Douglas L. Leight, et al., Plaintiffs, John H. Masten, Appellant,v.W7879 LLC, et al., Respondents.BriefN.Y.March 22, 20161 November 24, 2015 John P. Asiello, Chief Clerk New York State Court of Appeals 20 Eagle Street Albany, New York 12207-1095 Re: Leight, et al. v. W7879 LLC, et al. APL-2015-0020 Dear Mr. Asiello: This proposed Letter Brief is submitted on behalf of proposed amicus curiae, Metropolitan Council on Housing (“Met Council”), in support of the appeal by Plaintiff John H. Masten (“Appellant” or “Masten”) in the above-referenced action. The Court of Appeals has directed that this appeal proceed pursuant to Rule 500.11. In this action, the Appellate Division incorrectly dismissed Masten’s complaint and declared his apartment not to be rent stabilized. Met Council joins Appellant in requesting that the Order of the Appellate Division be reversed and that the complaint be reinstated. 2 This lawsuit concerns an Order of Deregulation of the New York State Division of Housing and Community Renewal (“DHCR”) which was issued against Masten at a time when the landlord was receiving J-51 tax benefits. The Order was issued prior to the decision of this Court in Roberts v. Tishman Speyer, 13 N.Y.3d 270 (2009), which held that luxury deregulation did not apply to any housing accommodation in a building where J-51 benefits were being received, regardless of whether the receipt of the J-51 benefits was the sole reason for the unit being stabilized and regardless of whether the unit was stabilized before the J- 51 benefits were received. Thus, the Order was issued based upon the DHCR’s incorrect interpretation of the law at the time. Masten continued in possession of the apartment following the Deregulation Order, executing leases with the landlord, during the time when the landlord was receiving J-51 tax benefits. Roberts did not explicitly discuss the effect of its holding upon apartments previously deregulated by Deregulation Orders even though J-51 tax benefits were in effect at the time and continuing after the Deregulation Order was issued. However, Appellant attorney does inform the Court that certain tenants named in Roberts were improperly deregulated pursuant to DHCR Deregulation Orders, the implication being that this Court in effect has previously ruled upon this issue. In any case, the issue of the effect of such Deregulation Orders is explicitly before the Court at this time. 3 At issue in the case before this Court is the regulatory status of Masten’s apartment. The relevant provision of the New York City Rent Stabilization Law, New York City Administrative Code §26-504(c), unequivocally states that dwelling units in a building or structure receiving J-51 tax benefits are covered by rent stabilization. Also, as was made clear by this Court in Roberts, a Deregulation Order based upon high rent/high income deregulation pursuant to NYC Admin. Code §§26-504.1 and 26-504.3 may not be issued regarding an apartment where J- 51 tax benefits are being received. I. COLLATERAL ESTOPPEL DOES NOT APPLY BECAUSE THE ISSUE OF J-51 TAX BENEFITS WAS NOT ADDRESSED AT THE DHCR In Gersten v. 56 7th Avenue LLC, 88 A.D.3d 189 (1st Dept. 2011), appeal withdrawn, 18 N.Y.3d 954 (2012), the Appellate Division held that the tenants were collaterally estopped from asserting their rent stabilized status because of DHCR Deregulation Orders issued in 1999, during a time when the landlord was receiving J-51 tax benefits. The issue of the landlord’s J-51 tax benefits was not raised by any party to the DHCR proceedings, nor did the DHCR consider the matter. Gersten incorrectly applied collateral estoppel to an administrative proceeding in which the DHCR provided the tenants with no opportunity to raise the issue of J-51 benefits. The tenants were simply provided with a form prepared 4 by the DHCR in which they were directed to list the names of everyone in their household, to indicate whether or not they had filed New York State income tax returns, and to check a box as to whether the household income exceeded the threshold in each of the two relevant years. The DHCR neither raised nor considered the issue of J-51 benefits. Gersten was wrongly decided. Collateral estoppel did not apply because the issue of J-51 benefits was not squarely addressed and specifically decided by the DHCR. Ross v. Medical Liability Mutual Insurance Co., 75 N.Y.2d 825, 826 (1990); see also First Avenue Village Corp. v. Harrison, 17 Misc3d 20 (App. Term 1st Dept. 2007), holding that a tenant was not collaterally estopped from challenging certain terms of a lease rider which were not considered by the DHCR when it issued an order advising the tenant to renew the lease. II. THE APARTMENT IS RENT STABILIZED BECAUSE OF THE LANLDORD’S CONTINUING RECEIPT OF J-51 TAX BENEFITS AFTER THE DHCR ORDER WAS ISSUED Moreover, even if preclusive effect were afforded to an illegal DHCR Deregulation Order, the statutory stabilization coverage under §26-504(c) still applies because of the landlord’s continuing receipt of J-51 tax benefits. Rent stabilized status, even if lost by a Deregulation Order, is achieved a second time when a landlord continues to receive J-51 tax benefits. 5 The Appellate Division in the case now before this Court, while rejecting the landlord’s collateral estoppel argument, nevertheless found that Appellant was not rent stabilized: “Defendants argue that plaintiffs [Masten and Wiest] are collaterally estopped from asserting their claims under [Gersten]. We agree that plaintiffs had a full and fair opportunity to participate in the deregulation proceedings held more than a decade earlier before the New York State Division of Housing and Community Renewal (DHCR), which proceedings resulted in the issuance of deregulation orders exempting plaintiffs’ apartments from rent stabilization. However, plaintiffs’ claims here are not subject to collateral estoppel, since the issues in this litigation are not identical to those in the prior DHCR deregulation proceedings [Gersten] at 201. “Turning to the merits of plaintiffs’ claims, we find that they are not entitled to a declaratory judgment that their apartments are rent-stabilized, since they have failed to establish, as a matter of law, that their apartments become re-regulated upon plaintiffs’ execution of subsequent market rate leases. “We note that the orders of deregulation of DHCR remain in all force and effect.” The Appellate Division’s reasoning is circular. The Deregulation Orders would not “remain in full force and effect” unless collateral estoppel was applied. If the tenants are not precluded from asserting their stabilized status by collateral estoppel, the apartments would be stabilized based the landlord’s continuing receipt of J-51 benefits. 6 Also, the Appellate Division incorrectly found that Appellant had a “full and fair opportunity to participate in the deregulation proceedings.” Appellant did not have a full and fair opportunity to raise the issue of J-51 tax benefits. Even if this Court were to agree with Gersten, that case does not stand for the proposition that a tenant may never assert rent stabilized status after a DHCR Deregulation Order has been issued. Gersten was decided based upon a particular set of facts. Also, the tenants in Gersten, supra, 88 A.D.3d at 196, claimed that the DHCR Deregulation Orders issued against them many years ago were void ab initio because they were issued in violation of the Rent Stabilization Law. The issue was framed as such by the Appellate Division in its holding in Gersten, 88 A.D.3d at 207: “The outcome of this case hinges on whether Roberts renders the 1999 DHCR luxury decontrol order void ab initio. Preliminarily, we reject defendants' argument that Roberts should be given only prospective application. Nor do we find any merit to defendants' argument that we must give preclusive effect to the 1999 DHCR luxury decontrol order because the action was commenced well beyond the six-year statute of limitations applicable to claims arising from strictly contractual obligations. Nevertheless, we do find meritorious and dispositive defendants' argument that we must treat the 1999 DHCR luxury decontrol order as final under collateral estoppel principles.” The Gersten holding is thus limited to the narrower claim that a DHCR Deregulation Order may be void ab initio, and is further limited by its relatively 7 unique factual situation involving an agreement to a long-term lease for three combined apartments. Gersten does not apply to the situation where a tenant has been issued leases subsequent to the Deregulation Order, nor does it apply to the more usual scenario where a tenant of one apartment remains in that apartment after a DHCR Deregulation Order is issued. III. EVEN IF THIS COURT APPROVES GERSTEN, IT SHOULD NOT BE FOLLOWED IN THIS CASE Gersten recognized that its holding was limited to its particular facts when it rejected the landlord’s statute of limitations defense in that case, stating that “imposing limitations on determining rent regulatory status subverts the protection afforded by the rent-stabilization scheme.” Clearly, for a tenant to be deprived of rent regulatory status based upon a mechanical application of collateral estoppel, the Court must be absolutely sure that the tenant had a full and fair opportunity to litigate the issue. The holding in Gersten is factually distinguishable and should not be followed here. The Court in Gersten took pains to note that the tenants in that case were “not the typical tenants intended to be protected by rent regulation” because they occupied the entire 20th floor of a West Village apartment building, having combined three rent regulated apartments with the permission of the landlord to create a single residence that took up 3,259 square feet including four bedrooms, 8 five bathrooms, an office, an eat-in kitchen, separate dining room and a 20-foot-by- 34-foot living room.” Gersten, 88 A.D.3d at 192. The tenants in Gersten accepted deregulation in 1999 as part of an overall agreement whereby the parties formally recognized that the tenants’ three individual apartments were combined, and the tenants were given a four-year lease for the combined apartment, which was extended for an additional nine years. Gersten, 88 AD3d at 193. It was only as the second lease drew to a close that the Gerstens raised the issue of rent stabilization. Collateral estoppel does not apply to an Order unless is “actually litigated”; collateral estoppel does not apply if there has been a default, a confession of liability or a stipulation. Kaufman v Eli Lilly & Co., 65 N.Y.2d 449, 456 (1985). Moreover, Gersten has been overruled by the Court of Appeals in Matter of Dunn, 24 N.Y.3d 699, 704 (2015), to the extent that Dunn did not allow collateral estoppel effect to a prior proceeding that was made “on papers – without cross- examination or the opportunity to call witnesses.” Given the “cursory nature” of the prior proceeding in Dunn, collateral estoppel would not be applied. In comparison, the Appellate Division in Gersten, ruling four years prior to Dunn, held that it was irrelevant to a collateral estoppel analysis that DHCR never held a hearing on the luxury decontrol application. Gersten, 88 A.D.3d at 203. Thus, this portion of the ruling in Gersten is no longer good law and cannot be followed. 9 The Appellate Division in Gersten held that collateral estoppel applied to the tenants in that case because of a number of specific reasons that are inapplicable to this case. The Deregulation Order in Gersten was part of an agreement whereby the tenants gained long-term tenancy rights to a very large space. Accordingly, even if this Court agrees with the holding in Gersten under the particular facts of that case, the holding in Gersten should not be applied to Appellant or to the vast majority of other rent stabilized tenants who do not combine multiple apartments and do not obtain agreements for a long-term tenancy in exchange for their consent to, or agreement to default on, a landlord’s petition for a Deregulation Order. IV. A BROAD APPLICATON OF COLLATERAL ESTOPPEL WOULD BE INCONSISTENT WITH THIS COURT’S PRECEDENTS A broader interpretation of Gersten would be inconsistent with this Court’s decisions on the application of collateral estoppel and administrative finality. Collateral estoppel has been defined as “a narrower species of res judicata.” Ryan v. New York Telephone Co., 62 N.Y.2d 494, 500 (1984). If applied, collateral estoppel allows the determination of an issue of fact or law raised in a subsequent action by reference to a previous judgment on a different cause of action in which the same issue was necessarily raised and decided.” Ryan at 500, citing Gramatan Home Investors Corp. v Lopez, 46 N.Y.2d 481, 485. 10 However, collateral estoppel is a “flexible doctrine” and “a determination of whether a party had a full and fair opportunity to litigate in the prior proceeding requires a practical inquiry into the realities of the litigation.” Matter of Dunn, supra at 704, citing Kaufman v. Eli Lilly & Co., supra, 65 N.Y.2d at 455; Auqui v. Seven Thirty One Ltd. Partnership, 22 N.Y.3d 246, 255 (2013) Gilberg v. Barbieri, 53 N.Y.2d 285, 292 (1981). “The party seeking to invoke collateral estoppel has the burden to show the identity of issues, while the party trying to avoid application of the doctrine must establish the lack of a full and fair opportunity to litigate.” Dunn, supra at 704, citing Kaufman, supra at 456. As explained in detail by the Court in Gilberg v. Barbieri, supra, collateral estoppel is “based on general notions of fairness and there are few immutable rules.” As further explained by the Court in Gilberg, supra at 292: “In [Schwartz v. Public Administrator, 24 N.Y.2d 65, 71] and subsequent decisions it was emphasized that historically and necessarily collateral estoppel is a flexible doctrine which can never be rigidly or mechanically applied (Schwartz at 73; People v. Berkowitz, 50 N.Y.2d 333, 344; People v. Plevy, 52 N.Y.2d 58). The question as to whether a party has had a full and fair opportunity to contest a prior determination cannot be reduced to a formula. It cannot, for instance, be resolved by a finding that the party against whom the determination is asserted was accorded due process in the prior proceeding (Plevy at 65). The point of the inquiry, of course, is not to decide whether the prior determination should be vacated but to decide whether it should be given conclusive effect beyond the case in 11 which it was made (see, e.g. Restatement, Judgments 2d §88, Comment i).” Thus, Gilberg informs this Court that its role is not to determine whether the DHCR Order of Deregulation should be vacated, but whether it should be afforded conclusive effect in this proceeding. Kaufman also made clear that an issue is not “actually litigated” unless that issue has been actually raised and challenged by the party against whom collateral estoppel is sought to be invoked. Kaufman, 65 N.Y.2d at 456-457. Collateral estoppel is not applied simply because the party theoretically could have raised the issue in some fashion. In Kaufman, the Court declined to apply collateral estoppel effect as to a judgment against the defendant Eli Lilly and Company (“Lilly”) in a prior case that it had acted in concert with other drug manufacturers, because Lilly did not take exception to the trial judge’s charge to the jury on the concerted action theory in the prior lawsuit. Thus, Lilly, who could have challenged the charge on the first trial but did not, was not precluded from litigating the issue in the second lawsuit. Similarly, Appellant should not be precluded simply because he theoretically may have found a way to bring to the attention of the DHCR that the landlord was receiving J-51 tax benefits. The ruling of the Court in Kaufman, supra, is telling as to why collateral estoppel should not apply to Appellant’s case. In Gersten the tenants made an agreement to enter into one long-term lease agreement for what had been three 12 individual regulated apartments. The deregulation of those apartments was incidental to the tenants’ long-term residency plans in the building. In contrast, Appellant herein occupies the one apartment, and did not raise any defenses to deregulation in any manner. Accordingly, the Court should find that Appellant is not collaterally estopped from litigating the issue of rent regulatory status. V. HOUSING ACCOMMADTIONS THAT HAVE BEEN DEREGULATED BECOME RE-REGULATED WHEN THE LANDLORD RECEIVES J-51 TAX BENEFITS As a matter of law, rent stabilized status is applied to all housing accommodations in buildings that receive J-51 benefits, regardless of whether a Deregulation Order was issued to a particular apartment. In this case the operative provision of law is Rent Stabilization Law §26-504(c) which provides that rent stabilization is applicable to “dwelling units in a building or structure receiving the benefits of [J-51]….” This statute does not exempt previously deregulated apartments from it is provisions. In Spaeda v. Bakirtjy, 189 Misc.2d 222, 223 (App. Term 1st Dept. 2001), the Appellate Term held that rent stabilization was applicable to a tenant who initially was not subject to regulation by virtue of the landlord’s receipt of J-51 tax benefits beginning at a point in time after the tenant initially took occupancy. The Appellate Term relied upon RSL §26-504(c) in reaching this conclusion, and also cited to the legislative history of the amended version of §26-504(c) “reflecting the 13 Legislature’s intent to extend ‘continued rent regulation’ with vacancy decontrol limits, to all ‘presently occupied apartments’ after the J-51 tax benefit expires (Mem of Senator Daly, 1985 NY Legis Ann, at 130).” Spaeda, 189 Misc2d at 222. There is also no provision in the high-income deregulation statutes that a Deregulation Order is permanent to the apartment such that future receipt of J-51 benefits would preclude the application of rent stabilization to that apartment. NYC Admin. Code §§26-504.1, 26-504.3. NYC Admin. Code §26-504(c) would require that a tenant who was deregulated would become stabilized again when the owner began receiving J-51 benefits at the building. In other situations the Courts have recognized that an apartment previously deregulated must be placed back under regulation where the law so provides. For example, a housing accommodation exempt from rent control by reason of its hotel status is restored to rent control when that accommodation can no longer be regarded as a hotel; the landlord’s claim that the exemption was permanent was rejected by the Court. Matter of Bayview Hotel Inc. v. Temporary State Housing Rent Commission, 12 N.Y.2d 423, 427 (1963). An apartment previously vacancy decontrolled became subject once again to rent control when a rent controlled tenant moved into that apartment at the behest of, and for the convenience of, the landlord. Capone v. Weaver, 6 N.Y.2d 307, 310 (1959). And, a housing accommodation exempt from regulation because it is owned as a cooperative 14 reverts to regulation upon the foreclosure upon the cooperative’s underlying mortgage and the return of the building to rental housing. Federal Home Loan Mortgage Corp. v. New York State Division of Housing and Community Renewal, 87 N.Y.2d 325, 332-333 (1995). Thus, Appellant’s tenancy continued as rent stabilized because after his lease term expired, a new lease came into effect during a period when the landlord was receiving J-51 tax benefits. VI. THE APPELLATE DIVISION’S DECISION WAS CONTRARY TO THE AMELIORATIVE PURPOSE OF RENT STABILIZATION It also has been noted by the Courts many times that the Rent Stabilization Law serves an ameliorative purpose and the law must be broadly construed so as to achieve the purpose of protecting tenants. For example, the Court in Federal Home Loan, supra at 332, stated the following: “Our point of departure is the RSL (Administrative Code §§26-501, 26-520), which governs the regulation of rents for eligible housing units in New York City. The RSL was originally enacted in response to "a severe housing shortage following World War II" and has been "periodically extended" by the Legislature as it perceives a continuing need ( Rent Stabilization Assn. v Higgins, 83 NY2d 156, 164-165, cert denied 512 US 1213). ‘The central, underlying purpose of the [Rent Stabilization Law] is to ameliorate the dislocations and risk of widespread lack of suitable dwellings’ that accompany a housing crisis (Manocherian v Lenox Hill Hosp., 84 N.Y.2d 385, 395-396). Noting their remedial nature, this Court has repeatedly interpreted laws regulating rents 15 broadly to effectuate their intended purpose (see, e.g., Braschi v Stahl Assocs. Co., 74 N.Y.2d 201, 208; Matter of McMurray v New York State Div. of Hous. & Community Renewal, 72 N.Y.2d 1022, 1024).” CONCLUSION Applying the foregoing broad principles to this case, it is clear that the law, specifically NYC Admin. Code §26-504(c), must be construed to require that Appellant’s rent stabilized status continued when the landlord entered into a new lease with Respondent after the Deregulation Order, while the landlord was receiving J-51 benefits. Also, the Appellate Division incorrectly found that Appellant had a “full and fair opportunity” to raise the issue before the DHCR. Therefore, Appellant’s case should not have been dismissed. Accordingly, it is respectfully requested that the decision of the Appellate Division be in all respects reversed, and that the complaint be reinstated. Respectfully submitted, HIMMELSTEIN, McCONNELL, GRIBBEN, DONOGHUE & JOSEPH Attorneys for Amicus Curiae Metropolitan Council on Housing _______________________________ Ronald S. Languedoc, Esq. 15 Maiden Lane, 17th Floor New York, NY 10038 (212) 349-3000
