This argument is unavailing, as it is the responsibility of the courts, rather than DHCR, to interpret in the first instance the legal issues flowing from Roberts, as the First Department held when deciding the issue of primary jurisdiction in this action (81 AD3d at 497–498 ).
Plaintiffs also argue that the court should declare its preferred method of calculating overcharges because it would harmonize the alleged statutory discord between CPLR 213–a and RSL § 26–516(a)(ii). RSL § 26–516(a)(ii) provides, in relevant part, that:
"... the legal regulated rent for purposes of determining an overcharge, shall be the rent indicated in the annual registration statement filed four years prior to the most recent registration statement, (or, if more recently filed, the initial registration statement) plus in each case any subsequent lawful increases and adjustments. Where the amount of rent set forth in the annual rent registration statement is not challenged filed four years prior to the most recent registration statement is not challenged within four years of its filing, neither such rent nor service of any registration shall be subject to challenge at any time thereafter"
Here, there is no difference between CPLR 213–a and RSL § 26–516(a)(ii) substantial enough to change the outcome or that would oblige the court to harmonize them. Both statutes set forth a four-year window for determining overcharges. Nothing in RSL § 26–516(a)(ii) prevents CPLR 213–a from barring courts from looking back past four years from the commencement of the action in determining rent overcharges.
While case law has worked exceptions into this preclusion, no court has articulated the exception that plaintiffs ask us to institute. In Matter of Grimm (15 NY3d 358 ), the Court of Appeals recognized that an evidentiary showing suggesting a fraudulent scheme to destabilize an apartment is an exception to CPLR 213–a. No other exception has been explicitly articulated, although the First Department, in Lucas (101 AD3d 401 ), appears to put willful overcharges on equal footing with fraudulent schemes. In Lucas, the burden was on the owner to show the absence of willfulness. However, as discussed above, that was appropriate, as Lucas involved a claim for treble damages for willful overcharge, and for such claims the RSL places a burden on owners to show a lack of willfulness.
In any event, Plaintiffs filed the note of issue, certifying that discovery is complete, without uncovering (or even alleging) any evidence of fraud or willfulness. Nor have Plaintiffs, in the absence of allegations of fraud or wilfulness, presented any compelling policy concerns justifying their preferred methodology for overcharge calculation. Accordingly, Clermont is correct that rent overcharges should be calculated from the base date four years prior to the filing of this action. However, Clermont is incorrect that the court should reduce the interest on any overcharge award from 9%, as it relies only on conclusory statements about plaintiffs' dilatory conduct.
III. Regulatory Status
As was alluded to briefly above, the issues of regulatory status and the measuring overcharges are decoupled for analysis under CPLR 213–a. The First Department held in East W. Renovating (16 AD3d 166 ) that "DHCR's consideration of events beyond the four-year period is permissible if done not for the purpose of calculating an overcharge but rather to determine whether an apartment is regulated" (16 AD3d at 167, citing Matter of Hargrove v. Division of Hous. & Community Renewal, 244 A.D.2d 241 [1st Dept 1997] ). Thus, the court may look past the four-year lookback period to determine if an apartment was taken out of rent stabilization improperly, or not returned to rent stabilization, during the period in which Clermont was receiving J–51 benefits. Accordingly, these plaintiffs are entitled to a declaration that their apartments are subject to rent stabilization and that Clermont is required to offer renewal leases on forms required by the RSL and approved by DHCR at regulated rents, and to otherwise continue the tenancies under the same terms and conditions as were provided at the inception of their tenancies.
That the J–51 benefits have now expired is no obstacle to this relief (see Matter of 73 Warren St., LLC v. State of N.Y. Div. of Hous. & Community Renewal, 96 AD3d 524 [1st Dept 2012] ). While defendants argue that Matter of 73 Warren St. should not apply, they rely on the same distinction that the Court of Appeals rejected in Roberts: buildings subject to rent stabilization exclusively because they receive J–51 benefits and those subject to rent stabilization prior to receipt of J–51 benefits.
While the court has not dismissed Clermont's affirmative defense of laches, Clermont makes no argument that the defense is actually applicable here or that it should prevent plaintiffs from receiving summary judgment as to the issue of regulatory status. As the determination of damages for overcharges and the determination of regulatory status are decoupled for CPLR 213–a purposes, DHCR may look back to the period immediately preceding the improper destabilization of the apartments for determining the proper rent going forward.
CONCLUSION
Accordingly, it is hereby ORDERED that the branch of plaintiffs' motion that seeks to dismiss defendant's affirmative defenses is granted except with respect to defendant's affirmative defense of laches; and it is further
ORDERED that the branch of plaintiffs' motion seeking summary judgment as to its claim for a declaratory judgment on the issue of regulatory status is granted, and it is ADJUDGED AND DECLARED:
That any plaintiffs' apartments that were destabilized or not returned to a rent stabilized status during the period in which defendant received J–51 tax benefits are subject to rent stabilization; moreover, defendant is required to offer renewal leases on forms required by the RSL and approved by DHCR at regulated rents to those leaseholders, and such plaintiffs may continue their tenancies under the same terms and conditions as were provided at the inception of their tenancies;
and it is further
ORDERED that the branch of plaintiffs' motion seeking a declaration as to its preferred method of determining rent overcharges is denied; and it is further
ORDERED that defendant's cross motion is denied, except with respect to its application for a declaratory judgment as to the proper method for determining rent overcharges; and it is
ADJUDGED AND DECLARED:
That the base date for determining rent overcharges in this case is January 27, 2006;
and it is further
ORDERED that plaintiffs shall, within 20 days of entry, serve a copy of this decision and order with notice of entry upon all parties.
This constitutes the decision and order of the Court.