In the Matter of Paul Murphy, Respondent,v.New York State Division of Housing and Community Renewal, Appellant, SouthBridge Towers, Inc., Respondent.BriefN.Y.Sep 4, 2013COURT OF APPEALS STATE OF NEW YORK In the Matter of the Application of PAUL MURPHY, Petitioner-Respondent, For a Judgment Pursuant to Article 78 of the Civil Practice Law & Rules -against- NEW YORK STATE DIVISION OF HOUSING AND COMMUNITY RENEWAL, Respondent-Appellant, -and- SOUTHBRIDGE TOWERS, INC., Responden t . MEMORANDUM OF THE CITY OF NEW YORK AS AMICUS CURIAE MICHAEL A. CARDOZO, Corporation Counsel of the City of New York, Attorney for Amicus Curiae the City of New York, 100 Church Street, New York, New York 10007. (212) 788-0791 or 1055 FRANCIS F. CAPUTO, KAREN M. GRIFFIN, of Counsel. April 3, 2013 TABLE OF CONTENTS TABLE OF AUTHORITIES ii PRELIMINARY STATEMENT 1 INTEREST OF THE AMICUS CURIAE 2 STATUTORY BACKGROUND 3 FACTS 6 DECISIONS BELOW 7 ARGUMENT 9 THE APPELLATE DIVISION EXCEEDED THE BOUNDS OF PROPER JUDICIAL REVIEW WHEN IT IGNORED A SPECIFIC, REASONABLE REGULATORY REQUIREMENT FOR SUCCESSION ELIGIBILITY 9 A. The Income Affidavit Requirement is a Reasonable Condition Precedent to Succession Eligibility 9 B. Even if There Is Some Basis For An "Excuse" Exception, The Court Abused its Discretion in Applying Such an Exception Here 14 CONCLUSION 17 i TABLE OF AUTHORITIES CASES Kuppersmith v. Dowling, 93 N.Y.2d 90 (1999) 9 Matter of Miney v. Donovan, 68 A.D.3d 876 (2d Dep't 2009), Iv. denied, 15 N.Y.3d 712 (2010) 12 Matter of Schorr v. New York City Dep't of Hous. Preserv. & Dev. , 10 N.Y.3d 776 (2008) 14 STATUTES & REGULATIONS 41 Private Housing Finance Law (McKinney's 2002) § 2 (15) 3 § 11 3, 4 § II-a 4 § 22 4 § 23 4 § 31 4,5 § 32(3) 4 New York City Charter § 1802(6) 3 9 NYCRR (pre-2009 reorganization) § 1727-1 5 § 1727-1.3 5 § 1727-2 10 § 1727-2.1 4, 9 § 1727-2.4 4, 9 § 1727-2.5 4, 9 § 1727-2.8 , 10 § 1727-3.6 4 § 1727-8.2 3, 5, 8, 15 28 Rules of the City of New York § 3-02 3, 4, 5, 10, 12, 15 § 3-03 4, 5, 9, 10 ii PRELIMINARY STATEMENT The City of New York ("City") respectfully appears as amicus curiae in support of respondent-appellant New York State Division of Housing and Community Renewal ("DHCR"). Amicus urges this Court to reverse the decision of the Appellate Division, First Department, dated January 12, 2012. In this decision, the First Department erroneously found DHCR's enforcement of an explicit regulatory requirement for succession to government subsidized Mitchell-Lama housing to be arbitrary and capricious. Compounding this error, the court then wrongly fashioned its own test for succession; a test which conflicts not only with the specific language of the governing regulation but with the overall purpose of the Mitchell-Lama program. The Appellate Division further erred by fashioning this new test without ever considering the important and salutary purposes served by the specific requirement petitioner admits he did not meet, a failure the court improperly decided to excuse. In re-writing the eligibility requirements for succession to Mitchell-Lama housing, the Appellate Division exceeded the boundaries of judicial review and usurped the authori ty of the supervising agency. The decision at issue impedes the orderly administration of Mitchell-Lama housing, undermines the incentives created by the supervising agencies to encourage compliance with 1 the minimal Mitchell-Lama requirements, and conflicts with long-standing precedent, which has consistently upheld the regulatory requirement that an applicant be listed on the requisite income affidavits in order to be eligible for succession. DHCR developed and applied its own succession regulation consistent both with the text and the overall purpose of the Mitchell-Lama law. The Mitchell-Lama law was enacted to address the severe shortage in housing for low and moderate income families, a shortage which continues to exist to this day - - particularly in New York City. The succession regulations are a narrow, agency-created exception to the general rule that when the tenant of record vacates an apartment, the apartment be made available to the next eligible applicant on the waiting list. Applicants who fail to meet the specific regulatory requirements are ineligible for succession. There is no dispute that Paul Murphy did not meet the requirements for succession eligibility. As such, in finding DHCR's determination arbitrary and capricious, the Appellate Division improperly awarded succession tenancy to an ineligible applicant and denied to the next eligible individual or family on the waiting list what was rightfully theirs. INTEREST OF THE AMICUS CURIAE The City of New York Department of Housing Preservation and Development ("HPD" ) has a strong interest in 2 -----.. - -~~.---~ this case because it is the supervising agency for City-aided Mitchell-Lama developments. N.Y. Priv. Hous. Fin. Law § 2(15); New York City Charter § 1802(6) (d). There are 97 City- sponsored, low- and moderate-income rental and limited-equity cooperative developments in New York City, with more than 44,600 units. HPD's succession regulations are closely aligned with DHCR's succession regulations. HPD, like DHCR, requires, as a condition precedent to succession eligibility, that the applicant's name be listed on the income affidavits required to be filed in the two years immediately prior to the tenant of record permanently vacating the apartment. 9 NYCRR §§ 1727- 8 . 2 (a) (5), 1727 - 8 . 3 (a) ; 1 28 RCNY § 3 - 02 (p) (3) . Because the decision below awarded succession in contravention of DHCR's regulations, HPD's interests are also affected by this decision. STATUTORY BACKGROUND The Mitchell-Lama law was enacted in 1955 to address the "seriously inadequate" shortage of "safe and sanitary" housing for families of low and moderate income in New York State. 41 N.Y. Priv. Hous. Fin. Law § 11 (McKinney's 2002). All citations to the State regulations are to the regulations in effect in 2004, when petitioner submitted his application for succession (A.R. 354). A copy of these regulations is attached to the State's opening brief. 3 ---------- - ------- Realizing that the necessary housing could not "readily be enterprise," unaidedordinaryprovided by the the law provides operation incentives to of private encourage development of moderate income housing. Id. Specifically, housing companies are provided with low-interest mortgage funding for construction and real estate tax exemptions in exchange for providing housing to low income families, which is regulated by law as to rents, profits, dividends, etc. 41 N.Y. Priv. Hous. Fin. Law §§ 11, 11-a, 22-23. Along with DHCR, HPD, as a supervising agency, has broad authority to promulgate regulations to implement the law. N.Y. Priv. Hous. Fin. Law § 32(3). Among other requirements, HPD's regulations, like DHCR's regulations, require that income affidavits be filed every year. 9 NYCRR §§ 1727-2.1, 1727-2.4, 1727 - 2 . 5 (a); 28 RCNY § 3 - 03 (c) (2) . HPD's regulations mandate that an affidavit "be executed by all occupants residing in the apartment" and list the "income realized by each occupant during the previous calendar year." 28 RCNY §3-03(c) (2). In addition, tenants are required to report any change to the occupants of the apartment to the housing company within 90 days. 28 RCNY §§ 3-03(f); 3-02(0) (3), 3-19(e) (3). See NYCRR § 1727-3.6. The primary way for to become a lawful tenant of Mitchell-Lama housing is to apply to the housing company for admission to a particular development. 41 N.Y. Priv. Hous. Fin. 4 L . § 31 ; 9 NYCRR § 172 7 -1. 1 ; 28 RCNY § 3 - 02 (h) , (i) , (j) , (k) , (1) . Unfortunately, due to the severe shortage of low and moderate income housing in the City, demand for Mitchell-Lama apartments far exceeds the available supply. Housing companies are thus required to maintain waiting lists2 to ensure equitable access to the apartments as they become available based on the date the application is filed. RCNY § 3-02 (h) (8) . 9 NYCRR § 1727 -1 . 1 (a), 1727 -1 .3 (c) (3); 28 The housing company, moreover, is required to verify that each applicant meets the eligibility requirements for Mitchell-Lama housing. See, e.g., 9 NYCRR §§ 1727-1.1, 1727 -1. 3; 28 RCNY § § 3 - 02 , 3 - 03 . To maintain public confidence in the Mitchell-Lama program, HPD must ensure that these lists are administered fairly and that only eligible individuals receive or remain in Mitchell-Lama housing. Id. Like DHCR's regulations, HPD's regulations also permit, under limited circumstances, a Mitchell-Lama apartment to go to a relative of the former tenant of record rather than to the next eligible person on the waiting list. 9 NYCRR § § 1727 - 8 . 2 (a) (5), 1727 - 8 . 3 (a); 28 RCNY § 3 - 02 (p) . Pursuant to the 2 When the number of applicants on the waiting list exceeds the number of apartments that may reasonably become available in the foreseeable future, the housing company may close the list to new applicants for a period of time. 28 RCNY § 3-02(h) (8) (ii). Upon reopening the list, a lottery is held to select new applicants to be included on the list. Id. 5 terms of the regulation, in order to be eligible for succession the applicant must meet three specific requirements: (1 ) The applicant must be a member of the vacating tenant(s) of record's family; (2) The applicant must have lived in the apartment as his/her primary residence with the tenant of record for at least the two years immediately prior to the tenant of record vacating the apartment; 3 and (3) the applicant's name must have been listed on the income affidavits (or any notices of change required) to be filed by the tenant for at least the two consecutive annual reporting periods immediately prior to the tenant permanently vacating the apartment. See Id. An applicant who fails to meet all three requirements is ineligible for succession and the apartment is given to the next individual/family on the waiting list. FACTS The facts of this case are set forth in DHCR's brief and, to avoid unnecessary repetition, will not be reiterated here. 3 Where the person seeking succession is a senior citizen or disabled person, the two-year period is reduced to one-year, and the applicant must have appeared on the income affidavit for at least the reporting period immediately prior to the tenant vacating the apartment. 9 NYCRR § 1727-8.2(a) (1) (i); 28 RCNY 3- 02(p)(3). 6 DECISIONS BELOW In a decision dated October 8, 2010, the Supreme Court, New York County (Schlesinger, S.C.J.), held that DHCR "arbitrarily applied the applicable regulation to give the annual affidavit the significance of a trump card, invalidating all other evidence in the case" (R12). The court held that this result "is not supported by the wording of the regulations or the policy behind it" (R12-13). Rather, the court stated that the primary purpose of the annual affidavit is to calculate whether a surcharge is due (R13). Since Paul Murphy was a student at the time and Mrs. Murphy "knowingly and willingly paid the maximum rent, which included the surcharge for not filing the 1999 affidavit,"4 the court excused the filing of the mandatory affidavit (R13). "Considering the totality of the circumstances, " the court held that "DHCR' s decision to deny Paul Murphy succession rights ... based solely on his mother's 4 Mrs. Murphy admits that she had been paying the surcharge since 1996 based on her income (see A.R. 78-79). In subsequent years she was again assessed the maximum surcharge due to her failure to file an income affidavit. Presumably, in these years, she would nevertheless have been assessed the maximum penalty based on her income, as she had been in prior years. Thus she did not "knowingly and willingly" pay the penalty for failing to file the mandatory income affidavits. She would have paid the surcharge in either event based on her income. 7 failure to file a single income affidavit ... was arbitrary and capricious and must be annulled" (R15). DHCR appealed this decision to the Appellate Division, First Department, which affirmed the decision of the Supreme Court. The First Department acknowledged that the regulation "mandates that tenants of record file annual income affidavits, listing as an occupant the family member seeking succession rights" (R184). However, it then concluded that the applicable inquiry is primary residency during the relevant time period (R184). As such, the First Department held that notwithstanding the specific regulatory requirement, the "failure to file the requisite annual income affidavit is not fatal to succession rights, provided that the party seeking succession proffers an excuse for such failure ... and demonstrates residency with other documentary proof listed within 22 NYCRR 1727-8.2(a) (2) (b)" (R184) . Finding that petitioner's mother offered an excuse that was supported by the record and further that petitioner submitted sufficient documents "evincing that the subject apartment was in fact his primary residence for the relevant time period," the court held that denying his application for succession was arbitrary and capricious (R184). 8 ARGUMENT THE APPELLATE DIVISION EXCEEDED THE BOUNDS OF PROPER JUDICIAL REVIEW WHEN IT IGNORED A SPECIFIC, REASONABLE REGULATORY REQUIREMENT FOR SUCCESSION ELIGIBILITY. By creating a judicial exception to DHCR's income affidavit requirement, the Appellate Division improperly undermined an established regulatory requirement for succession eligibility to Mitchell-Lama housing. It did so, moreover, without addressing or even considering the legitimate purposes the rule serves. Lower courts are prohibited from nullifying valid agency regulations absent a finding that the regulation "is so lacking in reason for its promulgation that it is essentially arbitrary." Kuppersmith v. Dowling, 93 N.Y.2d 90, 96 (1999). It is important that this Court provide needed guidance to lower courts that they cannot override unambiguous regulations which advance legitimate purposes, simply because the court prefers a different policy or outcome in a particular case. A. The Income Affidavit Requirement is a Reasonable Condition Precedent to Succession Eligibility. DHCR's and HPD's income affidavit requirement for succession eligibility is improperly undermined by the Appellate Division's decision in' Murphy. Income affidavits serve a number of important functions many of which are relevant to succession. Thus, the supervising agencies' decision to condition succession 9 eligibility on compliance with this regulatory requirement is both reasonable and rational. All tenants of Mitchell-Lama housing are required to file annual income affidavits. See 9 NYCRR §§ 1727-2.1, 1727- 2 .4 , 1727 - 2 . 5 (a); 28 RCNY § 3 - 03 (c) (2) . These affidavits provide notice of the name, age, income, and number of occupants of the apartment (A.R. 72-86). Notably, every occupant of the apartment must be listed on the affidavit, "regardless of earning status" (A.R. 72-86). This information is used to keep a record of the occupants of each apartment. It is also used to determine whether occupancy standards are being violated and the tenant should be transferred to a smaller apartment or whether a tenant is eligible to be placed on an internal waiting list for a larger apartment. 29 NYCRR § 1727-2.8; 28 RCNY § 3- 02 (m) (iii) (setting forth the minimum number of occupants based on the number of bedrooms in the apartment). The information is further required to determine whether the tenant remains eligible for Mitchell-Lama housing and to calculate the surcharge in the event that the aggregate annual income of all occupants of the dwelling unit exceeds the maximum income limitation. 9 NYCRR § 1727 - 2; 28 RCNY § 3 - 03 . Additionally, the income affidavits demonstrate continuity. They are evidence not just that the applicant for succession resided in the 10 apartment during the applicable period, but also that the applicant resided in the apartment with the tenant of record. Conditioning the privilege of succession on compliance with the income affidavit requirement was squarely within the supervising agencies' broad authority. The condition creates a strong incentive for tenants to timely and accurately file the mandatory income affidavits. It also reduces the potential for fraud and enables housing companies and supervising agencies to more efficiently process succession applications. In holding that the failure to meet this requirement can be overlooked where the requisite residency is otherwise established, the Appellate Division not only eliminated this requirement but undercut the very purposes for which these regulations were promulgated. It is not for courts to second guess an agency's decision to create an incentive to encourage regulatory compliance, its choice among various incentives, or to excuse noncompliance. Where, as here, the agencies are acting within their delegated authority and otherwise in conformity with the law, it is for the supervising agencies, not the courts, to determine the best approach to implement the statutory scheme. Indeed, denying succession to individuals who lack any legal right to the apartment is a far less severe consequence then 11 seeking to evict lawful tenants for their failure to comply with the regulatory requirements. The Appellate Division's ruling is especially troubling to the City because HPD amended its succession regulations specifically to make the filing of the requisite income affidavits a condition precedent to succession eligibility. Prior to February 1, 2003, HPD's rules provided that the failure of a family member to be included on the income affidavits during the relevant period created a rebuttable presumption that the applicant did not occupy the apartment as his/her primary residence during that period. This presumption could be rebutted with evidence establishing that it was the applicant's primary residence during the applicable period. To address both the administrative burden created by the rebuttable presumption and the recurring fraud concerning succession to these scarce low-rent government subsidized apartments, effective February 1, 2003, HPD amended its regulations expressly to remove this rebuttable presumption. Under HPD's current regulations, inclusion on the income affidavit is now an independent condition precedent to succession eligibility. 28 RCNY § 3-02(p). See Matter of Miney v. Donovan, 68 A.D.3d 876, 877-78 (2d Dep't 2009), lv. denied, 15 N.Y.3d 712 (2010). Failure to meet this or either of the two other requirements renders an 12 applicant ineligible for succession under the regulations and the apartment rightfully belongs to the next eligible applicant on the waiting list. The decision in Murphy improperly, but effectively, reinstates the rebuttable presumption. The First Department's judicially created exception both disregards and undermines the independent and salutary purposes served by the income affidavit requirement and the link between these affidavits and succession eligibility. Under the First Department's decision, the failure to meet the income affidavit requirement is no longer a condition precedent to succession where the individual proffers an excuse for the failure and meets the other two succession requirements (R193 -184) . Consequently, this regulatory incentive to timely file accurate income affidavits has been undermined and the protections designed to quell fraud in this area have been diluted. Added to this burden will be the task of determining the legitimacy of the array of excuses that will inevitably be provided by individuals who fail to meet the requirements for succession. The First Department's ruling merely requires the party seeking succession to "proffer an excuse" for the failure to file the requisite income affidavits (R184). The Court's failure to provide any guidance as to what constitutes an acceptable excuse will almost certainly result in inconsistent determinations. 13 As discussed more fully in sUbheading B, particularly concerning is that the Appellate Division did not appear even to consider the validity or merit of the excuse Murphy provided (R184). Where, as here, the income affidavit requirement is a reasonable condition which advances legitimate purposes encouraging the timely and accurate filing of the required affidavits,reducing fraud, and easing the administrative burden of processing succession applications the Appellate Division erred in carving out an exception which undermines these purposes. B. Even if There Is Some Basis For An "Excuse" Exception, The Court Abused its Discretion in Applying Such an Exception Here. Because successi9n denies the apartment to an eligible low-income individual or family, many of whom have spent years on a waiting list, succession regulations are strictly enforced by the supervising agencies. See, e.g., Matter of Schorr v. New York City Dep't of Hous. Preserv. & Dev., 10 N.Y.3d 776, 778-79 (2008) . As this Court has recognized, "[t]he Mitchell-Lama Law prescribes strict guidelines for tenant eligibility and succession" to which housing companies and courts must adhere. Id. 5 Individuals on the extensive waiting lists are the ultimate 5 Petitioner's attempt to distinguish Schorr on the ground that he meets two out of the three regulatory requirements while in Continued . .. 14 beneficiaries of a strict and fair enforcement of the succession eligibility requirements. Mitchell-Lama apartments are not legacies to be passed down in perpetuity from generation to generation. The governing statutes do not create, or even contemplate, succession to Mitchell-Lama apartments. Rather, succession is an agency- created exception to the general admission process and eligibility is defined solely by regulation. 8.2(a) (5) i 1727-8.3(a) i 28 RCNY § 3-02(p). 9 NYCRR §§ 1727- The succession regulations were intended to be a narrow hardship exception to ensure that family members were not displaced upon the death or relocation of the tenant of record. Unfortunately, as is so often the case with well-intended exceptions, succession has been used by individuals not solely to prevent hardship, but rather to pass a government subsidized apartment from one generation to another, thereby preventing the apartments from being made available for their statutorily intended use. Thus, even if the courts could create an exception to DHCR's succession regulations - which themselves constitute an Schorr, the applicant met only one of the three requirements is without merit. The only relevant fact is that petitioner does not meet all of the requirements for succession (Respondent's Br. at 32 - 33) . 15 exception to the rules for admitting tenants - the Appellate Division had no basis to do so here. Murphy has not demonstrated that he would suffer any hardship based on his failure to meet the requirements for succession eligibility. To the contrary, the tenants of record, did not die or suddenly relocate out of state or even out of the City. Rather, they moved, a not uncommon occurrence in many children's lives, across the river to 2 Grace Court Alley in Brooklyn Heights, and "bequeathed" their government-subsidized apartment to their son upon his graduation from high school (A.R. 8, 393). This is not the type of hardship the succession regulations were promulgated to address. Certainly it is not the type of hardship that would warrant crafting a special jUdicial exception to excuse the petitioner's inability to meet the clear and unambiguous requirements for succession. Furthermore, as DHCR aptly demonstrates, the agency had a reasonable basis for rej ecting Murphy's proffered excuse for the failure to file the requisite affidavit. See DHCR Opening Br. at 27-30; DHCR Reply Br. at 14-17. Should the wholly unsupported post hoc rationalization offered by Ms. Murphy be deemed a sufficient basis to excuse the failure to file the mandatory income affidavit, this specific requirement for succession eligibility will be rendered virtually meaningless. 16 Dated: CONCLUSION FOR THE REASONS STATED ABOVE AS WELL AS THOSE SET FORTH IN DHCR' S BRIEF, THIS COURT SHOULD REVERSE THE DECISION BELOW AND DISMISS THE PETITION. New York, New York April 3, 2013 Respectfully submitted, MICHAEL A. CARDOZO Corporation Counsel of the City of New York Attorney for Amicus Curiae The City OfWlN,/ 'jl k. /1 /' IJ By: Counsel FRANCIS F. CAPUTO, KAREN M. GRIFFIN, Of Counsel.