Opinion
113867/07.
Decided February 23, 2009.
Jaime Lathrop, Esq., Brooklyn, New York, for Plaintiff.
Sidrane Schwartz-Sidrane, LLP, By: Steven D. Sidrane, Esq., Hewlett, New York, for Defendant.
In this rent overcharge action, plaintiff, a tenant who has lived in a rent-stabilized apartment (the Apartment) in a building currently owned by defendant 256 East 10th Street NY, LLC (the Owner), seeks to recover $27,452.43 in alleged rent overcharges, treble damages and $20,000 in attorney's fees. Pursuant to CPLR 3212, the Owner moves for summary judgment dismissing the complaint. The Owner admits that, for the last four years, plaintiff was overcharged rent in excess of an existing rent freeze order that the New York State Division of Housing and Community Renewal (DHCR) issued in 1994. However, the parties dispute the amount of the overcharge. The dispute requires the Court to harmonize the provisions of the Rent Regulation Reform Act of 1997 with the effect of a prior, continuing rent freeze order in calculating the amount of the overcharge.
BACKGROUND
Plaintiff alleges that, in March 1992, he entered into a rent-stabilized lease for the Apartment, with the former building owner at a rent of $690.00 per month. It is undisputed that, on or about December 5, 1994, a Rent Administrator of the New York State Division of Housing and Community Renewal (DHCR) found in plaintiff's favor on a complaint for decreased services and issued an order reducing and freezing the legal regulated rent for the Apartment
"to the level in effect prior to the most recent guidelines increase for the tenant's lease which commenced before the effective date of this Order. Furthermore, no rent increase may be collected after the effective date of this rent reduction Order, until a Rent Restoration Order has been issued. The owner is directed to refund to the tenant(s) all amounts collected in excess of the reduced rent, since the effective date of the Rent Reduction Order which is January 1, 1994"
(Rich Opp. Aff., Ex A). Plaintiff maintains that the legal regulated rent should have been reduced in accordance with the DHCR Order, and that no rent increases should have been collected thereafter until DHCR issued a rent restoration order.
Plaintiff maintains that he was not notified of DHCR's decision, and that he did not know until 2007 that DHCR had investigated his complaint, or that his rent had not been frozen by defendants as of the date of the DHCR Order. Instead, plaintiff states that he was given lease renewals in accordance with increases set forth by the Rent Guidelines Board, as if there were no rent freeze, and in contravention of the DHCR Order. According to plaintiff, he first received notice of the DHCR Order after the Owner made an application in July 2007 seeking a rent restoration order (Scharfman Aff., Ex C [Amended Complaint ¶ 9]). Plaintiff states that, on or about August 15, 2007, he received a letter from DHCR indicating that the Owner, who had recently purchased the building, had made an application to vacate the DHCR Order.
According to plaintiff, defendants had exclusive control over the mail delivery system in the building and, through their employees and/or agents, fraudulently concealed notice of the DHCR Order. He further states that, as the DHCR Order would not have appeared on a DHCR rent roll abstract, he would not have been able to discover that it was in effect.
On October 15, 2007, plaintiff commenced this action seeking to recover $27,452.43 in overcharges, treble damages for allegedly wilful overcharge, and attorneys' fees. Plaintiff brought the action against the former landlord named in his lease, East 10th Street Associates and its alleged successor, East 10th Street Associates LLC; against the entity named in the deed, 256 East 10th Street LLC, which conveyed the property to the current Owner; and against the undisputed current Owner. Plaintiff maintains that defendants were responsible to provide true and accurate registration for the Apartment, and that they knowingly, willfully, and fraudulently overcharged him, ignoring the DHCR Order. Plaintiff filed a summons and amended complaint on October 17, 2007.
According to Mark Scharfman, the Owner's managing member and president of the building's managing agent, the Owner purchased the subject building in September 2007, approximately one month before plaintiff filed this action. The Owner concedes that the rent that plaintiff has paid in the four years preceding the amended complaint is greater than the rent that plaintiff should have been charged, in light of the DHCR Order. Scharfman Aff. ¶ 16. The parties stipulated that, in October 2003, four years prior to the amended complaint, plaintiff's monthly rent was $924.23, pursuant to a lease which ran from April 1, 2003 to March 31, 2005. Scharfman states that a renewal lease running from April 1, 2005 to March 31, 2007 set the monthly rent at $984.41, which was thereafter again renewed for another two-year term, at a monthly rent of $1,055.78. Scharfman believes that plaintiff continually paid rent to the building's former owner, up to and including September 2007, but since then, after the Owner purchased the building, has not paid any rent.
In November 2007, Scharfman avers that, when the answer was served, the Owner tendered a check dated November 12, 2007 to plaintiff in the amount of $2,468.12. According to Owner, this is the amount of the overcharge, with interest at 9% per annum as of October 17, 2003, the date which is four years prior to the filing of the amended complaint. The Owner determined that, by virtue of the DHCR order and the Rent Regulation and Reform Act of 1997 (RRRA), plaintiff's monthly rent was frozen at the rate that plaintiff paid as of October 17, 2003, i.e, $924.33 per month. The Owner then calculated the difference between the rent frozen and the rent that plaintiff actually paid to be $2,230.62, and calculated interest at 9% per annum running from October 17, 2003 to be $237.50. Plaintiff refused the check.
CONTENTIONS
The Owner moves for summary judgment dismissing the complaint. The Owner acknowledges that it is liable for the overcharges of the prior owner (Rent Stabilization Code [ 9 NYCRR] § 2526.1 [f] [2] [i]; Matter of DiMaggio v Division of Hous. Community Renewal, 248 AD2d 533, 535 [2d Dept 1998]), but argues that it is entitled to summary judgment because it tendered the $2,468.14 check to plaintiff.
Plaintiff disagrees with using the amount of rent that he paid on October 17, 2003 as the base rent to calculate the overcharge. Plaintiff contends that, by virtue of the DHCR order, the base rent should have been reduced and frozen "to the level in effect prior" to the rent in effect on October 17, 2003, which plaintiff asserts was $888.78 per month. Alternatively, plaintiff argues that the base rent should have been $690 per month, which was the rent reduced and frozen "to the level in effect prior to the most recent guidelines increase for the tenant's lease which commenced before" January 1, 1994, the effective date of the DHCR order. Finally, plaintiff argues that, not only should the base rent be $690 per month, but that he should also be entitled to recover for all excess rent from the date of the DCHR Order, because the prior building owner willfully prevented him from receiving the DHCR Order in the mail, and did not implement the rent freeze. He also argues that this last method should be applied because the Owner has not indicated that it conducted any due diligence to determine whether the prior owner adhered to DHCR orders or registrations, the Owner might have been granted a credit on the purchase price of the building, and because it is unclear that the Owner has made efforts to fix the problems plaintiff reported in the building almost 15 years ago.
By order dated January 9, 2008, DHCR denied a rent restoration application concerning the DHCR Order stating that violations noted therein had been only partially corrected.
I.
The Rent Regulation Reform Act [RRRA] (L 1997, ch 116) "clarified and reinforced the four-year statute of limitations in rent overcharge claims and limited examination of the rental history of the housing accommodation prior to the four-year period preceding the filing of a complaint.'" Matter of Gilman v. New York State Div. of Hous. Community Renewal, 99 NY2d 144, 149 (2002). Accordingly, CPLR 213-a provides, in pertinent part, that
"[a]n action on 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"
( see also Rent Stabilization Code [ 9 NYCRR] § 2526.1 [a] [2]; Rent Stabilization Law of 1969 [Administrative Code of City of NY] § 26-516 [a] [2]).
Plaintiff asks that the Court "waive the four year look-back period set by the RRRA" (Rich Aff., ¶ 12) based on plaintiff's allegation that the prior owner fraudulently concealed from him notice of the DHCR Order through its control of the building's mailboxes. Plaintiff relies heavily on Thornton v Baron ( 5 NY3d 175 ) for his waiver argument. There, the Court of Appeals found that, under the particular circumstances of that case, which included collusion on the part of the landlord and tenant to remove an apartment from regulation under the rent stabilization laws, that the legal-regulated rent would be determined by the DHCR-developed default formula. The Court of Appeals also found the tenancy illusory, the lease invalid, and therefore deemed the rent registration statement listing the illegal rent from that lease a nullity ( id. at 181).
Here, there is no suggestion of a scheme similar to that found by the Court of Appeals in Thornton, and no dispute that the Apartment was, and remains, rent stabilized.
Furthermore, assuming that DHCR did send a copy of its Order to plaintiff, presumably in 1994 or 1995, plaintiff's assertion that his former landlord removed the DHCR Order from his mailbox is unsupported. Indeed, plaintiff provides no reason why he could not himself have sought information from DHCR, especially after he initiated a complaint, and asserts that thereafter he received nothing regarding it for approximately 15 years.
Accordingly, plaintiff's argument that he is entitled to recover rent overcharges for the entire period spanning from 1994 through September 2007 is unavailing. Plaintiff may recover only for those overcharges that occurred from October 17, 2003 and thereafter.
II
As to the overcharges which occurred during the four-year period preceding the filing of plaintiff's amended complaint, the parties do not dispute that plaintiff was overcharged, and may recover for those overcharges, but wrestle over the calculation of the amount of the overcharges. On the one hand, the Owner argues that the rent for the Apartment has been frozen at the base date rent of $924.33 per month, which the parties agree is the amount charged by the landlord, and paid by plaintiff, in October 2003, and that Rent Stabilization Law (Administrative Code of the City of NY) § 26-516 (a) (2) precludes examination of the Apartment's rent history prior to the four-year period preceding plaintiff's filing of the complaint. On the other hand, plaintiff advocates using the lower rent, specifically $690.00 per month, as contemplated in the DHCR Order, for the rent overcharge calculation. Alternatively, based on the language of the DHCR Order, plaintiff suggests using the rate of $888.78 per month, which he avers was the rent level in effect immediately prior to the level in effect in October 2003.
This is also the amount for which one of the defendants registered the rent with DHCR in 2003 (Scharfman Aff., Ex I).
Rent Stabilization Law § 26-516 (a) provides, in pertinent part:
"(i) Except as to complaints filed pursuant to clause (ii) of this paragraph, 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 . . . plus in each case any subsequent lawful increase and adjustments. Where the amount of rent set forth in the annual rent registration statement 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."
Accordingly, Rent Stabilization Code § 2520.6 (e) defines "legal regulated rent" as "The rent charged on the base date set forth in subdivision (f) of this section, plus any subsequent lawful increases and adjustments." Rent Stabilization Code § 2520.6 (f) states, in relevant part: "For the purpose of proceedings pursuant to sections 2522.3 and 2526.1 of this Title, base date shall mean the date which is the most recent of: (1) the date four years prior to the date of the filing of such appeal or complaint. . . ." ( see also Rent Stabilization Code [ 9 NYCRR] § 2526.1 [a] [3] [i] [in a DHCR proceeding, the "legal regulated rent for purposes of determining an overcharge shall be deemed to be the rent charged on the base date, plus in each case any subsequent lawful increases and adjustments"]). Here, the parties have stipulated that the rent on the base date, October 17, 2003, was $924.33.
The Owner's argument that the DHCR Order froze the rent at $924.33 is incorrect. The Owner reasons that the legal regulated rent reduced by the DHCR Order as of January 1, 1994 cannot be considered because that would lead to consideration of rental history four years prior to the complaint for overcharge, which the RRRA does not permit. To give effect to the DHCR Order and the RRRA, the Owners asserts that, for the purposes of computing an overcharge, the rent is frozen as of October 17, 2003 (Sidrane Affirm. ¶ 17).
The Appellate Division, Second Department's decision in Matter of Condo Units, LP v New York State Div. of Hous. Community Renewal ( 4 AD3d 424 [2d Dept 2004]) is instructive. There, a tenant brought an overcharge complaint with DHCR based on the landlord's failure to comply with a DHCR rent reduction order, which was issued prior to the four-year limitations period. The landlord challenged DHCR's consideration of the rent reduction order. On appeal, the Appellate Division, Second Department held,
"While Administrative Code of the City of New York § 26-516 (a) (2) precludes examination of the rent history of an apartment prior to the four-year period preceding the filing of a rent overcharge complaint [citations omitted], where a duty imposed prior to a limitations period is a continuing one, the statute of limitations is not a defense to actions based on breaches of that duty occurring within the limitations period [citations omitted]. Thus, the DHCR properly considered the rent reduction order issued prior to the four-year limitations period, but still in effect at the time of the overcharge complaint, since it imposed a continuing obligation on the landlord to reduce rent"
Id. at 424 (emphasis supplied).
Here, like the rent reduction order in Matter of Condo Units, LP, the DHCR Order in this case imposes a continuing obligation on the Owner to reduce rent, which continued into the four years prior to the amended complaint. "[T]he landlord was at all times under a duty to reduce the rent in accordance with the DHCR rent reduction order . . ." ( Hollis Realty Co. v Glover, 179 Misc 2d 522 [App Term, 2d Dept 1999]; see also Thelma Realty Co. v Harvey, 190 Misc 2d 303, 305-306 [App Term, 2d Dept 2001] [citing to Crimmins v Handler Co., 249 AD2d 89 (1st Dept 1998)]). Thus, to give effect to the continuing DHCR Order, the order constitutes a "subsequent lawful adjustment" which must be taken into account when calculating the rent on the base date for the purposes of computing an overcharge.
To accept the Owner's argument that the rent is reduced to the rent actually charged indeed overcharged on October 17, 2003 contravenes the express terms of the DHCR Order. By its own language, the DHCR Order does not "freeze" the rent at $924.33 per month. Rather, the DHCR Order reduced and froze the legal regulated rent at "the level in effect prior to the most recent guidelines increase for the tenant's lease which commenced before the effective date of this Order [January 1, 1994]" (Rich Opp. Aff., Ex A). To accept the Owner's argument leads to the absurd result that, by the virtue of the RRRA, the rent is frozen at a level that DHCR itself never set, and at a level which the Owner itself is not permitted to collect. The Court cannot accept the Owner's argument. "A construction which would make a statute absurd will be rejected." (McKinney's Cons. Laws of New York, Book 1, Statutes § 145).
The Legislature, in seeking to alleviate the burden on honest landlords to keep rental records indefinitely ( see Thornton, 5 NY3d at 181), did not intend through the RRRA, or otherwise, to provide an escape route for a landlord seeking to evade the terms of orders for required repairs or services to tenants. Adopting the Owner's argument would lead to anomalous results. Hypothetically speaking, if the DHCR rent reduction order here had frozen the rent to $690 per month, effective as of October 16, 2003, it would have been rendered ineffectual the very next day, when the Owner charged $924.33 in blatant violation of the DHCR order. Thus, the Owner's interpretation of the RRRA's effect on the rent reduction order creates an incentive for landlords to defy rent reduction orders, because if the landlord believes that it can persist in violating the rent reduction for at least four years, then the rent frozen by the DHCR order would become the rent charged in violation of the order. The Legislature could not have intended the RRRA to be a subterfuge to defeat DHCR rent reduction orders.
It is readily apparent that the DHCR Order does not state a specific dollar amount at which the rent is frozen. To determine the amount of the legal regulated rent, the Court must look at evidence indicating the rent in effect "prior to the most recent guidelines increase for the tenant's lease which commenced before" January 1, 1994. The Owner argues that looking at evidence to determine the level of the legal regulated rent of the DHCR Order amounts to impermissible consideration of rental history. Though not cited in the papers, this was the reasoning of the Appellate Term in Jenkins v Fieldbridge Assoc., LLC ( 15 Misc 3d 6 , 7 [App Term, 2d Dept 2007]).The Appellate Division, Second Department held in Matter of Condo Units, LP ( 4 AD3d 424 , supra) that a DHCR rent reduction order imposes a continuing obligation, and the Appellate Term in Jenkins acknowledged that a DHCR rent reduction order itself "was not part of the rental history" ( 15 Misc 3d at 7). Had the DHCR rent reduction order in Jenkins specified a dollar amount, instead of referring to rent in effect prior to the effective date, then the result in Jenkins might well have been different. A specific dollar amount in the rent reduction order in Jenkins would not have required that court to ascertain the rent level fixed by the rent reduction order, by examining what the court in Jenkins considered was impermissible rental history.
The DHCR Order was issued because the prior owner did not make the necessary repairs or provide services to tenants as required by law, which is not a matter of mere rental history. To hold otherwise would impose an injustice unintended by the DHCR or the Legislature merely because the DHCR rent reduction order used general language instead of specific dollar amounts. There is no way to determine the legal regulated rent frozen by the DHCR Order here without reference to the lease which commenced before January 1, 1994, which predates the most recent guidelines increase before the effective date of the DHCR order, or to other evidence indicating the rent charged at that time. Thus, the Court views the language of the DHCR order as incorporation by reference of lease rental provisions into a continuing order.
The incorporation by reference in the DHCR Order is not subject to the four year limitations bar ( see Matter of Pastreich v New York State Div. of Hous. Community Renewal , 50 AD3d 384 [1st Dept 2008]). In Matter of Pastreich, a rent-stabilized tenant filed an overcharge complaint with DHCR in 2004, which denied the complaint without a hearing. DHCR ruled that the tenant's lease, indicating a preferential rent, could not be considered because it was entered prior to the base date, more than four years prior to the filing of the rent overcharge complaint. The Appellate Division ruled that, because the tenant's most recent renewal expressly stated that it was "based on the same terms and conditions as the expiring lease, and further attached lawful provisions and attached written agreements, if any," the 1991 preferential lease rider "was incorporated into the most recent lease renewal, and was not barred from consideration by the four year limitation period" ( Matter of Pastreich, 50 AD3d at 386). Like the renewal lease at issue in Matter of Pastreich, the DHCR Order here incorporates by reference a rent which was set more than four years prior to the amended complaint in this action. Because the DHCR Order is a continuing order, the fact that it incorporates by reference a rent set prior to the four year period preceding the complaint therefore does not bar its consideration. Thus, the Court here is giving effect to a continuing order, rather than considering rental history beyond what is permitted under the RRRA.
Plaintiff's original lease, submitted here by the Owner, dated March 4, 1992, provides for a term of one year and 28 days, beginning March 4, 1992 and ending March 31, 1993. The rent stated in the lease is $690.00 per month. However, this is not the rent level frozen by the DHCR Order.
Rent guidelines increases generally occur in the fall of each year. The effective date of the DHCR Order being January 1, 1994, "the most recent guidelines increase for the tenant's lease which commenced before [January 1, 1994]" would have been the guidelines increase which occurred in Fall 1993. The rent level "in effect prior to" the Fall 1993 guidelines increase would be the rent on plaintiff's renewal lease, not the original lease, because plaintiff's original lease expired in March 31, 1993. The level of rent frozen in the renewal lease cannot be determined on this motion, because that lease was not in the record, and the amount of rent would vary depending on whether plaintiff chose to renew his lease for a one year or two year period. Determination of that issue must await trial.
III
"Any owner who is found . . . to have collected any rent . . . in excess of the legal regulated rent shall be ordered to pay to the tenant a penalty equal to three times the amount of such excess . . ." (Rent Stabilization Code [ 9 NYCRR] § 2526.1 [a] [1]). If an "owner establishes by a preponderance of the evidence that the overcharge was not willful, the DHCR shall establish the penalty as the amount of the overcharge" plus interest at the CPLR 5004 judgment rate, from the date of the first overcharge on or after the base date ( id.).
Although the finding of a rent overcharge was undisputed, the parties argue about the imposition of treble damages. A rent overcharge is presumed willful unless a landlord proves "by a preponderance of the evidence" that it was not willful or due to negligence (Rent Stabilization Code [ 9 NYCRR] § 2526.1 [a] [1]). Where the landlord does not prove that the overcharge is not willful, it is liable for three times the amount of any willful overcharge, with this penalty limited to two years preceding the complaint's filing (Rent Stabilization Code [ 9 NYCRR] § 2526.1 [a] [2] [i]; RSL § 26-516 [a] [2] [i]; Matter of Mangano v New York State Div. of Hous. Community Renewal , 30 AD3d 267 , 268 [1st Dept 2006]).
The Owner argues that it should not be subject to treble damages, as it is a new landlord that owned the building for only one month at the time plaintiff filed the complaint, has not itself collected any overcharges from plaintiff, and tendered a check to him for overcharges, with interest, simultaneously with its answer. The Owner also relies upon DHCR Policy Statement 89-2, which states that such repayment circumstances represent an example of conduct that DHCR deems to establish lack of willfulness, thereby rebutting the presumption of willfulness carried by the Owner (Scharfman Aff., Exh. K [Policy Statement 89-2]). Plaintiff argues that he is entitled to treble damages based on defendants' continued reliance on pre- Thornton decisions and administrative decisions, and the Owner's adherence to a base rent in contravention to the DHCR Order and continued failure to correct the conditions which caused DHCR to issue the order. In reply, the Owner states that the former owner admittedly, and mistakenly, charged an illegal rent after the 1994 DHCR Order, and that some repairs have been made. As the record demonstrates triable fact issues as to willfulness, including the Owner's attempt to tender overcharges to plaintiff, summary judgment on this issue is denied.
Policy Statement 89-2 provides several circumstances in which an owner will not be assessed treble damages for an overcharge occurring after April 1, 1984 (Scharfman Aff., Exh K, at 2]). One of the situations is where a landlord adjusts the rent "on his or her own within the time afforded to interpose an answer to the 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" ( ibid.).
IV
Plaintiff also requests attorneys fees, presumably pursuant to Rent Stabilization Law § 26-516 (a) (4) or Rent Stabilization Code (9 NYCRR) § 2526.1 (d). Rent Stabilization Law § 26-516 (a) (4) provides that "[a]n owner found to have overcharged may be assessed the reasonable costs and attorney's fees of the proceeding" (emphasis added). As plaintiff merely requests, but has not provided support for his request for entitlement to these fees, this determination is more appropriately made by the trial court.
Similarly, Rent Stabilization Code (9 NYCRR) § 2526.1 (d) states that an owner that is found to have "overcharged by DHCR may be assessed and ordered to pay to the tenant as an additional penalty the reasonable costs and attorney's fees of the proceeding."
While plaintiff does not in his opposition papers state the basis for his request for attorney's fees, the complaint states that the he seeks such fees under the Rent Stabilization Law.
V
The Court notes that, while plaintiff requested judgment in his favor in a prayer for relief in his opposition papers, he did not cross-move for summary judgment in his favor. The Court declines to grant plaintiff reverse summary judgment, in light of the unresolved factual issues as to the amount of rent fixed by the DHCR order, the Owner's alleged willfulness and the issue of entitlement to legal fees.
VI
Finally, pursuant to CPLR 325 (d), the Court exercises its discretion to transfer the action to the Civil Court of the City of New York. A separate transfer order has been signed herewith.
CONCLUSION
Accordingly, it is
ORDERED that the motion of defendant 256 East 10th Street NY, LLC for summary judgment dismissing the complaint is denied.