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Dugan v. London Terrace Gardens, L.P.

Supreme Court, New York County
Jun 6, 2011
2011 N.Y. Slip Op. 52501 (N.Y. Sup. Ct. 2011)

Opinion

603468/2009

06-06-2011

William Dugan, Marsha D'Yans, Georgette Gagnon, Lowell D. Kern, Michael Mccurdy, Jose Pelaez, Tracy Snyder, Michael J. Walsh, Leslie M. Mack, and Anita Zitis, on Behalf of Themselves and All Other Persons Similarly Situated, Plaintiffs, v. London Terrace Gardens, L.P., Defendant. James Doerr, on Behalf of Himself and All Other Persons Similarly Situated, Plaintiffs, v. London Terrace Gardens, L.P., Defendant.

For Plaintiffs Dugan, D'Yans, Gagnon, Kern, McCurdy, Pelaez, Snyder, Walsh, Mack, and Zitis Matthew D. Brinckerhoff Esq. Emery Celli Brinckerhoff & Abady LLP William Gribben Esq. and Ronald S. Languedoc Esq. Himmelstein, McConnell, Gribben, Donoghue & Joseph For Plaintiff Doerr Ronald Aranoff Esq., Hanna R. Neier Esq., and Christian Siebott Esq. Bernstein Liebhard LLP For Defendant Robert D. Goldstein Esq. and Paul N. Gruber Esq. Borah, Goldstein, Altschuler, Nahins & Goidel, P.C. Harry Frischer Esq., Richard M. Goldstein Esq., and Steven H. Holinstatt Esq. Proskauer Rose LLP


For Plaintiffs Dugan, D'Yans, Gagnon, Kern, McCurdy, Pelaez, Snyder, Walsh, Mack, and Zitis

Matthew D. Brinckerhoff Esq.

Emery Celli Brinckerhoff & Abady LLP

William Gribben Esq. and Ronald S. Languedoc Esq.

Himmelstein, McConnell, Gribben, Donoghue & Joseph

For Plaintiff Doerr

Ronald Aranoff Esq., Hanna R. Neier Esq., and

Christian Siebott Esq.

Bernstein Liebhard LLP

For Defendant

Robert D. Goldstein Esq. and Paul N. Gruber Esq.

Borah, Goldstein, Altschuler, Nahins & Goidel, P.C.

Harry Frischer Esq., Richard M. Goldstein Esq., and

Steven H. Holinstatt Esq.

Proskauer Rose LLP

, J.

I.BACKGROUND

Plaintiffs in these two actions, consolidated for this decision, on behalf of themselves and similarly defined classes of tenants at defendant's building complex London Terrace Gardens, claim that defendant has charged them excessive rents under the Court of Appeals' interpretation of applicable rent stabilization laws. Roberts v. Tishman Speyer Props., L.P., 13 NY3d 270 (2009). London Terrace Gardens consists of almost 1,000 apartments. Plaintiffs claim defendant has unlawfully removed approximately 30% of these units from rent stabilization or control and charged their tenants excessive rent.

Defendant moves to dismiss or stay each action to permit the New York State Division of Housing and Community Renewal (DHCR) to resolve plaintiffs' claims concerning whether their apartments are subject to the rent stabilization and control laws at issue, whether the tenants have been charged excessive rent, and what rent was to have been charged for what past period and is to be charged currently. C.P.L.R. §§ 2201, 3211(a). Roberts v. Tishman Speyer Props., L.P., 13 NY3d at 285-86, determined that DHCR's misinterpretation since 2000 of the rent stabilization laws at issue had caused rent overcharges to tenants of other large building complexes in New York County. Nevertheless, defendant insists that DHCR assume primary jurisdiction over the rent to be charged in defendant's building complex.

This decision more comprehensively explains the court's prior order denying defendant's motion. The court withheld this decision previously in an abundance of caution not to jeopardize the progress of settlement negotiations over the past year. At the parties' last appearance, however, defendant demonstrated that that promising progress had reached a standstill. II.THE APPLICABLE RENT STABILIZATION AND CONTROL LAWS AND THEIR INTERPRETATION

The "luxury decontrol" provisions of the New York City Rent Control Law and Rent Stabilization Law allow a landlord to remove apartments from rent control or stabilization and charge market rent when tenants' incomes exceed specified thresholds. N.Y.C. Admin. Code §§ 26-403.1, 26-504.3. Once a landlord removes apartments from rent regulation and charges market rent, the landlord no longer: must renew the tenants' leases or renew them for any prescribed period, is limited to the original lease terms or limited in negotiable rent increases, must provide the same services, or is subject to prohibitions against harassment of tenants.

Where landlords receive a New York City "J-51" tax exemption or abatement for their apartments under New York Real Property Tax Law § 489(1)(a) and New York City Administrative Code §§ 11-243 and 11-244 (formerly §§ J51-2.5 and J51-5), the apartments are subject to rent regulation, N.Y.C. Admin. Code §§ 11-243(i)(1), 26-504(c), and the luxury decontrol provisions do not apply. N.Y.C. Admin. Code §§ 26-403(e)(2)(j) and (e)(2)(k), 26-504.1, 26-504.2(a). DHCR's Rent Stabilization Code and its Rent and Eviction Regulations for rent controlled units, interpreting the luxury decontrol statutes, however, allowed a landlord to avail itself of luxury decontrol of apartments that already were rent stabilized or controlled when the landlord began receiving a J-51 tax exemption or abatement for those apartments. DHCR's regulations also allowed a landlord to continue charging market rent for apartments already deregulated under luxury decontrol when the landlord began receiving J-51 tax benefits for the building, but the New York City Department of Housing Preservation and Development (HPD) had reduced them in proportion to the percentage of deregulated apartments in the building.

Roberts v. Tishman Speyer Props., L.P., 13 NY3d at 285-86, determined that this regulatory interpretation, 9 N.Y.C.R.R. § 2520.11(r)(5)(i) and (s)(2)(i), of the Rent Stabilization Law, N.Y.C. Admin. Code §§ 26-504.1 and 26-504.2(a), was contrary to the statutes' terms that a landlord may not avail itself of luxury decontrol where the apartment "became subject to" rent stabilization "by virtue of receiving" a J-51 tax exemption or abatement. The statutory terms prohibiting luxury decontrol of rent controlled apartments receiving J-51 tax benefits, N.Y.C. Admin. Code § 26-403(e)(2)(j) and (e)(2)(k), are identical to §§ 26-504.1 and 26-504.2(a), just as DHCR's regulations misinterpreting each statute are comparable. 9 N.Y.C.R.R. §§ 2200.2(f)(19)(v) and (20)(ii), 2520.11(r)(5)(i) and (s)(2)(i).

The Roberts ruling, however, in turn raises further issues that the current two actions still must determine. First is the extent to which defendant's unlawful decontrol of apartments when tenants' incomes exceeded the thresholds for luxury decontrol, despite defendant's receipt of a J-51 tax exemption or abatement, must be remedied retroactively, requiring the landlord to repay past overcharges to tenants. Related to retroactivity is when plaintiffs' claims accrued and whether they survive under the applicable statute of limitations.

Third is whether defendant lawfully may avail itself of luxury decontrol for apartments to which it attributes no J-51 tax benefits, while receiving them for other apartments in its building, because HPD reduced them in proportion to the percentage of decontrolled apartments in the building. The Appellate Division in Roberts held that "all apartments in buildings receiving J-51 tax benefits are subject to the RSL during the entire period in which the owner receives such benefits." Roberts v. Tishman Speyer Props., L.P., 62 AD3d 71, 80 (1st Dep't),aff'd, 13 NY3d at 284 (emphasis added). In affirming, the Court of Appeals did not repeat that holding, but, when referring to the legislative history of Administrative Code §§ 26-504.1 and 26-504.2(a), emphasized that it "plainly indicates that 'at no point' would the luxury decontrol provisions apply to buildings which 'received' tax exemptions." Roberts v. Tishman Speyer Props., L.P., 13 NY3d at 287 (emphasis added). In fact the Rent Stabilization Law itself requires that it apply to: "Dwelling units in a building . . . receiving the benefits of section 11-243 or section 11-244." N.Y.C. Admin. Code § 26-504(c) (emphases added). See Independence Plaza N. Tenants' Assn. v. Independence Plaza Assoc., LP, 29 Misc 3d 868, 877 (Sup. Ct. NY Co. 2010). Related to all the above issues is the extent to which any prior judicial or DHCR adjudicatory decisions specifically regarding plaintiffs' rent levels affect determination of the retroactivity and limitations of plaintiffs' claims and the lawfulness of decontrol in proportion to a reduction in the tax benefits.

In sum, defendant seeks that all these issues be resolved consistently throughout New York's residential real estate rental market, which only a central administrative forum like DHCR is capable of accomplishing. Defendant posits that DHCR will resolve these issues by considering all affected parties' interests.

While DHCR's resolution of the issues through rulemaking well might consider all stakeholders' interests, defendant concedes that DHCR in over 18 months still has not amended its rules to conform to Roberts v. Tishman Speyer Props., L.P., 13 NY3d at 285-86. Were the court to grant a stay, plaintiffs might lose their apartments without rent regulation while waiting indefinitely for DHCR to act. For these reasons alone, such an indefinite stay would be inequitable, denying plaintiffs a prompt and permanent adjudication of their claims. C.P.L.R.§ 2201; Nezry v. Haven Ave. Owner LLC, 28 Misc 3d 1226, 2010 WL 3338545, at *5 (Sup. Ct. NY Co. 2010).

Nevertheless, even if DHCR may be counted on to act, a remand to DHCR of these building-wide actions or other building by building or unit by unit actions would prompt an adjudication only within the same context as the particular action. DHCR would be even further limited in these two actions, as it is unauthorized to decide whether to certify a class, determine its parameters, adjudicate plaintiffs' classwide claims, or grant the classwide relief plaintiffs seek. C.P.L.R. § 905. See 9 N.Y.C.R.R. §§ 2207.1, 2207.5, 2207.6, 2526.1, 2527.1. On the other hand, DHCR remains free to set and implement policy on a broader scale, consistent with the governing statutes, and after considering the broader impact on all interests.

III.RETROACTIVITY

Of particular concern to defendant is the retroactive application of Roberts v. Tishman Speyer Props., L.P., 13 NY3d at 285-86, which would affect buyers and sellers of residential rental property, their lenders, and taxing authorities, who calculated prospective rental values based on DHCR's interpretation of the Rent Stabilization Law that the Court of Appeals upset. Owners of residential rental property applied for and obtained J-51 tax benefits for many years for buildings where the owners had removed apartments from rent regulation under luxury decontrol in reliance on DHCR's interpretive regulations. If now required to repay the difference between the market rents charged and the regulated rent, owners well might repay more than the value of the tax benefits. Buyers of these buildings and lenders that financed them invested in them in reliance on collection of market rents for those apartments removed from rent regulation. The increased rental values in turn increased the local, state, and federal taxes paid on the buildings.

However magnanimous defendant's concern for other property owners, prospective owners, lenders, and governmental tax revenues, yet again, the only interests to be considered here are defendant's financial constraints if required to repay years of high overcharges to many tenants. Defendant's interests of course are balanced against the protection of tenants intended to be protected over that time from rent increases above the regulated levels. The Court of Appeals recognized, moreover, that even a heavy burden on a building owner is "no reason to eschew what we view as the only correct interpretation of the statute": a view that applies equally throughout the period the statute has been in effect and simply allows defendant to collect a lawful rent.Roberts v. Tishman Speyer Props., L.P., 13 NY3d at 287.

The issue here is not whether a new statute or new regulation is to be applied retroactively, but is whether the courts' interpretation, at their first opportunity, of a statute in effect since 1993, will now govern its application over that time. Gurnee v. Aetna Life & Cas. Co., 55 NY2d 184, 191-92 (1982); 72A Realty Assoc. v. Lucas, __ Misc 3d __, 2011 WL 2135625, at *1 (App. Term 1st Dep't May 24, 2011). In determining whether the interpretation of the Rent Stabilization Law, N.Y.C. Admin. Code §§ 26-504.1 and 26-504.2(a), inRoberts v. Tishman Speyer Props., L.P., 13 NY3d at 285-86, and the analogous provisions of the Rent Control Law, N.Y.C. Admin. Code § 26-403(e)(2)(j) and (e)(2)(k), are to be applied retroactively, the court examines three questions. (1) Did the Court of Appeals' decision establish a new principle of law, (a) by abruptly overruling past precedent on which litigants may have relied, or (b) by resolving an issue for the first time in a way not foreshadowed? (2) If another judicial principle of law or judicial interpretation governed previously, will retroactive operation of a newly announced principle or interpretation promote or retard its operation? (3) Will retroactive application impose inequitable results?Gurnee v. Aetna Life & Cas. Co., 55 NY2d at 191-92; Hilton Hotels Corp. v. Commissioner of Fin. of City of NY, 219 AD2d 470, 477 (1st Dep't 1995). See People v. Hill, 85 NY2d 256, 262-63 (1995); People v. Favor, 82 NY2d 254, 262-63 (1993); Americorp Sec. v. Sager, 239 AD2d 115, 117 (1st Dep't 1997); Matter of Taihem F., 222 AD2d 322, 323-24 (1st Dep't 1995).

Absent any past precedent to the contrary, Roberts v. Tishman Speyer Props., L.P., 13 NY3d at 285-86, resolved an issue for the first time. People v. Favor, 82 NY2d at 263; Gurnee v. Aetna Life & Cas. Co., 55 NY2d at 192; Matter of Taihem F., 222 AD2d at 323. Therefore only the extent to which that resolution was not foreshadowed and not to be expected and to which its retroactive application will produce inequity, which in turn would consider any inequitable financial impact on defendant if required to repay massive overcharges, are to be examined.

Despite any such impact, the very fact that Roberts enunciated a principle of law that did not overrule past precedent on which litigants may have relied, but was defensible based on the past law, the 1993 statute, nonetheless will militate in favor of retroactive application when the retroactivity issue is reached. Rogers v. Tennessee, 532 U.S. 451, 464 (2001); People v. Hill, 85 NY2d at 263; Gurnee v. Aetna Life & Cas. Co., 55 NY2d at 192; 72A Realty Assoc. v. Lucas, 2011 WL 2135625, at *1. See Roberts v. Tishman Speyer Props., L.P., 13 NY3d at 287. So will "the plain text," id. at 285, and "the most natural reading of the statute's language" that has remained intact since its enactment, as well as its legislative history when enacted, id. at 286, that foreshadowed the Court of Appeals' interpretation of the Rent Stabilization Law. People v. Hill, 85 NY2d at 262; People v. Favor, 82 NY2d at 263. Defendant's reliance on DHCR's erroneous interpretation still may be a consideration, on the other hand, in examining whether overcharges were intentional, warranting an award of treble damages.72A Realty Assoc. v. Lucas, 2011 WL 2135625, at *2. See N.Y.C. Admin. Code §§ 26-413(d)(2), 26-516(a); 9 N.Y.C.R.R. §§ 2206.8(b), 2526.1(a)(1); Bradbury v. 342 W. 30th St. Corp., __ AD3d __, 2011 WL 2119376, at *2 (1st Dep't May 31, 2011); H.O. Realty Corp. v. State of NY Div. of Hous. & Community Renewal, 46 AD3d 103, 107-108 (1st Dep't 2007); Nagobich v. New York State Div. of Hous. & Community Renewal, 200 AD2d 388 (1st Dep't 1994); Roker Realty Corp. v. Gross, 163 Misc 2d 766, 768 (App. Term 1st Dep't 1995).

IV.PLAINTIFFS' CLAIMS

Plaintiffs bring their actions on behalf of a class of former, current, and future tenants at London Terrace Gardens residing in apartments that were subject to rent stabilization or rent control, but were treated as unregulated under luxury decontrol, since 2003 when defendant began receiving almost $2,000,000 in J-51 tax benefits. Plaintiffs seek a declaratory judgment that these apartments be returned to their prior regulated status, that any pending petitions before DHCR to deregulate apartments are void, and that any prior deregulation orders by DHCR are void. To return the apartments to regulated status, plaintiffs seek injunctive relief ordering defendant to register the unregulated apartments with DHCR and to offer the tenants renewal leases approved by DHCR. Plaintiffs seek damages equal to the excessive rents charged when plaintiffs' apartments were treated as unregulated during defendant's receipt of J-51 tax benefits.

Plaintiffs in one or both of these two actions, moreover, do not just claim rent overcharges under the Rent Stabilization Law or Rent Control Law. Plaintiffs also claim deceptive business practices, promissory estoppel, and reformation of their rental contracts.

V.PRIMARY JURISDICTION

A.The Court's and DHCR's Concurrent Jurisdiction

Where an administrative agency with the necessary expertise may dispose of issues, the court, despite its concurrent jurisdiction, NY Const. art. VI, § 7; NY Jud. Law § 140-b; Sohn v. Calderon, 78 NY2d 755, 766 (1991), may in its discretion suspend its action until resolution of the issues in an administrative proceeding. See id. at 768; Wong v. Gouverneur Gardens Hous. Corp., 308 AD2d 301, 303 (1st Dep't 2003); Acosta v. Loews Corp., 276 AD2d 214, 218-19 (1st Dep't 2000); Nasaw v. Jemrock Realty Co., 225 AD2d 385, 386 (1st Dep't 1996). The court then may take the agency's determination into account in the court's ultimate disposition. These issues may be factual, technical, or legal if they concern interpretation or application of statutes the agency is authorized to implement.Capital Tel. Co. v. Pattersonville Tel. Co., 56 NY2d 11, 22 (1982); Wong v. Gouverneur Gardens Hous. Corp., 308 AD2d at 303-304; Davis v. Waterside Hous. Co., 274 AD2d 318 (1st Dep't 2000). DHCR's field of expertise, without question, is issues related to rent regulation, Sohn v. Calderon, 78 NY2d at 768; Davis v. Waterside Hous. Co., 274 AD2d at 319, including the determination of the regulated rent over a retroactive period and the award of refunds and penalties for landlords' overcharges to tenants. 390 W. End Assoc. v. Nelligan, 35 AD3d 306 (1st Dep't 2006); Wasserman v. Gordon, 24 AD3d 201, 202 (1st Dep't 2005); 390 W. End Assoc. v. Zouker, 302 AD2d 227, 228 (1st Dep't 2003); Davis v. Waterside Hous. Co., 274 AD2d at 319.

No authority, however, supports the dismissal or stay of a court action until an administrative proceeding resolves the issues raised, except in the following circumstances. (1) The legislature specifically has conferred exclusive, rather than primary, jurisdiction on the administrative agency to resolve the issues in the first instance. Sohn v. Calderon, 78 NY2d at 766-67; Wong v. Gouverneur Gardens Hous. Corp., 308 AD2d at 304-305 & n.*; Vazquez v. Sichel, 12 Misc 3d 604, 607 (Civ. Ct. NY Co. 2005). See Capers v. Giuliani, 253 AD2d 630, 632-33 (1st Dep't 1998); County Dollar Corp. v. Douglas, 160 AD2d 537, 538 (1st Dep't 1990); Pocantico Home & Land Co., LLC v. Union Free School Dist. of Tarrytowns, 20 AD3d 458, 461-62 (2d Dep't 2005). (2) Plaintiffs seek referral to the agency for resolution of their claims. Crimmins v. Handler & Co., 249 AD2d 89, 91 (1st Dep't 1998). See Missry v. Ehrlich, 1 Misc 3d 723, 731 (Civ. Ct. NY Co. 2003). (3) An administrative proceeding relating to the issues preceded the court action or still is pending.Wong v. Gouverneur Gardens Hous. Corp., 308 AD2d at 302, 305; Davis v. Waterside Hous. Co., 274 AD2d at 319; Nasaw v. Jemrock Realty Co., 225 AD2d at 386. See Acosta v. Loews Corp., 276 AD2d at 218; Missry v. Ehrlich, 1 Misc 3d at 731. Defendant does not contend that any of these circumstances pertains here.

Without such a proceeding previously or currently pending, none of the factors that militate in favor of DHCR's primary jurisdiction carries any force. No coordination between the court action and DHCR's proceeding is necessary. There is no risk of inconsistent dispositions, nor will any DHCR determinations be forthcoming to inform the court. Wong v. Gouverneur Gardens Hous. Corp., 308 AD2d at 303; Davis v. Waterside Hous. Co., 274 AD2d at 318-19; Missionary Sisters of the Sacred Heart v. Meer, 131 AD2d 393, 395 (1st Dep't 1987);Vazquez v. Sichel, 12 Misc 3d at 611. See Capital Tel. Co. v. Pattersonville Tel. Co., 56 NY2d at 22; Heller v. Coca-Cola Co., 230 AD2d 768, 770 (2d Dep't 1996). B.DHCR's Limited Authority

DHCR's province is to administer the requirements embodied in the Rent Stabilization Law and Rent Control Law. While those statutes may leave room for DHCR's interpretation through implementing regulations, its interpretation of statutes the agency is charged with implementing "is entitled to varying degrees of judicial deference depending on the extent to which the interpretation relies on the special competence the agency is presumed to have developed" in administering the statutes. Rosen v. Public Employment Relations Bd., 72 NY2d 42, 47 (1988).

Here, Roberts v. Tishman Speyer Props., L.P., 13 NY3d at 285-86, has interpreted the statutory requirements at issue and left no room for DHCR's variance from those strictures. The Court of Appeals found not only that DHCR's interpretation of those statutory requirements was at variance from those strictures, but also that interpretation of those statutory requirements:

does not call upon us to interpret a statute where "specialized knowledge and understanding of underlying operational practices or . . . an evaluation of factual data and inferences to be drawn therefrom" is at stake such that we should defer to the administrative agency's interpretation.
Id. at 285 (quoting KSLM-Columbus Apts., Inc. v. New York State Div. of Hous. & Community Renewal, 5 NY3d 303, 312 (2005)). Where the issue requires accurate reading and analysis of statutes and apprehension of legislative intent, there is no basis for reliance on an administrative agency's expertise. Roberts v. Tishman Speyer Props., L.P., 13 NY3d at 285-86. "Application of statutory . . . standards and determination of whether they have been followed are regularly within the court's province." Vazquez v. Sichel, 12 Misc 3d at 612 (citing Missionary Sisters of the Sacred Heart v. Meer, 131 AD2d at 395-96; State of New York v. Winter, 121 AD2d 287, 289 (1st Dep't 1986)).

In many instances the court would act within its discretion whether the court were to recognize DHCR's primary jurisdiction or to exercise its concurrent jurisdiction. In this precise situation, however, the court, specifically and definitively, is unauthorized to allocate primary jurisdiction to DHCR. Gerard v. Clermont York Assoc., LLC, 81 AD3d 497, 498 (1st Dep't 2011). To apply the doctrine of primary jurisdiction to "legal issues left open after the Court of Appeals' decision in Roberts v. Tishman Speyer Props., L.P.(13 NY3d 270 [2009]), including whether the decision is to be applied retroactively," would be an abuse of discretion. Gerard v. Clermont York Assoc., LLC, 81 AD3d 497.

The absence of such discretion or authority stems from the undeniable reality that DHCR is in fact without the expertise and not well suited to determine the broadly applicable determinations defendant readily acknowledges this action demands. As outlined, they include the retroactive effect of Roberts v. Tishman Speyer Props., L.P., 13 NY3d at 285-86, application of the governing statute of limitations to the accrual of plaintiffs' claims, the lawfulness of decontrol in proportion to a reduction in J-51 tax benefits, thepreclusive effect of prior judicial or DHCR decisions, class certification, and grounds for relief beyond the Rent Stabilization Law and Rent Control Law. "It is the courts, not the Division of Housing and Community Renewal, that should address these issues in the first instance." Gerard v. Clermont York Assoc., LLC, 81 AD3d at 497-98. C.The Issues to Be Determined Exclusively by the Court

On defendant's focal issue of retroactivity, the extent to which the Court of Appeals' statutory interpretation was foreshadowed and to which its retroactive application will produce inequity are not within DHCR's particular field of expertise. Nor does DHCR determine which statute of limitations applies to claims. DHCR applies only two: the four years applicable to overcharge claims for rent stabilized units, set by C.P.L.R. § 213-a and Administrative Code § 26-516(a), and the two years for rent controlled units, set by Administrative Code§ 26-413(d)(2). Hicks v. New York State Div. of Hous. & Community Renewal, 75 AD3d 127, 132-33 (1st Dep't 2010). DHCR does not determine circumstances under which tenants may not claim four years retroactively, as defendant may urge here, or under which tenants may claim more than four years retroactively, as plaintiffs may urge here, particularly as to their claims for promissory estoppel and contract reformation. C.P.L.R. § 213.

Insofar as defendant's decontrol of apartments in proportion to a reduction in J-51 tax benefits involves defendant's waiver of J-51 benefits, the legality of such a unilateral waiver and its effectiveness to terminate rent regulated status is for the court to determine. State of New York v. Fashion Place Assoc., 224 AD2d 280, 281-82 (1st Dep't 1996); Independence Plaza N. Tenants' Assn. v. Independence Plaza Assoc., LP, 29 Misc 3d at 882. In fact defendant has suggested a more far reaching waiver: refunding all the J-51 tax benefits received and continuing as deregulated all apartments that would have reverted to a regulated status under Administrative Code§§ 26-403(e)(2)(j) and (e)(2)(k), 26-504.1, and 26-504.2(a), "by virtue of" the benefits received. Insofar as such decontrol depends on prorating or refunding J-51 benefits, that determination is by HPD, which administers the tax benefits. 28 R.C.NY § 5.01(a). HPD's regulations specifically prescribe that, "to be eligible to receive tax benefits under the Act and for at least so long as a building is receiving the benefits of the Act, . . . all dwelling units in buildings . . . shall be subject to rent regulation," 28 R.C.NY§ 5.03(f)(1) (emphases added), and that "rent regulation shall not be terminated by the waiver or revocation of tax benefits." 28 R.C.NY § 5.03(f)(3)(ii). See Independence Plaza N. Tenants' Assn. v. Independence Plaza Assoc., LP, 29 Misc 3d at 875-77.

Defendant makes no showing that DHCR's specialized expertise equips DHCR to usurp these determinations. Were DHCR to permit what HPD prohibits, only the court is empowered to resolve such an inter-agency conflict. Were HPD to permit defendant's "repayment of benefits actually received" and a "retroactive termination of the benefits," the court may determine that defendant's retroactive claim of nonreceipt or HPD's retroactive termination of J-51 benefits "is a mere legal fiction," id. at 880, "based on an impermissible waiver . . . of benefits that is ineffective, under 28 R.C.NY§ 5.03(f)(3)(ii), to terminate rent stabilization coverage of plaintiffs' units." Independence Plaza N. Tenants' Assn. v. Independence Plaza Assoc., LP, 29 Misc 3d at 881. See State of New York v. Fashion Place Assoc., 224 AD2d at 281. Insofar as the relief plaintiffs seek involves invalidating prior DHCR proceedings and orders, while DHCR may be empowered to dismiss proceedings before it and vacate its prior orders, plaintiff tenants are entitled to the court's declaration regarding the invalidity of those proceedings or orders and the court's reversal of such agency actions if warranted.Grimm v. State of NY Div. of Hous. & Community Renewal, 15 NY3d 358, 366-67 (2010); Gilman v. New York State Div. of Hous. & Community Renewal, 99 NY2d 144, 150-51 (2002); Devlin v. New York State Div. of Hous. & Community Renewal, 309 AD2d 191, 196 (1st Dep't 2003); Crimmins v. Handler & Co., 249 AD2d at 90-91. See Drucker v. Mauro, 30 AD3d 37, 39 n.* (1st Dep't 2006); 721 Ninth Ave., LLC v. New York State Div. of Hous. & Community Renewal, 8 AD3d 41, 45 (1st Dep't 2004); Futterman v. New York State Div. of Hous. & Community Renewal, 264 AD2d 593, 595 (1st Dep't 1999).

Finally, it is undisputed that DHCR is unauthorized to adjudicate claims under statutes that do not pertain specifically to rent stabilization or control or claims under the common law, including plaintiffs' deceptive business practices, promissory estoppel, and contract reformation claims. While DHCR must consider equitable factors when establishing the regulated rent, this authority is tightly circumscribed. 9 N.Y.C.R.R. §§ 2202.22(b), 2522.7. It provides not for equitable relief, but only for balancing equitable factors in arriving at monetary relief: the very "types of factors courts regularly weigh" in exercising monetary or equitable jurisdiction, but hardly comparable to the court's powers to adjudicate and grant plaintiffs' claims for equitable relief.Vazquez v. Sichel, 12 Misc 3d at 610. See Nasaw v. Jemrock Realty Co., 225 AD2d at 386. Thus, even if plaintiffs' claims for rent overcharges under the Rent Stabilization Law or Rent Control Law were remanded to DHCR and decided against plaintiffs, their other claims would remain for the court to decide. See Batas v. Prudential Ins. Co. of Am., 281 AD2d 260, 261 (1st Dep't 2001).

Similarly, it is undisputed that DHCR is unauthorized to decide whether to certify a class, determine its parameters, or adjudicate plaintiffs' claims for classwide relief. C.P.L.R. § 905. See 9 N.Y.C.R.R. §§ 2207.1, 2207.5, 2207.6, 2526.1, 2527.1. Even if DHCR were to address the named plaintiffs' claims, their co-tenants would be without redress unless they commenced their own actions. Although defendant may claim a class action is unnecessary, the need for a class action is the court's and not DHCR's determination. D.The Issues to Be Determined by the Court or DHCR

Denying defendant's current motion to dismiss or stay the action does not mean that the court, having set the parameters of retroactivity, the statute of limitations, the lawfulness of decontrol in proportion to a reduction in tax benefits, and the preclusive effect of prior judicial or DHCR decisions, might not then remand the action to DHCR. In deciding these issues, the court may determine whether each apartment included in these actions was subject to rent stabilization or control over a past period. Plaintiff tenants are entitled to the court's determination of their rent regulatory status and whether they have been overcharged for rent.Thornton v. Baron, 5 NY3d 175, 180-81 (2005); Bradbury v. 342 W. 30th St. Corp., __ AD3d __, 2011 WL 2119376, at *3; East W. Renovating Co. v. New York State Div. of Hous. & Community Renewal, 16 AD3d 166, 167 (1st Dep't 2005); Wolfisch v. Mailman, 182 AD2d 533 (1st Dep't 1992). See Rabouin v. Metropolitan Life Ins. Co., 307 AD2d 843, 844 (1st Dep't 2003). As a fundamental principle, the Rent Stabilization Law and Rent Control Law expressly prohibit impairment, diminution, or dislocation of those rights. N.Y.C. Admin. Code§ 26-511(b). More specifically bearing on primary jurisdiction, those determinations "are within the court's conventional expertise" and do not require expertise or resources beyond the court's competence. Vazquez v. Sichel, 12 Misc 3d at 612. See Madison-Oneida Bd. of Coop. Educ. Servs. v. Mills, 4 NY3d 51, 59 (2004); Missionary Sisters of Sacred Heart v. Meer, 131 AD2d at 395-96; Roker Realty Corp. v. Gross, 163 Misc 2d at 767-68.

Yet for each apartment returned to a prior regulated status, it then may be necessary to determine the initial regulated rent to which the rent level must be restored and when, annual increases, and increases based on major capital improvements or on individual apartment improvements. Once the court makes the first category of more broadly applicable determinations, for which an administrative agency is not well suited, the agency may be more suited to the second category of determinations on the measure of damages to each plaintiff, by reconstructing the base rent and allowable rent increases specific to individual units.Wasserman v. Gordon, 24 AD3d at 202; 390 W. End Assoc. v. Zouker, 302 AD2d at 227-28; Nezry v. Haven Ave. Owner LLC, 28 Misc 3d 1226, 2010 WL 3338545, at *3-4. At this juncture, however, dismissal or even a stay of these actions is impermissible and, at best, premature. Gerard v. Clermont York Assoc., LLC, 81 AD3d at 497-98.

VI.CONCLUSION

For the foregoing reasons, the court denies defendant's motions to dismiss or stay these actions. C.P.L.R. §§ 2201, 3211(a).

DATED: June 6, 2011

_____________________________

LUCY BILLINGS, J.S.C.


Summaries of

Dugan v. London Terrace Gardens, L.P.

Supreme Court, New York County
Jun 6, 2011
2011 N.Y. Slip Op. 52501 (N.Y. Sup. Ct. 2011)
Case details for

Dugan v. London Terrace Gardens, L.P.

Case Details

Full title:William Dugan, Marsha D'Yans, Georgette Gagnon, Lowell D. Kern, Michael…

Court:Supreme Court, New York County

Date published: Jun 6, 2011

Citations

2011 N.Y. Slip Op. 52501 (N.Y. Sup. Ct. 2011)

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