Opinion
43271/2016
08-06-2020
GOLD RIVKA 2 LLC, Petitioner, v. Santiago RODRIGUEZ, Ysabel Manzanillo, Respondents.
Todd Rothenberg, Esq.-for the Petitioner Bronx Legal Services, by Angela DeVolld, Esq.-for the Respondent
Todd Rothenberg, Esq.-for the Petitioner
Bronx Legal Services, by Angela DeVolld, Esq.-for the Respondent
Karen May Bacdayan, J.
Recitation, as required by CPLR 2219 (a), of the papers considered in review of this motion:
Papers Numbered
Notice of Motion, annexed Affirmation, and Exhibits (1-8) (filed via EDDS on May 5, 2020) 1
Affirmation in Opposition (filed via email on June 12, 2020) 2
Reply Affirmation (filed via email on July 23, 2020) 3
After oral argument and upon the foregoing cited papers, the decision and order on this motion is as follows:
By two separate decisions on the parties' respective motions, this court previously granted summary judgment dismissing the nonpayment petition and entering a judgment in favor of respondent Ysabel Manzanillo ("Respondent") on the rent overcharge counterclaim. In doing so, the court analyzed and applied the then newly enacted provisions of the Housing Stability and Tenant Protection Act of 2019 ("HSTPA") concerning the calculation of overcharge damages.
Ysabel Manzanillo is the only respondent to which this decision refers.
Based on constitutional arguments which were not raised before this court, the Court of Appeals has since held, in Matter of Regina Metro. Co. LLC v. New York State Div. of Hous. & Community Renewal , — NY3d —, 2020 NY Slip Op 02127, *2 (2020), that the HSTPA's overcharge calculation amendments cannot be applied to overcharges that occurred prior to their enactment. Gold Rivka 2 LLC ("Petitioner") has now moved pursuant to CPLR 2221 (e) to renew argument on Respondent's summary judgment application and, upon renewal, asks the court to vacate its two prior decisions.
For the reasons below, Petitioner's motion is denied in part, granted in part, and the August 13, 2019 decision is modified as set forth herein.
PROCEDURAL HISTORY, BACKGROUND, AND RELEVANT FACTS
Respondent originally interposed an answer to this nonpayment proceeding pro se , asserting a general denial, partial payment of the arrears claimed, and breach of the statutory warranty of habitability. Thereafter, Bronx Legal Services appeared as counsel and moved in October 2016 to interpose an amended answer comprising defenses of defective rent demand, failure to properly plead the rent-stabilized regulatory status of the apartment, and a defense and counterclaim for damages due to a willful overcharge. Respondent has lived in the apartment since November 1, 2014; she moved in pursuant to a one-year lease for $2,000 per month. In 2010, Petitioner's predecessor-in-interest had registered Respondent's apartment as "exempt" from rent stabilization by virtue of "high rent vacancy." The apartment has not been registered with the Division of Housing and Community Renewal ("DHCR") since 2010.
On February 22, 2017 Respondent was granted leave to interpose the amended answer and the court deemed it served and filed. Respondent was also granted leave to conduct discovery based on the deficiencies in the Petitioner's predecessor-in-interest's registration history and questions regarding the rent increases that purportedly removed the apartment from rent regulation. The court found "the relevant period [for discovery] to be 2006 to the present, which includes the significant 95% increase in the regulated rent." (Feb. 22, 2017, McClanahan, J.) Petitioner, who had filed a cross-motion to amend its pleadings to reflect that the premises were subject to the rent stabilization laws, withdrew its application, choosing instead to litigate that issue. Petitioner provided documents pursuant to the discovery order and later stipulated that all documents in its possession had been produced.
Respondent then moved for summary judgment dismissing the proceeding, as well as for summary judgment on the determination and calculation of an overcharge. Respondent initially argued that the court should employ the default formula, which is more fully discussed below, to "reset the rent" because "Petitioner and/or its predecessor-in-interest fraudulently deregulated the subject premises in 2010." (Respondent's Feb. 1, 2019 memorandum of law at 25.) Pursuant to the default formula, Respondent calculated that the rent should be "set at $1,118.14 per month." (Id. at 27.) Respondent argued further that the rent should be frozen "at the last properly registered, regulated rent of $646.77 until Petitioner registers the new default formula rent, which it may only collect prospectively." (Reply affirmation of Respondent's counsel of May 10, 2019 at 19.)
By a first decision, dated June 17, 2019, the court dismissed the petition on the basis that Petitioner, in a third reversal of its position, no longer claimed the apartment was not subject to rent stabilization, and, in fact, affirmatively stated that it is a regulated premises. (Yonah Halton, April 17, 2019 aff ["Halton aff"] at 3.) The court also dismissed the petition on the basis that Petitioner's agent affirmed its attorney's calculations that Respondent's legal regulated rent should be $1,347.80 per month, and not the $2,000 claimed in the rent demand. (Affirmation of Petitioner's counsel of April 17, 2019 at 47; Halton aff at 5). As such, the Petitioner had admittedly misrepresented the regulatory status of the premises which rendered the Petition defective, and admittedly misstated the amount of the monthly rent that could be charged Respondent which rendered the rent demand defective as it was not a good faith approximation of the rent due for the period claimed. Further, based on Petitioner's admissions and failure to rebut the presumption of willfulness, the court found that the Petitioner was liable for a willful overcharge. However, due to the passage of the HSTPA on June 14, 2019, which effectuated widespread changes to state housing laws including the provisions of the Rent Stabilization Law ("RSL") and the CPLR relevant to the calculation of overcharges, the court requested additional briefing from the parties on the proper methodology for calculating damages.
In the supplemental briefs, Respondent abandoned the default formula arguments and argued instead that the language of the HSTPA required the legal regulated rent be set at what both parties previously agreed to be Petitioner's last reliable rent registration of $646.77. (Supplemental affirmation of Respondent's counsel of July 24, 2019 at 3.) As before, Respondent argued that when calculating damages RSL 26-517 (e) required the rent be frozen at that same amount. (Id. at 18-19.) In Petitioner's supplemental papers, it reiterated its argument that the legal regulated rent should be reconstructed and set at the last reliable registration amount of $646.77 plus Rent Guidelines Board Order increases for each of the registered and unregistered lease terms thereafter. (Supplemental affirmation of Petitioner's counsel of July 12, 2019 at 30-53.) Accruing at this amount per month since the inception of Respondent's tenancy in November 2014, and subtracting the amounts actually paid, Petitioner argued that no overcharge had occurred. (Id. at 49-50.)
The court accepted Respondent's suggested methodology, and, in a second decision dated August 13, 2019, awarded Respondent $90,672.87 comprising an actual overcharge of $30,223.79 and treble damages for willfulness. The decision was based on this court's interpretation that Part F of the HSTPA obsolesced the use of the default formula to determine overcharge awards in instances where a significant indicia of fraud was demonstrated, and instead provided that in determining overcharge awards, a court shall consider all relevant rent history in order to find the last most reliable registration, regardless of fraud. Under the Part F of the HSTPA, the "rent indicated in the most recent reliable annual registration statement" became the "base date" rent. (RSL § 26-516 [a], as amended by L 2020, ch 36, part F, § 4; see also Rent Stabilization Code § 2520.6 [f] [defining "base date"].) Prior to Regina Metropolitan , Part F was interpreted to apply retroactively to all "pending overcharge claims." (See e.g. Dugan v. London Terrace Gardens, L.P. , 177 AD3d 1, 11 [1st Dept 2019], order recalled and vacated — AD3d —, 2020 NY Slip Op 04239 [2020].) No "subsequent lawful increases" were calculated on the base date rent of $646.77. (RSL § 26-516 [a].)
Although much of the language regarding overcharge claims was amended by the HSTPA, the language allowing for the addition of subsequent lawful increases on the base date rent was not changed. (See Administrative Code § 26-516 [former [a]], as added by L 1985, ch 907, § 1.) Accordingly, as more fully discussed below, the appellate case law interpreting when such increases should be calculated — and when they should not be — was relevant then and remains applicable now.
On April 2, 2020, the Court of Appeals issued its decision in Regina Metropolitan which analyzed the constitutionality of the retroactive application of Part F to pending overcharge claims and found such retroactive application to violate "fundamental notions of substantial justice embodied in the Due Process Clause." ( Matter of Regina Metro. Co. LLC v. New York State Div. of Hous. & Community Renewal , — NY3d —, 2020 NY Slip Op 02127, *2 [2020].) Regina Metropolitan resurrected the strict application of the four-year statute of limitations and base date as defined by prior law, except in instances when a landlord's fraudulent scheme to deregulate the apartment is demonstrated. As clarified by the Regina Court, where the tenant produces evidence of a fraudulent scheme to deregulate an apartment, the rental history preceding the four-year base date may be reviewed only for the limited purpose of ascertaining whether fraud has occurred, and not to inform the calculation of the overcharge award. ( Regina , 2020 NY Slip Op 02127, *5 citing Matter of Grimm v. New York State Div. of Hous. & Community Renewal , 15 NY3d 358 [2010].) In cases where fraud is demonstrated and a reliable base date rent cannot be established, the Regina Court revived the rule created by prior precedent that the base date rent upon which an overcharge is calculated should be determined by applying the default formula espoused in Thornton v. Baron (5 NY3d 175 [2005] ) and later incorporated into the Rent Stabilization Code (see Rent Stabilization Code § 2522.6 [b] [2] - [3] ). (See Regina , 2020 NY Slip Op 02127, n 11.) Regina also recognized the continued viability of freezing the rent at the base date rent in certain circumstances. (Id. , n 9.)
In its motion to renew, Petitioner argues that Regina Metropolitan constrains review of the rental history of the premises to a period when the subject premises were registered as "exempt" and, as such, no overcharge determination can be made. (Affirmation of Petitioner's counsel at 21.) Essentially, Petitioner argues that Regina changed everything about the amount of the overcharge award. Respondent's opposition papers ask the court to adhere to its original decisions, and, as such, calculate the overcharge award by freezing the rent at the $646.77 registered rent which the parties formerly agreed was the "most recent reliable annual registration." Essentially, Respondent argues that Regina changed nothing about the amount of the overcharge award.
However, the parties' contingency positions are identical. In its reply, Petitioner reiterates the arguments made in its motion in chief, but adds that, in the event that a fraudulent scheme to remove the premises from rent regulation is found, then the overcharge award should be calculated by applying the default formula to establish the base date rent, and "frozen at [that amount] until such time that proper registrations are filed with the DHCR." (Reply affirmation of Petitioner's counsel at 36.) Likewise, Respondent posits that if the court were to elect not to freeze the rent at $646.77, then the rent should be frozen instead at the amount of the base date rent set under the default formula. (Affirmation of Respondent's counsel at n 6.) The parties both agree that application of the default formula would result in a base date rent of $1,118.14. (Reply affirmation of Petitioner's counsel at 38; affirmation of Respondent's counsel at n 6.) Both parties also agree that if fraud is found, an award of treble damages is appropriate. (Id. )
DISCUSSION
The June 17, 2019 Decision and Order
Nothing in the Regina decision disturbs this court's June 17, 2019 decision to dismiss the petition based on Petitioner's admissions that it misrepresented the regulatory status of the premises and demanded a rent in excess of what it could lawfully charge. The court adheres to its decision to grant summary judgment dismissing the petition and denies that portion of Petitioner's motion seeking to renew its June 17, 2019 decision and order.
The August 13, 2019 Decision and Order
Petitioner's arguments with respect to the court's August 13, 2019 decision are based on application of the newly revived four-year statute of limitations and look-back period in effect at the time Respondent interposed her overcharge claim. Petitioner has now reversed its position for a fourth time during this protracted proceeding positing again that the apartment is lawfully deregulated. In its motion in chief, however, Petitioner studiously disregards that Regina also revived application of the default formula to determine a base date rent where evidence of a fraudulent scheme to deregulate an apartment has been presented. As espoused in Regina , in relevant part:
During the prolonged history of this proceeding, Petitioner first claimed in the petition that the apartment was deregulated, then moved to amend the pleadings to reflect that the apartment is regulated, then withdrew that motion, and then admitted that the apartment was subject to rent stabilization and argued that the legal regulated rent is $1,347.80.
"The rule that emerges from our precedent is that, under the prior law, review of rental history outside the four-year lookback period was permitted only in the limited category of cases where the tenant produced evidence of a fraudulent scheme to deregulate and, even then, solely to ascertain whether fraud occurred — not to furnish evidence for calculation of the base date rent or permit recovery for years of overcharges barred by the statute of limitations. In fraud cases, this Court sanctioned use of the default formula to set the base date rent. Otherwise, for overcharge calculation purposes, the base date rent was the rent actually charged on the base date (four years prior to initiation of the claim) and overcharges were to be calculated by adding the rent increases legally available to the owner under the RSL during the four-year recovery period. Tenants were therefore entitled to damages reflecting only the increases collected during that period that exceeded legal limits." (Id. , *5.)
Except for a conclusory statement that the overcharge was not willful (see Halton aff at 5), Petitioner conspicuously offered no evidence in opposition to Respondent's claim in support of her original summary judgment motion that the overcharge was a result of willful and fraudulent scheme to deregulate the apartment. Section 26-516 (a) of the RSL creates a presumption of willfulness that a landlord must rebut by a preponderance of the evidence, a standard most decidedly not met by Petitioner here.
Likewise, Petitioner does not now on its motion for leave to renew proffer any opposition to Respondent's allegations of a fraud except to state through its attorney, without any supporting affidavit, that "Respondent's answer, and moving papers, did not present any showing of fraud so as to permit this Court to look beyond the strict four-year statute of limitations" (affirmation of Petitioner's counsel at 30), and "there is no other basis [outside of the significant increase in rent in 2007] to conclude that a showing of fraud was made consistent with the requirements of Regina ...." (Reply affirmation of Petitioner's counsel at 26.)
An attorney's affirmation is of no probative value to defend a summary judgment motion unless the attorney has first-hand knowledge of the facts. (Zuckerman v. City of New York, 49 NY2d 557, 562 [1980] ; Marinelli v. Shifrin , 260 AD2d 227 [1st Dept 1999].)
The court previously found that the overcharge was willful, but, under the pre-Regina interpretation of the HSTPA, did not need to specifically parse or rule on the evidence of fraud in calculating an overcharge award. The court now finds that the overcharge in this case was not only willful, but was also the result of a fraudulent scheme to deregulate the apartment.
Despite the conclusory statements of Petitioner's counsel to the contrary, ample evidence of fraud and willfulness was produced with Respondent's original motion for summary judgment which Petitioner, notably, did not meaningfully oppose. (Affirmation in support of Respondent's cross-motion, Feb. 1, 2019, at 21 -28, exhibits J - Q.) For example, there are numerous inconsistencies between registered rents and the leases produced by Petitioner, there is evidence of apartment swapping, missing leases, an increase taken during a vacancy without any documented tenancy, missing deregulation riders, and riders annexed to the first deregulated lease in 2010 as well as to Respondent's 2012 lease which purport to waive the tenants' rights under the Rent Stabilization Law and threaten the tenants with severe monetary damages if the negotiations for the lease and the lease terms are disclosed. (Affirmation in support of Respondent's cross motion, Feb. 1, 2019, exhibits M, Q.) This fraudulent scheme evident from Respondent's submissions "tainted the reliability of the rent on the base date" and necessitates application of the default formula to set the base date rent. ( Regina Metropolitan , 2020 NY Slip Op 02127, *5, quoting Grimm , 15 NY3d 358, 366-367.) Accordingly, the base date rent should be calculated in the manner prescribed in Regina .
Petitioner previously stipulated to the authenticity of all provided documents on the record. Moreover, Petitioner's argument relies on the same documents upon which Respondent relies, documents that were produced by Petitioner pursuant to a discovery order. (See N.N. Intern. (USA) Corp. v. Gladden Properties, LLC , 52 Misc 3d 1206[A], 2016 NY Slip Op 51056[U] [Sup Ct, NY County 2016] [holding that a court may consider evidence upon which an opposing party relies in support of its own case].)
However, the court does not accept Respondent's position that the rent should be frozen at what the parties formerly agreed was the last most reliable registered rent of $646.77 in 2006. As the relevant appellate authority provides, RSL 26-517 (e) may only be applied to freeze the rent as of the base date and, after Regina , the base date rent is no longer defined as that reflected in the most "most recent reliable annual registration." While the 2006 registration is properly considered for the limited purpose of determining the fraud extant here, it falls outside the four-year look-back period and, cannot be utilized to determine the base date rent or calculate the overcharge award. The authority cited by Respondent for the proposition that the rent should be frozen at the 2006 registration amount does not support the imposition of a rent freeze based on a rent registered years prior to the base date.
For instance, in 215 W. 88th St. Holdings LLC , which is the most recent case to which Respondent cites in support of this method of calculation, the Court states very clearly that "an owner who filed an improper rent registration is barred from collecting rent in excess of the base date rent ." (143 AD3d at 653 [emphasis added].) The Court upheld DHCR's determination that the presence of fraud "required that the base date rent, for purposes of calculating the rent overcharge , be arrived at using the default method," but held that DHCR was without the equitable discretion to afford the owner the benefit of percentage increases it would have received at each renewal. (Id. at 652-653.) Instead it held that the statute requires imposition of a rent freeze, which it defined as "calculating the overcharge based on the default method base rent, without adjustments, throughout the relevant period." (Id. at 653.)
In fact, the method of calculation required by 215 W. 88th St. Holdings in instances of fraud is the exact type of rent freezing that is sanctioned by Regina in those same instances. (See Regina , 2020 NY Slip Op 02127, n 9.) According to Regina , freezing the rent charged on the base date is not appropriate where the failure of a landlord to register a proper rent is a result of a landlord's misunderstanding of the law based on erroneous DHCR guidance and the landlord subsequently registers the rent. (Id. ) However, when the base date rent is the result of a fraudulent scheme to deregulate an apartment, as is the case here, freezing the rent on the base date is appropriate. (Id. ; see also West v. BCRE 90 W. St., LLC , 2020 NY Slip Op 20111 [Sup Ct, NY County 2020] [denying the tenant's request for an interim rent freeze because fraud had not been demonstrated].)
None of the other cases cited by Respondent calculate overcharge damages by freezing a rent prior to the base date. In Bradbury v. 342 W. 30th St. Corp. , the Appellate Division overturned the trial court's calculation of overcharge damages that included the addition of subsequent vacancy, longevity and apartment improvement increases and instead froze the rent at the amount registered two years prior to the imposition of the overcharge claim when the tenancy began. (84 AD3d 681 [1st Dept 2011].) In Jazilek v. Abart Holding LLC , the same court upheld an overcharge calculation on a claim filed in 2005 which froze the rent at the amount the parties agreed the landlord would have been allowed to charge when the tenancy began in 2002. (72 AD3d 529 [1st Dept 2010].) In Altschuler v. Jobman 478/480, LLC , the lower court froze the rent at the amount of the base date rent set by the default formula, a calculation which was upheld by the Appellate Division. (135 AD3d 439 [2016], briefs for plaintiff-respondent, available at 2015 WL 12038065, *6.) The appeal in Matter of Hargrove v. New York State Div. of Hous. & Community Renewal involved the agency's denial of a rent freeze for the four-year period of 1991-1994. (244 AD2d 241 [1st Dept 1997].)
Thus, as stated above, to calculate the overcharge award where evidence of fraud has been produced, the proper methodology is to employ the default formula to determine the base date rent, and freeze the rent at that amount until the Petitioner properly registers this rent. As the Petitioner has not filed rent registrations since the relevant base date, and because Petitioner's fraudulent scheme to deregulate the apartment has been established by the record, Petitioner is precluded from collecting rent increases until a proper registration is filed.
MODIFICATION OF THE OVERCHARGE AWARD
Regina , citing to Grimm and Thornton , describes the default formula base date rent as "the lowest rent charged for a rent-stabilized apartment with the same number of rooms in the same building on the relevant base date." ( Regina Metropolitan , 2020 NY Slip Op 02127, *5, quoting Thornton , 5 NY3d at 179-181 and n 1.) The language from Thornton is codified in RSC § 2522.6 (b) (3) (i) which states that the rent is to be set at "the lowest rent registered ... for a comparable apartment in the building in effect on the date the complaining tenant first occupied the apartment." The codified default formula adds three additional methods for calculating the base date rent, arguably inconsistent with Thornton and Grimm , and calls for the rent to be set at the lowest of these amounts.
These alternative amounts are: "[T]he complaining tenant's initial rent reduced by the percentage adjustment authorized by section 2522.8 of this Title; or the last registered rent paid by the prior tenant (if within the four year period of review); or if the documentation set forth in subparagraphs (i) through (iii) of this paragraph is not available or is inappropriate, an amount based on data compiled by the DHCR, using sampling methods determined by the DHCR, for regulated housing accommodations. (Rent Stabilization Code § 2522.6 [b] [3] [a] [i]-[iii] [internal numeration omitted].) The sampling method is not appropriate here where the documentation necessary to set the rent at the lowest registered rent for a comparable apartment on the date Respondent took occupancy is available. (Rent Stabilization Code § 2522.6 [b] [3] [a] [iv].)
In this case, Respondent demonstrates that the lowest amount charged on the base date, defined here as the date she first occupied apartment ( Rent Stabilization Code § 2522.6 [b] [3] [i] ), is $1,118.14 This is the rent which Petitioner admits was registered for apartment 4A, an apartment in the same unit line as Respondent's, in November 2014. The amount appears on the building-wide rent roll that was provided and authenticated by Petitioner. Petitioner, who itself relies on the building-wide rent roll in its reply papers, has never challenged the comparability of apartment 4A and apartment 7A.
Thus, the rent that would have accrued between November 2014 (when Respondent first occupied the subject premises), and September 2016 (when Respondent interposed her overcharge claim), totals $25,717.22 (23 months at $1,118.14 per month = $25,717.22). This court previously found that Respondent paid $45,100 over this same time period, an amount not challenged by Petitioner and which Petitioner reiterated in its moving papers. (Reply affirmation of Petitioner's counsel at 38.) These figures result in an actual overcharge of $19,382.78 ($45,100 - $25,717.22 = $19,382.78). Trebling this amount because the overcharge is willful, results in a total award to Respondent of $58,148.34.
CONCLUSION
Accordingly, it is hereby ORDERED that
Petitioner's motion to renew the June 17, 2019 decision and order of this court is DENIED; and it is further ORDERED that
Petitioner's motion to renew the August 13, 2019 decision and order of this court is GRANTED; and, upon renewal, it is further ORDERED that
The August 13, 2019 order and judgment are modified to reflect an overcharge award of $58,148.34. The clerk is directed to modify the judgment to reflect the sum of $58,148.34.
Copies of this decision and order will be emailed to the parties and sent to them by regular mail.
This constitutes the decision and order of the court.